Wisdom in hindsight

When to jump

2010-05-22T10:48:00.003+05:30

The question I am most frequently asked by students of business schools and engineering colleges who are aspiring to be entrepreneurs is – When is it the right time to become an entrepreneur? Should I do it straight after college or should I work for a few years first?

The truth is that there are success stories of all sorts. There are those who have done it after working for a few years as managers in companies – the Infosys founders are an example. Then there are people who have done it straight out of college – my good friend Kunwar Sachdev of SuKam invertors is one such. And there are those who have dropped out of college to become entrepreneurs – Bill Gates is the most famous name that comes to mind. There are people who do college and entrepreneurship side by side – Michael Dell’s story of how he founded and ran Dell from his college room is famous. Finally there are those who became entrepreneurs without even going to college or completing their school education – the best known story in India is of Dhirubhai Ambani.

There is no one right answer to these questions however you can always find an example to support whatever point of view you support.

The argument in favour of becoming an entrepreneur straight out of college is that once you are in a job and you get comfortable with the idea of a regular salary you will find it extremely difficult to quit do a start up. This is especially true if you are from a premier institute and earning a high salary in a well known company. It becomes worse if some years have elapsed since you finished college and you have now bought a car and a house and have EMI’s to service. And later on when you have got married and started a family it becomes nearly impossible to quit – you crave security.

The single largest reason why people give up on their entrepreneurial aspirations and continue is a job is delay in breaking out after college.

The argument in favour of working for some years in a job before becoming an entrepreneur is that you improve your reality check. It is well known that the Indian education system does not provide a great reality check to students. It takes several years of working after college for graduating students to figure out how the real world actually functions. You learn to work as a subordinate before you become a boss and that experience is important when your company scales up and you are managing a larger team. You acquire skills on the job that you would have otherwise not have. You meet customers, get an insight into their needs and an understanding the market. You get to know about business opportunities. You learn about processes and good practices that are useful years later. You build your network and credentials. In summary, working for a few years will increase your chances of success once you do become an entrepreneur. The flip side is that if you get into a good job and work there for a few years you may never actually quit to become an entrepreneur.

My view on this is that you should become an entrepreneur only when you are ready. I had worked for five years before I quit and became an entrepreneur. And in hindsight I would not do it any other way. I needed those five years to learn and mature and become a better people’s person. And you will know when you are ready. You inner voice will compel you to do it.

The other time to become an entrepreneur is when you have such a compelling idea that you are totally convinced that it is now or never. Bill Gates often cites this when he talks about his decision to quit college and found Microsoft. He could see the PC age coming and he just had to be a part of it but felt it would pass him by if he spent another three years in college. He just had to do it then.

Dont expect the government to fund start ups

2010-05-16T08:55:00.000+05:30

Time and again I am asked questions by young people about why the government doesn’t do more to help start ups. Why, for instance, doesn’t the government fund start ups? This question is usually asked by people who have some sort of a sense of entitlement and they believe it is their right to get funding from the government for their enterprise.

This sort of attitude is a throw back to twenty or thirty years ago – to the days of nationalized banking.

There are enough private sources of risk capital available now for the government to not do this. Apart from Venture Capitalists, there is even an emerging category of Angel investors.

Admittedly early stage capital is still somewhat scarce but it is there if you knock enough doors.

The easiest thing to do is to ask the government for a dole or a subsidy. However actually extracting it from the government is usually a very bureaucratic and time consuming process. And taking money from the government does require skills that are not the same as those required to build world class products for customers.

If your start up really deserves funding chances are that you will get if faster from private sources than from government.

And if after trying from many places you fail to obtain funding then the market is giving you feedback – listen to it. Perhaps your project actually isn’t the sort that will get funding or you need to achieve some more milestones before you approach an investor.

Whatever it is the fact is that every start up will not receive VC funding. Less than one in a hundred business plans gets funded. It must also be remembered that most successful companies did not receive venture investment. So the belief that you cannot succeed without venture capital is somewhat misplaced.

The entrepreneurial eco system is Darwinian in nature – and that is the way it should be. Only the fittest will survive. Some start ups will die – sounds harsh but that is good for efficiency. The ones that do make the cut however will go on to become large valuable businesses.

The mindset of those who want government funding for startups hasn’t changed twenty years after economic liberalization -we want free markets when it benefits us and we want govt. intervention when we are at the receiving end of free markets.

There is no such thing as risk free entrepreneurship. It is a requirement of entrepreneurship to bootstrap, sacrifice, do more for less and struggle for financing. That experience creates a mindset of frugality and a laser sharp focus on only that which is essential. It is scarcity of capital and the accountability that a free market imposes that leads to capital efficiency.

The role of the government should be limited to creating the right environment for a healthy entrepreneurial eco system rather than taking direct financial risks in commercial enterprises. This would mean creating the right regulatory framework.

One useful rule for the government to follow is to let markets work when they are doing a good job and intervene only when markets fail.

There could be a case for the government to intervene where private venture capital or angel money does not reach rural areas, under developed regions of the country, the bottom of the pyramid or other sectors where there could be large social impact. However even these projects – to scale and impact the lives of a large number of people would necessarily have to be financially viable and generate a positive return on capital.

Therefore even where the government does intervene the filters of what projects should be backed and which should not, should be very discerning and the process well managed.

Keeping the entrepreneurial flame alive

2010-01-14T11:53:00.001+05:30

I had mentioned in an earlier column how it is very hard for a large company to be entrepreneurial. And how start ups usually lose much of their entrepreneurial spirit and agility as they scale – the founders usually get involved in other stuff – managing investors, putting in processes, being the public face of the company, managing conflict, hard coding the business model and rolling it out – doing stuff that is supposed to build the organisation and take it to the so called next level.

So while the organisation is getting built – the founders often take their eye off the entrepreneurial ball. This may not happen immediately however over time as the organisation gets larger and more complex to manage it usually happens.

After a few years what was a mission for the small focussed team that started the company becomes merely a job. You are no longer trying to change the world, you are simply going for more mundane things like sales growth, maintaining EBITDA margins, ensuring you meet investors’ quarterly result expectations, employee retention and so on. Things that are traditional and managerial rather than entrepreneurial.

Somewhere when transitioning from a start up to a big organisation – companies run the risk of losing their entrepreneurial soul.

While being a bigger company has many advantages it is important that companies try to also retain the entrepreneurial culture while becoming big.

Basically the problem is that the founding entrepreneurs usually create a cadre of managers under them and not entrepreneurs. There is massive capacity building of people who will execute and not enough of those who will create and build.

Retention of the entrepreneurial spirit has to be driven from the top. The founders have to recognise the problem and be committed to solving it. Although many pay lip service to this very few actually walk the talk.

The first and most important thing to do is to ensure that you hire the right kind of people. You need a rare breed – entrepreneurial managers. People who have the experience of having worked in a large organisation and despite having performed well there are dissatisfied with excessive controls and have a yearning for far greater independence than what they were ever offered. People who are somewhat irreverent but at same time understand the need for organisation building and the right kind of controls for ensuring performance and governance without stifling creativity. All this without compromising on the competencies required to actually do the job.

Such managers are rare to find but if you don’t recognise that these are the kind of people you need you will get them only by accident and then you would not know what to do with them.

Once you have a few of these on board what you need to do is agree with them on expectations and then empower them. If you don’t, you will be wasting a precious resource and chances are they will leave in some time anyway. So give them all the assistance they need and ensure you don’t get in their way.

Of course the risk here is that if you make a wrong hire and then empower that person you could have a serious problem on your hands. However after a couple of mistakes you will soon figure out who the right persons are and what to look for.

You are now no longer an entrepreneur alone – you have to assume the role of creating other entrepreneurs internally.

Close the loop by ensuring you have a generous wealth sharing plan – these are the people who will take the organisation to the next level. Ensure that they are rewarded well for their performance – way beyond market, usually through ESOPs. A performer must never even think of looking elsewhere.

In any company there will be people who will resist the empowerment of others – most notably the people under them. Get rid of the control freaks no matter how good they are technically – in the long run they will ensure that the organisation remains small.

Break up operating units into small teams. Large teams usually create more ground for conflict and creating alignment among a larger number of people is more difficult. Smaller teams work faster. What this means is that you need to get the same output from a smaller team as you would have from a larger team – so you need to raise the bar for hiring and recruit only very high quality people – at all levels in the company.

Finally you need to ensure that everyone has the freedom to speak his or her mind. Encourage a culture of independent thinking with a high tolerance of dissent.
Build an argumentative company.

Building a Good Board

2010-01-14T11:49:00.001+05:30

Putting together the right Board of Directors for your company is an important but frequently postponed task when you are trying to scale up your company.

But if you have received an investment from a venture capital fund chances are you will need to put together a decent Board sooner rather than later if for no other reason than because it is a requirement in the investor agreement.

While there is no one definition of a good Board or a high quality Board member, in general what you need are a set of people who have high levels of integrity and commitment and who collectively bring to the table enough of the right kind of experience in business, finance, corporate governance, marketing and other relevant areas.

Boards can add real value. Many early or mid stage Indian entrepreneurs have a black and white view of a Board – either it should be totally pliable and simply sign off on what the promoter wants or else it will become a pain in the butt putting up obstacles along the way. Therefore they are cagey about Board expansion, restricting it only to family members and very close associates. The right Board however adds value in several ways – it brings together the collective wisdom and networks of a number of very good people leading to better governance of the company and hopefully better strategic choices being made. So seek out and appoint high quality Directors who are genuinely independent.

Appoint Board members carefully. It can be awkward to ask someone to step off your Board. Therefore a wrong appointment can create serious difficulties given the influence a Director wields in the company. Also no really good Director would wish to serve on the Board of a company which has one or two poor quality people. So recruit a Board member carefully – even if it takes more time than you had anticipated. Get to know him or her really well and do a thorough reference check before taking the decision. And set the bar high.

Don’t appoint a Director for name value alone. This is a trap that entrepreneurs in India often fall into. They go after big names assuming that this will add credibility to the company. While that is true, well known people usually have many demands on their time. Also they often have a halo around them which makes their reputation larger than life – their real ability to contribute may be a little less than your expectations. You need Directors who will be able to give you time and mindspace when you need them.

Do it at the right time – not too early and not too late. Putting together a good Board is something you will need to do at some point of time as you grow your company. It is important to do it at the right time. If you do it too early you will end up spending too much of your time managing the Board and too little building the business. If you leave it till too late you may have ended up building the wrong kind of company.

Invest time in working with the Board. Managing a Board and working with it does take time and it consumes your bandwidth. Any Board member worth his salt expects to be given an opportunity to contribute and that’s good for the company. What it means is that you will have to spend time engaging with Board members both during and outside Board meetings.

Choose the right mix of skills and experience. You need to get people with the right blend of diverse skills and experiences onto your board. At Naukri we got onto the Board people who collectively had experience in marketing, sales, engineering, product, venture investing and finance. At least two have been entrepreneurs in the past and have built companies. Several are independent directors in companies that are bigger and perhaps better than ours. Two have over thirty years experience of different kinds.

The chemistry must be right. It is important that you get along with your Board members and that you feel comfortable enough to level with them especially when there is bad news to give. At the same time they must not be your buddies or your cronies.

Remember a good Board is your ally and not someone whose only job is to police you. Often your Board of Directors can save you from yourself.

