‘Governance Was Non-Negotiable’: CEO Falguni Nayar On Building Nykaa

Nykaa announced on Tuesday that it has incorporated a new wholly owned subsidiary, Nykaa Essentials, with its registered office in Mumbai. This is yet another step for the e-commerce giant to grow its business.

The website, for e-commerce in beauty and wellness products, and now fashion, was first launched to the public in 2013. A decade later, it has beaten many records, including becoming the first unicorn in India to be headed by a woman.

Falguni Nayar, the CEO who launched this product when she was 49, said it was a tough journey.

In an interview with journalist Devna Gandhi, Nayar said it was her background in finance and meeting several entrepreneurs that inspired her to start her own business. “My entire decision to start something at the age of 49 was driven by wanting to experience entrepreneurship and I think what it also does, entrepreneurship, is that it allows you to be that total management guru where you get to experience all aspects of management than being stuck with a narrower aspect of management like say finance.”

Nykaa has since gone public and is now a leading player in India’s e-commerce industry, especially in the beauty sector. How did she make the business profitable?

“We've been very prudent about how we spend our money. We've had a lot of respect for capital. Every penny matters,” she said.

In the interview, Nayar also spoke about building the business as a mother of two, the learnings she received from her investors, the work culture in the organisation and much more.

Edited Excerpts:

Being the first female-led company to become a unicorn. What did it mean to you?

As a woman, I do believe that we hold half the sky. It's not about why am I ahead of so many women but seeing that let my story inspire many more that they can do it. Entrepreneurship is clearly a roller coaster ride.

For a young mother leaving the kids and running around for work and travel, I used to drop them at a camp, and when the time came to pick them up, I had some work, so I had to ask a friend to pick them up. So it was tough. I'm quite a black and white person, so I really don't like not listening to truths.

So tell me about your upbringing, Falguni. I know you had progressive parents, particularly your father, even in those times.

I didn't know how special my upbringing was till much later. I was always asked what it was that was so different that made you who you are. As I think about it, I think you know the kind of equality and respect I got at home both from mom and dad. Usually, moms are always there as your cheerleader, but it was also my dad who truly believed in treating me as an equal. There was never a question about education, working or experiences, travel, all of that was very important. I shouldn't be held back, and I pretty much got the permission that I wanted whether it was for travel, whether it was for adventure sports, whether it was for studying for business school or encouraging me to go abroad.

I think that I never felt any barriers in my mind, and I think that's very important that you don't feel barriers in your mind. That's incredibly important.

You also went to IIM? Yeah. How did that shape you, and how character-building was that?

I think studying and getting good marks came easily to me, but it got recognised when I got into IIM because I was admitted to two of the best IIMs. For me, it was easy. I was actually not working that hard for it, but I think what was important to me was the education, the quality of education I got. I chose IIM Ahmedabad over some of the US MBA schools I had got into, and I liked the case method of learning. I later saw that in what Advita also studied at Harvard. I think the case method of learning and the amount of real-life situation in business that it exposes you to and also discovering that business is not just about marketing or finance but for every complex aspect of business is important like be it supply chain, be it production management, be it you know be it human resources and how all of that comes together to bring outcomes. This was my biggest learning.

Then, of course, I enjoyed those two years surrounded by a bunch of very intelligent people and that motivates you further to think harder and be seen amongst others. It was overall great because I was contrasting it with when I was in HR in Sydney somewhere.

You became successful at Kotak as a banker, high ranking, and learnt about IPOs and fundraising. How did it help you become an entrepreneur?

Yeah, so I think I classified myself as good at finance, and that's how the natural choice of jobs was banking and investment banking and institutional brokerage. Honestly, I really loved being part of the capital markets, and I think I was good at it, and I did well. But as an IPO banker, I met a lot of entrepreneurs, probably over the 10-15 year journey did all of the big IPOs that matter. Whether it was DLF, whether it was some fundraising for you in Marico to Udvish to Marico to PVR to UTV, you name it and I was involved with all those IPOs.

