In this episode, Vijay Yalamanchili, Founder and CEO of HR tech platform Keka talks about scaling SaaS while staying bootstrapped, and waiting on the right time to raise funds. Vijay also takes us behind key early decisions - though seemingly counterintuitive - on choosing India as a target market, pricing 3X over competition, and balancing services and product tracks along the Keka journey.
1:00: Breaking rules & selling SaaS in India
3:42: Pricing 3x of competition
7:16: Focus on one point problem and segment
12:06: Leading with UI/UX early on
14:38: Services vs product & should founders do both?
18:37: Scaling bootstrapped
22:05: Behind the brand name Keka
24:32: Getting to the first $1mn ARR
25:52: Resilience through the lows
27:46: Timing your first fund raise
Rajan: Welcome to the Value SaaS podcast. Today on the show, I have my good friend Vijay Yalamanchili, the CEO and founder of Keka. Keka is the number one and most loved people experience platform, which in a very short span of time has won the hearts of startups and SMEs in India. Vijay. Welcome to the show.
Vijay: Thank you, Rajan
Rajan: I want to dive directly into the question that I have been burning to ask you. You broke the thumb rule, ‘It’s easier to earn a dollar than to earn a rupee’. Many years ago when we met, we had this conversation where you said, ‘I agree’. You had returned from the US, built products for US businesses and built an offering for the US market. And you’d said, ‘yes, that makes sense - it's much easier to build for the US market’.
But then, you embarked on this journey to build for the India market. And a few months ago, when we met, you talked about the stellar results and the growth you achieved in a few years, which has taken many other SaaS companies in India focusing on the India market, eight to 10 years to achieve.
And, I’d said, ‘Vijay I am shocked.’
You said, ‘I'm shocked too!’
Tell me what's going on?
Vijay: Right. Most of my experience had always been with the US market before I started the product. At the time, Keka’s first customer was also a US customer. And it was like $1,400 a month, which was good revenue. But what happened at the time was the HR market had huge funding in the US. And I was starting as a bootstrapped startup. Now I have to compete with these HR Tech firms that are heavily funded. And in that whole market there's a small player, there's a mid-market player, there's an enterprise player. All of them funded, all of them new entrants.
So I felt at the time, if I launch something, I'm still trying to figure out where I fit in and trying to find a positioning. And now there's so many elephants already in the market. So, I thought just being another HR tech firm in the US is really hard for me to position.
Whereas in India there were no market leaders. There were too many players here but no clear market leader. And I thought this is where I could actually create a differentiation.
Now, I had the same fears. Everybody told me - I have a friend, Manohar, who runs Agile CRM - he also warned me saying, ‘you're going in the wrong market’. But, for me, I somehow had to go with the conviction that there's no market leader here. Probably it's better to be a big fish in this small pond than try to be a small fish in that bigger market where there's a lot of chaos.
That was the thought process at the time. And I took the plunge to launch in India.
Rajan: There were many players who tried to enter the India market in a similar space - HR tech. What specifically happened in the years that you launched that helped you have a very different outcome compared to the rest of the folks?
Vijay: So, I think one of the things with the India market is, and because I already received these warnings from other founders - I thought I cannot play this cheap product strategy game. And, that's what everybody was playing at the time. The software was like 10 rupees per employee.
I thought, I should be able to build something where people find value and they should be able to pay for it, and pay enough. So we launched the product at Rs.30, three times what the immediate competitor was asking. And we were not keen on giving high discounts. So, if we were able to sell this product, it would prove the notion that if there's a value, people would buy. So the next step for us was figuring out the value.
So, we did a lot of customer research, and a lot of it was my own learnings running a small business company. Those lessons, coupled with some of the customer research, pointed towards specific pain points. And we had a theme.
In India, an HR person should be able to run a payroll even if there's no finance person. Beyond the payroll and compensation and some of those aspects, there are a lot of questions that employees ask, which the HR should be able to resolve for them. Those were some of the premises with which we launched.
In the first product we released, we didn't even have payroll. Our research proved that calculating time was the biggest pain point in the entire payroll process. So we built that ‘one’ product that integrated with numerous devices, pretty much every device in India. Although we didn't have APIs, SDKs, we had to reverse-engineer and figure out. But we made sure that that one problem we will solve like nobody else did.
