251: The Winning Formula to Build Billion-Dollar Businesses | Ganesh Krishnan (Serial Entrepreneur)

[00:00:00] How have you stayed relevant for as long? In my opinion, it's a dull, boring way to look at it. Focus on the core sectors, big pain points, do something there and you would have a lot higher probability of success. Failures are normal and it is extremely stressful. You are doing a control, alt, delete and starting from zero again. Entrepreneurship is like that. Multiple failures and some small hits.

[00:00:26] So if you were, let's say 25, 26 today, what sector would you start up in? I would say green energy, climate tech, space tech are all potential areas where there's going to be huge pressure and huge opportunity. It's important for you to be passionate. At the same time, you need to be stupid enough to believe that the idea will work.

[00:00:47] Nesh Krishnan, founder of GrowthStory.in, is a serial entrepreneur behind Big Basket, Portia Medical, Bluestone and Homelane. He is also an adjunct professor at IIM Bangalore and a visiting professor at the Indian School of Business. His ventures have shaped India's startup ecosystem, bringing expertise in building and scaling innovative businesses.

[00:01:22] Hello, sir. Welcome to the Startup Operator Podcast. I am absolutely delighted to have you. I have followed your journey for a long, long while. I've been in startups for about 16 years and you were one of the early inspirations for all of us. So as I mentioned, you know, I was operating in an adjacent space to TutorVista at that time and we used to look at TutorVista to figure what else we could do. So amazing. Thank you so much for being here.

[00:01:48] Pleasure is mine. One of the problems of being an old person is everybody has known for a long time. That's a good thing. It's amazing. Especially, I think, in the startup space where, you know, trends come and go, fads come and go, waves come and go. I mean, it's good to, you know, see that, you know, you operated almost since 1990, I would say, right? So almost three decades.

[00:02:12] I guess, I mean, that's a good place for us to begin, right? How have you stayed relevant for as long? Because I think, you know, you can start with your first source story or IT&T, I should say, and then first source and then TutorVista. And then, of course, with growth story being a promoter for, you know, Portia, Big Basket, Homelane and some others as well. Right. So how have you stayed so relevant for as long?

[00:02:40] So firstly, I think, while we talk about all the nice brands and success stories, in full disclosure and caveats, there have been a lot of failures and challenges. Okay. Right. We don't talk about it. We talk only about the success. And, you know, you've been a startup entrepreneur. So entrepreneurship is like that. Multiple failures and some small hits.

[00:03:05] So what I have really found working for me, and by no means it's the last word or the only word, it's colored by the biases, is that if you look at large, big problems, core sectors, it's far easier, in my opinion, to start a business than to create new stuff.

[00:03:30] So Facebook or Twitter, TikTok, those are all revolutionary. You need to be a genius to come up with that. Outliers. Outliers. You really introduce, I mean, when I first heard about Facebook, I never thought, why would somebody want to be on Facebook? Right. And this was back in 2005. They had opened it out only to Harvard. I mean, things like Snapchat or Snap, even now I don't understand.

[00:03:56] What's the greatness about taking a selfie and sending it, but look at the business. But coming back, I think, in my opinion, it's a dull, boring way to look at it. Focus on the core sectors, big pain points, do something there, and you would have a lot higher probability of success. More importantly, you don't have to be a genius. You need to have a magic wand.

[00:04:21] So if you look at our businesses, roti, kapda, makan, education, entertainment, and healthcare. These six are core sectors. Everybody needs it. You will need it. I will need it. The prince will need it. The pauper will need it. So that has been one underlying principle that we have believed in. Right. One thing is very interesting that you mentioned, which is to stay at the game.

[00:04:46] You will have some failures along the way, but it's important to come back and try again and fail forward, so to speak. But having once been through the journey, I realized how much it takes out of you in terms of energy, resources, and so on. How do you keep motivated with that? And how do you look at an idea or a startup very dispassionately that, you know, I'm going to try this for X amount of time. And if it works, it works. After that, I move on to something else.

[00:05:15] Yeah. So I think it's important for you to be passionate. At the same time, you need to be stupid enough to believe that the idea will work. By nature, new ideas or disruption have to be something that's slightly wonky or crazy. Otherwise, lots of people would have done it. Correct. Right? You would be one of the many. So you need to have certain streak of eccentricity or a foolish belief to be able to do that. That's what I keep having on one or the other. That's one.

[00:05:45] Two, failures are normal. I wish I was wiser this way. And it is extremely stressful. A lot of times people ask me, I ask myself, why am I getting into another startup? Having been through this, having made some money, some success, why do you need to put yourself through this ringer again and again and again? And when you start afresh and new, you're doing a control, alt, delete and starting from zero again.

[00:06:12] So it can be extremely traumatic. But I guess it's more like the guy who is an addict. It's an affliction. It's an affliction or addiction. You get used to the nashah. Okay, right? You don't want to give it up. And you know it is not good for you. But you again go and do it. So that is one. Two, it is very stressful.

[00:06:36] And at one point of time, I used to be as handsome and had as much hair as you have now. All these 25 years of, 35 years of startups has taken all the hair out. But you're still as energetic. Maybe because of the startups. Yeah. No, that is true. Because working with founders, working on new ideas keeps your brain active.

[00:07:03] I work with, obviously, almost all the people I work with are younger than me. So young mindset keeps me happy. And the opportunity every day to wake up to a new challenge. And now suddenly you're talking about generative AI, agentic solutions. And you keep learning. I think that addiction or nashah of something new and the ability to learn, be with young people keeps you up. Right.

