sarath naru apidc venture capital fund
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Sarath NaruAPIDC Venture Capital FundVentureast Tenet FundThe Biotechnology Venture Fund
Post lunch calisthenics!
How many are currently in the IT services business.
How many have thought of getting into the product business but not proceeded further.
How many have the ideas and plans for an IT product business but are short of funding.
TOPIC: “Stay with the service business!”
(Alternate title: Sarath Naru’s Hara-kiri)
Sarath NaruAPIDC Venture Capital FundVentureast Tenet FundBiotechnology Venture Fund
Talk flow
1. Why stick to the service business.
2. India strengthened strategies for getting into the product business.
3. Case studies.
4. Funding options.
1.Why stick to the service business?
My proposition!
– The first myth to be broken: mix your service business with a product business, don’t drop it.
1.Why stick to the service business? Apparent issues with mixing.
Product:– Understand customer needs– Design product– Develop product– Get beta customers
Promotion:– Sales force oriented to product
sales– Distribution network– Promotion spending
Price:– Cookie cutter ‘design’ for
competitive price
Product is service– Customer proactively gives
needs– Design from customer– Product devpt by customer– No beta customers needed
Promotion:– Sales force more tech oriented.– No distribution network– Neg. promotion spending
Price:– One-off price for each sale
Product Business Service Business
1.Why stick to the service business?
Why mixing ‘services’ with ‘products’ works!
Use India’s ‘service’ delivery strength to deliver products competitively!
Design products that have a large service/ integration/ customization component – Plays to the Service strength
Learn the customer needs better by providing services to them first – Your service customers are your best window.
3.Mixing services with products works!
Some key global companies that mix services with products.
IBM : products and consulting services Oracle: Database platform and implementation
3.Mixing services with products works!
Indian experience also proves it works!
COMPANY PRODUCTSTCS Banking, manf.g and
health
I-FLEX Corporate & Retail banking
INFOSYS Banking
POLARIS BANKWARE
ORBITECH (Polaris) Financial Products
2. How to use India strengthened strategies for better product biz.
Myth No. 2: The best product opportunities are in the overseas markets (where we will lose on marketing), while our domestic market is small !
Myth No. 3: There are well entrenched product businesses already that will be difficult to dislodge.
2. India strengthened – Break myth No. 2 Brazil & China domestic product biz indicates a big opportunity in India.
Brazil China India
Total sales - $ mil.
7,700 7,400 8,200
Services-% 56 58 80
Products-% 44 42 20
100% 100% 100%
Exports-% 1.5% 5.5% 76%
Dom. Prod Sales-$ mil
3,311 2,960 220
2. India strengthened – Break myth No. 2 Brazil & China domestic product biz indicates a big opportunity in India.
Brazil China India
Pc’s; per 1000 pop
44.1 15.9 4.5
ICT Expend; % ofGDP
8.3% 5.7% 3.9%
2. India strengthened – Break myth No. 3, ’Well entrenched competitors’. True, there are no large Indian Product companies in India or Overseas (DQ survey)
Top ten Indian companies (domestic and exports) revenues: Rs 927 crore.
Domestic vs. Export = Rs 357 crs vs. Rs.608 crs
Top three: i-Flex, Infosys and Tally account for: Rs 632 crore.
Next largest product revenues: – TCS: Rs 66 crs– Polaris/Orbitech Rs 60 crs – Ramco >Rs 50 crs– Aditi >Rs 50 crs
2. India strengthened – Break myth No. 3, ’Well entrenched competitors’. Brazil & China show that we can beat MNC’s on our home turf
Domestic Brazilian product companies in areas such as financial products, ERP, telecom, etc ahead of MNC’s.
Domestic Chinese product firms dominate in accounting software, ERP, operating systems adapted to Chinese language, etc.
Opportunity for Indian IT companies to build products better suited to local conditions ie.,
– ERP, – accounting software,– Telecom– Local language computing– SME applications
Company Sales Origin Company Sales Origin
Microsoft 362 US Founder 438 Cn
SERPRO 372 Br PuTian 186 Cn
Comp As 260 US Legend 175 Cn
EDS 240 US DongFan 134 Cn
CPM 204 Br ChonRan 126 Cn
Accenture 194 US ChangTin 125 Cn
Oracle 182 US T.DongFa 115 Cn
SAP 124 Ger Yian Tai 107 Cn
Politec 104 Br CVIC 94 Cn
Consist 77 US Top 93 Cn
Microsiga 72 Br IBM 78 US
Brazil - $ mil China-$ mil
Local companies have bested overseas competitors in both Brazil & China. -
2. India strengthened – Break myth No. 3,
Strategies - Case studies:
Integrated Softech: Product design services biz morphing into tools aid design, testing, and add-on modules to ‘clients products’.
Indus Vision Systems: Leverage the cost advantage involved in implementation/ customization
NMS Works: Address a domestic market first before targeting overseas markets.
Chennai Kavigal: A pure domestic play – best understand customer needs!
Moschip semi conductor: Gain advantage thru products that are close to being a service.
