TECH TALK: Enterprise Software: Attracting SMEs

How does one target SMEs? They are spread out everywhere in the world. Unlike targeting a company like PG which has standard practices which it would follow across the world, SMEs are different in every country. They are universally acknowledged to be the toughest segment to reach. Here are some ideas to get started:

  • Content to Attract, Community to Retain: This takes a leaf from the traditional dot-com strategy. Use content which is valuable to get the SMEs in – this could be advice, case studies or the ability to generate business inquiries. Think of this as the enterprise version of “Reader’s Digest”. The challenges which SMEs face are well-known; so what can we done to help them in their quest for growth? SME owner-managers can also learn a lot by interacting with others like them. This is where the community ideas can play a role.
  • Create Buzz: Word-of-mouth is one of the most powerful ways by which decisions are made. The challenge then is to create buzz, such that demand for the enterprise software solution “tips” over. This will happen if there are clear productivity benefits which can be demonstrated quickly to the SME customers.
  • Use Channels: Computer vendors, banks, telcos, Business Yellow Pages companies can serve as indirect channels through which SMEs can be targeted. This can help these companies differentiate their offerings and for the software vendor provide a cheaper means for customer acquisition. An extreme example of this would be build an Amway-type marketing network, which would be neighbourbood-based.
  • Ideas from Gaming: How about combining ideas from multi-player gaming into the marketing exercise? One can perhaps learn from what Electronic Arts is doing with its newest online game, called Majestic. Writes Rafe Needleman in Red Herring: “Electronic Arts’s Chris Plummer says Majestic is unlike any other game because “you play you.” It would be hard not to: the game, a combination treasure hunt and thriller, interacts with you through your standard communications devices — email, phone, fax, and instant messaging. The computer-controlled characters in the game contact you at unpredictable times. You can also interact with other people playing the game, although it won’t always be obvious who’s real and who’s programmed.” Now, imagine a world of SMEs connected together, creating a parallel universe in which they can play and learn. Combine this interactive world with information broadcast via TV, print and radio – perhaps, a daily SME-based soap opera that offers learnings, which can be tried out in the real world.

These are just a few ways to get started. In doing so, it is important to remember that SMEs are the starting point, and the final goal is to target the larger organisations with the enterprise software solutions. For Indian software companies, it means doing things differently and innovatively across the value chain. The challenge is immense, but then so are the rewards. The Internet as a technology can be disruptive – companies which can use it thus can win big in the next decade.

TECH TALK: Enterprise Software: Start with SMEs and Services

The enterprise software opportunity is vast, and yet the hardest steps are the first ones. Where does one begin? Who are the first set of target customers? As we set out to answer these questions, it is enlightening to keep in mid what Geoffrey Moore has to say in “Crossing the Chasm”, giving an analogy with the Allied invasion of Normandy on D-day June 6, 1944 (we are, after all, fighting a war!):

Our long-term goal is to enter and take control of a mainstream market (Eisenhower’s Europe) that is currently dominated by an entrenched competitor (the Axis). For our product to wrest the mainstream market from this competitor, we must assemble an invasion force comprising other products and companies (the Allies). By way of entry into the market, our immediate goal is to transition from an early market base (England) to a target market segment in the mainstream (the beaches of Normandy). Separating us from our goal is the chasm (the English Channel). We are going to cross that chasm as fast as we can with an invasion force focused directly and exclusively on the point of attack (D-day). Once we force the competitor out of our targeted niche markets (secure the beachhead), then we will move out to take over additional market segments (districts of France) on the way toward overall market domination (the liberation of Europe).

This, then, gives us ideas for the strategy companies need to adopt to win the mainstream markets. Start with the smaller enterprises and offer a whole product (integrated with services). Then, move up the value chain one notch to target medium enterprises in one or two specific sectors.

Finally, use that as the base to win mainstream acceptance. The key in all this is winning the SME market.

Here is a strategy for that:

  1. Define SMEs to be companies outside of the world’s largest 2,000 companies (G2K). A Significant value in an economy lies with the SMEs. 80% of the supply chain of the larger companies comprises of SMEs.
  2. SMEs do not want to remain as SMEs – they want to grow bigger.
  3. SMEs lag big business technology adoption by 2-3 years.
  4. SMEs need “whole products” not part or piecemeal solutions, which means product and service. SMEs want a “car” not parts-and-labour.
  5. Pure ASP offerings (web-based enterprise software) will not work because connectivity is not perfect.
  6. The solution lies in offering a hybrid solution (ASP and Server-based, available on the local network).

Services are important because they help complete the offering – make it a whole product. SMEs need services to help in their computing needs, communications needs and in the core business processes. Services are also where India’s cost advantage can be leveraged. This becomes the trump card (the ability to integrate product and service) in the conquest for the enterprise marketspace.

TECH TALK: Enterprise Software: The Enterprise Software Factory

Today, installations of enterprise software and consulting services cost upwards of USD 100,000, and in most cases, run into millions of dollars. This has limited the installed base of the big enterprise software systems to a few thousand. It is estimated that SAP has 13,000 installations, Oracle 8,500, PeopleSoft 4,700 and JD Edwards 6,000. Add all of them up and one gets about 33,000 installations. Of course, there are many smaller players also in the market.

What would happen to the market if the enterprise software suite cost a fraction of the USD 500,000 average that most of the “best-of-breed” enterprise software solutions cost? There are perhaps 25 million companies in the world. Can the market be expanded dramatically if the price were dropped dramatically? Can the software entry point be used to offer additional services to these enterprises, thus dramatically expanding the market?

How can Indian companies target the enterprise software space? To search for answers, we need to learn some lessons from both Cipla and Microsoft. Cipla used price as its weapon as it took on the established companies in the African AIDS market. Microsoft integrated the desktop productivity applications into a suite (MS-Office) to take up companies like Lotus and Borland. This is what companies entering the enterprise software space need to do: create an integrated e-business suite and offer it at a fraction of the price of the bigger players.

