Building Capital-Efficient Startups with François Derbaix (Indexa Capital)

Unlock the strategies of capital-efficient entrepreneurship with François Derbaix, the mastermind behind Indexa Capital, and delve into the art of scaling a startup without burning vast amounts of capital. 

This episode is a treasure trove of insights as François shares his journey of achieving profitability and outpacing competitors by a significant margin with less capital. We cover the unique challenges of lean growth, highlighting the importance of versatile talent and the critical metric of revenue per employee, and lay out a roadmap for entrepreneurs to navigate the high-stakes world of startup expansion with finesse.

This episode culminates with a candid discussion on marketing strategies and the complexities of measuring their impact, from affiliate programs to broad brand awareness campaigns. We dissect cohort analysis, customer lifetime value, and the balance of investment in growth channels, providing a nuanced view on scaling customer acquisition. Ending on a note of gratitude, François and I reflect on the value of supportive communities in entrepreneurship. This episode is an ode to the collective wisdom of those who dare to dream big and a call to action for listeners to join us on this exhilarating adventure.

Chapters

• 0:00 Capital Efficiency in Entrepreneurship
• 12:10 Efficient Growth Strategies for Startups
• 19:33 Launching Successful Startups
• 36:52 Scaling and Marketing Strategies for Startups
• 49:17 Measuring Customer Acquisition and Growth
• 1:02:29 Gratitude and Support in Podcast

Transcript

0:00

As an entrepreneur, you are committed to a singular project. And it's not necessarily your optimum to raise the risk on your single project. It is the optimum for the investor because they are diversified among 20 investment, 40 investment, 60 maybe, but it's not the optimum for the entrepreneur. that's why the most experienced entrepreneur tend to go, I think, toward more capital efficient path because I think it's the one optimizing the risk reward for the entrepreneur. Thank you so much, François, for being in the podcast. It's a real honor to have you here today. Thank you, Ariel. Very happy to be here. Well, you are someone that I think you know this, like I really, really admire. You have been, well, we have known each other for a long time. I you have been my mentor for a long time. You're an investor in my company. And the reason I decided for this to be one of the first episodes of the podcast is that you have a very unique approach to a lot of things, but particularly to building companies. And I'm really, really excited to learn from you about What is your approach to building companies? And you have started a first company that you sold for like, I think, 14 million euros, if that's correct. Then you have another company now that is already profitable and that you're growing to millions of revenue already. And you know, when it happens once, it can be luck. When it happens twice, I think there is a little bit of a playbook behind it. I'm sure that playbook is different before and now. But I'm really curious to understand what that playbook is. But before we get into that, I would love to hear what is Indexa? What is your current company? How would you describe it to, I don't know, your mom or someone who doesn't work in tech? Okay, so Indexa is a financial service company. We offer an automated investment service to the retail customers, and we offer them to manage their fund portfolios, investing with very broad diversification and with very low cost. So many in the Anglo-speaking countries would talk about robot visors. We are similar to Wealthfront or Betterment in the US, or to many others in the European Union. We are the leading automated investment service in Spain. We started in Spain nine years ago, and then we expanded the service to Belgium three years ago and to France last year. We manage currently 2.3 billion euros from above 70,000 customers. Our revenues are around 5 million per year. We are listed on the Spanish Alternative Stock Market, valued at 150 million euros as a company. And the company is profitable for three years now, and we were the first independent automated investment service to reach profitability, probably worldwide three years ago. Now there is another one which is Wealth Navy, the Japanese one, also listed and also profitable. But to my knowledge, I think we are only two companies in our area to have reached already profitability. That is very impressive, especially considering how much capital you have raised for this company. I don't know if you could talk a little bit more about how you approach the process of deciding, you know, how you can leverage external money to grow the business, but in a very strategic way and under your own rules. So we raised for indexa capital in total a little less than 5 million euros, which... may sound a lot, but actually it's quite little in comparison to our competitors. We are in a sector where our European competitors have raised most of them more than 100 million euros. So talking about money, farm, scalable capital, nutmeg, each of them, each of those with one more than 100 million euro. And we reach a similar size than they have. Maybe we are twice have their size but with 50 times less investments. So by far, Indexa is the most capital efficient company in the automated investment service area. And what is behind this for you? Is it like that you want to be efficient or that you want to keep like a higher ownership of the company? Like, I think there is something behind that capital efficiency that I'm super curious about. And the reason I ask is that I personally being in the path of raising a lot of money, spending a lot, not necessarily driving success based on that. I see a lot of people like very focused on raising capital, but there is also a new maybe not so new trends of these like bootstrap companies that try to get to success without raising capital. There is this new concept of like the camel companies that raise money, but you know like getting water only when it's highly available to go for a long distance in the desert you know with very little water like and I'm super curious to understand like what is your approach to using capital