Promising startups that shut down in 2016 due to being operations-heavy
Saturday February 11, 2017,
4 min Read
2016 was an unpleasant period for Indian startups, with over 200 of them shutting down during the year. A sizeable number of these were ventures with promising ideas and no shortage of funds, at least initially. Taking a look at the startups which fall into this category, it becomes evident that most of them were heavily reliant on logistics and operations.
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Logistics-centric startups, it seems, are doomed to a binary fate – they either make it big (Bigbasket) or face an unexpected shut-down (PepperTap). The cost of running operations, especially in multiple cities, means high burn rates and low profit margins. Add to that the considerable cost of customer acquisition (in the form of marketing and discounts) and it becomes easy to see why most of these startups could not sustain their business. Here are four startups which were touted as viable and promising ventures in the year following their inception but failed to make it through the gauntlet that was 2016:
In its heyday, PepperTap was the third-largest online grocery delivery platform in India. Having secured around $50 million in funding from investors like Snapdeal, Sequoia Capital, SAIF Partners, and Innoven Capital, the Gurgaon-based startup was making strides in the promising hyperlocal delivery space, at least for a while. The startup, which began its journey in September 2014, announced the shutdown of its operations in April 2016 – a move that earned it an unenviable place among the biggest failures of last year. As Co-founder Navneet Singh explained, PepperTap faced three insurmountable problems which led to the company's demise. The first was an inability to keep up with the rapid expansion of its operations; the second was the high-cost of customer acquisition accrued through numerous discounts; the third, and the most fatal, was the amount of cash burned on logistics and operations. And as the margin on each delivery lay in the negative spectrum of the revenue scale, profitability for the company always remained only a distant possibility and never a certainty.
Started by former Flipkart employees, Parcelled began as a promising venture – an online courier booking platform that provided on-demand logistics in a cost-efficient, trustworthy, and convenient manner. Having raised $5 million in funding from Delhivery and Tracxn Labs in 2015, the company was on the verge of plugging the gap in the logistics market created by the small-scale inaccessibility of established conglomerates like DHL and DTDC. Parcelled was catering to individuals, small e-commerce sellers, and SMBs in 13 cities when it announced the cessation of its operations in June 2016. The company's founders cited poor margins and cash burn as the reason behind their decision.
The rise and fall of food-delivery company TinyOwl sent shock waves through the Indian startup community. Started in 2014, the company faced no problems when it came to funding; it raised around $25 million from renowned VC firms like Sequoia Capital, Nexus Venture Partners, and Matrix Partners. With a large team of employees and operations running in Mumbai, Delhi, Pune, Hyderabad, Bengaluru, and Chennai, no one expected TinyOwl to fail in the manner it did. Incapacitated by overstaffed and lavish offices, negative margins, and high costs of delivery and customer acquisition, the company began mass lay-offs and soon shut down operations in every city except Mumbai and Bengaluru. TinyOwl announced its merger with logistics startup RoadRunnr (which was facing its own operational problems) in May 2016. The merged company, now called Runnr, currently operates in Bengaluru and Mumbai but continues to struggle with the costs of running an operations-heavy business in a market dominated by the likes of Swiggy.
The difficulties of running an operations-intensive business were felt on a widespread scale in 2016. Apart from the startups which shut down, there were plenty who had to scale down their operations in multiple cities to sustain operations (with Grofers and Zomato being the most notable ones). Also, even big money ventures like Flipkart and Ola realised the unfeasibility of running delivery-centric operations and proceeded to shut down their hyperlocal delivery services (Flipkart's Nearby and Ola Store) in 2016.