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The accidental entrepreneur who built a 600cr staffing business | VC Karthic @ Buzzworks
197 Plays8 months ago
Delve into the massive and fast-growing staffing industry- a sector estimated to touch nearly $50 bn dollars by 2030. In this episode, V C Karthic shares insights about the industry, and offers insightful observations on entrepreneurship, company culture, management principles, and founder aspirations.
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Transcript
Introduction to VC Kartik and Buzzworks
00:00:00
Speaker
Hi, my name is UC Kartik. I'm the founder of Buzzworks. We are a contract staffing, stroke, human resources company based out of India. Thanks for having me on the show.
00:00:22
Speaker
In this episode of the Founder Thesis podcast, we do a deep dive into the unsexy but massive and fast-growing industry of staffing. The staffing industry in India is expected to touch almost $50 billion by 2030 and that means it will create multiple billion dollar companies.
00:00:39
Speaker
VC Kartik is an accidental entrepreneur who ended up building a 600 crore staffing business over the last 25 years. In this freewheeling conversation with your host Akshay Dutt, Kartik shares some very sharp observations about the staffing industry, about entrepreneurship, culture, management principles, and founder ambitions. This episode literally has dozens of takeaways for aspiring entrepreneurs and should be on your must-listen list. Stay tuned for this conversation and don't forget to subscribe to The Foundathesis podcast and any audio streaming app.
Buzzworks' Contract Staffing Model Explained
00:01:18
Speaker
So Karthik, give me like an elevator pitch on what is Buzzworx? Yeah, so Buzzworx is a company that's in the business of contract staffing. The simplest way to explain this is that the person who delivers the Amazon package at your door
00:01:35
Speaker
is not really an Amazon employee. Mostly it's somebody that we employ or rather hire, train and deploy to folks like Amazon. So we have about 20 plus thousand people doing very rolls from loaders in a go down to loaders in a software company. And that essentially is the business of contract starting and that's the business that we are in. Okay, amazing.
00:01:59
Speaker
What is the value add of a contract staffing company? Why does this business exist? I mean, couldn't it all just be replaced through a payroll software or I mean, you know, just help me understand what is the value that you are adding? Why do companies want your service?
00:02:18
Speaker
So I think three pieces. So like I said, highest train and deploy option is the value that we add. So hiring sort of a large numbers of people requires large effort. Although you can posit saying there is a job gap. There are lots of jobs and even more people looking for those jobs, but really somebody needs to do that matchmaking. I think that's the first value that we add. In some cases, people also need to be trained before they become job ready.
00:02:47
Speaker
So in some cases, not in all cases, we also train these folks so that they are employable. And then, of course, deployment, like you said, requires payroll, but it also requires the neurons to compliance. So payroll is like Excel. You feed garbage in, it will spit garbage out.
00:03:05
Speaker
Somebody needs to make sure that you're obeying the laws of the land when it comes to employee records, when it comes to ESIPF, when it comes to GSP, TDS, and we can go on and on. There is enough regulatory overlaps in India. So really, these are the three sort of problems that we solve. Peron is one of them, for sure, but it's not the entire equation.
00:03:27
Speaker
So there is this whole category of new age businesses like DEAL, which are supposed to be offering an employer of record service or EOR. Are you similar to them or are you different?
Industry Differentiation and Business Challenges
00:03:43
Speaker
What is the difference? I think what DEAL does is that it offers a very quick path for you to set up in a new geography if you're not conversant with the laws of the land.
00:03:54
Speaker
And I think everybody has their place. This is a very large business. The deal is not really a competitor, even though they play in similar markets. You will notice that the deal, for example, has a much larger international footprint. So let's say, for example, if you want to set up operations in North America, and you want to get started quickly, and you're hiring only, let's say, 10, 20 employees, they're there to go through this. There's no debating that.
00:04:21
Speaker
But let's say he wanted to hire 2,000 people, and they're at the bottom of the pyramid. Then, again, you'll have to ask the deals folks this.
00:04:30
Speaker
But I would guess we are slightly better suited for that job. So employers of record are great to get a business started in a geography where you don't have control or where you could be bothered, mostly with small deployments. I think we operate at the other end of the spectrum. Let's say you have to hire a couple of thousand people and maintain those couple of thousand people on a more or less regular basis is where you would get into somebody or talk to somebody like that.
00:04:59
Speaker
Okay, so one of the first founders I interviewed on the show was someone called Girish who runs this company called Net Ambit which offers something similar of managing teams for businesses like for example if say Sugi has a restaurant acquisition team or Paytm has this merchant acquisition team which goes and puts QR codes and signs up merchants so they manage that with a
00:05:28
Speaker
performance driven compensation. So it's fixed plus performance driven compensation based on what targets are achieved, how many merchants are signed up and so on and so forth. Do you look at that as something to evolve into or I mean, you know, what's your take on that kind of a business because you are essentially in a similar space, right? Yeah, but I would hasten to add actually that similar is not same. You know, it has to act like a duck, walk like a duck and talk like a duck to actually sort of be called a duck.
00:05:58
Speaker
Again, folks like that are essentially in the manic services space where, as you rightly pointed out, they also take care of SLAs. They also take care of outcomes. So 100,000 merchants being signed up is probably one of the outcomes that they are held responsible for. Whereas contract staffing is only fire, train, and deploy. So productivity is not really our game.
00:06:26
Speaker
Now, if we keep saying similar but not the same, you might wonder, is this a rich business? The short answer is that perfect staffing is a $13-15 billion business in India. So it's not small by any means. And it's going on a very healthy cagger.
00:06:42
Speaker
So, there's no need, or at least at Brunswick, we don't feel the need to actually go after new sort of spaces where there are great players. You know, you mentioned Dean, you mentioned Matt Amby. Great players doing great work. So, really when you have an ocean to boil as is, why would you really run after something that I would say we don't know how to do particularly well. So, we're quite happy and quite content and doing what we do.
00:07:10
Speaker
Though does that improve margins? I mean, from what I understand, contract staffing is like a low margin business, right? Like I think 5% at the entry level, I'm guessing it could be like a 5-6% margin.
Staffing Industry Dynamics in India
00:07:26
Speaker
Of course, if you're doing more niche and senior roles, then probably it's not the same. So if you move into
00:07:33
Speaker
undertaking responsibility of meeting SLAs, would that improve the margin profile? Is that something you even want to do, or would you just prefer to increase volume and thereby increase profit? Yeah, the way we are tracking inside Buzzwax is profitability. And really, it's a combination of volume as well as portfolio. And like you rightly pointed out, there is stuff to be had at 5%. There's stuff to be had below 5%. There's stuff to be had at 50%. There's stuff to be had above 50%.
00:08:04
Speaker
So the trend is really quite wide. And each business sort of has its own complexion. If I were to very quickly dissect the business, what is the reason for a business to exist? Again, coming back to your first question at the top of the show, I think it's a combination of three things. One is desirability. Does the customer actually want something like this? The second question is viability. Are you the right person to provide something like this?
00:08:29
Speaker
And the last sort of question is profitability. Can we make enough money or significantly enough money doing what you're doing, doing what you're good at? And we've discovered this sweet spot. Deal has discovered another sweet spot. And of course, NetAmbit has discovered another sweet spot. Just in passing, I want to mention that recruitment by itself is a very high margin business. But there's probably none that much scale. You can't build 1,000 crore business around it.
00:08:58
Speaker
So really, there is no such battle in my mind for market share, for customers. I would probably start thinking about this or we would think about this seriously when let's say you become a billion dollar company and the market is only let's say 15 billion. And you're saying, even at that stage, you would appreciate that you're barely taking 10% of the market.
00:09:23
Speaker
And if you're a category leader, if I were to put my sales in that slot, these questions really need to be asked by a category leader who probably has 24-25% of the market. So there is somebody who's going to have $3 billion needs to ask these questions. We are orders of magnitude smaller. So we're not asking those questions right now and right here.
00:09:47
Speaker
What will be your revenue this year? Projected revenue? About 600 R crores. So like I said, there's a very large gulf between being a $2.5 billion company and being a 600 crore company. So right now we're just getting our head down. Our first target is to get to 1,000 crores. Then our questions become slightly more nuanced and so on and so forth. But I can move on as a guarantee to you.
00:10:11
Speaker
in an open forum that we are neither are we going into the managed services business, nor will be going to an employer of required business, not at least in the foreseeable future. And what will be your profit on 600 crores?
00:10:26
Speaker
It should make us in the range of 1.5 percent, so about 10 crores. Okay, understood. So help me understand the staffing market, you know, like a 101 on this industry. At 600 crores, where do you rank? Who are the major players? What does this industry look like? I believe it is like a fairly fragmented industry because there's almost no entry barrier, right?
00:10:52
Speaker
Other than having working capital. Absolutely. So it's a three tier business. I like to call it sort of an iceberg business. So at the top end of the spectrum, there are folks who are, let's say, a billion dollars in revenue, slightly more multinational corporations, public estate entities, of which there are two, and we'll come to that in recent queries.
00:11:14
Speaker
But internationally also there are players who have presence in India. Some names again are not an exhaustive list, but some names include Atticose, Manpower, Rancetite. You might have seen some of these folks, let's say on the back of Formula One delivery. They really that big. They have the where without the sponsor of Formula One team. I think Rancetite does one team although I forget the name of.
00:11:40
Speaker
So, this is really a fairly evolved business abroad. It started in India in the early
00:11:51
Speaker
to late 90s, when our economy started liberalizing, when people walked around with this idea, late 90s is more of a better guess. But essentially, this is about 15-20% of the business. So organized and institutionalized. If I were to put both of them in one bucket, they'd probably be 20% of the market.
00:12:16
Speaker
And this would be like a 100 crore top line plus kind of companies would come into this. No, orders of magnitude bigger. So just taking two examples, Teamlies and Quest. Teamlies would be in the 6,000 crore revenue range and Quest would be probably 10,000 crores plus, although I'll have to sort of double check my numbers. It's not an accurate number. So just between both these forms, there are about 2 billion dollars of the business.
00:12:44
Speaker
International players are slightly smaller in their spread in India. Because India is a complex market, it's not easy to sort of play India. These folks clearly have it right. But I'm saying if you bunch all these folks together, they'll be 20%, not more than 25% of the market. And then there are SME players like us, who are in the, so by SME, I mean, so in this, everything is a little staggered. So by SME, I would say anybody between, let's say 500 to 1000
00:13:14
Speaker
is an SME business. Whereas, in a regular industry, you'd probably say anybody north of 100 crores is probably not small anymore. But really, even at a 1000 crores in this business, you're really small or medium. Again, I don't want to sound... Margins are low. That's why. Margins are low. So top lines is a vanity metric. So really, margins are low. So that goal post setup shifts a little to the right.