[00:07:31] One thing that strikes me about your journey is that how you always said that you have to build with an exit in mind. Right. You have to understand what the path forward is for the business. And you've done it not once or twice. You've done it multiple times. Right. I mean, IT&T, FirstSource, TutorVista and now recently with Big Basket getting acquired by Tata as well. Right.

[00:07:53] So there is definitely like a principle or a framework that you have that you implicitly or perhaps, I mean, you codified it also that you follow. Right. Can you just like give the broad framework? Like what is it? How do you how do you start and exit a business? Yeah. So, I mean, obviously, my first business IT&T was back in 1990 when the concept of venture capitalist or startup or entrepreneur. We weren't liberalized also. Yeah. We're not liberalized. So none of it was there.

[00:08:23] And at that time, there is no concept of entrepreneur, first generation entrepreneur, venture capitalist, seed capital, angel investment, etc. None of it existed. 1990, the only businesses were really factory or manufacturing businesses. And there is a license, Raj. It is not liberalized like you mentioned. You need to have a license. You need to have contacts. And business really were business families. You need to be part of a business family.

[00:08:52] You buy a land. You apply for project financing. You need to have a factory with a chimney. That used to be the standard business. Right. So that was a different world completely altogether. Okay. Right. So between then and now, things have changed substantially. Yeah. So you had various ecosystem players coming up. So I think it would have been a fascinating journey across the board. Was that a question that you? So let me ask a specific question. Right.

[00:09:22] So now for us, when we look at 1990s, you know, okay, 91 liberalization. And also, I mean, when we look back and say that, you know, how much of how prominent computers became. Right. It would have been but obvious for us to say, yeah, you know, computers are going to increase. Right. So hardware maintenance, for instance, with IT&T. Right. Would have been an obvious thought for us. Now looking back, right. Again, first source, you know, with the business process outsourcing and so on. Yes.

[00:09:49] I mean, with the world opening up, it seems like a, you know, obvious thought. Twitter Vista also. It, you know, I tell people that it was edtech before edtech. Yeah. Edtech word was not there. Exactly. Right. Now it's so obvious and we saw a huge amount of funding come into the ecosystem. Yeah. How do you have this knack for finding obvious ideas ahead of time? Yeah. So let me answer your previous question first. I had missed the thread on this, which was about exit, how to create the exit.

[00:10:16] So my first business IT&T, as I was mentioning, 1990 took 10 years. We did not start it at the time. Like I said, the ecosystem was not about venture capitalists. It was bootstrapped with entire 90,000 rupees from five of us. That was not started with the exit in mind. Okay. Right. It was started like a bootstrapped business because at that time, the concept of exit was not there. Every month, the challenge used to be, can I meet the payroll? Cash flow. Okay. Cash flow. Okay. Right.

[00:10:43] That is when I learned my first principles, even though I had gone to IM Calcutta, had an MBA, but profit and loss, P&L, all that is meaningless for an entrepreneur. Only thing matters is cash flow. Right. At the end of the month, if there's enough money to pay the rent and pay the salaries of your employees, you are a king. Okay. Rest of the metrics, just a stone battery. If you don't have that salary to pay the employee and you have to look the employee in the eye and say, I'm sorry, I'm not able to pay you. Yeah. Then that's a worse thing possible.

[00:11:14] Right. Right. So, first business was not started with exit in mind. Right. That is when we grew it for 10 years. We had a good exit. We had a reasonable exit. We took it public in the even market, then sold it to iGate. I was not there at that time, but my two of my partners did that. That is when I realized the importance of right from day one, building scalable, exitable businesses. Okay. Right.

[00:11:44] And real money can be made in most of the cases. I'm generalizing a bit. If you are able to exit a business, exit could be to your trade sale, exit could be taking it public. For the founder to take dividends from the company, unless you're zero there or unless those rare exceptions are there, it's very difficult. So, my second venture onwards, which was customer asset, which is now listed as first source part of the Sanjeev Goenka group.

[00:12:12] We said, how do I plan for the exit right at the beginning? And again, I have seen excellent entrepreneurs far, far more successful than I am, whether it is Infosives founders or Sanjit Bhikchandani, who have done a great job of starting a company, scaling it, staying with it. Staying with it. And insanely successful. Yeah. Right? So, I'm just putting a caveat that that's not my way is not the only way. And there are a lot more successful people to look at it.

[00:12:41] The way I looked at it is, so how do I build for an exit right from day one? And there's a subtle difference. A lot of people ask me this. It's your passionate business. It's like your baby. How can you think about exit from beginning? And other people say that exit will come later. You build a good, valuable company. Exit will come later. I actually tend to disagree. I mean, let me give an analogy. This is like you're buying a house or a home or an apartment or a flat.

[00:13:10] Now, it is your apartment. It is your hard-earned money. You definitely are going to be very, very careful. You will choose the place. You will do all that stuff. But the point I'm trying to make, the analogy is, depending on what you want to do with the apartment, how you build that apartment or what you do in that apartment will vary. For example, if you are planning to stay there, if you are planning to move in there, you will have things that you really like. Granite marble, white marble and all of that stuff.

[00:13:40] And interiors, beautiful. Beautiful. The way you would like to wake up every day. That's one example. If you are planning to rent it out, then it's a different example. It's still your apartment, your money, you are bothered, you are invested and all of that stuff. But you are not going to put the best marble. Why? The person who rents it is not going to value that. What does he want? He will want certain minimal thing. He will want certain area, certain facilities, but he is not going to pay extra because you have got Italian marble

[00:14:10] or a specialist. So you will build differently. Third example, you are buying the apartment, but you want to sell it after two, three, four years because it's an upcoming area. Then what you do, you will not even do the interiors because if you do any interiors, like the way you would have done for rent, the person who is going to buy it, going to pay you crows for your apartment, is not going to accept your interiors. So he will not value any of the investment that you made. So this is a great analogy of saying that based on what you want to do, even though it's your money, your apartment, your investment,

[00:14:40] you would do that. I would see the same way. When you're building a company, are you building to do a trade exit? Are you willing to flip it at early stage to some other big buyer? Are you planning to take it to IPO at SME? What are you going to do? It's important. You build all elements like that. So that's the analogy. And I've followed that. Worked reasonably well in many cases. Like I said, a lot of cases are not worked out. You're being very humble when you say reasonably. No, I've never been accused of humility in my life. But thank you.

