With tech innovation taking over every sector, especially food and retail, a host of new startups have turned to asset-light model instead of the traditional business model like mom-and-popstores. These asset-light models help startups grow rapidly, all while they save time, money and efforts. But what is this business model and why have popular startups like Grofers, Swiggy, Uber, Snapdealturned to this model?
Understanding asset-light model
Any asset-light model is simply a business model whereby the company has relatively few capital assets compared to its operations. This model does not only help companies grow faster, but in the long term, even ensures they are sustainable. Most often, outsourcing is the key to the success of this model.
A shining example of asset-light model is the latest unicorn in the block, Swiggy. Founded in 2014, this startup has so far raised $450 mn funds and turned unicorn recently. Turning to technology to fill the gap in F&B industry, Swiggy primarily invests in operations infrastructure and delivery vehicles. While it procures all the products sold by it from different restaurants,it mostly simply relies on commissions by every order from its partnered restaurants. This not only lets the customer choose from their favorite restaurants, it evengives the food vendor a much-needed exposure in its inventory.
How have startups benefit from this model?
An important takeaway is that asset-light companies have lower or negligible operational costs, less risks and more cash flow when compared to traditional business models. More often than not, these startups depend on their tie-ups, which can make or break the business. For instance, Bengaluru-based startup Rentsher, a market leader in short-term rentals, has its complete rental inventory owned and supplied by its network of vendors.
According to its founders, Rentsher evaluated the market and found that most rental product providers were into long-term subscription-based rentals because the time. However, using technology for maximum efficiency, the startup took a different path and emerged as the market leader for short-term rentals across various categories. From a laptop to a nebulizer and wheelchair, users can rent any product from a single day or even a week. The startup has spread its wings in 6 cities across India and in UAE overseas. While the founders say that tier-II cities in India too are opening up to short term rentals, they believe that foreign market too is equally lucrative. The startup has raised $1.4 mn in funding from various national and international investors. The company claims to have overhauled over 60K customers and delivered more than 100K products in the past three years across India and UAE. Rentsher enjoyed a steady 12-15% m-o-m growth in FY17.
Similarly, on-demand grocery delivery appGrofers too has turned to asset-light model which mostly depends on the backend operations of connecting consumers to the nearest delivery personnel, who then heads to the vendor’s physical marketplace to get the ordered products to the customer. What clicks for Grofers is that users can schedule a delivery time instead of quick instant delivery. The startup has had two acquisitions since its launch. The startup has so far raised $241.8 mn funds.
Word of caution
While asset-Light business models help emerging companies quickly scale and make them efficient enough to compete with larger organizations, it also means that these startups have to be cautious of the threats that smaller firms can pose.
Industry stakeholders believe that vendor dependency has the potential to create bottlenecks and asset-light models work best only if a strong strategic plan is in place. Also, since this business model allows more players to participate, the marketplace often becomes overcrowded. Whether asset-light or traditional business model, experts suggest that startups should have long-term goals, strategic plans and ensure sustainability over the years.