Sandeep Reddy and Vikhyat Srivastava, former analysts with Kotak Mahindra Group and founders of GrOffr.com, a group-buying site for real estate, speak to Moneylife’s Ashok Shaw about their change in career path and their current business model

Ashok Shaw (ML): What is GrOffr.com? The name sounds quite extraordinary.

Vikhyat Srivastava (VS): GrOffr.com is just a short name for ‘group offer’. This site offers users a chance to buy things in a group at a very good discount. We derived the idea from our previous initiative, Verkko.in. Verkko means ‘network’ in Greek.

Verkko.in is a cluster of close communities of alumni websites where there are about 32 B-schools, including the IIMs who, officially and unofficially, have created an alumni network. On this portal we created very strong filters in each of these alumni networks to ensure closeness and privacy. This means if you are into journalism, you will receive jobs from journalism only and no other fields or profession. Our aim was to keep the portal and its users free from spam.

After some time, we felt that all these alumni have similar socio-economic requirements, as they may change jobs every two years, some may buy new cars every three-five years, some may buy new houses every seven to eight years and so on. And we thought if the needs are the same, then why not bring everyone on one platform as a group and bargain for more discounts?

While studying at IIM-Kozhikode in Kerala, we used to buy items like laptops in groups. So all batch mates used to come together and bargain with IBM, Intel and Compaq. In the end we used to get a discount of almost 30% to 40% from them. We thought why not implement the same practice for our alumni network as well; and it was how GoOffr.com started.

That was the time Groupon.com had become extremely popular. And group-buying clones of Groupon.com — Mydala.com and Snapdeal.com — started mushrooming and then we realised that Verkko.in was actually limiting the concept. Therefore, we decided to open a full-fledged website known as GrOffr.com. It stands for group deals.
 
ML: What was the first group deal on GrOffr.com?
 
VS: In the first deal (with GrOffr.com), we sold about 35 flats in one day — ‘Oberoi Splendor’ in Andheri (East), Mumbai at a discount of 32.5%. The market rate for these apartments was Rs10,000 psf and we sold the same at Rs6,500 psf.
 
ML: What kind of deals do you offer at GrOffr.com?

VS: We offer two kinds of deals on GrOffr. One is the deals offered by various dealers, manufacturers or developers and second, deals suggested by our subscribers. For the first kind of deal we publish it on our portal and those subscribers willing to buy it can join that particular group. Once the set limit of group members is achieved then everybody can buy the item at a discounted price.
In the second kind of deal, our subscribers can give suggestions about any item they wish to buy in groups — called ‘User Suggested Deals’. Here like-minded subscribers can come together and form a group to buy that particular item at a discount.

ML: How do sellers get involved in these ‘User Suggested Deals’ and what is your role?

VS: What we are saying is let’s go to the Web-to-point model of the deal as well. When some 10-15 people join the group, we as a platform or exchange invite five sellers who have the same product. At present, GrOffr is negotiating with sellers on your behalf. In the future we would like to sellers to come forward and offer best discounts to buyers on their own.

ML: But in this arrangement, where GrOffr.com will simply be a platform for buyers and sellers, how are you going to generate revenue?

VS: Depending on the group-buying model, we will charge certain fees from whoever is making more money or whoever is making the most from the platform.

 ML: But don’t you think that this would lead to a clash of interests between buyers and sellers who may like the other side to pay your fees?

VS: I don’t think so. Mostly, it will be the sellers who will have to bear the fees. When we allow them to bid, they will pay a nominal fee so that we have serious sellers out there, no frivolous stuff. Those who can put the cash on paper, show their seriousness in the business. Whoever takes the group, we will charge a transaction success fee there.
 
ML: Has there been any success in the User Suggested Deals?

VS: Yes, we have already started one with LED TVs where somebody wanted to purchase a 46-inch colour TV from Sony, Samsung or LG. We negotiated with all of them. The group stands at 27 people right now. We will be putting (out) the rates soon. The highest discount we are getting is around 23% on the market rate. So a Rs2 lakh LED TV will cost Rs1.5 lakh on our portal. The deal may go live this week.
 
ML: Coming back to your career path — you and Sandeep quit your well-paid jobs in the Kotak Mahindra group to start GrOffr.com. How difficult was it to take the decision and start a business that was still to make a mark in India?

Sandeep Reddy (SR): Given our background in real estate, we were getting into a sector or field which we were comfortable with. Both of us have extensive networks across the country. We were getting into a territory which was familiar to us. We knew that if we can do something in this space, we would create value. Hence, it has not been a big roadblock as such, though we waited for almost one-and-a-half years to take the plunge. I would not say it was an easy decision but over a period of time, we knew it would work. We had done some transactions and wanted to scale it up. Hence, we got into it on a full-time basis.

