ispirt product industry monitor(pim) feb 2014 - a first-of-its-kind report analyzing india’s...

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iSPIRT Product Industry Monitor Feb 2014

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 India has the potential to build a USD 100 bn software product industry by 2025 with resolute and purposeful action by industry and government. Over 50% of software product companies are completely self-funded or bootstrapped. Lot of senior talent from MNCs is starting software product companies close to 40% of founders come from an MNC. Indian software product startups are experiencing talent starvation at the entry level. 78% of Indian software product startups defy the universal logic of having founders with diverse skills, and instead have homogenous founding partners. The three most common product sectors that companies work in are Enterprise, SaaS and Consumer.

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Page 1: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

iSPIRT    Product  Industry  

Monitor  Feb  2014    

Page 2: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Why  Product  Industry  Monitor  Reports  

Startup  Density  

Startup  Outcomes  

• The  industry  needs  to  move  from  anecdotal  data  to  scien5fic  data  

• Credible,  regular,  insighFul  guidance  on  the  industry  through  ‘Product  Industry  Monitor’  reports    

Feb  2014   2  

Page 3: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

First  Product  Industry  Monitor  report  is  focused  on  the  following:  

•  Industry  Demographics:  locaKon,  age,  market  sector,  legal  status,  and  number  of  employees  and  founders.  

•  Founder  Profile:  names,  educaKonal  background,  experience,  and  role  in  startup.  

•  Talent  Management:  pressure  points  in  hiring,  perceived  reasons  for  difficulty  in  hiring  types  of  talent,  and  pay  scales.  

•  Financing:  sources  of  funding,  total  capital  invested,  valuaKon  status,  and  equity  share  of  founders.  

 

First  Product  Industry  Monitor  Report  

Feb  2014   3  

Page 4: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Key  Finding  #1  -­‐  Bootstrapping  •  Over  50%  of  soYware  product  companies  are  completely  self-­‐

funded  or  ‘bootstrapped’  •  Reasons  could  be:  

–  lack  of  early  stage  financing  in  the  ecosystem.  –  conscious  choice  by  entrepreneurs  to  seek  external  funding  at  a  later  

stage,  so  as  to  beZer  their  prospect  of  higher  valuaKon.  

•  Whether  the  phenomenon  is  a  result  of  external  constraints  or  strategic  choice  of  firms,  it  is  important  to  recognize  that  bootstrapped  firms  form  a  dis5nct  and  important  category  within  the  Indian  so?ware  product  industry,  much  like  it  is  in  Silicon  Valley  too  

•  Bootstrapped  firms,  with  a  different  pathway  to  growth/IPO  need  to  be  nurtured  and  evaluated  as  a  disKnct  category,  rather  than  as  an  aberraKon  

Feb  2014   4  

Page 5: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Key  Finding  #2  –  Talent  StarvaKon  •  The  steady  flow  of  MNC  R&D  investment  into  India  was  

expected  to  create  knowledge  spillovers  and  provide  an  impetus  to  Indian  soYware  product  industry.  

•  We  indeed  find  that  a  lot  of  senior  talent  from  MNCs  are  starKng  soYware  product  companies  –  close  to  40%  of  founders  come  from  a  MNC  

•  However,  the  same  cannot  be  said  of  junior  talent.  The  typical  early  startup  in  India  struggles  to  hire  technical  talent  for  lack  of  brand  and  inability  to  match  MNC  pay  scales  

•  Basically,  the  propensity  to  take  risks  increases  with  age  and  experience.  As  a  result,  Indian  so?ware  product  startups  are  experiencing  ‘talent  starva5on’  at  the  entry  level  

Feb  2014   5  

Page 6: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Key  Finding  #3  –  Birds  of  the  Same  Feather  •  Research  has  shown  that  funcKonal  diversity  among  the  top  

management  team  posiKvely  impacts  firm  performance  (Cannella,  Park  and  Lee,  2008)  

