The three mistakes of Rushabh Mehta’s life

ERP systems are hard to build, open source ERPs are harder. One can only enter this business by mistake.

If it weren’t for the mistakes of Rushabh Mehta’s life, the SaaS ecosystem in India would have lost out on at least three interesting innovations over the past 15 years. That includes ERPNext, the world’s biggest ERP system made entirely on open source, Frappe,an open source, low code platform that can be used to build complex web apps, and FOSS United, a unique community for free and open source enthusiasts.

Before we learn more about that, let’s rewind to the beginning a little. To when it all really started. In 2008. Rushabh was 25 then. A hacker at heart and an industrial engineer by training. He had just returned from the US as a fresh graduate. His family in Mumbai had been urgently looking for software that would help organise accounting, sales, and sourcing for their furniture manufacturing business. And they could think of no one better suited than him for the job of building it.

The young man was genuinely passionate about writing code. To him, it was the same as art. “It is as creative as writing, except it is not just writing to inform or to entertain but writing to ease day-to-day living.” So he worked day and night, with a capital of Rs 5 lakh and priceless amounts of enthusiasm.

In fact, the software was efficient enough to encourage him to bring in a few more people and explore the possibility of going into business. That is how his first full-fledged venture, Frappe, came to be.

Mistake #1 — Building software won’t build a business

ERP is a tough business to enter for software product companies if they want to build a scalable business. There are close to 200 ERP product companies in India each building an ERP system for a niche domain. Large international players such as SAP and Oracle, who had been active since the 1970s, still dominated the generic ERP market. Disrupting the ERP industry was a tall order, especially for a small team like Rushabh’s.

There were even bigger challenges. For one, Rushabh’s dream was to build everything on open source. Having been exposed to free and open source (FOSS) software via Python, Rushabh knew that if he wanted to build a lasting company, the product had to be open source. That meant customers would not have to pay to use the software. Second, while the company was passionate about building, it was ill-equipped for selling. Frappe was a complex product but it was priced too cheap — a self-destructive move.

“I was a hacker, I knew how to create programs but I had no idea about business,” he says. “There was an absolute lack of strategic thinking.” He had not realised this error in his strategic ways then, so development continued.

And a year and a half after Frappe was established, they ran out of cash. The first phase of the company involved selling services but working with touch Indian customers meant that it would face a tough time. That included follow-up investments from Rushabh’s family. “We had burned through all the initial capital and then some.” Poof. But around that cloud of smoke was a silver lining. Broke as the team was, it had managed to create a clever piece of technology. All was not over.

Mistake #2 — You can’t build a company by just hiring people

In the early days of the company, Rushabh had landed his first big customer through one of his family acquaintances. Encouraged by that he went and hired a sales and engineering team. New customers were not exactly queuing up and he did not know how to make them. .

The other engineers in the team were mostly inexperienced too, because they were employed on a modest budget, so none could push the fledgling company forward. Hurried hiring decisions were costing Rushabh. “If you don’t have a plan of how you’re going to run the company, you’re going to hire on the basis of flawed assumptions. And when you hire the wrong people, everything wrong happens.”

By 2010, for the sake of survival, he started a painful round of layoffs. The team went from 18 members to five. It was a period of deep introspection but it left the founder with an epiphany. Until then, the company had viewed its offering as a service while it wanted to sell products. The solution, they realised, was software-as-a-service (SAAS).

TL;DR

3 founding facts to remember

1 — So you love to build things? Don’t forget, business is equally about sales

2 — Hiring is delicate work. Figure out your people needs

3 — Networking is not all bad. Finding the right mentor can lift you up

Mistake #3 — Not having mentors will extend your journey

Why had he not recognised this sooner? Clear articulation of the problem he was solving and the solution he was introducing would have saved him a lot of money and relations. But Rushabh was not one to seek out mentors or ask for advice. “ERP is not a crowded industry so there are very few I can exchange notes with in the community. Plus, I can be very vocal whenever my opinions differ.”

This wariness towards networking and seeking out mentors slowed down his attempts to build sales and make course corrections.

With his new found clarity came clearer horizons. Even if it was not earning the big bucks yet, he knew the software had longevity and value. Everyone in the company put their head down and kept building. To go with Frappe, he launched erpnext.com where users could sign up and self implement the product.

In 2016, two future unicorns, ElasticRun and Zerodha decided to build its back-office system on top of the company’s software. Later, in 2020, Zerodha even wrote Frappe a cheque in exchange for equity. Big enterprises were opting for the product, and were willing to pay big money so they could rest assured of steady tech. It started monetising its cloud services.

Surviving the hard times

Things are beginning to look up for Frappe. Although bootstrapped since inception, the company has 20,000 active members in its user forums. It will likely hit an ARR of $2.5 million in 2022–23. Today it is one of the most popular open source ERP systems around.

Having felt the pain of running a large open source project on his own, it felt like a natural next step for Rushabh to build a community that would lend others a hand. Along with Zerodha CTO, Kailash Nadh, the founder started ‘FOSS United’, a community where like-minded hackers can get together. “It is an alternative to the startup-hustler communities,” Rushabh explains. “Here, we talk about open source because that’s how innovation spreads in the tech industry.” In this way, Rushabh is trying to fix mistake #3 for new entrepreneurs, especially in the open source domain.

All good things take time. So Frappe is not racing for unicorn status, the company is willing to wait another 10 years to rise steadily. Innovation continues to stimulate the founder, as well as the talent that is drawn to working for a democratic set-up company. In Frappe, everyone votes on all major decisions of the company. The shift towards democracy started during the pandemic, when Frappe began using polls before taking a number of its decisions. It even launched a ‘pick your own pay’ model this way.

Every entrepreneur has their blind spots and sometimes fixing them can take a long time. Some mistakes can even work in your favour if you stay alive long enough. If Rushabh had not chosen the path of open source, Frappe would not have been the company it is today. If you are willing to persist long enough, you will overcome your mistakes.