Vasanth Kamath and the smallcase team have been very intentional, deliberate operators building a well-crafted and thought-through product in smallcase. The use of lower case alphabet is deliberate (again that word!) as Vasanth and the team want everyone to think of smallcases as a common noun (like mutual funds) and not a proper noun; which of course is the opposite of how a Xerox or traditional marketer thinks! In this convo, which took place in person, Vasanth shares his perspectives on PMF, including his definition of PMF (‘intense product love’), their GTM strategy of partnering with brokers (and how that freed them to focus on making the product superior) and the three metrics that they tracked closely at smallcase (interestingly they dont track month on month growth overall, but focus on tracking net inflows for the cohort).

One interesting point that Vasanth makes is that for the wealth category, growth in customers’ parking money with you itself, which shows that they trust you, is a great validation of your product and is an early sign of PMF. The other point I found extremely interesting was his view on regulation, as part of his advice for fintech founders in approaching PMF – he asks “are you in the same broad direction that the regulator is taking? If you backtrack what the regulator is doing for last 2-3 years, you can then also extrapolate what direction the regulator is going. Are you in that direction?” His advice to fintech founders on being slower, and not adopt a ‘move fast, break things’ approach is sound.

smallcase is a great example of how a well-thought through company-building strategy – built on not innovating along the distribution axis for an extremely innovative, concept-sell product, instead going to existing watering holes (brokers in this case), and supporting them in selling the product, by building a superior product and communicating benefits well instead – dovetailed well with the product and category strategy. Yes, they got lucky with the Zerodha partnership, and that has played a part, but smallcase’s success is built on a well-thought through strategy at all levels, as we can see from the transcript. Enjoy!

(The transcript has been edited to make it more readable. There will of course be errors; please excuse me for them. The interview took place in person at Blume’s office in Bangalore, on 19th August 2022.)

Vasanth’s definition of Product-Market Fit

Sajith: Hi Vasanth, the objective of this session is to get your take on smallcase and its journey to Product-Market Fit (PMF here onwards). When smallcase began its journey in 2015 at that time did you consciously think that for the next 12 or 18 months I need to work towards product market fit? Did it come up as a topic or concept when you were sitting with Rohan & Anugrah or was it more like growth karna hai (have to grow). So, how did the topic of product market fit inform itself in the early days of smallcase; did it even come up? Just feel free to share your thoughts on PMF in the context of smallcase.

Vasanth: When we started smallcase, it was a concept, it wasn’t like something that had demand. We hoped that there was some latent demand for it. We used to sit out of Zerodha’s (India’s leading online stockbroker) office when we started, we knew what we wanted to build as we had an idea; I will come to maybe why we wanted to build later. So, at that time the account opening for demat (dematerialised share scrips account) was a painful process, like you had to take print-outs, sign 40 pages, courier it or drop it at Zerodha or other broker’s offices. So, a lot of users used to come to the office, who were potential users of smallcase and that’s where we used to chat with them, that we are thinking of building something like this; what do you think about it? Nobody said ‘no’ I’m not going to use it or ‘yes’, I’m going to, because we were proposing a concept. 

It was completely new; there was no precedent. I can’t point to some other app in US or China or in South East Asia & say that this is something we are building, please try it out. So, everybody said, when you have it ready, show it to me and we realised the only way we can know if this is going to capture people’s imagination or whether this is going to actually see some traction, that is, if people put serious money behind it, is when they put their hard-earned earnings and savings into it. The reason why we started was because the concept came from our thesis.

This was in the year 2015. Active equity investor base would have been around 20-25 Lacs (2-2.5m), mutual fund investors would be around 1 – 2 Crores (10-20m) and that is something very obvious at that point that there are two types of investors – people who invest into mutual funds and people who invested in stocks. The overlap between this is very minimal, if you are a mutual fund investor you don’t invest in stocks and vice versa for e.g.; my family invest in stocks they don’t invest in mutual funds. Many people invest in mutual funds, they don’t invest in stocks. The thesis at that point was that this is going to become a lifecycle – it’s not going to be mutually exclusive sets of people. People will start out investing into equities and mutual funds for whatever reason say tax savings via debt funds or simple equity exposures or maybe they want to follow a fund manager etc. But overtime they will graduate or they will get into investing into stocks because that’s going to be the investor life cycle, where they start out by outsourcing all decisions but eventually they will want more control.

