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From the Ground Up: Nithin Kamath & Rajan Anandan on Zerodha’s Journey

This conversation between Zerodha’s Founder and Chief Executive Officer (CEO) Nithin Kamath and Peak XV Managing Director Rajan Anandan charts the making of Zerodha into one of India’s largest stockbroking firms. Recounting the early days, Nithin dives into the importance of building credibility and discusses how staying customer-first has shaped the company’s journey. Nithin discusses the impact of being transparent about the company’s goals and approach, noting that it has not only helped retain key talent but also enabled Zerodha to remain agile and nimble in a competitive market. This talk was recorded during Surge 07 in September 2022.

Show notes

Transcript

Rajan Anandan: So, Nithin is the Co-Founder and CEO of Zerodha, which he co-founded with his brother (Nikhil Kamath) in 2010. And he’ll talk about how they got started. But over the last 12 years, he’s built an extraordinarily interesting company; they are the leading brokerage [firm] in India. They’re tech-enabled, they’re a FinTech company – I don’t think you think of yourself as FinTech, Nithin, I know all of these different categorizations don’t mean much to you. But since you’re in startup-land, so FinTech company, and by far the most interesting FinTech company that we have in India, and possibly in the entire region. 

They generate hundreds of millions of dollars of free cash flow a year. And I think what’s very interesting, especially and relevant for today’s discussion, which is about building an economic engine is, Zerodha has never raised a penny of external capital, fully bootstrapped. And also they don’t spend any money on marketing, which I quite find fascinating. And then he’s also got a bunch of other things. That he does with the, with his team, on culture, on sales teams and so on and so forth that we’ll get into that. I think you’ll find [it] fascinating.

So maybe tell us a little bit about yourself, where you’re from, what you were like in your early days in college. And then maybe leading up to how did Zerodha come about?

Nithin Kamath: Thanks, thanks Rajan. So yeah, so I started trading the markets quite early, [at] 17,18 and… So this was the late nineties. So I ended up falling in love with trading. So I quit my… I stopped going to college. So this was not some fancy college, I’ve really been quite horrible from my school and college, so it wasn’t [like I was] dropping off [from] IIT or Stanford or something like that.

So this is… so in 2001, I started trading derivatives on the Indian markets. I kinda blew up. So I worked in a call center between 2001 to 2005. I used to trade during the days and kind of work at nights. In 2005, I found this guy who said… I had done well in that period. So I found this guy who said, “Can you manage some money for me because you’ve done well.” 

I quit my job. I started…[it was] like a portfolio advisory business. I also became a sub-broker or a franchisee of a larger broker, it was Reliance Securities, I became a franchisee for them. In 2006 or 2007 Nikhil joined, Nikhil is my younger brother. He’s seven years younger [and] is a more evolved being, so he was always a better trader than I am. 

So around 2008 or 2009, I started asking questions, saying, if he’s a better trader, why should I sit and trade the markets as well. Because, if someone else is trading better, he just has to manage more money. It’s the right way to do it. 

But I’ve always had this whole inclination towards getting out there, sharing my views and all of that.

How Zerodha zeroed in on an opportunity [03:09] 

So yeah, so in 2008 to 2009, when the markets fell, we made some money, we were short on the market. So we made some money and, and also around the same time, the National Stock Exchange (NSE), which is the largest stock exchange in India, and maybe the third or fourth in the world, they did a very innovative thing. So they put out a trading platform for free, which means… So to become a stockbroker, your biggest cost is really building a trading platform. So what the exchange did was, they said: We want to encourage new members of the Exchange, so we will give you trading technology for free and you can build a business on top of it-types.

So yeah, I was probably the first guy to spot the opportunity. It almost felt like an arbitrage opportunity saying, “If tech is coming for free, can you then go disrupt on pricing.” And that’s how Zerodha started. In 2010, when we started the business, the idea was to build it for very active day traders like me or day traders, which is an options traders, like Nikhil. And the plan was: Nikhil continues trading and if this doesn’t work, I’ll get back to trading in a bit. 

The Plan B was that we were anyway paying a lot of brokerage to Reliance and all of that. So we said, even if this doesn’t work, we would have saved some brokerage in the bargain. So yeah, so when we started in 2010, there were two US fees: One was this whole low-cost flat fees per trade model wasn’t unique, you had discount brokers in the US, charging a flat fee per trade, like in the early 90s. We set a INR 20 per trade flat fee with no conditions attached. 

The second thing, which we were trying to do differently, was to bring in some transparency to the industry, because financial services firms are very opaque in the way they work. And so we said how do we bring in transparency. So a couple of things we did, we put out this thing called utility code as a brokerage calculator. So if you put [all] all your trades, it tells you the cost. [It was] the most simple thing that we’ve done till date, but probably the most disruptive in terms of ideas back then because most of the competition had differentiated offerings. So every customer got a different deal based on how much he could bargain or whatever his net worth. 

The fact that we could go out and put something like that in the open was very disruptive. So more than the low cost itself, I think what helped us garner the first few customers was really the fact that we were out there putting, saying that this is all that you’ll pay. And I also started blogging, until then I was doing it [as] my pseudo self—we put out a company blog and I started writing about business.

I started blogging and answering people’s queries online. So the first one, two, three years, it was slow and steady. And Nikhil was trading by the side. So the first year, we ended up in the money, and Nikhil’s trading profits were really keeping us in the game. We started with four or five people and we kept adding people slowly as a business group. 

In 2013, I met Kailash (Nadh). Kailash heads our tech. He’s as much a co-founder in the business as I am. He doesn’t like to be called a co-founder because he joined in 2013. And, so yeah, he joined and around that time what was happening was that we realized that there was no moat in what we were trying to do as a business, just low cost and transparency can’t be…. because we had a couple of competitors. And actually one competitor would just copy paste everything that we said and was trying to build a business very similar to ours. And yeah so we knew then that the product has to be a differentiator. But stockbroking in India has this whole legacy issue of scam, fraud, gambling, and all of that. So it was very tough to attract people, like tech folks to… today we get called FinTech, but back in the day we were just stockbrokers.

