Low Risk Low Gain India

According to a recent report [1], though the investments into India have increased substantially, a little of it actually reaches the early stage companies.

0ver 90% of the money is invested in late-stage initiatives by mature firms. Even the remainder mostly finances new firms replicating proven business ideas. As a result, very few innovative startups are funded. This will have a negative ripple effect on the quality of late stage opportunities in later years.

While US, UK and Israel spend nearly 30% of their investments into seed and early stage (29% in US, 39% in UK and 32% in Israel), India spends only 6.9%. China is better - it spends 12.5% of its investments in seed and early stage companies.

References:

1. Accessing Early-Stage Risk Capital in India, Rafiq Dossani, Stanford University, Asawari Desai, TiE Inc, Shorenstein, APARC, Standford, and TiE.

Ground realities from a technology product company in India

You may be one of those believers who think creating technology product companies in India is the way to go. You may believe its time for making such companies in India. You may believe that India has satisfied the minimum set of criterion to launch such companies. Yet, you face many obstacles; you have to put up with many disappointments, and brush off many discouragements to realize it. As a technology product company you have to take many bets. And they happen to be big bets if you are chasing bigger dreams.

As an entrepreneur of a technology-product company, you start out thinking one day you will translate your idea into reality. You believe you will create something that will have huge market for itself because of certain attributes you bring in to that idea. You start out thinking that someday you will create enough value, enough traction with customers, and will be poised to take on bigger markets. In that journey you will include the role of VCs because at some point of time you need the necessary monies to scale up to make a significant difference. You hope that someday the VCs will see this potential in your company to invest in your company. You hope that they may want to share the risks with you. You believe that if you achieve those important milestones and show them what you believed in was indeed true they will come to invest in you.

Here’s the reality. If you think they will invest in you when you productize your idea and make prototypes which actually work, then you are wrong. If you think they will invest in you when you get some partners to sign up and use your technology and product, then you are wrong. If you think they will invest in you when you get some customers to actually deploy your units in the market, then you are wrong. You need to stop deluding yourself. If you think they will invest in you when you show a huge interest in your product from your customers, and the only thing you need is money to translate those orders into a multi-million dollar business, then you are wrong. Stop hallucinating. They won’t invest in you.

Here I write some of the things acting against us right now (and to an extent, acting against many technology product companies in India).

We are young and also first-generation entrepreneurs

We are not ex-entrepreneurs who have already done it; we are not the grey-haired veterans with big titles either. We don’t think our age counts for our experience. We believe our actual experiences of having gone through the grit and grind of making a product in this unfriendly atmosphere counts for it. Our experience of forming alliances and partnerships with various bigwigs, to actually pull it off, counts for it. Our experience of knowing the customers’ needs, and then fulfilling them in the price points that is attractive to them counts for it. Our experience of holding a team of 20+ for over three years paying each 1/3 of salary counts for it. But for some reason that has no value. Did I also add that we don’t have degrees from IITs and IIMs?

We are ‘actually’ a technology product company

Many people just want to be called ‘technology’ companies but they are not. Even VCs know that. But everyone just pretends. Since everybody wants to be associated with that word, and it adds glamour, they just throw in that word. Many people just want to be called a ‘product’ company but they are not. Many VCs who speak incessantly on how they are going to promote and fund technology product companies end up investing in online travel portals, marriage sites, networking sites, and hotels. According to us, marriage sites and hotels are NOT ‘technology product’ companies.

We are a three-year old company

We have survived as a startup in India for over three years now, on our own. We have developed a product, launched it, deployed it, and we are now selling it, on our own. We have held together team of 20+ team for these three years, on our own. We make revenues on which we run all our operations. You would expect that such things will be seen as our strengths. The reality is quite different. Exactly those things are seen as our weaknesses. VCs ask, ‘How come you are not invested for over three years now?’ strongly suggesting, ‘Definitely, there is something wrong with you guys’.

Indian VCs firms are not VCs

VCs are characterized by the bets they take. Most VC firms, even those from Silicon Valley who set up offices here, become completely risk-averse when in India. They are not chasing startups but are funding growth-stage companies. They are not chasing technology product companies, but they are funding the run-of-the-mill, already-tried, clichéd ideas borrowed from Silicon Valley adapted to India. Once, during a discussion in Barcamp in Bangalore, a lady asked, ‘what does it take to make product-based companies in India?’ I answered, ‘Balls!’ And if someone were to ask me, ‘what does it take to invest in technology-product-companies in India?’ I would respond, ‘Balls!’ Most VC firms in India can be categorized as Private-equity players and not Venture capital funds.

