Diamonds are forever.
But in 2008, they also went online. In our first ever video episode of the Blume Podcast, which happens to the last episode of Season 2, Karthik Reddy sat down with Mithun Sacheti, the CEO of CaratLane who spilled some gems on the glitzy yet laborious world of being a D2C jewellery brand. In a traditionally ‘low-trust’ society like India, Mithun and his team went from his early days selling jewellery with the family-owned Jaipur Gems to becoming an indispensable part of the Titan group. The journey has is fair share of ups and downs, including a riveting conversation with Rakesh Jhunjhunwala, the topsy-turvy process of raising capital, and solving for trust through brand-building.
Karthik: This year's theme for the podcast is compounding, and few other industries value compounding like the jewellery business. Think about it. Some of the biggest global brands were created centuries ago. Tiffany's, 1837, Cartier, 1847, Chopard, Swarovski, 1895. In India, we've always been patrons of jewelry. Jewelry plays many roles. It's an emotion, it's an investment, something you inherit, something that you flaunt. Our guest today is at the intersection of this compounding journey and this multi-emotion-evoking product. Mithun Sacheti has been in the golden eye of the media storm for the past few months, and for very good reasons.
Why wouldn't he be? He built out CaratLane, and that build-out is one for the ages. all the way from taking a small 74 lakh loan to start the company to becoming one of the largest omni-channel jewellers in the country. 200 plus stores now, tracking 3,000 crores in top line and valued last from what everyone's read in the press at 17,000 crores.
Mithun, welcome to the Blume podcast.
Mithun: Thank you, Karthik. Thank you for having me over here.
Karthik: So I'm breaking up the podcast into three parts, Mithun. First, we'll talk about the origins, essentially the storytelling from the entrepreneur. Second is more around, in your case, how you scaled the business and how the Tatas got involved. Because that's unique in this journey. The last is focusing on the theme, which is compounding. And compounding not just in terms of value and wealth and numbers, but also organizations and culture. What legacy are you leaving behind for the business, even if you move out of it?
In the intro, we briefly spoke about how gems and jewelry are generational businesses. It could be obvious for many people, but I would love to hear your take on what makes these kinds of businesses generational. In tech, there's a phrase, right? Is it a feature or is it a bug? What do you think that is in your view?
Mithun: The nature of jewelry comes from two parts. One is the raw material itself, which is a commodity. The underlying commodity to this whole thing is extremely malleable. And when safes, etc., were not there, the best way to flaunt anything really was to wear it. That's how it really began. If one goes back, the other thing with the commodity was that it's tradable anywhere and everywhere. So the recognition of this or flaunt value of this is very high. The ability to trade this was extremely high. So there was nothing that was really very different from anything else that you want to flaunt in life now as well.
Mithun: There's something from ages back.. if you read Chanakya Niti it comes across beautifully in that where Chanakya says that 25 percent of your wealth, whatever you define as wealth, must be in the form of gold because that's your bet against your own kingdom. And he possibly established that so deep in the Indian psyche, particularly South Indian psyche. Because they obviously have the longest legacy, covering significant parts of India, that legacy has stayed strong, especially in the south. I guess partly because the south had only seven wars, compared to 35 in the north. So, if you were to think about the role it played in India, every time there was strife or anything else, the only thing that people could walk or move with was their gold. So, if you walk somewhere else, if you take that gold out and imagine the person who's ravaged and walks without that and one who walks with this sort of automatically solves for it. And I think as time has gone by, listening to my grandfather, granduncles, and different people, the role of the commodity has now just shifted. The role of the adornment has increased. So, that's the change that has happened. But in India, I think that deep-rooted behavior of this has come because of that. The global average of jewelry to GDP is 0.3, and the Indian average is 2.1. It just tells you that we follow this. We just don't know why. In that quest for figuring this out, I realized that this is why it happened. It was Chanakya who really made it grow across.
Karthik: So, I think you've delved into it to understand personally why this journey is so important to you. When you left your family business after spending eight years there to launch CaratLane, of course, because you've been in the startup world, the story has been told more than once in the 14-15 years in the CaratLane journey. But still it would be great for the audience to hear, especially young entrepreneurs or Entrepreneurs-in-waiting.. is what gave you the conviction at that point to launch CaratLane and not do this as potentially a line extension of the Jaipur Gems brand. Also, maybe touch upon the beginnings of the compounding theme. How important was it for you to have spent those eight years? And how does that help in compounding this journey?
So, this is another thing that we found when we spoke to Nithin at Zerodha, for example. He says, the business is 13 years old, Karthik, but we've been doing this for 24 years or 25 years or 29, or something like some crazy number. And he said Nikhil has been trading and giving me profits to fund the business, and we were doing this for our own living.
Then Zerodha was born out of our need for that. Analogies from your side, from the Jaipur Gems journey, and then how CaratLane began?
Mithun: Oh, I think there could be no CaratLane if there was no Jaipur Gems or the time that I spent over there. And Nithin's perfectly right in what he says because what happens in your life before you start an entrepreneurial journey is what shapes your thinking at that point. And for me, my mom and dad were so involved in the business in two very different manners .. and that would hammer home all the time, the whole concept of cash flow and savings. He was a rich man, but nobody possibly realized that but he was a very wealthy man. And he never showed his riches. So he managed to keep his wealth at all times. Mom was extremely hardworking. She was the dominant force behind the business. There were people who would work on design with her and would be working from home many times as well on weekends, etc.
We would really get to see what this business was all about. So unknowingly, all of this was getting transferred as well. When I finished the last couple of years of college, I was really stressed out because I felt that there is no way I can compete with the effort my mom puts in at work. It's almost impossible. Women, when they decide to take something on, it's the singular focus on solving something. And I think it's just, it's, I honestly feel men can't have that. It's just not, we are far more distracted. Distracted, and they are far more focused on doing things as well. Also, I guess they raise children more than men raise children, right? So I think God's just given them that trait. Yeah, I think she was just so good at it. That would make us nervous at all times, saying how are we going to be able to deliver or take this forward and do what she's done all these years as well. Whatever. I mean, that nervousness was there… I went to California for gemology jewelry manufacturing before that couple of years working in the jewelry space for somebody else trying to learn the trade as well came back, joined the family business, and very soon realised there's no space for me because the 2000 square foot store, three people already there, this guy's unemployed.
