Friday, October 19, 2007

Would Indian technology product companies succeed?

It is not a tried and tested model, but I believe that Indian technology product companies would succeed on a great scale (only if pursued beyond a threshold). There are very few examples, and I am just waiting for some of these companies to do good so that analysts and authors start writing stories about Indian technology product making companies on why it makes sense to invest in such companies in India.

We have already proven ourselves to be really efficient when it comes to IT-services businesses.

Arun Sarin, CEO of Vodafone, believes there is lot to learn from India. He is telling his managers, ‘go get me the secret of their low-cost business model.’ He does not think that this low-cost is just because of low labor costs in India. He believes it contributes to only one-third. ‘Two-thirds is just How They Do Business,’ Arun Sarin says. Comparing the mobile business model of Europe with India, one finds the Indian telecom companies to be ‘lean, mean and hugely cheaper, both in pricing and cost’.

Now, can I extrapolate this to technology product making companies as well? To be fair, I shouldn’t. How can one just extend the trends of a services business to some other industry?

As I said earlier, it is not a proven model as yet. But I am looking at few examples. Tejas Networks of Bangalore is one such example. Though it would not necessarily come into the category of ‘lean, mean’ but it is definitely cheaper, both in pricing and cost. It has started in a typical Silicon Valley model – funded by a big name Angel Investor who brought in many institutional VC firms based in US, founded by techies who translated a brilliant idea into a robust business model. Tejas should be going for IPO soon. If it is a huge success, it will benefit many other tech startups in India.

I work for a startup which started on a little different model - a ‘garage startup’ model where the founders put in all their savings and wealth, and even wealth of family and friends, and roped in some angel investors to make a product. The company is now making revenues and has its products deployed in markets in Europe. The cost and pricing is not low just because of low-labor cost, but is inherently low because of innovative methods embraced during the development activity itself. Working on a shoestring budget, the engineers were pushed into embracing low cost options in all phases of development. Innovation need not come only out of super rich and heavily funded labs of IBM. It can come out of a tech startup founded on dusty road in Bangalore which works on extremely low cash flow because of dire necessity. As they said long ago, necessity is the mother of invention. They were right. The products from this company while being of high quality are just one-quarter of the lowest product in the market and this low-price is not artificial – it applies even for low volumes and with high margins.

I have a belief that such technology startups can be made out of India and few years from now, it will be a tested and proven model. But for that to happen, one has to go through the grit and grind of ‘surviving and succeeding’ in India, which can turn out to be a ‘test by fire’ itself. When one survives and succeeds this test, they can succeed anywhere. I am just waiting for that new revolution to happen.