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Covid19 Crisis: Sharpen the Saw with Marginal Costing

When reality changes, it’s important for the firms to acknowledge and adjust to the new situation. This is the time to remember the mantra ‘Revenue is Vanity, Profit is Sanity, Cash is Reality’.

The Covid-19 crisis is much written about, debated and analyzed. If there is one thing everyone can agree about on the future, it is that there is no spoiler out there for this suspense. The fact is that no one knows the eventual shape of the business environment after the pandemic ends. 

When revenue momentum slows down or even hits a wall as it is happening in the current scenario, costs take centre stage even as every dollar of revenue becomes even more valuable for the firms. So, enterprises need an arsenal of strategic weapons to operate and survive, maybe even thrive, in this period of dramatic uncertainty. The same old-same old, push-push methods will not move the needle of performance. 

As an entrepreneur and CEO, I have always found the theory of Marginal Costing (MC) to be practically powerful over the years. Let me tell you why.

At the best of times, MC is a useful tool for strategic and transactional decision making. In a downturn or a crisis, it is vital for entrepreneurs and business leaders to look at their businesses through the MC filter to uncover actionable insights.

Using MC-based pricing, the firm can retain valuable clients, win new deals against the competition, increase market share in a shrinking market and enhance goodwill by demonstrating dynamism in downmarket.

As the firm continues to price its products based on MC, the idea is to continually attempt to increase the price to cover the fixed costs and get above the Break-Even Point (BEP) to profitability. However, this happens opportunistically and with an improving environment. 

Pricing for outcomes is more critical during these times and playing around with your costing models can go a long way in determining the most optimal outcome-based pricing approaches. 

Steps to Get the Best Out of MC:

1. Determine bare minimum Operating level

Estimate the bare minimum operating level or fixed costs you will need to bear to stay afloat and capitalize on revenue opportunities. This is the BEP of the business. This estimate can include:

  • Facilities, machines, materials, people and overheads. 
  • All R&D expenses required to support product development
  • Necessary support staff for deployment and maintenance of products/services.

2.  Ascertain the variable costs

Identify the incremental costs involved in delivering your business solutions to fulfil contractual and reputational expectations to both existing and new customers. These costs are the variable costs in your business model. Try to maximize capacity to flexibly hire, partner or rent variable costs as needed, based on incremental revenues.

3. Distinguish between fixed costs and transactional variable costs.

Take your fixed costs at your operating level as costs for a full P&L period. Let’s say, the fiscal year. Take your variable costs as what it takes to fulfil the Revenues that you can book. Make sure you only take the direct, variable costs. Note that if Revenues less Variable costs to fulfil the revenues is zero, then you are operating at MC.

4. Sweat the IP already created.

For every rupee or dollar you earn over and above the MC, you are now contributing to absorbing the fixed costs. Do bear in mind that all historical costs of building the IP are ‘sunk’, typically to be amortized over a reasonable period. Hence, it doesn’t figure in the current level of fixed costs. The idea now is to ‘sweat’ the IP already created. 

5. Peg the base price at marginal cost.

Start at the level of marginal cost, not fully absorbed costs. Then, try and increase the price to absorb more and more of the fixed costs. The goal is to get to BEP and beyond during the full P&L period. At the deal level, be wary of pricing based on the fully-loaded costs (variable and fixed costs, direct and indirect).

6. Close the deal to maximize cash flows

Price your product at marginal cost + whatever the client or market will bear to get the maximum possible advance or time-linked payments. This is a simple exchange of cash for margins wherever possible and an effective way to maximize the cash flows. Many clients, especially the larger ones, worry more about budgets than cash flow. 

Let’s look at a high-level illustration. 

Assume a software product company providing a learning and development platform to the enterprise marketplace. Let’s call this company Elldee.

Elldee has a SaaS business model that works well in terms of annuity revenues, steady cash flows and scale. Clients prefer the pay-as-you-model representing OpEx rather than CapEx. Investors love the SaaS space and have funded the company based on the future expectations of rapid scale and profitability.

However, given the ongoing crisis condition, Elldee needs to take a good re-look at the licensing model. By applying MC filters, it may make more market and financial sense to maximize upfront cash by doing a longer-term `licensing’ deal for the software-as-a-service at even a deep discount, with back-ended increments in price. The variable costs of on-boarding a client are similar to a SaaS deal yet the revenue converts to contribution to absorb fixed costs quickly to help survival and longer runway for future growth. So the client pays lesser than what they would have for a three year SaaS deal but Elldee is able to sweat its IP while maximizing cash flows.

Elldee can even move its existing SaaS clients to this model to capture more revenues upfront by being aware of MC and figuring out the right pricing models to get to the BEP of the business or product. Outcome-based pricing can also be designed to deliver margins beyond the MC, contributing to the absorption of fixed costs more aggressively.

Elldee is now in a position to address different types of markets, clients and alliances. It can calibrate higher and higher margins as the environment improves and client relationships deepen. Over the next two years, Elldee would come out stronger with a more loyal client base, higher market share and a growth trajectory aligned with its pre-Covid19 business plans.

Yes, this is a simplified example but many variations to the theme can be crafted, based on a firm’s unique context.

Remember that a strong tide lifts all boats but a downturn separates the men from the boys. Marginal costing techniques, when customized for sector-specific operating models, delivers a competitive edge at a time from which will emerge stronger winners and weaker losers. Be a winner.

About the contributor: Sam Iyengar is a PE investor, mentor and advisor focused on Innovation and Impact. He can be reached at [email protected].

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R&D Revolution from Rural India – Rendezvous with Vembu

When constellation research published the best award for enterprise software to Zoho, I was thinking its yet another Silicon Valley startup that is kind of making some mark. But I was really surprised and it was a bit of a shame when I found out that its an Indian company – how could I have missed such a company that originated and grew from my home city and now fast becoming a saas Boomi – Chennai.

As I dig deep into this Enterprise software company, I come across more surprises, about its mission, vision, purpose and its founder. Now fascinated by watching an interview and a speech of Sridhar Vembu, the founder – it was a pleasure to meet him in Tenkasi, Tamil nadu, and this post is a rendezvous with Sridhar Vembu, and a few key takeaways from my day at Zoho, Tenkasi.

In front of Zoho, Tenkasi office with Sridhar Vembu

Rural and Semi-Urban revolution: Sridhar believes in economic development around small towns and semi-urban areas. We discussed SAP in Waldorf, and how that village became a global HQ of the German giant. With bandwidth and technology, Sridhar really believes that he would get Zoho products designed, built and supported by small towns. Tenkasi, a small town in Tamil Nadu houses Zoho’s development and Labs with about 500+ people. It was heartening to see an end-to-end product Zoho desk built and managed right from there – I even met with the product managers there who build and take these products to global markets. Other parallel examples that we have for such a non-urban revolution were Jamshedpur and BHEL townships, which housed and build excellence from small towns. Glad we are doing this for product software as well now.

Skill oriented education: Now while the rural revolution looks interesting, how will the software talent that is usually US bound, join such remote places. Sridhar’s answer to this is Zoho University. Zoho University is a unique education, follow a gurukul Indian approach, where students are pulled from government schools, and trained into important technical skills, English and Maths, Design skills, as well as business skills.I had some great discussions with Anand Ramachandran, who heads Zoho University in Tenkasi. Zoho University now contributes to more than 20% of the 8,000+ employees in Zoho, and it’s heartening to see students from villages, Tamil medium government schools very effectively groomed to build world-class products. The analogy I have for this kind of education is chartered accountancy, which combines knowledge and hands-on skills together. But this takes it to the next level.

Price sensitive products: One of the big benefits of the above focus helps Zoho come out with very price-sensitive products. Products are priced at a level that is affordable for any size business, most importantly SMBs, both for developed and emerging markets. The goal of Zoho seems to be like that of Amazon, where they offer superior products, better customer service at decreasing prices, by bringing productivity, as well as the product revolution from rural and skill-based talent.

R&D in India: Sridhar Vembu is a big fan of Japan and Germany. We spoke about several examples of how products from these countries make it to our country – up to our villages. Products such as the knife that is used to cut coconuts, motors that go into our pump sets, glasses that go into spectacles. This is such an important element he highlights that we have to go to the core of what we make, we should really get our engineers to build products – research and development from India, not just assemble. Zoho has that clear focus, going and building out the core platform, based on which its applications are built. It’s not only Make In India but R&D In India. Sridhar also highlighted that its also important for lot of Indians to stay back in the country, instead of migrating to US or other countries. Each one of them can create huge value, employment and make India proud by making products out of here.

