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Strategies for MNCs Engaging with Start-ups in Emerging Markets

Strategies for MNCs Engaging with Start-ups in Emerging Markets

For large global companies, forging effective partnerships with high-potential start-ups is easier said than done. The very traits that make such start-ups potentially complementary as partners also make it difficult for large companies to engage with them in the first place. Multinational corporations often struggle event to identify promising potential start-up partners, while start-ups find it difficult to identify and reach the relevant decision makers within the often-confusing hierarchies of giant multinationals. The challenge is even greater for both sides in emerging markets.

To understand how multinational companies have partnered successfully with start-ups in emerging markets, CEIBS Associate Professor of International Business & Strategy Shameen Prashantham has co-authored a research study in three major emerging market economies: India, China and South Africa. The study focussed on non-equity partnering through start-up engagement programmes such as Microsoft’s BizSpark, IBM’s Global Entrepreneur Programme, and SAP’s Start-up Focus programme.

The research uncovered four key factors that multinational companies confront in such partnerships in emerging markets, and corresponding strategies that can help multinationals engage with start-ups in  emerging markets. The challenges and the strategies to address them are as follows:

Immature Entrepreneurial Ecosystem → Compensate for Deficiencies

Appetite for Entrepreneurship → Commit Resources to tapping the Entrepreneurial Energy

Outsider Status of Western Multinationals → Work with Local Groups

Access to Novel Innovations → Co-innovate with Start-ups

The findings also highlight the importance for Western multinationals to recognize differences among emerging markets. Different emerging markets have distinct national priorities, regulations, and differing scales of economic activity and entrepreneurship which will affect the strategies of multinationals. These things must also be taken into account if multinational companies are to succeed in creating mutual value for themselves and their start-up partners.

The results of the study are featured in the Winter 2017 edition of MIT Sloan Management Review which Prof. Prashantham co-authored with Prof. George S. Yip of Imperial College Business School in London. Read the article here.

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Mr. Sikka, you are right.

Mr. Sikka, you are right

For any of you who may have missed Vishal Sikka communication to Infosys employees on the new year, read here.

The problem that Vishal Sikka is alluding to is largely connected to the identity of our IT Industry today. We’re the ‘outsourcing’ destination for the world – and companies like Infosys actually helped create the concept of ‘outsourcing’. This is precisely what is getting disrupted by automation and AI. The term “outsourcing” itself is facing obsolescence.

Clearly, the Indian IT story can no longer be about cost arbitrage. Let’s not forget that India is also a huge, untapped market with enormous potential for disruptive ideas. Amazon and Uber will probably paint a very different picture of India than Infosys or Wipro.

Also the next wave of technological thinking is emerging. API-driven ecosystems, Low- code app development, design-led growth, and the impending data explosion with IoT are shaping the future for us. These mega trends are giving rise to a new breed of smaller and nimbler companies that are uniquely positioned to create products and services for a new breed of enterprises around the world that are ‘born digital’. At Pramati, we’re looking at these markets. And the future looks fantastic for us.

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How To File Patents In India?

A patent is a form of intellectual property defined as “a government authority or licence conferring a right or title for a set period, especially the sole right to exclude others from making, using, or selling an invention.” The purpose of a patent is to protect the intellectual property created by an inventor for a period of time so that the inventor has first rights over how he wishes to use his patent. A patent can be sold, leased, be used in exchange for royalties, equity, etc. A patent holder however, does not become the holder of the invention unless he has invented it first.

The then British Government of India, during the year 1856, tried to encourage and propagate new inventions termed as ‘exclusive privileges’ in the manufacturing sector. The first invention to be granted Intellectual Property Protection in India was by the Government of India under the petition special privileges to George Alfred DePenning for inventing the ‘Efficient Punkah (fan) Pulling Machine.’

The Indian Patents Act, 1970

Patentable Inventions

The list of inventions patentable are:

  • Process, manner, or method of manufacture or Art
  • Machine, apparatus or other articles
  • Product patent for medicines, food, drugs and chemicals
  • A substance should be produced by manufacturing
  • Computer software  used with hardware or with technical application to industry

Inventions Not Patentable (Sec 3)

The following is a list of inventions that cannot be patented:

  • Any invention obviously contradictory to established laws or that is superficial.
  • Any invention that could be used to exploit the population, contrary to morality, public order, or causes prejudice to life or health (of animals, plants, natural resources, humans,etc).
  • The discovery of a scientific principle, any substance occurring naturally (living or nonliving) or any abstract theory.
  • If no new product is formed nor a new reactant is formed using machines or apparatus. The discovery of a new property or new form of a substance.
  • Mere mixture of chemicals.
  • The duplication, rearrangement or arrangement of known devices.
  • A method of horticulture or agriculture.
  • Any surgical, medical, diagnostic, therapeutic, etc. process for the treatment of humans or animals (to render them free from disease).
  • Animals and plants in part or whole (other than microorganisms).
  • Algorithms, computer programmes, business or mathematical methods.
  • Musical, literary, artistic, dramatic, cinematographic (aesthetic productions or works), or television productions.
  • The mental strategy in playing a game, a mental act, rule, method or scheme.
  • Topography of integrated circuits
  • An invention that is traditional knowledge or which is a duplication or aggregate of known components properties.
  • Inventions related to atomic energy cannot be patentable under Sec 20 (1) of the Atomic Energy Act, 1962.

Application For Patents

The person applying for a patent should apply jointly with another person or alone and can be:

  • The first and true inventor of an invention.
  • An assignee can make an application on behalf of the first and true inventor of the invention.
  • The legal representative of a deceased applicant provided that before death, the applicant was entitled to make such an application.

Form Of Application

  • Every application made shall be for one patent only at the patent office in the prescribed form.
  • An international applicant applying for a patent in India under the Patent Cooperation Treaty must file a corresponding application before the Controller in India. No patent is valid for the entire world because patent law is territorial in nature. Filing an application in India enables a person to file for application at convention member countries which makes the application process easier when applying to multiple countries.

Amendments To The Patents Act And Rules

The Indian Patent Act was amended in 1999, 2002 and 2005. The need for patenting marks of patent agent examination, and chemicals and drugs under Trade Related Intellectual Property Rights (TRIPS) brought about the need for an amendment to the Patent Act.

The Indian Patent Rules were amended in 2003, 2005, 2006, 2012, 2013, 2014 and 2016. The rules were amended to include a fixed fee structure, patent agent exam qualification, appointment of the patent office as searching and examining authority, third category for applicants that are small entities.

The Indian Patents Office

The Office of the Controller General of Patents, Design and Trademarks (CGPDTM) administers the Indian Patent Office, which is an Office of the Government of India that is entitled with administering the laws of patents, trademarks and designs. It is important to note the distinction between patents, designs and trademarks.

Patent Duration

The duration of any patent filed in India is valid for a period of 20 years (irrespective of filing with complete or provisional specification) from the date of filing the application. If an applicant wishes to file an application under PCT, then the term of 20 years begins from the date of international patent filing. If an applicant wishes to file a patent in another country, then he must file the patent with the Patent Office of that respective country (through the conventional filing of an application or through the PCT route) since patents granted in India are valid only throughout the territory of India.

How To Get A Patent?

Get an Idea for a Patent

First get an idea of what has to be patented, and the same has to be presented on paper with a description, drawings and sketches (if necessary) explaining the work of the invention.

Patentability Search

Next, an individual must check the list of patentable inventions. The Patent Act (as mentioned above) entails what constitutes a patentable invention and what doesn’t. Only if an idea is patentable can an individual move forward to the next step. It also enables an individual to search for existing patents in case the idea or patent already exists.

Patent Application

If a patent is at the early stages of its development, then an inventor can file a provisional patent. This enables an inventor to secure a filing date (12 months of time to file complete specification) and it is also lower in cost to file a provisional patent as compared to the cost of filing a complete patent. If an inventor has complete specifications about the invention, then the individual can file for complete specification.

Publication of the Application

After an inventor has filed for complete specification, the application is published 18 months post first filing. If an inventor feels that they cannot wait for the period of 18 months from the date of filing the application, then s(he) can file for an early publication request along with the prescribed fees and the patent would take about a month to be published under an early publication request.

Request for Examination

The controller, upon receiving an RFE request from the applicant, hands over the patent to the patent examiner for examining criteria such as novelty, enabling, inventive step, patentable subject-matter and industrial application. All steps covered till now (from patent application till grant) is termed as patent prosecution. The patent examiner then submits a first examination report to the controller and the applicant which consists of documents of the claimed invention.

Response and Clearing of Objections

Based on the examination report, most patent applicants would receive objections. A patent agent can help create a response to the objections raised in the application. An inventor can communicate to the controller as to why his invention is patentable.

Grant of Patent

After all objects raised in the report are resolved and the patent is deemed to be in order of grant after meeting all criteria requirements, the patent is granted to the applicant as early as possible. The grant of a patent is published in the patent journal.

