Siddhartha Ahluwalia 1:10
Hi, this is Siddhartha Ahluwalia, your host at Neon Show and Managing Partner at Neon Fund, a fund that has invested in some of the best enterprise AI companies between US and India corridor like Atomicwork, CloudSEK and SpotDraft. Today I have with me Aneesh Reddy, founder of Capillary. Aneesh, welcome to the Neon Show.

Aneesh Reddy 1:31
Thanks for having me here today, Siddhartha.

Siddhartha Ahluwalia 1:33
Aneesh, I’m so glad to do this because I believe this is one of the first public recordings that you are doing after going public.

Aneesh Reddy 1:41
Yeah, definitely from a founder standpoint for sure.

Siddhartha Ahluwalia 1:44
Yeah, so excited to dive deep into your journey at Capillary. You’re also among the pioneers that said that, hey, so Capillary has a unique structure, right? There’s a Singapore HQ, there’s an India sub and all the revenue gets accrued inside a Singapore sub which is inside the India sub.

Aneesh Reddy 2:04
Wow, you’ve done a lot of research on our structure, but it’s a little bit like that. All our India revenue still comes straight to India.

All the global revenues hit a Singapore subsidiary which is 100%..

Siddhartha Ahluwalia 2:16
Owned by the India sub and that enabled you to go public in India.
So, how did you think about building this structure with, it’s like a pure Indian ethos company could go public in India, had all the right metrics to go public in India?

Aneesh Reddy 2:33
Right. Yeah, so I’ll be honest, when we started Capillary, we started in Calcutta in India, this was 2008-09.

Siddhartha Ahluwalia 2:45
You come from Calcutta?

Aneesh Reddy 2:47
No, actually, I was working in ITC in Calcutta at that point in time. KK, who’s my co-founder is from Calcutta. So, you know, kind of divine providence, we ended up in Cal.

In 2012, when we were raising our first round of funding, we had by then opened a Singapore office, a Middle East office. And this was just before we raised the money. The problem would be wiring money out of India to even pay salaries for people was every month would be a song and dance.

You know, like you need all kinds of, and so we were a little frustrated with that. So, basically what we realized was if you wanted to truly build an international business in 2012, you needed to have a setup outside India. So, when we raised money from Sequoia Northwest, that was the time when we said, look, let’s set up a subsidiary in Singapore and raise it into that.

So, traditionally, the business has always been that way that the India business sits with the India entity. Most of the employees, although even globally servicing end up sitting out of India, the tech teams in India, all of that. And revenue for international, Singapore is a beautiful country.

So, very easy to, you want to invest in a UK, you know, don’t bother, you know, you’re making money somewhere, you can just move it out, you know, like zero capital gains, all of that. So, that structure worked out really, really well.

Siddhartha Ahluwalia 4:15
So, you went from an India incorporated to a Singapore incorporated?

Aneesh Reddy 4:19
With India as a subsidiary. And when we had to, like in 2021, when we decided that let’s list, and when we flipped, the India entity went and brought out the business of the Singapore entity.

Siddhartha Ahluwalia 4:31
Understood.

Aneesh Reddy 4:32
You know, so that way it, and we were just turning profitable in that year, in 2020. And, you know, Singapore doesn’t have a capital gains tax. So, the transaction was a…

Siddhartha Ahluwalia 4:43
The flip is zero.

Aneesh Reddy 4:43
The flip is very easy, unlike the US ones where it is very complicated.

Siddhartha Ahluwalia 4:47
Like companies like Meesho and Razorpay paid a lot of flipping tax.

Aneesh Reddy 4:52
Correct. Correct. Correct. We didn’t have to thankfully go through that.

Siddhartha Ahluwalia 4:56
Yeah.

Aneesh Reddy 4:57
I do firmly believe that India will have many more listed product companies, kind of what happened with IT services in the last 20 years, right? Whether it was the big three, four that listed early, you know, you’ve had like the persistence, the KPITs, the co-forgers. That’s all been a story of the last, I’d say, 15 years, right?

I feel India is at that tipping point on, you know, multiple SaaS companies beyond a 50 million, 100 million profitable. So, yeah, I’m very hopeful that people like us listing, people like Amagi listing are going to help get more companies out there. And India will hopefully have not just IT services, but a good large chunk of market cap in the product space as well.

Siddhartha Ahluwalia 5:42
Yeah. And that’s like really helped position India as a product nation, the effort that you have almost put like a decade in along with the community.

Aneesh Reddy 5:51
Yeah. No, I’m very hopeful here. And you can start seeing that in multiple categories now, you know, if you take us, you know, if you pick the Forrester report, we are a global leader at what we do.

If you pick WhatFix, they are again, if you look at any independent analyst like a Forrester or Gartner, etc, you will see that, you know, WhatFix comes right at the top there. You pick a Zenoti on the spa side. So there, or you pick Amagi on the digital broadcasting side.

So there are multiple companies now, which are leaders in our specific product categories. And I feel those leaders will eventually get to like 10, 15% market share globally, will hence have, you know, can list and show a good growth rate and a good a better delivery for many years to come.

Siddhartha Ahluwalia 6:39
I think another playbook that, you know, Capillary has pioneered is, and I think now rategain has also followed in footstep, that you integrate external companies, specifically Western world companies, because software as a concept is pretty old in Western world. And companies have existed there for decades. So either the Western world concept is in US or primary Europe, you either go big or go home.

But software as a category, there is never one pair wins at all.

Aneesh Reddy 7:09
Absolutely. In B2B, you will always have a tail, right? And unfortunately, I feel, especially in the AI world now, that the average company, you know, the average product or the average company, unfortunately, will not make money.

If you look at any US public markets, every category has 4-5 companies that I have listed. The first and the second sometimes make money. The third, fourth, fifth, sixth don’t make money.

You know, and I feel that is going to be even more pronounced in the AI world, that the average product will not make money. So suddenly now all of these 3, 4, 5, 6, 7, all the way to 20 don’t really have a right to exist in many senses. Right.

So, and our M&A thesis is a little different. It has been that we buy competitors out and we integrate them into our stack, we upgrade customers over. Because what we realized, like you said, was that it is a red ocean market in the US.

A lot of the Fortune 500 already use some product or the other. And so that thesis has worked very well for us. You know, half our acquisitions, half our growth comes from M&A, half our growth comes from organically winning.

We just recently bought, you know, the SessionM business from Mastercard, you know, which is their merchant loyalty business. They have other loyalty businesses as well in SessionM, but in Mastercard. So this one gets us clearly to 150-120 million.

Right. So, yeah, the last few years if you see, and we’ll continue to do this, right. So, if you have the best product, you want to milk it with, you know, more number of customers and more number of Fortune 500 companies on the platform.

Siddhartha Ahluwalia 9:01
So the companies that you acquire, you replace their product stack with the Capillary stack?

Aneesh Reddy 9:06
Correct.
We typically, what we do is we upgrade those customers over to, so like, you know, we’ve done 5 till now. 3 out of those 5 were all companies which are featured in the Forrester wave. Now, if you have to be in the Forrester wave, you have to be in the top 15.

Forrester generally, I mean, they have a longer list of 50 in a landscape report, but the Forrester wave is a much more deeper. So these were like 3 of the top 15 in some senses. Right.

And, but, you know, you’re the best there. Right. So all your customers, it’s a clean upgrade.

Siddhartha Ahluwalia 9:43
Yeah.

Aneesh Reddy 9:43
That, you know, you’re moving from someone who’s probably 10th or 12th or, you know, 7th, something like that to a number one platform. Right. So the customers, it’s a big upgrade.

A lot of these companies were also built with very old tech. So they’re usually loss making or very low margin. That’s a lot of companies in the US.