To build the enterprise software products, developing companies need to build a software factory, which takes specifications from the best-of-breed offerings available in the various enterprise software verticals (CRM, SCM, ERP, EIP and eCommerce), focus on perhaps 20% of the features that are most important to begin with, and build the software.

[Note: CRM stands for Customer Relationship Management, SCM for Suppy Chain Management, ERP for Enterprise Resource Planning, EIP for Enterprise Information Portals. In simple words, CRM manages the interactions with customers, SCM with suppliers, ERP takes care of the back-office (finance, admin, HR and operations), EIP offers employees an integrated and personalised view of the information they need.]

Here then is the product opportunity: create scaled-down version, black-boxed, re-engineered versions, at a fraction of the price, and offer enterprises an integrated e-business suite, built out of Lego-like components. There needs to be a single enterprise model, a single data model, a single customer model, so that data needs to be entered only once across the enterprise.

The bigger enterprise software vendors’ cost structure will not enable them to compete because this will be at least one-tenth their possible price point. This will be a disruptive technology for the existing players. This solution can thus10-10-10 the industry: 10x cheaper, 10x faster (built using the 3-tier architecture and for the Internet) and 10x reliable (built bottom-up using the latest software tools and methodologies).

TECH TALK: Enterprise Software: The Enterprise Software Opportunity

There are no two ways about it: the Internet is the biggest opportunity of a lifetime. The fun and games of doing consumer-oriented websites targeting a niche audience are over. The first phase of the Internet revolution is over. The last 5 years have seen an incredible pace of innovation which has compressed the change of a generation. And yet, this is only the beginning. The next phase of the Internet revolution will see investments made by the world’s corporations – small, medium and large. They face the competition – not necessarily from start-ups but other companies like them. They are the ones who have the cash and the customers.

Three pointers need to be kept in mind while we consider where the opportunities of tomorrow lie:

  1. The largest inefficiencies lie in interactions between enterprises in an industry.
  2. Communications and information are critical to interactions among enterprises.
  3. The Internet’s biggest influence is on business process innovation, and reducing communication and interaction costs within and between enterprises.

The enabler for this is Internet-enabled enterprise software. This software is 3-tier, separating data, application and client. It is real-time, event-driven, standards-based. It is a continuation of the revolution which began with ERP (Enterprise Resource Planning) in the 1990s. What we are seeing now is the start of a 10-year business cycle in enterprise software.

Goldman Sachs, in a recent report on B2B eCommerce, puts this in context:

Ever since the Internet began to take hold with companies in the late 1990s, we have believed that it will have a major influence on the direction of enterprise software. The world of enterprise software is tied to the world of business process innovation. In the early 1990s, as businesses were busy reinventing themselves, they focused on reorienting their departmental functions (finance, accounting, order entry, purchasing, etc.) into enterprise business processes (customer management, supplier management, product management, etc.).

This process, known as reengineering, depended on new enterprise software products that had the ability to share data on customers, products, and suppliers with all members of the enterprise. The rise of enterprise resource planning (ERP) software and relational databases was in direct response to this need.

We believe that Web-based technology is encouraging companies to consider changing their business processes yet again. However, now the focus is on making an organization’s extended networks of suppliers and distributors more efficient. Other than some experiments with electronic data interchange (EDI) in the 1980s and 1990s, this is the first time that most businesses have actively engaged non-related businesses in their reengineering initiatives. The reason to do so is clear. The largest inefficiencies in the economy exist in the interactions between non-related organizations in an industry. Most of these interactions are manual and involve sending and receiving paper documents. Processing paper is time consuming and therefore establishes a minimum latency time that organizations cannot improve upon. Enabling transactions to be electronically disseminated to third-party organizations can reduce this minimum latency time by as much as 80% or 90%. Therefore, we believe that the move to electronic transactions from paper-based transactions is inevitable.

Creating enterprise software which is built around the Internet and providing business process consulting and outsourcing is the single largest opportunity ahead for Indian companies. The starting point for this is not just software services, but creating branded software to take on the leaders in the field (like Siebel, SAP, JD Edwards, Oracle, Peoplesoft and i2).

TECH TALK: Enterprise Software: Can India Do Branded Software?

In his column in the March 20 issue of Red Herring, Jason Pontin calls on India to sell branded software products and premium consulting services with higher profits to the world. He argues that India must move up the value chain and develop its own international brands, saying that India is no longer the cheapest place for software development.

While there is no immediate threat to the Indian software industry, companies definitely need to look at the branded software products market. A good example ahead of is what the Indian pharmaceutical industry is looking at doing. Look at what Cipla has done to the AIDS market in Africa by introducing its own products at a fraction of the prices of what the bigger multinational companies were charging. Indian firms like Ranbaxy and Dr Reddy’s Laboratories are also going international with their products. An excerpt from an article by Joanna Slater writing in the March 8 issue of the Far Eastern Economic Review:

Last month, Mumbai-based Cipla said it would sell a combination of anti-Aids drugs to governments around the world for a fraction of the price quoted by multinational pharmaceutical companies. The cost to countries would be $600 a year, while Medecins sans Frontieres, a non-governmental organization, could buy the medicine for $350 provided it was distributed free. That’s well below $1,000–the lowest price offered so far by the major drug companies as part of a limited programme negotiated with three African governments. Normally, treatment in the United States and Europe costs around $10,000.

In an industry where price is discussed in whispers, Cipla’s highly public, no-strings-attached proposal has had an explosive effectCipla’s real contribution has been to demonstrate that the prices of anti-Aids drugs are malleable.

Yusuf Hamied, its chairman, says that with time, prices will fall even further. “There is a place for the multinationals at their prices and there is a place for us at our prices. And tomorrow, believe me, other Indian companies will give it at $200.”

Can India do something similar in software? If so, which is the area that should be targeted?