behind that efficiency that you clearly have in indexa? So I think that we decided with my co-founders, with Unai and with Ramon, we decided to go to a capital efficient path because of our experience. Actually what I see is that first time entrepreneurs tend to think that part of the success is to raise money. Why is that? Because I think it's coming from that there is very little open information about startups. So startup usually don't publish. too much data about their revenues, their net income, profitability or losses and so on. They are quite opaque or not publishing any data, but the public data you see, most of them are about capital increase, financing runs. And even many news... Many websites are doing ranking of successful startups, ranking those by the amount of the financing. And actually I think that's totally wrong because the financing is not a success. It's not an objective, it's a cost actually. So you are selling part of your company in exchange for this financing. And the entrepreneur objective actually should be in many other metrics than the financing. is a tool, is not an objective. So what happens is that we are impacted a lot by the news about financing rounds. Most first time entrepreneurs tend to think that getting financing is a success. They even many times tell you that the business model has been, is a successful one, because this company in the US has raised so much, so that this has been tested because they raised 150 million. While a successful business model is not because you're raising a lot, the successful business model is because you're getting a lot of traction, a lot of customers, and a lot of profitability or future profitability. So what happened is that Ramon, Unai, and myself had a lot of experience. I think we already got very clear that the success was not into raising a lot of capital in general, and specifically in our business, which is wealth management. to be trustful for the customers. We needed to be not only low cost, but also profitable. So that the customer could think, OK, those guys are the cheapest in terms of fees, but it's not that they are gaining market share and then they will raise me the fees later, or maybe they will go bankrupt, et cetera. No, the Indexa is a very capital efficient company. We have lower fees than the competitors, but on a sustainable way on the long term, because we are profitable. And therefore we entered in what we call our success circle. which is by growing more we are able to reach more profitability as a company. With more profitability we are able to reduce the fees for the customers. The customers with lower fees and get higher returns for their investments. With higher returns they are more happy, they recommend us to their friends, to their relatives. That helps us to grow faster and to keep reducing costs. That's the will, the fly will. we try to, and actually we are activating. And that's why we definitely decided from the beginning that we wanted to go through a capital efficient path. From what I've seen, I've invested on a lot of companies in my career. Since Top Rural, the first exit, and even before the first exit, I've invested on more than 40 companies directly as a business angel. And what I've seen is that most of the first-time founders tend to be more capital intensive, and usually the second-time founders tend to be more capital efficient, because they know that... Part of their future wealth or success with the project is in not diluting themselves too much and enriching a sustainable business, not depending on external financing, not depending on debt etc. How does this impact how you run the company, how you build team, how you build culture in the company, especially in the early days, right? You're trying to keep, I imagine, frugal mindsets. I'm guessing this, but I would love to hear about it. And I think there are clear benefits of being more capital efficient. And I think the flywheel that you mentioned, it's a really good explanation of how that can impact your capacity to enter into this virtuous circle. In which ways raising less capital, or at least relative to the size of the business. also create some challenges and how do you overcome those challenges? I'm calling them challenges. I don't think necessarily they are challenges, but I can see how they can be perceived as challenges by entrepreneurs who might be struggling to attract talent because they cannot afford salaries in today's market because like they're like, you know, incredibly high. Like that's just one example, but I'm really curious about what is like the price that you pay to be very capital efficient and how do you overcome some of those downsides so that you can benefit from the upside? I think the challenge is in doing a lot with very few people. Because when we hire at the beginning, actually you have to pay the market salaries. You might pay the salary in cash or you might pay it in shares, but anyway you have to pay a competitive package to attract the talent. So I think the question is not into paying less, but into hiring less and doing a lot with a very small team at the beginning. So for instance, when we started in Indexa, we were, well the three of us, we hired CFO because we had to for regulatory reasons. So we are a regulated company. The regulator asked us for the CFO. That was the first, the second hire. First hire was a CTO. And that was a minimum starting team. Three founders, one CTO, one CFO. And with that, we kept working as far as possible. and so we were doing a lot of things. When you want to be capital efficient and to spend little to reach profitability as soon as possible, you don't think as a company in a theoretical way of I need one CMO for marketing, one CSO for sales, one CPO for projects, et cetera. So when you raise a lot of money, normally you build a large team with one person per responsibility. When you start with little money, you try to get as far as possible with a very small team. So each of us had many hats. So for a very long time I was in charge, for instance, of marketing, communication, product, customer service. I mean. during part-time all of those and to get as far as possible with that. So with a small team, I would say, highly paid small team and get as far as possible. To hire only when it's