So I quickly ran and figured out where else I could build this out of, and we had a property in Chennai. And Chennai was a great market anyways, also in terms of jewelry. So I thought I'll just move there. You don't think too much at 21. There's a golf course and there is enough surfing over there, and I'll figure life out after that. So it happened that way. When you walk into a new place, the fact that you don't know anybody, and you have to build a business from scratch. And for someone like me, who is building something and to be able to even transact with a guy like, let's say Amarnath, who we know in common, or his family, Shweta…Was a big achievement in itself also to reach that space.
Karthik: Yeah. It teaches you a lot about yourself.
Mithun: Yeah. It took me seven years of attending to every single person and manufacturing right there. So I started with small manufacturing, created what I wanted to sell, customized it to that market, and took my skill sets from America because the one thing that America taught me in education was that I could speak the vocabulary that everybody else around me could not speak.
So that differentiated what we were doing as well. The exposure it gave me to all the Cartier, Tiffany, and Van Cleef, etc… and what that meant for India is something I could understand. So I think those eight years taught me a massive, great understanding of design, as well as manufacturing. The absence of that, we would have been a tech business.
Karthik: It would have been like a tech when you're trying to build a jewelry business.
Mithun: Correct. And that's the difference really between us and many other players in our space as well also on that part. Because ultimately, we're an enabler with tech. We're like an enabler with marketing.
Karthik: Absolutely. But that's not the main product.
Mithun: A brand has an ethos. And I realised that we were really into high-end jewelry, and we were catering to an audience where that brand would not work If we had too many people walking in and trying to buy the same thing. Or trying to buy different things across because in a design-led brand, you need to know which market you're really going after. It was very clear that Jaipur Gems could not do that at all. The question did come up quite a few times from the family, why not do it right here itself? It's a successful business. And there's no reason to leave this and start something new. But it was successful from the point of where the world was at that point, it would not be successful from where the world, at least I saw it be 10 years ahead as well.
Also, all the guys like CK Prahlad and everybody were really at their prime at that point, talking about the bottom of the pyramid and all kinds of things. And what did it mean for the jewelry business? Yeah. And if it did mean something for prosperity and the jewelry business, and time has told us that you can't isolate; it's not a sunset industry, it never will be in India.
It was crucial to develop a merchandise line for the next generation of customers. Jaipur Gems, like all other jewelry stores, was designed for the mother, not for the daughter. The mothers would bring the daughter in, and we were never a destination where the daughter brought the mother. So we had to rethink ourselves entirely, in a new avatar, and try to create that. In a world where she would build herself or in a world where she was hanging out because the hoarding is not going to look very different. Whichever brand you put, frankly, you take all the brands in India, you replace their brand name, and put another brand, and they all look the same as well in jewelry. We have nobody's created any differentiation. One actress is an ambassador this year in this brand. And two years later, she's an ambassador in another brand, so it doesn't change much as well. So that distinction. A new audience, a new product for her in a new space, which is the internet.It would be a lot easier to do it in a brand new slate as opposed to building it in the existing family business
Karthik: Very sound thinking now coming to ups and downs. I know you've spoken a lot about how you were surprised despite pitching and nobody giving you capital, getting cold-mail from Lee. He was good at doing that back then.. but going back to maybe more fundamental challenges, was it only capital? Were there other challenges in the business?
Mithun: I'll tell you why capital as well. Also, we came in early. We were possibly a couple of years early on this journey. Happens to the best of us. Yeah. So when you're a couple of years early, your staying power needs to increase. Staying in power only increases with capital. So at that point, that became the need that we identified we need to solve for as well. Also, the 74 lakhs invested by the family was not going to take you that far in life. And 26 lakhs by Gopal was not going to take us that far ahead in life. So capital became one constraint. And if we didn't get that at the right time, frankly, survival would have been difficult. When we were not able to sell in the beginning, and nobody was buying, people were browsing, but not buying and conversion rates were like 0.01. It makes no business sense to actually be in business at that point. Every voice that you would hear, and people who are very sage, and they're saying it for the good of us, they're not saying it from any other thing, would tell you this is not a category that's not an online category as well.
Those things are great advice because Omni would not have happened had it not been that advice either also on that one. But the pressure that it puts on you that I would literally go to a TIE event, and I would be embarrassed to say what I'm doing. I remember Ramraj was the head, and I was going to a TIE event, and I could not even introduce myself saying what I'm doing, and I left 20 minutes into the event because I felt these are just all very big, established people. And, so self-doubt creeps in a very large manner at the start of a business. And I think it's very normal, you have to get over it. Yeah. And you have to get back to what you're conquering.
Karthik: That is the first step.
Mithun: So that was one. When the website went live, the Eureka moment, right? You switch that button on and you're there and you go three months without a transaction. That is a very painful phase as well also at that point. And then we got this first transaction and the nightmare of trying to fulfill the transaction. HDFC says, no, why should anybody want to buy from Japan for such a high value? .. he can buy in the local shop over here itself also. So we will not open the payment gateway for this. This could be a potential fraud as well. So to get that transaction through, we had to give a higher amount of money as a deposit to them saying if there's fraud, we'll take care of it. When you speak to a customer, you can figure out whether he wants to go through. And they had I think a 10,000 rupee lock or 50,000 rupee lock, and they said no transaction allowed above this. Blue dot for a courier. Why would anybody want to buy jewelry online? To try and convince all those guys and you know when it doesn't happen in one day, and so a few weeks later and you keep thinking to yourself am I like taking something on which is..
Karthik: Just insurmountable.
Mithun: Yeah infrastructure is just not there and we have to create.. we had to create payment gateways for high value. We had to create courier services for jewelry as well. I felt like that formula one car, which is, driving in the rain and the guy at the back who's going to come is going to have a great time. So that was another one. One of the hardest moments is when the government comes to your door. And they really make your life difficult because there was a FDI regulation change that in e-commerce. FDI in e-commerce is not allowed and we had already raised money.
Karthik: You have to reconstitute the business like every other e-commerce business.
