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The link between corruption & early stage venture returns in India

As everyone knows, venture returns are determined by building innovative products and services that reach scale. The operative words being INNOVATIVE and SCALE. Stuff that has not been built or tried before, stuff that delivers much greater “value” to the customer. We also know that India early stage returns have not exactly been stellar. I’ll present one framework here which tries to link corruption to the challenge in venture returns.

I think everyone knows that the Indian consumer (and business customer) is very price sensitive. The question is why? I think in order to understand this, one needs to understand the concept of opportunity cost. Let me explain it through a small personal story. We had our first child in San Francisco and very close to our apartment there were good, but slightly more expensive, grocery stores. My wife and I would have to make a choice: should we spend extra 30-45 mins for groceries to get the cheapest price or pay the higher price but get that extra time with our daughter. More often than not we’d choose paying more because time everyday was finite and we wanted to get a lot done at home and at work. In other words, we appreciated “opportunity cost” – that our lives could be a little better by spending some money to get extra time at home. And there were similar examples where we’d spend the money so we could be more productive at work (and an implicit understanding that in the longer run that extra investment had greater returns). This was not always the case; growing up in India we were taught to be extremely price conscious. Pre-1991 reforms if you did not have a family business and worked for a public or private sector company, there was a very high correlation between age and salary. That was the result of a closed, license-raj driven economy. What that told the average worker is that no matter how hard you try your “topline” cannot grow all that much so the logical thing for each person to do was to really focus on cost management in order to get financial security. These behaviors were drilled into the Indian psyche for decades and such behaviors which have achieved scale are very hard to unravel. On the other hand, in an environment where your “topline” can grow rapidly depending on how hard & smart you worked, there is all the incentive to focus time and energy on growing the “topline” rather than cost management.

As the Indian economy opened up & wages rose, we have seen much higher levels of consumer spending. The challenge however has been that the habits of the past have been hard to break. While opportunity costs have risen, the appreciation of opportunity cost by a large percentage of the population will take multiple generations.

But the other big challenge in appreciating opportunity cost is also the quality of the day to day interactions. The reality is that daily interactions are very poor even today and therefore trust is very low. The bribery scandals, the rape cases, the worsening infrastructure, the hassles of dealing with law enforcement, etc all negatively impact a consumer’s trust. All of these in one way or another have roots in the corruption in the system: The roads are poor and not improving fast enough because there is huge wastage of invested capital due to corruption in the system; traffic indiscipline is getting worse because law enforcement is not consistent or reliable – drivers break the rules with impunity … etc. In the end all these examples are rooted in corruption and not having a common set of rules that everyone trusts and abides by. This then has an impact on consumer’s willingness to try something new or pay more for greater value: “will it work?” , “what new hassles will it bring?”, “can I trust this company?” , “I don’t believe this will have the impact promised!”, etc. The default trained mindset is to focus on what you can get today because who really knows what will happen tomorrow. The consumer is just trying to make his/her life better and protect his/her loved ones the best they can; this is not a “cultural” thing, it is a systemic thing and quite frankly the biggest failure in India has been our inability to root out corruption. In other words, extreme price sensitivity is an expression of lack of hope.

With that background let me come back to the topic of this post and connect the dots between corruption and venture returns. Here is how I see it:

corruption in the system -> daily poor experiences -> lack of trust/hope -> lack of appreciation of opportunity cost -> extreme price sensitivity -> no value for high order products/services -> work is primarily dictated by operational complexity (not innovation) which is not very valuable -> poor returns for early stage investors 

What do you think? Valid connection?

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Platform Metrics: the core metric for platforms, networks and marketplaces

You become what you measure. From my experience working with clients across enterprises and startups, the most common reason for failure and inefficiency is the focus on convenient, but inappropriate, metrics. Your technology doesn’t determine the business you build. Neither does your organizational capability. The metric you optimize for is the single biggest factor that determines which business you end up building.

Metric Design

The importance of choosing the right metric is more far-reaching than we often believe. A metric is a bit like a commander’s intent in an army. At battle, there are a lot of variabilities and unexpected contingencies which cannot be pre-planned for. The Commander’s Intent is a simple rule of thumb that helps soldiers take local, individual decisions towards a cohesive, larger goal.

Metrics work in much the same manner. Once you set a metric, the entire team organizes its efforts around it, and works relentlessly to optimize the business for that metric. It’s often fancy to have a large dashboard with multiple graphs tracking hundreds of things. But to be truly effective, an organization/team/individual should be solely focused on optimizing for one metric.

As a result, identifying and designing the right metric is critical for business success. More often than not, I’ve seen the following general observation to hold true:

If you’re asking someone to optimize for more than one metric, you’re setting them up for failure. 

Often, ratios help capture multiple movements in one metric. Whether you think of the financial ratios that traditional business managers track or the DAU/MAU that app developers relentlessly track today, ratios tend to be important as they explain concentration rather than quantity.

Pipe Metrics

This discussion of metrics is especially important in the world of platforms and networked businesses. Platform businesses are a lot more complicated than traditional pipe businesses. Pipes optimize unidirectional flow of value. Hence, metaphorically, releasing bottlenecks at any point should help with the flow. The Core Metrics for pipes, naturally, then, measure smoothness of flow and/or removal of bottlenecks. Inventory turnover is one such metric to check how often the flow of goods/services moves through the pipe. All forms of Output/Input ratios for intermediary teams on the Pipe are, again, checks to understand rate of flow and identify creation of bottlenecks.

Platform Metrics

But this tends to be much more complex in the case of platforms where flows are multi-directional. Moreover, they are interdependent because of network effects. E.g. optimizing activity on the producer side may have unexpected implications on the consumer side. On a dating network, allowing over-access to men may be unattractive for women. Hence, even if you have two different teams optimizing for two different metrics on the producer and consumer side, the activities of one team may adversely impact the pursuits of the other team.

How then does one go about deciding on platform metrics?

The Business Of Enabling Interactions

This takes us back to a theme I repeatedly talk about. If I had to condense the essence of Platform Thinking in one line, here’s what it would be:

We are in the business of enabling interactions.

This is much like the Commander’s Intent I mentioned earlier and has important implications. Irrespective of how big your firm is, how complex the operations are, the goal should always be to optimize the core interaction.

1. Identify the Core Interaction that your platform enables

2. Remove all bottlenecks in the Core Interaction to ensure that it gets completed across Creation, Curation and Consumption

3. Ensure that the Core Interaction is repeatable and repeats often

From a metrics perspective, this essentially means that the Core Metric that rules everything should measure interactions.

If you’re running a platform business, you need to start measuring and optimizing your core interaction. 

Metrics Design Around The Core Interaction

So we get the fact that we need to measure interactions. However, we still need a measure, a number that shows the Core Interaction is working well. As with all metric design, it is still possible to choose the wrong metric despite understanding the importance of measuring the Core Interaction.

To design the right metric, let’s revisit what the Core Interaction on a platform actually entails.

From earlier essays in this series, we note the following:

1. A platform enables exchange of information, goods/services, money, attention etc. between the producer and consumer. For a visual guide to how this works, check the article here.

2. The exchange of information always occurs on the platform. The other exchanges may or may not occur on it.The exchange of information enables every other exchange to take place. To understand the mechanics of this, refer this article.

3. The exchange of information is the key source of value creation across all platforms and can be visualized as the Core Interaction of the platform. To understand the structure of the Core Interaction in detail, check the article here.

