Indian start-up ecosystem – in a sweet & sour spot

Health warning: this post is slightly longer than the regular articles as the subject calls upon a more detailed discussion of the issues, so please be patient and read on!

Our start-up ecosystem has come leaps and bounds over the past few years, the sheer development can be measured by the rising number of early stage investments, the increase in the number accelerators and the number of wannabe student entrepreneurs aspiring to become next Steve Jobs or Mark Zuckerberg. On the face of it all this may sound really promising (which it is!) but many cracks begin to appear as one starts scratching the surface. The current rate of ecosystem development will fall way short of the challenge that currently faces this nation and unless we change gears it will be difficult if not impossible to meet the expectations in the next decade.

When I was kick-starting my journey, I came across a startling fact that reinforced my belief that Indian start-up ecosystem needs more momentum if it is to come anywhere close to meeting the broader socio-economic targets. According to a recent planning commission study, India needs to support nearly 10000 scalable start-ups by 2022 to provide some level of sustainable job creation to the 140 million potential job seekers entering the workforce over the same period but currently around 450 new tech start-ups are launched and overall just 200 start-ups get funded every year by angels / VCs. So what is fundamentally going wrong here? Why can’t a country that prides itself on its intellectual horsepower, huge proportion of adults and a maturing market not able to get its act together?

This prompted me to explore some of the underlying root causes within the ecosystem (i.e. non market or policy related) that are impeding the ecosystem growth. A deeper look into the ecosystem value chain reveals fundamental gaps along the start-up journey starting from entrepreneurial desire through to building sustainable businesses and obtaining early stage funding.

 Cultivators

Cultivators are the first level institutions that provide exposure to the budding entrepreneurs and help them find their starting point. These institutions play a key role in igniting the dormant fire and giving birth to entrepreneurs. But let’s face it our social, education and even the corporate culture is not actively embracing the entrepreneurship phenomena. According to a Gallop study, India ranks in the bottom quartile for culture and social capital for entrepreneurship. India’s premier institutes fall way short of global benchmarks on producing entrepreneurs (5% versus 10% in premier global institutions) and the innovation rank is also not something we can boast about (62 out of 125 nations).

Break the shackles and come out of the comfort zone: Indian culture broadly lacks that entrepreneurial spirit and does not encourage risk taking – the fear of failure is the single biggest challenge we need to overcome. Institutions promote careerism over entrepreneurship and traditionally our family culture dominates our career decisions. This has changed recently but we need more of this to drive faster change. We need more leaders and risk takers!

Let’s set up few tables and open this space, should we call it an e-cell?: There are E-cells in pretty much every college campus these days but the quality of support provided is an issue up for debate. Majority of the incubators see their role as limited to providing physical space and hosting few business plan events. The institutions usually do not have relevant entrepreneurship driven structured programs and courses that can encourage students to get a real taste of this exciting pursuit.

Learning starts right here: Those brave ones who dare to opt for entrepreneurship as a career option lack an understanding of what a sustainable, global and truly innovative business means – their aspirations are not BIG enough. The education and corporate system struggles to explain these notions as a result of which the quality of entrepreneurs / ideas is generally weak.

Promoters & Nurturers

These enabling institutions (usually run by volunteers as non-profit ventures) provide the necessary glue in the value chain and ensure a supportive environment is created that encourages entrepreneurism. The institutions are doing an excellent job in encouraging entrepreneurs by providing a platform to connect likeminded individuals in a short, intense and fun product building format but fall way short of following this through and nurturing them into a start-up mould. According to an estimate from one of the founders of such initiatives, only 20-30% participants consider launching a start-up out of which a mere 5-10% can hope to find a place in a structured program like an accelerator.

Spread the joy – we need more: It is believed that the cumulative attendance at these events stands at less than 20000 entrepreneurs per year which is only a fraction of the potential entrepreneur base cultivated upstream. These institutions have done a fantastic job at glamorising the entrepreneurship phenomenon but the potential reach of such initiatives has so far been limited due to domain and geography focus.

When just being sexy alone doesn’t work: Majority of these  1-2 days format programs / events are successful in creating a buzz in the community but fail to instil a deeper and broader desire among the participants to take the plunge and do something more intently with their ideas and teams. As suggested above, usually around 20-30% participants think of taking the next step and starting the venture.

Don’t say goodbye yet!: Some institutions provide a level of structured support to the entrepreneurs interested in starting up post such events but the ecosystem in general lacks the infrastructure / will to sustain their momentum until they are ready to be passed on to the downstream institutions such as accelerators. On average less than 8% applicants are acceleration ready when they approach the program suggesting the underlying weakness in the pre acceleration support system.

Accelerators

Accelerators help build the fundamental blocks of the start-up business i.e. finalising the product, launching and gaining initial traction, building a clear business strategy etc. Most accelerators barring a few have popped up in the last year or so and are still devising an optimal model for the Indian start-up ecosystem. The accelerator success metrics are yet to be defined / standardised but if we take the typical business performance indicators, start-ups going beyond a critical mass (revenue, customers, funding etc.) post acceleration program are exceptionally rare – funding for less than 20% of portfolio companies compared to more than 80% for top performing accelerators in US. This is quite alarming.

Accelerators, accelerators, accelerators: A lot has been debated about the recent growth in the number of accelerators. But the reality is India currently has close to 25 accelerators that provide money and/or mentoring to approximately 150 start-ups annually whereas in US top 3 accelerators alone are able to accelerate as many start-ups. We will need many more “quality” accelerators with both tech and non tech focus to give promising start-ups a fair chance to learn the tricks of the trade and provide them a strong launching platform.

