Thursday, March 25, 2010

What does it take to create successful IT product companies in India?

This thought keeps bothering me off late. Many have beaten this debate to death. I am still not at peace. What does it take to create more 'successful, innovative' indigenous IT product companies in India ?

Approximate guess says that we have less than 1% 'successful, innovative' IT product companies in India. Enough hypothesis, conjunctures and theories have proven that product based solutions (due to replication of effort and automation) provides significantly higher bang per dollar invested than services based solutions. Scaling of services is resource intensive and puts strain on economies of scale and scope. Why are we not there yet? What happened ?

Are we genetically at a disadvantage ? Are we less risk prone ? Is it a geo-political conspiracy ? Are we capital averse ? Is service mentality ingrained in our culture ? Argumentative Indians, by virtue of our intellectual pluralism have wisely concluded that Services-for-Life leads to Nirvana ?

I admit I am naive. Yes, it was beneficial to apply economies of scale and cost arbitrage creating large amount of wealth for the nation. Yes we are moving towards value arbitrage (premium services) and upping the ante. But, this just cannot be 99% of what we do in IT.

Through and through, we have been both perceptually and conceptually primed through our success in services, so much so, that we are unable to (even if we desire) embrace the paradigm shift towards products mindset.

Successful products model is R&D intensive, bets on disruptive innovation (serendipitous), is technology intensive, utilitarian and demonstrates high tolerance to creativity. Yes, "tolerance to creativity". Creativity puts focus on the individual as against focus on the group. Services model benefits from focus-on-the-group as it creates uniformity and conformance. There is a world of difference culturally in these models. You can see the culture shock and pain one goes through when a person moves from a product company to a services company and vice versa.

We need to reverse this priming. We have to focus on Indian product startups (Big companies are hard to change) and foster a eco-system which benefits product startups. We have to glorify the product model to 'exaggerated' proportions. We need to 'invent' heroes to win quick sub-conscious battles and influence the psyche. We need war veterans 'imported' to teach us the trade. We need 'real' angel investors and significant hand-holding for new startups. We need favorable business incubation centers through a Govt. endorsed PPP (Public-Private-Participation). We need to fix our priorities.

We may lack many things but cannot afford to lack priorities. If we are presented with a deaf and a blind, then, a deaf leading a blind is always better (than other way around). Vision needs to be higher in priority than the ability to hear (to the potential market). Market vision comes from innate ability to identify latent demands. How does one harness that ability ? How can we identify and nurture Visionaries ? Do We need a Revolution ?

Addendum: The definition of a services company in this post is any company providing solutions which are labour intensive similar to the big 3 IT success stories in India. Not to be confused with software as a service or social networking services or b2b/b2c services which are driven by platforms/products.


msabuwala said...

I think the biggest reason is that till very recently and even now to an extent we were very capital poor. It takes money to build a product. Even with low cost and hard working resources, it takes roughly 12-18 months to get to a stage where a product becomes revenue generating. Even if you do manage to get to the stage of revenue generation it takes money to scale the product especially in the B2C space.
With capital being scarce and for investors so many opportunities which can return 15%+ without much risk why would they look for a high-risk proposition.
This is actually not just a problem in India but you will see it in most developing markets where there are opportunities for good returns in relatively capital secure areas like Real Estate etc there is really no appetite for risk in Product companies.
Service companies on the other hand become revenue positive very quickly and so are a less risky proposition.

Preetham V V said...

@msabuwala Good Points. An Investor who is risk averse usually does not look at this asset class as you stated. Then, one of the things we must fix in the eco-system is to invite people with bigger appetite to play with initial incentives built in (2% more in dilution or better tranches etc...)