First, he organised the home improvement business, right from design to supply to installation. Then he proved that his proposition could be expanded to scale. Now, he is ready to open up his design platform Spacecraft for channel partners. Founder and CEO Srikanth Iyer explains what the HomeLane proposition is all about and why entrepreneurs should partner with him.
This article is part of Iyer’s wide-ranging conversation with Sourcing Hardware’s managing editor Deepak Gupta.
What makes you so optimistic about the home improvement industry despite Covid-19 and the ensuing uncertainty?
Broadly, about a million new homes across affordable and luxury categories come up for interior decoration in the top 20-25 cities each year. These include apartments and independent bungalows. Another 1.8 million existing homes go in for renovation annually. So, we are looking at about 2.8 million units coming up in a year and this number is growing at about 5-6%. If you take an average spend of $10,000 per project, then we are looking at a few billion dollars worth of market. We estimate that in India the home improvement and renovation market is worth $20-30 billion.
Agreed, that this year the number of new homes might actually shrink due to Covid-19. But the renovation market has gone up. All of us have never spent so much time at our homes, enjoying the comforts, as we have done now during the lockdown. We have thus realised the value of doing up our houses and our rooms. And one thing has been clearly answered – homeowners are not viewing home improvement as a discretionary spend. Rather it is an essential expenditure. Besides, work-from-home furniture has also become popular now and this segment is growing very well.
What is the composition of home improvement? How do consumers react to this activity across cities and towns?
In new homes the entire unit gets decorated at one go, However, in the case of renovation of old units, customers usually do it one or two rooms at a time, mainly because they are living there. When we talk of home improvement, we include everything from bathroom fittings to false ceilings. So basically, home improvement is an umbrella term for everything like the services, the design and everything else. Typically, the customer spends 70% on products and 30% on services.
I think that the aspirations of customers are the same across metros and non-metro cities when you talk of home improvement. They desire good quality and top brands even in non-metros. While in the major cities they prefer to be flamboyant in their tastes and preferences, in the smaller cities they are a bit more conservative. Interestingly, all of them are value-conscious. But more importantly, I think predictability is something that the customer is really looking for, in terms of the final cost, true timelines, anticipated quality, workmanship, etc. That is something which is not available in this industry. It is not a given; in fact, what is a given is unpredictability! So I think, coming from HomeLane, predictability will be like a breath of fresh air for our customers.
How important is technology in the home improvement sector?
I think that in the coming times businesses are going to find it difficult to survive without technology. The coronavirus has very clearly demonstrated that we need to adapt to the changing times. Pre-Covid-19, only 6% of our customers used to meet us virtually. But now 86% of them meet us online. Through technology, they are also able to start and complete renovation projects in a time-bound and satisfactory manner. Now if we didn’t have the ability to offer a virtual contactless experience, our customers would not be meeting us at all. That is one example of why investing in technology has become imperative in the home improvement industry.
How can you be so confident that you will successfully provide everything related to home décor under one roof? Isn’t this a risky proposition?
I have always believed in creating businesses, services and solutions which are scalable. Today, multiple parties are involved in any given home décor project. Designers, suppliers and the installers, all are parties of varying sizes and ability. No one is responsible for the complete job. No wonder there is finger-pointing going on throughout the course of the project. HomeLane is solving that problem by being the designer, supplier and installer, and also by being predictable about the entire project.
The number one problem we are solving is of lack of predictability of customer experience. If the customer thinks that she will be getting a particular quality of project under a budget and in a specific time, conventionally, she won’t get all three. There’s no knowing what quality of things she will be getting, it may be good, bad or ugly, quite like a box of chocolates in which you don’t know what’s inside. The second one is that the project starts with a budget and typically finishes off with a 50%-100% overrun, and there is nothing she can do about it. It’s like being stuck in quicksand. The third and the most critical issue is of the timeline. The customer will start off thinking that the work will be complete by end of October, but if she gets it done by the end of January, she will consider herself lucky.
If we are not looking at customer behaviour changes and adapting to them, then we are asking for trouble.
Our promise is that we will complete any project we take up within 45 days, else we will pay rent for every day of delay. We can make that promise because we have full control over our processes and operations, something that is rare in this industry. Just to give you an idea, more than 95% of our projects till now have been delivered well within our 45-day delivery guarantee. And we have completed nearly 11,000 of them since 2014.
