#StartupIndia Action Plan — Reactions from a “normal startup”

Last weekend witnessed a glitzy startup event. In many ways, this event was like every other startup event in India — founders of “unicorn” startups dispensing gyaan to the rest of us mortals interspersed by some disinterested folks featuring in hackneyed panel discussions on done-to-death topics in front of an uninterested audience who had suddenly rediscovered the hidden joys buried deep in their smart phones.

There was one difference though — the final keynote of the day was delivered by none other than the Prime Minister of the country where he drew up what was purported to be an action plan for Indian startups.

Predictably, this was followed by universal approbation and politically-correct reactions from our startup luminaries who declared this as a momentous day only marginally less important than the Second Coming.

Out of these, one quip stood out for me.

Vijay Shekhar Sharma, the founder of Paytm had this to say:

“The announcements by the government were more than what a normal start-up would have expected”

I am not quite sure what this “normal startup” that Vijay alluded to exactly is but if I were to hazard a guess, it probably means an average joe workhorse startup — one that is far from being a unicorn (like the one that Vijay himself runs) and has no rockstar founders, hedge-fund investors or nose-bleed valuations to boast of.

As it turns out, I run a company that qualifies precisely for being called a “normal startup”.

And for what it’s worth, these are my expectations around the aspects addressed in the announcements:

I don’t expect to be subject to a new “permit raj”

Apparently, to decide who can avail of some of the envisaged benefits, an Inter-Ministerial Board will be set up that will get to decide if a particular company is a startup or not.

As those of us who grew up in the “licence raj” pre-liberalization era will readily testify, requiring to be gated by a government-sanctioned body to avail of any benefits or privileges is the first step down a slippery road that leads to abuses and rent-seeking behaviours of all kinds.

I have no desire or inclination to run down the “permit raj” gauntlet again.

If at all, a set of gating criteria is unavoidable, they should have been simple and empirically demonstrable rather than having to depend on the whims of a board of any kind.

I don’t expect the government to become a VC or LP that chooses winners

The government has announced a corpus of Rs. 10,000 crore structured as a “fund of funds” that will be disbursed over a period of four years.

I am not sure if this is a fresh initiative or the same Rs.10,000 crore fund that was announced two years back — and of which, I have heard precious little since.

In any case, I have no idea why the government feels that it needs to support the Indian startup ecosystem with direct funding. It is not as if there is a dearth of capital for startups currently — billions of dollars of VC money was invested last year and most people in the know will tell you that there is 10X more money that is waiting on the sidelines to enter the country. All of these funds are run by professional investors who have a well-informed hypothesis on why they should invest in India and specifically in chosen Indian startups.

But it is, admittedly, high-risk capital — a high-stakes game of startup roulette operating under an extreme power law (a small percentage of “winners” will end up delivering more than 90% of the returns).

This is a game that the government has no business playing. Not just because it doesn’t have the skills or risk appetite of professional investors but also because it shouldn’t be in the business of choosing winners in any form — something that yet again can leads to all kinds of rent-seeking behaviours and cronyism.

I don’t expect tax waivers or hand-outs for my startup or my investors

Two of the announcements made are around taxation — firstly, startups who are vetted by the Inter-Ministerial Board are exempt from paying income tax for three years and secondly, any long-term capital gains will be exempt from tax if you invest it into the government’s “fund of funds”.

I am really curious what made the government to offer tax exemption —does it feel that Indian startups are incapable of competing on their own without these kind of sops?

As far as I know, no self-respecting startup entrepreneur would expect this type of hand-out. I, for one, would have no problems with paying the stipulated taxes as mandated by the law of the land in which my startup operates.

If this is an attempt to recreate the IT-services boom which ostensibly benefited from zero tax on export income, then it is an ill-considered and retrograde move.

Tax incentives artificially mask the inadequacies of the companies who require such hand-outs and this move gives out a signal that startups are not capable of competing in a free market without this kind of government support to boost their margins and returns.

Also, as and when these incentives play out their life cycle, it leads to drastic pushbacks and over-compensatory normalizations that defeat the basic purpose of the original incentive.

