Purplle’s Manish Taneja and the art of raising capital without asking for it

I grew up in Faridabad, which is right next to Delhi. But even till today, I think there’s probably one or two good quality beauty stores in all of Faridabad, which would have a population of a few lakhs. Last, we had to pick a category in which we thought we could survive and thrive. When it came to picking up a category, I had a few criteria points on how to go about it.

We wanted to build a large enterprise right from day one. But having our feet on the ground taking one step at a time, so that’s how beauty came into being.

One, we should obviously be solving a fundamental need for consumers, which we were. Beauty products were not easily accessible beyond the top 8-10 cities in India.

Second, I wanted to enter a category with good gross margins to make ends meet. It’s the worst thing to do to get into a category where nobody makes money, may be just the industry dynamics is such that most people don’t make money. Now, you can make money in such industries also, like perhaps how Indigo does in airlines, but that’s an exception.

Third, we wanted to get into a category where you have high repetition. So, I didn’t want to get into a business which was one time. And therefore, beauty fits in quite well.

And last, we wanted to get into a large category where if we were to be able to get 10% of that category on to Purplle, we would end up building a large business. So, we never wanted it to be a lifestyle business. If we were to build a lifestyle business, our jobs were significantly well-paying; there was no reason to do it. 

We wanted to build a large enterprise right from day one. But having our feet on the ground taking one step at a time, so that’s how beauty came into being. And we are quite happy about that choice made 12 years ago.

How did you figure out the product market fit for a category like this?

In our first three-four years, because we didn’t have access to much capital, we were, by default, very frugal. We were very clear that we would build this frugally because retail business means lower gross margins, and therefore you must make your ends meet with whatever margins you make. We bloomed a little late. And that’s a question a lot of people ask: How did you sustain for so long without capital? I would say we started blooming somewhere in 2018.

As I was telling you, all three of us are engineers from IITs. Tech is our first language. So, we started collecting a lot of data around our consumers, around their skin type. We wanted to replicate the offline experience of shopping for beauty online.

For that, we really need to know your hair type. Do you have wavy hair or curly hair? Do you have dry skin or combination skin? Do you have acne or pigmentation? And likewise, whether you’re whitish or dusky, do you have warm undertones or cool undertones and so on and so forth.

We believe data is God, and there is so much data available in the universe that can help you make better choices.

We started collecting this information somewhere in 2015-16. By 2017, we were sitting on tons of data on who our consumer was. We obviously knew their income strata and all. And on the basis that we started, we made this call where we said we have this beautiful data, can we start building some products on the back of this data?

At that point in time, 65% of our customers were whitish skin tone. They had voluntarily told us this information. Therefore, the kind of lipstick shades that you would make would be more tailored to them. I think 70-80% of people said they had oily skin. Therefore, if you had to choose between making a face wash for oily skin versus dry skin, you would first deploy your resources towards oily skin and not towards dry skin. I think it made our choices and the priority order of those choices much, much easier.

It was a very data-led approach. We believe data is God, and there is so much data available in the universe that can help you make better choices. It’s up to you whether you choose to use that data or not.

Were these data-led insights from customers or did you conduct primary research?

Of course, we went around and then spoke to them as well. But we are a little bit of introverts at Purplle. We do speak to consumers, we have a rule that we try to speak to consumers one day every quarter, full day spent. So about five or six consumers ideally once a month, but if not that at least once a quarter.

That gives you a lot of hypotheses on what to change. But I think the kicker, as I said, happened in 2017, when we started using this data to build our own products, because there were lots of these niche use cases where the old-school FMCG brands were not creating products because they used to serve mass customers through general trade channels. And we were catering to these unique niches, somebody in northeast India, somebody in Bengal. We started building products for them. And as luck would have it, it started doing well.

