300 Crore Startup Failure Doodhwala
Introduction to Doodhwala Startup
You may find the name of the start-up case study I’ve brought today amusing, but there’s a lot to learn from it; the name is Doodhwala.
Jack Ma, the chairman and founder of Alibaba and China’s richest man, advises people to learn from the mistakes of others. This implies that you should constantly learn from the mistakes of others. This will always be beneficial to you in life. Our lives are not long enough for us to make all of the mistakes and learn from them. Because the Doodhwala was a failed start-up, I’ve talked about loss. Yes, this business venture has come to an end. In 2015, Akash Agrawal and Ibrahim Akbari founded this company. And this start-up was shut down in 2019, which implies it was shut down after four years.
What exactly are the causes behind this? Was this the beginning of a downfall? Wasn’t business booming? No, this isn’t the case. However, this startup was expanding at a rate of 250 percent every year. rate of growth They used to provide over 70 different milk and grocery products. Furthermore, they used to deliver to their customers before 7 a.m., and their prices were lower than the MRP. They also offered free home delivery. They were given Rs. 210 crore in investment.
So, what went wrong?
5 Significant reasons for Doodhwala Failure
1.A Negative Cash Flow Situation.
Let’s have a look at what this means. As you can see, a business has a variety of expenditures. Management is responsible for its own costs. Apart from that, there are logistic costs, operations costs, web development costs, web hosting costs, app administration costs, and marketing costs, which account for 80% of startup costs. Now, in the grocery industry, you’ll need a lot of working capital, like a lot of it. You’ll also need a lot of cash. Second, a high cost of client acquisition. The expense of obtaining a single consumer is quite expensive. The optimal profit margin is likewise quite modest, ranging from 5 to 15%, and there is no customer loyalty these days since customers are so price sensitive. Expenses exceeded revenue; always remember that ‘revenue does not equal profit,’ and that your revenue is never your profit.
Let us see if we can grasp this concept.
When you sell a thing, you’re actually bringing in money for the corporation. When you deduct all of the costs from it, including the cost of land, buildings, energy, and other forms of charges, the remaining amount is referred to as profit. As a result, revenue is never the same as profit. Now take note of one point: you may only earn money at a supermarket or hyperlocal market in two ways. The first is by selling items. Purchase in economies of scale implies purchasing large quantities of things at a cheap cost, or sell in economies of scale, meaning selling in large quantities such that your profit improves due to volume; or you may do both.
2. No edge in the marketplace.
There was no competitive edge for Doodhwala. Other firms, such as Grofers, Big Basket, and Fresh to Home, undertake the same task that Doodhwala did in terms of groceries and milk sales. As you can see, Doodhwala received far less investment. When their financing was limited, their client retention suffered as a result. Because they were unable to provide sufficient discounts to clients, Grofers, Big Basket, on the other hand, had a large amount of cash. So they kept giving customers discounts and were able to keep them; that was the difference. In the grocery industry, there is a lot of rivalry. If you want to be successful in any business, you must either be the first mover or the fastest mover.
3. Inadequate planning.
As you can see, careful planning is essential. In business, entrepreneurs should bear in mind from the beginning where their profit will come from. You must consider the profit from the very beginning. Make this statement as clear as possible in your head. Expansion without a healthy gross margin is suicide. Currently look at Big Bazaar, Dmart, Reliance Fresh, and Easy Day; they’re all in the food and retail sector, but they’ve all been profitable since day one. There are two sorts of expansions now. One is constant expansion, while the other is excessive expansion. I’ll explain the distinctions between the two. The steady expansion indicates that you are expanding within your company’s capabilities rather than expanding unnecessarily. Overexpansion is going beyond your company’s capacity and resources, and when you do that, you’re ready to commit suicide on your own.
|300 Crore Startup Failure|
4. Inappropriate hiring.
They had made a number of poor recruiting decisions, as manpower is a company’s gold mine. They bring a lot of cash into the company. If you hire the wrong individual for the wrong position, you will lose your job one day. The first error they made was hiring the wrong people and bringing the wrong people into the company. Then they made the error of recruiting too many people. They employed people that were not needed in the organisation; they made pointless hires, causing their costs to skyrocket. To begin with, there was ineffective HR management. They did not handle their personnel resources properly.
5. Excessive Reliance
Then there came the backward lean forward kick. Run ahead of the pack and leave the others behind. They were unconcerned about their former workers. Then they had the incorrect compensation structure; as a result of the incorrect salary structure, expenditures escalated.
They were heavily reliant on investor funds. Consider the investor’s contribution to your meal as a pinch of salt. That your meal is for business, and they are merely serving salt. When you rely so much on investors, your position becomes a toy that requires continual attention. Then you keep whining that you need money, but investors aren’t willing to give it to you. Your firm is expense-driven, and you’re burning cash from investor money; as a result, your business model has no long-term viability.
So, what is the eventual outcome of all of this?
Shutdown appears in bold characters as a result. In four years, this is what occurred with Doodhwala. They barely made it four years because they were able to sell and raise money.
If you’ve made it this far in the blog, please let me know what you think in the comments section. I’ll catch up with you in the following blog.
Leave a Reply