• PAGE ONE
• INDEX
• HOME

Fight to finish

Vipin Kumar

IN one of the first episodes of ``Kodeeswaran'', the tamil take-off of the popular ``Kaun Banega Crorepati'' show, a participant was asked what he would do if he wins the one crore jackpot. Pat came the answer from the lad, hailing from interior Tamil Na du: ``I will start a software company.''

Why a software firm, asked the host of the show, Tamil film star Sharath Kumar. ``That's the easiest way to become rich,'' the boy answered.

The boy's aspiration to start a software firm and become rich overnight is the quintessential entrepreneurial spirit that one would see all over India these days - everyone wants to be

in software, and software alone.

Enthused by the rags-to-riches stories, ever-expanding billionaire clubs, the free flow of venture capital, and the buoyant stock market, many start-up software firms have cropped up across the country - all with the dream of becoming the Infosys of tomo rrow.

But what is happening to all these start-ups? How many of them would become the Infys and Sifys and Wipros of tomorrow? That is the billion-dollar question confronting India's IT industry today. For, achieving the set target of an $87-billion Industry by 2008 would hinge on the success of these start-ups.

In this story, eWorld looks at some of the issues that confront small software firms - How they face competition, what their problems are, how they feel after venturing into this business, the road ahead.

As per an estimation by the National Association of Software and Service Companies (Nasscom), over 700 software and IT-enabled service companies have come up in the past one year in India. ``The number of companies registered this year would be more than this and we expect the same growth next year too,'' says Dewang Mehta of Nasscom.

While this is good news for the industry, the predicted mortality rate among these companies is bad news as it shows that many IT firms are increasingly becoming vulnerable because of an almost non-existent USP. ``Many people jump into the IT bandwagon t hinking that it is an easy way to make money. Our estimate is that 30 per cent of the start-ups would shut shop over the next two years,'' says Mehta, who fears that IT-enabled services would be the worst hit of the lot.

Broadly there are three issues confronting the Indian IT industry: Attracting and retaining people, raising capital and managing money and bagging business. These issues are not specific only for small companies. While established firms may find it less difficult in managing these issues, the new companies are really at the receiving end here.

``Finding quality manpower is the biggest challenge for small software firms,'' says Ashwani Dewan, Vice-President of VtPlex (I) Pvt Ltd, a company engaged in developing e-CRM and knowledge management solutions. ``The big firms get the better people than ks to their brand equity,'' he says.

With the US increasing the number of the H1-B visas, this is going to get worse, Dewan feels.

On the issue of finding finance, Nasscom's Mehta says.

Money is no longer a big problem, provided the company has a viable business proposition. ``Finance was a big issue earlier. But today we have a good number of VCs and private equity firms and this has solved this issue to a large extent,'' Mehta says.

However, many in the industry, such as S. Swaminathan, Chief Executive of Investment Research and Information Services (IRIS), feel that VCs never provide the funds when the firm needs it.

Approximately, an investment of Rs 1.5-2 crore would be required to start a software company operating in a niche segment with about 15 people. Till a VC chips in with the money, it is a hand-to-mouth existence for a company like this. And if the funding gets too late, many will not survive.

If a start-up manages to cross these two hurdles, then comes the third and the very basic of these issues: Bagging business. This is one space where the smaller fish would feel the heat of amidst the giants. And needless to say, how a company

tackles this issue will decide its fate.

``Breaking into the US and the UK markets, the biggest markets of software, is the primary challenge,'' says Dewan. ``Moreover, the price pressure is tremendous these days as the customer is getting wiser in getting better deals.''

``Gaining the confidence of the client takes time,'' according to Gokul Tandan, Managing Director of the Delhi-based Virtual Software and Training, a two-year old company. Tandan says a firm has to reach a particular stage to instill confidence in a clie nt that it can deliver a large project.

``When it comes to offering offshore services, the clients always insist on the past record of the company such as the kind of projects it has done. This means that unless you have some projects under your belt, it becomes very difficult to sustain,'' sa ys Ashok Thussu, Chairman of Eurosoft International Ltd, another Delhi-based start-up.

According to P.K. Sandell, Chairman of the National Association of Small and Medium IT Companies of India (Nasmeit), the withdrawal of tax holidays in the last Union Budget has come as a blow to new companies. ``You have to nurture the small and medium c ompanies to grow to become the big corporations of tomorrow. The Government should provide them a helping hand,'' he says.

Nasmeit demands that the Government should do away with the ``discrimination'' in providing income-tax benefits. In the last Union Budget, the Government had withdrawn the income-tax exemption to exports and introduced a new taxation on the basis of redu cing balance.

``While big firms registered with STPIs before the deadline of March 31, 2000 would continue to enjoy tax holidays for another 10 years, new companies will have to pay tax on a reducing balance base,'' Sandell says.

So what are the solutions at hand to tide over these issues?

All the start-ups that eWorld spoke to underlined the importance of forging alliances/collaborations in the initial stages as a means to get business.

``Till the time you reach a certain size, you need to have some tie-ups with established firms,'' says Virtual Software's Tandan, who has already tied up with companies such as Apple and Real Networks. ``It is a very important and crucial survival point. ''

VtPlex's Dewan says that forging an alliance with a company in the US or the UK is the best way to make an entry to these markets. ``Otherwise, it would be a very costly affair to tread on these unfamiliar territories,'' he adds.

Another critical factor is being very focussed and offering niche services that big firms might not be in a position to offer.

``You should not forget the fact that you are a small company, and hence should avoid competing with the biggies head on. Segmentation of your customers is also important,'' says Thussu, who has developed products in risk management, apart from offering GIS applications.

According to Nasscom's Mehta, who conducts mentoring programmes for small firms every week, many overseas companies don't outsource their IT needs from big software firms as they are particular on getting a focussed solutions and good, customised service . Besides, being a small and focussed would also help startups in delivering solutions at a faster rate to the satisfaction of the client.

``In the earlier nineties, every one was a small or medium size IT company. That is the best lesson for the new companies,'' says Mehta.

Meanwhile, our friend at the ``Kodeeswaran'' show could not realise his software dreams as the very next question itself floored him. But as they say, there is always a next time to make one's dreams come true.