Podcast Summary
Creating a Fast, Engaging Product in Underpenetrated Markets: Focus on fast delivery and high engagement in underpenetrated ecommerce markets for long-term user relationships. Understand customer behavior and be hyper-local to succeed in delivery-based businesses.
Key takeaway from this episode of Founders Field Guide is the importance of creating a product that offers fast delivery and high engagement in underpenetrated ecommerce markets, like Latin America. Rappi, a Colombian on-demand convenience store founded by Sebastian Mejia, has expanded into 9 countries and over 200 cities, focusing on Latin America's fastest-growing but still underpenetrated ecommerce market. Rappi's product allows for delivery of various categories, including restaurants and consumer product goods, in 10 to 30 minutes, and its flexible courier network enables delivery of various products in each city. This model leads to high engagement, mind share with customers, and a superior business model with long-term relationships with users. Additionally, being hyper-local and understanding customer behavior are crucial for any delivery-based business. The value of brands in an increasingly app-based world and the importance of fungibility in rewards programs were also discussed.
Rappi's success in Latin America: Broad assortment and fast delivery times: Rappi thrived in Latin America by offering a broad assortment and fast delivery times, evolving from a convenience store on demand to a multi-vertical product, and tailoring solutions to the specific challenges of the emerging market.
Rappi, a delivery app popular in Latin America, thrives in densely populated urban areas due to its ability to offer a broad assortment and fast delivery times. This is significantly different from the US market, where cities are less densely populated and larger delivery companies dominate. Rappi's success came from listening to customers and iterating quickly, starting as a convenience store on demand and evolving into a multi-vertical product. The early days involved balancing marketplace dynamics, figuring out unit economics, and building a network of couriers. Unlike other companies, Rappi's solutions were tailored to the specific challenges of the emerging market. The free text feature allowed customers to order anything they wanted, and the company figured out how much to pay couriers based on demand and distance. The team had experience building companies but wanted to focus on the customer, leading to a shift from enterprise software sales to consumer-focused delivery services.
Starting from scratch in emerging markets: To succeed in emerging markets, companies must build core competencies by tackling challenges head-on and making previously non-legible data legible to a system
Building a successful business in an emerging market often requires starting from scratch and developing core competencies. The founders of Rapid, for instance, faced challenges integrating with large supermarkets and restaurants due to the lack of existing technology and logistics stacks. Instead of giving up, they went out and talked to customers, offering donuts for downloads, and even made deliveries themselves to understand the market better. They also had to build solutions from first principles to make inventory and menus legible to their software, whether it was through tablets or POS integrations for restaurants or dealing with inventory levels in supermarkets. By tackling these challenges head-on, Rapid was able to create valuable business capabilities that could be used to offer additional services in the future. This experience is not unique to Rapid; other companies, like Loft, have also had to build their own databases of apartments or homes due to the lack of existing systems. The ability to make previously non-legible data legible to a system is a valuable skill, and companies that master it often thrive.
Local e-commerce companies face unique challenges in integrating with points of sale and navigating income disparities within their hyperlocal zones: Local e-commerce companies like Rappi and Meituan must deliver fast, affordably, and build a local presence to thrive in hyperlocal markets, prioritizing good unit economics and network growth.
Local e-commerce companies, like Rappi and Meituan, face unique challenges in integrating with various points of sale and navigating income disparities within their hyperlocal zones. These companies must deliver fast and affordably while building a local presence that is hard for foreign entities to replicate. The economic model for these companies often prioritizes both good unit economics and network growth. Rappi, for instance, operates in over 200,000 points of sale and integrates with stores within specific zones to provide an amazing customer and courier experience. Meituan, another successful local e-commerce company, offers delivery services along with marketing, advertising, travel, and hotel bookings, focusing on the specific needs of each neighborhood. Both companies have proven that a large business can be built by delivering faster and better quality in local markets. Despite the complexity of these challenges, local e-commerce companies that can master them can thrive and create a deep connection with their local economies.
Maintaining healthy unit economics in dense markets: In Latin America, focusing on a solid business model with optimized unit economics and a healthy AOV to delivery cost ratio is crucial for scaling a delivery business and building profitable companies in the long-term.
Having a solid business model with healthy unit economics is crucial for winning the network and scaling a delivery business, especially in dense markets like Latin America. The unit economics should be optimized from the early days and constantly monitored to ensure long-term growth and profitability. A healthy AOV to delivery cost ratio is essential for having profitable unit economics and is unique to markets like Latin America. While scale effects are desirable, they are not easy to achieve, and maintaining healthy unit economics while growing quickly is a discipline that requires attention to every line of the unit economics. Additionally, the long-term horizon for these businesses is building really big, profitable companies, as there are clear scale effects in this industry. Ultimately, it's about doing both - growing fast and maintaining healthy unit economics.
Managing Scale Effects in Ecommerce: Recognizing and managing scale effects, making strategic decisions about business expansion, and leveraging partnerships are crucial aspects of growing a successful ecommerce business.
As an entrepreneur, recognizing and managing scale effects is a crucial aspect of growing a business, particularly in ecommerce. Scale effects refer to the financial benefits of handling a large volume of orders, which can help finance earlier investments. The feeling of achieving scale is often marked by the realization that the total contribution margin from orders covers the costs of previous investments. Moreover, as a business grows, decisions about inventory management, distribution centers, and partnerships become essential. Maintaining a focus on local markets and treating each city as an independent market is crucial for hyperlocal businesses. Verticalizing the business by offering physical infrastructure, such as dark kitchens and micro-fulfillment centers, can help businesses expand in a low-capital-expenditure way. This approach provides advantages for both the core business model and the user experience, resulting in faster delivery times, improved economics, and a shift in customer behavior. In summary, recognizing and managing scale effects, making strategic decisions about business expansion, and leveraging partnerships to expand in a cost-effective manner are all crucial aspects of growing a successful ecommerce business.
