Why Flipkart Taking Clients to Court For Non Payment Is A Big Deal


What’s The Scoop With Flipkart?


“The digital industry is suffering because there have been several cases where advertisers default on payment… We do not have a strong industry body in terms of payment collection yet.” –  Amar Deep Singh, CEO, Interactive Avenues


(article originally posted here)

Between April and May 2016, one of India’s e-commerce leaders – Flipkartfiled cases against 20 of its clients for payment, to collect unpaid advertising dues.


Unlike Snapdeal and Amazon, who charge their clients ahead of time,Flipkart provided advertising services to clients on credit.


Though this move made sense as an advantageous proposition to attract more clients away from competitors, they have now initiated legal procedures against non-paying patrons who respectively owe them anywhere from Rs. 90,000 ($1,350) to Rs.1 crore ($150,000).


Is This Non-Payment A Common Problem?

The Indian business culture is infamous for the chaotic state of its payment practices. In fact, India has the longest average payment delays in the Asia Pacific region (Atradius Payment Practice Barometer).


Furthermore, 97% of Indian SMBs were paid late by their clients last year.38% of these businesses claimed that the late payment was an intentional move by clients. It was a means of using trade credit to finance their own working capital needs.


What’s more is that most of these companies will never enforce their contractual terms on overdue Accounts Receivables. Even when 1 in 2 B2B SMB invoices are paid late. And 1 in 7 B2B invoices are still pending past 90 days.


This is because enforcing a contract in court for non-payment by a client can take up to 3 years and 40% of the claim value to resolve (Doing Business India). By the time suppliers manage to get their money from the over-burdened court system, they’re already sinking under.


Which means that larger clients and buyers run pretty roughshod all over smaller SMBs in their supply chain. They even threaten to withhold payment altogether if their suppliers don’t give them unreasonable discounts to get paid faster.


Large buyers are well aware that their smaller suppliers are:

  • Either not aware of their legal rights in such situations;
  • Won’t act upon their legal rights because they would choose preserving business relationships over getting paid faster;
  • Will be tied up in an expensive legal case for years if they try to take matters to court.


This has created an environment where only the most exclusive businesses can demand payments upfront. While others are usually forced to roll the dice on the kind of client they land up with. Or have to face being ignored altogether by prospective customers.


To put this in perspective, for all the talk of “Why don’t businesses just demand payments upfront”, 98% of Indian SMBs extended goods and services on credit to their clients in 2015.


And if you think the situation is bad for regular Indian SMBs, it’s even worse for businesses which deal in digital services or mass communication products.

where in the world is that payment

So Why Does This Story Matter?

Because the Internet and Mobile Association of India (IAMAI) has used the publicity provided by this issue to push for the development of a payment recovery mechanism for their industry.


Several of the largest digital communication platforms and services are members of the IAMAI. And the organization is wisely using this move by Flipkart to justify enforcing meaningful out-of-court payment protections for the digital communication service industry in India.


The issue of late payment has been a given in the Indian business culture for a long time, to the point where it’s barely mentioned in mainstream media. Even according to law firms interviewed on the Flipkart matter by YourStory staff, this case has gained significance in the media only because a large brand like Flipkart was involved.


This is why, by this point, we’re sure you’re asking – How does this affect me as a small business? Of course Flipkart, a well-known brand, would be able to afford taking its clients to court. Yet if we, as small businesses, did the same – we’d probably be bankrupt by the time a verdict came in.


First, most late or non-payment situations can be addressed by integrating global best payment practices into your business – which Hummingbill’s Gmail plugin automatically does for you for free.


SecondIndian companies are gradually getting less court-shy in getting back money they’re owed by non-paying clients.


Third, the actions of the IAMAI shine a light on the necessity of out-of-court payment mechanisms.


Yet, none of the mechanisms put in place by the IAMAI’s committee will protect other non-member small businesses like you or us. Even though we need these defenses just as sorely.


With that in mind, we at Hummingbill are scaling up our war to break India’s late payment culture in the immediate future. The Indian business culture needs a concentrated effort to create better non-litigious protections which can be enforced. SMBs and startups need shielding from larger buyers who wish to exploit their position on the supply chain.


And for that effort, we will need the support of every single one of you. Keep an eye on this space for more information over the next few days.


In the meanwhile, let us know in the comments section below. If you had the ability to enact out-of-court enforceable protections against late paying clients, what measures (except straightforward mediation) would you put in place?

– Adam Walker & Aniket Saksena

The Road to Startup Exits – Think Next Roundtable Recap

$8B of venture investment went into Indian startups in 2015 alone! Four firms–Ola Cabs, Flipkart, Snapdeal, Paytm–accounted for 32% of these investments.  However, on the M&A side, things have been slow. Since 2011, there have been approximately 190 transactions valued at a total of $2.3B (about $11M per deal), placing India way behind the U.S., Israel, and other startup ecosystems.

I recently hosted a roundtable on M&A at Microsoft Ventures’ Think Next in Delhi, called “The Road to Startup Exits.” Our star panel consisted of Ashish Gupta(Helion Ventures), Deepak Gaur (SAIF Partners), and Abhishek Kumar (Snapdeal). Among a marquee audience of VCs, entrepreneurs, and senior execs from the industry, we discussed the present M&A scenario, its gaps, and the future.

