I'm proud that at Zerodha we don't have growth targets: Nithin Kamath

Nithin Kamath, co-founder and CEO of Zerodha, during Pathbreakers video shoot at Prestige Kingfisher Towers, UB city, Bangalore on November 22, 2022. Image: Vikas Chandra Pureti for Forbes India.

In an exclusive interview on Forbes India Pathbreakers, Zerodha’s Co-founder and CEO, Nithin Kamath, shares his playbook for building a sustainable business ground-up. “Our core philosophy has been that we will not do anything to the customer that we do not want done to us. What I feel most proud about is that Zerodha has reached 1.1 crore customers without ever marketing or advertising. It's unheard of not just in India but globally. At the end of the day, product is also important. That is really the moat for the business. That’s how we have been able to grow till here,” he says.

On a relatively conservative basis, Zerodha is valued at around $3 billion. The online trading platform reported a net profit of Rs2,094 crore in FY22 and analysts expect a 12 percent rise in profits in FY22. Kamath talks about the need for socially responsible organisations, and why he has pledged to give away most of his wealth. “Being on a rich list is a pain and I wish we could have all this in stealth because all that means nothing. But personally, money has given me the freedom to pursue everything I always wanted,” Kamath says.

Part one of the conversation: I wonder why there are only a few businesses like us that are built to generate profits and not raise venture capital: Nithin Kamath

Here are edited excerpts:

‘Regulatory foresight helped’

Kamath says the founding team of Zerodha initially thought they had hit the jackpot if they had 100,000 customers. “We didn’t have large ambitions when we started. As the business grew and teams started building, ambitions slowly and steadily kept growing. When online onboarding started in 2016, I think we were just more nimble. Even today as a large organisation, I think we are among the first to adapt to changes. The day I stop doing that is when we can get disrupted by someone else. Regulatory foresight has helped. If you are a start-up you are supposed to be fast. The problem with a lot of start-ups today is that they almost end up becoming as fast as the incumbents after a while. How do you maintain the lead on competition? I think you just have to keep taking bets and improving,” he adds.

‘Doing what is right for the customer’

Kamath, who co-founded the company along with his brother Nikhil, says they were met with skepticism about Zerodha’s low-cost business model and whether the platform would be profitable in the long-run. The team focussed on building credibility and trust. How? Kamath answers, “It is just doing what is right for the customer over long periods of time. That’s the only way to build credibility. A lot of people think they can put advertisements and build credibility with marketing. It doesn’t flow through. The first three-four years a lot of people questioned us saying we are low-cost and what if we run away. We always associate quality with price. A lot of people wouldn’t keep money with us and trade with small amounts.

“Our core philosophy has been that we will not do anything to the customer which we do not want done to us. Something as simple as spam mails and push notifications. I’m so tired of seeing spam mails in my inbox every morning. I would not want to do that to my customer. It’s very tempting for a business to do it because it is the easiest way of generating activity in the business. These philosophies have helped us stand out.

“People have noticed this, appreciated it, and then recommended us to their friends and family. What I feel most proud about is that Zerodha has reached 1.1 crore customers without ever marketing or advertising. It's unheard of not just in India but globally. At the end of the day, product is also important. That is really the moat for the business. That’s how we have been able to grow till here.”

‘A cheerful pessimist’

Equity market experts often refer to the exponential scope for growth of India’s stock markets because only about 5 percent Indians invest in stocks. On the face of it, this puts Zerodha in a sweet spot. But Kamath has a different viewpoint. He explains, “I’m a big fan of Charlie Munger. He says he is a cheerful pessimist, and I’m very similar to him in that sense. We are surrounded by people who have an incentive to be eternal optimists. That’s where a lot of stories get exaggerated. Even this penetration story,” he says. “Out of the 150 crore Indians, 10 crore Indians have a demat account. It seems like it is a five percent penetration. But if you look at India as 15 crore Indians with an income of over Rs30,000 a month, it is an amazing level of penetration. You need to able to save some money at the end of the day to invest. If you don’t make Rs30,000 it is very hard to be able to save and invest at the end of the month. It gets a lot of attention but I’m not convinced.”