00:13:41
Speaker
And very small businesses would be between 10 and 100 crores. So one crore turnover is no big in this business, literally. It's no big deal. Of which, they'll probably be 60%. Now you have to remember that when this industry started, this was almost 100% mom and pop shops.
00:14:00
Speaker
And then start on the market has started consolidating, it started formalizing, it started being institutionalized, and so on and so forth in the course of the last 20 years. And like with all markets, you will see that the unorganized sector keeps going smaller and smaller. And the organized sector keeps growing larger and larger. And that's what we see in this business, sort of more consolidation, more institutionalization, more formalization.
00:14:25
Speaker
in the next 10, 15, 20 years. This will probably shrink to about 30% and then you'll have a 30-70 ratio. Okay, okay. What is the reason for consolidation? Is it access to capital? Because this is like a business which needs working capital, right? You fund the payroll for about a month before the client pays you, if I'm not mistaken.
00:14:49
Speaker
In some cases, yes, but I'll go to the A priori condition. The A priori condition is that you have to have the ability to recruit and maintain that strength. So it's fundamentally a delivery-like business. Like I said, there are three parts to it, hire, train, and deploy. Let's ignore train for the minute, because it's not necessary that that occurs in every mandate and with every customer. But you definitely need to have the ability to hire.
00:15:17
Speaker
Otherwise, how are you going to put people on your payroll if you can't hire them in the first place? So I think that is the first condition. And then all the other conditions follow. The second condition actually is to be compliant.
00:15:29
Speaker
And part of the reason for consolidation is that folks are generally footloose and fancy free. As are all startups, when you start, you're always buying illegal, not because there is some intake to be illegal. But either the law has not put up with you, as in the law is still trying to figure out how to quit this business industry domain.
00:15:49
Speaker
Or in some cases, genuinely, you don't know how the law works. So although that's no excuse for sort of flouting the law. So typically GST, typically new labor code, ESIPF, just a massive push towards digitization, centralization, crash connection between your TDS, GST, has what I call sort of had made that regulatory profit.
00:16:15
Speaker
You used to have the ability to make a regulatory profit that has shrunk to zero. So, folks who are a little foot loose. What do you mean by regulatory profit?
00:16:26
Speaker
Like when a trader is selling something in cash and not paying the GST. Absolutely. So he's making regulatory profit. So when these were separate silos, let's say for example, GST was a separate silo, ESIPF was a separate silo. If you remember TDS was a separate silo, these things were not interconnected and they were not digitized. There were opportunities to do these kinds of things.
Market Shifts and Technological Impact
00:16:50
Speaker
But both sides of the market, demand and supply, have now coalesced around the fact that you can't run this business like this. So people who are just surviving on the strength of that 10%, 12%, 18%.
00:17:01
Speaker
Let's say you uncheck all the boxes. I'm just giving an extreme scenario. There was an ability to make 18% money without actually doing anything. So that's sort of disappeared. And interesting, you should pick up that parallel of the Kirane Vana because this is the service sort of stroke delivery model that we're used to.
00:17:21
Speaker
You will notice over time the big bazaars of the world and the geo-marks of the world and the demaarts of the world really have taken over that space. So you didn't know what that guy was giving you in terms of quantity, in terms of quality. You didn't know whether Okachabell, who asked for a bill for 6x? Not you, not me. But now bill is sort of standard process. So what happened to that business?
00:17:47
Speaker
Also, you can draw some parallels also happen to this business. And therefore, slowly that cottage industry started dying. It's not going to completely go away. Like I said, it will probably hover at around 25-30%. But from your halcyon days of 100%, if you're coming down to 30, that's quite a shift.
00:18:05
Speaker
Okay, interesting. So you have obviously mastered the art of service delivery to, you know, you cross that chasm of being SME with a 10 to 100 to being a mid-sized business at 600 crores. Help me understand what have been your learnings around service delivery and being efficient at service delivery, running a tight ship. I imagine the only way you can make profit is if you are running an extremely tight ship.
00:18:35
Speaker
Yeah. So cost is something that you can never afford to ignore. You know, I don't know if you see this, but this is not really a fancy office that they're sitting out all the offices are like this. So I think, you know, low margin business, it's very important to be cost conscious. It's very important to be efficient, generally efficient about everything that you do. So this is not, you know, this is not a business where we have embroidered toilet paper or anything like that.
00:19:03
Speaker
It's not that kind of business. So I think cost consciousness is one part. The second part, like you said, is service delivery. So here again, it's an ocean, right? So when I say in order to coder, it's quite a continuum. You have to pick what battles are you going to fight and sort of create centers of excellence around those verticals or those industries or those domains. So internally, we have some bifurcation. We have some specialization.
00:19:32
Speaker
which allows us to do that. I think that's the second part. And like any service business, it's an agency business, right? You're only as good as your last delivery. It doesn't matter if you've been in existence for 20 plus years. How good you were with your last mandate. So it's sort of you live every day.
00:19:50
Speaker
And, you know, some days you die, some days you're not here, some days it's, some days you're the statue and some days you're the bird. I think these are the few dynamics of the business. Again, working capital, access to institutional working capital, right, and not just sort of owner,
00:20:12
Speaker
either the owner bumps in money or you have accrued cash is only going to lead you thus far. You really need to sit down with your banker, be very good friends with them and they need to be part of your journey. They need to understand the complexion of this business.
00:20:31
Speaker
and so on and so forth. And then if you have access to institutional working capital, of course, things becomes orders of magnitude. Incidentally, only 50% of our business is what we call pay and collect, which is that we pay payroll first and then collect the money from the customer. The other 50% is collect and pay.
00:20:48
Speaker
We do have customers that have decent cash flows that indulge us and say, I'll be you on the date of payroll so that your cash flows are not straight. So even spiking that balance, saying no, I'm not going to go out on a limb and stretch my cash flow unnecessarily and so on and so forth. It's a balancing act as is any sort of low margin.
00:21:13
Speaker
Do you offer different commercials to collect and pay versus pay and collect customers? Yes, because automatically you are loading the cost of capital as well as the risk to capital. Margins are thin. You know, in this business generally you don't run the risk of default because your customers are blue chip. But there might be arguments, there might be corrections, there might be this, there might be that. So definitely the commercials are different. So there is an adjusted capital cost.
00:21:42
Speaker
that will levy to customers. And working capital is also scarce already. It's not infinite. You don't have a line that's infinite. So you have to be very judicious about sort of who will end that line. Okay, interesting. And what role does technology play in being efficient at service delivery? Very large, because technology by nature will bring in efficiencies.
00:22:08
Speaker
So, so really, I at least the journey that we are undertaking in buzzwords, we sort of undergoing three phases right so the lowest common denominator, easiest use of technology is what I would call being technology.
00:22:27
Speaker
enabled, which is that technology is a part of your business. It reduces errors, it improves throughput, you have the robotic process of automation, you have this, you have that, systems are talking to systems and so on and so forth. I think that's the first stage. I think the second stage is even more interesting.
00:22:46
Speaker
which is that your technology led, which is the technology itself becomes in some cases a differentiator and in some cases a competitive and sustainable advantage. It's a tough one to grab. I would say we are between stage one and stage two right now.
00:23:02
Speaker
But the third stage is even more interesting, which is that if you are a practitioner and you've got the second stage right, then there's no particular reason why technology can't be the product. Why can't this be offered as a practice management software to, let's say, focus in the same domain, in the same geography, in the same domain, in other geographies?
00:23:24
Speaker
So then you really are getting into SaaS, except that your unbeatable advantage is that you're a practitioner. You're not just a coder, right? You're literally eating the dog food that you are. You're eating your own dog food, not just serving it up to other people. So really it's a journey for us. And right now, between phase one and phase two, so technology is a very, very large world to play in business. In fact, I would submit that there is no business
00:23:50
Speaker
where technology does not have a role. And if you are thinking technology is not going to affect me, then it's not really technology's limitation. It's really a limitation of your imagination. What does your technology roadmap look like? So you're attempting to reach stage two. Describe what stage two will look like. You know, what are the things you need to build? Yeah, so stage two is fast as fingers first.
00:24:15
Speaker
Stage two is just fastest fingers first. So essentially, can I deliver quicker, better, cheaper than my competitors? Because this business is a lot of times. The same mandate that you're getting, and if I may draw parallels between this as a recruitment business, the same mandate that you're getting, 100 other people are getting, which is why I use the fastest fingers first analogy. And the first person that gets that candidate through the door
00:24:44
Speaker
is really going to win. In the case of recruitment agency, they're going to win a one-time recruitment fee. In our piece, we sort of have two layers to the kick, right? So you win a one-time recruitment fee, which is not very large, but you also get sort of an annuity business because that person is on your rolls for the next 11 months, 22 months, and that's really the meat of the business, right? So how do we make sure that the process of candidates filtration
00:25:11
Speaker
is better than the competitor. How do we make sure that the process of candidate selection is better than the competitor? Can we go back and check our own data? Because we've been in this business for quite some time now. So do we have what I would like to call an ideal candidate profile? Although this is documented, but this is not system driven.
00:25:33
Speaker
Your recruiter will have a general fee for what it takes to do this job, but it's not institutionalized and it's definitely not part of the system. Those are the things that we're working on right now. Interesting. How do you achieve fastest finger first? How do you achieve speed in your sourcing? From what I understand, speed in sourcing is a very strong differentiator because it looks like your agreement is not an exclusive one to the client.
00:26:03
Speaker
In most cases it's not, although in some cases it is. But for the purposes of this discussion, let's assume that it's not. So what are the things you're doing to improve speed of sourcing?
00:26:17
Speaker
I think the first thing we do is we create an IDM candidate profile, right? So you know this being a practitioner in the same domain yourself, that there is a tendency to do resume stuffing at some point of time. Either it's an act of desperation or it's an act of, you know, it's just sort of, how do I put it? Just marking your territory, so to speak.
00:26:44
Speaker
That doesn't work, right? The resume stuffing doesn't work. So, I think the strongest filter that you can apply is that the recruiter should only recruit. They should not shortlist. Okay. So, recruiter in my mind is a salesperson. So, recruiter is doing lead generation, not conversion.
00:27:07
Speaker
Exactly. Right now, he or she is in charge of the entire process. Right from the top of the front to the bottom, they're in charge of the entire process. But where they are very effective is in the middle, which is to try and sell the job to the candidate. So the job of contact should be off-source or off-border to technology. And the job of communication should rest with the recruiter.
