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Growing a Software Company on a Shoestring

By June 21, 2011Article

In 1987, I started a consulting business and also began teaching at the Y C College of Engineering in Nagpur, the geographical center of India. But I had always wanted to do something on my own. But where to start? And more importantly, where would the startup capital come from?

Fast forward to 2006. My company was acquired by IndusLogic (now GlobalLogic) after 10 years of growth and success.

Looking back, I see four key factors that entrepreneurs should follow when they start to develop a software company on a shoestring budget.

Crucial keys to success

In 1996-97, I developed an idea for starting a mainstream outsourcing business. I knew it would be a difficult venture; at the time, there was no precedent for delivering services from Nagpur to companies in countries outside of India.

The first problem was how to start. I realized that all potential stakeholders (employees, investors and customers) would be skeptical as to how the company would shape up and if it could survive.

The second problem was financing. There would be no venture capital funding since it would be a services company. I had only US$4,000 to invest in the venture. Together with investments from friends, I ended up with a total of US$25,000 for the start-up.

But that was enough. I learned a lot growing my company, Lambent Technologies, to success as a standalone company and eventual acquisition. My advice to other entrepreneurs looking to start a software services company on a tight budget focuses on these factors:

  1. Create a solid, talented team to back you up
  2. Create a bigger-picture plan for your team to get involved in and generate their loyalty
  3. Your company can’t succeed as a generalist; identify the niche area you want to play in
  4. The CEO or owner must do the business development and be the foremost salesperson; don’t depend on others for this crucial activity

Acquiring and grooming the right talent

Getting the right talent became a double-edged challenge. First I had to find people who could be groomed for the job of solving problems for eventual customers.

While teaching at the college of engineering, I had observed that the normal distribution curve with respect to graduate talent from a class of 80 students was: 8-10 were really good, 20 were average and 40-50 would not count as talent. For two years, I experimented with a project that would groom the “really good” students from several classes at several colleges. I found they had tremendous raw talent in computer programming and could really perform if given some exposure.

The other edge of the challenge was that since they were, indeed, talented and would be in demand, how could I inspire their loyalty to a company that had no infrastructure or roadmap?

My strategy: I told them we didn’t have a stock plan yet but I would issue stock to them at the outset along with the option to sell the stock every six months at an increased value. This bigger picture of the company grabbed their interest and aligned them with working toward the company’s future success. As it turned out, until we merged with GlobalLogic six years later, none of them ever sold the stock. But I needed to remain prepared for the chance that they would sell it and kept investment funds on hand for liquidity if they did.

I’m pleased that all of the students in my initial two-year grooming project are still in our company today.

Taking on the challenge of finding customers

When we launched Lambent Technologies in 2000, we had no brand, were a niche player and had just 10-15 people in the company. And we could handle only one job at a time. Our dilemma was not just how to find potential customers but also how to get the message across to them that our company would do a good job for them and would be very responsive and flexible.

I determined that the best strategy for finding customers was to locate people who met the criterion of having a connection to Nagpur, the United States, and to IT. It turned out that from the 12 colleges of graduates in India, there was a pool of around 15,000-30,000 people who met that criterion.

I then set a goal for me to contact 1,000 of the people from that pool, then qualify 150-200 people who could probably give us business, be influencers for giving us business or would probably hold C-level positions later. I figured that five to ten of the 150-200 people might have a level of opportunity that I could grasp.

I selected seven U.S. cities in which to market our services: New York, Boston, Chicago, San Diego, San Jose, Los Angeles and Washington, D.C. I visited each city three days out of a month and aimed for five meetings per day. I never used e-mail or phone contacts; I did only personal networking. My goal was to move the people I visited from a formal to an informal relationship. I wanted to meet them often and be in their lowest orbit.

My shoestring budget for marketing was only US$10,000 annually, from which I allocated $750 per month for the meetings in the seven cities. I scrimped on all expenses and even rode the bus instead of taking taxis to the meetings. I also used part of the marketing budget to attend technical conferences so I could get into the circuits of professional technical people.