And so yeah, Kailash was doing a startup. I was bankrolling the startup. It didn’t fly, but me and him [it] hit off and I sold him the story that there’s a mother of all bull markets waiting to happen in India. And he says he was not sold on the story, but I think he got sold on this story and he joined us.

But yeah, in 2015, we put out our first inhouse product, which is called Kite. In 2014, we did another thing, we launched our education initiative, called Varsity, which today is probably the largest such initiative around the world, maybe just behind Investopedia, etc. [In] 2015, we put out our inhouse products, which did very well. I think what we did well was, we were trying to, we built a product which caters to very active day traders, but also to first-time investors. 

So it was like when someone international asked me, what is Zerodha like, I tell them it’s a Robinhood version of Interactive Brokers, right, because if you keep it very simple with no bells and whistles, you can’t attract active traders. So yeah, so 2015, we launched it, 2016 was a tipping point in the business, in the journey, essentially, Aadhaar happened. So now you could onboard customers instantly and online. A 40-page account opening form became a 15-minute process. And yeah, that’s when I think, we really started blowing up. And also the good, we got extremely lucky that in this whole journey, we had a bull market backing us.

And because at the end of the day, the fortunes of a stockbroking firm are really married to how the underlying market does. So the fact that India has been in a kind of a secular bull market over the 10 to12 years has helped us significantly.

In 2016, when we launched our inhouse app, we also launched this thing called as a Kite Connect APIs, which allowed for startups to come build on top of us. So yeah, we started inviting startups saying that there is an opportunity to build niche platforms in the capital market ecosystem. And we also started investing in them. We call that initiative Rainmatter. It’s got 20 to 25 plus startups in that today.Some of the coolest, I think, FinTech startups working on savings and investing are a part of this. 

And then in 2020 Covid [19] happened and suddenly I don’t know what went wrong with the world that all these people who are sitting on the edge suddenly decided to get up and start investing.

So we were at 20, sorry, two million customers in February of 2020. And, we are at, I think, 11 million now. So we grew 5x to 6x in the last two and a half years. And I think I think more importantly than the growth is the fact that we… The business scaled well. So we haven’t had any downtime in the last two, two and a half years. We haven’t, even in terms of support, et cetera, our customer ratings have only gone up over the last two to two and a half years. 

And also I think the crazy thing is that we were at 1,050 people on the team in Feb 2020 with two million customers. We are at 11 million customers and we are 1050 people on the team.

Rajan: Wow, that’s amazing.

Nithin: Yeah, I know, so we found that sweet spot of sorts, I think Covid [19] pushed us to automate a lot of processes, find efficiencies, whatever there is. And yeah, and what else, yeah, like I said, I think I’m also quite proud that no one has quit the team as such, the core team is still together. We have had two people leave our tech team till date and for personal reasons and not to join a competition or something. And in the core team…

Rajan: So, live today, in the last seven, eight years, you’ve only had two tech team members leave?

Nithin: Yeah, we would have.

Rajan: Oh, we should talk about that. Okay, we’ll talk about that. Because, the last couple of years attrition has been super high, right. We’ve had Indian companies giving BMWs to hire engineers. I know you have views on that. You got started because you saw an opportunity, triggered by one actually, you were in a business that you knew really well, right. You were a trader yourself. You knew what the needs of traders were, et cetera. 

Second, I think you saw a need that you saw this sort of new platform that was being issued for free and therefore, maybe an opportunity for you guys to build. And then I also, I guess it sounds like you really your seed capital came from the fact you’re trading business, right, that both of you ran and then that business, for a while, kept funding you guys, and I think the other so I think there are a couple of important… 

And also the fact that you guys focused on a very focused user group, right. It was these active traders where you knew that market well, because you were one of them or still are really. Is that fair to say: that you were very focused on building a platform for that targeted user group, not trying to build for everyone, not trying to get new people to trade, etc.

So maybe just double click a little bit on the early days and what were some of the insights and how did you, and also like the other interesting thing is for four or five years, you just kept doing that slowly, right, just getting better. Maybe talk a little bit about that because a lot of our founders are in the early days. And today, Nithin, when you read the headlines or what talk to founders, everybody’s talking about blitz scaling and hypergrowth and becoming a unicorn in three years and all of that, right. But the reality is, if you’re going to build a great business, it’s a very different journey. So, maybe focus a little bit and double click on those early days of the journey, Nithin.

On building credibility and driving user acquisition [12:38]

Nithin: Yeah. No, see, as in, when I look back, it almost seems like we had planned all of this, but it wasn’t, in the sense, it just turned out to be, we ended up taking the right decisions and we got extremely lucky with it. 

So see, the thing is, the first thing that helped was our timing: Looking back, 2010 was really the worst year to start in the broking industry… starting a broking business, because it was really the worst year for broking as an industry ever, because of our coming back after the global financial crisis, there was a lot of mortality, there was hardly any trading volumes, et cetera. But in hindsight, we ended up picking up [at] the right time.

So yeah, I think the first thing is in the business of money, credibility is super important, right. As in like people don’t trust you with their funds very easily. We are almost like a bank, so today our customers all together hold with us I think INR 250,000 crores worth of securities to INR 50,000, crores and all like $30 billion, I’m sorry, $25 billion-worth of securities with us, and the fact that we’ve been able to garner the trust is really, very astounding, in the last 10 to 11 years. I think the only company which is bigger than us in terms of AUM (assets under management) is ICICI bank, which spent, I don’t know what, 30 to 40 years, trying to build trust.

So I think when we started… One was, I think there were much lesser distractions, so there wasn’t any newspaper headline saying valuations or whatever. So I myself, I think my first startup conference I went to was a GSF event and I think 2011 or 2012 or something like that. And people are talking [about] CAC (customer acquisition cost), MAU (monthly active users) and all of that. I’m like, dude, what is this, cause I hadn’t really heard any of those terms for the first two years. So in a way I was naive enough to focus on profits and not really think about anything else. 