Soft touch is not good enough: From my personal experience, I find a huge expectation mismatch among start-ups and accelerators. Where the later believes that following a similar sort of model to Y Combinator is all that we need but the reality is we must understand that the mindset of western entrepreneurs is very different from that of an Indian. Having lived and worked abroad for quite some time, I can certainly say the air of capitalism is very thick in the western culture whereas we don’t get a similar level of exposure from our educational / professional backgrounds which can enable us to become commercial in our thinking. Therefore a complete hands off and short duration engagement model underpinned by too much “gyaan” has had limited success so far. There is a need to do some hand holding during the program to get the start-ups proficient in various aspects of their business. Mentoring alone won’t do it, we need commercial partners who are engaged with the start-ups throughout the program.

Money – not a big deal anymore: Let’s face it, in today’s world raising few lakh rupees is not an insurmountable challenge for start-ups, most wannabe entrepreneurs are capable of scratching theirs’ or their folks’ wallets to gather the initial seed amount to build their MVPs. With money not being a huge issue the start-ups are not willing to give away a substantial amount of equity to accelerators in return of limited perceived value. The value proposition doesn’t appear to be compelling enough to attract good quality start-ups who could otherwise benefit from the acceleration process and proceed efficiently to the next level. 

Investors – Angels/ VCs

Investors are the big daddies of the start-up world and arguably play an instrumental role in making or breaking the dreams of the entrepreneurs who want to leave their mark on this world. They provide the impetus necessary both financially and operationally to scale the business to the next level. So what are the reasons why only 1-2% of the start-ups that approach them are successful in raising funds whereas in US this is close to 15-20%.

Hey Start–ups – what were you thinking?: One of the main reasons cited by VCs is that most start-ups are not ready for the next big leap – they have not showed much traction or demonstrated enough maturity to justify a heavy cheque. To some extent I can also substantiate this as most of the ideas I have seen going through to the VCs or angels are not ready for funding – there is no clear validation, few (if any) early adopters, little revenue and limited clarity on the business direction. But why is the quality of the start-ups not good enough at this stage? The answer lies in the journey of the start-up up to this point!

Everybody loves the good kid: Although many early stage funds and angels claim to be open to all start-up types but sub consciously there is a strong bias towards best performing tech or web enabled companies (65% of total investments in 2012) where the business models appear more scalable and capital efficient. There is nothing wrong with this investment philosophy but we also need players who are willing to make some riskier bets on a decent team / idea still in early stages and support more non tech focused businesses as well where potential returns could be comparable. 

Where are the resources gone!: I have also observed that in some cases although investors like the idea and team but feel restricted in terms of financial and/or human resources. This is less than ideal as the last thing we need is to let the great start-ups die because of lack of resources. More than money lack of quality advisors who can actively work with the portfolio companies is critical.

These issues among others that have not been covered here aim to illustrate some of the potential gaps that exist in the ecosystem. However I must reiterate that where we are at today is a great position to be in and has given us an excellent launching pad. I am very optimistic about the future and I hope by addressing these challenges we can further improve our ecosystem and come closer to meeting our targets and building a sustainable start-up nation!

Please stay tuned for the next post in the series that will look at the potential solutions to these challenges…The start-up – ecosystem nexus – “as-is” vs. “to-be”

7 Critical Things to Understand about Venture Capital for Product Start-ups

If I had a Rupee every time I heard the words “If only Venture Capitalists were more active in building the Indian Product Eco-system….”, I would be a rich man!

I am guessing that this is because of a lot of mis-conceptions about Venture Capital and how they play in the product space, in India as well as elsewhere. As a Software Product entrepreneur, you owe it to yourself to understand VC money in all its complexity to make wise decisions about whether it is even suitable for you, and if it is,  how to get it, and if you get it, what are you in for?

It is impossible to capture all of the complexity of Venture Capital in a single article but here are seven basics every software product company in India should be aware of:

