Let me give you a prologue before you think I’m too cocky to state that. Yes, some might think that. But for them, what the heck – you can always bounce me off in the most powerful section of this blog called comments through your words of wisdom or may be simple bashing. Whatever suits you!

Now to some important things – yes, as I was saying about the prologue thing. Last week, I met at least 10 people from the start-up fraternity (both investors & entrepreneurs) who are on their way to build their next business models which you might get hooked onto or miss it below the radar.

Whatever it is, I tried to understand the psyche behind those ideas which they are hatching. In total, the ideas or my point of view is a culmination of all the ideas which I’ve been part of; some heard, some in which people seeked my advice and my bit of research over the internet about the kind of consumer internet business models that have come up lately in India.

So to set the cat amongst the pigeons, I already said that I see the start-up ecosystem evolving in India is more biased towards niche consumer internet business models rather than becoming the next big internet behemoths like Google or Amazon. More biased because building a company is a not an easy task. More so, building a great company which can stand the test of time is somewhat a difficult proposition. Also, building a company which has scale, scope and more importantly sustainable monetization model is quite a task.

What most of them I met are trying to build niche products. Not the big ones which will require higher upfront investment, time to scale and market. It’s imperative to say that internet obviously marginalizes the barrier to entry axiom but surely this fosters more entrepreneurs to try their luck.

So what I’ve been seeing recently are plethora of ideas catering to different niche problems. For example, how about making the information local doctors easier or how about making the legal information like making your will easier or how about making it easier for online users to buy products with an easier & surprisingly amazing UI.

These sort of ideas are relatively easier to build and quick to market unlike trying to make the next big Google or Amazon or even Rediff for that matter.

Surely there are couple of reasons for this:

1. Diversity: India is country of more than a billion population but internet population hasn’t yet achieved a critical mass of active users who can be mass targeted. Blame it to diversity in language, buying habits, cultural preferences etc. So this makes the task of any entrepreneur to build the next big thing much harder. May be that’s why we don’t see much horizontal portals like Rediff, Indiatimes coming our way in the last couple of years. Also the competition is pretty high in such areas which are primarily dominated by big media houses till now since they have the money & can afford a high-burn rate initially.

2. Investment: “Cash is king” is the holy grail for any web entrepreneur. But if we think about raising capital from other than friends, family & fools (FFF), the whole system is still fragmented broken. We don’t see prominent venture capital funds investing in smaller amounts (which is the need of the hour) which calls for Angels or seed funds to do so which is again lacking in numbers since they are very cautious about taking high risks with unproven business models and especially which has a high probability of getting copied soon by competitors. And rightly so.

But I’m not undermining the possibility of niche business models working for India. Actually, I feel niche is the right way in Indian scenario for internet business models.

Some of the reasons I feel so are:

1. As I mentioned earlier, building niche consumer internet products are relatively easier to build and market with low investments. Now that’s the most important factor for any web entrepreneur. Build the product>>launch>>take feedback>>keep working on it. This way, the burn-rate is more manageable and its easier to understand the hit rate.

2. Also, going niche helps to mitigate the risks. Let me explain how: risks in terms of initial investment which is way lesser than going for the big kill initially. Later, scalability becomes easier since experience curve plays a bigger role.

3. Finally, lets face it. In internet, starting niche has a probability of higher payout in terms of bringing a new solution to a problem with a totally new service. For example, internet job market is one of the largest service accessed by people. Now since jobs are getting diverse, newer services targeting specific verticals are coming into picture – like for mobile industry – a big job portal will have different vertical jobs (without concentrating on any specific niche one). But people who want only VAS jobs or only mobile apps building jobs would like to visit websites which only focuses on such jobs. So there’s much possibility to target those individuals. Though scale in terms of number of active users initially would be low initially but engagement and referrals to such site would be more than bigger job portals; which again reduces your marketing costs and adds to your bottomline. And since industry like mobile is growing in India, people would be interested in more niche job opportunity than mainstream ones.

