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Copyright Lisa Clarke

There has been a lot of chatter on the Internets about unbundling of mobile apps. Tech media’s interest has been piqued by some larger brands jumping onto this bandwagon – examples include Microsoft, Twitter and Foursquare.

It’s not a new strategy. Featurephone apps companies used this for a long time.  Several smartphone app publishers have had an owned & operated network of apps right from the beginning – examples include Zynga, King, Supercell, Smule and Outfit7.  Incumbent media companies like CBS, News Corp, Viacom, Time Warner, Walt Disney and (in India) Times Internet have also had these networks for a while.  Established Internet companies like Facebook and Google have had networks, built organically and through acquisition.

I think unbundling is a strategy that has not yet been applied with vigor in the emerging markets on smartphones. I think there are potentially disproportionate advantages to be had by unbundling in countries like India, in the short- to medium-term. Why is this? Because low device memory limits (typically less than 16 Gb), low bandwidth limits (mostly 2G) and relatively high bandwidth prices result in dramatic drops in conversion rates, download success rates and retention rates as app size increases. Also, in my opinion, discovery on the app stores is easier when there is a single focused value prop (kind of the approach that Whatsapp has taken with a singular focus on messaging).

Conversion rates drop with package size.  Below is data from a global mobile analytics and advertising vendor. Data is global and is an average across all advertising products.

App Size Conversion rate
0-5MB 1.00%
5-50MB 0.80%
50MB+ 0.42%

 

Download success rate is nowhere near 100% (even on Android). The graph below is from China. I would imagine that the drop-off in India is steeper, given the greater prevalence of 2G and higher proportion of lower-end phones.

Picture3

 

Retention rates drop with larger file size. Large apps are 33% less likely to be retained after 1 month although iOS users are 12% more likely to retain an app than Android users, according to Flurry.

App sizes vary by app type and platform. Below is some data I gathered from the iOS and Play stores. Basic utilities are 1-10MBs. Communications and social media apps are 20-30MB. Most casual games are 40-50MB. Most mid-core games are 300-800MB.  From my not-so-scientific sample list below, Android apps are on average 37% smaller in package size than the iOS app from the same publisher.

chart

So, what is an ideal app size, especially in markets like India with challenged infrastructure?

The ideal size is 10-15MB globally. Idea size for an app for tier 2/3 countries (like India) is below 5MB.  500MB+ is a non-starter. At 50MB+ the conversion rates fall off dramatically.  On Android and iOS, conversion rates dip by 50% in tier 1 nations for non-game apps above 50MB.  In tier 2 and tier 3 nations, conversion rates dip by 50% for games above 15MB.

To lower the cost of loyal customer acquisition (a function of conversion rate, download success rate and retention rate), unbundling in emerging markets makes positioning more clear and therefore discovery is easier, in my opinion.  Unbundling also decreases the hits-driven nature of mobile apps businesses.  And finally, cross-promotion within an owned & operated network of apps also dramatically reduces the cost of introducing a new app into the app network.

There is a cost to this strategy though.  The engineering and products team now need to maintain multiple code-bases and roadmaps.  Initially building out the network may required multiple marketing pushes and already strained marketing budgets may not be enough to get apps into into the high ranks on the app stores.  Unpopular functionality, separated out into an app, will not get downloaded/used.

Some things to keep in mind if you are thinking about going down this route: You need to maintain a strong brand identity across all apps in the network to build company value and cross-promotion ability.  Also need a common ID system to build and leverage customer data across multiple apps. And a good cross-promotion engine is needed. Tapjoy and Flurry are leaders in this category but there are lots of other options.  To reduce app package size, you will need to rationalize your third-party SDKs, remove most heavy media files and reduce functionality dramatically.

COLOURBOX9732315

[Published on Yourstory.com]

India’s enterprise software industry has been slowly bubbling since the 1980s but has generally failed to deliver a large number of high impact, high value companies.  We do have some companies that everybody talks about – iFlex, Tally, Zoho – but these are far and few between. I believe that we are seeing a new scalable wave of enterprise software companies coming out of India and there is a potential to deliver several high impact companies over the next decade.  Here at Lightspeed Venture Partners, leveraging our global strength in enterprise technologies, we see opportunities to partner with companies that are cloud-native and have cracked a global market – examples of current active categories in India are CRM, analytics/big data, marketing automation and infrastructure.

India’s enterprise software industry has to be looked at separately from the outsourcing/BPO firms like Genpact, Cognizant, Tata Consulting Services and Infosys.  Starting in the 1980s and early 1990s, this services industry is now mature and at scale.

