India Financial Services – Disrupt or Be Disrupted

Matrix India recently hosted two firebrands of the financial services world, Mr Sanjay Agarwal, founder AU Small Finance Bank and Mr Sharad Sharma, founder iSPIRT Foundation, Volunteer at India Stack, for a no holds barred discussion at the Matrix Rooftop in Bangalore. Here is an excerpt from the evening and some of our learnings for fin-tech entrepreneurs.

Part 1 of the two-part series features the untold story of AU Bank, in the words of Sanjay Agarwal himself, as below:

Sanjay Agarwal – on his background and early days before starting AU:

“In my early Chartered Accountancy days, I started out by doing audit work, taxation, and managing clients. I had studied hard and was naïve and enthusiastic at that time hoping, to solve the world’s problems. This pushed me to work harder and I had a desire to do something more.

I believe that we are the choices we make. While evaluating various choices, I eliminated all the options that I didn’t want to pursue e.g. to work for a fee or commission and then I started digging deeper on what really interests me – that was when the concept of AU Financiers was formed.

In 1996, as 26 years old, I began approaching HNIs to raise capital, as back then, there were no VCs. I was fortunate to raise INR 10 cr at a 12% hurdle rate and I had to secure the funding with a personal guarantee. But what is the guarantee of the guarantor? No one questioned this at that time. So, I technically became one of the first P2P lenders, and structured a product that didn’t exist– short term, secured and at a 30% rate of interest. That was the start of the AU journey.”

The Early Days of AU:

“I started off AU as a one-man army. I was everything from the treasurer to the collector. Slowly we built our team and rotated the 10 cr of capital to disburse 100 cr of loans – not a single rupee was lost. There were several challenges at that time for e.g., there was no CIBIL score, financial discipline was lacking, people were still learning how to take a loan and repay it and customer ids didn’t even have a photograph. But somehow, we managed.

The period from 1996 to 2002 taught me everything I needed to learn – how to lend, how to collect, how to manage people, read people’s body language, and most importantly how to manage yourself in different situations. I follow all of that until today, and my team also benefits or suffers from those learnings of mine even today. In those 7 years, we would have dealt with 2000 customers out of which 500 defaulted. That was the ratio of defaulters – 25%. But we managed and there were actually no NPL’s.”

Partnering with HDFC Bank

“In 2002, retail credit was beginning to take off, but our HNIs started pulling their money out, as they wanted a higher return. However, at that time, the most premium bank in the country, HDFC Bank, appointed us as their channel partner. The model we followed was very simple – AU was responsible for sourcing the customer, KYC processing and doing on the ground diligence while loans were booked on HDFC’s balance sheet. HDFC is perceived to be a conservative bank, and it is – however, they gave me Rs 400 cr, on a net worth of only Rs 5 cr! They made an exception in our case due to our strong track record, through execution, sound knowledge of the market, and most importantly our integrity.

By 2008, our net worth had increased to Rs 10 crore through internal accruals. At that time, HDFC told us that we can’t give you any more capital, as we were overleveraged, and that we now needed to bring in equity capital if we wanted to grow.”

Growing the balance sheet and partnering right

“I had two choices at that point, I could continue in Jaipur, keep my ambition under control and live comfortably or figure out what else is possible. I chose the latter and this marked the beginning of my partnership with Motilal Oswal. Its easier to raise equity now, back in the day shareholder agreements used to look like loan agreements with min IRR requirements, etc. As luck would have it, a few months after we raised equity, the Lehman Brothers crisis broke out and most banks stopped funding. We were supported once again by HDFC – they were our saviour and I will cherish my relationship with them always. Once the market settled down, having survived this negative environment, there was no looking back.

Our next major investor was IFC. For the entrepreneurs here, I want to say that you have to be selective about your investors, who will help with not just capital – there should be added value they bring to the table apart from money. IFC was giving me 20% lower valuation, but I knew that I didn’t have any lineage to fall back on. As a first-generation entrepreneur, I had to raise money on the strength of my balance sheet and not basis my family name. I knew that partnering with IFC would shift the perception of AU within the industry, especially for PSU banks. After their investment, we grew from one bank relationship with HDFC to 40 bank partnerships. One thing led to another and Warburg Pincus, ChrysCapital, and Kedaara Capital all came on board after that.”

Consistent performance

“From 2008 onwards, we started diversifying from vehicle lending and got into other forms of secured lending like a loan against property, home loans etc. We never tried unsecured lending and never ventured into microfinance or gold finance. Those were very popular products at that time but focusing on what we were good at resulted in a consistently strong performance. We never had a bad year. In the world of finance, the margin of error is very less. If you have a bad year you can almost never come back. Good companies survive regardless of the market condition, you can never blame the market for your company’s poor performance. In 2015-16, we were a successful NBFC, our RoA was close to 3% with an asset base of close to 8,000 crores, with a RoE of 27-28% and everyone was chasing us – the question at that time before us was, what next?”

How we became a bank

“As an NBFC, it is very hard to manage a book of Rs 50,000 cr with the same efficiency and effectiveness as it’s a people dependent business, there are limits to the kind of products you can do and you can’t keep raising capital. Hence, we became a bank because we wanted to be there for the next 100 years and that perpetual platform can only be created through a bank. That is the biggest platform and it is not available at a price. It’s available through your integrity, business plan and execution. Today, we receive Rs 100 cr of money every single day. This is the same person who was struggling to raise Rs 10 cr in 1996, and is now getting money at the speed of Rs 100 cr every day – it feels amazing but there is a lot of responsibility!”

Part 2 of the two-part series features insights from Sharad Sharma:

Recognizing the Athletic Gavaskar moment in Indian Financial Services

“Indian financial services industry is going through its equivalent of the Athletic Gavaskar project of Indian cricket. The motive behind this project was to instil the importance of being athletic to successfully compete in the modern game. A new team was created with the rule that if you are not athletic, you cannot be a part of the team, regardless of other skills that you bring to the table. Virat Kohli eventually became the captain of this team and the results are for everyone to see. Similar yet contrasting stories played out in hockey and wrestling. In hockey, we lost for 20 years because we refused to adapt to the introduction of astroturf. However, in wrestling, the Akhadas in Haryana embraced the move from mud to mat with rigour, and Indian wrestling is already punching above its weight class and hopefully will do even better over time. The idea of sharing this is that similar to sports, sometimes an industry goes through a radical shift. Take the telecom space, for example, if Graham Bell came alive in 1995, he would recognize the telephone system, 20 years later he wouldn’t recognize it at all. The banking industry is going to go through a hockey/wrestling or communications type disruption and a lot of us are working hard to make it happen.”

Infrastructure changes lead to New Playgrounds

“All the banks and NBFCs put together are not serving the real India today. We have 10 million+ businesses that have GST id’s, out of which 8 million+ are big enough to pay GST on a monthly basis, but only 1.2 million have access to NBFC or bank finance. This is a gap that needs to be addressed and it cannot be solved through incremental innovations.

Entrepreneurs and incumbents should learn from what happened in the TV industry when new infrastructure became available. When India went from state-run TV towers in 34 cities to cable and satellite TV in pretty much every town, there was a massive new market that was unlocked that did not want to watch the same Ramayan or Hum Log TV serials. What transpired was an explosion of entertainment products because of the high demand stemming from the new markets and the TV channel players that reinvented their content is thriving today while others that did not, are barely surviving or have shut down.

So where does this leave the bankers? I think it is the biggest opportunity for the right banker who understands this problem, wants to serve this section of the market and is willing to reinvent the way they do their business and take advantage of the new infrastructure that will be available.”

Dual-immersed entrepreneurs have the biggest advantage

“Entrepreneurs who are immersed in the messiness of both the new infrastructure and the old problem are “dual immersed entrepreneurs”. They are the ones that succeed when a market shift is underway. Today this is not happening. Some of our city-bred entrepreneurs are more comfortable with California rather than Bharat. And some of our sales-oriented entrepreneurs are intimidated by the messiness of the new technology infrastructure.”

New Playgrounds need new Gameplay

“In a world where eKYC exists, and we can transfer money through UPI from a phone, and sign documents digitally – we are ready to deliver financial products on the phone and this is the disruption that is required. Access to credit drives the economy and with this new infrastructure, it is now possible to lend to the real India. However, it’s easy to give money, but the ability to get it back and keeping defaults at a minimum is the real trick. Even there we are moving towards seeing a radical improvement. Debt providers now have powers they never had and defaulters are being brought to book. Customers are now incentivized to build their own credit history to get better and lower interest rates over time. A new Public Credit Registry is coming to enable this at scale. But the biggest innovation is related to the dramatic shortening of the tenor. One can structure a one-year loan into 12 monthly loans or 52 weekly loans. This rewards positive customer behaviour and brings about the behaviour change that is needed.

