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“We are getting the world to gain confidence on enterprise products developed out of India” – George Vettath, CEO of Kallos Solutions

ProductNation interviewed George Vettath, Founder and Managing Director of Kallos Solutions to learn about the journey of his company in the Enterprise software space for the past decade. In this interview, George explains how his background and experience helped in creating a superior product, and provides useful tips for entrepreneurs in this space to get more effective. Read the full story here….

What was the motivation to start your company? 

I had been working in the enterprise software space for over 16 years prior to taking the entrepreneurship leap. Around 2003, I was fascinated by the model based development – a technological innovation that started emerging in rapid software development. I immediately recognized an opportunity to leverage this new model, using which I could reduce time to value to a customer by five fold. Besides this, at that time, I had a different point of view on the direction of strategy with my employer. Both of these led me to start Kallos in India.

Why did you choose India as a location? 

First, I wanted to give back to my country that helped me get global exposure, via sponsoring of my MBA at Sydney University, Australia. Secondly, my initial working years were spent at CMC and RAMCO Systems, during which I had developed a good understanding of the needs of the Indian customer. Thirdly, my roots and extended family are here. All of these were principally responsible in my decision to start my venture in India.

Starting a new company in the enterprise space, under conditions that prevailed a decade ago should have been very challenging. What gave you the confidence to pursue this path? 

Like I mentioned earlier, during my professional career, I was already exposed to the nuances of dealing with Indian and global customers. I was part of the core team at RAMCO which was tasked to build its ERP product. Further, as global head of product management, I was given the responsibility to broaden the reach of RAMCO products to 8 different countries. The experience of selling these products in different geographies, dealing with competition – primarily SAP that came in to Indian market and virtually uprooted us, reconfiguring our strategy to survive the onslaught of global vendors, was the primary source of my confidence. I realized that I could still make my mark, despite all the heavy competition, as long as I had a sustainable competitive advantage against all these vendors.

Can you tell us on how you could translate your thoughts into a real sellable product – and one with a competitive advantage, over the past decade? 

From 2003 till about 2006, we focused on building the product suite on the principles of model driven development. I bootstrapped the company during this period, by executing US projects on the side. From 2006 onwards, we started aggressively reaching out to customers and began delivering product centric solutions, based around the PaaS infrastructure that we had developed in house. The business model was to keep the PaaS in-house, but leverage the platform to deliver rapid solutions and customizations, around our ERP/CRM and HRMS products. Thus, we differentiated ourselves with others in the marketplace as providers of product and platform centric customized solutions, delivered within relatively short timelines.

Another aspect to note is that we did not concentrate on hyper growth. We took a very long term view on the road to profitability – knowing fully well that as the product matures, growth will follow. We also did not adopt aggressive marketing tactics. All we did during the past decade was to wait for a disillusioned customer tap our door after he or she had burnt their fingers trying to adopt a MNC vendor based solution and failed. I realized that the most difficult area in the Enterprise suite implementation is in addressing the variance of requirements across customers in their respective supply chains. Here, we leveraged our development strength to rapidly customize solutions as per customer requirements. These aspects have enabled us to sustain the edge against competition over the years.

Interesting insights… Can you share to us your moments of wins during your journey thus far? 

We have provided solutions to over 170 plus customers thus far – and each one is an important milestone in itself. If I need to recollect the ones that had most impact to the organization, I would think the win we had at CSS Corp for our CRM solution, and wins at Bluedart Aviation (subsidiary of DHL), Scope International (Subsidiary of Standard Chartered Bank) and many services based BPO Organizations for our HRM solution as the key ones. Some of our international wins from the KGK group in Hong Kong and LCC in the Middle East for KServeHRMS, are also milestones since it was the early international sales of our products. The CSS Corp win validated our PaaS play, as well as demonstrated that our solution could scale to support a workforce of 400 users as early as 2007. The Blue Dart Aviation, Scope International and BPO HRMS wins gave us confidence to ramp up KServeHRMS as our current flagship product.

The KGK Group in Hong Kong initially bought the HRMS package for deployment at one of their offices – but after successful implementation there, they expanded to roll it out in many of its group companies in the Far East. An e-publishing firm in Delhi, Aptara Corp was able to effectively use the operational workflow automation solution for its 1100 employees. Power2SME, a Delhi based SME aggregator standardized on our ERP offering and went on to get funded on account of our backbone solutions. These are some experiences that I can recollect…

Over the years, you also would have your share of lost opportunities. Can you shed light on a few key ones?

