Current low-down on Indian start-up ecosystem

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In the last around three years, the Indian start-up ecosystem has exploded in all its facets that triggered its growth– quality entrepreneurs, early adopters, early stage investors and ecosystem support.

First, I think the notion that India is China will fade. Chinese companies don’t face competition from foreign players like Google, Amazon and Facebook, so they grow value quickly. Indian start-ups have to compete with the best even at home.

Some of the current domestic stars will wilt under this competition while others will thrive and become genuine unicorns. Practo and Freshdesk (cloud-based customer support service) are good examples of future category winners. Second, I think e-commerce will hit a soft point in its growth.

Unlike the first wave of customers coming online, the next wave doesn’t have much disposable income and is also not English speaking. Hence, it will take more effort for young businesses to bring these customers online and make them as valuable as the initial set of customers.

This new equation between money and growth will bring heartburn and anxious moments to current players. ‘Bharat’ focused players like Stayzilla and Dailyhunt (formerly Newshunt) will fare much better. Third, we will see companies failing to capitalise on their potential due to their internal issues. I believe in order to scale, it is very important to set right conditions for scale such as the right culture, team and process at an early stage.

Start-ups must invest in advance in these areas. While growing from zero to one is about survival and getting the product/market fit, it is what they do in going from one to 10 that determines their fate in the journey from 10 to 100. Many start-ups haven’t paid heed to this, and they’ll pay the price for this in the coming years.

After all, it was Air Deccan that made airline travel cheap, but the one who won the market was Indigo. Even if Air Deccan had an epiphany about Indigo’s culture and processes, it wouldn’t have been able to morph into an Indigo easily. The problem is not money but the lack of design thinking for category leadership at an early stage.

Fourth, there are lots of opinions about who is responsible for the e-commerce and hyper local valuation bubble in India. Recriminations have already started. Personally, I hold investors more responsible than entrepreneurs. The seller (entrepreneurs selling equity to investors) will always look for the best price, but it is for an informed buyer (investor) to buy at a price that makes sense. If investors are not doing that, it is a reflection of their immaturity.

Fifth, when it comes to talent, it is not about having Jugaadu people or Faadu people. Among India’s two biggest start-up hubs, Delhi has Jugaadu people while Bengaluru has Faadu people. As I have been saying earlier, we need start-ups to have both Delhi’s sales hustle and the Bengaluru’s technology muscle. That said, in the long run, technology-led companies will end up winning.

Start-ups are in a David versus Goliath battle with incumbent players or an incumbent system and their superpower is technology. Lastly, I will say that in terms of sectors, SaaS is picking up and has tremendous potential. For them desk selling and marketing is what global delivery model was to IT services firms. They will ride this innovation to create many winners. Software infrastructure is also doing very well as the technology stack undergoes a major change.

For example, Julia Computing, the creator of Julia (a one of the fastest growing open source programming languages), will change the world of Internet of Things; and Savari Networks (working on vehicle automation) has a very strong positioning in car electronics. Medical devices are doing well too. For instance, Forus Health (affordable healthcare start-up) might change the way we deal with blindness in India.

(This article first appeared in the Indian edition of Entrepreneur magazine (November, 2015 Issue).