00:27:35
Speaker
And then she should again sort of hand off for simple things like document collection for example or document verification for example. Why exactly when did this become the domain of the recruiter? Nobody is asking this question.
00:27:51
Speaker
So really if you can offload these two jobs, then you have a recruiter who's sitting and selling to advocates. I'm using these words fairly carefully, but really that is a recruiter's job. Figuring out if this person is a fit for this job or figuring out that their interest levels and figuring out a good time to speak is not really that job.
00:28:16
Speaker
So instead of being full spectrum, if you can restrict them to just having conversations and just doing the Excel, sending the job to the candidate, then you get a big list just by virtue of doing this. And we're not talking artificial intelligence. We're not talking any buzzwords, blockchain, not even getting into those territories. Right. Right. Interesting. How do you...
00:28:42
Speaker
So, see, as you mentioned, I'm from the recruitment industry.
Recruitment Challenges and Innovations
00:28:46
Speaker
So to some extent, I know how, for example, you would source for a white-collar job where you would go to a LinkedIn or an Ocarie. But I'm curious to know how you would source for blue-collar jobs. Are there like an Ocarie LinkedIn alternative for blue-collar sourcing? How do you build that muscle?
00:29:03
Speaker
Yeah, so unfortunately there is not, but to your sort of submission, again, whether it's Nokia or whether it's LinkedIn, any sort of database uses what I call potency after six months, right? So I think the first job is to have lots of data. It may very fortunate in that respect in the sense that we have more than one tie up with government at this state level.
00:29:29
Speaker
So some amount of mobilization or some amount of, let's say, access to potential job seekers, especially TR2 and TR3CP, is actually being provided by these startups. So I think that's the first part. So that gets us a sort of large funnel in through the door. And then, like I said, on the background, you have to keep this data fresh. Because that person might be qualified for the job.
00:29:56
Speaker
But they may not be interested in picking up their job right now. So how do you keep, again I use this very loosely, a warm bench of potential candidates ready is the question. And obviously you can't do it so poorly. But whether it's snorkeling, whether it's LinkedIn, or whether it's Cheyenne,
00:30:15
Speaker
I mean, there's no point, there's no merit in having a CV, right? If that CV is six months old, then it's got no value. That's one. And the second thing is also what I would say is that CV in context. So great competence, but if they're not ready to join, or if they're not looking for a job, then really that data point
00:30:40
Speaker
It's not relevant to your current circumstance. So really keeping our database fresh and ready is the key. So Blue Brother is a little different in the sense that... How does the government give you data? You said you have these government tie-ups for access to... Yes, so we have tie-ups in three governments right now. And what they do is they have ministries for labor, for entrepreneurship, for skill development.
00:31:04
Speaker
I can give you two examples. We have types, both with the government of Maharashtra, as well as the government of Tamil Nadu. And what they do is they sort of figure out the supply side of the equation. So they keep doing job fairs and melas, which the Roosevelt office used to do by themselves. But now they're doing it in concert with private players like us, so that we give more jobs to the table.
00:31:30
Speaker
Previously, the big deal was a government job back in the day. Or even now, you see these headlines saying 10,000 jobs and probably 20 billion applicants or whatever it is. It's not going away in a hurry. But I think folks have realized that if there's only 10,000 such jobs, and if I am the 11,000th candidate, maybe I should look at other options. So that's one way that we get support on the supply side. And of course, then we bring demand to the table.
00:31:59
Speaker
And hopefully there is a match for both of these. So we're also on the verge of signing another agreement with another government. It's not signed yet, so I can't name the government. But again, it's a source of supply. State governments are really a source of supply. And private employers like us are bringing demand into the equation, which is a very good sign, or generally a positive trend.
00:32:23
Speaker
In the blue-collar hiring space, Apna is a unicorn here. Is there an opportunity to have a knockery alternative here? And what would it look like? I mean, just purely hypothetical discussion.
00:32:40
Speaker
I think definitely there is enough. India, everything is multiplied by 148 crores. We have no dearth of numbers. We have no dearth of unicorns. We are not constrained in that sense of the word. At least from a one-tip liar.
00:32:57
Speaker
We don't suffer that problem. We don't have a multiplier shortage. The question is, what is being multiplied? So I think, and we did, to be honest, to be very honest, we did try our hand at this in the middle of the pandemic, but it ended in tears. I can tell you what our version was because it's failed now. I would love to hear that. I'd be very honest about our failures.
00:33:23
Speaker
I think what we decided and what he said was that, look, this person who's applying for this job is not going to be literate. So the only literacy that we are assuming is numeric literacy. So they may not even have the ability to generate a CE.
00:33:41
Speaker
to be honest. And really nobody is going to hire you on the strength of your CV. If the jaw is something like a loader, which requires physical characteristics, let's say more than soft skills, then really that's what you're looking at. So what we had designed at that point of time was a video resume service. So in one way, sort of you uploaded your video resume.
00:34:05
Speaker
And sort of you backed it up with other documents, right? So, Adha for example. We discovered people didn't have bank cards. Surprisingly, a lot of people had driving licenses. I'm not surprised about it, considering the ease with which you can get a driving license in India. But driving license and Adha were two sort of
00:34:28
Speaker
document uploads, because other really serves as not just a biometric identifier, but the government has done a lot of deep work, right? D.I.A. has done a lot of deep work on making sure the date of birth is right and so on and so forth. So we really tried a one-minute video upload. Said, look, this is the guy. Do you want to hire him or not? So the employer is only going through video resumes. I think that idea will still work, but maybe we were not the right people to execute it.
00:34:57
Speaker
So completely radically different from our marketing, not the traditional job board. I'm guessing attracting employers would be relatively easy, but onboarding supply would need a lot of cash burn, right?
00:35:18
Speaker
See, I think if you are, and basically, this is not even a job board. Actually, I think you made a very, very sort of pertinent point, which is that this is not a job board. This is essentially not a marketplace. It's not really a job board. So I would sort of stress that argument a little further and say, to be a marketplace, you need to do three things. The one first thing that you mentioned is that you need to maintain liquidity. So liquidity essentially is to balance demand with supply or vice versa.
00:35:49
Speaker
I think it's important to lead with demand. Supply can be created. I don't see that problem. And you're right. In retrospect, we should have probably put sort of 10 job descriptions out instead of focusing so much on the resume building part of it. So you're right. I think the second thing that a marketplace does is also have some kind of
00:36:14
Speaker
Rating, fulfillment, logistics, connect what you make. So sort of complete the loop in some sense of the word. Is this guy a good person to hire? Does he have a star rating, for example? I'm just using some, sometimes that be wrong. Like, comfortable with the other market. Basically. Curation, category selection, stuff like that. Category selection, curation. And is the loop getting completed? Is there an issue with the demand side? Is there an issue with the supply side? So sort of reputation management.
00:36:43
Speaker
They lose it. And the third piece, which is also very important, is dispute resolution. So if you go to an e-commerce marketplace, you will notice that dispute resolution is seamless. It's not just the logistics that is seamless. It's also the returns that are seamless. It's also the cash refund that is seamless. So I think if you are really building a platform, you need to take care of these three things and not just demand and supply, which of course is the start of the world.
00:37:13
Speaker
It's the start of the journey. Interesting. Yeah. No, but good point. Good point. We should have led with demand. Always led with demand.
Kartik's Entrepreneurial Journey
00:37:21
Speaker
Okay. Okay. Interesting. Tell me your own journey, you know, like that zero to 10 crore and then 10 to 100 and then 100 to 600 crore. Each phase must have had different challenges to overcome. How old were you when you started this business? What led you to take the plans and get into this?
00:37:40
Speaker
I can remind the senses but I don't want to. So there are sort of two categories of entrepreneurs in my mind. One is entrepreneurs by desire.
00:37:50
Speaker
One day I just wake up, I have an epiphany, you know, there's a large problem, I go after solving it and stuff like that. I don't think such entrepreneurs exist to be honest. Maybe they know, but that is not my story. These are stories made after the fact. Yeah, after the fact. Absolutely. There's like creating a narrative around. Absolutely. Absolutely. That's definitely not my story.
00:38:18
Speaker
So I had an entrepreneurial streak. In fact, I started a t-shirt printing company way back when. And this is why I keep alluding to the fact that most businesses are finding mine illegal when they start. So I think 60, I decided that these rock band t-shirts, and there was a positive of them.
00:38:36
Speaker
way back in the early 90s. I said, you know, why don't we have rock band t-shirts, right? So maybe we should make some. So I hired a person who just used to do fabric painting on a regular t-shirt and sort of sell it to my friends and family and whoever it was, right? So I had that first. Now this business is actually patently illegal, right? Because you never consented with Iron Maiden, you never consented with Jetroton, you never really went and asked them.
00:39:03
Speaker
what their opinion was, but you know, we'll slide just a couple of other teachers. So that was my first brush with business. And then of course, I have a very spotty academic career. So spotty in the sense I'm a college dropout, right? And I really, the very fact that I passed school is a miracle, I'll be honest with you. Your bachelor's degree, you dropped out.
00:39:24
Speaker
That's right. So I sold the last seat that I got into. I literally sold that seat to the highest bidder and came back. And my father, rightly so, said, look, I'm not going to invest any more time, effort, and money in this endeavor, because it's going nowhere. And I think he was absolutely entitled to slightly more. I'm just giving you the polite version of what he said. So I had a decent command of English, so I got into copywriting, which was my first job.
00:39:54
Speaker
And then slowly I got into RJ. The insight here is that at least a mile at 70% of the time just have to land on.
00:40:06
Speaker
You know, that way it's easy, right? You just have to land up or put up your hand or do whatever it is that required to get done. And then I became a DJ. So I had three jobs. I used to be sort of working 18 hours a day. Work-life balance, there was no such concept in my life. So, so I had these three jobs. Unfortunately, I picked up Pangal with my, sort of my only full-time job that I had.
00:40:32
Speaker
So the copywriting agency, the agency folded, and this was a perfect stop. The nightclub built into renovation, and then the only job that I had, you know, better said should have prevailed, right? Saying, this is the only job you have, you have to protect it. I picked up Panda with my boss, right? And all of this happened in the, like, I went from being completely employed to being completely unemployed in less than three months. All of it, some of it was not my doing, but most of it was my doing.
