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Talking to Arjun Malhotra, co-founder HCL

Talking to Arjun Malhotra, co-founder HCL
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First Published: Tue, Jan 27 2009. 12 35 PM IST

Updated: Tue, Jan 27 2009. 05 44 PM IST
This is Kamla Bhatt. Today my guest is Arjun Malhotra who is CEO and Chairperson of Headstrong Inc. an IT global consulting firm. He was a co-founder of Hindustan Computers Limited (HCL), which opened up its offices in 1975 in New Delhi, in his grandmother’s barsaati.
Kamla: Welcome to the show.
Arjun: Thank you Kamla.
Kamla: What was it like growing up in Calcutta in the 1950s? You have a pretty colorful history, your father’s side of the family is from Burma and your mother’s side of the family is from Pakistan. Your grandfather was a very well known scientist.
Arjun: You know my maternal grandfather had settled in Calcutta in the early 1900s. They were from Lahore and Gujranwala which is now in Pakistan. Basically we are a Calcutta family because when we moved in 1956, my grand mother said she lived in Calcutta for 40 years. What was Calcutta like in early 1950s when I grew up there? I think it was like relic of the Raj; it really was still a piece of the British empire but independent. Infact I remember going to the Loretto House and the Loretto used to admit boys at that time up to nursery and I remember going to Loretto House from our home at Park Mansions on Ripon Street, which is close by for those who know Calcutta. I would go on my servant’s shoulder- piggy back and my bag would go in the rickshaw and that’s how I remember my growing up days.
Calcutta was a great experience. I spent a year in St. Xavier’s there and then in 1956 when my maternal grandfather passed away, the family moved to Delhi. We have really been Delhi bound since then. My father’s family actually settled in Burma some 200-300 years ago. It is funny- we are originally pathans from Peshawar, the North West frontier province. But they settled in Burma so a lot of them moved across to India or moved out of Burma I should say during the war. I still have my dad’s eldest brother and his family stayed on in Burma and I still have 2 first cousins I haven’t met ever- who lived there and they have grandchildren and now great-grand children. I do plan to go to Burma one day and catch up with them personally.
Kamla: You also grew up at very interesting time in the history of the country because you were born in the 1940s, you went to school in the 1950s and 1960s. And in the 1960s and 1970s when you were teenager, a young person-- the country went through 3 wars. You were actually in school in Kharagpur, when the 1965 war broke out and you have a very interesting story about your Kharagpur experience.
Arjun: Yes, I joined Kharagpur in mid-1965 and actually in our first term there, I think it was September if I remember. We woke up in the morning with the windows rattling and smoke coming from sort of nearby and we realize that this big airbase at Kalaikunda, there was some problem there. We did not know what the problem was, so a number of us just jumped onto our bikes and just decided you know we will forget class for today.
Let’s go and see what the issue is and as we get to Kalaikunda and we find this ack ack gunner busy firing his gun. We asked him what is going on and found there is a dog fight between F86 Sabers from the Pakistan air force and Hunters from the Indian air force right above us. We were standing there and yelling- ”buck up air force” and you know whatever else you yell to try and cheer up people- not that it matters and I don’t think anyone could here us.Wwhen one of the Sabers decided that he wanted to straf this ack ack gunner and this guy the gunner told us to run like crazy.
So we are running with all these bullets flying around. War sort of puts you into a different frame of mind, through the completely different trance. And he did hit that Saber and it sort of crashed into a rice paddy field, hit a tree about 150 yards in the direction we were running and of course we continued running. We got to the plane, stripped it- whatever we could to carry bag to IIT. We put it around our cycles you know-at the back, to get back. And of course, the air force folks came in the evening and asked for all of it to be given back to them- which we did. But yes, it’s something I remember. I can’t imagine myself behaving that way when I look at life rationally, but I think when you are in the middle of a war, somehow you do not think rationally.
Kamla: Now lets shift to 1970s, you are working at DCM. You had graduated from IIT Kharagpur with a degree in Electronics and Electrical Communications which is kind of unusual by itself. I don’t know if you think it is and you were working at DCM. What prompted you all to found the company when starting a company was, I am assuming, not the norm? There was no start up culture in 1970s.
Arjun: Interesting question.Let me describe India in the 1970s to you- it was very much socialist country and they had an act called the Monopolies & Restrictive Trade Practices Act, which really said that if you are a private company- private means not government held, not public sector, you could be a public company meaning you have your stock in stock exchange but you are still a private company. So if you are privately owned company, you were and being big was not a good thing. So you were restricted in what you were able to do. You could not grow more than a certain percent and you could not get into new areas.
When we introduced the idea of a computer to DCM, there was a lot of excitement. We actually worked and designed both an 8bit and a 16bit, 8bit micro processor based and a 16bit bit sliced based computer. Unfortunately for us, the legal, finance and administration group in DCM advised the management that this would be going against the provision of the Monopolies & Restrictive Trade Practices Act and that the company should not take the risk of endangering their other businesses, by trying to get into something new because the government, it would upset the government.
