A substantial percentage of general merchandise are sold online, unleashing a golden ticket for the e-commerce giant Daraz. Rakhil Fernando discusses how he overcomes challenges while leading Sri Lanka’s digital economy with a storm.
E-commerce has massive potential in Sri Lanka. But to capture that, Daraz will have to scale fast. How is that working out?
Our shareholder, Alibaba Group, expects us to have triple-digit percentage growth every year. Today anything short of 100% year-on-year growth makes us look like underachievers. Momentum in Sri Lanka is accelerating. When I took over Daraz 20 months ago, we had closed $9 million in sales that year. Our run rate based on this month’s sales should take us to between 100-200 million dollars in sales by the end of this financial year.
When I took over the market, the company was at the end of its startup phase in Sri Lanka, with the right people getting into the right roles.
My first challenge was to transition from a single point of decision-making to a decentralized model. I now focus on strategy, deciding on what growth areas to focus on and providing guidance for setting the right goals, on what we can achieve as a business against how much we want to spend, and what the market can absorb.
My first challenge was to transition from a single point of decision-making to a decentralized model
You make this transition sound easy. Was it?
It was a challenge for sure. On the first week I joined, we lost the heads of our marketing team and traffic ops team. Traffic Ops is the department that essentially drives the conversion on the site. I had to build these teams as soon as possible.
The second thing is building trust. It takes a long time for people to get behind new leadership, especially when somebody is stepping in from the outside.
I tell my staff that I’m just here to provide you with the resources you need to get the job done. That’s my job, giving people the environment, the resources, the funding, the technology, the appropriate knowledge to get the job done.
If you don’t balance the growth demands on your staff by giving them the best environment to work in, it’ll be tricky to sustain 100% to 200% growth per year.
How do you build trust?
Building that trust for people to follow you by empowering them. If you make them feel like they are in charge of their destiny at the company and trust them to make those decisions without being unjustly pressured, they will perform for you.
When you lead a young team, they will start to trust you when they feel valued. And that’s very important in any organization.
The average age at Daraz is 26 years. Many of these guys are in their first job, and they have no benchmark of how corporate environments work. So, it’s crucial to have a conducive environment so they can believe in themselves, trust their decisions and drive their ambitions.
Sri Lankan companies are usually hierarchical in structure. In contrast, I wanted to create an evolved company when it comes to people’s position and power.
I give the employees the bandwidth to run their verticals just like they are CEOs of their verticals. I think that’s the best way for me to empower everyone to achieve high growth targets while building an ownership culture. Having the right people in key roles is vital though.
With the right kind of culture and right people, you can grow the business at a rapid pace. If not, everyone will be moving as fast as the slowest member.
People should come to me at two points. When there’s a problem they can’t fix or when they fixed the problem.
How did you go about creating a new culture?
It’s how I behave in the organization. I want to create a company where people can speak up. Every opinion is valuable; however junior you are. So, we’ve created a flat organizational structure.
It’s also informal, and anyone can come and speak to me about anything. Everyone can communicate with everyone else leisurely, and that’s where the joy of working with each other lies.
Sri Lankan companies are usually hierarchical in structure. In contrast, I wanted to create an evolved company when it comes to people’s position and power. Status and power don’t come from the length of service in the company but from how you perform. For instance, we have a 24-year-old responsible for building a $20 million vertical from scratch for us.
Do you consider yourself lucky to have had the freedom to define culture?
Daraz operates in five markets, and what’s great is that each one has the freedom to run as an independent business. We get support on technology, funding, knowledge, and processes with the best practices. But it’s up to us to decide how we tap into the resources and deploy them efficiently. There are plenty of best practices to learn from other markets, allowing us to find a model without everyone just mindlessly working with blinders on.
You’ve been on the job for nearly two years. How has that time helped you frame what you want to achieve?
In the last 20 months, things have progressed exponentially, much faster than we thought they would.
