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“Bootstrapping is tough. Most of the time things take three times longer than what we think. The only way to enjoy this journey is to absolutely love what you do. That is what sustains you.” – Rushabh, ERPNext

Continuing our journey to bring to limelight bootstrapped entrepreneurs from India, we got a chance to speak with Rushabh Mehta, Founder of Web Notes Technologies, a software product company that publishes a free and open source web based ERP called ERPNext for small and medium businesses. Built by a small team of 8 people, ERPNext has more than 250 paying customers and has also been included in Winners List of BOSSIE (World’s best Open Source Applications of 2013) Awards. Here is the transcript from the interview:

Tell us more about the journey of starting ERPNext. 

I have been a software hobbyist, coding and developing software for fun since my school days. I graduated with a Masters in Industrial Engineering from Penn State University, US in 2004 and soon joined our family business. At that time the business was undergoing a transformation and we were trying to set up a custom ERP system to integrate Sales, Purchasing, Inventory and Accounting. I took ownership of the implementation and that experience gave me the first taste of ERP platforms.

Soon after that experience, I started a services company with a friend and delivered multiple software projects for clients but that journey didn’t continue for long as my heart was in building products. I shut down the venture and moved on to start Web Notes Technologies in 2008 to build a free and open source web based ERP product.

How did you fund the business while bootstrapping? Did you ever consider raising capital from investors? 

During the time when I was starting Web Notes, my family exited our family business and had some funds in hand. I borrowed some of those funds and that gave us the initial breathing space. We also delivered services for few initial years to keep us going.

Once we decided to focus only on building products, we took many measures to sustain ourselves financially. We brought our team size down from 18 to 5. It was a difficult move but was essential to ensure we don’t burn out quickly. We also removed sales and marketing and instead focused all our efforts on product development. We hired fresher graduates to keep the salary expenses under control.

I did try raising funds but due to the nature of business, was not very successful. ERPNext is a specific mission critical product and it was not that easy to find a good market fit in the start. Also there weren’t many companies in the same space to compare us with. All this made the business not seem that attractive to investors.

How did you build your team at a stage when revenues had not started flowing in yet? What motivated those people to join you? 

Most of our initial team joined us because of the work we were doing. We were building an open source product and that attracted people to join us as there weren’t many such opportunities available elsewhere. On a funny note, one person we interviewed also said that he checked our website and got an impression that we are a large firm! Probably having a good face online helped. Ha ha .

The initial years were quite difficult. We didn’t have any mentors and were not sure what to do next. We got all our feedback from customers and learnt how to build quality software. As Malcolm Gladwell says, success in any field comes when one invests 10,000 hours on it. As a team, we are walking through that journey of 10,000 hours and falling down and learning in the process. This journey is what keeps us together. Our initial 5 hires are still with us and that says a lot.

Marketing is another area that requires a lot of investment. You have reached 250+ paid customers with zero marketing and no sales team. Tell us more about how you managed marketing.

Information asymmetry is reducing fast. Now, there is no need to take the help of traditional media. If the product is good, word does go out. “Viral” is the new buzz word.

As a bootstrapping company, the marketing options are very less. In the initial days, we set up stalls and booths in different exhibitions and events to reach out to customers. We received our initial feedback from there and reworked on the product. It has been a slow and organic growth for us. But we were clear that we never wanted to push our products to customers. Once we gained some initial customers and delivered quality products, we got referred to new customers and the chain continued.

The open source aspect of our product also attracted many customers as there were not many open source ERP products in the market. Our competitive pricing was another attractive factor. ERPNext is available at 30,000 INR/ year and most customers usually have a budget 10 times that amount. Since we are focused on quantity i.e acquiring large number of customers, this low price strategy really helps us get the foot in the door.

Another advantage VCs bring in is the guidance on building the business. As a bootstrapped company, how did you make up for these? 

