Indian Cab Industry : Survival of the fittest

uber-ola

Recent news on Softbank, writing off its investment in OLA; and change in revenue model by Uber; clearly validate the below hypothesis which was published in my previous article.

Hypothesis# 1: – Cab aggregators are not working towards answering the most important question of this industry

“Which side of the cab equation (drivers and consumers) should they subsidize and for how long?”

Neither Ola nor Uber is satisfying unit economics; but just burning cash to incentive either side of the equation.

In a market like India, where there is a need of on-demand, cost-effective, safe and reliable transportation, the real question becomes, which of the two business models: asset-heavy or asset-light will survive in the long run?

However, careful study of both models brings us to our next hypothesis.

Hypothesis #2: – Neither asset-light model (Uber/Ola) or asset-heavy model (Meru) will survive in the long run.

In association with IIM Bangalore, we did a focus group study with consumers who avail cab services in Bangalore, Faridabad, New Delhi, Gwalior, Mysore, Indore and Coimbatore.

This discussion was around following questions:

Question 1: – What are you expecting from an app based cab service?

Majority of the responses were around reliability, on-demand availability, affordability and safety.

Question 2: – What are your concerns regarding app based cab service?

Majority of the responses were around safety and reliability.

Looking closely at major cab providers in asset-light model, we concluded that while Ola is pro drivers, Uber is pro consumers. Hence, more drivers are turning to Ola and more consumers are turning to Uber; disrupting the entire equation of this industry.

Moreover, these asset-light cab providers can’t guarantee safety, as they don’t have tight control over drivers.

Now if we look closely at major cab providers in asset-heavy model, we conclude that though they have better control on safety aspect, they are unable to deliver on availability.

But, wait, is there a middle way? Can we use a hybrid model, which can give us the best from both the worlds?

Our research at IIM Bangalore led us to the following hybrid business model:

Asset – Medium Model: This allows cab providers to remain asset light, by not owning cab fleet but still ripping the benefits of asset-heavy by partnering with small cab operators. They can do so by coordinating and knowledge sharing with their partners. However, it is important to note that individual drivers can’t be coined as partners.

This smart-control approach involves six management techniques.

  • Embedding or collocating people in partner organizations.
  • Duplicating some partner activities.
  • Controlling inputs.
  • Controlling outputs
  • Controlling Systems.
  • Establishing true win-win relationships with critical partners.

Above smart-control techniques will allow companies to achieve benefits of asset ownership without the capital commitment.

Mantra is : Survival of the fittest

Stay tuned for detailed research work on this model: Asset – Medium Model

PS: Special thanks to co-author of this article, IIM Bangalore colleague, and my wife – Kritika Sharva.

Thoughts/Comments?

References: –

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Adds NextBigWhat team : A related piece: Ola Play : Does it make sense?

How Excessive Funding Can Ruin Your Startup: Aswin Ram @UnPluggd

Startups = Funding.

At least that’s what the world has come to relate to. But then, (excessive) funding has killed more startups than the lack of money.

Money forces founders to run for wants (fancy office/perks et al) and the product is lost somewhere in this.

At UnPluggd, we are proud to bring speakers from startup world who share their personal experiences and insights on real challenges faced by entrepreneurs. This time we are happy to introduce Aswin Ram – founder of Jiffstore which was acquired by Peppertap (which was shutdown).

In the past, Aswin founded Kode Blink – a mobile app development company and Jiffstore – a mobile & cloud based hyperlocal grocery delivery platform  

Jiffstore was an m-commerce platform which allowed small retail stores & supermarkets to reach out to their customers in a better way. After bootstrapping JiffStore for first six months, they got selected by startup accelerator TLabs in Noida and then went on to raise seed funding of INR one crore in 2014.

Jiffstore was later acquired by Peppertap in 2015 for an undisclosed amount in a cash and stock deal. And later, Peppertap was shutdown!

As a founder, Aswin went through bootstrapping, acquisition and saw the death of a well funded gorilla. With all the media buzz about startup funding, it may be counter-intuitive to say that funding could actually kill your company! Which is what happened with most of the grocery players.