Finally, tax incentives inevitably lead to distortions and abuse — while “good” startups require no such hand-out from the government, “bad” startups — those set up to explicitly exploit these types of schemes for nefarious purposes such as money-laundering — will prosper. A classic case of adverse selection.

As far as exemption on capital gains go, this is again an artificial inducement that is more likely to throw up bad results than good — if people invest in startups simply because they can save on their capital gain tax, it is a very bad reason to invest! Angel investing is not for all and certainly not for the faint-hearted.

I don’t expect the government to make it easier for folks to start up

Under the proposed action plan, it would apparently be possible for folks to start up in a single day through a mobile app.

I am a loss to understand why this is useful or valuable and see this primarily as showboating (why a mobile app for instance?).

Is this an attempt to improve our ranking in the “ease of doing business” index?

Singapore is currently ranked one of the top-ranked countries in this index and it takes two-three weeks for you to completely set up your startup there. This is not significantly different from the time taken in India — what’s more, most of this can easily be outsourced and doesn’t really take up much of the entrepreneur’s time.

In any case, this is an activity that a startup has to go through just once in it’s lifetime — contrast this with the recurring reporting overheads that a startup has to face thereafter with assorted tax and labor departments which are far more taxing and cumbersome.

Finally, on a somewhat philosophical note, I am not quite sure why starting up should be a trivially easy operation — having some “pain” in this aspect is actually a good thing as it could filter out some of the folks who are not really cut out to be entrepreneurs in the first place! The current system is therefore a positive aspect as it is self-selecting.

I do agree that it should be easier to shut down companies but from what I understand, a bill addressing this is already pending before Parliament and the action plan doesn’t offer anything new in this regard. Also, this step is more useful to investors than to entrepreneurs themselves, so it is somewhat orthogonal to a plan that is targeted towards startups.

The others…

Now I have been running startups for a while and so, some of the points mentioned don’t apply to me as they target newbies.

I am not convinced that the government operating startup hubs and supporting incubation centers is a step in the right direction — the bottleneck in enablers like this has never been around infrastructure but rather on having the right mentors and guides. Nothing in the announcement contours suggested that this key gap is the one that the government is cognizant of attempting to fill.

For other announcements — such as self-certified compliance and subsidized patent filings, the devil is in the details and it would be premature to judge these one way or the other today.

What I actually expect…

So, as a “normal startup”, what do I actually expect?

This is what I would expect:

Boost sentiment by having a predictable policy regime

A lot of startups in my peer group have re-domiciled to Singapore. Nothing that has been announced in this plan will make any of these companies to reconsider the move.

These startups have moved to Singapore primarily because global investors see India as an unpredictable place to do business. Unfortunately, these sentiments are well-founded .

Take the illustrative example of a global major that acqui-hired a small Indian startup for what was essentially a rounding error in their balance-sheet — the actual acquisition was dragged on for over a year and the amount stuck in a holding account as the acquirer was made to run from pillar to post to explain why the value of the IP acquired was fair. This global major has now sworn off acquiring any more Indian startups!

Or take the example of companies like Flipkart that have had to migrate to Singapore because the policies around FDI in e-commerce are murky and/or inimical.

Unless the government address these structural issues around business and taxation policies at a fundamental level not restricted merely to startups, the state of things is unlikely to change.

Be a proactive customer to Indian startups

Rather than being a defensive regulator, the government should consider morphing into a proactive enabler that supports Indian startups — for instance, by being a customer for the products and services offered by us. The action plan does mention a few steps in this direction but the patronage mentioned extend only to manufacturing firms who are already in line to leverage the 20% procurement mandate for PSUs and others.

Double down on building out internet connectivity infrastructure

While a large portion of the Indian populace have come online over the last few years, there are still large swathes who are not connected. If large companies like Flipkart could be created on the back of 100 million Indians online, imagine how many behemoths could emerge from 500 million Indians being online!

Epilogue

As someone who runs a normal startup in India, I already am all too aware of the myriad risks and challenges of trying to build a world-class company out of here.

But none of this fazes me.

As an Indian, this is something that I signed up for with my eyes fully open.

I see the government’s announcement as a signal that it recognizes Indian startups as an engine for innovation and non-linear growth and am grateful for this “intent”.

