Coverage by Bhat Dittakavi of Variance.AI on “Building a sustainable business” by Shri BVR Mohan Reddy, Padma Shri Awardee, on 8th Feb 2018 at T-HUB
BVR Mohan Reddy, winner of Padma Shri, India’s fourth highest civilian award, is a man of integrity and excellence. Mohan
started his entrepreneurial journey at the age of 40 in the backdrop of economic liberalization of 1991. Today, his award-winning company, Cyient, stands tall as a market leader among the global engineering service providers with a market cap of over a billion dollars and annual revenues of $538 millions.
As a leader, he is known for values and ethics. As an entrepreneur, he is known for quality and excellence. He arrived on dot at 2 p.m.
as scheduled and completed his talk 4 p.m.
on dot. He sees punctuality as a value.
I would like to start with a funny moment to share. I am called visionary by few and one day my 10 year old granddaughter started reading about me online and asked me about what it means to be a visionary? I told her visionionary is the one who sees something ahead of others. Then she asked me, “thaatha, do you see anything beyond that lamp shade?”
As a South Indian, I enjoy my rice in the afternoon. Post lunch, my efficiency levels go down. Be participative to keep me awake 🙂
What do we do?
At Cyient, we design, build, operate and maintain products and networks. We rebranded Infotech to be Cyient three years ago. We work with Boeing. They give us specification of input and output and we design an LRU unit. We build not only the design of LRU but also its electronics. We work for companies that are utilities, cables, telecom operators and beyond. We build and operate networks for these companies.
One of our customers gave us $100M in business. We invited them for “customer day”. We have very low tolerance to governance and we took all the permissions from connected people at our customer. We were supposed to have 120 people. We got a call from their president. He said, “this won’t be acceptable. ‘Thank you’ from you to us is not complete if we don’t thank you for what you do for us.” He said let us do it together. Then he offered to pay for the event and renamed it “collaboration day”. They called us partners. I feel honoured when he called me partner. Many of our customers don’t call us suppliers but partners.
S3 Strategy & Revenues
We started as engineering services company. Now we got an S3 strategy: Services level to Subsystems level to Systems (solutions) level. We need to tell the customers we do solutions too. Subsystems is in between services and solutions. 70%, 20% and 5% is how our business is split among services, subsystems and solutions respectively. New CEO Krishna approached the board and said “our ability to design products gave us the market name. Let us design and build them too.” We quickly acquired an electronics company from Bangalore and that constitutes the rest of the 5% of our business.
We did two more things.
1) After Market
Life cycle of our product is 30 years. Take an aircraft engine. It is not as simple as replacing a defective part. This is expensive. We call it “after market“. After a failure, we toss the engine away or repair it on a case to case basis. Servicing the after market industry is new for us. Disruptive technologies are useful.
2) Data science
We felt IoT is generating enormous data and we bought a boutique data science company from Detroit. Out of ten of thirt employees, six has Ph.D. With AI, we not only design, build and maintain, but also use the data coming from maintenance sensors to do new designs. Continuous improvement through feedback loop.
Verticals we serve
Aerospace is our largest vertical. We do full stack of our offerings in this vertical. Second is telecom vertical. Then we do utilities such as power distribution companies. We have a fairly large exposure to rail transportation. Ability to identify the niche markets will also take you to places. Not many see rail transportation as an opportunity. Opportunity is not only in the design information of engines, carriages, tracks but also in signal systems and beyond.
As I stepped out of my office today, I noticed on what we call control towers that our revenues for the current financial year ending next month are predicted to be at $610 millions.
Business got to be profitable.
Secret: When you make money, let your customers know you make money. They teach you and invest in you and they don’t want you to fail or disappear. We have 15-17% operating margin with 10% net margin. We are reaching 15000 employees.
Lesson 1) Values FIRST, equitable to all stakeholders
Lost money you will get back, lose your health you may get it back but if you lose values, you will never get them back.
Your value = Sum of your values
FIRST stands for five values that are part of our DNA: Fairness, Integrity, Respect, Sincerityou and Transparency (trust).
You see startup founders have misalignment with what they say and what they show. Integrity can never be doubted. People become richer by preserving their integrity, not by compromising on values.