As a bootstrapped company, we are left on our own. Not having mentors was an issue. I do feel we lost a few years. However, I have been trying to learn from each and every source I get my hands on. I read blogs, hacker news and also learn from other companies. For example, we are highly inspired by the design, philosophy and writing of 37signals, not to mention their products which are just amazing. We think that they, and not SalesForce, are the true pioneers of web applications. We love the quality, reliability and technology of GitHub, which has re-invented the way Open Source software is written and shared on the Internet. We try to learn from the design, quality and vision of Apple. They have set the benchmark of engineering and we hope we can understand and use some of their focus and attention to detail. And last but not the least, WordPress (and Automattic, the company behind wordpress) has provided us with a template of how an Open Source business should be built. Whenever we are in doubt in terms of taking business decisions, we find asking ourselves, what WordPress would do. There is no dearth of inspiration. One just needs to look around. These and many such companies have been our mentors indirectly.

Looking back do you think you should have raised angel or VC capital instead of bootstrapping? In what way has bootstrapping worked in your favor and what opportunities do you think you missed out on because of not raising external capital? 

There is no right way to answer this. Both bootstrapping and raising external funds have their own advantages.

Because we followed a bootstrapped journey, our confidence is very high. We have gone through the whole process of transforming into a matured business. We are able to judge things better as we have seen the extremes. And we still have our independence.

On the other side, we do fell that as a bootstrapped business, we often miss out on the glitz and glamour that surrounds the well funded businesses. We also miss the whole package that comes with investors – the funds, contacts and advisory.

But at the end of it I feel that in the current world there is so much a single person can do without any external help. Take the example of Salman Khan of Khan Academy. It is so inspiring to see the way he has built his business single handedly. He did not employ an army of people to make his videos. He created close to 3000 videos, using his own personal skills and technology. Nowadays there are so many tools available that eventually capital driven growth might become irrelevant.

We are proud to say that over the last 3 years, we have been growing 100% every year in terms of revenue and we have reached this stage purely bootstrapping our way up.

ERPNextFrom your own experience, what advice do you have for start-ups who are currently bootstrapping? 

The key question one needs to ask themselves is how they are going to sustain themselves as they are clocking their 10,000 hours towards building their product.  It could take 3 years or could also take 7-8 years. Most of the time things take three times longer than what we think.  There is no magic bullet and one is not going to get discovered on their own. They need to take one step at a time.

The only way to enjoy this journey is to absolutely love what you do. That is what sustains you.

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As I spoke to Rushabh, I could sense his enthusiasm and passion towards his product. Their team sure is deriving their inspiration and learning from other companies but it is not very far when they are going to inspire others on how to bootstrap and build a successful business from scratch. ProductNation wishes Rushabh and his team a successful journey ahead.

 

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Bootstrapping is certainly possible until and unless the business model requires exponential growth in a short span of time, Nikhil Nath – CEO, Knowcross #BootUpINDIA

Last week I got a chance to speak with Nikhil Nath, Founder and CEO of Knowcross that provides technology solutions to leading hotels of the world in over 30 countries. Started in 2002, Knowcross has built a range of smart and intelligent products that address specific problems of running Hotel operations. From systems that allow Hotel staff to quickly respond to complaints raised by guests through careful assignment and tracking to systems that turn the manual Housekeeping nightmare into a smooth process by mathematically calculating which room needs to be cleaned when based on real time data such as check-out time, expected check-in time, room moves etc. This product called Know Housekeeping was listed as one of the top seven mobility products in India after an exhaustive assessment by Frost & Sullivan. They also have a product that allows staff to make-up for services failures and missing guest expectations by alerting them in real time and giving them a chance to make a goodwill gesture and increase loyalty.

Each of the products Knowcross offers seems to be extremely well thought out and is solving real problems hotels face in their day to day operations. No wonder they boast of customers such as Kempinski, Hyatt, Oberoi, IHG, Hilton, Sofitel, Taj, Swissôtel, Shangri-La, Radisson, Rosewood, Dusit Thani, to name a few of their chain customers, and marquee independents like the Ritz Paris, Le Bristol Paris, and The Halkin London.

KnowcrossAfter the hour long interview, I was left completely inspired listening to the journey of starting and growing Knowcross. Here is the compilation of the interview for you learn more about Nikhil’s journey of building Knowcross.

Tell us about Knowcross.

At Knowcross, we offer a suite of products for the Hotel Industry.  We started in 2002 with our first product, a rapid response system to resolve guest complaints in time, every time. This was our main product until 3 years ago. As we thought of expanding our offerings, we had two choices – either to grow horizontally by offering the same solution to other industries or to go vertical by providing more solutions to the Hotel industry. We decided to go vertical as we had developed a deep expertise and understanding of the Hotel Industry and it made more sense to leverage that learning.