Separate from the outsourcing/BPO industry, India’s enterprise software industry (or “products” as it is called by many here in India) has evolved from the 1980s to now in what I think can be divided into four waves, coinciding somewhat with three trends: 1) enterprise software moving from desktop to client-server to cloud; 2) evolution of Indian industry post 1991 liberalization; and 3) increased experience of Indians at successful US product companies.

Picture1

WAVE 1

Tally-

 

 

 

The first wave of software products came along in the late 1980s/early 1990s – the focus was desktop products for business accounting.  Companies in this wave include Tally Solutions (still the undisputed leader in SME accounting software in India), Instaplan, Muneemji and Easy Accounting.

WAVE 2

Infosys-finacleramco

5I-flex_Solutions_logo.svg

G  _institute_Newgen Logo

 

 

 

 

This generation of software products emerged in the 1990s as projects within outsourcing firms or from internal services arms of larger corporates. Infosys launched Finacle. Ramco Systems launched its ERP. And Citibank launched CITIL which became i-Flex.  Other notable companies included 3i Infotech, Cranes Software, Kale Consultants, Newgen Software, Polaris Financial Technologies, Srishti Software and Subex.

I remember attending CEBIT in Hanover in 1989 when many of these Indian software and consulting companies were first introduced to Europe.

The late 1990s saw a wavelet of ASP (application service provider) startups in India, most of which got crushed after the dotcom bust.

WAVE 3

eka-nexus-funding-147 zycus-logo

Manthan-Systems-Logo

talisma logo

 

 

 

 

 

The 2000s saw on-premise India-first companies such as Drishti-Soft, Eka Software, EmploywiseiCreate Software, iVizManthan Systems, Quick Heal TechnologiesTalisma (for which I did some initial product management work while at Aditi Technologies) and Zycus get started.  This was the era of 8-10% GDP growth in India which lasted till about 2010.  Many of these companies had a direct sales model. After India, they generally expanded into the global South (Africa, Middle East, SE Asia, Latin America) where they found similar customer requirements and little competition from Western software companies.  Bootstrapped in their earlier years, some of these companies grew over several years and have broken through to $25 million+ in annual revenue.  Key verticals have traditionally been BFSI (banking, financial services and insurance), telecom, retail/FMCG (fast-moving consumer goods aka CPG in the US) and outsourcing/BPO.

Having been around for over a decade, some of these companies generally face the challenge of migrating to the cloud, upgrading user experience to modern Web 2.0 levels, and expanding addressable markets beyond the global South to the US and Europe.  We have seen some of these companies get venture funded, typically at much later stages in their go-to-market relative to US-based software companies.  Several of these companies have received funding in the past couple of years, ostensibly to “go international” and “go cloud,” not an easy task, especially when done together.

WAVE 4

Starting in around 2010, a new wave of cloud-native companies were launched, perhaps following the slowdown in India’s economy and the growth/acceptance of SaaS as a delivery model and as a sales model in the US.  These companies have grown and now could power beyond the $10M/year revenue glass ceiling.  The reason for the scale potential being higher for this cloud-native wave is the cracking of efficient online sales channels to reach markets globally.

Why this decade? Because there is an increased willingness of companies around the world to search for and buy software products online.  There is now a large pool of founders who have worked at global enterprise product companies (e.g. Indian offshore development centers or in Silicon Valley itself with companies like SAP, Oracle, Google, Microsoft, Adobe) and have experience in product management, marketing and sales.  And finally, there has been a dramatic reduction in the capital required to bootstrap enterprise software companies.  Everybody uses AWS and software from other startups to get started. It’s quite meta.

Wave 4 companies have the opportunity to break through the barriers that previously relegated Indian enterprise software companies to selling to the global South. We have seen Atlassian (Australia), Zendesk (Denmark) and Outbrain (Israel) do this move to Western or global markets.  Zoho is an Indian company that is rumored to be at $100 million per year revenue scale – they have been part of many of the waves I have described.

This cloud-native wave, I believe, can be divided into two dimensions. One dimension is the platform/tools companies versus workflow automation (applications) companies. The other dimension is India-first companies versus the global-first companies.  We see opportunities in all four quadrants, each having its own challenges.  We are interested in looking at companies in all these segments, with a bias toward companies which have reached some scale ($1M ARR) and are going after large addressable markets with aggressive sales & marketing execution.

