How did Meesho become a Unicorn Startup with $4.9 billion valuation - Business Model (Updated 2021)
In the world where someone needs investment to start a business, Meesho has created a social commerce platform for many small businesses and individuals to sell the products for a margin without any investment.
Meesho has started in the year 2015 by two IIT Delhi graduates Vidit Aatrey and Sanjeev Barnwal. The name Meesho has been taken from the initial letters of “Meri Shop” which means apni dukaan.
The founder Vidit said in an interview, #Meesho has initially started in the fashion industry with the name “Fashionear” where the founders thought of building a platform for complete fashion just like Swiggy did for Food.
But after working on Fashionear for 4 to 5 months the founders realized that fashion only mattered for consumers in the third point. While first and second being the selection of clothes and price of the product. This made founders know the market in depth.
As a part of this, the founders started interacting with the local shop owners and pitched those owners saying “We will take your shop online”.
But the response they received from the shop owners has inspired them to build the business model for their business that is worth a $4.9B valuation today.
Let’s deep dive into the game-changing idea of Meesho.
Meesho Business Model
While interacting with local shop owners, the founders observed that around 90% of eCommerce business happens from these small mom and pop stores. Because, most of the people in tier-2, tier-3 cities and other lower parts of the country who has less monthly income generated when compared to metro cities, are going to purchase the products from these small stores and not going to fancy stores or big stores like Amazon.
Having observed this, the sellers of these products have defined their way of selling the unbranded products using social media platforms like WhatsApp and Facebook.
This is where the founders identified a gap in the market and thought to solve two major problems of sellers by-
Providing an online platform to sell the unbranded products with all the necessary tools
Building a community to avoid the trust deficit factors for sellers and customers.
How Meesho helped sellers?
As these shop keepers used social media channels to sell their unbranded products, Meesho helped them in stocking, managing the inventory, and delivering the product to the customer.
The interesting part comes here.
Meesho didn’t charge any commission from sellers to register their business on its website.
Instead, it makes money by shipping these products.
Besides, helping sellers with online presence Meesho also helps them solve the basic problems like:
Adding Product description for the products with price tags and sizes (which eases resellers process while promoting on Whatsapp)
Real time tracking of payments and orders
Giving exposure for sellers to wide range of products from suppliers
Customers support
Meesho handles all the major problems of sellers and suppliers by being an extended arm for them to rely on.
So, the seller gets an advantage of selling the products with zero commission, zero inventory costs, gets suppliers on time with good quality and make their products delivered to customers without spending a penny on transportation and above all the seller earns money by selling his product.
For example: If you’re a seller and when someone places an order on your product, Meesho delivers the product to the customer on your behalf and gives you the money for the product.
With this business model, Meesho now has more than 1 lakh+ sellers registered on its portal.
Alongside, Meesho noticed that many of the sellers who were registered on its website were Women, selling products from their houses and they called themselves #Resellers.
The founders then interacted with these resellers and realized that these resellers didn’t have a live inventory but all these resellers were doing is just posting the pictures of products on WhatsApp and Facebook after a shopkeeper adds a product to the website.
Image credit: Techcrunch
This gave rise to another unique #opportunity for Meesho founders to explore.
They bought suppliers and resellers on one platform and created a win-win situation for both of them and thus made profits for themselves by creating different streams of income.
The process being so simple and having observed that anyone can make money on Meesho, the founders decided to onboard students, retired folks (who were drawing pension), and many unemployed people as resellers.
They even created a community just like Reddit, with their suppliers and resellers to address the challenges faced by each one of them. Where in this community, the top-ranking sellers give tips for beginners on how to sell. Thereby, building a strong relationship in the community.
Now, that Meesho has created employment opportunities for housewives to small business owners, the real question comes here.
How did Meesho make the profits?
Come, let’s see how did they create income for themselves.
Meesho’s Revenue Model
The impressive part of Meesho lies in its revenue model.
It’s surprising to hear that Meesho never made income from its seller’s commission. Instead, it created new streams of income by thinking out-of-the-box.
It generated income through the following ways:
Shipping the products:
In the cycle of seller business, As the shipping is controlled by Meesho, It made income by delivering the products from seller to end-user in the form of shipping charges taken from the customer.
Advertising:
The second source of income for Meesho comes from its advertising fees.
Where the sellers and resellers on Meesho are charged for advertising their products if they want to display their products in the first place. So that when the customer visits the website or application their product will be the first to draw the attention of customers and it’s more likely that the customer ends up buying the product.
Penalty for returns:
Meesho imposes a penalty on product returns and on suppliers who deliver low-quality products to sellers and on those suppliers who fail to deliver products on time.
It’s surprising to believe that in the FY-19, Meesho made penalty earnings of INR 2.1 crore which made their profits rise annually compared to the previous financial year.
Does Meesho only sell fashion products?
Meesho did business only in the fashion industry until the Covid pandemic outbreak has hit the market.
When each one of us was struggling to get groceries, many eCommerce companies found that has an opportunity to start a grocery business.
This is when Meesho decided to pivot Kirana and daily essentials and added a new segment to its business.
It introduced Meesho Mandi to add new categories and ensured that their entrepreneur’s business didn’t get down because of no sales in the fashion industry.
Fortunately, Meesho Mandi became a huge hit for Meesho and its entrepreneurs as well.
Meesho Funding
Meesho Success story:
In just six years since its inception in 2015, Meesho has over 13 million entrepreneurs registered on its platform and over 1 lakh suppliers as of today.
According to Vidit Aatrey, by 2025 the reselling market is estimated to be $70B and total eCommerce accounts to be $200B as the number of online shoppers were increasing and people from tier-II and tier-III cities were also adapting the new norm of shopping.
From an idea to help hyperlocal fashion market to evolving themselves today as a platform to support many small businesses, Meesho today has grown to valuation of $4.9 Billion making it become the first social commerce unicorn startup. They were able to do this by seeing every challenge as an opportunity and tweaked their business model whenever necessary.
Vidit says,
“As a CEO and as a founder, the best way to learn is always talking to other founders. I've seen every problem that I have is never the first problem. I've built a network through our investors, through our board members who have other portfolio companies.”
DID I MISS ANYTHING?
Please do let me know by dropping a comment.
And, if you want exclusive business case studies that I only share with my email subscribers head over to www.aneffortstory.com and sign up for the newsletter. It’s free.