India’s venture capital community does not have the ecosystem or the vision to support electronics companies

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Ramendra S. Baoni, founder of Bisquare Systems

Being a startup in the Indian electronics industry is not easy. Entrepreneurs must overcome major challenges related to component sourcing, high manufacturing costs, innovative sales strategies and the need to patent, before success can be achieved in a highly competitive market. Ramendra S. Baoni, founder of Bisquare Systems, an end-to-end product design and consultancy company, shares his experiences with Baishakhi Dutta and discusses how he overcame many challenges.

EB: Through the course of your journey, while working on innovative solutions, what has been the most difficult phase?
As entrepreneurs, we faced a major challenge on the business side rather than on the technology side. The Indian component distribution market is not aligned for innovation. When we are trying to compete with a Chinese product, we need to get our pricing close to theirs. So, from a design perspective, we need to optimise costs by using fewer components or less critical ones.
Cost optimised designing is something that we have been doing for a long time, because we come from a background where we were designing products for others, such as Japanese companies that were manufacturing in China and selling globally. So, we had access to the ecosystems of getting things manufactured by optimising costs. While the design part was easy, distributors or component suppliers in India could never come back with the right pricing, especially because our initial volumes were going to be low. Consequently, our pricing could not be competitive, which is critical to gain entry into a market.

EB: How have you solved this problem?
Since we’ve been in the design community for a long time, we have extremely good relationships with the component OEMs, whether it is the manufacturers of semiconductors, capacitors or various other components. So, we decided to work directly with them instead of working through the component distributors in India. With a strategic, long term view, these companies supported us directly, seeing that there was a vast potential market in India. That’s how we got better pricing. This made our product competitive, even at relatively lower volumes. And that is what gave us the breakthrough with our initial set of customers.

EB: A lot of large component distributors are open to working with startups and provide, if not MOQs (minimum order quantities), at least SPQs (standard packing quantities). Do you agree with that?
They don’t mind working with you, and providing support. But they won’t give you the pricing that is required to compete at initial lower volumes. As long as you are designing a product that is not price-sensitive, this is fine. In the end, pricing becomes a factor when you need to scale up or the product is in a price-sensitive market segment. A lot of startups give up primarily because they’re not price competitive. So, this is a huge problem.

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The distribution companies make the scenario worse. In any case, the pricing is not really controlled directly by the distribution companies; they only control the cost of the commodity components (typically Class B and Class C parts). Now, when they, the distributors, take a project to the component OEMs, the latter don’t see the potential of the business that the distributor may present to them on behalf of a small startup that has not done any business in the past or is just starting off. Because of this, the component OEMs do not offer any special pricing.

EB: Taking the distributor partnerships into account, where does India stand if we compare ourselves with China?
It is just the opposite in China. When somebody wants to prototype a design or manufacture it in smaller volumes initially, then people see that there is good potential. The volumes in China are so large that the distributors already have better pricing. And the component manufacturers also support them, because they see the potential of a product being designed in China that will be sold to the rest of the world. In India, the electronics manufacturing ecosystem is minimal, and because of that, the cost benefits are missing. It is basically a Catch-22 situation, and if we don’t solve it, there will be no electronics startups or large manufacturing companies in the country.

EB: So how did you identify the right partners for procuring your components?
Luckily, we were able to make a breakthrough by striking up some strategic relationships early in the design process. For example, for the key power semiconductor components (inverter ACs require power semiconductors), we decided to work closely with Infineon, which is among the best in the world for these components. The company also looked at our project as a very large business possibility. So we decided to work together. When working in a strategic partnership, the entire organisation is aligned and the pricing gets aligned too. That is how we were able to actually make the deal.

We got terrific support from the largest capacitor manufacturer in the world, which is Nippon Chemi-Con. Though the Chinese companies and others use Chinese capacitors, we decided to use a Japanese capacitor because we wanted the product to be extremely reliable. With a Japanese capacitor and with Infineon power electronics, we are competitive in the market. Presently, we may not be that competitive as our volumes are low, but once the volumes go up, then we will become extremely competitive. At the moment, we are able to meet the customer’s expectations.

EB: With these tight cost considerations in play, how do you plan your revenues?
The challenge with Indian customers is that before they start talking to you, they want the price of your product to match what they are used to paying for something similar. Otherwise, they won’t consider you. They do not rationalise that the price is a bit high because yours is a small company, with low volumes, and that once the volume goes up, the price will come down. To address that, we work with almost zero or minimal margins, and hope that once the volumes go up our margins will improve. But there is a cushion for that—we are not paying out of our pockets.

EB: Could you briefly tell us about your organisation and the unique offerings that you are working on?
Bisquare is essentially a design company. We started off with some innovative technology in the solar domain. The next space that we decided to look at was energy-efficient appliances.
As you know, having stabilisers with most air conditioners (ACs) is a necessary evil. But it is also the stabilisers that are responsible for most failures. So, we decided to get rid of these by incorporating certain features in the ACs we designed to sustain large voltage fluctuations during operations. We did this by extending the operating range of the AC in terms of voltages. We designed the product to work from around 100 volts to about 300 volts, with performance between 160V and 300V.

The other thing that we looked at was the temperature. We observed that the moment temperatures go above 43°C – 44°C, most ACs start cooling the way air coolers do. So, we took it up as a challenge that up to almost 50°C, we should be able to give the rated cooling, with the ability to operate up to almost 55°C.

With these aggressive goals, we decided to design the product. About a year and a half back, we were ready with the essential design. By last November, we were ready with the technology for commercialisation.

