Stay Hungry Stay Foolish_2 pdf

STAY HUNGRY STAY FOOLISH ROCK WITH IT, Despite a regular middle class upbringing, Shantanu went into business while doing his BCom.. Did they always know this is what they wanted from li

STAY HUNGRY STAY FOOLISHwasn't chasing money And if you chase something long enough,sooner or later you will get lucky If you are really lucky then youwill do it in 5 years, if you are moderately lucky then you will do it

in 10 years, if you are terribly unlucky you will do it in 15 years.”

“But if we had missed this bus, I would have continued working atwhat I was doing and maybe I would have succeeded atsomething else 5-6 years hence The point is to try long enoughand hard enough I think persistence is a quality that you have tohave, to be a successful entrepreneur.”

If you love your work, and it gives your life meaning, then you willhave fun through the difficult times You will find it in your heart tokeep going You will never lose hope

You see, there is no such thing as a failed entrepreneur You are

a failed entrepreneur only when you quit Until then, you aresimply not successful… yet

Be early You can make your mistakes while it is cheap

to make them, when there is no competition.

Do not exaggerate in your business plan Undercommit and overdeliver.

Get great people - sell them the vision, the idea and share the wealth, be generous with offering stock.

If you are starting a business to make money, don't do it.

Chances are that you will fail, because there WILL be hard times And if your motivation is not something beyond money, those hard times will test you You will quit and go back to your job But if you are doing something other than money, you will rough it through the hard times.

I spotted the opportunity but I didn't know how big it was, how big it was going to be I just said this is a smart idea,

I love it! And it happened to be the right idea, at the right place, at the right time… If you are in enough places, enough times and long enough, you get your breaks in some form or the other.You just have to be smart enough

to take them.

Scaling up is also a lot about letting go Get smart people If they are truly smart and if they have their self belief, they will create their own space and they will do stuff that maybe you can't do Or may be you haven't thought of.

And do keep in mind that every choice you make impacts the family If you live in a particular part of town, it will obviously impact the kind of school your kids go to.

Frankly, these were the choices, the implications of which I did not consider Thankfully, things have turned out well; the children also, the family also.

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ROCK WITH IT,

Despite a regular middle class upbringing, Shantanu went into business while doing his BCom The entrepreneurial streak continued after the MBA from IIM Ahmedabad His company Educomp is today the leading provider of digital content for schools across India.

ROLL WITH IT

Shantanu Prakash (PGP '88),

Educomp

Are entrepreneurs born or made? Did they always know this is what they wanted from life or did an opportunity come up and light the way?

Shantanu Prakash grew up in an “absolutely typical middle class background.” But he knew entrepreneurship was his calling, early in life He founded a company while still in college and started another one right after graduating from IIM Ahmedabad.

And this was in the late ‘80s, years before entrepreneurship was in fashion.

The thing about Shantanu that strikes you is how much at ease he is as he relates the story It's not like he made it big overnight, it's actually taken close to two decades But through the hard times, the weak sales, the poor cashflows, he says it was “never difficult.”

“When I look back, every single year of my life, I thought, was the coolest year of my life.”

Sitting with him in the coffee shop of the amazing Trident Hotel in Gurgaon, a part of me said: “This guy is definitely lying Aisa kaise ho sakta hai…” But at a deeper level, what he said seemed to ring true.

Your reality is what you make of it If you see life with an 'all

is wonderful in this world' pair of lenses, that's how it is.

This is against conventional wisdom The middle class ethic of being careful and completely realistic about the big, bad world around you But all I can say is the formula seems to have worked for Shantanu His company Educomp works with 9,000 schools and six million students across India, US and Singapore, generating revenues of Rs 276 crores in FY ‘07-08 Its market capitalization is Rs 7,000 crores *.

But like I said, it's the attitude with which it's been built which is more interesting than the building itself.

