After having tailored Deskera's offerings to suit GST requirements in the region, founder and chief executive Shashank Dixit sees tax reform's rollout in India as tipping point
For Shashank Dixit, founder and chief executive of cloud-based business software provider Deskera, the India opportunity in 2017 will mark the second big instance in the company’s short history where the goods and services tax (GST) roll-out is set to be a game changer.
The first such instance was in 2012, when GST had brought about a paradigm shift in the fortunes of Singapore-based Deskera, then a fledgling start-up.
The Singapore government had approved the company’s offerings as GST compliant, and the year saw it sign up Google as a client and rake in over 800,000 downloads, with revenues crossing the million-dollar mark. After eight years of operations, Deskera had become cash positive.
Three years later, Malaysia switched to GST, and Dixit and his team opened an office there, expanded operations, and rode the wave. With this, all leading nations in South-East Asia had moved to GST.
“In Malaysia, GST also must be compliant with the country’s employees’ provident fund commonly known by the acronym EPF, just like you have central provident fund in Singapore. Then there is the currency issue, which is why people use us," Dixit said.
“If you ship something from Johor to Singapore, you pay ringgit and your books are in Singapore dollars. That day, say the ringgit is 3.5 to one Singapore dollar, and the next day it is 3.4, so the next day when you look at the books, you have paid a different amount, and the original transaction was in cash. Desktop applications cannot resolve these queries because the movement in currencies is so huge across these countries—we have different currencies, taxes and customs in Asean. The biggest challenge where we help is that you can use Deskera across the region. We are the only system a small company can use across South-east Asia. All transactions are completely compliant," he added.
After having tailored its offerings to suit GST requirements of all countries in this region, and finishing 2016 with revenues of just under $42 million, Dixit says India’s GST roll-out is set to be the tipping point for Deskera’s cloud-based software products.
We can innovate in software, but software that comes from Asia will have to be value driven
“India has 55 million registered VAT companies, and from July, every company needs to move to GST. So, you have 50 softwareemillion companies in India that need GST-ready software now," Dixit said.
In August 2016, Deskera announced that it was the first cloud-based provider to offer GST-ready software suite in India.
Deskera is not alone in tapping India’s GST opportunity, which several experts estimate is a Rs35,000-crore opportunity.
Several software as a service, or SaaS, start-ups such as Zoho, Automaxis, ClearTax and Razorpay, as well as inventory and accounting software companies such as Marg ERP and Tally Solutions, along with global firms such as SAP, Oracle, IBM, are in the race to woo Indian companies with their software services to comply with the new tax regime.
While the worst was over for Deskera in 2012, “every day in the four years leading up to it", by its founder’s admission, was a tipping point.
“The reason I did not quit was because of my personal family history. My mum would always say you failed. I come from a typical Indian middle-class family. If you are driven by your personal goals, you would do it. You need to have a personal stake and goal and ego in it. By definition, if there is something hard to achieve, the path will be hard," Dixit said.
While 2008 is the official founding date, the origins of the company trace back to four years earlier to the university dorm of the Indian Institute of Technology (IIT)-Kanpur.
Dixit and the three co-founders—Somesh Misra, Brajesh Sachan, and Paritosh Mahana—during their final year of college, had built software for a local outlet near the campus to enable its offices in different locations to work on a common set of accounts.
Deskera is not alone in tapping India’s GST opportunity, which experts estimate is a Rs35,000-crore opportunity
After graduating from IIT, the Deskera chief executive said he decided to make Singapore his base because the city-state provided an ideal opportunity with its low ERP (enterprise resource planning) penetration. He says he also found Singapore open and accepting of new businesses and ideas.
“You can be a small company but still be 5 miles away from central business district. It offers a unique advantage, and offers a mix of investors, customers and consumers, advisers, all within a five-mile radius. In Singapore, you can just land here—you don’t need relatives and connections to succeed," he said, even as he illustrated the case of Garena, which recently rebranded itself as Sea, and is the region’s most valuable start-up.
Garena, which was founded by Chinese entrepreneur Forrest Li as an online gaming company in 2009, and has emerged as this region’s equivalent of Tencent, had recently filed for a potential listing in the US, that could see it raise as much as $1 billion.
“Garena’s investors are getting an exit. On the contrary, Bangalore has not been able to do that. The success rate of Indian start-ups, when it comes to exits, is still very low," Dixit said.
“Singapore has created success stories despite its limited manpower and market size. Flipkart is technically a Singapore company. People are often too unfair to Singapore when they look at start-ups here," he added.
He may not have any complaints about Singapore, but success was hard to come by even in this city-state. The initial years involved walking door-to-door and selling to SMEs (small and medium enterprises), most of whom declined to buy the product, as adoption for cloud-based offerings was not as widespread as it is today. This was also a time that Dixit often slept at Singapore’s Changi airport for days at a stretch to save costs.
