NASSCOM-ZINNOV India Software Product Business Study

1

NASSCOM-ZINNOV INDIA SOFTWARE PRODUCT BUSINESS STUDY

This report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Zinnov

August, 2008

Zinnov

This study is a deep-dive analysis of the potential opportunities to build successful Indian software product business

Note: 1Discussed in Appendix; 2Includes exports and domestic sales

Source: Stakeholder Interviews; Zinnov Analysis

MNC Companies Indian Companies

IT Services

Software Products & Engineering Services

Business Process Outsourcing (BPO)

Engineering Services/ Embedded Systems/ Software

Enabled Products1

Outsourced Product Development1

Software Product Business2

An Indian Software Product Business is

• A company headquartered in India• That has developed and/ or owns the software IP

(includes software IP owned through acquisitions)• Undertakes the packaging and selling of the

software itself or through channel partners

Objective of the Study

• To review of the market landscape• Highlight the key opportunity areas in the

domestic and global markets • Suggest targeted actions that key stakeholders

should undertake to enable the next phase of growth for Indian software product businesses

Indian Technology IP Landscape Indian Software Products and Engineering Services IP Landscape

Indicates IP Creation from India

Zinnov reached out to various software product business stakeholders to gather specific insights

10 Interviews with sales and marketing heads of MNC product business

11 Interviews with founders of software product companies started in last 3-5 years

MNC Business

Startup Entrepreneurs

7 interviews with the Product business stakeholders

4 SMB cluster visits across India. Bangalore, Hyderabad, Tirpur, Jamshedpur, to understand the IT penetration and reasons for automation in great level of detail

10 Interviews with serial entrepreneurs to understand the challenges they faced during there ventures and there recommendations o budding entrepreneurs

SMB Cluster Visit

Incubators / InstitutionsRole Models / Serial Entrepreneur

NASSCOM stakeholdersIndian Product Business

16 interviews with Indian product businesses to understand their experience doing business in India and the challenges they faced

Total = ~ 100 interviews

9 interviews with VC’s to understand their perception of Indian idea quality, factors they analyze before funding and challenges they foresee

VC’s

3 Interviews with top management of Stake holding government agencies i.e. SINE, NSRCEL and CIIE

Indian CIO’s

15 interviews with CIO’s across verticals to understand there IT spends, perception of Indian products and there say on the industry needs

Interviews with key contacts of CSI and CII

Government Agencies

Stakeholders

Interviews with Customers of India product businesses globally

Customers

Sent out RFI’s to top 20 India product businesses for revenue and profiling details

RFI’s – India product businesses

The Indian software product industry has witnessed an accelerated growth of 44 per cent over the past three years

Indian Software Product Companies

Selling in India

USD 0.46 billion

Indian Software Product Market Landscape, FY2008

Indian Software Product Companies Selling Outside India

USD 0.96 billion

Indian Software Product Businesses Revenue

US

D b

illio

n

Note: * Includes overseas acquisition led revenue growth

Source: Zinnov Analysis

CAGR = 44%

0.290.39

0.46

0.40

0.68

0.96

0.0

0.5

1.0

1.5

FY 2006 FY 2007 FY 2008

Domestic Exports*

Global Companies Selling Software Products in India

USD 1.84 billion

0.69

1.07

1.42

While the top 5 players dominate, expansion in the tier-II firms and startups has helped broad-base the industry structure

Revenues of Top Indian Software Product Companies, FY2008

Note:1Ranking is based on responses from RFIs; Only software product revenues have been considered for the analysis

Source: Company Annual Reports; Zinnov Analysis

941

256

85 75-9051

0

200

400

600

800

1000

Top 5 Top 6 - 10 Top 11 - 15 Top 16 - 20 Rest

US

D m

illio

n

India Software Product

Companies

Percent Share in

Total Revenues

Top 5 66 per cent

Top 10 84 per cent

Top 15 90 per cent

Top 20 93 per cent

Rank1 Company

1 i-flex

2 TCS

3 Infosys

4 3i Infotech

5 Subex

6 Cranes

7 Tally

8 Polaris

9 Nucleus

10 Ramco

Growth in software product startup activity over the last three years has also helped strengthen the industry product portfolio

