Excerpts from an interview with Arjun Malhotra who was co-founder of HCL and now heads Headstrong, a US based company.
You were 49, you started TechSpan. You got a whole bunch of money from Goldman Sachs and Walden. It was unusual for an IT consulting company to get a whole bunch of money from investors.
Not really, I think everyone had seen the Indian story at that time and they all wanted to get in there. I think what had happened during the bubble was whether you were an Angel, a Venture, a Mezzanine everything seemed to collapse and everyone was doing everything, which is one reason why we got venture equity from Goldman who really come in, normally used to come in at a Mezzanine stage at that time but basically our model was a little different.
Theme we had was ”Think local act global”. So we wanted to do consulting in the markets where we work by using local consultants. People, who were knowledgeable about local conditions and then do global delivery, do delivery from wherever in the world it was relevant. It did not matter whether it was India, China, Manila or East Europe; wherever we got right resources and the optimal cost we would do delivery. That was the large-scale thinking and model that we had in mind. We never really got down to implementing it because when we went into the market the pull on E-Commerce was so strong at that time that we really said why should I fight the market, let me just do what the market wants me to do and you know we started operations on 1st of January 1999, in calendar 2000 we did 67 million which was a huge number at that time in your second year and the good news or the bad news whichever you look at it, was that we were profitable which is one reason why we never went public and I think one reason why we are still here today is we had the profit.
So when the slow down hit us and when it hit us you know it was like going into a wall basically because we were in that business, only in that business. We were able to get our act together, probably went back and leveraged a lot of our reserves that we had created from the profits in that year to be able to survive. Basically we waited for a year, everyone thought the slow down would go away and things would get back to normal. We figured we had waited long enough and that we better put some strategy and some plan together instead of just waiting and doing things and that is when we decided that instead of our earlier plan of 3 segments, etc., etc., let us focus at least on one and try and build specialized expertise in one segment and which is why we chose the capital markets of the securities industry at that time and which is really about 70-75% of our revenue today.
You have mentioned the buzzword of the year, capital markets and financial markets. When we think of financial markets in the US today we think about the sub prime crisis, the mortgage crisis and how the financial market is melting. What impact do you think this is going to have on your business and do you think you have put all your eggs in one basket once again?
I think, I feel very good about our strategy, I feel very good about what we are doing, I think what has happened is, as they always say there is an opportunity in someone’s problems. I think what has happened at Wall Street, forget the reasons, I am not going into that, is a fact that they have to now reduce cost and they are very aggressively going after reducing cost. How do you reduce cost in an industry where you also have to be state of the art in technology all the time? So, the only way you want to reduce the cost in technology development is if you send more work to lower cost areas and offshore outsourcing or off shoring is one of the ways of doing it. So we are finding a major thrust with a lot of people in sending work offshore from areas that they never used to look at sending work earlier. Now, why were these so called sacred cows- they are probably no longer sacred, but why they are not longer sacred? I think the reason is they were sacred because they needed domain knowledge, some domain expertise and really it is difficult to find that domain knowledge or expertise outside a few financial centers like London, Tokyo, etc., etc.,. So what we are seeing is that because we seem to be the only company that has that domain expertise at least in India locally not just in US or Tokyo or London where we also have it. A lot of companies are coming to us that had not come to us earlier or would not talk to us earlier because they had their own vendors, etc., etc., and saying hey! Can you help us do this? So business is actually starting to boom for us, so in a way we are scaling very differently right now than what we had planned to scale earlier and really a lot of it has been driven, some of it will be inorganic but a lot of it is likely to be organic based on what we see in the market today.
So one of the challenges for you to grow, I would suspect would be human capital because if these cash cows from the financial companies is being opened up and you are getting some of the work outsourced or given to you, you now have to find the right people with the right expertise. Is human capital one of the constraints that you are going to face moving forward?
Yes, human capital has always been an issue. I mean you never get as many good people as you want to get all the time. But I think-again let me tell you what is happening in India. It is because of the decisions slow down in the US and because of the fact that people have these huge recruiting plans, a lot of campus recruiting this year has either been deferred or people have written back to people they have recruited saying they are withdrawing the appointment letter or they are deferring it indefinitely. So all of a sudden if I look at a campus fresher level, I am able to pick up any number of people I want and from our normal 100 people that we pick up every year-a 150 people, we are actually looking at- we have already taken a 100 plus this year, we are looking at adding 500 more in the next 4 or 5 months. In a way you are right, we expected the ramp up to be a lot slower than we thought we would be able to do but again because of the circumstances in the market we are able to ramp up a lot quicker and really go back to our prospects and our customers and say I can do it a lot quicker than I originally mentioned because of this.
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