00:41:02
Speaker
So I said, okay, I have to start a business now. Because back in the day, if you weren't a graduate, you couldn't get a job. You couldn't even get confirmed, even if you had a job. This was really, we're talking 95, 96. No, later than that, maybe 99.
00:41:18
Speaker
They're about 99. I mean, even today, 90% of employers would probably not want to hire somebody who's a college dropout. I mean, at that time, it must have been 100%. But even today, a large part of employers will hesitate for a white collar job to hire someone who's a college dropout.
00:41:38
Speaker
Yeah, but I can think of the number of job descriptions are also dramatically exploded. So let's say, for example, if you want to be a copywriter in a small ad agency, they're not able to locate a big user. Even today. So I would say the number of options have expanded, and we have become more relaxed about, we have genuinely become more relaxed about educational qualifications, but this wasn't true in 1999, or maybe even late 1999, early 2000.
00:42:04
Speaker
So, the only thing that I could... So, these are other projects that's my desire, which I am not. So, I am an entrepreneur by default. So, one of the jobs, in fact, the one steady job that I held was Times of India. The one I picked up with my boss, that was Times of India. I was an RJ for Times FM, which is now basically a daily adventure.
00:42:24
Speaker
And essentially, Time is also used to do a lot of events, you know, feminism in India. Interesting footnote, I have hosted the Filmfare Awards in 1997. Not because I had any mega talent, right? Filmfare South, not the main filmfare, but Filmfare also in South edition. Basically, Javed Jaffary was the host fell ill. They couldn't find somebody at the last minute. They said, this guy's a blabber about, just put him on stage.
00:42:52
Speaker
And I ran with it. Wow. Amazing. So, you know, I had some event experience, right? Because Times of India had a lot of event properties, land equity quiz, event awards, you name it, they had tons of events. So I said, because I've done a few events and I know how to run this. Which explains the name now. Buzzworks is a good name for an event agency.
00:43:18
Speaker
Interestingly, so this name came from, so remember I used to be a perpetrator in an agency. So I had a boss in that agency. You used to tell me, keep your name as generic as possible. Tomorrow, if you want to start a circle.
00:43:37
Speaker
Also, I think that the dot com one is available, right? So, we keep up the dot com back in the day. So, yeah, so that was like my entrepreneurship journey, right? And you always have this issue of an anchor plan. So, the zero to one problem is getting quite severe.
00:43:55
Speaker
How do you get your first customers? How do you get your first billing? I can say all this now, but back in the day, it wasn't easy. So your anchor customer has to be somebody that is referenceable. And that is really big. I have nothing against small companies. But you can't really go to another enterprise customer or another big customer and say, I work with VC party concerns. Not till he doesn't carry any cash in.
00:44:23
Speaker
So believe it or not, but first let's come up with Microsoft. Right. And that's really interesting. So I walked into the Microsoft. This is where sort of I'm being economical with the truth, right? I just needed a work order from Microsoft and a sort of certificate saying, yeah, this guy does things well. So I walked into the Microsoft office. You remember this was in Chennai in 1999, 2000, freshly unemployed.
00:44:45
Speaker
And I sat down and generally, I think another point that I want to make is in that zero to one journey in any startup, of course, we are not that now, but I'm guessing that a lot of folks that are tuning into this podcast are startups are thinking about entrepreneurship. You have to be a salesperson. It's not optional. I don't care if you are a coder, you still need to know how to sell.
00:45:09
Speaker
It's telling you something that you need to know without which you just cannot run a business, cannot. And you can't hire a salesperson, you have to do it yourself. The first few clients you have to get. Anyway, so I went into the Microsoft office and I told them, look, I'm an event guy, I've done this, I've done that. It helped, of course, that I sort of hosted some kind of awards. That was a big thing.
00:45:30
Speaker
I said, look, I can do events for you. That way, short of showing the offset, the office did everything else. He said, boss, all this doesn't happen here. It happens in Delhi. You learn about Delhi. I said, boss, you have to put that on. Your back balance is also running low because the first thing you miss when you quit your job is your paycheck, right? Suddenly that just sort of stops coming in.
00:45:51
Speaker
So out of desperation, I told him, I said, sir, there must be something that I can do, right? Something, anything. I think he sort of saw that on my face. He said, look, I have a market research survey. It was as far from events as possible. I think if I'm not mistaken, he had 100 dealers, and he was willing to pay 60 rupees per dealer, or he had 60 dealers, then he was willing to pay 100 bucks a dealer, whatever it was. The size of the check was 6,000 bucks.
00:46:21
Speaker
He said, if you want to do this, you do this. This is the only thing I have. But this I can do right now. I said, let's do it. And I did that market research. And I got a letter from him. Of course, even though it was market research, not all that glamorous, you still put your heart into it. And to get a long story short, he cut me a check. I got a check.
00:46:45
Speaker
And then I realized that I needed to have a bank account. I tried to check in my name. I needed a business. So I asked about bank manager. He said, look, sole proprietary. You don't need to do anything. Just think of any name. And we'd enter it and sort of open this business. So that is how sort of buzzwords came to be. And that is how we got our first check. The second client that I walked into was Standard Chapter. They had the typical question, who is your current client? I said, Microsoft.
00:47:13
Speaker
So sort of that zero to one journey, it's not smooth. It's not a straight line, really jagged. Getting the fear off the ground takes a lot of effort and a lot of luck and a lot of timing. I think people ignore luck and timing. Everybody talks about effort. Everybody talks about intelligence. Everybody talks about all these things. But really, it's that person had not listened to me at that point in time.
00:47:42
Speaker
or he hadn't given me a market research survey, or let's say I had the ego to not do it, said, no, I will not do this. Maybe this company won't have been set up. So luck and timing, I think are things that people ignore that have a very large bearing on how businesses grow. I don't know if I've answered the, at least I've answered the zero to one question. Yeah, absolutely. How did you discover the gold in the staffing market?
00:48:09
Speaker
We had one by accident. I'm telling you, one by accident. So my entire entrepreneurship journey is only by default. So we run to the second client, standard charter. What were they hiring me for? Not the amorous events, but promotion. People holding a flat card saying, please buy a standard charter credit card very sort of below the line stuff. And one of those assistant managers took a sign to me and said, OK, you're working really hard, and so on and so forth. He didn't realize I had no options.
00:48:36
Speaker
Microsoft was a run-off. It's a standard, the only customer at that point of time. So one of his vendors sort of paid the money. Remember, this was a bank, so they bought a business. They used to give money first, and then all he had to do was run payroll back in the day. And this guy wasn't even doing that job. So he called me. He said, what do you know about staffing? I said, nothing. He said, look, I have to start this business for you. Just trust me.
00:49:01
Speaker
And back in the day, you could trust clients. Somebody said, I can't trust them. Or maybe I was naive and foolish. I don't know what the equation was. But we trusted each other. He said, look, I teach you the ropes of the business. I just need somebody who I have trust in because you're going to be handling large amounts of money. You're going to be handling the reputation and so on and so forth.
00:49:26
Speaker
And really the number of things that you've learned from your first few customers, very quickly become the DNA of the company, right? Because you need to be aligned to sort of deliver that. So standard are very happy to report is still a customer of us for 23 years now. The amount of things that you've learned from them is just amazing. So that's how we went into the staffing market. You're so right about just showing up and being consistent. And that's such an important part of building a business. Yeah.
00:49:55
Speaker
And every other vertical that we build is all customer-led. So again, going back to the narrative of numerical idea, and so on and so forth, I'm very intellectually lazy. My very simple trigger to start a new business is a customer problem. I keep asking customers only one question. Sir, what kind of problem do you have?
00:50:21
Speaker
And of course, now you are little world really. So you don't just stop at that question. You also say, look, do 10 other guys have this problem? Because you need to build a large business, right? You're not just happy running a lifestyle business or a mom and job, pop shop business. But if the problem is large, if it's acute, and if it's growing, either you solve it or somebody else will. And literally every business where you started is the same logic.
00:50:44
Speaker
Give me some logic. So the third business we started was, so the unfortunate problem with this is that you get pulled in all directions. So very quickly you don't stand for anything. And I'll come back to how we started standing for a few things. So people realized that you were a problem solver, people realized that you were creative, people realized that you were diligent, committed,
00:51:07
Speaker
You know, you delivered on your promises and so on and so forth. Another guy, again from standard traffic, came up and said, what do you know about rewards and recognition? I have a standard-templated answer by now, nothing. He said, look, you know, I have an agency.
00:51:27
Speaker
Like at that point in time, if I'm not mistaken, the largest agency in the world, ad agency, who is giving me a presentation on Monday. This discussion is happening on Friday evening. And I'm sitting in Chennai and this guy sits out of Bangalore. He just found a visit. So he says, look, I have this agency meeting on Monday. I know it's just going to be a PPT. They're just going to do some sort of random stuff and throw some stuff in my face. Your advantage is that you know the business.
00:51:54
Speaker
So, why don't you get your head wrapped around R&R? Because you do staffing for this business, you understand the nuances of this business. So, why don't you get your head wrapped around R&R and come and make a presentation to me. Don't make it Deetsi, just make sure it has such terms. And I will entertain you on Monday. So, basically Saturday and Sunday, I had to digest everything about R&R. One day we landed with a presentation. Long story short, we got the order.
00:52:19
Speaker
We were debating the retailer. So this guy said, look, how much is it going to cost you to set up, sort of shop in Bangalore and service? And this threw a number at the top of my head. I said, this is back in the day. I said, it's going to cost me a lakh and a half, just like that. He said, okay, you have the order. Those business recorded five or six lakhs. So that's how we went into that business. What is an R&R business? What do you do with that? What's the recognition?
00:52:48
Speaker
But what do you do? You have a large channel, let's say for example, you have a large channel, you have tens of thousands of salesforce. How do you keep them motivated? How do you recognize these folks? How do you reward these folks so that they don't attract? How do you bring that attrition down? Like the dealer events, which companies organize for the dealer? Yeah, but that's only for the dealer. We used to run this from the salesforce.
00:53:13
Speaker
The folks that actually sold you the cars, or the appliances, or the credit cards, or the personal loans, whoever that was, there were thousands of these folks. And I would say we did a reasonable job. So, you know, we were globally one of the best practices to follow. We ran the program for five years. In Stanchard, there's something called leading the way. So the program we started was part of leading the way, saying this is a global best practice that other geographies should follow.
00:53:41
Speaker
Yeah, so interesting. So you keep just asking, saying, what is your problem? Sometimes the diet itself will come. See if that customer comes to you with a problem, that problem is already achieved because he's coming to you. So there is some merit in being intellectually lazy about these things, right? If someone is coming to you explicitly and saying, boss, this is my problem, then obviously nobody has the solution and there might be money in providing that solution to a customer.
