Netcore has been my second profi-corn. Its 22-year existence can be split into two parts – the first 10 years or so where we did not grow because of my inability to create commercially viable products (other than a mailing solution for enterprises). In the second period, post 2007 or so, I got out of the way and brought in professional management to help build the business. That worked wonders. Netcore’s growth over the past decade has been spectacular – funded by its profits.
Netcore has stuck to a single focus – solutions for B2C companies. It started with SMS and email, and over the past few years expanded to a complete marketing technology (martech) stack. We made many mistakes en route, but none serious enough to kill us. We weathered many storms, but never deviated from the focus on ensuring profitable growth. Netcore has been led by 3 CEOs over the past 13 years who echoed this belief on profits.
I may make it sound easy, but it has been anything but that. When one sees competitors raise and splurge money, there are moments of self-doubt. I have had potential investors tell me that I was sacrificing growth for profits. I had never thought of this as a trade-off, but I do take criticism seriously and have introspected on this many times.
My conclusion is that each company has a certain DNA and that replicates the founder’s core beliefs. By nature, I am a fiscally conservative person. Once in my life in Netcore, I took the “cash burn” path (with my own money) and chased valuation – before my wife (who has been more than my equal in both IndiaWorld and Netcore) brought me back on track. For me, growth means being profitable, and being profitable ensures growth. They are two sides of the same coin. It’s not an either-or when it comes to profits and growth.
Tomorrow: Building a Profi-corn (Part 4)
When I started off as an entrepreneur in 1992 after I returned from the US, my father had two pieces of advice for me: never raise debt, and never lose other people’s money. Over the past 28 years as an entrepreneur, I have followed both suggestions.
My first significant venture was IndiaWorld. I started it after a string of failures in the first two-and-a-half years after my return from the US. IndiaWorld was amongst the first few portals globally – launching on March 13, 1995. The focus was to deliver India-centric content to global audiences, using the Internet as a distribution channel. I launched it at a time when the Internet was not even commercially available in India.
The desire to be profitable soon was paramount in my mind. So, even as we published the content, it was not all free – there was a $20 annual subscription fee that stayed for the first two years. It helped cover basic costs. I also started a service to offer website development and hosting for Indian companies. That took time to take off, but it did. At its peak, we were managing 200 corporate websites. And somewhere down the line, advertising kicked in as the portals gained popularity with NRIs (non-resident Indians).
I met with many VCs during that period. In most meetings, I would quote my expected valuation right at the start. Very few meetings went to a second stage! I could do that because we were profitable and I was under no pressure to raise capital. I knew the limitations also – it was hard to attract high-quality talent, which meant our 20-person team was stretched to the limit. We also improvised. Samachar.com was born as a tech alternative to expensive news editors and journalists. Our Khel.com live cricket coverage was done by two office peons whom we taught how to use computers, watch TV and update the scores in real-time.
IndiaWorld was profitable within the first year of its operation, and stayed that way through its eventual sale to Sify for $115 million five years later. It was my first profi-corn.
Tomorrow: Building a Profi-corn (Part 3)
In a recent Netcore Advisory Board meeting, one of the members remarked that Netcore had built a very interesting and different model – of profitable growth, without raising external capital. This needed to be talked about more, as an alternative to the “unicorn” growth model – where lots of capital is raised and burnt through quickly in the quest for rapid growth at all costs. As I was listening, a word came to my mind – “profi-corn”. I said it aloud, and everyone loved it. I spoke about this in a US visit earlier this year, and got a positive response – the word has a certain ring to it.
I defined a profi-corn as a company having four characteristics: profitable, private, promoter-funded and having a reasonable valuation (say, $100 million or more). Building a profi-corn means making a different set of choices than a venture-backed company. This is what I want to talk about in this series.
I have done two significant ventures in my life (IndiaWorld and Netcore), and in both I did not raise venture capital. Both were bootstrapped and became profitable early on, and so I was not desperate for raising external funds. Both have been profi-corns. In IndiaWorld, I got an exit which valued the company at $115 million in 1999.
Over time, I have come to realise that chasing valuation only gets you so far – if the focus is on building a profitable business with the right business model, one can survive through all ups and downs. It is not that I have never tried to raise venture capital or private equity – it is just that in all cases, I was in a position to quote my terms (which never got met). That did not slow me down. It just forced me to do the right things to ensure growth.
