MEET THE FATHER OF ‘IMPOSSIBLE ECONOMICS’

FORTY YEARS BACK, NONE WOULD HAVE IMAGINED THAT A VILLAGE BOYTURNED TEACHER OF ECONOMICS COULD DON THE HAT OF A NOBEL PRIZE WINNING-SOCIAL ENTREPRENEUR AND IMPROVE LIVES OF MILLIONS OF UNDERPRIVILEGED POOR AROUND THE WORLD. NOT EVEN MUHAMMAD YUNUS HIMSELF!

“I would describe myself as stubborn. As an entrepreneur and as a leader, I have always believed in starting small business enterprise, creating a strong foothold and growing gradually to meet the evolving needs of the people living in rural areas. Frankly, I do not believe in starting big business enterprises and reach a stage where I am not able to manage even one efficiently the way I want to.” – Muhammad Yunus, January 12, 2013, in an interview with my office

Prof. Muhammad Yunus, whose brainchild Grameen Bank won the Nobel Peace Prize
in 2006 for its attempt to uplift the poor economically and socially, through his idea
of microcredit and microfi nance

It was fifteen years ago when I met Muhammad Yunus for the first time in New Delhi. We had decided to have lunch together with a few of my colleagues after an education seminar in the morning. During our conversation, the blue kurta pajama-clad gentleman didn’t come across to me as a madefor- profit-making businessman. He was just another nice individual, pleasant to talk to. Yet, he wasn’t conservative either in his approach. Everything he spoke to me to explain his entrepreneurial work and motive of travel kept resonating with two words – poverty and unemployment. Clearly, at that time, I had quite a shallow understanding of what Yunus’ model for mitigating poverty and unemployment could do globally. And then again, Yunus wasn’t a celebrity star people, or I, would wish to know deeply about.

The world during those times centred around Fioravanti adorning alphamale CEOs, hyperactive about profits, cash flows and growth. Why would this commonly dressed man chatting with me matter anyway? And why would anyone wish to discuss poverty and unemployment over a nice, sunny lunch? Yet, there clearly were signs even then... signs which I should have seen, but missed.

Then, his fifteen year-old Grameen Bank-tagged microcredit facility had spread to 21 nations including India, China and others across Asia and Africa. The Grameen Bank he had founded employed 12,628 people. It had disbursed loans amounting to $2.22 billion to 2.3 million borrowers. And the number of branches had already crossed the 1,100 mark. But, the world still didn’t know him well. I didn’t know him... actually, not well enough.

Much had changed when we connected again ten years later in the fall of 2008 for a formal interview I wished to take of him. By then, Prof. Muhammad Yunus had become a Nobel laureate, and replicas of the Grameen Bank model had started operating in more than 100 countries. His Grameen Bank had grown into a time-tested model, with 2,500 branches spread around the world (including US, where the first Grameen Bank branch opened in New York), having disbursed loans amounting to $7.6 billion to 7.7 million individuals! And to talk of his limitless vision as a social entrepreneur, by 2008, his brainchild had grown from being a tool for those in need of personal financial credit to a not-for-profit family of enterprises that included entities like Grameen Trust, Grameen Fund, Grameen Communications, Grameen Energy (Shakti), Grameen Education (Shikkha), Grameen Telecom, Grameen Knitwear and Grameen Cybernet. Not hard to imagine, if the forprofit business tycoon Li Ka-shing Li had found a match in Asia, it was Muhammad Yunus. What the Hutchison Whampoa Group was to Hong Kong, the Grameen Group had become to Bangladesh. [To quote two examples: Grameen Cybernet is Bangladesh’s largest Internet Service Provider (ISP) and Grameen Telecom has over 100 million subscribers across 68,000 villages in Bangladesh therefore reaching out to over 66% of the country’s population!]

But by January 2013, when he again gave an interview to my office, he was no longer the operational head of Grameen Bank. He had been forced to resign as the CEO by the government of Bangladesh in March 2011, which did not even grant him the position of a non-executive Chairman (as Yunus had requested). He however continues to carry on work as a social entrepreneur, and is an active participant in Grameen ventures around the world.

The legal battle that led to the ousting of Yunus isn’t important. Knowing why eleven years back, at the age of 60, when Yunus had volunteered to resign as CEO of Grameen Bank, the government asked him to stay on isn’t too. What is important is what makes Yunus a cult entrepreneur, which he will always be. He may not be a common name in the corporate rumour mill. He does not command a strong identity amongst stock traders. And he may not have raked in millions of dollars as most entrepreneurs deservedly have over the decades. But you could take his name in the same breath as of those successful entrepreneurs who have changed the lives of millions of underprivileged individuals. And it all began on a humid summer morning of 1976...

After receiving his PhD in Economics from Vanderbilt University in 1969, Yunus started teaching at the Middle Tennessee State University. In 1972, when Bangladesh was declared an independent state, Yunus decided it was time to fly 10,000 miles eastwards and rebuild what was a nation torn by revolution and starving for education. Within months of his homecoming, he found himself heading the faculty of economics at Chittagong University. The struggle that led to his becoming a social entrepreneur is well documented in his book Banker to the Poor. In 1974, during a time when he was teaching advanced lessons in economics, he found that his paper theories had not a single solution to alleviate the pain and sufferings gifted to thousands by the famine that struck Bangladesh. Economics gave him no answer to why thousands starved to death. He tried to ignore the emaciated people who moved about on the streets of Dhaka, but the more he did, the more their numbers grew. And the famine worsened, making him feel all the more hopeless about what he taught within the four walls of the university!

“Old people looked like children, and children looked like old people. Nothing in the economic theories I taught reflected the life around me. How could I go on telling my students make believe stories in the name of economics? I needed to run away from these theories and from my textbooks and discover the real-life economics of a poor person’s existence,” he writes in his book. Mismatch between economics and poverty grew over time, and in 1976, it called for the first move from Yunus that kindled the fire of social entrepreneurship in Bangladesh. Call it divine intervention or whatever, but that famine actually brought good news for 40 million people (the count of Grameen’s microcredit borrowers today) at the cost of a few thousand lives. It gave birth to the Muhammad Yunus I write about.

In the summer of 1976, Yunus started visiting villages near the university to understand more about poverty, and how he could actually use economics to help the underprivileged. During one of his visits, he came by Sufia Khatun (who shared her name with Yunus’ deceased mother), a poor widow who had two little daughters. She sold baskets that she weaved during the day. To buy raw materials for the bamboo baskets, she had to borrow money at interest rates that were as high as 45% a month! And what was her daily average earnings after selling all her produce? 5 taka, equal to 2 cents ($0.02). Yunus lent her $4, enough for her to pay back the moneylenders and buy some material for a day’s produce. Her daily earnings immediately rose to $2, and her manufacturing business became selfsustainable. Yunus identified 41 other such villagers in Jobra and lent them $27. All of their earnings increased many times over. Even better – all borrowers returned the sums they owed to Yunus. This surprised the man. It encouraged him too. He continued lending more money to other needy villagers – mostly women – and yet, after months of having begun the practice, got back every penny that he had lent out to the poor. Confident of his pilot tests, Yunus appealed to the local banks to make similar loans to the poor. The suggestion was rejected time and again, because for those bank managers – whose jaws would drop each time Yunus advocated his social plan – those with no collateral were not in their list of creditworthy customers. Finally, a branch manager of Janata Bank lent Yunus to be distributed to the poor on personal guarantee.

Yunus’ story is about a Bangladeshi boy, educated in a village primary school,
but one who earned respect and fame for being an entrepreneur
who has saved millions of underprivileged lives

The loans were distributed and the poor maintained their zero default record. Yunus went back to the banks with the proof, and they put forward a challenge before him. They claimed that his zero bad loan record in Jabra village was due to the fact that he was a lecturer at the nearby Chittagong University and therefore was influential. They asked him to show them that his model of microcredit would work in the Tangali district (north of Dhaka) where he was a stranger. He replicated his Grameen Project in Tangali, worked in that district for a couple of years and returned to the bankers with success on record. The bankers were not moved. So wasn’t Yunus. He next threw up a very difficult challenge for himself to take one last shot at his effort to help the poor and convince the banks. He asked them to choose five different districts. He started the Grameen Project in all five areas with great success. The banks still had their excuses. While on the verge of giving up, an idea struck him. He decided to start his own bank!

