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Helping retailers scale customer loyalty Part 1 | Aneesh Reddy @ Capillary Technologies
231 Plays1 year ago
Aneesh Reddy is a rare founder who dedicated 15 years to building his startup, Capillary. With determination and some naivety, they bootstrapped Capillary and even secured funding a few years later. But the roller coaster ride was just beginning, filled with lessons from overfunding mistakes and the challenges posed by the pandemic.
For more such interesting founder journeys, subscribe to our newsletter www.founderthesis.com
Read more about Capillary Tech:-
1.What Aneesh Reddy is getting right about Capillary Technologies' push in the US
2.How customer engagement company capillary rejigged business to prepare for IPO
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Transcript
Introduction of Anish Reddy and Startup Journey
00:00:00
Speaker
I'm Anish, founder and CEO at Catlify.
00:00:15
Speaker
It's a rare opportunity to speak to a founder who has spent a decade and a half building his startup and taking it almost till the IPO stage. Anish Reddy is one such rare founder that your host Akshay Dak had the pleasure of interviewing. Anish worked for a couple of years after graduating from IIT Kharagpur and then quit his job to startup.
Challenges in Startup Development
00:00:34
Speaker
And despite being naive and clueless about how to build a business, they managed to bootstrap capillary and even managed to raise funds for it a couple of years after starting up.
00:00:44
Speaker
And while you may think that this is a happily ever after stage, the rollercoaster journey is only starting. From making mistakes due to too much fundraise to the near-death experience of the pandemic, Anish has many war stories to share and that is what makes this episode truly special. Stay tuned and subscribe to the Founder Thesis Podcast and any audio streaming app to hear the war stories of some of India's most resilient founders.
00:01:07
Speaker
A quick note for our listeners, this is a two-part episode and you are currently listening to the first part. You can access the second part on the same stream.
Influence of Early Experience on Startup Culture
00:01:25
Speaker
ITC used to be the first employer. So when I joined ITC, I thought those two years were extremely full of learning. And ITC does this thing with you and they put you in all these roles where you're absolutely not qualified for that role.
00:01:46
Speaker
So my first job was I was running maintenance for a cigarette factory. And so my average 35-member team, the average age was 53-54. I was a 21-year-old. And it was mayhem, right? And so that team actually cut me to size properly in life.
00:02:13
Speaker
So yeah, they take great care of you. I think a lot of the culture and capillary, the people's first culture, our ability to retain people for many years, I think kind of comes from ITC in a lot of senses. So I mean, ITC, the way they take care of employees and the team is just incredible. Did you meet your co-founders also there?
00:02:42
Speaker
No, actually, my co-founders went to Kharagpur with me. Krishna, who was my co-founder, used to stay in two rooms beside me at an IT, and Keke and I were also the co-founders of the entrepreneurship set. So we had Sanandhi set together as well.
00:03:06
Speaker
And then Ajay, who's our third co-founder, was right across the building in the same hostel in the other block. And then, of course, Anand Abhijit, who you met, a bunch of folks are all kalipur gang in that sense.
Start and Initial Support for the Venture
00:03:24
Speaker
How did you end up getting together, deciding to quit your jobs, to start up? This was not a time when starting up was cool. It was probably called as doing a business instead of doing a startup at that time.
00:03:44
Speaker
Yeah, a couple of funny stories there. So it was actually Krishna, who is my co-founder and my Vingi from IT. And so he was at Microsoft Research. I was in Bangalore. I was with ITC in Bangalore, right? So this...
00:04:03
Speaker
And life was very hard, right? So it was like, I sometimes look around that one year at ITCA was harder for me than this running capillary, you know, which is, because what happened was, so I was the maintenance in charge for this process plant. So there are like 50 machines in a row. If one of them stops, the whole plant stops.
00:04:24
Speaker
So you'd really have to run that place well. And we would get a maintenance downtime on Sundays. And so my Sundays were working. I would generally get into the factory at 8 in the morning, leave at 9 in the evening. So it was just like having set up the ESL and having done a bunch of stuff in Kharagpur, I was not able to answer this question of purpose.
00:04:52
Speaker
So it was, I remember it was Krishna's birthday, January 19th of 2008. We both got super drunk, you know, and I was curbing about a boss's paranormal life. And Kinky on the other hand was also in that mood. And luckily for us, I think we were probably the first generation where we didn't have to send any money home.
00:05:19
Speaker
So all the money we were making was either going into a mutual fund or getting drunk up. So it just seemed like, you know, we didn't have this big business idea. It was not like both of us had spent a lot of time and we knew what we want to do.
00:05:39
Speaker
So we went the investor way of saying, let's pick two sunrise sectors and do something in between them. And as those sectors grow, we'll grow with it, right? So we had a bunch of these McKinsey reports, which said telecom and retail are booming in India. And retail was just starting to happen, right? This was when the monobrand license was being given out, blah, blah, blah. So pick those two sectors. Monobrand license, sorry.
00:06:05
Speaker
So retail till 2005-06 in India was a licensed business, right? So in 2006 or 2007, I think the government said, if you're a Levi's or if you're a large mono brand, Benetton or Puma, you can open your own stores.
00:06:24
Speaker
Okay. So Walmart can't open because it's multi-brand, but Levi's can open because it has its own brand basically. So brands can open stores basically. Yeah. And that's kind of how actually retail started off, right? And then Walmart came and did a tie-up with Bharti and someone else came and did a tie-up with someone else. You build on the backend, you run the front-end. So we have the supply chain guys, you have the retail guys, all that stuff, right?
00:06:48
Speaker
So that was one sector that we picked. The other sector we picked was the mobile storey, you know, that. So with that, went back to the same ESL we started. And we started the ESL with two things we did differently.
Initial Product Development and Client Acquisition
00:07:04
Speaker
One was, you know, we got a corpus of about five crores from DST, which the Dean Srik, Dean of the Sponsor Research Cell, had really got that five crores for this ESL.