Bootstrapped to date: Another area that was important and make all the above mission happen is the fact that Zoho is completely bootstrapped, and its till now not funded by VCs. Like many large software enterprise giants, Zoho is built ground-up bootstrapped and grew by investing back the surplus. This gives them a lot of freedom, freedom to run their endeavors and also with a long term view. It’s great learning for a lot of startup entrepreneurs. They are more of a revenue unicorn than a market cap unicorn.

In summary, what Sridhar Vembu has created and grown is a fascinating story, a story that we need to celebrate, learn and cherish, its more powerful than the stories of Indians who have done this abroad. For me, it was huge learning on Engineering, Economics & Education, it was one of the memorable day of my life!  

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Clipping The Wings Of Angel Tax

 

2000 startups. 100 meetings. 25 articles. 7 years. 3 WhatsApp groups. 2 whitepapers.

1 unwavering ask:

No More Angel Tax.

This evening, when we first got to see the circular from DPIIT/CBDT that formalized key recommendations suggested with respect to Angel Tax or section 56(2)(viib), we admit our minds went blank for a moment. After all, this one document represents the tireless, collaborative efforts of iSPIRT, the entrepreneurial community of India and ecosystem partners like IVCA, Local Circles, IAN, TiE, 3one4 Capital, Blume Ventures etc., and the proactive support from the government. It has been one relentless outreach initiative that has seen us become a permanent fixture at Udyog Bhavan and North Block (I even checked with the guards regarding the possibility of a season pass). My colleagues Sharad Sharma, TV Mohandas Pai, and partners such as Siddharth Pai, Nikunj Bubna, Sreejith Moolayil, Monika, Ashish Chaturvedi and Sachin Taporia deserve a big shout out for their diligent efforts at connecting with various ecosystem partners and initiating a regular cadence of dialogue with the government.

The key takeaways from the circular are as below –

  • Blanket exemption for up to INR 25Cr of capital raised by DIPP registered startups from any sources
  • Amendment in the definition of startups in terms of tenure from 7 to 10 years
  • Increase in the revenue threshold for the definition of startups from INR 25Cr to INR 100 Cr
  • Breaking the barrier for listed company investments by excluding high-traded listed companies and their subsidiaries, with a net-worth above INR 100Cr or a Turnover of 250 cr, from section 56(2)(viib)’s ambit

Each of these points is a major win for the startup community. If one looks at the data from the LocalCircles startup survey in January 2019, nearly 96% of startups that had received notices regarding angel tax, had raised below the permissible limit of INR 10cr. Expansion of this limit to INR 25cr is a huge boost and instantaneously removes thousands of startups from the reach of angel tax. There is an effort here to critically analyse, define and differentiate genuine startups from shell corporations. It includes measures such as increase in the revenue and tenure threshold that will not only help startups with respect to the challenges posed by angel tax but also open up eligibility for benefits under Startup India schemes and policies. We have been talking about the need to encourage and protect domestic investments and the government has paid heed to our concerns by introducing accredited investor norms and by breaking the barrier for listed company investments.

Initiated in 2012 by the UPA government, Section 56(2)(viib) or the “angel tax” section has been a relentless shadow on the entrepreneurial ecosystem. It taxed as income any investment received at a premium by an Indian startup. This provision saw many entrepreneurs clash with the tax officials about the true value of their business and pitted unstoppable entrepreneurial zeal against the immovable tax department.

All of us from the policy team at iSPIRT have been at the forefront of this issue since 2015 when we began petitioning the government to exclude startups from section 56(2)(viib) as taxing investments from Indian sources would cripple the startup ecosystem. We laud the government for appreciating the urgency of the situation and prioritizing this issue.

We first had an inkling of things to come at the February 4th, 2019 meeting held by DPIIT. It was unprecedented as it saw a direct dialogue between government and entrepreneurs wherein both sides could better understand the issues facing each other – how section 56(2)(viib) was hampering founder confidence and how it is a needed tool in the government’s arsenal for combatting the circulation of unaccounted funds.

After this, a smaller working group was constituted on February 9th, to review the proposals made by DPIIT to address this issue, in consultation with the CBDT and the startup ecosystem. iSPIRT were part of both meetings and contributed actively to the discussion.

We can now heave a sigh of relief as we have finally achieved to a large extent what we had set out to do. We finally have a solution that ensures genuine startups will have no reason to fear this income tax provision and the CBDT can continue to use it against those attempting to subvert the law.

This could not have been possible without the help of well-wishers in government departments like Mr Nrpendra Misra, Mr Sanjeev Sanyal, Mr Suresh Prabhu, Mr Ramesh Abhishek, Mr Anil Chaturvedi, Mr Rajesh Kumar Bhoot, Mr Anil Agarwal, who patiently met the iSPIRT policy team and helped develop a feasible solution.

At long last, domestic pools of capital will no longer be disadvantaged as compared to foreign sources. At long last, Indian entrepreneurs will no longer have to fear the questioning of the valuations of their businesses and taxation of capital raised.

Who knows, someday we might have a movie on this. On a more serious note, it is a step that will go down in the chronicles of India’s startup story. This puts the startup engine back on track. More importantly, it shows what can be achieved when citizens and the government get together.

By Nakul Saxena and Siddharth Pai, Policy Experts – iSPIRT

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An Afternoon With Don Norman In Bengaluru

Are you building products for the everyday user? Is it becoming harder and harder to manage complexity while maintaining usability? How do you design a sustainable system for a complex multi-stakeholder environment? How do you teach a user to use your product with good design? How do you reinvent an established business model in light of rapidly evolving markets and technological possibilities? How do you design a product to be truly human-centric?

If any of these questions sound relevant to you, here’s an opportunity to seek answers on 22nd February in Bengaluru! 

About Don Norman

Dr Don Norman is a living legend of the design world having operated in the field for over 40 years. He has been Vice President of Apple in charge of the Advanced Technology Group and an executive at both Hewlett Packard and UNext (a distance education company). Business Week has listed him as one of the world’s 27 most influential designers. Dr Norman brings a unique mix of the social sciences and engineering to bear on everyday products. At the heart of his approach is human and activity-centred design, combining knowledge of cognitive science, engineering, and business with design.

Presently, he is Director of the recently established Design Lab at the University of California, San Diego where he is also professor emeritus of both psychology and cognitive science and a member of the Department of Electrical and Computer Engineering. He is also the co-founder of the Nielsen Norman Group, an executive consulting firm that helps companies produce human-centred products and services.

ProgrammeTalk

Don will share valuable insights about his interactions with Indian people, products and experiences.

Fireside Chat

An informal discussion with Don about his learnings and experiences spanning his long and illustrious career.

How to participate?

We’re inviting engineers, product managers, designers and everyone else who is building for large scale impact.

If you would like to further your understanding of human-centric design and hear straight from the horse’s mouth, please register here by 18th February. (An invite will be sent out to selected participants by 21st February)

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A Platform is in the Eye of the Beholder

The distinction between whether you are building a platform or a product should be made primarily to align your internal stakeholders to a particular strategic direction, as we learned in the recent iSPIRT round table.

[This is a guest post By Ben Merton]

“So are we a platform, or are we a product?” I said last month to my co-founder, Lakshman, as we put the finishing touches to our new website.

We’d been discussing the same question for about a year. The subject now bore all the characteristics of something unpleasant that refuses to flush.

However, the pressure had mounted. We now had to commit something to the menu bar.

“I think we’re a product.”

“But we want to be a platform.”

“Okay, let’s put platform then…But isn’t it a little pretentious to claim you’re a platform when you’re not?”

Eventually, we agreed to a feeble compromise: we were building a platform, made up of products.

Job done.

At least, that is, until #SaaSBoomi in Chennai last month.

Manav Garg, who has considerably more experience than both me and Lakshman at building platforms, put up the following slide:

Product = Solving a specific problem or use case

Platform = Solving multiple problems on a common infrastructure

“Here we go again”, I could hear Lakshman say to himself after I Whatsapped him the image.

“That’s his definition. It doesn’t have to be ours,” he replied tersely, “What does he mean by ‘use case’, anyway?”

“I don’t know.”

I’m in awe of the entrepreneurs who seem to bypass these semantic quandaries.

You know, the ones who say stuff like “Stop thinking so much. Just sell stuff. Make customers happy.”

For me, these are the type of questions I need to chew over for hours in bed at night.

I was therefore excited to be invited to the iSPIRT round table at EGL last week, where the topic of discussion was “Transform B2B SaaS with #PlatformThinking”. The roundtable was facilitated by iSPIRT mavens Avlesh Singh, Shivku Ganesan & Sampad Swain.

It takes a lot to get 20 tech founders & their leaders to travel after work from all over the city to sit in a room for three hours with no alcohol.  Fortunately, the organisers had promised a lot.  The topic description was:  

“Enable a suite of products, high interoperability, and seamless data flow for customers. This peer-learning playbookRT will help product to platform thinkers develop an effective journey through this transformation” was the topic description.”