He approached the Central Bank of Bangladesh in 1982, and within a year, received the permission to launch the Grameen Bank. He was allowed to serve in rural areas, distributing loans and collecting savings in areas outside Dhaka. But that was only the beginning of new challenges for this social entrepreneur. Setting up of new Grameen Bank centres, procuring hardware and developing training centres, deciding on borrower groups, procuring capital for faster growth from agencies like the International Fund for Agricultural Development (IFAD), the Norwegian Agency for Development Cooperation (NORAD), the Canadian International Development Agency (CIDA) and others, keeping a check on repayment rates (that has remained at around 97% at Grameen Bank, as per a Stanford Graduate School of Business paper), handling pressures from political groups, averting negative impacts of unionisation within the bank, creating a cushion to cater to the unseen troubles that borrowers might face (that ultimately led to formation of the Grameen Disaster Relief Program), were some of the unique challenges Yunus faced. But what made him successful was his strategy of being shockingly transparent about his operations, effective handling of conflicts within the organisation, and most critically, of doing things different as compared to the large banks, despite popular disbelief and many-a-failure in the initial stages of his entrepreneurial career. Talking about failures during his attempt to kickstart the Grameen Project, Yunus says, “Every entrepreneur learns lessons from his failures and I am no different. When my company faced difficult situations in terms of project failures, I worked and reworked on the plans. I began with small goals, small projects and small business in the beginning. The moment you start thinking about setting up big enterprises at the very start, you lose focus of your core audience and ability to serve the society.”

Be it his idea of setting up moneychasing entities or the Five Star targets given to each center or even his belief in the community of women being better borrowers (consider how challenging it would have been to give out loans to women in a Muslim country – it took him six years to reach the 50-50 gender mark), each served the entrepreneur well. From setting up the first centre (set up at Jabra village) to over 2600 today, from lending out the first taka to over 684.13 billion taka ($11.35 billion; source: Grameen Bank) as of December 31, 2012, Yunus has come through as a true champion of social causes.

Today, the Grameen group of enterprises has nine businesses – all of which are not-for-profit, and whose working models are replicated across 100 nations. So trusted has his model of social entrepreneurship become that he has succeeded to attract even private capital to fund his social dreams. For instance, GrameenPhone (which is a for-profit business) that works together with the not-for-profit Grameen Telecom is 51% owned by Norway’s Telenor. The two entities today provide low-priced airtime and solar-powered handsets to villagers in Bangladesh.

Out as the operational head of Grameen Bank’s lending and savings business, Yunus is still in there, enjoying his fourth decade as a social entrepreneur. And there are many new projects in the pipeline that will only add to the Grameen conglomerate. The Grameen-Danone Food Company is a new 50-50 partnership with France’s Group Danone that sells low-priced baby food, fortified butter and fresh yoghurt in rural areas across Bangladesh. He is working on several new joint ventures around the world.

In Columbia, work is on to initiate a business enterprise that can supply red pepper in rural areas (and export to US) at low prices while providing for employment to rural dwellers (who have lost their jobs after the collapse of the coffee bean production industry). He wants to make Columbia an export hub for red peppers. In Haiti, work is on to put in place two poultry farms, a bakery and a plantation of jatropha plants that can be utilised for bio-diesel, and in the process provide livelihood to 200 farmers. For this purpose, funds are being mobilised by the Germany-based Yunus Social Business Fund (formerly the Grameen Creative Lab), that opened an office in Haiti after the 2010 earthquake. In another effort, a tie-up of Grameen Krishi Foundation and Yukiguni Maitake of Japan is being worked on to establish a new social business in the field of agriculture, that would produce and supply high quality moong beans in Bangladesh. The beans would be means for both domestic consumption (30- 40% of the produce) and exports to Japan (60-70%). There is another upcoming healthcare project on his list (for which he is still on the lookout for a partner) that includes setting up of lowcost eye care units and rural hospitals with video-conferencing facilities in rural areas around Dhaka. India too is on his map. “For the Indian market, I intend to start a JV with an Indian multinational company to supply sanitary napkins in bulk for Indian village women in the very near future. Besides, I also plan to start a JV with a waste water management company in India to provide clean drinking water and water for farming to villages across the country,” shares Yunus.

Yunus has won many an award from nations around the world – from Estonia to USA, from Sri Lanka to Jordan, from Sweden to Japan and many more. But the proudest moment for Yunus would have come during the winter of 2006. His Grameen Bank was awarded the Nobel Peace Prize in December that year. Taslima Begum, a housewifeturned- entrepreneur from Bangladesh, who had taken a $15 loan from Grameen Bank to buy a goat in 1992 and is today on the Board of Directors of the bank received the award on Yunus’ behalf and said, “My parents gave me birth, but Grameen Bank gave me a life.” This statement holds true for the millions of souls around the world who have been saved by the cult entrepreneur Yunus, and millions more who would be saved going forward.

People credit Yunus for being the father of microfinance. Actually he deserves more credit for being the father of ‘impossible economics’ – one who proved how demand is possible with zero propensity to consume! [Isn’t that the reason why traditional banking outfits refused to fund Yunus’ plan – because the poor had no money or collateral as guarantee for the loans?]

I leave you with a thought from the man who has defined what social entrepreneurship is, and according to me is a true cult entrepreneur. “An entrepreneur should have an urge inside him and a firm belief in terms of taking his business enterprise forward with positive thoughts and imagination. He should possess the quality of being a fighter till the end, no matter how many difficulties he may have to face in the path of achieving his set business targets for the benefit of the society. If an entrepreneur does not give up, and with goodwill continues to work endlessly and tackle difficult situations with maturity and peace of mind, then that entrepreneur will surely achieve his long-term objectives.” May the world see many more kurta clad entrepreneurs for whom poverty and unemployment, rather than profits and turnovers, are the key issues to address. As for me, I’ll wait for our next lunch together Mr. Yuns...

Where the road to social entrepreneurship started for a village boy named Muhammad Yunus

June 1940: Birth of Muhammad Yunus in the village of Bathua in Hathazari, Chittagong (the business centre of what was then East Pakistan). He was the third eldest of 14 children, five of whom died in infancy;

1940-1947: Childhood years spent in the village of Bathua. Since childhood, his mother influenced him greatly. Her name was Sufia Khatun and she would help the poor and needy on a daily basis;

July 1947: Yunus moved to the city of Chittagong with his father Hazi Dula Mia Shoudagar, who being a wealthy goldsmith in the village started a jewellery business in the city. Yunus joined the Lamabazar Primary School;

1955: Yunus passed the matriculation examination from Chittagong Collegiate School and secured the 16th rank amongst 39,000 students in East Pakistan. He was a Boy Scout during school and travelled to West Pakistan, India and Canada;

1961: Yunus completed his M.A. in Economics from Dhaka University. He joined the Bureau of Economics as a research assistant to Professor Islam and Sobhan. He also started delivering lectures in Economics at Chittagong College;

1965: He went to study economics [(a course called graduate program in Economic Development (GPED)] at Vanderbilt University in USA on a Fulbright scholarship;

1969: Yunus received his PhD in Economics from Vanderbilt University. He joined the Middle Tennessee State University (in Murfreesboro, Tennessee) as an Assistant Professor of Economics;

1972: He returned to Bangladesh and joined the government’s Planning Commission headed by Nurul Islam. Finding the job nonexciting, he joined the Chittagong University as the head of the economics department;

1974: After the famine that struck Bangladesh, he became involved with poverty reduction. He started a rural economic program as a research project without government aid;

1976: While on a field trip to the village of Jobra near Chittagong University, Yunus met a poor woman who made bamboo baskets. The woman told him that she had to borrow the equivalent of up to 25 cents to buy raw material for each basket. And after repaying high interests of about 45% a month to moneylenders, she was left with no profit. Yunus decided to give a “loan” of $27 to 42 such poor women. That marked the birth of “microcredit” and a revolution called Muhammad Yunus in the world of social entrepreneurship;

1983: Muhammad Yunus started Grameen Bank, the first microfinance bank in the world.

MEET THE FATHER OF ‘IMPOSSIBLE ECONOMICS’

THE MAN WHO NEVER LOST HIS VIRGINITY!

