I have looking for a way to invest in social commerce for a couple of years. A friend was an early investor in Mesho which recently became a Unicorn. He told me one of Meesho category leads had identified a huge underserved market with a superior business model and had started a company. BizzTM is that company. BizzTM is how I am betting this wave of social community commerce.
BizzTM: Community Buying platform for home and personal needs
My wife grew up on a farm. Neighbors would get together once a year and buy a cow from the local rancher, splitting it between them. Group buying has been around for a very long time. In the 80’s Sams Club and Costco brought group buying to scale through large retail stores. About a decade ago, Groupon and others extended group-buying with technology to primarily retail services and experiences (restaurant and hospitality). I was the founder and CEO of a white label group-buying technology platform during this time called Tippr. While e-commerce and social media have become ubiquitous they are still largely focused on individuals making discrete purchases through expensive physical distribution networks. Social is becoming the driver across commerce categories.
While the Groupon wave cohort has mostly stalled in services, I have continued to search for the right physical goods group-buying model that can scale. What I have been waiting for is someone who has mashed up the power of social with local, more efficient distribution and the leverage of group buying for physical goods, preferably frequent use repeat purchase items. Oh, you don’t daydream about perfecting business models for decades? Welcome to my world.
A couple of months ago, I read about Meituan and Pinduoduo transforming remote Chinese towns with community buying and sent the article to Hershel Mehta who runs 2AM ventures in India (where I am an LP) with the note: “Is anyone doing this better in India?”. His response “We have a few deals in the social commerce space, stay tuned :)”. A couple of weeks ago he emailed me, “I think we have a winner, BizzTM, we are trying to lead the round, it is very competitive.” Last week he called me with “We have a signed term sheet and given your experience in the area, we want you in.”
The founding team was part of the Groupon wave (Snapdeal – India Groupon) and saw firsthand the limitations around physical products. They were also part of the recent social commerce wave (Meesho – apparel) and saw the limitations in that model for additional product categories. The team identified a number of key features for the platform that would crack this problem at scale including:
- Convenience. Most home and personal needs items are purchased from the 15M small shops around every corner across India. BizzTM had to be more convenient (or improve service for the local store) than a 10-minute walk to the store.
- Sufficient Local leader economics. To harness the power of locals to organize their neighbors into groups, there had to be sufficient economics to reward their work either part or full time. Their operational cost had to be mostly variable to compete with the fixed costs of the shops. Or the leaders need to extend an existing customer base they already have on a fully variable cost basis (for example existing local store owners)
- Better prices. Prices had to be the same or better than the local shops and e-commerce. This can only be done by shortening the logistics chain to the end consumer substantially.
- Wide Assortment. Local shops have shelf space limitations. There is a sweet spot between a local shop and Amazon where the assortment is very wide, but the cost to carry the assortment does not overburden the distribution system or lead to expensive delivery options. Local shops that can better serve customers with a wider assortment on a variable cost basis could be big advocates.
- Technology leverage. Be an app on a device consumers and leaders already have. In India that will be WhatsApp first. Mobile native. The platform must also provide all the back-end for logistics, messaging, accounting, and compliance for the local leaders to make group management a breeze. Group-specific features need to be built versus e-commerce 1:1 design.
- Not MLM. Scalable, mass-market community buying cannot smell like Multi-Level Marketing. There is too much blood in the water in that category.
- Local is different that “social commerce”. Social commerce today is primariarilly a “reseller” model where a company (for example Meesho in India) handles sourcing and distribution of products by recruiting individuals as resellers. Resellers use social media, email, etc. to market products to their audience at a mark up. The sponsor company provides a back end and handles individual shipments similar to a traditional ecommerce platform. What is new with social commerce is that “influencers” get a margin when they resell the product. But fulfillment and distribution still consumes approximately 18-22% of the average cart and deliveries are to discrete individuals. This model works best for branded or high margin products. It does not work well when “value” is the primary purchase metric.
In India 85-95% of wallet spend is local. In India 92% of shopping time is spent in research and price comparison (including online). Especially in rural or second-tier markets, “Value” is the primary purchase metric. To deliver value products at scale you must solve fundamentally shorten and reduce overhead in the supply chain in some material way.
