S1E4 | Truths About Disrupting India’s Age-Old Manufacturing Industry | Sonam Motwani, Karkhana

What are the hard truths about being a startup builder in manufacturing, and what was Vertex Ventures’ thesis for investing in such a tradition-bound and notoriously difficult space? And how does it feel to be a female-only founder-investor pair in such a male-dominated world?

Discussion Topics: Truths about disrupting India’s age-old manufacturing industry

• Vertex and Karkhana; Meeting, first impressions and the investment thesis
• How Karkhana got started
• Hard Truths about building and investing in manufacturing startups
• How Karkhana scaled their business
• Importance of company culture
• The value Vertex brought to Karkhana as an investor
• Hard Truth about authenticity
• Insights about being a female VC and advice for new female founders

Transcript: Truths about disrupting India’s age-old manufacturing industry

Elise Tan: Hi, everyone. I’m Elise Tan, I’m your host today for this podcast Hard Truths By Vertex. Today, I’m really happy to have Sonam and Kanika on our show. Kanika is my colleague and partner at Vertex Ventures, Southeast Asia & India. She also led the round for Karkhana, which was founded by Sonam. We are really glad to have Sonam on the show.

So let me share with you what Sonam’s background is. So Sonam is the founder of Karkhana. Sonam was inspired to build Karkhana when she was working on solving engineering problems across multiple business units at Procter & Gamble, she witnessed some of the underlying challenges in the manufacturing industry in India. And she thought of a platform that would solve those problems. Eventually, that led her to build Karkhana.io.

So today, we are going to have a conversation with both of them to better understand what Sonam has been working on, and what Karkhana is about. So let me start off by asking my colleague Kanika first, how you get to meet Sonam, and also understand how we work closely with our portfolio founders to help them become global and regional champions.

Kanika Mayar:  Sure. So technically, we found Sonam first. You know, we were building a B2B thesis for India. And Sonam happened to know one of our colleagues from engineering college. So we had reached out to Sonam, then, and at that time, I think she wasn’t raising or she wasn’t really ready to talk to funds. So we tracked Karkhana for a bit. And then when Sonam decided to raise money, she reached out to us, and that’s when we had the first formal conversation. But technically, we found Sonam first.

Elise Tan: Got it. And I remember this year earlier on, you know, we interviewed you and your story about how you got bitten by the entrepreneurial bug, and how you started your own company finally, do you want to share more about it?

Sonam Motwani: Sure. So, in fact, Elise, manufacturing is one of those areas where you don’t really find many females, right? So this question, I don’t think I can even count how many times I’ve been asked how it feels like to be a female building a business in manufacturing and doing unconventional stuff. But what even further strengthens, the belief of having more and more women in manufacturing is the confidence that Vertex had when they invested in Karkhana, in me, and, you know, a cherry on the cake is that one of the female partners at Vertex is the one who showed her conviction to invest in this.

So in a way, I think it’s a very, very strong statement, that not just me as the founder of Karkhana.io, but even the investment partners, we have believe in the vision of having more and more women in manufacturing and walking the talk. So, that I think, I personally feel great about. And I think it’s extremely symbolic of supporting that belief system.

Kanika Mayar: But I would say, Elise, it was not by design, It’s not like we were out looking for a women founder, or we said that, okay, women founder so female partner has to be on the board. I think it was just coincidental that you know, when we met Sonam, we realised she really knows this sector very well. And she really knew what she was doing, which is actually very rare to find at the stage of the company she was in.

So that really gave us a lot of confidence that yes, manufacturing is a tough sector, but Sonam can crack it, and she’s not one to back down from a tough conversation or a tough sell or a tough pitch. So I think that’s really what convinced us the most. So the fact that she was a woman was, at that time, interesting, but not something which we thought a lot about Frankly, I think what we just tried to see is, is there a business that can be built because manufacturing is tough for different reasons, and one of those reasons is that it’s usually a big boys game.

The largest manufacturers want to work with the largest suppliers. And here there was this idli piddly company, trying to disrupt this space so really, that is most of the discussion, which we had and I think it was just coincidental that I think you know, at Vertex we always strive to get the best founder-investor fit. So, hopefully, we achieved that with Karkhana. So it’s, I think, a story of good coincidences.