As regards to lost opportunities, I think we focused initially on selling KServeCRM and KServeERP instead of KServeHRMS. We realized a bit late that the gap in the market was really in the HRMS space in India. We had the best in class HRMS solution and even those customers who had deployed MNC based solutions had not availed of the HR part for a variety of reasons.

The second one in terms of missed opportunity would be our lack of focus on going global earlier. International product sales are more profitable since they are tax free, and easier to implement due to maturity in their processes. In fact, the global customers that we have today – all of them came to us directly based on the good feedback and performance of our products in the field.

Having traveled the road thus far, what advice would you like to give to product entrepreneurs operating out of India?

Over the years, I have seen many companies start off and then shut down. While the reasons of closure could be many, I would advice all product entrepreneurs to have a proper focus on cash flow management and customer management, especially if you are addressing the domestic market. Software is not something that is understood fully by customers in India, and so, you need to work on getting them to understand the hard work that you are putting in to make them successful. Once they see the intent and integrity, customers will never hesitate to pay.

On a related note, personally, I spend about 2 to 3 hours every week for the startup and product ecosystem. I also aggregate the key challenges faced in this region to the appropriate policy makers in my capacity of being the Regional Chair for NASSCOM Emerge Forum for the past 2 years. I feel that over the past two decades a bunch of like minded folks have provided confidence to the world that we can conceptualize, build and sell enterprise products out of India. I urge all the fellow entrepreneurs in this space to reach out to us, collaborate and ensure that we take this momentum forward, and to greater heights. 

 

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M & A – The most preferred option to grow in uncertain times

It is a typical Monday 9 AM! Ready to kick-start another challenging week! Fine day in Chennai !! Not so hot like a typical Chennai climate. But, for first generation entrepreneurs it is an ordeal to pass thru weekly pressures of Cash flow, Attrition, New business and opportunities etc. etc. This experience is collectively described as “Monday Morning Blues”.

The growth dilemma

There has always been a great dilemma for entrepreneurs during fund raising exercise especially when it comes to taking the company to the next level of growth. The dilemma does not stop by simply raising the money for growth, but it goes on till such time one is able to strike a balance between how much stakes to dilute and the tangible benefits that the venture will get.Then comes the business and revenue models. The previous eras have brought countless innovations in the theory and practice of running businesses. Many are now staples of contemporary management, but others were ephemeral distractions that led companies down the wrong roads. Too often, leaders have sought the appearance of success rather than its reality – size for the sake of size, book-keeping profits as opposed to intrinsic value, earnings growth manipulated to please the stock markets. This era’s changes are already redefining management theory and practice. Raising competitiveness intensity forces a return to basic again. Going down to basics today means first and foremost focusing on how you can create intrinsic or fundamental value for your business. Your ability to create fundamental value rests on how good you are at finding the right balance between your external and internal realities and your financial aspirations; in other words, how skilfully you develop and use your business model. The major reason to focus on the fundamentals is that growth won’t come easily. Organic growth will not often produce the double-digit gains that were routine and even obligatory in the last era.

Leaders who hope to grow their way to success through mergers and acquisitions in the present market scenario are left with umpteen no of options. Needless to mention that M & As promises to increase economies of scale and yield efficiencies from synergy – or at least show the kind of revenue growth that looks like progress. And some players thrive by picking up battlefield causalities on the chips and hammering them to shape. Many people viewed General Electric’s acquisitions in the late 1980s of troubled RCA as a misconceived diversifications ploy. But after selling off RCA’s consumer electronics and aerospace businesses, GE wound up with NBC for a song, turned it around and went on to build it into a network powerhouse. NBC generated significant profits year in and year out, and with the addition of Vivendi Universal’s entertainment assets which greatly helped GE’s future growth.

The courage to change

Many first generation entrepreneurs lack with the intelligence to recognize that they have reached a crossroad but don’t follow through and head down the new path. Their inner core isn’t tough enough to allow them to acknowledge and deal with an unpleasant reality, whether it is closing a loss making division or taking realistic look at the business model and tweaking to market expectations. Many would like to continue in their comfort zone of their familiar managerial routines and protecting their pay checks. They may be afraid: change means taking risks and taking risks raises the possibility of failure. The fear failure occupies most of entrepreneur’s growth dilemma of raising money, divesting their stakes and working under a different management culture.

