What I learned in 18 months of building a Hyperlocal Startup to 2 million transactions
What I learned in 18 months of building a Hyperlocal Startup
A couple of years ago, me and Anurag had just left our comfortable jobs and were running Appspire Technologies, a services company that made its money building apps for startups.
One fine day, when we were discussing how many companies that deliver a product to your home are not able to make money and sustain, someone remarked that surprisingly milkmen who deliver a litre of milk everyday to households (of approx Rs.40) are still making money.
Most of these milkmen work with a prepaid coupon based system (negative working capital) and have their customers used to paying a Rs.1-1.5 convenience fee for delivery. Bear in mind, milk is a low margin commodity with margins between 4-6% i.e. about Rs.1.5 per liter. This is a highly efficient distribution network already in place and we wondered what if this efficient distribution channel can be used to deliver much more than milk.
Intrigued and excited we started working on building an MVP and searching for a milk vendor who would be willing to try this out. The idea was pretty straightforward - Find a milk vendor and get all his customers on the app and make money by cross-selling other products, delivery was to be done by milkman. The building an MVP part was the easy bit as we were in the business of doing just that. Convincing a milk vendor? Well lets say it wasn't straightforward. Every milkman we spoke to felt we will steal his business and replace him with a delivery boy. Finally, after a nice drink and dinner date with our own milkman (yes, it felt like a date, cause I paid the bill and then had to pop the critical question), we were able to convince him to do a pilot. How else were we supposed to convince him with our limited knowledge of Kannada?
Finding the second milk vendor wasn’t easy, seemed like nobody wanted to be associated with a couple of 25 year olds who had no office or staff. We reached out to about 50 milk vendor with no luck. Frustrated, I bought out milk vendor for Rs.1.5 lakhs, I was now directly responsible for ensuring delivery of milk to 200 plus houses before 6:30am. Bad news for a late riser. :D
We went very aggressive on this, we roped in the milk vendor and a couple of college kids to join us in going door to door over the weekend and getting all the 200 customers from coupons to the DailyNinja app.
As per the plan the milkman was supposed to show up the next morning with milk and his delivery boys the next morning
It felt great to have more than doubled our customer base in just second month. The problem now was delivery. How are we going to arrange for delivery of 200 liters of milk to 200 customers before they wake up?
On that fateful Monday, we woke up at 3am. Reached the apartment complex in the next 10 minutes to see crates of milk packets at the gate. It took the two of us from 3:30am to 9am to deliver to those 200 customers.
Not used to hard physical labour, we were absolutely exhausted. Over the following 2 months, we grew to 500 households per day. We managed to hire a couple of part timers to help with delivery and we had become quite an expert at delivering packets of milk by now. Anurag and I could deliver 100 liters in an hour’s time by now. I can still hold 5 packets of milk in one hand. There is no better workout.
This was a very hard time for us. We woke up at 3am everyday, delivered milk for 3 hours and then handled customer calls till 9am, pitched our idea to investors during the day and found some sleep in between.
We found that the concept had very interesting metrics:
- Being subscription based - orders per day only grew uniformly
- People were happy to keep an average prepaid wallet balance of Rs.650 with us
- Roughly half the customer base opened the app on any given day
The metrics made us realise how powerful a tool milk delivery was for acquiring customers, retaining them and engaging them. The pilot gave us some obvious and some not so obvious insights into this powerful delivery network.
All the customers were densely located so that more deliveries can be done with lesser time and effort.
Ask a milk vendor for address in his serviceable area and he will probably tell you 3 ways to get there. Compare these with the regular e-comm delivery boys who are always lost at signals asking for directions.
A single milk vendor with 3-4 part-time college kids can deliver more than 300kgs to about 250 houses in less than 3 hours. Efficiency!
Formal organisational structure can never do milk delivery business as individual guys get paid too less, about Rs.100/day. When a formal organisation gets into this business they get stuck in minimum wages, PF and ESIs.
Convinced by the idea, we then started raising our seed round and in August 2015 met Aprameya R.( Founder of TaxiForSure) who was pretty excited by what we were doing and sent a mail committing the investment even before we could reach back home after finishing the meeting. Soon we closed an angel round and started scaling the business.
The customers too loved the idea as we freed them up with the restrictions of minimum order value. In fact we encouraged them to buy fresh, buy everyday. We could support this because milk vendor was anyway going to visit their house everyday for milk. Besides, we were a subscription based platform where people could subscribe to their high frequency purchases like bread, egg, fruits and vegetables. No more running around to your neighborhood grocery store in the morning.
Infact with the option to subscribe for almost any household need, many of our customers run their kitchen in autopilot mode. Milk - everyday, curd - every alternate day, Potato - every 5 days... You get the drift.
Probably the biggest differentiator for us was the ability to take orders till 12am midnight and be able to deliver them by 6am in the morning. We have helped a lot of people afford an extra hour of sleep in the morning. I wish there was a Noble Prize for this.
Milk vendors were freed from the hassle of visiting their customers to collect cash and also saved time by carrying exact quantity of milk to every building rather than work with loose estimates.
We continued adding more milk vendors to our network and also raised another round from prominent investors like Venk Krishnan(NuVentures), Anupam Mittal of Shaadi.com, Kunal Shah and Sandeep Tandon (FreeCharge) and many more. Fast forward to Dec' 2016 we hit 10,000 daily households a day for the first time with an active subscriber base of 13,000 households.
With DailyNinja we have built two strong assets:
1. Extremely engaged users, customers open the app 4 times a week, with practically an infinite Lifetime Value (LTV).
2. An extremely efficient and inexpensive distribution through milk vendors that is scalable throughout the country.
Cross selling high frequency household needs, which includes groceries, leverages both the assets and is something that makes sure we are operationally break-even. As we grow, we are now opening new channels to revenue.
Today in our 18th month we completed 2Mn transactions.18 months is a long time in startup world but it seems we are just getting started. Now when we look back I don’t think we could have started had we anticipated how challenging it is build an offline to online company as compared to writing code. I am happy we could not anticipate the pains earlier.