A question that haunts founders and funders alike – profitability over growth, or vice-a-versa? Here’s my take on what most people would answer, “it depends.”Continue reading
BookMyCab is an on-demand taxi service with options to rent metered city taxis as well as from their own fleet of cabs. Their taxis are equipped with real-time tracking technology to ensure complete passenger safety. They follow a stringent process of recruitment of taxi drivers and taxis. They also own exclusive rights to advertise on the taxis, i.e., on doors, and inside the taxis.
BookMyCab was founded in 2012 in Mumbai and operated with taxi licenses from state governments and approved taxi drivers only. They acquired CabOnClick, a Hyderabad based online taxi booking provider in Nov 2014.
|Founder:||Avinash Chandra Gupta||Total funding raised||USD 910,000|
|2020 status:||Acquired by Wings Travel Management||Number of rounds||2|
|Co-investors:||Yournest, Centerac Technologies, Mumbai Angels|
Why did you invest in BookMyCab?
It might be hard to remember, but hailing cabs in 2012 was a challenge, especially if you wanted to travel a short distance. BookMyCab offered mobility solutions to a growing target audience of people using smartphones and provided additional income for taxi drivers. The taxi drivers preferred long-range rides since they make more money on those, whereas getting a cab for 2-3 km was quite the task for the consumer. Their platform enabled taxi drivers to find passengers without having to stand in line and wait. Consumers could book a cab which would pick them up, an idea which is standard today. Investing in BookMyCab at the time was a no-brainer since they solved problems for both markets.
What was your competitive analysis for BookMyCab? As per reports, Ola had already raised 4 Million US dollars from Tiger Global when you invested in BookMyCab.
The most significant moat that BookMyCab had was being the licensed booking service for Mumbai. While Ola was utilizing tourist taxis for local travel (technically not allowed at the time), BookMyCab got the local ‘kali peeli’ taxis, licensed by the RTO. The license gave them a considerable competitive advantage in 2012, before the loosening of regulations that allowed Ola and Uber to expand aggressively. While the other platforms were working in a grey area, I thought this competitive advantage would be critical in fighting off the competition. BookMyCab had a fleet of close to 100,000 taxis they could onboard very quickly. In contrast, the competition had to spend copious amounts of capital to acquire drivers and give massive bonuses to keep them sticky.
What did you like about Avinash? Did his IIT Mumbai tag play a significant role in the selection?
More than the IIT tag (I’m not much of a believer in tags), what excited me about working with Avinash was that he was willing to get into the nitty-gritty. He was a part of Financial Technologies with Jignesh Shah, so he had a history of working in intrapreneurial positions. Convincing cab drivers to accept digital cash as payment was a big deal. I appreciated that he was willing to get his hands dirty.
The taxi market in cities like Mumbai and Kolkata is still fragmented (Yellow taxi in Kolkata and Kali peeli in Mumbai). Would you invest in a similar startup today if they are looking to consolidate the pending fragmented market?
Consumer preferences have changed today, and there already clear market leaders in this category. People would prefer to either book an Uber or an Ola due to the standardization of services, timely drivers, the cars are in better condition, and well, air conditioning. I wouldn’t change my decision to back BookMyCab in the past, but today, the market is very different from what it was in 2012. The cream-of-the-crop drivers are already on competitor platforms like Ola and Uber. By the way, both platforms also let you book kali peelis.
What were your learnings from your investment in BookMyCab?
Whenever you invest in an early-stage startup, they must become a market leader to cement their position. 80% of the investment, visibility, and revenue goes to the top two market leaders. Here are the learnings from my investment with BookMyCab:
- Push them to be more aggressive in acquiring drivers. This is not to say that Avinash was not aggressive; I should have encouraged him to be more aggressive.
- Early on, I focussed more on growth over profitability.
- Not to depend on permits as a competitive advantage. I had (too much) faith that the government would protect the license, and the competition operating in grey areas would ultimately be shut down. Public good consistently trumps legislation. I applied this learning in our investment in LenDenClub, which is doing exceptionally well.
- I learned a harsh lesson when Ola offered to acquire us, but the board declined the offer. Ola’s offer value grew by almost 15x over the next 2-3 years. If I had taken the deal, BookMyCab would be the biggest winner in our portfolio, but the lesson was learned. Therefore, if consolidation cements the number one position, then take the offer.
