Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Pioneering Hyperlocal Logistics | Vatsal Singhal and Mohit Kumar @ Runnr
322 Plays3 years ago
Cockpit of innovation, scale, and form, Vatsal and Mohit built one of the most well-known hyperlocal logistics startups that helped food tech giant Zomato successfully pivot from a food discovery app to a food delivery app. With a principle of “Click, Pick and Delivered”, Runnr has grown the revenue of companies like Mcdonald's, KFC, Myntra and Snapdeal. Listen to this episode where the duo talks about their journey of building this B2B platform from scratch.
Know about:-
- All things last mile
- Ola’s playbook and targeting hypergrowth
- TPH and the much-hyped acquisition by Zomato
Recommended
Transcript
Introduction to Founders and Podcast
00:00:00
Speaker
Hey, this is Vatsal, founder of Ultra Human. Hey, this is Mohit, the founder of Ultra Human. I'm super excited to be here. Take me on a tour. Take me on a tour. Hello. This could be a great intro. Hi, I'm Akshay. Hi, this is Saurabh. And you are listening to the Founder Thesis Podcast. We meet some of the most celebrated charter founders in the country. And we want to learn how to build a unicorn
Current Trends in Hyper-Local Logistics
00:00:34
Speaker
Hyper-local logistics seems to be the big thing currently with companies like Septo raising hundreds of millions of dollars and Blinkit getting acquired by Zomato for 570 million dollars. But much like fashion, the trends in the startup would also repeat themselves and 2015 was another similar year which saw an explosion of hyper-local logistics startups.
The Journey of Road Runner and Ultra Human
00:00:56
Speaker
One of the most well-known such start-ups was a company called Road Runner, which was later rebranded to Just Runner and was eventually acquired by Zomato in order to help them make a successful pivot from being a restaurant discovery app to a food ordering app.
00:01:11
Speaker
Mohith Kumar and Vatsal Singhal, the two founders of Runner, sat down for a candid chat with Akshay Tath about their journey as startup founders. This conversation is being released in two parts. In the first part, Mohith and Vatsal talk about their journey of building Runner and getting acquired by Zomato. And in the second part, they talk about their current venture, Ultrahuman. Here's Mohith and Vatsal talking about how it all started.
00:01:36
Speaker
So I joined as a product manager eventually to head product for Ola for almost like I think year plus as a head for Ola. And then that's where I actually started thinking about that this is really interesting because in shared economy, if logistics or in transportation, if transportation can make sense, logistics should also make sense.
00:01:55
Speaker
And that was the genesis of the runner idea that can be applied the same dynamics of transportation, business optimization to a logistics was an optimization, right? And you can say that that would be the genesis of runner.
00:02:08
Speaker
like aggregate demand and supply on one platform. Yes. So just like transportation, you have a fragmentation problem in logistics, which is wherever demand is, you won't have supply, but overall, both are inefficient. So for example, you need to ship 10 orders, you're in code manga, and then all the supply is in Marasali, for example, in Bangalore.
00:02:30
Speaker
So supply is there, which is free. Demand is there, which needs supply. But then these two are not in the same location. Similarly, as the taxi problem, Bangalore back then had enough taxis for serving the demand that Bangalore had because taxi adoption was on the lower side the year 2012. But we didn't have them in the right location. So if you need 200 cabs in MG Road around 9 p.m. on a Friday, those cabs would be randomly somewhere. They wouldn't know where the demand is. So same thing in logistics as well.
00:02:58
Speaker
That was the problem that we were set to solve. And did you want to go for hyper-local or for like, I mean, what did you see? Did you see this as a like for e-commerce deliveries, you will become a platform to enable that? Like what exactly was the segment? All Things Last Mile.
00:03:17
Speaker
So we believe that last mile is the hardest piece of the puzzle because it affects user experience.
Focus on Last Mile Logistics and User Experience
00:03:24
Speaker
So if you look at because you have a user touch point, right, the delivery by the end is actually delivering to the user in the logistics supply chain and no other node is actually interfacing with the user.
00:03:33
Speaker
So we believe that if we could own the user experience there, we would be like a more lucrative partner for anybody rather starting with hyper-local merchants, but eventually large e-commerce players as well, because they would want to complete their last mile as soon as possible. It's not just about the speed, but also the quality of last mile in terms of like a driver should not call multiple times while approaching the address and basically the payment experience back then.
00:04:01
Speaker
Not all in payments were less than ten percent of the overall set so the experience should be good the cash exchange of there is a payment on delivery flow all of these issues should be should be like i should be seamless all these experience which one should be seamless so those are the.
00:04:20
Speaker
things that we were solving for the SME market and eventually for the e-commerce market as well. Did you raise funds immediately because you had worked in funded startups, so you probably understood that game of fundraise and all that? Or did you want to first build up some sort of an MVP and some traction and then do that? How did you do
Funding and Scaling Quickly
00:04:43
Speaker
that? That's zero to one. Tell me about that.
