Hyper Local or Local Hype? ...a look through the inventory lens

For some investors I knew, Hyper-Local was always pronounced Hype-Local since the 'r' for revenue was missing. How on earth, they say, will anyone make money just delivering stuff at no margin while overpaying delivery boys and doling out coupons? I'm sure we've all done our doomsday reading on Food-Tech, e-Grocery, Home-Improvement and Local Logistics, and probably Hyper Local too. The aim of this post isn't naming all the many startups in trouble but to figure out why.

Some people ask if the early death of such ventures is a bad thing at all. A lot of startups and investors I know are celebrating the separation of the chaff from the wheat. Many food-tech startups, for them, had no 'tech' in them. They were helping people do on an app what they used to do on a phone call, e.g. explore menu options or order food. Many on-demand local-logistics people were just overpaying drivers and under-charging merchants in the hope their inflated orders are seen as traction by their investors. Grocery, similarly, is a tough game with notoriously thin margins. It took Ocado 15 years to deliver the first year of profits. Service aggregation has its own problems that prevent every business from becoming the oft-touted Uber-of-XYZ.

So, getting back to the point, what's the deal about Hyper-Local?

Let me make a very basic point. Inventory can be classified in many ways but a useful classification is on the scarcity axis, which translates into premium chargeable. One can have the following kinds of inventory on this logic:

• not-found elsewhere including rare, private-labels and exclusive inventory

• hard-to-find or hard-to-get elsewhere

• better-priced / faster delivery than elsewhere

• commodity inventory

Most delivery startups (sorry, hyper-local is what I meant) are just playing the third or fourth bucket, with a very thin reason-to-believe that they'll transit to the first two. What that means is that customers will use a provider today as long as no premiums are charged, and the moment that changes, the customers will just delete the app and revert to their default behavior (of ordering on phone, informal credit, month-end-billing etc) as will retailers (more on an earlier article by me), and the investor will be left high-and-dry while entrepreneurs will leave with small packets of moneys paid to themselves and good credentials to get another business funded. 

The last two buckets are red oceans. Even if one has an edge today, the slope will stay slippery. even if one goes directly to sub-distributors or the local wholesale market as these startups do, the advantage is a very small percentage.

Secondly, the true brand customers buy is a 'Maggi' or 'Amul Butter' (destination) and not a Grofers or Peppertap (journey). Most hyperlocal businesses are building for destination loyalty (read: apps) in a world of price-sensitive pre-planned purchases. Once users feel they're not getting a price advantage, they'll get antsy - they'll first disable notifications, and then delete the app altogether. The fact that one gets a branded carrybag from a deliveryman wearing a branded Tshirt isn't going to make anyone loyal. The fact that these guys turn up late with orders mixed up and frequently without change is just a further irritant.

The nemesis of hyperlocal isn't a supermarket or large mall or even a visit to the local kirana shop - the nemesis of hyperlocal is phone-ordering from a nearby kirana guy who knows you by name, prioritizes your order, doesn't mix up orders since he's in the trade for the last thirty years. It's a business that underpays its unorganized labor and doesn't give them T-Shirts and keeps them on their toes, that underweighs and doesn't pay all taxes and uses every trick in the trade to steal your pennies and yet make you feel great. And, remember, these businesses are strongly cash positive - so much so that they may not even know what valuation means, or even a P&L - they only understand cash.

Bottomline, the litmus test of hyperlocal in its present form shall be when the discount moneys get throttled. For then, the true-convenience buyers will remain. It will still be a sizable market, but maybe not as infinite as it is projected to be today. If there is a better source of inventory somewhere in the market, hyperlocal shall provide it consumer access. If there is better inventory that customers don't know about, hyperlocal can address that gap. Eventually, determinants of success shall include easy-to-use powerful technologies, control on product and service quality and the final challenge of jumping orbit to the first two buckets of unique or hard-to-find inventory.

[previously published in ET Retail on Dec 24, 2015]

The Dangers of Extrapolating Early Adoption

From Everett M. Rogers' Diffusion of Innovations (1962) we got this terminology around Early Adopters, and then for some reason it got even more popular than the term Innovators. Here's the classic adoption curve we all would have seen.

