If you are a senior executive at a startup company and you don’t understand how stock dilution works, you may be on the path to a painful lesson. Don’t learn about equity dilution the hard way. Understand stock dilution before you sign your employment agreement and you’ll be happy you did.

Let’s say, for example, that you signed up to be COO of a startup company and the CEO founder offered you 5% of the company. The CEO says there’s no funding in the bank yet, so you’ll have to sign up for a low salary — $50,000 per year.

But he assures you that he’s had conversations with venture capitalists and there’s a sense that if things go right, the company might one day sell for $100 million.

Hmmm, you think. 5% — not bad. If we sell this thing for $100 million, I will walk away with $5 million.

WRONG!

Your math failed to take into account stock dilution. That’s the effect the issuance of new equity shares has on the existing shareholders.

Let’s go back to our example and see how stock dilution works in action.

You take the job and get 5% of the company.

Odds are you don’t get it all at once — it’s probably subject to a vesting schedule and it might only be stock options — but that’s not really relevant to our equity dilution lesson.

How much is 5% of your pre-funding company worth?

Not much. In fact, until there’s a funding round you don’t really know what it’s worth.

A funding round is important to entrepreneurs and their employees because it’s a milestone that values the underlying stock of the company.

So, let’s say that a year after you’ve been working as the COO of the company, you and the CEO are finally able to land a funding round.

The funders says they will give you $700,000 in capital for 35% of the company.

What exactly does that mean?

It means that the total valuation of the company after they put their money in will be equal to $700,000/.35, or $2,000,000.

In VC terminology, that’s the post-money valuation. The pre-money valuation is therefore $1,300,000. That’s the post-money valuation minus the value of the cash that is coming into the business as part of the funding round.

So, after the funding round, the valuation is $2,000,000 and you had 5% equity in the company, so now you’re equity stake is worth $100,000, right?

WRONG!

Equity dilution knocks down your percentage stake in the business.

Here’s how equity dilution works in this scenario.

Let’s say there were 1,000,000 issued shares prior to the funding round. In order for the new investors to get a 35% equity stake, they need to be issued new shares.

How many shares?

It’s a simple algebra problem. Let x be the number of new shares that need to be issued. The equation becomes:

x / (1,000,000 + x) = .35

Solving for x implies that 538,462 new shares must be issued to the investors.

The math says that it should be 538,461.5 but there’s no such thing as half a share so we round up. Believe me, investors won’t round down. If there’s something on the table to be taken, they will likely grab it.

So, now the total number of shares in the company is 1,538,462. What your percentage equity stake in the company?

Well, you were allocated 5% of the 1,000,000 shares so you had 50,000 equity shares before the funding round.

After the funding round, you still have 50,000 shares.

So, now, your diluted equity stake in the company is 50,000/1,538,462, or 3.25%.

How much is it worth?

The answer is simply .0325 x $2,000,000. That’s your percentage equity stake times the post-money valuation. As it turns out, your stake is worth $65,000, not $100,000 as you might have thought.

If the company were to sell for $100 million now, after the first round of venture funding is in the bank, you 3.25% stake would be worth $3.25 million, not the $5 million you thought you’d get before you learned about equity dilution.

Notice that there was an easier way to figure out your post-dilution equity stake. You gave away 35% of the company in the financing round, so your 5% was knocked down by a .65 dilution factor — that’s what you got to keep, in effect. So, 5% times .065 gives you the 3.25%. It’s the same answer, but it’s a quick way of calculating the effect of dilution on your equity stake.

Mind you, this is just your first round of dilution. If the company has to do a second round and gives away 40% of the company to new investors, then you’ve got to knock your 3.25% equity stake down by a .60 dilution factor. After that second round, your ownership stake will be down to 1.95%.

Is that good or bad? It depends.

If the post-money valuation on the second financing round is $1 billion, your stake is only worth $19,500,000. Not bad!

If the post-money valuation on the second round is $2,500,000, then your equity stake is only worth $40,950. Given the salary cut you took to get in on the action for this startup, this is a pretty miserable scenario.

Adding insult to injury is the fact that your equity stake’s valuation is not real — it’s just a paper value. In a startup company there’s usually no liquidity unless there’s an exit event of some kind — for example, maybe the company goes public or the company is sold to an acquiring company. At that time, you finally get to know what your stock is really worth.