As we seek to answer these questions, let us consider what Michael Porter has to say on the Internet is an article in the March 2001 issue of Harvard Business Review:

The key question is not whether to deploy Internet technology – companies have no choice if they have to stay competitive – but how to deploy itInternet technology provides better opportunities for companies to establish distinctive strategic positionings than did previous generations of information technology…The next stage of the Internet’s evolution will involve a shift in thinking from e-business to business, from e-strategy to strategy. Only be Integrating the Internet into overall strategy will this powerful new technology become an equally powerful force for competitive advantage.

The Internet and the innovations and disruptions it fosters offers Indian companies a tremendous software to make an entry into the international market of branded software.

TECH TALK: The Indian Internet: B2B

Two big revolutions have been still-born in the last couple years: first, the b2c ecommerce revolution, and then the b2b one. In the first case, the thinking is that if Amazon itself cannot survive, how can anyone else? (The exception is eBay, but then Indians aren’t much of the auction-types.) In the second cases, hundreds of exchanges and marketplaces were created, and most are now dead, having failed to achieve any liquidity. However, the innovation spurred by these two revolutions-that-were-not is now leading to the next wave, and that is what Indian companies need to look at.

The two opportunities here are the creation of private marketplaces (where a single enterprise interacts with its suppliers, customers, dealers and partners) and industry-backed marketplaces (like Covisint set up the auto companies and Transora set up the consumer goods companies), which Goldman Sachs has termed as “Industry Operating Systems”. Both of these build on the fundamental strength of the Internet which is to connect enterprises together, and thus lower communication and interaction costs. Says Brian Kelley of Ford Motor:

Today, it’s easy to believe e-business is not all that impactful. The reality is that e-business is a tremendous tool for cost reduction. It’s a tremendous tool to help you get closer to the customer. It’s a tremendous tool for what used to be called Old Economy companies to apply to our current processes. The winners will be those that view the Internet as a complement to, and not a cannibal of, their traditional way of competing.

This is where the opportunity lies for Internet companies aspiring to play in the b2b space. So-called Old-Economy companies are the ones which need the help to leverage the Internet and its potential to transform the way they do their business. They need people who understand the Internet, and can help them make this transition. This creates opportunities for hardware and software companies, along with consulting companies.

A Business Week report on “Rethinking the Internet” (March 26, 2001) puts it thus:

Over the coming decade, the biggest gains will come from restructuring the way work is done within companies. The Net can become the communications backbone for everything from linking supply chains for speedy product turnarounds to storing employee expertise so that workers can tap into ready-made knowledge instead of starting from scratch.

This is where the opportunities lie. For many Indian companies, especially those facing the threat of lower-priced Chinese products, this is the time to leverage technology and the Internet to rethink fundamentally business processes ad interactions, rebuilding them around the Internet. Enabling them do so is where the sweet spot will be for the technology companies and service providers.

TECH TALK: The Indian Internet: Internet Infrastructure

The Internet infrastructure in India is still at a nascent stage, and needs significant investments in building out. The question is: are they returns on these investments?

Internet infrastructure combines the network within India, bandwidth and connectivity to the world, and data centres. Consumers in India get reasonable connectivity. In fact, for most of us, in terms of per capita connectivity, there is more available if we connect directly to the Internet than go via the office network. Therein lies the challenge. Corporates are the ones who will pay for connectivity: they are the ones who want to network offices, dealers, suppliers and customers. Yet, in India, there are no cost-effective, rapidly implementable, high bandwidth last mile solutions. This is the need of the hour, and where the near-term opportunity lies.

Why is this important? The Internet is all about enabling lower-cost communications, business is all about exchanging information across enterprises. The two need to be combined. Rock-solid Connectivity is the fundamental building block for all kinds of e-business applications which can spur the usage of the Net among corporates. Without having all of a company’s employees online all the time, it becomes very difficult to implement solutions covering b2b or b2c commerce for enterprises. An enterprise needs to be networked internally first. This is where bandwidth scarce.

The multi-year gap between India and other countries in terms of LAN-WAN connectivity refuses to go away – our LAN speeds are state-of-the-art, but our WAN speeds are still many years behind the world. India needs low-cost, high-bandwidth availability to corporates across the country if the e-business revolution has to take off. Internet companies which can enable this will have a good starting point for a relationship with their customers.

The way the Internet is perceived changes completely if a high-speed, always-on Internet is available to organizations: now they can start thinking of the Electronic, Extended Enterprise, connecting themselves to their dealers, suppliers, customers and partners. Connectivity solutions will spur usage of data centres also, as corporates realize that they cannot manage their entire IT infrastructure by themselves. It will also open markets for Application Service Providers (ASPs), and other software and ecommerce infrastructure products and services.

So, companies in the Internet infrastructure space need to focus on the most important problem and the one which has the highest possibility of generating profit, since that is what enterprises will pay for: reliable, high-speed connectivity.

TECH TALK: The Indian Internet: Portals

Zillions of Indian portals came alive in the last 12 months, and a few continue to do so. The news for almost all of them is not good. I think very very few will actually survive. This is not to say that all hope is lost: it is just that the kind of services being offered by most portals is not what the market wants, and hence they will die a natural death. It is easy to say that if Yahoo cannot make money in the US market, how can anyone do so in the Indian market. But that is too simplistic an explanation. The point to remember is that the Internet is not a bubble – companies with flawed business models are.

Indian Portals can be divided into two categories: the top 4 portals, comprising the two international ones – Yahoo and MSN/Hotmail, and the two Indian ones, coincidentally, both listed on Nasdaq — Sify (from Satyam Infoway) and Rediff, and then there is everyone else. Even among the top 4 portals, I do not expect more than two to survive – that is, be profitable. The rest, if they stay independent, will be among the living dead: they will exist, but will only burn up cash and will have little or no future.

For a peep into the future, look at what has happened in China. Its top 3 portals – Sina, Netease and Sohu – which are all listed on Nasdaq are now trading at discounts to their cash positions (that is, their market capitalization is less than the money they have in the bank). The fourth listed Chinese Internet company, Chinadotcom, is also in the same boat, even though it has a significant web solutions business. The fundamental problem, according to a recent Merrill Lynch report, is the viability of their business model.

