By Siva Devireddy, G. Sabarinathan, S. Ramakrishna Velamuri and Janine Coughlin
In India’s rural areas live handloom weavers and artisans who have been doing their craft for generations. In this article, the authors elaborate how the company GoCoop has strived to weave together fragmented systems and accessibility challenges in order to help the artisans bring their craft to urban markets and abroad. The article is both a learning experience and an inspiring story that every entrepreneur must read.
Ever since C. K. Prahalad published the path-breaking book “The Fortune at the Bottom of the Pyramid”,1 the role of commerce in improving the livelihoods of the poor has been receiving increasing attention. Later work has underscored that the poor have to become producers first in order to generate the higher incomes that can then turn them into consumers.2 Siva Devireddy set out to do precisely that, by leveraging technology to connect weavers and artisans in rural areas to urban markets in India and abroad.
The Entrepreneur: Devireddy completed his Masters degree in Industrial Engineering and Management Systems from Arizona State University, and acquired 11 years of corporate experience in Silicon Valley startups such as Exemplary Inc. (a spinoff of Hewlett Packard) and multinational enterprises such as Accenture. One of the projects he worked on in the Bay Area was to create a B2B marketplace for semiconductors to connect suppliers in Taiwan and China directly to buyers in North America.
The Company: GoCoop (www.gocoop.com) is India’s first online and mobile-based two-sided platform that connects the highly fragmented rural handloom weavers and artisans, who typically function within cooperatives, to urban markets in India and abroad. GoCoop’s mission is to enable sustainable livelihoods for the rural artisans and at the same time ensure the supply of high-quality, authentic handlooms and handicrafts to customers. Soon after founding the company, Siva found that using tested technologies and business principles with far flung rural artisans was far more difficult than he had anticipated. The industrial engineer-turned-consultant-turned-entrepreneur struggled with the typical survival issues faced by a startup while also worrying whether his decisions would truly benefit the artisans he was trying to help; more often than not the two were at cross-purposes.
The company has developed a reliable and well-diversified supplier base in India’s handloom textile sector, and today has relationships with 4,500 cooperatives, 80,000 artisans and 11,000 registered buyers. It also assures full traceability of the product’s origins to ensure authenticity.
Its business model evolved through two rounds of funding: angel funding of US$ 270,000 in 2013, and a Series A round of about US$ 1.5 million in 2015. GoCoop caters to both domestic and foreign individual customers (B2C) as well as wholesale customers (B2B). It is the most successful such initiative in India, and recently received the first Government of India national e-commerce award. It is also one of the first e-commerce platforms to sign a Memorandum of Understanding with India’s Ministry of Textiles.
The Product & Business Environment: The production of handloom textiles in India is almost entirely done by individual self-employed weavers, most of whom have been practicing this as an artisanal craft for many generations. Its origins go back almost 6,000 years, and both the production and marketing of handlooms have remained largely untouched by modern technology and management systems.
According to the 2015-16 Annual Report of the Government of India’s Ministry of Textiles, the handloom sector is one of the country’s largest employers, with around 4.3 million weavers and labourers. Handloom textiles worth US$ 360 million were exported in 2015-16 (representing less than 1% of India’s textile exports) and the sector produced 7,203 million square meters of cloth in 2014-15, which was around 15% of India’s total cloth production.
The artisans generally have low levels of formal education, have very low exposure to technology, are unaware of market demands and lack access to capital and infrastructure. Artisans have exceptional skills to weave the cloth. However, their product has standardisation issues, since no two handmade products could ever be the same. The model of the entrepreneurial weaver worked well as long as production and consumption were located within the same limited geographical area such as a village or cluster of adjoining villages. However, over time, the local markets have been replaced by new and remote markets within India as well as outside, and therefore the distance between production and consumption of the handlooms has grown. This has led to the need for aggregation of demand and supply, and thus for intermediaries between producer and consumer.
A collateral consequence of the entry of intermediaries is that the connection between the producer and the consumer has been lost. This connection is essential to the consumption of artisanal products. This is an important challenge for marketers such as GoCoop as they try to “build value for the human element” in the product, in contrast to the marketing of a mass (machine) manufactured product. One of the key considerations influencing the continued engagement of weavers in the handloom sector is the prospect of earning an adequate and predictable income. The history of handloom in the past century is replete with many weaving traditions falling off the map because the weavers were unable to achieve even minimal economic security.
