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Redbus’ Phanindra Sama on taking his bus ticketing startup to $1 billion ticket sales

Pilani Soft Labs, the Bangalore-based startup best known for bus ticketing service Redbus, is a company in transition. Last month, the seven-year old company, which sells bus tickets online and through offline outlets, crossed one crore in the number of tickets sold, has 2 million registered users and is rapidly approaching the $200 million GMV (gross merchandize value) mark. Redbus’ founders, BITS Pilanu alumni Phanindra Sama, Sudhakar Pasupunuri and Charan Padmaraju, aim to hit the $1 billion GMV mark in about five years.

To get there they’ve initiated a series of internal organizational streamlining measures, starting with the induction of Sierra Atlantic founder Raju Reddy as an advisor on their board. In a telephonic interview with StartupCentral, Sama, a former executive with Texas Instruments, detailed what this transition means for the company, how his own role is changing and the ups and downs of raising venture capital. Edited excerpts:

What new challenges are keeping you up these days?

The big challenge has always been to keep pace with the growth of the organization. Right from management capability to my own capability to infrastructure capabilities, all these have had to scale up dramatically. That has been the most challenging part of the journey in the last 3-4 years.

How are you dealing with those challenges and broadening your own capabilities?

Read a lot of books, meet a lot of people and get good board members in place! We recently brought Raju Reddy on to our board as an advisor. He was the founder CEO of Sierra Atlantic and sold the company to Hitachi Consulting (in December 2010). He has gone through many of the challenges that we are going through, both as a founder and CEO. So he’s been helping us in terms of getting in place management systems that will enable us to scale up sustainably.

Is this first time that you have brought a formal advisor on board?

Yes. In the early stages we had a mentor from TiE. That was Sanjay Anandram (Anandram, co-founder of erstwhile venture capital firm Jumpstartup and now venture partner with Seedfund, became a mentor to Redbus in 2006 as part of the TiE Jumpstartup programme). This was before we had any venture capital investors on board. After that the investors on our board also helped us.

What is significant about the timing in bringing Raju Reddy on board now?

This is absolutely the right time for a person like him to come and help us. We’re neither too big, nor too small. Until now the company was being managed more on the basis of common sense and entrepreneurial passion. But we also realize that it is quite a large organization with 26 offices across the country, 500 people and thousands of transactions everyday. That kind of scale needs certain skills and systems. We felt that at this juncture that we needed somebody who had already been a CEO. So we invited him to join our board as an advisor.

Will you add more such advisors soon?

Right now, with Raju on board, we are self-sufficient. He has just joined and for us to implement some of the things that he has advised or recommended will take about a year or so. So right now we don’t see the need for any more advisors.

How will Redbus change as a result of this addition to your board?

From outside you will probably not see so many changes. But from inside, for instance, we didn’t really set management objectives for the company. Now internally we are setting goals and targets and everybody’s performance is measured. We have set up metrics, every department had a dashboard and these are reviewed on a weekly and monthly basis. These kinds of systems free up a lot of management bandwidth, especially for me.

What impact will these changes have on your own role within the company?

I am moving more and more away from the action! Earlier, throughout the quarter I used to be very involved with everything that was happening. People used to just come to me and ask me how to do something, what to do, and so on. But that also causes a lot of stress. The first hour you are with the finance person and in the next hour you have to switch to the marketing person. That is just not sustainable. So now I need to move up a level. For instance, I would still be involved on the technology side, I would know the architecture, but I would not know the algorithm in each block.

As a founder, is that a role that you are comfortable moving into?

Let’s take an analogy… before I got married, life was very different. I got married because of parental pressure and didn’t think it was necessary at the time. But my parents insisted that it would be good for me. In retrospect I believe that it was a good thing. Some things have to happen just at the right time. They may cause pain but you have to grow. And every time there is a resistance to go to the next level. Similarly, on changing my role in the company, I kept thinking, no, no, I’m an entrepreneur, not a manager or a CEO. Should be just get a CEO and I can remain what I am? But the analogy about marriage struck me. Imagine if I were still a bachelor, I would never get married because I would be too old!

With accelerated growth, has the Redbus business model also undergone changes?

The business model has not changed. It is exactly the same. Only the scale has changed and the geographic footprint has changed. Today we have a presence in all four regions of the country. Structurally, the organization has gone through a lot of change. Earlier, for example, though we had five call centers, all the call center heads used to report into one person in Bangalore. And all the business development heads in various locations used to report to the business development head in Bangalore. That structure was not scalable because a lot of coordination was required. If there are 20 offices, it is impossible to control them from one location. So we had to change from a functional structure to a matrix structure where we have zonal heads, state heads and location heads.

