Building india’s first discount broking model, Zerodha
In this episode, Vikram sits down with Nithin to uncover what it takes to build and scale India’s largest tech broking discount firm, Zerodha. Nithin talks about the early years of his career, co-founding a company with his best friend and brother, what he looks for in a person when hiring, why he hasn’t raised any form of external capital till date and his future plans for Zerodha.
Vikram Vaidyanathan:
The founder of India’s largest brokerage platform, Zerodha. He’s self-made, bootstrapped all the things founders and investors respect. I’ve known him for a better part of a decade, through multiple conversations where initially it started off trying to get him to take our money and eventually we gave up and became friends along the way. It’s been a truly inspiring to see the journey, thanks for sitting down and hoping to have a really candid conversation.
Nithin, I still remember coming to your first office, that family bungalow office in, in Jai Nagar. And I remember, feeling an amazing energy that was very calm. it seemed like there was amazing inspirational work work happening there. Talk a little bit about the early days, why you started a broking company at that time and how it all works.
Nithin Kamath:
So I started trading the markets quite a bit, right. And, so I traded for like 12 years before Zerodha started, and I don't really think I could have done any other business other than broking, you know, because that's where the core competency was.
Vikram Vaidyanathan:
He started trading at 17. Started the company at like 28.
Nithin Kamath:
Yeah, something like that, in between I went bust twice, so I worked in a call centre for three, four years. And, then I became a franchisee of a bigger broker firm in 2005. And in 2008, when the markets fell, made a little bit of money and it was just enough money to get a license. And because if you want to become a broker, you need to put deposits on the exchange. So yeah, so we took a license, on the exchange. And the funny thing is we started a business as a partnership firm, because the deposit requirement was much lesser, you know, being a partnership firm. We actually converted the partnership to public limited only last year. You know, we thought that it will shift soon, but then, yeah, it took us eight, nine years to do that. So 2010, we started, it started in this small little office where we had that reliance money, you know, where I was a franchisee and the bungalow house that you saw, I think we moved there in 2012, 13, I think we had like 30 people on the team, so we had to scale up and we've been extremely frugal, whatever money we could save, we have tried to do that.
Vikram Vaidyanathan:
How important was the, you know, boom bust that you saw. And in terms of the formative stages of your journey
Nithin Kamath:
I mean, those three years in a call centre is where I think I learned all my real life skills, you know, because I used to trade during daytime and I still work in the nights. And in the nights I used to sell, I sold telesales to the US I mean I've sold everything from mobile phones to DVDs to everything to people in the US, and so I think, I think after starting the business, I actually look back, I think actually what I learned in those three years working and trying to hustle and et cetera, and actually helped the business quite a bit. And even the first one, two years of Zerodha, I mean a lot of cold calling happened, you know, and I think that cold calling requires a certain skill set and not everyone can just pick up a phone and make a call. And so yeah the thing is personally I like to sell on the phone versus selling in real, cause I'm not a very social person. You can be whatever you want, right? I think I've had most fun in my life also during my call centre days.
Vikram Vaidyanathan:
So, you know, for our listeners, you know, we talk about 10,000 hours in this space. He had a hundred thousand hours in the space, before he started. Right. And, when I hear you talk about trading and how passionate you are about that business, I think that's what made you truly successful.
Nithin Kamath:
Yeah. I mean like a lot of people keep asking me, you know, how has the business reached here? I say, if you want to bootstrap, I think you need to have some edge, other edge on the business, right? I mean you either you have deep pockets or you have some core competencies. I think I understand that like, you know, even today for example, I spent two three hours interacting with our customers online. You know, you have a lot of these initiatives.
Vikram Vaidyanathan:
Double click on that and on that consumer focus. Initially you started with the focus on the day trader, right? That's evolved more to, you know, long-term investors, now its evolving even more to millennials. Right. How do you keep in touch with the consumer and how do you make sure that everybody in the organization is already there?
