GudangAda: Building a Business Based on Empowerment Vs. Disruption

Stevensang, who grew up working in his parents' shop, founded GudangAda in 2019 to connect wholesalers directly to a variety of merchants, ranging from large retail chains to independent ‘mom-and-pop stores’, or warungs. The startup has quickly become one of the country’s largest online business-to-business marketplaces. In this episode of Moonshot, Stevensang talks with Sequoia India & SEA Managing Director Abheek Anand about how he drew on more than two decades of experience in leadership roles in Indonesia’s FMCG industry to assess the market size and industry structure - and design a business model that empowers wholesalers and retailers alike.

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Show Notes

  • Digitising Indonesia’s FMCG supply chain (1:18)
  • Evaluating the market size, industry structure and opportunity in Indonesia’s FMCG supply chain (6:35)
  • Choosing to empower instead of disrupt the industry (9:14)
  • How GudangAda hacked distribution (12:00)
  • Securing supply by building relationships and trust with wholesalers (13:52)
  • Building out GudangAda’s team in the early days (16:57)
  • What aspiring founders can learn from GudangAda’s journey (22:29)
  • Tips on assessing industry structure and designing your business model (27:46)

Transcript

Introduction

Dewi: Indonesia’s digital economy, which was worth US$44 billion in 2020, is expected to hit US$125 billion by 2025. The country’s young, tech-savvy consumers and business owners are embracing e-commerce, which now accounts for 70% of the country’s online economy. In 2019, Stevensang, who spent over 25 years in the fast-moving consumer goods sector (FMCG), founded GudangAda. It’s an online business-to-business marketplace that connects wholesalers directly to merchants – ranging from large retail chains to independent ‘mom-and-pop stores’, or warungs.

Digitising Indonesia’s FMCG supply chain

With us today is Stevensang, who’s dialed in from Jakarta, and Abheek Anand, Managing Director at Sequoia India and Southeast Asia. Before joining Sequoia, Abheek co-founded a startup in Silicon Valley that was acquired by Facebook. Abheek, Pak Steven, welcome to the show! Now, Pak Steven, can you tell us all about GudangAda? How does it work and what does it offer Indonesian businesses?

Stevensang: So, GudangAda is a B2B marketplace, connecting manufacturers, distributors, wholesalers, and retailers. We aim to empower the stakeholders in the supply chain, focused on the general trade or traditional trade, to enable them to transact in a faster, cheaper, smarter, and bigger way, through the use of technology in our ecosystem. So, we also aim to help them transform their business from offline to online, and also enjoy the benefits of digital transformation. Before GudangAda, all the transactions on GT – general trade – actually happened through offline sales person activity, and all of them actually faced increasing operating costs, and also a decline in their productivity. And, most of our users, our members, after joining GudangAda for over 6 to 12 months, they experience around 30 to 50% growth. So, that’s the benefit GudangAda brings to the general trade supply chain in Indonesia.

Dewi: And, how did you spot this opportunity?

Stevensang: Let me share this story. Actually, I come from a family background in general trade. So, I did not come from a rich family. When I was a child, my parents ran a small stall in a small city in Kalimantan, and they worked hard and grew this small stall to become one of the medium wholesalers. And, after school, I always spent my time helping my parents run the business. And, I always remember the most challenging part – I had to memorise and remember all the buying and selling prices. It was very hard. It’s very challenging. And, at the same time, I also had to remember the inventory, how much inventory, how many things in the inventory. So, even today – my younger brother took over the shop, and when I called him, “Hey, do you know how much is in your inventory?” He says he doesn’t even know the exact number. So, after I graduated from university, I started my 25-year career, my professional career. I started as a sales supervisor, then worked from one area to other areas, all over Indonesia. And then, after around 12 years in the company, I was appointed as a CEO of the company. This is where, through my three decade journey in the industry, I saw the shifting of the Indonesia FMCG industry – from a distribution driver to becoming a marketing and branding driver. So, the era before 2000, 2010, and 2020, is where I think all the stakeholders were actually looking for a solution, because all of them were facing the challenge of increasing operating costs and other things. But actually, during my 25 years of experience, I became quite  familiar with the technology, because when I was appointed as the CEO of one of the largest distribution companies in Indonesia in 2006, I started to implement technology into distribution companies by doing sales automation on the operations, on the logistics, and other activities through the use of technology. In 2014, actually, I also built a B2B e-commerce [platform] for the company, but I found that it could not scale up because of a conflict of interest. So, this is how – when I started GudangAda in 2019, I aimed to help traditional FMCG traders address the challenges they are facing in the business in the digital area. I was concerned about their ability to grow their business and remain relevant to the consumer when the industry was shifting to digital. So, in addition, the industry also faced many challenges, including high costs, low productivity, shortage of salesmen because of a high turnover. And now, they also face, during the pandemic, declining effectiveness of their operations. So, these are the issues I wanted GudangAda to address.