So, it’s going to be a spectrum and they will have exposure to all parts of spectrum, it’s not like they start with mutual funds and move all their holdings into stocks but they will have a portfolio for these different product classes. And that’s where the concept came in saying that the gap between investing in mutual fund and building your own stock portfolio is like 2 ends, 2 extreme ends. I talk about this analogy often. It’s basically you know you’re going to eat at the buffet but it’s already pre-decided for you, you have to choose what you want to eat or where you want to invest, in which theme you want to invest in versus in a la carte where you have to decide this is what I need to have, across these courses; this is the kind of cuisine, this the portion size, everything so it’s that different. Or take another analogy from music where you get an album / CD or radio you will listen to something that somebody else has curated for you. The other way is you go to iTunes or download and make your own library.

Both of these – food or music – now there is now a middle ground, for e.g.; meals if you want a Mediterranean cuisine, you say I want to eat Mediterranean today, I get a meal package for one or for two people. You say I’m going on a long drive, it’s raining, search for a playlist that’s going to have this. You won’t find it in either of the formats, say iTunes telling you that this is what you need to buy or you wouldn’t get the CD saying this is for a long drive in the rain, but you will find the playlist because the format supports that.

So, that’s where the idea came saying that there should be a form factor which is between mutual funds and stocks which has the benefits of mutual funds that it’s a portfolio its professionally managed, yet has the attributes of stocks which is liquid, in real time which is full control, full transparency and that was basically the concept. We said this is something that makes sense because it’s part of their journey or lifecycle. It’s going to help people on both sides come together, so let’s try and build this out. So, PMF was super important to basically establish or otherwise the concept wasn’t working. 

Sajith: So, when you say PMF did this actually come up in your conversation with Rohan & Anugrah in the early days? Did you say for PMF you have to do this and that, or it was more like how do you establish the concept. I am just trying to think of whether founders think formally about PMF?

Vasanth: We didn’t formally think about PMF, not because of what we were essentially building but just because of who we were; we were first time entrepreneurs, we don’t know all these concepts at all in the first place, we think that this might work. The only way at that point is to make it work versus saying you will take a call after 6 months, unemotionally or rationally saying that it’s not working, there’s no PMF hence we won’t work on…

Sajith: It is very intuitive.

Vasanth: More than intuitive, we have to make it work, we think it should exist now, for whatever reason three of us come together, there is an opportunity, we have great capital behind us, we have a good partner in Nithin (Kamath) in Zerodha, everything’s coming together, we’ve got to make it work versus saying let’s take this 12-month period and see if it doesn’t work, we will shelve it for whatever reason, that wasn’t even a consideration. Now if we were building another product, I think we would look at it from that lens; saying how do you establish PMF, what are the metrics that make it successful, give it six months time if it’s not happening, then we shelve it. But at that time, it was purely that we got to make it work, we will understand when we are at PMF.

Sajith: Great. Last 2 points were absolutely bang on. We know when we hit PMF, we got to make it work. So how did you make it work and this is the early 0 to 1 journey and how do you know you’re at PMF? So, 2 questions here making it work and how do you know you’re at PMF? So, maybe take the first one about the journey.

Vasanth: Like I said it’s a concept, right? You are trying to introduce a completely new behaviour, it’s similar to, for example, to what Slack did to enterprise collaboration as in everything was in e-mails and there was WhatsApp, which is more informal. But then Slack  came & said you don’t need to do everything on emails, and there could be a more fluid more synchronous way of communicating with people. That’s a concept sell, it’s not trivial enough for someone to say yes this makes sense. They use it, they fall in love with it, they adopt it. The same thing was for us, there were some assumptions that we had in mind or some things that we wanted to build, which was that if this works at, say a decade out, this should be a product class, this should be a category of products, not a feature or not a portal where you come and get this research. 

The idea was not to say come here, get this research, consume it, transact somewhere else. We wanted that integrated experience and we wanted smallcase to become industry vocabulary, as a common noun brand. For that we took some calls right at the start; we refered to it as smallcase with a lower case ‘s’ right from the start, because we wanted that common noun brand reference right from the start. We do all actions on a portfolio level; we will show all information on a portfolio level or on a smallcase level versus single stock level. It might have been a better way to kind of start from a single stock and then build it into a portfolio concept, as in you actually show which stocks are part of the smallcase, and get users from a place where they already understand these five stocks which are there, now they can understand what a portfolio is. Instead, we went the other way and said this is a portfolio, this has multiple stocks, you don’t worry about these stocks. We are abstracting it to a level where you don’t have to worry what stocks are inside, and all the journey was built that way.