On day 2 of UnPluggd, Aswin would be sharing his personal experience and insights on How excess or little funding, too early or too late can ruin your startup.

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About UnPluggd

India’s biggest startup conference, UnPluggd 2016 Winter Edition is happening on Nov 25th and 26th at Park Plaza in Bangalore!

600+ startup founders, product geeks, and investors have already registered to attend the event. Are you coming? Seats are Filling fast!

Use code WE20 to avail 20% off or Book more than 3 tickets and get 35% off on your UnPluggd Tickets!

URL: http://nextbigwhat.com/

Still Wondering whether to attend UnPluggd?
Checkout the video below to get an idea about the kind of talks we have at UnPluggd. :)

Why Is raising funds not the greatest thing for a startup?

Founders today think about raising funds much before they think about starting up their venture. Questions like; can this idea attract funds? What will be my burn rate? How can I raise a large Series A?

Will I become a unicorn by Series C, etc. are some examples of mindset that young and budding entrepreneurs carry today.startups

In fact the growth of an organization is also defined by the amount of funding round that they raise. In this kind of a scenario, where funding is the key business metric to define growth, founders are losing the real charm of building businesses from scratch and are also loosing the true essence of a startup.

While the true essence may get lost somewhere, what I have realized that funding is a double-sided sword that comes with a lot of disadvantages along with the benefits of scaling up. Its either the nature & mindset of this funding game or the investor pressure to show exponential growth or simply that phase where the young founder suddenly gets access to a lot of money and is unsure what to do, which leads to some of the most common mistakes that have a large impact on the organization.

Listing below some of the key ones I felt could have been avoided

Building expensive offices

What suddenly happens that the same set of employees don’t like going to an office without foosball, an office where you do not get cafe day coffee or where the founders do not have a good cabin? The essence of a startup lies in the small room where there is a close working environment, a place where you can talk to someone by just looking back, a place where bean bags are more comfortable than bigger cabins.

Some people argue that its one of the initiatives for better talent attraction. My question to them is “why do you need such talent?” People, who join STARTUPS for the look and feel, are not joining for the right intent.

Some also say that we build good offices for the clients. My question is “Isn’t your product / service strong enough that your premises becomes a decision making parameter for your client?”

Some say we need a large meeting room or else where do we have a board meeting. My answer is “ at the same place where you raised your first round “.

I do not say that we sacrifice on basics and hygiene, but I do not understand the lavishness built specially in the business where revenue generation is far fetched and in real sense we are spending the money of investors in building virtual estates.

Investing in building expensive offices makes sense when either you have your own hard earned revenue going into it OR when that expense becomes significantly low in your overall PnL.

High Campus offers

A startup culture, or its quality of execution or its growth trajectory usually depends on the initial 10 employees of the organization.

What we usually strive in those initial set of people is the right attitude, drive, basic IQ and the passion to make it big.

This pool of the founding team is not paid hefty salaries; isn’t given crazy perks nor gets overtime or joining bonus.

But then post funding, competition creeps in not only at the business level but also at the campus level amongst organizations. A day 0 wins vs. Day 1 or rival 1 before the other.

Companies get known for the no of placements / package given at top tech and B schools.

The real question is “ do we really need that expensive talent “?

Don’t we need the same set of driven people with basic IQ and passion?

I do not deny that the quality of the team is the most important thing to be considered but defining quality by high number and packages of B schools is something that does not make sense to me.

Expansion to non-viable cities

A PR story or the investor pressure, whatever is the reason. Expanding to cities where the viability of the city is far fetched has been one of the key problems to be solved.

It becomes more of a threat if your competitor expands and you don’t.

My suggestion would be to expand when at least few of your initial cities get a positive run rate or have a 3-6 months road map for the same.

Expansion without a proven play book may just multiply your burn and nothing else

Closing down cities results in heavy lay-offs, which would probably be the worst phase for any startup. Hence better safe than sorry

Increase cost of discounting / increase customer acquisition cost

Hunger for market share results in heavy discounting and CAC.