Applications Markets: Enterprise (retail, banking, telecom, BPO, ecommerce)
Examples: CapillaryPeel Works, Wooqer, Sapience
Categories: Employee productivity, verticalized
—————————————————
Markets: SMB/mid-market
Examples: Framebench, Freshdesk, Kayako, MindTickle, Unmetric, Zoho
Categories: Mature SaaS segments eg CRM, SMM, horizontal
—————————————————
Platforms/ Tools Markets: IT dept, developers, SMB, media
Examples: Exotel, Knowlarity, Germinait
Categories: Telecom infra, app dev tools
—————————————————
Markets: IT dept, developers
Examples: Browserstack, FusionCharts, Little Eye, Mobstac, Webengage, Wingify
Categories: app dev tools, marketing automation, security
—————————————————
Model: License+AMC, direct sales, resellers Subscription, telesales, online sales (SEO/SEM,content mktg)
India-first Global-first

 [Please note this is not a comprehensive list of companies nor a view on which companies we admire or not]

Global-first companies coming out of India have started to crack or have cracked the online sales model, using SEO, SEM, content marketing and telesales.  They are typically going after mature segments where buyers are typing keywords into Google at a high rate. This online selling model results in an SMB and mid-market customer base.  In many cases, founders may have to move to the US to pursue direct enterprise sales.  It’s worth noting that scale markets are not necessarily all in the US – companies could get built with a general global diffusion of customers, perhaps with help from resellers.

I see India-first companies typically going after newer high-growth companies in India (e.g. ecommerce, retail) and startups.  Some go after Indian arms of multinationals (MNCs).  This is a reasonable early adopter market to cut a product’s teeth on, but has limited ability to scale.  Of the newer crop of India-first companies, very few go after large enterprises in India – there are exceptions like Peelworks and Wooqer.  The model here generally is SaaS as a delivery model but not SaaS as a sales model (ie direct sales, not self-service).  Many software companies are essentially verticalized.

We continue to see a few high-ticket, high touch direct sales enterprise software companies which are global-first, including companies like Cloudbyte, Druva, Indix, Sirion Labs and Vaultize. Many of these start out with teams in both Silicon Valley and India or transplant themselves to the Valley over time.  I think this will continue to happen but we will not see the explosion here that we are seeing in the number of companies utilizing low touch online sales models.  I see several high-impact companies coming out of these direct sales enterprise software startups as well.

I think this dichotomy between India-first and global-first companies is interesting and makes India a distinctly different type of investment geography, different from Israel (which has very small domestic market where tech companies move to the US very quickly), different from China (which mostly has domestic market focused startups and very little enterprise software) and different from the US (which is primarily domestic-focused in $500B enterprise tech industry in the early years of most startups). In terms of investor and founder interest, the pendulum may also swing back and forth between these two models as the Indian economy grows, sometimes at high speed, sometimes at a snails pace.

[With input from the team at iSPIRT and several of the companies mentioned above].

I am looking forward to attending iSpirt’s Intech50 event next week in Bangalore. Fifty Indian enterprise technology companies will be there, meeting with fifty CIOs from the US and India.  Congrats to everybody at iSpirt, including Sharad Sharma and Avinash Raghava, for organizing what promises to be a productive spot-market.

We have put the names of the Intech50 companies into a list and categorized by tech category (applications, infrastructure, tools), vertical (e.g. none, financial services, retail) and geographic focus (India, India->Emerging Markets, India->Global, Global). See the Slideshare embed below to view or download the document.   Perhaps this is of help to you while navigating the Intech50 event.

These companies are two-thirds infrastructure, one-third applications. Analytics and security dominate the categories, followed by HR and CRM. A good 75% are horizontal solutions while the rest are verticalized. And more than half have a global go-to-market while about 40% are focused on India or adjacent markets.

The last decade, especially the past five years, has seen a lot of change for the better in the enterprise tech startup market in India. Startups have started building world-class product and user experiences. They have understood how to leverage online marketing to acquire customers outside India, versus relying on channel partners in other countries or sticking to just the India market. They have figured out how to initiate direct sales abroad, not relying on hiring expensive VPs of Sales as a first step but sending founders abroad to kickstart sales. They have started efficiently selling into the long-tail of companies rather than just focusing on large enterprises. And they have taken full advantage of platforms such as AWS, Force.com, etc. to run and distribute their products.

I think there is a clear progression forward from the types of enterprise software companies started 7-15 years ago which many times started with services projects; were usually vertically focused on banking, telecom or retail; and, despite branching out to SE Asia, Middle East and Africa, have generally tapped out growth at the sub-$10M annual revenue mark.  There were exceptions of course, including companies like I-flex, Subex and Ramco.

