Though Zomato’s listing created history, co-founder Deepinder Goyal thinks otherwise. He says, “A lot of people are calling this a historic moment. It is not. History is always made in hindsight. Never in the present.” The market capitalisation of the food delivery service powered by their app now exceeds the well-known brands like DLF, Britannia, Siemens, Eicher, Hero Motocorp, Biocon and Colgate. This has also left a bunch of people wondering how Zomato’s business model adds up, as they’re still clocking losses.
Success stories of yore
Going back in time, there have been grand successes that will always be remembered. Some continue to amaze us with their resilience, taking the pandemic setbacks in their stride. They succeeded because of robust business models.
Let’s talk about IndiGo Airways. When they entered the scene in 2006, the space was crowded. They started boldly by placing a firm order for 100 Airbus 320 aircraft. That large order helped them get not just attention, but very competitive prices as well. A sale and leaseback arrangement helped them create a corpus from the sale of the aircraft, while their operations generated enough money and more to pay the lease.
The leasing arrangement helped them refresh their fleet every six to 7 years. As a result, while other airline fleets show signs of ageing, IndiGo aircraft continue to look clean and new. Managing spares and rostering pilots is also much easier with a fleet comprising of similar aircraft. Most importantly, their positioning as an airline that operates ‘on time’ has helped them garner a market share of 54% in India with a fleet size now comprising of 280 aircraft.
D-Mart is another great example that outflanked competition with owned stores of around 10,000 square feet each. With their well-chosen SKUs that are far fewer from large format stores, they have been able to optimise their inventory costs. Customers appreciate the fact that all items in their stores are carefully chosen as it simplifies their ‘selection dilemma.’ D-Mart pays its vendors in just a few days, in a market that values liquidity, it’s not surprising that vendors flock to be their partners. That’s what helps them get the best rates, which in turn helps their customers get the best deal - a virtuous, self-reinforcing cycle continues. Of course, it’ll be interesting to see how D-Mart’s online efforts shape up as market trends evolve.
Let’s now talk about a couple of newer companies who’ve achieved success in a relatively short while, owing to business models that are as distinct as they are differentiated.
Pristyn Care is run by three entrepreneurs in their mid-thirties. They focus on elective surgeries like hernia, sinus and hysterectomies that take four to six hours and don’t call for overnight stays. They also rent idle capacity at hospitals to perform these surgeries. It’s a great model as the very significant capital cost of creating hygienic, well-equipped facilities aren't incurred at all. Stringent standard in the selection of hospitals, doctors, surgeons and staff ensures that regulations and safety standards are adhered to religiously. Their network of 300 hospitals and 300 full and part-time surgeons and consultants accomplishes more than 2000 surgeries per month. Their model is further differentiated based on their services, as it encompasses the processing of all paperwork including insurance claims, travel services to and from the operation venue, delivery of medicines and post-surgery consultations.
BharatPe is another winner. They created a UPI linked digital payment gateway that needs only one QR code for linking to any payment app. They decided to charge no transaction fees from the merchants, knowing their vehement aversion to fees and ensured merchants get their money the same day. Six months after they started in August 2018, they launched what merchants wanted most – loans to keep their business running without having to incur usurious interest rates.
BharatPe’s AI algorithm gives them rich insights into the merchant’s cash flows. Their NBFC partners then make customized offers, considering the merchant’s credit score. The loan is made available in just a few days, digitally, and without any collateral. BharatPe deducts instalments payable daily from the QR transactions repayment, which mitigates collection risk. Testimony to that is their repayment rate of 96%. Today, with six million merchants on board, they process more than 100 million transactions every month. The monetisation comes from the ₹1600 crores of loans they’ve disbursed. Now they’ve bid along with Centrum Group to take over the fraud-hit PMC Bank - and are well on their way to becoming a digital bank after already becoming a unicorn.
Business models and valuations
These companies stand out because their business model incorporates not just one but multiple aspects of competitive advantages.
One way of looking at business is to look through the lens of valuation. Another is to look at whether the business has created a formidable business model, fortifying itself with many aspects of innovation-led differentiation to remain ahead in a hypercompetitive world. And that’s when there’s less debate about whether a company is sustainable or overvalued.
Views are personal. The author is former MD, Country Digital Acceleration, Cisco.