Now, the thing about… the reason I think we didn’t end up spending any money acquiring users was because I had realized that if I spend INR 3,000 to 5000 acquiring a user, it’s very hard to recover that money with the pricing model that we had. And this I knew from Day One; this, I realized that if you’re at INR 20 per trade, if you cannot spend INR 3000, 4000, 5,000 to acquire a customer, it makes no sense at all. And [the] second thing.

Rajan: So what you’re saying is because your average order, your revenue per user was very low and that was the core element of your, very important part of your business model, you couldn’t really afford to spend money on CAC, right? So unless you were able to drive organic distribution, the math wouldn’t work. Is that sort of what you’re saying?

Nithin: Yeah, absolutely. Yeah. It is. Yeah. Like I said, I didn’t know LTV (lifetime value) or CAC back then but I think it’s common sense, right, as in you don’t…

Rajan: If you charge a little, you can’t spend much.

Nithin: So yeah, so one was that. And second also, I knew about our industry very well, that people don’t look at an advertisement and decide to open a trading account. You might look at an advertisement, decide to order a soft drink or a samosa or a pizza, right, but it doesn’t… You won’t open a trading account just because, say, Shah Rukh Khan is dancing, right. Or even if you open a trading account, what do you do with it? Because, the thing in India is… actually, globally regulators don’t allow you to sell greed, right. So your advertisements can’t say, you’ll make a lot of money or you can make 25 to 30…

Rajan: So how did you build trust and credibility and how did you drive user acquisition? Maybe double click a little bit on that.

Nithin: So some of what I’ve done in the past helped quite a bit in the first few years. So, I went on to all these, today you call them finfluencers (finance influencers), right? So in a way, I was a finfluencer in a pseudo form because I had this, like a track record of being active on some of these forums and these communities that I was part of. It helped a little. In my call center days, [I had] done a lot of cold calling. I enjoy cold calling, but today you can’t really cold call because no one’s going to pick up a call. But back in the day, in 2010, I bought a database of active traders and sat and cold called [for] the first one, one and a half years. And, because I knew that we had a proposition that an active trader would not see, would not be able to say ‘no’ to, except for another credibility aspect of it. 

And I think the way to build credibility is just time. I don’t think it’s… You just have to keep doing right to the customer and over time, if your customer feels that you’re a decent business, he’s going to go talk about it to others, and really that’s the, I think the right way, I mean the only way to build credibility in a money-business, you can’t spend money and really build credibility very easily.

Even if I were to compare ourselves with some of our competitors who have gone bonkers and how much money they’ve spent in the last one to two years. While they’ve gotten a lot of users, the AUM is probably one-sixth, one-seventh, one-eighth of ours. So they haven’t yet been able to garner enough credibility to get enough users to park funds or money with them.

And in the business of money, the only way to make money is: you need to have customers who have the money. So that’s yeah, so I think the first, second, third year it’s just continuously doing what is right for the customer.

One of those powers you get when you don’t spend on acquiring a user is that when you have no pressure to generate revenue from the customer, it’s easier to do what is right for the customer than when you have the pressure to do it. Because in a lot of businesses, especially ours, you know what is right for the customer is hardly ever right for the business. In the sense [that] getting a customer to trade more or take leverage, borrowing money is not right for him in terms of money, right. But if you spend money to acquire a user, then you’re forced to do some of these things. And if you’re forced to do some of these things, automatically the credibility drops over time because then the customer eventually gets to know that the business cares about the business more than the business cares for me. So over the last, I was just talking… we were just looking at it, over the last one year for example, we’ve sent nine push notifications to our customers. And…

Rajan: That’s it? That’s it?

Nithin: Yeah. And that too, that push notification has to go through like a bunch of us and only when it is absolutely necessary, right, because, I hate it when I get push notifications on my phone and I’m like, I would not do it to my customer just to somehow trigger a customer to do something. 

And a lot of our customers like the fact that we don’t do that. We have never sent an email saying, “Please click here, subscribe to this or open this account”. None of those things, and I think, in this business, the business of money, or actually a lot of B2C businesses, I think it’s about influencing the influencers. So if you’re if people out there who have the potential to influence, get influenced by you as a business, then organically, I think, they will do the rest of the things.

In the business of trading and savings and investing, you have a lot of influencers like, in every company, there’ll be one guy [who] knows about the stock markets more than everyone else, right, and everyone’s decision is really based on that one person what he says and does. 

So my job as a business is to say, how do I make sure that one guy likes what we are doing as a business, and so some of these philosophies and the way we run the business, I think, we’ve been able to get that one guy who’s an influencer in every company to be on our side. And that’s how the business has grown without having to spend a single rupee on marketing and advertising. 

And see here’s the other thing: if, so we are, say, 1.1 crore customers, and if I had spent INR 5000 for users acquiring each of these customers, I would have spent almost a billion dollars, and the billion dollars is all the profit we’ve made till date. So essentially if I had spent INR 5000 a user, there would be no profits as a business, so if I had to look back at the journey, the only reason we are profitable today and we are up a billion dollars on the business in terms of profit is because we didn’t ever spend on any of these things over the last 12 years. If we had, we wouldn’t have profits, so it’s actually quite as simple as that.

Rajan: Yeah, and I think as you said it’s really about building a product and a brand that users love, and then they talk about it and therefore it’s all word of mouth and it’s all viral, right. And I think one of the most important principles, Nithin, that you all have taken is, always doing what’s right for the customer and staying away from things that could potentially generate more profit.

Think ahead: Make long-term choices [21:15]  

Rajan: I’m sure you could be five times bigger in the near term if you’ve got into all these other adjacent businesses, that would improve your LTV and so on and so forth, which is what almost every venture-funded company is doing today. But tell us a little bit about why you’ve stayed away from that and maybe give us some examples for the founders to bring it to life, things that maybe you could have done [but] you didn’t do because it just didn’t make any sense.

Nithin: Yeah, so I’ll tell you, right now, there’s this big thing going on in our office around margin funding, okay. Margin funding is essentially when a customer is buying stocks, he can borrow to buy more, right. I can add, I think, a $100 or a $150 million of free cash flow by offering this product.

