Tuesday, May 10, 2011

Subroto Bagchi on High-Performance Entrepreneur




When Subroto Bagchi and nine other colleagues launched Mindtree Consulting in 1999, he
believed he had two responsibilities. The first was to build the company as a global IT and R&D
services firm. The second was to document his entrepreneurial experience, not with 20-20
hindsight -- as many businesspeople do -- but as it unfolded. Bagchi, who is the chief operating
officer of Mindtree Consulting, has turned that journal into a book titled,  The High-Performance
Entrepreneur: Golden Rules for Success in Today's World. Mindtree Consulting is headquartered
in Bangalore, and when it went public on the Bombay Stock Exchange in February, its stock
offering was oversubscribed more than 100 times. Investors offered more than $5 billion for an
IPO whose goal was to raise some $50 million. In the first of a two-part podcast interview
conducted in Philadelphia, Bagchi spoke with India Knowledge@Wharton about the principles
that define high-performance entrepreneurship.

Question: What sets the high-performance entrepreneur apart from other entrepreneurs?


Bagchi: Actually, the book that you talked about, which summarizes my thoughts about entrepreneurship, was largely set in India. And if you look at countries like India which are highly populated -- if you look at India, China, Pakistan, Sri Lanka, Asian countries where entrepreneurship is going to be very key as we look at the next couple of decades -- there is no dearth of entrepreneurs and entrepreneurship in these parts of the world. But what one sees is a definite dearth of what one would call "high-performance entrepreneurship." And in that context we need to understand the difference between entrepreneurship and high-performance entrepreneurship.

Anybody can set up a "mom and pop shop" and become an entrepreneur. You have the multitude of small- and medium-sized organizations which come and go. High-performance entrepreneurship, on the other hand, sets itself apart by a multiple of things. One is the size of the ambition. The second is the sustainability. So, high-performance companies, high-performance entrepreneurships, are ones that will build unusual value for a long time, for a large number of stakeholders. And fundamentally, they differ from any other entrepreneurship in terms of size of the ambition and how much of a long view of time they are taking.



Question: You referred to the fact that a lot of your book was set and based on experiences in India. Do you think that entrepreneurs need certain kinds of attributes or qualities to succeed in India that are different than what they might need in order to build a thriving business in another part of the world?



Bagchi: Well, the differentiations are going away because one is seeing is that the world is truly a flat place or increasingly becoming flattened, and attributes are becoming more and more global. Having said that, though, if you look at a country like India, I think that there are a couple of things which are very unique. One is the fact that when you contrast India with the United States, for example, the concept of starting your business -- the concept of becoming an entrepreneur -- has become socially [speaking] only marginally acceptable now.

When we were growing up, if you failed in your studies, then you started a business. If you did not get a job, only then it was the last recourse. And if you started a business, then you would be low in the pecking order for people to give their daughter to you. So business folks were the folks who married into their late thirties because nobody would give their daughters [to them].
Now, there is a societal celebration of entrepreneurship in countries like the United States; whereas in countries like India, it is not so. So, you work under a mindset that first of all, it is not the "in thing" to start a company; it is far better to have the protection of a large organization and be a salaried individual. More than that, there is a stigma against failing. In the United States, it's okay to fail. In India, it is not okay to fail.

In addition to that, the other key difference that I find is that, unfortunately, when you start a business in India, unless you are in a highly ratified business like information technology or biotechnology, where the system does not bother you, in any other business you have to work the system. Every country in the world has corruption at some level or another.
The great thing about the United States is that an ordinary individual, in the normal course of day-to-day living, does not have to deal with corruption, does not have to deal with working the system, which is a core competency that you have to have [in India], unless you are in a business like information technology or something like that. I think if those two things were not there, entrepreneurship would take on a whole new meaning in countries like India.

Question: Where should entrepreneurs look for business opportunities?