4. The Core Interaction has three parts: Creation, Curation and Consumption of the Core Value Unit

Let’s now look at the different types of platforms and tease out relevant key metrics.

Transaction Capture

Some platforms capture the transaction between producers and consumers. These platforms typically track actual transactions. Platforms like the Amazon marketplace may measure gross value of transactions. Those like Fiverr (which have fixed value per transaction) may simply measure number of transactions. Airbnb tracks number of nights booked. This is a better indicator of value creation than simply tracking number of transactions. At the same time, it doesn’t care about value of transactions (spare mattress being booked vs. castle) as the goal is simply more value created irrespective of type of customer.

Transaction Tracking

Some platforms can track the exchange of goods and services in addition to capturing the exchange of money. ODesk, for example, can track number of hours of work delivered by the freelancer (producer), a key measure of value creation. Clarity.fm can track duration of the consulting call between an expert and the information seeker.

Market Access

Some platforms are unable to capture the transaction, the exchange of money. They create value by allowing producers access to consumers. In these cases, one of the common metrics tracked is the platform’s ability to generate leads. OpenTable specifically tracks reservations. These are not the actual transactions at the dinner table, but serve as a proxy for the value created. Some platforms may track overall/relevant market access. Dating and matrimonial sites often talk about number of women registered as that determines the value that a user can expect to get.

Co-Creation

One of the key properties of platforms is the fact that external producers can add value. Whether it is new apps on an app store, new videos on YouTube or new pictures on Flickr. In these cases, one is tempted to solely track these co-created Value Units. However, Creation forms only one-third of the Core Interaction. The proof of the pudding, in such cases, lies in repeat Consumption. Some platforms may track the total consumption, some may track the percentage of Value Units that cross a minimum threshold of Consumption. I tend to favor the latter as measuring and increasing the percentage of units that get minimum consumption ensures that the platform focuses on getting more producers who create relevant units that will be consumed. It also ensures that, over time, the feedback loops (in the forms of notifications to producers) will encourage creation of the kinds of units that get greater consumption.

Quality as Value

Some platforms may create value largely by signaling quality. Reddit is one such example where Curation is more important than Creation or Consumption. Such platforms may track reputation of users and create feedback loops that encourage users to participate often, gain karma and use that to participate further in the curation process.

Market Attention

Platforms where the Core Value Units are content e.g. YouTube, Medium, Quora etc., the engagement of Consumer Attention serves as a key metric. Measuring number of videos or articles uploaded or number of videos viewed or articles read is often not enough. These give indications of Creation and Consumption but not of Curation. We need some indicator of quality as well. This is why many such platforms track the percentage of content which gets a minimum engagement. Medium tracks views and reads separately indicating that it requires a minimum commitment from the Consumer to determine quality of the content.

The Easy Metric Fallacy

While working with companies on this, I’ve often noted the following:

1. Creation is the most common metric tracked. Number of apps, number of videos, number of sellers etc. This is misleading.

2. In the case of Market Attention category platforms, Consumption is the most common metric tracked. This is an improvement but still not a measure of quality.

3. Curation is rarely tracked and is often the most important metric that determines the health of the platform.

4. The measure of transactions that should be tracked varies with type of platform. In some cases, number of transactions may suffice, in other cases, volume of transactions may matter.

5. The metric that best explains interactions will change over the life cycle of the platform and it’s critical to identify points at which these transitions occur. Companies often make the mistake of sticking on with an older metric when their business has scaled. Identifying and vetting the Core Metric at every point is very important.

Counter Metrics

While measuring the platform’s ability to create interactions is important, it is equally important to measure its failure to close interactions. I will explore this further in a subsequent post.

The Way Forward

The discussion on metrics is deep and cannot be done justice in one post. I’ll cover this more as we move further in the series. The key point, though, remains:

On a platform, the Core Metric that rules them all must measure and optimize the Core Interaction.

Tweetable Takeaways

For platforms, the Core Metric to be tracked must measure and optimize the Core Interaction.Tweet

The goal of a platform is to repeat and optimize the Core Interaction that creates value. Tweet

This article was originally published on Sangeet Paul Choudary’s personal blog Platform Thinking – A blog about building early stage ventures from an idea to a business, and mitigating execution risk.

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Sold your company / Business ?? How to protect and handle the IPR transfer ??

As an entrepreneur launching a business in the IT and Software industry, one has his hand full with beating the competition and managing the overheads. The race is tough enough without employees stealing million dollar ideas and venture capitalists pulling the fast one during an acquisition. It is critical that start-up especially in the IT and Software Industry build a strong IP portfolio and take necessary precautions in order to safeguard their business interest. But why go into the trouble of registering your software code with the government or patenting your innovation when the uncertainty of future investment and business is looming over every start-up? The answer is simple. By registering the invention or source code, a start-up can not only protect their work, but also create potential for alternate sources of revenue by enforcing the rights vested in such a registered work.

Take for example the following factual scenario. A software and IT services start-up (Alpha Tech) develops a software platform titled PRIME. A combination of SaaS and PaaS, Alpha Tech invests extensively in hardware as well as software development and maintenance. While the software development process is duly recorded, no copyright registration is sought.

A second company (Beta Tech) seeks to acquire Alpha Tech. Negotiations ensue and it is agreed that all assets except for “Patents and other IPRs” shall be transferred to Beta Tech vide a Share Transfer Agreement. The IPRs and Patents are separately transferred to a third company which was incorporated by the shareholders of Alpha Tech and under the understanding of this “Business Transfer Agreement” with Betatech..

A year after the execution of the Share Transfer Agreement, it is found that Beta Tech is continuing the sale of PRIME through Alpha Tech which is now owned and controlled by Beta Tech.

Left with little choice, a copyright infringement suit is preferred by the former Shareholders/Directors of Alpha Tech with whom the Copyright in PRIME subsist. To assert the rights of the Copyright owner, it is essential to first establish that the underlying work was developed by the individual/company asserting the copyrights. In this particular case, it was also required to establish that the copyrights in the software program PRIME were assigned to the third company on or about the time Beta Tech took-over Alpha Tech. The lack of copyright registrations as well as ambiguity in the agreement as regards to the IPRs transferred to the third Company created several loopholes the impugned party to exploit.

In order to circumvent the loopholes, at the ex-parte stage itself, the petitioner, Alpha Tech filed an application for ad interim injunction to restrain the use of his software programs by Betatech as well as appointment of local commissioners to visit the defendants’ premises and raid them. On establishing a prima facie case as regards to the ownership over the software programme PRIME, the court granted the ex parte ad-interim injunction and local commissioners were appointed to capture the copyright violations by the Defendants.

While it is an uphill task to establish copyright infringement in cases such as the one under scrutiny, a clear chain of documents showing ownership/assignment of copyright in the software program in favour of the one asserting it coupled with suspected instances of infringement can be leveraged to get an ex-parte ad interim order. The order can be further enforced to protect the copyright owners of the software programs.

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The time is ripe: Indian product start-ups are geared to disrupt IT adoption across the enterprise

For most food enthusiasts in India, the start of summer signifies the beginning of the much awaited mango season. The “King of fruits”, as it is most aptly described, is in the market for a few weeks before it completely disappears. Drawing a parallel, it’s an equally good time to be a technology start-up in India as well – of course, the season will certainly last more than a few weeks but tech start-ups are certainly the talk of the town and the opportunity is here and now.