Mithun: Exactly. You know that when you do that, in spirit, you're going to struggle with this whole thing as well. Luckily, we were a single brand manufacturing business. So at least we were not that far off. But the guy did come knocking on the door and you had months and months of this.
Karthik: Interpretation. Opinions. Risks.
Mithun: Yeah. Yeah. Your business is not established and you're going through this at the same time as well. It adds another layer of crazy stress on this whole thing. That it's just painful to go through something like that. 2016.. this is something I haven't told anybody yet. Titan and us agreed on the deal in January. And at the last moment, their board didn't approve it. And we had announced a transaction to our team at 3:25, because 3:30 was the stock exchange announcement going to go out as well.
Karthik: Because they have to publicly announce anything.
Mithun: And 3:25, we were supposed to announce.. the press is in our office.
Karthik: Oh, wow. You'd set it up?
Mithun: We had set it up because this was a big deal for us as well. And I announced that and to the team and we're celebrating, it's a seven year anniversary and everything else like that and great. All of that stuff. We got a call at 3:28 saying that, sorry.. it's not going through, a certain member in the board has not agreed to… on that part. And it was like a death blow at that point, because you'd worked six months towards it. And my relationship with Titan is a very deep, long one.
Karthik: Yeah, clearly you've built it…very carefully.
Mithun: And I just did not know what hit me, because I've just announced this to my 400 people who work at Caratlane. And luckily, it happened in three minutes, this whole thing. And only one person had tweeted about it. And nobody follows him. So we could pull that back, and do that, but it was just like, as if, my stomach was in my mouth and I don't know what and, because you'd build your dreams over the last six months of where you're going to take this business, everything else around it. And even though the business at that point was a hundred and maybe forty crores in revenue or something like that. It was like a death blow. That was the worst day in that whole space as well also.
Karthik: Wow. But since you brought it up, how did this get reversed? 14 year?
Mithun: One man, the CFO of Titan then, Subbu. Who also felt the same thing because he'd worked on it on the other side…
Karthik: The champion on that side always feels…
Mithun: He felt the same thing. He felt it so much that he felt like, I don't even know whether I want to continue this thing and can you believe we've met Cyrus Mistri before that. We've signed off with him. We've signed off with everybody. Lee himself flies to India to meet Cyrus and closes the deal and everything. And turns out a person who, you know one of the members said, no, but that's the beauty of Tata's also that they're so consensus driven that, they wanted everybody aligned as well also. And a month later, Subbu called me and said that look. Let's pick up, let's figure out why, what happened. And I still don't see why we should not do this as well also… And he was kind enough to share with me who had the objection on that part. I won't take his name and Bhaskar Bhatt is the MD of Titan. Bhaskar is the greatest matchmaker, I call him in life as well, also because he can really think all these things through how to solve for it, do all of that. And he was the MD then of Titan, now, of course, he's the board member of Tata Sons. Even this transaction was because of him. So he went and spoke to this gentleman saying, tell me the reason, management feels this is the way to do it, Tata's feel this is the way to do it, there must be some reason that you have. Certainly it's not the business, because that decision is ours. And if you take that decision away from us, we don't know. If you have a concern on value or anything else like that, then tell us about it. Whatever he had his concerns and said that. Since I knew the name of this person, I discovered one day that he was speaking in Chennai, or rather he was a chief guest at a function in Chennai.
It was a magazine called Ritz, I think, or something like that in Chennai. And I was reticent at speaking in those days, going anywhere and doing that. I said, I want to speak over here. And she makes me the keynote speaker at that. And I went there, and I possibly had my entire heart and emotion out in that one conversation. And I could feel that it went well, because I had the audience literally give me a standing ovation. And this man then walked up to me and said, Oh, what a beautiful business you've built. You might know me. You might know I'm the chairman of Titan, etc. I said, Oh, great. So I would love to have an audience with you and that audience basically clinched that whole thing saying why it's a great business and let’s do that.
Karthik: Making naysayers believe it's different, I think, isn't it a thrill in the entrepreneurial journey?
Mithun: It is. And actually when they believe in after that is really the journey you don't think about at that point. You don't. Yeah. And you shouldn't either. Also that thrill when they actually convert is a nice chuckle in the mind.
Karthik: So quick shift, like you're moving away from the family business to wanting to build a tech led business. Originally, that's what he thought. How did he meet Srinivasa Gopalan and how are you different from each other? What makes that co-founder chemistry click? And it held up for very long.
Yeah. So Srinivasa Gopalan, for many people might not know, was one of the key members instrumental in taking SIFY to the Nasdaq.
Karthik: Okay. Okay. We knew SIFY's story from the 90s but didn't hear of this gentleman.
Mithun: .. obviously, it was more Ram Raj and everything. So he, Padma, all of them were in the core team.
Mithun: Okay. Obviously had a lot of respect for him for what he'd done. He was a client of mine at Jaipur Gems. Okay. The nature of Jaipur Gems was that you'd meet fabulous people. And the life of a salesman in a business like that is that you get to know every single person.
Karthik: The families, their stories,
Mithun: Yeah, so I spent a lot of time talking to him and I'd seen him go through his fundraise. He moved on and then built a company called Lister Technologies. Little did I know I thought all tech is the same, all construction companies are the same. It's like how Tata's believe that TCS can build websites, so it's the same exact way it goes as well. Or rather web businesses. I think I kept pushing him, really, I have this idea. Can you listen to me about it? Every time it comes by jewelry, it'd be like, Oh, my God, listen to this guy again. So he wasn't a believer. One day he had a friend of his who came from America.
And I convinced him to buy a 60,000 diamond back then without seeing a diamond basis of a certificate. When that happened that without seeing a diamond, you can buy a diamond. Gopal wasn't a diamond buyer, he was a gold buyer. So you know, he didn't have a relation to that product. He realized that Oh, this is possible.. Somebody just did a 60, 000 transaction with this. That was the aha moment for him. And he said, Okay, let's try this out. And I needed him because, to the extent I'm an extremely, in those days, I was an extremely poor computer user and in my 14 year journey, I've never used a computer also, I'm that bad, for me, everything's the phone. So, he was convinced. that this is possible. And, he also is clear that he runs a business. He's busy with that. He's raised money. And he had, then he bought back ICICI Ventures by then, I think. And but he was clear he's not operating, he's not getting involved with it. So what I got was that half an hour every Tuesday, he would come for coffee with me.