Bagchi: In unusual places. When I was writing the book, one of the things that came to my mind was to look outside of information technology, because IT and IT consulting, R&D -- that's part of the kind of work that one does. So I was thinking, let me look outside this field and talk to some people who have had their "a-ha" experience, who have done their ideation process in different areas. And I wanted to look for such people in the Indian context.

So, what I did was I spoke to the founder of India's most celebrated coffee chain, Cafe Coffee Day. I spoke to the founder of India's most celebrated biotech company, which is Biocon, and I also spoke to India's most talked about and most recently successful [low-cost] airline, called Air Deccan. The interesting thing is that all these three people, the founders, are first-generation entrepreneurs. All of them came from middle class backgrounds, very ordinary backgrounds -- they are very self-made people. Unlike organizations that are born out of larger organizations, they are people who basically came from literally nowhere and set up large, successful [businesses], and some of them even good enough to be competing globally.

I was looking for where these people [got their] ideas for business opportunities. Let's pick the example of the founder of Air Deccan [G. R. Gopinath]. This is an Army captain who quit the Army. Then, he got into biofarming. Once he was into biofarming, he thought that he would basically do farming on a piece of land that his family had been given in compensation because their land was taken away by a dam project by the government. And while doing that, this man used to come to the nearby city occasionally to visit his daughter.

There, he met another Army colleague who used to fly a helicopter in the Army and was a very successful helicopter pilot. He had just come out of the Army and this friend tells Captain Gopinath that he has found a job. So, he said, "What kind of job?" So he said, "I found a job as a Regional Manager in a courier company." First, he felt happy that his buddy had found a job. And then it was a moment of intense unhappiness for Captain Gopinath, because he thought, "What is a career helicopter pilot doing in a courier company? Why can't he be a helicopter pilot? That's what he is trained to do."
Subsequent to that, however, he went back to his farming. And then he led a delegation of farmers to China. On the way to China, he read about a Vietnamese lady who had set up a helicopter company in Vietnam, because she wanted to do something for Vietnam, having fled Vietnam during the war. She had set up a helicopter company in Vietnam because she felt that was what an infrastructure-poor country like Vietnam required.

So, two and two came together in Captain Gopinath's mind. He thought about his army buddy and said if Vietnam needs a helicopter company to overcome its infrastructure problems, what about India? That's how he created a helicopter company. From a helicopter company he [saw] another apparition, because entrepreneurs many times see the future in pictures and in visuals. This apparition happened when he was flying low from Bangalore to Goa in his helicopter. While his helicopter was flying over huts, he found cable-television antennae on top of these huts. He suddenly thought, "Oh my God, here is opportunity. It's not a country of a billion people waiting to be fed. But here is a country where a billion people could fly."

So, entrepreneurs are unique animals, because what they can do is work opportunity backwards, as opposed to [working] a problem forward. If you cease to be problem-forward in your orientation, you will see opportunities everywhere. So, here is a man who is seeing a billion poor people. No, he is not seeing a billion poor people. He is seeing a billion people who can fly. Why can't they fly? So that's what I meant by saying that entrepreneurs look for opportunities not in the "usual places," but they have to look for opportunities in the unusual places.

Question: That's a very fascinating story. Captain Gopinath was actually at Wharton, and he told this story in his own words to the listeners of Knowledge@Wharton podcasts. But coming back to the idea of being an entrepreneur -- one of the toughest challenges for an entrepreneur has to be coming up with a startup team. Any thoughts on how you select the best startup team once you have decided you want to be an entrepreneur?


Bagchi: You know, when we look at a startup team, we have to look at it on two levels. One is the core team, and then the larger startup team. When one looks at the core team that is co-opting for other people who are founders, along with the entrepreneur himself or herself, I think three or four things are very critical. First and foremost, what is very critical, extremely critical, is a shared view of the future and a shared vision of the future.

Many times it is taken for granted when friends jump into entrepreneurship. Just because you are close friends, you think you have a shared vision. That's not necessarily true. It's important to sit together and delve into some detail on [the question] why are we are trying to do what we are trying to do? What is in it for us, individually and collectively? The term "shared vision" is about the collective view of the future. So that is very important. That's number one.