There is no secret sauce here, it requires gumption – like that shown by Reed Hastings, founder of Netflix. He disrupted the TV and home video industry by first having the wisdom to go from ground to cloud and then again when they started developing original content. In both cases, he had little support from the board or investors. If you can reinvent yourself before it becomes necessary, you’re a winner but this is harder to do for a successful company. The legacy of success provides resisters with the clout to block change. The real beneficiary of Aadhaar based eKYC in the telecom world was not the incumbents but Jio – eKYC allowed Jio to acquire customers at an unprecedented scale and they saved INR 5000 crores on KYC costs as well.”

About iSPIRT

iSPIRT is a non-profit think tank that builds public goods for Indian product startup to thrive and grow. iSPIRT aims to do for Indian startups what DARPA or Stanford did in Silicon Valley. iSPIRT builds four types of public goods – technology building blocks (aka India stack), startup-friendly policies, market access programs like M&A Connect and Playbooks that codify scarce tacit knowledge for product entrepreneurs of India.

About AU Small Finance Bank:

AU Small Finance Bank Limited (AU Bank) started in 1996 as a vehicle financing NBFC, AU Financiers and scaled to touch over a million underbanked and unbanked customers across 11 states of North, West and Central India, prior to becoming a bank in April 2017. During this time, AU attracted equity investments from marquee investors such as IFC, Warburg Pincus, Chrys Capital, Kedaara Capital and recently went public when its IPO was oversubscribed ~54 times. Over the years, AU Bank, led by its founder Sanjay Agarwal, has created significant shareholder value with its equity value growing from ~$120 million in 2012 to current market capitalization of ~$3 billion.

Please Note: The blog was first published and authored by Matrix India Team and you can read the original post here: matrixpartners.in/blog

Policy Hacks On India’s Digital Sky Initiative 1.0

On August 27, 2018, India announced its much-awaited Civil Aviation Regulations (CAR) for drones. The new CAR had many improvements on the original draft published last year, but most important was the introduction of Digital Sky, a technology platform that would handle the entire process of regulating the registration and permissions for all Remotely Piloted Aircraft Systems above the nano category, i.e. any remote controlled or automated flying object – multi-rotor or fixed-wing, electric or IC-engine. These set of regulations along with the announcement of Digital Sky drone policy represent the government’s “Drone Policy 1.0”.

What this policy isn’t?

From the outset, one of the largest criticisms of the draft was its seeming omission of beyond visual line of sight flights, as well as those of fully-autonomous operations. Combined with a ban on delivery of items, it would seem like the government is pre-emptively clamping down on some of the most promises of Unmanned Aerial Vehicles before they even begin.

But on close inspection, the Ministry of Civil Aviation has made an interesting & what looks to be a promising decision in naming this policy as “1.0”. Through the various public comments made by the Minister of State for Civil Aviation, Jayant Sinha, it can be gathered that there is a phased-approach being adopted for the planning and implementation of the government’s strategy for unmanned aerial vehicles.

The more complex commercial operations will be rolled out atop the digital platform, allowing the government to test the waters before allowing potentially risky operations.

At iSPIRT, we appreciate this data-driven, innovation-friendly yet safety-first approach that has been inherent to all of civil aviation.

What does the policy say?

The policy lays out a general procedure for registering, and taking permissions to fly for every type of remotely piloted aircraft system (RPAS). A good summary of the regulations themselves, what you need to fly, what you can and cannot do is given here. We will be focussing this blog post on mystifying Digital Sky and the surrounding technology – How it works, what it does and what should private players be doing about it.

What is Digital Sky?

Digital Sky is essentially a barebones Unmanned Aircraft Traffic Management system. An Unmanned Traffic Management is to drones what ATC is to aircraft. Most countries are looking to external UTM providers to build and run this digital enabling infrastructure. The government of India, in continuing its digital infrastructure as public goods tradition, has decided to build and run its own UTM to ensure that this critical infrastructure system remains committed to interoperability and is free from the risks of vendor capture in the long run. Digital Sky is the first version of such a UTM for managing drone flights in both controlled as well as uncontrolled airspaces.

For consumers, Digital Sky essentially constructed of three layers. The three layers are Online Registrations, Automated Permissions and Analytics, Tracking and Configurable Policies.

Online Registrations are the layers that onboard operators, pilots, RPAS and manufacturers on to the Digital Sky Platform. It will be a fully digital process, and applicants can track their applications online. All registered users will have an identity number, including the RPAS, which will get a Unique Identification Number (UIN). There is a private key attached to the UIN allowing the drone to prove it is who it claims to be through digital signatures.

Automated Permissions is the transaction layer that digitizes the process of seeking airspace clearance. Using Open APIs or a portal provided by the government, drones can directly seek permissions by specifying the geographic area, time of operations & pilot registration id, signed with the UIN of drone. In response to the API call or portal request, an XML file digitally signed by the DGCA is generated. This XML response is called the Permission Artefact.

All RPAS sold in India under the new policy must carry firmware that can authenticate such a Permission Artefact. Further, they must confirm that the flight parameters of the current mission match those given in the authenticated Permission Artefact. If these parameters do not match, the RPAS must not arm. This condition is referred to simply as No Permission, No Takeoff or NPNT. Thus, the requirement is that any RPAS (except nano) operated in India should be NPNT compliant. We will cover what it means to be NPNT compliant in part two of this series.

To deal with areas of low connectivity, this authenticated request can be carried prior to the flight itself, when connectivity is available. The Permission Artefact can be stored, carried and read offline by an NPNT-compliant RPAS with a registered UIN. Thus flight operations in remote or low-connectivity areas will not be severely impacted. While this seems tedious, it promises to be a lot easier than the draft regulations, which required the filing of flight plans 60 days in advance.

Digital Sky will classify all existing airspace into three colour-coded zones: Green Zones are where drones are pre-authorized to fly, but must still obtain a permission artefact to notify the local authorities of their intent to fly. On applying for permission, a permission artefact is returned instantly. Red Zones are where drone operations are forbidden from taking place. This includes areas such as airports, borders and other sensitive areas. Amber Zones are areas restricted by appropriate reasons as mentioned in the CAR where additional permissions are required. These requests are also initiated and managed through the Digital Sky Platform

Analytics, Tracking & Configurable (ATC) Policies is a shorthand for the regulatory functions that the DGCA will carry out to regulate the use of airspace by unmanned aircraft. It involves functions such as the classification of Red, Amber & Green zones, deconfliction of overlapping flights, incident response, etc.

The MoCA has articulated its desire for an ecosystem-driven approach to building out the drone industry. From an earlier draft of the No Permission No Takeoff technical document shared with manufacturers, it is expected that this layer of Digital Sky will be opened up to private players labelled as Digital Sky Service Providers (DSPs). We will cover more about Digital Sky Service Providers in part three of this series.

Conclusion

Digital Sky appears to be a move towards a more data-driven, phased-approach to policy and regulation for emerging technology. It is a global first and offers a truly forward-looking approach compared to most other nations.

For operators, in the long term, a formal system leads to an eco-system of authorised players, increase in trust, and rise of a legitimate industry. 

Note:  We have been actively following the Digital Sky policy development, Intend to bring in Part two of this blog after an active role out and implementation starts.

AI/ML Shift for SaaS Companies: Insights from SaaSx Fifth Edition

Early stage SaaS startups typically struggle with one of two things. When you are just starting out, the first struggle is all about mere survival. Will we find customers willing to use and pay for our product ? Good teams typically manage to find ways to negotiate that first challenge. The playbook has been sufficiently commoditized that if you execute well enough, you can actually succeed in getting those early customers. Its a challenge for sure, but is getting easier and cheaper to overcome — which takes me to the second challenge. Once you survive that initial phase, how do you continue to stay relevant and grow? For if you don’t grow, you’ve only prolonged the inevitable and will likely get disrupted into irrelevance by the next upstart that comes along. When you play in a commodity market, that’s the sad reality.

If you find yourself gaining customer adoption, you can be fairly certain that competition isn’t far behind. Unless you find a way to establish sustainable differentiation while you have that head start, you will ultimately die. And that differentiation now increasingly comes down to the value of the data flowing through your platform and how you are able to leverage it better than your competition. In other words, if you are not thinking about constantly learning from the data that you are gathering and enabling implicit intelligence via your products, the odds of survival are going to be stacked against you. Given the significance this topic carries for us at Swym, I was really excited to have the chance to sit in on Ashwini Asokan and Anand Chandrasekaran’s session on AI/ML for SaaS at SaaSx5. And they most certainly didn’t disappoint. With a lucidly laid out argument, their talk served as a strong wake-up call for the SaaS founders in the room that weren’t sufficiently worrying about this topic.