For example, when we launched our concealers at the end of January 2018, the market went up 100 times in two days. Because concealers used to be available at x price point, we were able to bring it down to one-third of x, and it just exploded that day. Likewise, when we launched our first set of lipsticks, I think our lipstick business went up seven-eight times in a day. So, this was like a shot in the arm that we were looking for a long period of time.

Tell us about the capital-raising journey.

I think life never prepares you for these things. I think the best way to raise capital is to tell people that you don’t need capital. I think the world chases stuff that eludes them. So, if you are running after investors, trying to do what they’ve asked you to do, you’re preparing yourself for failure, they won’t fund you. Investors should never know what’s better for your business than you should.

You should be doing what’s right in the long term for the business and capital will come to businesses that are doing well and where the founder has clearly found a good product market fit and that’s what your focus should be.

Having said that, capital is an important input to any business, understanding how capital markets work, whether it’s private or public is important for any founder or CEO. So luckily, my background in investment banking and investing helped. I understand what language to speak to investors in. I understand that it’s my fiduciary responsibility to not just raise capital but also help investors exit the company.

Take us through your first pitch deck.

We had some slides on projections, which I thought were out of thin air. However, when you’re just starting out your business, it’s hard to project where you would be five years out.

Early investors found us to be ingenuous. One of the things we had told people is that we don’t believe in discounting so we will not discount our way through scale, which is why we took the first six-seven years to really find a product market fit. Otherwise, you can always sell below the price at which you can buy and there’ll be a queue of people who want to buy from you. But that’s not a good business to be in.

How did you survive the first six-seven years?

It was a drip-fed capital. Every year a few crores used to come and that’s how it was managed. Our burn was also very low. It was less than ₹4-5 crores a year. So, it was a tight ship that was run for a very long period. In 2017-18, we started becoming profitable because our own brands took off, and they now have 3x the margin that third-party brands have.

I think our own brands have a huge differentiator from a consumer’s point of view. There are some of our products today which sell at over ₹100 crores a year and those products are today only available on Purplle.com. So, my cost of customer acquisition on those products is nearly zero.

How did you scale them to ₹100 crores?

Other than finding the right product market fit, you need to see if the product really works. If it doesn’t work, people might buy it once, but they won’t repeat it with you. What’s the competitive intensity in that product landscape that you’re playing in? Once you feel these things are taken care of, you have a good product that will address a large market. Then, if competitors haven’t done a great job in that category, you start marketing.

Marketing can also be very data-driven. Six years ago, people didn’t speak about AI like they do today. But you could always collect a lot of data about so many content creation experiments that were going live to see which content would do better and which was not getting the kind of views that other types of content were getting.

At that point, I ran marketing for the firm, Rahul ran operations, finance, and HR, and Suyash ran tech and product.

India is like a collection of 25-30 different sorts of states. Each has different communities that live there. They celebrate different festivals. To them, different things matter. So, whether you’re somebody who’s a Malayali living in Kochi, or whether you’re a Telugu living in Telangana or Andhra, you just celebrate different things in life in your own different way. I did a very simple experiment. I just sat down with a priest, and I noted down all the important dates for all communities in India. And I said, why don’t we create content just before that?

And we started realizing that the content started going viral. The same content that we would do in English versus Hindi, the Hindi content would probably get 15x more views. We said this is making economic sense. So why don’t we go after this? It was just very good data-driven insights around content that created demand for these products. And after that, your performance marketing engine kicks in and converts those demands that whatever you’ve created into orders.

You should be doing what’s right in the long term for the business and capital will come to businesses that are doing well

And that’s how it plays out at Purplle even today. It’s just significantly more tech and data-driven today, given how AI has made computing so cheap. Today you can arguably say I don’t need to watch a video, my AI digital companion can watch 30,000 videos produced in Malayalam, in beauty, and can analyze what kind of videos are doing well, what kind of videos are not doing well, and therefore decide what kind of content to create and what kind of content not to create.

However, tech is just an enabler. Finally, you must make the consumer feel that this is the right place for them to shop. There are a lot more things that go into it such as delivering products on time, having great customer service, having the right products on the app, making sure that when they search for something, it shows up on the top.

