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Indian Software Startups Similar to Excitement of Late-90s Silicon Valley

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Editor’s note: Sharad Sharma and M.R. Rangaswami are co-hosts of the NASSCOM Product Conclave 2011 (November 8-10, 2011), a must-attend event for software product startups. Now in its eighth year, more than 1,200 delegates from 600+ companies are expected to attend. Sharma and Rangaswami share with SandHill readers their insights on what’s happening in this dynamic market – and why U.S. buyers and software execs should keep the Indian startups on their radar screen.

One of the keynote speakers at the NASSCOM Product Conclave a couple of years back was Guy Kawasaki. In his recently published book, “Enchantment,” he wrote that our Conclave was one of the most interesting that he had attended in the last few years because of the energy at the conference. And the energy this year is already really high. That’s because, in some respects, the Indian software products industry today is where Silicon Valley was in the 1997-98 timeframe.

The Valley then was in a different era of entrepreneurship. There was enormous excitement about where the future of the world was headed and the role that the Valley could play in that. India is somewhat like that in the context of what’s happening now and the role that its software products industry can play in the economic future of India and the rest of the world. It’s a very exciting time.

It’s the same kind of entrepreneurship happening today in Israel. An Israeli will say, “I’d rather not work for a big company; I would rather become an entrepreneur.” In India that phenomenon is now kicking in. Last year we saw a lot of people jump from safe jobs to become entrepreneurs. It’s happening at a small scale today but much more so than three years ago. Every year a billion-dollar company bubbles up to the surface, and that drives more and more people to entrepreneurship.

IT and BPO services (the first two waves of the Indian IT services market) focused on cost arbitrage and offshoring. But the third wave, the software products industry, has a completely different DNA. The NASSCOM Product Conclave originated eight years ago as a forum to help software product startups and entrepreneurs in this third wave become more successful.

One factor driving the growth (in revenues and in the number of emerging companies) of software product companies in India is that the world is flat. Businesses and consumers in the United States or Europe are comfortable buying software on the Web. It doesn’t matter if the software maker is from Estonia or Calcutta. It only matters that the product is better than other options. And the most important selling factor is what users say about the product.

As an example, I [Sharad Sharma] used a product from FusionChart, a small startup that focuses on data visualization on the Web. I didn’t realize until I saw a NASSCOM list of emerging companies that it was out of the back waters of India – in Calcutta. I used the product because a blogger wrote that it’s a good solution to use and they had a free version.

The impact of finicky customers

The biggest growth driver in this industry is the opening up of the Indian domestic market – Middle India, with 300 million Indians who have become much more computer savvy and in many cases mobile savvy. There’s a revolution taking place in India due to the enormous growth of mobile phone use. It’s growing at the rate of eight million users per month who are very happy to do stuff on their phones.

Selling Web-based or phone-based products to Middle India is having an enormous impact on the software products industry. Small businesses, as well as consumers, in the domestic market have become very hungry for IT, and their hunger is quickly being met by SaaS solutions.

This is a vital factor for software entrepreneurs. They need to be close to their customers to be able to come back from mistakes and learn what to do better. If the customer is 10,000 miles away, the process of lessons learned is much more complicated.

More importantly, the Indian business sector is very dynamic, very entrepreneurial and enormously value conscious. Customers all over the world who buy Indian software products get tremendous value because the software makers focus on making solutions for very value-conscious, finicky buyers.

India is ready for prime time in software products

The new breed of mobile, cloud, SaaS, CRM and other software product startups in India is ramping up fast. India wasn’t ready for this third wave of business even five few years ago because software developers until recently had to buy very expensive licensing-based software and expensive hardware. Now with the cloud, anyone in any village in India with electric power and an Internet connection can become a software developer.

India’s ramp-up of the software products industry is similar to the way it leapfrogged in the mobile space. It went from not having any landlines (the expense being equal to software developers having to buy expensive software and hardware) until wireless and mobile phones came along and freed up the entire nation to get on to this new technology. Now India is the largest market for cell phones in the world, even bigger than China.

The same thing is happening in software. Developers don’t need to buy software or hardware – they just get it on the cloud, and they are able to develop, sell and support their software using the cloud. So India is ready now for prime time because of this change in the development paradigm.

India’s unique market opportunities

India already has opportunities for software products in the mobile space that are broader than in the United States because mobile phones are much more integrated into the business and the ecosystem in India than in the United States. SMS and texting are a way of doing business in India, and SMS has been widely used in e-commerce.

Outside of the Western markets that traditionally have been the primary consumers of Indian IT services in the first two waves, India has a unique opportunity to play in the emerging markets space such as Asia and Africa – and with very little Western competition.