00:07:16
Speaker
What is the department of science and technology? Science and technology. So he got a five crore grant where the first 100 startups from Kharagpur would get between five to 15 lakhs to start up. Wow. Okay. You were spare hitting this, getting this grant and all that, like the process around that.
00:07:42
Speaker
I mean, he did most of the heavy lifting, to be honest. The way the ESL got formed was most student stuff happens under the Gymkhana in all educational institutes, all IITs. We knew that Gymkhana has no money and has no clue about all this. So we went to the sponsor research cell. So the ESL actually in Kharagpur is run under the sponsor research cell.
00:08:02
Speaker
very unique structure like you won't find that anywhere else and when we went to him and said look we want to set up the z-cell we wanted to do this stuff and you know we couldn't do this hobby kits thing he then said okay like sounds like a good idea let me see if i can get some money from somewhere for you guys right so so with two things we did very different so one was this five crore grant
00:08:25
Speaker
The second was, we said, if anyone starts out within two years of leaving Kharagpur and their startup fails, you can come back and set up for placements again. And the second thing worked out beautifully because that was how I convinced my dad that he was going to do something like that.
00:08:50
Speaker
You know, so went back to the sale, got a 15 lakh seed loan. It used to be a loan where if the company did well, you had to pay it back. If the company didn't go well, then you write it off. But Kharagpur, IIT got like 4% of the company. So they sold half of it for a million dollars plus now. So the IITs made significant money. They also continued to own a small half a percent and capital even now.
00:09:19
Speaker
So that was kind of how it started, right? So got some money, got some interns from Kharagpur to build a beta product. Both of us, because we didn't know what to build, we spent the first six months just meeting everyone we knew in retail, everyone we knew in the mobile world and asking them, look, two kids from IIT, we can build good software. Tell us what you want us to build, right? For our luck. I think it was the software guy. You were not a software guy, right?
00:09:46
Speaker
Krishna was a software guy, KK. KK was, KK was Institute Rank 2 or Institute Rank 3 on campus. The joke on campus used to be that KK can dive faster, can code faster than we can dive. So this was, so we started off on, we incorporated on August 11th of 2008. So the reason that it was important. This was on the side with ITC or you quit your jobs?
00:10:17
Speaker
We quit our jobs, right? So KK was on a two-year contract with Microsoft Research, so that ended in August. I walked in into my process chamber and told him, look, I'm quitting. By then, I moved to Calcutta. I was in the head office, Virginia house then. So I walked in, I think this was end of July or early August, and I told him, look, I want to go. And he said, look, nothing going like what started one up and I'll continue here, right?
00:10:47
Speaker
By the way, Sanjeev Brangraas was a very prolific angel. A lot of the ITC mafia kind of all took money from Sanjeev. So he actually took three, four days to sit me down and say, this is like a societal decision. Don't do it.
00:11:08
Speaker
Okay. You were probably the one who changed his mind about future employees who would have come to him saying, I want to quit to start up. Oh yeah. In fact, he made me serve the entire three month notice period. So August 11th, we founded September 11th Lehman Brothers tank. This was 2008,
Innovation in Customer Data and Revenue Generation
00:11:28
Speaker
if you remember.
00:11:30
Speaker
Most opportune time to start up, stock markets were down. So retail in India just follows the stock markets. If the mood is good, sales are good. If the moods are bad, sales are bad. So as a net result, when we were going and speaking to a lot of these guys in retail saying, look, so you would actually go into a mall, go store to store and ask them, look, what should we build for you?
00:11:59
Speaker
And a bunch of them would connect us to their head office. A bunch of them would be owners in stores just telling us, look, how business is, all that stuff, right? So luckily for us, given the Lehman Brothers tanking and the stock market's tanking and retail sales down, a lot of these folks told us, look, our customers aren't coming back to stores. If you bring customers back to stores, we'll pay for it.
00:12:25
Speaker
And so our next question was, do you know who your customers are? To which most of these guys would answer, they'd look like, no, we don't know. I mean, retail was to be the trader mindset, right? And so they would say, look, no, we don't have a customer database. Very few would have. Those who would have would be running a loyalty program. And they would say, look,
00:12:48
Speaker
Customers don't want to fill this long form. They don't want to carry the card. Even if they carry the card, they come back and say, I lost the card. So it seemed like that whole, we met about 50 people between August to, I'd say, December of 2008. At least 30 of them said this was a problem that needed a solve for.
00:13:13
Speaker
And so that's how we fell into the whole customer loyalty and engagement space. It was also the recession. So no one wanted to pay us. Back then, if you remember, the model was license offered. You would charge a fee. You would charge a fee of 20%. So a bunch of these guys told us, look, we can't buy servers to install your software.
00:13:42
Speaker
neither can we pay you anything upfront. There are these marketing agencies who work for us who charges a monthly fee. So, you know, you charge us something per month, per store that you work with us and you know, we'll pay that. Right. So, and again, unproven startup. So no one wanted to give you the whole estate. Let's say we, two stores, five stores, try it out. Right. So what kind of brands was this?
00:14:07
Speaker
So our first customer was really a future group. They had this company in Bangalore called Indus League, which is, you know, scholars and indigo nation and I mean, brands which don't exist now, we all know what happened in the future. So, but back then they were kind of at the peak, right? So that was our first customer. Our second customer was Madra Gammand, you know, which is article of fashion now.
00:14:33
Speaker
So actually, the mass brands, which is people and Peter England there, we were this. So what we did, Akshay was we said, look, you don't need to fill a form. We'll have a small software that sits on the billing computer. It will pull out data from the POS that wanted this customer by. It shows to the cashier saying, enter the name and mobile number. When you go into a lot of retail stores now in India, people ask you, name, mobile number, and then the billing starts. So that was what we decided. And not the name is just number.