[00:15:09] I'll take it as a compliment. Few different things vary, right? When you build a business like that. One is perhaps, I mean, you will look at a large market where perhaps, I mean, there are larger incumbents who can potentially acquire you. Second, I think maybe this is what you could talk about is like you will privilege asset value, right? I mean, because if you're looking at valuations per se, you will build a business differently than if you're looking at, let's say, you know, I need to be profitable enough

[00:15:38] to take something out of the business, right? So these are two different paths. So what are some of the choices you will make in the first case? Yeah. So, and that's a very important point because while, whether it is this podcast or newspaper or media, we glamorize valuations, we glamorize scale. But entrepreneurship is not only that. That's what gets into the front page news. The real entrepreneurship,

[00:16:08] 99% of them are lifestyle businesses. Yes. Businesses entrepreneurs start, they scale, it becomes profitable, it does that, which is perfectly fine. And that's what most of the SME businesses are. They may not be within quote listable or they may not be acquirable by a large company, but they are extremely profitable, very satisfying for the entrepreneurs. So one of the things I do want to tell all the young entrepreneurs while you look at the valuations and listing and all the glamor that is there,

[00:16:37] don't get carried away. That's one way of doing the business. But 99% out there are good lifestyle, profitable business that can also be built based on what you want to do and how do you want to play the entrepreneurship game. That very much is possible. Coming back to the question, if you choose to build an exitable, monetizable business, then one of the fundamental importance is it needs to be scalable. Okay, right? So look at scale if you are going down

[00:17:07] that particular path, which means the sector has to be large. Okay, right? If you want to do that, you can start a small business, be profitable, be satisfying, do it for your life entirely as a lifestyle business, which is perfectly fine. It may be very rewarding and satisfying, but it will not get acquired. So scalability is important. But scalability will come if you are talking about large sectors.

[00:17:38] Okay, let me give you an example. When we started Bluestone in the first, I think second year, somebody came to me and said he wanted angel investment. He said he was doing online jewelry for pets in India. Okay. He was very passionate about pets. He knew I was passionate about pets. I was already into jewelry online. Right, perfect. It's been that. So I listened to him. Okay, right?

[00:18:08] Excellent entrepreneur. Okay, right? Very smart. But I asked him only one question. If you are really passionate, want to do it, do it out of your own money or do it out of your family money and run it. It can be profitable. But it will never be a VC-able business or a professional investor investable business. Okay. Right? So look at it. How many people in India have pets? Out of those people who have pets, how many of them

[00:18:37] would like to buy jewelry for their pet? How many of them would like to buy jewelry for their pet online? Online. Yeah. And how many of them you will be able to reach? You have been in marketing throughout. How many of them you will be able to reach? And how many of them after reaching you will be able to actually convert and making them pay? So can this become a 100 crore business? 500 crore business? Because at that scale only you will find any monetization. For somebody to acquire you,

[00:19:07] you need to have size or scale or you need to have uniqueness. There is no uniqueness in this. So that is the way I look at it. Right. That for exit, scalability is important. For scalability, large sector is important. Potential to go large. Right. The other facet of your startup building per se is the fact that you privilege disruption. Right? You say, I have heard you say that you don't want to out execute let's say a work hard or a money pile in healthcare.

[00:19:36] You don't want to out execute some of the larger money pile in education also. Right? Let's say. But you want to look at these large traditional sectors and bring something new there. Right? Disruption. What goes into disruption? You know, like how do you figure it's a significant enough disruption that you know you can take business away? Right? But at the same time not so different that people cannot relate to it at all.

[00:20:07] Yeah. No, that's a good question. There is no unique answer to it. I firmly believe that I don't have a special capability or smartness to be able to out execute like I mentioned anybody else whether it's education or hospital healthcare or grocery and all that stuff. Now, during cocktail conversation otherwise I may criticize the current execution. Why is Spencer not doing good job? Reliance retail is bad and all that stuff.

[00:20:37] Or Infosys can do better. Why is cognizant? I have lots of views on it. I can comment and critique. But if I were honestly to do it, I would do as many mistakes or more. Maybe a few others. A few others. Additional also. Because they are all leaders. They are not stupid. They are sitting and doing this and sitting for decades and sitting for cash. I have no special magic wand to be able to do any better than them. Most likely a lot worse than them. They have

[00:21:07] taken 25, 30, 40 years. I would take them even if I'm the smartest, I would take another 15 years to learn that much. On the other hand, I firmly believe if you are able to use some of the latest developments, whether it's technology, whether it is AI, whether it is online, whether it is that, something to change the status quo, then there are multiple benefits that an entrepreneur can get. One, it's a new way of doing it. It's a disruption. It's difficult for the incumbents to

[00:21:37] catch up and do that stuff. Two, because I am relatively more technology savvy, I understand technology better, I can do it better and faster than this. And this has been proven multiple times. The existing large incumbents cannot leverage new models as good as newer entrants as startups can do. Because we have nothing to lose. IBM did not start Microsoft. Microsoft did not start Facebook. Facebook

[00:22:07] did not start Twitter. Twitter did not start TikTok or this. They are all copying trying to create something. They did not do it because for multiple reasons. They are busy with existing stuff. They have existing DNA is different. The thinking is different. All of this makes it very difficult. So as a new entrant, I can come and do that. Is it easy for Godridge or Reliance to start a big basket? No. It is for a big basket to be able to do it. And even big basket is getting disrupted. Look at Q-commerce.

