Yabaji chose the latter, made the decision count and, in just about a decade, armed with a degree from the Indian Institute of Technology (IIT) Kharagpur and a stint at ITC Ltd, founded BlackBuck (Zinka Logistics Solution Pvt. Ltd), a marketplace for freight transport whose investors include Tiger Global Management, Flipkart Ltd, Accel Partners, Sands Capital and International Finance Corporation (IFC), a World Bank arm.
“I was born in an agrarian family. My father was involved in farming. He joined the armed forces because agriculture was reeling. As a kid, it was always about doing something big. But given the background I come from, the awareness around many things was not that high. We used to live in army quarters, take an army bus, go to an army school, and play with friends from an army background. That was the world. But there was an aspiration to do something of esteem and pride, which had a huge impact. Hence, the dream was to become a fighter pilot," says Yabaji.
“After 10th standard, my family discovered that I was probably the most scholastic of the three siblings. It was like, ‘What next? Let’s try engineering. What in engineering? Let’s attempt the most difficult one, joint entrance examination. What is it? It gives entry to colleges.’ I didn’t even know about IITs back then. I had also cleared the National Defence Academy entrance, but my family was not aligned with it. Also, I had to choose because the screening exams for JEE and my SSB interview were on the same day. That is where the trade-off started," he recalls.
This trade-off, and some more risks in the years to come, paid off. Since its birth in April 2015, BlackBuck, serviced by around 1,000 executives, has notched up more than 400 clients including ITC, Hindustan Unilever Ltd, Britannia Industries Ltd and Asian Paints Ltd. It has about 110,000 trucks across the country and, most importantly, is on a sound financial footing with a massive $100 million war chest to stave off competition from legacy businesses such as Transport Corporation of India Ltd (TCI), Delhi Assam Roadways Corp. Ltd (DARCL) and Karnataka Roadlines Pvt. Ltd.
BlackBuck recorded revenues of Rs77.82 crore in fiscal year 2016—its first year of operation—while losses stood at Rs16.48 crore, according to documents available with the Registrar of Companies.
The company closed its last fund-raise—$70 million from Sands Capital, IFC and Accel Partners—in March 2017 amid a protracted lull in funding, which has prodded companies to cut costs or shut down.
The ITC factor
“ITC gave me everything that helped create BlackBuck," says Yabaji.
It was ITC where Yabaji, while making his way up the corporate ladder, learnt the logistics trade, and met his mentor Sanjiv Rangrass, divisional chief executive of the company and an early investor in BlackBuck, as well as Chanakya Hridaya and Ramasubramaniam B., who would become BlackBuck’s co-founders.
Getting into ITC wasn’t easy. It was 2010, and Yabaji’s application for an internship had been rejected twice before because of low grades—ITC rarely entertained anybody below a cumulative grade points average of 8.5.
This time around, says Yabaji, “I screwed up the job interview unlike earlier (interviews for internship), where I cleared the interview but was held up because of my marks. But ITC was the only company I wanted to work with because I wanted a role in operations.
“They actually threw me out in the first 20 minutes. Then I told the interviewers that they did not evaluate me well. I spoke to them for the next one-and-a-half hours, pushed my case, sold myself hard," he adds.
Rangrass, the man who would become his mentor, was one of the interviewers, and Yabaji got the job.
“I joined ITC’s leaf tobacco division at Guntur in Andhra Pradesh. Rangrass took over as the chief executive of that business the year he was interviewing me. He took in seven people as his lieutenants. He positioned us in critical areas which had a huge amount of heat. Usually ITC had one year of training and then delivery. But we were pushed to delivery within 45 days of joining," says Yabaji.
At Guntur, Yabaji led supply chain transformation—everything from planning and warehousing to transportation—and succeeded in bringing down supply chain costs by about 20%.
