Nation means an imagined community. It stokes a certain pride in every human who belongs in it. Prefix it with Product and that makes it even more elite. In business terms it means climbing up on the value chain. Which in turn means more margins, more visibility and more power.

I heard the word Product Nation first inside a motley crew that was responsible for organizing the largest conference on building products from India. Ten years have passed since then and that sprout of an idea called Product Nation is a toddler now.

Lot has been learnt in this decade.

TLDR;

Take away for founders

• “Playing in India market, Pay close attention to the regulator “
• “Affordable bet for founder is not same as investor“
• “IPO is not liquidity for the founder.”
• “Second time founders swear not to build Vanity startups. Learn from one, work with them closely”
• “Valley Playbook don’t work for India, even though they get funded. It is not adequate to win”
• “Capital will not be the bottleneck. But being equity efficient is more critical to keep control”

Take away for limited partners, investors in funds

• “If you think of India as the India market alone then you view it with only one eye”
• “In IT services Indian were masons of software. Now not only they are becoming designer architects of the new global products but they can do it all from India“
• “Axis of global product software generation is no more based out of Valley”

This additional sight is required to see the full picture of India and its role globally.

Take away for policy makers

• “Not to think 5 year windows for policy but think 20–30 years”
• “Allow time for policies to work and don’t create new ones that limit the impact of a previous one”
• “When creating a policy beware of second order effects. More importantly beware of Iatrogenics”

1 — Product is not same as Engineering

Founders especially those from engineering background realize eventually that weaving code together is engineering not product. Silicon valley celebrates 10X engineer, had even invented new words like ‘product engineer’. But product goes beyond that.

Building a product involves a category understanding, shifting to a problem first mindset, sculpting the packaging and framing the right pricing model to position the product. And most important of all is cracking the product distribution. It requires sticking the neck out and make a bet on what a customer might want. While doing so making sure there is no over building.

Left to themselves engineers would want to build a new electric Porsche, a beautiful, next generation technology, hand crafted creation that make them proud. And it may sell only a few hundred. What is needed instead is a Toyota Etios. Something that meets expectations and delivers promise. This may sell in hundreds of thousands or even millions.

This is the key lesson learnt again by many founders new and old. I heard Suresh Sambandam of Kissflow once say that

“First 3 years was figuring out that we should have not built the infrastructure business from India. The next 3 year was in realizing that doing world class engineering is not the same as doing a world class product”

2 — Bleeding edge is not our comparative advantage

Every startup hub in the world envies Silicon Valley and desires to copy it. Country governments allocate budget and sponsor PhD scholars to study this and replicate. However such copying never works.

Keith Rabois paraphrasing Peter Thiel’s ‘Zero to One’ mindset says this for how investors that win do.

“All investors are assessing their best comparative advantage, Andreesen and Khosla are technology wave investors, Mike Moritz is good at assessing people, there are market based investors. If you copy another investor, it makes no sense. It’s less about investors copying one another but it’s more about what their specific comparative advantages are and how they maximize or optimize for those.”

Same applies for startup hubs. Each region must find its own comparative advantage.

Looking back it turns out that understanding the local needs of the market and delivering better is not enough. Also that Indian founders have no edge in doing this compared to other founders from outside India.

Google of India is Google not Guruji. Facebook of India is Facebook not Minglebox. WhatsApp of India is WhatsApp and not Hike

Also building bleeding edge technology startups is not where the unique comparative advantage lies for Indian founders. For most of the decade no bleeding edge Indian startups have ever become big. It is only recently some of the bleeding edge startups found landing spots . Good recent example is Reverie Technologies that did pioneering research and technology on Indian language (better than Google’s work) that led to its eventual acquisition by Reliance Jio.

Saas is where comparative advantage for Indian startup ecosystem lies at a global scale. In Saas distribution does not depend on relationship based selling. Here the location of where software gets made and distributed from does not matter.

Comparative advantage will continue to be the most important question of the next two decades of the Product Nation growth. Some are therefore considering should India as ProductNation be instead called as SaasNation

3 — Global front office moved to India

Kanwal Rekhi once said that

“One in two billion dollar enterprise company in Valley has an Indian founder in it.“

Each of these companies had their engineering center i.e their back office in India. Due to the tailwinds supporting Saas, many of the emerging Saas companies have their back office and both front office in India. Founders are present only occasionally or move very late to Silicon Valley. Examples are Druva, Zoho, Freshworks.

This trend is only going to be more prevalent of the future global software product companies.

4 — Playing before designing game

In the first decade founders learnt crawling, now it is time for running. Companies such as Druva, Zoho or FreshWorks survived and succeeded in well entrenched categories, a.k.a Red Ocean.

Building new categories is a different game play a.k.a Blue Ocean. While there have been great attempts no breakouts so far. Next wave of companies such as Whatfix will win big where they are designing their own categories and also the rules of the game.

5 — Regulation first is the local game

Investors placed a lot of faith in the growth of local digital market in India. Lot of these investments led to consumer surplus. End consumers had a great time receiving discounts, offers over online shopping, cab ride and food orders.