And it’s a really simple product, right, but we’re not doing it because we think it is a shitty product for the customer, right. Because, when a person’s buying a stock, he’s already enabled by greed, right. Now, if you trigger him to buy more, he will buy more, it’s just no-brainer. If you have, say, a lakh rupees (0.1 million) and you’re trying to buy a lakh rupees worth of Reliance, if I tell you, you can buy two lakh rupees (0.2 million) of worth of Reliance, but I’ll charge you some interest on this other lakh, you would do it, but it’s absolutely not right for the customer.

And we’ve said “no”. Now, some of the competition is going out there and saying, you know what, Zerodha doesn’t offer margin funding, so you come and open an account with us, right. So, the debate has been, what do we do now? Because we can’t lose our customers just because we don’t have [that] to offer.

Now, even if you offer, I think we will have to find a way to hide it. And not make it so easy to discover that people can do it at will. We have a loan against the securities business, which is hidden. No one knows about it. So the loan against securities is, if you have a stock holding, you can borrow against it, because it’s collateralized so the risk is much lesser. So the loan, you can borrow it like 10.5% to 11%, but if you go to Zerodha, 99 of 100 customers wouldn’t know that we offer loans against securities. 

And the reason we’re not talking about it is because in today’s world, everyone’s triggered to borrow and really on a savings and investing platform, borrowing is really the worst thing that you can do, because leverage is what kills most people. And so yeah, a decision like this, it’s very hard to take, saying “no” to money but I think philosophically it fits the way we think as a business. And so the way we are thinking is that I might not make a hundred rupees from this customer this year. But if this customer survives, I’ll make a hundred rupees over the next five years in some form. 

And if this customer survives the next five years, he would have introduced me [to] more customers. So I would get more customers at zero CAC, versus trying to make (get) their hundred rupees this month and lose the customer. Because when a person leverages, the risk here is he loses more money than what he’s got in his account and he becomes inactive, then there’s no point of ever having acquired the user. So, I think the problem for most businesses today, most founders, is everyone’s wired to think very short term, as a private company, you’re probably thinking year-on-year as a listed company, you’re forced to think quarter-on-quarter.

So your decisions that you take are all trying to optimize for that short-term target. And I think one of the things that we’ve done, as we’ve always looked at long term, saying, what is right for the next five to 10 years, then automatically your choices that you make as a business completely change. Like I said, if a customer comes to me, if I’m thinking, how do I keep him active for the next 10 years versus saying, how do I make the most out of him in the next quarter or next year? Your decisions that you take as a business completely change, when you’re trying to optimize for that shorter term kind of a goal.

So even when it came to raising capital as a business, really that was something that, you know, so around 2013 to 2014 is when the first VCs (venture capital firms) came knocking, because I don’t think the first two or three years, we were even ready, to be able to take some money. No, we were very raw, by 2013 to 2014, I had started talking to entrepreneurs.

And GSF was my first conference, and then I met a few, became friends, et cetera. And by then I’d realized that, so in this game, there are two ways to win. One is you’re the deepest pocket, as in you just had to raise more money than everyone else and spend more money than everyone else, and you win that.

And the second was, I realized that there’s also another way to do this, where you do things that are very hard for someone to copy, right. As in, for example, just what I said about margin funding, I know that it’s almost impossible for any listed company or any VC-funded company to be able to take that stance, which is to say “no” to money.

So can… I said that’s a better way to build it because then I don’t have to worry about constantly having to raise money and going that route. So I think that was a choice originally, saying that not raising money will give us [the] kind of leverage or, to run the business the way we want, which would be very hard for some of our competition to do.

And also I think, [it] helps that I’m not a very ambitious guy, in the sense, I’m not trying to, like all of this was accidental, we became a unicorn or whatever, we made so much of profits, but this was accidental and this wasn’t… I never started on Day One saying, “I need to make this much money”. The idea was that “there is this problem. We need to help people do better with their money.” We started off by saying that active traders who need help and then it became about helping people do better with the money.

And the thing was, if you do this well, money will happen in some way or the other. And like I said, we got supremely lucky that whatever happened over the last three to four in terms of user growth or in terms of Aadhar, UPI (Unified Payments Interface), and all of these rails that we’ve been able to leverage on, because it was impossible for us to have built anything without all of these [being] in play of sorts.

Behind Zerodha’s decision to stay bootstrapped [27:17] 

Nithin: So yeah, so I think not raising money at the start was very, in a way, very strategic. I think there’s also a legacy problem that I used to manage money in my previous avatar, when, between those [years] 2004 to 2007 to 2008, and I hated the obligation that money brought on the table. I hated that I had to pick up the phone call of the person who had given me money, and so yeah, so when there was an option of not taking on the obligation, I said, you know what, screw this. So let’s… 

I think it slowly and steadily became harder, because the last two years, I know I got all these calls saying, “You name the valuation, I’ll give you a check”-type; “Take some money off the table and why don’t you go buy a private jet or something like that?” Thankfully [for me], there are no money ambitions in life. 

So there is not, incrementally, I don’t think anything has changed for me in the last four or five years. So in the sense more money has really meant nothing personally. I’m essentially leading the same lifestyle as I did before. That way I didn’t get swayed away with, whatever, a lot of money [was] at offer. So yeah, so today, I’m very excited about what we’re doing with this Rainmatter climate foundation that we have set up.

I think this whole freedom, the freedom that money brings is really, I think, something that I’m enjoying, the fact that you can actually go do all of these things without having to ask someone is really quite a cool place to be in.

Rajan: No, that’s terrific. I think this, doing what’s right for the customer always and thinking very long term, those two principles, I think, if companies adopt, I think they’ll just do materially better. Let me ask one or two more questions and then I’m going to open it up. So founders, please have your questions ready. 

Culture 101: Be transparent while setting expectations [29:06]

Nithin, talk a little bit about the culture that you have in the company. Whether it’s your hiring philosophy, how you retain people like your sales team and how you comp (compensate) them is super interesting. 

Maybe share some of the things that are quite contrary to what every, almost every other startup, at least in India, is doing today. Talk a little bit about some of those: culture, how you hire, how you retain…

Nithin: See, the thing is, I think the way we build the business, the way we talk to customers is really the way I’ve spoken to everyone on the team. So I’m constantly underselling, right, because I don’t want people to join with certain expectations and then get disappointed because that kind of leaves a bad taste behind.

