If you were an internet user in 2014 and used to order food online, then you may know about PepperTap. PepperTap, a 100$ million funded company, started in 2014 and greatly collapsed in 2016 within the 2 years of it’s launch.
How did this 100$ million company fail and the mistakes that caused this $ 100 million PepperTap to fail within 6 months of launch.? We’ve written a complete case study of PepperTap failure for you in this article.
Continue reading the article:
PepperTap History
Before going into this company’s failure and case study, it’s essential to know a brief history of PepperTap. PepperTap was a hyperlocal grocery delivery platform founded in 2014 by two friends: Navneet Singh and co-founder Milind Sharma. The idea of this online grocery delivery system appeared in the mind of Navneet Sigh. On one Sunday, when he was resting in his house, his wife asked him to go grocery shopping with her.
That’s where the idea of an online grocery delivery system appeared in the mind of Navneet Singh. He thought there should be an online grocery system from where people can order and buy groceries online and get them delivered right at their doorstep.
Navennet Signh involved his friend Milind Shamra. Both developed a hyperlocal food delivery platform from where the customers can order their groceries online and get them delivered online at their doorstep within 4 hours. This project was named “PepperTap.”
It sounds like a successful business project, but this business failed within the 6 months of its startup, and after 2 years, the company got permanently closed.
PepperTap Success
Yes, PepperTap was a successful company in the first 6 months. It wasn’t a failed project from the start. Within the 1st year, PepperTap started its services in 17 cities of India. Moreover, the company collected about 51$ million in funding in the first year of the startup, and by 2016, the company’s valuation reached 100$ million.
So why did this successful company fail and shut down in only 2 years? Below are the reasons and mistakes that made the PepperTap shut down their business in 2016:
Wrong PMF Strategy
The PMF (Product Market Fit) strategy refers to the launch of your business for a limited audience to test your product on them.
It also tells you the improvements that your business needs and things that your customers demand. You adapt your business accordingly and then spread your business to other customers.
The PMF covers a few audiences in starting for testing purposes. So that you can get feedback from those small sectors of customers and save your investment.
However, PepperTap did the opposite of this PMF strategy. Instead of first launching their business for a limited audience (1-2 cities), they launched their business to 17 cities without any customer feedback from previous customers.
They didn’t know how their business would perform in the market, and the expected thing happened.
Problems Began to Arise in PepperTap
Problems began to arise in the business, such as late delivery time, inferior quality of food, rude behavior of riders, bad packaging quality, and some other pricing issues. The company was operating on an enormous scale at that time.
The customers of the PepperTap demanded a fast up-gradation which PepperTab couldn’t do because of their low-scale team that can only manage 2-3 cities at one time, and the issues were from all the 20 cities. This causes a considerable delay, and eventually, PepperTap loses a lot of loyal customers because of the bad quality service and no up-gradation in their system.
One Way Customer Focus
The word marketplace means that there are 2 sets of customers for the platform: sellers and buyers. Both are the marketplace’s customers, and the platform has to focus on both sides to run the system successfully.
However, PepperTap only focused on the buyer side and didn’t optimize their platform for the seller side. Additionally, the buyers of the PepperTap were already educated with internet technology. On the other hand, the sellers of the PepperTap were mostly local offline sellers and cart sellers who weren’t so educated and well-equipped with technology and PepperTap didn’t optimize their system for such types of sellers.
PepperTap was only focusing on the buyer’s side and ignored their seller’s side, which was the biggest mistake of PepperTap. As a result, the vendors and sellers on PepperTap couldn’t understand the system and started to stop their business with PepperTap.
Eventually, due to a lack of sellers on, which causes a shortage of the products in the platform, leading to higher bounce rates from buyers.
High Cash Burning but Bad Quality Service
Another reason that plays an essential role in the failure of PepperTap is the high cash burning but worst quality service. Cash burning refers to spending money on the customer, then you earn from that customer, so you can make that customer loyal to your business in the long term.
Due to the large amount of funding of PepperTap, they were burning a lot of cash on their customers in the form of discounts, referrals, freebies, and cashback deals; to be precise, they were burning about 110% of cash on each of their customers.
However, besides their too many discounts and reasonable pricing, their service was not up-to-the-mark. Their deliveries were too late, the sellers were delivering over-ripped food and vegetables on PepperTap, their riders were rude, PepperTap had one of the worst customer support, and many other things of PepperTap weren’t good causing the people not to use PepperTap even again.
They burnt a lot of money on their customers but didn’t focus on quality assurance. Their discounts and cash burns couldn’t be compensated with the worst customer care, inadequate food quality, late deliveries, and inexperienced riders.
Bad Business Model
PepperTaps’s business model wasn’t good, which caused terrible quality, expired, rotten, and over-ripped food deliveries. How? Read the below explanation:
The PepperTap business model was based on the 3rd party sellers and outsourcing. Whenever the customer orders from PepperTap, their orders were sent to the seller of that product. The seller packs the product and ships it to the customer, and the customer receives that product.
The worst thing in that system was the lack of quality assurance. The sellers took advantage of that loophole and started delivering low-quality and over-ripped food. To be precise, the customers weren’t getting up to the mark of groceries from PepperTap.
Additionally, due to the involvement of 3rd party, the deliveries of PepperTap were usually late, which of course caused the high bounce rate of the customers.
On the other hand, BigBasket and Goofers use inventory and fulfillment systems. All of their groceries are already fulfilled and packed in their warehouse. The most significant benefit of the fulfillment system is quality assurance. You can make sure that the products which are going to be delivered to your customers are up to the mark and of the best quality, while in an outsourcing method, it’s not possible.
PepperTap Became a Truck in Starting
To understand this line, we need to understand this example:
Suppose a truck and a car are on a highway. A car is highly versatile and flexible on the highway compared to big and bulky trucks.
Now, suppose that the truck and car both need to change their direction and take a U-turn from a small passage. The small car will easily take the U-turn from that narrow passage. The truck, which is significant, bulky, and very long, can’t take the U-turn easily from that narrow passage. For the truck, it’ll be complicated to take that U-turn, but the car will easily take that U-turn.
The reason is simple, the car is small, lightweight, and compact and can easily change its directions when needed. The truck is heavy, big and extra-large, so it can’t change its direction and routes easily when needed.
The PepperTap became a truck in the beginning stage instead of a car. The company got so big, bulky, and too heavy that it couldn’t change its direction and route when needed. Eventually, the customer had to stop purchasing from PepperTap because of the bad service quality and no upgradation in the company.
PepperTap 100$ million failure case study highlights:
- PepperTap didn’t perform the PMF strategy and launched their business on a large scale without having any feedback from past customers.
- The company only focuses on discounts, cashback, referrals, and freebies and burns too much funding on customers. However, the company didn’t invest any money in PepperTap internal business operations like customer support, quality assurance, delivery system, rider’s and seller’s training.
- The PepperTap became a big truck in the starting stage, so they couldn’t adapt themselves according to the customers’ demands because they were too big and large and couldn’t change themselves because of their vast size.
- PepperTap only focused on one side of the customers: buyers and ignored their sellers’ side, which was the biggest mistake of PepperTap.
The PepperTap business was a great idea, but it failed because of their management’s wrong strategies and wrong decisions. In 2014 (after the 6 months of startup), PepperTap’s failure started, all due to their wrong business strategies and decisions. Eventually, in 2016 (after the 2 years of their launch), PepperTap collapsed and shut down their business.
In 2016, before the closure, PepperTap collected funding of about 100$ million. Still, their expenses and loans were more than the funding they had, which eventually caused a collapse in the company and unfortunately, PepperTap got closed by the end of the 2016!
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