Sarath Naru

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• Sarath Naru
• APIDC Venture Capital Fund
• Ventureast Tenet Fund
• The Biotechnology Venture Fund

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Post lunch calisthenics!

• How many are currently in the IT services
  business.
• How many have thought of getting into the product
  business but not proceeded further.
• How many have the ideas and plans for an IT
  product business but are short of funding.

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TOPIC Stay with the service business!(Alterna
te title Sarath Narus Hara-kiri)

• Sarath Naru
• APIDC Venture Capital Fund
• Ventureast Tenet Fund
• Biotechnology Venture Fund

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Talk flow

• Why stick to the service business.
• India strengthened strategies for getting into
  the product business.
• Case studies.
• Funding options.

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1.Why stick to the service business?

• My proposition!
• The first myth to be broken mix your service
  business with a product business, dont drop it.

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1.Why stick to the service business? Apparent
issues with mixing.
Product Business
Service Business

• Product
• Understand customer needs
• Design product
• Develop product
• Get beta customers
• Promotion
• Sales force oriented to product sales
• Distribution network
• Promotion spending
• Price
• Cookie cutter design for competitive price

• Product is service
• Customer proactively gives needs
• Design from customer
• Product devpt by customer
• No beta customers needed
• Promotion
• Sales force more tech oriented.
• No distribution network
• Neg. promotion spending
• Price
• One-off price for each sale

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1.Why stick to the service business? Why mixing
services with products works!

• Use Indias service delivery strength to
  deliver products competitively!
• Design products that have a large service/
  integration/ customization component Plays to
  the Service strength
• Learn the customer needs better by providing
  services to them first Your service customers
  are your best window.

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3.Mixing services with products works!Some key
global companies that mix services with products.

• IBM products and consulting services
• Oracle Database platform and implementation

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3.Mixing services with products works!Indian
experience also proves it works!

• COMPANY PRODUCTS
• TCS Banking, manf.g and health
• I-FLEX Corporate Retail
  banking
• INFOSYS Banking
• POLARIS BANKWARE
• ORBITECH (Polaris) Financial Products

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2. How to use India strengthened strategies for
better product biz.

• Myth No. 2 The best product opportunities are in
  the overseas markets (where we will lose on
  marketing), while our domestic market is small !
• Myth No. 3 There are well entrenched product
  businesses already that will be difficult to
  dislodge.

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2. India strengthened Break myth No. 2 Brazil
China domestic product biz indicates a big
opportunity in India.
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2. India strengthened Break myth No. 2 Brazil
China domestic product biz indicates a big
opportunity in India.
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2. India strengthened Break myth No. 3, Well
entrenched competitors. True, there are no
large Indian Product companies in India or
Overseas (DQ survey)

• Top ten Indian companies (domestic and exports)
  revenues Rs 927 crore.
• Domestic vs. Export Rs 357 crs vs. Rs.608 crs
• Top three i-Flex, Infosys and Tally account
  for Rs 632 crore.
• Next largest product revenues
• TCS Rs 66 crs
• Polaris/Orbitech Rs 60 crs
• Ramco gtRs 50 crs
• Aditi gtRs 50 crs

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2. India strengthened Break myth No. 3, Well
entrenched competitors. Brazil China show that
we can beat MNCs on our home turf

• Domestic Brazilian product companies in areas
  such as financial products, ERP, telecom, etc
  ahead of MNCs.
• Domestic Chinese product firms dominate in
  accounting software, ERP, operating systems
  adapted to Chinese language, etc.

• Opportunity for Indian IT companies to build
  products better suited to local conditions ie.,
• ERP,
• accounting software,
• Telecom
• Local language computing
• SME applications

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2. India strengthened Break myth No. 3,
Local companies have bested overseas competitors
in both Brazil China. -
Brazil - mil
China- mil
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Strategies - Case studies

• Integrated Softech Product design services biz
  morphing into tools aid design, testing, and
  add-on modules to clients products.
• Indus Vision Systems Leverage the cost advantage
  involved in implementation/ customization
• NMS Works Address a domestic market first before
  targeting overseas markets.
• Chennai Kavigal A pure domestic play best
  understand customer needs!
• Moschip semi conductor Gain advantage thru
  products that are close to being a service.