So, not once in the last 12 years, have I ever hired anyone promising a stake in the business or ESOPs (employee stock ownership plan) or whatever. I’ve never, we’ve never hired anyone saying, “We are building this… some [solution to a] problem that’s going to make the world very different.” We’ve been very honest here saying that this is not like some life changing problem that we’re solving.

And because one of the things I’ve seen founders do is oversell when hiring, and, oversell what the potential valuation could be… as in none of these we know, as in, I don’t know what is going to happen tomorrow. So how can I go project something somewhere and then hire people and then what do I then tell them if I don’t meet those targets?

So, I’ve been very wary about that obligation as well. I’ve absolutely… Every time someone we’ve hired, I’ve absolutely undersold the business as much as possible. And then seeing if that person wants to join us because he likes what we are trying to solve as a business and also what we stand for as a business. So most people who joined us are like that. So culturally, as soon as someone talks to me about, “I’ll bring you this much business, how much money can you pay me?” I said, “Dude, it’s a cultural misfit. It might work for someone else, but it doesn’t work for us.”

And, and because we’re not in a hurry to grow this fast, we never had to make that compromise saying, let me just hire immaterial of what this person is. And Kailash is, I’ve been…[he] is like my life guru of sorts, so his outlook towards money, in terms of how he builds products is how he leads his life, wary of technical debt.

And he’s one of those big FOS (free and open software) proponents. And I think FOS is the purest form of art that I can think of. And today if you look at our tech team, all of them are really FOS proponents. And they’re all people who are building stuff and putting it out there for the world to use. And…

Retain talent: Skills compound over time [31:39]

Rajan: How many people in your tech team, Nithin? It might be good for the founders to know.

Nithin: Yeah. See, the thing is we’re outliers, we are 35 people.

Rajan: Yeah, guys, keep in mind 35 people in the tech team, the whole tech team.

Nithin: Yeah, no, last year we hired two people and Kailash was saying we overhired.

Rajan: No, but how are you able to do so much with such a small team, Nithin?

Nithin: I think you just have to keep people in the game longer. The problem today is the average life of a guy working in a business is two or three years. And, in two or three years is by the time when a guy figures out what he’s doing, as in, it takes time for people to understand what is that they’re doing. 

By the time they understand what they’re doing, they leave you, then it’s a problem. I think, for us, what has helped significantly is that everyone has stayed for five, six, seven years now. And like how money compounds with time, people’s skills and their understanding of the business also compounds with time, right.

Coin, which is our direct mutual fund platform, is the largest platform in the country by AUM. We’ve had two people build this and maintain this over the last two years, so, sorry, last four to five years, one designer and two programmers and a five-member team behind it. A competitor of our size, in terms of AUM, there’s no one our AUM, but in terms of users probably has 300 people behind it. So, I think it’s… Like I also know when I first started the business, I thought throwing people at problems solves problems. And, over time, especially hanging around Kailash, I realized that throwing people at problems just complicates it, as in, it doesn’t necessarily… it gives you an illusion that you’re somehow solving the problem, but it doesn’t. More people really complicate the problem.

And so yeah, so, I think it’s just that the fact that most people have stayed together for so long is that their skill sets are also compounding with time, and a lot of people have stayed together, not just because… See all these ESOPs and stakes and valuation, all of this happened in the last two to three years. Until then there was no ESOP or anything like that, and we are not even paying them more than what the industry is paying or any of that. 

The reason people stuck around was, I think, was just generally the fact that what we stand for as a business. And I’ve also been very wary about upping fixed costs. So the way we have structured this business right from the start has been, I can’t match everyone, match what you can make outside in terms of salary, but every year we’ll carve out a portion of our profits, and we will use it to give bonuses and share it with the team.

So right from Day One, everyone within the team has been bothered about profits and not any other metric because profits is really…

Rajan: You have an annual profit share, Nithin, anything where every team member gets a part? 

Nithin: Yes.

Rajan: Okay, very helpful. Okay, let’s open it up. 

Reflections on the road not taken [34:34]

Nikunj (of TrueFoundry): Yes, So Nithin, you have taken a very… I think, through these discussions and just knowing about you, [seems] like you have taken a very different approach to building this business, right. And you mentioned… you touched a little bit on the competitive pressure, for example, in the margin investing business, right. Have there been some misses that you feel [were made by] going this route. [And if there’s] a different route where you feel like, if you had gone, the more traditional route, whatever, like raising capital or going the more traditional route, this would have been easier, like ’X’ would have been easier. I’m curious to learn if there are some of those misses.

Nithin: Yeah, no, I think, see the thing is, like a lot of time, people come back and ask me, “Nithin, if you could change something, in the past, what would it be?” It’s just that I’ve been so lucky so many times in my life that I fear that if I go and change anything in the past, I would not be here today. 

So really, because everything has been… There’s been so many of these serendipitous-kind of moments, so many regulations that work in our favor and all of that. 

I don’t think there is, I keep thinking about this saying that what could have done differently in the past that could have probably meant a better outcome today. I can’t ever come up with anything because, every time I think if I’d done this, I don’t know what the second, third-order effects of that would be. And, would it ever lead me to be here? 

But one thing that we could have done was, we could have tried to build our tech earlier, because we launched a product in 2015, early 2016. We could have potentially done it in 2014 or 2015, so we would’ve had a bigger distance on our competition. 

But the thing is, if I had to do that, I wouldn’t have found Kailash, and I would’ve had to do it from someone else. And if I had found someone else, maybe all of this would be something else. But technically that’s the only thing that we could have done earlier because the first four or five years, actually the first five years, we were building on top of a vendor product, and there was nothing special in terms of the product itself. 

So yeah, so the other way I look at it is that what have people who have raised a lot of money done that I haven’t done. And actually [that’s] nothing. So, I don’t know. I don’t know if raising money would have meant that I would have done something differently which could have helped the business in any way.

Nikunj: I see. Also, what is the wall of frames behind you?