I have seen a lot of startups doing TV ads immediately after raising money. The unfortunate part here is that the monetization engines are yet not built and we go full swing to acquire more consumers.

Spends on discounting / customer acquisition should definitely increase only once we have reached min 80% monetization levels or building a brand becomes an important element of the business. More importantly, the plan should be to do it consistently probably for 5-10 years

• Increase in overheads – offsite, travel, etc.

The number of off-sites, team parties, business travels, etc. increase significantly. More importantly, the focus on growth is so high, the pressure on the employees becomes so extreme, that the organization tends of give maximum comfort thus spoiling the habit as well as the PnL of the organization

Scaling into ancillary businesses

While new experiments are important, it’s important to do smaller experiments. Diversification or rather building an eco-system is a good way of being the market leader, but scaling unproved ancillary businesses sometimes results in heavy cash burn and also shift of core focus.

Start focusing on investor’s happiness than business growth

Investor is not building the business himself because he trusts you more than probably himself. Blindly doing things to please the investor at most times tends to erase the vision that the organization was built with.

Investor always has an outsider opinion and no one better than the team understands business better.

Go against the investor but not against the business.

While, I understand that most of the pointers mentioned above have their positives as well, in my personal view; if avoided / delayed to a later stage, they can prove to be highly beneficial to organizations especially young startups. While, raising money is really important for businesses to scale and grow, ineffective utilization of the funds may lead to a downfall and hence, raising funds might not be the greatest thing for a startup.

Swiggy raises Series D funding of $15 million from Bessemer Venture Partners

Food ordering and delivery platform, Swiggy has raised $15 million in a Series D funding from Bessemer Venture Partners.

Existing investors also participated in this round. This is close on the heels of the Series C funding of USD 35 million raised in January 2016, from existing and new investors, including New York-based investors Harmony Partners and Singapore-based RB. This investment takes the total funds raised by India’s largest food ordering platform to USD 75.5 mn.

The freshly raised funds will fuel Swiggy’s next growth phase, with an improved customer experience at its core. This will include technology upgrades, a wider spread of restaurants to choose from and better delivery efficiency.

Lenskart raises Funding from Premji Invest

Lenskart.com has raised funding from Premji Invest, the investment office of Mr. Azim Premji, Chairman and Founder of the Wipro Group. Lenskart’s aim is to expand access to high-quality and affordable eye-care products across India.

The transaction comes three months after it got 400 crore, in a round led by International Finance Corp, the private sector investment arm of the World Bank. Apart from IFC, the other marquee investors like IFC, TPG Growth, IDG Ventures, Unilazer Ventures, Adveq have also previously invested in the company.

Premji Invest has had a strong focus on consumer and retail brands and upholds the reputation of being a long term partner that supports founders and management teams of brands like FabIndia, Myntra, Future Lifestyle Fashions and Vasmol in expanding their portfolio, enabling business initiatives, supporting organic sustainability and driving strong governance.

AI Startup Mad Street Den Raises Series A From Sequoia Capital

Chennai and US based Mad Street Den has raised Series A funding from Sequoia Capital. The startup earlier raised $1.5mn seed round in 2015.

The company’s product, Vue.ai helps ecommerce companies integrate AI-based optimization into their online store. Mad Street Den works closely with several fashion brands in India.

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Livspace raises INR 100 crore led by Bessemer Venture Partners, Jungle Ventures and Helion

Livespace, the online home design company has raised INR 100 crore from existing investors in its third round of funding.

The round was led by Bessemer Ventures Partners with increased participation from Jungle Ventures and Helion. This round of funding comes within weeks of the launch of the world’s first ‘Home Design Automation Platform’.

The funds will be used to expand operational footprint across metro cities (NOIDA, Gurgaon, Mumbai in 2016 and Pune, Hyderabad in 2017), set up new Livspace design studios with VR technology integration for the best home design experience, expand the design automation platform across thousands of freelance designers in the country, and strengthen the catalog depth, launch new modular products, and further optimize the backend technology.

The home industry is estimated to be anywhere between $25-30B but over 95% of it is unorganized and serviced by turnkey contractors, small studios, freelance designers, and carpenters.