Because of this, we can offer our audience value added services on top of traditional e-commerce. For example, Fintech is an area I’m very keen to explore and kicking the tires to see which direction we are hoping to take it. Consumer centric financial services is a massive opportunity in Sri Lanka, and we wouldn’t have looked at going down that path had the business not been at this stage. We are growing well, and now have well over a million people visiting daraz.lk every month.
What do you intend to offer as financial services?
I can’t reveal too much as we are still in the explorative phase. However, it will be products and services that put the customer at the centre of the experience. My personal experience with banks in Sri Lanka is far from customer centric, so I think there is a huge opportunity for any player to shift their focus and drive a customer first strategy. The problem is most financial institutions are throttled with legacy technology and processes, which make them very unagile to make changes. Sometimes it’s easier to start with the clean slate, and that is what we hope to do. Our first announcement in this area will be made in a couple of months.
How have your priorities evolved with Daraz scaling?
The priority is always customer experience. My short-term goal or my long-term goal is to make sure that Daraz always considers the customer first. That’s at the heart of what we do, whether it’s products or the service.
For example, to expedite refunds to customers when they make returns, we have streamlined the process so they are refunded in a couple of days. This decision has made us absorb some losses so the refund can be done faster. But we are still at the stage where we must gain more customers. Ecommerce is just 1% of the market, and at this stage, it’s about building trust. So those losses are fully justified to make the experience more pleasant for the customer and in turn returning to the platform.
We have shareholders that align and are happy to absorb short-term losses and focus on the end game.
The end game is to become the most widely used commerce-based platform in this country, both offline or online, that people trust to buy or sell or trade. If it becomes successful, the opportunity is far more significant than the short-term hit and customer experience is key to that plan.
What are you most excited about, and what’s most challenging to you?
The company is still growing. The opportunities that my current team members get exposed to make working at Daraz very exciting.
It makes me happy that my very young team in the company have very bright futures ahead of them working for us. They have big ideas and big visions about their future and it’s awesome to think that Daraz provides them with a platform to achieve that.
Secondly, we are just scratching the surface of the potential of e-commerce. If we maintain the same growth for the next 24 months, we would be significantly bigger as a company, and that’s very exciting: more prominent in terms of the number of people who work with us and the number of customers we address.
What’s daunting? Both the global and local macroeconomic situation is always on our minds. There’s always something looming that is out of your control. Many of those factors affect consumer confidence, FX rates, trade, etc. But sometimes you just have to forge ahead. Regardless, I think the growth prospects in Sri Lanka are looking very attractive.
What advice would you have for someone starting their first business?
For me, the first thing you must understand is what the opportunity is. If there is an opportunity, a solution is out there. Now, you may be unlucky because the solution you come up with could be wrong, or you may not have the resources to build the perfect product. But by not addressing a problem/opportunity, you are a non starter.
People create startups and then ask where’s the market? Where’s the growth? Is it worth the effort? Some people don’t quantify the market. Many people build products based on their personal needs and usually, the scalability is limited.
Also, take time to understand the customer. For instance, many businesses that pitch partnerships to me say that “you” can target high spending customers. Whereas I don’t want to target high spending customers, I want to target everybody else. I’d rather have 20 million people spend Rs. 100 with Daraz, than 10,000 people spending Rs. 10,000.
Ensure that the people you’re creating a startup with are aligned with you and contribute something to the equation. Also, don’t get stuck up on the percentage of the company you own. You are better off with 10% of a 100 million dollar company than 100% of a million-dollar company.
Make sure you take in investors that can create long-term value. This is the biggest mistake I made when raising money for my companies in the past. You get so excited about investors coming in, and then you don’t think about what value these guys will bring down the line.Choose investors who will stay with you through the journey. If not, you locked up a percentage of the company with people that don’t bring value in the long term and it will hinder future fundraising rounds.
We are still at the stage where we must gain more customers. Ecommerce is just 1% of the market