RICHARD BRANSON IS WIDELY RECOGNISED AS AN INSTITUTION IN HIMSELF ON THE SUBJECT OF ENTREPRENEURSHIP. AND AFTER INCUBATING NEARLY 400 VENTURES IN JUST OVER FOUR DECADES, THIS MAVERICK SERIAL ENTREPRENEUR JUST REFUSES TO GIVE UP

“I think entrepreneurship is our natural state – a big adult word that probably boils down to something that’s much more obvious like playfulness.”

Sir Richard Branson
Founder, Virgin Group

Entrepreneurial zeal can be fuelled by several innate desires. It could be about value creation, a love for a particular industry, a passion for contributing to society, testing your ‘personally defined’ limitations or even about building a name you can leave behind when you are gone. When we are talking about Virgin Group Founder Richard Branson, the above quote perhaps summarises his main driving passion best. His secret, at the cost of sounding overtly simplistic, is that he is an entrepreneur who loves entrepreneurship itself!

When my office caught up finally with him, to question him on his definition of what makes a cult entrepreneur, we had to also keep in mind that this was a man who had regularly written for 4Ps B&M for a long time preaching exactly that. Entrepreneurship is an affair that, for Branson, began even before he started the Student magazine at the age of 16, because he had already dabbled unsuccessfully with selling budgerigars and Christmas trees by then. From its inception in 1970 to today, the group operates nearly 400 businesses across mobile telephony, travel, financial services, leisure, music, holidays and health & wellness; with total revenues at around $21 billion in 2011. This means that the Virgin group has incubated nearly 10 ventures every year on an average!

Yet, you would not find Branson anywhere among the top echelons of the world’s richest. As per the Forbes’ Billionaires’ rankings for this year, Richard Branson’s net worth was estimated at around $4.2 billion in March 2012, and he was ranked #255 in the overall rankings. The same goes for their flagship company Virgin Media, which posted annual revenues of $6.1 billion in 2011. It was ranked #359 in the Fortune 500 list for 2010, dropped further to #374 in 2011 and dropped out of the list in 2012 altogether. But if you are mustering up a list of the world’s most iconic CEOs, I am willing to bet that Richard Branson will figure in the top ten in terms of recall. This is just one of the several inherent contradictions that have gone on to define both the man and the multi-billion dollar business empire that he runs.

Is being outrageous a great branding ploy? If CEOs want to give it a shot, Branson is certainly the global benchmark, by all yardsticks. His publicity stunts are legendary; be it appearing for the Virgin Atlantic launch in pilot’s uniform, coming out in a bride’s dress with make up for the Virgin Brides venture, driving a tank up Fifth Avenue and destroying the Coca Cola sign at Times Square or jumping off the Palm’s Hotel Casino to celebrate the launch of the first Virgin American flight. His hot air balloon flights across the world are celebrated in aviation (and business) history. “Virgin Atlantic Flyer” happens to be the largest hot air balloon ever to take flight and it also broke a new record by being the fastest to traverse the Atlantic. When he came to Mumbai this year, he was quite a spectacle in traditional Indian dress on top of the common yellow & black Mumbai taxi. Branson has embraced the unconventional several times and often at great risk. The Sex Pistols is a remarkable case in point. The punk band had come up with a politically incorrect version of “God save the Queen” in the 1970s and faced a great deal of censure, with even their recording company A&M giving up on them. At that time, who else would dare to sign them up but Virgin Records? Not just that, Virgin, along with the band’s manager Malcolm McLaren, hit upon a novel idea to make the band play their anti-establishment number while on a ride across the river Thames and opposite the British parliament! Branson has often rubbed British Airways officials (the airline whose monopoly Branson sought to break when he launched Virgin Atlantic) on the wrong end. Off late, British Airways CEO Willie Walsh claimed that Branson is about to give up control of Virgin Atlantic, which posted a revenues of £2.74 billion and an operating loss of £80.2 million in the financial year ending February 2012. In response, Branson has publicly challenged Walsh and BA. He claims that if Virgin Atlantic closes down within five years, he will pay £1 million to BA staff, and BA must do the same for his staff if the airline survives (Walsh countered with a ‘knee in the groin’ wager).

Branson has a distinct preference for industries where Virgin can potentially disrupt the status quo. Conversely, he defies the concept of core competence in branding and says that Virgin is a ‘way of life’ brand, which he has deployed across businesses. Indeed, the man’s voracious appetite for risk (he is planning, quite seriously to take thousands of people into space as well as to the bottom of the ocean in the near future) and for overstretching himself in the public domain has contributed a great deal to what he is today. But there are other key aspects to the Branson magic. Arguably, the foremost among them is his managerial philosophy that puts employees first and customers second. Branson firmly believes that if employees are kept happy, they will, in turn, do what’s best for the business and its customers. In his interaction with my team, he described the key qualities of a successful entrepreneur, “Every entrepreneur should possess qualities of positive attitude in terms of understanding and solving employees’ problems, meeting their evolving needs on the professional front by communicating with them very often, being very transparent in terms of explaining the company’s new ideas of business strategies & policies, and seeking their opinion and telling them what is expected from them professionally to gain a competitive edge.”

There is the obvious catch when you are so dangerously prone to living on the edge. The competition with British Airways was a serious drain on Virgin Atlantic’s finances. Richard Branson had to sell off Virgin Records, one of his most cherished ventures; for $1 billion to Thorn EMI, so that the proceeds could be invested in Virgin Atlantic. Perhaps the greatest debacle has been Virgin Cola, which was slated to compete with the likes of Coca Cola and Pepsi. The same was the fate of Virgin Clothes, and a lot of other businesses like Virgin Wine, Virgin Money, Virgin Vision, Virgin Vodka, Virgin Vie, Virgin Jeans and Virgin Brides failed to live up to expectations. He will also be exiting the railway business in UK by the end of 2012. Amidst these failures, Branson has defiantly stuck to his core philosophy with any new venture, which is, “S**w it! Just do it!” One of his key role models was a guy who failed (Freddie Laker, who was unable to dislodge British Airways with his low cost transatlantic airline). That says a lot.

However, he also believes that risks should be calculated ones and one must take care of the downside. For instance, when he started Virgin Atlantic, he bought a second hand plane from Boeing and kept the option of returning it if the business did not succeed. This way, he would only lose around six months of Virgin Records profits. He comments to my team on risk taking, “An entrepreneur is expected to keep tabs on the daily occurrences and changes in the industry where he functions. This is, so that it allows him to minimize risks involved in a future course of action, make higher profits than otherwise and make his company a tough competitor to beat.” Also, the group businesses are managed so that even if any business fails, it does not affect the others severely.

Ultimately, like all truly successful entrepreneurs, Branson believes that a line has to be drawn on wealth creation and the ultimate aim is to give back. On Mallya’s continuing problems, he recently told a leading Indian TV channel that rather than being criticised, Mallya should be credited for all the efforts he is making to rescue the airline and that perhaps he (Mallya) was ahead of his time in the Indian market. But most notably, Branson pointed out that flamboyance might be one thing that Mallya would regret. He feels that entrepreneurs must earn respect for what they do for society and not necessarily for their material possessions. In fact, a major portion of Branson’s time and energy goes into philanthropic ventures. He is a trustee at a number of foundations and he decided to pool the energies of Virgin’s charitable foundations globally in 2004 towards the Virgin Unite initiative, which is aimed at tackling global problems like AIDS, TB and Malaria. He has also been active in global policy circles on the war against drugs, which he feels should focus on rehabilitation rather than prohibition.

Be it with adventure trips in a hot air balloon, investments in space travel or anti-AIDS programmes in South Africa, Branson’s life personifies one over arching message. A true entrepreneur should always be ready and willing to take up new & challenging ventures and move beyond his comfort zone to create circumstances to be able to take it up successfully (and manage the downside risk). And once you find a person who is more capable than you to take the business ahead, you should drop it like a hot potato and move on to the next exciting business prospect demanding your attention.

THE MAN WHO NEVER LOST HIS VIRGINITY!

A CULT ENTREPRENEUR SOLVING A SOCIAL DILEMMA

THE CONFLUENCE OF OPEN EDITING POLICIES AND A DELUGE OF VOLUNTARY CONTRIBUTIONS HAVE HELPED JIMMY WALES IMMENSELY IN HIS VISION TO MAKE KNOWLEDGE FREE TO ALL. NEXT STOP – HELPING GOVERNMENTS?

