November 19, 2003

Prashanth Dhulipala, a California-based software engineer, writes in response to Arun Natarajan's article, "Where Money for Start-ups Really Comes From":

Hi Arun,
Just came across this interesting write up on the new avtaar of friends and family in the world of investing.
It does make sense that tax concessions be offered to entrepreneurs who are just starting out, and who are being funded by friends and family. The question though is, what is the success rate of these startups? Probably too early to say, but it is too big a risk to wait out the results. While investing in "grey hairs" is probably tending to the extremes, I would not mind a government sponsored regulatory board that would assess the worthiness of such startups that would at least look for diluted forms of the "provens".

Thanks
Prashanth Dhulipala

October 27, 2003

Manish Sabharwal's interview to Knowledge@Wharton


In a fascinating interview to Knowledge@Wharton, Manish Sabharwal, Founder & Managing Director of pioneering HR BPO firm India Life Hewitt, provides both solid and witty insights into a whole range of industry issues: how he started out, why he sold out, why he focused on India as a market, etc., etc.

Some extracts:

Business schools as venture incubators
I think VCs who started incubators got it wrong; business schools like Wharton are the best incubators in the world. I milked the school's ecosystem. India Life was my final project in six classes. Many professors helped me think things through, and I had a group of first-year students do a field application project. I used the summer between the two years to travel to India and refine the plan, and then moved back to India straight after school.

I guess it would make a better story if I said all my professors gave me bad grades for my business plan. But they didnÂ’t; they thought it would do well. In retrospect, entrepreneurship is like hypothesis testing. You can never prove anything right, but you have to prove it wrong. Wharton helped me eliminate many potential false starts...It was a movie I hadn't seen before, and having a vision for how it would end gave me unique leverage.

India as a market
Everybody looks at India as a production base, we looked at India as a market -- and in doing that, we inhabited a different thought-world. Because we built our business in India, we were able to leapfrog rapidly into Asia -- into countries like Singapore. For me, the question as a start-up – I had raised a teeny $2 million in venture capital from the View Group -– was whether to move back to the U.S. and compete with the big boys or to do it here in India. I decided that it would be good for us to learn in India and expand outside later.....

...We were leveraging across India and Asia, and didnÂ’t have the outdated concept of "export quality". Clients found the single window attractive, which is why 75% of our client base is multinational...

..Most global players are hesitant about setting up operations in Asia because of its complexity. But coming from India, we didn’t have a problem because that is the most complex location of all. So Asia didn't intimidate us...

India's strengths
We compared the Philippines and China, and India’s price performance equation for our business is not going away anytime soon. The Indian mind is quite agile and there is an ecosystem and hinterland that is hard to replicate. I now live in efficient Singapore and believe that one of the upsides of India’s messiness and problems is creativity, questioning and a hunger for jobs.

Beyond low costs
The major challenge is getting the client to agree to what their fully loaded in-house costs are... Using India or the costs of any offshore destination to sell is very dangerous. If pricing is your only differentiator, it quickly becomes a race to the bottom. Even if you win the rat race, you are still a rat...

...We know that for now our cost structure is a competitive advantage but selling on price is a slippery slope. People come to India Life for our domain knowledge, proven track record of execution, re-engineering capabilities and so much else. Obviously price is a ticket to entry that you have to get right but there is much more to the decision.

My sense is that commoditization occurs in every business, and you’ve got to rip up the road behind you. That is why we moved from payroll to HR management, recruitment administration, performance management, training administration and other types of activities.

The need for focus
That’s the only way we can avoid commoditization. Some potential clients say that they will only give us HR if we also take travel and other operations. But that is unacceptable. It would corrupt our DNA. That is why the opportunist or generalist BPO company is dead.

Why India Life sold out to Hewitt
(The biggest challenge for India Life was) we were a start-up and our brand was hardly known. One of the biggest neutralizers of that objection was the gift-wrapping that came with our becoming part of Hewitt. We now have $1.8 billion in revenues, we handle 16 million employees globally, and have an annual IT spend of $350 million. When our customers or prospects hear that, they realize there is much more at stake than their contract....

.....You need deep pockets in this business. God has switched sides in BPO. She is no longer on the side of the best shots; she is with the biggest armies.

