Stay Hungry Stay Foolish_2 pdf

16 STAY HUNGRY STAY FOOLISH wasn't chasing money. And if you chase something long enough, sooner or later you will get lucky. If you are really lucky then you will do it in 5 years, if you are moderately lucky then you will do it in 10 years, if you are terribly unlucky you will do it in 15 years.” “But if we had missed this bus, I would have continued working at what I was doing and maybe I would have succeeded at something else 5-6 years hence. The point is to try long enough and hard enough. I think persistence is a quality that you have to have, to be a successful entrepreneur.” If you love your work, and it gives your life meaning, then you will have fun through the difficult times.You will find it in your heart to keep going.You will never lose hope. You see, there is no such thing as a failed entrepreneur. You are a failed entrepreneur only when you quit. Until then, you are simply not successful… yet. 01_The book of Jobjuly4edit.qxd 7/19/08 2:16 PM Page 16 17 THE BOOK OF JOB Be early. You can make your mistakes while it is cheap to make them, when there is no competition. Do not exaggerate in your business plan. Undercommit and overdeliver. Get great people - sell them the vision, the idea and share the wealth, be generous with offering stock. If you are starting a business to make money, don't do it. Chances are that you will fail, because there WILL be hard times. And if your motivation is not something beyond money, those hard times will test you. You will quit and go back to your job. But if you are doing something other than money, you will rough it through the hard times. I spotted the opportunity but I didn't know how big it was, how big it was going to be. I just said this is a smart idea, I love it! And it happened to be the right idea, at the right place, at the right time… If you are in enough places, enough times and long enough, you get your breaks in some form or the other.You just have to be smart enough to take them. Scaling up is also a lot about letting go. Get smart people. If they are truly smart and if they have their self belief, they will create their own space and they will do stuff that maybe you can't do. Or may be you haven't thought of. And do keep in mind that every choice you make impacts the family. If you live in a particular part of town, it will obviously impact the kind of school your kids go to. Frankly, these were the choices, the implications of which I did not consider. Thankfully, things have turned out well; the children also, the family also. ADVICE TO YOUNG ENTREPRENEURS 01_The book of Jobjuly4edit.qxd 7/19/08 2:16 PM Page 17 18 STAY HUNGRY STAY FOOLISH ROCK WITH IT, Despite a regular middle class upbringing, Shantanu went into business while doing his BCom. The entrepreneurial streak continued after the MBA from IIM Ahmedabad. His company Educomp is today the leading provider of digital content for schools across India. ROLL WITH IT Shantanu Prakash (PGP '88), Educomp 02_Rock with ITjuly4edit.qxd 7/19/08 2:21 PM Page 18 19 ROCK WITH IT, ROLL WITH IT Are entrepreneurs born or made? Did they always know this is what they wanted from life or did an opportunity come up and light the way? Shantanu Prakash grew up in an “absolutely typical middle class background.” But he knew entrepreneurship was his calling, early in life. He founded a company while still in college and started another one right after graduating from IIM Ahmedabad. And this was in the late ‘80s, years before entrepreneurship was in fashion. The thing about Shantanu that strikes you is how much at ease he is as he relates the story. It's not like he made it big overnight, it's actually taken close to two decades. But through the hard times, the weak sales, the poor cashflows, he says it was “never difficult.” “When I look back, every single year of my life, I thought, was the coolest year of my life.” Sitting with him in the coffee shop of the amazing Trident Hotel in Gurgaon, a part of me said: “This guy is definitely lying. Aisa kaise ho sakta hai… ” But at a deeper level, what he said seemed to ring true. Your reality is what you make of it. If you see life with an 'all is wonderful in this world' pair of lenses, that's how it is. This is against conventional wisdom. The middle class ethic of being careful and completely realistic about the big, bad world around you. But all I can say is the formula seems to have worked for Shantanu. His