Nithin: Those are these old share certificates. So, this guy who, one of our customers, actually gifted it to me, and it’s now framed and it’s on that [wall].

Rajan: And what does it symbolize?

Nithin: So these are all companies which were all listed at one point of time and which are not listed anymore.

Rajan: So, just because you get listed, [the frames] keep reminding you… That’s a good one. You can go public, but then what happens?

Nithin: Yeah, no, the thing about going public, I think, I just fear, actually, I feel for all the founders who run public companies, who have this quarter-on-quarter pressure, it just must be such a crazy life to lead, because every quarter, you potentially can get dissed of sorts. And one is I fear that, I fear that if we get listed, then I’ll be forced to answer questions every quarter.

Two is, also the problem with our business is that there is no predictability in terms of revenue. So we are so closely married to the underlying markets that… if you look at what happened in the US and Robinhood, thankfully Indian markets have outperformed, but if you look at US, everything, all metrics are down like 50% to 60%, user growth, trading volumes, all forms of activity because the markets are down. So if you’re a company who’s going to raise money from retail investors who are really the lowest in the food cycle in terms of appetite for risk, you should, I think, the onus, businesses should do it only when there is enough revenue predictability of sorts.

And, so maybe, with time, as we build more verticals in terms of revenue at some point we might… because, as a stockbroker, it’s almost borderline hypocrisy if I say I’m not going to list, when I’m asking every company out there to list, so maybe, one of these years when we have enough predictability in terms of what we’re doing as a business, we might go list, not to raise money for the business, but more like “we need to be more inclusive in terms of wealth creation.”

Rajan: By the way, last time you said you’ll never list. So it looks like you’re thinking.

Nithin: No…This is, the listing thing, this discussion, it is almost like a conflict running in my head, all the time. Because if you list and how do you list and not be a company chasing profits.

Rajan: Not be, yeah, not be accountable and not be… You’re already accountable, you are already here. Abhishek (Gupta), you want to go next?

Behind Zerodha’s agility: Focus on brand and product [39:46]

Abhishek (of Semaai): Sure. Yeah, nice to meet you, Nithin. I have a lot of friends who’ve kind of been very loyal users of Zerodha, and I feel like every time a new platform is launched, some of them are day traders and some of them are like regular investors, and they just love the speed and the use of the platform.

But every time a new platform comes, they somehow do end up kind of trying it, maybe signing up on it, exploring it, and then eventually, okay, they go back to Zerodha. I don’t know what your churn numbers look like, you’ve talked a lot about this whole user focus. I just wonder if there are any practical tips, practical advice that you have for us on where basically this, like, what is your flywheel or trying to make sure that, if the churn goes up or if people are trying other platforms, where cashbacks are higher, there is irrationality going on, like how do you react to that or how do you ensure that you remain… at least keep your main customers on the platform?

Nithin: Yeah, so Abhishek, I don’t know if my answer will sound right, but we don’t track churn data at all. So I’m like, I’m saying, “Dude, if people want to leave us, they will leave us.” And also, I need to do whatever I can to keep them on the platform. And for which we had to keep upping the quality of our products.

So every day you get up, you’re trying to find a way to get better as a business, right. Is throwing a cashback, getting better? Absolutely, no. And most businesses today are trying to do those kinds of gimmicks to get users, whereas not focusing actually on product. 

And the problem with focusing on a lot of these gimmicks is, your core team is distracted as well. And the reason I think we can take this stance is because, like I said, there’s no hurry to grow this. So there is, there’s no one year… Right from Day One, we’ve never started a year saying, “We need to get to these many users.” And because as soon as you put a target saying, “I need to get to these many users,” then you’re optimizing for that and not for everything else. 

But if you get up every…start of every year and say, you know what, these are a bunch of things that I want to get better at as a business. Whatever the business has to grow, it will grow too. It’s a stoic way of looking at life, but yeah, but over the last two to three years, it was hard to sit down and watch people do stupidity, because when people are doing stupidity, you get pulled into it as well. So it was… but we were patient and always said that all this – it’s not going to work. If you give cashbacks in India, there is a whole generation of Indians who will gamify, who’ll game it and will just take the money and not bring any activity. 

And also, like I said earlier, is that, it’s also the brand you’re creating. Because if you’re creating a brand, which is trustable, running gimmicks actually hurt it. [If] you are an ecommerce business, it’s okay. But if you are a business where people are to trust you for life, then, what is the kind of brand you want to build is also a question. As in, you don’t want to be building a brand with things that…When you do stupidity, people question the stupidity. They might… If I were to offer, say INR 2000 like a cashback to a customer, to open an account, all our customers will know about it. We’re thinking, dude, why is this company doing this? As in you’re hurting your brand in some way. 

And I’ve been very… See, the thing is in India, the money really lies in the first top one to two crore (10 million to 20 million) Indians. If you want to make money as a business, in a B2C (business-to-customer)-kind of a business, you have to get your top one to two crore Indians on your platform. It’s very hard to make money from the rest. And these top one to two crore Indians will care for the kind of brand where their securities are sitting or where they park their funds. And we’ve been very cognizant of that saying that we can’t be doing anything as a brand that might come across as stupidity. And then in which case it can also hurt the brand perception.

But also, this [thing of] not tracking customer data is a stance we took a long time back because we thought it’s going to be distracting. Like I said, I don’t know, I see a lot of my founders, friends, who spend a lot of time sitting and analyzing each customer action. And I don’t know if incrementally their decision to do whatever is really worth the time and effort they put tracking that data. And, so what we think is that, I know it’s again, a stupid, I don’t know if it’s the right stance to take, we think we know what is right for the customer and we will build it. And if the customers don’t like it, they will leave us and go. That’s the stance we have taken as a business.

Rajan: And also, I think your view is that… like you don’t want to do things that you believe are not good for the customer, even if they may use it, like margin lending or whatever. And your competitors are doing it right, and I think that’s really powerful.

Nithin: But the thing is, also some of these things have helped us be really nimble and agile as a business. So while we are the largest broker today, I think we are more nimbler than someone starting up in terms of the way how quickly we take decisions and how quickly we implement it. Because we don’t really spend too much time analyzing it in a sense.

