Raising funds for the startups is tough

On the other side, Knowlarity’s first customer was a political party who gave them an order of Rs 1 crore. One of the founders, Pallav Pandey, ran a political consulting company that presumably played a role in it. Pandey has since left Knowlarity.

After getting the order, Ambarish Gupta, co-founder and CEO of Knowlarity stated that “we came back and decided that though we have the money but we needed to build this product” and “we had money but not the product. We then built a software in the next 72 hours”. A quick-fix solution to an opportunistic opening?

Different focus

Knowlarity has only one product–a cloud-based telephony solution. The Ken spoke to many in the industry, who corroborated that such solutions are almost trivial to put together. There are several open-source and off-the-shelf commercial modules that can be assembled to contrive a sellable product.

Knowlarity’s antidote to battle this perceived commoditization was to bet the farm on sales and marketing. Given their funding war chest, focusing on sales seemed like the rational way to build a competitive moat.

Therefore the organization’s entire focus was on pushing sales and expanding the customer base. The company hired sales folks aggressively and expanded to cover almost the entire country and beyond–an international footprint that extended to more than 65 countries.

Unfortunately, an aggressive sales focus is a double-edged sword. While it can bring customers through the door, at many times the wins are ephemeral as the churn is high. Typically, customers churn out either because the sales team over-promise and the product team under-delivers or because the delivery infrastructure and customer support functions don’t scale to keep up with the growth in sales.

After funding, Knowlarity’s sales team poached several customers from Ozonetel. But many of them have since shifted back to Ozonetel. While these companies were loath to come on record on why they made the shift, we are given to understand that at least some of these companies had problems with the reliability of service and didn’t like the way they were billed. Equally interesting is the fact that many of Ozonetel’s customers are large startups that have been funded by Knowlarity’s investor. In spite of having the same investor as Knowlarity, these startups chose Ozonetel and what’s more, they did this despite Ozonetel’s pricing being far higher than Knowlarity’s.

On the other hand, Ozonetel had an engineering focus. They expanded their portfolio from a single cloud-based telephony solution to include a full stack–from the hardware (PRI cards) to multiple solutions ranging from cloud telephony to voice and text campaigns to cloud radio. In parallel, it invested significantly in improving the reliability and scalability of its platform, which was considerably easier since it owned most of the parts. The company has also moved beyond a solution provider to becoming a platform through a set of APIs that lets other startups build on top of this layer and offer their own telephony solutions to customers.

This emphasis on innovation and R&D also meant that Ozonetel spent very little on marketing–their monthly Google Adwords bill, for instance, was less than Rs 1 lakh. Admittedly, this was also because they didn’t have the funding firepower to spend heavily on sales and marketing.

Even with these constraints, not only did Ozonetel grow much faster than Knowlarity; it did so without once spending more than it earned.

Different markets? Maybe not

Ozonetel and Knowlarity are both cloud telephony companies but are they direct competitors?

When quizzed, Knowlarity’s Gupta said: “Ozonetel is most of the time not a competitor for us. They do more on-premise telephony while we focus on hosted telephony. We do mid-market while they do enterprises. You are kind of comparing apple with half-orange (sic)”.

Whereas Ozonetel’s CSN averred: “We do compete with Knowlarity wherever there is an opportunity regardless of the segment and mode of delivery, but it need not be considered as personal rivalry”.

The answer to this riddle lies in the fact that both companies do compete in one segment of the market–cloud-based telephony solutions for small and medium businesses in India.

This market is like the Holy Grail. Everyone knows it exists and is large, but no one in the country has figured out how to crack it. The reasons for this are well-documented: Indian SMBs are laggards when it comes to adopting technology and are loath to pay anything, much less a meaningful fee, for technology.

 

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