Indian Product Entrepreneurs: Your Time Has Come

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.