The Success and Failure of Dunzo: What Caused Its Demise?

Valued at $1 billion and receiving more than $457 million in funding, Dunzo was once considered one of the most successful hyperlocal delivery startups in India. However, it now finds itself unable to pay salaries, shutting down operations in several cities, and striving for survival. What happened?

The Origin: The Birth of a Brilliant Concept

Founded in 2015 by Kabeer Biswas, who got his inspiration from Uber, the concept was based on a single principle: getting things done at a click of a button.

Unlike other businesses that began as apps, Dunzo originated from a WhatsApp group where people could send messages of what they needed done, and Kabeer did it personally. Initially, Sahil Kini became one of its earliest believers and investors. 

Fast Growth and Market Validity

Thanks to investment, Dunzo grew exponentially. The number of monthly transactions increased from 15,000 in 2016 to more than 2 million in 2021. Meanwhile, its consumer base almost doubled from 2.7 million in 2019 to 5.1 million in 2020.

Dunzo was the champion of hyper-local deliveries, collecting products from close-by stores and delivering them efficiently. They had a distinct USP convenience and flexibility.

The Truth About the Finances: Growth at a Loss

While there were many positive points about Dunzo, it could not achieve financial stability. Between FY18 and FY21, Dunzo recorded revenues worth ₹88 crore but incurred losses worth ₹750 crore.

Put simply, Dunzo was spending ₹7.5 on every ₹1 that it earned.

While the company registered a slight decrease in losses during FY21, it was far from profitability.

The Big Pivot: Transition into Quick Commerce

Recognizing an opportunity, Dunzo took on competition from players such as Swiggy Instamart, BigBasket, and Zepto in quick commerce.

However, the decision marked a turning point.

Quick commerce needed dark stores located in densely populated areas for a 10-15 minute delivery service. That was only possible with huge financial investments in infrastructure.

Dunzo invested big money and built approximately 130 dark stores using its entire budget.

Financial Limitations and Tough Competition

But Dunzo’s problem was obvious.

While Dunzo received about $400 million in investment, other firms were financially well-supported by bigger firms. They outcompeted Dunzo in all aspects of business.

All the expenses made no difference, because Dunzo’s share in quick commerce became negligible.

Reliance Deal: The Saviour That Failed

In 2022, Reliance Retail put in around $200 million to acquire a 26% share. This gave a breather to Dunzo.

But this deal gave Reliance the authority to make major decisions.

Later on, when Dunzo sought another $20 million in emergency capital, Reliance denied it because of valuation differences. By that time, Dunzo didn’t have any money left.

The Collapse

With financial issues mounting, Dunzo found it hard to stay operational. After significant investment in rapid commerce and dark stores, it faced a cash crunch that left it unable to pay its employees’ salaries. Its attempts to find urgent funding via Reliance Retail became a fiasco owing to differing valuations. Unable to stem the losses it was making and having little market share, Dunzo folded in all cities except for Bengaluru, which showed how its initial promising run had become a struggle for survival.

Lessons for Startups

      1. Always Remain True to Your Unique Selling Proposition (USP)

Though Dunzo was the only one with a USP in hyperlocal delivery, entering quick commerce cost them their uniqueness.

2. Never Pivot Without an Established Base

Rushing into trends that lack sustainability can lead you astray from your original plan.

3. Make Money

It is important to grow, but uncontrolled spending may result in a loss despite having a promising startup.

4. Select Investors Prudently

Having strategic investors can assist, but control, among other things, also matters.

Concluding 

Though Dunzo’s story ends in failure, there is much to learn from how it became distracted.

For startups, perhaps the most significant error lies not in failing, but in forgetting the reasons behind success. 🚀