As we move towards becoming a Product Nation, it is important that companies and individuals own their IP. A Patent can become a competitive advantage in itself and is to be ignored at your own peril!

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Industry 4.0: The New Normal

In case you are a manufacturing company beginning to explore how investment into Artificial Intelligence and Internet of Things could help your top and bottom lines, you may already have fallen behind. The fourth industrial revolution or the ‘Industry 4.0’ is already upon us and the opportunities to completely transform the way we carry out production are limitless. Industry 4.0 may be broadly defined as a collective term for a number of contemporary automation, data exchange and manufacturing technologies. It is characterised by a diminishing boundary between the cyber and physical systems to enhance productivity and reduce costs. ‘Smart’ and ‘Connected’ are two of the most important keywords in the new industry universe. Smart takes us into the domain of Artificial Intelligence (AI) while ‘Connected’ is more a purview of ‘Internet of Things’ (IoT).

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‘Smart’ – A detour into Artificial Intelligence

AI finds its roots way back in 1956 when the name ‘Artificial Intelligence’ was adopted or even further back with Alan Turing in 1950 or in 1943 when McCulloch & Pitts introduced the Boolean circuit model of brain. It’s still however, a little difficult to settle on one universal definition of AI. For our purpose we may define AI as the development of computer systems able to perform tasks normally requiring human intelligence. These may include (but are not limited to) visual perception, speech recognition, decision-making, and translation between languages. More passionate people define AI as the ability to ‘solve new problems’.

The lack of one single definition has not detracted investors from recognizing the potential of AI and they have been pouring in money like never before. As per Zinnov Consulting, in the last 5 years alone, investments in AI have grown ten-fold from USD 94 million in 2011 to USD 1billion in 2016. As per CB Insights, the equity investments in AI were North of USD 2 billion in both 2014 and 2015. We may attribute different ways of defining AI to different investment figures, however we can agree that investments have sky rocketed. While, Venture capital firms have obviously been at the forefront in backing early stage companies, the high corporate interest in acquiring AI start-ups has also led to a buzz in the M&A markets. Some of the biggest acquirers in AI include Google, Apple, Salesforce, Amazon, Microsoft, Intel and IBM.

India is holding its own in terms of AI related action. As per Zinnov, India has emerged as the 3rd largest AI ecosystem in the world with 170 start-ups. Niki.ai, SnapShopr, YANA, HealthNextGen, Aindra Systems, Hire Alchemy are some of the notable firms trying to disrupt the value chain across sectors. Global technology companies have acquired more than half-a-dozen India based AI start-ups in the last 18 months. It’s not all one way traffic. Indian IT services firms like Infosys (UNSILO, Cloudyn, TidalScale) and Wipro (Vicarious, Vectra Ventures) have been looking for targets abroad to augment their AI capabilities.

Table 1: AI use cases across sectors

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‘Connected’ – the Industrial IoT

The Industrial Internet of Things refers to the network of equipment which includes a very large volume of sensors, devices and “things” that produce information and add value to the manufacturing processes. This information or data acts a feed to the AI systems. As per Cisco, 50 billion devices will be connected by 2020 and 500 billion by 2030. McKinsey projects that IoT will generate 11% of global GDP by 2025. This is driven by optimising industry performance and cost efficiencies.

 

IIoT on the Factory Floor

The global IIoT spending is estimated at USD 250 billion and is expected to reach USD 575 billion by 2020. The key components of the IIoT ecosystem include sensors/modules, connectivity, customisation, and platform/IoT cloud/applications.

As per NASSCOM, The Indian IoT market is expected to reach USD 15 billion with 2.7 billion units by 2020 from the current USD 5.6 billion and 200 million connected units. This is expected to be largely driven by applications in manufacturing, automotive and transportation and logistics.

In India, the IIoT segment has caught the attention of the largest manufacturers. In November 2016, Reliance and GE announced a partnership to work together to build applications for GE’s Predix platform. The partnership will provide industrial IoT solutions to customers in industries such as oil and gas, fertilizers, power, healthcare and telecom. Mahindra & Mahindra’s uses bots to build car body frames at its Nashik plant. Plants operated by Godrej and Welspun use the Intelligent Plant Framework provided by Covacis Technologies to run their factory floors.

Industry 4.0 is an exciting phase and the possibilities seem limitless. The Indian government is trying to play its part through the Digital India mission. It is positively driving various government projects such as smart cities, smart transportation, smart grids, etc. which are also expected to further propel the use of IoT technology. It is imperative for the promoters and companies in the manufacturing segment to find their place in the new digital world order through organic or inorganic investment.

arvind-yadav

 

 

 

This is a guest post by Arvind Yadav,

Principal at Aurum Equity Partners LLP.

 

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Thoughts on Open Source Communities

Supporting open source users seems like a thankless job. There have been many blogs written on this topic. Developers have stopped maintain popular projects because of the burn this causes. People who use open source projects, indirectly assume that they are entitled to free support, even if they have taken no effort to understand the issue, or tried searching for a solution.

Image by Andrew Branch

At some point, it becomes unsustainable for the original developers to keep helping without a return. At this point it is important for the community to come up with a good volunteer based model of helping new users. When the project hits a very large scale, like Ubuntu for example, you find enough people with expertise to answer such questions, so this problem can be overcome by scale. This assumes that basic housekeeping like building documentation continuously is being done.

When the project is moderately successful, (it has lot more users than volunteers), the developers have to keep supporting without any benefit, if they want to project to be successful. Specially if their livelihood depends on it. Of course after a point, the developers can push for paid support, but entitled users who expect free support will still bite if they don’t get the support they expect and bad-mouth about the project. This is a tricky phase.

Users waiting for help: Image by Paul Dufour

While it feels wrong to help anonymous users, it feels good to help people who belong to the community. As humans we feel happy when we are of use to somebody, but we feel sad when we think they are being exploited. While working on open source projects, its easy to move from one extreme to another. So how do we solve this problem?

One way would be to build a community and know the people in the community. So how do you define such a community? I think, a community is formed when people help each other to achieve a common goal. This means they invest time, effort, energy, money to help everyone else achieve this goal. When everyone does this, everyone benefits from each others’ investments and the community grows powerful.

Image by Clem Onojeghuo

So why would someone invest in being a part of the community? First the person has to be convinced that being in the community, that is giving back, is more beneficial than just being a taker. The process of contribution must be easy for someone who is new. It also helps that you feel that you are not being cheated by helping other users. This can be done if the benefits reaped by the community are fairly distributed instead of being cornered by a few. Another important thing is that there must be fairness in the way the affairs of the community are conducted.

A feeling of fairness comes when there is openness and transparentcommunication in the community. This also means moderating the communication so that the conversations are open, fair, focused and based on activities rather than opinions. Users who abuse the trust of others, or only keep taking (and not giving) should be discouraged or disbarred from the community. In online communities, people sharing their real identity, profile pictures rather than being anonymous, also makes it more human and friendly.

Image by Corrine Kutz

It is important that those who contribute to open source projects also be kind on themselves and do not burn themselves out. In the long run, open source is a great asset and win for everyone, but in the short run it is hard to sustain and keep the faith. The internet not only gives us tools to collaborate, but also to share the benefits and trade, and working in an open source community also feels specially rewarding.

But it need not be a hard slog just because its open. A little bit of balance can go a long way in making things fun.

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India Inc Version 2: Disruptive, Agile, Confident and… ready to Go Global

The growing internet penetration has fuelled India’s start-up ecosystem, which is now the third biggest in the world. US-based Compass (Startup Genome), in its 2015 report, puts Bangalore as the world’s second fastest growing start-up ecosystem. There is a massive opportunity within the $2 trillion Indian economy owing to the consumption fuelled by 1.3 billion Indians and a good number of Indian start-ups are focusing on that. In fact, 7 of the 9 Indian unicorns are focusing on the domestic consumption story.

However the $150bn Indian IT services industry tells us that it is very important to look outside of your home market to create a world leading organization. Most large Indian IT companies derive 75% of their revenue from the US and Europe; and that allows them to create industry leading best practices besides scale, maturity and an innovative edge to enter the top global league. The new generation Indian tech product companies need to take a leaf out of these successful Indian enterprises.

Here are some of examples of how Indian product technology companies are challenging their global peers –

“Made in India, Made for the World” Zoho has over 20 million users across the globe, and is gunning to reach the 100 million users mark currently..

RateGain works with 12,000 hotels worldwide to help them enhance their revenue and optimize their inventory.

Chennai-based Indix has the world’s largest product database now – 50,000 brands and over 700 million products.

Mumbai-based fintech and cybersecurity company, Seclore, has created one of the most secure enterprise rights management systems in the world.

300x250-mpuIndia Emerging Twenty (IE20) aims to discover the next 20 most promising Indian companies to go global and provide them the visibility and platform to help them make a mark in the global arena. This unique programme is led by London & Partners, the Mayor of London’s inward investment company which has a proven track record working with over 2000 international businesses.

