Last week, online eyewear upstart Lenskart was reported to be raising $350MM, propelling it to unicorn-dom.
After 4 years in the US for his undergraduate studies and a stint at Microsoft, PeyushBansal had an idea of starting a new business in India.
The startup would search for college-related needs on a listings portal. Far from helping people find vision, his first experiment as a founder solved an entirely different need.
A couple of years into his first startup, Mr. Bansal (no relation w/ Flipkart), thought it may be better to do something else, under his company Valyoo Technologies.
Inspired by the boom of the internet in the US, Valyoo would tap the growing online retail boom in the US. Working from India, Valyoo would manage customers for its US business partners.
While the original campus search business continued to do well at $300K of annual revenue, the new “product” business also began raking in revenue. It may seem ironic that there was a lack of “concrete” vision here, but iteration is the mother of all startups.
The US-focused business, while successful, had little control of end-user experience.
Mr. Bansal thus began looking India-ward again. Inspired by the online retail experience, his companies would sell bags, jewels, watches and lenses. Bagskart, Jewelkart, Watchkart and Lenskart were thus born. Perhaps in a hat tip to another “kart”, they were all named with the same suffix.
Winding down the other businesses, the focus would be on these 4.
Playing in Many Karts
The narrative of targeting many online Indian consumers through 4 verticals made sense in 2011.
India was just beginning to come online, and most marketplaces would need to sell multiple product types to actually be businesses and not hobbies. In an interesting forward-looking view, the 4 businesses looked at niches individually.
The 4, especially Lenskart, would pick up from the get-go.
Each company would serve as an online marketplace for brands that existed offline. The marketplaces would provide great variety, transparent pricing and doorstep delivery.
At a time when all these features were unheard of, Valyoo was certainly creating value.
Attacking 4 large unorganized markets would help it raise its first round of capital that would propel it forwards from a small 50 member company to something bigger.
As the company grew to revenue of $1MM in 2012 and $4MM in 2013, it began to look at another round of financing. The good news was that Lenskart was growing at a clip. The bad news was that all the other 3 were failing.
In tandem with its fundraise, the vision of the business clarified. It would only focus on eyewear.
That would be a $4Bn market, disorganized and ironically, opaque.
I’ve Got My Eyes on You
Growing at 15 per cent year on year, the $3Bn eyewear market was disorganized and complex.
Despite more than 25K opticians, of which over 22K were single store, there was still a large Indian population that did not have access to eyewear solutions. In a country of a billion people, this number would almost be 100MM. Large, complex, disorganized – eyewear was ripe for disruption.
Yet, few startups were able to start.
Owing to the complex supply chain, that resulted in these disorganized market structures – think agricultural supply for a parallel. As an eyewear company CEO quipped presciently “You couldn’t add a tab to your website and find suppliers“
The complexity would also result in complete opacity in both price and experience.
As anybody who wears spectacles would testify, we had no clue why a particular set of glasses were priced one way, or if we had any other option apart from those glasses. As it seemed like eyewear was “tailored” to your vision, nobody really asked any questions.
The many intermediaries would take advantage of this information arbitrage, jacking up prices. The result would be inordinately expensive eyewear. As people needed glasses to see, most customers would pay up.
The outrageous margins have resulted in the creation of a global monopoly that most have not heard of. A piece which I recommend reading elaborates how Essilor-Luxoticca quietly shapes the vision of 1.4 Bn people in the world.
It was against these forces that Lenskart would need to scale.
Checking You Out
Due to its small size in a giant market, Lenskart would continue to grow rapidly, clocking $14MM of revenue in 2015.
This would be an almost consistent growth of 2x year on year since 2011, and the company had now scaled to 7 cities. If you have ever been puzzled as to why eye check-ups are free, eye check-ups are a mechanism to generate leads and collect quality data.
With 300+ eye check-ups every day, Lenskart’s growth proved that there is no such thing as a free eye check-up.
The strong growth on the core Lenskart business and the wind-down of the unprofitable three would make the company more investment worthy.
It would raise $25MM to continue at home delivery of eyewear, and invest further in building physical stores.
An Earthquake is a Disaster
Eyewear is a trust business, and having physical stores creates “touch and feel”. Customers feel comfortable handing over their vision prescription to you (which is why checkups).
In their quest for growth, Lenskart got momentarily blinded.
Nepal and North India had just been struck by an earthquake. In a world where social media dominates, Lenskart sent out a clumsy promotional campaign asking potential customers to “shake it off like this earthquake”
It would be a PR meltdown and a humbling lesson to the growing startup on fixing processes.
The campaign would be a company disaster that would take the company some time to shake off, resulting in an immediate apology from its leadership.
Lenskart would have to bounce back from this trust erosion.
2016 would be a turning point for the company.
On the back of a PR storm, it would begin to mature as a company. The startup began to go deeper into the complex supply chain it was a part of, removing intermediaries to ensure procuring eyewear was a much more transparent process.
It would also firmly establish itself as an affordable eyewear brand, helping everyone see better.
With an average order value of INR 2K ($30), almost half of a “high street” store, Lenskart positioned well on price. Utilizing a franchise model, the company was able to scale up rapidly in Tier 2/3 cities, where internet penetration was limited.
Lenskart would shell out 30% per order, or have a CAC of $9 per customer order. The eye check-ups and eye camps would result in word of mouth campaigns, resulting in conversions for the company.
In the process, the company would grow ~2x again to $26MM of revenue. It would set its sights firmly on 2020 with a plan to enter 372 more cities/towns to continue scaling.
The tailwinds were blowing in the correct direction.
To improve business margins, Lenskart would make a slew of strategic changes.
The biggest would be to start its own in-house label, John Jacobs, that would be an affordable premium eyewear brand. By creating its own brand, it would further improve the supply chain and create more value for the company.
The brand alone would contribute to $14MM of the company’s $50MM of revenue in 2017.
In line with margin and profitability improvement, the company would continue to invest in manufacturing and technology. With almost $30MM in tech investment every year, Lenskart would continue to improve its supply chain.
It would end up creating a manufacturing facility that allowed it to create 100K frames every month, which would help bring down the cost of eyewear by another 30%.
In the process of zooming into the supply chain, the company had reached a valuation of $460MM. On the back of $90MM of revenue in 2018-19, it would be at 5x revenue. Lenskart’s activities would also help it improve its losses, growing while maintaining burn at a constant rate.
Contributing to a large share of organized eyewear sales, Lenskart was now in the big league.
A Visionary Brand
While spectacles tend to be infrequent purchases, increasing incomes would allow people to purchase multiple eyewear or lenses simultaneously.
By making eyewear affordable, Lenksart was going deeper into a customer’s wallet by allowing her to make more purchases. No longer viewed only as a tool to see better, spectacles were now also beginning to be a fashion accessory.
While subconsciously priming consumers into purchasing more eyewear, Lenskart also got into the contact lenses market. To improve its in-store experience, it made a slew of acquisitions resulting in a future looking 500th store.
As the brand proliferated, Lenksart has begun to be more ubiquitous. The likely fundraise is to help it cement its position as a go-to brand for eyewear, and dominate the eyewear market, both in India and South East Asia
With hard lessons learnt, and many pivots, Lenskart looks poised to shape India’s vision.