The Decline of Dunzo!... What Happened? | Startup Case Study

Summary

Dunzo, an early player in India's hyperlocal delivery market, raised significant funds and was on the brink of becoming a unicorn. However, the startup's rapid expansion into quick commerce, marked by the launch of Dunzo Daily, led to financial strain. Despite initial growth, Dunzo faced stiff competition from well-funded rivals like Swiggy's Instamart and Zomato's Blinkit. The company's pivot cost it its unique value proposition and operational profitability, leading to a cash crunch and potential shutdown. The story serves as a cautionary tale about maintaining a sustainable business model and the importance of strategic investment alignment.

Takeaways

• 🚀 Dunzo was a pioneer in India's hyperlocal delivery market and achieved significant growth and popularity.
• 💸 The startup raised nearly half a billion dollars in funding and was on the path to becoming a unicorn.
• 📉 Despite rapid growth, Dunzo faced financial struggles, losing 7.5 rupees for every rupee earned in revenue.
• 🔄 The pivot to quick commerce and the 'Dark Store' model required substantial investment in infrastructure, straining the company's resources.
• 🏢 Competition from well-funded players like Swiggy’s Instamart and Zomato’s Blinkit made it difficult for Dunzo to maintain market share.
• 💼 The acceptance of a large funding round from Reliance led to a loss of decision-making autonomy for Dunzo.
• 📉 Dunzo's market share in the quick commerce segment remained negligible despite the investment in dark stores.
• 🏦 Financial mismanagement and a high monthly burn rate led to a severe cash crunch, impacting the company's operations.
• 👨‍💼 The departure of co-founders signaled a crisis in the company's leadership and direction.
• 🔙 Dunzo has had to scale back operations, returning to its hyperlocal roots and closing down its quick commerce business in most cities.

Q & A

What were the key factors that contributed to Dunzo's initial success?

Dunzo's initial success was attributed to being an early entrant in India's hyperlocal delivery market, raising significant funding, and becoming a popular service among customers to the extent that it became a verb.

How much funding did Dunzo raise, and what was its valuation trajectory?

Dunzo raised close to half a billion dollars in funding and was on its way to becoming a unicorn, indicating a billion-dollar valuation.

What was the business model of Dunzo in its early stages?

In its early stages, Dunzo started as a WhatsApp group where people would text their needs, and co-founder Kabeer Biswas would fulfill them personally, often working from early morning to late night.

How did Dunzo's financial performance look between 2018 and 2021?

Between 2018 and 2021, Dunzo made just 88 crore rupees in revenue but incurred losses exceeding 750 crore rupees, indicating a significant financial strain.

What was the impact of the year 2020 on Dunzo's user base and financials?

The year 2020 saw Dunzo's active users nearly double from 2.7 million in 2019 to 5.1 million in 2020, and for the first time since 2018, their losses shrank while revenue continued to grow.

Why did Dunzo decide to venture into the quick commerce model?

Dunzo ventured into the quick commerce model because it saw a billion-dollar opportunity and believed it was well-positioned to adopt this new delivery model due to its existing customer base and delivery partners.

What were the challenges Dunzo faced when entering the quick commerce market?

Dunzo faced challenges such as the need for a different infrastructure involving 'dark stores', intense competition from well-funded players like Swiggy’s Instamart, Zomato’s Blinkit, Tata’s BigBasket, and Zepto, and a lack of sufficient funds to compete effectively.

How did Reliance's investment impact Dunzo's operations and decision-making?

Reliance's investment of 200 million dollars for a 26% stake gave them veto powers over major decisions, which later restricted Dunzo's ability to raise additional funds when needed, exacerbating their financial crisis.

What steps is Dunzo taking to survive its current crisis?

Dunzo is trying to survive by shutting down its quick commerce business in all major cities except Bengaluru, where it still operates a few dark stores, and reverting to its hyperlocal delivery model. It has also given up its Bengaluru office to cut costs.

What are the key lessons that can be learned from Dunzo's journey?

The key lessons from Dunzo's journey include the importance of not losing one's unique value proposition, achieving operational profitability in the core business before venturing into new segments, and ensuring alignment of interests with investors, especially when competing against heavily funded companies.

Outlines

00:00

🚀 The Rise and Fall of Dunzo: A Startup Journey

The paragraph introduces Dunzo, a startup that achieved significant milestones such as being an early entrant in India's hyperlocal delivery market, raising substantial funding, and having a billion-dollar valuation. It discusses how Dunzo became a verb among its customers, indicating its popularity. However, the startup now faces challenges including co-founders leaving, unpaid salaries, and legal issues. The narrative sets the stage for exploring Dunzo's journey, from its inception to its current struggles.