Here is a glimpse of the insights generated during the panel:

  1. There is a slowdown in private markets globally, including in the U.S. and India. Valuations are expected to come down in 2016 and will cause grief for some investors, but the long term promise of India is in tact. In other words, there is no issue with fundamentally strong companies being built in India, but there is an issue with them being overvalued.
  2. This is a normal cycle for the startup/venture space: there will be several startups who will not survive the slowdown and will get integrated into other startups or corporates. A slowdown is actually good for the startups that survive – they can finally focus on getting their unit economics right, hiring the right talent and focus on what needs to be done to get to the next level. This also contributes to the ecosystem’s evolution, shaping the next waves of entrepreneurs and their offerings.
  3. Some recent examples of companies who had a solid team and business model, but that were unable to scale (subscale), are Qikwell (acquired by Practo for ~$50M), Exclusively (acquired by Myntra for their private label offerings), and Letsbuy (acquired by Flipkart). TaxiforSure’s (TFS) acquisition by Ola was about the power of financing–Ola had raised significantly more money than TFS, and at that point, TFS’s volume was still interesting for Ola and Uber, which justified Ola’s decision to acquire TFS.
  4. Large startups are more open to leveraging other startups and their offerings. For instance, Snapdeal has been a prolific acquirer of Indian startups (15-16 to date), primarily to plug their own gaps in terms of technologies, products or customers. For example, the product from Martmobi became the basis of Shopo, the C2C platform for Snapdeal. Freecharge was one of the fastest growing mobile wallets in the country and post-acquisition now has become Snapdeal’s payments business.
  5. Companies stay private much longer in the U.S. This will play out in India, too, and fewer companies will go for IPOs in coming years–and the ones who do might not consider doing it in India. The capacity of the India market to absorb large IPOs is restricted–there is limited float. Although regulations are becoming favourable, the India market today still has very stringent guidelines on public listing with very high levels of scrutiny and liability. Hence, listing a company in the U.S. is a lot more attractive, even for an Indian company.

In summary, 2016 is expected to see a slowdown in the funding space both globally and in India, which in-turn will drive an uptick in the number of M&A transactions as companies who are unable to raise their next financing round will seek an exit option.

Want to see the entire Think Next Roundtable? Watch it here:

The Dark Secret of India’s Start-up Boom

The Modi Government has made bold moves on the world stage. Its now time to make one at home!

By Mohandas Pai & Sharad Sharma

New-age startups are making waves. Flipkart has redefined retail. Ola is changing how we travel by taxis. PayTm is at the threshold of disrupting banks. Forus Health is attacking blindness with gusto. Eko is bringing financial inclusion to millions. Team Indus is on its way to land a rover on the moon. Nowfloats is bringing lakhs of businesses online. Pick any sector, even agriculture, and you’ll find a new-age startup gamely trying to bring about change.

These new-age startups are not like our traditional small businesses. They are peculiar in many respects. For one, they don’t play safe. They take on incumbents that are many times their size. They seek out David versus Goliath battles. They have a ‘panga’ mindset where our traditional small businessman was all about ‘dhanda’. This craziness in their DNA makes them wonderful change agents. No wonder, these new startups are transforming India from within.

We are blessed to have these new-age startups. It turns out that this new species of small businesses thrives only in a few places in the world. The most famous locale is, of course, Silicon Valley. Europe, unfortunately, is a veritable desert. South America has only Chile as a small oasis. Asia, however, looks really promising. Israel became a startup hub first, then China and now India. We are now the third largest startup ecosystem in the world.

But there is something dark about India’s startup boom. Six of the eight Unicorns have domiciled themselves outside India-in Singapore or US. In 2014, 54% of all new-age startups raising money chose to domicile outside India. Last year this number grew. It is estimated to have crossed 75%! This points to a big problem.

You might wonder why it matters where Flipkart is domiciled. For starters, when Flipkart has its IPO, Indian citizens won’t get a chance to participate in it. Worse, the intellectual property of these redomiciled companies moves to their new home. But the worst is that the money that the founders and investors make at the time of an IPO or an M&A goes to their foreign bank accounts and tends to stay there. It stymies the creation of Rupee risk-capital system in India. It makes are startups almost fully dependent on foreign capital leaving most of them starved and under-capitalized in their early years.

Startup India is an opportunity to stop the exodus. It turns out that only 34 issues, across Ministry of Finance, RBI, Ministry of Corporate Affairs and Ministry of Commerce, need to be tackled. Work has been underway on them since 23rd Oct and 60% of the issues seem to be on their way to a resolution. But this 60% fix is a recipe for failure. Unless all the 34 items are resolved, exodus will not abate. Just one friction point is enough to send the startup to Singapore, where, a welcome band awaits.

Anything that we do in Startup India without addressing the issues on the Stay-in-India Checklist is a gift to Singapore. The Modi Government has made bold moves on the world stage. Its now time to make one at home!

Mohandas Pai was the CFO and then the head of HR at Infosys. He is now Chairman, Aarin Capital Partners.

Sharad Sharma was the CEO of Yahoo India R&D. He is a co-founder of iSPIRT, a non-profit think tank that wants India to be a product nation.  

Does Mobile Only strategy point to lack of Design Thinking?