•  Therefore,  the  key  to  building  a  successful  product  company  is  to  have  a  diverse  founding  team  -­‐  a  combinaKon  of  technical  and  business  skills    

•  We  find  that  78%  of  Indian  so?ware  product  startups  defy  this  rule.  They  have  homogeneous  founding  teams  i.e.,  all  founders  are  technologists  or  all  of  them  have  training  in  business  

•  Founding  teams  are  coalescing  based  on  familiarity  between  founders  rather  than  diversity  of  skills  

•  This  might  be  a  manifestaKon  of  a  low-­‐trust  society  Feb  2014   6  

Page 7: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Industry  Demographics  

Page 8: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

How  old  and  how  big  are  the  companies?  

•  The  average  soYware  product  company  is  2.5  years  old,  however  some  listed  their  founding  date  as  recently  as  last  month,  some  are  25  years  old.    

•  Most  soYware  product  companies  have  only  one  headquarter  (94%);  others  have  secondary  headquarters  either  in  Europe  or  in  the  United  States.  

•  Most  soYware  product  companies  have  8  employees  (excluding  founders);  some  are  as  small  as  one,  and  some  have  over  120  employees.  

Feb  2014   8  

Page 9: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Where  are  the  companies  located?  

•  SoYware  product  companies  in  the  survey  come  primarily  from  four  ciKes:  –  Bangalore  –  Pune  –  Delhi/NCR  –  Chennai  

•  This  may  be  due  to  #PNCamp  being  in  Pune;  more  clarity  on  this  point  as  response  rate  increases  and  a  wider  cross-­‐secKon  is  surveyed   0% 10% 20% 30% 40%

Bangalore

Pune

Delhi/NCR

Mumbai

Chennai

Hyderabad

Other-India

Other-USA

Other-Europe

Feb  2014   9  

Page 10: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

What  products  do  these  companies  create?  

•  The  three  most  common  product  sectors  that  companies  work  in  are:  

–  Enterprise  –  SaaS  –  Consumer  

0% 5% 10% 15% 20% 25% 30% 35% 40%

Enterprise

SaaS

Consumer

Mobile

Infrastructure

Security

E-Commerce

Healthcare

Media and Advertising

Big Data

Analytics

Education

Agriculture

Feb  2014   10  

Page 11: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

The  Founding  Team  

Page 12: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

How  many  employees  and  founders?  

•  The  modal  soYware  product  company  has  2  founders  (40%);  followed  by  one  person  and  three  person  founding  teams.  

•  Only  22%  of  the  companies  have  a  diverse  founding  team.  

0% 10% 20% 30% 40% 50%

1

2

3

4

More than 4

0%   20%   40%   60%   80%   100%  

Homogeneous  Team  

Diverse  team  

Founding  Team  Diversity  

Feb  2014   12  

Page 13: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

What  the  experience  profile  of  founders?  •  Experience  with  startups  is  

nearly  balanced  equally  across:  founders  with  no  experience,  experience  as  an  employee,  and  as  a  founder.    

•  Most,  69%,  have  some  prior  startup  exposure.  

•  Most  have  worked  before  (95%)    

•  Most  in  mulKnaKonals,  large  domesKcs,  and  a  significant  number  in  domesKc  and  overseas  startups.  

0% 10% 20% 30% 40%

Multinational

Large domestic

Overseas startup

Domestic startup

No prior work experience

28%  29%  30%  31%  32%  33%  34%  35%  36%  37%  

yes,  as  founder  

yes,  as  employee  

No  prior  experience  

Feb  2014   13  

Page 14: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

How  old  are  the  founders?  

•  Not  too  many  dorm  room  startups.  

•  Founders  are  older,  most  in  their  30’s  and  40’s  (71%).  

•  About  23%  are  in  their  20’s.  