That said, I would love to see the policies and execution around this intent to be done on the back of substantive discussions with Indian startups and representative bodies like iSpirt.

Only then can this intent translate into something meaningful beyond a superficial fest of circle-jerking and premature declarations of victory.

Redefining Email Collaboration: The Grexit story!

Innovation comes from myriad sources – in this case Niraj and his team has come up with an innovative product to tackle the common organizational challenges of email overload (often leading to lowered productivity) and lack of easy cross-functional collaboration tools. In this article, we speak to Niraj, Co-Founder of Grexit about his background, motivation to start-up, and his experience and learnings from his startup journey.

grexit-home

PN: Brief Introduction of Co-founders, their background

Niraj – B.Tech in electronics from IIT Kharagpur, 2002 batch, initially worked with Mentor Graphics writing compilers in C/C++ till 2007. Then he started his first venture mobicules.com – which ended up being a 30 people services firm building apps for customers mostly in the US. In early 2011, Niraj moved on to start GrexIt.

Nitesh – B.Tech in CSE from IIT Kharagpur, 2007 batch was first employee to join Niraj’s last venture mobicules.com right out of college. Nitesh started GrexIt together with Niraj as a co-founder in early 2011.

PN: Niraj recalls about his motivation to address the challenges in workplace-collaboration 

“Collaborating effectively with the team and with customers was a problem that we had faced right from our days running our previous venture. While we had used a lot of collaboration tools, getting everyone to adopt to tools was a challenge. The communication was all on email, and we thought what if we can build a system that lets team stay in email and still work efficiently without any confusion.”

That led to the first iteration of GrexIt. It was tool that would let users save email conversations into a shared email repository. It was a great way to store information about projects, customers, job applicants etc. in a central place.

PN: One of the essentials while starting up is having a strong founding team – the one rightly aligned with addressing the problem in hand. Niraj shares his thoughts on his founding-team and initial days of the product. 

Nitesh and I had worked together for 3.5 years when we decided to use GrexIt, and we felt we could work very well. So putting together the founding team was not a problem at all. We also joined the Morpheus accelerator, and we got a lot of friendly advice from the people at Morpheus. We just focused on building a high quality product that worked flawlessly. We were hardly thinking of anything else.

We raised a round of investment from Citrix Startup Accelerator and Vijay Shekhar Sharma in late 2011. That helped us go faster on the product. In mid 2012, with a deeper understanding of the market, we pivoted to our current product, started charging for it, and started getting customers.

PN: In the software product startups, technology is the quintessential central-brain in the startup. Niraj speaks on the importance of tech and the critical-role it plays in his startup.

Tech is the lifeblood of our business. Our 6 people team, including founders, is all tech oriented. Our product helps businesses run on a day to day basis, because it helps them manage projects, customer support etc., and so it is very critical for them. Having a strong tech team is important to ensure that the product keeps working and scaling well.

We have been able to attract a very good team, mostly because we have the kind of work that would excite good programmers, and because we have received very good international coverage. We also make sure that we have a work environment that gives talented people the opportunity to do their best. We have no fixed timings, you can work from anywhere you want, and we don’t have a leave policy which means we don’t restrict the number of leaves you take. We have learnt that putting faith in your employees creates reciprocal goodwill too.

As I mentioned earlier, our product version 1 which we released in 2011 was a system that would let users move email conversations into a shared repository. We started getting paying customers for this in mid 2012, but then we figured out that instead of letting users create knowledge bases, we need to build something that will help them completely solve business problems like customer support and project management.

That led us to our current set of functionality, and when released that in 2012, we started getting new users for this rapidly. That was a strong signal for us to pivot to the new functionality. 

PN: Neeraj speaks on marketing the product, getting initial customers and on-boarding them with the product:

We started getting initial customers through Google organic search and from the Google Apps marketplace. As it turned out, what we had built had a very good fit with a certain segment of users who were looking for collaborative solutions on top of Gmail. They could discover us easily through search, and started signing up for trials.

We worked hard on engaging them through email and our chat support. User feedback helped us a lot in fine-tuning and improving our product. By the start of 2013, we had a very strong product, mostly because we got excellent feedback, and worked on executing it fast.