Nithin Kamath:
Yeah. So when we started the business, I exactly knew that person whom we are trying to build the business for, right? Who was an active day trader, you know, speculate and that was me, right. As in whatever I wanted. I think we built it in the first three, four years of the business. But around 2014, 15, we realized that, you know, that audience is really shallow. I mean, I think India has not more than 300 to 400,000 people who actually speculate. Uh, so we said you can’t really build a business just focusing on this. And I looked extremely lucky to find Kailash who heads our tech in 2014 and I somehow convinced him to join us. And so we thought of this new age experience, you know, that we can build. Because until then it was all vendor based products and there was no tech in house, the only tech I’ve done is Excel sheets.
And I mean, I haven't personally done any tech in my life. Right. So until then we're kind of leveraging render products and just selling it better. once he came on board around him, we were able to build this new gen, kind of product and very minimalistic, very non-broking kind of product. And that’s when it dawned on us that we need to build this kind of product for the masses not just for this 300 to 400,000 kind of audience. And I think we as a business brand we interact with our customers so much, I think we are always in sync with what people need, right? I mean if you look at our blog posts, I mean the blog has a thousand comments.
Our education model that we run is probably after Investopedia, the largest in the world right now on capital markets and we run a Q&A on initiative on trading and just almost like stack overflow, but for traders, right? So these are all places where we are very active and you keep getting this input from the customers. And the core team is actually really small, right? As in our tech team is a 30 member team, which is just ridiculous, you know, for everything that we bring as a business. So it's very easy to keep 30 guys in sync versus keeping 300 guys in sync, and it's been a conscious choice, you know, and I think I'm influenced by Kailash on this because before him, I used to think that throwing money in people will solve problems. And, I was wrong, you know, and then, and then we took this conscious choice which was that let's keep the team small. So what it also meant was that we attempt only those things, which is very core to the business in a sense. I don't have a bill, a lending product, for example, you know, which I don't understand. Or I don't want to sell insurance, which I don't understand. So we said we're just going to do what we understand well, because we have only these many resources to work with. And so I think, it's kind of played out okay till now.
Vikram Vaidyanathan:
So switching to themes and all of you can see how humble he is given what he's achieved and so on. And I see that sort of stream to almost every team member close from you. Very humble, very curious, and, always listening to external input. How do you invite that as a culture?
Nithin Kamath:
I mean, we just hired people who we thought are going to be like me in a sense. See the thing is, I don't know if I'm right or wrong in this, I mean I have nothing against IIT/IIM guys. But we don't have a single person from any pedigree college. And also we've actually not gone after people. For the core team I think we were extremely lucky that we found each other right. I don't think there is any way to go find them. It’s serendipity and all of that, but all the other new people, I mean it was hiring a lot of young guys and then filtering out and giving them an opportunity to grow within the organization.
And also, the way we are structured, the business, it's actually a really dumb business that we have in a sense. You know, it doesn't take too much to support, right? As in we have just one product that we sell to every single customer of ours, right.
A conscious choice was not to have a high net worth product, low network, like how financial services firms generally complicated. We just had one thing to sell. You know, even if you come to our office and speak to an admin guy, he'll probably sell you an account, right? And there is nothing complex to sell about. And that makes it extremely easy to support the business. Like for example, every single customer of ours, has paid an account opening fees to open an account with us and that’s INR 300-500 and what I'm going to say is that we never broke that rule for anyone.
Vikram Vaidyanathan:
Going back a on team - who did you not hire? And what were the choices you made? Because I know after a point, everybody wanted to join, but you were pretty selective about who you wanted.
Nithin Kamath:
The thing is, today everyone who reaches out is for a senior role. And I'm very sure that I'm not hiring for a senior role, right? Because, I want the guys who've been around who struggled with me and you know, have been a part of the business growth earlier - I need to first give them an opportunity and if I'm not able to find the skill sets, then I'll go out and look for others. So until now we haven't had a single person externally promoted.
Vikram Vaidyanathan:
If you had to hire for a particular role, what would you look for to make sure that they fit well with the team?
Nithin Kamath:
I mean, I've met a lot of people. We are starting this loan against securities business, and none of us really have the skills of going and raising money, because loaning and securities means that we have to somehow beat commercial paper or whatever and we need to raise some money to be able to lend it, so I met a few people for it but I don't know, it's very tough to bond with people.
Vikram Vaidyanathan:
If there's one quality that you really look for and one quality that you don't.