The meeting was governed by Chatham House rules, meaning we can’t discuss the name or affiliation of those involved.

However, along with our founder mavens of large, well-known Indian technology businesses, there were 15 or so less illustrious but equally enthusiastic founders (& their +1s), including myself.

The discussions started with an overview of the experiences and lessons that had been learned by some of those who had successfully built a platform.

“We define a use case as a configuration of APIs…” the founder of a cloud communication platform started. This was going to be interesting.

“Why did you define it that way?” I asked.

“Based on observations of our business.”

I began to understand that the term ‘use case’ was being used differently by platform and product companies.  

“A use case of a platform is usually tangential but complementary to the core business. A use case for a product is something that just solves a problem,” someone clarified, guaranteeing me a slightly more restful night.

As the discussions continued, it also became clear that there were a large number of possible markers that distinguish a platform from a product, but there was no agreement on the exact composition.

To resolve the impasse, we listed out the names of well-known technology companies to build a consensus on whether they were a platform or a product.

Suffice to say, we failed to reach any consensus.  The conversation went something like this:

“Stripe?”

“Platform.”

“Product.”

“A suite of products.”

“AirBNB?”

“A marketplace.”

“A marketplace built on a platform.”

Etc etc

Even companies that initially appeared to be dyed-in-the-wool platforms like Segment and Zapier eventually had someone or the other questioning the underlying assumptions.

“Why can’t they be products?” murmured voices of dissent at the back of the room.

This was going nowhere. A few people sought solace from the cashew nuts that had been placed on conference table in front of us.

“Does the customer care whether you’re a product or a platform?” someone said.

Finally, something everyone could agree on. The customer doesn’t care.  Your product or platform just needs to solve a problem for them.

“Then why does any of this matter at all?” became the obvious next question.

“I found it mattered hugely in setting the direction of the company, especially for the engineering and design teams,” the Co-Founder of a large payment gateway said.

“And investors?”

“Yes, of course. And investors. However, I think the biggest impact that our decision to build a platform had on my business was in the design more than anything else,” he explained, “For the engineering team, it was just a question of ‘we need this to integrate with this’. But the UX/UI and the…language… needed to be thought about very carefully because of this decision.”

“So, in effect, the platform/product debate is primarily a proxy for the cultural direction of the company?”

“Exactly.”

Logically, therefore, the only way you can really understand whether a company is a platform or a product is to have an insight into the direction its management wishes to take it.

A company might appear to be a product from the outside but, since it intends to evolve into a platform, it needs to start aligning its internal stakeholders to this evolution much earlier.

“So, a startup like mine should call itself a platform even if we are years away from actually being one?” I asked cautiously after I had enough time to process these insights.

“Yes,” was the resounding, satisfying response that virtually guaranteed me a full night’s sleep.

“And when should the actual transition from product to platform happen?”

“Well, Jason Lemkin says it should happen only when your ARR reaches USD 15m-20m, but that’s just another of those rules that doesn’t apply in India,” the co-founder of a marketing automation software said.

“The important thing is that this transition – when it does happen – is very hard for businesses,” he continued, “There is a lot of risk, but it opens up new revenue streams, helps you scale and build a moat.  We hugely benefited from our decision to become a platform, but it was tough.”

It’s unlikely that we completely resolved the product vs platform debate for all founders. However, I feel that all of us came away from that meeting with a deeper insight into the subject.

Ultimately, whether you’re building a product or a platform will depend on your perspective. Most companies lie somewhere in between.

Where does your company lie on this sliding scale? And if that makes you a platform vs. a product, does it make any difference to the way you think?

We want to thank Techstars India for hosting the first of the roundtables on this critical topic.

Ben Merton

Ben is a Co-Founder of Unifize, a B2B SaaS company that builds a communication platform for manufacturing and engineering teams. He is also a contributor for various publications on business, technology and entrepreneurship, including the Wall Street Journal, the Financial Times and Business Standard. You can follow him on LinkedIn here, and Twitter here.

© Ben Merton 2018

Featured Image: Source: https://filosofiadavidadiaria.blogspot.com/2018/01/o-principio-mistico-da-verdadeira-causa.html

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SaaS 3.0 – Data, Platforms, and the AI/ML gold rush

An impending recession, the AI/ML gold rush, Data as the new oil, SaaS Explosion…
The SaaS landscape is changing rapidly and so are the customer expectations!

18 months ago, I came across a message that India is a premier hub for global B2B SaaS, just like Israel is a hub for cybersecurity. At first, I did not think much of it, but after having interacted with many SaaS founders and observing their painful growth journey, I realized the potential in these words. Yet, a series of market shifts are changing the world order of SaaS putting at test India’s position as a premier hub for SaaS.

TL;DR

The SaaS 3.0 market shifts are changing how global customers perceive value from SaaS products:

  • Tools which provide higher levels of automation & augmentation are valued more.
  • Comprehensive solutions in place of single point products is a preference.
  • Interoperability across the gamut of systems is an expected norm.

Startups, you have to build your new orbit to solve for these evolving needs. First, focus on delivering a 5x increase in customer value through an AI-enabled proposition. Next, build your proprietary data pot of gold, which can also serve as a sustainable moat. Lastly, leverage platforms & partnerships to offer a suite of products and solve comprehensive customer scenarios.

Read more on how the convergence of market shifts are impacting SaaS 3.0.

Quick background

While the SaaS industry began over 2 decades ago, many say it is only now entering the teenage years. Similar to the surge of hormones which recently brought my teenage daughter face-to-face with her first pimple. And she is facing a completely new almost losing battle with creams and home remedies. In the same vein, convergence of several market shifts – technology, data, economics, geopolitics – combined with deep SaaS penetration is evolving the industry to a new era. This rare convergence – like the convergence of the nine realms in Thor Dark World – is also rapidly changing how customers perceive the capability of SaaS products.

Convergence #1 – SaaS penetration is exploding!

I learned from Bala at Techstars India that they received a record number of applications for their first accelerator program. 60% of these were building or ideating some form of B2B SaaS offering. It would seem to justify the message above, that SaaS in India has grown legs, building a true viral movement, replicating momentum. Yet in these large numbers, there is also a substantial ratio of repetitive products to innovations. Repetitive in say building yet another CRM, or mindlessly riding a trend wave such as chatbots. Without an increased pace of innovation beyond our existing successes, we cannot continue to be a premier hub.

In 2018 SaaS continued to be the largest contributor to cloud revenue growth at 17.8% (it was down from 20.2% in 2017). Competition is heating up in all categories of SaaS. 10 years ago, an average SME customer was using 2 apps, now it averages at 16 apps. 5 years ago, a SaaS startup had on average 3 competitors, now a SaaS startups averages at 10 customers right out the door. Many popular SaaS categories are  “Red Oceans”. Competing in these areas is typically on the basis of features or price, dimensions which are easy for any competition to catch up on. There is a need for startups to venture deeper into the sea and discover unserved & unmet customer needs in a “Blue Ocean” where they have ample opportunity to fish and build a sustainable moat.

AppZen started with an opportunity to build conversational chatbots for employees, helping them in an enterprise workflows on various aspects like sales & expenses, and several other companies are doing the same. But as they went deeper to understand the customer pains, they were able to identify an unserved need and pivoted, leveraging the same AI technology they had built, to solve for T&E expense auditing. Being a first mover to solve this problem, they are carving out leadership in this underserved space and is one of the fastest growing SaaS startups of 2018.

Convergence #2 – Impending recession in 2019/2020!

On average recessions come every four years and we are currently 9 years from the last recession. The war between the Fed vs the US govt on interest rates, the recent US govt shutdown on a frivolous $B wall, the tariff and trade war between the US and China, are all indicative reasons for an upcoming recession. In such an uncertain economy, customers experience reduced business activity and alter their behavior and preferences:

  • Customers will become crystal clear about satisfying their core needs versus nice-to-haves.
  • They will seek high automation tools to help not only cut costs but also to make strategic decisions for an upside.
  • Many will prefer a suite of tools instead of buying multiple single point products.
  • They will also slow down POC, investment, partnership activities.

In a way, this is mixed news. Companies often pursue low-cost digital products with SaaS being a natural choice. However, combined with the competitive SaaS landscape, businesses become very selective. To be recession-proof startups must:

  1. Collaborate and partner with other vendors to build a shared view of the larger customer scenarios. Innovate to share (anonymized) data/intelligence.
  2. Partner to deliver a comprehensive solution instead of solving for a gap. 
  3. Invest & experiment in building solid AI-enabled automation for improving efficiency and decision making.

