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The Hack Job – hacking the way to growth and profits!
What matters more – growth or profitability? In this episode, Rajinder Balaraman, Director, Matrix Partners India, and Avnish Bajaj, Founder and MD at Matrix Partners India talk about hacking the way to profitable growth vectors and loops.
Rajinder:
Hi, welcome to Matrix Moments. This is Rajinder and I have with me Avnish, founder and MD at Matrix Partners. Avnish, today’s episode is titled the hack job, hacking your way to growth and profits. Thank you for doing this, we also have folks joining on Clubhouse today. Apologies to those – we’re just figuring out the audio on this so if there’s any issues then do let us know we’ll get it fixed quickly. The first question that we have is what matters more in your mind, growth or profitability?
Avnish:
Yeah, so Rajinder, we’re trying to be really hi-tech here and I can see some people are on Clubhouse. We’re also shooting live over here for our normal Matrix Moments and Rajinder is looking very nervous and I’m feeling very nervous so we’ll try to make this work together.
But excited to do this and hopefully we can pull it off in trying to do this multimedia thing. So, in terms of the – this is the eternal question, right, is growth more important or is profitability more important. Let me ask you this, what’s your impression of how and what is the general narrative around how the Indian budget has been received.
Rajinder:
Actually it’s very positive, markets are like what 20 percent up in the last three months, some of it was pre budget some of it was post budget.
Avnish:
Yeah. And what’s the biggest change from what how we used to do on budgets before versus now?
Rajinder:
Well, first we used to have this whole I think there was an economic survey which used to get conducted and then they used to release those results and then there was the budget that was presented. Now you just go in straight through into the budget.
Avnish:
What was the emphasis of the budget, there’s a lot of talk about growth, right, in this budget. We used to always -- from the days of when the IMF bailed us out -- the fiscal deficit was set as the target. In the realm of the world we live in that’s the burn rate of the country, that’s the difference between the revenues and the expenses. So we were always burn led, burn first. So fiscal deficit was the target and then we used to work our way backwards into what can I – this is my revenue, this is my fiscal deficit target, so how much can I spend. We just let go of it, our fiscal deficit last year was going to be 9 percent when in ’21 March and next year maybe 7 percent. And therein lies the point that growth matters. So my view is clearly everywhere in the world growth matters but let me ask you – let’s go through a personal finance example. All of us we get opportunities not through venture capital but let’s say we could invest in one of four companies. One which is revenue of 100 zero growth, 10 percent profit and gives the profit every year back to us. Another one let’s for the sake of argument say 100 growing 30 percent but losing 20 percent a year and then promising to make it up in year 7-8. Third example, 100 not growing very well, losing 30. Just between these three what would you pick?
Rajinder:
I mean, obviously the company that’s growing the fastest is the one that you get most attracted to, the promise of future evidence is far more exciting than the promise of no growth.
Avnish:
Well, so therein – that’s the issue then. So ultimately, we’re – and also you have to look at the opportunity cost. We can invest in various instruments and probably get that 10 percent. If I’m investing in something which is a company which is likely riskier, I’m probably looking for a better return. To get that better return if you have no growth, I’m not going to get that better return. So I think -- but when you zoom out just what you said says that it depends on the objective, is the objective wealth preservation or value creation. So if it is preservation profits are definitely better but if it is value creation which is the world we live in, you know, then clearly growth is what we want to go for. In our world I will tell you that high burn, high growth companies scare all of us, scared me also. But somehow or the other often they get funded and how many times have you been in situations where companies are profitable not doing very well and it’s very hard to get investor interest.
Rajinder:
Yeah, happens more than people would care to admit. I think internally and I’ve heard other VCs also use this term that companies which are not growing are considered to be zombie companies in some ways.
Avnish:
So high growth, high burn will likely get you funded, well, can get you funded, and we’ll come to unit economics still matters. So it’s not as black and white that profits don’t matter, profits do matter. It is the future profits that matter. And the present unit economics which is a proxy to those future profits that we’ve discussed before in some of these other episodes. So absolutely growth with unit economics. If you have high growth and no unit economics, you’re in a very risky situation but today I tweeted liquidity trumps risk, you need to probably get a SPAC and you can go public like that. I think one of the simple indicator, Rajinder, of saying unit economics is not working which people often miss is you have high growth but increasing burn.
It’s as simple as that. We can talk about gross margin, contribution margin, this margin, that margin, but if your revenues are growing and your burn is growing on a line to line basis. Let’s say you’ve entered new cities, new markets that’s fine. In your existing market are your losses decreasing with the passage of time and that is the core point.
