BTF #85 – Deepankar Rustagi on Profitability and Staying Asset Light in B2B commerce (Live from Ventures Park)
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Dotun: Deepankar, it's good to have you again.
Deepankar: Thank you.
Dotun: I just wanna say something about the podcast. I know quite a number of people that have listened to it. I started the podcast in 2017 before podcasts became big as it is today.
When I started coming to Nigeria in 2015, I was having various conversations with people. I used to send cold emails to people - I just want to meet you and have a chat with you, and when I had conversations with them, I was fascinated with what they were building in Nigeria. I wanted to curate those stories on how they started.
Deepankar was one of the first guests on the podcast in 2017, and the idea was to talk about his story, how he started, what led to the company that he was running then, and so many other people that I interviewed - Iyin Aboyeji, Rasak for Cowrywise, Mark Essien, all those guys.
When I started the podcast, raising a million dollars was like raising a billion dollars. It seemed huge for you to raise a million dollars, but now the ecosystem has moved on. People are now raising hundred million dollars - hundred million dollar revenue is just the new $10 million revenue now. People have scaled businesses.
We have Shola, who was a guest in the first season, he’s now exited his startup and he's still running it.
So this season was about scaling. What are the challenges of scaling? What are the key things that all these startup founders have gone through, and what are the lessons from it?
With Deepankar, for some reason, we had three B2B e-commerce founders this season. We had Anu from Sabi, Daniel Yu from Wasoko, and the three of them had different approaches to doing B2B E-commerce. I said that's interesting and of course to different success and today's conversation is to talk to Deepankar about a few things that emerged from those conversations.
The first one is around this your approach to Asset Light. I remember the first time I met the banker when he was talking about this business, he said he was gonna do it asset light. By that time, I knew Tradeable had been working on this, and there was also Wasoko, Twigger, and all of the people that had done this; and Deepankar said, we're gonna do this asset light, we're gonna approach it using different partners.
Dotun: The concern was, why are you doing it that way when others are doing something different?
Now in retrospect, using our podcast, we realized that you have leveraged failures and success of the ecosystem. You leveraged market education, you leveraged vertical integration that's happened in that business, you also leveraged some infrastructure like payments and logistics.
And we think you are using a last mover advantage. What do you say to that?
Deepankar: No, absolutely. I think you started the discussion with sharing about our last journey, the journey of VConnect. Some of you might remember it, and I think that was a failure that taught us a lot. And what we realized is it's not about who moves first, but who actually ends up creating substantial value. And I think that's the key. It's not who started first, who has more customers or who reaches higher revenue. So we were very realistic and to our benefit, a large part of our founding team came with experience working in FMCG, and that was very helpful.
We knew when you have assets on your side, it's a double-edged sword. It helps you gain a lot of market share. It helps you own the production process, the logistics process, but also a large part of your time goes in managing your asset rather than focusing on the customer. And that's why globally you'll see there are D2C brands (direct to customer) brands like Dollar Shave Club and various others who are now producing their goods in China. They are super laser-focused on the customer and they are targeting a niche and very quickly they become multi-billion dollar companies. So if you look at the amount of time a Dangote took in a brick and mortar way to grow, and if you look at some of these D2C brands, the amount of time they took to become multi-billion dollars, the difference is substantial.
We are talking about decades and months, not years, months. And I think that's where our learning was, that yes, it is inevitable that at scale the distribution in Nigeria or Sub-Saharan Africa needs to operate, it needs to be digitized. But who will end up digitizing it at that scale, the person who owns the asset or the person who owns the value chain?
And we felt it was important for us to own the experience, the customers, and the value chain. And we will have enough people who own the assets, who will be willing to work with us. And I think, yeah, it was to our advantage, we could see the challenges other players were facing in the market.
Dotun: There is a wider lesson there beyond just your own model, which. It's always fascinating. What are the key decision points that founders need to take in order to go one way or the other in their business model, leveraging existing mistakes or existing infrastructure.
Osarumen and I were discussing that today to say, is it that the decision is about am I building a fundamental infrastructure business? ' cause if you're building a fundamental infrastructure business, you have no choice but to go asset heavy in code. Or is it about, your business is dependent on other things that needs to have been built. And in that case, you have to think about the timing.

