Poles Apart

When Attraction Fades

Here’s the official narrative: Chumbak (sanskrit for magnet) is an Indian brand that was founded in 2010 by husband - wife duo Vivek Prabhakar and Shubhra Chaddha. Vivek worked at Sun Microsystems in Bangalore, and the couple had a nice yuppie lifestyle – their own apartment and frequent foreign trips (from where they always brought back souvenirs like fridge magnets). One day, inspiration struck:

“We were a little bored of the usual marble Taj Mahal replicas and handicrafts that were becoming the only souvenir option. We thought travellers deserved some more options that were hip and still represented India. That's how Chumbak was born.” - Shubhra Chaddha, Founder, Chumbak

Bootstrapped by selling their apartment for ₹45 lakhs, the first products rolled out were fridge magnets (of course), followed quickly by key chains, wallets, phone covers, bags, and more. The unifying theme was a quirky Indian touch to all the designs – embracing kitsch and colour along with traditional Indian patterns.

A few thoughts:

• Decent storytelling here – quitting an MNC job and selling the apartment are great things to include in a presentation to investors: they demonstrate grit, conviction and passion.

• In hindsight though, liquidating real estate in Bangalore in 2009 might not have been the smartest move. They sold their 3 BHK for ₹45 lakhs!

• There was atleast one other cofounder – Alicia Souza – who was woven out of the narrative very early on. The way she tells it, she moved from Melbourne to Bangalore in 2009 to co-found Chumbak. Apparently they parted ways in 2011 but it was not amicable and neither side has spoken on the record about what transpired. The Chumbak website makes no mention of her.

• The company website says it was founded in 2010, but the apartment sale and Alicia’s move happened in 2009. Whereas the date of incorporation of Chumbak Design Private Limited is April 2011. Most curious.

• The rapidly multiplying SKU’s seem concerning, especially for such a young venture in an industry where trends change rapidly and non-moving inventory can be a heavy lag on the balance sheet.

Chumbak was off to the races, fundraising almost every year, and from such notables as Seedfund, Matrix Venture Partners and Gaja Capital. The brand had a voracious appetite for capital, tapping into venture debt too on occasion. In all, Chumbak raised over ₹300 crores over the years, per the Economic Times. In 2020, it did sales of ₹88 crore, with losses of ₹27.6 crores; 2021 revenues were ₹52 crore, with a loss of ₹34 crore; and in 2022, sales were ₹66 crore with corresponding losses of ₹35 crore. This, after 10+ years of operations, is not a good look.

So what went wrong?

Let’s speculate:

• The distinctive design-led product range was a strong, well differentiated proposition, and the founders demonstrated superb media savvy, ensuring continued coverage for the brand.

• Chumbak started off with a reasonably viable distribution strategy: facebook ads (very 2011), online sales (way ahead of their time) and traditional book retailers like Crossword and Sapna Book House in Bangalore.

• In 2012 they decided to open their first kiosk in a mall in Bangalore - and it was a resounding success. In my opinion, this was the fatal error that came back to bite the brand 10 years on. Sales are like catnip to founders, and any sudden spike leads to an immediate, instinctive overreaction to continue to ride the wave. It’s very easy to lose perspective and make poor choices while under the influence of month-on-month high velocity sales growth.

• Continued fundraising was used to fuel rapid expansion of these kiosks to other cities, numbering 32 by 2015. A dedicated offline retail presence does wonders in terms of prestige for any young consumer brand, but can also be a huge strain on finances – manpower, inventory, rent, all add up very quickly. Combine that with a myopic focus on the topline, charismatic founders and eager VC’s, and you have a runaway chain reaction.

• In 2014, Chumbak expanded into home and decor. It also opened a flagship store in the posh Indiranagar area of Bangalore. By its own admission, the brand had to add 600 new products overnight. Because once you have shelves, they can’t sit empty. And your biggest customers – fans of the brand with high ticket sizes and regular repeat purchases, will visit you more often and want to see new products each time.

• It is a testament to the founders grit that the brand has managed to survive and fundraise for this long. Perhaps some tough love in 2012 about staying in their lane and focusing on unit economics rather than chasing growth would’ve led to a different outcome.

Which brings us to January 2023 - Goat Brand Labs just announced that it is acquiring an 80% stake in Chumbak, for what looks like a major haircut for investors. Speculation is rife that the deal was in the ₹100-120 crore range. That’s after it raised almost ₹300 crores over the past decade. This is wholesale value destruction - the opposite of what every entrepreneur sets out to do.

Full disclosure: Goat Brand Labs has previously expressed interest in acquiring a consumer brand that I founded.

We’ll discuss roll-up funds and the Thrasio model in the coming weeks, but a quick summary is that Goat and other PE-style funds acquire brands and tweak their business model and distribution to unleash viable growth – something Chumbak desperately needs.

Goat aims to grow the brand’s revenue to ₹500 crore by 2025. Chumbak was one of India’s pioneer design-first brands, and one that fully embraced its Indian-ness. I hope Goat succeeds.

Also, while differences do happen, and the process of founding a startup necessarily involves creative destruction, the original founding team has a lasting impact on the company. It only seems fair to acknowledge the risks founders take, and Chumbak as a brand and as a company would’ve emerged stronger and more mature by graciously acknowledging Alicia Souza’s contribution in those early years.

A closing thought: when startup consumer brands find product-market fit, there is a period of intoxication - when sales shatter records every month, and VC’s are beating down your door to join you on your journey. Perhaps it would be nice to take a moment at this point and consider what you want your company to look like in ten years- not every venture needs to be a unicorn- and what taking outside capital means for your moral trajectory.

Of course, some ventures need capital to get the flywheel going - whether its inventory, marketing or distribution costs. But for consumer brands atleast, getting on the valuation treadmill needs to be a conscious and deliberate choice, not just accepted wisdom as the obvious path to glory.