I got to meet many of these entrepreneurs. I saw their vision, I saw their long-term outlook to building and creating and working towards their vision that inspired me, and I was very keen to have an entrepreneurial journey of my own. So my entire decision to start something at the age of 49 was driven by wanting to experience entrepreneurship and I think what it also does, entrepreneurship, is that it allows you to be that total management guru where you get to experience all aspects of management then being stuck with a narrower aspect of management like say finance.

You had a very successful IPO. Obviously, you had experience as a banker. But this time, you were on the other side; you're the promoter. How did you find that balance when you were navigating through your own IPO and having a husband as a seasoned investor? Did that help?

I think my financial acuteness is probably similar to his. Both of us together have a really inherent sense of valuation as they work in any environment. It's a stage of the business and also the environment in which it is operating that determines the valuation, and I think that made the process far less. There was no friction it made the process very frictionless. We were very sure not just at the IPO stage but even pre-IPO when I used to do fundraisers to be very sure about valuation that I wanted but at the same time I was not also interested in trying to see whether I can get anything more than that so also I think Deepak Parekh and people like him would always say that always leave something on the for the investor so we never came from the culture of maximising the value that we get and finding the right appropriate value which achieved that balance between the promoter and the investor was the way we went about it.

Also, you've had incredible investors, from TPG to individual investors like Harsh Marivala. What are your interactions like with them, and what do you think you've learned?

I was very fortunate because I started an e-commerce business that was inventory-led, and I could not take foreign money till I restructured to be Indian owned. In the early days, I made sure that I actually raised money from high net worth family offices and most of these were really great entrepreneurs themselves. Very often an organisational investor holds you back by questioning every decision, whereas I think I got a complete backing of my investors that yeah she knows what she's talking about culturally, we like how she's building and they were always totally backing me and even till today I see that and I really am I'm quite I'm fortunate for that.

Any advice you got from any of them that stuck with you?

I've learned a lot from each of them. If I may quote some of them — first from Uday Kotak who I worked for. I think governance was always a non-negotiable and I think I made that a non-negotiable I also always learned from most of the entrepreneurs, who were astute entrepreneurs, that it unit economics matters and you build it right then it scales right, so many of the old generation entrepreneurs do not understand new ways, losing a lot of money to build a platform and not achieving profitability forever.

So while I built in the e-commerce space competing against Amazon and Flipkart and many who have invested and thrown a lot of money at trying to build a business, Nykaa has been profitable for a very long time now, I think except for first two three years, four years when we were loss making we've become profitable for a very long time. The total amount of money that we invested till we went to an IPO was hardly anything all of you know under Rs 460 crore we had invested. I think we've been very prudent about how we spend our money We've had a lot of respect for capital, as I call it yes uh and you know every penny matters, which actually inherently is a very Gujarati trait. So, it was nothing unusual to me.

So your IPO was a stupendous success. First female-led company to become a unicorn, wealthiest female-led entrepreneur — all these labels, they're amazing. What do they mean to you?

I think for me, I think if I go back to a question before that — why did it happen — I think I believed in beauty industry in India and I did believe that if beauty industry is so big elsewhere and in India the per capita consumption of beauty was only $6 per capita after almost 10-11 years of working today we've been able to build it. We, along with the others in the industry today, it's at about $15-16 per capita. Still far below even what is there in countries like Vietnam and Indonesia and far below what is there in the US. If you take Japan and Korea it's like $450-500 per capita yeah so huge huge gap and just a belief that through education I can create consumption and I can cater to that demand and all of that was instrumental in  our achieving where we got.

There was another enabler that I saw along the way as I started talking to my consumers, and I portrayed beauty from not trying to attract the attention of others to being confident with myself. So a beautiful version of me makes me more confident about myself, that and empowerment, and women empowerment that it brought. As I was meeting my customers, I saw that it was not about selling beauty but it was empowering women, and that brought purpose to Nykaa. So for me that all is more important than the money I made in this.