Many things are important towards the success of a start-up pitch but getting the audience to relate to the problem that is being solved can be the difference between a nod or a nay. For many founders this could mean that they must essentially dumb down their pitch, and I would agree with that approach over a technologically complex and “intelligent sounding” presentation any day. In sales we call this approach, selling the sizzle.
In a nut shell what I am suggesting to the presenter in you, is to hone down on the objective of the first pitch i.e. being relatable enough to warrant further investigation. I would not advise neither expect a presentation to get an investor to write a cheque immediately after the pitch, that is unheard of and nearly impossible. However, if your pitch has the recall value to keep investors thinking for hours, days or even weeks after it – the goal has been achieved.
These are some key ingredients to achieve the desired effect on an investor audience:
- Create an image of your target customer
- Explain the challenges that the target faces today
- Delve into the loss (in time, money, etc.) that this target faces
- Elaborate how that loss is hurting the target and how the current solutions aren’t helping
- Elucidate how your solution solves these problems (a video case study is recommended)
- Calculate the value delivered to the target
- Quantify how many such targets exist i.e. TAM, SAM, SOM, etc
Your story should get woven in such a way that the investor finds themselves in the shoes of the target and can visualize the issue, the solution
Notice how Bhavish asks the audience for a show of hands of how many people have had a bad taxi experience. Almost everyone has faced this issue at some point or the other or knows of someone that has, i.e. relatable. Instead of delving into the awesomeness of Ola’s tech stack, he uses ‘you’ multiple times during the presentation to gently put the audience into the shoes of a taxi hailer. He shares just enough pain points to get your creative juices flowing and start looking for a solution to this imaginary problem. Smartly, he chooses to stay out of the techplaining which he understands can (and will) get covered during follow-on conversations with interested investors.
If you think about it, it is easy to argue with an explanation but hard to argue with an experience. Therefore, it makes logical sense to cut out the excess fabulousness of your pitch and focus on only delivering a pitch that is edible, visualizable and recallable. The rest can wait.
Just last year, I was writing praises of Ola’s product mix that allowed it to have the upper hand over Uber. In fact, I was so happy with Ola’s product strategy that not only did I endorse Ola Select’s benefits to all my friends & colleagues and open a corporate account with them but also swore to use OLA exclusively in India. However, in the past few months I have consistently found myself choosing Uber over Ola and (after much deliberation) I can hone it down to 3 main reasons.
1. Ola Select No Longer Offers a Compelling Value Proposition
For those who don’t know, Ola Select offers 4 main benefits:
- Ride without Peak Pricing
- Skip Booking queue
- Prime at Mini-Fares
- Free Wi-Fi during the ride
Initially, Ola used to charge Rs. 499 per month to avail Ola Select. Gradually they started increasing this price until it added up to a whopping Rs. 1999 a couple of months ago.
Since my monthly commute costs less than Rs. 5,000, the steep increase in the subscription cost was economically unfeasible. I felt as though Ola’s management was price gouging me and it broke my trust. I heard similar gripes from many who were regular Ola Select customers.
However, when I opened my app today, I found a discounted monthly subscription price had dropped to Rs. 1299, at the cost of capping the surge protection at Rs 75 per ride. It looks like someone at Ola noticed the drop in the subscriptions and attempted to salvage it with this move.
If I assume that Rs 75 equates to a 25% benefit per ride, then it works out to an average bill of Rs. 375 or a 25-kilometre trip which is rare for someone travelling within Mumbai (or most cities except Delhi & Bangalore). Even if I assume that I took those many trips in a month, it would still take 20 rides before the subscription paid for itself and 40 if I wanted to get any additional value out of it. Therefore, Ola Select would make sense to someone who was regularly spending Rs. 15,000 (40 x Rs. 375) on Ola per month – a rarity in Mumbai.
The biggest guffaw of this pricing strategy is that the normal Ola rides are now directly competing with Ubers prices and often, I end up opening both apps to see availability and pricing before I book my ride. This is something I do not recall doing when I was a Select member.
2. Untrained/Greedy Cab Drivers
The quality of Ola drivers has been steadily dropping over the past 12 months, but it has dived off a cliff over the last 3 months. On multiple occasions, drivers have hesitated to arrive unless they know the drop off location or cancelled the trip if it is short or payment isn’t going to be made in cash. Off-late, I observed the most alarming trend in Hyderabad & Bangalore wherein drivers want me to cancel my trip after they arrive and settle with them in cash for a discounted rate below the original trips pricing quote. Clearly, something is going on at Ola that is causing such drivers to be recruited and retained.
