Tally's Big Gamble

Bharat Goenka, 49, is the unlikeliest of software product founders.

In 1986 he, the son of Marwari textile businessman S.S Goenka, coded up a fairly functional accounting software package - Tally - after listening to his father bemoan the lack of an easy-to-use software that could handle the millions of variations among small and medium Indian businesses.

Over the next 25 years as Indian businesses evolved in their size, scope and ambition, Tally too evolved from a bare-bones single computer software to a mini-ERP that pretty much does everything a small business would need.

It was a long and arduous journey for Goenka and Tally, as they were both quite clearly ahead of their time. The Indian economy, and by extension its businesses, remained largely placid for the better part of their existence. But Goenka kept plodding on, adding features by the year and expanding reseller partnerships.

25 years trying to sell software to a notoriously tightfisted and technology-skeptic audience isn't a war that Goenka should have survived.

But he did. Today Tally powers over 650,000 Indian businesses and continues to gain customers and marketshare.

"In the last 3 years we added more customers than we had in the 22 years previous to that," says Goenka.

It's a remarkable feat. But Goenka is aiming for something much bigger.

"By 2015-16, we want to have 8 million customers," he says.

Hang on. 8 million?

That would mean a 12x growth in 5 years. There's no way any business can achieve those kind of numbers unless there's a significant environmental 'tailwind' that multiplies its own efforts.

When it comes to technology adoption, whether by businesses or consumers, there are three major trends that are creating an idea 'tailwind' today - mobility, social networks and cloud computing.

Of the three, the biggest factor for businesses, especially small ones, is the cloud. As we argued in an earlier Forbes India article, the cloud has the potential to make technology faster, cheaper and more reliable for millions of Indian businesses.

So if Tally could be sold, serviced and delivered through the cloud, might Goenka ride this enormous 'tailwind' to reach his ambitious goal?

Bearish on Cloud

Here's the funny thing: Goenka isn't much of a cloud believer.

At first it comes like a shock. After surviving and growing through 25 years of a technology winter, you don't want to harness the biggest aid you can find?

Isn't cloud computing already being adopted very fast by Indian businesses, I ask him.

"In next 5-10 years the Indian market will not change significantly," he replies.

Because, says Goenka, unlike the west where both small businesses and consumers had been used to a "self-service" or "DIY" buying culture around software (the cause of which was the high cost of servicing them directly through conventional sales channels), in India small businesses have always been "sold to".

So, someone will need to sell even cloud services to Indian businesses, necessitating a conventional salesforce.

This someone, says Goenka, is the IT reseller.

Bullish on Resellers

There are around 20-25 thousand IT resellers in India, says Goenka, and many of them are going through an existential crisis of their own.

Hardware margins have fallen down to low-single digit levels. Even innovation at the hardware level is now just marginal, meaning much fewer opportunities to converse with their customers around new products.

"We work with nearly 20,000 partners in India, the largest reseller channel for any company in India. Of these we have 'very effective' engagements with 8000, which will go up to 10,000 by the end of this financial year," says Goenka.

His gameplan, much of which is currently under way, is to train and work closely with these resellers to push Tally more aggressively to small Indian businesses.

"Today the channels to manage 8 million-plus discrete points just don't exist. Someone needs to invest and innovation around distribution channels, we are doing it," he says.

He says early result are already visible. Tally's piracy rate has dropped at an average level from 90% (meaning just 10% of users had licenses) 5 years ago to 60% today. For new connections that rate is as low as 30-40%.

The reason behind this is simply that users now have a legal alternative being "sold to" them by resellers.

"Selling Tally licenses contributes as much margin to resellers as does selling 5 PCs," says Goenka.

All or Nothing Bet?

"The biggest problem with Indian software product companies is that they lose their focus and ambition too early. Once you get comfortable with early revenue, your stakeholders will prevent you from taking big risks," says Goenka.

He dismisses cloud-based software options like Salesforce.com, Zoho and Google Apps in the Indian context.

While he may have a point about the tendency of small Indian businesses to be "sold to", I suspect its a limited point. In the next 2-3 years I suspect we will see Indian businesses and consumers 'leapfrog' over conventional technology wisdom.

If that happens, Tally will be in a weak spot, having invested itself in the reseller route.

But au contraire, if Goenka is right about the importance of resellers to software adoption by small Indian businesses, he could be in a sweet spot.

There won't be a middle way out though. After 25 years of waiting for the Indian market to take off, Tally and Goenka will not be able to middle along while the ground changes below their feet.

The thoughts and opinions shared here are of the author.