I have been watching / following 7 startups (3 in eCommerce, 2 in SaaS and 2 in consumer Internet) that target the Indian market over the last 14-18 months. All the entrepreneurs approached me with an intent to get seed funding so I had a chance to go over their traction, progress and future projections.
I have formulated a theory of market adoption of products / high technology products in India which I have tested with these and other companies and also with several venture investors.
For background please read “Diffusion of innovations” by Everett Rogers and Crossing the chasm by Geoffrey Moore. Don’t worry, I have only linked to their Wikipedia page, so it wont cost you anything.
At the top of the consumption (and monthly income) pyramid in India are what economists and marketing people call the SEC A and B class who have enough disposable income to spend on innovative new products. For the purposes of this blog post I am going to use 10 Mill (SEC A) + 20 Million (SEC B) households as the target.
The Innovators (less than 1 % of the population or 12 Million individuals) in India (entrepreneurs mostly) who conceive and develop these products for the Indian market and the early adopters (less than 5% of population or approx 60 Million individuals) together make up the entire “early adopter” category. Unfortunately less than 30% of them have both the interest, and the desire to be early adopters of technology.
Indian markets do not follow traditional diffusion characteristics when first innovators buy, then early adopters, then the early majority, and then the late majority and finally the laggards.
My theory on how diffusion of innovations works in the Indian context is as follows.
In India there are only 2 market adopters – those that are early and those that are not.
Abhijeet calls it the “low hanging fruit” and then everyone else.
So lets look at the implications of this observation / theory.
So what does that mean for entrepreneurs?
You will see a “headfake” of adoption and then a taper off.
E.g. The B2B SaaS company will quickly (within 3-6 months) get 10+ customers and over 30 in the pipeline, only to find the next 50 and the next 100 or the next 1000 are either non-existent or will come in 3-6 years.
E.g. The eCommerce company will see 1 -3 Million “registered” users and 1000’s of transactions within 12 months and find that the next 1000, 5000 and 10,000 transactions take 4-5 times as long.
E.g. You will see an initial 20,000 users for your mobile application for social TV extremely quick (within 3-6 months) and the next 50,000 or 100,000 take you the next 3-6 years.
I have seen these numbers play out again and again to know there are exceptions but those are rare.
These numbers are also dramatically different than those of companies targeting US or other markets.
When should you (as the entrepreneur) raise money?
You should raise it at the peak of inflated expectations. I.e. After you have some traction, which the investors think will be long lasting, steady and rapid. You will get the best valuation for the company at that time. Once your investor has some “skin in the game”, they are in to get their money back and then some, so they will do all it takes to make you successful.
What does this mean for investors?
The best time to invest is either very early (starting to build a company, idea and team stage) OR at the trough of disillusionment stage.
If they are early, you will get the bump from the initial adoption, so the value of the company increases many fold before the next round (which you should help the company raise at the peak of inflated expectations.
If you are post the trough, then you benefit from a growth stage.
What makes you go over the trough to the slope of enlightenment?
In my experience:
You may think I am being facetious, but I am serious.
This may be a cultural thing, but in India, over time if you have the ability, patience and willingness to survive, you will reach the plateau of productivity.
Anecdotal evidence over several sales transactions also suggests to me that once people in India see you around for 2-3 years, they think “Okay, this company / person is for real. We should give her / the product a shot”.