On dealing with a large parent
Gift-wrapping doesnÂ’t come without strings, right? ...

You’re riding a horse, and suddenly someone puts a cart behind you...

...I keep telling Hewitt that the removal of resource constraints, which was one of my biggest attractions, does not compensate for the cholesterol that comes with becoming part of a big organization. ...

...Even at this stage of Hewittization, I think it’s a net gain. A water pistol won’t get you very far if you want to meet customer expectations. In HR, the technology treadmill is becoming so hard for companies to stay on. For us it would have been impossible without Hewitt.

The inevitability of offshoring
Many of us in emerging markets like India, who vigorously fought to deregulate and break down our own walls, feel badly let down by the attempt to now build walls against us. Good economics is not always good politics -- but I have faith that this too shall pass. The economics of offshoring are irresistible. The offshoring wave may be delayed, but it is unstoppable.

Click Here to read the full interview.

"Venture Capital is not available for start-ups"


"Today, there are no true start-up VCs. Investments are happening in companies which have made cash profits and are looking for funds for the second phase of growth." says venture capitalist Vishal Nevatia of GW Capital in an interview to Economic Times.

GW Capital is focussed on mid-sized companies in the media & entertainment, retailing, and BPO sectors. Around 60% of the fund's Rs.150 crore corpus has been invested in these sectors, Nevatia said.

Click Here to read the full interview.

October 17, 2003

Why searching for The Next Big Thing is a waste of time


What's going to be "The Next Big Thing" (or its variation the "next killer app")?

Reams and reams of newsprint, web pages, conferences, and even oh-so-precious TV air time, is devoted to this topic--especially now that the "Internet wave" has subsided a bit (or rather, become more "mainstream").

Tim Oren, a Silicon Valley veteran (currently Managing Director of VC firm, Pacifica Fund ), has made a great post at his web log explaining why looking out--or listening to the "punditocracy"--for the NBT is a waste of time. "The Next Big Thing is a narrative we lay on top of the events after they happen..... (it generally) sneaks up from behind while you're trying to do your work, kicks your ass, walks over you, and either rifles your pockets or drops gold into your hands," Oren says. "Anyone tells you different, you're talking to a liar." Oren goes on to "tell a few tales" from his personal experience--at Apple and Kaleida Labs--to illustrate his point.

Oren does doubt that there will indeed be a NBT. Only that the odds of anyone "calling it in advance aren't very wonderful. Most likely, it will hit rudely from behind, when least expected".

So, what's his advice (for folks looking for the NBT)? "Find something that solves problems for real people, gets you up in the morning, and lets you work with good folks, and dig in".

Click Here to visit Oren's blog to read his full post (titled "Silicon Valley 4.0: You never know where you're going 'til you get there")

August 28, 2003

Anurag Jain, Doctoral Student at IIM-Bangalore writes in response to Arun Natarajan's article, "Where Money for Start-ups Really Comes From":

I do agree with GEM researchers in their recommendations. However, my reading is that for every 285.981 million booting up with the Fs' support, there are more than double/triple that figure (that exact number would be interesting to know, as that would be a proxy indicator of the potential of economy) who couldn't get off the track due to the non-availability of even basic capital (say 1700$ as mentioned in article). So, yes, we do need to take measures that will enhance the availabilty of financing, more so to enable the wanting to 'cross-over'.

August 22, 2003

Where Money for Start-ups Really Comes From



By Arun Natarajan

Here's what the irrepressible Guy Kawasaki--former Apple executive and CEO of Silicon Valley investment bank Garage.com--says in his Forbes.com column in answer to the question "What are Venture Capitalists (VCs) doing these days?":

"Mostly VCs are looking for companies with three "provens": Proven teams, proven technology and proven sales. Ideally, they'd like a team that's sold a company to Cisco for $7 billion, won a Nobel Prize with its technology, and is profitably selling $12 million worth of stuff a year. That's an early-stage deal. Unfortunately, using these parameters, no VC would invest in anything. Oops, there goes the next Yahoo!, Google, eBay, Netscape, Apple, or Cisco... In any case, it's tough to get an investment these days."