And that's my relationship with Gopal. He's 20 years older. He's the chairman of the company all the way through. We were, ¼ or 3/4 partnership in that business. What fabulous advice, ability to… how do you attract talent? How does one build on that?
I learned a lot of what he knew on that..
Karthik: So you got mentorship, organisational leadership. And of course, just a sounding board,
Mithun: Just a fabulous human being, so I really enjoyed that piece with him. And
Karthik: I think it's a very peculiar relationship, jewelry customer to the jeweler. But I haven't heard you, you won't hear that kind of a co-founder relationship.
Karthik: What we have seen through years of both formal research, I've seen some from my alma mater at Wharton and some by just looking at our data sets, it's that deep element of trust and respect for each other is important if you want a long standing relationship. Co-founders is easy to put a.. like a title to it, but it's or it doesn't.. most of them don't last long for that reason.
Karthik: So it's always someone from your past. Yes.
Mithun: In a way, Karthik, he was an angel investor and a mentor at the same time. But the impact he had on me. It would be wrong to not call him a co-founder.. That's how I see it.
Karthik: Another important influence, at least our team dug up in research, and you can correct me if I'm wrong, seems to be the late Mr. Jhunjhunwala. And you mentioned in, I think, in an interview that for the first time you met him, you couldn't hold his attention for more than a minute or a half a minute. What was that about? He didn't believe in the business. And then how, again, same thing. How did you convert him to then becoming a mentor to you? Maybe a glimpse of someone that the startup world doesn't see much of, that you seem to have, so would love to hear the audience have that.
Mithun: RJ was a personality.
Karthik: Yeah, I've encountered him a few times, he is absolutely a great guy.
Mithun: Massively opinionated about what he believed in it. And there was an unbelievable line he would tell me, and then he repeated that one day to me as well. I'll come to the line later. So he was sitting and I go to his office and before I could say anything, and I think we had some people in Chennai were related to him, friends of mine, as well as Bhaskar, who was trying to stitch this deal together, and he obviously were very close to Rakesh, and ..
Karthik: He's been a big believer in Titan all through
Mithun:. I think he's been a bigger believer in Titan than Tata's… because when they were not willing to, uh, put more money in, he put more money in as well at that point. And he really stuck by them for the time that he did as well. And Bhaskar wanted an opinion as well also, and so that meeting was set up and I was sent over there and he said, this is all nonsense, you guys don't know, take VC money and then you all are thinking, making losses and all of these things and what is the need to make loss in selling jewelry on that part, right? And doing that part. So, I said, you're right, it's a mistake I made for years.
“What's your gross margin?”, he asked. I said 17%.
He said, “what is Titan's gross margin?” I said, “about 22%.:
Mithun: Icebreaker. Yeah, icebreaker. So I take the cigarette, he takes, he also takes one, he lights it. Yeah. When he lights it, he can't sleep. So he's awake. And then I narrate what I'm trying to build, how I think it's for the mother and this for the daughter. And this is the natural extension. We had a feeder brand into what they want to build all of that stuff, etc. And he heard me through the whole thing. And he says, see, the thought is right. But this loss making business doesn't make sense. Okay. And then in the end, he said, you haven't a cigarette? I said, no, I don't smoke..
Karthik: That's awesome.
Mithun: He told that story a few times, so he says, isne mere ko banaya.. You know…
Karthik: That's a great story, great point.
Mithun: And then, as the deal happened.. And he saw the changes… and his words and gross margins stayed with me all throughout. That's 17% - when I leave CaratLane now, we are at 34%.
Mithun: So we are.. dramatically different
Karthik: .. and since it brought that up, maybe one, two quick pointers.. how does it climb that much when Tanishq can't hold it at the moment?
Mithun: You must choose the right segments to be in first thing. Ultimately, there is a poor definition in the jewelry business of what is the customer's lifecycle. We are very clear that we are in this lifecycle of the customer from his 1st anniversary to the 15th anniversary.And every occasion that happens in that is a share of wallet for us. So we go after that share of wallet in that business. Got it. So let me give you an example of a kid in a.. by the third or the fourth year most people have a child or fifth year. At birth, Nazaria becomes a very important thing. The black beads as well. Same time you're gifting to other people because the birds of a feather flock together. You're going to give that same thing to other people who are, because once children are born, people start to hang out with those whose children are born and that bachelorhood and that couple hood sort of thing goes away a little bit.
Mithun: Yeah. By her third birthday, Peppa Pig becomes extremely relevant in the family. And so we went to Cartoon Network tied up with Peppa Pig and made that our brand. Today we do, I think, 80 crores of Peppa Pig in a year.
Mithun: And at the seventh birthday, we have Doraemon. And Powerpuff girls, but I've realised zero to five is when people really spend for kids. Then seven to ten again is like a lavaaris.. the child. At the 10th birthday is where we realized again.. to read.. and we had to become relevant for the child as well also. Yeah. So we got into Harry Potter because almost the way people would say about Lord of the Rings.. that a big chunk of the English speaking population has read or that the largest chunk of English speaking population.. that I think Harry Potter is the next thing. So we got into that and that became the big thing for us. So that's a kid's life cycle management. Same thing goes for anniversaries and birthdays of everybody. So we started solving by saying, when is the milestone that you're going to buy something big? Which are the small ones? How do we make bite size available?
So if I now know that Karthik, where you are in this life journey, I have to take you from here to the next level as well. When I become that relevant to you, you don't mind if I make more margin.
Karthik: Very interesting.
Mithun: So you approach life very differently on that. And you do your own business. You don't have to worry about what others are doing. Whereas if you take All of the other jewelry, they'll say, okay, this category, what is market share? What can I take away? That category doesn't lend into your thesis of how to make the same customer come again and again. Then you're just building new CAC for new customers at all times. It makes no sense whatsoever.I remember Irina once telling me that, I,
Karthik: She's also an amazing consultant.
Mithun: She is, yeah. So I was building a TV campaign and I sent it across to her and said, what do you think about this?.. then I met her at the Elevation conference.Ttarget number of customers? That year, I think I was looking at two lakh customers.