In these emerging markets, the infrastructure paradigm, usage patterns and cost models are similar to India. Electricity is not prevalent in some of the geographies and Internet connections aren’t quite available. The innovations that the Indians do for their own market to overcome these challenges can be deployed in parts of Asia and Africa that have similar challenges.

Learning from Silicon Valley

Because of the earlier first and second waves of IT business, the Indian software companies’ mindset has been services oriented. In this third wave, creating products requires a different mindset. Product development, product management and product releases are quite different when serving a market as opposed to a single customer. Silicon Valley leaders are ideal models for Indian startups learning this new mindset and DNA.

The upcoming NASSCOM Product Conclave has two elements. People such as Vinod Khosla and a host of other dynamic speakers on the main stage will inspire attendees with the big ideas. This will be coupled with workshops on sales, marketing and pricing so that people will leave the conference with ways to conduct business in this new products mindset.

The NASSCOM Product Conclave is a congregation point for people who are working in the software product industry in India. Click here for more information.

Sharad Sharma is the Chair of NASSCOM Product Forum and is an active member of Indian Angel Network. Most recently he was a SVP at Yahoo! and CEO of India R&D. He is passionate about cloud computing and its potential to create software product winners out of India.

M.R. Rangaswami is CEO and co-founder of Sand Hill Group and publisher of SandHill.com.

Comments

By Nimish Mehta

Hi MR – great article! I agree with your premise “Indian Software Startups Similar to Excitement of Late-90s Silicon Valley”. But there is just one thing that I would push back on: there just aren’t that many startups that fall in this bucket. In the late 90′s the excitement gripped most software (and hardware) developers in the US. I would argue that the vast majority of software developers in India continue to be employed by body shops like Infosys, Wipro, Cognizant, Tata and so on. These body shops all claim they do a lot of software innovation but as the keynote by the CEO of Infosys (at the recent Oracle Open World) shows, this is not so. That presentation – supposedly Infosys’ top thinking – was very painful to watch (they were demonstrating some type of hokey social shopping service). This is true for other body shops. It is much easier to do cost arbitrage. The business model remains “butts on a seat” and unfortunately most graduates prefer to join these firms even now.

In sum: yes there is always excitement in software startups that are doing innovative things no matter where they are located in the world. But in terms of percentages, there just aren’t that many of them in India. My startup’s experience in India has been that the people we hired to do software development (not services) simply wanted to get put on implementation projects and travel. So we moved software development back to the US.

I now know of five startups that have all decided to move engineering operations back ‘near shore’ (including a few startups funded by Andreesen Horowitz, and similar VC firms).

Nimish

By MR Rangaswami

Thanks Nimish. I have been a cheerleader and critic in voicing my opinion that India’s tech sector needs to move from IT Services to IT Products. The movement is well underway as evidenced by the 500 startup CEOs/Entrepreneurs who were with us at the Nasscom Product Conclave last year. We are now building a culture of product development and management. Of course this will take some time.

In fact we will have Vinod Khosla with us next month in Bangalore and I am sure he will inspire entrepreneurs on disruptive innovation! And you will start to see some successes in the near future.

By Sanjay Aluri

Hi,

Is there any analysis on the geographical/ cities concentration/ split of these companies within India? I agree with the preference of working for Services companies I had a tough time finding talent for my startups too, finally gave up. I found the biggest challenge of start-ups (at least in my case) as ability to pay & providing a job security which i believe is extremely important for Indians (since we are compared to services companies) which probably is culturally ingrained. Also importantly most of the people are more eager to be apart of the successful start-up upside rather than ride the journey – Risk aversion.

- Sanjay

By Satyam

While there is excitement in India too, but the ecosystem is still not mature, or limited. Many ‘offline’ core product companies need paying customers in the initial stages, getting them is not easy in India. Same with strategic angels and VCs with understanding, you can find in US. BTW, we had success in running product development shop in India over the past decade, and still continue to do. Draw to service companies is high, but we could still attract reasonable talent. Main issue is still lack of ecosystem!

By Abhishek Sawant

Hi MR, thanks for the insight. Is there any analysis of software product companies’ mortality rate over the past 8 years of the conclave and the main reason thereof?

Thanks,
- Abhishek

By Sharad Sharma

We haven’t yet done a formal mortality rate analysis for Indian software product startups. The main reasons for mortality are very similar to the Valley. That being said, there are two areas where the entrepreneurs end up spending a lot more time building out their ventures. One is to do with early-stage funding. This is because the early stage funding ecosystem (angel and VC) is still under-sized for the amount of activity that exists. This forces companies to embrace bootstrapping in a bigger way than in the Valley. The second area which requires more attention is to do with getting early adopter traction in the business sector. CIOs and other business buyers tend to be wary of startups though this culture is slowly but surely changing.

except that follow-on funding and channel traction.

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