When Jimbo ‘Jimmy’ Wales, co-founder Wikipedia, first got back to my office communicating that he was eager to talk, I hadn’t yet conveyed to him that I considered him a cult entrepreneur par excellence. It’s not that I quite agree with Wikipedia’s editorial policies (on which Wales’ personally holds little or titular control) – far from it, I perhaps would be their harshest critic – but the social promise that the model has fulfilled till now and holds for the future is reason enough to catapult this sincerest 45-year-old American into my topmost list of legendary innovator entrepreneurs.

When Brin and Page took their dorm room data mining experiment beyond the confines of Stanford, the world learned to associate search with Google. And when Jimmy Wales brought in his bold venture enabled by ‘open editing’ in 2001, free information in the Internet space about any company, individual, event, entity et al rapidly started becoming synonymous with Wikipedia, and the world of encyclopedias shrunk by hitherto unimaginable proportions. Type a search key on Google today, and you will, with rare exceptions, encounter a Wikipedia article on the term right up there in the rankings. And that is really a testimony to the kind of power it holds among the Internet audience as a reference tool.

Wikipedia, which derives its name from the word ‘wiki’ (a website whose content can be edited through a simplified mark up language or a rich text editor), was anti-establishment at its very core, and one would not be surprised at the same, if one were to closely examine the credentials of Jimmy Wales himself. Disdain for what passes off as convention and a passionate search for freedom have been part and parcel of Jimmy’s character, whose initial schooling happened in a oneroom schoolhouse, which was run by his mother and grandmother. His most pleasant memory of that time is the Montessori influence on the school, which meant that he could spend a lot of time studying anything he felt like. And perhaps his most unpleasant memory was how bureaucrats and high school inspectors used to constantly interfere in the school’s functioning.

His most recent war against the establishment is one where he was joined by most of the prominent websites of the world – the war against the SOPA (Stop Online Piracy Act) and the PIPA (Protect IP Act), Acts which could expand the US government’s power to curb copyright infringement and piracy and act against websites that are dealing in counterfeit goods – critics mention these Acts are just another way to gain ill-thought control over the net; Wales tells us that these Acts are “fundamentally flawed”. Wales has firmly protested against the attempts by the industry, particularly the movie making industry, to back such legislations through all means possible. He famously proclaimed to Hollywood recently that it was doomed and not because of piracy, but because of a growing trend of collaborative story telling and filmmaking. He told us, “The solution to problems of piracy cannot lie with any form of censorship. It’s really as simple as that. Any law which makes it possible to shut down or significantly damage (through withdrawal of access to markets) a website without due process of law must be opposed.”

He also laments the recent attempts by the Indian government to act against online firms in particular, “The IT industry in India is maturing to the point that the next great consumer Internet start-ups – the next Google, the next Facebook, the next Wikipedia - could come from India. All of this is destroyed, utterly destroyed, if India imposes censorship on the web.”

I consider Jimmy Wales, like most iconic entrepreneurs in business history, as a genius, albeit one with a very unconventional perspective towards life. After completing college, Jimmy went on to attend the finance PhD programs at both Indiana and Alabama, but did not write the dissertations in either, because he was ‘bored’! However, he did make a lot of money in the market through very intelligent speculations on forex and interest rate fluctuations. Then he took his life-changing decision to quit the financial realm and become an internet entrepreneur with Bomis (acronym for Bitter Old Men In Suits), a website targeted towards males and featuring user-generated webrings around popular search terms among that target audience.

Jimmy’s passion for freedom has pretty much guided his perspectives and actions throughout his life. He was deeply influenced by noted author Ayn Rand and her philosophy of objectivity, individualism and capitalism. He closely identifies himself with Howard Roarke, the main protagonist of The Fountainhead (arguably Rand’s most popular work), an architect who embodies these very philosophies, in particular the value of having great ideas and pursuing them to fruition.

Using the funding from Bomis, Jimmy moved on to the web encyclopaedia project he was most passionate about, with Nupedia. In this version, articles were supposed to be written by experts and each article was to undergo an exhaustive peer review process to ensure that credibility was at par with encyclopaedias. But seeing how slow the process was, Wales and Larry Sanger (editor- in-chief of Nupedia) jumped upon the idea of making the whole project a ‘wiki’ called Wikipedia and enabling independent editors to contribute to articles as they were being written.

Wikipedia was launched on January 15, 2001. Volunteers jumped on the wiki bandwagon almost immediately – though not a quarter as high as the numbers one sees now. Yet, the improvement in quantity over Nupedia was dramatic. While Nupedia approved 21 articles in its first year, Wikipedia had completed 18,000 plus! Of course, Sanger later opposed the change in focus by Wales towards Wikipedia and its rather simplistic editorial policy – due to which Sanger ultimately quit. This was quite similar to the turf war at Apple between Steve Jobs and Steve Wozniak (whose interview with my office was covered in my previous editorial), leading to Wozniak leaving Apple. The difference here being that I actually consider Jimmy Wales the Wozniak of the duo. And that’s because of the uncanny similarity in one particularly sparkling attitude. While Woz wished to give away Apple’s computers for free (an idea which Jobs opposed), Jimmy Wales has always wanted to give away Wikipedia’s knowledge for free – and has succeeded like nobody else ever could. If Jobs was the autocratic head of Apple, Wales is the epitome of community decision making, where leave critical policies, Wikipedia is more or less managed everyday by thousands of independent volunteers who are not even paid by Wikipedia.

With Wales’ vision, Wikipedia has become the exemplar of Jimmy’s vision to bring “the sum of all human knowledge” free of cost to every human in the world. Wales professes a belief in decentralisation of knowledge, which was the guiding philosophy of the Wikipedia project. “I always do the most interesting thing I can find to do,” says Wales to us. And Wikipedia has been one massively interesting thing to do.

Today, Nupedia is extinct, but Wikipedia is no pushover in the numbers game by any stretch of imagination. With over 100,000 active editors globally as reported in the annual report for 2010-11, the Wikimedia Foundation (which officially runs Wikipedia) received funding of around $23 million that year. By the end of 2010, 3.5 million articles had been published on the English version of Wikipedia (currently over 3.9 million in English & 21 million in total for all 282 language versions), and the site got its 1 billionth edit during the year. On a trailing three month average basis, around 13.9% of global internet users access Wikipedia. org as per statistics from Alexa.com. In comparison, the figure for Google (the number 1 site in terms of web traffic) is 49.77% and for Youtube is 32.69%. But compare the paid staff of Wikipedia, which is around 139 people as on date in comparison to Google, which had 32,467 employees by the end of 2011, and you get the real perspective.

There are inherent contradictions in the model, but one beats the rest by a huge margin. Nupedia was supposed to base itself on advertising, but Wales has shunned advertising for Wikipedia. Wales has stood by his stand that advertising would not allow the content on the site to stay neutral and the current mode of targeted advertising is a violation of the privacy rights of an individual. He asserts to us, “I see no problems with our revenue model. People have been asking that question for years, and we continue to be more and more successful with it.”

Clearly, one can argue that advertising on the website would increase the revenue base phenomenally and expand the possibilities for the site, especially ramping up an in-house team to counter- balance the thousands of volunteer editors across the world, whose credentials are quite hard to ascertain. Definitely, credibility of data and bias remain an issue even without following an online advertising-based model – issues which Wikipedia itself accepts officially – and the freedom provided to these contributors has to be consistently guarded against misuse.

But to be honest, the bigger promise for Wales – and perhaps various nations – in the future is Wikiversity, a project similar to Wikipedia set up by the Wikimedia Foundation. Wikiversity offers structured teaching in various subjects and topics “to foster learning”. While countries like India are struggling in spreading the reach of university learning centres due to the costs involved in setting up technology and learning networks through vast geographic expanses, Wikiversity offers a readymade university-like learning platform on the Internet; and the best part is that it is all provided free of cost. In other words, governments could use Wales’ Wikiversity platform completely free of cost to teach university subjects through the Internet – and even formally certify the students undertaking such distributed learning post formal tests. Imagine the potential such an idea holds in increasing literacy rates and in reducing poverty globally. And for this very Wikiversity concept, if not for Wikipedia itself (for which Jimmy has been praised ad nauseum), I consider Wales one of the world’s leading social entrepreneurs, in the same league as the contemporary persona of Bill Gates.