Selecting the right business partner

2009-11-01T14:10:00.000+05:30

Many small businesses have more than one promoter. Frequently it is team of two or three partners – sometimes more.

As a start up entrepreneur managing your relationship with your business partner is one of the most important and yet the area you are most likely to ignore. You frequently take your partner(s) for granted.

Remember a partnership split is an extremely traumatic experience and can be a serious setback for the business and personally for the entrepreneur.

Why do splits happen and what can be done to prevent them?

Before starting out you need to examine why you need a partner in the first place. Most young entrepreneurs do a start up with a friend or a colleague or a classmate. It is usually not a rational selection of a partner – but simply because you feel a sense of bonding and camaraderie, the chemistry seems right, you have discussed the idea together hence you feel a certain joint ownership of the idea. You want to do it together with a friend. Young entrepreneurs may not acknowledge this but - most often you have an emotional and a social need for a comrade in arms since you are taking a risk and feel somewhat apprehensive of going it alone. And the most natural thing for friends and classmates to do in such a situation is to divide the stock equally among the partners without questioning who is bringing what kind of value to the table.

Of course there are other more tangible benefits of doing your start up with a partner. You get width and depth in the management team – without paying a salary. You are able to pool your meagre capital and share your ideas. You have someone to talk to – and you are able to keep each other’s spirits up in difficult times. You may even be bringing complementary skills to the table. You share the work and you share the risk. And of course you share the rewards and recognition.

So partnerships are natural – people do start ups with others because they feel a need to. It becomes important therefore to ensure that you are selecting the right partner in order to minimise the chances of a future split. Most entrepreneurs do business with people whom they know, trust and instinctively like.

Before deciding to do a start up with a partner you need to ask yourselves some hard questions – Do you have similar values? Do you share the same vision, passion and aspirations for the business? Do you have the same commitment to the business? Will you both quit your jobs and be full time on the business and stick it out without a salary for a couple of years? Do you have a similar work ethic – will both of you be willing to work 24 by 7 if required? How much capital will each of you invest into the business? Are both of you equally competent? Do you bring complementary skills and experience to the business? What will your roles be? Who will be the CEO? Will investors trust each of the partners equally? Do you have similar views on how wealth would be shared with employees and how customers and vendors should be treated? Will you agree on the kind of risks that are reasonable to take? Going forward when the business makes a profit would you agree on the utilisation of the profit? Most importantly are both of you good listeners and accommodative of each other’s views, needs and aspirations?

This may seem like over complicating a simple decision when you are starting out however most partnership splits have their roots in inappropriate selection of a partner in the first place. And you don’t want to learn this the hard way many years later?

Having said that - selection of the right partner does not alone guarantee that the partnership will endure in the long run. Right selection is a necessary but not a sufficient condition.

You need to continuously work on your relationship with your partner. Continuously communicate, keep each other fully informed, spend time together, give each other candid feedback, listen a lot and give each other enough space. It’s like marriage

Entrepreneurship thrives in a recession

2009-10-04T08:15:00.001+05:30

The Delhi chapter of The Indus Entrepreneurs recently concluded its flagship event – TieCon, its annual summit on entrepreneurship.

The conference was a sellout. Surprisingly, in a recession year, paid registrations were up by over sixty percent. Hundreds of people paid eight thousand rupees each to attend a two day schmooze fest on entrepreneurship. Clearly interest in entrepreneurship is thriving - never mind the state of the economy.

It is commonly said that some of the best companies in the world have been started or have grown during times of recession. This has been repeated so often that it has now almost become an adage. Examples that are often quoted are those of Google and Federal Express.

Logically any sane, rational person would prefer the security of a salaried job, during a downturn, to the uncertain world of entrepreneurship. After all during a downturn – competition has excess capacity so there is fierce price competition, customers buy less so there is soft demand, funding is very hard to come by and then if you do get it you get poor valuations, cash collection from clients becomes harder and so on. So it should be a bad idea to become an entrepreneur during a recession. The smart thing to do would be to hang on to your cushy, safe job.
The real world however is counter intuitive.

Why is it that great success stories come out of hard times. And why is it that interest in entrepreneurship is up despite a recession.

The reason is that while a recession causes pain it also creates opportunities for small, entrepreneurial companies to prosper and grow.

Take our own example – in the last recession Naukri grew sixty five times in sales during the last recession. It should not have happened – companies don’t hire during a recession. We should have been killed. So how did Naukri grow.

The point is that a recession causes companies to change the way they do things – it is a time of churn. In our case from 2000 to 2004 there was doom and gloom everywhere and companies were downsizing. However many companies that were firing were also doing some small hiring. IT services companies for instance were retooling their skill sets depending on the projects that they had. A company that was letting go of 2000 people because there was no project in hand for those skills was also hiring 200 because they had landed a project for which they needed those people. And because the project was already in hand they needed to hire really quickly – companies could not afford to maintain a bench. In the years prior to the meltdown there had been no firing – only hiring. It had been an era of large benches and excess staff. Now the downsizings made the news headlines but the smaller hiring that was taking place did not.

Added to this was the fact that during a recession companies are very careful about all costs including cost of hiring.

It was this opportunity that Naukri exploited – we went to customers and said “reduce your time and cost of hiring”. This pitch really worked with prospective clients in a recession.

Of course we supplemented this with some really smart new product development and we rolled out a network of sales offices and that really helped us grow too.

But if the opportunity had not existed we could not have grown.

Meanwhile our competitors downsized, they could not raise their next round of funding, some exited India. There was a lot of pain.

We were able consolidate our leadership and really became a dominant player in the last meltdown.

While the recession crippled some in our industry it actually helped us.
So the message is that if you read the tea leaves correctly and are able to spot the right opportunity during a recession and then execute well you can actually win big precisely because there is a recession. If however you are unable to do this you can get hit by a truck.

During recessions industries see a shakeout, a consolidation. Recessions show no tolerance for mediocrity and redundancy. Companies go back to their core and stick to the basics. All businesses that are “nice to do” and not “need to do” are dumped.

It is a time of cleaning up.

Recessions separate the winners from the losers.

Retaining the culture of innovation is a challenge as a start up scales

2009-08-21T16:19:00.002+05:30

This is my August 2009 column in Mint.

One of the issues that we constantly struggle with, in Naukri, is trying to protect the culture of innovation as the organisation grows larger.

The company is no longer a start up. We employ over 1600 people and have offices in over forty cities. There are more than two hundred people engaged in building and maintain the product offering. There was a time ten years ago when that number was three people.

The top management is no longer engaged with the nuts and bolts as much as they were earlier. There is an organisation to be managed. Large teams are complex animals and managing them does take up time.

Most business managers are now working in a matrix – while they do have teams reporting to them more often than not they have to get work done from people who are not reporting to them - people who are their peers. There are departments – engineering, product, analytics, legal, finance, sales, marketing, UI and QA. And there are process, a prioritised product pipeline and review and co-ordination meetings. Decision making cycles are longer than before – idea to implementation and final release to the consumer can take weeks or for a large job even months. It can get frustrating at times for the people engaged in this task.

We are beginning to understand the complexities of innovating in a large organisation. This problem is not unique – others have faced it before.

Large companies have advantages. They can throw more resources at a problem. They can sustain losses for a longer time. It now takes us five years to get a new business to break even and costs us Rs. 40 to Rs. 50 crores in investments in that time period. Barriers to entry in our business are therefore higher now and that’s a good thing for us. The servant quarter above the garage days are over – unless you have something totally new and disruptive.

Small organisations have their advantages too – they find it easier to innovate because decision making is quicker. They are focussed and agile with small cohesive teams. They move fast. They are not encumbered by complex processes, matrix structures and departments. Frequently they are more capital efficient.

But they do not have the kind of resources or knowledge that large organisations do – our new businesses benefit a lot from our learning in the older businesses. It is the large revenue streams and profits of Naukri that enable us to build high quality teams in analytics, algorithms and QA – expensive overheads that most start ups in India would not usually invest in. Our smaller businesses and our start up investee companies use this capability to create more value for their customers and compete better in the market.

Large businesses on the other hand have legacy revenues to defend and would not want to disrupt their existing successful business models. We know this because we have benefitted precisely because of this against print publications that have tried but not really made a mark on the internet.

Further - a small business in large organisation gets dwarfed. All senior management attention and focus is on the main big business. It takes a courageous manager to head a start up business in an existing large company. All too frequently the best talent is not moved to the start up. After all conventional wisdom says that you must put your best talent onto your largest and most profitable business.

The challenge for any start up as it scales therefore is to retain the ability of a small organisation while simultaneously enjoying the advantages of a big one.

How have we tackled that problem at naukri.

The task for any top management is to recognise this problem and then take a few bold steps proactively to resolve it.

First – ensure that there is an adequate talent pipeline at the second and third levels in every department within the company. Wherever required get high quality talent from outside the company. Basically invest in a talent bench.

When a new business starts - move some of the best talent there and give that business senior management attention. This gives everyone career growth while at the same time giving the start up business a real chance of success, without compromising on the prospects of the existing large business. Reward for milestones other than revenue early on – remember that on a revenue comparison the older larger business will always outshine a new business. If the system ensures that Business Managers use only revenue and profits as a measure of their self worth in a start up business in a large organisation they will be demotivated and probably quit. Celebrate innovations. Punish incompetence and lack of commitment – but do not punish failure.

When innovating on product within a large business – have small high quality teams and empower them. You need to ensure that you have the agility, focus and quick decision cycles of a start up – essentially have a many start ups within a large company.

All this is easy to write in an eight hundred word column – however it is a lot harder to execute. But that story is for another time.

Entrepreneurs are risk averse

2009-05-17T10:51:00.000+05:30

One of the things that I have most often heard being said about entrepreneurs is that they are risk takers. The unsaid implication seems to be that entrepreneurs are dare devils who will willingly defy death because risk is an aphrodisiac for them – they actually seek out and enjoy risk.
Now nothing could be more untrue of most of the entrepreneurs I have known, including yours truly. Every entrepreneur I have known is risk averse. I will go so far as to say that most entrepreneurs are really cautious people – they think a hundred times before making any significant investment.
Entrepreneurs are rational people – they try to minimize risk. What entrepreneurs do is that they seek to understand risk better, they manage risk, they try and mitigate it and then of the various alternative courses of action available they go for that one that carries the least risk.
So how do entrepreneurs go about minimizing their risk when they are starting out? Different people do it different ways.
Some would put aside a nest egg in the bank that would suffice for personal and family expenses for two or three years.
Others would ensure that there is some income coming in independent of the business to run the house with. It could be rental from a property or a spouse’s salary.
Another way to do it would be to do some work that is not the main business but ensures a steady income without being full time – teaching, training, a consulting retainer, periodic short term assignments, writing a newspaper column etc., anything that gets in some small steady income while leaving enough time to pursue the main business.
Many companies pursue one business in the short run in order to get some money for the longer term dream which could be another business. For instance a number of start-ups working on a software product fund the development expenditure by doing software services work early on.
How many entrepreneurs do you know who started their companies from their homes? Who did not take on the overhead of salaried employees early on and instead worked with business associates who got a revenue or a profit share but no fixed salary. Who gave large chunks of equity to early colleagues instead of a salary.
I myself employed most of these methods of reducing risk early on.
The point is that there are hundreds of small ways that start up entrepreneurs reduce their risk. Those that I have enumerated above are only some of them.
I would go so far as to say that entrepreneurs exhibit greater risk averse behavior as compared to employee managers. The reason is simple – it’s the entrepreneur’s own money. It is his life on the line. He has bet his all. He cannot afford to go bust. If he does he will lose everything he has. He will have to start his life all over again. What is more he cannot walk away from his business easily – there are employees and creditors to be paid, and customer commitments to be met. He is personally accountable. Therefore he takes fewer chances.
What I have said is true of many start-up entrepreneurs who do not take external funding immediately. Who try and first bootstrap their companies.
Entrepreneurs who get generous VC funding early on frequently do not display the mind set of frugality that bootstrapping a business instills. They usually don’t understand the value of money and how difficult it is for a business to earn it. Many of the dotcoms that got funded in the last bubble failed precisely because they got too much money too soon. The entrepreneurs did not understand the importance of being tight fisted and minimizing risk. These entrepreneurs ended up taking somewhat injudicious risks – with money they got easily from other people. They were actually not taking a personal risk – they had not bet their own money. Most went back to being professional managers in large companies pretty soon.
But don’t many entrepreneurs choose to leave secure corporate jobs and embrace the uncertainty of entrepreneurship. Isn’t that prime example of embracing risk?
Well, not really. The point is that the lower risk corporate job was not taking the entrepreneur where he wanted to go. He did not want to lead that life. His goals were different. And he believed entrepreneurship would get him there. So once he was clear about his goals he would then go about moving towards them in the manner that minimized his risk.
The point is – entrepreneurs have different goals.