So, what should Indian portals do? Where are the profits?

I think the answer lies in looking at an integrated access/portal/ecommerce business. As independent silos, it is going to be well-nigh impossible for the companies to make money from the consumer market. But as an aggregate, they can look at a more deeper consumer relationship. What the access business offers is a way to get detailed customer profiles, a billing relationship (to collect payments) and the ability to create a unique browser skin (on or around Explorer/Netscape) which can provide faster and more customized access to what the user wants, which would include not just information but also services. It is what AOL has done very well in the US. Alliances with the offline world can also be advantageous in that it can help broaden and strengthen the customer relationship.

The pure Internet play is going to find it very difficult to survive on a sustainable and scaleable basis. Consolidation in this business is very critical if a few companies have to achieve scale which is large enough to provide real and valuable services to users. Many will need to die so that a few can live healthily.

We also need more services which can make the Internet a utility in people’s lives. To make this happen, we need a combination of low-cost Internet access devices and Internet community centres, along with services which can add value and make a difference. The Net in India still remains quite elitist and that is not a business model which will generate long-term profits.

TECH TALK: The Indian Internet: ISPs

Internet Service Providers (ISPs) provide the pipeline to consumers to get on the Internet. After a lull in India, action has hotted up with the entry of the Tatas into this sector. There are nearly 100 ISPs in India – some are national, while some others are localised. In all cases, the challenge is quite straightforward: how do you make money at Rs 5-7 per hour?

The honest answer: you don’t. In simple terms, there are 3 components to an ISP’s cost structure: bandwidth, technology and operations. Both bandwidth and technology are much more expensive in India than in the US. When AOL charges USD 22 per month for access, its costs are probably around half of that (USD 11, or roughly Rs 500). Since local calls are free in the US, the customer is not incurring any additional costs.

In India, even assuming that the lower operating costs more than offset for the high costs of bandwidth and technology, ISPs need to make at least half as much (Rs 250) to break even. Assuming connectivity of about 20 hours a month, it means that an ISP needs to charge Rs 12-13 per hour to thrive. What customers are paying ISPs is half of that. The irony is that customers are actually paying the telephone company nearly Rs 500 for the connect time. So, while for an Indian customer, Internet access is significantly more expensive, the ISP only makes a fraction of that money.

So, what ISPs need to do is to look at creative ways of bridging the gap of about Rs 100 per month. This could come from running a portal and targeting advertisers (we will discuss this aspect of the business tomorrow), but then that has its own costs. What the ISP needs to do is to actually think of leveraging the customer information and relationship. The model which exists is AOL, which has smoothed out the ups and downs of the advertising and ecommerce market with the steady monthly subscription service. AOL is able to do this because it has the customers’ credit card information and is therefore able to bill easily every month for services utilised.

In India, most of the Internet market is actually pre-paid. Customers are buying either hours or months by paying in advance. So, the ISP collects the money up-front. This means that the ISP doesn’t have to worry about collections and bad debt. It is very much like how half of the cellphone market now is. What the ISP should look at doing is to convert this money into a currency.

Customers can use the money lying with the ISP to pay for premium services and for ecommerce, even without the use of a credit card. When the money gets over, the customer goes and gets a renewal/refill pack. This way, the ISP becomes more than just a pipe, it becomes a consolidator of services and starts to have a billing relationship with the customer. Very much like what AOL has in the US: while it is post-paid there, in India it needs to be pre-paid since the cost of collection may be quite significant. This is also similar to what some of the cellphone companies are thinking in terms of m-commerce.

Thus, if an ISP can encourage a customer to purchase Rs 1000 worth of goods online and collect a commission of 5%, it can make an additional Rs 50 online. It also has the advantage of float from the customer and credit from the suppliers, which may enable an additional revenue of 1% (Rs 10) per month. As customers feel more comfortable with this approach (which is an alternative to credit/debit/smart cards), the likely spends per month may go up. With that, so will be the ISP’s negotiating power with the ecommerce and service providers.

Thus, ISPs need to be innovative in leveraging the customer relationship. Increasing subscriber base with appropriate monetisation can help create a positive spiral, and therefore the foundation for a profitable business. ISPs have to become profitable if India needs to achieve its Internet dreams of 70-100 million Internet users in the next 3 years.

TECH TALK: The Indian Internet: Indian Internet Revolution: End or Beginning?

What a difference a year makes. Last year around this time, Internet companies could do no wrong. The world was a place where cash flows did not matter, the measurements of value was in eyeballs, traffic, growth at any cost and red ink. There was talk of Yahoo buying Disney. In India, almost every hoarding in sight was proclaiming the arrival of a new dot-com, and newspapers were carrying full-page ads from companies eager to spend the latest round of venture capital so they could raise the next one at many times the earlier round. The Internet would change the world.

The Internet will still change the world. That has not changed. Everything else has. The challenge before Internet companies now is to survive and grow in the face of skepticism from investors. Investment has all but dried up. And yet, there still exist many companies and entrepreneurs. In a once-forgotten world, it was tough to raise money, and easier to then build a company. In the Internet world, money flowed like water. Now, the entrepreneurs are realizing how difficult it is to build a company.

The Internet revolution is not over. We are living through it. Revolutions do not happen in months. That is why for many who are part of this revolution it sometimes can get confusing – is this the beginning of the end, or the end of the beginning, or has it ended? A few years from now, it will be easy to do all kinds of analysis and say why what happened actually did so. But, the real challenge is to live through it and create companies out of this which can survive and grow. Because there will be winners. Only a few winners.

One of the problems about today’s world is the rapid dissemination of information and the inter-linking of economies. We live so much in the current – it is a real-time world. And yet, strategy is long-term. We need to not only produce results quarter after quarter, and build a company where customers and profits grow quarter after quarter. This requires not just short-term measures which can be effective in the next 90 days, but also a long-term perspective and vision which can create differentiation and sustainable competitive advantage.

