The Incidental Entrepreneurs

Motivation for starting RedBus

Ok yeah. Actually we are incidental entreprenuers. We didn’t know anything about entrepreneurship. I was working in Bangalore, working at Texas instruments and my parents were in Hyderabad, used to take buses frequently to go back home and the one, one and a half years that I stayed here I always got a seat. I used to go to a travel agent and he used to get me a seat. But in Diwali of 2005, when I went to book a ticket he made a few phone calls to the bus operators and told me there are no seats and just when I left, was leaving his office he told me that maybe another agent could get me a seat and that really intrigued me, I was thinking if this guy is an agent for bus tickets, he should know whether or not there is any seat which is going vacant from Bangalore to Hyderabad that evening, how is that, that he is asking me to go to another travel agent. But anyway I went to this other travel agent, he also made a few phone calls and again couldn’t get me a seat then I got little curious so I went to the third travel agent. He also did the same thing so the fourth, fifth, sixth travel agent. After going to so many travel agents I ended up being in Bangalore without getting a seat but the next day when I woke up I was feeling guilty because maybe if I had gone to a tenth travel agent and maybe the tenth travel agent called the thirtieth bus operator and maybe the thirtieth operator had a seat which went vacant from Bangalore to Hyderabad that evening. It was loss to that bus operator because there was a customer in some corner of the city but he just didn’t know about that customer and it was loss to the four five travel agents that I went to because they had a customer in front of them, selling him a ticket they could have made some money but just didn’t know which of these thirty operators to call. And it was a big loss to a consumer like me because I desperately wanted to be home for the festive season but just couldn’t be there. So I realised that all the three of us are losing because information bus seats is not seamlessly available and being an engineer the solution was very obvious to me. I thought why can’t there be a computer system where all the bus operators put their inventory and all travel agents just look up at that inventory first come first serve and say whether or not there is any seat which is going vacant from Bangalore to Hyderabad that evening. So that’s how the solution started. So when the solution came to us, the next thing was how do we implement it and we were not aware of entrepreneurship and this whole world actually didn’t exist of VCs and entrepreneurship during our time or maybe we were ignorant. It certainly didn’t exist to the magnanimity that it exists today. So, but during those days’ open source was big. Almost everything was getting open source, your operating system, almost everything. So we said we will create this solution as an open source solution and give it to the bus operators for free and once they start using the solution we would benefit as a community, as a citizen. So that’s how we started off on this journey.

Market Research to validate the idea

Yeah so basically when we created this solution we didn’t think really deep because it was not business, right. We knew there were thirty operators in this city and there are like ten cities like this which means at least three hundred operators. And we were anyway not looking at whether it’s sustainable and etc because it’s an open source so it will be sustainable, right. Because there is no to expense to it but one thing led to another and then we went and pitched it at TIE – the Indus entrepreneurs and there we got mentors. So those mentors, the conversations with those mentors actually made us realise that this can be a business and then they told us that there are people like VCs who can invest in your business and then you can take that money, build a big enterprise and etc. and all that. So I think during those conversations it changed from a non-profit to a for-profit kind of an organisation and during those conversations the mentors were meeting us every week and then giving us guidance on what is the next step. So one of the steps they told us is go and figure out how big the market is and we didn’t know how to figure out how big the market is and etc and all that and we googled like everybody would do but there were no answers, right. I mean nobody has done, this is completely unorganised, nobody knows how many buses are there, nobody knows who is running, even the government would not know because some bus operators are known to be operating two buses on the same number plate. So, the actual numbers of buses were more than the number of registered buses and etc., so there is no way you could know that. But then we went in the raw way. We went from one travel agent to another travel agent asking him what is his estimate of number of buses let’s say from Bangalore to Chennai or Bangalore to Bombay and we would go to the next guy, ask him the same question and try to get some kind of a triangulation, right. We created one big excel sheet of all the buses and etc., all anecdotal data and that gave us confidence that it’s a large market, how large actually I don’t think even today we know how large because after eight nine years at least last year when we sold the business we thought we almost have every bus operator in the market with us but to my surprise every month we were signing up thirty new operators. Which is I think this industry and likewise many industries are very deep, right. I mean even after eight years we didn’t finish signing up the operators.

