Pushing Startups To The Fringes

In his latest Budget the Indian Finance Minister has proposed Fringe Benefit Tax on stock options that employees exercise starting April 1, 2007. Now it may appear a great way to collect additional taxes (assuming FBT = Marginal Tax of 33%), but the long term impact will be stifling innovation and increasing employee churn in the Indian economy. Startups will find it even more difficult to attract/retain talent with ESOPs as the net gains post exercise are diminished.

Employees with vested options are now forced to exercise them which means no more exit (quit) barriers. Though an option grant typically takes 4-5 years to vest, the total lifecycle is much longer. Vested options take another 5 years to expire which means a manager conserving cashflows will tend to stick around that much longer, almost a decade. Now a decade is a long time, and often committed managers is all that separates a stunted SME to one that really grows wings to become a bluechip. Just look at the number of 'major' IT Services companies in the early nineties, that have now fallen by the wayside.

For now, look for increased attrition at mid and senior levels across industries, rising wage inflation (employers will have to compensate for unattractive esops) and one more setback to the nascent startup-ecosystem in India. Unless the government realises the total impact and pegs FBT at a reasonable 10-12% range.

10x For A BlueChip Service Company

Last evening after a dinner at an upscale restaurant (part of a blue chip, publicly listed firm), I was surprised to see a line item in the final bill. Now I rarely visit a five star hotel for a personal appointment, but this was one of those rare occasions. So the matter of surprise was this - a plain bottle of mineral water, normally available in the market for Rs 10 was being charged almost Rs 100 tax included. The rest of the food was fine and I can make myself to understand value pricing and all that stuff. But 10x times for a bottle of mineral water?

Extend the argument to IT Services industry: new hires at entry level get paid an average of Rs 200,000 p.a. and given the offshore rates basically are billable at about Rs 2,000,000 (typical Tier-1 provider). So we have another 10x formula going!

Now I am not comparing fresh software engineers with mineral water bottles (some would argue both are commodities), but from a pricing standpoint we really have something going here. When you as a company, are able to charge customers 10 x times the input cost (thanks to all those intangibles), you have truly arrived as a Blue Chip!

WB - Welcome Back for West Bengal?

Gurucharan Das writes well on the heroic efforts Buddhadeb, CM of West Bengal to get the re-industrailisation initiative going. This is a state that once led the country intellectually - Gokhale once said, "What Bengal thinks today, India thinks tomorrow". But now it has unfortunately gotten into the ruts of de-industrialisation following decades of communist rule. Singur the battleground site where Tata Motors is building its new small-car factory, inspite of vehement and violent protests by the opposition political parties, will decide the future of this mother-of-all turn-arounds. The opposition perhaps correctly fears that if they could not win an election inspite of two decades of poverty all around, what will their fate be if some prosperity actually begins to happen!

Let us hope Buddah-da succeeds for the greater good of Bengal and India. Making up a new Chinese saying here - Nothing succeeds like a reformed communist!

Wonderful Dance Performances At Hyderabad

As I am beginning to explore the cultural and non-IT face of Hyderabad, I came across two cultural programs that were real gems performed at the Ravindra Bharathi .

One was a Dance Ballet (Nrutya Rupakam) on the life of Bhakta Ramadas, a revered 17th century poet-saint. This was performed by Ananda Shankar Jayant (pictured), who drew upon many of Ramadas's immensely popular and moving compositions (kritis) in Telugu. Titled "Sree Rama Nee Namam Emi Ruchira" the ballet was based on the Bharata Natyam style of dance. One of the most impressive pieces was "Takkuvemi Manaku" in which all the ten avatars of Vishnu are alluded to.

The second was an amalgam of the three South Indian dance forms: Mohini Attam (slow tempo), Bharata Natyam (slow/medium) and Kuchipudi (medium/fast), based on the theme of Shanmatham propounded by Adi Shankaracharya worshipping the six divine forms of Ganesha, Karthikeya, Shiva, Ambika, Vishnu and Surya. The exponents were Gopika Nair for Mohini Attam, Revathi Ramachandran for Bharta Natyam and Deepika Reddy (pictured here) for Kuchipudi. Each is an amazing danseuse in her own right - erudite, widely travelled and perfectionist. When they came togther as they did for three of the six dances, it was an amazing scene. The Ganesha Pancharatnam was the most impressive piece, based on Adi Shankaracharya's composition. The last piece, a Thillana worshipping the Sun God, was also a magnificent confluence of South Indian dance.

Both were part of the ten-day long 47th Annual Festival organised by the South Indian Cultural Association (I got to see only these two). Unlike most programmes at Ravindra Bharathi these were paid programs, but the price was well worth it. It was interesting to see some young people in the audience too (though the majority were gray haired).

Waiting for Orange Juice (Not From Concentrate) On Indian Retail Shelves

Ever since my R2I (Return to India for good, if you haven't heard this term before) last year, one thing I have missed is the sweet-tangy taste of Orange Juice. It was a staple drink in those years spent in the United States. The ad of Florida's Natural OJ which showed consumers literally pulling the juice cans straight from the groves was a big hit. In the Indian context though such a pull is not easy, with the severe lack of cold storage chains connecting the farms to the marts. You will find many variants of the 'from-concentrate' OJ which do not need any refrigeration, but those I avoid. Instead I have resorted to eating orange fruits whenever I find them, but then they are seasonal.

