‘Entrepreneurship is all about sacrifice today in the hope that tomorrow will be better'

What were the circumstances in 1981 when you founded Infosys?

The country was very business unfriendly, there was deep suspicion of the private sector, the government was clearly the master, the bureaucracy was all pervasive, all powerful, the mindset of the government was control orientation, there was even restriction on how much you can produce. The Government would not allow you to become more productive. If you produced more than what you were allowed, then you would be punished.

India was probably the only country where higher productivity was punished. To get a telephone line those days, you had to wait for five to 10 years. To travel abroad for a day required that you obtain the permission of the Reserve Bank of India for which you may take 10-15 days. To get a licence to import a computer required 20-30 visits to Delhi, even 50, over two-three years. It was oppressive, it was business unfriendly, and it was nightmarish.

What gave you the confidence that you would be able to start a venture and…

Four things that happened at that time. First, there was a ruling in a US court that unbundled software and hardware. Till then, the US hardware manufacturers insisted that the users ran only the software produced by these hardware manufacturers on the machines that they sold to the users. A US court found that this was not right. They said there could be people who produced only software, there could be people who produce only hardware, there will be people who produce both software and hardware.

Software produced by independent producers should be allowed to run on hardware produced by hardware manufacturers. We realised that that was going to open up a huge opportunity.

Second, we had the entry of super mini-computers. These were inexpensive compared to the mainframes that performed extremely well.

Third, these super mini-computer manufacturers introduced the facility for online transaction processing based on relational databases. You need an online transaction processing platform if you want to develop large scale commercial applications.

Finally, in India at that time, we had lots of engineers who were reasonably smart but had no jobs. We realised that in an environment where there was going to be a huge explosion in opportunities for software development for corporations, we thought we can bring these two together and succeed in the global market. We knew there was going to be serious bottlenecks to such an idea within India, but because our value proposition will be so good to the western clients, for two reasons, one we would be in a position to produce software at inexpensive prices and second, we would be in a position to use reasonable quality engineers, which brought quality and productivity to the top. When you combine these two we would have a compelling value proposition to our customers and therefore they would be happy to use the services of the Indian companies. That is how it happened.

For any venture to succeed, idea and the team are important. In the case of Infosys, what was it?

I think for any entrepreneurial venture you need four factors — one, you have to have an idea whose differentiated value proposition to the market can be expressed in a simple sentence. You must be able to say that my idea reduces cost much more than others. Or my idea reduces cycle time much more than others. Or my idea increases revenue much more than other ideas. Or my idea improves quality much more than others.

Second, the market must be ready. Unless the market is ready to recognise the power of your idea and vote with money you will not succeed.

Third, you will need a team which brings mutually exclusive but collectively exhaustive set of skills, expertise and experience. You need people who understand technology, applications, business, human resources, finance, etc. That is how you can build a robust organisation.

Finally, because entrepreneurship is all about deferred gratification, it is all about sacrifice today in the hope that tomorrow will be better, you need a good value system. If you have these four then there will be money. Money is not a big issue.

When you started Infosys in 1981 did you ever dream or think that Infosys would be what it is now? What was your goal at that time?

We didn't think that Infosys would reach where it has reached today. However, we knew one thing. We wanted the company to become the most respected company in India. We said that this objective is fully within our control. Earning respect depends on how we behave. We knew that if we sought respect from customers we would not short-change them. We knew that if we sought respect from fellow employees, we would treat them with courtesy and dignity. We knew that if we sought respect from investors, we would follow the finest examples of corporate governance. We knew that if we sought respect from the government, we will not violate any law of the land. We knew that if we sought respect from vendor partners, we would treat them with fairness and understanding.

Finally, we knew that if we seek respect from society, we will live in harmony with society and make a difference. We said if we did all of this, revenues will automatically come, profits will come and we said that is how we can build a large organisation.

You have talked in the past about how you got an American customer to close his unit in SEEPZ (Mumbai) and come to you. How difficult a task was that?

Because we lived in an India where dealing with government required a lot of effort, getting a telephone was difficult, travelling was difficult, because we had no money, interacting with this customer, negotiating with this customer seemed very easy. That was the easiest. Because his mindset was different. His mindset was, look these guys do their jobs extremely well, they provide me best value for money, therefore I am willing to make adjustments. He was willing to close down his own operations in SEEPZ and hitch his future with us because he had tremendous confidence in us.

Over the years, you would have faced a number of challenges. Could you tell us about some of these challenges and how you overcame them?

