I thought this interview worth blogging for several reasons. First, the impending merger between Mindtree Ltd and Larsen & Toubro Global Infotech (LTI) raises a number of issues which Shradha Sharma (SS) and KK Natarajan (KK) discuss in great depth. However, this is not the exclusive focus of the interview, in fact, the interview is set up in the same format as the ones that SS normally does with founder-entrepreneurs for YourStory; and Mindtree, while no longer a startup as such, is still a fairly young company. So the interview provides KK's perspective on many of the issues that arise in the context of the 'startup ecosystem'. Then of course there is the utter unflappability of KK himself, leaving one absolutely astonished to see the CEO of a company that is about to be 'taken over' without its approval so calm and composed in the middle of all that might be happening. I thought this was definitely worth writing about.
KK begins by mentioning the original Mindtree motto 'Welcome to Possible' to set the tone for the entire interview. He mentions 'Optimism, Optimism, Optimism!' as the basic ingredient of his overall mental makeup several times (but especially when SS asks him what the secret of his unflappability is.)
In the first few minutes, KK briefly reviews the current situation, in which a large Mindtree shareholder agreed to divest his 21.5% stake, which LTI agreed to buy. LTI further placed an order to buy 15% of Mindtree shares from the open market, which gave them the ability to make an 'open offer' to buy another 31% stake; this would result in LTI owning a 67% (21+15+31) stake in Mindtree.
In the first few minutes, KK briefly reviews the current situation, in which a large Mindtree shareholder agreed to divest his 21.5% stake, which LTI agreed to buy. LTI further placed an order to buy 15% of Mindtree shares from the open market, which gave them the ability to make an 'open offer' to buy another 31% stake; this would result in LTI owning a 67% (21+15+31) stake in Mindtree.
KK explains that Mindtree has always seen itself as fostering a 'High-Performance, High Caring' culture; with impeccable integrity & governance; that has generated high value for all its stakeholders. Thus, any intervention that could alter or 'take away' part of that culture is seen as ultimately lowering value to investors - both the ones in LTI and the ones in Mindtree. One source of competitive advantage for Mindtree was that it was able to see the idea of Digital Transformation as a business need as far back as 2012, and has made proactive investments in it, which are beginning to pay off now. The implication seems to be that this is one reason why it is the object of a 'hostile takeover' (i.e. that the takeover is not solely about scale).
KK further expands on the theme of Mindtree strongly believing that 'startups are the lifeline of the business ecosystem' - responsible both for Innovation and for Job Creation. The entrepreneurial mindset is that which forsakes the 'Job Seeker' mentality for the 'Job Creator' mindset. Further, he believes that both central and state level governments are doing a lot to facilitate entrepreneurship today, so that the path for would-be entrepreneurs now is much easier than it was when Mindtree was a startup two decades or more ago. Today, however, the entrepreneur needs to choose his initial investors very much more carefully. Such initial investors cannot just have a financial interest but must also be willing to leverage their own networks to help grow the business they are investing in.
But more than just that, KK also believes that if and when the initial investors want to 'exit', then the business founders must have the 'right of first refusal', i.e., the exiting investors must first offer to sell their stake to the business founders or their nominees. Mindtree had such clauses in its agreements with its initial investors for as many as three rounds of investment, but once it went public, such clauses became invalid. He laments the lack of 'poison pill' type of regulatory exceptions in India, which elsewhere allow founders greater control over the total shares of their companies.
In response to a question from SS about how founders could 'build a moat' to prevent hostile takeovers, KK mentions the 'Dual Voting Rights' (DVR) idea, on which he said the Securities & Exchange Board of India (SEBI), the regulator, has put out a white paper for consultation very recently. Such DVRs would provide founders much greater voting rights than happens currently. Depending on the details of the DVR, for example, founders could get a 10X voting share. Thus with slightly more than 5% of the shares, founders could, have a controlling vote share.
SS asks about 'unicorns' and 'soonicorns' (soon-to-be unicorns) - to which KK provides some statistics about how the venture capital funding pyramid gets built - only 4% of startups that get Angel funding get 'Series A', and at most 8-9% of those which get 'Series A' funding, also get 'Series B'. He adds that, for a startup, 'scaling up' is an essential part of the game, but it should only be undetaken when the founders have understood the path to unit profitability. Without that understanding, it makes no sense to try to scale rapidly. As for unicorns, he mentions a statistic he read in a book - that only 1 in 20,000 startups becomes a billion dollar company!
When SS asks him about a people management tip - his response is that 'one must be a patient and active listener', because all engaged employees want to be heard. But it must be clear also who makes the final decision. The result of active listening must be a fully-aligned team, which is essential for efficient execution. Aligned teams deliver 40-50% better results than teams which are even slightly mis-aligned.
The interview ends with the listener/viewer (including me!) marveling at KK the man and the CEO, and with SS expressing the hope that all would turn out well. KK reiterates that he would like the present management team to continue to remain in charge of Mindtree.
