Failing to Scale an Indian AgriTech Startup with $335k ARR

Hi Tarun! Who are you and what are you currently working on?

My name is Tarun Gupta and I'm 26 years old. I did my schooling in a small town near Sirsa, Haryana but I'm currently based out of Bangalore, a metropolitan city in Karnataka, India. Nowadays, I'm heading supply chain ops at Evenflow Brands, which buys & builds e-commerce first brands. 

Freshconnect was an online B2B marketplace for fresh agricultural produce like fruits & vegetables. I was co-founder & COO and was responsible for operations, business development & finance verticals majorly. Anyway, you practically need to keep an eye on all areas of an early-stage startup as a founder. 

We had a very simple business model where we used to charge a margin on top of cost price for the products & delivery charge for the logistics services to our customers.

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What’s your background and how did you come with FreshConnect’s idea?

I hail from a lower-middle-class family in a small town but I have always been a curious and aspirational person since my childhood. In our society, if you are an above-average student you either go for engineering or medical for your undergraduate studies. I chose engineering as I liked maths and went on to prepare for JEE (Entrance examination for getting into prestigious engineering colleges IITs). After failing once and in my final attempt, I got into IIT Delhi (top 3 engineering college of India). College was a lot of fun, I got to explore my identity after seeing people from diverse backgrounds. Also, I got to learn about entrepreneurship for the first time while doing my first internship for a startup that was operating from the dorm room of my college in 2013.

After that, I tried to start my own company and after trying multiple ideas, when nothing evolved into something tangible and with a lot of pressure from family, I was forced to take up a supply chain consulting job through campus placements. 

Even after joining the job, I used to try to be updated on what was happening in the startup ecosystem and tried to brainstorm ideas on weekends. A few months later, I was exposed to the conditions of the Indian farmers when I saw hunger strikes and farmer rallies happening all over the country. Looking at this, I realized that it was the inefficiency and unfair practices involved in this sector that lead to low farmer incomes. I started researching this field with the idea of connecting farmers directly to markets. After a few months of working part-time on this project, I finally decided to take this up full-time by quitting my job. The initial idea was called FarmConnect and consisted on connecting farmers to markets. I was working on this with a high school student who was passionate about entrepreneurship too. But later on, it didn’t work out and I was left with no job and no co-founder. 

But I kept working on the idea and started talking to people in my network who were working on solving similar problems. One of my seniors from IIT Delhi connected me to Amit Kashyap, who was also my senior at college. After graduating from IIT Delhi in Electrical Engineering, Amit started his career with Honeywell Aerospace as a Senior Engineer in 2015. As he worked on system engineering techniques for Aircraft Maintenance IT Solutions, Amit always wanted to work for society and create an impact. This led him to the conditions of Indian Agricultural Producers and he grew passionate about this cause. On gaining a fair understanding of the inefficiency in this sector, he started working on bringing markets closer to the producers. Around the same time I got in touch with him and after a few discussions and debates in the initial stage, I and Amit decided to go ahead with the idea of FreshConnect.

Prior to FreshConnect, while in college, there was an important moment in my entrepreneurship journey. In my second year, a guy with a diary in his hand knocked on my door. He explained to me that he had a business opportunity that didn't require investing a lot of money or resources. It was a multilevel marketing business, where you earned passive income by growing your network; just like the Amway model. In my desperation to do something, I thought this was a sign and I took the opportunity by spending INR15000 of my college scholarship on that. This guy later convinced me to spend INR25000 more, so as to be able to get success faster. It was all logical for me at that point, so I did invest all my scholarship amount of that semester. Unlike other MLM companies, they were giving products worth the same amount I was investing, but the problem is that no one needed them.

On top of that, I flunked my studies to completely focus on my business and justified it by looking at examples like Bill Gates who dropped out of college to start their business. I performed very poorly that semester, lost my scholarship money and soured a lot of relationships with my friends by selling this opportunity to them. This also hurt my mental health as I went into mild depression (without knowing it). I was ashamed of myself because of this failure and I didn’t tell my parents about this until everything fell apart. 