IE20 – Catapulting businesses to the global stage

Last year, 222 Indian companies nominated themselves for the inaugural edition of the IE20. Winners included companies of all shapes and sizes – from organisations turning over a few hundred thousand in top-line ($$ of course), to others touching $100 million. From IT services companies employing thousands of staff, to lean and mean start-ups growing  into adouble digit head count. Many of the winners (including Seclore, RateGain and Indix) are already pioneers in their space; while others are positioning themselves to challenge their global peers. From “Battle-tested Cybersecurity solutions” to companies collaborating with global universities to discover the next big thing in genomics, these companies reflect the new wave of a global technology ecosystem – disruptive technologies that will transform our lives and the way we do our business.

The programme is supported by BDO, Newland Chase, Santander UK plc, Lalit Hotels and the UK’s Department for International Trade.

Program qualifiers

Companies registered in India OR those registered outside of India having a majority Indian management.

Companies should have worked with global clients, and/ or have products suited for global markets. Having an international presence isn’t necessary.

Established after year 2000 and should have global ambitions.

Selection process and benefits

The selection process, spanning over a period of 20 weeks, will assess companies on the basis of three broad parameters – global scalability, innovation and differentiation and performance. Companies need to nominate themselves for the programme using the application form (link). ValueNotes, the knowledge partner, will use their 3-stage assessment framework and a robust rating model to ensure a high quality selection of the top 50 companies. These companies will be invited to make a brief presentation before a panel of business experts, who will then select the final top-20. . The panel round will be held in Mumbai, Bangalore and Delhi in late January/early February 2017..

The selected 20 companies will be felicitated and awarded, which will help them gain international recognition – critical to global expansion. The awards programme will also offer opportunities to network with investors, business heads, thought leaders and mentors of global repute. Courtesy of Air India, all 20 companies will be flown to London to participate in a high impact business programme during London Technology Week, in June 2017.

The nomination process has already begun and the last date to send in your nomination is 16th December 2016. For more details, visit www.indiaemerging20.com

Guest post by Gautam Sehgal, Chief Representative, India, London & Partners International

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Why Indian startup founders should think about M&A and not be shy about it ?

Think about endgame, chess grandmasters do so to win.

Studies point out that chess grandmasters visualize the chess board state few steps away to a ‘winning game’ and make moves based on memory pattern that can lead to that board state and thus help them win the game.

Many startups however operate in a game where the rules are dynamic and change unexpectedly. An unanticipated flood of competition could sweep in, or the ground gets shaken underneath because of a regulation or policy change.  Due to such unpredictability most of the founder’s move is extremely tactical, the focus is in on surviving and not getting killed as opposed to planning to grow like rabbits.

Data from 20 years of startups in US suggest mean time to exit is 4th and 6th year.

Mean exit time
Mean exit time for startups

This is simply because If investors don’t do that then they can’t return the capital to their own investors (i.e limited partners) within the 10 year fund cycle.  

Same data also reveals that after 1997 there has been more exit through M&A than IPO both in terms of count and value which means that it is more likely for a startup to have an exit via M&A rather than an IPO as the most likely route

VC vs M&A vs IPO
VC vs M&A vs IPO

In India with no IPO route, M&A is the most likely endgame

On  decade long VC scale, Indian ecosystem is quite young and thus historical data is not available to compare however similar forces broady apply.  

Also while scale can become large but technology market growth rates in India are not as fast the US. Add to this the fact there is no IPO market in India for the technology companies. Some efforts are underway to open it such as the new ITP platform by SEBI but nothing has kicked in practice. That makes M&A option all the more important to consider for an Indian startup founder.

From limited data that is available about the Indian ecosystem we can that $14.5 billion of VC money has been invested in last 4 years and $2.5b of exits have happened in the same period spread over 300 deals. This ratio are still very skewed when compared to other ecosystem.  

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India M&A / VC Ratio – Low

All of this build the strong case for why an Indian startup founder should think about exits via M&A

A reason they don’t think about it is because they don’t know much about exits or the playbook involved in doing that. Second likely reason could be that advisors actively discourage founders from thinking about exits by labeling them opportunistic and not being a visionary founder.

Paradoxically the right time to think about exits is exactly when an exit is not needed.

Founders should think about exit before they are forced to think about it

PS: Exit has a broader significance, applies to open source and even countries. Here is a talk by Balaji Srinivasan that illustrates the importance of exit as key lever of an healthy ecosystem

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Internet of Hacks? Minimal prevention steps

Friday 21st Oct 2016 has been billed as the first large scale cybersecurity incident from the IoT world. The widely reported attacks involved inserting malware into devices to turn them into a network of controllable bots that was directed to attack websites. One of the principal targets was Dyn the DNS provider to Twitter, Reddit, GitHub, Paypal, Spotify, Heroku, SoundCloud, Crunchbase, Netflix, Amazon, and others. More than 10 million devices were alleged to be hacked and almost all (96%) of them were IoT devices, according to Level 3 Threat Research Labs.

internet-of-hacks-minimal-prevention-steps

These devices are typically headless (no screen) but are full-fledged (linux) computers . The IoT devices typically are more constrained with microcontrollers instead of CPU and real time micro OS like tinyOS, Contiki, mbed etc. However, there is no question that too will come. The source code of the Mirai malware has been open sourced fueling  an arms race between attackers and defenders.

There are important public policy and regulatory aspects in the  repeated vulnerability of the Internet but here we provide some advice on minimal steps we need to take to reduce basic vulnerability.

Network Operators (ISP, Cellular)

Network operators may end up being the spider at the centre of the web and play a central role in securing the IoT.

Cellular operators have traditionally not been very forthcoming on security and  have long grappled with vulnerabilities in Signalling System 7 (SS7), which allows all operators to talk to each other. SS7 – the central-nervous system of the worldwide mobile network – connects our phones and  allows us to move around while using them. More people use SS7 than the internet. This 1975 vintage system is full of vulnerabilities. Google “SS7 hacks” to see how WhatsApp or Telegram can be tapped. In IoT, we are dealing not just with information and money but life and death and the operators need to up their game quickly and by quantum jumps.

In the cat and mouse game being played out in cyberspace, the classical intrusion detection mechanisms are being bypassed. Attackers launch a few probes and if they fail, go away and attack some other device and come back to this device a bit later. Unless we correlate activity across large slices of time it becomes difficult to detect this behaviour. Attackers are simulating humans! The network operator can however detect sustained attempts by a bot across multiple sites. Operators should be much more proactive in shutting such bots down and blacklisting concerned ISPs. A proactive action to protect sensitive end-user installations can be a great value added service.

Smart Home User

1. Change default password in your home router. Ensure the trapdoor used by your service provider (ISP) and device manufacturer (Router maker) are locked down and not using defaults or easily guessed passwords. Since many routers (based on Linux variants) are already infected, you may even consider a factory reset or changing to a more secure version.

2. Review devices directly connected to Internet, i.e. those that have an IP address and are directly addressable. DLNA, uPnP are suspect. Disconnect where possible. Check with your supplier if an on-premise Hub can be a gateway and hide all devices from the Internet. This is the recommended architecture. See recommendations for device manufacturers below.

3. Arrange to shut down all incoming internet connections. At the minimum review and remove telnet, ssh etc. May need technical configuration at your router. 

SmartFactory and SmartBuilding

4. Review recommendations 1-3 for SmartHome. Do a root and branch review of all routers. Upgrade and use trusted computing and hardware root of trust in securing WiFi and internet access points.

5. Review logging capability of the IoT network. IoT devices use non-Internet protocols like Bluetooth and IEEE 802.15.4-based ZigBee, Wireless HART, ISA 100.11a etc. For an in-depth look at IoT protocols, go here. Security information and event management (SIEM) tools are a bit rudimentary for these IoT networks. Consider open-source tools like Foren6 as a stop gap and work with your vendors to encourage development of proper tools. This is a good space for new products. (Entrepreneurs, behind every crisis is an opportunity!)

6. Segment the IoT network from the general internet connected one. Place the segmented IoT part under more aggressive and conservative controls.

7. Ask your IoT providers about security. An architecture which hides IoT devices behind a segmented network and funnels all incoming connections through a managed choke-point is a minimal starting point. It is very difficult and probably impossible to secure all IoT devices. More effort should go to managing the network and controls need to extend beyond firewall rules  to commands and API calls. Encrypted outbound traffic needs extra care.

Device Manufacturers

8. Consider an architecture which provides security.  See https://t.co/mLQPh81a1l  for an intro to IoT Stack

9. Most important is to hide IoT devices from the internet behind a IoT gateway. Many start-ups especially for the Smarthome build or roll out custom gateways.  If you are connecting IoT device through BLE to smartphones or newer Routers, review and block incoming Internet connection.

