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Why does the future belong to product startups in India

I predict starting 2016, we will hear $3-4 billion product companies coming out of India every year.

NEW PRODUCT (2)The startup ecosystem has come a long way in the country, especially in the last decade or so. People often ask me at various forums and events as to where I see the startup ecosystem heading in the coming years. While it may be difficult to predict precisely, there are perceptible changes.

While the turn of the century was about the rise of the Indian services and outsourcing industry, I believe today it’s about the product companies. The rise of the product startups in the country has been due to numerous reasons, but the stellar growth has only made things exciting.

One of the reasons for the mushrooming of product companies is due to people returning from overseas after they have sensed an opportunity. They want to build a product that addresses the market opportunity. When I returned from the US, I saw some clear patterns and opportunities that I could work on. While one choice was to work with existing companies in the travel and tourism space, the other was to create a brand. I chose to go with the former.

The second clear reason is that people no longer want to do back office work for the world. For example, a lot of companies in the space of analytic work around identifying patterns and ideas for companies that outsource work to them. You will see a lot of individuals from these companies building a product start-up around same principles.

This is the natural progression and evolution of an industry. Outsourcing gained prominence because of cost arbitrage and then the IT companies started getting innovative to increase their share of the pie. They started advising various companies on how they should re-engineer their business processes and additional things they could do.

Phase 1 was about moving cost offshore and labour arbitrage while Phase 2 was making it efficient and optimising it. Indian outsourcing companies started evolving their services by providing additional services and at the same time automating it and making it non-linear to people.

The natural progression after that is if employee of these IT companies were advising clients on how to make their business processes better and how to “go to market” more efficiently, what prevents them from going to market on their own? You will see a lot of companies that are an offshoot of big IT establishments. You see individuals go out and address markets problems and opportunities rather than work for someone else.

Carpe Diem

Moreover, the services company has allowed people with similar ambitions to come together and seize the moment. Services companies have become the place where co-founders have met and most of the time the early hires in a startup are from these services companies. When there was a lot of movements around outsourced product management where companies outsourced their engineering work to India, it was obvious that employees from these services companies would get together and start a product company of their own.

The overall IT industry has evolved and the entrepreneurial ecosystem has been built to some extent and has gained velocity. According to Grant Thornton India, PE investments in India amounted to $1.7 billion last month, taking the overall PE deal tally to $10.2 billion in the first 10 months of this year. Spread across 500 PE deals, investments are up 18 per cent in value terms and 37 per cent in terms of number of deals in 2013. The entire investment community, access to capital and breadth of funds have increased quite dramatically.

The appeal of being a part of a product company is far cooler and hipper, rather than being a part of an IT services firm. For an aspiring entrepreneur, the IT services story has been beaten to death. No one wants to start another company in the outsourcing space and given the number of successful product companies like Druva, InMobi and Zoho, people now have role models. As entrepreneurs see billion dollar companies are now possible in the product space, it serves as fuel to the entrepreneurial fire. An aspiring entrepreneur wants to build a product company that will address a global market need.

Role of Industry Bodies

Industry bodies are also playing their part. Bodies like Nasscom have a separate Product Council and Product Conclave, which brings together a good collection of product companies in the form of peer-to-peer learning and experiences. Another body that is doing a good job is iSPIRT that has some big initiatives. It puts a big focus on the M&A connects where they look to enable big US tech companies to connect to a lot of Indian start-ups. Hence, we have seen a bunch of startups like Little Eye Labs and few others being acquired.

iSPIRT is providing a platform that enables big tech companies to acqui-hire, which essentially is acquiring a startup to get access to their talent. This helps both sides – buyers that know they can do a deal in India and integrate startups effectively and for the startup a viable exit route even if it’s not in a revenue generating state. It is also extremely focused on peer-to-peer learning of product companies. From newsletters from founders and experts to roundtable interactions, the body looks to bring curated number of entrepreneurs to come and share experience of selling globally.

Nothing succeeds better than success and the early successes of various product companies have set the stage as role models. Once the momentum builds it breaks the inertia in the system. I predict starting 2016, we will hear $3-4 billion product companies coming out of India every year. In that sense, 2015 will play an important role in ironing out structural issues in the system and ensuring the ease of doing business is improved.

 

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The future is here: Indian product companies are potential global giants

Every year I speak at a dozen events – both within the country and outside. These events range from ones around entrepreneurship and startups to ones purely around technology. There is, however, one common thread at all these events. At home, I meet many young product companies that now operate on a global scale and overseas I increasingly bump into entrepreneurs who have set up a product company with a global footprint.