Rajinder:
I get that, there was this post earlier that the quality of growth matters and that all revenue is not created equal. I know that’s a maxim that you followed with many conversations internally. But let me ask the question like how do you know whether profits will come. I mean there’s simple proxies like today’s unit economics but how does one actually work this out if you’re a founder building a company?
Avnish:
I mean this is like we’ve discussed before I think the Marginal Value add episode probably will be the best but you have to go deeper into each of the margins of the company and then essentially disaggregate and put on a light that – I’ll tell you where a lot of times people make a mistake and I’ve seen it with founders everywhere. They pick the margin that’s doing better, pick one number. You know, in the offline world there used to be like to like sale, is in the same store is the sale growing.
So pick a number so let’s say it’s contribution margin 1, contribution margin 2 but is that improving month over month or with growth or not and then there’s a lot of future calling, you know, will there be Moats, what will be the competition, how will customer behave and so calling this future is not easy. But calling the present is easy, so just focus on the present of the unit economics and then the investors will do the projection for the future. I’ll tell you one big change that’s happening in India that I think soon will get talked about and when I was talking to some of the later stage investors it’s becoming apparent.
So a new breed of – or there are probably four types of investors. So the high growth ready to fund losses kind of investors have been there for a while, we got the name Tigers etc, now again they’re underwriting the future cash flows and future profit pools.
There is now a good growth, good profit plus scale. So think Policy Bazaar they have a plan to go public, I think Zomato is supposed to be going public – I’m told that they’re also positive on EBITDA. These were the traditional PE’s that was never looking at tech, they’re ready to enter tech because of profits. So let’s not be dismissive of ultimately by having profits with good growth. Good growth I define as 2x nominal GDP. So 20-30 percent, don’t have to be 50, 60, 70 percent. But good growth, good profit but scale, that’s a big change in India. We didn’t used to have companies with scale. Kirana store is also profitable but, you know, ultimately it doesn’t have the scale. So I think that’s the big change and then of course if you get high growth and profits the market goes crazy. So you’ve seen that with companies like Dream11, Byju’s, a bunch of these companies which we’ll see rapid value acquisition because they’re both.
Rajinder:
And I think high growth, no unit economics.
Avnish:
SPAC’s
Rajinder:
Okay. Clearly it sounds like growth is critical and I’m actually surprised to hear that this 2-3x nominal GDP is not a bad growth rate. So in your mind how fast should companies grow?
Avnish:
Yeah, before we go to that one point I would make is my personal mantra is growth is life. You have to go for growth but not be at the mercy of or not having control of your own destiny is not acceptable.
So what does that mean, one control of your destiny is profits. The other control of your destiny is, okay, fine, be resourceful. If you’ve got to raise enough capital from various places but if I were running a company I would be growing as fast as I can with what I would think of as infinite runway. Either my economics is such that I can slow down growth and make money or I can raise so much capital that I’ve got a good 3-4 years of runway. And some of the experienced founders we’ve seen doing that.
Coming back to the question of what is the right growth rate -- so first there is just in finance there is for mature companies there is this concept of sustainable growth rate and we won’t bore everybody with the terms but there’s a Dupont ratio. Net net if you don’t want to raise external equity and external debt or external debt you can grow at the rate of your return of equity. And very simplistically it’s logical, whatever money you have uspe jo return bane, us rate pe aap grow karsakte ho- you want to grow faster raise external resources.
Now that’s not very applicable for our kind of industry which is why we then start looking for proxies and I think what will be the most interesting here will be – we have to actually go through some examples because we go through these, right. But before we go there, you know, the underlying view therefore is that growing faster will create more value, you’ve seen models, we’ve spoken about models like Amazon where they were looking to capture future profit pools not current profit pools. Now the question is what is the fastest and we also put a constraint of saying don’t break unit economics.
So let’s take a D2C business example, so in a D2C business example where you know they’re cohorts, we have some view of LTV/CAC most classic VC thing that we get made fun of, right, grow faster but how fast. And what you can do is you can say we have discussed earlier what is a good LTV/CAC, you know, you want to be at a certain level of LTV/CAC and we’ll talk more in this episode also. Pick a number, now once you’ve picked that number you know your cohorts, you know your repeat rates, by the way measure them correctly, cohorts have to be measured at LTV/CAC at CM level not at a GM level. But once you know what your LTV/CAC target is you’re – and you know your cohorts, you can derive that into what can be your growth rate as you determine a certain CAC. How do you determine a certain CAC? -- when you say LTV/CAC of 3x for example that means likely that your CAC should be getting paid back in 9-12 months most likely something like that. But instructively that is the thought and therefore you can decide what your growth is.