And if you look at any category, a number of software companies which are going nowhere, low growth, low margin. And I don’t, it’s pretty natural that they would want to sell out and, you know, become part of a larger platform where the customers benefit, the employees of that org benefit as well as the, you know, the shareholders get some money, they exit. So that’s been our thesis.

You know, yeah. So let’s see.

Siddhartha Ahluwalia 10:33
And these US companies are available at 1 to 2x of their revenue because the growth is so low at the market. They are, doesn’t really give them a multiple, just purely based on revenue.

Aneesh Reddy 10:45
That is the case even now in India. Right. If you are, if you’re not a market leader, I think just what AI has done to, yeah, eventually, eventually every business has to trade on a multiple of earnings.

Siddhartha Ahluwalia 10:58
Yeah.

Aneesh Reddy 10:59
Right. Might be a slightly future looking view of earnings. But in some senses, there was this whole belief in the US that gross margins will convert to EBITDA, which hasn’t happened, to be fair.

So what’s happened with a lot of these large, these companies in the US, the SaaS ones, is, you know, you’re just constantly spending a lot of money to be in the same place. Right. Your sales cost is just so high at 60, 70% of revenue that you’re just burning so much money to be in the same place, your churn is high, all of that.

Right. So, so I think the market had to correct somewhere, in the name of this AI garb, I think it has really, really corrected. So, yeah.

So you, you’re surprised that the quality of companies you’re able to get in the US at one times to two times revenue or half times to I’d say two times on the outside, revenue is not small. Right. It’s just incredible.

Siddhartha Ahluwalia 11:57
Then, then probably, you know, it’s a tangential thought that a roll up, if you raise 200 million in roll ups in India, and acquire five to six companies in the US, you will be able to acquire more than 200 million in revenue, then possibly take this structure public in India. Why has not happened?

Aneesh Reddy 12:21
Yeah. So I think the value is, like I said, you will trade on EBITDA multiples. Right. Like, look at us, we will eventually trade on EBITDA multiples. So if I were just putting these 50 companies together.

Siddhartha Ahluwalia 12:32
Yeah.

Aneesh Reddy 12:33
And let’s say they were all these 4-5% margin businesses or no percent margin businesses, you will not get the value. Right. Now, what we’re doing is essentially you’re saying, okay, this is an also run, I mean, was a company which was great at some point in time, or whatever, right.

But their tech stack hasn’t evolved, or something might be the thing there, or they’re sitting in an entity which doesn’t think of them to be strategic enough, whatever is the reason, right. So now the value in the Capillary, and this is there in our DRHP as well, comes from actually upgrading those customers from that platform to ours, where suddenly a 15-20% gross margin business becomes a 60-70% gross margin business, which then allows us to reinvest in the product. So the customer constantly keeps getting a best in class product.

Unlike in a 5% margin business, where the business is barely able to, you know, we’ve also done is a bunch of these companies that we have bought were very services heavy. Like, you know, to serve one customer, you need 15-20 employees.

Siddhartha Ahluwalia 13:38
Yeah.

Aneesh Reddy 13:38
In the Capillary stack, you know, like our customer success team is roughly, you know, on an average, we have 115 customers today and 150 people in customer success, right. So very thin, compared to like a 10-12-15, right. The problem with 10-12-15 is also that, you know, your time to get anything done is very high.

So it’s a win-win for the customer, it’s a improved margins for us. So just to add to the thing you were saying, you had 200 million, you bought 200 million revenues, but can this 200 million of revenues deliver me like 35 million of EBITDAs?

Siddhartha Ahluwalia 14:13
Yeah.

Aneesh Reddy 14:14
Then there is value, right. Then there’s value because the markets will say this 35 million of EBITDA is actually worth like whatever, a billion dollars.

Right. Or 2 billion dollars or 3 billion dollars, whatever is the depending on how, you know, whether you’re giving a 20 multiple or 30 multiple, etc. If this 200 million of clobbered up revenue is at break-even or is at 5 million, I think actually you’re at more risk, right, because it’s like 20 different products and you’ve not like got any synergy going, right.

So I feel the value in the roll-up is the value that you add to the businesses that you’re buying. I don’t think a constellation type model of just clobbering up many companies will work.

Siddhartha Ahluwalia 15:01
So you really need a best-in-class product to make it work and replace your best-in-class product with their…

Aneesh Reddy 15:10
With what they have.
You know, because eventually like the cost of innovating and building a platform is quite a bit, right. If someone has to build the Capillary tech stack again, we every year now spend a couple of hundred crores on product, right. So and that’s just keeping it, you know, at a good place, more features.

If I had to rebuild this whole thing is probably 600-700 crores.

Siddhartha Ahluwalia 15:34
Yeah.

Aneesh Reddy 15:34
Right. So it’s at least like 80-90 million dollars, right. If you want to spend 80-90 million dollars or even 20-25 million dollars a year, you need to be at that 100-150 million revenues, right.

So if you’re below 50 million in revenues, I don’t know if you have a, you know, good reason to like have the best product in the space and keep innovating and keep investing.

Siddhartha Ahluwalia 16:00
And it brings me to my next conversation point, right, on AI where they’re saying the cost of literally building a product is going towards zero is already zero using cloud.

Aneesh Reddy 16:13
Correct.
You’re absolutely right.

Siddhartha Ahluwalia 16:15
So where does it take, you know, the inherent advantage that a company like capillary has in its domain?

Aneesh Reddy 16:22
Right. So that’s what I was heading to, like the average will become a, see the cost of building is definitely coming down, if not to zero to one-fifth, one-third, whatever is the math, right. But what to build is still, you know, is still something which, you know, I don’t think has got commoditized, right.

So the what to build is still a, and we see this all the time, right. The customers that we work with are all, like we have two of the fortune 10, we have, you know, we have 25 of the fortune 500 now as customers. And for these guys, whether they’re paying Capillary 2 million, 3 million, doesn’t matter, right, in their hundreds of billions or tens of billions of revenues that they make, this is all pocket change, right.

So for these enterprises, it’s a little bit of a certain functionality that I might have, or a certain workflow that we might have, because we have deeply researched and we’ve industry leading product, could easily save them 5-10 million dollars, compared to an average product, which didn’t have that functionality, right. So, and hence, I believe that what will happen in this AI world is that the best will get even more differentiated from the average, because the average can be built by you. The best will be harder to build, right.

So which is things like great feature depth. Second is for a lot of large enterprises, risk is a bigger thing than cost, right. So if, like for us, we sit in the core transaction flow, like you get your points or rewards for every purchase you make, every redemption you do, all of that stuff, right.

So if I have a downtime of, you know, whatever, like even a few minutes, right, that’s going to be like serious impact for, now, will a large enterprise CIO take that risk of saying, I will build it in-house, it might have 99.9% uptime, you know, that 0.1% of uptime is, you know, I don’t know, like 20, 30, $50 million of revenue lost, right. So I feel some of those, so the best will get differentiated and will still kind of make the, which is why at least our view on AI has been that build more, right.

Siddhartha Ahluwalia 18:43
Build more products?

Aneesh Reddy 18:44
More than building more products, go deeper in your product, right. And we happen to be a system of record because all of this customer data, all of this, you know, all the points, all the liabilities end up sitting on us. So our view has been a little bit more saying, you know, can you be the most intelligent customer system of record, which then also does all the workflows and all the, you know, analytics for them.

So we’re building not more products. I kind of want to be that one software which, you know, anyone who has a loyalty use case should use, right. So we are expanding into side areas.

I’m not building new products in supply chain or new products in advertising or stuff, but we’re saying, look, can we go sidewards on what we do a lot better.

