New Delhi Times

This year’s budget is going to have a significant impact on the functioning of software service startups in India. The government is introducing a 12% minimum alternate tax (MAT) that needs to be paid by IT companies even if their actual tax liability is nil (as is the case of 100% export oriented units). MAT is adjustable against future tax liabilities so as such it doesn’t affect the profit and loss statement of a company. But it does affect cash flow.

What really irks me is that IT bigwigs like Narayana Murthy have been advocating introduction of such taxes since the IT industry has enjoyed tax free status for “too long”. Well, truth be told, it is the Infosys’ and Wipros of India who have enjoyed this status for a long time. Secondly, since most big IT companies anyway are not 100% export oriented, actual increase in their tax payout is in the tune of only 1-2%. So for all practical purposes, these companies are unaffected.

Now consider a small software startup like ours. Because of the tax exempt status of export oriented work, it makes sense for us to focus our energies on acquiring overseas clients. So being almost 100% export oriented, our tax liability suddenly goes from 0 to 12%. That is a direct hit on our cash flow. What is worse is that our pricing and billing is based on the assumption that the income will be tax free. That means, now to maintain same cash flow, a lot of startups might actually have to hike their billing rates  a little. That makes them less competitive.

It is very disappointing that people like Narayana Murthy are now taking the seemingly high ground and advocating taxes when they have themselves flourished largely because of these very tax sops.

Today Tekriti turns two years old. I have been trying to write this blog post for over two hours now (and its 1 AM in the night) but I just can’t get the right words to put across my thoughts! Last few months have been so busy (and haven’t we heard that before?) that there has been little or no time for introspection or looking back. Now when I am trying to reflect back on the past two years, there is such a mix of emotions running thru my mind that I find it impossible to put them in words. So I will just use this blogpost to say thanks to every single TeknoKrat who has chosen to be part of this ride and contribute to it! 

A startup works under lot of limitations. When we started off two years back, we had very little to offer. The office was really tiny and dark. The a/c was ineffective (it was peak summer time) and the power backup was almost non-existent. Many potential hires used to walk off saying they wanted to work in a better place. It was frustrating and discouraging.  Yet, there were a few who were willing to take a risk with us. And that has been the trend ever since. Today, Tekriti has a lot more to offer. We have better infrastructure, better salaries and better work environment. Yet, I will be kidding to compare our facilities with that of an Infosys or a Wipro. At the same time, I also realize that everyone who works at Tekriti is smart and capable enough to have all those options open in front of them. To still choose to work with a startup takes a lot of courage and self belief. It takes immense confidence to be able to say no to a big brand company to come and help build a brand. It takes lot of patience to give up on the organized symmetry of a large corporate to thrive in the chaos of a startup. It takes a lot of convincing to make your parents and family understand why this company they have never heard of is the best place for you to work. It takes lot of convincing to make yourself believe that this dream can indeed come true. It takes a lot to build an organization.

So on the second anniversary of this thing we started I feel good that there are 45 other TeknoKrats who believe in the same dream. If enough people believe in something, it generally comes true!

Hiring, as always, continues to remain a challenge for us. Somehow, requirements always increase faster than we can hire – which btw, is not a very bad problem to have!

Sometimes I come across candidates who are competent enough to fill in a position that we might be currently trying to hire for. However, at the same time they may not show much signs of growing into a higher job role in the future. For example, a candidate might satisfy most competencies expected from a software engineer but might not display any characteristics expected in a senior software engineer. Such situations are somewhat tricky to deal with. On one hand, there is an urgent vacancy that needs to be filled in. At the same time, you don’t want to bring in somebody who you do not see growing in role and responsibility in the future. After much thought, I have concluded that it is not correct to hire a candidate in such a situation. It is actually unfair to a candidate to bring them on board if you don’t see a career path for them in the organization. It can only lead to frustration and stagnation in the long run. This is not to say that one can not choose to remain an “individual contributor” without having to take up management responsibilities. I am all for it. But the “individual contributor” (IC) is a very specialized role meant for people with deep technical insight who can continue to provide leadership without having to explicitly take up management responsibilities. ICs were fairly common in Microsoft though I have yet to come across this concept in the Indian software industry.

Meanwhile – we continue to look for the best and brightest! If you are looking to work in an exciting fast paced environment, please check out our careers page!

Sanjay posted an interesting post on Venturewoods. His comment on acceptance of “delayed gratification” as a must for entrepreneurs caught my eyes.

One of the key things I look for in entrepreneurs is the ability to accept “delayed gratification” and the ability to deploy capital efficiently. In an Indian context “delayed gratification” could mean taking a CTC of Rs 20000 a month while your peers get say Rs80000 per month. Sometimes the delayed gratification can take very long and it may never happen.