  1. Understanding exactly what business Venture Capitalists are in – They are not in the technology advancement business, not in the entrepreneur eco-system business but in the money multiplying business! They have bosses too – people who have given them money to invest expecting at least 10 to 20 times back! Unlike a bank that loans money to low-risk, low-reward businesses, VCs are expected to invest in high risk, high reward businesses. They can afford to take losses on 5 to 10 startups to make a 100 times return on that one big block buster – an Instagram, a facebook or Google!. Many startups return them 5 to 10 times the money and across all startups with other failures, they will be successful if they return 20% per annum over 10 years.  After the Dot com bust, many VC firms returned less money than was invested and Of course, they are out of business also! You get an idea of why VCs are looking for that big block buster company! So you will be wasting your time and theirs, if your startup does not promise that kind of growth quickly!
  2. Understanding Exit Strategies for you and them –  If you are planning to build a software product company, grow slowly over 10 to 20 years and have a leisurely IPO, Venture Capital may not be suitable for you. VCs need to return the money their investors have given them – usually in a 10 year time frame. So they really have a clock they are working against. Exits through acquisition by a larger company or through an Initial Public Offering (IPO) is how they get the money they have invested out. So if this does not suit your plans, VC money is not for you.
  3. Understanding what can increase your valuation periodically– VCs like to bring on other VCs to share the risks in the companies they invest in. They also would like to see the valuation of their investments rise rapidly so that the acquisition price or the IPO price is justified when that event is reached. Valuation is a notional concept (just what someone else is willing to invest their money for) till it hits the acquisition event or IPO when it becomes validated by the general marketplace (till then it is done by the private VC marketplace). Growth metrics usually provide the justification for the increase in valuations.
  4. Understanding how Market Adoption Rates and Penetration Help you get there – If your startup is dependent upon the 4% smartphone adoption rate in India as opposed to the 56% adoption rate in the US, you can get an idea of how fast your key metrics will grow to make your case for the first or the next round of VC money. It does not mean you are in a bad business. It just means that your business may not be a good candidate for VC money! If your business is already making money, then that needs to reflect this rapid growth or at least the promise. If you are following a freemium model or you are postponing the question of monetization for a later date but are focused on building membership, visitors and engagement, your metrics need to show this hockey stick growth. It is not because VCs have an illogical liking for hockey stick growth rates – those are the ones they can show the next group of VCs or others that want to invest in subsequent rounds and ask for a higher valuation! I wrote about this topic in my previous article – Develop and Pray is Bad Planning in Product Startups!
  5. Understanding what Riding the Tiger means –  When you watch Flipkart raise more money and doing all kinds of acquisitions, what you are seeing is catching the tiger by the tail, getting on it, and riding it! You don’t have an option of getting off, since the tiger will eat you if you do! Once you raise venture money, you need to plan for rapid growth and riding the tiger. Don’t even look for venture money if this kind of company building is not for you.
  6. Understanding that Venture Money is not the only way to build a Software Product Company – If you have a secret sauce in your product that no one else can copy in their product easily and you have a five to ten year advantage, you can afford to build your company at a slower pace, taking one or two rounds of angel investor money, keeping expenses low and ploughing back initial profits into building the company organically! Unfortunately it is less likely in the consumer space that you have Intellectual Property that cannot be copied easily than in the enterprise space. Also if you are successful in the consumer space, just for building out your infrastructure you may need to raise large amounts of money – usually that’s venture capital. You might have seen this portrayed in the movie The Social Network with what happened to facebook in its initial years.
  7. Go Big or Go Home if you plan on taking Venture Money – Unlike Services Companies, software product companies depend upon rapidly establishing a large market share in an emerging space. In almost every market, consumer or enterprise, you will see one or two large players splitting almost 70% of the market between them and a couple of other players splitting the rest.  The bright side of this is that there is so much innovation possible in the software product space that you can always define a new marketplace and become a leader in it! But for that you need to show rapid growth in revenue, members, visitors and active engagement. So it’s Go Big or Go Home!

Venture Capital is a vast subject with nuanced differences with every VC company, country or company they typically invest in. For the software product entrepreneur there are some common basics that can help them understand how they all operate in general, whether you are a good candidate for VC money and if you are, what is expected once you take it! At worst, if VC money is not for you, it will force you to do better planning. How will you sustain your company and grow, even if it is at a slower place that you are comfortable with? Have you thought about all of this?

An Investment in knowledge pays the best interest – Benjamin Franklin

The little Spark with great promise – Inaugural #PNMeetup on Pricing for Enterprise Sales

When a bunch (around 45-50, I didn’t keep the count) of Product enthusiasts – with experience accumulating into decades – gather at a single place to share their learning on specific topic in a compact & well-moderated session of 2 hours, it’s worth every bit. That’s how I felt coming out of the inaugural session of #PNMeetup – Pricing for Enterprise Sales: Specific & Important Topic, Quality Participation, Richness of Experiences, and Quality Conversations.

The location, Hauz Khas Village in New Delhi, carries a constant buzz and energy. Very apt for a meet-up like this. Kunzum Travel Café (Thanks for being a great host for the event!), should be happy because participants used up every nook & corner of the place. Many of us had to settle down on the carpet with no more sitting or standing space left! Of course, the snacks & coffee was great too. But, that’s not what everyone coming in was specifically looking for (especially since the last 500 yards got harder to make with the traffic and parking situation ;-)).

We were looking for some great (practical, experience based, relevant) conversations and takeaways on Pricing. And, there was plenty of it, coming from speakers as well as from the participants. As much as is possible in 2 hours of time, that is, also thanks to some great moderating & counter-questioning by Arvind Jha during speaker sessions, and Rajat Garg & Vivek Agarwal in the un-conference session.

Tushar Bhatia, Founder of Saigun Technologies, set the tone for Enterprise Products Pricing by sharing his experiences on Pricing Strategies and Sales tactics. Tushar emphasized that Pricing is not a linear decision, but a complex process and subject to assessment from multiple parameters. He also differentiated the Pricing Strategy from Sales Process. Pricing, as per him (in the context set of Business Planning, Scalability, Consistency, Standardization, and a reflection of the Value Proposition) is a guide at broader level, while on sales tactics front, one should be willing to consider the customer & geographic circumstances as well. The decision matrix for Pricing decisions typically is pretty complex, and a product undergoes multiple iterations of pricing models

Pricing for Enterprise Sales
Pricing for Enterprise Sales – Tushar

before arriving at the sweet spot. However, various types of customers may need to be assessed in their own contexts when deciding on a deal pricing, especially in the traditional Enterprise Sales scenario.

Tushar also emphasized that the Enterprise Licensing deals should consider not only the product pricing, but also the other costs (such as, hardware) and provisions (such as, for Product Support). The considerations on TCO are critical, because the customers assess the products, not only functionally, but also very critically from an operational viability perspective in longer term. Tushar also laid out few questions that need to be answered while deciding the pricing model. The detailed presentation from Tushar on “Pricing for Enterprise Sales” can be found here.

The discussion, then, veered towards the product pricing strategies in areas such as Telcos, serving also as a cue for Tarun Anand (CTO & Co-founder at Semusi) to pitch in and provide his perspective. He shared his experiences in working with the big Telcos on working out product strategies and pricing models. They tried out various pricing models, in partnership with Telcos especially, and had mixed results over time before arriving at something that seemed to work. However, pricing remains a volatile when dealing with the larger partners and in more complex ecosystems, such as Telcos.

