Just Aspire
MMA organized a discussion on the theme of book “JustAspire: Notes on Technology, Entrepreneurship and the Future,”authored by Dr Ajai Chowdhry, Co Founder – HCL. Mr. M M Murugappan, Chairman, Carborundum Universal Limited delivered the opening remarks. Excerpts from the conversation Ms Sushila Ravindranath, Journalist & Author had with Dr Ajai Chowdhry, Author & Co-founder, HCL.
Sushila Ravindranath: Now everybody’s talking about AI and ChatGPT. What is your take on that?
Dr Ajai Chowdhry: Well. Artificial intelligence has been around for a very long time and it didn’t come to mainstream till ChatGPT happened. If you look at the utilization of AI around us, the first pieces that appeared were things like Siri on Apple. ChatGPT has really changed everything. There was thinking that by 2045, the computer will overtake the human brain. If that happens, then we can say that singularity is achieved. But with ChatGPT, I think this could be achieved much earlier. With all these technologies, there is also the possibility of increasing our lifespan.
Ms. Sushila Ravindranath: You are an investor as well. What do you look for when you’re investing in something?
Dr Ajai Chowdhry: I started my journey towards investing in startups about 11-12 years ago, when I joined an organization called Indian Angel Network. This is a network that had 100 plus members. Today it has 600 odd members, located all over the world. We invest in startups in a very big way. Close to 10,000 applications come to us every year. We shortlist 250 and from that 250, we pick up 30-40 to invest in. I have been personally investing in a lot of these companies. Till now, I’ve invested in about 70 odd startups. I also mentor some of them.
What do I look for when I see a startup? The first most critical aspect for me is the founding team. They must have fire in the belly and a clear indication of what they want to do and how they will achieve it. Do they have the right mix of talent? The next important point is their idea. Is it unique and can it stand apart from rest of the world? I do not invest large sums of money in one or two companies. I spread my risk and invest into 60 or 70 companies. I get a very good return because out of 10 that I invest, maybe one or two will give me the right return. Sometimes, I have received 40X, 80X and 120X returns. That takes care of the ones that fail. Typically, I invest between 5 and 10 lakhs in each company. I do not invest more than that.
Ms. Sushila Ravindranath: Are the number of people wanting go with startup ideas increasing?
Dr Ajai Chowdhry: The interest in startups has become phenomenally high now. When we started about 11-12 years ago, we used to see startups only from major metros. Now we see startups from every part of the country. There is a culture that’s getting developed. There is knowledge among people and support available for startups. A number of incubation centers have come up all over the country. Many angels are now investing. HNIs are investing into startups. Till about five years ago, nobody really thought that this is another way of investing your wealth and getting returns. Today, a startup model is very well proven and everybody wants to have startups in their portfolio. In Indian Angel Network, our IRR is around 39%.
Ms. Sushila Ravindranath: How are these startups? How do you rate their ideas? Are people coming up with revolutionary ideas? How are people evolving?
Dr Ajai Chowdhry: Out of 10 proposals that I see, six or eight maybe me-too variety. But the rest are very interesting and different. Those are the ones I look at. But sometimes, even with me-too ideas, if they have a differentiated model of execution, then definitely it makes sense. Flipkart was pretty much a copy of Amazon. But they came up with cash on delivery and that differentiated them.
Ms. Sushila Ravindranath: Is it getting increasingly difficult to differentiate one from the other?
Dr Ajai Chowdhry: It’s definitely possible because at the end of the day, it’s all about execution. You may have a terrific idea, but if you don’t have proper execution, you run into trouble. A lot of tech guys who are setting up companies believe whatever they produce will get sold. It doesn’t happen that way. You need to sell. This is something that I’m very particular about every company that I invest into and I tell the CEO, “You should know how to sell.”
Ms. Sushila Ravindranath: How did the entire IT revolution happen? You saw it firsthand and you were part of it.