The US had a few years where an incredibly large amount of money was available through venture capitalists, the public markets and the corporate spending which helped create the Internet infrastructure and culture extremely rapidly. The base of PCs was also there so people could get connected, and access information and services on the Net. In India, it all happened too quickly (start and finish in a few months), and the infrastructure (and therefore, the customers and the spending) was also missing. The result: the Internet revolution in India has almost been a still-born, and this has led to quite some disillusionment all around. How can this change? The solution lies in the leading Internet companies becoming profitable, so that investment can once again start coming into this sector.

This week’s series of columns will look at various Internet business models and discusses what companies should do going ahead in the Indian context to be among the winners.

TECH TALK: Entrepreneurship: Money and Other Matters

This column is a collection of some random thoughts related to entrepreneurship.

One of the things uppermost in the mind of an entrepreneur is how to raise capital. Luckily, in India today, there is no shortage of capital. The best way to raise capital for your business is by being profitable. Having less money can make you think harder – not just about using the available resources better, but also coming up with out-of-the-box ideas and focusing hard on the things that matter. Also, control your costs from day one. Even if you have raised capital from outside, treat it as if your own hard-earned cash.

As an entrepreneur, what can be your biggest strength (especially in selling) is your “infectious enthusiasm.” People need to see your passion for the business: that is what can help you stand apart, and bring it in that extra element of luck which a business needs. For entrepreneurs, there is no separation of personal and business lives. Life is business, and vice-versa. That is the kind of commitment which will needed from you and your team to make the venture successful.

When you are building a business, do not think of exits. You should only be building a business if you believe enough in it to run it for the rest of your life. If an opportunity for an exit comes, “think from the head, and not from the heart.” Making money has to be an important objective, but if you run after money, it will not come. Build the business as a labour of love. Make it the best thing you’ve ever done. No half-measures, no short-cuts. Your passion must reflect in every aspect of the business. And then, leave the rest to God.

What the Nasdaq and BSE Sensex do is irrelevant to your business. Technology makes it so much easy for us to be aware of what is happening worldwide. Awareness is good, and in fact important. But do not become obsessed with the markets. Focus on your business. Even if you want to list on the public markets, it is an event which is likely to three or more years away, and what the market will be then you do not know (or care about) at this point of time.

Make sure you have good legal advice from the start. You will need to sign agreements, do partnerships, and so on. Some of the things you do in the early stages of your business may come back to haunt you at a later point of time. So, be careful and seek good advice at every stage. The investment will be well worth it. In the same vein, stay away from “marriages of convenience” – have confidence in your own abilities: if you cannot make it happen, no one else can.

Take some time off periodically – not necessarily vacation, but some time when you can think on what you are doing. A typical day in the life of an entrepreneur is very reactive: there are so many unplanned things which happen, so many fires to be fought daily. It does not give much time to think about what you are doing. That is why it is important to, firstly, have a deep understanding of the market space in which you are operating so you can make decisions quickly, and, secondly, to take time once in a while to reflect on the changes which are taking place. You can also use this time to expose yourself to different situations, so there is new learning which takes place. Remember: you are the eyes and ears of your company, so everyone looks at you for the vision and direction.

You also need to accept that you cannot do everything. This means being open to ideas and suggestions from others. Listen to people and then make up your mind. Also, make sure you manage the relationships with your employees, customers, partners and vendors well. Being a small company gives you the advantage of adding in that personal touch – which can make all the difference.

In taking risks (and entrepreneurship is about making bets), you should be prepared to fail. Failure is the best teacher, as long as you can learn. Imagine and be aware of the worst case scenario. Know when to call it quits. No one creates a business to fail, but in the event that your business does fail, get ready to start all over again: make a clean break from the past, and focus on the future. There is always some good which comes out of everything.

In today’s India, ideas and capital are not in short supply. If there is a shortage of anything, it is innovative, disruptive technologies from people who understand the marketplace and are willing to think deeply about the future. Best of Luck!

TECH TALK: Entrepreneurship: Products and Services

The make-or-break for an entrepreneur is the actual product/service offering. Here again, the package of offerings and the sequence has to be just right. One way to think about products and services is the disruption they can cause. If there is one word which should define what you do, it is Innovation. A good source for thinking about disruptive technologies is Clayton Christensen’s “The Innovator’s Dilemma”.

Christensen discusses disruptive technologies and their impact on markets and companies. Disruptive technologies are “innovations that result in worse product performance, at least in the near-term, and bring to the market a very different value proposition than had been available previously.” He goes on:

First, disruptive technologies are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. And third, leading firms’ most profitable customers generally don’t want, and indeed initially, can’t use, products based on disruptive technologies. By and large, a disruptive technology is initially embraced by the least profitable customers in a market.

Innovation and Disruptive technology are what you as an entrepreneur must be thinking of. How can you be innovative in what you are doing: how can you 10-10-10 the market: 10x cheaper, 10x faster and 10x more reliable that whatever exists today.

How can you also work on the fringe markets initially so that you can build a credible customer base to allow you to attack the mass-market? To do so, there has to be something disruptive about your technology; incremental enhancements are what the existing players will be doing anyways so you do not stand a chance against them.

Another important point when thinking abourt products and services is to think of, in the words of Geoffrey Moore, is the “Whole Product.” Early adopters may go with part solutions because they want the latest and newest gizmo, but the mass market wants to improve productivity, it wants a complete solution. The whole product is defined as “the minimum set of products and services necessary to ensure that the target customer will achieve his or her compelling reason to buy.” This also means that the product must satisfy all the requirements of at least one niche market segment, rather than have everything for nobody.

Going back to our IndiaWorld example, when we launched Khel.com as a cricket site in 1997, we made sure it had everything that a cricket fan(atic) would ever want: daily news, live coverage of matches, statistics, scorecards of all Tests and one-day matches, records, interactive queries, and a plethora of cross-links. It ensured that the site was a complete package, a “whole product” – enough to ensure that the visitor would came back for more!

