Browne & Mohan

Board & CEO Advisors, Management consultants

23 principles of Successful Indian Software Product Companies

Dr T R Madan Mohan

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Board & CEO Advisors, Management consultants What has made some companies to grow and sustain momentum tick in the tough times? What common principles underlie their success? Copious management literature exists on why some companies grow and some not. Kim and Maubrogne (1997) identified differences in five major dimensions of strategy between high growth and other companies. Accordingly, the high growth companies attempt to change the industry conditions, focus on bettering themselves than just beat the competition, let unprofitable customers go, shed commodity resources/skills and think in terms of offering total solutions to the customers. Hagel and Brown (2005) argue that growth opportunities will be monetized by companies that deepen distinctive internal capabilities, mobilize resources of other companies and accelerate learning. Garud et al., (2003) have established the value of modularity and standardization in meeting demand variety. Collins (2001) in his widely acclaimed book good to great identifies, the value of executive leadership, getting the right people, focus on what a company is good at and creating a culture of discipline, as the core principles of great companies. On the product development side, Reis (2011), Brown and Eisenhardt (1998) have brought out the value of building core (Minimum viable product or MVP) to reduce time to market and patching modules against market opportunity. Leonard (1995) highlighted the value of maintaining creative tensions in high-performing teams. Starting and growing a Software product company in India not a mainstream activity as the industry is dominated by service companies. With benevolent markets service companies found it easy to attract people to be shipped off-shore, and many qualified and otherwise IT resources found it easy earning in foreign currency, often doing routine maintenance jobs. To attract and retain talent, offering them intellectually challenging development was not easy. Academic institutes failed to instil the rigour, regimen and approaches required for product development. Rather many college managements invested in rudimentary soft skills preparing their wards for service industry absorption. Early finance, till recently did not exist and institutional banking at best avoided investment deeming support for these ventures risky. However, few techno-entrepreneurs undaunted by the magnitude of risk, and efforts have pursued their dreams in creating and sustaining India based software product development. Newgen, Nucleus, ESS, Vishesh Infosystems, Ramco, Tally, ICICI Infotech, Polaris, iVitesse, Pramati, Trio, EX, Wings, FACT, Busy Infotech, Godrej Infotech, Base Information, Srishti, Druvaa, Subex, Infrasoft, Zoho, and many more Davids have taken birth to challenge the Goliaths of the world. Amidst, the high growth of software services industry, from self-doubt and bureaucratic apathy, Indian software product industry has grown in years. From just about $113 Million in FY 1999-00, the Indian software product industry revenues (both domestic and exports included) has grown about $1.81 billion in FY2011-12. There were about 228 companies earning revenues from product related delivery and services. In 2009, the number of companies had almost doubled, their numbers touched 549. However, the last two years have been quite challenging. While there are several companies that have done well, there are equal numbers that have found the going tough in last two years. Many companies have been vanquished because of 1)Lack of domestic industry support, 2)Lack of implementation of set-aside for government and defence procurement, 3)Inappropriate policies, 4)Lack of penetration in international markets, 5)Aggressive GTM of MNCs, 6)Branding and other issues. However, few companies have survived and grown even in these tougher times. Newgen Software exhibited a healthy bottom line and top line growth. Polaris bagged some prestigious projects in domestic and international markets. Srishti software found global OEM partnering for its HMIS solutions and even Chinese hospitals adopting a truly India built product. Zoho, the trailblazer in cloud offerings consolidated its growth by offering newer solutions around CRM, and productivity tools, often competing and winning against the global giants. Druva Software, Pune based back up product company, acquired over 120 customers in the last year and its products insync and Phoenix has seen huge traction across enterprise, SME and Soho segments. Sapience (earlier known as Innovizetech) witnessed demand for its productivity product even in the tougher times as companies realized the

