PepperTap’s collapse shows everything that is wrong with India’s young internet companies

domainking131

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India’s third-largest grocery delivery service is no more.

On April 22, PepperTap, a 17-month-old Gurgaon-headquartered startup, said it will shut its grocery delivery operations. Promoters Navneet Singh and Milind Sharma, who had earlier worked together at logistics startup Delhivery, will now focus on expanding PepperTap’s own logistics business.

Founded in November 2014 by Singh, an Indian Institute of Management-Ahmedabad graduate, and Sharma, PepperTap was built to deliver groceries from local stores to neighbourhood customers within two hours. Orders could be placed through the company’s mobile app or website.

Like most business-to-consumer (B2C) startups in India, PepperTap was in hyper-growth mode in the first year of its life. By October 2015, the company had expanded business to 17 cities and was delivering an average of 20,000 orders per day. Operating on an inventory-less model, the startup was capital-light.


Groceries gone bad
In any case, India’s online grocery delivery market is an excruciatingly tough one to crack. PepperTap’s closure is just more proof.

In January, Grofers—backed by SoftBank, Sequoia and Tiger Global—pulled out of nine markets, saying “smaller cities are not ready for hyperlocal business yet.”

India’s $383-billion food & grocery industry—largely run by traditional mom & pop stores, with a smattering of large brick & mortar and online retailers—typically operates on margins ranging between 5% and 10%. For online delivery services such as Grofers and PepperTap, they are even lower.



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Jeff

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Interesting article. Unfortunate, but I'm sure that they are paving the way for future entrepreneurs. This also reminds me of this article - "Dear Unit Economics, I Hate You":

https://medium.com/@guyshachar28/dear-unit-economics-i-hate-you-7c28b9aef08d#.6w4d50bkj

Unit economics  — the most terrifying term in the entrepreneurial dictionary, is a vicious serial startup killer that is walking amongst us. Passionate entrepreneurs with revolutionary visions of changing the world are spending most of their time worrying about the usual founder struggles — continuously seeking the perfect business model, obsessing over product –market fit and pursuing rapid growth that would later on lead to scale. Somehow, mysteriously enough, dealing with the unit economics usually gets postponed to a later stage while completely ignoring this lethal killer, leading to the tragic yet highly predictable death of many companies.

Figuring out the unit economics is not rocket science, in fact it’s actually extremely simple and makes a lot of sense. In layman’s terms: earn more than you spend. The LTV (lifetime value) of a customer has to be higher than your CAC (customer acquisition cost). To the extent that theLTV exceeds theCAC, you have a business. Being able to acquire new customers, for less money than the amount of revenue that they will generate during the entire duration of their usage of your service, should be pretty obvious. It’s simple math. If you ask any kid in the first grade if he would be willing to sell a dollar for 70 cents he would probably look at you as if you were out of your mind, but this is the exact same phenomena happening in the Silicon Valley these days. Entrepreneurs are selling a lot of dollars for a lot of cents, refusing to recognize that something is wrong.

The main problem is that entrepreneurs are naturally very optimistic creatures, otherwise they wouldn’t be in this business to begin with. Now don’t get me wrong, believing in yourself and in the problem that you’re solving is crucial in order to succeed, nonetheless this blind faith leads many startups to the false belief in the infinite retention of customers, or the famous “everyone will talk about it”, assuming virality is a non-issue. In the B2C world, viral growth is often hoped for - unfortunately, in reality it’s usually not the case. We live in a time with an absurd number of low-margin, highly competitive companies. The funny thing is that some of these money-losing companies still manage to raise considerable amounts of money at unrealistic valuations. Did anyone say bubble?]/quote]
 
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