Four Reasons Why Indian Hyperlocal Startups Failed

Startup culture in India can be traced back to the mid 1980s when, post exposure to computers and Internet, we were taking baby-steps into the tech world. Today, there's a new startup in every nook and corner, and while it is encouraging to see young entrepreneurs experiencing business and management, you also see many of the hyped-up businesses fail. The troubles come down not to e-commerce, but to actual commerce, and that's something that you can see taking place in the much hyped hyperlocal startup space.

(Also see: Another VC-Funded Grocery Delivery Business Falls to the Local Sabzi Guy)

Online shopping these days has become a graveyard of failed enterprises, leaving customers with worries of all sorts. Early hiccups that companies - and their customers - face include timely deliveries, safe transactions, misuse of information by companies, and fraud by customers. The shifting landscape has also spelled the doom of many a kirana store that could not keep place with a changing world.

From home deliveries to discounts and the convenience of getting all your different needs from a single app, hyperlocal companies had a lot to offer, and venture capitalists have been investing heavily. So what went wrong?

PepperTap, LocalBanya, Flipkart's Nearby all rose and met doom quickly, and even Grofers shut operations in many big cities. Here are the facts that nailed the coffin shut.

1) The gold rush
2014 was touted as real turning point for Indian startups, and billions were pumped in by global investors. With more than a billion people, the huge market potential attracted them in large numbers. Brick and mortar operations faced tough competition, and the once traditional and classical companies were brought on board with spending and valuations.

While Hyperlocal ventures turned out to be a boon for the local stores by giving them an extra selling opportunity, at the same time it was a game spoiler with all the discounts and offers. This was borne by the ventures themselves, all for the sake of marketing and increasing customer base, but clearly it was unsustainable in the long run.

2) Too big, too soon
The companies in this space were growing at unrealistic rates. PepperTap grew to have operations across 17 cities in just a year and a half. Navneet Singh, CEO at PepperTap shares: “In the race to pepper the whole country with PepperTap, we had brought too many stores online far too quickly.”

Rome was not built in a day, startups need to understand that quick expansion without a solid foundation and strategy is not worth fighting for.

3) Investor pressure
Behind-the-scenes for many startups, investors directly compare the nascent Indian market to Silicon Valley. At the same time, companies are under tremendous pressure to show user acquisition, which gives way to offers and discounts. Loose ends of delivery management, fraud, and lost orders also build pressure.

4) Discounts galore
Just doling out heavy discounts doesn’t ensure faithful or repeat customers. From e-commerce to grocery delivery services, discounts, coupon codes, offers, weekend sale, festival offers and flash sales, these marketing gimmicks ensure a lot of clicks and website visits and checking out products.

But for a business to run profitably, 365 days of discount sales is impossible. Every single weekend the newspaper shows huge advertisements for flash sales, promos and offers. While the hyperlocal apps are busy cracking clever sales and discount schemes, they should have thought about ways of optimising on the costs and finding a way out to calculate the ROI for these advertisements.

By providing humongous growth prospects to the local retailers, hyperlocal heralded a new era. Instant satisfaction and reduced prices will give consumers satisfaction, but not for long. Instead, drive the exceptional experience, learn the factors that drives. Companies in this space need to bring in the convenience factor to your retailing and make it an experience, and they need to do so now.

Tejinder Pal Singh Oberoi is the Executive Director at Cygnet Infotech - an Ahmedabad-based IT company that has developed m1Order, a local mobile commerce platform.

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