VS: The idea and keenness to do it was there for a long time. It was not as if come March this year, we will leave our job and start GrOffr.com. We knew we had to do it sooner or later. We had been doing these deals much before other people came. Also, our experience from the real-estate industry helped. We had the contacts, information, understanding of the real-estate cycle, where exactly the developer will yield, where he will not yield and so on. The understanding between Sandeep and me and the contacts we had made it easy for us. We had the funding experience, analysts and broking experience. Only the developer experience was not there.

ML: How is GrOffr.com different from other group-buying sites that deal in the food, health and beauty segments?

VS: The positioning is extremely clear. That is why we say GrOffr — the real deal. We knew from the beginning that we wanted to create some value — only real deals. We are not keeping ourselves segregated to any particular category. We are doing real estate, cars, and electronic products such as the BlackBerry. We planned to get into a number of high-value products.

ML: How much business has GrOffr.com made till date? How has been the response?

VS: GrOffr.com did earn about Rs23 lakh revenues last year and roughly Rs13 lakh as net profit. The responses have been phenomenal. We are not so popular now. The last we reached about 60,000 hits in a day. We are not marketing ourselves. Marketing needs financial-muscle power. So the day we do that, we will be able to communicate with many people.

ML: Tell us about the deals you have successfully completed till date.

VS: We have sold 35 flats in ‘Oberoi Splendor’ in Andheri (East); 11 flats in ‘Kohinoor Constructions’ (Kurla, suburban Mumbai); 18 flats in ‘India Bulls Dream’ and 15 flats in Bhandup (another Mumbai suburb).
 
ML: Have you participated in these deals?

VS: Yes, Sandeep bought his house and invested in India Bulls Dream as part of the group deal that goes on to say that we are not just preachers out there. We actually participate in that. We both bought BlackBerrys from one such deal.

ML: How much do you earn per deal?

VS: On each deal we charge either the seller or the buyer or both depending on how good the deal is. In Oberoi Splendor, we charged the buyer only and in all other deals, we have charged the seller. It is roughly 1% or 2% of the sales value that we charge as commission from the buyer or seller.

ML: You received commissions from buyers only from the Oberoi Splendor deal. Please elaborate.

VS: The seller did not give us any commission because it was our first deal. We were representing buyers. Sellers asked, why should we pay any brokerage? Lots of buyers said we are not paying... do whatever you can. So, we offered developers to give less discounts but pay our brokerage. The developers should collect money from buyers and pay us. It is rarely that we charge buyers.

ML: Has any venture capital (VC) firm funded your business?

VS: We are in touch with many of these people. We received the term sheet earlier in May. However, we were still concretising our business model at that time. GrOffr.com was just launched. It was little under-valued at that time. Some VC has approached us. But nothing has happened till date.

ML: How much revenue do you expect to earn in the coming quarter?

VS: Last quarter we made Rs15 lakh-Rs16 lakh net profit. We will close this year at around Rs1 crore revenues.

ML: There is one factor that might hamper your group-buying business. If a person asks from the developer the same price as companies such as GrOffr.com offer, he might not be turned away. Therefore, in the end, this might hurt the developer and he might be reluctant to offer further deals to GrOffr.com. How do you expect to cope with this problem?

VS: Every developer is very wary of reducing prices. If he reduces the price, everybody will start asking for the same price. So at least with us, he knows he is giving this price to a group. I (as a developer) have to sell my inventory. The shelf rates are there but if you come in a group, I do not mind giving you a discount. However, if you come as an individual, do not ask me for a discount.

When developers reduce price, their egos get hurt, notional profits get hurt. But if you do the mathematics, they are able to sell off their inventory in a very short time. These inventories are time bound. So one month, there is a spike in sales and then they are stagnating. So, they haven’t reduced the prices, it was special group deals. If I do not sell my fat, the inventory and opportunity cost is going up. The developer will lose money till the flats get sold. If he waits to sell the flat at his rate, he would incur losses. But the moment he sells those flats, he can churn the money for other projects.

SR: We have done business in recession and boom times. Our site has been tested in both the markets. Here, the understanding is clear. If you are giving me the deal and if a middle person comes in, I get all the booking cancelled and renegotiate with you. So you cannot give just the rate you are giving the group to a single buyer. As a group, you will get a discount. You can get a discount as a group for any service. Therefore, that is the fundamental principle we are building our business on.

ML: How would you rate your decision to change your career plan and how successful has it been?

VS: It is like I have moved to the other side of the table. As a career move, it was due for a long time. Earlier, I was just a finance professional but I am back to my computer science, and online stuff. Entrepreneurship teaches you a lot. No matter how successful you become, if there is a client visit and your sweeper has not come, you better go and clean the toilet. It teaches you humility, makes you a better person and makes you learn things about yourselves, which you never know you have. In our job, there was stress. But when you start something on your own, you do with that extra passion, so it was a positive move from our career perspective. There are a lot of corporates these days and they value that you have the guts and the courage to take the plunge.
 
SR: Only time will tell. At Kotak, we used to get salaries; today we are not drawing salaries.  The company is profitable and cash rich but we are investing back into the company. — Ashok Shaw