126

21 24 2943

55

96 103

~500

0

100

200

300

400

500

On OrBefore2000

2001 2002 2003 2004 2005 2006 2007 Total

Nu

mb

er

of

So

ftw

are

Pro

du

ct S

tart

up

s

254 Companies

371 Companies

Number of Software Product Startups1 (2000 – 2007)

4%

3%

4%

37%

9%

11%

16%

5%5%6%

ERM TelecomContent Apps Collaborative AppsSearch Engines BankingBusiness Intelligence Engineering AppsSecurity Others

Categorical Distribution of Indian Software Product Businesses (2007)

Note: 1The number is net of mortality rate; 2Telecom includes mobile application software product companies; 3 includes system, Information & data management, application development tools, SCM, System & Network Management, Retail, Gaming, Storage, Advertising, e-Governance, Healthcare, Media and Entertainment, Application Deployment, and Quality Life Cycle tools etc.


2

3

Increased activity in the Indian software product industry is being witnessed only after three decades of its evolution


Early Stage Growth Stage Acceleration Stage

1980 – 1990 1990 – 2000 2000 – 2007

Nu

mb

er o

f P

rod

uct

B

usi

nes

ses

Low

HighHistory of Indian Software Product Business

Wipro Systems

Softek

TCS

HCLMore than 300 startups in the last 4 years

India excels in banking- specific products

Softek Compilers

Instaplan

Muneemji

Easy Acc

Flexcube (i-flex)

TableCurve (Cranes)

Nikira (Subex)

Tally

mChek

Arc (Manthan)

VIS (3d SOC)

IViZ

Visionary companies built compilers and application software for local market requirement

i-flex

Infosys

Cranes

TallySolutions

Ramco Systems

Polaris

Subex

Compulink

Nucleus Software

Newgen

InfrasoftTech

Kale Consultants

Elitecore Technologies

iViZ

3D Solid Compression

Manthan

Innoviti

VegayanmChek

While India’s role in global technology IP creation has grown steadily, several challenges have constrained the growth of home-grown software product business

Smaller Base of Domestic Market

Lack of Distribution Network and Global

Market Access

Lack of VC Investments in

Software Product Business

Higher Entry Barrier due to MNC Presence

Lack of Experienced Product Development

Talent

Parallel Emergence of IT Outsourcing Era

Challenges

1

2

3

6

5

4


However, a maturing ecosystem has helped accelerate the growth of home-grown software product businesses over the past few years


Maturing Ecosystem

Technology Disruption

Market Development

Talent Pool

Role Models

Venture Capital

Incubation Centers

1

2

3

6

5

4

Product development professionals in India are spread across MNC subsidiaries as also service providers and Indian software product businesses

Source: Ziinnov R&D Offshoring Report 2008, Zinnov Analysis

Pe

rce

nt 100%

0%

20%

40%

60%

80%

100%

Total MNCCenters

ProductEngineerService

Providers

India ProductBusiness

49%

38%

13%

Total Installed Talent Pool = 140,000 Total Installed Talent Pool = 140,000

Distribution of Software Product Development Talent, 2007

• MNC subsidiaries have nurtured product development talent across value chain

• Movement of expatriates has additionally created leadership talent

MNC Subsidiaries

• Service providers are moving up the value chain and innovating on value creation

• E.g. Center of Excellence (CoE)

Product Engineering Service Providers

• Installed base of talent pool is increasing with the increase in number of software product start-ups in India

Indian Software Product Business

+

+

Venture capital funds investing in India are actively focusing on software product business funding

Application Development/ Deployment

4%

Online Gaming

3%

VC Investments by Software Product Categories, 2007

Total Software Product Investments: USD 156 million

Total Software Product Investments: USD 156 million

Application Software1

48%

System Infrastructure

Software17%

Mobile Apps12%

Online Search

16%

76 84

156

192

424

387

0

200

400

600

2005 2006 2007

Software Products Others

VC Investments in India, 2005 – 2007

US

D m

illio

n

Source: Venture Intelligence; Zinnov Analysis

268

508

543

A number of incubation centers have been established across India, that are helping technology startups with funds and mentorship

