Subir Roy: Build to last or sell?

VALUE FOR MONEY

Marketics sold, declared my colleague. I could scarcely believe my ears. What on earth for, I thought. They had miles and miles to go. In four years a group of youngsters had not just reached a turnover of $4 million and doubling every year, but boasted a clientele (including the likes of Coca-Cola and P&G) that would be the envy of any firm, big or small. And Marketics was at the top end of the knowledge business, analysing the mountains of data these firms generated to build statistical models and identify marketing insights. If a highly profitable zero debt company which has used no outside equity funding could command a value of $65 million in four years, surely the sky was the limit for them. Did they not want to become a household name like Infosys one day when they had it in them?

CEO S Ramakrishnan is quite clear why the founders took the decision: "It is for the good and the future of what we were doing so well and also the careers of our employees." Not only do you need loads of capital to upscale, when you get big enough to respond to RFPs (requests for proposal) being under the umbrella of a New York Stock Exchange-listed firm like WNS, the acquirer can become critical. Besides, Marketics's own innovation, "democratising" business analytics by putting it on an assembly line, created an opportunity and need for rapid growth which other global firms in this business, mostly boutique operations, did not have to contend.

To Marketics chairman and serial entrepreneur G Ganesh (this is the third business he is exiting), for a founder the decision to exit is always an "emotional" one. "You have to have not just passion but foolish passion to start a venture. I left a good job because I wanted to prove that I could make it as a first-generation entrepreneur. Have I finished? No, I have five more companies in me. In Marketics they are all youngsters who can get other startups going." The key thing, says Ganesh, is there is a path for entrepreneurial growth and an individual has to be clear what sort of venture he likes to work for. Each stage requires different skills, which a person may not have. He likes being with startups. "When it becomes ten times the size I am not the guy for it."

In today's knowledge economy, in nine cases out of ten, people build firms with a clear idea of not just wanting to sell but often to whom and when. The archetypal Silicon Valley startup will have studied carefully the technology map of the leaders and charted out which bit of technology it wishes to develop and at which stage it is going to be acquired by a firm like Cisco or Juniper. The building blocks of firms and products are mostly not physical assets but intellectual property (IP). There are so many licensed technologies in a single product and there is now a massive marketplace for IP. People start companies to create bits of IP and then sell the company and IP to start another company to build another bit of IP.

India is catching up with this world and consequently there is more of a level playing field for entrepreneurs in the country. You don't have to belong to a business family to start a knowledge-based venture. Successful companies will upscale and entrepreneurs have to decide whether they can or even want to upscale along with their startups. According to Jay Pullur, CEO and founder of Pramati, a successful IT product company, this personal scalability is very rare. The Indian entrepreneur who perhaps heads the list is Dhirubhai Ambani""journeying from door-to-door salesman to conglomerate head. Others mention N R Narayana Murthy.

Pullur is clear that startups have to necessarily morph, both internally and externally, and irrespective of whether they fail or succeed. If a firm fails, it gets bought over and automatically morphs. But even if you are successful and growing, you have to keep morphing. Internally, a firm has to change from the day when it has a few people to multiple, the original gung ho culture of working not being sustainable. "The success of a startup depends on how the core team is able to adapt and morph." And once you have grown sufficiently and become stable, the critical moment to morph externally comes, by being acquired or going public.

An entrepreneur must know what he wishes to achieve. Pullur's "goal is to build a globally recognised IT product brand out of India. When I feel that stage has been reached, I may want to exit. Today there are many entities with funds wanting to acquire a product company and I could have exited. But does it mean I will continue indefinitely? I have other goals and I will go mad if I just run Pramati and make it bigger and bigger."

Very few want to see a company through from start to top but one group that does is Ashok Soota and the other founders of MindTree. It has grown spectacularly and in the run-up to its phenomenal public debut there have been persistent rumours that the founders may be exiting. "Our goal is not to build and sell but to create an institution. The fun is in that," declares Soota. You have to know who is good for what. What stage a country is in is also perhaps relevant. Does it need heroes, a few institutions that people can be proud of? He tends to agree and adds, "In India a lot of organisations are still getting built."

So why did I, as a scribe, react to Marketics disappearing? Fact is, I had over the years become a strange stakeholder. Having been the first to report on the venture as it got successfully going, I had acquired an interest in its continued existence. The sentiment is something like that of the cleaner (Robi Ghosh) of the vintage car taxi in Satyajit Ray's film Abhijan, whose world crumbles when the owner driver (Soumitra Chatterji) announces that he is going to sell the car. Having told the world that an acorn had been planted, I dearly wanted to celebrate the oak tree.

sub@business-standard.com