2009-05-04T16:44:00.001+05:30

Managing Investors in a downturn

2009-05-04T09:53:00.001+05:30

My March column in Mint

If you are running a VC or an angel funded start up, it makes sense to pay special attention to managing your investors in a meltdown of the kind we are facing today. When a financial bubble bursts, those who invested at the peak, get really edgy. So, if you raised money any time in the last two years chances are you have a very nervous investor on your board, whose shareholder agreement with your company gives him powers that are disproportionate to the size of his shareholding.

While you are extremely unlikely to be able to raise more money in the near future, what you don’t want is your current investor pressing the trigger and putting a bullet into your head.
So what is it that you can do to manage your investor better.

Investor commitment is very important. If you already have an investor on board it is too late to raise this issue. You should have considered this when you were raising the money. When the going is good you will find that your compatibility is high with all kinds of investors and everyone expresses faith in the India story and your business. When the chips are down is when the investor’s mettle will be tested. In the last meltdown many VCs simply wound up shop and left India. Only very few stayed the course and rode out the bad times. It’s a good idea to have an investor who has a long term commitment to staying in India and doing business.

Spend enough time talking to your investors. Remember there is no such thing as overcommunicating in a crisis. Involve your investors in any key strategic decisions that you need to make. Explain to them the future that you can see clearly, but they perhaps cannot. Recognise the business reality and deliver any bad news early. Investors hate unpleasant surprises and being informed late about anything important.

Remember it is not your company alone. Once you have taken external investment you have to do what it takes to protect the interest of minority shareholders. You cannot jerk your investors around just because you have a majority shareholding. This is what lies at the heart of good corporate governance.

Manage expectations. Try to exceed investor expectations. In general it is a good idea to undercommit and overdeliver. So always be conservative in your projections. Don’t exaggerate to get a higher valuation or to look good today. When we raised our first round of funding we had made extremely conservative projections. Later even during the meltdown we exceeded our projections several times over – partly because we performed well and partly because we had made low projections.

Keep a frugal mindset. Be very careful how you spend money. Demonstrate to investors that you are as cautious with their money as if it had been your own. Lead from the front when it comes to cost cutting. Make a personal sacrifice – take a salary cut yourself before asking others to do so or before downsizing and asking people to go. Shift to cheaper offices to cut costs.

Focus on cash efficient growth and profitablilty. Nothing gives investors more confidence than a business that is turning the corner and is growing fast. What is equally important is cash efficienct profitability. Investors don’t just want to see revenues they want to see profits. And they don’t want to see profits rising along with receivables. They want to see money that is collected and in the bank. So focus on free cash flow.

Regard the investment as debt not equity. While an investor may have taken an equity risk by investing in your company, you must regard the obligation as if it were debt. The investor has put money in your company because he believes in you. You must treat the investment with the responsibility it deserves. If you display this attitude investors may be unhappy with business performance in a slowdown but they will not be unhappy with you.

Finally work on building trust. Spend time on the relationship. Don’t lie - tell it like it is. Never mislead investors. Remember institutional shareholders get more hassled if they learn they have been lied to than if they are told that they may lose some money.

Job hunting in a slow economy

2009-05-04T09:47:00.003+05:30

My April Column in Mint

While much of the press in the recent months has focused on job losses and downsizing in Indian industry as a result of the global recession, the real crisis is in India’s engineering colleges, business schools and college and university campuses. Most of corporate India’s work force is still hanging on to their jobs – sure increments are low and some may have been downsized but by and large most people who were in employment are still getting a monthly pay cheque. It is those who are seeking employment for the first time who are struggling the most.

If you leave the top fifty B schools and the top hundred engineering colleges out of the discussion – in most campuses the majority of the graduating class is still looking for jobs and many of those who have managed to get a job have had to reduce their expectations and go for what they could get.

At engineering colleges, the IT Services sector is most responsible for the low off take of graduates. Many IT services companies simply did not go to colleges to hire this year. And those that did go, ended up either withdrawing offers or deferring the joining dates by several months or longer.

At some of the best B-Schools many students are still without jobs, and at others those who have got placed have had to accept offers from companies they would not have dreamt of joining till just a few months back. The situation in the lower ranked B schools is a lot worse. The B-School situation is compounded by the fact that over the last five years the course fees has risen to a level that graduates need to get jobs paying a certain minimum amount to as to be able to repay education loans taken to do the course in the first place.

While this may be bad enough there is worse news to come. While it is hoped that the Indian Economy and the hiring scene in general will pick up in the second half of this financial year – the fact is that hiring at the entry level will pick up a lot later. It has been observed in the past that entry level hiring gets hits first in a slowdown and it picks last in a recovery. Do not expect any great joy in the next placement season.

So what should a fresh engineer or MBA do in the current market.

First accept the new reality. The market has changed and till it changes back for the better you are going to have to scale back your expectations. Internalise this fact. Sure it’s not your fault and this is not what you studied hard for but that’s the way the cookie crumbles.
Be flexible about the industry you wish to join. If IT is not hiring, it is not hiring – period. Either join a smaller company in IT or a start up or else look at other areas. There are many other industries that need engineers and some companies there may be hiring – telecom, manufacturing, chemicals, electronics etc. Be willing to look at something different.

Scale down the bar on salary. The average salary for the graduating class at the Business school where I had studied has gone up by close to forty times in the twenty years since I graduated. And my class mates and I had considered ourselves fortunate and privileged at that time. While twenty years is a long time, a forty times hike in salary during this period is great going by any standard. I am pretty sure the wage inflation in the graduating class of other B Schools and Engineering colleges has been as much if not more over the past two decades. So be happy - you’ve done well. Count your blessings.

Consider other functions and roles. Yes you always dreamed of joining a bulge bracket firm as an investment banker. But those jobs are simply not available any more. Take what you are getting and run with it. More opportunities will emerge as the economy recovers. Till then get some experience under your belt.

Think about a further course of higher study. If the job market depresses you or you are just not able to get what you want - evaluate a further qualification and come back into the job market a couple of years later when things are better.

In short, roll with the flow. Over a thirty year career span what you are experiencing today is only a minor setback.

B Schools need to nurture misfits

2009-02-20T11:31:00.002+05:30

A common misconception is that the IIM’s do not produce enough entrepreneurs.

Last weekend I attended the twenty year reunion of my class at IIM Ahmedabad. It was fun - going back to campus and schmoozing with old friends, catching up on each others’ lives, imbibing bootlegged liquor surreptitiously and also finding time for some serious discussion.
One of the recurring themes in many of the discussions was how so many people in the class had ended up pursuing entrepreneurship as a career – out of 175 in the class more than 35 have founded companies. At least seven of these companies have achieved scale, three have listed and several others are expected to grow big in the years to come.

This is a very high strike rate by any standard. So what is it that made the Class of 89 different.

Unquestionably timing and circumstance had something to do with it. When the economy began to open up in 1991 many in the class were in the right place at the right time. We had gained some work experience, yet were still green enough to not have mentally committed to a long term career as an employee manager. We were earning relatively low salaries (the average starting salary in our graduating class was Rs. 3800/- per month) and so the opportunity cost of entrepreneurship wasn’t very high – we could take the risk and not lose a very fancy salary. When we went out to get business for the companies we started the growing economy gave us the breaks. To a large extent we were products of economic liberalization.

But it wasn’t just timing and circumstance that made the difference. There were other factors at play.

In the eighties the admission policy at IIM A ensured that there was diversity in the class - you had students from different academic backgrounds and different kinds of work experience. There could be a maximum of 50% of the students in the class from any one academic background. This made for a 360 degree experience with several points of view on the table during class discussions. There were a fair number of mavericks and independent thinkers – many of us simply did not want to work as employee managers and we had said so in the admission interview. Today India’s best business schools including IIMA seem to be ignoring the value of diversity in the class. Today, the admission policy at IIM A has changed - 93% of the students in the current first year batch are engineers – a retrograde move. If you reduce diversity you produce clones. And a class of clones is likely to produce fewer entrepreneurs.

The second factor is what we were exposed to at IIM A. There was a whole suite of courses that were relevant to entrepreneurship. In most other B Schools there is one course on entrepreneurship – I ended up doing five such courses. In fact till the early eighties there was even an Entrepreneurship Concentration Package which you could do. There were case studies of start ups and small enterprises – an entire body of knowledge had been created. Today this has expanded into a centre for innovation, incubation and entrepreneurship.

The third factor at play was the demonstration effect. One by one as more and more people in the class started companies, others mustered up the courage to do the same. And we are not done yet. Some more are likely to become entrepreneurs in the future.

So what should a business school do if it wants more of its students to become entrepreneurs?

First admit a more diverse class without compromising on academic rigour. In order to do this do not rely simply on hard criteria such as the CAT score – do a 360 degree assessment of the candidate. The best business schools in the world look at the GMAT score as only one out of half a dozen criteria for admission.

Second create a separate academic department for entrepreneurship and introduce a number of relevant courses in that area. Create and source material relevant to entrepreneurship – case studies, handouts, books etc. Allow students to major in entrepreneurship.

B Schools need to stop bragging about their success using average salaries, people placed overseas and placement rate. These indicate a mindset of managerialism. Instead celebrate successful alumni entrepreneurs. Lionise entrepreneurs who can be role models. The decision to quit a well paying job and start a company is frequently an emotional and irrational one – people need to be inspired to do it.

Encourage frequent interaction with entrepreneurs – let the students know their stories.
Finally the goal of every good business school should be to produce a fair number of misfits – because that is what entrepreneurs are. They do not see themselves fitting into existing corporate structures.

Team Up Scale Up

2009-02-19T07:57:00.001+05:30

As a start up entrepreneur the most important thing you will do once you have hit upon the business idea you would like to pursue, is to put together your team.