This was also the time when the start-ups wave hit the Indian shores. Sachin Bansal and Binny Bansal had founded online marketplace Flipkart and secured a few hundred million dollars in funding for it. So had Kunal Bahl and Rohit Bansal with Snapdeal (Jasper Infotech Pvt. Ltd). Mukesh Bansal’s Myntra was redefining online fashion sales and Ola (ANI Technologies Pvt. Ltd), with Bhavish Aggarwal and Ankit Bhati at the forefront, was beginning to take shape. Venture capital firms from across the globe with fat purses were making a beeline for Indian start-ups.
That is when Yabaji attempted another trade-off, this time foregoing his cushy job for one full of uncertainties. In February 2014, he resigned from ITC after being offered a job at online real estate company Housing.com as head of operations, months before SoftBank Group Corp. bankrolled the start-up with $100 million in November. All he wanted was some skin in the game at a start-up before launching one of his own.
“I started thinking about BlackBuck from mid-2013. At ITC, I realized the inefficiencies in supply chain are the problem of the ecosystem. What we did on a small scale for a large business like ITC, could be done for the entire nation. That was the calling," says Yabaji.
ITC, however, stepped in. Housing.com nosedived a year later following a public spat between founder Rahul Yadav and investors and was sold off to News Corp.-backed rival PropTiger Reality Pvt. Ltd in January this year.
“ITC was very clear that they won’t let me go unless I build my own company. Coming out of that fabric was very difficult. People there asked me what is that you want to build that you can’t at ITC. Finally they gave me a business to run in Bangalore—health food drinks under their foods business. The top management told me, ‘If you want to be an entrepreneur, build this business. If the entrepreneur in you is still not satisfied, you are free to build your business’," says Yabaji.
Yabaji was not content with a big role in a large organization and resigned again in December 2015, this time to build BlackBuck.
Funding the idea
Yabaji and his co-founders, Hridaya—a former ITC executive who had worked under Yabaji—and Ramasubramaniam—a senior executive at Miebach Consulting India Pvt. Ltd, a company that consulted ITC on logistics—were convinced about the untapped potential in India’s unorganized freight transport market. They were right.
A May 2015 report by research firm Novonous said the freight transport market in India is expected to grow at a compound annual growth rate, or CAGR, of 13.35% by 2020, while road freight movement is expected to grow at a CAGR of 15%. The report said road freight comprises about 63% of all freight movement in the country.
A November 2016 report by investment bank Avendus estimated that road transport is a $160 billion market in India, of which freight accounts for 60%. The market is expected to grow at 13.5% CAGR over the next five years.
Yabaji had first discussed the idea of BlackBuck with Ramasubramaniam in February 2014 and Hridaya in September. Both were sold on the idea of building a marketplace for trucks, where customers—essentially businesses—would connect with truck owners. The triumvirate zeroed in on the long haul, full truckload (FTL) model where customers book an entire truck for intercity shipments. This segment, according to the Avendus report, accounts for about 94% of the road freight market.
“We estimate that penetration of online models in trucking will increase from 2% currently to 10% in the next five years, as the positive network effects and improved utilization expected driven by online models will drive rapid adoption on the supply side," says the report, pegging the technology-enabled trucking market at $740 million by 2020.
Yabaji had been on the job since November 2014. He entrusted Bengaluru-based Headrun Technologies Pvt. Ltd with building the technology platform. Indraneel Bommisetty, an IIT-Kharagpur alumnus, who would join BlackBuck as head of product and data sciences in January 2016, was the go-to guy for any advice on technology. Three executives were hired for operations. Yabaji took it upon himself to evangelize the company and acquire clients.
Back in the rah-rah days of 2015 when money was pouring in for Indian start-ups, BlackBuck stoked interest among investors. “It was all inbound, mostly network effect," says Yabaji. In February 2015, Ishan Bansal, a corporate development executive at Flipkart, initiated talks for a potential investment by the e-commerce firm. Amiya Adwitiya, an investment professional at Accel Partners and Yabaji’s junior at IIT-Kharagpur, reached out in April.