00:15:03
Speaker
Typically in our case you also take the name but if there is a queue behind you they skip that. So name mobile number and you move forward. So the advantage was if 10% of customers phrase that form.
00:15:17
Speaker
Here, 85-90% of people sign up very quickly. It's mobile numbers, so you can't get it wrong. 0.5% you get it wrong, but 99.5% you type it right. Because it's a mobile number, I can drop an OTP like a bank and use that for any coupons or offers or exemptions.
00:15:40
Speaker
or stuff like that. So that was really the basic use case which we started back then. So these two guys, I remember the conversation with the lady at Indus League. She said, look, can't buy software. We don't have money. Can't buy a server.
00:16:03
Speaker
Luckily for us, that meant we used, actually my credit card, we used the credit card to buy some space on Amazon. And that's how we started. So you've always been on the cloud from day one. Luckily, we didn't have to go through that headache of going from on-premise to... The second advantage was this recurring revenue type model. We had not heard of Salesforce or SaaS or any of that stuff back then. So it was just a...
00:16:33
Speaker
Because our customers weren't willing to give us all the stores, we said, okay, we'll charge you like $50 a store a month. And that's kind of how the business started.
00:16:45
Speaker
So this would need you to create a billing software of your own or were the existing billing softwares, did they have API integration available in it so that you could reside within the existing billing softwares that companies used?
00:17:06
Speaker
Actually, that's a very, very good question. I must say, I like, so back then, I mean, this is 2000, 2008, so no APIs and all is like more 10 years old, right? Yeah, yeah, yeah. And it actually happened in the last seven years, six, seven years, I would say, like, back then, there was no, no building software would have APIs and all that stuff, right? So, so what we did was we had this screengram software,
00:17:35
Speaker
Oh wow, okay. So when the store guy would, when the customer walked in, the guy would scan all this stuff. So the billing software, so he would stop at the screen where he's going to submit the bill, right? Then he would press a key on our screen, like control all delay, control all Z. I think it was control all Z or something. We had one key that guy had to press.
00:18:00
Speaker
At that time, we would capture the screen. And on the screen, you have the billing amount, you have what this guy's bought, all that stuff. So we would kind of screen grab that, read it out, do a regex. And then our screen would come up with saying, it doesn't even have mobile number. So it was a total hack with which we
00:18:23
Speaker
So, essentially this would be on the screen where you already had all the items that the customer has bought, the discount, the bill value. So, at that point our screen would come up, it would screen grab, it would kind of read one of our libraries which was printing to the device, to the monitor.
Scaling, Revenue Models, and Financial Survival
00:18:43
Speaker
And pull out saying, you know, 300 rupees, 20% discount, these three items is what the customer has bought, right? So you kind of get the bill level value. And our screen would come up, then the staff had to just enter the name and mobile number.
00:18:58
Speaker
and the radio button saying agent gender, right? So, agent gender. And that's actually pretty much 90% of what data you need to run a good CRM, right? So, yeah, so it was an API-less world, but our hack to it was this screen-graph type thing.
00:19:20
Speaker
So, in fact, one of our first customers, this was increasing at, I mean, like, increasing was the CIO at Athibula Fashion. Very nice guy, amazing guy. Let's go. And so, but we would sell to business, right? We would go tell the business guy that, look, we'll increase sales or we'll help you with the CRM. We didn't know about this whole CIO structure and these large organizations, all that stuff.
00:19:44
Speaker
So it was Altimala group. And so they signed up saying, same thing. People, two stores go to it. Peter England, five stores go to it. And of course, we didn't know all this ITR and MIT guy. So we would walk into a store. The operations guys would have called the store guy and said, someone's going to come to install something. Let him install.
00:20:06
Speaker
So we would install that R piece of software there. And so this ran like this for about six months there. Then suddenly one day we got a call from Mr. N. P. Singh's office, who was the CIO. So he called us in. He was furious. Obviously, you literally walked into these doors and installed the piece of software. And you're basically collecting customer data. And his R doesn't know about it.
00:20:34
Speaker
So he actually, he's a great supporter now. Athibula Fashion is one of our top 10 customers. Even now, more than a million dollars in here is what they end up paying us. He took us from just those brands to all the fashion brands, then to pantloons, then to more. For the first time we met him, he said, look, boss, you're like viruses. You just came in. He installed your sets on our system. And then you keep sending data out.
00:21:11
Speaker
Were these servers working on the internet? Like they were internet connected.
00:21:17
Speaker
Oh yeah, they were internet connected. If not real time, they would send data once a day in the evening and we built our software also that way. If you were real time, then we would send you real time. If you were once a day, we would send once a day. But that way, I think the advantage of Indian retail was because these were new stores and because
00:21:38
Speaker
It was just happening. I think tech-wise, they're much better than what we later saw in the US or UK, where oh my god, it's like really archaic store systems.
00:21:54
Speaker
Okay, interesting. And so that is one part of data in. You also need to run engagement activities to get the customers back and then you need to show some evidence to your customer that you're generating return on what he's paying you. How did you do those things?
00:22:14
Speaker
You know, so I think that's a very good question actually. So look, I think back then we were told people won't pay for software in India and you know, all that stuff, right? They were treating you like a marketing agency. So obviously they were not looking at you as a software player. They were looking at you as someone who will get them all business.
00:22:35
Speaker
Yeah, right. So what we ended up doing was now, and we were signing up pilots, right? Two stores, five stores. So only if it worked when you, like, so the model was, we were kind of, if 80% of your customers signed up to the program.
00:22:54
Speaker
And whenever we ran a campaign, whether it was email, SMS, a print at the end of the bill, whatever, you would see three, 4% addemptions. So typically it would end up being a 3% to 5% increase in sales for the brand. And 3% to 5% increase in sales for the brand is a very good number. So that kind of became our selling pitch. We would go in and say, look,
00:23:17
Speaker
Try it out for three months. The first two months is to build the database by the third month. And you do a lot of this real time. So if you went in and bought only into formal shirts, I would give you a coupon of a jeans right then or a trouser right then.
