Corporate: Visualsoft's hard vision

An audacious Hyderabad start-up plans to become a global player in the shrink-wrapped e-biz software market.

Paradox could well have been a programme created by D.V.S. Raju. In 1997, the 39-year-old CEO of the Hyderabad-based software shop VisualSoft broke up with former partner Ramalinga Raju-now the high-profile millionaire CEO of the Satyam Group-precisely because he was risk-averse and conservative, and didn't want Satyam to go public. But in the three years since he set up VisualSoft-using a seed capital of Rs 2 crore raised from relatives and friends-it's risk that has been a staple in Raju's success-diet.

Today, the overwhelming majority of Indian software firms are building their fortunes on the safe bet of providing solutions: meeting the specific infotech needs of a client with specially-created software, a form of business where revenues are contract-driven and, therefore, guaranteed. But not Raju. He is navigating his company into the choppy waters of products: shrink-wrapped software packages whose fate will be decided in the marketplace.

FACT FILE

Name: D.V.S. Raju
Age: 39 years
Education: B.Tech., Jawaharlal Nehru Technological Univ., Andhra Pradesh, 1982; M.S., (Computer Engineering), Ohio Univ. (US), 1985
Business: Software products
Initial Investment: Rs 7 crore
Financials: Sales Rs 70.24 crore (1999-2000); Net Profits Rs 28.18 crore (1999-2000)
Experience: Software Asstt, REC, Trichy, 1983-84; Software Engineer, Danlaw Inc., 1985-87; MD, Satyam Computer Services, 1987-91; CEO & JMD, Satyam Computer Services, 1991-92; Consultant, 1992-95; CEO, Visualsoft, 1995-
Employees: 320
Work-Style: Team-based
Management Credo: Technology Is King
Hobbies: Gardening

Here, both the risks and the rewards are higher: margins in the software products segment. For, once the initial investment is recouped, every copy sold brings in dollops of profits. Estimates K. Krishnam Raju, 40, Director (Finance), VisualSoft: ''Software products can pull in margins of up to 70 per cent, while margins in solutions generally range between 28 and 30 per cent.'' But the chances of failure are high too.

When Raju-who holds a masters degree in Computer Engineering from the University of Ohio-booted up VisualSoft, he followed the conventional solutions route: in the first six months, the company developed b2b transaction-related solutions for technology-creators like Ajillon and Addecco, based in Europe. But, simultaneously, he set a team of five developers a different target: create an off-the-shelf package for companies setting up their own intranets and extranets-a market segment that he had sniffed out as a lucrative one.

In December, 1998, they delivered. And VisualSoft MediaKit, the first Indian product to be evaluated by Microsoft, was put on the shopshelves, offering as its USP the ability for users to create and publish content for their intranets and extranets. Observes Jay Raghavendra, 37, the founder and CEO of the software start-up Pramati Technologies: ''The past has given VisualSoft the confidence to venture bravely into new areas. This is important, as the products business is all about nerves.''

Kicked by the hit he had on his hands, Raju exhorted his software team to unleash a series of products in the Web-applications and e-Commerce markets. They responded with six new products in as many months, setting the pace for a process that has now swollen VisualSoft's product portfolio to 50 tools, components, and products. Today, new products account for 49 per cent of the company's turnover, and 60 per cent of its profits.

Raju's secret? ''We are careful when identifying opportunities,'' soft-pedals the born-again risk-taker. The template: every time VisualSoft bags a solution-project from a client, it sniffs around to measure the potential for developing the solution into a full-fledged product. ''The objective is to ensure that we minimise the risks and do not have to kill products halfway,'' says Raju.

It was this kind of thinking, for instance, that led to the June, 1998, launch of VisualShift, a tool-box for making pc-based applications Y2K-compliant. In a mere 18 months, the product raked in a cool Rs 16 crore for Raju's company. Likewise, as soon as Raju sensed a market for a product to aid companies to move into the Euro-currency environment, he encouraged his company to launch VisualEShift-an application for incorporating the new currency in office-productivity tools like Microsoft Office.

On the process Raju has had to take on giants. VisualSoft has competed globally against megacorps that have marketing muscle. Explains T.V. Mohandas Pai, 39, Senior Vice-President and Head (Finance), Infosys, only 2 per cent of whose revenues come from products: ''Marketing products abroad could eat up a chunk of revenues. After all, competing products hit the market immediately.''

Raju's solution: partnering. VisualSoft currently operates through strategic alliances with around 15 international software distributor-resellers to reach international markets. That such partnerships hold the key to the future is beyond doubt. Observes Amit Rathi, 26, Director, Anand Rathi Securities: ''The only way to get ahead of the competition is to have the right marketing tie-ups with global majors.'' VisualSoft also intends taking up joint product development with technology companies such as Sheridon Software, and has announced plans to establish five overseas product-support centres.

The economics of products is different, too. Investments in product development have to be carried out without assurances of returns-no matter how much market-research has reduced risk levels. Points out Hitesh Zaveri, 30, Research Analyst (Software), SSKI, Mumbai: ''Between 25 and 40 per cent of the revenue of product companies goes towards product- and feature-enhancement.''

Obviously this demands deep pockets. So far, Raju has got by on a combination of internal accruals-reserves stood at Rs 74 crore on March 31, 2000-and the Rs 42.74 crore that he raised through a private placement of shares in August, 1999. But although the scrip was quoting at Rs 6,690.85 (April 27, 2000), Raju is not inclined towards raising money from equity, locally, or through a NASDAQ listing.

As a next step, VisualSoft is planning to venture into e-services and also set up a portal for Net-based e-services. But, ultimately, it's only by marketing his shrink-wrapped packages globally that Raju can make his company a successful product of the ice Age.