Nithin Kamath:
Right. Well, I look for someone who is possibly very humble, right? I personally give a lot of credit to whatever's happened to me to luck, of course, you need to work hard, you need to have skills and blah, blah. But, I think this whole right place right time is extremely important. And I like to be around people who appreciate that. I know a hundred people that are more skilled than I am and who know this industry better than I do, but they aren't here. Right.
Vikram Vaidyanathan:
Yeah. And I appreciate what you said on humility, I'll tell everyone that this man definitely makes his own luck. And I've seen him do it, and I know we went on a trip somewhere, it was a big day. And I remember you dropping everything else, to just focus on that moment because he knew that it was such a big moment. And that particularly, because I think that's what it takes. I know you put it down to a lot of timing, but lots of people had that timing. But it’s how you act in that timing that’s key. I think I've seen you do it multiple times.
Nithin Kamath:
No, I think, trading the markets is a humbling experience. You know, it's a roller coaster, right? And I think, uh, like my personal biggest skillset is that I don't react right. Because, and the reason I don't react is because if I reacted, I couldn't treat the markets right. This whole business of stockbroking is not a very easy business, but at every point, like right now we're talking and potentially there could be some news that affects and our customers are leveraged though they can lose more money than what they have. So, we just run extreme amounts of risk all the time. It's just, you need to be wired in a certain way to run this business.
Vikram Vaidyanathan:
I want to come back to the risk point, but staying on team, I know one of the most important team member you have is your brother, and that can go either way, right? What learning do you have on sort of founding a team with your brother, Nikhil Kamath, with one of your best friends as most co-founders do and how do you maintain both a personal and professional relationship ?
Nithin Kamath:
So before Zerodha started, the writing was on the wall that he’s a better trader than I am.
Both of us are absolutely, extremely competitive. You know, we played chess together, we played sports together, we are probably the most competitive guys on the field when you put us on it. But, it was kind of obvious that he used to make more money than I used to. Right. There is no way to fake it in trading. And that's the best thing about trading.
He's generally a little more pessimistic and I realized that's the reason he's better at trading. And I'm extremely optimistic. I'm looking at everything as saying this will work. Right. And when we started the business, the thing we discussed was okay, you've got great skill steady, why don't you continue trading? And I think I'm more wired to interact with a lot of people. I mean it's extremely tough for him to get him to interact with customers.
So we kind of realized that each of us have this skillset that helps the business in different ways. One of the reasons of having this whole thing bootstrapped was actually him - the first one, two years, it was about creating this income that could actually sustain the business. And, we decided that he's going to look at trading and I'm going to run broking and I've not taking a single trade after that, from 2010 onwards.
Of course I test out our product in a smaller trade, a trade that matters to me. I never go and ask him, dude, what's happening to the trading p&l. And similarly, he never comes to me saying why is the mobile app like this? that conversation never happens. And that ensures that the relationship is not affected with whatever. And then I consider Kailash as a co founder, now he joined three years late, but I don't think we would have been here as a business if not for him and so it all worked out quite okay.
Vikram Vaidyanathan:
Any tips for co-founders on how to deal with this from a personal and professional standpoint?
Nithin Kamath:
No, I think where it could have affected is if things don't work out. That's it. That's a different kind of relationship. But when things work out, I think it becomes about who gets a credit, right? I think that's where more conflicts happen. And, I am very open about him making money trading, and, he's the best trader and et cetera. So as long as there are no egos in place, I think it's okay. And I think we need to demarcate, you know, to ourselves. There have been times when me and him have had conversations, but it has been on things, very stupid things, where say it could have been a sofa that we want to buy. And, when we started the business we never thought who was going to decide on what sofa, what colour is going to come. For me, in my head, I were building a brokerage business. So in this room, the sofa has to be what I think it should be. Whereas he probably wanted a different kind of sofa and I so I mean, we've had a conversation about that, but it's never been about our business.
Vikram Vaidyanathan:
Awesome. So, going back to the conversation on risk and I know you think about how much risk is in the business, how much risk is in the market, what's the systemic risk? And even though everyone thinks of you as a very calm guy but how worried or anxious are you in terms of risks and how do you think about FinTech founders and risk being that central, when did that sort of penny drop for you on risk is the most important thing that you're going to manage?