company Educomp works with 9,000 schools and six million students across India, US and Singapore, generating revenues of Rs 276 crores in FY ‘07-08. Its market capitalization is Rs 7,000 crores *. But like I said, it's the attitude with which it's been built which is more interesting than the building itself. * as of May 2008 02_Rock with ITjuly4edit.qxd 7/19/08 2:21 PM Page 19 20 STAY HUNGRY STAY FOOLISH Shantanu Prakash was born in Rourkela, a small town with only one notable feature - the steel plant. Dad in SAIL, mom a school teacher, an upbringing no different from thousands of steel town kids in the 1970s. After class 10, the family shifted to Delhi and he enrolled in DPS, a “shiny, big city school.” A reasonably good student, Shantanu joined Shri Ram College of Commerce. And that's when it first became evident, ‘this guy is different.’ “Whenever my dad used to travel, he used to buy me books. In fact, I don't remember getting any presents except books. I used to read voraciously. And probably that unlocked something in the mind. Big thinking, big horizon and so on.” “Secondly, when my dad retired and wanted to come and settle down in Delhi, he found that he didn't have enough money to buy even a DDA flat. Right! So somewhere at the back of my mind I thought that if I need to make money, then working in a job is probably not going to do it for me.” While at SRCC, Shantanu started a company along with a friend. The business was organising rock music concerts. Not that he had any particular fascination for rock music but it was a good opportunity. “We used to collect sponsorship from companies, do these events and shows in hotels and sell tickets. We made a lot of money.” How much? Rs 4-5 lakhs - truly a lot of money 20 years ago! “I thought I was completely rich. And then the stock market bug bit me. So I used to be on the floor of Delhi Stock Exchange, every single day for almost two years. Till I lost all the money! And I thought it was really cool you know - we were not going to college, doing things which were more 'adult'. It was just a completely different rush.” ROCK WITH IT, Shantanu Prakash (PGP '88), Educomp ROLL WITH IT 02_Rock with ITjuly4edit.qxd 7/19/08 2:21 PM Page 20 21 ROCK WITH IT, ROLL WITH IT Shantanu got into IIM Ahmedabad although he was actually more keen on FMS Delhi. “(Laughs) Honestly at that time I didn't know what this whole MBA thing meant Someone from our event management company flew down to deposit the form in Ahmedabad, because it was too late to post it. So it was all a last minute kind of a thing.” Shantanu joined IIMA, even as the event management business back in Delhi continued to flourish. A contract had been signed with Thums Up to do a series of concerts all over India. A concert in Bombay was yet to be staged. “Every weekend, in the first year of IIM Ahmedabad, I used to go down to Bombay and work with my friend organising this concert. It was a great hit. We got Remo to perform, it was held in a hotel in Bombay and one time when I came back, I had this board outside my dorm room in D-14, saying ‘Visiting Student’.” “So I had a complete ball during the two years in IIM Ahmedabad. Honestly, I didn't take it very seriously in the first year. Then in the second year, I said okay, let's see the curriculum, what it's all about. I always had this bindaas outlook. Why are these kids studying so hard, what is there to take so seriously here, you know! That sort of a thing.” And at the time salaries from campus weren't exactly stratospheric. Shantanu recalls that 17 of his batchmates joined Citibank at salaries of Rs 7-8,000 a month in 1988. Not surprisingly, Shantanu did not go for placements at all.With his friend and partner from the event management business he launched a company focused on education.The idea was to set up computer labs for schools. The business model was innovative - the schools did not invest. They only paid a monthly fee for every student who used the lab and signed a multi-year contract. “That was the time when IT was coming into schools. So there was this whole mystery around IT. When we went and spoke to school principals, they welcomed us with open arms saying these guys know more about how to retrofit a computer lab in the school than we do. So we actually got off to a great start. Lots of schools.” In two years, the company did 50-60 schools and boasted a couple of hundred employees. The turnover was Rs 4-5 crores. Again, huge for 1990. But, there were ideological differences among the partners. “I wanted the company to go in one direction, he wanted to go in another. But we were great friends, we are still very thick.” 