Siddhartha Ahluwalia 19:32
Understood. Our view as a fund has been that verticals are hard to replace.

For example, we have a company in construction tech called Merlin. The founder belongs to construction background for the last 10 years and thereby she has deep networks in the US. Similarly, we have a company in life sciences called Pienomial, which is deep in pharmaceutical life sciences, right.

One of the top five pharma companies pays them like a million dollars a year. I think verticals are very hard to replace because the institutional knowledge you have in vertical cannot be copied.

Aneesh Reddy 20:12
Okay. Actually, I’ll say depth is very hard to replace. You know, verticals is one way of doing depth, but the deeper the product, the harder it is to replace.

You’re absolutely right. Like, so even in our case, we started with retail. We do, we add one or two verticals each year, but the intent is that if you’re a fortune 500 and you look at our product and you have already put out an RFP, you should see at least 10 things in my product, which you didn’t think of till that point in time, right.

So only then do we have a right to win. You know, if I’m match for match saying, oh, you wanted this and this is what I have, then I don’t think our product teams or the product is doing justice to that, you know, whatever, to that customer.

Siddhartha Ahluwalia 20:58
I think the other reason why companies will win is companies where let’s say an enterprise, you are sitting in their internal workflow versus you’re sitting in their customer’s workflow. If Capillary sits in the customer’s workflow, then companies don’t touch it very easily. If it’s an internal workflow, they still might try to build it themselves or, you know, try to replace it.

What’s your thought on that?

Aneesh Reddy 21:27
I think you hit a very good point, right? So I feel what will get commoditized in the build cycle will be stuff that doesn’t change fast, right? What I mean by that is I built it once, you know, why should I pay subscriptions for stuff that I’ve built once and is not changing much, right?

While anything customer facing tends to change very fast because the customer is moving your, you know, your competitor brand has done something, you want to respond to it, you want to do something else, you know, there’s a constant movement that’s happening, right? And internal IT teams are not structured to change very fast. Internal IT teams are structured on risk, on stability, on one year go lives and then it is there for five years, right?

So which is where we’ve generally seen that anything customer facing, marketing teams want great velocity, right? What they don’t want to hear is Ramzan is here and I will take three months to build something for you. Ramzan is gone now, right?

So which is another reason why I feel Martech has taken off a lot more on the SaaS side, for the largest, you know, as compared to probably back-end-ish type product. And I think that will continue to stay. If you talk to like a lot of the CIOs that we also work with, they’re actually very happy with, you know, giving this piece off because, you know, they have a better product for marketing to use.

They don’t have to deal with this constant change that’s happening on the marketing side, right? So I do agree with you that customer facing or fast changing products, I think will continue to earn the value of a subscription. In the AI world, something you can build once and forget, you know, I think we’ll probably not make that bar.

Siddhartha Ahluwalia 23:20
So some of the instances that you can share from your journey, right? In Capillary, where you think you really hit product market fit?

Aneesh Reddy 23:31
Right. Yeah. Let me give a few examples, right?

So I think one was very, very early. This was 2008 or 9, 9, I think, early 2009. Basically, it was a recession.

Siddhartha Ahluwalia 23:48
Yeah.
The worst time to start a company.

Aneesh Reddy 23:50
The worst time to start a company. I’d actually say the best time to start a company. But, you know, so what happened with us was, you know, we were trying to, it was a recession.

So we said, you know, what will people buy in a recession, right? So we went around asking people saying, look, we can build good software, we are from IIT, tell us what your problems are, right? To our luck, Lehman had just crashed, right?

So this was, we started the company on 11th of August 2008. Lehman had crashed on, I think, 11th of September 2008. And so when we were meeting these folks, a lot of folks were telling us, look, customers aren’t coming back to stores, there’s a recession.

So that made us question this thing of saying, okay, like, do you know who your customers are? So we understand why they’re not coming back, what will make them come back. And we realized that that was all, most retailers were traders.

So it was not like they really knew who their customers was and, you know, and a few of them had a loyalty program and they would expect you to fill a form, carry a card, who likes to fill a form in a retail store, who, you have enough cards in your wallet, you throw your cards out. So we said, look, can we replace this whole thing with a mobile, right? So it was still a recession.

So our initial pricing, I remember the first two, three proposals, we said, we sent out saying 5 lakh rupees very early, right? So 5 lakh rupees and then 20% AMC, which was the model then. So one of these customers, he was at Future Group.

She actually said, look, it’s a recession, I’m not going to buy servers to install your software and all that. And, you know, can you charge us a per month fee? We had not heard of Salesforce, like, you know, we had not heard of Salesforce by then.

And we said, okay, fine, $50 per store per month, 2000 rupees, probably used to be 40 then. So we said $50 a store a month, you know, we will, and it was crazy, because what would happen is they would try this out in three, four stores, and suddenly see that 80% of customers are signing up. They would run a campaign at the end of two months.

And we would have customers coming to us and saying, now I want to roll this out. Right. So to a meeting to a pilot was like a 50% conversion rate, to a pilot to a full rollout was 100% conversion rate.

Right. So it just, so the math in our mind was, you know, we were pricing it at a price where, you know, even a three-month pilot was 50,000 rupees. It was not breaking the bank for them.

The upside was a 4-5% incremental sales, if it worked. You know, so it was a very affordable loss, which could deliver a pretty solid outcome. Right.

So, and that’s kind of stayed with us for many years now. We now, unless we can clearly say what the ROI of that to a customer is, we don’t want to get into that space as clearly. Right.

So recently, our AI stuff, I have not seen self-serve take off at a, see what happens in large enterprises is self-serve is a little bit of a myth.

Siddhartha Ahluwalia 26:59
Yeah.

Aneesh Reddy 26:59
Because no senior guy in a large enterprise wants to learn a UI. Right. No one wants to sit in a two-hour training and learn a UI.

So you, unfortunately, you get delegated out to an agency or to a, you know, a system integrator or someone using your software on their behalf.

Siddhartha Ahluwalia 27:18
Yeah.

Aneesh Reddy 27:18
You know, like SAP maintenance.

Siddhartha Ahluwalia 27:20
Yeah.

Aneesh Reddy 27:21
Essentially, you know, the enterprise, I don’t want to use SAP themselves. So we have like, I don’t know, 2 million people here in India who are using SAP for these large enterprises.

Siddhartha Ahluwalia 27:30
Yeah.

Aneesh Reddy 27:30
I mean, now with some of the AI stuff, it’s just, I don’t need to learn software anymore. Right. It’s a chat box.

I, in plain English, what I would have told someone sitting on the other side of the email or other side of a call, I’m just telling that here. Right. So, our usage cohorts on the AI stuff, even though we work with large enterprise is just being unbailable.

Right. So the kind of, the kind of, I would say in MVP, we saw very early, we are now again seeing that, because I don’t need to teach anyone anything. It’s simple, plain English.

You’re asking something and get it done. So, yeah.

Siddhartha Ahluwalia 28:06
So this is product market fit, which you beautifully described. What are the things that work for you when you put pedals on scale early on and during the journey?

Aneesh Reddy 28:16
Right. So, pedals on scale, I feel two, three things. Now this is where I think it’s interesting because the US thinks very differently from Asia.

Right. Asia is a very high ROI market. Right.

So, in Asia, what got us scale has always been saying, you’re putting $5 on us, you will make $25 on margins, or you will make $20 on margins. Right. So, so it’s always a try a pilot, show them that look, their revenues grew, their margins grew, you know, and hence, you know, you’re making a 5x ROI on margins, no brainer, you’ll pay.

India has always had that mindset of, you know, value, value, value. Right. US on the other hand is, can you discover what the pain point of that individual is?

Right. US is a very consultative sales model. Right.

