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 Another
day, another seminar. There is lively debate on such issues as "Did
NASSCOM rename phone operations as it-enabled Services?" (to
get tax concessions for this admittedly non-tech sector) and "Whether
it services are just a subset of the BPO sector" (a gent from
a consulting house insists it is, and refers to his complex diagram
of The Way The World Works). All very, yawn, interesting.
The questions come, and the aforementioned
gent is asked what it will take to play in the BPO space. (My teeth
grit every time I hear 'sector' or 'space'. I can't imagine asking
my doctor friend, ''How are things in the gynaecological space?''
Or my cook: ''What's up in the near-term nourishment sector?'')
The consultant answers, quite assuredly, that
you'd need at least Rs 25 crore to be a player. Many entrepreneurial
dreams are heard crashing in the background. He's then asked what
one would value a BPO firm at. He says US outsourcing firms are
now valued at 0.25 times revenues. I overhear a sharp intake of
breath. So even if that firm with a Rs 25-crore investment were
to make Rs 100 crore in a few years time, it would still be valued
at Rs 25 crore. Not good news for the investors, I'd imagine. The
dreams that haven't yet died, slowly curl up and do so. Mr. Block
Diagram also agrees with me that the Wipro-Spectramind deal was
like the Sify-Indiaworld thing. Irrational exuberance at the peak
of the market, not likely to be seen again.
Then the plaintive questions come-so what should
we look at doing? What should India aim for, if the vision of millions
of headset Hamsinis is more a mirage than reality? Amidst the talk
of higher-value outsourced services, which are annoyingly undefined,
comes a simple idea. Can we build intellectual property, instead
of business processes? IP instead of BP?
Can we look at research from our iits (Indian
Institute of Technology), CCMBs (Centre for Cellular and Molecular
Biology), CSIRs (The Council for Scientific and Industrial Research)
and IISCs (Indian Institute of Science), and see if these don't
just remain academic theses? Can this work do more than just propel
its author to an assistanceship at a US university?
I've seen enough to believe that a lot of it
is world-class work, and a reasonable part is commercialisable.
In the last year alone, I have seen modules that can control robots
to become interactive toys for kids, low-cost chips that can 'understand'
images, software that can predict a credit card holder's buying
patterns, even a better coconut de-husker. All products of Indian
minds based in India.
What would it cost to create a commercially
viable enterprise to take these ideas to market? I would venture
somewhere between Rs 25 lakh and 150 lakh each. About 20 times less
than a BPO operation. That given, what can one expect from such
a business?
Well, let's assume you have a reasonable technology
lead and protection from early parity-whether your work is patentable
or not. (While I'm all for IP-based businesses, I don't see patents
doing very much to stop a company that wants to rip you off-ask
American drug companies about Indian firms, for instance.)
I'd say that initial investment should be able
to see you get to a revenue size of about Rs 5-10 crore at 30 per
cent profitability in a few years, again assuming you market well.
There's a risk you may shut down-just as there's a risk your BPO
business won't take off.
If you survive, your IP-based firm's valuation
will be somewhere between 5x and 20x of profits-so you'd end up
worth between Rs 5 crore and Rs 60 crore. Let's say Rs 25 crore,
which might seem the same as that BPO firm. But this is on an investment
of Rs 1 crore or so. So the investor, whether he owns a 20 per cent
or a 100 per cent stake, will make out like gangbusters. As will
the employees, who I hope have some of the equity. Further, I can
imagine the glee of today's graduates to NOT work at a dead-end
call centre job. It's likely to be more fun building a global success
from a local innovation.
So why is nasscom rushing to brand India as
the world's back-office? That's because the big guys who fund them
want that business. If you're interested in an IP-based business,
you're not likely to get too much support from the establishment.
But that should be the least of your worries. Bash on regardless,
ASAP.
Mahesh Murthy, an angel investor, heads
Passionfund. He earlier ran Channel V and, before that, helped launch
Yahoo! and Amazon at a Valley-based interactive marketing firm.
Reach him at Mahesh@passionfund.com.
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