TECH TALK: Entrepreneurship: Target Markets and Customers

Vision of the Future and Ideas are good. But at some stage, we need to convert that into customers who will pay us money. This constitutes the target market. Two excellent references for thinking about high-tech markets are Geoffrey Moore’s “Crossing the Chasm” and “Inside the Tornado.”

Let’s first begin with Moore’s definition of what constitutes a market:

  • a set of actual or potential customers
  • for a given set of products or services
  • who have a common set of needs or wants, and
  • who reference each other when making a buying decision

The last point above is very important and something we tend to forget. Customers (individuals and corporates) tend to talk to others before making a buying decision. This word-of-mouth element is very critical. It is what helped us at IndiaWorld build the readership for Samachar without ever advertising it! Create something that people like, and they will tell others about it. Advertising can only get people once to a website, it is the quality of the site itself and its attractiveness which will get them back again – and again.

More talks about the Technology Adoption Life Cycle, and the different market segments which exist: Innovators (Tech Enthusiasts), Early Adopters (Visionaries), Early Majority (Pragmatists), Late Majority (Conservatives) and Laggards (Skeptics).

The strategies to be followed to target each of these segments is quite different, and in some cases, the opposite of what was used to target the previous group.

Opportunities and markets do not go away, so it is not critical to necessarily be the first to target specific segments. What is important is to do it right. It is very important to understand the mindset of the customer. Many times, we create things and imagine markets where none exist – because we fall in love with our Idea or technology. One has to be realistic. Inertia is one of the single biggest challenges that you will ever encounter – and it can work both ways: for you if you are the incumbent, and against you if you are trying to wean people away or change their habits.

In the case of IndiaWorld, what made a big difference in our early days was my experience of having been in the US. I had lived as an NRI for 4 years, and NRIs were our initial target market. When I had to make the choice between creating a narrow service (say, focused on business) or a broader news, information and entertainment service, I chose the latter despite advice to the contrary from many people I met. My thinking was that a “thali” approach would work well with NRIs who had no more than 5-minutes for India everyday and we wanted to maximise the portion of that time that was spent with us. Only later did we specialise into verticals.

TECH TALK: Entrepreneurship: ‘I have an Idea!’

Once you have a vision of tomorrow’s world, the next step is to build a plan to create that future. In doing so, Ideas form a very important part. Ideas are like Lego blocks – they can be assembled in many different ways. At the same time, Ideas are not everything. We get Ideas all the time. The problem is that we all get too fascinated with Ideas. In fact, it should be just the other way around. All Ideas are in general good. Its what you make of these Ideas that separates winners from losers, leaders from laggards.

I tend to view Ideas as commodities, to be shared with everyone. Only if you share will you get new inputs, fresh insights from others who may have a different perspective. This is how Ideas get refined. But too many of us tend to keep our Ideas to ourselves, thinking they are the Ultimate Things. Only if you discuss your Ideas with others, only if you present your Ideas to people different from yourself, will you get viewpoints which can add depth to your thinking and provide varying ways of getting to that future. It is important also to expose yourself to various situations which can stimulate thinking – it could be reading different books, meeting people you’ve never met before, visiting trade shows and conferences, and just reflecting in a different environment on what you’ve been thinking.

As you sample through different Ideas, what plays an important role in prioritising Ideas, along with your vision for the future, is your Gut. Many times, it is very hard to explain why you feel in a certain way about something. It’s a topic on which little is known, but a recent article in the Harvard Business Review by Alden Hayashi sheds some light:

Over the years, management studies have found that executives routinely rely on their intuitions to solve complex problems when logical methods simply won’t do. In fact, the consensus is that the higher up on the corporate ladder people climb, the more they’ll need well-honed business instincts. In other words, intuition is one of the X factors separating the men from the boys.

Our emotions and feelings might not only be important in our intuitive ability to make good decisions but may actually be essentialTruly inspired decisions seem to require an ability to see similar patterns across disparate fields. A CEO who possesses that ability can craft a perfect strategy by detecting patterns that others either overlook or mistake for random noise.

When you think about Ideas, do not think in the short-term. Keep a time horizon of a few years in mind. You are not trying to get into a 100-metre race, you are running a marathon. (This is what many of the dotcom entrepreneurs forgot as money was spent freely, businesses had no differentiators and the only goal was to cash out in a few months.) In fact, the lesser the money that you have available, the harder you will think about being different from the others, and the more innovative you will actually be.

Ideas need to get converted into two tangibles: Target Markets/Customers and Products/Services.

TECH TALK: Entrepreneurship: Entrepreneurship: Envision the Future

The last year has seen a wave of entrepreneurship unleashed in India. This was fuelled partly by the dotcom frenzy and partly by the dramatic increase in venture capital money available in India (investments up 7 fold to USD 700 million in 2000, expected to at least double this year). Yet, knowledge-driven entrepreneurship is relatively new in India and in its first wave. It is not something may have been through, and there aren’t many associations (formal or informal) one can turn to.

Entrepreneurship is a lot more than just getting an idea and starting a company. It is the tougher choice, not the easier one. It requires a great deal of sacrifice. The odds of failure are incredibly high (9 out of 10 startups will fail within the first two years). To succeed, one needs an incredible amount of dedication and a generous degree of luck. But this is one journey where the joy is as much in the ride as in reaching the destination.

In this week’s series of TechTalks, I will draw upon my experiences in having been an entrepreneur (more failures than successes!) and present some of my learnings. What is presented here is applicable not just if you are starting or running your own company but also where you are working, so you can make the project you are doing more entrepreneurial to be benefit of yourself and your employer.

Perhaps the most important aspect of being an entrepreneur is developing a vision for the future. You need to build an understanding of the business you are in, a mental map of the players, the companies and the trends in the marketplace. This is not something which will happen overnight, but requires an immense amount of reading and thinking.

