Episode Fourteen

Architecting SME Success:

Chinmay Chauhan of BukuWarung

13 April 2021


ALAN  0:12  
Welcome to Season Two, Episode 14 of the Indo Tekno podcast. I'm Alan Hellawell, Founder of Gizmo Advisors and Venture Partner at Alpha JWC Ventures. Selamat datang kembali, semuana. Some of the most exciting innovations across the entirety of Indonesia's tech ecosystem involve modernising the "warung", or kiosk; and more broadly the country's population of some 60 million SMEs (Small and Medium Sized Enterprises). Today's guests, Chinamay Chauhan, has co-founded one of Southeast Asia's most pervasive SME-oriented platforms, BukuWarung. The company's initial undertaking was to help the Indonesian SME transition from more primitive paper-based ledger's to digital bookkeeping and online payments. BukuWarung more recently has also launched Tokoko, a Shopify-like tool that lets merchants create online stores through an app. Great to have you join us today, Chinmay.

Thanks a lot for having us, Alan.

ALAN  1:05  
Chinmay, can you share with us the actual origin story behind BukuWarung?

We started BukuWarung in late-2019. Me and my co-founder Abhi both come from humble micro-merchant backgrounds. Our families were micro-entrepreneurs. And we always wanted to solve for something meaningful, impactful while building a large business. And this was the idea that we were most passionate about, which is empowering MSME's in Southeast Asia and in Indonesia. And that's how we ended up with this idea on a broader level. And then we started our journey around that. This also came about when we were both working at Carousell together. And we just happened to start together once we were aligned on what we want to do for the next 10 years as we build something together. 

ALAN  1:52  
Gotcha. So Chinmay, I have to ask you, how were you able to onboard some 5 million merchants in the last 12 months alone? My rough math would suggest that that works out to almost 14,000 SMEs per day. How have you guys pulled that off? 

It has been crazy growth for the last 12 months since we started. And I think one of the things that we learned when we were doing our research in Indonesia in 2019; before we even launched the app, the bookkeeping app that we have; was we saw that merchants, especially outside of Jakarta, or in tier two, tier three, tier four cities and towns in Indonesia; they did not have access to any digital tools to operate their business, manage their cash flow, manage the credit that they give out. And we realised that there were solutions out there, but they were not really tailored or simplified for MSME's. Imagine a 50 year old warung owner who is trying to do his bookkeeping on a physical book. Now, for him to move to an app or a solution is difficult. They do want to do that, especially the ones who are doing a lot of bookkeeping every month. But it is difficult with the existing solutions that existed back then. So for us, one of the things that we observed was all of them were using WhatsApp as a solution. And they were using it heavily. A lot of it for business purposes as well. For example, messaging your suppliers to restock inventory or messaging your customers to take their orders or doing a bunch of things on WhatsApp. So they would spend a lot of time on a daily basis on WhatsApp. And they were using other social media apps to entertain themselves. So we realised that the simplicity part was missing. And a lot of the things that we did was to build our app extremely simple, so that merchants can use it by themselves without having to have a salesperson guiding them to use the app. So if you look at our app interface, it's extremely lightweight. It is a very low app size, only six MB for a merchant to download. And it works even when the merchant is offline so that they can continue adding transactions. So the way we equate simplicity is adding a transaction on our app being as simple as sending a message on WhatsApp. So that's what we optimised for when we were launching the app. And we made that flow extremely simple. We realised that a lot of merchants were able to understand the app, and then we scaled our digital acquisition, as well as organic growth happened along the way. And that's how we managed to acquire 5 million-plus merchants in the last 12 to 18 months.

ALAN  4:12  
An absolutely tremendous achievement. Now Chinmay, what is the best way to monetize warung once you have them as a customer? Is that eventually through a take rate? Is it a subscription arrangement? Or do we derive revenues from some form of advertising?

I think there are a lot of problems that MSME's face on a daily basis when they operate their business. One is managing their cash flow accounting, managing their credit, collecting that credit back quickly, and also doing payments. And then managing their inventory, stocking up their inventory at the right time and knowing when to stock their inventory. Managing their bookkeeping, managing their credit. Understanding their cash flow, understanding if the business is profitable or not. Understanding when to pay their employees if there are a slightly larger MSME with maybe a few employees to run their shop. And how much To pay to their employees. And also making payments to their suppliers, collecting credit payments back from their customers. Or if they're a wholesaler, they need to collect the credit back from their retailers on a timely basis and when to collect that credit. So there are a lot of problems that we have discovered along the way. And we are trying to solve them in a very product first way. There are also challenges that MSME's face when they want to get working capital and any sort of financial service, which is where we see a large opportunity over the next years to monetize. I think subscription is another one where potentially some merchants we have realised are willing to even pay for certain tailored software. For example, generating invoices with their own logos. They're willing to pay for that. There are many such examples where merchants are willing to pay for a more tailored inventory management solution for their F&B (food and beverage) business, for example, because it really helps them know where their inventories are. Then it helps them reduce their wastage. So a lot of it is software, but merchants are willing to pay for it. But right now, we are not focused on monetization at scale. But what we are doing is we are doing a lot of experiments in commerce broadly, and also in financial services and lending to understand the willingness to pay. And then later on, when the time is right, we'll monetize this behaviour. This also helps us understand how do we build our product roadmap in a way where we get to that monetization point earlier rather than later.