3. Filthy Car Quality
Ola’s fleet is ageing rapidly. Their quality assurance teams seem to have gone on vacation since the tablets have stopped working, in-car Wi-Fi is non-existent, the cars are well dented, have their paint scrapped off in many places and have not had their interiors cleaned in months. If Ola assumes that their riders will take 25-kilometre trips in these vehicles, the least they can do is to ensure that their vehicles are providing a comfortable commute.
The overall Ola experience has left a lot to be desired.
The loyal Ola users are now looking for better options and it isn’t a coincidence that Uber has newly launched its Premier vehicles campaign. It assures the rider that they shall enjoy new vehicles and highly recommended drivers for their trip – at no monthly cost at all!
Time to buck up or it’s going to be hasta la vista, Ola!
Uber & Ola have finally found out that their long-term discounting campaign only helped in distorting the market. However, markets will eventually come back to normal and the fuel behind the discounting campaign (read: investor cash) will dry up as investors focus on the real numbers that drive a business i.e. profits & margins.
Many founders continue to be inspired by the discounting campaign tactic but the economist in me will tell you that long term discounting will cause more harm than do good for your venture. Therefore, any strategy that involves a discounting tactic should have a clear objective backed by an expiry date.
What is discounting?
Discounting is different than having a pricing advantage i.e. a cheaper cost base for providing a product/service. Discounting means that you have decided to take a cut on the margins that were promised by your business plans to achieve an objective. It could be to get rid of old inventory or to gain significant market share in a short span of time. On the other hand, a cheaper cost base allows the venture to provide the product/services at a cheaper price while maintaining promised margins.
Why are you discounting?
Discounting works best in a market where the product/service offered is homogenous and the customer will be inspired in choosing your offering over the others is a discount. Many founders use this example to defend a long-term discounting campaign but I counter that if your venture is a new entrant and it offers no other significant advantage over your competitors expect its deeply discounted price, then why are you entering that crowded universe when you have no other significant advantage?
Some founders will argue that discounting can also be used for snatching away market share as a new entrant in a crowded market or a market dominated by a few players. I can agree with that view and this may lead to a temporary influx of customers but those initial numbers are irrelevant. Only those customers who come back for a repeat purchase are important because they have made a shift in their buying habits because of what they experienced the first time they bought your product/service at discount and were motivated enough to come back and buy it at a full price.
What happens in most cases with founders is that they get scared of removing the discount because they will reveal the real numbers of the business which they themselves do not know nor want anyone else to know. Then that discount tactic becomes a strategy to distort investors perception and most importantly their own.
When should you use discounting?
The most important decision before embarking on a discounting campaign is the frequency you expect your customer to engage in the behaviour of buying the product/service whether it was from you or your competitor. Next you can figure out how many times a customer needs to buy from your venture so that initial discount pays for itself from future margins. If the answers to anyone of these questions is over a year, then the discounting strategy shouldn’t be pursued because the return on the investment in discounting is too far out for it to make profitable sense to pursue. Secondly the long period to profitability from discounting a customer has inherent challenges as many new entrants come into the market and the there is a risk of a change in customer behaviour which would lead to the entire investment in discounting becoming a complete loss.
Alternatively, if your average customer has the propensity to make multiple purchases from you in a year such that the initial or interim discounting campaign pays off quickly it makes economic sense to pursue a discounting campaign to attract the customer, gain the customers loyalty and enjoy the temporary increase in revenues.
Unfortunately, I continue to see business models & MIS reports that are pursuing discounting campaigns with scant regard for the economics of the campaign. These founders are revelling in the temporary high that the vanity metrics bring to them, blissfully unaware that the business is dying a slow & painful death as the discounts eat away at the foundations of the business.
If you as a founder are thinking about pursuing a discount campaign, please think through the economics of the campaign viz how will the initial discount pay for itself? how long will that take? what is the return of the investment in the discount? what is the probability of that achieving that return?
Without adequate thought and planning behind a discounting campaign you’re just gambling with your business and if you want to run a gambling business then open a casino.
Whosoever dreamed up Ola Select & Ola Play for ANI Technologies (DBA Ola Cabs) should be given a raise & promotion!
Finally, Ola has created divergence in the radio taxi market by providing a product with a clear differentiator to Uber and caters to the pent up frustration that Uber loyalists (like myself) have with the largest cab aggregator in the world.
