Vol 1 / Issue 02 / Nov 07
a
publication
/Rs 30/-
Kiran Mazumdar-Shaw:
Build your big dream in stages How to get VC funding Organic farming Dreaming big for Darjeeling Opportunities in telecom infra
entrepreneur of the month/
Shahnaz Husain unique idea of the month/
Timond Watches CASE STUDY - Ittiam
6000 crore in waste management
Prepare yourself to start a company Women entrepreneurs: what does it take to succeed?
Vol 1 / Issue 01 / OCT 07
BOARD OF ADVISORS C K Prahalad
University of Michigan
N R Narayanamurthy
Chief Mentor, Infosys
Kanwal Rekhi
Chairman, TiE
Romesh Wadhwani Chairman & President, Wadhwani Foundation Gururaj ‘Desh’ Deshpande
Chairman, Sycamore Networks
Saurabh Srivastava Chairman, Indian Venture Capital Association Kiran Mazumdar Shaw
Chairman & MD, Biocon
R Gopalakrishnan
Executive Director, Tata Sons
Philip Anderson
Professor of Entrepreneurship, INSEAD
Shyam Malhotra Editor-in-Chief Krishna Kumar Group Editor ANALYSTS Arunjana Das Binesh Kutty Shilpi Kumar Sreejiraj Eluvangal Vimarsh Bajpai
/icon
Build your big dream in stages
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OPERATIONS Ajay Dhoundiyal Product Manager VIjay Rana Design Anil John Photography SALES & MA Jaideep Mario Gabriel Chandan Sengupta Himanshu Bakshi Raghavendra Naveen Barsainya
MARKETING Associate VP West North North South South-East Asia
PRINT & CIRCULATION SERVICES NC George Associate VP T Srirengan GM, Print Services Sudhir Arora Circulation Services Manager Dipesh Kothari Reader Services Manager Pooja Bharadwaj Assistant Manager, Reader Service Sarita Sridhar Assistant Manager, Reader Service Printed and published by Pradeep Gupta. Owner, CyberMedia (India) Ltd. Printed at Rajhans Enterprises, th 134, 4 Main, Industrial Town, Rajajinagar, Bangalore 560010. Published from D-74, Panchsheel Enclave, New Delhi-17. Editor: Krishna Kumar. Distributors in India: Mirchandani & Co, Mumbai. All rights reserved. No part of this publication may be reproduced by any means without prior written permission. BANGALORE 205, 2nd Floor, # 73, Shree Complex, St.Johns Road, Tel: 41238238 CHENNAI 5B, 6th Floor, Gemini Parsn Apts, 599 Mount Road, Tel: 28221712 KOLKATA 307, 3rd Floor, Ballygunj A.C. Market, 46/31/1 Gariahat Road Tel: 65250117 MUMBAI Road No 16, D 7/1 MIDC, Andheri (East) Tel: 28387271 DELHI D-74 Panchsheel Enclave Tel: 41751234 PUNE D/4 Sukhwani Park North Main Road, Koregaon Tel: 64004065 SECUNDERABAD #5,6 1st Floor, Srinath Commercial Complex, SD Road. Tel: 27841970 SINGAPORE 1, North Bridge Road, # 24-09 High Street Center Tel: +65-63369142 CORPORATE OFFICE Cyber House, B-35, Sec 32, Gurgaon, NCR Delhi-122001. Tel: 0124-4031234, Fax: 2380694.
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How to get VC funding What is it that VCs are looking for? What are the disconnects between entrepreneurs and VCs? How do you bridge this gap?
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opportunity/idea others/ Marks of trust! ........................ 102
88
Quality marks can give you an edge in business
Regulations: A long way to go ............106 The Doing Business 2008 report by the World Bank says India has a long way to go
India’s most exclusive club ........... 109 entrepreneur of the month
Indians in the Forbes List of Billionaires makes for an interesting study in the evolution of the economy
case study/INSEAD
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Downstream opportunities in telecom Mobile spectrum release will open up new prospects for infrastructure players
Shahnaz Husain It is important to have a dream. With that, there must be total faith and confidence in one’s abilities
opportunity/
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This case study traces the evolution of Ittiam Systems and its path to become a leader in the chosen space
society/ Biz skills & language: their bane ....... 50 blogs/columns Anurag Batra ........... 48
Traditional craftsmen are held back not just by access to resources
Philip Anderson ........ 35 opportunity/
Rupin Jayal................... 60
Waste management
coming soon
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Scientific management of household waste holds the promise of a Rs 6,000 crore opportunity
DARE.CO.IN interactive business models,
wiki profiles, business
graph of the day, idea
pic of
the day, sector spotlight, blogs, news, discussion fora, keyword based alerts, rss feeds, contacts,
mentoring, market trends, webinars,
newsletters, live chat,
opinion polls,
leads, slideshows,
professional guidance,
search, on demand,
archives, event calendar, research, directories, faqs
opportunity/
Organic farming Like regular agriculture, this sector is highly fragmented and lacks mature players with scale. Global market is set to quadruple in the next decade
96
opportunity / Dreaming big for Darjeeling ...........26 Contract manufacturing .................38 Outsourced investment research ...84
campus / Fresh help for startups ..................92
TiEtalk / Feeding fuel to fire .......................104
NOVEMBER 2007 5
KNOWLEDGE 25 years ago, India’s first IT magazine, Dataquest, was born. And that started CyberMedia’s journey as a specialty media house dedicated to the knowledge industries. Our 15 publications, 12 websites, 100+ events, weekly TV programs, market research and media services are a testament to that. As India moves on its journey to become the knowledge capital of the world, CyberMedia will be at the forefront. Catalyzing the knowledge industries.
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blogs/edit
Matching ideas and funds Would it make sense to have a back-to-school program, wherein successful entrepreneurs adopt good ideas from colleges, maybe from their own alma maters and help them grow big?
R
ecently I was at two events. The participants in the first one were established business men, each with businesses in the Rs 100 crore plus range. I was speaking to them about the huge opportunities that are opening up all around us. One senior member of the crowd put up his hand and asked a simple question – Can you tell me where I can get good ideas from? I have the money and am searching for ideas. The rest of the group seemed to echo his view. The second group I addressed was a set of B School students. All of them were brimming with ideas and wanted to know only one thing—where can they get funding from? Obviously, there is a disconnect waiting to be bridged. Would it make sense to somehow get the two together? Would it make sense to have a back-to-school program, wherein successful entrepreneurs adopt good ideas from colleges, maybe from their own alma maters and help them grow big? Talk to any VC and you hear them say that out of the hundreds of project proposals they get, only a few catch their attention, much less get funded. A back to school program like the one I am talking about could improve this ratio manifold. Throw in some mentoring and the rate of success too could increase manifold. Before I end, thank you very much for the enthusiastic welcome that all of you gave to our first issue and to all the feedback you have provided. We are trying to incorporate your suggestions starting this issue onwards. Whereever possible, I will personally be replying to your messages. Thank you once again and I hope that you will continue to welcome us the same was as you did our first issue.
/Krishna Kumar
NOVEMBER 2007 7
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/feedback
Feedback I looked up the DARE magazine at Delhi airport yesterday. Good show. Highly readable. Keep it up. Wish you all the best for its success. Vidyanand Jha, Associate Professor, IIM Calcutta
Congratulations for the launch of “DARE”. I do hope it will serve and be the encyclopedia for entrepreneurs who want to come up and become successful. The first issue was an interesting read. But writing about and harping on the success of entrepreneurs who have made it like Narayana Murthy and others like him is nothing great. You are writing what others write but in a different English language. Let’s face it. When you name your magazine “DARE” you should be writing about how to overcome the common obstacles faced by an upcoming entrepreneur, encourage, give guidance and show the path to sourcing VC funding, licensing, etc. A list of VC companies with their complete details and other agencies and banks, who would help on how to make the application for funding; what the VCs ask for, what are the general terms and conditions of VC funding and what they want in return, would be more appropriate to write about when you name it “DARE”. Could you please write about list / websites of VCs that will fund from Rs 1 crore up to Rs 10 core to a young entrepreneur? DARE to be different to write about. Don’t waste time and money writing about success stories written times and over to fill your pages. Look forward to more informative details in your next issue. Ramesh R Salvi, Chief Executive, Trustin Brands Marketing 10
NOVEMBER 2007
We have the article on how to approach a VC for funding in this issue. As for the contact details, you can get them through a quick google search or a visit to the National Entrepreneurship Network site –www.nenoline.org (you need to register).
I am a budding entrepreneur who is now undergoing incubation at a Tech Business incubator, NirmaLabs Ahmedabad. I was eagerly waiting for your magazine, DARE, targeted at entrepreneurs. I must say that you didn’t disappoint us. It has a unique style of presentation, be it the design or selection of articles. I hope it would be another golden feather from Cybermedia publications. I saw an article related to business incubators in DARE. But your first choice was not the best choice. We would always rate IIT Bombay as the number one incubator for early stage companies in India. IIT-D is nowhere near. Also, if startup incubators (starting from scratch) were your criteria, then NirmaLabs would have been the first choice because of its model and people associated with it. I hope you would give due importance to major players in this field. One suggestion: Sooner or later, you should bring out an article stating the importance of mentoring in a business incubator, apart from the funding. I wish all the best and offer cooperation for your new venture. Leo S Mavely, NirmaLabs The example we used was just that, an example. We are sure that we will have occasion to talk about all the major players and how to get associated with them. We had briefly discussed mentoring in the article. A more elaborate one is in the works.
I started my own business with very less capital about two years back. I happened to read DARE and was pleasantly surprised. For the first time I found some material which was teaching and not preaching. Through DARE you have addressed many issues which people like me have had questions about, giving us clarity about them. You have found in me a fan for sure. Congrats and keep it up. Gaurav Vora, Black Sheep Ventures
Via SMS - DARE 56677 Brilliant magazine just got it and couldn’t put it down. India needed something like this. Please don’t use too many acronyms. Or at least expand it once on first use. I liked your first Issue. Good work. Last E should be in blue color. Loved the interview with N R Narayana Murthy. Thank You very much for DARE, at such an affordable price. Excellent publication. Very inspiring. Must say it’s rather overdue. Vijay Kr Korath It’s really a wonderful guide. I have ideas but lack capital. What should I do? Rakesh sharma The story on venture capital this month will surely give you a few ideas on how to seek capital.
news
news
/news
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200 million to shift to processed food by 2010 India has over 1.10 billion consumers and there is a largely untapped domestic market of 1,000 million consumers in the food processing sector and 200 million more consumers are expected to shift to processed food by 2010, according to Union Minister of State for Food Processing Industries, Subodh Kant Sahai. The minister said there were many areas for investment in this sector. These include Mega Food Parks, Agri-Infrastructure, Supply Chain Aggregation, Logistics & Cold Chain Infrastructure, Fruit and Vegetable Products, Animal Products, Meat and Dairy, Fisheries & Seafood, Cereals, Consumer Foods/Ready to Eat Foods, Wine and Beer and Machinery/Packaging. He said the Indian government was giving priority to this sector.
India second most attractive FDI destination India is the second most-attractive destination after China for global foreign direct investment (FDI) in 2007. According to UNCTAD’s world investment report, India’s ranking in inward FDI performance index has also improved to 113 in 2006 from 121 in 2005. China is the most preferred investment location, followed by India, the US, Russian and Brazil, the report said. The share of India and China in total global FDI outflows has also risen. While both accounted for 10% of total FDI outflows in 2005 in the Asian region, it increased to 25% in 2007. While China’s outflows increased 32% to $16 billion in 2006, Indian outflows witnessed a four-time rise since 2004.
Bessemer Venture Partners expands India team Bessemer Venture Partners, a global investment group, has appointed Devesh Garg as Managing Director of Bessemer Venture Partners India. Garg has moved from California to join the existing nine person Mumbai based investment team. In June, Bessemer closed its latest $1 billion global fund with $350 million. NOVEMBER 2007 23
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/news
13 new SEZs get clearance
Nath for easing of export regulations to EU
The Board of Approval of the Special Economic Zones (SEZs) has recommended grant of 10 formal and 3 in-principle approvals. According to the Chairman of the Board, so far, formal approvals have been granted for setting up of 395 SEZs. He said that out of these, 156 SEZs have been notified and investment of Rs 50,906 crore has taken place in these notified SEZs providing direct employment to over 72,168 persons. Those given the go-ahead include an IT/ITES SEZ by Tata Consultancy Services in West Bengal.
Union Minister of Commerce and Industry Kamal Nath has called for easing of Phytosanitary regulations with regard to export of floriculture and dairy products from India to the European Union. During the bilateral meeting with the Dutch Minister for Economic Affairs, M J A van der Hoeven recently, Nath said that floricultural consignments from India are subject to 50% mandatory checks which are carried out randomly while imports from countries in Africa are subject to only 2% checks. Similarly, the export of dairy products from India into the European Union is permitted only from approved list of plants. “We would appreciate if the Dutch could assist in helping to create a level playing field for our exporters on these issues at the EU level”, the minister stated.
Banks urged to provide collateral-free loans Government has asked banks to provide collateral-free loans of up to Rs 5 lakh to entrepreneurs to motivate them to initiate small businesses, Chandrapal, Secretary, Ministry of Micro, Small & Medium Enterprises (MSME) has said. Inaugurating the National Conference on Employment through Entrepreneurship Development and launching the Entrepreneurship Development Scheme of the MSME on October 16, he urged entrepreneurs to take benefit of various programs and schemes offered by the Central Government. Chandrapal said the MSME was taking a number of steps to help promote entrepreneurship through three premier National Entrepreneurship Development Institutes. These include National Institute for Entrepreneurship & Small Business Development and National Institute for Micro, Small & Medium Enterprises.
IIT Delhi implements innovation project The Foundation for Innovation and Technology Transfer (FITT), IIT Delhi is implementing a project called ‘Innovation Fund: Technopreneur Promotion Programme’ (TePP), jointly supported by the Department of Scientific and Industrial Research (DSIR) and Technology Information, Forecasting and Assessment Council (TIFAC). The aim of this project is to extend financial support to individual innovator, for converting his/her innovative ideas into working prototypes or models. Any innovative Indian with an original idea/ invention/ know-how, is eligible for support under TePP.
SKILLS project to focus on new vocations The Department of Science & Technology in coordination with the United Nations Development Program (UNDP) has taken an initiative to impart skills in new and innovative vocations. The project, called ‘Skills and Knowledge for Improved Livelihoods and Living Standards (SKILLS) is being implemented for promoting new training curriculum and facilities in the emerging technology skills to youth. A portal developed by JSS Academy of Technical Education-Science & Technology Entrepreneurs Park, has also been launched. 24
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IMF lowers India’s growth projection The International Monetary Fund has slightly lowered its projection for India’s economic growth to 8.9% during 2007 from its earlier estimate of 9%. However, the multilateral agency said the growth could beat its forecast on the back of higher investments and corporate profits. In its World Economic Outlook Report, IMF said the Indian economy could grow at 8.4% during 2008. According to IMF, Chinese economy would grow at 11.5% in 2007 and 10% next year. DAR E
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opportunity/agri
Dreaming big for Darjeeling If France can build a multi-billion dollar tourism industry around wine and Champagne tours; why can’t we build one around Darjeeling tea? /Krishna Kumar
W
hat comes to mind when you think of Darjeeling? Tea. Right? Darjeeling produces about ten million kg of tea every year (it is another fact that about four times that amount gets sold as Darjeeling tea), that gets sold globally for about half a billion dollars. So, where is the billion dollar opportunity that we talked about? To understand that, you need to stop thinking about tea and instead think of wine! Which country is most famous for wine? France. And which is the most famous type of wine? Champagne. The beauty of Champagne
Geographical Indication A geographical indication is a sign used on goods that have a specific geographical origin and possess qualities or a reputation that are due to that place of origin. Most commonly, a geographical indication consists of the name of the place of origin of the goods. Agricultural products typically have qualities that derive from their place of production and are influenced by specific local factors, such as climate and soil. A number of treaties administered by the World Intellectual Property Organisation (WIPO) provide for the protection of geographical indications…Articles 22-24 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) deal with the international protection of geographical indications within the framework of the World Trade Organization (WTO) —World Intellectual Property Organization
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is that not everyone can call their wine Champagne. It is a Geographical Indication. Champagne gets its name from an area about 160 km east of Paris. And only wine produced in this region, using in-bottle secondary fermentation can be labelled Champagne. Champagne comes from about 32,000 hectares of vineyards, from about a hundred Champagne houses. Now, that is not the only business that Champagne does. Welcome to the world of Champagne tasting and Champagne tours. While Champagne tasting sessions can be organised across the world, what we are interested in are the Champagne tours. These are visits to the Champagne vineyards and cellars that range from short day time vis-
its from Paris to extended tours, fitting all kinds of budgets and tastes. A quick daytime trip, like the one offered by Viator will cost $168 (Rs 7,000) and includes two glasses of Champagne, lunch, visits to two cellars including the famous Moet and Chandon cellars and visits to vineyards. On the other end are luxury tours, running into many days, the high point of which are the exclusive tasting sessions where a variety of Champagne labels are laid out for sampling along with gourmet food. Arblaster & Clarke of UK, for example offers a four-day ultimate Champagne tour that includes first class Eurostar travel, and meals as guests of various vineyards and Champagne houses. Highly qualified guides are also included in the package, which
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opportunity/agri costs £1949 (Rs 1.62 lakh) per person on twin sharing basis! Like Champagne, Darjeeling tea is also a geographical indication and has the potential for spawning off a secondary tourism business. For tea to become Darjeeling tea, it has to be grown in one of the 86 tea estates within the defined regions in the three hill sub-divisions of Darjeeling, Kurseong and Kalimpong. The opportunity that we are talking of arises not from selling Darjeeling tea, but from selling the experience of Darjeeling tea. Think of tea tasting trips that also take the connoisseur behind the scenes to see how Darjeeling Tea is made, and maybe even give him a first-hand experience in plucking the very leaves from which this “Champagne of black teas” is made! Are we comparing tea to wine? No. We are comparing two experiences, and arguing that the tea experience could be as intense and as alluring as the wine one, in its own setting, to its own audience. And the idea is not exactly new. Kevin Gascoyne, who according to his website darjeelingtea.net, “when not in Darjeeling, hosts various educational presentations on the cultivation, production, and tasting of Darjeeling tea” offers tea tasting sessions in Montreal and Quebec charging $15 (Rs 630) per person.
ni, a busy PR professional who prefers his wine to be red and tea over coffee was willing to spend anywhere between 30k and 40k for the whole Darjeeling tea experience, organised well! There would of course be limitations to this idea taking off. The website darjeelingnews.net states that the “lease contracts between the tea garden owners and the state government do not provide for any tourism-related activity in the gardens and the contracts neither
BIG IDEA/USE THE “GEOGRAPHIC INDICATION” OF DARJEELING TEA TO SELL MORE THAN JUST TEA. PACKAGE THE DARJEELING EXPERIENCE INTERNATIONALLY Darjeeling tea comes in four flushes or seasons, each with its own subtle variation in taste. So, tea tasting trips or rather Darjeeling tea experience trips and festivals could be held virtually round the year. Now, add to this, a ride in the Darjeeling Himalayan railway “toy train” that is on the UNESCO World Heritage List to the package and you can clearly see the
contours of a tourist offering that is second to none. Till January this year, the North Eastern Frontier Railways which operates the Himalayan Railway has a charter option, where you could charter an entire train (36 first class passengers) for a ride from Siliguri to Agony point and back for just Rs 41k! Will the concept sell? We did a quick dipstick. To quote one example, Ashwi-
allow the garden-owners to make new constructions within the prescribed area nor use a section of it for purposes not mentioned in the contract.” But if all - Tea Board, planters associations, government, entrepreneurs – pull together, we could build an industry that brings a billion dollars into Darjeeling. The question as usual is— DAR E who will bell the cat?
NOVEMBER 2007 27
THE Y
C H AN G E D
DARE.CO.IN Continued from October
T HE
W AY
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DR. PRATAP REDDY He gave Indian healthcare a corporate dose, virtually creating the private healthcare industry. This doctor-businessman has since rewritten the norms of patient care and has helped modernise healthcare in the country. His pioneering efforts have also put India on the world map as a healthcare destination. 29
AUGUST 2007
DO
BUS INE SS next:/page 73 guide legal
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Earn Rs
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NOVEMBER 2007
opportunity /waste
6,000
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opportunity /waste
crore to clean this muck
Scientific management of household and industrial wastes is yet to find a place in India, but you just need to look at waste in a new light to unearth a Rs 6,128 crore opportunity /Vimarsh Bajpai
NOVEMBER 2007 31
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t the break of dawn, more than 100 laborers silently slip out of their modest dwellings in Noida to begin their day’s work. With plastic bags hung loosely on their shoulders, these migrants from Bihar and West Bengal criss-cross the streets collecting 40 tons of garbage, which is only a small pie of the 300 tons of waste the city produces every day. Loading on to 80 manual rickshaws and 8 trucks running on bio-diesel, they dump the waste at the segregation site of Eco Wise, a company that specializes in waste management. Brainchild of 25-year old entrepreneur, Manik Thapar, Eco Wise was started two years ago. The idea came from a project on waste management undertaken by Thapar while studying for his MBA in the US. “I realized the business potential in waste management and decided that on returning to India, I will start the business myself.” Thus Thapar set up Eco Wise. The company covers the full cycle of the waste management, business, which involves solid waste collection, transportation, segregation, treatment and disposal. At his treatment plant, he converts organic waste into compost to be sold in the open market, while recyclable materials are sold to companies who need it. Starting by covering two housing blocks equaling 3,800 households, today Thapar covers 20,000 houses, two malls and one hotel. This converts to about 40 tons of garbage, out of which, 60% is organic waste, 25% is recyclable and 15% is inert.
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opportunity /waste DARE/estimates Delhi Solid Waste Market Solid waste generated in Delhi / day Total waste generated / Year Organic/composed waste (60%) Recyclables (25%) Inert (15%)
6,000 tons 2,190,000 tons 1,314,000 tons 547,500 tons 328,500 tons
Revenue from collection Each household monthly collection Quantity 0.06 tons Collection Charge 25 Rs / month Each household yearly collection Quantity 0.72 tons Collection Charge 300 Rs / year Yearly collection Quantity
2,190,000 tons
Collection Revenue
Rs 91 Crore
Compost prepared from organic waste Quantity 1,314,000 Ton Sale price of compost (in rupees per ton) Rs 5,000 Revenue from sale of compost Recyclable from waste Quantity Sale price of recyclables (in rupees per ton)
Rs 657 Crore 547,500 Ton Rs 5,000
Revenue from sale of recyclables
Rs 274 Crore
TOTAL SIZE OF OPPORTUNITY IN DELHI
Rs 1,022 Crore
The Business Solid waste management is a relatively new concept in India, compared to the west where it is a highly organized business. The typical business model involves collection, transportation, segregation, treatment and disposal of waste. And there is oppor-
tunity hidden in each step. So, while planning a business in waste management, an entrepreneur may consider either offering end-to-end solution or focusing on one segment. Unfortunately, in most developing countries including India, waste management mostly means picking up waste from residential and industrial areas and dumping it at landfill sites. Waste collection is usually done on a contract basis. For instance, resident welfare associations and municipal corporations pay a certain amount of money to a contractor for collecting garbage daily and disposing it off in a landfill. “In Delhi, landfills are in a terrible state. In fact, in our country, most landfills are merely dumping grounds,” says Satish Sinha, Associate Director, ToxicLink, an environmental NGO. In Delhi, three private companies – Delhi Waste Management, AG Enviro and Metro Waste – collect, transport and dump waste at landfill sites, which are located at Okhla, Gazipur and Bhalaswa. Landfill sites in Bhalaswa and Gazipur are almost saturated. “We collect 1,200 tons of waste every day and cover central and south zone,” says S K Chadha, GM, Delhi Waste Management, a subsidiary of Subhash Projects. An ideal landfill has to be properly designed depending on the type of waste being disposed of. A well-designed landfill is hygienic while a badly designed one could be a pollutant and result in the release of greenhouse gases. It could even pollute ground water and surface water. Another method of waste management is by incineration. This involves conversion of waste into energy
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opportunity /waste through burning. In countries like Japan, Sweden and Denmark, huge quantities of waste is converted into energy, primarily because of scarcity of land for creating landfills. Setting up a waste-to-energy plant may make sense in a power-deficient country like India. According to the Planning Commission, there is a potential of 2,700 MWe of power generation from urban and industrial waste in the country. The eleventh five year plan even targets 400 MW of power generation from wastes. Recycling is another element of waste management and is carried out after segregation of the garbage. Once organic and inert waste has been removed, what remains is recyclable material, mostly PET bottles, cold drink cans, paper cartons and certain types of plastic products. These are sold to companies who recycle such products. In most western economies, segregation of waste is done at the household level and there are fines imposed for mixing organic and recyclable waste. But in India, where a majority of people do not even know the difference between green and blue trash cans kept on road sides, manual segre-
US Solid Waste Management Market • Total market for solid waste management in 2005: $46.5 billion • Growth rate: 4.5% • Share of listed companies: 48% in 2005 • Big players : Waste Management Inc, Allied Waste, and Republic Services
gation at the collectors’ end becomes an important step in the process. Another method of solid organic waste management currently gaining popularity is composting. Organic waste such as food materials can be used for preparing compost. This is then sold to plant nurseries and homes. Natural manure is also used in organic farming. End prices of this compost vary all the way from from Rs 1 per kg to Rs 10 per kg depending upon the method in which the compost is prepared. Windrow composting takes about two weeks and vermi composting takes a month.
The Markets If you thought waste meant only crap, then you need to take a look at the US market. According to a report by Credit Suisse, the total market size for solid waste management in the US was $46.5 billion in 2005 and the industry comprised of publicly owned corporations, privately held companies, and individual municipalities handling their own respective waste was growing at 4.5%. Collection of garbage brought in half of the industry’s revenue, while around 29% came from disposal services with close to two-third of that coming from landfills. Recycling, waste-toenergy plants and other methods of disposal brought in about 12% of the total. These figures vary region-wise. Waste management companies like Allied Waste Industries are listed on the New York Stock Exchange. The industry has seen mergers and acquisition in the
DARE/estimates Opportunity space across the country METROS
tons / day; opportunity per year
Mumbai Bangalore Chennai Kolkata
5,800 tons 2,800 tons 2,675 tons 4,000 tons
Total
15,275 tons
Delhi solid waste generated per day Delhi size of opportunity
6,000 tons Rs 1,022 Crore
Size of opportunity in Delhi + Metros
Rs 3,624 Crore
OTHER BIG CITIES Average solid waste generated per day, per city
12 Cities 600 tons
Waste generated in next 12 big cities
7,200 tons
Size of opportunity in next 12 big cities
Rs 1,226 Crore
Other cities Average solid waste generated per day, per city
25 cities 300 tons
Waste generated in next 25 cities
7,500 tons
Opportunity in next 25 cities
Rs 1,278 Crore
Total size of opportunity in 42 cities
Rs 6,128 Crore
90s and the period of consolidation is more or less over. In India, the market is yet to take shape, thanks to the government’s apathy and our mindset on waste disposal. Let’s take a look at the figures on what we are missing out by not considering waste management as a business op-
• No of listed players in top 25: 14 • Highlight: Waste Management Inc has 50,000 employees. The Texas headquartered company posted revenues of $13.36 billion in 2006
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opportunity /waste
He was sure he wanted to make a living out of dealing in waste, and had initially thought of setting up a waste-to-energy plant in India. Thapar got in touch with an American company, which showed interest in his business plan and was ready to explore further. But bureaucratic hurdles nipped the plan at the drawing board itself. Undeterred by the setback Thapar decided to set up a waste management company instead. The idea was to collect, transport, segregate, treat and dispose off household waste. The plan met with quick resistance from friends and family. “Initially it was tough. Our social system is such that anything to do with waste or garbage is looked down upon,” says Thapar. He had a hard time convincing his near and dear ones that waste management made business sense and that there was potential in this area. Thapar finally succeeded in convincing his father, who lent him 90% of the total seed capital of Rs 1.5 crore. He managed to raise the rest of the money through loans. Why did he not start such a project in the US where he studied? “The US market is extremely organized and capital intensive. Starting anything like this there would have meant a capital investment of $150 million,” he adds. Initial challenges also involved dealing with local contractors who have long been in the business of transporting garbage to landfills. Unsupportive government officials, some even ignorant of the concept of waste management, made Thapar’s life a little more difficult. Thapar took 4 acres of land on lease in the outskirts of Noida. He then bought manual rickshaws and trucks, hired migrant laborers and bought them uniforms. For his workers, Thapar provides free housing and medical insurance. At the waste treatment site, Thapar built low-level rectangular concrete bins for the treatment of waste with worms. He bought about 1,000 kg of worms at around Rs 300 a kg. This was a major investment. Besides this, he bought greenhouse nets, which ensure that only optimum amount of sunlight enters the treatment site. Organic waste converted to compost, is sold in the open market. Recyclables are sent to various companies who buy such materials. portunity. An Assocham study shows that Delhi generates about 6,000 tons of solid waste daily. Mumbai is a close second with 5,800 tons followed by Kolkata at 4,000 tons, Bangalore at 2,800 tons, and Chennai at 2,675 tons. “India is very rich in biodegradable waste, primarily because of our food habits. There is huge potential to generate revenue there. Recycling is another big market,” says Sinha of ToxicLink. At present, collection and transportation of this waste is highly unorganized and is mostly done by rag pickers, small-time contractors, municipalities and some companies such as Delhi Waste Management, a subsidiary 34
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Manik Thapar, Eco Wise
of Subhash Projects and Marketing. As no definite figures are available on the size of the solid waste market, we did our own estimates. Taking Delhi as a sample, our estimates show that collection of the 6,000 ton every day alone could rake in Rs 365 crore. Out of this 6,000 tons, 60% is organic waste, 25% is recyclable material and 15% is inert. Making compost out of biodegradables and selling it in the open market is another Rs 657 crore opportunity. Selling recyclables could fetch in another Rs 274 crore. This totals to a whopping Rs 1,022 crore every year, waiting to be tapped! Now, we extrapolated this figure across different categories to 40 cities that have a population of a million plus and the figures we arrived at were truly mind boggling. Rs 6,128 crore to be made every year! And out of this, revenues from just waste collection is fairly
small at under Rs 500 crore! Obviously, the treasure is not in the trash can, but in what you make out of it.