“The original vision statement for Wikipedia still sustains me, ‘Imagine a world in which every single person on the planet is given free access to the sum of all human knowledge’.” When Wales mentions this, it teaches me again how passion has almost nothing to do with making money. He’s my new benchmark in the world of cult entrepreneurs – gentlemen, let’s give a hand to Jimmy Wales; he’s making a bigger difference than many nations.

A CULT ENTREPRENEUR SOLVING A SOCIAL DILEMMA

THE WIZARD OF ‘WOZ’

WOZNIAK IS THE OFT-FORGOTTEN CHAPTER IN THE CHRONICLE THAT DOCUMENTS THE FIRST FEW EXPERIENCES THAT MADE THE LATE STEVE JOBS THE GREATEST CEO AND MARKETER OF THE PAST CENTURY. HE IS THE OTHER ‘STEVE’ – THE ENTREPRENEUR WHOSE STINT AT APPLE IN ITS FIRST DECADE HAS MANY A LESSON FOR MODERN DAY ENTREPRENEURS TO LEARN FROM

“A true entrepreneur doesn’t start with all the money in the world. When we started Apple, we had golden ideas but no money. That is true entrepreneurship...” Steve Wozniak

Besides being referred to as one of the co-founders of Apple, much is not talked about Steve Wozniak. In the present times, all that most know about him, if at all, is that he stays as of now in Los Gatos.

There are entrepreneurs who walk with a vision that stretches out into generations. Then there is the most unbelievable cult of visionary innovators who walk with an idea to create temporary monopolies and break march the second they feel they are done with their current experiment and that the lot of leaders whom they trained can handle the war well. Woz incredibly belongs to the latter group, ready to live an entrepreneurial dream purely for the sake of his passion than for anything else; and ready to hit the road in search of the newest entrepreneurial high every moment.

When Janet (Woz’s wife) first wrote back to my office last month, Steve was putting up at the MGM Grand in Vegas, and had just completed a nine hour-long drive from Gilroy (California) to Vegas. “Right now, his schedule is so full with travel and speeches,” she said. He was there on a quick break before his packed season was to kick-off. His diary for the next five days included two days of driving and three days of judging high-school robotics in Nevada. In the past half-a-month, I had tracked this multimillionaire through more than a dozen destinations across three countries, where he had been delivering speeches at educational institutions, sharing his vision with young entrepreneurs, egging on the innovation spark in budding minds – in short, the man was firmly and passionately embedded into sharing all that he knew with all the people around him that could benefit. I cannot imagine a more altruistic form of entrepreneurship – where a professional, without any qualms, gives up all the cards that he holds to help the other guy, whoever, win. A true teacher!

Over the time that I researched him, Woz’s answers to my queries made me realize that behind the geek who was technically ‘the’ creator of Apple’s computers during the 1970s and 1980s, lies a legendary entrepreneur who doesn’t like hogging the limelight. He never did. And from Woz, what I believe is the primary CEO-nurturing lesson that true entrepreneurs of the modern age should internalize is – encourage and spearhead the ideation processes and initial stages of product-making, and once you’ve found your optimally utopian CEO (or one who comes closest to that), give complete independence to your CEO to finally shape, market and sell the produce. Even if you’re gone tomorrow, your CEO and his successors should be trained well to adopt the company as his and take it forward responsibly – with shareholders to serve. Shy but determined, Woz was a creator of many-a-marvel, and the independence that he gave Jobs in executing the selling and marketing strategies is what I believe gave the primary cementing foundation to Jobs’ character and in Jobs becoming the greatest marketer and CEO in the world. And this effect had started much before Apple was even born (to be precise, five years before, with the invention of the ‘Blue Box’ – an instrument to make free calls – which these two tech wizards made; I’ve given more details later).

In Jobs’ biography (‘Steve Jobs’ by Walter Isacsson), recalling his first interaction with Woz, while sitting on the sidewalk in front of Bill Fernandez’s home (Woz’s Homestead High School friend), Jobs had concluded: “Woz was the first person I’d met who knew more electronics than I did. Woz was very very bright.” He was. He is still. Very.

Woz’s father (Francis) was a rocket scientist at Lockheed Martin, and a proud passout of the California Institute of Technology. Since he was a child, Woz would spend hours gazing at circuit diagrams and enjoy hearing about the power of transistors and diodes from his father. While in the fourth grade, Woz made an intercom system, connecting his friends’ bedrooms in six households in the neigh-bourhood. He started making calculators when he was in the eighth-grade. And by the time he moved to the penultimate year of high school, he had started played pranks with his creations. Such was his madness when it came to experimenting with new electronic equipment that he was even sent to a juvenile detention centre for scaring his school principal with a fake electronic bomb. His excitement didn’t bend before law. In the one night he spent there, he taught fellow prisoners how to conduct electrical current on to the prison bars!

He was born a hardware guy, and though his pranks were not marketable, they were definitely signs of a genius entrepreneur-inventor in the making.

If a film could be made, the two Steves would have unique titles. While Woz would be the Entrepreneur-Creator-Ideator, Jobs would be the CEO-Innovator- Marketer. For many years, the duo worked together, but at every stage until Woz left Apple in February 1987 (he ceased to be a full time employee at Apple a year after Jobs was forced out of the company), Woz played the role of the visionary creator, while Jobs acted his part of being the visionary marketer to the hilt. That Jobs was under no undue pressure from Woz and acted on his independent will as the master marketer and head of the Macintosh division for Apple is apparent from not just the manner in which product creation and selling were masterminded independently by Woz and Jobs respectively during the first 12 years of Apple (when the two worked together) but also by the manner in which the advent of John Sculley as Apple’s new Chief in 1983 disturbed Jobs’ independent psyche, so much so that Jobs organised a boardroom coup to oust him [The coup backfired].

The Blue Box: The first revenue-generating product that the duo created was the Blue Box (September 1971), which replicated tones that routed frequencies on the AT&T network thereby enabling callers to make toll-free calls across the world. Woz masterminded the product. He got the idea from a magazine article, and turned it into a potent mix of mischief, oscillators, and wizardry. From calling the Ritz in London to speaking to a bishop at the Vatican at half- past-five in the morning, both the entrepreneur and the master marketer got their product tested. Then it was time to mint some money. Jobs, true to the marketing stamp, decided the pricing of the Blue Box. Woz allowed Jobs to experiment his pricing skills and bloom as a marketer during those early years. [Remember: Woz was 21 years old and Jobs was only 16 then.] The cost of making one unit was $40, therefore Jobs decided that they should sell it at $150 to make good profits. They sold about 100 pieces and made net profits to the tune of $11,000 – big moneys for a start. Lesson #1: As an entrepreneur, if you find your CEO competent, even if his age is lower than the industry standard, trust him. Of course, there will always be stock taking sessions – but these should neither be oppressive or daily.












Success #1@Apple: In early 1975, after Jobs returned to US from his soul-searching trip to India, Woz and he got back. During one of the meetings at the Homebrew Computer Club which Woz attended on the evening of March 5 that year, he saw a demonstration of the Altair 8800 (a microcomputer design based on the Intel 8080 CPU design). The circuit layout of the microprocessor gave Woz an idea to create a personal computer. He recalls, “This whole vision of a personal computer just popped into my head. That night, I started to sketch out on paper what would later become known as the Apple I.” The enterprising Woz, on his own, had masterminded the creation of the world’s first personal computer. Says he, “Usually, entrepreneurship involves creation and engineering. Bright engineers get ideas and become entrepreneurs to bring them to fruit.”

On June 29, 1975, the first prototype of the Apple I PC was done. What next? It was the free-spirited Jobs’ turn to take responsibility of raw materials procurement and sales thereafter. He sourced some Intel chips (for free!) and gave presentations to clients on behalf of the shyto- talk Woz. Interestingly, had Woz gone ahead with the selling act, he would have sold-off all units of the Apple I for free! He wanted to. Says the true to nature altruistic Woz, “The theme of the [Homebrew Computer] club was ‘Give to help others’. I designed the ‘Apple I’ because I wanted to give it away for free to other people.” Jobs certainly wasn’t one to endorse the entrepreneur’s idea of philanthropy. He was a CEO and marketer with an overwhelming understanding of his business’ potential.

