This is Kamla Bhatt; we bring you part 2 of our conversation with Arjun Malhotra who was co-founder of HCL and now heads Headstrong, a US based company. Here is Arjun.
Kamla: So you were 49, you started TechSpan. You got a whole bunch of money from Goldman Sachs and Walden. It was unusual for an IT consulting company to get a whole bunch of money from investors.
Arjun: Not really, I think everyone had seen the Indian story at that time and they all wanted to get in there. I think what had happened during the bubble was whether you were an Angel, a Venture, a Mezzanine everything seemedMezzanine stage at that time but basically our model was a little different. Theme we had was ”Think local act global”. So we wanted to do consulting in the markets where we work by using local consultants. People, who were knowledgeable about local conditions and then do global delivery, do delivery from wherever in the world it was relevant. It did not matter whether it was India, China, Manila or East Europe; wherever we got right resources and the optimal cost we would do delivery. That was the large scale thinking and model that we had in mind. We never really got down to implementing it because when we went into the market the pull on E-Commerce was so strong at that time that we really said why should I fight the market, let me just do what the market wants me to do and you know we started operations on 1st of January 1999, in calendar 2000 we did 67 million which was a huge number at that time in your second year and the good news or the bad news whichever you look at it, was that we were profitable which is one reason why we never went public and I think one reason why we are still here today is we had the profit. So when the slow down hit us and when it hit us you know it was like going into a wall basically because we were in that business, only in that business. We were able to get our act together, probably went back and leveraged a lot of our reserves that we had created from the profits in that year to be able to survive. Basically we waited for a year, everyone thought the slow down would go away and things would get back to normal. We figured we had waited long enough and that we better put some strategy and some plan together instead of just waiting and doing things and that is when we decided that instead of our earlier plan of 3 segments, etc., etc., let us focus at least on one and try and build specialized expertise in one segment and which is why we chose the capital markets of the securities industry at that time and which is really about 70-75% of our revenue today.
to collapse and everyone was doing everything which is one reason why we got venture equity from Goldman who really come in, normally used to come in at a
Kamla: You have mentioned the buzzword of the year, capital markets and financial markets. When we think of financial markets in the US today we think about the sub prime crisis, the mortgage crisis and how the financial market is melting. What impact do you think this is going to have on your business and do you think you have put all your eggs in one basket once again?
Arjun: I think, I feel very good about our strategy, I feel very good about what we are doing, I think what has happened is, as they always say there is an opportunity in someone’s problems. I think what has happened at Wall Street, forget the reasons, I am not going into that, is a fact that they have to now reduce cost and they are very aggressively going after reducing cost. How do you reduce cost in an industry where you also have to be state of the art in technology all the time? So, the only way you want to reduce the cost in technology development is if you send more work to lower cost areas and offshore outsourcing or off shoring is one of the ways of doing it. So we are finding a major thrust with a lot of people in sending work offshore from areas that they never used to look at sending work earlier. Now, why were these so called sacred cows- they are probably no longer sacred, but why they are not longer sacred? I think the reason is they were sacred because they needed domain knowledge, some domain expertise and really it is difficult to find that domain knowledge or expertise outside a few financial centers like London, Tokyo, etc., etc.,. So what we are seeing is that because we seem to be the only company that has that domain expertise at least in India locally not just in US or Tokyo or London where we also have it. A lot of companies are coming to us that had not come to us earlier or would not talk to us earlier because they had their own vendors, etc., etc., and saying hey! Can you help us do this? So business is actually starting to boom for us, so in a way we are scaling very differently right now than what we had planned to scale earlier and really a lot of it has been driven, some of it will be inorganic but a lot of it is likely to be organic based on what we see in the market today.
Kamla: So one of the challenges for you to grow, I would suspect would be human capital because if these cash cows from the financial companies is being opened up and you are getting some of the work outsourced or given to you, you now have to find the right people with the right expertise. Is human capital one of the constraints that you are going to face moving forward?
