Building a Product Company - Issues & Challenges

Diwakar Nigam from Newgen Software spoke to us on the 35th session of NASSCOM Friday’s 2.0. The session kick started with a welcome address by Anil Bakht from Eastern Software Systems, who also set the tone for the day by talking briefly about companies committed to developing innovative IP and foraying the rather tough world of products. We had around 27 people in the room who were keen to hear from Diwakar on what it takes to build a Great Product Company.

Bakht introduced Diwakar Nigam, MD, Newgen and one of India’s pioneers in the area of product development. Diwakar was among the first few companies in the country to enter a domain where even angels were fearing to tread. At a time when foreign products, carrying costly price tags were just trickling into India and being sought after by customers, Diwakar’s company Softek developed a word processing system (Akshar) and document management software which was affordable for Indian enterprises and even managed to create waves in other emerging markets.

Diwakar began by referring to the product business as a long-term journey—one that began with assessing the market, the applicability and viability of the offering and ended with the product hitting the market, hopefully “on-time” (neither too early, or too late!) Actually getting the product idea off the drawing board and taking it from ideation and conceptualization to the market was a task that stretched companies and their resources. Diwakar advised companies to begin by quickly bagging a few customers (particularly large, tech-savvy, early adopters) and leveraging their knowledge, experience and feedback to continuously upgrade and scale their product. The first customer, he felt, was important and had to be a “showcase” client. Good customers, according to Diwakar, were extremely critical and could help through their mentoring and experience sharing. At the same time, they could serve as excellent referrals, especially if they were willing to talk about their experience with the product development company. Customer testimonials and case studies, presented at seminars, national and global conferences and workshops, could be the best tools for product companies to popularize their offerings.  

Citing the instance of reputed software company, i-flex, he said  that it had successfully harnessed its relationship with the giant Citigroup to access vital support and investments. Citigroup also provided i-flex with a captive ground to experiment with its products.

In order to build products targeted at the enterprise space, Diwakar suggested that companies analyzed what customers required and inbuilt into their products what was valuable for most of the clients. A key imperative for product development companies was to establish their credibility and prove their longevity in the marketplace, to convince customers that they were in it for the long term—the next 10-15 years. Companies investing in enterprise-level products were always fearful of the risks involved and only picked vendors that appeared financially robust, with a strong customer base and considerable experience.

It was his opinion, that selling and scaling a product was probably one of the hardest things to do and that companies needed to be careful about not underestimating this activity. Being in the products business, companies had to deal with smaller and larger players. Creating unique products was also a tough call. While price could be one of the differentiators, companies had to focus on features as well. At the same time, they would have to evolve a business model where they kept adding new components to their offering to provide continuous value to the customer and generate fresh revenue streams for themselves. Building add-on capability into products was therefore essential.

On the people’s side, companies needed to keep their product teams energized. Typically, teams that had worked on the same product for five to six years, were bored and lackadaisical. In order to reactivate the teams, companies needed either to incentivize employees through ESOPs or move them into other functions. At the end of the day, it was important to build balanced teams and regularly monitor and evaluate them at every stage.

Having been in the market for over five to six year, it would also be appropriate for product development companies to seek Venture Capital or an influx of investment through other sources. This would be required for their expansion and diversification plans, for foraying other markets, brand building and adding credibility to their names.

Clearly, as they grew from Rs. 1-5 crore and Rs. 5-10 crore, companies would encounter unique pitfalls and would have to learn to manage growth. It was at this stage that VCs could prove to be a big support, he said.

The session with Diwakar Nigam ended with an interesting and interactive Q&A, with attendees asking questions on how they could build successful product businesses and survive in a cut-throat environment.