We looked for other problem areas in the Hotel industry and came up with three other products – that are now known as Know Housekeeping, Know Glitch, and Know Mobile. These products eliminate much of the manual communication and chaos that currently exists in hotel operations and have a direct impact on staff productivity and guest satisfaction.

Take us through your journey of starting Knowcross.

We started by accident. In my early teens I was an avid self-taught programmer – and honed by skills on Sinclair Spectrums, Commodores, and BBC Micros computers. However, I left this passion to pursue a more traditional Economics-MBA-Banking-Consulting career path…until life came full circle!  In 2002, a friend and I were doodling around and we put some developers together to work on different software projects. Because of the dotcom bust the market soon dried up. One of the projects we worked on was for a hotel. That experience got us interested in the space and we ended up developing a product. We created a few prototypes, went out to the market and got some positive early reactions. That gave us the encouragement we needed to continue in the space. In hindsight, I think we selectively saw the data we wanted to support our belief and desire to continue developing the product!

With a team of four, we built a product and started approaching potential customers. We implemented the product for a Radisson, an Intercontinental and Oberoi’s new property in Udaipur, Udaivilas. Those first few installs were crucial. We learnt a lot from those experiences and almost rebuilt the product from scratch.

From this point onwards it was a hotel by hotel pitching and negotiating game. Once we signed up 15 customers, we stopped bleeding month on month. Soon we hired someone from the Hospitality industry to bring in the knowledge and knowhow. We stretched our boundaries and pitched to international hotels as well. We won a customer in Dubai. The deal was $40K, equivalent of 4 Indian customers. That experience made us realize that the market outside India is much more interesting. We got to pitch to the Hyatt top brass in Chicago and signed up Grand Hyatt in Mumbai as the test property.

We continued to make a lot of mistakes and learned from the experiences. The worst time was between 2008 and 2010. By 2008, we had built quite a bit of momentum and the financial market collapse hurt us terribly because a lot of upcoming hotels lost their funding and stopped mid-way through construction. With all the developers we had hired, our burn rate was very high and we didn’t have anyone to sell our products to. In 2009-2010 we were almost about to go belly up. But I didn’t want to give up. I got the team size down and had to let go of many talented people. From there on we restarted the journey slowly and steadily and were able to recover from the near death experience.

I am happy to say that over the last three years, we have seen very good success and have been growing at about 75% year on year.

You have been mostly bootstrapping your venture except for the small angel round. Tell us more about your experience managing the venture without much external financing.

Though Knowcross has been mostly a bootstrapped venture, we did raise a small angel round of $500K in early 2006 from “Band of Angels” (now called Indian Angel Network) and a few other individual investors. We did think of raising a VC round in 2007 but eventually didn’t go ahead. As a result, we have grown the company through internal accruals.

In our most strained period, 2008 to 2010, one thing that became our lifeline was a credit line we managed to negotiate from an Indian public sector bank. This was against our receivables and gave us the cash flow to manage the business… Raising money from Angels and VCs is the not the only way..if you talk to bankers, they often come up with many ways of borrowing money…ultimately, equity is always more expensive than debt and an entrepreneur shouldn’t forget this.

Having said that, both bootstrapping and raising external capital have their own sets of pros and cons.

With a bootstrapped company, I am the majority shareholder and have a much tighter control over the company. The growth is organic and takes time but in the process we have built a strong foundation. We won’t get knocked out that easily even if finances dry up.

On the other side, having money in the bank allows one to think long term and build a business without cash flow concerns. For e.g, in our case, the angel investment allowed us to hire the right people even if we had to pay more. Underfunded companies can’t hire the right people. Having capital also provides some mental stability. There was a time when our revenues were way below our expenses and I had exhausted all my life savings. I was not taking any salary and was using just the minimal amount of money to sustain myself. This kind of situation is a real blow to one’s motivation.

One needs to decide for themselves what the right way to manage finances is. We were not in highly scalable dotcom type of business and just wanted to build a profitable company. We could bootstrap our way up. But this might not work for every type of business.