Arjun: Yes, human capital has always been an issue. I mean you never get as many good people as you want to get all the time. But I think-again let me tell you what is happening in India. It is because of the decisions slow down in the US and because of the fact that people have these huge recruiting plans, a lot of campus recruiting this year has either been deferred or people have written back to people they have recruited saying they are withdrawing the appointment letter or they are deferring it indefinitely. So all of a sudden if I look at a campus fresher level, I am able to pick up any number of people I want and from our normal 100 people that we pick up every year-a 150 people, we are actually looking at- we have already taken a 100 plus this year, we are looking at adding 500 more in the next 4 or 5 months. In a way you are right, we expected the ramp up to be a lot slower than we thought we would be able to do but again because of the circumstances in the market we are able to ramp up a lot quicker and really go back to our prospects and our customers and say I can do it a lot quicker than I originally mentioned because of this.
Kamla: I want to switch to a slightly different question. This is looking back at your journey as an entrepreneur that started in the 1970s in India when Mrs. Gandhi was the Prime Minister. It was a time of emergency when lot of the civil liberties were suspended and today when you look back there is Dr. Manmohan Singh, the economy has been liberalized, lots of new policies have been introduced to help entrepreneurs. What do you think is different about being an entrepreneur then and being an entrepreneur today?
Arjun: I was about mid 20s during the emergency and we were really all flower children. We came out during wood stock and stuff so you know so anyone touching civil liberty was a big problem. But let me tell that from a operating point of view the whole- there was so much fear in the country that they would get locked up for 6 months and no one would know where they were etc., etc., that all the processes- the railways, all the companies ran efficiently. Also you know, we still talk about corruption in India and I think it is one of our biggest problems in India. Corruption was pretty much eliminated because people were too scared that some one would sneak on them and they would be behind bars without anyone doing due diligence or full check or whatever and so really business ran in a transparent fashion and I mention it as being important because in those days government and public sector that means government funded organizations were 80 plus or 90% of your market in terms of where you could sell. Private sector was only 10 or 20%, it was very small. Right! Seeing back to today, I think that has reversed. Government now is somewhat I do not even have to worry about them, they are insignificant- they are a significant buyer by themselves but if I do not need to talk to them I don’t even have to worry about it. Private sector-so to say the private sector has become a large large market and I can survive there. I think the other big difference is, today when you come out with an idea or a product or a service, there are at least 3 to 10 guys who are there around the same time. It is very rare that you would be given a free run for 3 months or 6 months to be able to put something together. I think at that time the market was not that crowded. There were 4 or 5 competitors. In fact the good news for us is there were mainly big houses there weren’t entrepreneurs and so they thought in a completely different phase. There was a difference in the phase in which they were and the phase in which we were. So to some extent we were lucky. We did not really have the intense competition that an entrepreneur would have today. Obviously we had competition; we had a couple of companies that came up. Wipro was one that came up when I was in HCL. That gave us some trouble in the market but they were not too many of them. Today you have got thousands of people, hundreds of people that come up, look at the PC business. You have got local assemblers, you have got everyone starting a PC, some are localized to a city, some are localized to a state and so for a national brand, it tends to be multiple strategies that you have to follow you know- in different parts of the country. And of course the market is much larger! I mean we used to sell a thousand PCs, we used to feel we have done a great job and now you we are talking about 3 million. So it is a completely different scale too.
Kamla: There is also an interesting footnote. This is harping on my theme of accidents because you were associated with the founding of SPIC-MACAY, a cultural organization that helped organize musical and dance programs in and around I think first in New Delhi. There is a historical footnote on how SPIC-MACAY helped found software as an industry in India.