10.  Security has not been a major consumer concern. Our research indicates fatigue is setting in. How to configure and how to trust what works, when even Yahoo, LinkedIn and JP Morgan etc are hacked? For IoT, an incident movement is starting. See IamtheCavalry.org. Opportunity for brand positioning and innovation? How do you sell a car on safety? Some random ideas:

Consider a sticker on each device which provides auto-configuration credentials in a QR code for the segmented (Home) network. User scans using a smartphone and it configures the App or home router, IoT gateway. Consider a configuration-less PKI like DeviceAuthority.

Consider super-user activity (like switching over-the-air upgrade off), which changes critical functioning of device and builds defence like 4 eyes (two operators have to approve) or 2 factor authentication ( OTP).

Consider logging and forensics at the gateway.

11 Security in Design to Deployment: Consider what level of concern you need to address for your brand and engage skilled consultants to audit and review the threats and controls and the architecture you have adopted. Avoid temptation to roll your own crypto algorithms or update and patch delivery method. These are complex and non trivial. Open source middleware and IoT platforms are coming up (Kaa project, Iotivity , platfromio etc) and explore them. It may even be worthwhile to use a commercial platform.

Guest post by Arvind Tiwary & Vishwas Lakhundi.

Arvind Tiwary is chair TiE IoT Forum and member Taskforce on IoT security set up by CISO platform and IoT Forum.

Vishwas Lakkundi is an IoT Specialist & Consultant and a member of Taskforce on IoT security set up by CISO platform and IoT Forum.

Views expressed here  are personal.

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Ease of Doing Business – Is India Game?

Conducting business in one’s own country is never easy, let alone conducting business overseas, where rules, regulations and business environments differ. ‘Ease of doing business’ is also an Index created by the World Bank. It ranks economies from high to low, with the former indicating easier, simpler and better conditions for business as compared to the latter, indicating difficulty in conducting business. This article aims at giving you a glimpse into the world of  investing in and conducting a business in India.

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Economies are ranked based on parameters such as starting a business, dealing with construction permits, availability of electricity, registering property, availing credit, protection of minority investors, paying taxes, international trading, distance to frontier, entrepreneurship, good practices, transparency in business regulation, resolving insolvency and enforcing contracts. For any business, It is important to acknowledge these factors, or at least those that apply, as they decide how easy or difficult it is to conduct or start the business in a country.

For the year 2016 by World Bank’s records- India moved up from 134th to 130th rank in the Ease of doing business Index. Among the parameters mentioned earlier, India has best ranked in the protection of minority shareholders. It has also bettered its rank in availability of electricity, getting construction permits and starting a business. On the downside, paying taxes and accessing credit have been the most difficult for business. Additionally, two key parameters that India needs to work on are enforcing contracts and resolving insolvency, that have both been a hindrance in conducting business.

To give you an idea of how few other countries fare in the rankings; Singapore, New Zealand and Denmark occupy the first three spots in the world, whereas Eritrea, Central African Republic and Libya occupy the last three spots.

The Indian Government has taken several initiatives towards increasing the ease of doing business, here are some that deserve a mention:

Registration

  • The availability of www.ebiz.gov.in, a Government portal where services are provided such as employee registration, name availability, Director Identification Number, PAN, Certificate of Incorporation, TAN, RBI (Foreign Remittances), EPF, Importer-exporter code, Foreign currency – transfer of shares, etc. Making registering and running a business much easier than before.
  • Now Aadhaar eKYC and eSign are being used to grant Digital Certificates to directors (DSC) of the company. This process is now made paperless and takes only a few minutes.
  • The requirements for minimum paid-up capital and common seal for companies has been removed as per the Companies (Amendment) Act, 2015 and the process for starting a business is now streamlined.
  • The Indian Prime Minister has shown particular interest in building a positive entrepreneurial spirit. He launched MakeInIndia, a website helping young entrepreneurs set up, access information, and build a business of their own.
  • Employee Provident Fund Organisation (EPFO) and Employee State Insurance Corporation have online portals so that businesses have real-time registration, online application for clearances and payments be made through 56 partner banks.
  • An Investor Facilitation Cell has been introduced as a first in order to help investors and guide them through the course of their business.

Taxation

  • GST(Goods and Service Tax) will replace indirect-tax, to be implemented by 2017. That is the removal of several layers of multi-layered taxes and multiple tax rates into one uniform Goods and Service Tax. This will make India attractive to foreign Investors as well as boost India’s exports because of less regulatory and bureaucratic tangles.

Infrastructure

  • In cities like Delhi and Mumbai, online construction permits such as DPMS(Development Permissions Management Systems) are in the process of being launched. Since the permits are completely digitized, the biggest impact this will have is speeding up the process of getting a permit by 5-8 months. It will save one the trouble of meeting someone in person, which has a direct positive impact on reducing corruption, delayed work and human error to a large extent.
  • A business being affected by a cyber crime is every founder and investors’ nightmare. Training programmes for officers in the sensitization towards cyber crimes and related infringements is also a significant initiative taken by the Indian Government.
  • Special management teams have been set up to fast track and facilitate investments made to India from South Korea or Japan. The plans are coined ‘Japan Plus’ and ‘Korea Plus’.

Compliance

  • If your business deals with cross-border trading, you’re in luck. The Government has made the process highly efficient by reducing the time utilised at ports and airports. Necessary clearances for exporters and importers has also been prioritized. As a result of the improvements made, export and import clearance that once used to take nearly 5 and 11 days has reduced by more than half the time.
  • Minority shareholder’s Interests are well protected in India. Apart from ranking high on the ‘ease of doing business Index’, greater disclosure is now required of the board members on matters of ‘conflict of interest’.

Legislations

  • A National Company Law tribunal and appellate tribunal was set up to replace the existing Board for Industrial and Financial Reconstruction(BIFR) and Company Law Board(CLB). The National Company Law Tribunal was set up to resolve corporate disputes faster and efficiently, to examine existing laws that relate to winding up procedures and to suggest reforms regarding winding up and insolvency in an effort to match up to international standards and practice in this field.
  • The ease of doing Business in India is also about exiting a business efficiently as much as it is about starting and running one. Thankfully, the Government is soon to enact the ‘Bankruptcy Code’, which will make it easier for investors to exit a business in case of Insolvency.  At present, it takes 4 years to resolve an issue related to insolvency. With the new code, time taken to exit from a business will be reduced to a period of under a year.

Foreign companies that invest in Indian businesses have contributed heavily to India’s economic growth over the past years. The Government has set up FDI and FEMA measures to increase economic activity, set regulations and caps on sectors and generate employment opportunities.

  • Foreign Direct Investment (FDI)

Money that India receives from investors abroad is FDI. Foreign companies that invest in Indian businesses gain a monetary advantage in terms of labour wages and benefit from the high economic growth rate prevailing in India.

The Foreign Direct Investment allowed for an Entity based in another country is:

Sector FDI Allowed
Direct route Indirect route
Insurance and Pension 49%
Defence 49% above 49%
DTH, Cable, sky broadcasting 100%
Brownfield Airport Projects 100%
Scheduled Air Transport Services 49% 49%-100%
Foreign Airline Companies 49% of paid up capital Upto 49%
Marketplace Model of e-commerce 100%
Food products manufactured/produced in India 100%
Asset Reconstruction Companies 100%
Brownfield Pharmaceuticals 74% above 74%
Private Security Agencies 74%
Non ‘News and Current Affairs’ linking channel 100%
Mining and Mineral separation of Titanium Upto 100%
Publishing/Periodicals/Journals Upto 100%
Publication of foreign newspapers Upto 100%
Publication of Indian versions of foreign magazines Upto 26%
Satellites Upto 100%
Telecom 49% 49%-100%
Banking Private Sector 50%-Upto 74%
Banking Public Sector Upto 20%
FM Radio Upto 49%
NBFC 100%
Commodity Exchange 49%

(Figures as of August 2016)

Source: http://www.makeinindia.com/eodb

  • The Foreign Exchange Management Act, 1999 (FEMA)

The Foreign Exchange Management Act, 1999 was set up with the aim of Increasing foreign exchange through increasing external trade and promoting foreign exchange markets in India. All Offences relating to Foreign exchange are considered Civil offences.

Some of the revisions in regulations of FEMA to promote the ease of doing business are:

  • Acquisition and transfer of fixed/immovable property – several conditions for which RBI approval is no longer required to buy immovable property outside India by a company registered in India.
  • Possession and Retention of Foreign currency – an individual can have up to a maximum of USD 2000 in foreign currency at any time. This applies in all cases other than if the individual is not  a permanent resident of India, he obtained the foreign currency while being resident outside India or if such currency was brought in compliance with the laws applicable.
  • Export and Import of Foreign Currency – the upper limit of notes an individual can take outside the country or bring into India is INR 25000(currency notes or RBI notes).
  • Import of Foreign Exchange – foreign exchange sent to India has no upper limit except in the case of currency notes, traveler’s cheques and bank notes. The upper limit on these types is USD 10000.
  • Postal Order/Money Order – any person can buy foreign exchange from any Indian Post Office in the form of money order or postal order.
  • Declaration of exports – for businesses that are either engaged in exports or those that are set up in Special Economic Zones or Special Technological Parks need to declare their exports backed up with evidence.
  • Insurance – regulations that are stated for an individual resident in India that avails a general or a life insurance policy issued by an insurer outside India and vice-versa.