So these are my thoughts on how niche is the next phase of growth for Indian internet market and why being the next Google, Amazon or Rediff might not be the right approach for new-age web entrepreneurs in India.

Would like to know more from you guys. So calling all entrepreneurs, investors, stakeholders or anybody & everybody who think that I’m making some amount of sense here. Care to share some of your wisdom?

Related resources:

• Why Can’t India Produce $GOOG’s or #AAPL’s?
• Why “Now” is the Perfect Time to Build a Startup

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Although, I wasn’t there to see it myself but surely textual resources can help a lot to understand how it all happened or I should say how it’s happening.

But surely building a startup (let’s keep the taxonomy of startup to “only internet” ones) has become far more easier than it was a decade back or so; and by building a startup, I mean starting it up and making a grandeur exit, if possible.

Lets take couple of examples here:

• AdMob acquired by Google.
• YouTube acquired by Google.
• Mint.com acquired by Intuit.
• Twitter.com valued at more than $1 billion.
• Facebook.com valued at $10 billion.
• News Corp bought MySpace.com.
• Social games maker Zynga’s revenues are close to about $250 million.

These are top-of-my-mind recall of multi-million dollar deals that happened over the past few years.

So fact of the matter is those who are doing it are doing it faster, quicker and at a very young age. Infact, it’s quite common nowadays that a young entrepreneur builds a great company, accrues an awesome valuation and in some cases sells it at a premium.

This wasn’t the case earlier.

Perhaps a small personal story – my dad is a 1st generation entrepreneur who started off his small business (non-internet related) during 70’s. It took him nearly 15-20 years to achieve what many would say as a successful venture. On top of that, it took huge efforts starting from capital raising & deployment. But that was it – during that time, many would consider it be a victory of some sorts.

Now if that happens in today’s world, I wonder what would we make out of it. To be very specific, it was the late 90’s dot-com boom that catapulted many internet based business model then. But as we all know, what happened as we touched 21st century. Too many startups were chasing too little money in the market – and boom – we hit the floor. Actually as I see it, those were the days when the extra flab in the system were carved out to give a new direction.

Below is one of my today’s tweet wherein I pointed out the direction of modern day entrepreneurship. It genuinely reflects the barrier to market entry…

So the question is – were the guys from my dad’s era less intelligent or less hard working than folks of our generation? Sorry to present it dramatically but fact is this is not the case. In 20-30 years, I don’t think average human intelligence has changed so much or we are more hardworking than our fathers.

There’s something more intricate than outside reasons.

Talking about this topic, other day I read an interesting story which talks about the same too.

So coming back, the basic difference between entrepreneurs now & then is the amount of leverage available to a modern Internet entrepreneur is far, far greater than was available to entrepreneurs of previous generations. The number of entrants has dramatically increased as well. The overall hit rate might be lower, but the ones who win, win bigger and faster – thanks to the leverage.

For example, gone are the days of server farms, telesales and support, marcom material, tradeshow booths, direct sales forces, licensed software, mountains of code, reseller agreements, plane tickets, hotel rooms, printing CDs, voicemail systems, and so on and so forth.

Modern Internet entrepreneurship starts with a few engineers working for nothing and carrying latops and cellphones. They coordinate with Skype and GTalk and wikis and bug tracking sytems. The company itself is snapped together with outsourced HR, cookie-cutter incorporation, and outsourced finance / payroll. Marketing is done virally, or through SEO, or SEM. Customer service is handled via the community and forums. PR and outreach through tweets and blogging. Payments come via Paypal. Ads are served up by third-party ad networks. Storage goes on Amazon. Computation scales via Amazon, Softlayer or Rackspace. Code is built upon stacks of open source, SaaS, and $10/month services.

What used to cost $1M-$2M to set up, now costs $10K or even less in Indian scenario. What used to cost $5M to build, now costs $250K. What used to cost $20M to go to market now costs $1M.

So true! Isn’t it?

