Dunzo’s Quest to Dunzo a Unicorn

Last fortnight, Dunzo was in conversations to raise $100MM, bringing it closer to Dunzo everything and become a unicorn.

Just Do It

It was the summer of 2014 when 32 year old ex-Hoppr founder Kabeer Biswas was sitting in a Bangalore restaurant.

He thought to himself – what if there was someone who could complete a set of tasks for you, anywhere and anytime?

His Whatsapp was open in front of him, populated with messages from everyone ranging from his lawyer to his milkman, and it was in that moment that he realized he was looking at India’s most wide-reaching business tool. 

Now all he needed was to build a marketplace. 

Fortuitously, during the sale of his first company to messaging service Hike, Kabeer crossed paths with Mukund Jha and Ankur Aggarwal. Both were looking to reignite their entrepreneurial fire after a few failed enterprise focused startups and had actually started a similar service to Dunzo in Wingman. 

The two sets of founders believed that there was value in combining Mukund and Ankur’s technical prowess with Kabeer’s operational abilities.

Dunzo had found its Wingmen.

Because You’re Worth It

The value proposition was simple – people are busy and shouldn’t need to spend their time doing mundane tasks. 

Time is limited, work is unlimited – so why not have a personal concierge who can do everything in your life that you don’t want to? 

Ben Franklin once remarked, “Time is money”, and that is the crux. 

Dunzo recognised that urban India places a ‘premium’ on its time and would be willing to pay a fee for outsourcing mundane tasks. Lack of time is the biggest constraint people face in big cities.

While some earlier apps solved for the lack of complete information in consumer markets by enabling price/location discovery, Dunzo took this a step further by integrating local discovery with local task fulfilment. 

At its core, it enabled urban India to do the tasks on their to-do list.

For better or for worse, it was this clear problem statement that made the space Dunzo was trying to enter a very crowded one. Locally, there were much larger and better funded companies like Urban Clap aiming to provide of Dunzo’s service.

Similarly, there were dedicated solutions like Big Basket for groceries and venture-backed food and everything else services like Scootsy that held a big part of the pie. What was Dunzo’s competitive advantage? 

Obsession with customer experience. 

Impossible is Nothing

As we’ve been witness to, a far superior customer experience oftentimes is enough to establish a clear product-market fit. 

Take communications platform Slack or enterprise video service Zoom for example – take a market in which the current product offerings are just about good enough, and then build a service that is better. 

What do you get? A chat application worth $15B and a video platform worth $25B. 

With this in mind, Dunzo was clear about its mission. A 2016 blog post summarises it perfectly by saying that once a customer has raised a task, Dunzo will do everything “on heaven and earth” to complete it. Even if that means full-time employees jump on a bike and do it themselves. 

Clearly, it worked. 

Users of the app were taking to social media to praise this service that was making an increasingly crowded Bangalore seem like a happier place to live in.

From providing patients with emergency tablets at midnight to grabbing a pen from a local store if you walked into your examination hall without one, Dunzo was becoming an integral part of the ecosystem that they existed in. 

The massive demand made Dunzo migrate to a full stack solution. 

Where’d You Want to Go Today?

As Dunzo migrated from a WhatsApp group to an app based service, it started scaling up its delivery fleet and partnering with neighbourhood stores to set up robust local machinery. 

In this process, its expenditure grew by more than 5 times from INR 2 Cr to INR 11.3 Cr. 

The explosion of expenditure was accompanied by a net sales rise of more than 100X. From a meagre INR 70,000 ($1K) in FY16, it clocked INR 98.5 lakhs ($140K) in FY17.

What is more surprising is that they incurred zero marketing costs in winning this growing pool of loyal customers. You know a service is ingrained deep within people’s lives when it becomes a verb.

For most ecommerce companies, getting hold of high lifetime value (LTV) customers without any customer acquisition cost (CAC) would happen only in a utopian world. 

Though Dunzo posted strong metrics at the close of FY17, the company had started foreseeing signs of an impending storm much earlier. 

Citi Never Sleeps

Throughout 2016, demand grew aggressively but could not be matched with rise in supply.

In July 2016, Mr. Biswas wrote an email to all the customers, regretting the company’s inability to run errands for two months. Though it got help from its existing investors, it was in need of growth capital, and soon.