[00:22:37] For Zepto to come in and do this to a big basket or to a large retail store is the stuff that is happening. So disruption is a weapon that you can use as a new startup or entrepreneur to come in. Especially in today's world. Because it is democratized opportunities for entrepreneurs. A lot of technological change are happening. You don't have the problems of legacy investments

[00:23:07] or legacy mindsets to be able to do it. Look at Kodak. Kodak was into films. They had huge investment in films. They could not get into digital. I think I'm the last generation that perhaps used a Kodak or recognized a Kodak. And people do not understand how big a company it was. It had 90% market share. 90% market share. We have seen this in disruption and I talk about it in

[00:23:37] my book on mastering disruption and a practical grade to new age business models. Take Blackberry for example. Take Nokia. Nokia. Between Nokia and Blackberry they control the full market or Internet Explorer Internet Explorer. Netscape was dominant, listed, public, separate, had 90% market share. Microsoft Internet

[00:24:06] Explorer came in. It was not better product by any means. And they took away 90% market share. Then slowly you saw Android, you saw Edge coming in. And Internet Explorer has got minority market share now. One of the things that you also talk about is that your tech innovation or business model innovation cannot change consumer behaviors. People will do what they are

[00:24:36] doing anyway. Can you just shed a little more light on that? Because I think that's a very interesting point. Yeah, so the hardest thing is to be able to change consumer behavior. Right. Okay. Costliest thing. Costliest thing and it's very difficult to change. Okay, right. So how do you change consumer behavior? Can you change consumer behavior at scale? It's something

[00:25:06] that's very important for scalability and growth of a business. The management jargon used, and we teach this at IM and ISB, is crossing the chasm. Okay. You will always have early adopters entrepreneurs who are technology savvy or who are willing to try new things, who would try out. Entrepreneurs get a false sense that this is growing and there's a huge product market fit or a demand that is there. Right. When actually it is not there,

[00:25:35] but the number of people who are actually adopting it will not be large enough to build a large business. In fact, in startup circles, we call it the Koromangala crowd. We are sitting in Koromangala. You launch an app, people in Koromangala will download the app and will buy it. Okay. Right. But India is not Koromangala crowd. Okay. So that is the biggest challenge in terms of trying to cross the chasm or build something which is large scalable. Does that answer your question?

[00:26:05] Right. I mean, so going back to the, let's say the jewelry for pets per se, like how many of them really buy jewelry for their pets? You have to spend money convincing people that it is a good idea to buy jewelry for pets and then why you are the choice. Yeah, that's true. Let me give another example. Big basket when we started, my mother refused to buy from big basket. Yeah. Okay. For one year she

[00:26:35] refused to buy. The reason she refused to buy is because she wanted to touch, feel and all that stuff. It's something I feed my family and therefore I need to choose personally and press the tomato or break the bindi at the back to be able to see it's a good quality. And she refused to buy. Okay. Right. Then something happened. One day I think the shop was closed due to some bant or something. I got from big basket and she saw, she says, oh, this is

[00:27:05] better than what I purchased. Then I would have selected. I said, yeah, somebody else is doing the selection. Okay. Right. So that was a turning moment because again consumer view will not change. That's one. But fast forward, not just that. Big basket, we had Shah Rukh Khan as a brand ambassador. High profile television advertising. Okay. Right. Still the penetration for big basket or e-grocery, even if you take other competitors put together, was less than 3%.

[00:27:35] Wow. Because people were buying from Kiranahs, they used to go and walk and buy, they used to buy from the Redi Wala. Okay. All of that stuff. Behavior did not change. Despite Shah Rukh Khan, despite high decibel advertising. Look at the amount of investment Flipkart and Amazon had done on television, creating trust, cash on delivery, ensuring no questions asked refund. So much of investment and amount of money, they still are not profitable. Billions and billions of dollars in the Indian market,

[00:28:05] consumer did not change. But COVID happened. Okay. Shutdown happened. Lockdown happened. So there was no choice but to change. Right. After that, the adoption has skyrocketed. Right. Big Baskets stopped using Shah Rukh Khan. They don't need to create that trust. Right. Because that's a consumer way. Now, fortunately or unfortunately, based on which side you are, these are black swan events. Right. Which will not happen again and again. That is what is required to change consumer

[00:28:34] behavior. It takes a lot of time and effort to change. Right. Unless the pinpoint you are solving is deep, railway tickets for example, airline tickets for example, it's a very clear cut payment. UPI for example, even though it got accelerated, digital payment got accelerated because of COVID, but that is such a sweet, frictionless way of doing it, that behavior will change. Other than that, trying to change consumer behavior. Again, you will also lose all your money.

