I am presently writing a book on product-market fit or PMF, a seminal concept in the startup world. It is a topic I have been obsessed with for a while now, given that a large part of my success rests on helping my portfolio achieve PMF. In that regard, the lack of a practical guidebook / playbook for early-stage founders on this topic has always puzzled me. In fact, for such a key concept, there is no one agreed definition either. So, I have set out, rather ambitiously, to correct this, and create a playbook or guide for early stage founders to systematically work towards PMF.
As part of the research towards the book, I have been doing interviews with founders, to get their perspective on the topic of PMF, and related aspects such as Go To Market, Metrics, Pivots etc. These interviews have been consistently interesting and illuminating. Given it would be useful for other founders and operators in the startup ecosystem too, I decided to make it publicly available, after getting approval from the interviewees. Here is the first of the interviews, with Chaitanya Ramalingegowda, cofounder of furniture + mattress eretailer Wakefit.
The transcript has been edited to make it more readable. There will of course be minor errors; please excuse me for them.
In this episode, Sajith Pai from Blume Ventures, speaks with Chaitanya Ramalingegowda, cofounder of Wakefit, about product-market fit, customer centricity of Wakefit, marketing in the early days, and advice for founders. The interview took place via a zoom call on 12 August, 2022.
Sajith Pai (SP): Hi Chaitanya, and thanks for this. I have a set of structured questions, but that’s just the scaffolding for the convo and I’m very happy to deviate from that. So, the first question I really had was, maybe two parts to it. 1) For Wakefit did you consciously have that “Oh! I need to work towards PMF” in mind or was it more like “Let’s do this!” and PMF came up as an outcome. So, that is one, and two 2) I wanted to understand your definition of PMF. But I will repeat question two again. So, the first question is really on face of it, Is PMF a VC thing? Or do founders care about PMF? Or is it that founders care about growth and then PMF sort of comes along the way. So, I wanted to get your perspective.
Chaitanya R (CR): Got it. Sajith, for both Ankit (Garg, his cofounder) and me, the definition of PMF, growth, all of that became secondary. I had 2 failed startups before Wakefit. Ankit had one. And during that time, for the first startup, I had made every single mistake possible. Every single one. Focused too much on the product, didn’t really understand the consumers’ unstated needs, trusted too much on what they said in the focus group interviews and so on and so forth. I made every rookie mistake. By the time the second startup I started, I had read Paul Graham, I had read ‘The Lean Startup’. I knew some of these things, and wanted to focus on getting to that place, and did a bunch of things, and made mistakes around getting to the right market size itself, building a team, and fundraising in a smart manner. I made a lot of mistakes there, managed to get to the Angel Round, but couldn’t get to the Series A.
So, by that time, I met Ankit at a Sequoia funded startup (Tapzo). There is a nine-year age gap between us. He is younger. We connected because he had one failed startup, and he was in my team then. But what bound us was our experience. Okay, we have done this, whatever we knew we tried but it didn’t work out. In 2015 or so, we were seeing this crazy behaviour in startups all around us, “Spend money and get to the next milestone.” Hundreds of crores raised, and nobody was thinking about profit, nobody was thinking about sustainability of business, they were thinking about getting to a particular milestone because it’s attractive for somebody else (the next investor). So, when we started about 6 months later, my third startup, his second startup, Wakefit, we said “Screw everything. No Paul Graham, no YC, no Lean Startup.” We will, first of all, survive as a company. Secondly, given our past tough experiences, we will first take Ankit’s salary because he was newly married & running the product development & production. Then a few months later we should be in a position to take 2 people’s salary, which includes me. And that is a big achievement. If we achieve it, from there, we’ll figure it out. But in hindsight, what we ended up doing back then was we became very, very good with cash flow management. That’s all it boiled down to, saying that, if we are able to take money from our customers early because we are a D2C company. And we are able to pay vendors anywhere from even 15 days later all the way to 60-90 days later, we were able to handle a sustainable business. How big it became and all that came much later, and ambitions expanded much later.
So, our first 3 orders of the day were survival of the company, one person salary, second person salary. For the first 18 months we did not have a performance marketing budget at all, Sajith, zero. We didn’t have a Google account or a Facebook account. We just said, survive on customers’ reviews, delight them to the next level, where they themselves will say good things about us to family and friends. So, what in essence happened is that our CAC became very, very low and very, very manageable. So PMF for us meant that we could run the business in a sustainable manner, and unlike a tech business where it is a winner take all, in our industry it is not. So, we said we have to build it in a way where the CAC to LTV ratio makes a lot of sense. Ideally, we should not spend much on CAC at all. Delight is what should drive the word of mouth and repeat purchases. And thirdly, despite being a vertical ecommerce company, drive as many repeats as possible. So today about 30 to 35% of our revenue every month comes from repeat customers. And we always, always make money on the first transaction itself. So, for us that became the definition of PMF.