I don’t know if it’s the right way to look at life, but because you go into that rabbit hole of trying to find the best solution, you can spend forever and not come up with the best solution. So, I think you need to make some compromises and quickly act because… I personally believe that it is a world where it’s about the fast beating the slow and not big beating the small. And so you just need to… I think what we have as an edge, as all of us building new age businesses is the ability to be fast. And if you lose it, then there is really no edge that we have on other incumbents or competitors.

On hiring well and the judicious use of resources [46:00]

Viren Shetty (of TourHero): Was it a conscious decision for you to like not hire and not spend or was it just a natural circumstance of people you hired or like that or was it just a combination of both?

Nithin: No, I think this is really Kailash’s influence on me. Like I said, I think, if I was on my own, I think I would have overhired, but thanks to him… I’ve been, like every time I hire I’m like, “Do we really need this person?” That’s really the question because I think I’ve seen a lot of my friends, founder friends, hiring, even when there is no need, no, it’s about just hiring without a problem to solve. And, no, we’ve been very conscious about that, saying that “I’m not going to hire people expecting problems to come, I’m going to hire if I need people to solve a certain problem.”

And one of the craziest things we did was when Covid [19] happened. So we had a large inbound sales team. We had a 450 to 500 member sales team, which essentially what they used to do is if customers drop off during onboarding, we used to call them up and say, “Why did you drop off and do you want to, some help to open an account?”

This was one thing that always ticked me off in a sense because we were actually calling a customer when the customer hadn’t asked us to be called. And, and I didn’t even know the efficacy of this process because I was like, does it really help this person, calling? So what we did was we suddenly, Covid [19] hit. I said, “This is a good opportunity. Maybe, like for 10% of our customers who drop off, let’s not call them. Let’s see what happens.” 

[It] made no difference to conversions. Then, and then slowly we said, we just killed the whole sales team. In May of 2020, I sent an email out and said, “This whole… there is no point calling people when they have not asked us to be called. And most of you guys are spending time dialing people, scheduling calls and all of this.” So we moved the entire 450 people from sales to support, like overnight of sorts.

There was some, like internally, there was some fire for doing this, but I think that was the right decision for the business, because our conversions have not changed at all without calling the customers when he drops off. So it’s yeah, for a long… for 10 years of my life, I thought it helped, but, eventually I realized that it didn’t.

Anuraag (of TrueFoundry): So Nithin, like a follow up to the question on killing sales and instead moving them all to support, like this happens quite a lot, in our kind of business as well, where people are onboarding into the platform and you see them drop off and you end up emailing them and trying to ask what is… So I would love to understand a little bit more like when you say, it’s moving sales to support, what exactly what they’re doing before and what did you convert them into, so that these customers still… you know, you didn’t give them a bad experience or something, want to understand that. And there’s one more question.

Nithin: Yeah, so the thing is, it’s again a very philosophical kind of a thing. As a founder, I don’t know if I would’ve been able to do this in the early days, because in the early days, you want every freaking lead to convert to customer, right. As in, like you will go to any extent. But I think as your business grows, you’ll have to start taking a stance on how much effort do you want to put into converting a guy. 

So, what we realized with our customers who are dropping off during onboarding was that the effort was not worth it. Trying to get a customer on call, like scheduling it, almost every customer, takes three calls before you can even have a conversation with him, right. He schedules it, and the next time you call, he’ll not pick it. Then someone has to follow up. So the amount of time our team was wasting on reaching out to this one customer who had dropped off, was just too much for it to be… Ideally I should have killed it like a long time back.

This whole sending emails makes zero sense to me, okay. Because people don’t look at emails. There is no point sending emails, to be very honest, no marketing emails today, right. Because it’s just so much clutter in everyone’s life. There’s unlikely to somehow pick up your email because you dropped off and somehow, but we, as founders, we think, sending those emails, saying some beautiful things on this email is somehow going to help, but no one’s reading those emails, why even bother sending those emails. So the only thing you have as a business to do is just to make your product offering so good that the guy actually comes and opens an account.

If he doesn’t, there’s no point even in chasing. And that’s, like I said, that’s a stance I took after many years of starting a business. You guys are starting off, it’d be hard to take that stance, but eventually I think you’ll have to start questioning yourself saying, is it really worth the effort, the time, effort, et cetera, right, because I have, friends who run companies where there are like five to 10 people sitting and designing emails that people don’t read. As in, so yeah, so it’s that… you’ve got to think about it as you grow as a business.

Rajan: Any other questions? Otherwise, yeah, go ahead, Anuraag.

Anuraag: Yeah, one more question. Even though the team is so lean on the tech side, whenever we are building, there’s always a need to build more. And everyone feels constrained and everyone feels that there’s a need to hire. Is there something that as a team we can do to you know, kind of [decide that]… this the level only after which we’ll go and hire. Is there some internal methodology put to that aspect, so that even if there are requests coming in from the team, you will not have until something is hit. Would love to understand how do you constrain that when everyone is telling you that you need to hire.

Be deliberate, ditch the scattergun approach [52:00]

Nithin: No, the thing is if you don’t take on too many projects at a time, the world gets a lot more efficient. I think in a lot of startups, people are just doing too many things at the same time, which is really a problem. And, because, otherwise we keep bouncing between ideas, between things. 

So I think what we’ve done well with our tech team is that we just really go only when there’s something really has to be done, right, [when] they have the mindspace for that. And so I think, yeah if you’re a founder, I think it’s about just prioritizing and picking the right problems and going for it and not try to be able to… 

Again, that’s another founder problem, right, which is you want to attempt anything that can potentially grow your business. And if there are five different things, you want to attempt all the five different things, because you think any one of these can hit and make you big. So, I think, eventually you’ll have to start picking one or two things, and put your head on the table and, the odds of hitting that are higher than trying to spray-and-pray types, which is trying to do too many things at the same time.

And there we’ve been very, like I said, even when we had the money, we’ve been very cognizant of just taking on too many projects. So what we did with Rainmatter was that, anything adjacent to our business, we could have built it ourselves, but we said, “We’ll collaborate and do it with startups and not try to do all these moonshots ourselves.”