[00:29:04] Yeah, for sure. And I also realized that it's very difficult for people to go back also. Right. Same case with my mother. Even now she begrudgingly uses the one that I order and everything, but she knows that I can get multiple brands which may not be available at the day and I can get in immediately, 10 minutes or whatever it is. Almost as much as going to the Kirana and coming back. Yeah, that's like

[00:29:33] a bad habit. You will not be able to change. How many of us will be willing to go and wait in a queue to buy a railway ticket or airline ticket or withdraw money from a bank? We are not going to do it. And how many of us are going to wait to pay money, get change, count, shopkeeper will not have changed? It's UPI because there's no issue. And even from the shopkeeper's point of view, there's no issue. That ship has sailed. Which is why you find these business models are valued so high. And that

[00:30:03] is really the opportunity for entrepreneurs today. And whether you're an entrepreneur, whether you're a manager, whether you're a management professional or a student, learning how these changes are going to affect. And generative AI, whether it's Chat, UBT, others, is taking it to a completely different level. Right. Right. Since you mentioned valuations, right? I mean, how do you tell that story for an investor, right? That, you know, the person

[00:30:33] looks at it and thinks that, okay, this is a bet that I can take. Because I think a good story goes a long way in terms of getting a good valuation, right? Because you can tell the same story two different ways and have two different outcomes. How do you tell a good story, an investable story to an investor? See, what again, I have raised money from 26 different investors, right, at various

[00:31:03] points, some of them again and again. Storytelling is most important because on a paper plan or at early stage, series A or even pre-series A stage, there is no data, there is no metrics to evaluate on, there is no earnings per share, there is nothing that you can know. There is no track record. There is no track record. It's completely about story and the projection. In fact, there is a joke that says there is more fiction in the Excel spreadsheets and the macros that entrepreneurs present than the entire

[00:31:32] English literature. So there is a full story in fiction. And a lot of times it doesn't work out. That's why it's a story and I'm not saying it in the wrong sense. You believe in the story. So the way I look at it is that you need to choose whom you pitch and present to. You need to choose your potential investor with some level of homework and due diligence for it to work. Even after that it doesn't work. So all investors

[00:32:02] may not be relevant. All investors may not be relevant. Even after that you have to keep on doing it. I mean the average it takes 20 to 25 pitches before you get one investor even for me with all this pre-work. Okay, right? So how do you choose? One, obviously you see the investor invests in your sector. There are people who invest in real estate and people who don't invest in real estate. So sector is important. Two, the timing for the investor is important. The fund that he's investing from

[00:32:31] if it's already in the fourth year or fifth year they're not going to be investing in early stage businesses because you will take another 10 years to exit. Okay, right? So is the sector relevant to the investor? Is the fund life enough for you to invest in that stage? Three, what is the ticket size of the investor? If you're a hundred million fund you want to invest not more than two, three, four, five million in a company. Okay, right? That is over the lifetime. So if you're raising one or two million you go there. If you're raising ten million you can't go to a hundred million dollar investor and vice versa.

[00:33:02] You don't, if you're raising on the paper plan you're, you're applying to raise two million, three million, you can't go to a billion dollar fund or a six hundred million dollar fund unless they have a special vehicle for early stage do that stuff. So this fitment and doing the homework would help a lot. Unfortunately I find even today entrepreneurs because they get a list of investors, they will do a cold email to about 200 investors, 300 VCs from my email list. That really does not, does not help.

[00:33:32] And the other one, speak to friends, ecosystem, advisors, mentors, fellow entrepreneurs to find out for your business, your kind of business model and sector, which are the investors who are hot. Ultimately you have to, what are you playing? What do investors, put yourself in investor shoes and see what will make them move. What makes them move? Greed. Okay. They need to believe. FOMO. Fear of missing out. They do have a herd mentality. If it's a

[00:34:01] hot sector that everybody is investing in across the world, they want to have a tick box in their portfolio in that. Use all that to your advantage. Right. Okay. Momentum, herd mentality, the greed, FOMO, that you would be one of the leaders in that particular space. And you need to show exponential hockey stick return scale possibility. They themselves know that 9 out

[00:34:31] of 10 of their bets will not give them that return. But when they are investing, each of the 10 they see it as a hockey stick return. Because then only one will succeed. So you need to be able to show them that. Right. So when you look at the India story over the last let's say 20-30 years where exits have been few, I would say. I mean significant exits. There's let's say a flip card maybe like few others. Right? But investors, I mean

[00:35:01] obviously they are continuing to pour in money because obviously where else will you invest? You cannot ignore India at this point of time. It's large enough and people see potential. Do you think that going forward what will it take for us to have these kind of exits? The kinds that you see perhaps in US or elsewhere? See US is an outlier. I don't think we need to benchmark it against US but the fact is that

[00:35:30] our exits have been few and far between. In US the companies are a lot more risk taking. Large companies, big tech chains will keep acquiring. They acquire for multiple reasons. They acquire because of IP. They acquire because to prevent competition. They don't want a startup growing big and eating their lunch. So they would rather acquire and even shut it down before. Unfortunately in India

[00:36:00] almost all companies don't think that way. They think that we can do it better than the startup. They can't. Zero to one is very different than one to a hundred but they don't realize it. So whenever in all my companies I have had early stage conversations for exit with Indian we have had a situation where they don't realize the value of zero to one. ICIC was a and Mr. Kamath was a greatly different example. When we

[00:36:29] sold it very early customer asset to ICIC what is now listed as first source and part of the Sanjeev Govinka group. When I met him I said why do you want to acquire we are a two year old company. He says Ganesh he didn't use zero to one but what he essentially said was we are ICIC we know how to scale we know how to bring the brand we know how to bring the capital we know how to do this but what you have done we are very small at that time. It's not

[00:36:59] something our culture can do. Those are rare exceptions. Otherwise you see there is no reason why a flip card could not have happened inside a large Indian organization Barlar Tata. Why a big basket could not have happened within Tata's. Not just new age businesses even earlier HCL computers Wipro computers came up when Godridge was very big into typewriters.

[00:37:30] Godridge electronics was there. They could have done it. It didn't happen that way. So that's a very normal and known phenomenon. Right. The incumbents in India don't take that kind of Incombents don't take the risk. There are multiple reasons for it. They are more worried about their quarterly returns. They are more worried about earnings per share. If you do a startup, if you invest money in a startup, you burn startups have

[00:38:00] taken risk capital. They are not worried about EPS. Existing companies are worried about EPS. So if they lose 100 crores, it will hit their bottom line and EPS directly, their market cap will go down. Now that lies the dichotomy. You are not able to handle the losses that accrues with the business. Also there is mindset issue. Also that I can do it better here.

