From just an idea three years ago, redBus today has established a strong brand and is growing rapidly with 120 employees, operations in 15 states, and revenues approaching $7 million annually
In October 2005, Panindra “Phani” Sama (called “Phani”) simply wanted to go home for Diwali.
Like thousands of young engineers who had moved to Bangalore to pursue job opportunities, he wanted to be with his family for the holiday, so he tried to book a bus ticket. The agent told him he had no seats available for Phani’s destination, but suggested trying another agent. That struck Phani as a strange idea. “If you try to book a flight or a rail ticket, an agent will tell you whether a given train or airplane is full, and if is it not, he can sell you a seat,” he says. “I wondered why you couldn’t seem to do that with buses.”
|If you try to book a flight or a rail ticket, an agent will tell you whether a given train or airplane is full, and if is it not, he can sell you a seat. I wondered why you couldn’t seem to do that with buses|
Few would have predicted that a semiconductor designer would tackle such a problem, but Phani Sama had long wanted to be an entrepreneur, and in Bangalore’s hothouse environment for startups, highly-trained engineers have started many different kinds of companies. Born in Andhra Pradesh, Phani was schooled in Hyderabad before he earned an electrical engineering degree from the Birla Institute of Technology and Science (BITS) in Pilani, Rajasthan. “I had been an electrical engineering wannabe throughout my childhood, so I trained to design microchips,” he relates. He initially joined ST Microsystems, but in order to return to southern India, he shifted to Texas Instruments and relocated to Bangalore, where he became one of the youngest team leads at the firm.
“I had an entrepreneurial drive in my mind to start a company, and do something on my own," Phani recalls. Consequently, he began attending all the events of Bangalore’s chapter of TiE, The Indus Entrepreneurs. “That gave me insights into how companies are built and what was required, going beyond the engineering part of product development that I had learned already,” he comments. “I learned that ideas are born from needs, and that a small thing can start a big idea. I got confidence that a small need can be the foundation of a big idea. All the talks I attended at TiE and the orientation of the organization influenced me. Every fortnight they had a networking meeting, and company founders would tell us how they started, which gave me confidence.”
Inspired by the lessons he learned through TiE, Phani began to investigate how bus ticketing in India worked. “You need curiosity to question everything, and that’s how you find a problem worth solving,” he says. The 25 year old engineer went to three or four agents, asking how the system functioned and why one agent might have a bus seat available when another did not. “I learned that across the whole of Bangalore, there are thousands of agents, but each represents just a few small operators,” Phani recounts, “Nobody aggregated all the tickets to a particular destination. As a result, you really curse yourself if you want to go home but you can’t get a seat. You are never convinced that you have exhausted your options, because somewhere there might be an agent who can sell you a ticket even if dozens of others tell you they have nothing left. Consumers were spending so much time looking for seats and being unhappy that I thought, ‘Why not put in software to integrate things so that any agent knows if there is a seat from a bus leaving Bangalore?’”
Further talks with bus operators persuaded Phani that a third party was needed to change the system. “Each bus operator is so small that he can’t build his own IT system, so I thought it would be a good idea to build a system for them,” he remarks “I was not from a software background, so I took the idea to two of my batchmates from BITS Pilani.”
Phani ’s two friends, Sudhakar Pasupunuri, a senior software engineer at IBM, and Charan Padmaraju, who was working with Honeywell, liked the idea and agreed to form a company together, Pilani Soft Labs Pvt. Ltd, to develop the idea into an enterprise . “They focused on software and operations, while I concentrated on getting the bus operators together,” Phani says. “However, we just called ourselves co-founders, without giving much thought to formal roles.” For ten months starting in October, 2005, the three continued working for their respective employers while building their entrepreneurial venture in their spare time.
Phani and his partners moved forward before settling upon a business model. Phani recollects, “Initially, I assumed a lot of things. I knew the industry was too fragmented for anyone to develop an IT system or trust another person’s technology, so I figured a solution would help the operator, the agent, and the customer. I believed that operators would benefit because they were turning away customers they would have some chance of satisfying if they used our system. Most agents represented only two or three small operators, so I thought they would see the benefit of having more inventory.”