Source: CII; KPMG; Zinnov Analysis

Number of Companies Registered with Incubation Centers Across Product Categories, 2007

ERM14%

Vertical Apps14%

Business Intelligence

11%

Content Apps11%Collab

Apps11%

CRM11%

Engineering Apps11%

SCM4%

Information & Data Mgmt

4%

Others11%

Software Product Companies Incubated = 28

Software Product Companies Incubated = 28

Geographical Distribution of Incubation Centers

4

7

5

2

5

1

8

5

1

48.6

29.7

Tamil Nadu

56.3

Andhra Pradesh

55.4

Maharashtra

38.4

Gujarat

17.6

Rajasthan

17.8

Delhi

35.6

Karnataka

Indicated Gross State Domestic Product in USD billion in 2005-2006

nIndicated number of incubation centers

Kerala

Over the years India based software product businesses have built renowned products which can act as role models for startup companies

In 1992, Citibank spun off the FLEXCUBE product division into a separate company called Citicorp Information Technology Industries (CITIL). In the year 2000, CITIL changed its name to i-flex solutions.

FLEXCUBE was consistently ranked as the number one banking solution in the world by IBS UK, for five consecutive years.

As on 2007, Oracle Global holds 80.58 per cent of the total paid up capital of i-flex

Companies Description

Mr. Subash Menon founded Subex with a startup capital of INR 20,000 in 1992 Subex Systems, incorporated in 1995 was listed on the BSE in 1999 Subex boasts of a client list that includes 32 of the world's 50 largest

telecommunications service providers Subex has grown both organically and inorganically over the years; Syndesis

and Azure are few of its recent acquisitions In 2007, Subex won the Verizon Supplier Excellence Award

Mr. S. S. Goenka, set up Peutronics Pvt. Ltd in 1986, which later metamorphosed into Tally Solutions

Tally has released multiple versions of their accounting product; In the year 2005 launched Tally 7.2, which created an accounting revolution in India

Tally has a robust sales and distribution channel. Tally’s strategy for the future is to become a company with the world’s largest channel partner network with 15,000 partners

14

Domestic market in India is unique in multiple ways—this is fueling opportunities for India-based software product businesses

Drivers to Tap Domestic Software Market

Source: Zinnov Analysis LowHigh

Opportunity Created

Gaps with Products From Global Companies

Complex Distribution

Network

Lack of Localization

High Cost of Sale to Indian SMBs

Lack of Remote Support

Lack of Reliability of IT Infrastructure

Drivers Description Opportunity

Market GrowthThe software product market in India is growing 2.8 times as fast as global market

SMB PotentialSMB market in India is huge and the current IT and software penetration is very low

Need for Localization

Increased requirement of localized products to best suit the needs of consumers

Evolving IT Infrastructure

Internet, PC and mobile penetration is faster as compared to other emerging nation

Challenges for MNCs in Domestic Market

Customer Needs

Additionally, disruptive innovations in technology, revenue and delivery models are helping unlock significant potential for Indian software product businesses

Innovation Levers in the Software Product Market

Solution Viability

Technology Innovations

Delivery Model Innovations

Software Market Disruptions

Revenue Model Innovations

Technology Innovations

• Cloud Computing• Virtualization• Service Oriented Architecture• Open Source

Delivery Model Innovations

• Packaged/ License• Software as a Service• Software Appliance• Software Enabled Solutions

Revenue Model Innovations

• License• Subscription/ On Demand• Transaction• Ad Based

Disruptive technology innovations are opening up newer opportunities for software product companies globally

Technology InnovationsTechnology Innovations

Service O

riente

d Arc

hitectu

re

Service O

riente

d Arc

hitectu

re

Cloud computing is a way of computing which provides scalable IT solutions as a service over the internet

Benefits: Benefit of a data centre without owning one and cheaper and simpler devices to access data from anywhere

Cloud C

omputin

g

Cloud C

omputin

g Virtualization

Virtualization

Open Source

Open Source

Virtualization technologies divide a computer into several execution environments by applying concepts or technologies such as hardware and software partitioning, time-sharing, partial or complete machine simulation, emulation, quality of service, etc.

