Arjun Malhotra,
59
Education: B. Tech
(Hons), IIT, Kharagpur
Age at starting
business: 26 years
No. of years as an
entrepreneur: 33 years
Initial
investment: Over a quarter of the initial corpus of
Rs 1.75 lakh
Source of fund: Personal
savings and borrowings
Company:
Headstrong
No. of
employees: 3,000 |
TECH VISIONARY: He can be described as
a serial technology entrepreneur. But he’s different from the
founders of the multiple startups that are abundant in Bengaluru and
the Silicon Valley. His spirit of entrepreneurship has flourished
when there has been a mix of fun, passion and crisis. Meet Arjun
Malhotra, 59, who has spawned two firms—the hardware-making HCL
Computers (initially Microcomp) and the software services entity,
Techspan—and is now part of the software consultancy firm,
Headstrong.
In all three cases, Malhotra was ahead of the
learning curve. He was not necessarily the first to move into
hardware, software or consultancy, but he was among the first few to
realise that the future lay elsewhere. “Before we (Malhotra and five
other founders) started HCL, we were sure that we had a great
product. Prior to Techspan, I wanted to fool around and experiment
with software services. While planning Techspan’s merger with
Headstrong, I knew that the Indian vendors needed to graduate from
commoditised software services to value-based and consulting
services,” says Malhotra.
THE
FIRST ENTERPRISE: Malhotra’s success was based on
luck, opportunities and vision. In each case, he was also driven by
a professional crisis. In the 1970s, Malhotra was part of a team
that developed computers at DCM Group’s new division. “Those were
the days when the MRTP Act imposed restrictions on expansions and
diversifications. So DCM decided not to go ahead with the project.
We were shocked as we thought we had a killer product at a time when
India was thinking IT and computerisation. So we decided to launch
our own venture. Most of the team members agreed.” Microcomp was
born in 1975. Malhotra and his friends pooled in Rs 1.75 lakh,
rustled up from their savings and through family loans. They decided
to initially manufacture calculators since it required lower
investment. But they had no idea about how to start a business. They
didn’t even know they required a licence. “After we had done our
calculations pertaining to costs, selling prices and margins, we
realised that we had to pay something called the excise duty. Since
it was too late, we decided to cut our margins rather than re-do the
maths.”
After HCL (Microcomp changed its name in 1976) got
into the manufacture of computers in 1977-78, it became a huge
success. It emerged as one of the most aggressive players with its
advertisement blitz and in-your-face sales and marketing team. It
was one of those rare firms that turned into a price warrior; it
slashed prices, even as others were looking at ways to hike
them.
|
TIPS TO LAUNCH A
START-UP
• Consider business crises
as opportunities to change the existing model.
• Think about the
future and spot trends that are likely to play out
soon.
• Leverage all
strengths, even if it means acquiring a new brand
image.
• Pursue your
passion. It doesn’t matter if others don’t believe in it.
Eventually, they will. |
BIRTH OF TECHSPAN: By 1997, Malhotra
was sure that the future lay in software, not hardware. After taking
over HCL’s US operations in 1989, he could sense that the world was
going through another technological change. He tried to convince HCL
to venture into software. “They were apprehensive and wanted to wait
before taking the decision,” says Malhotra. So he split amicably and
started Techspan, with funding from Goldman Sachs and Walden
International. It was a good time to set up a software services
onshoring firm. Already, Indian vendors were in demand to deal with
the Y2K bug which, felt experts, could be responsible for a collapse
of the world’s social, economic and political systems.
Things
changed dramatically by early 2001 because of the technology crash.
By March, as American clients slashed their IT spends, thousands of
Indian software engineers were laid off. The times were bad, but
Malhotra spotted an opportunity in the crisis. “I gave my colleagues
two options: lose your jobs or agree to a transfer to India at lower
salaries. I realised that we could survive by changing our model
from the high-cost, on-shoring (posting engineers at clients’
offices) one to low-cost, off-shoring (outsourcing work to India)
one.”
The off-shoring strategy worked for Techspan. However,
its success made Malhotra realise that software services were
becoming commoditised. If an IT firm worked only on the cost
arbitrage basis, it was unlikely to grab new clients. This was
especially true for mid-sized companies like Techspan, which had to
compete with Infosys and Wipro. Over the next few years, small and
mid-sized IT companies took a hit as more orders went to the IT
biggies and foreign clients set up captive units in
India.
A STRONG STEP:
It was time for Malhotra to think of ways to get into the
value-added consultancy business. “I was sure that only a smaller
firm had the flexibility to climb up the value chain. The bigger
firms were too caught up in the quarterly cycles to take such risks
or incur the extra costs,” says Malhotra. But it was still difficult
to walk this talk. The reason: it would take time to build up such
expertise within Techspan.
So, in October 2003, Techspan
opted for a reverse merger with a not-so-healthy Headstrong, a
US-based firm that specialised in consultancy for global financial
services clients such as Morgan Stanley and Bank of New York. The
idea was to leverage the brand image that Headstrong enjoyed in the
US and other countries. The merged entity’s model looked more like
that of IBM and Accenture. Only, while the latter two had adopted
the consulting-to-outsourcing model by following a top-down
approach, Techspan did it in the reverse order.
Even as we
write this article, Malhotra is grappling with yet another crisis.
This time, it is the sub-prime impact on the financial services
companies, some of which are his clients. But knowing Malhotra, he
is unlikely to be rattled by it. The entrepreneurial bug may bite
him yet again.
Article by Alam
Srinivas |