00:54:08
Speaker
So how did, how did the focus come back then? Like because now you're doing staffing and events, both like iron are sounds to me. So we started another business. So see this becomes a virtual cycle. Sometimes it's vicious. Sometimes it's virtuous because you have the problem solver tag attached to you. Every problem will now start coming to your day. What was the next business you started?
00:54:37
Speaker
The next business was call center software. Now, this is about as far removed. These businesses have nothing to do with each other. Right, right, right. You are call center software. So far, this was all, you know, all nice, good fun. But now you are asking you to make a piece of software. That is a different kind of pitch. I don't know anything about software.
00:55:06
Speaker
So client has a short answer to figure out. You can do it. And sometimes that trust and sometimes that sort of faith, sometimes it makes you do magical things there. So we built a call center software business. Like, did you, I mean, do you still run that? Yeah, it's a multicolored business. It's part of our portfolio now.
00:55:33
Speaker
Oh, wow. What's it called? Same thing, buzzwords, no? Remember the surface, everything fits under buzzwords. Same balance sheets, same P&L, everything is same. Okay. So this 600 CR top line you've told me, this is only for the staffing business.
Strategic Shifts and Global Expansion
00:55:51
Speaker
I'll sort of come to 2009. Banking crisis happened. We didn't diversify. So we literally got slapped in the face because 90% of our business was from banks, right?
00:56:03
Speaker
So we have to take some hard calls. What percentage was from stanchart? 80% yes. So really we woke up to a not so great future. And then we have to take some calls saying, what are we going to
00:56:26
Speaker
keep and what are we going to let go of. So events is also a cash-buzzling business. We had to let go of that. So we sold it back to the employees. Our employees were keyed on driving that, but I wasn't so keyed on doing it. And then loyalty, the R&R business, we again sold it back to employees saying, look, we want to run this. I know you don't like this business because it's cash-buzzling. Too much capital is getting locked up. So basically, the two businesses that we were left with were staffing and software.
00:56:56
Speaker
I'm blushing over it, but you know, folks took a 50% paycard. So we had two choices. We could have fired 50% of the people or everybody who could have taken a 50% paycard. So we floated both options. And I must say it's a testament not to me, but to the sort of folks that we have working in the business. Unanimously, everybody took a 50% paycard. They said we will not let a single job go. Amazing. We will not lay off any of our colleagues.
00:57:27
Speaker
I mean, you can also call it connective punishment. There are many ways to look at the same thing, but I'm very proud of the fact that they all banded together. I mean, there are two types of employees you have, right? One is your own team and second is employees who are on your payroll, though are technically like working for your clients. So you must have had to lay off the second variety.
00:57:54
Speaker
your payroll but working for clients. Yeah, 40. And they really took a very bold decision. It's not easy. I mean, everybody has EMI's, everybody has personal norms and sort of all sorts of commitments and liabilities, right? It's not easy to take that call universally, unequivocally, and unanimously. I'm very proud of that. Very proud of that. And really in the middle of the crisis is when your organization truly
00:58:22
Speaker
The true nature of that organization actually comes to only in a crisis. Yes, yes, so true. So we shut off.
00:58:31
Speaker
We were left with these two businesses, staffing and software. And we slowly started growing these businesses. Staffing, we started splitting into verticals. We realized that these verticals are growing bigger. So banking and financial services is one vertical. Non-IT, which is manufacturing, e-commerce, logistics is another vertical. Each of these are a couple of hundred crores. And IT is a separate vertical now. IT by itself is about 120, 130 crores, really in the top 10 in the country, only in IT.
00:59:00
Speaker
And of course, we had this fourth vertical called software, which did extremely well. We still have it. So we started a fifth vertical. If you're doing this, why don't we send people abroad also? So we bought our... I personally like businesses or I like industries where the industry is not organized.
00:59:29
Speaker
There is very large set of merit, wealth creation, value generation, revenue potential in organizing something that is not organized.
00:59:42
Speaker
Whether it's your paan ki tehli, whether it's your grocery, or whether it's sort of international recruit, but there's very large merit. These things I get sucked into automatically, if I see a potential to organize something that is not organized. This is a very big kick for me. So we started that business.
01:00:03
Speaker
And then COVID happened. What is this sending abroad? So we are international recruitment agent. Every year we send a couple of thousand people abroad to GCC, to Europe, and so on and so forth. It's a mix of everything, but majority is blue. 90% of the business is blue and gray color.
01:00:29
Speaker
But again, India is the largest sort of exporter of manpower in the world. Are you going to have a single set of significant organized players in this market? Yeah, I guess it's mostly like very small and organized players like cities specific who would probably charge something to the person whom they're sending abroad.
01:00:51
Speaker
which you would not be doing, right? No, we take everything in check. No, no, we take everything in check. Everything is above board. We don't do any exploitation. We don't send people on visit visa. We are organizing that market. So it's a bit of a long haul. It's an interesting play, like the long term potential that the TAM is charged here, obviously. Very, very.
01:01:17
Speaker
How does it work monetarily? Is it the same thing? Like monthly payroll, you get a percentage of that, or is it a one-time fee? No, this is a pure recruitment business. This is a pure recruitment business. Typically what happens is it's a one-time fee. Sometimes you collect from the candidate and sometimes you collect from the employee, depending on terms and conditions. No color, typically you collect from the candidate. Gray color, typically you collect from the candidate. White color, typically you collect from the employee.
01:01:41
Speaker
But there are exceptions to these rules. But I think what is interesting in this business is that it's unorganized. That's the big part. B, it's a very large business. So imagine literally 400,000 people, 4,000 people going abroad. Yes. Every year. And that number is not going to come down. It's only going to go up. It's very large time. And the official rate is 30,000 bucks. Right.
01:02:11
Speaker
And I also have interested in businesses that look like one-time, but are actually annuity. Okay. This is, yeah. So this annuity is always a better business, right? I think all of us accept that annuity is a better business than a one-time business, right? This business looks like a one-time business, but it's actually an annuity business. Let me explain this to you. So typically what happens is people go there on work visa and the length of these visas are two years.
01:02:41
Speaker
So you can't resettle the same guy, but the employer is basically his job is 50% whether you like it or not. So from a demand side, this is actually annuity. And it's high margin. It's not low. It's not normal.
01:03:02
Speaker
For blue color, you said you take the employee pays. Do they pay after they get placed? Is it from their salary? Or do they have to pay before they get placed? How does that happen? That sounds like a little bit of currency. You pay me only before you work. We don't take any advance. See, there's a lot of malpractices in this business. A lot. People will take a passport. They will take a couple of lakhs.
01:03:30
Speaker
They'll just put it into their pocket. They'll send you a visit visa. There's one set of malpractices. We don't do any of that stuff. We will not send you a visit visa. We will not make a commitment. If the employer selects you, they will send us a visa, sort of a work visa and your name. Only post that work visa getting stamped on your passport. Do you pay? There's something called PDOT.
01:03:59
Speaker
Then you receive your visa back, and then you're ready to depart the flight. Before that, I have to give you something called pre-departure orientation training. That payment you have to bring to me as a demand drop. I don't accept that. OK. Interesting. Interesting. And how do you build demand for this? Like, you have salespeople in these countries who are doing employers? OK. So in GCC alone, we have four sales folks.
01:04:29
Speaker
three in Saudi Arabia, one in Dubai. And we'll keep expanding as the region keep expanding. But to be honest, the geographies that we are in is probably 85% of demand. Saudi is about 80% of demand in the GCC, and Dubai is about 5%. So if you cover 85%, sort of you optimize after you maximize. So first you maximize the potential of these regions. And just as a quick insight, Saudi has the
01:04:59
Speaker
has a particular image in people's minds, whatever that image is. Let me tell you that both these countries have visa on arrival if you have a U.S. visa. Both of these, as well as Dubai. If you already have a U.S. visa on your passport, both countries have visa on arrival. Dubai, the visa on arrival is fairly polished and it's a well-oiled machine.
01:05:23
Speaker
Dubai, the visa on arrival, if I'm not mistaken, is about 200 dirhams. And the dirham, the exchange rate is almost one, it's one. And even a one-time visa, which is running for 15 days, and it takes you half an hour. The Saudi visa is a one-year, multiple entry visa, which cost you twice of that. Cost you, what, 400 dirhams. One-year, multiple entry visa, length of visit is 90 days. Visa issuance is five minutes. Wow. They're open for business.
01:05:54
Speaker
The way a country treats people who are coming in to do business with them says a lot about how open they are for business. I think for all the folks that are in this podcast and have some views around Saudi Arabia,
01:06:11
Speaker
Please go visit that country. I can guarantee you that your user letters will change. That's for sure. Amazing. How much of your top line comes from this? Give me a breakdown of that 600 crore now. How much is from call center software? Call center is a couple of million dollars, 10-15 crores, best kind of tops. This is a value business.
01:06:36
Speaker
This is a SaaS model. This is a SaaS model. We don't say SaaS, we say all that because enterprise customers want what they want.
01:06:44
Speaker
This is the first rule of enterprise customers. They are not interested in what you have. They are interested in the solution to their problems, and their purchase orders are so large enough that as a vendor, it's their way of the highway. So we're not stuck on terminologies. We are more stuck on outcomes. So banks especially are very, very cagey about cloud, they're very cagey about these things. They run a lot of stuff on prep.
01:07:11
Speaker
So we have just internal normal picture. I don't want to introduce one more buzzword into an already confused start-up vocabulary. But we provide technology as a service. And what this essentially means is whatever it takes to get your job done. So it's only software that you require, we provide that. If you want software plus servers because you have issues or you want that SLA on us, then we provide that. In some cases, we've gone to software plus servers plus desktops.
01:07:41
Speaker
for a whole host of reasons which you're not discussing of art class. Well, that's what the customer wants. Yeah, yeah, yeah, yeah. And if they're willing to pay for it, then you provide it, right? Right, right. So that's how it works. So 90% of the business is staffing. In fact, I would measure 95, 96% of the business is staffing. Barely 1% is this new business, which is...
01:08:05
Speaker
sending people abroad, what we call global placements. And software is a couple of million dollars. Well, 14 crores in. Why do you run all three under the same P&L? Why not have separate entities? How administratively easier, administratively easier. Everybody can drop from the same bank account. Everybody gets the same PSA part.
01:08:30
Speaker
kind of a co-founder for each of these new businesses who would bring in the energy and drive. And because there is some ownership, even if it's like maybe 10% ownership, but there is ownership for him to scale up that business.