E.g. Clearbit’s approach to provide API and allow customers to leverage the value it provides, by integrating with common platforms such as Slack or Gmail which customers frequently use. In this approach they are reducing app switching and embedding the niche usecase into the larger customer workflow environment.

Another e.g. Tact.ai is helping increase sales team efficiency and bring visibility of field data to the leadership team. They are not only solving the core salesforce data entry problem for field sales, but with better data in the system, businesses now get better visibility about sales activities and can take effective strategic decisions.

Convergence #3 – the AI/ML gold rush!

During the dot com & mobile rush in early 2000, I watched many a friend jump ship to build a startup. At that time the web was flush with rich content, but the mobile web was in its early growth and innovative ways to bring web content onto mobile phones were being explored. Automated conversion of HTML to WML was a hot topic. But the ecosystem conditions were not aligned for completely automated WML transformations. Several startups in this space including my friend’s startup shut for such reasons.

More recently in 2016-17 Chatbots were projected to be the next big thing and it too suffered from similar misalignment. Chatbots were the first attempt to bring AI/NLP for customer interaction. However, they lacked the depth of ecosystem conditions to make them successful. 

  1. Bots were treated as a panacea for all kinds of customer interactions and were blindly applied to problems. 70% of the 100,000+ bots on Facebook Messenger fail to fulfill simple user requests. This is partly a result of not focusing on one strong area of focus for user interaction.
  2. Bots were implemented with rule-based dialogues, there was no conversational design built into it. NLP is still in its infancy and most bots lacked data to provide meaningful interactions. They were purely a reflection of the level of detail and thought that went into the creation of the bots.

AI/ML, however, is suffering from the “hype” of an “AI/ML hype”. There is a considerable depth within the AI/ML ecosystem iceberg. Amazon, Google, Microsoft…OpenSource are continuously evolving their AI stack with higher and higher fidelity of tools & algorithms. You no longer need fancy degrees to work the AI tools and automate important customer workflows or scenarios. 

Yet it is easier said than done. Most startups on the AI journey struggle to get sufficient data to build effective ML models. Further, data privacy has increased the complexity of sharing data, which now resides in distant silos. While internal proprietary data is a rich source of patterns, often times it is incomplete. In such cases, entrepreneurs must innovate, partner, source to build complete data as part of their data collection strategy. A strong data collection strategy allows for a sustainable moat. 

AIndra multiplied 7000 stains into 7M data points by splitting into microdata records. DataGen a startup in Israel, is generating fake data to help startups train models. The fake data is close enough to real data that the use is ethical and effective. Startups like Datum are building data marketplaces using blockchain to democratize data access. 

As mentioned many of the AI tools are limited in their constraints. Meanwhile, getting familiar with the capabilities and limitations of the necessary tools will help form a strategy path to solving the larger customer scenarios. 

Tact.ai faced the constraint by the limitations of the Alexa API. However, instead of building their own NLP they focused on working around the constraints, leveraging Alexa’s phrase based recognition to iteratively build value into their product. During this time, they continue to build a corpus of valuable data which will set them up for high growth when the NLP stack reaches higher fidelity.

Solving for the Hierarchy of Customer Needs

The convergence of SaaS penetration, AI/ML, data & privacy, uncertain economy & global policies… the customer expectations are rising up the Maslow’s hierarchy of needs. SaaS 1.0 was all about digital transformation on the cloud. SaaS 2.0 focused on solving problems for the mobile first scenarios. In the SaaS 3.0 era, the customer expectations are moving to the next higher levels. They will:

  • Prefer comprehensive solutions in place of single point products.
  • Expect interoperability across the gamut of systems.
  • Need tools which provide higher levels of automation & augmentation.

For startups who want to fortify their presence in the SaaS 3.0 era :

  1. Begin with a strong AI value proposition in mind, regardless if it is AI-first or AI-second. Articulate the 5x increase in value you can deliver using AI, which wasn’t feasible without AI. 
  2. Build your proprietary data pot of gold. And, where necessary augment with external data through strategic partnerships. A strong data lever will enable a sustainable moat. 
  3. Leverage platforms & partnerships to offer a suite of products for solving a comprehensive customer scenario.

Remember it is a multi-year journey, Start Now!

 

I would like to acknowledge Ashish Sinha (NextBigWhat), Bala Girisabala (Techstars India), Manish Singhal (Pi Ventures), Suresh Sambandam (KiSSFlow), and Sharad Sharma (iSPIRT) who helped with data, insights and critical feedback in crafting this writeup. Sheeba Sheikh (Freelance Designer) worked her wonderful illustrations which brought the content to life. 

Interesting Reads

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White Paper On Section 56(2)(viib) And Section 68 And Its Impact on Startups In India

Angel Tax (Section 56(2)(viib)) has become a cause celebre in Indian startup circles due to its broad-reaching ramifications on all startups raising capital.

This paper traces the origin of this section, it’s analysis, impact, how it adversely affects startups. Special mention is also made of the seldom covered Section 68 and it’s used in conjunction with Section 56(2)(viib). The paper also proposes recommendations to ensure that genuine companies are not aggrieved by this while the original intent of the section is preserved.

For any support or query, please write to us at [email protected]

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AI/ML is not Sexy

One would think that the new sexy in the startup capital of the world is self-driving cars, AI/ML… I got news for you! AI/ML (esp. Machine Learning) is not listed in Gartner’s hype cycle for 2018.

Source: https://commons.wikimedia.org/wiki/File:Hype-Cycle-General.png

This was corroborated on my recent trip to the valley and the US east coast, where I met several investors, founders, corp dev and other partners of the startup community. It was evident that the AI/ML hype which peaked in 2016 & 2017 is no longer considered a buzzword. It is assumed to be table stakes. What you do with AI/ML is something everyone is willing to listen to. Using AI/ML to solve a high-value B2B SaaS problem is Sexy! (Gartner trends for 2018).

As the hype with AI/ML settles down, B2B startups across the globe are discovering the realities of working the AI/ML shifts for SaaS. Many AI tools & frameworks in the tech stack are still evolving and early pioneers are discovering constraints in the stack and creatively building workarounds as they build their products.

Many entrepreneurs are watching from the sidelines the unfolding of the AI/ML hype, wondering on many valid questions like these (and more):

Q: Do I have to stop what we are building and jump onto the AI bandwagon? No.
Q: Are the AI/ML resources mature & stable to build better value products? No, they are still evolving.
Q: Do I need expensive investments in constrained resources? No, not until you have a high-value problem to solve.

B2B SaaS startups go through 2 key struggles. How to find market-fit and survive? And how to stay relevant and grow. And if you don’t evolve or reinvent as the market factors change, there are high chances for an upstart to come by and disrupt you. The iSPIRT entrepreneur playbooks look to help entrepreneurs get clarity on such queries and more. Our goal is to help our startups navigate such market shifts, stay relevant and grow. Our mini roundtables Playing with AI/ML are focused on WhyAI for SaaS discussions in multiple cities. If you or a startup you know may benefit do register

The MiniRT Agenda

Seeding & creating an active discussion on Why AI/ML? What is the higher order value being created? How to identify the value & opportunities to leverage AI? How to get started with an AI playground (if not already running)? How to think of data needs for AI/ML investments, How to address the impact on Product & Business… Insights from these sessions are meant to help refine our approach & readiness to leverage AI/ML for building higher order value products. And in doing so building a vibrant community focused around navigating this shift.

Upcoming PlaybookRTs on AI/ML

6-Oct (Chennai) 10 am – 1 pm – MiniRoundTable on WhyAI for B2B SaaS – Shrikanth Jagannathan, PipeCandy Inc
18-Oct (Bangalore) 6 pm – 8 pm – MiniRoundTable with Dr Viral Shah on AI/ML Tools & discuss your ML/DeepLearning challenges
27-Oct (Delhi/Gurgaon) 2 pm – 6 pm – MiniRoundTable on WhyAI for B2B SaaS, Adarsh Natarajan, CEO & Founder – Aindra Systems
TBD (Bangalore) – MiniRoundTable on WhyAI for B2B SaaS, (based on registered interest)
TBD (Mumbai) – MiniRoundTable on WhyAI for B2B SaaS, (based on registered interest)

The AI+SaaS game has just begun and it is the right time for our hungry entrepreneurs to Aspire for the Gold, on a reasonable level playing field.

Click to Register for the AI/ML Playbooks Track.

Please note: All iSPIRT playbooks are pro-bono, closed room, founder-level, invite-only sessions. The only thing we require is a strong commitment to attend all sessions completely and to come prepared, to be open to learning & unlearning, and to share your context within a trusted environment. All key learnings are public goods & the sessions are governed by the Chatham House Rule.