00:04:46
Speaker
Yeah, so the idea was to actually to actually take off as soon as possible and hyper iterate along the way. And I don't think we ever thought about bootstrapping. The primary reason for that was that if we can find the right partner who can back our story in the early days, that as well as a co-founder was putting money essentially, right? So that was the thought process that we believed in and we still believe in that. And because what you're trying to really do is you're trying to, if you're trying to build a business and accelerate
00:05:14
Speaker
and basically get to scale as soon as possible. You're just compressing time in some ways. Compressing time would require, in some cases, money or intensity from your head. We saw it in a very simple way. We didn't see it in a very complex way. If we were unable to raise, obviously, we would have figured out a different way to bootstrap, but we got traction quite immediately because in 2015,
00:05:39
Speaker
When we were set out to raise basically most of internet companies were also starting to raise and the internet ecosystem was also taking off. If you remember the 2015 rush ride and the way it happened was that so we spoke to bloom first bloom was the first.
00:05:54
Speaker
I will find that I spoke to, I remember the name of the person he was telling, I had never raised money. So he was telling me that raising money is cool. You get to build what you want and you raise a little bit of money and then go for a series A after two years. I was like, yeah, that makes sense. Series C is when you have an idea. Series A is when you have product market fit. And B is when you need growth capital, right?
00:06:16
Speaker
But then when we raised our seed, we immediately got like two offers as a follow on that, Hey, you guys have started growing already. Why don't you raise another $10 million? So that was with Nexus. How much did you raise in the seed? So in seed we raised a million and after two months we raised a 10.
00:06:33
Speaker
Yeah, which is phenomenal even with with today's numbers that is still pretty phenomenal. Not today's numbers. I mean, I think today's numbers people raised 10 as seed and then 100 as a series. Yeah, so it's just 10x of what it was in 2015. But it was different business like for the business to take off and to do 1000 transactions per day. It took us no time because the need was there. And we had to just make few things easier for our users merchants essentially in this case.
00:07:01
Speaker
that everybody wanted a delivery service, can you do it via an app? That's it. Right. And then that's where we started. And then, what kind of merchants, was it like restaurants or what? Restaurants, grocery stores, pharmacy stores, etc. Restaurants were the largest because they valued last mile the most from an experience perspective because it is a time sensitive
00:07:24
Speaker
category. So naturally, when we started selling restaurants, we wanted to pick all of it up. Yeah. And I think the best part of the business was that selling was theoretically easy because you go to the restaurant and say, okay, there is a service which is no cost, no fixed costs variable. Here you send an order, you have to pay 50 bucks or whatever, and you get a driver.
00:07:44
Speaker
So I think they understood this business very well because they would get orders on the phone and they need to send their boys out. Instead of that, they'd use our service to send it out. So it was fairly easy to sell it to them that, okay, why this will work? Of course pricing is another ball game altogether. They would say, okay, 20 rupees, whatever. That's a different thing. But they understood the model very easily. And then how did you get the supply of riders who will do the delivery and you also
00:08:11
Speaker
making sure the quality is maintained because as you said, customer experience is what you're fixing. So how did you do that? So I was staying in National Games Village back then, if I remember, I think. It was in Kudmangla and what I did was I ordered food from a few places and the delivery folks who came in
00:08:31
Speaker
i started picking them the model and converted my house as the onboarding place for these delivery folks that's how it's and obviously back then we had no people to train so i used to train them talk them tell them about the model i used to talk to each one of them individually
00:08:47
Speaker
telling them that oh this is the amount of money you can make which is fun because at some point I was like speaking to like 50, 60, 70, 80, 100 delivery boys per week individually spending like 15-20 minutes with each so that gave a lot of context in terms of like what are the problems that they face usually but also like just like the taxi market like the transportation market the the delivery market was actually capped the delivery executive market was capped in terms of earnings
00:09:14
Speaker
So we have this problem in our, especially in emerging societies, that the labor class never gets to increase their income in a significantly substantial way, unless there's an event, mega event globally, right? So look at the amount of money you pay to your maid, your cook, or your driver. The last five years would have got like 25, 30, 50, maxed by 50% on low base.
Challenges in Financial Growth for Delivery Staff
00:09:37
Speaker
And these folks are also suffering on a low base problem, which was,
00:09:42
Speaker
they were making 8,000 rupees to 10,000 rupees for the last 10 years. Same amount. Or maybe like from 6,000, 7,000, they moved to 10,000. But the inflation obviously, the prices around them were increasing significantly, right? So they wanted a shot at making more money. Like if they were to be more efficient and put more work effort into it, they wanted a shot at making more money. And that was one thing that we discovered. The other one was they wanted more flexibility also, which was that I can't work for
00:10:09
Speaker
eight hours a day. I can't work for six hours a day. I want to only work for three hours a day because I also study as a cat aspirant. I also study as a BCA student. So how do I like make quick money to fund my education, right?
00:10:25
Speaker
So these are the two core. This was a hypothesis in the early days that this is how we'll crack supply. We will crack part-time supply and we will give the full-time people a shot at making more money. Yeah. Okay. And it was like a paper delivery, right? Not like a fixed salary. That is correct. So for the merchants, you pay per delivery for delivery folks or executed
00:10:47
Speaker
We had a combination of a minimum guarantee plus get paid per... Some of the Ola learnings you would have applied here in terms of incentivising them in the right way. That's correct. Yeah, I think a lot of these constructs we were hearing for the first time were like, oh, this works in Ola and it will work here. Of course, everyone wants to earn more. That's like the fundamental thesis. But if you as a platform don't give them money, then of course they want some guarantee as well.