absolutely necessary to keep scaling the company. how do you know it's absolutely necessary? That's a slippery slope. I can imagine a lot of people thinking, well, it is necessary. I need a marketing person, right? Like maybe I'm not a marketer. Maybe I'm overwhelmed because I have to do a lot of other roles. Like how do you really know that it's absolutely necessary? There is a metric I like to track in the companies where I invest and also for my company when we started, which is the revenues per employee. That's not very common, I mean, most startups focus on revenues and some of the startups even think about the number of employees as a success. So I've seen founders telling me we are already 100 people, but in two years we will be 250, like wow, you know, huge success. And I think of the size of the team, again, as same as a capital race, it's a cost. So you have to get as far as possible with the team as little as possible. And the metric there is the revenue per employee. And I think you have to get as fast as possible up to $100k per employee. revenues per employee. And as long as you don't get there, because it takes a long time to get there, keep Russianizing or keep really. with a break set on hiring. And so finally, you prioritize. You think, OK, we have to hire. But if it's, I mean, you will think you have to hire in all the functions, all the areas. And then you have to prioritize. So once until we get to 100k revenues per employee, I think you have to hire very late. as late as possible. When you get there, the metric is different. Maybe you can keep optimizing the revenue per employee, but maybe what you can do is to start comparing relatively the revenue growth with the cost growth. So what we do at Indexano that we are, so we are at 5 million revenues for 40 people, means that we already are above 100,000 revenue per employee. We want to raise that a lot, to stay at 125,000 per employee. You would like to go to 200, 300, 500. I mean, the benchmark there, you know that Google is probably at 1 million and a half. I think Netflix is several millions of revenues per. So it's possible to get very, very high in the average revenue per employee. But our metric now is more about raising revenues more than we raise costs. So we can raise costs, but the cost increase has to be smaller than the revenue increase. That means that we are gaining cost efficiency. OK, let's talk about the early days and how do you get to the point where you're going to start thinking this way. Because at the beginning, there is zero revenue, but you have to be starting the project with the minimum viable team, I guess. In your case, it was like five people, right? I think three co-founders and two more people, right? So let's go back to those early days. And I would love to hear like. How did indexes start? Like, did you start with a very clear idea that one co-founder had, or on the contrary, you went through like an exploration, discovery process to find the opportunity? How did it happen? So it's a quite singular story because we started with another business model with Bewater Funds. We had to stop it for regulatory reasons. Unay had this idea of Indexa, which is basically adapting the wealth front or betterment business model to Spain because he saw that was the right way to offer investment services to the customers. So it's not a pivot because we kept the project, funds which is now live a few years later but we started in parallel to the first one the second project. I think the indexa watch was much easier to start and grow than BeWater because it was less original. And actually, I would recommend that to the founders. Normally, we look for original IDs. And some people say, I'm not starting the business yet because I don't have the ID yet. I think it's not so much about the idea, but more about the execution actually. So my recommendation would be if you are looking for an idea for a business, I would say choose your sector because you cannot look at all the sectors at once. So choose a sector that you think you're more competitive because of your experience, because of your interests, because of your contacts maybe. Once you choose a sector, you look at the US and you look at the UK, basically, where things happen before, usually. Maybe you can look at China, but it's harder because we don't speak the language. So for us, it's easier to look at the US and the UK. Look for a business model that sounds that can be profitable. Not only that's raising a lot of money, but more that sounds that could be could be a sustainable business. and try to adapt it. I would recommend to innovate as little as possible in the idea because your success probability, your success potential success rate is so low when you start a startup then you better reduce, increase it a little bit with copying a validated model elsewhere. And then you innovate later. Once you have started, then you innovate by iteration. Instead of innovating with the idea, with the original idea, because the more original the idea, the lower the success probability, actually. Because if nobody is doing it, it's probably that there is no market. So your success probability is much, much lower. So my recommendation, take a validated idea and launch it as fast as possible. Aim to launch in two months. I think that's quite ambitious, but it's possible. What does that imply is that you have to reduce your product definition to the minimum viable product, single functionality. Try to launch a single functionality in two months. I remember this famous phrase, sentence from Reid Hoffman, is that if when you launch your product, you're not ashamed of it, is that you've launched too late. The reason is that when you launch a product, you have no customers. So there is no problem actually. You may fail at everything, there is nobody to... using the service yet, no? And once the people are starting to use it, then you start to iterate and to improve. So launch as fast as quick as possible, as soon as possible, and then iterate. And then start innovating, but step by step, small ideas by small ideas, improving the service for the customer, not for your ID, which is going to be wrong probably. but improve it for the customer. Most of the ideas we have as an entrepreneur actually are not answering a real customer