Dr Ajai Chowdhry: When we started, there were just 100 computers in the country. That’s why we saw a huge market, with 600 million people in the country. At that time, there were very few other companies in the country. The numbers that were being sold were small. The objective of starting HCL initially was not just selling computers, but to sell the concept of why we should buy a computer. That’s how we started. We became leaders, because we created the market. There were so many myths at that time. We were one of those companies that believed in advertising. We had full page ads in newspapers. We broke the myth that computers are difficult to use. Our campaign said that even a typist can operate it.
Ms. Sushila Ravindranath: Did you have to go and train the people on how to use it?
Dr Ajai Chowdhry: When we started to deliver computers, we were also writing the software for the customer. Not only were we giving the product, but also the full solution. As we went deeper and deeper into the market, we realised that not many people existed, who could use a computer or not many knew how to operate the computer. It became a cost for us. From a cost center, we converted it to a profit center. Some of the founders of HCL created NIIT. That’s how Rajendra Singh Pawar and V K Thadani created the NIIT and made it a profit center.
Ms. Sushila Ravindranath: There was a big mind block about using computers. How did you break that?
Dr Ajai Chowdhry: In large government organizations, there was a huge opposition from their unions. For example, Life Insurance Corporation was very keen to buy computers, but their unions were not allowing. We came up with a strategy and said, “We will not give you a computer. We will give you an advanced ledger posting machine.” We converted our computer, ripped out some features and it could do only one application. We changed the brand from HCL 8C to advanced ledger boosting machines. It got accepted.
Ms. Sushila Ravindranath: Did you have to make changes in other large organisations as well?
Dr Ajai Chowdhry: People thought that computers were very expensive to use. We taught our salespersons to carry an ROI calculator, sit with the customers and tell them in how many years they would be able to get the return on the investment. We would calculate the benefits from reduction in inventory, receivables etc. That helped us to convince customers in the beginning. Then once the process started, there was no stopping it.
Ms. Sushila Ravindranath: You’re one of the few people who went into software.
Dr Ajai Chowdhry: I will tell you one secret. Every software company was born out of a hardware company. HCL software was born out of HCL hardware. Wipro was born out of Wipro hardware. All founders of Infosys used to work for Patni Computers, which was a big name in hardware. TCS was Tata Burroughs and it was a hardware company. Burroughs gave the first software contract to Tatas. The history of software is not known to many people. But it is a reality that the leading software companies came from hardware companies.
Ms. Sushila Ravindranath: You have been part of many path-breaking revolutions. Tell us about them.
Dr Ajai Chowdhry: The first one obviously, was the PC revolution. In PCs, we did a lot of innovation and differentiated our product all the time. We had domestic competition and later on global competition, when in 1995, the government announced the opening up through WTO. We had to be prepared. I had written a paper with the Dr. Seshagiri on how, as a country, we should plan to move when WTO hits the country, but the government did not adopt it. As a result, many SMEs in electronics died.
Ms. Sushila Ravindranath: How many years of setback that would have meant because of the government’s intransigence?
Dr Ajai Chowdhry: Close to 15 to 20 years. Many years ago, I wrote that we should be in semiconductors. We just didn’t take that. We also missed the bus in the China plus one. Ten years ago, there was a big discussion going on among many global companies that they must spread their risks away from China. Then China plus one became a major story. Who became plus one? It was Vietnam as they were so smart. They created a fantastic infrastructure. They had a highway, which would connect their port directly to the city of Shenzen in China in 12 hours. You could pick up your components from the manufacturer and send it out in three days. That’s the kind of infrastructure that is required for an electronics industry, which still doesn’t exist in India. Our logistics costs are too high.
Ms. Sushila Ravindranath: Is anybody thinking about it?
Dr Ajai Chowdhry: Oh, yes. There is a new logistics policy. Gati Shakti has come around. I hope, with that, the percentage cost of logistics will come down from double digits to single digit. That itself will be quite an improvement. But it needs to be very carefully evaluated. India has phenomenal opportunities in not just making electronics, but repairing for the world.
Ms. Sushila Ravindranath: That’s interesting. Can you tell us more about repairs?