What’s the moral of the story?

Well, for starters, you can see that somebody who doesn’t understand equity dilution is going to be overly optimistic about their likely take in a startup. They may be more willing to take a lower salary than they should be, or more willing to take a lower equity stake than they should be.

Now that you understand equity dilution, you won’t make that mistake. You’ll properly evaluate potential outcomes and likely funding scenarios and their dilutionary effect on your stake.

Based on your equity dilution analysis, we hope you’ll make smart decisions. Good luck!

Source: Gaebler

1. I believe that if anything is worth doing, it would have been done already.

2. I shall never move quickly, except to avoid more work or find excuses.

3. I will never rush into a job without a lifetime of consideration.

4. I shall meet all of my deadlines directly in proportion to the amount of bodily injury I could expect to receive from missing them.

5. I firmly believe that tomorrow holds the possibility for new technologies, astounding discoveries, and a reprieve from my obligations.

6. I truly believe that all deadlines are unreasonable regardless of the amount of time given.

7. I shall never forget that the probability of a miracle, though infinitesimally small, is not exactly zero.

8. If at first I don’t succeed, there is always next year.

9. I shall always decide not to decide, unless of course I decide to change my mind.

10. I shall always begin, start, initiate, take the first step, and/or write the first word, when I get around to it.

11. I obey the law of inverse excuses which demands that the greater the task to be done, the more insignificant the work that must be done prior to beginning the greater task.

12. I know that the work cycle is not plan/start/finish, but is wait/plan/plan.

13. I will never put off until tomorrow, what I can forget about forever.

14. I will become a member of the ancient Order of Two-Headed Turtles (the Procrastinator’s Society) if they ever get it organized.

A lot of people have been waiting for a correction for some time. Sure, the markets look stretched and a correction looks imminent. However, corrections will not happen just because we want it to happen.

I have also observed that corrections seldom happen when so many participants are eagerly waiting for them to happen.

In fact, tired of waiting, some global fund managers have started deploying their funds. If a fund manager is sitting on billions of dollars of cash delivering negligible returns, whereas the market is running away and other funds are performing well, would you expect him to be patient enough to wait for an extended period of time?

Investors today want instant returns and though what the fund manager might be doing is correct, he will be seen as a non-performer. This will, in turn, force him to invest and take the markets to high levels, as we are witnessing now.

On the other hand, there are many people who say they will invest when the market goes down. If the markets go down now, they will say to themselves, "See, I was right. I am a brilliant guy."

Their belief is reinforced when more global bears, who were hiding for some time, come out in the open and say the markets should correct further. Instead of investing when a correction happens, most people will wait for further lows, only to see the market has turned around.

Even when the turnaround happens, they believe this is a false alarm and the markets will go down for sure. However, when the markets do not go down but go up on sustained inflows, more and more players join in. You then see bigger institutions sitting on piles of cash joining the party, followed by the retail investors, which propels the indices to record levels.

Hence, I believe that more money is lost in waiting for corrections than in corrections themselves, because when a correction happens, very few have the conviction to invest or take advantage of it.

If you consider the last 18-24 months’ data, you will find that there are seven instances of more than a 10 per cent correction and four instances of a 20-plus per cent correction.

How many people had the courage to invest in the four instances when the correction was more than 20 per cent? I doubt if many did, as the leveraged ones were wiped out in the first sharp fall between January 14 and 22, 2008.

However, post the Lehman Brothers’ collapse and the credit freeze around the globe, there was a complete collapse of confidence, even though the markets corrected 43 per cent, from 14,900 on September 9 to around 8,451 on November 20, 2008.

The smart people, including the so-called savviest ones, just stayed out and did not invest on such severe corrections. In fact, they were howling on television on the Sensex going down to 6,000 and that it would take five years for the markets to reclaim 21,000.

This is because when a severe correction happens, our brains are wired to believe a further correction will happen and hence we should wait.

When the indices were on the way up in March 2009, the savviest ones again did a lot of number crunching and said it is a bear market rally and will soon fizzle. Again, people waited for correction, citing events such as poor earnings, and elections

The election was surely a game changer but even after the budget was presented, the markets corrected to 13,000-odd levels. Yet, how many people invested at these levels? The strategy was again to wait for a further correction all the way down to 10,000.

