Success Factors for a New Age Tech Product Entrepreneur

The first few weeks of your entrepreneurial journey can be disorienting. Suddenly, there is lot of time on your hands, the daily deluge of emails and meetings/calls has dried up, and even after you get your first office, there aren’t many people around. But you soon realize the benefits of this free time - you start making rapid progress on your ideas and putting together the team and infrastructure to make them a reality. The best part is the feeling of being more in control of your future.

The qualities required of a tech entrepreneur are well known. They include passion, creativity, being a self-starter, strong work ethic, ability to motivate and lead people to a common goal, ‘never say die’ attitude, innate optimism that things will get better, and the adaptability and intelligence to navigate through the challenges.

However, compared to our experience when four of us started a product venture ten years ago, things have changed significantly for the Indian tech entrepreneur in this digital age. While the success parameters are the same, they are more complex to manage. Let’s pick a few.

Idea: This continues to be the critical factor for success. Unlike the past, the ready access to information makes it easier to validate upfront that your idea is unique and differentiated. However, it also makes it likely that everyone you need to convince (investors, prospects) will be able to quote instances of offerings that are similar. It may even be that somebody is indeed far ahead of you. You don’t always have to be the first, but it is harder to gain traction unless there is some secret sauce that is as yet unexploited (Google in 1998 raced ahead of existing 10+ search engines by using links as the primary ranking metric) or you can quickly pivot to something else (YouTube began as a video-based dating service).

When we were building Sapience, we dropped a significant product capability in year two, because it was confusing everyone into thinking of it as a task management solution. Similarly, when talking to Indian VCs, they were intrigued but not convinced that that our unique and extensive enterprise level analytics and employee privacy safeguards will drive us towards success compared to other vanilla employee monitoring tools that hadn’t been able to scale. In our view, our product differentiators were critical for enterprise acceptance and we were later proved right.

Founding Team: A great team (co-founders and founding employees) is essential to convert your idea into a business. But people are more ambitious than ever before, and the good ones have plenty of opportunities. Setting the right mutual expectations between co-founders and other key employees about roles, ownership and compensation, and ensuring that the team works cohesively and delivers to potential, is a challenge. I am fortunate to be part of a group of four that have worked together in perfect synergy for 20 years.

Outside Cash: In 2010 when we started our product venture, Indian IT was all about services companies. It was a struggle to raise cash and get customers to buy Made in India solutions. Since then, based on online reports, deals at angel stage have risen from 15 in 2010 to 400 by 2018 (a drop from 620 in 2017 probably due to the angel tax). VC investment grew by 20X from $0.5 billion (92 deals) in 2009 to nearly $10 billion (780+ deals) in 2018. However, the competition for this money is intense. In a crowded field, startups find it a challenge to even get noticed. VCs and clients want to see a ready product, revenue of at least a few crores, and a proven ability to scale. Moreover, bulk of the VC money is going into a few B2C unicorns who are guzzling cash without any signs of future profitability.

At Sapience, after the first release and with a few installations, mostly pilots, Indian Angel Network decided to invest after just one presentation. Our next round was two years later from a customer (Infobeans) who loved the product. I think it would have been more difficult for us to raise cash today.

Your own cash: With investment unlikely until you have traction, be prepared for a minimum of two years of building the product and getting a few paying customers. The founders get no salary and pay for all expenses. It is best to assume that you will not get funding and try to bootstrap your company by having paying customers. Check out Sramana Mitra’s blogs and case studies of startups that became successful without any external funding on the 1M/1M website. I know of at least two product companies in Pune that are cross funded by their founders using profits from IT services companies that they setup 10+ years ago.

Sapience co-founders loaned money to the company and took no salary for couple of years. As our revenue improved, our compensation came on par with other senior management. We turned cash flow positive four years after we started (2014), but then raised more money (from an Indian VC, Orios) to setup a US subsidiary quite contrary to Sramana’s advice above!

Hyper growth: The buzz words today are about growth hacking and blitz scaling of startups. Investors will want your business plan to show how you will achieve rapid growth with their money and some evidence that this is already happening. Exit valuation too depends on your revenue graph. This is a high bar for most startups who have limited cash to invest in marketing and sales to support faster growth.

Setting up a B2B sales team in the US is expensive. Our US subsidiary had limited success largely because it was underpowered (just 1-2 sales reps). However, it became evident that the US market potential was huge. In late 2017, we did a strategic flip and Sapience became US headquartered with the help of funding from a US investor (NEXT). The presence of a US leadership team has resulted in an exponential revenue curve since then.

Product engineering: The days of clunky enterprise products and web apps loaded with features, 90% of which are rarely used, are over. Most successful products today do a few unique things and much better than anybody else. User experience is king. People are used to mobile apps that are easy to download, setup and use. As employees, they expect their business apps to be just as sleek. For your new product and features, it is best to first build UI mock-ups designed with the help of Usability experts. This enables early validation of the functionality and ease of use from beta clients.  

The trend for corporates is to move their apps to the cloud, whether public or private. Product teams have access to rapid app building tools and libraries. The way forward is clear: SaaS based point solutions that evolve rapidly. Some companies, especially with legacy B2B apps, provide updates a few times a year. Most SaaS players have moved to updates every six weeks, others every 1-2 weeks, and there are a few who do this daily or even several times each day.

I think entrepreneurs probably share some common genes with the explorers of old who set out in search of new lands. Both have the self-belief that there is something worth exploring, and the willingness to risk everything to get there regardless of any sceptics around. It is interesting that today’s explorers are entrepreneurs like Elon Musk, Jeff Bezos and Richard Branson, who dream of space travel for all and even colonizing Mars.

So all ye entrepreneurs, your goal may be less ambitious than space colonies, but go right ahead and live your dream (don’t forget to plan though). Regardless of success or failure, you will have followed your heart and will be richer in terms of your life experiences. Finally, that’s all that counts.

PS: This the second post in a series called I2B (Ideas To Businesses) intended to invite discussion about entrepreneurship and tech startups. Look forward to your comments and suggestions.