A recent report by Helion had three key pointers that give a boost to the software product ecosystem. Significantly, CIOs and top IT decision-makers keen to look at start-ups. Though common belief may be otherwise, 90% of IT decision makers said that they are likely to see a demo, implement on a trial basis or conduct a review of new technology products. As many as 72% of respondents said they were likely to invest in a limited implementation of the solution, while 54% are willing to invest in a full implementation of the solution. IT Decision makers also recognize that newer technologies would increase the agility and flexibility of their organizations. Surprisingly, cost is not a major factor that is driving the adoption of these new technologies as less than half the respondents (43%) strongly believed that it had impact.

The other key fact to note is that Indian product start-ups are geared to disrupt IT adoption across the enterprise: As many as 82% of the respondents have developed and deployed applications for various business use cases. Business analytics and big data solutions are being offered by 46% of start-ups that responded to this study, enterprise services on the cloud by 30% and mobility solutions are served up by 21%.

Key functions targeted by these solutions include sales (73%), business development (70%), service delivery (66%), HR (51%) and supply chain (48%).

The third heartening fact is that Technology buyers keen to fuel the start-up ecosystem. The survey shows that IT DMs are demonstrating a new-fangled willingness to help start-ups. 85% of respondents stated that they are willing to work (and play an advisory role) with the start-up to help evolve or improve the product. A majority of respondents (82%) are keen to provide customer references while 68% agree that being one among the first five customers for a start-up is acceptable.

But start-ups also need to realize that IT decision makers primarily worry about the reliability of the solution (78% cited this as a high risk) as well as the long-term quality of support from a start-up vendor (72%). Scalability of the solution and its performance are also aspects which IT buyers believe that start-ups must fine-tune in order to seal the deal. As long as tech start-ups can build on the trust element they are sure to have a clear growth trajectory ahead of them.

 

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How do you handle customer requirements of “depositing” product source codes?

escrowIn todays exacting times, large corporations like to secure their business continuity on IT products and services sourced from smaller companies, by seeking access to the basic product source code. While the smaller IT companies spend man years developing cutting edge technology solutions, this sharing of the source code could kill their future and business.

The way out is an “Software Escrow Account” a win-win solution for both !!!

With due protection and security built into the storage / access and building adequate clauses on infringement and penalties at the customer end, this is a well established and acceptable process, helping  maximise the business potential for both.

The changing paradigms of the software and IT industry as well as increasing customer expectations have raised the stress on start up software and IT companies. On the one hand software start ups face threat of losing their valuable software to the infringers and on the other hand their clients demanding source code of the software for enabling better management of customizations are on the rise. Now here lies an underlying problem, the moment these software companies reveal their source code to their clients, the software would become vulnerable to infringement as there will be a high probability that a new product could easily be developed/ reverse engineered. On the flip side if they don’t reveal the source code, the client would not be satisfied and eventually these companies would lose their client base in an increasing competitive market.

Legally speaking, the standard approach in such situations would be to enter into Non disclosure agreements and non compete agreements which can only offer limited protection. These measures are merely paper measures which assert already existing rights of the software developer and actually fail to protect the copyright in the existing software product as the source code which when revealed by these software companies to the clients is hard to detect if it gets infringed.

The alternative therefore is to take affirmative measures which would prevent such an infringement. Escrow agreement and using the technology protection measures to give only limited access to the source code are win-win solutions for both client and the software developer whereby:

  • The client would have the desired access to the source code subject to terms of contract.
  • The Software developer has rights under the contract which would in-turn ensure that the client could not reverse engineer the product.

Successfully implementing these legal solutions can help software industry to maximize its potential and minimize the risks by using legal tools that have been tried and tested in finance and banking industry.

Guest Post contributed by Taron Mohan (Next Gen Solutions) and Aasish Somasi (Anand & Anand)

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Ideas are NOT dime a dozen! At least good ones! Building an Innovation Culture! #ThinkBig

Ideas are dime a dozen! It’s all in the execution!

So goes the popular wisdom. Indian start-ups and accelerators keep talking about identifying problems and solving them. True. There are great companies like redBus.in that were built using this approach. However, there are other great companies like Twitter that were not born out of any urgent problems that people had. They developed a short-form, real-time, instant broadcast mechanism that found a thousand uses such as having quick conversations, fighting for freedom around the world, and distributing links to articles, pictures, etc,. Such is the power of ideas that go in directions you never even anticipated. The main point is that ideas are important whether they address well defined problems or someone thinks “Wouldn’t it be nice if….”. They may all lead to innovation that helps start ups scale quickly!


I had written about  this subject almost two years ago in two articles here,  in the same forum – Is your company dependent on Innovation? Grow the right Culture First! The rest will take care of itself! and  Is Software Innovation an Art or a Science? It’s Artful Science or Scientific Art! . Since then, the Indian product ecosystem has come a long way and has seen examples of great exits happening because of innovation. It may be time to enumerate different steps that start-ups could take to make sure they are building an Innovation Culture.

Wikipedia has an excellent definition of Innovation – Innovation is the application of better solutions that meet new requirements, in-articulated needs, or existing market needs. This is accomplished through more effective products, processes, services, technologies, or ideas that are readily available to markets, governments and society. The term innovation can be defined as something original and, as a consequence, new, that “breaks into” the market or society. A definition consistent with these aspects would be the following: “An innovation is something original, new, and important in whatever field that breaks in to a market or society”.

Now you can see why software product companies need to build a culture of innovation. It is key for their differentiation; essential for raising investment money, attracting bright employees and building unique intellectual property.

So how do you exactly build a culture of innovation? Here are popularly recognized steps:

Articulate a Mission and a Vision for the company rather than just end-products – Pixar’s goals were to reinvent the animation industry. Facebook’s mission is to give people the power to share and make the world more open and connected.   Google’s mission is to organize the world’s information and make it universally accessible and useful. This does not mean that you encourage your employees to come in and do random things. It just sets up a framework to view existing and future products and draws the lines within which they can innovate.

Hire people who are curious in addition to having the capabilities you need –  Innovation cultures cannot be built with people to whom it’s just a job with a paycheck or people who have very narrow interests. Those kinds of people will do extremely well in services companies where a team needs such focused people on some narrow task as part of a larger team. Software product start up companies can afford only so many people and they may need to wear many hats especially at the start of the whole effort. So if you want to build an innovation culture, you need to hire people who have diverse interests and generally curious about many things. Innovation happens more often at the intersection of many interests than in a single focused discipline.

Encourage Ideas  – This sounds like a truism but it is one of the most difficult things to do in start up companies, especially with co-founders or management with strong personalities. The first time an idea from an employee is overruled or ignored may be the last time that employee speaks up with ideas again! The founders/CEO need to establish encouragement of new ideas from day 1 or it will be too late for this to happen.  It is easy to be busy with being busy in a start up company and not take the time or recognize new and good ideas as they come up in conversations and encourage them.

Encourage Autonomy – Encouraging autonomy is another way of encouraging new ideas. In fact it may be an even better one than soliciting them in company forums. Someone who is expected to produce results rather than dictated steps to get to the desired results may come up and implement new ideas themselves.  Accidental and autonomous innovation is just as good anything that goes through formal processes.