Teams are important
As Co-Founder and CEO of my company, it is my lot to be the external face of the organization. I frequently go on stage to take the applause and credit for work that has largely been done by other people. In the last three months I have received three awards for achievements in business or entrepreneurship. While I have been recognized ‘individually’ the truth is that the awards were really for what the organization has achieved.
And the reality is that what the organization has achieved is the cumulative result of the efforts of everyone who is working here or has worked here in the past.
It is a myth that entrepreneurs are supermen who lead and build companies largely on their own. In any entrepreneurial company that has achieved some size and scale you can be sure that there is a large and capable team at work with one or maybe two of the promoters being the public face of the organisation.
In fact one of the most important things that venture capital investors look at when deciding to invest in a company is the quality of the team. Not just at the founder or the CEO.
Great entrepreneurs are people who have the ability to make others want to work with them. They love their people and their people love them. They are the glue that binds the team in the start up phase. They are great people managers – maybe even pied pipers. They are prepared to share the wealth and the credit. They are magnets for talent.

At the start use your personal network
The first team will comprise of you and your partners, should you have any. These will be people you know, trust and respect – friends, classmates, colleagues. You have shared an experience. You are all fired up by the idea. You bond well. You will share ownership substantially.
The next step will be to gain the confidence of people whom you know but perhaps not that well - acquaintances, friends of friends. They will join because they will believe in you, your partners and the idea. They will carry the torch with almost the same passion as you do. They will be missionaries not mercenaries – they will take salary cuts and significant ESOP. Frequently entrepreneurs are not able to attract high quality people at the early stages of a business easily. They tend to make compromises only to realize as the company begins to scale up that they should have hired better at the start. Remember to set the bar high even in the initial stages.
Chances are that you will keep the team small till you are cash positive or you get access to capital. A team that will don varied roles – a team of all rounders who will be doing more than one job in the company. They will burn the midnight oil to make things happen. Yet, dependence on you and your partners will remain high.

Managing the team when scaling up
When you raise external funding the investors would want a broad based team to invest behind. This is the time to attract talent you can depend on in future. People who will man the boat, and make sure it sails in smooth and rough waters. This is the time to invest in future CXOs of the company.
As the business grows the team will get bigger and a whole lot of new dynamics will come into play. Processes, HR Policies, Administrative and Legal formalities and most importantly conflict. You will wonder what happened to the magic of the early days. You might even lose a few of the original team members. It will be up to you to create coherence out of the chaos. You will require specialists for every team and they come at a price. Soon, you will cease to be a startup. This is the stage of managing a transition. You will have to learn the art of sailing in two boats at the same time, for there will be the soul of a large company in the body of a startup.

From Entrepreneur to CEO
Finally when your company grows large, perhaps it does an IPO, you will be even more dependent on other people in your team than you were before. It will gradually dawn on you that you are more of a CEO now and less of an entrepreneur. And perhaps you are presiding over precisely the same kind of system that you left in order to become an entrepreneur.
Maybe it’s time to do your next startup!

Valuing a start up

2008-12-31T13:08:00.003+05:30

Assessing the value of a start up is one of the most difficult things to do. Investors and investment bankers may like to give the impression that there is a method to it but the truth is that valuating an early stage company is an imprecise science, that depends on a number of factors some of which have little to do with the intrinsic value of your company and more to do with the environment.

So what do VC’s look at while valuing a company. Most investors give you similar answers –

Size of potential market – Generally the larger the better

Quality of the management team - passionate, broad based management teams with complementary skills and domain expertise preferred

Business model – Who pays and for what? How much will they pay? How scalable is the model? Does head count need to scale proportionately with revenue?

Competitive landscape – it is good to be first mover or at least early mover, however if it involves the creation of a new category or market or a radically new consumer habit then it can be risky. It’s nice if customers are used to currently spending money for the same purpose and your offering solves the problem better and you propose to earn revenue from existing spend budgets. It’s also good if this is a proven business elsewhere in the world.

Stage of company – the earlier the company in its life cycle the more risky it is however an investment in an early stage company can yield massive upside to the investors if it goes on to succeed. In spite of the fact that we were probably overpriced in our first round of fund raising, our investors earned a return of slightly under thirty times over a seven year period.

Quality of offering – This a tricky one. How good is the offering? Will it get traction among customers?

Cost structures and potential margins – How large are the margins likely to be when the business scales up? Will margins increase with scale - does the business have operating leverage?

Market structures and market power - Is there likely to be excessive dependence on a few customers? Can the business build up massive dependency for its services among its customers? Will there be switching costs for customers? Does the business build defensible intellectual property? Will there be barriers to entry for competition in the future?

Basically all these are surrogates by which investors can get some sense of potential return and risk – a peek into the future.

Yet there are external factors which will finally influence whether or not a VC will invest in a particular company and if so at what valuation.

At Naukri, in April 2000, we raised our first round of venture funding at a valuation of around Rs. 44 crores - we had achieved sales revenue of Rs. 36 lakhs in the year gone by and. Sounds insane – well it happened. It was a bubble investment – dotcoms were flavor of the month, investors were competing to give us money (we had two offers on the table and we had spoken to only four investors), the Internet was expected to change the world and everyone was going to get very rich very fast. Six months later as it became apparent that the bottom had dropped out of the dotcom market the company would probably have been valued at around Rs. 2 crores even though revenue was going to more than double over the previous year.

Most investors will deny it but there is some kind of herd mentality among many investors. They compete with each other and they talk to each other. So if one investor makes a certain kind of investment that looks like a smart thing to have done it spurs others on to make investments in similar companies. When dotcoms were in fashion in the late nineties everyone wanted to invest in the internet sector. The ensuing competition resulted in a de facto auction and pushed valuations sky high. And when investors decided that they wouldn’t touch dotcoms with a barge pole, valuations were in the basement for a long long time.

Bubble investments followed by a situation where companies were left with no hope of a second round, subsequent tranches were held back, they were merged, promoters were sacked and replaced by professionals - many simply shut shop. All in all it there was a lot of pain for everyone. Yet the intrinsic worth of the companies had not changed much from the time they received their first round investment till the time they were forced to shut shop.

Irrational exuberance followed by irrational pessimism.

Just as beauty is in the eye of the beholder, valuation is in the eye of the investor.

Lage Raho

2008-12-11T08:27:00.003+05:30

My November column in Mint

So it is a slow down, perhaps even a recession, or if the prophets of doom are correct in their prognosis – it is that once in a lifetime occurrence, an economists delight – a global depression.
Whatever it is, the news is not good for those doing a start up. Not because growth will slow down to under seven percent. But because many start ups are doing innovative stuff where the revenue will come only a couple of years later and they need external funding till then. Funding that has become a lot harder to get as compared to a few months ago.
So as an entrepreneur doing a start up what are the things you could do to cope and ride through the situation? There are no "one size fits all" solutions – each company is different, each market is different. Having said that there are five things you could be doing.

Don’t panic : This is the fifth slowdown I am witness to during my entrepreneurial career over the last eighteen years . All of them have shared the following characteristics – a stock market correction, drying up of capital and credit, a demand slowdown and softening of business confidence. None has lasted more than two or three years. In India a recession means less than five percent growth for a year or two while a slowdown is six percent growth. These are healthy growth figures by global standards, however in an India that has gotten accustomed to nine percent growth it is viewed as a disaster if one were to go by media reports. Sure things are bad in the economy but we have been there before and come out of it. This too shall pass.

Recognise the problem early : Internalize the understanding that times have changed – the party is over. There are many start ups that will not survive the next three years. What you have to do is to ensure that your company not only survives but also grows and thrives. If you don’t recognize the problem early you will not be able to solve it. At Naukri we raised venture capital in April 2000 and the market began to correct almost immediately thereafter. We immediately stepped on the brakes and put all the money into fixed deposits in the bank – we did not spend it foolishly on big budget advertising. The rest of the market was in a state of denial for over six months saying that this was a temporary correction and things would be fine soon. It is because we recognized the problem early we were able to conserve our cash and ride through the meltdown. So assess your situation. Take stock of your cash availability, revenues and expenses. Assume you cannot raise any further capital for the next two to three years and then prepare a plan for survival and growth.

Take colleagues and employees into confidence : Having recognized the problem discuss the situation openly with employees. Let them participate in suggesting alternate courses of action. It helps to have many heads working at the problem. Also you get a buy in from the whole organization. When we tabled the situation the company was in, in 2001 senior colleagues volunteered a 30% salary deferment without being asked – it helped that we had a generous ESOP programme. If people love to work with you and they believe it is their company they will sacrifice without being asked.

Sharpen your value proposition and accelerate the sales programme : This is the single most important thing you can do in a recession. Push back the esoteric products that will bring in revenue after two years. Focus on creating immediate value for customers. Get the sales in today. And then go out and lead from the front and make sales calls yourself. This will not only give you deep customer insights to help you improve your offering continuously but will also motivate the sales team. And remember as the founder you are probably the company’s best salesperson. Build out the sales organization as you get sure about the value proposition you offer to clients.

Evaluate every expenditure : When cutting costs during a recession there are no sacred cows in a start up. Look at every expenditure. Don’t travel when things can get done by email or phone. Stay in cheap hotels when you do travel. Share a room with a colleague. Go by train if you can. Shift to cheaper offices if that is what you need to do. Do barter deals and alliances, wherever possible, if you need to buy something. Don’t spend money on advertising that doesn’t result in sales or enquiries. There are probably a hundred areas to save money if you constantly ask yourself a few questions. Do I really need this? Is there a cheaper way to achieve the same objective? Can I do this later? How will this improve sales? What difference will it make if I do not do this right now?

There is an opportunity in every slowdown. No doubt funding is difficult to get, customers negotiate harder and sales cycles become longer. However competition too gets adversely impacted – and that’s good for you. This is the time to get quality talent into the team – so raise the bar on hiring. More importantly if you spend time sharpening your value proposition and make it more compelling you will find that sales will happen and you have a good chance of sailing through the meltdown. So don’t quit - lage raho.

So Whats your Big Idea

2008-10-28T10:18:00.001+05:30

My October Column in Mint

A few months ago I spoke at a conference on entrepreneurship at IIM Ahmedabad. In the audience were several students who were aspiring to be entrepreneurs. The most persistent question thrown at the speakers during informal interactions in the evening was “I want to be an entrepreneur – what business should I start?”.

Most of the speakers who were there found the question a bit absurd. Any business that you start has to be your idea – you cannot go haring after an idea that someone else has given you in a casual conversation.

So the question becomes - where do the best business ideas come from and is that where you’ve been looking? While good ideas can come from anywhere or anyone, the best ones come from observing and interacting with customers.

If you know your prospective customers well enough, if you have spoken to them, if you have been a customer yourself, if you have felt the pain – then perhaps you have gained customer insights which contain in them the germ of great business idea.

Great business ideas are those that solve a customer’s problem. Sometimes customers will tell you what problem they need solved. At other times they will not articulate it and you will have to dig deep. Many times customers will not even know they have a problem – you will have to get into their skin, join the dots and figure it out for yourself.

However you look at it – successful new businesses usually solve a problem. So the first test of a great business idea is whether you are solving an unsolved problem.

But apart from the unsolved problem test, a good business idea also has to pass three other tests before you can call it a great business idea - the right one for you to pursue.

The first test is the test of passion. Does the idea resonate with you? Have you lived with it long enough? Have you explored it from various angles? Have you discussed it with prospective customers? Does it capture your imagination? Does it motivate you enough to spend the rest of your life doing it? Is it your calling? How passionate are you about it?