Funding for such ventures:
Ready to fund early stage product biz. We like to be the first VC investor ! Three early stage funds:
1. APIDC Venture Capital Fund – Broad fund
2. Ventureast Tenet Fund – IT & Telecom for the ‘digital divide’
3. The Biotechnology Venture Fund – early stage life sciences plays
Thank You!
31.Piggyback off service businesses to build a product business2.use the sevice/Implentation/customisaton componant of the product as our compettitve advantage
With substantial investments and the long period of incubation required, it is tough for upstart product companies to survive.
The cushion has come from services, sometimes by accident and sometimes by design. Infosys managed to invest in Finacle because of its large services revenues. i-Flex looked toward services to be its bread and butter when it was developing Flexcube. Pune-based Kale Consultants has a slew of products for the airline and banking industry that bring in 30% of its revenues. The rest comes from services, which includes outsourcing (that uses the company’s own products) and a managed process services business, both of which are essential to keep the cash register ringing.
There are different opinions, however, on whether the twain should ever mix. Companies like Kale, i-Flex and Infosys have managed to run both the services and the product model. Subash Menon, chief executive officer of Subex, differs and would prefer to hive off the services arm into a different company altogether.
4. Build a base with the domestic product market first before going overseas.
In fact, the two big majors—i-Flex and Infosys—had a clear and very closely matched go-to-market strategy that has been very successful: India—ME and Africa—Europe—finally the US, in that order.
Other companies are beginning to make sense of and adopt similar go-to-market strategies.
Bangalore-based telecom software product company, Subex Systems, realized that carriers in the US and Europe demanded that the company should not only show proof of concept, but demonstrate the product’s ability to handle a 4-5 million subscriber base. For a new product company like Subex to straightaway pitch for such clients was almost impossible. So, Subex went for clients in India, Africa and the Middle East with a subscriber base of 2 lakh customers. It went on adding such customers till larger customers were willing to look at them. Even though the domestic market accounts for barely 10% of Subex’s product revenues of Rs 25.5 crore, the company handles almost all the important carriers in India—BPL Mobile, Bharti Cellular, Escotel, Hutch and Idea Cellular. Today, Subex’s clients have a subscriber base of 6-7 million.
4. Focus on the needs that are below the radar of the big players: ie SME sectors needs
SME sector forms a significant percentage of the Indian software and services industry and the contribution of this sector will be crucial for India to retain its competitive advantage and sustain future growth. As per NASSCOM estimates, approximately 50-60% of the industry revenues will be from the SME segment by 2008.
A key issue !
John Kenneth Galbraith:”entrepreneurs and academics & researchers have very little in common”. He sums up the difference by referring to the business philosophy of his friend, Ralph Flanders, a machine tool manufacturer: “I got to the top in my business by getting up earlier than anyone else – working harder than anyone else – inventing a machine that made a great deal of money, and ….
by marrying the daughter of the owner”.
2. Lack of funds or lack of opportunities?Comparing the Silicon Valleys
Start-up Activity
Human Talent
Venture Capital
Global Links
Universities / R&D Institutions
Taxes & Regulations
Composite
Britain 3 4 4 2 4 4 3.45
Finland 3 4 3 3 5 3 3.45
Israel 5 4 5 5 4 1 4.25
India 4 3 2 4 2 2 3.05
Singapr 2 3 4 5 3 5 3.20
Taiwan 4 4 4 5 5 5 4.35
Source: D. Rosenberg, The Cloning of Silicon Valley
2. Global lessonsEntrepreneurship- survey
%
Argentina 7.8 Ireland 1.2
Australia 11.1 Israel 4.2
Belgium 2.4 Italy 5.7
Brazil 12.3 Japan 1.3
Britain 5.2 South Korea 14.3
Canada 7.9 Norway 7.9
Denmark 4.5 Singapore 2.1
Finland 3.9 Spain 4.5
France 2.2 Sweden 4.0
Germany 4.7 US 12.7
India 6.3
Source: GEM, Kauffman Center for Entrepreneurial Leadership
Global Entrepreneurial Monitor survey of entrepreneurial activity prevalence rates measures the percentage of adults either starting a new business or considering starting one (2000)
1. Indian domestic product opportunity hardly exploited.
3.Mixing services with products works!
Indian experience also proves it works!
COMPANY PRODUCTSTCS Banking, manufacturing
and healthI-FLEX Corporate&Retail bankingINFOSYS BankingNUCLEUS Finance sector.POLARIS BANKWAREORBITECH (Polaris) Financial ProductsADITI eCRM productRAMCO e.Applications/ERP
3.Mixing services with products works!
Why mixing ‘services’ with ‘products’ works!
Product:– Understand customer needs– Design product– Develop product– Get beta customers
Promotion:– Sales force oriented to product
sales– Distribution network– Promotion spending
Price:– Cookie cutter ‘design’ for
competitive price
Product is service– Build a product for your existing
service Customers– Design & develop based on his
service requirement input.– Beta customers are your
current customers! Promotion:
– Pick products that require little Sales force more tech oriented.
– No distribution network– Neg. promotion spending
Price:– One off price for each sale
Product Business How a Service Biz serves!
1.Why stick to the service business? High Product Export potential projected will also drive domestic markets
NASSCOM-McKinsey (2002) study projected US$ 10 billion for export of software products and technology services in 2008.