[00:38:30] All of that prevents them from taking that risk which comes out of risk capital. Right. I think the public market pressure is real. If you look at Zomato Blinkit for example, the stock price was negatively affected in the short term. But today if you look at it, Blinkit is doing really well and the share prices have also gone up. I am very happy that's happening. But again, even this is a last three-year phenomenon.

[00:38:59] That startups, loss-making are able to list and people are able to appreciate the last three-year phenomenon. Hopefully that will spur large companies to be able to do it. Just take the case of Infosys for example. They have so much of cash in their balance sheet. Okay. If they had taken 100 crore, 200 crore, 300 crore, invested in Flipkart right at day one or invested in other companies. So why do they not do that? What I don't understand is like

[00:39:29] for example, let's say Infosys you mentioned, they are at the forefront. They are building for customers. They understand very clearly what customer wants. Why don't they carve out 100 crores, they can carve out 100 million only and invest in a few of these ventures. AI for example, I know Mr. Sikha tried to do something to that regard but was not very successful let's say. In the

[00:39:59] US if you look at it they have this magnificent seven large tech companies that perhaps acquire these startups that are also funding ventures and so on. Why don't our tech incumbents why don't our Infosys Wipro and so on, why don't they set aside cash for some things like that? Do you think it's like a mindset thing? It's a combination of all of this. Resources are very much there. If Infosys takes 100 million and it's not that their

[00:40:29] market cap is going to come down. They don't have to consolidate into a balance sheet if they're worried about EPS. It's possible to do. Hopefully that is changing now after you've seen outsized returns. It goes back to the earlier thing. The reason why they did not do it, they did not see outsized returns. Now after seeing Flipkart, after seeing PTM, Zomato, all of these swiggy, right? I'm hoping that Indian corporates sitting on large pools of cash

[00:40:59] will realize that it's a great optionality to have. If I take part of my cash, which will not affect my business, it's not going to affect my EPS, but actually put it, even if one out of the ten becomes a swiggy or a big basket, the returns will be high. Hopefully that will change because we have seen outsized returns now. It's in the only last few years. Before that, people talked about large Indian markets, large Indian middle class. But the

[00:41:28] fact was the propensity to pay was low. A lot of money was coming in. There was no getting out. Before the flip card thing, people never saw. Now it's demonstrated that Indian startup ecosystem or Indian entrepreneurial ecosystem can take in billions of dollars, can deploy billions of dollars productively. May not be profitably, but productively billions of dollars can create value, valuations, most importantly can create exit.

[00:41:59] Look at amount of money Tiger Global has made from Flipkart. Now Tiger Global is not an Indian fund. This was Indian entrepreneurs, Indian market, Indian consumers, Indian large business houses, Infosys, Tata's, Birlas, should have seen the same opportunity that Tiger Global saw. Invested that same small amount of money, should have made no difference. They would have been sitting in

[00:42:29] huge billions of dollars of return. It took a foreign fund, which did not have a presence in India, to see the India opportunity. I'll pour in that money to do that. But hopefully, now that people have seen multiple profitable exits of large amount. We will see things change. Now may be an ideal time for these folks. They have seen some proof right now. It's not too much of a leap for them to make the case

[00:42:59] internally that they should probably set this aside. What has also happened is a couple of other things. In India, we talked about Flipkart, Big Basket, Indian consumer stories for the Indian market. What has also changed is the entire SaaS space. Whether you see Zoho or whether you see Fresh Desk, which is listed, Fresh Works, all of them have shown that in India, you can create a product for the world market. You can

[00:43:28] do sell from India for the world market. That is again, I think, a defining moment in change. One is the large Indian markets, the large Indian middle class, the large market, the fact that we have 1.4 billion people, which is there, is very positive. The other thing is the fact that from India we can create for the world. Let me talk about being at the other side of the table. You are an entrepreneur, you are running a reasonably successful business. Let's say you're 3 years or 4 years into

[00:43:58] the business. Metrics are growing positively. When do you decide to sell? So when do you decide to sell? Because you can't also shop for an acquisition. You can't list yourself in obviously

[00:44:28] you have to keep an eye while you are focused on your business and building value in the business you have to keep an eye out on what are the potential possibilities of an exit what kind of exit can happen. It's not easy it's not always obvious but the way I ripen it'll

[00:44:58] have reached the right stage it'll have best value after that it's not going to ripen further the value will decrease so you as an entrepreneur have to see where is the fine balance that it has reached a ripeness at which the value is maximized that's one two when do you exit is if you find the risks are high execution risk execution risk competition risk risks are high you are better off served

[00:45:28] by exiting you need to treat as an entrepreneur your passion distinct from an owner as a shareholder and I can give you several examples of this in customer asset for example when we sold to ICICI what is first source now the business was doing well we were having large fortune 50 clients from US and UK as clients initial

[00:45:58] days first two years suddenly the dynamics of the market changed let me explain what happened we are in the boring low end call center business I had gone for a partnership with Infosys and we proved both we said you have clients you are doing software services can we partner and all that when we are starting in 2000 they said absolutely not

[00:46:28] this is low end like a medical transcription low end business commoditized business shitty business but they didn't use the word shitty but that's what it is and if we do this business our average margin will come down our the average margin will come down because it's low end business they said no we don't want to be seen near you forget about any

