Value isn't always about revenue: what VCs look for

Globally and in India, ecommerce businesses today are doing extremely well. But this success is breeding several copycat ecommerce marketers who’re riding the wave by focusing purely on transaction volume and topline revenue. They may become successful in the short term, but in the long run it’s a dangerous path to pursue on account of one factor – value creation.

There are few important elements to consider while focusing on value creation. The first one is from the customer’s perspective. Why would the customer come to your web business rather than ten others, which are only a click away? The easiest answers to this revolve around deep discounting. While that can create short term revenue, it is a game of musical chairs, where in the next round, there is another big discounter down the road. One needs to search for a stronger customer proposition, which could be around range, convenience, service quality, and many other factors. Pricing is a great proposition if its backed by a superior cost model, often arising out of supply chain innovations.

The second important view of value is from the business’ standpoint. Is the business able to capture part of the value that it creates for customers? The key metric here is life time value of a customer. This refers to the net positive value that an average customer drives to the business, after accounting for all cost of goods, delivery and customer acquisition. Entrepreneurs need to have a clear path to deriving positive unit life time value, so that those can add up to business profitability sometime down the line, if not today.

With these basics in place, the business will then have the ability to drive higher order metrics like customer delight, loyalty and word of mouth. Coupled with scalable infrastructure, this forms the foundation for a truly valuable business. Pursuing the right metrics at each stage of the business is the key to unlocking one’s vision.

- Alok Mittal, MD, Canaan India

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