Apart from your strong messaging what are the tools that you use?

I think you know at the core again it's like a business has to have values and that value shines if a person has great values how the person shines is the same thing so from early days the conversation at Nykaa was always like if you say 30% off at least 30-40% of the SKU should be at 30% off you can't say you know 60% off and then have one SKU at 60% and everything else is at 20%. So being transparent, being authentic, and saying what you mean has always been important at Nykaa. So really there is no false facade; is who we are.

We are very customer-centric, like the apps are very customer-centric; there is no agenda to push a brand. No brand can come and tell us oh these products of ours are not very good. We never became a clearance site, They cannot come and tell us that these products haven't sold can you buy it off from us at this price and sell it off, we don't do that like I always said that I'd rather sell the right colour of the lipstick at full price than send the wrong colour at 50% off. We stood for quality, we stood for authenticity, we never sold fake products. Very early days when we were selling products which are not registered in India because beauty business is a registered business, like you have to have registration and certain distributors just bring the products and sell it, we never accepted that on our website so we really kept to the quality standards from all perspective and we are not an open platform.

We look after our customer. We call it a curated website so we actually look after their interest. So if somebody comes in and prices the product very high, but we think the value is not there then we may not do it, but of course, we do allow our brands to give discounts to customers because it's a way of life. We were aware that brands do incentivise customers at a certain point in time, so there are periodic sales on the site, so it's not that we don't give the best prices. I do believe that no customer will pay more on Nykaa for the same product that they can get elsewhere.

But you have so many of your own private labels. You have international products, you have local products, you have a real mix. How do you manage that? And in terms of pushing products, you know that delicate balance that you have?

So it's not really so much push but influence. We do believe that Nykaa likes to have that editorial voice and likes to have that influence, and we created that from very early days. We really do 360-degree marketing, and we use social media. But social media is used to broadcast, it's not push push push. It's like broadcast makes you aware about the new brands that we have, the new products that we have. Of course, part of it is editorial meaning we decide to push what we want to pus,h and part of it is also played where brands want us to carry their voices, which we, like in any advertiser, do. It's clearly spelt out on the website.

We do believe that the core of the beauty industry is to get the best of what the world has to offer. The Indian consumer wants the best of what the world has to offer, be it in cars, be it in beauty, be it in fashion. I'm not against manufacturing in India. Let our manufacturing also compete with the best of what the world has to offer, and then those brands also stand out so we never prioritise any one segment. We have some of the best D2C brands on the website we have the best international brands today; the biggest international beauty brands are working with us to bring their best products, be it used to and be it like every week.

Influencer marketing — does that really move the needle how do you use it, or is it now more a real woman connect that the Indian consumer is looking for?

The new trend is the real woman connect and authenticity, which comes through a lot of micro-influencers rather than one big influencer who's trying to push kind of everything. But the reality is that Indian influencers there are some really successful and large ones but those can be counted on the fingertips, so I think overall Indian influencers have not gone to the size and scale that we see in Japan in China or even in the US especially on on on Tiktok. I think India is not there but we tap influencers a lot we have a programme called Nappers which a Nykaa affiliate programme. Influencers can take various new launches or various commercial activities on our website. They can take on that conversation and create their own version of a video and they can tag it to Nykaa and then they commercialise it like they get paid.

We've democratised access to beauty; we've democratised influencers also in terms of any influencer can work with Nykaa and get you know to the extent of their success they can mobilise but the resources

At the end of the day, the celebrity or influencer is not really moving the needle. There’s got to be a lot more to it.

See, platforms like ours and others have become so large in scale that really nothing moves it. We really do a lot — a lot of organic, a lot of paid to Google, Facebook lots of CRM, lots of influencers. We do live commerce, we do gamification. So, everything contributes to the business, but nothing no one thing can move the needle.