The shift towards vertical integration and its impact on user behavior: Faster delivery times and e-commerce convenience may lead to more frequent purchases in smaller quantities, less inventory, and more efficient supply chains. Brands that adapt to these changes will be at an advantage, but may face decreased brand loyalty and disintermediation.
As businesses focus on building networks and scaling marketplaces with technology, there's a natural evolution towards vertical integration, or becoming more "asset heavy." This shift can lead to significant changes in user behavior, particularly in the way people consume goods and services. For example, with faster delivery times, consumers may buy goods more frequently and in smaller quantities, leading to less inventory and more efficient supply chains. Brands that can adapt to these new ways of consuming and selling goods will be at an advantage. Additionally, the increasing penetration of e-commerce and the convenience it offers may lead to decreased brand loyalty and more disintermediation, with consumers relying on platforms rather than traditional retailers for their needs. Overall, the impact of these platforms on user behavior and the business landscape is still being explored, but it's clear that the future will bring significant changes.
Standing out in Latin America's digital marketplace: To succeed in Latin America's ecommerce market, focus on building a strong brand story, navigating performance marketing, and solving real problems for customers.
While there may be opportunities for unbranded, brand-agnostic businesses in the rapidly growing ecommerce landscape of Latin America, particularly in sectors with low penetration rates, having a strong brand story and mission will be crucial for standing out in the increasingly digital and customer-focused marketplace. Brands that can navigate performance marketing, growth, and the unique challenges of the region will have an advantage. Latin America's large population, significant GDP, and high mobile and internet penetration make it an attractive market for investors, and its entrepreneurial culture and resourceful population make it an ideal place for building transformative technology companies. Entrepreneurs in the region should focus on building strong businesses by solving real problems and asking why.
Latin America's Tech Landscape: A Focus on Entrepreneurship, Innovation, and Investor Engagement: Latin America's tech industry is thriving due to entrepreneurship, innovation, and investor engagement. Companies like Rappi, with customer-centric offerings like Rappi WOW, are driving growth in the e-commerce sector by understanding unique market nuances and creating value-added services.
Technological entrepreneurship and innovation are key drivers for economic development and long-term progress in Latin America. Rappi, a leading on-demand delivery platform in the region, is a prime example of this. The company has seen a shift in investor thinking towards a deeper understanding of the unique market nuances in Latin America, leading to a more knowledgeable and engaged community of investors. Rappi's success story began with a focus on connecting deeper with power users through a membership program similar to Amazon Prime. This program, now named Rappi WOW, was designed to provide additional value to the platform's most engaged users, leading to increased customer loyalty and higher average order values. The program's success underscores the importance of understanding customer behavior and creating value-added offerings to drive growth in the e-commerce industry. Overall, the combination of technological entrepreneurship, investor engagement, and customer-centric innovation is paving the way for a bright future in Latin America's tech landscape.
Amazon Prime's Multi-Vertical Convenience: Amazon Prime's success lies in its bundled benefits across various product categories, making it a go-to option for users and increasing engagement and retention in marketplaces. Blockchain technology could revolutionize loyalty programs by making rewards more seamlessly integrated and fungible, leading to increased user engagement and retention.
Amazon Prime's value lies in its frequency and multi-verticality. Prime becomes the go-to option for users when they need to purchase various categories of products due to the convenience and benefits that come with the membership. The key to Prime's success lies in its ability to bundle multiple products into one membership, making it a more attractive option compared to single-category membership programs. However, communicating the perceived value of Prime to users and continuously adding value to the program are crucial for its long-term success. The intersection of Prime and blockchain technology could potentially revolutionize loyalty programs by making rewards more fungible and seamlessly integrated into the user experience. Unlike traditional rewards programs, crypto-based systems could eliminate the cumbersome process of redeeming rewards, making them more appealing to users. The simplest version of such a system would involve earning crypto rewards for every dollar spent, which could then be used to make purchases directly within the platform, eliminating the need for additional steps or platforms. This could lead to increased user engagement and retention in marketplaces.
Crypto's Attraction in Latin America: Faster Spending and Currency Conversion: Crypto technology and tokens are gaining popularity in Latin America due to their faster spending benefits and potential for conversion to traditional currencies, making them more attractive than traditional loyalty programs. Companies like Rappi are exploring crypto's intersection with commerce to enhance user engagement and increase revenue.
Crypto technology and tokens are offering faster spending benefits and the potential for conversion to traditional currencies, making them more attractive than traditional loyalty programs. The vibe around crypto in Latin America is one of innovation and necessity due to historical currency instability. Companies in the consumer space are exploring crypto's intersection with commerce, and Rappi, in particular, is leveraging financial services to enhance user engagement and increase revenue. Despite rapid growth, the complexities of the business and the need for top talent remain challenges for the future.
Scaling a business in complex industries: Entrepreneurship, systems, and operational excellence: Maintain an entrepreneurial culture, invest in world-class systems, prioritize resources to long-term value drivers, and allocate talent and resources wisely for operational excellence
Scaling a business in a complex industry requires a culture of entrepreneurship, attention to detail, a clear strategy, and world-class execution. The entrepreneurial culture should be complemented by team members who have experience with larger scales and understand necessary systems. Systems that help make better decisions based on data are crucial for weekly reforecasting. Clarity on what the business needs to do, especially in a multi-vertical product, is also essential. The idea is to allocate resources to the "flywheel" that drives long-term value. Maintaining talent, having the right systems, and investing in the flywheel with clarity and precision are the keys to operational excellence. The most critical thing for the business is maintaining this operational excellence. The speaker's mother's support during hardships was the kindest thing anyone had ever done for him.
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