Marrying Instincts, People And Vision – Nithin Kamath Reveals Zerodha’s Product Secrets

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Opening The Product Summit with a bang, Zerodha founder Nithin Kamath took us on a journey of building a bootstrapped product, listening to product feedback, and how turning into a unicorn has changed things — or not.

Starting with a series of rapid-fire questions, Vaibhav Vardhan, cofounder and CEO, Inc42 Media asked Kamath who are his role models. 

The founder of India’s latest unicorn said that while he appreciates the humility of Infosys cofounder Narayana Murthy and Wipro founder Azim Premji, he is a fanboy of Zoho founder and CEO Sridhar Vembu, who too will be speaking at The Product Summit later today.

Taking a leaf out of the book of the successful founders, the Kamath said while he had reached his rupee target of wealth long ago and can afford to retire to a beach shack as he had earlier planned, those dreams don’t drive him anymore.

Next, jumping into the heart of products, Kamath spoke about the process of conceiving and developing products at Zerodha during an insight-packed discussion. Here are 5 key takeaways from the fireside chat:

Successful Product Decisions Are Based On Instincts

The fact that Zerodha is bootstrapped is not the only thing that sets it apart. When it launched in 2010, traditional brokers would charge a percentage of fees on every trade, but in 2015, the startup’s founder decided over a hunch that it would be better to offer free equity trades, rather than charge the usual fee, given that that segment of the business wasn’t anyway growing a lot in terms of revenue.

And that made all the difference as Zerodha went from around 1 Lakh customers to 3 Mn in five years. The CEO highlighted that he follows a mix of talking to customers on social media and his experience of trading and talking to investors for 20 years now, and instinct like in the example above. 

“I must have spent 20,000 hours now talking and working on the stock market,” he said. 

The commitment to customer use-case and solving problems is also the reason that Zerodha doesn’t rely too heavily on the data reservoir that is created on top of 5 Mn – 6 Mn trades per day. In a departure from the data-centered decisions at other fintech startups, Kamath said that the company uses data only to fix customer problems rather than using it as a separate funnel for personalisation or monetisation of the platform.

Don’t Be Misled By Data 

While data can shed light on a lot of issues for tech startups, the Zerodha founder cautioned that reading numbers the right way is equally important. He illustrated this with the example of many investing and payments startups boasting of Tier 2 and Tier 3 penetration on the back of KYC data. 

The problem with this approach is that a lot of youngsters move to Tier 1 cities but their Aadhaar registrations are in their hometowns — consequently, the real data point to note here should be the IP address of the users, at least for Zerodha. 

Hinging on the opportunity of Tier 2 and Tier 3 segments, a lot of tech startups are going around raising money from investors. While VC and founders wax eloquent about the potential of Bharat, Kamath is reserved on the matter and believes that in a country of around 5.8 Cr income taxpayers, the total addressable market of invest-tech startups isn’t very big.

“I can afford to be pessimistic since I don’t have to chase a growth target,” he said.

He said that this doesn’t hold true for lending startups, as people would always want money — but cautioned of the systemic risks in the economy and businesses that may arise as a result of too much of lending. 

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Creating A Dedicated Team Aligned With The Founder’s Vision 

Kamath’s experience in the stock trading game doesn’t mean that Zerodha is an organisation where things are run top-down. The fintech startup has a core growth team of 40 members and a lean tech team of 30 which interacts with its user base regularly and bounces ideas off each other. 

“Each one of the 30 people who joined at the beginning are still with us,” he said with a hint of pride. Kamath said the reason why people have stayed is they bought into the vision of the company rather than being lured by ESOPs and money. 

Moreover, the core team at the startup isn’t packed with people of pedigree — mostly the movers and shakers are those who did their share of grunt work at the beginning and rose up the ranks.

Being Bootstrapped Allows You To Build What You Want To

When the Covid pandemic hit, a lot of new investors flocked to the trading platform, taking its user count from 1 Mn to 3 Mn. This led to an increase in speculative trades on the platform and most significantly, trading on penny stocks rose significantly. “Penny stocks are those which are priced really low at around INR 10-20 and people feel like these have a lot of chances of doubling really fast,” he said.

The problem, however, is that these companies don’t have a good business and these stocks mostly slide and never recover. So those who invest in penny stocks have a very thin chance of recovering their investment, and as inexperienced investors, they tend to blame Zerodha. 

To dissuade such users, Zerodha launched a Nudge feature that essentially tells investors to be very careful about investing in such penny stocks. In many cases, a ‘Nudge’ means foregoing revenue. But Kamath emphasised that the primary intention behind building products and features has never been growing revenue but about solving a problem.

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Not Selling Improbable Stories To Investors

Not being pushed to a corner in making vital product and investment decisions is very important to the Zerodha founder. For this reason, he has kept IPO plans on the backburner even as voices in the startup ecosystem and in the wider business world have been constantly asking about the time horizon for a public listing.

While it might be easy to sell a story to investors, it would be very difficult to ensure a happy marriage in the long term if they come in with the wrong expectations of growth. 

“I am not very optimistic about the next few years as the country has issues to deal with… How can we go on expanding the user base if people don’t have jobs and money?”, he asked.

Picking up on a recent tweet on life and business being similar to a game of snakes and ladders, Kamath said the so-called snake bites are inevitable. 

They can come from anywhere, but he has a way out of this too. “The snake bites need to be hidden well,” he quipped. 

This article is part of our coverage around The Product Summit 2020 by Inc42, which took place on October 10 & October 11. TPS 2020 was supported by Amplitude, AWS, Dell Technologies, and DigitalOcean.

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