The story of how Sagar Daryani, co-founder-CEO, Wow! Momo, settled on the momo (a type of dumpling native to Tibet, Bhutan, Nepal, and the Northeast region in India) as his business proposition is the kind Bollywood might lap up. To begin with, it is based on a tiny white lie—the kind that did no harm to anyone, but helped give the then 21-year-old the foundation for his dreams. Add to that the narrative with the pace of a blockbuster, reaching its climax in a mere 45 days. It began when the self-admittedly restless Daryani, having finished his final-year Bachelor of Commerce examinations from St.Xavier’s College in Kolkata, purposefully made his way to Mumbai. This was in 2008, and he wanted to start a business in the food space. Daryani was open to a range of options—but some ideas were not viable because “to start a [for instance] bakery business would require about ₹30 lakh- ₹50 lakh of initial investment”, he says. “I couldn't arrange that much capital. And no bank would give a loan to a fresher without any collateral.”

He took the reality check on board, returned to Kolkata and started exploring ideas which would need minimum investment.

That’s when fortune—and a little fabrication—kicked in.

The RP-Sanjiv Goenka Group-backed Spencer’s hypermarket had just opened in Kolkata’s Rash Behari Avenue, fortuitously opposite Daryani’s family-owned garment shop.

He learnt that it wanted fast-food brands to set up small kiosks within the mall’s premises. Showing the resourcefulness essential for entrepreneurship, he managed to set up a meeting with the food division head at Spencer's. As a result, Daryani found himself at the right place and at the right time. Because, while waiting for this appointment, he over-heard the executive telling a colleague that a momo outlet would be a good fit for the mall. “I immediately thought of ‘momo aunty’, a lady from the Northeast who would sell momos at my school [St. James’ School],” recalls Daryani. (Momos, for those who haven't yet sampled one, can be steamed or fried, and filled with meat or vegetables. Easy to understand why they make for a popular street food.)

Daryani sensed an opportunity and indulged in, what he calls, a “blatant lie” to help him seal the deal. “I told the executives that I sell momos in St. James’ School because no one would take [just] a college student seriously,” says Daryani, who had written his final year exam a little over a month ago. “I was asked to bring a sample for tasting the next day... and I ran to ‘momo aunty’ to help us with the sampling. They loved it. I knew good quality momos would sell like hot cakes.”

The management at Spencer’s seemed to concur, and offered Daryani (what would become) his golden ticket: A 36-sq. ft. kiosk in Spencer’s Tollygunge area in Kolkata was the foundation for Wow! Momo, which Daryani started with ₹30,000 borrowed from his father. He roped in Binod Kumar Homagai, his college friend and a handy momo-maker, as partner.

This was in August that year, exactly a month-and-a-half after he had decided to become a business owner.

Twelve years later, the happy fib has led to the creation of a force in the quick service restaurant (QSR) space. Consider that last September, Wow! Momo raised ₹130 crore (approximately $18 million) fromNew York-based Tiger Global Management. The firm—a profitable business with 318 outlets across 16 cities—was valued at ₹860 crore. As is expected of any startup, the first year had the requisite teething issues. There was the mandatory drama, with the chef quitting the day before the launch. “Overnight we had to arrange for another chef. But luckily, the new chef was even better than the previous one,” says Homagai, 33, co-founder and COO, Wow! Momo.

There were operational issues too. For the first five months, the kiosk was managed by the founders, a part-time chef and a helper. (Today, Wow! Momo has over 3,000 employees and the staffing per kiosk is determined by its size.)The momos were prepared at Daryani’s home kitchen and transported daily to the kiosk by auto. “While coming back, we would take an auto but walk halfway just to save ₹10. That’s when we realised the value of money,” says Homagai. The monthly revenue from the kiosk was ₹60,000. A few months later, in January 2009, Wow! Momo opened its second outlet(about 90 sq. ft.) inside Spencer’s in South CityMall. “That store made us a brand in Kolkata,” says Daryani. It immediately pushed up the combined monthly revenue to ₹2 lakh and, in six months, to ₹7 lakh- ₹8 lakh.

Since then, it has been a smooth enough ride for Wow! Momo. It opened its first 12 outlets inside large format retail stores like Spencer’s, Big Bazaar (the Future Group hypermarket chain), Pantaloons, and others in Kolkata. Its first standalone kiosk was set up in 2010, in Sector 5, Salt Lake, Kolkata—West Bengal’s IT hub. A year later, however, with approximately17 outlets including four standalone stores and shop-in-shops, it hit a plateau on expansion within Kolkata malls. “Many would refuse saying that they already have a Chinese food outlet in the mall which sells momos,” recalls Daryani, 32. That’s when the founders ventured outside their home turf and opened a store in Bengaluru’sPhoenix MarketCity food court in 2011. Malls in Chennai and Pune quickly followed suit.

Expansion is not a tough ask for Wow! Momo because of its easy scaleability. “It can be operated from a 20-sq. ft. kiosk to a 1,000-sq. ft. restaurant,” says Padmaja Ruparel, co-founder and president, Indian Angel Network(IAN), one of the country’s largest angel investor groups which, in 2015, invested ₹10 crore in the business at a ₹90-crore valuation.

Momos also have the amenability from a supply chain perspective where quality control can be done centrally, points out Vinay Singh, partner, Fireside Ventures, an early-stage investment firm which has backed businesses such as Bengaluru-based Slay, a ready-to-drink coffee delivery service, and food startup Samosa Singh.“The momos just require heating and serving,” he says, and that adds to the scaleability.

