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Building An Indian Outsourcing Leader: MindTree CEO KK Natarajan (Part 5)

Posted on Sunday, Nov 9th 2008

SM: How much financing did you raise to get started?

KK: We raised $9.5 million for our first round. We learned that when a group of our caliber is formed, expectations are high. Early on we took the calculated risk of taking a higher level of funding to ensure we could grow the business to a certain scale. That scale was a four to five year time span and $100 million in revenues. To do that in a services context we needed to invest in markets and acquiring customers.

SM: Otherwise you would have bootstrapped?

KK: It certainly would have been feasible.

SM: Did you build a sales and marketing organization in the US?

KK: Yes. I lived in the US for just over two years during the early stages.

SM: What kind of ramp did you see in those early years? Who was your first customer?

KK: Our first major customer was Avis Rent a Car, and they have continued to be a customer for close to nine years now.

SM: What were you doing for them?

KK: Avis was facing a business issue where their average rental was running $40 and each reservation made through a call center cost $3.50-$4.00. They did not have a clear path in terms of leveraging the online experience to improve their margins. We did an initial six-week study to determine what options were available and explained how they could leverage online channels. Afterwards we won the implementation phase, mainly because we knew their objectives and the space so well. Their mandate was that they should become one of the top two most popular car rental sites within 18 months, and that at least 10% of their reservations would come via the new online channel. We met those goals in 12 months.

That illustrates something that I think is very valuable in business. You need to take things one step at a time and build upon the previous step. Avis led us to other business, both from Avis and from other groups. We then got started on hotels and reservation systems. We did $20 million of business in reservation systems annually.

SM: What was your next big milestone?

KK: There are two things that happened. Early on, when we got customers like Avis and Lucent Technologies, we were tracking for a first year of $9 million in revenue. From there we wanted to see how we could expand. What we saw was that the traditional service companies where focused on building software solutions. The strength of our solution was identifying the underlying technologies which were going to be popular in the future. Because of that we launched an R&D business. We built intellectual property based on the key technologies. That gave us an advantage because it allowed us to address a different segment of decision makers such as the VP of Engineering.

The second big thing we noticed was that even in downturn cycles, was that there was a time lag between R&D and traditional services offerings. If the R&D technology spending slowed down, we knew that was a leading indicator that enterprise spending was going to slow down. It allowed us to build in cushion when needed.

SM: What was your primary focus, e-business?

KK: No, we did expand and do a lot with that, but primarily we focused on telecom. Telecom led to technologies, specifically communication technologies. We wanted to do more with value added service providers. When the bubble burst 50% of our business disappeared because they were startups. The R&D services were still going strong, so instead dropping, our revenues remained flat.

Once we got into enterprises, we really started expanding our range of services. We started doing some mainframe work, which gave us more of an annuity type of revenue. The focus was to get as large a portion of the enterprise as we could. In three years we probably had fewer than 20 customers. Instead of going from 20 to 100 customers, we took those 20 customers and worked as deeply as we could into each of them.

This segment is part 5 in the series : Building An Indian Outsourcing Leader: MindTree CEO KK Natarajan
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