Crucial for corporates to work with startups to drive growth: Microsoft Accelerator's Bala Girisaballa

From being an incubator five years ago, Microsoft Accelerator has now graduated to work with second-stage startups that are offering specific solutions for enterprise problems. The shift in perspective also makes a lot of business sense for the company as clients now demand disruptive solutions to drive sales. In an interaction with Moneycontrol, chief executive of the accelerator Bala Girisaballa talks about why it is now crucial for corporates to work with startups. Edited excerpts from the exclusive interview:

Microsoft started with an incubation program, and now you are working with second-stage startups. Why the shift in strategy?

From being an incubator to an accelerator, we are now focusing on the post-accelerator stage.

We started with early-stage startups five years ago, helping them build a prototype, streamline their go-to-market strategy, and so on. Then gradually things evolved, and our enterprise customers such as GE, Maruti started approaching us and saying that “Hey! We are getting disrupted; we want to work with innovative solutions.” We realised that we can connect with the startups and connect them with our clients thereafter. We know what the clients need and we can match a solution with it. That forced us to look at startups differently. So now that we are working with corporate, we should work with startups that are enterprise-ready. That criterion we found in late stage startups. Building a prototype is not enough for an enterprise. It’s a huge risk. They want proof of concept. They are more confident of hiring startups that already have some work to show. So it’s a win-win for both. Corporates get access to innovative solutions, while startups get what they are most hungry about – clients.

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The second reason is that now there are a lot of accelerators in the market. There are enough guys who are helping them build the product, get them investors, and connect them to customers. No one is helping them grow into the next stage. We saw an opportunity here. Let’s take the hardest problem of a startup journey and work towards simplifying that. How do you grow after you have sold to 5 clients? Plus ours is a global program, so startups can connect with clients anywhere in the world. That’s a powerful proposition.

Why is it important for Microsoft to engage with startups?

Microsoft derives tremendous value out of this program. It’s not just fancy. Startups are becoming the mainstay of the mainstream technology puzzle. We need to keep track of it. Trends are shifting very quickly. We need to be on top of it. What solutions are there for a particular enterprise problem, how are they being solved, what other competing solutions are there. We get a ring side view by working with startups. We go back and feed these on our platform as a user case. That helps our product become better. We get to know about what is coming in terms of technology. Startups are at least a generation ahead in terms of technology innovation, so it’s an indication of what is trending. We are a platforms company and it is as valuable as the people using it. We need strong startups, innovative startups to leverage our platform. Customers are not satisfied with just a platform; they want innovative solutions on top of it. These startup programs are a catalyst to create that opportunity.

Is it also a way to address the talent and innovation gap that we are currently witnessing in the IT industry?

Startups will always be one or two steps ahead because they can’t compete with the big corporate guys in their turf. They are exposed to new technologies, so it makes sense for them to look for something that no one has yet done. On a large company’s turf, a startup will fail most probably. That’s how it is going to be always. I wouldn’t advice any startup to build a solution that a large company is already solving successfully.

On the other hand, it is a gap, but also a path for partnership. Because the corporate can think of doing what startups are doing, but they will suck at it. The scale is not there. The first consideration is how big the market is if trying something new. The decisions need to make business sense. They can’t concentrate on small pockets of markets because the spending must justify the scale, which involves, legal, financial, brand value, and much more.

A startup, on the other hand, doesn’t have that baggage.

How different is it to work with second-stage startups compared to early-stage?

We just concluded graduating our latest cohort, now the process to scout for startups for the next cohort has started. We are looking at second-stage startups that are on course for Series A funding. That makes the selection process complicated; it is almost like headhunting for a corporate. We get thousands of applications, but most of them don’t match our criteria, since we are specifically looking for enterprise-ready, mature startups. Who is at the right scale, how that aligns with the demands of our clients, whether we have any expertise in mentoring them in any of their business processes, reaching out to them, a number of meetings, all this in a day’s work. This is heavy-lifting. We do this assessment individually for at least 80 startups, then narrow it down to 15 startups, and so on.

These startups that we want to work with are also struggling for time. They are already doing business and they have their own processes to take care of. Coordinating, and getting them on board is a long drawn process. The engagement is at a different level compared to working with early-stage startups. They need hand-holding. With next stage startups, it is more about discussions, brainstorming on how to take them from to the next level of scale up.

How is the evolution process for a second-stage startup different from that of an early stage startup?

