Shereen Bhan In Conversation With Shiv Nadar & Ajay Chaudhary | HCL Tech | CNBC TV18 Classics

Those who have been pioneers in the digital revolution that India undertook in the early 70s: Ajay Chaudhary and Shiv Nadar, the pillars of the HCL empire. Not just HCL Technology, Ajay Chaudhary is representing HCL Infosystems. It is going to be our effort here this evening to understand how they created this global empire, the challenges, the mistakes, the lessons that they learned. Let me kick start this session by asking you, because it was the six of you that got together in the early 70s, gave up your jobs at that point in time, pulled in your savings which were I think about under two lakh rupees, and decided that India required computers when India only had 250 computers. What gave you the courage of conviction at that point in time?

But what gave you the ability to take that risk at that point? Because none of you really came from a business background in that sense. You were small town boys, if I can call it that. I remember you saying at one point in an interview that you were 22 when you first saw a big city. So what gave you the courage and the ability to take that risk at that point in time, when holding on to a job was really everything?

What was the wizard when you actually started off? Because as you said, you didn't really have an idea that you were going to in that sense be pioneers not just of Indian technology but as you said, world technology. What were you hoping to do at that point in time?

How critical was it for the six of you to get together? How critical was it for the right minds to get together? Because we've seen this story: Infosys is really a story about its seven founders, HCL empire is the story about six founders, of course two of you have stuck on pretty much right through.

Well actually, when Shiv actually thought about this whole thing that let's go and start a company, he called a whole bunch of people around in DCM where you used to work, and I think there were about 14, 15 people he talked to. I don't think more than five had the guts to come and join. And I think looking back, it was a great decision.

Was there a business plan at that point?

What was the tipping point really in favor? I want you to tell all of you.

But ironically, you brought in a government partner when you started the company.

What were the first couple of years like? What were the biggest challenges in the first couple of years for you? Because I remember you telling me in an earlier interview that there were times when you would actually drive your own car, and I remember it was a Fiat, and actually make deliveries because there was nobody else to do them at that point in time. Take us through some of those stories.

Well actually, as I mentioned last time, what we did was that we were a bunch of young engineers and we were creating the computers, and our computers were not ready but we still wanted to sell them. So the first lot that we made, which was a scientific desktop product, is something that we believed we could go and sell to engineering colleges, institutions like that. So we went to IITs and the top institutions in the country, and we appealed to the professors and said, 'Hey, we are designing this computer. We actually have a breadboard model ready in our labs. We created a beautiful brochure, and just on the power of that brochure and our concept around young engineers trying to create a company, we were able to make sales. So actually we got orders much before the product was really born.

What was the turning point?

We had to pay salaries five days afterwards. Did you manage to get paid salaries, or were you only handing out salaries?

How did you go about allocating responsibilities? Because when you're seven young founders actually going out there creating something that you believe in, how did you go about allocating responsibilities? Who decided what role who would play? Because I know Mr. Nadar, you're regarded as sort of the visionary, somebody who sort of lays out the larger picture in that sense. Who decided who does what amongst the promoters?

And you think that's important, that you have to have a clear leader in that sense?

Let's start the Q&A now. Anybody here who has a question that you'd like to ask either Shiv or Ajay?

How did you find people with a similar kind of passion to take the business forward? If you didn't find such people, how did you instill that same kind of passion which you all had when you started to create your organization?

You just said that you did take salaries and it never reached that level. My question is that there is always a stage in an entrepreneur's life where he has to take a decision about reinvestment versus dividend out profits. When there are six people, it's easier because you push each other into more reinvestment or more dividend depending upon the situation. But when you're the only decision maker, what are the parameters that one should keep in mind in deciding that? If I've got a million dollars in profit, how much of it should be invested back into the company, how much should be taken by the promoters, and what are the key drivers? At what stage in an organization do you think this division becomes clearer in the mind of the entrepreneur?

So what would your advice be to somebody like me at this point in time who's grappling with what to do, how much to reinvest, how much to give out as dividends, how much should he hold back for himself?

What would HCL be today? Are you more a research and innovation company, are you a more finance driven company, or a more marketing driven company?

Quick answer: research and innovation is how they... And I think one key thing you have to remember is that even when you look at research and innovation, marketing forms a very important part of any organization. Right now in marketing, when we set out to create HCL, we were creating businesses. So you actually created a market for a product that didn't exist. In those days we used to sell computers as a concept, that's how we started. So you actually have to innovate in marketing as well. In a lot of ways, for example, we created the EMI concept in this country, it didn't exist. We went to IDBI and we said we give this for SMEs, and IDBI had a scheme for SMEs, and we started EMI on computers when nobody had really thought of doing it, and that created the whole market. First 3500 rupees a month. 3500, why it was such a hit.

In hindsight, this was 20 years ago and you had your six partners again. How would you look at starting up a new business today? Not in terms of which industry to enter, but what are the factors that you would take into account today?

What kind of qualities would you look for in a successor who could take HCL forward?

You've changed your sort of philosophy as far as customers and clients are concerned. I remember you telling us some time ago that we will only work with customers who consider HCL to be strategic and core. We will have fewer clients but we will do more for them. This is obviously strategic thinking, a deliberate conscious decision. When you're not going after the volumes, you're not going after the hundreds of clients, but you're going after clients who feel that HCL will in some fashion be strategic and core to their business plans. Is that really the way forward in an increasingly competitive market?

When you're moving with some strategic thinking, short-term losses may not worry you, but it will worry someone who's not in the business but also is an investor. You have to carry them. You go on to an analyst call and when you say that you have dropped 50 clients and gave away 80 million dollars for the business, they will look at you and say that your body language is not right. But how do you deal with that? Because it's a real problem and it is a challenge, especially when you're being looked at quarter after quarter, every number is being analyzed.

