Today, I came across an interesting start-up: D2O (as in Distribution 2.0). They have already been profiled in Headstart network and yourstory. The name sounds very interesting. The space is also very interesting. They are in the process to create a product agnostic distribution network which can distribute any product nationwide. They have started operations in Mumbai and are seeking to scale-up. My take on the start-up is as below.
The most important aspect of any successful business is the business model. Let me try to put in my understanding of their business model:
- Value Proposition:
- Re-define conventional distribution networks and create product or service agnostic distribution networks
- Use financial services and insurance as the vehicle to create and test the network
- Customers: Consumers of any product/service channeled through the network.
- Key activities:
- Identify potential channel partners across geographies
- Identify potential services that can be distributed
- Cost structures:
- Setting up a scalable technology backbone to support operations
- Identifying potential channel partners across geographies is a cost intensive exercise
- Revenue plan: Margins to be made by using the same channel to distribute multiple products to same or similar consumers.
I find that the idea is novel. However, there are some major challenges ahead for them which they need to address:
- Setting up a nationwide or even a regional distribution network takes time and is cost intensive. This means that to create such a network, they will need a lot of cash to burn upfront.
- The product/service they have started with is a high margin product. But the customer segment they have decided to focus is at the bottom of the pyramid (BoP). This is even more challenging as this can potentially slow down their progress on scaling up.
- They need to reach a critical mass in terms of their distribution reach in order to become profitable and to be considered an alternative or a ready channel for new products/service launches.
- The choice of channel partners/distributors/affiliate partners will determine the constraints of the products/services that can be distributed. It is a tough choice to make.
- Channel partners will loose interest in the company if they do not get quick RoI or from being a part of the network. OF all the challenges, this is one which can decide the fate of the start-up.
Having said all of these, there are some other things that are favorable for D2O:
- The founders have a small team and are thinking big.
- Cloud can help them build a really scalable technology back-bone to support operations.
- The start-up ecosystem and the business environment (with India growing handsomely and most of the growth coming from tier 2 and 3 towns) is very conducive for start-ups like them to flourish.
In my opinion there can be a slight shift in their strategy so that they allow themselves to grow fast. That will be the only way they can ensure success.
These were my opinion on the company, their business model and challenges. Do you agree with my opinion?
This year’s NASSCOM Product Conclave which concluded last week had a few surprises in for me. This year’s theme was cloud computing and start-ups. A few things that stood out at this year’s events are:
- Co-Creator forum: One unique activity that has been tried out at the event was a match making process where big SI’s and MNC’s were introduced to Indian product companies to explore possible partnering opportunities. I participated as part of the SAP team. We met some interesting product companies and are exploring partnering opportunities with them. I think this indicates another shift in the industry. Partnerships are going to be crucial to win in the new reality.
- Presence of investor community: Start-up’s invariably attract investors (Angel investors and VC’s). This year there was a good participation in the event by the investor community, not only as speakers, but also as sponsors and more importantly delegates. This indicates that there is a lot of money waiting to be invested in the Indian product companies which is good news for the industry at large and start-ups more specifically.
- Perceptible shift in the industry: There are a lot more companies in India who now want to create products than just offer services. This indicates that the Indian IT industry is moving up the value chain. I am sure that India will emerge as a hub for software products soon and there would be no surprise if the next Google or Microsoft will emerge from this community.
- Emergence of ZOHO: One success story of a product company in India has been ZOHO. ZOHO has proved to be a path breaker in this community and I could sense that they are being considered the leader in the pack, just like Infosys was considered when the services economy was about to take off. Whether ZOHO will also grow as big as Infosys, time only will tell. One thing for sure is that they have shown to the Indian software industry that creating world class products from India can be a reality. The importance given to them was evident from the fact that their CEO had 3 back-to-back sessions on the last day of the event.
- Dilemma – Cloud or On-Premise: I could sense that there is no consensus on the cloud or on-premise dilemma. I guess both will have to co-exist and grow together for some more time to come before one or the other emerges as the clear winner to create and deliver great products.
Here are some interesting product companies to watch out for:
Do you know of other interesting start-ups in India which have the potential to become big?
I recently came across a company, CornerStone which has implemented a unique retail business model where the physical stores do not hold any inventory at all. All the inventory is maintained at the central warehouse from where all shipments are made. I think they should go one step further and tailor the garment only upon the receipt of an order. They also provide an online store from where you can purchase.
The business model is unique in the industry as it combines the best and worst of the virtual and real world models. Low or zero inventory at the retail store means that the cost of opening up a store is drastically low and conducive to franchising mode of growth. This also provides them the opportunity to optimize the supply chain and reduce the overall cost of production. All of this put together means that the possibility of good profit margin is high.
The flip side is the fact that customer’s who do impulse buying are less likely to buy or place orders in this model. This model would work very well for the customers who are very particular about the fit and less about the impulsive high of owning something immediate (aka, online shoppers).
If they can find ways to scale fast, the economies of scale will provide them a great opportunity to disrupt high-end fashion retailers.
Some more ideas that they could mull over:
- Tailor the garment only upon receipt of a confirmed order and then dispatch.
- Allow customer’s to book an appointment and go to their home/office to take orders.
- Aggressively franchise to gain economies of scale
- Look at the consumer gift voucher as a mode of promotion of sales
- Adapt the Zappos way of doing business for their own benefit, like
- 365 day return policy
- 2 way delivery free
- Allow customers to advocate the product from the stores directly as soon as they purchase
- Increase the product mix to include women’s wear
Hope that they are able to improve their sales and scale their operations nationally.
Wishing them all the very best.!!!!!