ALAN  6:21  
Understood. So to read that back to you, if I'm not mistaken, financial services are likely to be a source of pretty generous monetization. And then you do see some behaviours that you might be able to charge a subscription for. Is that right? 


ALAN  6:37  
Gotcha. Great. Now Chinmay, I have to say; one theme that seems to have run through nearly every episode of the Indo Tekno podcast has been challenges in lifting the level of digital literacy of the average shopkeeper or SME. How do we tackle this? Is there for instance, the need for a lot of offline training? And how long does it take to onboard the average merchant to the BukuWarung solution?

This is the problem that we have cracked in the last one, one and a half years since we started. And it literally takes a minute to onboard them because every merchant that we have acquired is through digital. So we basically understand where the merchants are spending their time online. For example, we acquire a lot of merchants through Google, through Facebook, through Instagram, through TikTok, and other ad networks that we rely on to target them at relevant points of the day. And we also acquire a good number of them organically, or via Google Play Store on via SEO and ASO. And the merchant only needs to download the app, and downloading the app is pretty seamless. Because it's a very small app. It's only six MB. And then that's something that we have built our tech in a way to optimise for that size because merchants don't like to download larger apps. They don't have the data. And they're very data cost-conscious. It's literally just like downloading WhatsApp. It takes them a minute to set it up and start using and adding transactions and seeing that value immediately.

ALAN  7:56  
Understood. That's really helpful Chinmay. Now a big picture question for you. Do you find that some SMEs, I would assume and well served markets such as Jakarta, are already overwhelmed with tonnes of solutions being pushed at them? It could be brand owners such as Unilever, Procter and Gamble, or Coca Cola. I assume they're pushing their own mobile apps. The POS vendors such as Mocha, iReap, Olsera, and others are constantly trying to upgrade their users, probably trying to introduce new functionality. And we also have Warung Pintar, which for instance, is not working in concert with Bizzy. We have Gudang Ada, Ula, Mitra Bukalapak, Mitra Tokopedia, and many others. I think Grab is meanwhile pushing GrabKios. I know they're doing different things, but my point is, how do we stand out and succeed against all of these players that are simultaneously trying to help the small business owner?

This is a good question. There has been a lot of focus on this segment of users in the past year, which is great. And eventually, I think there will be massive opportunity for MSME's to come online, especially post-COVID. So I'm actually overall very happy that there is a lot of focus and a lot of attention going into empowering MSME's, which will help build that MSME ecosystem that we want, which aligns with our broader vision of building digital infrastructure for MSME's in Indonesia over the next 5 to 10 years. We see a lot of the players that you mentioned, potentially as partners, not as competition, because they are following different parts of the SME ecosystem. We see ourselves as a pure product player who is focused on building tools that merchants can use to operate their business. And it's as simple as that. So we help merchants manage their cash flow, manage their credit. We help them create their online shop, start selling online. We help them to make digital payments. We help them create invoices and collect payments from their customers or retailers. We see a lot of the players that you mentioned as very complimentary. In fact, we did announce a partnership with Warung Pintar last year which we are executing on this year. Warung Pintar customers can start using our bookkeeping solution, and our merchants can order Inventory from Warung Pintar's inventory sourcing solution.

ALAN  10:03  
Fantastic. I wasn't aware of that. And it's good to hear that you find yourselves much more complimentary to some of these guys than competitive. Now Chinmay, BukuWarung is often compared to KhataBook in India. And I think most of us who have studied both of your business models, we understand the simple comparison, as both of you at least began as leaders in bookkeeping for MSME's. But what are we doing differently to them at this point in time?

