The serial entrepreneur

From founding HCL to Techspan, and now, Headstrong, Arjun Malhotra has moved from strength to strength, exploiting every crisis to emerge an entrepreneur.

Alam Srinivas        Print Edition: January 8, 2009

Arjun Malhotra
Arjun Malhotra, 59


Education: B. Tech (Hons), IIT, Kharagpur

Age at starting business: 26 years

No. of years as an entrepreneur: 33 years

Initial investment: Over a quarter of the initial corpus of Rs 1.75 lakh

Source of fund: Personal savings and borrowings

Company: Headstrong

No. of employees:
3,000
TECH VISIONARY: He can be described as a serial technology entrepreneur. But he’s different from the founders of the multiple startups that are abundant in Bengaluru and the Silicon Valley. His spirit of entrepreneurship has flourished when there has been a mix of fun, passion and crisis. Meet Arjun Malhotra, 59, who has spawned two firms—the hardware-making HCL Computers (initially Microcomp) and the software services entity, Techspan—and is now part of the software consultancy firm, Headstrong.

In all three cases, Malhotra was ahead of the learning curve. He was not necessarily the first to move into hardware, software or consultancy, but he was among the first few to realise that the future lay elsewhere. “Before we (Malhotra and five other founders) started HCL, we were sure that we had a great product. Prior to Techspan, I wanted to fool around and experiment with software services. While planning Techspan’s merger with Headstrong, I knew that the Indian vendors needed to graduate from commoditised software services to value-based and consulting services,” says Malhotra.

THE FIRST ENTERPRISE: Malhotra’s success was based on luck, opportunities and vision. In each case, he was also driven by a professional crisis. In the 1970s, Malhotra was part of a team that developed computers at DCM Group’s new division. “Those were the days when the MRTP Act imposed restrictions on expansions and diversifications. So DCM decided not to go ahead with the project. We were shocked as we thought we had a killer product at a time when India was thinking IT and computerisation. So we decided to launch our own venture. Most of the team members agreed.” Microcomp was born in 1975. Malhotra and his friends pooled in Rs 1.75 lakh, rustled up from their savings and through family loans. They decided to initially manufacture calculators since it required lower investment. But they had no idea about how to start a business. They didn’t even know they required a licence. “After we had done our calculations pertaining to costs, selling prices and margins, we realised that we had to pay something called the excise duty. Since it was too late, we decided to cut our margins rather than re-do the maths.”

After HCL (Microcomp changed its name in 1976) got into the manufacture of computers in 1977-78, it became a huge success. It emerged as one of the most aggressive players with its advertisement blitz and in-your-face sales and marketing team. It was one of those rare firms that turned into a price warrior; it slashed prices, even as others were looking at ways to hike them.

TIPS TO LAUNCH A START-UP

• Consider business crises as opportunities to change the existing model.

• Think about the future and spot trends that are likely to play out soon.

• Leverage all strengths, even if it means acquiring a new brand image.

• Pursue your passion. It doesn’t matter if others don’t believe in it. Eventually, they will.

BIRTH OF TECHSPAN: By 1997, Malhotra was sure that the future lay in software, not hardware. After taking over HCL’s US operations in 1989, he could sense that the world was going through another technological change. He tried to convince HCL to venture into software. “They were apprehensive and wanted to wait before taking the decision,” says Malhotra. So he split amicably and started Techspan, with funding from Goldman Sachs and Walden International. It was a good time to set up a software services onshoring firm. Already, Indian vendors were in demand to deal with the Y2K bug which, felt experts, could be responsible for a collapse of the world’s social, economic and political systems.

Things changed dramatically by early 2001 because of the technology crash. By March, as American clients slashed their IT spends, thousands of Indian software engineers were laid off. The times were bad, but Malhotra spotted an opportunity in the crisis. “I gave my colleagues two options: lose your jobs or agree to a transfer to India at lower salaries. I realised that we could survive by changing our model from the high-cost, on-shoring (posting engineers at clients’ offices) one to low-cost, off-shoring (outsourcing work to India) one.”

The off-shoring strategy worked for Techspan. However, its success made Malhotra realise that software services were becoming commoditised. If an IT firm worked only on the cost arbitrage basis, it was unlikely to grab new clients. This was especially true for mid-sized companies like Techspan, which had to compete with Infosys and Wipro. Over the next few years, small and mid-sized IT companies took a hit as more orders went to the IT biggies and foreign clients set up captive units in India.

A STRONG STEP: It was time for Malhotra to think of ways to get into the value-added consultancy business. “I was sure that only a smaller firm had the flexibility to climb up the value chain. The bigger firms were too caught up in the quarterly cycles to take such risks or incur the extra costs,” says Malhotra. But it was still difficult to walk this talk. The reason: it would take time to build up such expertise within Techspan.

So, in October 2003, Techspan opted for a reverse merger with a not-so-healthy Headstrong, a US-based firm that specialised in consultancy for global financial services clients such as Morgan Stanley and Bank of New York. The idea was to leverage the brand image that Headstrong enjoyed in the US and other countries. The merged entity’s model looked more like that of IBM and Accenture. Only, while the latter two had adopted the consulting-to-outsourcing model by following a top-down approach, Techspan did it in the reverse order.

Even as we write this article, Malhotra is grappling with yet another crisis. This time, it is the sub-prime impact on the financial services companies, some of which are his clients. But knowing Malhotra, he is unlikely to be rattled by it. The entrepreneurial bug may bite him yet again.

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