Hitting a home run
ElasticRun has joined the unicorn club in a record period of six years. Sandeep Deshmukh, its CEO and Co-founder, tells Vivek Prasad, Markets Leader, PwC India, how the company’s very existence generates ESG goodness with its laser focus on the social inclusion and financial wellness of those at the bottom of the pyramid.
Vivek Prasad: Welcome to the third edition of Immersive Outlook. Today we have the pleasure of having with us Mr. Sandeep Deshmukh, CEO and Co-founder of ElasticRun. ElasticRun is not only transforming supply chains, but also changing the way rural India consumes. It also has the esteemed privilege of being in the unicorn club and that too in a record period of six years. Mr. Deshmukh is an alumnus of IIM Ahmedabad and has an educational background in engineering. Sandeep, thank you very much for being with us. Let me start by asking you what really spurred the idea of a direct distribution, B2B e-commerce platform for rural India?
Sandeep Deshmukh: Thank you for inviting me. I am glad to be here. Prior to launching ElasticRun, I worked in various areas of transportation technology and transportation operations. And while working in those arenas, you do get a good view of what’s happening in the Indian supply chain ecosystem. One of the key findings was that Indian supply chains were geared for a very miniscule market compared to the total market size of what Indian consumption could be. And one of the key reasons was that the cost of fulfilment of rural markets through the traditional channels was substantially high. And that’s why that market has remained unaddressed. And then if you put together the triangulation of mobile data coming in, the development of the shared economies space and the overall emergence of transportation technology, if we put all of those things together, married with the demand, then we saw an opportunity to address that untapped market demand using the technology solution we had. And given the massive size of the opportunity, I think that was a trigger for us to start ElasticRun and build a network that will open up that untapped Indian consumption market. That’s how we started.
Vivek Prasad: The whole rural ecosystem can really be a gamechanger for India. But when we reflect back on the last few years, we’ve seen that this segment was impacted in a big way. What were the challenges that you faced during this period? And what were the opportunities?
Sandeep Deshmukh: During COVID, we saw the worst of worst days and the best of best. The first extreme was the moment lockdown was announced. You were not able to operate on the ground, people were not allowed to move, vehicles were not moving, production came to a halt. So, in a way, the market just came to a standstill. That time we were at a fairly small scale, we were still convincing our customers to come on board and target the global market.
But a month or two into the lockdown, this scenario completely changed. What happened is, by anyway struggling to get supplies on the ground, the traditional ecosystem is highly fragmented, the operators there are very small entrepreneurs, very small businessmen, and COVID hit them even harder – that ecosystem almost got wiped out. What that means is that demand just went through the roof, demand was always there, but there was no fulfilment channel. And because we had some organised semblance of the ecosystem running before COVID, we became the go-to player for almost all of the brands in the country to reach out to the rural market. It was before COVID that we were trying for at least couple of years to convince almost all the brands, show them the rural demand and why they should be supporting there.
I think there was a general consensus that they should go to the rural market. But given that these are large companies and decision making takes its own time, and they were going through the process, but COVID just turned around everything and all the decisions which were pending for six months or a year, maybe a couple of years, they just happened overnight. And that saw a massive spike for us from a complete shutdown of the network to going into almost 10x during that year.
And while the opportunity opened up, fulfilling demand in that period was of course a very tough challenge. We had to work with several regulatory authorities, local administrations, get our partners to come and work, work with police authorities all around. But that was also one area which proved the calibre of technology – that if you leverage technology to have visibility across your supply chain, then marshalling your resources and getting the supply chain re-established in the shortest span of time is possible throughout the network. And since then, it has been a rocket ride.
I think the COVID just helped establish the fact that there is a need for such a channel that can enable reach to the rural market; there is an opportunity in the rural market and the rural markets will continue to grow. So, as I said earlier, COVID took us to the lowest of the low days and highest of the high days. And I think we became a fairly resilient company.
Vivek Prasad: If I may just pivot to the fact about how the organisation has achieved the milestone of becoming a unicorn and that too in a record period of six years. When you reflect back on your journey today, what are some of your learnings? Could also reflect on the whole start-up ecosystem? We are the third largest start-up ecosystem in the world today. How do you see this space evolving over the next few years?
Sandeep Deshmukh: I think first things first, the company needs to become meaningfully large, attain scale and then valuation may or may not follow. What helped us become large is, I think, the product-market fit. It should not happen that we are thinking in our own mind that yes, there is this very particular kind of demand, and customers are going to love it. It has to be tested on the ground, and we had to establish that there is a consistent pool for the demand for our products in that market.
Once that is established, then the other work that we had to do was on the supply side, working with brands and convincing them that we have the channel and they should go to this market and we are a better channel and so on and so forth. This was a long project, as those are established companies and they have their own channels, they have their own thesis and then for them to understand that this new channel will work for them is a process. But that’s when COVID happened, and we got some boost to convert those decisions.