* as of May 2008

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Shantanu Prakash was born in Rourkela, a small town with onlyone notable feature - the steel plant Dad in SAIL, mom a schoolteacher, an upbringing no different from thousands of steel townkids in the 1970s

After class 10, the family shifted to Delhi and he enrolled in DPS,

a “shiny, big city school.” A reasonably good student, Shantanujoined Shri Ram College of Commerce And that's when it firstbecame evident, ‘this guy is different.’

“Whenever my dad used to travel, he used to buy me books Infact, I don't remember getting any presents except books I used toread voraciously And probably that unlocked something in themind Big thinking, big horizon and so on.”

“Secondly, when my dad retired and wanted to come and settledown in Delhi, he found that he didn't have enough money to buyeven a DDA flat Right! So somewhere at the back of my mind Ithought that if I need to make money, then working in a job isprobably not going to do it for me.”

While at SRCC, Shantanu started a company along with a friend.The business was organising rock music concerts Not that he hadany particular fascination for rock music but it was a goodopportunity

“We used to collect sponsorship from companies, do these eventsand shows in hotels and sell tickets We made a lot of money.”

How much? Rs 4-5 lakhs - truly a lot of money 20 years ago!

“I thought I was completely rich And then the stock market bug bit

me So I used to be on the floor of Delhi Stock Exchange, everysingle day for almost two years Till I lost all the money! And Ithought it was really cool you know - we were not going to college,doing things which were more 'adult' It was just a completelydifferent rush.”

ROCK WITH IT,

Shantanu Prakash (PGP '88),

Educomp

ROLL WITH IT

Shantanu got into IIM Ahmedabad although he was actually morekeen on FMS Delhi.

“(Laughs) Honestly at that time I didn't know what this whole MBAthing meant Someone from our event management companyflew down to deposit the form in Ahmedabad, because it was toolate to post it So it was all a last minute kind of a thing.”

Shantanu joined IIMA, even as the event management businessback in Delhi continued to flourish A contract had been signedwith Thums Up to do a series of concerts all over India A concert

in Bombay was yet to be staged

“Every weekend, in the first year of IIM Ahmedabad, I used to godown to Bombay and work with my friend organising this concert

It was a great hit We got Remo to perform, it was held in a hotel

in Bombay and one time when I came back, I had this boardoutside my dorm room in D-14, saying ‘Visiting Student’.”

“So I had a complete ball during the two years in IIM Ahmedabad.Honestly, I didn't take it very seriously in the first year Then in thesecond year, I said okay, let's see the curriculum, what it's allabout I always had this bindaas outlook Why are these kidsstudying so hard, what is there to take so seriously here, youknow! That sort of a thing.”

And at the time salaries from campus weren't exactlystratospheric Shantanu recalls that 17 of his batchmates joinedCitibank at salaries of Rs 7-8,000 a month in 1988

Not surprisingly, Shantanu did not go for placements at all With hisfriend and partner from the event management business helaunched a company focused on education The idea was to set upcomputer labs for schools The business model was innovative -the schools did not invest They only paid a monthly fee for everystudent who used the lab and signed a multi-year contract

“That was the time when IT was coming into schools So there wasthis whole mystery around IT When we went and spoke to schoolprincipals, they welcomed us with open arms saying these guysknow more about how to retrofit a computer lab in the school than

we do So we actually got off to a great start Lots of schools.”

In two years, the company did 50-60 schools and boasted acouple of hundred employees The turnover was Rs 4-5 crores.Again, huge for 1990

But, there were ideological differences among the partners

“I wanted the company to go in one direction, he wanted to go inanother But we were great friends, we are still very thick.”

STAY HUNGRY STAY FOOLISH

Shantanu decided to do something on his own The partner keptthe company and pretty much all the money, while he made a freshstart The year was 1992

Educomp started very small And with a different focus Instead ofhardware, Educomp went into software The first product itlaunched was a ‘School Management System’, an ERP of sorts forschools which took two years to build

On paper it seemed like a phenomenal market to automateschools - there is a real pain that you are trying to address But itwasn't a very successful product After getting the product into 10schools Shantanu realised that every school wants customisation.And they don't want to pay for the customisation

“All the stuff they teach you in terms of case studies at IIMAhmedabad, all that is really relevant But while on campus youappreciate none of it because you haven't gone through the grind.Not understanding what running a business means, you laterrelearn all those lessons the hard way.”

