Experts dismissed Zetwerk. They said its market was very small. They said Zetwerk won't become big.
But the customers said otherwise. They said Zetwerk was a lifeline for them.
Guess who was right?
Zetwerk became a unicorn last month. Its revenue 3x'd from last year. The market, which "experts" said was "small", includes the whole world today. Tata and Jindal and BHEL are their customers. Small market?
Today's newsletter is a deep dive into this incredible startup: I’ll talk about Zetwerk’s story and try to understand the main reason behind their success.
🕹The Founding Story:
Every startup story starts with a problem. Same with Zetwerk. Co-founder Amrit Acharya faced a problem while working at ITC:
During Amrit’s stint at ITC, he was building a factory and would deal with multiple suppliers at different times. That’s when he realized that it was a pain point for project managers to deal with 100–200 suppliers. At that point in time, they used excel sheets to keep a tab. There was no software to make the job easy.
Amrit was not the only one facing this problem:
One L&T vice president showed me his email inbox that it’s 9 am and he already has 100 emails from suppliers that he needed to respond to.
So he decided to solve it.
He was joined by his college batchmate and close friend Srinath. Srinath had a lot of experience in the startup space having co-founded 2 startups: OfBusiness and Blackbuck.
Zetwerk was founded in December 2017. Amrit and Srinath were soon joined by Vishal Chaudhary and Rahul Sharma as co-founders, and team Zetwerk was ready:
🕹The First Version of Zetwerk: Software-as-a-Service
Zetwerk's first version was a simple software that made it easy for companies to manage all their suppliers. This software helped companies organize all their suppliers in a nice database. So they were a SaaS startup at that time.
This diagram shows the value chain. Zetwerk is at the bottom of this value chain. Companies use Zetwerk to manage their suppliers. So Zetwerk has a direct connection to companies, but not the suppliers.
This value chain was very similar to Substack:
Substack is at the bottom of this value chain. I use Substack to send newsletters to my subscribers. So Substack has a direct connection to me, but not to my subscribers.
So based on this SaaS idea, they got the seed funding based in May 2018 and built the software in 3 months.
They showed it to companies, and the companies even liked their idea. But no further.
For all customers that were in India, the software sales cycle was over a year, which meant the wait was too long before any revenue realization.
For international clients such as Siemens, GE, etc, their decisions were not made in the India office, making it difficult for Zetwerk to convert these orders without them traveling abroad — which was not an option for a startup at such an early stage.
So almost all the companies rejected Zetwerk’s software.
But in between all this darkness of rejections, there was one bright spot. An opportunity.
And seizing this opportunity would be Zetwerk's first pivot, and the first step towards becoming a big name in the manufacturing sector.
🕹Pivot #1: Marketplace
After rejecting Zetwerk's product, a few company managers asked Zetwerk: can I use your software to find more suppliers?
These managers needed to find suppliers who could build custom machine parts for the company. But finding a supplier who will make the part according to your exact specifications, at a cheap price, at the highest quality, under the deadline, was super difficult.
Do you see the opportunity?
My friends, the founders of Zetwerk had underestimated the problem! Companies didn't just want to manage their existing suppliers. They wanted to find new suppliers.
There was an even bigger market than Zetwerk had imagined.
So they pivoted.
The founders knew there was a demand for custom machine parts: companies were asking them if their software could be used to find new suppliers.
And they knew the supply was there: India has so many small and medium enterprises that make custom machine parts.
They just had to connect the demand and supply.
And what's the best way to connect demand and supply?
Amazon connects people like us(demand) to sellers(supply).
Zomato connects people like us(demand) to restaurants(supply).
Ola connects people like us(demand) to drivers(supply).
That's what Zetwerk did. They connected companies(demand) to suppliers(supply).
And this was Zetwerk's first pivot: from a simple tool for managing suppliers, they became a marketplace for companies and suppliers.
The marketplace was beneficial for all 3 players:
📌 Companies were now able to find new suppliers who had better quality and quick delivery to make custom parts.
📌 Suppliers were able to get more clients.
📌 Zetwerk got 2 benefits from pivoting to the marketplace model:
Marketplace has a much better business model than SaaS. As you can see in the diagram, Zetwerk got an upgrade in the value chain and became a middleman in the company-supplier relationship. So they were getting commissions from both sides, instead of just one side when they had the SaaS model.