00:11:17
Speaker
So it was like a basic thought process construct. So now it was our responsibility to set it to more change and get demand. And that model is where we kind of can earn money. But they understood really well. They were like, we are happy. If you give us a minimum guarantee which is higher than what we are earning today, then we are in and we have a shorter earning more. I think that's nothing like... Okay. So when did that 10 million round happen? Like which month and year?
00:11:43
Speaker
I think March of 15 is when you started road dinner, right? It happened probably in June or July. Yeah. And you were like about a thousand orders a month by that time. I think that by then would have been like when the round closed like three to four thousand orders a day.
00:12:01
Speaker
A day. A day. Wow. This is only in Bangalore. Yeah, we were only in Bangalore. And what did your app look like? You had a separate rider app, but again, the Ola learnings would have come in to play that. Yeah, you had a separate rider app.
00:12:20
Speaker
Yeah, well, of course, very, very basic and definitely not. That's the best of it. But I think, like, of course, 10 million coming in, we knew we have to definitely invest in technology, make it better, add a lot of constructs into it. Like, one of the key that theoretically we invested heavily on was the financial construct. See, Rider,
00:12:42
Speaker
The basic problem is the trust. And that is another key technology problem statement as well because the constructs were changing. If you ask me every day, it was such a difficult problem statement because it was dependent on cities as well. Some cities would have something and some localities would have something. So it was
Technology and Logistics Efficiency
00:13:01
Speaker
evolving at a very rapid pace. And that is something that was a very very
00:13:06
Speaker
I would add to it and say that I think our driver technology or drivers or application was actually a bit focused. Probably our driver app was I think the most advanced piece in terms of the product and in terms of focus. The problems that you face today as a technology company were not the problems that we used to face back then. So what are some of the problems? The drivers didn't have smartphones. They didn't have an active internet connection.
00:13:30
Speaker
right? We're talking about 2015, they would have a GSM phone at best, essentially, right? So how do you build a system where they have an active internet connection? If it's defined a little bit back at Ola, for example, people didn't even have phones, right? So Ola used to give them phones.
00:13:48
Speaker
We used to give them phones and we used to have outages across localities. We used to be shut from an internet perspective for hours. Like, oh, this network is down. Service is down. You can't do anything, right? You can't really call your POC and say that, oh, why is this service down? So from that to basically service being up to people owning phones, to people owning internet-enabled phones, this is the journey that we lived. And I think at Runner, we lived a journey of people not having internet-enabled phones to
00:14:15
Speaker
Enabling them with internet enable phones, building an application that they cannot misuse. Sometimes a lot of people would also misuse, which is basically they would use a data app and they'll say that, oh, I'm not getting orders because data was not cheap back then. It was pretty geo-era. And you'd have to spend like thousand bucks to get access to data and you'd end up your 1GB and your 500MB and basically you'll say that, oh, I've watched all the YouTube, but I could not get any orders. So the responsibility to get people orders is yours. So we had to do,
00:14:43
Speaker
I would say there's a shit ton of optimization to make it more battery efficient, data efficient so that people access the right type of apps. The driver construct for us was probably one of the most advanced pieces because we wanted to drive them with the right demand areas, the right workflow, payment visibility. Whenever you complete an order, you should know how much money you have made. You should have instant settlement. If not a week, then within three days, you should get settled. If you're doing multiple orders, you should get paid.
00:15:10
Speaker
or you should save money on the efficiency as well, whereas we make money. So all of those constructs, you should have search pricing on the supply side. So if there's a dearth of folks who are working and we can send them a new rate card, if you work for the next four hours, you'll probably make double. So those are some of the things that we actually probably built over 2015 and 2016.
00:15:31
Speaker
Yeah. And back at the day, like, of course, when we launched, if you ask me, there were like, I think around 20, 25 companies that came in, which were doing exactly the same thing. Like the changes you would make in the product and there are companies that would copy it. In fact, I'll tell you a funny story. So we had this pricing model, which was from zero to 4.5 kilometers. There is X.
00:15:51
Speaker
amount that you would pay, right? And of course, you were doing it. So a lot of startups thought, okay, we had tons of data scientists and it was like a big geek company, right? So everyone thought, oh, they have applied some data science and there's some big algorithm that has found this number of 4.5. And it was, I'm telling you, it's a random number that all of us said and we're like, okay, what should it be like? What should we find? No, let's do 4.5.
00:16:13
Speaker
Right. And then we saw every company became a trend. Like people used to have 4.5 kilometer as they're like a base to say, yo, that's like a first tire and then next tire at 4.5 to five. In all honesty, it carried out of saying that of five kilometers, the mark beyond that people don't want to travel. So we should have a rate for five millimeter, but then it does not sound too scientific. Let's make it 4.5.
00:16:37
Speaker
That's right, it looks like it is. It is precise. And a week after, we saw a few competitors having a 4.58 card. And then I think all the four delivery guys had a 4.58 card. I was like, where is this number coming from? Maybe the thing that we have thought it through, but that's not true. Yeah. And who were the competitors that time? I think Shadowfax probably started around that time, I guess. And Drophos, of course, was there.