Experience at an Accelerator program

Yeah, so we created this software for bus operators actually if you look at the problem that we had, we had to get the bus operators and the travel agents on to the platform for the platform to work seamlessly. But to start with we couldn’t get the travel agents online because when they come online they don’t see any inventory; it’s not useful to them. So we had to get the bus operators online first, so we created the software for bus operators and went and started giving them the software for free because it was an open source thing but the bus operators were not very convinced to take the software because we were like very young, twenty five year olds with no experience and whereas on the other hand bus operators have been using their traditional method to manage the business for generations, their grandfather, father and now them and etc., right. So there was a huge resistance to change and if the bus operators didn’t take this software there is no way that we could get the travel agents online and which means it was the end of the idea and we were just struck there and we didn’t know what to do. And that’s when a friend of mine, actually I think, actually I never came in touch with him after that. I don’t know it’s kind of an, I think an angel sent to us. I know how I’m actually also related to him but I know this friend at Motorola which is in adjacent building to Texas Instruments. He met me for lunch and then he said oh, so you have this problem, so why didn’t you go to the TIE – the Indus entrepreneurs. Then I went and googled what is TIE and where and etc. and all that realized there’s a chapter in Bangalore so I went and applied for membership there. Just after like two to three months after I enrolled as a member, they launched a program called EAP – entrepreneurship acceleration program where they invited anybody who is pursuing an idea, whether it’s for-profit, not for profit anything and if they have any, if they have a need for a mentor they can come and present there. So we went and presented there in the first batch and we got selected as one of the companies to be mentored and that’s how we got three mentors from TIE and they have been phenomenally useful to us actually converting this non profit to for-profit, not just that but in every stage, right. I mean how to raise capital, there are like decisions that are there every day, right. How do you recruit people, right? How do you just meet a person for half an hour and decide whether a right person is for you are not? I have never interviewed in my one-two years of experience. This is the first time I am interviewing and the stakes are very high because you are, maybe interviewing people more experienced than you. You are getting him as a senior management for this and etc. So you need every kind of coaching, how to manage PR? How to do marketing? How to manage the team? What values, principles will you build your company on? How do you deal with competition? Which of the accelerators will you press at what time? So many, many, many decisions and our mentors have been very helpful in navigating through this.

Family support

Actually my family was fine more or less because most of the decisions that I took for myself turned out to be good. I went to, I was good at academics, I was a state ranker in 12th then I went to BITS Pilani, which is one of the good institutions, then I got a campus placement. So everything was going fine, so some of the decision that I took for myself turned out to be good so that I think build the confidence in our family about my decisions. So that way when I said I want to start this they were fine.

Team building and structure

Yeah, so one of the things that I learnt is, organisations have to be built around people. What I mean by that is like initially we had put a org structure saying Okay we need a head of sales and marketing, we need a technology and product head, we need a CFO, we need blah, blah, blah, the typical organization but when you go and meet people, to get people rolled for those boxes, right, you realize that okay you find somebody very good but he probably can’t manage both sales and marketing so depending on the skills that you identify, depending on the people that you identify I think one needs to change the organization, that’s what we did. Actually you go to find out sales and marketing guy and then you find a great sales guy you get him in and then find another separate marketing guy. You looking for marketing guy, you come across a product person get him in, right. So I think my experience has been that when you meet people, if you find somebody great, get him in and create a role for him. And org structures can always be, they will always be evolving and they will always be incomplete. And the none other big, so after a particular size one other big thing that we are wondering about org structure, one big decision that we had to take is what kind of a structure, right? Should it be a matrix structure or should it be a function led, right? That is actually one time I remember where I went and read Harvard case studies and whatever I could get access to, to decide whether we should be a matrix structure, should we be a functional driven structure, corporate structure and etc and all that and actually we ended up deciding that we will be a matrix structure and of course there were a lot of pros and cons. Cons were like in a small organization if you set in a matrix structure almost every person is reporting to two people. It could also create a lot of confusion but the pro in our case, the way it worked out so beautifully is we set up this, the north east west zone. Say, the directors I mean the people who handle the business in the north India, south India very independently and they will be supported by functional expert at the corporate. That worked out really, really well. There was a lot of freedom for the marketing, for the directors in the different regions so that they could drive the needs of our customers there. There was a voice of a customer in Gujrat in the corporate team at Bangalore. If it not for the director, if it were anybody junior I think that voice would have been ignored and that way I think we have grown more or less democratically or secularly in all the geographies. One thing that I was thinking I still wonder is many times I come across so many companies, right. They are very strong in their region they are present in, where their head office is present in. As we go physically, right, distance from the head office the power of the brand or the consumers decreases. For example, being in Bangalore for we ecommerce is always been Flipkart, Flipkart, Flipkart, right. I mean the other day I visited my cousin in Delhi and she was more like Snapdeal, Snapdeal, right. I mean I was shocked that again proves to me that, right I mean companies are strong in the region they are in and thankfully for us I think the matrix structure really helped in that.