Recognize and Celebrate New Ideas – Public and private recognition of new ideas  is an essential step in the building of an innovation culture. Man does not live by monetary incentives alone and they may be the least important ones! Start up companies may not have a lot of money to pass around for new ideas, but you could have other incentives such as small stock option awards that motivate good employees even more.

Build a Culture where Failure is not a Stigma – The Anti-Portfolio pages of the VC Firm Bessemer Venture Partners is a great example of celebrating failure quite publicly! . It names the partners who, for whatever reason, passed on some investments that went on and made it big! The message they are conveying mainly is not that these people screwed up, but to encourage taking more risk! In a software product start up, public recognition of the fact that some people tried something, even if they failed, builds the confidence that it is OK to try new things. Fear of failure is something that stops many employees dead in their tracks and they keep new ideas to themselves.

Encourage Big Thinking and Small Experiments –  Start up companies cannot afford not to think big and may not be able to afford large experiments.  They can, however, encourage small experiments that can validate the big thinking. These experiments ought to be encouraged and employees given the time and encouragement to pursue them.

But innovation comes from people meeting up in the hallways or calling each other at 10:30 at night with a new idea, or because they realized something that shoots holes in how we’ve been thinking about a problem. – Steve Jobs

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Will the Revolution Happen?

Revolution is not an easy word to throw around. Those cheering for a software products revolution in India must look at the historical context.

Innovation Factory

So many countries and communities have tried to emulate the amazing startup culture that exists in the United States, specifically in the Silicon Valley. The Valley is not only a fountainhead of creation and innovation in computer technology but also of commercial execution and expansion. For those who have some interest in this phenomenon, the reasons are obvious. Few weeks ago, I came across the wonderful book about the Bell Labs, “Innovation Factory” and it gave this phenomenon yet another perspective.

The book traces the history of how a powerful team came together to solve a big problem for humanity and also monopolistic wealth creation. The Bell Labs, in the decades before and after the second world war, was pretty much where everything that is the basis of modern communication and computer technology was invented. From the transistor to satellite communication, from fiber optics to UNIX, the Bell Labs became a factory of sorts for innovation. The labs were manned and managed by some of the finest brains of the time, sourced from the best American universities. Together, they had an opportunity and to solve a great problem for humanity, how to bring people who lived far apart, closer. And in return they ran a near monopoly in telecommunications in the United States, protected by dubious patent laws.

This team in the Bell Labs was the precursor to the next revolution, the one that came a few decades later, when the action shifted to the West Coast and Stanford University, when William Shockley, the co-inventor of the transistor moved to the West Coast to setup his semiconductor venture. Almost all of the semi-conductor companies found in the silicon valley at that time were started by employees who left the Shockley venture. Soon semicondutors became cheap and the startup culture spread fast. This second revolution, was driven by teenage hobbyists who later founded billionaire empires. To help these hobbyists build empires, the mandarins of finance, the venture capitalists, were already there, bringing in their networks and money.

The Indian Context

When we compare this culture to the Indian culture of innovation and wealth creation, we find stark differences. Our telecom revolution, when it finally came, has become synonymous with crony capitalism and corruption. Instead of creating new technologies, we have created new business models, where our telecom tycoons have outsourced the technology and we are completely dependent on our neighbours for handsets, weakening our foreign trade balance and dependency on outside technology.

Our famed IITs are another dismal example how things can go completely wrong. Even as we praise the IITs for producing some of our brightest minds, we should also remember that they have failed miserably compared to their counterparts in other parts of the world to produce any volume of innovation.

Even as we are saddled with “third world” problems, our governance is stuck in the 19th century. The Bell Labs had access to a unified market which helped them scale quickly. Our big problems of housing, sanitation and healthcare are all fraught with legal and regulatory red-tape. The only recent example of wealth creation is that of the IT Service industry which was again, less of an organic phenomenon and more a beneficiary of globalisation and reducing cost of communications.

So when we talk of starting a software products revolution in India, we are in effect talking of replicating the American culture of high paced innovation and commercialization in India. But what we forget is that we lack any historical or cultural context to bring in this revolution. Just because we have a whole lot of software engineers, there is nothing to suggest that they will start innovating suddenly and recreate the decades of learning that is subtly passed on through culture and smalltalk.

E-Commerce Nation

This places where technology built by Indians has touched common people are in e-commerce, travel and classifieds. Here we have home-grown companies that have created technology solutions and enabled people to see the benefit of transacting online. Even though these are still not pure technology companies, a number of Indian software products are founded by employees of these early e-commerce companies.

But what is badly needed is a “breakout” success, but there is no guarantee how soon that can happen. We can only hope that one of these companies becomes very large and creates a “mothership” like Bell Labs that then becomes the fountainhead of a revolution.

The other thing to note is that these revolutions were brought about by a significant shift in technology that opened new avenues for communication and commerce and these opportunities were successfully monetized by companies that were closest to these innovations. Hence to bring in such a revolution, we must build engines that invent those paradigm shifting technologies.

The real problem in Indian product companies is not lead generation or sales, but building innovative technology. On top of it, most Indian software products lack good quality and are not designed to be inspiring, though this is slowly changing. The problem in this model is that we are now competing with the best in the world and time is running out. My guess is that the Indian company that breaks this mould of mediocre technology, quality and design will most likely be the Indian mothership.

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‘India Innovates, India Leads’: Indian Talent + Information Technology = India2022

The success of India in future is intrinsically linked to its ability to keep pace with technology. The world has seen an unprecedented change in technology landscape in the last decade and innovation has become more important than ever before. Technology can help build a digital India- a knowledge-based society and economy- by empowering, connecting and binding all parts of India.

For India to become a global knowledge hub by 2022- the Diamond Jubilee of our Independence- Innovation, Research and Technology will have to play a major role of being the driver, engine of growth and shining light of Brand India. Innovation and Technology will have to be the enabler for empowerment, equity and efficiency by joining people with governments, bringing them closer to knowledge and bridging the gap between demand and supply. Despite India having become the software services capital of the world, the benefits of Technology have not percolated down. The lack of a proactive political vision in not appreciating the full potential of technology in the last decade is primarily responsible for restricting the spread of Information Technology domestically.

Next Phase of Innovation and Technology Revolution in India

India has a long history of Cultural Innovation driven by necessities. It’s time that we take our Innovations globally and solve societal problems. It is in this context that India must embark upon next phase of Innovation and Technology revolution with renewed vigour. It would be unwise to be satisfied with successes in instalments and not tap the vast potential of Indian Talent. The success and Brand established by the Indian Software Services Industry needs to be leveraged with next wave of “Made In India” Technology, Products and Innovations.

That the BJP has seized upon this opportunity and responded to the aspirations of the country is evident in its Manifesto 2014 that has laid unprecedented emphasis on Innovation and Technology and its cross sector potential.

E-Governance

E-Governance is easy, efficient and empowered Governance and has to become the backbone of Good Governance paradigm. A Digital India -where every household and every individual is digitally empowered – is key to the concept of new age, efficient & incorruptible governance.

This can be made possible by increasing the internet penetration and usage of broadband across the country. Deployment of broadband in every village would be a thrust area. Every district of the vastly diverse India having its own specialities must be digitally integrated by 2022.

