With increase in number of e-commerce players, hyper local delivery, on-demand services etc, the scope of logistics is getting increased day by day. Escalation in smart phone users is making the logistics services in more demand. With increasing demand from Tier II and III cities, enhanced logistics services are the need of today market.
As per the “Logistics Market in India 2015-2020” by Market Researcher Novonous, the logistics industry is worth $300 billion and expected to grow at a CAGR of 12.17% by 2020. With such huge figures in hand, Logistics give a huge scope to entrepreneurs for improvement of existing way of working and developing their business model. This is because of increase demand of e-commerce players that in Jan’16 India Post reported a massive 900% jump in Profit.
If you are planning to start a logistics startup, like Delhivery, LogiNext etc, here is first cut planning from FS Labs for the same –
[A] Market Study
Demand and Supply Study of Market – Every business model is driven by the demand and supply principle – higher the demand, higher is the need of supply. Any business domain saturated with respect to the demand is not a good idea unless the new model is strong enough to penetrate and sustain the market volume of other players.
So the first thing that needs to be studied is the demand of external logistics player in the domain that you are targeting and the geographical area where you are initiating your business model. For eg – If you are targeting international logistics domain of goods, a lot of shipments travels between India and China, so a solution of full or partial container load combined with the packaging solutions is a good business idea. If you are targeting last mile delivery, food, grocery, other goods could be a good idea based on the demand in your selected area.
The benefit of “demand and supply study” is that gives the possibility of survival in the market.
Market Size Assessment – A business model fulfilling the need of mass has high probability of success – more the potential customers; more are the chances of market acceptance. Market size assessment is a combination of potential market for the business concept & established market base of existing players and hence the resultant penetrable market base.
So the study that is required is the estimation of market size. For eg – If your startup is based on last mile delivery of goods in some specific area and few other players are also working in the same domain, the market available for you is the difference between potential consumer base and already established market for other players.
Once the market size is estimated, you can easily decide the other strategies like marketing, customer acquisition based on the type of consumers you are handling.
Market Competition Analysis – Biggest challenge in front of any startup is the market competition that it is going to face. Small players give challenge in terms of their loyal consumer base while biggies give competition in terms of cash burn. So it’s essential to understand the market competition from direct players and well as indirect competitors. Direct competitors are the players of same domain while indirect players are the biggies getting diverse.
If your logistics business model is based on the goods delivery combined with the ordering facility as well, every small shop providing the home delivery service on phone call becomes your competitor along with the e-commerce players serving that area.
The benefit of knowing your competitors beforehand is that you can easily decide the strategies to handle them. Small players can easily be handled by achieving operational excellence while biggies require additional planning.
[B] Business Case
Revenue Model Analysis – Ultimate aim of any business model is to earn money. If the profit margins are good enough, moderate volume is sufficient to keep the cash flow balanced but if the profit margins are small, it’s necessary to optimize the process in terms of operations and cash flow.
So for the logistics business model its necessary to estimate the cash out flow – fixed as well as variable, and cash in-flow that is generally based on the commission per transaction. Based on the type of logistics business, you can decide the fixed and running cost and estimate the cash-in per transaction and minimum volume required.
Additional ways of making money should also be evaluated to implement that at initial stage self or at later expansion phase. For example – logistics business model can be enhanced with following solutions –
- Packaging Solutions with Advertisement on it
- Inventory Management Solutions
- Related Services
Marketing Approach – Next step is to analyze the marketing strategies to reach and convince the identified potential consumers.
For example – if your logistics business model is based on the last mile delivery of goods, you can reach to the concerned stores by mail or direct interaction and convince them to be your customer. If your startup is providing the international logistics solutions, the companies whose supply chain is dependent on different geographical locations, you can reach to the concerned supply chain personnel and convince them about your business model.
In case of logistics startup, it’s better to get some customers on-board prior to execution so that the efforts of execution should not waste in search of consumers.
Customer Acquisition Tactics – To acquire consumers, you can offer some discounts at initial stage or can provide some additional solution free of cost or at reduced price and increase the same once start capturing the market.
In highly competitive market, it’s essential to know the customer acquisition tactics of your consumers and the behavior of your consumers. So the final outcome would be the resultant of these two factors.
Scalability Analysis – Scalability check is the next essential element of pre-study of startup viability. Startup concept can be scaled to other product range, business verticals, locations etc. Business model with limited scalability has problem of
Simple logistics startup is scalable in terms of services and locations. Based on the funds and other resources available you can decide the scalability of your logistics startup –
- Delivery Planning and Management Solutions – Optimization of delivery flow, real time tracking and communication flow, tracking of missed and pending deliveries etc.
- Inventory Planning and Management Solutions – Demand forecasting, consumer analysis, inventory allocation etc.
- Other Related Services – Reverse logistics management, call center support, after sales support etc.
Benefit of having scalability plans is useful for future growth – if plan A doesn’t work, you can easily move or combine the next.
[C] Resource Requirement
Team Requirement – A proper team with all the required skill sets is essential for startup. So first the need of skill-sets should be mapped for the required scope of work, and then based on those skillsets you can select the right team for your logistics startup.
For logistics startup, following skill sets are required to execute the plan –
- Coder – to design the online portal for related transactions (if concept is web or app based), other related tools development
- Marketing Ninja – to convince the potential consumers
- Manager – to manage, optimize and run the show
- Fleet Runners – to execute the logistics business
Funds Requirement – Funds are required to execute the business plan. So based on the resources required to perform the defined activities, funds requirement can be estimated.
For logistics startup, cash including verticals are as follow-
- Office Space
- Operational Cost
- Manpower Cost
- Other fixed cost – like running fleet, other equipment etc.
Fleet Requirement – Based on the type of business model, aggregator or individual, first or last mile delivery, you can decide the vehicle fleet requirement for your business model. If you have sufficient funds, you can develop your own fleet otherwise engaging a service provider is a good option.
Wish you luck for your startup. Stay tuned with FS to know more.