00:17:06
Speaker
The consumer side, but yeah, they had shifted the consumer back then. Yeah. Yeah. Yeah. There's a lot of companies that came in, right? When it was the Opinio was there and then quickly, and I don't even know the names of so many. Every city also had their own like one hyper local startup, like
00:17:27
Speaker
We remember it had crossed 25 at one point. People doing the exact same thing. But yeah, it was fun. So by 2016, what kind of numbers were you doing? Monthly order rate? Like June, you had that 10 million fundraise. So what's the next milestone? And what kind of monthly order rate were you doing at that next milestone? Tell me the milestones in that. So the next milestone for us was basically to hit the 10,000 orders a day mark.
00:17:57
Speaker
which we had hit, like, I think right before New Year, 2015. I remember the beginning of New Year, which was like the most intense New Year that I've ever had in my life. There was so much of demand from restaurants, demand was spiking the same day. And obviously the restaurant partners expected us to magically have more people on the ground, but it can't really happen like that, right? Because it's a two-peak problem. And this dinner peak for New Year was extremely high. It was high-vex of the volume that you could handle.
00:18:25
Speaker
We were overflowing with these orders. It was raining. We were on our bikes delivering as well and a lot of mess up that day. Yeah, but we had hit the 10,000 mark. That was interesting.
00:18:37
Speaker
Yeah. And also, I think most of us, most of us were out delivering because of course it's a quality of service was what we were aiming. That should be the best. And I think we did these prints, a lot of these prints, especially during rains in Bangalore during early days as well. Even when restaurants are shouting that I have 10 orders, but then no riders, and all of us would leave our office and we'd go and deliver, but customers would get angry while the food is so late and they would give us the food. And then what we do, we'll only take that food I needed.
00:19:05
Speaker
Yeah, it just messes up on both sides. So you're serving the restaurant is angry and then the user was angry. It's just fun. I mean, these things shape you. That's like a pretty strong commitment to customer delight, like to actually go out in the rain and do all that.
00:19:21
Speaker
Yeah, but that is the nature of the industry. Like hats off to people on the ground. It's, I think both of us, both of them I would have probably spent like more than like many, many, many days delivering ourselves on the ground and the amount of writing stress that they go through and uncertainty of income. Plus basically you land at the user address and probably sometimes you're not even safe because these are like distributed across. It's, it's insane the amount of risk that people take and the probability of life. Yeah.
00:19:47
Speaker
In fact, I think the first time that I went, we were so frustrated because our app was so bad that I could get stuck with the order not completing. But when you're actually so stressed because of traffic and you're already carrying a heavy order, you don't want any issues to come in. And we went out and we were cursing us what such a bad product we built. And we used to feel proud. We built something amazing sitting in our AC office that we're doing a great job.
00:20:16
Speaker
But, and I think since then, I think what we decided was we'll go out, like, make sure that we go out every week or at least, especially during peak hours, because that is when things break, right? In the sense that, okay, in the middle of traffic, if you're sending someone an order, how will you pick it, right? And how will you complete an order in the middle of the mess that is happening? Of course, internet providers would go down, what should happen at that point? Navigation is a problem. So there are a lot of these things that we actually realized
00:20:43
Speaker
because we were very aggressive in going and delivering. And I think we started also empathizing with everyone. If it is not working, we can't theoretically shout at them that, okay, why are you late and all of that? When you realize the pain, you even feel bad, you have been down. It's like so much mess that is created on the ground.
00:21:02
Speaker
I think it was a lot of great learning. So you saw the primary challenge for you as fixing supply. You felt that demand was available on tap. If you could fix supply, then demand would flow automatically. No, I wouldn't say that totally. I mean, it was a new product that the market was using as well. So we could have acquired an entire account, for example. We could have said that, oh, this restaurant, let's acquire it completely. But we can't acquire demand.
00:21:32
Speaker
at the pace at which we want because the supply has to match up and not just for gig hours but also for peak hours. So that was one. The other thing was the gestation period of restaurants trying out the new process and understanding that, by the way, delivery was a new business in 2015. So restaurants also did not understand concepts like returns in food.
00:21:57
Speaker
So they were like, oh, I get like five orders a day, 10 orders a day. If a user returns my order, why should I refund their money? I don't have a brand to protect. Very few brand-conscious folks would do that, but somebody who's getting a call and is not on Zomato, not on Swiggy, does not have a rating problem like that. I mean, they don't have a rating, basically. So there is no brand issue.
00:22:22
Speaker
They would just say, I don't care about this user. I just want to care about this 500 rupee order. So those constructs were
Challenges with Restaurant Partners
00:22:29
Speaker
not clear. In fact, when we used to sell to our merchants, they would say that, oh, if there's a refund, you guys have to pay. And we were like, if there's a refund because of food, why should we pay? And they would not get it. And they would say that, oh, my food can never be bad. So it's just a delivery. This is the customer SLAs were not fixed. That's why it was very hard industry to build in.
