COVID-19: Unexpected Impetus To Build The Next Zoom From India
#WaterBridgeVentures #COVID-19 #B2BSaaS #Perspectives #ReversePitch
A quick roundup of proposed economic stimulus packages from around the world makes for grim reading. US: $2 Trillion. Australia: $65 Billion. UK: $ 37 Billion. Brazil: $30 Billion. India: $23 Billion. S. Korea: $10 Billion. Taxpayer money saved up for a rainy day, seemingly coming up short in the face of the impending economic typhoon.
COVID-19 has caught many businesses off guard. While industries like travel, hospitality and real estate were predictable casualties, many small/medium sized (SMB) companies across sectors have been disproportionately impacted. Employers have done the right thing and shut shop (physically) but have been powerless to keep productivity alive. Employees, having grown tired of binging Netflix and Fortnite, are craving mental stimulation and fulfilling work. Months of work, progress and productivity gone.
Put bluntly, these businesses were not equipped/ready with the digital backbone needed to survive this pandemic induced social distancing and lockdown. Companies that put off digitizing their operations have found themselves sitting idle and struggling to keep the lights on. A slow rot. The worst way to have your technical debt exposed.
If there is any upside to this destructive pandemic it could be that businesses around the world, regardless of size will now look to future-proof themselves and truly embrace digitization. Decision makers, who have spent the last month struggling to mute themselves on Zoom/Google Hangouts now deeply understand the upside associated with moving from an offline only world to a online enabled one. For startups looking to guide these companies out of the analog jungle and into the digital age — the goldilocks moment is here.
At WaterBridge Ventures, we’re excited to partner with ambitious entrepreneurs looking to solve these scale digitization problems, in this post-pandemic reality. While the exact form factor for these solutions is hard to predict, we’re excited by companies that are focused on this problem set. Undoubtedly the world is a large place and potential value propositions can run the gamut, but there are certain opportunities/models are better suited to these solutions than others.
In looking at this opportunity set, the main questions we’ve been asking ourselves are:
Question 1: What should we be selling?
Question 2: Who should we be selling to?
Question 3: How should we be selling?
We look at each of these 3 questions in detail and what that means from an opportunity perspective. While there may be multiple ways to peel this onion, my perspective on analyzing this opportunity is centered around sales and identifying the critical elements on a GTM strategy that might succeed.
Question 1| What Should We Be Selling?
The start-up boom in India over the last decade has given rise to some 35 unicorns with consumer centric companies leading the charge. As the second most populous country, funding activity has been focused on serving the needs of price conscious consumers as the market expands across India and Bharat (non-metros). Consumer companies like Oyo, Byju’s, and Paytm have taken over from the IT services veterans like Infosys and Wipro as the international flagbearers of Indian industry. If Global IT services was startup India v1, then startup India v2 is well and truly here and it has been focused on Consumers.
Without doubt, India as a huge consumer market is a very clear and present proposition but we don’t think it’s the only game in town. As a country, we are blessed with a large pool of skilled, talented IT services professionals (India v1) who have grown up understanding international business problems and enterprise sales cycles (albeit from a services vantage point). At the same time, the last few cycles of consumer companies (India v2) has created a strong ecosystem of product management and UI/UX talent who can build world class products.
We believe there is a strong latent opportunity in reusing a lot of the resources we have built in v1 (business context) and augmenting it with the learnings from v2 (product chops). Founding teams leveraging both these complementary skills, at a time when global businesses are more attuned to the needs to digitization, should look to build products focused on solving B2B business needs. We believe this is a huge global opportunity for entrepreneurs in India and could give the rise to a generation of Indian companies like Zoom — easy to use, business friendly, end user focused and incredibly scalable. Built in India, for the world. India v3.
In terms of the fundamental value proposition itself — which tends to be measured in business outcomes, these broadly fall into 3 categories:
- Revenue Enhancing: Improves topline
- Cost Reducing: Improves bottomline
- Quality Enhancing: Improves standardization
Here revenue enhancing products are the easiest sell, cost reducing products tend to be nuanced by the margin of cost saving, while quality enhancing products are nuanced by the business vertical itself (strong for financial services but not as compelling for brick and mortar retail).
To summarise, B2B companies building easy to use, UI/UX heavy products that focus on revenue enhancement or cost reduction can stand to unlock value for business customers. Naturally the next important questions are who are these customers and how do we find them?
Question 2| Who Should We Be Selling To?
