Time has an interesting article highlighting that in the US, startups are being built for under $10,000. As several people compare the differences between the previous dotcom bust and this one, I think this is a key element – its much cheaper to do internet startups (of a certain kind), and this could be a great time for those to start businesses.
I have always been intrigued by the cost of starting up in US relative to India. It seems to me that the seed stage investment required in India is higher than in US, even though at a later stage, Indian startups may have better economics due to lower cost of marketing. With reference to this article, at the seedstage, an Indian startup may have the following disadvantages at being capital efficient:
- Lack of Compact Skills – of people who can handle 2-3 distinct aspects of the business (such as building the site, UI, marketing) with high level of expertise.
- Inability to attract top talent for equity in early stages of startup.
- Low limits on credit cards – yes, thats a useful tool when you are starting out!
- Lack of relatively cheap/free infrastructure like garages, attorneys, etc.
I think the key to success on such startups is personal passion (or “immersion”) and ability to pick narrow niches and market to them.
Are you seeing under-5-lakh startups taking roots here in India?
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Sanjoy mentioned a number of factors which make the 5 lakh startup viable now. The two VC funded startups I was apart of each spent well over a crore in servers and hosting before we even launched. Of the 10 companies I am working with now as part of the iAccelerator 4 are using Amazon EC2 / S3 so they don’t need this kind of upfront investment.
I don’t really buy the ‘Compact Skills’ argument. Almost by definition startup founders need to wear many hats and learn as they go. While the local support system in Indian metros may not be as developed as Silicon Valley; the barcamps, open coffee clubs and startup saturdays I’ve been to have been very vital. And most learning and support comes from the Internet anyway.
Its true that its hard to hire top talent for equity. Its hard in the valley too. A problem I’ve seen with the entrepreneur mentality here in India is that as soon as an entrepreneur has an idea he starts thinking about ‘hiring’ people to help him rather than looking for co-founders who are willing to partner to make this happen. IMHO anyone who joins a startup pre series A is more partner than employee.
Another problem with the sub 5 Lakh ecosystem is that the legal and operational overhead of doing deals is difficult to justify for the type of stake angels operating at this level take. I am hoping we can develop some standard documents small angels in India can use which will help mitigate this similar to the docs the YCombintaor published. http://ycombinator.com/seriesaa.html
All this said, I think 5 Lakh startups are flourishing. There’s enough press about startups now so that starting your own technology company is starting to seem kind of glamorous. And I don’t think there’s any question that you can live in India comfortably on $10,000 longer than in Silicon Valley.
To be frank the $10000 startup is still not a reality in India. For this to become a reality, kids fresh out of college has to get into doing startups. For students coming from a middle class background, it is difficult to accept failure for both the student and his/her family. And the first projected success is perhaps getting a job with a software services major or getting to a B-school.
But, yes we are getting close – I have recently been in touch with a few engineering students and they seem to be doing some amazing work though for them its just “time-pass”.
I harp on the same thing again and again to anybody who gets into a discussion on startups with me – people need to have Compact Skills as Alok rightly said. Across technology, marketing, sales, etc. More specifically for single-founder startups. Another thing that I see out there is a lot of mediocre stuff floating around – we need to really set high expectations as far as products and execution go.
And well, it did take me a few years to realize all of this – 🙂
“Are you seeing under-5-lakh startups taking roots here in India?”
Well, they have existed for about 150 years in India! Where have you been?
Deepak Shenoy, good post.
Now, mind passing some of the tips on freelancers.
I would like to tap them for developing a handful
of websites.
Ashok Lulla
ashoklulla hotmail.com
Alok, my thesis on this has been that in the valley most companies starting out are 100% consumer web. So there is a website to program, good design and UE and some PR. And this is possible with 2 founders who can hack it all themselves. And so Ycombinator etc.
However, in India, you hardly have a real consumer web business. So if you are 2 guys adept in AJAX, Java and can hack a site for photos or whatever, not good. You still need a sales team, talk to large companies, alliances and all that happens in the real world. Less click, more mortar.
Effectively, you have B2B oriented startups in India that have to hire people very early on, have office, sell to large companies etc. Such businesses cost more to start in the US too.