A few trips to India ago, I wrote a piece on Deep Kalra of MakeMyTrip.com, an Indian online travel company that I guessed would be the first big Indian ecommerce IPO. Yesterday, the company made good on that—listing on Nasdaq and surging nearly 90%. It fell 5% today, but that’s not bad considering yesterday was the best one-day pop of any American IPO since 2007.
Does that mean a flood of Indian Internet IPOs will follow? Not necessarily. MakeMyTrip is a rare company in India, where Internet penetration is low and more money has been lost than made hoping it would take off faster. Here’s what Indian entrepreneurs should learn from what Kalra did right.
1. He was committed. Kalra started MakeMyTrip in 2000—when Web mania and private equity funding first swept through India. After the crash, foreign investors either sold off stakes or outright reneged on deals countrywide and only the most stubborn entrepreneurs survived, among them Indiagames, Indiabulls and MakeMyTrip.
In MakeMyTrip’s case, SARS also tanked the Asian travel market, making the environment even worse. With a background in banking and a wife and newborn baby, getting a real job was the sensible thing to do. But great entrepreneurs don’t do the sensible thing. Kalra and two other managers bought back their equity and worked without salaries for 18 months. More than a third of the staff walked out when he asked them to take 40% paycuts. But a year later, the company broke even and he raised money to invest in growth again.
I’ve met at least 50 Web entrepreneurs over a few trips to India. Most are based in Bangalore, most worked at a multinational, made a huge salary saved up money and quit to start a company. Nothing wrong with that. What worries me is how many of them have said the equivalent of, “If this doesn’t work out in a year or two, I can always get another multinational job.” As Kalra’s example shows, that’s not how it works. Entrepreneurship is about commitment, even in the Internet where products can be launched over night– especially in India where the online market is growing, but it’s growing slowly.
2. Invest in Culture. It’s worth noting that when Kalra asked his staff to take paycuts in those dark days, 17 left but about 25 stayed. He wanted to make sure he rewarded them for their loyalty and invested in the company’s culture, inspired greatly by Zappos’ culture book. He organizes annual staff retreats and offered to pay half for any employees that wanted to attend TEDx when it came to Bangalore in 2009. Frequently startups in India complain that multinational jobs have lead to a culture of mercenaries who don’t value stock and will leave for a higher paycheck. But Kalra’s experience has proved that like anywhere else, retention is possible if you build the right culture.
3. If you’re going to be a copycat, do it the right way. MakeMyTrip isn’t exactly a new idea. The functionality and even the look-and-feel are similar to a lot of US online travel sites. But Kalra played the copycat game the right way. Online travel is almost always one of the first categories to take off in new markets, in part because it has a clear revenue model that doesn’t rely on mature advertising markets or sophisticated shipping routes, since many of the tickets are issued electronically. And in the early days, he tailored his site for India’s domestic travel market— business US competitors weren’t going to target. I’ve used the site to book routes within India that I couldn’t have otherwise booked without a travel agent and pricey fees.
Unlike entrepreneurs who waste their time trying to build, say, “an Indian Facebook” – MakeMyTrip wasn’t a re-skin, it actually solved problems unique to India. And Kalra assiduously studied competitors to see what had worked for them and what didn’t. Those in the United States, and ones in other emerging markets like China. When done well, copycatting is about adjusting to local markets and learning what the first generation did right and wrong. You can’t copycat something you don’t deeply understand.
4. Timing the Market Isn’t Everything, but It Helps. I can go on and on about the things MakeMyTrip did right, but let’s face it—a lot of this stock pop has to do with scarcity. After all, the company’s revenues are growing at an impressive 49% a year, but its net income is a paltry $1.3 million a quarter.
But in the markets, what a company is “worth” is in the eye of the investor and MakeMyTrip is the first Indian company to go public in America in four years and it was just the fourth India-based company to go public in the US since 1999. For the sake of comparison, 14 Chinese companies have gone public in the US just this year. So while China’s economy may be growing faster, Nasdaq and NYSE investors have more chances to buy a piece of it than those interested in India.
Let it be a lesson to other anomalies like MakeMyTrip– price high and build the war-chest while you can.