I wanna understand, what are the key mental models that you have to apply to decide how do I build this model and the timing to get into it.
Deepankar: Yeah, absolutely.
Deepankar: This is going to be a slightly different answer.
Number one, there are various times we have to address challenges we face in our model. And as founders, we have to be okay to pivot, irrespective of who standing outside says what. It's okay to say sorry, but it's not okay to not create something substantial.
So the most important thing is you need to say the truth to yourself before you can address your team, your customers or anyone. When the discussion of asset light and asset heavy comes, I can tell you, you'll be surprised. There are founders who in some forums will call themselves asset light and in other forums will call themselves asset heavy depending on which investor they're talking to. And I have seen it with my own eyes that this particular founder, I've met him and he was telling me he has an asset light strategy. And I was like, okay. And then I saw him talking to a large DFI and he says he has an asset heavy strategy. And I was like, because it depends on the way you are telling the story. So you really need to identify what it is that makes you asset light and asset heavy, because nobody owns the warehouse, everyone leases it so they can call themselves asset light. They can lease a vehicle for one year and not own the vehicle, and that is asset light as well, and they're not wrong.
But the asset light, when we speak about it, we still wanted to build an asset light infrastructure business. And that's an oxymoron. I know. How can it be Asset light and infrastructure, because we wanted to create the infrastructure of data and that is why it was important for us to build an asset light business where everyone who owned the asset did the handshake on our platform.
A manufacturer selling to a distributor, do it on our platform. A distributor selling to a retailer, do it on our platform. A distributor sending the goods to the retailer through a third party logistics provider, go as deep as possible. To give you a perspective, only that transaction, we create the route, there's an OTP that transacts when goods move. There is an OTP that transacts from logistics provider to retailer. The transaction happens real time between the retailer and the driver, he comes back to the distributor and does a real time reconciliation. So the idea in building an asset light businesses, you need to understand what it is that you're building. And the real asset we wanted to create was the data, and that's why we went in that direction. We knew many people would participate with us.
Dotun: One advantage of your decision, and I saw it real time, is your scale to some extent, and what we now see, what Ft celebrated is your growth. But what a lot of people didn't know is that you are the first in that class of B2B commerce in Africa to be profitable at scale.
Deepankar: Thank you.
Dotun: And one of the things I saw real time being on your board is when I joined the board, I always see this matrix that you guys show about - contribution margin, gross margin, you break it down “our aim is to contribution margin positive at this stage by so so quarter and gross margin positive at so so quarter”, and I've seen you guys expand your margin. There's that radical, obsessive approach to data, informing your decisions and work, and the way you guys build the business.
I wanted to shed more light on that. How you set target at that macro level and distill it to the micro level of performance.
You know that you come to us at the board and say, last month we were 2% contribution margin, but now we are 5% contribution margin. What happened in the backend?
Deepankar: So I think in the backend what we realized was profitability is not through the numbers in your P and L, it's actually in your team and in your mindset. So when we started building up the business, we ensured none of the metrics we report on a daily basis should be vanity metrics, or should be metrics that can be manipulated. So we never spoke about GMV being achieved on a daily basis. When a person in the east managing Port Harcourt, Calabar, is calling in at the end of the day to update his numbers, he doesn't talk about, “I'm doing 2 billion GMV”. He talks about - “I am working at a 4% margin, I'm working at a 8% margin and that's my revenue”, because you are selling somebody else's product. In the entire business we were very careful. I mentioned that we have people working who have worked in FMCG in the past. We wanted to be sure those people who have come on board are not people who are looking at only the top line number. They are people who are looking at where is value being created, and that is why in every discussion, we were focused on what is the margin? What is your cost? Is it viable?
Every company that started in this space, B2B, it won’t be right for me to make examples, but I know all my peers in this space, majority of them did 60 to 80% of their transactions on salt, sugar, rice, and you know what? Margins 2-3%. But their GMV numbers at the early stage were like phenomenal. We looked at those numbers and we were like, how can we ever match them? But the reality is when market opened up, the right metrics started showing. Those people were burning $2 to 3 million on a monthly basis to sell somebody else's rice being imported from Pakistan.