But this experience taught me a lot of life lessons: 

• It's not worth fulfilling your ambitions at the cost of precious relationships. 
• That I am good at sales. I did great in selling memberships as the first time selling something. I used to show them the big picture after trying to understand their motivations in life then. 
• I should not put all the eggs in one basket especially in the case of startups which are very risky endeavors. 
• There should be a fine balance of emotion & rationalism while making these decisions.
  

How did you go from idea to product?

One month before I left the job (July 2018): 

Amit and I had different ideas for the startup. While I was trying to connect farmers to markets, he was trying to create an online marketplace for businesses & farmers alike. But there were a lot of similarities so we decided to brainstorm the ideas together and come up with a common framework to work these ideas out.

At that time, I came across the book Disciplined Entrepreneurship by Bill Aulet, a professor at MIT Sloan. He had created 24 steps to build a successful startup. We used this framwork to define our target segments and figure out the most pressing problem these segments had.

We decided that we wanted to solve problems for retailers in the procurement of fresh produce. For that, we needed to learn what their problems were  by talking to them.

Besides this, Amit had already hired a fresh graduate who was a software developer to help him build the tech product.

After I left the Job (Aug 2018): 

We drafted a list of questions inspired by the book and started going to retail stores in nearby areas trying to understand their current purchasing process and problems they were encountering.

Also on the side, Amit & the hired developer started working on the tech product as basic wireframes, etc. were already in place from the work that Amit had done before FreshConnect. Amit also convinced 2 experienced software engineers to come on board part-time to build the backend & frontend. Moreover, we brought 1 more team member who was from our college and a junior of Amit in order to handle operations along with me. 

Part of pre-accelerator (Sept 2018):

Until this point we were on our own and being first-time entrepreneurs, trying different things. I started applying to accelerators and similar programs to be part of the ecosystem as well as to get mentorship.

We applied to an equity-free pre-accelerator called Startup Launchpad and got selected. The commitment was a few hours on the weekend and they helped us with doing customer interviews and with our GTM strategy.

With their help, we launched the same month with 1 customer, to whom we delivered the products on our bikes. We hadn't built any tech yet and we were still heavily using WhatsApp for customer communication and GDocs for all our internal planning. 

Tech Product Launch (Mar 2019) 

We did a lot of experiments with Whatsapp & other free tools to understand customer behavior initially before launching our product.

We initially planned to launch the tech product in Dec 2018 but it got delayed by 3-4 months because of the challenges around DevOps or expectation mismatch from our teammates who were working part-time.

Finally, in Mar 2019, we launched a web application where users could log in using their phone number and OTP, see all the categories of products in a structured format and add to cart. However, there was no checkout system. Orders were finished through Whatsapp. We wanted to launch faster and Amit came up with this hack.

We initially used Firebase for beta but we then shifted to AWS (free account for 1 year with limited options) as our server.

There was another challenge that we faced which was related to our target audience: retailers were not tech-savvy and we needed to push them to order through the app. I think this push is needed to change existing user behavior. While well-capitalized players do it through giving deep discounts, we did it manually.

Burning Money (Oct 2019)

We grew 10-15% month on month and till this point we were completely bootstrapped, unable to raise outside capital but at the same time, we were losing money m/m due to operations cost & defaults in credits by customers.

In October 2019, I did some calculations and realized that we only had one month of runway left with our existing resources. It was a wake-up call for everyone. We immediately took a small loan of Rs. 3Lacs on the company. However, it was still a small amount for the long term; we needed to raise equity capital.

The motivation of the team start going down as we started losing our monthly growth. My co-founder took a break in Nov 2019 and went to his hometown. During that time, I kept trying to keep the boat afloat as much as possible and looking for ways to raise money in desperation.