Evaluating the market size, industry structure and opportunity in Indonesia’s FMCG supply chain

Dewi: Apart from Pak Steven’s deep industry expertise, what else excited you about this idea, and in particular this market in Indonesia?

Abheek: So, Dewi, at the very early stages of investing, there are a few important questions that we like to ask ourselves, and some of the most important questions are the following: How big is the market and what is the market structure? What is the founder’s background? And, is there a real founder-market fit? See, at the very early days, product-market fit didn’t exist. And so, what we evaluate and spend a lot of time thinking about is do the founders have insights about a market that sets them apart from anybody else who might be trying to solve a particular problem in an existing industry? As far as market sizes are concerned, there are broadly two types of markets. There are markets that are being created by startups. These are startups that are going in and solving a problem in a way that was not solved before, and therefore creating a new market, or there are companies that take a large existing market and try to solve the problems inherent in it. When we first met GudangAda, the thing that really struck us was that Pak Steven had this incredibly rich set of experiences that gave him these deep insights about this market. And, secondly, that the market was just massive. I mean, the FMCG market in Indonesia is north of US$60 billion, and before GudangAda came along, it was still primarily run on pen and paper. When you have a market that is that large, and that is still being run in basically the same way it was being run 50 years ago, there are tons of inefficiencies that come up, whether it be inefficiencies around sourcing, around how to finance inventory, around how to do logistics, around simple things like what kind of software integrations exist across multiple points in the value chain? Our work seems to indicate that all these problems needed to be solved, and our belief was that there are really two ways to solve this problem. One is from the outside in, and the other is from the inside out – and, the inside out way of solving it, is really by enabling existing players, not by displacing them, but by giving them the software, by giving them the platform to improve their existing businesses. And, what struck us about GudangAda, was the way in which they were trying to compliment the industry as opposed to displace it. And, we felt that was a very compelling way to solve the problem, and to really be on the side of the wholesalers and on the sides of the retailers. And, that’s what really attracted us to the opportunity. We met the company when they were only a few months old and within the year of being formed, we were partners with the business and the company has just continued to outperform every expectation that we’ve had, right from the very beginning.

Choosing to empower instead of disrupt the industry

Dewi: So, Abheek, this idea of empowering rather than displacing or disrupting, that’s something that GudangAda has really done since its beginning.

Abheek: Right. And, that really is a testament to the level of founder-market fit that we’ve seen in this category. And, Pak Steven, I think this is something that really excited us at the very start when we first met you. One of the things that founders do in the very early days is really trying to build a point of view on the market and the market structure — how big is the market, what are all the layers, who are all the players in the market? And, as you just shared in one of your answers before, you grew up in this category — you’ve got 25 years of understanding what the market structure is, but when you were thinking about GudangAda and the approach that you’re going to use to solve problems in this industry, how did you validate some of these things? Who did you speak to? How did you come up with the business model and the structure of GudangAda, which is really very different from what we’ve seen in many other players in other markets?

Stevensang: Actually, I have a deep understanding about how the industry works, how it is structured. So, I know very well how the supply chain operates — from the manufacturer, distributor, wholesaler, until the retailer — and each area, from the sales activity, collection activity, administration, until delivery. So, each area’s challenges and pain points, I know. Also, very importantly, I understand the opportunity for the solutions. So, also, before I launched GudangAda, I spent almost a year talking with many other FMCG players, many wholesalers and retailers to get a better understanding of the field, to make sure that I bring out the right solution. So, when talking about why we empower rather than disrupt, we know that the wholesaler, actually, is the key player who controls 80% to 90% of the industry, and covers all  the shops all over Indonesia. And, I understand that this wholesaler already built a very strong network and relationship with their buyer, their retailers, and others. So, this is how I understand it’s not easy to replace them or disrupt them. So, it’s better that we come up with a solution to empower them, because that comes from my own mission. I want to empower the traditional trades. So, that’s why we came up with the third party model – because we know this is the best way to tap into their industry and then work together, and grow together with them. You should have a relationship and build trust.

