The more unsexy a business, the more profitable it is: OfBusiness' Asish Mohapatra's motto

And yet, not many understand what this lending platform and B2B e-commerce business exactly does. Why is it worth so much? Also why is B2B suddenly so hot?

On a car trip from Gurugram to Mansesar (Haryana) to Alwar (Rajasthan), Mohapatra took Moneycontrol’s M. Sriram and Chandra R Srikanth through his obsession with being an unsexy business, debunked fintech myths, spoke about avoiding toxic work cultures, and confessed to being a great salesperson, among other things.

Here is the conversation, edited for clarity and context.

Asish, you’ve had an interesting career- McKinsey, then a healthcare VC investor, and then a B2B fintech/commerce founder. These are very different things on paper. How did you start OfBusiness?

I had done trading in the past. As a consultant and as an investor, your role is limited, and you don’t have control over the outcome. When you give advice, the company may or may not listen. You may travel the world and get paid well, but the reality is you may not do much. Now investing is a probably glorified form of consulting, because you’re putting your money to the advice you give.

Even when I was an investor, I was an active operator. I enjoyed being involved with my companies, get into the nitty-gritties of hospitals. Now in 2015-16, I actually saw a lot of people getting into B2B. Really good talent was doing logistics, procurement, and financing, and I said okay, this is the world that I'm from; I'm an operator at heart, so let me jump.

It took me a year to get out of Matrix because I was on like seven boards,  nine portfolio companies. So then finally, everything came together in about 2016. Now why B2B? Earlier after being a trader, I ran an SME (small and medium business) for ITC. So I did not have a very regular ITC career.

They posted me to run an SME that they had just acquired. Then I started investing in SMEs. All the companies that I invested in healthcare were SMEs. So, the thought was emerging, that you could build a large business by actually combining services like commerce, marketing and financing.

This has never been hot because talent and  (investor) money never used to go to B2B. All this changed between 2014-16. Us, Blackbuck, CapitalFloat, Lendingkart, Udaan all started then. That’s when the industry changed.

I also started this because honestly, I was never a great investor or consultant. I was a good one. I had this itch to do something. Entrepreneurship is a combination of thinking and doing.

But when you were an investor, were your companies okay with you being operationally involved? The founder can feel like you’re interfering.

So, unlike consumer tech investing, healthcare investing was a little different. If you have to be good in healthcare, particularly in services, not in pharma, you need to be an outstanding clinician, operationally very good and very commercial. Because unless your healthcare enterprise is profitable, you will be small, and you can’t build an identity.

Doctors are mostly busy with the clinical part, and have less time for the other two. I actually used to get welcomed into operational work because 70-80 percent of founders’ time is going into clinical activities. It was a very natural fit. Some of them even became my angel investors (at OfBusiness)

 Why didn’t you start up in the healthcare space then? Rather than going to something relatively unsexy like B2B commerce and lending?

Not many of us can do it. What we have done is hard for the common man to understand. Our aggregation service is difficult to do.

Nobody knows what plastic looks like, whether it comes in a bag or is it transported in huge truck loads. Whether it comes loose? Nobody knows. We’re very uncommon. Take tenders. No one knows what a tender looks like. “Kuch toh hoga,” (Must be something) they say.

So, I like things which are under the radar because I prefer to be under the radar myself. I like businesses that are under the radar. I make products that are under the radar. I make products that are far away from the limelight, because that is where a business is to be made. See the biggest company in India, Reliance started with textiles, but it got big in Jamnagar with a refinery. That's how they became a big company.  Till then they were one of the textile houses in India.

So you revel in being in an unsexy space. But your space is now the hottest. B2B firms are all the rage. 

So I will add something more unglamorous to it. I will get into contract manufacturing, which nobody wants to touch. I will get into licensed papers which nobody wants to touch. I will make it more and more unglamorous. The more unsexy it is the better it is. Because the reality is, you will always be ahead of competition if you are doing unsexy things.

What determines being an unsexy company?

Only three metrics. One, it does not have to be in metros. It should be something a common man can't understand. He understands food delivery. Does he understand steel purchase?  Chemical segregation, chlorine? Is chlorine a gas or a liquid? Do a poll, half will say it’s a gas, half will say it’s a liquid. Nobody understands.

