A lesson in profit and politics

Good morning! Rajesh Jain, founder of marketing tech firm Netcore Cloud, was a frontrunner among the early Indian internet entrepreneurs back in the 1990s. Jain cashed out when the dotcom wave at the turn of the century hit its high watermark, selling his IndiaWorld Communications to Satyam Infoway for $115 million or ₹499 crore. The media company was valued at 384 times its topline and 2,000 times its March 1999 profit. Jain has authored a book, Startup To Proficorn, chronicling the lessons from his journey as a serial entrepreneur. He also became invested in politics, rare for an Indian entrepreneur, helping the 2013-14 Narendra Modi-led Bharatiya Janata Party campaign, and later writing a manifesto, Nayi Disha or New Direction, advocating “political entrepreneurship”.

Jain spoke to The Signal Daily podcast about his entrepreneurial journey and his take on contemporary politics and policy-making. This is an edited and abridged version of the interview. Head to Spotify, Apple Podcasts, Amazon Music, Google Podcasts, or wherever you listen to podcasts to listen to the whole conversation. Plus, we've shared a list of long reads for you.

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Rajesh, what made you write Startup To Proficorn?

So, Dinesh, conventional wisdom is that the only way to really build a business is to go out and raise venture capital. Venture capital, angel, money, whatever it is. The reality today is that 99.9% of businesses are self-funded. You know, you look at the kirana store, you look at very small startups, they're not raising capital.

The challenge for a lot of these bootstrapped startups, which are private, is essentially: how do they scale? And that's the problem I try to address in the book, how can you build what I call a proficorn. So it's private, it is bootstrapped, it is profitable, and most importantly, it's highly valuable. And I define “highly valuable” as a valuation in excess of $100 million, because if you look at a unicorn, which is typically $1 billion, founders end up owning 10% of the company.

And if you do that with a proficon, which is valued at $100 million, it's pretty much the same outcome for the founder. That's the core message, that you can actually have an alternate approach to building the business where the founder is in greater control, there's a lot of freedom. And you can build valuable large businesses. I've done it twice.

Can you talk a little bit about profitability, value, and valuation? You sold IndiaWorld at a stratospheric valuation and it barely survived 10 years after that.

I think for entrepreneurs, there's a great piece of advice, which I write about in the book, from Hemendrabhai Kothari [chairman, DSP Investment Managers].

He says that more important than knowing when to enter a business is knowing when to exit a business. A founder must have a long-term mindset, long-term horizon. But it doesn't mean that you get so emotionally vested that you ignore what are very good offers on the table. And if you're profitable, you can actually afford to reject incoming offers that are not very good, which is what I did through the years. I would be very transparent in what I expected from a deal, and I could afford to walk away.

So, what is your take on today's startup scene? I mean, today's business mantra seems to be scale over profits. 

So, Dinesh, I actually get pretty surprised when I hear about startups that have been in business for five, seven, 10 years, and are still not able to make money every month.

We have started to celebrate e-commerce companies that have been around for a decade. And they're just making their first ₹1 crore in profit. Now, what is the essence of what business is about? It's about how you build a customer base. And really, I believe that entrepreneurs should be completely focused on what customers want.

That's the only way to build a lasting business. If you can create a model like this, where there is unit-level profitability. Where your dependency is not there on an ongoing basis for new funding to continuously acquire new customers who are essentially coming into a leaky bucket. So, that's the problem.

I think somewhere down the line, Indian entrepreneurs lost the playbook, whether it was of their own making or because of external capital coming in too easily into their companies. I think they're seeing a return to basics: the fact that you have to have a DNA of profitability as you build your business.

The heroes of modern businesses are not productivity hackers like Jack Welch or Carlos Ghosn. Those seen as real disruptors are entrepreneurs like Steve Jobs, Jeff Bezos, Mark Zuckerberg, Elon Musk. Why do you think that we don't have entrepreneurs like them in India?

I think, for a long time, India had the problem of not enough capital and not enough of a large market. Even today, if you think about it, the per capita income in India is just about $2,500. What's happening is that there are two things that are taking place simultaneously. One is the availability of capital. That is starting to happen because first-generation Indian entrepreneurs are doing well, they are exiting, they are able to take their companies to IPO, and we'll see a lot more of those happening in the coming years.

And that creates a virtuous cycle of domestic capital also coming in for investments into startups. Okay, so that's number one. Second is that as the economy grows the disposable capital keeps growing, and that then creates opportunities for newer companies to emerge and the market to grow. So, I think in India, for the first time, we have a foundation for entrepreneurship, again, in a flywheel effect.

You also devote a significant section of your book to failure. Why do you think failure is important? 

For the very simple reason that most startups actually fail. Okay, so most new ideas tend to fail. The entrepreneur thinks there's a 70% chance of success, and optimism is very important, because otherwise you will not even start the journey. But the reality is that 0.01% or one in 10,000 startups will actually succeed. By succeed, I mean, achieve significant scale. So, failure is part of the terrain in the life of an entrepreneur. I have made probably 35-40 attempts at different ideas in my 30-plus years as an entrepreneur. I succeeded in two.

I never set out to fail. But I would make sure that I didn't lose a lot of money in trying to fail. I knew what my worst-case scenario was. Even in Netcore [Jain’s company] today, we try a lot of ideas; many of these things don't work. But there are a few which work very well and give us that multiplier every so often.

Your focus on profits sort of reminds me of a recent Morgan Stanley report, which said this decade will belong to India, and it will be the world's third-largest economy and stock market by the end of the decade. It also said that the trend began when India shifted its policy focus from redistribution to profits. What do you think about that statement? 