Number two, and the next important and very critical thing, is complementarity. If there are two friends who are trying to do business together and both of them are extremely good at the same thing, they probably should not be doing business together. So, the startup team must have a high degree of complementarity. If somebody is good in marketing, the other person had better be complementary in terms of finance or in terms of, let us say, delivery or in terms of managing people.

When that complementarity does not exist, that is the first signal to step back and probably bring in that talent. Sometimes entrepreneurs hesitate to do that. That's the difference again between entrepreneurship and high-performance entrepreneurship.

In a high-performance entrepreneurship, mental insecurity does not exist. The control orientation is less. You want to control a large outcome; you don't want to control the intermediate steps. So, if I don't understand finance, or I don't understand delivery, it's okay for me to bring the right person on board on the right terms. And do it early on, so that you guarantee an enormous amount of success right up front. So, look for complementarity.

I think the third element that is very critical is mutual trust. I always say, if you look at the 10 co-founders of MindTree, we come from three different national origins. We come from three different professional backgrounds. Some of the founders had never met each other physically before we started the company. But if you look at my own personal domestic issues -- if tomorrow I am not there and I need things to be handled, you know, [for example] I need my daughters to be taken care of, I can just blindly trust these other nine co-founders.

That trust is very important, because trust, in my opinion, is not a warm and fuzzy thing. Trust is something that reduces cycle time. When you don't have trust, you try to derail each other's communication. The other important reason why trust is critical is that the high-performance entrepreneurship is like running a marathon. Like a noted poet once said, "Long-distance runners bear segmented pain." So when you're running long-distance, it's not a sprint, it's a marathon. You not only have to budget for pain, but in different laps of the run, you'll experience different kinds of pain. When that pain -- the inevitability of that pain comes in -- unless you really trust each other with your lives, that is where things will fall apart.

Interestingly, a study indicates that globally, most startups fail within the first year of their coming into existence, not for technical reasons, not for managerial reasons, but they fail because the founding team goes different ways. When the trust is there, then you will not second-guess intentions. And, of course, the other interesting thing is that you'll make mistakes. When you make mistakes, there will be no blame. When you have the trust, you know that the other person is doing his or her best under the circumstances. Collectively you bounce back, you learn. So in summary, I think it is very critical to look for shared vision, look for complementarity, and look for abiding trust.

Question: Some of the pain that you're referring to, for many entrepreneurs, must be in the fund-raising department. What was your own experience like raising money from venture capitalists?

Bagchi: You know, I have a slightly different view on this, and my view is that people think that raising funds is the most difficult thing and put a lot of energy behind it. My message to entrepreneurs is that in today's world, more than ever before, ideas are not chasing resources. The resources are chasing ideas.

What I mean by "today's world," first of all, is the networked world, the inter-networked world, the global world, and the world which has become one place from an investment point of view. If you look at the example of MindTree, we raised money from two continents, from venture capitalists in the United States and venture capitalists in India. When we took the company public, most of the shares in the India stock market, in the Bombay stock exchange or let's say the national stock exchange in India are controlled by what are called institutional investors, and the color of their money is global. They could be American institutional investors, they could be British, they could be Japanese, and they could be anywhere. So investment today is available if the idea is right, cross-border.

Entrepreneurs put in enormous amount of effort in trying to chase money instead of refining the concept, instead of focusing on the market research, instead of trying to test market the idea. It is very important to put energy up front on those, and if you have a great idea in today's world it should be possible to get linked to the right source of money. I would say that we lived that -- it took us about a year to refine the concept of the company.

