GIVING A PUSH Startups are working on advance payment model, identifying right customers and building trust over a period of time
Technology startups are finding new ways to tap into the hugely lucrative small and medium enterprises (SMEs), even as investors shy away from the segment which is plagued with problems such as rampant payment defaults and general averseness to technology.Working on an advance payment model, identifying the right customers and building trust over a period of time are among the few measures that startups have so far adopted.
The biggest problem with cash-strapped SMEs is that customer acquisition costs are high while the average payments are low, leaving the startups with little option but to shut shop in case the payments do not come on time.
“It is a push factor rather than a pull factor. It's like selling insurance; nobody buys it voluntarily , someone has to convince them to....As a result, Indian SMEs are a no-go sector for Indian venture capitalists,“ said Sharad Sharma, co-founder of iSpirt, adding that the software product think tank is working on a program that aims to change the buying behaviour of the firms in the segment.
But the market is large, at about $370 million (about ` . 2,300 crore), according to IT industry lobby group Nasscom. The decline in interest from the venture capitalists comes at a time when even large companies such as accounting software maker Intuit, German software firm SAP and Microsoft are eyeing the sector.
But startups like Maximojo are not willing to back down. Charging customers in advance and cutting off services at the end of a certain period, just like telecom operators do, is something that Sudhir Mody's Maximojo is working on.
“Payment default rates have fallen because we have learnt to approach the right customers,“ said Mody, whose three-year-old firm enlists hotels on popular trip planning websites.
Gartner categorises small businesses as those which have fewer than 100 employees and mid-sized enterprises are those which have be enterprises are those which have between 100 and 999 employees. These companies would rather reinvest their capital in the business than in new software, said Ajeet Khurana, an angel investor at Maximojo.
“Because there are so many problems, startups should look at large market potential. If they are looking at niche markets, why would you bother?“ said Mohan Kumar, executive director, Norwest Venture Partners India, who has backed customer engagement solution Capillary Technologies and hospital management software Attune Technologies in the past.
Cash-only payments, whose sources are sometimes questionable, are another worry for startups. Unlike in other countries, credit card penetration is low in India, and the practice of automatically deducting money from customers on a regular basis is not allowed by the Reserve Bank of India.
As a result, startups also need to figure out a way to ensure payments from the customer's bank account can be pre-authorised, much like the equated monthly instalments work, said Kumar. Having an inside sales team that regularly keeps in touch with the customers, also helps. “Then it becomes a scalable business model,“ said Kumar.
Once they gain the trust of SMEs, startups find that they are able to get them on board to make online transactions regularly.
The biggest problem with cash-strapped SMEs is that customer acquisition costs are high while the average payments are low, leaving the startups with little option but to shut shop in case the payments do not come on time.
“It is a push factor rather than a pull factor. It's like selling insurance; nobody buys it voluntarily , someone has to convince them to....As a result, Indian SMEs are a no-go sector for Indian venture capitalists,“ said Sharad Sharma, co-founder of iSpirt, adding that the software product think tank is working on a program that aims to change the buying behaviour of the firms in the segment.
But the market is large, at about $370 million (about ` . 2,300 crore), according to IT industry lobby group Nasscom. The decline in interest from the venture capitalists comes at a time when even large companies such as accounting software maker Intuit, German software firm SAP and Microsoft are eyeing the sector.
But startups like Maximojo are not willing to back down. Charging customers in advance and cutting off services at the end of a certain period, just like telecom operators do, is something that Sudhir Mody's Maximojo is working on.
“Payment default rates have fallen because we have learnt to approach the right customers,“ said Mody, whose three-year-old firm enlists hotels on popular trip planning websites.
Gartner categorises small businesses as those which have fewer than 100 employees and mid-sized enterprises are those which have be enterprises are those which have between 100 and 999 employees. These companies would rather reinvest their capital in the business than in new software, said Ajeet Khurana, an angel investor at Maximojo.
“Because there are so many problems, startups should look at large market potential. If they are looking at niche markets, why would you bother?“ said Mohan Kumar, executive director, Norwest Venture Partners India, who has backed customer engagement solution Capillary Technologies and hospital management software Attune Technologies in the past.
Cash-only payments, whose sources are sometimes questionable, are another worry for startups. Unlike in other countries, credit card penetration is low in India, and the practice of automatically deducting money from customers on a regular basis is not allowed by the Reserve Bank of India.
As a result, startups also need to figure out a way to ensure payments from the customer's bank account can be pre-authorised, much like the equated monthly instalments work, said Kumar. Having an inside sales team that regularly keeps in touch with the customers, also helps. “Then it becomes a scalable business model,“ said Kumar.
Once they gain the trust of SMEs, startups find that they are able to get them on board to make online transactions regularly.
No comments:
Post a Comment