Relying on any prediction will do you no good, as no one really knows how the market will react even a day from now.

Just because the indices have run up so fast, so quickly, do not warrant a deeper correction than 20 per cent. However, when it comes to markets, anything is possible.

So, what should your strategy be?

Invest 10 per cent of your corpus on every 5 per cent correction.

If the correction goes above 10 per cent, and you have already deployed 20 per cent of your corpus, increase your investment to 10 per cent of the corpus or more.

If the correction has reached 20 per cent and you have put in close to 40-50 per cent, then you can look at investing much higher chunks at this point of time.

What if the market does not correct meaningfully? Start or continue to invest through Systematic Investment Plans. There is a stronger chance of removing emotions from your investing process through SIPs, as you will continue to buy at lower levels.

In fact, everyone wants corrections to happen so investments can happen at lower levels. However, just knowing something is no good if you cannot act on it.

Train your brain to follow the Nike tagline, ‘Just do it’, when corrections happen.

Source: Business Standard

Warren Buffett was born in Omaha , Nebraska . At an early age Buffett was known to have an extremely good sense of the business world. As a youngster, he read every book on business, the stock market, and economics, in the whole Omaha public library. At age 11, he began working at his father’s brokerage firm where he was able to have for the first time in his life direct access to financial markets. That year, he bought his first stock. He bought Cities Services for roughly 38 dollars a share. The stock moved upwards about 5% and he sold for a quick profit. At that time, Buffett learned his first real lesson in the stock market which was to hold onto a company until it reached its intrinsic value and later in life would adopt the strategy to buy and never sell which he frequently employs today. This has been commonly now referred to as the “Buy and Hold” method.

Buffett originally got into the University of Pennsylvania but later transferred to the University of Nebraska . There he discovered a book called the Intelligent Investor written by his future mentor Benjamin Graham. Ben Graham was an extremely conservative investor buying companies below their liquidation values. The way Graham came up with liquidation value was to find the net current asset value (current assets minus total liabilities minus preferred stock). If a company traded for 66% or less of net current asset value, Graham would buy the stock. This qualitative method works very well with small sums of money (1 million or less typically), and this is the strategy Buffett employed in his early investment partnership.

The other investor who had a major influence on Buffett was Phil Fisher, author of Common Stocks and Uncommon Profits. Fisher preached, unlike Graham, buying quality companies at good prices rather than poorly run businesses at very cheap prices. This for the most part is the strategy Buffett employs today as he tends to hold some of the greatest companies in the world in Berkshire Hathaway’s portfolio.

Buffett’s original purchase of Berkshire Hathaway was in 1962. Berkshire was originally a textile mill. He bought the stock with Ben Graham’s strategy in mind; he bought the stock below liquidation value. Unfortunately for Buffett, even with all his efforts to turn the company around, equity in the company would keep decreasing until the original Berkshire Hathaway was worth almost nothing. Luckily for Buffett he had taken the cash that the textile mill was making and investing it in other businesses, most notably insurance companies, Buffett turned a textile company with declining economics into the most notable holding company in the world.

So what stocks does Berkshire Hathaway currently own? As of the time of this writing Berkshire Hathaway’s top ten positions are Coca-Cola (KO), American Express (AXP), Wells Fargo (WFC), Procter & Gamble, Moody’s Corp, Johnson & Johnson (JNJ), Burlington North Santa Fe Corp (BNI), Wesco Financial Corp. (WSC) Financial, Anheuser-Busch (BUD), and the Washington Post (WPO).

Coca-Cola (KO): 16.69%

In 1988 Warren Buffett started buying stock in the Coca-Cola (KO) company, eventually around 7% of the company. Today the company trades at 23x earnings and 7x book value. While this may sound expensive, it really is pretty intrinsically priced. Coca-Cola (KO) is a very high return on capital business meaning that it is an asset light business producing loads of cash. Coca-Cola (KO) has what Buffett would call an economic moat or a barrier to entry. Essentially, nobody can compete with Coca-Cola (KO) making it a rock solid business. The great thing about Coca-Cola (KO) is that it is still a growth business. As the population grows, more people drink coke. Therefore every year there are more coke drinkers. This is why it is so easy for Coca-Cola (KO) to grow their equity. It’s also the reason that Coca-Cola (KO) trades at such a high multiple to its book value. In conclusion, if you purchased Coca-Cola (KO) stock today you would in the long run do better than the stock market as it has a very maintainable high return on equity.

