B2B manufacturing marketplace Zetwerk reported a 20x revenue increase to ₹320 Cr for FY20, hot on the heels of a fundraise of $20M earlier this year.
Creating a Project Plan
It was late 2017.
Two friends from IIT Madras were trying to figure out the biggest pain points in the Indian manufacturing sector.
Friends for over ten years, Amrit and Srinath had met at IIT Madras during their undergraduate studies. The duo lived in the same hostel, attended the same exchange program in Singapore together, and even started their careers at ITC together.
It was at ITC where the seeds of their eventual company would be sown.
They realized that a project manager had to deal with over 200 manufacturing parts from multiple suppliers at any given point in time.
Even at a mature firm like ITC, there was no software to maintain the database, track shipments, or manage the manufacturing lifecycle.
Instead of tackling the problem immediately, the pair went their separate ways initially. Amrit left to pursue an MBA in the United States, and Srinath co-founded a company in India.
Despite having thousands of miles and 12 hours of time difference between them, a close friendship and common desire to solve problems kept them intact.
After business school, Amrit took the well-trodden path of joining a management consulting firm, but was soon forced to return to India due to his H-1B visa expiring.
Convinced that this was a blessing in disguise, he got on a call with Srinath. They began to revive their prior dreams of entrepreneurship.
They would help manufacturers get work.
Prototyping the Product
The pain point they had identified years ago, of manufacturing in India being stuck in the Stone Ages, was still top of mind.
They started putting together v1 of their product, a database for all the suppliers of commonly used manufacturing parts.
They would regularly be reminded by friends and colleagues of the monumental task they were undertaking – disrupting the traditional processes and conventions, and competing with the Goliath of manufacturing – China.
Soon, Amrit and Srinath were joined by two friends, Rahul Sharma and Vishal Chaudhary.
With self belief, a strong team in place, and a vision to disrupt Indian manufacturing in their minds, the four friends continued to iterate on their product.
In about three months, the team built software that would eventually morph into Zetwerk.
Simultaneously, the team started looking for seed investors to inject some capital into their company. But something interesting happened as they continued to build their database of suppliers.
The Zetwerk team learned from their manufacturing customers that they needed more than just a menu of suppliers.
Customers wanted to go a step further and identify specific parts and pieces of equipment, potentially even from multiple sources.
Sensing a larger opportunity, the fledgling team decided they had to move quickly.
Executing a Pivot
Zetwerk pivoted quickly from a supplier database.
It transformed itself into a B2B platform that aimed to connect original equipment manufacturers (OEM) and engineering procurement construction (EPM) companies with small and medium enterprises (SMEs) for on-demand manufacturing services.
Srinath traveled across the country to onboard new suppliers on the platform, Rahul continued tweaking the product, and Vishal onboarded the customers.
The matchmaking had begun, and Zetwerk’s platform was becoming more efficient (and valuable as a service) with every new customer they brought onboard.
As they grew, they also began to realize the importance of data collection and analytics for future products.
In many cases, Zetwerk knew more about the suppliers than the supplier knew about themselves and they started collecting over 200-250 data points from the supplier to make the matchmaking process seamless.
This seamlessness proved to be a bond for the decades.
Suppliers and manufacturers flocked to Zetwerk’s platform, driven predominantly by just word of mouth. They grew 300%-400% MoM, making them the fastest-growing company manufacturing-focused company in India.
On the back of this tremendous growth, Zetwerk raised their Series A.
An Interim Development Checkpoint
Zetwerk’s Series A raise came at a time where the company was on the verge of achieving the three words that every founder aspires towards – Product Market Fit.
Revenue was coming in, as were new customers. This time around, they’d be coming from overseas.
They received their first international order in September 2018, originating from Singapore. It was followed by another one from Bangladesh.
And with that, the floodgates burst open.
Without much effort from Zetwerk, was receiving international orders without even having a dedicated overseas channel.
As these started to increase in quantity, Zetwerk decided to go all-in on global and allow foreign companies access to Indian suppliers.
“Make in India” was becoming a reality.
On the back of this growth, April 2019 saw them cross the 100 Cr mark in GOV. Just four months later, they hit the 200 Cr milestone.
But with this large influx of orders, Zetwerk’s suppliers were finding it difficult to complete them on time. Some faced financing issues, some were short on capacity, some others faced logistic issues.
For marketplace economists out there, the golden balance had been disrupted as the rate of change of demand was rapidly exceeding the rate of change of supply.
