Bootstrap & bulldoze- acing a low margin & high competition market

What do you call someone with a million ideas buzzing in his head, and the guts to bank all his savings on one of them? If the word insane just passed through your mind, we don’t think you’ve been bitten by the entrepreneurial bug. Our latest episode of Building it up with Bertelsmann, features a candid conversation with one such outlier.

“There’s a very thin line between passion and foolishness! If your idea works then you’re deemed passionate, and if not then you’re foolish.”

For Nithin Kamath, CEO & co-founder of Zerodha introducing discount stockbroking to the Indian market, on his own dime, in 2010- the worst year in stockbroking history, was one such idea. With most of us mimicking our parents’ investment habits, and financial planning being an alien concept kept out of textbooks, there was no way to ascertain if his idea would take off. Unlike most entrepreneurs plagued with worries about raising funds, Nithin had to worry about something bigger- changing the Indian perception about money! How did he convince 1.2 million Indians to make Zerodha a welcome addition to their investments?

Here are some excerpts from this episode of #BuildingItUp with Bertelsmann, which showcase how Zerodha became the favoured platform for 1.2 million Indians in an investment shy country.

Bootstrapping- a blessing in disguise

“ Back then we were building our company over a vendor’s product! We don’t blame VCs for their hesitations in investing.”

With a lack of broking knowledge and fear of high customer mortality making the rounds, it was no surprise that VCs were reluctant to back Zerodha in its early days, but that did not hinder Kamath from establishing the company on his own funds.

Surprisingly, the absence of investors benefited the company as it allowed the team to build their product for the ultimate stakeholders- the day traders. Taking a customer-centric approach, without the worry of investor ROI hanging over their heads was a blessing in disguise for the team. They focused on building a moat around their product, shoring against future competitors.

Winning over customers without advertising

“When it comes to investing money, people are more likely to listen to their friends than an advertisement.”

Kamath himself began trading after his friends introduced him to it. He realised then, that the process of getting into trading was the same for most people. Hence, he didn’t see the point of investing in advertisements, and focused instead on building an online platform which optimised trading. By charging a flat fee of just ₹20 rather than a percentage fee for brokerage, Zerodha won over customers who understood the value of discount brokerage.

Product quality over high funding

“Deeper pockets don’t mean faster product builds.”

Zerodha had created a niche for itself back when it entered the stockbroker industry, by being pioneers of discount brokerage, but competition has entered the market now. Kamath does not fear a well-funded competitor, because he believes that funds can’t accelerate product development. A product like Zerodha was a labour of love and time rather than money.

“We might take a hit in new account openings because of cashback offers and advertisements.”

Yet, being an entrepreneur means being objective about future risks. Kamath didn’t shy away from admitting that they might lose out on a few first time traders, but he is confident that those who have an intent to invest/trade will always come to the best product. It would take those companies a few years to develop a product equivalent to Zerodha’s complex build. Before that happens, Zerodha’s product would have evolved.

Making crisis work for the company

“ The biggest tipping point for our business was demonetization!”

Ironically, when every other business saw a decline in customers, because of a lack of funds in the market, Zerodha onboarded 80,000 new users in just one-month post demonetization! The team had slaved for five years to build a base of 70,000 prior to that. The emergence of e-signatures and e-KYC made it much easier to bring their customers online.

Speaking the customers’ language

Building customer trust is a tough milestone for any company. It gets more complex if your company is handling their money! Starting initially as an “online-only” business, Zerodha set up offline sales counters across 20 major cities, because they realized that even the best UI cannot make up for the lack of human touch.

“People would spend hours comparing insurance policy prices across websites, but they need that final phone call to/from a representative to verify authenticity.”

Kamath realised that people felt more comfortable investing in stocks when they had a person to consult with.

Tune in to the podcast here, to hear how this bootstrapped company revolutionized the Indian trading landscape and convinced Indians to move beyond investing in gold and real estate.

Enjoyed the blog or have feedback? Please leave comments and share your thoughts with us at info@bertelsmann.in

Tickle your brain cells with these interesting reads:

4 Startups That Are Making It Big By Bootstrapping
10 Best Bootstrapping Tips For Startup Founders
New SEBI regulations to impact traditional brokers- Nithin Kamath, Zerodha
Nithin Kamath on how to get millennials to invest in the equity market

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