So, unless I have a pain point, even if you’re coming to me and saying, you know, you will make 3x the margins or 5x the margins of what you’re paying me, mostly that customer will say not in my AOP, you know, I need to like, you know, like whatever, right? It’s like very different mindsets. Europe is also very, very similar.

Unless it’s in their AOP, or it really solves a real pain point, you can be sure whatever your pricing is, or whatever your value prop is, you will not make the cut. Right. So, so in our head, it’s always been like scaling for us on the sales side, has always been saying, how good is your discovery?

How good, how well are you able to discover the pain point of the customer and the value that that customer attributes to this pain point? Right. If you do a good job, even a half decent job that you usually tend to win very well.

And then of course, another line of saying, why should you win? What is your right to win? Which is where I was saying the depth of product and okay, you said you need these 15 things, but by the way, you also need these five, right?

Showing them that some of those has helped. Right. So, that’s from a sales standpoint.

When you meant scale, were you talking also people and everything else?

Siddhartha Ahluwalia 30:28
Or was it mostly on the revenue scale?

Aneesh Reddy 30:30
Revenue scale is this, right? So, large enterprise, I feel the things you have to solve for is great discovery, really understanding pain points, and what value you can deliver. Second is the whole risk versus the responsibility curve.

Right. If you’re a large enterprise, you know, you can get fired for taking a wrong decision. SMB, no, because the guy is taking his own decisions.

So, it’s very different. Right. So, you have to answer this risk versus responsibility thing very well, which is why the foresters become important, which is why the best of the products keep making more.

Right. So, in our case, this risk versus referenceability when we opened U.S. was really saying like we want the best of the analysts to like really say we have the best product, which is we spend a lot of time taking feedback from analysts because they also meet a lot of customers. They have a good ringside view of what our customer is looking for. Our roadmaps are actually quite influenced by what we hear from analysts because truth be told they are also meeting 50 customers, so they have a good view, right?

So the second thing was like more than 55-60% of our revenue today is partner or analyst influenced, you know, because as Capillary we are not a big brand, right? But each of these large enterprises has a partner that they really respect, right? So you’re again reducing risk by and increasing referenceability by going through a partner, right?

So some of those have been good, good, good, good, you know, ways in.

Siddhartha Ahluwalia 32:08
So what is the geographical distribution of the revenue today? Like how much percentage comes from U.S., Europe, Asia, rest of the world?

Aneesh Reddy 32:15
So today about 55% of revenue comes from the U.S., about 17-18 comes from Europe, 26 something comes from Asia. So that’s been the split.

Siddhartha Ahluwalia 32:24
And you have had a very interesting journey to the U.S., right? Initially you went to the U.S. and had to come back with four months of runway and then you build your internal system, scaled here and then went back again. So can you tell us to share the journey of, because for Indian founders building global software, U.S. is the ultimate destination and it’s never easy, like nobody can crack it in the first go.

Aneesh Reddy 32:50
Correct. So yeah, in our case, like I said, we did very well in Asia, 2008 to 2012 and our sales model was a very ROI sales model, what I described to you, right? So in 2012 and 2013 early is when we opened U.S. the first time and KK, who was my co-founder and our CTO at that point in time, moved to the U.S. So the first myth I want to burst is this, a founder moving to the U.S. means you will get success, it doesn’t happen, right? So and we took our sales model from here, this very ROI heavy, pilot heavy sales model and tried to force it in the U.S., fell flat, right? So we spent like 4, 5, 6 million dollars in the U.S. and we got to a 50,000 dollar era, right? So and back then 6, 7, 5, 6 million was a lot of money, today it is not, but back then it was genuinely a lot of money, right?

So I thought what broke for us really was, what we needed was a very consultative sales model in the U.S. The U.S. is also a country where people really like very good products, they’re willing to pay value for a good deep product and at that point in time, you know, we weren’t, our product wasn’t as great, right? It definitely evolved over the next few years and what we were also doing in the U.S. at that point in time when we were trying to win was, if we got on a call and someone said, we were a loyalty company, if someone said, look, I want an NPS product, we’d say, okay, we can build it for you, you know, it’s a very Indian mindset, right? So and that never worked, you know, because you were starting to just go like, instead of going deeper and building a best product, you know, you were going sidewards and building many, many things, which kind of didn’t actually help our cause.

So when we went back into the U.S. in 2020, I mean, the learning then in 2020 was that we had kind of got to this 28-29 million revenues, we were already working with some of the best companies in Asia, so we’re a good product, but Asia, as you know, is not a great paymaster, right? So could we build a 100 million dollar revenue company just on Asia? Answer was, unfortunately, a no for us.

Can you build that in a horizontal HR type space like a diamond box has? Answer is yes, right? So for us, it’s pretty clear that this will take you only this far, right?

So and so when we wanted to open the U.S. again, we started totally the other way around. We first went to analysts, they saw our product and started saying, look, why are you guys not in the U.S.? We went to CEOs of companies, CEOs of companies who were big on loyalty, right? So like people who had built like 50, 60, 70 million dollar revenue companies in the U.S. in the loyalty space, showed them our product, right? And they were all like, look, you guys have like a lot more than like, there’s this guy who, he basically said, look, what I’ve been wanting to build for 10 years is what you guys have. So why are you guys not in the U.S., right? So and even when we opened the U.S., we said we will only sell our loyalty stack. Although we had an e-commerce product, we had an engaged product. So we were now like, we did exactly the opposite of what we did the first time around. And I also answered risk and referenceability in a very nice way.

I said, look, it’ll take us five years and we had opened many countries by then.

Siddhartha Ahluwalia 36:29
By that time, I assume you must have been 10, 15 million in ARR.

Aneesh Reddy 36:32
We were actually, I think, yeah, we were about 27, 28, but COVID got us down to 15. We were like actually 15, 16, 160 crores of revenues or something like that in that year. And we basically, you know, for this risk versus referenceability thing, we went and did a small acquisition.

It was a 25 crore revenue company, five customers, 15 employees. But suddenly, and they were in Minneapolis, so you had 15 employees in the U.S. And that basically made a lot of these large enterprises feel that they are a safe option to work with. So it was that team, which was very excited about a great product that we had, that combo really worked.

So I feel if you want to do the U.S. well, some of these, right? Deep product, good referenceability. The founder moving to the U.S. a lot of times is essentially reducing risk.

Siddhartha Ahluwalia 37:28
Yeah.

Aneesh Reddy 37:29
Right. That the individual is…

Siddhartha Ahluwalia 37:31
It’s a necessary but not a sufficient condition.

Aneesh Reddy 37:33
It is. I don’t know if it’s a necessary condition also. I’ll be like, I haven’t moved.

Yeah. But we’ve gone from, I don’t know, zero to 60 million in U.S. revenues in about four years.

Siddhartha Ahluwalia 37:45
I think when people see Capillary, people see an 18-year-old company, but they don’t see this part, which you just mentioned that your U.S. revenue is only four years old, which is…

Aneesh Reddy 37:55
Four, five years old. Right. So I think if you’re smart enough about dealing with some of these pieces, I think you’ll be fine.

Siddhartha Ahluwalia 38:03
To iterate again, because a lot of our founders would want to learn this one, go with the U.S. with a lot more focus, with a lot more consultative mindset, with a lot of pain discovery mindset. Don’t try to sell everything to everyone.

Aneesh Reddy 38:18
Yeah. U.S. is definitely not a market that you sell to. It is a market that buys. Yeah. And there’s a difference there. So if you’re solving a pain point, they’ll buy. If not this year, they’ll come next year, but they’ll buy. So India is the other way around.

Siddhartha Ahluwalia 38:32
So unfortunately, we are all very value-focused and that doesn’t work in the U.S. And India teaches you very push-based selling that you have to show up again and again and again. Right.

