Indian Product Companies – An Emerging Trend

As you might know, India is a country firmly positioned on the global IT map, but as a service destination. For years, outsourcing has been the nation’s primary IT activity. I deliberately provoked a debate on the subject in 2008 with Death of Indian Outsourcing. India, however, hasn’t built many IT products.

A brief primer would perhaps help put things in perspective. “Product” companies build once and then market and sell the same thing multiple times to multiple customers. “Services” companies that do custom software development have to use “bodies” to do customer-specific development over and over again, with limited leverage. Theirs is a head count-based business model. Recently, popular software-as-a-service companies have come up with the model of “renting” software over the Web, thereby offering “products” as “services” while maintaining the scalability advantage of products.

I have, personally, advocated the product direction for many years. On my blog, many discussions have been held over the years on the topic. On March 3, 2007, Sujai Karampuri, a passionate entrepreneur from India wrote a guest post that drummed up active discussion that continues till today, six years later! [Read: Why No Product Companies in India?]??But things are changing. In the 1M/1M portfolio, we have many strong product companies now. Our Million Dollar Club has several as well. And we have recently profiled India’s flagship global product company, Druva.

Druva, for the uninitiated, started life in Pune, and has created a market leadership position in the global market for its endpoint backup solution. Today, the company has moved its headquarter to Silicon Valley, and has raised multiple rounds of venture capital. Revenues have crossed $15 million.

Recent years are filled with news of India’s great entrepreneurial role model, Zoho’s Sridhar Vembu. Zoho competes with Salesforce.com, offering CRM and other SaaS services at significantly lower price points. Not only has Zoho exceeded $100 million in annual revenue, Sridhar has declined numerous venture capital investment offers as well as acquisition offers from companies including Salesforce.com.

A new business model, one that is efficient and scrappy, is emerging in India – and Zoho is just the first of many successes to come. Many other Indian product companies are hovering near and around the $1M mark.

Freshdesk
Perhaps the best example is 1M/1M Premium Member Freshdesk, on-demand customer support software-as-service. Founded in Chennai in 2010 by Girish Mathrubootham and Shan Krishnasamy, Freshdesk was inspired by a posting in Y Combinator’s Hacker News about competitor ZenDesk. Their goal to build a made-in-India  product at a significantly more affordable price with cutting edge functionality and sold around the world is a model that many have adopted since.

Freshdesk has raised two rounds of financing, the first of which was led by Accel Partners. The company’s primary competitor, Zendesk, has labeled Freshdesk a rip-off. But a long history of borrowed technology in the software industry, combined with the obvious fact that Zendesk’s pricing is significantly higher, makes this accusation ring hollow. Freshdesk has calmly appealed to customers to decide for themselves, and they have.

Freshdesk has established a precedent that existing, successful concepts can be turned into more affordable competitive products without compromising on functionality or innovation.

Orangescape
Another member of 1M/1M’s Million Dollar Club is Chennai’s Orangescape, a platform-as-a-service (PaaS) company that simplifies business application development. Formerly of HP, co-founders Suresh Sambandam and Mani Doraisamy collaborated in 2003. Looking to capitalize on the utility of spreadsheets for business, Orangescape’s rule engine provides an environment similar to a spreadsheet, where customers can model specific business patterns. These behaviors can then be deployed as web-based business applications.

Initially, Orangescape found it difficult to market their business to an audience that hadn’t yet been introduced to the idea of PaaS or software in the cloud. But in 2008, when Salesforce and Azure established and defined the cloud concept, Orangescape finally saw their idea for a centralized, large-scale adoption model take off. Their PaaS was successfully integrated with the Google App engine. It was soon followed by KiSSFLOW in 2012, a workflow engine designed for small and mid-size businesses in order to capitalize on their need for an organized system of mail and documents.

In 2009, Orangescape reached its first $1 million in revenue. Suresh, a longtime member of 1M/1M, has since successfully raised funding from the Indian Angel Network, in addition to partnering with Google.

AurusNet
Piyush Aggarwal, with his venture Aurus Networks, is a true example of entrepreneurship based on one’s own personal experience.. After enthusiastically using Stanford’s online lecture recordings in place of having to take notes during class, Piyush began to develop a streamlined and affordable equivalent to the University’s expensive online education platform.

