(This article first appeared in Inc42 on 13th December, 2016)

With many Indian startups maturing and developing well past the early fund raising stages, we understand that it is important to chronicle more than just their clichéd entrepreneurial journeys. Their learnings at various stages help enthusiasts understand the ins and outs of traversing through the challenges of their own ventures.

To this end, we, at Inc42, will explore a series of articles talking specifically about growing and scaling a business across different sectors beginning with Razorpay’s Harshil Mathur.

The fintech startup is an online payment gateway which allows businesses to collect payments online through credit and debit cards, netbanking and mobile wallets. The startup’s journey started back in 2013 having been founded by Shashank Kumar and Harshil Mathur in Jaipur, but are now based out of Bengaluru.

The company has the distinction of of being the second India-focussed startup to have made it to the Y Combinator accelerator program back in 2015. It has raised a total of $11.6 Mn from two funding rounds in 2015 with another undisclosed round closed this past year in July and counts among many others, MasterCard, Tiger Global, Matrix Partners and the founders of InMobi, Snapdeal, Freecharge, as investors.

From starting with customers generating revenues of INR 2 Lakh a month to $15 Mn a month. Razorpay claims to have 13,000 merchants onboard with that number growing at an average of 1,000 merchants a month (3,000 in the month following demonetisation), the company has come a long way.

This interview has been edited for brevity and clarity.

Inc42: What were your most prized learnings from your time at Y Combinator?

Harshil: Our time at Y Combinator was probably the best time we had in our startup journey. The learning was immense because of the fantastic mentorship program run there. There were two particular learnings that we still try to incorporate in our daily processes even today.

Firstly, keep talking to your customers at every stage of your business development. Whatever be the product you are trying to build, whatever be the problem you are trying to solve, identify your customer’s needs by talking to them and solve them. Razorpay has always had a very personal relationship with their customers. We never hesitated to sit with them and get feedback. Of course, we did not incorporate every suggestion that came our way.

There will always be changes that a customer asks of you that will make you lose your focus, but the changes that you do make should resonate well with the feedback that your received from your customers.

A product should never be built in isolation. You might one day realise that a product you built in Delhi, has no market outside because of the way it was designed. This situation will never arise when you talk to your customers regularly.

An example of how this helped us was when the recent demonetisation drive rendered cash on delivery almost useless. A lot of such orders were stuck and our customers approached us with this issue. We built and shipped out a service called eCOD within a couple of days.

This helps consumers pay for products through UPI, multiple wallets and other online modes at the time of delivery. Understanding the customer’s needs as to the time needed to incorporate a new product, we made the service hardware-less as it allows delivery boys to accept orders over their smartphones. This was an example of a product we built solely out of listening to our customers.

Secondly, dedicate your resources solely to processes that give you growth. There are many things a business needs to think about at the early stage like hiring, marketing and a hundred other things. But the focus point of all actions needs to be growth, because once you can achieve that, everything else will follow.

Inc42: Are accelerators worth a startup’s time?

Harshil: First-time founders will definitely find a valuable use of their time at an accelerator. There are many common mistakes that almost every first-time entrepreneur makes. Accelerators help you avoid them because they have done this for so many previous attendees and know what mistakes are usually made and how to avoid them.

For example, we were once in conversation with a renowned VC in the US. We had met him thrice and were really happy because every time we met him, he showed a lot of excitement towards our venture and we thought we would bag funding even before our time at YCombinator was done.

We told this to our mentor at the accelerator and the first question he asked us was, have you discussed the terms of the deal yet? I said no. Then he asked us what was the position of the guy who met us was? I looked that person up and found out that he was an Analyst! The mentor asked us to not waste any more of our time.

So as a first time founder, there are a hundred such things that can make or break your company and that’s where an accelerator really helps you out. However, an accelerator will not be of much help to someone who already has experience running a startup before.

Inc42: You have raised three rounds to date. What are some of the key decisions a founder needs to make before getting funding?