Indian VCs do not look at our business

We are not Mobile VAS, we are not Mobile gaming, we are not Mobile search, we are not Mobile payment. We are a wireless infrastructure company which promises to provide broadband internet to millions. It’s a long haul. It is risky. It has many unknowns. And we don’t generate revenue quickly. Unfortunately, most VC partners in India do not come from technology product domain or anywhere close. Those who do are not in India. When you talk to VC firms in US, they ask you to talk to partners or other VC firms in India. So, it’s back to the square one.

When even a novice with a fresh high school degree can foresee revenues from the day one from a services company, it doesn’t make sense to invest in a company that takes three years to make the first buck. When it is far lucrative and safer to invest in real estate and hotels in India, it just doesn’t make sense to invest in a technology-product company. That’s the reality.

VCs find Indian entrepreneurs clueless

Many VCs find Indian entrepreneurs clueless. There’s great deal of truth to it.

But I also find many VCs in India equally clueless. VCs think Indian entrepreneurs have no idea where the market is going. They believe that Indian entrepreneurs need ‘hand-holding, mentoring, coaching’, and they come up with funny ways to promote this idea. Soon the Indian entrepreneurs start finding more people who want to coach them than people who want to sign checks.

Once I was asked to list the top three things I needed, I said, ‘Money, Money, Money’. Yes, that’s the truth. When I don’t have money even to survive, all these talks about ‘mentoring and coaching’ sound completely ridiculous.

VCs don’t build businesses. It’s entrepreneurs who do. A top-name VC partner based in Silicon Valley once told me – ‘After achieving success as an entrepreneur I started to believe I cracked the formula to success. Then, I tried the next venture to realize that I didn’t have a clue. Suddenly, a young guy comes up with a ridiculous idea and next thing you know it is a huge success. That humbles you down’.

A note on entrepreneurship in India

The state of entrepreneurship in India is quite different. In India it was always done by businessmen who already had some money and access to capital. And those few first generation entrepreneurs who actually succeeded, they did so in services model where there is always a hope for revenues from day one.

In Silicon Valley, the VCs already had examples to look for. They had the experiences of failed and successful companies to guide them. They had many veterans and ex-entrepreneurs from technology companies joining them to bring in the experience. Most Indian VC firms have people who are successful in services business or dotcoms. Nobody comes out of technology product making or anything remotely close to it.

I find the test of Indian entrepreneurship more grueling and the experiences quite valuable. We are the people working on the ground for three years now, meeting the customers, meeting folks who are shaping the market right at the forefront. We learn from the market and know the pulse. We are taking bets on the upcoming technology, making innovations to suit the price points of our customers, evolving our business plans when necessary to suit changing markets. And each of our decisions impacts the fate of our business – always on the brink of demise. When you survive for three years, you have already ingrained much strength that comes handy in the long run. There is an inherent strength that will go long way - that needs to be recognized.

Purpose of this article

We are not complaining. We don’t believe VCs should invest in us just because we believe we should be invested. We don’t have such expectations. We don’t think we lost out just because VCs have not invested in us as yet. I think the struggle gets a little longer, that’s all. We know we will do it, either way- with or without VC money.

It is just that I see too many reports, too many blogs, too many articles written about the extremely optimistic side of funding scene in India. They are mostly rosy, effusive, and mind-bogglingly unrealistic. Such hype allows for people to form false opinions and have unnecessary expectations. I wanted to present the real side of the story here, right from the frontline.

Just look at the recent VC investments in India. Nobody is actually investing in any technology product companies. Just look at each VC firm and see what their investments are. And if you are smart enough, you will see through chaff to realize that a company listed in technology space is just another me-too dotcom company that has used lot of jargon to cover up their ordinariness.

Reading these reports on funding scene in India is like reading reports about how India’s economy is booming, how its Sensex is rising, how India’s infrastructure is being funded, and so on. The reality is very different for most of us living in India. We continue to live in the same crowded streets, with the filth dumped next to our homes. We continue to drive in the same traffic where traveling 5 km takes more than an hour. Nothing has changed for us down here. All these reports do not mean much unless those funds eventually come down to make our lives a little better decongesting that traffic and cleaning up our streets.

Similarly, nothing has changed for us on the ‘investment-into-product-companies’ front either. All these reports of so much investments coming into India, so many VCs opening their shops in India, so many funds being allocated for investments in technology space, etc, do not mean anything. In reality, none of it has trickled down to us. Our life continues to be the same. Our struggle continues to be the same.

We are on our own.

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.

Why do we have so many jobs in Bangalore?

I want to provide a different perspective to this topic. I touched upon it earlier at ‘How many people report into you?’ Here, I want to linger on a little longer.

Software-services companies and MNC offshore units inherently introduce inefficiencies that are supposedly alleviated by increasing the headcount, which while benefiting the group does the damage of killing the individual. What do I mean by this? Let me explain.