Arjun: Yes, that is an interesting story. A class friend of mine from college, Prof. Kiran Seth, he is now a prof. at IIT Delhi. He and I and a couple of other friends were sitting around on one Sunday and you know, basically talking about the fact that youth today in India is sort of forgetting their cultural background and that Kiran’s point was why don’t we do something about it? So we all pulled out a sheet of paper and by hand we wrote out the objectives of a society that would actually promote music and culture amongst youth and we could not come up with a name so basically it was the society for the promotion of Indian music and culture amongst youth and SPIC-MACAY is an acronym from that long name. It started in Delhi, we were very surprised that big name musician volunteered that time free to come in and perform at colleges where we were doing free performances so the students get to understand some of our classical music initially. Kiran wanted to get some publicity so that more people from other colleges or nearby colleges would attend if they were held in a particular location and I used to have a very large advertising budget in HCL at that time because HCL did try to do everything in a big way and so I told him okay, I will take out some money and no one will even know about it and take- you know we will put the small ads in some of the main line newspapers in Delhi. Only thing is we will put a little line at the bottom saying ad-courtesy Hindustan Computers Limited and that is what we did for a year or so. In the meanwhile we had started our operations in Singapore and the model was that we would get the software developed in India and provide full solutions to the clients in Singapore. Not just the hardware. And so we chose, what is now called Chennai it was then called Madras as the location because there were flights that took two and a half hours or something between Madras and Singapore and floppies would go up and down and that is how we would deliver the software. So we started something called- division called ”Software Export Division” in HCL that was going to be located and if I remember the address right it was 4, Hados Road in Madras. The problem we ran into, in 1980 was that software was not treated as an industry; it was treated as a trade, so we came under the Shops and Establishments Act and not under the Industrial Companies Act so to say. And so Shiv worked very hard with the bureaucrats and the politicians in Tamil Nadu to try and get the software e-classified as an industry and we went through our ups and downs for 4 or 5 months, 6 months and it was happening but it never happened and you know that was becoming a big problem for us because we just did not want to setup the infrastructure to handle the multiple inspectors who come when you come under the Shops and Establishments Act. So one day Shiv comes to me and says you know what is this SPIC-MACAY? So I thought Oh hell! I have got caught. You know letting money out without getting clearance from anyone so I told him this is a society it does this and he said how are we involved with them? So I said you know I give them some money for ads, these small ads and they say courtesy HCL but asked him what happened? Why did you suddenly come up with this question? He said Oh! We have got our clearance from the Tamil Nadu government. I said Oh fantastic! What happened? He said this came when they were in Delhi and they saw this ad SPIC-MACAY and they saw it was-we had funded it and they felt that this is the company that has got a soul and so you know we should listen to what they are trying to say. They are obviously are not trying to fool us. They are a decent company and they really mean what they say so why do not we just give them their ovation and say yes we treat software as an industry rather than as a trade. So that you know- it was a long time ago, I don’t think anyone even remembers but you know that is really how it happened.
Kamla: So when did- you started SPIC-MACAY because you wanted to do something about culture, spreading culture among youth. You are doing something very different with the youth today; your focus was all on education. You are part of the Indian business school in Hyderabad, you are a board member of IIT Alumni and at IIT, Kharagpur have helped establish the Sanyal College of Telecommunications. So you are doing a whole bunch of things. Why this focus on education?
Arjun: In some ways I am who I am because of my education but I think a large part of it is my educational background. Both at Doon and at IIT Kharagpur and I really think that there must be lots of kids like me who come out of a middle class families or may be lower middle class families who are unable to- who dream but are unable to go anywhere close to their dreams because they just do not have the means to do it and they just do not have the ability to do it because they are not educated. I see that in so many people I employ. A lot of them are really sharp people. They have got a lot of basic intelligence. They just did not have the opportunity to get educated. When everyone is 21, they want to change the world as I did you know, when I came out and then suddenly one day you are 40 and you realize you have done very little to make any changes. You talked about it and did that really mean something to you. So I took two decisions at that time. I said that a certain amount of the wealth that I have generated, I will plough it back into education in some form and try and set up institutes that would have- a name. Let me use that term and really I am very proud of the India school of business. I of course had a really small role to play there. But in less than 10 years after it was formed, it is already in the FT list of top 20 MBA schools in the world which is amazing. Kharagpur is of course Alma Mater so I am involved there. Prof. G. S. Sanyal was probably my mentor, teacher and head of the department when I was at Kharagpur. Actually the other thing I decided which is far more important, in some ways and does not get any visibilities which it should not is the fact that I cannot make a difference, I cannot change the world but let me try and change the world that is around me. So anyone who works for me at home, my driver’s kids, my cook’s kids, I try and educate them. I try and give them the kind of education that I would give my kids and really that is a commitment I make to those kids, provided they want to get educated and it seems to be working out really well because just one kid in the family will change the whole family, will take them out from poverty or lower middle class to middle class and I think if I can change the people around me by doing that I think in some ways I have changed my world. Which is really what I look at today, I have given up the idea of changing the whole world.
Kamla: Who was your mentor, who inspired you when you were in school and when you were at HCL and today do you mentor, do you mentor young entrepreneurs?
