 |
| By the end of 2008, redBus had established a strong brand and was growing rapidly with 120 employees, operations in 15 states, and revenues approaching $7 million annually |
The venture’s new mentors gave them the confidence to plunge ahead and work out a business model as they went. Says Phani, “I knew there was a need and thought there was a solution, but I wasn’t sure how to make money out of it.” He continues, “At the time we were selected by TiE, there still were a lot of mixed opinions about what our identity should be. Some people thought we should operate a GDS (Global Distribution System) for bus operators, offering a transaction platform and making money by charging for each online transaction. Others said that if we did that, it would take a long time to recoup our investment because the operators weren’t yet technologically savvy enough for a GDS.”
TiE’s veteran advisors spurred the young engineers to resolve the problem by acting instead of relying too much on hypothetical analyses. Phani recounts, “Our mentors were of the opinion that we could start off if we could just solve the first obvious problem we saw, which was on the consumer side. We could launch a Web site and mimic the whole back end, even if it wasn’t automated at all. The first step was to get traction by adding value where that would be easiest. They told us just to go do that, gain recognition, and stand on our own as a business. Then we could move on to other things and worry about automating our operations. The TiE members really helped us take one option and pursue it relentlessly with more confidence.”
Because the bus operators were not computerized, redBus could not simply tap into their existing systems in order to put seats online. To get around this problem, Phani and his partners adopted an old practice that had long pre-dated computers: block booking. They asked bus operators to reserve some of their inventory until an hour before departure time, just as off-line travel agencies reserve a fraction of a hotel’s rooms in advance. That allowed redBus to offer seats from multiple operators without knowing in real time how full any given bus would be. It also insulated the bus operators from worrying about scaling up IT systems and servers to handle holiday peaks in online traffic.
However, this decision created a classic problem: which came first, the chicken or the egg? Phani and his partners were among the first to ask private operators to allocate seats to them in advance. Once redBus was established as a volume seller of tickets, more operators would be willing to set aside inventory for them. But unless operators could be persuaded to do that, how could the venture build volume?
The only way to overcome this hurdle was through sheer effort and determination. redBus launched its service August 18, 2006 with just one operator on board. Recalls Phani, “I told the operator that we were a group of well-educated entrepreneurs who were experimenting in order to improve the ticketing experience for customers. I said I knew it would work, and asked if he would help us. He said that he would give me one week to show progress or forget it. I knew that during that one week we couldn’t sell tickets on the Internet, since that was too short a time period for a new medium. So I went to bus boarding points in Bangalore, told everyone our story, gave people my card, and said ‘Call me and I’ll get you a seat.’ That’s how we did marketing for the first two months: going to bus stops, giving out cards, and telling people one at a time who we were. Most of the customers pitied us; they figured that a founder was telling them this story, so why not give it a try? A lot of people in the IT sector were able to relate to us.”
Customer by customer, operator by operator, the redBus team built a business. “It was really tough,” Phani recounts. “An operator would call me and say ‘Come over to our office,’ and I would sit there literally until night waiting for them. When I did that, they said, ‘OK, I’ll give you a chance.’ Finally, one journalist was impressed and wrote a story about us, a good article profiling the launch of a new service. That gave us our first visibility.”
From the operator’s point of view, redBus was simply another distribution channel. Says Phani, “We are another agent for them. They pay us a commission, just as they pay other agents. We didn’t add any mark-up because the reason why we started the venture was to help customers find tickets, not to raise prices for them.” However, the launch of redBus was temporarily delayed until the founders secured an online payment gateway. Historically, bus ticketing had been a cash business, and redBus had to reconcile payments daily with operators who were used to being paid in cash on the spot by their agents.
Although operators saw redBus as just an online ticketing agency, the partners viewed the heart of their business as providing a superior customer experience by any means: online, through a call center, via home delivery, or through distribution partners such as Sify. redBus not only offered standard fares from multiple bus operators but also allowed customers to choose their seat and book return tickets, services that traditional agents did not offer. Says Anandaram, “There was consumer demand for a quality customer experience for bus travel, which had been an unsophisticated and messy experience. We thought that if we could drive a consumer brand that promised a good experience, operators would eventually clamor to become part of the system and would give us access to their inventory.”
Through word of mouth, public relations and search engine marketing, redBus began to build greater awareness and established presences in Hyderabad and Chennai. Growth enhanced the value proposition redBus offered to operators and to other agents. Says Phani, “Consolidated information about departures and fares didn’t exist anywhere. Nobody knew how many buses went from X to Y, with what timing, and what was the price of a seat. We were the first information tool anybody could use for that, including operators.” Although ticket agents saw redBus as a rival, they occasionally used it to book their own tickets in return for 30% of the commission redBus received from the operator. Phani explains, “When an agent has someone in his office, he doesn’t want to let go, so he uses us as a last resort to sell a ticket.” Furthermore, most offline agents could only offer return tickets to their customer by booking them through redBus.