Open source software are software for which the source code is made available under a copyright agreement

Developed in public collaboration, this can be used, modified and redistributed by the users

Enables an applications business logic or function to be modularized and offered as service for consumer applications where the service interface is independent of the solution implementation


Innovation in delivery models has led to a radical shift in global software distribution

License Model

Software Appliance

Software Enabled Solutions

Product Category Companies

All softwareSAP, Microsoft, Oracle, Adobe etc.


Content, communication, collaboration, CRM, ERM,Office suites, SCM etc

EMC, Google, Salesforce, Adobe, Microsoft, Netsuite, Ariba etc.


Security, Search, Storage, Retail POS etc

EMC, Google, Tizor, QAD


Telecom, Web Intelligence, Publishing

SS&C Technologies, Innerworkings, Cyveillance

Large MNC vendors are

leading the way in delivery model

innovation

Customer demand and the drive to remain competitive has led vendors to come up

with innovative delivery models


• Grants an end-user permission to use

copies of software in ways which would

otherwise be prohibited by law

• Web-native software application hosted by the vendor for use by

its customers over network, typically the

Internet

• Application in a box combined with Just Enough OS (JeOS)

that readily installs on standard hardware or

inside a virtual machine

• Software solutions as service provided by a vendor through SLA

based contracts

Software-as-a-Service

Companies with SaaS as a delivery model in high growth areas such as ERM and BI have gone IPO over the last three years

Nu

mb

er

of

Co

mp

an

ies

Number of Software Product Companies Going IPO1, 2004 – 2007

Note: 1Initial Public Offering; Data based on a sample of 48 companies going IPO between 2005 and 2007


12 2 2

3

1 1

4

6 4

5

3

12

1

71

1

1

0

4

8

12

ERM BI Search CRM Storage Security Content Consumer Others

Packaged Software Software as a Service Software Appliance Software Enabled Solutions

Illustrative

Traditional license-based revenue models are giving way to other innovative business models in the global software product market

57%

68%74%

70%65%

26%

17%12%

11% 19%

10%10% 10%

15% 10%

7% 5% 4% 4% 6%

0%

20%

40%

60%

80%

100%

1-100Employees

101-1000Employees

1001-25000Employees

>25000Employees

Total (2007)

Traditional License/ Maintenance Subscription/ On Demand

Transaction Based Advertisement Based and Others

58%

21%

12%

9%

Total (2009E)

Per

cen

t

Note: E = Estimated; Based on the survey conducted among 857 enterprise software customers

Source: McKinsey & SandHill Enterprise Software Customer Survey, 2008

Software Revenue Model Distribution: Current & Future

All these market indicators are leading Indian software product industry towards an inflection point in its evolution curve

Note: 1The number is net of mortality rate and companies that got acquired during the period


Revenues of Indian Software Product Businesses

Number of Indian Software Product Businesses

Indian Software Product Business Evolution Curve

Rev

enu

e, U

SD

mill

ion

1980 20152007

USD 12,000 Accelerated Growth

USD 1,400

Current Growth

USD 10,000

Inflection

Early Stage Growth Stage

Linear: Revenues increased

with increase in number of companies

Non-Linear: Few players

emerged as market leaders

1

Acceleration Stage

Over the next seven years, Indian software product businesses have an addressable1 market opportunity of USD 290 to 315 billion

Opportunity Area Exports Domestic

BFSI

Telecom

Business Intelligence & Analytics

Enterprise Resource Management

Security

Retail

Storage

Mobile Applications

Online Gaming

Search Engine Marketing

Opportunity Areas for Indian Software Product Companies

i

ii

iii

iv

v

vi

vii

viii

ix

x

Go Global

Start Local, Go Emerging

Note: E = Estimated; 1Represents the total estimated market size of the opportunity areas by FY2015


Start Local, Go

Global

0

50

100

150

200

250

300

FY2015E

Online Gaming

Mobile Apps

Storage

Telecom

BFSI

Security

ERM

BI

US

D b

illio

n

USD 290-315 billion

Retail Apps

Search Marketing

LowHigh

Opportunity

The opportunity for Indian ERM product businesses is huge, and India has already started seeing some early signs of success in this category

