What Entrepreneurs Need to Learn from redBus Story : Bharat is a Market.

RedBus has been an amazing journey – one of determination, great focus and one that changed the industry it was in. Earlier today, the company confirmed our earlier reports that a South African media conglomerate has acquired it. The Rs 800 crore exit is being celebrated by entrepreneurs as well as the tech media across the country. It is well deserved.

But at the same time, there are some questions that pop up.

“Why now?” is a question being asked. This was not an exit that was expected at all around now!

Some other questions are: What caused it? Was it the best possible move? Was it the right time for RedBus? For the investors? For founders? For the bus industry? What does it mean, now that it’s happened?

Based on the information we gathered, here are some facts

1. After the second round of fundraising, redBus founders had less than 15% stake left in the company.

2. Most of the private equity investors weren’t too keen on buying into redBus, as there wasn’t much to buy into.

It’s also undeniable that while redBus has impacted the bus industry already, there’s miles to go before that story is complete. Many geographies and segments are yet to adopt online ticketing and the bus industry has just tasted the impact of technology in a limited fashion.

It is worrying that ticket aggregators and resellers who do not understand the bus industry at all are starting to become the important players and redBus could have challenged and changed that through acquisitions, another round of funding that helped fight harder, and deeper connects into the industry.  Maybe even create some (co) branded experiences.

Post acquisition, redBus will continue to grow and operate independently, and hopefully it will – redBus can indeed make a much deeper impact on the industry than they already have. Yet, ibibo will surely have a say in reBus’ strategy from here on, so there surely are unknowns on the road ahead for redBus.

But there sure are lessons to be inferred from the redBus story thus far.

Here’s what it means to you, the entrepreneur.

1. Build

No matter what, the redBus team gets a standing ovation for executing a game changing *original* business model in the country.

They started the fire. They created the business from a scratch. No ‘inspired by Silicon Valley’ model, but one that created its own pricing model, own distribution and a super sleek homepage.

And when you’re solving a fundamental pain point – even if the incumbents in the food chain of a business are not aware of it – it’s a business worth pursuing. redBus did that without initially worrying about scale, or exits – and were able to penetrate a very tough business.

Their focus on making sure the bus operators were won over – one bus owner at a time – and travellers had transparent, easy access to reliable information about choices when planning a trip helped them build trust amongst both these constituencies. Word of mouth was huge and they could not only keep costs low, but grow amongst their target audience base very quickly. redBus focused on several attributes – honesty, ethics, reliability and individual attention in case of problems – and this created a bigger brand than any of the existing online players (in fact, the brand value is much bigger than Naspers’ India companies!)

For this, they not only reaped the rewards, but will be remembered forever as the guys who changed bus ticketing in India.

2. What’s good for Investor need not be good for the Entrepreneur

Well, Investors got a decent exit from redBus. Take a look at the cap table (via: Quora).

redbus : CAP Table
redbus : CAP Table

Agree that for investors, they need at least 10 such deals to even match the fund size, but then those who got in early reaped the most out of the deal.

We certainly hope that investors will now really mean the ‘I am an early stage fund’ much more seriously than a namesake tag they have been carrying.

3. What’s good for Entrepreneur need not be good for the investor

We think redBus could have been a story that should’ve grown to its logical potential – being the technology and online partner to the bus industry for every bus operator and ticket agent in India, and maybe beyond. This would have been a much bigger play than it currently is, and might even have seen a small public listing, if not a much larger acquisition.

With successes such as the KSRTC partnership, we believe redBus was in a position to impact the bus industry much much more. In reality, redBus is more of a beginning of the story and not the end – but investors probably lost patience. Or perhaps, it got too hard to raise the next round of funds.

Bottom Line: Watch out for how the equity is divested relative to the size of the story that you’re looking to create. It won’t be the best feeling to have to take such decisions for structural, rather than business reasons.

4. Bharat IS a market.

The recent tendency amongst both startups and accelerators to dismiss India as a market has been quite pronounced. redBus is a great example of finding problems to solve that are unique here, and putting your head down and getting down to solving them whatever it takes without whining about the fact that nobody’s paying in dollars and “it’s just not worth it”. Serious kudos for that, guys.

Of course, apart from all this, Phani, Charan and Sudhakar themselves are terrific guys, and there’s much to learn from them as entrepreneurs and people; humility, level-headedness and the quiet, hard work one associated with the redBus founders will stand you in good stead through your entrepreneurial journey. Like most people, we loved those traits and the whole redBus story, and we’re sure it’ll inspire many many entrepreneurs.
[With inputs from Sameer Shisodia]

For the starters, here is redBus founder, speaking at UnPluggd in 2009 – talking about value of mentorship, raising money during recession time and more.

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