Wisdom list
Nov 20, 2022

The Wisdom List: Ravish Naresh, Khatabook

The $600M fintech grew rapidly by digitizing an existing behavior. CEO Ravish Naresh shares his lessons and why profitability is his new focus.

Artwork by 
Eleanor Taylor
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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.

How do you scale yourself?

Very simply: always hire people who are better than me, across all roles. This is especially important in leadership but goes for the whole company. As we’ve added an increasing number of exceptional people to the organization, I pull my average up. Having an incredible team keeps you on your A-game. 

What do you look for in potential teammates?

A desire for high levels of ownership. When a startup is scaling, there’s necessarily a lot of chaos. Growth often occurs in an unstructured fashion, in a manner you can’t fully anticipate. 

You need a team that not only persists in this environment but thrives. We’ve found that those who take ownership with limited supervision are most effective. As a result, we have a huge bias toward hiring former founders or those who have worked at a startup. Familiarity with this kind of environment is useful. 

Beyond ownership, we also tend to prioritize data-driven teammates. We constantly use our data to learn how well we’re serving our customers, where we can improve, and what decisions we should make. 

Where do your new ideas come from?

Khatabook is in a phase in which we’re actively trying to cut down on ideas rather than come up with new ones. Throughout our history, we’ve experimented with many different features, but we think the best thing for the company right now is to hone in on the things we need to get right.

Historically, many of our best ideas come from the team itself. That’s a byproduct of having a high-ownership culture – employees are deeply involved in their work and see where there’s room for improvement. We also get ideas from our competitors. We observe what they’re doing, see what’s working, and try to understand how we can improve it.

How do you decide what to focus on?

We start with our objectives. What are the goals you want to achieve in a given timeframe? For Khatabook right now, our goals are profitability and sustainability. We’ve grown extremely quickly, but now it’s time to build a business model that creates free-cash flow. 

Once you set an objective, it’s time to assess the options that could help you reach it. We like to create a matrix for the different possibilities, scoring them based on the amount of effort it might take, the impact it could have, and the probability of success. Going through this process is revealing. You might realize that the plan you’d assumed would be best might take significantly more resources compared to a similarly impactful alternative with an equal chance of success. Understanding your trade-offs helps make prioritization and focus simpler. 

How much do you think about competition?

It depends on the phase of the company and the macro-environment. For example, during the bull market of the last few years, we kept a close eye on the competition. Capital was cheap, meaning that it was easy for competitors to get off the ground or raise growth funding. We kept rivals on our radar, looking out for new entrants, innovative features, and successful product choices. We needed to know what was working and who might be a long-term threat. 

It’s different now. Capital has become much more scarce, allowing us to look inward rather than outward. The market is moving more slowly, making it harder for newcomers to get off the ground or competitors to build war chests. Of course, this doesn’t mean we forget about our competition or stop studying their decisions. We will always look at companies with deep product-market fit, especially those with equal product-market fit to Khatabook. We are also especially cognizant of what moats our competitors might be constructing. 

What has been your best branding or marketing decision?

Our name. “Khatabook” literally means “credit ledger” – our application does what the name tells you it will. That simplicity has proven a key differentiator for us versus our competitors.

It makes sense when you think about it. Many of our customers are first-time internet users. For almost all of them, Khatabook is the first business software they’ve ever used. You want to keep things direct and easily understandable to win over that audience. It’s one of our edges. 

What has been your greatest managerial challenge?

Getting people back to the office. Much of our growth happened during the pandemic, meaning that most of the company was hired remotely and became used to working that way. Shifting a remote-first workforce to an in-person one has been challenging.

The reason we’ve moved back to the office is straightforward: efficiency. We’ve found that teams move much faster when working with colleagues in person. Meetings are more efficient, and small check-ins throughout the day can smooth progress.

Changing our core practices has been challenging. We’ve found our most effective tool to be making in-office work easy, more fun, and more fulfilling.

What is Khatabook’s narrative?

Our story is about unlocking the power of India’s SMBs. 

In a short time, we’ve fundamentally changed how this segment does business, onboarding a long tail of SMBs and micro-entrepreneurs at an unprecedented scale. Khatabook has 10 million monthly active merchants, roughly 25% of all small merchants in the country. Every month, 20% of India’s retail GDP is recorded in our digital ledgers. 

The massive amount of data we absorb and the distribution we have built are huge opportunities. In time, we plan to offer financial service products to our user base, democratizing access to credit, investing, checking, and beyond. Our ultimate goal is for Khatabook to become India’s largest SMB-focused bank, changing the lives of millions of business owners in the process. 

What do you worry about?

At the moment, I’m worried about how deep this recession will get. Will capital markets pull back for another six months? A year? Longer? I’ve been an entrepreneur for twelve years, and this is the worst I’ve seen the markets behave. 

What concerns me most is the potential for another black swan event. The world is already stretched thin. For example, what happens if there’s a war between China and Taiwan? That would take us into darker territory. 

For startups in emerging markets, the macro environment is particularly important. The cost of capital in India is much more volatile than in developed ecosystems like the U.S. Especially for growth rounds, Indian startups are impacted by the amount of foreign capital targeting our market. Additionally, valuations seem more directly tied to revenue projections and profitability.

This is why we’ve shifted our North Star from growth to profitability. We want to be in more control of our destiny and retain a strong position in capital markets. 

How will Khatabook change our era?

We will allow India’s SMBs to compete head-on with giants like Walmart and Amazon. This hasn’t happened in the U.S., but our goal is to bring it to fruition in our country. 

The way we do that is by giving SMBs the right digital tools. That includes banking, commerce, and procurement. We’ve already completed step one of this mission, digitizing and onboarding millions of Indian merchants. Many people felt that reaching the scale we’ve achieved would be impossible – particularly with the bottom-up model we’ve leveraged. To get a sense of Khatabook’s breadth: we currently serve businesses in 99% of the country’s districts, even the furthest, most rural regions.

There’s much more to do. We will continue moving down our roadmap, discovering new use cases to digitize.

The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.