Don't sell Technology to Indians - Businesses or customers.

[Link-baity headline. Really a much more nuanced discussion. Your comments welcome.]

As an entrepreneur we are here now in February, 2012 in India (My startup is ClearTax, which lets Individuals e-file their Income Tax Returns.)

So here goes the question: Have there been Start-ups that have built $20M+ business in the Indian industry making and selling software products within 5 years to Indian Businesses. NOT SERVICES. No custom software, just shrink-wrapped SaaS, Mobile apps or the anachronistic desktop.

A company which has crossed 5 years of existence is no longer a start-up and is now a small or medium business. I hope to see exceptions emerging, but data points to very slow wealth creation, over very long gestation periods (5+ years).

So this doesn't play very nicely with big Venture backed plays where the exit lifetime is when the VCs have to give returns to their LPs.

Looks like Indian investing has to be done differently. Also when that start-up outlier comes, Indian entrepreneurs will then do 100 such outliers immediately after that. But we have seen businesses built off the backs of decade long rounds of investment, value creation and persistence. (Shaadi, Naukri, MMT)

Immediately after fast-followers followed at maturity to squeeze the juice (BharatMatrimony, ClearTrip, Yatra). Unless strong network-effects (Two-sided marketplace kind of plays), that would mean consumer plays are best approached from a brand building perspective?

So should I be investing my time and energy in Technology in the country? The data points to No. Offline infrastructure seems to be of greater value? Building a courier service that can do awesome fulfillment is in my opinion 10X better than starting a e-commerce company today (with hype and unattractive customer acquisition price points - TV ads? really?).

Monthly active uniques in the country is 46Million as of today. Not a small number (Tax filing population is 50 Million). Most of them haven't transacted online. Looks to me that I am missing the benefit of the great Internet distribution.

The shift will happen eventually. We'll also be lead indicators.

So what am I saying:

1. Internet Distribution = not enough yet. Mobile penetration = quite good, carefully evaluate devices and their ability though.

- Discovery on the mobile is a world-wide problem.

2. Payments on the Internet = not a solved problem. Mobile payments = most likely will nail it (like Kenya). [Really, WTF in this country. Fraud can be a huge issue, but regulation is up its ass].

- Monetization on the mobile: Operators will take 60-80% of revenue. Your bootstrapped startup won't crack a deal with Airtel unless something magical happens. Operators are like the Government.

- All other payments besides operator aren't promising today.

3. Discretionary Income is not spent online. It is spent at Cafes, Restaurants. The emerging middle class wants to go out and have a good time outside. Real life. Almost all restaurants in my neighborhood have capacity issues on the weekend. (Mostly true for the rest of the world too. Per capita restaurants in the US are much higher. Yelp much?)

4. The iPhone hugging, always connected regular people like the US aren't present in India. Eventually it'll change. Your bootstrapped startup may die till then.

5. People aren't used to paying for software. Not even businesses. This will take a while to change. SaaS changes things dramatically. Reliable Internet connectivity first though.

6. Expectation of "Services" and pricing at your business costing. Unless you figure out your dramatic growth customer acquisition engine, fast followers will pop-up who are hungry to earn a small chunk of a small market pie. They will put up a very shity site with front-end putting myspace to shame. Your Business customer won't notice the difference.

"Green shoots": Hundreds of smart kids are reading what PG is writing. They are starting up, two kids at a time. Magic will happen.

But now I am of the opinion. Figure out an unnatural advantage. Take it. Otherwise raise VC from day-one for Indian startups. Don't bootstrap because longer runways are needed.

(I don't like Indian incubators for many reasons. Don't want to elaborate here).

EDIT: A few people asked, so: ClearTax is doing quite well, we make decent money. We do offline payments, render 'human' services to high net worth Individuals and Businesses. Businesses DO pay for services. They don't easily pay for software.]

13 responses

Here is an advice. Having attempted to read your post, I would suggest that you get someone to proofread you posts. I believe you are still forming sentences in your mother-tongue and then translating them before writing. It is extremely hard to keep track of your arguments.

— aks

I can offer to edit/proofread the post. Basically because i agree with the stance and think it should reach wider.

— anandjeyahar1

Really appreciate the offer - My email is architgupta @ gmail. :-)

— Archit

Agree to a large extent. I wasted a good amount of time trying to sell tech products to Indian businesses.

— pratiroop

You are scaring away bootstrapping newbies in India. But thanks for the heads-up.
There has to be way around. We just have to keep looking.

I did visit cleartax for taxfiling last year. Like me most people have a very basic tax structure that is deducted at source. I can efile directly with a government website without spending a penny. Cleartax caters to people who would want to save more and are financially judicious and are not afraid of getting into the nitty-gritties of returns filing.
But many shy away(including me) from doing more than 80C and home loan tax saving schemes as its difficult to understand. Instead of pitching Mr.Bose love story it would be give if you can give a wizard that would portray the max tax savings that a person can do. Then keep deducting saved tax for every opportunity that he has missed. Cos ppl with a flair for saving money wont go after girls

It would be good if you can elaborate on indian incubators.

— keerthi

Classic Nonsense !

— color+

Honest and insightful blog post ! Added this thumb rule in my book.
"Indian business pay for Service , not for Software". thanks !

And yes it seems ClearTax is using "http://html5boilerplate.com/" template. Chang your favicon there ! ;)

— Rakesh Waghela

Thanks for writing in! We are big fans of HTML5Boilerplate. If twitter bootstrap had existed at the time, I'd have used that too. So as a cost cutting measure, I decided, I won't do a custom favicon until we reach a certain money target. So the day our favicon changes, it'll mean something. :D

We have software that is used to monitor remote working employees, and have a lot of interest from Indian companies (as well as companies in Russia for example). A couple of companies that wanted to purchase the software, with 500 licences, but were not willing to pay close to what we were looking for as a minimum. So as mentioned in the article, the frugality of companies when it comes to software is an issue. They definitely want our software, but the price was too high.

— Rob Rawson

I always admire the "minimal" design ! Nothing wrong having a "star" as favicon !

It was just me the "kinky developer" who spotted it out !
Regular "Bijnes" people won't even care to notice such minor stuff, given the domain you are serving !

Best wishes for achieving targets from wannabe entro ! ;)

@Rob. That's interesting. I've sat through multiple meetings where Businesses wanted us to do "cost pricing". It goes like: we calculate our costs of serving them, factor a tiny profit margin and quote a price. So I can totally see where this is coming from. Software infrastructure is not priced into the cost of doing business, unfortunately.

Keerthi,
We have taken your advice to heart. We are bringing out a wizard for tax savings for regular people. We'll try to make it non-scary and fun. Thanks for the feedback. :-)

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