So, we went with that approach and we had customers just buying attendance software. And, and in fact, even after we have built payroll, the attendance software was taking a significant piece of the customer share than even payroll.
Rajan: So you said two very interesting things. One, you said that you launched with three times the price of what your competitor was paying and you didn't want to play the cheap game, as you articulated it. The other thing you also mentioned is that you didn't give a discount. Totally counterintuitive!
Whenever somebody thinks about the India market, they think ‘value-conscious’; how much discount are you offering and how are you making it very, very cost-effective for them. And despite that, you did these two things which are very counter-intuitive. What prompted you to do that?
Vjay: When I was trying to build Keka, I already had another business. When you have another business running and then you want to move away from that business to build this, either it has to be something big or it's a disaster. So, I had that goal clear that if I'm taking a risk - it has to be a risk - because I'm doing something bigger.
If we had to do it at a cheaper price, I could not see us growing bigger. Just the math on the market size alone was very poor. So, I was clear that either I'm going to do it, or the moment I know it's not the right thing I'm going to withdraw from the market.
Rajan: So there is one more thing with respect to the India market that is talked about. When you go and work with an Indian customer, they are like, ‘add this feature, add that feature’. In fact, the way we like to frame it is that Indian customers want you to build a Thali Startup. They want everything decorated as a thali, and they don't want just one specific dish. And initially when you launched you said you only focused on attendance, which is like a point product, and then you later expanded to payroll. So when a customer comes to you and tells you ‘give me an ERP for HR’ - which is how every Indian customer thinks - how did you deal with such requests and how did you resist?
Vijay: So yeah, you mentioned this Thali example. There's also another very frequently spoken one - ‘ the customer pays for a Maruti and expects a Bentley experience’.
So, you are correct. One of the biggest challenges was that Indian businesses were not used to SaaS. Right now it's become pretty popular but at the time, the market didn't have that maturity. So we would come across customers and they would say ‘build this or we'll leave’. So, we did struggle, we did make our mistakes. In fact, it was the bigger customers that were actually causing this problem more than the smaller ones.
We had one business based out of Bangalore; they had a huge number of employees they wanted to onboard. They made us develop a bunch of things. We lost three months of development time and then we realized they were never actually very serious about this whole thing. So, that actually taught me the lesson that I cannot let customers dictate the product roadmap and I should not work with enterprise products. So that was one decision we made - not to sell to bigger customers and chose to remain SME-focused. When you're bootstrapped, you have very small energies, and all those energies need to go towards building your product and not get distracted.
We had a lot of good brands sign up, and when they would threaten us, we would leave. And we were okay with it because we felt it was not our ideal customer profile. So I had to reduce my average customer size; we had to decide that we would only sell to customers with less than a hundred employees because there we are seeing that they're liking the product, they love it.
So that was the other piece, you have these other few customers who are very happy and then, and these other customers who are unhappy.
So maybe we connected with those happy customers most and when they shared feedback, it was really good. I used to get feedback from some of the employees using the software also and they would say this is really good. I think that love probably prompted us to choose those who are loving us and try to focus only on that segment.
Rajan: Dance with the ones that want to dance with you as opposed to trying to appease those who don't. Great point.
Vijay: Just to add to the point you mentioned - being a point product versus an ERP, we knew we were going to build a bunch of products. But it's very important at an early stage, and we chose this. We were losing deals; we had one of our competitors, who was offering more modules, because of which we were losing deals. And, that included deals from our ideal customer profile as well. So our sales people were worried. But we stuck to our decision, saying, ‘we'll just try to build more of the same thing, but sell to more customers’ before we venture into building more products. And all because as a team there's only finite resources with which you can build.
So one of the decisions I made was that in our space, HR tech space, what happens is every time you onboard a customer, we were getting at least 20-30% customers, in fact even more, who were not happy with the product because there was some missing feature. And that missing feature was on the existing products we were serving.