For the uninitiated, Ola Select is a member service at Rs. 499 per month (quarterly or half-yearly packages are cheaper) and in return Ola provides
- Prime taxis at Mini rates (i.e. Uber X at Uber Go rates)
- Zero surge pricing
- Priority booking
- Latest model cars
- Highest rated drivers
Ola Cabs with specially modified tablets, controlled by the riders Ola app, are called Ola “Play” cabs. The tablet, provides video & audio content on demand. The audio content is provided by Apple Music and the video content includes the Kapil Sharma Show, TVF, AIB, etc. Everything from the volume to the selection of content is controlled by the rider (through the app). Most interestingly if the rider leaves any content mid-way, the app remembers that and starts the content exactly where it was left – brilliant!
I have been an Uber loyalist for the past 2 years but, a couple of incidents in the past few months had frustrated me with the largest cab aggregator in the world. It was my opinion that Uber took its Indian customers for granted. The Uber cabs weren’t clean, their customer service staff sent rude replies and I realised that their “surge” pricing wasn’t based on any law of supply and demand as they claimed.
Ola tapped into that frustration by providing a promised “Zero Surge” and with the personalised & elite product like Ola Select & Ola Play they have captured my interest and delighted me to make me promote them here!
This is a lesson for any startup (Flipkart are you listening?) that Ola isn’t cheaper than Uber for the same distance but they (I believe) have tapped into the frustrations of the Uber customers with a product at an affordable price to win them from Uber. Ola isn’t giving these premium services for free but by charging a fee they ensure that the customer will use them on priority for the duration of their membership – it’s a brilliant move where they make money on both ends!
How Uber responds to this (if at all) will be interesting to watch… If Uber response is to get into another price war to win the consumer’s loyalty they will be well advised to memorise the age-old quote from Benjamin Graham
Price is what you pay, Value is what you get
This is of course a great way to increase wallet usage (something which Ola has cracked very well), though such ‘predatory pricing’ activities are bound to attract wrath from the auto and taxi industry.
From an earlier comment by Anirudh Damani (Managing Partner at Artha Venture Partners) :
My family is an investor into a taxi booking company so let me be clear that we follow this space closely and we may or may not see higher values for the investment but what I have seen in this space in the last 6 months is disrupting the lives of many taxi drivers and fleet owners.
Here are the major issues I see:
1. These cab companies are selling below cost… this is obvious when you take account of the recent strikes that hordes of drivers of the taxi-booking companies went on strike as they were out of fuel! They get the subsidized amount from the customer which is not enough to put fuel into the car and the “credit” or difference comes a week later. Are they supposed to physically push the car until then?
We invested in this space as booking a taxi simply by a click makes things easier for the riders and gives incremental revenue to the driver which they didn’t have earlier. It is a pure win-win and net positive for society.
“We will organize this unorganized market” – That is what the pitches used to say…
But right now, we have companies that are selling at unsustainable prices which will drive out all small players and leave the industry in the hands of a few.. this is exactly the opposite of what should be achieved.
This era of free money will come to an end.. and we will be left poorer as a society especially a cab driver who right now is making spending decisions and investment decisions that he/she will not be able to complete.
Isn’t this what happened in the housing boom with free money and no controls? Will we ever learn?
2. Rules are being flouted by unlicensed players that have scant regard for any of the laws in the country… what is very interesting (and sickening) is that it is our own local companies that are flouting the laws relating to taxation, KYC, labour, etc.
In the name of adding supply some of them are paying off taxi drivers through pre-paid cards that are registered in the name of the company and not in the name of the user – is this what we want to call “fair” competition? Is this even legal?
When foreign money is being doled out without KYC and without any trace on the money.. what stops that from being used for means that are anti-social?
What happens when the ED. IT, FEMA, FERA, EOW, Service Tax authorities catch hold of these erring companies and shut the show?
What if it is too late by then?
The show is on right now.. and it’s all beautiful.
Once the song stops.. you will see that we have destroyed whatever semblance of sanity there was in this space.”
Good for consumers. But what about the industry?
Are parts becoming greater than the sum? Think about it while you enjoy the ride.
(Article published by NextBigWhat on 27/11/2014, containing excerpts from a comment I left on a previously published article on the same platform titled The Big Battle Between Funded Taxi Startups And The Rest.)