The situation in India is not too different. "Investors like grey hairs now," says a recent Businessworld article on Private Equity investments in India (issue dated August 11, 2003). "This realization shines through once you look at the list of founders and promoters who raised money in the last year. It's a list of the grey and the grizzled--guys who have fought a hundred battles and lived to tell the tale," the article adds. Not just the experience of the founders, but the age of the company also seems to be important: Indian VCs have hardly made any first round investments over the last 18 months.

OK. Since professional venture capital is unavailable, where are entrepreneurs who are just starting out getting financing from these days?

Of the estimated 286 million entrepreneurs who started-up in 2002 (in 37 countries), only 19,000 received venture capital funding, according to the Global Entrepreneurship Monitor (GEM) study. Conducted by US-based Babson College and London Business School, the GEM study was presented to the United Nations in April this year.

So where did the money for starting up the remaining 285.981 million of these ventures come from? Answer: Friends and family.

While 43% of these "informal investors" provided less than $1,700 per investment, the total financing raised by entrepreneurs through the friends & family route amounts to a staggering $271 billion.

"Many entrepreneurs waste valuable time by prematurely seeking seed capital from formal venture capitalists and come up empty handed almost every time," says Bill Bygrave, a professor at Babson College.

Such "grass roots" investments from friends and family are the key to developing a thriving entrepreneurial economy, says the GEM study report. Interestingly, the report goes on to recommend that governments in developing countries seeking to support entrepreneurial activity, should not focus their efforts--and incentives--in trying to duplicate a US-style formal venture capital industry. Since most investment in support of new business formation comes from friends & family, these governments should focus their efforts on encouraging informal investments, such as tax reduction initiatives. "Nations with higher social security taxes, high marginal rate of income tax and high taxes on property and capital have fewer informal investors," the GEM researchers insist.

Here's hoping that the central and state government agencies in India that are busy floating and investing in venture capital funds--and simultaneously heaping rules and taxes on start-up businesses--pay serious attention to these reports!

Agree with the GEM researchers? Disagree? Do send in your thoughts to arun@tsjmedia.com

For more information:

Click Here for inks to the GEM study reports and its recommendations to the UN.

Click Here to read the full Businessworld article on Private Equity investments in India.

Click Here to read Guy Kawasaki's comments on recent VC investment trends (among other quips).

June 23, 2003

Raman Roy on the evolution of India's BPO industry--and his baby, Spectramind


In this 2-part interview to Knowledge@Wharton, Ramon Roy, Founder & CEO of pioneering third-party BPO firm Spectramind, talks about the evolution of India's BPO industry. Especially interesting are his thoughts on why third-party BPO firms can succeed in the face of the trend among MNCs to set up captive centers.

Here's just one extract from this fascinating interview:

K@W: What was the principal objective with which you started Spectramind, and to what extent has this been satisfied?

Roy: We had very clear objectives in setting up Spectramind. We wanted to demonstrate what could be done out of India. We were all big believers in the capability of the Indian workforce. I wanted to be able to tell my grandchildren, “Your grandfather played a role in creating this company.” I’m not trying to say we weren’t trying to make money—that was a driver as well. But that was not the main driver. It was the idea of creating something new in India, and the ability to say that we contributed to its creation. That is why partnering with Wipro was a movement in the right direction. There were some things we could do as a start-up – but this business requires deep pockets. It requires something more than business acumen, and Wipro has played a big role in bringing that to the table.

Click Here to read Part I of the interview.

Click Here to read Part II of the interview.

What VCs look for during "due diligence"


According to David Hornik, a partner at August Capital, if a VC is engaged in due diligence on a company, it means that the VC finds something sufficiently compelling about the business proposition that he or she views it as "worthy of further investigation". While the specific business being investigated will dictate where a VC puts emphasis in the diligence process, the information reviewed is generally the same stuff across businesses and among investors, he says in his posting at VentureBlog and goes on describe the typical categories that VCs investigate.

Click Here to read the full posting.

June 03, 2003

Guy Kawasaki's Q&A column in Forbes



Guy Kawasaki, the irrepressible founder of technology investment bank Garage.com, now answers start-up related questions in his Forbes column.

Couple of Q&A extracts from his latest column:

Which comes first, product or market? Should I find a product and then devise a way of selling it. Or should I look for an unexploited market and then find a product to fill it?

Call me old fashioned, but you should create the product first. It could be because you want one yourself. Or because the bozo company you work for won't do it. Or because, simply, you can build it, so what the hell (sometimes if you build it, they really will come).