There are two kinds of entrepreneurship models. One is what is very much the in thing today, which is other people's money. You have a great plan, you think that you want to scale a lot, you take that plan to investors, you make a business plan, and it's a kind of a straightjacket. You have to stick to that plan, and there's perhaps very little deviation that you can make on the plan. But in your case, and in perhaps the case of many entrepreneurs, as you get into a business you find that there are lots of other opportunities that you would never see unless you were in that business. So at the time when you write a business plan, all those opportunities would not be known. They would unfold as you get into the market space. What are your thoughts about it? And it's a practical situation for me.

In fact, I remember something that you said about your joint ventures, and I'm going to quote that you said: 'Many times you can go on your own, but sometimes somebody else's strength and your strength put together can give you much faster growth.' So that's really the philosophy, the idea that propelled you to get into a joint venture with Deutsche Bank, with British Telecom, with a whole host of other people that you did get into joint ventures with. So would you advise that to budding entrepreneurs here that for faster growth, to match their strengths with somebody else's and to actually achieve the goals that they've set out to?

I'd like to learn from your experience of doing that. What's the secret of creating or attracting other co-entrepreneurs to bring some of these dreams to reality?

In your opinion, what is the right critical mass, right time for a startup to think of acquisition?

Sometimes in a manner, luck plays a role. For example, in this whole Hewlett-Packard situation, we went and started manufacturing a product under license which was called the Apollo Workstation, and HP bought Apollo. And in a manner, we inherited HP and HP inherited us. So it just so happens that I was sitting and chatting with their managing director at the overall operational response, Suresh Rajpal, and I was chatting with him and I said, 'How do we do more than the workstation business?' So he said, 'That looks sensible, why don't we discuss it? But we've already set up our commercial computer business in India and we've already started going and we've got a manufacturing asset. Doesn't matter, let's chat.' So I said, 'Shiv, why don't we just go and meet Suresh and see what comes out of it?' And that's how HCL Hewlett Packard was born. And I think we learned a lot from that joint venture. We learned what is scale, we learned what is quality, we learned what is process. Till that time, as a company we were passionate. HCL was passion 100%. It still is special. And we felt that somewhere passion and quality should come in, processes should come in, because as you start to grow, processes are important. But as we say in HCL: pride, passion, performance.

If you've got more questions... How do you manage post-acquisition integration? How did you manage it when you were much smaller and bought smaller companies, and how do you manage it today when you buy much larger companies?

We've been talking about the successes, but if I can get you to talk about the failures. I'm sure over the past three decades there have been some failures. What are the important lessons that perhaps you've learned along the way when things have not gone the way that you had planned them to be? If you can give us examples.

Pretty early days, somewhere around 88, 89, we decided that we had developed, we believe, a very good hardware product which was based on multi-processor Unix, what we called a multi-grain Unix. And we felt that globally this product would have a great opportunity. At that stage, I think McKinsey came in, they were just entering India, and they said we would like HCL to be our first customer. So we willingly became their customer, and we felt that they would give us an opportunity to go to the United States. So they wrote this whole strategy which they said this is your entry strategy of taking hardware to America, and we decided fine, that looks good. So we decided to take hardware to America, and we actually took a place in the valley and we started looking at manufacturing the product there. In the meantime, we were going and picking up business, and just so happens that we got some reasonably good business. As a matter of fact, it was a pretty big deal. After having got that deal and got our products into the United States, we suddenly discovered that we hadn't taken care of the environmental issues in designing the computer. So what happens at that stage is that nobody in America would buy the product unless it's environment assured. Here we didn't know that. In the product that we had designed, it's not necessary to do that in India. But it was required, and so the whole thing was a disaster. And this is an important lesson especially for people who are trying to be in a particular economy. And then we ran out of everything, and then we switched to let's do something in software. We hung around, but that was a bad fall, bad point.

One of the characteristics of entrepreneurs is the more successful you get, the more unreasonable you get in your future expectations as you look forward. What are the most unreasonable goals that you've set for yourself for the next five to ten years?

I'm not thinking anything outside the scope of work that I do. Therefore, in my mind, there are two things that I really want to do. One is to set up, create the country's best system integration company. That's really where I'm going. I want to look at creating a two billion dollar organization in system integration. And secondly, we've just started a new little project which we believe will be a very big project tomorrow, which is in the business of creating a global service security and surveillance business. And that is really what excites me today, doing something completely different but within the whole knitting as we say. But it's not something that we have done before, and really that's what I want to set up a global company to do.

I want to talk about what they actually do when they're not in their board rooms. I know both of them are huge movie buffs, sport fanatics as well, cricket in particular. Mr. Chaudhary is a music buff as well, and I know Mr. Nadar is a film buff. So I'm going to get him to end this with a dialogue from your favorite movie on what could actually motivate all these young Turks here. She's done it again. I've done it again because I think it works brilliantly every single time. I say this to all my colleagues in HCL pretty openly, so I'll say this to you also. I talk to people who joined the company and I tell them the same thing. How many of you have seen this film called Patton? General Patton, there's a tank named after Patton. A couple of them. If you've seen the opening remark about Patton, he is an American General. Now he's addressing people, this is Second World War. Absolutely majestically walks across and he tells them: 'No bastard ever won a war by dying for his country. He won the war by making the other poor bastard die for his country.' And then he goes on. So I said this is business is like warfare. Don't go and say that we fought well and we lost. Wipro, we are not there for it. You are there to win it fair and square, bring the business, deliver it, and get the guy fired from his job.

On that note, you've given us an insight into the world of Bollywood and also an insight into war room strategies. Many thanks for joining us here on this Young Turks tutorial. It's been an absolute pleasure. We wish you the very best of luck.