Path to Profitability-Episode 1 | The Founder's Ledger | Rohit Sarin in Conversation with Deep Kalra

The visibility was two months of payroll, two months of rent. I think resilience is number one. You'll probably have a lot of regret when you see others doing something probably not half as well as you could have. But if we never live to see 2005, then it was all in vain. For two years there was darkness. Then things slowly, slowly, slowly opened.

Yeah, Rohit, entirely my pleasure. Thank you for doing this with TiE. TiE is a, you know, very important part of my heart, so I'm so excited to do this.

No, the honest answer is no. I was a 30-year-old and all I was obsessed with doing was taking advantage of the internet which was happening all around us. I really felt it was something which is going to change everything we do—not just communicate, but even transact, research, various things. And I think I just wanted to take advantage of that and build a business on that. I did try to do it as part of a big company where I was working with GE Capital, and that was because GE Capital made its money from other stuff. This was really a weekend project. So I figured, before the term 'startup' was even either coined or popular, I figured you've got to be all in to make anything new happen, and I guess that is what a startup is. But did I think we'd be at this scale, size, or we'll even exist after 25 years? No, I'd be lying if I said I did. I think one takes it a few years at a time. I said give it a good shot, build something, and then you just keep on renewing your focus and your horizons change.

It's funny you say that, by the way. That is my favorite metaphor. So whenever I'm speaking to youngsters, colleges, or early stage, and I tell them, I actually say, 'Listen, this is not a race.' Your career is also not a race.

So your career is also—my favorite metaphor is it's a leisurely trek where you just have to enjoy every step of it, and, like you said, the horizon also broadens.

No, mine wasn't a weekend project. What I was trying to do at GE Capital through the internet, that became the weekend project. And I said this won't work that way. It has to be all in.

Yeah. It moved pretty fast. I think even in the pre-launch phase. So I started MakeMyTrip actually on 1st April, All Fools' Day of 2000. But for the last, I would say, about six months—the idea probably came six months ago. Okay, I need to do something of my own on this, or something interesting can be built on this. One can make a business in the kind of businesses which were being done on the phone. That was my very simple thesis. What are we doing on the phone? Online stock broking, online travel—travel and stock broking were being done. These could move online first. We didn't have rich media. You and I are same vintage more or less, so downloading something itself was a task. Staying connected was a task. So that infamous sound sometimes still comes in my head—that modem, 128 kbps, and the beeps and beeps going on. So I think one had to think of a lightweight kind of model. So the last three months became pretty frenetic activity, and once one started, I think I was very clear that, 'Listen, we have to make a business out of this.' And, you know, it's not just now an idea. It's not something—I'd quit with nothing else. I'd quit GE Capital. I was a vice president there, so the opportunity cost was high. You know, even otherwise you look at your peers, you look at everyone else, they're doing well. You have a natural pressure. I mean, I would be wrong if I said there was just no pressure. One was just taking it one day at a time. No, I was very clear. I want to build a business on this from day one.

Yeah, so early days, I think you look for validation of concept. So, you know, you can call it product-market fit, and you look at validation of concept because the first thing is: will people even like your service? You can put out ads, you can attract them, you can buy keywords, etc., but are people willing to risk, let's say, moving from that traditional way of working? So that was the fundamental shift. The only way people bought air tickets—and we started with air tickets. We had hotels, but no one was booking hotels at that time online. Will people move from that traditional way? What is the traditional way? Call up your travel agent. People would even call up the airline office, but by and large, call up your travel agent. And some people would actually go to a travel agent. This is, you know, 25 years ago. And the travel agent would do all the work for you. You would say, 'I need to go from Delhi to Bombay, at this time, at this price.' He would give you two, three options all on the phone, and you'd say, 'Yes, reduce it a little, this and that.' And all the usual. There were no e-tickets either. So a physical ticket—that booklet would be sent, you know, with the self-carbon pages.

So I think the big one was: will people trust the internet as a medium? Will they drop their credit card online? And I can tell you, in the beginning it was a spectacular failure. So in India, no one was ready to do that. Everyone used us to get the best price, to fax that price—because again, they wouldn't email it. They would take a printout, they'd take it, and they'd fax it to their travel agent to prove to him or her, 'This is what I'm getting, match it.' Luckily for us, from the beginning I had a kind of three-pronged segmentation: the customers coming to India—these were NRIs mainly from the US. There were 3 million NRIs then in the US. Going from India overseas, and traveling within India. So two from and within. Within was failing, from was failing, but luckily, to India, our NRI brethren were buying because they were already used to this medium. Because they transacted on the web since maybe '95, '97—Amazon was there, Expedia was there, Travelocity was there. And there was a lot of protection on credit cards. So, you know, we had gone and got our Better Business Bureau accreditation. So if something went wrong, people would refute charges in the US. It happens all the time, and all the laws are very consumer-friendly there. So I think that helped us get validation. People were ready to buy online, but not in India. So I guess one of the smartest decisions we made: within three months of launch—the website was up and running on October 7, 2000—on 31st December we stopped all marketing in India. We were always looking at the market signals. Hey, the conversion rate's pathetic in India, and focused only on US-India. And for the next four to five years, that's all that kept our fires burning. So smaller market, but inherently more profitable market.