My belief is that to be successful, you have to love what you do. I don't care how big and untapped a market is, if you don't love it, forget it. Life is too short to do something you hate. Go with your heart. The money will follow. Even if you fail, at least you failed doing something you love.

I'm interested in starting my own business, but as an eighteen-year-old, how do I get investors to take me seriously?

Ageist as this may seem, you pretty much can't if you are referring to professional investors. You should stick with the 3Fs: Friends, Fools, and Family. If you insist on trying professional investors (and I do hope you prove me wrong), then surround yourself with adult supervision.

Load up your board of directors and board of advisors with people with gray hair, no hair, and stents instead of nose earrings. And hire an adult who's old enough to shave to run the place.

(Extract ends)

Click Here to read the full column at Forbes.com

Taking the bulldog spirit to the next level



A recent Mercury News article provided inspiring profiles of two Silicon Valley entrepreneurs who fought personal adversity to keep their start-ups going.

Here's a short description+extract from one of the profiles:

In February 2002, when San Francisco-based enterprise software firm Determine Software, was in the process of raising its next round of venture funding, its CEO, Scott Martin, was diagnosed with leukemia. Doctors gave him a 14 percent chance to survive.

(Extracts:)

But Martin stayed focused. He worked his laptop and phones from his hospital bed as he received treatment... In October, Buck French of JP Morgan Partners went to visit Martin, who was then undergoing chemotherapy to prepare for a bone-marrow transplant. With Martin's immune system compromised, French was forced to put on a mask, a gown and gloves before he could negotiate terms with the sick patient....

French says Martin's passion impressed him....... Sure, health was a big concern, but on the flip side, said French: "If this guy survives, he's a winner," he remembered thinking at the time. "This is the type of person you want to invest in."

(Extracts end)

Result: JP Morgan joined existing Mohr Davidow and New Enterprise Associates to invest $12.25 million in Determine's new round of funding.

Click Here to read the full Mercury News article.

May 12, 2003

Interviews with Engineer Entrepreneurs


(The following is an adaptation of a recent blog post by K.Satyanarayan)

In a thought-provoking series of interviews with engineer entrepreneurs, Jonathan Rentzsch provides a fascinating insight into the mind of the software creators who turn entrepreneurs and establish businesses to sell their products.

The interview with Peter Sichel, founder of Sustainable Softworks, is particularly interesting. Here are some of the thoughts shared by Sichel:

Sustainable Softworks has a very low overhead and responsive software business model that supports a few of us to make a decent living. We sell directly to customers and encourage them to participate in improving our products.

As we learn from experience the model will adapt, but our purpose is to serve customers and build mutually beneficial relationships, not to grow for its own sake or maximize shareholder value.

I think my most important lesson is don't be afraid to try living your dream. Even if you start small and it doesn't turn out the way you expected, the experience will be worth it.

I think some people confuse marketing with sales and advertising. To me, marketing is understanding customer needs and communicating what you have to offer effectively. So my marketing principles are:

  1. Try to create solutions that people really need and will use everyday.
  2. Try to solve problems that other people are not addressing.
  3. Take the time to build relationships and trust so that people are comfortable dealing with you.
  4. Price the products to offer a lot of value


Two resources recommended in the interview are

  • Marketing High Technology, a book by William Davidow, an who became marketer extraordinaire and put the young startup Intel on the Map, and


  • Hacking the Press, a series of articles by Adam Engst of TidBITS outlining press relations and ways of getting noticed by the press, for software product companies.


April 24, 2003

A VC revisits dot-com land



Bill Gurley of Benchmark Capital took a little time off recently to examine what had happened to the world of "dot-coms"--a category treated as the ultimate pariah by VCs everywhere for the last 3 years.

Here's what Gurley says he found in his latest column :

"Amazon's market capitalization has climbed 79 percent in the past year to $9.7 billion. Yahoo, over the same time period, has climbed 63 percent to reach a corporate value of $15 billion. And eBay, the cream of the crop, is up 61 percent to reach a whopping $28.4 billion. Cumulatively, that is more than $50 billion in value for the top three players in this newbie industry, which seemed very un-business as we crashed to earth in late 2000......

