Ramu Kaka and Chinna Thambi get funding

The craze around hyperlocal business defies logic

You cannot put down a business newspaper these days without reading about new start-ups mushrooming or them raising money. The other day one such article caught my attention. It was about a Bengaluru-based start-up called DropKaffe that had raised $300,000 in angel funding. Now, this start-up delivers coffee and snacks to your desk in 30 minutes and like most people, I love my coffee. There is nothing like a good cup of coffee to fight your post-lunch yawns and get you through the evening.

All of us are used to yelling out “Mama, ek coffee bana do” at home. At work, we’ve all had our own version of Ramu kaka delivering diabetes-inducing chai. Now we have newly minted start-ups that deliver what Ramu kaka did all these years for a lot more. Yes, the chai or coffee is probably of better quality, so they can charge a higher price. What’s the problem anyway if customers are willing to pay?

In this whole hyperlocal craze that has caught on in the past one year or so, coffee or chai is just one of the many things that you can have delivered at your doorstep or desk. Start-ups like Grofers, TinyOwl, LocalOye, Swiggy and HouseJoy are fighting with each other to deliver food, groceries, handymen and yes, even a yoga instructor if you happen to be looking for one. This has meant that more than a dozen firms have raised around $150 million to solve our day-to-day problems since the beginning of the year.

Agreed, many of these are problems. All of us have pursued our electrician or plumber with much more vigour than we did our spouses at some point or the other. But do these ventures really deserve the kind of time, attention and money they are getting? While the rise in smart phones, the ease of setting up business and rising investor appetite are driving a lot of entrepreneurs to the hyperlocal business craze, the worry is that they are starting to solve smaller and smaller problems or sometimes, non-problems.

It sounds a little stupid in a country like India where there is no dearth of pressing problems in critical areas of education, health and basic utilities. Agreed they are tougher problems to solve, but that is all the more reason to leverage technology to solve them rather than bringing consumers their favourite latte. By the way, if we are drawing inspiration from Silicon Valley, techies there solved several larger problems before moving on to addressing ‘what would I do if I had a smart phone in my hand and money to spend?’

Now, the other issue is the real contribution and therefore the value of technology in solving these problems? While the algorithm these budding entrepreneurs build to deliver products or services quickly is a very valuable enabler, it is just that. In the end, hyperlocal services are an operationally-challenging and people-intensive business.

Already, these firms face high attrition with delivery boys moving to competing firms for just a thousand more in salary. Also, there is only a finite pool of handymen in any area and they are likely to sign up with all the service providers in their area. Since the resources are not exclusive, as these firms scale up, the start-ups will have to fight over the same pool of people leading to service-delivery issues. And most of them want to do this across different cities. Getting it right in one city is hard, so imagine doing this across half a dozen cities.

For these start-ups, much of the optimism comes from the fact that they are backed by investors who are willing to risk some of their money to see how this experiment works out. Firms like Sequoia, SAIF Partners are backing more than three food delivery and hyperlocal companies in their portfolio. And it does seem that they are spreading their bets in a ‘may the best man’ win kind of strategy. Unlike e-commerce which involves setting up logistics and warehousing, this business allows them to take smaller bets early on and when firms fail, and as they are bound to, they are not burning a big hole in their pockets.

Nick Bilton in Vanity Fair sums up the hoopla around on-demand plays in Silicon Valley with a brilliant tweet by a technologist, “SF tech culture is focused on solving one problem: what is my mother no longer doing for me?” Bengaluru and in some parts Gurgaon and Mumbai have promptly jumped on to the bandwagon as well. It may be helpful to remind ourselves that, fortunately or unfortunately, Indian mothers are still a lot more indulgent.