Khareed, an innovative tech startup providing e-procurement software-as-a-service solutions to enterprise clients, has its origins in the unlikeliest of places: an old board manufacturing plant on the outskirts of Lahore.
Khareed founder and CEO Haroon Sethi first cut his teeth as an entrepreneur more than a decade ago when he acquired an ailing particleboard company and proceeded to turn it around. “We needed to curtail the cash bleeding, and that meant cutting all non-essential costs as quickly as possible,” Sethi recalls. “We reduced our staff strength, and I ended up taking on pretty much all the administrative functions. Procurement was the most critical one for our bottom line.”
Selling a commoditized product in a highly competitive industry left little potential increase sales price. Improving profitability meant minimizing costs. The old Punjabi adage “munafa khareed mein hai,” which translates to “the profit is in procurement,” became something of a mantra for Sethi, who found himself haggling tenaciously with machinery merchants and used parts dealers in Lahore’s dusty hardware markets.
“It was tough work, scouting around for deals. The summer heat and traffic didn’t make it any easier,” Sethi laughs, “But there wasn’t anyone else I could trust to get me the best prices.” Pricing is notoriously fluid when it comes to industrial goods. Rates for the same products will vary depending on the quantity being bought, the credit terms, and perhaps most importantly, the buyer’s negotiating ability. To ensure competitive terms, most companies seek three price quotations when requisitioning an expensive product. Even with multiple quotes, there is always room for negotiation, but competitive bidding is a good first step in price discovery.
“I didn’t have much knack for haggling initially,” Sethi confesses. “I felt I was being quoted higher rates because of the way I spoke and dressed.” His suspicions were probably correct. Sethi graduated from Yale with a double major in Economics and Mechanical Engineering and had proceeded to work in investment banking straight after college. His education and banking training had done little to train him for the coarser world of small-scale manufacturing in Pakistan.
He didn’t let this impede him, and before long, was comfortably negotiating rates on used motors from Daroghawala, bearings from Brandreth Road, and metal parts from Misri Shah. But he acknowledges this was not the best use of his time on a longer-term basis. “The sheer amount of time, energy and resources that get wasted repeatedly sourcing and negotiating prices for routine items is baffling,” he says. “It was the norm in the industry, and at the time I was more focused on improving the way things were done in my company rather than the industry as a whole,” he reflects.
His relentless focus paid off when his company started turning a healthy profit two years later. But by that time, he was ready to move on to bigger things. “There was, and continues to be, so much inefficiency in the way business is done,” he observes. There had to be a way to improve on this, he thought. It was thought that stayed with him and kept gestating even after he sold his company and joined McKinsey and Company, a management consultancy, in their Dubai office.
McKinsey was the fertile training ground that enabled Sethi to build up the requisite skill set for his next entrepreneurial venture. “I always knew I wanted to do something entrepreneurial again,” he says. “But I couldn’t have launched a venture as ambitious as Khareed had I not learned management and problem-solving skills at McKinsey. These enabled me to crystallize a clear vision on what to do next.”
What came next was a bold initiative to create a step change in the way procurement was done in Pakistan. Khareed went live as a procurement outsourcing service for companies. Their focus was on industrial parts and supplies which needed enterprises for their routine repair and maintenance. Such items are classified as non-strategic procurement, to distinguish them from the raw materials and supplies that companies source for their core product. “All manufacturing companies, regardless of industry sector, utilize the same set of running parts—motors, bearings, gears, pumps, and related accessories,” Sethi explains. “Companies should be focusing on deepening their relationship with suppliers of their core inputs, not worrying about managing and sourcing small parts from hundreds of smaller vendors.”
Sethi went to companies and offered to help them in their non-strategic procurement. The economics were attractive for users. For a fraction of the cost of a procurement runner, Khareed would source competitive price quotes for them. Companies would submit their requests online, and the Khareed would return with multiple price quotes sourced from reliable vendors, pre-verified by the Khareed team. “we aimed to provide service that was better, faster and cheaper than what the companies could get from their teams. Procurement is one of many different things a company does. For us, it is all we do,” he explains.
To deliver on his promise, Sethi invested heavily in building a strong team, recruiting from the top universities in the country and then spending months personally training his team. “To attract the best talent, we had to create an exceptional environment for exceptional people,” he says. Khareed’s gleaming white office in Gulberg is elegantly furnished with open plan workstations and is a far cry from the factory shed in which Sethi once worked. The startup vibe is evident in the non-hierarchical and collaborative atmosphere, but there is also a degree of calm and composure that one would not expect in an early stage startup. “If you want to bring in great people, you have to have the systems and processes of an established firm,” Sethi says.
In response to feedback from clients and requests for additional functionality, Khareed continued to build on its original offering. Clients asked for flexibility in creating RFQs, including the ability to submit multi-product requests with attachments and spec sheets. Others asked for comparison tools and messaging features. The team kept developing and integrating these features to service their client’s needs. By early 2017, what had started off as a simple requisitioning form, had transformed into a full-fledged enterprise-grade e-procurement software.
“Our mission since day one has been to make things simpler and better,” says Sethi. “So as we added features and the application became more complex, we spent more time ever designing a user interface that would be intuitive for our clients and would easily meet their needs.” In the course of this, Khareed transitioned from being a tech-enabled services firm to a software-as-a-service firm.
The result is impressive and the product promising: Khareed’s most recent upgrade to its application provides seamless end-to-end procurement functionality, from requisitioning quotes to comparing quotations, to placing orders. As a cloud-based solution, there is no configuration or implementation period. Users can log in and get started instantly. In contrast to the product bundling approach adopted by many companies, Khareed’s packages are designed to enable clients to choose which features they want to use, “We don’t want our clients to pay for functionality they have no use for,” explains Sethi.
Khareed has faced its share of skeptics, but for now, the company’s roster of corporate clients is proving them wrong. As Khareed continues to make inroads into the heart of the Pakistani manufacturing sector, it is only a matter of time before the industry, too, embraces technology, making the same journey that Khareed and its founder went.