Rajinder:
So if I’m spending let’s call it $5 to acquire a customer then I must make that $5 in contribution margin within the year, that’s what I understand, so 1x in a year.
Avnish:
But we have situations where companies are making back in month 0 or month 1 and therein lies the thing that you could actually grow faster. But at some stage you’ll break it completely because you don’t know – your CAC starts going up and that has happened. So then where do you stop. And what I’m trying to say is the where you stop is to say okay, the maximum risk I’m willing to take is it can take six months or nine months for my customer to be paid back. If that is the case it automatically it spits out a growth rate on that CAC.
Rajinder:
So, Avnish, we were at LTV and CAC and you were giving examples from --
Avnish:
So we discussed D2C, then you go to network effects marketplaces like let’s say Uber/Ola. So here you said, okay, I know, I’ve set my LTV/CAC what do I need to make. And these businesses are more linear and more predictable in some ways. So I know that and therefore I picked a CAC based on CAC payback and spit out a growth. In network effects businesses it’s very different. I mean we have seen those businesses can grow 10x in a year. So in those businesses you basically because of network effects your cohorts are much more predictable. So you know how your current customers will come in so based on that it’s much easier to predict the growth rates of those businesses. If those growth rates are much more predictable you’re generally willing to go for a lot more CAC and therefore try to grow the business faster.
Ultimately you can grow businesses if you’re willing to throw money away you can grow a business at whatever speed you want, it just won’t be sustainable. And these are the kind of checks and balances one can have to figure out what is the right pace to grow at.
I think the net net of it, Rajinder, the way I think of it is in consumer, fintech, kind of businesses these are compounding businesses where the market is very wide, very deep. Everybody can create a billion dollar plus business by catering to a certain customer segment better than what anybody else could and it’s not winner takes all. So these are good 2.5 to 3x annualized growth businesses for a long period of time. So you’d rather get to 10x in two years than 10x in one year. Network effect businesses tend to be winner takes all and that’s where while with a network example we said that just you can go for both.
Rajinder:
No, I think this is very helpful. I think you mentioned LTV should be measured with CM not GM. I’m gonna just flip to CAC, some people talk about blended CAC, some people talk about paid CAC, some people talk about CAC including digital, some people talk about CAC including trend and digital, what’s the right way to look at your CAC?
Avnish:
Yeah. Blended CAC is dangerous. So just to define blended CAC, blended CAC is you take your total market expend and divide it by your total number of customers, new customers. Now new customers is a mix of paid and unpaid so what blended CAC does which can be – let’s say you have a business with 70 percent organic traffic versus a business with 30 percent organic traffic. It’s not very easy to change this mix because that requires a whole bunch of brand building, it happens over a period of time. So if you have a lot of – I’m trying to do the Math right, if you have a lot of organic traffic and you use blended CAC you may understate your CAC, you will understate your CAC. And when that 30 goes to 40 and 50 you’re not understating, so paid CAC is the right way to look at it which is how much am I spending to actually get that customer. Just because I’m getting other customers for free I should not make this fully loaded on that. So I think that’s something that people make a mistake on. Second, I myself am a proponent of not including brand spends but the more I read about it the more I worry that I was wrong. And it’s because brand building ultimately pays off and potentially lowers CAC later but that is because of this spend. So if this spend is not being allocated to that lower CAC again it’s sending you wrong signals.
The question is what are you trying to do this for, if you’re trying to do this for managing a business you want the most accurate signals and you want to reduce the noise the most. So I think there’s that one clear thing to keep in mind. Now in terms of LTV/CAC what has been just before we discussed what are the right kind of numbers to follow, right, and we discussed that what is the – there is a customer level return. So for example we just discussed you want 40 percent return, right, so if you give that to a customer you want that return from them also, then what is your LTV/CAC in two years, 1.4 times, 1.5, in three years time you want to add. So I think the bar in India is too low, we talk about LTV/CAC of 2 or 3 to be very good, I think it’s terrible. It should be 5-6 but just speaking to – if a business has to generate a certain IRR the customer of that business has to generate that IRR. Therefore the LTV/CAC has to be like that. So if you do 40-45 percent and you compound it you end up with 5 or 6x but I think the better way or potential way to do it because we’re investing in businesses that are just taking off and need more gestation is one in one, two in two, three in three, four in four, five in five. Try to get to that kind of multiples and because it’s hard to project five years out if you’re tracking to two in two you’re probably in good show.