Image source: https://commons.wikimedia.org/wiki/File:Hype-Cycle-General.png

Interesting Reads

https://factordaily.com/indian-saas-ai-hurdle/

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It takes time to build something successful!

Since SaaSx second edition, I have never missed a single edition of SaaSx. The 5th edition – SaaSx was recently held on the 7th of July, and the learnings and experiences were much different from the previous three that I had attended.

One primary topic this year was bootstrapping, and none other than Sridhar Vembu, the CEO and Founder of Zoho, was presenting. The session was extremely relevant and impactful, more so for us because we too are a bootstrapped organisation. Every two months of our 4.5 year-long bootstrapped journey, we have questioned ourselves on whether we have even got it right! If we should go ahead and raise funds. Sridhar’s session genuinely helped us know and understand our answers.

However, as I delved deeper, I realised that the bigger picture that Sridhar was making us aware of was the entrepreneurial journey of self-discovery. His session was an earnest attempt to promote deep thinking and self-reflection amongst all of us. He questioned basic assumptions and systematically dismantled the traditional notions around entrepreneurship. Using Zoho as an example, he showed how thinking from first principles helped them become successful as a global SaaS leader.


What is it that drives an entrepreneur? Is it the pursuit of materialistic goals or the passion to achieve a bigger purpose? The first step is to have this clarity in mind, as this can be critical in defining the direction your business would take. Through these questions, Sridhar showed that business decisions are not just driven by external factors but by internal as well.

For example, why should you chase high growth numbers? As per him, the first step to bootstrapping is survival. The top 5 goals for any startup should be Survive, Survive, Survive, Survive, Survive. Survival is enough. Keep your costs low and make sure all your bills are paid on time.  Cut your burn rate to the lowest. Zoho created 3 lines of business. The current SaaS software is their 3rd. They created these lines during their journey of survival and making ends meet.


Why go after a hot segment (with immense competition) instead of a niche one?  If it’s hot, avoid it i.e. if a market segment is hot or expected to be hot, it will be heavily funded. It will most likely be difficult to compete as a bootstrapped organisation and is henceforth avoidable. Zoho released Zoho docs in 2007, but soon as he realized that Google and Microsoft had entered the space, he reoriented the vision of Zoho to stay focused on business productivity applications. Zoho docs continues to add value to Zoho One, but the prime focus is on Applications from HR, Finance, Support, Sales & Marketing and Project Management.  Bootstrapping works best if you find a niche, but not so small that it hardly exists. You will hardly have cut throat competition in the niche market and will be able to compete even without heavy funding.

Most SaaS companies raise funds for customer acquisition. Even as a bootstrapped company customer acquisition is important. As you don’t have the money, you will need to optimise your marketing spend. Try and find a cheaper channel first and use these as your primary channel of acquisition. Once you have revenue from the these channels, you can start investing in the more expensive one. By this time you will also have data on your life time value and will be able to take better decisions.

Similarly, why base yourself out of a tier 1 city instead of tier 2 cities (with talent abound)? You don’t need to be in a Bangalore, Pune, or a Mumbai to build a successful product. According to Sridhar, if he wanted to start again, he would go to a smaller city like Raipur. Being in an expensive location will ends up burning your ‘meager monies’ faster. This doesn’t mean that being in the top IT cities of India is bad for your business, but if your team is located in one of the smaller cities, do not worry. You can still make it your competitive advantage.

Self-discipline is of utmost importance for a bootstrapped company. In fact, to bootstrap successfully, you need to ensure self-discipline in spends, team management, customer follow-ups, etc. While bootstrapping can demand frugality and self-discipline, the supply of money from your VC has the potential to destroy the most staunchly disciplined entrepreneurs as well. Watch out!

And last but not the least – It takes time to build something successful. It took Zoho 20 years to make it look like an overnight success.

This blog is authored by Ankit Dudhwewala, Founder – CallHippo, AppItSimple Infotek, Software Suggest. Thanks to Anukriti Chaudhari and Ritika Singh from iSPIRT to craft the article.

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SaaSy bear SaaSy bear what do you see?

Shifts for SaaS - SaaSy Bear

I see 3 shifts critical for me!

Taking a line from the popular Brown Bear children’s book, I believe that our SaaS startups have a real opportunity to leverage some leading shifts in the global SaaS evolution. While there are many areas of change – and none less worthy than the other – I am highlighting 3 shifts for SaaS (tl;dr) which our entrepreneurs can actually work with and help change their orbit:

  • Market shifts with AI/ML for SaaS to build meaningful product & business differentiation,
  • Platform Products shift to transform into a multi-product success strategy,
  • Leveraging Partnerships for strategic growth and value co-creation.

Some background

I joined iSPIRT with a goal to help our community build great global products. I believed (and still do) that many entrepreneurs struggle with the basics of identifying a strong value proposition and build a well thought out product. They need strong support from the community to develop a solid product mindset & culture. My intent was to activate a product thinkers community and program leveraging our lean forward playbooks model.

I had several conversations with community members & mavens on playbooks outcomes and iterating our playbook roundtables for better product thinking. I realized that driving basic product thinking principles required very frequent and deeper engagement with startups. But our playbooks approach model – working in a distributed volunteer/maven driven model – is not set up to activate such an outcome. Through our playbooks model, our mavens had helped startups assimilate best practices on topics like Desk Sales & Marketing, something that was not well understood some years back. This was not a basic topic. The power of our playbook RTs was in bringing the spotlight on gaps & challenges that were underserved but yet highly impactful.

As a product person, I played with how to position our playbooks for our entrepreneur program. I believe our playbooks have always been graduate-level programs and our entrepreneurs are students with an active interest to go deep with these playbooks, build on their basic undergraduate entrepreneurship knowledge, and reach higher levels of growth.

The product thinking and other entrepreneurial skills are still extremely relevant, and I am comforted by the fact that there are many community partners from accelerators like Upekkha to conclaves like NPC and event-workshop formats like ProductGeeks which are investing efforts to build solid product thinking & growth skills.

As the SaaS eco-system evolves, and as previous graduate topics like desk sales & marketing are better understood, we need to build new graduate-level programs which address critical & impactful market gaps but are underserved. We need to help startups with meaningful & rapid orbit shifts over the next 2-3 years.

Discovering 3 Shifts for SaaS

Having come to this understanding I began to explore where our playbooks could continue to be a vibrant graduate-level program and replicate our success from the earlier playbooks. Similar to an entrepreneur’s journey, these three shifts became transparent through the many interactions and explorations of SaaS entrepreneurs.

Market Shift with AI/ML for SaaS

There is no doubt that AI is a tectonic shift. The convergence of big data availability, maturity of algorithms, and affordable cloud AI/ML platforms, has made it easy for SaaS startups to leverage AI/ML. During a chance roundtable learning session on Julia with Dr. Viral Shah & Prof Alan Edelman, it was clear that many entrepreneurs – head down into their growth challenges – were not aware of the realities behind the AI hype. Some thought AI/ML should be explored by their tech team, others felt it required a lot of effort & resources. The real challenge, however, is to discover & develop a significantly higher order AI-enabled value to customers than was feasible 2 years ago. While AI is a technology-driven shift, the implications for finding the right product value and business model are even greater.

As I explored the AI trend I saw a pattern of “gold rush” – build a small feature with rudimentary AI, market your product as an AI product… – making early claims with small changes which do not move the needle. It became clear that a step-by-step pragmatic thinking by our SaaS startups was required to build an AI-based leapfrog value proposition. This could help bring our startups to be at “par” and potentially even leap ahead of our global brethren. Here was an opportunity to create a level playing field, to compete with global players and incumbents alike.

To validate my observations, I did quick small research on SaaS companies outside of India on their approach with AI. I found quite a few startups where AI was already being leveraged intrinsically and others who were still trying to make sense. Investments varied from blogging about the AI trend, branding one as a thought leader, to actually building and delivering a strongly differentiated product proposition. E.g.:

There are no successes, yet! Our startups like Eka, Wingify, FreshWorks, WebEngage… have all been experimenting with AI/ML, stumbling and picking themselves up to build & deliver a higher level of value. Some others are setting up an internal playground to explore & experiment. And many others are waiting on the shore unsure of how to board the AI ship.

How do we enable our companies to create new AI playgrounds to analyze, surface, validate and develop higher order customer values & efficiencies? To chart a fruitful journey with AI/ML there are many challenges that need to be solved. And doing it as a group running together has a better chance of success.

The AI+SaaS game has just begun and it is the right time for our hungry entrepreneurs to Aspire for the Gold on a reasonable level playing field.

Shift to Platform Products

As market needs change, the product needs a transform. As new target segments get added different/new product assumptions come into play. In both these scenarios existing products begin to age rapidly and it becomes important for startups to re-invent their product offerings. To deal with such changes startups must experiment and iterate with agility. They require support from a base “internal” platform to allow them to transform from a single product success strategy to scaling with multiple products strategy.