Steve Jobs sold the Apple I at $666 a piece – a margin of over $300 per piece. Their first order was 50 units from the Byte Shop in California.

Success #2@Apple: The Apple II went on sale on June 5, 1977. Like the previous version, this one had Woz’s touch of brilliance. He had designed it keeping in mind the evolving needs of Apple PC users. The Apple II had better colour and sound, storage capabilities, a faster microprocessor and became a best-seller.

Its sales rose from 2,500 units in 1997 to 210,000 by 1981, the year which practically was Woz’s last active year as an entrepreneur at the company. But the Apple II wouldn’t have earned fame had it not been for Jobs’ own touch of brilliance as a sales guy. This is what Isaacson writes in his book, “To make the Apple II successful required more than just Wozniak’s awesome circuit design. It would need to be packed into a fully integrated consumer product and that was Jobs’ role.”

With the Apple II, Jobs put his father’s advice (of making even the unseen parts in a product look perfect in terms of craftsmanship) into practice. Then there was the marketing expenditure, which Woz allowed Jobs to go ahead with. It was the first West Coast Computer Fair in April 1977, and Jobs wanted to grab the booth right opposite the hall to make an impact. That cost Woz and Jobs a huge $5,000. Woz didn’t stop him. Woz thoroughly know that having a great product wasn’t even half the job done. One had to convince people to buy it. It worked. Exemplifying this thought process was what ensured that Apple II sold almost 6 million units for the next 16 years.

Lesson #2: As an entrepreneur, never fall into the trap of believing that the best product can win purely on quality. That almost never happens. Believe in the power of advertising and marketing, fanatically.

Of course, all this doesn’t mean that one can’t disagree at the top. Even when it came to execution and people management, Jobs was particularly stubborn, as Woz says, “Steve was too tough on people. I wanted our company to feel like a family where we all had fun and shared whatever we made.”

After surviving a private plane crash in 1981, it was only in 1983 that Woz returned to Apple. This time however, he sensed the change in Jobs’ orientation towards work. Woz tells us, “Steve was one of the greatest. He didn’t do the engineering but he understood it better than pure business types. I was his ‘key’ in the early days. In later times, it was clear that he had understood the importance of all the departments of a large company. From then on, Steve became a great CEO but it wasn’t the same. That’s why it’s confusing as to whether the word ‘entrepreneur’ applies to this latter phase [of Jobs].”

Woz stayed with Apple till 1987. In the between, he earned his undergraduate degree in 1986 from UC Berkeley under the pseudonym “Rocky Clark” (Rocky being his dog’s name and Clark his former wife’s maiden surname). Post that, he tried his hands at encouraging technological start-ups, and still continues to do so. He has been quite successful with ventures like Acquicor Technology and Fusion-io. Woz’s close association of a decade with Jobs was critical in making Steve Jobs the great visionary CEO and Marketer. Woz was the cushion with brains and a creative acumen, Jobs was the hedge-hammer with a love for profits, and making ordinary objects beautiful and sellable.

Chances are, had Woz continued playing the seasoning role on Jobs, Jobs wouldn’t have had the bitter Sculley days in his biography. But that clearly wasn’t to be, because Woz was an entrepreneur who loved to break march as soon as his initial idea had won trust. He wasn’t the one in it purely for the love of money – and when he had had his share of the happiness quotient, he moved on! Whatever said and done, Woz’s association with Jobs was meant to be just that long.

If you ever chance upon him walking through Blossom Hill Park with his two pet dogs (which he does quite regularly whenever he is home in Los Gatos), or getting his hair made at his favourite ‘Curl Up and Dye’ salon at Gilroy, you’ll never suspect that he’s the co-founder of the world’s most valuable company – that’s how down-to-earth he is.

Respect is what we must give him, for choosing passion over money, choosing life over fame. This is why he walked away from Apple. In a decade since Woz and Jobs started Apple, the company’s sales had risen to $346 million by 1987, and Woz would have known that sticking around would not only keep him on the headlines of media outlets but also get him more money than one could have imagined. But he did walk away.

Lesson #3: Always choose passion over money; success will be longer lasting and more satisfying.

I might not have been able to do that myself. Perhaps the only commonality between Woz and me is our choice of music – he loves listening to Dylan and Counting Crows; so do I. For trivia’s sake, he still is an owner of Apple apart from getting around $125,000 a year as an employee – which is peanuts given what he’s worth as a person; for me, his character is worth more than all the trillions that one could churn up in market capitalization!

He’s the cult entrepreneur all CEOs should listen to, to get their bearings sparklingly right. Well, there are some things that money just can’t ever buy – Woz is at the top of that list.

THE WIZARD OF ‘WOZ’

ALLOW THE VALUES IN, AND WEALTH FOLLOWS

PLAN ‘A’ FOR NARAYANA MURTHY WAS ABOUT MIDDLE CLASS VALUES & GROWTH PROJECTIONS BEFORE HE REALISED THAT ENTREPRENEURSHIP IS THE KEY TO POVERTY ERADICATION IN INDIA. THE VALUES STAYED, BUT A LOT ELSE CHANGED THEREON

This happened a few years ago when I was talking to Ted Turner at a function where a few new members were being inducted into the United Nations Foundation’s board of directors. Our conversation was pretty soporific, as can be expected of such functions where one is loathe to utter politically incorrect statements. Ted suddenly stopped an individual who was passing by, and introduced him to me, mentioning, “Meet the newest board member of the UN Foundation, Narayana Murthy.”

The incident remains in my mind purely because of the fact that that was my first meeting with the legendary cult entrepreneur Narayana Murthy. Years later, talking to Murthy on critical issues of entrepreneurship, I realized that here was one individual who would be considered one day soon - if not already - the father of India Inc. The commitment, sincerity and dedication that Murthy has shown to not just Infosys but to the nation, in terms of bringing India on the world map and ensuring that the fruits of India’s development flowed down to the lower sections, is without argument in the league of the likes of JRD Tata.

For an entrepreneur, whose company has scaled unprecedented heights to become one of India’s most profitable companies in a remarkably short span of time, the values that have driven N. R. Narayana Murthy, now Chairman-Emeritus, Infosys in his entrepreneurial journey are quite counter intuitive – they are, in fact, values that the Indian middle class would relate more to, rather than the corporate honchos who have defined Global Inc. throughout history. These values were indeed a part of his upbringing in a middle class Kannada Madhava Brahman family. He grew up to learn that an uncompromising focus on education and respect comes before everything else.

And if you had some acquaintance with Murthy in the initial years of his career, his life seemed like an immaculately planned middle class growth path even then – with the expected ingredients of academic excellence, linear growth and the much cherished job security; in short, nothing extraordinary. He completed his B. E. in Electrical Engineering from University of Mysore and his M. Tech from Indian Institute of Technology. Moreover, Murthy was a socialist at heart, and seemed hardly the kind of person who could set up a multi-billion dollar global IT company.

But a few unexpected experiences changed Murthy’s mindset tremendously, and unleashed the technical brilliance and entrepreneurial dynamism that have been part of his personality since. The first was a meeting with a famous American computer scientist when he was a graduate student in Control Theory at IIT on the future of computer science. The meeting was so insightful that Murthy got committed to computer science for life. Secondly, a trip to Europe convinced him that rather than his cherished Leftist ideologies, capitalism & entrepreneurship were the most practical solutions to India’s poverty problems.

His first venture Softronics was a failure and he terminated it fairly quickly. But the learnings from that venture helped him immensely when he exited en masse with his team of engineers from Patni Computers and a loan of Rs.10000 from his wife Sudha Murthy, to form Infosys in 1981. They were – a) you are a successful entrepreneur only if the market is ready for your idea and b) it is important to have a team that has a common and an enduring value system. The consequence of the first was that Infosys was keenly focused on exports from the beginning since Murthy had realised that the Indian market wasn’t ready. And the consequence of the second was that he carefully chose his A team, the team that we all now know as the seven co-founders of Infosys. These co-founders made up their mind since the beginning that they would seek respect first from all stakeholders by adopting the highest standards of business excellence, and that money would then flow in automatically. Murthy himself additionally drove home the firm belief in equity, and gave all his colleagues 15% equity in the company, even though they were just engineers with 1-1.5 years of experience; a decision that would arguably not find any precedent in business globally.