Routes to Invest in India

  • Automatic/ Direct Route – No permission from the Central Government required under this route.
  • Government Route – Applications that are considered by the Foreign Investment Promotion Board (FIPB) come under this route.

Who can Invest in India?

  • An Individual – FCVI, Pension/PF, Financial Institutions.
  • A Company – Non-Resident Indians, Foreign Trusts, Wealth Fund.
  • Foreign Institutional Investors – Private Equity Funds, Partnership Firm, Proprietorship Firm.

Note: Investors from Pakistan and Bangladesh can Invest only through the Government of India. Residents from Pakistan cannot invest in Defence, Atomic, Space and other select sectors of the economy.

Foreign Investors can invest in India in the following ways:

  • Incorporating a company – Either a ‘Private limited’ or a ‘Public Limited’ Company.
  • Sole Proprietorship/Partnership – Under RBI approval.
  • Limited Liability Partnerships – Allowed under Government Route in sectors that have 100% FDI.
  • Other Structures – Non for Profit entities, etc. are subject to FCRA regulations.

The steps an Investor should follow before investing are:

  1. Identify Sector
  2. Obtain Central Government approval if required for that sector
  3. Transfer Funds through eligible financial instruments
  4. Meet the stipulated requirements of the RBI Act
  5. Registration and Document Filing (PAN, TIN)
  6. Find Ideal Space and obtain clearances, if any
  7. Obtain Licence/s if required
  8. Finding staff, paying taxes, etc

Taxation

  • An individual – Is taxed on the net income earned based on the tax bracket.
  • A company – 30% tax + surcharge + education cess. Profits withdrawn are Taxed.
  • Branch Office or Permanent Establishment – 40% + surcharge + cess.

Incentives provided by the Government

  • Special Economic Zones (SEZ), Export Oriented Units (EOU) and National Investment and Manufacturing Zones (NIMZ) offer incentives such as tax reduction and tax holidays for businesses set up in such zones. Manyata Tech Park and Eco-Space are examples of SEZ’s.
  • Incentives on exports such as duty remission/exemption scheme, market schemes, focus products, duty drawback, etc.  to increase exports.
  • Area based Incentives for operating in particular areas of India such as Uttarakhand, Assam, Jammu and Kashmir, etc.
  • Apart from these Incentives, each State Government has its own incentive policy.

It is safe to say that with the Governments several acts and initiatives to stimulate increased investment and growth, India has truly built favourable all-round business conditions. India emerged as the top destination for foreign direct investment (FD) by capital investment in 2015, attracting $65 billion worth of investments, overtaking China and USA. Business in India? Absolutely.

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An outline of entrepreneurial rubbish

Note: This is a long form article. It will take time if you want to read it through the end. If you’re heady about entrepreneurship, you may be offended by a lot that’s in here. Also, if you’re looking for a listicle or an article to skim through, this isn’t it. So be warned before you start 🙂

an-outline-of-entrepreneurial-rubbish

Over the last few years, literature around entrepreneurship has increased manifold. Sadly, much of it is prosaic; some puerile.

I’m a demanding reader. Like most, I read a lot on the internet. I look for articles that engage my curiosity, amuse me, educate me or inspire me. I relish stories well told. I love articles that challenge my thinking and alter my world view. They make me realize that between the oft-cited ends of black and white positions lie not just drab shades of gray, but the entire vivid color spectrum. (Don’t trust me? Ask Photoshop!)

There have been articles and books on entrepreneurship that have done all of these. Books like ‘The Everything Store’ on Jeff Bezos offer a glimpse into how complicated setting up a new age business is. Others like ‘The Startup of You’ by Reid Hoffman and Ben Casanocha help pre-empt many mistakes first-time entrepreneurs make. Websites like www.avc.com offer sound reasoning on financing and share holdership. Many articles by the likes of Vivek Wadhwa explore what’s happening around the world and exciting new fields where people setup business. The common thread across the good articles is how grounded and truthful they are. Literature of this kind enriches your view of the world of entrepreneurship.

Then there is the other kind. This is the frothy tabloid variety: exultant about projected valuations for businesses that on close scrutiny appear exorbitant; breathless in dissecting every short term trend as if it will change the world; and forever in search of the next big thing.

Bad entrepreneurial literature largely follows one of three threads.

Funding frenzy

Firstly, there’s the variety that announces every funding statistic with ecstasy and tries outdoing others in spotting ‘trends’.

Every article here veers to the extreme — laudatory about the new startup on receiving funding, and eager to predict how success in the category will pan out. Witness the innumerable articles about Big Data, sharing economy, e-commerce and others today.

This narrative is invariably presented as a ‘Breaking News’ story — quick to predict trends, build heroes, present abstract reasoning on why this trend would make billions of dollars, and invariably in a few years, write obituaries dismissing their chances of success. Need examples? Read past literature on NFC or QR codes.

In the initial hype time, many more entrepreneurs and investors are drawn to explore the area. Driven by euphoria, money flows in as VCs and angels look to cash in to the trend, leading to more ‘Breaking news’ of new companies and investments. Other companies are accused as laggards, leading them to start their own initiatives in the area to tell their shareholders that they have a foot in the door.

Every company is highlighted as a potential Google or Facebook, every new founder eulogized.

Business models are given a miss in the coverage. Founders get away with talking scale, attempting growth-hacking, and if all fails, pivoting to something as ostensibly world-changing. Posturing is taken for substance; intent for achievement.

It’s one big party till the basics come undone.

The risk with this set of articles is they distort what entrepreneurs need to be prepared for when they start off in this new domain.

Entrepreneurs are led to believe that if they pick one of the new age ideas and get funded, they are well on their way to success. No one mentions that when the basics of business are not well understood, investors bet on various companies to spread their risk. They know it is a long shot and are willing to bet on few successes from many outlays. For the entrepreneur, it is not an option. It will consume his life and effort and often come to naught.

Don’t get me wrong. I’m not in any means undermining the courage it takes to start something anew. But I think we need to take a more balanced look at new ‘trends’ and explore longer-term merits before committing to it.

I wonder why so many people put themselves through needless struggle due to misinformation. In our rush to be successful and well-known, do we realize that we could avoid much of our future woes with some initial planning?

The fundamentals of business do not change. You need a market that values your product, sound planning to take things from a concept to a viable product, a good team to support you, and most importantly, a business model.

Throwing together an app and expecting people to discover it, love it, and click on ads does not make you a millionaire. Planning a business model, in contrast, could.

Packaging known wisdom

Secondly, there is the variety of entrepreneurial literature that potters around important issues but never gets specific.

Most articles tell you about why ‘wow’ user experience is a must, the importance of having a good co-founder, lessons entrepreneurs can learn from a variety of contexts in their lives and the like. Once you’ve read a few, you realize that these are the tabloid variety of articles. There’s never something that you can take away and work on, but there’s just enough to entice you to read. Be light on specifics is the mantra. After all, if you don’t give specifics, you can’t go wrong. You can always say that your opinions were shortchanged by shoddy implementation.

The offline version of these are panel discussions at startup events.

Go to a few and you realize that mostly everyone repeats the same advice and statistics. People use generic examples like Apple’s focus on design, how companies like Nokia missed the boat on this and other well-known illustrations. This makes the speaker or writer look smart without actually saying anything of importance.

All wisdom is distilled into simple homilies.

But do not make the mistake of asking questions about details. These articles or talks are never meant to be about them, as the speaker glosses over real world difficulties to spin an interesting tale.

As readers, we often realize that much of this is trite — witness the innumerable number of articles of how people have learned entrepreneurial lessons from watching babies, dogs, pets and what not. You would think people are in a heightened state of awareness, teasing insights from every interaction of the day.

Given the rise of ‘growth hacking’ strategies, this variety is unlikely to die and will make the signal to noise ratio for good insights tougher to find.soon, and will make the signal to noise ratio for good insights tougher to find.

The promised life

The third variety is like an advertisement without a disclaimer. This variety markets a life that’s lived on ‘one’s own terms’, a promise of a life of guts and glory. Whatever happens, do it your way!

Much of this paints the picture of heroic struggle. This kind is aimed at first-time entrepreneurs, or those looking to start off. Anyone who has started something off, irrespective of how successful it has been, is allowed to proffer advice. Every story is incomplete without a triumph, even if it is in the coming. People never fail, they ‘pivot’. In case things go wrong, they ‘exit’. Just don’t ask about terms of the exit.

In this world, ambition is the ultimate seductress; struggle the ultimate romance.

The trouble with this thread is that it is, like the first variety, misleading and dangerous. It goads people on without outlining the risks.

