Introduction
What makes a successful company? Is it being a first mover in a massive market, is it raising 100s of millions of dollars, or is it having a Billion dollar valuation, and finally being so popular, that you become a verb to your customers?
The startup which we are discussing today has all of these. It was one of the earliest entrants into India’s hyperlocal delivery market, the startup has raised close to half a billion dollars in funding, and talking about its valuation, it was on its way to becoming a unicorn and finally, it can lay claim onto something which very few Indian companies can, that it became a verb for the customers.
As you would have guessed by now from the title and the thumbnail of this blog, we will be talking about the journey of Dunzo, how a startup that had it all, is now on the verge of shutting down, two of its co-founders have quit, employees haven’t received salaries for the last six
months and the company is now facing legal notices from other companies regarding its pending dues. All of this and more, are in this blog of Backstage with Millionaires.
How Began Dunzo?
Dunzo was started at a time when city life in India looked very different. There was no concept of hyperlocal delivery getting your food delivered was a novelty for Indians. Zomato had started delivering food in the same year and Swiggy was still figuring out the first version of its app.
Kabeer Biswas was 30 years old at this time and had seen little success with this first startup. His first startup Hoppr, was a location-based Groupon service, think of it like Groupon without the Internet. It was based on SMS. Hike eventually bought it out. This gave him some time to sit back and think about his next idea, which came out from one of his problems.
He was inspired by Uber and thought of an app that could get everything done for you with just one click. He pitched this idea to his friends, three of whom became his co-founders.
First Funding and Growth
Dunzo started as a Whatsapp group, where people would text what they needed to get done, and Kabeer would do it himself in the early days. Sometimes from 5 AM to 1 AM in the night. And, during one of these Whatsapp deliveries, Kabeer ended up delivering an order to Sahil Kini of Lightrock, who ended up becoming their first investor.
After receiving the funds, Dunzo grew quickly. In the next six years, their monthly orders went from just 15,000 in 2016 to over 2 million by 2021. That is more than 130X growth. But this growth came at a cost.
And if you look at their financials closely,
you will see the problem. See, Dunzo had made just 88 crore rupees in revenue between the financial year of 2018 to 2021. But their losses had crossed 750 crore rupees. Basically, Dunzo was losing 7.5 rupees for every rupee it was earning in revenue. Their sole focus at this time was to gain more subscribers.
First Wrong Move
The year 2020 changed Indian hyperlocal delivery in a big way. Dunzo’s active users almost doubled from 2.7 million in 2019 to 5.1 million in 2020. But that was not all. Their financials were finally taking a turn for the good. Just look at this graph.
For the first time since 2018, in the financial year of 2021, Dunzo’s losses had shrunk while its revenue continued to grow. But right at that moment, Dunzo sensed a new opportunity. Quick commerce.
It was a billion-dollar opportunity and Dunzo was in the perfect place to adopt this new delivery model. They had a massive customer base and they had delivery partners. They raised a massive funding round worth 40 Million dollars during this time and launched Dunzo Daily to capitalize on this opportunity. But somewhere down the road, this new shiny opportunity became the first reason for Dunzo’s failure.
You see, quick commerce needs a very different infrastructure. With hyperlocal delivery, Dunzo was simply picking up stuff from neighborhood shops and delivering them to their customers. It was a simple business. But the entire quick commerce model runs on a ‘Dark Store’ model where you open a dark store in an area so that you can deliver the goods in the shortest time possible.
This means they had to spend tons of money to add hundreds of these dark stores or warehouses when they had still not managed to turn their hyperlocal business profitable. But Dunzo wasn’t the only one going after the quick commerce market.
Swiggy’s Instamart, Zomato’s Blinkit, Tata’s BigBasket, and Zepto were all going after the same market which quickly became overcrowded. Dunzo lost its exclusive factor as soon as they moved into this space. Then there was another factor where Dunzo was lagging, Money. Unlike Dunzo, their competitors had so much more in the bank and big names to fund their rapid growth and corner this emerging market. That’s exactly what happened.
Between FY20 and FY23, Dunzo had raised a little over 400 million dollars and used up almost all of it to open around 130 dark stores but despite that their market share in the quick commerce segment was negligible.
Just look at this graph
Almost, all of the quick commerce markets are distributed between the top 4 – Swiggy’s Instamart, Zomato’s Blinkit, Zepto, and BigBasket. While trying to compete in the quick commerce space, not only had Dunzo run out of money but ended up committing suicide in early 2022, when they raised a 240 million funding round led by Reliance.
Reliance’s Deal
Even though, they didn’t know it at the time. See, Dunzo was desperate. They needed cash if they were going to have any chance of beating this quick commerce. giants like Swiggy’s Instamart, Zomato’s Blinkit, Tata’s BigBasket and Zepto. Reliance came as a savior and took an almost 26% stake in Dunzo for 200 million dollars. But it came at a price. By acquiring a 26% stake, Reliance was able to get veto powers against any big decisions in the company like share issues or acquisitions.
After Dunzo had exhausted all its funds and had no money to even pay their employees, they went back to Reliance asking for an additional 20 million dollars as an emergency fund but Reliance refused and didn’t allow them to raise any external funds from other investors due to valuation disagreement.
Things only went from bad to worse when the two of Dunzo’s co-founders decided to jump the ship. That’s not a sign of a ship that’s floating but one that’s sinking. Currently, Dunzo is trying everything to survive. There are reports that they’ve shut down their quick commerce business across every major city except for Bengaluru.
In Bengaluru, they still have 7 dark stores operational. But for the most part, Dunzo has gone back to the hyperlocal delivery model and given up on their quick commerce dreams. They’ve even given up their Bengaluru office. But the fact is none of this might be enough for Dunzo to survive if they aren’t able to raise some money fast. Their monthly burn is over 100 Crore Rs and according to a report, they have less than 500 crore in the bank, which means unless they raise money soon, they will have to shut down.
What can we learn?
So, what can we learn from Dunzo’s mistakes? I think the lessons are pretty clear. Don’t lose your USP. Which is a Unique Selling proposition. Don’t pivot at the cost of your differentiator or USP, which is the unique value proposition. See, Dunzo was the king of hyperlocal. It became a verb to people. Everyone knew them. But when they moved into quick commerce, they got lost in the crowd. They lost their edge.
The next lesson is – that you should first be operationally profitable in your core business before you venture out into new business segments. Take the example of tech. Startups like Unacademy had expanded into everything from test preparation to K-12 coaching. But as their revenue grew, so did their losses and now, Unacademy is going back to its core business and shutting down business segments that failed to find a product market fit.
Conclusion
Building a sustainable core business can then fund your new ventures. Finally, when you are going up against heavily funded companies, you must ensure you have the right investors and VCs in your corner, whose interests align with yours. While Instamart had Swiggy, Blinkit had Zomato, and Zepto had huge US-based VCs and investors like the StepStone Group, Y Combinator, and Goodwater Capital, Dunzo didn’t have a partner like that.
In desperation, they had to raise money from Reliance, which is more of a strategic investor with its agenda instead of the company’s growth. That’s all for this blog, let me know your thoughts on this wild journey of Dunzo in the comments and I will see you in the next one.
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