Advice related to funding

Actually in our case it was very, very simple. I mean all our funding rounds decision were very simple. So, first round was we were not even prepared. We didn’t even know what is a VC and what are the terms and how to raise and etc. because that whole thing didn’t exist in the ecosystem and when we were selected by TIE, TIE had written about us in their newsletters and immediately once the newsletter was out we got interest from three investors. One was a very large investor; one was a kind of an investor, which is an investing arm of an internet company. Then the third one was a very small investor. Then we took all these three to our TIE mentors and the mentors at this stage we should take investment from the small investor because he would give little money and a lot of time for us and which was required then. So that way the other two investors were eliminated out of the three choices that we had and we ended up raising from the early stage fund.

On choosing an Investor

Yeah so I don’t know if I can generalize, I mean our experience has been very good. We learnt a lot. The investor could give a lot of time to us. We were also very prudent about spending money and etc. which helped us. Actually otherwise our business maybe would not have been viable because our transaction sizes are very small and then if you spend like other companies that you cannot be sustainable. So I think that way some of these things helped us in our business. I don’t know if I can generalize it for other businesses.

Product development process

Yeah so initially when we started off, we started off because of a personal pain point that I couldn’t get a seat and I though this solution could solve that problem. Then after that it is always been like, okay if you build something useful people will come to you. So actually we hadn’t spent any significant money in marketing all through our life. That is because we always thought we should build a product which is very useful to consumer and that should make a consumers come to us. So we looked at what are all the gaps in the market and started filling them. The gaps are like, for example in buses, particularly in buses people want to travel in front seats because the rear seats are bumpy or people have preference they want a window seat or an aisle seat and etc. And everybody would go to a bus operator and ask for front seats and bus operator was finding it difficult to sell the rear seats. So the way around for the bus operator is he started numbering the bus from behind, right. You would get a seat number one, but when you enter the bus you realize that it’s a last seat. It’s not the first seat. So things like this, they were very opaque and kind of a misleading. So we said let us start showing the seat layouts, right. But this was no precedence of it. No airline company was showing, I mean I am talking about 2005, no airline was showing seat layouts. No bus company, there was no bus company anyways but no railway company, railways still doesn’t show. We said but this is the problem that we want to and technologically it’s a complex thing. For hundreds of thousands of buses how do you have the seat layout and how do you get this live information for each one of them. But we said we have to solve it and then we attempted solving it and I think it became a big success. And many other challenges then like a woman passenger would not want to travel sitting beside a man. So then in our website we started showing which are the seats which are by women so that another woman could just book them. Other big challenge was people could not book return tickets. So people had to travel to the destination, get down there and buy a return ticket. Now on internet they could book return. So because of these compelling value propositions I think many people just came on board and then all through our journey we continued to understand our consumer more, we continued to read our feedback and come up with the insights and also technology makes it much easier to test out those features. So I mean big thing called A/B test, right. You introduce it, you see if people like it. If they don’t like it, then you take it off. So we actually built all our features around experimentation, trying out, giving it to customers because the cost of experimentation was low.

On gauging Customer Experience

So it’s all in a very, very raw way. Just go meet the customer, just pick up the phone talk to customer, right. So we did it only that. So most of, I think our feature set or most of the business in general was built on anecdotal evidence, right. You just go meet the customers, then you get it, rather than saying okay twenty percent of your customer said this, twenty-one percent said this and hence let’s implement twenty-one percent. I mean in general actually even people are giving feedback; right, anecdotal things are must more important than statically data, unless the statistical data is like 80:20. Then you can believe in the eight but if they are marginally different, slightly different then I think it is very dangerous to follow that.

