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Indian Product Entrepreneurs: Your Time Has Come

Posted on Monday, Dec 5th 2011

We have discussed the topic of technology product companies from India on this blog for many years now. In 2012, finally, we will see the first major crop of Indian entrepreneurs playing on the global stage. I can say this with confidence based on my first hand experience mentoring a number of serious and promising Indian product entrepreneurs in the 1M/1M program, one of whom, Freshdesk, has just raised financing from Accel Partners.

To put this evolution in context, let me offer you both some historical commentary, and also a bit of a blue-print of what is working, and why this is going to be a major trend, as opposed to a one-off happenstance.

For the longest time, India has been the world’s IT and BPO back-office. Body-shopping was the original term used to describe this phenomenon, which later got upgraded to a more refined term: outsourcing. It used to really bother me, especially in the mid-nineties, when I started my first product company, and went through hell to get it funded. Eventually, in early 1999, NEA funded Intarka. I got kicked out by an incompetent CEO brought in by my investors. Thankfully, it did not end my entrepreneurial journey.

In 2005, when I started blogging, the Indian Venture Capital industry was just getting started. Suddenly, a lot of money was chasing India, but most of it faced the Too Much Money, Too Few Deals problem for a number of years. In addition, the lack of a seed funding eco-system, coupled with the inherently risk-averse Indian mindset, limited the entry of product entrepreneurs into the system.

In early 2008, I wrote a scathing article in Forbes called The Coming Death Of Indian Outsourcing, criticizing the Indian IT industry for being unimaginative. In fact, between 2006 and 2008, we’ve had numerous discussions here on India’s innovation gap, why we didn’t have product companies, the need for product companies from India, and the need for incubator funds to facilitate product companies.

In the last three years, the most important positive development that has happened for the aspiring product entrepreneurs in India is the success of Sridhar Vembu’s Zoho. My 2008 Forbes column, The Smartest Unknown Indian Entrepreneur brought the Zoho story into focus and introduced the world to a distinctly different model of building companies, and finally, successfully leveraging India to build products for the global market, undercutting a large incumbent software vendor with huge muscle.

Well, Zoho does everything that you would do with Microsoft Office. It also has a hosted customer relationship management service that is free for very small companies and only costs $10 per user per month for larger ones. It competes with Salesforce.com, which charges $65 per user per month.

Marc Benioff, chief executive of Salesforce.com, has made an offer to buy Zoho for an undisclosed amount. Benioff seems appropriately nervous, since Salesforce.com’s sales and administration costs are high, eating up most of his earnings. Can he afford to compete if Zoho undercuts him at such a dramatic scale?

Vembu has turned Benioff down.

Many venture capitalists want to invest. Vembu’s situation is one that every entrepreneur dreams of. You don’t need money. VCs are chasing you. Freedom is delicious, and Vembu knows it.

Vembu has a very exciting opportunity ahead of him. What the Chinese have done in manufacturing, he is showing that the Indians can do in software: undercut U.S. and European software makers dramatically. Not in information technology services. Not by body shopping. Vembu has done something few Indian entrepreneurs have been able to achieve–build a true “product” company out of India. This is not a head count-based business model.

Since my February 2008 story, Zoho has crossed $100M in annual revenue. And most importantly, Sridhar has become the hero of the Indian product entrepreneurs.

Today, as we celebrate the financing of Freshdesk by Accel Partners, we celebrate, also, a new generation of Indian entrepreneurs who are ready to compete with global players, especially in the realm of Software-as-a-Service (SaaS). Particularly, we celebrate the arrival of a quintessentially Indian threat to US companies flushed with venture capital, and spending gobs of money on marketing, while  the Indians bring their products to market in lean, scrappy, capital-efficient, bootstrapped ways. Add to that the fact that Silicon Valley investors, presently, are out of love with B-to-B and enterprise software, and the opportunity for Indian entrepreneurs and VCs to fill that gaping hole seems wonderfully rich.