02_Rock with ITjuly4edit.qxd 7/19/08 2:21 PM Page 21 22 STAY HUNGRY STAY FOOLISH Shantanu decided to do something on his own. The partner kept the company and pretty much all the money, while he made a fresh start. The year was 1992. Educomp started very small. And with a different focus. Instead of hardware, Educomp went into software. The first product it launched was a ‘School Management System’, an ERP of sorts for schools which took two years to build. On paper it seemed like a phenomenal market to automate schools - there is a real pain that you are trying to address. But it wasn't a very successful product. After getting the product into 10 schools Shantanu realised that every school wants customisation. And they don't want to pay for the customisation. “All the stuff they teach you in terms of case studies at IIM Ahmedabad, all that is really relevant. But while on campus you appreciate none of it because you haven't gone through the grind. Not understanding what running a business means, you later relearn all those lessons the hard way.” Besides, Educomp started its life with zero capital base. “So one day you just opened shop, sat in one room with a computer and started?” I ask. “Yeah, almost like that. I had two employees in the very beginning.” “What about the two years that went into developing the product?” “A few school computer lab contracts kept some cash coming in” he says. “But the focus was on building this piece of intellectual property. Even before it was fully developed, we started going to the market and selling the product. And I think I am quite a good salesperson. So I managed to convince a number of schools to buy it and business started growing.” Eventually the product was abandoned and Educomp expanded into digital content for schools, and subsequently into e-learning. Today if you look at the product portfolio, the company has footprints in almost every space from KG to class 12. You don't need any capital to start, you can start with zero capital. If you have capital, great. If you don't, it doesn't mean you can't start. 02_Rock with ITjuly4edit.qxd 7/19/08 2:21 PM Page 22 23 ROCK WITH IT, ROLL WITH IT “But you are making it sound so easy,” I protest. “From 1992 to 2006 (when Educomp got publicly listed) what was the process that you went through?” “Honestly speaking, for me it wasn't a difficult process at all. And I think it's more a mindset issue than anything else.” “I remember, the first office didn't even have a fan. But I didn't seem to mind at all at that point in time. I was so completely obsessed with what I was doing and what I was building. So every single year of my life when I look back, I thought, that was the coolest year of my life. That I was doing the most significant things that I could ever hope to do.” “And that basically translates into being happy. So one way to describe myself would be, you know, an eternal optimist. When you are an optimist some of the external environment stuff doesn't really bother you. It never bothered me.” Getting into the details of how the company grew, it was slow.Very slow initially. In 1998, six years after starting, Educomp’s revenues stood at Rs 3.5 crores.Then the company started growing. In the year 2000, the topline was around Rs 12 crores. Then it really took off and in FY ‘07-08, Educomp clocked revenues of Rs 276 crores, with net profits of Rs 70 crores. Did something happen at the Rs 4 crore level, due to which the company started growing 50-60%? Because a lot of people start a business but most of them are never able to work that scale-up magic. Shantanu believes there are two questions which need to be asked: a) Is the business inherently scalable ? b) Is the market opportunity large enough? Entrepreneurs are smart people, they manage the risk-reward equation very well. With an IIM Ahmedabad degree, the risk is not much. You can always go and start something. If it doesn't work out, somebody will give you a job  02_Rock with ITjuly4edit.qxd 7/19/08 2:21 PM Page 23 24 STAY HUNGRY STAY FOOLISH “In our case, the solutions that we were offering were technology based, so they could easily be scaled up. Secondly, the universe of opportunity in India is phenomenal. There are 220 million kids going to school. There are one million schools, five million teachers, all of that stuff.” “So even today, the market penetration levels are less than two per cent. And Educomp can keep growing 100 per cent over the next 10 years. Without reaching a saturation point.” Additionally, the market started responding favourably to digital content. “It could have happened 3-4 four years earlier, it could have happened 3-4 years later. As far as we were concerned, we were passionate about it and believed this was the way to improve the quality of education.” 