The recent sale of Punchh for $500M made a lot of the employees overnight-millionaires. The other founders and I have been flooded with congratulations and questions from colleagues, friends, and hopeful entrepreneurs mostly asking, “How did Punchh succeed where a lot of the competitors didn’t?”

We started Punchh, a loyalty app for restaurants, in 2010. We were going after a huge market – local businesses – but were competing with over 100 other startups many of which were bigger names with a lot more funding.

So why did we succeed?

Three key reasons that helped us reach our semi-unicorn exit were:

• Being frugal
• Relentlessly focusing on the customer’s real problem
• Having the right team 

Pinch Those Pennies

We were always frugal at Punchh… always frugal.

I’m not quick to waste money. My friends all know this because, until recently, when we hung out, they’d see me pulling up in my 20-year-old Mercedes. The windows didn’t quite roll all the way up, the AC was always on the fritz, and you practically had to kickstart it. But I didn’t get rid of it until the breaks started to fail and it became dangerous to drive.

That’s a little extreme, but the frugal mentality served us well at Punchh. 

We made sacrifices. None of the founders took any pay for three years. While our friends were buying houses, we lived in apartments. I was building an app for restaurants because eating great food at wonderful restaurants is one of my favorite things to do, but I couldn’t even afford to eat out! … for three years!

But this bought us time.

While all of our competitors were focussing on their sales process and gaining market share, we were playing the long game while iterating and trying to solve the tough problem that we knew would give us the edge. We relentlessly focussed on bringing our customers the results they wanted.

Relentlessly Focus on the Customer’s Real Problem

And it was a tough battle.

By 2012, we had our first few pilots live and a few restaurant chains on board – when one of the more data-driven execs called me up and said, “Jitendra, we’ve been looking over the numbers and the app engagement isn’t great. Re-engagement is downright anemic!”

Re-engagement, getting the restaurant’s clientele back onto the app, is the vital element for a loyalty program. So I spent days practically living in the restaurant – keeping an eye out for the app users, and watching what they did… what they didn’t do.

After painstaking detective work, I saw the problem – we didn’t have point-of-sale (POS) integration. The customer had to open the app, manually input the purchase, have the restaurant clerk manually validate it, and then finally get their loyalty points. 

The process was broken.

The reason we didn’t have POS integration was that it was a super difficult problem to solve. So difficult, that no one else was even attempting it! 

Find a Team that Punches Above Its Weight

I made a lot of mistakes during my time at Punchh, which is an honest part of the startup process, but getting the right team in place allowed us to solve tough problems and scale. 

I took this discovery back to the team and the challenges scaring other companies away quickly surfaced: “We can’t integrate with each and every POS system, that’s not scalable,” “These systems are built on Windows 98, integration is going to be such a pain,” “These POS companies are never going to work with us, they’ll see us as a competitor!”

There were much larger, much better-funded teams among our competitors but we were a true team with each of us contributing and filling key skills… we were scrappy. 

It took us four weeks to get a working POS system installation but it helped us understand the system inside out. It took another eight weeks to get the first integration code working. Another eight weeks went to design and build the server components to handle the data coming from the POS systems. The only help we could get, when we were learning, was from an obscure bulletin board for POS admins, but we persisted. After five months we finally had something ready for a customer test.

Luckily, we were working with a restaurant chain exec who believed in what we were doing and was patient as we took down their POS again and again – in the middle of the rush period – as we discovered and fixed the issues. (Thank you! You know who you are.)

Finally, we were integrated into one POS system. And that made all the difference.

The app got better engagement, re-engagement numbers jumped up, and we were helping the restaurant chain bring back their customers. We had nailed product-market fit!

After that, we built the app to integrate another POS system. And another. And another. Each new integration brought painful business negotiations and technical challenges. There were countless delays in getting each integration rolled out. But each new integration gave us access to another segment of the market – slowly but surely, with amazing execution by our team, we worked our way to a dominant position in the market. 

Meanwhile, the competitors were burning cash. They had started strong and bright but they were now burning out. So while they made quick sales and grew fast, they lost their customers. And Punchh was there, to help those restaurants, gaining market share in the process.

Repeat Playbook 

I’m confident in the repeatability of the steps we took to build Punchh because I’m seeing them work again with my new company myYogaTeacher. By focussing relentlessly on the customer experience, while being frugal, our amazing team is helping our students. People with long histories of trying and failing at exercising are building a consistent practice with the help of a live, human teacher. 

The key to building a truly valuable business is thinking long-term. Build a relentless team and create a product that solves a real problem for your customers. And in many cases, you can intelligently use frugality to extend your runway and survive long enough to adapt and thrive in the market.

During my recent visit to India, I was looking to take a bath. So I ran the tap to fill a plastic bucket for a bucket bath (only bath from a bucket is possible at my parents house in Pilani – there is not enough water pressure for showers). After 5 minutes I noticed that the bucket was not filling up despite good flow of water from the tap. Upon closer inspection I noticed that the reason was that there was a hole in the base of the bucket.

