How the founders of PagarBook found their sweet spot in the SME segment
Adarsh Kumar, Rupesh Kumar Mishra and Arya Adarsha Gautam had one thing in common: the trio were all from level II and III cities in India. This has given them the unique advantage of understanding the fundamental problems of the region.
They knew there was a knowledge and information asymmetry that needed to be addressed. After a few tries, they realized that the SME segment needed digitalization, especially the financial parts of the business. While Adarsh and Arya were group mates at IIT Bombay, Rupesh had done his engineering at a college in Jaipur and was introduced to Adarsh and Arya through their mentor.
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The trio got together to introspect and decided to create a startup that had the potential to address a large market. All the brainstorming sessions led to the birth of Pagarbook in 2019 – a platform that helps streamline the complex management of financial records and personnel management for SMEs.
“PagarBook is a human capital platform aimed at SMEs and MSMEs in India. The app essentially scans and simplifies the many numbers and financial records that float around old school junk papers and records, ”Adarsh Explain.
The team realized that the SME workforce is very different from white collar workers.
According to Adarsh, there are almost 56 million of these companies in various industries, employing nearly 124 million people.
After extensive research on the SME sector in India, colleagues explored several trial and error methods to understand business owner issues and their depth. This gave birth to the idea of PagarBook.
In the past six months, PagarBook has grown its user base to eight million and launched its user interface (UI) in 13 different languages.
Users can fill in information like number of employees, payment structure, working days, holidays, etc. for the application to activate the desired service, after which the application takes care of saving and analyzing the data for future use.
Gyanapp at PagarBook
The journey was not as straightforward as it seems, as the team had not initially started with the SME segment.
They first reviewed a quality Indian language, knowledge sharing social media platform, simply an Indian language equivalent of Quora. This led them to launch GyanApp in 2018, for which they had also raised funds from India Quotient.
However, they quickly realized that the market was tough and they weren’t getting the expected returns. It meant going back to the drawing board.
They knew the segment was different and needed a bit more detail, which led them to explore the SME space.
They found that in India, over 50% of SME owners suffer every month due to the complexity of managing finances and managing people. Currently, there are nearly 56 million such enterprises in various industries, employing nearly 124 million people.
While PagarBook was a very different idea from what they started out with, they still had the backing and backing of their investor.
Anand Lunia, founding partner of India Quotient, says, “When we invested, they were building an Indian language equivalent of Quora. It is a very difficult space. The founders put in a solid effort, but quickly admitted it was a tough space. It is rare that the founders admit something like this, especially if they still have money in the bank ”, Anand said.
Anand explains that that’s when he suggested they dig deeper into the market.
“We all agreed on the PagarBook plan. Although it seems to be the complete opposite of the original idea, the basic skills of creating a product for the non-English speaking audience remain the same, ”says Anand.
Give a payslip to the blue collar workforce
Anand says PagarBook is one of the first companies in India to give a “payslip” to every blue collar worker. This means that all of these workers have a financial profile, experience and income. This profile will help these blue collar workers enter the formal economy, although many of them may not be permanent employees like their white collar counterparts.
“Before we started our pilot project, our first question was, ‘Do people even want it?’ But then again, if you don’t have a product, you will never know how useful it could be to people. We took a while to find the exact model, ”Adarsh said.
The PagarBook suite comes with mobile apps for Android, iOS and desktop software. Data is synchronized in real time between desktops and mobile devices. Features include attendance marking, automatic salary calculation, salary slip generation and customization, staff onboarding, dashboard for SME owners and more.
Why the need for PagarBook?
“Between October and December 2018, we met over 300 SME owners (and their employees) ranging from traders, wholesalers, hardware, embroidery, loom, construction and furniture manufacturers to diamond industries, in Surat, Ahmedabad, Patna, Sivan, Jaipur, New Delhi and Bengaluru to understand their concerns, ”says Adarsh.
In these meetings, they pointed out that traditional working methods slowed down their work and reduced their efficiency. Some of the pain points they specifically mentioned were: maintaining bahi-khata and recovery for retailers and wholesalers, invoice and inventory management (while this problem is solved by other applications, the team found that people needed industry-specific solutions) and the management of salaries, work and staff attendance.
Many traders have between four and 20 people working for them (usually all segments except a small retailer). These employees typically earn between Rs 8,000 and Rs 15,000 depending on experience and industry.
On a regular basis, some of these employers issue advances between Rs 100 and Rs 1000 to the employee for their daily expenses. In addition, this industry is all about work, so 90% of workers do not have the privilege of taking paid time off.
To keep all advances made during the month, work done and attendance (hours / days), people use two to three attendance registers / cards. In most cases, employees also keep a ledger of the same for reconciliation.
Another issue was the hiring of staff. Many employees leave after seven to eight months of work, and most of those exits are sudden. Employers have nothing to do other than the employee’s word.
There is also no official document or digital record of previous employment. Sometimes employers also hire on contract (only for three to four months) depending on the work cycle / volume.
“This is done through subcontractors who charge 10 to 40% of an employee’s monthly salary. In addition, according to a report by the National Sample Survey Office (NSSO), approximately 50 million blue-collar employees change jobs each year, ”Adarsh said. Explain.
After an in-depth study, the team concluded that around 25 to 40 million SMEs needed a solution for staff salaries, work and attendance management and recruitment issues.
In addition, the lives of over 200 million workers could be improved simply by normalizing their work and financial history. There was an urgent need to design financial products like loans, insurance, savings accounts for these people, which could be a first mass effort to bring them online financially.
“The desire to create technology that has a multiplier effect and solves the needs of small entrepreneurs or the SME community led us to launch PagarBook,” says Adarsh.
The team had initially decided to gently enter the market using digital campaigns. Within weeks however, it attracted thousands of downloads and an active user base. In the past six months, PagarBook has grown its user base to eight million and launched its user interface (UI) in 13 different languages.
A user can fill in information like number of employees, payment structure, working days, holidays, etc. for the app to activate the desired service, then the app heads out to save and analyze the data for future use.
With the solution meeting all personnel management needs, it is not limited to a single company / sector. Therefore, PagarBook serves clients from various industries. As we started working on the technology, we obviously had to understand it in a lot of ways, says Adarsh.
Speaking of the impact of the pandemic, he explains, “COVID has been hard on both employers and employees. We had seen employee payouts drop almost 50 percent in the first wave and almost 70 percent in the second wave. Speaking to a few employers, we found that some of them were kind enough to provide food and shelter for their employees during these times, albeit for a limited time. ”
Model and income
Ironically, the pandemic year of 2020 was the year of hyper growth for PagarBook, and that’s when they reached eight million customers.
“We started making full use of our premium paid offerings about three months ago, our ARR is growing by 50-60% MoM. Speaking of fintech, this month we launched the Early Pagar products for a very specific and small group of employees, where we have deployed Early Pagar loans to some 100 employees. The plan is to double fintech experiences by the end of the year, ”adds Adarsh.
The basic product of PagarBook is free on Android and iOS; it has an annual subscription fee of Rs 2399 on the desktop premium and Rs 1199 on the app premium.
A study by Google-KPMG showed that digitally enabled SMEs have around twice as many revenue growth forecasts as offline SMEs.
As of now, the segment has several startups – Khatabook, Lendingkart, Five Star Finance and several others. However, PagarBook focuses on the payroll and credit segment.
“Once we scale the payroll application, we’ll create financial products for workers,” adds Anand. Adding to this, Adarsh says, “The plan is to deepen the construction of our SaaS and create products to improve the financial well-being of employees, with products like Early Pagar, a savings account and a insurance.