01:08:47
Speaker
Oh, sorry, so maybe I didn't make this statement and that's sort of my fault. I don't run the business. I don't run any of these businesses. Obviously, day-to-day it's run by a business head. And that person gets no short of a divine entity in Buzzwords. So the business head is the owner of the business.
01:09:09
Speaker
I am not the owner of the business. So if you have five businesses, then those five businesses are headed by business heads, the authority to hire, the authority to fire, they decide their own compensations, they decide their own incentives. I am really just an aggregator of these businesses, truth be told.
01:09:29
Speaker
Right. And they also all also have state in the company. So it's not like, both of you have taken the larger entity, which makes more sense. See the access splitting it, right? Is, is a, is a, is a miracle decision that will take you 15 days to affect. Let's assume that you have a buyer for any one of these businesses, right? And they're insisting on a clean edge.
01:09:57
Speaker
because they only want to buy that business or you want to list one of these businesses, let's say, or whatever it is, for some reason you want to split this business. It's a 15 day job. So I think putting these businesses together has more advantage in terms of administrative, lower administrative overhead, same HR, same brand, same everything. Like I said, I'm a very big fan of maximization before optimization.
01:10:22
Speaker
You know, we get into all these optimization loops in our nights, right? You optimize, like I'll optimize my coffee, or whatever it is. There's the Starbucks thing where every day you spend $5 on your Starbucks. If you save all your money, then you can become a millionaire by the time you're 50 or something. You probably need a very miserable sort of 30 years becoming that billionaire. So why don't we just run five more dollars a day? That's some better. And have your coffee.
01:10:51
Speaker
So, maximization before optimization, at least this sort of mind mantra. Can you zoom in a bit on this maximization before optimization? So, first you capture all the revenue, all the opportunity, whatever it is that
01:11:07
Speaker
So it's a corollary of saying, at least in computer science, saying premature optimization is the root of all of it. And I use a startup analogy to sort of explain this better. So when you start a company, and this is a new entity, this sort of global basement business, barely three, four years old, and two years were taken away by COVID. So it's a two-year-old business. Now, really, what is our job, or what is that person's job, or what is that business's job?
01:11:39
Speaker
Again there are many definitions for a startup. I am just going to insert my own definition here. My definition of a startup is a construct that is trying to figure out what to skip. So discovery is front and center.
01:11:55
Speaker
which set of customers will pay me the maximum for this, or which set of supply guys, or which set of consumers can I extract my info, whatever those sort of discoveries are. Am I solving a large enough problem? Correct. And so on and so forth. So you have to maximize discovery. Imagine a startup sort of started on day one,
01:12:20
Speaker
And again, I go back saying, I'm not asking you to have monogram box towers. Don't waste any money. But let's say, for example, your website is not optimized. Or let's say your AWS is not optimized. Or your cash flow is positive, but your profitability is not optimized. It's perfectly fine. It's perfectly fine.
01:12:47
Speaker
So your target should be, look, can I get 100 customers like this? Can I build all of them through reach and therefore generate 100 core business? And then I figure out, it's a bit of a TikTok sequence or TikTok cadence. So you take is I figure out.
01:13:05
Speaker
what to scale. And once I've done that, let's have reached a certain threshold. Let's say 10 throws. You want me to wait 200 throws. And then can I optimize for structure? Then I can optimize for cost. And then I repeat that cycle again. So if I start saving for this, I've sort of lost sight of my primary agenda, which is to figure out what to scale. I don't know if I can explain this. Yeah.
01:13:31
Speaker
This is probably the reason why people coming from scaled up companies, businesses struggle in a startup environment because they come from an optimization mindset. Like someone who's worked in a large company is good at optimizing. Whereas in a startup, you need a maximization mindset. So where probably that cultural because the large company is already maximized. They're already running on the top line or whatever it is, you know, but that thing has already been maximized. So I think it's a fundamental set of mindset.
01:14:02
Speaker
that you carry. So maximize before you opt in. I'm not very interested. Very interesting. But this is not the time for it. How do you hire? How do you build your own team? What are some insights around what has worked for you? See, some of this is going to be cliched, but cliched, cliches exist for a reason. Because they're true. Yeah.
01:14:30
Speaker
So I think the thing that is bandied about very often in any organization of any size is that you always hire for culture. I think this is something we found out the very hard way. But corralling into that statement, have you defined culture in the first place? And more importantly, do you practice it?
01:14:56
Speaker
So in our case, and you know what, who is that culture serving? So these are sort of important questions before you start hiring for cultures. Have you decided what culture it is? Have you defined that culture, which is, have you codified it? And then do you practice it on a daily basis? Because to be honest, you can run this in the reverse order, it will still be true.
01:15:21
Speaker
Which is that culture is something that you do on a daily basis. It's not a poster that's hanging on the wall. Typical culture exercises are, you know, let's spend the weekend of this. It has to fit into the environment. This becomes important.
01:15:41
Speaker
On every line of 50% around it, and that is our culture. I think that part we took very seriously. So culture is what helps your organization serve your customers better. So it's not inward chasing. I think that's the first sort of insight I have about culture. Every organization has a culture, but the purpose of that culture is to serve the customer. It is not so that you can sing Kumbaya around the fire.
01:16:09
Speaker
So that's the first part. Now you should figure that out. Then it's important to codify it. And it should be something that your office boy understands. So my asset test of culture is not the sealer. My asset test of the culture is when I go ask my office boy, what is it that you understand? Even if he can explain it to me in the vernacular, I am okay. And therefore it can't be very long.
01:16:32
Speaker
Then you sit an acronym on top of it. I'm not saying you wait a ways from it. You don't treat an acronym. But that is for understanding. That is so that people can observe it. You know, it's easy to remember and it's easy to practice. And then you go ahead for it. Tell me through your journey, like you've given me a
01:16:57
Speaker
general framework, but how did you discover what was your culture? You know, how did you codify it? What was the pain you went through when you were hiring without realizing that you have to put culture first while hiring? Give me some examples of bad calls you took. I have fired more than one C-level person in the past because they were not a culture fit. But what does that mean?
01:17:27
Speaker
Like they didn't have that maximize. Let me define our culture. Let me define our culture. It's easier to divide my culture than to say it was not a culture. So what does it take for a service agency? And that is who we are to succeed in the contract stuffing business. This is the fundamental question. Yes. So let's start with some basic thing, which people.
01:17:49
Speaker
at least a customer is expecting. He's not taking for granted because he's expecting. This is part of that consideration set. So the first thing is responsiveness. And what is responsiveness? Responsiveness is not an individual organization will respond to you with its entire might if required. It's not one way burning the midnight oil. There will be 100 people burning that midnight oil just to make it possible, whatever that possible is.
01:18:17
Speaker
So that is responsiveness.
Integrity, Accountability, and Company Culture
01:18:20
Speaker
Second piece is integrity. Integrity is, do what you say, say what you do. Don't commit to a deadline if you don't see it not happening. This is integrity. In a small company, especially in a growing company like ours, maybe not in a small company, because in a small company, generally everybody is very intimate. You have this sort of very family friendly kind of thing going on. Under 50 people, we generally have that view.
01:18:47
Speaker
The moment you cross the 50 people, you are in 10 offices, this whole thing sort of goes out of the window. So that's very important for you to speak truth to power. It's not enough to have an open cabin. Anybody should be able to enter the cabin and tell the founder, Sir, this is the stupidest thing I've ever heard in my life.
01:19:10
Speaker
But at least the truth is being spoken or holding people accountable. See, typically what happens in a live organization is the things have so much momentum and so much maximization. Somebody that's not pulling their weight doesn't make a difference. Just for momentum, it keeps running. That's not the case in a small organization. Somebody can actively
01:19:32
Speaker
Maybe not through intent, but they can genuinely sabotage progress, they can genuinely sabotage moment. So somebody needs to speak truth to power, not just to the boss, but to each other across silos, across functions. So this we call accountability. And the last one is performance. So performance is typically a one-way street. I give you a target, series that target. If you don't do that target, I'll give you an incentive.
01:20:01
Speaker
How are you helping me on this journey? It needs to be a tourist route. I also dragged you into this. So it's performance, accountability, integrity, responsiveness.
01:20:26
Speaker
This is our culture. We reward this culture, we practice it and therefore, we recruit for it. So, somebody who has the competence, let us say for example, coming to your C level question, somebody who has the competence, somebody who has the credentials, but is not responsive, is not integral, he or she will not go to the next level in our element, in any term.
Scaling and Leadership Post-Investment
01:20:52
Speaker
I don't know if I answered your hiring for Kanchan. Before you hired for it, define it. Right. Interesting. I understood the broad approach. Coming back to the journey, 2008 you went through that slide downturn, then you decided to focus and today you're a 600-curve business. I was living in 2008, you would have been 100-curve or less than that, I guess. From 30, we went to 7.
01:21:22
Speaker
Seven girls, wow. Do not forget these numbers. I will never forget these numbers. Yeah, yeah, yeah, absolutely. So what was, how did you scale that? I think the first thing is he took a round of money because we realized that even coming back to 30, 50, whatever it is, we needed money. We were 90 days from shutdown. There was no way that this business was going to, in spite of all the site, in spite of, see, because we built a infrastructure.
01:21:50
Speaker
and 30 to 70 is basically 75% of your revenue turnover, whatever it is gone. Your employees have taken a 50% pay, but how much are you going to push them? Right, keep a push them away. You can't sell no savings. So if you need a recovery, you need capital, right? So we took a small amount of money. We had an investor who had straightened us, still has straightened us. Like a friend and family kind of a thing? No, no, just like I said, luck and diving was. It's very underestimated.
01:22:19
Speaker
So common introduction, that person was trying to become an Indian stuffing company for ages. Then the common thread introduced both of us. I've had a long story, very short. We met for breakfast. We had been done before lunch.
01:22:38
Speaker
Wow, okay. Some of what he was saying, I was just sort of, in my mind I was saying, but you know the bank guys, the collection guys have become my friends now.
01:23:05
Speaker
So we really had a very big sort of very big stroke of luck at the right time. We raised a round of capital. And then of course, once you raise that round of capital, your mentality changes because now you have another shareholder in the business.
01:23:23
Speaker
You really have another partner, whether you give up by 1% or whether you give up by 99% of the company. Most startups don't realize this. They consider the investor as somebody external. Cacti will be better, but then they get the regret. That is wrong. You have another stakeholder.