Today, you get a delivery in 10 minutes from various other companies, so you want to deliver as fast as you can. That’s an additional variable that’s come in recent years.

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Were there challenges in your tenure journey where it felt a little insurmountable?

Every year. I think the biggest challenge is that there are a few months where you do well in a year, and you become a little complacent and then you hit a wall. You feel like I wish I had worked harder in the previous seven-eight months.

I think the biggest challenge that we face every two-three years is having the team aligned to one vision and one mission. Usually human beings are thinkers, they will want to do things differently in different ways and different things. For example, you just said, can you diversify into other categories? Likewise, I’m sure there are thoughts that go on in everyone’s mind in this office.

Making sure that everyone stays aligned to the common goal that we have, and to the way we are going to achieve that goal is something that’s hard. And we try to reinforce this every month when we meet in our senior leadership, where we tell people, this is what our goal is, and this is how we are going to do it.

There might be many other ways to achieve it, but we will not do those. For example, let’s say our revenue today is x, and target for the revenue in three years is 2x, right? What happens is your competitor in the market starts discounting significantly below their gross margin.

 

The most important attribute of a founder is the ability to go against the grain. If you are trying to do what everybody else is trying to do, then it’s going to be a little difficult to succeed

We will find interesting use cases of products that consumers will love to buy, ideally launch them exclusively on the platform, either in our own brands or third-party brands, and create demand for those products so that those consumers don’t come to us because we are the cheapest one on the platform but come to us because we are the only one servicing their needs.

So now look, when your life comes under pressure, and you’re not able to do this quarter’s revenue, you may want to resort to that pricing lever. But if you resort to it once, then you resort to it forever.

The novelty in that thing also goes away after a point in time, if you always know that this product is available at 50% off, I don’t think you’re going to pay full price for buying it anyway. So next year, you’re going to expect 60% off and then 70%, which is not the game we wanted to play. So, e-commerce is a competitive space. Everybody discounts quite crazily. We’ve chosen to stay away from it as much as we can.

If you look at our brands today, they are the least discounted makeup, skincare or haircare brands in the entire beauty landscape in India. Now, it’s not easy. Our competitors are selling at 40% discount, 50% discount, we are at 5-10% discount. So, when there are sales, like sale events, we don’t get a big bump in our revenue. But on a regular day, we do significantly.

What are the personal attributes of a founder? Any specific challenges to being an introvert in entrepreneurship?

I think both can win. We just ended up being this way, and recruiting a lot more people like us. We’re also not very celebratory types, you’ll not see us celebrating wins. I mean, we just think it’s part of life. So, we are not the ones who will show up at events, except if it’s a team event. But not really part of lots of various bodies and stuff.

We just think our job is to think and build long term modes for Purplle. And we feel that if you build a great product, and that product sells on its own, your network will get built over a period and automatically people will come to you, you won’t have to go to them. But there could be many attributes of a successful founder.

I think the first and most important attribute of a founder is the ability to go against the grain. If you are trying to do what everybody else is trying to do, then it’s going to be a little difficult to succeed because you’re going to have too much competition. And everybody wants to go in that direction.

In our case, when we started e-commerce for beauty, most people said who’s going to buy lipsticks online…everybody wants to see and touch the cream before they want to buy. People also said it will be a very small business, do you really want to do this? Why don’t you do something else? So, a lot of people did not jump into it.

When we started building our own brands, a lot of investors and people around us asked: how do you compete with Unilevers and L’Oreal’s of the world? Do you really have the R&D capabilities they have?

I think in moments like these, you must take confidence in your own ability, and go ahead and do it step by step. Rome was not built in a day. Purplle will also not be built in a day.

E-commerce is a competitive space. Everybody discounts quite crazily. We’ve chosen to stay away from it as much as we can.

