Porter is fine, but happened to Dunzo?

Being a first mover comes with its perks. It allows companies to shape customer perceptions, capture market share early, and even set industry standards. Dunzo did all of this brilliantly in its initial days. But as we’ve seen time and again in the startup ecosystem, being first doesn’t guarantee staying on top. Companies like Ola Electric, Zomato, Paytm, and Flipkart all started strong but faced fierce competition, internal challenges, or market shifts that made sustaining leadership a battle.

Dunzo’s story is no different. Despite its early lead, it couldn’t hold its ground due to some unfortunate moves and mounting challenges. What exactly went wrong, and what can startups learn from its journey? Let’s dive into today’s case study about Dunzo, a first mover that couldn’t hold on to its crown.

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For those who do not know about Dunzo, here is a little about the it.

Dunzo is an Indian hyperlocal delivery platform that has transformed the way urban consumers access good & service. The company operates on a hyperlocal business model, connecting users with local delivery partners to fulfill requests quickly and efficiently. It was very much like Porter. Read all about Porter’s story here.

Inception and Early Days

Dunzo was founded in 2014 by Kabeer Biswas, Ankur Agarwal, Dalvir Suri, and Mukund Jha emerging form a simple yet innovative idea that began as a WhatsApp group. The concept for Dunzo was inspired by Kabeer’s previous experiences and the convenience of apps like Uber, which allowed users to request services with a single click. He envisioned an application that could facilitate similar ease for everyday tasks. The name "Dunzo" reflects the idea of completing tasks quickly and efficiently.

In its early days, Dunzo operated through a simple WhatsApp group where users could send requests for various errands. Kabeer would fulfill these requests personally, often working long hours from early morning until late at night. This hands-on approach helped him understand the logistics and customer needs firsthand. Further recognizing the potential for growth, Kabeer and his co-founders decided to formalize the business and they launched the Dunzo App in 2015. Remember the green colour themed, extremely beautiful and intuitive app? This app quickly gained traction, fueled by the increasing demand for convenience in urban living.

Early Expansion and User Adoption

Initially, Dunzo operated as a hyperlocal delivery service that allowed users to complete errands through a simple app interface. The company quickly gained popularity in urban areas due to its user-friendly platform and the convenience it offered. By leveraging a network of local delivery partners, Dunzo was able to fulfil a wide range of requests - from grocery shopping to document delivery - effectively addressing the needs of busy urban consumers. Here are some numbers to prove it:

• By 2021, Dunzo’s app has been downloaded 5 million times.

• Dunzo fulfilled over 10 laks orders every month.

These numbers showcased the company’s increasing user base and strong demand for its services.

Funding rounds and financial growth

Dunzo’s journey has marked by major funding rounds that proved pivotal to its growth and expansion within the hyperlocal delivery and quick commerce sectors. Below is a detailed overview of its funding history:

• Seed Funding(2016): Company raised its first round of funding in March 2016, securing $650,000 from investors including Blume ventures and Aspada Ventures.

• Series A(2017): In December 2017, Dunzo received $12 million from Google, marking the tech giant's first direct investment in an Indian startup.

• Series B (2019): In October 2019, Dunzo raised $45 million from a consortium of investors including Lightbox Ventures, 3L Capital, and STIC Investments.

• Venture Debt (2020): In February 2020, the company secured $11 million as venture debt from Alteria Capital, providing additional liquidity to support its operations.

• Series E (2020): In September 2020, Dunzo raised $28 million in a Series E round led by Google and Lightstone Fund.

• Series F (2022): A significant milestone occurred in January 2022 when Dunzo raised a whooping $240 million in its Series F funding round led by Reliance Retail Ventures Limited (RRVL). This investment gave Reliance a 25.8% stake in the company. It meant that that Reliance had now the Veto power and the founders could not take any decision without getting approval from Reliance.

• Convertible Notes (2022): In April 2022, Dunzo closed a financing round through convertible notes amounting to $75 million, which provided immediate capital to address operational challenges amid increasing losses.

Over the years, the company raised approximately $457.6 million in total funding from prominent investors. These funds were primarily used to enhance technology infrastructure, expand service offerings, and increase marketing efforts to attract new users.

As of late 2023, Dunzo is reportedly in advanced talks to raise between $25 million to $30 million in a Series G round. This funding is crucial as the company faces cash flow issues, including delayed salaries for employees and outstanding dues to vendors. The current round is expected to consist primarily of equity funding with a potential small debt component.

So the question that arises over here is, for a company that was doing so exceptionally well, had raised roughly a half a million in funding, and had the first mover advantage…

What exactly went wrong?

Well, for beginners, it’s pivot into quick commerce. You see, Dunzo’s entry into quick commerce marked a significant shift in its business strategy, aiming to capitalize on the growing demand for fast delivery services. This transition met with challenges that ultimately contributed to the company’s struggles. Here is a detailed look:

1. In late 2020, Dunzo began exploring the quick commerce model by launching Dunzo Daily, which aimed to deliver groceries and essentials within minutes. This pivot significantly strained the company’s finances. The rapid expansion led to expenses skyrocketing—procurement costs surged by over 9,000% year-on-year due to investments in inventory for dark stores.