One thing that happened is because we took many of these more product or strategic calls right at the start, people started responding to that, they started talking in the language that we wanted to talk. They started referring to them as smallcases, v/s saying this smallcase portfolio or this smallcase basket or baskets on smallcase. Smallcase was referred to as a common noun by a small set of people but even that helped to say OK we are doing something right there, we are building the category & we’re not building a feature or we’re not building a portal over here.

Coming to the second part, we got a lot of feedback saying that ok if you’re claiming that your whole thing is transparency, controlled etc., why don’t you help me customise? So, we shipped that feature; if this is a portfolio with a mutual fund, why don’t you help me with SIP (systematic investment plan) into, so we helped them SIP into it. Things that we didn’t do for example, there was some feedback which we didn’t do because we felt that it was not philosophically right for the product, which was say for example people said I’m investing in this now tell me when this stock in this portfolio hits this price so I can exit and we didn’t want to do that because that violates the entire portfolio building theory. Then you are thinking single stocks & you’re basically looking at this as a collection of stocks versus a portfolio of stocks; we wanted you to look at the portfolio of stocks.

So, based on feedback we took some calls that worked for the category or the product class, and some calls to avoid ones that didn’t, but rapidly iterated for the next 12 months. After that 1 year we started talking to other brokerages to get smallcases on their shelf, but in the first year it was basically saying what could make your experience 10x better. Just asking and getting that feedback, choosing what to build and we still have that big roadmap where we have to continue building. But a lot of it was just basically saying this is what you want, this makes sense for the product; this is what you wanted, yes we will build it; this doesn’t make sense, we won’t build it.

Sajith: You were getting feedback from users?

Vasanth: Yes, I think that’s where the partnership (with Zerodha) came in very handy, as we don’t have to go and hunt for our first 1,000 users. We got the first 1,000 users in the first three days itself because of the partnership with a broker. So, I think that was more….in our heads at that time a way to get started. We didn’t know what the ultimate distribution or go to market would be, but that was a way to get started, to say let me try this out with a set of people who are already motivated to invest in stocks. If that works out, I’ll figure what next, whether I should go to people who have never invested in stocks, people who have invested in mutual funds but not in stocks or people who never invested in mutual funds and stocks; I don’t know who to target, but this is the first step.

So that partnership helped us. We realised that this is an efficient way of getting awareness in our core market; let’s work with all the brokers so that you can cover as many demat accounts as possible. People don’t have to come, open a new demat account to access to your product.

Sajith: A few points here, basically it was a concept sell, in concept sell there’s always a challenge in that is it an unknown need for existing customer in an adjacent category or is it entirely a new customer base which has never tried a product? For example if it’s a new tooth cleaning thing, so is it people who have never used toothpaste who will use it or people who are using a tooth cleaning product who will try it.

In your case, you took a call that people who already had a demat account reduced friction to consume, and you decided to go to the existing watering hole which is the brokers, where the customers who came in, had demat, and thereby tied up with the biggest broker, or who would become the biggest broker. At that time, it was not even the #1.

Vasanth: Not even the top 25.  

Sajith: In hindsight, it was a great call. So, you got customer validation quickly and you got great feedback. I feel like PMF has 2 parts 1) problem solution fit or the product to problem fit and 2) motion to market fit which is GTM to a market fit. So, on the first one when you did you get a sense that product is right and product is more or less in; now we need to worry about distribution when did that come about.

Vasanth: It was with people starting to use it, and actually allocating money to it. When you see that happening, everybody talks about this but it’s very tough to build a platform or a brand in asset management and wealth management. It takes more time versus say in something like a credit space because you’re giving out money, here you are taking money. So, that is validation itself that somebody is trusting your platform with money; be it because of the design, the concept, or because of the experience itself. But if somebody is holding money with you and trusting you to maintain that in whatever format, that itself shows there is a requirement for this unknown, latent, much needed all of that….but they’re using it, as people are very hesitant to part with their money with something they don’t trust or something they don’t need. 