SaaS growth is slowing

Ashwini started out by underscoring the fact that SaaS growth was slowing in general. There’s no denying that most solutions are rapidly becoming commoditized — building a good product has gotten fairly prescriptive, costs have come down and barriers to customer adoption are a lot lower than they used to be. That inevitably leads to markets getting very crowded, making survival increasingly difficult. If you don’t stand out in very defensible ways, you will perish. To make matters worse, AI is slowly but surely causing entire categories of work to disappear — Customer Support, SDRs, Financial/Market Analysts, to name just a few examples. If those workers were your market and you were helping them be more efficient, you are in trouble because your market is disappearing with them. You better be evolving from being software that’s serving those people that in turn serve a function, to actually serving the function itself. Of course you do this with human assistance, but in a progressively intelligent fashion that makes you indispensable.

Embrace the platform mindset

In order to stay relevant, you really need to create a viable roadmap for yourself to graduate from being a simple feature that’s part of a larger platform (No one likes being told they are nothing but a feature, but this really is where most early stage SaaS products sit today) to becoming the platform itself over time. It can most certainly be done because the opportunity exists, and the access you have to your data and how you are able to leverage it is likely to be the most effective weapon to get you there. Think really hard about new use cases you can light up, automations you can now enable, important solutions that hitherto weren’t possible or practical — enabling those capabilities is what will give you stickiness. And you can in turn leverage that stickiness to allow others to build on the data platform you’ve created to expand your moat. Easier said than done of course, but it is the only path to staying relevant. Alexa, Salesforce, Adobe, Hubspot, and most recently Stripe with their just announced app store, all come to mind as stellar examples of execution on this strategy.

How should I be thinking about Data Science?

Anand followed that up with some really good advice on how to go about this, especially touching on what not to do, and it was clearly resonating with the audience. For instance, when he highlighted the fact that most AI initiatives that start with “Here’s the data I have…what can I do with it?” are doomed from the get go, a lot of heads in the room were nodding in agreement — seemed like a pretty common trap that folks had fallen into. Instead, his advice was to identify the end goal that mattered first, with the caution that this could be deceptively challenging. Once that goal is well understood, then focus on the data you have and the gaps that exist — and your challenge basically boils down to filling those gaps and cleansing/validating your data. Those are your most critical, time-consuming steps in the process for once you get the data quality you want, it becomes much simpler to build and iterate your model around that and figure out how to engineer this into a repeatable part of your workflow. The sub par data quality is one of the most common causes for AI projects “failing” and no amount of modeling proficiency will save you from bad data or a poorly understood problem statement.

Get on the train, but don’t lose sight of what got you here

I’m really glad to have had the benefit of listening to their talk in person, and now that I’ve let the arguments sink in over the past couple of weeks, a few truths have become indisputably clear in my head. The AI shift is not one you can ignore as a SaaS founder. If you don’t get on the train, you’ll likely end up under it. And no, getting on the train doesn’t mean simply attaching a “.ai” to your domain name and claiming success. It really comes down to internalizing your vision for why you exist, identifying in very clear terms how your roadmap to making that vision a reality will need to evolve given the AI shift. How do you see your problem space changing in the the next 2–5 years thanks to AI, and what does that mean for you? And given your existing strengths, what can you do to make the most of that shift?

Its important to remember that a lot of the fundamentals of a good SaaS story still don’t change. For instance, a sound distribution strategy is still very much necessary, for without sustainable access to customers, the rest of it is moot. Likewise, you want to be able to protect the access you have to your most valuable asset, your data) and lower the barriers enough for adjacent players to be able to work seamlessly with your offering. All those advantages you have still very much matter. Really, the biggest mental shift you need to make is thinking very deliberately about how the world around you is changing because of AI, and how you leverage those strengths so you continue to have proprietary access to the data you need and become an integral part of that change.

The article is authored by our volunteer Arvind Krishnan, CEO & Founder – Swym Technologies.

Deeper Strategic Partnerships – Pitching for Significant Scale and Co-Creating the Value

David Vs. Goliath had a happy ending, but the odds of beating Goliath as a startup are slim and most startups do not have a fairytale ending, unless…

At SaaSx5, I had the opportunity to hear Vijay Rayapati share his story of Minjar. This was a fairy tale with all the right ingredients that kept you engrossed till the end. With angels (investors) on their side, along with Minjar and Vijay’s prior experience, Minjar could have faced many Goliaths in their journey. Instead of going the distance alone, Vijay followed the Potential Strategic Partner (PSP) playbook (Magic Box Paradigm) and identified one in AWS. His reasons were clear, one of the biggest challenges a startup faces is distribution. And, a PSP can open several doors instantly, making distribution easier, revenue growth faster and gives the startup multiple options. As a startup, you need to think about a PSP early in the game at the “Flop” and not at the “Turn”. You need time to develop a PSP and you need to start early.

Identifying a PSP in your vertical maybe easy, but building a relationship with them is the hardest. It requires continuous investment of time to build the bond with the PSP such that they become the biggest evangelist of your product. This involves building relationships with multiple people at the PSP -from Business, Product & Tech- to make sure you have the full support from the company to scale this relationship without roadblocks. In the case of Minjar, with AWS as their PSP, it opened roads to customers, built their brand and also increased the value of the company. One of the highlights of the Minjar story was about the CTO of AWS, evangelizing the product at their conference. As Vijay ascertained “Invest time in people who can bring visibility and credibility to your company”. Focusing on these people is a sales channel by itself, and a Founder has to be involved in building that channel when it shows glimmers of hope. The Minjar story had a happy ending, because they invested more time in building their PSP relationship and limiting other marketing activities: they did not spread themselves too thin. This involved multiple operational changes like training, presenting thought leadership & co-selling at conferences, and making sure the end users at the PSP are successful in using your product.  It is also important to note that a partnership is not a reseller or transactional relationship. A partnership is a relationship of strengths, in which each entity brings unique skills and together provides exponential value to the end customer. Partnerships work when you have champions leading on both sides of the table and one of the best outcomes a PSP can provide to a startup is a strategic acquisition. A PSP is one of the best ways for a startup to exit, especially if you have not raised a lot of capital.

At Tagalys we have tried to develop relationships with PSPs; twice, and we seem to be making good progress today after one failed attempt. My learnings resonate with Vijays’ and some of them are

Persona: Not every large enterprise, who might also serve your target customer, is a valid PSP. An enterprise is an ideal PSP if the value you provide as a startup is something that can be incorporated into the product or process of the Enterprise, and without which the end value of the enterprise depreciates. If your startup is not important to the customers of the PSP, then they are not a match for your startup.

Timing: In your early days, a startup needs to focus on customers, customers and more customers. A PSP is likely to work with you only if you are part of the affordable loss for them. Very early in your stage the risk is too high for the PSP to consider the relationship an affordable loss. Remember, you are adding value to the PSP, hence any risk in the value proposition you bring to the table, is a risk to the end customer. Only after having proven your value to your own customers, will a PSP be willing to take you to their customer.

Credibility: Today, Tagalys works with many recognizable customers in the country and that makes the process of gaining credibility & trust easier. Your product is only as good as what your customer says it is. For a PSP to work, you need buy in from stake holders like the CEO, CTO & Product Managers and they are going to put their neck on the line if they can trust you. Customer references are the best channels to gain trust.

Lifecycle: As CEO, I have time to invest in meeting with various stakeholders at the PSP because our product is in steady state. This steady state of the product is theright time to speak with a PSP because your team can take on this additional responsibility. We also have a clear understanding of our expected outcomes, risks and upside in working with the PSP, hence our conversations are well guided and makes the discussion very productive.

Bill of Materials: While Tagalys is a line item in what the PSP provides to the market, we are an important line item who can potentially extrapolate the end value provided to the customer.

Not every startup can find a strategic partner, but one thing is for certain, as Vijay said, “You miss 100% of the shots you do not take”.

Antony Kattukaran is the Founder & CEO of Tagalys. Tagalys is a merchandising engine for online retailers, dynamically predicting what products to display across search & listing pages to increase conversion.

3 Learnings From a Fintech SaaS Offering For Indian SMEs

One of our key clients using SahiGST suddenly placed a lead on our website. After seeing a few of these leads, I pinged my sales lead and asked him, are they looking for an alternative software? Didn’t they buy a bigger package from us just a few days back? My sales lead calmly replies, ‘oh those leads’. That must be the new users from this company trying to login to the software via the home page lead capture form.

The above situation should give you a hint of what it is like to offer a SaaS solution to Indian businesses.

Over the past one year, building a tax compliance software from scratch and selling it to Indian SMEs has been a great learning curve. Some of these learnings was very curious and insightful for us coming from a media / B2C background. There are several learnings that we got from this experience. Here are a few that may be repeatable for a lot of you.

