Sramana: Why did you decide to write a comparative shopping engine?
Sachin Bansal: They were a big thing in the U.S. but there were not any in India. We started doing some market research. We found that there were almost no other sites to compare against. Rearden Commerce was the only company that had any real offerings in India, but it was not really doing a good job. We concluded that comparative shopping in India would probably be a bad thing because there was no user market.
Sramana: It could definitely have been a sign that the market was immature.
Sachin Bansal: Exactly. That is when we decided to just build an e-commerce company. It was just two people who knew nothing about business starting a business out of their homes. We were good only at writing code and we had a basic idea of how provide a customer experience. We had limited capital. We had to figure out if two guys sitting at home could do a better job than a whole team of engineers in a well-funded startup. We were very optimistic and thought we could. We both quit our jobs in September and launched the site in October 2007.
Sramana: When you launched your e-commerce site, what were you selling?
Sachin Bansal: We were selling books online. We had searched for product categories to focus on, and books came out as a very strong category for a small business like ours. The cost of setting up an online bookstore is lower, and the risk of products getting lost in the mail is lower as books do not cost as much as other items such as cameras. Books don’t get damaged easily in transit. Books are also a very high margin business with the benefit of negative working capital. Finally, they are not very expensive, so the amount of money a customer has to spend to try out your service one time is very minimal.
Sramana: Explain how it is a negative capital working business. How did you source the inventory, and what were the terms?
Sachin Bansal: We spoke with a lot of book suppliers in Bangalore. They were distributors who had been supplying inventory to bookstores throughout the area. We approached them and explained that we were a small company and asked them if they would be willing to work with us. The first time they all said no. They had two people like us coming to them almost every day and asking the same types of questions. They could not differentiate which offers were serious and which ones were not.
We re-approached them and demonstrated that we were indeed good with technology. They had also heard that before. We then asked them to simply tell us their terms. We managed to get deals with two suppliers out of 25 in the city. We just started with them.
The terms required us to pay in cash every time we placed an order, and that we had to go to their warehouses to pick up our orders. In the end we did most of the heavy lifting because we were the new faces to the suppliers.