What if it Works?

When I was CFO at Zoomcar, our product head (who, by the way, I didn’t get along with) proposed that we launch a ‘zero deposit’ initiative, whereby certain customer segments wouldn’t have to provide the Rs. 5,000 deposit while booking a car. The hypothesis was that this would reduce friction and lead to higher bookings. Since we had high damage and overage rates on our bookings, I was very opposed to the initiative. I thought we would be pouring money down the drain as customers wouldn’t pay up afterwards and tried to stop this from launching. As it happened, we did get higher bookings when we tried it and the losses from people not paying the balance (most did pay) were more than covered by the higher revenue. Zero deposit became an important tool in our arsenal whenever we had to boost demand.

I learnt a couple of important lessons from that incident.

First, new tech products can create significant upside if successful and experimentation has a high risk-reward payoff. I had to shift my mindset from my earlier role in mining where revenue was more or less fixed and cost efficiency was paramount. I had to become more open to looking at the potential upside as opposed to protecting the downside only.

Second, the initiative could be rolled back if it didn’t work. Jeff Bezos talks about decisions as one-way (irreversible) or two-way (reversible) doors. This experiment was a two-way door and we could contain the losses. My fears, thus, were overblown.

I’ve had to make the same mindset shift while investing in early stage companies. They always come with warts and undeveloped moats. It’s very easy to not invest in them. However, the most successful investors ask a more pertinent question: “What if it works?”