A look at taxi booking businesses in India and learnings from an aggregator

Online cab hire in India is a sunrise industry characterized by huge demand and high growth rates. Aimed at solving the intra city commuting problem in the country, the industry took off in recent years due to the entry of players like Meru Cabs, Olacabs and others.

Moreover, recent regular investments and expected entry of international players like Uber in India speaks well enough for the market potential. But despite of a decent scope for companies to sustain in this market, the reality states a picture of an unorganized market as these services are mostly limited to metro cities, offering a much wider scope for new players to enter in tier2 and tier3 cities.

Here are some of the VC/Angels backed players* in this sector:-

*Data collected as available in public domain

Talking to Iamwire, Jitender Sharma, co-founder, TaxiPixi – a recently launched smartphone based mobile application for radio cabs, discusses the best practices to adopt and the other know-hows to learn while running a taxi aggregation business.

What is the scope for new players to enter in this market?

The market does look crowded at first glance. However, only two of the new entrants have achieved any scale or sizeable funding till date. Most others are either struggling or exist only in name. I don’t think that these two companies can capture 100% of the taxi market all across India. So I believe that there is enough scope for all existing players and perhaps a couple of new players as well.

However, since the taxi market is maturing rapidly, I believe any new player, and even the existing players, have to do three things to succeed: one, find a real and sizeable problem to solve; two, create a very strong value proposition; and three, execute brilliantly. For example, we saw the opportunity in the Radio Taxi Aggregation space and decided to build the “MakeMyTrip for Radio Taxis”. Our singular focus has helped us gain significant traction in just a couple of months. The response we have received from operators, cab drivers as well as users has been great. Today we have cabs from every operator on our platform and we are on track to cross 10,000 downloads in Delhi this month.

What challenges did you face during your entrepreneurial journey?

Finding good talent is always the most difficult part. As a start-up you have limited resources. With those limited resources you not only have to attract the people with the right skill set, but more importantly, people with a good personality to fit with the organization. This really narrows down the list very quickly!

What according to you is the right business model for a company working in this space?

Having a right business model is very critical. Meru Cabs, the leader in the asset-owner-operator category has not reported a profit till date. OlaCabs, the leader in the asset-light-operator category, has burned through a lot of cash from its last funding very quickly. Both these companies have done a great job with respect to customer acquisition and service quality but the big question about scaling profitably remains to be answered.

Secondly, you really have to have a great team in place. More money cannot fix bad management. I don’t think that the strategy of throwing good money after bad, or “Spray and Pray” will work in this market. This is a real world business and you need a professional and experienced team to execute this business.

And lastly, a clear vision and focus from Day 1 as an organization is essential to succeed in this business. Unlike the e-com portals this is not a business in which you should try to be everything for everyone.

What are your thoughts on outside funding?

There are different schools of thoughts on this. Some people feel comfortable raising money on just PPT, others don’t.  My approach on external money is: Avoid it for as long as you can and raise as little as you need!

This does not mean that you should not get in front of the investors early on. Ultimately your familiarity and track record will matter a lot. So create a short list of investors that are a good fit and engage in a periodic dialogue by sharing your progress and listening to their feedback and concerns. But take money only when you have everything in place so that you are will be able to utilize the funds quickly and efficiently and deliver the greatest bang for the buck. Otherwise you might end up struggling for the next round. The truth catches up sooner or later!

I also believe that in the early stages you get better ROI on your effort by spending it on building your business rather than chasing VCs. You are still experimenting and tweaking things on a daily basis – and you will be making mistakes. And it is much easier to course-correct when you are not carrying any burden!

In our case, keeping in mind that startups are marathons not sprints, and following the Goldman Sachs philosophy of being “long-term greedy” serve us very well. We are building a solid foundation for our business using our own money and, more importantly, by generating cash flow from the business. The downside to this approach often is slow growth and you have to be okay with that. We will go to investors when we are ready to put the pedal to the metal!

Any recent industry developments others should know about?

Delhi taxi fares went up by almost 25% in July 2013. It was long overdue and it will help the drivers as well as the consumers, as the older fares were very low and the drivers were not  doing their jobs happily. Now with higher margins, the driver will be more encouraged resulting into comparatively better service.

How according to you, the entry of global players can affect the domestic market?

It will be very interesting and exciting to be competing with Uber in India. It will also be good for Indian consumers, as it will force the existing players to improve their service quality.

Customers love Uber. They have good technology, they keep experimenting and innovating and they are growing very aggressively. There are also rumors that Uber is trying to raise $200 Million at a valuation of more than $1.5 Billion! But Uber is also facing competition in its home markets from the likes of Lyft – a peer-to-peer car sharing service.

In my opinion, the key challenge for Uber will be the economics of the business in India given the low per KM fares and low margins when compared to cities like San Francisco and New York.

Given their track records in some of the emerging markets they have entered, I feel that perhaps Uber’s play is just to create a foothold in India. Hertz, Avis etc. have all been in the Indian market but are tiny. So unless Uber makes a big investment in India, I don’t think local players need to worry much about them.

The taxi business is a local, transactional, low margin, operationally intensive business. If you add to that the regulated and political nature of the business and an uneducated labor force – it becomes a heady mix for even the most experienced entrepreneurs and managers! So although taxis are an interesting space, this is one of those businesses that you should enter with caution.

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    There are many online cab booking services available now a days. But customers love Ola and Uber the most because of their customer service. Not all such businesses are very much successful as Ola and Uber. There are still many new entrepreneurs who are looking to launch new taxi booking service. There are many ecommerce platforms like Yo!Cabs that can help to launch such an online business at just a click of mouse and too at economical price. But to be successful new business must provide good and high quality service to their customers.

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