Dr Ajai Chowdhry: 12-14 years ago, in HCL, we created a factory for repairs. This was created to repair Nokia phones, component level upwards. We were distributing Nokia products in India and created the whole Nokia market. On repairs, Nokia insisted that the phones received must go out immediately after repairs or else, they must be scrapped. We gave them an offer to repair the phones and set up the repairs factory in Noida. 400 people worked in that factory, three shifts a day. Amazingly, we were so successful that Nokia replicated it all over the world. If India wants to become the repair capital of the world, the opportunity size is $20 billion a year.
Ms. Sushila Ravindranath: We are always told that abroad, they don’t want to repair their phones.
Dr Ajai Chowdhry: It’s not just phones. It could be an oscilloscope. We can repair anything. We can bring them to India and send them back after repairs. The government has started looking at it very seriously. They’ve done an experiment with an electronics manufacturing company and a service company in Bangalore for three months, along with the customs people. The customs regulations have to be tailored to move goods in and out very fast. We hope that in the next three to four months, we will open up this big market, as India has got so many technicians all over the country and we can genuinely create a large repair capability.
Ms. Sushila Ravindranath: Tell us about how you launched HCL. It was a dream. It was a vision. How did you do it?
Dr Ajai Chowdhry: As I said, we had only 100 computers in the country. The microprocessor was just making its appearance. We created products around microprocessors. The first product that we created was a scientific engineering computer and it was called Micro 2200. It was meant for engineers and scientists. I started HCL in Pantheon Road, Chennai. The product was still being developed when salespeople fanned out all over the country with a beautiful brochure, and they were taught how to sell a product with a brochure. No product existed then. And that’s ultimate salesmanship.
My colleague and co-founder Arjun Malhotra was an alumni of IIT Kharagpur. He went and told them, “We are a bunch of young engineers and just starting out. If you help us to get started, we promise to deliver to you.” He made the first sale and sent me and every other sales person a copy of that order. I picked it up, went to IIT Madras and sold six of them. That’s how the business started.
Ms. Sushila Ravindranath: You also had a major client in Coimbatore. How did that work?
Dr Ajai Chowdhry: The whole south was very conservative in those days. Now, it has totally changed. But once we opened up the market, the adoption was phenomenal. As a matter of fact, South became the number one entity for us. We were competing with DCM, where we worked earlier. A salesman from DCM used to follow me wherever I used to go. I went to Coimbatore and he followed me there. We both made a pitch for the same customer- Premier Mills which is a large organization. We went in and got the deal. That’s history. From that day till now, my first customer is a very good friend of mine.
Ms. Sushila Ravindranath: How did you bring down the Nokia phone price and yet make it profitable?
Dr Ajai Chowdhry: We got into the telecom industry in the 90s when the government opened up for licenses in the country. We applied and got the Chennai license. Our partner was Singapore telecom. After having won the license, they backed out, because of their commitments in China. They didn’t want to enter India at that stage. Of course, later on, they bought into Bharti at a much higher cost. So we had to drop our telecom business.
But as were convinced that the telecom business was going to be huge in India, we wanted to be somewhere in that market. We tried out Motorola for about eight months and it didn’t work well for us. Then we got into Nokia, initially with pagers and later on, we picked up their phone. It cost around 16,000 rupees then. We did exactly what we did for computers-forming an association. We created an association for the telephone business called the ICA, through which, we approached the government for favourable policies in terms of duties and tariff. We calculated and showed to them that numbers would dramatically rise and they would get more revenue, if they actually reduced the tariff.
When Nokia team met me, I told them, “If you really want to do business in India, your pricing has to be totally different for India. You can’t run the European pricing in India. That is what Oracle and Intel does in India.” I suggested Rs 9900 as the price of the phone. After three weeks of discussions, they came back and said ‘yes.’ The market responded in a big way. The next time we met to celebrate the success of our 9900 pricing, I said, our next price point should be Rs 6600.
