7th and 8th August 2020

Marketplace Dynamics: Decoding SME Customer Behaviour in India

Posted on 30 Sep 2020 in Blog | 0 comments

Author: Dev Khare – Partner, Lightspeed India Partners; Team India Internet Day



The MSME sector has proven to be an important contributor to the Indian economy, especially in terms of employment generation. SMEs today are booming across various sectors – whether it is the service industry, or in agriculture, or manufacturing. Today, India has 75 million SMEs, this number will shoot beyond 100 million by 2024. However, we are just as complex as a market today, as we are huge.

If the SME market in India interests you, I am sure you often ended up pondering over at least one of these questions:

  • Why do SMEs matter, and why should any startup, founder, or business leader build for SMEs in India?
  • How to correctly make sense of this SME market?
  • How to build products for SMEs in India?

SMEs today generate more than a third of India’s employment and roughly half of our exports. India makes an interesting test-bed for international markets.


Puneet Chandok, President, India and South Asia, at Amazon Internet Services with interviewed in this session at India Internet Day.

He did an excellent job breaking down the complex Indian SME market. He compared it to a pyramid where SMEs can be grouped according to their level of familiarity with technology. For example, India has 75 million SMEs, and roughly 73 million out of those 75 million today are in very early stages of tech adoption. We see the Non-Digital at the bottom, who need help with basic tech actions like tracking tax compliance, payment solutions, etc. As we move upward, we see an increasing willingness to adopt tech-solutions. At the top, we see the Digitally Productive SMEs who have an enterprise-like buying behaviour and are thinking of modern, sophisticated technology. There are roughly 50000 SMEs in this space.

But then the important question is- how is all of this development affected by the COVID pandemic? Currently, we witness an unanticipated rate of adoption of technology and cloud computing. Thus, even though COVID is essentially a human tragedy, there is a positive perspective on the entire situation. We lately have seen a rapid increase in the adoption of tech. For example, we’ve seen 20-21 million SMEs adopting some form of digital payments over the last few years, and this has accelerated even more after the pandemic.

The most valuable takeaway from this panel has to be its insights into actually building products for SMEs in India. I would always remember the five pillars discussed in the panel and so should everyone who aspires to build products for the Indian SMEs.

The first letter, i.e. S in the SME stands for Simple, and I couldn’t agree more. If you analyze the industry on the ground, you will realize that the SMEs today want a simple plug and play solution. Due to their lack of resources and familiarity with technology, they seek a simplified distribution model and an intuitive interface. Puneet rightly mentioned that to build for today’s SMEs, you need to have the discipline to weed out complications from your tech solutions.

The second pillar is the fact that you have to be in the Market to build for it. It is essential to understand that one has to build specifically in and for India, as no solutions from other markets can be transplanted in a market as sensitive and complex as India. This is one of the reasons why many breakthrough ideas don’t make it on the ground reality. I believe that if you present a solution, you have to address the context of the problem it intends to solve.

The third pillar says that to be successful in this market, you have to price backward. Figure out what the SME can pay, and with that range in mind, develop a way to monetize.

The fourth pillar is to make it convenient and easy to buy. One of the ways to go about this is to deploy – build bundles with trials.

The fifth and last pillar is that you should be outgoing when it comes to customer support. If you research foreign markets, you will see that all around the world the ‘text for support’ method is highly popular and recommended. However, despite its widespread popularity, you cannot transplant this solution here in India. Indian SMEs need a person to fall back to, one number that can help them – and that is what you should aim to deliver.

In the next two years, India will see a revolutionary amount of change. Entrepreneurs would have to embrace new ideas, launch experiments, and start building if they are planning to build for India in the future.

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