Also if we talk about the market size in terms of internet population, it has been considerably moving northwards. Every year or even every quarter millions are people are added online. Infact, the stats says that more than 3 billion people are online now out of about 6 billion earthlings. They all want to use products and spread it if its good. But we have to build products which meets a specific need or cater to a genuine problem. Then there’s network effects which has been growing stronger day-by-day. With time, labour costs are reduced. Skill sets are become a commodity. That means less capital required. Less cost to scale. More so, most web products have near about zero marginal cost of replication; adding a new customer is pure-play profit which makes it easy on marketing & shipping costs.

So every day or so, we hear stories about another Google, Yahoo, Ebay, Amazon coming up since leverage is the name of the game now. Anybody who has some solid product to a solid game-changing problem, then that’s a hit.

So if “NOW” is not the best time to startup something, then I don’t know what will?

For now, I’ll only mention “Entrepreneurs” since I believe they are the ones who make the world go that extra mile – starting from Henry Ford to Steve Jobs or our very own maverick Dhirubhai Ambani. All have their own share of success for sure but what’s not being ever highlighted is Failure. Those who know that, appreciate it and work through to achieve greater heights. But one of the reasons we usually don’t hear failure stories is because we don’t like to hear it since its painful and filled with lot of angst and discomfort. Hence, history only reminds us of great success stories instead of failed ones. And I think that’s a problem. Why – because our culture finds failure in bad light and considers failure as unacceptable.

And coming back to the point – this social norm of not accepting failure as just another way of learning and bettering things is a big threat to the whole entrepreneurship ecosystem. This is what I used to believe. And of course, this has made me always calculate my risks (sometimes more than I should), even though I knew that my gut feel says that I can do it. But that’s another story.

But I always like to be proved wrong; since it’s another way of learning faster.

So when I came to know about this specific conference called “FailCon” being held in Silicon Valley to celebrate “Failure”, my eyes lit up. The intro of the conference says it all:

FailCon is the first conference EVER to ask successful founders, investors, designers, and developers “What’s gone wrong and how did you fix it?” Come learn how to avoid the most common startup mistakes, network with leading founders and executives, and take away practical and actionable advice.

Now that’s exciting stuff since on a common platform, entrepreneurs and venture capitalists shared war stories about their failures so that the next generation can learn from them. The experience of failure often gives entrepreneurs the drive to make a comeback, accompanied by the constant fear that they could one day experience that failure again.

So, when we are able to truly understand that success & failure are all relative and just two sides of the same coin, then only I believe we will truly understand the essence of Failure in big success stories and then success will taste more sweeter than ever. And more often than not, that success is sustainable and not time-bound.

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Although this topic is not new to Indian VC ecosystem but surely this topic has been much less talked about. There are host of reasons to such condition.

One of the primary reason is that the risk vs reward equation is drifting more towards the risk than the reward. And the trade-off also doesn’t seems better off for many tangential reasons like for example, entrepreneurship in India has always been more like family oriented, especially if you look at the assets being created over the period of last 3-4 decades. So that puts lots of stress on VC fund houses to put in money when the founder or the product is not tried and tested. And if the product is in a me-too category then the whole idea of putting in good amount of sum doesn’t make sense since it’s not going to change the world at least. So the reward becomes paltry again. So the entrepreneur-VC ecosystem in India is running through a vicious circle IMHO.

But this isn’t the case in developed countries  especially silicon valley where it started way back in 60’s. So investors (viz. Venture Capitalists) are less jittery about the risk-reward equation.

So lets define the problem statement:

We need to device a way which will act a bridge between entrepreneurs & investors where the risk is mitigated by the amount of money being put in the first place.

Now wait. There is already ways entrepreneurs are doing it right? Yes there are! Enter Angel Investors who basically are the retired entrepreneurs and company execs. So their presence not only work as a short duration of cash but also due to their nature of patience, experience Angels also work as mentors.