Rajinder:
So just to summarize I think rule one, look at your cohorts, cohorts is pretty much what determines how much return you’re going to generate from whatever investment to make upfront. Evaluate your LTV using contribution margin not gross margin. And then when it comes to CAC basically focus more on paid CAC which includes all forms of CAC. And I guess the reason to do it this way is because marketing is really your core level of growth that we’ve focused on thus far and what you’re trying to figure out is growth and profitability.
Avnish:
Yes. Except marketing shouldn’t be your core growth which we’ll talk about now. But I think if ultimately, Rajinder, I have to run a business and somebody said balance growth and profitability and just look at two numbers which are in the present. Everything else you’re telling is in the future. I would look at contribution margin, and I would look at cohorts. Contribution margin will tell me about the health of the business, cohorts will tell me about the growth of the business.
Rajinder:
Yeah. So I guess the focus is as much on growth, so I spoke incorrectly that marketing was one of the key drivers, it is, but other than that we’ve started hearing this term growth hacking. And frankly it’s been now it’s like in multiple industries. The question is if you have to hack growth do you hack PMF?
Avnish:
You know, so this is what I’ve probably spent the most time on thinking about over the last month or so thinking about this topic and it was a realization to me at multiple levels including that we’ll come to that growth is harder than profitability -- although we probably always think about it the opposite. But I will tell you that we have always, you and I have discussed early PMF, scalable PMF and scalable profitable PMF. The other way to think about it which a lot of the literature talks through is traction, growth and profits. So with that I think the growth phase is very different from the traction phase. Traction is the PMF and I think growth is a very different set of drivers to drive growth.
But coming to growth hacking so the term just for everybody’s benefit was coined by Sean Ellis and he’s also coined this habit indicator that we’ve used earlier and it’s definition was fairly simple. Andrew Chen came up with a definition: growth hackers are a hybrid of marketer and coder. After reading everything my own definition is hyper analytical person driving product distribution technology and marketing interventions using customer insights to deliver growth. So who does this sound like?
Rajinder:
Actually I don’t know.
Avnish:
The founder. So that’s the reality. Again ultimately growth is the -- if growth will create value and founders are going to create value, that’s what they’re trying to drive. But I think it is a big realization that you can actually do this by creating -- and we should again in the video cast at least include a lot of the links. By creating these pods of cross functional people who are basically trying to provide growth.
Rajinder:
So this doesn’t sound like hacking, it sounds like a very deliberate thoughtful methodical kind of process.
Avnish:
Yeah, yeah. And it is. And I think the hacking thing is mainly because it is highly iterative and highly analytical. And I think that’s probably where it came from and got coined. But it is very scientific and I think the biggest thing is this consumer insights team, but if you take that team back and you say how would I structure after having that team. I actually believe and this applies in India also that there is a lot of low hanging fruit that one can tap into and get growth at the business. Whether it’s on – ultimately where does growth come from? New customers or existing customers. And then you say, okay, for new customers what are the loops, what are the vectors. For existing customers what are the growth loops, what are the vectors. And essentially try to get a lot of these things done analytically. Let’s go to examples that are generally the most useful. So if you’re trying to drive cohorts – we spoke about cohorts and contribution margin as being the two keys. You’re basically trying to drive more retention. If you’re trying to drive more retention what will you do to get a customer back the lazy way?
Rajinder:
Discounts, notifications.
Avnish:
Exactly. It’s all discounts and notifications. What is the hard working way? what does Tik Tok do and we keep talking about them.
Rajinder:
Well, Tik Tok is more data and they have to basically drive personalization.
Avnish:
Personalization. Highly personalization. What were the others…
Rajinder:
I think one is increasing selection into thinking as an e-commerce platform.
Avnish:
But for selection I think customer insights backwards saying what is my share of wallet through this customer and what else can I tap into and what is my right to win there. So it’s very, very deep, it’s not surface level. Gamification, let’s talk about vertical cohorts, actually move on from that. But I think this cross selling, gamification, community, these are the hardworking drivers of growth and generally what happens is one kind of stops at the lazy so called “lazy drivers” approach. And they won’t work by the way long term. Let’s say you have to drive margins – we spoke about CM, what is the lazy way of driving margins.
Rajinder:
Increase price.
Avnish:
Pricing. Yeah, simple. Why do you think that happens in India?