How did you build your team at a stage when revenues had not started flowing in yet? What motivated those people to join you?

We started with four people initially. The biggest motivation for people to join us has been the kind of work we are doing. The time when we started, there were hardly any product companies in India. Still the product industry is small but 10 years ago it was miniscule. The people who joined us were specifically looking for such opportunities and that aligned our needs.

Two of the key people who joined us in our early days are still working with us. One is an IIT graduate and other from Hyatt, Mumbai. We did have to shell out a lot in compensation to hire these talented individuals but that was money well spent. They are still part of our key team.

I must say that hiring was much easier 10 years ago. The market was smaller and quality of talent was better. We got more value for the money paid. Now hiring is much more difficult. There is a lot of competition especially from VC backed start-ups that have driven salaries up – in some cases, to levels that simply don’t make sense. At these levels, it is better for us to set up a development center in a first world country!

Marketing is another area that requires a lot of investment. Tell us more about how you managed marketing.

Historically, we didn’t spend much on marketing. In fact we didn’t even have a sales team until 3 years ago. Sales for us were a door to door exercise. We were quite limited in our resources. So we had to cut costs at every step. We would fly cheap and stay cheap. We would stay only for few days and setup a maximum number of meetings in those few days to get the most out of our visits. I remember the time when I travelled to London to pitch to some potential customers. I slept on a friend’s couch and would step out everyday like a travelling salesman.

It was a slow, tiring and arduous journey. But the hard work did pay off. We built the customer base organically with the biggest growth seen in last three years. We spent many years building our financial strength and now we are investing heavily in building a sales organization and in marketing to support the salespeople. We set up our US presence about a year ago and now have three people based there. We are also about to open an office in London to cover Europe.

Another advantage VCs bring in is the guidance on building the business, contacts, references etc. Your clients include some of the big names such as Kempinski, Hyatt, Oberoi, IHG, Hilton, Sofitel, Taj and many more. As a bootstrapped company, how did you build this clientele? Where did you get guidance on how to run the business?

Almost everyone has some initial resources to work with. People do want to help others. If you look out for help and people know you are trying hard, they would come forward to help. In our case too, we got a few lucky breaks. Some of my good friends shared some references and made some connections. As we signed few initial customers and delivered good work, others came by.

In hindsight, I would say that it is important to have mentors to guide a first time entrepreneur on things such as which clients to take, how to approach them, when to raise money etc. These decisions are often tricky and it helps if someone who has been there and done that can provide advice. Best would be to bring someone who has started a business before. Incentivize them with stock options. Irrespective of whether one has VCs or not, mentorship is required. Such mentorship can’t be provided by a board. One needs an individual like a friendly uncle. Chances of success would be much higher if quality mentoring is available to teams early on.

From your own experience, what advice do you have for start-ups who are currently bootstrapping?

Bootstrapping is certainly possible until and unless the business model requires exponential growth in a short span of time.

If bootstrapping, one needs to prepare well and think through it. How much can you starve yourself? How long can you manage the business without revenue? How long will your savings last? You should draw your limits and know when to stop as there is an opportunity cost and the same money can be put to some other use.

If you go on for many years without showing positive cash flow, then it is concerning as your business is not sustainable. Make a realistic assessment of your situation and add a buffer around it. Many people don’t think through all this and then hit a wall.

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Building Billion dollar product companies from India

“Flipkart raises fresh round of $1b”, “Wipro sets up $100m VC fund to invest in start-ups”, “Ratan Tata considering a personal investment in Snapdeal”, “Druva raises $25 million in a fresh round of funding” Entrepreneurship ecosystem in India currently seems to be buzzing with multiple investment rounds, acquisitions and launch of new funds. A big driver of this activity is the eCommerce boom that India is seeing currently with Flipkart.com and Snapdeal.com leading the race. Though the increased activity is going to benefit the ecosystem as a whole, the service sector seems to be getting more attention.

This brings us back to the question that we have been asking many times – “Why India does not have many billion dollar technology product companies?” There have been multiple debates and discussions around this topic for years. So I set out to do an in depth research using primary and secondary sources to find out what people say and how much of that is validated. Over two months, I spoke with multiple founders and players in the Indian start-up ecosystem and also read through many articles, discussion forums and interviews to find out what issues product companies face in India.