Lightspeed globally has put a majority of its capital to work in enterprise technology companies, represented here.  Many of our portfolio companies, including Qubole, Numerify and Bloomreach, have teams in India.  In India, we are looking for enterprise technology companies that can be category-defining and category-leading and can scale to $50-100M in revenue over time.  We are finding higher than average growth coming from applications companies focused on a global or US go-to-market – examples in India would be Freshdesk and Unmetric. We are also seeing such growth from globally-focused infrastructure and developer enabling technologies – examples in India would be Druva, WebEngage and HelpShift.

See you at Intech50! Come talk to us. You can reach me at dkhare at lsvp dot com.

 

 

 

 

 

appstore

[Also published on Medianama]

It has been only five years since the launch of the iPhone App Store in July 2008.  Feels like fifty dog years.  In reality this is not a long time, compared to nearly twenty years since the launches of Yahoo (February 1994), Amazon (July 1995) and the IPO of Netscape (August 1995).  Over these twenty years, not only have startups innovated on product/design and business models and but also on demand generation/user acquisition strategies.  Yet only five years after the launch of the App Store, the pace of innovation in mobile app user acquisition seems to have hit a brick wall… in the search for increasingly efficient methods of marketing, we seemed to have hit the efficient frontier.

In India, efficient user acquisition is a key problem area for developers targeting Indian users as well as global users.  Fortunately, marketing has gone online, along with placement, onboarding, monetization and payments. And mobile marketing can be done at world-class levels right in India.

So, what is this efficient frontier? What are the best practices for mobile user acquisition?

To provide some concrete pointers,  I organized several founders-only sessions on enterprise/SMB SaaS user acquisition as well as mobile user acquisition in Bangalore, Delhi and Mumbai. This month, I also organized and moderated a session on mobile user acquisition with TIE in Delhi.  Our eminent panelists included Harinder Takhar (CEO of PayTM), Pathik Shah (Head of Growth, Hike), Jamshed Rajan (Chief Product Officer, Nimbuzz) and Chandan Gupta (founder/CEO of PhoneWarrior).

So here’s a summary of what we discussed – please note the tone of the conversation was more around hacks and learnings from practitioners as opposed to some over-arching strategic viewpoint on mobile user acquisition.  Many of these tips fall into the non-scalable bucket but some are more scalable. I will leave it up to you to decide which is which.  Also, it was assumed that developers were tracking efficiency of marketing campaigns and funnels through some form of app instrumentation, whether through commercial solutions like Mixpanel, Apsalar, Flurry, Google Analytics etc or home-grown analytics.

CONVENTIONAL PRE-MOBILE TECHNIQUES

These include traditional PR/media outreach, analyst relations, direct selling and tradeshows/conferences.  These techniques are fairly inefficient and out-of-date for mobile apps as most target users/consumers are not reached through these means.

Blogs/websites: Chasing Techcrunch and other tech blogs does not have nearly the same effect it had a few years ago – previously, a post on Techcrunch could drive 50-100k visitors/downloads – now, this number is down to 100-500 downloads.

Vernacular newspapers: Targeting vernacular media outlets across India, as opposed to the English and Hindi dailies could provide some advantage. Regional language papers are hungry for technology news and can be quite effective in reaching regional audiences.

Localization: On a related note, for some apps, it makes sense to provide app store listings in several different languages, sometimes backed up by the product being localized as well but not necessarily.

TV: In India, it could be useful to get onto NDTV Cell Guru and other such shows.  These media outlets also have Facebook, web, mobile and video assets to drive awareness.

Print: Some panelists had tried this. It does not have any meaningful impact on mobile app downloads.

Offline: Some panelists had tried stationing people on campus to get some initial adoption. It does not work and the message gets diluted/warped when temporary employees are hired to do this.

MOBILE 1.0 TECHNIQUES

These include OEM/mobile operator distribution, mobile advertising and search engine optimization (SEO).

A basic deterrent is app size – especially in Tier 2 towns and beyond, people are wary of downloading apps greater than 10MB in size.  Really need to minimize app size.

Factory loading: Average OEM/carrier deals take 5-6 months at least and have to be positioned as helping the OEM/operator differentiate. Most OEMs are now looking at apps/services as revenue streams so this should be baked into the business case for them, perhaps as a rev-share.  Some panelists mentioned Rs 5-10 per install as what Indian OEMs are asking for.

