There is a great story from Lego years ago, where a young boy saves up all his money to buy a Lego Ninjago mini-figure. Against his dad’s advice, he buys it while on a holiday, and as his dad predicted, loses it before he gets home. Devastated, the boy writes a letter to Lego’s customer service team explaining what happened and promising them that if they send him a replacement for free, he will protect it forever. The Lego team sends the boy the Ninjago he lost, adds a bonus mini-figure and a letter explaining how its okay to lose stuff, but it's also important to be careful and always listen to his dad. The dad posts the story, which quickly goes viral and is now stuff of legend.

Someone once said, “customer service isn’t about telling people how amazing you are, it’s about creating stories that do the talking for you.” Very few brands understand the value of these stories or even have the internal service culture to cultivate experiences worthy of being retold. Lego is obviously one of those brands. Dunzo is another one. And they have plenty of stories to prove it. But what’s truly remarkable about Dunzo’s stories is that they aren’t limited to extraordinary circumstances like the boy who lost his Lego. Their stories are almost always incorporated into the very fabric of their business, things that happen daily while they deliver different kinds of packages to mostly grateful customers.

Stories like how they delivered someone’s forgotten eyeglasses from one end of town to another... and cleaned them on the way; how they were able to deliver breast milk on behalf of a working mom for her baby waiting at home; how they delivered sanitary napkins to “a visibly indisposed [Nikhitha Prasad]...saying ‘take care ma’am, feel better’, [leaving her] feeling all sorts of feelings”.

Customers love telling their stories about Dunzo. And as I first started evaluating the company (having never experienced the brand myself, because I’m in Mumbai, and they were not) I literally fell in love with the idea of a company getting the amount of love Dunzo was getting from their customer base. Hand to heart, that was my first motivation to wanting to invest. I’d never experienced a brand that connected with customers like that. I wanted that connection with a brand for myself. Unfortunately, they’re still not in South Mumbai, so I’m still waiting...Kabeer...

But how does that love translate into a company’s performance? That’s a little more tricky. At the heart of it (couldn’t help that), Dunzo is a marketplace. A three-sided marketplace which theoretically can deliver an infinite number of products across an infinite number of categories to any customer anywhere in a city. And as soon as possible: their average delivery time is less than 30 minutes.

When evaluating companies like Dunzo, once you’ve determined the size of the market, and spent enough time to get to know the founding team, it really comes down to understanding the marketplace itself. Marketplaces inherently are network effect businesses. In network effect businesses, a service (like Dunzo) becomes more valuable as more people use it (like the Internet, for example). One needs to evaluate how much money is spent in acquiring those people (CAC), how often those people come back for the service once they are acquired (repeat customers), and how much money the service needs to spend to keep bringing those people back (discounts).

And that’s how we evaluated Dunzo. Any marketplace (or business of any kind for that matter) that wants to grow sustainably, needs to have organic traffic. You can imagine how much money it will cost if you need to pay Facebook or Google every time a customer lands on your app. As any network grows larger and its value to users grows, it needs to become less dependent on paid acquisition platforms. The majority of customers on Dunzo already come organically. And they come organically in spades! Love lesson one: when a customer truly loves you, they will tell others about you. And nothing brings more organic traffic than word of mouth and user generated recommendations. This statistic becomes even more incredible when you realize that Dunzo’s monthly deliveries have grown over 33 times in the last 24 months. That’s a lot of recommending!

The average customer on Dunzo uses their service 5 times a month. The top 5% use it 26 times a month. The top 1% use it over 60 times a month. Yes, you’re reading this right. That’s a lot. Love lesson two: if a customer loves your service, they will use it over and over again. Because they’ll want to do more and more on it. This is really important long term as well. Dunzo doesn’t need to or plan to expand into hundreds of cities to grow. They much rather just increase the number of repeat transactions of acquired customers to grow. Very few businesses ever have that opportunity let alone can capitalize on it to achieve these kinds of repeat rates. Think about any single verticals marketplace from laundry, to transportation, to food or groceries. Can you do laundry 60 times a month? 40 times a month? Even if you are the most loved laundry service in the world...probably not.

And finally, although different companies discount on Dunzo, Dunzo’s discounts are negligible. Love lesson three: if a customer loves you, they’ll pay you appropriately for the service. And this shows up in the unit economics. The real impact on their unit economics right now actually comes from the delivery partner side of the marketplace, not the customer. We all believe that the customer is paying their fair share. Dunzo loses money today mainly because it’s not fully utilizing it’s fleet of delivery partners. And that cost of paying delivery partners to stay on the network is subsidized by private equity money. Not customer acquisition or discounts. Which is encouraging because it shows a clear path to what the company needs to do to become profitable. The more deliveries Dunzo can give their delivery partners per hour, the less they need to pay them from their reserves and the closer they will get to becoming profitable.

And that’s what love’s got to do with it (to answer the question above, not necessarily what Tina Turner was getting at). True love can make you a better business. But maintaining that love is tough. Growing while trying to maintain that love is even tougher. But we believe if anyone can do it, it’s Dunzo. And now, as their newest investors, we have a ring side seat to watch it all unfold!

• Year of investment

  2019

• Location

  Bengaluru