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Board & CEO Advisors, Management consultants need to manage the resources more efficiently. Home grown CRM companies such as PK4 with its Impel CRM discovered their light features and right pricing building traction in economic downturn and customer adoption growing. Banking software product companies TCS, Infrasoft, Lasersoft, Mindmill, and Polaris have benefited from demand from domestic Co-operative banks and SAARC. In this article, I summarize twenty-three principles that I learnt through my years of association with the successful product companies. Principle 1: Friction, Product Opportunity and imitation Successful product companies identified markets based on 1)IT adoption, 2)Regulatory requirements, 3)need for operational efficiency, 4)scaling and growth of enterprises in the industry and 5)friction due to paper-human interfaces. All successful product companies were strategic imitators, developing an available solution or an offering to local market. This helped them to ride on the market making activities carried out by other firms. Principle2: Bricolage Product ideas The companies sought ideas from multiple sources, beta clients, product demo teams, end users, etc. Crossdomain while designing its cloud based PeopleWorks involved CFO, HR directors and CEO to understand the requirements from individual perspectives, evangelized the beta with few companies, actively sought the improvements and quickly built a robust product meeting all customer requirements. Glomantra in pursuit of its VPA product found the feedback from Indias largest portal very useful as the enterprise application of search and personalization was similar to the VPA tool they were developing. Use of the product in enterprise environment offered very useful insights for the team to develop and fortify the product against the global competition. Principle 3: Design for a platform not product While conceptualizing the product, the architects visualized the extant product form, more like a platform encompassing several products. This helped them to see the big picture, what all process and activities would the product or its modules eschew in a client premises. From here, strip down to basic version that forms the core of all their product modules, develop that first. Quest Informatics for example, looked at complete aftersales enterprise processes right from service to repair process and developed core sales, service and parts processes. Only three Parts of the products with some extensions could morph into warranty management, field service management, etc. Plan Product Technology Road map, versions, and features. Principle 4: Build modular products While it is important to have features and ideas from multiple perspectives, product development has to be a controlled innovation. Choices have to be made on prioritising the features, support, UI, etc. to ensure the core properties of the products are eschewed and available for early users to try. Successful product companies build modular products. Quest Informatics mapped 16 products for its after-sales ERP, and identified 4 core business processes cutting across all these modules. The basic core was developed first, and the market priority modules were released later. While cloud and hosted models are expected to thrive, many enterprises may resort to in-premise deployments owing to regulatory and other requirements. Distribution of products through various channels would require different customer engagement cycles, information content (brochures), and support. Idea is to develop only the core that could be supported through different delivery modes, somewhat similar to MVP proposed by Eric Ries. Glomantra and Quest Informatics tried this approach successfully while developing their Virtual personal assistant (VPA) product Mybantu and Field service management (FSM) product. Principle 5: Disciplined Product development Focus should be on minimizing customization, and reduce variety at early stage to benefit from low code, feature and support variety. Average time to establish stable beta with maximum features happened about 26 months and companies that controlled variety prospered. Srishti software, Polaris benefited from the economics of scale in design, bug removal, improvement and delivery.

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Board & CEO Advisors, Management consultants Principle 6: Align with larger technology platform While a complete platform agnostic is a desirable state, companies that limited their product availability on to two dominant platforms were able to manage their releases and upgrades easily. The objective is to reduce transaction cost of managing change. Increased market acceptance, and network effects of technology platform benefit products. Principle 7: Offer multiple Product variants and over time reduce the tiers When feature and price point relationships are fuzzy or the customer segment contiguous, it is a better strategy to offer few product variants. While many companies start with at least 3 (typically, silver, gold and platinum), or 5 variants, over time customer preference converge to not more than 23 variants. Too many variants confused customers, burdened sales personnel and increased the cost of tracking and monitoring usage. Tejas, Ramco, Sage and others also pursued versioning and hosted model in tandem to reach out to customers. Principle 8: Incremental innovation and related platform diversification Average investments required to develop a world class software product in Indian environment happens to be around $3 Million and the breakeven happens only on the 4th year. Successful product companies pursued continuous incremental innovations extending the features and products in the same markets right after two successful client roll outs and the product is stabilized. AurinPro successfully pursued this strategy to benefit from related platform diversification. Principle 9: Plan for unrelated diversification after 3rd year of existing product line Successful product companies initiated unrelated diversification into newer verticals or completely unrelated product areas in the 3rd year of existing product lines. The companies benefit from overlapping of growth-maturity cycles of different product lines. Polaris found great success in payment exchange product. Srishtisoft extending its learning from KM products and consulting, became a globally recognised challenger in Web based Content Management system with its Kreatio product. Principle 10: Focused sales approach Successful product companies emphasized alignment in sales structure process and incentives. Companies invested in all three sales motions, inside, indirect and direct. Sales process and measurement focus differed significantly across the three different motions. For inside teams the emphasis was on intelligence, indirect sales team was on partner meets and funnel and direct team was on funnel quality and conversion. Product companies built their sales team quickly and reviewed continuously. Another unique aspect of successful product companies is related to the sale approach they used. All them pursued named account strategy than corporate bombing as a strategy and sufficient intelligence went into the segment definition, and named account identification. Successful companies spent more time planning their targets than unsuccessful ones. Principle 11: Harvest and Crop Product sale, unlike hardware or solution sale requires harvesting the clients in a season and enchasing them later. Engaging clients with latent needs, preparing them for the adoption and roll out required patience, high dose of common sense and plain old relationship management. Principle 12: Bottom heavy top-led sales teams Many companies believe in investing heavily in top end resources for product sale and do not invest sufficiently in middle and lower levels. A unique structural aspect of all successful product companies was, they had more numbers in inside sales teams, but led by senior direct teams. Sales visibility into last mile was high and the sales teams were mean and lean. Principle 13: Marketing led Sales: Successful software product companies investing in marketing activities that supported and facilitated sales. Improved branding, community connects, PR (including brought awards), was useful in creating