In Tarun’s experience, one needs to ascertain that the partners in the ecosystem are ready to take your product to the market if that is the expectation. It is also important to ensure that the pricing terms & conditions are clear, and you are able to hold the customers as well as partners accountable in the operational limits as much as you can. After all, you want to focus on running the business and do not want complications of financial & legal nature. In the context of Pricing and products strategy, in areas such as VAS, as per Tarun, one needs to be very careful. “VAS is dead” in his words! 🙂

Tarun also emphasized “there are takers for product at ANY price point”. One need to clearly understand whom one wants to target, and also understand that it’s not only a question of moving the pricing point up & down in inverse proportionality with the volume of customer base. There are various triggers for the pricing, one of which is the “premium value perception”, and also the fact that once you move into a market with a particular price point, increasing it later on is almost impossible without hurting your customer base and overall strategy.

App Pricing Tactics
App Pricing Tactics – Prashant

The heat in the Mobile Apps makes the App Pricing a very sought after topic, and that’s where Prashant Singh (Co-founder at Signals) came in and provided a good framework for the high level App pricing approach. There are two clear distinct possibilities – Free & Paid. Complete Free, as per Prashant, directly leads to an Ad based model for revenue that shouldn’t be a preferred model as such for most app developers. In fact the question is not whether to go Free or Paid. Question is when is the user ready for monetization. “You hit when the iron is hot, as simple as that”, Prashant says.

Prashant provided a high level framework to judge which approach should be adopted by the App Developers, based on the two parameters: “App Life Span” and “Time to Realization of Value”. Based on a combination of the two, one can decide on the high level strategy (Portfolio/Platform/Utility/Device Embedding/Brand Apps…) and Pricing model (Advertisement, Paid, Transaction based, Freemium, Development level, and so on). Check out this presentation – App Pricing Tactics for more details.

One key point that drew interest was around the Price Point for App at the launch time. Contrary to the normal belief, Prashant says, one needs to launch the app at a price point that is higher than the Median price point for the App store. That provides the App Store an incentive to showcase the App, and it is important since App Stores control the downloads more than the “content” or “quality”, at least until critical mass. Growth Curve of the app can be maintained around Median and depending on the value prop of the App, the baseline pricing can be used at sustenance phase. Another strong point of view from Prashant came around the Advertisement model, which as per him is the last to be considered. And if Ad model is considered, his advice is to “not” let the control away – “Always have your server in loop”.

While all the content and discussion, and few laughs in between, served well to our appetites, snacks were served amidst a quick “Unconference” session moderated by Rajat and Vivek. We discussed and debated on some great points. I’m finding it harder to capture every bit here and I don’t want to be partial to only what I remember right now! I hope that if you attended and are reading this, you would be able to add your takeaways in comments section! 🙂

Overall, I had a great time. The highlight of the session, for me at least, was the richness of experience and passion for products. And I met some really cool folks! Many of us hung out until later in the night and continued the conversations, which is a great sign. A small impetus can go a long way, and I’m very excited that Avinash has triggered this spark that all of us as a community have to fuel into a passionate ecosystem around products. Great initiative, ProductNation! Looking forward to the next edition on Jan 19th 2013!

PS 1: And, there was a cake-cutting for Avinash on his Birthday! Great gesture!

PS 2: Some Tweets from the session!

Does India provide a supportive environment for getting value out of innovation?

When we talk about supporting innovation in India, the first things that come to mind are the availability of capital and people with the right skills. But, the efforts and risks involved in innovation don’t make sense unless inventors and firms can get value out of their innovative activity.

When will innovation make money for inventors? That depends on issues like: Are users willing to try out new products and services? Do the capital markets place a premium on companies that are more innovative? Can an inventor protect his innovation from being copied by others, i.e., can he be sure that he (and he alone) will be able to capture the value from the innovation he creates? The right hand side of the framework below captures these “demand-side” factors.

In this article, I will focus on the last question – the issue of value appropriation – and ask a broad question: Does India provide a supportive environment for appropriating value from Innovation?

Appropriating Value from Innovation

To answer this question, I will investigate whether the Indian system for protecting intellectual property provides an effective mechanism for protecting inventor rights. Please remember that there is an exchange relationship at the bottom of the intellectual property system: the State gives an inventor a limited time monopoly to exploit her idea in return for the inventor sharing her knowledge or idea with society. So, a good intellectual property system has to balance the needs of both inventors and society at large.

Of course, I must add that from a firm-strategy perspective, appropriating value does not depend on intellectual property alone. As the graphic below (adapted from VK Narayanan’s book Managing Technology and Innovation for Competitive Advantage) shows, a firm’s ability to appropriate value from innovation also depends on its product market actions as well as its ability to innovate continuously and stay ahead of competitors. But, the intellectual property environment, and IP strategies followed by the firm form an important third prong, and these are the focus of this post.

A Historical Perspective

Independent India started off with a fairly strong intellectual property protection system. This should not surprise us because this was intended to protect the rights of British inventors under the colonial regime. However, there was growing disquiet about this system in the first two decades after independence, particularly in the area of pharmaceuticals where strong patent protection was seen as enabling multinational drug companies to extract monopoly profits from a poor country. As is well known, this culminated in our making important amendments to the Patents Act including removal of provisions to patent new molecules, and providing relatively short periods of patent protection in all cases. The new legislation – the Indian Patents Act of 1970 – is commonly credited with the growth of India’s generic pharmaceutical industry (based on an ability to create new processes for known drugs and scale them up effectively) and some of the lowest priced drugs in the world.

By the 1990s, many things had changed. Globalization was the order of the day, and India had climbed on the globalization bandwagon. International talks were on to provide a supportive environment for global trade. These talks expanded in scope to incorporate intellectual property protection. In 1995, India signed up for the GATT treaty and promised to put in place stronger intellectual property laws by January 1, 2005. India kept its promise, though not everyone is happy about this! But, the timing was right – by 2005, many Indian companies were taking innovation more seriously, and were therefore looking for stronger intellectual property protection for their inventions.