Whereas for a company like Uber, this would lead to surge pricing, a mechanism like that wouldn’t work for Zetwerk as cost-efficiency was such a critical part of their value-add.
Zetwerk realized that they needed to pivot yet again – going this time from a pure-play marketplace to a supplier themselves – but with a twist.
Zetwerk’s strength was knowing the suppliers’ capabilities inside out. They executed a simple idea — one that had been hiding in plain sight since the very beginning.
Large orders that came in were split into buckets and distributed to multiple suppliers.
By Zetwerk acting as the aggregator middle-man between demand and supply, they solved the bandwidth issues that suppliers were faced with while maintaining the quality of the final product presented to the OEMs.
The concept of “parallel-manufacturing” had now materialized, crystallizing when Zetwerk set up their own captive manufacturing facility in Trichy to help ensure that orders were processed on time.
By being the platform on which both sides of the marketplace lived, Zetwerk had flexed their logistics muscle to ensure a smooth flow through the entire process.
The pivot had resulted in a bigger portion of their orders’ value reaching completion, which was a win-win for everyone on the platform.
Better products for customers + better reputation for suppliers + more GOV for Zetwerk = a marketplace model at its finest!
There was more to come. Spoiler: around the world in a really short amount of time
A year (and some more) after receiving their first international order, Zetwerk raised $32 Mn in their Series B round at the end of 2019.
With more cash in the coffers, Zetwerk felt like it was time to expand their presence overseas.
As it scaled its operations in India, Zetwerk was also creating immense value for local suppliers by helping them find customers overseas.
The focus on building in India and selling to the world had fueled the rocket ship till now but to keep growing at the same pace Zetwerk had to look elsewhere for growth.
By early 2020, Zetwerk had set up a small sales presence in North America and some channel partners in Europe. They received multiple international orders, but it was only around 5% of its overall business.
Orders were pouring in, and two things helped Zetwerk garner a stream of positive responses.
Pure innovation and due diligence led to category creation.
India is among the top go-to destinations for the manufacturing needs of companies from all across the world. Zetwerk believed in not just leveraging, but also contributing to the growth of the country’s manufacturing potential.
The extensive market sizing and studying that they had performed gave them access to a plethora of manufacturers, offering an even bigger number of products.
The research had helped Zetwerk index all of these findings, which helped suppliers get noticed by industry giants.
The flywheel was spinning.
Inspect, Verify, Deliver
To understand exactly how Zetwerk’s business model works, think about the process you would take if you were planning a complete renovation of a house that you owned.
Maybe this isn’t your first home and you have a good sense of the final product that you would like to see, but you don’t have the bandwidth to manage the entire process yourself. This is where a contractor comes in.
The contractor, given their breadth of experience renovating houses and up-to-date knowledge of suppliers and price points, works with you to spec out what your house will look like on a detailed basis.
What size and color would you want your floor tiles to be? A compact guest room and large dining area or the other way around? Round dining table or rectangular?
With those questions answered, the contractor gets going on the other side of the marketplace.
They will put together a list of materials and suppliers that most efficiently and effectively provide you with the products you need.
This could mean going to Supplier A for paint, Supplier B for window frames, Supplier C for marble tiles, and so on.
Acting as the middle-man, the contractor will be the orchestrator as all these different suppliers come together to provide you with what you need to renovate your house.
At the end of the project, you have a renovated house and your contractor has abstracted away all the back-end effort required to put the pieces in place!
This is how Zetwerk operates – they are the contractor who works with OEMs (home-owners) to procure relevant materials from the highest quality suppliers of their product.
How does Zetwerk make money?
The most common method is either charging a flat fee per project or ‘event’ that the OEM initiates (more old-school). The newer form is applying a take-rate to each transaction that happens between customer and supplier on the Zetwerk platform (think of this as a ‘service delivery’ fee that you see from Zomato or Swiggy).
As Zetwerk’s platform becomes richer with more OEMs and suppliers, the value that each side extracts from the service increases, improving Zetwerk’s ability to flex pricing according to desired levels of growth or profitability.
Long term, scale would allow Zetwerk to become increasingly profitable.
Survey Existing Market Products
There are several companies that operate in the industrial products space. They can be broadly classified into three categories: e-commerce platforms, services and marketplaces.
IndustryBuying is a website for all kinds of ready made industrial tools and equipment. You can buy anything from a solar panel to car tyres. Moglix is another e-commerce platform focused more on office equipment from printers to pumps to room heaters, which isn’t Zetwerk’s focus.