I don't fully agree with that. I think there's a lot of redistribution still going on in India. There are 800 million people who still get free food every day from the government. We have an education system that is not state-of-the-art. I think we have government after government…we have lost a lot of…time on the education system.

Women's labour force participation is still low. And jobs. I mean, good factory jobs. You have a lot of jobs at the lower end. You need jobs that can pay ₹30,000 a month and then go up.

If India has to realise its true potential and get on the path to prosperity, I think we still have a long way to go. There's no doubt that the top 10% of India is going to do phenomenally well. They are well educated, they have a high quality of life, which is equivalent to some of the top of the pyramid people globally.

The problem is what happens to the other 90%-95% of people, and it falls off fairly rapidly after that.

So that brings me to another question, which is about creating the right environment for businesses to thrive and ideas to flourish and bloom. I know that you are a member of the Mont Pelerin Society (MPS), which laid the foundation of modern neoliberal thought and free market economics. The society will hold its annual meeting in Delhi next year. It's the first time it's being held in India. Rajesh, you have attended previous meetings and you are advising the organisers of the Delhi meeting. Could you tell us what's in store?

So, the theme of the MPS event next year in Delhi is freedom and prosperity for the next six billion. I think to understand the importance of a society like the Mont Pelerin Society, we've got to understand why a lot of people in the world are not rich.

Poverty is the default state. The world was pretty much universally poor till the 1750s, when the industrial revolution happened. I mean, the whole myth that India was this Sone Ki Chidiya (golden bird) et cetera, once upon a time, I think is all wrong. Because, at that time, the GDP of the country was directly proportional to its population.

So, the key thing to understand really is that we have to explain prosperity. What makes some countries rich? That foundation comes from freedom, economic freedom, personal freedom, civic freedoms. It comes from rule of law, it comes from the freedom of trade, property rights and so on. And in most countries, the governments basically intervene in the lives of people and chip away or prevent people from being prosperous. Mont Pelerin Society is really built to spread the ideas of classical liberalism, which I just spoke about, worldwide.

And if you see, there's a direct correlation between economic freedom and the levels of prosperity in our country. We need to just let entrepreneurs flourish. In simple language, that's really what needs to happen. Because people are great problem solvers. You do not need any help from the government to make these things happen.

Our hope is that, you know, India stands at the cusp of a phenomenal opportunity. And hopefully some of these ideas that we discuss over the four days of the event next year will result in, you know, the spread of prosperity, the spread of freedom to the six billion people who should really be positive contributors to innovation, to entrepreneurship globally. And that's how many of the countries which have prospered, where people vote with their feet. That's where people want to emigrate to,

So one of the things which you wrote after the last meeting was that unless they demand liberty, it is going to be a difficult path ahead for most Indians. Here’s what you wrote: “Having lost 75 years to Illiberal and interventionist governments, we are in danger of losing many more years.” Why do you think we are in danger of losing many more years? 

See, in India, what has typically happened is that while the British left in 1947, a lot of the rules that they left actually persisted.

Fundamentally, it's the relationship between people and government. If you look at a country like the US, the people are supreme, and the government is an agent of the people. If you look at the First Amendment, for example, it basically guarantees freedom of speech. In India, it's the opposite.

And it's not just in India, it's in many countries of the world that are not wealthy and not doing very well from an economic standpoint. The governments tend to have a lot of powers. And with these powers, they basically intervene in people's lives. They put hurdles, they put obstacles.

What we need to think about in India is that we need to focus on the rules rather than the ruler. In India, the rulers have changed, but the rules have remained the same.

Each of us must be asking why we are not five or 10 times richer than we are now. That’s the real question to answer. And it is a non-obvious answer. It is because of the interventions that are made by the government.

So, essentially, we need to reimagine our country. Where the relationship is changed, where the rules are changed.

Is it something you expected when you joined the BJP and then prime ministerial candidate Narendra Modi's campaign in 2013-14?

Yes, I did. Because I believe that while every government does its bits, you know, so everyone can claim that they've built this, they've done that… all of that is there. But I really believe that what India needed was a dismantling of the controls that are there on entrepreneurs. And that was my hope. That they will shift direction.

When you say that “was” your hope, it seems like you're quite disappointed. 

Yeah, because we had a leader in Narendra Modi, who has the ability to persuade a billion people. Now, could that have been used for creating an economic revolution in the country? For creating a freedom revolution? We could have had a distinct break, a step function growth. It's what Deng Xiaoping did. It's what Lee Kuan Yew did. It's what some of the South Korean leaders did. It's what Poland actually went through after it broke away from its Communist past. It's what the founders in the US did, the rules that they laid down.

But I think it's a sort of half-done revolution. I think there's a lot more that could have been done, you know.

In India, generally, businessmen and entrepreneurs tend to stay in the background and not step into the hurly-burly of politics. You are one of those rare entrepreneurs who did that and then wrote about your ideas of transforming politics. One of them is that India needs “political entrepreneurship”. Could you elaborate?

I think entrepreneurs can apply their mind to solving some of the big problems. I thought one of the biggest problems in India was the political system in India. Now, my approach in this was to think of the problem just the way an entrepreneur would do. For example, when I started (helping the BJP), I looked at the numbers and I said if the BJP had to win a majority on its own, it would have to think very differently.

And that's exactly what an entrepreneur would say. Instead of looking at incremental growth from the previous elections, where they had a maximum 182 seats, if they had to get a majority on their own, it would require a very different approach.

Instead of an aggregation of state elections, they would need a national wave. They could aggregate because they had won about 300 plus seats once. They needed a 90% hit rate. That's what entrepreneurs are good at. And I thought I could apply some of that in the political space.

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