The Generalist - How Khatabook powers 25% of Indian SMBs

Friends,

If you told me that for the next 10 years I could only venture invest in one country outside the U.S., I’d probably pick India.

Though I’m extremely bullish on other ecosystems (Latam, Europe), perhaps no other nation has quite as many demographic and cultural tailwinds as India. Consequently, I hope to study many of the founders and companies in the ecosystem more closely over the coming years.

Today’s piece fits that theme. Below, you’ll get an inside look at the operations of Khatabook– a breakout fintech platform–through the words of CEO Ravish Naresh. My hope is that it will not only illuminate the practices of a thoughtful founder but give insights into the broader ecosystem.

To hear about Khatabook’s rapid growth, Naresh’s managerial challenges, and the importance of a great company name, jump in:

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The Wisdom List: Ravish Naresh, Khatabook

Actionable insights

If you only have a few minutes to spare, here's what investors, operators, and founders should know about building, according to Khatabook CEO and founder Ravish Naresh.

• High data usage. Thanks to Reliance Jio and low-cost smartphone manufacturers, India is a connected country. Ravish Naresh notes that the average Indian smartphone user consumes more data than equivalents in affluent markets like South Korea. Such connectivity has been critical to Khatabook’s success.
• Eyes on the competition. Ravish Naresh likes to be aware of his rivals. That was especially true during the bull run of 2021 when capital was abundant, galvanizing newcomers. Above all, Naresh looks at what the competition is doing well and where deep product-market fit is being achieved.
• The beauty of simplicity. Khatabook’s best marketing decision was the name it chose for itself; it means “credit ledger.” Given Khatabook serves SMB owners who have mostly not used business software before, having a straightforward name has proven useful.
• Going from remote to in-office. Since it was founded in late 2018, most of Khatabook’s growth occurred during the pandemic. Consequently, much of the team was hired remotely and operated without an office. Naresh highlighted the shift to in-office work as a managerial challenge he’s tackling head-on.
• Mindful of the macro. Naresh considers the current macroeconomic environment to be the worst he’s seen as a founder. For startups in emerging markets, a downturn can be especially damaging, drying up access to growth capital.

***

Mark your calendars for April 14, 2023.

If the United Nations is correct, on that day, India will surpass China to become the most populous nation in the world. On April 15, it will be host to 1.425 billion people, with more growth yet to come.

Symbolically, it is a changing of the guard. It also reflects–at the broadest level–the opportunity India may present from a venture capital perspective. As well as being (nearly) the world’s most populous nation, it boasts the sixth-highest GDP, more engineers than the country can employ, the second-most internet users, and total venture funding of roughly a tenth of the United States.

Taken together, these tailwinds give the sense that India’s startup story is only just beginning. Though plenty of investors are already active in the ecosystem, those that aren’t may wish to give it greater attention in the coming years.

Among India’s current crop of startups, Khatabook is among the most intriguing. With a deceptively simple bookkeeping product, Khatabook has succeeded in gaining widespread adoption, with hundreds of millions of merchants using the platform to track their finances. It is also at an interesting point in its life – last valued at $600 million, yet to realize revenue, but powering 25% of SMBs, according to CEO Ravish Naresh. With admirable frankness, Naresh shared his thoughts on Khatabook’s breakout trajectory, outstanding challenges, and remaining ambitions. If Naresh has his way, Khatabook will not only become an extremely large, profitable business, it will also empower India’s merchants to compete with the country’s biggest companies.

Here is Ravish Naresh’s wisdom.

What was the first thing Khatabook did 100x better than anyone else?

We succeeded by understanding the problems of our user base and building a focused digital solution. The truth is that before Khatabook came to market, there wasn’t a technological solution for Indian SMBs to manage their finances. Through our research, we learned that this segment operates on informal credit and keeps track of obligations through offline diaries – literally paper notepads.

We focused on digitizing this exact use case. Instead of logging entries in a diary, SMBs could use our app. It represented a huge improvement over the status quo because we could do things pen and paper couldn’t. For example, we could automate the collections process, making it easier to receive money an SMB might have loaned or borrowed. We also offered timely reminders so that this audience could stay a step ahead. Compared to many peers, we maintained a restrained feature set – but it solved an acute problem. This was critical to our success.

It’s also important to note that we were helped by market timing. In 2017 and 2018, India went through a large-scale 4G revolution, with telecom giant Reliance Jio bringing cheap data to the country. Combined with an influx of cheap smartphones from China, this shift pulled forward the digital opportunity in India. Suddenly, everyone had a smartphone that they could use to access the internet economically. You can see the impact of this today: despite earning just $2,000 per capita per year, Indians consume more gigabytes of data than those in more affluent nations like South Korea or Finland.

For Khatabook, this was a game-changer. The SMB segment we targeted could be well-served by an app for the first time.

In a meme

​​​​For the pictorially inclined, here's the whole piece — all 2,000 words of it — in a single meme.

Puzzler

​​​All guesses are welcome and clues are given to anyone that would like one. Just respond to this email for a hint.

Siddharth P remained ice-cool under pressure to answer last week's riddle first. He was followed by a crew of others that slip-slid their way to an apt response, including James M, Scott M, Yura S, Scott F, Ian B, Stephen C, Keith R, Steven R, Joshua K, Andrew S, Jeffrey L, Sunil S, Jack W, John F, Keshav J, and Antoine Y. The riddle in question:

The answer? The river is frozen. Some other clever responses included: the river is dry, the river is deep but not wide, or an underground tunnel runs beneath the river. Lateral thinking for the win.

Wishing you all a lovely week – and I’ll catch you after Thanksgiving.

Until next time,

Mario