A division or group in a software-services company makes more money when it has more number of people in it. Therefore, the division head, the project manager, and the project leader will all collude to ensure that headcount keeps increasing. This attitude is set in early on and at every stage. Those who resist will either have to conform eventually (so that they can succeed) or they will be weeded out. Over a period of time, what you have is set of successful individuals who have mastered the art of inflating the number of resources to do a project. Say, a manager X says he needs 8 people to do a certain job, while another manager Y says he needs 12 people to the same job. Invariably, the manager Y is selected for the job. Give this process few years- what you have is a set of managers who are all set to outdo the other in inflating the numbers. Only those who inflate the numbers with panache and flair succeed.

Now, what happens at the vendor who is outsourcing to these software-services companies? There is a competition within the vendor company too, between different outsourcing managers, to outsource more. Say, there are two outsourcing managers (OMs) outsourcing to two different companies. There are two factors that come into play here. First, the OM who outsources more work will prove that he has saved more for the company, setting a trend to outsource even more. This outsourcing comes at a price though. There is a homegrown antipathy towards such outsourcing since each job outsourced means one less job for the local guy. But the senior management looks at it from a cost-saving perspective and goes ahead to reward the guy who saves more (who would eventually become the senior management). More outsourcing means more headcount at the software-services company. Second, the OM becomes the champion of the software-services company. He develops a giver-relationship with the company he outsources to. Being the outsourcing manager, he is treated like a king at the software-services company. He is the messiah, the giver and friend, all combined. The software-services company people look upon him to increase their share of revenues from the vendor. He in turn likes the attention he receives and takes it upon himself to do better to earn their respects and obeisance. Also, their success is his success. He becomes their savior and protector, and in turn helps himself. There is a bond that is established between the OM and software-services manager which in turn helps in increasing the headcount at the software-services company.

As a result, you will end up with divisions of 400 people to service a vendor in US/Europe when the same work can actually be done by 100.

Now, let me also look at MNC offshore units in Bangalore. Though they are an integral unit of the parent R&D, these offshore units are usually given the step-daughter treatment. The best work is not given to these offshore units – only the non-critical portions and other support, maintenance portions are assigned to these units. (Only few MNC have actually started to treat their Indian counterparts as mainstream R&D centers). The decision power is not shared either – the heads at these offshore units are mostly paper tigers, with great titles but little influence. Those who work at MNCs share a sense of frustration for not being able to get the best work and for not being able to influence. That leaves most of them to inherit and borrow the practices of other software-services companies of India where they worked before- the usual routine of political maneuvering and one-upmanship. This one-upmanship usually involves having more people ‘under you’. The more people report into you the more powerful you are.

Added to this, the influence or the contribution of a group, including its IP, is measured by the headcount rather than the actual value it produces. So, in effect, a group of 3 producing a superior IP is valued lower than a group of 20 producing an inferior IP. Therefore, you are not rewarding those who produce a superior IP with less number of people, but instead, you introduce a mechanism to reward the mediocrity. The head of offshore unit, bereft of any key decision making power on the overall strategy and business of the MNC, cannot show progress either in terms of revenues nor profits. In absence of these parameters, he resorts to showing progress in increase of headcount. Hence, the tendency to learn and perpetuate the art of inflating the numbers!

[Please note that the inflation of numbers in these offshore MNCs is not as high as in software-services companies since there are more checks and balances.]

I refer to such inflating-the-headcount practices as ‘mediocrity-breeding’ mechanisms. These practices do not award the star performers. They do not allow good performers to feel proud of their achievements. Star performers get disenchanted. They tend to award those who deliberately and smartly inflate the headcount requirements which actually increase inefficiencies. These practices tend to become virtues in both software services companies and MNC offshore units. Such environment does not take care of two fundamental things an organization should do- challenge the employee, and take care of the employee. Higher salary turns out to be the only incentive, which can always be used by a competing company to lure any engineer. This also leads to unprecedented levels of attrition. Solution to every lagging project or bad quality product or inefficient program seem to be addition of more people, as if, adding more people is suddenly going to alleviate the situation. Most often, such addition compounds the problem it is trying to solve. However, a suggestion to increase the headcount is more acceptable than a realistic toning down of the size.

Over a period of time, you have Bangalore, with hundreds of thousands of jobs, which benefits the group as a whole but has already killed the individual spirit.

On Tax Holidays

Most of our IT software-services companies enjoy tax holidays. While this has been a good incentive that encouraged many such companies to proliferate in India, I think its time to take relook at this. Why should certain big companies, which have gone public, have a brand name, and are making colossal profits, be enjoying this tax holiday? Yes, I understand why it came into existence in the first place. We were not on a level-playing field, we needed support, encouragement to compete with global giants. But some of these tier-1 software-services companies have achieved the status of being able to compete with these global giants. Do they still need these tax holidays?

