Zivame means ‘radiant me’ in Hebrew. The lingerie e-retailer, founded by Richa Kar and Kapil Karekar, was launched as an online platform, to facilitate privacy for women to shop for lingerie comfortably without the fear of being observed, rushed, or judged. The company reported a 300 per cent year-on-year growth in revenues during 2012-2015.
However, after the initial success in the first four years, things changed, and the company reported an 84 per cent increase in net loss at ₹54 crore for the financial year 2016 and a growth of just 38 per cent in its net sales at ₹62.6 crore.
The investors then decided to bring in a new CEO with retail experience to make Zivame profitable. In 2017, Richa Kar stepped down as the CEO after key shareholders and the company’s investor consortium decided to reshuffle the top management.
Kar completed her MBA in 2007 from NMIMS. After this, she joined SAP, a German provider of business software solutions, as a retail consultant. She was involved in a project related to Victoria’s Secret, where she learned that women in India were uncomfortable shopping for something as intimate as innerwear at physical retail stores.
The lingerie sections in retail stores generally had men as salespersons and women found it awkward to detail their requirements. Once she had clearly identified the problem, she realised that creating an e-commerce platform for women that would offer a range of apparel with doorstep delivery would be the ideal solution. Kar started Zivame with ₹0.35 crore from her savings as well as contributions from family and friends.
Kar’s leadership
Kar focused on developing in-house brands. She personally looked into handling the design, manufacture, and supply of the innerwear. Under her leadership, the company rolled out labels like Penny for urban women, CouCou for younger women, and Rosaline, a premium cotton product.
The bras were hand-sewn in Eastern Europe, Latin America, Bangladesh, China, and India. The platform sold lingerie of all types — panties, bra and bikini collections, and a collection of pyjamas, housecoats, and boxers.
Zivame’s products on the platform include trendy lingerie, shapewear, activewear, and sleepwear. There are more than 3,000 exclusive designs and 100+ sizes to cater to women of all body types. Zivame also entered into partnerships with other brands like Triumph, Amante, Lavos, and Jockey and offered their collection through its e-commerce platform.
Once the online platform grew in popularity and had successfully managed to deliver its products across tier 2 and tier 3 cities in India, Kar decided to expand the business by setting up physical stores. In 2016, she began to set up Zivame Studios. In September 2016, the company raised its biggest funding of $40 million from Khazanah Nasional, Unilazer Ventures, Zodius Capital, IDG Ventures (IDG), and Kalaari Capital (KC).
It also had Ratan Tata, chairman emeritus of the Tata group, as one of its investors. By early 2017, Zivame Studios had come up in Bengaluru, Chennai, Kochi, Pune, Delhi, and Jaipur. At the Zivame Studio, buyers could discover, experiment with, and create their own unique lingerie wardrobe with exclusive products in an uninhibited and premium space.
The studios offered a private and non-judgmental environment that helped women experiment in terms of brands, price range, and styles. There were ‘Fit Advisors’ at each store who took queries from customers and helped them find the right product and fit.
Kar’s business model of building a private label brand with a wide product portfolio and excellent customer service paid off. While the lingerie market in India grew at the rate of 15 per cent year on year (2012-2015 period), Zivame reported a 300 per cent year-on-year growth in revenues during the same period.
Despite the initial success, the company reported losses in 2016, and it became critical for the Zivame team to quickly make strategic changes in order to survive.
Business model pivots
The key shareholders and investor consortium comprising KC, Zodius Capital, IDG, Unilazer Ventures, among others, decided to shift from the private label or single brand model of Richa and scale up the company using the marketplace model.
As such, there was a need for a CEO with a different set of skill-sets and relevant prior experience, and Kar had to step down as CEO in January 2017. However, she continued to be part of the board and did not dilute or sell her equity in the company.
Shaleen Sinha took charge and pushed for a shift to a multi-channel strategy. He hoped that Zivame’s decision to transform itself from an online marketplace to an online brand would help it reduce cash burn by 60-70 per cent and break even by June 2018.
Under Sinha’s leadership, Zivame reported ₹86.6 crore in revenue in fiscal 2018, an almost 63 per cent increase from fiscal 2017. The company’s loss declined by 44 per cent in fiscal 2017.
Shift to omni-channel strategy
In their attempt to find the right growth strategy, the investors attempted another rearrangement in the top management, leading to Sinha leaving the company in April 2018. They appointed Amisha Jain as the new CEO in May 2018.
Jain had about 16 years of experience in the technology, consumer, and retail sectors and had introduced transformation initiatives for multinational consumer goods and apparel brands such as Arvind Sports Lifestyle and US-based footwear company Nike. She focused on building omnichannel strategies which were driven by innovation and were consumer-centric.
- As part of the ‘Fitcode’ initiative, 40-50 other consumer signals such as browsing patterns, time spent on a page, and items purchased and returned, were identified to profile customers into the existing body fits or body profiles using data science with a collaborative and memory-based recommendation engine.
- A new brand identity ‘Love Yourself Inside Out’ was unveiled in April 2019 to create an exciting, inclusive, and modern environment for women to discover and shop for their intimate wear requirements.
- A community of about 100 plus micro-influencers was built.
Under Jain’s leadership, Zivame scaled up its business from 10 retail stores in 2017 to more than 35 in 2019. Zivame reduced its operating losses by nearly 39 per cent to ₹19.56 crore in fiscal 2019 from ₹32.1 crore in fiscal 2018. The company had total sales revenue of ₹140 crore with total expenses of ₹160 crore in fiscal 2019. Zivame hit an annualised run rate of $47.48 million for the financial year 2020.