From the latest quarter, one is seeing   bigger push towards marketing, customer acquisition. Nykaa is a pioneer, you are a pioneer and a real innovator and not many have achieved what you've been able to achieve particularly in size, scale, customer connect. However, for the first time there is real competition in terms of other big families and brands and e-commerce platforms. For the first time they're starting to build and become real competition. How are you viewing strategy now in this competitive landscape?

Nykaa’s size and scale is quite unique. Just to give you an example of the size, like at 210 stores in 87 cities our store network, and we have extremely successful stores that do large like many of our stores do more than Rs 1-1.5 crore of revenue a month. So even with that type of network, not all our stores but many of our top stores, with an extremely successful network physical retail still accounts for only 8.5% of our revenues. So the size and scale of Nykaa’s influence and reach is very, very large. We are at 35 million customers, or whoever bought a Nykaa product, and we are still aspiring to acquire another 5.5-6 million customers this year.

Obviously you know that other e-commerce companies are even larger so we think there's a lot of runway for us. But I think competition cannot overnight really make an impact. It's a large market. Even with whatever quick commerce is trying to do, the size of the quick commerce market is going to be minuscule compared to the e-commerce market because e-commerce is catering to all of India whereas quick commerce is solving only for few urban cities. We went actually live with information that we currently deliver in 110 cities we deliver 70% of the orders in those cities by the next day. So that is the kind of delivery delight we are aiming for. Of course, competition is coming in some pockets in a very small way, the size and scale of competition is not really impacting and it's evident in our results because I can talk about it because we just finished giving out our results so we actually have accelerated our beauty category growth this quarter.

Fashion is not yet sort of working so much for you.

I think fashion is quite affected by the festive season and festive including weddings is more aligned to the second half of the year this year so let's see we are all very hopeful about the second half.

Are you open to saying, you know what we are number one by miles in beauty and we're growing in beauty, in a way that's still remains unique all these years later, are you open to saying you know what maybe we need to cut off fashion at some point?

The point is that look beauty and fashion appeals to the same customer right it's the consumption of the same customer. If we know how to talk to the customer for one product we can figure it out for the second. I think fashion everybody forgets that fashion is a relatively young business for us. We started it just before Covid and we grew very nicely and rapidly during Covid because the stores were shut. But today I think fashion stands where we were as beauty before Covid standing in front of a lot of international partners and a lot of international opportunities which will give a lot of unique ability for Nykaa fashion to grow like we just announced the Footlocker partnership and Footlocker is going to really contribute a lot of business to our platform. I mean I know my son looks for

What people don't realise is that it takes a long time to build a platform to cater to a category. So our platform was built for catering to beauty and it has been strongly building up to cater to fashion because fashion is a marketplace business, it needs the seller portals for sellers to come and work on your portals and enable the site to do more so there's a lot of that capability that we spend our time building over the years. I feel that our platform doesn't have enough of saris it doesn't have enough of jeans there's a lot of also onboarding that is going on. So I think there's a lot that will happen over next three to five years. I do feel that fashion has certain unique problems to solve including size and standardisation of size but I think it's in a great place like I don't want to talk about very micro thing but for this Diwali I shopped for all my staff on Nykaa fashion and in a matter of three hours I shopped everything and I was so happy with the stuf,f I got the variety I got the quality I mean so I think these platforms are becoming really serious places for many busy people also to shop.

How important is it to surround yourself with a young team? What is the culture you would say you've built at Nykaa?

We are very proud of the fact that we are equal opportunity in that sense. We are a very inclusive culture, so be it gender, be it age, there is just really no barriers at all. For example, in our office, a 25-year-old could be leading a department and will feel very confident to give their opinion and views in a large group, so that's how empowered we are. Be it gender, be it age be it qualification whether you're an engineer non-engineer whether you're a CA non-CA, everybody's learning everything and everyone's learning in a very holistic way, and I think we've broken all barriers, and I think that's very empowering.