Harshil: Why do you need the funding and how much funding do you need for your business at that time. People often say get as much funding as you can and you can put it up in the newspaper that you’ve raised such and such an amount. But a lot of times, the more important factor is does my startup really need that much money?

This figure that you must know beforehand should be in line with what are the milestones you want to achieve. You need to be able to answer the question that if you raise INR 100 today, what should be the value of that amount two years down the line when you will look to raise another round.

Another equally important factor to consider is who would be your right partner. The investor that you bag would work closely with you for at least two-three years. That investor needs to understand you and your business thoroughly. He should not put the money because you are hot right now, but because he believes in your business.

It is the entrepreneur’s responsibility to look up the investor, speak to his past portfolio companies and understand the pitch before entering the game. We ourselves were caught between two investors and decided to go the market and find out more about each of them. We found out that one of them did not know enough about the fintech market and so we selected the other investor. The right partner might give you a little less valuation, but if he is the right partner then it will be worth it.

Inc42: Why did you pick Jaipur to start up from?

Harshil: It’s all about practicality. I started Razorpay from Jaipur as it was my hometown. As an early-stage bootstrapped startup, it is of paramount importance to reduce your burn. Most early-stage startups die because they run out of cash. Jaipur let us reduce this burn as back then I stayed and worked out of my parent’s house and so my costs were literally zero.

The cost of living in Jaipur was also very low so it was easy to build the startup up from scratch in such a city. Another advantage is that because Jaipur is a relatively small city, the startup ecosystem there is also close knit.

The startups and evangelists there always try to communicate and help out each other a lot. In fact, most of our early customers were startups from this ecosystem itself who understood the importance of co-existing and developing.

These two key advantages are unique to Tier II and Tier III cities and are definitely something for early stage entrepreneurs to consider. Having said that, growing a business in a smaller city is more feasible for mainly B2C companies as your consumers are spread out. Being a B2B company, we had to meet our companies quite often.

That is when you need to be where your business is. At one point of time, eighty percent of our customer base was in Bengaluru, which was the key reason in us moving there.

Inc42: How did Bengaluru contribute to the Razorpay growth story?

Harshil: It is crucial to have good talent in a tech company and Bengaluru has that talent in abundance. The competition for that talent is high, but for great talent with relevant experience, Bengaluru is the place to be. It is also very difficult to ask such people with an established base here to move to a city like Jaipur.

The added benefit was that the size of the market in Bengaluru itself was quite big. Our initial target audience were startups themselves, companies with monthly revenues of INR 2-5 Lakh a month and then to INR 50 Lakh a month. When you have just bagged funding and need to scale, having an approachable market in your backyard worked wonders for us. Today, we have customers from the same market who have revenues of $7.5-15 Mn a month.

Inc42: How did you handle the regulatory hassles that disruptive fintech services have often faced in India?

Harshil: A large cross-section of the people in India are still building their trust in banking – coming over to the formal sector. Regulations are in place so that consumers do not lose the trust in banking. I would not term these regulations as a restriction, but rather as a playground within which you need to build your product.

It is understood that there are rules to every game before you participate and it is the same here. Having said that, RBI has done a lot to improve the ecosystem and its limitations. When you are building a product you have to study the ecosystem very deeply as it a core part of the ecosystem.

For the first six months, all our time was devoted towards procuring the required regulatory approvals from banks, the necessary certifications for the authorised bodies as these are required to enter this domain. Things have gotten a lot easier in the last year, but the regulations were always expected parameters which one needed to consider to build a business around them.

Moves like the UPI have been very welcome. Payments need to be as seamless as possible to facilitate trade. This helped reduce the cost at the merchant’s as well. We were the first third-party payments processor to launch UPI in the market. It is imperative to be the first in the market to utilise any new regulation – good or bad – to build a product that helps consumers.

Inc42: How do you stay ahead of the competition in a crowded fintech startup space?

