In a list of India’s “100 innovative start-up companies” released last month by Nasscom, which represents software and computer services firms, nearly one-tenth came from unexpected places making their debut: cities such as Indore, Durgapur and Thiruvananthapuram.
The list illustrates an emerging and unchronicled subtheme of new businesses being incubated by the dozens in India: start-ups moving to smaller Indian cities.
Start-ups such as Sankalp Semiconductors.
In a couple of weeks, Vivek Pawar, his wife and two children will make an eight-hour road trip. Pawar is moving his 18-month-old semiconductor start-up out of Bangalore to Hubli, a small city 400 km north of here. His team of 25 design engineers will work out of a development centre on the campus of a local engineering college. In return, they will set aside time every week to train first and second-year students on chip design techniques.
Once headcount at the Hubli centre touches 60, Pawar plans to replicate this “distributed” model at other small cities in Maharashtra, West Bengal and Tamil Nadu, with each centre run as an independent business unit with its own entrepreneur-in-residence. The erstwhile Bangalore headquarters will only be manned by a small team in charge of sales, marketing and administration.
Pawar, a graduate of the Indian Institute of Technology, Kharagpur and a 15-year-veteran of Texas Instruments’ development office in Bangalore, is the newest entrant to a growing list of entrepreneurs who are tapping into the technology start-up wave in India’s second- or third-tier cities. While it is difficult to ascertain the exact number of such companies, industry insiders estimate that close to 1,000 start-ups were launched in all of India in 2006, of which roughly a tenth raised venture funding.
Start-ups are flocking to the smaller cities for the lower employee attrition they promise and the lower costs, not just of hiring and staffing but also of rent, utilities and transport. Compared to Bangalore, says Tapan Joshi, vice-president of marketing at eInfochips, a silicon-design firm based in Ahmedabad, salary costs in his city can be up to a quarter lower while overhead costs cheaper by up to 40%.
Further, entrepreneurs say airline connectivity, broadband, fixed-line and wireless connections are driving technology entrepreneurship to these smaller cities.
“No one wants to be yet another programmer amongst the 50,000 at Infosys when technology allows us the opportunity to create another Infosys right in our back yard,” says Sanjay Vijayakumar, who co-founded Torque, a mobile phone value added services start-up, with classmates at the College of Engineering in Thiruvananthapuram.
The team, which has a final semester to clear at the engineering college, has already raised Rs5 crore funding from a group of overseas Indians.
In May, the team will launch a subsidiary focused on the mobile space, MobMe, that will offer a slew of services such as a news alert, a mobile payment gateway and a community service, Fast Blood, that links blood donors with patients.
“MobMe will be launched in Kochi before we plan a national roll-out,” Vijayakumar says. Torque has good company: two more mobile industry start-ups, Tinfo Mobile and TNGicube, are also based out of Kerala.
Semiconductor design start-ups in various parts of Karnataka are drawing on the talent pool built up by global majors such as Texas Instruments and Intel in Bangalore, and from raw recruits at university campuses that dot the state.
At Manipal, a university town about 400 km from Bangalore, KarMic, an integrated circuit design firm, has a training and recruitment model aimed at students that Sankalp hopes to replicate. “In three-four years, we will have an industry-ready pool of recruits from which we can pick the top 5%,” says Sankalp’s Pawar.
Others argue that it is not just the cost advantage driving entrepreneurship to the smaller cities but the work-life balance that less crowded cities offer.
“A start-up requires close bonding and interaction between team members to be a cutting-edge outfit dealing with global customers. In small cities, employees spend less time commuting, have enough time for family and are keen therefore to put in more hours at work,” says Mrinal Das, who quit Texas Instruments to join the team at Sankalp. He is billed to be the entrepreneur-in residence for Sankalp’s West Bengal centre.
Industry veterans view the move to smaller Indian cities as the beginning of a virtuous circle.
“More examples of technology entrepreneurship in tier-two cities need to happen for all of the Indian population to benefit as opposed to a very small percentage that participates in the information technology industry,” Gururaj Deshpande, billionaire-tech entrepreneur, who built and later sold successful networking businesses Cascade Communications and Sycamore Networks, said in an email interview. Deshpande runs a social entrepreneurship programme in home town Hubli aimed at fostering growth of small business.