She said, do you really want to go after 140 crore or 100 crore Indians to get two lakh customers on that? Don't you think that's extremely inefficient? And it made so much sense. And you realize at that point that .. This, throwing in the dart.. darts in the dark or a needle in a haystack, all of these kinds of methods will never build a great business at all.
It's around 2015 that she told me that.. 14-15. Yeah. I took that so strongly, that statement she made to me that even at 2500 crores or 3000 crores which will be this year, we still don't have a TV campaign. We just never needed that. And we set ourselves a goal saying that only after a million customers Transacting per year happens on that year Then we'll even consider this part because just to accelerate and we'll have enough money that we can now aim for the 10x growth after that. So I think We often get these things through conversations and we just have to figure out what it means for us.
Karthik: Slight, in the same vein, because we started talking a lot about the business Piyush of Lenskart was our first guest on this season. And, he also started the same way. People will buy eyewear online and what he realized is people didn't like others coming to their home to just do an eye check. And they needed it. Otherwise, how would you know? Otherwise, you have to pull them to a store. I just don't know my power to be able to order online. Slightly different problem than, let's say, buying jewelry, which is about trust and quality and stuff. So I know you.. He's gone double down and triple down on the store model. Somewhere along the line that happened in your case as well, right? And now you have 200 stores and the Tata partnership obviously helps as well. But again, what are the one or two first insights that led you to that inevitability?
Mithun: Karthik, we built a store very early. Even before him. Yeah, 2011 is where we looked at the first store.
Karthik: And, was it in Chennai?
Mithun: In Delhi, in GK1 market, it was a disaster of a store.
Karthik: Oh yeah. I've read a little bit about it.
Mithun: Yeah, it was a disaster. We got the format wrong. The second thing is that, see, doubling down is not going to do with the number of stores. It's got a number of customers, right? At my price point, I think we both have the same journey. You realize there's a tactile need in the product and the tactile need cannot be satisfied unless and until you have… you have physical locations, what we are doing, both of us to that extent.
And I think It's always great to see what he's doing because there's something for us to learn at all times. And before that, we spent a lot of time with Bobby Parker, the model on which Lenskart is built as well. And the time spent with Neil, et cetera, we realized that try at home model, which they had done over there, we tried building that in India as well.
Also extremely inefficient when the infrastructure is not there. In US what happens is a credit card… you can swipe on it and you can reverse back and all of that stuff is very easy. It's a nightmare with the OTPs, et cetera, in India to do that part. To treat all this as a return is not a feasible structure at all. While the OTP is great, I'm not complaining about that piece, but I'm saying that the infrastructure is just not there to do this. Reverse logistics just doesn't exist in India at all, right? It is even today an extreme. So it's a poor experience in a general commodity. Just imagine what it will be in jewelry.
Karthik: That's right.
Mithun: So we almost do all reverse logistics ourselves in like top 30 cities or something like that.
Karthik: So you have your own employees.
Mithun: We have no choice… Not really employees, but our controlled partners on that. We just do this for us. So stores became, it just became so easy and understanding for us.
And, the way the path we took was, so we didn't want to raise more capital. We were very clear about that part, that raising more capital is a very expensive thing for us. It's just too much dilution. Then who are we working for? That became the question always in the mind of the family as well also.
So that constraint helped because what it ended up doing was that we went in clusters of cities.. and I really like Uber's model… They capture the city, move to the next city. And we thought we'll copy that and build that. So 20 stores in Bangalore, 20 stores in Delhi. We came to Chennai very late, even though we were from Chennai, we had one store in the office, and we lived with that for a long time… Then we went to Hyderabad, did 15 stores there, then 10 stores in Bombay. There's a last city actually for us to come. Even today, we don't have a store in South Bombay. Because when you put that constraint in your mind of saying that if it doesn't make sense financially, we'll find another city to go to, you'll go somewhere else and build a better quality business as well also. And it's okay. It's a very large country. There is no need to be in Bombay. And if Bombay doesn't make sense for you. And also we realize that the voting population of South Bombay is 8 lakhs. I get that in Lokhandwala. If I don't come to South Bombay, I'm not going to miss out much as well.
Karthik: Fair point. Very well thought through. So, you touched upon one point just for my curiosity, and I'm sure the audience would love to hear. Was it just that one round you raised from Tiger?
Karthik: You raised two rounds from them?.
Mithun: We raised 4 rounds from Tiger. Only Tiger. We had an opportunity to raise with Accel at that point as well also.
Karthik: And, they ended up investing in Bluestone?
Mithun: Yeah, after that. Okay. But we declined that because Lee, in those days, was doing a lot of work with Accel. And so he sent me across to Accel to do that. It was 6 million, he said I will put 6. Then he called me and said, why don't you meet Accel? If they can put one, let them put one. Otherwise, anyways, I put six. And I went over to some of the people they had worked with. Cause we were.. Gopal's advice always was that talk to people who they work with to understand what kind of partners are they. For Lee itself we went to America.
Karthik: Oh, is it?
Mithun: Yeah, we went in because there was no website of Tiger Global Management. This man has reached out to us through LinkedIn and we have never heard of him before. So he said, let's just go touch and come. And so he went to New York. That time we met Chase and everybody else.
Karthik: Oh my God. That is some diligence.
Mithun: Reverse diligence.
Karthik: No, we always advise it. You should talk to founders. Yeah.
Mithun: And so I spoke to some founders and they said that, look, they're nice guys. But if you have Lee coming, the next money is going to come from him. Yeah. It's not going to come from these guys. So why do you even need a guy sitting in Bangalore when you can work with a guy sitting in New York on that?
And one point in that conversation, they said that Bangalore might be a better place to build from. I think that was a deal breaker for me..
Karthik: And then how much capital got raised
Mithun: 320 crores, in total. And then 99 crores later, Titan put in as well. So 420 crores of total investment in the business.
Karthik: Nice. And the last part of maybe that the Tata story is you talked about when somebody, at least principally when I look at, if I'm buying something at a later stage when the business mature, however, my compounding rate might reduce, but I still dream about 5X or 10X, is that the dream you've left with Titan to manage from here on and is that going to come simply by expanding this promise of the product and just the target market to hundreds of thousands or millions of more people because of the prosperity that this country is going to have or is it something more? What are they seeing? What did you see?