Follow the Fiber Policy is another path-breaking proposal that can refurbish the digital outlook of the country. Smart Cities will be developed around Digital Highways. The example of the ‘E-Gram, Vishwa Gram’ scheme in Gujarat, that ensured significant empowerment of the rural population by bridging the Digital Divide between the rural and urban areas by providing e-services to all its villages, is worth emulating across the country. The scheme helped control corruption significantly since all transactions between government and citizens are computerised.

Innovation

Spurring innovation and research in India is essential in order to reduce dependence on foreign technology. Innovation is an evolving process and there cannot be a stationary blueprint for it. However, the basic pre-requisite for driving innovation is to have 1.2 billion Indians digitally connected through our own technologies and networks.

The BJP Manifesto talks about such path breaking innovations in governance as promotion of e-Bhasha (National Mission for the promotion of IT in Indian Languages), Content digitization of all archives and museums, financial inclusion and participative governance.

The idea of participative governance using social media as an enabler merits a special mention. Today, Social media has the potential to transform all interactions in the public mindscape. They are powerful catalysts that are changing the ways people use technology to interact with the world around them. India must include these interfaces in its governance models and take full advantage of it. Youth, the biggest driver and user of social media, ought to be involved in policy formulation & legislation.

In a country where nearly 70% of the population lives in villages, a significant segment of about 6,50,000 villages do not have a single bank branch, access to quality healthcare, and higher education, BJP has done well to recognise these handicaps and addressed them in its manifesto with the ideas such as National Rural Internet and Technology Mission for use in TeleMedicine, Mobile Healthcare, Massive Open Online Courses and setting up a National e-Library.

As a matter of fact; policy, institutions and market factors will determine the fate of India in coming years. The existing market factors are quite favourable but it now needs a set of ‘good policies’ & ‘good institutions’ under a visionary leadership for building an India of our dreams.

There is an inescapable clamour by the young and capable nation for a proactive and innovative policy framework that goes beyond being stuck in a reactionary mode. The nation is looking up to the new political dispensation that is likely to assume office after the general elections for providing such a visionary roadmap.

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Online Survey for Indian Mobile App Developer Enterprises

The Centre for Internet and Society (CIS) recently released an online survey for mobile app developers to respond on their legal practices within their work, as well as their business models and familiarity with India’s laws. Through this research initiative, CIS hopes to better understand the dynamics of India’s mobile app ecosystem amongst stakeholders, and how developers are directly or indirectly affected by the laws in place governing this ecosystem.

survey-buttonDevelopers, designers, and product managers of all sorts are invited to participate within CIS’s research survey initiative so long as they are based in India and contribute to the development of at least one mobile application within a company or enterprise. Built in collaboration with HasGeek, a community-oriented enterprise for developers in Bangalore, the survey asks participants to respond to questions on their practices related to ownership, licensing, contracts and protection of their works as intellectual property (IP). Questions also seek out background information and information related to one’s business model to best contextualize responses, as well as personal insight on understandings of India’s copyright laws and IP more generally.

The survey can be accessed here, and will be available for completion until Tuesday, April 29, 2014.

Ultimately, CIS intends to comment on whether the current laws in place related to intellectual property are a causal factor in either encouraging or hindering mobile app development in India. In this sense, this initiative serves as preliminary policy research and strives to provide a comprehensive understanding on the widespread legal practices of developers as the supporting stakeholders of this mobile app ecosystem.

By the end of this survey’s running, we hope to be able to better illustrate the complexities within an ever-growing ecosystem that are typically only considered at a level of technical or legal abstraction. For instance, it is quite common for discourse to reference the specific activities that developers might undergo while potentially violating another’s rights to their works, such as those involving the direct copying of software code without the permission to do so. Other sources might advocate for the patenting of one’s mobile app products and entail the complexities of the patent filing process to ensure the optimal likelihood of the application being granted.

But what are the trends that exist across developers related to such activities? What are the ways in which they carry out these activities, and most importantly, why?

What determines who patents their product or copies another’s? And what factors are at play in the shaping of an enterprise’s business model and the methods that they adopt to meet their objectives?

What barriers do enterprises encounter along the way, from the startup to the corporate, and how do they get around them accordingly?

We hope that through this online survey, CIS will begin to be able to address these areas of greyed understanding, and to identify existing correlation, if any, between the business models, legal practices and personal understandings related to IP, and how one’s work within mobile app development is affected as a result.

Guest Post by Samantha Cassar, Centre for Internet & Society

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Practical Mantras for Lean Startup

Talk to anyone running a startup or working in a big company turning new idea into products, they would tell you that their journey is fraught with far too many uncertainties

Lore that Lean Startup is a savior for this has spread far and wide but ask these folks and they will nod their head in agreement that they face huge struggle in adopting it. One of the big challenges is that Lean Startup is thought of as new magical management theory which it is surely not; instead it is a methodical approach in reducing market uncertainties. Lean Startup is at best described as codified past best practices by startups and individuals that have been able to successfully reduce customer and market risk.

Adopting Lean Startup is no different from any other behavior change that one goes through personally or in an organization. To change behavior and adopt new practice work on several dimensions is required which includes changed mindset, a clear understanding of principle, devoid of jargons, a simplified set of tools to aid, hands-on practice of the tools and many a times a community of peer support.

What Mindset for Lean?

Most of our life starting from school we have had an execution mindset, we were always given a set of task to do and we were graded on how we executed on them and thus behavior is quite strong. We view everything as an execution problem and solve for it

Ask anyone that has experienced running a startup and they will tell you how everything is a moving target and things change very fast. Almost everything in a startup is an assumption and needs to be fundamentally questioned even when you are executing assuming it to be true

Thus one should have a learning mindset, until key assumptions have been validated

Principle at Work

Studies suggest that the number one reason that startup fail is because they don’t have customer or market. Key principle of Lean Startup suggest that if startups prioritize and focus on eliminating the customer or market risk before others then the odds of failure can be reduced drastically.

Tools for use

Disciplined approach of listing assumption, turning them into experiments to validate, art of talking to customers, prototyping to learn customer behavior and iterating through Build > Measure > Learn loop are some of the tools available practitioners disposal to methodically address market risk

LeanMantr’s bootcamp is designed to hands-on practice scenario with real life startup ideas for folks to learn the benefit of using Lean. Last year alone 6 workshops were held in Bangalore. The next one is happening on 11-13 April (www.leanmantra.explara.com). If you would like to get immersed in the how to, then do join us

Lean Startup Circle Bangalore  monthly meetups are for practitioners to trade notes and offer peer support in this behavior change journey to reduce failures of startups in general.  Join any of the next meetup (attendance is free)

Guest Post by Rammohan Reddy, Lean Startup Evangelist atLeanMantra

 

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Unlocking the data within Indian Software Product Startups : An iSPIRT Survey [INFOGRAPHIC]

India has the potential to build a USD 100 Billion software product industry by 2025. India has a critical mass of software product companies that have entered their maturation stage. At this juncture, to sunstain momentum it’s very important for the entire ecosystem – product entrepreneurs,  angels,  VCs, government to  be aligned. And this alignment will come about when everybody is looking at the industry issues through the lens of credible industry data. Since this data isn’t available iSPIRT embarked on a systematic research effort in partnership with Prof. Sharique Hasan of Stanford University to address this problem.

The first Product Industry Monitor report is a result of this effort. Following are some key findings of this report.