In the production of handlooms farmers, dyers, printers and weavers are all connected to each other through social and economic networks which, as one observer points out, “grow with the firm and not within it”. This makes the production distinct from that in a vertically integrated firm.
Master weavers have a group of weavers working under them. They are responsible for procuring yarn, providing the design, marketing the finished product as well as occasionally providing some amount of working capital. As an interface to the market they also provide design inputs for the fabric, at the same time leaving some room for the weaver to exercise his or her creativity and bring out the essence of the craft. Many critics view the master weavers as agents who exploit their informational advantage over the weaver and in many instances it is said they indulge in rent seeking behaviour. Many of these middlemen make significantly more profits from the handlooms than the artisans themselves.
Cooperatives emerged in the 1930s and 1940s, mostly through government initiatives. Unlike master weavers, cooperatives have been able to access formal, institutional sources of credit such as the banking system. Credit financing has been an important requirement for the success of cooperatives. Cooperatives function within a bureaucratic system, with their employees receiving fixed compensation. Thus procurement of yarn, distribution of yarn to weaver cooperatives and payments to the weavers are all highly centralised. The functioning of many of the cooperatives has also been highly politicised with all its attendant negative consequences. One observer notes that “(A)ll successful cooperatives have worked well because they have circumvented government regulations to the extent possible and have managed to market their own output taking advantage of the latest marketing trends”.
Beginning in the 1970s a few small-scale private initiatives emerged, but without a well-developed capital market they were unable to make a significant impact on the sector. For-profit, not-for-profit (NFP), non-governmental organisations (NGOs) and government agencies have played important roles in the handlooms and handicrafts industries. FabIndia, Mother Earth and Goodearth are among the larger and better established players in the private sector. There are a whole host of other smaller private players as well as several NFPs and NGOs in the industry.
[ms-protect-content id=”9932″]Developing the Supply Chain
There are several problems in the traditional handloom products supply chain. First, the weavers have to rely on expensive credit to purchase raw materials such as yarn. Second, there is a lack of quality control and hence middlemen ask weavers to supply extra pieces, since they know that some percentage will be rejected. Third, since the weavers are not aware of market trends, they are not able to tailor their offerings to what customers require, which also results in commoditisation of handwoven products. Fourth, customers who care for handcrafted products and are willing to pay a premium for them are unable to verify the products’ authenticity.
GoCoop tackled these problems through its online platform and by working with the artisans. It created awareness among artisans about government schemes and enabled them to take advantage of them. It also sensitised artisans to the importance of quality and customer requirements. Through the platform, artisans and cooperatives could directly reach out to the customers. GoCoop worked mostly with cooperatives and weavers who had the handloom mark and encouraged weavers to acquire the mark and also apply for the India Handloom Brand. Further, and more importantly, through its transparent supply chain, it began to provide details of the artisan who had made the product. Siva elaborated:
“We are developing a system which will provide complete traceability. If you scan the barcode, you would be able to see the details of the cluster, cooperative, product composition, product specifications, and artisan along with his or her photograph. This will not only provide customers the trust in buying truly handmade products, but will also instill a sense of pride in artisans. Further, this will be powerful from a business perspective as well – knowing the granular details of the entire value chain!”
A long working capital cycle of approximately six months, which was longer for international buyers owing to the time required for shipping the goods, was another challenge faced by GoCoop. It was trying to persuade buyers to furnish Letters of Credit against the orders, which would mitigate some of the financial burden.
Lessons Learnt: We have identified five key lessons from GoCoop’s six-year journey that are important for every social entrepreneurial venture that aims to improve livelihoods by connecting rural producers to urban markets:
1. Social entrepreneurs need to prepare for the long haul because the upfront investment in developing the supply chain and in developing the capabilities of the rural producers will be significant.
GoCoop’s raison d’être was to deploy technology for connecting customers and suppliers. At first it set out to be a technology enabled pure platform (i.e. marketplace). However, Siva soon realised that the suppliers were not ready to engage with buyers directly – they needed significant support in sourcing the raw materials, production methods, quality control and finance. A related issue was that artisanal products are by definition labour intensive and do not lend themselves easily to automation and standardisation. At the same time, customers may not be happy with too much variability in the product, which is difficult to avoid because orders from business customers typically have to be spread across multiple artisans. One approach that has been effective for GoCoop in getting the artisans to commit to a minimum level of standardisation is to show them cases of others who benefitted from doing so. Artisans are also gradually beginning to adopt technology; GoCoop launched a mobile app for them in 2017.