[00:46:58] partnership and all that my idea was please sell this we give you your existing customers for so many that we can do that within two years because of dot com bust because of challenges in the market severe pressure came in software services competition then all of them wanted to get into this business we pro acquired spectra mind IBM acquired daksh right okay right suddenly

[00:47:27] now when we are trying to pitch for business earlier we were competing with with the might of Wipro and Infosys okay they are saying that we will give you this guarantee that guarantee you come and visit our facilities so our client used to come

[00:47:57] and visit our one building in Bangalore and then go to Infosys campus in Mysore who will they decide so we said immediately we decided this is not a business for startup enterprise client large clients you need large capital disaster recovery investment and all that stuff so we had to sell so you could have multiple reasons and motivation for sell but really speaking there is no one unique answer and many times I

[00:48:32] the business have not done well lucky we got out at the top there are also cases where the business has done so well if you had just held on for two more years the results would have been phenomenally high and especially because we were early entrants we were the first movers in Tudor Vista in EdTech space in call center in the customer asset first source space in KPO with marketing space so each of these businesses

[00:49:02] were pioneers and many of them they have created sectors so there is a bit of regret but it's okay Tudor Vista being acquired for 200 million at that point of time 200 million felt like a lot of money right I mean just like unreal I hadn't ever heard about it at that time but I mean of course now when you look at the last four or five years of you know what EdTech has been like where people have raised hundreds of millions of dollars it might feel small but

[00:49:31] that time I think it's very difficult to walk away from things have changed things have changed tremendously now 2013 is like a funding ground it's not people don't talk about it it's just just a funding ground so the numbers have phenomenally changed it was 213 million at the time it was the largest acquisition but now 213 million funding ground the largest bus aggregation service red bus was sold for 120 million which was also great

[00:50:01] very celebrated which is good for the ecosystem I'm very happy because again one of the key questions people ask is where is the exit going to come from now at least you can talk about the flip cards and big baskets and also the IPOs of the world it's great startup IPO was impossible now we are having so many lined up with the DRSP and so many companies have gone public and doing exceedingly well which shows the maturity of the market

[00:50:29] right so if you were let's say 25 26 today what sector would you start up in you have only one option no I will start up in all sectors no I think I think given my bias for large sectors changing the status quo and not trying to out execute anybody I would say look at what is different now what is new what is changing

[00:50:59] what will not change 15 years so some of the tectonic shifts are the way things are going catch the wave I would say green energy climate tech space tech are all potential areas where there is going to be huge pressure and huge opportunity so I would say these sectors which are underserved are going to be huge

[00:51:29] one two is entire electric vehicle for example these changes will create so much of downstream opportunity that each one of them is an opportunity take electric vehicle for example electric vehicle is important battery is critical charging stations is critical battery is critical for battery for example components for batteries are critical recycling of battery is critical waste management e-waste management of battery is critical if you believe electric vehicles is going

[00:51:58] to increase the market share substantially which I think it will then the amount of opportunities throws up for entrepreneurs downstream itself is phenomenal so I would encourage that let some top players fight for electric vehicle supremacy whether it's Aether or Ola but if Aether and Ola are going to be public along with Bajaj and others are going to create this and fast forward 10 years later you're going to see electric vehicle is going to be

[00:52:28] 75-80% what are the various sectors and industries that will fuel it it's like the typical cliche they talk about when there was a gold rush shovels people who made money were not the people who are looking for gold but people who are looking for making shovels so what are the shovels derived demand it's very important because it's at the top of the funnel it becomes very competent to make money and we talk I talk about this in the book about pricing and monetization strategy

[00:52:58] how do you make money Paytm for example you use Paytm because it's the almost friction free way one of the best ways of making easy digital payments but they don't make many money on the digital payment when you pay me on Paytm I pay even Paytm for all derived demand so that is the beauty of these new age business models that unlike earlier traditional pipeline business models where you have to set up a manufacturing plant make a product sell a product

[00:53:27] and make money on the product you can make money from derived demand you can make money from your platform business models where you make people exchange value and you make money in between and phone pay has shown that so all of these are potential possibilities where I would do I would do that and other third one you wanted only one other third one is can you use the disruptive generative AI which is still new I still have not figured out one of our

[00:53:57] companies does do generative AI leverage it effectively can you use Gen AI in traditional existing sectors to disrupt the status quo become a Gen AI company to be able to do that so that's those are the three right right yeah I think one of the things that I also heard was let's say Gen AI for larger corporates who want to adopt something like this right bring them into the new way perhaps so I think there's a whole lot of services work that opens up anytime there's a new

[00:54:27] technology per se but absolutely true but just a word of caution there don't become like when internet started people were making websites for corporates people are making companies enabled people are making e-commerce sites don't do that because that is a services non-scalable low margin business you will automatically get it so website I remember first websites were done at a huge price after that so many people started offering website today you want a

[00:54:57] website I'll get you to done for 5000 rupees so it's got commodities same thing will happen here too especially with no code and generative solution will be there the real thing is can you use generative AI to disrupt the business model you can offer this as service go to a large corporate saying that I will help you increase your profitability by X can I get half of X for you I will

[00:55:27] do all of that stuff earlier you had to have a huge infrastructure to do it as service generative AI for corporates as a solution it's a good opportunity it's also perhaps a good hunting ground to figure out what ideas could actually be productized and you could scale it when you work with these folks as well

[00:55:56] absolutely because they have a large scale they are already customer base they are already executing thousands of crores of business now even if you can do a small difference which you can do for example automation using JANAA whether it's customer service whether it is sales and one of our companies called verloop.io actually does that it works with BFSI clients in the Middle East and in India to reduce substantially the customer support and sales cost in fact

[00:56:26] we were talking about collections earlier one of the things they do is help automate collections again at a fraction of a cost and we will see that continuously happening so coming to your book mastering disruption which is going to be released end of Jan I suppose how did the book come about and what are some three or four key takeaways from the book