2017 turned out to be one of the most challenging years for Mr. Biswas. 

Investors were still recovering from the aftermath of the shutdown of a series of heavily funded hyperlocal startups. Riddled with poor unit economics, hyperlocal startups had no option but to fold up or pivot, like Grofers that shifted to an inventory led model. 

A delivery rider in this market was paid INR 600 a day on average while even with the most optimised hyperlocal use case of food delivery, Dunzo made around INR 50 per order. 

This implied that the rider needed about 12 rides to breakeven. This is possible in small pockets of high order density but becomes increasingly difficult with greater distances. 

After 6 months of being turned down by every investor in the country, all Mr. Biswas had in September 2017 was a couple of acquisition offers. However, the founders were not willing to exit at this stage.

As they say, fortune favours the bold.

Think Small

Long before Dunzo got verb-ified, which other tech company became a commonly used verb across the globe? 

Why not Google the answer. 

This however is not the only connection the two shared. The internet search giant was then strengthening its Next Billion Users programme in India, supporting any product or service targeted at promoting internet usage among the yet-untapped population. 

In December 2017, Google led a USD 12MM investment in Dunzo, its first ever direct investment in an Indian startup. 

The fact that this did not come from the investment arm of Google highlighted that the search giants had a business interest in the company. 

It is not surprising for a search engine to be interested in aggregating local information generated in one of the largest emerging, yet unorganized, economies. Dunzo generated a large amount of local transactional data which was extremely beneficial for Google in a country that had a thin stock of online product data.

But was Google not wary of the fate of other hyperlocal startups in India? 

No, because Dunzo was different. 

Think Different

Unlike its peers that mainly copied the US model of vertical-focused delivery startups, i.e. focusing on only food/grocery/medicines, Dunzo was a horizontal platform. 

What its competitors did not realise was that the average order value in India was significantly smaller than in the US. Thus, operating in a single vertical had a negative impact on economics.

Its focus on anything and everything allowed it to give shape to a sticky customer habit. High stickiness resulted in more repeat transactions that also generated valuable demand data.

With greater number of deliveries, the delivery charge it earned was sufficient to overcome the logistics costs, leading it to achieve positive unit economics in October 2017. Starting from just a hyperlocal personal task management platform it has become a full-fledged automated app-based service. Its fanatical focus on reducing completion friction consequently reduced the cost per transaction. 

This was a strong differentiator for Dunzo when compared to the rest in the cohort, and its focus is driven by how it makes money.

Dunzo’s revenue originates from two sources. One is a fee to the customer for services such as home repairs and pick and drop and a 7-8% commission earned from the merchants.

Both channels are price-sensitive and required a balance that is tricky to maintain for most ecommerce companies. Indian consumers, unlike the US, are still new to the concept of a convenience fee. The merchants were mainly the not-so lavish mom and pop stores.  

It attempted to maintain a reasonable price band and focused on driving down costs to improve profitability and achieve scale. 

A lot of this was driven through its highly tech-driven approach to predict demand and supply, and Dunzo reaped the benefits.

Everywhere Where You Want To Be

The year has started on an explosive note for Dunzo, after a hilarious year-end report on what people got delivered the most (ironically, contraceptives)

It is sprinting to expand to newer markets and foraying into B2B. In just this year, it is set to raise $60MM from a clutch of new and existing investors in its Series C round and looking to raise $100MM in its Series D round by early next year. 

In the last 18 months, it has witnessed a 30x growth from 60K to 2MM transactions monthly. 

It did about 2MM orders in Jun 2019 with Bangalore contributing 40% to it. With an average order value of ~INR 100 ($1.5), the estimated revenue run rate of the company is $3MM per month, or $36MM per year. From just $1MM just 2 years back, it plans to scale to 8MM monthly transactions, or a $100MM revenue run rate.

A recent foray into B2B offerings, ‘Dunzo for Business’ will help it achieve these ambitious targets. It has already partnered with 1,000+ companies for this which include Lenskart, CRED, Bounce and Decathlon. 

100x growth would be any startup’s dream. 

Good Things Come to Those Who Wait

Dunzo has increased its visibility in its quest to become a verb.