Survey Infographic_7.0-01

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OpenSource: The Most Underused Strategy by Indian Software Product Companies

Open Source has been quietly making its mark. Kickstarter just completed a billion dollars in crowdfunding. A lot of the work funded via Kickstarter is licensed for public use. Because the initial capital is pitched in by lots of people, the creators have a lot of incentive to give it back to the people.

The Do-It-Yourself community in both software and hardware is also on the rise. This is an early adopter and very influential community. The promise of free software promoted by Richard Stallman is no longer a promise. A lot of the backend tools you are using to build your software product are already Open Source. So why not take the next step and make your product Open Source too.

Adapt or Become Extinct

Five years from now, the product you are building will be replaced by an open source alternative.

Ok, maybe ten years from now. But it is going to happen. In the long run, as more and more libraries and mature frameworks become available, the barrier to entry to make a new open source product will reduce further. Deployment will become easier and the ecosystem will provide easy to install platforms. Right now, there is a dearth of high quality, usable open source tools, but it just takes one motivated developer to change that.

Unfortunately in India, we do not have too many examples of Open Source software products. We at ERPNext, open sourced our product a few years back and now we are seeing the benefits. We spend very little time worrying about surface level things such as Customer Acquisition Costs and A/B Testing, because our users and customers come looking for us. Sometimes, there is a cherry too. A German company just wired us $5000 because they wanted us to listen to them when we decide the product roadmap.

Getting Started

So if you are considering going the Open Source way, here are some pointers:

1. Believe in Open Source: There are no half measures here. There are tons of projects on sourceforge and GitHub that are dead because there is no documentation, or are not deployable or not updated. If you are going Open Source, go the whole way.

Another annoying strategy some projects follow is that they make a part of the product open and some parts paid. This is something like the freemium model. Avoid this, you will never win true followers this way.

2. Documentation: Prepare good documentation for users and developers. I had read an interesting comment by John Resig (the creator of JQuery) on why JQuery became the standard leaving all others aside. He had said that JQuery was simply the best documented project. As a developer just remember the time when you came across a badly document API or library. This is very hard and is a huge investment, but its a very important step for going ahead.

3. Make it Deployable: Give your users a good development environment and a production environment. Unless your users can deploy your solution in production, there is no chance of you getting feedback, or issues or contributions. And when you make it deployable also make the upgrade scripts public, so people can easily upgrade your software. Ever really noticed when Chrome or Firefox upgrades? Make it as easy as possible for your user.

When you do all of this, you will automatically start following a lot of best practices, because suddenly not only are your users your customers but also developers.

Cloud and Open Source

As virtualization and cloud gets more popular, Open Source will be the direct beneficiary. Already platforms like Bitnami specialize in creating free deployable VMs for Amazon and DigitalOcean. Soon, it will be easy for anyone to start using Open Source products on the cloud.

We at ERPNext give away VMs for free, but they can also become a source of revenue.

Business Models

The most obvious doubt you will have when you think about Open Sourcing is what will happen to your current revenue, will your customers stop paying you? Think again. Open Source is no longer a pariah to venture funding. Scalable business models can be built around Open Source. MongoDB and RethinkDB are great examples. MongoDB got funded at a valuation of a billion dollars. Here are some revenue sources:

1. Hosting: WordPress makes money off blogs hosted at WordPress.com – they own the brand.

2. Support: RedHat and all the Open Source databases make their money out of support.

3. Implementation and Deployment: SugarCRM, OpenERP and others make money via their partner network, who in turn give implementation, deployment and training services to their customers.

4. Sponsorship: As your property gets more and more visitors on the web, it will be a great opportunity to find sponsors. Examples Mozilla and others.

5. Consulting: Over high value consulting to paying customers. Enterprises are already paying huge sums to licensed vendors. With money on the table, they will be happy to buy premium consulting from your company. Example, PerconaDB

Let Us Lead

The sharing economy has already begun and is going to be the future. India is coming from behind as far as the software product revolution is concerned, but Open Source can be a great enabler in helping all of us break in.

The Buddha never patented the eight-fold path and neither did Patanjali copyright Yoga. Knowledge grows when you share it and same is true for software. The more used your software becomes, the better it will get and the faster you will reach to nirvana.

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What is your company’s IP Score?

In the scramble to get to market, protecting the IP of your invention sometimes takes a backseat. This is a mistake and one that can have potentially damaging long-term effects. In this article we examine how developing a proactive IP Strategy can mitigate IP risk for a startup.

Startup Priorities

Most startups begin with a good idea and an identified solution that solves a key need in the marketplace. The idea may come to an individual as an epiphany or could be a group effort through a more thorough due diligence of the market place needs. Going from this idea to an actual startup usually involves several rounds of ideation and vetting.  It also results in  one or two champions of the idea ending up as the founders of the new company. Going from this stage to a functioning startup requires several intermediate steps:

  • (a) Assembling a core technical and business team that understands the problem that needs to be solved, and more importantly how the solution addresses the market,
  • (b) Completing a more thorough product due diligence of the market and competition and defining a viable business case for the product through validation from potential customers,
  • (c) Defining the first product prototype and a requirements specification that will help scope the efforts required for the same, and
  • (d) Preparing the necessary collateral to present to potential partners and investors to raise the initial round of investment.

Fig-1-Alternate-e1390009832438-300x265

Once an idea advances to the stage where a successful startup is formed, one or more of the above steps will be iterated in various forms. In many instances the company has to repeat the steps with changes in various parameters – the so called ‘pivot’ – in terms of product definition, core team, market addressed, or business value proposition. Even a successfully funded company will continue iterating on some of the basic four steps identified above as it executes towards delivering its product, or prepares for a subsequent round of funding. All of the above steps are critical and require resources and money. At each intermediate step the company is often required to prioritize one over the other to balance and maximize their opportunity for success.

In most startups one of the missing, but known, pieces in the early planning, the ‘Elephant in the room’, is an Intellectual Property (IP) Strategy. An IP Strategy addresses questions like: How defensible is the technology behind the product? What is the differentiable and novel aspect of the technology that we can support? What are the key patents that lie close to the product that we are designing, or the service that is being offered? Who are the established and smaller companies with IP and products in the given space? How should the company go about identifying and protecting the White Space? What are the key steps the company should take now that will maximize the long term value creation associated with the business plan of the company?  What actions need to take place towards filing new patents?

Why IP Lacks Priority in Most Technology Startups

With the exception of startups in pharmaceutical companies (especially new drug development), medical devices, and certain biosciences domains, most startups in the high technology space tend to ignore the urgency of developing an IP strategy during early stages of the company.

There are various reasons, some of them justified, behind this trend. From my experience in my own startups and the startups I have worked with, the reasons for not addressing patents early-on seem to converge on certain themes.

  • Too busy fighting fires – Founders feel that they are too busy doing ‘other’ things – getting the engineering prototype going, refining the business and marketing plan, raising money, and building their team.  Worrying about IP Strategy is the last thing to enter their minds.
  • Lack of bandwidth of key resources – Startups can’t afford their main architect, or the CTO to be distracted from doing his/her current job. Typically there is one person, or very few in the company who understand the complete technology solution. These folks are typically so overloaded with responsibilities and requests for their time and knowledge, that having another assignment – to lie out an IP Strategy – may just be the straw that breaks the camel’s back!
  • Too expensive – The costs associated with completing this work, and the time it will require from key employees, (keeping them away from their regular work) are too high.
  • We don’t care or we will be long gone –  One of the most surprising reasons for startups to delay their patents and IP strategy work are: they don’t care, their investors don’t care, their customers don’t care, and the reason that tops it all – we won’t be around by the time we need to worry about the patents!