One thing for the listeners: we recently got onboard a KhataBook founder as an investor in BukuWarung, which further validates our thought leadership and our market leadership in Indonesia, when we are building for the MSME ecosystem. Actually, I think the ecosystems are very different. On a macro level, the problems that MSME's face are pretty similar, but the ecosystem and the infrastructure that exist in Indonesia versus that of India is quite different when you dig deeper. One example is payments, where our payments TPV is larger than any other player in the world who is solving for a similar problem for MSME's, which is digital bookkeeping. So our BukuWarung app is on track to hit $1 billion later this month on an annualised basis of payment volume. Now, this is a massive volume to hit in just four or five months of launching. And the reason for that is the payments ecosystem in Indonesia is quite broken. And we launched payments last year, having seen this inefficiency in the ecosystem, and our merchants can within one click activate all payment methods, wallets and banks and then start making cost efficient real time payments to their suppliers, or collect real time payments from their customers. That has seen massive traction, which I think is bigger than any other player in Indonesia or elsewhere. There are many other problems. I think credit behaviour is pretty strong in India. Credit behaviour in Indonesia is strong, but I wouldn't say it is at the extent at which it is there in India. If you look at our app, it also looks very different from KhataBook, since you mentioned that. Our app helps them manage their inventory, manage their invoices, make payments, payments-in/payments-out, manage their credit, manage their expenses and sales as well as track their profits. So I think we have quickly iterated as a very product focused team and solve for many different problems in the last 12 months for our merchants. And hence now we are on a different trajectory in terms of where we started and where we are now if we compare it with the Indian players.

ALAN  12:18  
Great. Well, let me just continue the discussion along those financial services lines. Once BukuWarung on boards the user, "more financial services and productivity tools can be layered on". You also mentioned micro loans and extending lending and payment services. What is the timeline of all of these innovations?

Payments is already live on the app and merchants are using it heavily. As I mentioned, we are soon touching $1 billion in payment volume, primarily because of the way we have built a very seamless payment product that merchants can easily understand and manage their payments-in as well as payments-out. We are doing some experiments around other financial services as we speak. And the timeline should be anytime later this year. For now we are laser-focused on growing all our three products: 1) the accounting product, which is the bookkeeping app, 2) the payments product, which is the payments solution that we launched last year for merchants to collect money as well as send money. And then also 3) the Tokoko app, which is the Shopify equivalent for merchants to go online as a business, especially in the post-COVID world. 

ALAN  13:20  
Got you. And when you say "go online", are you helping them get onto platforms such as Tokopedia, Shopee, Lazada, Bukalapak; or to create their own e-commerce websites? What does that mean?

It is more the latter. We help merchants create their online stores with just a couple of clicks. So it's a mobile app where merchants can easily sign up, create their store and get a link with all their inventory and catalogue listed. And they can share it with their customers over WhatsApp or social media, and take orders. We also recently launched payments and deliveries on the Tokoko app, where merchants can now manage payments, collect payments, as well as they can manage their deliveries. And for example, based on the customer's location, they can know what is the delivery fees of the certain provider and then they can ship it to the customer. It's still early days on the Tokoko app. But we are seeing a lot of pull from the market and a lot of problems to be solved for merchants who want to digitise themselves and start selling online, versus the traditional way of selling offline, which is people coming to their shop and pick up the order and then they buy things there and they make the payment in cash. So we're trying to digitise that behaviour of a typical warung or MSME.

ALAN  14:28  
That is an absolutely stunning amount of progress in the short time that BukuWarung has been around. Now just staying with the financial services theme, have we done any preliminary credit scoring experiments on our client base? And if so, what is the initial feedback been?

So we are doing experiments, but we haven't done credit scoring experiments per se. But at the same time, we do realise that the payments data that we're collecting makes our overall platform data a lot more powerful. And I think that is going to be a key lever for us to build financial services on top of that.

ALAN  15:00  
Gotcha. Now Chinmay, we also talk about "developing into a digital MSME neobank with end to end financial services, from deposits to insurance". Have any of our peers globally successfully evolved into a neobank from an original mandate of enabling digital bookkeeping, which is what we have done ourselves?

We haven't seen many such players in emerging markets do this yet. But at the same time, it wouldn't be a stretch to say that I do see a lot of these players who started from bookkeeping and are solving for other use cases, eventually venture out and become a neobank, enabling merchants to not just do payments, but also deposit money, and then basically become an end-to-end bank. Maybe partnering with an existing bank with a set of API's, or even leveraging and getting their own licences. But it's still early days is what I would say, because I think the industry itself is just 12 to 18 months old, and there's still a long way to go. 

ALAN  15:56  
Makes sense. Now Chinmay, I wanted to touch upon the value-add that some of our investors bring to the table. I noticed, for instance, that one of your newer investors is Rocketship. They're known for, among other things, having invested in KhataBook. In their case, what value-add have they brought to us at BukuWarung?

They invested in us, having seen how the Indian ecosystem played out. And they are investors in KhataBook. I think that happened early last year. They had been following us for a good eight, nine months before they decided to invest. They followed the ecosystem closely. And they realise the kind of product focus that we had, and the kind of market leadership that we had on all fronts, especially on the payments front. Then they decided to invest and come on board in the last round that we raised. They bring a very different mindset to the cap table. The partners have been Silicon Valley veterans. They have exited several companies and worked for these big tech companies. And they have a deep network in Silicon Valley. So the mindset is very, very American. And it brings that unique perspective to the table. It gives a very different perspective for us to build a business, having seen some of these similar product-focused companies in the valley. And I think obviously, there are learnings that they have seen in KhataBook based on their experience, which obviously helps us from time-to-time.