As per the research findings, following key issues emerged:

  1. Difficult to penetrate Indian market especially the enterprise and government sectors.
  2. Small early adopter market in India.
  3. VC and angel investments are not directed to product companies due to reasons including risk averse investors, lack of fundable companies that can show traction immediately and no good way to discover good product companies.
  4. Difficulty attracting and retaining talent.

But how do we resolve these issues? What have some of the successful companies such as InMobi, Druva and FusionCharts done to circumvent some of the above problems? What can we learn from other start-up ecosystems around the world?

Research indicated that the above issues cannot be fixed by one entity. Instead the entrepreneurship ecosystem as a whole needs to take multiple steps to address the specific problems. Some of the recommendations to address the above issues and move towards building billion dollar product companies from India have been discussed below.

Difficult to penetrate Indian market

Ecosystem players can play a huge role by bridging the gap between product start-ups and enterprise and consumer buyers. One way to do that is by bringing Enterprises & start-ups closer. Many of the B2B product start-ups interviewed for the research mentioned difficultly in penetrating the enterprise market as one of their biggest pain points. iSPIRT has taken the lead here and had recently organized a meet-up – InTech50 of product startups with Chief Information Officers ( CIOs) of global companies such as Citigroup, Procter and Gamble Co. etc. These meet-ups called “Swayamvars” are curated events where a large company can meet 5-15 startups it can potentially partner with. We need more such initiatives to bridge the gap.

We also need to increase the trust between start-ups and enterprise customers. Enterprise buyers often are reluctant in trying products from start-ups as they have had few bad experiences in the past. To solve this issue, start-ups should be educated on how to approach enterprise customers, how to draw contracts and what level of service to offer. On the other hand Enterprise companies need to be educated on the pros & cons of buying from start-ups to set the expectations right. They also need to be trained on how to evaluate a start-up vendor.

It is also essential to open the doors to start-up firms to apply for government contracts. Start-ups are often left out of the government contracts due to bidding criteria that favor large firms. Government should work towards either relaxing the requirements for bidding for government contracts or initiate a separate program to award contracts to start-up firms. Another way to resolve this issue would be to allow companies to compete for contracts based on their innovation and not be stifled by impossible high qualifying hurdles.

Small early adopter market in India

India currently has an urban population of 27.8% with an internet penetration that stands at 20%. The country is still evolving especially from technology perspective. Increase in early adopter market would take its natural course of time as more people start adopting technology in their daily lives and are open to try new products as seen in US and other markets. Though the issue of small early adopter market cannot be solved directly, in the meantime, more opportunities can be created for Indian product companies to sell to the global world. If we look at Israel startup ecosystem which has a small local market, we notice that they focus on US markets solely. India also can gain advantage of the large markets in US & Europe by creating avenues for start-ups to sell to global markets. These avenues could be either in the form of international treks taking selected Indian companies to US & Europe to meet potential buyers or bringing international companies to India and showcasing India product companies. In May 2014, Ravi Gururaj, Chairman of NASSCOM Product Council led NASSCOM InnoTrek 2014, a first of its kind event that took a delegation of India’s top product and entrepreneurial founders/CEOs to Silicon Valley. This is great initiative and first step towards putting Indian product companies on the global map. More such opportunities would open the international markets for Indian product companies.

Not every start-up can afford to make international visits or have international sales offices. To resolve this issue, a common international sales and marketing body should be established in locations such as US and UK. This common sales office could help all India based product companies to reach out to International customers by acting as their own sales and marketing office.

As per iSPIRT’s estimation, at least five Indian product companies have crossed or are on track for a $1 billion valuation. Among those are InMobi, Zoho, QuickHeal and Pubmatic. Each of these companies has grown targeting international markets and they are now rapidly expanding their global footprint.   