As an industry, if you want to solve this problem, you can’t be people dependent. If you are people-dependent, then you can’t solve at scale. The moral of the story is that if you have to be predictable without being people-dependent, then you have to sacrifice some things so that you can actually be predictable. To give you an example, contractors will typically show their customers thousands of colour options in laminates. At HomeLane you get exactly 163; you won’t get the 164th colour because we have mastered the logistics for those 163. And that’s the reason we can offer predictability.
So, coming back, yes, we offer all services under one umbrella but the options of those services are not infinite. We call it a finite catalogue, and that’s our secret sauce for ensuring timely delivery, quality and the expected budget.
Investors have backed HomeLane with Rs 370 crore, and the last tranche of Rs 60 crore came in August. What gives them the confidence to continue investing in your venture?
I think we have built a solid model which has provided customer satisfaction. Also, because our unit economics is quite strong, we are on a path to profit and we are less than one year away from being profitable as a company. That is good news for our investors, and probably one of the rare cases of funded companies which are not only growing at a reasonable pace but also looking with a firm eye on profitability. Normally these two things don’t go hand in hand, but we have managed to do it. I would say achievement in terms of customer satisfaction level and in terms of profitability along with growth has been the main reason why our investors have been backing us.
In terms of performance, our revenues have grown from Rs 99 crore in FY 2018-19 to Rs 230 crore in FY 2019-20. We grew almost 130% despite Covid-19 and are looking at another 30-40% growth in the current financial year. We had plans for a more ambitious growth but have moderated our expectations due to the ongoing crisis. We will be EBITDA positive by the next fiscal.
Currently, modular furniture contributes 80% to our revenues, while other items like false ceiling, flooring and soft furnishings account for the other 20%. Our ticket size is about Rs 6.50 lakh and we are looking at that moving to about Rs 7.20 lakh. In FY21 we expect the ticket size to grow by 10% and the non-modular business to move from a 20% contribution to 30% contribution. That’s really what we are looking at, so modular will continue to be the main product, but auxiliary products such as décor and IoT appliances are going to grow and we are going to have a larger contribution coming from them.
What is the reason for your EBITDA still being negative, nearly six years since you entered this space?
As I mentioned earlier, we are profitable on a unit basis, which means we are making a profit on every project we undertake. The reason we are still EBITDA negative is that we are spending heavily on three fronts – branding, technology and expansion. And technology being our main differentiator in the home improvement sector, we are investing in it to secure ourselves for several years.
You have said that at the backend HomeLane operates a complex supply chain to maintain delivery timelines. How do you ensure that these timelines are maintained, and you are able to abide by your 45-day guarantee?
Indeed, our supply chain is complex. The business of home décor is such. But we have taken some strategic decisions to ensure that we never fail on the commitment front. If we are offering you a white laminate, we have three suppliers lined up who can supply the exact same product. As a matter of policy, if we cannot have three suppliers for a product, we will not include it in our catalogue. This is how we ensure predictability of supply for everything we provide the customer.
We have also decided that we will carry a limited variety for every item. Why? Because we did not want to offer an endless range of products or services that only go to dilute our mastery over the logistics, without significantly adding to the comfort or satisfaction of the customer. Then, we have a very strong technology backend which stitches the whole journey together, not only for the customer but also for our vendors and designers.
Cost is a reality, revenue is hope.
How do you take end-to-end ownership of a project? What does your design platform Spacecraft do?
When a customer contacts us online, she fills in a form and then meets one of our designers. We have over 800 designers registered on our platform, who are trained on the HomeLane catalogue and the use of Spacecraft, our virtual collaborative design platform. So, the designer and customer actually meet on this platform, where the designer shows what interiors can be done for the house. Based on the shared floor plan, the designer constructs options which the customer can see on Spacecraft in real-time.
But the most important feature of Spacecraft is that it simultaneously offers the pricing. So as the designer is making changes to the selection of the furniture, flooring, wallpaper, etc, the customer gets to see the price changing like a taximeter. It is a very transparent process for the customer, which is why they love the platform.