And once those two things came together, that product pool was established and supply-side equations were established, then the hockey stick growth happened and sales went through the roof. I think once you get thrown into the deep end of the pool, you do learn to swim, and I think that’s how the company got created.
About the unicorn status, I think we are fortunate to have a very strong pool of investors, and we have a solid industrial base that has backed us through every single round. And in the valuation multiples, how it gets calculated is a function of how we operate as well as how the external markets are behaving. And once those two things came together, that’s when the unicorn story was built. That’s the answer to the second part of the question.
The third question was about the overall start-up ecosystem. I think what the last couple of years have shown is that the start-up ecosystem in India has been maturing at a very fast pace. I know there are side effects of growing too fast; but there is clear sign that a lot of quality is coming straight out of college as start-ups and entrepreneurship is a very viable and preferred choice for youngsters. Now, I work with some of the youth on a personal level and I see that launching something straight out of college is their first reference to a larger audience. The risk-taking capability has definitely gone up, the fear of failure is much lower.
The second side of the start-up ecosystem, if you look at the investors, the VC community has also gone through multiple iterations. And people who have spent 10–15 years in the market, they are able to compare what’s happening in this cycle to what was happening in the first cycle. So, I think that that’s a great sign of maturity that you do have a large set of VCs who have seen cycles multiple times. And that definitely helps to mature. India has a great future, there’s so much of demand, there are so many problems to solve. There are so many entrepreneurs coming in. And if capital follows it, we’ll have a very thriving start-up ecosystem.
Vivek Prasad: We do an annual global CEO survey, and this year, we just concluded the 26th edition. And one of the interesting statistics that came out of the survey was that almost 50% of CEOs in India think about supply chain disruptions, and that is, in their top three risks that they need to navigate in their organisations. Being so entrenched in this ecosystem, what in your mind are the future trends that will shape this segment?
Sandeep Deshmukh: Okay, I think you’re right that most of the business leaders or almost all of the business leaders are thinking of supply chain as a key component for the sustainability of the business. Making it disruption-proof is a key challenge for each one of them. I see the problem as two-fold.
I think we need to take one step back. What if there was no COVID? If you look at the Indian supply chain it was an extremely efficient supply chain, it’s very well oiled. The biggest problem is to crack the cost structure that the current supply chain has. But because it is so finely tuned to the last mile, it also does not have resilience capabilities, the predictability of the supply chain, the data engine that will provide you visibility into what’s where, how things are moving, where they should be moving – that data backbone does not exist, that connection across multiple parties doesn’t exist, the supply chain is not organised and predictable.
I mean, it is predictable in a very brute force way, but it does not have very system-driven predictability. And some of the top players who definitely have it, I mean, they would have built their in-house solution. But those are only two to four players. Beyond that, if you look at the hundreds of manufacturers and brands, they don’t have those capabilities. So, if I may say that the surviving capability of that supply chain will always be under question – that if something like COVID happens again, the supply chain will go down. And it is not only about if it will stay or go down. It is also about the efficiency of the supply chain.
If you look at some of the finest brands of the country that probably run the most tight supply chains, at any point of time, based on our calculation they would have at least 25% of excess inventory moving into the supply chain. Because everyone is working in isolation everyone is working on their own pieces, no one has visibility into what's coming or what they should be asking.
I think we as a country or the overall ecosystem needs to come into some sort of integrated platform. A complete integration from point of retail sales to point of manufacturing. I think we need to build that resilience of the ecosystem to make it disruption-proof.
Vivek Prasad: If I may now pivot the conversation, you did mention earlier about having an integrated view, right from the manufacturing to the sales sector, so there is predictability. Clearly, in today’s world, everything is technology driven. And you see a lot of AI, ML and analytics come into play. So can you tell us how you really integrate technology, such that you’re one step ahead.
Sandeep Deshmukh: As you rightly said, I think the supply chain game at the end of the day is a data game. So all of the technologies that we build are essentially to collect data at every stage – collected in time, and then basis of the end data, you trigger certain actions that will eliminate anomalies. That’s the whole plan. So essentially, probably supply chain is the best example of how data can solve various problems. AI keeps coming on top of that for specific actions – certain actions where you need humans, you need humans.
To give you an example of how data intensive this is, say you pick a particular village in the country, and there’s a good chance that we will be able to tell you what’s going to get consumed in 2023 in each month, in each week and in each category from a particular store in that village. I mean there is no rocket science to this. It is the data that we collected over the last, say, three odd years. Of course, there are some new items that get procured. But you can predict the list of items that will get consumed in that market with upto 80% certainty, right down to what quantity they are going to purchase.
Now, just imagine if this data is available at an ecosystem level, because then you can map that data all the way till manufacturing. And you can do some scenario analysis, wherein you map the point of manufacture to the point of consumption, almost a year in advance, and at that point of time your supply chain resilience is at a very different level.
