Bigger is Better

Volume 15, Number 1 Article by Narasimhan Mandyam March, 2003

Bigger is Better :

While branded Indian software companies have grown by 25 to 30% in the last financial year, Narasimhan Mandyam, Chairman & MD, Ampersand Software, observes, most small companies have contracted in size, and some of them have gone out of business. But there is hope yet for software SMITs as they are the best organisations for driving change.

Narasimhan M looks at software SMITs as one of three ownership types – those that have received no venture capital or other external funding — the ‘living dead’ entities; those that received such capital in the mid-90s – built for size but with no real differentiators and whose VC investors are unwilling to ‘let go’; and those founded in the late 90s by seasoned entrepreneurs who recognised the pitfalls of earlier models and were backed by savvier investors.

The imperatives of fast growth, larger sizes, export orientation and the lack of a local market have posed unique challenges. SMITs are unable to land deals even half as large as they did two years ago, with outsourcing companies opting for big vendors. They enjoy little banking support as neither software nor hardware are adequate as debt collateral, and VC funds are also not forthcoming. The solutions lie in building differentiators — from niche or vertical offerings to intellectual property, and consolidation — stockholders must accept M&A as a very real possible option. SMITs must understand, as in Darwinism at its best, that a larger company always has better chances of success and that it is adversity that forces evolution.

Reprint No 03108d