Companies you didn't know were bootstrapped—part 3: the fintech disruptor

(This is part three of a series about bootstrapped companies. If you're curious who part one is about, click here, and for part two, click here.)

In India, there were two major obstacles that limited the participation of the masses in the stock market. One was the lack of financial literacy. Indians were hesitant to dabble in stocks since there was a significant knowledge gap. Most people did not know the key concepts, and many even looked upon it with suspicion as a glorified form of gambling . Front page headlines about stock market scams certainly did not help.

The second obstacle was high fees, which were linked to the first. Stock brokers were in no hurry to simplify the investment landscape for the common man, since the information asymmetry justified higher fees and margins.

Democratizing investments

In Bengaluru, Nitin Kamath was working towards removing these obstructions for the Indian public and making the stock market accessible to all. He had been trading since the age of 17. He believed that technology could level the playing field and lower the barriers for the masses to invest. His dream was to simplify the whole trading process and make it more transparent. This philosophy was encapsulated in the name he chose for his venture in 2010. Zerodha is derived from the words "zero" and "rodha," the latter being a Sanskrit word meaning obstruction.

Today, Zerodha is India's largest stock broker by volume of trade. In recent years, more Indians have entered the stock market, a trend that was accelerated by the pandemic. A combination of free time thanks to lockdowns, low stock prices due to the pandemic-induced crash, and extreme market volatility promised high returns which drove waves of new users to the stock market.

Streamlining user experiences

Zerodha, with its digital native model, was perfectly poised to take advantage of this trend. It didn't hurt that Zerodha set up an easy online registration process for new users, allowing them to finish their KYC formalities in minutes. In July 2020, Business Insider reported that the company was growing 100% month on month.

What did Zerodha do to achieve their position of success?

For one, they identified an opportunity at the start, when the major players were satisfied with their margins in the current paradigm. While flat fee brokerage had become commonplace in the US—where the size of the trade does not influence the brokerage charges—this was not the case in India. Zerodha was first to arrive on the scene with flat fees, making them a lot more attractive to day traders, who were the company's primary target.

Continuous evolution

However, as the sheen of this proposition began to wear off, Zerodha focused its efforts on building and refining a sophisticated digital platform, and solving the technical challenges it involved. The old guard had not yet realized the extent of the tech disruption the industry was to face, which gave Zerodha many years to build credibility and trust. The company was also wise to realize that, to truly scale, they needed to expand their target market. They needed to look beyond the small pool of active speculators and day traders, and cater to passive and long-term investors. They ensured that the tech reflected this shift, appealing to all types of investors.

They also ensured that their tech stack was modular, allowing them to scale easily with surges in traffic. It leveraged processes that replicate seamlessly as more people used the platform. Additionally, much of the components were free and open source software (FOSS), driving down overhead while increasing flexibility.

The tech team was also cognizant of the shift from web-first to mobile-first usage patterns, and optimized Kite, Zerodha's flagship digital platform, for smartphone usage. With a minimal UI that prioritized information intelligently, and intuitive UX, the Kite app offered customers a digital experience that far surpassed its bloated and half-baked alternatives in the market. Clean and straightforward in design, it was also superior to its American counterpart, Robinhood, which offered a highly gamified and relatively juvenile experience. These achievements also made it possible to minimize investments in marketing, with zero spend on advertising.

Passing it forward

Word of mouth was doing the trick for Zerodha. On top of this, they built an educational platform—Varsity—which also brought in new customers. The knowledge-sharing platform guided newbies through the world of investing in easily digestible and highly engaging bites of information.

Zerodha is not content at building just itself up, however. In 2016, it established Rainmatter, its fintech fund and incubator. It believes that there are a lot of good ideas out there and they need to grow for India to become an economic superpower. Rainmatter allows fintech startups to build on top of Zerodha's infrastructure and APIs and offer innovative new solutions to customers. In Rainmatter CEO Sameer Shisodia's words, "indeed we think good ideas should be replicated rapidly by many, and further iterations and local adaptations will create solutions that make sense everywhere."

Blueprints for sustainable growth

Bootstrapped companies can teach businesses a lot about self-reliance and making the most out of what you have. They also exemplify the power of financial freedom in pursuing strategies that are more intuitive than logical. Highly financial and metric-driven tactics create rigid decision-making. It creates a culture of ambition in investment returns but not enough ambition in value creation.

The absence of these restraints has allowed bootstrapped businesses to grow organically and play the long game, taking risks driven by inspiration, all while ensuring positive balance sheets. In today's VC-driven business landscape, they present an alternate perspective that is sustainable and closer to the DNA of small and medium businesses that make up the backbone of our economy.

Check out the first two parts of this series—read about the FMCG giant and the Pharma juggernaut who bootstrapped their way to incredible success.