Coverage by Bhat Dittakavi of Variance.AI on “Failure Stories” by Smruti Parida, cofounder of NestAway on 29th March 2018 at T-HUB
Smruti Parida, cofounder and CTO of Nestaway that got valued at $250 million recently, is an unassuming commener with good wit. He is like a startup founder that you find next door. He comes across as an authentic person with no air around him.
Just few years ago, he worked as an IT developer at Microsoft Hyderabad. When the time came to move to Bangalore for the onset of Nestaway, he advised his veteran IT landlord to quit his comfortable job at IBM and start up. The same landlord is now a T-HUB startup founder in the audience.
We look for home, and not house, when we rent a place. We shall call it a home away from home. People have your back when you solve a genuine problem.
I landed in Hyderabad 8 years ago. I was at Microsoft. I couldn’t afford many things at that time. After I got married, I started to learn how to automate a home with furnishings. We casually say, If you are a customer of Nestaway, you don’t feel like getting married. We provide you with a furnished home.
How Nestaway started
In 2010, I did my first startup in art based marketplace. It didn’t go well as I was ahead of its timing. I quit the startup and moved back to job. My other cofounders tried internet on TV Startup and it didn’t go well either. We have come together to start Nestaway.
Product of Nestaway was actually built for testing the need of bachelors that are just us. We are very serious about it. Converting an empty house to a furnished home will cost at least two lakhs. Sofa sets, TV sets, fining set, wardrobes and bed sets are all expensive. Doing this at a massive scale requires Rs.200 crore of fund to furnish all these homes. Our investment amounts got into furniture and Capex. We wanted to give each rental property the same look and feel. We wanted to build on our imagination.
We figured a way to make ourselves asset light. This happened over a period of time. We have now folks furnishing the furniture now.
Most of the business plan would never get executed as planned. Optimism is what I believe. I never told myself my startup failed. We could do many things at Nestaway in three years because three out of four of us have lessons learnt from the failures in our prior startups. We applied out prior experience.
Success makes you more hungrier. If something works it makes you more hungrier. Sleeplessness is higher when something works. One crack to next crack and so on must be the journey.
I love Hyderabad the most. I got confidence by being in this city. In 2005, I told Flipkart would never work. I chose not to work for them and I went to Micosoft. I still remember that place in Hyderabad where I was stupid to think Flipkart would fail. I got wrong many times.
First time funding
Nestaway is just an average idea. Everyone is funding a house in Magicbricks. In that sense it might not have worked. When you go and pitch something of an average idea, what to do? But investors could see in us that we would never quit on this idea. Your conviction and your team is the key. I don’t consider the idea is the one to be evaluated by investors in first round. This conversation is between two liars. Startup founder says this is a billion dollar startup. Investor may say it won’t work. Both are liars.
I told one investors that Mumbai would be the first smart city in India. If professionals rent and live in high rise buildings in cloud, that is what we mean smart city in the cloud 🙂 We want to build such smart city in the cloud.
We need to sell. It is not like you are not a seller. You probably sold it to your friends and families. You have given this pitch to many people many times. You just have to do this again to investors. I will never hesitate to sell to any person in the world whom the idea will touch. This got to be as natural as it is. I sell to gain more customers. Until we build a team that is our replication we have to sell.
You need to know your users and hence you have to sell and evoke hard criticism. You need to go under the skin and get raw feedback that is not a sugar-coated one. That user needs to be sold. Initial seller of this pure idea is you. I used to work in Hyderabad and why would I convince an old guy to lease a service apartment? He can’t trust brokers. He needs an institution to rely on. He can accept or reject us. We will productize his asset and sell online.
We told investors that we are a bank. Banks have assets of customers in safe custody and they give returns. House is an asset and our customers keep it with us safely. The asset shall give returns. This is what we do. This is similar to a bank. We are the bank equivalent and we should be the bigger bank in the world. We sold this to everyone who owns a house. We know people and this country have the zeal to own house. Owning a house is a birth problem in India.
Millennials are the other way round. We give them the flexibility of Uber. Own it as if it is yours.
Q) How did you know the idea is taking off?
Online traffic. Awareness.
Story of Air Conditioners in Nestaway
Facebook keeps reminding you with memories. There was this quote on Twitter. “It is very hot to stay inside Nestaway as we see in summer”. We read this. We need to put air conditioners in Nestaway homes. There was some noise on social media that said “Nestaway doesn’t stand on its own values.” We asked people to fund AC to our landlords. We provides subscription model to the people on Nestaway to rent anything under the sky. You can any device for subscription and there are multiple vendors to provide the same.
Till 2015, we were funding the furniture. We couldn’t find vendors who could add the furniture. We couldn’t get capex to fund ourselves. We created a model of marketplace.
We converted AC challenge as an opportunity. Whatever is needed to make it a home and fully loaded is what Nestaway provides. We are more careful.in
our promise but we are also converting challenges into opportunities.
There is an underlying layer of opportunity in a given challenge.
We have a community space of 250 people where people do yoga and now we do yoga as a service. Yoga session happens in that space.
Q) Revenues of Nestaway?
350 crores per annum.
We brought in a top guy in branding. There is this Maslow’s hierarchy model. We wanted to take care of basic necessities of the tenants.