Nithin Kamath:
The thing is the only way a trader can survive, an active trader, especially someone who's put his own capital, and that was a trade off, or when Nikhil was trading, we were trading our own money, right? It's not someone else's money. And, that requires different kinds of skill sets, and the only way you can survive that is, is by appreciating this whole risk aspect. I recently tweeted about it. I think the way I look at risk today is that I'll do things only when I know that I can blow up the entire amount and I'm okay with it nd one of the other points or one of the reasons for Zerodha to be successful was that we took some money on the table and we said, dude, we’ve done okay in our lives. Right? And this money is enough to sustain our lifestyle right now for the rest of the life. Now, we just go all in, And, I don't worry about our money in the business. No. I'm saying, we had to grow this business. I think we need to do our bit to make a dent to this country in helping one industry fix itself, and then we do whatever it takes.
Vikram Vaidyanathan:
So what advice do you have for FinTech founders on, your risk management and how much risk is rolling around in the FinTech ecosystem and what part of the business do you build first?
Nithin Kamath:
Personally, I think, people firstly never sit down and say, what's the risk in this? Right? I like a lot of people I speak to don't understand that, right? what's the maximum you can do out on this, right? and then you need to kind of make peace with it. Like if you can't make peace with it, don't do it. Cause it's almost like playing poker on a table, the stakes are too high, right? You can never make money on that table because you're always worried about losing money. And because the chances of you taking your rational kind of decisions when you're not made peace with the maximum loss is quite high. And, today I think a lot of founders don't think about risk as much because maybe it's because it's someone else's money, but I think it's important to think of it as your own money and say that what's the maximum you're ready to lose.
Vikram Vaidyanathan:
I Iove that learning on take only as much as risk as you’re willing to blow up. But I do think you’ve architected your business such that your costs and yield are matching that risk because your costs are always super low and super frugal because it is a thin margin business and you're always keeping risks pretty much in tune with where your return is.
Nithin Kamath:
In hindsight, all of these things seem like I'd done smart decisions, but you know, I was just going with the flow, also because not having external capital meant that we never had to chase growth.
Vikram Vaidyanathan:
So I've heard you say, I don't want this obligation of returning money. And I’ve always said that it wouldn’t be an obligation but a privilege to invest in Zerodha, how do you think about not having raised capital and I think you've done fantastically well, yet till today you’ve continued to not raise capital
Nithin Kamath:
The thing is for a while in my life I used to do portfolio advisory, I used to manage people. It's money, you know, and I still trade for them. We did quite well, we made money for people, but that obligation that came along, People, middle of the nights on call, seven days a week calling and asking ”dude, what's happening? Market fell in the U S are we okay?” I mean, I hated those phone calls, and so there is some legacy issue probably, in the sense I've come from that experience of having with different kinds of people, the retail customers who gave 10-15L to be managed, et cetera. Right? But when we started the business, we needed money. So I did go around, but I think it was, it was a horrible time to go around asking for money for a brokerage firm.
I mean, 2010 is the worst year for blocking as an industry. Again, like I said, right place, right time, timing, et cetera. Starting business then was extremely foolish. But if you look at today, it was extremely smart, you know? So the first one, two years, you know, we didn't really have an option, so we, you know, we said let's do whatever to make this work with the money we have. But then my second, third year, we started making money. I didn't really see a use of raising money in a sense. I didn't know what I'll do raising money.
Vikram Vaidyanathan:
Well think about, you know, I can, have my equity marked up to a certain value other people will evaluate.
Nithin Kamath:
I don't know. I mean, I'm probably very traditional in that sense. For me when people talk about this valuation concept, I'm like, dude, whatever's in the bank is my value. I'm not even thinking of, what is the valuation? This is actually my real value, you know? So everything else is just people. And it can be here today, tomorrow.
