January 30, 2007

Why India does not have more PRODUCT startups?

My previous post was the result of "India Shining" and this post is related to a field(where all of us would agree) ,in which we lag behind.We see lots of work getting outsourced to India :-) Thats good news,isnt it but,on the same note,there are few(should I say very few) product companies originating out of India.The question is very complicated but,Dharmesh Shah,Software Entrepreneur from the US has a good analysis of this problem on his blog.

Q:Why There Aren’t More Software Startups In India?

Some important excertps from a very interesting article:

1. Service Companies Have Lower Risk:
There is a lot of R&D that is required in a product based company hence,it takes time for the company to be profitable whereas the services based companies can become profitable very quickly.Business model of services companies is very simple.Hire labor from the large pool of local talent at a price that is market competitive for India. “Rent” these resources out to clients at a higher price.Hence,win-win situation for everyone.

2.Lack Of Significant Precedence:
US has produced many entrepreneurs of product companies like Microsoft,Apple,Oracle etc.As per Dharmesh's analysis,India does not have such dynamic people whom entrepreneurs can look upto and this would take some time.

3.Early-Stage Capital Is Even Harder Than In The U.S.:
Historically, it has been difficult for startup founders of product companies to get their ideas funded in India. The reason is that investors, even private equity investors, have been reluctant to put high-risk capital to work and fund radically new ideas for software companies.This is partly because there’s been a large supply of other opportunities that seem to present a much better risk/reward (like IT services). However, this seems to be changing.

4.Recruiting Great Employees Is Challenging:
This is one of the best analysis made by Dharmesh.Along with the initial difficulties you face in starting your company,you would also face difficulties in hiring great(not good) people.Plus,startups have to compete with the high salaries of biggies in the country.Plus,If you are in a big organization,you can always tell your friend I'm working in XYZ MNC.And yes,this would help you if you are searching a girl for your marriage,working in a big company helps..Impressive Uh!!!

5.Too Much Bureaucracy:
It takes hardly few minutes for an idea to click and you have your company in the US but in India,as pointed out by Dharmesh,it takes some weeks.Plus,as per his analysis,India is not suitable for people(like him) who are not very agressive(and introverd) and thinking of starting a company and that was the main reason he reloacted to the US.

6.Product Companies Are Hard:
Dharmesh's comments:-I’ve found Indians to be almost overly practical (in the short-term sense) and not passionate about some of the softer things (like user experience, marketing, branding and other things) which in today’s world are large contributors to future outcomes of software startups. Indians would rather work on the “harder” stuff that they can better control and predict.

Read the complete article here

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At Jan 30, 2007, 3:10:00 AM , Blogger Vaibhav said...

Very good analysis. But I think if India is to thrive in this competitive global market and surpass US in 2050 (per analysis of Goldman Sachs) then we have to have more Product Startups. Right now we are doing very well as a service industry. But this can change very quickly.

At Jan 30, 2007, 3:14:00 AM , Blogger Himanshu Sheth said...

Hi Vaibhav,
Yes,this was an analysis.But the scene is slowly changing and Guruji.com,ByIndia.com and other such companies are just examples of the changing face of India.


At Jan 30, 2007, 11:06:00 AM , Blogger Nags said...

hey himanshu, thanks for ur comment. ur blog has good content. try to make it less cluttered and try to integrate the adsense better into the template. keep blogging and commenting on mine. ciao

At Jan 30, 2007, 11:08:00 AM , Anonymous Hiral Shah said...

Hi, Himanshu,

I have gone though you whole article line by line, also had a look of Dharmesh’s blog,
The thing is for we are lacking for Product base entrepreneur, like Microsoft, Apple, Oracle you have mentioned, the thing is we will improve slowly, as we talk about our manpower in India, we have good strength but the reason up to now brain drain ratio was high, is: our system change us, we were/are fail to change our system.

Hiral Shah

At Jan 30, 2007, 8:58:00 PM , Blogger Himanshu Sheth said...

Hi Nags,
Yes,I know that I have to improve on my template and the google adsense stuff.Thanks for your inputs.

Do watch out this blog for more!!!


At Jan 30, 2007, 9:00:00 PM , Blogger Himanshu Sheth said...

Hi Hiral,
Yes times are changing but it would take time till this happens...Imagine the day when a company like Microsoft coming out of India...


At Feb 2, 2007, 4:24:00 PM , Blogger Varada said...

Hey very good analysis. But it seems India is changing its gear. Still long way to go and the change starts with I.

At Feb 2, 2007, 7:38:00 PM , Blogger Himanshu Sheth said...

Hey Varada,
Thanks for the comment.Well it was Dhamesh's analysis but I felt it was relevant and hence it found a place on my blog.

Yes,We have a long way to go!!!



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