Mithun: I think CaratLane's shareholding of Titan and the family was a perfect blend of the steadiness that they provided to the business and the agility that we brought in as entrepreneurs into that space. And so it grew really well.
I think when it became clear to them that they don't want to do an IPO is when they decided, no, then we better buy now than buy later. And their logic for not doing an IPO was they don't want to have more listed entities in the group as stated by the chairman. The chairman wanted to consolidate the group as well.
So in that context. Whether I take today or five years from now, whichever day it is, I have to deal with that problem of the management change and take over, etc. And so that was the view that they had. And as I said that the relations are so good, If I want to do something today, I have no doubt, if it makes sense, that they'd want a partner. They've told me that already and done that. So there was never a…, the family was very clear we'll never spoil our relations with which we are doing. And if this is what's written that our journey is still here, then it's still here. We were on a... Our last year we grew 82%.
Karthik: Yes. I'm coming to the compounding questions. I want to understand how that sort of magical growth kicks in so late. Even on a much higher base. But so you obviously believed clearly that this is another, this 10-20X left in this journey..
Mithun: Oh, easily Yeah. Two years back, I put out a dream saying that I think we have the opportunity to be the world's largest direct-to-consumer jewelry business. And India has a birthright to win in jewelry. The same way India had the birthright in software services. Because everything we cut here, everything we do here, we merchandise from here as well also. But we don't capture the gross margin here because the brand is not with us. The brand is not with us; it goes outside.
So with patient capital, we have the opportunity to build this because it's a very slow journey. It's not a fast journey going out there in the world and building that out. And I think that dream everybody bought into, but what that dream will cost the business I think became.. what will it cost whenever they have to change this? In their eyes, I was an individual. It was not two corporations. If they saw this as two corporations like TIDCO and Tata's, then I think it would not be a problem. But as an individual and the power that it means for an individual. Nobody says about the power, but I could feel that as well.
Those things happen, but I still think with the right, if they don't touch the team or do anything, a 40 percent CAGR for the next 10 years is not a problem. Their case that comes up to the price, if you were to do DCF and anybody can do that and figure this out is that they've underwritten 23 percent for the next five years. And that arrives at the 17,000 crores in a net present value scenario as well. Or 17,800 which is the price
Karthik: Awesome. So coming to some questions around the theme for the day which is compounding. You've already touched upon all of those elements. And it's very visible in the value that got created from the time you partnered with them to now.
In that journey, I wanted to touch upon a few things. Value wise, it's grown 30x. Some of that could be just arbitrage on the fact that they bought you cheap and now they're recognizing the full value. In 7-8 years. Did the rub off effects of Tata-Tanishq have a lot to do with it? Was... Or the other way around, did sort of CaratLane...Accelerate, irrespective of whether it would have been under a Tata umbrella or not. I think I'm, the reason I'm asking that hard question is we find a lot of businesses are reaching these 10 year points and are facing this question about what they wanted to post that, because like we also discussed before the podcast. After 10 years, the financial investors who started and funded the journey are on their way out any, which way that most of them don't want to stick around. So the founder is faced with a choice on whether you want to build for posterity or for 10 more years. And the right partners might not be financial investors.
Sometimes it could be a public offering. Sometimes it will be a strategic shift.. So we are trying to encourage more founders to be more open about and say, and I'm going to use the CaratLane story extensively. I've already started using it. See, this is possible. You find the right partner. I'm not saying every marriage is going to end well. But I'm saying, you find the right partner, you can be 25-30 percent shareholder and continue building immense wealth for the next 5, 8, 10 years if the partner is the right one. Why are you believing that the VC will be nice and not the strategic? Maybe touch upon a little bit of all of that and how this compounding magically happened.
Mithun: Timing is a lot of things in life as well. And we got a strategic on board when we had proven which is the growth strategy. What strategists can't do is they cannot invent. They cannot discover how to do this because they're so into their quarters. That it's impossible for them. But what they can do really well is stay with you for very long durations when compounding begins. We had figured out the formula to compounding at that point. We had figured out Omni is the right way to go by solving a few stores in Bangalore. And that's what gave us the confidence to do it. Now, once you've figured that out, what do you really need?
You need capital for only two things. Brand, as well as for working capital. When you get a strategic on board, these are the two things you get. You get, in our kind of business, you get basically - brand. And the second thing that you get is working capital, because with them being on the cap table, you don't need to ask them for money.
You can just go to a bank and say, look, who's my shareholder. And you're able to solve for that at some ridiculously good price. Yeah so and the only thing we asked for was the brand beyond that we would meet four times a year, six times a year for board meetings, and that's about it. We didn't want to take anything.
The brand rub off in the initial was negligible on that part. But when our distribution began, we do believe that it had a much positive run on that whole thing. And I think even more important was the board meeting conversations.. which are always about when you lose money, what are you losing it for? Earlier we almost never had that question asked of us when we lost money, what did you lose it for? What was your hypothesis to lose this money for? And what did you learn from it? Because if you don't learn from that, you're going to lose that money once again. And I think Venkat, who's the MD of Titan, did a great job in asking that question to us for those two years that he was there. Now MD, then CEO of jewelry business.
And I think that really helped us. So unexpected bounty was that part of it. Undying support in terms of letting us be and do whatever it was till we became profitable, etc. was what we got from them as well also. On the ground, our life was difficult because obviously the Tanishq franchises, etc. Tanishq teams never took to Caratlane.
They were never warm to us at all and we lived with that and that's fine. Because my neighbouring jeweller also was not nice to me. So it's not something that one has to expect as well also. So I was absolutely okay with that piece. Initially you crib about it, but then you have to someday sit back and realize that, listen, I'm getting so much. Can't be cribbing about the two things I don't get.
Karthik: I know entrepreneurs have dreams and crazy targets, but did you think this would compound this quickly as it did in the last seven, eight years, despite a pandemic, despite offline slowing down and weaving that into maybe it's a part of your answer. Maybe it's not. But for me, I was thinking, that lesson that you got from Rakesh Jhunjhunwala on margin structures and profitability that you learned from the strategics, I'm sure that played a very big role but did it anchor you for how you built for those seven years? And was that the game changer? Because this quantum is just mind boggling, right? And how much value got created inside.