As redBus began growing by leaps and bounds, it attracted professional investment. Phani relates, “Once TiE selected us, many investors came to know about us because online travel was the talk of the town. Several big investors approached us, so we asked our mentors for advice. They told us their opinion was that we should go with an early stage fund that would spend time with us, so we selected Seedfund.” This well-known venture capital firm invested $500,000 in redBus and partner Bharati Jacob took a seat on the board.
By August 2007, redBus had opened new offices in Mumbai, Pune and Delhi, but Phani was concerned about the future direction of the firm. Many small operators were beginning to sell bus tickets online, and major travel portals such as Yatra were also expanding into the space. A significant venture-backed competitor emerged with a different business model. Says Phani, “Ticketvala.com was started by the former CTO of Worldspan, a well-known name in travel. They raised three times as much venture funding as we have and they had more experience. Their model was to give software to operators, integrate them into an online platform, then launch a front end and make money. They saw themselves as software vendors and platform operators first and as a brand second, while we had done things in another way.”
From the start, Phani and his partners had debated whether to think of themselves as a software company, an online platform, or a brand. Their mentors had urged them to move forward in the swiftest way possible by solving a problem, which had driven them toward brand-building and ticket sales. Now, Phani wondered, was it time to re-visit that decision and re-orient the company to enable the next phase of growth?
The entrepreneurs behind redBus and their investors decided to continue building redBus as a brand whose core competence was providing a superior customer experience. Says Phani, “We understood the vision of Ticketvala.com, but we felt it would take them a while to get results that way. Sanjay and Bharti told us not to focus on making software to operators the lynchpin of our early strategy and said that we had to demonstrate business value to motivate all concerned. They never ruled out giving software to operators, but emphasized that we needed results to go forward and motivate our team.”
“Our model gave us money coming in every day, which built our financial strength,” Phani continues. “We also added value directly to bus operators by selling tickets, which helped us build trust and strong relationships. Today, operators and our employees are so enthusiastic and encouraged because they can see our growth. We have also been able to gain the trust of our customers by satisfying them, which gives us an opportunity in the future to cross-sell other products.” Seedfund showed its confidence in the enterprise by injecting an additional $700,000 in capital.
In contrast to the venture’s early days when Phani had to persuade operators one by one to provide inventory, today operators typically contact redBus themselves and ask to join the system because it has become India’s largest online bus ticketing agency. Says Phani, “Today we have the largest network with bus operators, so more sign up all the time. Once you have a product, you have everything to push.” Phani believes that redBus enjoys a first-mover advantage because operators who were once willing to reserve seats for an unknown startup now are used to dealing with an established online brand.
Adds Anandaram, “Ticketvala started out wanting to be a software provider that would charge a transaction fee for every ticket sold through their platform. They soon realized that it’s a very tough problem because many operators are not yet ready to understand how to use it and what are the benefits. They and others had to spend money offering tickets for free or for one rupee, so the platform has not yet paid off to the extent they had anticipated. Today, operators are more concerned about selling tickets than about having an efficient back end, though I think that will change two or three years down the road.”
By the end of 2008, redBus had established a strong brand and was growing rapidly with 120 employees, operations in 15 states, and revenues approaching $7 million annually. Says Anandaram, “I think there are three important lessons to learn from this case. First, there is no point having a grand strategy in a brand new market opportunity: your strategy is the one that gets executed every day in real time in the field, based on multiple inputs that keep coming at you from various directions. In a market that is so disorganized, nobody knows what will lead you where; you have to move forward. Second, it’s important to have cost-consciousness built into a startup from day one, as redBus did. Third, you need the right communications and internal information systems to scale up as a company grows. This is a cash-intensive business where you need to have a finger on operations minute by minute. You also have to ensure that the guy you hire in a small branch office understands operations, what bus operators need, and what it takes to adhere to the value of providing a great customer experience. That’s why Phani constantly travels around and communicates to employees and partners why redBus exists.”
Subscribe to this comment's feed
| < Prev | Next > |
|---|
- Printo: What next for an entrepreneurial husband and wife?
- Telibrahma
- Should the Venture Capitalist Invest? Helion Venture Partners and SMS Gupshup
- Sanjeev Aggarwal and the growth of Daksh
- Cynapse: how to move from software services to products?
- Hidesign: to expand the brand
we also faces the problem but as time pass away we got the value and satisfaction after solving the problem
for an entrepreneur
"hard work with a good business model is the key to success"
shepherding intelligent tomorrow
www.thinnkware.com