Meesho’s Business Model – How Meesho Makes A Fortune Through People’s Connections

In today’s day and age, fundraising has become an extremely crucial task. Businesses need to scale at great speeds, lest their competition get the better of them. But they need a lot of capital for scaling, and investors have that money. Competing against millions of startups to win the investors’ trust is no easy task. But if you look at the duration that it took for a simple social e-commerce platform Meesho to raise a Series A funding, you simply wonder how things worked out for them.

The idea was simple, but it wasn’t by any means easy. Meesho founder and CEO Vidit Aatrey had a dream, but it was a challenging one. The company got its first funding of 3 million USD from Saif Partners in 2017. Sequoia Capital would soon follow suit, with an investment of $10 million. But way before these two joined the club, the genius mind of Vidit Aatrey managed to rope in Facebook as an investor, with Naspers following them quickly.

Meesho has been really successful in running its business, and much of the credit goes to Vidit’s business acumen and killer business model. But before we get into the nitty gritties of India’s largest reseller platform, let’s take a look at how Meesho started.

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Humble Beginnings

A lot of startups in India – if we pay close attention – have been inspired by their western competitors. But Meesho seemed different. Vidit had completed his BTech from IIT Delhi and after that, he started working with ITC and then joined InMobi later in the early days of his career.

It was during the year 2015 that he decided to take a new direction and build something for himself. After exploring a lot of options, what struck his mind the most was the idea to create a platform where people would start and manage their business from the comfort of their home, without handling the risks of running a business – in terms of both capital and effort. And this little idea led to the birth of Meesho, and to a network of over 1 crore resellers. He was then later joined by Sanjeev Barnwal and together they set up shop in Bangalore in 2015.

Here’s how the website looked when it was launched.

and a bit of revamp done in 2017

meesho 2017 - early days website

Stats And Investors

Meesho was derived from “Meri Shop” which means My Shop in Hindi. The company provided a lot of potential entrepreneurs with virtual shops, who would otherwise find it hard to start a business from scratch and have to overcome numerous difficulties and obstacles. Today the Meesho platform has around 2 million sellers across 700 towns in India and it also provides distribution access to another 20,000 manufacturers.

These numbers grabbed the attention of one of the most influential companies in the world – Facebook. And before anyone could notice, Meesho had already raised $215 million USD, backed by some of the most respectable names in the country and across the world, including the likes of YCombinator, Facebook, Naspers, Saif Partners, Sequoia Capital, Shunwei Capital, and RPS.

But how did Meesho manage to do so much, and scale to such an extent in less than half a decade? The answer, unsurprisingly, lies in Vidit and Sanjiv’s realization of an untapped business model, and the vigorous implementation of that model.

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Meesho Business Model

When they first proposed this plan, everyone thought Meesho would be digging its own grave. But seeing how the numbers kept going up at enormous rates and the money kept gushing in, investors started to believe in this simple, yet amazingly effective model. Between 2016-17, Vidit and Sanjiv had an idea of selling on WhatsApp – something almost nobody had tried around that time. Surely, this sounded very risky at the time, but Meesho pulled it off as smoothly as it could have. And this is all due to Meesho’s target audience. The model can be slightly compared to Pinduoduo’s business model.

Target Audience

Vidit realized that what they wanted Meesho to achieve wasn’t earning more money. They wanted Meesho to reach as many resellers as possible, thereby helping them get a headstart in business without any investment risks. And given the population of India, this was perhaps one of the most brilliant tactics to have ever been adopted.

The results speak for themselves. Around 10% of Meesho’s sellers are influencers on Instagram and Youtube. These social media influences are basically from tier two or three or even tier four cities, and make a living through reselling products on the Meesho platform. This is what Meesho really set out to achieve, and it’s what drives the people behind one of the largest platforms in the country. A large chunk of their user base also consists of women who are very active on social platforms. And it will not take a lot of effort for these people to set up a shop on WhatsApp and sell through that group.

