Sucheta Dalal :Wisdom from the Sycamore tree
Sucheta Dalal

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Wisdom from the Sycamore tree  

February 7, 2000

They are India's most unusual business icons -- Gururaj Deshpande, Founder-Chairman of Sycamore Networks and billed as the richest Indian in the world, and his equally well-known brother-in-law N.R.Narayan Murthy, Chairman of Infosys Technologies. Both have, in terms of market capitalisation of their respective companies, created wealth beyond the imagination of most Indians. They are even more unusual because they share that wealth with employees and also come across as modest, straight talking and transparently ethical. They seem to suggest a new business order which says that nice guys can also make big bucks.

It is probably this combination that brought a mix of traditional brick-and-mortar industrialists, investment bankers, computer technologists and bureaucrats to listen to Gururaj Deshpande's many speaking engagements in Mumbai last week. Deshpande did not disappoint. He was everything that one was led to believe - simple, blunt and refreshingly unpretentious - and believe me, I can count on my fingers the number of successful businessmen who can be thus classified.

I am more curious about what Indian businessmen took home from the talk.

For traditional Indian businessmen who came to figure out the trick of making money and getting staggering valuations on IT and IT-enabled businesses the message ought to have been - Stop, its not for you!

Deshpande said, in his own way, what Bill Gates had also said when he came to India a couple of years ago. That a CEO should have complete conviction about his project and want to desperately make it work. That the route to success was to get the right people and to let them work.

In fact, Deshpande was most emphatic about the second ingredient of his success formula. "It is team, team, team all the way", he says about his Sycamore strategy and it was exactly the same with Cascade Communications, the company he had founded earlier and sold for a cool $3.7 billion. Cascade, says Desphande, had extraordinary staff and customer loyalty. A large part of Sycamore is the old team from Cascade and the customer networks built during those days are working for Sycamore. It is the reason why a small company like Sycamore is confident of succeeding despite giants as competitors.

Cascade had around 1000 employees, says Deshpande, and maybe one of them left. Deshpande has obviously spent a lot of time thinking through the business of choosing, nurturing and empowering employees. His recipe: get the right people and then trust them completely. If you have any doubts about people you hire, fire them quickly and don't allow him or her to disturb the organisation. Avoid cracks in the team, particularly political cracks. This can happen if every person is certain abut their role and what they are doing. Deshpande is confident that the right team will give Sycamore the speed to stay ahead of the competition.

Then there is the business of stock options, the only glue that holds back good IT employees these days. Desphande says that venture capitalists today have clear guidelines of how much of a company's equity has to be given away to employees and everybody knows what he should be worth at a particular level.He also says that on an average 4-5 per cent of the equity has to be given to employees every year.

Do Indian businessmen understand that the IT route to the gravy train requires each one of these ingredients and they cannot pick up a couple of convenient staples and hope to make things work?

Mumbai has seen a mushrooming growth of IT and IT-enabled companies in the last year. The hoardings which punctuate the city skyline are a good indicator of the new mania. Indian businessmen, industrialists and even stockbrokers are rushing into IT businesses. To them the recipe is simple. Make an initial investment, hire a few IIT engineers with a few years experience, get a project report together and then look out for big investments, large market caps and immense lucre.

There are multiple routes to raking in the moolah. Everybody hopes to interest angel investors and venture capitalists but discover that they are fairly picky. The race then is to spruce up projects, show software export mandates and if they are in the business hope to get eyeballs by spending recklessly on advertising. Name recognition may not get the eyeballs but it will bring in investors when they make their private placements or public offerings.

For companies already listed on stock exchanges there is a shorter route - many of them have flocked to broker-godfathers who help arrange exports and rig up share prices. Many have entered the business without ever having surfed the Net or having used a simple email. Even today, senior executives in large Indian companies and in government do not access email themselves.

Then there is the attitude to employees. Corporate Indian continues to be promoter/owner driven, where decision making is concentrated in the hands of the "promoter" families. They neither understand the IT business nor are willing to empower employees. In fact the bada sahab culture is so deeply embedded in the psyche of the Indian corporate sector that even the box-wallah multinationals have been large dens of intense politicking and have thrived on subservience to the top management.

Indian companies have begun to pay lip service to the concept of intellectual capital but a miniscule of them, that too non-family run businesses, understand what that means. Even mindware dependent businesses like media houses have never felt the need to nurture intellectual capital let alone consider empowerment.

Will such companies turn savvy overnight? How many companies would be willing to offer the sort of stock options that result in genuine commitment? How many owner/promoter driven companies are willing to empower employees?

The good news is that though this category of promoters are rushing into IT and IT-enabled businesses there is equal if not better opportunity for genuine entrepreneurs with truly innovative ideas to get funded and make it on their own. Which only means that when the big shakeout happens and wipes out almost 80 per cent of the IT adventurers, there is a good chance that genuine entrepreneurs will form the bulk of the survivors.

The bad news is that when the shake out does happen and IT valuations collapse, investors who have chased IT companies indiscriminately are going to be badly burnt and there is a fair chance that they will shun the good companies as much as the bad ones.

It happened in the primary market boom of 1994-95.It happened with fixed deposits, finance companies and plantation companies. There seems to be nothing anyone can do to either stop the gold rush or the disillusionment that is bound to follow.

-- Sucheta Dalal