Literature of this kind should be more nuanced and truthful. It should ideally present different stories of those who tried and failed and analyze why so. I do not mean the well marketed ‘failure events’, where people celebrate failure and gloss it over as an achievement. I mean real stories that let people know what’s at stake. Every opportunity has a cost behind it; every success a sacrifice. Entrepreneurship is a considered choice, not taken on because it is cool to be in the ‘club’.

Don’t get me wrong. I am not suggesting that people do not become entrepreneurs.

I think entrepreneurship is definitely an idea everyone should examine at some point in their lives.

But I find it unsettling that many of the entrepreneurs whom I meet seem enveloped by the idea that success as a natural outcome.

They have risked it all on an idea. They rarely pause to examine if their idea or product has merit. Or understand the effort it would take to make it successful. They have taken a leap, and now the universe has to pay them back.

Not many evaluate what their key strengths are as individuals, what are real market opportunities and whether they have a shot at success. Many quit their jobs based on fads of the moment, just because the urge to be an entrepreneur is strong.

You have multiple folks trying to build software, games and utilities that have odds stacked against them. They don’t think through whether it is the right time in the market for an idea, what factors can determine success and how many of these they can control.games and utilities that have odds stacked against them.

Much of the available literature of this kind is about how successful people got to where they were, often presented with the fanboy worship of the writer. So you get a laundry list of instructions asking you to be paranoid about your business, choosing the right co-founder, running teams effectively, pitching yourself, etc. There are a bunch of tips from others’ lives as if urging us to apply them to our own lives for definite success — the ‘how I did it’ and ‘how I live my life’ tales.Sadly, they don’t highlight that the journey is uncharted, and there are no milestones to mark progress. What works for one does not work for another. You cannot borrow tips from someone’s life and apply them to your own to achieve success.

We find advice against the grain of logic — don’t worry about profitability, there’s a ton of money waiting for the right idea.

It could be your idea that VCs smack down on as the winner. One day, people will talk about the tremendous odds you faced to push their vision through and finally, in a moment of triumph at a product launch that drives the world into a tizzy (or a funding round that’s publicized), punch the air to show that you did it your way.

Armed with vision, tenacity and hubris, we are told, we will definitely succeed against all odds. Life will be tough, but why dither? Struggle makes you stronger.

This appeals to our inner emotional self rather than a rational calculative mind. It promises a chance to burnish your name amongst those-who-count in the world.

Literature of this kind indirectly rails against being a salaried employee. There are many presumptions about this role: one does not have control over one’s destiny, has to do work that’s mundane, is not able to reach one’s potential and will ultimately regret taking up the Hobbesian choice: give up a life of glory for a one for steady accumulation of wealth and comforts.

But take note of why people jump ship into entrepreneurship, and you’ll see many who have been seduced by the idea of being an entrepreneur rather than the idea of building a business or solving a market problem.

What we need are more articles that present a firmer picture. Articles that advice on how to assess market opportunity and see if it is viable, questions to ponder on whether you feel deep within that you should be the one to fix it and a more balanced view of what you will be giving up. We need articles that make you question beliefs that you strongly hold true, for that is when you will be open to the possibility of being wrong, and hence be willing to learn. We need articles that force people to think about worthwhile problems to solve on which they can build a business rather than just the fad of the month.

Till then, as Bertrand Russell says, “A wise man will enjoy the goods of which there is a plentiful supply, and of intellectual rubbish he will find an abundant diet, in our own age as in every other. “

Note: This is a revised version of an article I had written two years ago. I know that there may be many who’s views differ from mine. I’d love to hear what you think about this in the comments section.

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Why services firms struggle to build products

I’ve seen this play out so many times over the last few years.

A business leader at a services firm will sit down and talk about how they’re working on a product. S/he will quote the usual mix of arguments – services as a business is struggling; Indian firms have challenges making products but they think they can do it this time; automation/products are key to their future – and finally end by being confident about the potential.

why-services-firms-struggle-to-build-products

A few months down the line, the business leader will lament about how the ‘team’ doesn’t get it, and how tough it is for services firms to think ‘product’. Management will consider hiving the product team off into a separate location, or even moving the product business out as a separate firm.

In most cases, the end is predictable. The services firm realizes that the product business is radically different from what they’re used to. The product experiment they started off with didn’t play out the way they anticipated. They usually shelve the product arm, or make the arm build products only for internal consumption, while their business continues to be services or managed services build on top of the product.

Why do things go wrong?

Most business leaders will reflect that their teams didn’t have the product ‘mindset’, but in reality, there are a combination of factors that affect this.

I’ve listed them in three buckets

  • Product management & skills
  • Sales/marketing
  • Business strategy

Product management skills

Inability to understand market needs

Most services firms are used to a pattern of bidding for RFPs, winning the deal, and then assigning a bunch of business analysts (BAs) to handle requirement gathering.

When they start experimenting with products, they graduate some of the BAs to become product managers. After all, they know client needs, right?

Wrong.

In practice, a lot of BAs struggle as product managers. The challenge is not with their skill or ability, but in their organizational roles thus far.

Most business analysts are used to starting on a specific client engagement, working with IT/business leaders and listing specifications for their teams. Their role involvesefficient translation of existing requirements.

However, for good products, there is no ‘client’ to give requirements. The challenge for product managers is to unearth requirements based on knowing market needs and customers so well that they can design a product without getting a business requirement document.

This is not about not asking customers for what they want (people often state the oft repeated lie of Apple not doing consumer research when this comes up), it’s about understanding the customer requirements better than they can, and coming up with a product design that would suit their needs.

This is one of the toughest steps in the journey, and one that most firms get wrong.

The inference seems simple, but I find that services firms need a lot of coaching on the process to even start thinking along these lines.

The myth of ‘productizing’ services

This is closely linked to the previous point.

Many services firms start thinking of products after they receive requirements for something new from one client (eg: data analytics). They believe they can easily productize requirements to come up with something they can sell to other clients.

This rarely works.

Building for one client often means that your product is so specific to their needs that you will have to make significant changes when you take it to others.

This means making modifications to existing design, that services firms usually agree to thinking they’re doing products. Very quickly, they realize that they’re back in services mode.

What is required is to build something that the clients feel they could adapt to instead of the other way round. That comes only when you can bring in market knowledge into the product instead of just client knowledge.

Lack of product marketing skills

Building a product business is a lot more than just building a product.

In practice, the product marketing team has to spend time positioning the product right, building the right communication stories and getting customers to feel the product is right for them.

This takes a totally different skill set than sitting with the client and getting him/her to sign off on a service delivered. It involves a lot of business storytelling, segmentation, messaging and more.

Most services firms do not have experience with these skills, as their marketing teams have largely been involved in corporate marketing, branding and events.

Sales/marketing

Incentives and organizational enablers

When services firms look at building products, they often ignore the rest of the go-to-market cycle.

For instance, a couple of services firms I know built specific sales teams for products. However, they drew the team members from existing services and presented product selling as a fresh opportunity.

The sales team quickly realized that product selling & business models are very different. Where they could ratchet up millions in sales revenues from a single client (and accordingly, earn their incentives), they now had to spend a lot of time with multiple clients to convince them about licensing deals and the like. This was a lot of additional effort that saw the sales team quickly lose enthusiasm.

In another firm, the product team tried piggybacking on existing sales representatives or account managers. However, they realized that the sales team would often offer the product for free as a sweetener to clients to win deals. After all, their primary aim was to close deals, not sell products.

Existing brand perception

“But we thought you were into <services>. Why are you doing products?”

Products from services firms live in the shadow of the larger brand, and often this gets in the way of customers treating them seriously.

Clients often do not believe that the firm will ‘stick it out’ in the product game, as they are known for services. Hence, they are often reluctant to place bets on products from services firms, even if they have an existing relationship.

The existing brand perception often interferes with the product positioning as well. Rather than flowing as a natural extension of the brand, the product positioning has to dodge references to existing business that may confuse the market.

Business strategy 

Legacy relationships & contractual agreements

Most services firms have signed contracts with clients that clearly state all ownership of data/IP lies with the client.

When they begin thinking of building products, they usually find that even good ideas need amendments to contractual agreements to let them use data. Client account managers are hesitant to get into the discussion, and clients too look at such requests with some reluctance – after all, the benefits for clients is rarely commensurate with the risk.

Risk of new disrupting the old

Many services firms announce their foray into products and platforms with flourish. While this brings their product business into focus, it also serves to threaten existing business lines.

These shifts are rarely easy, and there are often a set of well-entrenched players within the system who are skeptical, scared or both about the new developments. Inability of leadership to place the product offering within the larger organizational context often leads to existing verticals undermining the new efforts, and sometimes, even cheering failures.

Lack of strategic importance in firm’s business

Product businesses need time. Services businesses are about immediate revenue flows.

