Indiaplaza: Story of Catastrophic Failure [Learn 3 Lessons]

At the break of this century, the pioneer of the eCommerce sector of India, Indiaplaza sowed the seed of e-retail and inspired the future blooming of the sector. Though the brand could not do much good, since its inception, still the founder K. Vaitheeswaran was not bogged down by its catastrophic failure. He has penned down his journey in his book “Failing to Succeed” from where the budding entrepreneurs and soloprenuers can learn some valuable lessons.

In 1999, Indiaplaza.com started sailing the ship just when the internet explosion, dotcom bust and the prospective online customers were about to expand. The Great Recession of 2008 was tumultuous. But the brand managed to overcome the challenges until 2011 it was doing fairly decent business and even managed to raise an investment of 5$ million. But from the latter half of 2012, the situation went out of control, leading to its complete shutdown on 12th August 2013.

K. Vaitheeswaran along with his five friends started Fabmart, which later became Indiaplaza. He got the idea of a start-up during his working tenure of ten years in Wipro. The first mover mindset of Indiaplaza was one of the primary reasons behind its failure. The owners misjudged the market conditions and the changing consumer trends before setting the foot. Since 1999, Indiaplaza survived many new entrants and was too confident to even consider the potential of start-ups like Flipkart and Snapdeal.

In April 2012, the founder K. Vaitheeswaran was asked in an interview about the strong competitors he might think of. His reply was “I would say Landmark, Crossword, Shoppers Stop, Croma, eZone.” As stated by Thomas Gray, ignorance is not always bliss, it can be fatal always. During the beginning of the decade, sites like Flipkart and Snapdeal were working hard for getting the venture capitals and investments.

Misunderstanding the situation completely, K. Vaitheeswaran guessed that the offline retail stores can become digital and be potential competitors of Indiaplaza. With the online shopping starting to take a shape, the cash on delivery was gaining momentum, while Indiaplaza not following the market tide, tried to go against it and was much hesitant about the COD services.

The first mover mindset, limited market knowledge and the colossal misjudgment of the potent competitors of online market obstructed the adaptation rate of Indiaplaza. The rising sites worked closely for up-to-date design, technology-based services like UI (User Interface) and innovative marketing strategies. Indiaplaza moved slowly and was not much interested in adopting the market dynamics which was in constant flux, especially in this decade.

The budding online sites are emphasizing on single offering platforms, that is, one online platform for all the commodities, like appliances, books, watches etc. But Indiaplaza was rowing in an opposite direction, much against the tide. Indiaplaza started Thinkdigit, a microsite for selling only technology-related products.

For many years, Indiaplaza did not run on external funding, and it faced a crunch in funds. Suddenly, it received a 5$ million fund from Kaalari Capital, and post that the company went desperate for maximizing business expansion. Within in no time, the business was once again in a dire need for funds. K. Vaitheeswaran travelled to 30 states in India on his own expense, from Delhi to Chennai to Mumbai, but none of them was ready in investing in the sinking ship.

As of 2011, before receiving the fund from Kaalari Capital, the company had only thirty people, the GMV (Gross Merchandise Value) was Rs 14 crores and the company’s revenue was Rs 3.8 crores. But post-investment by Kaalari Capital, it got two board seats and K. Vaitheeswaran decided to put the money to good use, increase the number of employees to 130, working on better marketing strategies, upgrading the website and also starting Thinkdigit.

As of 2012, the revenue declined at a rate of 25%, and the company’s loss touched Rs 9.25 crores. Indiaplaza used to be a small company, and saving a small company is easier, in comparison to a larger organization. From October 2012, the situation became more critical, K. Vaitheeswaran stopped drawing his own salary which was around Rs 2.5 Lakhs per month. The office rent, salaries of the employees, dues of suppliers and vendors everything was left, but there was a tremendous shortage of funds.

He tried frantically to arrange for just Rs 26 crores, but no one was ready to invest. In December 2012, the two board members from Kaalari Capital had also resigned leaving him alone to deal with the mess.

Since 2013, the founder of the company had to face one miserable day after another. People left the company, without salary, the landlords, vendors suppliers were agitated and anxious due to their non-payment, they were reluctant to supply and deliver the products to the customers. The customers who paid online via cards, they were not getting their products delivered, causing many grievances among them. Poor reviews and agitated people surrounded the company during its downhill journey.

Finally, in August 2013, K. Vaitheeswaran vacated its office. The landlords and vendors, finding no way out, took the laptops, computers, desktops, speakers, chargers etc. As stated by K. Vaitheeswaran about his journey “But what I can say is that specifically, nobody tells you that they will not invest. But when you meet enough of them, you realize that they are not very enthusiastic about the whole thing. Unfortunately, if you know that fund-raising is going to be difficult well in advance, then you try and take certain steps. If you don’t, then it becomes too late and after some time, the whole thing just gets out of control. The collapse happens reasonably quickly after that.”

With the booming of the start-up ecosystem in India, several young minds are enthusiastic about starting their own company and are their own boss. But in doing so, several mishaps can happen, and they can add to a mental turmoil. From the tragedy of Indiaplaza, there is a lot to learn. Let’s take a look at the three major lessons that are valuable for every business.

• Make a back-up plan: In business endeavours, you can either make profit or loss. Do not stick to a single plan, rather chalk out plan B and C in order to save yourself from the situation. Measure your revenue, and if you find that the cash left can sustain for less than three to six months, then it is better to have a closure in a dignified manner. The entrepreneur must study well the scalability of the business and accordingly take the steps. In this case, Indiaplaza could have utilised the fund from Kaalari Capital strategically to save the sinking company, rather than increasing the number of employees and launching Thinkdigit. 
• Adapt to the changing market dynamics: The market is in a state of continuous flux. Digitization, globalization and internet explosion contribute to the emergence of new-age consumers, with their newer demands and requirements. The entrepreneurs must study the market dynamics well and adapt to the changes accordingly. In this case, the COD was gaining traction among the masses, but Indiaplaza was reluctant in adding the COD facility as it feared the loss in business. Proper market research and well acquaintance with the changing customer needs are essential for a successful business. Knowing the competitors is a must, here, in this case, K.Vaitheeswaran was unable to gauge the extent of competition in the rising market.
• Too much emphasis on investors: Investors aid the business growth, but they are certainly not the experts. Otherwise, they would be entrepreneurs and not investors. Equity funding can often be an addiction that became the scenario here. When Kaalari shied away from further investments, Indiaplaza could not manage any more funding, and it ran out of cash. Funding is important, but using the funds strategically for profit is what is more essential. The condition of Indiaplaza was still manageable pre-investment, but as it is said, it is manageable to save a boat, but impossible to save a large ship like Titanic.

Even though K. Vaitheeswaran failed at his start-up, still, his LinkedIn bio proudly flaunts the phrase “father of ecom in India”. The first mover mindset and fatal arrogance played an important role in drowning the company. When Indiaplaza failed, the time was ripe for the flourishing of eCommerce in India. Brands like Flipkart, Snapdeal, Amazon were basking in glory as the time was just right. But, Indiaplaza much ahead of the time failed at judging the scenario and brought its own doom.

It is good if you want to follow your passion and be your own boss. You want to avoid such mistakes, but who can guide you? Google will give you hundreds of websites, but an expert will guide you thoroughly in your journey. Do you want to talk to experts in detail? Talk to our niche skilled experts now to know the diverse competitive market in greater detail! We at Vedak have an exclusive pool of experienced industry professionals and veterans who have in-depth knowledge about the business nitty-gritty. Contact us to know more.