need, a real problem. And once you launch, you have real customers and those customers are the one that are going to guide you to what you have to innovate. Within Dexta, when we launched, we had one single product and our business plan didn't include any other product. So the business plan was single product, single country, and grow as far as possible. Once we launched, it took us very little to start hearing from the customers. We would like this other product, I need this one, I need another thing, another investment services, different formats, et cetera. And then we started to develop hand in hand with the customers. What do you do in the early days if there is more competition? Do you even think about them? Do you do anything about competition or on the contrary you only try to bring models that exist somewhere else and are successful but that don't exist in a given market so that you can go without competition? But I mean if there is any hope that things will be going well there will be competition. How do you handle that in the early days? So I prefer to launch too early than too late. So when we started in Dexha, we had no competition. Nobody was doing this automated investment service online in Spain, as Betterment or Wealthfront were doing in the US, or many other competitors were already doing in Italy, UK, France, and Germany. We thought that it would come to Spain Soon or later That we prefer to launch early to be the first the first mover than to launch late and be a follower With that in mind, I don't think it's a problem if there is already a first first mover before you because any way the competition is going to be there for many years. So even if one competitor has launched one year before you, it's not too much of a problem. Even though I prefer to start the first one, but it's not a problem to start the second one or even the third one. And then regarding the competition, I think in my first business I was quite... nice, I would say, in the competitor attitude, competing attitude, meaning that there is room for everybody, let's develop the market together, we are here to compete against banks, not against each other and so on. That's nice politically correct thinking. But I think that being too nice is actually... sometimes making you lose opportunities. And my current view on competition is actually it's better to compete very aggressively. Not doing dirty things, but I mean compete aggressively in price, aggressively in investment, aggressively in acquisition. because something I learned from Google many years ago, a Googler told me that the objective at Google is not to be the leader in a market. Apparently, from what he told me, the objective was to be a 10 times larger than the second one. So that's an objective of being 10 times larger, because when you are 10 times larger than the second one, the second one is not aiming at you anymore. It's not competing against you anymore. It's competing against the third one. So the distance between the second and the first one, if you are 10 times larger, is so big that they won't even try to reach you. So I think that's quite an interesting learning. In my first company, to be the leader in the market in the next ones, because Indexa is not only the second one. I mean, it is a current one, but I've done others in between. I think the objective should be more about being 10 times as large as the second one. How do you think about competitive advantages? Like, do you worry about them at all at the beginning, about having something that is truly differential from the beginning, other than maybe sometimes being the first player in the market, or how do you really compete when there is another competitor in the market? You definitely should have a sustainable competitive advantage on the competitors, because if not, even if you're the first mover, your advantage will fade out. So we... I think in DEXA, we think that the competitive advantage we're thinking about is very important from the very beginning. and then to communicate a lot on that and to maintain it against the competitors. So in our situation, for instance, the slogan, the claim is lower fees, higher returns. That's something that we declared at the beginning that we have been implementing and that we are working on to keep on a sustainable manner in the long term. If you lead, the good thing is that the competitors are going to differentiate themselves from what you offer. So what we see is that smaller competitors or later competitors tend to occupy the place that you, as a leader, you've left available for them. If there is a competitor competing against you, face-to-face on the same competitive advantage, then you better work double and faster to keep it. I think the competitive advantage is fundamental. And with the competitors, it's, as we mentioned before, it's, I think it's key to not to rest with a relative advantage too small, I would say. definitely aim to be so much bigger than they go elsewhere on different products, different positioning and not competing directly with you. Absolutely, makes sense. So let's go back to the idea stage. How did you validate that this was the right idea for you as co-founders, as well as like for the markets and the clients, like what are the requirements for XDA the other than the ones we discussed so far and how did this apply specifically to the idea behind INDEXA? So if we were in the non-regulated market, if we were an e-commerce company for instance, we could just launch a trial product and start selling and keep developing on that. The difficulty with indexa is that it's a highly regulated activity, so it's worth management. We have therefore to get an approval from the Spanish regulator, market regulator. This approval process takes at least nine months if everything goes fine. So we actually we did it in 10 months. It was quite okay. and requires you to raise at least enough capital to get to profitability. So we have to present our business plan to the regulator, saying how much we plan to lose in the next five years. and to provide for the financing to get to profitability on the business plan. So it's totally different than normal startups. You can do, we couldn't do this launch and test and iterate thing because we had to raise capital and to get the