American Express (AXP): 14.87%

In 1964, Warren Buffett started acquiring shares of American Express (AXP). Due to a massive scandal, the company incurred a large one time loss which caused panic selling of American Express (AXP) stock. While the world was doubtful of American Express (AXP)’ prospects to survive, Buffett thought the contrary. To test his thesis, Buffett stood behind the counter of a restaurant and observed people using American Express (AXP) cards. Therefore he knew the company would survive as it’s main product, credit cards, were still being used. American Express (AXP)’ business is very easy to understand. Before credit cards they sold traveler’s checks. Now the largest part of their business is the credit card business. Credit card members pay a fee to be an American Express (AXP) customer. American Express (AXP) also takes a tiny cut of every transaction used with their card. American Express (AXP) is also a very maintainable high return on capital business. The more people in the world, the more people are using credit cards. American Express (AXP) essentially does nothing and makes money doing it. They are a money tree and will be a sound buy and hold investment for years to come. It is interesting to note that the guru Joel Greenblatt also has a position in the company.

Wells Fargo (WFC): 13.91%

In 2000, Berkshire Hathaway disclosed a stake in Wells Fargo (WFC). In 2005 he acquired more shares as many bank stocks including Wells Fargo (WFC) were out of favor and trading on the cheap side. Today Wells Fargo (WFC) is trading at its 5 year average p/e ratio of 14 and price to book ratio of 2.5. Investing in Wells Fargo (WFC) will probably do alright in the long run as the bank is run by some great management. Either way, it’s not screaming cheap, and it is probably intrinsically priced. Buffett increased his position by 50% in late in 2005 at a price of 28 dollars to 30 dollars a share. The current price today is roughly 35 dollars a share.

Procter & Gamble (PG): 10.98%

In 2005, Buffett was left holding Procter & Gamble shares when Procter & Gamble acquired Gilette (Buffett’s original holding) for 57 billion dollars. Proctor & Gamble (PG) sells everything from soap to random accessories. They are trading below their 5 year average price to book and price to earnings ratios but in the long run it won’t make much of a difference. Proctor & Gamble (PG) is a best of breed consumer staples business which will not be going away anytime soon. You will not lose money investing in Proctor & Gamble (PG) in the long run. It would make a sound investment for a buy and hold fund as well as an IRA.

Moody’s Corp (MCO): 5.18%

Moody’s Corp (MCO) is probably my favorite business in Berkshire’s portfolio. Proctor & Gamble (PG) is in the bond rating business. It’s very simple, easy to understand, best of breed, and has pre tax returns on capital of over 100%. This is one heck of a business. It’s best to look at this business as a money tree as it is extremely capital unintensive. At the moment it currently trades in line with it’s historic ratios but that might not be the case for long. They have some lawsuits playing out right now because Moody’s Corp (MCO) misgraded some bond issues. This could cause a temporary dip in the stock price, just as American Express (AXP) had one many years ago. Any bad news for Moody’s Corp (MCO) is good for investors as they can load up on shares. As for Warren Buffett, he originally disclosed his stake in 2002 yet hasn’t touched his shares recently.

Johnson & Johsnon (JNJ): 5.1%

In 2002, Warren Buffett disclosed his stake in Johnson & Johnson (JNJ). Johnson & Johnson (JNJ) is a pharmaceutical company in a sector that is totally unloved by general wall st. While 17x earnings and 12x cash flow isn’t a steal by any measure it is still relatively cheap for this company. For a company with high margins and a steady increase in net income, it is probably a good buy for any large-cap value portfolio managers. This is also a stable company with a proven track record, which should do pretty well for the years to come. In 2006, Buffett added 24 million shares to his original 2 million position at a price of 57.70 – 61.86. In 2007 he practically doubled his position at a price of around 60 dollars a share to about 67 dollars a share. He now owns 48.6 million shares. The current price is approximately 62 dollars a share.