75% of Educomp's revenues today come from licensing content to schools - helping teachers do their job better. To grow, you need people. Good people. Of course all companies start with just a few, with the founder managing all the strategic functions. The question every entrepreneur grapples with then is, how can I get more people as good, or better than me? “I wanted to work with high quality, smart people. But the problem was, the high quality smart people didn't want to work with me… So it was a lot of struggle.” One of the many reasons Educomp was eventually able to attract talent was because people easily become passionate about education. “The trick is to identify the DNA in a person, where he or she wants to do something different, and wants to be differently incentivised. It means not just a big fat salary cheque, but things like stock options, feeling of partnership, being part of a start-up organisation, fast growth, all of that. That’s how I was able to get some really good people as partners.” Almost all of whom are still with the company. There are 4,000 employees at Educomp but the attrition rate is amazingly low, at less than three per cent. Aisa kyun? “People are happy, I would like to believe that. And the company is growing 100 per cent a year, we are now five times larger than our nearest competitor in India in this space so where do you want to go!” With the company going public, Educomp today has at least 25 employees who are dollar millionaires. Like all new generation entrepreneurs, the secret sauce of stickiness lies in sharing the 02_Rock with ITjuly4edit.qxd 7/19/08 2:21 PM Page 24 25 ROCK WITH IT, ROLL WITH IT wealth. And the heat of growth is fuelled by a timely dose of venture capital. Educomp received $2.5 million of venture capital in June 2000. It wasn't much of a struggle given the IT and dotcom boom at the time. The funding was wrapped up in two months. Did life change after the funding? “Practically - nothing. The canvas was always large. With more money you can just buy more paint and do a better painting.” Six years later when more funds were needed for expansion, Educomp decided to raise the money through an IPO. “Our company had reached a critical size, and we thought that capital markets are ready. A lot of people ask us, ‘Why did you take your company public at the small size that you had?’ Rs.50 crores in sales. We are very happy we took the company public rather than take private equity money.” The important thing is that Educomp went IPO at the right time in its growth curve. Since then the company has been growing 100% a year. But 20 years into the business, isn't a sense of fatigue setting in? “No, my role is changing, the company is changing, we have a phenomenal growth opportunity in front of us. Educomp is valued at about one and a half billion dollars (as of May 2008). I think we can be a ten billion dollar company in the next three years. So I am certainly there, in charge, driving growth for the company.” There are new thrust areas. For example, Educomp is now building schools. The company will invest Rs.3,000 crores in the next 2-3 years to set up 150 odd schools in India. The company is planning to get into higher education as well as making acquisitions outside of India. “So again, this is the most exciting year that we have ever had. But I felt the same way in 1995!” There's the whole romantic aspect of taking your company, your creation to new heights. The desire to see your company doing better and better and better. And there is always a 'next milestone'. It's all about being an eternal, insane optimist. I never had the dilemma: Am I doing the right thing? Should I just shut this down and go take up a job? Never! 02_Rock with ITjuly4edit.qxd 7/19/08 2:21 PM Page 25 [...]