How to manage when things tend to spiral out of control

Egos clash and so do ideas. Entrepreneurs need a healthy ego to succeed, but with three co-founders in the mix and flush with funds, that is the time when things tend to spiral out of control.

Founded in August 2008 by IIT-Kharagpur alumni Aneesh Reddy, Krishna Mehra and Ajay Modani, and offering cloud-based software solutions to retailers, Capillary Technologies was finding its feet.

It was 2012. The software-as-a-service (SaaS) provider had raised ₹60 crore ($15.5 million) from venture capital firm Sequoia Capital and Norwest Venture Partners and from existing investor Qualcomm Ventures.

“Till 2011-12, we ran the company on a shoe-string budget. Though we raised money, we invested a lot back. In 2012, we were doing ₹5 lakh a month burn on ₹1.1-1.2 crore revenue. It was at that point, we raised ₹60 crore, technically 100 years of burn,” recalls Aneesh Reddy.

Hand over that kind of money to 25-26-year-olds, the age of the three co-founders of Capillary, and “one goes completely mad,” says Aneesh. “We wanted to raise $8 million, but both our investors wanted in, so there was $11 million that came into the company, and $4.5 million came in the second raise. All of us made money, investors and employees,” he reminisces.

Getting $15.5 million instead of the earlier envisaged $8 million made the trio trigger-happy. The result: the entire money was burnt in 18 months.

Instead of restricting work to its two offices, they opened 10 offices in 2012: “in the US, the UK, Australia, South Africa, Hong Kong, New Zealand...No one told us it was a crazy idea, so we did it. And credit to our investors, they just allowed us (to) be,” says Aneesh.

The decision was clearly not “investor-induced”, but when trouble arose, tough decisions had to be taken. Shutters needed to be pulled down fast.

Co-Founder Krishna Mehra had moved to the US as part of the expansion plan. The “fantastic techie at heart found the Valley too tempting”, so when the “super hard call to shut the US, the UK, Australia and South Africa operations was taken, Krishna exited,” says Aneesh.

With the team “burning huge amounts in certain markets which were haemorrhaging, and doing extremely well in others where we were not investing much,” the loss was the natural corollary of these dissensions.

That was in 2014. “It was an overwhelming time for all of us,” recalls Aneesh. “We were running out of money so fast, especially the 5-6 months when we had just 15 days of money left.”

The tough period

Downing shutters and cutting losses was the only way ahead, as was the decision to exit. Though co-founder Ajay Modani moved out a year later, and both Ajay and Krishna started up again individually, Aneesh did not cut ties with his co-founders.

“I am an angel investor in both their companies. One has a food tech start-up in the US, and the other an online catering business in India. Both are foodies, so it worked out at the end. We continue to be good friends,” says Aneesh.

Unfazed at the amount burnt and since certain geographies were doing extremely well for the company, investors decided to help out with more money.

“We have raised $120 million till now, with $50 million as secondaries, that is for employees, founders and other angels exiting. The rest $70 million has gone into building the firm,” he says, adding that the company is now focussing on four large geographies — India, West Asia, South East Asia and China.

The firm’s technology has now been used across 25,000 stores in 30 countries by over 400 top brands, including Pizza Hut, Walmart, Al-Futtaim, Future Group, KFC, Starbucks, Giordano, Madura Garments, Bata, Puma and Samsung, to enable easy and seamless consumer experiences.

“Entrepreneurship is a self-purification process,” says Aneesh.

“As an entrepreneur, one should not get caught in one’s own ego. As entrepreneurs, we are super optimistic all the time, but don’t get overwhelmed by your own greatness. Instead use it and leverage it,” says Aneesh.

Ticking some of the lessons learnt from this exercise, Aneesh says, “We were 5-times close to never having money. So one thing is clear: entrepreneurs need to raise more money than is required. Things do go wrong and things don’t pan out. Raise 1.5 times what your excel sheet suggests you raise. This will ensure that something that is supposed to take one year will actually get done in six months flat.”

In hindsight, Aneesh says “we could have reached this current position in 6-7 years and not taken 10.”

Hard truth

Another hard truth: plan for your growth. “For the first eight years of the company, we were just 10-11 sales guys, and although we were growing, we did not add capacity. We did that only in the 9th year and so lost out.”

The other learning in planning one’s growth is, “it removes a lot of stress. It is much easier to double the sales team each year, than grow the sales team five times suddenly when you have to catch up.”

At Capillary Technologies, it is time to celebrate a decade. Though only Aneesh remains today at the helm, he continues to hold a torch for his friends and co-founders, happy to show-off a beautiful picture of the two former co-founders in a garage where it all started.

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