As an entrepreneur, I do not agree with this view, or more specifically with the example given. Being a entrepreneur is hard. It means having to work insanely long hours, be on call 24/7, be accountable for every single thing that happens at work and make sacrifices on personal life. If, on top of that, VCs – especially in the Indian context, insist on delayed gratification in the form of taking a pay cut, it might as well drive most of us to harakiri. I am certainly not advocating exorbitant salaries. However, I think it makes complete business sense to at least fix founder/promoter salaries at an industry average level. This is specifically important in India because most young entrepreneurs would have almost no savings in the bank. By asking them to take a significant pay cut at a crucial stage in life, you put immense and unnecessary pressure on the folks who are at the helm. It also increases the level of risk involved in doing a startup. You could spend a good 4-6 years working like a dog and if you startup fails, you would be in your mid-30s (assuming you start in mid to late 20s as many entrepreneurs do) with almost no money in the bank. This sort of risk is unnecessary because the salaries of key executives, even at market levels (as per experience, not title) would be a small fraction of the total money invested in the business. Moreover, by insisting on low salaries, the investors increase the eagerness of founders to prematurely exit the business at the first opportunity.

We need to develop entrepreneurship as an attractive career option. While we wait for our first wave of successful startups to act as poster childs (I hope it happens soon!), prospective entrepreneurs need to be assured that the risk is not as high as it appears to be. There would still be delayed gratification because of immense sacrifices required in terms of time spent building a company as against climbing the corporate ladder. But at least it wont leave a failed entrepreneur burnt and broke.

p.s: Tekriti is self funded and we have not raised any VC money so far. The views here are just me reflecting on the common perception that its not a real startup unless there is a struggling and broke founder running it

Really good news from Marc finally forced me out of my blogging slumber. IBM is going to offer a corporate social networking solution. IBM’s solution, called Lotus Connect, offers out of the box common social networking components for deployment within corporate environments.

The IBM package includes five applications: profiles, where employees post information about their expertise and interests; communities, which are formed and managed by people with common interests; activities, which are used to manage group projects; bookmarks, where people share documents and Web sites with others; and blogs, where people post ongoing commentaries.

This is great news because in effect IBM has validated the stance that social networking is indeed relevant in the corporate environment. The feature set mentioned above is a sub-set of what People Aggregator offers. And People Aggregator has been out in the market for several months now. But selling to corporates is hard, especially for  startups. IBM’s announcement will have the effect of making big corporates take notice of social networking. The IBM marketing machinery will make sure that the corporate world gets adequately educated about the benefits of employing the “Web 2.0″ and social networking constructs to the workplace.

It is also heartening to know that we were ahead of the curve by some distance! It was almost two years back when the idea of developing People Aggregator as a reusable software download was conceived!

So hopefully next time Marc goes pitching to a big company, at least he wont have to answer the “Why would we want that?” question!

Marc turns 50 today. Now generally it is considered bad form to suck up to a client on a public forum. But on an occasion which is very special to Marc, I think it is OK for me to wax eloquent about Mr. Canter.

I met Marc just little more than two years ago via email. Marc was building Ourmedia at that time and needed development resources. Ourmedia was built on open source technology which is diametrically opposite to the Microsoft background that Ashish and I came from. However, we went on a limb and told Marc we could pick up whatever technology in a matter of days. Marc immediately responded with a challenge which we worked hard to meet it. It was Marc’s faith in our abilities (never having met us in person and not having any references to check with) that got us started as a company. I think very few would have shown the trust Marc showed in us back then.

So Marc – a very happy 50th birthday to you! It is a pleasure and honor to know you and work with you!

2006, just like last two years, was a landmark year for me. It was one of those years which I will always remember. For example, if I was asked what was special about 1994, or 1999, or 2002, I can barely remember anything from those years. But 2006 was different. “2006″ will always evoke many many memories for me – but that is not the point of this post.

Towards the end of 2003, life had started to get into a rut. Everything seemed too comfortable and predictable. At the end of 2002, I could have forecasted with great accuracy how 2003 would go. I could have told you who are the people I would be hanging out with, who are the people I will be working with, what kind of raise I will get at work, what time of the year I will visit India etc. The same thing happened at the end of 2003 too when looking back, I realized it was an “OK” year which went pretty much as predicted. And frankly, the next one was going to be pretty much identical. So at the end of 2003 I had resolved that I will celebrate the next New Year’s eve in India. I was craving for change. I was dying for some excitement and unpredictability in life.

Well, as the wise men have said – be careful of what you wish for, you might actually get it!

Year end of 2004 was when Ashish and I had just met Marc and were working hard on proving ourselves. I guess the seeds of Tekriti were sown at that time. On new year’s eve 2005, we had no idea of how the next year was going to go. We honestly had no idea of what was coming next. It was thrilling. So 2005 came and went like a whirlwind and indeed we could have never predicted that the year would turn out like it actually did. On Jan 1 2006, Manish and I were stranded at the Mumbai airport and got disucssing how 2006 would be. We knew it was an important year (and which year isn’t) but again at that time, it was hard to say where we would be in an year’s time. So, my wish from 2 years back continued to come true. And in all honesty, I have enjoyed, and even thrived in the excitement of the unknown. Human nature is to gain inertia and settle in a comfort zone as soon as possible. Hence it is a challenge to keep oneself outside of a comfort zone and continue to deal with uncertainty on a prolonged basis.