Other public Internet companies are seeing a resurgence, or at least are holding their ground. WebMD, Verisign, TMP Worldwide (Monster.com), and DoubleClick all sport market capitalizations north of a billion dollars. Additionally, Overture, Earthlink and RealNetworks are hovering in the $700 million to $900 million range. Even newcomer NetFlix has seen its stock jump from a 52-week low of $5 up to a respectable $22 per share."

Gurley analyses the reasons why these companies are doing decently well for themselves and their investors in such a touch economic climate. Click Here to read Gurley's full column

PS: Interestingly, Gurley also takes a shot at the media in this article:

"Things are so good that last week Barron's dusted off its charming fondness for everything Internet with a newly negative article titled "Bubble Redux." It turns out that Barron's is quite unhappy that consumer Internet stocks have risen in value and suggests that the "real" value of eBay, Yahoo and Amazon are actually far below what their current stock prices indicate." :-)

Why (and how) Silicon Valley needs to change



Here are some extracts that I found interesting from an article in siliconindia.com by Naren Gupta, Vice Chairman of Silicon Valley-based Wind River Systems.

* Entrepreneurs need to pursue only those areas where they have unique expertise and those they are passionate about. I see too many mercenaries--masquerading as entrepreneurs--floating around Silicon Valley, looking to jump on to the next flavor of the month.

* In the last few years, VCs have assumed too much power and founders have been forced to cater to the whims of the VCs rather than follow their own instincts.

I have uniformly seen that great VCs, like Bill Draper, Bill Davidow, and others treat founders with immense respect and receive great admiration in return. They become trusted advisors, not taskmasters, to the founders.

* The expression "serial entrepreneur" needs to disappear from the technology lingo. To me this is an oxymoron. A serial entrepreneur sounds like someone who throws things together, sells the half-finished concept to an unsuspecting buyer and skips town before the truth is discovered. An entrepreneur must have the power of conviction. Bill Hewlett, Gordon Moore, Sam Walton, Ray Kroc, Bill Gates and many others worked on one enterprise their entire life and still did not feel that their dream was completely fulfilled. Yes, at times the best outcome is to merge the enterprise, but the entrepreneur's initial mindset should be a long-term commitment to the venture.

Click Here to read the full article

Selling software as a service



"In the past few weeks I have had a number of conversations with my friends in the venture capital community that have convinced me that consumers really want to purchase software as a service and not a shrink-wrapped CD offering."

So says US Venture Capital executive Charles Hudson in his web log

He goes on to add:

"I am fairly convinced that consumers do not want to manage complex applications or worry about the impact that a new application will have on his/her desktop computing environment. In a world where big businesses seem to have had their fill of enterprise software, enterprising entrepreneurs might want to take a hard look at services that customers would be willing to pay money to use."

Andrew Anker of August Capital adds in response:

"The services or ASP model is unfairly maligned because of a number of unsuccessful attempts at it during the late 90's. Those failures had more to do with the product than the model. I think the most important point Charles makes is that we don't even tend to realize that many of the services we use today (PayPal, Yahoo) are really just hosted software."

While these VCs are obviously talking about the US context, I believe that "selling software as a service" is something that is highly relevant--if not more relevant--in India.

Companies attempting to sell shrink-wrapped software in Indian constantly crib about how the Indian market is "very price sensitive". Add to that the problem of rampant piracy. Toss in the fact that the availability of affordable "always on" connectivity (through DSL/Cable) is increasing by the month. And my conclusion is that "pay per use" is going to end up as the best model to sell software in this country.

In selling the Internet to small and medium businesses, companies like ccavenue.com (payment gateway services), Net4India (ISP and hosting services) have already shown that the winning formula in India is to go for volumes with a "sweet spot" pricing. I believe it is a matter of time that this happens in software as well. What is missing so far are the "killer apps"--which address India-specific problems.

April 23, 2003

To talk or not to talk
tech with a VC



Naval Ravikant of August Capital talks about the problem of entrepreneurs reluctant to reveal details about their company's technology when pitching their companies to Venture Capitalists. He also presents some potential solutions.
Click Here to read the full article

March 24, 2003

PR lessons from my barber


I've lost count of the number of times I've seen hi-tech CEOs attempting to get the press excited about their "exclusive" tie-up to distribute some foreign company's software product in India, or their "significant achievement" in landing a SEI-Level 3 certification, etc. etc..