I propose that once a certain IT company reaches a revenue-mark, say $1B, combined with certain net profit-mark, say 20%, it should start paying taxes. Come to think of it, the government could use these funds in innovative ways. It could use some of these funds to create more technology oriented and product-oriented companies, like giving loans at cheaper rates, or investing in those companies on part-loan, part-equity model, creating zones and lab setups for such tech startups, or reimbursing money for patenting, or decreaing employee taxes to tech-startup in the first three years before it start making revenues, etc.

Hmm… we need bold, aggressive and innovative methods to go that next stage!

Infosys Results

Infosys has announced its results. It made approximately $3.2B last year with 72,000 employees. That amounts to approximately $44,000 per employee. That’s an improvement from the previous year where it made approximately $40,000 per employee. It plans to add approximately 25,000 people this year alone. Assuming a steady increase in the revenue per employee at the current rate of 10% per year, and assuming a steady increase of 25,000 employees per year, Infosys will be making $8.3 B for 2010-11 employing 170,000 people.

Total output of IT-ITES will be approximately $90B by 2010 (I am being optimistic compared to NASSCOM’s projections), where Infosys will be contributing 10% of it.

While this trend is encouraging, it is not good enough. I keep saying this- we need to look at better and efficient ways to bring in money into this country. Those companies need not be confined to electronics, computer or IT related. One could look at other companies that are based in technology and research. For example, Biogen Idec, a US based healthcare company which makes discoveries in therapies make $2.4 B with 3,300 employees. That’s approximately $700,000 per person.

Drivers for penetration of broadband in India

As I discussed in the previous topic, the drivers for penetration of broadband in India will be-

# Decreasing cost per line
# Decreasing operating expense
# Decreasing cost of PC (or similar device)
# Social attitudes and habits embracing broadband facilities
# More Indian content

Decreasing cost per line

The cost per line right now runs between Rs. 7,000 and Rs. 10,000 for DSL services. However, it will be much higher for WiMAX in 2007, and comparable in 2009. Till 2009 the major customers for broadband from WiMAX will be enterprises and SOHOs. The residential broadband users will not contribute much to the incomes during this time. However, the revenues from enterprises and SOHOs are substantial and are a market worth pursuing; hence we will see some deployments. Residential broadband services will start turning out to be lucrative only in 2010 when the existing network can easily be used for increasing the capacities to cater to homes. That’s when there will be huge change in the deployment models by the operators who will vie for the residential customers. Each operator announcing a better deal than the other will push down the prices and also increases the subscriber base.

The decrease in cost per line will come from two factors- decrease in the cost of equipment and from the inherent advantage of wireless when adding new lines. The base stations which cost $3000-$5000 now will start costing $600-$1000 by end of 2009. The CPE (Customer Premise Equipment) which costs $200-$400 now will start costing $60-$80 by end of 2009. The cost of a wireless network is high in the first stage of deployment, because of factors like taking up space for tower, erecting the tower, cabling, housing, and connecting the tower to the network, installing base stations, etc. However, once those costs are recovered from enterprise services, adding new subscriber will come at a minimal cost. In comparison to a wireline network where each additional subscriber may cost more or less the same, in wireless network, each additional subscriber will be minimally higher.

Decreasing operating expense

Look at who is going to provide the bulk of broadband services in India. They are all major operators who already have cellular and landline networks. While laying out the WiMAX networks, those operators will combine the operations with the existing operating premises thus incurring marginal increase in costs while deploying and managing wireless broadband services.

We will see more and more infrastructure sharing between various operators which was completely absent till now. Especially, in rural networks, this infrastructure sharing will turn out to be mere common sense. The operators who own the spectrum will resell the spectrum to other smaller players who will mushroom in various parts of India to cater to non-metros. The towns and villages may not be very attractive to some operators right away and they may like to sell this franchise or sell these frequencies to smaller WISPs and operators. Also, the coming of Virtual Network Operators will add to competition.

Decreasing cost of PC (or similar device)

PC (or a device similar to that) is already becoming cheaper. With projects like one laptop per person, and other initiatives, the cost of PC is going to be less than Rs. 5000 by 2009. Other concepts like Novatium, if they tend to be aggressive can also make a marginal impact on the penetration of broadband. Companies like Intel and Microsoft (or will it be Linux?) will need to come up with exclusive strategy for catering to this revolution (and I am sure they will).