Even if the idea was right, anyone in his right mind at that time would have been quite convinced that the time and place was horribly wrong. They were planning to export software, but they were still operating from India, where the environment for business was far from ideal in those days. They had to import their first computer and MNC banks were not ready to lend them money for the same since they were start ups. Taking a telephone connection and even importing a computer took 2-3 years. There was no data communication and they used to fax source code (imagine what a client would have felt!) to the US. Six of Murthy’s colleagues went to the US to bypass the constraints in India and interface with clients. RBI approvals for overseas travel took 8-10 days, and if you got any foreign exchange earning, 50% went to RBI. Murthy, in fact, convinced clients to send him money on the 28th or 29th of every month. It was then that he could send his overseas colleagues their maintenance allowance after giving 50% to the RBI.

Through all these difficulties, Murthy held steadfastly to the belief that his idea was right, and the value that his company was providing to customers was world class. And he was confident that the difficulties would ultimately give way. However, amidst a difficult initial decade (Infosys grew from an annual turnover of $14000 to $2 million between 1981 and 1991) members of his team lost hope, and found themselves drawn towards a $1 million offer that was made for the company in 1989. Murthy placated them and assured them that the future was going to be much better. He even offered to buy out their stake.

However, even Murthy would not have comprehended the not-so-small mercy that India Inc. had in store in the form of liberalisation in 1991. Infosys truly found its bearings in the new and far more enabling environment. A view at some numbers will help put this in perspective. When Murthy stepped down as CEO, revenues of Infosys stood at Rs.26.03 billion compared to Rs.290 million in 1994 (Infosys got listed in 1993). That means a CAGR of a mind boggling 75.44%! Profits were even better at Rs.9.58 billion in FY 2001-02, a CAGR of 77.79% during the same period.

As he took the company on its new trajectory, Narayana Murthy’s leadership skills were put to test time and again, and so were his value systems. In 1994, for instance, one of their largest customers GE wanted to renegotiate rates. Murthy refused and the contract was terminated, which led to a severe cash problem as GE contributed a huge 25% of Infosys’ revenues at that time (in fact, that’s when Infosys decided that it would always keep enough cash for one year’s salaries in its reserves, a diktat it follows till date). Besides, Murthy has stood by the belief that benchmarking oneself with the global best is a necessary end, as that enables you to compete in global markets and also provide world class products to your domestic market. In that spirit, he inculcated a culture of innovation across the board at Infosys. Everyone had to innovate, be it a business head in the cabins or a sweeper on the floor, and his benchmark for the same was – think of ways in which you can perform your roles faster, cheaper and better than you do them today. Another aspect that reveals Murthy’s obsession with ensuring sustainability was his approach towards derisking. For instance, he and his successor Nandan Nilekani never travelled together on the same plane! Even the listing on NASDAQ signified two very prominent aspects of Infosys DNA – great ambitions and also the willingness to embrace the highest global standards, especially in terms of corporate governance. Under him, the Infosys Leadership Institute was set up, which ensures a steady pool of next generation leaders in the company, who can be promoted to senior positions when necessary.

Infosys innovated time and again to ensure the respect of its clients. From 1992 itself, the company decided that rather than looking for short term gains, it has to build an institution for the long run. They invested in building state of the art physical infrastructure, attracting the right talent, embracing the latest trends in transparency and accountability (finance) and continuously enhancing productivity and quality standards. The sales team also innovated on ways to improve client satisfaction and deliver value. One of the most important innovations that Infosys brought in at that time was the global delivery model, and it was conceptualised and implemented by Murthy himself. The model is now immensely valued by clients as it enables Infosys to deliver its solutions from multiple locations across the globe and also enable round the clock implementation. Even today, Infosys earns around 98% of revenues from repeat customers.

In rough times and smooth, Murthy mostly remained his calm and humble self. He has believed in taking advice from all team members before taking any decision. But he also believes that when it comes to taking the final call, the leader has to trust himself. Today, it seems hard to believe, but when Infosys launched its IPO in 1993, the issue, which was launched at an offer price of Rs.95/share (it opened trading at Rs.145/share), was actually undersubscribed (how we wish we had a functional time machine!). The saving grace was Morgan Stanley, which acquired 13% stake in Infosys at that price. For posterity sake, the Infosys share closed at Rs.3557.85 on March 31, 2002, the month when Murthy exited operational responsibilities as CEO but continued as Chairman, hence growing by 37.45 times its IPO price. The Infosys share was trading at Rs.2225.40 on August 19 last year (Murthy stepped down as Chairman on August 20), with multiple splits en route. If you invested Rs.9500 for 100 Infosys shares in 1993, your investment would have been worth Rs.28.48 million (adjusting for the splits), a capital appreciation of 299743.37%! And add the regular dividends to that too.

One is reminded of the famous quote from Mahatma Gandhi, “My life is my message.” The success of a cult entrepreneur is driven by his passion and zeal for a vision, a passion that transcends short term blips, analyst forecasts, quarterly shocks, economic malaise, et al. For Murthy, his personal ‘larger than life’ vision (apart from the Infosys’ vision) was linked to eradication of poverty. Unlike the anti-capitalist mindset that prevailed in the 1980s, Murthy was convinced that entrepreneurship and capitalism are the ways to take India ahead. He calls Infosys his experiment in entrepreneurship. Even when he moved on from Infosys, he decided to devote his energies to fostering entrepreneurship in India, which led to the formation of his VC firm Catamaran Ventures.

Murthy not only set new standards in wealth creation, but also in terms of wealth distribution. The company distributed 27% of its equity among employees after its IPO, which was valued at Rs.5 trillion. Narayana Murthy has slowly and steadily given a huge portion of his wealth to charity through the Infosys Foundation led by his wife, and has believed in giving up equity as well over time. As on December 31, 2011, the entire shareholding of the Murthy family in Infosys was just around 4.37%. Perhaps the greatest learning that Narayana Murthy would like all entrepreneurs to take up is that the power of wealth creation is secondary only to the power of giving it away. And yes, his life has been a true epitome of this message.

ALLOW THE VALUES IN, AND WEALTH FOLLOWS

CAPABILITY & COMPETENCE ADVANCEMENT AGENDA’ (C2A2)

YES, THE STRUCTURAL CAPABILITIES ARCHITECTURE GIVES A GREAT METHOD TO SLOT YOUR CAPABILITIES; BUT AT THE SAME TIME, CAPABILITIES ARE USELESS IF NOT MANAGED WELL. AND FOR THAT, I PRESENT THE CONSEQUENT CAPABILITIES ARCHITECTURE. THERE’S A STATUTORY WARNING THOUGH: THIS STUFF IS NOT FOR KIDS!IN MY PREVIOUS EDITORIAL, I HAD commented on how modern day multinational and transnational corporations should have a structured capability & competence development process in place to achieve long-term success! I also went ahead to present the C2A2 theory (Capability and Competence Advancement Agenda) – a benchmark model that transnational organisations could and should implement offthe- rack for developing capabilities and competencies. In that very editorial, had mentioned details on how the capabilities and competencies of any corporation were of various kinds, but broadly could be divided into a few types of Structural Capabilities (see pictorial representation on the right side); namely, Doorway Capabilities, Elemental Capabilities, Enrichment Capabilities, Power Leadership Capabilities (For a better understanding, refer to my strategy book, CULT, which I’ve coauthored with Arindam Chaudhuri; a faster way would be to go to a--sandeep.blogspot.com and search for the term “C2A2”; yes, the term sounds so hackneyed, but you can’t miss it I guess).

Yes, the Structural Capabilities Architecture gives a great method to slot your capabilities and competencies; but at the same time, capabilities are useless if not managed well. But then, you can’t just stand up in a board meeting and scream at your Presidents to, uh, manage the competencies better; and not at all so in transnational organisations employing thousands. Then what structure exactly should one follow to organise the people to manage structural capabilities of any organisation? For that, I present the Consequent Capabilities Architecture. There’s a statutory warning though: this stuff is not for kids, and not the least for glam-struck management students – it’s meant purely for CEOs, and that too of very large organisations.