The runaway success of Indian e-commerce show is driven by the single biggest attraction of hefty discounts available almost on all products! More than any other value proposition of e-commerce such as more choices, convenience, 24×7 availability, payment options and faster deliveries, the Indian customer was lured to e-commerce by the sheer scope for discounts she would not get elsewhere! The intense competition over market share among the e-commerce players ensured that there is always a counter offer for any blockbuster offer from one player. The eternal discount chasing customer is smart enough to sense this opportunity to compare prices of every item on offer with other vendors and settle on the maximum discount offer. While this was the modus operandi of the average online buyer, e-commerce players were sweating out on how to better their offer by attempting to do enormous scales that would only push their quest for profitability farther and farther.

Gme Changer or - Image_1As the dog fight continues to grab market share, e-commerce players are trying to outdo one another by introducing newer business models and innovations; the latest being Mobile Only format. Though there have been many successful experiments that defined the online buying culture in India such as Cash on Delivery, easy hassle free returns and EMIs, the latest experiment’s success is not pronounced yet, while many of the digital enthusiasts are upbeat about it.

Sorry, Mobile Only -Image_2Here comes the Mobile Only strategy!  While all the arguments for Mobile Only strategy evangelize the potential of the native app technology and innumerable values it promises to the marketer, an honest assessment of the anticipated compromises on the side of the customer is yet to come i.e what possibilities it takes away from the customer in order to cut short longer sales cycle.  Ironically, the deterrents for marketers to sell more are also the very value drivers for the consumers to buy more!

What is undisclosed about the real motive behind the Mobile Only strategy? Is it just Customer apathy?

During the years Indian e-commerce players took their baby steps to entice the buyers, this space also spawned innumerable deal aggregators and price comparison sites in empowering the value hunting customer to gleefully snap the best deals in the online space because of customer’s sheer capability to compare and choose across multiple vendors offering products of same specification. While online customers enjoyed this newfound freedom and capability, e-commerce players dreaded this unfettered nature of competition. This had made e-commerce players’ life a nightmare and the only possibility to woo customers was to settle for lowest price and provide faster delivery – both demanded extreme back-end efficiency and truckloads of money to operate at wafer thin margins; if not at loss.  Every e-commerce vendor had been eagerly looking for an effective way to fortify his customer from being weaned away by a better offer from competition. In these circumstances some enthusiasts find the Mobile Only format a perfect antidote for limiting customer’s newfound capability.   Lets look at how the Mobile Only format plays out!

  • In a Mobile Only format, the ease and speed of operation make the customer blind to the loss of the market options- i.e. to compare and weigh the market offers and to arrive at his maximum discounted vendor decision!
  • Deprived of option to compare the customer would be less confused about product choices with other competing products – the bliss every marketer longs for.
  • Customer decision cycle will be relatively short and quick compared to an open market situation like many players offering competing and comparable products as in the case of web.

Thus, effectively marketers are trying to cage customers to the controlled environment of their app and subtly cut off customer from the open market and invisibly condition and constrict his buying behavior for the benefit of the marketer, hoping that customer would fall in place as per their design!

However, what boggles the mind is the unpredictability as to how the customer would react to this stealth move by marketers!

The Mobile Only format yet to sink into the customer mind!

Hostile UX- Image_3
The inevitability of Mobile Only customer experience

Despite all hype around personalized content spiced with data analytics, the user experience remains the single largest bottleneck for going Mobile Only format. A large section of online users, especially those who have access to PC still consider viewing the products on large screens and doing one’s own market study before placing orders. A lot of online buying is driven by such consumer behavior born out of web format capability, but this turns out to be a huge challenge in Mobile Only format as SEOs are still at nascent levels in indexing app pages effectively to provide actionable comparison. Moreover for the user it becomes quite tricky to compare different sites considering the smaller screen of mobile device, while for the marketer app based approach opens up plethora of possibilities. That brings us to the cross roads in deciding how to navigate between marketer opportunities versus customer centricity?

The behavioral profile of online buyer and the Mobile Only format – a case of mismatch?

  • One of the main characteristics of online buyer is his appetite for best deals with maximum discounts available across vendors.
  • He also derives satisfaction that the deal is actually the best by comparing it with other offers. Therefore he is a value hunter and much less brand loyal.
  • Similarly, the app only promotions may not entice the buyer as buyer may feel the buying experience to be incomplete without going through this essential buying process or may remain non impulsive to respond to a targeted notification in the app.
  • The idea of enhancing personalized buying experience and brand building may be misplaced here, as there is a mismatch between vendor offering and customer expectation.
  • Majority of the mobile Internet users have been using online buying just recently and are yet to realize the compromises they have to make while on a Mobile Only format. Eventually they would conclude that the benefits of web may outweigh those of the Mobile format.
  • When the buyer realizes that marketers are effectively limiting the possibilities of the buyer, the disenchantment may lead to a lot of anguish in the minds of customer and eventually she may look beyond Mobile format.

While we have so much pointers to customers’ buying process already on the table, a complete disregard to customer behavior and expectation will have serious implications in winning a pie from the increasingly discretionary customer participation. On the one hand all the leading e-commerce players claim that 70% to 80% of their total orders come through their mobile platform; on the other hand they admit that 25% of these orders are originally discovered in PC platform and the mobile platform was used only at the clinching stage of order execution. Hence ignoring this huge market will be destroying the value they have hopefully awaited over the years.