The second test is the test of unique qualification. Will you be the best person to execute it - do you have the capabilities required to bring that idea to life? As an individual you cannot personally possess each and every quality required to build a large business – but then do you have a team of founders that can provide leadership to the company in most of the critical areas? Are you and your team uniquely qualified to pursue that business – the chosen ones so to speak?

The third test is the test of scalability. Is there a reasonable probability that the pursuit of that idea will result in the creation of a large profitable business that grows fast – assuming of course that you do wish to create this kind of business. I must acknowledge here that you can be perfectly happy building a small profitable business or doing a not for profit. Having said that – the fact is that most people do want to build large profitable businesses.

To the extent that the test of passion and, to some extent, the test of unique qualification depend upon qualities internal to you the answers will be different for different people.

However let us look at the test of scalability and explore some of the generic traits of businesses that become large and profitable.

In general, businesses that scale up quickly address potentially large markets. They solve an important problem that is felt by a large number of people. They are first movers in their space or at least early movers – entering markets before competition does. They are usually market leaders.

They have a clear, credible, compelling and differentiated value proposition that is simple and easy to communicate to their prospective customers. They are able to hit a hot button with their intended customers.

They execute well and use a service or product creation and delivery method where capacity is capable of being scaled up quickly.

They create defensible intellectual property. They innovate continuously and focus on those areas where they have a core competence.

They frequently benefit from a positive network effect, have high operating leverage and are in businesses where revenues scale up disproportionate to head count.

They build other barriers to entry in their spaces as well.

They survive recessionary cycles - more than once.

They are magnets for talent and the best people in their industry are usually to be found there.

And they share the wealth with the employees who helped create it.

The most successful companies built in the last three decades around the world by first generation entrepreneurs possess many of the attributes listed above - Microsoft, Yahoo, Google, Infosys, Oracle and many others.

So what’s your big idea – does it measure up?

2008-10-28T10:14:00.001+05:30

Review of - The Game Changer

2008-09-25T08:42:00.002+05:30

This is a review of The Game Changer – How every leader can drive everyday innovation. By AG Lafley and Ram Charan, that I wrote for the Business Standard recently

The Game Changer is a significant book for two reasons.

First because of the credentials of the authors.

Lafley is the Chairman and CEO of Procter and Gamble. In his tenure over the last seven years P&G has tripled profits and has massively improved revenue growth and margins.

Charan is one of the most influential management thinkers in the world today. Born in a small town in UP, he worked in the family shoe shop, studied engineering and later went to Harvard for an MBA and then a Doctorate. He taught at Harvard and Kellog and is now a full time management consultant with several books and articles to his credit.

The second reason why it is significant is because of the importance of the subject the book addresses – innovation, or rather the management of innovation.

Innovation, to my mind, is or should be, central to the agenda of every high growth high performance company anywhere in the world.

The premise of this book is that an innovation led strategy is the best way for companies to attain sustainable and profitable growth. Lafley opens the book by saying that his job as CEO of P&G is to integrate innovation into everything that P&G does. It is the central principle around which people at P&G make decisions and seek opportunities for growth.

Innovation the authors say must be customer centric, customer driven and organisations must first structure themselves around the customer for this. The organisation and the people working there must possess a motivating purpose and values. The next stage in the process is to identify opportunities, and decide on goals and strategies and then leverage on core competencies to make it happen. At the execution stage organising for innovation involves putting in places appropriate structures and systems, building the right culture and ensuring the innovation process gets leadership.

Sounds like management jargon – well it is and the book has more than enough of it. It sounds great as a textbookish process when articulated like this – but it is the execution that counts. And Lafley did successfully follow this route at P&G.

Orchestrating an innovation centred transformation implies not being afraid of failure. Lafley says he gets worried when sixty percent of his innovations are successful. It means he is playing too safe and not pushing the envelope enough. In the book he candidly lists out the big failures of P&G over the last seven years.

The book is an interesting jugalbandi between Lafley and Charan – with both speaking in different voices. Lafley talks the reader through the transformation, which was centred around innovation, that P&G went through under his leadership. Charan puts the P&G experience in perspective and looks at other companies and industries where innovation has made an impact.

The Game Changer is useful for understanding how one large company pursued innovation to transform its fortunes and there is also prespective of how other large companies did similar things. It should be read by managers and leaders in large companies, by business school students and professors, and by trainers.

However if you are looking for a story with the romance of entrepreneurial brilliance at innovation, eureka moments, one mans passion and dream – the small start up in a garage that set out to change the world and successfully did – forget it. This is not that book.

In fact it is not a gripping unputdownable read. It needs to be read slowly and carefully and after reading a chapter you need to think through the import of what you have just read, perhaps skim through it again – make bullet points and discuss them with a colleague or friend while going through in your head the implications of what you have just read for your organisation.

The book is less about innovating and more about the organisation and management of innovation and the strategic importance of innovation.

It tells you that innovation is not the preserve of Silicon Valley start ups alone. It can successfully pursued by large stodgy companies, with low product or service differentiation, operating in mature markets and displaying moderate growth with steady or declining profit margins.

Bootstrap before looking for funding

2008-09-18T17:27:00.003+05:30

My September column in Mint.

Over the last several years many aspiring entrepreneurs have met me for advice – be it at business schools, through TIE, at conferences, at business plan contests or by simply sending me a mail and asking for time. Almost all of them have had an idea, a half written business plan – for which they were exploring the possibility of raising capital. Most believe that without committed funding by a venture capitalist they cannot start or will not succeed. Most struggling entrepreneurs would believe that it’s great to raise venture capital at the start – but is it really?

While many successful companies did raise venture capital early in their life cycle, yet there are many more that did not – Microsoft, HP, Dell are three such examples. Closer home Infosys, HCL and Reliance and many other first generation successes were bootstrapped and built the hard way. The fact is that most successful companies and most successful entrepreneurs reached where they have without raising venture capital.

In the company where I work – we managed to get external funding only after we had bootstrapped for ten years.We were delighted to raise capital when we did. However in hindsight, it was the bootstrapping experience that taught us valuable lessons that saw us through the later years.

There are many learnings you get by bootstrapping.

First bootstrapping is a test of commitment – if you are really committed to your idea you will muster up the courage to quit your salaried job, put in whatever little capital you have or can raise from friends and relatives, tighten your belt and somehow begin to execute your idea. If you aren’t willing to bootstrap then question your entrepreneurial motivation. VC’s understand this and they prefer to invest behind good teams that are bootstrapping rather than behind professional managers who are still in secure jobs but have a nifty powerpoint presentation.

Bootstrapping helps you to validate your concept for yourself, your team and prospective investors. Validation of the concept would mean that the startup team is in place, the product is ready and there are a few paying customers who are happy with the product and are willing to buy again and recommend it to their friends.

Once your concept is validated investors come in with much greater confidence and give you a much higher valuation then they would have at an earlier stage. You get to keep a larger share of your company for the same money. Most entrepreneurs don’t realise the importance of this until much later – should the company go on to become valuable.

Bootstrapping makes you stretch 24x7. It makes you think about survival, about how to break even, about where the next rupee is going to come from and about where it should be going or not going. You innovate more, you prioritise and focus on the essentials. You manage your cash flows better, you go out into the field and sell to customers yourself and you put in twenty hour workdays if required. It instils a culture of frugality in the company. This is a priceless asset.

At Naukri when we were bootstrapping, we had to break even to survive. We found ways of doing that - somehow. So by the time we raised money what we had to do was to scale up and enhance a validated business model. The fiscal discipline that bootstrapping enforced on us is now a part of our DNA. It ensured that we went through the meltdown and became profitable with 40% of the capital that ICICI gave us still in fixed deposits in the bank.

Bootstrapping ensures that you recruit missionaries and not mercenaries – after all you won’t have the money to pay high salaries. You will pay then in stock rather than cash – non believers will simply not join you. This core group of believers will be the people who will see you through the tough times that every early stage must go through.

It takes a lot of time and effort to raise money – preparing the pitch and the plan, doing the rounds of the investors and meeting the interested ones several times, negotiating and signing the term sheet, dealing with lawyers, going through the due diligence and negotiating and signing the final agreement. It is a six month process if you are lucky. This is precious time you can spend instead on building the product, putting together the team and finding paying customers.

And then after you raise the money you have to manage the investor – and that too takes time. The fact is that when you raise money you don’t just get the capital – you also get the capitalist. He will be on your Board and he will have ideas and suggestions to give – it’s called value addition. And he will have disproportionate powers. But you might want to do things your way. In such a situation it might be a good idea to take the business forward till you have something concrete to show and then raise capital.

So, commit yourself, validate an idea, build a team, be an entrepreneur, bootstrap now, raise money a little later.

Entrepreneurship - It's not about the money

2008-09-04T07:41:00.005+05:30

I recently began writing a monthly column on entrepreneurship in The Mint. My first piece is reporduced below. What this means is that I will post on my blog at least once a month.

Entrepreneurship is a much more celebrated term today than it was till the eighties. The world has turned around to look up at people who have executed innovative ideas to create value. Entrepreneurship as a career choice has gained social acceptability among the educated middle classes in recent years. I have been on this path for nearly twenty years now. Friends have always ribbed me about the fact that I preach entrepreneurship, but we started a job site - Naukri.com.

Today entrepreneurship is going beyond mere social acceptability and even getting to be fashionable as a career choice. A large number of people are doing start ups – many of them out of a sense of herd mentality, after getting inspiration from hearing the stories of entrepreneurs who founded successful companies. This is a worrying trend.

There is a misplaced sense of romance about entrepreneurship. I would like to caution those considering doing a start up that the early days of struggle of successful entrepreneurs seem romantic to observers only in hindsight. When you are actually going through it – there is a lot of pain. And for every poster boy success in entrepreneurship there are a hundred who are still struggling. The failure rate is high.

The first thing to understand is that entrepreneurship is not about getting rich. Sure if the company you start does become successful chances are you will make money. However that is a happy incidental outcome. It should not be the main object of the endeavour.

If you want to be an entrepreneur in order to become wealthy – my suggestion is don’t. There are very few entrepreneurs I know who succeeded without a longish period of financial struggle, belt tightening and personal sacrifice.

More often than not success will take longer in coming than you think. There will be times when at the end of the month there will not be enough money to pay the office rent and employee salaries – but you will somehow scrape though. There will be times when you yourself will not be able to take home a salary for months. There will be years on end when you will be financially the worst off person in your batch from business school. During these years you will need to make compromises on your life style – the house you are able to afford, the car you drive, the holidays you take, the restaurants where you eat and the schools your children can go to.

And all this without any guarantee of success, in search of the big idea, hoping for venture capital funding – years without any light at the end of the tunnel.

During times like this only your passion, your commitment to the idea and your stubbornness will see you through.

So before making the jump ask yourself a question – will I love doing this for the rest of my life even if I am not financially successful? If the answer is a clear yes – then you have passed the first test of commitment.

Then, when is entrepreneurship a worthwhile career to pursue. If one in hundred will succeed surely it is an irrational thing to do.

You should become an entrepreneur only if you believe that that is how you will find fulfillment.

Entrepreneurship is about freedom, creating, a chance to build a brand, an institution, showing the world a new way of doing something, being your own boss, creating a legacy that will outlive you, identity, making a difference, obsession, ego, having a shot at something big, doing what you love, innovating, doing things your way……..

