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BW Businessworld

Pedalling To Success

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In late 2008, when growth slowed down the Indian economy, a young social start-up in Patna almost died. SammaaN Foundation, a company that makes money by creating services around and for cycle rickshaw pullers, lost 80 per cent of its advertising clients within three months. Fortunately, Irfan Alam, a 29-year-old graduate from IIM-Ahmedabad and SammaaN’s founder-CEO was not one to give up. He decided to overhaul the business model completely so that advertising revenues would no longer be the mainstay of the company.
 
SammaaN started in 2007 with a simple business model. It would buy cycle rickshaws, which cost about Rs 11,000 each at the time, and give it out to rickshaw pullers rent-free. The company would make money by selling advertising space on the rickshaws, primarily using the back and side panels. Half the advertising revenue earned per rickshaw would be shared with the driver. An advertiser would get approximately 32 sq. ft of advertising space per rickshaw and visibility at multiple locations as the rickshaw plied around the city. Like most advertising-dependent business models, it fell prey to cutbacks in ad spends when the economy tanked.
 
 
“Suddenly we didn’t have the capital to buy rickshaws any more. I realised we needed a more robust business model,” says Alam, who rolls out the most detailed “rickshaw economics”. Sample: there are 10 million rickshaws on the road in India. Of this, 60 per cent run in Bihar and Uttar Pradesh alone, and 60 per cent of the pullers in both states are from Bihar.
 
Today, SammaaN has three main revenue streams. It earns a commission on vehicle financing loans for rickshaw pullers, which it processes on behalf of Punjab National Bank (PNB). “We are the exclusive pan-India business correspondent for PNB and will soon have a similar arrangement with State Bank of India,” he says. It also earns a commission on the recovery of those loans and for opening new savings accounts. All this accounts for 30 per cent of its revenues. About 40 per cent of its revenues are from training and support services (such as design R&D) for rickshaw manufacturers across the country. The remaining 30 per cent comes from advertising. And it is profitable.
 
Altogether, Sammaan controls 300,000 cycle rickshaws across Bihar, Jharkhand, Uttar Pradesh, the National Capital Region (excluding Delhi) and Madhya Pradesh. The highest numbers are in Bihar, about 80,000. In Madhya Pradesh, Sammaan is the sole implementation agency for the Chief Ministers’ Cycle Rickshaw Welfare Scheme launched this January. “I had made a similar proposal to the Bihar government, but it is lying unattended,” he says. While SammaaN itself owns 4,000 rickshaws, the bulk is owned either by smaller fleet of owners who are franchisee partners or the rickshaw pullers themselves. The franchisees earn 33 per cent of the advertising revenues generated per rickshaw.
 
RANK NO 4
SAMMAAN FOUNDATION 
BUSINESS: Social Enterprise
 
FOUNDER: Irfan Alam
 
YEAR OF INCEPTION: 2007
 
HQ: Patna
 
CAPITAL RAISED: Rs 1.25 crore
 
INVESTORS: Self-funded
 
EMPLOYEES: 60
 
KEY CUSTOMERS: Hindustan Unilever, 
Bharti Airtel, rickshaw operators
 
KEY COMPETITORS: Other on-vehicle 
advertising companies
The reason that SammaaN works as a business model is because it empowers the rickshaw driver both financially and socially. A SammaaN rickshaw is quite a treat to ride in. The ones in Patna come equipped with bottled water, juice, newspapers and even pre-paid mobile recharge cards. The driver can earn money from his usual fare and by selling the products. In addition, he takes home half the advertising revenue earned. 
 
Each SammaaN rickshaw puller earns an average of Rs 150-200 a day, which Alam says enables them to service their loans quite easily. Raising income levels is just the first step towards what the young entrepreneur sees as a potentially huge financial inclusion business. “Nobody has seen the rickshaw operator community as a market before. With more money in their hands, they will also consume more, even if the products and services are at the bottom of the pyramid,” he says. To this effect, he is already talking to local construction companies in Bihar to build low-cost housing for the families of rickshaw operators, who are usually migrant workers, in villages and small towns. SammaaN will enter into a joint venture with the builder to buy land and develop houses, which will then be sold to rickshaw pullers.
 
For all that he has managed to achieve in three years, Alam seems to be trying to juggle too many balls at once. He wants to go public in three years, and is in the process of spinning out the financial services, advertising, construction and a fledgling manufacturing business into a separate company called SammaaN Ventures. The original company will focus on social initiatives. He is also in the market to raise $2-3 million from institutional investors to fund his expansion plans. It will be better for SammaaN, the rickshaw puller community and Alam to take a breather and consolidate the business model before the next step.
 
snigdha(dot)sengupta(at)abp(dot)in
 
(This story was published in Businessworld Issue Dated 29-03-2010)