TinyOwl: How inexperience can kill an Idea!
By: Sambit Rath
Introduction
Want to order food online? What comes to your mind when you think of it? I’m sure it’s either of the two huge players in this segment right now: Swiggy and Zomato. But before these two and other similar apps became household names, there was TinyOwl back in 2014 that had a firmer grip on the market. With a team of young minds, the founders surprised everyone in the industry with their innovative services. It was all going good until one day, when users received a notification stating that the company is shutting down. This is a brief analysis of TinyOwl’s brief existence in the market and through this, we shall identify the mistakes that should be kept in mind by entrepreneurs.
Ideation and Launch
2014 was a year that saw growth in smartphone sales and increasing demand for internet access among citizens of India. This opened up new avenues for application development to provide online services. Amazon, Flipkart, and Snapdeal had made their presence in the E-commerce industry. Similarly, other such application based services were starting to enter this trend and one among them was TinyOwl.
The founders of TinyOwl had identified an opportunity within the restaurant business after getting to know the problems that restaurants and consumers were facing. Consumers couldn’t decide which restaurant to go when they need to eat something specific because they did not have access to menus of all the restaurants near them. The restaurants on the other hand had to rely on weekends and festive occasions to get their revenues up. In order to bring both the parties under one umbrella, TinyOwl aimed to create an application that was feature rich to cater to their specific needs. Consumers could get their desired dishes from the restaurants around them, all while sitting at the comfort of their homes and restaurants saw an increase in orders during weekdays which boosted their revenue.
IITB alumni Harshvardhan Mandad and 4 others co-founded TinyOwl Technology Pvt. Ltd. in 2014 in furtherance of their idea. The company was headquartered in Mumbai. Mandad was the CEO who also had the responsibility of approaching investors to raise investment and the other four members handled different aspects of the company. The application was showed so much potential that, coupled with Mandad’s presentation skills, the company raised Rs. 20 crores in Series A funding from Sequoia Capital and Nexus Venture Partners. The application was made user friendly and free for both the parties to use. It could detect the user’s location and show restaurants nearby. It could also show dishes prepared by specific cooks and had more such unique features.
In the following year and half, the company raised around Rs. 160 crores through two more rounds of funding. It also launched ‘TinyOwl Homemade’ for connecting home cooks with consumers who were demanding homecooked food. Everything was going well for TinyOwl and it soon became the face of Indian startup. But a series of bad decisions fueled by inexperience led to the downfall of the company.
Reasons for Downfall
The influx of so much money became a bane rather than a boon for TinyOwl. The founders did not have a plan to put all that money to use and hence committed a string of silly mistakes.
- Over hiring: The company opened branches in 11 cities including Pune, Hyderabad, Chennai, and Delhi and had around 10,000 restaurants on board the platform.5 To employ the extra money they had, they started hiring employees without a proper plan. Usually, companies have a roadmap laid down before taking decisions so that resources can be employed efficiently. Co-founder Saurabh Goyal agreed to this fact in an interview with the Economic Times by saying that while scaling their delivery fleet, they had 1000 delivery boys. But the kind of scale they had did not even require 1000 delivery boys.
- Increasing Customer Acquisition Costs: In order to attract more customers, it had to give out more discounts which naturally led to increased customer acquisition costs. The said cost increased from Rs. 50 to Rs. 130. One thing that business have started to realize is that giving out discounts does not attract loyal customers. The customers purchasing multiple times are attracted by discounts and not product quality.
- Huge Expenditure: To show the world that they indeed had potential, the company aimed to maintain its pace of growth by spending on more avenues. They expanded to 11 cities and hired more employees to signify growth. But this spelled their doom as they started burning Rs. 2.5 crores every month! To continue its existence, the company sought more funding from the investors. A further Rs. 52 crore investment was raised from Sequoia, Nexus Venture Partners and Matrix Partners in October 2015. By this time, the cash burn had skyrocketed to Rs. 8-10 crores per month. In addition to the above expenditures, TinyOwl shot itself in the foot when it launched area-based food aggregation service. In this, users could order from multiple restaurants at once. But the company had to pay for increased logistical cost for getting dishes from various restaurants.