Sajith: Now about the larger PMF which is related to distribution and growth; when did you feel that you have achieved that PMF, according to you?

Vasanth: 2 points on this, Sajith. I don’t know whether you classify this under PMF or not, but another interesting point or milestone for us was when people started explaining smallcase in a different way than we have been thinking of, not to say that they were conflicting. It was not contradictory to what we’re saying, but it was a different way of mentioning, like for example: we went with saying, invest in ideas you believe in, some people went in with the use case first, for example, we were just talking and you were saying manufacturing is what you believe in. I will pitch you a use case and say this is smallcase for that, that’s how people started talking about it. Some people started talking about it I have created a smallcase, it has my lists together, I put a weightage to it, why don’t you buy it? We enabled that feature of creating. 

So, when we started seeing people have their own meanings or reasons for why they are using smallcase which is different from what we’re saying, we realised then it’s not just one thing that we built but it is a more fluid concept, and we have to serve multiple needs over, e.g., somebody’s creating a smallcase and sharing it, somebody is saying I want to create a strategy on top of ETFs, someone says I want to customise this electric mobility smallcase. So, it’s not just one use case, there are multiple use cases coming from it and that’s where you know that there are multiple use cases that people are discovering it on their own. It’s not like we have educated them over these use cases, but people are actually investing time, thinking, being thoughtful about what they could do with this one construct, finding ideas for it. So, that is also when realised now we have more responsibility to ensure that it’s a versatile approach in these use cases.

Sajith: You said 2 parts, is there another part of it?

Vasanth: Yes. On the distribution side – I think this is not really from a user perspective this is more from say, builder perspective, say a business or an ecosystem perspective where again this concept hadn’t been done, there was the challenge of integrating with multiple brokers. Globally also, this was not done. In India there was one start up that had started in 2013 to try to do this, trying to be a layer on top of broking accounts. It wasn’t that they couldn’t figure out a solution to do this but because of compliances, because of technology at that point etc., it didn’t work out for them. For us also it was a challenge, but again the same naivety or stupidity whatever you call it, but we made it work. So, spent two years in Bombay like basically just selling, not getting anything at all, but then finally one broker said seems interesting instead of us building it, we will partner with you.

Sajith: Who was this?

Vasanth: This was Axis Direct. And this is at a time when this whole Fintech, Finserve collaboration hadn’t started, this is pre-UPI; this is before anything, there was no Fintech, this is 2016 that we are talking about. So, in our space at least we were the first ones to bridge this and say, let’s collaborate, in a way that works for both parties versus being selfish or doing only one sided kind of a deal or something like that. 

The sale cycle, integration cycle there which again took 4 quarters, then the compliance cycle because each of our integrations are approved by the exchange who are the frontline regulators, so all these 3 things took two years.

Sajith: Just repeat these three.

Vasanth: The sales cycle, basically convincing them…there’s no precedent for this, so I can’t point to them and say that you have to do this guys and they would say we have built all these solutions in-house, as in, TCS does that for us, our in-house team does that for us; why would we take it from you? On top of it we were saying you pay us for this, this is technology that we are providing to you, so you pay us on a transactional basis. So, there was no precedent to this, everything was on prem hosted at that point. So here we were saying that this is cloud-hosted because we want everything to be calculated or stored or rendered at our back-end. From an efficiency perspective it makes more sense. That sale cycle to the integration cycle, these are legacy systems that hasn’t been opened up to outside. People are building on top it.

Sajith: – No API calls too.

Vasanth: No APIs at all. So, they had to build APIs for us to connect to them. Teams went to brokers’ office, camped there for two quarters, sat with them, worked with them. This is the integration cycle, and then the compliance cycle also. So, these three things together took us two years initially, but now it is reduced to 4 quarters.

Sajith: Now 1 year?

Vasanth: Yes. Now it takes 1 year with every broker.

Sajith: So the 1st broker was Zerodha, then Axis Direct & then it became easier.

Vasanth:  After the 2nd the pitch from the broker perspective changed. Like the whole success point I was talking about, we were able to build this collaboration, partnership, in a way that it is mutually beneficial. And after the 3rd/4th broker launched, the ecosystem effect started playing out where offering smallcases became a standard in their product basket.