01:23:40
Speaker
And they might be patient, and so on and so forth. But it's very important to take that stakeholder into account. And they've given you money to scale. And therefore, scale is something that you need to demonstrate. So we cut all this down. We said, look, we're going to focus on two or three businesses. We're going to run a very tight ship. At that time, we picked up a professional CEO. But again, there was a cultural mismatch. So we had to let that person go.
01:24:08
Speaker
We made mistakes. But we were very steadfast saying, this is a scalable business. We know that it's a multi-million dollar business. We know that we get this culture, right? We also know that it's a commoditized business. You don't get a rupee extra for being a multinational. You don't get a rupee discount for being an Indian company. So it's pari passu, right? All conditions are the same. So we said, if you know the ship, right, you can definitely sort of go to the next level. And at 7 crores, really, your next level is 100 crores. Let me be honest, right?
01:24:38
Speaker
You know, I want to share something here, which is very important. I think to some extent, your ambition is also the limit of your achievement. Imagine at that point of time, if I had set a target for 10,000 crores, very difficult to do. When you have an existential crisis, to say from single digit crores, I will go to set up whatever 10,000 crores, very difficult. But I have made this mistake more than once in my life.
01:25:08
Speaker
I was not ambitious enough. So it's very important to figure out not your local maxima. So while on the maximization thing, local maxima is what I can think of. But really global maxima is how big can this company become. And really I am the biggest concrete of why
01:25:30
Speaker
Buzzwax is still hanging on that 500, 600 crores level. Of course, now we've reset those targets. We're going to 1,000 crores, and we're saying, look, that is not a stop. At 1,000 crores, it needs to be a much better company than it is right now, and we're on that path. But if I had added an extra zero at that point in time, I don't know what would have happened. So it's really important to, it's also very difficult to figure out
01:25:56
Speaker
Sort of where the line is between ambition and delusion, right? So very quickly this can be a difficult thing. I don't have an answer for that question. So that's how we, sort of, that's how we, we said 100, then we said 200, at 200 the banks started taking notice.
01:26:18
Speaker
And of course, one thing relates to another. The moment you start building that kind of momentum, a lot of magical things happen. Then other people want to join you. They see that you're the new kid on the block doing good work. Customers want to work with you because you crossed a certain threshold. You know, you are in the position to sort of buy other companies now. Then we've done sort of six sort of acquisitions till date. Wow. So the entire complexion of the business changes.
01:26:43
Speaker
Was your role at that stage essentially to bring in clients, like you were the chief client acquisition guy? No, I think the only smart thing, I was saying I was about to say the smartest thing, but then I realized I've not done many smart things. This is the only smart thing I've done in my life, was to sort of have this command and control structure clear from day one. Which is that if you run the business, you run the business. I'll not run the business.
01:27:13
Speaker
So this is not to say that I have not got on a client call or not being in the trenches with my folks in the middle of a crisis, but that is the exception. That is not the case. So the moment you cross a certain level, then folks sort of take care of it themselves. I mean, I don't want to, you see,
01:27:33
Speaker
I mean, think about it. We understand that company is a vanity metric. But the fact of the matter is, revenue is also to some extent indicating value that's being exchanged. The client values you enough to be a 100 crores of turnover. At some level, profitability is a metric of efficiency and revenue is a metric of value. True. So not a nano companies can even hit a 100, 200 crores in turnover. So these are companies within companies. These are companies within the company.
01:28:03
Speaker
So like I said, the vision of it takes on these qualms. I don't really, of course it is a key or down or something like that. Like way back in 2008 night, you had like a BFSI head who was leading sales and growing BFSI. Very quickly after that, 2010 we had. Because 2009-10 was recovery, right? You still had to sort of civilize the ship, make sure that
01:28:25
Speaker
Basically, it is just cleaning up your past sins, nothing else. I can tell you the capital, 80% of it went into just cleaning up your past sins. What does that mean, like cleaning up past sins?
01:28:38
Speaker
in the sense that you had debt, you had a sort of credit lines, you know, you see your burn had sort of burnt a hole in your PNN, right? So you had to bring that back into ship. The company itself, if it's 90 days from Shandong, there are serious questions about it being a going concern. You had to set that ship right first. So 2010, 2011, we started this process. I mean, giving control to the center of the business side.
01:29:06
Speaker
So sometimes it goes wrong. Sometimes people misunderstand the freedom to be something that to be and not to do. Something you have to course correct it. This freedom is for you to do things. It is not for you to be a certain person or a personality. But luckily, at least I don't have the problem with
01:29:33
Speaker
My business heads, they treat the business like their own. They run it like their own business. They have a stake in the company. It's a money that works for us. It may not work for other people, but it definitely works for us. Amazing. Amazing. And what percentage of the business is still with you? Like what is your stake today? I am the majority stakeholder. Me and my wife collectively own more than 51%. Okay.
01:30:02
Speaker
We have no intent to dilute as of now.
Valuation and Acquisition Strategies
01:30:06
Speaker
Depending on circumstances, we take a call on it. See, again, this is not a hard thing. This is a very interesting subject. So you have these milestones, or you have these internal blocks in your mind. And I used to have this for the longest. So somehow, 24% is your first block.
01:30:28
Speaker
saying, okay, this becomes, this person becomes a majority stakeholder or stakeholder, materially significant stakeholder. I think the second block that founders face is 51%. It has to be 51. It can't be 49. And I think the third block that they face is when they themselves don't want to be less than 24. So it materially hits. I am saying boss, this doesn't matter. This doesn't matter.
01:30:57
Speaker
If you have the right set of investors, you can hold 10% of the company and be a happy, wealthy person. If you have a wrong set of investors, they can make your life miserable by holding less than 10% of the company.
01:31:12
Speaker
So these are all artificial sort of constructs that we have built in our mind because we believe that once the threshold has been crossed, there is some loss of control or there is some increase of governance, which is why I go back to the earlier statement saying, look, whether you give up a 1% or whether you give away 99% of your company, you have included new stakeholders.
01:31:42
Speaker
So be conscious of that. So this is a mental thing even in my mind, to be honest. I'm very proud that I own majority state. It doesn't mean anything. Really it doesn't. You said you did six acquisitions. How did you fund these acquisitions? Did you give equity? Eternal accruals. No, no, no. We don't give equity.
01:32:04
Speaker
How is a staffing business valued? Like it's a multiple of EBITDA, I'm guessing, because it is highly related. Yeah, it's a vanity metric. So if you look at listed companies, your appeal companies will be 8-10 times EBITDA, but Indians are a different story altogether.
01:32:22
Speaker
Union companies, unions and quest depending on who you pick will be anywhere between 33 to 50 times. So very Facebook type valuations. Wow. Why is that? We of course acquire significantly lower fractions than that. Right.
01:32:39
Speaker
So these acquisitions that you did, how did, you know, what were some of your learnings around acquisitions, making acquisitions work, like, you know, post merger integrations, different cultures, egos of people, so on and so forth. I think the first lesson that we need to learn as a nation is that, you know, India is generally like negotiating for negotiation sake.
01:33:06
Speaker
Yeah, it's true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true, true,
01:33:34
Speaker
150 bucks. This is the MRP. So I'm telling you that the actual value of that kitchen is not more than 10 or 15 rupees. True. True. True. This guy sort of falling on the floor and throwing a fit did everything else. The point is that Indians like negotiating. We like bargaining for the sake of bargaining. We don't realize that negotiations have to be efficient by design.
01:34:03
Speaker
and buying vegetables and getting that extra shape of Peripata is different. It gives you some chip trees, which can't carry that mentality forward into buying and selling a company, right? This is a different kettle of fish altogether. So here we go, this bargaining, I think I want to split two words, bargaining and negotiation are not the same word. If they work, then there'll be one word, there won't be two words. I think bargaining, you're trying to price the whole thing down.
01:34:32
Speaker
So the seller wants infinite value and the buyer wants the same thing to be priced at zero. This is the essence of bargaining. Right. True. True. Negotiation I think is getting the other person to see your point of view. So I think, I think where negotiation should happen, we end up bargaining. Right. So we don't go after companies or egos or promoters.
01:34:59
Speaker
where we should get into that situation. Because we are sensor small. And irrespective of, so the first thing I learned is negotiate bond bargain. The second thing I've learned is, or the second insight that we as a company have is that irrespective of the ticket size, irrespective of the company, every team will take the same amount of time and effort. So make sure that the ticket size are also
01:35:29
Speaker
also right. So the right mentality, sort of the right ticket size and of course the right value. Now some of that value can be generated post you doing a merger. Because essentially you are buying the future and the seller is selling the present. So you talked about post merger sort of integrations. We also focus on post merger value attributes.
01:35:56
Speaker
So we like entrepreneurs for the reasons that we discussed. A lot of people are not able to cross this chasm of, let's say, regulatory hurdles, of key capital. So there is potential in the listeners, there's potential in the provider, there's potential in the niche, the geography, whatever it is. There's some potential that we see. Can we create value together? I'm not limited to a transaction is our approach to MLN.
01:36:22
Speaker
where we have strayed from this approach and focus on the excel. It's always been a bad acquisition, where we have stuck to this approach and said, look, let's be partners in this deal. We've always got both parties have got value. And we're not afraid to really worship that value. You might think that person will bring X. Let's say they bought two X. There's no reason why most merger negotiations cannot happen.
01:36:50
Speaker
So, I think a Hindi attitude is very important. This is somehow matters and acquisitions have been put into this confrontational bucket, our sources, them and very transactional, very adversarial.
01:37:07
Speaker
Good acquisitions are generally not like that. At least in our experience. Your most successful acquisition is typically the founder continued working with you and scaling that business as a business. He becomes a separate client and owner. We give him these.
01:37:22
Speaker
Amazing. Because you have access to a larger brand, you have access to a working capital, you have access to a network, X, Y, Z, call it what you make. You know, something as basic as structured HR or structured finance, very basic, but some people may lack even that in their lives. And what is the reason to acquire? Typically, I know staffing businesses
01:37:44
Speaker
typically grow by acquisitions. Like I guess Quest has also been a very acquisitive company and reached the scale where they have largely due to acquisitions only. So what is the reason to acquire? Acquire versus do organically on your own. How does one think about that? I think a modularity acquisition is essentially at a meta level is the gift of that. So can I build this?
01:38:14
Speaker
Short answer is yes, but it's going to take me time and I'm going to make mistakes. Now, can I expand into this geography? Short answer is yes, but it's going to take me time and I'm going to make mistakes. You're already there. So can you give me the gift of time and can I give you the gift of money? Interesting. It's the essence of acquisition. It's the very essence of acquisition.