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Board & CEO Advisors, Management consultants the mindshare and sales appointments in both domestic and international markets. Principle 14: Scale through Partner Successful product companies used partners not just to increase their scale of operations but also consciously serve specific segments that did not justify their own resources and investment. Partners and resellers help in market coverage, delivery and post-deployment support. Companies that invested in marketing and vendor management resources, processes including training and certification realised better results. Product companies had to plan for version that would be supported by partners, design right partner payoffs and engage them continuously. Principle 15: Institutionalize Innovate work Discipline Do-Improveservices revenues, they were cautious in over investing on services resources. Srishti, Tally, Tejas Networks limited their services play and consciously promoted partners to support their roll out and de-risk themselves. Principle 18: Create and maintain healthy internal competition Successful product companies sustained healthy competition between teams and key business leaders. One aspect all companies abhorred was middle level managers bottling up talent from bottom. Companies crafted novel structures that were time bound to legitimize competition and innovation, and abandoned them once their goals were met. Principle 19: Create Sense of ownership and urgency One common hallmark of all successful product companies was that they created a sense of ownership across the organization. Teams and members had their explicit goals, and focused on delivering the outcomes. Board and senior management invested in inducing a sense of urgency not so much in sales, but in new product development, delivery, & customer responsiveness. Principle 20: Design appropriate Incentives Successful product companies had incentives not just for sales, but also for technology teams. Most companies used relative incentives as the group sizes were small. Some companies had dispensed away with quarterly performance incentives, but tied the overall incentives by per project basis. The sales team motivation and performance were high as they would receive their incentives as soon as a deal is closed. Technical teams and delivery teams also had outcome based incentives that ensured innovation pipelines were robust, and implementation smooth. Principle 21: Power of Governance Successful product companies practiced good governance principles. Independent board members were brought for both technical or domain expertise. Weekly, monthly and quarterly reviews were religiously followed, intermittent

Successful software product companies do not need noble prize winners, but committed followers who could first do activities as told, improvise activities within their control and innovate activities even when interdependencies exist. Newgen and Srishti founders picked bright engineers from nonIITs, trained them in product development and imbued in them product company culture and over years have developed a second line of architects and innovators capable of developing new products. Principle 16: Hire and promote for positivism and attitude Academic degrees and honours did matter, what tilted the scale on employee selection and growth was their positivism and attitude. Product companies, especially those started with limited funds, value prudence and shun ostentations. They prefer employees who could strategies, dirty their hands on coding and shoulder a bit of other roles. Successful product companies like Srishti and Adventnet grew their architectural strength by grooming individuals with lots of initiative and problem solving approach, rather than fancy academic degrees. Principle 17: Rein in services revenue growth While successful companies sustained through

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Board & CEO Advisors, Management consultants corrections were made and reporting structures evolved continuously. They defined few measures across the functions, but ensured continuous measurement. Principle 22: Risk Management Product companies that grew and sustained momentum measured the risk and impact of their actions, though mostly subjective. Senior management insisted on developing an approach to estimate risks, their impact, however rudimentary across organizations. Explicit identification and evaluation of risks helped the companies question their assumptions and prepare for back up plans. Principle 23: Engage less costlier PR activities A common trait across all successful product companies is they engaged in high impact low cost PR activities. Many companies rode on the PR budgets of large IT vendors as ISVs, or media attention gained through balanced analyst evaluation. Peer to peer feedbacks and breakfast meetings were the most impactful platforms for product companies to reach out to new customers. Kim, W.C and Mauborgne, R. Value innovation: the strategic logic of high growth, Harvard Business Review, 1997, Jan-Feb, 75(1), 1012-112 Kopitov, R and Faingloz, L. Ways of transforming aims into results at Successful companies, Technological and Economic Development of Economy, 2008, 14(3), 312-327. Kotter, J.P, Leading Change, HBS Press, Boston, 2008. Leonard, D. Wellsprings of Knowledge: Building and Sustaining the Sources of Innovation, HBS Press, Boston, 1995. Morgan, M. Levitt, R.E and W. Malek, Executing Strategy: How to break it down and get it done, HBS Press, Boston, 2007. Schnaars, S.P. Managing Imitation Strategies, Free Press, New York, 1994.

Browne & Mohan insight are general in nature and are not refereed papers. Open Universities and other academic institutions may use the content but with prior approval of Browne & Mohan.

Bibliography Brown, S.L. and Eisenhardt, K.M. Competing on Edge: Strategy as Structured Chaos, HBS Press, Boston, 1998. Collins, J. Good to Great: why some companies make the Leap and others Dont, Harper Business Press, New York, 2001. Garud,R. Kumaraswamy, A and R.N. Langlois, Managing in the Modern Age, Blackwell, Oxford, 2003. Hagel, J and Brown, J.S. The only sustainable Edge: why business strategy depends on productive friction and dynamic specialization., HBS Press, Boston, 2005. Johnson, R. and Soenen, L. Indicators of Successful Companies, European Management Journal, 2003, 21(3), 364-369.
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