The inception of Waycool – insights from Karthik’s journey
Welcome back to part 2 of this series. This episode is focused on the inception of WayCool and insights from Karthik's journey on building and scaling the company. Also part of this episode are prominent founders from the agri-tech startup industry, Thirukumaran Nagarajan, co-founder of Ninjacart, Shashank Kumar, Founder & CEO, DeHaat and Shobhit, Co-founder of VeGrow. The conversation was moderated by Ankush Goyal, Sanjot Malhi & Taun Davda who look over the investments in the agri-tech sector for Matrix Partners India. Tune in.
Karthik:
Sure. I guess a quick background as to why we got into agri and I’m not from this industry at all. I’m an automotive guy, still I’m an automotive guy in my blood and I’ve spent about two decades in that industry.
Around ’13-’14 when we had yet another recession in the industry it became increasingly evident that that industry was a declining industry. Frankly what would accelerate the decline in my view, I may be wrong, is a combination of electric, autonomous and shared, an electric autonomous and shared automobile is an appliance and therefore it’s no longer fun. So however that industry has tremendous amounts of skills especially in supply chain management.
We were looking at areas where that skill could be horizontally deployed and unlock value. And we’re at that stage in our life where we also we don’t want to just unlock value for ourselves but also create some positive externalities. Another thing the auto industry is associated with is negative externalities, so we said why don’t we figure an industry where there are positive externalities.
Food was appealing to us because it was large, it was recession proof and for an industry where demand is highly inelastic it demonstrated huge volatility in price which seemed to us a classic bullwhip maybe in slow motion but it’s a classic bullwhip that information is not flowing through the supply chain and material supply is therefore not matching what the market demands, which means there is a supply chain problem out there.
So that’s really why we went into food per se. And we felt that, look, the industry food and agri has been around for 8000 years at least as long as civilization existed. But it was organized a certain way in India because of the way it is working. Our average farm size is two-two and a half acres; an average farm size in the US is four hundred odd acres. We buy from 118 million landed farmers and another 120 million landless farmers, America buys from 20 lakh farmers, that’s it.
Similarly on the front-end we have 6 lakh settlements and we buy from 12 million retail outlets, America has about 20,000 settlements and probably buys from anywhere between 40,000-100,000 outlets. Which means fragmentation in both ends which necessitates multiple layers of aggregation, disaggregation and so on. What’s changed I think are three things, any good supply chain is consisting of three things: flow of material, information and money. To improve material flow I think the first disruption that India saw was the laying of all-weather roads. National highways, yes, but more importantly rural roads, which means in large parts of India we’re able to access the farm gate much easier and movement, physical logistics predictability has improved. And we’re seeing that physically, we’re able to predict within plus minus 15 minutes for example in certain parts of where we operate. The second is democratization of communication and the third is digitization of money. We felt that these three things were coming together which makes it possible to evaluate an alternative.
That’s really what we have attempted to do and frankly it hasn’t been straightforward. We have had multiple learnings along the way, we have learnt the difference between what the papers say and what is actually ground reality. Now we always talk about middlemen being a source of super normal profits and the reason for the spread between the farm gate and the consumer. We realized that that’s not all true. There are middlemen and each middleman is really the stacking up of multiple intermediaries and the losses thereof that cause this spread. And therefore we realized that the problem is more complex than what people state therefore we had to pick the area where we chose to specialize in and that’s really what we’ve done.
Tarun:
Karthik I remember there was a statement you made when we had last chatted which has kind of stuck with me where you had said simply doing farm to fork will not work going forward you need to get into the soil. Can you just throw a little bit of light on that because I think that would be interesting to hear your thoughts on that
Karthik:
I think I’ll build upon what Thiru said earlier, the margin in this business is a little deceptive. It looks very seductive when you say that I’m buying at Rs.8 at the farm and selling at Rs. 14 so wow, 48 percent gross margin. But a lot of the cost below the margin is inelastic, Rs. 3 to Rs. 3.50 is the standard trucking cost from Nasik to either Bangalore or Chennai respectively, there’s not much you can compress on that.
So if you genuinely want to build sustainable margins and be impact focused which is our mandate anyway you have to go beyond that. So we have learnt to shape ourselves as a soil to sale company rather than a farm to fork company. We engage with the farmers at the seed stage itself, we bring in the right partners who provide the right seeds.
For example there’s a good variety of tomato hybrid seed that’s been recently developed that give improved yield. We test it out in our own little research station and then introduce it to the farmers and work with other startups to handhold the farmers through the process of the cultivation itself. We also have our own agri extension team called Outgrow which is responsible for this orchestration. What that results in is firstly you’re able to do simple things like better crop planning, you can stagger the cultivation so that the farmer gets a certain yield every day which you’re able to liquidate. Otherwise the farmer if they plant it in one shot and liquidate it in one shot, they’re exposed to very high market price risk. So we’re able to simplify that and then simple tools like inter cropping, the right usage of the pesticides and fertilizers etcetera helps the farmer reduce their cost, improve the yield. And then we talk to the farmer and split the benefits. So it becomes a double bottom line lever that we try and do. So that’s really what we meant by soil to sale.