Surviving the dotcom meltdown

Source: The Economic Times.

Nazara walked right through and scripted a success story in the mobile content space
He set out to build an online venture at the worst possible time — right in the middle of the dotcom meltdown. However, his passion for technology and determination to succeed was such that he just soldiered with a firm belief that that his idea was a winner. Nitish Mittersain, 27, CEO and promoter of Nazara Technologies, hasn’t looked back since then. Today, not only is Nazara alive and kicking but it also has a clutch of private equity players jockeying hard to partner the firm in its second round of funding.

The early going was never easy for young Nitish, who was still a student at Sydenham College when he turned entrepreneur. “There was this negative hype about dotcom companies and it was inconceivable to raise funds for the venture,” he recalls. Few believed that his business model was unsustainable and therefore extremely reluctant to partner with him. None of this deterred Nitish, who still managed to raise Rs 20 lakh from a few willing investors, including his father, to incorporate Nazara Technologies.

The first area that the company forayed into was online gaming, through a gaming portal nazara.com. A natural choice given that he was and remains an avid gamer. However, that was just the beginning and Nitish was still on the look out for the big idea which could stand the test of time. He soon spotted one in the form of the wireless space. He made his move quickly and Nazara entered the wireless entertainment sector, which was on an upswing. In the early years Nitish consciously chose to maintain a low profile, both for the company and himself, and focused all his energies on trying to ensure that the company stayed afloat. He recalls that in those times it was all about minimising costs and keeping an eye on the bottomline.

His vision would soon pay off in that both the wireless sector took off and content was fast becoming king. Recalls Nitish, “Fiscal prudence paid off. We spent next three years building relationship with wireless customers while keeping our costs low.” Soon the company could boast of a respectable performance in what was a difficult space. Nazara had made modest profits for five years and simultaneously built up good relations with most of the major telecom operators.

Given the boom in the wireless sector and the company’s unique position in that space investors began to want a piece of the action. The company got its first round of funding of Rs 7 crore from Sequoia Capital in 2005 which picked up 25% equity stake thereby pegging the enterprise value at close to Rs 30 crore. And after that there was no looking back. “We have managed to log 400% growth since the first round of funding and considering that mobile content space is still in its infancy, we see a great potential for years ahead,” says a visibly proud Nitish.

Today, Nazara is a leading mobile content and application developer providing products to mobile operators globally. The company exclusively licenses well known brands like Sachin Tendulkar, Sehwag, Dhoni and Archie Comics among many others, and develops mobile content based on these brands in keeping with their image.

This branded content is then distributed worldwide through mobile operators and aggregators. However, this is just the beginning as far as Nitish is concerned and he is now trying to take the company to the next level and therefore looking at additional funding. Nazara is now close to raising approximately Rs 32 crore in its second round of funding and expects to make an announcement in April. A new model (B2C) is to be launched for direct acquisition of customers by June 2007, which will complement its current on deck business with carriers.

Once the money comes in the aim to more than double the existing revenue. Having logged revenues of Rs 15 crore for the year ended on March 2007, Nazara Technologies is now aiming to close the current fiscal at Rs 35 crore. Accompanying the revenue growth will be a doubling of the employee strength and expansion into new geographies as well. Nitish believes that given the wide penetration of mobile service in the country and the availability of cheap handsets which can support diverse VAS content there will be a greater and greater demand for diversified content with regional focus as there are many vibrant cultures.

'It is easy to achieve success; it is difficult to maintain it'- Kishore Biyani

Source: The Economic Times, Dated 12th April 2007.
Future Group CEO Kishore Biyani shares the logic behind the retail group’s new makeover with ET. Excerpts from the interview:

You seem to have segregated mature and new businesses. Why?

We are immunising mature businesses from the risks we face in new businesses. So we can form a clear P&L account of every retail brand. Today, our formats have become so big, we are competing with ourselves. Earlier, products and operations worked together. I was accountable for everything. But today, growth is so much that somebody else has to concentrate on that growth. Earlier, we were hungry for topline. Now, we are hungry for bottomline growth. Accountability for the profitability of the lines of businesses lies with one individual now. And profitability of a category lies with the individual handling the product in that category. We have to look at the costs of doing a business. The fact that we have been able to cut costs in the last few months has improved margins. We are getting result oriented.

For somebody who did not think much of processes, isn’t a lot of attention suddenly seems to be going into that area?