Elise Tan: Yes, I agree, as I think most people listening to us on podcasts or YouTube know that we are very female founder-friendly. But Kanika also gave a good reminder that we invest because of the quality of the founder, regardless of their gender. So we are really looking at ideas that can potentially change the world. And we find the best founder to execute the idea, and then keep betting on them, backing them so that they will succeed. So great. Just wondering, what is your first impression of each other?

Sonam Motwani: Yeah, sure. So actually the first interaction I had with Kanika, quite honestly, to me, she came across as somebody who was very rational, very, very straightforward. But you know, when you come across somebody who’s extremely straightforward, very rational in the way they conduct the conversation, but at the same time extremely smart and asking the right questions, that was something that just brought a lot of seriousness in the conversation, I would say. So that was my first impression of Kanika, that she’s a straightforward, no-BS person. And I think I continue to admire that about her.

Elise Tan: Yeah, I must say that you are a very good people reader, and I love that, I love that about our colleagues at Vertex as well, you know that we are straightforward. But sometimes we really need to know the truth. And we need to know it at the right time, as well. So it’s really nice and refreshing, to be frank, be transparent, and be authentic with each other. What about you Kanika?

Kanika Mayar: I think the first meeting Sonam came across as very confident about the business she’s building. And she was able to back everything she said, with either some data or very tangible examples of how she really knows the business well, both from the commercial side, as well as from the technical side. And I’m sure we’ll talk more about Karkhana, this is a custom manufacturing business. And Sonam ends up working on very complex machine parts.

So this is a specific industry segment where we need technical expertise, alongside commercial expertise. And I think Sonam demonstrated that very clearly. So I think that is something I remember. And then the other thing is tenacity, because I remember, this was not Sonam’s first business. She had done something else earlier. I think this was a pivot, almost a brand-new business. She’d been through a co-founder split as well. But she still demonstrated so much conviction and so much energy I think that really impressed us.

Sonam Motwani: Coming to what Karkahana.io is, what we’re building is essentially a managed marketplace for manufacturing custom-built products. And here, through our platform, what we’re trying to create is a transparent, speedy, and reliable supply chain for products across multiple industries.

And the approach that we have taken is that we are aggregating capacities available with multiple manufacturing suppliers, across geographies, and building our own digital platform that makes the entire process of sourcing through them extremely efficient, as well as transparent. So it just helps build a lot of trust for the customers to do a lot of the procurement that they were otherwise doing in a very painstaking manner, in a very efficient manner through our platform.

Elise Tan: Was it because you mentioned it must be custom made and then they need only smaller quantities, please share with us more.

Sonam Motwani: Sure. So here the product categories that we are targeting are custom built, where these products are built as per the design and as per the specifications of our customers, and none of these are available off the shelf. So to manufacture these products, requires from a supply chain perspective, a lot of flexibility, a lot of agility, and also the ability to handle variation across raw materials across manufacturing processes.

So, if we take Karkhana.io out of the equation, generally how most companies work is that they will put in lots of people to solve this problem, because essentially managing multiple suppliers requires a lot of micromanagement, figuring out you know, what is happening at what stage and this entire process is not run in a digital manner or a transparent manner today, which means the day of a sourcing manager or a procurement manager would start with picking up call for each and every supplier and asking them that, what is the status of the manufacturing project that they’re running on their shops. And this is not a pretty thing to do every single day.

Secondly, this information that we share with them, helps them speed up the decision-making process as well. They don’t have to juggle between a lot of conversations and figure out what information to focus on. All of that gets eased out through our platform. Another thing is, by way of aggregation, we are bringing access to multiple manufacturing processes, as well as access to multiple materials in which these products are built all in one place. So it just simplifies and speeds up the entire process of procuring these custom-built products for the customers.

Elise Tan: Yeah, that sounds great. I can’t imagine sitting at a desk calling up all the manufacturers, would they be able to discover through your platform given that you have different vendors to choose from that, oh, maybe another material might be better, and sometimes, even more, cost-effective. I’m just thinking out loud.

Sonam Motwani: So for the customer where the process would start at sharing their designs and sharing what they want in terms of manufacturing process and material, when we receive that information, one of the processes that we follow very well is designed for manufacturing, what we call DFM process. So all the data that we receive from the customer goes through a checklist, and there we are able to advise customers on you know, not just saying, that okay, whether this material is good material to go for, but also identify certain features in their design and say, whether this is risky to manufacture, or if this feature is changed it can reduce cost.

So the DFM process is something that, again, enables customers to make the right decision, before they even build their first prototype with us and reduce the number of iterations that they would otherwise have to go through.