05:00

📉 Dunzo's Financial Struggles and Pivot to Quick Commerce

This paragraph delves into Dunzo's financial performance, highlighting its rapid growth in orders and the stark contrast between its revenue and losses. It discusses the company's shift towards quick commerce, a billion-dollar opportunity, and the launch of Dunzo Daily. The paragraph also outlines the challenges Dunzo faced in this new market, including the need for a different infrastructure and competition from well-funded rivals. The narrative concludes with Dunzo's current financial crisis and the impact of its strategic decisions on its survival.

Keywords

💡First Mover

A 'first mover' refers to a company that enters a new market or industry before its competitors. In the context of the video, Dunzo is described as one of the earliest entrants into India's hyperlocal delivery market, which gave them an initial advantage by being the first to offer such services to consumers.

💡Hyperlocal Delivery

Hyperlocal delivery refers to a logistics model where goods are delivered within a short distance, often within the same neighborhood or city. The video discusses how Dunzo pioneered this concept in India, focusing on delivering items from local shops to customers' doorsteps quickly.

💡Funding

Funding in the startup context typically refers to the capital raised from investors to finance business operations and growth. The script mentions that Dunzo raised close to half a billion dollars in funding, highlighting the importance of financial backing for startups aiming for rapid expansion.

💡Valuation

Valuation is the estimated worth of a company, often used to determine the price of shares or to assess the company's financial health. The video notes that Dunzo was on its way to becoming a unicorn, a term used for startups valued at over a billion dollars, indicating high market expectations.

💡Quick Commerce

Quick commerce is a business model focused on delivering goods to customers in the shortest possible time, often within minutes. The video explains how Dunzo pivoted towards quick commerce by launching 'Dunzo Daily', aiming to capitalize on the growing demand for instant delivery services.

💡Dark Store

A 'dark store' is a warehouse or distribution center that is not open to the public and is used to fulfill online orders quickly. The script describes how Dunzo had to invest in setting up dark stores to support their quick commerce model, which contrasts with their initial hyperlocal delivery approach.

💡Market Share

Market share represents the portion of the market controlled by a particular company in terms of sales or revenue. The video discusses how Dunzo's market share in the quick commerce segment was negligible compared to competitors like Swiggy’s Instamart and Zomato’s Blinkit, illustrating the intense competition in the industry.

💡Operational Profitability

Operational profitability means that a company's core business is generating enough revenue to cover its operating costs and produce a profit. The video suggests that Dunzo should have focused on becoming operationally profitable in their core business before expanding into new segments like quick commerce.

💡Investor Relations

Investor relations refer to the interactions between a company and its investors, which can influence the company's strategic decisions and growth. The video highlights how Dunzo's relationship with Reliance, as both an investor and a strategic partner, impacted their ability to raise additional funds and make crucial business decisions.

💡Monthly Burn

Monthly burn refers to the amount of capital a company spends each month to cover its operating expenses. The video mentions Dunzo's high monthly burn rate, which, combined with their dwindling cash reserves, puts the company at risk of running out of funds and potentially shutting down.

💡USP (Unique Selling Proposition)

A unique selling proposition is a distinct advantage or feature that sets a company's product or service apart from competitors. The video emphasizes the importance of maintaining a strong USP, as Dunzo's shift from hyperlocal delivery to quick commerce diluted their unique value proposition and made them less distinctive in the market.

Highlights

Dunzo was a pioneer in India's hyperlocal delivery market.

The startup raised nearly half a billion dollars in funding.

Dunzo was on track to become a unicorn with a billion-dollar valuation.

The company became so popular that 'Dunzo' became a verb for its customers.

Dunzo's co-founders faced challenges including co-founder departures and unpaid salaries.

The company is currently facing legal notices for unpaid dues.

Dunzo's growth was rapid, with a 130X increase in monthly orders from 2016 to 2021.

Despite significant growth, Dunzo was losing 7.5 rupees for every rupee earned.

The company's focus was on subscriber growth rather than profitability.

Dunzo's active users doubled in 2020, reflecting a shift in the Indian hyperlocal delivery market.

The company's losses shrank for the first time in 2021 while revenue grew.

Dunzo pursued the quick commerce opportunity, launching Dunzo Daily.

The quick commerce model required a different infrastructure, leading to high costs.

Dunzo faced stiff competition in the quick commerce market from well-funded rivals.

The company's market share in quick commerce was negligible despite significant investment.

Dunzo's pivot to quick commerce led to a loss of its unique value proposition.

The company's desperate funding round led to Reliance acquiring a significant stake and veto power.

Dunzo's co-founders leaving the company signaled a crisis.

Dunzo is now trying to survive by returning to its hyperlocal delivery roots.

The company's monthly burn rate is over 100 Crore Rs, raising concerns about its future.

Lessons from Dunzo include the importance of maintaining a unique value proposition and being operationally profitable before expansion.

Dunzo's experience highlights the need for aligned investor interests in a startup's growth strategy.

Transcripts

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.