Actionable Insights into the World of Indian Startups

When I moved back to India in 2004, I was mainly following my heart.  I wanted to go back to my roots and build compelling companies and work with bright people.   After spending 5 years in India I think it is time for a reality check.   My first 2 years in India don’t count as real startup work.  I was here on an expat gig for my Valley employer and I was using the opportunity to learn how to operate in India where I had never worked.   My next gig Zimbra was an interesting well fed valley startup with big name VCs and a rockstar team.    Now that I am starting to engage with the Indian startup scene to do an all Indian startup, I have started to learn some really important lessons about the business of startups in India.

Facts: (based on data from Dow Jones VentureWire)

1. In 2008, the amount invested in Indian startups was US$945million while US startups enjoyed investments of US$30 billion (30X Indian investments)
2. In Q1 2009, the amount invested in Indian startups was US$100M down from US$142M last year
3. Of the US$100M invested in India in Q1 2009, US$89M was invested in IT companies
4. 13 rounds of investments closed in Q1 2009 in India while in the US 477 rounds closed in the same quarter
5. The median size of a round in Q1 2009 in India was US$4.24M while in the US was US$5.5M

From the data I can summarize the following:

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This is the young startup that excited me at iAccelerator which I had mentioned in an earlier post.   Wishing them luck on their Final presentation for the DFJ Global Business Plan Competition!

http://in.news.yahoo.com/43/20090628/836/tbs-kerala-students-vie-for-250-000-priz.html

Thiruvananthapuram, June 28 (IANS) Innoz, a company floated by students of LBS College of Engineering at Kasargode in the state, is the only Indian start-up among 16 such firms vying for a $250,000 prize money Tuesday in a global competition for the best business plan.

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Invent, Invent, Invent
By THOMAS L. FRIEDMAN
Published: June 27, 2009

I was at a conference in St. Petersburg, Russia, a few weeks ago and interviewed Craig Barrett, the former chairman of Intel, about how America should get out of its current economic crisis. His first proposal was this: Any American kid who wants to get a driver’s license has to finish high school. No diploma — no license. Hey, why would we want to put a kid who can barely add, read or write behind the wheel of a car?

More at http://www.nytimes.com/2009/06/28/opinion/28friedman.html

In my recent experience of working with young startups, it amazed me when I consistently met teams that did not understand all the intricacies of Incorporating a company in India.    A number of companies focus on creating a presence, fund themselves from their own personal accounts and don’t account these transactions.   There are several issues with this approach:

1.  When you are ready to receive your funding or your first check from your customer, there is no company bank account for this

2. When you go to meet investors, they will cast serious doubts on your ability to be professional

3.  Performing the Valuation exercise will not be easy when you need to do this if you don’t have a good handle on your financial transactions

4. The authorities will catch up with you some day if you have not incorporated correctly and are operating a for profit business.

These are very simple steps and you can engage an accounting firm and pay them INR. 75-100K to make sure they can get all of these things done for you.

So, the 15 Steps of Incorporating a Company in India are:

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I love this blog written by Kathy Sierra and is a must be devoured DAILY for companies that are building products for consumers.

You can follow it at  http://headrush.typepad.com/creating_passionate_users/

It seems like the Technology Industry has transformed itself by understanding the power of Crowd Sourcing in development of Software and has effectively built models where the collective genius of the world is used to develop software.   A colleague of mine from Openwave,  Vinod Valloppillil had written an amazing series of memos to Bill Gates in 1998 while he was at Microsoft called the Halloween Documents that pretty much told Microsoft that their model of building software was not going to hold candle to the Open Source model.  We can all look back and say that the document was spot on.   Zimbra is one of those companies that proved that the crowd sourced model of building software was a better model and consistently beat Microsoft.

In my career I have spent most of my time in Product Management and have always wondered how something so important can be managed by the IQ of a few so called Product Managers.    There has to be a better model for the way software is planned, designed and delivered.     Zimbra was a pioneer not just in Ajax and Email innovations, but also in highly optimized internal processes which really gave it so much power as a company and made it competitive against its competitors Microsoft and Google Gmail.  One such process optimization is the Virtual Product Manager fondly referred to as pm.zimbra.com. At Zimbra we just applied crowd sourcing to Product Management and dis-intermediated the Product Manager and reduced the job function to  a few 100 lines of PHP.   Yes, you product managers – be very scared….the message for you is to start dusting off your resumes as your jobs are on the line.

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What prompted me to write on this topic is an email from one of the followers of my blog (completely anonymized) wrote to me seeking advice:

“Dear Abhinash,

I am XXX

I currently run my co-founded startup YYY with a team of 7 people.

The urge to email you started after reading your thoughts at http://randommusingsofabinash.blogspot.com/2009/06/building-kick-ass-team-part-i.html ! Pretty useful insights. However there are few challenges that we are facing and would love to have your suggestions over it.

We are basically a 6 months old startup who is working on social media strategies and as a web dev workshop, originally started with a vision of being a primarily product company we have shrunk to become a services company and see ourself under a deadlock . We need money to run our operations and thus need to make quick money. For quick money , We need to work. However , at the end of the month we end up spending all our time on outsourced projects and thus come in a deadlock of earning and spending.

However, we are doing good and are very positive. We are getting pretty good projects and customer feedback, But as mentioned in your blog post (“if candidate has worked in {ibm|infosys|tcs|satyam|patni……….any services firm in India} then move to Trash”) something tells me inside that this is not something that we were supposed to be doing ! , Outsourcing projects , completing them , Fighting for payments slowly seeming to me a waste of time now.

Would love to have your suggestions….

Regards,
XXX
Co-founder
YYY”

This is something I have heard time and again and watch these companies with bright people just becoming high end consulting shops moving from one short-term project to another. I am by no means a purist and the advice I will provide is not going to take the moral high ground.

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Having worked very closely with one of India’s largest Media houses that owns the most distributed English daily and who operates an Internet Business, I can say with confidence that the Indian News Printing Business is headed in the same direction as the US newspaper business – down the deathward spiral

Marc Andreesen has a very nice entry in his blog titled Inaugurating the New York Times Deathwatch
More reading on this topic at

• http://www.newspaperdeathwatch.com/
• The last newspaper generation
• Farewell to Print
• Let’s screw up the Entire Internet to save Newspapers

I am a straight shooter and my insights into this business is purely based on my real world experience working with companies in this line of business. The reasons I believe that the Indian Newspaper business will become irrelevant are:

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