My Harvard Business School professor came to visit me a few weeks ago. At the end of the meeting, he asked me what I thought of a business that is into an Uber for hotel rooms in India. My immediate reaction was "I don't understand it", and his response was somewhat similar. We both laughed.
There has been a lot of hoopla around trying to create standardised hotel experiences in India akin to an Uber, partly driven by large investor funding news. I have met many talented entrepreneurs trying to execute in this space for a few years now. While I have a very high regard for entrepreneurs being one myself, I scratch my head when I see businesses like this that is stretching the Uber for X analogy a bit too far.
Let me be more specific on this business. If someone told you can get a clean table with a good table cloth and new silverware and plates at a cheap food restaurant that is generally filthy , would your experience be any different in that restaurant? Marginally at best.
Similar is the story of branded hotel experiences. Customers I speak to swear they would never take their spouse to some of these "branded" hotel properties, the only reason they are staying there because it is cheap and they know they would get a clean bed, etc but really didn't have a great experience. The reason they are not thrilled with the experience is because the room is "just one part" of the whole hotel experience. The hotel lobby, the corridor, the food, the location, rest of the infrastructure, the other guests, are all part of the experience. Building a long term sustainable business of partially branding somebody else's sub-par property without controlling the entire property is a challenge.
Another problem with partially controlling somebody's business is that there is no full alignment with the hotel owner and customer. If a hotel owner gets a walk in customer, the room may go to that guest as he is a guaranteed customer. Again, if you are branding the experience, this hurts the brand.
The real long term value of branded hotel or restaurant experiences is if you own/control the entire property or restaurant not part of it. That is what branded or restaurant chains do. Hard to scale these businesses fast given the challenges of real estate, labor, etc and they may not merit venture capital returns, but that is indeed a real business with real value.
My advice to entrepreneurs in the quest to launch "Uber of X" businesses and specifically the Uber for Hotel Rooms is to really understand if they can deliver the service levels that an Uber is known for. They control the entire experience. In this case of Uber of Hotel Rooms, it is not feasible to provide that experience.
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.
A lot of promise on the Indian e-commerce front! Consumers shopping online is growing exponentially, mobile driven commerce is accelerating. The Snapdeals and Flipkarts are becoming household names. But what is forgotten in this e-tailing revolution are the unsung heroes - the ecommerce enablers - most importantly logistics and supply chain/inventory management.
Lets runs through the process - Assume a consumer clicks the buy button on an ecommerce site and chooses Cash on Delivery which continues to be a predominant payment method in India and chooses one day delivery.
How does the ecommerce vendor manage its orders? How does the vendor manage the warehouse? How does a vendor manage suppliers and get inventory in a timely fashion to be shipped to the consumer? If a customer pays cash, how fast and securely does the cash reach the ecommerce vendor? This is where the ecommerce logistics companies like Delhivery and inventory/order management software companies like Unicommerce come into play. The less talked about heroes that help enable the trade to happen or in other words they are the "commerce" in e-commerce!
India will see a huge revolution in the e-commerce infrastructure space over the next decade just like the tower companies and other mobile telephony equipment companies powered the infrastructure revolution in the wireless telecom space. Unlike in other developed economies where some of the basic infrastructure around logistics and retail technology was already in existence and e-commerce players focused solely on building out the front end by plugging into this infrastructure effortlessly, India is seeing the ecommerce players and the infrastructure players growing up simultaneously and adapting to each others needs as they grow and form a robust ecosystem.
I have been amazed at the buzz that has been generated around these Health tracking devices. I see a lot of people wearing bands of different colors. And now there seem to be companies that are offering coaches alongside the devices.
Really? What was lacking in our lives was a measurement device that measured how much we walked, how we slept and once we had that data, we would be able to fix our lives? Is that the real problem that we had no data available real time? Or that we didn't have anyone pinging us and telling us that we did not meet our fitness objectives for the day?
I don't think so. I think the real problem lies in the innate human motivation for anything we do. A device can remind you but it is a temporary fix. After a few months, if there is no motivation to continue with an exercise regimen, no device in the world can help. And if there is motivation to continue on a health track, a device stuck to your body all day is really of little value.
Lack of sleep at night is often tied to stress levels and other ailments which a device cannot help with. And the symptoms resulting from a lack of sleep is often visible the next day be it fatigue, irritability, etc. And even if the symptoms are not visible and there is data to show unhealthy sleep, the problem lies in the drivers of the sleep which are not easily fixable and are often deep routed which can take serious behavior and mindset change to make a positive difference over a long period of time.
So just like our New Year's Resolution to Lose Weight and subsequently signing up for a Gym Membership, I believe the purchase of these health tracking devices is impulsive and not fully thought through. While this fitness oriented wearable devices do get sales just like a lot of Gyms get memberships post New Years, there are other social motivations/influencers of a physical Gym that allow for sustaining a membership at a Gym even though the activity levels at the Gym have dropped. These don't exist for a fitness tracking device. So I don't see users continuously upgrading or renewing their fitness devices like they do Gym memberships or their Ipods/Iphones. I believe that there is a segment of wearable devices that is very valuable such as those that help with monitoring statistics for chronic diseases, etc which enable timely care. I don't believe devices that try and influence human motivation are scalable or sustainable. But devices that help with critical information that can be acted upon without deep mindset shifts can work.
I think these fitness device companies will continue to attract sales as there a lot of headroom for first time users that may buy the device in the hope that it will change their fitness behavior. In the interim, if these companies figure out a way to keep these users by introducing hooks that are beyond basic fitness, this industry could thrive. Otherwise, I forsee challenges. Not to take away from the super talent and all the hard work put in by the management and employees at all these firms. And the investor money gone in to help create these companies.
What next, shall we have devices for kids to remind them to do their homework on time?