00:23:32
Speaker
And the idea was that most brands want you to buy one more item in the store. Next time you come back to them will only be three months later. So if I'm able to give you a 10% off and get you to buy something more, that's like clean extra margin. So typically a lot of these guys would end up seeing easy five to 10 times ROI on margins on what they were spending on us. So our pilots converted to like follow-alouds like very, very quickly.
00:24:01
Speaker
Because they were making money, it was a pay as you go type model, very quickly you would see these guys saying, hey, why don't you roll out the most of ours?
00:24:10
Speaker
So it was really an ROI line cell which made us, otherwise I think if it was a quality line cell or something else, I don't think we would have made it through those first few years. So how did you give a coupon on the printed bill? Like you were integrated with the billing software to add a line at the end of the bill which was getting printed out?
00:24:40
Speaker
So we do one of two things. One is we would send you an SMS in real time saying, look, here is a coupon code you can use in the store. The cashier would also tell you. We would show it to the cashier saying, for this customer, we've given a jeans offer. For this customer, we've given a trouser offer. He wouldn't know the code to actually do the redemption, but he would know that. So he would also prompt you saying, sir, you bought two shirts.
00:25:04
Speaker
You know, only for you we have this offer on a jeans today, right? So, and in some cases, you know, where the printer was accessible through the OS, you know, and the POS was not locking it. Some POSs lock POS, they'll lock. We would print out like an additional coupon, right? So you print, you cut the paper and then it's like,
00:25:27
Speaker
How did you read the items, the SKUs? You would have to read the SKU that this is a shirt and we should therefore offer a coupon for a pant. How did you build that intelligence? On the screen, you would have the SKU code because that's what is going to get printed, et cetera, et cetera. When we started with that customer, we would get their product masters
00:25:56
Speaker
You know, so you kind of hence knew the product master unit escape code. So the rest is like simple logic, right? Okay. So, and this was like a reasonably quick part to cash. Like, like it was not like you had to invest a lot in building a product before you could start seeing cash flows come in. Like it was not something which you needed to do like a lot of fundraise for to at least in the initial days.
00:26:26
Speaker
Sorry. Yeah, you know, I told you, right? I had my co-founder or someone who could type faster than you could, sorry, code faster than we could type. And Kinky had this thing that he was like, I would abuse his skills totally. So he was pretty sure that we would write a piece of code only after a couple of customers signed up. So our first product was really a PPT, which we would go on and tell people this is what we wanted to.
00:26:54
Speaker
And as I told you, we raised that 15 lakh seed lawn from IIT. And both of us in general had a very good name on campus. You were generally regarded as these good kids, honest people, going to take you for a ride, right folks. So our first product was built by five interns in Kharagpur.
00:27:16
Speaker
And this was final years or 30 years. We would pay them 5,000 rupees of stipend a month. This was 2008. You could live a king's life in 5,000 rupees. My whole semester's pocket money was 4,000 rupees.
00:27:35
Speaker
We were paying these guys 5000 rupees. So I think that all those five guys either run a startup themselves now, very well funded, or are very senior guys in a Google or a Microsoft.
00:27:51
Speaker
So, we started writing our first line of code only after Future signed. I still have that agreement that they signed, right? 2000 rupees per store. When did you guys start taking salary?
International Expansion and Challenges
00:28:07
Speaker
That's a good question. So, one thing we did, Akshay was between Krishna and me,
00:28:13
Speaker
we told ourselves and look we didn't want to take a lifestyle cut you know and all that so we said look for two years we won't be able to make any money so at least let's save that much up before we start up
00:28:28
Speaker
So back then, you know, ITC used to pay some six and a half, seven lakhs a year. So in those two years I had saved up some six and a half lakhs, 50% of what I had saved up. Krishna also, I think it was eight lakhs was what Microsoft Research paid. These were different days, right? They were the best salaries on campus, but that was what you got.
00:28:50
Speaker
So I think for a good 18 months, I don't think either of us paid salaries to ourselves. So yeah, 18, 24 months. So like by the time you were able to pay yourself salaries, what kind of monthly revenue were you doing? Like 18, 24 months down the line? Yeah, so we started in August. So the first year of revenues was someone like, forget it, tribes, revenues, right? So barely anything.
00:29:21
Speaker
The second year, which was 2009, we did 44 lakhs in revenues for the full year. I think when we started paying ourselves salaries, we were probably doing about 10 lakhs a month. I remember we were paying ourselves some 25,000 rupees a month in salaries back then.
00:29:47
Speaker
Your cost would have been maybe a salary of some tech folks, the server costs and some sort of sales and marketing costs to get more clients in. Correct, correct. So it was largely that 15 lakhs that we raised from IIT lasted us from August of 2008 all the way up to January of 2010.
00:30:14
Speaker
Well, okay. That and the one lakh credit card limit.
00:30:25
Speaker
So, you did raise your first round towards the end of 2009. So, what was the need to raise? Did you want to invest in more tech to grow faster? Tell me about that, the first institutional fundraise that you did.
00:30:50
Speaker
See look, I think we didn't, to be honest with you, we didn't come from the world of, we were two kids who were having fun.
00:30:58
Speaker
And when we started capillary up also, at least my goal was saying, look, let's make the same money. Let us be able to pay ourselves salaries and have fun. That was the basic premise. So actually, angel investments happened to us. We weren't looking for it. In fact, most of the money we have raised happened to us. We weren't looking for it.
00:31:23
Speaker
So we were actually more focused on saying, look, let's build a business. If you remember, 2009 was another worst hiring season ever, because deep recession, subprime, this and that.
00:31:41
Speaker
And we would go to bits and we would go to some of these colleges and get people at 20,000 rupees a month here. Brilliant people. A few of them are actually, I mean, have gone on to found unicorns and stuff like that now. But it was just a time, right? And we would stay on the first floor of the house. This is a bungalow and BTM layout.