Social attitudes and habits embracing broadband facilities

Every school in India is going to have a PC and also an internet connection. Those kids who never knew PCs will now be used to using them at these schools. These kids in turn will make way for their families owning a PC and therefore a internet connection. All government employees are now moving towards using PCs and broadband connectivity. Those people who have never known PC or a broadband connectivity are now moving towards embracing these technologies. No family wants to be left behind when it come to his/her finishing up his/her homework using Internet at home. Some of these social changes and habits will increase the penetration of broadband.

More Indian content

What will further fuel the penetration is the content which is more relevant to the masses of India. Subscribers would like to see more content tailored to their needs and desires. More Indian language content, more applications suitable to Indian social context will come up in the next few years which will in turn contribute to increasing broadband penetration.

Updates:

[12 Apr 2007] Manoj Kohli, President and CEO, Bharti Airtel, has this to say:

"All I can say is that by 2010 the market is estimated to have 400-500 million subscribers.

We are looking at a market share of at least 25 per cent, i.e. 125 million subscribers. We have stepped up our Broadband penetration plans and will continue to lead the wireless market share with our passion to deliver the best to our customers."

[12 Apr 2007] In a bid to catch them young, Bharat Sanchar Nigam Ltd (BSNL) is rolling out its broadband services to one lakh schools across the country by December 2008, as part of a project being embarked upon by the Ministry of Human Resource Development.

[03 Jan 2009] BSNL, Novatium launch low cost PCs.

Broadband Revolution in India

[This is based on the presentation I made in Barcamp Bangalore 3, March 31^st 2007]

Mobile revolution

We have seen the Mobile Revolution in India. It is still happening. There are enough indicators to suggest that Mobile penetration will exceed 400 million subscribers in India in the next few years. Let’s pause and go back a few years, say 2001. Could any analyst predict that we would have 200 million subscribers by end of 2006? Could anybody in the industry predict that we would be adding more than 5 million subscribers a month?

The growth of mobile penetration is mind-boggling and is quite dramatic. It came about because of some of the factors listed below. Note that it is always easy to look back and analyze why it happened. That’s what I am doing here.

Key Factors for this explosion

* Late start
* Cheaper equipment

* Pent up Demand

* Innovative and Bold Deployment Strategies
* Population

First, India embraced cellular when 2G systems were already deployed in most parts of the world. Having completely skipped 1G because of late start, India went straight to the superior 2G systems. Most of the lessons learnt by the European deployments could be transferred to India. Second, India embraced GSM nearly eight years after it was taken up in Europe. Most of the equipment had already become very cheap by then. This allowed for mass deployment in the country. Third, there was huge pent up demand for basic connectivity which was not served by fixed-line telephony. Fourth, India embraced certain bold strategies- like that of Airtel which has outsourced complete network deployment to Ericsson and management of networks to IBM; it has introduced pre-paid subscription like no other country. However, a note of caution here- they were quite stupid not to have implemented sharing of tower infrastructure right from day one. They seem to have woken up quite late on this. Fourth, with a billion people anything you do seems to pick up volumes. All these factors put together has resulted in mind-boggling and dramatic mobile penetration in India.

State of Broadband in India

Take a look at current broadband penetration in India? It’s a mere 2.5 million subscribers (or less). That’s less than 0.25%. Most indicators of technology penetrations, such as telephone, PC, mobile, broadband, have a direct correlation with increase in the GDP and per capita of a nation. However, India’s broadband penetration seems to be extremely low. Is it that we are going to skip broadband the way we skip 1G and the industrial revolution?

The penetration of broadband will increase in the next few years and will catch like a wildfire when suddenly the cost of adoption and network deployment and maintenance will turn out to be extremely low compared to the kind of market demand it has.

The drivers will be-

# Decreasing cost per line
# Decreasing operating expense
# Decreasing cost of PC (or similar device)
# Social attitudes and habits embracing broadband facilities
# More Indian content

Broadband Revolution in India

In effect, I believe that there is a very big room for growth of broadband penetration in India. With the decreasing cost of PCs to under Rs. 10,000 and then to under Rs. 5,000 soon, and with increasing in content for Indian masses, the broadband penetration will be going through a revolution, and I call it the Broadband Revolution in India. The cost per line will dramatically reduce from the current Rs. 7000-10,000 per line to around Rs. 1,500-2,500 per line by 2010.

The pieces of puzzle are falling into place. With advent of wireless broadband (such as WiMAX and WiFi), with decreasing costs of PC, we will see the penetration grow slow and suddenly, when the price points have achieved that critical milestone, it will take a dramatic upswing and go on an exponential path for the next few years. In my estimation, by end of 2011, Indian will have more than 35 million broadband subscribers and by end of 2013, we will have nearly 1 million subscribers.