Up to 1991, the friction to business came primarily from the environment. As I explained to you, it took a year or two for us to get a telephone connection. It would take 15 days to get permission to travel abroad for one day. It would take three years and some 50 visits to Delhi to obtain a licence to import a computer. Banks would not give loans to us because they wanted collateral. They didn't understand what software development was.

After the economic reforms, we had different kinds of challenges, different kinds of difficulties, which were competing in the market place based on your value proposition. That is where we realised that innovation and selling of that innovation, as Prof Peter Drucker pointed out, are the two most important requirements for a corporation. In a free market situation, it is possible to compete effectively as long as you have merit, as long as you bring innovation to the table. Whereas in an environment where the government is the one that decides your future, there is possibility of corruption, nepotism, favouritism. The free market-oriented competition is much easier to succeed than the government-oriented environment.

You talked about the difficulty of getting bank funding. How did you manage that situation?

Right in the beginning, I sat down and explained to our customers that our strength was not money. That in India it was almost impossible to get any working capital. What I told them was, first of all you give us certain advance that will help us handle our working capital requirements for a few months.

We said every month we will bill you at the beginning of the month even before we had started the work and you will have to pay us at the end of the month, after 30 days. Otherwise, we will not be in a position to do the work. Because the customer was so impressed with the group, he said that is fine. That is how we managed it.

For an entrepreneur, how significant a milestone is it when his or her venture goes public? In the case of Infosys how important was it when you went public in 1993?

In 1993, it was very important for us because we wanted to create a differentiation with various multinationals that were coming into India at that time thanks to economic reforms.

We said how do we differentiate ourselves? How do we attract good talent? How do we retain them? We said we need to do three things. One, we had to create comparable physical infrastructure. Two, we had to provide them comparable technology. Third, we had to provide them comparable compensation.

In order to create comparable physical infrastructure and technological infrastructure, we needed capex. That is why we wanted to go public.

Third, for us to provide them comparable or better compensation, we realised that as a small company, we would not be in a position to give salaries comparable to these big multinationals, but if we created a stock option plan, we would be able to give our employees much more than what these companies could do. That required going public. In that sense, going public was extremely important for us.

Listing on the NASDAQ…

Listing on the NASDAQ was in 1999. That gave us the ability to provide employee stock options to our colleagues in America, to our colleagues abroad. That was also important.

Plus, listing on NASDAQ enhanced the confidence of the senior management of our client companies in us. Because when they see us on ticker tape, on their own stock exchange, they realise that this company has reached a certain level, this company is here to stay and therefore we can do big business with them.

A number of entrepreneurs are under pressure to go public, sometimes to provide an exit avenue for investors in the venture. Is listing a goal by itself?

There are two ways of exit for venture capitalists. One is if the entrepreneur goes public. Second is if that company is acquired by a bigger company. There are two ways that VCs can exit. But, even today, for an entrepreneur to attract good talent, because he or she is generally short of money, these people use the employees' stock option plan as an instrument.

And if that employee stock option plan has to mean something, then you have to go public. There should be liquidity for that. Otherwise, it doesn't make sense. Therefore, listing on a stock exchange becomes important for entrepreneurs.

What five suggestions would you give for aspiring entrepreneurs?

In some way I have already said what they need for their ideas to succeed. A good idea, market should accept that idea, they should bring a good team, that team should have a value. And finally they will get money. That is one dimension. There is another dimension. If they sought respect as the most important objective, then automatically revenues will come, customers will come, good employees will come, good investors will come, and therefore they will grow. Therefore, I would say seek respect.

Third, they would have to benchmark themselves with the best global companies in every dimension – quality, production, human resources and finance. The moment you are benchmarked with the best global company, then when you sell in India you are giving Indian consumers global quality product.

Fourth, you must treat your employees with respect and dignity because in the most automated factory in the world, you need the power of human mind. That is what brings in innovation. If you want high quality minds to work for you, then you must protect the respect and dignity. Therefore, talent is important.

Fifth, openness to new ideas, meritocracy, speed, imagination and excellence in execution are the five time invariant and context invariant attributes for the success of a corporation. Every corporation that would like to live for a long time, add value to the society for a long time, should keep this in mind and ensure that they keep improving in each of these dimensions.

Finally, I would say that the best index of the success of a corporation is its longevity. If you want to live long as a corporation, then you have to live in harmony with society because society contributes customers, employees, investors, vendor partners, politicians, bureaucrats.

You have to create goodwill with the society. Unless you create goodwill with society, you can't be a long-term player.

When would we see a next Infosys being created here?

I think there are many entrepreneurs who are working hard, working smart, who are seeking respect. I think it will happen. I have no doubt about it. It is just a question of time.

COMMENT NOW