So what does that mean for our business? It means that the innovators and the early adopters really bring in the early majority, the bulk of our business. They give us signs on what's our likely scale, what we should get right, what we should do less of, and so on. They've taken the leap of faith with our products, so we also love them more, and rightfully so.

Everett M. Rogers' Diffusion of Innovations 1962

There are two dangers of this focus on early adoption that were called out in this article I came across recently by a gentleman called Peter de Jager, namely:

a) People do not fall into one Change Adoption Category; they drift from category to category depending on the specific change/innovation. There are no people who are always early adopters in every category, and

b) The statement "13.5% of the general population are Early Adopters" makes two related and dangerous assumptions.
        a.     complete Adoption Curve will exist for any change..
        b. It assumes 13.5% of us will embrace any change,

Evidence of the incorrectness of this statement is found in two casual observations, he says;
      a) At the height of the Hula Hoop craze, not everyone was hula-hooping
      b) Not even 2.5% of the population have bought a Segway

The adoption terms are accurate only in hindsight; they tell you nothing about how a population might respond to a change/innovation.

I found it very insightful and enlightening. In addition, I wanted to highlight something I've been trying to convince various companies on for a while. It may not be just useless to listen too literally to your early adopters, it could also be dangerous. It's like entering the weld-shop without the safety goggles and here's why.

The early adopters are called out as a separate segment in all these studies because they are different. How different? Sufficiently different to be called out separately from the majority. They think and act differently and look for different things in products or services. What may be really cool and worth paying for, for this community, may still be cool, but not worth paying for by the early majority. Concorde stands out as an example, but that probably deserves a separate dedicated post.

Peter's examples on the Hula Hoop and Segway are appropriate to think about here. One of our current struggles in eCommerce now is the same. Less than 1% of the opportunity has happened in India, there is temptation but not logic to extrapolate our learning to the entire potential community. It could be okay to do in Durables or Telecom where more than half the potential population has been onboarded. But in nascent industries, there is really no reason to believe that the other 99% will behave like this 1%.

What’s an Emerging Market?

What are emerging markets? Duh - Brazil, Russia, India and China (not in order, clearly), right? Or was it Brazil, India, China since Russia fell off some years back? Or is Russia back again? Or is this version outdated? Does the latest version of this definition contain Indonesia, Vietnam and blah?

Not sure. What we seem to be sure of is that we need a bucket to put emerging markets in. Why? Because they behave differently. Their needs are different, they are yet to evolve but have immense potential (some say population), they need to be invested in (some say spent on), nurtured with a long-term view (/ long breakevens  to be tolerated), and need a radically different approach (/ consultants to be hired). The logic, whatever it is, of having a bucket called Emerging Markets is sound.

The next part about putting the BRIC into that bucket pains me, especially coming from (over)-educated people wearing boring suits and smart glasses. Those four countries are huge animals to squeeze into the same bucket. Again, I get the need to treat emerging markets differently (just like the need to treat a child different from an adolescent to an adult or a geriatric). I just don't think India's one market, or China for that matter. 

I believe any market with a small size and a large growth rate is an emerging market. eCommerce in India could be emerging but Telecom probably isn't emerging anymore. Looks like Telecom's emerged fully, we can see the bottom and the bathwater dripping on the floor. And just for the sake of an example, maybe ayurveda or yoga or khadi in Europe is an emerging market. To my mind the logic of treating all these markets differently makes sense. The logic of treating everything in India, or every business across India, Brazil, Russia and China the same is tougher to get.

Come on, it’s 41% of the World’s population we’re talking about; just India + China is 36%, just for perspective.  

All Indians do not ride elephants (some do, I’ll concede), or charm snakes or work in BPOs or (I heard this recently) use tablets instead of notebooks. We have many different Indians in here. Indian businesses are also different. Snake-charming, elephant-riding is not emerging. Definitely. BPO did emerge but you’re very late to the party, some of us have forgotten the full form and just did a google-search on it to refresh. Only Tablets, as a business from that list could be emerging. 

See the difference?