Every retail data (even Harvard studies show that) has only 70% accuracy. Therefore, a whole lot of decisions have to be based on gut feeling. Processes do not make a retail business. Human emotions make retail. For instance, if there is some bad news in the morning, or on a gloomy day, sales are at rock-bottom. Processes can’t capture all these things. As a group we believe that demand creates supply, supply does not create demand. You have to do retail to do processes. I think processes do not allow you to react to a consumer. Processes work when you think everything is constant. But nothing is constant. Consumers are not constant. At 30 years of age a consumer behaves differently from what he will do at 34, assuming he is married or has a kid. Processes are a way to deliver consistently to the consumer.

How do you decide which businesses will be relevant in the long run?

You need businesses outside retail to support the retail business. The margins aren’t enough to support growth. So, for instance, in our real estate business, we get 20% margins, but we have partnered somebody who knows how to run it. If there is no potential for a business to cross Rs 100 crore in the second year of operations, we are not interested. We developed pharmacy and beauty parlours, but we may not run it ourselves. As a group, fashion will be nearly 40-50% of our businesses and through that we will be able to raise margins by 5-8%.

Looking back, do you think there’s something you would ideally never have taken up, something that didn’t succeed?

I always believe that unless you do it yourself, you will never learn. There are no shortcuts. My biggest mistake was that I made cinemas. Cinema teaches you that although you think you know everything, you really know nothing. Today, all that humility and acceptance come out of doing cinema as a business. It taught me to be dispassionate about what you create. Without the cinema experience, we would never have learnt anything. It is easy to achieve success. It is difficult to maintain it.

Rakesh Biyani has taken over as the retail CEO. Did the group consider getting anybody from outside?

There was an option to bring in an outsider. But even within our organisation, people will move up some day. Bringing in an outsider sometimes does not make sense. We did not want to lose the comfort factor with our senior people. Rakesh has come in through consensus. We are open about everything. The vote went in his favour. Acceptance is important. Continuity is important.

Face to face with Gautam Thapar

Source: The Economic Times, Dated 10th April-2007.
Credited with providing a new dynamism to the LM Thapar Group of companies through drastic decisions, the young Gautam Thapar has come a long way after taking over at BILT, India’s major pulp and paper producer. In an interview, Thapar said he has no great mantra other than identify a business, start at a small level, gain experience and scale up.

After acquiring a major paper facility in Malaysia are there more acquisitions in the pipeline, especially in Indonesia where you source most of your pulp requirement from?

From the shareholders’ viewpoint, three things are vital in any acquisition: political stability of the place, policy in the particular sector and, the availability of local skilled workforce. Though both Indonesia and Malaysia inhabit the same island and the agro-climate, Malaysia is better placed. It meets all the three requirements and is very competitive, possibly because of a better forest policy. Unlike Malaysia, going to Indonesia involves major risks — the currency risk, inflation risk, and the political instability.

What is the future of India’s paper industry? It still relies heavily on imports of raw material!

The demand is growing by 10-15%. When the supermarket business grows, demand will grow even more, especially for packaging grades. With more allocation for education, writing and printing side demand is also on the increase. The thumb rule is that paper demand goes up with the economic activity. Besides, India is becoming a low-cost printing destination. On raw material side, if India’s is heavily dependent on imports, the fault is with the policy. In India land issues are very sensitive yet you could bring about change in afforestation and regeneration by opting for scientific ways. But it is not happening so the imports would continue.

Is the industry fully utilising the agricultural raw material and waste?

We use everything in India, both agricultural residue and waste paper. However, it is better to use agri-waste as fuel rather than use it as raw material for paper as it is neither segregated nor as clean as the processes demand in India. My yield from tree pulp is 48% as compared to waste paper that gives barely 28%.

A few years back BILT was on the brink of disaster. How you did you manage the turnaround?

At the end of the day any company must remain focused on its core business. BILT was paper, not newspaper or chemicals. I brought the focus back to paper. We did away with everything that did not make any sense. A company that would make Rs 200 crore profits in one year plummeted to Rs 83 crore another year. A three-year analysis said the problems were within and not in the market. Entire process — putting suppliers on right track, correcting the MIS took barely three months. At times I had to be harsh. It worked and within a year profits doubled. I believe there is no reward without taking a risk. And there is no such thing as a calculated risk. Have a vision; a strategy, a formulated thesis and then go and make it happen. I tell people there is no rocket science to management. You need to have the right people and give them the mandate. Focus, strategy and an accountable team — that is all.