Elise Tan: Oh, this sounds super cool about maybe being in a manufacturing industry so far.

Sonam Motwani: I think this has a lot to do with the nature of products and the nature of manufacturing that we have signed up for right, I was speaking about custom-built products, and the amount of diversity in materials and manufacturing processes that one needs to handle. The complexity also multifolds. Here, we are not talking about building, say millions of units of a single type of product.

Here, we need to be agile, first of all, as a system to deal with so much diversity in manufacturing and even allow the customers to build volumes of different sizes. And third thing is that even when you’re building teams, ultimately, people are behind all businesses and have the ability to make or break what you’re building. Making sure that even the people, by culture, by design, by values, also carry the same agility and flexibility in handling this diversity in business. So that I think, is the Hard Truth, it’s very different from building millions of volumes of a single product.

Elise Tan: Yeah, that’s so true. I can imagine there are countless permutations that you know, your system has to handle, it’s incredible. So I’m going to let you take a break. I’m going to talk to Kanika. So Kanika, can you mention that our company developed a thesis about manufacturing, and then you were looking for a solution in this space? So tell us more about it. You know, what did you foresee about what was going to be the future of manufacturing?

Kanika Mayar: Sure, Elise. Manufacturing is a very large sector in India. It’s been around for a long time. It provides a lot of employment. And in certain segments like automotive or machine parts, India does a lot of volume and value, not just for domestic manufacturing, but also for export. At the same time, it has been a very traditional industry. And really, you know, not much innovation in process or supply chain for a very long time.

So when we were building a B2B thesis, we were essentially looking at business models, that could disrupt a traditional supply chain using technology, bring in efficiency, and do this at scale, while providing, you know, some kind of value to both a buyer and a seller. So we were actually looking for something where the margin profile indicates value accretion on both sides. And so, therefore, it’s not just a trade or a very low single-digit margin business. And the other thing, which really happens in emerging markets like India, is that a lot of the supply chain runs on credit. So it’s very different from some other markets where the supply chain is not so fragmented.

But here, you actually do need to finance the suppliers, the buyers have their own working capital cycle. So a lot of B2B businesses actually end up becoming working capital businesses, which really in the long term is a margin erosion strategy.

1. One, we want a business that can be built at scale with technology.
2. Second, we want to see high gross margins, because they are an indicator of value accretion in the supply chain.
3. And third, while working capital, yes will always be a lever. We want the business to grow, even without working capital, or at a large scale.

I think these three aspects are where Karkhana really fits the bill for us. And that’s how we kind of triangulate it from a fairly broad thesis into this specific business.

Elise Tan: Kanika what is the Hard Truth about investing in this space?

Kanika Mayar: I think the first hard truth is that it’s not a business that can be built overnight. So it’s not a GMV business. It needs a little bit of patience. It needs you to drive tech adoption on both sides. And it really needs you to find what specific value can you provide, so that you can actually build a moat and then start accreting value versus eroding it using discounting or working capital, etc. So I would say it’s overall a fairly tough business. But I think if you build it the right way, this can be a fantastic business in the long run. And I think we feel bad about the hard part. But then we still like this sector and the investment thesis.

Elise Tan: So I also would like you to walk us through the journey that you have seen for Karkhana. And then also, at which point, do you realise that there’s sufficient market validation that no, this is on track to becoming more and more scalable and successful? So, maybe you can walk us through it.

Sonam Motwani: Sure. So when I started Karkhana.io, I mean, I started as a solo founder, and I got a couple of people from my network. And as we were on this journey, we were doing a lot of experiments. One of those was working with as many industries or as many companies, as we could get a hang of from our own network, and not saying no to anything, because we also wanted to explore which sectors where it made most sense, to streamline the supply chain where we would get the early adoption.

As an outcome of that, which would be the manufacturing processes that we would want to scale upon, both in terms of our own technological expertise, as well as the supply capacity. So initially, I think for almost a year, we really, really did not have a digital platform, all we had was a front end where a customer could interact with us and put forward their request. But in the backend, all of us were, you know, paddling ducks, trying to figure out how to solve that problem. But doing that gave us a lot of understanding and a lot of data on what to build on the platform side.

So in fact, after we raised our round from Vertex, our first round from Vertex, is when we started building the tech team, the complete tech team in-house, and the complete product team in-house. And because we were very, very confident about what that output would have to look like. Since then, it has been about scaling the experiences that succeeded with customers, getting more and more customers, and also getting them to a stage where they would have started their journey building in small quantities with us.