And then as luck would have it, in 2001 our investor pulled out totally. I'd got early-stage funding, 2 million dollars from E-Ventures, but they were going through their own thing. Their LPs wanted to pull out of all dot-coms. So from 2001 to 2005, it was entirely management-held. The company—we bought back. We did a very interesting distressed buyout. Some angels helped us. Actually, two partners from E-Ventures were, you know, big believers in what we were doing. Until 2005 we were entirely self-funded. We just got a couple of angels, and in fact, I never wanted to take VC money again. I had sworn I'd never take it because of the average experience I'd had. But then in 2005, the India opportunity—India was really opening up. Low-cost carriers had started. Indian Railways, IRCTC got people comfortable buying online. So then I said, 'Okay, our original thesis is now playing out.' So we'll need money because we wanted to build a brand out here.

I like the word 'pivot,' but I actually think it's just a smart word for—or it's a buzzword for a smart but tough business decision. That's what it is, right? At the end of the day, adaptability—also course correction in a big way. So, but if you're not listening to the market—and I've always been kind of a creature of numbers. So you do believe in that. You look at your numbers. You look at your conversions. You look at what's happening. And it tells you the story, and then you talk to customers. You're close to customers. You realize, listen, you can keep pouring more and more money—and, you know, keep in mind these weren't the days where you ever discounted below your cost. So that disease had not entered the market. Came much later. Or maybe it started in China, then came to India. There was a lot of capital. When you have no capital, you have to make money on every transaction, even if it is one rupee. But you do a million transactions and you make a rupee on each. So I think the economics were clear, and also we are all trained with basic business sense. We both started our career in banking, so I don't think we can forget that. So that somewhere was at the back of the mind—that we have to make money to survive. My favorite example for that is: the ATM can give you money only if it has cash. So a business can only give you money if it is profitable.

Yeah, 2001 to 2005 were definitely the toughest years. One year in the beginning was probably a dream start, and then the management buyout, distressed buyout happened. Next four years were very hard, out of which I'd say two years—2001 to 2003—were trial by fire. I think about them, I still get a little tingle. Now I look back and say that was the best of times. Because only when you're bootstrapped and you have very, very, very little money—like for most of that period, the visibility was two months of payroll, two months of rent. I don't think it ever went less than two months, but it never went much more than two months. So you're really teetering on that, investing whatever you can. Then you cut whatever can be cut. So you start with obviously any frivolous costs. So the first thing we did was fixed costs like rental. So we moved—we were in Okhla Phase One, which is the non-sexy Okhla. We moved into the mezzanine of that office. And it was a very low ceiling. I think it was 8 feet. So you could touch it comfortably raising your hand, and it was a long, narrow one. So we would all sit there and we would work nights because there was US-India traffic.

And we also shrunk—I think we lost about 40% of people over that weekend, because I'd actually made it clear to everyone. We were a team of 42. We shrunk to about 24. Made it clear to everyone that, listen, this weekend we are not working—we would work, by the way, in those days six and a half days. Only Saturday was a half-day off. So when the woke generation says, you know, work-life balance, I always laugh. I said there's no work-life balance in a startup anyway. But that's another topic. So I think at that point of time it was cutback on payroll. So a lot of people left. I said for seniors, you have to take cuts. And the cut in salary—whatever you can take, but minimum 25%. And, you know, the guys who became co-founders took big cuts in salaries. And I was able to go 18 months without a salary because there was nothing to draw from MakeMyTrip. At the same point of time, we did a build-operate-transfer to pay some bills with e-bookers, because e-bookers was a UK-India, UK platform for online travel. They liked what we were doing. They said, 'You know, we want to buy you guys out.' We said, 'We are not for sale, but what do you want?' So they actually wanted a back office. I said, 'We'll build you a back office.' So shifted people to do that. So did a lot of creative structuring to stay alive.

And every month gave a little bit of hope that we are on the right track. And I think for juniors also there were no cuts in salary, but there were no raises. So there was a real mission mode going on there, where everyone was like, 'Okay, this is it.' And to sustain that, I think, for a long period becomes hard. So clearly after a while, I broke it down—instead of every day to look, you know, wonder should we do this, should we not—I remember telling Sachin, 'Listen, we will now review this every month. And for one month, if we are in, we are in.' So that really helped break it down. And then I think after about a year, we could see things are getting slightly better and slightly better. Then we got two slugs of angel capital. One from a customer—a US-India customer who only bought from us business class or first class—called one of my agents and said, 'I want to come and meet Deep.' And he gave us $150,000, which was a lot of money at that time. And he just liked what we were doing, and it worked out very well for him. And the second was actually a very interesting gentleman. He runs actually very high-end cruises on the Brahmaputra and Ganga, and also does birding—Mr. Raj Singh. So he was doing traditional high-end travel to the US and the UK. So really bringing trips from the UK to India to show them the best of India. So as offline as could be, but he saw that online is happening overseas. So he told his CA, who I happened to know, 'Find me someone here who's doing online.' And Mr. Vinod Dua introduced us, and the next check came from him. So two angels came along, but yeah, for two years there was darkness. Then things slowly, slowly, slowly opened up.