Retail is emerging as a lucrative sector. Do you have any retail ambitions?

Our FMCG is on track, brands are being built and in future if it makes sense we may think of retail. Right now retail is real estate game not a skills game. We do not want to go supermarket way but specialty retailing is a possibility. We would like to build on the strengths of our existing network. In food processing we are becoming a sizable entity and we can grow with the supermarkets. This year we had Rs 500 crore sales, all of it overseas. That means India is still a virgin market for us. When Bharti and others come up we would talk to them as our ability to supply is much larger than smaller players. In fact, there could be opportunities in some smaller acquisitions to increase the size of our food processing capacity as purely a private label supplier.

BILT Power wants to do power plants in SEZs. What are your views on SEZs? What stops you from bidding for major power projects?

Some, not all SEZs would be successful. And we have to do business where there are serious players. We are looking at all state development corporations, which see SEZs as development and investment. The private players could be seeing these as real estate opportunity and tax heavens. In fact, some state-backed SEZs will come up quicker and faster than many private ones. From risk reward point of view smaller project is easy to do. You can achieve financial closure quickly and, evacuate the power quicker. Selling power from major projects with a couple of customers — some of whom are not good payers — is a problem. Ultimately, we will get to large projects but we want to go in stages. India is an evolving landscape, and for the next 50 years there is requirement for more power.

How would you maintain the edge and the dynamism the group has acquired of late?

The change in strategy that I have brought about is that we need to be compatible and take lessons from changes taking place worldwide. We know India, the landscape, our competitors, and market and we need to protect it. But protection does not come through investment alone; you need to have the cutting edge technology else you are bound to lose market to the better equipped. We adopted this strategy in Crompton & Greaves; we have done Rs 6,400 crore sales that could increase Rs 1,000 crore next year. We will also acquire more. And we would like to have service revenue as a major chunk of our solutions revenues.

Try incubators at IITs to nourish your brainchild

Source: The Economic Times

Despite lack of support from investing community, and a high failure rate, early start- ups are increasingly looking at incubators to support their ideas Every year the quantum of investment by private equity and venture capital firms in new and mature companies in India is making a new high. This trend is likely to continue even in the coming quarters and years as there is no dearth of quality investment offering good returns. But what about ideas that are just blueprints or at the lab stage. While there is no dearth of entrepreneurs who come up with bright ideas that they believe have the potential to become the Big Boys of tomorrow, there are few investors who are willing to lay down their money on the table for such plans.

The reasons are not far to see: worldwide statistics show that early stage entrepreneurial activity has a very low success rate. With almost 85% entrepreneurial ideas failing to stand the test of time it is not surprising that established funds don't come forward to support them. Thankfully such a cold reception from the investing community has not put brakes on entrepreneurial activity. In fact today there are more ideas waiting to take wing than at anytime in the past. And these entrepreneurs have the incubation centres at institutes like the IITs to thank for offering to support ideas that could become big companies of tomorrow.

Sample this: at IIT Delhi the Technology Business Incubation Unit (TBIU), under the Foundation for Innovation and Technology Transfer (FITT) started operations in 2000 and since then it has received over 75 enquiries from entrepreneurs seeking an incubator for their ideas. About 50% of these have been actual proposals for assessment while 11 companies have successfully exited the incubation centre. At present, IIT Delhi has six resident companies and two are about to move in IIT Bombay's incubation unit on the other hand has 18 companies at the present moment. These, are companies that have been vetted by IIT experts and now are trying to develop and grow before they venture out into the market.

Incubators offer valuable services besides just space to the these fledgling companies. The TBIU at IIT Delhi for example in addition to subsidised office space, offers access to IIT library, knowledge resources, faculty and even students, who can be roped in for a project. Says Anil Wali, managing director , FITT, "We look at projects which have synergy with the institute. Incubation exercise should have a mutual benefit to the entrepreneur and the institute. During screening we essentially see whether the idea makes business sense. That is, what's the chance of that idea getting incubated and reaching the market." Poyni Bhatt, chief administrative officer at IIT Bombay's incubation unit, echoes similar sentiments saying, "Being in an incubator does mean that the companies are used to hand holding. But that's not what we do here. For the first couple of years, we provide hand holding for fresh entrepreneurs within the incubator, but once they enter the third year within the incubator, we insist that they go about their own way to proceed in the business."