But the basic business model remains the same. We make money when our tickets are sold or when a bus operator uses our software or when a travel agent sells a ticket. All three revenue channels were written into the original business plan. The only thing is that until some time back we used to sell only private bus operators’ tickets. Slowly the government operatives have also come on board.

So what does Redbus position itself as today – an Internet company, a ticketing company or a technology company?

Well the holding company for Redbus is Pilani Soft Labs. It is a bus ticketing company. But at the same time we do not say that we are on online bus ticketing company. We are not an Internet company. We sell tickets through the Internet, through mobile, call centers, offline outlets… whatever format allows us to sell bus tickets. The reason we called ourselves a bus ticketing company and not an online bus ticketing company is because we realize that these formats keep changing. Even before Redbus, there were bus ticketing travel agents. The only thing is that the Internet came by and none of them had built online platforms and that created an opportunity for us. Otherwise we would not have existed.

We do realize that in the fast changing world we cannot afford to be only an online bus ticketing company. Tomorrow another format can come along and we can become obsolete. So when we were setting up, we said that we will tell ourselves and everyone in the company that we are a bus ticketing company and will adapt to new formats as and when they come in. The way we think internally makes a big difference.

You are now selling more than 1 crore bus tickets. How much of the market still remains under-penetrated?

At present we sell roughly four per cent of the seats that are sold in the country. This is only through Redbus, direct-to-consumer. I am not counting what is sold through the bus operators’ software that we also offer as a service. That leaves a huge market yet to be penetrated. The only thing that is stopping us right now is our own immediate scale up. The internal scaling up is what will enable us to serve more customers. And we are heading towards that.

How important is mobile in your market penetration strategy?

Mobile is very important. Today our WAP site gets a very good portion of our customers. Other Internet and ecommerce companies day that they get about 20 per cent of their sales through mobile. That’s encouraging for us and I think we would also scale up there. About 10 per cent of our sales currently come through mobile phones.

What are the big growth targets for the next 18 months? How far to $100 million revenues?

To achieve $100 million revenues, we need to do a GMV (gross merchandize value) of $1 billion. In terms of growth targets, let’s take a longer duration. We want to hit the $1 billion GMV mark in the next 4-5 years. That’s the kind of very big aspiration that we have. In the immediate term, this year, if we do very well, we will do $200 million in GMV. If we don’t, we will do at least $150 million.

Looking in from the outside, Redbus seems to have been relatively lucky in raising venture capital. Has it been as easy as it looks?

No (chuckles). Well I would say that we were lucky to raise the first round within about four months into starting up and that money really helped us (Seedfund and unnamed angels invested $1 million in the company’s Series A round). There was nothing at the time, it was a huge risk and we were selling maybe 10 seats a week. But post that, fundraising has been difficult.

The second round was very painful and very difficult. We raised money just after Lehman Brothers had collapsed. Until then almost every investor would come to our office and say they would invest and roll out term sheets. We would say no, no we don’t need money right now. By the time we realized that we needed money the world had become a different place. Then we approached all those investors who had come to us. But none of them could invest. They said, no, no, the world is uncertain and we may not want to invest right now. So it was extremely difficult for us to find an investor and get good terms and valuations.

How difficult was that phase for the company?

It was extremely difficult both at the time of raising the second round (raised an undisclosed amount from Inventus Capital, Helion Venture Partners and Seedfund in July 2009 as the Series B round) and after. We had to raise the money at a very low valuation and the team was discouraged. I think by then we were three years old. Some of team had stock options and those weren’t worth what they had thought. So we went through huge pain, before, while and after raising money. It caused difficulties, problems and probably 6-7 months of a standstill in terms of work within the company. People were not motivated to continue working.

During that phase did you think at any point that you may not make it?

No, we never thought we would not make it. That was not running in our minds at all. Even when we were raising the second round, we were making good revenues. Even if we didn’t raise funds, the company would not be at risk because we could actually do a little bit of control, manage our cost and stay afloat. We had two choices. Don’t dilute at low valuations, cut costs and stay afloat. The other choice was to take the money and invest it in the company’s growth. Otherwise we would have lost time. We realized that what comes first is the company. Whether we own five per cent less or more makes a difference but it’s a small difference. There were other people involved other than the founders and everybody’s needs have to be addressed.

How soon will you need to raise fresh funds again?

We raised the third round about 18 months ago (raised $6.5 million from Helion, Inventus and Seedfund last May in the Series C round) but we have not used any money out of the round. So that gives us significant reserves. We do have a business model that is aggressive on investing and once we have made the organization work on push button mode, we may come up with a new expansion plan that might need funding (the company is reportedly in talks to acquire offline bus ticketing companies in Singapore and Malaysia).

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