Thirdly there has to be hard work and education in it. To lend, you have to get the customer, underwrite it (the loan), then you have to convert it, then you have to service it, then you have to collect the money. The more execution there is, the tougher it is to replicate.

Asish, ecommerce and new age companies are asked, where is the technology in this business? Just app-based solutions are not cutting-edge today, right? More so, a real tech business also has certain margins, network effects, and scalability. You are in an offline industry. Where is the tech in OfBusiness?

So, our business fundamentally happens because of an acquisition engine called BidAssist, which has 2.5 million users. It aggregates tenders. Like they aggregate cement, like they aggregate chlorine, methanol. They aggregate tenders. Tenders are basically revenue opportunities floated by government agencies

Around 18,000 to 19,000 tenders are released in a single day. And they are very non-standardized. A tender of similar nature in Chennai could be 50 pages, in Delhi it's 300 pages. We aggregate these tenders, float it out to all the B2B companies and say, if you need a lot of information about us, we will tell you what tenders are relevant for you. We can show people who can work with you.

We will tell you what your probability of winning the tender is. When they come to actually look at these tenders we take them as a lead. And then they pick up our services, commerce or financing. Without that if you’re not using technology for lead acquisition, internet penetration, you're not using technology very well.

Technology also helps with efficiency. Proceeding underwriter’s bank statements, auto-reading KYCs, removing variance from GST returns; stuff that people outsource, we do it ourselves. This generates efficiency because we are just 550 people, responsible for a $200 million loan book, a billion dollars of GMV (gross merchandise value) and a marketing service. That’s huge efficiency.

The third application of technology is engagement. So general e-commerce customers come in when they want to buy, else they don’t. In our case they come to us once a day, almost 30 times a month, just to see prices, to check tenders or to see what is going on in financing. All that is neatly packaged and made available to the customers for their needs. He is going to use it every day.

All our services are made to increase engagement. You won’t want to bid for a tender, but you want to check which new tender has come out  So because it’s a very common service. They  may not even want to buy anything? We want to come and check BidAssist, so even if you have a little money you can stock up. Or to see whether after you bought materials, did the price run away? Did you make the right or wrong choice?

Where B2B lacks in tech is for core ordering. Core transactions need offline support. But all peripheral functions, lead acquisition, engagement, completeness, is done using tech. And this has significantly changed after the pandemic.

You started with commerce. How did you get into lending?

In 2016 February, when we started with e-commerce, just with a smaller market of products than today. And we were using Aditya Birla, Kotak Bank, etc., for being ready with credit. But in six months I realised we would have to do this ourselves because they take too long. Our customers will have other lenders meanwhile; although no other B2B company was lending at this point. We realised waiting won’t fetch anything.

Asish, if I look at businesses like cement, the industry has its operators, cartels, dealer networks that determine everything. How do you tackle that?

No no, you’re wrong.

If you go to chemicals, everything is dog-eat-dog. By the way, it is not the dog-eat-dog in terms of manufacturing, but also in terms of intimidating some suppliers. So, because it is unglamorous there are misconceptions and you believe whatever you hear. Now we beat this dog-eat-dog by locking in the customer, so he is not mercenary just choosing better prices.

How do you control NPAs or bad loans? Do you have a first right on payments?

Our NPAs are better than that of a few banks and large non-banking finance companies (NBFCs). Let’s come back to the model. Right on payments is meaningless here. Whichever customer comes in, the bank gives him the limit. To use the money largely for buying of raw material or paying salary or paying for his marketing or taxes.

So how to handle the installments? He will pay taxes first, or else the company will get closed. So, if he pays salaries first, then only people will come to work. So, leave that aside, that is about 20-30 percent of his payment. Now you’re left with 70- 80 percent of payments, which is used for payment of raw materials, which is Cost of Goods Sold on the balance sheet,

He either pays a manufacturer, me or a trader. Now for the guys we serve, manufacturing is not relevant at all because they don’t give credit. Their volumes are not really relevant for the manufacturer. So, it is us versus the trader. There we are always cheaper, and we have financing, an added service.

If they delay with me, they’ll have to pay interest. We don't want to replace the banks or the government or salaries for priority of payments. But we do get priority above traders and intermediaries.