VC and angel investments are not directed to product companies

Before we get to the recommendations, it is important to understand why Indian investors are risk averse especially when evaluating product companies. A deeper analysis reveals multiple issues – Limited growth opportunities for product companies due to market issues addressed in previous section and lack of enough M&A exits. We already addressed the market challenges above. To solve the issue with M&A exits, investors should focus more on smaller sub $40m exits. As Sharad Sharma described it, for every Billion dollar startup (e.g InMobi) there should be 10-12 $100m startups (which is the case right now). For every $100m startup there should be 10-12 $50m startups; and for every $50m startup there should be 10-12 $10m startups. A healthy power law distribution is a sign of a healthy ecosystem. In India, many believe that this power law distribution is broken. Looking deeper one can see that it is not broken at the top as we can see many $100m companies rising up slowly. It is broken at the bottom! There are too few small-value (sub $40m) exits. Fixing this situation by catalyzing more small value exits will improve the entire distribution.

One way to resolve this issue is by enabling more M&A opportunities for startups. iSPIRT has taken up this cause and had drafted an elaborate M&A connect action plan in 2013. As part of iSPIRT’s M&A Connect Programme, they have been organizing multiple roundtables to showcase Indian product companies to potential acquirers in Silicon Valley. This is a step in the right direction and we need more such initiatives to increase the volume of M&A in the Indian start-up ecosystem.

There is also a need to increase seed stage money through government innovation funding programs. Government currently provides funds through bodies such as Department of Science and Technology (DST) to fund technology research. Karnataka government recently announced that it is drafting a new “Startup Act” to boost the state’s entrepreneurial activity. Budget 2014 announced Rs 10,000 crore fund of funds for startups. Issue is not availability of funds but dispersion of funds through transparent processes and having single window clearances. Many of these schemes are not marketed enough and often the process to acquire these funds is extremely complex and outweighs the benefits. Israel’s technological incubator program which was started by the government in 1991, provides funding and know-how to people to become successful entrepreneurs. Since the first companies emerged from the incubator program in 1993, 61% have secured follow-on funding and 40% are active to this day. These are some great examples to follow to lay out a better process to access government funds. Some of the ways include building and funding incubators, and closer collaboration with academia through research programmes as in the US.

Government intervention is also required in resolving taxation issues by providing tax holidays to startups and removing the start-up tax. A great suggestion given by YourStory was to give startups in India tax exemptions on the line of Singapore tax exemption scheme for new startup companies. As per this scheme, a newly incorporated company that meets certain qualifying conditions can claim for full tax exemption on the first $100,000 of the normal chargeable income for each of its first 3 consecutive assessment years. A further 50% exemption is given on the next $200,000 of the normal chargeable income for each of the first three consecutive assessment years. Schemes like these would indirectly address the issue of lack of funding by allowing the start-ups to reinvest more of their earnings.

The Finance Act 2012 of India brought in an amendment to tax the share premium which is above the fair value of investment by the resident angel investors and not proven satisfactorily to the tax assessing officer. This “Start-up tax” law makes it much more difficult to raise early stage funding for start-ups. Instead the new Indian government should follow the Israel model and introduce “Angel’s law” under which a substantial tax benefit is given to individuals who invest in qualified Israeli R&D companies. Under that law the investors can deduct their investment from any other income source such as salary, capital gains etc. In 2009, the Israeli government also removed the capital gain tax for foreign investors.

Though many of the above suggestions apply to all kind of start-ups and not specifically product startups, but product startups have a longer gestation period before they can start generating revenue and therefore have higher funding needs.

Difficulty attracting and retaining talent

India is a risk averse country and people always look for stability and security when looking for employment opportunities. Finding a good employment is not just a concern of the individual but of his whole family. If a person opts to join a no-name brand start-up, he has to handle the questions, concerns and taunting of the whole family. Hopefully all this is changing slowly with the current increased activity and main stream coverage of start-up successes. But still attracting and retaining talent stays as one of the big concerns of start-ups.

In my discussions with different founders, various suggestions were made. “Start-up” hiring events are a great way to enable start-ups and potential employees to get to know each other. Recently held “Headstart Higher”, a start-up hiring program run by Headstart Network Foundation was a huge success and led to many employment offers being made. Apart from enabling recruitment, these events should also be a medium to educate both fresh graduates and experienced professionals on topics such as “benefits of working with start-ups”, “How to evaluate a start-up for employment”, “Value of stock options” etc.