This “internal” base platform – an infrastructure & layout of technology components to interconnect data & horizontal functional layers – would help to build & support multiple business specific problem-solution products (vertical logics). The products created on such a platform provide both independent as well as a combined value proposition for the customers.

Many startups (Zendesk, Freshdesk, Eka, WebEngage…) have undertaken the painful approach of factoring an internal platform to transform their strategy & opportunity. Zoho has been constantly reinventing itself and launching new products on a common platform, some of which are upending incumbent rivals in a very short period of time. WebEngage transformed itself from a “tool” into an open platform product.

“As the dependency on our software grew, customers needed more flexibility to be able to use their data to solve a wide range of business problems…significant difference in the way we build products now. We have unlocked a lot of value by converting ourselves into an open platform and enabling customer data to flow seamlessly across many products.” – Avlesh Singh, WebEngage

The effort to build an internal platform appropriately architected to support growing business needs (many yet unknown) is non-trivial and requires a platform thinking mindset for increased business development. It must be architected to allow rapid co-creation of new & unique product values in collaboration with external or market platforms. This can help the startup be a formidable player in the growing “platform economy”.

Leveraging Potential Strategic Partnerships

A strategic partner offers 2 benefits for startups. First is the obvious ability to supercharge the startup’s GTM strategy with effective distribution & scale. How does one make a strategic partnership? Pitching to a strategic partner is very different from pitching to a customer or investor. PSPs look for something that is working and where they can insert themselves and make the unit economics even better. 

“I thought I knew my pitch and had the details at my fingertips. But then I started getting really valuable, thought-out feedback…I had to focus on pitching to partners, not customers.” – Pallav Nadhani, FusionCharts

The second leverage with a partner is the ability to innovate in the overlap of the partner’s products & offerings and the startup’s product values. A good partner is always looking for startups which can co-create a unique value proposition and impact an extremely large customer base.

“…we still have only three four percent market share when it comes to customers. So if we have to participate we have to recognize that we are not gonna be able to do it alone we’re going to have to have a strategy to reach out to the entire marketplace and have a proposition for the entire marketplace…you need to (do it) through partnerships.” – Shikha Sharma, MD Axis Bank

Both these partnership intents if nurtured well can bring deep meaningful relationship which can further transcend scale into a more permanent model (investment, M&A…).

Working with the 3 Shifts of SaaS

While each shift is independent in its own importance, they are also inter-related. E.g. an internal platform can allow a startup to co-create with a partner more effectively. Partners are always interested in differentiated leading-edge values such as what is possible with leveraging AI/ML. Magic is created when a startup leverages an internal platform, to co-create a strong AI-enabled value, in the overlap & gap with potential strategic partners.

And that’s what I see

I see a vibrant eco-system of SaaS startups in India working on creating leading global products. Vibrancy built on top of the basic product thinking skills and catapulted into a new orbit by navigating the 3 shifts.

“Reading market shifts isn’t easy. Neither is making mindset shifts. Startups are made or unmade on their bets on market/mindset shifts. Like stock market bubbles, shifts are fully clear only in hindsight. At iSPIRT, we are working to help entrepreneurs navigate the many overlapping yet critical shifts.” – Sharad Sharma, iSPIRT

Through our roundtables, we have selected six startups as the first running group cohort for our AI/ML for SaaS playbooks (Acebot, Artoo, FusionCharts, InstaSafe, LegalDesk & SignEasy).

If you are hungry and ready to explore these uncharted shifts, we are bringing these new playbooks tracks for you.

Please let us know your interest by filling out this form.

Also, if you are interested in volunteering for our playbook tracks, we can really use your support! There is a lot to be done to structure and build the playbook tracks and the upcoming SaaSx5 for these shifts for SaaS. Please use the same form to indicate your support.

Ending this note with a sense of beginning, I believe that our startups have a real opportunity to lead instead of fast-follow, create originals instead of clones. They need help to do this as a running group instead of a solo contestant. It is with this mission – bring our startups at par on the global arena – that I am excited to support the ProductNation.

I would like to acknowledge critical insights from Avlesh Singh (WebEngage), Manav Garg (Eka), Shekhar Kirani (Accel Partners), Sharad Sharma (iSPIRT). Also am thankful for the support from our mavens, volunteers & founders who helped with my research, set up the roundtables, and draft my perspective with active conversations on this topic: Ankit Singh (Wibmo/MyPoolin), Anukriti Chaudhari (iSPIRT), Arvi Krishnaswamy (GetCloudCherry), Ganesh Suryanarayanan (Tata GTIO), Deepa Bachu (Pensaar), Deepak Vincchi (JuliaComputing), Karthik KS (iSPIRT), Manish Singhal (Pi Ventures), Nishith Rastogi (Locus.sh), Pallav Nadhani (FusionCharts), Praveen Hari (iSPIRT), Rakesh Mondal (RakeshMondal.in), Ravindra Krishnappa (Acebot.ai), Sandeep Todi (Remitr), Shrikanth Jangannathan (PipeCandy), Sunil Rao (Lightspeed), Tathagat Varma (ChinaSoft), Titash Neogi (Seivelogic), and many other volunteers & founders.

All images are credited to Rakesh Mondal 

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India SaaS Survey 2017 – Results

Welcome to the Third edition of the India SaaS Survey by DCS Advisory, India’s largest software investment banking advisory practice, in partnership with iSPIRT Foundation.

What is the survey about?

The survey aims to anonymously benchmark Indian SaaS companies to better understand the unique challenges they face and the unique advantages they leverage, creating a single reference point updated annually.

What’s New?

In-line with our goal of constantly improving the quality of our survey we have added two new sections this year, one covering Inside Sales and the other looking at Product Market Fit. Our interactions with SaaS founders and various other stakeholders in the ecosystem clearly identified these topics as the most valuable for the founders of our young ecosystem. We have also added new analyses to previous sections which we hope will further enrich the survey.

Decoding the Results

This year, we have received responses from 59 respondents with an aggregate ARR of ~$175Mn, including some of the most prominent SaaS companies operating in India. We sincerely thank all participants for their time and effort in completing this survey and look forward to ever-increasing participation every edition going forward.

Some key takeaways from the survey are:

  1. Our typical (median) respondent this year is at $0.75M in ARR, likely to be Bangalore or Chennai headquartered (58%) and was founded in 2014 or later
  2. Whereas last year we noted a ‘paucity of machine focused SaaS’, this year infrastructure SaaS made it into the top 3 amongst horizontal focus areas (and took in >50% of horizontal funding)
  3. Overall our respondents grew faster than last year and continue to be bullish on the future, looking towards North America for growth
  4. Inside sales is now the most popular sales channel in our ecosystem but, based on our data, does not yet conclusively outperform the more established FoS channel. In the years to come, particularly for startups selling overseas, we expect this to change
  5. ~50% of our respondents that focus on Inside sales boast a conversion rate of 10-25%. We look forward to tracking this metric in future editions of this survey
  6. 92% of our respondents believe they have achieved product market fit, further indicating that it takes a period of 12-24 months with about 3 product releases to get there (see commentary below).
  7. Across the board our respondents typically earn gross margins in the range of 60-70%, with R&D being the largest expense post gross margins
  8. Our typical respondent reported ~10% annual churn (which may be under reported). We believe the customer lifetime is likely somewhere in between at 5-6 years
  9. Over a third of our sample has never raised external capital. Those that have, have raised $1-5Mn (median) at 7.5-10.0x of ARR (median).

Commentary on PMF

Additional correlations which cannot be derived conclusively from the collected data but I still believe to be relevant so highlighting here as a commentary:

  • Quicker product-market fit seems like a major factor in reaching >$1M ARR .
  • Startups who reached product-market fit in <1 year are more likely to hit > $1M ARR in < 2 years.
  • Approximately 50% of startups who took longer to reach PMF have not yet reached $1M ARR.
  • While Sales & Marketing was clearly listed as the top challenge on the journey to $1M, PMF was more of a challenge for startups who took longer to reach market-fit.

As before, we remain committed to refreshing the survey results on an annual basis. As the India SaaS ecosystem continues to grow, we fully expect to increase overall survey participation, as well as the insights and bench marking data provided. You can also read the results of the previous 2016 SaaS survey and the 2015 Survey results.

Note: Feature image original source – Nick Youngson

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Are you ready to Jump with AI/ML? [Updated Session Dates]

[Update 6-Apr] New April Session Dates – Symposium RT is being scheduled on Saturdays for Bangalore & Chennai (21st & 28th April). 

Playbooks for Electrifying SaaS and more.