Aneesh Reddy 8:43
But even in the U.S., you’ll have to show up again and again and again in a nice way.

Siddhartha Ahluwalia 38:48
Yeah.

Aneesh Reddy 38:48
But not just screaming ROI. Right. Like you have to show up again and again saying, look, this is a pain point.

I will solve it for you.

Siddhartha Ahluwalia 38:56
Yeah. But through more brand mechanisms rather than push-based mechanism by being at conferences.

Aneesh Reddy 39:02
Which is absolutely true. Like all our lead funnel now is either inbound or partner-led. You know, I’ve rarely seen like pure outbound work in the U.S. So it’s just, I think, while in Asia, you see a lot of outbound work pretty nicely.

Siddhartha Ahluwalia 39:17
Can you describe this more like in nuanced detail?

Aneesh Reddy 39:21
Yeah. So outbound is what? You have a, you do a gazillion emails, you do a gazillion, you know, you have a whatever inside sales rep sitting and calling.

Siddhartha Ahluwalia 39:30
Yeah.

Aneesh Reddy 39:30
Right. I haven’t seen that. That works very well for us even now in Asia, but I have not seen that work for us in the U.S. U.S. is a lot more, you know, you get featured in an article in a CRM magazine or a retail magazine. Someone reads up about you, comes to the website. Or, you know, you have a network of partners. So if someone’s coming up with an RFP, this partner gets to know and they push you in.

Or you’re on a Forrester. So it’s a lot more, I want to do my research and then go to who are the top 3-4 I should reach out to type market. Then, you know, okay, the guy called me 15 times and, you know, like, hence I will buy from him.

And it’s like, even now, right, I feel, we do a lot of work now on trying to be, if you search on loyalty in a ChatGPT or a Gemini, we want to come up there saying, look, it may not be about saying I want to buy software, but you talk about something, I want to say, look, okay, here and it, by the way, I referenced this article from the Capillary website. So things like that. So it is a lot more, U.S. is definitely a lot more of an inbound-led play for us at least than the stock market.

Siddhartha Ahluwalia 40:50
All right. We discussed before our podcast that you have been doing Vipassana for the last six years.

Can you tell us about your journey, how you got initiated into it and what’s the change that you have seen in yourself and the people around you, your company, your relationships?

Aneesh Reddy 41:09
You know, I think, you know, slightly long answer there, but I think by the time I went for my first Vipassana, there was already 12 years at Capillary. I think what happens as a founder is, you know, when the going is good, it’s all good. But when the going starts getting tough, at least I had this thing that I was blaming myself for a lot of stuff that had happened.

And, you know, there’s always this voice in your head, which is critiquing what you do, right? I mean, like, you speak more to yourself than you speak to anyone else, like by a margin. And when that voice in your head is constantly critiquing you and saying, hey, you’re, you know, whatever, you weren’t good on this, or this was a bad decision, you blew so much money up, you should have done this better, you know, and it just got to a very noisy place in my head.

And I turned 35 in 2019. And a bunch of us school friends, like really school friends, from nursery together, right? I’m very lucky to have lots of good friends in life.

But 7-8 of us, 8 of us actually went to Goa to celebrate our 35th. And we were all sitting in a group together. And we were talking about what life’s done to us over the various years.

And when it was my turn, I somehow said that, look, I think life’s all downhill from here, right? And everyone else in the group was a little shocked. He was like, what’s this guy saying?

Like, you know, he runs a good startup, he’s done well in life. And one of my friends there, he happens to be a VC, actually. He said, look, I think you’re really like, your mind is playing funny tricks with you, you should try this Vipassana thing up.

And he had done a Vipassana about 2-3 years before. And at that point in time, this is obviously a gang I really trust, and I’m very vulnerable with. And I said, okay, perfect.

It was December. So Jan and I went for a Vipassana. And there was just a lot of guilt in my head on, you know, like, Capillary doing well, and then going through a lot of issues.

And, you know, it was just, I think I was just criticizing myself a little too much. And it was a 10-day Vipassana, Feb 1st to Feb 12th. And when I got out of the Vipassana, when the 10 days ended, I felt like I was like 15 years younger.

Because, you know, all these critiquing voices in my head, all the angst I had, all the anxiety I had on stuff, kind of evaporated out like, very, very nicely. It just felt like I was again out of IIT and, you know, had all the raw energy to do stuff. And it’s been 6 years, you know, and the last COVID came in the middle and we were a retail tech player.

It’s really, really, really helped me. Like, so like, the company has also done phenomenally well in the last 4-5 years. We were, I’d say by the end of 2020, we were almost written off.

And then we really reinvented ourselves to have a pretty meaningful last 4-5 years as well. Yeah, for a founder, you know, I think we end up accumulating a lot of garbage in our heads over a period of time. You know, every failure, every, you know, sometimes success also, right?

Success also hits your head like way too much. I feel there is a need to like keep cleaning your mind up. You know, when you grow too fat, you go do a detox, you know, you don’t eat stuff or whatever, right?

A week, two weeks, a month, you know, no sugar, there’s that. We really don’t do that with our minds, right? We are constantly like absorbing, you’re constantly thinking, you’re constantly, even when you sleep, you’re half the time your mind is like active and doing something, right?

So Vipassana, that way I feel is a great way to like keep cleaning your mind up. I do a Vipassana every year now.

Siddhartha Ahluwalia 45:27
And do you practice daily also?

Aneesh Reddy 45:29
Yeah, yeah. Like come what may, like morning 45 minutes to an hour is a given, right? So, I don’t do it twice a day and it’s usually recommended you sit in the evening as well, but I’m super tired by the time I get to that.

But yeah, in a year, at least 250 days in a year, I would sit in the morning for an average of 45 to 50 minutes. And you also asked how does it help the company and stuff, right? So, surprisingly a lot of my folks in the company came to me and said you have changed.

Siddhartha Ahluwalia 46:04
Yeah.

Aneesh Reddy 46:05
Right after my first Vipassana. And we’ve had about 40 people in the company now go for a Vipassana themselves. And I don’t think we have forced anyone to.

It’s basically people seeing change and saying, I also want to be as calm and I also want to not react as much and be more present, all of that. And we now have a thing that beyond the 20 days of personal time off you get, you can do a Vipassana every year. So another 10 days of Vipassana leave you get.

And I think it’s, I now believe there are multiple advantages to it. So the first one is people who go and when they come back, I think more than make up for, like we’re not in the brick making business, right? We’re in creative business.

And I feel once they come back, they’re so much more effective. They don’t hold all the baggage they had. Like decision making is so much more clarity in decision making.

So that’s a big, advantage that you see. A lot of founders who’ve been around me have also gone for a Vipassana. It’s interesting.

I think it’s a great way to, I think, making yourselves more sharp and yourselves more clear in your decision making and thinking.

Siddhartha Ahluwalia 47:32
So what is the clear difference between Aneesh pre 2020 and post 2020?

Aneesh Reddy 47:38
Yeah, I think, like most, like, you know, I think I definitely operated from a place of fear and anxiety a lot more before 2020. Right? So you’re constantly afraid of this employee who might leave, who you have to retain, a hundred use cases, right?

A customer who might churn, a competitor who’s like undercutting you, like, and, and some of those fears not don’t necessarily convert to great decision making. Right? I definitely believe that, like, taking decisions from a point of calm, from a point of acceptance, is a far better way to take decisions than taking decisions from a point of fear or worry or anxiety.

Right? So I feel the post 2020, Aneesh was a low baggage, you know, accept things the way they are. And, you know, sit calmly and decide now and find I will, I will kind of a rule that if there is a big decision I need to take, I usually think after I have sat in the morning.