IP Score for Startups

Given the potential for damage, it behooves startups to evaluate their IP risk. This allows startups to objectively decide whether or not investing in developing an IP strategy is worthwhile for them or not.

In seeking to quantify the urgency of having an IP Strategy and patents for a particular company, we need to identify a few parameters that have an impact on the IP of the company in the context of its landscape.  Here are a few parameters, in no particular order of importance, that influence the overall IP Score of a company.

1.    IP Relevance for the Technology Segment (5 = Very Aligned, 0 = Totally Misaligned (the technology segment may not require a well thought out IP Strategy)

IP Relevance index for the technology segment reflects the importance of patents and Intellectual Property for a given company’s product segment. For example, typically, any pharmaceutical company would by definition have a very high IP Relevance index since the whole company’s success is based on a unique drug or molecular structure that gives the company an unfair advantage vis-à-vis competition. Some metrics that could help us refine the IP Relevance index are following:

  • Business Valuation, Core Technology Correlation Index – to what extent is barrier-to-entry based on first mover’s advantage vs. technology differentiation?
  • To what extent can the technology implementation help differentiate the offering in the market place?
  • Mature Companies’ IP Position – what is the IP position of established large companies in the product space of the given company?
  • Competitive Startups’ IP Position – What is the IP position of other competing startups in this space?
  • Licensing/Partnership Strategy Index – Has the company laid out a cross-licensing and out-licensing plan for key technology pieces?
  • Considering some of all of the above factors we can come up with an IP Relevance Index for a company or a startup. We could define a number between 0-5. An IP Relevance index of 5 means that the relevance of having a mature IP Strategy is very critical for the product, and a score of 0 meaning that patents may not play a big role in the success of company’s product strategy.

2.    IP Maturity (5= Very Mature, 0 = No IP Maturity)

Yet another related parameter to quantify IP Score of a company or startup is IP Maturity. IP Maturity refers to the work the company has already done, and how effective is their current overall IP Strategy in maximizing the overall valuation of the company. Following are a few things that have high correlation with IP Maturity.

  • Filed Patents, Patent Applications, Provisionals and Trademarks – A higher number here means higher IP maturity.
  • Founders or Core Employees with patents under their belt in relevant technologies. This is yet another indication of how mature the overall thinking of the organization is and points towards a higher score for IP Maturity.
  • Steps towards some kind of IP Strategy – Companies that have well defined core architecture or product requirement documents, well documented peripheral idea and even a sketch of product or strategy roadmap would score high for IP Maturity as well.

3.    Ease of Implementation of an IP Strategy (5 = Very Easy, 0 = Very Difficult)

This attribute defines the ease with which a sound IP Strategy could be defined or implemented within a company. Again, a score of 5 would mean it would be very easy to implement an IP Strategy and a score of 0 would indicate an uphill battle when we attempt to implement an IP Strategy.

  • Experience and Maturity of Core Technical People – Overall technical understanding and experience of the core technical team with patents is generally a good indicator of how easily patents and IP Strategy could be implemented.
  • Management Drinking the IP Kool-Aid – By looking at past track records of the company management, and their IP track record, we can get a fair assessment of how much importance and urgency the management gives to patents and overall IP Strategy.
  • Resource Availability – The amount of cash available or allocated for patents and access to key technical resources that can help in creating the IP Strategy also is an important factor.
  • Published White papers or technical papers by founders or key employees in closely related or relevant areas, or even past publications in related or unrelated topics is again a good indication of ability to get access to the technical details of the products for implementing IP Strategy.
  • Documentation of code, innovation, and other technical details within the company are necessary aspects for implementing IP Strategy. More documentation of code and Whitepapers related to product make the job of IP landscaping, white space scoping, and patent drafting much easier.

And the IP score is…

We define the IP Score as the average of the above three metrics  – IP Relevance, IP Maturity, and Ease of Implementation of IP Strategy.

This is a number between 0 and 5.0. A High IP Score indicates a well thought of IP Strategy and indicates the company has taken steps towards building a defendable and distinguishing Patent Portfolio.

IP Score = Average(IP Relevance, IP Maturity, Ease of Implementation of IP Strategy)

IP Score vs. Maturity/Stage of the Company

In discussion with a seasoned entrepreneur friend of mine we came up with another interesting way to look at the IP Score of a company. If we view the IP Score of a company vis-à-vis the maturity or the stage of the company, it reveals interesting things. The maturity or the stage of the company is related to its overall progress towards product delivery, revenue growth, and financial position. Plotting IP Score vs. Company Maturity helps us identify the urgency of IP Strategy for a particular company.

An example of a company with high IP Score and high company maturity (top right quadrant) is Pfizer. Pfizer has strong patent portfolio of drugs like Lipitor and is a fairly mature and successful company in the Pharmaceutical domain.  Pfizer may still end up having overall high need for continued investment in IP Strategy (since the IP relevance of the technology domain is very high) but it is a fairly mature company in its own right.

The companies that lie in the bottom right quadrant (Low IP Score and High Company Maturity) have great strategic risk profile and are the strongest candidates for defining their IP Strategy at the earliest possible opportunity.

The companies with High IP Score and Low Company Maturity (top left quadrant) are the ones that have a solid IP Strategy from the get-go.

The companies in the bottom left quadrant (Low IP Score and Low Company Maturity) are the one’s that have time to create a solid IP Strategy to win in the marketplace.

Where does your company lie in this map?

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Can we build IP-based Product Businesses from India?

My interest in knowledge management has always been from the perspective of knowledge creation. So, I readily agreed to participate in the CII Knowledge Management Summit this year in a session that focused on this dimension. Ganesh Natarajan, Sharad Sharma and I were together on a panel to explore the potential of, and challenges in, the creation of intellectual property (IP)-based businesses from India.
I began my talk with a historical perspective. For the first four decades after independence, India tried to build core industrial capabilities. The focus was on understanding, assimilating and improving on manufacturing processes. It’s only in the last two decades that we have seen some momentum building up in the arena of new product development.

IP-based Successes from India: Bajaj, Vigyanlabs, Praj & NCL

We have several examples of this trend. My favourite one is of Bajaj Auto. As a scooter maker, Bajaj restricted itself to making cosmetic changes to the Chetak. But after it entered the much more competitive motorcycle space, it came up against powerful competitors like Honda (at that time in the Hero Honda JV). After several unsuccessful attempts to adapt Kawasaki’s bikes to the Indian market, Bajaj was finally successful when it developed and launched the Pulsar around 2001. The Pulsar offered power and style at a reasonable price and operating cost to a new young generation of bike riders who wanted something more than the efficiency of Hero Honda’s Splendor. At the heart of the Pulsar’s engine, was Digital Twin Spark Ignition (DTSi) technology, a patented method of overcoming the traditional trade-off between power and fuel-efficiency. The DTSi patent itself has been the subject of litigation over questions of novelty and non-obviousness, but the Bajaj Pulsar is certainly a landmark in terms of a successful Indian product riding on IP covered by a patent.