Where do we stand today?

Information

While the law changed, the procedural aspects of patenting have taken time to catch up. One of the important characteristics of a good patent system is easy availability of information about what patents have been issued. For several years this was a major bottleneck in India with such information not available online, and available only through a set of CDs compiled by TIFAC in Delhi. Even now, though there is an online database, it is nowhere as powerful or as comprehensive as the US PTO’s website. I would have thought that with all our software and IT prowess we should have been able to build something better than what the US PTO offers but…

Procedures and Process

Another important procedural issue is the speed with which the Patent Office considers applications, and the quality of the examination process. The importance of this dimension was recognized some years ago and a drive to hire and train patent examiners was launched. But, I saw a recent advertisement of the Controller General of Patents, Designs & Trademarks calling for applications for trademark examiner positions in which they are offering a consolidated salary of Rs. 25,000 per month to people with a degree in law and 3 years experience. I am sure it will be a challenge to get well qualified people at that level of compensation.

In an alternate effort to speed up the process, there was a proposal to involve the CSIR in preliminary screening and evaluation. But this was objected to by many as the CSIR itself is an active player in the intellectual property space and is, in fact, the Indian entity with the largest number of US patents.

While it’s difficult to judge the quality of patent examination, what we do know is that after an initial spurt in the speed of examination and grants, the process has slowed down again at a time when the number of applications is on the increase. Mint newspaper carried a useful graphic recently summarizing the challenge:

The Law Itself

As far as I can make out, there has been reasonably widespread acceptance of the amendments to the Patents Act made in 2004, 2005 and 2006 except for a couple of issues. The first issue is the now infamous Section 3 (d) that seeks to prevent evergreening by pharmaceutical companies by requiring a major inventive step as reflected in enhanced therapeutic value for a molecule to be awarded a patent. This has been a contentious issue almost since Day 1 of the new patents legislation, and a series of refused / cancelled patents to big name pharmaceutical companies has shown that the law has bite.

The second issue has been the issue of compulsory licensing. On March 9, 2012, the Controller General of Patents issued the first post – 2005 compulsory licence to Natco Pharma to manufacture its equivalent of Bayer’s Nexavar, a drug for treatment of kidney cancer. This has raised a hornet’s nest, as it has raised contentious issues like (1) what is a reasonable price for a drug? (2) what constitutes “working” a patent? and (3) what is the appropriate royalty to be paid to the inventor company in the event of compulsory licensing?

It’s fascinating to note that most of the controversies regarding the new patent law in India have centered around the pharmaceutical space. Globally, the big debates on intellectual property in recent times have been in the smart phone space involving companies like Apple, Samsung, and Google (Motorola Mobility). It’s almost as though we live on two separate planets! I suppose the reason for this is that India is still not a big market for high end smartphones and therefore the patent and design wars of this industry have not spilt over into India. But this is also another indication that India has failed to find a place at the high table of the most active innovation domains (see my earlier post on the areas in which India has the most active researchers).

In our obsession with the healthcare domain, we might be missing out on developments in other sectors that call for changes in our intellectual property protection laws. A new generation of software product companies is emerging from India (see my recent article in Outlook Business), and large companies like TCS and Infosys are embracing products and platforms in their quest for “non-linear” growth. But we continue to deny software products patent protection and limit their intellectual property protection to the Copyrights Act.

Awards & Enforcement

Consistent with their position in other matters, Indian courts tend to be conservative in penalties and awards for intellectual property violations unlike the multi-million dollar (or even multi-billion dollar) awards of American courts. In a way that’s good because it prevents intellectual property from becoming a separate game of corporate strategy. But the flip side of this is that there is the distinct possibility that an inventor may not receive adequate compensation for infringement of his intellectual property rights.

This become particularly critical in the case of the small inventor who anyway fights a David vs Goliath battle if the infringer is a large company with the ability to exploit all the procedural opportunities for delay available in the Indian legal system. In fact, if I were an inventor in India that would be my main fear – I may be able to obtain a patent and other forms of intellectual property protection, but will I be able to enforce my patent rights in a meaningful and timely way? Even in the US, the inventor of the intermittent windshield wiper, Robert Kearns had to struggle for years in his battle with large US auto companies (see the graphic below); I shudder to think what would happen to an equivalent inventor in India!

As we go forward, there will also be a need to ensure greater consistency in judicial decisions in the intellectual property domain. Without any disrespect meant to our honourable judges, I can see that in some of the recent judgements they have struggled to cope with the technicalities involved. Not too far in the future, when we have a critical mass of intellectual property cases, it will help to have a single court at the appellate level as has been done in the US.

Conclusion

In the 1950s and 1960s, we saw companies like Xerox and Pilkington Glass that established monopolies in their respective industries based on technologies which had strong patent protection. Today, the pace of innovation in most industries has hastened to the extent that companies need to innovate continually to derive maximum benefit from their innovations. But, intellectual property rights continue to provide the first-level protection for innovator companies.

As India develops a modern industrial economy, and more companies depend on innovation for their competitive advantage, our need to provide an appropriate level of legal support to enable innovative companies to capture the benefit of their innovations will grow. In this, our priority should be on improving IPR-related information flows, better processes and procedures, and enforceability, and on shifting our attention beyond the healthcare industry.

Original article can also be accessed here(from Juggad to Systematic Innovation).

India has a drought – not of Investors, but Customers

I came across this rather misleading article by a New Investor in town, that India has a Series A drought. I think its a bit sensationalist and misleading and drinks a bit of his own coolaid and shifts blames on others, but I’d agree with the article on one count – Yes there is a drought.