regulatory approval. So it makes it harder, makes it more reachable for experienced entrepreneurs previous exits and the financing access to the financing to get past this barrier. We couldn't have done it when we were 25 years old because with no prior success because second time entrepreneurs therefore. So that's a huge barrier to entry, which is a pain in the ass at the beginning because you don't want to get there. As an entrepreneur, we don't want to get in a regulated area. I didn't want to get in a regulated area neither. Once you're there, once you're past the barrier, you see that's actually a protection because there is very little competition. So, yeah, if we were... sports products e-commerce like Depor Village. We would have 50 competitors in Spain as a regulated company in the Indexa area. We only have four independent competitors in Spain. That's the other side of the of the regulation I would say. how long it took you from the very beginning of the inception of the idea to the launch day of the product. So we had the idea in July 2014. We started to plan in September. We requested for the authorization in February 2015. So it took us, actually it took us already six months from starting to plan to requesting the approval because when you request the approval to the regulator you already have to go with a 200 page file, everything defined. We requested in February and we got the approval in November and we launched in December. So from the idea in September 2014 to the launch in December 2015, it took us 15 months. That's a long time. And I'm not even talking about a long time to validate an idea. I'm talking about a long time for you to decide to invest. Because I suppose you were working, if not full time, close to it, preparing a 200 page document and business plan. It's a lot of work. You had to raise the capital. You had to build the whole thing in the meantime. So how did you gain the conviction? to say it's worth it in my life to spend more than a year of my life dedicated to this without being able to have any kind of like customer side validation. What did you do to gain this confidence? We thought the opportunity was large enough to make this time investment and money investment. And we also thought that when we would launch after 15 months, when the potential competitors would see us and maybe start their process, they wouldn't launch until 15 months later, actually. So that was, I mean, when you're 25, I don't think you reasonably get into a process of 15 months without knowing if you're going to go through or not. I'm born in 1974, so when we started the process I was 40 years old. And when you're 40, your time frame is a little different. Maybe it's not so hard to get into a 15-month process. So it was okay. I think I see everything in this area, every cost in time and in money and capital as also as an opportunity because those difficulties actually makes that the actually there is much less competition than in any other sector. And so you decided to pay the price of a longer time to market and higher uncertainty for the outside of being more protected while you were developing the product. And you decided to do that because you saw a big opportunity in the market, right? Yeah, the opportunity is huge. Most of my friends in the entrepreneurial sector, many friends, investors and so on, were telling me start a minimum viable product with no authorization. Try to be covered by a third party authorization. Try to find a way to do it. without waiting for the authorization because then you will be able to validate. And what we thought is that in this area in the wealth management, you cannot validate with a poor setup, actually. You have to go to, we thought that we had to go to a full licensed setup, and that's what we decided to do. Let's talk about the famous process of getting the first-hand customers. How did that go for you? How was that process? How did you find them? When you finally launch after 15 months, you have this... Ideally two, ideally two in development, yes, but in... Yes, I mean normal business, you launch with two months, yes. So you open and you start onboarding. I mean, you start with your friends, you start with your family, if you can, if it's a product that's good for them. And I think you try to be flexible for the potential customers that you don't know. So what I did at some point at Topper Rally, my first business, and I think that worked well. At Topper Rally, we launched in, actually we launched in four months. And then I started to gain a lot of users, a lot of visits, but no paying customer. And at some point, my uncle from the, I have an uncle living in the US, he's an American. My aunt is living with, is wed with an American and he told, he asked me, how many, how is the business going? I told him, very fine, growing very fast, huge user base and so on. And he told me, and he asked me, how many customers do you have? And I told him, paying customer, I mean, I told him I have no customers yet. And he told me, OK, so you have a nice hobby. but not a business because you're not all about spending your money, not about getting the customers or invoicing to the customers. What I did then was to call a few potential customers after, the day after I think, and tell them, okay, you try the paying alternative. It was a free meal model. So you start to pay if you like. And you just try it, you pay. And if you're not satisfied after one year, you back, no question asked. That was just to get those on board. So I thought I have to reduce the onboarding barrier as low as possible to get them on board and then we'll see. I need those first paying customers. So I think for the first customers, basically you have to talk. person per person, find what is the remaining obstacle to convert those to a paying customer and do whatever is required to get them to test the paid product, actually. So, and I think it's better to move to as fast as possible to a paying customer situation. Because if you push that too long, if you delay too long, then you will get used to having users, but not paying customers. And the feedback from customers, from paying customers, is much more valuable than the feedback from non-paying, so from users, I would say. Absolutely. I read the other day while I watched a video with