For us, I must be 25 at that time. You know, you do not see the end of your life at 25, you might be being paid a lot of money- not a lot, but being paid good money but you do not really see a life ending at that time. And we also figured that you know, micro processors were going to change the world and so 6 of us got together and said if DCM did not know what they were missing, why don’t we go out and start it ourselves. It was complete bravado I mean- (we had) knowledge of the market, knowledge of the technology but no money at all. No chance of VC’s and no chance of families coming up with the money because no one came from a business family; everyone came from a service family.
That is how we started. Why did we choose my grandmother’s barsaati at Golf links? First of all, she gave it free, which was very important so you have got an office that was free second is for those of you who know Delhi, Golf links is one of those up market localities and the fact that you have an office there and you could put it on your business card, we felt people might think we had some old money behind us and it might give us some credibility. So that is the reason why we actually took up her offer. For a year or so, we used the bedrooms and had people working out of those offices and we rolled back the bedrooms in the evening till we moved to our first office a year later. We got so big that we had to get out of there.
Kamla: So you got the company because of pure accident? Because of a bureaucratic hurdle that prevented Delhi Cloth Mill (DCM) from expanding?
Arjun: Yes. If I can get it down to one reason, that is probably the one big reason why it happened. We were very happy at DCM. We were all doing lots of exciting things and I think we would have continued to do it except that you know they just decided to put a stop to how we were planning to move in the future. We just felt that hey, the opportunity was just too great and no one else was doing it in India at that time that we knew. So we thought we might as well step in and try and do it ourselves.
Kamla: Did you have a business plan?
Arjun: No, we didn’t and we had no money. So when we put it together we you know we said the total equity we will put in is about Rs. 2 lacs, which is about Rs. 200,000 which was about $ 20,000 in those days because it was Rs. 10 to a dollar. Ee divided up between 6 of us a total of Rs.1,75,000. We kept Rs.25,000 for people who we thought we might need in the future. So we will keep some equity open for them. Actually HCL finally, the denominator closed at 183,000. we never really gave the last 17,000 to anyone because you know we did not need money after that because the company was able to Again as Kamla puts it: it was a set of accidents that enabled us to become cash positive. Let me talk a little bit about the history.
When we started we realized we had no money and we needed to invest some money into developing our own computer otherwise we are not going to have our own computer. So, we said let’s go back to calculators which we understand and let us manufacture calculator, sell them, make some money and pump that money into developing computers. Before we could do that, the late Mr. Ved Luthra from Televista Electronics approached us and said that you know he is already manufacturing calculators. He just does not know how to or he hasn’t been able to sell successfully in the volumes that he wanted. Why don’t we do a deal with him where he will give us the estimate of production cost, we will given him the estimate of sales cost and there will be a margin in between that we will divide in the middle. He will do a transfer pricing on that basis at the end of every quarter, we will look at the actual expenses and do the adjustment. So, we technically got stocks that we did not have to pay for 90 days and the cash that came out of that. So, we used that cash. -See if you have 90 days to pay and you keep your receivables at 30 days, you certainly have a lot of cash that you can invest in other activities which is really what we did and you know again as a pure co incidence for a year we sold Televista Calculators from company called Micproint that we had formed and used the money we were making to invest into developing computers and finally registered Hindustan Computers Limited as a company in August, 1976 with the joint venture with U.P. Electronics Corporation.
Kamla: With the U P Electronic corporation? So what I am hearing from you is that you became a channel partner for Televista, is that what you became?
Arjun: Yes, so Televista did the manufacturing, Televista let us use their offices around the country, so we did not have to invest in offices and we sold Televista calculators. It was their brand, we made our money on the marketing but we were a complete- they just manufactured and they manufactured what we told them to manufacture. So that is how it worked. It we were really a separate company but we were like the integrated sales and marketing arm.
Kamla: It looks like you have had lots of crazy moments in the growth of HCL. Today it’s a billion dollar company. It was one of the early product companies that came out of India and it is probably a coincidence that when Steve Jobs and Wozniack released AppleOne, you guys also released your first computer. Is that right?
Arjun: Yes, that is correct. It is - I think, the same year and the same month that we released our 8 bit commercial computer to the Indian market. You know, when you ask the question in that particular way, I never thought of it that way but yes, we probably were the first company that set up an R&D to do development, to make a product that was specific for India. We did not really take something that was being sold abroad and reverse engineer it or assemble it and do whatever people did at that time to make products for the Indian market. We actually developed our HCL 8C as it was called then, it had really what we called a PSAR unit- Power Shut Auto Restart Unit, which really ran with a big battery in it and basically- when you have power cuts in India, it would hold all the memory and computation of counters exactly where they were when the power went off and when the power came back, the computer would start from exactly the point where it had stopped so we did not loose any processing time or any data or information. That is really what we did and in some ways, our competition really picked up machines from overseas or probably did not do as much development, or did not think of that idea and that was unique and something that our customers found very useful. From that time on, actually HCL’s policy in terms of the computers that they delivered would always be developed in India, developed something that is relevant and unique to India and then make it available. And we continued that and probably they continued that even today with the PC’s, we really moved out of the large UNIX server boxes when we did a joint venture with HP in 1991.