My question to all of us

Indian telecom operators are smarter than the rest of us. They usually wake up quite early to realize the potentials of Indian markets. They will definitely get themselves geared up for this oncoming Broadband Revolution. However, will the Indian entrepreneurs, Indian telecom vendors, Indian VCs, Indian startups wake up to this? When Indian Mobile Revolution happened, it was foreign telecom vendors which benefited. They supplied the radio access network equipments, and they supplied the core network equipment. They also supplied the mobile handsets and PDAs. Indian telecom operators had no choice but buy equipment from these foreign players.

Operators like BSNL, Airtel and Reliance throw open tenders worth billions of dollars, and most of these monies are taken up by foreign companies. Almost no domestic company seems to wake up to capture some of this market share. We could give ourselves an excuse that Indian ecosystem was not conducive to create such suppliers in India. That we didn’t’ really anticipate or predict the oncoming Mobile Revolution to benefit from it. Will we give ourselves the same excuse for missing Broadband Revolution, or will we do something about it?

Happy Jobs

What is a happy job? A Clickjobs.com ad on TV goes this way:

“Mr. Happy Kumar is SO happy with his job that he can’t see millions of opportunities around him. Don’t make the same mistake. Clickjobs.com”

In this ad, Mr. Happy Kumar is smiling throughout the ad, he is not tantalized by offers like a big car, big pay check or a big position, and therefore this ad concludes he is making a mistake.

Then there’s another ad from Timesjobs on TV which goes this way:

“Salary is making you feel smaller? For better paying jobs, log on to timesjobs.com”

Is there anything wrong with these ads? Or is it just me who find them wrong?

What is a happy job? Most of us, who have spent long enough time in the industry, would agree that a happy job is the one which keeps you challenged and which turns out to be rewarding. We all keep looking for a happy job. If Mr. Happy Kumar is happy with his job, there must be a reason why he is happy. If he is not ready to look at another opportunity, and is smiling all the way to his work and is also happy at work, the job must be quite a good one. Why is it a ‘mistake’ that he is not looking elsewhere?

I would have understood if the ad was a little different. If it was Mr. Sad Kumar who is not happy with his job, and is NOT looking at millions of opportunities, then it would have made sense.

Most of the present generation engineers are turning out to be clueless about what they want. Except for some smart ones, most engineers consider a high paying job as the best job. There is already a big problem with the Indian young engineers, they hop jobs like anything. They are ready to take up a new job even for a paltry increase in the salary. Some of them are not just concerned what kind of work as long it is a high-paying job. Some ‘smart ones’ stay at each job for six months and then hop to another. They keep doing this to keep on increasing their salaries. Added to this is job hopping attitude is their appetite for investments into real estate and automobiles which tend to keep their hunger for increase in salaries ever higher.

Such ads are adding to fuel to the fire. Or are they targeting the right customers?

Is salary the only criteria for choosing another job? Should lower salary make you feel small? Only the guys at timesjobs.com seem to understand the real pulse of the young engineers.

Barcamp Bangalore 3: My observations

I was at Barcamp Bangalore 3 held at IIM-B during March 31^st and April 1^st (2007). One can clearly see the interest growing from the first event then to the second and now to the third. The turnout has been doubling every event and on Saturday there were 320 participants.

There was an interesting topic later in the evening on Saturday, delivered by Savita Kini. She asked ‘Are we ready to move from IT services to product making companies?’ And of course, this is a topic of my interest. Soon, it turned into a small debate with different kinds of views being aired.

I want to talk about some of my observations from this debate. First, I want to compliment Thomas Friedman, Nandan Nilekani, and all those analysts, writers and industry experts who have created a good myth surrounding our IT industry. They have done an excellent job. Because, there were some quite experienced industry folks in that debate who vouched that when work is outsourced to Indian IT companies or when MNCs set up offshore units in India, the wealth created by those units actually stays in India.

I want to dispel this myth here.

How do offshore MNCs and IT services companies create wealth?

When a IT services company such as TCS gets a job from company ABC, it pulls up N number of engineers, and what TCS gets in revenues is N times a certain fixed amount per year. Therefore calculating the revenues of any IT industry thus becomes very easy. The average $ per person is usually known – and it hovers between $30,000 and $40,000 (for top IT services companies). So, if Infosys has 60,000 employees, then its revenues should be $1.8 to $2.4 Billion. The same rule applies to almost every company. A good services company with 3000 people would be making approximately $90 Million. No additional revenues come from the actual sale of the product. Say, the product is sold 10 times or a 100,000 times, the TCS would still only get its revenues from the number of employees it contributes to servicing that product. None of the profits from actual sale of the products ever reach the Indian shores. The revenues (and the profits) from the sale of actual products go those countries where these companies are housed. (To US in case of Intel and Microsoft, or Finland in case of Nokia).