Services firms often lack patience to wait for the product businesses to steady themselves and contribute to the firm’s bottom line. After the initial buzz, many services firms lose focus on the product business (or treat it more like a marketing/PR exercise) as it doesn’t contribute in significant ways to the company’s bottom line.

In case the senior leadership/CEO has committed revenue numbers to the board/shareholders, there is added pressure to quickly show revenues. This often leads to shadow revenues (accounting for revenues for product usage within firms own services – often leading to double accounting) or drifting to managed services on top of product lines to build revenues.

In both these cases, the focus quickly shifts away from giving the product business its space.

These are factors I’ve observed, and I’m happy to hear thoughts/arguments about the topic. Please leave your comments below.

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Market Maps – Thinking market instead of an idea 

thiyagarajan-m-market-maps-thinking-market-instead-of-an-idea

Starting point of a startup is an idea and it goes through a journey of product releases and pivots to reach its product market fit and further scale. Source of this idea is a brainstorming session or hot flavor of the season (foodTech, fintech etc) or even comes from past work experience of the founder, in rare some cases it is rooted in an unsolved customer pain point.

For Indian software product startups regardless of the origin of the idea when looked at through the lens of market segments a pattern seems to emerge that is too hard to ignore.

Market Map

A 2 X 3 matrix

Market Map

Parsing the market  map

  1. Before 2009  India consumer  was not a major open digital market. There were few online ticketing sites, many attempts in the e-commerce space that  did not fan out big,  telecom VAS a closed market which also existed only because of regulation gap around strong consumer privacy laws .  However in 2009 something happened along with the birth of Flipkart where consumers changed behavior, i.e started believing that they could trust making transactions online and swiped their cards. It would be hard to attribute a causal reason of whether it was ‘Cash on Delivery’, critical mass of people on internet or myriad of other reasons. It is suffice to say that market behavior changed since then. Today there are countless new ideas being tried out because this market has opened up.
  2. India SMB market on the other hand is yet to witness its Flipkart moment.  I have been a close observer on two industry (read multiple organizations collaborating efforts) attempts to wrench open this and closely involved in my last role in leading multiple experiment in creating this market. While I am very bullish about this market but the fact of the matter is that this market is yet to open up. Just like how consumers shifted mindset about transacting online, small business need to change their buying ‘tailored shirt’ mindset to buying ‘branded shirt’ mindset for this market to explode.  Open API based GST system in India may cause to be a major reason of change here.
  3. If India consumer has already exploded and India SMB is around the corner, it would not be completely wrong to say that India Enterprise is yet to germinate. There are handful few startups that have been able to sell to Indian CIO however those are exceptions than the rule.
  4. In the global consumer market there is hardly any precedence of a startup from India building a global force i.e. equivalent to a Facebook or Snapchat. Not that this may not happen, it is just that it is not happened so far because it is very hard to understand global culture nuance when based in India alone and when there are gaps in the kind of risk capital that is available to try out radical business models. There are handful instances where this is being attempted such as Zomato, Hike but the jury is still out.
  5. Indian startups are rocking the global SMB market, strategic inflection point that has made this possible is small business are searching for solution to their problems online. When solution is possible to be delivered online through Saas, the purchase consideration is based on the experience of solution (try and buy) and not based on the trusting the salesman who delivers the CD.  Given this dynamic it does not matter if the solution was built in Alabama or Alwarpet in Chennai. Comparative cost advantage of doing desk based selling from India makes it possible for price points unimaginable in other parts of the world and which in turn opens many low end markets that have been earlier priced out.  Companies that are trend setter here are Zoho, Freshdesk, Wingify, KissFlow, Kayako, ChargeBee, Hotelogix and many others.
  6. There is also good precedence of traction for the global Enterprise with more than handful examples. The pattern here has been to prove product with pilot customers in India and scale it faster with global markets. This involves migration of feet on street sales team globally, iflex has been the Zoho equivalent grand daddy to set the precedence here but recent examples are Druva, Eka and newer folks like Innovaccer, Unbxd are following suit.

There are startup ideas that are tech components and may sell into a value chain into one of these market and not directly, for example a developer toolchain. The effect of traction in the market has same implication for them.

The above map is not going to be static map and is bound to change. Certainly past is not an indicator of future however history of technology has taught that path dependency plays a huge role in shaping of markets. Thus realization of this map has allowed few startups have change their gear in reaching product – market fit or scale.  Also this map helps understand that playbook for winning a market is a different than a playbook for creating a market.

To quote Marc Andreessen

When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens.

What are the market maps that you are seeing ?

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Founders: you are not doing it right

I see a lot of founders requesting 15min time from me for quick advice. They are clear that it is not a funding pitch, but, more to get my opinion on some of their questions – is this a right market, whether idea has legs, customer size, product feedback, etc. Based on who is requesting, I tend to allocate time for few and discuss, which usually goes for 30min+. I know that 30min is not sufficient to give deep/quality actionable items, other than some calculated guesses based on what I would have heard. My worry with such meetings is that I am guessing and my comments may not be based on a lot of input data/context and may not be right for the startup. So, I usually put caveat to founders to validate and test before taking my ideas as it is. I also know that most of the founders ignore all the comments that were contracting to their current thoughts and move on to the next mentor.

I say the whole mentoring, where, mentors are spending less than few hours with founders is completely bogus. I am being on the board of many young startups, it takes lots of meetings to understand the contours of the idea, market, team, capability, and strategy. At most one can help is bit tactical, but, doesn’t change the outcome for the startup. If it is the case what should founders do?

Founders have two important things to do before they get into startup-mode: a) Deep understanding and building their point of view of the startup-model and b) Executing the startup with their understanding of the model.

I see that most of the founders don’t do (a) at all. They want to take as many shortcuts as possible by talking to other friends, founders, and not spend time required to dig deep and build their opinion and model of “what it takes to build a world-class startup/company”.

Knowing what I know, I would ignore every mentor, event, startup pitch session, hackathons. Instead, I will get an internet connection, a decent laptop, personal notebook and sit at a quiet coffee shop. Start researching on web on all the topics that matter. I would first figure out the most insightful writers of the topics that one has to research and read. The goal is to build a Point of View about your product/market/idea/hiring/pitching/scaling etc. that you are an expert and you are better than any average mentor.

Once the rules of the game/knowledge is gained, you would have built a framework of thinking about your startup. Then, get into execution mode. During this phase, you try to interact with mentors, pitch sessions, hackathons, and investors so that these interactions are meaningful and actionable.

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Freedom from fragmentation! Welcome to the ecosystem

The emotions of independence and freedom are flowing around in our hearts; hence it is befitting to discuss the same in a domain where most people haven’t pictured these yet. Let us talk about the product that is eating the whole world – yes, we are talking about the world of ‘Software’ after all. Even the people who are new to this part will notice the sheer amount of change that has come around in the world economy, labour markets, currency valuations and more, solely by the influence and discretion of software prowess. However, what becomes hard to notice for many people is that there is a silent revolution underway in this whole domain. What we are talking about is the shift from a fragmented approach to an integrated one.

Before you start thinking about the questions (like what is the need? Why is a change required?), let us consider a very simple real life example. Take the following phrases and see what comes to mind while thinking about them – ‘Discover what is happening around me’, ‘Chat with my group of friends’, ‘Discuss and plan for a group activity’ & ‘Split and share money with a friend’. If you look closely, these 4 action aspects pretty much sum up your daily social lifestyle, especially considering the complicated lives that we lead nowadays.

 

However, interestingly the legacy platforms and systems that are prevalent have been mostly confined to 1 vertical in each of these cases. For example, you have ~2 apps in your phone for checking out the movies and events running in town, then there would be ~3 different apps for checking the best restaurants to go to and the deals to avail, and furthermore, a plethora of apps to chat with your group of friends. Now, each of these apps perform specific functions suited to their use case, however, in a dynamic and real time social scenario, you will find yourself juggling between multiple apps / web pages, taking screenshots / copying text and then performing the desired intended series of actions. Isn’t it?

Now, think is this really a smart way to go about it? Do we REALLY need so many apps? Keeping the subjective part aside, let us take a look at some hard numbers. Consider this fantastic report compiled by TheNextWeb on the fragmented Android market or this detailed analysis by ContractIQ on the vendors and variety of software suites out there. Well, things get clear, don’t they?

Fragmentation

Welcome the ecosystem approach

In light of the above, ask yourself, why should we remain limited to the old approach and use up more time in juggling between different apps and systems? Why not go for a more advanced ecosystem style approach (something like what Facebook messenger is bringing around now in terms of allowing you to book an Uber and more directly from the chat window). This is the approach that precisely a lot of new age products advocate (including ours) in terms of the complete flow. Not only does this approach help you save time (that we all value so highly) but also maintain just one point of contact in terms of the interacting system (Comp. Science geeks and service guys will understand the enormous value of this).