But having said that, today Wakefit is not one single monolithic thing. We operate in about 10-15 different categories. So, the PMF of each category is in a different stage of the PMF journey. There’s 7-year-old categories of mattress, 6-year-old categories of pillows, 5-year old categories of protectors and bed sheets. They are all very much in PMF, very profitable, very high word of mouth, very high NPS. But the other categories, many of them which started just 24 months ago, some which started 6 months ago, they are in very, very early stages. So, we deliberately measure them differently, each of them very different.
SP: Very interesting. So, when you say, each of them is in a different stage of PMF, of course, like a Wakefit mattress I’m sure is very profitable. I am a consumer myself. What does it mean when you say that, could you just dig deeper into that?
CR: Yeah. Same logic as earlier, that theek hai (all right) these new categories now have the support of Wakefit as a brand, more people know. But despite that, is it EBITDA neutral or EBITDA profitable? Because we don’t want to play games with CM1 profitability, CM2 profitability. We are just fooling ourselves then. After loading all the costs that are attributable to it, or even if it is central costs, we take a lot of effort to attribute central costs in the best possible way, where we don’t just throw up our hands and say it’s very difficult to allocate, or I can only allocate using revenue. We don’t try to do that. We try to put in a lot of effort to allocate costs, and then ask “Is it trending towards EBITDA neutrality or profitability?” because it’s a very new category.
In capex-heavy businesses, for example, we have put up a ₹ 100-crore ($~13m) factory, it’s India’s largest furniture factory. So, there we know that we have to have a month-by-month journey to get to EBITDA positivity in those categories, because fixed cost is hitting us every month, but capacity utilisation is only starting with, say, 25%. So, what is the month by month target to get there? Only in that category, we allowed ourselves a little bit of leeway because of initial investments.
SP: Got it. Just taking notes as you talk. Okay so this gives me a decent definition. One of the questions coming to mind is, Is this PMF a VC thing? And founders, for example, have very intuitive definitions of getting to what is PMF, but I think that’s one of the realisations that is coming to you. So, one of the learnings, one thing I found very interesting is the obsession with talking to customers, how you and Ankit go to people’s houses, just land there and say so we were selling mattresses, talk to us etc. So, that I found very interesting and so from a customer perspective would you say that’s like a Wakefit superpower? Like do your PMs for example, go and talk. Can you just talk a little bit about this? It is strictly not a PMF thing, but everything is linked to PMF in a way.
CR: So True. Not just PMs. You’re absolutely right, Sajith. It’s become part of our DNA, not just PMs, a marketing associate who joins, factory manager who joins, branding associate that joins. They’re not going to be talking to customers about brand, what communication, what is the messaging? No. This is literally going and saying what went wrong, what went right. Tell us, talk to us. Very open and free conversation where good, bad, ugly, they learn everything. And it is not a ritual where all new people have to go through this in the first 7 days. No, that’s not, that’s not how it is. It’s not just for namesake. So, somebody could have spent 6 months, but now we need them to speak to 200 customers. Somebody has, we are solving a particular problem on user behavior, so irrespective of department, seniority they are in, they have to do 50 interviews. So we just brutally allocate people and say “Go talk”, and share your views, share your understandings, share transcriptions.
And even to this day I still respond on social media under the Wakefit handle, my lunchtime listening for me is customer recordings. For Ankit, his phone number is listed on a bunch of platforms, people don’t know that it is Ankit, but his phone number is listed, so those are the signs. And I am still part of the Wakefit escalations Whatsapp group and which means customers say anything, it hurts. And people may or may not say the right thing, they call us frauds, they call us cheats, because their product is delayed by a few days. I know it is their hard-earned money. They have the right to be upset, but it feels bad as a founder. So, we ensure that I chase down every single problem and solve it. So that, I think that’s a simple way of showing that it is just by being present and chasing everyone it’s a signal that, no matter how big we become, I worry about this one Sajith. I worry about saying that the escalation rate came down from 1.2% to 1.1%. Boss, that’s not right, because the number of orders went from 6000 to 10000. And in absolute numbers it is still some 110 orders, which means it’s 110 people whose promises we missed. And if you listen to those call recordings, you will see somebody would have ordered because their parents are coming from somewhere else. And somebody has ordered something because their baby is expected to be delivered. And we bloody missed that. So, when a company becomes percentage obsessed, and forgets the voice of the customer, we are screwed. So that’s why I worry that as a large company, if we lose track of that, we’ll be in deep trouble.