00:32:08
Speaker
All of us would stay on the first floor, eight, nine of us. The ground floor is where we would work. It was great. That building had a nice coconut tree and a great rooftop. We'd all go sit and have a beer together in the evening. It was amazing times. Those were like your garage days. Yeah, it was kind of like the garage days.
00:32:32
Speaker
Yeah, so what happened with us was we started in Calcutta. We didn't start in Bangalore. And we realized that in Calcutta, people won't pay money for anything. And our first couple of customers went Bangalore. So we moved to Bangalore in June of 2009. And Bangalore has a great ecosystem. And I'm very grateful that it does.
00:33:00
Speaker
So we then started attending some of these, you know, back then Head Start used to be a big open coffee club and Head Start were the two watering holes for entrepreneurs back then, right? So, and there was one of these Head Start events where it would be Saturday morning ritual, go to a thing, right? So, and I think the Karthi who used to run Qualcomm ventures at that point in time,
00:33:27
Speaker
came as a speaker in one of those head starts, launching this Qualcomm Q price thing globally. And he was basically there to invite startups to participate. And the next day, that Sunday was the deadline to sign your PPT. So it was a 50 lakh cash price. 50 lakhs is a lot of money. Back then, not now.
00:33:56
Speaker
And where they would get some convertible for 50 lakhs and stuff. So he spoke about that serendipity. We were there that day. So he made some very quick deck, quick and dirty deck, and sent it to whatever applied. So I think this was August of 2009.
00:34:21
Speaker
September was when they shortlisted. We went on the last 10 that they wanted to go deep on. There was a presentation and then
00:34:34
Speaker
we were luckily the only guys who are making money in that thing. You know, because our model was this 2000 rupees by the way, something not. So we were at a one like, I remember we were at one like in monthly revenues at that point in time, we had future group and ultimate group as customers. And it's not the two biggest brands in India, basically at that point in time. So I think you could see the pricing model was this first store. It was growing. Uh, and we ended up winning a Q price.
00:35:04
Speaker
So we ended up winning Q price. So that was like 50 lags. And Qualcomm then did this good thing of doing a lot of PR, right? First time they were doing Q price and they did a lot of PR. So suddenly we had a lot of people approaching us saying, hey, we want to invest.
00:35:22
Speaker
And then Qualcomm also did this thing of taking us to the US for the global Q-Price thing. We came second globally there. That made us meet a bunch of other angels in the US. As a net result, one thing happened after the other, and we ended up raising a half a million dollar round in January of 2010.
00:35:48
Speaker
You know, it was a three and a half, three million, three half a million dollar round. Till then, you know, all the VCs we had met was still at the camp of saying,
00:36:00
Speaker
No one will pay for software in India. These guys are wasting their time. Although we met a few VCs by then, but none of them had really put in any money as yet. So how did that half a million change your trajectory? What happened after that, once you won the Q prize and got that money in?
00:36:26
Speaker
I thought it helped in a few places. It definitely changed the trajectory of the company. So one is we then started really investing in tech. Till then, it was still this internal model, a few people from here there. The second was it finally gave us some money to also go travel, meet more customers. So till then, I remember 2009,
00:36:54
Speaker
For the first four years of capillary, you know, it's just another eight through 2012, I actually didn't have a house for it because I would stay at my friends' places, at IIT Kharagpur friends' places in all these cities. We never booked a hotel room, right? So it was just extremely frugal. Like I remember even in Delhi, if I had to go from Gurgaon to Delhi, I would take one of those share-and-daughters
00:37:19
Speaker
So it was like a real frugal, right? Real, real frugal. It was a lot of fun. But all I would do is take one bottle of alcohol when I had to burn someone's house.
00:37:35
Speaker
So the way it changed for us is hiring improved greatly. We were a well-funded startup now. We definitely, we then realized that there were more people like Anish and Keke who were wanting to do more than their corporate jobs. That was kind of our hunting ground.
00:37:58
Speaker
So we would go smell out people like us from a Yahoo, from an article, from a PNG, you know, who were willing to move and work with us. So other than both of us and Anand, who is my co-founder now, no one else came on a salary curtain capillity.
00:38:20
Speaker
You know, I mean, if you remember these were days when starting up was like my dad, this is a story I think is very funny. For the first three years, he would, we would go to a marriage or we'd go to a party. My dad would tell them he still had ITC only. So there was this, I keep joking around with him that
00:38:44
Speaker
I think the joke was that he didn't understand the difference between self-employed and unemployed. Yeah, true. So we were able to pay salaries now. So we could match like a Yahoo salary, which was, by the way, not very much then. It was 7 lakhs. A PNG salary, which was, of course, Anand came at a discount. We could pay him only 5. He was at 10 lakhs.
00:39:13
Speaker
Why were you hiding from TNG for doing sales? Sales, operations, things like that. In fact, I remember Karthi had to speak to someone's father-in-law
00:39:32
Speaker
Karthi was our investor from Qualcomm. He was on the board back then. He actually, I requested him, you know, can you speak to these guys? And he wants to hire this guy and his father-in-law wants to speak to him. You know, he was like, yeah, okay, we're Qualcomm, we'll fund, you know, we are going to back these guys, that guy joined. I remember another match point of mine from IIT, one of the other co-founders of the cell.
00:40:00
Speaker
Three days before joining, he called up saying, hey, my mom is not wanting me to join. His reason was my value in the Tamil marriage market will fall. He actually didn't end up joining. He didn't end up joining. It was quite a grind to get people, good people to join. And this three and a half million definitely helped that.
00:40:28
Speaker
And what about the product? It stayed the same or how did the product evolve? Yes, the product evolved a fair bit. I think we initially only had a browser-based thing. We then went into actually adding in-store client, something that sits in the store and then come and gets to the cloud.
