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’s
a verb for the customers. And as you would have guessed by now from
the title and the thumbnail of this video, 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 by other companies for its pending dues. All of this and more, in this video of Backstage
With Millionaires. Dunzo was started at a time when city life
in India looked very different. There was no concept of hyperlocal delivery,
in fact, 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
coupon service, think of it like Groupon without the Internet. It was based on SMS. It was eventually bought out by Hike. And 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. Clip from Dalvir Suri 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 in the morning 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’s 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. 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 actually shrunk while their 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. In fact, they raised a massive funding round
worth 40 Million dollars during this time and launched Dunzo Daily to capitalise 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 neighbourhood shops and delivering them to their customers. It was a simple business. But the entire quick commerce model runs on
‘Dark Store’ model where you open a dark store in high-density areas 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 behind, 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 in spite of that their market share in the quick commerce segment was negligible. Just look at this graph. Almost, all of the quick commerce market is
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. 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 these quick commerce giants like Swiggy’s Instamart, Zomato’s
Blinkit, Tata’s BigBasket and Zepto. Reliance came as a saviour and took almost
26% stake in Dunzo for their 200 million dollars. But it came at a price. By acquiring 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. So, what can we learn from Dunzo’s mistakes? I think the lessons are pretty clear. Don’t lose your USP. Don’t pivot at the cost of your differentiator
or USP, which is 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. 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 edtech. 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. Building a sustainable core business can then
fund your new ventures. Finally, when you are going up against heavily
funded companies, you need to make sure you have the right investors and VCs in your corner,
whose interest 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 own agenda instead of the company’s
growth. That’s all for this video, let me know your
thoughts on this wild journey of Dunzo in the comments and I will see you in the next
one.