What is stopping a Zetwerk or an Infra.market from lending as well? What sets you apart?

Lending is not easy. You need a lot to build it. You need the ability to source (loans) at a low cost, which we get via BidAssist. The loans themselves come to us. If you spend a lot of money in sourcing, then it will hit your P&L (profit and loss statement) gradually, like it has happened for many other new age lenders.

Second, you have to have an underwriting model, which fits exactly with your core service. We lend raw material directly, and the buyer has to pay back in 90 days. There is a service attached to our model, so it works. It is exactly cash flow matched. And third, underwriting is done on the ground. So you have to have a repository of knowledge. You have to behave like a NBFC when it comes to underwriting, and at the same time you have to behave like a new age company to add the service tools.

And you need to learn about collections. You guys cover this space, go check out others’ NPAs. At the peak of COVID-19, in June 2020, our peak NPA  was 1.31 percent. Now it is back to 1.1 again. So, you have to have the ability to collect. The old lenders find it easier to collect, because it’s in their DNA. It is easy to sell loans, much harder to collect them

You should know, I head collections, even today. Collections need to be in your DNA, with your whole organization geared towards it. A common advice in lending is to cross-sell, called servicing, so that the cost of lending is cheaper.

In our case, he comes to me asking for more. I don’t run the cost of cross-selling. I will give him 10 percent of raw material, he will say, “Sir, you’re cheaper, give me 15 percent no.”

So while people can attempt to do it , see I’ve been very vocal about it. I’ll tell you everything that we do. I will never hide anything, or be cagey. Why? Because it's difficult. It will take time. It will take learning. It will take a little bit of capital. It’ll take patience, it’ll take maturity. It will take a lot of understanding of the sectors. Then you can do it. So nothing stops Zetwerk or Infra.market but they will have to build these skills.

See, how many A-rated new age financiers do we have, profitable ones? Let me tell you. Us, Five Star Finance, Veritas Finance, Ess Kay Fincorp. Everybody else has a problem. (Side note: All four companies count Norwest Venture Partners as a common investor)

What makes your underwriting different?

Four things.

The other way in which it is different is that while two to three top people are from the industry, everybody else is a fresher. It has been built by people who joined and made their lives out here.  Modeled by our sales team, ops team, underwriting team. All freshers. You’re building it from the ground up, not having to unlearn whatever you learnt elsewhere.

Fourth, our underwriting ends with feedback from the ecosystem. Our supplier brethren, who give us the material, they tell us, don’t lend to this person.  His books are good, but his manager is not good, causing delays. We take that seriously. Our risk policy is our risk bible. We never deviate from it.

Correct, but Asish, do you think technology plays a role in underwriting? This is something that new age lenders have been trying for a long time, but most of that is marketing?

Did you learn these lessons the hard way, from experimentation? Often you know where you want to end up, but the steps are unclear at the beginning.  

If you want to build a profitable, high-growth startup, there isn’t much room for experimentation. Those experiments are to be conducted in your head, with a little bit of capital on the ground. It was to -- be honest with you, by actually making sure that the people on the ground who are actually doing our work were the ones who built it.

We hire freshers from just outside the top business schools, except ABCL (the IIM’s in Ahmedabad, Bangalore, Calcutta and Lucknow) .We get the cream of candidates from there. So, these guys are very smart, very hungry. They want to make a difference, because they lost out in the early days because they did not get into ABCL. They have brains and hunger. And we said, don’t make it too different from how it has traditionally been done on the ground

Every trader, every shopkeeper, thinks about their credit risk. Understand that and build your own model. And not like we are the first ones doing it. Bajaj did it for retail loans. HDFC did it for corporate banking. They aligned themselves to the market, perfectly matching how business should be done.

You talk a lot about profitability. Are you profitable, on a net profit or EBITDA basis (which covers operating costs)?

Oh very. We have been profitable since day one in financing and we’re too in commerce. We are currently at a profit run rate of about $20 million. Our profit target this fiscal is $60 million, Rs 450 crore. That’s more important than being  a unicorn.

What is your revenue?