“Ma, the purpose of the bucket is to hold water. Now if there is a hole in the bucket, why do you still keep it in the bathroom. I ended up wasting a lot of water because I did not see the hole in the bottom”, I complained to my mother.

“It was a new bucket and one of the workers, working on a recent home project, made the hole. I did not want to throw it. So I figured out a way to use it”, my mother said.

“Use a bucket with a hole in it? How?”, I was truly mystified.

“I use it to drain water from wet clothes, after a wash. The water drains by itself and so I have to wring the clothes less”, my mother said with a victorious look.

This is when it stuck me how different the mindsets toward conservation and being green are in India compared to the US. In India people of my parents generation use everything to the fullest extent possible – sometimes even beyond that. They are loathe to throwing anything even a bucket with a hole in it. Perhaps we can still learn something about being green and being conscientious consumers from our parents…

Socrates explains in his Ship Analogy, comparing the state to a complicated and large ship. In order for the ship to make safe passage it must have an experienced navigator who has knowledge of capacities of the ship, meteorology, water currents, navigational astronomy and the like. An ignorant person would not be able to guarantee safe voyage of the ship, the people in side, and its cargo.

“Imagine then a ship or a fleet in which there is a captain who is taller and stronger than any of the crew, but who is a little deaf and has a similar infirmity in sight, and whose knowledge of navigation is not much better. The sailors are quarreling with one another about the steering–every one is of the opinion that he has a right to steer, though he has never learned the art of navigation.”

“[The sailors] throng about the captain, begging and praying him to commit the helm to them; and if at any time they do not prevail, but others are preferred to them, they kill the others or throw them overboard, and having first chained up the noble captain’s senses with drink or some narcotic drug, they mutiny and take possession of the ship and make free with the stores, thus eating and drinking. They proceed on their voyage in such a manner as can be expected of them. Him who is their partisan and cleverly aids them in their plot for getting the ship out of the captain’s hands into their own whether by force or persuasion, they compliment with the name of sailor, pilot, able seaman, and abuse the other sort of man, whom they call a good-for-nothing; but that the good pilot must pay attention to the year and seasons and sky and stars and winds, and whatever else belongs to his art, if he intends to be really qualified for the command of a ship, and that he must and will be the steerer, whether other people like it or not–the possibility of this union of authority with the steerer’s art has never seriously entered into their thoughts or been made part of their calling.” (488c)

Still applicable today!!!

I recently finished reading “Nonsense”. A fascinating read about how human mind struggles with things that make no sense at all.

A key dimension of emotional intelligence, according to the book, is the ability to handle ambiguity. A strong need for closure which leads to a desire to resolve ambiguity. But as Nonsense reveals, our need for closure has its own dangers. It makes us stick to our first answer, which is not always the best, and it makes us search for meaning in the wrong places. When we latch onto fast and easy truths, we lose a vital opportunity to learn something new, solve a hard problem, or see the world from another perspective.

In other words, confusion–that uncomfortable mental place–has a hidden upside. We just need to know how to use it. This lively and original book points the way. The book talks about cults, espionage, hostage negotiations, Ducati, Zara and a lot of other interesting stories.

Ambiguity leads to people closing their minds and stick to preconceived notions. So if you want people to not be open to your ideas, flash them something that causes them to reconsider things – such as a red spade (An experiment from the book). On the other hand, if you want people to be open to your ideas, meet them in a place that is really comfortable for them like their homes.

One of my favorite sections of the book was about teaching. It talks about how lectures that just transfer information do a great disservice to the students. A better approach is to engage students in solving some problems that forces students to learn and apply.  The book also talks about how puzzles that require lateral thinking can teach kids to keep an open mind and to consider alternative scenarios.

Overall five stars to Jamie Holmes for a very engaging and easy to read book with a heavy dose of insight and through provoking ideas.

Here is one of the puzzles from the book (rewritten):

Don was driving his semi under an overpass when suddenly he came to a screeching halt. Don wasn’t paying enough attention and inadvertently drove under the overpass that was just barely as high as his truck. The semi was wedged so tightly that he could not go forward or backward. A fellow trucker came by and told him how he could easily get the semi out from under the bridge. What did he suggest?

(Leave comment for an answer)

I saw an interesting security update this week in NYTimes. Check it out here:

Beware, iPhone Users: Fake Retail Apps Are Surging Before Holidays

Here is the summary – Scammers are realizing that more and more consumers are looking for branded retail apps. They are looking for brands that don’t have an app, create a phishing app for the brand and release it in the wild. The consumer downloads the app and gets their data stolen by these fraudulent apps.

The solution is simple – brands should create/claim their apps ASAP to make sure that scammers are not able to defraud consumers looking to connect with them.