SP: Got it. This is really interesting. So I want to come down to the questions around metrics. That is one area of obsession for me. I’m sure you will be as data obsessed as anyone out there. I don’t deny it. But I love the qualitative focus, you listening to customer recordings. So, broadly linked to one, what are the metrics you track. You will have 1000 metrics, I’m sure there are 100 metrics you can sit and track, but really what are the 3-4-5 metrics that are on top of mind for you? And the second part, questions on qualitative metrics will come to them like you, how do you marry qualitative and quantitative? Because this customer research focus that’s coming out is very interesting.
CR: So, Sajith, we have designed something called a Product Health Scorecard (per order). So, Product Health Scorecard, irrespective of whether a customer has escalated or not, gives the health of a category in a particular period. This has 4 or 5 parameters that make up the score. Did we keep our promises in terms of timeline? Did the customer get all the communication that he or she was supposed to get? Did the customer have to reach out to us for any clarifications because something was wrong or incorrect for a mistake we made, not for the customer’s problem. Did we deliver the product without any damage in transit and install it also without any damage? Parameters such as these.
And lastly, a few days later the NPS form is triggered. What was the NPS? So, there are 5 or 6 such parameters and for each product category we track it every day and every month it is analyzed, and even if the board doesn’t ask, we present it to the board. It is our way of keeping ourselves honest. The Product Health Matrix is one of the leading indicators of NPS. Because NPS is triggered, depending on which category it is, anywhere from 7 days to 20 days after delivery. And if we have done all of these right, NPS also should work out, right?
SP: So, is it like a score, the Product Health Scorecard? What is it on, 4 on 5, 8 on 10?
CR: It’s on 10. And all of these things add up in different weightages. And then the Product Health Score is created.
SP: Got it. Just, I mean, it’s up to you (if you wish to share), but like does it vary between different categories? So, newer categories are lower or higher?
CR: Newer categories, where there are fewer moving parts, is lower, newer category with a lot of moving parts, like any other furniture, no matter what you do, we screw up and we go down, and then it picks up every month.
SP: Theek hai. Okay so qualitative, marrying qualitative, so like you listen a lot of recordings, etc. How does that get fed back? Like some of it is like I’m sure some of them will be around terrible challenges we had, like complete disaster, customer saying whatever right, like a baby cradle hasn’t come etc. Why do you listen to them? Why are you listening to that? Like, because your time is so valuable, you know, for you to sit and listen to something for 15 minutes, 20 minutes; am sure it is sped up, I know, but what are you gaining from it?
CR: Individual cases that we hear, or I hear, and I listen, so forth I obviously try to go to the root cause, see whether it is systemic, or request my colleagues to see whether it’s a one off or a pattern, so that is the tangible outcome that happens. I think the subliminal outcome that is there is that every customer’s voice is important. If we just become obsessed with Excel Sheets, I think somewhere that gets lost. And if I go to the team and say that this customer for this product set from Calcutta warehouse, this happened. It shows that every customer’s pain is important. I guess that’s what it is. We don’t want to lose track of that.
SP: Got it. It is a signal, CEO is listening to the audio. It actually signals a desirable cultural trait. So in terms of Go To market / GTM, specifically initially you don’t have any performance marketing for 18 months. You took your time getting started. There were a lot of referrals. But still, how did the first 100 customers, first 500 customers happen? Like, they had to know about Wakefit. Did you post on any particular sites? How did you get that initial 100-200 orders going?
CR: To be honest, we cannot take much credit for those initial orders. We just showed up, I’ll tell you why. We listed it on Amazon, and three months later we listed on our own website, we created our own website. And we had no brand, no social media following, nothing. We didn’t even have social media handles. So, people would read the FAQs, would read other customers’ reviews. They would read the ratings, and they would make their own independent choices. And what we realized was when we called these people, we realised all of these people were early adopters in their life, in their behavior. So, we couldn’t really take too much credit. These were generally experimental people. The first customer was a gentleman who had relocated to India from the US. He said recently I started seeing that mattresses are being sold online in the US and I relocated recently, and I didn’t want to go through that old market route, so I was just trying. We were as surprised as him. We called and said “We are unknown founders. If you search on Google, nothing is there, zero reviews. Why would you even spend ₹20,000 ($250)?” Back then our mattress would be priced at ₹20,000. Today as efficiencies have kicked in, it is something around ₹ 10-11,000. Why would somebody do that? And we realized that is a pattern. Moving from those early adopters to a broader mass happened when we really took the risk and created the 30-day return policy and then 100-day return policy, a few months down the line.
