I wonder why there are only a few businesses like us that are built to generate profits and not raise venture capital: Nithin Kamath

Zerodha's co-founder and CEO on what it takes to build a world-class, credible, and socially responsible business that is focussed on sustainable growth, and why large businesses must be built without continuously raising funds to boost valuations at the cost of profitability

Published: Jun 16, 2023 01:06:08 PM IST

Updated: Jun 19, 2023 02:05:34 PM IST

I wonder why there are only a few businesses like us that are built to generate profits and not raise venture capital: Nithin Kamath Nithin Kamath, co-founder and CEO, Zerodha; Image: Selvaprakash Lakshmanan for Forbes India

Nithin Kamath, a new-age entrepreneur, built a bootstrapped unicorn, Zerodha, which disrupted and redefined the business of stock broking in India. Interestingly, unlike startup peers, Zerodha has no deep-pocketed investors or big marketing spends. But it is one of the few profitable unicorns with around 12 million customers. In an exclusive conversation on Forbes India Pathbreakers, the co-founder and CEO says, “One of the ways to succeed in business is to sharpen your axe before you go chopping wood. Building a business is really hard but there is an illusion over the last four to five years that you can build a business quickly. Last five to seven years all businesses starting out have been cut-copy-paste models and the odds of building a resilient business that way is much lesser.” He talks about starting out, building the business and more.

‘Making money quickly’

Nithin Kamath started off wanting to be a trader. “Along the way it felt like there was an opportunity to be a better broker for traders like myself. That’s how the transition happened. People actually misconstrue what trading is. People think trading is only about trading stocks. But I think of trading as trading your time for what gets you the best return on your efforts. If I am a singer, I should build my business or career in singing, and that’s a trade. I think you have to figure what you like to do and then build a business around it,” he says.

Part two of the conversation: I'm proud that at Zerodha we don't have growth targets: Nithin Kamath

Kamath started trading stocks when he was 17 years old. “I was in a neighbourhood of Marwaris and people who started business early and get introduced to money very early. That’s how I got introduced to trading and markets. I fell in love with the idea that you can make money quickly but over time I realised this was an absolutely wrong idea. There is no way to make money quickly. But being around these people who were thinking of business and money early in life got me. Otherwise, I am a South Indian Brahmin guy. There is no business in my family or extended family. That triggered a curiosity of sorts and luckily, I ended up picking something that I was passionate about. Broking was accidental, to be very honest,” Kamath adds.

‘What doesn’t kill you makes you stronger’

Kamath learned important life lessons as a stock trader. “All the money I made for three to four years, I lost it all in 2001 when the Y2K bust happened. I lost it in a week’s time and then I borrowed money as well at that point of time. So, I lost all the money I made plus more money that I had borrowed. This forced me to go find a job. But I learnt most of my life skills in that job. I worked at a call center job from 2001-05. I think selling is a very important aspect of building a business. All my sales skills I learnt speaking to people from the US at night. In hindsight, each of those things has helped me become a better person. There’s a saying what doesn’t kill you makes you stronger. So, that’s true,” he recounts.

He continues, “It’s impossible for someone to not be influenced by greed and fear, probably some monks, but I discovered myself as a person. I know that I am going to do some stupidity, and I am always trying to figure out what stupidity I can do, and I am trying to cover for it before it happens. Mistakes happen when you are irrational. It has helped me remain non-volatile and maintain a steady state of my emotions. That’s very important in life. It takes you 10-20 years to build a business and it is like a marathon. You don’t want to be running too fast at the start because you are going to burn out and not be able to survive until the end. I’ve learnt this from many of my mistakes.”

‘Thin line between passion and foolishness’

Kamath quit his job in 2005 and his younger brother, Nikhil, joined him. “Nikhil is seven years younger, but he is a much sharper trader than I am. The question was if he can trade well, why should I also sit and trade because I can do something else as an extension of our business. I was the type who was trying to evangelise markets etc. I used to run large communities even before Zerodha. I used to run some really large Yahoo messenger groups, Orkut communities, on trading and stock markets. Then we became a sub-broker for Reliance Money. We set up shop. I enjoyed interacting with customers. I found it interesting,” he says.

In 2009-10 the Kamath brothers spotted an opportunity: “The NSE was offering a platform that allowed for people without a technology background to get started as a broker and that is how Zerodha started. The plan was that if the idea did not fly, I would get back to trading in one or two years. It was a lot about being at the right place at the right time. It was a thin line between passion and foolishness. Today we are called passionate because it worked out, but we’d be called foolish if it did not play out. In a rear-view mirror, it is very easy to figure what happens in life etc. but that is not how life works. Life is the front mirror,” he says. The Kamath brothers had a meteoric rise and Nithin became the poster boy for bootstrapped profitable startups. “The last three to four years’ growth has still not sunk in, in terms of how big the business has grown, but I am still confused why we get so much spotlight,” he wonders.

‘Building a business is hard’

There are over 77,000 registered startups but only a handful are profitable. This explains why Zerodha stands out. “I don’t know why there are only a few businesses like us that have been built to generate profits and not raise venture capital, or those who are eternal optimists and constantly exaggerate. I wonder why there are few because there must be a lot more businesses like us. People need to know large businesses can be built in different ways. It is not just about continuously raising VC money to increase valuations, and not focus on profits but growth.

Also Read: I'm always fully invested in good and bad times: Raamdeo Agrawal

Last five to seven years all businesses starting out have been cut-copy-paste models. The odds of building a resilient business that way are much less. I personally think [raising] money brings obligation and you have to make returns for that investor. But I see many founders not feeling obligated of the money. The last five to seven years have been a weird time of sorts and been fuelled by all the excess money that was available in the world. Last 10-12 months we are seeing some correction.

One of the ways to succeed in business is to sharpen your axe before you go chopping wood. Building a business is really hard. There is an illusion over the last four to five years that you can build a business quickly. Of course, there are exceptions. The best odds of you being able to do it is if you have experience before you start. Especially on a regulated industry. One misstep is all it takes to give away all you gained. You also need to have a regulatory foresight like you have a business foresight. That can only happen if you have some experience. I think people should spend time building skills before they start a business,” Kamath advises.

(Don’t miss part 2 of the conversation as Nithin Kamath shares his playbook on what it takes to build a world-class organisation)