Right? So like, six to seven is usually my morning used to be 5:30 to 6:30, but whatever. Right?

So after that, I sit down and think, right? So, and I really think it’s helped with a lot of clarity on, on especially the big decisions, right? Like, you know, opening markets, closing markets, deciding to IPO, this, that, and all.

I feel I take some of those decisions not out of greed or not out of anxiety, but from a place of calm now.

Siddhartha Ahluwalia 49:19
Yeah. And one thing unique about the Capillary culture, since we talked about that, and your team gets 10 day Vipassana leave also, right? Out of 730 members in the team, 100 plus have stayed for more than 10 years. What has led to this kind of a culture?

Aneesh Reddy 49:38
So that’s, I think I’ve been extremely lucky as a founder, you know, to have like really, really good team members all along. We are now 17, 18 years old, right? We’re 17 years as a firm now.

And out of the 730 employees, about 130 have spent more than 10 years with us, right? So it’s like, if you compare that to Bangalore, you know, I think we are like 5x better in terms of retention. Our monthly churn is 1%.

1% of our team leaves every month, which is very low. Till COVID, it used to be 5% a year, right? So I think a few things that have worked for us is, you know, one, we’re not the best paymasters.

You know, we are like, there’s always been this belief that when we started Capillary Off, a bunch of people who joined us, were kind of people who knew us, not necessarily personally, but would have, you know, worked with us at other, you know, other companies that we worked or were juniors from IIT Kharagpur. And so there was always this feeling of a community more than a company. Right.

So, and I do believe that, you know, there is a lot of value for an employer and not just thinking of an employee as compensation and title, but going beyond, right? So we do a lot of stuff. Like, we do a lot of, you know, I like to think of Capillary as like, the college hostel that, you know, we went to, right?

There was a very healthy dose of sports. There was a very healthy dose of, like, just great friends, right? Like, so we do a lot of that, right?

So as the company started maturing, as people started getting, you know, like high tenure on the firm, right? Five, six years, we realized that, you know, people started, you know, there were a few of them who left saying, look, I’m bored, right? I’m bored.

I’m tired. We started realizing that burnout seems to be like a big part of why, you know, people leave, right? And so we now consciously, every four years, like anyone in the company, every four years, you can take a full month off fully paid, right?

So the idea being that go for a sabbatical, learn a new skill and every single time someone’s gone on a sabbatical, they come back more energized, one. Second is their team ramps up a lot faster because the individual is gone. They don’t have access to their email, all that stuff.

So the team below them actually moves up, right? So multiple benefits. Now what happens is when this individual comes back, now they have bandwidth to take a new role, they have bandwidth to rotate, right?

So that’s one thing that’s really worked. I think you avoid burnout, you help the team scale up with this whole sabbatical thing we have. The other things that, you know, we’ve done, which kind of works very well for us is every two years, we actually rotate people.

You know, I do believe that beyond just compensation, people also want quality of work and quality of learning, right? And thankfully, if you’re a high learning mindset individual, you know, that’s more than like more valuable to you than, you know, are you really making the most money, right? Yeah.

And I also believe that beyond a certain value, right? Money doesn’t have much meaning, right? So that value, that might be 5 crores, 10 crores, 15 crores, something.

Beyond that money is just, you know, like a number somewhere. It doesn’t significantly improve the quality of your life. And if you think about it, you’re working, you spend more time working than actually at home or sleeping or any of that stuff, right?

So I think we’ve tried to solve for that equation of saying the quality of work, more learning, more new roles, and taking care of you, not as an employee, but more as a well-rounded individual. I think these four have really worked for us.

Siddhartha Ahluwalia 54:00
Understood.
And that’s what has led to people sticking.

Aneesh Reddy 54:04
Yeah. And you’ll be surprised. We are not the best paymasters.

Our pay is, like, I would say at least 15-20% lower than what the market is.

Siddhartha Ahluwalia 54:16
The best companies in your space offer.

Aneesh Reddy 54:18
Yeah.

I’d say actually 25%. And we now have data to prove that. So unless you, usually when people leave us, they get a 80-90%.

Siddhartha Ahluwalia 54:28
80-90%.

Aneesh Reddy 54:29
I mean, we would measure this very religiously, that what is the pay parity that allows us to do some of this. And, you know, if usually there’s a 30% comp difference, people don’t leave, in capital. It’s usually a 70-80%.

Siddhartha Ahluwalia 54:48
That’s quite a lot of difference.
And what are the companies that Capillary Alums have started?

Aneesh Reddy 54:57
Yeah, we’ve had a ton of, you know, I think we’ve had like 50 plus companies. I don’t know, probably more actually. Like, very, you know, I think it was 2012 or 2011, when one of our very early employees went and started up. And we were extremely pissed. Right. Both KK and I were very pissed.

This is Shubh, actually. Shubh is one of the co-founders of NPL. And he was our, he was our second employee.

Right. So when he started off, we were like, extremely, what’s going on? And to our bad luck or to his luck, when he said he’ll start, a couple of good folks also said we will also join him.

Siddhartha Ahluwalia 55:40
That’s what you were pissed about, right?

Aneesh Reddy 55:42
No, no. I mean, it was also a little bit that, look, why is he starting up? Right.

I mean, it was and then within a few weeks, I think we kind of made peace that if you have good people, they will obviously want to go and start. Right. So since then, at least our view, at least my personal view has changed to saying, it’s okay.

I mean, if you’re good people, let them go do. So sometime after those six months, we went and said, look, we want to see a hundred startups coming out of capillary over the next whatever 10-15 years. So we’ve had very good ones come out.

We’ve had, you know, NPL, Shubh is, there was File, you know, there’s Gameberry Labs, there’s Nectar, there’s Facets, there’s quite a few now, you know, there’s quite a few startups that are out of Capillary now.

Siddhartha Ahluwalia 56:30
Then what I learned from Facets, Neon being an investor, first check in Facets, is that like, you can really build stuff inside capillary, which is not, it cannot or should not be useful for the business just because, you know, and the company was really incubated inside Capillary.

Aneesh Reddy 56:48
Yeah. You know, the Facets story is a very unique one, right? So they had built a DevOps platform for us to do multiple things, you know, improve our uptimes, reduce our AWS costs, like auto scaling, all of that.

And yeah, when Prabhu walked up saying, look, yeah, I mean, I want to kind of spin this out, we said fine, you know, so, and the culture has always been, since that 2012 incident has been a little bit saying, you know, if you want to start up, go ahead, start up. We’ve had multiple cases where, you know, a third of our hiring comes from people joining us back. So it’s not just that we have a low attrition, but even a lot of them come and join back.

So in many cases, we’ve also had founders who have left the company, you know, didn’t work out, came back. You know, some of that, that whole cycle has also played out very nicely.

Siddhartha Ahluwalia 57:46
Then the other thing as a CEO is, how do you beat the narrative of or counter the narrative that the best of the SaaS stocks are down, because Claude did something?

Aneesh Reddy 57:59
Right. So a few things. Look, I think, is all the fear wrong?

Answer is no, right? There is crazy disruption that’s happening now. You can very well see that what was probably a, what a 7-8 member engineering team could do, or a part of 7-8 devs could do, can now be done by 3-4, right?

So the disruption is real, right? And after, I don’t know, 17-18 years, I’ve started to build stuff myself.

Siddhartha Ahluwalia 58:31
Oh, really?

Aneesh Reddy 58:32
I mean, not into the core product. I’ve built small applications for myself. You spoke of Vibhasana, right?

So I built an application now where, you know, if I’m smiling, like my way of being aware is if I have a smile on my face, it means that I’m aware, because I try to keep a smile on my face as well. So I have an application now where on my Mac, where anytime it sees me not smiling, I have a smiley which goes red.