All of our marketing communication was focused on saying that “Hey! You may not like our product. No problem, we respect that. But you will not be able to call us frauds, because if you don’t like it, we will pick it up and refund your money without any fine print”. And honestly, we were bootstrapped back then, so we were really really scared. Apparel mein (in) we knew that industry reports and all said that return rates are 25-30%. So, we said as a bootstrapped company if that happens to us, we are screwed. But we said as a D2C company the best part is one, you can take risk and second anything can be tested and stopped within a few weeks. We said that theek hai (all right) we will lose money for some period, if returns are crazy. But let’s observe the data.
SP: Got it. So, this is interesting. Going forward a little bit. So, when you started performance marketing you had like 20-25 mattresses a day or less or more?
CR: Yeah, I think around that number 20-25-30-40.
SP: So, what did you start with, was it performance marketing as such?
CR: Pure performance marketing, and we did not have any funds to do brand marketing. So, we went and created a bunch of viral campaigns. I will come to that later, but to answer your question, the main focus was performance marketing, money in, money out, is the unit economics working out or not?
SP: Got it. I think performance marketing campaigns today get expensive very fast. But at that time, when you started, there was less channel saturation. So, you could grow with it. Do you want to talk about this? Are you finding that the costs are going up systematically for your new categories?
CR: Yeah yeah, costs are going up, that’s the reason we have such a huge focus on that 30-35% month percent every month coming from repeat orders. It’s a deep, deep focus. Can we take that 30-35% to 40%? As our database becomes…
SP: How do you trigger that? Is there a way to systematically mine that? Referrals?
CR: Yes, we have a referral program, plus we have implemented an automated decision tree-based communication platform which you would know, standard ones, implemented one of those and really, really segmented customer data, and it’s a daily activity to keep trying new methods of communication, new types of content and reactivating that user base. We are now at a place where we take a target by month. Like, the 2019 February cohorts I want these many orders. Like 2019 June Cohorts, I want this much. 2019 October was Diwali, so Diwali customers, they usually have purchased this. So, I want this from them. So, can we become more sophisticated, more thought through in how we reactivate old cohorts?
See, because D2C companies fall for the lure of easy revenue and easy delivery. So, they choose FBA (fulfilled by Amazon) or are fulfilled by Flipkart. The problem in that scenario is that you don’t get customer data. So, from day one whether it is Flipkart, Amazon, over our own platform, the one thing that we are consistently built on is customer data. So today we have, I don’t know, maybe 12-13-14-15 lakh (1.2 – 1.5m) customers’ data and when that snowball becomes bigger and bigger, and every month you target 30% of your revenue from this snowball, then it is not something that somebody can come in and disrupt overnight.
SP: Got it. Interesting. Okay so, fair enough. Viral campaigns, that was the sleep interns and all of that stuff, right?
CR: Yeah, sleep intern. And then we sent a mattress to Prime Minister Modi. With messages of unity from across the country. And that campaign would not cost more than ₹10-15 lakhs ($2k). But that got us a tremendous amount of recognition and coverage. We did that for 3 years.
SP: Alright. So yeah, I have questions on your advice for founders, say your angel investment portfolio. Do you do any angel investments?
CR: I have invested in 10-11 companies.
SP: So, I just want to get your sense of what is your advice to them typically? Is it to strive for profitability? Not everyone will be D2C, not everyone will have your attitude, right? Today’s younger founders, who have launched and grown in 2020 – 2021. They will want a certain way of scaling, etc. So what is your guidance to them on how founders should approach PMF? Like how should you guys think about it? Do you have a slightly different way of thinking about it?
CR: The way I look at my angel investments is, number one, I invest in startups that are really putting in the work and they are struggling with different difficulties, but I believe in the thesis. I believe that that’s a good company where the fundamentals are strong. So, you will see that some of them are consumer tech, some of them are pure tech, some of them are SAAS, some of them are consumer brands. I have done a combination of them. But my philosophy has always been “Don’t get swayed by what you see in the press.” Every industry’s dynamics are very different. In a winner take all market you behave in a particular way. but when external investors and media reports are to be believed, every industry is winner take all. That is nonsense. You always have room to carve (out) a niche for yourself, so you focus on your fundamentals. I will not say chase profitability because what worked for Wakefit may not work for that particular company. But I will say what is your north star metric? And what is your value proposition? And if your customers are saying that and not you, then that’s where your PMF is. So, for example, if you are considering the value proposition from a chatbot company is that a customer should love it, it should have certain repeat usage and share it…
SP: I think I lost you for 10 seconds, could be mine as well (Sajith: I had an internet bandwidth issue here), lost you for 10-15 seconds. You were talking about a chatbot company. If your expectation is that they should love it, customers should love it, etc.