How GudangAda hacked distribution

Abheek: Yes, and Pak Steven, I think you’ve said one thing that I think is really important — it’s this idea of relationship and trust. We’ve seen this category in many other countries, in many other markets — and one challenge for these companies has been that distribution has just been really expensive. If you were to go out and try to look at millions and millions of retailers that you want to reach, it can often be very expensive to go and reach them one by one. But, instead, what you did was quite unique, was a different way of approaching the industry, and rather than going bottoms up, you went top down. Talk a little bit about the way you almost hacked distribution, such that you could actually get to tremendous scale very quickly and in a very capital-efficient way.

Stevensang: So, why did we do the top down approach? Because, before I launched GudangAda, I identified who the key players are and what is the key success factor in the industry. And, one thing is very important — I identified that the key players in the industry are the wholesalers, and the key success factor is to secure the source of the supply, not to create the demand. Because in the FMCG industry, the demand is always there, but the question is how you can bring the right SKU at the right time, at the right price. So, this is how the wholesalers control 90% — I can say 100% of the fast-moving items. So, this is how GudangAda tapped in to work with them, to get the source of the supply. So, when we are able to get their source of supply, then it’s very easy to tap into the network of the wholesaler, then connecting and onboarding the retailer to join the platform, and then do their transaction through our app online. So, this is how we identified and also how we came up with the top down model.

Securing supply by building relationships and trust with wholesalers

Abheek: Pak Steven, I think you’ve said some very profound things there. One of the things that we believe as well in marketplaces is being supply-centric. If you have access to better supply and cheaper supply, and you can actually deliver it more conveniently, demand will follow. And, that’s really what you did in the very early days. You went top down, you got a lot of wholesalers on the platform. In fact, if I remember correctly, some of them were investors in the company as well. So, you had a real alignment of their success, with the success of GudangAda, which I thought was a really good way to bootstrap the company.

Stevensang: When I started GudangAda, I went to so many cities to identify who is the key wholesaler in each area, and who is the influencer, because once I’m able to onboard the influencer to be our member, then the news will spread out and everyone will follow. That is how we work. So, in every city, the big cities especially, we have our angel investor to join and support GudangAda at the beginning. So, they become the earliest supporters for GudangAda, and also our spokesperson for each area. So, through them, we build trust, we build relationships, and then grow the business and secure the supply. Through GudangAda’s model, we work together, we secured around 30,000 SKUs, which is around 12,000 to 15,000 active transactions every month.

Abheek: That’s such a fascinating way to almost hack supply to get to that scale very quickly. The other thing this model also did for you was drive distribution of the app and of the software, because the sellers were getting their buyers to install the app and to use the GudangAda software. How did that work out in the very early days?

Stevensang: At the beginning, when I started GudangAda, I used a lot of WhatsApp, I visited many cities before COVID-19. So, I did a gathering and workshop with 30 to 50 wholesalers. I shared with them the vision, because most of them know me, so they know I’m not coming to take over the business. So, actually then we talked with them, and said, “Hey, actually GudangAda wants to come to help you to secure the network” — because recently in Indonesia, before GudangAda, most of the retailers would visit a wholesaler, purchase a product, and bring it home. But, because Indonesia’s population is now growing for the young people, the young people are not going anymore to the wholesaler’s shop to queue there for a few hours to get their product. They will look for a new way to do their transactions. So, actually, even the wholesalers understand, and they are aware that they are facing the decline of visitors to their shop. So, one, I explained to them that actually GudangAda helps you secure the network, to onboard and help your retailer to transform from offline to online, and in the future, even if they don’t visit your shop, they will still be connected with you and they can purchase a product from you. So, this is how we empower the seller side and also the buyer side.

Building out GudangAda’s team in the early days

Abheek: And, Pak Steven, this is actually, again, so true for this market and really many other markets in Indonesia, where we have a new generation of entrepreneurs, whether that’s entrepreneurs such as yourself who are building new business, or the second generation of retailers and wholesalers – their children coming up and starting to run their businesses that are just tech savvy to begin with. They’re adopting software so much more easily. And, I think, companies like GudangAda are really riding that wave to make sure that they can provide the right software in a very localised way for Indonesia, but also distributed in a manner that is actually very scalable. So, again, to reiterate the thing that we’ve always loved about the way you guys are building it, is that it’s such an Indonesia specific solution. This is not a model that we’ve seen in many other countries. Just a few months ago, I received an email from founders in Brazil saying, “Hey, we’ve heard about this model in Indonesia. Can you tell us how it works because we think we can make such a model work in Brazil as well.” So, it’s really such a homegrown innovation that you guys have built out. One other question from me, Pak Steven — and again, this struck me in the very early days — is this idea of company building that really is all about the people. Just talk a little bit about how you built the early days of your team. Who were some of the key hires? How did you think about who you wanted to hire in the very early days? And, how has your thinking evolved since then?