All over the world, Nokia used to sell phones with the service provider. We asked them to discontinue that model and they agreed to that. We created a distribution capability in the country, which was completely unique. We followed the model that Hindustan Lever used for selling soaps. We picked up a re-distributor model and through the distributors, who knew the local market, we created the market. We had around 100 redistributors – people who had sold all kinds of FMCG products. They had the funds and knew how to run the market and collect from the dealers. From 90 to 100 redistributors, we went to 110,000 redistribution points of sale. Nokia did great marketing and we influenced their advertising in India to resonate with the local people. We went from zero to 80% market share.
Ms. Sushila Ravindranath: Did you think at that time that every Indian was going to have a cell phone in his or her hand?
Dr Ajai Chowdhry: Not really. It was too early to think. We knew that the market was going to be huge.
Ms. Sushila Ravindranath: As you have played a major role in India’s electronics strategy, how should we go forward now?
Dr Ajai Chowdhry: I am an adviser to the India Semiconductor Mission. They have come up with very good policy and the incentives that India is giving are many times higher than anywhere in the world. If the US gives 30% of capex for setting up a semiconductor plant, India gives 50% and states are adding another 20%. As 70% of the capex is being taken care of by the government, they are very choosy and want to make sure that the business plan of anyone who comes in has to be good. In the next three to four years, we should have at least three to four semiconductor foundries; five to six packaging units; and 100 to 200 design companies. If we want to design products, we need to have design companies and an R&D center, which is now missing.
We have done large amount of electronics manufacturing but the value addition in the country is very low. We have become a country of traders. We need to completely change that and we need people who can design products, make products, so we can become a product nation. That is the way the software industry has moved from services to product. That’s where the value is. In products, the margins are 50 to 60%. Even in our services business, the margins are now falling, because it’s becoming a commodity in many areas. We have given a lot of inputs to AICTE on how to create B.Tech students with product capability. This has to be a very long journey. It may take us 10 to 15 years, but we can easily replace 20 to 30% of what China does today.
Insights from the Q&A Session
Q: In the wake of AI, ML and Industry 4.0, how far is India prepared technologically to become a superpower –industrially and economically?
Dr Ajai Chowdhry: It’s work in progress. In AI, we have a large capability but we are still behind the US in numbers. I have been involved in Industry 4.0. It’s still very early days for India. As we are very good in computing, our adaption to Industry 4.0 will be fast.
Q: There is a criticism that through the PLI scheme that we do, we do mainly assembling here.
Dr Ajai Chowdhry: The government’s idea is to create scale and enable large investments in manufacturing and thus create large number of jobs. That’s the way they started. But after three years of operating a PLI scheme, they should have added value addition as a requirement, which they did not. This is being corrected in the schemes which are now launched. Recently, two PLI schemes have come out. One is the telecom PLI scheme, which gives incentives if you design in India and the IT hardware scheme where they encourage buying components from India. As the government has given a commitment to investors that the policy would be in force for five years, they are unable to change midway.
Q: Would you think that any Indian electronics or semiconductor company could grow into such a size that they could form part of the nifty 50?
Dr Ajai Chowdhry: A lot of my HCL people would agree that our decision to close down hardware 12 years ago was a big mistake. If we had not closed down the hardware, we would have been one of the champions, challenging the world in electronic hardware. Today, there are opportunities for many Indian champions to emerge in electronics. The policy also should be tailored towards that. One of the suggestions that I have given to the government is that we must do demand aggregation. If somebody in India designs and makes a product, give them 50% of the business and encourage them to create Indian champions, which is what China did. This is something that the government has started to think.
Recently, when the government had to give an order for BSNL 4G stack, they asked Indian companies to do a trial run in one city. 14 startups got together with a company called Tejas Networks and they created a 4G stack. They did this test successfully in Chandigarh and they were the only successful people. The government took a very aggressive decision to place an order for 23,000 crores on them. What it does to them is that they can become as competitive as Nokia and Ericsson in this market.
In the US, DARPA used to give a challenge to startups to make a product. The same model has been tried in India to a smaller extent called iDEX, in the ministry of defense. This is something we as a country must do, if we want to create an industry. India entrusted the task of developing the Covid vaccine to two private players, which was never heard of in our history. The world today acknowledges that without India, they would never have overcome COVID.