Besides, Educomp started its life with zero capital base

“So one day you just opened shop, sat in one room with acomputer and started?” I ask

“Yeah, almost like that I had two employees in the very beginning.”

“What about the two years that went into developing the product?”

“A few school computer lab contracts kept some cash coming in”

he says

“But the focus was on building this piece of intellectual property.Even before it was fully developed, we started going to the marketand selling the product And I think I am quite a good salesperson

So I managed to convince a number of schools to buy it andbusiness started growing.”

Eventually the product was abandoned and Educomp expandedinto digital content for schools, and subsequently into e-learning.Today if you look at the product portfolio, the company hasfootprints in almost every space from KG to class 12

“You don't need any capital to start, you can start with zero capital If you have capital, great If you don't, it doesn't mean you can't start.”

“But you are making it sound so easy,” I protest “From 1992 to

2006 (when Educomp got publicly listed) what was the processthat you went through?”

“Honestly speaking, for me it wasn't a difficult process at all And Ithink it's more a mindset issue than anything else.”

“I remember, the first office didn't even have a fan But I didn'tseem to mind at all at that point in time I was so completelyobsessed with what I was doing and what I was building So everysingle year of my life when I look back, I thought, that was thecoolest year of my life That I was doing the most significant thingsthat I could ever hope to do.”

“And that basically translates into being happy So one way todescribe myself would be, you know, an eternal optimist Whenyou are an optimist some of the external environment stuff doesn'treally bother you It never bothered me.”

Getting into the details of how the company grew, it was slow Veryslow initially

In 1998, six years after starting, Educomp’s revenues stood at Rs3.5 crores Then the company started growing In the year 2000, thetopline was around Rs 12 crores Then it really took off and in FY

‘07-08, Educomp clocked revenues of Rs 276 crores, with net profits

of Rs 70 crores

Did something happen at the Rs 4 crore level, due to which thecompany started growing 50-60%? Because a lot of people start abusiness but most of them are never able to work that scale-upmagic

Shantanu believes there are two questions which need to beasked:

a) Is the business inherently scalable ?

b) Is the market opportunity large enough?

“Entrepreneurs are smart people, they manage the risk-reward equation very well With an IIM Ahmedabad degree, the risk is not much You can always go and start something If it doesn't work out, somebody will give you a job ”

STAY HUNGRY STAY FOOLISH

“In our case, the solutions that we were offering were technologybased, so they could easily be scaled up Secondly, the universe

of opportunity in India is phenomenal There are 220 million kidsgoing to school There are one million schools, five millionteachers, all of that stuff.”

“So even today, the market penetration levels are less than two percent And Educomp can keep growing 100 per cent over the next

10 years Without reaching a saturation point.”

Additionally, the market started responding favourably to digitalcontent

“It could have happened 3-4 four years earlier, it could havehappened 3-4 years later As far as we were concerned, we werepassionate about it and believed this was the way to improve thequality of education.” 75% of Educomp's revenues today come fromlicensing content to schools - helping teachers do their job better

To grow, you need people Good people Of course all companiesstart with just a few, with the founder managing all the strategicfunctions The question every entrepreneur grapples with then is,how can I get more people as good, or better than me?

“I wanted to work with high quality, smart people But the problemwas, the high quality smart people didn't want to work with me…

So it was a lot of struggle.”

One of the many reasons Educomp was eventually able to attracttalent was because people easily become passionate abouteducation

“The trick is to identify the DNA in a person, where he or she wants

to do something different, and wants to be differently incentivised

It means not just a big fat salary cheque, but things like stockoptions, feeling of partnership, being part of a start-uporganisation, fast growth, all of that That’s how I was able to getsome really good people as partners.”