SweetspotGetting back to the phrases we discussed earlier, let us combine the vertical sections of the app market into 1 and perceive the awesomeness that we get –

  • Discovery of events, activities, restaurants, deals and more
    • Exploring the best movies, events, deals, restaurants and outings around you
    • Also checking out the details required under one neat and seamless flow without jumping between multiple apps
  • Discussing, planning and chatting
    • Choosing whatever activity you want to go for, after checking what’s trending, what is recommended, what do your friends like & much more, all at one place
    • Inviting your group of friends to add them to the group to discuss and plan together. Chatting together to see who is in and who is out
  • Splitting and sharing money from any account
    • Splitting the costs for your activities (whether before or after) and everyone can put in their own share directly using any means linked to their bank account.
    • Avoiding the hassles of making excel sheets / notes and even setting reminders. Letting the single solution handle everything is the ultimate nirvana mode.
    • Not only that, wouldn’t it be wonderful if the app didn’t even require you to share any account details (like account number, IFSC code etc.) with anyone!

I am sure you will find that the old fragmented apps scenario pales in comparison to this integrated solution when it comes to seamlessly navigating your social lifestyle. For those who have not explored yet, come and check out the magic that happens when all these touchpoints come in one trajectory under one roof at Mypoolin – https://mypoolin.com/mobile-app.php

Time to say ‘ahoy’ to freedom and welcome this silent revolution towards an integrated future!

Guest Post by Rohit Taneja, Co-Founder at MyPoolin

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Uber – Didi Deal – an analysis

On August 1st Uber agreed to hand over its Chinese operations to Didi, in return for a 17.7% stake in the combined company’s equity and $1 billion Didi investment in Uber. Uber, though, will get only 5.9% of the voting rights in the new entity. Investors in Uber China, including Baidu, a big Chinese Internet firm, will get a 2.3% stake. Uber CEO Kalanick will serve on Didi’s board, and Wei, Didi’s boss, will join Uber’s board.

So why did Uber blink, particularly in a market that Kalanick hailed its biggest market globally just a year ago. It was arranging 1 million + rides per day in China, larger than the rest of the world excluding US. Within nine months after launching in Chengdu, Uber had 479 times the trips it had in New York after the same amount of time. Indeed the Uber’s three most popular cities – Guangzhou, Hangzhou, and Chengdu – were all in China.

Is the deal in the right direction? How does the deal impact private car services in other parts of the world? Comments and answers to questions are welcome.

A disclaimer: the data on private companies is difficult to come by. The data used in this post has been triangulated from different credible sources and in some place an intelligent guess based on the writer’s experiences.

Uber in China

Uber entered China in Feb 2014, with a soft launch in Shanghai and two other cities under the name Youbu – meaning “excellent step forward” in Chinese. A formal launch happened in Beijing in July 2014. Then, there were roughly 1.05 million taxis in China growing 2.5% per annum. But demand outstripped supply by a big factor. By varying accounts Uber had gained between 10% and 35% market share in private car services by July 2016, burning over $2 billion in the process.

Didi Kuaidi

Didi and Kuaidi were two taxi-hailing app companies promoted in 2012. They were backed two Chinese Internet titans, namely Alibaba and Tencent respectively. At time of Uber entry, they respectively owned 55% and 45% of smart-phone based taxi hailing market. All through to 2014, these two acquired smaller apps and engaged in promotion wars that cost collectively over $1bn.

Their investors decided to merge the two services in February 2015 to conserve cash and take on an aggressive Uber. All through 2015, Didi Kuaidi market share in private car services remained steady at around 80%. Their share in taxi hailing was 99%.

Strategy

Uber started small with offering UberBlack (high price private-car services) in Shanghai (the highest GDP city in China). By Oct 2014, it introduced People’s Uber a non-profit service where customer only paid minimal amount towards gas and tolls. This was a good way to get more Chinese consumers on the Uber app, in the hope that they will eventually start using its paid options. Over time they added rest of the products – UberX, UberXL and UberExec. They also added three special products – Tesla, Green Uber and Xiaoyou (two seater electronic car). Uber focused only on cities with population of 2 million or more. There were 250 such cities in China of which Uber reached 55 in July 2016.

Didi and Kuaidi started with taxi-hailing service in 2012. Unlike Uber’s matchmaking, their app asked users to enter pick-up and destination location and time. The request reached all drivers logged in and they fought for the order. The quickest response secured the order. The users could enter a tip during peak times to encourage drivers to take the order. In July 2014, Kuaidi launched Chauffer One to target online chauffer market. Didi integrated their app with WeChat payment in Jan 2014 helping it gain popularity among WeChat users (the most used mobile chat app in China). After the Feb 2015 merger, the combined Didi offered host of services beyond taxi hailing. These included – private car service, car-pooling, shuttle van and bus-hailing services. Its other product innovations included – matchmaking of drivers and passengers based on shared interests (fruitful journeys), deal with LinkedIn to let people join up their accounts on the two networks, tie up with several car companies including Mercedes and Audi to let passengers book test drives (Over 5 million customers have since taken test drives) and a special service for passengers with disabilities. Didi also started helping the high performing drivers get loans to buy new cars with its tie up with China Merchants Bank (CMB). These drivers otherwise had no credit history to approach a bank.

In short, Didi has been miles ahead of Uber on product innovation

Didi-Kuaidi started with taxi hailing, not chauffeur-driven / private car service, which helped it win over grumpy taxi drivers and local politicians. Uber faced taxi-drivers protest in several cities and twice their offices were raided by police in this connection. Significantly, anti-private car services protests were seen as anti-Uber while such services were also being offered by Didi-Kuaidi!

Didi gained extra points by being the first to integrate with WeChat Payment, an offering from its main backer and investor – Tencent. Uber followed suit but their WeChat link was often broken for no obvious reason.

Didi started investing in and building technology alliances with Uber enemies in other geographies to better fight Uber. Didi investments included – Ola cabs in India ($30mn – guestimate), Lyft Inc., in US ($100mn) and Grab Taxi in South East Asia ($350mn).

At the time of this writing, according to Bloomberg, Didi and SoftBank have almost clinched a deal to pour a further US$600 million into Singapore-headquartered Grab. Both companies are existing investors in Grab, as well as Indian counterpart Ola.

Growth and ambition

In July 2016, Didi offered taxi-rides in 400 cities and private car services like Ubers’ in 200 cities. Its taxi hailing service was arranging more than 4 million trips a day through its pool of 1.35 million drivers. Its private car service was doing over 1.5 million trips a day. In 2015, Didi arranged a total of 1.4 billion rides in China, more than Uber has done worldwide in its history. At the same time, Uber offered private car services in 55 cities planning to reach 120 cities by September 2016. A leaked Uber memo in the summer of 2015 revealed Uber arranging 1 million rides a day.

By multiple accounts, Uber probably had between 10% – 35% share of private car services business. Didi had 65% – 80% market share in this segment plus 99% share in taxi and bus hailing services.

This race was clearly marked with the scale of ambition and the speed of execution. Consider this for example – In December 2015, Uber was present in 21 cities planning to reach 120 cities (population over 2mn) in Sep 2016. At the same time Didi was present in 259 cities and was planning to reach 400 cities by February 2016 alone! Indeed at the time of merger, Didi was active in 400 cities while Uber was only in 55 cities. Didi had expanded at a furious pace and that meant stupendous flawless execution. And this execution was backed by a grand vision – “penetrate into all regions of China targeting 30 million trips daily over 10 million cars registered on its platform.

Funding

Both Uber and Didi were flush with funds to fight to win in this market. Didi had raised a total of $9.82bn from investors like Tencent, Alibaba, China’s sovereign wealth fund, CIC and notably $1bn from Apple. Uber had globally raised $11.46bn but its China operation that was a separate entity, had locally raised only about $3bn from Baidu and others.

As part of the deal, Didi is also investing $1 billion in Uber. Now Uber also has investment in these three taxi-hailing companies by virtue of its 17.7% stake in Didi. What does it mean for the taxi-hailing business in US, India and South East Asia?

Both the companies had burnt cash to attract more drivers and riders on their platform. So far Uber had matched Didi in the spend. But Didi had an advantage in the long run – it’s opponent had to balance its funds across several countries where it was fighting for share. It was perhaps unwise on Uber’s part to ignore their other territories in favour of China alone. Also, Uber was eyeing an IPO at this time and needed to clean their balance sheet.

Questions

  1. Has Uber made the right decision by selling off its China ops? It still has a 17.7% share in Didi! Why?
  2. Is private car services / taxi hailing a winner-takes-all business?
  3. With the cross holdings between Didi & Uber, Didi and Ola, Lyft & Grab what is the likely steady state scenario? What is the future of Ola, Lyft and Grab Taxi? Do you think in the end only Uber and Didi will remain through out the world?
  4. How does it augur for India e-commerce titans fight? Does Uber-Didi merger strategy will playout here too in form of a deal between Flipkart & Snapdeal or Amazon and either of the two Indian e-commerce brands? Isn’t that beneficial for investors instead of endlessly draining out cash?
  5. What are your lessons from this story?