00:22:48
Speaker
Right? You have to be all your toes. You have to, I think the issue was all of these unknown policies, which the food aggregators have said right now, like right now that a return is supposed to happen if a certain type of users and delivery, if it is delayed about a certain level, what is the process? That's what we actually build at Zavato for three years after runner essentially, like because we understood what the problem of a last mile company could be.
00:23:12
Speaker
So essentially, there was always that tussle between you and restaurants about things like returns. I think it was a combination of all, right? It's like a big piece of it, of course, was fraud, right? Where who is doing a fraud, you would never know. Is it the user? Is it the writer? Or is it the merchant?
00:23:30
Speaker
And sometimes in combination of all three, they would merge together and try to create a game system. I am earning more money and free orders are getting created just like that. So a lot of technology and focus was going into building a fraud engine as well.
00:23:50
Speaker
How do we identify such riders, such merchants, and block it from the system? And all these learnings, of course, went into building a very, very powerful platform as well.
00:24:01
Speaker
So when you hit 10,000, it was Bangalore or you were in other cities also? So 10,000 would be Bangalore and Bombay. Okay. Yeah. And then what's the next milestone? The next milestone for us was to actually hit 20,000 orders, actually double the volume and raise more capital. It's the year 2017. Yes. How much did you raise?
00:24:23
Speaker
So we set out to raise north of $10 million, like 12 or 15. I think we raised $7 million. The reason for that, multiple reasons, right? So one is that by 2017, we were not able to display economics in the food delivery business. Like we were showing trending cost, round trending cost and after ending revenue that was there.
00:24:43
Speaker
But then we had issues like collection issues. For example, some of the restaurants were in post-paid. So they would not pay. Like they would pay a lower amount. And we didn't realize this could actually be a big problem. The other thing was basically the margins. In terms of the margins, we did make a lot of progress, but I think we still had a lot of headroom to make progress. We're still losing 15 bucks per order, 15 rupees per order essentially is what I remember. So that was a hard
00:25:09
Speaker
Those were hard economics and for us to optimize immediately because you can't really reduce costs because it will affect driver earnings. You can't really increase revenue because it will affect revenue retention essentially like merchants wouldn't pay. And you have to have a fair policy around pricing as well. You can't really charge people in seclusion. One merchant will tell to another person. You have to do a market correction essentially, right?
00:25:30
Speaker
So we were on this chart, but then we were also in 2017, which was a very hard fundraise market. I think there was sort of like a crash where all the VC funding dried up for almost 12 to 15 months or more. And this was very hard fundraise, like essentially we were questioned on almost everything we do, right? So we spent hours and hours and optimizing to ensure that like company survives somehow and goes through this.
00:25:55
Speaker
Personally as well, it was a very hard thing because since the beginning, we were like almost on our own savings. And we had sort of thought that, oh, both series B, or both series A, when we started growing, we'll probably start taking salaries. And when we had hit a snag in terms of growth, it was like a double, like sort of like a double-edged effect in terms of like us being poor and basically money also drying out. So you can't take salaries for the next two years again.
00:26:21
Speaker
And that was like the double whammy in some ways. It was very stressful. 2017 and 2018, early, I mean, potentially 2016 and 17 were like the most stressful phases of the company. But like that 10 million lasted you for how long? Like that was a pretty significant amount. Like, would you have done things more frugally, like based on power of hindsight?
00:26:44
Speaker
Yeah, I mean, of course, you can connect dots backward and say that for sure. Back then, we were going for the win, which was basically, you have one shot at becoming the company to cross 50,000 orders a day milestone, we would have been larger than the most, like we would have probably been the largest, one of the largest logistics players in India, and also one of the largest next year. I remember speaking to folks, Chinese counterparts, and they were saying that, please deploy as much capital as possible, right? Because if you get to market leadership,
00:27:14
Speaker
then you get 100x on your valuation, on your revenue. So not just 10x or 15x. And that was really the greatest because as, so why would you get into forming a company and doing something on your own? You want to win, right? You want to, again, the mindset of exponential progress. So we went all in. We said, like, we will take a hit in terms of revenue. We will take
00:27:37
Speaker
the hit of cost and we will win at any cost basically will form the brand in front of the merchants will ensure that we build the supply on certain days would have hired like more than we can say three to 4000 people like just with like basically sheer hustle and the ability to work more hours right so that was our
00:27:57
Speaker
for lack of a better word, that was a drug back then, right? And you want to win and you want to win at any cost. Because you know that once you win, you can optimize everything else. And we had seen this playbook play out with Uber, we have seen this, I had seen this playbook play out with Ola as well to some extent, but sometimes it does not go well. Sometimes it does go well. In our case, it was a combination, I would say. Yeah, that's that's what actually happened.
00:28:21
Speaker
Like what were the areas where you overspent maybe like, was it on like you were too liberal with your payouts or was it the overheads or what was like, I think, I think, I think you're like, yeah, I think that it's the, it's the inefficiency, the system that, that, that comes in not because of, because of the minute you have, it's because of the hyper growth that you want to do right now. Now you could of course, you know, embed technology in every piece of your system, right? Let's say even, even drive it onboard onboarding for the matter, right? Let's say to onboard drivers.