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Funding for such ventures

• Ready to fund early stage product biz.
• We like to be the first VC investor !
• Three early stage funds
• APIDC Venture Capital Fund Broad fund
• Ventureast Tenet Fund IT Telecom for the
  digital divide
• The Biotechnology Venture Fund early stage life
  sciences plays

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Thank You!
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31.Piggyback off service businesses to build a
product business2.use the sevice/Implentation/cus
tomisaton componant of the product as our
compettitve advantage

• With substantial investments and the long period
  of incubation required, it is tough for upstart
  product companies to survive.
• The cushion has come from services, sometimes by
  accident and sometimes by design. Infosys managed
  to invest in Finacle because of its large
  services revenues. i-Flex looked toward services
  to be its bread and butter when it was developing
  Flexcube. Pune-based Kale Consultants has a slew
  of products for the airline and banking industry
  that bring in 30 of its revenues. The rest comes
  from services, which includes outsourcing (that
  uses the companys own products) and a managed
  process services business, both of which are
  essential to keep the cash register ringing.
• There are different opinions, however, on whether
  the twain should ever mix. Companies like Kale,
  i-Flex and Infosys have managed to run both the
  services and the product model. Subash Menon,
  chief executive officer of Subex, differs and
  would prefer to hive off the services arm into a
  different company altogether.

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4. Build a base with the domestic product market
first before going overseas.

• In fact, the two big majorsi-Flex and
  Infosyshad a clear and very closely matched
  go-to-market strategy that has been very
  successful IndiaME and AfricaEuropefinally
  the US, in that order.
• Other companies are beginning to make sense of
  and adopt similar go-to-market strategies.
• Bangalore-based telecom software product company,
  Subex Systems, realized that carriers in the US
  and Europe demanded that the company should not
  only show proof of concept, but demonstrate the
  products ability to handle a 4-5 million
  subscriber base. For a new product company like
  Subex to straightaway pitch for such clients was
  almost impossible. So, Subex went for clients in
  India, Africa and the Middle East with a
  subscriber base of 2 lakh customers. It went on
  adding such customers till larger customers were
  willing to look at them. Even though the domestic
  market accounts for barely 10 of Subexs product
  revenues of Rs 25.5 crore, the company handles
  almost all the important carriers in IndiaBPL
  Mobile, Bharti Cellular, Escotel, Hutch and Idea
  Cellular. Today, Subexs clients have a
  subscriber base of 6-7 million.

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4. Focus on the needs that are below the radar
of the big players ie SME sectors needs

• SME sector forms a significant percentage of the
  Indian software and services industry and the
  contribution of this sector will be crucial for
  India to retain its competitive advantage and
  sustain future growth. As per NASSCOM estimates,
  approximately 50-60 of the industry revenues
  will be from the SME segment by 2008.

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A key issue !

• John Kenneth Galbraith
• entrepreneurs and academics researchers have
  very little in common.
• He sums up the difference by referring to the
  business philosophy of his friend, Ralph
  Flanders, a machine tool manufacturer
• I got to the top in my business by getting up
  earlier than anyone else working harder than
  anyone else inventing a machine that made a
  great deal of money, and .
• by marrying the daughter of the owner.

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2. Lack of funds or lack of opportunities?Compari
ng the Silicon Valleys
Source D. Rosenberg, The Cloning of Silicon
Valley
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2. Global lessonsEntrepreneurship- survey
Global Entrepreneurial Monitor survey of
entrepreneurial activity prevalence rates
measures the percentage of adults either starting
a new business or considering starting one (2000)

Source GEM, Kauffman Center for Entrepreneurial
Leadership
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1. Indian domestic product opportunity hardly
exploited.
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3.Mixing services with products works!Indian
experience also proves it works!

• COMPANY PRODUCTS
• TCS Banking, manufacturing
  and health
• I-FLEX
  CorporateRetail banking
• INFOSYS Banking
• NUCLEUS Finance sector.
• POLARIS
  BANKWARE
• ORBITECH (Polaris) Financial
  Products
• ADITI eCRM product
• RAMCO
  e.Applications/ERP

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3.Mixing services with products works!Why mixing
services with products works!
Product Business
How a Service Biz serves!

• Product
• Understand customer needs
• Design product
• Develop product
• Get beta customers
• Promotion
• Sales force oriented to product sales
• Distribution network
• Promotion spending
• Price
• Cookie cutter design for competitive price

• Product is service
• Build a product for your existing service
  Customers
• Design develop based on his service requirement
  input.
• Beta customers are your current customers!
• Promotion
• Pick products that require little Sales force
  more tech oriented.
• No distribution network
• Neg. promotion spending
• Price
• One off price for each sale

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1.Why stick to the service business? High
Product Export potential projected will also
drive domestic markets

• NASSCOM-McKinsey (2002) study projected US 10
  billion for export of software products and
  technology services in 2008.