Startup Circle: How is Khatabook using digital solutions to empower MSME?

Khatabook was founded in 2019. It now has more than 9 million monthly active users spread across 95% of the districts of India. It allows micro, small and medium businesses to increase efficiency and profitability through safe and secure business and financial solutions. The Android app enables businesses to digitally record the credit they extend to customers has been downloaded over 10 million times, as more and more small businesses become a part of the digital ecosystem. The focus at Khatabook is end-to-end digitization of business processes for MSMEs through a holistic app ecosystem.

Their two other offerings for MSMEs, MyStore and Pagarkhata for storefront management and workforce management respectively, have been instant successes too. Read Ravish Naresh, Co-founder and CEO of Khatabook, talk about the startup, its offerings and the path ahead for the company.

Tell us about the journey of Khatabook.

The journey started as a shared vision of all the co-founders to create a digital ecosystem exclusively designed to address the needs of small businesses and merchants of Bharat so that their business operations are more efficient and profitable while bringing in financial inclusivity for all. Even though the adoption of technology was slowly making its way into the smaller cities and towns, we observed that small business owners were still not comfortable with digital transactions and relied extensively on traditional khata or ledger books.

Initially, we started with kyte.ai, where we were working on an AI-based SMS inbox to manage digital transactions. This provided us with great insights into the financial struggles of users. Simultaneously, in a small Electrical shop in the tiny town of Degloor, Nanded district, Maharashtra, Vaibhav* was trying to solve the same problem to ease his father's struggle in keeping track of pending receivables of customers. Meeting Vaibhav was a nudge for us to pursue our vision. Khatabook was formed in January 2019.

Our commitment, hard work, and the digital landscape changes in India favoured us tremendously. With Jio's entry into the service provider space, millions of users from hinterlands of tier-2 and tier-3 cities in India joined the digital wave. The people for whom we were solving the problems were coming online faster.  All these factors combined with the digital offering explicitly catering to the needs of Bharat contributed towards the fast growth of the company.

*Vaibhav Kalpe is the Co-founder, along with Ravish, Jaideep Poonia, Dhanesh Kumar and Ashish Sonone.

Tell us about Khatabook’s offerings.

Our goal at Khatabook is the end-to-end digitization of business processes for MSMEs. We want to digitize every workflow within the small businesses in India. To create a digital ecosystem for MSMEs, we have 4 solutions as a part of our offering’s portfolio.

The flagship Khatabook app is a digital ledger and finance management platform and currently has more than 8 Mn monthly active users. Khatabook app's user base is present in almost every district of India. Pagarkhata by Khatabook is a staff management platform for businesses to help merchants digitize staff attendance, payroll, wages, send automatic updates of attendance, leaves, payments, bonuses, work-timings, etc. seamlessly. Over 2.3 million businesses across the country trust Pagarkhata for their staff management needs.

MyStore by Khatabook is an online storefront platform that enables merchants to take their business online in just 15 seconds. The app is a much-needed digital solution in current times as it allows merchants to continue doing business while maintaining social distancing norms. A testament to this, the MyStore app was installed by more than 2.5 million merchants within a month since its launch amidst the Pandemic in 2020.

Both Pagarkhata and MyStore apps have user profile synergy with more than a third of the flagship Khatabook app's user base. All three apps are available in 13 Indian languages, ensuring ease of usage and pan-India adoption.

Recently, we acquired Biz Analyst, a leading SaaS business management solution for Tally ERP9 built. It will offer premium value-added services where users can avail on-demand access to sales and purchase reports, bank balance, livestock updates, and other MIS reports; thus allowing a bird's-eye view on their business operations.

Does Khatabook cater to B2B SMEs or are you catering to startups too?

Khatabook caters to the B2B SME segment, which includes Startups that qualify as B2B MSME business. For example, one of the Khatabook App users, the CocoMoco app, resolved the problem of tracking service payment through various digital payment options by leveraging Khatabook's one-in-all QR code feature. We have developed a 'no-frills,' AI-embedded, user-friendly interface, with regional language compatibility keeping India's B2B MSME segment in mind. Our focus is to digitize the entire value chain of the SME segment in the country.

This means our digital offerings cater to large and small distributors, wholesalers, retailers, and even independent service providers like carpenters, plumbers, etc. Our users can use any relevant solution from Khatabook for their business needs, be it bookkeeping, staff management, sales automation, or creating a digital storefront.

How are you leveraging deep-tech (AI-ML) for providing an all-purpose solution?

User understanding is where we extensively use AI-ML-based solutions at Khatabook. We use AI to understand our user profile, i.e., their region, size of business, business on credit and credit recovery behaviour, etc. Such understanding helps us decide what kind of solution we want to focus on. For example, if credit recovery is prolonged for businesses in a particular region, what can we do in-app to resolve this challenge. The machine learning techniques incorporated in the financial risk engines help the company with user legitimacy and fraud prevention and correction.

AI is beneficial on the AdTech front for us. We are customizing engagement campaigns and lead generation modelling. The use of AI is helping us optimize our marketing spend. We can reach the right users at minimum ROI. Because of the optimum utilization of deep-tech at Khatabook, we have a lower customer acquisition cost than most other players in the industry.

What are your marketing strategies? How are you reaching people across the country?

Khatabook's marketing strategy is uniquely poised as it is aimed at the MSME community specifically. The efforts revolve around digital channels through viral online content, namely TikTok (previously), Chingari, or ShareChat. Relevant communications linked to localization are vital parts of what allows us to engage effectively and appropriately. Customized and personalized messages have allowed Khatabook to increase click-to-conversion rates by 3% month-on-month. Gamification, videos based on the user's specific business category, and quizzes that entertain and educate users have been instrumental in keeping users interested, active, and loyal.

Insights into geo and location equip Khatabook to customize messaging before users choose their preferred language. This allows Khatabook to customize communications from the get-go and move users quickly through onboarding. The understanding that more than 55% of our users come from tier-2 cities in India helps Khatabook prioritize future features and where they can add real value. Language inclusion and simplicity: these are the factors that fuel our growth.

What are your plans for the coming five years?

We stand for the empowerment of India’s highly unorganized MSME sector and are on a mission to power their business growth to impact their lives. We plan to augment our service portfolio and drive two-to-three-fold growth in businesses by providing more relevant solutions and value to our users. Remaining committed to India’s MSME segment, we will be adding services to streamline and simplify business processes for the merchants. We believe in the power of digital solutions transforming the lives of billions of people.