I am going to start this off on the right foot. This whole venture funding phenomenon is about at the best 15 years old in India. Whenever i sit with the guys who really understand business and even remotely talk about the things we talk about – they give me a dazed and confused look. You know why? Venture capital is nothing more than a bank – a bank which specializes in lending to private companies. I cant think of a single self-respecting business man who built his business based around what the money lender thinks he should do. If Startups today are talking about funding – as their only big milestone – there is no one to blame but the loud-mouthed investors who have positioned themselves to be the focus point for these early stage entrepreneurs.

Now coming back to the topic. We see the following happening in India:

1. Compared to 7 years ago, everyone knows what a Startup is.

2. Mainstream media has accepted Starting up as a perfectly acceptable choice of career – they are dedicated shows and show hosts who think they are celebrities.

3. Almost every well known Investor (Startup Bank) has an office in India.

4. Angel Investment is on the rise and its raising angels in the country right now. I seem to be bumping into more angels than Entrepreneurs sometimes – its scary.

5. The Govt causes a fuss from time to time but predominantly has stayed out of what they dont understand.

So What’s missing?

Are there great ideas? Yes

Are there great teams? Yes

Are there great products getting built with world class UI? Yes Yes Yes, andYes

Are teams bootstrapping/saving up/ getting a bit of money to get off the ground? Yes

Is there ample Series A happening? Yes, but Not Yet at scale

Are there exits happening? Not Nearly

Read the Complete post here

Start the revolution in Healthcare at StartupWeekend, New Delhi

Until the dawn of this decade not many people would have thought of transforming the way dismal healthcare system works in India let alone doing it over the course of 2 days but this is about to change as the Startup Weekend comes to Delhi on 7 Dec with a sole focus of encouraging entrepreneurs who are passionate about revolutionizing the healthcare system in India. The event will provide an excellent platform where business people, doctors, designers and awesome developers can come together and take first steps towards developing the next big thing in healthcare!

The agenda for the weekend is jam packed with keynote addresses from eminent speakers, exciting pitch sessions, intensive coaching from renowned mentors and enjoyable networking sessions. The event will be attended by leaders from health and start-up fraternity including Chavvi Gupta (Co-founder YoPharma), Subinder Khurana (Mentor, NASSCOM Emerge Forum), Paul Singh (Partner, 500 Startups), Maniraj Singh Juneja (Co-founder of MadeInHealth), Zachary Jones (CEO of Portea Medical) and Maninder Singh Grewal (MD at Religare Technologies).

Here’s an idea of what Start-up Weekend Delhi Health is going to look like from 7th December to 9th December 2012 at the American Center on KG Marg. All attendees will have an opportunity to pitch at least one idea in 60 seconds.

Please make your arrangements to be at the venue late into the night on Friday and Saturday. If you need a couch to crash on, start talking to other participants when you get to the venue. We will provide dinner on Friday evening, Breakfast/Lunch/Dinner on Saturday and Breakfast/Lunch/Snacks on Sunday.

Whether entrepreneurs found companies, find a cofounder, meet someone new, or learn a skill far outside their usual 9-to-5, everyone is guaranteed to leave the event better prepared to navigate the chaotic but fun world of start-ups. If you want to put yourself in the shoes of an entrepreneur, register now for the best weekend of your life!

Post Contributed by Abhimanyu Godara 

Day 2 of NPC: Attempting to Steer in the Right Direction

As NASSCOM Product Conclave 2012 drew to a close, Sharad Sharma reiterated that product technology will eliminate poverty in India. The social consciousness and import of this statement, usually reemphasized as electoral slogans of gharibi hatao by politicians, points to envisioning a future in which the role of product technology encompasses not only growth of global companies, impacting the world (changing the world!), in India but also its increasingly central role in the nation’s development. M. Rangasami is the visible face of NPC, curating sessions with childlike enthusiasm. He wants to pay back his home country, from which he grew up for the first 20 years of life, something substantial and impactful. And he sees product technology as one means, as it is likely to explode in the coming years. The Valley has about 30% plus of Indian cofounders in startups and innumerable successful product executives and entrepreneurs. If they are inspired by MR to pay back to the nation, imagine its impact. In a way, NASSCOM Product Conclave brings some of them into the sessions to inspire the product entrepreneurs in India.

India—what is happening really?
As predictions are glorious of the future, what is happening on ground in India? What prompts envisioning a game-changing future for product tech? Maybe success of companies like InMobi. Naveen Tiwari, InMobi founder, was generous with his time to explain how InMobi succeeded and was seen in the hallways talking to people wanting to strike a conversation. In the breakfast session, he explained the InMobi way of global growth and scale. InMobi did not go after developed markets like US and Europe to start with. They identified huge white spaces in markets like Southeast Asia and Africa where customer needs were identified by online sales first. Then one of the founders would typically fly to that country to understand the market. This is not an easy task and over time, InMobi would hire a local person to run its operations. And thinking big and not content with growth, the InMobi team constantly brainstorms on how to usher in say 10x growth. Any big achievement starts with thinking big and following it up with risky initiatives. And you should stay undaunted by failure and missteps. There was a mention by Niel Patel, founder of QuickSprouts in his keynote in the evening, that product ventures don’t succeed at first iteration. They turn successful at third iteration. And product ventures cannot hit scale on a template model like services. In addressing the press, to showcase apps that promise to be game changers, Sharad Sharma said, “TCS showed the way and everyone followed it [in services]. But in products, it cannot be done.” Each story is different and each endeavour unique. Naveen Tiwari and InMobi can inspire product entrepreneurs to think of huge possibilities if one goes cracking. And identifying the sweet spot to achieve that takes multiple iterations. Deep Nishar, the star product manager at LinkedIn, earlier in the keynote, pointed out that no first iteration was successful. For example, PayPal started initially to enable payments on handheld devices and then changed to Internet payments. YouTube started as a video dating site and became a social video site later. Some have vanished on the way too, due to various reasons.