On Sales:

Even if your service is fully delivered over the internet, it would be foolhardy to expect Indian businesses to complete the buying and on-boarding by themselves. Less than 10% of our customers were closed without a face to face meeting. In most cases we did online demos and product walk through 1-1 but conversions were low. Most sales came after a visit by one of our channel partners or sales executives. One of our channel partners couldn’t demo the technicalities of the software, but closed sales on the trust of his relationship with the client and managed by just showing a demo video of the product!

There could be several reasons why a in-person meeting is needed for closing sales with Indian businesses. Online demoes aren’t as easy to pull off for a product where there are a lot of questions from the customer and internet connectivity for a screen share isn’t always reliable. Add to that the customer set not being very savvy and comfortable with a Google Hangout or Skype. At the same time the trust that is generated when the sales guy says ‘main hoo na’ is unparalleled. What is also unparalleled is the amount of support calls the sales folks get in coming months 🙂

Phone Support:

For a digital entrepreneur it is hard to believe that the customer demands phone support six days a week from 10AM to 8PM even before seeing your product! Good phone support is an emotional connect and while software UX matters, without phone support we found that in our industry adoption would be zilch.

A well trained army of phone support agents was built before launch and we braced ourselves for the deluge of calls that may come our way. On a bad day (tax filing due date) we saw over 40% of our customer base calling us for support!

We were compelled to take a PRI line from Airtel and set up a physical call centre at our office. The same was preferred over cloud systems because of the voice clarity landlines give. We even got high quality Plantronics headsets for each of our support execs.

A lot of my startup friends debate this point and argue that we should work without phone support to change consumer habit. That may work, but in our experience no tax filing software in India survives without it. There are stories of mid size CA firms buying multiple softwares just to have backup options w.r.t. phone support availability. The saying is ‘jiska support phone uthaye, usko use kar le na’.

Pricing Is Key, ARPU would be low

Having run a high margin & content heavy venture before starting SahiGST, adapting to low ARPU and low cost operations was new for us. Our customers are more willing to pay for services (training etc) than the product. We kept our costs low and could keep our end pricing low as a result. Some services revenues tricked in but our focus remained on the product.

The saving grace is that once the Indian business consumer is used to a product, it is hard for them and your competitors to change that habit (eg: Tally)! So we expect the Life Time Value of our users to be very high.

As a policy we always kept our pricing consistent for all clients and did not discount for anyone. This built a reputation in the market and we could proudly tell our customer, this is the best price. Magic happens when the customer sees a reasonable price and knows that no one else gets it below that price!

So how has your SaaS experience in India been?

3 Levels of Product Training for growth

prodtraining2

 

You have crossed the initial milestone of proving your product has seen some initial success, covered the MVP and now its time for growth…what is one key ingredient for growth ?

You are the rockstar founder or product manager…you have the urge to be omnipresent in every customer discussion or support call…you do a good job on this…but it’s a major deterrent for growth as you become the bottleneck…

The best solution for this problem is to put together a strategy for your product training.  Based on interaction with a startup growth entrepreneur’s request I had put few things, and sharing that in this post.

I plan to cover 3 levels of product training that I have personally learnt or done over the years to make products scale and be successful, the examples are more relevant to B2B but some of this can be used for B2C as well….

The analogy i have used here is of movies

Level 1 : Trailer – Targeted to people that engage with the Decision Makers who buy the product

Level 2 : Movie – Targeted to people that interact with users of the product

Level 3 : Making of Movie – Targeted to people that interact with administrators or consultants that configure, implement or support the product

Lets look at each of them in detail

Level 1 : Trailer training

This training is usually provided to Sales & Marketing teams who have the responsibility to engage and influence the decision makers, to buy the product. Certainly while the content stays high level , I have come across 3 questions to be covered in this training, that will help Sales to effectively position the product and get the interests

The three questions

Why buy ?  – This question establishes what is the real need for the product. What is the real problem that the product solves and why is it important for the customer

Why me ? – Having established the need to buy, the next question that needs to be answered is why me, why your product vs. other choices available in the market, what are differentiators, how is your product better in solving the problems and other objection handling

Why now ? – Assuming the need is established, and the fact that your product is the best fit, the next convincing part is the timing of the buy. The “why now” training should facilitate content that will help the trainee to engage with establishing the urgency, to get the decision to be made in a realistic time.

Coverage of the content

The content should cover the following to help with the above three questions

  • Benefits – the benefits of using the product , to improve the process, derive top line or bottom line savings or any others
  • Customer case studies – this is an amazing content to help sell. How are other customers using the product, their experiences, quotes, videos and other documents
  • Competitors – its important to know your competitors and how your product differentiates from them, this is an important area of coverage in your training
  • Unique differentiators – the product may have 100s of features, but there maybe certain ones which are the outliers or differentiators, there should be specific focus to highlight these in the training
  • Pricing and ROI – how is your product pricing done, what are the flexible options, what is the discounting policy, how do you combine products , how do you optimize revenue opportunity are some of the things that should be covered. Creating presentations and videos to explain the pricing with examples would be an important tool. In addition you also should have ROI templates that can help sales to justify the ROI for the customer, using relevant metrics that is aligned to the product’s benefits
  • Short demos – 2 to 3 minutes – This is the eye catcher demo (The Trailers), as its typically done to the decision makers, the demo should highlight the most important capability and it should also try to cover the overall value proposition of the solution. Remember this is the main tool that can help sales to create the initial interest or close the opportunity for approval.
  • Role plays – This is another extremely successful way to train people – the role play enacts how a customer facing person engages with the customer, bringing in relevant questions and dictate the engagement style to bring out answering the 3 questions
  • FAQs – you know answers to several questions, but its important that this knowledge gets out. A Frequently Asked Questions document or video should be a must have.

 

Level 2 : The movie training

This is to do with the actual product in more detail on how the users would use them. So this is essentially a training that is usually provided to Sales Consultants , Partners and Others who are likely interacting and engaging with the customer users – both during pre-sales as well as post sales.

Coverage of this training

  • Product feature functionality – going into details of the features and functionality of the product, focused towards customer users
  • Use cases – talk about different use cases that the product solves, every product may solve 100s of use cases, so its important to highlight different usage scenarios
  • Benefits in detail – while you cover the benefits already in level 1, this could further explain the details with more deep dives and examples
  • Product differentiators vs competition – detailed product differentiators, on various facets of the product and how this can help especially to cover the functional scenarios
  • Detailed demos (like the actual movie) – 30 minutes to 2 hours focusing on end user functionality
  • Role plays to explain usage of the product – detailed role play videos or depiction of how customers will use the product or how you can convince the users, for them to become influencers

 

Level 3 : The making of the movie training 

The third level of the training is for the people that engage administrators, implementer, partners and consultants. This covers variety of areas and really detailed and deep dive into the “how to aspects”. This is usually done to consultants , support staff and Business/IT administrators. This training is for mostly people who engage post sales, but essentially they should also have good understanding of the level 2 training, before getting here.

 

Coverage of content

  • How to configure the application, security, data, master data etc
  • How to trouble shoot
  • Detailed functional and technical architecture
  • How to demos or videos – detailed 2 hours to a day or even multiple days
  • Technical FAQs

 

So as you can see, if you can create the above training content and start training, it will certainly help you in your growth endeavors.

Offcourse you will also have to keep updating these content as you enhance your product.

Product Training , these days can be delivered in different formats – in person, webcast or through videos. But its essential for you to understand the importance of this and make it as a priority if your goal is growth

 ProdTraining1

BPO Talent To Be Groomed For Inside Sales In SaaS India

With ongoing expeditious advancements in communication, social media, cloud, mobility and related technologies – sales is on a continuous path for digital transformation. This is going to place inside sales teams at a strategic position in sales and marketing process, in terms of significance. A shift is being observed from field sales model to inside sales model which is attracting field sales guys towards inside sales jobs. Therefore, the Inside Sales industry is moving towards a revolution worldwide.

Inside Sales Teams to Play a Greater Role in Sales

Inside sales is quite strategic to India’s GDP growth. Indian BPO industry alone contributes 1% of India’s GDP where professionals are majorly involved in B2C processes including inside sales. IT/ITES and software companies have been early adopters of Inside Sales process for B2B leads generation. With digital sales transformation happening for the digitally dependent buyers, the inside sales teams are going to play a greater role in sales process, as more tasks of the marketing and field sales teams have come under the scope of Inside Sales teams.

SaaS India – Early Adopters of Inside Sales Technology

SaaS, Technology and Professional Services companies in the western world are the first ones to acknowledge a digitally connected buyer by adopting Inside Sales Technology. The traditional businesses like manufacturing companies in US are exploring how Inside Sales tech may add value to their sales process.