Rajinder:
India is a price sensitive market so you reduce TAM
Avnish:
So your market size shrinks. Right, versus one of the hard-working way of driving margin, I mean, we know all this but we have invested in companies doing some of these logistics, RDO input cost, getting stuff like that. So nothing to do with shrinkage of the market but actually working very hard to get all this.
So I think the net net is to drive growth you have to get into the head of the customer and we have used this Jeff Bezos’s customer obsession a lot. On his way out he coined a new term, it’s called customer ecstasy. Like be so inside the mind of the customer that you can actually cause them ecstasy and I think it starts with that and then builds a lot of analytical rigor with all these tools. But net net I don’t know if it feels like it but it’s a harder process because profit seem to have at least to me more deterministic tools. Let me go negotiate bulk discounts on my inputs and I’ll get better gross margins. It’s generally related to cost optimization. Growth seems much more nondeterministic and harder.
Rajinder:
Yeah, but it’s pretty much related innovation which is harder to do. You mentioned this whole piece around customer insights, can you talk a little bit more -- like do startups actually have such teams like I know a few have spoken about it but are there examples you can think of?
Avnish:
No, for startups like we have spoken about this in the Country Delight discussion also, there are customer obsessed founders there’s no doubt and I think increasingly so. Customer insights is a data science and actually it’s a great point you brought it up. It should be setup as a core function and this is not just analytical, these are people who are picking up the phone and talking to customers. They’ll be able to tell you the tonality, they will be able to tell you that person’s persona. Personas are about behaviors, I think a lot of customer insights that everybody uses are about demographics, this person is from such and such SEC, this is their income level. What is that persona and we have discussed in the past about match those hierarchy. That’s a human psychology game. What is the persona and psychology of this person and I think the customer insights team would tell you that and then therefore give you the inputs to drive the other stuff forward.
Rajinder:
And it amazes me that we’re in year 10 of e-commerce in India and like in year 10 we’re growing probably just as fast as we were in year 5 or year 6 so clearly the industry has figured out some growth vector and some customer insight that seems to be working.
Avnish:
So, but the latest one is on tier 2, tier 3, tier 4. I think if you look at a lot of the pivots that have happened, not pivots, or revolutions of the model it is about saying the customer persona of tier 2, tier 3, tier 4 is x which is different than what is in tier 1. So, but I still don’t think it’s scientific enough yet. I of course companies have these teams but I don’t think it’s scientific enough yet and I think that is the next phase that people will need to use because remember the market is deepening but competition is also coming.
Rajinder:
To switch gears and leave some time for questions from the group on Clubhouse, in one of the reference strings that we had we spoke about user acquisition as a level doesn’t scale. How does it then scale the business?
Avnish:
Yeah. And that’s more of an extreme statement to drive home the point that marketing is not the growth engine. You know, the analogy that was coming to my head was so marketing is the fuel that fuels the growth engine.
So, you know, we all saw this United Airlines flight over the last few days going around with a burning engine. If you poured more fuel on that it wouldn’t fix the engine it would do the opposite because the engine is broken. So I think a lot of these hard working tools have to be in place. You have personalization, you have great growth to interpret with your geographies, with your SKU’s, you understand your customer that is the underlying thing. You have gamification, you have community, you have all of this stuff. Be my guest and acquire as many users as possible. But if you don’t have repeat in your business let’s go through a simple Math, you know, let’s say businesses starting at a hundred customers or revenue of hundred in one case 70 percent repeat next year, in other case 30 percent repeat the next year. And you want both these businesses to be let’s say 300 at the end of the third year. You can do the Math, in one case you have to add a lot more new customers, that’s the leaky bucket problem. Pouring marketing fuel on the fire of a leaky bucket makes it worse and you expand problems at scale. First you have to figure out my – if I would run a business I would figure out how do I make my business grow without any marketing – zero. So if I have to achieve that I’ll have to figure out all these other vectors. Once I figure out all these vectors and with the unit economics and contribution margin then I’ll pour the fuel on the fire. So now the counter argument just because like I said that was an extreme statement is that marketing online is far more powerful than marketing offline.
You have been a marketeer and you’ve worked in brands, it used to be that you had to setup focus groups, you had to go out and survey, it would take four months to build a report or three months a report. Probably another six to nine months to act on it, now you can do it like this. So it’s all online but where’s the customer insight for it and is it on the hard working tools. And I think that’s what matters the most.
Rajinder:
You know, there’s one example you had spoken of earlier just before we started this, you spoke of Go Pro, I thought that was very interesting.