On deciding Product Features

Yeah, so actually I probably have a simple answer to it which is again going back to A/B test, right. So there are many, many, many things that consumer needs and today what your consumer needs will change tomorrow, right. The only way to keep pace with it is to actually do A/B test. Any random thing that comes to you or any of the engineers or any of the product guys thinks that this might be useful. Just build it and then release it to the production, right. Do an A/B test then consumers are the guys who will tell whether they like it or not like it. In the past I used to be very particular about let’s say the branding element or what we stand for and etc. because there was a history like one two years we had run it ourselves, then you started getting team members. Now you have to give to the team members to do but every time team member did something it had to go through me. Because I said we have to retain consistency. But towards the end I realise that actually it is of no sense because even I have lost touch with consumer and consumers are actually telling you that there is a way to test it scientifically whether consumers like it, don’t like it by doing A/B test then who am I to stand here and say this is what my consumers like or who is the product guy, the tech guy, who is he to say that this is what the consumers like when there is a very nice, neat way to know what consumers like it. So since then actually we have given all our personal opinions aside, we would just build whatever we think could fly and the put it on production, do an A/B test and the consumers will tell you whether it works, doesn’t work. And it works for very random reason or it could work for very different reason that you even you have not even though of, right. But at the end of the day you have a result from the consumer.

Handling ESOPs

Okay, sure. So in our case I will tell you what we did and why we did and I cannot say it is the right way or what is the right way. But in our case the way we thought is initially we created an ESOP pool. So, before creating ESOP pool I looked at the companies that I had access to, the large companies the Infosys, Wipro, etc. and even other companies and all. So, all of them one thing that I realised and noticed is all of them start off giving ESOPs to almost everybody from the peon to the car driver to almost anybody and everybody. And after a while they realize that okay but ESOP pool is limited and it just cannot be sustainable this way by giving it to. And also the appreciation of ESOPs by the people, by others is very low because they – I mean what is ESOP? ESOP is when you give somebody, you expect him to build value in the company so that he has the incentive to do it but not everybody in the organisation has the same impact on the course of the company, right. For example, a developer with two years’ experience cannot change the course of the company. The company says I want to spend this much in marketing and I want to go this way, he cannot influence and he will, the wealth that he can create when the ESOP is distributed to many people is also very little. So it serves no purpose. It doesn’t serve the purpose of the company; it doesn’t serve the purpose of the person. It is only a god feeling the okay I have ESOPs. We said okay rather we give him salary and give ESOPs to the guys who can actually change the course of the company and that way concentrated ESOPs so that it can also create wealth for people. So that way we actually limited our ESOP to only the senior management to a large extent. And another thing when you limit it to the senior management, other question that we faced is, how much to give to senior management? Let’s say you have ten percent carved out as ESOP. Now if you have five senior managements do you want to give two percent to everybody? The simple answer is give two percent to everybody. But the complexity come when you don’t know how long this company will need, I mean will have a need to keep giving ESOPs, right? Because ESOPs vest over four years. So now you have five senior managements you have given ten percent to all the five guys. In four years all this is vested. Now company has a need to retain talent or get more talent because this growing right. So, now you are left with no ESOP, right. So that’s another question that we had. So the way we did it is, okay look at the person and look at his current compensation, look at his opportunity and what is a cash component that you are giving and what is the ESOP that will make much more than, I mean when things turn out much more that what his current opportunity is and present it to him and actually we created a excel sheet of different case scenario, at this exit you will get this much money, at this exit you will get this much money and if the exit doesn’t happen you will get no money. Are you willing to take this risk? And the senior management had good clarity on what is happening and then he would take it and join, yeah. So that’s how we approached ESOPs.