0% 10% 20% 30% 40% 50%

less than 21 years

21 to 30 years

31 to 40 years

41 to 50 years

more than 50 years

Feb  2014   14  

Page 15: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

What  is  the  educaKon  of  founders?  

•  Many  founders  are  engineers  with  only  a  BE  or  BTech  (43%).  

•  About  44%  have  earned  an  advanced  degree,  either  a  masters  or  an  MBA.    

•  A  minority  have  a  BA  or  BSc  (12%)  

•  About  22%  of  founding  teams  have  least  one  member  with  a  degree  from  IIT,  IIM  or  NIT.     0% 10% 20% 30% 40% 50%

Doctoral degree

Masters degree

MBA

BE or Btech

BA or BSc

Feb  2014   15  

Page 16: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Finding,  Hiring,  and  Retaining  Talent  

Page 17: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Talent  that  startups  find  difficult  to  hire  •  On  average,  soYware  product  

startups  have  mixed  experience  in  finding  talent.    

•  Some  soYware  product  startups  find  it  easy  to  hire;  others,  difficult.  

•  On  average,  the  easiest  talent  to  hire  is  operaKons;  the  most  difficult,  product  management.  

•  The  key  external  reason  is  the  percepKon  that  the  labor  market  lacks  product  management  specialists.    

•  Overall,  companies  aZribute  difficulty  primarily  two  internal  factors:  the  inability  to  pay  compeKKve  wages,  and  the  lack  of  a  brand  reputaKon.  

Mos

t diff

icul

t St

rong

ly A

gree

Reas

ons

for H

iring

Diff

icul

ty

Prod

uct M

anag

emen

t

0 0.5 1 1.5 2 2.5 3 3.5 4

Operations

Marketing

Product Development/Engineering

Sales

Product Mangament

0 1 2 3 4 5

Founders lack people in their networks

Company doesn't have resources for perks

Company lacks brand reputation

Cannot afford to pay market wages

Labor market lacks talent

Feb  2014   17  

Page 18: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

What  do  startups  pay  for  talent?  •  The  modal  pay  for  each  of  the  talent  

areas  seems  quite  consistent  across  soYware  product  startups:  –  66%  of  startups  pay  between  25k  INR  to  

75k  INR  for  Engineers.  –  56%  pay  between  50k  to  1  lakh  for  

Product  Managers.  –  56%  pay  between  25k  to  75k  for  Sales.  –  66%  pay  between  25k  to  75k  for  

OperaKons.  –  56%  pay  between  25k  to  75k  for  

MarkeKng  talent.  

•  The  widest  variaKon  in  pay    norms  is  in  Product  management,  then  Sales.    

•  Most  consistent  pay  norms  are  in  OperaKons.  

Pay scale distribution for Engineering talent

Pay scale distribution for Product Management talent

0% 5% 10% 15% 20% 25% 30% 35%

below 25,000 inr

25,001 to 50,000 inr

50,001 to 75,000 inr

75,001 to 1,00,000 inr

1,00,001 to 1,50,000 inr

more than 1,50,000 inr

0% 5% 10% 15% 20% 25% 30%

below 25,000 inr

25,001 to 50,000 inr

50,001 to 75,000 inr

75,001 to 1,00,000 inr

1,00,001 to 1,50,000 inr

more than 1,50,000 inr

Feb  2014   18  

Page 19: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Financing  

Page 20: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Where  do  startups  get  their  funding?  •  The  primary  source  of  funding  

for  the  majority  of  soYware  product  startups  is  the  founder’s  own  capital.    

•  73%  of  the  capital  for  a  soYware  product  startup  is  self-­‐funding.  

•  The  second  largest  is  angel  investment  at  14.1%.  

•  A  small  proporKon  comes  from  venture  capital  (2.5%)  and  about  3%  from  debt  financing.   0 10 20 30 40 50 60 70 80

Self-funded

Angel Investment

Venture Capital

Private Equity

Debt Financing

Feb  2014   20  

Page 21: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Invested  capital  and  ownership  shares •  A  majority  (57%)  of  soYware  

product  startups  compleKng  the  survey  have  less  than  1  crore  invested  in  the  startup.  