Consumers who know what they want to buy can go to the website and make a purchase. Alternatively you could hire a company to manage everything for you.
Inframart provides end-to-end services such as setting up offices or providing HVAC contractors. It’s a one stop shop for everything you need to run your office.
Marketplaces however, connect suppliers or service providers with buyers. Companies like IndiaMart can help you find a supplier for any kind of product and compare quotes.
Even though all the companies mentioned above are India-based, Zetwerk realized as they scaled that to become a truly global service provider they would need to stack up against global competitors.
For a large part of the 21st century, India was the clear runner-up in Asian exports to China, who had lower costs and better infrastructure to make their products available globally.
Well-funded companies like Tiebaobei, a platform that serves second-hand engineering machinery, and HAIZOL, which facilitates the trade of custom industrial components and parts operated in roughly the same channels as Zetwerk did.
But a combination of geo-political tensions and trade-route pricing fluctuations in China began triggering a change. This coupled with rapid technological adoption in India created an opportunity for a marketplace to be created.
India could supply the world’s OEMs with the parts they required.
Collect Feedback from Customers
Instead of going after what already existed, Zetwerk created a new category – a marketplace with a service that solved a big problem for a small group of customers.
Zetwerk’s customers were in the business of building infrastructure. They typically sold customized manufacturing parts for cranes, doors, and chassis of different machines and ladders, to businesses engaged in fabrication, forging, construction and casting.
These are not items that can be purchased. Businesses must find manufacturers and workshops that make them and place an order.
These businesses usually have large supplier management teams that work with suppliers all across the globe to ensure orders are completed on time and meet quality standards.
Focused on an industry with big problems and deep pockets, Zetwerk was quickly able to create a lot of value by tackling some of these challenges themselves.
They assume full responsibility for high-quality production, on-time delivery, project management, and even quality control, without owning manufacturing facilities.
Due to the responsibility that came with being a trusted middle-man, Zetwerk put controls in place to ensure high quality of supply.
Suppliers were evaluated across quality, experience, infrastructure and skills before they were added to Zetwerk’s network.
They followed this up with routine inspections and audits to ensure suppliers stay current with best practices and latest technology towards manufacturing.
Riding high on the strong relationships that they had built with customers and the close control of quality despite being a two-sided marketplace, Zetwerk saw their operating revenue grow 20x from Rs. 16cr in FY19 to Rs. 322Cr in FY20.
Representative of a company optimizing for growth instead of cash flow, this was mirrored by a commensurate increase in costs – primarily driven by a boom in subcontracting costs dedicated to matching supply up with demand.
A positive sign for any high-growth 3-year old venture backed company, FY20 also brought an improvement in EBITDA margins from -25% to -5%, demonstrating that Zetwerk had a clear path towards profitability in the long run.
Zetwerk had constructed a marketplace where they could add value throughout the lifecycle, all while building long term relationships with both their customers and suppliers.
Iterate, Iterate, Iterate!
With the foundation laid, when Covid struck in early 2020, Zetwerk played their part.
Launching Zetwerk Health Care, they started connecting buyers with manufactures of personal protection equity, testing kits, and other essential health care equipment.
In July 2020, Zetwerk raised their series C round of funding marking it their third fundraising round in just 7 months.
By then, Zetwerk was working with more than 150 enterprises and 2,500 small and medium-sized businesses. Their software was being used by customers across several industries. The new funds would help them launch new categories, strengthen their product stack, and fuel global expansion.
Zetwerk started building in India for India, but they were now building for almost every manufacturer in the world.
Instead of going after what already existed, they became category creators. A company that experts thought would only be a small business catering to a niche industry now has a multi-billion dollar TAM.
They are category creators in a business where their network for suppliers is a natural barrier to entry.
Imagine that all this has been done in just the span of 24 months. A revenue of 0 to almost 500 Cr. A team of 0 to almost 250. From India to the world.
As the company continues to grow at astounding rates and expands to new geographies, their execution so far suggests that they will be able to maintain the high levels of quality that they have come to be associated with.
Its rapid growth, and large potential market serve as a harbinger of what is to come. With a 1,000 Cr of GMV easily in sight, it won’t be long before the company is worth a billion.
Zetwerk will be the go-to platform for global manufacturers to get work in the future.
By Abhinav, Bhoomika, Mazin, Shreyans, Shiraz and Aviral
Audio Version: Behind the Scenes with AJVC
As usual, we have done a behind the scenes format with the writers and host Mazin
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