See, in our commerce business, that entire $1.1 billion GMV that we make is revenue because we buy and sell. We aren’t a typical marketplace. Our margins here range from 5-8 percent. If you go to our financing business, our book is about $220 million. There our yield will be about 18 percent.

Raising all this money from top investors, do you feel pressure? VC money looks glamorous from the outside, but comes with 20-30 percent IRR (Internal Rate of Return) expectations.

To tell you the truth, if a person doesn’t work under pressure, then he cannot win  Olympic medals.. Indians have traditionally not delivered under pressure, and that’s what we have to change.

How do you and Ruchi  (Kalra, wife and co-founder) split up your work? Are there specific things that she looks and  you look at?

At a very high level, she looks at the financing business while I look at commerce. She's supposed to make sure that the money is raised right and used right, while my job is to make sure money is made. They're very neatly separated. So commerce is done by me, financing is done between Vasant (Sridhar) and Ruchi, agriculture is done by Nitin (Jain). Bhuvan (Gupta) looks at technology including our marketing service.

Anything financing you go to Vasant  and Ruchi who again have a neat split in financing. Anything in agri- Nitin, anything non-agri will go to me. My fundamental belief is as long as people have deep respect for each other but clear separations of work they will always co-exist. If you think the guy is right and he’ll do it, you don’t need to go there.

Do you and Ruchi also have to keep an effort to sort of keep your relationship and your work separate? 

If you speak to Ruchi, she’s a completely different person. People point that out about us actually.  Vasant also is 24/7, Nitin also a 24/7. There is no gap between office and home.

But when this kind of culture is glorified, isn’t that what leads to a toxic workplace? People aren’t happy, the culture becomes aggressive and people feel like they have no life outside this and you lose your sense of identity. 

I think for us this danger is relatively less, because we didn’t start when we were 20-somethings. See, when I started my entrepreneurial journey I was 35, I had already worked for 14 years. My co-founder, Bhuvan Gupta, who leads technology is two years elder to me and had worked for 15 years. Ruchi was 33. Most of us growing up had seen some business or the other.

I had seen trading, Ruchi had seen retailing, Bhuvan had seen retailing, Nitin had seen hoteling. Nitin had already worked for nine years. Vasant had worked for 5 years. In my opinion, toxicity comes in when the guy thinks this is fine. He has not seen another life. We spent time at blue-chip companies, McKinsey, ITC, Airtel, Bharti-SoftBank, Royal Bank of Scotland - companies known for their culture.

I sound that way because I’m a good salesman (chuckles). But I’ll tell you what I’m worried about.The biggest challenge for me is that we've become quite big quite soon, particularly in the last three years. In the first couple of years, we all knew each other, we knew our customers, there was that familiarity. The vision cascaded down to the last guy. What happens when you're 10x of that size? And have we lost touch with the last guy on the ground? Is he thinking the same way that we are? Which is why we keep traveling to each office, calling everybody, going out. It is getting tougher as we scale.

Secondly, our business is fundamentally non-metro. Tier 2 cities peripheries and all that. The average guy who's a fresher does not want to stay there. He wants to be in the metros, have a girlfriend, go to malls, theatres and all that. That is not there in the places we work. So how do you get them enthused? How do you keep him intertwined with our culture? That is getting increasingly difficult.

The third thing that is getting difficult is that today we are not very big, but we are big enough that some flanks are open And they typically get attacked by small, aggressive companies.  So how do you keep your flanks completely tight?

If flanks are open, category killers will come, focused category killers will come, maybe in a single supply chain, maybe some financing which is a subset of ours.

Fourth, we have reached a scale where the next 10 years will be decided by technology. Technology will be the enabler, but it will be built by these new age companies. We have to see whether we are at the forefront of it. Else Jio or Tata will get you.  Are you at the forefront of it, where it is impossible to make another OfBusiness? Where it is impossible to copy.  These are the things, on a high level, which I worry about.

You have reasonable scale today, are well capitalised and growing. Have you thought of an IPO? 

What are your focus areas for, say the next 6 to 12 months?  

We want both businesses to grow 3x in a year and 10x in two years. I am faced with very deep markets, which give me the chance to do that. I have a great team which is raring to go. And I think I have very good backers (investors) who don't just have capital, but they fundamentally believe in what we do.