Over the last 5–7 years, Satya Nadella and Microsoft have spearheaded a global change from license-based transactions to recurring subscriptions — primarily through O365. Given Microsoft’s ubiquitous presence throughout all sections of businesses, companies of all sizes around the world have now been introduced to subscription-based services. While this might not always be a product/service that it central to the business, the subscription model is quickly becoming the standard for all products.
Traditionally, the SMB market has been underserved and subsisted on license based products that have been custom built/retrofitted from a larger existing product (e.g. Oracle CRM for Gym chains). Servicing this segment of the market in the past has been difficult from both a monetization (subscription) and collection perspective (service heavy) which has meant this segment of the market has been ignored by large enterprise players like Salesforce and Workday.
As a result, SMB businesses have often had to settle for products that are clunky and not fit for purpose which has added an additional layer of friction along the digital transformation journey. These companies today find themselves gridlocked in the middle of the COVID-19 pandemic. Stuck between a terrible user experience and the harsh reality that cloud powered solutions need to be implemented across the board. This opportunity can be powerful if Indian entrepreneurs are able to crack the fundamental question of SMB monetization.
Typically, monetization typically takes one of 3 forms:
- Subscription: Paying $ for access (e.g. Netflix)
- Identity: Selling your persona/preferences for access (e.g. Facebook)
- Attention: Paying for access by watching ads (e.g. YouTube)
One approach might be to sell subscription aceess to SMBs at a large volume that can jusfity a low price point. The assumption here is that the Indian companies will be powered by their inherent cost advantage and can minimize costs of product implementation (product is self serve/DIY). Another approach might be to monetize using either attention (ads) or identity (personas) across a large set of low/non-paying businesses. By aggregating across large numbers, it may be possible to create value through business insights and proprietary information.
Monetization itself is very nuanced and hard to generalize/theorize but we’re excited to hear from enterpreneurs on the price points and cost structures associated with their products as well as their plans to expand within/across business. Regardless, this remains exciting ground for debate.
Without doubt, the viability of these businesses will also involve the costs associated with acquiring and servicing costomers, which leads us to the next big question-how do we reach these customers ?
Question 3 | How Should We Be Selling?
Having spent the better half of the last decade pitching, negotiating and closing enterprise software sales deals across the US, Japan and India, I’m continually been amazed by the stark psychological differences between consumer and business purchase decisions. In figuring out how to sell to any businesses, it’s important to outline these differences.
Consumer businesses appeal to individuals with a value proposition that is inherently personal. My decision to use Snapchat is a direct result of my personal experience, my peer set and my perceived reward from temporarily morphing my face into a talking potato. This seemingly questionable decision is deeply personal and difficult to quantify in terms of checkboxes/feature sets. Eventually, the user is the only one who had to be convinced and all the gratification/remorse was mine to enjoy.
This explains why iPhones sell at a premium to similarly powered phones — it’s never quite an Apple to Apple (pun intended) comparison as many of the decision factors are intangible (luxury perception, UI preferences). Given buying decisions vary by customer, consumer companies use a variety of marketing channels to convey messages, hoping something resonates with the right consumer.
Enterprise sales on the other hand, involves group decisions. As part of the sale, every aspect of the product offering has to be boiled down to a set of quantifiable business outcomes (ROI). The process involves identifying multiple stakeholders, convincing each of them of the value proposition, aligning their motivations, and eventually driving consensus. An incredible balance of art, science and herd management.
Decision makers tend to be quite removed from the end user of the product and the end user experience is more of a nice to have. A company’s buying decision is driven primarily by one factor — maximising shareholder value. As a result, the sales process is primarily relationship driven rather than broad marketing. Sales pitches are bespoke, focused and massaged across the organization by a team of capable sales executives.
In most organizations, sales and marketing teams often dovetail in a way that companies are able to fill up their quarterly pipelines with a strong pipeline of potential customers. Marketing helps raise awareness and drum up qualified leads, the sales team helpes convert those ‘maybes’ into ‘yes’ decisions. In a sense, there are various models with differing focus on the marketing/sales spectrum. Some products are marketing only (Freemium) while others are sales heavy (enterprise sales). Essentially as the Customer Acquisition Costs (CAC) increases, the commensurate Life Time Value (LTV) also grows.
Given the premise of SMB clientele and DIY easy to use business focused products, Founders should look to minimize their CAC as much as possible to match the lower SMB LTV values. By focusing on targeted digital marketing initiatives, companies can target the 1–2 economic decision makers (who happen to be end users) within SMBs and showcase their products via a ‘try before you buy’ model. A DIY product with no implementation or integration can help SMB customers quickly understand and adopt the product.