What happens today is there are at least 25% of inefficiencies, a gap of planning which data and technology can help eliminate. And for eliminating this, actually, you don’t need any other change in the physical ecosystem. The only change we need is the visibility of that data and putting in those blobs of data in the ecosystem wherein you can read all of this. But even this is pretty far away for the ecosystem to where we are today…. AI is a very lofty world, but essentially a very, very tiny decision that you make ss part of all those AI engines. And that helps you in eliminating wastages; we have at least 25 different bots or AI bots operating that continuously keep bringing the actual curves of the demand and supply in tune with what we had projected. So these are the two pieces – how do we consume all this data? And how do we leverage AI to fix the ecosystem on an ongoing basis?
Vivek Prasad: As responsible businesses today, everybody obviously is adopting technology for efficiency for better predictability, but it’s also about sustainability. Very curious to understand how you look at sustainability at ElasticRun, and not just from an organisational standpoint but also when you look at your supplier ecosystem and the stores and all the outlets that you actually distribute the products to as well.
Sandeep Deshmukh: That’s a great question. And I must say when we started, we did not start as an ESG company or social company. We started to do the business that we are doing, but over a period what we realized is that our existence itself generates tonnes of ESG goodness. Why do I say that? See, our core belief is we are that common aggregated platform that helps hundreds of brands reach out to those millions of customers in the rural markets. And the very fact that you’re able to consolidate on to one platform eliminates so many inefficiencies in the physical world.
To give an example, if you pick up a corner village in Maharashtra or in Andhra Pradesh, and we carry at any point of time 40 to 50 brands into a village on any given day. That means, before us, those 40 odd brands would have gone through, if not 40 channels, at least 10 different channels going to that market. There are so many touchpoints, vehicle movements, people touchpoints, and double handling to multiple handling happening for all of those brands. The moment we consolidate all of that, that gets closer to one single run.
And as you know, I mean running 10 one-tonne vehicles versus one single vehicle or running one team that manages all of this and using the right technology essentially eliminates all those wastages. So, we have done one study in terms of the carbon footprint we have reduced for vehicles going in. The numbers are substantial. That’s a massive benefit we bring in.
It also reduces overall wastage which is as simple as the packing material that we use, or any resources that we use for handling the aggregation.
The second sustainability advantage that we have, and this we did not go and plan but that that's how we ended up being. Almost over 70,000 people from deep rural villages operate on our platform. And these are the folks who have never worked in an organised setup. They do not see money coming into their bank accounts. But the moment they start working with us, they have a steady flow of income and through organised channels. He or she can come onto the platform, see what work is available for them, commit to it, and get paid in their bank account at the end of the month. So, there are almost 60 to 70,000 people who created their financial identity because of this platform. Bringing so many people into an organised workforce, people at the bottom of the pyramid, it definitely delivers a big social impact for us. Every time we go into those markets, we see how those lives are changed. So, eliminating all the inefficiencies of the ecosystem, reducing the carbon footprint and bringing the bottom of the pyramid into the formal ecosystem – these are the are some of the key ESG benefits that we as a company have delivered.
Vivek Prasad: What you’re doing is not only connecting rural consumers to rural stores, or kirana stores as we call them, but also connecting financial institutions and driving financial inclusion. Now, this is a much bigger agenda and has a lot of other benefits to all the consumers. Could you tell us how this comes into being?
Sandeep Deshmukh: I think this is another big area that we are working on. So, it’s a slow journey, but I think it’s a very impactful journey. So, what happens today is that we operate with stores which are really in far-flung areas. Before UPI came into the picture, these stores almost always operated only in cash. Now, at least UPI codes are show up in the stores, but penetration is very low. I would say less than 1% of their payments have started through the organised ecosystem wherein they get full account visibility of what they have bought in the last month, last six months or last full year. Now just having the data and verifiable data in one place, our data goes to the GST portals and even if the store is not GST registered, the data visibility is there. Now on the basis of that data and the consistent payment track record of the store, this data becomes a crucial data mine for banks or financial institutions that want to penetrate and go into that market.
The second big challenge for banks and financial institutions was reach the store. So even if I gave a loan to you, how would I recover the money? Or how would all the digital channels set up? Do I have a physical channel set-up if not digital? So just accessibility – physical and digital accessibility – of that market was the key challenge.
We tied up with several NBFCs and a few banks when they started lending to the stores. The ticket sizes are fairly small. Maybe INR 10,000–15,000 a week or 30–40,000 a month, and the repayment track records are extremely good. That is another engine that we want to build, in that there was always demand that remained untapped. There is always this supply side that wants to service that market. And because of the channel now and because of the platform, the two parties can communicate with each other at nearly zero cost.
Vivek Prasad: It’s not only solving supply chain and operational issues but also uplifting people’s lives. Truly, truly inspirational. It has been a pleasure to have you with us.
Sandeep Deshmukh: Thank you. Thanks for this invitation.