Siddhartha Ahluwalia 58:57
And this is an always-on application?

Aneesh Reddy 58:59
This is an always-on application, whether I’m taking emails or whether I’m like on a video call. So it’s constantly telling me that, you know, hey, you have to be aware now.

Siddhartha Ahluwalia 59:07
And what tool did you use to build it?

Aneesh Reddy 59:10
I mean, I built it on like, I’ve actually tried both now, right? So I built it on Gemini initially. Then I built it on Claude to see which one’s better.

It’s on Xcode. So it basically uses the Apple, you know, visual framework and all that stuff. And look, like, there is a real change, right?

Like people like me who last wrote code in MATLAB in 2008, not even 2008, 2006, are now like can build stuff, right? So the fear is real, right? Now, unfortunately, what’s happened is I think markets have painted everything in one paintbrush, right?

One flat paintbrush of saying all software is going to die. I don’t think that’ll happen. So at least we have a, like, the framework in my head is, you know, are you a system of record?

Are you a system of engagement or workflow? Or are you a system of intelligence? I think the system of records will still stay.

Like AI or no AI, your bank ledger will still be a bank ledger. You still need a 100% auditable, 100% accurate platform to deliver it, right? So if you’re not a system of record, start moving towards a system of record very quickly.

Because I think AI will replace workflows, you know, AI will replace all of that. Intelligence, like we have some beautiful bots now which can do the work of an analyst, like sitting in an agency outside, right? So I think the, I believe the markets are also hopefully starting to get smarter.

That instead of painting everything on one paintbrush, you know, what kind of a software are you? Is it a seed-based pricing? Do you serve SMBs or enterprises?

Will you benefit in an agentic commerce world, right? Some of those are questions that I didn’t hear three, four months ago, which I’m starting to hear from investors now. So, I do believe in a six month, an year time frame, you will probably see a shakeout on what survives and what doesn’t.

Siddhartha Ahluwalia 1:01:15
And in this journey of, let’s say, building from zero to 60 mil ARR in the last four years, what are some of your other learnings which we have not covered?

Aneesh Reddy 1:01:28
What has been the learning? Sales side, I think we discussed a fair bit. I think people is another we should touch on. So, the first time we raised big money from Sequoia Northwest, I’m talking about 2012, we went from 100 to 400 people in about 18 months. It took us four years to get to 100. It took us another 18 months to get to 400. And I think the big learning then was money is never the rate determining factor of how fast you can hire. It’s actually how fast you can onboard. So, it’s how fast you can onboard people.

And I believe inherently you’re restricted there. I have this rule now that I will not hire more than one direct report in a quarter. And no one should. Because when you’re getting a direct report, it’s also a lot of work to…

Siddhartha Ahluwalia 1:02:24
For you also. …

Aneesh Reddy 1:02:25
To onboard them, get them to a productive place. And in startups especially, if an individual is not delivering in the first six months, there’s no chance they’ll deliver. You might have hired someone thinking of the next five years. But if that individual is not able to cross the line in the first, I’d say, three, six months, you’re getting nowhere with that individual.

Because in startups, in large companies, hierarchies work. Someone is an SVP, some employee will listen to him. In startups, your right to exist is, I can get stuff done.

As an employee, your right to exist is not your title, is not your seniority. It’s really whether you can solve a problem and get stuff done. And hence, I feel like your rate limiting factor on adding team members or adding is actually how many can I onboard at any given point in time.

So that’s been a good learning. I think we make far fewer mistakes on hiring and onboarding and not working because our pace of hiring is a lot slower. The second thing I would say is, people from big brands will work for you if they have solved similar problems in their life as the problems you are trying to solve now.

So the way we hire has changed significantly over the last, I would say, seven, eight, nine years. Today, if I want to hire someone in a senior role, we actually go to them saying, look, this is my problem statement. Here are the problems that I am struggling with right now.

And it’s usually a thing of them coming back and saying, how would you solve these five, six? And are intuitively those solutions making sense to you? Not just on face value of saying, oh, this was solved in Oracle.

Will this work? Because culturally, you’re different. Your context is very different.

So not just hiring someone because they have a good title in a big place, but really, can they be successful in the first six months? Because here are the six problems, I’m going to give them anyways. And some of that has helped us in a few things, take the hard calls sooner.

There is insane value to taking the hard decisions soonest. Because once you’ve taken those hard calls, then you’re not living in a place of anxiety. So then even the worst news is a better news than what you had assumed.

So even COVID, we took calls extremely. March 27th, the country went into lockdown on March 28th. March 27th, we basically let go a third of the team.

And we then focused all our efforts on getting them placed everywhere. So 220 out of the 250 had jobs by April 28th. Right.

If I had done the other way around of saying, I will keep waiting for what happens. And it was good that we did that because our revenues actually fell by 50%.

Siddhartha Ahluwalia 1:05:55
Because all retail outlets stopped.

Aneesh Reddy 1:05:56
We were all retail, right? So our non-retail survived. Good groups like the Tata’s, the Birla’s said, we will still pay you. But majority was gone. So it really helped us reset and do the right things for our employees, for our vendors, for everyone. Right? So some of those are learnings. But yeah.

Siddhartha Ahluwalia 1:06:17
So tell me, I think one of the most important questions that I want to focus on is on the people side.

Aneesh Reddy 1:06:22
Right.

Siddhartha Ahluwalia 1:06:22
So first is when you initially said in the first fundraising, institutional fundraising, you went from 100 to 400 people, what are the things that broke? And then how soon were you able to fix what measures you took? And then slowly building the team to the current stage.

Aneesh Reddy 1:06:41
Right. Yeah. So what broke many things, like a colossal mess up, at multiple levels, right?

So first is, I do believe that if you’re getting someone new into the business, micromanage for the first 3-6 months, because context is the thing in a startup. Right? Because your documentation is not great, your processes are not great, etc, etc.

So now what would happen here was, we would hire someone, I would keep traveling around the world, you know, for meeting customers. The onboarding was terrible. Right?

So, and what would end up happening with these folks was, they were all good people. Right? So I don’t think their failure was about them being bad people.

I think it was a little bit we didn’t deal with them well. They would come now, they would, like any good person who comes in, will obviously want to hire 5 more people who think like them. Now, you get those 5 more people, now they’re also not onboarded very well.

Right? So it’s a, and so what ended up happening was, you suddenly had these very deep silos. Like the tech guy is doing his own thing, the customer success guy is doing his own thing, the, you know, the HR guy is doing his own thing, and each of them have their own big viewpoints on what to do.

And all I was probably doing was managing politics between them. You know, it got to a point where it was a little bit like that. And luckily at that time, we had one of these, Sequoia had this gentleman called Ganesh, who ended up becoming our CEO much later.

And I was struggling with this problem. Right? So, and Ganesh offered to spend a day or two a week with us.

And he did this very small thing. He went into, he said, who are the top 30-40 people in the company who really get stuff done? So I gave him the list, he went, met each of them, and he would ask each person that, who are the top 5 people in the company who get stuff done?

Right? And when that came back, as analysis to me, basically what came out was, it was the older guys who were really pushing, getting stuff done. None of the newer leadership I had got…

The new 300 people. …featured in that, featured in that 5. Not the new 300.

I’m saying even the leadership team and next to them. Right? So it was a very clear, you could make out, like the value add is very questionable.

Right? And the politics is very high and…

Siddhartha Ahluwalia 1:09:15
Were these people enough tenured in the company to make an impact or?

Aneesh Reddy 1:09:18
This was a couple of years in. Right? 18 months into the, so reasonable tenure, if you ask me.