Thus, only time will unfold whether Mobile Only format is a game changer in delivering value or a big value destroyer? The early reports suggest that Myntra had mixed response to their app only strategy. Interestingly Myntra’s parent Flipkart has put on hold Flipkart’s app only format originally scheduled from 1 September 2015. In the just concluded Big Billion Day sale in October 2015, Flipkart continued the web format and was heavily promoting the app platform by offering app exclusive launches and additional discounts on app based purchases indicating that despite all the best efforts to push consumers to app only format there is considerable volume coming from web format and marketers cannot ignore consumer preferences.

Going by Flipkart’s main competitor Snapdeal’s founder & CEO Kunal Bahl’s admission, Myntra’s app only strategy has greatly helped Snapdeal’s fashion business ever since Myntra shut down the website from May 15, 2015.   Is Myntra’s case a straw in the wind vis-a-vis the Mobile Only strategy? Industry is watching this space very keenly for more signals!

If Mobile Only is overkill, what is the right balance?

Given the growth of Indian Internet users at YoY growth rate of 32%, the 375 million users (as per IAMAI November 2015) augur well for e-commerce players. More than 60% of these 375 million users are mobile Internet users and the share of mobile Internet users are set to grow at faster rate given the continuous reduction in smart phone prices and more and more 3G & 4G network availability. Apparently, this paradigm shift in net access point very much endorses the idea of going Mobile First strategy. However the Mobile Only strategy is self-inflicting to all categories of products especially for high involvement category products. Categories those are low involvement and completely transaction based and used frequently such as taxi hailing services, bill payment services, travel booking sites, event ticket booking and restaurant services may have a case to go Mobile Only at the risk of losing a small portion of their business, as even those category demands multi channel access points simply because of heterogeneous customer behavior.

Mobile Only, does it sound lack of Design Thinking?

According to IDEO’s President and CEO; “Design thinking is a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.”

Where does Mobile Only falls short in integrating needs of consumer and requirements of business with possibilities of technology?

Understand your customer really well: There are many reasons cited for going Mobile Only such as better maintainability, cost savings, huge data mining capability which in turn can power data analytics driven marketing functions like greater segmentation, contextual targeting, user engagement and rapid personalization at scale. While all these are the possibilities for the marketer to embrace the new format, the same possibilities turns out to negate the possibilities of the consumer that is essential for a sustainable growth of ecommerce category. Mobile Only enthusiasts seems to be missing the plot by ignoring customer decision journeys to understand what motivates people and what puts them off and apparently loses opportunities for creating delightful experiences.

Empathize your customer with customer advocacy: While more and more businesses are waking up to the real world business need of ‘empathy’ mapping by putting the customer at the center of problem solving equation, the Mobile Only format looks highly skewed towards the marketer. Apparently we are still not finding a holistic reason for Mobile Only format apart from the ulterior motive of customer confinement, rather born out of customer apathy or total disregard for customer preferences. Building this wide gap requires rallying customer advocacy and customer centric empathy across all functions of business to deliver value and keep customer experience as the most important metric.

Device Option- Image 4Design to delight: Instead of Mobile only format, to fully capitalize rapidly growing net users the e-commerce players should repurpose all the touch points rather than limiting to only mobile touch points. Marketers should offer all options of net access points including web along with mobile, with all screen options and continuously reexamine the new touch points of value creation.

It is very important to explore all the digital channels for effective customer outreach when we are talking about bringing in all the 375 million net users to meaningful online purchases. A deep understanding of customer experience across all channels is just the starting block of the long process. To assume that customer’s interaction with a brand can be effectively managed only through an app (in an app only ecosystem as envisioned by Mobile Only enthusiasts) seems like an incomprehensive view as customers preference to multiple digital channels such as web & mobile advertising, email, search engines, social media and video are increasingly playing a decisive role in customers decision journey.   To capture the multiple touch points of customer interactions every e-commerce company should aspire to capture a comprehensive view of its customers, by implementing mature systems for collecting and organizing those deep insights. It is all the more important for ecommerce vendors of high involvement categories to provide a feel of the product through multiple and large visual interactions that is closer to actual physical experience to reassure the expectations of the product to user. Such affirmative and inclusive measures would increase the adoption of ecommerce at even faster rate.

The need is to remain attuned to customer decision journeys and understand how to use new capabilities to serve customers better. This is possible when marketers prioritize to understand each step of customer’s purchasing journey and design and deliver best experience across all formats. Every marketer’s goal should be to continuously discover efficient frontiers of value delivery without undermining superior user experience essential for occupying the numero uno position in customers’ mind space.

Show Me The Money

Who doesn’t remember the famous four words of the 1996 film Jerry Maguire? The relevance of these words encompasses all generations. We look at the rich and mighty with a hint of jealousy, sometimes incredulously , some other times in awe, yet other times perturbed. On the other hand, the poor and downtrodden are subjugated to our pity, dissidence, even repulsion.

Now that makes one thing very clear- more or less or none, but money has the power to trigger our insides.