It will not be an exaggeration if I say the era of dominance by Indian companies has started and we will see young, smart, technology enabled product companies use their imagination and information to operate on a global scale.

What has changed over the years – the biggest factor is the Indian entrepreneur’s ability to think big. About 5-10 years ago an Indian entrepreneur would want to create a niche business that would create a good amount of wealth for himself. An Indian entrepreneur now thinks differently where he wants to create a big billion dollar business that straddles continents. They want to create a dominant business and dominate globally. A startup today does not aim to be a $100 million business, but dream to reach a billion dollars.

And is it easier to do so? Theoretically the answer would be a big yes. It is easier to start a company, especially in the technology domain, and have operations across the world. Many are now starting with the world in mind and in fact during their initial days India may not be the launch market for them. There are examples of many startups that prefer to start in the US and then look to spread operations here.

The reason behind this can be attributed to a phenomenon that started about a decade or two ago. The business process outsourcing (BPO) and the services industries like Infosys and Wipro led to a lot of food for thought over the years. Enterprising individuals were not content with being mere back office providers. As global systems and processes became pervasive at work places, many stated seeing clear opportunities that could be addressed. These individuals were some of the early pioneers of Indian product companies operating and addressing global needs. Starting product companies and not services suddenly became the vogue as factors like labour arbitrage took on a new meaning. Today it is a question of skill arbitrage where product companies are developing technology that are world class and price competitive.

The second reason behind the increasing appetite to operate on a global scale is because of professionals returning home from an overseas stint. When I started Rate Gain after returning from the US, I could see some clear business opportunities. While I was unsure if it would work out, I knew serving the world from India was possible. For entrepreneurs like me and many others, the fear and apprehension of dealing overseas do not exist. There is a strut in our step and a confidence that we are second to none.

A large part of this is also due to the successes of Indians abroad. From the investing companies to top executives at some of the largest MNCs, Indians are now where it matters. A large Indian investing community abroad and forums like The Indus Entrepreneur (TiE) and Indian Angel Network (IAN) have helped tremendously by opening doors.

This is now having a cascading effect. For people with an entrepreneurial ambition, there are clear role models to follow. Companies like Druva, ours (Rate Gain), Zomato, InMobi are hugely successful and changing the status quo. The startup ecosystem in the country is maturing with a healthy mix of angel and venture investing and a good idea can now be converted into a sustainable company. The Indian market may be large and lucrative, but the opportunities multiply when operations are on a global scale.

The global outlook at an early stage works well for a startup. Not all would be successful and there is every likelihood that there will be more failures. However, the penchant to create multinationals is the first step to create billion dollar companies. In the years ahead as technology reduces the barrier to entry and democratizes opportunities, startups going global would be the new norm.

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Bootstrapping – Boon or Bane for Product Startups #BootUpINDIA

On August 14th, 2014 iSPIRT, the industry enabler that is creating a vibrant eco-system for promoting, encouraging, supporting and enabling product companies out of India, organized a very useful online discussion on the concept of bootstrapping. Titled ‘Bootstrapping – Boon or Bane’, the discussion explored various facets of bootstrapping, including its relevance, benefits, limitations, and challenges.

Sharad Sharma, founder of iSPIRT kicked off the conversation with a very incisive observation that the startup community, largely driven by the media, tends to celebrate and showcase startups only when they receive angel or institutional funding. How true is that!!! There are a number of very successful and modestly successful startups, many of who are deserving of the praise and showcase, but they get reported about only when they close an investment round. (I am not sure if the media is to blame entirely. I suspect companies too reach out to media only after they have received an investment round, perhaps because they believe that funding makes the ‘story saleable’ for the media.).

Avinash Raghava, startup eco-system builder and the driving force behind iSpirit shared that over 65 of the 140+ companies they have profiled, were indeed bootstrapped. Of course, some of them may have tried to seek VC money and started to bootstrap if they were not successful in raising capital. However, that they have succeeded in being showcase-worthy by iSPIRT, is indeed commendable.

The panel explored whether bootstrapping & angel/VC funding are either-or strategies or is there merit in a hybrid model. While the panel agreed that building a business with customer’s money is nicer than building a business with VC money, Bhanu Chopra, founder of Rategain(who has built a globally successful company that was bootstrapped) and Sharad Sharma suggested that there are no set rules, and companies should evaluate their strategies depending on the merits of the options available. (It is relatively easier to bootstrap for companies that address enterprise customers than B2B companies.).