Deskera has since expanded to build a strong presence in the US, and now calls San Francisco, California, as its headquarters. In addition to offices in Singapore, Malaysia and Indonesia, it also has presence in eight Indian cities. It also plans to invest to the tune of Rs400 crore across the next five years in India to tap the SMB market, and Dixit sees the company’s headcount there going up to over 1,000 during this period.
Deskera’s India strategy involves building their own networks and forging new partnerships, and Dixit said he had been spending a considerable amount of time there. According to him, the battle in India would be like its foray into regional markets here such as Malaysia and Indonesia, and therefore different from the strategies employed by Indian SaaS who expand to the US, as their first port of call, to play on the price differential.
“The business in India is similar to Indonesia or Malaysia, which is many folds. First, you are educating the market, they don’t even know what ERP is. Second, you are taking them through the cycle of ERP. Third is compliance. The cost of acquisition in India is split into three areas. We are developing a blueprint to operate how to run businesses in India that will run on a similar process. So, over a period of five-to-10 years, you will see businesses in India being very homogeneous, if we are successful. I am not saying when but I am saying we can change the course of the country. We are changing the whole Indian SME landscape," he added.
The company, which has raised about $20 million in convertible debt from SoftBank, Aris Prime, Partners Asset Management, Tembusu Partners, and Tikehau Capital, is currently fund-raising, and is in talks with several private equity firms to raise around $100 million.
“We are still profitable. This year, we have again doubled our revenue and we have investors who are aligned to that plan," Dixit added.
The company had filed for a listing in Singapore last year, but later postponed its IPO (initial public offer). Dixit said he had bought out some of his investors, offering them an exit, without divulging further details.
He also acknowledged that a listing on the Singapore exchange may not offer right valuations for technology companies.
“The problem is not with the Singapore exchange, but the economy. For an exchange to grow, you need a sizable economy. You need investors with a risk appetite. Unfortunately, there are very few places that offer that such as China and Nasdaq. Even India cannot support listings for tech start-ups," he added.
He acknowledged that the Singapore exchange was taking steps to attract more listings, and added that the situation was set to change in the future. “Give it five years, we will see a lot of listings here in SGX. Even Indian companies will come here and list," he added.
Going forward, Deskera is also working on building a marketplace, which Dixit says will be the world’s first integrated B2B (business-to-business) marketplace, and claims that this would be similar to what Vijay Shekhar Sharma was doing to payments with Paytm.
An extension of this will see the company launch B2B wallet services, as it tries to become a one-stop solution for payment and transactions for its client base.
“SMEs in India think in terms of cash. If I have to pay you, I have to think how many bundles of cash do I need to pay you. What SMEs think is that by paying slowly, they make money, but what we are trying to teach them is that by paying fast, they also get paid fast," he added.
He also sees a future where Deskera can help bridge the funding divide between banks and SMEs.
With Deskera’s software having access to companies’ financial reports, general ledgers and payroll, Dixit is of the view that the company can provide controlled, time-bound access to banks in pre-approved formats.
The banks, by interacting with Deskera’s product, can look at invoice factoring and controlled use of proceeds. Put simply, the entire process of loan disbursal, which includes evaluating credit and payment history, cash flow, account receivables, assets, payroll, compliances, and credit ratings among others, can be handled by Deskera.
“The bank knows how much money you are making and your cash needs. Unfortunately, they don’t know the transaction types, meaning that if the payment comes in, they don’t know if it is from the founder, client or from someone else. For instance, in the auto sector, a customer of mine who gets paid every month, but he cannot show enough documentation to a bank, to prove that he needs to improve his production facilities, and needs a loan for the same. We go to the same bank and say, ‘Look, he is a supplier of Honda and for the next 12 months, he has a contractual revenue coming from Honda and that revenue is enough to fulfil his loan obligations. Plus, we can open a pipe from Honda to you directly. The problem is also with user proceeds—if you get a Rs2-crore loan, and if you buy a car, it is NPA. The bank says okay, you want to buy a machinery, we will route it through Deskera—these are things that you can do using cloud systems," he explained.
Dixit shares the view that building out a SaaS company to be a global giant is a long-term game, and points out that with the exception of Oracle, very few firms in this space have scaled across geographies. “SAP is big in Europe, Sage in the UK, and in Australia, you have MYOB, and it is Oracle in the US. India has Tally, but we don’t have one player dominating the market there. We don’t have a market leader in Asean, too, and that is the opportunity we have ahead of us," he said.
But can a company like Deskera, which has a high market share among SMEs, convince these smaller firms to stick with the existing SaaS and ERP vendor as they become larger firms?