ALAN  17:10  
Great. Thanks for that. Now Chinmay, a question about the virtual nature of our workforce, particularly during the pandemic. Where does leadership have BukuWarung sit? And also, where do most of our developers reside? And finally, what are the challenges and benefits of this arrangement?

So most of the leadership is in Indonesia. And basically, the tech teams are sitting in Singapore, Indonesia and India. We have had to hire some of our product and tech in India, mainly because of the rate at which we have grown and the needs that we have for scaling up as a company. Some of the product leaders that we have hired are sitting in India as well, but they will be soon moving to Indonesia once the pandemic is over. Coming back to the question around what do we think about the pandemic and building a team remotely: I think when we started last year, when we closed our first round, that is exactly when the pandemic had started. And we didn't know that we would have to build a company in a remote first world. But that's what was essential for us: to start building the team, to start hiring people remotely. Initially, it was a challenge. But I think we're very good at it now, because we were born into COVID. And we were remote-first from Day One, just when me and Abhi were starting up. So we have almost hired 80-90% of our team without even meeting them, which is extremely surprising if you think about it. At the same time, we have built a very strong culture where everyone is excited, everyone is passionate about the problem we are solving. Everyone is talking to merchants every week and understanding their problems over Zoom calls or WhatsApp calls, and staying in touch with what's happening on the ground. And I think that part is very important: to continue to build that empathy, which I believe is challenging, you know, in a remote first world when you are not able to meet the merchant in person in Surabaya, or in Jakarta or wherever else in Indonesia. So I think that is something that we are solving for. And I believe it's a challenge for everyone in the industry. The good part about being remote-first is the ability to hire anyone and anywhere. So right now we have people in 30 different cities across Indonesia, India and Singapore, operating in their own comfort zones, but at the same time being quite driven and working extremely hard building this company.

ALAN  19:09  
And on the topic of COVID, how did our business kind of twist-and-turn throughout 2020 as a result of COVID?

There was not a lot of twists-and-turns. I think it was more like "forwards-and-upwards". We went from a single app, which is the bookkeeping app, to launching payments to launching the Shopify app. We scaled our team from two people to close to 100 people now. And we scaled our merchant base from 50,000 merchants 12 months ago to 5 million plus merchants. And we are constantly thinking about how to upscale ourselves, how to up-skill our leadership team and every employee in the company as we grow another 10x this year. So that has been what we have been doing for the last 12 months post-COVID.

ALAN  19:48  
Okay, so I got your message around 10x growth. What are your growth goals for 2021 and 2022 at BukuWaung?

We want to grow the business 10x on all fronts. Start monetizing and scale up revenue streams, and then scale up the team that we have. And as we scale up the team, make sure that the culture is retained; the kind of culture that we had when we were 10 employees and when we have 50 employees. Make sure that it is also still there when we get to 300 employees. That is what we are focused on on a very high level. 

ALAN  20:16  
Understood. Chinmay, do we see opportunities outside of Indonesia over the next couple of years?

Absolutely. I think Southeast Asia has 100 million MSME's, and 60 million of them are in Indonesia. But I do believe looking at Indonesia, and the kind of merchants that are there in the region and the kind of economies that are there in the region, especially with Vietnam, the Philippines, Thailand and other countries; I wouldn't be surprised if there were similar problems exist and similar opportunities exist. Having said that, we are laser-focused on Indonesia right now, to consolidate our market leadership and continue growing further. The opportunity in Indonesia is massive. So we don't see ourselves going out anywhere anytime soon.

ALAN  20:55  
Understood. Chinmay, really fascinating gain such insights into how BukuWarung is helping prevent the SME segment of the Indonesian economy from being left behind. And instead it's nudging them toward greater efficiencies and hopefully higher and more sustainable growth. I'm really looking forward to frequent updates on your success going forward. Thanks again for joining.

Thanks a lot for having us, Alan. I think you are doing something phenomenal by inviting speakers who are able to share their perspective on the Indonesian ecosystem. And your podcast in particular has helped us a lot as well. Really appreciate you inviting us and having us on this platform. Thanks a lot, Alan.

ALAN  21:31  
Well, it's fantastic to be able to seize on the enthusiasm and thought leadership that you guys can share with the audience. So again, thanks for joining. We hope our listeners have enjoyed today's episode. As always, please consider sharing any feedback that you have about the Indo Tekno podcast with us. Terima kasih telah mendengarkan.  Sampai jumpa lagi!

Transcribed by https://otter.ai