How does PhonePe, a payments company with over 200 million users prioritize ideas so that it stays on mission and not stray from its original purpose? How can startups balance long term growth and agility? In this episode of The Orbit Shift Podcast, Rahul Chari, the co-founder and chief technology officer of PhonePe tells us how they do it.
“So we actually say ideas are dime a dozen. And ideas are welcome. We actually put it into the ideas bin and don’t go into the execution phase until we’ve answered a few key questions,” says Chari, who has a long history of building technology products. Before starting PhonePe, he was at Flipkart.
Edited excerpts from the conversation follows.
Q: I want to start with a little bit of history. Mime360 was your first startup, which was acquired by Flipkart. And then you saw incredible growth within Flipkart. Help us understand how you built a digital company in 2009. What was the ecosystem like back then?
A: When we started in 2009 the ecosystem was nonexistent. There were some companies such as MakeMyTrip that were doing well. But overall, it was extremely lean and really difficult. Having anybody join you and mission was almost impossible. I remember having to talk to the parents of some of the engineers to convince them. Investment wasn’t anywhere close to where it was today. The larger problem was that traditional businesses would never take you seriously. Today, we have an ecosystem where we thrive off each other. At that point as a startup, your business and partnerships came from a lot of traditional houses and to be taken seriously enough as a young gun in that environment was very difficult.
Q: Let’s talk about PhonePe in its current state with what seems to be an unreal last six – seven months we’ve had. Where are you at the moment? And how is the startup ecosystem coping with the pandemic?
A: Given the social conditions, the macroeconomic conditions and the space we are in, we’ve actually been on the right side of things. Because digital payments and digital commerce has effectively become the need of the day.
Even the fence sitters have been forced into it because of Covid. It’s been one of those cycles of, trial by force versus trial by choice. And I think it’s here to stay. This is a big shift when it comes to behavior, irrespective of how soon we get to a vaccine and how soon things come back to normal. The convenience when it comes to being able to transact remotely, transact digitally is here to stay.
We have been on the right side of things and a lot of how we were set up over the last few years as a company has actually helped. So within the company, we have the structure of what we call a sports, where individuals by name from various teams are mapped to a charter or a goal. And that’s what helps us, be nimble, stay on our toes, actually compete with the next, hungry startup around the corner while continuing to retain the edge that we have as a fairly large player now. So because of that, the communication lines across various functions are already well set. And the fact that the physical presence of folks in the room was taken away did not affect us.
It’s a difficult time for most startups. Broadly, there are three buckets of startups. One is where your core business model is completely going to change because of the current situation. If it is a service or product which will lose relevancy over the next two years because of the current situation, I think a hard pivot will be needed. That requires deep thought and in some cases just starting fresh or starting from scratch, especially if you’re in an early stage.
In other cases, where the core business was not challenged as much and you have the wherewithal to be able to go through this (especially from a financial point of view), with the help of your team, your investors and your board, there is an opportunity to look at how you can set yourself up for success when things bounce back. And they will. The world always comes out stronger and when it comes out stronger, there’s going to be rapid growth again. So if you’re able to see that through, you have to think of how you can actually set yourself up for greater success, especially from a technology perspective.
Finally, there are startups which have a large user base and are tempted to do a bunch of different things because things are uncertain now. All of us have always had ambitions to do pretty much everything. We’ve kind of stayed away from that. We have believed in a lot of partnerships and staying core to what our strengths are. I think it’s important to actually go back and introspect on that. There are opportunities to strike partnerships, synergies, strategic engagements or complementary product offerings.
Q: What are some of your biggest learnings through your career?