EB: Did you apply for VC funding?
We are 100 percent self-funded. We did speak to a few VCs, but we felt that we were not really going to get the appropriate valuation at that stage. So, we decided to invest on our own. It was a very large investment and was very difficult. Luckily, some of my friends and batchmates also pitched in with angel investments, but that was a very small amount. The bulk of the investment was done personally.

EB: Is the Indian VC funding community supportive enough?
The VC community in India is aligned for software and e-commerce. They don’t have the vision and the ecosystem to support electronics companies. They consider it as a big risk and, typically, will not give the valuation that you’d expect when you’re working on an innovative product or technology.

EB: Are you the sole founder of your firm or are there other co-founders?
Primarily, it’s my family that owns almost 98 per cent of the shares in the company. Some of my friends who helped me out, also have some equity in the company (after they put in the angel investment). But primarily, it’s my wife, Anju, my younger brother, Dipendra, and myself that have funded the company.

EB: How do you find the right talent to build your team?
Expanding the team or getting the right talent is a challenge. If you look at the premium engineering colleges or even the Tier 2 colleges, most of the students who graduate are eyeing software jobs, irrespective of what they have studied. Getting good electronics engineers is very difficult.
Our domain requires expertise on embedded systems. So we require embedded engineers—people who not only have an electronics background but have done a decent level of software programming in college, or alternatively, those who have studied computer science but like working with hardware. That breed is extremely rare. Even though I am a visiting faculty at IIT Delhi and at BITS Pilani, I find it almost impossible to attract talent even from these institutes.

There are a couple of challenges. One is that electronics is a domain that most people don’t want to enter, even if they are electronics engineers. Second, they are more concerned about whether they are working with a large brand than the type of work that they’re doing. Because of these challenges, getting people is a problem. So, we have been nurturing talent right from the beginning. We get fresh people, even from Tier 2 and Tier 3 colleges, and train them. And they’ve been performing extremely well. But then, adding to that team is becoming a challenge. Let’s say I need to add five people to my team. For that I’ll have to probably interview some 300-400 people. That’s a big problem.

EB: What is the strength of your team right now?
We are a very small team of about 12-13 people.

EB: Do you plan to expand beyond your office at Noida?
We have offices in Noida and Pune. The latter is the main creative design centre where all the product design work happens. And all the electronics and technology work happens at Noida. Currently, we don’t really have expansion plans, but we are open to the idea of expanding into other cities.

EB: Any plans to start manufacturing?
We have thought about it a lot but realised that, currently, there is so much of surplus manufacturing capacity in India. Most of the manufacturing companies are actually struggling since they don’t have much business. Our core strength is not manufacturing but designing. Manufacturing requires the most capital for the least value addition.

There are two ways of achieving high value addition—one is with product designing and the other is through marketing. We decided not to enter into marketing because we’re not going to sell products under our brand name; we will only operate as an ODM. Instead, we decided to focus on value creation in terms of design and sell what we’d created as an ODM product. So we plan to outsource the manufacturing of our designs through a high-quality contract manufacturer and then supply it as a product.

EB: Have you patented your designs?
No. We have decided to follow a completely different approach from the rest of the market. Our whole control algorithm is based on artificial intelligence and fuzzy logic. That is not the way others have designed their products. Patenting means that you need to publish all the details of your design. Also, there are no software patents in India, though they do exist in other parts of the world but are very difficult to protect. It takes almost eight to nine years to get a patent, by which time the technology becomes obsolete. For instance, we still haven’t got the patent for one of our solar products, which we had applied for in 2008. So we have been waiting for 11 years and have no clarity on the matter.

EB: It seems like it’s a challenging task to receive patents in a timely manner in India.
In India, by the time the patent is received, the product has been manufactured, sold, and has become obsolete. So in today’s context, I don’t feel that patenting is the right way to go because you spend too much money on filing for the patents and, ultimately, do not benefit from them. Besides, in the process, you expose your entire technology to the world. I would rather keep it a secret initially and at a later stage, open source it.

EB: So, are you in favour of going the open source way?
Yes, but maybe after we’ve commercially leveraged our efforts to some extent.

EB: As an entrepreneur, what are the top three lessons that you’ve learned so far from your experiences?
The first venture that we started was in the solar sector—for solar LED lamps. The biggest learning from that experience was that our primary strength is in product design and innovation, and we lacked the marketing skills that were needed. Since we have been involved only with R&D and design right from the beginning, we decided to get a professional CEO to run the operations. But that didn’t work for us. Getting the same level of commitment and passion from an outsider, even if you’ve offered equity, is something you cannot expect. Entrepreneurs have to drive their own companies, at least in the early phases.

The second learning is that since the product had come out extremely well, we decided to sell it only under our own brand. There were several opportunities that came our way for ODM manufacturing, which we declined. This I feel was the second big mistake we made. As innovators, we want to keep improving our products over time. But if there is a demand for the product in the market, then there is no harm in initially supplying it under another brand name, as branding itself is a very expensive exercise.

Even if we had got a reasonable amount of funds (which we didn’t and what we did get, was in bits and pieces) it was in no way sufficient to actually create our own brand. If we had focused on ODM supplies, we would have been able to make reasonable margins and could have looked at a brand subsequently.

The third major learning is related to the ability to raise working capital. Large innovations often just get wiped out because of not having sufficient working capital available. We had a very big opportunity to supply our solar lamps, as we were able to bag a tender from the Chhattisgarh government. We could have supplied about 400,000 units but were not able to do more than 20,000 because of the lack of working capital. The bank would not fund us because we didn’t have profitable balance sheets for the previous three to four years. And VC funds are very expensive, and not easy to come by for electronic product startups. So essentially that option just doesn’t work. Working capital is a very big problem for startups.

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