one of the founders of GitHub, and he was talking about the importance of this metric that he calls like TTFD, time to first dollar, especially for bootstrapped companies. But to be honest, it sounds like a really important metric for any kind of company because at the end of the day, if you're not generating revenue from customers, you don't really have a business, as he said. So like, I think that's a good one for sure. So you had these two different businesses. We have been talking about Indexa for a while. Now you're talking about Top URL, which was a business you started in 2000, is that correct? So very different world, right? And it sounds like for Indexa, for the first hundred customers, you went with, let's say family and friends and the closed network, convincing them one by one, you can do things that don't scale at that point. With Topperall, it sounds like you had some traffic coming to the website. So you had potential customers and by talking to them in a non-escalable way, you were able to like identify the barriers and convince them to become customers. How did that change when you started going from the first hundred to the next, to the, you know, the next 900 to get to 9,000, where you can't have conversations with every person, but you still are in the early days. You're still building trust. How did that change for the two businesses? Yeah, for the first customers, I would do the process with, personally, with some customers to, as a user, test, take notes how to improve the product and so on. So with some customers, I would do really a close work of working with them toward the process. But for many of them it was just an online process and we didn't know the customer. The objective from the very beginning is to be successful with people you don't have to talk to, actually, because you want to scale and to get thousands of customers. Within Exxon, the first month we onboarded 15 customers. So it's once, one every two days at the beginning, and then it started accelerating. So the question, Ariel, I think I went out of the... No, no, it's okay. How did that change once you go to 100 customers? How did that change from 100 to 1000? Yes, sure. Well, the first 100 is actually you're under a life risk because you don't know if you're going to get enough traction, enough market fit and enough traction to be successful. Once you get to the first 100 and you want to move to the first few thousands, then it's about scaling. And then you start optimizing and measuring. and maybe putting more marketing to drive more potential customers to the solution. So I like very much to work with cohorts, cohorts analysis about revenues per customer cohorts, because at the very beginning you don't know actually how much you can spend on marketing. And it's very easy to spend too much, but it's also very easy to spend too little. So the cohort might help you to see with the current trend, how valuable is going to be the customer on the long term, that's a lifetime value. And then after measuring the lifetime value, what we did was to establish an objective of payback. And we decided we wanted to get a payback on the customers in less than two years, which is. a lot if it was an e-commerce company because in an e-commerce company normally you aim at a maximum one year payback. But in the financial industry it's very normal to have a three years, even four years payback. So we aimed at a two years payback which is ambitious in our sector. And from there it was about if the payback is under 24 months then we can just increase the marketing spend. And actually we got quite good traction. the business grew more than we had foreseen. The payback was better than we had foreseen as well. And so we were able to accelerate a lot in marketing spend and so on. But this, in order to spend the highest time of marketing spending, we were spending more on marketing than on... the team for instance. So the more than 50% of the cost were customer acquisition. In order to get there, you have to have a good measure of how is this paying back, how long does it take to get the revenue on the advertising spend and so on. What was the approach to decide where to invest the marketing budget or better said, where to invest your time experimenting with channels? How did that process go? Yeah, well, the theory is that you have to test everything. So try it, measure, test and learn and iterate. The reality if you're working on a capital efficient way is that you have a very little team and you can't do everything. So it was not about testing everything, it was about testing one thing at a time. And when we found one that was working above the rest, just put a lot of effort on this one. So in our case, what we did is, first of all, product investment. Have such a good product, then the customer are going to recommend it. That's a product-based strategy. about the contracting of the people, back to the conversation, the beginning of the conversation, the question about hiring somebody or not was is it absolutely necessary? So for instance, commercial people, the question was any competitor in our area has a sales team, a commercial team. We thought, is it absolutely necessary to have a sales team? I mean, it's not, because if we can get customers on board without a sales team, then it's not necessary. And we thought that's not value creating, actually. It's not creating value for the customers. So the sales team is not building a competitive, a sustainable competitive advantage for us, we think. So we decided to invest more on the product and not on sales teams. And we decided to invest a lot on the Member Get Member program, which went well because it's together with a good product. And the Member Get Member is what's helping the customers to bring their friends. And then on the top of the Member Get Member, we built an affiliation program for some. customers, paying them to bring other customers. So those are the influencers, the bloggers, and so on. This affiliation program and the Member Get Member programs went so large, so good, then we finally had to reduce the investment on everything else, because all the marketing budget was channeled toward the affiliation. until the regulation changed and now we cannot do affiliation anymore in our investment services. So there