With advancement in technology and lifestyle, the basic requirements of life have introduced a lot of verticals apart from “Roti, Kapda and Makaan (Food, Clothing and Shelters)”. Transportation, communication, health, entertainment etc have become an integral part of the basic needs of human life. If we analyze all of our activities of day to day life, the ultimate aim of each come to only a small list of basic needs of our life.

Startups that are working to fulfill these basic necessities are having greater chances of market acceptance and success probability. As explained in our previous analysis “Startup – Roti, Kapda aur Makaan”, startups are trying to capture each of the vertical of these basic necessities. Also as per our analysis of extended needs of human life “Startups Fulfilling the Extended Basic Needs”, all of the possible modes of transportations are attracting startups to execute their business models. Air, Train, Bus, Cabs, Daily Bus Commute, Self-drive cars etc, startups are trying to capture all of the areas of transportation. Ola, Uber, Meru Cabs, Easycabs, Taxiforsure, Megacab, Quickcab, Getmeacab, Taxi24x7 are some of the well-known names of transportation startup.

First Cut Planning of Transportation Startup – Here is FS Analysis on starting a transportation startup, the key points that need to be thoroughly analyzed prior to execution –

FS Labs Transportation Startup - Generic Analysis

[A] Type of Service – The first requirement is the selection of service that you are going to provide. Few of business models associated with transportation startup are as follow

  • Taxi on demand
  • Self-drive Car Service
  • Daily Bus Commute
  • Car Pooling

So the selection of service is very crucial as per the requirement of consumer. Mixed model could also be started based on the expected market base.

[B] Development of Self or Market Based Model – The business model of transportation startup is completely dependent on the vehicles. So the model could be made either self-developed or market base.

  • Self-Financing – Investing a huge amount of money into a new business model is risky. Though it increase the reliability and availability of vehicles, but the opportunity cost and return on investment is limited.
  • Aggregator Model – Getting small players on board is less risky in terms of money investment, but it increases the complexity of the system.

So the best strategy is to develop a market based model in the initial stage and then developing your own fleet based on demand and reliability analysis of market based model.

[C] Selection of City – The prerequisite to start a successful business of transportation domain is selecting an area where people are ready to accept your business model. A city where local transportation is very frequent and people are struggling with mediums of convenient transportation is the ideal location to start with. Concentration of Industries, corporate offices, tourism, and city inflow are some of the factors that conclude an area to be suitable for transportation startup.

So FS advises founders to be very careful while selecting an area for your operations. A very posh area where people prefer to travel by their on vehicles is not a good choice for transportation startup. A very poor area where people struggle for their daily basic needs will never support your concept.

[D] Area and Route Selection – Once you have decided suitable city for your transportation startup, the next step is to map the routes that are in frequent use.

If your transportation is completely based on consumer demands, the mapping of routes is required to estimate the required number of vehicles or trips to fulfill the expected demand of consumers. If your transportation is public and the control of routes is in your hands, the mapping of routes is required to estimate the number of maximum users and hence the enhanced revenue generation in each trip.

Here are few tips for route selection-

  • Residential areas with large working population
  • Market, Railways Station, Bus Stops, Airport, Industrial Hubs
  • Routes with maximum traffic
  • Area with less competition but sufficient demand

[E] Market Competition Analysis – The most crucial step while selecting a business model is to analyze the level of competition that you are going to face once you start the execution of your startup. So check for all the direct and indirect competitors working in your area.

Small startups can easily be managed by providing better user experience with the service. For big players that have sufficient resources to kick you out of the market, FS advices to modify your model so that they can acquire you.

Read here more about the market competition estimation and handling tactics.

[F] Legal go-ahead – Transportation startup requires a lot of legal work based on the government rules and regulations. So it’s always suggested to check the specific rules of your selected area and plan your business model to remain in legal limits. Few of the legal approvals involved in transportation startup are as follow –

  • Drivers’ License
  • Business License
  • Insurance (vehicle as well as business)

So check for all the rules and regulations that are applicable for your business model and contact the agencies that are doing these works.

[G] Getting Required Team- To run a startup successful a strong team is mandatory that have all the required skill sets. The best strategy to map the manpower requirement is by planning the entire work structure for your startup and the skill sets required for each of the activities. For transportation startup, following staff are required based on the skill sets-

  • Technical Staff
  • Call Centre Employees
  • Operation Managers
  • Fleet supervisor
  • Drivers
  • Marketing Staff

FS advises to select the team based on skillsets or if you have already developed a team then assigns the roles based on the skillsets of individuals.