00:28:50
Speaker
You could always have a system around it, where it's a platform, you enter details, and then some confirmation happens. Or you could have people, right? Video-based training. Yeah, everything. I'm saying now you could have people who are actually physically training people, like taking papers and then doing all of that. Now you have to scale that in 15 cities, let's say, right? You could have people there, or you could build a system for it. Now, building system, of course, will take time. Or do you have the time, right? So it's always a compromise of hiring versus building technology, right?
00:29:19
Speaker
and building technology, even if you have to do that, that also you need to hire. So you will be a parallel building technology, hiding for that, parallel building and scaling the ops
Achieving Break-Even and Cost Optimization
00:29:29
Speaker
and the groundwork. So there's never a right answer for saying that, did you do something? No, were you not frugal? It's always the choice of growth versus being, you know, frugal.
00:29:41
Speaker
You could choose that. So when the times were different, then we were of course absolutely trouble. We made sure everything is on technology and we in fact broke even as well at the unit economy level at one stage when we were really cutting cost and making sure that the transactions that we do are making us money. When did you break even?
00:29:59
Speaker
I think early 2017, because we had no option. Like we had to go to the market. We had to raise the money. So we went out to the market with the story that we have grown by 10% in the last three months, but then we have done profitably. So we have cut all the unprofitable and optimize our supply chain. And we are now making money on a contribution margin perspective. Right.
00:30:24
Speaker
And I got a burn down to like extreme, like you can say burning less than I think $50,000, $60,000 per month, less than that, actually running an organization of 10,000 people basically. So like essentially that was, that was the optimization that we had to do. So in that journey, I wouldn't change that because that is where most of the learnings came from. And that was the only thing that, I mean, that, that.
00:30:50
Speaker
did make us survive, right? I mean, there was no other way. 10,000, how many were on payroll? A lot of these would be the gig workers, right? All of them were gig workers. We didn't have anybody on the payroll. But your own team, the team which does hiring, onboarding, tech, alliances, that team?
00:31:08
Speaker
So that would be less than 100 people overall. Yeah, not as lean as we would have wanted again. But I mean, the issue was that we should have scaled more linearly and not very, very exponentially. Obviously, you have to hire before you can execute sometimes. But then if you build systems, you can bypass that. And sometimes growing really fast, you don't really know. You don't have the time to build systems. You want to win the market share as much as possible.
00:31:37
Speaker
And when did the tiny owl thing happen? Tiny owl thing happened with $7 million round where the thought process was basically the fact that this 7 million along with tiny owl getting acquired in the company will actually help us raise more capital, the capital that we need to scale beyond our current scale because we are acquiring consumer asset and this consumer asset
Acquisition of TinyOwl and Consumer Expansion
00:32:00
Speaker
will help us basically create a story which is that we're now full stack. We're not just limited to... We control the end-user pricing also. We don't need to depend on the merchants for our revenue. We have more revenue levers. That was basically the thing. In hindsight, obviously, that was a mistake. Why was it a mistake? Because we didn't have the money to run MB2C. And if you compare back then, we
00:32:24
Speaker
We were doing let's say around 15 to 18,000 orders on a stable day in food delivery. Probably Swiggy was 25,000 orders if I'm not wrong. But we were doing B2B there between consumers. That is the difference. And I think the market was early. They hadn't really launched food delivery back then, right? And the reason why we believed they could do a consumer play was because the market was super low, like super early essentially, right? In terms of scale. The reason why we could not do it
00:32:49
Speaker
was because of our stupidity which was basically we didn't have the money to actually run the business which was we had a logistic stack but with seven million dollars in your bank and while you're optimizing we hadn't got an optimized when we raised the money right so we're still optimizing it we hadn't gotten to the fifty thousand dollars burn rate then we took four months to optimize because we didn't want to do a rapid cut where we fired and lay off everybody and basically stop business stops making sense so we did it in a probably in a gradual way and that
00:33:19
Speaker
that obviously used up some of our $7 million of capital. And we were left with like four to three to $4 million in the bank, where we didn't have the money to actually go out and acquire users back then. And I think we had done a fresh fundraise back then, if I remember, of a $20 million round as what obviously was capitalized very well back then. So since everybody was educating the market, it was very hard to fight the discount war.
00:33:46
Speaker
It was still, I wouldn't say that we couldn't have fought it. We could have fought the war. But I think the reality is that I think the mistake that we made with the requisition, I mean, this is our own problem that led to the mistake, I think, because we could have just focused on the one side of the business and grown it by the capital that we were raising. That could have been a better way, probably. But you still don't know till you are in the same shoes, right? I mean, yeah. And I think you are facing the same scenario you don't know.
00:34:14
Speaker
Yeah, I know. Also, I think we were any big fans of consumer businesses, right? So, we thought, okay, we would want to, of course, make it a consumer business given opportunity. But, of course, the challenges are very different. Acquisition is something that is a primary construct of a consumer business. And we, of course, underestimated the cost of that. So, say, I think definitely probably didn't work out that well. But what else?