00:40:51
Speaker
We also added the campaign tool on top so that the campaign running could be automated. We added a small bunch of reports. So yeah, the product evolved a fair bit, I would say. But I must say a lot of the money, unfortunately in India, because people take like three months to pay, a lot of the money really just went into working capital.
Strategic Retrenchment and Focus Shift
00:41:18
Speaker
The second year from 44 lines, we grew to three and a half crores in revenues. And I think we basically consumed a lot of money as just working after in that process. And how did you grow to three and a half crores? This is like an 8x jump. This was through more clients or existing clients, more outlets.
00:41:50
Speaker
We had a model which scaled as you added more stores. I used to be the struggling sales guy. I would spend two days in Bombay, two days in Delhi, two days in Bangalore, that kind of stuff. And given we had an ROI model, our sales pitch was a very simple one.
00:42:10
Speaker
that look, your downside is protected. You're running a pilot at 15,000 rupees. So your downside is protected. And if this works, you have an upside of 45% additional revenue for yourselves.
00:42:25
Speaker
So that would be our cookie cutter pitch. We would go into a meeting and tell the guy, look, here is how this works. This is the math. This is, by the way, work for all these guys. Do you want to pilot? So you would not even try selling a full thing. We would just say, look, a pilot, and then it would work for itself. So that was the original scaling model. But you were still largely India focused.
00:42:55
Speaker
Yeah, until 2011, we were only India focused. Our first international revenues came in only in like October, November of 2011. So what made you want to go global? This 2011 is when you did three and a half CRs.
00:43:14
Speaker
Yeah, so 2010, which was, let's say 2009, 2010 was 44 lakhs. 2010, 11 was that three and a half crores, right? So, 10, 11 was just three and a half crores. Yeah, 10, 11 was three and a half crores. So, at that point in time, we were already working with the Puma Pizza Hut and some of these large multinationals, right?
00:43:40
Speaker
And actually, the Puma and the Pizza Hut guys said, look, can you solve the same problem for us in Singapore? So we had another customer we were pitching to in the Middle East who also had a business in Singapore. I mean, it was all through connections. A lot of serendipity there. And the same solution would work, right? We were essentially doing a consumer CRM.
00:44:08
Speaker
using loyalty as a base to collect data. And so that's how really Singapore opened for us. So Anand, who was then running ops for us in India, running sales and ops. And then another friend, another vignee of mine, Lalit, joined. And both of them moved to Singapore to set up the Singapore office, Pizzar and Kumar being the first couple of customers there.
00:44:37
Speaker
So yeah, so our customers took us out. Now once this happened, it's when people, I think the VC community started making up that look, hey, this is an international story, it's not just Asia.
00:44:53
Speaker
I think the next year we went from some three and a half to I think roughly about 10 crores if I'm not wrong, 10, 11 crores in revenues. That was when Sequoia and Norwest and all of them came in and did our series A. About $15 million series A.
00:45:15
Speaker
Sixteen and a half million. You know, back then, series A's used to be like one million, half million, five million, not even five, actually it was one, two million, right? And we got 16 and a half. Out of that four and a half million were secondaries for the team, the founders, the early angels, and 12 million came into the company. Yeah, I was,
00:45:42
Speaker
I remember at that point in time when we got the term sheet, we were at 1.3 crores of revenues a month. We were burning exactly five lakhs a month. We were burning five lakhs a month. But of course, the working capital side, when I'm saying burn was more emitter burn, and we got a term sheet to raise 60 crores, which is technically 100 years of burn.
00:46:15
Speaker
And each of us made more money than we thought we'd ever make in life because of the second reads. So it was just amazing. Your father must have stopped saying you're still with ITC.
00:46:29
Speaker
I still remember. Even in 2011, 12, my dad sat way down and said, it's time to go to an MBA at Harvard. Right, right, right. So then after this, what next? Like this again must have been one of those moments where like an inflection point for the company's journey, the series A. Tell me like the journey after this.
00:46:57
Speaker
Yes, I think this is where we kind of messed up a little bit. I think the first four years of the company was just an amazing breeze. So we were working on the best brands, the best employees. And this was kind of when two kids in a candy store. So like, KK, me and Jay, all of us. And we suddenly had a lot of money in life.
00:47:27
Speaker
And I don't think we did the right things then. Until then, it was a nice business. It was India and Singapore. We had a small office in Dubai. No customers as yet. But just starting up in Dubai in that sense. We had a lot of money. And a lot of people said, look, hey, but India won't buy. You can't scale Asia. You should do the US.
00:47:53
Speaker
So, and go more international. So that year we entered up opening offices in Australia, Hong Kong, South Africa, UK, US. You know, we kind of blew up 100 years of runway in 18 months. Oh, wow. Okay. Okay.
00:48:13
Speaker
You know, I didn't scale absolutely the wrong way. We were about, I think we must have been 60, 70, 80 people at that point in time with this 10 cross the revenue. We grew to 400 people in 18 months. We stretched everyone thin. We killed people. It was
Restructuring and Surviving the Pandemic
00:48:32
Speaker
very bad. It was very bad. What was, I mean, what would you have done differently with the wisdom of hindsight?
00:48:42
Speaker
I would have picked one market and gone deep. I would have probably just picked the US and go. In hindsight, we did 10 markets, right? So we really stretched what was running like a good machine. It was growing very well. It was running very well. We took all those players, put them in different markets. We sent a few people to Australia. We sent a few people to
00:49:08
Speaker
Middle East, we sent a bunch to UK, we sent a bunch to the US. And of course, this was a small company. Our software was okay, but it was not built for... We didn't understand anything about tech debt back then that you need to rewrite your software every few years.
00:49:30
Speaker
We're trying to get into scale. It was not a self-service also, I'm guessing. Every customer would have its own unique journey of integration. To onboard a customer, there would be some sort of technical work which would need to be done to make it work in their systems and stuff like that.