is a global trend toward... for bidding the affiliation investment services. And so we are moving toward other channels. But basically, so in a summary, it's try what you think is going to work best. And once, but it won't be the first time try that will be the good one. So we tried television, we tried radio, we tried a lot of things. And then when we found a channel that was working above the rest, then we put most of the effort on this channel. How did you decide how long and how to give each experiment a real chance of succeeding? Like you could say, for example, for a referral program, is it something that you just launch and it works or it's something you have to iterate, for example, looking at it as a funnel where you have to make sure that every customer sees that there is a referral program. Then making sure that you optimize that every person actually tries referring somewhere or that you maximize that number. Like at which point do you say, if it doesn't work in this little amount of time, then we move on to the next thing and at which point you say no, we need to invest this longer before we move on. Okay, it's complex. because some things are measurable, like the affiliation program. I mean, it's very easy. We started a collaboration with one, first collaborator, Carlos Galan. He was a customer, he was a fan of our product. Before even Index Eye Investing, he was a fan of the approach of low-cost investing, Indexa funds and so on. He was a pioneer in Spain. We started working together. We proposed him to pay him for customers with his invitation and he started to deliver resources very early. So that's the easy part. Other investments are not so measurable. Everything we do in brand awareness. advertising in newspapers, radio and so on. It takes a very long time to contribute to the brand creation. And even in the long term, we won't probably be able to measure the impact. So there is two channels, the measurable one, which is Google Ads or affiliation, for instance, or online websites. And there we measure, and if the result is good, we put more investment. And then there is the faith one. All the brand investment, notarity, brand awareness. which is a newspaper, we do outside advertising and so on. And that's just about, we think it works and we keep doing it for the long term because we think that it's better to have a very regular presence, a very permanent presence instead of doing campaign sometimes yes and sometimes no. But most of the marketing spend is not... We're not yet able to measure the results on most of the advertising spend. So we focus more on the blended CAC, blended customer acquisition cost. And we compare the blended customer acquisition cost to the payback time we have. And as long as we have payback under the 24 month, I think we are okay. Did you in the early days, like measuring the lifetime value and even the payback period, it takes a long time, right? It takes like two years. Like, how do you know like, that's a long time to wait to say like, yeah, let's move on or not, or forward with this, let's continue, or let's stop it. How do you deal with this? No, actually you can do that after one month, measuring the two years payback time. It's a little tricky, but what, no, the good thing about cohorts is that you get one point, you get two points, you have the revenue per customer on month zero, revenue per customer on month one, and then you already have two points on your line, and you start extrapolating. You have to make an assumption, you think maybe the evolution of the revenue per customer for the following month is going to be linear, maybe it's going to be exponential, maybe it's going to be logarithmic. But you make an assumption and you extrapolate. So even with a two-month period, you can extrapolate to a two-year period with a lot of uncertainty, but you can do it. You don't have to wait for two years to have the full measure in order to... to have an idea. So you make assumptions, and finally, you see that your hypothesis is maybe not so far from reality. So I really would recommend not to wait for too long before using the cohort's data. Make assumptions, and then you will correct those. At the base, you get more month of history in your data set. So you're basically just trying to get very quickly a couple of data points so that you can actually plot some kind of line under some assumptions and use your best judgment for what those assumptions are. But at least you have some baseline of what's reasonable to expect and then to just move forward because I guess not acting based on the uncertainty will be like much worse than acting based on imperfect assumptions. an example is that if the customers are paying one euro per month at the beginning, first month, and two euros per month on the second month, then you make an assumption. And one assumption can be we grow one euro per month per customer, and I draw it to 24 month, and then I get to the 24th month, 25 euro per customer. That's one assumption. Another one is maybe the growth is going to fade. So I shouldn't put so much because it's too aggressive. And another one is I'm doubling every month. So the next month is going to be four and then eight and then 16. And then you see that you're going too high. But you make an assumption and then you serve month after month. What is the regression? What line is fitting better to the data? But don't wait too much to start investing because you have to invest to get a significant .. sample of customers to start drawing conclusions. So I think it's important. And about some channels are not working at the beginning. Actually, most of the channels are not working at the beginning. For instance, Google Ads typically doesn't work when you start because you have no brand recognition. You have a very small click through and so on. But still, I think what I like to do is to keep spending a little amount. every month to keep learning and training Google Ads until it gets profitable because sooner or later it will get profitable. But if you stop the experiment, you won't know that. So you have to keep spending. Typically, I keep spending 5 euro per day, for instance, in a campaign. until it reaches profitability. Maybe it won't ever reach, so if it's too low, then you reduce it. But normally, if