Mahesh Murthy on how RedBus built its business bus by bus

26 Jun, 2013

I have had some sort of internal view of RedBus right from when we at Seedfund invested in them in 2006, and have seen the company grow into something we're all very proud of. Please adjust for my possible bias as you read this.

RedBus is as much a normal bus ticket booking site as Google is a normal search engine.

I will talk about RedBus' innovation at 3 levels: macro: the businesses it chose to be, to mid-level: its strategic thinking to the micro: its day-to-day processes.

At the macro level, imagine this. You want to go home to Hyderabad from Bangalore - and you hate the fact that you have no idea which bus will have seats to take you there, and when that is scheduled to leave. That's when you figure out that, hey, perhaps you can solve the problem. And perhaps you can build a business while doing so.

Then you dive in over a period of months and find India has more than 5,000 inter-city bus operators with 5 to 500 buses each. And the enormity of the task grabs you.

There is no GDS - Global Distribution System, like Amadeus or Galileo to plug in to, like MMT and Expedia do for flights. So there is no inventory to sell, actually.

So you create the inventory from the ground up. You decide you need to start at the bottom, build out the GDS for this industry. You actually build the bus booking eco system at 3 levels simultaneously - the GDS across operators; the booking system / ERP for each individual bus operator - so they become e-enabled and can control which seat goes to whom; and then the booking site at the retail level that we all see, where the public books tickets.

You fight 3 large wars at one time, under a code of silence, with very little money - relatively speaking - and with a huge sense of urgency to get it done before too many folks wake up. Tell me that's not innovative.

Then we come to the mid-level of this pyramid. The broad strategies.

Guess what, we at Seedfund routinely announce the funding, and soon see three other competing companies get funded with 3 to 4 times the money, within 6 months.

Stupid us. We as a fund then learn to NOT announce any funding till it's the right time for the funded company. Sometimes that might be more than a year after the event.

Anyway, back to RedBus and their strategies. The company has to figure out a way to win all of India before the rest get in. It can do an expensive slash-and-burn by running wide across India simultaneously. Or instead do a Genghis-Khan-like "win one territory, establish your rule, the win the next" mode. It chooses the latter.

Starting with Bangalore - Hyderabad. Fills up buses for operators on this route. And then figures out there's even more value for the operator if they can fill up the return route. Then, over time, adds a route. Grows to dominate it, make the operators happy. Then adds another. And another. By now operators - both private and government - are asking RedBus to grow to sell their other routes. They do, slowly and steadily.

Always keep the bus owners happy. Never hike commission, just match the amount owners pay to offline agents and touts - so owners don't get nervous. Talk to the bus owners frequently - how many engineering grads believe their calling is to spend 7 years talking to the chettiars, sethjis and other pot-bellied folks who own inter-state bus companies - and become their trusted confidants? These guys took the trouble.

Not just win good buzz from operators - but win buzz from consumers too. And do so without spending on media - like all the other funded folks were doing.

Till a month ago, did you ever see a RedBus TV commercial? Or a Print Ad? Nope.

The company grew from selling 2 seats a day to selling a million seats a month for a middle-class product meant for middle-class Indians - remember these are inter-city bus tickets -  with no offline media spend. Eat your heart out, FMCG marketers.

This is what they did: use a little digital, intelligently. Track word of mouth maniacally. And win customer hearts, booking after booking. Apologise for mistakes. Work to rectify them. And focus again, maniacally, to create a delighted customer.

And all this while, resist the temptation to diversify. Could they have sold air tickets too? Or lodging at each bus stop? Or holidays to sight-seeing destinations? Or train-bus combinations? Sure. Did they? No.

Do give credit not just to what they chose to do, but also to what they deliberately chose not to do.

Tell me that's not innovative.

Of course I'm leaving out a lot - there's more that will power the company in the next 7 years ahead, but why talk about it now?

Maybe I'll come to the micro level now.

How many companies change their websites up to 50 times a year? These folks run A-B and multivariate tests on optimising their sites for conversion. Every week. And implement the improvements, every week. After week. After week.

What does it end up with? A look-to-book conversion rate that is 4 to 5 TIMES that of MMT, Yatra, Cleartrip or any other online travel agent. And to my knowledge, twice that of in the US.

A rate that's still going up. And a business that today we estimate does as many bookings per day as MMT and Cleartrip combined. Again, remember on a nil offline ad budget.

This brings the cost of conversions down to ridiculous levels - remember one bus ticket sells for around Rs 550 - compared to Rs 4,500 on an airline. And the commissions here aren't huge. So you have to convert a customer by spending, overall, less than that small percentage of Rs 550.

In a day and age when large portals spend Rs. 1000 per sale, tell me this is not innovative.

There's more.

There's a team that has humility on the outside and hugely competitive aggression on the inside.

There's a business, that in its shape or form or history is not the copy of anything anywhere. Not the Indian version of anything from the US.

There's no IIT / IIM whiz kid here.

And there's something that has pretty much created an industry where our siblings and parents say, as a matter of course that "get bus tickets on RedBus" - as though it's the most normal thing to do, something that didn't exist 8 years ago.

Yes, my friend, as you say "it's just a normal bus ticketing site" - and it feels that way, like it's the most natural thing in the world. That's what they've done.

And isn't that quite the most innovative thing?

My $0.02,

(Reproduced with permission from Mahesh Murthy, managing partner at Seedfund; founder & CEO, Pinstorm)