Where is the market?
Market evolution and customer adoption are crucial to succeeding in a product venture. Deep Kalra’s story is well known. When Internet was still in nascent stages, he started a web-based travel site. Sensing that opportunity exists outside India, he first served NRIs travelling to India. It took close to five years to find that customers will go to Internet to book tickets in India. Effectively, MakeMyTrip took off in India only in 2005. Indian product technology skill sets are not in question. But is the market ready for your offering? That is another question to keep in mind. Apps are exploding. Child prodigies are pouncing on to that space. But where will apps lead India into? Will it stay a diverse apps market with thousands of apps or will something like a global rage app (say Angry Birds) come out of India?

The kind of pertinent questions that are asked at this stage is how to move to the next stage. A vast number of sessions addressed challenging questions such as pitching right to the investor, a novel reverse pitch for investors to find suitable entrepreneurs, how to take mobile apps global, hiring the sales people, and metrics-driven marketing. When the question to Deep Nishar was put forth on what to focus upon to build a business in products, he pointed out to disruptions in enterprise software and building over it. His take was that enterprise products could be tested in India and taken to the rest of the world. The sense one could get out of these types of propositions and expert speak is that the market is in a flux. Enormous product tech activity is happening. But for some products, the market has to mature (adopting Indian products in enterprise) or be created for others (for example, SMBs). Deep Nishar pointed out the new smart phone like iPhone and Galaxy as not overnight innovations. A combination of earlier developments only results in a new innovation. Palm top, touch screen, iPod all combine in a new visual and spatial thinking to result in an iPhone. Can you think of a combination of such innovations to create something new and create a new market for those products?

Building products for India or the world?
A common prescription of experts like Amar Goel and Deep Nishar is that you stay close to the customer for whom you are developing the product. There is another school that thinks customer care shouldn’t be needed as the product should be simple and self-explanatory for users anywhere in the world. Deep Nishar laid seven components of a product to create a product bliss. Simplicity is one overarching principle. He opines that too many choices would make the product unattractive. Focus on select features and build on them. He showcased several LinkedIn features to validate his statement. For example, when LinkedIn was on mobile, the team did not adapt Web into mobile. They sought to understand what LinkedIn would look like on a mobile and created a new look. And sensing that customers log on to mobile devices such as iPad and smart phones early in the morning or late at night, news was added to mobile LinkedIn. Moreover, a feature shows the day’s appointments too.

Given that there is a possibility of Cloud to build a product and sell it all over the world, what kind of products could be developed without needing customer in proximity is an innovation that could be thought of. And most Indian product companies now have a global market. But scale is the question.

More questions than answers
By showcasing successes outside India and bringing in product developers like Tarkan Maner of Dell Wyse who has sold his company to Dell for a billion dollars, there is an endeavour to instil right thinking and point to pertinent directions. And by engaging several people in the ecosystem to understand their experiences of what worked and what hasn’t provides a clarity picture for the product entrepreneurs. At this moment, though, there seems to be more questions asked than answers given. The important need of the moment is asking the right questions. So it is the hope that answers will evolve and such answers would lead to a product tech revolution, as in MR’s prediction, or it would even answer India’s societal concerns of eliminating poverty, in Sharad Sharma’s extrapolation.

Both predictions are not imaginary but understood from the success of products and its greatest impact in the United States. The wealth that Bill Gates created is being channelled into health care concerns of the world and when iPhone 5 was released, there was a report that its sales across the world would contribute a significant percent to US GDP. Such developments set the context for India to take the cue and look ahead.

Contributed Venkatesh Krishnamoorthy, Product Tech Ecosystem Enthusiast

The Product Ecosystem in India is at the Inflection point…

We have been long hearing that the product ecosystem in India is at the inflection point and will grow significantly over the next few years (different consultants look at 2015, 2020 or 2025 to be that period :)). More than we hear this, we do hear lot of people talking about how the ecosystem is constrained, a number of challenges that exist and that India is not yet a “start-up” nation. Sure they have lot of data to support these as well. I also had more or less the same picture in my mind for a long time, but this is fast changing as I see some quality action in this space. Below are my quick observations on the “product ecosystem in India”:

1. It’s not just evolving, it’s happening: The product ecosystem has finally arrived and that too with full force. There are over 3,000 start-ups in the country today and 500 new start-ups are taking birth every year. The interesting fact is these start-ups are not a replica (or “copy”) of a globally successful company, but are truly innovative companies who are trying to address a genuine pain point (in their own way of course) in the global or domestic market. Most of the top VC firms globally have made commitments to India market, industry associations are aggressively looking at the start-up space, global incubators and accelerators are eyeing the Indian entrepreneurial landscape.