And after the Angels have helped much then the entrepreneur can try to their 1st round of financing through VC’s. Great story ends!

But wait. This is not the end to it. If we forget the whole aura of Silicon Valley for a while and get a reality check about India’s investing scene then it might give a different picture. First of all, in India we don’t have enough Angel Investors. Whereas, in US, in 2005, according to the University of New Hampshire’s Center for Venture Research, the total amount invested by angels exceeded the amount invested by venture capital funds.

But the question arises then why VC’s don’t invest in Indian startups? There can be lot of gibberish around it but the moot problem remains the same. For a VC, they won’t ever consider making an investment in the order of $150-200 Mn out of their corpus in Indian startups because that’s a lot of money for Indian startups and risks are also highers because of the above mentioned reasons. Also, a VC fund of $150-200 million may have a genuine problem in financing a start-up this early and this small. The fund’s overhead cost limits are such that they can afford at best two or three experienced people to find and make investments and work with entrepreneurs. This naturally limits the number of deals they can do to ten or fifteen a year. Thus, they tend to concentrate on deals of larger sizes, say, and a minimum of Rs 10 crore as the starting investment.

So that makes the need of intermittent investment process for Indian entrepreneurs much more important.

Also Indian startups don’t need that huge amount of sum initially. What they need is just a small fraction. Also the much needed mentorship through the initially phases. All the criterion makes an Angel a perfect fit.

But what we have in India is handful of Angels. Also in the post which I mentioned earlier where Rajesh Jain pointed out the sum which Indian startups need IMHO is way too much.

In the Indian context, angels should typically invest 1-2 cr ($200-400K) to give enough money for the company to get started and through to the early product prototype. First round investing (typically by a venture firm) should be between Rs 5-15 cr ($1-3 million) for products focused on the Indian market.

I personally feel that is still way too much; especially for companies who are developing consumer internet products. I think around INR 10-15 lakhs ($20-30K) is more than enough to take products of that nature from prototype to marketability stage. This also puts less stress in small time angels to put in their money with lower risk appetite. And the best part is what it does for the overall industry. When a lot of smaller amount of money follows many small startups, then surely it would be great for overall startup-VC ecosystem also. At least its good to have many startups who fail than having nothing at all since the experience curve will help to make fewer mistakes going forward.

But I’m sure that Rajesh Jain would come up with some fantastic idea which he promised for tomorrow’s post. Will try to plug in more thoughts on it laters. For me, let me know what do you think? Do you see a bail-out from such condition? Let me know!

In simple words, the concept is that the company gets a credit limit, from the media house, for advertising its products in the different channels of the media house like television, internet, newspapers, magazines, events etc. Against such credit limit the company dilutes some equity stake in the company, at competitive valuation, to the media house.

Such transactions are proving a boon to the companies as it facilitates to boost their topline growth through advertising and promotions in different media channels. It helps the company to save cash and increases working capital of the corporate house which can be further utilised for expansion activities. The company can make tax savings upto 30% (New tax code proposes 25% tax regime for corporates) of the actual advertisement credit utilised. It acts as a win-win situation for both the parties, as the company gets media support to enhance its market reach and the media house gets new client relationship and stake to the extent of credit limit offered.

Apart from the recessionary phase, induction of reputed media equity partners sets a benchmark for future corporate actions and makes the company more attractive for investors like venture capital funds, FII’s, Banks, retail investors etc. at the time of exploring the primary market or the secondary market.

In furtherance of the tangible benefits some intangible benefits like cross referencing among the investee companies, better public and investor relations, improved brand equity, large market reach etc. can help the company to generate additional business.

It can be said that infusion of media capital, especially for SME, can have a far reaching positive impact on the growth of the company in this difficult phase of excessive competition and cash crunch. Thought the benefits appear miniscule in simplicity but it can help to rope in huge amount of tangible benefits to the company if used in a tactical manner.

