Orbit Change Conversations

Shrikant Patil has a good post titled “Service Game is Over”. It’s about entrepreneurship in the IT services industry in India. He traces the history of the “Big 5” IT services players – TCS, Infosys, Wipro, Satyam and Cognizant - over the last two decades. He divides up the period into 5 stages. In the end he says….

My conclusion, the big 5 can no longer differentiate amongst themselves, salaries are increasing 25-30% which is already 30% of U.S. salaries, the cost to company per salesman is 100-150K per year and long sales cycles. For someone starting from scratch, barrier of what is mentioned above, plus zero reputation, no relationships, no base for references and referrals. So guys please look else where for new opportunities. It is not about high risk, it is a non starter.

This is a persuasive argument. Let’s parse this. One conclusion is that young entrepreneurs should “look else where for new opportunities”. Another implicit conclusion is that IT Services is no place for startups now given the high entry barriers. I agree with the first conclusion but not with the second.

I believe that this is a good time for new startups to get into the IT services space. Let’s not forget that Google came on the scene when AltaVista dominated search. Or that Salesforce.com carved out a position for itself when Siebel was flying high. Both Google and Siebel weren’t ‘me-too’ players; they took a different tack from the incumbents. This is what the new IT services startup needs to do to break into the market.

In fact, the conditions for a disruptive play are pretty good. One side there is a fairly large pool of under-served and over-served customers waiting for a different service paradigm. On the other side, there are trends like SOA, SaaS, BaaS (business-as-a-service), etc. that make new business models possible. Startups that leverage these conditions can do well.

For a startup to do something radically different from the norm in the marketplace, it needs entrepreneurs who are seasoned veterans of the Big 5 type of firms. You can’t change something that you don’t understand (at least not when you have enterprise customers). It’s only through market immersion, another way of saying experience, that people can identify the under/over-served segments waiting to be serviced differently.

I have argued in the past that there are two routes to entrepreneurship. Typically, “student-turned-entrepreneurs do better with consumers as they are able to smell out trends among early adopters, usually their peers, and cash in on them. This is how Jerry Yang (of Yahoo), Larry Page and Sergey Brin (of Google), or Alexandar Amosu (the “Lord of Ringtones”) have become successful. Alternatively, one can become an executive-turned-entrepreneur after accumulating years of working experience. These entrepreneurs can then leverage their professional relationships to build and sell complex enterprise offerings.”

So let’s be clear about the distinction. IT services is no longer a place (and probably never was) for young, inexperienced entrepreneurs. Yet the growing maturity of this sector means that it ripe for radically different plays by new startups. In other words, this is possibly the best time for executive-turned-entrepreneur to jump into the fray.

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