00:34:40
Speaker
And what was Tainiya's reason to get acquired? They were also facing that funding crunch. They were also hitting a bad fund raise market back then. So that was the major reason that economics were harder for them for delivery. They were sort of like the pioneers in the market, if you really think about it, in terms of scaling fast. But they probably
00:35:03
Speaker
I mean, it's obviously I don't know the full scenario, but probably they scale faster than the amount of money that was available to them. Right. And if you, if I just fast forward, like a few months forward, when the funding market was green, everybody just did the same thing. Like basically everybody basically spent more money than, than anybody else and basically acquired the market. So sometimes timing is probably more important than anything that you can ever do. That was probably one of the biggest learnings.
00:35:29
Speaker
Was the integration an easy thing to pull off? Integrating a B2C company with a separate culture and mindset and separately with a B2B company which would probably have a separate culture and mindset.
00:35:44
Speaker
I wouldn't say so because they were also, I mean, the credit to them, they were also very much in the mindset to win, but they were also trying to find the right answer to win back then. And we didn't have a right answer because it was the food delivery business has a mountain of cash to cross, like globally, like I don't remember or know of any bootstrap food delivery business in the world, right? Because there is a mountain of cash to cross.
00:36:09
Speaker
or efficient food delivery business in the world because you have to do a blitz, customer acquisition phase in life if you're a company. So they were also thinking about various ideas in which we can do this. The market was also not ready. So those would be some of the problems.
00:36:29
Speaker
If you like to hear stories of founders, then we have tons of great stories from entrepreneurs who have built billion dollar businesses. Just search for the founder thesis podcast on any audio streaming app like Spotify, Ghana, Apple Podcasts and subscribe to the show.
00:36:50
Speaker
And then what's the next milestone? How long did that money last you then? Like you integrated and you had like 4 million left with you? So we went with the 4 million, we were in the $50,000 a month type of mode. So we wanted to basically grow semi-organically from there and grow incrementally. We had all the $4 million in the bank. And we knew that now as an organization, we're secure because now we will not die because of the money. We will have to figure out a way to grow
00:37:19
Speaker
faster but via 100x more efficient methods. So sort of like hitting homeostasis in terms of the balance between burn and growth rate. So growing 5 to 8% month and finding like gorilla methods to acquire more customers. Like what I categorically remember is that I told my demand team that
00:37:41
Speaker
I basically will meet only enterprise companies now because we can't afford to do last mile sales like we do semi-sales because if we crack one chain of restaurants, that is where we should be spending all of our time on and whatever it takes. So that's where I was also spending most of my time. Travel to Bombay, stay in cheap hotels basically. I have some really fun stories there but basically like a 2000 rupee hotel in Bombay is not fun.
00:38:08
Speaker
It's it's a it's a health risk, basically, in some ways. So I mean, we weren't bored, but we weren't in a good state, I think I would say. But yeah, I mean, I don't want to sound like rags to ditches because we were never in rags. I mean, we don't
Enterprise Client Strategy and Zomato Negotiations
00:38:26
Speaker
have a such a backstory. But basically, we I spent a lot of time meeting these large chains that was our strategy.
00:38:32
Speaker
Convert a large user, grow 30% for 3 months and then raise more capital or basically keep growing like this and get 200,000 orders a day and basically get 2 substantial amount of profits because if you're making 10 lakh rupees per month as net contribution margin and that does not pay your payroll, it doesn't make any sense but if you're making corodum as net profit then it's substantial to basically find your growth effort. So that was the thinking. That's what I meant, they've been there.
00:38:59
Speaker
because when we have been speaking for some time, we had been speaking for some time in terms of let's, let's figure out a way to work together, et cetera. Actually started with like, can you fulfill our orders? And we, we wanted to fulfill it, but they had an exclusivity clause that, oh, can you be exclusive? If you, if you sign up with them, then you have to like call off the engagement with everybody else.
00:39:18
Speaker
Yeah, and Swiggy was one of the largest customers for us back then. And some of the key restaurant chains as well. So we couldn't afford to, obviously couldn't afford to get rid of all that demand for something that we don't know. So we were asking for like, can we do a balanced contract? Which is, can we do a non-exclusive and along the way, if things go well, we can think more exclusivity.
00:39:38
Speaker
And I was saying the same thing to Sugi as well, by the way. And they were also pitching exclusivity to us that, oh, why are you serving Zomato? Can you just be exclusive? And I was like, no, no, no. Didn't Sugi build this in-house? Like, Sugi essentially was a logistics company right from the core, right? I mean, Zomato started as a discovery platform and then went into logistics. So Sugi, interestingly, in the early days, they wanted to
00:40:03
Speaker
move out of logistics as well for a long, long time, for some time. Yeah. And they were like, we are thin layer, we will own logistics, 50% of our fleet, less like e-commerce, right? We will have our own logistics, but we also have third party logistics. So that was their roadmap, that 50% of their demand should go through third party logistics. And in case of Zomato is 100%. So that's what we're thinking that maybe we can negotiate a better
00:40:26
Speaker
or maybe some other needs is more, so why should we do exclusive, right? So those are some of the thoughts that we were going through back then. But then Sergio Zamata was like really cool because it was A plus B or one plus one is four to five in our head. And you were still running tiny house when you started having talks with the builder? No, because we wanted to reduce cost and cut our burn. We're not running tiny house. And there's another clause that you won't run a consumer business, by the way, that came, yeah.