But how do influencers earn through Meesho? Let’s discuss this by taking an example of buying a t-shirt through the Meesho app

  • Step 1: The Supplier lists their T-shirt – which will often include several photos of the product along with descriptions and the selling price – for a certain amount, say 250 INR.
  • Step 2: A reseller comes across the product on the Meesho app.
  • Step 3: The reseller will share images of the t-shirt through his/her WhatsApp groups and direct messages.
  • Step 4: One of the friends/customers of the reseller using WhatsApp will like a particular t-shirt and send a message to the app user to ask for further details or place the order.
  • Step 5: The reseller now uses the app to process the order to add the profit margin (let’s take 150 INR) and the address of the end-user to place the order.
  • Step 6: The seller will now accept the order and start packing it.
  • Step 7: Meesho will, later on, pick the order up and even add an invoice of INR 400 to deliver it to the end-user.
  • Step 8: The end-user will pay 400 rupees to Meesho.

Then, later on, Meesho will pay rupees 250 to the supplier and keep INR 50 as service charge and delivery charge and send the rest of the hundred rupees to the reseller.

This very simple tactic of attracting influencers and ambitious women from everywhere around the country helped Meesho skyrocket to where it is today. And it’s showing no signs of stopping. And the next 400 to 500 million users with platforms such as Tiktok and WhatsApp and even Facebook have very huge opportunities for them to approach. Now that TikTok has been banned in India, it’ll be really interesting to see how Meesho manages to help its users who were active on the platform. However, looking at all these numbers, just one question pops in mind:

How does Meesho make money?

Meesho usually charges a standard delivery fee plus a 10 to 20% commission based on the product. The app also charges a hefty penalty for when the products are returned. This encourages higher quality products, a more loyal and trusting customer base, and genuine sellers. The company sees this as a win-win, and rightly so. The large community of Meesho users, in spite of this strict company policy, shows just how good their customer retention rate and growth model is.

Will It Work Long Term?

We all know how big WhatsApp is. Acquired by Facebook, it has around 1 billion active users each month. Naturally, it’s a great place for business, and the people at Meesho recognize this. However, there are different messaging services such as Line, WeChat, and even Facebook Messenger. These apps have become key platforms for businesses to collect leads, place and receive orders, get deal updates, and even automate.

WhatsApp on the other hand, despite its large user base, can only take advantage of its messaging system. This company had only added a web-based interface a few years ago. Even though the business was at its peak popularity it had to key in all the updates on the phone. This model might not usually have room to scale because they are dealing with hundreds of potential customers. The problem is particularly acute in India because WhatsApp is estimated to have over a hundred million users in the country alone.

However, we cannot just conclude that business on the app is dead.WhatsApp is perhaps the most famous app across the country as it has unparalleled distribution channels through which it sells online or even retains customers despite this not being the purpose that it had been created for. That’s where Meesho, a startup company with new techniques and ideas was hoping to slide in and change things by giving the much-needed power to WhatsApp sellers. To put in simple words, the company has been turned into a Shopify app for “micro-entrepreneurs” across the country and helps them become self-sufficient.

Automating your messages with WhatsApp Business is really easy, and helps for a better, more efficient customer management system. There are a lot of small businesses in India that use WhatsApp groups to post the details of products, say, to people in Delhi, and then use the payment methods like Cash On Delivery or Bank Transfer to collect the payments of the orders. Meesho uses the same model, on a much larger scale.

This type of model does come with its own set of challenges, particularly for the buyer, who can’t search or categorize the products. For instance, if the customer is looking for a unique dress, he/she would have to go through hundreds of images and decide on something. Even if he/she were to like something and want to buy it, there is no option for adding the item to your own personalized cart. The customers are also often spammed to such an extent that it becomes bothersome to even check the group – muting the whole chat room seems a much attractive alternative. And we don’t have to tell you that the payment collection method is no way close to being formal.

Closing Thoughts

Meesho is one of the many startups from India that have flourished thanks to their exceptional audience targeting and marketing model. The simplest way for you to understand how Meesho has been so successful is to get yourself on the platform and experience the workflow for yourself. We warn you though, you might just fall in love.

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