Note: E = Estimated; 1Estimated based on the market size data for CY2007

The list of companies mentioned in the table is illustrative and may not be exhaustive

Source: IDC; Zinnov Analysis

ERM Software Market Size, FY20081 – 15E

33.2

59.8

0.3

2.1

0

15

30

45

60

75

FY2008 FY2015E

0.0

0.6

1.2

1.8

2.4

3.0

Global Market Domestic Market

US

D b

illio

n

US

D b

illio

nCA

GR

= 8.

8%

CA

GR

= 33

.3%

Role Models

• India now has some respectable names in the ERM space such as Tally, Ramco, Adrenalin, Intelliob, Kom7 Tech. etc.

• Most of these role model companies have gained expertise in fulfilling SMB-specific demands for ERM software

Talent/ Domain Expertise

• India has gained a significant domain knowledge and talent expertise with all the leading global ERM software vendors such as SAP, Oracle, Microsoft having their large development centers based out of India

Incubation Centers

• ERM-related software product startups are increasingly being incubated in India with 14 per cent of the total incubated companies (28) operating into ERM space

• Examples include Global Tech (CIIE, Ahmedabad), CEON (CIIE, Ahmedabad), Bridle IT (TBI, Pilani)

Acquisitions

• Acquisition trends are increasing in the ERM space with companies like SAP and TVS showing interest in Indian ERM companies

• Examples: SAP acquired Yasu

LowHigh

India Capability

India’s Capability for ERM Software

The opportunity in the BFSI market is huge and is driven by increased demand in the domestic and global market

BFSI-Specific Software Market Size, FY20081 – FY2015E




US

D b

illio

n

17.4

30.3

0.15

0.44

0

10

20

30

40

FY2008 FY2015E

0.0

0.2

0.4

0.6

0.8


US

D b

illio

n

Role Models

• BFSI sector specific software products from Indian companies such as TCS, Infosys, i-flex, 3i-Infotech, Polaris, Nucleus Software, Omnesys, Lasersoft, Mindmill are preferred by customers globally


• Some of the global leading BFSI software providers such as Fidelity, Misys, SAP, Sunguard, CSC have set up their subsidiaries for development activity

• This along with IT outsourcing has helped increase domain expertise and talent capabilities in the BFSI sector

VC Investments

• Indian companies in the BFSI software product segment have been able to attract high VC investments

• Funding Range: USD 7 -24 million• Total Funding (Since 2004): USD 71 million• Examples: Financial Software & Systems,

Infrasoft etc.

Acquisitions

• Indian BFSI companies have been successful in gaining increased interest from global software giants

• Oracle’s acquisition of i-flex is one of the key examples to highlight the rising BFSI expertise from India

India’s Capability for BFSI-Specific Software

CAGR= 8.

3%CAGR=

16.6

%

LowHigh

India Capability

Online search and advertisement market is the fastest growing software product market and presents a sizable opportunity for Indian companies

Search Engine Marketing Revenue (FY20081 – 15E)



Source: Internet & Mobile Association of India; Zinnov Analysis

US

D b

illio

n

25.2

60.4

0.1

0.6

0

25

50

75

FY2008 FY2015E

0.0

0.2

0.4

0.6

0.8

1.0


US

D b

illio

n

India’s Capability for Search Engine MarketingCAG

R= 13

.3%

CAGR=

33.7

%

Role Models

• As many as 15 local search engines have emerged in the last 2 years in the Indian market

• Justdial, Guruji, Asklaila, Zatka.com, 123india.com, mapmyindia.com, tolmolbol.com etc. are some of the popular Indian search engines


• Global search engine marketing leaders such as Google, Yahoo and Microsoft have their R&D centers in India

VC Investments

• Fund Range: USD 7-15 million• Fund Size (Since 2006): USD 32 million• Examples: Asklaila.com, Guruji.com,

Justdial.com are few companies which have received VC funding

Acquisitions

• Global search marketing companies are finding interest in Indian search engines