Arjun: My inspiration really- when I was a kid and growing up was my grandfather. And when you go to college it has to be some one in your professors, I think professor Sanyal I mentioned, the late professor J. Das, who were the two professors in my department when I graduated and then there were some of the younger professors with whom you interacted and with whom you actually became friends more than mentors and some of whom I keep in touch with even today. Professor Edmond Farooqui is an example of a person like that. What I try to do today is yes I do infact you know fortunately for me my role in HCL to large- to a large extent was also mentoring because we took a lot of young people. No one wanted to join the IT industry because their parents felt that no they should go and join Larsen & Toubro or they should go and join some of the more traditional industries that were definitely going to give them a salary and safe job, as it was called in those days. IT was considered high risk, do not know what this is, it is completely new; do not know if it will be there tomorrow. So really in some ways the people who joined IT were the risk takers and a lot of them came in knowing nothing about it and we really did not have the option of recruiting at least for a lot of our non development technical functions. We did not have the option of recruiting only electronics people so we got chemical engineers, we got naval architects, we got aeronautical engineers, we got different kinds of engineers who we had to train and mentor on the computers. So you know if you look at Manoj Chug, who heads EMC in India - EMC in Asia now; Manoj is a chemical engineer from IIT Kharagpur. We recruited him straight out of campus so we have a whole lot of people and when you end up you are not just their manager or their boss you are also their mentor when you have to tell them about an industry and how it is growing. Actually I tell my wife, I always find a very funny role because I did not know where the industry is going. I was learning on the job too but yet you have a whole lot of people who look at you for the answers and so you have to act like you know all the answers whereas, you may not even have the answers and so to some extent I mentor them today or- not really mentor them but they come in and brainstorm about a lot of stuff and take advice and you know, it is fun.
Kamla: What advice would you give to entrepreneurs who are starting their journey in India because this is a different India from the India you grew up in?
Arjun: You know a couple of things. One is I think, you know- when you start a company I think you got to be passionate, I think you got to do something that will change the world or some such thing. If you are starting the company to make money I do not think it is going to make money in the first place so I definitely would not ask you to start a company to make money. You start a company to change the world and you know money would be a by product or wealth would be a by product that will happen- if you can change the world. Second thing I would say is go out and recruit; you obviously need a team; you are not going to be able to do this alone. So go out and try and recruit people who are smarter than you. That is easier said than done but go out and look for those people and if you think there is no one smarter than you then, please do not start a company because there are people smarter than you and you are going to face a big problem when they go out and beat you at your own game in the market. So go find those people who are smarter than you, work with them and listen to them. See- there is no use recruiting smart people if you have all the answers because they will get up and leave, pretty soon. So if you are recruiting smart people listen to them and then try and decide what you want to do. And the other thing is- you have to decide what set of principles you want to live with when you go through life whether you start a company or you do anything else and I think it is up to you to decide how you want to live your life. I always tell people that try and be a person, try and be the kind of person where you like yourself. Ok because it makes your life much easier, it helps you take the decisions in that life much easier, it just makes you predictable in some ways to a lot of people and when people work with you the thing they want is predictability. They want to know how you react to a particular thing. Not that one day you say yes and one day you say no to the same thing. Then they look for moods and decide when they should approach you in what mood and say what at what time. Which you do not want, you want them to be upfront with you and you want to be upfront with them. So I think as long as you do that, you have a good idea. Something that you have a passion about, find a good team, people who are smarter than you know try and do what you think is right. Do not regret it later that I wish I had thought about it earlier before I did this. I think you would be able to. Today the opportunities exist and it is a competitive world out there in India but the opportunity absolutely exists, time to go out and do it.
Kamla: My final question. Are you headstrong?
Arjun: It depends on who you ask. I think I am fairly open to views. My wife says the name fits you exactly. Yes, I guess I am stubborn. Normally when I think of a view I try and stick with it, I am open to a discussion, I do change, I may not change very often but I do change my mind if some one has got a point that is more valid than what I think my argument about a particular point is. Headstrong is actually according to my wife a polite word. She uses the word stubborn but I really do not think I am it.
Kamla: Arjun it was a pleasure to talk to you through out the interview- your tag line had been distracting me. It says ”Headstrong-Strong Opinion Strong Results” I guess it fits you to a T. Thank you so much for your time.
Arjun: Thank you. Thank you Kamla.
You were listening to Arjun Malhotra who is co-founder of HCL and now heads TechSpan. This is Kamla Bhatt; this interview is brought to you in association with LiveMint Radio and as always thank you for tuning in.