•  Approximately  23%  have  between  1  and  5  crores;  about  17%  have  more  than  5  crores.  

•  Only  27%  of  the  companies  have  been  valued.  

–  50%  of  these  companies  have  a  valuaKon  is  between  1  and  10  million  USD    

–  34%  of  these  have  a  valuaKon  less  than  1  million  USD.  

•  In  50%  of  startups  founders  have  equal  share  of  ownership.  

0% 10% 20% 30% 40% 50% 60% 70%

less than 1 crore

between 1 and 5 crore

between 5 and 12 crore

more than 12 crore

Feb  2014   21  

Page 22: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

About  the  Authors  •  Sharique  Hasan  is  Assistant  Professor  at  Stanford's  Graduate  School  of  Business.  He  specializes  in  

the  study  of  social  networks,  human  capital,  and  entrepreneurship.  He  earned  his  doctorate  in  organizaKon  theory  and  management  from  Carnegie  Mellon  University  and  his  bachelors  degree  in  Computer  Science  from  Rutgers  College.  His  research  has  been  published  in  leading  management,  sociology  and  computer  science  journals.    

•  Srivardhini  K.  Jha  is  a  Research  ScienKst  with  McGill  Centre  for  Convergence  of  Health  and  Economics  and  Fellow  at  iSPIRT.  Her  area  of  experKse  is  in  strategic  management  of  innovaKon.  In  parKcular,  she  is  interested  in  exploring  the  structures,  processes  and  organizaKonal  arrangements  that  facilitate  systemaKc  innovaKon  within  firms  as  well  as  within  systems  of  innovaKon,  with  parKcular  emphasis  on  the  emerging  country  context.  She  has  a  Ph.D.  from  IIM,  Bangalore,  M.S.  from  Stanford  University  and  a  Bachelors  degree  in  Engineering  from  Bangalore  University.  She  also  has  over  a  decade  of  industry  experience  in  hi-­‐tech  companies,  both  in  Silicon  Valley  and  in  India.  

•  Rembrand  Koning  is  a  doctoral  candidate  at  Stanford's  Graduate  School  of  Business.  He  specializes  in  the  study  of  social  networks,  innovaKon,  and  entrepreneurship.  He  earned  is  bachelors  degree  in  StaKsKcs  and  MathemaKcs  from  the  University  of  Chicago  where  he  was  a  University  Scholar.      

 Fine  print:    This  is  based  on  a  carefully  designed  survey  of  Indian  so9ware  product  companies.  The  survey  was  administered  from  Dec  4th    2013  to  Jan  14th  2014  in  two  phases.  In  Phase  2  the  number  of  responses  increased  by  nearly  50%.  The  results  were  strikingly  consistent  across  Phase  1  and  2.  The  shi9s  are  so  minor  that  the  basic  conclusions  from  the  Phase  1  of  the  analysis  remained  the  same  giving  confidence  in  the  overall  integrity  of  this  analysis.    There  were  nearly  100  responses  on  most  quesJons.    

Feb  2014   22  

Page 23: iSPIRT Product Industry Monitor(PIM) Feb 2014 - a first-of-its-kind report analyzing India’s software product industry landscape

Future  PIM  Reports  and  Impact  •  Product  Industry  Monitor  Reports  inform    

–  BeZer  policy  making  –  BeZer  funding  allocaKons  –  BeZer  mentoring/accelerator/incubaKon  programs  

•  Future  reports  will  explore    – M&A  landscape  for  soYware  products  –  Products,  Business  models,  Strategy  and  InnovaKon  in  the  soYware  product  industry  

–  Track  year-­‐on-­‐year  trends  on  various  dimensions  of  the  soYware  product  industry  

Feb  2014   23