Unveiling the Reasons Behind PepperTap's Startup Failure
Let's rewind to 2014, where the brilliant IIM alumni, Milind Sharma, and Navneet Singh, embarked on a revolutionary journey in Gurgaon.
Their daring quest? To reshape the very essence of grocery shopping across India. Can you guess the trailblazing name? Bingo! It's none other than the unforgettable PepperTap!"
This article takes you on a comprehensive journey through Peppertap's inception, uncovering the intricate details from its start. Furthermore, it unveils the key factors contributing to the startup failure of PepperTap, offering a thorough exploration of the highs and lows in its entrepreneurial trajectory.
So, let’s begin by learning a little more about the company.
The Birth of Peppertap
PepperTap was once India's 3rd biggest online grocery delivery service. In 2014, Milind Sharma and Navneet Singh, graduates of IIM, came together to establish PepperTap in Gurugram. Their primary goal was to revolutionize the grocery delivery sector. But do you know why this idea was born?
Navneet’s wife asked him to accompany her for grocery shopping, but he yearned for a more convenient solution – having the extensive list of items delivered straight to his doorstep within a few hours. Motivated by this notion, Navneet decided to translate the idea into a startup venture.
Following a brief analysis, the entrepreneurial duo realized the significant potential inherent in their concept.
The timing was auspicious. By 2014, widespread internet accessibility in India set the stage for the inevitable emergence of online grocery shopping, adding an extra layer of convenience to the consumer experience.
But how did PepperTap operate? Now, let's explore its business model.
Unveiling the Blueprint: Navigating Through the Ingenious Business Model of PepperTap
PepperTap’s business model was quite straightforward and simple. Acting as a middleman between local grocery stores and customers, their main job was to take orders from people and make sure the groceries were delivered within 2 hours.
They didn't stock any products themselves; instead, they divided cities into areas and partnered with local shops in each area. Customers could enjoy a variety of choices at discounted prices without paying any extra for delivery. For the local shops, teaming up with PepperTap meant reaching more customers through the company's technology.
PepperTap made money by taking a 20% commission on each order they brought to the local shop. In a nutshell, PepperTap was like a blend of today's quick delivery services and modern tech-savvy stores.
How did PepperTap fare in the competitive grocery delivery landscape?
Back in 2014, the grocery delivery sector witnessed a surge of startups, with players like Grofers, BigBasket, PepperTap, and Local Baniyas vying for dominance.
Investors showed great enthusiasm for the market and eagerly embraced the perceived "disruptive" potential of PepperTap. In just a year, the startup swiftly transitioned from seed funding to two series B rounds, securing an impressive $51.2 million. Key investors, including the e-commerce giant Snapdeal, backed by Alibaba, contributed $36 million in a 2015 funding round.
Armed with substantial funding, PepperTap's founders pursued an ambitious expansion strategy. By the close of 2015, they operated in 25 cities, handling a remarkable daily delivery volume of nearly 20,000 orders. In a strategic move, PepperTap acquired Jiffstore, a Bangalore-based grocery delivery company, and grew its team to 2500 members.
Externally, PepperTap projected an image of aggressive expansion, creating the perception of abundant financial resources. Despite their confident outward demeanor, the fate of this startup was about to unfold.Top of Form
What unfolded in PepperTap's journey?
PepperTap had a cool idea - making online grocery shopping easy and getting paid for it. Sounds great, right? But here's the catch: the founders tried to grow too quickly in a way that wasn't sustainable.
Even though lots of people were buying groceries through PepperTap, the company was losing a ton of money right from the start.
After their big expansion plans, they had to awkwardly take a step back. PepperTap stopped working in 10 cities, including big ones like Mumbai, Chennai, and Kolkata. They also had to let go of many employees in different rounds.
In 2016, things got tough for PepperTap, and they had to let go of some employees. One employee shared with a journalist that the company's rush to grow quickly was because of a lot of pressure from their investors.
PepperTap wanted to make money in the grocery delivery business and compete with others like Grofers and BigBasket. When their investor saw these rivals giving big discounts and growing fast, they pushed PepperTap to do the same.
Originally, PepperTap planned to expand to just two cities besides Delhi. But, under investor pressure, the plan changed. Sometimes, the company even gave up its own earnings to speed up the expansion.