In that one year you'll be surprised that the first thing we did is -- when the idea came to our mind about setting up MindTree -- we [some of the founding team members] took seven days, we took off from our work, drove down fourteen hundred kilometers away from Bangalore, took a hotel and we locked ourselves in. Our wives thought it was a crazy idea. We just stayed put. There's a seaside place in the eastern part of India, we found a low-cost deal at a hotel, locked ourselves in, and for seven days we just focused on first discussing and then documenting the mission, vision and the core values of the company. We wrote the alpha version of the business plan. We then discussed and debated the issues ad nauseam. We did not take the idea to venture capitalists. It took us three months to refine several versions of the business plan before we started talking to three or four venture capitalists.

Another interesting thing that we did, which is what I have suggested in the book, is to be very careful about the color of money. The issue is not money; the issue is choosing the investor right, because it has got huge downstream consequences. In our case we talked to three or four different VCs and the first thing that we asked is not "How much would you value us?" or, "Do you want a board seat or not?" First we basically did a "sniffing" of each other to see where the cultural fit is. Is this the kind of fund that we should be taking money from? Will we be comfortable sitting around the table? Do these people look like they really, really have a long view of time? And I have given instances in the book where there's this venture capitalist that we just dropped like a hot potato right away, and said no, there's no culture match here.

So, independent of the valuation, the first thing you want to look at is culture match. Second, you want to ask: Will these people, apart from just putting money on the table, will they add any significant value in the management process? Are these the people that will actually help us to build the steps of governance through which the company can become high performance some day? So we did all that homework and then finally we zeroed in on two venture capitalists, one in India and one in the U.S.

Looking back, it wasn't a cakewalk, but again, what I am trying to emphasize is that you have to focus on the process. You have to focus on the fundamentals. You have to do your homework right. And you need to ask yourselves the deep questions that the VCs expect you to ask before you go to the VCs. Once you do that ... it is not ideas that are chasing resources; it is resources that are chasing ideas.

Question:  Turning to your experience with MindTree, could you have incubated MindTree as an entrepreneur within Wipro?


Bagchi: The answer is a clear "no." I must tell you, when I was working in Wipro in 1990, I was sent by chairman Azim Premji to open Wipro's international technology division in the Bay Area, and Wipro's office was my two-bedroom apartment in Cupertino (Calif.). I flourished, and Wipro flourished, because I think it's a great organization from the point of view of a lot of entrepreneurial activity that happens. You get a lot of leeway; you get a lot of freedom, and so on. So the question that comes to mind automatically is, then, why couldn't I have done something like that sitting there?

There are several reasons. One is that large, successful companies tend to be hostage to their own success, or hostage to the recipe of their own success. As a result, it becomes very difficult for such companies to really try out something very different. In 1999, when we started MindTree, we wanted to build what we called an aspiration next-generation IT services consulting and R&D services company. And our worldview was that such a company has to be genetically designed to be different. If you are trying to be a "chip off the old block," and trying to create  something, then you need an enormous amount of flexibility that may not be possible in an existing successful setup.

The other thing, of course, is the issue of ownership. [There is a] fundamental difference between companies which are largely owned by a single individual [and a company like] MindTree. MindTree, to begin with, has ten founders--and in addition to the ten founders, our principle was that we must have a much larger view on shared wealth creation. So, right in the beginning, up front, we said that every MindTree Mind, as we call ourselves, must be a stakeholder in the company. So in addition to close to 44% of the company, which was owned by these ten co-founders, another 16.67% was placed in the hands of MindTree Minds.

Whether you are looking at building an aspiration company, which has to be created ground up, and has to be genetically designed as such, or if you look at altogether new values, like pervasive wealth creation, or try to build a company on the premise of social responsibility, which is what we wanted to build MindTree as, it becomes very difficult within an existing setup.

If you think so drastically differently, it is unfair to do it on somebody else's money. Then you better put your own stake on the ground. And that's what happened in MindTree. We first took away all our resources from our nest eggs, all the ten co-founders put it on the table, and then we went to the venture capitalists. When you are putting your own neck on the chopping block, it's an altogether different level of accountability. And I think it is critical to have high accountability as a precursor to high achievement.







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