Note: Guest article by Sameer Purohit. He works as an investment banker and spends most of his time in corporate strategy, private equity, M&A space. Above all, he’s good friend of mine and I thought that this article can shed some light on emerging trends in media space.

Hope Sameer can contribute more on such topics in the near future. Also Sameer is not so net-savvy, so he is unable to share any link but I hope he’s able to do so in next articles

Although there are host of local search engines like AskLaila, Sulekha, OLX India, Yahoo Local, Onyomo and many more but I still think most of these lack the scale, width and spread that I would expect (if I think of replacing my by-default global search engine, Google at least). But yes, immediately one search engine comes to my mind (thanks to their recent TV promotions) which has been able to break the shackles of scalability i.e. Just Dial. But then it makes me wonder then why haven’t we been able to makes these above mentioned local search engines as big as Just Dial. Now as I see it, 3 branches of discussion comes to my mind:

1. Consumers: Yes, an important point here is that lack of awareness and exposure to the new local business search options among the mass population is a major hindrance.

2. Culture: We are still the lot who would ask a close-by friend or relative about any local info rather than typing in search engines to give us answers. Fair enough since we all live in a close knit society where close-by recommendations rule supreme.

3. Funding: I still think most of the VC’s who are interested to Indian internet space aren’t looking at local search engines as much as they do in other allied internet based media outlets since of all the above mentioned factors plus many more varied reasons. So its a vicious circle if we talk about growth and scalability for local search engines to flourish.

Now if you’re thinking about why JustDial.com succeeded then a quick recap would make things easier. Mind it, JustDial is not just an internet based search engine. Infact, most of the times, I’ve used it through calling their phone number. So its a web based entity with offline reach which makes more sense in India since we have nearly 10 times mobile users than internet users. So JustDial’s business model is slightly different.

On the same page, off late I was just discussing the mobile penetration issue with one of the local search engine guys and they too said they are working on similar models since for Indian local search market, marriage between Internet+Mobile will work wonders (both from users and business point of view).

Off the rack, today I read an interesting post on Alootechie who presented a good case study sort article on ‘How local is the local search market in India?’. Some of the most convincing points I found there were opportunity cost of forgoing the huge pool of untapped market potential hidden in local & small business entities.

…Presently in India, there are around 7.5 million small and local businesses that are willing to target 1.1 billion consumers by advertising their services. Out of these businesses, 5000 are deep pocketed corporates who can go for broadcast and offline media. This means that there are a lot of local and small businesses who are potential advertisers on the internet.

Now doing some basic math shows that they are letting go about more than 99% of potential business entities who could benefit from such listing on local search engines or targeting about 1.1 billion people. Now I know that 1.1 billion is just plain vanilla thing. But if we get dirty with the stats then these could be possibilities:

• 7.5 million small & local businesses (Potential)
• Out of which, 5000 are big shots who has deep pockets
• So that makes, more than 99.9% untapped market. Whoa! Talk about opportunity.
• Now there are about 50 million Indian internet users roughly. About 400 million mobile users.
• So main equation stands at: 99.9% business entities can target at least 50 million users.
• So that makes 1 business entity for every 7th user. Talk about demand-supply mismatch where supply is more than demand at this point of time. But clubbing mobile users, then we have la perfecto scenario.

Still all I can say is even if 50K business entities joining on-board to target these users, then the local search engines could make a killing out of it. But that would mean, huge sales force who can pitch in, in-house information support (and I’m even discounting number of associates for in-bound call support) etc. In layman terms, cash flow. So slightly capital intensive prima facie. So as I mentioned earlier about the vicious circle in point no. 3 above becomes one of the biggest hurdle. Hence, all these unscalable models.

But on the hindsight, I still think that we can have profitable business proposition if we slightly fiddle with the business models. Though I’m not sure about the sustainability but initially lot of thrust would be levied on user base. But recently, what Mahalo did really excited me.

Hope to hear more from you guys. So what do you think?