2. Modern IT is the new buzz word: Modern IT (Cloud, big data, social and mobility) is the new buzz word in the start-up space. While Indian ecosystem may have lagged behind in the traditional IT areas (don’t have enough data to prove this though) however these modern technologies are whitespaces worldwide and surely Indian start-ups do realize this. Over 70% of the new start-ups formed in India are focused on modern IT. In fact most of the 40 start-ups I met recently were based on modern IT. It is interesting to note the way these start-ups are defining use cases based on convergence of these modern technologies (cloud + Big Data OR Social + Mobile OR Social + Big Data etc.) and competing with some of the top companies worldwide

3. Indian entrepreneur is equal to a confident entrepreneur: I must say I was thoroughly impressed by the confidence that most of these start-ups had while talking about their vision, mission and the company. In my recent meetings with start-ups, it was fascinating to note how well prepared each of these entrepreneurs were, no one fumbled on the “tough questions” and everyone seems to believe thoroughly in what they were doing. While some of them went to the extent of being arrogant about this, most of them were flexible enough to take feedback and keep going

4. Indian start-ups as leader in their own niches: “No, we do not have any competition”, “We are the market leaders in this space”, “We haven’t come across a company like us worldwide” were very commonly heard statements during my recent meetings with start-ups. Of course they had a lot of data to prove this as well. Everyone was eyeing a large opportunity and a bigger market share in the times to come. I think we certainly have a few billion dollar companies in making from India

5. Who says enterprises only prefer working with big IT companies: This was a perception (at least I had one) that large Indian enterprises only prefer working with bigger IT companies. However, it was thrilling to note that many start-ups today work with some of the biggest Indian enterprises including Airtel, SBI, ICICI, Reliance, and many others. Some of the start-ups have also extended the customer list to include large global enterprises. Many of these engagements are enterprise scale and the pipeline for many of these start-ups looks very strong

I am personally thrilled by the progress seen in this landscape (and can go on writing about the same :)). While the ecosystem may have been weak for the last decade, that does not hold true for the current decade (beware consultants :)). It is time that we start recognizing this and help accelerate the ecosystem faster. Obviously, start-ups will need more support from the industry, associations, government as well as VCs/ angels/ incubators to evolve faster from the current state.

 

The upper hand of the desi entrepreneur

Everyone knows that India is a tough place to start a business. India is at #132 among 183 countries in the ease of doing business index. A lot has been said about the disadvantages of starting a business in India. I’m not here to talk about that. Pick up any newspaper and you will spend an entire day reading about what’s wrong about India.

I’m going to talk about the advantages of being a desi entrepreneur. Here are certain things that worked well for me, and I guess they will work well for others as well. I call them the 3Cs –  Cost, Convenience and Culture

  • Cost – The #1 reason startups fail is because they run out of money. The most important goal of a startup is making sure it tries various products and markets before running out of money. In India, it is way cheaper to build something as compared to other countries. The proponents of Lean Startup Movement say that the initial days of a company are spent in validated learning and discovering your customers. If you burn money slowly, your get more runway to learn and discover. Simple.
  • Convenience  – The extended family culture in India is a blessing for wannabe entrepreneurs. In western cultures, you are expected to leave your parents as soon as you become an adult. There is no pressure for young Indians to leave their parents. This could be huge. The first few years of a startup are extremely stressful. You end up working 80 hours a week and having your basic support systems taken care of is godsend. You don’t need to worry about paying your rent, preparing your meals, etc. What could be better that having a home-cooked, healthy and delicious meal after pulling out an all-nighter?
  • Culture – Startups and entrepreneurship have become hip lately, but a vast number of Indians are already entrepreneurs. Every kirana (independent grocery store) shop is an example of entrepreneurship. Look around yourself. You will find numerous friends and relatives who are entrepreneurs. It is more natural career choice than most other parts of the world. The mental block of starting something of your own is lower in India compared to other parts of the world.

So what are the other advantages for being an Internet entrepreneur from India? Leave your thoughts in the comments below.

Should we aim for quantity or quality in Indian startups?

I had a very good discussion with 2 folks over the last week about the current state of technology entrepreneurship in India. The rough estimates from multiple sources indicate a varied number from 250 (low estimate) to 1000 (high estimate) technology product startups each year in India. Compared to that, the US produces tens of thousands and even Israel beats India by having 3-4 times that number.

There are a few folks in the ecosystem that suggest that we should focus on fewer but better quality startups in the technology space. They have some strong points in their argument which include a) the total amount of funding available in the system will only support 50-100 companies annually b) if more companies were to be started, more will fail, which will deter more folks from becoming entrepreneurs and c) there are not too many experienced entrepreneurs & seasoned executives who can tackle issues of scale yet.

I fall on the other camp and my focus is to get more people to buy into the religion. I agree with the premise that most startups fail and that’s the nature of the beast. That has not changed much (or at all) with the number of accelerators or incubators in the last few years. Startups die for multiple reasons and many of them are not easy to fix.

The main reason I think we should focus on quantity first is so we can increase the pool of risk-takers in India. Entrepreneurs take the most amount of risk in the ecosystem. We need more of them, in fact more than the system can really handle. So how do we address the arguments from the “Quality first” side?

1. Most product entrepreneurs I meet in India (I meet a new batch of 5 EVERY week) dont really want to build a company to exit. They would prefer to build strong profitable companies and run time for a long time. They do need some funding initially when they are ready to test a few of their hypothesis. Many build products that take a few pivots to get right and most operate in markets that take long to mature. So what if the ecosystem can only support 50-100 currently? We should be able to find ways to get the not so successful ones to pick up, dust-off and get on the horse again. The other point I make that we really have a lot of money sitting on the sidelines in India, with a fairly immature angel investment ecosystem. Each week I meet one new person interested in investing in technology companies, usually a technology executive at a large software company like Microsoft, SAP or VMware. They are enough to get our entrepreneurs started and build good companies.

2. If the percentage of startups that succeed is fairly constant, then the argument for more startups is even stronger. If we increase the pool of startups and the failure rate is still a constant, we should get more successful startups. The failure rate has not dramatically increased or decreased over the last 5 years, so if we have 2000 startups and a 99% failure rate we will still have 20 successes vs. 250 startups and 95% failure rate.

3. The best way to have “serial” entrepreneurs is to have more people go through the experience once. Regardless of whether they failed at their first startup, the success rate of a repeat entrepreneur is dramatically higher. They are more experienced, seasoned and more willing to understand the importance of persistence.

I believe that we need more, not less technology startups overall to help our ecosystem grow dramatically