Unfortunately, trying to grow fast and easy didn't turn out well for PepperTap in the end.
Finally, in April 2016, PepperTap had to close for good.
PepperTap is like a story of growing too fast without having a solid plan, and that's why it didn't work out in the end.
What Led to the Failure of PepperTap?
PepperTap faced several challenges that contributed to its collapse:
1. Unsustainable Spending: PepperTap, fueled by heavy funding, aggressively offered discounts and free delivery to attract customers. While this approach initially garnered consumer interest, it proved unsustainable in the long run. The company's cash burn model, primarily driven by extensive discounting and promotional activities, became unsustainable beyond the initial months.
Realizing the risk of retracting discounts and potentially losing customers, PepperTap found itself trapped in a cycle where customers were drawn more to the discounts than loyalty to the service. This unsustainable spending strategy ultimately contributed to PepperTap's financial struggles.
2. Rapid Growth without Profits: PepperTap failed because it grew too quickly without prioritizing profits. Instead of focusing on understanding customer needs and refining its solution in a specific area first, it rapidly expanded to 17 cities and then 25 within a year.
The attempt to scale into less profitable tier 2 and tier 3 cities proved to be a costly mistake, draining resources without generating sufficient returns. The mindset of prioritizing rapid expansion over profitability ultimately contributed to PepperTap's downfall.
3. Rollback of Operations: The ambitious expansion resulted in PepperTap having to retract its efforts. Operations were halted in 10 cities, including major metropolitan areas like Mumbai, Chennai, and Kolkata, indicating difficulties in managing such widespread operations.
4. Layoffs: To cope with financial challenges, PepperTap had to undergo multiple rounds of layoffs, affecting its workforce and organizational stability.
5. Lack of Sustainability: PepperTap's business model, while promising in concept, struggled to sustain itself. The company's approach of scaling quickly without building a solid and sustainable foundation eventually led to its downfall.
6. Inventory Challenges: PepperTap operated without holding any inventory, relying on aggregating products from various grocery stores. While this seemed cost-effective, the system proved unreliable due to the need for frequent updates from stores, especially those lacking digital inventory systems. The impracticality led to inventory glitches and order cancellations.
Additionally, PepperTap struggled to generate profits as they sourced products at MRP and were constrained to sell them at or below MRP, making their business model financially unsustainable.
7. Absence of Quality Assurance: PepperTap, operating as an intermediary, sourced groceries from local stores without implementing any quality checks. The company relied solely on the local stores for product quality, leading to several instances where customers received subpar or poor-quality products, resulting in a less-than-ideal experience.
8. Ignoring Technical Hurdles: PepperTap faced financial strain due to technological and operational challenges. Non-tech-savvy shopkeepers found the inventory updating process complex, contributing to difficulties in maintaining accurate information.
Technical glitches on the platform, such as issues displaying all listed items, led to customer dissatisfaction. Rather than addressing these problems, PepperTap focused on expanding its store base, a move that proved detrimental to its overall performance.
9. 2016 Funding Drought: In addition to facing challenges with an unsustainable business model and no inventory management, PepperTap encountered unfavorable circumstances during its maturation.
The year 2016 proved challenging for startups across India, marked by a severe funding shortage. Many companies experienced stagnation, reduction, or significant setbacks in their growth. Notable entities like TinyOwl shut down, and even larger players like Zomato witnessed slower financial growth.
PepperTap, heavily reliant on a cash-burning business model and not generating revenue from sales, felt the impact of this funding drought. The combination of financial constraints and the lack of funding became overwhelming, ultimately leading to PepperTap's closure in April 2016.
Key Lessons from the Journey:
- When creating a product, prioritize building a Minimum Viable Product (MVP) first. Launch this initial version, gather feedback, iterate, and enhance it progressively.
- Fast, good, or cheap – you can only achieve two out of these three simultaneously. A product of high quality delivered quickly won't be inexpensive, and a low-cost product developed rapidly may lack great quality.
- In the startup journey, it's crucial not only to learn but also to unlearn misconceptions perpetuated by popular media about the startup process.
- Not every startup needs to aim for unicorn status. Instead, focus on building something that aligns with your desired lifestyle and brings the happiness you seek.
Ultimately, PepperTap's story serves as a cautionary tale about the perils of scaling too quickly without building a solid and sustainable business foundation.
Thank you for reading this article.