What do you need to make your house done in such a way you don’t need to doanything related to the house. It turned out that we need to change the bedsheets daily, clean up bathrooms, clothes need to be washed and pressed and kept in wardrobe. We did this far in thinking. We had nine places. We were four founders and one UX designer. There was another developer community seller who doubled up as telecaller. We divided two units each. We changed the bedsheets in each of these places. We filled the water cans and cleaned the floors. This was our ritual for Saturday for thee months. The UI guy was cleaning the house.
Then we see people never bothered to put off the garbage for several days as we have the promise we would clean for them. We figured what we made in revenues is far less than what we spent. We can only make the place better, not the person. Then we stopped saying we are the mother of the home as it was too big a promise to keep.
Can we create a rental insurance of the products? This is what we thought.
We spent the maximum money on repairing cots. Average lifespan of a bed in Nestaway is five months! We are figuring out on which tenant will match the existing tenants. Like minded folks would prefer to live with like minded ones. We built a community. There are multiple levels of engagement we have actually built today.
Customer experience is something around which whole of our community is built.
Q) Do you do short term rentals?
Only long term ones that are 11 months. We are on residential side where as Airbnb is on travel side.
Q) Are you in gated communities?
Yes. We got some problems such as restrictions on use of swimming pools.
Nestaway is built on few important challenges.
Lack of trust between landlord and tenant.
Bachelors are not trusted. We have systems like aadhaar and police verification as signals for responsible bachelorhood.
Sanjay) Talk about your cofounders and team?
We need people to complement each others. In Profesional life I am more long term thinker with technology. The other guy is the operations guy who executes. I build and he executes. He let’s the business run. I bring software to the real things he brought in. There is inner happiness for both of us when technology replaced the things he brought.
Pickup from the airport to nestaway’s home that welcomes the guest with clean lines and beds with pressed bedsheets. Software that doesn’t solve all the problems is a script. Solve good cases using technology in agile way and leave tough cases for tomorrow.
Q) First one to fund you?
We went to investor without any expectations. Investors spend a lot of time evaluating ideas. Socializing with them is good for you. You get idea validation. We hear great stories of angel funding and all. This is how we met a lot of people. We had some amount of fear as we failed in first venture. Hence we made many investors upset. First part is that idea got to be sufficiently strong. The second part is the use of funds. We met forty investors and we got two offers. We raised our first round with IDG Ventures. When we conspire, we conspire together. Our investor IDG funded us as his own nephew couldn’t find a house. They funded us 9 crore. We dilutes 23% at that time.
Q) Did you ask for 9 crore, less or more?
Investor is at a very early level. We are just dreamers. Minimal substantial proof we had. Investor is also a half dreamer. Investors know we put our own money into the venture. If we are going to bet, bet it full. Upside would be much better. I see 20-25% dilution as common. Founders go with their own ask and investors go with what is in their mind.
Q) How many months of runway you had before you got funded?
I wasn’t paid for four years at that time. Same with others. Wedidn’t have money when we raised. We funded nine houses to furnish them with 14 lakhs. At that time we didn’t have runway, only a helicopter to take off. 😊
Q) Did Investors look at the idea or your team?
If we become an unicorn then we can say ourselves we got a great idea. I would day team first. Idea is important too.
Q) Biggest lesson?
Building a team. There is a constant effort to continuously inspire people to find the purpose of their presence in Nestaway.
Q) Why is it called Nestaway? When you nest in, why do you call Nestaway?
Home away from home. When you nest in and you are away from your nest and staying there. We locked this because we got this domain available.
I let my team member figure out the way by failing and then he will find the answer and we let him celebrate. I make people own their own stuff. Glories and failures together.
Q) How do you establish the confidence when you don’t know?
There is no science. Same results through multiple means.
Q) You had nine units in the beginning. How did you fill them?
You know who the prospects are. I was part of 2000+ groups in Facebook. I know all the groups out there where they post about “looking for flats” versus “renting flats”. We had users post in Facebook on our behalf. We had local brokers. A high salaried Cap Gemini employee worked as a broker. He gave us first two flats. We used to stand outside of the paying guesthouses. We used to call then half BHK or half condos. You get half of the bedroom and living room is shared. Guerilla strategy. Portal was for show at that time. Before that we used to do sales the hard way. Now we do SEO and SMO. 30% come through referrals. We have a moderate customer acquisition cost for marketing spend through multiple channels.
Q) Role of CTO?
How Nestaway can become a next living solution using technology. Finding the best talent in the country. Inspiring the people and showing them how the future should be. Operations say when the house is being rented, landlord has to be there. Then the solution we give is can we have a camera for the landlord to look at the property.
Operations guy is the one who faces the problem. We work with him.
Q) One self limiting thought that you turned around?
A) My way of giving feedback has become more humorous. I use it to push people to think beyond or out of box. Convert criticism to feedback without hurting. Humor helped me a lot. I was a shy guy. Now I am more approachable.
Q) Hiring developers?
Figure the developers who get sold into your vision. They back you. I hired first the friends I know.
Q) Future plans?
Be the first smart city built on the cloud and be the largest bank.
We have built an app that watches Nestaway units. We have a unit that uses 100% solar energy. We have IoT flats that open with smart cards.