00:40:56
Speaker
Yeah, of course, we can't be competing directly. You can't compete with the customer, right? So that's why, yeah. Okay. So like, how did that acquisition talk finally happen? Like, tell me about that. It was pretty simple, actually. I met the business for getting more demand, basically, that I think they've already started the pilot and I told them that can we scale up our demand? And if we have density, the delivery times actually improve.
00:41:21
Speaker
So I remember the exact, I took the marker on the table and I was drawing this, the TPH math as we call it, that if you cross 1.7 orders an hour, your cost comes down and your efficiency improves. And at 1.7 orders an hour, the thing to do essentially is when.
00:41:39
Speaker
your users have a sub 30 minute delivery experience so he said like what is the ps or is the full trips for our yeah so i said like oh it's all these things we could do really well if we are one company and what do you think about that and i said i don't think it makes sense he said why and i could not answer that so so that was it so we were having fun working with them the team was
00:42:02
Speaker
very kicked to scale and run food delivery because Swiggy was growing really well. And in our head, we believed that we could build a very large logistics business. We believed because there's so many processes that were sub-scaled, but we believed that the design of the process was right. So we wanted to see scale. As an engineer, you want your score to see scale, right? Otherwise, all the effort is useless. Whatever one you have made, it doesn't make sense. So when it started scaling, even with the light integration, it started making sense. Yeah.
00:42:32
Speaker
Also, the integration was actually very smooth even from technology perspective because we already were very deeply integrated and working very deeply with them for their current business itself. So it just became an extension of the platform in some ways. Plus, they had no in-house logistics capability at all. There was no legacy for you to deal with. You could build it the way you wanted to.
00:42:59
Speaker
Yeah, it was. And also of course, yeah. So there was like, like folks from there also joined in and like people from mind hands to kind of make it up like a seamless single experience. And of course, things started building a lot faster. Let's say on the consumer app as well that because it was now it was connected. So it was all pretty easy to kind of. And was this like an all stock deal or like, was this a cash also?
00:43:23
Speaker
There was a cash plus stock deal, like cash to some investors and also to us, we decided not to take the cash deal because it was actually, I mean, imagine it was 2018, right? When the market was still in downtown. And our view was that with this deal, we should start making salaries because I mean, straightforward. So that'll take care of our existing spends and maybe down the year or two years out, we'll take liquidity if there is an opportunity.
00:43:51
Speaker
because we wanted to dig on the upside and not on the existing value. So that was the conscious call that we took as a group. Some investors did get exit back then. Like you took Zomato equity basically. Yeah, we took Zomato ESOPs basically.
00:44:06
Speaker
And then what did you build that tomato? Essentially, logistics was what you were building. We built the entire food delivery business. So not just logistics, but we were within a business back then.
Post-Acquisition Operations at Zomato
00:44:20
Speaker
Food delivery was still a small business back then. And we were driving this thought process that food delivery could be extremely huge. And obviously, it was showing in the external environment as well.
00:44:31
Speaker
So we built the supply, the driver's supply, the merchant's supply, everything basically. Back then, we had no option. If you're building the food delivery category, you have to own it completely. You can't own one part of the supply and say that, oh, my job is done. Because it actually goes hand in hand. For example, think of it like this. If you are a listings partner, player, and a lot of restaurants don't deliver on your platform because they don't have their own fleet. So the restaurants are actually waiting for the fleet, for your fleet to happen, and only then they will partner with you.
00:45:00
Speaker
So what supply do you enable? How do you enable them? All of those were not only driver supply questions, but also merchant supply or extra supply questions. And what's part of that food delivery business?
00:45:16
Speaker
Yeah, so I think for initially eight to 10 months, I was part of it. Of course, I was there in Gurgaon for a very long time. Started building the team in Gurgaon because I think the idea was that we of course have to shift base to Delhi Gurgaon because we wanted to
00:45:31
Speaker
team completely was out there. So there was this risk that people might not move from Bangalore to Delhi. So we had to aggressively hire for the logistics vertical as a whole and set up shop there. Because of course, the matter itself had their own challenges. They were also scaling their own business as a whole. So it had to be a new team that is being set up out there.
00:45:52
Speaker
So, we are kind of civilly, of course, like finding people from across teams or hiding, you know, independently. So, that is like the thing that we started off doing. And yeah, I think eventually what happened was, I started working parallelly with Dipinder on a lot of things. Because I was there, I used to meet him a lot more often. He was like...
00:46:12
Speaker
excited and he was like, okay, he said, okay, you lead the listing business for me from a technology standpoint. And I was there for another thing around a year and then moved to the data platform as well. Saw a lot of projects as a whole, was leading the consumer apps as well for some time. Citing, I think, time out there. So how did UltraHuman happen?
00:46:35
Speaker
This concludes the first part of Akshay's conversation with Mohith and Vatsal. There's a lot more that they discuss in the second part of the conversation and you can catch that episode of the Founder Thesis Podcast on any audio streaming app like Spotify, Apple Podcasts, Google Podcasts, Amazon Music, Ghana and many more. If you like the Founder Thesis Podcast then do check out our other shows on subjects like Marketing, Technology, Career Advice, Books and Drama.
00:47:03
Speaker
Visit the podium.in for a complete list of all our shows.