So I felt that we should reach a state where customers should literally not have to ask for any additional features. We should be able to onboard them seamlessly without any friction. Otherwise customers would say, ‘we have this policy, but this is not possible in Keka so we cannot use the software. We wanted to avoid that first. So for the functionality we are providing, which was solving the payroll ops, we wanted to make sure we didn't have any friction during onboarding. Solve that problem first.
We did that and that helped us actually scale. So we were able to do more sales with that same product. At least the products we sold were good. So the surface area you’ve exposed yourself to is small, which means you can do a quality thing. So I think it's important for early-stage companies to stay focused on a point problem.
Rajan: A related thing that comes up is that a lot of what you said is like product thinking - making key choices, key decisions about your ICP, about what to focus on, what feedback to listen to from customers and what to avoid. Along with that, there is also ‘how’ you solve this.
One of the things that Keka is also well known for is that the products are easy to use. When you and I caught up, you told me that you are the chief design officer of the company and you literally design everything yourself.
For India, usually that doesn't matter. Most of the products that are built for the India market don't have design as a key center philosophy. But you chose differently. What was the reason for that? And in retrospect, did that pay off well or not?
Vijay: Right, Indian products in general used to be very clunky. So, maybe that gave rise to that thought process. But in the early stages, I was involved in the sales process also. And we decided in the first call with the prospect that we would demo with a PPT; we are not gonna show our product. So, if I have shown them a bunch of screens and told them a story, does it excite them? Am I able to win their heart first? So this was an important criteria for me because when there are n number of peers in the market and the comparison is on the laundry list of features. I know we will never win because we just started. So I wanted to win the heart first - I don't know if it's a left brain or right brain thing. I think it’s the right brain.
So anyway, we went with that premise. And I used to tell them, ‘Hey, this is how we are doing leaves. So simple things like when you apply for a leave, your other employees can see who else is on the team has applied for a leave and they can make a decision on whether to take a leave or not. We could win the heart and that gave us the confidence that this is a way to actually do our sales.
Right. So I think people in India are also the same as in the rest of the world. Anything that attracts the eye, they get attracted to as well. So that notion was proved wrong that Indians do not care for UX. At the time we didn't have enough UX talent. Indians always wanted quality software. We just didn't have the talent to serve that.
Rajan: You earlier mentioned that you ran Keka initially more as a spinoff and you were running this other services business; you ran these two companies separately.
There is this other myth that people from a services background cannot build product. In fact I used to carry that 12 years ago. I changed it five years ago. In fact, I wrote a blog post about it called The myth of the services DNA and you are one more person who stands testament to my new belief.
What is your take on it and how do you see services versus product? You have done both. In fact, you built the services business to a sizeable team of 500-700 people. And you are taking your product business to a similar scale.
Vijay: So there are two sides to this. One, can a person coming from a services background build a product? The other piece is, can a person build both services and product?
I would say, depending on the services business also - if someone is working on SAP and all these traditional systems, it's very hard for them. But, I think that's also a myth. There is this company called HighRadius, they were in the SAP space before and today they're a $3 billion business. So, yeah. I got it wrong. So I think, services people can build products. That's pretty true.
But building both is not practically easy; it's very tough. I wouldn’t recommend that. For me, the reason I had to do both was I've already taken hits in my journey in my past career, so the services business was actually helping me survive. But running both is extremely tough because the mindsets are very different for both. And that's probably why the myth is true when looked at in that manner. I would say pick one.
Rajan: What were the challenges you faced?
Vijay: See, if both are in the early stages, both need that much attention from an entrepreneur and you cannot do a half assed job. So even when I was running Keka, I almost pretty much ignored the services business for three years. I had to focus on this thing because I had this deal I made with myself that if we didn't succeed, I had to quit. And I didn't want to do that because I loved building products.
So I had to take a break, and for the three-year period, I did not actually focus on the services business. And that took a beating. So in my own experience also, although it might seem now that I was successful, I think if I had not built this product, the services business would've been like four or five times bigger.
Rajan: So that brings me to an interesting situation. There is an entrepreneur running a services business with 20 employees and about 2 crore in turnover but is interested in building a product. For somebody like that, what would you advise them? And he has this dying desire to build the product and he's done multiple iterations and has not been successful so far. Given what you know from your experience, what would your advice be?
