Asia is the world center for growth and innovation. Market analysts have predicted that the Asia Pacific region will expand twice as fast as North America. As we face this potential growth, we need to be sure that Independent Software Vendors (ISVs) are prepared to manage the explosive growth and maximise their commercial success.
The challenge for ISVs is to understand what role they have in contributing to the massive growth and how they can best benefit from the growth. ISVs need to understand how they can combine innovation, funding, business know-how and good management--the key ingredients for developing commercially successful software.
There is a strong buzz among Asia governments about the miracle of software innovation to transform economies. It is expected that local software houses will continue to be a part of the region’s strategic national agenda and allow for great economy success. The impact of driving a successful software business will not only impact the lives and pockets of developers, but it can transform an entire population.
In April, Microsoft and its partners from Asian Venture Capital Journal (AVCJ), Group Intelligence--Intel, Microsoft, and Red Herring--launched SoftwareAP.net
This Web-based initiative began as a way to bridge the gap between entrepreneurial high-tech growth companies and the complicated network of venture capitalist and government ecosystems. In the initial phase of the global initiative, companies in Australia, Malaysia, New Zealand, the Philippines and Singapore will be offered the cross-border growth opportunities they often seek across the Asia Pacific region.
The success of entrepreneurial economies lie in the combination of innovation, funding, and good management. To become successful, these economies depend on entrepreneurs with commercialised products, a highly skilled and talented work force, venture capitalists, and business consultants. As Troy O’Conner from Melbourne-based, Sky Technologies explains, "Getting seed funding has enabled us to take the first steps to commercialising our SAP Mobility suite on the world stage. This was a long and time-consuming task, with many pitfalls and wrong turns. Had there been a community such as SoftwareAP.net it would have short-circuited the process, and shortened our time to market. We are now in a rapid growth phase and assessing future capital requirements. We look forward to leveraging from this exciting initiative."
The rest of this article offers a basic guide for the region’s ISVs and ensures that they enjoy the commercial success of their innovations.
No Quality Means No Success- Establish a Culture of Quality
The most important driver for an ISV success is the development of a quality product. The competitive advantage of a quality product will ensure the success of an ISV. Quality checks need to be built into every part of the ISV team--from management to the developers.
An ISV’s management team needs to be ready to set and maintain a quality benchmark so that the entire team is able to drive those outcomes.
Too often, ISVs get ahead of themselves, excited by possibilities, potential and fail to ensure that everything is executed with the best quality--from the product to engagement with customers to even the basic programming.
Whether ISVs in Korea, China and Japan continue to develop their leading online gaming market or ISVs in Australia, China and New Zealand focus on post production and digital media, the first requirement is that their products and services are built with a strong commitment to quality that ensures their position in the market as well as the potential to enjoy commercial success.
Business Education
Microsoft works across the ecosystem with enterprise, governments and the ISV. The key challenge for the region’s ISVs include having the skills to develop from a start up to a commercially successful business, how to manage quality, and understanding how their success can impact the whole economy.
Traditionally software’s contribution to APAC’s IT industry has been much smaller than the contributions by hardware and IT services. Although great growth from 15 product companies in India in 2000 to over 250 product companies today is happening, the challenge for companies is to combine their great innovation with experience and business knowledge.
Microsoft and Agitavi Research deliver training to partner ISVs around the world, specifically to help business leaders of these companies to develop business skills. Time and again, we meet with startups with innovation but they let themselves down with a flawed business plan. Understanding your business, articulating your objectives and being able to explain your proposed business program are challenges many ISVs face.
For example, a Software Business Management Course provides a good framework for any software engineer with the knowledge of how they can create a sustainable business that is able to overcome the sales and marketing challenges and succeed. This includes market environment and analysis, review of the value chain, value creation and customer loyalty, innovation and leadership, and finally the design and implementation to the business plan.
While independent software vendors and providers have the technical 'know-how' to develop innovative products and services, many lack the business skills to grow to their full potential and succeed on the global stage. Software business owners and managers often find themselves caught up in the day-to-day pressure of running the business. This highly reactive mode of management leaves them without the resources or skills to fully determine their competitive advantage or plan for international marketing.
After acquiring the management skills, ISVs need to be ready to turn their business knowledge into something of real value for the business. In Korea, Microsoft partnered with ISU UBC in order to expand its market share and visibility. A key strategic decision for the company, they partnered to tie in with the Windows Vista launch to maximise sales leads, media visibility and reduce advertising expenses.
In APAC, specific courses are provided in market. For instance-training programs have been set up for Pakistan's IT export sector. As Kamal Ahmed, Country Manager of Microsoft Pakistan explains, “Lifting the state of local IT companies to a new level where they can be classified as mature, quality conscious, resource-rich and ready to make an impact in the international market.”