Starting your own biz So, how do you get started? “To handle waste from 10,000 houses, one needs a capital investment of Rs 20 lakh and working capital of Rs 10 lakh,” says Thapar. Land: 2-4 acres would be sufficient to manage waste from 10,000 households. Divide the land into dumping, segregation and composting areas. Labour: You will need about 50 waste collectors and 10 supervisors, including drivers. The waste collectors work during the rest of the day in segregation and composting. Transport: Tata Ace seems to be the current favourite. You would need rickshaws to do collection in housing blocks, and when your business grows big, you will need dumpers. Composting: Set up vermicomposting bins with moist bedding and put earthworms into the bins. Worms may cost Rs 300 per kg. To prevent direct sunlight, bins have to be covered by greenDAR E house nets.
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Preparing yourself today to start a company tomorrow Join a fast growing entrepreneurial firm and take a position of responsibility /Philip Anderson
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f you’re reading DARE, you are interested in entrepreneurship. You may have specific plans to start a company or join a growth venture, but even if you do not, the best way to keep your options open is to plan ahead. What will your resumé need to look like several years from now when you might be ready to assume a leadership role in an entrepreneurial firm? It is a truism among venture capitalists that it’s better to fund a B-quality business plan and an A-quality management team than an A-quality business plan and a B-quality management team. No single factor makes more difference than quality of management when it comes to raising funds, attracting key hires, luring prestigious board members, securing deals with large customers, getting the attention of prospective partners, and so on. So what is it that persuades the people whose support you need that you are an A-quality talent in an entrepreneurial setting? The easy answer would be that your career track record will tell the story. If you have been a successful technical leader, sales or marketing star, or operating manager in a prestigious company such as Reliance, McKinsey, Siemens or Samsung, you should be able to persuade others that you can produce the same results in a venture setting…shouldn’t you? Unfortunately, experience has taught venture capitalists and others who work with ventures that success in the corporate world does not necessarily translate into success in an entrepreneurial setting. Too many executives who were stars in a larger company flounder in a venture, because their performance depends on assets big companies have, such as brand equity and support systems. A solid track record of accomplishment is the single best indicator of management quality—as long as it is one of entrepreneurial achievement. If you take a position of significant responsibility in a venture that grows rapidly and profitably to become a leader in its market, your contribution to that venture will be given great weight. If you were one of the key people who visibly helped the company thrive and prosper, you’ll be considered an excellent bet when the time comes to start your own venture (or join another one).
For this reason, if you’re absolutely committed to starting or joining a venture someday, the single best thing you can do right now is to join a successful, fast-growing entrepreneurial firm. Take a position of responsibility, where you can point to concrete accomplishments that helped the company become a star. If you can, work directly for someone (preferably a founder) who will mentor you and teach you what s/he knows about how to build a business. Apprentice yourself to an experienced entrepreneur and you’re likely to go far. Dare to make a difference. It has never been easier for an Indian to follow this advice. Whenever I ask venture CEOs what their top concern is today, the answer I hear most often is “securing talent.” If you are good at what you do, it’s a seller’s market in India. Yes entrepreneurial firms often get dozens of applications for jobs, but most of the top Indian entrepreneurs I know are ready to hire exceptional people whenever they find them. They know that it’s hard to get and keep the best people, so they’re constantly on the lookout for talent. What should you do if you’re not sure whether or when you might start a company or join an entrepreneurial organization? Quitting a good job to work for an entrepreneur is something you should only do if you’re passionate about building companies. If you’re not, you might prefer to hedge your bets, keeping open the option of joining a venture later in your career. If that is your choice, what can you do today to make yourself as attractive as possible to an entrepreneur, or to a venture capitalist or executive recruiting firm that is looking or talent on behalf of an entrepreneur? Excellence at what you’re doing is a given. For example, if you’re no better than an average salesperson for your present employer, then people will assume the results you’ll get for a venture will be no better than mediocre. But performing well in your current job is not enough. You need to do three more things to make yourself especially attractive to a venture. First, know and pursue your passions. Henry David Thoreau said, “Most men lead lives of quiet desperation and go to the grave with the song still in them.” That simply won’t do if you want a venture to snap you up some day. Venture capitalists look for unquenchable passion in the people they pick to lead ventures. The entrepreneurial life is full of setbacks and discouragement, which a management team will NOVEMBER 2007 35
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only overcome if its members are genuinely passionate about what they are doing. If in a few years you tell a venture capitalist, “I have always been passionate about helping people get the most out of software,” it will only ring true if you have spent a significant part of your career doing that. If you say “I’m passionate about taking an Indian company outside India to build a world-renowned brand,” it won’t be believable unless you have sought out such challenges. If you say, “I love working on cutting-edge technology,” but you never have worked on a bleeding-edge project, either you don’t know yourself or you have settled for less in your previous jobs than you should have. Work in a sector you care about. If you ever want to start a hotel, for example, but you have spent your whole career working in logistics, people will ask why. It’s hard to start a hotel chain unless you have experience in the industry plus a resumé that says you love the sector. If you’re presently working in a sector you that doesn’t interest you, it’s time to move, because it’s going to be hard to explain to someone why you spent five or ten or twenty years in a business that has little to do with your passions. Second, build experience with the key tasks that ventures have to perform well. In an entrepreneurial company, everyone wears multiple hats. You won’t have the luxury of focusing on a specialty. Three things that every key executive in a venture must do are selling, building and recruiting. In a young organization, everyone needs sales skills. You’re selling the company, not just a product. You’re selling belief in your team. So if you have never sold anything in your life, get some sales experience (part-time after hours if necessary) to prove that you can help a team make a sale. The biggest challenge in a young organization is building the business. If you have never been part of a new organization before, try to get that experience. If your firm is opening a new office, a new practice, or a new business unit, try to get
assigned to it so you can learn how people build organizations from the ground up. In a young organization, attracting talent is often the difference between success and failure. If you have never recruited anybody who is as able as you are, get some experience in hiring. Learn how to find people, assess them, and persuade them to join your organization because in a venture, everyone has to know how to do this. Third, build a social network that can help you. Think about what kinds of assistance you would need if you were to start a company in the next year or two. For example, you may need introductions to prospective customers. You may need someone to lend to or invest in your business. You may need friends to help you publicize your enterprise. You may need to know people who can help you secure a distribution channel. Look at the strength of your existing network of contacts. Will these people be willing to do favors for you when you need them? Will they take the time to help? Then look at the breadth of your social network. Is there at least one person who can provide each different form of help you will need? If not, take steps now to meet someone who will be able to fill in the gap. A surprising number of people pursue a normal career, expecting that if lightning strikes and they have the opportunity to start or join a venture, all they will need is a history of good job performance. Such a track record is a good start, but it’s not sufficient if you want someone to consider you an A-quality member of a venture team. Either by apprenticing yourself to a successful entrepreneur or by planning how you will position yourself someone with the right skills, the right connections, and passions aligned with what a particular venture requires, you can take measures today that will help you when a great entrepreneurial career opportunity opens up for you in the future. DAR E
In an entrepreneurial company, everyone wears multiple hats. Three things that every key executive in a venture must do are selling, building and recruiting
INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Center for Entrepreneurship and Director, 3i Venturelab
SMS “DARE <your comments, questions or suggestions>” to
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opportunity /mfg
The new-age manufacturing India is on its way to become a major contract manufacturing hub. Are entrepreneurs ready to pitch in? /Vimarsh Bajpai
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ontract manufacturing involves outsourcing or sub-contracting to a company, which has the resources to manufacture products or components at low-cost without compromising on quality. The firm that outsources work owns the design and patent rights, and is called the original equipment manufacturer (OEM). The business model involves economies of scale with OEMs focusing on their core competence by outsourcing manufacturing to low-cost destinations. For long, Taiwan and China have been at the centre of the manufacturing boom in Asia. So much so, that 80% of toys sold in the US are made in China. But things are slowly working in favour of India. There is a huge opportunity in manufacturing waiting to be tapped. A proper synergy between the OEM and the contract manufacturer (CM) may also result in the latter bagging marketing rights of the product using the OEM’s brand name. The OEM either invites bids from empanelled contract manufacturers or approaches a CM of its choice with its design. Based on the cost of labour, process and tooling, a CM quotes its price. The OEM then decides on the CM taking into account various factors such as shipping costs and tax benefits. Various sectors involve contract manufacturing with pharmaceutical, automobile and electronics hardware being the major ones.
Advantage India The face of Indian manufacturing underwent a sea change after the liberalisation wave of 1991. The sector that lagged behind for decades because of licence permit raj and lack of technological know-how is today poised for growth. The country has become a 38
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AUTO COMPONENTS
KEY SECTOR
Potential • Potential of over $5 billion for investment • India amongst the most competitive manufacturers of auto components; especially: • Metal intensive components such as forgings, stampings and castings • Labour-intensive components such as machining •
Hi-tech components such as electronic fuel injectors
Highlights • Highly fragmented industry • 50% exports are to Europe and the US • Majors including Delphi and Bosch have set up operations in India • GM, Ford, Toyota have set up International Purchasing Offices • Daimler, Suzuki and GM have set up development centers • 100% FDI allowed through the automatic route Major player / customers 1. Bharat Forge: BMW, Ford, Volvo, GM etc 2. Tata Auto Components System: Daimler, Fiat, Hyundai etc 3. Sundaram Fasteners: Volvo, Proton, MAN, Ford, GM etc 4. Brakes India: Swaraj Mazda, Tata, Toyota etc Source: Investment Commission, CII, Electronic Industries Association of India (ELCINA)
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opportunity /mfg PHARMA
KEY SECTOR
Potential • The contract manufacturing segment likely to grow at 10-12% • Cost of manufacturing in India is 30-40% lower compared to western countries Highlights • About 20,000 manufacturing units. 80% are into contract manufacturing • Firms offering drug development due to the new product patent regime • Pharma MNCs offering preferred vendor status to Indian firms • India has the largest number of USFDA approved plants outside the US • Six times the number of trained professionals as the US Major Players 1. Dishman Pharma 2. Jubilant Organosys 3. Shasun Chemicals 4. Suven Pharma 5. Orchid Pharmaceuticals Source: Investment Commission, CII, Electronic Industries Association of India (ELCINA)
ELECTRONICS HARDWARE
The big market
KEY SECTOR
Potential • Global market opportunities in electronic manufacturing services: 1. Contract Manufacturing: $500 billion outsourcing opportunity by 2010 of which India can tap $11 billion 2. Design Services: $7 billion projected by 2010 3. Component Exports: $5 billion projected by 2010 • Availability of low-cost, high-skill manpower • Booming domestic market for electronic goods and mobile handsets Highlights • Revenues to touch $2.03 billion in 2009 • Electronics industry likely to grow to $40 billion by 2010 • 100% FDI allowed under the automatic route with a few exceptions • Electronic Hardware Technology Parks in several cities Major players / customers 1 Flextronics: Casio, Dell, Ericsson etc 2 Elcoteq: Nokia, Ericsson, RIM etc 3 Jabil Circuit: Nokia, IBM etc Source: Investment Commission, CII, Electronic Industries Association of India (ELCINA)
favourite manufacturing outsourcing destination because of cheap labour, talented and knowledgeable workforce, supportive government policies, improved quality control measures, world-class technology and consistent economic growth. “India is changing from a command economy focused on self-sufficiency to becoming a key link in the global economic chain,” KPMG says in its report titled ‘Manufacturing in India: opportunities, challenges and myths’. As a global manufacturer, India is well placed by geography, language, and historical association to service customers in advanced economies, while as a regional manufacturer India has highly developed historical trading links with the Middle East and Africa as well as its own south Asian back yard, it says.
Manufacturing exports from India could touch $300 billion by 2015, according to a CII-McKinsey study titled ‘Made in India’. The most promising sectors for India are auto components, pharmaceuticals, electronic hardware, apparel, footware, toys and specialty chemicals. Another McKinsey analysis states that global outsourcing in the automotive components sector could be worth $375 billion by 2015, up from $65 billion in 2002. India could capture up to $25 billion of this amount, to become (along with China, Mexico and Thailand) one of the developing world’s top sourcing bases. Out of a sample of more than 400 Indian suppliers, 80% have ISO 9000 certification—the international standard for quality management. On the other hand, pharma contract research and manufacturing (CRAMS) market in India, which was valued at $532.10 million in 2005, is expected to touch $900 million by 2010, according to ASSOCHAM. The country could exploit its strengths to export electrical and electronic goods worth up to $18 billion a year by 2015, say analysts. India’s toy exports have doubled from Rs 200 crore in 2003 to Rs 400 crore in 2007, DAR E according to reports. NOVEMBER 2007 39
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opportunity /manpower
Making hay while retail shines Temp staffing and training for the booming retail sector make good business sense /Vimarsh Bajpai
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n internal email sent out last month to the recruitment team of a staffing solutions firm, which specializes in placing temporary workers read as follows: “Client, a retail sector major, requires 50 over-the-counter salespersons. Profile: 10+2 or Graduate, presentable with good communication skills, ready to work long hours, flexible to work in shifts, ability to work under pressure especially on weekends and festival season and stamina to stand on feet all day. Salary: Rs 3,000-3,500 per month.” Before we go further, what is this business of placing temporary workers? Many organizations need huge manpower for positions such as sales, logistics and maintenance but do not want to show high manpower num-
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bers on their rolls or go through the headache of administering this workforce. The answer is to outsource the hiring and management of employees. ‘Temping’, as the process is commonly known is popular when it comes to hiring low-end staff and is a $200 billion industry abroad. It involves sourcing, servicing or both. Typically a fully outsourced model is preferred. In this case, the employee remains on the rolls of the placement (staffing solutions) company, which charges a sourcing fee (which could be a percentage of the CTC or a fixed amount) and then a servicing fee on a monthly basis. The staffing solutions company looks after all administrative and statutory affairs of the employee. Large format retailers need plenty of counter and customer service staff, and temping is one of the preferred
Workforce behind the counter • 21 million people are employed in the retail sector, which is 7% of the total workforce. • Around 2.5 million direct jobs are going to be created by organized retail in next five years. • Attrition levels in the retail sector are up to 50% among front-line staff and 10-15% at managerial level. • Huge demand for non-technical graduates at entry level positions. • Inadequacy of training institutions. • Employee retention is a major challenge for existing players as international retail giants enter India.
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opportunity /manpower modes of meeting this need. Kelly Services, TeamLease, Manpower India, team4u and MaFoi Management Consultants are some of the major staffing solutions companies in India. To get back to our email, the team promptly got on the job searching websites and sifting through a pile of CVs. It turned out to be an uphill task to line up 70 candidates for the client. And of these, the client finally selected only 20. The rest were not found to be up to the mark because they “lacked basic communication skills in English, were completely devoid of confidence or were otherwise ill-suited for the job.” This is just a sampling of the problems staring in the face of organized retail, a segment that is growing at 25-30% a year. Conversely this is exactly where the opportunity in temping lies. “The demand-supply gaps are at all levels starting from front-end staff and the attrition levels are also high,” says S S Sindhu, Vice President – HR, Godrej Agrovet, the rural retailing arm of Godrej Group. For the third consecutive year, India has topped the AT Kearney’s annual Global Retail Development Index, indicating indirectly the potential for the business we are talking about – the business of providing manpower to the world’s fastest growing retail market. According to Saket Bhatnagar, Principal Consultant at Technopak Advisors, “the Indian retail industry is sized at $383 billion and the organized sector is just 3% of this. No wonder then that organized retail is growing at a healthy rate of 25-30% and is expected to maintain this growth rate for the next 4-5 years.” Mall space, from a meager one million square feet in 2002, may touch 40 million square feet by the end of this year and an estimated 60 million square feet by end2008, according to India Brand Equity Foundation (IBEF), a public-private partnership between the Ministry of Commerce and Industry, Government of India, and the CII.
Need for trained manpower “The unprecedented growth in the sector would translate into local employment opportunities for millions
Mohit Gupta, Co-founder and Director, TeamLease Services Starting a staffing solutions company – how did the idea come about? TeamLease was started by Ashok Reddy, Manish Sabharwal and myself. The idea came from the reality that the temp market did not exist as an organized sector while internationally it is an over $200 billion industry. More importantly, it represented what we identified for our next venture; good for India, fun and of course profitable. This laid the foundation of India’s largest temporary staffing company. How big was the team at the beginning and what were the synergies? We started off as a six member team in 2002 and have evolved as a function of business growth and plans to lead the market. We currently have an 800 member team across locations and is managed by the senior founding team of the organization. Belief for us has always been on team play and strength. Each of us in the senior team has strengths and weaknesses. The key has been to acknowledge the latter and work to complement the same with someone else’s strengths. We also debate a lot within the founding team to various key decisions and on the strategic approach. Once we decide on a path, the communication out to the team and locations is unified and thus does not lead to clash in direction. What were the initial challenges that you faced while starting the business? How did you and your team handle it? Temping was a new industry in India. People thought young entrepreneurs were foolish to throw up secure jobs to take on an uncharted territory. But we as a team were stuck to our vision. We felt that age was on our side and enthusiasm was high too. Our first major decision was to stay vertical. We developed a religious conviction about staying an inch wide and a mile deep rather than to become a mile wide and an inch deep. We decided to do and focus on being a staffing solution provider to the client requirements and nothing else. We were confronted by two primary challenges – slow growth in revenues and a non-existent brand image, which was very important to get big clients. TeamLease is built on three platforms of people teams, technology and processes. The key was to ensure that these three platforms are always evolving to address the scale and value aspects of the staffing industry. Did you opt for angel or VC funding? Was fund an issue at all? No external funding. TeamLease has been completely self-funded. We broke-even last year and cash flows tuned positive, all within the first five years of the company’s inception. It was a conscious decision on our part to stay away from venture capitalists. Such funding comes at a great cost as one has to part with a chunk of the equity at a very early stage of the company. We have never felt the need for external funding as TeamLease has generated enough cash to fund its expansion. We do not want to sell equity to park the funds in bank accounts. However, if there be a need for finance, we might think of treading the path of external funding. What’s the future of staffing solutions business in India? The potential for the temping industry as a whole is tremendously large with the growth in volume and multiple industry acceptance. As a temping industry matures, over 4-5% of the country’s workforce tends to move into this mode of employment. This puts the potential to industry at around 15 million people. Currently the organized temping market is around 2 lakh employees. NOVEMBER 2007 41
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opportunity /manpower Revenue models
RETAIL BOOM • The Indian retail industry is sized at $383 billion and the organized sector is at a 3% of the same. (Technopak Advisors) • The organized retail industry is growing at 25-30% and is expected to maintain this growth rate for the next 4-5 years. (Technopak Advisors) • Overall, the retail sector is expected to grow to $427 billion by 2010 and $635 billion by 2015. (AT Kearney) • The share of organized retail in overall retail sector is expected to reach 9-10% by 2010. (PricewaterhouseCoopers) • The Indian retailing market will grow in value terms by a total of 39.6% between 2006 and 2011. (Euromonitor International) • Over $30 billion of investment is likely to be made in the next 5-7 years, 92% of which is slated for urban areas. (FICCI) • Of the urban investments, maximum is slated for the hypermarket (38%) and supermarket (28%) formats. (FICCI) and would offer lucrative pay packages with 20% organized retail employees expected to become tax payers,” says a study carried out by executive search firm Elixir Web Solutions. Over 21 million people are employed in organized and unorganized retail and contribute to 13% of the country’s GDP, the study says. And more than 50% of workforce in the modern-day retail stores is expected to be women. Other projections are equally bright. “Around 2.5 million direct jobs are going to be created by organized retail in next five years,” says Bhatnagar. “There is a lack of candidates with basic employable skills and hence even if they get hired, sooner or later, they are found inappropriate to carry out their responsibilities or they themselves are unable to cope with the job requirements. Either case, leads to attrition,” says Rituparna Chakravarty, Vice President, TeamLease Services.
The hiring business “Temporary staffing is part of $1.8 billion recruitment industry, which could grow to $3 billion in 2007-08”
says Pramod T, Associate Director, Executive Recruiters Association. Temp staffing is all about match-matching between the employee and the employer. “The client pays a margin over and above the cost of the employees. But the overall margins in this industry are very low as the temp companies are required to meet the statutory obligations, service tax etc.. plus also carry them on their rolls till they place them elsewhere or find alternate employment or the candidates leave and go,” says M Ramesh, Executive Vice President, TMI Network. A marked shift in the staffing business is in the offing. “Most of the industry is right now concentrating on the pay-rolling business – this is high volume and low margins. However, over a period of time, we will see the industry moving to a staffing model where the staffing companies will have to play an active role in delivering an end-to-end solution to the customers and manage a large workforce for the customers,” says Abhinav Dhavan, CEO, team4u, which is part of the Randstad Group.
At MaFoi, employee outsourcing model, also known as Flexi Staffing, is largely at entry and supervisory levels. The percentage model exists in cases where the client is hiring for their core rolls, which is typically the case with mid and senior levels. “We also offer Recruitment Process Outsourcing model (RPO) for clients setting up greenfield projects where we do the entire recruitment process end to end from requisition management to onboarding of the candidate,” says E Balaji, Chief Operating officer, Ma Foi Management Consultants. The company has about 6,000 of its temporary employees in the retail sector in various roles in merchandising, stores, logistics, sales force and project staffing. TeamLease Services works on a “markup” or in common parlance on a commission model. “Our revenue margin is usually a percentage markup on the total cost to company inclusive of any one time payments. We also have a fixed markup fee model which is mostly dependent on the numbers of Temp heads deployed on a monthly basis rather than on CTC. Either model is opted for based on the nature of each mandate,” says Chakravarty. The company has around 6,000-7,000 temps in retail or in related sectors. As for team4u, it is actively offering the staffing product which would mean – matching and selection of candidates, on-boarding and training, pay-rolling and then attrition management. “We are already working on some of these areas and are now actively looking at involving more of our customers in the entire cycle of staffing instead of doing just a pay-rolling service,” says Dhawan. In Manpower India, says its spokesperson, “the general practice during employee transition is a fixed fee / mark-up / percentage per candidate
Abhinav Dhawan, CEO, team4u/We feel that the need of the hour is to provide short-term vocational education to a large number of nongraduates and school and college drop-outs 42
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Saket Bhatnagar, Technopak Advisors/We have seen retailers setting up their own training divisions. However since it is not one of their core activities, it will definitely be outsourced to specialists. And thus there is a fair chance for this sector to grow in future. / associate. During sourcing there are two models. Charge recruitment fee + monthly mark-up ; no recruitment fee but charge a higher monthly mark-up.”
The training business With so many trained hands needed for the organized retail sector, training of manpower has grown in a big way. Headhunters, companies and retail associations, and academic institutions have focused attention on this segment. “There is a lot of opportunity in the training segment. It involves learning customer handing skills and speedy reflex. In fact, there is a lot of synergy between hiring and training,” says T K Magazine, founder, Indian Institute of Materials Management (IIMM).
“Corporates are actively involving themselves in designing course contents specific to their business along with various training institutes, schools and colleges. Many of the courses are also getting subsidized for the candidates to make them more affordable,” adds Chakravarty.
What the players are doing? To tide over the situation, big retailers have decided to take initiatives themselves. “Godrej Agrovet hires people for its retail stores and then trains them in retail management before they hit the shop floor,” says Sindhu. The training may last from 1 month to 3 months. Pantaloon has tied-up with a host of institutes around the country for imparting courses in retail management. Bharti Resources, a Bharti
SPECIALIZED RETAIL FOOD RETAIL • 5 million retail outlets sell food and food related products. • Size of Indian foods industry: $6.1 billion. • Major players: Food Bazaar, Reliance Fresh, Godrej Agrovet. MOBILE RETAIL • Market size: $17.33 billion; growing at 15-20%. • Spice Group plans to invest $123.8 million in next two years in its retail venture. • Hypermarket chains like Subhiksha have started exclusive stores for mobile retail – Subhiksha Mobile and Big Bazaar with M Bazaar. LUXURY BRANDS • Many luxury brands such as Bang & Olufsen, Escada, Brioni, Chanel, Louis Vuitton, Versace, Fendi, Valentino, and Swarovski among others have already opened shops in the country. KID’S RETAIL • Branded segment comprises $701.7 million of the total kids' apparel market size of over $3 billion. • Kids' retailing will touch annual growth of 30-35%. Source: India Brand Equity Foundation
Group company, is into the training space. The Retailers’ Association of India (RAI) has signed an MoU with the Indian Institute of Management, Indore (IIM-Indore) to set up a Centre for Retail Education and Management (Cream) at the institute to train quality manpower for the rapidly growing sector. Tech training major NIIT recently tied up with IIM-Kolkata for programs in retail management. Placement firms are also doing their bit. Manpower India’s maintains a Training and Development Center (TDC). The TDC courseware has been designed only for Manpower employees, associates and candidates and delivers training that leads to mastery and certification in some of the most prominent programs in the industry. Over 4,000 courses are available in areas such as college-level Business courses; IT & Telecom; end-user software applications and soft skills. TeamLease is trying to design specific course content for the retail industry which it will offer to its candidates. The candidate self fund the course or take finance for the same. The course duration varies between 15 days to 60 days depending on the content. MaFoi has a training wing called Ma Foi Academy which has been offering industry oriented training to freshers and corporates. “We have a course RetailCraft which focuses on industry-specific training that is designed to groom candidates in the functional and soft skills sought after by the retail industry,” says Balaji. Ma Foi had trained about 3,900 candidates for companies in the retail sector this year. Team4u is developing training content based on their current and substantial experience on an on-going basis. The delivery of this content is being done by various partners to prospective DAR E employees in the retail sector. NOVEMBER 2007 43
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Watch those diamonds Bitten by the retail bug, jewellery maker Chain and Chain forays into the competitive luxury watch market with Karan Johar as brand ambassador
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he advertisements were what attracted attention. Here was a largely unfamiliar watch brand advertising all over the place, with Karan Johar as brand ambassador. And then when the press invites came for the launch, it only added to the intrigue. The brand turned out to be an Indian one, and Karan was going to be walking the ramp during the launch. Now, who was this Timond? Zaveri Bazar near Mohammed Ali Street, Mumbai not exactly a place for the faint hearted. But to those who know, it is the centre for jewellery trade. Most of the shops in the narrow streets are part showroom and part workshop. Not exactly the sort of place you would associate with glamour launches. But then, this is where Timond comes from. Timond is the luxury watch brand launched by Chain and Chain, a century-old jewellery shop in Mohammed Ali Street and leading the operations is Tejas Soni, Chief Operating Officer. Timond stands for time + diamond. The movement is Swiss and the watches are made of gold and are encrusted with diamonds. Pricing is in the Rs 60k plus range, running into a lakh plus. According to Soni, the Indian customer wants value for money. They 44
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/unique idea of the month
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/unique idea of the month want to wear a brand, but at low cost. So, the brief was to create a state- of-the-art product that would offer more value for money. So Chain and Chain set up a plant at Tawang in Arunachal Pradesh with technical collaboration from a Swiss equipment manufacturer. Soni says that the current watch market in the country has no middle ground. There are the low-end fashion watches or the extremely high-end brands. Timond is planning to tap the middle segment in between the two. The project was in the works for about two-and-a-half years and the brand was introduced some time back with moderate success. That was when the decision to have a brand ambassador was taken. Why Karan Johar? Soni’s answer is simple. “We are creating
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aspiration that is why we took Karan Johar as a brand ambassador. See, my product; to some it is a watch. To some it is a piece of jewellery, being made of gold and diamonds. We can say that it is very versatile. We wanted our brand ambassador to have the same versatility,” he says. Karan Johar is not only a very successful filmmaker; he is also a very good anchor, says Soni. “He is a very good host to any show. He has a lot of understanding of fashion to the extent that he designs exclusive clothing for Shahrukh Khan. At the same time, he is an entrepreneur. He is heading a production house called Dharma Productions. At the end of the day, he is a complete business persona. My product is also targeted strictly on business personalities and senior-level executives. This class needs performance and credentials to get attracted to have that aspiration.”