In most cases, after a lot of time, effort and money is spent, the end result is a one-para mention in "the briefs" section of most papers--if at all!

Don't get me wrong. It is natural--and laudable--for entrepreneurs and CEOs to be proud of each and every baby step that their start-ups make. And feel eager to tell the world about it.

However, whenever we are trying to market something (in this case, a message) it makes sense to look at things from the side of the consumers (in this case, journalists).

This is something that the co-owner of the latest "men's hair style" shop in my neighbourhood knows pretty well.

"You know what, sir? Journalists as a breed don't want to hear anything that's normal or stuff that has been done before," he says, handing me the business card of the local NDTV correspondent with contact details of journalists at The Hindu and Indian Express written on the reverse. "If I'm just another passerby on the road, they won't care for me. On the other hand, if I throw a stone at a passing bus, then I become interesting to them!" he says.

So, what is he doing with this insight?

"I'm toying with the idea of announcing that I will give free haircuts to underprivileged--'corporation school'--kids," he says. "These are boys who cannot even imagine stepping into a shop like this. Don't you think that would get some journalist to take notice, sir?"

"Or, should I do something to go with the world cup? Maybe, make some boys stand outside my shop dressed in the Indian cricket uniform and with haircuts that make them look like those of Indian cricketers?" (I had my haircut before Ponting gave Srinath, Zaheer & Co. theirs).

"I'm still groping for the best idea to go with, sir. However, I'm sure of one thing: whatever I do, must stand out. Once my unusual offer or service catches the attention of the first journalist and he publishes something, then I'm sure all the others--including the TV guys--will start approaching me on their own."

Wow! Let alone hi-tech CEOs and entrepreneurs. This guy could teach the so-called PR gurus some valuable lessons.

As for me, this is one haircut I surely won't forget! (Unlike the case of the 18th Indian software company to acheieve SEI CMM Level 3 status.)

Agree? Disagree? Do send me your thoughts.


Chit funds chip in where banks fail

The latest issue of Outlook Money has an article that explains how chit funds work including how, entrepreneurs and small businesses--who are often unable to get banks to lend to them--can use this financing tool.

Click Here to read the full article.

March 23, 2003

Interesting interview with Phaneesh Murthy

In a wide ranging interview to Business Line, Phaneesh Murthy speaks about some of the sales and marketing techniques he used as marketing head of Infosys Technologies, how he sees the BPO opportunity evolving and other related topics.

Here are extracts from the interview that I found particularly interesting:

On his pitch to global clients:
Today most large companies have their cost structures in developed countries but have the bulk of their growth markets in developing countries. I am saying I am going to try and change the cost structure to a developing country so that you can compete more effectively in the growth markets that you have. If you build that story, if you can educate the board on that story, they are unlikely to go to somebody else just because they are offering at $2 less.

On why software companies can't be into both products and services:
Except for IBM, there is no other company, which has got successfully both product and general services. Reason? In a services company, sales and marketing costs as percentage of revenues are about 6-7 per cent while in a product company it is about 25 per cent.

In a services company, engineering costs are about 50-60 per cent of revenues while in a product company it is about 20 per cent .The models are very different and it is very difficult to figure out how to make them co-exist under the same management.

At some point of time, a services company fresh into a product starts wondering if it would be a great opportunity to do a 25 people or 50 people project. "There are guys here whom I can use for the project where as they are building some products whose revenues will come in a year or two later." That's a destructive but inevitable thought.

Click Here to read the full interview at the Business Line web site.

March 13, 2003

Rediff's Ajit Balakrishnan dismisses the competition



Ajit Balakrishnan, Founder & CEO of Indian Internet portal, rediff.com, has made some pretty blunt remarks about the company's competition in his latest interview to Business Standard.

Here's what he has to say about:

indiainfo.com & 123india

"indiainfo.com overspent without having the capital. 123india which did not have enough internal management strengths. Everything for them was bought out. They didn’t have enough internal resources to craft products. Plus they didn’t have any legitimate funding--they were funded by Bombay stock brokers who are not known for far-sighted investments."