Whichever way you want to put it – it is about finding meaning in your life.

Yes it is an irrational thing to do – if you are well educated and you have a good career ahead of you as a professional manager.

It is an article of faith. A bit like religion. Or as my friend Nikesh Sinha eloquently put it – it is like falling in love.

It’s an irrational choice.

Lessons of history learnt seven years ago

2008-04-22T22:58:00.007+05:30

If experts are to be believed, the Indian economy is entering a phase where money will be slightly tighter than a year ago, growth slightly slower, margins lower and valuations somewhat more modest. While I do not anticipate a meltdown anything like the one in 2000, it is important to learn the lessons of history. On Dec 24, 2000 I wrote the following article in The Pioneer newspaper.

The Story of the Year - The Dotcom Bust

Dec 24, 2000

A little over a year ago, I met a well-known NRI who was visiting India from Silicon Valley.

He asked me how the dotcom I worked for was doing. I proudly told him that we were making a profit, that we weren't running a dotcom but a business, that we actually charged people for our services, that when we had started out three years earlier, dotcoms hadn't been fashionable and that we also intended to be around when dotcoms were no longer fashionable. He told me with a straight face that I had a vision- problem and that I wasn't thinking big enough. If we were making a profit then we couldn't be investing enough in the business. I was crestfallen, for many regarded this luminary as some sort of guru.

A little over a year ago, I thought the world had suddenly gone mad. You could get really serious money on just an idea and a presentation if you told your story well enough, that is. You couldn't throw a brick in this city without hitting someone who had either started a dotcom or wanted to start one or worked for one or wanted to work for one or was funding one or wanted to fund one.

All you needed to talk "millions of dollars" was an expense plan that was outrageous (the higher the expenses, the bigger your vision) and revenue projections that were mostly fiction. The latter were supposed to be worked backwards after seeing which numbers would justify your target-valuation. Valuation was the instrument you measured your manhood with the "mine is bigger than yours" syndrome never mind that the valuation was notional and you could never hope to get that kind of hard cash in your `personal' pocket. All the time of course, you looked people in the eye and said that you weren't in it for the money it was the opportunity to change the world that excited you.

Many wannabe entrepreneurs and their backers failed to understand that there is one set of competencies needed to build a website and another quite different set to run a web-based business. It was assumed that if you could build a good site you would have a successful web business. Frankly, there were too many people chasing valuations and too few actually trying to service customers. Most dotcoms did not have a long- term outlook to their business. Almost all promoters wanted to cash out within a year or two. Fuelling this charge were media reports of Indiaworld selling out to Satyam for Rs 500 crore in cash. That no other entrepreneur in India was able to cash out of his dotcom for a large sum of money, is another matter altogether.

As lakhs of people jumped onto the Great-Indian-Dotcom-Bandwagon in the hope of making millions overnight (not entirely unlike the KBC craze today), I slowly began to come around to the view that perhaps it was I who was old fashioned and the world reasonably sane. Sadly, before I could be completely converted, the Great Dotcom Boom of 1999 had metamorphosed into the Great Dotcom Bust of 2000. The transformation was so sudden that most people went into a state of denial for the first few months "It's a temporary correction, we expect valuations to recover in a few months," went the refrain. As reality begins to sink in and the corpses of once trendy dotcoms begin to wash up on the beach, it is useful for us to collectively contemplate on our respective navels and ruminate on why the dream went so horribly wrong.

The most fundamental lesson from the dotcom fiasco is that, for most of us, there is still no quick and easy way to get rich. Most instantly successful companies take over 10 years in the making. Sadly, even in cyberspace, there is no free lunch. In order to realise value, you have to first create it. You need customers and you need to offer them a value-proposition. You need to sell them something that they want and you need to charge them an economic price for it. You need to provide quality service to customers and you need to focus on terribly unsexy things like the backroom, logistics, fulfilment and customer complaints. You don't need to run an idea, you need to create a business. Most of this stuff is pretty boring and old-economyish – far removed from the dreams of the starry-eyed 20-something MBAs, who were
funded by other 20-something MBAs who worked at the VC firms.

One of the major reasons why the dream went sour is that most dotcoms grossly overestimated the impact the Net would have on India. It was believed that what the Net did in the US, it would do in India. However, the reality check is revealing. The Net has a penetration of 40 per cent in the US and less than 0.2 per cent in India. In other words, 99.8 per cent of India does not have Net access. That is to say, even with a 500 per cent growth in Net penetration, 99 per cent of the population in this country would not have Net access. This would seem to seriously limit the market for products and services offered by dotcoms in India. Of course the Net has not lived up to expectations in the US, even with a 40 per cent penetration.

But then overestimation of market size is not new to India. Remember the myth of the 200 million-strong Indian middle class with the alleged purchasing power of a European country. This myth drew many an MNC to launch luxury products in India, only to learn the hard way that the market size was a fraction of what was believed earlier. Executives in many companies manufacturing breakfast foods, luxury cars, scotch whisky and expensive sneakers will privately testify to this.

Coupled with the overestimation of market size was a rapid overcrowding of the dotcom space without any anticipation of competitor moves. This sort of herd mentality led to a bizarre situation where within three months, the number of women's portals went from zero to fourteen, none of which had a viable revenue model. At least one CEO of a woman's portal has told me that had he known, prior to launch, that competition would intensify so rapidly, he would have shelved his project.

This herd mentality among entrepreneurs was fuelled by competition among VCs to fund dotcoms. There was far too much money and too few good investment opportunities. Purely to get market share, many VCs made sub optimal investments. For a while it looked as if VC grew on trees. Valuations were unreal but the VCs didn't mind, as long as there was someone ready to give an even higher valuation in the next round of funding. It was like a high-stakes game of passing the parcel where as long as the music was playing, nobody got hurt. But then valuations could not stay divorced from intrinsic value for very long and the music stopped, very suddenly.

A problem that industry pundits did not recognise as one, till it was too late was the use of proxies as evidence of success. Hits, page views and visitors were parameters used to value businesses. Whereas conventional logic would suggest that the real health of a business should be measured by revenues, costs and profits. Beyond a point, dotcoms and their cheerleaders were unable to sustain the myth of the validity of such proxies.

Another myth which was perpetuated was that if you spent a lot of money on advertising, you built up brand equity and barriers to entry, which in turn built up your valuation. The net result was that many dotcoms that got funding, spent recklessly on advertising without sufficient scrutiny of how this spending was going to build the business. But that's easy to do with a clear conscience if you are spending someone else's money.

Even companies which had funding, which had built a good site and had in theory at least a viable revenue model, discovered that it takes time to get people to change habits. E-commerce sites quickly discovered that getting visibility and traffic is only part of the story. The reluctance of customers to order on the net without touching and feeling the product limits the potential of e-commerce in this country, at least in the near term.

Yet, there is a silver lining even in this cloud. The dotcoms that survive the shakeout and do not lose sight of their fundamental business objectives, will emerge stronger and thrive. To do that, they will have to understand a few ground realities: They are not running a dotcom but a web-enabled business. The Net is not a business but a channel of communication. That they need to build a business first and build the dotcom around it, and not the other way around. That they need to chase the right metrics - customer satisfaction, revenue and profits are in and page views are out.

That overheads should chase turnover and not the other way around. That a brand is not built by advertising but by customer experience. And that they cannot spend money that they cannot hope to earn.

The dotcom is dead. Long live the dotcom.

On the state of Indian entrepreneurship

2008-01-20T12:28:00.000+05:30

A couple of weeks back I wrote this piece for The Mint newspaper on the state of Indian entrepreneurship.

It has been 17 years since I quit my marketing job in a well known MNC to embrace the topsy turvy world of entrepreneurship. At that time it was rare for a somewhat educated young Indian to pursue a career that did not offer the security of an assured monthly pay check. Those of us who decided to take the road less travelled were considered oddballs by people of my parents’ generation: “Arre Sanju itni acchi naukri mein tha, IIM ke baad ye sab karne ki kya zaroorat thi”, was the question my parents would often be asked.

The contrast with the early 1990s is visibly stark now. Just a month back, Hitesh and I spoke at the Tie Entrepreneurial Summit in Delhi attended by more than 1,600 people—many of them start up entrepreneurs and an equal number aspiring to be entrepreneurs. Every month at our company we get dozens of requests for mentoring, funding, partnerships and alliances from young entrepreneurial companies. The start up scene in India is buzzing.

Today, when I meet parents of young entrepreneurs they don’t hesitate to tell me--and it’s with a tinge of pride--that their child is doing a start up with a couple of his friends from business school: “aajkal start up ka bahut trend chal raha hai, you know.” It is now socially acceptable, perhaps even respectable, to be a struggling entrepreneur.

In 2008 we can expect this trend to continue unless there is a global meltdown like the one in the year 2000.

There are a number of other, related changes that have also taken place. Organisations such as Tie have created a platform where start up and wannabe entrepreneurs can network, learn and receive mentoring from successful entrepreneurs, investors, consultants and domain experts.

An entire entrepreneurial eco system has sprung up.

Venture capital is now available. Of course not everyone has the good fortune to get funding—but at least it is available for most good teams and good ideas. Two decades ago there was only one real VC firm in India—TDICI which went on to become ICICI Venture. It was very early days—we had never actually met anyone who had received venture capital (we just read the odd article about it in business magazines), we did not understand it and did not know how to go about getting it—and therefore never even considered it as a source of funding. We struggled for months to get an OD limit of Rs30,000 from Bank of India—and we got it mainly because the manager was a nice guy who felt sorry for us—by all banking norms we did not deserve it. Finally we raised VC 10 years after I had become an entrepreneur.

A very recent trend is the emergence of Indian investors into VC funds. Up until now VC firms would raise money overseas and invest in Indian companies. Now wealthy Indians are investing both as angels and also into VC funds. I expect this trend too to gather momentum in 2008.

As a consequence of all these changes a new class of entrepreneurs has emerged in India—well educated, first generation and with experience in the best in class companies. It is these entrepreneurs and the companies they build that will be one of the major engines of growth for the Indian economy in the decades to come.

Today, almost every business school in India has an entrepreneurship cell and actively promotes it as a viable career option for its students. Twenty years ago entrepreneurship was a fringe movement at business schools. It is now mainstream. However, even as more fresh business school graduates are likely to become entrepreneurs in 2008, it will be tough for most to get funding since investors value experience, domain expertise and a proven track record.

To them and to others who want to become entrepreneurs, I would like to say that today there are role models for young entrepreneurs to emulate and to get inspiration from—right here in India and not in Silicon Valley. When you are starting out you are hopeful about the future but you are also afraid of the uncertainties. And rest assured as an entrepreneur you will face adversity and your commitment will be tested.

We struggled for 13 years before we could call ourselves somewhat successful. At times like this it is good to talk to people who have been through the entrepreneurial journey a few years before you. This kind of emotional support can keep you going when times are tough—for the greatest success factor for most entrepreneurs is persistence, not brilliance. Keep at it long enough and sooner or later you will get lucky, is what I say.

2008 is just a beginning.

The HoneyBee Network

2008-01-14T12:55:00.000+05:30

I recently wrote a piece for The Financial Express in the "I Admire" section.

It is about a remarkable person and a remarkable organisation.