Harshil: It is essential to recognise a market that is not being catered to; identify the challenges that this market faces and try to provide a wholesome solution that is simple in its application. In a crowded payments market, this is what Razorpay did. We recognised that the incumbent players were only involved in the digitised transacting and payments space catering to the larger sellers.

The smaller merchants were not being paid enough importance. We decided to build something that would enable this vast audience to accept payments online as rapidly as possible in an uncomplicated manner. Once this was settled, we identified the bottlenecks to accomplishing this task and try to build a system that removed these hindrances.

Over the years, we added many different functionalities but our principle to grow has still been the same. This shows in the success we have seen as the existing customers continue to stick with us and we add newer customers because they like what we provide them.

Inc42: How do you deal with the plethora of ‘me-too’ startups out there?

Harshil: People will always copy you if you are doing something right – and people have copied us at many points in time. We were the first to introduce Paperless KYC and One-Hour Activation of accounts but were copied eventually and so we innovated further bringing in Recurring Payments and eCOD.

We cannot change our vision based on what someone is doing in the market. Having said that, it is important to note that innovation is not a one-time thing. You have to innovate successively according to the needs of the consumer.

Talking about newer innovations, recurring payments was launched in private beta last month. With this we are again targeting a market that no one really served earlier, the sector being SaaS companies – that charge clients on a usage basis at the end of the month. This was not possible in India earlier as it was not possible to auto debit a credit card every month. It will be formally launched in the market very soon.

Starting off with a clear vision has helped us. We haven’t pivoted much from what we began as but have broadened our horizons. Over time as we grew we expanded our capacities, capabilities and target audiences. But the basic philosophy has always remained the same.

Inc42: Mastercard was your latest investor. Your views on corporate-startup collaboration, a question especially relevant to the fintech sector.

Harshil: Mastercard was a company with whom we were very excited to work with. They, along with Visa, were the companies that originally laid the foundation on which all the payment companies today are built upon. They come with tremendous knowledge and experience. Their experience in handling fraud, handling risk is unparalleled.

All we had to do was point out a particular issue that we were having trouble with and we were put in touch with in-house experts that quickly clarified queries. That is the kind of expertise that one can expect from a corporate.

With vast experience and networks in international markets, they added a lot of credibility and reputation into our business globally. A lot of doors get opened with that sort of backing and growth that can come from such a collaboration can be brisk.

Since they do not directly compete with us, their contribution does not affect our business in any negative manner and has been very welcome. Choosing such a corporate that does not eat away at your own business is something that ought to be considered.

Inc42: Razorpay has a reputation for being a fantastic employer. How did you address an issue that has broken so many companies – hiring and retaining quality talent?

Harshil: Hiring has historically been a top challenge for any startup and so it was for Razorpay as well. From day one, we had the priority that we do not need a team of two hundred to scale up efficiently. What we did need were employees that were self-driven who could take initiatives. This emphasis is the reason we haven’t scaled our team to a size that is parallel in the company’s growth itself.

If you are a company that is labour-inductive then you cannot have a high standard in the hiring process, but our company never followed such a philosophy. We believed in hiring the best talent in the market and motivated them enough to fulfil their potential. If you have an open and highly-productive team in a conducive environment, it boosts the morale of new hires and gets the best out of them as well. It is because of this reason that we have had zero attrition in the company!

Inc42: Parting thoughts on fintech in India.

Harshil: Fintech is the hottest market in India right. One thing I have noticed is that general consumer problems can even be solved by international companies dumping money into the ecosystem as well. But sectors that are very native to the ecosystem like fintech, healthtech and edutech, where you cannot merely copy ideas from the west and apply in India will drive a lot of interest. Local companies will have a much bigger advantage in these sectors that is why these sectors are generating the amount of funding as can be seen.

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    Harshil Mathur
    Author Harshil Mathur

    Harshil Mathur is the CEO and Co-founder of Razorpay. A mechanical engineer by degree and coder by passion, Harshil also likes to practice Karate in his free time.

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