Advantages and Disadvantages of ESOPs

I think the advantage is certainly, I mean people will feel connected, people I mean; at the end of the day the monetary upside is also good, right. I mean that way it will impact positively. So the disadvantages of ESOPs are more administrative like for example in our case when we sold the company, many of the ESOP holders were not in Bangalore so we had to call them. They are in a different phase of their life. So for them to come and search for the share certificates and all that was I mean we went through a little bit of chaos because some of us even lost their share certificates and etc. And now I think with the changed corporate law, I think the administrative hassles are even more in terms of the price, strike price, whatever etc. But in general I think the advantages more outshine the disadvantages. So still I think companies have to go for ESOPs, but there are also I learned about some interesting instruments like SARS, restricted stock units, etc. and all that. I think one has to evaluate all this before taking a decision as to the want to do this or SARS, or restrict to stock units or etc.

Failures & Learnings

Okay. I won’t say failure but there are a lot of learning’s in the course. So, certainly if I do the company again I would do it with all those learnings. So many, many, many learnings all through our journey. So, like one of the learnings was I have heard of this complementary skills that the team should have complementary skills and etc. So I wanted to, I mean all through the journey of redbus I always wanted to do what is the best for the company and even if it means change myself and etc. I said I’ll change myself because what I best for the company is what I should do. So one of the things I heard was complementary skills then I said okay, let me get complimentary skills. I mean, otherwise you only have people like you in the company and etc. and all that. So, I even tried that. I also hired people who are a little different, whose thinking is little different but i think it created chaos. And then after that I again went back and read what is complementary skills and etc. and my learning or even out of introspection and etc. My conclusion today is that complementary skills are good, but it is skills which have to complimentary not the culture, not the attitude, not the passion and etc. For example, If I am conservative, if I am approaching the business as a frugal, I can’t have somebody who is like flamboyant because the values and the beliefs are different. Whereas certainly if I am not a data oriented guy, we should have somebody who is a data oriented guy. Skills, if I cannot do marketing, we need somebody who is marketing. I cannot read a balance sheet; we need a great guy who reads balance sheet. I cannot make sales, so the skills have to be complimentary but I think at the culture we have to be a very, very similar and same. So some of these learning’s.

StartUp Ecosystem in India

Yeah. So, first of all I am happy with the way it is changing and etc. So, some of the things that I really hope will happen is some of the Indian companies will grow really big, very big, right. I mean that’s when I think Indian innovation will start happening, I mean if you look at the valley, yes a lot of innovation is happening from the Universities and etc. and all that but significant innovation is also happening by companies like drones of Amazon, driverless cars of Google, the hot balloons of Google and etc., right. So, all these innovations have happened because the companies have now discretionary money, so they can put that money in a really futuristic idea and innovation and that’s when you’re on the nation, nation becomes successful because it has access to all these innovative thinkers and etc. So, that unfortunately in India okay we don’t have such great universities research oriented and etc. So the only hope for such really Hi-tech things to happen is, my personal belief is that our companies grow in large, not the traditional company but the new age companies, right. Flipkart, then the Ola cabs and etc. They grow so large and the have so much discretionary money then, then they will say okay I will have a driverless car or I’ll have some futuristic thing, right. And I am sure when given resources the Indian or anybody right, human being can build those innovative thinking. I mean I learned that actually some of these innovations are built by Indians in the valley so the same thing can also happen in India. So that is, that is something that I am hoping and eagerly waiting for it to happen in the ecosystem. 

From Job to Managing RedBus

Yeah, so actually I’m on a break now. I wanted to be on a long break about 5 years. So one year is done. So in the last one year I did a few angel investments. I mean the only concrete activity that I did is a few angel investments, other than that I didn’t do much. But just recently I was thinking about, I was just thinking introspecting on similar lines, right. How is it different from then, right? Actually I realise that actually there is no difference. And when I was a CEO I was not this very operational, everyday metric and data and etc. and all that. I was not that, actually I was very free because we had a CTO, we had a head of product, we had marketing head, we had almost all the gaps filled in and they were running the company and also one thing I learnt is, when you are running a company you cannot micro manage. So actually I left it to the team and actually was more or less jobless there, right. So, but I thought it is actually what I am doing now and what it then so very similar what I was doing then was I had the money which is given by VC’s or even internally, there’s certain money in the company. Now I am actually deciding okay where should this money? Where will it have the biggest impact for the company when this money is diverted? Should it go into marketing? Should it go into technology? Should it go into this guy or that guy? And now when I am doing Angel investments I realise it’s actually the same, right. Again I have this money, I just saying okay, should we give it to this entrepreneur or this entrepreneur? Who is the entrepreneur who will make the biggest impact, right? So, that way I think it’s very, very similar from the role that I did then to the role that I do now. Otherwise in terms of learning, yes I mean there also every day I use to catch, I had to catch up with what is the latest marketing thing? What is the latest in technology, etc.? Here also talking to so many entrepreneurs I keep learning, so that way the learning rigour is there but I think in terms of activities kind of similar.

