The India Startup Story
“We are very much on track to have 100 unicorns by
A Paradigm Shift in the Startup Business Model
With the third largest startup ecosystem in the
world and 34 “soonicorns” on their way to join the
billion-dollar club by 2020, the India startup
ecosystem shines as a lone bright spot in times of
an impending slowdown. Much of this credit can be
attributed to promising funding from investors,
constant push for growth and the ever-evolving
business models to capture greater market share.
While most poster-boy start-ups of the Indian story
have been technology firms disrupting traditional
brick-and-mortar businesses, there has been a
recent upsurge in startups self-disrupting
themselves to remain relevant, in a market where
consumer demands are rapidly evolving.
Think start-up and most of us instantly substitute
them with either online platforms (PayTM, OYO,
Swiggy) or aggregators (Ola) with lean, agile teams
of young individuals focusing excessively on coding
algorithms and minimalistic capital investments.
While one cannot deny the role technology has
played in the rise of these startups, there has been a
recent trend where startups are seeking to firm their
footprint, beyond the cloud. With industry
boundaries blurring, startups are moving from an
asset-light ownership to an asset-heavy ownership
model, signaling to the industry and market-
watchers to take them seriously and set the new
norms of business.
around 2025. This is a very interesting phase for the
Indian startup ecosystem “
-Sequoia
Founded as a hyperlocal food-delivery business, the
rise of Swiggy, India’s food-tech startup has virtually
forced other players to either pivot (Food panda
moving to Ola Foods) or seek exit options (Uber
Eats). The Swiggy story is simple. Starting as a food
delivery app, it allowed users to get food delivered
at their homes on the click of a button enabled by
partnership with a few restaurants. A series of
funding saw Swiggy expand its operations
strategically (deep discounts to onboard customers)
and geographically (presence now in tier-2 & tier-3
Indian cities). While the online platform has added
multiple features like Swiggy POP, Swiggy
Scheduled in-line with the millennial needs, it is
their bet on Swiggy Access, that’s paying them rich
dividends.
Swiggy Access is an attempt to optimize the supply
chain and meet customer needs, faster. It acts as a
central base for delivery with multiple kitchens of
different restaurant partners, operating under the
same roof. Cloud kitchens, as they are called, seems
to be the new buzzword in the food-tech space with
Zomato also fast catching up onto the idea. With no
dine-in options, the food can only be “accessed” via
Swiggy’s online platform.
Advantage? Restaurants get ready kitchen
infrastructure, which amount to appropriately 25-
30% savings on their operational costs as Swiggy
doesn’t charge a rental or deposit from these
partners. Customers are happy with more food
options and faster deliveries, given the proximity of
these kitchens to delivery locations. And finally,
Swiggy. As they penetrate the markets deeper, their
market share increases, save costs as the network
gets optimized (only one delivery center as opposed
to as many as five earlier), happy delivery personnel
and ofcourse higher revenues (Swiggy reportedly
charges at least 3% extra commission per order
from these restaurant partners).
A look at other industries in the time of Industry 4.0,
we have our very own Indian version, the OYO 2.0.
What started as an attempt to provide the basic
hospitality experience to very Indian customer, OYO
today boasts of operations in 80 countries including
the mature markets of US, Europe and UK. With a
constant pour of funds from SoftBank, OYO has
been able to successfully charter itself into unknown
lands.
The OYO business model at the time of it is
inception was focused around providing a
standardized experience to the Indian traveler. In an
economic disparate nation like India, one can find
options from shared accommodation to luxury
experiences, all within the same city. OYO started off
by targeting the budgetary traveler by partnering
with hotels and listing them on the OYO app, thus
connecting supply (of hotels) to demand (of
travelers) all at one place. The OYO quality
assurance promise came as the icing on the cake. As
it expanded its operations across India, OYO started
targeting multiple customer segments by coming
up with different OYO chains like the most recent
OYO Townhouse for the working professional.
Commissions on hotel bookings was the chief
revenue source with negligible costs of maintaining
the online listing platform.
With issues of non-compliance rising and number of
properties saturating, OYO took the next big step.
The OYO 2.0, a re-innovated self-disrupted business
model allows OYO to integrate itself vertically in the
value chain. From being just another app for
accommodation, OYO in its new version is aiming to
completely transform the accommodation
experience for customers, by being a hospitality
player itself.
While most regard this move from OYO CEO Ritesh
Agarwal as an audacious move, there has been a
strong backing from Softbank to scale up on this
idea. With its new business model, OYO plans to
acquire and maintain property and aims to be a
leading name in the hospitality sector. From starting
as a budget hotel chain to being a real estate
company OYO has entered into a variety of
businesses ranging from hospitality to coworking to
cloud kitchen and now a coffee chain. A shift to the
asset-heavy model has resulted in its operational
revenues increasing by 3.56x but the operational
expenses rising to 4x, thus posing raising concerns
from industry on OYO’s profitability.
While a need to constantly re-innovate business
models is not new (Microsoft moving from an OS
company to a cloud-based company), the case of
Indian start-ups is particularly peculiar. With heavy
capital investments in the absence of profits (both
Swiggy and OYO are yet to turn profitable), the
question is whether the start-ups are stretching
themselves too thin, too soon in pursuit of
diversified growth? The closest international
analogy comes as WeWork (coincidentally another
Softbank backed tech-inflected real estate business).
WeWork’s failed IPO (valuation of 20 billion USD
with potential public investors as opposed to a
valuation of 47 billion USD from SoftBank), forced
SoftBank to take ownership of the coworking
business.
While the present scenario is a bed of roses with
thorns untrimmed, only time will tell whether the
start-up business model is indeed sustainable, with
companies currently losing money (fast!) on every
transaction.