Choosing the GTM

Sajith: So this decision to go via broker was a big decision, what led to it? Because you are fundamentally choosing a GTM effectively. It’s like a B2B2C model as you call it; or you could have just advertised it & you could have figured out something. What led to it, was it the only option possible or were there any other alternate D2C options like direct to investor options?

Vasanth: Two reasons why we work with brokers; you might think it’s a distribution that’s important but first it’s basically the linkage to the exchange, for the order placement itself for the transaction enablement itself because these are all exchange orders. To connect to the exchange, you need to go through a broker.

Sajith: You are actually buying stocks effectively.

Vasanth: You’re actually placing electronic orders at the exchange, it can only go through about broker, unlike in U.S where you can take it through different firms like Citadel etc. Here in India everything needs to go through a broker and has to be settled at the exchange, so we needed the transaction pipe for that one. The 2nd one was whether we could have taken a call that we could be a broker ourselves and build those pipes ourselves. So, like we have this interesting proprietary product class, but you need to open up a brokerage account for this. I think 2 reasons why we didn’t go down that path, one, at that point like I mentioned it was very tough to open a demat account. It used to take 7 days to open a demat account, in the best-case scenario 40 signatures, drop it off, courier it and only then you can open a demat account to do trading in a demat account.

So, that is 1 huge friction and so we asked will people go through all the trouble, open an additional demat account to invest in this asset type, or this asset class or will they prefer it in their existing demat account. Second, as we started working with Zerodha more and more, we started appreciating how tough or different it is to run a broking business. It’s more of a solutioning on operations, on compliances, using technology to solve these challenges. Whereas we realised that’s not our DNA, our DNA is kind of being innovative on the product layer or the platform layer versus solving this. So, we said it makes sense for a product class like this to not be on one shelf space for which you have a friction point, but actually be on all shelf spaces ,where there is maximum coverage. Otherwise, it won’t become a ubiquitous product class as in, if I tell you that you can buy a mutual fund, only from this one place and you can’t use your existing setup where you buy all the other mutual funds from. Either the others will copy it or…

Sajith: Quantum used to be like that.

Vasanth: It’s still like that, but now that there are direct platforms like Zerodha Coin, NET Money etc. that have come up, you can find Quantum there also. But at that point you had to go to the Quantum website. There still the KYC was easier, it was online etc., but here 7-day process, 40 signatures etc., we felt that was too high a friction and our whole vision of building a product class or building a form factor wouldn’t have happened if we put that restriction right up front

Sajith: It’s very interesting you say this, recently I was talking to Anshuman Bapna who said something interesting, that his big learning was to innovate along one axis or solve friction along one axis. Just solve product or solve distribution don’t try to solve product & distribution, which is what I think you did. You said we are gonna solve product friction, distribution let’s go to everyone & make sure it is available. Because product is so innovative, so if you choke distribution to your own channel, you will never grow.

Vasanth: True. And at that point too, the optimism still existed as it is today, that the 7-day process is going to become a 2 min process in the next decade. So, wisdom or advice given to us was think long term and we could have also said sure, we will wait it out till that happens but we felt that that’s not what’s going to define us as a business. We can’t do much over there, the brokers are transaction specialists, let them do what they do best. We are platform builders, we will build on top of them, let them handle the transactions, we will look at the user experience, we will build an eco-system on top of that. 

Sajith: So, I just want to double-click on to that, when you were acquiring customers for smallcase, do you leave it entirely to the brokers to communicate or do you do a little bit of advertising as well, so how did that begin, how did you think through that? What I am talking about is the go-to market motion, which is broker-led, but do you do any advertising to get people to the brokers where anyway there is no friction? Or how do you work with the brokers to acquire more customers to grow the user base for Smallcase?

Vasanth: Today we have multiple channels like there is a broking channel, we have a direct to consumer, we work with non-broking distributors in fintechs, we work with say individual distributors who kind of get their clients onto smallcase. But at that point when we started, the broking channel was the only channel for the first four years, in 2020 is when we launched our App for the first time, we didn’t have an App till then. Otherwise, these were all experiences that we are building on the brokers environment, like,, etc. It was our UX, UI but hosted on their environment.