My husband and I abide by our morning ritual of reading the good,the bad and the ugly, hidden in the dull text of black ink, spread accurately on those beautifully blending 20 crisp peachy pages; unravelling the mystery of this world layer by layer with every sip of our invigorating morning tea. A ritual so intellectually stimulating , consequential in further bonding, has now become a regular phenomenon. Every morning, the message is the same– business ecosystem in its finest form, the mood of the start-ups at its optimistic best. Such positive reinforcements does uplift our spirits but it bewilders us too.

Modi Ji’s “Make In India” mantra began to unfold with the conception of India’s biggest e-commerce space- FLIPKART, by the Bansal duo. And with it started a revolution that took the entire nation by surprise. Since the beginning of last year, every other day(if not every day) ET reflects such a luminous picture of our economy. And the chunk of this positivity comes from the exhilarating news of one start-up after another. Either they have raised a colossal amount in funding, or they have had a path-breaking M&A, or they have been subjected to overwhelming(read ‘obnoxious) valuations.

These recurrent success stories have given birth to a new breed of entrepreneurs- the “COPY CATS” who are mindlessly jumping the bandwagon. They think they have cracked the code behind the success of these new age companies. The keywords are countable- IIT, IIM , e-commerce, m-commerce, angel investor- blend one element with another or all, and your magical potion is ready. And this potion is so potent that it affirms success against all odds. Zomato, TaxiForSure, Flipkart, Snapdeal, ZoRooms- all have been founded by IIT/IIM alumni.

The “me-too” entrepreneurs have a flawless design ready to trap potential investors. The code is a no-brainer though; project a high traction metamorphosing into more investors, subsequently larger funds, perfectly ending into higher valuation.

The silver lining,however, is that crony capitalism is fading and a new crop of optimistic entrepreneurs is mushrooming. No longer you need to be a TATA or an AMBANI to dream big. The new age start-ups and their success stories have infused a new confidence in today’s generation. They can dare to dream, and that too big. Now that’s one promising change in our country’s antediluvian thinking where a farmer’s son could only dream of becoming a farmer, a teacher’s son only a teacher. It is this promising environment that allowed the 18 year old college drop-out from Orissa in 2011 to venture into an unknown territory and build today’s famous OYO rooms in 2013. He’s been in limelight recently for having raised an elephantine amount($100 million) from Japan’s Soft Bank. This definitely is an extremely positive outcome of this start-up culture where no longer fears detain you in realising your truest potential.

Have the zeal, And crack the deal.

The definition of success is,however, very unique to this breed. Ideally a successful business should generate large revenues, handsome profits,employ large no: of people and make a social impact. While a few of these new age start-ups fulfil most of these criteria, the most profound aspect of running any business is not met. Yes, I am talking about PROFIT(in BOLD letters).

Flipkart, Snapdeal, Zomato, are few such organisations worthy of enviable valuations with no profits. If I may elaborate no profits as “million dollar losses”.

SP-CP=Profit, a formula that even my 10 year old understands is of no consequence to the companies of the likes of Flipkart or Snapdeal. We have grown up in an era of brick-and-motor companies. Making purchases online is still an alien concept to me. But what exists pan any business, culture, economy,era is one and only one thing- Profitability. In the quest for scale, profitability is taking a beating. Achieving traction by offering tantalising discounts doesn’t suffice zero profitability.

This is where Media plays the devil’s advocate. It craftily masks the “no-profit” feature of these companies and celebrates their “valuations” (all on paper). It shrewdly creates a larger than life image of these new-age entrepreneurs. It chooses to present to the audience what it wishes them to see and read; featuring them on cover page of leading business papers and magazines. As a result it creates a superficial success story that revolves around raising funds and basking in multi-million valuations. The bigger the funding, the bigger the legend-like stature, the crazier the media frenzy. This creates an environment where these “real” heroes are worshipped by the aspirational youth who are totally smitten by their relentless journey.

What everyone overlooks,however, is the sustainability of these companies who are riding on investor’s money and the dubious mechanism of discounts. And when these companies start to decline in their valuations, it this media that will rip them apart so brutally, so mercilessly.

So does that mean that media shouldn’t give credit where its due? That it shouldn’t encourage and celebrate those who dared to dream, who dared to give a form to their entrepreneurial spirit? Of course it should. It must applaud those took the risks, it must boost their morale, it must glorify their achievements. But it should refrain from painting a picture so perfect.

VCs who today are messiahs to these burgeoning start-ups are enjoying the spectacle with much aplomb. Every time they agree to fund, they gain significant media attention which heightens the public interests manifolds. These VCs are the ultimate gainers in this entire game plan as they create such a promising and utopian environment, thereby painting a surreal picture for these companies, while on an alert all through to making opportunistic exits. They are clever enough to bathe by the bank of this crocodile pond but will never swim in it. An entrepreneur is so enamoured by the VC culture that he fails to read between the lines and accepts the terms so faithfully; in most cases ends up getting short end of the stick. A recent example of this would be when Lane Becker and two of his co-founders sold their $50 million customer service company ‘GetSatisfaction’ to Sprinklr. He unabashedly claimed how the arrangement was nothing short of a fire sale where the VCs happily devoured the chunk of the pie leaving a tiny morsel for the founders.

My learning:”Get investor at your own risk”.

