We were recently involved in advising a high-growth energy startup in Texas, on a ‘Build – Operate – Transfer’ initiative in India. Some of our experiences are directly relevant to many startups / product firms that are trying to establish presence in India.
For many service providers ‘Build Operate Transfer’ means predictable & (almost) captive revenue that does not scale. Most service providers in India or elsewhere, would entertain a conversation because the lure of a fast growing captive revenue machine is too tempting to leave on the table. But it sucks management time and bites into revenue sustenance (A fall off the cliff after ‘transfer’ unless another operation of scale compensates for the exit). Professional investors are wary of such deals (for financial reasons) and the opportunity cost of dealing with a non-scalable division would scare away many management teams.So should you sign up a BOT deal and if so what should you look for?
You could sign up for a BOT model, if
- You like a vendor for their engineering and product culture and want to inculcate that discipline in your team. There are just a handful vendors BTW, in India who can be considered for this reason
- Your vendor has considerations other than bottom-line to pick this deal (breaking even due to this deal or using this revenue to bootstrap some internal initiatives or simply likes the space you are in) and is willing to work out a good financial deal (apart from having good technical ability to pull it off)
- You could be their biggest customer and the best of the vendor’s team would offer a great deal of mind-share (and help you build a great team)
- Your vendor is a brand in themselves and they can hire better and faster in the local market than you and that puts your product faster, in the market.
If I have missed any, please add through the comments.
When is it better to hire than do a ‘Build Operate Transfer’?
- If you can beat the market on salaries. Product engineers are still rare in India but you have a steady supply thanks to many multi-national and (now) Indian product firms. You could offer above market-price because you are offering that as margin to a BOT vendor anyway.
- If you can have your person in India (or any supply market, for that matter). You could kill your local startup in India, because you are so removed from reality here. Do you know that organizations keep their hackers for three months after they quit and they don’t think it is a security risk? Do you know that being in South Bangalore or North Bangalore can dramatically affect the composition of your team? Trivial or key details, that you won’t appreciate till you are here. Don’t let your Indian operations to be a black-box. Get immersed. You could take back a lot of frugal engineering mindset from here. Don’t hire a local operations head. Send someone instead.
- If your technology stack is such that a vendor cannot bring dramatic time to market advantage
- Your demand market is robust and you can definitely scale the Indian operations. People that join product companies are a different tribe. You have to show them enough engineering / product depth to explore. Facebook, LinkedIn, Zynga and Google are your competitors *in India too*. Welcome!
If you are setting up operations in India or planning to, do share your experiences. We’d love to hear from you!