Note: On the same issue, couple of months back, I wrote a post wherein I presented the case of how social networking sites should incorporate local search engines for strengthening its bottomline and ease the friction of loosing users to competition by making use of social graph and making it relevance based model.

He noted that:

India will see birth of new billion dollar companies who leverage technology rather than make an innovation themselves.

Quite true. But I really don’t want to agree to it (somehow). Do we have dearth of talent, risk-takers or is it something to do with the whole societal ecosystem (a must read) which pushes us to do minnow jobs rather than to take change of something bigger which can potentially ‘Change the World’? Though many would agree that the answer lies somewhere in those neat words but I feel something is missing in the whole equation of building a great organization. No I’m not getting into the culture, money, leadership or society debate but for Indian entrepreneurship landscape, it does hold true.

But off-late, I’ve interacted with few brilliant minds who wants to take charge of things and question the status-quo. I don’t know for sure if they are going to change the world but sure I’ve seen the hunger and dedication to do something totally radical and different in their own way. These interactions have given me enough fodder to ponder about that why aren’t we able to produce companies like $GOOGs/$YHOOs/$MSFT’s?

Below I’m quoting my opinion:

1. Timeless Epiphany- One of the stifling reasons for fledgling Indian Start-ups is that most VCs (who are representing some International fund-houses and not domestic ones) have been harsh with the Indian entrepreneurial community for not being innovative enough, not thinking big; Partly its their way of doing business where thinking incremental rather than monumental, at least Indian start-up scenario is the order of the day.

2. Missing of “Big Thought” – In a way, the very thought process of “Changing the World” is missing in Indian start-ups. Entrepreneurs (mostly) are looking at incremental gains and not investing enough time to develop an innovative out-of-the-box solution. Partly the time factor is okay but if we look at 360*, then VC’s (mostly expats who are investing now) who provide the cash-flows for building the initial bricks are compromising longer term gestation period to shorter term benefits.

3. Dynamics of Indian Market: Though we have seen Google’s, Yahoo’s, Amazon’s being built up which sets up an example for all entrepreneurs but largely I think the Indian business ecosystem is slightly different. Talk about building an world class technological company – problem is we already have biggies like Infosys, TCS to name a few who has a bigger grasp of clients’ mind-share to take away the crumbs from early tech start-ups. So there you go – your market size is already capsized to do a killing out of it. This is just an example. Though recently I’ve interacted with an early tech start-up and I know for sure that they are building their niche. But the point is how scalable are they? However, I think India as an emerging nation gives much more opportunity in emerging arenas like mobile, education, health-care etc which itself is growing (not forgetting the vast scope of catering to a billion population). Some are capital intensive and some are highly technical which gives way for talent acquisition to be of primary concern. Talent is not a problem in present scenario but yes, capital intensive sectors are something which has a long gestation period and I hope there are some VC’s who won’t mind putting their money in such start-ups with ample of amount of confidence and support to take them through.

More on such thoughts as I go along writing more on such debatable issues in the near future but the point is what should be done. Though there is no immediate panacea to this problem but surely there are more than a way to mitigate these issues upfront and slowly sowing the seeds of entrepreneurship in the culture.

1. Large Business Houses should invest: I’d the opportunity to work for India’s one of the biggest conglomerate with businesses diversified across the consumer segments. So touching consumers is their main concern. Now with technology evolving at the pace of light and I don’t think they would mind investing in such start-ups who identify a problem and come up with practical & easy solution to it. Yes, I think big corporates should start investing in these start-ups (not only from a business point of view but also it makes up for their CSR initiatives wherein they can act as incubators of brilliant ideas).

2. Push from the Government: I always think Government has to be the change agent that start-ups need – be it via infrastructure, financial help or more importantly making the legal process easier. Now I know its easier said than done but at some level, I believe the entrepreneurship ecosystem has to be fostered from the grassroots level where entrepreneurs face lesser hassles to build up something new.

These are some nuggets of thoughts that can do a long way helping us building the next Google, Yahoo, Microsoft or Apple.