“Accel to me was at the highest end of the investor spectrum, because of their investment in Flipkart. They are the guys who will back you under any circumstance. The deal was closed within five days of meeting their investment committee," says Yabaji.
In April 2015, BlackBuck closed a Series A funding of $5 million from Accel Partners and Flipkart.
It was around the same time that similar businesses were raising funds in the US and China. Among the top 10 online freight marketplaces outside India in terms of the volume of funds raised, four were founded in China between 2011 and 2014, while five were founded in the US between 2002 and 2012, according to Tracxn, a start-up tracker. The Chinese brigade—Huochebang, Loji, Yunmanman and Fuyoukache—together mopped up about $450 million from the likes of IFC, Hillhouse Capital, Tencent, IDG, Sequoia Capital and Lightspeed. The race in the US was led by uShip, Transfix, Trucker Path, Convoy and 10-4 Systems, who had together raised about $123 million from Benchmark Capital, Greylock Partners, and Kleiner, Perkins, Caufield and Byers among others.
Outside India, as many as 65 such start-ups in this segment have raised about $840 million since 2007. India is home to about 12 such funded start-ups, who have cumulatively raised about $116 million, according to Tracxn.
According to industry experts, online freight aggregators have an edge over traditional businesses with real-time demand aggregation, pricing transparency and elimination of brokers, but technology adoption by suppliers remain a challenge.
“Many of the fleet aggregators and fleet management start-ups are today trying to provide a solution to a problem which is a latent need in the business. The booking and utilization of trucks have traditionally been done on an informal basis through the network of acquaintances and brokers. By way of bringing this online, these companies help in bridging the demand- supply gap as well as getting the right rates, both in real time. This is an interesting business proposition, the only challenge is the adoption by all nodes in the ecosystem," says Sreedhar Prasad, partner (Internet business) at KPMG in India.
Yabaji admits that he raised Series A on a promise to deliver, instead of actual traction. Because, when Accel Partners and Flipkart backed the company, BlackBuck had only one client, that too for intra-city transportation, a far cry from the company’s vision of dispatching packages from one city to another.
BlackBuck had an inherent apathy to manoeuvring trucks within the city. The segment featured in only one of the eight slides that Yabaji had prepared for investor presentations, that too the last one.
“From November 2015, I started pitching but nobody was ready to give us an intercity project. In intercity, each truck carries a large load and it is high value at risk. But, the intercity connection is the most critical one to build. Intra-city can be done by hustle. We kept pitching to clients for intercity but didn’t get any," says Yabaji.
Consequently, BlackBuck was constrained to accept PepsiCo Inc. as its first client in Hyderabad as early as February 2015 for an intra-city project to keep the contract pipeline flowing. The project was executed to PepsiCo’s satisfaction and another pilot with the company was on the anvil in Bengaluru. But Yabaji and his co-founders were not excited.
“Imagine this: our revenues were from intra-city, we had zero revenue from intercity and we are asking for funds to build intercity aggressively. Shekhar Kirani of Accel Partners asked us what do we believe in? I said we believe in intercity. Intercity has high potential but the team needs to execute intra-city to keep the business rolling. If you fund us, we will shut the intra-city business. In three months, we wrapped up intra-city. August was the last shipment we did for PepsiCo," says Yabaji.
Armed with fresh funds, Yabaji and team hit the streets with renewed vigour in May 2015, this time to get only intercity clients. They tasted success soon, in the form of Britannia Industries and by August, had raised another $25 million in Series B funding round, led by the New York-based hedge fund Tiger Global, one of the biggest backers of Indian start-ups during 2014-15. By then, BlackBuck had bagged about eight clients, including Hindustan Unilever.
According to Yabaji, there has been no looking back since. The company has hired a battery of senior executives to lead key verticals. While Bommisetty took over products in January 2016, Shilpi Pandey, former vice-president (human resources) at online real estate portal Commonfloor.com joined as the head of HR in April 2016. Pradeep K.P., former president (finance) and group chief financial officer at textile company Himatsingka Seide Ltd was hired as CFO in January 2017.