If the app is already factory-loaded onto the product, this doesn’t drive activation either – factory-loading has to be on the homescreen and accompanied by an above-the-line marketing campaign (e.g. advertising or logo on device box) preferably paid for and driven by the operator/OEM.

Some of the smaller/newer OS/OEMs providers are being more aggressive in courting developers. These include Tizen, Intel, Amazon, and Blackberry.  If you build your app for these, you will maybe get an advantage and may get paid to build out on their platform. The flip-side, however, is that these platforms have small audiences and will most probably not drive a meaningful amount of downloads/usage.  Panelists mentioned Parag Gupta at Amazon, Annie Mathew at Blackberry and Priyam Bose at Microsoft/Windows.

Mobile advertising: General consensus is that users acquired through paid advertising tend to be less loyal than users acquired organically.  One exception may be advertising to users of competitor apps on Facebook and the use of promoted posts on FB. Panelists mentioned Google/Admob, Inmobi, Flurry, Tapjoy, Yieldmo, HasOffers etc.

Mobile advertising gets an initial burst of downloads to move up into the top rankings on the app stores and then some drip marketing is required to keep rankings high.  Some people expressed an opinion that any burst marketing should be done on one day rather than over several days and perhaps should be done on a Friday so the boost in rankings persists over the weekend.  The key is to get into the top 10.

One needs 100k-200k installs per day to get into the top of the charts in India. Can’t get there through paid advertising.  Advertising is not cheap.  Especially given the messaging wars between Line, WeChat, Whatsapp, Hike and others, mobile inventory seems to be sold out in India.

If you measure real CPI (i.e. CPI taking into account successful download rates, activiation rates and 3 or 6 month churn), actual cost of customer acquisition (CAC) ends up 4-10x as high as CPI quoted by ad networks. In India, iPhone CPIs are under Rs 120 ($2) and Android Rs 30 ($0.50) at low scale.

There are mediation layers from Flurry, Hasoffers, Mopub and others available so that developers don’t have to integrate multiple ad network SDKs into their apps.  All these SDK providers have their own ad networks but also connect with other ad networks. Meanwhile, publishers use SSPs to route between ad networks. It’s a complete spaghetti-like mess.

Incentivized downloads: Tapjoy/Flurry used to provide this but have moved away from this. Panelists urged developers to not even think about trying incentivized downloads as CPIs are high as are uninstall rates, given that users are downloading without any intent to use.

Search engine optimization: Most developers mentioned that web SEO did not work for them.  Content on the web does not bring traffic from the web to the app stores.  Some people mentioned content marketing e.g. blog posts and posting presentations on Slideshare as a way to drive some traffic.

Mobile web: Make sure you have a http://get.yourwebsiteURL.com mobile-optimized website up and running.  Apple and Android have special HTML widgets to include here that you insert once you know the OS of the device (through the header). These widgets redirect to the relevant app in the relevant app store.

Social media is not very effective for user growth. It is somewhat effective for engaging existing users as well as a support channel.  Adding social network sharing within apps does generate some virality, especially if sharing is encouraged at points within the app where users get a delightful experience.  Apps with social as their core may benefit from Facebook, including automated actions posting to Facebook (e.g. ‘read’ or ‘play’).

Virality:  Startups should track their k-factor/viral-factor and viral cycle time.  Even a k-factor of 0.2 really helps if it can be sustained over several months/years.  A viral factor anywhere close to or greater than 1 is phenomenal but can only be sustained for a short period of time.

MOBILE 2.0 TECHNIQUES

App store optimization (ASO): The panel talked about platform stores (like Google Play, iOS App Store, Blackberry App World and Amazon), indie stores (like Getjar, Opera, UCWeb and Appia) and operator portals/stores. Most indie stores have a paid/sponsorship model but CPIs are the same as ad networks.

Platform app stores require carefully crafted keywords (repeated in title and description), creative content (which is mostly only read by loyal users), quality screenshots/logos and a good demo video for Google Play (linked through Youtube). Do not to go overboard here e.g. do not stuff keywords in the title/description – you will look desperate.  Best tools for ASO include Google Trends, Searchman SEO, AppCodes.  Reverse engineer the search algorithms on the app stores by typing in keyworks to see output of apps appearance.

Getting featured is obviously great but is driven purely through relationships (for Apple and Amazon) and algorithmically (for Google Play) with the curation teams for each platform, sometimes on a geography-by-geography basis.  Always make sure to comply with the design guidelines provided by each platform – this makes it more likely you will get picked up for featuring. Use AppFigures and Appannie to track your performance and reviews.