A good development of late in India has been the opening up of retail in a big way. Reliance, Bharti-Walmart, RPG, Birlas, Tatas, you name it every big corporate house is venturing bigtime. ET reports Retail will jump from $12B today to $200B by year 2016! In most developed nations, organised retail is the economy's backbone emlpoying more people than any other industry. This is about to pickup in India with these companies making $30B worth of investments in linking the farm to the mart, triggering a new socio-economic revolution.

And now the government has just announced incentives to companies in setting up cold chains with reduced import duties, interest-sops etc. That should reduce my wait for OJ (not from concentrate) considerably!

SaaS And The Future of Bloated Enterprise IT

How many times have Businesses complained that they are not getting the worth for Technology spend? IT departments have bloated in size over the decades and with the ensuing bureaucracy and entropy, have often failed in providing nimble and economical solutions to the business. Nicholas Carr famously said on this: "Does IT matter?" implying it doesn't. Jeff Nolan now CEO of Teqlo and previously with SAP, also writes..

IT is no longer going to be the sole provider of these within the enterprise. In fact, my bet is that IT becomes a utility provider responsible for infrastructure services while business units take responsibility for business solutions. In this scenario SAP and Oracle are ill-equipped to win on their terms because for their entire history they have been solving CIO and IT problems, not user problems. "

Now Software as a Service (SaaS) is one disruptive trend that promises to offer Business Applications to end users without the hand holding of an IT department. So for a business user the vision is: 'I need an app, I go buy it off the Net from someone who hosts it and takes care of all the IT stuff (security, privacy, disaster recovery etc). Basically, I get the app on the tap.'

The handicap that Jeff articulated about SAP/Oracle is bound to impact the Indian services players too unless they evolve rather dramatically. So far they also have been solving CIO and IT problems, and attempts to connect to the business have not been very successful. To cite two reasons: IT feels threatened when they talk to the business, and Indian service players do not yet have the sales/engagement skills to talk to the business about their problems, leave alone solving them.

Now, Indian companies moves into SaaS have so far been revolving around either building the IP themselves (organic) or acquiring niche companies (inorganic). Basab Pradhan, a veteran IT Services Sales guy, in this latest post avers that it will be more of the latter.

But it is much more than just the product or IP involved, the desi companies will have to integrate different sales and product managment culutures into the services setup, compensate the product thinkers differently, allow for a different gross/operating margin play, invest in product lines much more aggressively etc. Ultimately the first S in 'SaaS' matters much more than the second which is increasingly a commodity.

Premature (And Sometimes Immature) Talk of Superpower Status

Some may find this article in Fortune's latest issue deriding India's superpower aspirations derisory (such as this reaction). Agreed the tone is unfortunately very snobbish but then the points it makes are also equally valid.

Though I am great India fan, the talk of super power status is just way too premature. Indian politicans find it a favourite past time, gloating on recent rapid growth. In a recent corporate fire drill, the coordinator was using a loud speaker and pepping up a crowd of few thousand IT employees by asking them if they see India's super power status coming. I found it amusing.

Until some fundamental goals are met: such as per capita income of $2500 (Atlas method) by 2015, or 80% literacy, reducing drop out rate before high school to 50% (from the current 94%), or a unified and simplified tax system, are achieved such talk should be discouraged. Empty super power talk, especially by Indian ministers and officials in international forums is useless, boastful and just doesn't help. Especially if those ministers in a coalition communist supported government are doing nothing to address core reform issues, such as labour laws.

If a communist China can provide gainful employment to relatively 100 million unskilled people in manufacturing, why is our communist supported government failing to do so? Archaic labour laws, vested interests representing only the formally employed sector (though the non-formal sector employs 10x times that figure), agriculatural inefficiencies driving many small farmers to suicides (even while politicians fight to prevent manufacturing projects like the Tata small car, though it will generate more employment for these un-viable farmers) : ALL THESE SHOULD GO.

This topic about should we rejoice in the recent bout of growth and the fundamental shift in trend growth rate is being widely debated. But isn't that debate, besides the point? Aren't we getting ahead of ourselves? Shouldn't we instead set goals on various socio-economic parameters? Goals that put the government under pressure to initiate more structural reforms rather than self-congratulate. Pressure to initiate reforms need not be external like the last time in 1991 when there was a serious Balance of Payment crisis. While some celebration is justifiable, we cannot go overboard until our 'goals are met'.

Grid Computing Funda For Education?

Of late, there is a lot getting published on the sad state of Primary Education in India, how neglected it is, yet how it holds the key to India's future growth etc. The Economist argues in its latest lead/cover article that unless major supply side constraints like Primary Education are not solved, increasing demand in the fast growing Indian economy will lead to overheating and even a meltdown.

However what has now set me thinking impromptu is this post by Shekhar Kapur on primary education. How about starting a network that taps the computer that exists in each of our brains. Kind of like the fancied grid-computing concept in computer technology? A grid of people, who will visit villages or slums to teach for half a day on weekends and holidays.

So what do we need to get this going?

• A team of half a dozen dedicated folks interested in teaching part-time.
  
• Algorithms to form virtual classes attaching teachers to specific villages and classes. Meet 'supply' of teachers (time slices) with 'demand' from the needy children leveraging technology.
  
• Course material (follow the 'prescribed syllabus of the regular school' or enhance it) or leverage some of the e-Learning material CDs that are developed
• Ideas on deploying technology (some old computers, some CDs with good material). One could later on leverage satellite communications to download study material real time or have some 'remote classes' during evenings of weekdays.

The IT industry is 1 million strong and using some 'Chinese Math', 1% of this million will mean 10,000 teachers. Even 1% of this 1% ~ about 100 teachers and will take this idea well past its critical mass.