Four pillars of support
2) Employees (we call them associates)
4) Society (we are what we are because of society)
Society paid for my education as my tuition fee was only Rs.250 in those days. How could I do it with such low fees? Society educated me. You may say I pay taxes regularly but one shall go beyond do that and pay it back to the society.
My investors want best returns, my employees want the best pay and my customers want lowest prices. These are constant challrnges but be equitable to all of them. Communicate, communicate and communicate.
Lesson 2: Identify, solve and differentiate continuously
When we didn’t get a food of our choice on time in our office, we created a platform that just works. But how do you differentiate? I may say I will hire new workforce. But your competitor can also get the same.
Create a successful and sustainable business. This differentiation won’t be there forever. Hence you have to constantly stay ahead of the curve and continue to differentiate.
I associated with Mr. Kohli 30 years ago and he asked me to open the doors to competition to see what we do. We shall be ready to do something different by the time they come next time around.
How we started
In 1991, we started on my dining table with four engineers. I recognized an opportunity in outsourced engineering services. I found people were reluctant to outsource to India as they didn’t want their intellectual property diluted. We had fairly serious challenges. Entrepreneurs are nimble footed. They will park the opportunity for awhile and look for other opportunities. Here we found (GPS) Geospatial engineering as an opportunity. We learnt there was enormity in opportunity for building digital maps. This was 25 years ago. Most of the location based services today anchor on these maps. We took maps digital. OCR won’t work as we have to recognize the difference between man-made and God made features. Digitalal maps now are so advanced that they got the gradient and curvature of the roads now!
Opportunity in GIS
We grabbed the opportunity in maps. The challenge was that everyone was scaling to 200 people and then falling apart. We studied the risk. I found we were right there to fall apart. The reason was that we get digital image but patiently work on every element in it into different layers. Because human intervention was heavy and if the size is 200, we can’t train them to collaborate together through these layers. We went ahead and wrote a software that used past knowledge. In 1980s, people didn’t have keyboards. We got IBM punch cards. Data entry operators look at an invoice and punches holes in the cards. They had two workers doing the same job in duplicate. If both the punches weren’t the same, supervisor got to come and unlock. We did the same with maps. If two annotations werent the same, a supervisor got to step in. We had SLAs for 95% accuracy. By using this approach, we got accuracies upto 99.5%. We look at adjacent and look for innovation.The break-through
Then we got big break-through in design engineering services. I was supposed to attend NASSCOM leadership event next day. A friend called me to meet Pratt & Whitney that night. He told me I can’t go for an event without an invite. I said I can’t go without an invite. Within the next five minutes, I got an invite in fax. I attended the dinner. In those days, we only has couple of flights to Delhi. Finally 16 of them from Pratt & Whitney turned up. I keep telling my salespeople, you as an entrepreneur have to find who is coffee maker and who is decision maker. I had to find the decision maker among the 16. I have identified the right one. I drank a bottle of wine with him. He happened to be Sr. VP and he told me he would meet me in our offices the next day. I had a small project with 12 people for Ford motors. We showed our work to them. They stayed for two hours. What impressed them was accuracy in our mapping business. I went to Hartford to their offices. I told them I wouldn’t sign a contract if I wouldn’t get 500 people worth business. They gave a $20M order spanning three years.
Later in I added the customer what made them choose us for such a huge order? He said, “Mohan, you demonstrated the words trust you told us in that board room when we visited to your office. This is why you got the contract.”
I advise the founders in this room to under promise and over deliver.
Lesson 3) Operational excellence, No second chance on performance
How do you scale? By driving operational excellence. Flawless execution is the key. In any business, there is nothing called second chance. Customer got many options.
.PPT Framework: People, Processes and Technology, tools and training and dot is at the center of this triangle. Lay the emphasis on the process. Use right technology.
In 1993, we spent 11% of revenue on internal training. Now it came down to 1%. We got to excel in terms of ability to deliver on time, on quality.
Lesson 4) Customer centricity, proactive customer engagement program
We hardly lost any customer because he was unhappy with us. Customer makes my business. We ask new trainees “who pays their salary”. They typically say Cyient. We contest them and say customer pays the salary. Customer is God to me. He is ultimate. Unless you are so paranoid about customer you can’t build a scalable business.