We didn’t know anything about how to take the product to the clients. The broker knew their client best. They knew what worked best for them, because they have obviously been running the client side with them for a reason, so they know how to communicate with their clients. Starting, we just latched onto that, to basically say how do you sell mutual funds today, how do you present stocks today and taking the same first principle thesis, if there’s someone who’s come to open an account to invest into stocks, will you give them a single stock report which is a concentrated bet type or will you give them a smallcase which is diversified, at the same time easier to explain? So, for example, someone calls and says I want to invest in HUL, now either they know that they want to invest into this stock, for which they are basically saying let me place the order or they are saying FMCG is an interesting sector or say brands is an interesting play, which is why I like HUL. Which is why I say a brand smallcase or FMCG smallcase will make more sense. Because you are diversifying; suddenly you are not taking single stock risk. You are diversifying it across & with all the different kind of strategies which are easy for someone to understand, it’s a great tool for brokers to also tell these stories versus send a report and say do you want to buy this?

So, that’s how we started, it was easy for us but at the same time we had to train them on what the product is, not just how the platform works but what the investment product is also. So, lots of learning at that point itself on saying what is it that kind of gets someone excited enough to go & pitch that product to their customers and get them to transact into it. So, that’s how we started. 

I think after one or two years of doing this what we realised also is, sure we built a common noun brand or we are building a good common noun brand but we will also have to put in an effort to build that brand. So, we need to do direct to consumer marketing because we didn’t have an interface to capture or catch these people, right like I couldn’t say go to, or if you have a zerodha account go here etc., there were too many places.

So, we had to do the product class branding, so for example we had the smallcases show on TV channel, invited people to talk about their smallcases, or did newspaper ads like the first ad was about defining a smallcase like an Oxford dictionary excerpt explaining what a smallcase is. So, a lot of things on just explaining what this brand means. So, that’s something that we had to do once we launched our app. Obviously then it became more performance ads / digital marketing to get people to the app, introduce them to the experience, on board them, lock them into the broker and get them to transact. But otherwise, it was just a mix of these 2, we used to work with the brokers’ on ground teams, their central teams, anybody who used to answer user queries; we used to centralise all of that for all the brokers, at the same time we were building brand in whatever little way we could.

The metrics that they adopted

Sajith: So, what were the metrics you were measuring in the early days? One of course you told me is how much money is coming in, I mean it’s a strong indicator of PMF in wealthtech. But otherwise, what metrics were you tracking, how did those metrics change, as you did larger rounds & you became bigger? 

Vasanth: Now there are a lot more metrics that we track because scale is there & there are different pockets in which you have to optimise different things. But early on, 3 things: didn’t track like this month should be more than the next month, that was not how we tracked it. It was more like let’s look at cohorts for two things; one is how are people investing; what is the net inflows into the product? If that is growing, you know that you’re doing something right. Which is the whole thing that I explained, if people are allocating more & more money to you on a month-on-month basis or on quarter-on-quarter basis…

Sajith: Net inflows for a cohort.

Vasanth: 2nd is retention. If you look at the industry average for example, you know what mutual funds average is. People invest in mutual funds for a period 2 years, more than 55% stay invested for 2 years. We didn’t have that early, but once we like started crossing three months, six months etc. we saw that we are 95% plus. Today, also say 12 months, 24 month are 90% retention. So, that’s where we knew, that people are not experimenting on or trying but they were actually sticking. These are the two things that we tried.

The other thing that we tracked is, is there, say, again, this may be like information that’s available on the web, but is there a smiling curve? On say, usage, for us it was orders placed. So, on orders placed, how does it vary for each decile of the entire user base? I’m guessing it starts out high, but it will keep decreasing generally with every decile, right? If it increases at the end, you know you have power users on one end. They’ll carry you like that 80-20 rule which persists. So, these are 3 the things that we looked at.

Sajith: You never worried about month-on-month absolute growth. You worried about cohort growth, that is net inflows increasing for each cohort.

Vasanth: Correct, if the net inflow is increasing. If someone who came last month, is he investing more this month or is he not? Obviously, the worst thing is that he churns, then retention is also gone as he is off the platform. That’s the worst thing. But if he’s investing more, he’s finding value in the product.

Sajith: Who told you about these or you did come up with metrics after a lot of thinking?