CR: Okay saying that if you’re a chatbot company and your primary goal is the users should find the connects that they are looking for within 2 or 3 chats. Hence, they love it, and they will share it with their network. Then chase that (doesn’t have to be revenue from day 1), it’s okay. Because you cannot create artificial metrics but be sure what your goal is. That’s the only thing. The second thing I always tell them is that. As much as there is product market fit, there is also founder market fit. So, are you interested in the problem statement? Are you willing to do what it takes? Do you have your personal finances sorted? Because you will make poorer and poorer decisions when your personal finances are not sorted. I’ve been there, down to the last ₹800. When you are there, you are not making the right decisions. So, I always ensure that they are taking their holidays, talking to their partners, and just have their personal finances and basic salary sorted out. That is very important. Because they are entrepreneurs on their own, they come and have taken the risk, but if they get into a place where they are not able to use that spirit, then they are screwed. So, can I enable them to be in the right place to make the decisions that they are already supposed to make?
SP: Got it. Interesting? Do you recommend that they should read something? Interesting that you read Paul Graham, ‘The Lean Startup’. So, do you recommend any particular readings? Or YouTube videos? Just curious, what are the resources you recommend?
CR: Yeah. Definitely “Do things that don’t scale” and a bunch of classic essays of Paul Graham. Then Eric Ries ka ‘The Lean Startup’ and some of the methodologies in the book. Because I feel a lot of founders just chase perfection because they have been taken in by Steve Jobs, and they are just going on building features without knowing whether the market wants it or not. It’s a very wasteful way of building. Third one I recommend is Social Capital’s blogs. Depending on consumer, consumer tech, or SAAS. They’ve amazing metrics driven analysis. Chamath’s blogs are amazing. Very, very detailed metrics on what should be done in what kind of category and what they have seen. That is something I recommend. And fourth thing, I always always always tell them is, every month, dedicate time for talking to your customers. You cannot be this amazing CTO who will sit and code for 24 hours and think that I will be the next Mark Zuckerberg. Doesn’t matter who you are, you need to talk to your customers. You need to listen to that, whichever industry you are in. That’s where the single source of truth will come from.
SP: Yeah. Interesting. You have a very strait-laced way of thinking about this which is very classical, not necessarily a very venture kind of thinking. But yeah, so anything I should have asked, or you want to cover that? Obviously, I would have missed a question or a two or any particular thing you want to highlight.
CR: I think just the fact that decisions are completely based on your past journeys. Secondly, if you really say, can we build Wakefit in the same way today? Maybe No. Despite all the hard work, we were in the right place at the right time. So, Jio happened in 2017. People were willing to try more unknown brands at that point in time. Now D2C has become an industry. Every conference now has a D2C track. And then Facebook and Instagram and Google have become very saturated. You cannot depend on them anymore.
SP: Yeah, it’s become an industry. You are absolutely right. You are one of the pioneers I suppose.
CR: Right. 2015-16, this industry didn’t exist. And if you look up Mamaearth, Boat and whoever is in this 1000+ crore range today, they are all of the same vintage.
SP: Who was the first investor? Who was the first institutional investor?
CR: We did not have anybody else before that, other than a common friend who pitched in a small amount in the first year. We were bootstrapped. Then Sequoia came onboard.
SP: I think we are broadly done. Thank you for your time, Chaitanya!
Sajith PaiCurrent Sectors of Focus I am greedy to be part of ambitious founder journeys, and help inflect them to greatness. The founders who select me to be part of their journeys, pick me to be their PMF coach, social media…
- Current Section
- EdTech, HRTech, ConsumerTech, B2B Commerce & Marketplaces
Strategic Intimacy: Pankaj Vermani on building Clovia from insights to successLife came full circle for Pankaj Vermani when he founded Clovia, a lingerie company. While his family had a lingerie business, where he spent many afternoons as an apprentice, Pankaj was encouraged to focus on academics instead of…
- Current Section
- Commerce & Consumer Brands
- Himali Saini, Rohit Kaul
Growing Up: How the Marketing Function Changes in B2C Companies After Zero to OneSince we are at the peak of summer, we will take the example of a company that makes Chiller the juicer. Now the founder thought the most obvious route to growth is to populate search using SEO and run specific campaigns with…
- Current Section
- Disha Sharma