The HoneyBee Network was incubated by Prof. Anil Gupta at IIM Ahmedabad in 1988. The Network uncovers and documents grass root innovations from rural and small town India and tries to spread the knowledge and helps the inventors get a fair economic reward for their creativity.

In the last twenty years HoneyBee has documented in its online database more than 70,000 inventions by innovators in rural India. These include – a cotton stripping / plucking machine, a manual milking machine, a coconut tree climbing device, a garlic peeling machine, a device to draw water from wells, herbal remedies, a cowdung powered cell phone charger, a plow and weeding device that can be attached to a motorcycle, a low cost cell phone based switch for household appliances and farm pump sets, a beach cleaner made from an adaptation of a groundnut separator, and a walnut peeling machine among others.

The Network has filed for more than 142 patents and more than twenty have been awarded.

HoneyBee gathers ideas by staying in touch with people in rural India. Apart from a continuous stream of ideas that now walk in through the door the Network conducts Shodhyatras every six months. Basically a group of Networkers led by Prof. Gupta travel through selected parts of rural India over several weeks meeting people, uncovering innovations and recognising and rewarding inventors.

Several companies have come forward to license some these innovations and commercialise them. The Network thus is able to disseminate the innovations while protecting the intellectual property rights of the inventors and ensuring that they get a financial reward.

So how did the Network come about. Prof. Gupta was working in the area of agricultural economics and rural development at IIM in the mid eighties. He spent a lot of time in villages talking to farmers to gather data for his research studies. He would publish his research papers and would travel all over the world to speak at conferences. However he was always plagued by a sense of guilt – he was doing all this but the farmers who gave him the knowledge were getting nothing out of it. He wanted to rectify this injustice.

When I was his student at IIM around that time Prof. Gupta once told me that there is a lot of indigenous knowledge in rural India that is undocumented and may be lost to future generations with the advent of modern technology from the West and he was planning to document it. At that time I did not realise the importance of what I dismissed as a noble idea casually suggested over a cup of tea in his home.

Over the years however from a small beginning in a cubicle at IIM Ahmedabad, the HoneyBee network has created an entire ecosystem where indigenous knowledge and rural innovations are documented, inventors are recognised and rewarded and innovations are marketed to companies.

On sledging, racism, animal references and double standards

2008-01-07T07:36:00.000+05:30

It took a New Year Resolution and injustice on the cricket field to get me to post to my blog.

Enough has been said about the umpiring and the Aussie attitude in the test series.

The important thing is that the rules should be the same for both the sides and they should be made explicit before the game starts.

So if Virender Sehwag is suspended in South Africa for appealing for a taking a catch which wasn’t then should Ricky Ponting, Adam Gilchrist, Andrew Symonds and Michael Clarke be. Or are the rules different for different sides.

If most sledging is OK but some terms are deemed racist therefore some forms of sledging are not acceptable while others are - then let the ICC publish the rule book of sledging - what sledging is OK and what is not, with illustrated examples, a dictionary etc. "Sledging for Dummies" or "Sledging - a Users Manual" are two possible titles for the tome.

For instance - it is apparently OK for Glenn McGrath to ask a West Indies batsman what a certain part of Brian Lara’s anatomy feels like because it is a non racial macho Aussie thing to say – basically gutter level personal abuse is OK in the gentleman’s game but not anything to do with race. We in India need to be educated in the tradecraft - we are but beginners in the subject.

Or should action be taken against all forms of abuse.

For the record let me state that calling someone a monkey does not have racist connotations in India – in fact a monkey is a revered animal here and one of the major Indian Gods is the monkey God Hanuman. However that is no defense since calling a person of African descent a monkey does have racist overtones and carries with it offensive historical baggage relating to the way people of African origin were regarded by their white colonial masters whose descendants today are railing against racism, and who resisted breaking off cricketing ties with a South Africa under Apartheid till they had no choice, (the very foundation of the colonial age was built on a notion of race superiority - ask the Tasmaninian Aborignes), and therefore this should not be done – but maybe many in India do not understand the sensitivity of the matter. Is there a cultural gap here.

The joke doing the rounds in India is that when an Australian child learns to say the word “Mother” for the first time the parents say “Two cheers. Junior has learnt half a word”. For the Australian team to complain about sledging and occupy the moral high ground on this issue is a bit thick.

I guess they were getting a taste of their own medicine in the World Cup 20-20 and in India and were perhaps suffering from some not inconsiderable indigestion as a consequence.

Harbhajan made a mistake if (and only if) he referred to Andrew Symonds as a monkey. Wrong choice of animal mate - you should have used a reference to some other noteworthy mammal to respond to Symonds’ abuse - swine or dog come to mind as possible candidates - they are pure insults and carry with them no racist overhead. For good measure add on “non-monkey”. After all you cannot possibly be called racist if you say someone is not a monkey. “You mother*%$#ing, snivelling, lilly-livered, non-monkey, son of a swine” logically ought be acceptable sledging in the ICC and Australian lexicon.

This error by Harbhajan (if he indeed called Symonds a monkey) gave the Aussies a handle to turn the tables on the Indians by raising the racism issue. The Indians need to learn from this and refine their sledging strategy. It needs to be more nuanced and must take into consideration the subtler shades of meaning of various insulting and abusive terms and what they mean in different cultural contexts - someone in the Indian camp needs to think this through. India needs a specialist sledging coach (anyone for Gregg Chappell for this position - after all he is Australian and should be good at it).

But be happy India - in colonial times it took the word of ten Indians to overturn the testimony of one white man. Today you need to have two white witnesses to overturn the testimony of one Indian.

The world is indeed getting more and more flat. Indians have been accepted as honorary whites - capable of racism against people of African origin, which was earlier the preseve of whites only.

Feels a bit odd though - white people accusing Indians of racism.

But have we heard the last of this.

We have a situation where a white match referee (from a country that till very recently practised the worst form of racism as state policy) takes the word of two white witnesses (who are not neutral) over that of one Indian witness (who is not neutral) and without any independent witness or corroborating evidence (no video, no audio, nothing heard by the umpires – can’t blame the umpires though they seem to be deaf as adders and blind as bats and just in case this is a racist slur I voluntarily ban myself from selection for the Indian team for the foreseeable future) bans an Indian player (who the white Australian captain finds himself incapable of playing and so will benefit from this ban, and it was this Australian captain who insisted that the racism charge be laid at Harbhajan’s doorstep).

Hmm. Food for thought perhaps

Merit in minority

2007-06-25T18:53:00.000+05:30

This is an article I wrote about the issue of reservations at St. Stephen's College for The Pioneer Newspaper

Delhi's St Stephen's College has been a centre of excellence, with a nominally Christian character. It is in danger, writes Sanjeev Bikhchandani, of becoming a centre for Christians, with a nominally academic character
Henceforth at St Stephen's College the meritorious shall be a minority community. For that is the implication of the decision by the College council and management to increase total reservations to 60 per cent of all students admitted. At the heart of this lies the fundamental issue about what the College wants to be and which constituencies it wants to serve and how.

For over 125 years St Stephen's College has stood for excellence. Be it excellence in academics or sport or in other fields. The bulk of students obtained admission on academic merit. Sure, there was a sports quota and a Christian quota, when I studied there in the early 1980s, however the school-leaving marks of those who got in on these quotas were usually only marginally below the interview cut-off for general candidates. And the number of people admitted in these categories was small.

An overwhelming majority of students got in because they had fared well in their class XII examinations, and then subsequently been impressive in the admission interview. Excellence in academics was the principle criterion.

This admission policy served the college well for over a hundred years. The institution earned a reputation as a centre of academic excellence. Its alumni made their mark in government, academics, politics, industry, literature, films, and media - name the field and Stephanians are there and making a difference. Indeed the list of luminaries the College has produced across all walks of life, consistently and over several generations, is so large that it would be impossible to do justice to it in an article.

Over the decades St Stephen's came to be regarded more as a national institution and less as a College run by the Church. This was the conscious goal of the leadership of the College; its past principals have been men of great stature and vision.

A few years ago stories went around the alumni circuit about how academic merit was being compromised in admissions and how larger and larger numbers of Christian students were being admitted simply because they were Christian - largely due to pressure from the Church.

This was followed a few years later by anecdotes of how Delhi University toppers were coming increasingly from other colleges, although St Stephen's still did reasonably well, and how fewer Stephanians were getting into the IIMs and other key centres of higher education than before. It was a logical outcome of the changed admission policy.

While it may be expedient for the clergy to nudge the College more and more towards fulfilling the goals of the Church, such a course will necessarily diminish the stature of St Stephen's. This damage to its reputation will not be immediately visible for the College enjoys enormous goodwill, earned through a century of alumni who have been outstanding ambassadors for it. But over a decade or two, it will almost certainly happen.

I have seen the impact of just such an admission policy over the past two decades on Delhi's St Columba's School, where I had studied. Once regarded as perhaps the best school in India academically, it is today not even an also-ran. It is very hard to build a great institution, but only a few years of folly can do irreparable damage.

If one is to prevent St Stephen's from slipping into the morass of mediocrity, it is important to understand how centres of learning achieve excellence, and how they stay that way. While a college may provide an enabling environment, infrastructure and committed and good professors, the truth is any academic institution is only as good as the students it admits.

This is as true of the IITs and IIMs as it is of St Stephen's. If the IITs did not select the top one per cent of a very large number of applicants, they would very quickly cease to be regarded as centres of excellence.

To build a great institution you need visionary leadership and great commitment at the start. The founders of the IIMs, the IITs and St Stephen's were such people. Once the institution earns a reputation it naturally becomes a magnet for talent - both student and faculty. It then becomes a virtuous circle: a good college attracts good students and good teachers, and together they perform well academically and further enhance the reputation of the college; this thereby attracts even better students and teachers, and so it continues.

The college then becomes even better because it is good - a positive spiral, a snowball effect, a kind of self-fulfilling prophecy. Sadly more and more great institutions in this country are falling into the hands of people who don't understand this.

On the flip side there is a potential negative spiral - with a majority of students not being the most meritorious academically, the College will produce less than the best academic results, resulting in a diminishing of its ability to attract the best students in future. This will result in a further weakening of the academic output and talent migration elsewhere.

Year after year the spiral will continue till the college becomes known for mediocrity. A self-fulfilling prophecy and a snowball effect of the worst kind.

In this light, the decision to depart from academic merit for admitting a majority of its students is a retrograde step by the College management. At St Stephen's, this move has been made by an acting principal, within a few weeks of his taking over, in the summer holidays, without consulting alumni, without a debate in public and in seeming haste.

It needs to be rolled back and a wider discussion held. St Stephen's deserves better.

Broadbase the growth

2007-05-28T02:22:00.000+05:30

The PM has appealed to the corporate sector to reduce CEO and senior management salaries.

His logic is that too much inequality creates social tension and the benefits of four years of 8% per annum economic growth have gone largely to the English educated urban elite.

As the UPA government enters the second half of its five year term putting out this argument does make political sense. And it is also true that if the benefits of economic growth are cornered by the elite it will lead to frustration and unrest among those who desire to participate in the Indian economic miracle but do not possess the wherewithal to do so.

However it is important to understand how the current situation has come to pass. Why ‘trickle down’ is not working. Why growth is not inclusive. This will help the government take action to ensure that the base of those benefiting from the India growth story can widen.

There are three issues the PM has touched upon – first the high salary growth among white collar staff (whether CEOs or senior management or junior and middle managers), second the benefits of economic growth being limited to the English speaking urban elite and the third the evil of greed and self interest.