The founders traveled throughout Bangalore and beyond, to destinations such as Hyderabad, Chennai, Pune and Mumbai, meeting dozens of bus operators. The responses were mixed, some encouraging and some dismissive. Phani soon realized that most operators were small businessmen who were anything but technology-savvy; agents were even smaller and less technology-intensive. Getting operators to update their inventory online so that customers could see in real time how many seats were left would be an impossible task. Selling software to operators or agents seemed like an uphill battle. What should be the business model?
Fortunately, help was at hand. Phani was aware that for some time, the Bangalore chapter of TiE had operated an Entrepreneur Acceleration Program (EAP) for selected entrepreneurs. Explains Sanjay Anandaram, a veteran venture capitalist who co-chaired the EAP at the time, “We send a call out to entrepreneurs who are part of our database or belong to other groups such as Proto or NASSCOM, inviting them to submit plans. We review them, create a shortlist, then ask these founders to present their ideas to a group of TiE members who typically have venture investing experience. A few are selected to be mentored. The company graduates when it raises somewhere between $100,000 and $250,000 from venture funds or private individuals.”
Says Phani, “We participated because here were charter members of TiE who would be willing to mentor us if they liked our plan. We had 15 minutes to pitch the idea. Afterward, I gave my card to everyone, but no one gave me a card until Kiranbir Nag, Vice President for SVB India Advisors, came out of the room. He said ‘This is my card and your presentation was good,’ and he invited us to follow up. We had three meetings with him before he and Ashok Yerneni agreed to work with us. Sanjay Anandaram also became a mentor. During our whole presentation he had played devil’s advocate, challenging us to prove our concept works, so I became very upset initially, but he closely mentored us every day and became a key advisor.”
The TiE mentors adopted the venture in July 2006, a month before the launch of the redBus service. They made an immediate impact, according to Phani. “We didn’t even have an Excel spreadsheet at the time; everything was just conceptual,” he says. “Kiranbir made us create one to make explicit our assumptions about the number of operators, number of travelers, amount of commission we might charge, and so on, and that was a big step forward. Our mentors made a commitment to meet with us every week, and that meant a lot. These were the heads of companies in this country, and since they agreed to meet us for an hour every week, I did everything they wanted. If they wanted an Excel sheet, for example, I would make sure I had it at any cost when I showed up at the next meeting.”
Why were the innovators behind redBus selected for the Entrepreneur Accelerator Program? Says Anandaram, “I was involved after they were selected, but the two things that stood out for me were the passion of the team and the potential to scale. They were attacking a fragmented space. To me, this seemed similar to how online travel agents were working, but I felt that people were not focusing on this area, even though it was a much bigger market than most in travel.” Although the entrepreneurs’ background was not from the industry, Anandaram also liked their understanding of the market. “A lot of TiE members don’t travel by bus,” he says, “but these people did, and they were really grounded in the experience. They understood the problem thoroughly from the standpoint of the customer.”
In addition, Anandaram admired the ability of the founders to attract high-quality talent. He saw their track record in getting good people to come on board as an excellent sign that they would be able to grow. As they were building up the idea, Phani Sudhakar and Charan persuaded Abey Zacharia to join them as head of business development while Mayank Bidawata signed up to helm marketing. Both were MBA’s, Zacharia from the University of Madras and Bidawata from the Asian Institute of Management. “The head of marketing had worked in direct marketing at Lintas, and before that had handled retail banking products at ICICI,” Anandaram recalls. “Here was a talented young guy with several years of experience who gave up a good job in Mumbai, relocated to Bangalore, and took a salary cut to become part of this new thing. The head of alliances, Aaditya Swaroop an MBA from IIM Kozikode, had worked in corporate strategy at Airtel in Delhi, and had also taken a salary cut and moved in order to join redBus. The company was able to attract such people because everyone understood how the industry had functioned so inefficiently, and they realized the promise was so clear.”