00:49:49
Speaker
couple of months of work but beyond that it was that the stores had to input right you couldn't stand at the store and use the software the store had to do it right so at least that point so by then I think we had almost like 10,000 stores which were using our software right so
00:50:04
Speaker
And we were still a cloud software, you know, cloud and then this client in the store, right? And this was autopilot, like the owner of the business did not need to run any campaigns or anything. All of those campaigns were happening in the backend algorithm. That was the non-self-service part, right? So we would have a team of
00:50:26
Speaker
For every 10 customers, we had one smart kid, one smart guy, who would kind of tell them, look, hey, you should run this, you should run that. And in most cases, people would say, OK, can you run it for us? It was easier to run it, so you would just run it. So that was the part that was not self-service. I think what we were doing, really, Akshay, was we were creating this space called CRM for retail.
00:50:52
Speaker
Now, if you look at most of our customers, have a CRM manager who's trained on our tool, is certified on our tool. But back then, they didn't have an account. They don't have a marketing guy at best. So as we started becoming large for them is when they started investing in a loyalty team or in a CRM team.
00:51:12
Speaker
But yeah, so we blew up all that money in short over the next, we kind of grew from this, Asia grew very well, US didn't at that point in time. So in fact, the one good thing that happened with us in that failed experiment in the US and UK,
00:51:34
Speaker
was the quality of a product moved up like 10x. So that happened. We almost ran out of money at that point in time. Was it like a high stress, can't pay payroll next month kind of a situation? Or you had enough investor interest for raising another round when you were running out of money?
00:52:03
Speaker
Yeah, so in our case, we've come to not having 15 days of money in the bank at least five times over the last many years. And needless to say, those are extremely high stress
00:52:24
Speaker
I must say that we've never missed paying salaries on time till now. Timefully something or the other worked out and a bunch of angel rounds ended up happening on time. The Qualcomm thing ended up happening, this, that.
00:52:45
Speaker
We've been extremely lucky as a company actually. I think that 50% of luck part really played out for us over the years, time and again.
00:53:03
Speaker
Of course, when we were running out of this money piece, so the Asia business had grown very well. It grew from this $2 million when Sequoia Norwest came into a $6 million recurring revenue business. So that growth was there. You could see the growth. But we were also burning a million dollars a month. So you were a burning train. You were really burning money.
00:53:30
Speaker
Most of the burn was in UK, US. We were probably burning 600k there with barely any revenues. 600, 700k there with barely any revenues. We were burning a little bit in Asia as well, let's say 200k and then there was working capital.
00:53:49
Speaker
So the hard call was, I think it was a stupid call. Now, 10 years later, I can look back and say, hey, what a mistake. But it seemed like the easier choice then to just shut US, UK and just double down on Asia. So we did that. But you had no choice also, right? Because you were running out of money to continue to run US, UK, needed a lot more money.
00:54:17
Speaker
Yeah, but there were other ways to do it. I think we could have figured a way in which we downsized the US, kept it going for a little longer. But as a result, KK Ho was based in the US. He didn't want to come back. He was in the Valley. So he moved on. Ajay Ho was my other co-founder at that point in time.
00:54:40
Speaker
Like the stress was just too much and he was running India for less than India as an extremely high stress customer cohort and all that. So he burnt out. So two co-founders moved on.
00:54:53
Speaker
Luckily, some of the folks who gave me a term sheet in our series A was this crazy $16.5 million round. We had three more term sheets which we didn't honor in that series A. We had five term sheets in total, so two converted, two got together and converted. Went back to one of them.
00:55:15
Speaker
And they were pretty keen to do something. So water turned out very quickly. But by then, Sequoian and August also were keen to do something. So we just took money from them, plowed through. So that was 2014, I think.
00:55:38
Speaker
That must have been a time when you would have been questioning yourself also. Both your co-founders, in a way, moved on. The direction you decided to take did not seem to be working at the time. How did you get through that moment?
00:55:59
Speaker
So actually, you know, I think what was logical, right, which was invest money in the Asia business, cut all these other markets out. So that actually got us to a great place in the next 12-13 months. So, you know, the business was growing at 50-60% with our 10% of our dollars.
00:56:19
Speaker
So, it really got into shape in some senses but of course you have, you know when you are in the dumps you fight.
00:56:32
Speaker
At that point in time, I just had Ananth, who has been with me for all the years now. He joined us in 2010, BNG and a bunch of stuff. So there were a lot of folks who stayed back, Abhijit. We were lucky to have the talent that we had.
00:56:56
Speaker
And, of course, I was really, that was the first time I was down. So my wife, she's a big yoga practitioner. She's amazing at yoga. So she, towards the end of December, she said, look, I think I want to do this yoga course. Let's go to Rishigesh. So both of us went for, I think that was my first two week break.
00:57:23
Speaker
In capillary, this 2014 end, we went to Rishikesh, we were staying at this ashram type place where we had yoga and then an hour of meditation in the evening.
00:57:35
Speaker
I think that's when I really started getting into the whole meditation and taking care of yourself a little bit more. That was 2014. That two week break must have helped you. Distance helps you see the big picture a bit better, I guess.
00:57:56
Speaker
Absolutely right. So by then, one was of course the two co-founders moving. We then raised money, the team continued. We were seeing growth. I think in 2014 or 20, around that time is when we won our first million dollar revenue customer. So million dollar contract worth three years. So it's nothing in the business.
00:58:19
Speaker
This was a customer in Southeast Asia called Quartz. They let's say the Chroma equivalent of Singapore. So, stuff was happening. There was that momentum in the business.
00:58:34
Speaker
We were the first few guys who crossed like 5 million in ERR in this part of the world. There's Zoho, there's everyone else. So there was stuff happening in the business, right? So you could see the, but there was also this whole big set of VCs, especially VCs, investors.