01:38:37
Speaker
Okay. And I would say we haven't done any mergers, but I would say that the same logic applies to a merger also. Yes, I can build it out, given enough time, but I'll make mistakes. So why don't I just sort of buy that time from you and offer you money instead? And that's what we look at. We look at niches or we look at geographies. Sometimes we look at portfolios that we want to get into. That will just take us time and effort. And if somebody can give us that gift,
01:39:05
Speaker
then I think money is a very small price to pay and a partnership is a fantastic outcome out of that deal.
01:39:17
Speaker
So a portfolio that you want to get into would be like, say, for example, if you want to start offering contract staffing for Salesforce developers, that would be an example of getting into a niche. And because hiring a Salesforce developer is something which you will spend time learning, how do you identify a Salesforce developer, because it's a niche skill and so therefore it's better to
01:39:40
Speaker
by some company which is already doing this, which understands and can scale it up. You can get them new business and capital and regulatory frameworks, things like that. Absolutely. Absolutely. I think I couldn't have put it better myself. I think the only layer that I would add is, is the Salesforce developer contract staffing business big enough? Can it become a 100 pro line?
01:40:07
Speaker
It's also something that he paid attention to because sometimes there might be a niche in the market, but they may not be a market in that niche. It might just be a niche business 10 years out. Okay. Okay. Which niches have you bought?
01:40:22
Speaker
So ID stuffing was a niche that we started, to be honest, bought the business. E-commerce logistics, we bought the business. We bought, in fact, back in that day, money transfer, all these things were a big thing. I'm talking about pre-PTM. So we bought a business that serviced, did contract stocking for money transfer folks. This Western Union kind of companies. Western Union, stroke, money gram, and all that.
01:40:50
Speaker
Okay. So we only buy niche businesses. There's no sense in buying a mainline business. And there's no sense in buying something so small that it remains niche. And equally there is no sense in buying something large, so large that you can't digest it. Or sometimes it can't show also. The problem with M&A, even though we're sounding very, or trying to sound, I'm trying to sound very smart when saying this, but the fact of the matter is most M&As go sideways.
01:41:23
Speaker
Right, right, right. Interesting. Of positions, typically the chances of them going sideways are much higher than creating sort of value. And I can point out the shut of billion dollars areas, right? Microsoft buying Nokia. Yeah, yeah, yeah, true, true, true.
Angel Investing and Advice for Founders
01:41:44
Speaker
Interesting. So let's wrap up the conversation with one element we've not spoken about so far, which is you as an angel investor. Tell me a bit about what made you where the angel investor had. What kind of pitches interest you? How do you screen and filter that whom you want to invest in? What kind of ticket size do you invest?
01:42:10
Speaker
Yeah. So I'll go back. You remember the call center story, the call center story actually has a backstory. So in 2007, you would have figured out that for me, sort of everything is possible because generally I'm an optimist optimist. Let's build a voice search engine. Okay.
01:42:30
Speaker
And I built it also. So this prototype was showcased in an event called Protodotting, which was India's top 15 most promising startups. And then some people are not mentioned because they are much larger than I am, called me to a table and said, why don't you pitch to us? I took that moment to blow up completely in front of the faces. So in 2007, I did not know what an angel investor was.
01:42:56
Speaker
And I thought I was the only VC in town, literally. So I came to Bombay. A very learned and very wise gentleman said, you come to Bombay. I think this is the city for you. Don't hang around. I think you're right there. So I came to Bombay. I understood the entire investing thing. I actually got into angel investments naturally. And what I mean by this is because I blew up in a pitch. I started working with incubators and accelerators.
01:43:24
Speaker
to help their startups improve their pitches. And I still do it, but I don't do it as actively as I did, let's say 50 years ago. One thing next to another, we started India's first private incubation center called the startup center. You know, I just led external support. There's another gentleman that ran it, but it ran for what it's worth. Okay. So I had a ringside view of how startups were built and financed, right? So it was a very natural progression. It wasn't like I woke up one morning and I said, I want to be an engineer. So this was my
01:43:53
Speaker
sort of long story short. I think it's very important to define where Intel investors come in. So, Intel investors will sometimes come in when there is an idea or even a PPT and they will basically give small amounts of money to help a startup figure out what to steal.
01:44:10
Speaker
So, it is a high risk business. So, essentially you have no data. So, startups, I would highly urge you not to put this darkness says this will be a 25 billion dollar business by 2030. Because three things, that is a syndicated report, my guess is you have not read the report and my guess to why you have not read the report is probably you cannot afford it. So, have some conviction in your own data, preferably bottom up.
01:44:38
Speaker
And essentially, that's what angels should look for, at least I look for. I look for a strong founder who's chasing a big problem. And that's all the data there is. Now, to be honest, Akshay, there is no data at all.
01:44:53
Speaker
Yeah, true, true, true. Absolutely. At the pre-seed level, there is no data. So founders is what the bets are being laid off. Business partners will change, markets will change, products will change, but the founding team will not change. So founding team, founder chemistry, founder chemistry with you, even though you're not full-time.
01:45:14
Speaker
When I get along with this guy, is there a hope that by mistake, if I say something intelligent, they'll listen to me. These are the things that you check, or at least I'll check. It's hard to take all this over a pitch, one single pitch, right? I don't ask for pitches. I will sit the founder down for a coffee or breakfast, sit and have a conversation with them for let's say an hour and then make up my mind.
01:45:44
Speaker
Okay. And if I break up my mind, then I come in, ticket sizes used to be smaller for me. I used to start with a couple of lakhs back in the day. Now, obviously my ticket sizes have increased. So typically 25, 30 lakhs is what I put into a startup. If I have the conviction and if they have the, if they have the conviction and typically we hang around
01:46:04
Speaker
Until you get thrown off the table, but hopefully you want that period to be as short as possible. So, so we don't hand around for very long, hang around for maybe three, four years. It's a standard practice. And we're also very greedy.
01:46:25
Speaker
So we want 30 times our investment. The reason is because if you invest in 20 startups, 18 will say, one will become a zombie. That's your worst startup. This thing will neither die nor glitch.
01:46:40
Speaker
20th startup really has to get it out of the park and if they give you 20 times your money, you are just about breathing even on your portfolio. So this is the reason why investors are greedy. Okay. Interesting. Do you have a favorite space like B2B or something like that or like your neutral?
01:47:01
Speaker
I like B2B. I don't invest in things I don't understand. I don't understand B2C. It's not like I don't like it. It's just that I don't understand it. If I can't add value, why should I add capital? It's my logic. It's B2B. I think blockchain is very promising, but I don't understand it.
01:47:20
Speaker
Just like I think D2C is very promising, but I don't understand it. So I sort of play with, of course, you try to expand that space as you go along. But I've told you what I, this is not to say that I don't invest in deep tech. So I have a few startups that are very deep tech. But yeah, B2B, services, SaaS is typically something hopefully I understand and therefore I understand.
01:47:43
Speaker
Okay. So my last question to you, any advice to young founders, like a 20 year old today who's listening to the show, wants to be a founder someday, what would you advise him? Generally, I don't like giving advice because I'm sort of almost going to be shifty and experience counts for nothing, to be honest, in a fast moving
01:48:10
Speaker
thing like the startup world, right? What was relevant three years ago is not relevant now. So how can what was relevant 25 years ago possibly be of any value? I can give some first principles which have not changed in the last 25 years and it's left to founders to sort of take them, not take them as they, as they didn't fit. I think the first principle, the first first principle is that it's more dangerous to not do a startup than to do a startup.
01:48:39
Speaker
and this is counterintuitive, right? You can always get back to a job. But the older you grow, the lower your risk-taking ability will be. You'll have kids, you'll have a family, you'll have some EMI, it's 10, 15 years down the line, and then you can't forsake all that for the freedom of creating something new. So if you're 22, 23, 24, 25, you have zero risk. And you have even lower risk. This is my submission to all the IT, IAM folks. You have even lower risk than a tier two, tier three guy. You will definitely get a job. You're not gonna stop.
01:49:10
Speaker
So this is the first, first principle. I think the second is that people look at, at least from a startup founder perspective, a lot of people look at angel investors to sort of validate what they're doing.
01:49:26
Speaker
Please remember, we are wrong 90% of the time. Why would you trust somebody who's wrong 90% of the time? I wouldn't trust somebody who's wrong 90%. Right, right, right. Angels are not here to provide validation. They are here to provide capital in case they think that you are sort of investible. The only sort of cohort that you should look at validation from is actually the end customer. If they are buying,
01:49:56
Speaker
Then that's the end of the story. Then nobody else has a right to give you an opinion of whether you are providing value or whether you're providing something that's valuable or not. The right answer will only come from the customer. It will not come from angels. It will not come from advisors. It will not come from industry reports. It will only come from the customer or the consumer, as the case might be. And I think the third part is that suddenly funding has become some kind of a must-have.
01:50:28
Speaker
A lot of the startups, you should look at the two biggest sort of folks in India right now. The two richest men in India right now are on money and attack. How much venture capital is there? Who are their angel investors?
01:50:44
Speaker
You go back a little time, Birla, Tata. Do you know the name of the venture capitalists who put money into Tata? I think they want none. No, but, you know, it's the gift of time. Like what you said with M&As, this is... Correct, correct. So I agree with you. So capital gives you two things. It gives you velocity and it gives you prominence, right? What do I mean by this? Velocity is the ability to prioritize in a certain direction, right? Let's say growth over profits.
01:51:13
Speaker
Right. And permanence as a startup, you will make a lot of mistakes. If you have money in the bank, then you're saved from those mistakes. You can survive the mistakes. I'm not missing capital. I'm not missing it for one moment, but I'm not saying I'm saying something else altogether. I am saying not being fundable. It does not automatically equate to not being viable.
01:51:43
Speaker
Right. So it is a gift. But please remember that that gift is not for everybody. Less than 1% of startups actually get funded and less than 10% of startups that get funded actually survive. So both force yourself into that category and then decide if I don't get funded, then I'm a failure of some kind. I think these are the sort of just the two, three first principles that I want.
01:52:10
Speaker
every startup founder or even any small business founder to start up with their lifeline.
01:52:16
Speaker
And that brings us to the end of this conversation. I want to ask you for a favor now. Did you like listening to the show? I'd love to hear your feedback about it. Do you have your own startup ideas? I'd love to hear them. Do you have questions for any of the guests that you heard about in the show? I'd love to get your questions and pass them on to the guests. Write to me at adatthepodium.in. That's adatthepodium.in.