Very few people actually take the trouble of understanding the industry they are part of. You need to develop this thinking as if your life depends on it (doesn’t it?) so you can place developments as they happen in this map, and even anticipate what is going to happen. This envisioning of the future also lets you paint a picture of tomorrow’s world to your employees and customers, and enables you to see trends in the industry faster. Write CK Prahalad and Gary Hamel in “Competing for the Future”:

Competition for the future is competition to create and dominate emerging opportunities – to stake out new competitive space. Creating the future is more challenging than playing catch up, in that you have to create your own road map. The goal isto develop an independent point of view about tomorrow’s opportunities and how to exploit them. Pathbreaking is a lot more rewarding than benchmarking. One doesn’t get to the future first by letting someone else blaze the trail.

There is not one future but hundreds. Getting to the future first is not just about outrunning competitors bent on reaching the same prize. It is also about having one’s view of what the prize is. There can be as many prizes as runners; imagination is the only limiting factor.In business, as in art, what distinguishes leaders from laggards, and greatness from mediocrity, is the ability to uniquely imagine what could be.

Other people and companies may have more resources, more money, more everything, but what you have as an entrepreneur is your vision, your imagination, your passion. Define what will be, define tomorrow, envision the future. And then make others play according to the rules you set.

TECH TALK: Technology Theme: Theme 4: Services

Perhaps the biggest shift in economies worldwide has been from manufacturing to services. Even in India, the Services sector contributes to over half of the national income. The dramatic growth in the software services sector has been representative of this shift, and along with IT-enabled services, holds huge hope for India going ahead.

In technology and in business, the services component has become increasingly important. In the US, spending on IT has gone up to 40% of all capital spending. From the growth of consulting companies offering to restructure or integrate applications from different vendors to software companies offering their armies of consultants to help implement their software, services have increasingly become more important – the glue – in making things work in enterprises.

An extreme view of the growth of services is offered, based on the example of how Linux was developed, by Thomas Malone and Robert Laubacher writing in the Harvard Business Review:

The Linux community, a temporary, self-managed gathering of diverse individuals engaged in a common task, is a model for a new kind of business organization that could form the basis for a new kind of economy.

The fundamental unit of such an economy is not the corporation but the individual. Tasks aren’t assigned and controlled through a stable chain of management but rather are carried out autonomously by independent contractors. These electronically connected freelancers – e-lancers – join together into fluid and temporary networks to produce and sell goods and services. When the job is done – after a day, a month, a year – the network dissolves, and its members become independent agents again, circulating through the economy, seeking the next assignment.

Vinod Khosla takes this idea further through the concept of “remote services”:

There is no reason to support that in the future, customer support, bill processing, accounting, or any of the traditional functions of corporations will need to be done within a particular corporation or geographical area. Even critical functions like engineering design, architectural design, and manufacturing are being virtualized. They will be offered as remote services, and you will be able to purchase them as and when needed, just as you would buy a drink or place a phone call. Thanks to the Internet, it will be possible to perform these services in the most efficient place, be it Fargo, North Dakota, or New Delhi, India. The remote-services marketplace will be worth trillions of dollars and, more important, it will be truly global.

Summary
These then, according to me, are the four themes for technology in the next few years – the Embedded Internet, eBusiness, Innovation and Services. They are the ones which will help define how technology, business and our lives mingle and collide in the coming years. They offer opportunities and challenges: to dream up and create a world which is just unfolding in front of us. In the words of Neil Gershenfeld of MIT’s Media Lab and author of “When Things Start to Think”: I have a vested interest in the future, because I plan on living there.

TECH TALK: Technology Themes: Theme 3: Innovation

With common technology platforms being adopted by many companies, it becomes even more important to be different and unique in strategy. Companies need to consider how technology can be used to differentiate their product and thus give them a competitive advantage in the marketplace. Technological advantage has a limited time advantage; what is lasting is building in innovation into internal processes.

Consider computers as an example. Many of the vendors have the same components which are being used, in some cases, even the same companies are doing the manufacturing for them. But, Dell has so far stood out for its innovativeness in how it has sold to the end customers and matched that with efficient supply chain management. Even in mobile phones, one finds that the best user interface and ease of use is offered by Nokia, which has built up a near-impregnable leadership position.

A view from Gary Hamel writing in Fortune:

E-business transformation may drive corporate strategies to be more alike than dissimilar. Strategy convergence is hell on margins… The collective delusion of [companies] is that productivity gains translate into plumper profits. Any company that plans to make money from “e” must have a Web strategy that creates unique value for customers, confers unique advantages in delivering that value, and is tough to copy. Of the many things that haven’t changed in the new economy, here’s one more: Sameness still sucks.

One approach to looking at innovation is to consider new marketspaces. Write W Chan Kim and Renee Mauborgne in Harvard Business Review:

Creating new market space requires a different pattern of strategic thinking. Instead of looking within the accepted boundaries that define how we compete, managers can look systematically across them. By doing so, they can find unoccupied territory that represents a real breakthrough in value. Companies can pursue value innovation by looking across conventionally defined boundaries of competition – across substitute industries, across strategic groups, across buyer groups, across complementary product and service offerings, across the functional-emotional orientation of an industry, and even across time.

Another approach is to consider mixing two ideas. Smart phones (even though they have yet to take off) combine PDAs and cellphones. An example of an innovative product which has combined wireless and email is Research In Motion’s Blackberry – it does just one thing (offer access to corporate mailboxes for people on the move) and does it really well.

Innovation is there all around us – be it in product, marketing or service. One thing is clear: to succeed in tomorrow’s world, companies will need to be ever more innovative with product and service offerings which differentiate and stand out from the competition. The one key cornerstone of this innovation will need to be the Internet. Any innovative offering will need to think about how the Net can be at its core.

TECH TALK: Technology Themes: Theme 2: eBusiness

Business is changing. Besides oft-quoted statements like “eBusiness or out of business”, the transformation of the way companies interact internally and externally is going to create new opportunities for not just software and technology companies, but also for companies looking to tap into new markets. Amazon and Dell used technology to bring out change in their industries. We will see a lot of this. Only, this time around, change may actually be brought about by incumbents.