The sharp drop in valuations of new-age ventures in the US and China should be a wake up call for the Indian counterparts. Yelp, a US based restaurant search and review venture, lost its valuation by $5.9 billion from a year ago. The survival of its Indian “me-too” company Zomato which is barely 4% of Yelp’s revenues but a whooping 58% of its valuation, worries me aplenty. Market is going to correct soon and when it does it will take all these new-found companies by storm.

Who has seen tomorrow? How can these valuations be based on what will happen 10 years hence? The promise of tomorrow does not take into account future disruptions or new competition entering the marketplace.As Peter Thiel rightly captures the essence in his book-‘Zero To One’ by stating that companies may create a lot of value, without becoming valuable itself. In same breath he also states that most of a tech company’s value will come only in 10-15 years in future. Mystery of what lies ahead coupled with a loss-making present is indeed alarming. The prime objective of any business is Profit, and it should be given a rightful significance and not allow these insane valuations to steal the show. All this boils down to one and only one understanding-

Business is in profitability,

not in valuations…

Its in sustainability,

not discount mechanisms…

On paper all seems rosy,

But somebody has got to ‘SHOW ME THE MONEY’!!!!

Guest Post by Megha Chopra, Director/Board Member, Rategain

The Future of India

Trends in the US could portend the challenges India will face.

independence-day-67aLike many people, I dislike long flights, particularly since my body does not deal well with jet lag. I therefore try to avoid visiting the United States more than once a year. But every time I visit that country, I remind myself how important it is to keep in touch with what is still the powerhouse of the global economy, for that enables a better understanding of India’s challenges in the years ahead.

This time, my visit spanned the whole country – a few hours in transit on the east coast, a day in the mid-west, two days each in Texas and California. My reflections suffer from one bias though: my visits were primarily to universities. Yet, speaking to academics helps understand some of the broad trends, even if these institutions tend to be more liberal than the rest of the country.

The Decline of the Middle Class

A distinctive feature of the United States in the 20th century was the emergence of a large middle class. But an equally striking feature of the early years of the 21st century has been the decline in living standards of this same middle class.

In his book Fault Line: How Hidden Fractures still threaten the World Economy, Raghuram Rajan spoke of the challenge of re-tooling the American blue collar worker for the new workplace. But, this is not a problem of factory workers alone.

While in the US, I realized that at least four of my 51- or 52-year-old IIT classmates don’t have full-time jobs anymore. Their opportunities have declined as the number of middle-to-senior managerial positions has shrunk. Further, many organizations prefer younger employees.

By the way, in case you thought that this trend is restricted to the US, think again – we see a similar nascent trend in Bengaluru, particularly in MNC subsidiaries.

The New Economy

The US continues to be a leader in engineering. I had a ride in a Tesla car, and I was really impressed by its smoothness and its ability to bridge the gap between an electric car and one based on the internal combustion engine. Universities like MIT and the University of Illinois at Urbana-Champaign continue their focus on core engineering and devices.

But, value added in manufacturing is on the decline, with even sophisticated design no longer enjoying a cachet. Hardware companies don’t count for much anymore – a friend in Silicon Valley was telling me that a company that designed a high tech drone with all possible bells and whistles gets valued at $200 million, while companies of the WhatsApp ilk are valued at multiple billion dollars. This change in value is reflected in the geography of the Valley itself.

Over time, there has been a northward shift in the centre of gravity of corporate activity, in the direction of San Francisco. Chip companies in the southern part of the Valley are passé.  Youngsters prefer to live in San Francisco even though they don’t get to spend much time there if they work in Mountain View-based Google, the northern edge of the southern part of the Valley. The geographic shift also represents the difference in skillsets required by social media and other emerging consumer-centric startups. This shift in value is visible in India too – just check out the sky high valuations of India’s e-commerce companies. According to a recent article in Business Standard, Flipkart is more valuable than Tata Steel or Mahindra & Mahindra!

It’s not clear how long the best and brightest of the United States will work in hard engineering if the money is chasing e-commerce and social media!

It’s not clear how long the best and brightest will work in hard engineering if the money is chasing e-commerce

Change in the Nature of Work

It’s time we thought seriously about the future of work and society. While in Silicon Valley, I caught sight of the Google driverless car prototype on multiple occasions. The grapevine has it that the prototype works well, and only regulatory issues can delay its commercialization. Driverless vehicles will change transportation completely. Car ownership will decline, while public transportation will get a boost. Though driverless vehicles on India’s chaotic roads may seem utopian, just imagine their impact on the employment of drivers.

India is ramping up for a foray into manufacturing just as manufacturing is on the cusp of major changes. Automation is accelerating, and China has the largest number of robots in the world. As automation spreads, routine jobs that require limited skill levels will go to lowest cost locations. And, companies are smart enough to compute the overall costs, and not focus on wages alone. Overall costs factor in labour productivity and the efficiency of logistics as well as the regulatory environment. India will struggle to be competitive when these overall costs are taken into account even if we improve our skill levels.

India is ramping up for a foray into manufacturing just as manufacturing is on the cusp of major changes.

Winner-takes-all Economics

The decline in the middle class reflects another important shift – income distributions are veering farther away from “normal”. While in the Valley, I attended an interesting talk by Sanjiv Das, a professor at Santa Clara University, in which he emphasized how few things in the world are distributed in the favourite “normal distribution” of our statistics professors. While the internet may be democratic in terms of access, it has only accentuated winner-takes-all economics.

