Indian startups and those that are born global with significant operations in India have a massive advantage compared to ventures in more developed countries
A couple of years ago I had the pleasure of hosting Rajesh Reddy, co-founder and President of July Systems, in my MBA course, where he told the students how the company he started with Ashok Narasimhan evolved its self-concept over the course of several years. July Systems is now a classic US-India “born global” success story that helps brands extend their presence to mobile devices in a way that drivesresults and revenue streams. Yet it started off with quite a different idea.
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| Philip Anderson |
The company was launched in July, 2002, with headquarters in Sunnyvale, California and technology development located in Bangalore, a rather novel model at that time. Originally, it intended to build an end-to-end software infrastructure system that would remove what the founders saw as the most important barriers preventing businesses from deploying key applications to mobile devices. Any company that wanted to extend applications to wireless devices faced a daunting array of incompatible standards, network infrastructure, operator services, and handsets. Reddy and Narasimhan saw a need for a single software platform that would tie together these disparate elements, so that a business could seamlessly deploy its applications and services to different mobile devices across different networks. One version of the software would be offered to carriers so they could deploy data access services integrated across wide-area data networks and wireless networks, while another would be offered to businesses to support delivering mobile data services and applications to their users.
JumpStartup Ventures, WestBridge Capital Partners, and Acer Technology Ventures Asia Pacific provided July Systems with $5.5 million in series A financing in April, 2002. July Systems hired over 50 key product creation and delivery team members (including engineers, product managers, user experience designers, and network operation specialists) in Bangalore to start building its system, and in August, 2002, it raised another $2.5 million in an extension of its series A funding, with NeoCarta Ventures joining in and WestBridge increasing its stake. Says JumpStartup founding partner Sanjay Anandaram, “In the first 18 months, it was unclear whether the customer was the operator or someone else, or whether July would be better off licensing software or providing a managed service. With everything in extreme flux, July had to figure out in real time where the most money could be made.”
By spring, 2003, an early version of the July Meta-Service System (JMSS) was on trial with mobile operators. The focus of the software was now on offering operators the ability to deliver premium mobile data services to their subscribers. Written in the Java programming language, JMSS was a software platform designed to simplify the complex task of delivering many different types of mobile content and applications to the subscribers of different operators via a variety of pricing schemes.
But enterprises proved slower to put enterprise applications onto networks than had been forecast. On the other hand, sales of digital content grew much faster than many had envisioned. In 2004, revenues from selling ringtones exceeded revenues from compact disk sales in several countries. Sales of games written in the Java language for mobile devices were zooming, and with higher-speed, third-generation networks poised to roll out worldwide starting in the middle of the decade, video and music on demand seemed poised for growth. As purchases of digital goods soared, July Systems’ leaders saw a gap that its software could fill: enabling m-tailing. Those with digital goods to sell had to deal with an array of non-standardized service delivery mechanisms, because their target audience was spread across operators who managed the service delivery chain in different ways.
Through most of 2003, July Systems tried to sell its software platform to mobile operators, many of whom were playing the role of operator-retailers. This approach led to a number of trials, but did not drive revenue growth quickly enough. By 2004, July had switched its emphasis from selling software to selling a managed service. Mobile operators remained the target customer; the sales challenge was getting them to use July Systems’ services to deliver content to their subscribers. It eventually became clear that operators needed more than a service platform: they needed an end-to-end service provider who could deliver a whole product. July Systems gradually positioned its SmartMedia platform as a way for companies to create branded channels on mobile devices featuring personalization, interactivity, cross-platform campaigns, and target advertising.
July Systems illustrates a maxim of entrepreneurship: ventures almost never end up doing what their business plan says they are going to do. In a sense, that is a trivial observation because there is just one way for the business plan to succeed while there are infinity minus one other ways for a venture to thrive. But the deeper truth is that a business plan is nothing more than the starting point of a journey. Experienced venture capitalists have learned they must bet upon a team that will find a way to win after the business plan fails to pan out.
Every venture starts off with an identity. This includes:
- A definition of the initial customer segment and its boundaries;
- A definition of the initial product or service;
- A vision of the value proposition, why customers will pay for the product or service;
- A business model explaining how the firm makes money on the difference between willingness-to-pay and cost-to-serve;
- Boundaries specifying what activities the firm will or will not undertake.
Any of these elements can change, and often all of them do as a venture develops. Usually they change together. For example, when the customers you thought were going to pay don’t buy quickly enough to sustain the business, you change your definition of who is the customer, what is the service, why they buy, how you serve them and what activities you have to become good at in order to serve them.
The challenge for most businesses is that while the entrepreneur is figuring out what works, the venture is burning precious cash. A venture is a race between getting traction—finding some niche where it becomes cash-flow positive—and running out of cash. Early-stage venture capital emerged in the late 1950s as a way for investors to lengthen the runway, the amount of time and cash a new company has before it must close its doors.
Indian startups and those that are born global with significant operations in India have a massive advantage compared to ventures in more developed countries: the same amount of cash produces a longer runway. The $8 million in series A financing that July Systems raised would not have lasted long in Sunnyvale, California. With the bulk of its operations in Bangalore, the money lasted long enough for July Systems to explore three or four different versions of its identity, even though it hired more than 50 technical professionals at a very early stage in its life. A Silicon-Valley-based company would have run out of cash before it discovered the way to get traction was to provide an end-to-end mobile channel solution for brands and operators.
That advantage is eroding over time, of course, as wages spiral upward in India, but it is still significant. Other things equal, an Indian company can conduct more experiments and re-define its identity more times than a Western company could. This is a key advantage for Indian entrepreneurs who take a flexible approach, seeing their mission as discovering a profitable identity instead of executing a business plan.
The INSEAD case in this issue of DARE describes how Mahesh Murthy discovered such an identity for his startup, Pinstorm. The original idea was to use Indian intellect and software skills to help companies optimize their purchase of Google Adwords. The business was sufficiently successful that Murthy has never needed one rupee from venture capitalists, and has thus avoided diluting his equity stake. But what Murthy discovered by observing what customers would pay for is that they wanted to pay ad agencies for results instead of paying them for campaigns. Once he reconceived Pinstorm’s identity as the leader in pay-for-performance marketing, he discovered a host of growth paths that never would have occurred to a CEO who defined himself as the owner of an online advertising company or a search engine marketing company or a software platform.
The lesson for entrepreneurs: don’t get too attached to any one vision of what your company is. Let the market help you find what it can become. Every couple of months, revisit the five elements of your identity: ask yourself what customers are actually paying for and how you can provide what they will pay for with even more value at even higher margins. Entrepreneurs tend to get locked into the identity you see on their Web site when you click on “About Us.” Remember: entrepreneurship really is “About Us,” not about what we are doing at this particular moment in time. It’s “About Us” because we, the entrepreneurial team, are the ones who define and re-define a venture’s identity, listening creatively to the voice of the market while thinking creatively about how to close the gap between what is and what can become.
INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Center for Entrepreneurship and Director, 3i Venturelab.
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