However, in the Indian market, mainly SaaS industry is at the forefront on trying their hands on advanced Inside Sales Technology for accelerated sales. The others in the technology industry are going to follow this trend in near future in India. Traditional industries are going to take some time to change their sales processes as their buyers are slowly becoming internet savvy for business purchases.

Inside Sales to Play Significant Role in SaaS India

As per Google Accel SaaS Report 2016 – SaaS India is expected to grow to $50 billion in next 10 years while Indian SMB SaaS is expected to rise from current $600 million to $10 billion in the said period.

SaaS_projection.png

Source: Google Accel Report – SaaS India, Global SMB Market, $50B in 2025

SaaS industry has a strong need for inside sales professionals. As per the report, strong workforce in the BPO sector gives access to talent pool of around 6,20,000 Inside Sales professionals, out of which 1,20,000 are inside sales ready and 5,00,000 are skill ready.

Workforce-1.png

Source: Google Accel Report – SaaS India, Global SMB Market, $50B in 2025

I personally believe that 6,20,000 from the BPO sector, who are assessed as ready for SaaS as per report, need to be groomed for making them sales skill ready as only telecalling skills don’t make a professional acceptable for Sales Development Rep’s role in SaaS Sales.

Inside Sales Talent – A Key Challenge for SaaS India  

SDRs are expected to understand the Sales Processes. They should have the knack of using Inside Sales Tools like Social Media, Email, Phone, CRM and other smart selling tools. The working environment of B2B Inside Sales teams is significantly different from BPO scenario, where the reps are much more controlled, the jobs are temporary, the performance metrics are more around calls numbers and talk time, the customer engagements are very short lived, and end consumers are served with products & services.

This vast difference would require a complete psychological shift in the skills of a BPO professional who aspires to work in the SaaS sales space. They would need to be trained on Inside Sales function from scratch to be helpful, empathetic, B2B marketing and sales process oriented, B2B product/services domain expert, and digital sales intensive to successfully become an SDR. SDR will progress to become an account executive with quota around end closures and finally managing SDRs.

Aspirants looking to fill Inside Sales Talent Gap

There is a need to align the professionals by training for B2B Inside Sales function to serve the evolving SaaS industry in India.

I am associated with AA-ISP, American Association of Inside Sales Professionals as the President for India Chapter. The mission of AA-ISP is to advance the profession of Inside Sales. AA-ISP Gurgaon and Noida Chapter is supported by Inside Sales Box to create an ecosystem for Inside Sales professionals for businesses.

If you are a BPO/ Inside Sales/ Marketing and Sales professional or a Technology Entrepreneur, who is aspiring to stay abreast with best IS practices, discover digital sales tools & technologies, and explore jobs and business opportunities locally and globally – I welcome you to be a part of AA-ISP India.

Starting with an SMB focus vs. enterprise for SaaS companies. Which is better?

branches&creatures (1)In the initial days of your SaaS startup, when you are doing user development, you may find that your product will help both SMB (Small Medium Business) users as well at Enterpriseusers.

There’s a tendency to then focus more on the “customer” development than the user. Assuming you have spent enough time on the user, there is a serious possibility of getting distracted from your mission by doing “both” at the same time.

Here is a dichotomy for entrepreneurs – Knowing that the milestone of Monthly Recurring Revenue (sans Churn) is the most important metric for SaaS companies, many entrepreneurs try to take the “relatively” easy route to try and get more larger enterprise deals for their product, if that’s what they know.

I have found that most entrepreneurs with an enterprise background end up finding 5-10 early customers who are willing to pay for a good product, but in the bargain they end up flexing their enterprise sales” muscle instead of building the “SMB marketing” muscle.

There is nothing wrong with choosing either market, but there is a big enough difference between both.

The enterprise SaaS market will end up with longer sales cycles (even if you know the decision makers), larger deals and request for integration with many existing tools and processes.

The SMB SaaS market will end up with smaller individual sales, an inbound marketing driven “self service” approach to vending and a extreme focus on seamless “on boarding” of users (sans training).

Many entrepreneurs also convince themselves that they can do both at the same time.

Which cannot be farther from the truth.

So, the question I usually get asked is “Which one do investors prefer“?

The answer is either one, since investors care about quality and quantity of revenue, but above all they also care about empirical evidence that they money they invest in will generate the consistency in the business for the chosen model.

Inconsistencies kill fund raising cycles.

So, if you chose to say you will build an enterprise sales model, you need to show your financial, product, hiring and operational model to support that type of business.

If, however you say your company will build a try and buy model for SMB sales online, with minimal or zero human touch from your side, driven by digital marketing, you need to show evidence that you can do that over a 3-6 month (or more) period.

I have seen many entrepreneurs confuse any revenue with good revenue. Consistency matters.

You have to show investors that you have done what you want to do.

Empirical evidence trumps theories.

So, my suggestion is to pick a model, stick to it for some time, before you decide to pivot if that does not work for you. Before you raise money, showing that the model you are choosing is one you have relevant expertise and knowledge in running is going to be critical.

A startup going global has to be stronger, better, faster than others – Bhanu Chopra #ifnotnowthenwhen

Cue in to what Bhanu Chopra, Founder & CEO at RateGain, has to say about going global…

Why do you encourage Indian companies to go global?

Since the evolution of modern trade, commercial activities between countries and across the seas have been an integral part of our society. While earlier, it was all about access to spices, cotton and precious minerals, today it is primarily about getting a larger share of the pie.

India’s domestic market with a population of over 1.2 billion is huge and it draws many from outside the country to look for operations here. However, it is obvious that a large majority of the Indian population still continues to live on the fringes and the numbers can be misleading. Another way to look at it is that the world population, at about 7 billion, is any day a much larger market to operate in.

Rategain

Being global also changes a company’s perspective. By being global you are exposed to the best in the business and often face stiff challenge from your competitors. Standards and quality controls in western countries are specific and stringent and by going global, Indian companies have to adhere to them. This in turn improves quality, ensures better controls and also translates to the adoption of best practices.

I would also encourage Indian companies to go global because it builds brand – both for the company and the country. Barring the Tata’s, there are a very few global brands that one can talk of from India. We have some great companies within the country that have the potential to operate in any part of the world. A company that can operate on a global scale and is successful at it, creates a lot of goodwill and brand name.

What kind of companies should think global?

There is no set criterion on what works globally and what does not. If the company solves a real pain point, the chances of it working across the globe are very high. A company on the other hand that provides a service or product in a significantly better way, also has a chance of doing well globally. To click on a better stage a company has to be stronger, better, faster than others.

India has a unique set of problems that need Indian solutions. Generally solutions and services from the western countries do not work here and this has led to a whole new generation of startups – especially in the sector of social enterprise and companies catering to the Bottom of Pyramid. Many problems that India face is similar and common to what many countries in the African continent and other developing countries face. There is now a steady stream of companies that look to tap these markets with their offerings. Going global does not mean only looking at the west – it can be countries in Africa, the Middle East or even South East Asia.

Does it help to relocate your operations to the UK or US?

Relocating your operation to the UK and the US can make sense as the ease of doing business is comparatively better in these countries. The US and the UK have also fared better when it comes to physical infrastructure and facilities. Other benefits that have arisen are primarily on account of the startup or angel tax in India. Startups, of late, have changed their domicile to offshore countries to ensure that they are not under the ambit of section 56(2)(viib) that was introduced in the year 2012. The other reason why startups would want to relocate to the US or UK is when they feel that the product or the service, especially in the technology domain, will be appreciated more outside India. Yet another reason some may want to relocate to the UK or the US is when these countries are the primary market.

Having said that, India still continues to be the land of opportunities. India may not fare well in ease of doing business, but its huge market is ready to reward any entrepreneur that has the grit and passion to carry on. India continues to have some of the best talent, especially in the technology segment, and an entrepreneurial ecosystem that is maturing fast.

What should startups and early-stage companies do to plan a global play?

The first step to being a global player is to have the right mindset. The entrepreneur should have a mindset that wants to go out and conquer the world. Other steps would include a careful diligence of the targeted market, finding the right team, getting to know the prevailing laws and capital required to go global.

Today, it is easier than ever before to go global primarily because of the support system that is available for startups. Accelerators, incubators, startup associations, angel investors, VCs, PEs, all contribute immensely to the support system. Over the past decade, the ecosystem has matured to nurture companies with global ambitions. For a startup, it helps to be an active part of this ecosystem. There are great mentors and professionals who already have the experience of operating in a global space and now devote a lot of time and effort in helping young companies with global ambitions. Associations like iSpirit, Nasscom and TiE have also contributed immensely in making a real difference. These associations provide intelligence, mentoring and have made vital connections to help startups operate globally. Initiatives like the Great Tech Rocketship, that looks to catapult a startup to the global stage, is yet another stellar effort from the ecosystem and the entrepreneurial community to push deserving startups into the global scene.