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‘When we launched with Karan Johar as brand ambassador, suddenly there was a buzz in the market’ How will you reach to the target population? Our distribution strategy is to place it where high-end customers shop. They go to two places for accessories and jewellery. One is at high-end jewellers and other is multi–brand outlets. Presently, Timond is available across 35 outlets across India, at big retailers.
At a high-end multi-brand outlet, how do you compete with international brands? It is primarily because of that niche USP we have. You go to any multi– brand outlet and ask for good jewellery watches, you do not have any other option at the price range we are operating in. Any big Swiss brand will cost you not less than Rs 4 lakh. There you are paying that for the brand name. When it comes to Timond, you have value involved. For example if you are buying say our watch worth a lakh and sixty thousand, 40-45% of the value will be there in terms of gold and diamonds only! How do you design? How many designs do you have? I personally take care of the designs, but it is done by Swiss professionals to Indian tastes. You know
Indians are more about colors, more vibrance, Till date, we have 24 designs that starts from 30,000 and goes till Rs 3.75 lakhs. What is the difference in sales, if any, after getting Karan Johar to endorse your brand? As I had told you, recognition was our main issue. The sales was aboutour customers buying a specific product rather than a brand called Timond. When we launched the watches with Karan Johar as brand ambassador, suddenly there was a buzz in the market. We got pretty good response after that. A lot of recognition even…I mean, you can see that spring in the stride of dealers. What about sales? We calculated last night, it was DAR E up 23%! NOVEMBER 2007 47
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blogs/opinion
The Entrepreneurial TRIPOD The leading entrepreneurs of our time have taken some of the biggest gambles in history /Anurag Batra
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The entrepreneur also needs to understand that the synergy that is brought together by teamwork and unity is extremely difficult to duplicate through singular brilliance. If you are an entrepreneur, and your benchmarks are accurate, it is certain that your business success would also result in betterment of the financial status of your teammates (partners, colleagues, and other staffers). 48
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or all you budding entrepreneurs what are the three definitive pillars of entrepreneurship? While you think through that, let me share with you that most foreigners say India is a land of entrepreneurs. Everybody in India is a born entrepreneur and a business person trying to make money from every opportunity that presents itself and turn it into a business proposition (pun intended). I am not talking about the above mentioned kind of entrepreneurial spirit that seems to exist in every traffic policeman, hawker, the bureaucracy etc. That brings me to my favourite point that facilitation money or corruption is illegitimate and un-institutionalized entrepreneurship. What I am talking of is a capital enterprise, which is organised and above board. It’s a systematic attempt at creating a business enterprise. Coming back to my original question to judge your EQ (Entrepreneurial Quotient), let me again ask you what are the three pillars of entrepreneurship? I have a twin-track theory on the three definitive pillars of entrepreneurship, or as I like to call the TRIPOD theories, both based on my personal experiences. The first TRIPOD includes: Stability in personal life and relationship with parents/spouse/loved ones; his/her physical health; spiritual orientation and spirit of compassion. I call it the tripod of entrepreneurial success. The second TRIPOD is a set of traits and attributes an entrepreneur must have or acquire or possess – vision, balls and capital Vision and balls (the ones as in tennis or cricket or hockey) are more important than the third one as the third one can be acquired if you have the first two.
The third one is the gut feel and the ability to take risks, to do the not-soobvious thing and going sometimes against conventional wisdom. Success rarely comes to the faint of heart - the leading entrepreneurs of our time have taken some of the biggest gambles in history. One of the most successful person in the world (at least in monetary terms), Bill Gates (of Microsoft fame), must have taken hundreds of risk to achieve financial success, but the quantum of risk that he was willing to take can be viewed by his decision to drop out of Harvard to pursue his entrepreneurial ambitions. The Chinese have another point of view on my tripod theory – they call it “Qi Ye Jia”. It is the perfect explanation of the spirit of innovation and business, where “Qi” refers to lifting up your heels to stand higher and look to the future, “Ye” refers to the God given responsibility, and “Jia” stands for teamwork and unity. It certainly explains vision, or the ability to forecast future events (maybe even help create them) and take advantage of them. The entrepreneur also needs to understand that the synergy that is brought together by teamwork and unity is extremely difficult to duplicate through singular brilliance. If you are an entrepreneur, and your benchmarks are accurate, it is certain that your business success would also result in betterment of the financial status of your teammates (partners, colleagues, and other staffers). Ultimately, an entrepreneur wins DAR E when his team also wins. Anurag Batra is real life first generation entrepreneur who is Much Below Average (MBA) when he is not busy writing such columns and can be reached at anuragbatrayo@gmail.com. ed: Anurag is the founder of exchange4media.com.
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society /crafts
Biz skills & language: their bane Traditional craftsmen have often restricted themselves to creation, while middlemen profit out of their hard work. It is not just access to resources that is stopping our artisans from taking control of their own business /Shilpi Kumar
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rom regal elephants and camels to Lord Buddha, Ganesha and Natraj, there is hardly anything that his hands cannot create. Devi Lal Kumawat of Buddha Art and Craft has been breathing life into sandalwood and kadam (Anthocephalus Cadamba) for as long as he can remember. Born and brought up in the Shilp Colony of Jaipur, “It was inevitable. After all, it was in my blood!” he says. After being a crafts man for around two decades, it has only been now that Devi Lal mustered the courage to venture beyond the pink city (and come to Delhi) to showcase his wares. It took him two decades to build up the courage to travel a mere 259 km between
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Jaipur to Delhi and try his hand at selling directly to customers at the famous Dilli Haat! His pieces are usually bought by wholesalers who even export them to Europe and America. Back home, for all the hard work that Devi Lal puts in, he claims to make a profit of just around Rs 5,000 a month with which he has to run a family of six. “The cost of raw material and labor teamed up with electricity bills leave me with very little in my pocket. Most of the profit goes to the middleman,” he says. What stopped him from exploring direct channels earlier? He says that potential customers both Indian and foreign used to come to his workshop,
but he was not confident enough to talk to potential customers as he could not speak their language! Devi Lal had started helping his father at a very young age, balancing both school and work. However,
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society /crafts when he was in third grade he had to say goodbye to school. “I wanted to continue my education but my family needed a helping hand and did not have the money for me to keep studying.” “It is primarily a lack of education, which has stopped me from expanding my business. I was not aware of the nitty-gritty of starting my own business and the marketing tactics that go along with it. Language is another barrier. It is mostly foreigners that are interested in these kinds of crafts, and I don’t speak their tongue!” says Devi Lal, sad but not yet giving up. So, what gave him the courage to finally make the trip to Delhi? “I have invested a lot in my sons’ education. Now that they are in college, I can rely on them to start a business of our own, instead of just producing the goods. Their knowledge and ability to communicate in English has helped us a lot in terms of directly dealing with cus-
tomers. This is why we thought now was a good time to come to Delhi.” At Dilli Haat, apart from publicizing his work, Devi Lal expects to get firsthand experience and understanding of the market. He is hoping to get in touch with exporters and wholesalers directly, and is even carrying extra pieces with him, just in case someone wants to order right away! So, how has the new experience been? Devi Lal claims sales of Rs 3,000 on an average, everyday. Which he says is very profitable. Devi Lal is just one among the many who have a similar story to tell. The Indian handicraft industry, with more than 30 million artisans and weavers (Crafts as Industry- Jaya Jaitly), has enormous strength and potential. More often than not, it is assumed that people like Devi Lal are held back because of lack of resources. And a lot of focus has been put over the years in making those resources available through a variety of means, including self-help groups, micro credit schemes and other interventions. Perhaps these interventions address just part of the problem and language, like in the case of Devi Lal is a critical ingredient that needs to be added to the various intervention packages. The good news for Devi Lal and his family is that his sons are already on track to a better destiny. The question is, how long will it take to set the other thirty million craftsmenDAR E entrepreneurs free.
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funding /vc
How to get VC funding Even as the funding market hots up, it is still a story of too many entrepreneurs chasing too few VCs. There are a few things that help you improve your chances of getting funded /Krishna Kumar
Funding Stages
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Idea stage
Product or prototype ready, starting clients in place, business model tested
Business in existence for some time, needs to scale up
Established, steady, time to branch out
Angel Funding
VC Funding
PE Funding
IPO
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S
ai Kumar (name changed) could not understand what was happening. He thought that he had all the right credentials and was there at the right time. An alumnus of one of the IITs, he had spent a decade and a half abroad, working on prestigious software projects. He then came back to India and set up a software firm with his own money. Unlike the many that opted for project and body shopping setups, Sai decided to go the product route. Five years later, there he was, with a product that he believed was as good if not better than what was available elsewhere and even a few marquee clients. And there were more clients to be had if only he could set up a good sales and servicing infra-
Many approach VCs at the concept stage, VCs are more liable to fund projects under execution with a ready prototype or product structure. That was why he could not understand why VC after VC that he approached for funding was refusing to bite. Sai Kumar is not the only one caught in this predicament. Take the case of Ganesh (name changed), who again was working on a product idea with teams in India and Singapore when he approached a well known VC firm for funding. The advice he got has put him off from approaching any other VC. “I was told that we will get a serious valuation only if we show sizable income and growth potential or if we can become a real threat to existing players or big competitors.” Or of Stanley (name changed), who gave up after talking to a few, discovering that they were just not interested in the sector he was oper-
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ou have been one of the pioneers of venture capital in India. Why do you think a lot of small companies find it difficult to attract funding? I have lots of hope and am very optimistic about the future of venture capital in the country. One area which is neglected is low-end funding, that is, early stage funding since not too many players are around. Only a few of us who started earlier are now around. I have been in since 1990. We have always focused on early-stage technology startups. However, for a fund like ours, even fund raising is difficult. It is easy for large private equity players to go abroad, raise the money and invest in a bullish capital market; it shows the expected returns also. In the market, you won’t find many who are focused on small, medium, or early-stage companies since the returns are not that great. The gestation period is also very long — 7 years or so — with the exception of IT. IT is the only area where the company starts to get profitable, starting from the third year or the fourth year. So, IRR (Internal Rate of Return) gets affected, thereby making it very difficult to make good money. In India, there are not too many buyers of such companies. So, exit from such companies has become very difficult. Of course, we have had some very good exits where the companies were actually bought over. IPOs for small companies like the ones where I invest in is again very difficult since the companies are small and their market capitalization is comparatively low.
I look at companies which are in niche areas and are exceptionally good. Considering the mortality and vulnerability of a small entrepreneur, there are not too many funds who want to get into it. They would like to get into where money can be made. I just invested in two incubatees of Indian Institute of Management, Ahmedabad (IIMA) and one of Nirma University. One company is in RFID (Radio Frequency Identification) business, Rapid Radio and another company is Ceon Solutions. When I raised Rs 60 crore in 1995, I raised it in six months. Now, I’m raising Rs 250 crore and in about six months I am almost nearing my first closure of Rs 50 crore. It has been far more difficult for me than it was in 1995. That is because people say that they have other avenues and other private equity funds to invest and hence feel no need to invest in early-stage companies where they get smaller returns. We performed well, have survived and are willing to take a risk with a startup whereas private funds are usually risk-averse since they would like to keep showing results. They usually opt for ventures from which they can exit within 2-3 years. We normally
Vishnu Varshney, MD, GVFL NOVEMBER 2007 53
DARE.CO.IN go for building a company. So, even if our investment needs to be there for 7 - 8 years, we continue. For instance, recently I divested from Neilsoft, a CAD/ CAM company based in Pune. I got almost five-and-a-half times of what I invested but it was after 7 years. At what stage do you think a business should start looking for VC funding? When they come out of incubation, unless it becomes a must for them, they should try to raise their own money from friends, relatives, and other people. Once their product prototype is ready, and they are ready to get their technology validated, they should come to someone like us. Like say for example, in case of Ceon, the product was ready.
‘I am ready to look at projects at concept stage’ In the past, we used to invest when the guy would come and just sit down with a piece of paper and say this is what I want to do. We just asked them to put it down on a piece of paper, got some experts to evaluate it and when the expert said that it looks like a workable idea, we went ahead and invested. I am not averse to that kind of investment even now, but in such cases where you start at a concept stage, risks are very high. So you mean, even if somebody comes up to you today without any estimation of cash flow and the likes you are still willing to look at the business plan? I am willing to look at it provided the idea looks convincing, the product looks convincing, what the promoter wants to do looks convincing; and then he is able to articulate his entire idea. Our board also has experienced people from the industry like Harish Mehta, Pawan Kumar, Dr Madhu Mehta. These people look at it. As a VC, what are the key things that you look for in a prospective investment? 54
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funding /vc We look at the promoter or the founder. We look at how passionate he is, how knowledgeable he is, his background and whether he is a team-man or not. Whether he gets along well with people and what kind of team he has gathered. For example, in Ceon, not only was the promoter very knowledgeable; his partners where equally good and committed to the company. We look at the promoter and see how committed he is and whether in the first shock will he run away or hang in there. After making 51 investments, I have developed the kind of intuition that I can easily make it out. Our experience helps us decide whether these people will work or not. So, the promoter and the team matter a lot. In addition to this, the technology and its stage matter too. There are two things to be considered in technology startups — stage of technology, whether it can be scaled up or not and finances. What would you advice to an entrepreneur on making and presenting a case to a VC? First, they should have a very clear idea about what they want to do and they should develop a proper business model and see how they are going to build a team immediately after they get the money. They would need to see how they are going to build a team of key persons in key areas. There is no need for a large organization but at least two to three people should be there to help in building the company. Secondly, VCs get many proposals and they have very little time to go through them. Hence, entrepreneurs should be very articulate and should be able to make a proper business plan at the time of presentation. Try to think about all possible questions that experts can ask. In the meantime, if they can come to a stage where there is a working prototype available, things become more convincing. If the technology gets validated and they have even a little proof of the market, it will be accepted very quickly.
ating in, even though his idea may be path breaking. On the one side, we have reports of millions being invested daily into virtually unknown companies with seemingly me too ideas. Where is the disconnect? How do you as an entrepreneur looking for funds find the right VC? What else can a VC offer you other than funds?
Are you ready for a VC? As an entrepreneur or a would-be entrepreneur looking for funding, the first question you need to ask yourself is whether you are ready for VC funding. The bad news is that your project may just not be in the stage or size to get a VC interested.
A VC may not be your best funding option if your projects scale or growth plan is not large or fast enough Different stages of a business idea require different levels and types of funding. Unfortunately, a profusion of business model competitions have lumped all these funding options under the umbrella of the VC leaving may entrepreneurs confused in the process. From a funding angle, a business can be divided into four stages – the seed or concept stage, the venture capital (VC) stage, the Private Equity (PE) stage and the initial public offering (IPO) stage. The seed stage is when the business is pretty much an idea. You do not have a product or clients. Possibly you do not even have a team or a business plan. Perhaps a prototype is ready. And you know that you need more funds than can be organized by borrowing from friends and immediate relatives. This is NOT the stage to approach a VC.
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DARE.CO.IN Laura Parkin has been on all three sides of the table. She has set up two entrepreneurial ventures with funding, has worked in a VC firm and now, as Executive Director of the National Entrepreneur Network regularly acts as an interface between budding entrepreneurs and various funding entities. According to Parkin, VC funding is really not for startup stage companies. “Other than seed fund, most VCs are looking for a proven business model and customers and would like to see their funds used to scale up the operations, rather than test a business model. Even Angels in India would like to see working prototypes”. Unfortunately, many entrepreneurs choose to approach a VC at this stage; and get badly burnt. This is the stage at which you should look for seed funding or Angel funding. Your funding requirements are smaller and more importantly your company is probably a long, long way away from value realization (IPO, acquisition etc.). Angels will also probably give you more of their time and expertise, which is very critical and important at this stage. But, there are VC funds that do look at concept stage companies. GVFL (Gujarat Venture Finance) started by Vishnu Varshney, who is considered to be the father of the Indian venture capital industry is one who invests into concept stage companies. Varshney says that “if you are a startup or an early stage company, private funds will not give you the money. Most of them will ask you to go get the money from somebody else and bring it to some stage where they see fit to invest in. We don’t do that. We will be looking at even early-stage companies. More than 30% of my investees are at the concept stage. We do not wait for them to scale up. If the promoter is good, the concept believable and credible, we do not mind giving money to start-ups”. The second stage, where you have a prototype, if not a product ready, have bagged a few customers or at least have a few customers interested and have a realistic business plan ready is when you should approach a VC for funding. Here again, too many business plan 56
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funding /vc contests have spoilt it. You can make a great business plan in Excel, but what about market realities? Remember that a good VC like Varshney, who in seventeen years has received over 5,000 proposals, and has invested in 61 companies comes with experience across many companies and many, many business plans.
Will you scale? Some projects may just not attract VCs because they are not scalable in size or scope. If your end objective is a company that employs ten mechanics making plastic buckets, for example, then you are unlikely to attract the attention of any VC. Like Varshney points out, most VCs look to exit the
A VC gets hundreds of proposals by email every month. Your project is likely to be considered favorably if you are introduced by someone known to them project in about four years and by then the project has to reach a scale where a PE fund gets interested in them or they become the target of an acquisition. Only very few startups go directly from VC funding to IPO. The message coming from the VC community is very clear. They are not investing in any company for keeps. The entrepreneur has to be clear about this and has to include exit options in his planning and even in his initial presentations. Selling back the stake to the entrepreneur is not a preferred option because as Alok Mittal of Canan Partners puts it, that does not maximize the returns for the investor.
Finding the right VC Once you are ready for VC funding, comes the next question. Who is the right VC for you and more importantly, how do you approach them? Again, many entrepreneurs make the wrong move here. They just email across a proposal to all VC email ids they can get. An average VC today gets anywhere around ten proposals a day by mail. The better ones get many more. Put yourselves in the shoes of the VC. Do you read every mail that you get in your mail box?. According to Sundaresan Natarajan, a Washington DC area entrepreneur who also advices other startups on getting funding, the name of the game is networking. The best way to get noticed by VCs is to get recommended by someone known to them. If you can afford it, you should get a merchant banker to advise and introduce you. But most entrepreneurs looking for funding may not be that lucky. That is where networking comes in. Natarajan recalls his own experience in organizing funding for his first startup. “We went through the presentation process. But it really didn’t come out of that presentation or that breakfast meeting. Somebody who attended liked our concept and he forwarded it to another friend who had a similar portfolio. And then it happened that someone in my team knew that person and so it’s all kind of networking again”. According to Natarajan, organisations like TiE provide networking opportunities that entrepreneurs should make the most out of. Finding the right VC is not just about finding someone with money. You need to find someone who can understand what you are talking about, who can understand your language and technology. That is you need to find VCs who have experience in your area and are funding entrepreneurs in the same space. Someone who understands biotechnology is more likely to get excited by a biotech concept than say someone who funds BPOs. A fair bit of Google search and some networking should help you unearth this information.
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funding /vc
Laura Parkin , Executive Director,
Indian VCs and US VCs are becoming one and the same! With the advent of Matrix, NEA, Sierra, Canaan and other US firms, differences in behavior are fading. However, I would say that perhaps the average US VC may be able to add more value to portfolio companies, and may be able to realize value through exits more effectively, simply because more US VCs have had the advantage of decades of experience in building and selling companies. Even the young VCs in the US have more opportunity to “apprentice” with experienced VCs.
National Entrepreneurship Network
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ou have been on all three sides of the table (as described above). What are the most common points of disconnect between VCs and potential investees? Where is it that things go wrong most often, during the pitch? In India, more so than US, a fundamental disconnect is that many people who approach VCs have businesses that would simply not work for VC funding; usually because the companies are not scalable. I presume this happens because VC-backed entrepreneurship is relatively new in India and entrepreneurs are not as familiar with the VC investment model. Otherwise, obvious though it may sound, if the VC is comfortable with the opportunity and market size, the disconnect is simply that the VC can’t get comfortable with the team. Either they think the team will not be able to execute, or they feel that they would not be able to work with the team. Is there any difference in the way Indian VCs act compared to western ones?
VC firms in India seem to be looking at investments in later stage companies than VC firms in the US. That’s probably driven by several dynamics: one, the amount of funds that VC firms invest — VC firms in India seek to invest between $2-5 million per deal. In India, that is a very large amount of money, though in the US it’s a startup amount. Another driver is simply that the opportunity exists to invest in later stage deals that have not previously received institutional funding. Smaller number of savvy entrepreneurs here in India – though that is changing with more experienced senior managers stepping out to start companies. But generally, there’s just a much larger pool of experienced entrepreneurs and senior managers available in Silicon Valley and Boston/Cambridge and other entrepreneurial “hot spots” in the US. In the US, it certainly helps to be part of the network. Business plans that come in “over the transom” – or without connection – have basically no chance of getting funding.
In India, perhaps the entrepreneur or the team doesn’t have to know the VC, but they should be known in the industry, or to someone the VC trusts. It’s a relatively small world, so if you’re operating in an industry, and a VC is investing in that industry, there should be some connection, if not directly then atleast one or two hand-shakes away. Given that VCs are really not looking to fund raw young entrepreneurs, it’s even more likely that they would at least know of the entrepreneur or part of the founding team that they are considering funding. Once the investment is made, what are the key milestones in the relationship? Any advice to entrepreneurs on handling these? As long as the company is hitting targets and milestones, then it’s pretty easy to have a good relationship with your investor. The true test comes when the company misses some targets – almost inevitable in a start up with aggressive goals. Best advice is to keep the investors informed. As soon as something looks like it’s not going as planned, bring the VC into the picture. Don’t wait. Make the VC part of the solution. Of course, the biggest potential source of conflict between an investor and an entrepreneur comes when the VC feels that the company has “out grown” the entrepreneur and would like to bring in more seasoned management. The VCs probably discuss this eventuality with the entrepreneur during the due diligence process – but at that time the entrepreneur usually thinks, “let’s just get the cash, and I’m sure we can work things out...” When the reality hits, it’s a whole different thing and can result in real conflict. At some level, the entrepreneur must understand that by taking funds from institutional investors, he or she has lost independence and control of the company. A VC’s ultimate control, in most cases, is the ability, as part of the Board of Directors, to fire the entrepreneur. NOVEMBER 2007 57
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Where’s your team? All the VCs we spoke to emphasized on one point – the team. Venture capitalists do not seem to be too thrilled with one man shows. They are looking for well rounded teams that complement each other. Again, according to Natarajan, “If they have an idea, people kind of jump up and say: okay, I have a great idea. Now I should be able to make this work and make this a profitable business. But the person may be really a technology person and having a great idea but not all great ideas transform into viable businesses. That’s where I see a gap and I am sure when you take this to a VC they will just say, hey, how are you going to execute it and who is going to do the sales and the like?” A number of VCs do work with projects that they have invested in, to being in the right senior management team. And this is another area of potential conflict. It is difficult for many who are owners of the original idea to being in someone else as a CEO. It takes a lot of guts to, like Steve Jobs did to identify a John Scully and to challenge him whether he wants to “sell sugared water all his life or whether he wants to change the world”? But again, there was a board (of investors) behind Jobs who made him ask that historic question. And then Scully did do Jobs what every entrepreneur fears an outsider he brings in will do – oust him. It is another story all together that Jobs “won back” Apple. Like Parkin says, “At some level, the entrepreneur must understand that by taking funds from institutional investors, he or she has lost independence and control of the company. A VC’s ultimate control, in most cases, is the ability, as part of the Board of Directors, to fire the entrepreneur”. To cut a long story short, whether there is a team that pulls together and shares the passion or whether it is a one-man show may be all that stands between your dream project and the funding it deserves.
How much equity? Now comes the deal breaker. This question plays both ways. How much 58
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Just because you came up with the idea, you need not be the CEO. A competent management team in imperative to a project’s success, and to investors becoming interested equity are you willing to give the VC in return for the funds? From the other side of the table, the VC will question how much salary the entrepreneur is paying himself. Nitin Paul of Evangelists was not looking for too much funding. He wanted about half a million dollars, and in return was willing to give a 5% share in the company. Unfortunately, no VC was interested. For most, the money being asked for was too little and the stake being offered was too less. Typically, VCs look for what they call an influencing stake; a percentage that lets them have a say in the board.
This typically works out to anywhere upwards of 15% upto about 50%. In the real estate business, for example, we found funds asking for 50:50 joint ventures. Sometime back, I was called in by an investor to advise him about a project seeking investment. This was a team of three people, two of them fresh out of college, who had an interesting concept for a technology product. One of the points of disagreements was the salaries that the lead entrepreneur wanted. The investor felt that given the experience of the team and the chances of success, the salary being asked for was exorbitant. He instead offered to incubate the project out of his premises, provided the entrepreneur took a much lesser salary. The entrepreneur on the other hand felt that the investor was trying to shortchange him. Obviously, no deal could be worked out. Paul says that he worked out his stake in the company after considering his own years of experience, current salary and ESOPs and future earning potential on the same job, including growth and market value of ESOPs. Finally, he opted for financing at 18% interest instead of the VC route. Looking back he says that looking for funding is a full time job that requires a lot of bandwidth and that perhaps single entrepreneurs are going to be challenged taking their projects forward as well as looking for funding.
Is the chemistry right? That brings us to the final frontier you need to cross. Unfortunately, this is an intangible one. Everyone we spoke to highlighted this one, but none could quantify it – the chemistry between the VC and the Investee. Ultimately, what the VC is doing is an act of faith; faith that what you the entrepreneur is promising will come through. Like Varshney says, “often we offer tough love”. So, the chemistry has to be right. Like Parkin sums it up — A deal could be lost just because “the VC thinks that the team will not be able to execute, or they feel that they would not be able to work with DAR E the team.”