you give time to the system, it gets to profitability, yes. So it's like, I hear three categories of growth channels, right? You have those that you can't really measure, like maybe the media brand awareness. You have the ones that you can measure quite quickly. For example, through some experiments on the referral side of things, you find your, the customer that loves the product, who loves the product, and you work with them in a non-scalable way to see what return that gives you when you have someone who loves the product, and then you have something in between where. you can measure, but it might take longer. And in those, what I'm hearing is that it makes sense, especially I'm imagining in the case of ads and display ads, like, you know, it has a huge potential in the longterm also, not just in the short term, if you make it work. So you start investing and learning about it very early and in a very constant pace, because it's a longterm investment that you will be able to measure, but maybe not necessarily in the short term. Correct? Yeah, so on performance, if it works, put more money. That's the affiliation in our case. If it doesn't, as Google Ads at the beginning, maintain it low, but keep investing to keep measuring and keep improving and optimizing and learning with it until it gets profitable. Because as you said, the potential is too high to just withdraw from Google Ads and leave it to the competitors. That is a really interesting insight, by the way. And you don't have to invest a lot, like$5 a day. I mean, maybe in the very early stages, if you don't have capital, if you're bootstrapping, that can be a substantial amount, but relatively early. And so doing that at a low cost and a massive learning and massive potential, it makes a lot of sense. So to wrap up, when was the moment that you... Looking back, you say, that's when we got to product market fit. Like, or what did product market fit look like for indexa and how did you know that you have it? Or maybe you didn't, you just kept going. And now looking back, you can, you can pinpoint at that moment. I think that product market fit is getting paid customers because somebody is willing to pay for your service. And I know that there are many definitions of product market fit, but... Mine is that I got a customer paying, who is not obliged to, is not a family member or a friend, then I think there is some kind of product market fit. Once I get the product market fit, as a first paying customer, I look at the traction. And I think at the beginning of business, the traction is aiming at a 20% growth month on month, compounded. uh... and average no uh... compounded monthly average growth uh... at the beginning So because you will start at a very small basis, I mean, even the first month, maybe your revenues are 100 euro. So what? You have to start somewhere. So it's okay. If your revenue is 100 euro one month and the next month is 150 and the next month is 200, then you're doing fine actually because your monthly growth is above 20% per month. So my objective is first 18 months. to maintain a monthly growth on average above 20%. I think that's a good successful traction for the business. And then with the time, of course, you won't be able to maintain a 20% monthly growth because you're getting larger. But I think that's a good check. So first, paid customer for the market fit and 20% monthly growth for the traction. and then you grow as fast as possible. Once you have a little bit of history, you extrapolate and you see how long will it take you to get to profitability. I would recommend you to raise money enough to get to profitability. So not to raise money just for one year period and then we'll see for the next round. not to do a financing round with the next round in mind. And actually, I think it's something that some investors will like to see that you're already thinking about the next round. Those are the capital-intensive investors, and some investors will like to see that you're not thinking about the next round, that you finance a company just to get to profitability, that next round will maybe be an opportunity, an option, but not an obligation. And those are the capital-efficient investors. The difference is that the capital-intensive investor typically is a venture capital, because his business is into investing more money. The more they invest, the more the management fee they have. And the second one, the more capital efficient investor, is more the one investing his own money with skin in the game. A family office business angel, direct investors. that are investing their own money, whose business is not into investing a larger amount in the next round. Those are two different paths, very different careers, I would say. There is a capital-intensive career and the capital-efficient career. To the entrepreneurs, I would recommend the second one, the capital-efficient, because it's the one that's optimizing your risk-reward couple. If you go to the capital intensive path, you will increase a lot of risk. As an entrepreneur, you are committed to a singular project. And it's not necessarily your optimum to raise the risk on your single project. It is the optimum for the investor because they are diversified among 20 investment, 40 investment, 60 maybe, but it's not the optimum for the entrepreneur. I think the optimum for the entrepreneur, and that's why the most experienced entrepreneur tend to go, I think, toward more capital efficient path because I think it's the one optimizing the risk reward for the entrepreneur. All right, I was going to ask you to for like some piece of advice for an entrepreneur, but I think that's completely unnecessary. I think it's hard for you to give one that will beat that one, at least from my perspective. So all I have left to say is thank you so much for your time, for sharing the wisdom one more time with me as you have been doing for a long time. And I feel very grateful that, you know, I get to have that. But I'm also very happy that now other people will be able to get it from you. So thank you so much, François, for dedicating this time to us. Thank you Ariel, my pleasure, it was a good experience to be on a podcast in English. So I get to practice a little bit. And thank you very much. Congratulations for the initiative as