SME opportunity is THE FIND of #iDay2020
(This is a quick recap / review of the key discussions on SME/SMB focussed B2B tech opportunity discussed at the Indian Internet Day 2020 online conference on Aug 7, 8. It may not be complete and if there are any errors in quoting folks, do point out so I may be able to correct)
The commonly held wisdom was that India has around 40 mi SMEs that could go digital in next 5–8 years. Both Jasminder Gulati, co-founder of NowFloats and Puneet Chandok, President, India and SE Asia at AWS put the number as 75 mi SMEs today going to 100 mi SMEs by 2024!
Why does this matter? For long, VCs have held the believe that 5000–10000 is the maximum number of SME customers and India SMB focussed startup can target. At avg. Rs. 1500 MRR, this translates to nearly $2mi of ARR which makes India SMB focussed B2B startups unworthy of VC attention. Even if a startup could crate a bundle of 4–5 critical applications and target 5X the ARR, the $10-$20 mi ceiling prevented many VCs from moving into B2B SaaS space. Most funded companies look to serving US / western markets where LTV is much higher.
But with the new figures and the trends of adoption, suddenly a customer base of 100k-150k seems feasible and with an avg. MRR of Rs. 5000, this translates to $80-$100 mi ARR for any startups that can achieve scale and “branding” with its solutions targeted for the Indian SMB. At these ARR numbers, the startup will be valued as a Unicorn, or over $1 billion in valuation making it extremely attractive for VCs to invest in these businesses.
What’s driving the SME adoption / migration to cloud & digital ?
Karan Bajwa, the Managing Director of Google Cloud India said that “We’ve seen unprecedented growth in SME tech adoption in the past 3–4 months in 2020”.
What is driving this adoption under COVID / pandemic conditions ?
Firstly, many SMEs faced extreme challenges with national lockdowns and unavailability of on-prem computing. They did not have VPN, IT tools/folks to configure their solutions/access. Cloud became a “must have” computing solution. And almost everyone took this opportunity to make foundational changes to their IT planning.
Global SMBs use on an average 70–90 apps to manage their business functions — sales, finance, hr, operations, analytics, marketing etc. With Indian SMBs being weak on the IT management / personnel side, there is opportunity for SaaS providers to goto market with a broader product portfolio than single applications, though single applications will also see successes. If things go as expected, in 5–8 years we will see tens of SaaS startups have 100k+ to 150k SMB customer doing $80–100 mi ARR from India.
“Covid has been a massive tailwind. The beginning of true transformation of local shops is starting now. The next 5 years will be super exciting” said Akanksha Hazari, co-founder of LoveLocalIndia, a startup taking local shops online.
What should B2B/SaaS founders do?
“Indian SMBs are more hungry for technology than enterprises, and they have no legacy to bank upon”
“Build essentials for SME with simplicity, Price for India, Offer trial & low exit barrier, Give support with human touch” — was the mantra from the SME sessions.
“Building for #Bharat, including coming up with content in vernacular languages, and making products unique to India’s needs, is going to be a key focus area for startups” — Sampad Swain, co-founder Instamojo.
Focus on building specifically for the pain points of the large number of SMEs — lack of trained IT people, minimal IT support, tight on cash / budgets and needing simple solutions to day to day business problems. Don’t overload them with the latest tech / latest analytics that they may not be ready to consume on Day 1. Fix the immediate pain, land and expand as trust develops.
With their low-cost and tech skills advantage, Indian SaaS/B2B startups have the perfect opportunity to build on the #AtmaNirbhar movement and win the battle of Indian SMB markets. “India today has the perfect infrastructure and environment for product-led innovations. It could even become the #SaaS capital of the world” — said Karan Bajwa.
“In India, we should focus on solutions & pricing to build SMEs. They need a digital ramp” said another panellist from a SME focussed panel.
Where are these 75–100mi SMEs located ?
More than 60% of the SMEs are located in Tier-2 & Tier-3 towns & cities spread all over India, said Puneet Chandok of AWS.
What did the VCs think of this?
The VCs acknowledged the opportunity. Mohit Bhatnagar of Sequoia said that “5–7 years back, everyone thought SMBs was difficult. Now that has changed completely”. The AWS team laid out their plans clearly — At Amazon it’s a core part of their mission.
“If you really want to move India forward, invest into SMEs.SMEs are the largest open markets for tech startups. SME is not just a market but one of the biggest channels”, said the AWS head for SMEs.
While Most VCs were bullish on SME focussed B2B/SaaS startups, one VC, Prashanth Prakash of Accel said they had not seen a deserving startup (for investments) so far.
What Should The Government Do ?
The Govt should recognise the critical role played by SMEs — both in employment and economy and create a program to help digitalise Indian SMBs like never before. Work with the B2B SaaS startups, the ecosystem enables, the VC/Funds and create a smooth channel for GTM for Indian applications to win. Creative incentive for the SMBs to adopt digital and embrace digital payments, digital reporting and digital compliances in all their dealings.
A digital economy is a MUST for the post COVID world. Our larger enterprises are already investing into digital. We must enable our SMEs and the startups that serve them to build deep strong local business that will start going overseas from 2025 onwards and propel India to the top of global economy in 10–15 years.