BizzTM’s model fundamentally shortens the supply chain and reduces capital costs within the supply chain. BizzTM aggregates community demand for a curated list of products (more than local shop, less than Amazon) from local leaders collecting money for purchases upfront. One community leader serves 2-500 local families within a 300M radius of their home. BizzTM aggregates all demand across their network and orders products direct from the manufacturer for bulk shipment to their central warehouse. Many of the value-based product manufacturers are locked out of current distribution due to the thin margins available to the current multi-tier supply chain. Products are batch shipped to local leaders consolidating individual shipping into a community shipment. The local leader handles distribution to end consumers (typical pick-up from their location). Other than their time, the local leader requires no capital investment to participate in this model. This leads to an individual shipping cost of 2-4% of cart size instead of 18-22% in e-commerce or the reselling model. This two-tier distribution (BizzTM – Local leader) supply chain compares to a 4-6 tier traditional supply chain in India. It is also much more flexible, responsive, and capital efficient. BizzTM collects customer money upfront and typically has payment terms from manufacturers resulting in a very positive cash flow model. BizzTM spends money recruiting local leaders who already have customer relationships so the end customer CAC is very low as well.
The BizzTM team built an MVP of their product during their time at the Lightspeed Extreme Entrepreneurs accellerator. The attracted leading India seed investor Axilor. They have onboarded over 1,000 local leaders (70% owners of local shops) (Bizz Owners) who manage thousands of consumers in groups, and are processing tens of thousands of orders per month. 2AM Ventures is leading the pre-seed round and I am excited to partner with them to build BizzTM.
Why I am Investing
The problem BizzTM is solving is a problem I have been thinking about for a long time. The team has deep subject area expertise and has thought deeply about how to build a better mousetrap. The initial traction is impressive and there is a clear path with this round to a 5-10x increase in all key metrics. They are enabling mass entrepreneurship across India through BizzTM Ownership. I am excited to partner again with 2AM Ventures who know the Indian market and founders well. I believe BizzTM will be a leader in a new community buying wave for physical products.
Trends I am betting on
Value and Efficiency win the mass market. While brands may get the headlines, the largest part of monthly wallet spend tends to be value driven. This is especially true in developing markets like India with significant rural populations. It is also true for categories with frequent use like personal care and home items. Walmart built a very big company by obsession over consumer price. Amazon upped the game with a very efficient highly scaled distribution system and massive selection. To continue to deliver consumer value, fundamental changes must be made in the supply chain, specifically much shorter chains, much more capital efficient. By leveraging existing local leaders with customer relationships and shipping in bulk, BizzTM has the opportunity to deliver on this value and efficiency.
Trust matters. While trust in fully digital ecommerce has improved over the years, it can only go so far. The company that can deliver prices in line with the best prices in ecommerce and big box retailers with the additional service and trust of a small retailer or neighbor will not only be able to halt the march of ecommerce giants, they may be able to turn the tide. I am betting that we are coming to a time where local trusted sellers can be enabled by technology so they can compete at scale. I am betting that trust will matter when price is comparable.
Why this deal is Incisive
BizzTM ranks very highly in key areas of our Meta Themes.
Software Eats Everything. Getting a price advantage in group buying requires aggregating demand and reducing distribution costs. Software is particularly good at aggregating demand, especially when that software is on a person all day (WhatsApp, mobile apps, etc.). Traditional physical product distribution efficiencies were gained through heavy asset investments in retail (Costco) and/or distribution (Amazon). BizzTM has the opportunity to deliver exceptional consumer value in a VERY asset-light model for their Bizz Owners. The most asset-light model yet. Software has the opportunity to eat physical goods distribution.
Great Founders figure shit out. The founders have been dreaming about solving this problem for over a decade (like me) and learned the ropes in some of the leaders in adjacent categories. Having multiple early start up experiences, they know it isn’t going to be a straight line and are agile enough to respond to the challenges as they come. I love backing second and third time successful founder like this team.
Disruptive innovation creates new markets. Disruptive innovation delivers unexpected value to unexpecting consumers. Who knew they need their own personal driver until Uber came along and offered one for cheaper than a taxi ride? Early surveys of BizzTM group consumers reveal they are discovering unexpected value. They may have not been looking for an alternative to local shops or ecommerce, but when they started getting higher quality products cheaper and with more variety very conveniently from a local leader (many times their trusted local shop owner) they trusted, they have become very loyal. BizzTM has created a new market for consumers as well as for BizzOwners with their asset-light model.
Platforms Win. Buying a cow from the rancher neighbor doesn’t require a platform. It also doesn’t scale. And you can’t buy anything other than a cow. By building a purpose-built community buying platform to serve consumers, leaders, and manufacturers, the value of the platform increases as more of each are connected. There are network effects and scale effects. The platform can also expand from its initial beachhead of home and personal needs over time. A platform designed specifically for local community buying will win over a 1:1 designed platform.
Invest when I can be helpful. I have been thinking about this space for over a decade. Even had an early company in the space. We have been invited into this round by the lead due to that experience and network. This is one I hope to spend an outsized amount of time on.
Invest with other smart people. Investing across boarders is hard. Having some of the smartest people on the ground, 2AM ventures makes all the difference.