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India’s SME Sector Remains Elusive for Tech Startups

Posted on Wednesday, May 31st 2017

Cracking the Indian small business market for technical products and services is an uphill battle. Yet, the opportunity for impacting the country, perhaps, is the greatest by creating significant technology adoption in the Indian SME sector. Cloud telephony service provider Knowlarity and Greytip are two of the very few companies to succeed somewhat in this space.

Knowlarity’s Journey

Knowlarity is a cloud telephony service provider that offers comprehensive communication tools including, IVR, fax, and conferencing facilities. It was founded in 2009 by CEO Ambarish Gupta and Pallav Pandey in Gurgaon. They wanted to bring the equivalent of RingCental or enterprise telephony to small businesses in emerging markets, starting with India.

There were, however, two main obstacles. Voice over IP was not allowed in India and other emerging market countries. They, therefore, had to build a PSTN-based cloud telephony platform from scratch.

The other obstacle was penetrating the Indian SMB market. Small businesses in India are not only difficult to access but they are also quite price sensitive. Further, customers are uninitiated in technology’s sophistication, and have expectations of high-touch customer service. This makes customer acquisition a costly and unprofitable affair.

Knowlarity solved this problem by using indirect channel partners who were providing SMBs with computers and computer accessories. They found these partners online and its sales team trained them to sell telephony to SMBs. The indirect channel partners in turn would have sales people on the ground to sell to and service the SMBs. Listen to CEO Ambarish discuss his unique SMB strategy at this 1Mby1M roundtable.

In 2010, Knowlarity launched its fax-free email product called SuperFax. Then in 2011, it launched its flagship product SuperReceptionist at Rs 6,000 ($120) a year for a phone number that people could publish as their business number on their website and business card. However, people were not as price-sensitive as expected. So, it increased the price to Rs 30,000 ($600) a year. It also has monthly pricing options. The basic plan is for Rs 900 ($15)/month, small business plan is for Rs 1,650 ($27)/month, and the medium business plan is for Rs 3,350 ($55)/month.

In 2013, the company moved its headquarters to Singapore. It now has offices in 10 Indian cities including Gurgaon, Mumbai, and Bengaluru as well as international offices in Singapore, Philippines, Turkey, and Dubai. With 450 employees and more than 15,000 customers across 65 countries, it is now looking to expand further in South East Asia, Middle East, and Latin America.

Knowlarity’s Financials

Initially, Ambarish and his co-founder invested around $30,000 of their personal savings. They also managed to get $280,000 by sending millions of text messages for an election campaign. In 2011, they raised  a $500,000 convertible note from their friends in New York to launch SuperReceptionist.

Knowlarity has raised $42.5 million so far in venture capital from Sequoia Capital, Mayfield, and Delta Partners Capital Limited. In January 2012 after launching SuperReceptionist, it raised $6.5 million from Sequoia Capital. The next round was in August 2014 for $16 million from Sequoia Capital and Mayfield for R&D and international expansion. In its latest round in November 2016, it raised it raised $20 million at an undisclosed valuation from Delta Partners Capital Limited and existing investors. With these funds, Knowlarity plans to continue its international expansion in South-East Asia and West Asia and launch products using AI and analytics.

Knowlarity has made two small acquisitions for undisclosed amounts, so far. It acquired cloud telephony startup Unicom Techlabs in January 2014. Delhi-based Unicom had over 200 SMB customers in e-commerce, real estate, healthcare, education, and media sectors. 

In May 2016, it acquired Delhi-based Smartwards, a customer engagement platform. Its Co-Founder Shantanu Mathur is now the Country Manager of Knowlarity India and its team of six people also joined Knowlarity’s Gurgaon office.

Knowlarity was able to break even within two years. In January 2015, in my Entrepreneur Journeys interview, CEO Ambarish said that revenue ranged between $5 million to $10 million and that the annual revenue run rate was around $10 million.

In 2015, it was targeting revenue of Rs 75 crore (~$11 million). At the time, Knowlarity was targeting $100 million in revenue by 2018. However, it is far from this target. It recorded revenue of Rs 51.8 crore (~$8 million) in fiscal 2016. SME-facing companies have been struggling with slow growth rates in India, and inevitably, they look to accelerate by targeting markets abroad. In Knowlarity’s case, that push is towards South-East Asia and West Asia.


Worth mentioning in this context is another successful SaaS company that has managed to penetrate the Indian mid-market is cloud-based HR and payroll solution provider Greytip. Bangalore-based Greytip was founded in 1994 by CEO Girish Rowjee and CTO Sayeed Anjum. It had 250 large customers and a steady revenue stream in 2008 when it launched its cloud-based solution. It brought down the price of its SMB solution to Rs 10 per employee per month. But since it offered its solution only online, it could not gain any traction in the SMB segment.

In 2011, it shifted to a hybrid model where the lead generation was online but its sales team took over if they registered for a free trial. By 2012, it had a profitable model. In March 2013, it had 1,250 clients and SaaS revenue had grown from Rs 30 lakh (~$50,000) to Rs 233 lakh (~$360,000) while total revenue was Rs 8 crore (~$1.2 million).

It also focused on keeping its customer acquisition costs lower than the twelve-month gross revenue. In a recent 1Mby1M roundtable in March 2017,  Girish discussed its strategy and disclosed that it has a 75% growth rate. Based on this growth rate, we estimate the revenue in 2016 to be over $6 million. You can listen to the roundtable here.

Greytip was bootstrapped for a long time. In June 2014, it raised $225,000 in angel funding to increase its sales force and open two offices. In June 2016, it raised $5.2 million from Blume Ventures and New Enterprise Associates for further expansion. It currently has regional offices in Mumbai, Pune, Delhi, Chennai, Hyderabad, and Dubai. Its solutions are used by over 3,500 organizations.

Knowlarity and Greytip are two companies currently poised to sell somewhat effectively into the Indian SME Sector. This has been a very slow-growth sector that has caused heart burns for many Indian startups.

I believe that the company (or companies) that will be able to win this battle will eventually build a powerful business with far reaching consequences. However, in 2017, this market still remains elusive.

With the imminent death of Indian outsourcing, as I had said in my recent article, I have high hopes about the Indian SME sector’s ability to embrace technology:

“This immense body of technology-comfortable professionals will get redeployed into the Indian SME sector, bringing with them the ability to dramatically upgrade technology penetration in that sector. If we can infiltrate Indian SMEs with a million tech-savvy people who are comfortable finding technology online, evaluating products on a web self-service mode, and buying software without requiring ridiculous levels of hand-holding, India will experience an unlocking of productivity and value at a giant scale.

The coupling of the above two trends – more product entrepreneurs catering to Indian SMEs equipped with savvy technology buyers on the other side – would be the single biggest positive outcome of the imminent death of India’s outsourcing industry.”

But the Indian SME sector will take some time still to become fast and savvy adopters of technology. Vendors seeking fast growth, meanwhile, would have to look outside the country.

I do believe that in the next decade, one or more companies will crack this market and build channels to sell into SME technology buyers in India. At the moment, Knowlarity and Greytip are the two that are best positioned, given their successes thus far.

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