Troubleshooting The End
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In the current filtering phase that the Indian start-up ecosystem is going through, where the real businesses are getting separated from the not-so-real ones, the story of the latter is equally critical to give an ear to. Three entrepreneurs revisit the time and events that led them to get some of their lives’ biggest learning out of failure.
“It was like Life Coming to a Standstill”- Rahul Harkisanka, Founder, Eatlo
When we thought about Eatlo’s idea of delivering food made by professional chefs, there were hardly any food tech start-ups doing the same thing. In the next two months when we were planning Eatlo’s launch, couple of them came up. So, unknown if anyone was working on the same idea, we launched Eatlo in December 2014 in Bengaluru.
Ironically, our growth peaked at more than 1,000 orders per day when we closed during December 2015. We closed our operations on 15th December and in those 15 days of the month from the preceding month, we grew by 20 percent. However shutting down was a very low moment for me. It was like your life comes to a standstill because you don’t know what to do the next day. I used to think about Eatlo 24*7, whether I slept, ate, or strolled and suddenly my life was blank.
I shut down because we ran out of funds to continue operations. We were looking at Series A round to grow and sustain for next 12 months. While we were gross margin positive, but there were many fixed costs like salaries of the core team, technology development cost, office rental and other cost like Internet charges etc., that we had to pay from our pocket. We couldn’t reach at a stage where we could recover these costs and to continue with Eatlo we needed money to pay for these costs. To ensure that there is no employee dissatisfaction, we were able to give them their salaries and prior notice.
Since investments in start-ups are also a function of external market sentiments, investors look for companies which they believe will be able to raise follow on rounds of funding so that they can have clarity on their exit route. And, during our time market sentiments were not very bright, especially in the food space and it continues to be so. Moreover, 1,000 orders a day was a small scale for us to be compared as an independent early stage investment opportunity by investors.
So, during November 2015 we started exploring acquisition opportunities with potential acquirers, but I didn’t see any vertically integrated food companies of real scale that could acquire us. They couldn’t have offered us much in return because they too were small.
“We Needed Money Badly”- Himanshu Gupta, Co-founder, Flashdoor
The idea of launching an on-demand laundry service platform came to us as there were lots of other models working in hyperlocal space, so we thought this to be an attractive space to foray. We launched Flashdoor in July 2015 in Bengaluru, but the journey came to an abrupt end in March 2016 as we couldn’t raise funding. Our growth peaked from around 60 orders by end of July 2015 to up to 2,500 orders in December 2015.
We thought that had we started a year before, we could have gained enough traction and secured a good funding. But, I won’t call that as primary reason why we shut down. Our unit economics was not very healthy and we were incurring a loss of Rs 100-120 per order. However, investors told us that it was a very good number as according to them Localoye (on-demand home services start-up that also offers laundry service) was burning around Rs 500 per order. On the other hand, we had introduced our own logistics team in November 2015, but we bled a lot of money out of that. Majority of the order we used to receive was during morning and evening, so typically between 11 am to 5 pm, the delivery team had nothing to do.
So it cost us a lot. Around Rs 1 crore that we raised in August 2015 would have lasted till July 2016, but Ankit Agarwal (co-founder) who had been meeting with investors from December 2015 till February 2016 end told me that the funding scene was very bleak.
He said that we had no option, but to run it till July and hope to get an investor by then. We needed money badly, but investors perhaps thought that hyperlocal was not the right model and that laundry business itself too will not work. We had already exhausted all our contacts, resources and our savings of Rs 10 lakh each. We didn’t want to waste any more money and so we took the call.
“Customers Equated us with Dabbawalas”- Balasubramanian Anantha Narayanan, Co-founder, ZuperMeal
Ours was a 10-month story, which began in April 2015 and ended in February 2016. While there was news of us raising $2 million from Chef Sanjeev Kapoor and other angel investors in October 2015, but it wasn’t that way. We got the commitment of $2 million, but the money that we got in our bank account was only around Rs 80 lakh. A few months before we started in Mumbai, other companies also came up with the same idea. So it was like a wave of start-ups delivering home-cooked meals.
Our chefs weren’t professionals; they were housewives who partnered with us like a part time work. Since they had lot of other things to do as housewives, no matter how much we encouraged and motivated them, they could only take so much in terms of orders. So, this was of secondary interest to them and hence they perhaps didn’t respect timelines of an order delivery.
This B2C mode of delivering food was not profitable for us at unit economics level because we had to get traction through huge discounts. However, getting good traction with a totally outsourced model of sourcing food unlike other start-ups, which had in-house kitchens was tough. Since we couldn’t get traction, we weren’t able to raise funds.
Also, people in Mumbai are not looking to pay a premium price for a quality homemade food. They compare it to the city’s Dabbawala service that charges around Rs 100, but we couldn’t afford to offer food at that low cost. So, it was more of a perceptional challenge that we faced. The housewives also were required to work for 8-10 hours of cooking for which they could earn only Rs 500 per day. So if they worked for 20 days a month they only made Rs 10,000 which wasn’t exciting for them as they were from well off families. So, there was hardly anything for them.
Adding to the impact which led us to shut down ZuperMeal was lot of negative news and publicity about food start-ups. So, the timing also was very bad for us.
This article first appeared in the Indian edition of Entrepreneur magazine (August 2016 Issue).