Zetwerk was getting a lot of data about suppliers. They got 200-250 data points(example: capacity, machinery, capability, quality, experience, vintage) for every supplier! They used this data to understand suppliers better and further improve the marketplace.
Zetwerk's shift to marketplace was great: more companies were attracting more suppliers were attracting more companies and the cycle continued. It looked like Zetwerk had finally found the perfect fit for themselves.
But soon, the founders saw that even the marketplace model was failing.
Turns out, they had underestimated the problem once again. The problem was much bigger than they thought, and even the marketplace was unable to solve it. So it was time for another pivot.
🕹Pivot #2: Marketplace+
But why was the marketplace model failing?
Because the demand was overwhelming and the suppliers couldn't keep up.
The companies had big demands: they wanted suppliers to make the parts to their exact specifications, at cheap rates, at the highest quality, and on time. The suppliers couldn't keep up. Once a company selected a supplier from Zetwerk, the supplier was unable to complete the order on time, leading to delays and cost overruns.
How to solve this problem?
Adding more suppliers to the marketplace wouldn't work, since, at the end of the day, the burden of making that part would fall on one supplier only.
Zetwerk needed a way to lessen the burden on individual suppliers.
The answer to this problem was Zetwerk's second pivot.
Instead of just a marketplace connecting companies and suppliers, Zetwerk became a supplier itself.
Under this new model, a company wasn't placing an order to a supplier. It was placing an order to Zetwerk.
Remember all that data they had about suppliers? They used it to estimate the capability of each supplier(sort of like a supplier rating, just like Amazon has a seller rating).
Zetwerk then distributed the company's order among several suppliers, according to their capability. This concept is called "parallel manufacturing", and it lessened the burden on individual suppliers while companies' orders were getting completed on time.
This was beneficial for everyone: suppliers were getting more value because they were getting work exactly according to their capabilities. Companies were getting more value because their order was getting completed exactly as they wanted and exactly when they wanted.
The entire marketplace was generating even more value than before. And Zetwerk was able to capture a big portion of this increased value.
So, Marketplace+ was an even better business model for Zetwerk!
🕹The Future: Another Pivot?
Now, we know the 3 secrets behind Zetwerk’s success:
Today, Zetwerk sells a whole range of custom machine parts: from parts of cranes, doors, and chassis of machines. Their orders come from a diverse set of industries: process plants, oil and gas, renewables, steel, aerospace, automotive, consumer electronics, medical devices, and apparel, etc Their customer base includes big companies like Tata Steel, Delhi Metro, BHEL Tata Power, JSW and L&T, etc.
Pivoting+big customers have made Zetwerk's business stronger. In the past 3 years, their revenue has increased 4400%!!
Another good thing is that they don't have any competition. No competitors in the Indian market and a few competitors globally.
To continue growing in the future, Zetwerk has started expanding: both inside and outside.
In September 2018, they got a few orders from Singapore even though they didn't have any international offices. So after they got the series B funding in 2019, they set up a few international offices in North America and Southeast Asia. Plus, they plan to use their recent funding to expand to more international locations. As CEO Amrit Acharaya told TechCrunch:
Over the last year, more than 100 western companies have moved their supply chains to India via Zetwerk, across industrial and consumer products
And they are expanding inside their own marketplace: now they offer warehouses, supply chain solutions, and inventory management services to companies using Zetwerk.
The govt is also supporting the manufacturing sector. In this year's budget, govt expenditure on manufacturing has been increased sharply. And global supply chains are moving to emerging markets like India. This ensures Zetwerk has a bright future.
Zetwerk's next phase of growth will be exciting to watch. I'm keeping my fingers crossed for another pivot :)
This wraps up today’s article. In this article, we saw how Zetwerk first started as a SaaS company. They had built software for project managers to manage company suppliers. But the managers wanted the software to find new suppliers. So Zetwerk pivoted to marketplace. They connected companies to suppliers who made custom parts. This was a great model, but after some time, even the marketplace started failing. Suppliers were overburdened by the company’s demands, and couldn’t complete the order on time. So Zetwerk pivoted again. They became a supplier. Now, companies placed orders to Zetwerk, and Zetwerk distributed the order among several suppliers so that suppliers were not overburdened. This was the perfect solution for all 3 players: companies, suppliers, and Zetwerk.
Thanks to Adwait Pisharody for his valuable contributions to today’s article.
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