Startups are able to remain in news every day. Few are getting highlighted because of their brilliant concept, amazing funding stats, acquisition etc. while few are struggling with hiring firing phenomenon, organizational restructuring, policies change and business model changes. Since last few months, TinyOwl and Housing were in news for their huge firing. Now, it’s RoadRunnr that in is news because of its policies changes that are affecting its stakeholders.
Like “TinyOwl – Hiring and Firing Saga”, Roadrunnr incident has also developed a lot of lessons for startup. Here is the detailed analysis of RoadRunnr incident –
[A] Get a Business Model – Acceptable, Sustainable and Scalable
Basic requirement for a startup is an acceptable, sustainable and scalable business model. The concept should be acceptable by mass to generate the large market volume, sustainable to keep it running with profit in long run and scalable in different verticals and locations.
The concept of Roadunnr is not a new one. Every shop available in the market has at least one helper that also acts as a delivery boy if required. RoadRunnr is helping them out by providing on demand delivery option. So, the business model limited to the on demand delivery by few restaurants, supply chains and aggregators has limited probability of success.
The areas of improvement that RoadRunnr has are following –
- To consolidate the market of on demand delivery chain.
- To optimize the on demand delivery chain by incorporating multiple delivery of different demands in one run.
- Direct interaction between rider and consumer for the delivery needs of consumers.
- Introduction of over delivery verticals in its business model.
FS advice to startups is that the business model should be designed that has the large market volume, suitable in long run and able to accept different verticals at per market need or business expansion.
[B] Align the Cost of Product / Service and Running Cost with Long term Revenue Model
Cash burnt techniques to capture the market base or penetrate the market volume of other players are good practice at initial stage but not sustainable in long run. Most of the startups are noticed to utilize their funds in reducing the cost of their product/service at initial stage but don’t align it with their long term revenue model. Issues arise when focus gets shifted to profit generation than market capturing. If you cut down the running cost at later stage, it would definitely become a reason of discomfort among the concerned stake holders.
Same is applicable for RoadRunnr as well. To attract the delivery boys to join Roadrunnr, it offered higher than usual. Let’s take a short dive into the costing analysis of Roadrunnr –
- The average salary of one delivery boy = 18000 inr per month
- Overhead expanse of petrol, bike, maintenance etc = 4000 inr per month
- Total expenditure on one delivery boy = 22000 inr per month
- Let’s assume that Roadrunnr gets 20% of the total order value and the average cost per order = 300 inr
- So the inflow to RoadRunnr per delivery = 300*20% = 60 inr
- The number of deliveries required to cover the expenditure of one delivery boy = 22000/60 = 367 per month
- If we assume the working days as 25 per month, so the number of deliveries per day = 367/25 = 15 per day
- If we assume the working hour as 8 per day, so the time required per delivery = 30 mins
As the experience with such delivery supply chain suggests, the average time taken for one delivery is almost 45-50 mins, hence the revenue model is not aligned to cover the expenditure on one delivery boy. If the above results are enlarged for the entire chain of delivery boys, the cumulative results would conclude a great loss in the revenue model.
In case of RoadRunnr, the entire business model is dependent on the cash inflow by delivery, so the fixed cost and the other running cost like technical and managerial staff shall also be covered by the same. It would increase the number of deliveries required per day per delivery boy to a very high number.
No doubt RoadRunnr is also aware of the above fact, but still their business model is not aliged with the long term profit generation model.
Similar kind of problem exists with other business models as well. For eg – Ola is offering somewhere around 1.0 lac per month for one traveller bus to operate its business model of “Ola Shuttl” in Gurgaon while charges only Rs 15 per trip to the customers. Another bigger problem which is getting constructed in parallel is that these service providers are getting habitual to such huge amounts for their services and once these startups stop cash burnt techniques, people will experience a huge jump in the pricing of these service providers.
So FS advices entrepreneurs to align the cost of their product or service and the running cost with their revenue model and also keep the long term market need of sustainability of every business model while burning their funds.
[C] Evaluate the Market Competition Carefully and Develop Strategies Accordingly
To evaluate the market competition at the starting phase of your business is essential to evaluate the success probability. The competition of small players can easily be managed while the big players are the major hindrance for market infiltration.
In case of RoadRunnr, the market competition is huge. A lot of on demand delivery startups are working with their cash burnt techniques to capture the market volume. And if you are trying to act as consolidator or aggregator of all these delivery services, the competition become enormous, even with the one delivery cum helper available in the shop. Why would someone spend more money for delivery when it could easily be managed by the available manpower?
FS advice to entrepreneurs is to understand the market competition carefully at the initial phase itself. Better consumer service, consumer relationship management and operational excellence are few of the tactics to handle the competition of small players. To handle the big players, long term vision of startup should be aligned with the daily objectives of the startup.
[D] Move ahead with Proper Planning
To plan your strategies and policies is essential at the preliminary stage itself so that the right progress of your objectives could be tracked with time and no sudden changes should be experienced by stakeholders.
FS is pretty sure that the strategies of Roadunnr were not pre-planned, otherwise the situation of sudden changes would have not generated and the concerned stake holders would have not made any issue for RoadRunnr.
So, FS advices entrepreneurs plan each of the knowledge of areas of activities: Scope, Schedule, Cost, Quality, Communication, Human Resources, Procurement, Risk and Integration at the starting itself to avoid sudden changes in the business model at some point in time.
The best practice is to make a prototype of new business model first and to move ahead based on the feedback of targeted consumer on that prototype.
RoadRunnr has learnt their lesson by this sudden change. FS believes that they would not be repeat such scenarios in future.
[E] Expand the Business Model as per Market Need
Expansion of business model should be done when it gets stable in some vertical or location. The benefit of such planned expansion is that the pros and cons of the entire setup would become clear with one vertical or location itself and hence the probability of success in expansion will get enhanced.
So, FS advises startups to test the validity of their business concept, revenue model and profit margins first and then based on the lessons learnt, plan the expansion of their business.