SaaS Startups: Tier-II SaaS ‘mafia’ flips the script to shift the action to the hinterland

There was a time when everyone was talking about the Freshworks and Zoho mafia, which led to several employees of these companies starting their own businesses, some of which have become extremely successful. Chennai’s success in SaaS is well known, but there is a quiet movement taking place in smaller cities across the country, which can be described as the beginnings of a ‘tier II mafia’, according to industry watchers.

SaaS startups like Responsive in Coimbatore, Supersourcing in Indore, Appointy in Bhopal, DreamCast in Jaipur, Dhiwise in Surat or CallHippo in Ahmedabad – these are all examples of companies that are slowly scaling up and becoming the anchor companies in these regions.

“There are SaaS startups that are maturing and reaching a certain scale and size in some emerging cities,” Avinash Raghava, CEO of industry collective SaaSBoomi, told ET. “This is happening across the board, where there are large companies emerging that are letting their employees leave to start their own SaaS companies. It’s still in its infancy, but we’re seeing it happen more and more now, where I think the next Freshworks or Zoho will.” not be from Chennai or Bangalore, but from one of these emerging cities.”

With a strong focus on costs and profitability, many of these companies have started up and focus entirely on business. While this may be in its early stages at the moment as only a few employees of these companies have started up, this pace is expected to increase as more people get bitten by the entrepreneurial bug and venture out to build their own businesses.

“There is no other way than for this to happen,” said Ganesh Shankar, CEO and co-founder of Responsive. “For those who have the entrepreneurial spirit, this is the most natural occurrence. I can confidently say that given the size of the city, Coimbatore is definitely seeing this trend.”

He added that Responsive has seen at least three such examples of employees starting their own SaaS companies. He said the company has actively guided them and even provided assistance with financing.

More than 2,000 kilometers away, in the Pink City, Siddharth Shah, the co-founder of DreamCast, sees a similar trend. It has witnessed companies like Tagbox.com, ⁠Getgabs.com and ⁠Tagembed.com being spun out of ex-employees. Shah is even on Tagbox’s cap table. “Those who work in smaller cities come in with a different mindset about spending time in a company,” he explained. When they join a company at an early stage in these cities, they invariably learn not only the trade, but also the organizational structure and how to build a product that allows them to start something on their own, and that’s exactly what we to see.”

In Bhopal, known for its lakes, people are slowly developing the risk appetite to start their own ventures with companies like Appointy.com. Nemesh Singh, CEO and co-founder of the company, said the company has three names of companies that have come out of the fold. Two of these have been started, while one has also continued to raise funding. Because this is becoming increasingly common, the company has set up a ‘founder program’.

“We realized we had to make it a plan in our organization,” Singh said. “So now we have started a founder school, where we have decided to hire early stage founders and help them learn from this and build their companies based on our experience. We have three founders so far Startups are the creators of talent in these smaller cities and as the cities have more mature startups, people will be more likely to build here.”

There is another city in Madhya Pradesh that is seeing a lot of SaaS action and that is Indore. Inspired by Zoho’s Sridhar Vembu, Mayank Pratap Singh, co-founder of Supersourcing, decided to take the plunge from the city touted as India’s cleanest. And not just him, three others from his company have also followed the entrepreneurial route.

“I used to work from Bangalore, but I was very clear that I didn’t want to waste my life stuck in traffic,” he said. “And I took confidence from Sridhar Vembu, where I realized that if he could do it from Tenkasi, I could do it from Indore. And it has been the best decision because in Bangalore or Chennai you can get lost in the noise. Tier II city, the focus is clear: profitability and cost efficiency, and as long as you deliver, customers don’t care where you work.”

Most of these founders said their businesses survive much longer than their urban counterparts. Furthermore, they focus on the unit economy and do not chase appreciation. They said they are more intent on building a strong company than growing from scratch.

In Ahmedabad, which is slowly making its way as a SaaS hub, examples of a ‘mafia’ may be rare, says Ankit Dudhwewala, co-founder of CallHippo.com. He said the company has seen about five to six businesses expand in its 10 years in business, but none have reached meaningful scale. What he sees, however, is a wave of angel investment that makes the ecosystem possible.

“Today the acceptance of entrepreneurship is much more. Cash against equity is freely available and that is a game changer for founders looking to get started. Angel investments were limited some time ago but today the ticket size has come down to Rs 1 lakh and thus, people are more willing to relocate and raise small funds from friends and family. In Ahmedabad, we also see traditional business houses willing to back tech startups.”

Not far away, in the ‘diamond city’, SaaS is really taking off, but the ‘mafia’ element has taken a backseat due to challenging market conditions. Vishal Virani, CEO of DhiWise, said employees are starting their own businesses or moving to a bigger company. He attributed this to the city’s entrepreneurial spirit.

“We currently have around 70-80 startups in the SaaS and Gen AI space in Surat,” he explains. “DhiWise has only been around for three years and we haven’t seen anyone start a SaaS business yet, but that’s probably due to the current market conditions making people wary. Once business picks up again, we’ll see more people starting their own businesses, because business is a big part of Surat’s DNA.”