How Rakesh Aggarwal built the Amazon of online beauty
From his parents' garage, Rakesh Aggarwal created his online startup Escentual - one of the foremost internet retailers for beauty products.
Halfway through his MBA, Rakesh Aggarwal realised what type of business he wanted to start: an online retailer. "It was 1999 and everyone was getting excited about internet firms." With just £8,000 of savings, what he really liked about internet retailing was the low cost. But what would he sell?
He settled on beauty products. "It allowed me to ride the coat-tails of others' marketing efforts. I would just have to convince customers about my site, not the products." By the time he finished his course in 2000 he was itching to get cracking.
He teamed up with a family friend with a computer sciences degree and got him to build a prototype website. Then he spent £5,000 on ecommerce software and training. The new firm, Escentual, then went after deals with beauty product makers.
That wasn't as easy as he'd hoped. "They spend lots on their brand and they don't want some small firm to ruin that image." Aggarwal persisted, offering to price products and design his site to complement the brands.
For example, he promised not to accept third-party advertising on the site. "It was all about winning trust. Back in those days there were no special internet sales contracts, so we just made verbal agreements." Eventually, one after another, top brands such as Dior, Jean Paul Gaultier and Clarins relented.
Now Aggarwal needed customers. So he took out two credit cards to pay for some online advertising to kickstart business. "The good thing was that we didn't have much competition so we came high up in the search results."
Aggarwal also drummed up interest by cutting deals with other internet entrepreneurs. "I knew someone who had a music fan website. He let me send special offers to his mailing list. Back then people didn't monetise websites the way they do now."
Despite offers from venture capitalist firms, Aggarwal decided not to take on any extra investment. "I wasn't in a rush to have a big business. I was happy to build it slowly and organically." Moreover, the dotcom crash had shown him how fleeting investor confidence could be.
Nonetheless, by 2001 Escentual was ready to take on more staff and move out of Aggarwal's parents' garage to a small office and warehouse. Unlike other internet retailers, Aggarwal made the decision to stock inventory directly rather than acting as an online retailer. "Unless you have the stock you are just an online marketer, rather than a retailer.
Also, having the products yourself means that you can ensure good customer service instead of relying on someone else." The approach paid off and by 2005 annual sales had reached £2.5m and Aggarwal's cautious, organic approach had helped him build up a cash stockpile.
By 2007 he was ready for his big push and splashed out almost £1m on a new automated warehouse and office space. "It transformed the business. It meant we could hold far more stock, offer more to our customers and handle higher volumes." The rising credibility of online retail helped too, especially as the firm had long since secured a high ranking on search engines.
Last year sales hit £10m and once again Aggarwal, who's now 37, has built up a war chest. For the first time he's considering buying up rivals. "We want to become the Amazon of online beauty products the name that everyone looks to."