Tips from eFishery founder Gibran Huzaifah on running a profitable start-up

Indonesian Gibran Huzaifah Amsi El Farizy is no stranger to the start-up world.

While he was still a college student, Farizy started his own fish-rearing business — and by the time he graduated in 2012, he was managing 76 ponds.

Now at 33, Farizy runs Indonesia-based startup eFishery, which developed products such as automatic feeders that help local seafood farmers save costs and improve productivity.

Today, eFishery serves close to 60,000 farmers and about 280,000 ponds, making it one of the largest startups in the industry.

A new idea came to Farizy while he was attending an aquaculture class in his third year of college at Indonesia’s Bandung Institute of Technology, where he majored in biology.

He admitted that he only enrolled into that class because it was “guaranteed an ‘A’ as long as you sit in the class,” and he really needed it to pull up his grade point average.

Aquaculture involves farming not just fish, but also shellfish and aquatic plants.

During the class, he learned that dory fish is one of the most consumed freshwater fish in the U.S. and Europe.

“My professor mentioned that over the next five to 10 years, five-star hotels and restaurants will [serve] fish or catfish, whether you are taking part in it or not,” he told CNBC Make It.

That’s when he decided to move into catfish rearing.

Soon after that class, Farizy rented his first catfish pond to supplement his income.

But he was unhappy with the small profit he earned from selling his catch to middlemen. That pushed him to start selling catfish fillet and fish nuggets, which he processed and sold out of a food cart at his university.

“I tried to create my own demand by having a value-added product,” Farizy said, adding that he skipped classes to operate his farm and food business — which eventually grew to seven food carts.

In Indonesia, pangasius catfish — a type of fish that’s popular among lower- to middle-income — is processed into high quality frozen fillets and marketed as “pangasius dory fish” to increase their appeal and price.

Seeing the opportunity, he started breeding catfish and realized that feeding costs were substantial − consisting of 70% to 90% of total costs. He then built a prototype for an automatic feeder in 2012 before launching it a year later.

Automatic feeders eliminate the problems of manual feeding, which could result in over-feeding or under-feeding. Detecting the hunger levels of fish and shrimp through their movements, the automatic feeders then release the optimum amount of feed into the ponds accordingly.

Farizy claims his feeders can reduce feeding costs by 28%.

“What many companies got wrong is that they never focused on the unit economics since day one,” Farizy told CNBC. He said the automatic feeders were being sold for a profit right from the start.

eFishery is profitable at an operating level, according to Farizy.

Last January, eFishery bagged what it claimed was the world’s largest funding round ever by a seafood farming tech startup — $90 million in a Series C financing. That round of funding was co-led by Temasek, SoftBank Vision Fund 2 and Sequoia Capital India.

Here are three tips for running a successful company, according to Farizy.

Many startups focus on blistering growth, which usually means a high cash burn rate.

When asked about how he runs a successful company, he said: “We don’t burn cash unnecessarily.” He added that his company is very prudent with their spending.

“In many cases, the reason why they are growing their costs is because they need to grow the burn rate to then increase their valuation and raise more money for the next funding round,” said Farizy. “For us, we don’t play that game.”

Cash burn refers to a company spending its cash reserves when it is not yet generating profit.

Besides, eFishery was not in the position to raise money easily in the early stage as investors didn’t believe in the seafood farming tech business model back then.

But even for other companies that don’t burn cash for growth, they do not have enough control on costs, said Farizy.

For example, they may not have a proper salary grading for talent, which can result in companies overpaying for talent. Thus, putting processes and a system in place is important, he said.

“We had a tendency to be very mindful and careful about our expenses, including talent sourcing,” said Farizy.

Farizy knew that letting users use their product for free is not the way to go. Many startups do that at the start to expand their customer bases.

“We didn’t sell the feeders for free. We sold them at a markup of our cost,” said Farizy.

“I remember vividly that we tried to provide the feeder for free. Even if we tried to pay farmers to use it, they didn’t want to use it simply because they they have been farming for 20 years to 30 years, and they are not convinced to use this technology,” said Farizy.

His big break came when a farmer who owned about 1,000 ponds saw potential in the feeders, and allowed eFishery to install them in some of his ponds.

Being one of the first-movers, eFishery was “not pushed to grow faster than our own pace.”

“In the first six to seven years, we focused on helping farmers and deploying our technology,” said Farizy, adding that they started to build the value chain when they were ready.

But they might not have that time if there were large competitors that can raise billions to grow, Farizy acknowledged.

His advice to founders? Focus on serving customers.

“Don’t listen to investors because the investors that asked you to increase your burn rate five years ago are asking for profitability today,” said Farizy.

“But the customers who wanted a good quality product five years ago will ask for the same today.”

“If you continue to focus on core customers, you can build a good business with a strong retention rate, a strong margin and eventually, the investors will come,” said Farizy.

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