[H] Parking and Operation Area To manage the entire fleet of cabs, buses etc a proper parking space and operating point is required. Based on the market needs and fluctuations in terms of changing demands, rush etc, the reserve fleet is always required to manage the smooth flow.

So FS advises startups to manage their supply chain by ensuring the proper operating and parking space for their fleet prior to execution.

[I] Website and App Development – Website or App is the distinguishing feature from the traditional ones. A website or app with interactive user interface always attracts consumers. You need an App or Website prior to execution, to check the loopholes of your system.

Also, the website or app developed prior to execution helps in initial marketing.

[J] Payment Options for Consumers – Payment options for the service should remain flexible to cover all kind of consumer base. For eg: old age person are sometimes not comfortable with the card or wallet payment system. So, it’s always better to include all of the payment options in your model and develop a flexible system. Following are the payment method that should always be there in the system-

  • Cash
  • Debit/Credit Card
  • Net Banking
  • Wallet System

[K] Marketing Strategies – Marketing of transportation startup is required to let people know about the new service in the market. You should directly engage with your consumers to let them know about the benefits of your business model. Press, Media, Social Networking etc should be included in marketing strategies.

[L] Protection of Consumer Data – Protection measure on consumer data shall be the major priority if you are incorporating your own payment gateway.

Also, the safety of consumers is major focus area for transportation startups. Uber has always been in news for the safety issues. So to develop a setup that is concerned towards passengers safety is the initial part of startup execution.

[M] Revenue Model and Pricing – Ultimate aim of any of the business model is to get the return on investments in short run and generate profit margins in log run. In case of Transportation startup, the revenue is generated by the cost of service that customer is going to pay. So the revenue model should be designed in such a way that the running cost should be covered by the cost of service itself and the profit margins should cover the fixed cost as well.

Suppose the Fixed cost of initial set up = A

Running cost per user = B

And the Cost of service per user = C

Hence the break-even point i.e. the number of trips used to get a stage of no profit no loss = A/(C-B)

If you align this number of trips / service usage with number of vehicles, number of trips and the number of users, you will get the actual timeline of your break even.

FS advice to entrepreneurs is to keep the pricing of their service in the following manner –

  • Initial Stage – The target at initial stage should be to capture the market and infiltration in the market share of other competitors. The best strategy for the same is to keep the cost of service as per the competitor cost along with some extra discount to attract customers. For example – Every 6th trip would be of additional discount.
  • Progression – Once you have captured the sufficient market base, the major focus should be on profit generation. The running cost along with some profit margin should start reflecting at this point in time in your accounts. One of the strategies is to keep the promotional discounts minimal and enhanced profit margins than initial stage.
  • Saturation – At saturation stage the focus should get shifted to keep acquired the loyal consumer base and start getting back your fixed cost along with the running cost. The cost should be realigned at this stage to keep your business model profitable. For eg- quarterly revision of the cost etc.

[N] Expansion Planning – The key factor of a successful business model is its scalability in long run. Sustainability of business model aligned with its scalability leads towards actual success of the startup. Nobody wish for the “TinyOwl Unplanned Expansion – Hiring and Firing Saga”. “Growth for the sake of growth is the ideology of the cancer cell” – Edward Abbey, American Author and Environmental Advocate.

So FS advises entrepreneurs to expand their business model with proper planning aligned with the resource availability.

FS Outlook – Startups have only two major objectives in long run:- [1] to become leader of some domain and acquire the other startups to expand their business model. [2] to become expert in some vertical and getting acquired by big players.

So if your target is to become leader of your domain, then the major focus should be on loyal consumer base and eliminating the market base of other players. If your target is getting acquired by some big player, then FS advises to carefully study the acquisition trends of big players and based on that trends anticipate their potential acquisitions in future and develop your business model accordingly.

One major point that entrepreneurs should keep in mind while starting a transportation startup is that the big players never look for the same business model, they have sufficient resources to kick out other small players, so think of an addition to their business verticals, become expert in that and then approach for getting acquired.

Wish you luck for your startup. Stay tuned with FS Labs for more updates.