It is also important to effectively sell the value proposition of working with start-ups. Many of the entrepreneurs interviewed indicated that the only way they have been able to acquire talent is by matching the salaries of larger tech firms. While it is good that they are addressing the salary concern but this is not solving the underlying issue as every potential hire would expect to get that much salary and not all start-ups can afford to pay that much. Instead entrepreneurs need to do a much better job of communicating the value proposition of working in a start-up (faster career growth, technical leadership and growth, quality of work, long-term pay-offs, flexibility of timings etc) rather than trying to compete with big companies on the strengths of big companies (salary, facilities, etc.).

Government should also work in skill development making young population employable. Close to 1.5million people graduate with an engineering degree every year in India but only 3 out of 10 are actually employable based on the skill sets. There are more than 5000 Industrial Training Institutes (ITI) in India. However, the quality of training is not up to the mark. They have poor infrastructure, outdated curriculum, less qualified instructors and limited interaction with the industry. The entrepreneurs who hire them spend considerable amount of time to first train them and then use them. YourStory.com suggests a creative idea – businesses and Government can work together on this, wherein businesses can train young force on the job and government can motivate businesses by providing wage subsidy for a defined period.

Indian start-ups are slowly getting noticed by the global world. Start-ups like Fusion Charts and the more recent acquisition of Little Eye Labs by Facebook are giving a new wave of hope and inspiration to the younger lot of product start-ups. SaaS companies such as iCreate, Manthan, Druva and Eka have potential market sizes of thousands of clients. As per iSPIRT, close to 26 product companies have the potential for a $100 million valuation this financial year. All these signs indicate that India is moving in the right direction. However to ensure we see more and more product companies hitting the billion dollar mark, we need to resolve the core issues such as difficult to penetrate local market, slow adoption of new technology, lack of risk capital and difficulty attracting and retaining talent. Resolving these issues require equal effort from government, ecosystem players, investors and entrepreneurs themselves and could take easily 6-8 years.

What are some of your recommendations to create billion dollar product companies from India?

The detailed research paper can be accessed here:

 

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Joydeep shares his insights, learnings and challenges of building Qubole, a big data service used by Pinterest, Quora and Nextdoor.

Joydeep Sen Sarma and Ashish Thusoo started Qubole, a managed Hadoop-as-a-Service offering, in late 2011. Since then they have seen an impressive growth counting some of the well known names such as Pinterest, Quora and Nextdoor as their customers and raising a total of $7m of funding till date.  They were recently mentioned as the one of the top 10 Hadoop startups to watch by CIO.com and Qubole Data Service was selected as InTech’s Top 50 Most Innovative Products from India. Qubole is headquartered in Mountain View, California and has an engineering office in Bangalore, India.

ProductNation had a brief chat with Joydeep to learn about his experiences of building a product company from India. This article touches upon some of the insights gathered from the discussion.

Starting up

Ashish Thusoo and Joydeep Sen Sarma
Ashish Thusoo and Joydeep Sen Sarma

Joydeep Sen Sarma and Ashish Thusoo, batch mates from IIT-D moved to US soon after their graduation to pursue Masters. They worked with different companies in various technical roles and eventually came together again at Facebook where they worked with the Data Infrastructure team for close to 4 years. At Facebook, they created the social network’s big data infrastructure and Apache Hive. Those 4 years at Facebook not just exposed them to the big data market but also helped them form a strong network in Silicon Valley. When they found themselves questioning what they want to do next, it was clear that they are going to follow their passion for technology and build a product company. “We started brainstorming on what customers wanted to buy from us? What the market needs are? What to build? We got a small room and started writing code”, says Joydeep.  Joydeep & Ashish built on their knowledge of the big data market and came up with the idea behind Qubole. They leveraged their network to find the initial customers and also managed to raise a seed capital of $1m to fund their product development.

Their starting up story highlights that two key things that strengthened their position as they were starting up – firstly the credibility and depth of knowledge they gained through their experience at Facebook and secondly the strong network they formed in Silicon Valley.