Early-stage startups have their own issues to smoothen out, from prototyping to establishing a business idea, and so on. The issue with next stage startups that we have noticed is that most of them have peripheral services in addition to the core product, which creates extra baggage. They start with one product, and then as clients ask for something, they diverge into incremental services. So the revenue they declare is not entirely from the core product. Sometimes they fail to talk about and elaborate on the services they actually offer. Sometimes those peripheral services are not required, so pruning down is also necessary. There is nothing wrong with it because I believe every startup needs to do whatever they have to survive.

The problem is that what got them to 1 million will not take them to 5 million. It needs a certain amount of escape velocity to scale up after the initial push. The peripheral services are a drag. It dilutes the success of core product. So that’s the evolution process we engage in. We mentor them in maintaining focus onto one core product, making the organisation leaner and smoother. It is difficult to do that for an entrepreneur because these ventures are their babies. But being organised is crucial. Most of the startups don’t have a support team or a sales team in place. How do you address grievances; where is the operations team, who takes care of HR...These are the missing pieces we smoothen out with our engagement.

How have the startups benefited from Microsoft Accelerator programs?

We have tie ups and partnerships with other big corporate such as Wipro, TCS. Now Infosys is also showing interest, and Accenture we have started to work with. These companies have Fortune 500 companies as clients who are getting disrupted. Now they are also demanding innovative solutions. The IT companies are under pressure to deal with it. So they are looking for solutions to bring to their clients.

Wipro, TCS, and Accenture have taken several startups from our cohorts to their own clients. Infosys has also engaged with some, but we don’t yet have a formal partnership with them. Wipro has also invested in a couple of the startups that we have worked with. It has now closed several deals with Witty Parrot. They also work with Vphrase. We have worked with about 129 startups till now. About 80-85 percent of them have got follow on investment with a total worth of around USD 150-170 million. Now we are going deeper to look for late stage startups.

What does the accelerator program curriculum entail?

The first two months are mostly spent in shutting down peripheral offerings. Get rid of extra baggage. Showing them that betting on so many different things will not work, and on the contrary, showing them why they have no reason to doubt their core product.

We mentor them on how to understand the needs of a prospective client, how to pitch to them with solutions that can solve real problems. These are things that we work on. 60-70 percent of the program is preparatory. They have to get their letters right, numbers right, tech right, strategy right. When that is smoothened out, enterprises will start to prefer you.

For instance Witty Parrot, it was the most enterprise-ready startup we had in this cohort. They quickly understood what we want and in the cohort, they just flew off and tripled their revenue in 3 months, while others were still learning and exploring. There are regular interactions with the sales and marketing team, who are directly in touch with the clients, to understand which solution is currently required in the market, what will work, what will not. That helps the startups pivot their products according to specific needs of the enterprises. This is important because a founder may think his product is brilliant, but in reality, it may not sit well in a corporate ecosystem. You have to have a conversation with respect to what the client wants, not that how good my product is and it can do so much et al. This type of thinking should be most basic, but trust me it is hard.

Do you feel the funding pool for startups is drying out?

What happens in startups is a direct reaction to the amount of money or funding available. 2014-15 there was a flush of money. It was mostly e-commerce companies, consumer facing startups. There was an appetite for risk. It’s always cyclical. Now people are trying to consolidate and think of ROI, so money has become cautious. And now is the time for follow on investments also. So the right metrics are being demanded now. That’s why the types of companies getting funded now are the ones that are ready with a proof of concept. And the shift to B2B is also natural because enterprise doesn’t require much cash. Plus you are self funded once you are in a contract. B2C is not like that. Ticket sizes have become smaller. In few years there will again be a flush of money. Now the ecosystem is also maturing. Previous generation entrepreneurs have now started funding other startups. They have walked on that path before and now they are investing and mentoring. It’s a good sign. It will also make the ecosystem more resilient.

How do you engage with the startups after the accelerator program is concluded? 

We have strong alumni programs, consisting of 3 levels. First is the local alumni program that we manage from here. We are typically in touch once every month to take stock. Then there is a global program, which Ravi Narayan takes care of. We bring together startup entrepreneurs from all across the world, connect them with investors, clients, and bring them to attend high-profile conferences, among other things. We have 7 global alumni groups. The third alumni program is an in-depth program that helps selective startups scale up. It’s called the success management program. It’s an elaborate 6 months long engagement, which happens on a rolling basis. We continue to engage post the accelerator programs also so that they can continue to accrue the benefits of engaging with a corporate, for longer.

durba.ghosh@nw18.com