• Percept Knorigin acquired Searchsize in 2008 and ByIndia.com was acquired by Web2 Corp in 2006

LowHigh

India Capability

Actions across four key themes will help India based software product businesses to achieve accelerated growth and reach the target


Enablers of Accelerated Growth

Influencing the Market

Development

Enhancing the Talent

Pool

Strengthening the Capital Ecosystem

Facilitating Ecosystem Support

1

2

3

4

0.46

0.96

4.0-5.0

5.5-7.0

0

4

8

12

FY2008 FY2015E

Domestic Exports

US

D b

illio

n

USD 1.4 billion

*

Indian Software Product Business Revenues, FY2008 to FY2015E

CAGR = 36-40%

CAGR = 30-33%

Organized trade development efforts, including policy interventions and industry-level marketing programs will help them in exploiting opportunities

Context/Issues

•Increase industry-led software product focused trade development and branding activities in key overseas markets •Leverage partnership models to build global sales and support networks

Global•Limited global awareness and branding of Indian software product businesses

•Lack of global sales and marketing capacity and reach

•Leverage user-industry associations to help potential customers appreciate the value of their technology investments; •Enact policy reform that encourages technology adoption by user industries •Facilitate greater industry participation in sectors / projects of national importance•Encourage widespread use of technology by easing access to mass users

Domestic

•Lack of choice and / or awareness of suitably localized products

•Low levels of technology adoption by domestic user industries as well as households

•High investment requirements and pricing constraints under traditional licensing-based business models

Proposed solutions

Industry and academia can help over come talent pool challenges and catalyze start-up activity in the software product business (1/2)

Context/Issues

•Attract experienced MNC (captive) staff and global professionals seeking to establish software product ventures , to set-up a base in India•Facilitate access to global training and certification programs for Indian software product professionals

Functional / Domain Expertise

•Low installed-base of experienced professionals for several product business functions / domains •Lack of awareness of / access to globally recognized technical, functional and product management training programs and certification courses

•Identify success stories and role models and facilitate student - entrepreneur interaction with these role models to create increased awareness about opportunities in this domain•Create a formal mentoring program that leverages on these role models as well as the strong overseas Indian Diaspora to encourage software entrepreneurs

•Few known role-model product entrepreneurs

•Lack of formal training opportunities for budding entrepreneurs

Entrepreneurship

Proposed solutions

Industry and academia can help over come talent pool challenges and catalyze start-up activity in the software product business (2/2)

Context/Issues

•Complement existing engineering and management education curriculum with more elective modules focused on product development

•Increase industry involvement in the pedagogy and ongoing faculty development

•Low awareness about / preference for careers in software products (compared to technology services)

•Fresh graduates are ‘raw talent’ and most Indian product businesses lack the scale to invest sufficiently on in-house training

Fresh graduate pool

Proposed solutions

Stakeholders would need to promote effective funding mechanism to improve start-up funding in India

Context/Issues

•Create an online ‘market-place’ for entrepreneurs and investors to interact•Encourage the setting-up of alternate, hybrid (public-private) investment vehicles to channel funding towards software product technology startups; streamline access to available public funds•Review policy restrictions on non-corporate organization structures (e.g. not-for-profit organization) that are currently restricted from venture investing

Alternate sources of funds/expertise

•There is a need for easier access to alternate sources of funding especially during the early stage of the start up•Process for interactions between funding sources (investors) and potential investees is still evolving•Lack of awareness of / access to public funds (e.g. government schemes, grants etc.)