Writes David Kirkpatrik in Fortune:

Because of the Internet, says AT Kearney, companies now have the ability to strip down their business to its essence, to focus on where the greatest value creation (and profits) lies. Extraneous functions can be eliminated through partnerships and newly supercharged forms of outsourcing.

[Companies need to] realize that parts of a company create value and profit, while others don’t. Now, using the Internet, each business component or process can be individually farmed out and reconnected, Lego-like, to processes elsewhere at unprecedentedly low cost. This is outsourcing on speed. With this, only business functions through which your company can add genuine value will remain.

What this is doing is forcing companies to ask which business they are really in (or want to be). Cisco is an excellent example of a company which has leveraged the Net and its relationships with its partners – about 70% of Cisco’s hardware goes directly from these partners to customers, without a Cisco employee ever handling the goods.

The reason why this inter-connection of companies and processes can take place now is because, according to Don Tapscott, “with the arrival of the Internet, many transactions costs are plunging to zero.” Transaction costs occur when companies need to interact with entities for products or services, and comprise of search costs, contracting costs and co-ordination costs.”

Continues Tapscott, “Now, large and diverse sets of people scattered around the world can cheaply and easily gain real-time access to the information they need to make safe decisions and co-ordinate complex activitiesNew business models based on networks are the new keys to competitiveness and wealth creation. eBusiness is the central theme at the heart of business strategy.”

Technology and the Internet are at the centre of the revolution being brought about in enterprises. How the organisation interacts with employees, customers, suppliers and partners is where the action is going to be in the next few years.

TECH TALK: Technology Themes: Theme 1: The Embedded Internet

The first and perhaps most important theme is that of the “Embedded Internet” as the Net weaves itself around us and becomes a part of much of what we do. Writes Kevin Maney in USA Today:

Up to now, the Net has been almost completely about viewing content or buying products over the Web, using a browser on a personal computer. In the next wave, the browser will no longer be a solo act. It will become part of an ensemble of software and hardware that uses the connections of the Internet to do much more than has yet been possible.

Most users connect to the Internet to get on the Web and get their email. But saying the Web is the Internet is like saying that broadcast TV is the same as over-the-air radio waves. Obviously, that’s not true. Radio waves can carry many kinds of signals, from FM radio to cellphone conversations. Broadcast TV is just one big, compelling piece of the radio pie.

The Net carries Web pages, but it can also carry much more – in fact, anything that can be made digital. So far, the browser has been used as a gateway for almost any kind of Internet use.

For instance, you play music from Internet radio stations by using a browser to find the station, then clicking on a link to pull the signal into your computer. Internet radio is a good example of how the browser-and-PC model is becoming less necessary.

The Embedded Internet is driven by pervasive connectedness: it is not just people that are getting connected, but also things. The Internet becomes like the byline in the Visa ad – “Anywhere you want to be”. Wireless technologies, devices like cellphones and PDAs, protocols like 802.11b (11 Mbps connectivity in a short range) are all going to help embed the Internet in our lives. In some ways, the Net becomes like Oxygen – it is there all around us, and impossible to live without.

Instead of going to the Internet (in today’s PC-browser) model, the Internet will come to us. Much a new game created by Electronic Arts called Majestic. The game offers clues by contacting the user in every possible way – via email, instant message, telephone and fax. Every communications device owned by the user becomes part of the game. The tagline of Majestic? “The game that plays you.” Much like the Internet of tomorrow.

TECH TALK: Technology Themes: The Tech Bubble

In many ways, the 15 months from January 1999 to March 2000 were an aberration. The Nasdaq more than doubled, market caps of companies in the technology sector (especially the Internet) reached the stratosphere, cash was of little value in a world where only revenue growth and losses mattered. In retrospect (and it is easy to say it now), it was unreal. It was a bubble. And like all bubbles, it has finally burst. Most tech and Internet companies are down 50-90% from their highs. Even Indian software companies have fallen more than 70% from their peaks.

An interesting perspective on the tech bubble is offered by Stephen Frank and E.S. Browning writing in The Wall Street Journal:

The current technology boom and bust, it turns out, is nothing new. It is simply the latest in a long history of investment bubbles that have plagued shareholders since investing began. From the Dutch tulip craze of the 17th century, to the locomotive revolution of the 19th, to the rise, fall and resurrection of personal-computer stocks and biotechnology stocks in the 1980s and 1990s, investors have fallen madly in love with – and madly out of love with – the hot technology of the moment.

There are reasons to hope that a tech recovery may happen faster than has been the case after past bubbles. A fundamental reason for hope is that technology’s life cycle is shortening. That means equipment is getting outdated far faster than in years past.

“With information technology, you can make huge investments now, but basically, three years from now, it’s depreciated to almost nothing,” says Peter Garber, a global strategist at Deutsche Bank and a professor of economics at Brown University. “Because of innovations in hardware and software, information technology just evaporates.”

So tech companies will continue selling gear, perhaps at a faster rate than utilities sold electricity and PC makers sold computers when their stocks were declining. What no one knows is whether the demand will be strong enough to make today’s tech stocks start to rebound sooner than those of yesterday.

The Nasdaq (and Indian tech stocks) may be falling. But that in no way undermines the importance of technology in our lives or businesses. If anything, technology is becoming more pervasive. It is weaving itself around us, making itself both ubiquitous and invisible. The last 20+ years have seen three great revolutions in a single lifetime: the computing revolution driven by PCs, the communications revolutions driven by cheaper and plentiful bandwidth, along with cellphones, and finally, the Internet revolution which has bridged people, companies and countries.

It is a fantastic time to be alive – the coming together of these technologies will ensure that there is more change in the next 5-10 years than has happened in the past 100 years. The amazing this is that we are living through this period of dramatic change, which at times makes it hard for us to see and understand what is happening. In many ways, a good reminder is to look at how our own lives have changed because of technology in the past 10 years or so. To think through the impact going ahead, it is useful to look at some themes brought about by these technologies. No single step may be revolutionary, but taken together their implications are.