This is what we call the fourth industrial revolution…And companies are really transforming and bringing all these new technologies to connect with their customers in new ways.
– Dreamforce 2017 Keynotes, Marc Benioff.

There is no doubt that Artificial Intelligence (AI), is one of the recent “tectonic” market shifts, creating a change in landscape, market, and opportunity. AI and  Machine Learning (ML), now in its eternal spring, has a deep impact on SaaS evolution. While the incumbent companies like Salesforce, Zendesk, Workday, have all invested heavily in AI, also global challengers across many verticals from Sales, BPM, CRM… to Security are focused on building higher order efficiencies and automation through AI/ML.

Over the last few years, our Indian SaaS entrepreneurs trumped the global SaaS growth by leveraging mobile first as there was no baggage of desktop, reduced sales & onboarding cost by perfecting the art of Inside Sales & Inbound Marketing, and efficient after sales support & service by leveraging remote success representatives. Our SaaS Mavens helped disseminate these leverages by sharing the best practices & modeling internal flywheels & experimentations. Many SaaS entrepreneurs successfully assimilated and got a significant boost in their growth journey. These levers are now basic table stakes for most SaaS startups.

AI has no breakthrough success stories, but it is helping create a level playing field – especially for our Indian entrepreneurs – to compete with global players and incumbents alike. Startups willing to make the jump, adapt AI into their products & business models to create meaningful differentiation, will experience a strong wind in their sails to leapfrog over the players who don’t.

Our entrepreneurs have a rare opportunity to be early adopters & global trailblazers. 

To take advantage of this our entrepreneurs ask very valid questions.

Q. Why & How should we entrepreneurs navigate this AI market shift? 
Q. How should we, given that we are untrained in AI, grapple with the 360° impact of AI on product, business, and technology?
Q. What AI leverage can we develop without requiring expensive investments for constrained resources? 

How do we enable our companies to create new AI playgrounds to analyze, surface, validate and develop higher order customer values & efficiencies?

AI Playbooks

Since adapting to the AI “tectonic” shift requires a new paradigm of thinking, we have launched a multi-step playbooks track focused on Playing with AI/ML for Indian entrepreneurs. In line with iSPIRT’s mission, our playbooks purpose is to help market players navigate market shifts. The goal is to bring the practitioner knowledge from AI Mavens – AI-first entrepreneurs who are further ahead in their AI journey – to the AI-hungry startups and help them perfect the model of working with AI, get traction towards a meaningful AI-enhanced value, and become trailblazers for the community. If you are an AI-hungry startup who has either taken the plunge with AI/ML but early in your journey, or are actively looking to leverage AI/ML for your current products, then following the stepped approach below may help:

Step 1 – Attend an AI/ML Symposium RT – Getting prepared with Why AI and How AI. In our first kickoff session on 10-Mar, we had great discussions on AI data maturity, what can drive your AI approach, and more with our AI Mavens and ten startups (read more).

Step 2 – A cohort of startups from step 1 will be taken through multiple AI/ML Playbook RT for How AI – deep dives on topics to help with structuring an internal AI playground, competency with data product management, product positioning & branding, business model shifts, and more.
• These playbook RTs will help the startups carve out a lean playground for rapid experimentation and analysis, with a 3-4 person team of a data PM, & engineers. The team, actively lead by the founder, runs regular sprints (business/product/engineering sprints) of experimentation and validation, and have review touchpoints at intervals with AI-Mavens and the cohort as a running group.
• There is also an optional Tech Training Lab to build internal ML competency with a multi-day workshop with Julia experts.

Four startups have been initially selected for the cohort for the step 2 AI playbook RTs (Acebot, FusionCharts, InstaSafe & LegalDesk).

SaaSx5 – June 2018

We are working to set up the 5th version of our marquee SaaSx to engage with the larger SaaS startup community. We will definitely focus on the impact of AI/ML on SaaS and have workshops based on our momentum of the playbooks track on various topics above. Date & details to be announced shortly.

The AI+SaaS game has just begun and it is the right time for our hungry entrepreneurs to Aspire for the Gold, on a reasonable level playing field.

Click to Nominate or Register a startup for the AI/ML Playbooks Track.

Dates & Venue

AI/ML Symposium RT #1 – 10th Mar (Sat) 2p – 5p Done (read more)
AI/ML Symposium RT #2 – 21st Apr (Sat) 11a – 2p @ Bangalore TBD
AI/ML Symposium RT #3– 28th Apr (Sat) 10a – 1p @ Chennai TBD

May the force be with you!

* All iSPIRT playbooks are pro-bono, closed room, founder-level, invite-only sessions. The only thing we require is a strong commitment to attend all sessions completely, to come prepared, to be open to learning & unlearning, and to share your context within a trusted environment. All key learnings are public goods & the sessions are governed by the Chatham House Rule.

Featured image modified from source: https://www.flickr.com/photos/jedimentat/7557276684

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Playing with the new Electricity – AI/ML Playbook Sessions [March Update]

[Update 29-Mar] New April Session Dates – Symposium RT is being scheduled for Bangalore & Chennai (21st & 28th April). 

“Tectonic” market shifts happen every few years creating a change in landscape, market and opportunity. The most recent “tectonic” shift is the emergence of the Artificial Intelligence era. In just the same way electrification in the early 1900s transformed major industries globally, AI, Machine Learning & Deep Learning are poised to transform a multitude of industries, services & products.

It took 100 years from the discovery of electrical generator to electrification of industries. AI is doing this in a span of 70 years (from the time of the Turing Test).

AI/ML has gone through many winters and is now in its eternal spring. It portents a new framework for startups to navigate and evolve from an internet era startup into an AI era startup.


Every new era shift begins with a lot of smoke and hype before it is well understood. iSPIRT ProductNation & Julia are launching a set of AI/ML playbook roundtable & workshop sessions to dispel the hype around AI, and help bring a pragmatic mindset & process change necessary for product startups to leverage AI/ML. We believe AI is not just a technology shift. It is a combination of product, business, and technology shift. Adapting to it requires a new paradigm of thinking to build a viable value strategy. This needs to be done mindfully and in context of the value you offer to the customer, do not rush in with the AI hype.

These multi-step playbooks are for all categories of startups regardless whether they are AI-First or SaaS, and MarTech, FinTech, HealthTech or any other <Domain>Tech category, startups who are looking to deliver a higher order value to their customers by leveraging and applying AI models with their data.

Since AI/ML is still in its early years there aren’t any proven success playbooks. Hence these deep sessions will bring together AI experts, AI Mavens (entrepreneurs who are more ahead in their AI journey), iSPIRT Mavens, and selected startups, to discuss & share their insights, challenges & learnings on the mindset shifts outlined above and best practices adopted. The 2-step playbook roundtable sessions focused on founders (+1 typically CXO) and a hands-on lab workshop are a sequence of:

    • AI/ML Symposium RT (step 1) – An invite-only 3 hour mini-symposium playbook with AI/ML experts, first mover AI leaders & Mavens from our startup community and 10-15 invited startups, focusing on Why AI/ML? What was the higher order value being created? How to identify the opportunities to leverage AI? What do you need to get started with AI (if not already running)? Data needs for AI/ML investments… The shared awareness created in this session, combined with the commitment by startups to articulate their AI/ML opportunity, and detail their approach will lead to the next AI/ML roundtable.
    • AI/ML Playbook RT (step 2) – Startups at similar AI readiness from the Symposium will be invited for a 5-hour deep-dive roundtable discussion on the AI/ML challenges in the context of the startup domain, effectively going through their AI/ML readiness & approach (a review & teardown). Topics would emerge from the Symposium RT and could cover data collection & modeling strategy, AI transformation algorithms, Business model innovation, Success metrics… This session is restricted to 5-6 startups (having similar AI needs) per roundtable and an AI Maven to facilitate the topics & discussion. Possible outcomes for each startup would be to develop an action plan/checklist for next few months of execution. Additionally, startups can identify a tiger tech team to go to the AI/ML Training Lab to get traction for their checklist…
    • AI/ML Training Lab with Julia Sandbox (optional) – A 3+ day workshop intended for the 3-4 person tiger tech teams (CTO, Engg, Data guy, PM…) from each startup. The workshop will help focus on building competency, getting traction & executing implementations related to the checklist developed at the roundtable.

For the first set of these playbooks, we are inviting nominations/applications for startup founders (+CXOs) who are either directly focusing on AI-based opportunity or have started integrating AI/ML as a core strategy for their product growth/success. Please provide your nomination for startups you believe should be part of the first series of the AI/ML playbooks. If you are a startup and interested to be part of this please register below. On final approval, an invite confirmation will be sent via email.

Please submit your nominations here. A registration link will be sent to your nominee.