Stevensang: So, I always believed that to build a great company, you should start by building a great team. I spend most of the time actually spotting the right talent, looking not only for a good talent, but also someone who can share the same vision, and the same passion to empower Indonesian general trade. So, this is how I spot the people, talk to them, share my vision. And, once they also have the same vision, same passion, then we discuss their skill and other things that we’d like to bring onboard. I think most of them, because I share my vision, I share my passion for the industry, and also share how big the industry is, how interesting the industry is, and also we can say that actually we tap into — we call it a dreamy business — is a huge industry. People need it. We can say that consumers need it, and it will be long-lasting, because whatever happens, people will still need an FMCG product. They need food, they need drinks, and everything. So, it’s a long lasting business. And then, that’s the time for transformation. So, when I share this kind of thing and when I talk with a lot of people, they really buy in and really want to join the company. So, the two most important things — I believe in people, I invest in people, I look for talent with the same passion and the same vision as me, and we share the vision together. So, this is how you can see that at GudangAda, even though we are only a two and a half year old company, a lot of our senior management team come from decades of experience in each field. So, it’s a very diverse team with a specialist in everything.

Abheek: Yeah, and Dewi, there was so much in there, right? I mean this idea of building companies from the early days, investing in people and finding people who can buy into the vision and the culture. I mean, I think the company has just done a fantastic job of surrounding themselves with an early team that can really scale with the company.

Dewi: Finding the right talent to work at a startup — it can be really challenging. And this is something that we help our startups with. How did you help GudangAda with this?

Abheek: Look, I think Pak Steven touched on some very important points. It’s very easy in the very early days for a founder to think they want to hire the people with the best resume, they want to hire the people with the most amount of accomplishments. Now, that is important, but it is far more important to make sure that founders surround themselves with people who have very strong cultural alignment. And, one example of cultural alignment is this idea that Pak Steven just talked about, which is, “Do they buy into the vision of the company?” The reality is, you can find people who are very young and as long as they are hungry, motivated, have smarts, and most importantly, cultural fit and vision alignment, they will scale the company in an incredible way. You can find the smartest person, but if they’re not a cultural fit, they will be a drag on the performance of the company. And so, what we tried to do, and I think we really invest a lot of time and energy on company building. And, for us, I think this idea of company building really starts with people. And, the way we think about company building and people building, is how do we find the people who can be true needle movers? We always tell people in our human capital team, who are always working to help our founders find amazing talent, that you need to find the most needle moving and aspirational talent for the companies in their most important and critical roles. So, for example, in GudangAda, two of the people who I think have had an enormous impact on the company have been their CTO and their CFO. Again, two absolutely critical roles. Those were people that we’ve known from before. And, we found that Pak Steven just spent so much energy convincing them to join the business. And, once people like that come in, they attract other high-quality talent as well. And, it’s really a virtuous cycle. Once it gets started, it really has a life of its own.

What aspiring founders can learn from GudangAda’s journey

Abheek: So, Pak Steven, maybe switching gears, I think this journey of yours has been so fascinating. You talked about growing up and seeing the family business, then going from there to run a company and a business for 25 years, and going from there to become a startup founder. I mean, it’s fascinating. We don’t see that story in most cases. Most examples of founders are people who are just starting off, people who don’t know what they don’t know, and they just figure things out along the way. You, on the other hand, had deep industry insights and you were able to use that to build GudangAda. What advice would you give to aspiring founders who are just starting out on their journey? What can they learn from your story?