App updates also drive additional downloads and push up ranking for a short period of time.  Since there are no well-proven A/B testing methods for mobile apps, it makes sense to try several variations with each app update.

Cross-promotion: Companies like Outfit7, Zynga and Google have very effectively used their large network of apps to cross-promote new app launches. Outfit7 has been able to get to one billion+ downloads and has cross-promoted new launches to tens of millions of downloads in a few weeks.

Barter: Many developers don’t think about this, perhaps because it only applies when their apps get to some scale (several million MAUs). The trick is to find mobile app properties that (1) have tens of millions of MAUs; (2) have users in demographics/regions that you are targeting; and (3) have a large proportion of unsold or remnant inventory i.e. low sell-through rates.  Bilaterally trading this remnant inventory can then be quite an efficient, not to mention cashless, way of driving downloads.

Referral schemes: Virality can be driven through incentives that provide an individual relevant app-specific user benefits in inviting people successfully. Examples include Hike (free SMSs for each successful invite), Dropbox (additional storage for each successful invite), Evernote (one month of free premium service with each successful invite) and Paypal ($5-10 for each successful invite).  These schemes do not work for single-user utilities if you hand out real money.  Users will try to hack around this system.

Beyond a certain point, only word-of-mouth/virality works, can’t use paid. This does not apply necessarily in the case of apps where the lifetime value (LTV) of an average user has been quantified, as can be done with many user-paid models like games, ecommerce and subscription services.

UNCONVENTIONAL TECHNIQUES

Use social influencers: If you can identify and target social influencers, it sometimes works to make them proponents of your app.

Gamification: Leaderboard-based incentivization does not impact new user acquisition.  Make sure that gamification works even if the user does not have any friends using the same app.

Push SMS marketing: CPIs end up being within 25% of where the ad networks are, so not much different in price.  Historically, SMSs went out to non-data, non-smartphone users as well so were not effective.  This can contribute to cheapening the brand. Also, TRAI has specifically banned sending spam SMSs to users on the DND list.

Restricted invite lists: This is what Mailbox did, as have many others.  A permanent beta is a less extreme example of this. This make sense for apps like email which need to be scaled up slowly given their complexity.  However, restricted invite lists only make some sense when there is a lot of PR and noise generated some other way to drive artificial scarcity.

Review sites: At small scale, this helps. Some developers pepper comments throughout review sites such as Appolicious, AppTurbo and AppBrain to drive some downloads.  This also build links into the developer’s website to drive Google search rankings.

Here’s a video of Dev Khare of Lightspeed Ventures in conversation with Manik Gupta of Google Maps on the topic of building global businesses on top of maps.

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(Source: Ron Mader)

We are in an early eco-system here in India for technology startups.  It is hard to find strategic talent or mentors with experience in product management and marketing, as I have mentioned in my previous post on The Silent Killers of Startup Growth in India.

One treasure trove of learning and mentorship exists amongst the current community of practicing founders in India.  We are seeing a lot of grassroots efforts around the country where founders are getting together to talk specifics around areas such as product management, sales, marketing and fundraising.  These include iSpirt’s ProductNation roundtables, organized by Avinash Raghav – some blog posts here on this: sales & marketing, sales & lead gen, positioning & messaging) – as well as others organized by NASSCOM and various incubators/accelerators.

To do our bit, we decided to focus our efforts on bringing together founders in separate closed-door roundtables in Bangalore, Delhi and Mumbai over the past month. We had about 30 founders participate across all these sessions.

Our focus was on two sets of companies with somewhat different dynamics – enterprise/SMB software and mobile consumer apps.  The challenges for both sets are around finding rich seams of customers in India and/or abroad.

The discussions got tactical, in a very good way. This is where the learnings come from – from anecdotes and data about what has worked and what has not worked.  It felt as if the founders were happy to share learnings and were energized by helping each other out.  No generic platitudes, like we see at many conferences and panels.

I’ll report more on the specific learnings on the mobile apps side and enterprise/SMB software side in posts next week.

I hope more efforts like iSpirt’s roundtables are undertaken around the country.  Our eco-system needs this.

[Published in Mint on May 30, 2013. Here is the link to an abbreviated version of the article on LiveMint.]

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[Credit: Laurynas Mereckas]

Building a startup into a successful high-impact company is not easy – it is hard no matter where in the world the founding team may be located or which geography is targeted.

It is even harder in India, despite the macro outlook almost always looking rosy – 1+ billion people, strong economic growth, emerging market/BRIC, technical expertise, many underserved needs etc.

