A venture capitalist’s perspective on the PepperTap shutdown

A venture capitalist’s perspective on the PepperTap shutdown

Tuesday May 10, 2016,

5 min Read

In their letter to YourStory, PepperTap’s founders cited three factors that forced the decision to shutdown their startup: (i) too much discounting, (ii) scaling up too fast without proper processes to support operations, and (iii) high cost of maintaining supplies.

I do not have an insider’s perspective of PepperTap’s operations, but as a founder of six companies and an investor in India’s first micro-delivery startup, Milkbasket, I may be able to comment on what PepperTap could have done differently from the very beginning, in response to the following extracts from the founders’ letter to YourStory.

We told ourselves that the convenience we would bring to PepperTap loyalists would become of such great value eventually, that these discounts were simply a cost of doing business while we perfected our processes.

You told yourself? You became comfortable with conventional wisdom all of a sudden? Yes, discounts entice the Indian consumer, but there is one thing PepperTap didn’t offer its customers – complimentary dhania.

Indian mainstream consumers need to feel a sense of victory from being able to squeeze every last drop of value from each rupee they spend. That is the role of complementary dhania and hari mirch. It’s a beautiful symbiotic relationship between the buyer and their customers that provide them with comfort and satisfaction. The PepperTap service didn’t confer such benefits. In other words, it’s not money, discounts, or the ease of buying at one place that attracts customers, but rather it's the complete experience that counts.

The unique challenges of this business are not solvable in the short term and certainly not solvable without massive injections of capital, we would have to confront this issue sooner or later.

Incorrect. No one forced PepperTap to aim for Venus. The Moon would have been quite enough. Solve the smaller challenges first – be profitable and build competitive advantages that go beyond ‘discounts’ to ensure barriers of entry. Then tackle the bigger challenges. Otherwise, my neighbour could also claim that he will build a warp engine; he just needs capital, that’s all.

As we forayed into smaller cities, delivery networks got more fragmented and lethargic.

It rarely takes more than 10 minutes for shoppers in Tier 3 cities to comb through all the stores in their vicinity to find their favourite soap. Therefore, PepperTap’s two-hour delivery service wasn’t very enticing in these Tier 3 markets, where customers have far more time at their disposal and are generally not in a hurry. Instead, PepperTap should have focussed its efforts on perfecting logistics in Tier 1 cities where customers would have been more responsive to PepperTap’s service promise.

Our customers were, at times, unable to see the entire selection of items from a store and sometimes even essential items were missing from the catalogue visible to them.

This is a relevant problem, yes, but not necessarily a deadly one. PepperTap didn’t have to take pride in possessing the richest online inventory. However, dozens of other things could have been done to deliver value and small pleasures to customers, in order to earn their loyalty – such as wishing them “happy birthday”, suggesting calorie intake for the upcoming day based on purchases, or gifting them free items that they purchase the most – instead of discounting everything on every transaction. India is a land that rejoices in small pleasures. PepperTap forgot this.

You made it clear that the service we provided was valuable, perhaps a little before it’s time, but valuable nonetheless.

A little bit before it’s time? Not at all. It is not that the time hasn’t come yet. It’s that you decided to fight the fabric of a land, so distinctive in taste and habits, with a model borrowed from more homogenous Western markets. You were thinking too much like technologists and didn’t capture the essence of Indian purchasing habits. And you didn’t ask Aunty for feedback on PepperTap.

In a world where everything for sale through an app (think electronics, taxis, food) is synonymous with vastly cheaper prices than physical stores, this exercise often simply resulted in higher outright discounts with every passing week.

No, not everything. That’s the world that so-called ‘first movers’, heavy with venture capital, decided to create and call it a ‘new reality’. PepperTap didn’t have to make the same choice. There are dozens of ways to build competitive advantages and delight customers; discounting is just one of them, albeit usually the worst one for the company’s economics.

A message to all founders operating in the hyper-local space

Speed of scale is not always the answer. You need to learn to position your solution in the broader social context of the market that you operate in. You cannot deny the realities around you. You have to learn to work with them. A family’s relationship with the sabzi wala (vegetable vendor) next door is often decades old and very intimate. You need to find ways to emulate that same relationship and its distinctive marks rather than trying to abruptly break it or ‘poo pooing’ that India has yet to catch up on trends when things didn’t work out the way that you expected.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)