But then MonkeyBox attempted something new. The B2B model, which resembled a catering business.
“I would say this was one of our biggest mistakes. So often parents and well-wishers would tell us that you are doing so well for kids, why don’t you pick up a large corporate order?” Rao says.
He thought about the utilization of kitchens. “In our B2C model, after 1 pm, there is no utilization of our kitchen,” he recalls. Rao explains that schools run for just 200 days a year so the kitchen’s effective utilization is just around 50%. “What do we do for the rest of the days? How do you get out of that?” he says.
That led them to attempt the B2B business. Last year, MoneyBox started working with a school, where the business model was that the school paid for the full contract and the startup would cater to 2,500 students providing them breakfast, lunch, evening snacks and dinner.
“This should have been a good thing, right? It brings in more business to Monkeybox and enables more optimal utilization of infrastructure,” he says.
But the devil is in the detail. Rao recollects, “The problem with this model was that pricing is very low, about Rs 120 for all meals. That’s not a lot of money and since you get a bulk order, you don’t have much pricing power.”
The other problem was that one had no control on how much the kids could eat. Which then meant the food had to be a spread of sorts. So, MonkeyBox was basically shipping “containers of food”.
He explains that in the B2C model, the cooking would be done to match the needs of each day’s orders. “We were shipping the food in the reusable tiffin boxes which would come back and so we would know if kids are eating it or not,” he says. What was eaten and what came back would serve as feedback points to fine-tune the menu. “But in the B2B business, there was no feedback mechanism and wastage was high,” he says.
If that wasn’t enough, the B2B business had several other issues. Unlike the B2C model, where payments were made upfront, on the B2B side, payments were made after 60 days, which meant that MonkeyBox now had a working capital challenge. The fact that MonkeyBox now had to hire and deploy additional staff to serve food in schools, further increased costs and hurt unit economics. So much so that from a point where the company was comfortably generating positive gross margins, the unit economics had deteriorated to a negative number, leading to heavy overall losses.
“We were losing 50 bucks per day per child on this. So in just one month, we lost about Rs 30 lakh (~$45,000) plus on this,” Rao admits.
What after the halt in the service?
But shouldn’t MonkeyBox have noticed this early enough and pulled the plug on this new service? They did. The company stopped this service in January but by then, it had lost a significant amount of money in the process.
However, there was a larger problem at hand; the imperative to achieve the VC-level hypergrowth. MonkeyBox had raised around $2 million of funding, a relatively small but still meaningful amount of capital. Given the traction that it has achieved on the back of this modest fundraise, it felt that it was an opportune time to go after hyper-growth and reach a point where a follow-on funding round could be raised.
This meant expansion. This meant additional kitchens. This meant hiring.
“On June 20, 2017, we were at 30 people. In just two months, by August, we were at 250. The new hires included folks from top institutions like ITC Gardenia and JW Marriott. The salary bill alone was Rs 60 lakh (~$90,000) per month,” Rao says. The company expanded to five kitchens in Bengaluru, each one measuring 6,500 square feet. Capital expenditure for each kitchen was about Rs 1.2 crore (~$180,000). On top of that, the company spent money on a packaging team, a delivery team, trucks, tiffin boxes, chefs, everything.