IndiaWorld & Sify

"Indiaworld was the original portal but Rajesh Jain sold out. Sify has a killer, but they’ve been schizophrenic about whether they want to be-- in the services business or the consumer business. So they lurched from one end to the other. At this moment they seem to be going after corporate business."

The best however is reserved for IndiaTimes

"Indiatimes is one tenth our size. We are roughly at 22 million and they are at 2 million, though their nuisance value is a lot because they advertise in the newspapers. Our reach--if 100 people are on the internet, what percentage comes to you--is close to 65 per cent, they are at 20 per cent. They’re at the same level as hangama.com (sic). Hangama (sic) is as big as them."...

"They’ve thrown resources enough to deplete even their full coffers. That’s an indicator of how they were late. They’ve thrown everything possible into it--money, advertising, people, deals. We are at 65 per cent and it’s impossible for them to bridge it. Their advertising in The Times of India brought them to 20 per cent."

Of course, Balakrishnan does also speak about other interesting issues--apart from his competition--in this remarkably candid interview.

Here is why he is still bullish about the portal business:

"The difference between now and last year is that the number of participants in this game has been reduced. There were 50 people competing then; now it’s down to two or three in most markets.

Secondly, online user bases in some countries have come to a critical mass. China is a case in point. All three Chinese portals have become profitable, and that’s a function of bigger user bases. The Chinese have got to 60 million. We are still around 15 million. What is stopping us from profitability is the growth of the user base."....

"The user base is normally increased by telecom investment. In the last 12 months a tremendous amount has gone into telecom in India. The second difference is the mobile connection convergence with the internet. Eighty per cent of the revenue of Chinese portals is from mobile phone users."

On the hassles of being a publicly-listed company

"One of the things about becoming a public company is that the CEO and one or two others at the top spend more than 60 per cent of their time on things that they ought not to be doing. When you’re doing it for the first time like I was, you waste too much time on investor relations. Ultimately that whole system where you have analysts--it’s all a waste of time.

Essentially there is the consumer and you. You do a good job with the consumer, he rewards you with profits and Wall Street loves you. I have told everyone (in the company) to stop looking at things from the stock price point of view. Let us go back to where we were before all this hype started."

Click Here to read the full interview to Business Standard.

March 12, 2003

Are small and medium sized software cos. doomed?



The Indian software industry is set to take shape of "hour glass".

At the top of the hourglass will be heavyweights (like TCS, Infosys, Wipro, etc.), at the bottom there would be focussed specialists (like Sasken, iflex, Polaris and RelQ).

In the middle there will be none.

This is the conclusion of an interesting article in BusinessWorld on the future of small and medium sized (SME) software companies which contributed a third of India's software export revenues (of Rs.24,000 crores) last year. ("Grow up - or get out"; BW issue dated March 3, 2003)

Here, in short, is what the article had to say:

Last year, the top 20 software companies accounted for 63% of the total export pie. Also, the biggies (like TCS, Wipro and Infosys) grew at double the rate as the rest of the industry.

Even though, US companies are taking to offshore software development in a big way, there is also a "flight to scale". Most of the outsourcing business is going to the large vendors who, in the current environment, are willing to bid for even relatively small projects.

Case in point: Bank of America, which has decided it would not do business with any firm with less than $100 million in revenues.

Industry watchers quoted by BW feel the salvation for SMEs lies in becoming focussed players. "Smaller companies with a clear focus such as RelQ and ThinkSoft have grown by over 30%," says Kaushal Agarwal of Avendus Advisors. (RelQ and ThinkSoft offer outsourced software testing services.) The article also names companies like Polaris and iflex (which are focussed on the banking, financial services and insurance space) and Sasken (which is focussed on telecom) among the likely survivors.

Sanjeev Mohapatra of Texas Instruments (India) corroborates this analysis and says that the large players do much of his company's outsourced development, because of the lack of focussed SME service providers. "Even now their selling pitch is: 'We have 50 engineers with C++ skills'. If I am looking at just staff augmentation, then isn't it obvious that I will go to big companies which can scale up quickly," he asks.

The article does point out that there is price to be paid for being focussed. "After all, some specialist companies, especially in the Internet middleware, have been badly affected by the downturn. Aztec (Software) saw its revenues drop by 70% last year, while (telecom-focussed) Future Software's revenues fell by 15% to Rs.65 crores," it says.