CONSEQUENT CAPABILITIES ARCHITECTURE
Consequent Capabilities are named such because the nature of their existence is consequent to the nature of the main structural capabilities. But the most important aspect of them all, as has been mentioned above, is the fact that Structural Capabilities exist and improve or get discraded only because of Consequent Capabilities. Structural Capabilities are the display & end result of the power and efforts of Consequent Capabilities. Different types of Consequent Capabilities identify the need for Structural Capabilities, refine their efficiencies and effectiveness, remodel their alignments with overall corporate structures and processes, and finally ensure that the organization becomes the most intelligent corporate animal that responds demandingly & profitably to all that the environment has to offer.

The existence of Consequent Capabilities runs parallel to the main operational line of structural capabilities. That is, while the continuum from Doorway capabilities to Power Leadership Capabilities focuses on competitive requirements (developing, improving, sustaining, or discarding competitive leadership), Consequent Capabilities focus on development perspectives (developing, improving, sustaining or discarding Structural Capabilities leadership). Consequent Capability Units (comprising of respective managers and team members) are of four types:

LEARNING CAPABILITY UNITS (LC UNITS)
These Units are made up of teams that are associated with all the Consequent Capability Units (Transformation, Fortification and Exnovation) at all levels and have two prime responsibilities:
1. Documenting processes, structures, organizational initiatives, goals, objectives at various discernible levels of the transnational organisation.
2. Developing a sharing network that enables all levels in the organization to learn best practices, structures and initiatives of various Capability Units by initiating Consequent Capability Architecture intervention programmes aimed at educating, teaching, disseminating knowledge, information and data throughout the organisation.

LC Units play the role of historians and professors. The LC Units are repositories of information. LC Units involve themselves in organizational intervention exercises (including, but not restricted to training & development workshops, conferences, seminars, sales sessions etc) at every level to make sure that Units all across the organization share in the learning experiences from across the organization.

EXNOVATION CAPABILITY UNITS (EC UNITS)
Exnovation is literally defined as the opposite of Innovation (I wrote about Exnovation in one of my previous editorials; it’s also there in the book that I mentioned a few paragraphs above, CULT: The ultimate CEO guide to calling the shots without getting shot). Exnovation Capability Units are meant to monitor anomalies in organizational functioning and rectify them. EC Units are dedicated capability units that ensure Exnovation of aberrations to the strategic architecture and initiatives being undertaken by the organization. The primary responsibility of EC Units is to ensure that best practices and benchmarked processes are followed throughout the organisation to the tee; and those employees/structures not adhering to the predecided processes, be either reassigned/retrainedor even retrenched in case retraining does not give progress.

Recent lessons in Corporate Non- Governance (Reliant, Dynergy, Enron, Andersen, Tyco...) have ensured the rising importance of EC Units in the corporate governance functions of organizations. Internal audit teams, for example, are EC Units attempting to ensure that standard financial processes (for example, SEC guidelines, Sarbanes Oxley Act etc) are not tampered with. Presence of Exnovation Capability Units is akin to presence of anti-bodies in human bodies in more ways than one. EC Units are dynamic in nature, both in size and their project requirements.

Corporate governance Exnovation responsibility Of the top management
The compelling need for Exnovation Capability Units does not arise only from the fact that they assist in maintaining normal operations, but more so from the fact that they fall in line with urgently required corporate governance norms. It’s the responsibility of the top management to ensure that EC Units are created at every critical level or process or department, staffed with competent ‘general specialists’, allocated resources for successful functioning, provided independent authority and responsibility to undertake transparent actions, provided with access directly to top level management, and ensured transparency with Prime Stake Controllers like Shareholders, employees, regulatory bodies like SEBI, Federal Trade Commission, European Commission etc.

There is another interesting standpoint that develops once an organization has implemented the EC Units structure through all the critical levels of the organization. By the very definition, fault lines, anomalies, aberrations or deviation occurrences need to be corrected. In this case, after judicious analysis has been done to confirm the findings, the faults should be prioritized according to the damage they might continue to cause to the existence and operations of the organization. Such impending irreparable faults and their consequent damage should be immediately communicated to relevant Prime Stake Controllers

FORTIFICATION CAPABILITY UNITS (FC UNITS)
Fortification Capability Units are meant to continuously identify better processes and structures to achieve the predefined results. FC Units are capability units that ensure continuous improvements to the strategic architecture and processes being undertaken by EC Units at various levels. FC Units do not question the results to be achieved. They rather find out better methodologies of achieving the results. In traditional terms, FC Units attempt to be effective (doing the right things), while EC Units attempt to be efficient (doing things right). At each critical level of the organization, FC Units in organizations should be structurally above EC Units because FC Units dictate what optimal processes and structures should be present. EC Units ensure that the processes and strategic architecture laid out by FC Units is followed to the book.

Fortification responsibility of the top management What is the need for Fortification Capability Units in organizations when managers & executives probably know what the right processes and structures
to be followed are? The needs are a screaming many because of the following reasons:
• Managers’ vision to identify effective processes and structures is strangulated because of their stressed out focus on achieving regular targets and meeting key performance measures. They basically
do not have time to develop orientations towards designing newer and better processes and structures.
• Even if they get the time to develop more effective processes & structures, managers are myopically focused on their scope of operations without worrying about cross-structural and cross-process
effectiveness.
• Further, operational managers generally lack knowledge of using quantitative and qualitative analytical tools to calculate relative strengths and value worth of processes and structures.

Efforts of Fortification Capability Units ensure continuous focus on effectiveness of processes and structures throughout the organization. Fortification Capability Units (and to a large extent Exnovation Capability Units) also ensure that the organization retains ground level implementation sense of strategies, irrespective of how high its vision might become. The top level management retains control over practical issues of how profitable & worthwhile individual processes and businesses are through extremely well researched methods of value chain efficiency analysis (or rather, of Exnovation Capability Units) and effectiveness analysis (of Fortification Capability Units).

TRANSFORMATION CAPABILITY UNITS (TC UNITS)
In the order of hierarchy, Transformation Capability Units at each level of the organization are above the Fortification Capability Units (who in turn are above the Exnovation Units). Transformation Capability Units are meant to continuously question and re-question not only the objective orientations of various levels of the organization, but also the need for the levels themselves. For example, a Transformation Capability Unit in the manufacturing plant of an organization not only would decide what should be the manufacturing benchmarks & objectives with respect to various parameters, but also would decide whether the manufacturing plant should be allowed to continue or not. Once the TC Unit decides on the worth of continuing the complete manufacturing plant, and once the TC Unit decides on the objectives that are worthwhile for the manufacturing plant to undertake, the Fortification Capability Unit takes over to design processes by which the plant would undertake the various objectives; and the Exnovation Capability Unit takes over later to ensure that the processes so designed by the Fortification Capability Unit are adhered to perfectly.

What Lou Gerstner was to IBM, Jack Welch was to GE; Transformational catalysts beyond comparison. The early transformational initiatives of Jack and his team focused on the following strategies:
• Being in only those markets where GE could be number one or two (most importantly to counter infl ationary pressures)
• Delayering’ the organizational structures (To transfer the strategic planning function over from senior managers to direct business leaders)
• Going for quantum leaps rather than small steps (Vision orientation of dramatic improvements in financials through practicable mergers, acquisitions & divestments) The later transformational initiatives of Jack and his team focused on the following strategies:
• Improving service orientation (In 1980, 85% of GE’s revenues came from manufacturing. In 2000, 75% of $125 billion revenues came from service, entailing better profitability) •Going global (In 1987, $31.7 billion revenues came from domestic US sales, and $8.7 billion came from global markets. In 1998, $57.7 billion came from domestic US sales, while $42.8 billion came from global sales).
• Using the information technology tools to again competitive advantage (taking GE online on the net to create a boundary-less world to seamlessly connect all stakeholders)

At this time, there might be a presumption that while Exnovation Capability Units operate only at lower levels of the organisation, Transformational Capability Units operate only at the higher levels of the organisation. Not so. True, TC Units have more importance at higher levels, and EC Units have more at lower levels, but every level requires its own EC, FC, TC and LC units.

What I’ve attempted in this massively self-aggrandizing and theoretical editorial is to tell you – the CEO – that the first step to becoming a world class organisation is documenting a plan to know, maintain, develop and even destroy your capabilities and competencies. And if you had no idea how to prepare that document, like I said once before, just blindly implement what I’ve presented here – and keep sending me the royalty.

CAPABILITY & COMPETENCE ADVANCEMENT AGENDA’ (C2A2)