[00:56:58] what has happened over last three four years we have seen these new age businesses coming disrupting is a cliche but more importantly scaling very well right and when I used to meet people whether they are practicing managers or general people who are

[00:57:28] new business model works one is valuation or companies getting listed without being profitable right and other usual question will be how is flipkart valued so much right when they are losing money every order right and that used to be wonder and awe at what drives this you must remember this traditional business models have been around for centuries right everybody knows concept of EBITDA

[00:57:59] profit after tax earnings per share growth rate and all of this stuff now here you have a company which does not have any assets which is losing money month on month losing money per order right okay scaling growing people value building valued high employing hundreds of people while people are happy because they are getting excellent service at a discounted rate so that was major challenge two I was also teaching new age business models at Indian Institute

[00:58:29] of Management Bangalore and also in Indian School of Business Hyderabad wherein we are both these prompted me saying why don't I write a book meant for the general reader whoever is curious about how do these business models work what is the disruption the other driver was traditional business man industries corporate

[00:58:59] saying how do they leverage the principles of new age business models in their existing legacy businesses because there is a genuine fear among the owners as well as professionals managers that they will get disrupted somebody will come and eat their lunch the way it has happened with borders and bookstores for example or in many industries across the board because of new businesses coming up

[00:59:28] so how do they stay up to date not just for survival but also how to capture the new opportunities given by this because if you look at it existing large enterprise has got major strengths which if it's able to combine with the principles of new age business models can give them disproportionate returns as compared to a startup starting from scratch so all around this question was beginning to come up that's when I thought

[00:59:58] of writing the book wonderful yeah I mean it constantly surprises people and people are still trying to grapple with this idea of what is a startup and why is it looked at differently versus like a regular business like a juice shop or dry cleaner or whatever it to learn about on this book so one is the book

[01:00:28] discusses platform business models and differentiates it from traditional pipeline business model if you look at a pipeline business model there there is a linear flow of value from the manufacturer to the businesses what is different now is the platform business where there is no ownership of the asset there is no

[01:00:58] linear flow of value but what happens is there are two sides of the platform one is the supplier side other is the consumer side and the platform business model stands in between exchanges value between these two sides and captures a portion of the value take for example Zomato or Swiggy you have restaurants on one side you and me the consumers on the other side Swiggy does not own any restaurant does not decide the pricing just

[01:01:27] facilitates the transaction in case of Swiggy or Zomato they do the delivery also and exchanges value and makes money now valued at multiples of billions of dollars much more than the restaurant so one key takeaway is the platform versus pipeline model the second is that how do we incorporate some of the unique platform principles in traditional business models so that they can also leverage grow

[01:01:57] and capture the value because of this disruption think asset light for example can we create network effects that's another topic that we discuss in the book network effect has given by economies of scale can I increase production can I increase sales so that I get economies of scale which typically means the fixed cost get amortized over larger number so it

[01:02:44] Indian banks state bank of India which have incorporated many of these principles in their traditional legacy businesses interesting either by changing the product lines acquiring companies take the example case of Tata for example they acquired Tata 1MG what was called 1MG earlier big basket they acquired 66% yet along with the traditional

[01:03:14] chroma businesses other retail business that is there through that they are trying to build a ecosystem so that's another takeaway the third thing we talk about is how not get carried away by vanity metrics lot of times and we entrepreneurs are culprits there that we choose metrics that shows us in the best light and project those metrics and raise money at good valuations

[01:03:44] and ignore core metrics and here I balance out the fact that traditional metrics are still important profit is important contribution margin is important gross margin is important don't get carried away by say number of views right traffic traffic to the site look at core metrics so core metrics vis-à-vis new age metrics and metrics like net dollar retention net retention rate

[01:04:13] which are not existing in earlier business models also come into play we talk about virality coefficient how to make a product viral how to embed virality and network effect into your core product and dropbox has done very well when dropbox came they launched so that anybody if you refer another person to join dropbox both the referee and refer will get additional storage space it's a great example how they built Facebook also built into the business so the

[01:04:43] concept in your business of virality network effect can I incorporate it in my existing current business so we discuss these factors also we cover about how can existing companies leverage the developments so that they don't get disrupted and capture the opportunity fantastic sounds like a very interesting book and I'm waiting to pre-order mine and get my hands on the copy before we wind up sir if you

[01:05:13] were to recommend one book other than your own to our audience what book would that be what has had the most impact in your life no I think there are several books that have had impact on my life are you talking about a business book or are you talking about anything so our audience is founders operators so anything that could be relevant for this entrepreneurial journey yeah no I think no firstly I think

[01:05:43] it's important to keep to keep learning okay right so and in today's context for entrepreneur mental health is something which is very important right so before I get into the book I think having a very strong core being able to handle all the pressures of entrepreneurship right okay in especially in today's time because everything

[01:06:13] is on social media is something that's very important the books that I liked really was zero to one of course okay the most recommended book on the podcast most recommended book on the podcast I think zero to one zero to one is something which is very very interesting like that the A to Z podcast by Anderson Horowitz right A16Z podcast by Anderson Horowitz

[01:06:42] something which is which I like has got a lot of tips in India Nitin Kamath's podcast right okay right this again something which is really worth reading I would recommend these book and podcast in addition to of course your own podcast thank you so much right so thank you again you know for being on the podcast like I said I've followed you for many years and it's an absolute pleasure to have finally met you

[01:07:11] and had this conversation and all the best with the book and everything else that's coming up thank you thank you very much thank you thank you so much for joining us on this podcast we'll be back again with another founder or operator or investor and see you soon