Also read: India's richest give less than 1% of their wealth to philanthropy, but there is a ray of hope

“I think eventually India will become richer. When India becomes richer and Gross Domestic Product (GDP)/capita increases from $2,000 to $5,000, people will have more income to be able to save and invest. It will happen over the next 5-10 years that the target market grows and business also increases. But our business is very high beta. Our fortunes are dependent on how the underlying stock markets are. Because we are in a bull market a stock broking firm gets all the attention, but I think there will be a mean reversion at some point. Being a rational optimist also sets the expectations right for others.”

‘No growth targets’

Being a rational optimist also means being transparent with stakeholders in terms of growth and returns. Often CEOs are known to sugar-coat business performance. But Kamath wants to buck the trend: “There is so much quarter-on-quarter pressure for listed companies and year-on-year pressure for unlisted companies. But in the long run to do well as a business you have to think 5-10 years out and then do what is right for the coming 5-10 years to remain efficient as a business. Otherwise, you are constantly doing and saying things on a quarter-on-quarter basis. It’s always a chase. I’m proud that at Zerodha we do not have any revenue or growth targets. The idea is to get better each day in some form,” he asserts.

Also read: A case for inheritance tax, by Nikhil Kamath

 ‘A bad IPO is brand damage’

Nithin Kamath has been very clear that the founders have no plans to debut on Dalal Street. “It is borderline hypocrisy if I as a stockbroker, who tells everyone to come and list on the exchanges to create wealth, doesn’t do an initial public offering (IPO) himself. The reason today is that there is no predictability in the business. When you ask me what Zerodha’s future roadmap is, I don’t know what our business will do next year. About 75-80 percent of our revenue is brokerage revenue and that is directly proportional to what the underlying market does.”

“When you list on exchanges, the business needs to have some kind of predictability so investors know what the business can do one-three years. Forget investors, there is no predictability for me also. So, how can I raise money from investors? I think retail investors are the lowest in the food cycle in terms of risk-taking abilities. We should think of IPO in that sense and not as an exit for existing investors. A bad IPO is also brand damage,” Kamath says.

Watch: Been left out of the crypto party; I want in on it one way or the other: Nikhil Kamath at Forbes India 30 Under 30 soiree

‘Doing good’

Kamath highlights that it is important for a business to use its success to attempt to solve some critical problems. In line with this, Kamath set-up Rainmatter Foundation to tackle the looming climate crisis. “We have decided to give back most of our wealth. We started with a $100 million allocation to the foundation. We have deployed half of it. As and when the business generates more profits, we are going to use the foundation to support for profit and not-for-profit organisations working for climate change and creation of livelihood. I think it is a very important angle in today’s world that success is also used for the good of the society in some way,” he says.

Kamath points out that businesses must be proactive in solving problems related to climate change before the impact is irreversible. “When I say we are going to give away most of our success, it seems as if I am doing it for social good, but it is also for the good of the business because as the climate change problems increase, I think the world will get polarised. Questions will be asked tomorrow of businesses who had the wherewithal to do something. Think of the holocaust. Questions are still asked of Germans who knew about it but did not do anything about it. Many still live in guilt. The climate change problem is scary and five years from now we don’t know at what point all these problems can accentuate,” he cautions.

Watch: Beyond the Boardroom: Nikhil Kamath, the Zerodha cofounder who loves creepy books, vintage watches

‘Serious about health and fitness’

Most people struggle with work-life balance at some point but for most it is a challenge. But does Kamath manage to achieve the perfect balance? He replies, “I try hard. I’ve always been serious about health and fitness. I’ve always played a sport. I’ve been through phases where I have gained and lost weight depending on my diet and number of parties etc, but generally I have been quite health conscious. I love music and I play a bunch of instruments. My mother was a veena teacher. I find giving some time to music everyday very meditative of sorts. I think I can do more in terms of giving time to the wife and the son. I turn off all my devices at 8pm now. I need to find ways to be less distracted with work. It is very hard. I think it is very hard to give undivided attention to people.”

‘Life is a roller-coaster’

Kamath has his feet firmly to the ground. He reasons, “I think of my life as how I would want to live the last 10 years of my life. There is this whole concept of backcasting. So, you think of how you want to live your life in the last 10 years, and you need to make changes to your life today to be able to live that life. So, I want to be physically active and healthy. For this, I know I need to be as low-volatile as possible to maintain a constant steady pace as a person. It is also experience. I have blown up a couple of times, made money and lost money. So, I know it is a roller-coaster. So, if you get very excited at the top there is also a drop waiting around in some corner.”