Last week, Spa and Salon SaaS startup Zenoti raised $50MM from Tiger Global, hot on marketing automation startup CleverTap’s $26MM and dental softwareCareStack‘s $16MM.
To Infy and Beyond
India’s Renaissance in the 2000s was driven by India’s robust IT services stack, driven by Indian powerhouses Infosys, Wipro and Tata Consultancy Services.
Infosys, India’s first tech “unicorn” had humble beginnings as a startup in Pune. Infy pioneered providing IT services to western clients, leveraging India’s technical talent to sell to the world.
The core value proposition that Infosys and its peers offered was good quality of technical talent to companies, at a much lower cost. Known more technically aslabour arbitrage or pejoratively as body shopping, western clients outsourced technical work to these Indian powerhouses.
IT services would build on India’s favourable labour arbitrage, and over 3 decades create $300Bn+ of market value in India alone. Infosys’ choice of shifting its headquarters to Bangalore, coupled with favourable state regulations, would make Bangalore a hub for even more innovation.
Being “Bangalored” would now mean starting up.
Engineer, not Doctor
The IT major’s rapid business building would create a large requirement for engineers in the country.
Engineering colleges would rapidly spruce up to fill the demand, and top tier engineering colleges would become even more valuable. If you’re wondering why most of the people around you are engineers, think to Infy and beyond.
India has 3MM+ engineers joining the workforce every year. Over the last 10 years, assuming this happened every year, there are more than 30MM engineers in the workforce – almost 10% of the entire urban population.
This is a huge percentage of the workforce, and it has a lot to do with India’s growth over the last three decades. Aspirational parents would coach their children to become an engineer, a large number would move to the large IT firms or the Indian outposts of large US tech companies.
This would be the breeding ground of a new kind of talent, hungry to build global companies.
Recipe for Talent
Infosys and the IT companies would provide significant exposure to talented engineers.
On the technical side, they would be exposed to problems faced by Western companies. These would be useful for understanding in advance what problems would be faced by Indian companies as well a few years down the line.
On the business side, the exposure would be to how much value the IT services companies created for their clients. From building client relationships to developing long term contracts, the client-facing experience would give a sales playbook for the future.
A high-quality talent base in an economy with a GDP per capita of ~$1,000, compared to the US GDP per capita of $45,000 in 2007 would show how advantageous India was from a labour perspective.
Combined with talent and a looming recession, India would soon see the second wave of software companies.
Service as a Software
The Great Recession shocked the global economy, and as the world began to cut costs, Indian engineers began to build cost-effective solutions to the problems they had been exposed earlier.
2008 to 2010 would thus result in the creation of multiple large Indian SaaS startups (software as a service). Druva (2008), Knowlarity (2009), Wingify (2009), HackerRank (2009), Freshworks (2010). These 5 companies raised a total of more than $600MM, with Wingify completely bootstrapped.
Freshworks, in particular, was inspired and started by, engineers from the first mover in the SaaS space. Zoho, which started a decade earlier, completely bootstrapping its way to pioneer Build in India, sell to the world.
The use cases were diverse – security, telephony, marketing automation, competitive programming and customer relationship management.
Perhaps inspired by the problems seen in the US, these companies sold primarily to the US market. With US clients paying in dollars and strong Indian talent paid in rupees, the companies were able to scale rapidly – and profitably.
India had finally begun to build software products, not just services.
Inspired by the rapid successes of the “Recession” cohort, SaaS companies quickly began springing up.
Just like the initial IT wave was driven by Bangalore, Hyderabad and Pune – these companies would necessarily spring up in these cities. Agile CRM (HYD), Exotel(BLR), MindTickle (PNQ) were examples of companies that built quickly to capitalize on the growing talent pool that increasingly thought global.
Use cases became even more diverse. Human capital (belong), App Testing (Browserstack), social media analytics (unmetric). Product companies would iterate and build prototypes in India, generate enough traction, and shift to the US.
It became increasingly common for Indian companies to move base to Silicon Valley to become truly “global”, increasing potential and valuation multiples by virtue of the cross border transportation. Software look and feel, along with the experience, would be world class.
Indian products had arrived.
The Level Playground Called the Internet
The growing success of Indian products should be attributed to the growth of the internet.
Just like technology had made it easier for Infosys to staff Indian engineers to remotely fix problems, the internet solved a very big problem for Indian product companies.
Trust, through sales.
While India had got the tag (good or bad) on having capable software engineers, few people were willing to trust Indian product makers. In the late 2000s, when you would need someone to go “onshore” and close a sale, it would be very hard for Indian engineers and product developers to compete with a western counterpart.
With the 2010s allowing people to buy software at the push of a button, having to go onshore became increasingly rare, especially if the products were of smaller ticket sizes like $100/month. The shift rapidly allowed Indian companies to scale, as it mattered less who built the product, and more on how it performed.
With top-notch technical skills, and not requiring to sell face to face, Indian products were becoming viable global businesses.
Build in India to Sell to the World
SaaS investments, including those focused on Artificial Intelligence, raised close to~$800MM over the last year.
Given India’s strong history as a technology provider, as well as the right ingredients of talent, education and tech companies, it will be strongly positioned to build products for the world.
With equally, if not more qualified, software engineers building products, Indian products can compete on pricing with US counterparts. With a predominantly global and democratic world view, Indian companies could compete in user experience with Chinese counterparts. The sheer volume of the engineering talent pool would supersede Israeli and European startups if competing on scale.
Like the three companies Zenoti, CareStack and CleverTap, niche use cases will be attractive markets to build for. You would expect companies to build for narrow use cases, as new parts of the economy (like dentists) begin to onboard technology solutions.
Overall, India is well positioned to capitalize on a strong foundation that IT and SaaS companies have built over the years. With the know-how and path setting, along with global successes like Zoho, SaaS entrepreneurs have all the reasons to be optimistic.
With all the ingredients in place, India could build to sell to the world.
[…] chord would couple itself up with the “build in India, sell to the world” leverage, as we had talked about earlier, always ensuring that Zoho didn’t have to rethink, or pivot. As luck would have it, the […]
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