What are some of the watch-outs for companies going global?

One of the biggest watch-outs for a company going global is to do their homework well. It is never easy operating on foreign soils and one must be very sure of the laws and rules of the land. Often getting a good consultant, a great legal firm and a savvy banker on board irons out the process. One must also set aside adequate capital to fund the expansion. Operating in a new market and getting a foothold is almost equivalent to starting from scratch and often takes a considerable amount of capex. It always helps to get local talent on board so that the company has a better understanding of the intricacies involved.

Even a great product takes time to make a mark and penetrate a global market. An entrepreneur needs patience and must be prepared for the long haul. The most important aspect of a company aspiring to go global is to find its first customer. If you can locate your customer before you make the journey across borders, it would go a long way to instill confidence. Whenever I have expanded to a new country, I have always enjoyed the experience. It is a lot of hard work no doubt, but in the end, it’s all about getting to visit a new place, getting to know a new culture and a new way of life. Going global has the potential to make you rich – both economically and experientially.

Fingerprint entry into cars? Read what this venture is doing…

Great Tech Rocketships to the UK is a unique initiative to fast-track India’s most promising tech companies and talent to global success. Read more.

United Linkers

Tell us about your venture – what problem are you solving, and why do you think it is an important problem to be solved?

Identisafe is a biometric company and our product, Identisafe-09 helps to start and secure your car with your fingerprint. We are attempting to solve global problem of car theft that occurs in every country.

The company was established in Pune in Dec 2003 with an investment of 800$ and was a part of Plug & Play Tech Centre in Silicon Valley, California in 2007. The company is bootstrapped and profitable, till date.

How did you think of this solution? And how are you going to get this into the market?

It all started in Singapore, where I had a television set in a car, which would go off because of a loose connection. I would then have to tap the set to get it started. It suddenly struck me during one such occasion that I could use biometrics to eliminate car keys completely!

God has given us a unique identity in the form of fingerprints. So why do we need car keys, I asked myself and so the product development started.

The product has been selling on our website via the E-commerce model. Our first order came from USA in 2004 and since then we have
been exporting it in Europe, Middle East and Asia. (We also get lot of inquiries for product dealership from car dealers and also to establish franchise network that we are seriously considering).

Our current model is Business-to-Customers and we may explore the Business-to-Business model soon.

What is your plan for taking this solution global? What suggestions would you give to startups that are thinking about going global?

We plan to license the technology to car manufacturers in the UK, Germany, Italy, France, India, Brazil and China and establish a business relationship as OEMs – Original Equipment Manufacturers. I also feel that we are now established enough to connect with car accessory dealers worldwide and have at least one major distributor of our product in every country.

I am not as successful as Sabeer Bhatia (founder Hotmail), Scott McNealy (founder of Sun Microsystems – Java) or Omid Kordestani from Google. However, I met them personally in Silicon Valley and am only passing down the advice them gave me. Stay focused and keep shipping – the world is not enough – even the planet mars and moon may be the future market.

What assistance do you seek from UKTI in exploring UK as a business destination?

I made a huge mistake in Silicon Valley – I did not raise capital for the company, which I felt was a critical factor in helping it grow globally.

I feel UK may serve as a good opportunity to connect with Venture Capitalists and get the company funded. Moreover, UK may serve as a central global destination to interact with automobile manufacturing companies and establish dealership networks, thereby helping us to export the product globally. (Our major customers in Abu Dhabi, Dubai and Oman find it easy to do business in UK).

The patent box may serve as an additional tax benefit since I have a UK patent pending for the latest technology, which I filed while studying at University of Cambridge.

Tell us in brief about yourself and your team.

Swapnil Kale – Founder –I am a Stanford Management Programme and Cambridge University graduate. I am a Hardware and Networking Engineer with massive experience in Embedded Electronics design.

Technical Team:

Manfred Bosnawald – He has worked earlier with Siemens,
Austria in the Biometrics division for last 6 yrs.

Marketing Team:

Sushma and Gurmeher Bhatia (worked for 17 years in Intel, California). They look after technology marketing and licensing in Silicon Valley,
California.

Web Development ManagerShailesh Amonkar – He has 10 years experience in deploying web-based products. Specialized skills in Java and Embedded technology. Cloud-computing specialist.

Human resource– Renuka Tandon- She has been an independent HR person for TCS (Tata Consultancy Services) and Amdocs. She has 15 yrs of experience & recruits embedded engineers and the marketing team.

Is your product vitamin, pain killer or vaccine?

2014 has been a year of great momentum for software products in India and its going north in 2015. As the momentum picks up, thought of sharing some thoughts on a thumb rule that we can apply for products that we plan to build

Picking the medical analogy, the one way of classifying where your product fits in would be when you answer if your product is a vitamin, pain killer or vaccine – and how you innovate around them.

vitaminvaacine

Pain killers

The must haves are the pain killers, you can’t survive without drugs that cures fever or other painful diseases. In software products area, an equivalent is the automation software that will help you bill your customers, keep your accounts, communicate through emails, build professional or personal network etc. These are very basic, been there for a while and there is always market for these products. But the challenge with these products is that you are not the first one building it and you have tons of competitive products. A funny example I came across when a team mentioned they are building a product for traffic problem that exists in Bangalore, but the how part was not convincing enough to believe it can solve the problem. While the problem is clearly understood, and is a pain, the pain killer solution is key.

Often referred as commodity market, the only success factor here is “how” you solve the problems in a different way, leveraging latest technologies such as mobile, cloud or internet of things. Value of such products, in order to be successful, needs significant go-to-market investment. Nevertheless, if you have found the right product – market fit, there is still scope for this as everyone needs these products, as there is no question “why you need these products”, as long as you can differentiate and sell.

Vitamin

The nice to haves are vitamins, we all know that. You will agree that to sell vitamins, you really need to first establish “why you need that product”.  We do see the benefits, but we can live without it. Analytics and big data products are good examples of vitamins analogy. It would certainly help for your data driven decision making, but you need to convince someone a lot as he or she is already getting the insights in different forms, maybe through a good team that he or she has. But like how we get addicted to some vitamins, you can tend to get addicted to software products that can help businesses or life better. Also over a period of time, vitamins become pain killers as we can’t live without them. A good example for me is Google or Mobile phones or ipads. We have lived without google or mobile phones few years back, but they are no more an option. Ipads is still a vitamin, but still sells very well.

Vitamins need a different kind of expertise in your sales and go to market organization. You need experts to sell these solutions. They really need to uncover the invisible need that the buyer would have and offcourse your product needs to fulfill their aspirations by educating them. Vitamins can be sold at a very premium price if we can convince the customers.

 

While painkillers take care of the visible need, vitamins have to discover the invisible needs

productInvisibleneed

As you build products that fall in the vitamin category, it would be great to see the end vision of these products, and if they can eventually create a new category that can get into a pain killer or vaccine.

Vaccine

They are preventive; they address solutions to problems that exist today or likely to arise in the future. They are must haves, but they get into territory of unsolved problems, so if you have a solution that solves an unsolved problem or even prevents the problem to occur, they would fall into this category. Vaccines type products are real innovations – as they are needed and they can help businesses or improve life.

Business networks are a great example of vaccines, as they remove the hurdles of problems such as intercompany reconciliation or payments by cheques. Knowing your customer is great problem that exists and you want to sell the right product/services, at the right time and at right price based on what customers are seeking. If you understand the customer better, it’s a no brainer that your revenue is going to increase. Next generation customer engagement solutions are a good bet, which personally can fall into the vaccine bucket.  I was super impressed by the Health care cloud mobile products developed by Lifeplot, and many of their products certainly fall into the vaccine category as they can prevent diseases at an affordable cost.

While vaccines are game changers, they also need certain degree of convincing to sell, as the problem is not obvious to many.  One example for me in software products is digital commerce such as web and mobile. There is a huge opportunity to tap into selling in these channels and having products to support them. But it still needs to convince the buyers, as certain level of education is required for this.

Criteria Pain Killer Vitamin Vaccine 
Need Must have – Visible Nice to have – invisible Must have – Visible
Problem statement Well defined Need to be explained In certain cases defined but needs education
Main value prop to sell How its solved Why its needed How its solved and sometimes why its needed 
Sales approach Non Experts but with clear differentiators for product – market fit and lot of investment Experts required to explain value with lot of investment More education required, and once convinced less investment
Revenue and Pricing Standard Premium Standard 
Examples ERP, Emails Analytics, Messenger Business Network, Digital Commerce

 

So where does your product fit in – is it a pain killer, vitamin or vaccine ? 