The minute you start looking at your business from cash flow perspective, and not P&L perspective, you realize how much cash you're going to take, or rather how much cash will you have for your growth. So if you look at CaratLane's journey, formula discovered in 2015, properly done.Now the question is about expanding the formula. Merchandise's role is very clear now, year one to year 15 of the customer, please figure out every single live stage he buys jewelry for, solve the best merchandise sorry, offering for that part of it. So merchandise is clear.
Marketing knows this is the audience we are going after. These are the distribution channels we are going after as well. So there was just that much amount of clarity on it. The missing clarity was with Rakesh added, which was cash flow. What we would have ended up doing, and it had not been for him.. in 2017 I remember that conversation is that we'd open a hundred stores. And then what do you do? You have no money, correct? So you go asking for money. Then I'll be left with five, seven, eight, ten percent equity. Plus all the risk of..
Karthik: All of that working
Mithun: All of that working as well. Also. So this much cash will come at the end of the year. So how much how many stores can I open next year? This much more cash will come. So how many stores can I open as time went by? You increase your compounding because you're generating more cash. And so that's how you create a cash generating machine on this whole thing. And so it just became as simple as that.
If the TAM is not a challenge, then compounding should be like human growth itself, also that your speed increases as you keep moving more and more towards your teenage years. It should be no different than that. If you go to watch the McDowell Indian Derby that happens in Bombay, it's a 2,400 meter race and in the 2,400 meter race There is a horse that is always winning the first 1,200 meters because that horse bolts out, but he's exhausted by his 1,200. But the one who really wins the Derby gains the most number of lengths as he hits the 2,000 to 2,400 meter marker. That's what makes the Derby exciting also, but that really is the horse you want to back as well also.
Karthik: Great analogy. Two elements of people, culture, compounding culture. And the one thing that binds us, which I didn't know, we hadn't met in all these years, strangely. It's almost like the inversions of our lives, right? So I'm a Chennai born guy, not born, but brought up there 15 years straight at Sushia, where strangely now you teach, as you said, that's fantastic to hear.
Then wandered around, tried to find my place and where I would eventually be, and I'm an immigrant now in Mumbai. And you've done the opposite. So there is a little bit of, I think, charm of both these cities running in our veins and blood, right? Also, it's a biased question. I'm obviously positively thrilled and biased that there are some Chennai stories to be told In this series, which we didn't have last year. The other one, which is not yet released, is a friend from Arun Ice Cream. So I interviewed the dad actually, not Satyan. And also fantastic story, longest of the series, 53 years. So he started in 70. And you talk about pacing. He said nothing happened for the first 20 years, relatively speaking. You should listen to that one. Does this upbringing or around which city you're in and what is that city's culture.. did that make a difference at all? I'm just curious because there's always this debate on which is the best startup city and did it influence the second thing, which you also mentioned, as long as Titan doesn't touch the team and allows them to continue compounding. We can beat their projections, right? And we can grow at 40 percent as a team. How do you instill that culture? Again, lessons, it's a generic question, but what are your idiosyncrasies that you've instilled in Caratlane, which will live long past your tenure there.
Mithun: No, frankly, I never thought about it and I have, my co founder Avneesh is a better person to speak about the word culture. And I've never thought I just said that you do what you do. And everybody else does that, right? What you speak is what everybody else does. I think one of the things that we are, we've at least had for a very long point is that we are extremely agile. We don't actually have a MRM itself. We have a WRM. And so even at this scale or whatever it is, the WRM is the most important thing. So on a weekly basis we are where we are and we course correct according to that. We don't believe too much in the long run. But none of us have that sort of foresight in businesses as such. We can have that foresight in what consumer behavior is, but we can't really have that in numbers and businesses and etc, all of that stuff. So this is on the business side of things that the way we keep our agility together by not thinking about it too long term as well. Also, it's a very unique place currently, till about a year back, nobody got a promotion.
Karthik: What does that mean?
Mithun: In 10 years, there was no concept of a promotion. Your role changed. You got more responsibility on that. And that more responsibility meant you got more money, but there were no titles as well. And whatever you came in as you can write what you want, right? Your role was the only ask I always told everybody. So if this is your role, then define your title as your role. It doesn't matter whether you call yourself vice president or anything else. Somewhere in the beginning, we started. Some guy said, you need to have a structure and do this thing. Now, once again, we are doing it, I'm telling you, it's colossal chaos.
Once you start doing this thing as well.
Karthik: I agree with you, but it's so difficult. I don't know how you maintain this.
Mithun: No, I just said, do you want to write CEO? I'd see you. I have no problem.
Karthik: So what would people write on the cards?
Mithun: Why do you even need a card? LinkedIn became the place, right? Where you write what you are.
Karthik: That's fair enough. What do you write in LinkedIn?
Mithun: Define what you do and write that very clearly across over there. And if you are responsible for growing the business in a certain place as well, if you are responsible, the entire Omni network write I'm responsible for the Omni network as well.
Also, it's a sentence of five words that gives the explanation. The vice president of CaratLane has no meaning as a vice president in Titan. There is no comparison of the two things at all. And look at all the people who come to our offices, from banks. I'll give you an example right now. Wealth managers have been really after us. There are some 45 wealth managers in one particular bank who are all vice presidents reaching for one client itself. It makes no sense. So I think titles are the biggest hogwash of confusing people and trying to do this. There's another concept called holacracy. Where it is about the role that you do. And I think that role makes you understand really what your job is and who else is required along with it as well. I think if you did Holacracy and now we do OKRs very well as well. Also, if the two things are tied in really well together, I think that works much better.
Then having titles across. So we never had those problems at all that people are saying, Oh, look at this guy at the end of the year is getting this. And I'm not getting that. Now we, of course, this year have all that, all those problems as well, because we have to design our business now to start fitting into the Titan culture as well.