•Explore partnerships with countries of strategic importance to establish bi-national/multi-national funds for investing in product ideas in designated areas of mutual importance

•Alliances with technologically advanced countries to develop joint programs to nurture software product businesses

Leveraging international experience

Proposed solutions

Sustaining the current growth momentum for Indian software product businesses will require more active engagement amongst the various constituents of the software product ecosystem

Context/Issues

•Increase industry-led software product focused trade development and branding activities in key overseas markets •Leverage partnership models to build global sales and support networks

Leveraging partnerships

•Lack of scale and experience across individual firms can be overcome through concerted action•So far, elements of the Indian software product ecosystem have developed relatively independently; more coordinated actions will increase efficiencies

Proposed solutions

•Bangalore, Mumbai / Pune and the National Capital Region (NCR) are the natural choices for the focused hubs, as most product business activity, as well as a critical mass of other key stakeholders are clustered in these locations.•Focused product business initiatives could be piloted in these cities before extending them to the next set of product hubs (including Hyderabad, Chennai, Ahmedabad, Jaipur and Indore)

Creating focused hubs

•While most of the suggested actions will be introduced on a universal basis, the industry will benefit from the identification of a few hubs which become the focus of more targeted efforts

There are five business levers that entrepreneurs need to take stock of to build a scalable software product business

Business Levers for Entrepreneurs

BusinessLevers

Idea/ Concept

Workforce

CapitalCustomer/ Market

Partners

1

2

4 3

5

Validating the feasibility of an idea and backing it up with research-based facts is very critical for entrepreneurs to move ahead in the initial phase

Believing the Idea

Market Research Backed Business

Plan

Prototype

Flexibility to Change Idea/ Concept

Hiring right mix of talent and effectively leveraging their skills to wear multiple hats is the key to a build a thriving organization

Workforce

Core Team/ Founders Mentors/Role Models

Development Team Sales & Marketing Team

34

Software product business requires significant investments and it takes about 36 to 48 months to breakeven

0-12 Months 13-24 Months 25-36 Months 37-48 Months

Time

Revenue

Cash flow Comparison for Software Products and IT services


Non Linear growth – Does not depend on

growth in headcount, good

product acceptance can lead to

exponential growth

Linear growth – directly proportional

to the headcount growth

Product Business – Cash Flow

Services Business – Cash Flow

Investments required to develop IP

Time Difference of Breakeven

Thorough understanding of the funding mechanism at every phase will help in negotiating a good deal with investors

Debt Capital Equity Capital

The Pros

A

The Cons

B

• Full ownership resides within the company• Immediate access to cash

• Investors can bring fresh perspective to business

• Risk is shared by the investor along with founders

• Personal guarantee of founders for the loan which is a huge risk

• Regular loan repayments

• Can be tricky if terms are not well-negotiated• CEO/management team can be replaced

depending on the stage of funding

1 2 3 4 5

Business Ideation Prototype Engineering Go to Market Scaling

Stage Pre Seed Seed Early Stage Late Stage Established

SourceFounders/ Core

TeamFriends/ Family/

AngelsAngels/ Early

Stage VCsVenture Capital

IPO/ Private Equity

Source: Pitching to Investors, by Maya Elhalal, New Media Entrepreneurship Workshop; Zinnov Analysis

Money loaned in exchange for repayment along with interest

Money provided in exchange of ownership

Leveraging the partnership ecosystem across the business value chain of software products can help in rapid expansion of the business

1 2 3 4 5

Business Ideation Prototype Engineering Go to Market Scaling

Business Value Chain and Potential Partnership Networks

Entrepreneurial Network

Market Research Firms

Business Consulting

Firms

Product Engineering

Vendors

Product Engineering

Vendors

Public Relation Networks

Channel Partnerships

Implementation Partners

Public Relation Networks

Channel Partnerships

MNC Partnerships

M&A Portfolio Companies

Beta Customer Networks

Tech Consulting

Firms

Human Resource Partners

Financial Advisory Networks

Business Consulting

Firms

Outsourcing Partners

Source: Interviews with Product Business Entrepreneurs in India; Zinnov Analysis

Incubation Networks

Being connected to the customers and consistently incorporating their feedback helps in building a successful software product business

Customer/ Market

Beta Customers

Brand BuildingMarket Influence

Expansion to New Markets

Paying Customer

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[email protected] 69 "Prathiba Complex", 4th 'A' Cross, Koramangala Ind. Layout, 5th Block, KoramangalaBangalore – 560095

Phone: +91-80-41127925/6

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Phone: +1-408-716-8432

21, Waterway Ave, Suite 300The WoodlandsTX – 77380

Phone: +1-281-362-2773

http://www.zinnov.com/

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