So, what does it take to build a profi-corn? Is it a binary choice between profits or growth, and between the short-term or long-term? Is it possible to ensure a balance? Why are profi-corns so rare?
Tomorrow: Building a Profi-corn (Part 2)
I have been an entrepreneur for 28 years. I have had a few successes (IndiaWorld, Netcore) and many failures. One theme through my ups and downs has been the focus on building profitable businesses. And that’s where I thought of the word “profi-corn” – as a counterpoint to the unicorn craze that’s been going around.
Unicorns are startups valued at a billion dollars or more. Many unicorns have been created in the past decade on the back of large fund raises and growth at all costs. In the post-Covid world, some will survive but a few will die. All of them will realise the value of profits.
There are two ways for companies to fund growth: they can raise external capital in the form of equity or debt, or they can generate cashflows and re-invest those in the business. I have focused on the second approach in both my ventures. One needs some initial capital – which comes from the founders (promoters). The aim is then to create a business model predicated on getting to profitability quickly and then continuously re-investing for growth. Without external investors, decision-making is faster and much more long-term.
That’s where I coined the word – “Profi-corn”. It describes a company that is profitable, privately held, promoter-funded and also has a reasonable valuation (say, $100 million or more). Given that many founders have 10-20% left in billion dollar unicorns, the wealth creation can almost be equivalent for the founders.
How does one go about ensuring profitability? Does being profitable mean sacrificing growth? What about gains for employees? What about the value addition that investors bring in along with the capital? What’s the right choice for founders? We will discuss these in forthcoming posts.
Mukul Pandya had interviewed me in Jan when I was at Wharton. In it, I spoke about the future of marketing (omni-channel personalisation, focus on best customers, maximising customer lifetime value), Netcore’s roadmap, the “profi-corn” mindset to build companies, and what India needs to do to counter the current slowdown (which will get worse after Covid-19). All of these are themes I will explore in my future writings. A few excerpts from my interview:
- What should be the goal of marketing? What would I as a CMO love to do? I’d love to maximize the lifetime value of my customers, which means I need to identify from my current set, from my current cohort, who are my best customers. How can I get them to spend more? How can I engage with them more? Earlier, it was very difficult to do this. Every person was treated pretty much the same. The next question is: What are the characteristics of my best customers? How can I go out and acquire more such customers? A marketer now has the ability to almost craft the perfect company, the perfect organization, with a customer base of the best customers.
- Twenty percent of your customers account for 200% of your profits, which means there are probably a lot of customers who are actually causing you to lose money. That may not matter today, but at some point in time it will. Companies will start realizing that all customers are not equal and that they need to start analyzing their segments and figure out which customers they should go after. Which are the types of customers they need to attract and engage?
- Identify and engage with your best customers. That is the differentiated proposition that a company can create. That is the way to create valuation for their own businesses and incredible value for customers via omni-channel personalization. You can’t deliver that to every customer of yours. So focus on your best customers and give them omni-channel personalization.
- ….how we’ve architected the company…the word I like to use is “profi-corn.” Many of the unicorns have been burning a lot of cash. I felt we needed something new, a new way to build companies, the way we have built Netcore over the last 20 years.
- A profi-corn has four characteristics. It’s profitable. It is private. It’s bootstrapped — there is no external capital, which ensures that the focus is on employees and customers, and not investors. And it has a baseline valuation — let’s say $100 million. Unicorns have a billion-dollar valuation, but the founding team is probably left with less than 10% of it. So if it’s $100 million (for profi-corns), and the founding team and the employees own 100%, it’s almost the same thing.
- About a year-and-a-half ago, I put together an idea called Dhan Vapasi, which means wealth return. This is perhaps the most powerful idea to counter what we are seeing in India.
- Our idea was that you can start monetizing all these assets…bring out all the idle land or idle assets into circulation. As we start generating money from these assets, the idea should be to return it to the people. This is the people’s wealth. The government only controls these assets. It’s the people who are the owners. To counter the slowdown on the demand side, our proposal was that every Indian family can be given back Rs. 100,000 (approximately $1,400) every year. This effectively doubles the median income of a family in India. As they start spending, it starts the virtual cycle of consumption, manufacturing and job creation. I think if the government can do this it will put Indians on an irreversible path to prosperity. Do it for 10, 20, 30 years — that’s the kind of wealth which is locked up in India. That’s how you can replicate the Chinese success. You can pull out a few hundred million people from poverty in the next 10 years.