Vijay: So, Rs.2 crores and 20 people - that's Rs. 10 lakh per person. At that revenue size, this particular entrepreneur would probably get more salary outside than he's making in the services company. So, I think he should first take care of his survival because building a product is hugely time-intensive and the return is many years away. So I would recommend that he grow his services business to a considerable size and then maybe take a plunge. Or shut down the services business. He's still in the very early stages and at this stage, product is a distraction.
Rajan: Maybe I’ll use that as a segway to talk a little bit about the different ways people build a product business. You chose not to take funding. You chose to use your services business as a way for you to help you bootstrap. How would you do the tradeoff now, having gone through that experience? Which one would you prefer - grow the services business to a sizable scale, then bootstrap and then focus for two, three years, like you said, maybe you have to spend Rs.2 crores in the product business…
Vijay: That's the other piece also. There's a time factor to it. If you're running both, definitely your attention to each of the businesses is going to be substantially less; one of them is going to definitely take a hit. If it's the product that's taking a hit, you'll go back to your services. If it's the services that's taking a hit and you don't have enough money, your product will still suffer also.
It happened to me. We were relatively at a bigger size by 2019 but we had this one customer that went bankrupt and they owed us Rs.7 crores and that was a huge amount for us. It was like 50% of both the companies put together. So that actually was a huge beating and we somehow survived it. But those are the kind of problems you'll face. Like you lose one major project in your services, what are you gonna do? Are you going to put all your energy into services again?
Usually founders put energy in services because that is their primary bread earner. And, and that is why their product does not get the attention.
Rajan: So in this situation, should you fundraise? You chose not to do it.
Vijay: It depends on the market. If you asked me a year ago when everybody was raising money, I would've said ‘it's nearly impossible to build a startup bootstrapped’. But as the funding is cooling down a bit - not so much in India yet - I think if the founder has talent in this services company and if he could leverage the talent effectively there's no need to raise money. See services guys know how to hire at a low cost. If they're able to do that and channelize that into building a product, maybe they don't need to really raise money. Or even if they're raising money, it could be like a very small convertible debt or something on those lines.
Rajan: So what's your view on capital efficiency, as in doing these services and then low cost hiring... What helped you be capital efficient?
Vijay: I think capital efficiency - one, because you’re bootstrapped, you're short on resources. So that comes naturally. It's also something you're used to in a services business. In a services business, you are used to selling at a profit only because there's simply no way you can run a business with a loss.
From that perspective, I was even scared of running a business where I couldn't see margins. I'm used to calculating this gross margin in services and we did a similar math on the product as well. I think that probably came naturally because I came from a services background.
Rajan: Brand name - a name like Keka - once you listen to it, you don't forget it. What's the backstory behind the name? And in general how do you think people should think about naming their startup, which many people think is not important, but at some stage it is?
Vijay: Even before I bought the domain name, even before I actually started the business, I knew I was going to build a product. I think I bought the domain at least a year before I even was contemplating building a product. From a business perspective, it's a stupid decision because I also spent a good amount on buying that domain name.
The reason I wanted such a name was that I'm an emotional person. For me, the name for which I work has to give me the highest aspiration possible. And I should feel proud about something. I don't know if it makes any practical sense, but for me, that was important. It should always motivate people to go beyond themselves. I wanted that kind of a name.
I also wanted a name that was in Telugu, the language from where I come.
At the same time, it should have an international appeal, so it's easily pronounceable. If I tell a customer over a phone, they should be able to quickly type it in a browser. That particular piece is very important because in the sales process, you call a customer and you say, I'm from so and so. They should be able to recollect, the brand recall is very important. Otherwise, people have very less attention span; they don't even pick calls, but when they pick calls, they would want to have some name in their minds. I did that calculation there and chose Keka based on that.
Rajan: So just a recap of what you said. You said it has to have an emotional appeal for yourself, plus the team and, and the larger audience that is associating with that; it can give an aspirational value. So that emotion is very, very critical. You said it should be simple to pronounce, it should have international appeal and of course, you started with a name and you did overspend on a domain that is easily available to you. So these are four or five parameters that you use. Awesome.
Rajan: For a SaaS startup to get to about a million dollars in ARR for the India market - and you got that very, very quickly - what are the top three things you believe now that are critical to be solved?