Ramesh Loganathan of Progress Software added that while startups have to evaluate what’s the right way for them to fund their venture, it’s not just about the money, but the mentoring and advisory that comes along with that money, that is more valuable at the early stages. First-time entrepreneurs who have no experience of building a business, or even a full product, can benefit enormously from the perspectives and learnings of more experienced individuals. Now, whether this advice is available with or without money is immaterial.

Bootstrapping is not equally relevant or appropriate for all concepts/products/services: In some cases, it maybe possible to build the foundation or a company through bootstrapping, but you may need external capital to grow. In some cases, it may be possible to grow at a healthy rate through bootstrapping, and internal accruals may enable the company to even grow at a healthy rate. However, Bhanu elaborated that at some stage, the company may need to explore inorganic growth and may have to seek external capital.

Shekhar Kirani of Accel Partners, who has a unique perspective as a member of two hugely successful bootstrapped ventures, and is now a part of the investor community, was of the view that since all ventures need capital, the entrepreneur has to make an assessment on whether the idea needs VC money or are the idea & market conditions more suitable for bootstrapping.

He further explained that companies like Facebook, Twitter, Quora, etc. could not have been built without VC money as these businesses needed to invest a lot to build scale so that monetization opportunities arise. He added the once there are others in the market offering similar benefits, it is almost always difficult to leapfrog without adequate capital, and in such situations, bootstrapping may not be the right approach.

VCs have a lot of respect for companies that are bootstrapped. Bootstrapping demonstrates the entrepreneur’s commitment and conviction, both critical parameters for investors. In fact, Shekhar shared that even in the US, Accel invests in a number of companies that have built a reasonably sized business through bootstrapping, and Accel was the first institutional investor for scaling up.

Bootstrapping forces you to focus on building a strong ‘business’: For, Ahimanikya of DocEngage, one of the benefits of bootstrapping is that you are forced to think of revenues from day one. He added that it has become fashionable for entrepreneurs to seek VC money to pay for their lifestyle or for their own salaries, and felt that this approach, which does not have an element of risk-taking by the entrepreneurs was damaging for the startup community.

Bhanu mentioned that bootstrapping allowed them to focus on building a fundamentally strong product with a strong customer value proposition. It also instilled very strong fiscal discipline within the company.

All panelists agreed that for bootstrapping to be successful, it was important for an entrepreneur to be adequately prepared to multi-task and to be a multi-skilled. Else it becomes very difficult to sustain a bootstrapped venture. Panelists also agreed that at some stage, if the company needs to change gears to scale up using VC funding, they need to be prepared for a fundamentally different way of growing the business. If they are not prepared, they may miss out on some large opportunities.

To summarize: It was, as Sharad Sharma put it, a very thoughtful discussion, do watch the video for mode details.

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Profit from Price, Always – The Bootstrapped Story of RateGain

This is part of our “Podcast with a Product Entrepreneur” series. Do check out the 30 minute podcast!

His first fling with business was a video game exchange, while at school. Coming from a family of entrepreneurs, the question was never about the “Why”; it was only about the “When”. A computer science and finance graduate, his stint with Deloitte saw him starting up with a technology consulting business that later led him to this technology product idea.

Meet Bhanu Chopra, the Founder and CEO of RateGain – a B2B price comparison SaaS product for the travel industry –  as he talks about starting up, go-to market strategies, the CNBC Award, challenges and some priceless advice for all software product entrepreneurs.

In business, Bhanu has demonstrated tremendous agility by making quick decisions. His initial idea of a price comparison website focused on the US market, quickly morphed into a B2B offering, given the challenge of marketing to US out of India. Then by licensing technology and acquiring a few beta customers, he not only validated the idea, quickly, but also generated revenues for reinvestment.

Bhanu advocates a Go-To market approach built on two parameters:-

  • Power of a Brand built on thought leadership, where Bhanu humbly accepts being “late in the game”
  • Sales Structure customized to the channel and prospective customer personas

 

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Straddling across the hospitality value chain with RateGain, Bhanu sees tremendous opportunities for existing products as well as newer products on pricing optimization using Big Data and predictive analytics.

Also an angel investor, Bhanu recognizes the tremendous passion amongst product entrepreneurs but highlights the imperative to persevere and think about the global market. While the team is critical, he concedes that team building would always be a challenge for product companies in India, given the latency of IT services in influencing engineering talent.

We conclude the interview with Bhanu mentioning two of his favorite product companies – Google and ….. – an awesome data visualization company that is just about to IPO on NASDAQ. If you haven’t guessed the name, do listen to the podcast.