Mahesh Murthy Vs John Kuruvilla On Why Taggle Shut Down

We present an open letter from Mahesh Murthy, the founding partner of Seedfund and founder of internet ad agency Pinstorm, to John Kuruvilla, the founder of Taggle, on why the company had to bite the dust. Kuruvilla responds to Murthy's views as well. Plus other comments.

It was with a sigh that I read the e-mail from Taggle saying it was shutting down. Especially because I know people there: I have friends at Battery Ventures who invested there and the founder, John Kuruvilla, and I go back some 24 years, right to the early days of our careers when I would hang out at his barsaati in South Delhi.

John and I have argued many times in the past. He last took offence when I said a few years ago at a conference that Air Deccan was the kamikaze airline that would kill itself and take the entire industry with it. John was earlier the marketing head there and understandably miffed. Seeing how things have eventually turned out, perhaps I was not too wrong.

John and I also disagreed about Taggle. My point was simply this "there was no differentiation among deal sites and till that happened, there would be no real traction for anybody and no chance of building a real business.

I stand by that point. And will add a few more.

Relevant experience. SnapDeal has the advantage that its founders actually ran a newspaper-based deal business and knew what it would take to get a lot of deals and good ones at that. Perhaps none of the other players could match this execution scale.

Deal quality. Most deal sites are all about spas, nail treatments and tattoos. People have tired of those. There's not very much new to attract folks. In fact, even SnapDeal traffic has fallen by 65% in the last month.

Merchant satisfaction. What I hear from merchants is that the original promise of "offer a deal, win a loyal customer" has not proved to be true. You do – at best – get a few new customers. But they're bottom-scrapers and will go next time to another deal elsewhere. So justifying a deal through increased customer lifetime value is a fallacy here.

Flawed business model. Acquiring a customer for a deals site typically takes Rs 1,200-Rs 2,500. And the economic value of the customer is around Rs 200 or so per deal. In theory, you should break even as a deals site when the customer buys six deals from you. In practice, he buys six deals from six different people and in your case too, customer lifetime value does not justify the cost per acquisition.

Death march to victory. Given these basics, the only way one can win is to spend more money than the others and lose more money than the others till rivals throw in the towel and drop off the map. Taggle was the first prominent one to do so. But believe me, others have already done so and more will do so. But this is a pyrrhic victory as both investor and deals company have a bloodied balance sheet. And at the end of it all, there's little or no likelihood of either making a decent exit, given in this case that potential acquirers "the global leaders Groupon and such are doing even worse.

With all this, I don't want to sound pessimistic. This is a good thing. We need to learn that you don't win markets and e-commerce by throwing money at it.

We will soon see similar attrition in the broad e-commerce space, too. And once again, it will be healthy for the industry.

Deadwood needs to burn to make room for healthy new plants.

And John, I owe you a drink. Let's catch up soon!

(As told to Shrija Agrawal)

JOHN KURUVILLA RESPONDS

JOHNKURUVILLA December 07, 2011

Hi Mahesh,

Good to connect with you here. Some well wishers called me to say 'Mahesh Murthy is taking digs at you'. I initially decided to ignore the same since I have always operated with the philosophy -Kutta bhonken hazaar...Hati chale bazaar...

But you being a friend..I thought I'd clear the air...so that when we meet for the drink you promised we can talk of family, the birds and the bees.

For the record since you disappeared from the scene at the conference where I spoke after you spoke- in ignorance about Air Deccan's fall from Grace and why it died(it had died as brand in 2008 and you were speaking at a conference in 2009- long after the dust had settled. The impression you are giving people in this article is that you predicted Deccan's demise. Dont do that buddy.)

You attributed a major reason for Deccan's death to the Rs 500 ticket. On every flight 30-60 days out we were giving off 6 seats on a 180 seater Airbus at Rs 500(With an 80% load factor we had 36 seats empty on bad days and 5-6 seats on good days and these Rs 500/- seats were for travel 30-60 days out- it was revenue management at its finest by a very very young but talented team that one had recruited from IIM, IISC, IAI).

On 250 flights a day that worked out to 1500 seats a day.THAT Changed many lives. Will share this magic with you when we meet.

Now for the reasons for Deccan's demise as a brand. It is available here and in Capt. Gopi's book SIMPLIFLY.

I get miffed by people who speak out of ignorance.Especially when it comes from people of stature. More so when its from a friend.

