Why I Sold Hummingbill to KredX

The mistake most first time young entrepreneurs make is that they dream about a good product, but not a good business.

I'm Adam Walker. If you don’t already know me, I’ve worked on four different startups the last six years in five continents (you can read more about them here).

To summarize my 20’s, I’ve had a privileged, chaotic, financially painful, yet deeply meaningful, self-guided decade.

This is the story of my last startup Hummingbill, which I recently sold to KredX, a Bangalore-based invoice discounting company.

Good product vs. Good business:

In the past when I’ve defined myself professionally, I’ve used the term “slacker-entrepreneur”. The phrase is a shoot-from-the-hip-identifier which is mostly inaccurate, but was motivated by how I’ve approached startups in the past – I did them out of necessity. I did not do them out of a sincere, calculated belief that my idea was executable. They were just dreams and I had no understanding of the ingredients to make them nor the professional experience to guide my pursuit. I would hop from one startup idea to the next without giving myself time for serious market research to determine if my idea could not just be a good product, but also a good business. Worth my time and worth my financial capital.

Of course I’m not alone in having done that. I’ve seen many other young entrepreneurs learn this the hard way too.

How the story begins:

I founded Hummingbill in January of 2015 to solve the payment collection problem for B2B suppliers in India. The software is an Accounts Receivable Management solution that reduces the average time between sending invoices and collecting payments.

By July 2016 Hummingbill appeared to have legs (or wings?) after having sold the software to a number of large name-brand companies in Bangalore. But, in the “next stage” of our startup’s life-cycle - “growth” - we realized that our product value-proposition did not align with the immediate need for the majority of our target market. Hummingbill was a workflow solution, yet the majority of businesses we targeted were not looking for process improvement. Instead they were looking for immediate, cold hard cash.

With that realization, we repositioned the software and began advertising financial products like “discounts on invoices” and “working capital loans” in our marketing campaigns.

And it worked!

A number of businesses followed-up with us asking how we could get them get access to capital.

This exercise was a case in point of the saying “let the market drive the product” – one can start advertising before having a product in order to test the appetite of the market.

Own the data, own the customer:

(Progressive Auto Insurance Accelerometer)

In August, I pitched a number of lending companies on the idea of owning their own data by reselling Hummingbill to their borrowers. With Hummingbill, lenders could know when borrowers’ invoices were raised, the amount due, the due date, the customer, and the date of payment. With this data the lender could then build a more informed risk model.

The approach worked because the pitch played on lenders’ existential fears, “What makes their financial product different from that of banks’?” [Most alternative lenders position their companies as having better acquisition channels and risk models than banks’. But this is not a sustainable advantage because banks will invariably catch-up and update their acquisition channels and risk models to stay relevant in the market.]

And it worked! The strategy appealed to their anxiety and got my foot in the door - if lenders could produce their own data, they would then own their customer and have better informed risk model than their competitor (see Progressive auto-insurance’s strategy using IOT)

Offers:

A few of the companies I spoke to ended our meeting with the question “Why don’t you do this at our company?”. In other words, a soft acquisition offer.

This got me thinking because I had never considered the opportunity to sell Hummingbill before. But because I had been doing startup-grind for so long, I felt that having an exit now could be a good thing. It would mean closure, a professional milestone, and an opportunity to work at a company that had achieved product-market-fit.

And among those companies was KredX.

Why KredX?

The decision to choose KredX was among the most difficult decisions I’ve ever made.

Without going into detail of the parties involved, my decision to sell to KredX was ultimately guided by what some call “first principles”. In my context, the first principles that guided me were Team, and Product.

First Principles:

Team

(Anurag and Manish)

KredX hands-down has among the strongest founding teams in the FinTech space in India. The founders have rich experience working in banking and technology - from HSBC to Capital One, from Oracle to Google. And, heck, their CTO graduated with an MS from Stanford and a Bachelor’s degree in Finance from the Institute of Chartered Financial Analysts of India.

Though this may sound clichéd. It’s meaningful to a young founder like me – domain experience is necessary for 99% of startups. Domain experience expedites: the discovering of product-market-fit; the go-to-market strategy; and strengthens the startup's ability to recruit the best talent. And, again, for a young entrepreneur like me, after having only worked with other young entrepreneurs, the idea of working with an experienced founding team enamored me to the idea of working with KredX.

Product

Have a look at the alternative lending startup space in India. There are so many new entrants, but ask yourself the question I raised before, what differentiates them from a bank?

The answer should be product, but in most cases it’s addressed with incremental business model changes, which as pointed out before are not sustainable.

That is where KredX stands out. They have a product, a web-based marketplace for invoice discounting, where investors and borrowers meet to buy and sell invoices directly without depending on banks.

What makes the KredX product different?

Focus: compared to other SMB lenders with multiple financial products, KredX has a more efficient business model because their platform facilitates only one type of financial product, an invoice discount.

Low Risk: an invoice discount is a very low-risk financial product. This is because there is little risk that invoices raised to blue-chips corporates will go unpaid.

Network Effects: because KredX is an online marketplace, the more investors and business that participate on their platform, creates a pull that draws other investors and businesses to their platform. It’s a positive feedback loop. Think of any large marketplace like Amazon or Alibaba.

But why give up Hummingbill?

It is because Hummingbill was not designed to be a highly scalable business.

These are Hummingbill’s business limitations:

Value-prop: Hummingbill did not solve an urgent burning need. It was not the “painkiller” businesses required to solve their cash flow problems. Instead it was a nice-to-have “vitamin”, that improved their performance in the long run.

Market: India is generally considered to be a difficult market to scale Small and Medium Business software.

Revenue Model: India is generally considered to be a tough market to scale the Software as a Service (SaaS) revenue model.

Design: Hummingbill went to market as a Gmail plugin. As a plugin, this meant slower load times than web applications for viewing large numbers of invoices. This was a problem because our target customers were businesses that did high volume billing.

Team: I was a solo-founder. Managing HR, fundraising, product, marketing, and sales by yourself is very difficult.

The Future:

(Anurag, Adam, and Manish)

I started working at KredX on January 10th, 2017. I am KredX's first product manager and my responsibilities include scaling their invoice discounting marketplace and extending Hummingbill to new KredX borrowers.

Last but not least, it's great to be an employee! It's allowing me to work with many talented, kind, and hard working people, and allowing me to focus on improving my skills as a product manager in sales, marketing, and design.

This is where my new story begins =)

I would now like to thank those who made this all happen:

The KredX Founders who believed in Hummingbill and the team. Thanks guys!

My investors who supported me financially and emotionally along the way. Pule, Paul, Brian, Jeljo, Ajit, Sudhir, Sujith, Gaurav, Amit and Prem. Thank you all so so much.

My mentors who supported my growth as an entrepreneur. Gaurav Sharma, Ben Olding and Nikhil John. Thank you for the many hours you spent coaching me.

My Team who trusted me, sweat with me, and challenged me on our journey. Ankit, Siddhanth, Anurag, Aniket and Vishan. Thank you guys - now let's celebrate!

My Friends Vibha and Sanam for helping me compose this post. You're good friends.

Our Legal and Accounting Council Matt and Saket.

THANK YOU EVERYONE

See you all soon!

(Team Hummingbill: Ankit, Siddhanth, Adam, Anurag)