Zivame planned more tech-based innovations to attract and bring in more customers. It planned to launch Fitcode 2.0 which Jain believed would further revolutionise the online lingerie industry. Already under the beta testing phase, this would allow women to understand their body type and the ideal fit for them without going through any measurements.
It would also let Zivame customise product requirements and maintain inventory accordingly. The company also focused on the AI-enabled supply chain that was another important driver in its multi-channel expansion.
Analysis
The case describes the challenge and dilemma a start-up founder like Richa Kar faces when investors decide to replace them with an outsider as CEO. The reasons could range from the investors no longer aligning with the founder’s strategies for the firm’s future growth and their feeling that the current approach is causing growth and sales to stagnate, or that the founder does not have the necessary skills to manage the firm’s next growth phase.
In addition, the case examines the role of venture capital investors in scaling up start-ups, helps spread awareness of the need to pivot in order to move to the next phase of growth, highlights the importance of digital technologies in the personalisation of customer experience, and explores the advantage of having a woman CEO for a company offering women-centric products and services.
Every entrepreneur dreams of building a successful start-up but most find it challenging to manage a growing firm. Worldwide, it is difficult to find successful CEO-Founders. In the Indian start-up ecosystem, the founder is most often the CEO and when an external CEO is hired, it creates a lot of buzz.
Investor-Founder relationship
In the general scenario, founders find it very difficult to give up control because they consider their companies as their very own.
Some of the reasons that do not ensure a successful relationship with investors and help the company succeed are:
Bad attitude towards investors
It is very difficult for founders to give up control. They cannot demarcate company performance from the entrepreneur’s innovation and zeal. In addition, there is a lack of trust in the investors, since the founders often assume that investor intent to build the company comes from wanting to earn a handsome return on their investments and that they are not bothered about employees or even long-term existence and growth of the firm.
In today’s scenario, this is generally not true since most investment firms are professional in nature and expect a win-win relationship. To avoid issues, most investors hesitate to invest in firms that are overly dependent on one individual. They insist on the induction of an external CEO who can seamlessly undertake daily operations before confirming their funding.
Poor managerial decisions by founders
People want to start their own firm because they want the freedom to run their business as they like. Most founders are not good at management. They sometimes take emotionally driven managerial decisions rather than rational business ones. This could affect the start-up negatively. Some may even hire people they are most comfortable working with or who align with their thinking rather than a person with the requisite professional skills for the position.
Since a start-up business involves stress, especially in the initial stages of founding the business, it is very important for the CEO to monitor and regulate his/her emotions, and uphold team morale. But this can often be difficult for founders because of their attachment to the firm.
Lack of strategy to scale up
The strategy that founders adopt for starting an organisation is very different from the strategy used to scale it. Founders work tirelessly toward an idea that can actually attract customers and generate revenue but they forget that the firm is bigger than an individual and that they must let it continue to grow.
When investors come on board, the rules of business can change. Founders who want to scale up their business into a big enterprise must be willing to put their egos aside and be ready to accept individuals with divergent thinking so that it allows the firm to grow, scale, and thrive.
Inducting an external CEO
The Founder-CEO is the core around which a start-up company grows. In the ideal scenario, the Founder-CEO has to take the start-up to its exit but history shows that most Founder-CEOs leave, voluntarily or involuntarily, and are replaced within the first three to five years of founding their companies.
In some companies, CEO transitions are smoother, which is critical in helping the company capitalise on past successes and move to the next growth phase. But unfortunately, in most companies, CEO transitions are not so smooth and this can disrupt the firms’ functioning.
All the stakeholders, including the founders, management, and board members, need to work responsibly toward the goal to minimise disruption. Handing over the reins to a professional CEO is one of the most challenging and difficult decisions a founder can face. Some of the best practices that can help guide the process are:
Evaluating founder’s readiness
Creating a company from scratch and nurturing it into a successful business requires the entrepreneur’s total dedication. It is natural for founders to develop a very close attachment to their companies and to find it difficult to entrust the leadership position to an outsider.
Whether the decision on leadership transition is reached independently or with investor influence, the founder needs to be ready to welcome outside help before the CEO is hired. This is a pre-requisite for a successful transition.
The founders need to be ready to dedicate their control in critical areas and once the CEOs are in place, they must respect the new CEOs who come with experience and do things differently. The founders need to empower the CEOs to make their own decisions. If the founder is reluctant to make these commitments, the firm could consider hiring less senior talent with the potential to gradually grow into the CEO role.
Hiring the right talent
Before attempting to find a replacement, the founder or board must identify the prerequisites for the incumbent, such as the required experience (large company experience, or public or private equity experience) and expertise (strategy or leadership, or functional expertise, or channel or sector knowledge, or scaling up experience).
Once the CEO requirements have been identified, the next step is to find the right candidate for the opportunity. This is a very difficult task as founder-led businesses typically exhibit certain change-resistant behaviour that can pose unique challenges when bringing in a new CEO talent.
To be successful, the incoming external CEO has to be sensitive to the culture, have the patience to earn the trust of the founder and the management team, and be respectful to the founder who built the business from scratch.
Goal setting
The actual work begins when the new CEO is hired. It is the responsibility of the founder/board to establish an alignment with the CEO from day one and communicate regularly to build this connection over time. The board/founder must map out a proper onboarding plan to integrate the CEO into the culture.
They also need to set clear goals and define measurable objectives to be achieved each year and put in place an advisory team set-up that can help resolve conflicts.
(Jitesh Nair is Research Faculty, and Balaswamy Pasala is Research Associate, at IBS Case Research Center.)