So this, in fact, formed the basis for what we want to also build on the platform side. And, in fact, we still feel very, very strongly about that, transparency is key, transparency helps in making decisions faster, and overall improves how manufacturing output, you know, could be generated.

Elise Tan: You know, I think that your decision to observe first, to understand more about the customer needs before building is such a great idea. Because sometimes entrepreneurs rush to make the product. And as you know, when you build something you have to carry a part, you know, when you make a mistake in the middle of some, right?

So it’s just going to take more and more time. So I love that instead of that, you get the specification right in the beginning to build so that it actually helps to save time in the long run. So that’s super cool. I also want to highlight something that you mentioned, your customer finds it very refreshing that you provide a very transparent service. And from interviewing our female founders, I realised that some of the things that you guys do really well firstly is customer centricity.

So there has been common a value, and then transparency as well, and keeping stakeholders involved. And that is so crucially important. I guess that the success of the company sometimes comes down to or most of the time, comes down to the values that you hold dear. So what are the values that your firm has?

Sonam Motwani: So again, it’s been derived from what we have seen our customers valued, and our effort has been holding those values internally as well. So one of the things is transparency where across all stages across all teams across all functions we maintain transparency about what we’re doing, what we’re building, how the company is doing, and being extremely candid about sharing the information across all levels of different teams.

The second thing is open-mindedness. What I mean by that is, being open to differences in opinions, differences in backgrounds, and being accepting of the diversity that different people bring to the table. So in our team, we have people from different regions of the country, and you would know India is a very, very diverse nation.

We have people across age groups, and I would say the third thing is integrity, that’s something we hold in a very, very solid way. And something that we are very like, not tolerant about anybody neglecting integrity because that goes a long way in establishing the trust that our customers have in us, the trust that we have in our suppliers, the trust that suppliers have in us, the kind of business we are, it’s extremely important that people operate with integrity. So those are some of the things that we are extremely ardent about.

Kanika Mayar: Sorry to interrupt, but I just wanted to add that I think we found Sonam is more thoughtful than usual about the team and the culture she’s building. And we noticed that from very early on, that every person who’s coming in, spends a lot of time with Sonam and the team, even before they join. And I think as a result, Sonam has built a very strong team, and also a very strong culture. So when you go to the office, you can really feel it. And I think it’s also reflecting in very good retention, you know, across the board, which is extremely important as you scale. So I think, there Sonam has done a pretty exceptional job.

Elise Tan: I’m glad you added that, because ‘people’ has always been such an important piece. When we interview our founders, some of our founders say that they regret most about not caring more about people and culture, because that is really what makes things happen. When you get that right, most of the time the jigsaw puzzle is there and it’s all done.

Kanika Mayar: I think what I try to encourage all our founders, including Sonam, to do is to be very comfortable in reaching out whenever they need to. So it’s actually happened that one morning, we’ve decided, okay, we’ll catch up for coffee today, because I didn’t know Sonam is in town, and she just calls in the morning. And sometimes we also do, like, weekly or monthly catch-ups, if we need to talk about certain important matters.

I think from our side, we try to maintain a relationship of transparency and respect. So, obviously, the founders always know their business the best, right? Especially the technical aspects, especially the daily operating aspects. And there are certain sectors or actually certain areas rather, where investors can add value. So we try to develop that relationship where we establish early on that, look, we don’t have all the answers.

But we are here to partner with you in finding those answers. So just keep it open like that, and then ensure that there is enough comfort on both sides, that you just call the other person when you have to discuss something without really thinking too much about it.

Sonam Motwani: Yeah, absolutely. It’s okay to not get the answers every time. But I think what I appreciate a lot about Kanika, is that she always asks really, really good questions. And I think those questions a lot of times become a solid nudge toward figuring things out. And having that informal structure is also very comfortable for the relationship that we have, and I think goes a long way in having trust in this relationship.

I really, really appreciate Kanika and the rest of the team at Vertex for creating this informal structure, being able to catch up with her over drinks over coffee, and calling her up anytime, even if I mean it’s not about discussing very structured things at work, but even if I am nervous about something or I need help, thinking through how I’m going to say, have a conversation with somebody else. So all of those things are extremely helpful.