Once the design is finalised, that also takes care of the budget and BOQ. At this point, the customer pays us 10% as a booking amount, after which the designer visits the site along with the installation team and takes final measurements. Two or three iterations may be done in the design and then the project is frozen. At this point the customer pays 40% and the project goes into production. From here on our 45-day guarantee starts. The production and QC are completed in 2-3 weeks. Once the customer pays the balance 50%, the goods are shipped to the site and our installation team takes over. It takes about a week to complete the installation and then the deep cleaning is done before we exit.
What are your expansion plans? How are your determining which geographies to enter, and how are your promoting the HomeLane brand in these markets?
We know that Indians in non-metro cities are very aspirational and they definitely want to do up their homes in a good way, just as anybody would do in metros. That is why we want to take our products and services to tier II and tier III cities. So far we have built a network of franchise outlets in 10 cities. We have set up 19 FOCO (franchisee-owned, company-operated) stores, wherein the franchisee invests about Rs 1.50 crore in setting up the experience and HomeLane manages the operations including design, sales and installation.
We now plan to expand into 15 tier II and III cities with a FOFO (franchisee-owned, franchisee operated) model. Under this model, the franchisee does the design, sales and installation, while we take care of production. In August we launched FOFO outlets in Vizag and Mysore and are already getting a good response. Next month we are launching in Indore and Lucknow.
We consider a multitude of factors while deciding which cities to target. First, we look at the realty supply coming in. Second, we look at the quantum of online searches for terms such as home décor, interior design, etc. This helps us decide which cities would be the right markets for our services.
Accordingly, our branding initiatives are mostly digital and hyperlocal, and we have earmarked Rs 100 crore for this purpose. We would not go on TV, because we don’t serve a mass market. We are also doing tie-ups with builders, for whom we are developing show-apartments so that they can sell their realty better and faster. This helps us develop our pipeline of future customers within a particular geography.
How do you ensure that the HomeLane franchise is a rewarding proposition? How do you make sure you have adequate manpower for completing the works?
In any business, the commercials need to make sense for all the parties, otherwise, it is not going to be a lasting relationship. Our FOFO franchisees are required to invest Rs 10 lakh in a 300-400 sft branded outlet for displaying a kitchen, wardrobes, flooring, walls, etc. This could as well be a shop-in-shop. And they will be able to recover this investment within a year. That is the kind of RoI that HomeLane assures its partners.
In 2021 we would also go in for a dealership model, where the partner will have access to Spacecraft for designing and marketing. Once the project is frozen, the production order will come to HomeLane. So, it will be more like an FMCG distribution model that will allow us to widen our reach across the country.
In terms of manpower, we are doing few things differently. First, it is the franchisee who employs skilled people for installation and servicing. Secondly, we do not offer any product that may require processing at site. All our products are manufactured and finished at one of our factories, and just need to be fitted on site. The level of skill that we require is lower than what may be required by the carpenter. So, it’s a combination of what we do and how we do it. Both are different, which is why we have managed to crack this complex business and taken it to scale. Just to give you an idea, currently, we have about 2,500 carpenters who routinely work on HomeLane projects through our 19 franchises.
What will differentiate men from the boys are perseverance; that is really something that I would urge every entrepreneur in our industry to practice, along with frugality and the ability to adapt.
You have been a technology leader, entrepreneur, investor, and are now a startup. What’s your advice for professionals and owners, particularly those who are assuming charge during these uncertain times? How should they be running their businesses?
In this regard, I would look at three things. One is that we have to adapt to the times. If we are not looking at changes in customer behaviour and adapting to them, we are asking for trouble. Secondly, I believe that frugality is something that needs to be practised by every entrepreneur. This is the time to be frugal, by looking at costs far more carefully than at revenues. The better you control your costs, the longer you can survive. I have always believed that cost is a reality, and revenue is hope.
Third, there is one quality of an entrepreneur which towers above everything else, and that is perseverance. Most startups end up on the other side because they are not persevering enough. The quality of refusing to give up, refusing to admit defeat, and refusing to die is extremely important. All of us will be faced with problems, but what will differentiate men from the boys is perseverance.
And that’s something that I would urge every entrepreneur in our industry to practice, along with frugality and the ability to adapt. If you have these three things, then you can survive any situation, be it a pandemic or anything else.