I’m not much of an economist – though I did study the subject in college and at business school. However here are my two bits.

Where CEO salaries are concerned it is important to distinguish between promoter CEO's and professional employee CEO's.

As far as promoter CEO's are concerned there are existing provisions in the Companies Act which are meant to ensure that at least for publicly listed companies promoters don't determine their own salaries - these are provisions limiting the total compensation of full time directors, the requirement of independent directors on the Board, the requirement of a remuneration committee etc. All you have to do is ensure that this system works - the independent directors are truly independent, the remuneration committee does its job and so on.

The situation for professional CEO's, senior managers and other white collar workers is different.

If salaries of white collar workers are growing at a rapid rate it is because growth in demand for that kind of talent is outstripping growth in supply.

Companies vie for talent in a very competitive marketplace. It would be very difficult for individual companies to ignore market forces when it comes doling out increments to their employees. Professional managers are frequently not wedded to their employers. Most companies would like to pay employees less but they don’t have a choice. To retain quality staff they have to match market salaries. Paying less than the market and losing talent as a consequence would be the kiss of death.

Salary growth will taper off if demand for talent goes down or else supply increases.

Demand for talent will go down in the foreseeable future only if economic growth slows down and that’s not desirable.

What is desirable however is that supply of talent increases. That way everyone wins – industry wins because it has the wherewithal to grow faster, the people win because more get jobs and the government wins because it collects taxes on a larger base, inequality and social tensions are reduced and voters are happy.

Now how do you increase the supply of talent. It’s easy to say but hard to do – reform the education sector.

Better execution in the government school system – ensure teachers come to school and teach well, ensure that government schools have adequate infrastructure and ensure more student attendance in government schools. Private schools will take care of themselves.

Empower school children with skills that are marketable. In one word teach them English. If most high paying jobs are cornered by people who can speak English then the market is giving you a signal. Proficiency in English is a valued skill. It is the language of business. Teach people English and they will get jobs.

My driver knows this. He spends close to forty percent of his salary sending his children to a private English medium school in the resettlement colony where he lives in Trans Yamuna. He knows that their future is secure if they learn English. It is the language of the white collar worker, it gets you ahead in life, it gets you jobs, it is aspirational – it is the language of upward mobility in India. We may not like this but it’s true.

Out of a misplaced sense of nationalism our politicians may have promoted Hindi and other Indian languages in schools at the expense of English (while many of them were sending their own children to English medium schools). But it is English that is a marketable skill. Two or three generations of Indians have been sold down the river as a result of this folly.

Apart from reform in government schools what is needed is reform of higher education. We are producing an army of unemployed and unemployable BA’s. For a large section of Indian youth, college is something you go to in order to get a label of being a graduate without any significant value addition. And what you study in college equips you poorly for any of the jobs that are available in the real world. There is a serious disconnect.

What the government needs to do is ensure colleges teach things that help people get jobs. Now that would mean an overhaul of the state owned colleges, allowing relatively free entry to private colleges with fewer controls and ensuring the REC’s, IIT’s, IIM’s and other centres of excellence are given independence.

It would also mean that colleges become market driven – now that’s something that won’t please a lot of academics. It would mean there is close interaction with industry to ensure that students are acquiring knowledge and skills that are relevant to the workplace. It would mean constant and frequent upgrades of the curriculum. It would mean that the faculty themselves would have to work hard to continuously acquire new skills and knowledge.

It would also mean rewarding the teaching profession better – so as to attract better talent into teaching.

It would mean making teachers and college managements more accountable for measurable results.

Finally this will mean allowing colleges to charge, at least the better off students, fees that reflect the real costs of running these institutions. After all quality upgradation requires investment and that money has to come from somewhere. It is logical that the money comes from those who can afford to pay and who benefit from the education. And they would be willing to pay if they see a reasonable prospect of getting a good job at the end of it.

You may argue that education reform is not a short term solution. But it just takes fifteen years for a class that is today in kindergarten to graduate from college. And that’s not a long time in the life of a nation. If this had been implemented in 1991, at the start of liberalization, we would have been seeing the benefits by now.

What this is about is large scale upgradation of Indian human capital. Convert the large population into an asset from a liability. India's growth will be fuelled by its human capital. That's what has happened thus far. Recognise that and reinforce it by investing in human capital.

Apart from increasing the supply of talent (read empowering people with skills that are currently in demand) the government can also take measures to incentivise growth in those sectors that will enable the non English speaking urban elites to participate in the economic growth that is taking place – without necessarily having to acquire skills and qualifications that they do not have. In other words create demand for the skills that this population possesses.

This would mean ensuring growth takes place in sectors such as retail, infrastructure, construction, logistics and transportation, agriculture and labour intensive manufacturing.

So finally it is all about demand and supply – Microeconomics 101. Increase supply of the kind of talent that is in demand. And increase demand for the skills the deprived population currently possesses.

And you get broad based inclusive growth.

It would be a bad idea to kill the growth that is currently happening by capping salaries and curbing the basic human desire to get ahead in life – call it self interest, call it greed or call it the invisible hand. This desire to get ahead coupled with the opportunity to get ahead that has been provided by the policies of economic liberalization that successive governments have followed over the last decade and a half have largely fuelled the growth that is taking place in India today. Don’t stop a good thing.

Instead focus on how more and more people can benefit from the great Indian economic miracle that is currently unfolding.

Life After IPO - I

2007-05-24T10:47:00.000+05:30

Apologies for the gap in posting. We just returned from a long trip overseas meeting investors and updating them on our financial results for the previous year.

Barnstorming twelve cities in five countries across three continents in 15 days has left me clueless about which time zone I am in and consequentially am wide awake as I write this blog at 3AM.

I think I am one of those people who get badly affected by jet lag. Frankly I don’t know how people do this for a living. I had thought life was supposed to get simpler after the IPO process was over.

Although I must admit we got into this with our eyes open. People older and wiser than I had told me before the IPO that a lot of time and effort would have to go into investor relations on an ongoing basis, we would be under a very public microscope, we would be riding a tiger etc. etc.

Well actually the benefits of doing a successful IPO far outweigh the occupational hazards. Going public has put us in a different strategic space altogether. We’ve got cash in the bank, our stock has currency, employees have seen the value of the ESOP, we are finding it easier to attract quality talent, the VC investors got liquidity, we can take larger bets, we are insulated against a downturn, it’s great for branding, we have unlocked shareholder value and so on.

On the flip side – our numbers are public. Competition knows more about us than we about them.

We were happy with our results and also with the numbers Rediff posted. I called Joy to compare notes and SMSed Ajit to congratulate him. The Rediff turnaround is great for the industry as it validates the confidence that investors have placed once again on the Internet in India. For a company that once traded at under a dollar on NASDAQ, the bounce back makes a great story.

The best part about meeting investors is that the smart ones challenge you with their questions and thereby force you to think in strategic directions that you otherwise may not have. At least some of our good ideas in the last year have come about as an unintended consequence of probing by investors.

One area that every investor we met on this trip asked us about was the penetration of the Internet in India. So how many internet users does India have actually? Is the estimate for usage in Cyber Café’s real? Why do estimates of Internet users in India vary so much? What’s happening on the Broadband front? What about wireless? How fast will Internet penetration grow? What’s happening on usage on the mobile? How many years behind China is India on penetration? How low will PC prices go? When will usage go beyond the big cities in a meaningful manner? How significant is home usage?

I wish I knew the answers.

Mirror mirror on the wall - who is the No.1est of them all

2007-05-06T18:44:00.000+05:30

I wrote a couple of hundred words about nothing and nine people commented and encouraged me to continue blogging. Thanks guys.

Ah. The burden of expectations.

So here is my second post.

Over the last two weeks several friends have asked me why bragging rights are important as to who is India’s No. 1 Job Site.

The truth is that users of job sites (whether job seekers or recruiters) already know which job site is No. 1 for them. A recruiter knows how many people he hired from where and at what cost and time per hire. A job seeker knows how many relevant jobs he found when he did a search on which job site. Similarly he knows how many interview calls he (or his friends) got by putting up his resume at which job site.

Response is measurable. Evaluation is easy. And no claims by any job site can beat what the user believes from word of mouth and personal experience. So the user knows the truth. You can't make it using smoke and mirrors.

Hence our reluctance to spend serious money in claiming we are No. 1. We spend money on brand building advertising on television and on immediate response advertising on the Internet.

For us our No. 1 claim is something we put into most of our communication along with our logo. For the simple reason, that it is the truth.

But it has not been the central theme of any of our paid communication recently – because if it is the truth the user knows it already. If this is not the truth that he has experienced, then no amount of saying so will convince him otherwise.

(Emails we send to our users and what we say to the media don’t fall into the category of paid communication)

But a more important issue is how No. 1 should be measured.

Of course aggregation is important – of jobs, resume’s, recruiters, job seekers and applications. However mere aggregation is Job Site 1.0

Job Site 2.0 is way beyond that. While some of our efforts go into defending and possibly increasing our leadership on aggregation, over the last two years a greater part of our efforts have gone into addressing issues that we believe will take us to what Job Site 2.0 will be about.

When you create a large job site with plenty of aggregation you may have solved one problem for the user but you have also created a whole set of new ones. What do we do with applicant spam, what do we do with recruiter spam, how do I find that one resume I need out of the jungle of millions of resume's in the database, how do I find the three jobs that are relevant for me, what do we do with the fake resume problem and so on.

The next frontier lies in the areas of improving the user experience through better UI, better use of analytics, better and faster search, better assessment of intent of user, better search result ranking algorithms, better matching of intents of the job seeker and the recruiter, compatibility assessment, solving the employee reference check problem, incorporating Web 2.0 features into our offering and also taking the site beyond the Internet and onto the mobile.

And that's what we are working on these days. To lead the market to Job Site 2.0, where we will go beyond mere aggregation to create value for users, and thereby consolidate our leadership.

Aside

Within our company after the Timesjobs, “Everyone’s quitting naukri” campaign broke there was some concern for a couple of days. However soon enough both Marketing and Sales people were smiling.

The Marketing guys were happy because our daily new resume registration was up by twenty percent (even though we were off television) without any change in the marketing inputs that we were providing.

The Sales guys were delighted that by putting forward the claim that they were No. 1 because they were bigger than Naukri, Times was effectively saying that Monster is at best No. 3.

Getting started

2007-05-01T17:29:00.000+05:30

I have been wanting to blog for a while. Never got down to it. I didn't want to start a blog and then not sustain it.

Years ago I had tried to learn golf. A golfer friend advised me to buy rather than rent a golf set since that would ensure that I would play regularly. A set cost more money than I could afford at that time, so I asked my brother to get one for me from USA. I went to the driving range a couple of times to hit a few balls and then my interest in playing golf petered out. Perhaps if I had paid for the set I would have been more committed to the game. The clubs are lying unused in a cupboard at home.

Now I am often asked if I play golf. I wrinkle up my nose and say I don't have the time.

Will my fledgling blog share the same fate as my golf game? DKCS. I can only try.

I met Gautam Ghosh on a trip to Hyderabad a few months ago and told him about my interest in blogging. He encouraged me to get started. I promised I would. I didn't.

Till now that is.

So here goes I've managed to blog a couple of hundred words without saying anything.

Hopefully I will have something more to say sometime soon.