If CBInsights were to do a market map of software product startups in India it will look something like below. For Indian startups that map should be done based on broad markets available to an Indian founder and not slicing of sectors that CBInsights normally does due to nascent nature of these markets.
Startups targeting different markets
and their market cap
Data not exhaustive, it is from a very informal analysis of roughly 700 product startups that iSPIRT has interacted with in last few years through various initiatives.
Strategic insights they yield
Consumer startups have had high volatility in their valuation, a variance of over 50% which is reflection of the fact that value expectation has gone out of sync of reality of market growth. Further growth can come only when firms go beyond the 36m “India 1” city dwellers that they currently have but key question is do they have the right unit cost structure to address for next 100m “India 2” users. So one implication is to think idea ground up for 100m “India 2” users that have Rs 2-5 lakh/pa income.
Because of Cloud and Saas the paradigm of software purchase has shifted from “selling” to “assisted buying”. This opens opportunities for startups outside valley to compete in the global Saas market, the comparative advantage for India is that its cost structure of both engineering and sales help startups from here reach profitability sooner, it also helps enable to create low end disruptor markets that a SV startup cannot even begin to play at.
Starting point of a startup is an idea and it goes through a journey of product releases and pivots to reach its product market fit and further scale. Source of this idea is a brainstorming session or hot flavor of the season (foodTech, fintech etc) or even comes from past work experience of the founder, in rare some cases it is rooted in an unsolved customer pain point.
For Indian software product startups regardless of the origin of the idea when looked at through the lens of market segments a pattern seems to emerge that is too hard to ignore.
A 2 X 3 matrix
Parsing the market map
- Before 2009 India consumer was not a major open digital market. There were few online ticketing sites, many attempts in the e-commerce space that did not fan out big, telecom VAS a closed market which also existed only because of regulation gap around strong consumer privacy laws . However in 2009 something happened along with the birth of Flipkart where consumers changed behavior, i.e started believing that they could trust making transactions online and swiped their cards. It would be hard to attribute a causal reason of whether it was ‘Cash on Delivery’, critical mass of people on internet or myriad of other reasons. It is suffice to say that market behavior changed since then. Today there are countless new ideas being tried out because this market has opened up.
- India SMB market on the other hand is yet to witness its Flipkart moment. I have been a close observer on two industry (read multiple organizations collaborating efforts) attempts to wrench open this and closely involved in my last role in leading multiple experiment in creating this market. While I am very bullish about this market but the fact of the matter is that this market is yet to open up. Just like how consumers shifted mindset about transacting online, small business need to change their buying ‘tailored shirt’ mindset to buying ‘branded shirt’ mindset for this market to explode. Open API based GST system in India may cause to be a major reason of change here.
- If India consumer has already exploded and India SMB is around the corner, it would not be completely wrong to say that India Enterprise is yet to germinate. There are handful few startups that have been able to sell to Indian CIO however those are exceptions than the rule.
- In the global consumer market there is hardly any precedence of a startup from India building a global force i.e. equivalent to a Facebook or Snapchat. Not that this may not happen, it is just that it is not happened so far because it is very hard to understand global culture nuance when based in India alone and when there are gaps in the kind of risk capital that is available to try out radical business models. There are handful instances where this is being attempted such as Zomato, Hike but the jury is still out.
- Indian startups are rocking the global SMB market, strategic inflection point that has made this possible is small business are searching for solution to their problems online. When solution is possible to be delivered online through Saas, the purchase consideration is based on the experience of solution (try and buy) and not based on the trusting the salesman who delivers the CD. Given this dynamic it does not matter if the solution was built in Alabama or Alwarpet in Chennai. Comparative cost advantage of doing desk based selling from India makes it possible for price points unimaginable in other parts of the world and which in turn opens many low end markets that have been earlier priced out. Companies that are trend setter here are Zoho, Freshdesk, Wingify, KissFlow, Kayako, ChargeBee, Hotelogix and many others.
- There is also good precedence of traction for the global Enterprise with more than handful examples. The pattern here has been to prove product with pilot customers in India and scale it faster with global markets. This involves migration of feet on street sales team globally, iflex has been the Zoho equivalent grand daddy to set the precedence here but recent examples are Druva, Eka and newer folks like Innovaccer, Unbxd are following suit.
There are startup ideas that are tech components and may sell into a value chain into one of these market and not directly, for example a developer toolchain. The effect of traction in the market has same implication for them.
The above map is not going to be static map and is bound to change. Certainly past is not an indicator of future however history of technology has taught that path dependency plays a huge role in shaping of markets. Thus realization of this map has allowed few startups have change their gear in reaching product – market fit or scale. Also this map helps understand that playbook for winning a market is a different than a playbook for creating a market.
To quote Marc Andreessen
When a great team meets a lousy market, market wins.
When a lousy team meets a great market, market wins.
When a great team meets a great market, something special happens.
What are the market maps that you are seeing ?