Entrepreneurs are outsourcing support functions to others of their kind in a bid to start up faster and at a lower cost, find Harsimran Julka and Krithika Krishnamurthy
32,250 Number of service cos founded in India, last fiscal year
33 million Number of SMEs in India

WHY OUTSOURCING TO OTHER STARTUPS PAYS

Helps in customized and innovative offerings, such as on-demand cloud telephony services.
Faster response time in case of any complaints, personal rapport with other cofounder helps.
Lower price, often free for other startups
Sometimes startups also barter services. One product for another, with little or no money involved

WHY STARTUPS SELL TO OTHER STARTUPS

Big and unexplored market opportunity.
Easier to get access to startups, as opposed to larger organizations
Word of mouth recommendation works faster in startup community
Adoption of services by a peer is often a first sign of the product’s validation

Last month when Manjunath Talwar and Abhijeet Khasnis left Yahoo! India to build their own recruitment portal, they had none of the ordinary travails of starting up to worry about.

In a prescient move, the duo who mapped out their new venture while still employed, had outsourced the nitty-gritty of starting up to a network of service providers.

These ventures that are also startups – registered the company, built the website, installed enterprise software, filed a technology patent and built an animated video to market the new portal- MyNoticePeriod.

Once the details were in place, Talwar, a former product head at Yahoo Travel and Khasnis a director at Yahoo India, pooled in 10 lakh as seed capital to pay for the entire gamut of services, quit their jobs to drive the business ahead.

“Startups offer innovative solutions and understand each other’s culture. This makes them irresistible, the pricing is also cheaper and sometimes even free for other startups,” said Talwar whose company allows recruiters to interview only those candidates who are already serving notice period, making it possible for them to take on a new job within weeks rather than months .

More entrepreneurs keen to launch businesses in India’s bustling startup market are choosing to outsource noncore functions to other startups, freeing themselves up to focus on building their main product or service.

“We encourage our startups to specialize and do one thing instead of chasing multiple tasks,” said Rehan Yar Khan, founder of Orios Venture Partners. One of his portfolio companies, Pretty Secrets ells its wares on fashion portal Myntra instead of trying to drive traffic to its own website. Such symbiotic networks are helping deepen India’s entrepreneurial ecosystem where nearly 32,000 new companies registered as business service providers last year.

MyNoticePeriod’s website was built by Bangalore-based web design and application startups Zool and Stragure for `7 lakh. Patent outsourcing startup Invntree filed a US patent for which they charged 45,000, while Chennai-based VakilSearch registered the new company at a cost of `12,000.
In turn, the Bangalore-based company plans to offer its recruitment services free for other startups but will charge larger corporations a monthly fee of `5,000.

Collaboration, outsourcing and even bartering services are the new buzzwords across the country’s startup space, as entrepreneurs lean on personal rapport they share with others of their kind. “I ersonally use Freshdesk (customer management software maker) as I know I can call the founders directly if anything goes wrong,” said Khadim Batti, cofounder of website technology maker Whatfix.

Indian startups are also outsourcing services to global providers. A Bhopal-based startup Appointy, which has about 58,000 customers in US, has outsourced customer support to a Ukrainian firm. It’s better to outsource customer support to a country which has neutral accent, as we sounded like aliens,” said Appointy’s co-founder Nemesh Singh, who pays $1,200 per month to Kiev- based tartup SupportYourApp. “With the pervasiveness of the internet the location of a startup doesn’t matter,” said Singh, who is targeting revenues of $4-$5 million(Rs 24 crore) in 2015, all from SMEs based in the US. The company also uses Bangalore’s Whatfix for its web-help guides.

Often it’s the speed of delivery that encourages startups to outsource services to peers. Richa Kar, founder of online lingerie seller Zivame discovered telephony provider Exotel, started by her college mate Shivkumar Ganesan, while visiting in a coworking space in Bangalore.

Kar wanted to setup a call centre quickly to handle queries about lingerie. The two got talking and within a week- a virtual call centre was up and running.

“The rise of ecommerce has given rise to a whole other ancillary industry, leading to more activity in the startup space,” said Kar, who expects her company to earn revenue of `1,000 crore in the ext four years. Zivame, which has raised $9 million in funding from investors such as IDG, Kalaari Capital and Unilazer Ventures, also uses the services of logistics provider Ecom Express, also
a startup.

Experts are of the view that while outsourcing with its advantages of cost and time helps young ventures get off the ground faster, they must also have a back-up plan in place.

“It’s dangerous if two very nascent startups use each other’s’ services without a robust risk mitigation strategy,” said Ravi Gururaj, cofounder of Harvard Business School Angels, an investment network.

Online tea retail Tea Box based in Siliguri realised this the hard way. The company which has outsourced customer service and web page management to a network of both Indian and global service providers, had to deal with a situation where its website did not function for three days.

“ Being in Siliguri, we had very little control over developers who were based in Ahmedabad,” said Dugar, who created an in-house team to handle IT functions last year after he raised seed funding of `6 crore from Accel Partners. “Once funding is in place some core work such as IT must move in-house to have more control,” said Dugar.

Many entrepreneurs admit that with an average failure rate of 90% for startups in India, there is always a risk in depending entirely on outsourced service providers. “We were planning to migrate all our database to a Bangalore- based cloud startup, but have decided to wait for a few months, just to see if their product is stable,” said Navin Rungta, founder CEO of eLagaan, a legal advisory.

But as more startups offer attractive deals for both physical and technical infrastructure, the web of shared services is set to grow faster.

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