Dates & Venue for the first of the series:

AI/ML Symposium RT #1 – 10th Mar (Sat) 2p – 5p Done
AI/ML Symposium RT #2 – 21st Apr (Sat) 11a – 2p @ Bangalore TBD
AI/ML Symposium RT #3– 28th Apr (Sat) 10a – 1p @ Chennai TBD
AI/ML Playbook RT – Apr-TBD (Sat) 11a – 5pm @ Bangalore TBD
AI/ML Training Lab w/ Julia – Apr-TBD @ TBD (Bangalore)

While the sessions are in Chennai/Bangalore, we believe this topic is of emergent interest to startups across the country and would invite all to register.

AI Mavens

Ashwin Ramasamy – PipeCandy
Manish Singhal – pi Ventures
Nishith Rastogi – Locus.sh
Shrikanth Jagannathan – PipeCandy

Cost

All iSPIRT roundtables are pro-bono (read below for how that works)

This series of playbooks is being setup by active support from our Mavens & Volunteers – Ankit Singh, Deepak Vinchhi, Karthik KS, Praveen Hari, Ravindra Krishnappa, Sandeep Todi.

P.S. Some great material for pre-reading

I strongly recommend all to go through many of these.

* All iSPIRT playbooks are pro-bono, closed room, founder-level, invite-only sessions. The only thing we require is a strong commitment to attend all sessions completely and to come prepared, to be open to learning & unlearning, and to share your context within a trusted environment. All key learnings are public goods & the sessions are governed by the Chatham House Rule.

* The Julia team is on a social mission to train a large number of people in India to develop grassroot skills and competency with AI & ML.

+Feature image from https://www.flickr.com/photos/gleonhard/34046647175/

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A Look Back At How Startup India Has Eased The Journey Of Startup And Investors

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It’s been two years since the fateful 2016 budget which recognised “Startups” as a separate breed of companies unto themselves, demanding bespoke treatment from the government and authorities. The clarity brought forth helped quell the nerves of both companies and investors, who had to otherwise resort to exotic exercises, supplementary structures, and platoons of professionals to keep their entrepreneurial dreams alive.

As we all await with bated breath for the slew of reforms expected of the Finance Minister, it behoves us to see how far we’ve come and how much further we need to proceed so that a billion dreams may become a reality.

This article is the first part of a two-part series which explores how Startup India has eased the friction in the Startup ecosystem so far, from an investor’s perspective with the second part talking about the next step of reforms which would have a multiplier effect on the ecosystem.

Flywheel of Funding

More often than not, any coverage about fundraising covers the journey of startups and entrepreneurs and the travails of raising their multimillion dollar rounds. But there exists another dimension to this story, that of fund managers raising their own funds. A large section of the investor community was elated that the government recognised this oft-ignored story and created the Rs 10,000 Cr (USD 1.5 billion) Fund of Funds managed by SIDBI which invests into SEBI registered AIFs and Venture Capital Funds.

This approach seeks to galvanise an ecosystem through a flywheel effect, instead of gardening it via direct intervention. The 10,000 Cr corpus can help seed AIFs worth Rs 60,000 Cr in India, which when fully deployed, is estimated to foment 18 lakh jobs and fund thousands of Indian startups. By contributing a maximum of 20% of the corpus of a fund, many fund managers can hasten they fundraise and concentrate more on helping their portfolio companies raise, instead of competing with them.

The Fund of Funds has invested into 88 AIFs so far, thus galvanising more than 5,600 Cr (USD 873 million) worth of investments into 472 Startups.

Bringing back tax breaks, not a back-breaking Tax

The Government’s support of Indian investors found its way into the Income Tax Act, with several measures to incentivise investments into the Indian Startup ecosystem, such as:

  • Insertion of Section 54 EE, which exempts Long-Term Capital Gains up to Rs 50 lakhs provided it has been invested in the units of a SEBI registered AIF
  • Insertion of section 54GB, which exempts Long-Term Capital Gains of up to Rs 50 lakhs provided it been invested into the shares of a Startup which qualifies for section 80IAC
  • Clarifying that the conversion of debentures or preference shares to equity shares will not be considered as a transfer and thus subject to capital gains at the point of conversion (the entire Venture Capital industry is based on convertible debentures and preference shares and this move has settled long-standing disputes regarding the instruments of investments)
  • Issuing a notification that the dreaded angel tax will not apply to shares issued at a premium to domestic investors by those startups who qualify under the DIPP scheme (although the scope of this needs to be extended to rid the spectre of angel tax that haunts various investors and entrepreneurs)
  • Clarifying that the stance of the assessee in categorising the sale of listed securities held for more than 1 year as Capital Gains or Income from Business can’t be questioned by the taxman
  • Changing the definition of a capital asset to include any securities held by a Foreign Portfolio Investor, thus removing the friction arising from asset classification (a similar provision is sorely needed for domestic hedge funds and Category III AIFs)

Capital without Borders

The Startup India scheme over the past few years has rolled out the red carpet to foreign investors while rolling back the red tape. The success of this is evidenced by the percentage of funding foreign capital represents in the Indian startup ecosystem, which is 9 times higher than domestic capital investment.

Some of the initiatives include:

  • Liberalising Foreign Direct Investment into most sectors including financial services, single brand retail, pharma, media and a host of other sectors up to 100% in most areas
  • Abolishment of the Foreign Investment Promotion Board
  • Relaxation of External Commercial Borrowings (ECBs) for Startups for up to USD 3 million
  • Allowing for issue of shares for non-cash consideration to non-residents under the automatic route
  • Marshalling foreign investment into Indian entities primarily for the purpose of investing in other Indian entities has been brought under the automatic route as opposed to the previous government approval route
  • Dismantling the approval mechanism for the transfer of securities by a Foreign Venture Capital fund to an Indian resident
  • Moving most of the filings (FCGPR, FCTRS, etc) to an online window managed by the RBI (ebiz.gov.in)

Well begun is half done

The government’s efforts to improve life for Startups in investors have begun to bear fruit in tangible ways as evidenced by the reduction in the number of companies seeking to have a Delaware entity with Indian operations. The recent leapfrog in the “Ease of Business” rankings also stands testament to this.

The Government must now seek to consolidate all these gains and clarify its stance and the stance of the tax department on long pending issues which have been a bane to all startups. While we have miles to go before we sleep, we must look back and take note of what we’ve achieved before we seek to scale greater heights.

This post has been authored by Siddarth Pai of 3one4 Capital

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Build On IndiaStack – Venture Pitch Competition

Announcing ‘Venture Pitch Competition: #BuildOnIndiaStack’

Dalberg and iSPIRT invite applications from early-stage ventures that are tech-
based solutions leveraging the India Stack platform at the core of their business
model to bring financial or transactional services to the underserved in India.
Pitch to some of the leading investors and thinkers in the Indian start-up ecosystem,
including the Bharat Innovations Fund, Omidyar Network and Unitus Seed Fund.
Winners will spend an hour of 'Think Time' – a mentorship session with
technology evangelist Nandan Nilekani.

Who are we looking for?

We are open to all innovations that use the India Stack to unlock new business
models or reach previously underserved new customer segments across sectors
such as financial services, education, healthcare and others. Some core focus areas
for the competition may include digital lending and supporting activities, such as
alternative credit scoring; sector specific affordable digital finance services such as
health insurance or education loans; sector specific digital services such as skilling
and certification, property registration agreements, patient-centric healthcare
management; and SaaS platforms “as a service” that support the development of
other India Stack based innovations such as Digi-locker or e-sign providers.

 

Who is eligible?
All applicants should:
1. Meet the 3-point criteria: tech enabled, leveraging India Stack Platform and
serving the underservedBe

2. Be a part of two (minimum) to four (maximum) members team including the
founder of the companyBe early stage start-ups that have received only seed (or limited angel)

3. Be early stage start-ups that have received only seed (or limited angel)
funding, if at all

 
What is in it for you?
The investor group, comprising of Bharat Innovations Fund, Omidyar Network and
Unitus Seed Fund, is a network of investors and operators, entrepreneurs and
technologists, designers and engineers, academicians and policy makers, with the
singular mission to solve some of India’s toughest problems.

Through this event you have an opportunity to receive:

-Exclusive focus on tech innovations that leverage the India Stack platform
and have the potential to address the underservedFlexible

-Flexible, insight driven, funding of up to Rs. 8 lakhs for early stage, innovative
modelsStrategic

-Strategic business support, through their specialists to support investees in
their strategy and growthA chance to be a part of the India Stack ecosystem through partnerships,

-A chance to be a part of the India Stack ecosystem through partnerships,
pilots, workshops, conferences and network building exercises

Visit www.buildonindiastack.in and send your pitch now.