Which were the strategies to grow your business?

We didn’t do any paid marketing in our journey of FreshConnect as we wanted to grow organically. We were not present on any social media platform. We onboarded our customers through offline sales and used WhatsApp for communicating offers.

I think customers were very responsive on WhatsApp as more than 390M users use it in India. Offline sales worked well as it allowed us to understand the problem of the customer and accordingly position our solution, which resulted in better sales.

When did things start to go in the wrong direction?

Check out my reflections on this question here.

At a personal level, inexperience was our disadvantage. I & my co-founder were recent graduates from the same college and I know that a lot of founders start right out of college but that should be balanced by a mentor or advisor who helps you to understand the macro view of things. As first-time entrepreneurs, we made many mistakes in hiring, business model, and GTM strategy, but the biggest mistake was not being nimble. We got stuck with the initial team and business model for long enough for us to not be able to come out of it successfully.

Which were the causes of FreshConnect’s failure?

There was not a single reason for our failure. We made bad hiring decisions initially as well as didn’t fire bad elements at the right time, set up wrong expectations from each other (as co-founders), did not work much on financial planning, took the initial interest of investors for granted which didn’t lead into investment, among other reasons.

We started raising outside capital very late in the journey. We had real-time feedback with customers but not with investors which, in my opinion, is equally important and helps you to have a macro view of the model along with a micro view of problems that you are trying to solve.

A lot of founders think that media or marketing is just to reach customers, but it's super important to reach to investors as well. No investors had heard about us even though we had achieved better metrics than others in the ecosystem. This is another mistake that did cost us our company. 

We also lacked focus initially and spread ourselves too thin as per our limited resources. This led to us achieving inappropriate metrics which made it hard for us to raise external funds which were necessary for our business model. 

I remember that we had a healthy revenue growth rate month on month but didn’t have the financial backup to sustain it for long and we were desperate for capital. We already had initial interest from 2 angel investors and we were relying on this capital to survive. Both deals fell through within a week due to the investor’s reasons. This seemed like the end of it but I was still optimistic and tried to curtail expenses and increase our efforts on fundraising so that we could survive. 

My co-founder had a mental breakdown and we all suggested that he took a break for some time. It was tough for me to manage  this situation but this was the right thing to do. He went home and started getting better. But then I got a call from him after a few weeks telling me he couldn't take it anymore and wanted to quit. I think this was a mental breakpoint for everyone. Slowly, other team members started to quit too.

I tried to get an M&A deal for a month but without any success. Eventually, my co-founder came back and helped me to get an acqui-hire deal with another large company. The rest of our team joined the other company along with the transfer of our whole business. FreshConnect went on as it was and even grew more than 6x in the acquirer company.

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Which were your expenses? Did you achieve any revenue? In the end, how much money did you lose?

MRR: INR 2,500,000

ARR: INR 25,000,000

Burn (Expenses-Revenue): INR 100,000-150,000/month

Money invested: Rs. 1,500,000 (Founder’s savings & loan)

Time Spent: 19 months (full time). 6 months (part time)

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If you had to start over, what would you do differently?

• Find the right co-founder (preferably someone you know) and have as many hard conversations as possible before committing to starting up. Set the right expectations from day one.
• Focus on making one thing successful rather than spreading yourself too thin. 
• Think hard on your finances as that is the fuel that keeps a startup going. Work on raising capital early if needed. 
• Hiring decisions are the most costly one, so take time and effort to make the right initial hires. Set right expectations and sell them the bigger vision.
  

At the initial stages, I wish we should have spent more time on hiring, fundraising & talking to users rather than increasing our sales and revenue. Also, I should have spent more time working on our finances and less on optimizing ops. 

Which are your favorite entrepreneurial resources?

• Paul Graham's website.
• Zero to One by Peter Thiel 
• Disciplined Entrepreneurship: 24 Steps to a Successful Startup by Bill Aulet