What are you creating?
So here the idea was there is no hurry for us to create a big business fast. We will have soft life, but there is time for that. The idea here is it should not go back to zero if you pull out anything that you're providing in the value chain. So if you bring out the discount and it goes to zero, you have done nothing.
And I think that was very important. And some of you can look up Indonesian market. There's a player called ULA - a very, very successful company. We were talking about it today. They've raised money from the who's who, from Bezos to Zuckerberg, to best of the funds.
Majority of their sales came from a single product - cigarettes, and cigarettes in Indonesia is a zero margin business. So you are paying for the logistics of a large, giant distributor who has been in that business for four decades. Are you going to shake that business? You can take your investors' money subsidize. Our idea was very clear that we will not be in a hurry to invest money in subsidizing any category to acquire customers.
We will focus on getting unit metrics positive at the earliest. So even every market we expanded in, we focused on that. And I think that's why we were able to make it profitable in a low margin category.
Dotun: There are so many other things that could go into discuss with you on the back of that, but I really want to talk about team. I can take a survey of all the founders there - What are your top three headaches? Recruiting and retaining people will be one of them.
And I'm privy to a particular story, and I would like you to share that story - how you recruited your COO. But it's not a story of how you recruited him that is fascinating, it's a story behind it, which is about culture. Someone in your team was about to leave and there was something there that you had to then jump on as the defender of the culture. And then you ended up adding a COO. I want to tell us the story and we can then unpack the lessons for all of us here.
Deepankar: Sure. I think this is the most important part, especially when you're building an asset heavy business. You're a landlord, you have land to support you. When you're building an asset light business, your people, your data is your asset.
So the most important thing is - how do you ensure each one of your team members is motivated to achieve those big dreams? So this story Dotun is referring to is our head of logistics and fulfillment in Lagos - She's a lady, she used to work with Konga. I won’t share her name. She had a challenge with her reporting manager and she quit and I got to know that this is happening. So I said, okay. You have quit. You're moving forward, but let's have coffee. Let me understand what went wrong. And she explained, and the reality was that neither of them were wrong, neither the reporting manager nor her.
It's just that they were not the right fit. The only thing that needed to be done was if she could be assigned into a different role, or if he could be assigned to a different team member, they would both be happy. And I said, okay, let me take that responsibility. Trust me and I'll ensure this problem won't come back again.
But the ship had sailed. She says, I have gone back to my previous boss and I've taken up a job. The boss then worked with a very well known company that had raised a lot of investment from the Eastern part of the world, called Sandy, sorry. So I went, I said, okay, if it is okay, let me just meet the boss. He used to be at Konga. I will get to learn from him and we will catch up. We met the boss and his name is Wale. So I told him, this is where the problem is, and I really want her to continue. It's only nine or 10 months she has been in the company if she leaves now. This won't create an impact on her career.
And Wale agreed and he said, yeah, if you can fix it, then I'm okay. And then Wale explained what are the challenges, what other people he knows in the company. And then I realized any startup you create, you will have people from two companies -Jumia and Konga.
Deepankar: If you are in the commerce, there will be a lot of, so Wale knew so many people in the company and he told me what are the challenges, what are the things we can fix. And then my mission changed. My mission then was not just to ensure she comes back to us, but ensure there's buy one get one free. So I can take him back and can go after the hunter.
Deepankar: Yes. Hunting the hunter. So we continued and myself and Wale found a hobby, which is good scotch. So we ensured, we caught up week after week and within the next four weeks he was ready to switch. He joined us as the Chief operating Officer.
And yeah, the hunting part is most important. Many people talk about how the CEO is the vision, the CEO is the one who is responsible for the growth. But I think the most important thing a CEO does, especially at an early stage, is setting up the right culture and ensuring he has people who are better than him, ensuring they get the right environment for them to execute and scale.
Dotun: That's a fantastic story that illustrates what you just said. You wrapped it up better than I can. I'm gonna open it up now for more questions and I would love to get questions around this team thing that you just talk about. It's a fascinating story, by the way.