 

Over seven seas: Why Indian companies are increasingly going global

NEW PRODUCT-3While there are no numbers or research on how many Indian startups have global operations, I suspect it will be a sizeable number – a number that is growing every month and every year. No longer are Indian startups content in serving merely the domestic market, this new breed of startups and entrepreneurs consider the world as their market.

This, however, is not something that has happened overnight. We see a considerable number of Indian companies like Zoho, InMobi, Zomato going global and one consistent theme is that the entrepreneurs have some sort of a global stint. A recent report said that in China, 5 out of 10 billionaires are Internet billionaires and the common thread is that they have all studied or had stints in the US.

I feel a lot of us in India have the global context, having studied or worked or having both those experiences. Global context enables us to understand what market opportunities exist and the emerging trends throughout the world. To build a global company you need to have a global perspective and you need people at the top who think that way.

The second big pointer is the evolution of the Indian IT industry. When we started the revolution of IT services in 1990s with companies like HCL, Wipro and Infosys, it was all about labour arbitrage and how to get things done in a cheaper, better and more efficient way in India. Now that story has been beaten to death and people are more aware of what services companies are doing in the context of the opportunities that exist globally. Hence, instead of being a mere back end provider, people want to move up the value chain. People understand the opportunities and are now questioning why they can’t go out and address it.

Business today is borderless and in a global economy, boundaries have blurred and opportunities can be tapped across the globe. The intermingling of cultures and people on a very large scale has meant that whenever anyone thinks of any opportunity it is very easy to think about it as a global opportunity. Previously the thought process was limited to the market size of the domestic market.

For example, when we talk about selling to the travel and hospitality industry, we think about how many hotels exist globally and how many airlines operate across the world. The globalized nature of what we do today makes it much easier to implement ideas. There may still be some friction in the system, but today it is relatively easy to have the world as your playground.

It is also the question of market size. Although the 1.2 billion dollar home market may be a very big market, operating globally gives you a much bigger market size. Take for example the fact that 300 million tourist travel domestically, but the travel and hospitality market in India is fragmented. As a result the organized hospitality industry has about 120,000 rooms. New York alone has 120,000 rooms.

For us as a B2B player, we have to go where the marketplace is more mature. India today is as small as New York for us. Globally, we have 500,000 hotels and 500 airlines cater to. Even product companies that started with a notion of serving the domestic market have now gone global. It is also the case that if you are successful overseas, the domestic market tends to you accept you faster. Druva, Zoho are very good examples of that.

The ticket size for everything is much more globally. If a company sells something for a minimum ticket size of 10,000 dollars globally in India one has to sell it for 5000 $. The cost of operation for most of these companies, whether they sell domestically or globally, remains the same and any marginal increase is the cost of sale. Just by selling overseas, even for a small incremental change in cost, the company enjoys a much larger margin. It makes much more economic sense to go overseas, which means the opportunity size is much larger.

By going global Indian companies are writing a new chapter in how the world perceives us. Many of them are the future billion dollar companies and will serve to be great ambassadors of the are “Made in India” campaign that our Prime Minister has embraced.. With every globally successful company, India is creating role models for others to emulate.

My learning from taking an idea to product to business – Sampad Swain, Instamojo

Instamojo.com was released to public on 24th April, 2012. That’s little over 2 years back. Here’s a screenshot of how it looked then with the boilerplate message:

Although, we haven’t shifted from our core vision but we definitely have learnt a lot more about who are our customers, what do they want and what should we do to make them happy which in turn will help us meet our business goals as well.

Now, here’s our homepage today in all its glory (WIP):

Along the way, we have learnt a lot about e-commerce, payments, laws & regulations, fraud detection, security, distribution & much more.

Most importantly, we learnt over a period of time how to marry design with commerce for the right final outcome for our customers (thanks to@sengupta and @kingsidharth)

Shameless promotion: Today, Instamojo.com has one of the highest payment conversion rates in the e-commerce industry.

1. Idea phase

We never spent much time on perfecting from the start. Main idea was to release the product to an initial set of customers quickly (we took around 3 week’s time); then start iterating vigorously based on that feedback. However, we never got distracted by others’ worldview of our product vision. So, we took that as an opportunity to learn and shape it accordingly.

Our initial estimate was, let’s build 80% of our core promise and iterate at a supersonic speed. Hence, lot of our core technology decisions was around this hypothesis like choosing Heroku over Amazon AWS for faster deployments & freeing engineering bandwidth (thanks to @hiway). However, we recently shifted over core infrastructure to AWS (thanks to @saiprasadch) since at scale it works best, both economically & reliability point of view.

Also from business point of view, we decided we will never chase moving targets (learning from our previous pivot). In simpler words, we narrowed down our focus & made decision making process almost binary. That, in a way set forth our straightforward, no-nonsense, more data-driven culture from day 1 which we keep following across functions (much thanks to@gehani).

2. Product building phase

This is the most exciting phase of any startup. But truth be told that this phase is also the most treacherous too.

I’ve known many smart founders fall in the trap of loving their product way too much (including me in my last startup) and slowly decay to oblivion even before reaching the business phase.

I think this is due to the fact that technical founders find this phase most apt to their persona i.e. building, hacking without much interaction with customer(s). Hence, they fall into the trap of just building and not selling or interacting with customers enough to understand what should be built & what shouldn’t.

We at Instamojo heavily relied on past data to help us cross this phase. Fortunately, we had got some customers who kept us on our toes to keep improving the product and add more. While at it, we kept on charting our product road-map into 3 buckets:

  1. Reach
  2. Revenue
  3. Retention

And depending on the impact of each bucket to the business then, we decided our product road-map.

During this phase, we released 25+ big features in 9 months depending on each bucket’s impact on the business & customer-set, thus balancing both growth in business metrics & customer development.

3. Business building phase

This phase, according to me is the most hardest phase; and one we are experiencing. In this phase, we get to hear good’ol phrases like “good problems to have than having none” which frankly is so true.

This phase is all about numbers (for both internal & external stakeholders) like

  • Figuring out all possible customer acquisition channels (both paid & non-paid).
  • Market sizing with absolute TAM (target addressable market) etc.

In simpler terms, business phase is all about growth:

  1. Growth in revenue metrics
  2. Growth in user acquisition metrics
  3. Growth in ________________ (fill in the blanks for your business)

We at Instamojo are experiencing this from all corners. We grew almost +10X in last 6 months in all possible business metrics. We finally hired our 1st full-time sales person last month. We are growing at a rate of almost 1 hire every 2 weeks across engineering, sales, operations, risk/safety, marketing etc functions (P.S. if you’re interested, here’s our careers page).

Closing words

Growth” is any startup’s much needed oxygen. But I couldn’t stress more on the fact that with scale comes newer issues, more responsibilities, pressure to deliver always etc. However in my opinion, the fundamentals of growth has to be laid down much before the “business phase” with clear focus on long-term sustenance.

We at Instamojo tackle these with being completely clear about our “big vision” and “what we stand for” to start with.

So over-communication is a great tool to garner more steam and momentum, so that we have less time to worry and more time to build against odds.

Reblogged from Sampad Swain’s blog.

Have you seen a large ship going down? I have, from close.

Polaroid Corp was a great company. Its instant photography technology ruled the world for 70 years. It served presidents, leaders, businessmen and even common people – it was the only way to take an instant picture (a position taken over by the mobile phone post 2007). It had some of the best talent, great chemical engineering skills, manufacturing plants, distribution and experience in selling photographic products.

When I joined Polaroid, it had a problem. Its revenues had been flat at $2.1 billion for nearly 3 years. A new technology – digital camera – was making inroads into photography and a upstart called Adobe was riding a popular wave, on the back of an editing software called Photoshop. Within a week of joining as head of the software team at the India office, I was at its HQ – it was a grand office, old-world teak panelled, lined with glorious Renaissance Art, reeking of tradition and quite intimidating for a newbie!

8:00 am sharp we were in its massive board room, 10-12 senior managers with the CTO chairing the meeting, huddled over the Question – what should Polaroid do to compete with the digital camera threat ? The options on the table were a kiosk, an instant, digital camera, a digital camera with an instant printer, the instance camera with a digital storage, AND consumer friendly software to target hobbyists. SWAT teams had been assigned the task of researching each option and present their research, insights, analysis and recommendations. Then we would have a brainstorming session and short-list two candidates that could be presented to the management team.

As each team presented its report, I was impressed with their in-depth study of the problem, the technology landscape, the challenges, risks – it was very professional and I was happy to have joined such a team. They talked all the right talk – customer engagement, service, innovation, simplicity, fun, lower costs, ecosystem, partnership, leverage the brand – every management jargon you can think of (in the context of ideation) was perhaps mentioned.