All these changes in wealth and income distribution combined with changes in the nature of work don’t bode well for India. India may create the largest workforce in the world, but what if such a large workforce is not required?

India may create the largest workforce in the world, but what if such a large workforce is not required?

Winner-takes-all economics is spreading in a way to the broader society as well with income and wealth inequalities deepening. At the same time, governments are unable to manage social welfare systems efficiently. While the resultant tensions may be manageable in the small, wealthy countries of Europe where minimum living standards are already high, it’s not clear how countries like ours will manage these issues.

Public-private gaps are visible in US infrastructure as well. I was struck by how the freeways and public roads in the Bay Area are not in the best shape while private buildings get fancier and new dwelling units appear in hitherto low-density areas like along the sides of El Camino Real, the north-south artery through Northern California. This uncannily reminds one of India.

Monopolies and winner-takes-all trends are active in the non-internet world as well. While Starbucks Coffee outlets dot the US landscape, I was amused to find that other outlets including hotel coffee shops also now serve Starbucks coffee and proudly advertise so. Starbucks is practically the only coffee brand on offer now!

But, even Google has its Limits…

In all of this, it’s good to see the Americans retain their sense of humour. I particularly liked one hoarding in front of a church in Silicon Valley: “Google can’t satisfy every search.” I hope we can retain our sense of humour too!

Reblogged from FoundingFuel

Inflexion – Technology Summit: An evening of insights and observations

I was invited to “Inflexion” an event organized by Signal Hill and iSPIRT. The duo have in the past co-created the report on Technology M&A in India (link) which was very educational, so my interest was piqued and decided to go.

The evening was started by Scott Wieler, Chairman & CEO Signal Hill. He mentioned that $6.9Bn of VC/PE money has been invested in India in last four years (2011-14). However, the M&A value generated is just $1.7Bn. So with a value creation ratio of 0.2x, India is far behind US (3.0x) and Israel (5.3x). This led to the insight that M&A values will need to increase by more than 15x over next 3-6 years for this ratio to catch up to US and Israel levels. My hope is recent acquisitions by Flipkart (Myntra), Snapdeal (Unicommerce), Facebook (Little Eye Labs) and Twitter (ZipDial) – are good trend in this direction, and we will see a lot of action happening in next couple of years. This augurs well for Indian entrepreneurs.

Next came the retrospective by N.R.K. Raman – co-founder of i-FLEX Solutions. Very interestingly his company was probably the first VC/PE backed unicorn in India! They were bought by Oracle for nearly a billion dollars. A lot of i-FLEX’s story was about perseverance and street smarts. We keep on talking about product-market fit – this was a phenomenon written all over i-FLEX’s success. The founders were working in the banking software industry inside a bank (Citigroup) – and understood the inefficiencies of the system. They jumped the boat, separated from the mothership (albeit Citi wrote them their first $400k) – and launched a product that found ready takers in the market. It was not the dramatic high burn, breakneck growth story but rather a well thought out, methodical plan executed with hard work and business fundamentals kind of story.

As the night became young, Flipkart’s co-founder Binny Bansal and YourStory’s Shradha Sharma, stepped onto the stage. Binny said that the one thing keeping him awake at night is “finding high quality talent and retaining them” – interesting to note that the big guys have still the same challenges as newbie startups. As an investor, I feel it is becoming very competitive to hire good talent. That one perfect designer or product manager you have found – chances are will have multiple offers in hand, if not thinking about doing his own startup already. The other big focus area that Binny mentioned was mobile – if you look at the data, I think the writing is on the wall – by 2016 – 80%+ of India’s internet population will access Internet more by mobiles than by desktop and my guess is 60%+ of India’s internet population will have never accessed internet using desktop. So Flipkart’s worries are talent and mobile.

Then Sharad Sharma, iSPIRT co-founder and Governing Council member, delivered a short punchy talk. He explained how small sub $50m dollar exits are the lifeblood of any tech ecosystem. Unless they happen in enough numbers we won’t get Billion dollar exits in the long haul. I learnt that iSPIRT’s M&A Connect program has been instrumental in getting Facebook, Corporate Executive Board, Yahoo, Intuit and Twitter become first acquirers in India! The M&A Connect program is now on a one-acquisition-a-month run-rate and aspires to get to a one-acquisition-a-week rate in the coming years. What an inspiring story of volunteer magic changing our ecosystem for the better!

Sharad then talked about global SaaS startups. They are gaining momentum. He also outlined why software product startups targeting Indian SMEs will be big in the coming three years.

We then broke for drinks and dinner. The book “Conquering the Chaos: Win in India, Win Everywhere”, authored by Ravi Venkatesan, iSPIRT Adviser and former Chairman of Microsoft India, was gifted to attendees of the event. It promises to be an interesting read.

Baby steps to an Indian Microsoft

A country well known for its software services now has an opportunity to build world-beating software products.

At a recent corporate awards ceremony, Tata Consultancy Services (TCS) was crowned as the company of the year. Piyush Goyal, the Minister of State for Power, Coal and New & Renewable Energy hurriedly stepped up to the lectern after the award was given. He told the assembled glitterati that TCS had promised to give the All India Institute of Medical Sciences (AIIMS) a modern, nay, world-class hospital management system by March 31. In the tentative clapping that ensued I heard a big snort from my right. The scepticism of the gentleman sitting next to me was rooted in the belief gaining ground that bespoke software systems were outdated and presented a sub-optimal choice.