2. Dunzo invested significantly in establishing dark stores. This model required substantial upfront capital for inventory and operational setup. This resulted in high cash burn rates that became unsustainable over time.

3. As Dunzo attempted to establish itself in the quick commerce space, it faced fierce competition from well-funded rivals like Blinkit and Zepto, which managed to scale their operations more effectively. Despite being an early mover in hyperlocal delivery, Dunzo struggled to maintain its competitive edge.

4. To attract customers in a competitive landscape, Dunzo engaged in aggressive marketing campaigns and offered substantial discounts, similar to its competitors. This strategy led to increased customer acquisition but also resulted in high cash burn rates.

Where does Dunzo stand now?

Dunzo’s current situation, as you might have guessed already by now, reflects challenges following a period of aggressive growth and subsequent operational restructuring. Here’s an overview:

• Transaction Volume Decline: Dunzo's grocery delivery service, Dunzo Daily, has seen its monthly transactions plummet to between 1 million to 1.5 million, a stark decrease from 5.5 million transactions in June 2022.

• The company has been grappling with severe cash flow problems, leading to deferred salary payments for employees and multiple rounds of layoffs.

• Dunzo reported operating revenue of ₹226 crore for the fiscal year 2023 (FY23), which is a notable increase from ₹54 crore in FY22.

• Despite the revenue growth, Dunzo faced a staggering net loss of ₹1,800 crore in FY23, up from ₹464 crore in FY22. This loss reflects an 8x loss-to-revenue ratio, indicating severe financial strain and inefficiencies in its operations.

What’s next?

In order to over come this situation, Dunzo is making some serious major changes. Some of them are as follows:

• Organizational Restructuring: The departure of co-founder Dalvir Suri, who led the Dunzo Merchant Services (DMS) division, marks a significant shift in leadership. The company aims to fill this gap with capable leadership from within the organization to maintain continuity in its B2B operations. The restructuring is intended to refocus the company on its core supply and marketplace functions, which are essential for sustaining operations.

• Workforce Reduction: Approximately 75% of its employees have been laid off, leaving only around 50 employees in core teams. This drastic reduction is part of a broader strategy to cut costs and improve cash flow as the company faces mounting financial pressures.

• New Funding Round: As previously mentioned, the company is reportedly negotiating a funding round of $25 million to $30 million, which will likely involve participation from existing investors like Reliance Retail and Google. This funding is critical for stabilizing the company's finances and ensuring operational continuity.

• Reevaluation of Business Model: The company is reassessing its approach to quick commerce and hyperlocal delivery, aiming to strike a balance between growth and profitability.

Through these corrective measures, Dunzo aims to stabilize its operations and regain market confidence. While these steps are essential for addressing immediate financial challenges, their long-term effectiveness will depend on how well Dunzo can adapt to market dynamics and consumer demands moving forward.

How does the future look?

To be honest, it is difficult to tell exactly what future holds, but we have seen several founders change the course of companies like Dunzo. Remember the Snapdeal Story? Dunzo too is trying to change its trajectory. Some ways it is approaching this are as follows:

• Dunzo is pivoting from its previous quick commerce model, which promised rapid deliveries (15-20 minutes), to a more sustainable approach that emphasizes 60-minute deliveries.

• The company plans to shut down about 50% of its dark stores, which were part of its quick commerce strategy.

• Dunzo is also focusing on its B2B logistics arm, Dunzo for Business (D4B), which has partnered with the Open Network for Digital Commerce (ONDC) to provide last-mile delivery services for local enterprises

Long story short, Dunzo's future outlook hinges on its ability to execute its strategic pivots effectively while managing financial sustainability. The company must navigate carefully to ensure long-term viability in the evolving quick commerce landscape.

While it will be interesting to see how Dunzo navigates its future, its journey so far offers some valuable lessons. Here are a few key takeaways from what I’ve observed:

• Establish operational profitability before expansion: A basic rule that’s often forgotten in the excitement of being a “market leader” or “unicorn” is that businesses need to make money to survive. No matter how much attention a company gets, profitability is the only way to ensure long-term success.

• Align with the Right Investors: Dunzo's decision to partner with Reliance Retail for a significant funding round resulted in a loss of equity and control, leading to valuation disputes and misalignment of interests. This emphasizes the necessity for startups to choose investors whose goals align with their long-term vision, rather than simply seeking capital at any cost.

• First mover advantage comes along with great responsibility & risks: Being the first in a market brings big advantages like brand recognition and customer loyalty, but it also comes with responsibility. First movers must educate the market, innovate constantly, and stay ahead of competitors. Complacency can be risky, as rivals will learn from your mistakes. To stay successful, first movers need to keep adapting and improving.

That brings us to the end of this issue. I really hope you like it. If you did, share this within your network and if you haven’t subscribed to Think Tank already, do it using the link below.

I will get back to you with more stories like these. In the meantime, take a look at these other interesting case studies:

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Keep tuned for more such case studies.
Until then,
Happy Reading!