...02_Rock with ITjuly4edit.qxd 7/19/08 2:21 PM Page 26 STAY HUNGRY STAY FOOLISH “Being an entrepreneur is the art and science of creating value.” “Milestones certainly keep one active and moving But I think for me personally, understanding how value is created is... - ‘Is the opportunity big enough, are you able to make a contribution and fundamentally change something that generates value?’ 27 03_The Cat wtih Nine Livesjuly4dit.qxd 7/19/08 2:30 PM Page 28 STAY HUNGRY STAY FOOLISH THE CAT WITH NINE LIVES Vinayak Chatterjee (PGP '81), Feedback Ventures Vinayak quit his job at Pond’s because he didn’t see the point of selling soap for the rest of his life Originally... relationships you've built and the trust you've deposited in the Goodwill Bank which you will draw on To get that second lease of life 29 03_The Cat wtih Nine Livesjuly4dit.qxd 7/19/08 2:30 PM Page 30 STAY HUNGRY STAY FOOLISH THE CAT WITH NINE LIVES Vinayak Chatterjee (PGP '81), Feedback Ventures Vinayak Chatterjee was brought up in a small town, about 40 kilometres outside Calcutta His father was a production... realised that I had some weaknesses I am not a details guy I am better at strategy, marketing and networking than operations In 33 03_The Cat wtih Nine Livesjuly4dit.qxd 7/19/08 2:30 PM Page 34 STAY HUNGRY STAY FOOLISH those days I believed I didn't know finance also So I said if you have to start a business, let's put together a group of like-minded people who also complement each other’s strengths.”... education does is provide you a perspective But it doesn't force you to work for anybody else It's an education degree, that's all.” 35 03_The Cat wtih Nine Livesjuly4dit.qxd 7/19/08 2:30 PM Page 36 STAY HUNGRY STAY FOOLISH also IDFC These are the two biggest shareholders and the chairman is common - Deepak Parekh And he took a lot of interest in Feedback, guided the company, suggested it should go for... “And somewhere you realise it is divine intervention.You realise, that apni aukaat se you can only do so much, and you will make 37 03_The Cat wtih Nine Livesjuly4dit.qxd 7/19/08 2:30 PM Page 38 STAY HUNGRY STAY FOOLISH mistakes in life But if you are honest to your purpose, you've never cheated anybody and you show clear focus, commitment, there are people in society who will go out of their way to... without desire But be prepared to stick it out Remember Narayana Murthy's quote: “It has taken me 25 years to become an overnight wonder.” 39 04_Software Cowboysjuly4edit.qxd 7/19/08 3:58 PM Page 40 STAY HUNGRY STAY FOOLISH SOFTWARE COWBOYS Ashank Desai (PGP '79), Mastek In the early ‘80s, much before IT was a buzzword, Ashank Desai set up Mastek along with a couple of friends Mastek was the first company... may not have managed to smuggle out anything of value to customs, but two hours with Ashank left me feeling richer for the experience 41 04_Software Cowboysjuly4edit.qxd 7/19/08 3:58 PM Page 42 STAY HUNGRY STAY FOOLISH SOFTWARE COWBOYS Ashank Desai (PGP '79), Mastek Ashank Desai came from a family where becoming a professor, doctor or engineer was the ultimate goal Yet he had the keeda of entrepreneurship... Richardson Hindustan were manufacturers of Vicks It was a product whose peak demand was in June, July and August (cough and cold season, so 43 04_Software Cowboysjuly4edit.qxd 7/19/08 3:58 PM Page 44 STAY HUNGRY STAY FOOLISH “When Mastek had its IPO, software was not known to brokers Many of them asked, ‘Do you make floppy disks’?!” to speak) The dilemma they faced was whether to manufacture in advance and... business But it was clear that high growth would be possible only through exports The question was, how does one crack the overseas market? 45 04_Software Cowboysjuly4edit.qxd 7/19/08 3:58 PM Page 46 STAY HUNGRY STAY FOOLISH “The other strategy was to divide the project into many micro steps so that every delivery gets some money In time some banks started giving credit against invoices.” The team had no . in another. But we were great friends, we are still very thick.” 02_ Rock with ITjuly4edit.qxd 7/19/08 2: 21 PM Page 21 22 STAY HUNGRY STAY FOOLISH Shantanu decided to do something on his own. The partner. is more interesting than the building itself. * as of May 20 08 02_ Rock with ITjuly4edit.qxd 7/19/08 2: 21 PM Page 19 20 STAY HUNGRY STAY FOOLISH Shantanu Prakash was born in Rourkela, a small town. If it doesn't work out, somebody will give you a job  02_ Rock with ITjuly4edit.qxd 7/19/08 2: 21 PM Page 23 24 STAY HUNGRY STAY FOOLISH “In our case, the solutions that we were offering were