The predicament of enterprise technology clients stuck with archaic bespoke software systems is no longer common. Bespoke software systems fell out of favour 20 years ago. Firms switched en masse to on-premise enterprise software products. They were cheaper, easier to upgrade, and yet extensively tailored to their needs. This shift in the late 1990s created two sets of players: product vendors like SAP, and implementation consultants like IBM Global Services and Accenture. Soon, Indian IT services players like TCS, Infosys and Cognizant muscled into the game and grabbed considerable market share.

Lost in this success story is the narrative about Indian enterprise software product vendors. For instance, iFlex built a great enterprise software product for banks, which Oracle snapped up for a billion dollars in 2005. Kochi-based IBS is a leading product vendor for airports and airlines, and is now big enough for an IPO next year. PARAS, a hospital management product from Bangalore, is grabbing the industry limelight by winning global deals involving hundreds of hospitals.

If the Indian IT industry has benefited from the shift away from bespoke systems, why did AIIMS miss the bus? In general, why has our public sector been so slow to buy enterprise products? Government officials are not to blame for this. Unfortunately, our IT services firms became protectors of status quo in the government sector. While it helped them milk their fading bespoke systems for longer, it also created crumbling government systems and robbed the nascent product industry of a big market. Luckily, the new government has started fixing the issue.

The Growing Shism

Another breed of enterprise product vendors is emerging. Companies like Workday and Salesforce personify this new wave. They offer on-demand products. These require less customizations and work on cloud-based data centres. So, as Workday says on its website, they are a “fraction of the cost of upgrading from their incumbent vendors”. Naturally, customers love these new-generation products. They are called Software-as-a-Service (SaaS) products. And they are growing like wildfire.

A schism has opened up in the Indian IT industry over SaaS products. The implementation consultants don’t like them, as they need only minor adjustments. They look at them with a jaundiced eye of a traditional bespoke darzi [tailor] looking at readymade clothes. Going from stitching custom pants to doing length adjustments for readymade ones is a gloomy shift for IT services providers. But it’s a boon for our software product start-ups.

In fact, Indian SaaS product start-ups are on a roll. They are even getting begrudging respect from Silicon Valley. When ZenDesk, the SaaS market leader in customer service desk management products, did its roaring IPO earlier this year, it listed six key competitors in its SEC [US Securities and Exchange Commission] filing. Four of these – Kayako, Freshdesk, Supportbee and Tenmiles – are Indian! Indian SaaS product players are becoming global category leaders. Zoho, for instance, sells a CRM (customer relationship management) product at $12 per salesperson per month and is the market leader in this mid-market segment. It is flanked by Salesforce in the enterprise segment (at $60 per salesperson per month) and a raft of players, mostly Indian, in the SMB segment (at $3 to $4 per salesperson per month).

This availability of, say, CRM software product at every price point is a big new story in the IT industry. Unlike cars or smartphones, we have never had different software products to cater to every price segment. SaaS has changed this. As a result, everybody can now afford a software product. Hopefully, this time, government policy will build on this new generation and not let incumbents hold things back.

My Cup Runneth Over 

Two other pockets of explosive growth are exciting. One is the much-discussed rise of the digital consumer in India. This has led to the birth of Flipkart, Ola Cabs, Stayzilla, Newshunt and others. The other pocket is less sexy but it’s even bigger. It has to do with software infrastructure.

Old software infrastructure is being replaced at a pace previously unseen and is creating lots of product opportunities. Data explosion is driving endpoint data protection and governance products. Video explosion is driving dynamic ad insertion products. E-commerce growth is driving a new generation of search infrastructure products. Corporate mobile use is driving new agentless Bring-your own-Device security products. Social media is driving real-time social media analytics products. Now here is the punch line: in each of these categories, the emerging global leader is an Indian company! This is an unbelievably powerful development. For instance, Druva, a Pune-based start-up, is the global market leader in endpoint data protection and governance and is set to do an initial public offering in the US in 18 to 24 months.

Daring to Dream

Behind this optimistic turn of events is a new type of a technology entrepreneur. He (and, sadly, its mostly he so far) is unshackled from the restrictive dream of being the world’s back office. He doesn’t think in terms of labour arbitrage. He is a missionary, a creator and disruptor of status quo. And he has a blazing desire to change the world.

Team Indus embodies this spirit. This team is a motley group of passionate technologists that aims to land a robotic craft on the Moon by December 2015. This is literally a moon shot. Not altogether surprising to many of us, this team has emerged as one of the top three teams in the prestigious Google Lunar X-prize!

There are other moon shots in the works. Some are pivotal to developing our defence, aerospace and electronics industries. Others are about building highly affordable software products that will bring competitiveness to small businesses, teaching effectiveness to schools, productivity to health-care centres and new skills to farmers. Let’s not blow this chance. Let’s give these efforts the policy oxygen they deserve.

The country that gave zero, calculus, yoga and chess to the world is dreaming again. It wants to retake its rightful place in the world. It’s not satisfied being a back office for everybody. It dreams of powering the future with its ideas and inventions. It dreams of being a product nation!

This article was first published in Business Today