Almost all of whom are still with the company There are 4,000employees at Educomp but the attrition rate is amazingly low, atless than three per cent

Aisa kyun?

“People are happy, I would like to believe that And the company isgrowing 100 per cent a year, we are now five times larger than ournearest competitor in India in this space so where do you want to go!”With the company going public, Educomp today has at least 25employees who are dollar millionaires Like all new generationentrepreneurs, the secret sauce of stickiness lies in sharing the

wealth And the heat of growth is fuelled by a timely dose ofventure capital.

Educomp received $2.5 million of venture capital in June 2000 Itwasn't much of a struggle given the IT and dotcom boom at thetime The funding was wrapped up in two months

Did life change after the funding?

“Practically - nothing The canvas was always large With moremoney you can just buy more paint and do a better painting.”Six years later when more funds were needed for expansion,Educomp decided to raise the money through an IPO

“Our company had reached a critical size, and we thought thatcapital markets are ready A lot of people ask us, ‘Why did youtake your company public at the small size that you had?’ Rs.50crores in sales We are very happy we took the company publicrather than take private equity money.”

The important thing is that Educomp went IPO at the right time inits growth curve Since then the company has been growing 100%

a year

But 20 years into the business, isn't a sense of fatigue setting in?

“No, my role is changing, the company is changing, we have aphenomenal growth opportunity in front of us Educomp is valued

at about one and a half billion dollars (as of May 2008) I think wecan be a ten billion dollar company in the next three years So I

am certainly there, in charge, driving growth for the company.”There are new thrust areas For example, Educomp is nowbuilding schools The company will invest Rs.3,000 crores in thenext 2-3 years to set up 150 odd schools in India The company isplanning to get into higher education as well as makingacquisitions outside of India “So again, this is the most excitingyear that we have ever had But I felt the same way in 1995!”

There's the whole romantic aspect of taking your company, yourcreation to new heights The desire to see your company doingbetter and better and better And there is always a 'next milestone'

“It's all about being an eternal, insane optimist I never had the dilemma: Am I doing the right thing? Should I just shut this down and go take up a job? Never!”

STAY HUNGRY STAY FOOLISH

“Milestones certainly keep one active and moving But I think for mepersonally, understanding how value is created is a very fascinatingsubject Studying consumer behaviour, getting new products out intothe market, working with really smart people, it's a rush.”

“Every single day of my life, I experience that and I go out of myway to create those experiences that give me the challenge ofbeing alive, driving something, doing something meaningful.Especially in the business that I run, which is education, it’s soeasy to feel that you are contributing to society.”

Wonderful! But have there been any sacrifices on the family front?

“I think my family said this guy is crazy So let him do whatever hewants… When I got married, certainly I was an entrepreneur atthat time, my wife was understanding But business every year hasbecome more and more demanding of my personal time.”

“More than the monetary sacrifice, it is really the sacrifice of timewhen you are an entrepreneur And that is a much more expensivesacrifice than money.”

Shantanu admits he works 24x7 Even this interview is scheduled

on a Sunday afternoon, right after lunch

“My life is completely unidimensional Yes, had I been working in ajob, I would have been very conscious of leisure time, veryconscious of how much I am working Here I am working formyself I had decided a long time ago that the next 10 years of mylife I am completely going to devote to building up my company.”The family has learnt to be okay with it

“But you don't see it as a sacrifice as such?” I persist

“It is a sacrifice, no doubt about that Maybe I am not intelligentenough to balance or do this right, I am not proud of the fact I thinkthe ideal situation is to be successful professionally and take outenough time for your family and for other vocations, hobbies.”

“I have this nice little picture, it has not happened to me That'ssomething that I guess I will have to learn.”

We all have to, actually

“Being an entrepreneur is the art and science of creating value.”

The risk-reward equation is completely in favour of the entrepreneur There is no way that you will be economically rewarded lesser for being an entrepreneur than by taking up a job.

