Investor’s Business Daily Indian entrepreneur N.R. Narayana Murthy, 54, has always sought the same results. It’s his methods that have changed drastically over the years. As a young man, Murthy saw communism as the answer to his country’s poverty and despair. Working in France in the 1970s, he embraced that country’s leftist movement.
“In those days – the halcyon days of socialism – it was very easy to be swayed by what was happening,” he said in a recent interview. Then Murthy began to have his doubts. While taking a train through communist Bulgaria, Murthy was seized by police on bogus espionage charges. He spent three days in a cell with no bed, food or water. His captors released him on the grounds that his native India was a “friendly country.”
“Who needs enemies when you have friends like that?” he asked himself. “For me that was the last nail in the coffin as far as socialism is concerned. I realized that’s really not how you make a society better.” He never lost his social conscience, though. Once back in India, he sought waysto improve the lot of his countrymen.
He started thinking about what was important to him and came up with four guiding principles. First, the only way to end poverty is by creating more wealth, he says. “Second, just as there are only a few good surgeons or a few good professors, there are only a few who can lead the creation of wealth,” Murthy said. Third, human beings need an incentive to create wealth. “Some people may want more money.
Some people may want more recognition. Some people may want more power,” he said. “They all need some incentive.” Finally, it’s not the job of the government to create wealth, he says. Instead,it’s government’s role to foster an environment in which business leaders can create wealth. In 1981, Murthy put his principles into action. At age 35, he quit his job as asoftware engineer, and with six partners helped start Infosys Technologies Ltd. in Bangalore, India, where it is still based.
No one in his family had been an entrepreneur. His father was a schoolteacher, and Murthy was one of eight children. But Murthy went his own way, and helped supply part of the $1,000 in start-up funds for Infosys from his wife’s savings. Murthy wanted his company to use India’s highly trained work force to deliver technology services worldwide. But Infosys had plenty of hurdles early on.
For one, India’s government kept businesses on a tight leash. “The velocity of decision-making was very, very slow in India,” Murthy said. “The government controlled everything. Somebody in Delhi, which is about 1,500 miles from Bangalore, decided if we should have a computer at all and what kindof computer it should be.”
Raising funds for expansion through an initial public offering was not an option because a government officer would set IPO prices. “He would invariably not give you a premium at all, because he would always look at the past and give you a very small fraction of your past performance,” Murthy said. “But capital markets are all about the future.” Then reforms in 1991 revolutionized India’s business climate. Government decisions were decentralized. Companies and investment banks could price their own IPOs. That made selling equity a practical avenue for growth, Murthy says.
But reforms brought potential pitfalls. The government granted more freedom to large foreign companies setting up shop in India. IBM Corp., Digital Equipment Corp. and others swooped in, ready to hire the country’s best and brightest. Many Indian firms sought state protection from the onslaught. Not Infosys. Murthy looked for solutions to keep his company vibrant. “Rather than try and chase (foreign competitors) out, we looked at what we could do to attract and retain people,” Murthy said. Infosys succeeded at that task.
By putting stock incentives and other perks foremployees in place, the company emerged as one of the most attractive places for tech workers in India. Murthy realized his dream of generating wealth on a grand scale. Sales rocketedfrom $10 million in 1994 to more than $250 million over the past four quarters. Infosys had its IPO in 1993.
Last year Infosys became the first Indian company to trade its shares on an American exchange – the Nasdaq. Investors have pushedits market value above $20 billion. Murthy, who is chairman and chief executive, makes sure he spreads the wealth. Scores of Infosys workers are now millionaires. Along the way, Murthy made some tough calls.
In 1995, Infosys lost its biggest customer, General Electric Co. Rival Satyam Computer Services Ltd. put in a lower bid for the contract. Murthy now realizes he was right not to chase GE at the expense of profits. “A lot of people were ready to use GE as a loss leader,” he said. Instead of wallowing in self-pity, Murthy embarked on a campaign of “derisking”his company. GE had accounted for more than 25% of sales, he says.
He never wanted to be that vulnerable again. “Today we don’t want a customer to contribute more than 10%,” he said. Murthy applied the same tactic when the company was tackling the Year 2000 problem. Infosys made a lot of money helping businesses prepare computers for 2000, but Murthy was careful to keep Y2K revenue below 25% of sales. It peaked around 23%, he says. Murthy strives to keep contracts predictable, sustainable and profitable. That means his sales team knows exactly where money is coming from at least a year ahead of time. Infosys even keeps a risk mitigation officer on staff.
Murthy believes most of a company’s problems can be solved internally. Ultimately, Murthy says, a company is judged by its speed, its imagination and the excellence of its execution. “Most of the corporations of the world start blaming the marketplace, competitors or the government when they fail,” he said. ”
At Infosys we always say that solutions lie within us.” In the tech services business, Infosys is constantly in danger of being ambushed by fast-evolving trends. That’s why Murthy doesn’t stay too attached to any source of business. He just moves quickly to get in front of the next trend. With Y2K behind it, Infosys now helps businesses tap into electronic commerce. “Technology comes, technology goes.
We have no control over that,” he added. “The only things we have control over are our actions.” Though Infosys broke ground for Indian companies by joining the Nasdaq, Murthy doesn’t believe equity funding is key to a business’ success. “Look at the days when Microsoft was founded. I don’t think they had millions of dollars,” he said. “You need an idea that brings a difference to the marketplace.”
Even as one of India’s richest men, Murthy stays true to a worker’s lifestyle. He has a modest home in a middle-class neighborhood. He doesn’t keep servants and does much of the housework. He says he has a capitalist mind but a liberal heart. To Murthy, that’s no contradiction. “I call myself a compassionate capitalist,” he said. “You need to make money, but you have to make a difference to society.”
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Comments:
In contrast, I know of a business man who lost everything , his millions and end up with no money and no retirement fund. He bought many expensive properties during his high income years and saved nothing. Lost money to litigations and now starting again.