No one however found a successful working business model that the stock market will approve of. By the time it could be figured, incumbents ended up changing the rules of the game through twisting the arms of regulation.

I once heard Nikhil Pahwa of Medianama once lament

“Thanks to all the change in regulation e-commerce is harder now than Mobile VAS was 10 years ago. “

Eventually every Indian market gets regulated

While Digital Transformation will happen in India but it will not be led by startups. It will be steered by incumbents. The paint industry blue collar jobs will transform and move to digital but it will most likely be led by AsiaPaints than a mobile first craiglist like startup.

Bharat opportunity will happen but through the hands of an incumbent because they are stronger and better player in a regulation first game.

6 — In the name of help, they make it hard

One of the last jobs of a government should be in market making. However every government overestimates its role.

No industry body, think tank would take the courage to publish this fact due to its political overtones. More startups have withered due to governments than those that have benefitted.

Many groups of people have tried to shape policies that can help startups. It is a frustrating process for addressing the smallest of problems. Then there are big industry level problems. For instance, there are only 11 product IPOs in the last 11 years. Instead of fixing the liquidity friction, policy has focussed its efforts in things that can lead to selfie moments of bureaucrats and founders. It is also so un-coordinated that effort of one policy team cancels the others. For example creating StartupIndia on the one hand but terrorizing with AngelTax.

In policy circles it has become a well known joke

“In policy you make 2 steps of progress forward and 2.1 steps backwards.”

Best help a government can do in market making is to do nothing. It should continue to serve the function of protecting citizens.

7 — Lee fixel saved the fountain spray

When Lee Fixel invested in India first he was branded a casino capitalist. But thanks to him the entire venture capital industry that was being questioned for returns got two decades worth of lifeline to continue.

According to research by Prof Thillai Rajan, “Mean returns of Indian PE-VC asset class is 13.25% in the decade 2008–2018”. Prior to that there was no data to even study it. In the US these return average 15–20%.

In the previous decade, i.e 1997–2007, many reputed global VC firms that came to India bolted back due to inadequate returns. In the time period 2007–2017, about $16b of investment by VC had been done in India. Only $4b had been recorded as exits. By orchestrating Walmart Flipkart acquisition in 2018 Lee added $17b to the tally of exits to take it to $21b. Else the 13.25% return of the VC asset class may not have been possible

He showed how to capture value, spread wealth to startup employees and saved the entire VC Industry in India. Lot of venture capital therefore will continue to be available.

8 — One in many is not the same as Many in one

A startup ecosystem’s maturity can be measured by how balanced are the terms between founders and investor collectives. Is it lopsided one way ? Silicon valley saw the balance favored the founder while in India the exact opposite was true a decade ago. That has changed gradually, Initial years saw many founders celebrate a fund raise. Experience has taught that it comes with obligation which when not fulfilled can take the control away.

Founders have learnt that control is as important if not more than capital. Because the game played by founder and investor are different therefore the averages are different a well and cannot be compared.

Average outcome of a gladiator is not the same as the ringleader outside the game. If in a game gladiator dies, it does not matter what the winning prize is because he can’t play the game again. For the outside ring leader even if one bet is off there are others that can still take a shot at the reward.

“Meaningful investor outcome is not usually the same as meaningful founder outcome.”

Economist are giving it a new sophisticated name, “Entrepreneurship is not ergodic”. Nassim Taleb said it long ago that entrepreneurs do not play russian roulette.

Taking affordable bets is critical for founder anywhere. In India now we have rich class of second time product founders who take bets that keep control of their fate in their hands.

9 — Building Commons is hard

In a new economy where markets don’t form on its own it is argued that well meaning folks must come together and pay it forward. However building a commons, driven by a community is hard. Open source software created GPL license to protect the commons and therefore preserve ‘paying it forward’ contributors. This does not extend well to non-code based communities.

Every year new communities kick start however they fizzle out in a few years. In the last decade I have witnessed three communities breath its last in my arms. Have attended the last rites of three more. When commons become big, it attracts fascists. If the commons is not protected those fascist take over.

Tragedy of commons is an age old human problem, not solved well. The first decade of Product Nation saw that it has not solved this well for itself.

New ones continue to emerge and they continue to be hopeful.

10 — Race to the first billion dollar ARR (annual recurring revenue)

One of the most exciting things now is that there are many contenders for the first to get to a billion dollars in ARR. Druva is at $100m, Freshworks is at $200m while Zoho is at $500m. Between them there is a race to get to the first billion dollars in ARR. Once the first one does it, floodgates for the rest to follow will open up.

In conclusion

“Nations are born in the hearts of poets, they prosper and die in the hands of politicians” — Allama Mohammed Iqbal.

Founders are the poets of Product Nation. They shoulder the responsibility of ushering India as Product Nation to its adulthood in the next two decades. Responsibility of the rest is to be their cheerleader and affirm them.

When looked through a global trillion and billion dollar market cap lens it looks like a tiny speck now but they have done well to set the foundation for the next stage.