Why There Aren't More Software Startups(Software Product companies) In India?

Why There Aren't More Software Start ups(Software Product companies) In India?

You can say this as my oneirology to become entrepreneur or just a small drop of knowledge for someone thriving to become entrepreneur. Coming from a working class family, obviously my mindset was to work for a stable co-operation. Kicking some offers from big notch companies I joined a product based corp but never thought "Why I rejected some good salary offers ", "What was that I forced my self to join that corp". The only answer to all these questions was "Entrepreneurship". Behind my mind I was always interested to learn how software co-operation works, I wanted to know how the management is done, what the structure of a small company is like, their work culture, the Dos and Don ts in any software corp etc. That was the time I realized, I don't need to work for 40 years old manager who is Graphic Designer by profession and know pumpkins about technical, 35 years old Team Lead who is a Bachelors in Commerce or 30 years old CEO sitting there in United States who doesn't even knows High Level design of his software product. People in India probably think of always being a employee, hopefully like " live as a small fish in big sea or as big fish in a small Pond", But what if both the option do not interest me. Starting a Software firm is the option which again takes you to the same thing "Your software start up corp is a small fish in a big sea".

These days, you can’t help but read about the Global Recession that is going on. I have seen people panic due to this word "Recession". So What is Recession ? May be this simple story I read in a mail can explain you better:

This story is about a man who once upon a time was selling Hot dogs by the roadside. He was illiterate, so he never read newspapers. He was hard of hearing, so he never listened to the radio. His eyes were weak, so he never watched television. But enthusiastically, he sold lots of hot dogs.

He was smart enough to offer some attractive schemes to increase his sales. His sales and profit went up. He ordered more a more raw material and buns and sold more. He recruited more supporting staff to serve more customers. He started offering home deliveries. Eventually he got himself a bigger and better stove. As his business was growing, the son, who had recently graduated from college, joined his father.

Then something strange happened.

The son asked, "Dad, aren't you aware of the great recession that is coming our way?" The father replied, "No, but tell me about it." The son said, "The international situation is terrible. The domestic situation is even worse. We should be prepared for the coming bad times."

The man thought that since his son had been to college, read the papers, listened to the radio and watched TV. He ought to know and his advice should not be taken lightly. So the next day onwards, the father cut down the his raw material order and buns, took down the colourful signboard, removed all the special schemes he was offering to the customers and was no longer as enthusiastic. He reduced his staff strength by giving layoffs. Very soon, fewer and fewer people bothered to stop at his Hot dog stand. And his sales started coming down rapidly and so did the profit. The father said to his son, "Son, you were right”. “We are in the middle of a recession and crisis. I am glad you warned me ahead of time."

Moral of the Story: It’s all in your MIND! And we actually FUEL this recession much more than we think.

Studies say that this is the best time for software start ups. Mid Level companies(Software corps) are laying off employees as they need employees to be hired full time even though they have some hours of work. Corps have started hiring small companies or freelancers to work. Now think! is it not a good deal? how much will the recession affect software start ups?

But, instead of looking more into Recession I’d like to instead look at the entrepreneurial process – and more specifically at software start ups, which is my main area of interest. Though we hear about lots of IT companies in India driven by the big push towards outsourcing in the U.S. and elsewhere, most of these Indian companies we hear about (big and small) are fundamentally service companies, not product companies. Nothing wrong with service companies, but I think the environment required to build a large pool of entrepreneurs starting software product companies is different from those starting service companies. Why can all the techies in India work on Microsoft Windows but can cant develop a product competent to MS Windows. So, here are some thoughts and ideas on why we haven’t yet seen a lot of software product companies come out of India:

1. Lower Risk with Service Companies: Product companies need some R&D and investment before revenues and cash-flows can kick in whereas service companies get their profits very soon. Business models for Outsourced development companies is mostly simple. They start in some IT City like Bangalore, Hyderabad, Pune, Mumbai with large pool of talent that is cheap and at a price that is market competitive. These resources are then used at a higher price to provide services. The client is also happy getting access to a less expensive resources. The employees are also happy as they get a decent salary and benefits. The company itself is also happy as company too is making profits. Its a Win-Win situation for everyone. So last 10-15 years have had a boost in these service companies. As an entrepreneur in India, this is what defines your opportunity cost – or the risk/reward ratio you are trying to beat. you can spend your life developing a product in the hope that it will payoff someday but with these new emerging technologies its hard to predict, but a services company is just much less riskier.

2. Lack Of Significant Success Examples: In US and other countries there are lots of great examples of software companies that have succeeded, with highly visible founders behind them, e.g Microsoft, Intuit, Siebel, Lotus, Oracle, Adobe and many others. Many of the software start ups initiated today in the U.S. are done so by employees of other successful (or even unsuccessful) software start ups. India does not yet have this foundation of prior precedents that entrepreneurs can look to for inspiration. This is going to take a while to change as India is just producing its first real generation of software entrepreneurs.

3. Early-Stage Capital Investment: Start up founders of product companies in India had been difficult to get their ideas funded before. The only reason for this is that even private equity investors don't want to put high risk capital to work and fund radically for new ideas. But, Things are changing more and more private equity investors are funding even more and more U.S. venture funds are beginning to invest in Indian companies. this is helpful, as a brilliant software engineer that has a great idea for a company in India can now think of it in practice.

4. Recruiting Great Employees: The members of the early team in any start up company are crucial and here is the challenge in India to find and recruit a good team. Your ability to do this will likely be one of the single largest factors in your future success. As it turns out, building out this team is pretty hard to do. In India, the challenge is that start ups are competing with large brands that are experiencing tremendous growth. With these large companies come great salaries, some financial stability, phenomenal “perks” and the peace of mind that comes from being able to tell your friends and family that you’ve got a great job at company they’ve likely heard of. It’s important to realize how important this last factor is. Employees are going to have a hard time rationalizing why they’d take a risk on a no-name start up when there are so many big companies looking to compete for their talent. Start ups have to overcome all of this to try and recruit great talent.

5.Too Much Bureaucracy: To register a software firm is not so simple as in countries like USA. In the U.S., I can have a brilliant idea for a software start up and within about 72 hours have launched a “real” company. It takes weeks to process papers and start a actual company. Studies say that some time before In India there were hundreds of software start ups getting registered every day. Excluding this comes other things like regional politics etc etc.

6. Product Companies Are Hard: There are a few number of Indians that are willing to spend the 2+ years it might take to build a product, see how the market responds and “tweak” the business as necessary to get it to a successful state. Product companies are more random and cant be predicted of the outcome. They involve a large number of “creative” factors that will largely influence whether the product succeeds or not.


So what do you thing? are their many Indian Start ups and I am absolutely unaware of it, but, I guess these all things will surely help to anyone who wants to become a entrepreneur and as a evidence of this I’d like to see progress as a cool software product coming out of an Indian start up along the lines of an Adobe Photoshop or even a 37signals Basecamp.