When Gowri Shankar Subramanian was in the U.S., he came across an interesting industrial engineering software product and tied up with the company to sell it in India through Aspire Systems (Aspire), which he established in 1996. “We did this business for the first five years but it did not take us very far. The Indian market is not receptive to buying software and paying large sums for it. Back in the late 90s it was an even tougher market,” recalls Subramanian. With a 20 people strong team then, Aspire did less than a crore of business and growth prospects seemed slim. In 2001, it entered the more remunerative software development projects space and the company stopped distributing software.
However, the question the Aspire team was faced with was how to differentiate it from the others in the industry. “We saw a pattern evolving and realised that we were building products for some of our customers. We realised that it made sense to work with product companies and help them build their software. That’s how Aspire evolved,” says Subramanian as he explains Aspire’s transition into an outsourced product development (OPD) company.
After operating for ten years as an OPD player, the company repositioned itself as a global technology services player. It has evolved from a product engineering company into a product implementation company. “This means we have to have the ability to reach out to the industry and end customers. It is a big evolution as it requires going after a different market segment,” says Subramanian. Today, the company has an employee count of 1,400 and closed the March 2014 fiscal with a turnover of US $31 million up from US $10 million in 2010. It believes in paying attention to all its stakeholders, be it its employees or customers. For last four years, it has been ranked as one of the 100 best employers of the country by the Great Places to Work Institute.
Making long-term gains
The market for OPD falls in two categories – really large companies and the really small ones. The large ones have captive centres and those are the viable targets for the company to work with. Aspire has started to work with more captive centres in India as these companies want to concentrate only on certain areas. “As far as the smaller companies go, the deal is that you will end up with multiple smaller ones as opposed to a few larger ones. And that has its own challenges from the perspective of scalability,” admits Subramanian.
To scale, the company needs a high number of smaller customers and has a model that services them and the captives of the large customers. “The negative we face is that our growth takes a little longer when it comes from many different smaller customers. The positive is the business is really derisked,” says Subramanian.
Aspire has started growing its relationship with customers. While its core business is development, its customers started requesting more services from them. And hence, it started doing testing and currently gets about 20 per cent of its business from it. Today, 70 per cent of its business comes from development. The company has also been receiving requests for support like infrastructure support and application. “Instead of just defining ourselves as a product engineering and development company we changed our positioning to become a global technology services provider,” says Subramanian. One of Aspire’s strategies is to grow its revenues from existing customers and that is by offering multiple services.
Aspire has also expanded its business through the inorganic route as it believes that acquisitions bring in more expertise, relevant people and customers. The company recently acquired SRA Systems, which will enhance its existing product engineering capabilities and get Apple, Forest Labs and Gymboree as its customers. Aspire has also recently acquired Applied Development of Belgium and Hyderabad-based Versant Technologies.
Aspiring for scale
While the positives of the product engineering business are present, there are some challenges in terms of achieving huge scale. Aspire is extending its expertise into allied areas for implementation and hence, focussing on industries like retail, healthcare and consumer goods. “We are making an extension to product engineering by getting into product implementation,” says he. This is the package implementation systems integration side of the business.
Product engineering requires long-term multiyear engagements but the implementation side is lumpy. You need to keep getting newer customers. “Each business has its own dynamics. But the fact that we work with end-customers who use the product reinforces our capability to build better products,” says Subramanian.
The company has been able to fund its investment in acquisitions, marketing and expansion through internal accruals and debt. While the initial days were funded through debt, its entry into product engineering helped it pay off these debts. Subsequently, for any requirements, the company has relied on bank debt funding. Its decision to build its own campus in Siruseri, Chennai was a big boost. “When you have real estate, the banks are willing to lend you money, else it is difficult to rely on bank debt in the IT industry. We were also able to bring down rental costs,” says Subramanian.
From an operational perspective, attracting talent and retaining them is a difficulty that this sector deals with. However, Aspire’s work culture has helped it achieve a comparatively lower attrition rate of 13 per cent as against the industry average of 18 per cent to 19 per cent.
“At any given point of time, we had to make sure that the organisational structure is up to speed in terms of supporting the growth,” says Subramanian. The company had to change its internal organisational structure and realign its service line to have a separate service line for development, testing and infrastructure application support.
Overcoming these challenges and continuously evolving its business model, the company has grown well over the last 18 years. It now aims to become a US $100 million company by the 2014-15 fiscal. “Inorganic growth will contribute to this target, up to a possible 20 per cent of the company’s revenue. We aim to step up our organic growth as well and make Aspire a US $100 million company by 2014-15 concludes Subramanian.
Critical factors for succeeding in the outsourced product development space
Building a product is different from building an application. It requires hiring a certain type of people and ensuring that there is a technology bent of mind. It is about learning through every single engagement by bringing it back into producteering technology.
In OPD, you need to have vision; you need to think things through by putting yourself in the customer’s shoes. Customers are always worried about outsourcing their products especially with respect to trust. Gaining trust from customers and IP confidentiality are crucial elements.
Staying ahead of the technology curve. You have to be able to invest, ahead of time, to be able to bring that value for your customers.
What’s equally important is to have the processes to get your product to the market, pronto!
Founder: Gowri Shankar Subramanian
Revenue: US $ 31 million
Become a US $100 million company by the 2014-15 fiscal
Step up organic growth
Increase the count of smaller customers
Grow revenue from existing customers and that is by offering multiple services
Offer support like infrastructure support and application