DARE.CO.IN
strategy/brands
Look before you leap Today the essence of the brand is unlocked by its name – the more you invest in it the more complex and irreplaceable becomes that key. Throw it away at your peril. /Rupin Jayal
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, so and so hereby change my name to such and such...” A notice neatly tucked away in the newspapers; an sms or e-mail sent to friends and associates, and hey presto you have a new name! If only changing a brand name was that easy. In the complex world of branding, things are not quite so easy. But first – what is a brand? It is a word (or phrase) that occupies a unique space in the mind of its consumers and other key stakeholders (employees, shareholders, trade, etc). That unique space encapsulates everything that that particular person has experienced, seen or heard about the brand. This unique bundle of benefits, attributes, opinions, features, delights and disappointments, etc all add up to create a brand rather than just a name. It takes time and money to build this space in person after person, it takes more money to protect this space from marauding competitive brands and it takes even more money to keep this space fresh, relevant and meaningful for the person concerned. This is done through the ever increasing noise of competing voices for the attention of the person concerned. And not all these voices or even a majority of them are from other brands. The person concerned “owns” this space and therefore owns your brand. In this cacophony, it is difficult to preserve that unique space in a person’s mind. The brand name is the magic key that unlocks the gate into that precious space. It is like a hot button that unleashes all those hidden memories, associations, impressions, images, etc, that is the unique ecosys60
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tem of that brand. Now imagine changing the key. Maybe the new one might just fit, but then it might not and then re-entering that special space becomes close to impossible. Why would anyone need to change a brand if it has been well established and has a strong base of customers? This is especially so in our increasingly attention-deficit world where brands are often valued more than the factors of production that make them or the assets upon which their parent company rests. As John Stuart, former CEO of Quaker, said “If this company were split up, I would give you the property, plant and equipment and I would take the brands and trademarks and I would fare better. Or, if Coca–Cola were to lose all of its production related assets in a disaster the company would survive. By contrast, if all consumers were to have a sudden lapse of memory and forget Coca Cola the company would go out of business.” (Barwise et al., 2000, p. 75) A number of reasons could lead to a brand name change. The first case is the most obvious– change of ownership. A company might want to sell off a part of its business for myriad reasons. If the company uses a “company brand” based architecture then it would naturally want to retain its brand for the part of the business that it continues to own. This might necessitate a brand name change. The most visible example of this is when IBM sold off its hardware business to Lenovo. The second reason might be to refurbish a damaged brand. In this case another, established brand (with better standing) might replace the outgoing brand and this would not really be a brand name change in the sense being addressed here. However, it may simply be to put the past behind it and
move on. Thus, LG was able to enter India as a virtually new brand after failing to gain success previously (when it was better known as Lucky Goldstar). Signifying a change in category or business could be another reason for a name change. Here, however, it is akin to launching a new company and many of the challenges are similar. However, if the previous brand was a strong and healthy one and the channels of distribution are similar than referring back to that parentage could be useful. Sometimes a name becomes generic to a category and needs differentiating. Examples abound such as Surf, Nescafe and Dalda in India and Xerox worldwide. In this case, a need is felt to refurbish the brand since as far is its buyers are concerned it merely represents the category and is not seen to be uniquely better in its own right. This might be evidenced by the fact that it cannot charge a premium over its lower cost competitors or that it is easily replaced by its customers if not available. In all the cases mentioned above, a brand name change may become imperative. In this case it has to be handled with extreme care. There have been times when companies have tried to “transfer” the equity of the previous brand on to a new one. That rarely works because the original “name” represents the brand and is its code key for entry. Absent that and it just becomes a product. Most people do not have the time to observe and appreciate the strategically painstaking process by which the so called assets are being transferred and often just treat it as a new brand and move on to the next most popular brand on their list. It also allows aggressive competitors to rush in and make attractive offers to the erstwhile consumer base while the
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strategy/brands company in question is engaged with this often illusionary process of brandasset transfer. However, there is a temptation to change a brand name when competition gets too hot or when the brand goes through a down phase. It is then that it is critical to hold the brand-fortress and protect the key to it during such times because often the brand can be refurbished. Thus Bajaj even though being synonymous with scooters for much of its life did not change its name when it became a predominantly motorcycle company. There are many ways in which brands can effect change in a way that allows them to retain the values of the core brand yet signify dramatic change. An example of this is the way Bajaj changed its identity to reflect the dramatic change in its core product portfolio. Wipro, as it became better known for IT than consumer products changed its identity. The appearance of the magic key changed but the code, its name, remained the same. Another way is to retain the identity of the previous brand while changing the name. The current Hutch to Vodafone transition is a case in point where Super-Pug continues to play a critical role and the tone and style also seems to continue. Also while this is happening it still needs the extremely high visibility and investment in all mediums as all too apparent in Vodafone’s case. To retain a popular sub-brand is also another way in which a transition can be effected. Thus, Lenovo continues to use the Thinkpad sub-brand that used to adorn IBM branded machines, even while it has launched a parallel Lenovo line of notebooks. It can be argued that the line between a successful sub-brand and a brand is thin and that would be true, but perhaps one way of defining it would be how customers used the subbrand while purchasing. In IBM’s case, it is likely that they bought into brand IBM and Thinkpad played the role of a classic sub-brand. Sometimes, the change can simply be hybridising the name. So venerable Surf becomes “Surf Excel,” and Daimler used to be Daimler-Chrysler. However this usually happens when there is a
merger where the companies or brands concerned have great value. Finally, one relatively “safer” method is to create an acronym. So Imperial Tobacco becomes ITC and International Business Machines Corporation becomes IBM. Tisco and Telco (now Tata Motors) are other examples. However here too, both the transition process and establishment of the new identity are expensive and demand significant resources. Before going in for a name-change, it is critical to ask these questions and evaluate the real challenges faced when changing the brand name. 1. The first question is the most obvious but often the rigor in answering it could be missing and that question is “why?” What are the alternatives available and why are they not feasible? 2. The second question is to understand the challenges of the category that the brand operates in. What category is it? Is it high interest or low interest? The higher the interest levels the tougher it will be to change the name. The higher the interest the greater the likelihood of entrenched loyalties making it tougher for what is essentially a new brand to “break in.” 3. What is the “noise” level in the category? In many FMCG categories for example the competition and noise levels from national, local and regional brands are so high that it requires significant investment to enter. 4. How competitive is the category and what is your share in it? If you have a very small share then there is less to lose – however the higher your share the higher the cost. Also a bigger share usually means a larger customer base for your competition to attack and entice. 5. What is the degree of competitive advantage enjoyed by your product/service? If it is great then losing the original name may well erase the advantage. Often products have real advantages which get overshadowed by competing brands and these products from less entrenched brands lose out. So just to have a
tangible competitive advantage is no longer enough. It needs to be entrenched in people’s mind space and must be one that actually drives preference during purchase. As always the brand name is key to it. Remove it and your risk losing that advantage even though your product might continue to enjoy it. 6. Heritage. As Kodak becomes more competitive in the digital imaging space will the name become a drag or does the name stand for something bigger? GM created Saturn to avoid some of the disadvantages of the GM name and the GM “way.” Toyota created Lexus to be able to appeal to a consumer who would not consider them as Toyota no matter how good their cars were. But Toyota did not change its name nor did GM. Does your brand have a cache, a history, a space enshrined by time? Does it stand for something much bigger than just its product or service attributes in people’s hearts just as Coca Cola found out with “new” Coke. Sometimes brand custodians and owners underestimate the real value of their brands. It is sometimes more than just the socalled “asset” value of the brand. The brand has an “emotional” value that can transcend its monetary value. It is important to understand that emotional value before changing its name. 7. Finally the impact on the distribution network can be important. An effort to change the flagging fortunes of a brand by renaming it and spending crores behind it can be completely negated by a retailer saying, cynically, “Yeh to wohi cheese hai – sirf naam badal diya hai.” Or the pernicious “Aap zaroor le lo par mein garantee nahin le sakta.” Hence impact on those who will “sell” the new brand needs to be realistically evaluated. Ah for the days when, as captured by the immortal bard Shakespeare, names merely identified people. ‘What’s in a name? That which we call a rose by any other name would smell DAR E as sweet.’ The author is Director-Strategic Planning at M&C Saatchi NOVEMBER 2007 61
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Build your big dreamKiraninMazumdar-Shaw stages I
t’s well known that you started in a basement. How did you get your first customer? I had two types of businesses. In terms of the Papain extract I had a custosmer right from when I started so that made my job a lot easier. You can have great ideas, you can have a great business concept, but I think what determines your success is your ability to market that concept or that idea. If you don’t have a market which accepts your concept or your idea, it becomes very difficult to make a success of your business because what most entrepreneurs like to see is some early acceptance of their ideas. That gives you the motivation to keep continuing. I started Biocon as a jv with an Irish partner. My partner was the customer for the Papain extract. That way, I had someone who was willing to back me in terms of creating the business. The second thing that I had to do was to create a market for other products. I had other enzyme products from my partner to introduce into the Indian market. So, for me as an entrepreneur, I felt that the bigger challenge was to really create a market for these enzymes in India, in a market that did not even have any concept of enzymes. To me that became my personal challenge... because I felt that if I could create a market for those products, then my business had a future. But yes the challenge was to make the product and make it of a quality that was acceptable to my partner. But I knew that the partner was going to be patient and helpful in achieving that quality.
plane, which made them at least try out my products. So the first products I sold were trial products and I had to do a lot of conceptualizing to get acceptance of these new ways of processing with enzymes. I think my main challenge was in hand-holding them: “I am going to help you use these products and I am sure you will benefit from them.”
In the Indian market who was your first customer? My first customers were the breweries and of them my first customer was United Breweries.
How did you convince Sri Kumar to join you? He was working with our enzymes at IIT Delhi for his Masters. When he had to go for his PhD program overseas, he came to me for advise on which PhD program to join. I said, I want to set up an R&D division; why don’t you help me set up this R&D division. It’s like your real life PhD. I think I was able to convince him because I made it very exiting. He just stepped
How did you convince them? Fortunately I was a brewmaster. Because of my brewing background, I was able to talk to the brewers on a technical 62 NOVEMBER 2007
When you were starting up, who was your first key employee? When I started my company, my first objective was to set up a unit for enzyme production. So I had to look for someone who had knowledge of production or mechanical engineering. Naseer Ahmed was actually a mechanic, who used to work in an automotive-parts manufacturing company... What was the big dream in those days? There were no big dreams in those days. The dream was just to be successful in producing Papain and in creating a market. The big dream started much later. Once I had started making Papain and marketing products made by my Irish partner, I wanted to do something beyond Papain. I wanted to make microbial enzymes and that’s where my real team building started. This team was people who shared my vision of building R&D capabilities, building innovation skills, etc. At that time Sri Kumar Suryanarayan joined me as head of R&D and he is the one with whom I set up the R&D vision.
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DARE.CO.IN
When you get to a certain size, strategy overtakes emotion
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/icon My advice to entrepreneurs is to learn to differentiate. In fact if you want to look at others, see what you can do differently that makes you unique. For me also, today my biggest challenge is how do I constantly differentiate
If you start to benchmark yourself early, you are likely to be very disillusioned if you donâ&#x20AC;&#x2122;t do certain things
Itâ&#x20AC;&#x2122;s important for everyone of us to make time for activities that go beyond our own company
If you are looking at a product-based business, inherently it requires gestation time 64 NOVEMBER 2007
/icon down from his operational responsibilities and is chief scientific advisor to the company. Before Sri, Muralikrishnan joined me. Muralikrishnan used to work for our audit firm. When I wanted a good finance person, my auditor suggested his name. He continues to be the CFO. Then I had to take a marketing person. That was Ajay Bhardwaj. Ajay was working with Max India. He heard about me and wrote to me. He said: I am looking for an exciting opportunity and I liked some of the stuff that you were doing. He was actually a project manager and was not at all in marketing! But I felt he had the personality to be a marketing head. He started his own company a couple of years ago. And then Arun Chandavarkar joined. He was finishing his PhD at MIT and he wanted to see whether there were good opportunities in India. So he came and looked around and was very excited with what we were doing and joined as the chief technical person. Today he is the COO. So you are saying that the team called Biocon started with the R&D department. At that time what was your dream? Did you think that it would become what it is today? No, I don’t think anyone can dream like that. I really think that a dream is an evolutionary process, which becomes bigger and bigger and bigger. I don’t think anyone can say on day one that I am going to be the biggest company in the world. I think that becomes a very unrealistic goal especially those days in a country like India. So, running a biotech company those days, there is no way I could have said I will become the biggest biotech company in the world or anything of that sort. You keep moving up the scale. You start very small, you just have that dream — let me run a successful company. Then you go to the next level saying, ‘oh, let me become a really innovative R&D company and let me start building my business based or new products and let me look at creating global markets’. Slowly our aspiration became that we must become one of the most well known specialty enzymes companies in the world. That was my dream when I started R&D. For this, I said, let’s be the big dadas in Pectinase. And we actually became top three. How difficult was it for you, who had built up the enzymes business hands-on, to reach the decision to sell it off? In the early 90s, we made the transition from enzymes to bio-pharmaceuticals and that was the time when we did some brainstorming and said, if we really want to grow rapidly, we cannot be focused on specialty enzymes. We will have to look at some other sector or other opportunity to really take us to the next level. That other opportunity became bio-pharmaceuticals. When I finally took to the decision of divesting enzymes, it was less than 10% of our overall business. When you build a business there are emotional aspects, but then there are strategic aspects to a business decision. And when you get to a certain size, strategy overtakes emotion. I think that’s important to remember this as you grow. You cannot have emotions in preference to business strategy and what is important for the business. Then you can never really build your business to a level that makes you a very successful company. In the case of enzymes we realized that
DARE.CO.IN if we really have to grow this business, we needed to invest in it pretty substantially. And that was a toss-up because our biopharmaceuticals business also needed lots of investments. We had to take a call at that point whether to invest and focus on our bio-pharmaceuticals business or enzymes business. Do we invest in both and dilute the amount of investment that we needed in each one of them? And it became very apparent to us that our bio-pharmaceuticals business has a much bigger future for us than the enzymes business. So we felt rather than stagnating that business and also not doing justice to the enzymes business, it is better we divest enzymes and let another company do justice to it. It is about people as well. We have to be honest about giving opportunities to your own people and we felt that by not growing the enzymes business we were stifling growth opportunities for our own people. Therefore, what really gave me the final strength to take that decision was the fact that I owed it to my people. The people factor was a strong driver of that decision because I believe that you have to look at the future of a company as the future for your people. If you want to create a great organization, you have to create a sense of ownership and excitement for your own people. If your people feel that you are not investing enough in their future, then you are not going to be that successful. But if people start believing that you are really investing in their future then you have very strong prospects for success. You went on to sell directly across the globe. How difficult was this at a time when India was not a favored source? Good question! We had a lot of help from our partners because there was a huge credibility hurdle to cross. In fact our partners for a long time had to hide the fact that the product came from India. So it was shipped to Ireland and then Ireland would do the billing after taking away the India label. This happened for the first four or five years, but then very soon I said; now that the product has become successful I think it’s about time you give us due recognition with your customers. That’s the time we started meeting with their customers and then we started bringing customers to India so that they could see how these products are manufactured. What about Indian markets? Here, we had a large, diverse customer base. We had textile companies, and we had baking companies starch companies processing and distilleries. Thus we had Jagjeet Industries making Ovaltine and Maltova on one side and we had textile companies like Arvind Mills. We also had companies like Riddhi-Siddhi Starch using it. Later on we had paper mills. Enzyme selling is not just about selling an enzyme. There were a lot of application technologies to be developed in a very customized way for each industry. So we developed an excellent marketing team and that’s what made us number one in India. It was our ability to customize solutions for our customers with our enzymes that did the trick for us. Others could not then get that business because once your process get set and you are getting certain efficiencies you don’t want to touch it. NOVEMBER 2007 65
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You started off small. Today is there still an opportunity for someone to start small and become the next Biocon? I think there is a need to go through one phase which is going to be small. If you want to enter with a services model you can start reasonably big. You can certainly start by being a company which has a million dollars of revenue in the very first year.But if you are looking at a product based business, inherently it requires gestation time. So you have to start small and then grow big. And it is very important for people to go through that initial phase because that gives you a lot of insights into the challenges of setting up a biotech company. It’s about a problem solving approach that helps you to grow big. When you talk about ownership, it’s about problem solving. There is wonderful saying that I believe in; that it is really about owning a problem and not a task. But I don’t think they need to start in a garage anymore because there are lots of support systems available today. For any entrepreneur to feel that they are succeeding they need to have a road map and they need to keep constantly measuring themselves in terms of growth. In our times we had the luxury of slow growth. Today that luxury is not there. There is a lot of pressure on companies to perform and show that they can succeed in a very short period of time. So that is the big difference. If I was to start Biocon today, I don’t think, I would be given five years to build up a business of only 60
lieve that it’s important for everyone of us to make time for activities that go beyond our own company. I think people like Mr. Narayana Murthy and myself and others have actually gained much more visibility because others haven’t been willing to do that. And that is observed in business as well. So there is a positive side to it, but we are not doing it just to let it rub off on our business. We are also doing it because we thought India also had to be showcased. Because we had credibility hurdles to overcome, it was important that India be accepted as a very strong player in these sectors. How operationally involved are you in the company now? I am still hands-on in key areas, but my operational involvement over the years has been delegated to my colleagues. But when there are key issues, I am involved. For instance, I am very operationally involved in our Discovery programs because that’s a very important future for the company. I am very operationally involved when it comes to new launches because, again, that is very key to the company’s success. I am very operationally involved when it comes to recruiting key talent for the company, especially at very senior levels. I don’t know a lot of what’s going on in the organization. Up till we were about 300 to 500 people, I used to know almost every person by name. Today I don’t. Initially I used to get involved with every single recruit in the company but today I don’t.
MANTRA/IF YOU WANT TO CREATE A GREAT ORGANIZATION, YOU HAVE TO CREATE A SENSE OF OWNERSHIP AND EXCITEMENT FOR YOUR OWN PEOPLE lakhs! At the same time, today the market is very accepting of biotechnology. The opportunities are much larger. So with challenges also come opportunities. You have been possibly a larger brand than Biocon itself? I don’t necessarily agree with that. I think we go synonymously or I would say I am synonymous. I would not say I am more. Basically someone had to be pioneering in this sector. Obviously I am very well known and I guess I have a personality that is very communicative and very interactive and I have always made time to make sure that I showcase Indian biotechnology on the world stage. I think that’s what has given me that kind of visibility and that image. It had a very positive rub off on Biocon because, through me, Biocon also has a strong image globally. It is not fair to say that Biocon has an image which is smaller than mine. Biocon is a very well known brand globally. Today, I happen to be recognized and felicitated on various global platforms and therefore I have this sort of image, and when it came to someone holding up the flag of Indian biotechnology, I was willing to do that. I think a lot of people who have had the ability to do the same haven’t really taken advantage of that. When I was asked to lead bio-tech delegations from India, I was willing to do that because I really be66 NOVEMBER 2007
For someone starting afresh, what tips would you give to become the next you? First and foremost, when I started my company I don’t think I kept wanting to be another company. When any entrepreneur wants to start a business, focus on what you want to do with the business. You can start benchmarking yourself after you grow to a certain size. If you start to benchmark yourself early, you are likely to be very disillusioned if you don’t do certain things. The first phase of any entrepreneur should be focused on buildings the business fundamentals. So just focus on that and once you build the fundamentals, growth will happen and you can leverage growth very easily. If you don’t build strong fundamentals and you are constantly trying to imitate what somebody else is doing then you are likely not to succeed. So I always tell people to try and create their own DNA. It’s very important if you really want to be a very successful entrepreneur that you don’t model yourself on somebody else, because then you will always be a follower. If you want leadership you have to create your own unique DNA identifiers. I don’t think Sunil Mittal had to model himself on any other business. I don’t think Narayana Murthy had to model himself on any others other than himself and neither did DAR E Mr. Premji for that matter.
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case/INSEAD
: Can India spawn a billion-dollar high-tech leader? /Philip Anderson
S
rini Rajam walked into the Descartes Room of Ittiam Systems’ offices and noticed that someone had left his mobile phone lying on the long table. Like all of the rooms at Ittiam, the conference room was named after a philosopher, and on this typically balmy January day in Bangalore, Rajam was in something of a philosophical mood. He noticed that the phone was a Nokia model, and the thought occurred to him that Nokia in a way represented his dreams for the venture he had cofounded in 2001. If a typical technically savvy person were asked to name a technology company in Finland, he surmised, he or she would think of Nokia. If one were asked to think of a technology company in India, he or she might think of Infosys, or of his old employer Wipro, the two leading giants in computer services, best known for business process outsourcing. Rajam had great respect for both, but in his lifetime, he also wanted to see India known for producing leading-edge technology. He
and his co-founders had left Texas Instruments to pursue such a dream. By early 2006, Ittiam had made a name for itself as a leader in a narrow but vital technology sector, intellectual property (converted into software) for digital signal processing (DSP) chips. Ittiam had been named the world’s most preferred supplier of intellectual property for DSP’s in a worldwide survey of DSP professionals in 2004, and that was something to be proud of. India had long attracted leading multinationals to locate R&D facilities in India, tapping into the country’s deep pool of technical talent; now, Indian-owned companies like Ittiam were gaining recognition as technology providers. Ittiam’s software underpinned some of the coolest consumer electronics devices on the markets, such as handheld media players and video phones that communicated over the Internet. However, Ittiam itself was known only within the community of experts in digital signal processing applications.
Rajam dreamed that just as Nokia had made Finnish technical prowess wellknown, Ittiam would help the words “made in India” stand for cutting-edge, excellent technology. In the longer run, Rajam wondered, how would the firm have to evolve to realize this vision?
Ittiam’s growth to 2006 Srini Rajam had been influenced by some successful entrepreneurs he had met early in his career, but he did not seriously begin to think about starting a company until 2000, some 15 years after he had joined Texas Instruments. He muses: “I come from a typical middle-class family, and most of the Ittiam founding team is like that. A new breed of entrepreneurs in India is starting up with absolutely no family background in doing business. You can call us the zero generation of entrepreneurs, since there is no track record of entrepreneurship in the family. My brother is a senior vice president with a Japanese company;
“When you become an entrepreneur, the next day you are walking into a twoperson business center and you can’t even get a coffee without going to a restaurant. You have to do it for love-no one should become an entrepreneur unless you want to do this sort of thing and go through the struggle.” — Srini Rajam 68
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case/INSEAD my sister is a housewife; almost all the Rajams are employed by other people. India has some traditional entrepreneurial communities, for example the state of Gujarat, whose people often become entrepreneurs by default. Southern India, in general, has not been very strong in such traditional entrepreneurship, but people like Narayana Murthy have broken that stereotype. Most people like him came from the conservative middle class where the best thing is to get a good job, preferably a government job.” Ittiam was founded in early 2001 by five engineers who had many years of experience working with one another at Texas Instruments (TI). Rajam stepped down as Managing Director of TI India to start the company, and was joined by Andrew Bhagyanathan, Sattam Dasgupta, Ravishanker Ganesan, and Shantanu Jha. Two other former TI colleagues, Rohit Buva and Vikram Bose, joined soon after, and the seven formed a close-knit management team throughout Ittiam’s first five years. Their shareholdings, along with that of the people of Ittiam (referred to as Ittians), constituted a majority of Ittiam’s equity in 2006. Each of the five original founders put in some seed capital to launch the enterprise, which they named “Ittiam” as an acronym for René Descartes famous assertion, “I Think, Therefore I Am.” The name was meant to convey what each founder saw as Ittiam’s fundamental competitive advantage: the brainpower of its people. Ittiam had nothing to sell except the product of pure thought, its intellectual property. The team rented a business center, started basic programming operations, began looking for clients, and put advertisements in the paper seeking skilled employees. Rajam recalls:
“What I remember about the early days of Ittiam is that there is absolutely no job definition for an entrepreneur. I was the lead founder, so I became the CEO, and other founders became vice presidents, but in the initial period, there is nothing like order or definition. It is an absolutely free environment, and it’s up to you to make the maximum use of it. Vikram called me the chief sales engineer, since I went to most customer meetings. I had the most contacts, so it was like being a sales guy. All of us were HR guys, interviewing people. Everybody did everything to get the company going. Sattam created our office space in the most unique way, doing a facility manager’s job. You are trying to create a company, and every aspect of the company is important. You have to make sure that collectively people are taking care of everything. You end up doing what is not already being done, and if you are the CEO, some of the things you do are not so interesting. You have to do whatever it takes and have no hang-ups.” Rajam remembers the company’s first year fondly because Ittiam had to build a business up from nothing. He recounts: “In India, being the head of TI for the country is seen as a cherished position, but when you become an entrepreneur, the next day you are walking into a two person business center and you can’t even get a coffee without going to a restaurant. You have to do it for love--no one should become an entrepreneur unless you want to do this sort
of thing and go through the struggle. If I could repeat one year, it would be 2001. It is the most important because that was when we got the real experience of being entrepreneurs. You are nobody and you are not valued for your name or background, only for what you do. The customer wins we got in 2001, like Silicon Labs and Sony, we got with nothing, and that is why I value them so much. The mindset, the spirit, and the desire to like those niggles and struggles is what is important if you want to be an entrepreneur.” The track record that the founders had built up during their years at TI helped them open the doors of potential clients and potential investors. Ittiam’s credibility was boosted vastly when in April 2001, it received $5 million in firstround financing from Global Technology Ventures (GTV)1, a Bangalore-based venture capital investor. The team chose GTV in large part because it established an immediate rapport with managing partner V.G. Siddhartha. Says Rajam: “He had gotten in touch with me as soon as TI and I announced in November 2000, that I was leaving to start a company. He comes from a modest background, and received the entrepreneur of the year award himself from the Economic Times in 2003, for his Café Coffee Day chain. He also funded MindTree, which is a well known firm in the Bangalore IT industry. We chose GTV, even though I was talking to other prestigious venture capital firms, because I could see the same spirit in Siddartha that we had, the passion to do something quite new from India’s viewpoint. Other VC’s wanted us to keep services as a fallback; they wanted a safety net that would put us back in the mainstream if we faltered selling intellectual property. He bet on our idea, and said he had already funded a lot of services compa-
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DARE.CO.IN nies, so do this and succeed or we’ll give it up. Without him, we couldn’t have started Ittiam, since he thought exactly as we did. We also needed someone who was well-funded, but who could act as quickly as an angel investor does. Some of the other VC’s go through several months of process; after our initial discussions, he did the term sheet literally in one day.” During its first three years, Ittiam built up a steady stream of products in the audio/video, VOIP, and wireless LAN arenas. Digital signal processors are general-purpose devices that require software to perform specific functions, such as playing a video or connecting to a wireless network. Ittiam provided the software that device manufacturers packaged with DSP’s to power systems such as video players or broadband modems. Ittiam licensed its software to its customers and retained the rights to this intellectual property (IP). Almost all of its revenues stemmed from developing and licensing original IP, though occasionally Ittiam charged customers for services needed to customize or modify specific packages. Ittiam swiftly built up a reputation among companies that used DSP’s in their products. In 2002, it introduced an MPEG-4 based audio/video system and a VOIP signal processing subsystem. In 2003, it introduced key software for 802.11 (WiFi) wireless LAN systems. In 2004 it introduced three complete prototypes (“reference designs,” described below), a portable
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case/INSEAD media player; a video phone that used Internet Procotol, and a television set-top box that used Internet Protocol. The company turned profitable by April 2003, and closed the financial year ending March 31, 2004 with revenues of $4.78 million and a net profit just over $1 million. By 2005, with 28 patents filed, more than 75 customers worldwide, and over 160 DSP system experts employed, Ittiam had become a force to be reckoned with in the DSP world. It was named one of Asia’s 100 hottest privately-held companies by Red Herring magazine, and received an award from the Indian government as first among the fastest grown small and media enterprise companies. In December 2004, Siddartha persuaded the team that it was time for Ittiam to raise expansion capital from a large institutional investor. Says Rajam: “We had turned profitable and announced it, so we didn’t need capital to sustain our basic operations. Our revenues were sustaining 100 people, and we could have continued forward this way, but GTV said we needed to grow faster. If you want to grow, you need new products, you need to hire managers in places like Taiwan or the US, and you need to leverage up your strengths. We decided we’d accept dilution and we talked to a lot of venture capital firms. Bank of America believed that what we want to do is achievable, and said they’d be with us for five or six years in order to create a leading technology company from India. The valuation and the
terms and conditions worked out well, and they matched our long-term vision. Their Managing Director for Asia and their chief investment officer (who works out of Chicago) both offered to be on our board, showing how much importance they associated with the investment, even though it was not such a big number at $6.5 million.” In 2005, the company re-organized, to reflect changes that had occurred and that were anticipated in the DSP sector. Ittiam’s System on a Chip (SOC) unit, headed by Ravi Ganesan, focused on wireless LAN applications and other opportunities to develop silicon IP (described below). The media processing business unit, under Shatanu Jha, concentrated on audio/visual applications such as personal media players or digital cameras. A new media streaming business unit was formed to push the VOIP business to the next level, encompassing products such as the IP video phone, the IP set top box, and various forms of media distribution over the Internet. This is led by Sattam Dasgupta. Says Rajam: “We realized that a lot of applications would lie at the intersection of multimedia and communications; we saw a lot of activity cutting across this area. So we created a third business unit for media streaming applications. We call it media over IP—it includes streaming voice or video over IP networks. Sattam took that over, while Ravi and Shantanu swapped divisions so each could keep aware of challenges in other businesses. Now we have three business units, and each has its own embedded engineering.” From the start, Ittiam intended to license intellectual property, instead of performing contract programming for customers. The venture’s founders wanted to create a great Indian technology company, not just another serv-
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ices company. Rajam also had practical reasons for preferring the licensing model, explaining: “In a services model you undertake a project and are well paid for it, but there is no IP right that stays with you. The customer owns everything, and you can’t reuse anything you created. You cannot sell the same component or system to another customer; you do it once and get paid once. You can negotiate price but you do not grow from strength to strength. In contrast, you try to resell IP that you own as many times as you can. The catch is that one particular customer may not pay as heavily as a service customer would have. They might pay a fraction of what it cost you to create the IP. Over its lifetime you hope you get more value. When we create IP, we try to come up with an idea of the fair market value today for it. A service model may say that 20 people worked on a project for a year so pay an amount based on that, but we need to establish a market value.” Ittiam came up with a model for charging customers that was meant to give them a choice of how much risk they wanted to bear. Rajam amplifies: “Say the market value for a personal media player design with 10 algorithms is $500,000. The customer can pay that up front and do what it likes with the design, having no further li-
ability to pay anything more to Ittiam. However, many customers, especially in Asia, don’t have that kind of money, and they are not sure whether their product will succeed. So we’ll share risk by having them pay a fee up front, say $100,000, and then a royalty based on every unit they sell that was produced with our technology. We’ll take a fraction up front and hope the rest will come over time. From their viewpoint, we are sharing the risk they bear; the damage is capped at $100,000 if they don’t succeed. Of course, we hope we’ll earn much more than $500,000 if they are successful.” Ittiam’s founders aimed for a revenue mix of about 2/3 licensing fees and 1/3 royalties. Says Rajam: “It’s kind of a sweet spot. When royalty revenues dominate, it means you are living on your previous designs, not creating enough new designs. For the future of the company, you should be getting licensing revenues that represent new customers for the future.” Ittiam’s top management team felt that their venture investors had a right to expect the firm to reach a size by 2009 or 2010 that would permit them to exit, if they wished. If Ittiam had revenues by then in the vicinity of $25 or $30 million, they believed an initial public offering (IPO) on the Mumbai stock exchange would be feasible. If the market
capitalization were in the $100-$150 million range, in line with comparable valuations elsewhere in the world, the investors would enjoy solid returns. The investors might choose to delay an exit until the company had achieved another leap in valuation, but management was firmly committed to ensuring that the investors would have an exit option within a 3-4 year time frame. Yet Rajam believed that even in 2007, Ittiam should think ahead about how to achieve its long-term goal: building a well-known, highly-respected Indian technology company by 2015. Says Rajam: “We didn’t leave TI to achieve the shorter-term goal. Our passion was to create an Infosys equivalent in the technology sector. If you try to characterize that point, it may be very high. We also have commitments to hit an intermediate target along that road.” Accordingly, he wondered whether after several years Ittiam would have to change its business model, moving beyond licensing and royalties. He comments: “If you think about the maximum height of our current business model, a good example would be ARM2. They have £150 million in revenues, are a good respectable size, and 2/3 of world’s mobile phones have ARM IP inside. They have influence; people respect them, and look forward to their road map. In a sense, if we create a company like that, it is a world-class technology company, even if the size is not that big.” In six years, the Ittiam team had shown how entrepreneurs could take advantage of India’s brainpower to build a profitable company that was a leader in its technical area. Executing the present business model in order to grow the business to a critical mass was the order of the day in 2007. Yet Rajam wondered what Ittiam might be doing in 2012 in order to pursue the founders’ dream of building a made in India technology company with a billion-dollar DAR E market capitalization. 1 2
http://www.gtvltd.com http://www.arm.com/;see http://uk.finance.yahoo.com/q?s=ARM.L for financial information.
INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Center for Entrepreneurship and Director, 3i Venturelab NOVEMBER 2007 71
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E. SREEDHARAN If the Delhi Metro is still running spick and span three years after starting service, and if people feel more safe travelling by Metro at midnight than in the citiesâ&#x20AC;&#x2122; buses in broad daylight, credit goes to this railwayman brought back from retirement. He has in the process set new benchmarks for public transport systems and every state is rushing to build its own metro and to have him build and run it for them. The fact that the Delhi metro is just one of two in the world making proďŹ ts is not entirely incidental! 73
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Mobile Spectrum release to unleash downstream opportunities As the government prepares to release more telecom spectrum to new players in every circle, new opportunities open up in related sectors. This piece looks at opportunities in the infrastructure space /Sreejiraj Eluvangal
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ndian wireless operators are expected to spend Rs 40,000 crore ($10 billion) this year, as they try to capture as big a share of the world’s fastest growing wireless market as possible. From around 40% of the geographical area at the end of last year and around 60-65% of the population, industry and analysts expect the wireless network coverage to hit 85-90% of the population by the end of 2008, thanks to the frenetic roll-out. This year’s wireless expansion, involving the setting up of nearly 80,000 new towers (twice the last year’s figure) is already giving the biggest spin-off opportunities to downstream Indian companies in the telecom infrastructure sector. However, the government’s move to introduce 2-3 more operators in each circle by releasing more spectrum will change the rules of this game. From a market dominated by two or three large players, the entry of more aspirants with almost nothing on the ground and short time-to-market requirements will play a crucial role in further opening up the passive, radio and network sectors.
The Infrastructure Operators need broadly three types of network infrastructure. First they
Why the scramble for spectrum? Radio spectrum or Spectrum is the pipe that carries wireless communication of all types. It is measured in MegaHertz (millions of cycles per second) and for this business is like dough for a bakery. It is certainly not possible to start a wireless service without being allocated spectrum, just like it is not possible to make bread without having dough. To complicate matters further, unlike dough whose supply can be increased by increasing wheat cultivation, there is a finite amount of spectrum — currently around 35 MHz — that is available for commercial operations and is leased out by the government. To start a wireless service in a given area, a new operator requires around 2.5-4.4 MHz, depending on the technology. After nearly a year of wrangling between the department of telecom and the defense ministry, we are about to see about 105 MHz (25 MHz for GSM services, 50 MHz for high-speed mobile and 60/2 MHz for wireless internet services) being released for commercial services, setting off a frenzy among aspiring wireless operators. From around four applicants in the queue till about four months back, there are around 2530 applicants for each circle now. Who gets to lay their hands on it will depend on whether the government decides to auction it or give it again on a first-come-first-served basis, among existing and new players. need dead or passive structures such as towers, sheds, diesel generators and a piece of land or rooftop to host them. Secondly they need radio equipment such as antennae and the associated electronics such as base-station which are mounted on the passive infrastructure and finally a core network to connect all the base-stations or towers. Once the towers and the antennae are
in place, they also need a core network to connect all these elements with each other. This is made up of fiber, the traffic-control and routing equipment and so on.
Passive Network The biggest opportunity from the massive roll-out (not counting content and applications) is and will continue
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ance Communications are together spending around $6 billion on exEmerging opportunities pansions this financial year. The Passive third biggest operator, Vodafone EsTo provide a readymade backbone of towers, sar, seen as a laggard in the capex race, last month revised its standing power, etc. for new players. capex guidance for the year from Access $1-2 billion. In addition to these To enter the equipment manufacturing private players, state-owned Bharat business with the emergence of new Sanchar Nigam too in July gave a technologies like Wimax. $2.2 billion (Rs 8,800 crore) contract to Ericsson and Nokia-Siemens NetCore works (NSN) to expand its wireless 1. To provide a nationwide fibre backbone network over the next one year. It for the new operators. is expected to come out with one 2. To provide managed IT services more jumbo tender in a year. Around 75% of the $12-13 billion of capex by Indian operators will be to be in the passive infrastructure. The spent on wireless network expansion. passive infrastructure market includes, The remaining amount will be spent besides equipment, a large service on corporate and broadband services. The size of the passive infrastructure component estimated at around 30% of the total market comprising of net- market is calculated using the number of new cellsites expected to be put up. work design and project execution. Currently, nearly all of the passive According to industry inputs, the cost infrastructure roll-out is handed out of designing and putting up the pasto contractors, and the sector is in a sive parts of each site comes to Rs 20fragmented state. Only one player, 25 lakhs. With around 80,000 new sites GTL, has anywhere close to national likey to come up this year, the passive reach (west + north), and is consulted infrastructure equipment and instalin large scale roll-outs. For continu- lation market is alone worth around ing incremental expansions, operators Rs 18,000 crore (about 50% of the total rely on small local contractors. Even wireless capex) during FY 2008. The figure has doubled compared where a roll-out is handed over to a big contractor like GTL, operators keep a to last year as cut-throat competition tight control over expenses by using a has forced operators to go all-out this services model where the equipment is year to capture the ´early adopters´ in the new rural and semi rural areas billed directly to the operator. For businesses supplying tow- being brought under wireless signals. ers, sheds, generator sets and most This has in turn given the passive inof the ´dead´ infrastructure involved frastructure contractors like GTL a in bringing a mobile network to real- shot in the arm. ¨The pricing pressure ity, times have never been as good. that was there during the last two years 2007 has been a blockbuster year for has also eased a little bit,¨ says Charu the sector. It saw operators setting Datta Naik, COO of GTL. But strangely, companies like GTL apart huge sums of money for capital expenditure. Bharti Airtel and Reli- are being forced to think out of the
box to maintain revenue streams even beyond 2008, by when the pace of network roll-out will start slackening. Population coverage of wireless networks, presently around 65% is expected to reach 85-90% by 2008-end. The remaining consumers may be too spread out to be profitably tapped by wireless operators. Another factor, which may bring down the pace of expansion later is the provision of more spectrum to existing operators by the government. Taking the cue from multinational wireless electronic equipment vendors such as Ericsson and Nokia Siemens, who have repositioned themselves as managers and not just manufacturers, GTL and others in this space started the so-called ´tower companies´ a year ago. These companies either set up new towers or buy existing ones from the operators and then offer a complete passive infrastructure solution. In return for a rent of a few thousand rupees per month, they offer their towers for operators to hoist their antennae and other electronics. They also assure them of uninterrupted power supply and security. While GTL spun off a services arm called GTL Infrastructure, others like Quipo Telecom Infrastructure and Essar Telecom Tower and Infrastructure entered the fray a year ago. However, the initial enthusiasm soon vanished as they realized that their customers (the operators) are themselves entering the business of setting up and leasing networks. Not only were Bharti and Reliance going to compete with them in the same space, they also had a national coverage to offer to a new company. The hopes of passive infrastructure providers to be the vehicles of their expansion suffered a setback. At the same time, the
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opportunity/infrastructure expansion of the smaller players like Idea Cellular, Vodafone Essar and others who did not own infrastructure leasing companies, were caught up in red-tape as the government delayed the issue of extra spectrum to them. It is under these circumstances that the current move to allocate new spectrum brings in infrastructure opportunities by the cartload. On the one hand, it will restart the expansion of the not-yet-national operators like Idea and Vodafone Essar while on the other fringe players like the Tamil Nadu operator Aircel Cellular and the Karnataka and Punjab operator Spice Communications will also get a chance to go national. The smaller players will need to rapidly roll-out their networks across the country, possibly with very little initial investment. They will look hard at the sharing model offered by infrastructure leasing companies. Independent tower leasing companies also have the advantage as operators are more likely to trust them than a tower lease company owned and controlled by their competitors. Existing operators too may not be very keen to let the new entrants promptly reach the market by rolling out on theri nationwide networks. Says Prakash Ranjalkar, the man in charge of GTL managed services unit, ¨We can offer them a completely impartial treatment¨. There are, however, problems with this scenario as well. Skeptics point out that number of towers that the independent tower companies currently own are insufficient to support a nationwide roll-out. The half a dozen such companies currently in business, between them account for only around 6,000 out of the total 150,000 cell sites in the country now. Many of these are concentrated in urban areas, especially in the west and north. A decent nationwide roll-out will require at least around 16,000 towers. However, as a ray of hope, big operators have begun saying that they may not be averse to selling controlling stakes in their tower companies, particularly to Private Equity players. A global leader American Tower Corp. is also on the lookout for acquiring tower assets of operators.
Ranjalkar expects some of the towers owned by the operators to change hands. ¨The industry is not totally dependant on putting the towers up from scratch, some of the existing towers with the operators can also come into this pool through acquisitions or other agreements,¨ he says. Indeed in many developed markets, the management of shared infrastructure like the towers has passed on to independent, third party companies, who bought them from operators. We see this as an opportunity ripe for entrepreneurs to explore. The returns from the business can be huge, particularly if the player manages to achieve a national footprint. At an average of Rs 7,000 per site per month and assuming that just 50% of the towers are managed by independent operators, the opportunity in passive infrastructure management market will be worth around Rs 1,100 crore by end of 2008, from almost nothing six months ago.
Access Network Besides the passive networks, the wireless network market is divided into two parts - the access or last mile and the core network. On the access front, Ericsson and NSN dominate the GSM market and CDMA is dominated by Motorola and Chinese manufacturers like Huawei Technologies and ZTE Corp. While nearly a quarter of the existing users are on CDMA networks, operators are increasingly shifting their focus to the faster growing GSM segment. As a result, the technology is expected to account for less than its share in the operators’ capex this year. A recent regulatory change making its license valid for GSM services, though likely to be challenged before the courts by existing GSM operators, will also divert more than half of the
operators expenditure on access networks to the GSM market. Together with the fact that all the new entrants have applied for GSM spectrum, GSM is likely to account for more than 80% of the wireless access network equipment market this year. Over the years, the Indian GSM market has morphed into a two-supplier market with nearly all the sales being accounted for by the two European vendors - Nokia Siemens Networks and Ericsson. Even low-cost Chinese manufacturers like ZTE Corp and Huawei Technologies have found it difficult to get their foot at the door as the two companies have not only held onto, but even increased their market shares in nearly all of the Indian GSM network equipment market. So, where is the opportunity here? The emergence of newer access technologies like Wimax - a new technology with the potential to completely replace the two existing ones - is opening up opportunities for new entrants. Many Silicon Valley start-ups around Wimax have focused their energies on India. They anticipate India, China and other developing countries to be the big markets for the standard as the more developed markets like Western Europe and North America have already been tapped by high-speed third generation cellular (3G) technologies.
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The huge potential notwithstanding, the current market for Wimax equipment in India is very small, especially when compared to the Rs 5,000 crore GSM and CDMA equipment market. However, it has one advantage over its biggest competition - 3G, an evolution of the existing GSM and CDMA standards. Unlike 3G, operators have already placed orders for around 3,000 base stations, almost entirely with Silicon Valley start-ups like Telsima and Aperto Networks. These early installations, mainly with Reliance, account for an estimated 7,000 to 10,000 Wimax subscribers in the country, mostly by Reliance and VSNL. While the numbers have so far been small, vendors expect the next 12 months to be crucial. ¨We expect the total number of orders from India to be close to 5,000 base stations and 260,000 subscriber units for the industry this year,¨ says Protip Ghose, head of sales and marketing for Telsima Corporation, currently one of the worlds largest certified Wimax equipment maker, with a claimed global market-
share of 40%. While traditional wireless equipment vendors like Ericsson and Qualcomm failed to invest into the technology due to their interests in competing standards like 3G, smaller companies like Telsima, Aperto, Wavesat and Airspan took the lead in developing the platform. Telsima is a typical example of the opportunities being opened up by Wimax Backed by venture capital firms like NewPath, CMEA, New Enterprise Associates, Intel Capital and JAFCO, Telsima was started in 2003 by two USbased Indian technology veterans, Alok Sharma, formerly with Juniper Networks, and Vinod Dham, better known as the father of the Pentium chip. The company, along with Aperto Networks, currently enjoy the lion’s share of the Indian Wimax equipment market. Telsimas’ projection of 5,000 base stations and 2.6 lakh subscriber terminals for this year puts the size of the Wimax access network equipment market at roughly Rs 400 crore and that of the end-customer device market at Rs 125 crore. Though the figures pale in comparison to the Rs 5,000 crore network equipment market for CDMA and GSM and the Rs 20,000 crore handset market for those technologies, backers of Wimax are optimistic that this is just the start. ¨The importance of the figure lies in the fact that this is roughly 50% of the global market for certified Wimax products,¨ he says. ¨By our most conservative projections, the market should rise to 7,500-8,000 base stations and 5 lakh terminals next year,¨ he says. Though Telsima is currently the only Wimax equipment vendor to manufacture in India, Ghose says many manufacturers, especially from the Far East, are likely to start their manufacturing operations in the country next year. ¨With that, we should see the
proportion of locally manufactured equipment go from 30-35% this year to 50-60%,” he says. Besides start-ups like Telsima and Aperto Networks, traditional players like Nokia Siemens Networks, Motorola and Alcatel Lucent have also invested into the technology, but into the mobile version. While the bigger companies bet on the mobile version of the technology, which they feel is a better alternative to the mobile-oriented 3G, many of the smaller players are still making the transition. However, with an efficiency ratio 2-4 times higher than 3G, and the need to provide low-cost broadband to rural areas, and Wimax spectrum auction in the offing, the future looks bright for the technology in India. This is perhaps the time for you to look into this technology and its business potential.
Core Network The third opportunity related to the wireless network rollout is in setting up and managing the core network and associated software. Currently, core networks are usually put up and managed along with the access network as part of the same deal by telecom equipment vendors such as Ericsson and NSN, in co-operation with the operators’ IT services partner such as IBM. New opportunities for Indian networking services and IT services companies in this segment rises from a conjunction of changing technology as well as the entry of new operators. Existing players have a core network that is based on integrating their traditional circuit-switched architecture with the newer packet-switched or Internet Protocol (IP) network architecture. The presence of traditional ´black-boxes´ from telecom equipment vendors to control the traffic has prevented non telecom vendors from
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DEEPINDER BEDI/WE CAN TIE UP WITH IT SERVICES COMPANIES TO OFFER A CONNECTIVITY+IT PACKAGE FOR OPERATORS venturing into core network management so far. This limitation however will no longer be valid for a brand new national network that will be set up by a new player. ¨A pure IP core network will be 25-30% cheaper to both set up as well as run¨ according to Rajesh Chainani, head for India for the service provider unit of IT network equipment maker Cisco Systems. ¨Unlike existing players, a new telecom company setting up a nationwide network without any legacy equipment is likely to go in for an end-to-end IP (core) network.¨ While it may sound like a simple technological change, the move will, for the first time, open up the core network installation and management market beyond the traditional telecom equipment vendors. This not only opens up the equipment market to pure IT networking companies like Juniper, CISCO, Nortel etc; it also throws open the network installation and maintenance market to Indian network integrators and solutions providers. Till now, all the installation and management contracts for the core networks of telecom operators have been given to telecom equipment vendors such as Ericsson, NSN and Huawei. According to industry estimates the Indian wireless radio equipment hardware market is around Rs 5,500 crore, including Wimax. On the other hand, the core networks, including design and installation, are estimated to account for around Rs 3,000-5,000 crores of operators´ capex this year. However, a pure hardware market for either radio equipment for core networks does not exist as operators enter into service level agreements, which bundle the equipment cost, design and installation fees and maintenance costs into one deal. In addition, Indian opera-
tors always bundle the radio and the core network together when handing out such expansion and maintenance contracts. Despite this, the sheer size of the combined equipment-installation-management market as well as the changes in technologies is likely to see Indian players make an attempt at the market. ¨There are several ways a connectivity provider like us can look at the market,” says Deepinder Bedi, Director and head of sales at Tulip IT Services, a provider of both basic and managed connectivity solutions to companies to link up their offices across the country. Bedi says IT bandwidth providers like Tulip, Sify etc. can offer a cost-effective and quick core network solution to emerging operators, providing on-demand connectivity anywhere in the country. ¨This will save the new entrant the head-ache of getting a new long distance license, leasing the fibre and then setting up the equipment and building a network on their own,¨ he says, adding that Tulip has already started expanding its last mile network by laying its own cables in many cities. Bedi also says he can involve big IT services companies like TCS and Wipro, which have their own telecom services practices, to offer a complete telecom core network including billing and other support systems. As of now, the model that Bedi is talking about does not exist in the telecom industry in the country as most of the operators have their own long distance licenses and where they do not have fibre connectivity, have leased it from fellow operators. They have then installed their own equipment and built up their core networks. Many however outsource the running of such networks to equipment ven-
dors like Huawei, Ericsson and NSN as part of multi-billion dollar management contracts that also include the management of their access networks, besides the core. Analysts also point out several challenges to such a model. ¨The core network of a telecom operator is the layer that hosts crucial software like the operations support system (OSS) and many business support system (BSS) software which determine bandwidth provisioning, billing, fraud detection etc.,¨ says Alok Shende, head of technology research at market intelligence firm Datamonitor, India. ¨It remains to be seen if any Indian IT services company has the skill and experience to put in place such a complicated network. Besides this, proper co-ordination between the expansion of the access (radio) network and that of the core network will also be a challenge if both are being expanded by two different companies,¨ he says. The networking industry however seems to think otherwise. Mallikarjun Rao, head of wireless at network equipment maker Nortel informs us that they have been involved with quite a few roll-outs, including a recent 3G network in the UK where “the entire core network has been sourced from us and the access elements were sourced from a traditional telecom equipment vendor. We are likely to see it happen as telecom companies put up more and more end-to-end IP networks.¨ As the telcom industry braces itself for significant changes in business models and technologies after the allocation of new spectrum, one thing however is for sure. There is more than enough opportunity for the bold! (A story on opportunities in upstream and associated sectors will be DAR E analysed in a future issue) NOVEMBER 2007 79
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Women in Entrep what does it take to As more Indian women become aware that starting a company is a viable alternative to housework, part-time work and dead-end jobs, India’s entrepreneurial boom is set to gain momentum /Philip Anderson and Aparna Dogra
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ore and more women are forming and starting businesses, and the impact on women in developing countries such as India will be even greater than in supposedly advanced Western economies. That’s one of the insights emerging from a global Women’s Forum held in Deauville, France in September, which brought together high-powered women from around the world to discuss business, policy, and entrepreneurship. Said Samuel DiPiazza, global head of PricewaterhouseCoopers, “In some countries such as Germany and Switzerland, there are cultural and social percep80
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tions of women that make advancement much more challenging. Whereas in the developing world, where there is a huge cry for talent, where there is enormous growth, you must be able to adjust to these norms faster.” As more and more women appear in the ranks of high-growth entrepreneurs, what will this imply for India? Why is this happening? How will it affect men as well as women?
Indians start off with a cultural advantage: most Indians outside the rural heartland know from experience that women can be very powerful. In some cultures, one encounters very few strong, respected women, but in India, they have long been found not
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reneurship succeed?
DARE.CO.IN only at the head of state but elsewhere in politics, business, entertainment, and even sport. Even though few people have close friends or school batchmates of the opposite sex, most would accept that women can be successful leaders because India has plenty of role models, such as Kiran Mazumdar Shaw of Biocon or Shobhana Bhartia of HT Media Limited. While men might think that entrepreneurship among women doesn’t concern them, understanding how and why women succeed in building businesses can give a man a competitive advantage. Men who go to the trouble to learn how and why women perform well in entrepreneurial settings have a big edge over those who don’t. They can spot up-and-coming women whom others have ignored and become an early partner, investor, board member, or key hire. They also can bring into the top management teams of male-owned ventures those women who can make a difference. By mentoring such women, men can build solid relationships of loyalty and trust, because people who are often overlooked develop special bonds of fidelity with those who helped them when no one else would. They can also gain entrée into a growing network of powerful women entrepreneurs that extends around the world. Organizations such as the Women’s Forum have for decades worked to build networks for high-powered businesswomen. Men who work closely with such women are treated with respect and regard and are able to get help, connections, and favors that would otherwise be unavailable. The economic impact of women entrepreneurs is staggering. According to the Organisation of Economic Cooperation and Development (OECD), in Canada, 8,21,000 women entrepreneurs contribute CAD 18,109 billion to the economy. In Germany, 1.03 million women owned-businesses provide jobs for 2 million employees. In South Korea, 36% of all firms are owned by women. Women own a minority of American companies, but womenowned companies enterprises grow at twice the rate of other firms. NOVEMBER 2007 81
DARE.CO.IN What explains these statistics is opportunity, not gender. Exceptionally able men can rise swiftly in the ranks of well-established corporations. So can exceptionally able women, but it’s more difficult, and many women eventually encounter a “glass ceiling,” a level within the corporate hierarchy beyond which few women ascend. Consequently, high-powered women are likelier than their male counterparts to start their own companies. There is no glass ceiling for an owner-manager, the pool of women who found new ventures typically has more experience, education, wealth, and social connections than the pool of men. Even so, a greater number of men start companies because so many more have the assets and experience needed to get an enterprise off the ground. In some countries, the number of women who have the potential to start businesses is small because many women are not in the work force. For example, fewer than 16% of German women with children below six work full-time according to Elisabeth Kelan, of the London Business School. In contrast, many Indian women who have children are able to work full time because of the excellent support network that exists around them in the form of extended families or household help. And for many Indian women, working isn’t a choice; they must work to support their families or to sustain a middle-class lifestyle. Says Bhairavi Jani, Director at the SCA Group of Companies (www.scagroup.in), which offers value-added
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biz /INSEAD services for supply chain activities, “In India, today, consumer needs are changing from basic to aspirational. Lifestyles are changing and one person’s income cannot sustain these. Along with this, women are demanding more flexibility in the work environment. Since they are becoming more self aware, with the rise in education levels, most of these women are also seeking self reliance. More and more women as a result of this are turning to entrepreneurship as a career choice. Since women are now choosing to give up regular 9-5 jobs for a more challenging work environment, the numbers of successful women entrepreneurs is also steadily increasing.” The promise of female entrepreneurs from India is exemplified by Nandini Pandhi co-founder of GreenMango (www.mygreenmango.org). She and her partner, Yasmina McCarty of the Philippines, were among a select group of women who won the first annual Cartier Women’s Initiative Awards, sponsored by the world-renowned luxury goods maker Cartier in association with INSEAD and McKinsey. Cartier and its partners screened more than a hundred projects in the pre-launch or startup phase that had a woman as leader or part of the leading team. Fifteen entrepreneurial teams from five continents made the short list, from which one winner per continent was selected. Pandhi and McCarty were selected as Asia’s best for proposing a virtual mobile-phone-based marketplace for low-income entrepreneurs and their customers in developing countries.
