This guest column is authored by Samar Singla, Founder & CEO, Jugnoo
The year 2016 was touted as the year of the ‘Hyperlocal Bubble’ in India as the Hyperlocal industry registered immense growth in terms of investment and scalability. Hundreds of startups emerged within this space, all with a singular objective – to disrupt the market with their unique products and services. Be it on-demand home services or logistics, people could access any facility via such platforms based on their individual requirements.
According to a study conducted by Ken Research, the Hyperlocal sector in India started booming during 2015, and also recorded a 41 per cent growth in market revenue during the same time. In addition, hyperlocal startups were some of the most funded ventures in the country, and had managed to acquire millions in investment from various industry leaders.
However, the unprecedented growth of this industry proved to be short lived, with some hyperlocal businesses going bust within a year or two of commencing operations.
The cause? Investor demand in maximizing scalability and delivery of goods within the shortest time possible. The business model used to achieve that? Merging online and offline platforms to augment business reach across a wider user spectrum. The effect – inability to keep up with the demand, higher cash burn rate, downfall in business operations, and subsequent losses.
Downfall of the Hyperlocal Industry – What can future market players learn from it?
Contrary to certain industry perceptions, the hyperlocal logistics segment is not impossible to understand. Even though several on-demand hyper-local players have shut down or have pivoted, it is quite evident why such businesses eventually failed. Let us explore the reason why such ventures failed to sustain business growth:
- Quick Scalability – Driven by the Grow Big Fast rule, many hyperlocal startups decided to maximize their reach in multiple regions for quick scalability rather than invest in the business and gradually gain stability. As they took into account the investor’s interest to grow the business as fast as possible, these startups began to develop aggressive expansion strategies across multiple cities. However, this move ultimately led to low order volume and various operational efficiencies, which further resulted in withdrawal of services and huge financial losses incurred by the company.
- Deep Discounts/Deals – Another factor that affected hyperlocal businesses were deep discounts and deals offered by such ventures in an attempt to attract more clients. While this strategic practice initially helps in acquiring regular customers, an excess of such offers without any planning can eventually lead many to misuse this opportunity by buying goods in bulk, and consequently, negatively affect the business in the long run.
Apart from these factors, startups that eventually shut down had warped business models, and even their unit economics weren’t set. In a desperate attempt to quickly capture a huge market share, such ventures compromised on the business model and started losing money during the transaction level, which subsequently became an impossible issue to recover from.
How new market players can avoid such miscalculations – Emerging trends in 2017
Nowadays, lots of hyperlocal logistics players in India have begun to realize the importance of minimizing their cash burn rate, a trend that is projected to be followed by many hyperlocal players in the New Year. Even investors within this space have started to give more significance to fundamentals, sustainability, and unit economics rather than setting unrealistic growth plans.
The upcoming year is likely to witness many hyperlocal companies striving to accomplish steady and sustainable growth rather than instant market share capture. On a similar trend of thought, our hyper-local marketplace model at Jugnoo has been unit economics positive from day one, and has also managed to achieve a healthy month on month growth of 20-30 per cent consistently for the past 3 months.
One important aspect that all market players should understand is that a business is more likely to succeed if it solves actual problems by developing creative solutions. While it is evident that on-demand services are here to stay for the long run, it is also important to set realistic expectations and not succumb to the pressure of scalability. Entrepreneurs should also bear in mind that burning money to meet demands won’t take them far. Instead, they need to focus on customers who value quality over discounts.
Moreover, in order to survive the competitive hyperlocal space, startups need to focus more on providing services to people who actually need it rather than invest valuable time on discount seekers. For now, we can say that 2017 will certainly be the comeback year for the Hyperlocal Industry – and will prove to be full of opportunities for all involved.