Stevensang: Thank you, Abheek. So, actually I think, first I would like to say that anyone who wants to do a startup, should have a deep understanding and a clear roadmap of what they want to do, and what kind of industry he or she wants to tap into. And, also to try to familiarise yourself with the unknown, because when you tap into the industry, you will need a lot of energy to face and identify the issues and other things, and then come out with a solution. So, that’s why when I talk with young founders, I always tell them, it’s better to talk to your consumers, understand what your consumer needs, and then bring out the right solution. So, first I would like to say, you have to understand your industry very well, and have a clear roadmap of where you want to go. And, secondly, always point out the problem, and then find the solution. Don’t try to avoid and hide any problem, but always point out the problem, and find the solution. That’s why I spend a lot of time, even if I don’t interact directly with a lot of retailers anymore, but I always spend time to talk with them, to call them through WhatsApp, to have a chat with them to understand what’s the challenge, what can GudangAda improve every day? So, that’s what we do. And also, investing in people. That’s one very important thing. I always say in GudangAda, I don’t want any Superman, but I want Avengers. So, there will be a lot of teams, a lot of great people working together, sharing the same mission and the same vision. That’s very important — the teamwork I see. And, the other thing that I think is very important is to always keep integrity at the top of everything. In a startup, you will face a lot of challenges when you come to making decisions, but I always suggest to everyone, even remind myself to make the right decision, and to keep my integrity on top. So, these are a few things I see that are very important. And, the last thing, but not the least, should be to find the right investor as a partner. That’s the key. So, it’s not just an investor who can bring you capital or money, but investors that can really bring added value for you. So, when Sequoia came to the company, I didn’t just see the capital. Actually, I saw there is a lot of added value that Sequoia will bring to me. For example, you helped me in hiring excellent talent, like our CTO, our CFO, and others. And, you also work closely with me and share a lot of insights with me. And, I think finding the right investor should be the key thing, as a suggestion or advice for any new founders and other founders. Thank you.

Abheek: Thank you, Pak Steven. I think what you said are real words of wisdom for founders out there. I think at Sequoia as well, the two things that really drive us is this idea of performance and teamwork. And, what we believe is that you cannot have performance without teamwork. It’s another way of saying exactly what you said. You don’t want one or two superhumans who are running the business, what you really want is a team that is working together because as you know, and as we believe as well, once you have a team that’s performing well, that will outperform any single combination of individuals. And, I think that’s something that you’ve done a fantastic job of just surrounding yourself with people who are just so bought into the vision of the company, because that’s how the overall performance of the company goes. And Dewi, I think that’s something that at least we find fascinating about the way Pak Steven has built his business, is all these different things that really come together in the very early days, and sometimes when we look at the scale of the company, it’s almost hard to remember that the company is only two and a half years old. I mean, it’s amazing the kind of progress that can happen when the right market structure, the right team and the right idea, come together.

Tips on assessing industry structure and designing your business model

Dewi: They’ve come a long way in just two years. As you look back over your time working with GudangAda and other startups, what advice would you give aspiring founders when it comes to assessing market size and industry structure?

Abheek: We have the fortune of learning from founders, such as Pak Steven. At least I find myself learning something new every day, but the one thing that has been consistent across all founders who ended up doing well is just this insane level of customer centricity. Ideas do not get hatched sitting in the boardroom. They do not get hatched sitting in the office. Good ideas come when you’re in front of the customers. That’s what Pak Steven has done. I mean, he’s constantly out meeting businesses, meeting his customers, his wholesalers. And, we find that the best founders do that. They are so deeply embedded within their customer’s community. They care about that solution so much. They have insights that set them apart from other people that are trying to go after these problems. And, that’s probably the number one thing that we tell our founders. In the very early days, if you’re not spending your time with your team or your customers, that is a time that is being wasted. So, being customer-centric is one thing that really sets many of these companies apart. I think the second thing that sets people apart is some design choices that get done in the very early days. We like to partner with founders in the very early days because the crucible moments in the trajectory of the business disproportionately get created at the very start of the business’ journey. For example, with GudangAda picking this model of top-down distribution. That model existed in Pak Steven’s head right from day one. And, if it were not for that, I think the trajectory of the business would have been very different. Similarly, this idea of hiring these key people and surrounding ourselves with those people in the very early days – the impact that people can have, in the first year of the life of a company. And, in fact, as it compounds over the next several years, you can just totally change the trajectory of the business. So, again, this idea of partnering early with founders really has these advantages and we get to see as well how the decisions that they make in the first year have an enormous compounding effect in years five to 10, and beyond.

Dewi: Abheek, it’s been really insightful to learn all the ways that you’ve worked with Pak Steven and GudangAda to empower Indonesian businesses. And, Pak Steven, thank you for sharing with our listeners, your decades of experience in the FMCG industry and how GudangAda is working to empower Indonesian merchants to transform their businesses. Thank you both so much for taking the time to join us today. I’m Dewi Fabbri, and for more interesting startup stories, visit our website (sequoiacap.com) or follow us on Spotify. Terima kasih untuk mendengarkan kami dan sampai jumpa lagi!