By the time I reached my target of having met with 1,000 people, I had also identified influencers, people with business needs that my company could solve and also people who would probably be at the C-level later.

Since the employees had not sold their stock and I didn’t need to keep the investment funds on hand for that, I used some of the remainder of the investment money to buy space and a facility for the business.

Capitalizing on opportunity and competing with giants

The next part of my strategy was figuring where the business opportunity or market would happen. My analysis was that we would hit a glass ceiling very fast because we were a small company in 2002. I wondered: could we remain a niche player? Could we work in a small technical area and build services around that? It was risky, but I believed there was at least a chance.

In 2002, mobile technology was emerging, but we were outsiders. We decided we needed to enter that area but in a virgin space. We came across Qualcomm’s BREW (Binary Runtime Environment for Wireless) technology in handsets. We debated whether that technology would have traction in the marketplace and, if so, for how long. If Qualcomm were behind it, could we get 10 customers?

Our most critical step for going forward occurred at that point. I determined we should look at the addressable market rather than thinking about how big the market would be. We developed samples and proof of concept applications. I went to the United States to track whether people wanted those applications, and it became very evident that there would be traction.

However, that also meant other companies would compete against us for this business opportunity. At that time, I was reading Marketing Warfare, by Al Ries and Jack Trout. One statement in the book was that if you’re a small company and want to fight a big company, choose your battlefield and attack the weakest point with your strongest force. You can’t win a war against a big company, but you can win battles.

I applied this concept to our situation. I figured out that there were at least 170 emerging technologies in a sector. I thought Infosys and other big companies could not go full blown with 1,000 people on all the new technologies and would only explore with maybe 10-20 people. At that size, we could compete against them with 100 of our people.

I then took another chance. I realized our employees might feel threatened that we were switching from Java and .NET to BREW. So I used my academic background and created a training program in the colleges. In one year, I had a team of 75-100 people trained on mobile technology.

We declared to Qualcomm that we were the biggest team on BREW technology and we were willing to invest in it. They introduced us to tier-one companies such as Jamdat (now EA) and Sony Digital, and we started working with them. Because Qualcomm introduced us, we ended up not having to market ourselves to the tier-one companies. So Plan A was working, but it still came down to crucial timing – at that time, the big companies really wanted to go to BREW.

Successful at that point, I began working on Plan B – developing the business for the long term. How could we take our work in mobile technology to the next level? That would require access to capital. We set goals for working with location-based technologies and started servicing mobile and location-based apps in order to move into strategic growth areas.

Beware of pitfalls

My advice to entrepreneurs about avoiding pitfalls that can cause a start-up venture to fail includes:

  1. Don’t become a limitation for your company’s growth (considering everything based on your knowledge, your background, your perspective); you must be willing to take risks
  2. When trying to play the game of being a services start-up, make sure you’re not too late or too early for the market wanting your services
  3. You need a strategy for sustaining the business once you get it started, and you need at least one back-up strategy
  4. Retention of key people will become a big problem as the company grows. You will need a landscape for providing your employees with career-growth opportunities-not just more money but bigger and better technical opportunities

At the time I began working on Plan B – how to take Lambent Technologies to the next level and develop the business for the long term – I also considered the risks or pitfalls. I found the pitfalls going forward would be the same four factors (above) as they had been during the start-up years. And taking the business of mobile technology services to the next level would require access to capital and to the professional market.

We then merged with Induslogic (now GlobalLogic, Inc.) in 2006. It was the perfect solution for long-term business-growth strategies, as it gave us access to capital and gave my employees better career opportunities.

Shashikant Chaudhary is vice president, Mobile Business Unit, GlobalLogic, Inc., a specialist in providing global software product development services from delivery centers in the United States, India, China and Ukraine. Prior to joining GlobalLogic, he founded Lambent Technologies, providing mobile solutions.

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