Investor Criteria for choosing StartUps

Yeah so, I think I am a young investor so I have no history of things that worked so I am still figuring out a solution for that. I am still figuring out a framework as to what should I look for. So until now the investments that I have made are in all fields, in all types of entrepreneurs who have culturally appealed to me, that’s the only bar that I have used but otherwise people are doing B2B, people are doing analytics, people are building consumer businesses, people from different backgrounds, etc. and all that. So I think over time hopefully I will come up with some particular learning and my own hypothesis of what kind of entrepreneurs and enterprises that I want to invest in.

On Online Education

So, in general I think online education is great. I myself am taking online courses. I am taking the sociology course from a Professor at NYU, right. And I am so actually thrilled and happy because these courses are available for free and from such great teachers, right. I mean I could just, I mean when I go through it I could just understand so much better. So that way I think online education is great and especially for a country like ours where maybe we don’t have access to such great quality teachers, I think it’s great for our country and I think it’s great for the globe because now you need only one great teacher who can probably teach and influence the whole world. 

Advice to budding entrepreneurs

Okay so..I want to share some experience and realization that I went through which maybe right or wrong I don’t know but I just want to share my experience and I think this can help the budding entrepreneurs a great bit, right. So when I was building my company I thought, I realized that actually we are building a company in a knowledge economy, right. The only weapon, the only strength that we have as a company is the way we think, the innovation the passion that each one of us get, now anyone but everyone, right. How passionate is everyone to come and innovate and figure out solutions and etc. And I thought for that to happen, right they need to feel free, they need to feel really very happy in doing work, which means I have to be this great leader, right. I mean who makes who provides this great thing for everybody in the team. So I was on this journey as to figure out how to make that happen? But every time like in my course of management, right, when I was managing some people were not happy with the decisions I would take, some people so that used to hurt me. And I said okay let me go and figure out how these great leaders do it. So I went and read about all, many of the popular Indian leaders of different companies and I said how do they do it? I started meeting people there at every opportunity that I got but then I realized I mean everything is great but If you go a little deep, right,  then there also people are unhappy, there also people say, ohh but you know what this guy micromanage me, no but he is like a dictator type, no this that and etc. And I said okay maybe, okay let me go to the global leaders, right. Then I went and read about Steve Jobs and Allison and etc., etc. and all that Jeff Bezos, right there again, right everything great, they built some greatest enterprises of our lifetime now but again there ‘are you know what, ‘this guy every pixel he looks at i hate it’, ‘I am not my best in this company’. And again I was disappointed. Then I said let me look at the greatest of the leaders, right. Then, I mean close to our home it is Mahatma Gandhi and then you google him and you will find Abraham Lincoln etc. and all that. Again there they have made big changes, big followers, everybody may have liked him, they moved the whole nation, right. But, again towards the end I was very sad to learn that they were killed by their own people, right. I mean they were murdered. I mean they had to hate them so much that they even killed them, right. Then I mean after all this my realizations are actually this, at least I didn’t come across any leader who actually everybody will like and everybody will follow. So that one thought gave me a lot of courage to continue what I was doing and to create my leadership style, right, which will, which will be ever changing but which will be up to that day’s knowledge, right. This is how I will lead, right. And I know that some people may not like it, some people may like it. But going through this whole exercise gave me a lot of courage to continue and I am sure many entrepreneurs are also wondering on the same things, sometimes getting disappointed with certain things that are happening. And I think this will help them great bit in walking their path courageously. Thank you.

Phanindra Sama - Founder, RedBus
ABOUT THE SPEAKER
Phanindra Sama - Founder, RedBus - Prior to founding Redbus, Phanindra Sama was working as a senior designer with Texas Instruments, a leading microchip-maker in Bangalore. He has received his Electrical Engineering degree from BITS Pilani and Post- Graduation from Indian Institute of Science.
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