Elise Tan: So Sonam, how has, if you were to take a step back, you know, how has Vertex added value as an investor?

Sonam Motwani: I mean, first of all, trusting us and trusting me on this path of building a tough business, has been very confidence-inspiring. Secondly, again, I’m going to repeat this instead of just forcing, or rather, presenting their side of things, it’s the approach has always been trying to understand more about the business, from me, from my team, from us, and then helping put a structure around how to think about it, how to take the next steps, and where both of us do not have the right answers, bringing right questions to the table.

And for me, as a single founder sharing that mind-space is also important, when things are not so rosy, being able to communicate those as is and seeking help is something that Vertex has been able to provide for. And I know that as long as the decisions or the steps that the business has to take are for the benefit of the business, Vertex will support us. So that comfort is, I think, something immeasurable.

Elise Tan: Glad to hear. As a female founder, you know, what do you think, is the hard truth about it you can share in terms of your space, or in general?

Sonam Motwani: I really don’t know if this is something very specific to being a female founder, but I think, most founders might find it challenging as their teams are growing, is the ability to be authentic, the ability to say things as they are, the ability to call out internally, as well as you know, in other interactions, is something that does not always come easy. And for me personally, also, this is something that I have to keep reminding myself and keep reiterating – what is the larger vision?

So, that I think, is extremely important to maintain across the team. I have also had challenges but have been rightly reminded by people in my team that, you may want to take a step back, not try to be the person that you are not, and be more authentic, be more strong, about what you think is the right thing here. So I’m lucky on certain fronts there.

Elise Tan: That’s good. I think it wouldn’t have, it couldn’t have been a very easy time, but you being so positive and really overcoming it in your own stride, I think that is great. And then before we end, I also want to talk to Kanika, more about the investment scene in India, because I think, having a female senior investment professional in a VC firm is quite rare in India, you know. According to Moneycontrol, Vertex is one of the only nine VCs that has a senior female investor. So tell us more about, you know, how it feels to be working in your area.

Kanika Mayar: I think Elise, India is one of the most exciting places to be, if you’re a founder, or if you’re thinking about starting up. And if you’re an investor, and you’re looking to support early-stage startups, and I think in the last two, or three years, the ecosystem has just grown by leaps and bounds. We have so many more of these founders who have experienced technology companies before and are now coming forward to start up. You also have a lot more early-stage investors, angels, accelerators, micro VCs, and angel funds.

So I think to some extent even starting up has become a little bit more de-risked. A founding journey is hard. And, you know, it doesn’t matter what sector you start up in, there will always be some things that go right, and some things that go wrong, and you have to figure it out as you go along. So, I would say, it’s an interesting space. It’s becoming more competitive, which is both good, as well as I think, more challenging. So, I think, we are also discovering good definitions of what it means to be a good company, what it means to be a sustainable company, and what it means to be a good founder. So I think the bar is now a lot higher, which is great because it means that the quality of companies that will come up in the ecosystem is a lot higher.

Elise Tan: I want to ask both of you, you know, what would you say to a new female founder? What advice would you give?

Sonam Motwani: I think I’d say the same thing. And again, to all founders, stay authentic, and bring your own self to how you build a company. And yeah, just be at it, it sometimes takes longer to do the things you want to do. But perseverance is key. But at the same time, knowing when to change course, and having the resources to change course, is something you should not lose sight of. But be authentic, be at it that’s what I would say.

Elise Tan: True. How about you Kanika?

Kanika Mayar: I think something similar, I would tell, you know, all founders that starting a company is a 10-year long journey, at the very minimum, so before you start, you should be really, really committed and excited about the idea that you’re building for. And you should always, always build with a long-term view. And really, if you are doing that, then male founder or female founder has no meaning. You will find the right partners for you along the journey, and that will take you to where you have to be. So, I think what’s most important is the conviction and the vision for anyone who’s looking to start up today.

Elise Tan: And if I may add, also bring on the right investors and partners who are able to share your values and really help you in your growth. With that, I come to the end of our podcast. It’s such a pleasure speaking to both of you, and hearing different perspectives from both of you. Thank you so much.

Guests: Sonam Motwani and Kanika Mayar

Sonam Motwani is the founder & CEO of Karkhana.io, a one-stop solution for custom manufacturing that offers clients on-demand manufacturing with seamless execution from quotation to delivery.

Kanika Mayar is the partner with Vertex Ventures SEA and India who led the investment in Karkhana.