 

Interesting battle brewing in Australia where a consortium of large banks is demanding that Apple open up its limited access to the NFC components on the iPhone in order the level the playing field for other wallets.

Apple is pushing back hard citing security.

As you can imagine the stakes are high and the outcome could have a significant impact world-wide.

Read a great rundown and analysis here: Is the debate over Mobile payments in Australia rotten to the core?

Change doesn’t always have to be huge, small changes like improvement in scanning of phones by laser scanners can have huge upside.

Check out this new technology called Mobeam

From a technology perspective, Mobeam enables POS laser scanners to read barcodes on mobile devices. Light-based beaming technology pulses the phone’s proximity sensor LED to emulate the reflection of a barcode, which the laser scanner interprets as “reading” the barcode. Thus, beaming enables a mobile payment app to effectively process all barcoded promotion and non-cash payment types. In many ways beaming is like Bluetooth, NFC or Wi-Fi, a new method of contactless communication between a smartphone and a receiver, in this case, a laser scanner.

Really cool and promising because it enables phones to transmit coupon and payment information to existing hardware – laser scanner. Challenge as always is scale. There are still too few phones (Galaxy only) that have this tech…

Mobile pay will not get real traction as long as customers have a physical wallet with physical cards. Replacing plastic loyalty cards is a start but to get traction for Mobile pay, vendors should focus on enabling customers to ditch the physical wallet. This means smartphones should handle all my cards like – drivers license, Costco card, insurance cards, YMCA card etc.

Imagine you get stopped by a traffic officer. To show your driver’s license, you open up your iPhone app and tap it/scan it on a tablet the officer has. Officer next asks you for insurance information, you open up your insurance card and tap/scan again. Officers looks at your information and after making sure all is well, hopefully lets you go without a ticket.

A company called MorphoTrust is working on something similar for driver’s license. CNet has a great article on the company.

Now imagine going to the doctor’s office. The receptionist asks you for proof of insurance. You tap/scan your smartphone on a tablet in the office. The receptionist pulls all the information she needs on the tablet and prints out what ever is needed.

Now imagine going to your Gym and again tapping/scanning your smartphone  at the scanner/tablet at the entrance.  The current status of this market is pretty messy – YMCA has over 15 apps for different regions, developed by different agencies.

I believe mobile pay vendors have a huge opportunity to provide thought leadership, technology and security solutions to address a number of these use cases. By addressing these use cases combined with vertical out reach, mobile pay vendors will reduce consumer dependency on physical wallets and drive adoption of mobile payments.

If you wish to know the mind of a man, listen to his words.

Chinese Proverb

 

If you are in a business where effective interactions with people is an important part of your success, you should read this book. Mark Goulston, is one of those rare analytical people, who can organize, present and make sense of topic as amorphous as human interactions. “Just Listen” is filled with fun stories and is really easy to read. It is organized in 30, 6-10 page chapters that are dripping with actionable insights.
The book starts with an explanation of the persuasion cycle:

The first and the key component is to get people to listen to what you have to say. Mark explains mirror neurons and getting them aligned is key to listening and communicating.

Goulston then talks about 9 core rules that are right on the mark:

1. Move yourself from “oh F#@& to OK”
2. Rewire yourself to listen
3. Make the other person feel “felt”
4. Be more interested than interesting
5. Make people feel valuable
6. Help people to exhale emotionally and mentally
7. Check your dissonance at the door
8. When all seems lost bare your back
9. Steer clear of toxic people

This is followed by a set of useful tools that are powerful individually but if organized and used in situations, can help you deal with tough situations. One of my favorite tools “Power thank you”/”Power apologies”  by itself is worth the price of the book.

Goulston wraps up the book with some great case studies that are fantastic examples of applying the tools in the book. On a personal note, I had a chance to apply these tools in a particularly sticky situation related to when my parents came over from India, for the summer, which setup the classic mother-in-law and wife issues.

“Your mother has an opinion on everything and she likes to share it”, my wife said one night.

A typical red-blooded Indian male would typically get defensive or passive aggressive or feel trapped in this situation but I calmly un-clipped the empathy tool from my tool belt.

“Yeah, she has a lot of opinions”, I started.

“Yeah and she get in the middle of everything. Today she was telling me about how to raise kids, when she does not even understand the personality they have and the environment they are growing up in.”, she continued.

“The other day she was telling me about how to make chicken and she is a vegetarian”, I empathized.

I could see that she was pleasantly startled.  After a few more minutes of this, she exhaled and thanked me for listening.

“I can see that she has a lot of great ideas, but I wish she would just mention them at the right time but again she is visiting after a long time and hasn’t had the context so I should be more patient”,  she concluded.

She said that she feels so much better because she can share her issues with me as I thanked Mr. Goulston for his brilliant work and promptly ordered the rest of his books.