When a typical MNC puts its offshore unit here in India, the only motive is to cut down the costs. While going for offshoring, they decide on the non-critical work and send it to its offshore unit in India. If an engineer in US costs $120,000 to the company, his typical cost is less than $40,000 in India. Hence the cost advantage! However, no revenue that comes out of the products developed or services rendered by these offshore units actually come back to India. If ever they do, they only come back in increasing the headcount of its offshore units. When Nokia sets up a unit in India, the Indian unit will not generate revenues because of the units sold, but only because of the money pumped in to staff the engineers.

To think or believe that we are creating the wealth the same way those product making companies are creating is a myth that needs to be shattered.

In the colonial times, Indian babus were used by British to act as middle managers to the British bosses. The British, by paying a good salary to Indian babus, above that of the slaves or the natives, were able to keep these Indian babus happy, while they continued to reap the benefits of the toil of the workers. That’s why Indians were taken to West Indies, East Indies, Africa, Fiji, etc. The Indian elite babus who quickly learned English, Mathematics and other desired skills became extremely good middlemen (managers) who served British to help them continue their dominance over other populations.

Second, a lady asked if NOW is the right time to start product-making companies, especially since Savita listed so many challenges on her discussion board.

Shouldn’t we wait for the opportune time before we start product-making companies in India?

Frankly, I believe that any kind of analysis should be left to consultants, advisors, bankers and VCs. Entrepreneurs should just stick to DOING it. There’s no opportune time for doing anything, not even for war. By the time we in India actually solve all the challenges that Savita listed (which included like Education, Discipline, Mindset, etc), it will take an eternity. We don’t sit down solving the barriers and then go about doing it. We just do it and in the process hope the barriers go down. We are already late according to me (and Savita and few others). While Indians celebrate the fact that we are going to be the services hub the way China is now the manufacturing, thereby implicitly shrugging off the responsibility to foster other industries, China is already transforming itself into a global product making player. Haier, Lenovo, ZTE, Huawei, etc, have already arrived and many more are in the making.

According to one observer there is no market for products in India. Some of us had to cite some examples to wake him up to reality. That India adds 5 million subscribers in India per month. We need to look at some more examples. That India is adding thousands of cars per month. That India consumes food, clothes, electronics, etc, with great appetite. Isn’t it surprising to assume we do not have the necessary market when ever top brand of the world is making inroads into India to sell Indians goods and products?

According to some people participating in the debate, India does not have brands like Nokia and Microsoft, and hence cannot enter the global arena. The question is do we really need brands to enter the products-market? Does the brand come first and then the product or the product first and then the brand? While we Indians keep debating if there is a market or not, ZTE (China) is entering India with its own low-cost mobile handset and making inroads into India.

Third, when I said that one of the Indians attitudes is not going all the way, which I call last-meter problem, someone suggested it was the same with Microsoft.

What is the last-meter problem of India?

Look at an Indian road, the last-meter is usually left unpaved, and this seems to cause lot of damage to the road. That last meter produces all the dust, and is also the culprit during the rainy season. The erosion will eat into the paved road itself and very soon we need repairs. This seems to be the perpetual state of affairs in India- start- incomplete- repair. Not finishing up the job to its absolute completion is something like a disease that is all pervading. Half done, incomplete and shoddy jobs are seen everywhere. I call this the last-meter problem. We don’t go all the way; we seem to run out of gas during that last meter.

However, to say that this is the same with Microsoft is far-fetched. Agreed, most engineers seem to detest Microsoft for their monopoly. But, we have to admit that their products are definitely superior (to a layman user) in comparison to anything out there in the market. While an engineer may marvel at the open source and other competing products, Microsoft, by pursuing the common layman as its user has made excellent contribution to penetration of PC and hence Internet, and hence to dissemination of knowledge to every corner of the planet. For an idealist or an expert engineer, Microsoft may seem to be flawed or not perfect, but to an ordinary user its closest to getting the simplest software to deal with an otherwise complicated PC. The last-meter problem of India is not analogous to imperfect Microsoft products.

Overall, this barcamp was great. I got to meet some interesting people and its always fun talking about some of the topics that interest us the most.

Why we don’t have product-making companies?

I have already written an article called, ‘Why Product-making companies?’ Before I start writing on what we need to do, I would like to talk about some of the most important reasons that curtail us from spawning product-making companies. Some of them are obvious- history, post-independent economic policies, our social structure, etc. But I don’t like to list 10+ different reasons for each problem. I like to concentrate on 2-3 top reasons. Here, I list what I think is the top reason why we don’t have product-making technology companies.