Yet – there was a big problem. After clearly establishing that digital technologies were a disruptive force, with a significant growth potential, all the teams tried to answer the question – “How can this help Polaroid sell more film?” All their ideas, at this point, moved from the exciting to the complexities of trying to marry film with digital. How can we add an instant printer to the kiosk? Can a digital instant camera process film and store digital at the same time? Can a digital film be created? Each team came up with innovative, but complex ways to address this.

Since I was a new hire, with some fancy education and smart ideas (at least the CTO thought so when he hired me), I was asked to give my comments as we got started into the brainstorming. So, I started by asking the obvious question bubbling in my mind – “Can I ask why it is important for a digital product to sell film?” – it was as if I had dropped a bomb! The silence in the room was prophetic. It was as if a naxalite had been dropped into Lehman Brothers board-room. VPs looked at each other and the CTO, as if asking – “is this the bright guy you’ve hired?”

The CTO, a 60+ senior veteran, having seen many young bulls off, told me politely – “film is our unique strength. Film is where we are leaders. Film is how we make money. Film is what Polaroid is all about”. That should have shut me up, but as some of you know, I can be argumentative when I want to. So I told the board-room why digital, in my view, was a complete new technology – easier, cheaper, more fungible than film and in fact it would disrupt the film completely. Why we should build a digital only business and make money in completely new ways – software, storage and sharing.

In the discussions that followed, many people complimented me for my insights and said they were happy to see that “we have a good leader in India”. But the discussions for nearly half a day were around, you got it – “film”. When you put 10 engineers on a problem with a hard constraint, they will find 10 new ways to solve the problem, and they will love each one of their solutions, its given! Not one person in the room, with many years of experience, challenged the notion that film was not needed for a digital economy and that force fitting film was just going to make it hard for the consumer, which would likely get rejected in the market.

Later, at dinner that day, the CTO shared another piece of insight – ‘We are Polaroid”, he said. We cant do things that small companies like Adobe are doing. We will do it the Polaroid way. I accepted his wisdom as he was more experienced, celebrated, richer and he was my boss! In 6 months, I heard that Adobe was setting up its campus in India and I jumped across to the young upstart. The CTO tried his best to retain me back and asked me what would help change my mind – “you have to become a digital company, sir. I don’t see that happening if all of the company is chasing film”.

In the next 5 years, Polaroid invested significant profits to build these instant, digital products. Not once did they think of digital-only as an option. They continued to dismiss internal voices and the traditional, high-margin film business continued to be the black hole for ideas. The revenue stayed flat at $2.1 billion. In another 2 years, the profits from the film business fell off the cliff, digital had taken over the world.

In 2008, Polaroid filed for bankruptcy.

Moral of the story – Large ships go down when they are obsessed about their past and ignore the present and the future.

Piracy and freemium killed the Indian software buyer

Nobody in India buys software.

If the above sentence draws your attention, read on! If you are based out of India, think of the last time you bought software (yes packaged products). Now think of all your friends and guess when they bought software. Now, here’s the clincher, “When was the last time you bought software made in India?”. 99% of the people, irrespective of their socio-economic status will respond in the negative. lr-processed-0399

Product evangelists will now talk about the cloud/SaaS and the subscription economy, and how it is the great leveler when it comes to software products. As an entrepreneur selling a SaaS software in India, let me be the first to tell you that it is really hard work. Most entrepreneurs have told me that the Indian customer is price sensitive, I say, a majority of them are insensitive. Now don’t get me wrong. I don’t wish to rant. I am trying to catalog and present reasons why selling SaaS software is hard. Here’s what I think it is:

Let’s talk a little bit about the Indian software market

In the last two decades, India has seen two revolutions which helped create a large software market. Firstly, the economic deregulation in the 90s which enabled a steady growth of the economy, disposable income and import of technology. Secondly, the telecom, and subsequently the PC and mobile revolution that has created a (supposedly) large software consumption market. PCs, Laptops and tablets are now commonplace in Urban and Semi-urban India and the latest numbers indicate 15 Million broadband and about 100 Million mobile internet users. A look at these gargantuan numbers and you might begin to assume a large consumption market, but to give you a sense of reality, let me ask you the same question one of my mentors asked me – “Name 5 large Indian software product brands selling in the Indian market”

Enterprise software is probably your best bet

If you are selling software, the enterprise market is probably your best bet. Bharat Goenka, co-founder of Tally solutions, said that “In developed economies, SMBs act like enterprises and in emerging economies, SMBs act like consumers“[2]. Many of our customers are SMBs who are looking to use technology to grow some component of their business. And most of the times, we don’t deal with the company, but with empowered employees. The ones who have a budget at their disposal and are forward looking in their outlook. What we found was that the same stigma that existed in the 70s and 80s in the US software markets exists in the Indian SME customers of today. A lot of them look at software as something that will displace them in the organization and are extremely defensive in the matters of adoption. But we all know how that worked out in the US and UK markets and I am hoping India follows a similar trend.

Oh wow! I never knew you could do this

A lot of people we have met have been genuinely surprised at what our product does. It’s tough to manage these customers because we spend a lot of our acquisition time on sensitizing them about the problem before we present the solution. Even if you are doing something radically new, it is easier to bucket yourself into a genre that is popular and accepted. For example, we are a customer conversations player, but it helps if we refer to ourselves as a Social CRM or a marketing insights product. Ignorance about a genre of products has a big pitfall – customers don’t know how much to pay for the solution. This is really tricky because it usually leads to a customer deliberating on paying for the solution.

“But we can do this for free on Google”

Freemium is both a good and bad thing. Almost every customer of ours expects a free trial for a few days. In the products eco-system it’s become a norm,  but a lot of productized service companies I know have been asked for a free trial on bespoke software. Most users don’t understand the price they are paying when using services like Google or Facebook and usually expect the same when we tell them about our “use on the browser” service. Usually this means we have to get into a lengthy explanation about  why our product costs so much. The best experience I have had was when a customer, who understood the online advertising economy, asked us if he could use an ad supported model of our service for free!

Freemium might be a viable option early on but when looking at growth and scale, I don’t believe freemium is a sustainable economic model. It is a marketing tactic at best!

“muHive crack codes”

One morning, while peering through our website analytics, we were surprised to find a search keyword “muHive crack codes” in the list. This was a good and a bad thing: good because some customer actually found our service good enough to look for a cracked edition, and bad because we knew this customer wouldn’t pay. And yes, if it’s crack worthy, then it is probably good software – that’s the Indian psyche. Industry estimates put the total value of pirated software used in India to be upwards of $50 Billion[3]. Why won’t we pay for software? That’s a long post in itself, but to be brief: piracy was not controlled in the early days of the PC revolution and hence the assumption that software is free. Also, cost of software has always been calculated based on the affordability and costs in developed markets. To illustrate my point, I will end this section with a question – If Microsoft Windows were to cost Rs 1000 instead of $149 (Rs 9000) would the piracy numbers be different?

The pricing slope

Researchers put the Indian middle class at earning $10/day or roughly $300/month. To give you an estimate of why this matters, the urban poverty line stands at $14/month – yes, a month. The Indian middle class is about 100 million people and $300 per month usually supports 2 to 3 people on an average. Now when you think in these terms, you can imagine what the cost of ownership of a $149 software sounds like. Add the fact that software is a non-tangible artifact and you understand why Indian customers are extremely cautious when it comes to software purchases.

Even with enterprise customers, your pricing strategy has to be “just right”. And you have to account for discounts. A majority of the Indian customers we meet ask for some form of special pricing. Now, this might not be a trait which is unique to the Indian market, but understanding the cultural and economic context of the demographic becomes very essential when it comes to pricing. Marketers talk about using tricks like prepaid accounts (India has a large prepaid mobile subscriber base), daily subscription and data based pricing but all of them have the underlying assumption that the customer is willing to pay and understands the cost of the solution.

In conclusion

All these are what we have found to be the issues with selling software in India. Even though we have good answers to some of the questions our customers pose, in my opinion, it will still take a long time for the Indian software buyer to evolve and for good product companies to make a mark. Rather than end on a dismal note, I will now list down what actually seems to be working for us, and also some insights from other producteers.

– Customer don’t mind paying for bundled software. Hardware, especially mobiles and tablets might actually help in software sales.

– Customers will pay for immediate utility. What someone referred to as “First order business” solutions; meaning something that can make them more money instantly. Example: Email and SMS marketing solutions. Customers don’t mind paying for advertising and reach.

– Customers usually pay when they feel they are missing out on revenue or an opportunity. A loss averse technique to selling is what we have seen work best.

References: