What It Takes For Indian Firms To Be Global Leaders?

by CXOtoday News Desk    Feb 12, 2015

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‘Billion’ is the “New Hundred Million”. The success of Google and Facebook has created a whole new breed of ‘young’, ‘ambitious’ and ‘self-believing’ digital entrepreneurs in India. However, as digitalization continues to disrupt business models, there is a need for companies to evaluate their success and analyze  growth prospects globally.

Today, Salesforce is a pioneer of digital technology businesses as it created the first internet based software company globally. It not only disrupted the existing on-premise software CRM market leader Siebel, but also reached billion-dollar valuation within 4.5 years of inception, according to a study by NASSCOM and BMR Advisors, “Indian digital technology companies: The rise of “Global Challengers”’.

Historically a base for industrialized IT services, 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. Examples such as Tally, iFlex, and Zoho, are really far and few in between.

NASSCOM says India is the 3rd largest start-up base globally after US (41K start-ups) and UK (3.5K) and India (3.1K). Over 800 start-ups are comingup annually and expected to reach 2K by 2020 and the software industry has the potential to be a $100 mn opportunity by 2025, says NASSCOM.

But what does it take for India to create challengers to market leaders likes Salesforce that have havenot only raised capital of $74 mn within 5 years of inception, but  deployed capital in inorganic growth to expand product portfolio or optimize existing offerings?

The Indian digital start-up ecosystem is evolving rapidly with companies focusing across all segments of digital space: cloud, mobility solutions, data analytics and IoT. Microsoft, Target, Citrix, Paypal, Pitney Bowes have set-up incubators in India.

What is driving the confidence of creating global-class products is the evolving eco-system of Angel, VC and PE capital – 550+ active angel investors, 80+ business incubators & accelerators and 70+ PE / VC investing in software.

So far, three Indian digital technology companies have entered the “Unicorn club”. That includes Pubmatic, pioneer of real time bidding auction and private marketplace it enables publishers and media buyers to optimize their yield and maximize their revenues. It has marched its way to gain a > $1 billion valuation in a short span of 8 years.Manthan, a provider of cloud based advanced analytics to retail and CPG industry – customer marketing, omni-channel retailing, merchandising analytics has revenue close to $100 Mn and valuation of ~$1 bn. And, Zoho, enterprise IT management company has 100,000 customers in more than 100 countries.

Does your start-up have all it requires to get to the Unicorn Club?

Apart from having a great product idea and a great vision, today’s entrepreneurs need to continuously pivot the business to create radically successful businesses.

NASSCOM has listed 3 most critical elements for entrepreneurs:

-Being ahead of the curve: effective product strategy: Innovation?

- Effective market strategy- Global first?

- Raising PE / VC capital: Upping the ask?

Technology product startups can deploy either of the three strategies to jump the next S Curve and to beat the growth cycle:

 Innovation vs Incremental?

 Innovative product leads to creation of a new market opportunity.Outbrain disrupted the online website advertisement market with widget based content recommendation platform. Within 8 years of inception it commands a valuation of $1 billion+. Companies like Taboola and Gravity have copied the pioneer and established the market but Outbrain has maintained its supremacy by having a first mover advantage and angling several big players as its customers.

That isn’t the case with all. Small player like nRelate, with similar business model, had to shut down because they couldn’t cope with competition.

It is essential to unlock the lower segment of the already established market and that is possible when the established players are not sufficiently addressing the full pyramid.

Moreover, it is pre-requisite to create a superior product to challenge the existing market leader with better products. Other well know example is how Facebook disrupted Orkut in the social networking

Effective market strategy- Global first?

The historic analysis of digital Indian product start-ups indicates that global marketing facing businesses have been most successful in terms of valuation achieved. For e.g. Pubmatic and Komi operating in the ad tech space, indicates that focus on developed markets has helped Pubmatic accelerate growth. Similarly a comparison of Freshdesk and Kreato CRM, indicate that focus on developed markets has helped freshdesk to scale faste

Raising PE / VC capital

While global companies have raised capital of ~>$74 mn within 5 years of inception, the Indian companies have lagged behind their global peers with  $13 mn. Is it due to the lack of risk appetite of potential Indian investors? Is this also the reason for driving out start-ups to shift base and raise capital in US?

Some positive examples include Marketo, which entered the market automation platform market which was dominated by Eloqua (acquired by Oracle) and took head on with its superior offerings.Backed by VC funding Marketo accelerated its growth and generated revenues on par with Oracles offering within 7 years of its inception.