- Hire & Fire: To cut down on costs, the company had to resort to firing employees in bulk. In September 2015, TinyOwl fired 300 employees and more than 100 in November 2015. Mandad was advised not to do it so close to festive season, but he went ahead with it regardless. This led to mass resentment among employees, and co-founders Gaurav Choudhary and Saurabh Goyal were taken hostage by employees in Pune and Delhi respectively at their offices for non-clearance of dues. At the end of that year, the company hired a Chief Technology Officer with a package of Rs. 1.5 crores and Rs. 50 lakhs as joining bonus. At one point the company had 200 employees in its tech team working on the app. That number reduced to 20. Due to the above reasons, the company kept going deeper into its grave and had no way to survive. In the following months, the company shut its operations in the 11 cities. It looked for potential buyers who could buyout the company but there were none. Finally, in 2016, TinyOwl was acquired by Roadrunnr to create a new food delivery service called Runnr.
Factors that led to mistakes
- Inexperience: All the co-founders were below the age of 25. They had graduated from their university and had little to no experience of running a company. They did have a great idea, but they failed in executing it. This is why they could not draft a proper plan for their company and took decisions in haste.
- Excess Funds: Coupled with the above factor, having too much funds was another problem. When almost Rs. 200 crores were invested in the company, the co-founders were under pressure to put the money to use in order to ensure investor confidence. This painted a false picture of exponential growth which raised everyone’s expectations.
- Leakage: The co-founders could not control the outflow of money from the company due to various avenues they had invested in which led to financial leakage. In addition to this, there were rumour that the co-founders were fighting amongst themselves during crisis. This further reduced investor confidence and they were not able to raise more money.
- Lack of planning: Finally, the lack of planning induced numerous mistakes on the part of cofounders. With a functional plan, the company could have extended its existence in the market by using resources efficiently.
Business Lessons
- Build a Team of Professionals: Running a company is a big deal. It requires a mix of experience and knowledge to run a successful company. This is why, there should be professionals having experience in various managerial aspects of the company in your team.
- Planning: As was said by one of the co-founders of TinyOwl himself, figuring out the core metrics that you need to improve upon and being clear about your strategy is important. If you have a plan on paper, it will be easier for you to determine the requirements of your business. This will also ensure efficient use of resources.
- Build Confidence around the Company: It is common to see disgruntled ex-employees complaining about their harsh lifestyles. When companies trigger mass layoffs, it builds a negative image in the public, and this results in a lot of alarm bells going off. To avoid this, companies should avoid mass layoffs by not committing the mistake of over hiring and then firing employees. Another aspect that needs to be covered is the information leaks to public. Companies should aim to control leak of information to the public by employing strict measures to control flow of information in the organization. In order to deal with rumours in the market and bad press, a good public relations team must be present in the company to dispel them effectively.
Conclusion
India has seen a lot of startups in the past decade. Out of these, only a few have succeeded and many have failed. TinyOwl unfortunately will be included in the latter. Being the first mover in the food-tech industry, it had opened up new avenues for the integration of tech and food industry. The co-founders had come up with something unique and with good intentions, but they failed to hold on to the massive success. They sparked interest among venture capitalists, who were eager to give them the money they needed. Such was the potential of the company. But a string of bad decisions coupled with inexperience led to the downfall of the company. The mistakes they made could very well have been dealt with or even avoided had they brought in some experienced people to help the company. But they chose not to and paid the price. TinyOwl was not unique when it came to mistakes made. Cash-burn, unplanned expenditure, mass layoffs are all shared traits of failed startups, and one thing that these stories give raise to are business lessons. Thus, in order to run a successful business, it is important for entrepreneurs to study such companies and learn from their mistakes.
