“Indians don’t want to pay for software”.
I heard this from a few SaaS entrepreneurs serving the SMB market (especially ones focused on efficiency). They have either shut down or exited the Indian market.
They allude to “cultural” reasons (cost-consciousness) as to why their products failed in this market.
However, a detailed discussion reveals some interesting points –
- Lower wages reduce the value of software – Imagine you built a SaaS product that helps with scheduling patient visits for a clinic and eliminates the receptionist role. The product is way more valuable to a US clinic where the annual cost of a human receptionist would be roughly 30 – 50K USD. Even if the product is priced at 5K per year, the ROI is 6 to 10x. Compare this with an Indian clinic where the annual human cost for the same task is hardly 1K – 5K USD. Not much value is created by these products in this context.
- Software doesn’t address corner cases – Software fails in corner cases (e.g. last minute cancellations, unexpected bugs, emergencies, customer not contactable) whereas a human is equipped to handle unexpected situations, and learn new tasks on the go. So, buyers value the flexibility that humans bring to the table even when the software’s TCO is lower.
- Existence of small + bootstrapped companies – There are surprisingly many small, not-under-VC-radar software companies that quietly serve the SMB markets. They are fragmented, sell software at a very low price and customise a lot based on customer requirements. For example, clinic management software costs < 5 USD per month, full stack grocery mart/delivery app costs < 10 USD per month. Funded players don’t have any clear advantage compared to what these small players offer.
- Distribution: There isn’t an obvious scalable and cost-effective distribution channel to target Indian SMBs. Since LTV is low, many channels don’t work well.
So it is not a cultural problem as the entrepreneurs would like to believe.
The solution? Run a tight low-cost model ⇒ Don’t get into talent wars inflating salaries, be patient enough for SEO to yield results.
Caveat: The above solution would be unsuitable if the time window of the opportunity is narrow.
What other reasons have you seen in SMBs not adopting digital products to run their business? Also what kind of distribution have you seen work for Indian SMBs?