These entrepreneurs often don’t recognize that failing to make a shift can be riskier than making none. The entrepreneurs who have the appetite for tough actions have the inner strength. They are willing to look at clearly at the business model that has been highly successful and is no longer relevant.

To raise funds for growth or get merged is a difficulty and at times too difficult to get consensus from founder/ promoters. This leaves the emerging organizations with fewer options such as the following:

  1. Tag along with a bigger player and pitch for bigger contracts – on a case-to-case basis
  2. Dilute promoters’ stake heavily and raise money from PEs or VCs at the cost of losing control of the company in your eyes and also not knowing the business outcome after fund infusion
  3. Be a captive IT Partner for a big group and get acquired by them eventually once a decent value is built. The flip-side to this approach is that one does not know the time it will take to realise decent value

The current era of business offers promising option than the usual organic growth for entrepreneurs.

M & A – The most preferred option to grow in uncertain times

While an acquisition may have higher risk of failure than any other expansion strategy, it also provides a much superior return profile in comparison to organic growth strategy. M & As is intrinsically risky and predicting the aftermath of any acquisition is almost impossible. The fact remains that predicting the aftermath of any business plan execution is also an impossible task. But there are learnings from the past that can mitigate the risk of failure. Most M& A s fail due to inadequate articulation of two key enablers of a deal: transaction management, which is all about paying the right value, conducting a thorough due diligence and appointing the right transaction adviser; and integration management, which is about devising a detailed integration strategy ahead of the buy decision to keep the rationale of the acquisition intact. The fact of the matter,however is that any corporate strategy can go bad despite putting safeguards against any possible fallout in future. And so can simple business decisions related to marketing and research and development will lead to unpredictable business outcome.

If there are precedents where shareholders’ wealth has been written off as fallout of ill-planned M & A, there are more than a handful of cases in history through well executed M & A strategy that delivered immense value to share-holders:

  1. IBM’s market value of USD 227 Billion has been created virtually through acquisitions. It has acquired 187 companies since 200 for about USD 200 billion
  2. SAP has made 5 major acquisitions since 2001 for a whopping sum of USD 20 billion to reach its current position of Euro 17 Billion
  3. Cisco built the current sales turnover of USD 47 billion from USD 4 billion in 1996. Cisco has acquired more than 450 companies since its inception. Cisco’s fundamental growth strategy has been M & A
  1. GE has acquired more than 18 companies since 1952 ranging from Aerospace, Process Industry, Financial Services , Healthcare for whopping sum of USD 14 billion to reach its current revenue of USD 150 billion
  2. Exxon Mobile, It is what today on the back of a merger between two energy giants which clearly didn’t happen without the risk of failure in 1999. Exxon Mobile has surpassed Apple’s market cap and reached the USD 385 billion in April 2013.
  3. Maersk has acquired P & O Nedlloyd in 2005 to create one of the largest shipping lines in the world.
  4. P & O and Nedlloyd were merged together in 1996 which was yet another record in the history of shipping lines.

It is all about convincing the company’s management on the risks associated with a strategy like M & A on the back of statistics of successful transactions.

The entrepreneurs who are looking at raising money must do the following reality check and decide whether M & A is an option.

  1. Research and evaluate your competition
  2. Measure share-holders value year-on-year and see whether it is increasing
  3. Your ability to raise funds and offer significant returns within a short period of time e.g. 3 years to 5 years
  4. Ability to devote time on innovation and offer more customer value

The IT/ ITeS industry are moving towards consolidation and better economies of scale and efficiencies.The market is swamped by competition and the technological advancements are determining new way of delivering customer value. Therefore, IT services companies have to seriously consider M & A as their growth strategy to protect investor’s wealth, IP, customers, business.

Guest Post Contributed by Rangarajan Sriraman. The views expressed in this article are personal. The author is a serial entrepreneur, mentor and strategic advisor to start-ups in IT and ITeS segment based in Chennai and has been involved in 2 start-ups so far from the concept to execution stage and later on successfully exiting.