Vikram Vaidyanathan:
One of the things that I love talking to you about is that you just drown out the noise and there is entire FinTech valuation noise. And I think you do a fantastic job of just blocking it out
Nithin Kamath:
I mean, then you can focus on the business, there's so much volatility in our lives and then you have to worry about one more area, which is am I worth $1 billion today? am i worth $500 million? I mean, it's not worth it, you know? Personally I'm in a super lucky spot that I have everything to kind of continue my lifestyle for the rest of my life. Now we're just trying to make a difference for this country.
Vikram Vaidyanathan:
So just last question on the external capital. Let's say today with the capital that's available and chasing different fintechs, if you had to start like a young founder, would you still not raise money or would you raise money?
Nithin Kamath:
I don't think there's an opportunity in broking anymore. I think if there is business where you have like high amounts of competency, of understanding that business really well. Yeah. Maybe then you think of bootstrapping it, right? But then if you're going to build something that can be copied very easily by someone, I think you have to raise money and there is and all because otherwise anyone with deeper pockets will catch up soon. But then a core competency can't really be bought. I can't have $100 million and buy another. That’s how I look at it. Even when I speak to some of the startups that we work with today, I mean I tell them, no dude, if what you're building can be copied by someone very easily, I think you should raise money and go build your business and put some distance on the competition.
Vikram Vaidyanathan:
Lastly, what's next, how do you think of the next 10 years?
Nithin Kamath:
What I'm thinking is how do we get more people to invest in the markets. And until now as a business, what we've done is if someone had an intent to invest, we've offered a decent platform to come invest in. And if someone had an intent to learn, we were offered a decent platform to learn. But I think the real problem is always how do you grow the ecosystem itself? How do you get new people to come to the markets?
Vikram Vaidyanathan :
There's quality or see inflection that on new people coming in and you'll see digital collar, digital investing being much more of a pull product and a push product.
Nithin Kamath:
Unfortunately, the way financial products are structured today, I think, it's still a push product and I don't think people are going to get up one day and say, I want to buy a mutual fund. That's probably because it's just complicated to buy a mutual fund too. You need some help. And I don't even know if, people might take small decisions on a digital platform, and I found say 5,000 rupees a month. But when the amount gets bigger, people will need the help of advisors and stuff like that.
So, the way we are looking at it is as probably we need to maybe get into manufacturing of products. I mean, we just applied for an AMC license, I'm on the business side. We have an NBRC license now to do loan against securities. Not something that I particularly enjoy, but people have been asking for it then, we've been working on allowing Indians to invest in US stocks. We don't get to invest in products that we consume. So the bet here is, will the millennial buy another piece of Netflix, for example. So, that's something that a lot of people are attempting it, but the problem, the broken experience there is a remittance of money. It's not really the offering, the investing experience, so they were trying to solve the remittance piece, and then on the business side, on the broking side itself, we have this new initiative called “nudge” where we are saying that we will try to “nudge” people to take right decisions.
Inspired from Richard Taylor's book. So it’s same thing, we just introduced our first nudge, which is if someone's buying a penny stock, we tell them you're buying a penny stock. Don't do stupidity. I mean, it's alright, people don't know. And I don't think there are too many brokers around the world. Actually. There is no broker on the world who will say don't do it. Because by not doing it, you're already using one transaction. So you're actually reducing the revenue. We actually are planning to give a kill switch, for example. If you lose, X amount of money, I would kill switch. So automatically everything gets locked. You would not be able to trade. So it's almost like your own poker. You are until someone says take a break.. So, we are kind of structuring all of that kind of nudges within the platform. So yeah, it'd be interesting to see if we can actually help people in a trade / invest better by using these nudges
I mean, how do you compete with someone who's got $1 billion? And I mean how to do something around
Vikram Vaidyanathan :
Just hearing you talk about how you're looking at the future, so many learnings! I think the one thing that we're also thinking about is how to make the digital financial product more pull than push, right? And this thing about having new products, which are truly micro products and you're going where the consumer is and you can hopefully give them the exact nudge to buy something. I think that's something that we're seeing across the ecosystem, I am hoping more founders think about that in a much more actionable way. I can keep going and I can keep getting learnings from you. But thank you so much for doing this. And we wish you nothing but the best. I'm hoping this journey becomes, it's already the number one broking model back home but I'm hoping it will become the FinTech that truly the world can be proud of. Thanks for hanging out.