Getting Connected
SoftwareAP.net brings together all the key partners that an ISV needs to get the support to fuel its commercial success. By bringing industry hand in hand with government and venture capitalists to connect talented entrepreneurs to the capital they need to compete on the global stage, we hope the region will see an increase in the success of these ISVs.
To make it happen, high-tech companies register their interest in attracting investment and capital by filling out the 'investment readiness test drive' questionnaire online. If the company scores well enough and wants to apply for funding, SoftwareAP.net will direct it to the appropriate investment channel, including venture capital, angel investor, private equity or debt finance.
For venture capitalists, a profile of their fund will qualify which deals, industries and geographic regions they like to invest in. This profile will generate qualified deals based on their own criteria. Governments will also be able to take advantage of the initiative with access to profiles of high-growth companies through the deal flow pipeline. Over time, SoftwareAP.net will become a reference base for industry as well as governments.
The goal is for the SoftwareAP.net business community ecosystem to comprise more than 70,000 Information Communication Technology (ICT) companies across the Asia-Pacific region. The initiative will also help software companies and participating governments gather valuable census data about the business growth and financing needs of each country’s software economy. Nicolas Ashby from Celadon Capital, a Malaysia based Venture Capitalist explains, “Software AP.net addresses an unmet need from investors and entrepreneurs, ie; one central forum, and a user-friendly one, that is capable of bringing together thousands of companies and organisations from different ends of the spectrum and from all around the world who want to do business with other, invest or enter strategic partnerships, at minimal cost to them. The sites that exist today are either lacking in functionality, limited in their scope or are prohibitively expensive to access.”
The Result--What Happens When Software is Commercially Successful?
The Silicon Valley represents everything that works about integrating successful innovation into an economy. The Silicon Valley is responsible for the US’s knowledge economy--bringing wealth, driving job growth, and consistently investing in innovation. The success of the Silicon Valley is because of its ability to converge research and good business.
The development of ICT is a key factor for economic, social and technological progress and for the sustainability of a country’s national economy. According to IDC, the ICT industry has an impact on economic growth. In 2005, IT accounted for 3.3 million jobs across 10 countries in the Asia Pacific, out of a total of 13.1 million jobs across 51 of the world’s leading economies.
The ICT industry is a significant source of economic growth. According to a 2005 IDC economic impact study, the software industry accounted for 38 percent of total ICT employment and continues to exceed total ICT APAC market growth at 9.3 percent.
Imagine what an Asia-based Silicon Valley could mean! It could drive tremendous economic advantages including growth, reformation of business.
Countries like Singapore, Malaysia, Korea and India have nurtured entrepreneur and innovation centers. Governments recognise that they need to build the right environment and offer the right incentives for creative talent. The growth of venture capital support is a large part of these countries’ decision to allow for easy market entry. Limited capital gains taxes are all key incentives that will allow a market to become more attractive for further external investment.
Developing a more open business environment has allowed for greater innovation and commercial success for ISVs. In China the business environment improved when it introduced the Wholly Foreign Owned Enterprise (WFOE), which has become an investment vehicle for business in China. The perfect combination of engineering expertise from China, Taiwanese talent, and good management has resulted in great earning for the ISVs and a positive impact on the Chinese Economy.
There are great opportunities in Asia. This is probably the best time ever to be an ISV.
Quick Tips to Understanding Your 'Investment Readiness'
- Know your revenue mix: what is the 'quality' of your revenue (annuity or 'long-tail' being the favourite of VC’s)?
- Know your team: how experienced are your team--any previous start-up experience, industry relevance and such?
- Know your market: what makes you different? This is linked to your client knowledge--you are describing here how successful you have been (10 clients locally but 15 global ones) and therefore how 'transferable' your technology is to overseas markets.
- Intellectual property: the new 'barriers to entry' question. What protects your idea from theft also acts as a barrier to others coming into your market.
- Alliances: do you have any that an investor should know about that add value to the business?
- Product: usually the one that is talked about by entrepreneurs before anything else. It is a critical building block but remember that Silicon Valley is all about commercialization--not product--so whilst the VCs are fascinated by 'cool' products, this is only the beginning. Don’t forget that.
- How much do you need?: work out before engaging in the discussion how much you need for your three year plan and how much equity you are prepared to surrender (this will then give a ‘value’ of the business)--also useful for discussion.
You can also take the free investment readiness test drive. You will be sent a score that tells you exactly how ready you are and suggests improvement areas.
John Hummelstad, director of venture capital and emerging business at Microsoft Asia Pacific
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