Let me clarify once and for all the Air Deccan Issue. Air Deccan provided very healthy returns to its early investors (ICICI Ventures and Capital and the other independent investors will bear me out). In fact the smart retail investors who invested at the IPO at Rs 148 exited at Rs 290 at the peak. Data can be gleaned from MoneyControl.com.

We gave customers value, grew the industry,gave wings to the dreams of the common man and delivered value to the shareholders. Not sure where we erred?

While I was CRO- Till October 2006..the company was operating at the lowest cost, had the highest load factor and was losing money ONLY due to very high no of cancellations. This too was set right between July and September 2006 where we bought cancellations and delays down from 35 a day to 9 a day.

It did well long after I was gone till the Tech fiasco happened. For the record Ryan Air, Southwest, Easy Jet, Virgin Blue and many more LCCs are profitable and growing.Closer home Indigo is financially sound and has been for a while (and this is not just from Sale and lease back). All these companies were written off by the best minds in their countries.

On Taggle the reason I moved on in July was because my partners were very keen to create a solid etailing business- something I did not agree on and despite being the single largest shareholder I respected their views and handed over the reins and chilled for a few months.

It was an emotional decision and not an easy one to make. But at that time since convictions were high amongst my partners and the investor too thought it was a good idea I thought it was good for the company to pursue their goals.

They grew the business 10 fold in 4 months. But they realised early on that it was suicidal to carry on burning money to play the 'valuation game'. I salute them for taking the decision to get away from the valuation game since they realised that this game was not sustainable for a long long time.And called it a day.

It takes guts and nerves of steel to decide when the sales nos were looking real good.To make this call.Hats off to them.

In its 20 months Taggle spent less than 9% of its investments in marketing AND in September had Revenues close to what companies in the etailing space in India had achieved in years by burning marketing $s.

However your point on differentiation,marketing expenses etc is what every company around the world is worried about and working on...and some will win.

Flipkart for one I believe has built a brand India can be proud of. Via.com is another case of Blue Ocean resulting in profits year on year for the major part of its existence and has achieved significant scale.With a very robust business model.

There are jewels that you should help unearth..and create a positive environment that will help entrepreneurs learn from all our mistakes (I am sure you made some too) rather than be the proverbial crab who will never let others succeed.

Remember Amazon took 8+ years to turn the corner..and had short sighted analysts write off Jeff Bezos every year for those 8 years..and now say..We told you Amazon will be a success. Mahesh with every mistake comes learnings for a new dawn. Taggle has been a great learning. I worked with some great investors and some great people.

I for one am more than happy to spend time with young companies sharing with them where potential minefields are. Did so with one online insurance company this morning. They left with learnings that will help them save time and money. Let's get positive and help and make that difference based on the years of experience we have gathered.

Let's stop being soothsayers and become guides...I know you are an early stage investor...but let's share experiences with as many and not the select few with a financial motive...that's more valuable than mere money...

Let's see what the morrow has in store for Taggle. Any Ideas? Jeez I sound very philosophical here..look what you have made me do...

So on an 80 per cent load factor planned, my pricing works out to Rs 1250 approx., a price difference of about 30 per cent.

With proper yield management, the last 10 seats on an LCC is your profit. Deccan was operating in peak season at 90 per cent-plus load factor and in off season at 80-plus.

On innovations, I sold the exterior of my aircraft for crores – my advertising budget came from such advertising opportunities we created. Some of you may remember NDTV and Sun branding on the outside of our aircraft and Idea Cellular inside... We did not have resources, but we're resourceful.

Every company – start-up or otherwise – must think out of the box on cost rationalisation and revenue optimisation, using analytics and revenue management tools.

As for Taggle, I guess we will need to wait and watch.

It was a company that innovated from Day I with its hologram for security vouchers, pay on phone, selling group-buying in travel for the first time, selling jewellery through group-buying product sale – much before Groupon's Gap jeans sale... and more… The team could have continued to burn investor money... losing millions and then taking a call... But hats off to the team who put their integrity at work and called it a day. Thereby, losing less… That, my friend, is the true measure of leaders who put their personal agendas second.

For the interest of young entrepreneurs I am attaching a blog that I wrote while I was recuperating… on my experiences and how thinking out of the box and innovating helped the companies I worked with, succeed. These are real examples and not textbook case studies. Examples of working in the trenches and winning over seemingly insurmountable odds. Here is the blog if you want to check it out.

Thank you, once again, Mahesh for starting this dialogue. I am sure it would have set many of the readers thinking…

God bless

John