PN: Scaling up – “Don’t add programmers – add servers

We have a saying at GrexIt – “Don’t add programmers – add servers”.

We have been able to support the growth in customers base by scaling and enhancing the product without increasing our team size much. We recently launched another product – Mailflo.io – based on our learnings from GrexIt, and we still have enough bandwidth to maintain and enhance two products.

Going forward, we plan to keep our dev team extremely lean, and hire mostly in sales and marketing profile.

PN: Niraj speaks on current challenges and how the team is successfully tackling those challenges.

In first year – getting users to sign up, engaging them, getting feedback, and iterating fast enough. And – being able to deal with the frustration when not enough users were coming in and we were feeling as if we were in a vacuum.

Now – Scaling the customer base. Hiring a high quality marketing team that can do world class inbound marketing.  We also provide free trials (through our online page) so that customers can try out the product once before making the purchase

PN: Niraj shares his view on one thing about his startup which he wished, should had been done differently in past

In 2011, we spent a good amount of time trying to sell to very large organisations locally, ran into a lot of roadblocks, and lost a lot of time. If I were to do it again, I’d focus from day one on selling to SMEs globally, and not to large organisations locally. The dynamics of SAAS are very suited to selling to SMEs globally, and every SAAS company should work on cracking this piece of the market first, IMHO.

PN: Neeraj shares his views on ecosystem in India and the changes he looks forward to. 

Since we started, the ecosystem has evolved a lot. There are lots of SAAS/cloud startups around trying to sell globally. That’s heartening. Its also great to see a lot of seed/angel rounds happening.

Happy B’day ProductNation, We are One year Young

Yesterday is gone. Tomorrow has not yet come. We have only today. Let us begin. ― Mother Teresa.

ProductNation is today, one year young. Yes! One year. It didn’t seem too long ago when I was contemplating putting a blog together to showcase Indian Product companies. It all started as a passion project at the One97 office with the support of Vijay Shekhar Sharma; it was something I wanted to do for a long time. Having worked for almost eight years with the Product eco-system, I wanted to connect and contribute in a small way to the project building India as a ProductNation. I wanted to build something which allowed product people to share their experiences. I did bounce off the idea with a few of my friends, evangelists of the Product Industry and I had spontaneous commitment from many of them.

I always like to read and understand the successes of product entrepreneurs, which include some inspiring stories, the challenges faced by them and how they have been able to address global markets. These are the stories which will inspire a new generation of product companies from India, and indeed, it’s been a wonderful journey, for me personally, as well as for the people who have been involved. 

Here’s what ProductNation is today – 

  • We are home to 400-odd blog posts here in 50+ categories such as Product Management, Reviews of Products, Design, Eco-system, Funding, GotoMarketing and so on.
  • We have featured 110+ product companies on the site.
  • We do 5 blogs every week – Monday to Friday at 11am and once in a while do a blog on Saturdays.
  • There are 75+ contributors who actively contribute articles and share their own learning’s here. Many of them help me do the Product Reviews, interviews with Product Companies and the like.
  • We have started #PNHangouts where we have conversations with Product Managers.
  • We started out with sending newsletters twice a month, but now with so much of content coming up, we schedule the newsletters thrice a month (5th, 15th and 25th).  You can access the past issues here and subscribe to the newsletter here. We have sent out 53+ newsletters so far
  • We have 80+ Posts on Product Management
  • 18+ Playbook RoundTables which have been covered on the site
  • A vibrant community with 500+ members and 50+ conversations
  • More to come…stay tuned 🙂

 

ProductNation is the result of a collective effort, and I’m grateful to all the evangelists who have spent enormous efforts in contributing and in making what ProductNation is today! When I started, it was just me and my passion. Today, I have a large “virtual” team and many evangelists who truly believe in the movement. I do get many people who compliment me on the content and the regular updates that they get from the site. There are many who are silently observing the movement and I’m sure will jump in soon. 

ProductNation was one of the first steps in the formation of iSPIRT(Indian Software Product Industry RoundTable) – a think-tank with a difference to transform India into a hub for new generation software products. So here’s the deal. We need to put India on the global software product map. We need to do it soon. Come, join us.