Wow! Momo outlet in Kolkata.
Wow! Momo outlet in Kolkata.
Image : Indranil Bhoumik

There is also the Indian consumer’s growing appetite for grab-and-go foods (salads, momos, box meals, and snacks) which is a healthy sign for kiosk- and delivery-only kitchen formats, say industry experts. Plus, over the last five years,food-delivery players such as Swiggy, Zomato, and Uber Eats (now part of Zomato) have added to the sustainability of QSR chains whose business model eliminates the need for large sit-down outlets, bringing down real estate costs considerably.

“Growing profitably with one product is not easy to do. But Wow! Momo has addressed the latent market potential in a comprehensive manner. It has been imaginative in identifying a niche and becoming a specialist and scaling viably,” says Sandipan Mitra, CEO and co-founder, HungerBox, a Bengaluru-based B2B food-tech startup. Of the 318 stores currently, 302 are Wow! Momo outlets (across 16cities) and 16 (across five cities) are branded Wow! China, a fast-food Chinese cuisine format launched in December 2018. “We have defined the menu in such a way that, from a 60-sq. ft.kiosk, we started doing revenue of about ₹14 lakh a month for Wow! China,” says Homagai, referring to crowd-pleasers such as chicken wrapped prawn, chilli cheese stuffed mushroom, Chinese bhel, and Burmese Khao Suey, all priced between ₹99 and ₹300. Needless to say, there is no in-house cannibalisation: Wow! China doesn’t serve momos.

Though the business got wings earlier, Daryani raised his first institutional funding—from IAN—only in 2015, by which time it had grown to 43 outlets across five cities with an annual revenue of about ₹20 crore. The around 96 angel investors from the IAN platform included the likes of Infosys co-founder Kris Gopalakrishnan, the Hero group's Sunil Kant Munjal, and Arvind Singhal, chairman and managing director, Technopak.

This gave the chain muscle to enter New Delhi (in 2015, in the tony Hauz Khas Village) and Mumbai (in 2017). By 2017, it grew to 108 outlets with an annual revenue of ₹49 crore, a position from which it raised ₹40 crore from LighthouseFunds, a private equity firm focussed on the consumer space. This infusion allowed the founders to offer profitable exits to about 20 investors from the IAN platform (they got approximately55% internal rate of return in two years).

The Tiger Global investment in September 2019 paved the way for 20 more exits from IAN investors, with more than 8x returns. Sachin Bhartiya, partner at LighthouseFunds, says the focus on delivering quality with an eye on economics will shape the business in the next five years. “Their ability to visualise the opportunity and execute it well gave us a lot of confidence [at the time of investment],” he says.

Wow! Momo is looking to close the current financial year with ₹180 crore- ₹190 crore revenue and a total of 350 stores/kiosks. It claims to have an Ebitda margin of 10%.

Product quality and service are critical in the food business; for this, expansion and operations have to work in tandem. Aware of that, the company works with hatcheries (Shalimar Hatcheries in Kolkata, Godrej Tyson Foods in Bengaluru, for instance) to maintain the quality and hygiene of the poultry it uses—there is an auditor appointed or every seven-eight outlets. Streamlining is also a business necessity and Wow! Momo has a centralised kitchen for every city. It plans to make the back-end process more efficient: The kitchen will only do the fresh folding of the momos while the fillings will be pre-cooked at a centralised plant in Kolkata. This plant will be high-tech and fully automated, set up in the city’s Kasba Industrial Estate. It is expected to be operational in two years. Countrywide, Wow! Momo churns out about 500,000 momos a day, a largely manual effort. “Our plan is to make it automated in the future. The size, shape, hygiene, and quantity of the filling should be uniformised,” says Daryani. To underscore his seriousness, almost a third of the amount raised (about ₹50 crore) in the last funding round went into setting up the back end.

But given the largely buoyant scenario, the founders can’t afford to ignore the hurdles inherent in a QSR business combined with the threat of competition: Wow! Momo competes with global majors such as Domino’s, KFC, Pizza Hut, and Burger King. “QSR is an execution game. Very few Indian companies have brought consistency like Domino’s and McDonald’s to QSR, and that remains a differentiator. I hope they continue to innovate on their menu,” says Anand Lunia, founding partner at India Quotient, an early stage investment firm.

The Wow! Momo team’s business instincts haven’t let them down yet. For instance, as they built scale, the founders realised the importance of putting together a team of professionals. In 2015, they offered Shah Miftaur Rahman, 32, their college batchmate,10% equity and a co-founder designation. Rahman, a chartered accountant, was working with PwC India as vice president prior to joining the startup. Currently he looks after the finances of the business.

Of course, the relatively hiccup-free growth of the business is aided, in no small measure, by the understanding between the two founders.“Nature-wise we are completely opposite,” says Daryani. “I am aggressive, optimistic, and restless while Binod is more grounded, realistic, and calm. So as a team we make a good combination.” The longevity of their connection helps too. “Binod was the only friend who stood by me after college,” he adds. “Even though many others had plans to start a business together.” Needless to say, their group studies included a serving of Homagai-made momos. Let’s call it their wow factor.

(This story was originally published in the March 2020 issue of the magazine.)

Follow us on Facebook, Twitter & YouTube to never miss an update from Fortune India. To buy a copy, visit Amazon.