00:58:57
Speaker
They couldn't sell in the US, they shut the US down. So how large can this business be? And of course, when you sit from a distance, then you also start believing Kia Matlab fight. So that's when we did this thing of saying, okay, let's build a retail tech play. Let's do multi-product.
00:59:20
Speaker
In in retail e-commerce was just going through the roof at that point in time, right? This is 2014 15 And a lot of these customers would come to us and say what should we do on e-commerce? Right? So did you also restart us after the war background?
00:59:36
Speaker
No, we didn't. So that was cold hardiness. I was convinced that you could build a large business in Asia, which I'm not convinced now. So I did have this. This is baggage. I did have baggage for many, many years. And I justify saying, look, hey, but what kind do we have in the US and all that stuff?
00:59:59
Speaker
So only in 2020 when COVID hit, you know, COVID hit, by then the business had thrown, you know, we were at 30-32 million, up from 8 million when Robert came in, all issue revenues.
01:00:15
Speaker
At a break even again, we broke even in the January-March quarter of 2020. How did you fix that? You were at 100% debit loss. How did you fix it? It was just through revenue growth that it got fixed? No, no. We were 1,000 people at that point in time. This was what came in 2016-ish.
01:00:40
Speaker
2018 and was when we were at this growing at 20 to 23 percent and at a 100 percent amount of loss actually I think 70 percent amount of loss right so and so obviously you know at that point in time
01:01:01
Speaker
very thin on cash, very, very thin on cash. And we realized that our sales and marketing scale up didn't work. And in the belief that the sales and marketing scale up would work, we also hired local implementation teams in KL, Singapore, Malaysia, Dubai, everywhere, wherever you can think of. And so it was 1,000 people company at that point in time.
01:01:30
Speaker
This was, I think, Jan of 2019. All our investors looked around and said, boss, carry it. It was retail heavy. 87% of revenues were retail. We had some small customers and other verticals. So what other verticals did you start?
01:01:57
Speaker
You know, we had a few customers and consumer goods, one or two, we had just started to figure large groups. CRM for like a consumer, like a Unilever would need a CRM. I mean, why would they need a CRM?
01:02:12
Speaker
So we work in GSK, right? We in fact work with GSK now where it was a loyalty program for the small retailer. Okay, like the Kirana relationships. Correct, like the Kirana relationships. So you are engaging the Kirana store owners in the same way, like giving them coupons and offers and so on. Yeah, I mean, slightly different use case, but something similar, right?
01:02:41
Speaker
So, that was there. We had signed up with hotels, you know, Royal Orchid, a couple of them. So, just started to get out of this whole retail thing. This was 20, early
01:02:55
Speaker
So, the company was verified, we were 1000 people at that point in time, 100 people in sales and marketing, 400 people, 450 people in customer success and implementations. Rather than running all those functions from Bangalore, we were running them from each country, right? So, which kind of just made it really fast.
01:03:18
Speaker
So, 2019 is when we really re-engineered the business, the calendar year of 19. We went down from, we said, let's look at what's working in the business, right? So, large enterprise was working, mid-market SMB was not working. We were spending way too much time on them, way too much money, sales efficiencies weren't there.
01:03:41
Speaker
Payment cycles were very large with those guys, right? So took that call to say, look, let's cut mid market and SMB out. Let's just focus on large enterprise. So mid market would be like somebody who would have like stores in one city, like a single city retail chain or something like that. Or let's say less than 50 stores across the country.
01:04:09
Speaker
So, 100 crore business, 50 crore business types. So, took that hard call. So, did a bunch of this, invested a lot in large enterprise. So, a bunch of these very large, great logos.
01:04:29
Speaker
And on the other hand, cut this side, right? Cut mid-market SMB. And so by the end of the year, we were at a break-even. So Jan 3rd, March 20th was a break-even. Business didn't grow much. It grew at 10% because we were really cutting mid-market SMB out and replacing that revenue with large employees.
01:04:48
Speaker
As there was this, so from the outside in long life, we grew 10% that year. But we moved from a minus 70 in Jan from March of 19 to a plus three in Jan from March of 20. And the business was generating its own cash. It's a nice place to be. And that's when COVID hit.
01:05:18
Speaker
So March of 20 is when COVID hit.
01:05:22
Speaker
And so the first time really, we didn't have a lot of cash in the bank. We were at break even, it was not fine. And by then in the business profitable, so we had this debt term sheet for $10 million. It turned profitable, right? So I didn't need equity. You didn't want to dilute further by raising equity. So you were raising. We had a dollar term. We had a term sheet from a fund in the UK. $10 million, 5% interest.
01:05:51
Speaker
Very nice terms, extremely nice terms. First two years moratorium, you pay a bullet. I mean, after that you pay over three years, very nice money. So March 20, COVID struck, our cash flows fell by 80%. So it was disastrous. Because customers cancelled the subscription. This was recurring revenue with contracts.
01:06:17
Speaker
But this is Asia, right? And let's be honest, right? This is retail, their stores were shut. They were also selling. Yeah, they were also selling, absolutely. Yeah, a future group went under.
01:06:29
Speaker
Yeah, so not only future, a few of our like Robinsons, which was our largest customer in South Asia, went under. Future was a customer for us, went under, right? So, and a lot of the others, people who always paid us on time, right? I could be sure, even they were struggling, right? I mean, they suppose a shard, you have this massive infrastructure, you have to pay salaries, vendors always come after salaries. So it was a, it was disastrous, right?
01:06:59
Speaker
And that debt money, had it hit your bank account? Had that deal been finalized? No, it didn't. It's a very tough sheet. The diligence was done. Ernst & Young was doing the diligence. It was done. The money had to be wired in the last week of March. Oh, sex. Okay. The world announced a lockdown like March 20th. Yeah, I was behind. We had 15 days of money left.
01:07:26
Speaker
And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to the show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in the show? I'd love to get your questions and pass them on to the guests. Write to me at adatthepodium.in. That's adatthepodium.in.