“Since the business needs a lot of cash, the idea was to conserve as much cash as we could”

Delhivery, the technology-driven logistics company, started operations in Delhi-NCR only ten years ago. In such a short period, it has already revolutionised what was originally called a courier service. The start-up, founded by former Bain & Co. colleagues Sahil Barua, Suraj Saharan and Mohit Tandon, along with Bhavesh Manglani and Kapil Bharati, is valued at $3 billion (Mohit and Bhavesh have moved on since then). In FY20, the company clocked net sales of ₹2,777.45 crore, an almost 68 per cent increase over ₹1,653.83 crore in FY19. Every day, it moves 15 lakh products to over 17,000 customers in more than 2,825 locations in India. As it gets set to launch an initial public offer (IPO) over the next few months and start international operations, it aims for the sky.

The Idea!

In 2010, we (Sahil Barua, Suraj Saharan and Mohit Tandon) were working for Bain & Co. We wanted to start their own venture but were not sure about what to do. We took a six-month sabbatical from jobs to figure out the way ahead. It was then that our friends and colleagues at Bain, Pankaj Chaddah and Deepinder Goyal, had founded Zomato.

Gurgaon was then getting many new and interesting restaurants. In 2011, we approached some good restaurants in the town and proposed to deliver for them.

Later, they started looking beyond food delivery. This brought them to the e-commerce bandwagon. Delhivery started as a third-party, last-mile logistics delivery firm in Delhi to serve e-commerce companies. It initially operated only in Delhi-NCR with Chennai being the first city outside Delhi where it expanded operations.

Early Struggle

It was not too much of a struggle for us. In our early days, we did deliveries for restaurants. Soon, we moved to ecommerce. The switch to ecommerce was quick and then restricted to Gurgaon. We were approached by the likes of Healthkart and Times Internet to make deliveries for them. In 2012, Times Internet invested ₹6.6 crore to improve last-mile delivery at its ecommerce portal. That got us into the fulfilment centre business — warehouses where companies could stock goods and where we would test products and package and label them before shipping them out. Ecommerce companies started reaching out to us.

We were not the only ones in this space but we had the conviction that this would definitely work. But competition gradually got out of the space. Our initial focus was on delivering food to people at home and working from restaurants. But, very quickly, we realised that delivering perishables alone will not work. That was not scalable. We got out of it quickly.

The Business Model

Ecommerce orders then were quite small, but we knew this would work. Since this is an operations business and needs a lot of cash, the idea was to conserve as much cash as we could. We were cost-efficient right from the beginning, which helped us survive. We looked into minute details to cut costs. During big sales such as Diwali, the founders sat in the warehouses and even did deliveries. This helped us get customer feedback on the pain points. It also helped us keep track of deliveries minutely. Unlike other companies, we did not focus on 8-10 hour delivery, but on building the business. We knew that once we did that, everything else would fall into place. While rivals opened small warehouses at every nook and corner to meet the 8-10 hour deadline, but we were clear that we would not burn money.

Tech Challenge

As we are a logistics company, what really matters is getting the packet to the consumer on time. This involves getting addresses right, which is a challenge in India, as many addresses have wrong postal codes. Also, people tend to use local abbreviations and add locations near the address — such as next to the Mother Dairy booth — which makes it difficult to find locations. We addressed mapping problems by using data science. A second-generation machine-learning address system now enables us to correctly identify a locality with 98 per cent accuracy.

HR Challenge

Finding the right people in India was a huge challenge, especially for a start-up looking to scale up. In the beginning, we hired a lot of people from outside India, because the kind of talent we needed was not available domestically. The operations head came from FedEx London. He used to spend the bulk of the time in India and possibly a couple of months in London. In technology also, three-four people moved from the US to India. IIM-Bangalore and IIT-Kanpur people are there because we are from there.

Managing Investors

In early days, it was difficult, as nobody believed that such a business could work. They wanted to know why do you need a standalone company for just deliveries? Amazon was doing own deliveries and investors had not seen anything beyond that. It was a question of finding the right investor. India Times was the first investor. Then came Multiples Alternate Fund and Tiger Global who saw this as a good opportunity.

We were also picky about investors — we were looking for people who had a long-term view on the sector. Around 2014, there was a time when we had two investors keen to put money, but we went with the one offering a lower valuation. That’s because we felt the other one was valuing us more than we should be.

Marketing & Sales Lessons

Since we don’t need to reach out to end customers, there was no need to go for advertising and marketing. Once the big clients, such as Flipkart and Amazon, were signed on, the bulk of the business was assured. The major expansion happened because they realised that they cannot rely on ecommerce alone. Today there are five different business segments — Express (parcel shipping services for ecommerce companies to their customers); less than truck-load (LTL); full truck-load (FTL); cross-border (moving goods across countries); and supply chain services

By the time ecommerce slowed, we had moved to B2B. We had tied up with companies to pick up stuff from their warehouses for wholesalers, retailers and also shipping to other warehouses and companies. We also got into warehouse management.

During the pandemic, in the first month, ecommerce was impacted. That is when we were very quick to move into spaces that had opened up, like FMCG and pharmaceuticals, as their business would not be impacted by the lockdowns.

Riding Through Toughest Times

The early years were tough, because there was so much uncertainty in the market. Till ecommerce took off in India, it was a tough time for us.

What Next?

We will continue to scale up the business and go for international operations. FedEx Express, a subsidiary of FedEx, has agreed to invest $100 million in Delhivery to unlock India’s trade potential. Apart from that, we are looking at international expansion and have already opened a tech office in Seattle

Delhivery is in a silent period in the run-up to a draft red herring prospectus for the proposed IPO. This piece is based on conversations that the founders of Delhivery have had over time with the team at Fortune India.