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 still a student, Farizy started his own fish farming business – and by the time he graduated in 2012, he was managing 76 ponds.

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

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

Farizy came up with a new idea when, in his third year of college, he attended an aquaculture course at Indonesia’s Bandung Institute of Technology, where he majored in biology.

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

Aquaculture not only farms 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 US and Europe.

“My professor said that in the next five to 10 years, five-star hotels and restaurants will do that [serve] fish or catfish, whether you participate or not,” he told CNBC Make It.

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

Shortly after that lesson, Farizy rented his first catfish pond to supplement his income.

But he was not satisfied with the small profit he made by selling his catch to middlemen. That prompted him to start selling catfish fillets and fish nuggets, which he processed and sold out from a food cart at his college.

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

In Indonesia, pangasius catfish – a type of fish popular with lower to middle income earners – are processed into high quality frozen fillets and marketed as “pangasius dory fish” to increase their appeal and price.

Seeing the opportunity, he started raising catfish and realized the cost of feed was high substantial − consisting of 70% to 90% of the total cost. He then built a prototype for an automatic feeder in 2012 and launched it a year later.

Automatic feeders eliminate the problems of manual feeding, which can lead to over or under feeding. The automatic feeders detect the hunger levels of fish and shrimp through their movements and then deliver the optimal amount of feed into the ponds.

Farizy claims its feeders can reduce feed costs by 28%.

“What a lot of companies got wrong is that they never focused on the unit economy from day one,” Farizy told CNBC. He said the automatic feeders were sold at a profit from the start.

eFishery is profitable on an operational level, according to Farizy.

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

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

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

When asked how he runs a successful business, he said, “We don’t waste money unnecessarily.” He added that his company is very careful with their spending.

“In many cases, the reason why they increase their costs is because they need to increase the burn rate and then raise their valuation and raise more money for the next round of funding,” 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 a profit.

In addition, eFishery was not in a position to easily raise money in its early stages because investors at the time did not believe in the fish farming technology business model.

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

For example, they may not have a good pay scale for talent, which can lead to companies overpaying for talent. So it’s important to put processes and a system in place, he said.

“We tended to be very thoughtful and careful about our spending, including looking for talent,” says Farizy.

Farizy knew that letting users use their product for free is not the right choice. Many startups do that in the beginning to expand their customer base.

“We didn’t sell the feeders for free. We sold them at an increase in our costs,” said Farizy.

“I vividly remember trying to provide the feeder for free. Even when we tried to pay farmers to use it, they wouldn’t use it simply because they’ve been farming for 20 to 30 years, and they’re 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 authorized eFishery to install them in several of his ponds.

As one of the first, eFishery was “not forced to grow faster than our own pace.”

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

But they may not have that time if there were major 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 who 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 demand the same today.”

“If you keep focusing 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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