How Capillary’s success made a case for reverse innovation

A top-notch product and relentless dedication for a decade-and-half is what makes Capillary a global SaaS success. 

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Capillary is making it big in the loyalty business. It works with more than 250 brands, taking care of their customer engagement and loyalty for about one billion customers today. However, more impressive than their figures of growth so far is perhaps the fact that along the way of figuring out loyalty for the retail market in India, the Bengaluru-based business made a rare case for reverse innovation in the world of high-technology. Solutions Capillary built for an emerging market like India eventually found a market in the US with great success.

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The thesis that drives this success is a firm belief in building the best product. 

“If you have the best product in a vertical or a space, you’ll eventually win the best customers there,” said Aneesh Reddy, Founder and CEO, Capillary Technologies at Avataar Venture Partners’ Annual General Meeting, held earlier this year. 

 Having the best product in the industry really really helps. We thankfully have large analysts like Forrester covering our space. Forrester Wave: rated the best product globally based on current offerings. 

Capillary’s key business  is Loyalty+, which drives engagement with their customers and their retention, and generates 90 percent of the revenue. In addition to that, it has also designed a stack of products to manage brand analytics and customer rewards as extensions of loyalty. This helps lock in clients who prefer holistic services and beat competitors in the US who are able to deliver only a piece of the puzzle.  

The beginnings in India, Aneesh said, trained him and the company well to communicate about the Return on Investment (ROI) of using their products really well. 

Today, Capillary boasts a rich client list comprising the best brands in each vertical. For instance, consumer tech brand Dell saw $1 million in savings by migrating to Capillary platform while launching in dozens of global markets. It also leads engagement for all of Tata’s consumer brands and brought on 1.6 million customers and 48 million transactions within six months of launch. With Shell, it is live in about five countries and likely to enter 100 countries with them within a year. Others include NatWest, Metro, Unilever, Vodafone, Al-Futtaim, among others. 

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No mistake, no growth

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No big learnings and successes come without mistakes. Aneesh has learned that curbing the urge that most founders have to chase the next shiny object is important.  

“We tend to build for any new thing that comes up,” he said. For instance, Capillary entered India after a single customer’s suggestion and went there to build a CRM without being cognizant of the fact that China is one of the world’s most competitive markets. “One wouldn’t have enough resources or critical access to API without the backing of the giants like Alibaba or Tencent,” he added. As they ventured into serving small and medium businesses as well in Asia, the team saw that these small players expected enterprise-level services and quality at a cheap pricing. Profitability and growth became hard to achieve. 

Similarly, the team bought into the ecommerce frenzy and acquired a company in 2015 that eventually shut down. 

Aneesh emphasized that chasing after everything at once:

1. Led to many sub-scale revenue lines that are hard to scale,
2. Stretched talent too thin, and
3. Weighed the company down.

Hence, the founder narrowed down the focus on one thing it did best: loyalty business. With this, Capillary entered new markets and adjacent verticals.  

 Going into new markets in Asia in general was also an important lesson in getting the big picture when it comes to business expansion. Although Capillary succeeded in the retail enterprise scene in Asia fairly quickly, their growth in ARR plummeted after a certain point.

It was only in 2016 – seven years after starting up –  that the team thought about the Total Addressable Market (TAM). Aneesh realized that the combined TAM of several countries including India, Singapore, and the Middle East was about $300 million which eventually led him to enter the US market. 

He said, “We’ve grown 4x in the last three years and  got here by doing less rather than doing more. Our approach has been to do a deep business design than go behind each opportunity that you find. Build conviction on what we want to do and double down on a few things.” 

Building Talent: To be honest, we've had to build our own product leaders, sales leaders. Because products and SaaS in India aren't like the US. We coach them. Balance sheet leaders. 

Breaking down their strategy behind billion-dollar revenue goals, he explained that Capillary picks one or two verticals and builds deeply for that. So far, they have focused on loyalty for oil and gas conglomerates, travel and hospitality, and healthcare, among others. 

Aneesh expressed his gratitude to investors for standing by him through a couple of cycles of ups and downs in building Capillary. 

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In the end, he added, it is only when you give up that the game is over for you as a founder.