All these ideas, which have come through Rainmatter startups, these are all essentially our ideas which we’ve seeded into a startup. I know that if I’d taken each one of these ideas and built a business around it, Zerodha wouldn’t be what it is today, and it would not have been possible to do it with 35 people on the team.

On Rainmatter Foundation and the need to give back [53:50]

Rajan: So Nithin, maybe for the benefit of the founders, talk a little bit about Rainmatter Foundation, and I know it’s a mix of things you’re trying to do with them, but what’s the goal and how’s it going?

Nithin: Yeah, I personally think one of the big problems on the planet is concentration of wealth. So I think, as we started making more money as a business, I realized that money also brings responsibility, and I think the core team, we all realize that concentration of wealth is really one of the biggest problems on planet Earth. And eventually there’s not going to end well. At some point there’ll be a civil war or whatever. 

So, I think wherever there is concentration, I think people have to do more to give back of sorts or as our team says, “invest in the future”. So we took this decision in 2019 saying, most of our success, we’ll give back. In 2020, we started the foundation, we cut out $100 million and we said, now we’re going to invest in both not-for-profits and for-profits, working around livelihoods and creation on climate change problems.

And the way we have structured this is, any profit goes back to the foundation and it can be used to invest for the future. And there, I think after two years of doing this, we’ve come to a thesis. So, India has six lakh (0.6 million) villages, around 30,000 clusters of 20 villages. And, the goal is to make each of these clusters self-sufficient. And that’s the thing that we’ve come to, like conclusion, saying, this is really where we can have the most impact. 

How do you… Because today what happens is, each of these villages, they don’t consume, produce anything locally. Everything comes from somewhere else or what they do goes somewhere else. And so yeah, so if you can create a cluster of 20 villages, which is self-sufficient, which means they produce, they consume, the carbon footprint also reduces. Forty percent of the carbon footprint in the world actually is food moving around. So, if you can reduce food moving around, it automatically reduces carbon footprint, and it can also help create these economies in these smaller clusters.

Now the problem for all Indians living in India, I think, when you’re in Bombay, Bangalore, et cetera, you forget that 70% of India is below the poverty line. And you can really see it only when you go out of these metros. And so that’s really what we are eventually we’ve come to as a thesis. How do we make this happen? A lot of it is lobbying, because I don’t think a few thousand crores that we have allocated for this is going to help make a material impact.

It’s a lot of trying to go talk about this to government folks, trying to go to the villages, trying to talk about this. And, so we are supporting a bunch of organizations who are working in this space, like a for-profit one, we just did, we cut a big check to this—this is Akshayakalpa. What Akshayakalpa is doing [is] at the front end, it’s organic milk, but the back end, it’s trying to make a model farmer in every village. And try to get [him] to adopt better practices of agriculture, farming and dairy. And see if people around him can be influenced to do it because this guy can start making more money. If he makes more money with others, follow him as well. So yeah, so a bunch of experiments and it’s all very exciting.

Rajan: That’s great. And thanks for embarking on that mission. I think it’s super… Both interesting, but we so need it as a nation and as a world.

Choose your bets wisely and with intention [57:35] 

So the last question for you is, look, both through Rainmatter as well as, obviously your lots and lots of early-stage founders, if you were Nithin Kamath starting up, let’s say 10 years ago or 12 years ago, which is what most of our founders here are, they’re just very early in their journeys, you’ve given us lots of things to think about, but what, what would you part with, Nithin?

Nithin: Yeah, no I think, like right now where the world is, I think, I somehow feel there is volatility around the corner, and so I think if there was one thing that I think we’ve done right, apart from keeping customer first, et cetera, is not, is to do only things that… not [do] too many things at one time.

So as a business, as a founder, it’s like I also had this problem when we started, was trying to do everything, whatever possible. I think you have to prioritize, pick up one, two horses and bet on it, versus trying to bet on the stable. And I think it’s important, especially in a world where it may not be as easy to raise capital in the future as it was in the past, to not take on… because every time you take another bet, it’s more [added] cost on your books. So, do only the bare minimum in terms of the bet-taking is what I’d say.

Rajan: So keep being ruthlessly focused, try to do a few things, do them really well, as opposed to try doing many, many things.

Nithin: Yeah, I think [that’s] a better way to put that.

Mistakes early-stage founders often make [59:12]

Rajan: That’s good. Terrific. And, maybe, one just to build on that, what are some mistakes that you see early-stage founders making these days? Obviously just corollary to that would be trying to do too many things. But what are some of the other mistakes? Because you see so many, so much now, especially given Rainmatter and other things that you’re up to.

Nithin No, I think it’s just over hiring, overselling while hiring, because you, at the end of the day, a business is built by the team and if it doesn’t culturally fit together, you cannot… it’s just going to break apart at some point of time. So I think the other big problem that I see is just being stupid when hiring people, paying any amount of money to hire one person because you know that one person in turn culturally can cause conflict within your company.

And, so I think being more cognizant in terms of, just the cultural fit when hiring, and not hiring at whatever cost, and also not overselling while hiring because founders, when they identify a person, who they think is right for them, it can go to any extent to try that person on the team.

But that person, if he doesn’t culturally fit, is anyway of no use. Why even have that person in the first place, because no one person can solve this problem, because the founder is always looking for hope and the hope usually is: you hire this guy, he’ll somehow come and solve my life’s problems. It hardly ever works that way, so I think it’s very important while hiring, to make sure he’s culturally fitting into what you stand for as a business and, everything, everyone else in the company, and I see that mistake happen quite often. And, usually the outcomes are never good.

Rajan: Terrific, terrific! That’s a great way to end, Nithin. 

Nithin, thanks again for joining us. We greatly appreciate the support and I think you’re probably the best example we have in India, of building a company in a very different way, right. And hopefully, founders I think you hear about one way to build a company. I think this is a very different way to build a company. And hopefully each of you will take away at least a few things, if not many things, that you can go and apply to your business.

Nithin: Cheers. Thanks.

Rajan Anandan: Thank you, Nithin.

This transcript has been edited for clarity.