Yabaji claims that “systems and processes" have been put in place to build a sustainable business.
For instance, during the early days, BlackBuck would deploy an army of foot-soldiers at toll gates, dhabas or truck markets to convince truck owners join the platform. While the traditional methods of increasing supply are well in practice, BlackBuck today also partners with oil companies, tyre makers, financial institutions among others, who refer the company to their clients, the truck owners.
Besides, the company has branched out to new verticals. For instance, in a far cry from its initial strategy of working with large corporates with streamlined operations, BlackBuck wants to penetrate small and medium enterprises; about two-thirds of its 400 clients fall in this category. Customers can either enter into a six-month to one-year contract with the company for supply of trucks, a vertical headed by Ramasubramaniam, or opt for an on-demand model with spot contracts, headed by Hridaya. The third vertical, supply commerce, where BlackBuck offers truck owners an array of services from servicing of trucks to financing, is headed by Srinath Ramakkrushnan, a former ITC executive.
For the contract business, BlackBuck charges its customers a fixed fee. In the on-demand model, the company charges both customers and truck owners a commission depending on the freight value.
“This marketplace has all the rules that customers want the trucks to be aligned to. It also has all the rules that a supplier wants the customers to be aligned to. We orchestrate the marketplace activity. All data about suppliers and customers is indexed on the platform which helps in identifying quality suppliers. Suppliers also rate their experiences with customers. At BlackBuck, we try to manage the most adequate supply with the most relevant customer," says Yabaji.
Today, the company is among two of the country’s best funded online freight start-ups in the intercity segment. Its nearest competitor is Warburg Pincus and SAIF Partners-backed Rivigo, which has so far raised at least $115 million in debt and equity. Rivigo, unlike BlackBuck, runs its own fleet of trucks. Besides, it operates in the so-called express segment where routes and departure times are fixed.
Yabaji does not rule out the possibility of BlackBuck exploring express services, which attract niche business such as e-commerce firms who are willing to pay a premium, in the long run, but maintains that the immediate focus is on expanding the FTL business.
“Rivigo and BlackBuck are very different models. Rivigo is giving you a time guarantee. BlackBuck is not saying anything like that. They operate in a different customer segment. Any bulk commodity, say fertilizers, food, drinks, etc. or any FMCG (fast-moving consumer goods) company, who are usually sensitive to price, will seldom work with a Rivigo. Companies like Rivigo will address time-sensitive demand, for instance e-commerce," says Manish Saigal, managing director and leader (corporate solutions group and global commercial due diligence) at consultancy firm Alvarez and Marsal.
While BlackBuck’s fortunes seem to be soaring for now, it is unlikely to be a smooth ride to the top. Legacy businesses such TCI and DARCL continues to rule the roost. For instance, BlackBuck’s revenue for FY16, Rs77.82 crore, was about one-third of the Rs224.7 crore revenue that TCI clocked from its freight division in the March quarter of FY16.
Another competitor, DARCL, clocked freight income of Rs1,800 crore in FY16, according to the company’s annual report. Even Rivigo clocked revenues of Rs149 crore, while losses were capped at Rs5 crore for FY16, according to data available with research firm Tofler.
Besides, marketplaces such as BlackBuck are more susceptible to pulls and pressures exerted by truck owners around pricing, consequently impacting their margins.
“There are several challenges typical to a fragmented industry where you are dealing with non-standard, poor quality service providers. Making customers understand what you are doing will always take time. While start-ups are trying to provide superior service, they have to take the market price. As a result they have to make some sort of a sacrifice to their bottom margins. Truck owners’ associations can arm twist them over price," says Saigal.
Yabaji admits that it may not be a smooth sailing for BlackBuck but believes the company has everything that takes to win the race.
“Where we would be, say capturing 10% of India or more, only time will tell. I believe the team we have built will take us there. There is a lot of focus on adding processes and scaling sustainably instead of just adding revenues. That remains at the core of our journey and will continue to remain at the core," he says.
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