Vijay: That is a period where it's most unpredictable. So you need to choose your product market fit and then be able to scale.
For us also, it took some time to achieve that one million. We made enough mistakes on our journey. I think it was essential, one, to be really sure about the problem we were solving and two, to know is someone ready to pay for it? That was the most important thing. If someone is able to validate, the next bit of it is actually scaling.
Depending on the market size, the rule book can change, but in our case we explored partnership channels, and, all of those. But what I realized was when you're very early, you should not try to focus on too many channels for distribution also. You should choose specific channels and a specific ideal customer profile and then keep multiplying on that. I think that is more important.
After $1million, what happens is you’ve found that PMF, you have a lot of conviction, you'll start gaining intuition about your market and that will actually help you figure out your next journey.
Rajan: So Vijay, you and I have known each other since 2007, and you have built multiple startups and you've had different outcomes. They've been a lot of highs and a lot of lows. If you were to pick what is one of those highest highs in the last 15 plus years and maybe one of the lowest lows, what would you say?
Vijay: You’ve known me since when I was incubating my first startup in college. I did not even start with a business mindset. I started because I had this notion of serving people and using the business as a means to serve. My whole thought process at the time was to hire people who are jobless, train them, and then build a services business, so that you're able to hire more and more people as you scale.
There was a lot of resistance from the family and everyone. They said, ‘You're not meant for business, it's better to choose a job in the US’. I had to face all of that, and I was newly married. So everything seemed like it was falling apart.
The other one was during Covid time, one of the clients went bankrupt, and they owed us Rs.7 crore. I was feeling that what happened to me 10 years ago was going to repeat again. That I might start losing on both the businesses. So that put me in a lot of stress during those past three months of Covid. So that was my next lowest, I would say.
The highest, I think, is now. It's been a 15-year journey. So, yeah.
Rajan: Thank you for sharing that. I know you've gone through multiple challenges and on the ground difficulties. Great to see you are touching new highs.
Now, one last question for you, Vijay.
Rajan: Before I wrap up - is there any question that you think I should have asked that I did not?
Vijay: I'm really thinking what that question should have been? A lot of people do ask, ‘why are we bootstrapped or why are we not raising money’? I keep getting these questions on LinkedIn from other bootstrapped founders. That's one question I can answer if it helps other people in bootstrap mode.
Rajan: Yeah, absolutely. Go for it.
Vijay: I'm not for or against raising money. In fact, in our journey also, we did attempt to raise money. But when I approached an investor, I found that they already had certain pre-set notions about our space, that the ‘HR Tech space is not really a good space. We don't have any thesis on this space’. And because of that, the ones who were willing to fund you were giving very low valuations. So, I felt if I had to dilute very early, giving away a significant stake, it is really not worth it.
In particular, at the time, the market was also not so great. So I thought that if you stay on your own, that might actually be a better value than pursuing a lower valuation. The other part, an investor coming in with the wrong understanding of your market, is also a very wrong partnership. So those are the reasons why you should try to stay bootstrapped.
If you have a strong conviction and you know you are able to build, I would prefer that we stay focused on customers and build as much revenue. But you will reach a point where at some point you would want to scale. So with bootstrapping, growth could be relatively slower. So that's the point where, I think if you have a grand scheme, you should raise money.
For us, if we have to grow beyond this, be one of the top players in the world, there's no way we can do that funding ourselves. But clearly since we have worked in a market that's not really… We don't get a lot of money from customers in India.
So, you just have to time it. You should use your funds effectively when you are ready to scale. But when you're trying to prove product market fit, it's better to struggle first than to raise money.
Rajan: Yeah, absolutely. I like that. Bootstrapping versus funding is always a false dichotomy or a false choice. So it's the right capital at the right time. If you put rocket fuel in a very small auto, it'll corrode and explode. And once you have strengthened your engine to be a Ferrari, then it can actually take the rocket fuel so that it can take off as a rocket ship.
On that note, Vijay, thank you so much for taking the time. It was a pleasure talking to you and connecting back on some of our old memories. Thank you so much for doing this.
Vijay: Thank you, Rajan. Bye bye.