So how does a budding entrepreneur avail of these incubation facilities? Typically three types of entities can submit applications for incubation. These include the alumni or faculty of IITs, any techno-preneur and lastly R&D units of small and medium enterprises (SMEs). Since such companies or ideas might not get attention from established funds and do not have their own resources to support the ideas in the initial stages the incubation unit is a useful starting point.

Says Shailesh Mehta, CEO, Onyomo, a company currently being incubated at IIT Delhi, "The unit provides good access to top end research. We came here as we wanted to have a good level of credibility as far as technology was concerned. With the IIT name, people don't doubt the soundness of the technology we have to offer. Also, we do not have the big buck to give our company a sustained visibility via advertising. Here again being within the precincts of an IIT has helped." Onyomo is a 10 people company and Mehta himself is from IIT Bombay's 1995 batch. After completing engineering he did an MBA and later took up a job with an investment bank in the UK. "But, I wanted to do something closer to my heart and that's how Onyomo took shape." The company helps users provide search on mobiles or internet. Search relates to various consumer categories - say for instance you are new in Bangalore and are looking for a Cafe Coffee Day outlet closest to where you are; Onyomo (which is derived from the first two letters of 'on your move' ) could help. The company is now awaiting commercial launch.

Another company, Mechartes Researchers has been at the incubation facility since 2005. At present, it has 11 people including three alumni from IIT Delhi, two professors, one engineer from Sweden and others. The team came together and started the company after reading about the potential for outsourced engineering services in the Nasscom-Booz Allen Hamilton report. The report stated the market potential for outsourced engineering was $130 billion and the team thought that there is room to create products catering to this market. Mechartes gives a 3D modelling platform to companies and offers to analyse 3D models for desired requirements. Says Saurabh Rohilla, marketing lead, Mechartes Researchers, "I am from the 2003 mechanical engineering batch of IIT Delhi. I took up a job but it did not meet my expectations. But starting the company from a commercially rented place would have been expensive. the incubation centre has given us the right atmosphere for the venture."

They have access to funds - about Rs 12 lakh a year at very low interest rates, office space for which they would have paid in excess of Rs 1 lakh a month if they were outside the TBIU, access to IIT Delhi professors and knowledge resources including the library. Says Mr Wali, "When this started there was a Rs 80 lakh one time grant from the ministry of IT. We also give a seed capital ranging from Rs 5 lakh to Rs 15 lakh to companies here. Here companies are doing pre-commercial activity in a fairly developed idea that needs to be developed further."

The IIT Bombay incubator gets funding from the Technology Development Board for about Rs 1 crore and from the Ministry of Communication and Information Technology for Rs 80 lakh, which is distributed in its incubated companies. "We only give Rs 10-12 lakh per company at a time," Ms Bhatt explains. So what do companies get from IIT-Bombay? Well, much like in IIT Delhi, in addition to the infrastructure, the incubator also provides them with advice on business plans, even helps you pitch to investors. But most importantly it helps you market your product. "IIT's name has a reputation in the market, when our incubated companies, most of whom are fresh start-ups , go to the market without any previous track record; it is this reputation that helps them get their first clients. Even our mentors (who are mostly faculty) help in this process," says Ms Bhatt.

However, the jury is still out on how well the incubation model works. Industry experts say that although this model is good so far as the economics go, the mentors being essentially academics , are not quite state-of-art in terms of hands-on industry knowledge and experience. They work to a current client's mandate and no further. Moreover, the founders being ( previous / current) students, are often 'controlled' instead of 'mentored' by the faculty with their own opinions towards risk. While this acts as a good filter, many creative young minds get demotivated. And thus many desert their projects halfway and in search of more lucrative jobs.

But Ms Bhatt defends this by pointing out that IIT-Bombay's incubator has nearly 60% success rate for companies successfully making it in the market place. Even at IIT Delhi Mr Wali says the success rate is far above the global averages. "They have initial problems, where we guide them on scaling up the process, but once they get the hand of things, most of them make it big in the industry," he says. Interestingly, IITBombay's incubator also runs a virtual incubator, where it does not provide any physical infrastructure but it guides start-ups on other aspects of business. At present it has two companies in its virtual incubator. The interesting point is that when the incubated companies do make a mark in the market the VCs are willing to invest and help them grow further. Perhaps VCs could look at some good blueprints that promise to be the big companies of tomorrow. They got to learn the age old success formula of catching them young.