Additionally, a huge operational lever for Indian companies is the large pool of English-speaking talent that can cost effectively serve as inside sales team members. The use of an inside sales team (low touch) based out of India can enable companies to close the sale at a competitive CAC, which would allow them to charge a lower price point while achieving scale and volumes.
On a related note, a lot has been written about the consumerization of the enterprise and the shift towards a more UI/UX focused enterprise software sale over the last few years. SaaS companies like Atlassian, Slack and Zoom have successfully shown that end user focused products can be sold to large businesses at scale. We don’t think the B2B sales decision process has fundamentally changed. Rather, these SaaS companies have recognized that they can win by pulling on new levers.
The common thread between all these companies is a focus on collaboration and communication. As inherently viral products — when users adopt the product, they collaborate with more users, thereby expanding the product footprint. As a result, the ROI for the entire sale improves (marginal cost drops, platform scale, etc). Per their S1 filing, 55% of Zoom’s 344 $100K+ revenue customers in FY’19 started with at least one single free host. By tying together user adoption with ROI (shareholder value), these companies have made UI/UX and its direct impact on adoption, a quantifiable part of the decision making process. This has helped build deep defensibility and entrenchment that incrementally exhaustive feature sets cannot compete with.
Inspired by this global trend, Indian Founders can look to bake in virality and user adoption as key sales and pricing milestones to drive adoption within customer organizations. While pricing is hard to theorise, given the impact of the COVID-19 pandemic on businesses globally, we believe a low cost/try before you buy model could appeal to business owners. Eventually, product itself needs to shine and demonstrate value to the owners, as Zoom’s growth has emphatically demonstrated.
Some Exciting Established Companies We Like
The ‘Built in India, for the world’ model has been explored by an interesting mix of companies over the last few years. FreshWorks, Zoho and Druva have famously proven that this model at scale -starting at the SMB market but then moving upstream to the enterprise space. Zenoti has focused on serving SMB needs for a particular horizontal (CRM for spas) before evolving into a full stack wellness solution. Self serve software like Postman, Engineer.AI and BrowserStack are all seeing 10%+ growth, week on week since the beginning of the COVID pandemic. Our own portfolio company Atlan has seen a strong inflow of interest from businesses of all sizes. Atlan is a home for data teams that aims to build a collaboration layer that binds data teams together with their favorite tools, data sources and processes. Atlan enables companies of all sizes (including large Fortune 500 companies) transition from indepdent data silos to data democratization in a month! A proposition that has resonated ever more so with business leaders around the world in this environment.
Since the COVID pandemic outbreak, McKinsey&Co has outlined digital reimagining the new normal as paramount important for business leaders (excerpt below). We believe this pandemic will bring to light many different aspects of the digitization journey that will expand the addressable market for startups.
Similar to the Y2K phenomenon, when Asian companies (including Indian companies) took the first plunge and adopted software into their new reality, we believe this wave of digitization will be democratized across all sections of business — especially SMBs . Work collaboration will soon be our new normal (regardless of size and scale) and we’re bullish on teams that are looking to make this a reality!
Wrapping up
To summarize the key learnings from this post, we believe models that focus on the following business aspects can win in a post COVID world:
- Product complexity
- Easy to use DIY products can be implemented with minimal assistance
- Products that allow/encourage collaboration are more attractive (inherent virality)
- Sold on recurring subscription contracts
2. Value proposition
- Tied to business outcomes
- Focused on revenue enhancement (preferred) or cost reduction
3. Market
- Global SMB
- High volumes at a low price point
4. GTM
- Builds on the Indian cost advantage
- Product will be bought (marketing heavy) rather than sold (sales heavy)
- Marketing lead freemium model or light touch (Inside sales)
5. Target clientele
- SMB’s with 1–2 stakeholders (can be marketed to directly)
- Commitment: Try before you buy
6. Founding Team
- Ideally strong/significant expertise in Sales and marketing paramount
- Top quality product vital
- Obsessive focus on creating a repeatable sales playbook to scale
- Sales at scale is the main focus of this GTM
At WaterBridge Ventures, we’re excited by this large opportunity and the many possibilities it offers. Do reach out to us on twitter or write in to nilesh@waterbridge.vc if you’d like to brainstorm.
With inputs from Manish Kheterpal.