Despite this 'danger', Avinash Vashista of NeoIT (an outsourcing intermediary) says there is simply no choice. "The writing on the wall is clear. If you are small and have no clear focus, you are not going to survive."

Let me know if you have any thoughts on this topic.

March 10, 2003

How to sell tech to the US govt.

We keep reading about how, in the current economic climate in the US, the federal government is a better customer for tech companies than the private industry. According to recent reports, the US federal government spent more than $24.3 billion on IT outsourcing last year.

But how does a tech company (American or otherwise) sell to the feds?

A recent article in Business 2.0 provides an excellent starting point. This "cheat sheet" article includes stats, tips and profiles of the CIOs of key federal departments.

Click Here to read the full Business 2.0 article

March 09, 2003

Common problems of Indian SOHO entrepreneurs

Outlook Money (formerly Intelligent Investor) frequently comes up with articles about entrepreneurs and small as part of its "enterprise" section. The best part about these articles is that they aren't just gyan and opinion from the magazine's journalists or interviews with some "experts". The articles are based on interviews with real entrepreneurs who are "out in the field".

In its latest issue, Outlook Money profiles some of the typical problems faced by SOHO entrepreneurs in India. Click Here to read the article.

March 08, 2003

A couple of articles I read recently that would be useful/interesting to entrepreneurs anywhere:

Grist: Don't Read the Business Pages

Newspaper business pages are a waste of time for entrepreneurs, says Adam Hanft, president of an advertising and marketing firm in a Inc magazine article. Hanft feels most of the news in the busines pages is either stock-market focused or "a daily knee-jerk reaction to the story of the moment". And as for "news" pertaining to your industry, most of the time, you know all about it long before it hits the papers!

So, is Hanft recommending that entrepreneurs stop reading newspapers altogether? No. In fact, he recommends that they diligently scan all pages other than the business pages! "The rest of the paper is a rich resource, a trend trove that can tell you more about the economy and your business than you might imagine," he says.

Click Here to read the full article and find out why.

An Indecently Hasty Proposal

In this BusinessWeek SmallBiz column, Christopher Kenton, president of a US-based marketing agency, recalls the "classic" mistakes he made in preparing and pitching his first proposal.

"I won my first project based on a fixed-price bid. Not terribly unusual, except that the scope had only been defined in broad strokes. Once the proposal was signed, I was essentially agreeing to take on any hidden features that might accrue as we filled in the blanks on the scope of the project. Good for the client, bad for my business," he says

Click Here to read the full column.

March 07, 2003

More on Red Herring's death (and possible re-birth)

Lawrence Aragon, a former Red Herring staffer reports in his Private Equity Week column that Chris Alden, co-founder and onetime CEO of Red Herring and former Editor-in-Chief Tony Perkins are among the bidders for Red Herring's assets.

Also, according to Aragon this is what actually killed Red Herring:

Red Herring has been struggling for several years, after living large during the dot-com boom. At its peak in 2000, it employed more than 300 people and ran three businesses: the print magazine, a Web site with a staff in excess of 30 people, and an events department. To accommodate such a large staff, it leased two offices in San Francisco and one in New York. The pricey leases proved to be its undoing: When the bubble burst, the magazine cut its staff several times, but it still had to make large lease payments. Finally, last October, the company went through a reorganization known as an ABC (assignment for the benefit of creditors), and Broadview bought all of the assets, renaming the company RHC Media. That allowed RHC to get out of its onerous leases. It appeared to be hanging on, but once word leaked that Broadview had hired DeSilva & Phillips to sell the assets, advertisers grew skittish and Broadview pulled the plug.

Click Here to read the full Private Equity Week article

Today, I deleted www.redherring.com from the "favorites" list on my web browser and simultaneously inaugurated this web log (?!)

In case you haven't heard :
Red Herring magazine closes down
The technology business magazine, which placed special focus on start-ups and venture capital, closed it doors after a 10-year run reports Reuters.

"We were looking for a strategic partner to join our existing investors, Broadview Capital, to keep funding the company through the advertising downturn. Unfortunately, in spite of the interest of several parties, no one would commit in the timeframe Broadview required, and our only option was to cease publication to buy time to sort out our options," said Tony Perkins, former Editor-in-Chief of the magazine in his Always On-Network column.