That's the way they know how to manage it. So they possibly know how to manage that. And I do see those things come in the way of building a business. I'm a non believer in it, but everybody else believes in it and you got to, the buyer has a right to run it the way he wants to run it as well. But I think for us not having those problems was the biggest, you could see who's doing more work and there was no problem with that part of it because the title didn't define that. The job role always defined that. And then if he felt somebody was underpaid for the role that he was performing on anything, there's always ESOP available to boost that and make that happen as well.
Karthik: Also fascinating. No, I had no idea that you had such a culture and it's very rare to see anything even beyond 40, 50, a 100 people.
Mithun: We succumb to those people who come from. Companies, they've seen this sort of structure and say, Oh, I'm not growing. And those two people might be leaving and we can't solve for them. And then we want to change it for the 98 other people who are actually willing to live with it and create a 98 people problem as opposed to, which was otherwise a two people problem itself. And, but. Problem that we didn't, I was bullheaded about this one thing itself also, and I thought it worked really well. Those who are obsessed with the two felt that it does not work as well. Also, the result of the company shows that it worked really well. We had very clearly, if you looked at our attrition as well, of leadership, et cetera, all of that
Karthik: No, that's inbuilt. You can't compound this way with that, with an attrition period.
Mithun: Yeah. And I think if I had to rebuild again, and that's one thing I keep telling everybody, I would do this whole ESOP piece for every single person, whatever be the quantum, but for every single sense of ownership of not just for my employees, but also all my colleagues, sorry, but also for my franchises. We shortchange our franchisee partners on this part of it.
Karthik: Since you brought that up, you said, if I would do it again, I'm going to use that as a cue for our finale question. What are you going to be doing? And there is all sorts of speculation around, of course it takes time. Everyone says you should take six months on the beach as you say, seeing your energy, seeing how you've started building young, so that's an advantage. You're almost finished this innings with a lot more firepower to go. What is going to keep you busy? For the short term, if not for the long term what's on?
Mithun: Look, I'm already building a bunch of stuff, so a couple of years back, I created a problem all these years. I sold a lot of jewelry, but all the jewelry that I sold, there is one side of the house that also believes it's a dead investment and they believe it's not fungible. So I'm trying to solve that through a business called Oro in which. We are trying to make jewelry fungible without going to a pawnbroker.
So that's the model that we're building out. And that's fairly interesting what we're trying to do there.
Karthik: It's around financing, is it?
Mithun: It's around line of credit. So we are solving for storage and fungibility on that one. Got it. I have, I knew I had to at some point learn investing in a better manner than whatever Rakesh taught me was more on the public markets.
And him and me had a dream to set up a fund together. Oh, wow. And that sadly it stayed as a dream so far. But I partnered with Yash Kayla, and we I'm a sponsor in the fund. Yeah. And I get to learn, that's how I call it. It's my schoo.. Where I get to learn everything.
So the fun side is that, But I have no doubt that something else will come up and it's just going to take time to do it because Oro itself has another three co founders, three fabulous boys who built genie out of Chennai..
Karthik: You didn't answer that. So since we're on Chennai , it is clear that the rest of your life is going to be in Chennai as well.
Mithun: It's my chosen home.
Karthik: And and did it play a role in how you think a lot?
Mithun: Just, yeah, it leaves you alone. It allows you to flourish in the space it is. I think culture is a very important part of anything of a human life. Many cities I worry, for many of the modern cities of India, there is no culture actually.
And many of the modern businesses of India also lack culture just as much. We talk about business culture, we forget human culture. And the number of times we hear the word toxic in these workplaces, we almost never hear it in Chennai. And we might not realize the value of all of this right now, but there is massive value in this.
Karthik: Definitely, doubly so if you're building long term compounding businesses.
Mithun: The only one thing I hope is the next business, whatever I build, I never have to sell it.
Karthik: Said. On that note, we'll just move to a quick set of rapid fire questions. Sure. And just a phrase or a word, whatever comes to your mind. One thing Indians should know about jewelry or gold, but they don't.
:Mithun Scale of the business.
Karthik: Which is your favorite piece of jewelry from history? One that makes you like jaw drop.
Mithun: The Cullinan diamond.
Karthik: Where is it by the way, this diamond?
Karthik: How would you describe the power of compounding in one line?
Mithun: Sleep peacefully. That's a beautiful way to put it.
Karthik: Money for you is?
Mithun: Score in life.
Karthik: And one fun fact that, many people might not know about you.
Mithun: I want to be a standup comedian.
Karthik: Oh, awesome. That's coming off the Trevor Noah show. I hope you meet that goal of yours. You need more good standup comedians. So hopefully wish you well on that journey. Mithun. You've been a fantastic sporting sort of guests. We've gone over an hour seamlessly. And I think I wouldn't have. Felt a sense of completion. Once I knew of your story mid course, while recording this podcast, if I didn't have you in as a part of the series.
So thanks for making it work in short notice. Thank you so much.
Part of Blume Podcast
Welcome to The Blume Podcast, where we explore “The Power of Compounding” through insightful conversations with industry leaders. In this season, we bring you four captivating episodes featuring Peyush Bansal, Raamdeo Agrawal, Nithin Kamath, and Dinesh Agarwal.
In the first episode, Peyush Bansal, founder and CEO of Lenskart, shares his journey of building a successful eyewear company and the importance of hiring the right people. Discover how his clarity of purpose and long-term thinking shaped Lenskart’s success.
Next, Raamdeo Agrawal, Chairman and Co-Founder of Motilal Oswal Financial Services, shares his investment philosophy and insights on India’s growth. Gain valuable advice on building a strong brand identity and the dangers of building a startup for the wrong reasons.
In the third episode, Nithin Kamath, founder and CEO of Zerodha, reveals the secrets behind building and scaling an online brokerage firm without external capital. Learn about the power of compounding and the importance of trust in the financial industry.
Lastly, Dinesh Agarwal takes us on a journey of starting a business in India during the internet boom. Discover his thoughts on business growth, profit margins, and the significance of small and medium-sized enterprises in creating employment.
Tune in to The Blume Podcast and unlock the power of compounding with these inspiring stories and valuable insights. Stay tuned for new episodes coming soon!
Karthik ReddyKarthik Reddy founded Blume with Sanjay Nath in 2011. Karthik has shaped Blume’s investment approach and philosophy over the years, and in turn has overseen investments in some of Blume’s leading portfolio companies such as…
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