Published April 11-15, 2020
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?
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.
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.
Along the way, in IndiaWorld and Netcore, I made many mistakes – luckily, none were too serious to kill the ventures. As long as one gets the big decisions right, one will eventually win. A friend once asked me (after the IndiaWorld sale) – was I smart or just lucky? After some thought, my answer was that one has to be smart to benefit from luck.
Building a company focused on profits means making a different set of choices than one would if there was unlimited capital available. Of course, there have been very big venture-backed successes – most of the big tech companies today were all venture-backed in their early stage. But that does not make it the only route to growth and success.
In Netcore, we have survived many industry shifts. The company today is unrecognisable from the one 20 years ago, or even 10 or 15 years ago. I could never have imagined us having 600 employees, or a presence in many countries including the US. Yes, I did want to grow, but at each stage, it was climbing the next mountain – and then discovering there is one more mountain to climb! There is a long-term vision, but that’s only as good as the execution one can do over the next 12-24 months. (Strictly speaking, that sentence is internally contradictory.)
A friend once called Netcore a “survivor”. We have seen many challenges and challengers. Each has been overcome. We haven’t always been the first in a vertical, but our tenacity got us through. We worked hard to get it right. We failed in our expansion outside India for many years, but did not give up – and finally succeeded. As I see the Netcore flag planted across South-East Asia, it is such a joy to behold us helping customers beyond the shores of India. We did not get our initial foray into martech right, but have worked through it and now are competing with the best in class globally.
We can make these decisions because there is a long-term focus that we bring to bear. At Netcore, we live for our customers and employees. There is no third category (investors) that we need to worry about. And that, for us, has made all the difference.
As we live through these difficult times of the virus and lockdown, I know that Netcore will come out even stronger – we have converted every crisis into an opportunity. As I told my colleagues at a townhall meeting recently, Netcore has 3 significant strengths compared to our competitors – profits, cash in the bank, and no investor pressuring us to cut 25% of our costs. This helps us take the long view – an “infinite mindset” in the words of Simon Sinek.
True, the next few quarters will be challenging. There is uncertainty about the future. I don’t have too many memories of 2008 since Netcore was very small then. But I know that the basics of business don’t change. Eventually, all businesses are valued based on their future cashflows – and for that, profits have to matter. All of us in Netcore are focused on creating a “built-to-last” business – without worrying on what the exit is going to be.
It is the same mindset I had at IndiaWorld – love the business enough to be able to run it for the rest of your life. Only then will one make the decisions to make the business stronger daily. If one is distracted by the objectives of investors and raising capital continuously to fund losses, eventually the interests of employees and customers will take a backseat. Profitability is a mindset and a founder’s DNA – it cannot just be developed overnight.
I hope the world will see more profi-corns. It is not an impossible mission – it just means committing to a different set of choices. By making employees and customers central to the mission, by ensuring costs never exceed revenues, by realising that there is no finish line in business, by continuously learning from mistakes and not giving up on the things that truly matter, by believing that profits and growth are both possible simultaneously – every entrepreneur can work to building a profi-corn. It is a happier journey.