Kamla: So you have worn different hats at HCL but you were mostly in the front end sales and marketing. Is that what you did?
Arjun: Yes. I ran the field operations for HCL. So yes, basically the sales and marketing- that is what I did., S. Raman actually ran the production and R&D and Shiv (Nadar) basically ran the cash flow of finance and really the rest of the company. Although he did have a lot of inputs I know in marketing, that we used to lean on him quite heavily when we looked at any new plans or any other things that we needed to do. But really- that is how we ran HCL; it pretty much ran as I would say two separate companies with one cap.
Kamla: Generally when you have more than two founders in a company, you run into a problem. In your case, you had six people who founded the company. What were your decision making processes like? Who did you turn for you know- any kind of intervention, if outside intervention needed-needed to be used or who did you turn to for getting advice on how to resolve the problem because you guys were in the forefront of bleeding and leading edge technology?
Arjun: You know, I had thought about that quite often because really the six people who started the company worked together for something like 19 or 20 years before some of them decided to do something else. And really, I think we had 2 or 3 sets of rules. One is that if Shiv was running HCL, then really the buck had to stop with him and that every one else was really a soldier that worked accordingly. If I was running the CAD/CAM division, then the buck stopped with me, if Pammi was running reprographics then the buck stopped with him. You know if Subhash was running Fareast computers, he took the decisions. That is really how it worked and people were responsible for results and so really they could come to you for advice. You gave them advice. It was up to them whether to take it or not. You could point out to some one if you thought they were doing something wrong. What we did avoid doing is I told you so. If you told some one to do something and he did not listen and he did not work out right because it hurts you as much it hurts him because you too owned the piece of the company. I think more importantly then that, the spouses got long with each other and they were good friends. So lot of times when you had a problem with the person whether at work or whatever else invariably when you met socially, the spouses would make sure that the problem got sorted out and that seemed to work really effectively. I think we enjoyed working together, we probably spent most evenings together also when we were working together because the wives got long with each other and got long with each very well- they still do. So while most of us are doing our own thing today, only two of the six founders are still in HCL. We still get together fairly often, socially and otherwise and really I know the spouses get together for lunch much more often than we get together in the evenings.
Kamla: What prompted you to leave HCL? I know you have answered this question many times but when you look back at it today, do you think that was a right decision for you- to leave HCL- because it is a billion dollar company and you are now heading a small company with $ 200 million in revenue which is in the finance-the securities business.
Arjun: HCL is bigger than a billion dollars, it is now some $4 or 5 billions, it is a very different size company but yes what any regrets… not really. I missed HCL. It is not that I do not miss them but yes- no regrets. I think one of the things I have learnt in life is when you take decisions you take decisions if you are going to regret decisions, you will spend most of your life decisions you have taken and regretting them. Yes learn from them, do not make the mistakes but regret is not the right way if you look at decisions that I take at least. Why did I leave? Good question!
You know I was 25 when the micro processors came in and I really enjoyed riding that tiger, that technology tiger you know, saw that it changed the world. I was 49 when the internet came in and I was sitting here in the US. I probably saw it before most of the people in HCL really grasped what was going to happen with the internet or what the internet is going to do in their lives. I wanted to be at the cutting edge of the internet, just fool around with what happens. HCL Company had a strategy that was obviously right for their shareholder was that they really did not want to spend too much time and money on it. They wanted to wait, look in which direction it would go and then run very fast in that direction. Which really- as I said as a shareholder made a lot of sense to me but I figured that I had this opportunity and I thought I was really lucky. How many people got to see two major technology paradigm shifts in their lifetime?
And so I decided to get out and fool around and. You then look back at why did I start the company or why did I agree to be a part of the group that started the company is - I wanted to have the economic freedom and the mental freedom to do what I wanted to do. I had never thought of what I wanted to do till then but suddenly when the internet came, I actually felt I wanted to do something and I had the economic freedom that HCL had given me, to be able to do it. So I decided that let me try and pursue that I thought was what I wanted to do. It took me a year and a half or some such period to extricate myself from HCL. It was tough, I think it was tough for me and I guess it was tough for everyone else and I wanted to make sure I did it amicably. I did not want to fight with people I had worked with for 20 plus years and I managed to do that. I think there were acrimonious moments in there, there were times when you felt it was never going to work the way I wanted to work but I think in the end, it sort of worked out ok.
You were listening to Arjun Malhotra. Tune back in for Part-2 of our interview with Arjun. This is Kamla Bhatt. This program was produced in association with Live Mint Radio. And, as always thank you for tuning in.
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First Published: Tue, Jan 27 2009. 12 35 PM IST