“That is a very easy conversation. You don’t want to have five vendors, pay five different prices and then have five contracts. That is a war that has been brewing for the past 30 years which is called the best of breed versus full suite; and if you look at (Oracle chief operating officer) Larry Ellison, he had waged that war very early. He came with a full suite—Oracle is that. Best of breed is for the small guy who does not have an IT manager. With GST coming, it is a very interesting thing that permeates all transactions. A lot of transactions, including CPF or payroll, will have a GST component that you need to factor in your books," he explained.
“SAP is big in Europe, Sage in the UK, and in Australia, you have MYOB, and it is Oracle in the US. India has Tally, but we don’t have one player dominating the market there. We don’t have a market leader in Asean, too, and that is the opportunity we have ahead of us
Dixit also agreed that his larger competitors had certain advantages that smaller players could not match like better understanding of business verticals. “For an oil and gas company, it is a specific vertical. We don’t bring that advantage—we bring the horizontal and standard business process. We are more suitable for a small company that is growing fast rather than a large company which may have a peculiar process," he added.
He also pointed out that the likes of Oracle and SAP had ridden on the growth of their clients over the past decades, by launching more offerings for their customers as they grew bigger.
“That is why Oracle is a big name in the US because they have grown with the companies they service," he added.
Dixit also attacked the myth that ‘Asian founders’ often did not know when to quit when compared to their peers in the Valley, and offered a different take.
“Four hours from here (Singapore), there are three billion people. A four-hour flight in any direction in the US, and you have a market of 300 million people. The order of magnitude of Asia is so different. In Asia, if you are an entrepreneur, it is not about being lucky—the metrics are different. The reason the US encourages to fail early and fail fast is because there is an angle of luck. In Asia, it is almost always hard work. If it was chance, there are 400 million people who could be successful. If there are five people, your chance of being successful is too high. But when you have three billion people, there is always someone copying what you do. So do you think chance will make you successful?"
You’ve been successful so far, but for most players in the space, who have got past this stage, the challenge is when they hit the half-a-billion-dollar valuation mark. Why have we not seen new companies in this space challenge traditional biggies as in several other sectors? Won’t it be a challenge that you, too, will face in future?
First, the concept of Cloud is not more than 10 years old in the West and about five years in Asia. SaaS is a function of cloud. Typically, when you have a $100 budget, you spend $30 on software/licences, $30 on hardware, $30 on processes and the rest on overheads and all. So, software is a 30-30-30 business. In the past five years, we have proven that you can buy everything from one vendor. SaaS companies do not have a lot of maturity. SMEs have a very immediate and current need, and they have a very long wish list of things. We see ourselves as the gatekeeper, and we should be the first person an SME should go to. So, when it comes to GST in Singapore, if you go to the IRAS website, you see a list of a few approved vendors. I see ourselves as fulfilling the immediate need and hopefully fulfilling the long tail, and do inventory, ERP, CRM (customer relations ship management), HR (human resources). While there is a long tail, the value accumulation will happen at the gate. It will not probably happen at the farther side probably because there is no value to go around. Look at Zoho, they are a unicorn. Can Zoho come and sell in Singapore? No. Even if they say yes, can they sell to my buyers in Singapore who require specific GST services?
SaaS is a different game. The gatekeepers could be traditional ones like Oracle. SAP is also an example of a gatekeeper and nobody can displace them. SaaS just happens to be one more type of gatekeeper but not the Gatekeeper. The Gatekeeper is the ERP vendor. Take an ERP vendor like MYOB, which is valued at a couple of billions and is growing fast. They are not slowing down. Oracle and SAP are growing at 30-40% and they are pretty much the dominant players in the US and Europe. While I agree that size is an issue, the thing is that once you are in the Goldilocks Zone, there is no limit to how much you can grow.
How have the likes of Oracle managed to defend their turf successfully for so long?
Who has Oracle defended against? Nobody. It was financial manoeuvring and smart manoeuvring than defending as such. Oracle defines itself for ERP—they said they are going to stand for business processes, and any company that shows up in this area, they either compete with, or buy, like in the case of Peoplesoft. They competed with Peoplesoft and lost and were the No. 2 when it came to providing HR management systems. In the SaaS space, Salesforce is No. 1. Oracle is not No. 1 because they won, but because they stood by their decision or goal. So, if you have to disrupt ERP, it has to be geography-wise, not price-wise.
When will you see Asia driving innovation?
If you look at auto, who is driving innovation? It is Asia. If you go to China, it will be very hard for you find a German car. For computers, it already is Asia. When it comes to TVs, you cannot find a German product—it is all Korean. Technological disruption is happening in Asia, but we are weak when it comes to software brands and internet companies with the exception of a few like Alibaba and Baidu. We can innovate in software, but software that comes from Asia will have to be value driven.