Freshdesk’s arrival on the scene has been rather inelegantly greeted by its No. 1 competitor, Zendesk, whose CEO Mikkel Svane called the company ‘a freaking rip-off’. Well, in software, very little is patentable, and most ideas have numerous implementations. Apple stole the GUI from Xerox, while Microsoft stole it from Apple. So, Freshdesk has rather calmly responded to the Zendesk accusation by asking customers to judge for themselves.

The real issue, though, is that Freshdesk’s pricing is difficult for Zendesk to compete against. The latter is a heavily venture-funded company, and it faces the possibility that its customers might deflect to a cheaper, but perfectly good new competitor. Time will tell how the rest of this story unfolds, but it is clear that Freshdesk wants to compete with Zendesk in the domain of affordable SaaS for customer support catering to small businesses.

You see, over the last decade, over 1000 SaaS companies have been launched in the United States. Some of these have become very large, like Salesforce.com, others have been acquired by major players (Webex by Cisco, RightNow by Oracle, SuccessFactors by SAP, PayCycle by Intuit). The SaaS movement is now in full swing. Those larger players have paved the way. Today, the opportunity in front of the Indian companies is to ‘rip-off’ existing, successful concepts and build significantly lower-priced solutions in various domains. Be it talent management, be it email marketing, be it payroll software – there are numerous proven concepts for you to simply ‘arbitrage’.

And, I can tell you with certainty, today, that it is happening. It is happening within the 1M/1M crucible, right under my rather sensitive nose. And, it will happen more and more, as companies like Freshdesk find greater success, offering assurance to their compatriots that it CAN be done. Indians, can, after all, build product companies, from India. And, in the age of online marketing, they can also, successfully, market and sell without the need for expensive sales forces that have typically put them at a disadvantage.

Yes, Indian product entrepreneurs – your time has come to play on the global stage.

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Great news Sramana & a fantastic article, I love this " And, in the age of online marketing, they can also, successfully, market and sell without the need for expensive sales forces that have typically put them at a disadvantage." … time has come to play on global stage … very much indeed have been waiting last 15yrs ….or so ….since success of service corps like Infosys,Wipro,HCL led to this perception 🙂 about product entrepreneurship.

Bharath Yadla Monday, December 5, 2011 at 7:08 PM PT

The entry barriers to Saas are low, the sustenance barriers are much more difficult to scale.

Indian companies need to re-look at the Saas business model. At our company we did not attempt a rip-off of any idea or concept, rather we took our experience in enterprise HR software to build a viable Saas product and priced it realistically for the Indian market. We plan to carry the same pricing to the global market, and are hopeful to enter that arena sooner than later.

Sandeep Todi Monday, December 5, 2011 at 10:42 PM PT

The term ‘rip-off’ has been used with sarcasm, Sandeep.

Neither Freshdesk nor Zoho ripped off other competitors. They took some ideas, enhanced them with new, cutting edge functionality, and have built compelling products.

Sramana Mitra Tuesday, December 6, 2011 at 5:58 PM PT

Will be great if larger Indian service companies adpot a working model with the startup product ventures, this way can be win win for all…

Akshay Shah Tuesday, December 6, 2011 at 1:51 AM PT

And product companies need not raise big capital too if large service companies give them a chance to work together!!!

Akshay Shah Tuesday, December 6, 2011 at 2:13 AM PT

Good article! This is the reason why I moved back from the US in 2005 to start a SaaS product company called DeskAway (www.deskaway.com). We are bootstrapped and profitable and envisioned the SaaS/Cloud boom back in 2005 while most of the companies focused on IT outsourcing and remote web development projects.