Many of India’s successful startups have navigated a maze of challenges, creating leading brands and sustaining for long periods of time.  Correspondingly, it is much harder in India, relative to the US/Europe, for competition to unseat leading brands.  Erstwhile startups that have created a successful brand include Cafe Coffee DayDr Lal’s PathlabsFlipkartIndian Energy Exchange (B2B), Indigo Airlines, Infosys (B2B), InMobi (B2B), Justdial, Makemytrip, Naukri (B2B), one97 and Snapdeal.  

Here are some of these environmental challenges that I see many startups facing here. These are almost never explicitly discussed. Perhaps this is because it’s like the air – it is just self-evident and it is hard to solve for these.

Market friction

Many of the successful companies we talk about today in India took 10+ years to get to escape velocity and impact.  Why? India-focused startups have to change buyer behavior and/or create infrastructure  (eg Flipkart’s several thousand people in logistics, Meru Cabs’ owned & operated taxi fleet, One97’s PayTM mobile payments infrastructure), as opposed to purely focusing on better/faster/cheaper solutions.  As a result, I generally see linear organic growth in companies targeting the Indian market.  There are some companies that have overcome this by creating low-friction offline models e.g. Dr. Lal Pathlabs with low-capex collection centers, and micro-finance businesses with repetitive hassle-free loans to the bottom of the pyramid.

Some other sources of friction include:

  • the need for offline presence (even for mainly digital companies).
  • difficulties in payment collection from consumers and businesses.
  • gatekeepers that have optimized for self-preservation/cashflow.
  • government-driven paperwork for compliance & set-up and regulatory uncertainty.

A series of small markets

Startups need large markets (Rs 2500cr+ or $500 million+) to get large and succeed.  This is hard to find in India, perhaps due to early consumer demand, unorganized markets, regional differences or foreign substitutes.  For example, digital advertising is a roughly $400 million annual business here, with mobile at 10% of that. To access and maintain growth, almost every new startup here needs to increase their focus on creating and evangelizing their category versus just focusing on their own startup’s growth.

Some examples of overcoming this challenge include:

  • spending large amounts of capital to create a category (eg ecommerce, OTA, wireless telecom).
  • expanding into adjacent markets (eg Info Edge, which expanded from jobs into matrimonials, real-estate, education etc.).
  • building or piloting in India and transplanting to the US (eg Zoho)
  • aggregating several emerging markets outside India, perhaps before proceeding to Western Europe and the US (eg InMobi, iFlexSubex).
  • attacking a large spend base (eg Micromax for hardware, Cafe Coffee Day for coffee/tea/snacks, BillDesk for bill payment).

While many startups choose to access existing categories abroad (eg smartphone apps), many Indian startups have successfully created India-specific categories, including inbound marketing (JustdialZipdial), B2B marketplace (IndiamartIndian Energy Exchange), assisted services (OneAssist, Onward MobilitySuvidhaa), MVAS (OnMobileIMIMobile), entertainment services (Dhingana) and transport aggregation (RedbusOla Cabs).

Lack of trust

Lack of trust is endemic in India, whether you are driving through the streets (and perhaps Delhi is an extreme example of lack of trust!) or negotiating with corporate partners. Examples include:

  • (some) people misrepresent themselves materially without any consequences (eg overselling).
  • (some) founders focus on control at the expense of value creation.
  • potential buyers have a hard time parting with payment details or paying for off-the-shelf software.
  • (some) people negotiate all the corner cases in extreme detail, to the point where the law of diminishing returns kicks in pretty strongly.
  • trust gap between regulators, law enforcement and business.
  • trust gap between promoters (aka founders) and investors and potential misalignment on timelines and strategy.
  • (some) government and companies focus on protecting themselves from the 1% of customers who are gaming the system at the expense of the 99% remaining customers.

Relationships, not contracts, govern deals.  Many brands in India are created from execution reliability at scale rather than product differentiation.  Brands  in India are disproportionately more valuable as they represent a trusted provider of products or services – think about the enduring value of the Tata brand in multiple unrelated categories.  As one consequence, I believe more startups should think about brand-building here in India relative to if they were in the US.

Hard to find strategic talent

Almost every entrepreneur and investor I speak with has this issue.  This is not easily solvable – the only potential solution is to focus on A+ people right from the founding team onwards and never compromise on that front, even if it means slower roll-outs.  Zoho and InMobi are often cited for building great teams.

