How hitendra chaturvedi built 100 crore business

Vivek (CA ) (2368 Points)

05 March 2012  

How Hitendra Chaturvedi built 100 crore business RLC by selling refurbished factory seconds

Heard the term reverse logistics? It refers to the backward supply chain network, where a product moves from the end-consumer- the purchaser-to the manufacturer for reuse, disposal or surplus sale. This increases the manufacturing company's overall efficiency by reducing the cost of storing such products and offers an eco-friendly way of disposing them.

But when I founded Reverse Logistics Co. (RLC) in Delhi in October 2008, no one had a clue about what my work entailed. My tryst with the by-and-large untapped potential of reverse logistics did not begin in India.

After graduating in software engineering from IIT Roorkie in 1990, I made my way to the US to pursue an MBA from SMU Cox School in Dallas, Texas, a year later. I spent the next 16 years job-hopping around the country working for Ernst & Young, AT Kearney and Newgistics. It was during my two-year stint at Newgistics, a Texas-based reverse logistics company, in 2000, that I first learnt the ropes of the concept.

In 2006, while I was working with Microsoft, I was sent back to India as an expatriate to head their OEM division in India. This gave me an opportunity to do my homework on the reverse logistics vertical at home.

To my surprise, companies knew little and cared even less about waste management and the benefits of this green initiative. In India, the rate of return for slightly defective products is 4%, which makes this industry an estimated $15-16 billion (Rs 74,287 crore-79,226 crore) opportunity. So, around April-May 2008 I quit Microsoft and decided to explore this untapped territory.

The timing and my personal background were far from conducive. The economy was in the midst of a downturn. After 16 years in the US, I had no idea about how to start a company in India. I lost count of the number of times I ran from pillar to post to get my documents in order.

Had I known this earlier, I would have been afraid to start a venture. Nonetheless, five months later, armed with a seed capital of Rs 1.2 crore-half of which came off my savings while Mumbai Angels funded the balance-RLC got off the ground.

The best part about starting a company in a recession is that I got the cheapest as well as the best talent and infrastructure. My business idea obviously shines particularly when India Inc. needs to tighten seatbelts and think lean. The timing also inculcated discipline in me.

I started with an 800 sq ft warehouse in Mumbai and a team of six people. Then the battle to woo clients began. It took me eons to explain to companies I needed as clients about what I did. In November 2008, we bagged our first client, Future Bazaar. Thereafter, original equipment manufacturers (OEMs) and e-commerce websites such as Philips and Croma came on board.

The challenge was to create a channel for the products that are returned annually, sell them for 25-30% off the current market price, and still leave a decent earning margin. I kept my business model simple: Take the rejected/defective/unsold/returned products from the OEMs, refurbish them, provide a year's warranty from our side, and finally sell them as factory seconds through our brand, Greendust.

I made money by negotiating my price with the OEMs and charging them a product-processing fee for overhead costs, such as transporting and repacking these unwanted products, which ranged from garments to electronics and home appliances.

In March 2010, we raised our first round of venture capital funding in which Kleiner Perkins Caufield & Byers (KPCB) and Sherpalo Ventures bet on us along with Reliance Venture Asset Management.

Reliance, which alone ploughed in about Rs 6 crore, came on board by coincidence: An employee of this venture company was looking to renovate a house and someone told him to look at stuff that we were selling.

Shortly thereafter, I got a call from the company saying they were interested in funding RLC. This additional cash supply helped us double our number of employees to 40. This year, we've taken Greendust online. We have a two-lakh strong online customer base and our online conversion rate is close to 5%.

In addition, we have 40 physical stores in tier II and III cities. Currently, our employee strength is 400 and we have warehouses and offices in Mumbai, Delhi, Bangalore, Chennai and, most recently, Nangloi near Rohtak.

In the next three months, we want to launch a buyback programme for offline customers, where a year after they've bought products from us, they can exchange it for a new product on a 30% discount. This will be limited to physical stores since electronic gadget theft is rampant.

To play safe, a photo ID will be asked from the customer availing a buyback offer. We are also planning to expand across product categories, like books and second-hand medical equipment (which will only be given to medical institutions).

Over the next three years, we expect to scale up our business to a valuation of Rs 500 crore. Though RLC currently has a local deposition and localised acquisition drive, we want to create a global footprint starting with Europe and South Asian markets.