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The X Factor in Startup Ecosystems

By April 5, 2017Article

Building a thriving ecosystem takes a lot more than having a lot of startups in the same geographical area. After years of working with iSPIRT visiting technology communities around the world, I have learned that the capitals of innovation are blessed with an “X factor” that sets them apart.

To illustrate my theory, consider Chennai. Few experts would deny that the city has emerged as the capital of SaaS startups in India. But why?

I’ve identified five elements that have enabled Chennai to become an epicenter for business innovation. These essentials fused into an “X factor” that has drawn startups, talent and funding to the city’s ecosystem:

1. A Destination

The coast near Chennai

My early memories of Chennai date from when it was “Madras.” I was probably seven years old and my uncle was posted at the Tambaram Air Force station. When we traveled from Delhi to Bangalore by train, the GT Express would halt in Madras for 5 hours as the engine was changed. Our uncle would pick us up and we would visit one of the nearby beaches. Even as a child, the beauty of Chennai captivated me. So when NIIT placed me in a Madras software company, I felt thrilled to settle in the area –just as so many hundreds of other eager new graduates do every year. Chennai’s attractions have enhanced its appeal as a business center, which has helped it to compete for India’s best and brightest talent, year after year.

2. A Tentpole (or Two) 

Two of India’s bellwether SaaS companies are based in the city: Zoho and Freshdesk. These two firms alone account for approximately $400 million in revenue, $100 million in funding, and more than 4,000 employees.

More significant than their revenue or workforce, however, is the fact that these two “tentpole companies” have allowed a massive ecosystem to take root at their feet. Many SaaS companies are now leveraging the advantages of growing in their shelter. And as more companies settle down, the advantages of being part of the ecosystem grow exponentially.

3. A Mafia

In the early days of Chennai’s software industry, whenever we talked about software products, we talked about Ramco. It was probably one of the fastest growing companies in 2002. The company was fighting SAP to sell ERP software and making a big impact in the user community. I remember that there were around 60 ERP companies at one point. Other notable companies in Chennai at that time were Polaris Software (Banking) and MyAdrenalin (HR, Payroll). Apart from these companies, there were a few IIT-Madras incubated startups as well.

This mafia of major players provided talent, investors, leadership, funding and funding to help foster growth among the local up-and-coming SaaS set. For example, the ZOHO mafia (Girish/Freshdesk, Arvind/Zarget, Sridhar/Credibase, Krish/ChargeBee) has created many founders (around 42, says Quora). The other Vembu brothers are also still going strong. Clearly, ZOHO has played an important role in laying the groundwork for Chennai’s SaaS ecosystem.

4. A Confab

In the early days of India’s startup ecosystem, very little action took place in Chennai. The conference changed everything. The event fostered the fledgling ecosystem by getting all startups under one umbrella in 2008. The event was at IIT-Madras and it was packed! You couldn’t squeeze one more person into the speaking halls. The man behind the show was Vijay Anand. There were others, of course, (nothing in our ecosystem is a one-man show) but Vijay did a magical job of getting it all started.  Wikis were used quite extensively first in Chennai for Proto: I’m yet to see another event, even in these event-rich times, which uses Wikis extensively.

For me, attending Proto gave me tremendous exposure to the startup community. I got to see Ashish Gupta surrounded by many people and later on got to know that he was one of the founders of Junglee.  Some well-known companies like Myntra, iXigo, Drishti (Now Ameyo), ValueFirst, iCreate (Now Fintellix), Novatium, etc launched their products at Proto 1. If Proto was alive today, it would have probably been the biggest enabler of the startup ecosystem in our country. Pity that it isn’t, but we need to remember that the movement actually started in Chennai.

From these events grew a community. EMERGE arrived on the scene after launching in Dehli and became a roaring success. So many people took ownership of the event locally that it ended up almost completely driven by people in Chennai. It was at EMERGE that ZOHO won an Innovation Award for the work that they were doing to hire freshers and train them. They continue to do so and it’s also very impressive to see the ecosystem that ZOHO has built in Chennai. 

5. A Buzz

In 2014, I was in Chennai for some playbook roundtables. It was around the time of SaaStr and it hit me: Two large SaaS companies are already based out of Chennai and many other SaaS players like KiSSFLOW, UnMetric, Indix, Chargebee and Zarget were all nearby. It became clear to me that the city had the DNA needed to build strong SaaS/B2B products.

Attendees at the first SaaSx

I called up Accel’s Shekhar Kirani – the force behind the SaaS ecosystem in India – and asked for his support for a SaaS meeting in Chennai. He gave me a green light so with the help of Suresh Sambandam and Girish Mathrubootham, we pulled together SaaSx Chennai less than 20 days later.

That’s buzz.

At the fourth SaaSx last month, we witnessed explosive new growth in the local SaaS market.  Chennai is blessed to have the continued support of executives and investors who believe in paying it forward  – and who understand the role of the X factor in startup ecosystems.


Avinash Raghava is a fellow at iSPIRT.

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