Transactional MFA: A piece of work goes from one engineer to another, and he evaluates it. This is KRA. 90% of our work is done on MFA (market feedback analysis). We do second evaluation on a quarterly basis. Then we do manager to manager evaluation. Then we use internationally reputed ones like Gallop who go and meet our 300-400 active customers. 1200 customer touch points got interviewed. There months to frame the questions, three months to get response, three months to understand and three months to implement. This is a continuous cycle we followed for 12 years and is priceless.
Customer thinks we got to be lot more innovative but they think we only do services. These two can’t go and on hand. Customer is the king and delight him all the time.
We have now our innovation hub.
3D innovation lab, IoT lab, Lego Lab, Rail Signalling Lab, ANSYS lab and Innovation Hub. Customers ask us about features our competition and our labs can quickly make them.
If you ask me to credit one thing to our company singularly, I would say “Quality”. Now we make innovation as DNA of the company. People have to change mindset to think about innovation.
We got four of top ten heavy equipment manufacturers as our customers. Two of the top three aeronautics companies as our customers.
Lesson 5) People make the difference: Employee engagement
Wealth had to be shared with the creators, the employees. 5% of our business is distributed to our employees. We call it ASI: Associate Satisfaction Index.
Our team came and asked for authorization to use the vast open space behind our building for playing cricket. I have agreed to their request in the end keeping in view would the employee motivation. We allowed teams to play cricket there and one fine day I went there to the ground to find not only the playing 22 but also 2000 people in the gallery watching the game. Efficiency!
I make no compromises on quality. We do have sizeable amount of women too.
Lesson 6) Look for money when you don’t need it
The timing of whem you raise money is important. I raised thrice. First 25 lakhs. Two friends of mine in those days gave two $10000 checks. With 25 lakhs equity, I started. We had only two funds then. ICICI and IDBF. Our terms were draconian as we paid 6% of our sales as royalty. Deficit in any royalty would be converted to debt.
In 1997, we went public. A lakh invested then in our IPO would be 2.7 crores today. This means more money flow. We did two private placements. Customer of mine invested in us. In the recent past, the $10 million of their investment turned to 106 million!
Lesson 7) Globalization enabled by direct customer and talent access
Don’t keep moving from country to country. Stay put. Establish first in your country. If you truly want to become a global company, you need to have a global footprint.
Be global in every aspect of your life. We have global workforce and global investors. Our FDI was 60% because of which we weren’t allowed to bid for defense projects. To have global presence, have local presence. We are present in 48 locations and 21 countries. 82% of our US employees are locals. This is how you build your business.
Lesson 8) Corporate governance -Strong Board
4 out of 9 of our members are foreign nationals. We have a strong board.
Q) What makes an entrepreneur?
Mohan) Nothing which is external makes an entrepreneur. If you give a bunch of real problems, they won’t become entrepreneurs. We can only create an ecosystem like T-HUB. We try to take out most of the hassles out.
I met with an 18 year old entrepreneur called Yash Bhardwaj from Delhi. He puts people on bus on a tour to villages to understand and solve the problems of villagers.
Q) How can you ensure customers are well taken care down the organization pyramid?
Mohan) We called it an escape. When an escape happens, we suspect the process first. If the process is right, then we suspect training. If it not the case, then we suspect the individual and then you know what happens. We show him the door. There is no other choice.
Q) How did you build your core team in the beginning? Did you build it around values?
I ran OMC computers before Cyient. It was funded by Tatas. I left it after ten years and then it got grounded within four years since then. My story is that too many people spoiled the dish. I belong to a generation where I thought experience counts a lot. I started when I was 40. I gained large amount of experience by then. Put these two together. I know whom to hire. I am not the brightest guy in the hall. Over a period of time I learnt a lot. Without that experience, look for teams that supplement each other. I made sure I got a team of complements. Tell your dream to attract the talent. It has to be executed by the team and that is when it gets real. Think through your dream before sellinvbit to the team.
Values are what you practice and not what you teach but that you won’t teach. I stop for economy. It didn’t bother me.
Q) Gut feel is what you shall go after as a new opportunity? Or you stay put with the bird on hand?