Dotun: Please. Questions? Yes.
Rotimi (SunFi): All right. So I was just thinking about what Dotun said at the start. Sometimes as founders or execs, it's very easy to get into a model and understand the story behind the numbers, how selling this product, and this product mix translates into this gross profit margin and so on and so forth.
How do you actually disseminate that down to the level of a channel manager or a sales manager? Because they often struggle to calculate it themselves. Someone actually has to calculate it for them, so there's no manipulation and there's no misunderstanding. About 4% is coming from this formula, and you should be able to calculate that yourself because then you have the flexibility to understand the product mix that you need or whatever the case may be.
So how do you decentralize that system so that it works by itself?
Deepankar: No. Absolutely. I think that's the most important thing. How does strategy speak to the last level of your organization structure - the bottom most, because they are the ones facing the customer or the partner. If they can understand why they're doing it, you don't need to recharge their battery every day.
They will last longer and they will be more motivated on their own. So I think what we got right is the people who came on board as the leadership team. We were lucky that they believed in the mission and they, instead of delegating, believed in explaining. So we drove the model in one area, and when it worked in one area with the right unit economics, doing it in another area was like creating a cell and then replicating that cell to create a body.
But when you go into 15, 16 different areas you get defocused and it's very difficult for you to train all the people at the forefront in all those 15 areas. So the idea was very clear that, as Nigeria is structured, the way you explain to a team member in Lagos is very different from Abuja is very different from Kano. So you need to follow the same cell and body relationship in each of those markets, getting that first cell right. Creating energy is very important, and once you do that, it gets replicated really fast.
Dotun: One more question. From SunFi again. Okay.
Rotimi (SunFi): Yeah.
Rotimi (SunFi): Which would you say you prioritize more growth or margin expansion and why?
Deepankar: This is a very interesting part. We were presenting to an investor and they said, you haven't grown as fast as in 2023, 2024, as you were growing in 2021, 2022. Obviously we were much smaller, so we grew much faster, but also because they were seeing dollar numbers, they couldn't see the right growth in naira. But the real growth was in margins.
So I don't think you should see the growth at the top or at the bottom. You should see the growth collectively. To give you broad stroke numbers, in 2023, we were at a negative six, negative seven percent margin net. Today we are at positive six, positive seven. So that's a huge growth if you see from a revenue perspective.
I would say at all points, we had the growth mindset. It's just that we had to focus on the right growth, that we can't continue to grow exponentially in GMV and continue to be at the negative seven percent margin.
Rotimi (SunFi): Fantastic.
Dotun: I'm cheeky. I'm gonna train one question about both 'cause I have an agenda.
Deepankar: All my board members are very nice.
Dotun: I've seen how you've matured in managing the board. What are the key lessons and if you have one or two lessons that you give to a founder who is starting the board, what will you say?
Deepankar: I think, um, as we grow we are born into a family, so we don't get to choose our uncles and our aunties and we get to choose our friends. But I think the board structure should be that you have the choice of choosing everyone, and it is the people that you choose that will form your strength.
So we decided at an early stage that we will get the best of these four industries. The first board meeting, I didn't realize the best of those four industries were five times better than me in any aspect. And the first board meeting was, like, oh my God, how am I gonna manage these people? It was overpowering, it was strong, and I had no experience managing board meetings.
Over a period of time, I realized they don't know our business as well as we do. They are only guarding us from going off road. They cannot run the vehicle. They can fuel, but they cannot run the vehicle. We are the ones who have to drive, they can guide through their network, through their connections and ensure we keep in the same direction and vision that we want to go.
And I think that became very helpful. So we had some heavy weights on the board and first I felt it was inappropriate when they gave a suggestion to not do it. But then I realized it's us who have to do it. So if you feel it's inappropriate, say it. And I think over a period of time I have become better at managing the board.
What that means is you should go into the board meeting with an objective of what you will get out of them rather than what you'll give them.
Dotun: Thank you very much.
This has been helpful. Thanks Deepankar for this thoughtful stuff, and we hope to see you with a Dangote status very soon. Thank
Deepankar: Look forward to that.