Our obsession with stars and brands

I agree stars are important. It’s the obsession with those stars where I see the problem. We (as Indians) are obsessed with stars and brands. We don’t need to look deep to realize this about us. Our Cinema (unabashedly called ‘Bollywood’) and Cricket has many examples. The whole focus is on one or two individuals while the rest are completely unknown. It applies to our technology space as well. IITs are a brand. Therefore, anything to do with technology in India is referred to IITs while hundreds of universities and other institutes get no mention at all. If an IITian starts a paan shop, the heading goes, “The IITian left his cushy job to start a paan shop right across the street…” If they start some dumb political party, the article reads, “The IITians instead of going to US have sacrificed their careers to start a political party to better India…” A mere contraption of no significance from IITian gets the attention of starving media. This media is more interested in writing ‘This IITian has done…” than writing what he has actually done. The media is only feeding into our own obsessions. They reflect our sentiments- that of ordinary people, the families, and the societies.

The same is true of our software-services companies. Why we did not look at other important industries is because these services companies were hogging the limelight for more than 20 years now. In fact, they are hogging the complete light while the rest of the industry is languishing in the dark. Bangalore, which is supposedly the ‘Silicon Valley of India’ (which I don’t agree at all), has lavish office spaces (look at Infosys and ITPL) which almost resemble a developed world. These are the same office spaces which have been glorified by the likes of Thomas Friedman (who has added more fuel to the celebration of our mediocrity). On the other hand, the same Bangalore provides extremely worse conditions to the industrial sectors where hardware and manufacturing houses are located. I have visited some of these manufacturing places- they don’t have roads, they are connected by muddy paths which have huge cracks in the middle, they don’t have water or electricity and this place looks like a remote village of India in the 16^th century. The attention of whole of media, political administration, elite, institutions, investors, has been directed towards software-services companies while other industries do not get basic amenities. Software-services companies get lands at very low price; they get tax-holidays, exporting and importing is easy for them. Meanwhile, the manufacturing and other industry of India is putting with policies of old economy. Here is what I have to say to these software-services companies:

‘Thank you, you have done a good job of re-branding India. You have changed our image from being a land of snake charmers to the land of software programmers’. But my thanks stops right there. ‘You are also the culprit of taking away complete attention from other important industry. You rob us of passion of the young minds to make them Xerox machines. Your growth is welcome, but its avarice and appetite is overwhelming. We are not able to proceed to the next step. Our fear is we will get stuck right here’. There are examples galore where many countries got stuck to a label and that actually turned out to be their doom. South American countries which rode the wave of globalization have now realized that they got ‘stuck’ at being providers of raw material to the Western world. East Asian countries like Malaysia, Thailand, Philippines, etc, are faced with similar situation, where the competition from Taiwan and China has robbed them of their advantage of being the manufacturing houses. There is danger in being slotted that way. ‘We don’t want to be slotted that way.’

What our media, the analysts, the writers, etc, did in their over-enthusiasm and over-excitement is a great damage to India. They said, ‘Since we completely skipped industrial revolution, there was no need to go back to that.’ They insisted on continuing with services industry and professed it was good enough for India. They cited some examples (which are actually very rare) of product-making companies (like IBM) moving to take up services, and justified their jobs and their companies. The media lapped it up, furthered this notion, and made it a ground rule for India. Their message was: ‘If West has products and technology, China has manufacturing, we in India have services!’ The VCs furthered it, the investors furthered it, the entrepreneurs furthered it, and even the government joined hands. Thomas Friedman made millions selling the same idea back to India while making sure he and his country continued to dominate the technology markets.

Young minds of India, even those with passion and enthusiasm to create and innovate, get bogged down by the pressures- created by us- the media, the elite writers, the parents, the teachers. They end up taking up a career at Infosys and Wipro just because of its brand. Seven years of working there, he is not good for a product making company anymore. He is already institutionalized. Only few make it out of that vicious cycle only to face even bigger issues that confront them.

As a step one, we need ground breaking examples. To unshackle ourselves of this casteist mentality where in we accept our position in the hierarchy of technology businesses, where we get slotted into one type of industry by the virtue of what our ancestors did. These examples have to be the tough ones. They have to ride their boat against the strong tide. But they have to do it. I see some companies around me taking up this struggle, it’s a long way to go, but I also see that once one case gets successful, suddenly there will be new articles written and soon India will be seen differently.

The industry (even those involved in software-services) needs to consciously promote product-making companies. Is there a vested interest? Yes, there is. No nation, no industry, no man can make loads of money for himself while the rest around him are paupers. It just doesn’t work. Such disparities are not sustainable. One has to create an ecosystem. Those in the ecosystem need to be making loads of money. That money has to translate to the societies and communities that we live in. That’s when we can go the next higher level of making more monies. A society which has very few stars while the rest are all paupers is not a sustainable system. Even the software services companies will benefit if there is technology product making company ecosystem in India. Where would I want to outsource my work when we become a successful product making company? To other Indian software services companies, of course!