Vasanth: – Especially, this cohort thing came from Zerodha team, from Nithin. Essentially asking are people doing this? It wasn’t saying, let’s look at cohorts or do this. But it’s like, are people investing month-on-month? We basically didn’t even know how cohorts worked. So, it’s not like we had a cohort ready, it was like how many people have invested this month. But, in this month what amount has come from people who invested last month? How do you figure that out? Started reading and figured out this is how cohorts are made. The simple question was, are people investing month-on-month?

Sajith: Now, has focus changed? Post PMF, did things change, when you know that there is growth happening etc.

Vasanth: Yes, say for example, now what do we focus on? One thing that has been clear right from the start is that you shouldn’t get people to buy more than X number of smallcases, that number is 4-5. After that we stop marketing to that user. If you are buying 8 Smallcases, for example, it depends on the choice obviously, but most people would be buying the market. It doesn’t make sense to come to a smallcase like product for that, you can just buy a Nifty Fifty ETF or Nifty Fifty index fund, if you want to buy the market. So, 4-5 smallcases we get but, after that we stop marketing. If the user then has the intent to come in and say, now I want to concentrate on this particular sector, they can then buy a smallcase, but that’s a user-initiated decision, not something nudged by us or marketed or promoted by us.

So, that was very clear that we don’t want people to buy more than a certain number of smallcases. Then what do you get? How does the product then work for them? You have to ensure that they do SIPs and rebalances. So those are health metrics for us now, for example, you have committed to the product that you’re going to do 10 SIPs. How do we as a product ensure that there’s no friction for you to do those 10 SIPs? Be it building automated SIPs like they did not exist for stocks with many brokers we had to build that together with them, be it the communication channels for this like should say, for example, it comes just on email or can your RM call you and say “Hey Sajith you have got an SIP pending today, go and put it”. Can a broker/dealer call you and say “You have an SIP pending, can I place the order in your behalf”? Can it come onto your WhatsApp? What’s the easiest way to do it? These are things that we are focusing on, not focusing on getting that person to transact more, in the sense to buy more smallcases, but saying you built your portfolio, now just continue what you have committed to the product. So, it’s more of that. Obviously, growth is also important now. But on a user specific thing it’s just that let’s get him to this number, so that he has built a healthy portfolio and get them to stick to it.

Sajith: If a young founder comes to you & said Vasanth, what is the definition of PMF? How would you define it, to a young founder. I’m not looking at a formal definition. But what is PMF to you.

Vasanth: I honestly think, it might not be the business definition….I just think like if there are people who are avid lovers of your product, you have hit PMF. Like who love the experience, swear by it, now the scale of it depends on how large your business is going to be. But PMF is when people love your product, not just use it because they have to or just like it.

Sajith:  A bit on FinTech founders & PMF, and you can take wealth if you want specifically, or you can take the larger category. When you meet young FinTech founders, invest in them etc., what do you advise them in the 0 to 1 journey? It could be PMF or whatever. How do you advise them to approach PMF? You had a very interesting journey, in a way, fortunate enough to get Zerodha as a partner very early. Access to that high quality mind (Nithin), then you were able to validate 1000 users, brilliant product engineering around work flows to reduce friction etc. The way I see smallcase is that a lot of very fundamental right decisions happened early on to set it up for PMF and success. That’s a simplistic view but, in general for founders that you invest in, how do you advise them? How you approach them, how do you tell them to approach PMF or the 0 to 1 journey? 

Vasanth: Very broadly, it would be like don’t rush it, take it slow. Multiple things to look at over here, especially in the wealth space. One like I said, user is trusting you with their money. You can’t move fast and break things and if you break things, well….reputation risk is one of the biggest risks in the wealth space at least. If you’re giving out money etc., all of that can be figured out. But if you’re someone who’s accepting money or requesting for people to park their money with you, reputation is the key. Sweat the details, do things slowly; that’s one stakeholder.

Second stakeholder is obviously the ecosystem. It’s impossible for any of financial services, but even more, saying the wealth industry, to do things all by your own. There are infrastructure institutions, there are intermediaries, there are so many different parties that you will have to work with for different things. Look at what you’re building, how your building is impacting the ecosystem, not to say that don’t compete with people etc, but just be aware of how whatever you’re doing is impacting them. Which is why take it slow there.

