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Why Nestaway failed & how could it fix the problem?⚡️
Business deep dive into co-working Vs co-living.
2019 → Nestaway raised $110 million in total 💰
2023 → It’s been sold at 95% discount 🤯
Here's why Nestaway failed, in simple language ⬇️
Quick context 🗓
Nestaway is a home rental marketplace. It’s primary business is letting out single / double occupancy rooms to bachelors. Think of it as a managed PG but inside a gated society - it has a cute name “co-living”.
The asset lite model 🪶
Nestaway does not own any of the properties that it manages. It has home owners on one side and tenants on the demand side. It onboards apartments on it’s platform and furnishes them before letting out.
The model worked ♥️
Home owners loved the low paperwork, higher rental yield and most importantly timely rental payment guarantee model. Bachelors finally got an option to split apartment rentals plus no owner "tussle” to get a bachelor friendly apartment.
Nestaway makes a sweet 15-22% margin from every monthly rental payment.
Things have gone south from 2019 📉
Nestaway has been sold to Aurum, a company that makes software for real estate businesses, in a fire sale of Rs 90 crore.
Interestingly, WeWork india, which operates in ‘co-working space’, posted a profit. It clocked 250% growth in earnings before interest, taxes, depreciation and amortisation (EBIDTA) registering ₹175 crore profit in 2022.
Why Nestaway failed to turn a profit? ⬇️
1/ The revenue share model is different 💸
WeWork allows businesses to lease it’s spaces by number of seats. It creates an arbitrage between what it pays for the space vs what it charges. Nestaway does exactly opposite - it uses an asset lite model & shares revenue, limiting margins.
2/ The margins vs Cost makes little sense 🤐
Imagine a Nestaway tenant breaking a water tap inside the apartment. Nestaway policy covers it through the deposit amount. Imagine one such instance in a quarter and that 15% margin is eaten by ops expenses.
3/ Demand supply <> mismatch is expensive 🔥
Nestaway like product requires users who are ready to buy in for a longer term contract - it creates revenue predictability. But, it also creates a supply demand mismatch. Until they get a tenant for a property, the property makes no money.
Compare this with the WeWork model. Apart from the office leases that it does as the main business, it also sell hot desk passes, daily passes creating a steady flow of revenue walking in through the door, every freaking day.
4/ Lead → purchase journey is super short ⌛️
Think of the ideal customer Nestaway has - bachelors who take super short time to find a place relative to the WeWork customers which is typically a business owner who will take ~1 month to zero down on a property. It gives little time for Nestaway to capture & convert the lead.
5/ It’s cashflow intensive business ✨
It takes one tenant payment to get delayed payments to the house-owner. Add in eviction expenses when things go south with the tenant. It all adds up to having a large working capital for the business to function smoothly.
No wonder - Aurum, the company that bought Nestaway at ₹90 Cr, has infused ₹30 Crores as part of the deal to stabilise working capital requirements.
6/ Non-existent word of mouth 💔
Apart from the super early days of nestaway, it has destroyed customer trust over and over again - on both sides of the platform owners & tenants. Call it wafer margins, funding issues, missing nuance of demand supply and doing random rent guarantees to owners.
7/ What’s next for nestaway?
First, it has scaled down massively - and I strongly believe it’s the right move. It’s bleeding cash and this last ₹30 Cr is all Aurum is going to put in. That means it needs to get operationally profitable at a unit economics level for most properties.
How could Nestaway get out of the mess? 🛠
First, solve for cashflow “float” 💸
The current model does not give it any breathing space when things go south. Immediate step is to re-negotiate rental payment terms with owners. The cashflow needs to have breathing space between payment received from tenant and given to the owner. This will also create a liquid float for the business.
Second, rethink the customers they service 🕹
The bachelor ICPs with lower salary income levels have limited appetite to pay. Compare that to premium age bracket of 27 to 32 when most bachelors want to live in a good lifestyle. Positioning change will allow better pricing.
Third, solve for occupancy rates 🛌
And it starts with longer contracts (~11 months). Plus, building supply of apartments where demand is insanely high. Focus on penetrating there compared to expansion throughout city. Low occupancy is killing the model.
Fourth, do the win-win-win model 🔁
Until their tenants & owners are happy, this business is not going to make money nor scale. So solve for that first and then everything else. And yes, chuck this whole spend on marketing, you have got enough organic demand. Convert them better.
I am hopeful Nestaway will come out stronger.
Has it added value to the market? absolutely yes.
Is it perfect? Hello no. That’s all on this story for now.
I have been picky 🍒
About what products to work on, people to spend time with and the bets I take. This freedom has come from two important habits.
First, learning structures over instructions 🧠
I have never followed a process because I have been told to. The habit of understanding “The why” behind every task/action/ goal has led me to go deeper into understanding the right levers to problems, and eventually solve them.
Second, spending time with right social circle 🎳
And not over a glass of beer but in a group conversation where I am spending time with them solving/ understanding a problem statement.
After doing these 10s of times, we started GrowthX.
It’s the lifestyle that I had access to for a really long time before we built the full experience for over 2,100 members of the community full of deeper bonds. Did you know 65% of GrowthX’s first venture round came from the community?
I want you to have the privilege.
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