Burlington North Santa Fe Corp (BNI): 4.85%

This year, Buffett disclosed a stake in the railroad company Burlington North Santa Fe Corp (BNI). The company unlike Buffett’s other holdings is extremely capital intensive. The industry for many years was a terrible industry to be in as the companies had no competitive advantage and the poor economics in the highly regulated industry made it tough to survive. Recently, with some regulatory laws being changed as well as high energy prices, railroad companies are at an advantage for the first time in over fifty years. Railroad companies can now carry freight more efficiently than trucking companies due to the high price of gasoline. This is very bad for trucking companies making it harder for them to stay in business. Therefore the railroad companies get more customers. Also, railcars have an average life of forty to fifty years. The last big boom was in the 1960′s meaning that the next 40 year cycle will be in the next few years. Burlington North Santa Fe Corp (BNI) with these economics and energy environment will make a very fine investment for the years to come. Buffett has even mentioned that with high energy prices railcars have a competitive advantage of over 4x that over trucking companies. In 2007 he has increased his shares from 34 million to 39 million shares. He bought his shares originally at 72 dollars to 83 dollars and then bought 5 million more shares the same year for 81.57. The current price today is around 87 dollars a share.

Wesco Financial Corp. (WSC): 4.56%

Warren Buffett‘s partner, Charlie Munger, runs Wesco Financial Corp. (WSC) Financial. Wesco Financial Corp. (WSC) is essentially a mini Berkshire so to speak and has holdings in Coca-Cola (KO) as well as a few other companies. They also have a furniture rental, steel, and insurance subsidiary. This company is extremely well managed and Berkshire owns 80% of the company. There are rumors that if they ever trade at book value Berkshire will buy them out. At a premium to book value today the shares aren’t cheap nor expensive. Looking at this company quarter to quarter is meaningless as earnings are sporadic. But with great management this company will strive. Munger is also a genius at capital allocation and should do very well for shareholders in the long run. He has publicly stated he believes the company should not be worth more than book value.

Anheuser- Busch (BUD): 3.12%

Berkshire announced a stake in the company in 2005 as shown in their 2005 annual report. Anheuser-Busch (BUD) is the producer of Budweiser, which is America’s best selling beer as well as the official beer sponsor of the Super bowl. The company has massive returns on equity and is the Coca-Cola (KO) of the beer industry. In September of 2006, Berkshire announced that they sold a portion of their Anheuser stake. At 20x earnings and 10x book value, the company is not cheap by any measure. I would choose many other companies before making an investment in the “King Of Beers”. Buffett originally bought shares at 44 dollars to 46 dollars. He reduced his shares by 4% 3 months later in September 2005 for 42 dollars – 45 dollars and then sold another 16% of his shares the same months for 44 dollars – 49 dollars. The current price today is 52 dollars a share.

The Washington Post (WPO): 2.29%

The Washington Post (WPO) was one of Berkshire’s first core holdings. He originally bought into the company below liquidation value. While The Washington Post (WPO) is still a core holding of Berkshire’s portfolio I would not buy a share. Buffett has publicly stated that at the time he bought the Post it was an impenetrable business. Now the internet has started to slowly kill the newspaper industry and Buffett believes that newspaper economics are in an everlasting decline.

Of course that’s not all the companies in Berkshire’s portfolio. Some other interesting companies to look at our Conoco Phillips (COP) and Tyco (TYC) which are both sum of the parts plays. And then you have Union Pacific (UNP) and Norfolk Southern (NSC) which are two other railroads he owns. The most interesting holding in his portfolio has to be Comdisco Holdings (CDCO) which is a liquidation arbitrage play.

Source: Guru Focus

The next half of the battle begins now – starting with the legal aspects and procedures involved in starting a business.

The next step for you would be to form a legal business entity. For doing so, it is important that you are aware of the types of business entities in India so that you can decide which one is most suitable for your needs.

1) Sole Proprietorship:

This is the most common type of business entity. Sole proprietorship means that theres a sole owner who funds and operates the business. It is the simplest form of business entities – relatively formality free, no rules about records you are required to keep, no requirement of having your accounts audited and no requirement of filing financial information to the registrar of companies. In short, there is no legal distinction between you and your business.

Pros:

• Very easy to setup and start your business
• Relatively formality free. So, less time spent upfront in legal procedures
• No public disclosure of your finances required
• You keep all the profits – no sharing of profits with others – since there arent any shareholders

Cons:

• Personal liability. If you go bankrupt, creditors get the right to your possessions – house, property etc.
• Very difficult to get investment from VC’s, angels etc.