Sahil Parikh Monday, December 12, 2011 at 12:17 AM PT

Definition of 'Product company' itself is a continuously evolving one given that every big/small enterprise is becoming 'solution' centric. There will sure be a lot to join, make big and really excel since customers worldwide have accepted to pay for 'solutions' than for products/services. Indian Entrepreneurs have only to gain as the local market itself is growing faster and attractive – giving them necessary boost to bootstrap and expand everywhere in the world…

mhebbar Monday, December 12, 2011 at 3:46 AM PT

Sramana – another great article but I don't reach the same conclusion as you seem to. Specifically, I don't think that the approach being taken by Indian software firms is good for the industry (your article implies that you approve). The Indian software company game is "my wage rate is lower so I can offer products / services at lower prices while copying your ideas". The reason I don't like this is that the software industry needs innovators, not imitators.

For example, isn't Freshdesk an imitation of Zendesk? While I have no affiliation with either firm, it sure seems that the Zendesk CEO is right, no? Even the websites are similar!

Same thing about Zoho. Help me understand why it is not an imitation of Google apps and sfdc? Their products are cheaper but are they substantially better?

My point is: if you are going to steal the idea, then at least make it better. Otherwise the industry will stagnate.

Your point about Apple stealing the GUI from Xerox (to make your larger point) is spot on. BUT Apple *greatly* innovated on the GUI front. They stole the touch screen interface idea but changed it immensely. They weren't the first to the mobile phone business but their products are *vastly* superior. By contrast, Indian hardware and software products are not. They are simply cheaper. And frequently, the products are crappier because the UI's suck. The same is true for Indian services firms. Their work is frequently lower quality and marked with constant personnel turnover.

What am I missing? Where is the innovation in Indian software (and services) companies? If we keep copying each other (in the software business) then it is bad for the industry as a whole. And in any case India will soon be forced to cede this low cost advantage to places like Vietnam.

Nimish

Nimish Mehta Monday, December 12, 2011 at 8:57 AM PT

I do approve, Nimish. This has always been the history of technology – ideas often get produced and technology is very, very expensive, mostly out of the reach of the smaller businesses.
The biggest upside of this trend is that technology products and services are becoming affordable for much smaller companies.

Companies like Zoho and FreshDesk are not JUSt copying, they’re also innovating (in their case, they have adopted the social CRM trend in a big way). I don’t see ANY problem with any of that, let alone stagnation.

Also, in theory, yes, India may have to cede that advantage to Vietnam, but that is a long ways away. If you think the eco-system is weak in India, it is much weaker in South East Asia, except perhaps Singapore.

Sramana

Sramana Mitra Monday, December 12, 2011 at 10:28 AM PT

Nimish,

While your point is well taken, it is important to start somewhere. If this provides an opportunity to build products, then it has to be taken up.

Because it is very important that the 'ecosystem' develops in India. Which means more folks start product firms, more folks work in product firms, more folks have product firm skills (product mgmt, product mktg, customer development etc.). Once you have folks working and seeing product firms around, innovation will surely follow.

Even now, we see more e-com startups as compared to product startups in India and fresh grads (large majority) still want to join established services firms. Changing this to get the ecosystem going is important.

Srini

Srini Chakravarthy Tuesday, December 13, 2011 at 2:59 AM PT

There is a very good analogy in what China has done on the hardware side, btw. Companies like Huawei started off doing outsourced work, but are today major innovators … I don’t see why India cannot follow that model as well. And various other geographies …

Sramana Mitra Tuesday, December 13, 2011 at 12:55 PM PT

Nimish, your concerns about innovation are well placed. However, Indian made SaaS products while innovating on cost (which is not something to be brushed off), are getting innovative in features as well. You will see new breed of products in the coming months that will distinguish themselves not only on price but also on the new set of features and their ability to meet needs of niche market segments.

These SaaS products will also fill the wide gap between the enterprise products that have limited customization and custom applications that are expensive and hard to maintain.

Senthil Wednesday, December 14, 2011 at 7:51 PM PT

@ Nimish, do not agree with your view about indian companies just copying products and bad in UI. Do checkout http://www.moodler.in and see for yourself the UI design and whether the idea is original

Christie Thursday, December 15, 2011 at 3:17 AM PT