Recently, Educomp invested in an online tutoring company This company, Three Bricks E-Services, was started by three very young IIMA entrepreneurs.

Chandan Aggarwal, Riju and Mohit They were in business for a year and a half and then Educomp acquired a 76% stake in their company.

In a short period of two years, each of these people, if you value their 24% stake in the company, would be worth at least Rs.15-20 crores each There is no way you can do that if you are doing a job Impossible!

Two years you may struggle If the average salary is Rs.15-18 lakhs p.a (gross) how much do you make in five years? 18 x 5, right? After tax, you make some 50 lakhs.

In 5 years, I can guarantee you, any business you do, will earn you that Assuming that you are at least a little bit intelligent, within a year, the valuation of your business itself will exceed fifty lakhs No matter what you do.

So if a 24 year old entrepreneur came to me, I would say choose anything that you want, that interests you, the internal passion you have.

How to choose what to do? I came from a background where I did my Bachelors in Commerce from SRCC and then my MBA - no 'skills', right? So I could have chosen any domain, but you have to keep some of those key principles in mind - ‘Is the opportunity big enough, are you able to make a contribution and fundamentally change something that generates value?’

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THE CAT WITH

Vinayak quit his job at Pond’s because he didn’t see the point of selling soap for the rest of his life Originally set

up as a market research company, over the years, Feedback Ventures morphed into India’s leading infrastructure advisory and engineering firm.

Vinayak Chatterjee (PGP '81), Feedback Ventures

NINE LIVES

I am late for the interview - the Feedback office in Panchsheel Park, Delhi is difficult to find Miss a particular turning and you have to go several kilometers in the wrong direction, until you find your way back.

Kind of like what happens in life You make a plan, even a roadmap But there could be a vehicle coming at you at full speed from right around the bend.

Vinayak Chatterjee has faced these bends with courage and recovered from accidents of fate Feedback Ventures had a near death experience Not once, but three times.

Each time Vinayak managed to save it from extinction and hang in there, eventually taking the company to new heights.

Vinayak's story tells you that ability matters, ation matters, but ultimately so does destiny.

determin-When life deals you a rough hand, it's not about how smart you are but how many people out there believe in you It's the relationships you've built and the trust you've deposited in the Goodwill Bank which you will draw on To get that second lease of life.

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Vinayak Chatterjee was brought up in a small town, about 40kilometres outside Calcutta His father was a production supervisor

in a jute factory

“Those were good days in jute, it was owned by the Scottish, so wehad a good life - compound, swimming pool, all of that My motherwas a lecturer in Calcutta University, she taught economics andpolitical science So a reasonably middle class life, very small townupbringing, only child.”

Like so many middle class Bengali families, the Chatterjees were inthe corporate world and teaching, but there was no history ofanybody in the family having anything to do with business

After schooling in Calcutta, Vinayak decided to go to Delhi for higher studies

“It was the height of the Naxalite movement in Calcutta I am talkingabout the mid '70s In any case, because I lived far away, I had tostay in a hostel I had some seniors, cousins from whom I had heard

of St Stephen's I applied and got in.”

The college experience widened his perspective and exposed him

to people from varied backgrounds including those from eliteschools Instead of being diffident about it, Vinayak meshed inextremely well there, forged some deep friendships and becameextremely confident “I thrived in the open society that St Stephen'sis! Certainly a valuable three years!”

Vinayak was very clear that he wanted to do economics Even if hehadn't come to Stephen’s, he would have pursued economics atPresidency College in Calcutta

The prevailing value system in a middle class Bengali family for achild who does economics is to emulate Amartya Sen Vinayakwould have been happy enough to complete graduation and then go

on to the Delhi School of Economics He would have probably tried

THE CAT WITH

Vinayak Chatterjee (PGP '81), Feedback Ventures

NINE LIVES

for the Indian Foreign Service and if that didn't work out, got a PhDand become a lecturer.

