Moglix CEO On Choosing Growth Over Profitability In The B2B Ecommerce Game

According to an IBEF report, India’s B2B ecommerce market alone is expected to reach a massive US$ 700 Bn by 2020 — in fact with consumer spending going down and B2C business models demanding a lot of operational capital to attract consumers, B2B is seen as the next big area of innovation, particularly with many models yet to be explored.. According to the consultancy firm Zinnov, B2B startups were just 26% of the total startups in India in 2014, but in under five years, they comprised 43% of the total in 2018.

The journey of Indian startups has changed and so has investors interest. After backing B2C businesses for the longest time, the focus has narrowed down to B2B businesses. Hence, this year, the investors have taken a skeptical view on the future of B2C businesses, thus, creating pressure on businesses to solidify revenue models and earn profits.

But while B2C businesses are now diversifying their focus on profitability, B2B startups still have the scope to focus on growth at the cost of profitability. Talking to Inc42,about choosing between growth and profitability, Moglix founder and CEO Rahul Garg divided the startup’s journey into stages — growth, transaction level profitability and company-level profitability.

“We believe that transaction level profit every day is very important followed by growth and the growth is important because for most of this, if you look at the classical theories of scale and optimization, there is only a certain size and scale when your costs become continued to come down before hitting profitability,” Garg added.

He went on to say that Moglix is currently in the phase of transaction level profitability. Founded in 2015 by Garg, Moglix procures and supplies safety tools, equipment, hardware, office supplies and more to manufacturers and other businesses. Similar to IndiaMART, it is an ecommerce marketplace for different kinds of industrial tools such as power tools, hand tools, adhesives, safety and security and electricals.

The company counts investors such as Tiger Global, Accel Partners, Jungle Ventures, Venture Highway and International Finance Corporation (IFC), Shailesh Rao and InnoVen Capital as its existing backers and has raised $102.2 Mn till date,

While it’s primarily a B2B company catering to institutional customers, Moglix also works with individual consumers in the manufacturing sector. It currently focusses on automotive, metals, mining and fast-moving consumer durables (FMCD) markets. To grow its customer base and keep revenue circulating, Moglix is targeting manufacturing companies that have a turnover between $15.5 Mn (INR 100 Cr) to $1.5 Bn, and it’s also looking to bring small and medium enterprises (SMEs) on board to automate and scale up their supply chain.

Garg told us that the company is getting closer to 100K warehousing facilities in the next three years.”We will be close to maybe anywhere between half a million to one million square feet of warehousing. We have run across 15-plus locations, so we will get to over 25 locations where we will be covering more than hundred cities of the country directly using our supply chain,” he added.

Talking about profitability for Moglix, Garg said that the company is currently focussed on using capex smartly, which is about building warehouses, logistics and supply chain. “The good thing about it is that people understand the importance of making sure that you do not sort of do price discounting for short down market share because they know that is not a sustainable way of building a company. So, we are as a company on a much healthier economy than than the consumer commerce typically ends up being,” he added.

Garg said that Moglix doesn’t lose any money on transaction and has been improving its economics over the last four years due to scale that we continue to achieve. “We would expect that anywhere between either March 21 or March 22, we have a choice to become profitable or continue to go for growth. So those are two points where we will have that choice of what do we want to pursue as a strategy.”