Pandhi and McCarty are tackling three principal challenges that lowincome entrepreneurs in developing countries face: lack of access to credit, lack of business information and poor access to markets. Green Mango intends to set up a platform that will allow subscribers to use the mobile telephone as a commercial interface to conduct transactions that are carried out online where Internet access is cheap and available. The partners hope that the project will eventually provide employment for women who want to work in call centers from their homes in support of the marketplace. Pandhi sees both advantages and disadvantages for women who want to start businesses like GreenMango. On the plus side, she says, “Men and women bring the same amount of passion to their businesses but women are more likely to succeed since they work harder, are more resourceful, build and depend on their networks intuitively, and very rarely have a plan B once they’ve decided to take the plunge.” On the minus side, she says, “There just aren’t enough role models. Most times women don’t market themselves well so nobody knows how good their ideas or business plans are. They might
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biz /INSEAD be great personalities but they tend to be shy professionally.” To some extent, she believes, this is counterbalanced by women’s willingness to ask for help without hesitation or feeling their egos threatened. Fellow winner Jenny Carenco, the Cartier Women’s Initiative award winner for Europe, agrees that women entrepreneurs can enjoy unique advantages. Carenco, a former consultant who is creating a new line of frozen baby foods, comments, “Women are more likely to be successful entrepreneurs because they have difficulties fitting into the system. Women’s need for more work flexibility and their need to change the way things are done traditionally make them more likely to choose entrepreneurship. Women put their heart and soul into talking about their businesses, and this worked in my favor when I met banks for loans. They were thrilled to see my energy and enthusiasm, and it worked in getting things done.” Having met other women entrepreneurs from around the globe, Pandhi believes that Indian women mostly lack self-asssurance, not skills, compared to women from other countries. “If you think that you’ve got a winning idea, do not be deterred by people who challenge your conviction,” she says. “Do not downplay your positive attributes. Indian women just need more confidence when compared to other nationalities.” For Shilpi Kedia, Managing Director of Mumbai-based Barrier Break Technologies, the biggest barrier that Indian women entrepreneurs face is the decision to commit to growth. “Women tend to be more successful entrepreneurs when they think that they are building a successful growth venture and not just making pocket money on the side,” says Kedia, who is a member of the steering committee at TiE Women, a branch of The Indus Entrepreneurs (TiE) that mentors women. She founded Barrier Break to test companies’ Web sites for accessibility to disabled users in 1999, with initial funding from the Gates Foundation supplemented later by ven-
ture investment from the social venture fund Aavishkaar. “Many times, in India, women don’t take their businesses seriously since they are not the sole breadwinners of the family and almost have a part-time approach to running their ventures,” Kedia remarks. “Since their own ventures are seen as something to keep them busy, they do not scale up.” Also, some women are naturally shy and are daunted at the prospect of meeting banks or pitching to VCs, and they shy away from thinking big.” According to the SCA Group’s Bhairavi Jani, more women are thinking bigger and focusing on growth, even if it involves changing traditional mind sets. She says, “Scaling is dependent on capital and people. Traditionally men were hesitant to report to women but that is changing in India now. More and more people including men are ready to join growth ventures created by women. Women were earlier seen as too emotionally attached to their ventures and were hence not ready to relinquish control in order to scale up, but this is changing too. While they bring their passion to their ventures and make them successful, they are also learning to detach themselves emotionally in order to grow.” Women are also beginning to enter India’s still-nascent venture financing sector. For example, Bharati Jacob, a marketing research veteran who has worked in India’s petroleum sector, is a
co-founder of Seedfund http://www. seedfund.in/), which provides early-stage financing for ventures. An active member of the TiE Women’s Chapter and a charter member of TiE, she manages the fund’s Bangalore office, while partners Mahesh Murthy and Pravin Gandhi operate out of Mumbai. “We’d like to see the percentage of women entrepreneurs that we fund increase,” says Jacob. “Women are naturally more empathetic managers and have a consensual approach to management. We’d like to see more of these women starting growth ventures. However, we as investors look for a great fundable business idea and gender does not really make a difference here.” Jacob expects more women will emerge with business plans that appeal to venture capitalists because social norms and attitudes are changing. She comments, “The ecosystem surrounding women is a lot more supportive in India today than 10 years ago. More and more families are standing by women who are venturing out on their own. The whole concept of entrepreneurship is being viewed positively, so this is a great time for them to start their ventures.” Experience from other countries suggests that once a critical mass of role models emerge, many more women will start companies. The likelihood that someone will start a venture goes up dramatically when he or she personally knows someone who has had that experience, so each women who founds a growth venture will spread awareness to dozens more. If India mirrors other countries, once more women start fast-growing enterprises in India, a snowball effect will accelerate the founding rate dramatically. As Indian women become aware through their social networks that starting a company is a viable alternative to housework, part-time work, or dead-end jobs and see others succeed along this path, we can expect India’s entrepreneurial boom to gain even DAR E more momentum. NOVEMBER 2007 83
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Researching Big Gains With independent outsourcing companies achieving depth and scale, more and more foreign firms are expected to go the outsourcing way rather than the offshoring way /Sreejiraj Eluvangal
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007 may be the year when offshoring investment research into India comes of age. Though it did not start out in quite the same way as the mainstream BPO or IT outsourcing nor been around for so long, this Rs 600 crore industry is tipping in favor of the Indian companies in the sector. Recent trends indicate that the industry, which started off due to regulatory changes in the US in 2003, is increasingly junking its bias in favour of ‘captive centers’ and looking at outsourcing more and more from independent vendors. Offshoring of investment research involves a chartered accountant or an MBA-Finance graduate sitting in India and helping another analyst, usually in New York or London, to decide whether or not to buy investment products,
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Indian KPO Market
Investment Research 65.00%
Legal Research 6.00%
Pharma Research 3.00%
Market Research 25.00%
The Investment Research Market Rs 400-600 Cr - Mkt size (2007) Rs 1600-2000 Cr - Mkt size (2010) 5,000-5,500 - Analysts (India, 2007) 60:40 – Captive:Third party (revenue) split source: Frost & Sullivan analyst estimates
such as shares, bonds and bills. While the final decision is still taken by the analyst sitting abroad, Indian professionals, after undergoing training to familiarize themselves with market dynamics, share his work-load by studying company fundamentals and even market and economic trends. When the Indian analyst is directly employed by the foreign firm, it is called offshoring or the establishment of a ´captive centre´ and when the analyst is employed by a different company, usually Indian, it is called outsourcing. Till now, the off-shoring model has been favored by most investment banks and brokers (or sell-side firms, so called because they are the agents for companies to sell their equity shares or bonds to the public). However, buy-side firms
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opportunity /kpo (funds) such as hedge funds, mutual funds and pension funds have largely stuck to third-party outsourcing so far. The initial wave of offshoring was started off by Wall Street firms as a result of a landmark $ 1.3 billion agreement with the US securities watch-dog Securities and Exchange Commission (SEC) in April 2003. The agreement was the culmination of a two year inquiry into allegations that all the major Wall Street firms including Citigroup, Goldman Sachs, Morgan Stanley and JP Morgan, were using their research departments to give favourable ratings to equity and bonds issued by them. A large part of the revenues of these firms came from helping companies sell their equity and other instruments to raise money from the public. It was alleged that a favourable coverage by the firm’s investment research wing was being traded as a part of the overall sales pitch to companies looking to to issue new shares. While the 10 firms neither accepted nor denied the charges, they were forced to cut costs on investment research as it was seen as less crucial to their core activity of corporate finance. This in turn led a lot of them to explore the option of sending part of their research work to India, which had already become famous as a value-for-money outsourcing destination. Initially the firms trusted only captive centres or offices fully owned and operated by them. Even now, the centres run by the likes of Goldman Sachs and Morgan Stanley are as big as, if not bigger than, any run by the big four outsourcing vendors in the investment research space. A large number of the estimated 2,500 or so analysts working with the independent providers work for smaller clients - usually buy-side entities like hedge funds, mutual funds etc. ¨We expect the (international financial services) companies to increasingly shift to the outsourcing model and away from the captive research centre model,¨ says Aditya Bhandari, senior financial services industry analyst with the consultant Frost & Sullivan. Bhandari estimates that captive centres run by big Wall Street firms like Goldman Sachs, Lehman Brothers,
JP Morgan and UBS employ a total of around 3,500 analysts in India, against around 2,500-3,000 analysts working for around 10 independent KPO players. In terms of revenues, the share of the captive industry will be even higher as the per-employee costs are estimated to be around 20% more compared to third-party outsourcing. Like most people familiar with the industry, Bhandari too believes that that the initial preference for captive centres on the part of the firms is on the vane due to various reasons. ¨Even from a management bandwidth perspective, choosing outsourcing instead of offshoring can cut down work load on senior management of these firms by 20-30%,¨ he says. Another important reason for the change from offshoring to outsourcing is the increasing expertise and depth of talent of the independent outsourcing providers. For example the four India-based independent providers of such outsourced services - Gurgaonbased Copal Partners and Evalueserve, the Bangalore-based Amba Research and the Chennai-based Irevna have seen their employee numbers go up by around 50-60% this year. All four will have more than 500 investment analysts by the end of this year. The service providers attribute this to a shift in work allocation by sell-side firms, besides the usual growth in demand. ¨The trend is that even the companies who have a fully-owned captive centre in India are outsourcing a part of their work to independent providers,¨ says Ashutosh Gupta, head of transitions for Evalueserve, one of the biggest providers of third-party KPO services in the country. The Gurgaon-based company, seen as a leader in the KPO business, did not initially offer investment research services when it started out in 2000. Though Evalueserve too started offering investment research services only in 2003, the division accounts for nearly a fourth of its 2,100 employees. Similarly, located a stone´s throw away, Copal Partners, started by former McKinsey employee Joel Perlman and GE Capital veteran Rishi Khosla, too has seen its numbers explode from just 10 employees in 2003 to over 500 now.
Joel Perlman, Copal Partners The biggest factor in India’s favor is the work culture. In other places, I worried about people disappearing on me but here, getting work done is not a problem Analyst Sudin Apte of Forrester Research sees a pattern behind the increasing traction behind the outsourcing vendors. Apte, lead author of a paper titled ¨Shattering The Offshore Captive Center Myth¨ which came out six months ago, is firmly of the opinion that captive centres do not allow the company to take full advantage of the globally distributed sourcing model. Due to this, he expects BPO and KPO industries to gain at the expense of captive centres in future. ¨Our research shows that many captives are in trouble. While few will admit it, Forrester believes that more than 60% of captive centers fail to meet expectations. There are several common reasons for failure: a poor delivery track record, operational problems, a lack of scale, poor morale, rampant attrition, and high costs,” Apte points out in his report. Apte points out that companies who have offshored or outsourced to India across a variety of sectors spend an average of around $4,950 per head while an outsourcing vendor spends around $4,230 - a difference he attributes to NOVEMBER 2007 85
DARE.CO.IN a variety of factors such as higher expenditure on both salaries and office premises and unexpected expenses such as legal fees, head-hunting and marketing expenses etc.. He also points to the monotonous nature of work in captive centres, which tends to be less varied compared to outsourcing providers who cater to a number of clients, as a crucial reason for high employee attrition rates. Atrition has been the Achilles´ heel for the Indian outsourcing industry, dependent almost entirely on its trained human-capital. As a result of these realizations, he says, companies will increasingly prefer an outsourced model to an offshored model, realizing that the ¨captive center is a stage in letting go and companies’ offshore and outsourcing evolution.¨ The reported moves by Citibank to divest control of its 9000-strong Indian BPO venture, eserve, due to spiraling costs, seem to underline Apte´s point. Divestments or no-divestments, the outsourcing industry is upbeat, going solely by the growth so far. Dr. Paul Alapat, head of the quantitative services division of Amba Research, a Bangalore based investment research firm, and a
Paul Alapat, Amba Research Outsourcing doesn’t mean low-end research. We are offering technical and macro analysis and not just work on company fundamentals
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opportunity /kpo former chief economist for Asia with the Japanese financial services group Nomura, believes that the industry still has a long way to go. ¨We have only just started off,¨ he says. ¨The market is very big. The top 15 sell-side (investment banks) and buy-side (funds) firms alone employ around 25,000 analysts worldwide,¨ he points out. In keeping with its focus on providing round-the-clock specialized research in all investment areas, the company has analysts in Sri Lanka, India, Costa Rica and Singapore. Unlike the others, Amba has tried to go beyond company research and has analysts devoted to high-end areas like technical and macro analysis. The market for outsourced research also has a clutch of small players like the Mumbai-based Netscribes, which cater primarily to small buy-side firms such as hedge funds. Depending on clients wary of going to big outsourced providers who may also be servicing their competitors, some of the smaller firms have fewer than ten analysts. Sourav Mukherjee, CEO of Netscribes believes that smaller firms will always be there, in a market where words like ‘niche’ and ‘intelligence’ carry much prestige. Mukherjee, whose investment research team is 60 member strong, says smaller firms can carve out a niche for themselves by being flexible about the work they do. ¨Even with all the hype, we have never positioned ourselves as a KPO because we believe we are not just process experts....we are not vendors, but partners and will add value outside any outsourcing arrangement that will add to the client’s growth, strategy or revenues,¨ he outlines his strategy in an industry where confidentiality plays a key role. However, like the rest of the exportdependent sectors, risk factors also abound. Like the IT sector, the biggest threat is the possibility of a sharp market downturn in the US. Continued depreciation of the value of the Dollar and the high attrition rates in the Indian market are also vexing issues. The extent to which each of these factors can affect the companies will be different, as the client distribution varies radically from firm to firm. For example, Copal Partners has a large
number of buy-side clients from the listed equity market like hedge funds, while Evalueserve gets a lot of its business from private equity firms. “The obvious strategy is to have a well-balanced geographical distribution of clients,” says Ashutosh Gupta of Evalueserve, who is setting up a new work centre in Eastern Europe. “We have balanced it out over the years where only about 40% of our revenues are from the US. About 40% is from Europe and most of the remaining is from the middle-east,” he points out. Another characteristic that may stand in good stead for the industry is the relatively high share of ‘relationship’ based work. Industry players say that around 75-80% of their revenues and headcount are generated from ongoing relationships and only the remaining is from ad-hoc projects, sometimes involving merger and acquisition activities. A complicating factor, when estimating the impact of such risk factors is the mixed effects that a slowdown in the source markets can have. While conventional wisdom dictates that falling share prices and lower levels of activity in the markets abroad will lead to jobcuts in the investment research industry, there are also those who argue that it will force companies to outsource a larger share of their work than before. As Dr Alapat points out, for an industry born out of the need to cut costs without compromising on quality, hard times may not always have the obvious impact. In the end, it is Joel Perlman of Copal Partners - a US citizen who first got a taste of Indian work-ethics when interacting with McKinsey staff in Gurgaon a decade ago - who seemed most confident about the ‘India story’. ¨Being in India today is like being in the US in the 1940s,¨ Perlman, who spends ten days every month in Gurgaon, says. ¨Here people get a kick out of working long hours... Unlike in many places I have worked in, I don´t have to worry about making people work hard, hard work and ambition are ingrained,¨ he says, adding with a smile that he wished the ambition would lead employees to DAR E switch their jobs so often.
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SHAHNAZ HUSAIN I studied cosmetic chemistry and cosmetology for ten years at leading beauty schools of the West. During my training in London, I came across instances that caused me to wonder if I had chosen the right career. There was a newspaper report of a London model who became blind after using a certain mascara. She later committed suicide. These tragic incidents changed the course of my life and career. I was determined to find a natural alternative. I started my first herbal clinic in my own home in 1971, based on the Ayurvedic system and adopted the principle of “Care and Cure” 88
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hat was the first big challenge that you had to face? How did you overcome it? When I started, herbal beauty care, as we know it today, was non-existent. So, I faced the challenge of establishing a new concept and making it a practical reality. I had to make people aware of the dangers of chemical treatments and the benefits of natural care. So, apart from incorporating the concept in my treatments and formulations, I also made it a point to hold seminars and address press conferences, write regular beauty columns and propagated my ideas at a personal level. Very early in my career, I made it a point to reply personally to letters seeking solutions for skin and hair problems. Three decades later, I still maintain this practice, this personal touch. In my regular columns I still provide home remedies as solutions for beauty problems. In the minds of the readers, this has continued to reinforce my philosophy that “nature is the best cosmetologist.”
that they could achieve financial independence and yet, be close at hand to attend to home and family. I trained them and offered them the Shahnaz Herbal franchise. I also adopted a highly successful method to promote the new franchise salons, by making it a point to attend the openings. I inaugurated the openings, gave free consultations and addressed press conferences, speaking on the benefits of Ayurvedic beauty care. It was all based on personal interaction, where I met people, listened to their problems and provided beauty solutions. Thus, I was answering a human need. My presence at the openings evoked much media coverage and a fantastic response. This method proved so successful that soon I was attending two openings on the same day, flying to two or three different cities on the same day. Later, I adopted it for the openings of my franchise clinics and all other ventures around the world. I also adopted it for the opening of Shahnaz Ayurveda on Harley Street in London, in July 2007. The pace is
entrepreneur of the month I devised my own clinical treatments, not only for general care, but also for the treatment of specific skin and hair problems. I had no manufacturing unit at that time. I formulated the products myself, for use in clinical treatments and had to put in a great deal of work in terms of R&D. My products grew out of clinical usage, based on client feedback. My philosophy and faith in Ayurveda have not only influenced minds and markets, but have become an integral part of the brand image. Why did you choose not to do traditional advertising? Without these, how did you build the brand? In order to implement the idea of total beauty, with an emphasis on the good health of the skin and hair, I established customized beauty care, based on individual needs and problems. The idea was to make the beauty-care experience a truly rewarding one and establish a relationship of trust with the client. The Shahnaz Herbal system surpassed existing salon care by providing individual consultation and treatments. I incorporated a clinical system at a client card and prescriptive level, with diagnosis and clinical analysis of the skin and scalp condition. Shahnaz Herbal salons still follow this system. Clients are given advise on diet and nutrition, depending on their particular problem. They are also referred for pathological tests, if necessary. Clients with specific problems like hair loss, alopecia, skin sensitivity, pigmentation, scars, premature ageing, etc., are put on courses of treatments, with constant monitoring and advice on all aspects. The clients are prescribed products for home care, according to individual needs. Instead of commercial advertising, I relied on word of mouth and on the premise that a satisfied client is the best advertisement. In fact, this method contributed to lending exclusivity to the Shahnaz Husain brand. Our unique franchise system is at the core of the brand and its success. Very early in my career, I began to encourage ordinary housewives to open salons in their own homes, so
hectic, but it has become a distinctive style and very much a part of the brand image. Unknowingly and unconsciously, in spreading Ayurveda across the globe, a brand was born. Silly question: Who uses your products more; men, women, Indians or foreigners? It is not a silly question, because it reflects current trends. Ours is a premium brand which basically targets women. But, the last few years have seen a growth in the male grooming products market and in male salon services. The total Indian market for male grooming products is estimated to be growing at the rate of 10% to 12%. We are one of the earliest players in men’s skin and hair care. In 1993, we launched our Man Power range of products and opened Shahnaz Herbal salon for men. Today, around 25% to 30% of our total salon clientele is male. The worldwide interest in the Indian discliplines of Yoga, Meditation and Ayurveda has also driven the growth in demand for our products among foreigners. The global extension of our salons, spas and shops is indicative of the increasing popularity of Ayurvedic beauty care among foreigners. Besides for bringing respectability to the business of beauty, what you would like to be remembered for? I would like to be remembered for promoting the Indian herbal heritage with a crusader’s zeal and taking it across the globe. I have always believed that India has much to offer the rest of the world and now it is my belief that India can lead the billion-dollar international cosmetic industry within the next decade, in terms of Ayurvedic beauty care. You use exotic ingredients - diamond ash and gold through pearl powder to forest products and flowers. How do you arrive at the formulations? Where do you source the ingredients from? How much time does it take to get a product from concept to market? NOVEMBER 2007 89
DARE.CO.IN R&D has always been high priority with two R&D units. To ensure purity of raw materials, we set up a herb and flower farm near Delhi, so that we could exercise quality control right from the raw material stage. We use natural composts and fertilizers to ensure this. Also, we ourselves carry out extraction of essential oils and preparation of extracts like infusions, decoctions, tinctures, cold extracts, distillates, juices, essences, powders, syrups, etc., in keeping with the Ayurvedic system. To make sure that we are getting genuine and high grade herbs and extracts, stringent quality control tests are conducted for various dilutions used in the formulations. Both intensive and extensive research is done under varying conditions of climate, percentage of vital ingredients used, nature of preservatives and storage conditions. We follow the Ayurvedic system and prescriptions to arrive at formulations, combining them with the latest techniques. Some of our products have been in research for several years. For example, the 24 Carat Gold Range was in research for more than 12 years. How do you decide on which product to launch when? How do you decide on a name? Sometimes, we try to coincide a launch with a foreign tour, so that it is launched in the international market first. Our Flower Power range was launched in Paris, at the Galeries Lafayette, by Dame Barbara Cartland. It is an exclusive range based on floral extracts and we decided to launch it in Paris, the cosmetic capital of the world. Similarly, we launched our Diamond Collection in the U.K. and later introduced it in India. It coincided with the opening of two salons and a beauty training school in London. We also formulated and launched our Sun Range of sun-block products for the Australian market, since such products are in demand in the Australian market. Our different ranges are based on specific extracts, so the names are given accordingly, like Flower Power, Neem, Oxygen, Pearl Concepts, 24 Carat Gold, Astro-Gem Therapy, or Diamond Collection. We also have ranges with a specific purpose, or based on a particular extraction process, like Sun Range, Fitness Fiesta or Aromatherapy Bar of essential oils. What was the biggest challenge you faced in going beyond the Indian shores? Entering the international market was my biggest challenge. It was not easy, without the required resources. I participated in the Festival of India in London in 1980 and was given a counter in the Perfumery section at Selfridges, London. I was rubbing shoulders with the biggest international brand names. In the hysterical international cosmetic industry, where billions of dollars are spent on advertising and packaging, selling youth and dreams in bottled jars and in the face of fierce competition, I stuck to my guns and solo “India & Ayurvedic” image. I stood alone at the counter and sold my country’s 5000 year old ancient heritage in a jar. I allowed my products to speak for themselves. To everyone’s surprise we sold out our consignment in 3 days, breaking the store’s cosmetic sales records. The next day, there was a headline in a London daily, “Herbal hell breaks loose at Selfridges!” And we had arrived. I was offered a permanent counter. 90
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Then we went on to Harrods in London, Galeries Lafayette in Paris, Bloomingdales in New York, La Rinascente in Milan, the Seibu chain in Japan and El Certe Inglis in Spain, breaking cosmetic sales records. When I participated in the Festival of India in Paris and wanted a permanent counter at Galeries Lafayette, I was informed that in order to have a permanent counter, we had to achieve a certain sales figure. I found we were running short of the sales target and knew that I had to think of an ingenious idea to push the sales up. Nothing was going to deter me from missing the opportunity to get a permanent counter at the Paris store. I called my office in Delhi and asked my secretary to fly to Paris with four Kashmiri carpets. I offered a carpet as a gift for purchases of 20,000 francs and above. The resulting stampede was something the store had never witnessed. I actually sold products much more than the targeted amount, earning us a permanent counter at Galeries Lafayette, the world’s most prestigious cosmetic store. Is there any difference between what works in different countries? How do you accommodate that in your products and your messaging? There is no difference in products for the international and domestic markets. For the Shahnaz Herbal range, we have different packaging for the international market. We do provide options in some formulations in the label itself. We also have highly evolved customer information systems, where we provide product-related information, answering queries. At our counters, we also have trained Beauty Advisors to guide customers and provide information. Why did you choose to go with a franchising model? Did you experiment with any other models before settling on the franchising model? We did not try any other model before choosing the franchising model. Even the choice of the franchising model was not a conscious decision. A friend from Calcutta brought a big order for products. Since they were prescriptives, I told her they were specialized products and training was needed for their use. She asked me to train her and wanted to open her own salon in Calcutta. That is when we worked out a one-line informal agreement, by which I gave her the right to
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/bio use the Shahnaz Herbal name and carry out the specialized treatments. This was the beginning of my franchise system. The first Shahnaz Herbal franchise clinic opened in Calcutta in 1979. I attended the opening, gave free consultation and spoke on Ayurvedic beauty care. It received extensive media coverage. Over the years, we have made the Franchise Agreement more comprehensive and added clauses to protect the rights of both franchisor and franchisee. Also, we have made the selection of franchisees much more stringent. Franchising offered us a distinct advantage in business expansion. We do not invest in the franchise’s enterprise and do not share in its profit or loss. Before we entered the retail market, our franchise salons were the outlets for our products. We spread the message of Ayurvedic beauty care and popularized our specialized salon treatments through the franchise salons. So, we had product outlets, as well as a network of franchise salons in no time. On the other hand, we offer the franchisee strong branding, as well as a successful business model with proven success rate and efficacy. During the last three decades, the brand name has established unquestioned and unwaver-
laxing treatments, anti-ageing treatments are also part of the repertoire offered by day-spas. For example, we have devised treatments like Aromatherapy, Gold, Oxygen, Pearl, Gem and Diamond Facials, which are essentially rejuvenating. They are also luxurious treatments for pampering the skin. If they so wish, at a day spa clients can also avail of all other normal salon services. What is the biggest challenge you are gearing up for? We are looking at extending our Spa business globally, through our franchise system. The traditional Ayurvedic treatments are ideally suited to spas and we have already formulated a signature spa collection. We also have plans for the domestic market. With department stores and malls catching on as shopping destinations, the focus is on the “shop in shop” concept. We are planning to introduce a further 250 such outlets in India, with beauty advisors. There will be a focus on smaller stores too and we will be targeting smaller areas, like small towns. We have recently entered the direct selling market with our Veda Dynamics range.
MANTRA/IT IS IMPORTANT TO HAVE A DREAM. WITH THAT THERE MUST BE TOTAL FAITH AND CONFIDENCE IN ONE’S OWN ABILITIES ing brand loyalty. In fact, no other brand has been able to keep the trust and faith of the consumer the way the Shahnaz Husain brand has. Today, the brand is ideally positioned in the market. By assuming total responsibility for research and development of the products, the Shahnaz Husain Group provides a pillar of support to the franchisee. The franchisee also derives the benefit of a professional infrastructure, as well as our wide marketing and distribution network. What according to you is the next big thing in the business of beauty? With the wellness concept gaining ground, day spas are poised to become one of the most popular among the personal care services. The Spa business has been looking up, with salons being converted to day spas. You need not travel to the seaside or the mountains. You can enjoy a day at a spa in the midst of the hustle and bustle of city life. A day spa is like an oasis in the midst of city life. Here, the ambience itself would help to evoke a sense of peace, while you give yourself up to the soothing massages and treatments. A day-spa not only means getting the facilities that are provided by exotic locations and pricier destinations, but also do not require the same time commitment. The concept behind the entire idea is to provide an ambience that is close to nature, because Nature gives back to us what we lose in our fast paced urban life. With the emphasis on youth and the global trend toward fitness and exercise, there seems to be a universal desire to look younger. Therefore, apart from stress reduction and re-
You have often been quoted as saying that there is only one Shahnaz Husain. Also, you are the brand. What happens to the business after you? My name has become the brand and I am the brand ambassador. To that extent, I am the reality behind the brand name. My children are already involved in the business. I have groomed my two children with meticulous care, so that when the burden finally falls on them, they will hold together with pride and courage, the beautiful world I have created and then left for them to perpetuate. We have the infrastructure and tremendous good will for the brand to go from strength to strength. To someone starting afresh, what advice would you give? It is important to have a dream, because that is the starting point, with a burning desire to make the dream come true. An entrepreneur, in the true sense of the word, is someone with independence of spirit. Along with that there must be total faith and confidence in one’s own abilities. Creativity and innovativeness are very important. So is foresight, because one has to think ahead and be able to predict trends. To evaluate the worth of an idea, one has to have a feel of market trends and changing levels of awareness. You may start in a small way, but you have to think “big.” You have to think that nothing is beyond you. In fact, in seizing opportunities and looking forward to challenges lies the secret of a successful entrepreneur. I have always believed that nothing is impossible. DAR E You can be what you will yourself to be. NOVEMBER 2007 91
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Fresh Help for Startups Placing students with startups is a new endeavor and both parties are simply lovig it
“I
won a contest – and the prize was working with Consumer Vision,” a software startup, Gaurav Chaturvedi, a student at IIT Bombay, explained enthusiastically. Not cash, not an iPod, but rather a chance to work at a startup: this unusual prize, and the excited response it engendered, point towards a new trend on top campuses across the country – a trend that holds potential benefits and risks for young companies. Internships or student projects at large organizations have long been a fixture in academia. But as entrepreneurship programs develop on campuses, and the fascination with new ventures grips students, the students are starting to call for evermore real world entrepreneurship experience. And startups are beginning to take advantage of this new resource pool.
