Pepper Tap Failure : Missed market fit and a rash pivot led to startup collapse.
Differentiation is key ingredient for any business, which can’t be discounted with any other factor.
In this What Went Wrong series, On Day 5 let’s unpack the story of Pepper Tap and what went wrong in that startup with raw insights.
Do you believe that startup founders having experienced in logistics space and raise 50 million funding in their first year which eventually end up as dead state.
Logistics has been the biggest space multiple players entered solve the problem of supply chain and logistics. Unfortunately, most of them ended up as failures. Milind Sharma and Navneet Singh started NuvoEx in 2013, a reverse logistics startup providing logistics solutions for B2B market. They worked with emerging startups Delhivery and Groupon.
They realized the potential of B2C delivery market and decided to launch an online grocery delivery startup. In 2014 April Pepper Tap has launched in Gurugram providing groceries to doorstep delivery with stipulated time in convenience of customers. New startups has been great welcome from VC and investors to initiate elephant fund with minimal business model and action plan. Pepper Tap raised seed funding of 1.2 million USD from Sequoia Capital.
Online grocery shopping market has been an interesting space and competitors and new entrants introduced multiple strategies to capture market share. Pepper Tap wanted to bring unbeatable differentiation in market and introduced free delivery to customers with promise 2 hour delivery. This attracts more customer attention with factor accessibility. They didn’t hold to go slow and raise another round of funding with SAIF partners deal of 10 million USD.
Competitors like Big basket, Blinkit(formerly Grofers) strategized their inventory model to mitigate supply chain issues. But, Pepper Tap created trajectory with zero inventory approach where customers can order items using Pepper Tap application and retailers can get direct request from customers where logistics handled by the company. which reduced the inventory cost to them. Aiming to serve large cohort they raised huge ticket of funding deal 36 million USD from Snap deal backed by Ali Baba. This opportunity open doors to founders to play aggressively and expand the startup and Pepper Tap gradually increased their operations to 17 cities in India including metro and Tier II cities.
Pepper Tap has gained more cohorts by providing huge discounts to customers along with free delivery service. They reached with achieving more than 25K orders per daily basis. They’ve grown from GMV of 1 million USD to end of 2015–16 GMV of 50 million USD.
If business running solely on funding, then it’s a indication that founders should correct the financials and path holes before it goes out of league. In this case they missed the bus before financial reports alarmed negative cash flow. Navneet realized that heaving discounting and free delivery leads to negative margin which finally impacts the cash flow drastically.
Having zero inventory model approach, they strategized the operating cost of goods sold. But, vendors and retailors who are restrict adopt new technology shown disinterest to understand the online merchandising and also technical glitches made much more harder. Founders realized lately that concentrating on operations could have been done better instead of scaling up in blink of eye. To sustain the operations, founders raised another round of funding from Inno Ven Capital deal of 4 million USD.
You can’t satisfy the mammoth with small size funds, where operational cost and discounting engulfed minimal funding. In 2016 April, Navneet released statement that ‘They are shitting down their operations and pivoted to reverse logistics NuvoEx. If we failed the business model then eventually you can’t see the anything surprise. In 2017, NuvoEx has been acquired by B2B logistic startup Shadowfax.
What Went Wrong
· Struggled to achieve a solid product-market fit.
· Ineffective business model compounded by poor marketing strategies.
· Overlooked the importance of customer profiling and infrastructure.
Soaring customer acquisition costs paired with unsustainable negative margins
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