Avnish:
Yeah, so I didn’t know this, again it came up in this – imagine a product like that how did they get virality going. Now obviously it’s a daring adventurers’ camera and all of that, they encouraged people to share it on YouTube, people seeing it on YouTube saw that were shot with Go Pro. It started the viral loop of people wanting to buy those cameras because it was on the adventurers’ channels and it was on the adventure blogs and everywhere. And that’s the point; the ultimate measure is how many customers are you getting for free, organic percentage. And I thought that was actually a very smart one. So I think net net and by the way the platform we’re on, Clubhouse, how much have they spent on marketing.
Rajinder:
Nothing.
Avnish:
And Elon Musk maybe 150-200 billion dollars but I don’t think they have it, I don’t know for sure, but it is on this viral loop. Yesterday there was a ClubHouse session that Tarun and Kunal did somewhere 400 entries today. We’re doing it in the day so I don’t know how many we have but so it’s a pure -- virality has been built in. All these social networks where you invite people, they have gamification, they have virality, they have community, everything. It is the hard-working growth loop. I mean Google and Facebook never advertised in their first decade of existence.
Rajinder:
So I’m taking away from this that growth and profitability matters --
Avnish:
But before we go there, Rajinder, you know, we didn’t cover one thing which we will put up in our video cast which is kind of our the hack job growth and profit loop. And I’m going to call out two, three things from that, it’s a slide I have in front of me.
So one has to have customer personas and customer personas of demographics and all we know, I think the biggest watchout is behaviors. Really understanding the psychology of the customer. You and I did the gamification video cast where we talked about eight different types of motivators and stuff like that to really understand them. So persona is not this person lives here and is this age and this income. Who are they, what motivates them, what are their aspirations? Those are the questions to ask. That is true customer insights. Then think about products, which is the product that have to match. The growth vector is just to summarize. You could have more products, you could be in more markets, you could be in more segments of the market, you could be more driven by community, personalization, more product as in the tech products/app. Content, we didn’t speak about content. Distribution channels, we still haven’t spent a penny on marketing. First get these eight, nine right and then so if you think of a flywheel. Personas, products, profits. And personas connect to products with user journeys, acquisition, activation retention, referral. Referral is the most underused – if you already have a customer they can get you a they can get you for free and most of the time it’ll be, yeah, I’ll give you 100 rupees for it, they won’t refer you. You do leaderboard, you do some gamification. I just learnt yesterday somebody has come with a – it’s not in India. Savings bank account, lower interest rate but $10 million monthly log on. So one of the savings account will get $10 million. Do you care about 3 percent interest rate, 1 percent interest rate or $10 million. I’m betting you it’ll be the next Robin Hood where people will migrate to because they figure out aspiration, that 1-2 percent is not going to make a difference. Then of course profits we’ve discussed a bunch of – profits and MOTs are the other two connectors which we discussed before.
Rajinder:
Yeah. We’ve spoken of growth hacking and I’m just going to ask one last question before we open it out. Any view on profit hacking?
Avnish:
Yeah, and it’s, you know, very simply we discussed it in the margin value add so I think it’s more just thinking and watching more businesses and summarizing it for people. I think if you can’t make 20 percent gross margin in a business, you’re deluding yourself that you’re adding any value. And often I have this debate and one of the well-respected founders in the ecosystem made this point to me saying “ agar outna nahe karsakte tou Inida mein kabhi paise nahe bannne wala ‘’ And I really think people don’t get it and then when you go back to your older days of trading businesses and all of that they were at 10 percent. If a trading business in the older day can make 10 percent now, you’re doing a tech enabled business can’t you make 20 percent. So second, contribution margin, one, if it is negative I don’t think you’re product profit fit or you don’t know whether you’re product profit fit until the contribution margin is positive. Contribution margin too is negative that means you may not have LTV/CAC and that’s where, you may not have a growth engine and therefore you have to figure out the LTV/CAC. And ultimately remember what we discussed that ultimately money is about return on equity. Think about businesses the same way you think about your personal investment. If you’re giving x how much do you want and when, right, and the minute you keep thinking like that I think you’re in good shape.
Rajinder:
Awesome. Thanks, Avnish.
Salonie:
Thanks for tuning in. If you found this interesting you can check out other episodes, that are reference by Avnish and Rajinder, specifically the episodes previously published on Moats, Marginal Value Add, Profit Pools and Gamification. You can find these episodes on www.matrixpartners.in/blog. You can also follow us on Twitter, LinkedIn, and YouTube for more updates.
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