The Bangalore startup has since grown into a cloud-based platform facilitating educational video creation, management and distribution. AurusNet allows any educational institution to offer online programs, locally or long-distance, without spending expensive financial or human capital.

Fully bootstrapped until 2011, AurusNet caters to around 20 Indian educational institutes, generating $150,000 in annual revenue. In order to scale further, they raised a round of funding through the Indian Angel Network in 2012.

InSync
Founded by Atul Gupta in 2006, InSync addresses the customer pain of small and medium sized merchants managing e-commerce businesses without integrated ERP systems. The company released their flagship product, SBOeConnect, in 2009. SBOeConnect helps e-commerce merchants worldwide integrate Magento and SAP Business One into a single all-purpose solution.

An initial partnership with SAP allowed InSync to resell the product as part of an integrated solution. SBOeConnect remains highly competitive in the market, and has attained over 80 paying Magento merchants. This bootstrapped company generates an average of two new leads per day, and revenue already exceeds $500,000.

Sapience
Yet another Indian product company to generate well over $1 million in annual revenue is Sapience Analytics. This creator of an award-winning enterprise class product designed to increase productivity and automated work visibility across the enterprise hierarchy. The company was founded in Pune in 2009 as the combined effort of four serial entrepreneurs to develop a solution to improve the productivity of organizations working with remote teams.

After bootstrapping for the first year and a half, Sapience Analytics received funding first from the Indian Angel Network in the amount of $350,000 in July 2010, followed by another $1 million in Series A funding from U.S.-based Seed Enterprises.

uniRow
Three years of work in scientific research following graduation exposed Nimit Kumar to a number of remote teams. Feeling as though something was missing, he collaborated with former classmate Vikram Agarwal in 2011. Together they created uniRow, a live collaboration platform for online learning and webinars. The high-end solution uses an adaptive video technology that functions equally well at lower bandwidth in order to serve the Indian market.

uniRow is intuitive and cost-effective, but most importantly encourages participation through its technology. By offering capabilities for text chat, video and document sharing, and group annotation, uniRow keeps attendees engaged and harnesses the power of social. Nimit and Vikram are currently focused on education, healthcare and training companies in India. In the future, they hope to scale up to the international market for webinars and training.

While these examples show that things are changing, the number of product companies is still quite small. I led a Quora discussion on the subject recently, asking people to reflect on why this is the case.

An industry observer, Balaji Viswanathan, Cofounder of Zingfin,com, wrote:

Product companies face a lot of risk. That is true of India, US or anywhere else. However, unlike in the US, Indian companies face extra hurdles:

1.        Venture System: Product companies require a strong venture ecosystem. Although, Mahesh Murthy and others are doing their part to develop a foundation, India doesn’t have the capability to fund companies of the scale of Google or Facebook. As proof of how different India’s venture ecosystem is, Sequoia India is investing eye hospitals & billion dollar phone directories, instead of funding the next, game changing product company.

2.        University Ties: Product companies need a strong university system. Google licenses its core page rank algorithm from Stanford. It also gets a large labor pool from Stanford and Berkeley. In Boston, MIT Media lab and other institutes have a huge part in seeding new ideas and innovations. Sadly, the business-academic partnership is absent in India (although it exists feebly in some place).

3.        Innovation adoption: Culture of accepting new ideas. Americans are far more open when it comes to accepting new products. Innovation and startups have positive connotations. However, Indians are more conservative when it comes to new ideas. This prevents the Indian startups from building an early market at home.

4.      Market Size: India’s domestic market for IT products is way smaller than America’s. That’s why even big product startups such as Zoho target a lot of non-Indian enterprises. But, such distant relationships are hard to establish and sustain. In Silicon Valley, Boston or NYC, the customers could be right next door.

My personal observation is that entrepreneurs are mistakenly chasing money too soon in their business cycle. If you look at the above success stories, each of them have bootstrapped their business to a significant degree before raising any money. Rather than waiting for venture capital, entrepreneurs will need to get themselves going, and step through the multiple layers of validation without putting financing on their critical path.

The sooner Indian product entrepreneurs come to terms with this ground reality, the faster the pipeline will improve.