And deep down, even you knew this hasn’t worked out. Right? It’s just that you were waiting for some data point to show up and take a call.

Right? So, yeah. So we actually were…

It’s actually pretty crazy. So in the end of those two years, sometime in, I would say early 2015 or end of 2014, I actually overnight said, I’m basically removing one full layer of leadership. And we just got like different people up.

And after that, what we did was slightly different. We said, look, I have great talent in the company. Now I need to scale this talent up.

Rather than constantly looking for people from the outside. Right? So we actually do a lot on coaching.

Right? Every first-time manager in Capillary gets a coach. Gets an exec coach.

Right? So, because I know that that individual, okay, he’s only spent two and a half, three years and become a manager now. I know he might last 10 years with me.

So I better invest in that individual now. Right? So unfortunately, most companies don’t do that.

Right? They say that, look, this individual is not scaling. But what are you doing to make him scale?

Right? Is a question that you really need to answer.

Siddhartha Ahluwalia 1:10:37
Right?

Aneesh Reddy 1:10:38
So, we do a lot of coaching. We do a lot of rotating roles, you know, so that that individual gets empathy. Like our engineering leads, our product managers, spend insane amount of time with customers.

Right? So we, in 2015-16, we did this thing that every lead or every product manager actually owns a customer. There’s a customer success guy and all of that stuff.

But this individual is also going for the QBR. This individual knows that there is a… So like bringing some of that context closer, that’s really helped us.

Because you know, now, number of times I really need to go out to make a hire is far fewer. Right? And if it’s someone internal bumping up, culture is better.

You know, a lot of that stuff works very well. Having said that, we’ve got people from the outside also. Like, you know, I mentioned Ganesh, who hired in India for us.

Tons of people we’ve got from the outside who have done very, very well for us. But it’s always been this model of saying first 3-6 months is extreme micromanage. You know, and once they are part of the culture, once people have seen successes with them, is when people also start trusting and then you’re by yourself.

Siddhartha Ahluwalia 1:11:54
You know, in your journey, if you have to attribute the current success of Capillary to 5 major decisions, what would they be?

Aneesh Reddy 1:12:05
5 major decisions, what would they be? Wow, that’s a very deep question. Yeah, first is I think when we started, we did some things very smart.

Right? So that whole period of, you know, not just going to build what we wanted to build, but we spent 6 months speaking to customers before we wrote the line of code, which I think was a very, very good decision. Because by then we knew who our first 5 customers are.

We weren’t selling, we were listening. And a lot of that played out very, very well. Right?

So the initial part, I would say that was a very, very big, big aha for us. The second decision, I think was, you know, our ability to show value, like quick value delivery, right? That in 3 months, I can show you value, meant that not only did our India customers roll very fast, like customers like a Puma, customers like them, actually took us international as well.

It’s very funny. Our international journey didn’t start with us wanting to go international, started with our customers saying, no, what you solve for us in India, can you solve for me in Singapore and Dubai?

Siddhartha Ahluwalia 1:13:26
Puma India took you to Puma US?

Aneesh Reddy 1:13:28
Took us to Puma Singapore. And then of course, you know, once we had some referenceable customers in each of these markets, those markets grew by themselves. Right?

So this whole quick unlock of value and being able to show that, I think was a definite, definite big tick, I’d say. I’m just trying to chronologically go through, you know, so I’d say 2015-16, when our approach to do we just want to give the highest pay package and titles? Or do we want to become more than that?

Really happened in like 2014-15. And this was a very interesting conversation I had with a wingie of mine, a wingmate of mine from IIT who joined us from Yahoo, worked with us for five years, did very, very well for us. And then he’s a wingmate, right?

So I can clock anything with him. And he said, look, I want to leave now. And it was a very deep conversation.

I was like, kya hua? Like, you know, and when people like that leave, it’s very personal, very painful. It’s like, even for you, it is very personal as a founder, right?

This was not an employee for you, right? This was like, and that’s when I realized this whole burnout and this whole piece of, you know, and our policy changed significantly at that point in time. We said, take your sabbaticals.

You know, I started doing this thing that, you know, if someone’s not taken a holiday in the last two, three months, I actually push people to take breaks, right? So what I realized is your best people will burn out. They will not leave for comp or for some of those other reasons, right?

Our HR, I won’t call it HR, but our people policy or people philosophy, I think, is very unique. That I would say is like, when I said I want to do this, a lot of people questioned me saying, like, what are you doing, right? We spend, we do these inner peace retreats, we do these, we do a lot of stuff to like, go beyond just being an employer.

Siddhartha Ahluwalia 1:15:44
No, I have been part of Morpheus along with Sameer Guglani. I have seen Capillary conduct some of those retreats at Morpheus.

Aneesh Reddy 1:15:51
Oh, very interesting. Got it. Got it.

I didn’t realize you were part of that gang as well, right? So that I would say is a third big one. The fourth one I would say is during COVID.

This thing of saying, take the hard calls sooner, right? I think is something that stuck with me forever because I think that was the difference in us surviving or us dying. And I did see a lot of other companies who were in similar spaces, travel or retail or where they just couldn’t make it.

And good companies, but you know, and it was even harder for us because a lot of the 250 people I let go had spent 10 years with us. It was also like soul crushing. But I thought the end outcome was great because we could get all of them placed.

If you had ever called me saying, I, this question helped me. I had made all those calls back to them saying, look, I had helped you, now hire from me. Right?

So I still strongly believe that take the hard calls sooner. The fifth one I would say is, you know, a lot of times strategy in startups is usually a shiny object problem, right? The founder has changed his gears towards it.

The founder has changed his gears. The whole team has also changed their gears towards it. Right?

I now strongly believe that strategy is something you do once in two, three years. Because you have to let it play. You have to let it play.

And hence, you know, like these pivots that we did in, I would say 2021 time frame of saying, we’ll open US. We’ll shut down our e-commerce business. We’ll shut down our, you know, SMB business.

We will focus only on large enterprise. You know, those are all very deep in a sense that, you know, it was part of that coming down of revenue and all that stuff. But without that, we wouldn’t have gone from that 15 million to whatever 115 million run rate now in like, you know, I’d say a four, five year time frame.

Right? If we were carrying all that baggage, I hence feel here, do your extremely deep work on, if you’re like, on deciding to what you want to focus on. Right?

Like the 2020 Capillary was we did seven things. We were great at one. We were also answered many.

And we were doing some 27, 28 million revenues. Today, the business is we do only one thing, but we are the best of the world. That took a lot of like soul searching to shut things, focus on a few things.

But I think that really, really worked. Right? We had Psyche and X210x help us with coming up with this.

But yeah, that I think was those, that year of deep work and then taking all the hard calls really worked for us. So yeah, five. I think I got the five.

Siddhartha Ahluwalia 1:19:01
Yeah. Thanks. Well, thank you so much, Aneesh.

Loved this conversation. Would want to do part two sometime later.

But I think for our audience, I’ll tell you some anecdotes. So I was in a board meeting at CloudSEK. Right?

The company had just crossed, let’s say double digit million in ARR. And then, you know, founder Rahul shared a slide with, and I was not supposed to be part of that board meeting, like I was traveling at that time, but I came. He shared a slide where we had the podcast with Ravi from Moinga.

He said, this is a playbook that they are going to adopt and what they learned from our podcast, you know. So I wish to make this conversation similar for our audience.

Aneesh Reddy 1:19:46
No, no. Happy to be of help. You know, we’ve been very lucky to have great people, you know, pick our calls, help us through our journey.

So happy to pay it forward.

Siddhartha Ahluwalia 1:19:56
Thank you so much. It’s been a pleasure hosting you on the podcast.

Aneesh Reddy 1:19:59
Thanks so much. Thanks a lot.