The third thing is regulation. Are you in the same direction that the regulator is taking? If you backtrack what the regulator is doing for last 2-3 years, you can then also extrapolate what direction the regulator is going. So, are you in that direction? Are you not in that direction? Again, there taking it slow makes a lot of sense. So here the 0-1 journey has to be taking it slow. You cannot say I’ve launched today, I need to grow 50% month-on-month in my first year, etc. There are products, there are teams, founders who do that. But the best way to build that foundation is by taking it slow. 

Scaling criteria, or when to go full throttle

Sajith: When would you say is the time to push on the pedal; in your case I think, I don’t know if there was a specific time when you said product is done, let us go full throttle. Was there any time like that? Similarly, can you generalise it for any FinTech founder?

Vasanth: No, for us it was maybe hindsight bias, but it was obvious when we had to hit the pedal over there. Of the 2 things that we need to solve for, one was the platform experience, which is, like I told you, today our road map is still defined by what users are asking, it’s a never-ending list. I think next five years we don’t need to even plan out a road map. We know exactly what we want to do every quarter or every month; we just need to sit & prioritise. It’s not like, should we do something new over here, because, there’s a long list, so, that when it hits say 80% then the rest 20% is more incremental, something that will take time, need more data, more participation, more scale for you to figure out. Those things will happen over time. But when 80% of the product is done, the core functionality, the workflow is done, then you know that the product is ready for it to scale.

The other thing that needed to be ready for us was broker / partners. Because you can’t accelerate without you knowing that there won’t be high drop offs. For example, if I was live with four brokers and those four brokers together has 30% market share and if I’m marketing to a large audience you are only addressing 30% of that audience. At best case. So, 70% is directly dropping off. Or you have to induce that much motivation for them to open an account with these 4 broker/partners. But when we hit 8 broker/partners we have touched 80% over there. We know here, now we have touched enough. Now, it’s not about adding 10 more brokers. 80% is good enough. You’re hitting 8 out of 10. The other two we will get to them at some point, we’ll do the integrations, they might open an account etc. So, these two things were like an obvious thing for us to basically say yes, now it’s time to scale. 

Sajith: It’s a very interesting way to put it. What you’re saying is when you are able to access 70-80% of serviceable obtainable market, when your product is in a position, when you broadly have ability to service, then you can go all out. Before that don’t go all out because there is a huge leakage.

Vasanth: And then you can’t attribute why there is leakage. Then you will say it’s leaking because I’m not able to address, but it could be a different problem altogether.

Sajith:– It is like a food delivery chain which is servicing only in Indiranagar but I’m doing an all Bangalore ad, or are only in Bangalore but doing an all India ad. Ideally you will do the all India ad and go all out, when you are in at least 12-13 cities.

Vasanth: There will be some spillover. Sajith will take a flight from Delhi to Bangalore to eat at the restaurant may be, but that’s like hoping for the best. And then that’s what, you can’t attribute whether things are working for you, or not working for you because you’re doing this or because there’s something wrong with the offerings.

Sajith: Very interesting. Caveats, thumb-rules, anything that you want to highlight…I think I’ve got a sense – regulation, don’t be on the wrong side, the wrong direction, make sure you don’t go all out before you’re able to service 70-80% of the market. Any other caveats? It could be specific to FinTech or specific to what you’ve seen. Like you tell the founders what to do & what not to. 

Vasanth: None beyond that.

Sajith: Are there any questions, I haven’t asked that he expected me to ask? 

Vasanth: Not really. I think one thing that I thought it would be more about is the metrics piece itself, like what are leading indicators etc.

Sajith: Yeah, we didn’t cover leading versus lagging.

Vasanth: For leading, for me it was, people are now finding new meanings from the product, as in their finding their own ways to explain the product. That’s where you know that it’s created some impact in their lives, right. Like if they’re repeating what you’re saying.

Two books he recommends

Sajith: We should wrap it up, I know you have to leave. Any books that you recommend or any readings that you recommend that you’ve found useful, need not be specific start up books or start up articles etc.

Vasanth: A couple, like one I told you, I like origin stories of how completely new form factors or product classes evolve, so recommend ‘A Piece of the Action’ (Joe Nocera, on credit cards, mutual funds, savings accounts etc.). Second one is ‘Thinking in Bets’ (Annie Duke) on how to basically evaluate decisions.

Sajith: Well, thank you, Vasanth!