2. Urban entrepreneurs seeking to help rural producers should not expect to be welcomed with open arms. They will need to invest time and effort to build trust and acceptance.
As a corporate enterprise, GoCoop found that suppliers who were cooperative entities were reluctant to work with buyers who were not cooperatives themselves. A key factor that brought about trust and acceptance was the realisation among the suppliers that GoCoop stood for certain core principles such as ensuring a fair deal for the artisans. It took Siva a long time to convince the artisans about his organisation’s intentions. Nagaraj Prakasam, the first angel investor in the company, remarked:
“I joked about Siva – he had gone from Airbus to Redbus (rural transportation in most parts of India is referred to as RedBus). He was a guy flying business class in Accenture. Now he has to catch a bus and go and meet weavers in rural areas of India.”
3. Not all rural producers and producer organisations have the minimum prerequisites to be developed into reliable suppliers to urban markets. This is one area where the social entrepreneur’s idealism needs to be tempered with a heavy dose of realism.
In the initial years GoCoop realised that many of the large cooperatives were bureaucratic organisations and difficult to work with. Over time GoCoop learned that it was often easier to work with smaller, village level cooperatives because of their speed of decision making, their better governance standards, as well as their flexibility to meet GoCoop’s expectations.
4. B2B is a more practical business model for startups that work with a supplier base that is predominantly rural and requires significant developmental investment in time and effort. Taking on the task of developing a franchise with end customers at the same time by driving traffic to the website and satisfying their needs is too onerous financially and operationally.
After struggling with the B2B versus B2C dilemmas, GoCoop resolved that it will focus on developing a robust B2B model first to consolidate a large and strong supply base. In the next phase of development, it plans to leverage the supply capability to create and fulfill a large B2C demand.
5. It is advisable for social entrepreneurs to approach such ventures as a team rather than as lone founders.
If GoCoop were to start all over again it would want to create a good second line to the CEO, especially in the absence of a co-founder. This would also have resulted in more rapid growth. While attracting high quality talent to an organisation with very limited ability to pay market compensation is a major challenge for any entrepreneurial venture, doing so in one with a social dimension is even more difficult when you require your (predominantly urban) talent to travel frequently to and work in uncomfortable rural settings, such as in some remote villages in southern India that can only be accessed by bus transportation, where summer temperatures are frequently in the 40-45 degree Centigrade range, where there are frequent interruptions to power supply and nowhere to unwind in the evening over a cold bottle of beer. Attracting and retaining talent is one of the most critical challenges in such ventures. Siva focussed on hiring people with educational backgrounds in textiles or fashion, who were also willing to travel frequently to rural areas to work with weavers. After six years, the efforts were paying off:
“A good statistic I have is, we have done now close to ten thousand orders from 14 countries. Of these – the number may sound unreal – but we have less than 100 orders which have either returns or any challenges in quality. This is like, unheard of in the artisan sector. In the craft sector you have challenges with 20% of the orders.”
It has taken Siva much longer than anticipated to get GoCoop to where it is today. He believes that the enormous initial investment in time, money and effort is beginning to pay off and the business is gathering momentum.
Featured Image: Samples of GoCoop Stoles and Dupattas © gocoop.com
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About the Authors
Siva Devireddy is the Founder & CEO of GoCoop.com. He is passionate about technology innovations that contribute to the social and economic inclusion of people at the bottom of the pyramid. He has a Masters degree in Industrial and Management Systems Engineering.
G.Sabarinathan, PhD is Associate Professor, Finance and Accounting Area, at Indian Institute of Management Bangalore (IIMB). Prior to joining IIMB he held leadership positions in the Indian venture capital industry. Apart from teaching courses in finance he is interested understanding the working of venture capital industries across the world.
Ramakrishna Velamuri is Professor of Entrepreneurship at the China Europe International Business School (CEIBS). He has a research interest in Business Models, and of late has been studying how business models innovations can achieve both social equity and economic efficiency.
Janine Coughlin is Senior Media Officer at China Europe International Business School (CEIBS). Prior to joining CEIBS she was the Executive Editor of China International Business Magazine. Before coming to China she was Senior Vice President, Content at Alliance Atlantis and Associate Publisher, Mass Market at St. Martin’s Press in New York.
References
1. Prahalad, C. K. (2006). The Fortune at the Bottom of the Pyramid. Pearson Education India.
2. Karnani, A. (2007). The mirage of marketing to the bottom of the pyramid: How the private sector can help alleviate poverty. California Management Review, 49(4), 90-111.