During the 2019 World Cup, brands such as Puma leveraged Dunzo to allow users to get their hands on limited edition pairs of One8 golden spikes worn by Virat Kohli. It also tied up with Xiaomi to allow their latest release Note 7 to be dispatched for instant delivery.

Such retailers would now be able to deliver goods ordered from their websites to customers via Dunzo delivery partners through our new feature — Checkout with Dunzo,”

Co-founder and CEO Kabeer Biswas

The ultimate future vision is to reach from Point A to Point B in 30 minutes at $0.50. Inevitably as with any fast-growing startup, challenges do abound. 

The biggest one is Swiggy. As I detailed earlier, Swiggy has been battling for your doorstep and launched Swiggy Stores launched earlier this year. With a massive war chest of $1.5Bn, it has the potential to simply out-capitalize Dunzo. 

But like it faced its previous challenges, Dunzo can leverage its strong experience to keep battling.

Just ‘Dunzo’ it is fast becoming a verb and with the company focused on rebranding it only looks northward up for the company. Expanding use cases and being able to create a ‘cult’ following will give firepower to Dunzo. The fact that Swiggy will have to shed its “food delivery only” use case is an advantage for Dunzo’s “just about everything”.

As Dunzo plays David to Swiggy’s Goliath, users will reap the benefits of the best verb winning.

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Ankit SawantSaurabh ChakrabartyAviralSaloniTarun kothari Recent comment authors
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Juhi Bhatnagar
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Juhi Bhatnagar

Excellent Balanced article. Loved reading it! In the battle between Swiggy and Dunzo, user will win – which is an incredible thing!

Manu Jindal
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I believe the assessment is not correct. When we differentiate between horizontal and vertical platform, the biggest flaw is CAC. Now Dunzo has not been able to champion any one use-case. For eg., take swiggy. The use-case they have championed is delivering food from point A to point B. Since they have good customer base, extending use-case and hence achieving greater LTV of the customer is highly possible, vis~a~vvis, Dunzo which would be plagued with the problem of high CAC throughout the customer’s journey. To build on the context, take the example of Go-Jek/Grab/Wechat. The championing of one use-case led… Read more »

Saloni
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Saloni

Hi Manju, thanks for your comment. I can understand why you think it makes sense to master one use case first and then expand to others. You will get some customers from your existing pool (and achieve lower CAC as you said). However this is not enough as this is just the demand angle – a company might not be able to sustain these customers or increase that pool if it doesn’t execute other use cases well. On execution, just because you are a champion of food delivery, it doesn’t mean you have the understanding of delivery of daily items… Read more »

Saurabh Chakrabarty
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Somehow I do agree with both of the thoughts shared here, but I still believe (and most investors still bring this mentality) that a vertical model is always considered based for a startup as compared to a vertical (as Paul Graham also shared in one of his blogs) and the reason is pretty simple : If you have a niche and dedicated customers in the same, it’s much more likely that the business has a wider moat and can sustain longer. Even though Dunzo might be proving this though process wrong, I still believe the horizontal approach will have its… Read more »

Tarun kothari
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Tarun kothari

Dunzo had a serious value in delivering stuff within city when you’d just tell your friends to “Dunzo” an item. It should’ve limited itself to this use cases.
Getting into Food was not required. It’s experience in food is really bad and it would never be be able to match vetical focussed players like Swiggy, Zomato – who provide deep discounts, timely delivery and good ordering experience.
They started with a genuine value prop and eventually, like any startup, under GMV pressure are getting into areas that would give them temporary sales jump but where they are bound to Loose.

Manu Jindal
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Hi Saloni, Thanks for the comment (the name is Manu). You have marked the precise reason for delivery being different from full stack model like Flipkart. The entire supply chain of fresh works very differently as compared to say electronics and fashion. That is why they have not been able to solve such use case. Now coming to Dunzo, the problem with their entire model is not just funding for other vertical players. The model is essentially the same, i.e., taking one thing from point A to point B. Even if you bring complex use case, at the heart, it… Read more »

Ankit Sawant
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Ankit Sawant

How are the numbers mentioned here & this: https://entrackr.com/2019/10/dunzo-spent-rs-225-to-earn-re-1-in-fy19/ have such a huge gap?

Is there something which I fail to see?