There has been so much noise about the internet food delivery space in India recently.  Internet kitchens, home chefs, restaurant aggregators, hyper local logistic companies, etc.  Most of the business models are not well thought through when it comes to trying to build a scalable and sustainable enterprise.

There is only one sure way to build a large valuable online food delivery enterprise in my opinion  - Using technology and tech enabled processes to enable quality food suppliers deliver via a network of logistic providers at scale. I feel many of the companies are missing the point - there is either too much focus on preparing the food or too much focus on delivering the food. Both of these should be enablers, not the main focus! This is a thin margin business in a industry that thrives on quality and variety. You cannot afford to build a logistics staff that is used twice a day (lunch and dinner) and is largely idle for the rest of the day. And you cannot scale a business by cooking and serving out of one centralised kitchen or a bunch of small home kitchens!  If there are a million orders a day, can the chefs produce 10,000 pastas from their home kitchen? Unlikely. There is inevitable food fatigue that can limit scalability if you are producing food from one central kitchen. That is a big issue with any one kitchen restaurant on the internet or not.

What a company needs to do is effectively  is to use technology to identify and empower  the current food supplier ecosystem (restaurants, caterers, home chefs, etc)  and the current logistics ecosystem to deliver quality food to the consumer in the simplest way possible.

Those who wake up and smell the coffee (literally :) ) and execute flawlessly will thrive under this business model. Those who don't may survive for a while, but most likely will end up in "hot soup" !

We are privileged to be partners with a food ordering company that gets it - TinyOwl.   Wish them all the luck in executing flawlessly.

UPDATE :   TinyOwl has merged with Roadrunnr and rebranded as Runnr.  Roadrunnr has innovated on a tech enabled delivery model that allows control of service without bearing the full time cost.  Possibly one of the best teams in the country for hyperlocal logistics we have met.  With TinyOwl's superior food discovery experience and Roadrunnr's capital efficient innovative capital efficient scalable logistics infrastructure, we hope Indian consumers are given a superior food delivery service via Runnr that delights while making profits along the way, which so far has been a myth in the industry. India will see emerge a very different food delivery company than rest of the world given the lower price points and we look forward to continuing our partnership with Runnr

For the last year, I have met hundreds of smart entrepreneurs with various ideas in the consumer internet, mostly sounding alike -  "I want to raise usd 5m and focus on promoting my service aggressively and then go for the larger round of financing in 12 months"

When asked "Why not build the company step by step and focus iterating on a solution capital efficiently?", the answer is that is what the so called Indian Unicorns have done (ie marketed aggressively and negative gross margins ) and hedge funds, corporate biggies have rewarded them for it by financing them with large cheques.  Rewarded who? A financing is not the sale of the company. A financing is largely not a liquidity event. Unless someone is building a real company with a path to real profits, a Unicorn valuation may not be worth the paper of its shares. And it is good to raise capital if needed to grow once a business model is proven out capital efficiently first. Expensive experimentation at the early days can prove to be fatal as if it doesn't work, there is no money to manoeuvre into adjacent business models and the shareholders are over diluted to be able to attracted new money at any valuation.

As an entrepreneur and investor, I have seen many situations where a company has exited for a lot less than the last round valuation. My advice to many of the entrepreneurs is that experiment capital efficiently and once there is a proven model, then raise capital to scale.

We have companies in our portfolio in consumer internet where entrepreneurs have experimented with little discounting and have witnessed healthy growth in their business. And have then gone out and raised capital to scale. It can be done.

India has seen a lot of me too "cut and pastes' from internet models worldwide. From the Amazons to the Ubers to everything in between, clones have been tried in India.  Unfortunately, this type of cloning will not work for unstructured stays in India because of the fundamental lack of trust by consumers on the quality/service of the property, the reverse lack of trust by the property owner on the usage of the property by the consumer,  the lack of technology adoption by the property owners,  the variability in property maintenance, etc. What India needs is a managed marketplace where properties are vetted and verified, assistance provided to help the consumer decide on a property based on their needs, training for the property owner on what is required in terms of capex and services to make the property "rentable" and  technology assistance to facilitate the booking and post booking interactions with the customer, and a ratings/reviews system to enable users to share their experiences with others.

India has hundreds of thousands of small lodges/guesthouses and millions of potential homestays. But to open up this supply of stays to the consumer successfully requires a significant amount of process and product innovation.  Some companies (e.g Oyo, Zo) are trying to solve this need by trying to control the service levels of the property owner and attach their own brand to each property experience. This is more like a virtual hotel. It can work at small to mid scale but hard to make this work at large scale this as it is not possible to "guarantee" or standardize an experience if you don't have control over the property experience completely.  A controlled marketplace experience (e.g Stayzilla) where every unstructured stay available can be listed but with a verification and assistance layer on top is something that the Indian consumer needs and can be a huge success if done right.  The power should lie with the consumer to decide on the property they want amongst the thousands available with as much transparency and assistance provided by an intermediate platform in an emerging country like India that is nascent in both digital savvyness and customer centricity.



 

The Digital entrepreneurs in India are going through an exciting phase of rapid growth as more consumers access the web via mobile. Many companies have scaled up users and transactions rapidly in a short span of 2-3 years.  Many of these companies are at critical junctures in their life cycle where they need to make sure the organisation strategy, HR, etc are aligned to support future rapid growth.  Yet what surprises me as I speak to some of the entrepreneurs is their focus on new areas which is bound to take away focus from the core. Which would have been fine once a business is established and growth is slow, but not at a time where business is just about getting started.

1. A  transport aggregator tell wants to get into food/groceries
2. A classifieds directory service wants to get into delivery of products
3. A horizontal ecommerce player wants to get into renting flats
4. A mobile recharge wallet company wants to build an ecommerce marketplace

Many of these new areas of growth while sound adjacent, they require very company DNAs -

Aggregating taxis and making sure you deliver fresh bananas on time are not similar businesses. The latter requires product sourcing and cataloguing, vendor inventory management, logistics, etc.

Collecting data of a store and giving the phone number to a customer who calls  is very different from ensuring the selling ships the product to the customer and collects the monies, manages returns, answers customer queries on the product.

Selling a mobile phone and renting a flat follow very different buying behaviours. The user experience, the trust, the paperwork in renting a flat is very important.

Creating a wallet where users put cash to buy mobile recharges and selling T-shirts require very different back end partnerships, fulfilment capabilities, etc.

As a company is scaling rapidly, it requires both management leadership bandwidth and capital prioritisation.  If a new area is launched, it cannot scale rapidly unless it also gets the same level of human and capital attention.  Human capital, namely entrepreneurial leaders, product managers, etc are not easy to find.  There have been a limited set of companies in India that have seen rapid entrepreneurial cycles where such talent exists. And getting new talent from traditional settings like consulting, FMCG can be time consuming.  And more importantly setting the vision, direction for new leadership in a new business will require serious entrepreneur bandwidth. So trying to manage a hyper-growth core business while trying to build a new business with the same hyper-growth ambitions can be tricky.  Entrepreneurs sometimes forget the focus he or she gave to starting the core business. They feel that by getting someone new to focus on "the new initiative" will be sufficient to get it to a successful start.

 My advice - Focus on the core business till it is somewhat stable,  has a very strong leadership and management in place and is getting somewhat self sufficient or less dependent on capital needs and then look at pushing the pedal on a new business area for hyper-growth.  Expansion and Diversification is not a bad thing. In fact, it can be an important value driver for the company.  But the timing is key to be able to give it adequate attention.