I think it is very important to be able to commit for a very long period. If you’re in it for short term, like three-four years, you’ll make a startup and, in that time, you’ll sell and leave. I think startups are never sold; they’re bought. Like you can’t sell because if the buyer knows you’re keen to sell, you’ll never get the right price and I think if you build something for the short term because you want to sell and exit, you will do a lot of short-term things which the buyer will obviously be able to figure it out in the diligence. So, you’re not going to get the right price. 

In our case, we were very clear that we were just building this for another 20-25 years till we retire. We just don’t plan to do anything short-term. We will balance short-term and long-term, but the agenda is not to say, we’ll do this in the next three years, so we will get X price, and we will sell and do something else in life.

It’s hard to build a very large company in India in three years. You must commit for 15 years. There was this euphoria of 2021 when we were minting unicorns in six months, nine months. I think all those people will have to grow into those valuations now.

How do you recruit talent? What key areas did you need to plug?

As introverts, we wanted people who were a little bit different from us in our senior leadership team, because we thought they would bring in capabilities that we might not have. But I think we’ve made our hiring errors. Sometimes we recruited people in desperation, where we knew fully that this person may not fit in with our culture, but we ended up hiring because we were quite desperate at that point in time to hire.

I also think you kind of build your own character over a period where you tell people that this is the kind of person I’m not going to hire come what may. What happens is when you raise money from private equity funds, and VC funds, they also have a point of view on what kind of people you should hire.

I would say all our senior hiring is through referral. So maybe we had one investor who referred us somebody who was his batchmate. I asked this person, will you put your neck on the line when you’re recommending this person? He said yes. And so, we got that person in who did very well with us and understood our culture and ethos well.

All my senior team will be there for the next 5-6 years in the company. They’ve already spent four or five years with us. Because one, they are incentivized to stay long term. Two, I just think those people are very long term in nature, like how the founders are. They’re very careful about their own people choices. Hiring is the most important thing that any founder should focus on.

If you are running after investors, trying to do what they’ve asked you to do, you’re preparing yourself for failure, they won’t fund you.

We have a level up committee at Purplle where there are a set of 10-15 people who I think have been great recruiters over a period at Purplle. Those people have a veto right on every hiring we make at a certain level and above. So again, that’s a process that we institutionalized, which people don’t like it sometimes.

Your advice for founders when it comes to retaining talent?

We evaluate things like if every time the company goes through a little bit of a tough period, will they leave and join a larger company because those are safe havens. It comes down to the time of hiring if you have made the right choice or not.

Usually, I tell people that once in three-four years, there will be a tough time at Purplle and I try to scare them up in the interview itself. There are a lot of people who shift jobs from old school companies to startups because they get a voluntary hike. We avoid those people. 

We also don’t have a culture of firing. We’ve never hired too many people at one step. So, we never had to let go of too many people at any given point in time. We’ve just shut one or two divisions in our life. We recently shut one where we had 28 people in that division. 27 of them have been absorbed in other parts of the organization. 

Once people know that when times are bad, these people will not fire us, it usually makes a bit more sense in terms of retention, where they also know that this company is in safe hands and that it makes profits. There’s nothing to worry here, if you continue to perform reasonably well, you will stay here.

What educational degrees does a founder need?

I think knowledge is everywhere. It’s the desire to learn that’s lacking. I don’t think degrees can help you. No college prepares you for the kind of journey you will have. And each one will have a unique journey. My source of learning is books. I studied for CFA. I cleared this in straight attempts. That’s where I learned all my finance skills.

I read a lot. If an author researched for 3-4 years to write a book, and you can buy it for ₹400, it’s the cheapest education you can ever have in your life. And if you can pick up one or two things from those books and apply it to your work and personal life, you’ll be sorted. 

So, whether you want to learn about finance, AI, or beauty, or plan to set up warehouses, you just need to go to Amazon, find the top 10 books on each topic and read them. I think it’s easily possible. Right now, I am reading a lot on AI, and how it can supercharge any business.

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