Sramana: I have followed Blue Nile for a long time. I have a friend who was an early investor there.
Mithun Sacheti: What I saw from Blue Nile stuck with me for a long time. Things happen in different industries that transform the entire industry. If you really look at our industry, you will see that jewelers have a limited value addition. I came to believe that if you could create the right tools online to educate people so they do not have to rely on blind trust, a business model similar to Blue Nile could be re-created in India.
At the stores we had limited inventory, but we tried to sell a lot of volume by educating people on the specifications. That helped us sell very well. My 2007 revenues were around $14 million using those techniques. I realized that people were willing to put some time into understanding diamonds so they could make better choices. With that in mind, I went to my friend and co-founder and told him that I felt there was a business opportunity here.
My co-founder was a client at the store. He had a strong technology background. I had known him for several years, and I had socialized the idea with him for a few years. He had started a technology business and bought out his investors in 2004. He thought the idea was interesting, but he wanted to see a proof of concept. It just so happened that one of his friends came down from California and wanted to buy some jewelry, so he took him to my store.
One thing led to another, and the three of us had a conversation and his friend ended up telling us the specifications of the diamond he was looking for. Both of us talked about the specifications and explained what was available at our store. He was able to compare our prices with the prices available to him in India because we used the same specifications. It took him 30 minutes to make up his mind in the store, and he placed an order for a $55,000 diamond. That was actually normal business for the store. However, my co-founder saw this entire process. He realized that this client did not see the actual diamond and bought it based solely on the specifications. He understood certifications and he was willing to spend $55,000 on a product because of the certifications. That gave my co-founder a lot more confidence in our business concept.
After that, our discussions got a lot more serious. We incorporated a business in 2007. We built an aggregation model where we could aggregate inventory from all over the world to enable people to list their solitaires with us. We launched in October 2008.
Sramana: I know the Blue Nile model well, and I am smiling as I listen to your story. Imagine what kind of uphill battle Blue Nile had when they decided they wanted to sell online.
Mithun Sacheti: Blue Nile was not the first to sell diamonds online, but they were the first to do it and cut the price. That was the big step they did right. Everyone else before them did the aggregation, but they did not cut prices.
Sramana: They also positioned their site for men. They had an understanding of the insights of how business happens in the diamond industry.
Mithun Sacheti: And their marketing was great. The real kick was to get the pricing factor right.
Sramana: I don’t think they did aggregation. They did a pure retail model of buying and reselling diamonds.
Mithun Sacheti: Aggregation comes in the form of buying after you have a sale. BlueNile started off with 50,000 diamonds listed on their site. They definitely did not own all 50,000 diamonds. We had about 45,000 diamonds on our site when we launched. When a consumer comes to our site and likes a diamond based on specifications and decides to purchase the diamond, we can then backorder the diamond.
Sramana: So, the business model is to build supply relationships for a reliable supply of diamonds, and you then purchase the diamond after the order is place, right?
Mithun Sacheti: Absolutely. This is the model that everyone uses now. The major consideration now is, how large can you become? How deep into the pipeline of diamonds can you go? The closer you get to the cutter, the better.