Tapping the Indian market

We have seen that many of the successful start-ups such as Zoho Corp, Druva, and Fusion Charts are growing by acquiring international customers. This poses a curious question – Is the Indian market very small or unattractive?  Joydeep admits that it would have been difficult for them to achieve a similar growth if they had been just India focused. “We had Quora as one of our initial customers. Acquiring such a customer would have been very difficult in India. It is not impossible to build business from India but getting the initial customers is hard. For a business like ours having an international presence is required.” He also quickly pointed out that Indian market is quite big if you build a product for the masses. “To build a business completely focused on the Indian market, one needs to pick a problem that is big and not niche. Many people build something and then hunt for a big market. That is a wrong approach. One needs to build something that has high leverage. Leverage can be measured as Revenue per employee or Revenue per engineer. Given that equation, mass market products can grow exponentially focusing just on the Indian market”.

Coming back to enterprise product start-ups, targeting a broad international market remains the most attractive approach to fuel growth. Joydeep applauded the efforts of iSPIRT and NASSCOM for taking efforts to help start-ups with M&A and go-to market.

Acquiring Talent

Every year close to 1.5 million students graduate with an engineering degree in India. But still many start-ups quote finding talent as one of the top challenges. As per Joydeep finding an engineering talent at the start-up phase is not a big challenge anymore. He mentioned “During my time the cream of the engineering talent from India used to either move out of the country or pursue non-tech careers. Most of my peers from my 1996 Computer Science batch didn’t stay in technology sector.  But I see the situation changing now. The volume of engineers we produce nowadays is way higher. Even if we lose a few good developers to the developed economies, still we have a good supply of entry level engineers. Overall the quality of engineers has improved considerably. Even company’s incentive systems are changing to reward good engineers.” Qubole currently has 20 member engineering team in India working on backend, frontend & UX and a 10 member team in US.

Though this sounds promising, the situation is not the same once a company starts scaling up and is looking for highly experienced technical experts. “In India, we struggle to find talent with a strong depth of knowledge. If one were looking for hands-on systems engineers with 15 or more years of experience – it would be very hard, if not possible, to find such people in India. The US and Silicon Valley remains the go-to place to hire experts”.  On the brighter side, India is seeing an interesting trend of reverse brain drain with many returning back to India after a long career in US. A study conducted by human resource and recruiting firm Kelly Services India in 2011 estimated that 300,000 Indian professionals working overseas will return between 2011 and 2015. As per a study done by Harvard Law School, 50% of the NRI’s returning to India plan to start new ventures. Joydeep observes that currently the top management of many successful start-ups in India is headed by US returned people.

Challenges in building a business in India

Qubole has been actively growing and managing teams both in US & India. However operating in India comes with its own set of challenges.

  • Infrastructure has been a continuing pain point in India especially in Bangalore. “Because of complete lack of mass rapid transit and bad traffic conditions, many employees spend a significant amount of their commuting. Or they are forced to work from home. Aside from impacting us individually, the startup ecosystem suffers as a whole. It is hard to pull in professionals from across the city for networking events. Basic things like an easily accessible world class conference center are lacking. India needs to take some cues from countries like Singapore and build better infrastructure. It is ironical that Singapore which is small compared to Bangalore in the IT sector hosts significantly more and much larger events in this category” says Joydeep.
  • Unnecessary government regulations cripple the start-ups. “Indian government has too many random rules and a lot of gatekeepers. For e.g the labor regulations for hiring blue collar workers are extremely stringent and scary.” Joydeep admits that he avoids taking up any activity that ties him into the web of government rules and regulations. “We do not hire blue collar workers and do not do sales from India as taxation levels here are very high”.
  • Product start-ups also face a lack of financing. Joydeep observes “In India, the appetite to finance risky software is less. We would have struggled to raise seed finance in India”.  It is unfortunate that India has startup tax law which makes it further difficult to raise seed capital. Instead the Indian government should follow the Israel model and introduce “Angel’s law” under which a substantial tax benefit is given to individuals who invest in qualified Israeli R&D companies.

Most of the above challenges require government intervention and we can just hope that the new government takes steps to make Indian ecosystem more conducive to starting up.

The discussion with Joydeep reiterated on the potential that Indian product companies have in international markets. This requires careful planning, strong network in international markets and ability to manage international sales along with managing R&D in India. Though setting up and operating a product company in India is not as smooth as other start-up ecosystems, still India offers a strong technical talent pool and other cost advantages which can be used to our advantage to compete in the global market.

As Qubole plans its next phase of scaling up, ProductNation wishes the team a lot of success in the coming future.