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?