Seven turning points in the redBus journey

There is a lot of premium to good governance, says Phanindra Sama, Founder and CEO, redBus.in. Encourage, therefore, transparency and good governance in your companies, he urges entrepreneurs, during the course of a recent interaction with YS, post the deal that made headlines a few weeks ago. Importantly in this interview, Phani shares with us seven turning points in his eventful journey.

In the redBus journey, what were the watershed moments, the key turning points?

Below are some of the key turning points:

• Pivoting from BOSS to redBus: Our platform has 3 stakeholders – Bus operators, Agents and Customers – and we have 3 products – BOSS™, SeatSeller™ and redBus™. The first product we created was BOSS. We thought once we give software to bus operators (the supply side) and aggregate their inventory, we could get agents and customers (the consumption side).

We pitched software to bus operators. But none of them was willing to take. We didn’t know what to do because if there’re no busses on our site, neither customers nor agents would come to the site. We thought it was the end of the idea.

That’s when we came in touch with the mentors from TiE and they advised us to drop BOSS and start building redBus™. This was our first turning point. We started redBus by taking a few seats quota from bus operators. If we sold these seats, we could ask for more seats. If they sold all their seats, they take the unsold seats from us. Though this was tedious and manual, we started gaining traction.

Our competitors continued to work on selling software to bus operators, faced adoption challenges, and it was too late for them to switch to our model, because by then, we were of significant size.

• Raising the first round of capital: We raised first round from Seedfund very early on. This financing gave us a lot of financial freedom and we could put all our efforts in building business without worrying about the next payment due.

I think this was one big difference between us and our then competitor, who was also doing fine, but just didn’t have the money.

• Deciding not to compete with competition on advertisement early on: This was phenomenal. Early on, if we had done mass media advertisement, sure, we’d have had success. But we would not have discovered all other ways to grow. Because we opted out of advertisement, we focused on the customers who were already coming to us. We worked on conversion rate; customer satisfaction; building strong technology architecture. All this was a great IP which formed a strong foundation for what we are today.
• Having a great team: It was one awesome team. Everyone was so committed and so enjoying what they were doing. The best attracted the best. We were in a virtuous cycle.
• The 2008 recession: The recession made it difficult to raise capital. Thanks to Kanwal Rekhi and the team, we raised capital. Though it was at a low valuation owing to the macroeconomic situation, it made a big difference.

Many of our competitors couldn’t raise capital and they slowed down as a result. There was a big drift of customers to our site. We got free customers from competition and these customers turned repeat buyers because of our strong customer experience.

• Launching BOSS in 2009: By now we were gaining good traction on consumer side and bus operators started believing in online sales. We launched BOSS as an ERP for small operators. We didn’t want to target the large operators as they may need a lot of customisation and we wanted to keep it simple.

Besides that, we thought it’s easy to get inventory from large operators, irrespective of what software they are using, because they are a few in number and they would have good bargaining power with their software vendor. But it might be difficult to get inventory from small operators as they are large in number and they may not have the bargaining power with their software vendor.

When we launched BOSS, we anticipated to signup 100 operators in the first year. But we ended up signing up over 350 operators! There was a virtuous cycle there. The more the inventory bus operators made available on our site, the more their sales were, as more inventory meant more choice of seats (window, aisle, group booking etc.,) to customers.

• Government RTCs: With the success of Goa RTC on redBus, many RTCs started showing interest in selling through us. Right now we are gaining fantastic traction on RTCs. We have agreement with 6 RTCs including KSRTC and 5 more are in the pipeline. With this we’ll have almost every bus on the road on our site.

What do you foresee as the wrong ways of decoding the redBus deal? The messages one should avoid deciphering in the redBus deal

I am fine with all the different analysis that is floating on the Internet. Some of it is right, and some wrong, as we couldn’t share much information on the deal.

However, I would like to throw some light on the belief, “Full ratchet caused all the dilution that redBus has.” While ‘full ratchet’ clause can have a big impact (and I would advise entrepreneurs to watch out for this clause), it didn’t have a big impact on us. Full ratchet clause was a part of our bridge round and its impact was limited to that small bridge round.

To startups, your advice

There’s a lot of premium to good governance. Encourage transparency and good governance in your companies.