Strategic talent is hard to find, including executives, product managers, product marketeers and design experts.  We find ourselves scouring large established companies in India for executives and many times find these executives short on ability to take career risk and lower startup-level compensation in exchange for equity.  We look abroad sometimes to import talent.   One other friction point tends to be lack of middle management willing (or empowered) to take their own initiative and a cultural bias for say:do ratio > 1 (interesting quote by an anonymous founder) which generally means that execution requires a lot of hand-holding.

The smaller pool of founder/co-founder and risk-taking startup employees results in lots of churn and inordinately long hiring cycles, although this is changing fast at a cultural level in India.  It is also quite stunning how many times people who have signed employment contracts do not show up on their first day of work.

Not enough experienced mentors

India has an early (but fast-growing) eco-system for new venture creation. I see successful founders giving back to the founder community in a big way through investments, mentorship and driving industry hygiene.

However, there aren’t enough successful founders yet to cater to the much larger group of new founders who need help.  Without the perspective provided by aligned mentors, many founders are finding it tough to pivot or accelerate.

I am optimistic on this front, as many experienced and competent mentors have stepped forward over the last two years.  In my opinion, this is one of the reasons driving the creation of many of the incubators and accelerators in India which are centered around these hard-to-find mentors.

Constricted access to capital

This has been an issue in India for a long time and is probably why there is a higher focus here on companies to get to cash-flow breakeven fast or to trade-off growth for cash-flow.  It is not surprising that the early successes in Indian ventures have mostly come from services-oriented business (e.g. outsourcing, BPO) or offline consumer businesses that grew organically for a while.

Many would point to investors being over-cautious and risk-averse.  I think that the environmental factors mentioned above are the causal factor for investor cautiousness and not vice versa.  I would argue that the $1.1B in 2011 and $762M in 2012 (source:  Venture Intelligence) that went into venture in India was perhaps more than the market could absorb efficiently.  Capital is abundant in the growth stage, once product-market fit and/or profitability has been achieved, and hard to come by in the development stage (ie pre-revenue and/or pre-traction stage).

Indian startups have developed a unique set of growth strategies to overcome the challenges mentioned above.  I will write about these different growth strategies (and perhaps deep-dive into some of the challenges) in subsequent posts.  I am hopeful and excited about companies in India that are overcoming these challenges.

Thanks to the brain trust, who provided feedback and contributed ideas, including Bhawna AgarwalKunal BahlRaj ChinaiAshwin DameraPranay GuptaRavi GururajRavindra KrishnappaSasha MirchandaniKavin MittalSuchi MukherjeePallav NadhaniHitesh OberoiJanhavi ParikhAvinash RaghavaAmit RanjanRajesh SawhneyVijay Shekhar SharmaAmit Somani and my colleagues here at Lightspeed Ventures Maninder Gulati, Apoorva PandhiAnshoo Sharma and Bejul Somaia.

Please note that three companies mentioned in this article – Dhingana, OneAssist and Indian Energy Exchange – are Lightspeed portfolio companies.

Here’s Ashish Thusoo, CEO & founder of big-data-as-a-service company Qubole, speaking with GigaOm:

[Also published on Nextwala]

The approach to mobile design and information architecture here in India has been haphazard at best and atrocious at worst. Perhaps this is caused by consumers just being happy getting economic value out of digital services, far outweighing their need for great design.  Perhaps the backend-oriented outsourcing culture has made developers less savvy about creating world-class UI/UX.  Perhaps the featurephone- and carrier-orientation of mobile services hasn’t required good design. Who knows.

I don’t see this as the future of design in India. There is an early but growing sense of good design and information architecture emanating from India-based mobile application developers.   Many of these are competing either on a global level or are targeting smartphone users who expect well designed apps, such as they see from Facebook, Whatsapp, Flipboard, Kindle, Spotify and Youtube.

I like to see a solid design orientation in consumer-facing companies that I look at.  This is an absolute imperative for Web and mobile.  At Lightspeed, we have some companies that are focusing on delivering great experiences, including Fashionara, LimeRoad and Dhingana.  Users are responding well to their designs.

As a benchmark, I think India-based CleartripZomatoHike and CloudMagic really deliver on superb design and value. Kudos to the developers at these companies.  I have included some screenshots below – hopefully the developers won’t mind me making use of their app images.

Addendum: Several readers have suggested other well-designed apps in India. I wanted to mention them here as well: BookMyShow, Ola Cabs, PayTM and RedBus.

Zomato

Photo 3  Photo 4

Cleartrip

Photo 1   Photo 2

Hike

Photo 5  Photo 9

Cloudmagic

Photo 8  Photo 6

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