We all actually owe it to Flipkart for famously thinking very big and being very customer centric. Outside of those two lessons, I think it’s about a lot of compressed learning cycles in engineering at this point in time as a country and a startup ecosystem. India has no option but to strive for in five years what China achieved in 10-15 years. So we are in a compressed cycle of growth and achievement. And to do that, you have a lot of mini compressed learning cycles. The first Big Billion Day at Flipkart is a classic example of a compressed learning cycle. It’s famous and infamous for various reasons, but I believe that it actually gave us a deep insight into what you have to do to be able to achieve that exponential scale overnight. It’s one of the core reasons why we actually started PhonePe. I remember on the opening day of the Big Billion Day within two hours, all the payment gateways of the country were down. The infrastructure to conduct business online was just not there. So the cycle is all about building, deploying, measuring and then learning again to rebuild.
You also have to do continuous platformization. I think that’s the important balancing factor. Otherwise you will be in growth hack hell which is all about growth hacking and being scrappy, but never being sustainable. The culture of continuous platformization, which Amod, then CTO at Flipkart made famous was a huge learning. To be able to invest in your core platforms fairly deeply and fairly early on and in a continuous manner.
And third is about data. For example, in the supply chain the kind of efficiencies we could extract by just looking at data very clearly was huge. Mostly this is not data science at all. This is not machine learning or artificial intelligence. Those words are thrown at fairly loosely these days. It’s just common sense and looking at your data.
Q: Where do you think it goes from here at PhonePe? What’s your perspective on scale?
Looking back it was as if my journey from Mime360 to Flipkart has all been in preparation for what we can achieve as a team at PhonePe. And I think we’ve just scratched the surface. Our scale is significant even today in terms of the number of daily transactions, the number of transactions per second, or the total money movement that we enable. But it’s just scratching the surface when it comes to what cash is in the market. We are still a 95% cash economy. And going to 90% is still going from a scratch to a dent. So there’s still a long way to go. China is a great example of the extent to which retail payments across the board have gone digital.
How soon it’ll happen is anybody’s guess. I think we ticked all the boxes when it comes to being a transaction platform that powers peer to peer money, transfers and payments. The acceptance is significantly pervasive across the country, and we need to invest in that. A lot of your digital use cases have been covered by PhonePe. But we need to be with the consumer. If there are 10 typical purchases a customer does on a daily basis, we need to be an option for all 10. There’s work we need to do by building trust. That will happen only if we cover the rest of the money journey. The whole spectrum can be addressed right from managing money to making money work for users, protecting their investments, insurance and lending. That’s how I look at the next phase of our growth and focus.
Q: How do you balance agility versus being compliant in a regulated sector? How do you choose what to build vs all the ideas that come in from your teams?
A: Six months after demonetization everything was going digital, when everything was about going digital and everything was an idea that we had to chase. But that would have left us chasing our tails. Because it’s very difficult to execute on every exciting idea that comes your way.
We now have a fairly well structured process to decide what we chase as an opportunity. Ideas are dime a dozen. And ideas are welcome. But we actually put it into the ideas bin and don’t go into the execution phase until we’ve answered a few key questions. One is, is the idea aligned with the overall strategy? Is it about building a transaction platform founded on payments?
Now as we look to broaden our spectrum with financial services, whatever we change has to lie in some spectrum of this. Just because I have a user base, I shouldn’t be going and trying to build a grocery business online. Then the opportunity has to be fairly large. Well, I mean the size of the opportunity and it should be applicable to a very large part of our base.
One of the things that defines us as a product is that we’re fairly utilitarian. That’s what we stand for as a platform that is enabling the country to go digital with their money. We also see if we can build a differentiation through data or technology. What is the IP that we can create through technology and data in what we chase? So we try to see that what we are investing in has a shelf life of a few years, at least.
Then there’s the go to market strategy. Does what we chase take advantage of all the time, effort, and money that we have spent in building out this base? And is it going on top of that, or are you going to have to make new investments when it comes to going to market and the distribution.
These are tough questions to answer. It actually boils down to things that actually make sense for the company to invest in. So that’s broadly our prioritization framework.
If you were to build Mime360 again, what would your two year plan look like?
I would actually build a platform to compete with the Netflix and the Amazon Primes of the world. And I wouldn’t mind spending a year and a half to go to market versus trying to actually release it in two weeks.