Mohan) Don’t jump every day. To be successful, be persistent. Don’t leave so early. At the same time, don’t stay forever and that day never comes. Bring the current idea to conclusion by monitizing it before moving on to new idea. You have to constantly refine the idea as you go forward.
Q) Why didn’t you build your own product? Did you think about making your own airplane?
Mohan) My CEO talks the language you talk. He wants to be a aircraft manufacturing company. I worked with Boeing. I still got a dream to build an aircraft company. We serve a tier 1 supplier to Boeing, we also provide to other tier 1 companies. A tier 1 supplier is a customer of ours. Companies have to dream that way. We got to be tier 1 to many aircrafts including landing gears, interior, wiring and beyond. This will happen in five years.
We now have been working with an aircraft engine with many subsystems. Fans, low pressure turbine, high pressure turbine and exhaust. Except the hot section, we have dabbled around on all parts of an engine. As a nation, we have never built an aircraft engine. We have to do it very slowly. We have to tread very carefully.
Q) We are into VR. Services to solutions journey. India started moving into innovation R&D. What opportunities are there in India?
Mohan) Sheen of services got lost. Product implementation services are still there. Pure play services can’t be scalable. Focus on solutions with services underneath. Customer looks at solution architect.
A small town west of Paris, Navel city known as VR capital of the world. Can we have an end to end solutions using VR as technology? It is still evolving.
Q) I am into e-commerce base. We have fairly decent revenues of four crores. A VC firm approached us. We got 18 people at that time. I am a single founder. I was told VCs won’t invest in single founder companies. I downsized team of 18 to smaller size using AI. Do I have to find another cofounder?
Create a strong team around you. Investors need to know when a bus hits the only founder, what would be the fate of the company. When you got investors fund, you are custodian of public money. Build a core and high power team not the team that takes instructions from you.
How to get founders to develop as individuals?
Mohan) Successful ones do a good blend of investing in oneself versus inverting in the business. Our CEO got a board mentor and an independent mentor. I read an hour of a book a day.
How did you ensure quality and employee engagement are on place in early days?
Mohan) I will go for weddings of employees. I try to keep the personal contact. Human beings first. Engage your people personally first. Then systems come.
Nandan Neelekani mentioned he spent his time in communication, communication and communication.
Q) You reduced the spend on training. What change did you make?
Mohan) At that point we didn’t have bandwidth with outreach to engineering colleges. Now we work with 18 colleges. We got training partners now. Apprentice activities happen before they join us.
Q) How did you innovate your pricing models? What is your recommendation to startup pricing models? Goovernment or private?
Mohan) Prices are subjective and cost is real. You can’t go with a business model of yours. Go with the business model customer got. Take IT industry and it got cost plus model such as bodyshopping. Then there is a fixed price model. Fixed price reflects on my efficiency. Then the customers went to the next stage on outcome based models. For example, in after market services, time we take to respond along with the quantum of work defines the pricing.
Q) How did you motivate your employee in hard time?
Mohan) Salary and benefits. But they have to earn it. Link performance into his benefits.
Q) Best way to work with smarter people?
Mohan) Smarter ones don’t need micro management. Get your hands off of them. Put them on KRAs. Monitor their performance, not their work. 30% of the salary of L1 managers is linked with their performance. Difficult to sell but if you do, it works like a charm.
Mohan) I see SaaS as future of the world. Our I house applications are on cloud now. Our Data is on cloud and hence it got to be SaaS.
Q) Larger Indian companies serve to outside world. Startups tag along. How do let them look at India?
Mohan) We talk about it at NASSCOM. Doing business in India was extremely difficult, things got eased out. We got a small portion of exposure to domestic market. Every Indian project got us into trouble. They don’t understand scope creep. Last 10% payment never comes. We have Model EDP hope the government agencies adopt.
Q) What if customer demands more?
Mohan) Don’t give him a promise of moon. Be upfront and honest. Customers are reasonable.
Q) Strategies to upsell?
Mohan) There shall be something called core competency. You can always customize extras. Stay put with the core.
Q) We promote zero driving under influence. Of the three Ps people, Processes and products, which one do you prioritize?
Mohan) No weightage. Each is important on its own. Balance them all.