So as I wish you a Very Happy New Year 2007, I will myself not make any wishes for the new year- who knows which ones might come true

I had a brain wave couple of days back! It was one of those moments when in a flash a new idea dawns upon you. I was reading reviews on a popular Indian B2C portal (name withheld!) on mouthshut.com. The reviewers were absolutely vicious in their condemnation of the web site – especially their customer service. I don’t know much about this particular website, but it does appear that they are a marketing driven organization. They have a very recognizable brand and most certainly their marketing budget runs into 10s of crores of Rupees. While reading those customer reviews, the obvious dawned upon me (OK so it wasn’t much of a brainwave but I had never thought along these lines!). 

Allow me to elaborate. In software development, we have a concept called “test driven development”. Essentially what that means is that when a new feature is to be added to a product, the test team first figures out if it is even possible to test this new feature. If not, then the test team can veto the feature even if developing the feature is feasible. I love this approach because building a product or a feature that can’t be tested isn’t very useful. At Microsoft, we had once shelved a feature that required setting up elaborate networking infrastructure for testing it. It was just way too expensive and unreliable to test. This approach is great because it makes sure you build only something that will work well in the hands of the user. Now lets apply that analogy to any consumer focused business – say an online book retailer (the website mentioned above is not a book retailer!). Imagine they have a budget of (say) $10 million. How do they decide how much to spend on product development, how much on marketing and how  much on customer service? More often that not, this decision happens in the same order – first figure out how much money is required for building the product, then set a marketing budget and as the product starts selling ramp up on customer service. I think its a flawed approach. This is precisely the reason why customer service sucks universally.

Now consider the opposite approach – which I will call customer service driven development. In the above example, the book retailer figures out what it will take to provide top notch customer service. That might mean setting up a call center, signing up with courier service, selecting and deploying a CRM system etc. So in effect, there is some cost associated with servicing a customer. Note that there is customer service cost associated with every new feature you add in your product – this could be cost of educating the users or the cost of servicing more customers that buy as a consequence of adding those new features. From this analysis would emerge the amount of volume (in terms of users and sales) that the website’s customer service infrastructure (CSI) can handle. Say it comes to handling 300 book sales per day. Now from this should be derived product and marketing budgets. What kind of product do we need to do 300 book sales per day? And how much do we need to spend on marketing to attract enough traffic to reach 300 book sales (and NOT reach 1000 book sales)? Ideally the customer service infrastructure should be redundant so when sales and marketing is targeting 300 book sales, the customer service infrastructure can in reality handle upto (say) 500 book sales. Each time a new feature is considered for the product, the question should be asked if our  CSI can handle the consequences. Each time a additional dollar is kept aside for marketing, the question should be asked if CSI can handle the additional sales.

This is obviously the hard way to do business which is why it is rarely followed. This is also why we get to hear “your call is important to us blah blah blah” each time we are forced to call up customer service. But I really hope that we see more businesses follow this model successfully because the state of customer service is the pits today!

Please please please read this post by Kathy Sierra! The only refreshing piece I have found in the blogosphere in the last several weeks! I just loved it! Kathy talks about user passion but passion is most important for every entrepreneur.

Passion is a beautiful thing. Passion is what keeps you awake at night because you are so excited about what you are building. Passion is what makes you work on weekends. Passion is what blinds you to imaginary hurdles. Passion is what makes you deaf to destructive criticism. Passion more than makes up for lack of money. Passion attracts talent. Passion attracts customers. Passion brings pride in what you are doing. Passion sells your product. Passion sells your dreams. Passion makes you think differently. Passion makes you less greedy. Passion is what helps you get up after a bad fall. Passion is what builds great companies. Passion is the only hope for a startup.

Be Passionate or go home!

Can entrepreneurship be taught? That was one of the questions that got discussed at various points at TiECon. Many aspiring entrepreneurs questioned the VCs as to what they are doing for educating them about entrepreneurship. Somebody also asked if it makes sense to have a course on entrepreneurship in schools.

My take is that you can’t teach somebody how to become an entrepreneur. You can teach somebody how to become a doctor or an engineer but not an entrepreneur. Entrepreneurship has to come from within. If you ask, most entrepreneurs will tell you that the reason they started out was because the urge to start became so strong that they just had to give up what they were doing and dive into it. Hardly anybody will say that they started a company because they attended a course in entrepreneurship.

That doesn’t mean that courses in entrepreneurship are not useful. One can learn a lot about the basics of running a business in such courses. The best way to learn the ropes, however, is to actually work in a startup. The real challenge of doing a startup is dealing with the everyday fires that occur without notice. The real challenge is in building a great team and keeping it motivated. The real challenge is in doing more with less. The real challenge is in not getting burnt out working 16 hours a day, 7 days a week. All of this can’t be taught. It needs to be experienced. A startup is a the best on the job training one can get in entrepreneurship. Perhaps that is one reason why so many successful companies led to creation of other successful startups (Microsoft is of course the best example of this).

So if you are serious about entrepreneurship but not yet ready for it, working at a startup might be the next best thing!