As Sivaprasad Cotipalli, founder of Dhanax Information Services explained, “We do work with students a lot. They have more ideas, fresh ideas; they are ready to try out new things. And they are also economical.” Abhay Panjiyar, the entrepreneur behind CEON Solutions, a company that delivers software solutions to schools, discovered similar advantages when bringing students on board, “At IIMA the students had a lot of experience. Working with these students gave me fresh ideas.” Placing students with startups is still a fairly new endeavor. Entrepreneurship itself is new to most campuses, and the students’ interest takes time to mature to the extent that they want to spend time working with new ventures. In addition, matching students with the right type of companies can be dif-
NEN, the National Entrepreneurship Network, is India’s leader in entrepreneurship education, working with over 270 academic institutes to build world class entrepreneurship programs on their campuses, reaching over 300,000 young people. NEN supports new and future entrepreneurs with information, experts and community. www.nenonline.org
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NEN: upcoming event What:
IIMC & NEN’s Entrepreneurship Summit
When: December 23, 2007 Where: IIM Calcutta Who:
Open to all faculty, students, new and future entrepreneurs including working professionals
Event focus: What does it take to be an entrepreneur? How do you identify a good business opportunity? What are venture capitalists really looking for? How do you scale your startup? Hear VCs and entrepreneurs’ perspectives in four interactive sessions including the keynote session, talks, panel discussions and Q&As. Speakers include: Ajit Balakrishnan, CEO, Rediff Kanwal Singh, MD, Helion Ventures Laura Parkin, ED, Wadhwani Foundation & NEN Pradeep Gupta, CEO, Cyber Media Sanjeev Bhikchandani, CEO, Infoedge (Naukri) More info at www.nenonline.org
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ficult: startups do not have the infrastructure devoted to creating opportunities for students, and many institutes simply don’t have a network of startups. Therefore, it’s not surprising to find that on several of the campuses that have successfully integrated students into new companies, those startups are actually housed within on-campus business incubators. Prof. Rakesh Basant of Indian Institute of Management, Ahmedabad, explained, “Our students work with the incubatees on a regular basis as part of an existing model.” IIMA’s incubation activities were designed from inception to incorporate student involvement in the startups being incubated. Prof. Basant outlined the reasoning, “Startups tend to give exposure to a large number of activities. You become part of the confusion, in some sense, and in the process you end up learning a lot.” The results of startup internships have included some very practical learning for the students. J Kavitha, Ethiraj College, admitted, “The first thing I learnt was how to behave and talk properly — how to communicate crisply and correctly. I want to start my own event management company. And for this I need to know how to deal with people.” Yet other students live the entrepreneurial experience to an even greater extent. Abhishek Naik, student, BITS, Pilani, was one such student. “I didn’t have any salary because they were just beginning the company. But we had enrolled for a few B-plan contests and
we won two of them. So we shared the money,” he said gamely. Students feel that their startup experiences differ significantly from projects at larger companies. Aashima Sekri, a graduate of IIMA, shared, “This experience gave us the chance to look at the bigger picture. Would we have learnt this in a non-startup? Well, if the top management had taken us for larger projects then may be. But normally they don’t offer that to 24 year old management students!” The benefits accrued also to the startups. Abhay Panjiyar, the founder of CEON Solutions, described his organization’s experience with IIMA students: “They helped with communications, writing, marketing, branding, and also business planning and VC pitches in the later stages. By the end of it we had reorganized our entire approach to the client, and our presentation had improved immensely. Their input on fundamentals and coming up with a USP for the product was especially brilliant.” Sivaprasad Cotipalli of Dhanax Information Services was pleasantly surprised by Abhishek Naik of BITS, Pilani, “Actually I was not expecting so much from him and he actually wrote the whole business plan out for me.” However, for all the positive experiences, working in a startup can throw up additional challenges for the students. Abhishek Naik felt the biggest issue for him was, “when people see you are an 18-year-old, and when you say you want to work, they think it’s just a
college project. They don’t really appreciate the fact that a student can work and give results.” Challenges exist as well, on the other side of the equation. While many startups do benefit, there is a risk. Rohit Nalwade, founder of Consumer Vision Limited, didn’t hold back when he explained, “The problem is that of many non-performing students.” And given how vulnerable a startup is towards manpower issues, the cost of non-performance can be enormous. Rohit expressed his frustration with some students who “whiled away their time in the office and then when the deadline was approaching they compiled something that was of no use. The result of this was that the entire product development got delayed by a month.” Prof. Basant felt that part of the problem lies with the fact that, “Startups normally don’t have the time to get organized, and in some cases they are not able to get the maximum out of the students.” This is one reason that IIMA faculty members work with the startups to define clearly a project for each student, and then monitor the progress. In the end, Abhay Panjiyar of CEON Solutions had such a positive experience with the students working with him that he wanted to keep the relationships going, “I wanted to offer the job to a few of the students I had worked with but I first wanted to take some time to get to a good level. Now I have started making offers to some of them.” And on the student side, long term effects are also evident. “The experience took the glamour out of working in a start up,” concluded Abhishek Naik the BITS student who worked with Dhanax. But with his deeper understanding of the realities, Abhishek averred, “I want to start off on my own in the future. I don’t have any specific plans as on today but I want to start my own company.” Aashima Sekri, one of the IIMA students who had worked on CEON has already put her experience to work. “I have my own startup now! It’s been 5 months since I started. I knew I wanted to start something on my own,” DAR E she smiled. Content provided by NEN NOVEMBER 2007 93
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ELABEN BHATT She gave micro-finance a new meaning much before the world started writing case studies about it, and in the process empowered tens of thousands of the poorest of poor women long before it became fashionable to highlight women’s causes. Ela Bhatt’s SEWA was founded as a trade union for women and became much more; a cooperative, a micro-finance organisation and a self sustaining grassroots movement and a model for others to follow 95
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BUS INE SS next: next issue guide /legal
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opportunity/agri
Farming Health and Wealth Organic farming like regular agriculture is highly fragmented and lacks mature players with scale. With global demand set to quadruple in the next decade, this sector could well offer a few hidden treasures /Arunjana Das
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rganic farming is not a new concept. It is based on a traditional approach to sustainable agriculture that relies on natural products and organisms to do the job of what fertilizers and synthetic chemicals have been doing for quite sometime now. Organic farmers use a combination of naturally occuring manure, vermicompost and good soil practices to produce food that is not only greener, safer and fresher but also tastes better. The combined worth of the global organic market, which stands at $40 billion today is expected to hit over $100 billion by 2020! The shift from chemical to organic has been a marked one, attested a 15% growth of the worldwide organic market. India’s share in the global organic pie has been around $300 million and it is the 33rd largest producer of organic products in the world. Most organic farmers took to it more as a passion than as a business opportunity. With the world turning its atten-
US Department of Agriculture Organic Foods Production Act of 1990 Standards for organic production To be sold or labeled as an organically produced, an agricultural product shall (1) have been produced and handled without the use of synthetic chemicals; (2) excluding livestock, not be produced on land to which any prohibited substances, including synthetic chemicals, have been applied during the 3 years immediately preceding the harvest; and (3) be produced and handled in compliance with an organic plan agreed to by the producer and handler of such product and the certifying agent.
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tion to issues like climate change and wellness, organic farming and organic labels may just be at a take off point.
Given the current variety of organic businesses, to many the scenario would seem rosy, which is not exactly
Organic Cafés Imagine having your regular cuppa in an organic equivalent of Barista. Jayshree and Ganesh Eashwar of Dubden Healthy Living, an organic farm in Bangalore, have recently opened their first retail outlet in Shahpur Jat in Delhi and are soon to open an organic café to serve organic coffee, tea, fruit juices, pastries, bread, cookies, pizzalets and quiches among other things. While they source their in-house brand products from their farm in Bangalore, a few other products such as cereals and pulses are sourced from small-time farmers spread across the country. Dubden Healthy Living’s Organic Bounty store tucked away in Shahpur Jat, Delhi has in addition to their own produce, several other brands.
Fashion Organic Satya Jyoti Trust, a women-oriented co-operative society, had started a line of organic clothing and fashion-wear, relying solely on fibers produced organically and dyed in vegetable dyes. Currently they have a single outlet in Gurgaon and have just teamed up with Numanu – the Label of Love, a French fashion house emphasizing on ethical and fair trade practices, for retail.
Brand Organic Biotique has launched an entire line of organic tea with blends like Gotokola, Marshmallow, Tulsi, Gooseberry, Cumin and Winter Cherry, to name a few. Organic India, based in Lucknow, has introduced a variety of organic herbal supplements in addition to their line of Tulsi Organic tea. These supplements address a variety of maladies, ranging from those related to stress, obesity and gastro-intestinal problems to general health and well-being. Well-known hotel chains have also picked up the organic trend. Pure at Taj, the Grand Delicatessen at InterContinental, The Grand and the Gourmet Shoppe at the Hilton are a few of the big names in the business.
Organic Holidays Adventure tours, heritage tours, religious tours are rather passé. How about an organic tour? Or rather a holiday in a fully organic resort? The trend has already started in India. Organic resorts are the newest offerings from Incredible India. Saharia Organic Resort and Farm in Jaipur, Rajasthan is one such name. The farm was acquired in 1992, which was a barren wasteland back then. Binod Saharia, the owner, pooled his resources together and planted thousands of amla trees on the land to create a mini-forest. It was an organic farm till 2003, when excited by the enthusiastic response he received from volunteers who visited his farm from all over the world, he decided to put up 9 cottages for the visitors. The rooms have been done in earthy style with mud and clay, with attached restrooms. However, as Binod Saharia says, some tourists preferred to use the bushes to experience rural India in the truest sense besides the uncontaminated joy of doing it in the woods! The food is purely organic and obtained from their farm. Besides this farm in Jaipur, they have organic tea farms in Assam and Arunachal Pradesh as well. The tea leaves obtained from these farms are served to the guests in the resort and also supplied under the brand name “Abali Organic Tea” to major coffee chains such as the Café Coffee Day.
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JAGDISH PRASAD PARIKH/THIS AWARD WINNING ORGANIC FARMER FROM RAJASTHAN AWAITS THE CORPORATIZATION OF THE SECTOR NOVEMBER 2007 97
DARE.CO.IN Major organic brands Delhi Navdhanya, Whole Foods, Organic Bounty
Mumbai Organo Fresh and Organo World from Ion Exchange Enviro Farms Conscious Food
Pune Organic and Naturals Fab India
Chennai Future Food Econut Ahumkaara Enfield Agrobase Naturally Auroville
Bangalore Green Fundas and Econet so. Agriculture in India has been organic by default for ages; probably for the sheer lack of access to resources! Given the default factor, it’s a pity that we are still not amongst the top ten organic producers of the world. That missing link is probably the same that has held back the agriculture sector in the country for ages – fragmented holdings and lack of organization. India currently has around 2.5 million hectares of land under organic cultivation, around 200 million small-time organic farmers and only around 1,500 official organic
opportunity/agri farms! The operative word being “official”, or rather “certified”.
An organic farm, quick and dirty Typically, Orgainic farms tend to be self contained, producing almost all their inputs themselves, partly by choice and partly due to the lack of options. Land obviously is the first major investment. And it takes time for the land to be converted to fully organic. Most organic experiments in the country have been done on barren or waste land and it takes anywhere from three to five years or more to have the organic cycle fully going. Manure can be produced on the farm from compost pits and storing a mix of mulch, dung and water for three months. Vermicompost is prepared from earthworm beds. Mix mulch with soil and release the earthworms into it. Spreading the mixture out on a close-knit net keeps the earthworms from escaping into the ground. The worms eat through the mulch and produce their own wastes. After a certain period of time, this waste is collected and the earthworm bed remade. The waste so collected is diluted with water, and you have your vermicompost ready. For a small farmer driven by passion, except for the cost of land, it costs virtually nothing other than labor costs! But if you want to get into it as a big time opportunity, then, obviously the dynamics are different.
Accredited Certification Agencies • Bureau Veritas Certification India • ECOCERT SA • IMO Control • Indian Organic Certification Agency • Lacon Quality Certification • Natural Organic Certification Agency • OneCert Asia Agri Certification • SGS India • Control Union Certifications • Uttaranchal State Organic Certification Agency • APOF Organic Certification Agency Once your farm starts producing, it will take you three years to get accreditation as a certified organic farm, after which you can label your products “organic”. Organic certification is a must if you want to be in the business seriously. The certification cost can range anywhere between Rs 20,000 to a couple of lakhs. This includes inspection charges, travel charges of the concerned inspectors, report preparation fee and other miscellaneous charges. The certification process comprises a set procedure implemented to achieve certain pre-specified standards. These standards specify what products can be sold commercially under the label of “organic”. In 2000, the Ministry of Commerce, established the national organic standards under NPOP (Na-
GANESH AND JAYSHREE EASHWAR OF DUBDEN HEALTHY LIVING ARE GEARING UP TO TAKE ORDERS ONLINE AND DELIVER PRODUCE FROM THEIR ORGANIC FARM TO YOUR DOORSTEPS
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opportunity/agri tional Programme for Organic Production) for promoting the organic sector in the country. NPOP is responsible for formulating certification procedures for products. It has accredited several agencies for implementing the inspection procedures and providing certification to individuals, small groups and corporate entities engaged in the business of organic farming. The certification process itself is fairly long, strenuous and expensive. A newly established farm needs to follow sustainable organic practices for three consecutive years before it is deemed eligible for certification. This is to ensure that the effects of previously used chemicals, if any, are neutralized. The process of certification often acts as a deterrent to small-time agri-preneurs and farmers. Jagdish Prasad Parikh, probably the most photographed farmer of the country and the only one to get his name into the Limca Book of World Records and the Guinness Book, is an unassuming personality. He is an organic farmer from Ajitgarh, a remote village in Rajasthan. A gaunt frame and demure expression belies the strength and perseverance of this man. His primary claim to greatness is a cauliflower seed that has beaten three other research institutes in the country. He named his cauliflower seed the “Ajitgarh Selection” after his village. Ajitgarh Selection takes lesser time to grow and produces cauliflowers weighing as much as 12kg. Incidentally, that
Popular products Domestic markets: Cereals (rice, wheat, paddy, jowar, bajra, maize), pulses (pigeon pea, chickpea, green gram, black gram, chana), oilseeds (groundnut, castor, mustard, sesame), commodities (cotton, sugarcane, particularly for gur), spices (ginger, turmeric, chillies, cumin), plantation crops (tea, coffee, cardamom seasonal fruits) and almost all vegetables including tomato, brinjal, cabbage, cauliflower and leafy vegetables.
International markets: Dried fruits and nuts, cocoa, spices, herbs, oil crops, and derived products. Non-food items include cotton, cut flowers, livestock and potted plants.
BIG IDEA/HEALTH-WISE OR MONEY-WISE, ORGANIC FARMING YIELDS A BOUNTY OF GREEN won him the National Innovation Award in 2003. Jagdishbhai, as he is locally known, has 2 hectares of ancestral farm where he has been practicing organic farming for more than three decades. His is a self-sufficient farm. He prepares seeds from the best pick of his crops. He produces his own manure by storing measured quantities of mulch mixed with dung in a compost pit. He breeds earthworms to obtain Vermicompost which he uses along with manure in place of fertilizers and pesticides. He uses a mix of irrigation systems for his vegetables, pulses and cereals. His farm is his baby and he keeps midnight vigil watering the plants and caring for the livestock since his village gets electricity for less than half the day or night. He has been doing this for more than 30 years and the results are unmistakable – the Ajithgarh selection and capsicum plants that bear 150 buds on an average! His produce is sold in the local mandis and to local district officials. Although, organic foods command better pricing than conventional ones, Jagdishbhai sells them at conventional food prices; because as he claims, his fellow villagers have no idea about the health benefits of consuming organic food; hence, they see no reason why they should pay more. Is that not a blatant waste of 30 years of continuous and sustained efforts? But Jagdishbhai is helpless. He doesn’t have the resources to transport his produce to markets in Delhi or other cities where he could be paid 40% more than what he gets in his local village mandi. He had even approached military cantonments offering to provide them a continuous supply of food free of chemicals. Assurances galore but nothing more shrugs the Ajitgarh selector! There is another reason why he cannot sell his produce as organic.
His farm is not a certified one and he doesn’t have the money or the time to get his farm certified. The irony is that he understands the importance of certification for preventing spurious organic foods from entering the market and accepts it. Prof. Anil K Gupta, Chairperson of Kasturbhai Lalbhai Chair of Entrepreneurship, IIM Ahmedabad has promised him help to acquire certification for his farm. In 2000, Jagdishbhai was awarded the SRISTI Sanman award for his sustainable organic farming practices. Recipient of at least 150 such awards and more than 20 TV appearances, this man is a known speaker in most of the agricultural institutes of the country. In impeccable Hindi, he narrates with pride how he studied with his own children and sat for exams. Today he can read and write English although he is somewhat hesitant while speaking. He, however, emphasizes how fluency in English will help him when he scales up his operations to a national level someday. He now proposes to start a society of organic farmers by pooling their individual resources together and selling their produce in the national and international markets. The glitch, he says, is certification, for none of these farmers, like him have the capital and resources required for certification. The other limitation, he says, is brand name. It’s difficult for poor farmers from a remote village in Rajasthan to get even a toehold in the highly competitive national markets, much less, promote a brand. The possible remedy, he says, is a private company coming up and closing the retail gap. “We’ll welcome such a company with open arms”, he says. If such a company were to offer the farmers resources for certification and a possible premium on the produce, no farmer would say no, says Jagdishbhai. DAR E Any takers? NOVEMBER 2007 99
Organizations DARE.CO.IN
covered in this issue, in alphabetic order; first appearance
AG Enviro .......................................... 32 Ahumkaara ........................................ 98 Aircell Cellular.................................... 77 Airspan .............................................. 78 Allied Waste ....................................... 33 Amba Research ................................. 85 American Tower Corp. ....................... 77 Aperto Networks ................................ 78 APOF Organic Certification Agency .. 98 Apple ................................................. 58 Arblaster & Clarke ............................. 26 Arvind Mills ........................................ 66 ASSOCHAM ...................................... 34 AT Kearney ........................................ 41 AuthorGEN ...................................... 104 Bajaj................................................... 61 Band of Angels ................................ 104 Bang & Olufsen ................................. 43 Bank of America ................................ 70 Barista ............................................... 96 Battery Ventures .............................. 105 Bessemer Venture Partners............... 10 Bharat Forge ...................................... 38 Bharti Airtel........................................ 76 Bharti Group of Companies ............... 43 Big Bazaar ......................................... 43 Biocon................................................ 62 BITS Pilani ......................................... 93 BMV ................................................... 38 Bosch................................................. 38 Brakes India....................................... 38 Brioni ................................................. 43 BSNL ................................................. 76 Buddha Art & Craft ............................ 50 Bureau of Indian Standards ............. 102 Bureau Veritas Certification India ...... 98 CafĂŠ Coffee Day ................................ 69 Canaan Partners ............................... 56 Casio ................................................. 39 Ceon .................................................. 54 CEON Solutions ................................ 92 Chanel ............................................... 43 CII ...................................................... 41 CISCO Systems ................................ 79 Citigroup ............................................ 85 CMEA ................................................ 78 Coca Cola .......................................... 60 Conscious Food................................. 98 Consumer Vision Ltd ......................... 93 Control Union Certificaton Agency .... 98 Copal Partners................................... 85 Cotton Council International ............ 102 Cotton Gold Alliance ........................ 103 Cotton Inc ........................................ 102 CyberMedia ....................................... 92 Daimler .............................................. 38 Daimler-Chrysler ............................... 61 Dalda ................................................. 60 Darjeelingnews.net ............................ 27 Darjeelingtea.net ............................... 27 Datamonitor ....................................... 79 Delhi Metro Rail Corporation ............. 73 Delhi Waste Management ................. 32 Dell .................................................... 39 Deloitte Touche ................................ 104 Delphi ................................................ 38 Dept. of Scientific & Industrial Research............................ 23 Dhanax Information Services ............ 92 Dharma Productions.......................... 46 Dilli Haat ............................................ 50 Dishman Pharma............................... 39 DLF .................................................. 110 Drish Group ..................................... 104 100
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Dubden Healthy Living ...................... 96 Eco Wise............................................ 32 ECOCERT SA ................................... 98 Econet ............................................... 98 Economic Times ................................ 69 Econut ............................................... 98 Educomp Solutions.......................... 104 Elcoteq............................................... 39 Elixir Web Solutions ........................... 42 Enfield Agrobase ............................... 98 Ericsson ............................................. 39 Escada............................................... 43 Essar Telecom ................................... 76 Ethiraj College ................................... 93 Euromonitor International .................. 42 Eurostar ............................................. 26 Evalueserv ......................................... 85 Evangelists ........................................ 58 Executive Recruiters Association ...... 42 Fab India ............................................ 98 FIEO ................................................ 103 Fendi.................................................. 43 Fiat..................................................... 38 FICCI ................................................. 42 Flextronics ......................................... 39 Food Bazaar ...................................... 43 Ford ................................................... 38 Forrester Research............................ 85 Foundation for Innovation & Technology Transfer ........................... 23 Frost & Sullivan.................................. 85 Future Food ....................................... 98 GE Capital ......................................... 85 Global Technology Ventures .............. 69 GM ..................................................... 38 Godrej Agrovet................................... 43 Godrej Group ..................................... 41 Goldman Sachs ................................. 85 Google ............................................... 58 Government of India .......................... 41 Green Fundas.................................... 98 GTL.................................................... 76 Guinness .......................................... 99 GVFL Ltd ........................................... 53 Harvard University ............................. 48 Helion Ventures ................................. 92 Huawei Technologies ......................... 77 Hutch ................................................. 61 Hyundai ............................................. 38 IBM .................................................... 39 Idea Cellular ...................................... 77 IIM Ahmedabad ................................. 92 IIM Indore .......................................... 43 IIM Kolkata ......................................... 43 IIMM................................................... 43 IIT Bombay ........................................ 92 IIT Delhi ............................................. 23 IMF .................................................... 23 IMO Control ....................................... 98 Imperial Tobacco................................ 61 India Brand Equity Foundation .......... 41 Indian Organic Certification Agency .. 98 Infoedge (Naukri) ............................... 92 Infosys ............................................... 68 Intel Capital........................................ 78 Intercontinental Hotels ....................... 96 International Finance Corporation ... 107 International Wool Secretariart ........ 102 Ion Exchange Enviro Farms .............. 98 Irevna................................................. 85 ITC ..................................................... 61 Ittiam Systems ................................... 68 Jabil Circuit ........................................ 39 JAFCO ............................................... 78
Jagjeet Industries .............................. 66 JP Morgan ......................................... 85 JSS Academy .................................... 23 Jubilant Organosys ............................ 39 Juniper Networks ............................... 78 Kamla Dials & Devices .................... 104 Kasturbhai Lalbhai Chair of Entrepreneurship ........................... 99 Kelly Services .................................... 41 Kodak ................................................ 61 KPMG ................................................ 39 Lacon Quality Certification Agency ... 98 Lehman Brothers ............................... 85 Lenovo ............................................... 60 LG ...................................................... 60 Louis Vuitton ...................................... 43 Lucky Goldstar................................... 60 M Bazaar ........................................... 43 MaFoi Management Consultants....... 41 MAN................................................... 38 Manpower India ................................. 41 Matrix Group ...................................... 57 Max India ........................................... 65 McKinsey ........................................... 35 Metro Waste ...................................... 32 Microsoft ............................................ 48 MindTree ............................................ 69 Ministry of Commerce and Industry... 41 Ministry of Micro, Small & Medium Enterprises .......................... 23 MIT .................................................... 65 Morgan Stanley ................................. 85 Mumbai Stock Exchange ................... 71 NASDAQ.......................................... 105 National Entrepreneurship Network... 92 Natural Organic Certification Agency .. 98 Naturally Auroville .............................. 98 Navdhanya......................................... 98 NEA ................................................... 57 Nescafe ............................................. 60 Netscribes.......................................... 86 New Enterprise Associates ............... 78 New York Stock Exchange ................. 33 NewPath ............................................ 78 NIIT .................................................... 43 Nirma University ................................ 53 Nokia ................................................. 39 Nokia-Siemens .................................. 76 Nomura .............................................. 86 Nortel ................................................. 79 Northern Eastern Frontier Railways .... 27 Oberoi Constructions ....................... 110 OneCert Asia Agri Certification Agency .......................... 98 Orchid Pharmaceuticals .................... 39 Organic and Naturals......................... 98 Organic Bounty .................................. 98 Organic India ..................................... 96 Pantaloon .......................................... 43 Partypoker.com................................ 110 PricewaterhouseCoopers .................. 42 Proton ................................................ 38 Quaker ............................................... 60 Qualcomm ......................................... 78 Quipo Telecom Infrastructure............. 76 Randstad Group ................................ 42 Red Herring ....................................... 70 RedAlkemi ....................................... 104 Rediff ................................................. 92 Reliance Communications ................. 76 Reliance Fresh................................... 43 Reliance Industries Ltd ...................... 35 Republic Services .............................. 33 Research in Motion............................ 39
Retailers' Association of India ........... 43 Riddhi-Siddhi ..................................... 66 Saharia Organic Resort & Farm ........ 96 Samsung ........................................... 35 Satya Jyoti Trust ................................ 96 Sequoia Capital ............................... 104 SEWA ................................................ 95 SGS India .......................................... 98 Shasun Chemicals............................. 39 Shobha Developers ......................... 110 SIDBI Venture Capital ...................... 104 Siemens............................................. 35 Sierra Ventures .................................. 57 Sify................................................... 105 Silicon Labs ....................................... 69 SmartData ....................................... 105 Sony .................................................. 69 Spice Communications ...................... 77 Subhash Projects & Marketing .......... 32 Subhiksha Mobile .............................. 43 Su-Kam............................................ 105 Sundaram Fastners ........................... 38 Surf .................................................... 60 Suven Pharma ................................... 39 Suzuki ................................................ 38 Swaraj Mazda .................................... 38 Swarovski .......................................... 43 Taj Group ........................................... 96 Tata Auto Components System ......... 38 Tata Consultancy Services ................ 11 Tata Motors ........................................ 61 team4u............................................... 41 TeamLease Services ......................... 41 Technopak Advisors .......................... 41 Telco .................................................. 61 Telisma Corporation........................... 78 Texas Instruments ............................. 68 TIFAC................................................. 23 Timond............................................... 44 Tisco .................................................. 61 TMI Network ...................................... 42 ToxicLink ............................................ 32 Toyota ................................................ 38 TravelGuru ....................................... 105 Tulip IT Services ................................ 79 UBS ................................................... 85 UNCTAD ............................................ 10 UNESCO ........................................... 27 Unitech ............................................ 110 United Breweries ............................... 62 US Dept of Agriculture Organic Foods ................................... 96 Uttaranchal State Organic Certification Agency .......................... 98 Valentino ............................................ 43 Versace.............................................. 43 Viator ................................................. 26 Vismaad Mediatech ......................... 104 Vodafone............................................ 61 Vodafone Essar ................................. 76 Volvo .................................................. 38 VSNL ................................................. 78 Wadhwani Foundation ....................... 92 Warner Brothers .............................. 104 Waste Management Inc ..................... 33 Wavesat ............................................. 78 Whole Foods ..................................... 98 WIPO ................................................. 26 Wipro ................................................. 68 WiZiQ............................................... 104 Woolmark Company ........................ 102 WTO .................................................. 26 Xerox ................................................. 60 ZTE Corp. .......................................... 77
People DARE.CO.IN
covered in this issue, in alphabetic order; first appearance
Aashima Sekri ................................... 93 Abhay Panjiyar................................... 92 Abhishek Naik.................................... 93 Adi Godrej........................................ 110 Aditya Bhandari ................................. 85 Ahinav Dhawan.................................. 42 Ajay Bhardwaj .................................... 65 Ajay Kapoor ..................................... 104 Ajit Balakrishnan ................................ 92 Alok Mittal .......................................... 56 Alok Sharma ...................................... 78 Alok Shende ...................................... 79 Andrew Bhagyanathan ...................... 69 Anil Agarwal..................................... 110 Anil K. Gupta...................................... 99 Anurag Dikshit ................................. 109 Arun Chandavarkar ........................... 65 Ashish Dhir ...................................... 103 Ashok Reddy ..................................... 41 Ashutosh Gupta ................................. 85 Ashwani Gupta .................................. 27 Atul Gupta........................................ 104 Azim Premji ....................................... 66 Baba Kalyani ................................... 110 Bill Gates ........................................... 48 Binod Saharia .................................... 96 Chandrapal ........................................ 23 Charu Datta Naik ............................... 76 Cyrus Poonawala............................. 110 Deepinder Bedi .................................. 79 Devesh Garg...................................... 10 Devi Lal Kumawat .............................. 50 Dilip Shanghvi.................................. 110 E Balaji .............................................. 42 E Sreedharan .................................... 73 Elaben Bhatt ...................................... 95 Ganesh Eashwar ............................... 96 Ganesh Kumar Gupta...................... 103 Gaurav Chaturvedi ............................ 92 Grandhi Rao .................................... 110 GV Ravishankar .............................. 104 Harbir Khurana ................................ 104 Harish Mehta ..................................... 54 Henry David Thoreau......................... 35 Indu Jain .......................................... 110 IS Paul ............................................. 104 J. Kavitha ........................................... 93 Jagdish Prasad Parikh ....................... 97 Jaiprakash Gaur .............................. 110 Jayshree Eashwar ............................. 96 Joel Perlman ...................................... 85 John Scully ........................................ 58 John Stuart ........................................ 60 Kalanithi Maran................................ 110 Kalpana Jain .................................... 104 Kamal Nath ........................................ 23 Kanwal Singh..................................... 92 Karan Johar ....................................... 44 Keshub Mahindra............................. 110 Kevin Gascoyne ................................. 27 Kiran Mazumdar Shaw ...................... 62 Kumarmangalam Birla ..................... 110 Kunwar Sachdev.............................. 105 Kushal Pal Singh ............................. 110 Lakshmi Mittal.................................. 110 Laura Parkin ...................................... 56 M J A van der Hoeven ....................... 23 M Ramesh ......................................... 42 Madhu Mehta..................................... 54 Mallikarjun Rao .................................. 79 Malvinder Singh ............................... 110
Manik Thapar ..................................... 32 Manish Sabharwal ............................. 41 Mukesh Ambani ............................... 110 Muralikrishnan ................................... 65 Nandan Nilekani .............................. 110 Narayana Murthy ............................... 69 Naresh Goyal ................................... 110 Naseer Ahmed................................... 62 Nitin Paul ........................................... 58 NR Narayana Murthy ......................... 66 Pallonji Mistry .................................. 110 Paul Alapat ........................................ 86 Pawan Kumar .................................... 54 Pradeep Gupta .................................. 92 Pradeep Jain ................................... 110 Prakash Ranjalkar ............................. 77 Pramod T ........................................... 42 Pratap Reddy..................................... 29 Protip Ghose...................................... 78 R Ramaraj ....................................... 104 Rahul Bajaj ...................................... 110 Rajesh Chainani ................................ 79 Rakesh Basant .................................. 93 Rakesh Rewari ................................ 105 Ramesh Chandra ............................ 110 Ravi Ruia ......................................... 110 Ravishanker Ganesan ....................... 69 Rishi Khosla....................................... 85 Rituparna Chakravarty....................... 42 Rohit Buva ......................................... 69 Rohit Nalwade ................................... 93 Sabine Hertveldt .............................. 106 Saket Bhatnagar ................................ 41 Sanjeev Bhikchandani ....................... 92 Satish Sinha ...................................... 32 Sattam Dasgupta ............................... 69 Savitri Jindal .................................... 110 Senapathy Gopalkrishnan ............... 110 Shahrukh Khan .................................. 46 Shailesh Jacob ................................ 104 Shantanu Jha .................................... 69 Shashi Ruia ..................................... 110 Shiv Nadar ....................................... 110 Shivinder Singh ............................... 110 Shivprasad Cotipalli ........................... 92 SK Chadha ........................................ 32 SK Chaudhuri .................................. 102 Somnath Chatterjee......................... 105 Sourav Mukherjee ............................. 86 Sri Kumar Suryanarayan ................... 62 Srini Rajam ........................................ 68 SS Sindhu.......................................... 41 Steve Jobs ......................................... 58 Subhash Chandra............................ 110 Subodh Kant Sahai............................ 10 Sudin Apte ......................................... 85 Sukhwinder Singh............................ 104 Sundi Natarajan ................................. 56 Sunil Mittal ......................................... 66 Tejas Soni .......................................... 44 TK Magazine ..................................... 43 Tulsi Tanti ......................................... 110 Uday Kotak ...................................... 110 Venugopal Dhoot ............................. 110 VG Siddhartha ................................... 69 Vijay Mallya...................................... 110 Vikas Oberoi .................................... 110 Vikram Bose ...................................... 69 Vinod Dham ....................................... 78 Vishnu Varshney ................................ 53 Yashovardhan Saboo....................... 104
DARE is not an acronym. It represents the daring spirit of the entrepreneur. The red color for the R of DARE represents the fire in the belly of the entrepreneur. You could think of the D representing the face, A representing the chest, R representing the belly and E representing the feet of the human body. Hence the red R. The entrepreneur dares to do things. (S)he dares to do things differently
SMS â&#x20AC;&#x153;DARE <your comments, questions or suggestions>â&#x20AC;? to
56677 dare@cybermedia.co.in NOVEMBER 2007 101
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dare/policy
Marks of trust! Quality marks can give your products an edge over others and help you win more customers /Binesh Kutty
E
specially in commodities, what would be the stand of a product entering the global market place, without a known and strong brand promoting it? Chances are meek that it would click with the consumers just like that. Sure, the company can opt to do a massive brand-building exercise, to win the confidence of the consumers. However, branding, as we know it, takes years together. This is when companies could ride upon prevalent marks of trust, like Hallmarking for gold, Woolmark for woolen products, etc. These marks, at the very least, give a headstart to the product for striking B2B deals and winning confidence of the end consumer to quite an extent. Over decades, government as well as non-profit organizations such as Bureau of Indian Standards (BIS), The Woolmark Company, Cotton Council International, and more have promoted marks that assure quality of products. Woolmark is a seal of assurance that can be leveraged as a product promotional tool, by the wool consuming industries such as fabrics, knitwear, shawls, carpets, etc. Since its institution in 1964 by the International Wool Secretariat (IWS) – now called The Woolmark Company, Woolmark has been “a sort of a certification trademark in the world of 102
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business.” The mark itself came into being for enhancement of the wool business – be it the image, productivity, technical and marketing aspects, etc. Giving detailed inputs on Woolmark to DARE, S K Chaudhuri, Regional Director of The Woolmark Company (India & Southeast Asia), said, “how can a company enter into the global market without having to spend billions of dollars and many years on promotion? Woolmark gives companies that very opportunity, ready to be served on a plate – an easy entry.” As stated by Chaudhuri, any wool consuming business, company, trading partner and such can get the mark issued to them, provided they conform to the rigid standards set by The Woolmark Company. The long and short of this conformation is to make products that are 100% pure wool. While this is the most important criteria for getting the mark issued, there are several international quality specifications, standard
and norms, that need to be met. Besides this, the details of the applicant company are also thoroughly checked. This includes an assaying of the company’s management, manufacturing setup, procedures, etc. As you might have figured by now, The Woolmark Company is extremely serious about maintaining the sanctity of Woolmark. The company keeps a regular check on the products using marks from the Woolmark family (i.e. Woolmark, Woolmark Blend, and Wool Blend). They even go to the extent of doing random checks in the market to keep an eye out for misuse. Besides Woolmark, there are two other quality marks issued by The Woolmark Company. Woolmark Blend is for products that have 50% to less than 100% wool content. Then there is Wool Blend, which is for products with 30% to less than 100% wool content. These marks, like Woolmark, are internationally accepted as marks of quality.