But then Vinayak sat for the CAT exam, mainly because of his bestfriend at Stephen's - Ajay Banga Ajay was the younger brother ofVindi Banga, who had done extremely well at IIMA and joined HLL

So the entire gang sat for CAT with barely any preparation, andVinayak made it to Ahmedabad But then there was the dilemma: DSchool (Delhi School of Economics) or Bschool

Vinayak had almost rejected the IIMA option until his friends pointedout, “You can always come back to D School But if you don't go takeadmission to IIMA, you are closing the gate Take a look!”

As it turned out, Ahmedabad was good for Vinayak, although hehated the quanti courses and didn't quite take to production

“First and second term, I really hated IIMA Not for the grades andall that but for the quality of what I thought were puerile courses.” Bythe third term, Vinayak warmed up to what management had tooffer He enjoyed courses such as business policy and marketingwhich had a wider perspective

But Vinayak still didn't know what he wanted to do in life So hefollowed the herd into summer training at Pond’s It was a high profilejob and Vinayak took the pre-placement offer that came his way.Pond’s treated him extremely well and confirmed Vinayak as AreaSales Manager just six months after joining Two weeks after gettingthe confirmation letter, Vinayak told his boss he wanted to resign

“Something in me revolted I can't put a finger on it even now But Ijust didn't feel my job had any content I couldn't get excited sellingPond’s cold cream or Cutex nail polish remover It meant nothing Ilooked at myself in the mirror and said that if these products don'tmean anything to me, I am probably being untrue both to myself aswell as to my employers to hang around in the job.”

Not that he had any clear alternative But Vinayak was clear aboutwhat he didn't want Which is a start “It wasn't an easy decision but

it was a call of the heart that said if you don't like something, nobody

is forcing you to do it It was January 1982 and Vinayak was on therough road to ‘finding himself’.”

Vinayak could have stayed on in Bombay, but chose to go back tothe small town where he grew up, in West Bengal

“I spent one month with my parents I am an only child They said,

we told you to go to D School and do economics Why did you go toIIMA and chase this what they called the ‘Maya Mrigaya’, thegolden deer of money in the corporate world.”

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So, no great pressure from parents to go back and bring in thebucks But it was important to do something Somethingrespectable

Vinayak had always enjoyed writing He'd been part of the Stephen'smagazine and also editor of the IIMA mag ‘Synergy’ So he thoughtwhy not combine the business degree with journalism? There was

an offer from C R Irani, to start the business section of Statesman inCalcutta And an offer from Ashok Advani, to become the Bombaycorrespondent for the recently set up Business India

But Mrs Chatterjee was more keen that Vinayak go back to IIMA andcomplete his PhD She said, “You are 21, you can come out as aPhD at 23-24 So there is no hurry to take up a job.” Vinayak did justthat He went back and joined the fellow program (FPM) at IIMA

“I remember putting my steel trunk and hold-all on the Howrah Express, the 48 hour journey, again back in dorm 17, got myroom I chose the business policy area and started library work.”

Ahmedabad-Then something interesting happened Professor VL Mote calledVinayak to his house And there he met Raunaq Singh, chairman ofthe Apollo group Vinayak hadn't heard of him back then Prof Moteintroduced Raunaq, saying he has a company called Apollo Tyreswhich is badly in debt because the government had nationalised it.(There is a long history to this - the company was given back to thefamily after a Supreme Court judgement in 1981)

But essentially, the chairman wanted an MBA to turn around thecompany Prof Mote said, “Vinayak, we know you are back here to

do a PhD but do you want this option of joining as executiveassistant to Raunaq Singh?”

It was one of those uncertain phases in life “One side of my mind

wa very clear that I don't want a multinational FMCG job The otherhalf was still not clear what I wanted to do with life But picking upideas, picking up opportunities, some being created, some coming

my way, picking, moving on.”

Vinayak decided to take the offer He joined what was known as

‘Raunaq Group’ in those days consisting of Bharat Steel Tubes,

“In looking back it seems, we were in step with the turning in the economy.

The truth is, it all just happened In hindsight, you can call it strategy.”