In some of my earlier posts, I wrote about other companies that are doing a good job of IP-based innovation. Vigyanlabs, winner of the 2013 Nasscom award for technology innovation, has a novel solution to reduce power consumption in data centers – the core of this is covered by a US patent. Praj Industries started by developing improved continuous process technologies for fermentation of cane molasses, but is today doing research at the molecular level so that it can convert different types of waste into next generation biofuels. Praj already has patents covering processes to produce ethanol from lignocellulosic material, and I presume more patent applications will follow.

Our public research institutions have also been successful in creating core IP that is at the heart of commercial products. To give just one example, Dr. Sivaram and his team at the National Chemical Laboratory (NCL) created a microencapsulation technology covered by 6 US patents that is today being used by Procter & Gamble in their high end Downy fabric softeners for controlled release of perfume that lasts many days after the clothes have been washed.

Yet, Challenges Remain…

I recently met Anjan Mukherjee, co-founder of HyCa Technologies. HyCa has been a pioneer in the development of hydrodynamic cavitation, a technology that has applications in areas as diverse as treatment of effluents and ballast water. Anjan and his team have won several awards, and been invited as guests of different countries. But, commercialization on a big enough scale has eluded HyCa so far. One of the main reasons for this is the absence of an effective public procurement system for new technologies. While in most countries public procurement helps in certifying and establishing locally-developed technologies, in India the rules of public procurement are loaded against the purchase of novel technologies developed in India.

The Indian pharmaceutical industry graphically portrays some of the other challenges in building IP-based product businesses from India. While the leading Indian pharmaceutical companies were already strong in process innovation, they invested in new drug development when India decided to sign the GATT/WTO agreement in the mid-1990s. But, after some early success in out-licensing molecules at early stages of the drug development process, they have found the big wins hard to come by. As a result, some of them either sold out or cut back on new drug development.
Why is it so tough to develop new drugs out of India? The combination of large upfront investments, a long gestation period (trials and approval can take 10+ years) and uncertain outcomes (a drug can fail in advanced trials, rendering several years of effort infructuous) make drug development challenging anywhere. But, in India, this is compounded by the absence of knowledgeable and patient capital, and a lack of deep expertise in biotechnology and disease mechanisms. Recent curbs on clinical trials in India have made the trial process more expensive and cumbersome. Local regulators lack the sophistication and expertise to make a rigorous assessment of a new drug. IP protection is also an issue with Indian IP laws perceived as being against new drug development.

Many Challenges are Ubiquitous

But, in fairness to the Indian environment, some challenges in IP-based product development exist everywhere. Even in the US, the assumed Shangri La for new product development. I often relate the story of Robert Kearns, who invented the first intermittent windshield wiper. He applied for a patent, and then offered his technology to the automotive majors. They didn’t license his technology, but introduced similar products of their own some years later. Kearns sued Ford and Chrysler, but won a pyrrhic victory– by the time he won in the courts, he suffered several personal losses. If this David vs. Goliath battle can play out in the US, one can only imagine the challenges of defending one’s patents in India.

Apart from the IP itself, there is the importance of the possession of complementary assets in getting value out of IP. In many industries including biotech-based Pharma, in order to make money you need to have a good understanding of the regulatory process, staying power and resources to complete trials and the ability to market your product if you want to capture a major part of the value created by your IP.

Conclusions

India has the potential to build IP-based, product businesses. We have people with ideas, in many areas we have people who have gained deep expertise, and access to funding is improving.

But there are serious weaknesses as well including the absence of support from public procurement, regulatory gaps, absence of specialised funders, and shortages of talent, and infrastructure that can be used on a shared, chargeable basis.

The keys to success include the ability to stay the course (for a much longer time than in developed markets), internationalization, and getting the business/commercialization model right. I can’t over-emphasize the internationalization dimension – other countries can be much more accepting of new, cutting-edge technologies; you get a large enough market to amortise the cost of your development; and Indian customers are more positive once you have proven yourself elsewhere.
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Go west my son; the Valley calleth.

Without a doubt the Silicon Valley or “Valley” as it is known leads the world in new technology breakthroughs. Day in and day out we hear of companies growing, getting acquired, of going public and of untold riches accrued to the founders and the investors. The recent Whatsapp saga is a classic example of a rags-to-riches story and so the legend of the Valley continues to build.

There is no doubt that the Valley is a great place to start new companies. With its network of incubators, investors and talent, it is a fantastic place to launch new ideas. On the flip-side, the Valley is expensive (think both salaries and real estate), talent is hard to come by and staff attrition is very high, travel costs can quickly add up (both monetary and the toll they take on your staff given the geographic location) and your customers may not be there. Given all the pros and cons of the Valley, it is worth a thought before deciding to establish a presence there.

In this post, we look at the factors that influence foreign companies to be Valley-bound and additional factors they should think about when planning to launch their operations in the US and whether the Valley is the best place for them to launch.

So what makes a company decide to enter the US via the Valley? In my opinion, there are three major factors.

Everybody is there – Almost every technology success story you have heard of has its roots in the Valley. There is an aura of success that surrounds the Valley that makes it very attractive to new entrants.

The happening place for Cool-Tech – Major breakthroughs are happening in the Bay Area. With its eco-system of innovative companies and research institutions, a lot of revolutionary technology is coming out of Northern California.

The VC factor – If the company is funded by VCs, chances are they have their origins in the Valley too. They either made their money there or their head offices are on Sand Hill Road. Their comfort zone is the valley and they will nudge their portfolio companies to go there too.

The Self-Perpetuating Belief – In human psychology, there is the phenomenon of self-perpetuation. If enough people believe something to be true, then it becomes true. So if enough people believe that the Valley is the place to be, then that is what it is.

But is the Valley for you? Companies like i-flex (now Oracle Financial Services) seem to have done very well without having a substantial presence in the Valley. So what should you think about before deciding on your first US location?

Are you a startup? – Without a doubt, the Valley is a great place for startups and has the infrastructure that startups need but chances are you are beyond the startup phase and in growth mode, does the Valley really offer what you need in this stage of your growth?

Are you Cool-Tech? – Do you truly have a revolutionary technology? Or is it a solution that piggy-backs off of existing tech stacks? If it is revolutionary, you should think of the Valley, if not, think again.

Where are your customers? – In the growth phase, it is critical for a company to be close to its customers. The Valley has technology companies like Apple, Google, Cisco and Oracle, but are these companies your customers or are the likes of 3M, Caterpillar, Citigroup and Wal-Mart more likely your customers? If it’s the latter, then think long and hard about where you want to be.

Where is your talent? – You will want to scale. You will want to find people – usually sales and presales, who understand your business and your domain. Looking for salespeople to sell into Financial Services will be a bigger challenge in San Francisco than in New York, Connecticut, Chicago or Charlotte.

Are you ready for the distractions? – For all the positives that the Valley has, it is also an incredibly noisy place. With all the conferences and meet-ups, it is easy to meet new people and new ideas and equally easy to be distracted.

So what should one do? The Valley has a lot of things that a young company needs so I would go so far as to say that if a founder can move to the Valley then he/she should. In addition, the second sales/presales hire should be in the Valley but as far as the Head of Sales, my thought is that if you have a customer facing (B2C) product or have a truly revolutionary technology – go to the Valley. If you are more of a B2B play and are targeting larger companies (Fortune 500), your head of sales should be more centrally located to allow easy access to either coast. Chicago and Dallas are both good options. In the end, the Sales Head should be close to where the potential customers are. And that is the bottom-line.

Agree. Disagree. Or have another viewpoint. Would love to hear your thoughts.