ter into the global market without having ollars and many years on promotion? nies that very opportunity ready to be easy entry” onal Director, The Woolmark Company
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dare/policy The process for applying for all of these marks is the same and simple to the extent that any entrepreneur can do it himself. It involves filling up of a simple form, and sending it across to The Woolmark Company’s office in India, in New Delhi. After this, a set of laid down procedure gets into play, in which The Woolmark Company does all the screening. Once the application is properly sieved, a sample of the product applied for marking is required to be submitted to them. This sample is then sent across the central laboratory of The Woolmark Company, which is for an interim period in Australia. The lab’s test results typically come out in about three to four weeks, and this is mainly because samples from the world over go into this lab. Soon enough, there are plans to set up labs in India (Delhi), and China as well. If the test results okay the quality, a unique number (à la barcode) is issued to that particular product. After this, the company can start using the Woolmark seal for this product. “If the product fails to make it through the labs test,” Chaudhuri adds, “we don’t cut them (the applicant) off. We help them in understanding the cause of failure and give guidelines for improvement, so that they can resubmit the sample. There have been instances where a product got the certification after four resubmissions.” As for the benefits, Chaudhuri says, “Even if a company is big and known here in India, it needs marks such as Woolmark, which is globally recog-
nized, accepted and trusted, to attest the quality of product when it heads for the international markets. This is true even for the domestic market, where consumers have become ever demanding for an international flavor in everything.” Typically, Woolmark is issued for a period of one year, after which it can be renewed. As for the fee structure, there is a minimal application fee of $1,500. Apart from this, there is an additional yearly fee, which has a unique two-tier approach, based on the turnover of the company using the mark. This is $6,000 for a company with an annual turnover of $5.75 million or more. For companies with less than $5.75 million turnover, the yearly fee is set at $2,500. Much on the lines of Woolmark, Seal of Cotton is a mark issued for 100% Cotton Products. The Seal of Cotton was designed and instituted by Cotton Incorporated, a sister concern of Cotton Council International (CCI). In India, the promotion and license issuance of the Seal of Cotton, was being done by KSA Technopak, which represents CCI in our country. Ashish Dhir, Associate Director of Fashion Practice (Textile and Apparel), Technopak Advisors, who manages the account of CCI elucidates, “Seal of Cotton is 100% quality test mark for 100% cotton products, that has been in use in US, Europe, and rest of the world. The same promotion was started in India four years back.” This was until one year back, when Cotton Gold Alliance (CGA - a trade and marketing campaign brought about by Cotton Incorporated, in conjunction with CCI) was in existence. At the moment though, CGA is defunct. However, on behalf of CCI, KSA Technopak is still promoting and imparting generic cotton education in India. Until about a year back, KSA Technopak used to take care of the licensing of the Seal of Cotton. The procedure for issuing license to use the mark was done
rustworthy quality mark, and that is why we (on uncil International) do a lot of consumer level otion.” sh Dhir, Associate Director-Fashion Practice (Textile and Apparel), Technopak Advisors
pretty much on the lines of Woolmark. At that time, there were about 35 licensees here in India – including companies such as Madura Garments, Raymond’s, Shoppers Stop, Wills Lifestyle, etc. Interestingly, there was no charge for the Seal of Cotton mark. However, there used to be some nominal annual fee, which Dhir stated, holds no relevance at the moment. Similarly, Hallmarking is done for gold. Government of India has identified Bureau of Indian Standards (BIS) as the sole agency in India to operate this scheme. Hallmarking is the accurate determination and official recording of the proportionate content of gold. Hallmarks are thus official marks used in many countries as a guarantee of purity or fineness of gold jewelry. Right now, Hallmarking is more of a voluntary scheme for the businesses dealing in gold. However, a policy is in its making to make Hallmarking mandatory, and this should happen sometime next year. Besides Hallmarking, BIS is the sole body for issuing marks such as ISI, Ecomark, etc. There are other marks, such as India Organic, which is a trademark owned by the Government of India, granted on the basis of compliance with the National Standards for Organic Production (NSOP). Summing it all up together, these marks and more such quality marks are prevalent to facilitate trade, export, safeguard consumer interest, etc. At a recent workshop on Standards, Technical Regulation & Conformity Assessment held under the auspices of India Brazil South Africa Summit (IBSA) in South Africa, Ganesh Kumar Gupta, President, Federation of Indian Export Organizations (FIEO) highlighted numerous instances where export consignments adhering to high international standards were rejected due to non-conformity with national standards in importing nations. This leads to problems for manufacturers who have to be aware of standards in importing nations & accordingly adjust their manufacturing process. Emphasizing on mutual recognition of accreditation, Gupta called for hallmarking of precious metals & their products for faster custom clearance & DAR E benefit of consumers. NOVEMBER 2007 103
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/tietalk
Feeding Fuel to Fire The TiE event explored what ticks inside a VC’s mind and tried to demystify the intricacies of funding for entrepreneurs
“I
s money the only thing holding an idea back from execution?” asked R Ramaraj of TiE Global and Sequoia Capital India – a crisp line of thought that left others thinking in “Funding Your Enterprise & Entrepreneurship Essentials”, an entrepreneurial and funding event organized by the Chandigarh chapter of The Indus Entrepreneurs (TiE) on October 19 in the CII auditorium in Chandigarh. The event was meant as a pot-pourri of the elements of the entire entrepreneurial value-chain, starting from wannabe entrepreneurs, start-ups, SMEs and mid-stage established entrepreneurs to government and private funding agencies. With a focused agenda of demystifying the intricacies of funding to these new and established entrepreneurs, the names on the guest-speakers’ list included Ajay Kapoor of SIDBI Venture Capital, R. Ramraj and G V Ravishankar of Sequoia Capital, Shailesh Jacob of Copal Partners and Kalpana Jain of Deloitte Touche. The entrepreneurship story was woven right from the horse’s mouth by passionate local entrepreneurs such 104
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as Yashovardhan Saboo of Kamla Dials, Atul Gupta of RedAlkemi, Harbir Khurana of WiZiQ and Sukhwinder Singh of Vismaad. The event was started with a welcome address by I.S Paul, President TiE Chandigarh and Chairman of Drish Group. Speaking on his funding experience, Yashovardhan Saboo of Kamla Dials related how he started Kamla Dials and Devices in 1983 with an initial capital of 1.5 crores and relied on conventional financing in the form of capital subsidies and bank loans. The company, now known as Kamla Dials, manufactures premium watch dials and retails them under the brand name of Ethos. He further stressed on the importance of having absolute clarity about one’s business model before looking for investments and scaling it up to an appropriate stage of workability before looking for any external funding. Atul Gupta of RedAlkemi, formerly Pugmarks, related instances during his entrepreneurial life when he had to take crucial decisions on financial strategy. He hit the nail right on the head when he quipped, “Ideas alone don’t carry enough steam. You need
/Arunjana Das a good team, talent and the ability to execute”. Gupta is an IT entrepreneur who started Pugmarks as a design studio in 1985. In 2002, it tied up with Fidelia Inc., a US based monitoring and performance based software-solutions company. He elaborated on the importance of choosing the right investor who would add value to a business. “Approach only those VCs who have companies running on similar business models or segments as yours in their investment portfolio” he said to drive the point home. Harbir Khurana of AuthorGEN voiced similar opinions when he weighed the pros and cons of acquiring some random VC investments or going for partnerships which add tremendous value to your business in the form of appropriate guidance, exposure to the right markets and general hand-holding. He has recently raised a round of angel investments from Band of Angels and strategic investment from Educomp Solutions. Sukhwinder Singh with his colleagues of Vismaad Mediatech is credited to have come out with the first animated Sikh movie, Rise of the Khalsa. He started his business with an initial capital of mere Rs 25,000. When he approached a Singapore firm for producing 20,000 DVDs, he was met with skepticism. “Warner Brothers’ Brother Bear sold 10,000 DVDs. You want to produce 20,000?” he was asked. With his 20,000 DVDs, he made a country wide tour of the US. “I put up stalls outside fairs and Gurudwaras. Wherever I would see a Sikh with a turban, I would set up shop!” He sold all 20,000 DVDs. “That’s passion”, remarked R.Ramaraj citing Sukhwinder’s example. Ramaraj is among the pioneers of the Indian internet space. He was instrumental in co-founding Sify and listing it on the NASDAQ, thereby making it the first In-
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/tietalk dian internet company with a listing in the US capital markets. Providing the inaugural note on “Entrepreneurship Essentials: Early Stage Fund Raising & Mentoring Best Practices”, he emphasized the importance of differentiating an idea from existing businesses. “We look at how relevant an entrepreneur finds his own idea” he said. Citing the example of Travel Guru, Ramaraj expatiated how Travel Guru had differentiated itself from the many travel solutions companies in the market by working on a unique business model offering last-minute hotel and travel ticket reservations. Capitalizing on this USP, they had obtained an investment of $15 mn from Sequoia Capital and Battery Ventures in their second round of funding. “Believe in your idea and execute like hell”, said Ramaraj stressing on the importance of efficiently executing an idea. He elaborated how VCs bring in much more than money. “It goes beyond money and networking. We bring in mentoring and exposure”. He, however, advised companies to boot-strap for as long as they can, that is, acquire funding from personal sources. In answer to a question on equity stake in investee companies, Ramaraj explained that Sequoia usually looks at 10-20 % equity. “We do not want to control the company. We just want to make sure that our equity share enables us to mentor and guide the company”. His colleague in Sequoia Capital, G V Ravishankar, channelised the discussion further by drawing down discrete points of what VCs look for in a prospective investment. “If you’re taking a bet, let it be large”, he said delineating the significance of a huge target market. “A great team in combination with a great market provides the perfect equation for a great investment with great chances of success”. Shailesh Jacob of Copal Partners, a global financial research firm, presented on the standard valuation and due-diligence processes followed by VCs and PE (Private Equity) firms. Defining valuation as an art in venture capital, he said, “Your value is the potential someone sees in your compa-
ny.” Increasing this potential or rather presenting it in such a way is, hence, important. “The key thing is your business plan. Most VCs want to be a part of the next big thing. So make sure that you are focused on capturing a billion dollar opportunity”, he said in consonance with Ravishankar’s views. The likeliest question succeeding this was, “How can you increase your valuation?” in reply to which, Jacob had a few succinct points up his sleeves. “Don’t waste money. Be focused on cash flows. Prove to investors that you can scale up and are capable of following a big market opportunity.” Kalpana Jain of Deloitte Touche expanded further on the valuation and the due-diligence process by presenting on the factors driving value and specific valuation tools used by funding agencies to arrive at a valuation of a prospective investee. Ajay Kapoor, a veteran in the VC industry and CEO of SIDBI Venture Capital, advised entrepreneurs to work on exit models in addition to cash-flows early on, for that is one of the first things that VCs look for in a proposition. “Typically, VCs expect returns ranging from 5 to 10 times on exit.” Hence, it’s pertinent to work out an appropriate exit strategy which would address a few primary concerns of VCs, namely when to exit, how much to exit with and what kind of buyback would happen. An atmosphere heavy with valuation techniques and exit strategies was lightened up by the arrival of Kunwar Sachdev, CEO of Su-Kam. Narrating how he made Su-Kam the top manufacturer of inverters in the country, he engaged the audience with snippets from his life which involved crossing one professional hurdle or the other. He described how he made innovation his top priority and came out with the first and only DSP (Digital Signal Processing) sine-wave inverter of the country. The Last Word was delivered by the charismatic entrepreneur-turned-investor, Rakesh Rewari of SIDBI Venture Capital. He dealt out the entrepreneur and VC cards with doses of good humor. “First reach a size that VCs contact you”, he quipped. Until then, the option is to boot-strap, that is, obtaining
The Funding Mantra 1. Bootstrap as long as you can 2. Reach a size where you can show not just value but profits 3. Work out an effective exit strategy
What VCs want 1. A big market for the idea 2. Great team and great management 3. The Secret Sauce in the form of a differentiating factor 4. Capital-efficient businesses, i.e.., high returns from small investments 5. Commitment to an effective exit model
What to expect from VCs 1. Be ready to give away some part of the company in the form of equity stake 2. Equity stake decided depending on Risk-Return ratio 3. Clarity about liquidity 4. Authority on issues that affect the company 5. Re-structuring of business plans for maximum leverage 6. Replacement of certain people to handle different levels of scaling-up - G V Ravishankar, Sequoia Capital funds from friends and family. Bootstrapping was, in fact, a significant part of his discussion, just as it was for the others. “If you need money, there are options that you can avail – friends, family and in-laws, if you’re lucky! Do not seek external funding unless you absolutely need it,” he said. The closing address was delivered by Somnath Chatterjee, the Executive Director of TiE Asia. Ajay Tewari of SmartData, who was instrumental in organizing the event, delivered the vote of thanks, thereby providing a fitting DAR E closure to an engaging day. NOVEMBER 2007 105
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report /doing biz
Regulations: Long way to go The Doing Business 2008 report from the World Bank points out that India has a long way to go in making business procedures easier. But there is good news too; the country was the top reformer when it came to cross border trade /Krishna Kumar
T
he World Bank’s Doing Business Report gets its fair share of headlines and criticism when it comes out with its annual ranking of ease of doing business across some two hundred countries. After all, isn’t India the target of businesses the world over? How could India that is the cynosure of all eyes be worse off than Lituania and Latvia and Namibia and Kenya and Nicaragua? Who has even heard of Micronesia and Samoa who rank way above India? Who does business with St. Vincent and the Grenadines, which at 54 out-
rank India’s 120 by a huge margin? Infact, India ranks lowest in South Asia. Why? The answer to all these questions is in the fine print. A thin line of text on the cover says it all – “comparing regulation in 178 economies”. So, that is what this report is all about – about regulations and the time taken for compliance with regulations. It is not about business potential or actual business. When asked about this, Sabine Hertveldt, one of the co-authors
Google Map courtesy doingbusiness.org Green (1-60) easier; yellow (61-120) moderate; red (121-178). * indicates top 10 reformers
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report /doing biz
Why has India scored better than China on the starting a business indicator despite the fact that the number of procedures to start a business are equal? It is correct that India scores better than China on the starting a business indicator (111 vs 135), despite the fact that both countries have the same number of procedures to start a business (13 in total), the time to start a business is similar (33 days in India vs 35 days in China) and the cost to start a business is lower in China (8.4% Chinese income per capita vs. 74.6% of India’s income per capita). The better ranking of India on our indicator is due to the fact that India does not have a minimum capital requirement to start a business whereas in China, an entrepreneur needs to deposit in a bank (or pay to a notary) before registering a company 190% of China’s income per capita as minimum capital (190% of 2,010 USD-GNI of China=3,819 USD minimum capital). Imposing a minimum capital requirement of almost twice a country’s income per capita is an important hurdle to start a new business and the usual justification for its existence (protecting creditors, protecting the company against insolvency etc) makes little sense because lenders base their decisions on commercial risk, not on whether a business meets a government-imposed capital requirement. What reforms does India need to improve its position in the Doing Business rankings? The areas where further improvement is possible are in enforcing contracts, paying taxes, bankruptcy protection and dealing with licenses. India could increase the efficiency of its courts (contract enforcement) by establishing specialized commercial courts where judges only deal with commercial disputes. By way of comparison, it takes 1420 days or almost 4 years to resolve a commercial dispute through the courts in Mumbai and only a bit over a year in Shanghai. In India, 60 tax payments per year are needed whereas the average in the region is 28.9. Total tax rate for India is 70.6% of commercial profits whereas the average in the region is only 41%. We are aware that a draft law on bankruptcy is pending which once adopted, will introduce specialized bankruptcy courts. Once the specialized courts become operational, we expect to see improvement on India’s ranking on the “closing a business” indicator. For dealing licensing and more specifically building permits, India could look at best practices within the country: it takes 5 months to approve a building permit in Mumbai vs. only 1 month in Hyderabad and Jaipur. We are aware that the Maharasthra government is working on introducing a “single window clearance”, so we expect to see further improvement there as well in the coming years. Last year, China made the application process for building permits and safety certificates electronically which reduced the time to obtain a building permit to within 2 weeks. How do you compare India and China in the overall ranking? A striking India-China comparison is related to our analysis on registering property. Real estate can be transferred in 29 days in China whereas it takes double that in India. It costs 3.6% of Chinas GNI to transfer property against almost double - 7.7% of India’s GNI – in India. I would like to stress that India improved 12 places on the ease of doing business last year, which is more than China which improved with only 9 places. (Last year, in Doing Business 2007, we noticed the opposite: China improved 15 places whereas India improved 4 places on the aggregate ranking.) We expect and hope to see India improving even more in the next years as the results of the Indian Government’s explicit policy objective to reform its business regulation start to show in daily practice.
Sabine Hertveldt is Investment Policy Specialist, International Finance Corporation and joined the Doing Business team in 2006. NOVEMBER 2007 107
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report /doing biz
India Vs. the best
India
Best
Starting a Business
Time (days) Procedures (number) Cost (% of income per capita)
33 13 0.74
2 2 0
Dealing with Licenses
Procedures (number) Time (days) Cost (% of income per capita)
20 224 519%
6 6 1%
Employing Workers
Firing costs (weeks of wages)
70
0
Registering Property
Procedures (number) Time (days)
6 62
1 2
Paying Taxes
Payments (number) Time (hours) Total tax rate (% profit)
60 271 70.6%
1 0 8.4%
Trading Across Borders
Documents for export (number) Time for export (days) Cost to export (US$ per container) Documents for import (number) Time for import (days) Cost to import (US$ per container)
8 18 820 9 3 910
3 5 390 3 21 367
Enforcing Contracts
Procedures (number) Time (days) Cost (% of debt)
46 1240 39.6%
20 120 0.12%
Closing a Business
Recovery rate (cents on the dollar)
11.59
92.63
of the report, told DARE “I agree that the Doing Business report does not cover all factors that matter to businesses. The report does not take into account certain factors such as the quality of the infrastructure, proximity to large markets and a country’s macroeconomic situation. Procedures and the level of red-tape (the focus of our report) do matter though - but a country’s business environment is determined by other factors as well.” The report offers some interesting insights. Which is the country that has done the most to reform procedures for businesses? Egypt, which undertook significant reforms in as many as five out of the ten sections under which countries were rated. And all is not bad news for India either. India was the top reformer when it came to doing business across borders, with its rank going up 63 places compared to the previous year! India’s best rank in the 2008 report was 33 in protecting investors, followed by 36 108
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for getting credit. Where we lag significantly behind is in enforcing contracts where our rank is 177 out of 178!. Next from the bottom of the list is a rank of 137 for closing a business. Having said that, what would it take to improve India’s standing? The doingbusiness.org website provides a simulator in which you can change the data for various parameters and see how it impacts the rankings. Assuming that other countries continue to remain where they are, let us see how to improve India’s position. Starting a business currently takes 33 days and involves thirteen procedures. The best of countries let you register a business in just two days. If India were to reduce these two measures to the level of the best elsewhere, our ranking would improve to 103. Enforcing contracts, as we saw earlier is our Achilles heel. If we were to become equal to the best in this count, our ranking would go up from the
current 120 to 70!, an improvement of 50 places. If we were to become equal to the best elsewhere in ease of closing businesses where we got our second lowest ranking, our overall ranking will go up by 40 places to 80! To quote from the overview report, “The time to obtain a business license in India ranges from 159 days in Bhubaneshwar to 522 in Ranchi. The time to register property, from 35 days in Hyderabad to 155 in Calcutta. A hypothetical Indian city with the country’s top performance in each of the Doing Business indicators would rank 55 places higher on the ease of doing business than Mumbai.” So obviously, the way forward for us is very clear. We need to make improvements in almost all the areas, particularly in enforcing contracts and in ease of closing businesses if we need to improve our rankings in this particular study. Equally importantly, we need to work on DAR E removing regional imbalances.
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data /wealth The Billionaire Club Rank 2006
Rank 2007
Growth
Lakshmi Mittal
5
5
0
Mukesh Ambani
56
14
42
Anil Ambani
104
18
86
Azim Premji
25
21
4
Kushal Pal Singh
114
62
52
Sunil Mittal & Family
125
69
56
Kumarmangalam Birla
140
86
54
Shashi & Ravi Ruia
254
86
168
Ramesh Chandra
114
Pallonji Mistry
185
137
48
Adi Godrej & Family
278
210
68
Shiv Nadar
168
214
-46
Anil Agarwal
245
230
15
Dilip Shanghvi
317
279
38
Indu Jain
317
287
30
Cyrus Poonawalla
287
Kalanithi Maran
349
Grandhi Rao
349
Savitri Jindal & Family
390
Tulsi Tanti
562
390
172
Subhash Chandra
746
407
339
Uday Kotak
698
432
266
Baba Kalyani
562
458
104
Malvinder & Shivinder Singh NR Narayana Murthy
488 645
Venugopal Dhoot Anurag Dikshit
207
618
-411
664 746
664
Vikas Oberoi
717
Nandan Nilekani
754
Naresh Goyal
88
618
Jaiprakash Gaur Vijay Mallya
557
512
754
Senapathy Gopalakrishnan
799
Rahul Bajaj
840
Pradeep Jain
840
Keshub Mahindra
840
82
-242
India’s most exclusive club W
ho in the world is Anurag Dikshit? Not many in India would recognize the name, or the face, if they were to see his picture. But he belongs to an exclusive club of 36 people; people, whose names and photographs adorn newspaper front pages, magazines and TV bulletins every day. So, who is this Anurag Dikshit? And which is this exclusive club of 36? 35-year-old Dikshit is the youngest billionaire of Indian origin in this year’s Forbes List of Billionaires, And the combined networth of these 36 is just under $200 billion! Dikshit, an NRI and the gaming tycoon based out of Gibralter. He developed the hugely popular online poker site – partypoker.com. His party, however almost came to an end as he pulled out of the US last year due to tightening anti-gambling rules. So from $3 billion in 2006, his fortunes slipped to $1.6 billion this year. There is definitely more to India than what outsiders would like to believe. The latest list of billionaires stands witness that in addition to our apparent excellence in the snakecharming sector, we happen to excel in manufacturing, IT, telecom and real estate sectors among a few others. Steel, IT and telecom have been forever green, throwing up old guns with Lakshmi Mittal, Azim Premji, Kumaramangalam Birla and Shiv Nadar who have made constant appearances in the list. For those companies listed in India, the treasure seems to be hidden at Dalal Street. A close link between hot sectors and the stock market has made many build fortunes but the lucky ones NOVEMBER 2007 109
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data /wealth Indians in the Forbes List of Billionaires
This year saw the networth of the club more than double. Club membership, if you could call it so, was up about 56%. Incidentally, each of the last 5 years has seen the networth of the club increase sharply.
Its a rat race amongst billionaires! In the race between first generation entrepreneurs and those who inherited their moolah, the inherited folks have always stayed slightly ahead of the first generationers.
Data Source: Forbes List of Billionaires
made it to the elite list. New-economy sectors such as IT, biotech, media and real estate churned out more billionaires in the last three years as they hit the IPO trail one after the other. Real estate and construction has made its pot of gold at a quick rate. 110
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Kushal Pal Singh of DLF, doubled his billions from $5 billion in 2006 to $10 billion in 2007. Joining him further down the list are Unitech’s Ramesh Chandra, Parsvnath’s Pradeep Jain and Oberoi Construction’s Vikas Oberoi, making real-estate the
sector with the highest number of new billionaires this year. P N C Menon of Sobha Developers, a construction company, is an Indian settled with Omani citizenship and the owner of a personal fortune worth DAR E $1.3 billion.