2) Partnerships:

Partnership is a type of business entity, where you partner with other individuals to own and run the business. On a higher level, they can be viewed as collection of sole proprietors. By partnering with other individuals, you get access to a bigger pool of capital, skills and other resources to fund and run your business. All partners contribute capital equally, share profits and losses equally and have an equal say in business decisions.

Pros:

• Access to larger pool of resources and capital
• You do not have the confidence to start the business on your own and need some one to shoulder the responsibility
• Access to complementary skills. For example, if you are a geek, you may partner with someone with a marketing/management background to balance out the odds

Cons:

• If your partner makes a business mistake, without your knowledge or consent, and it adversely affects your business, you are equally liable to bear the consequences – even though you had no role to play in the mistake
• If your partner goes bankrupt, his share in the business can be seized by his creditors. Although you are not liable for his personal debts, your business may be put into jeopardy

Because of the drawbacks related to partnerships, it is very important that you trust the person before considering to make him a business partner. It is generally a good idea to have a legal document that highlights the partnership agreement between partners – the profit sharing, duration of partnership, admitting-expelling additional partners, dissolving the partnership etc.

3) Limited Liability Company:

This type of business entity is most common and preferred type while starting a company. A limited liability company is a separate legal entity from its founders, shareholders and mangers. The liability of the shareholders is limited to the paid-unpaid capital that is issued as part of the company. Thus, in case of bankruptcy, personal assets of the founders/mangers is not affected. A limited liability company needs to keep record of accounts, audit their records and file an annual report on return with the registrar of companies.

Pros:

• Founders financial liabilities are limited
• Proper structuring of the company management – for example, who will be the managing director etc.
• Easy to get funding from VC’s and other sources – by selling a stake (shares) in the company
• Additional members / directors can be added to the company structure
• Selling the company is a relatively easy (legally) because of the legal incorporation records, financial records, annual returns etc. have already been filed

Cons:

• Time and effort required to complete the initial incorporation
• Additional overhead of keeping records, having those records audited and filing annual reports
• Double taxation (not sure to what extent this is valid in India). So, the revenues that your company earns are taxed at the corporate level and then the individual shareholders are taxed at the personal level for the income they make from the revenue

Source: Startup Dunia

On some parts, I’m probably right – but on many, I’m flat-out wrong. This is demonstrated by a recent report from the Kauffman foundation for entrepreneurship.  The report, “The Anatomy of an Entrepreneur,” is based on a survey of 549 company founders across a variety of industries.

Here are some of the points from the report that I found the most interesting.

1. The average and median age of company founders when they started their current companies was 40.

2. 95.1 percent of respondents themselves had earned bachelor’s degrees, and 47 percent had more advanced degrees.

3. Less than 1 percent came from extremely rich or extremely poor backgrounds

4. 15.2% of founders had a sibling that previously started a business.

5. 69.9 percent of respondents indicated they were married when they launched their first business. An additional 5.2 percent were divorced, separated, or widowed.

6. 59.7 percent of respondents indicated they had at least one child when they launched their first business, and 43.5 percent had two or more children.

7. The majority of the entrepreneurs in the sample were serial entrepreneurs. The average number of businesses launched by respondents was approximately 2.3.

8. 74.8 percent indicated desire to build wealth as an important motivation in becoming an entrepreneur.

9. Only 4.5 percent said the inability to find traditional employment was an important factor in starting a business.

10. Entrepreneurs are usually better educated than their parents.

11. Entrepreneurship doesn’t always run in the family. More than half (51.9 percent) of respondents were the first in their families to launch a business.

12. The majority of respondents (75.4 percent) had worked as employees at other companies for more than six years before launching their own companies.

Which surprises you the most and alters your mental model of what entrepreneurs are like?

About The Author:

Dharmesh Shah is a serial software entrepreneur. He is currently the founder and CTO of HubSpot, which provides marketing software for small businesses. The company, based in Cambridge, Massachusetts, has raised over $17 million in capital, and has over 1,400 customers. Dharmesh also authors OnStartups.com, a popular startup blog with over 15,000 subscribers and 80,000 members in its online community. He is an angel investor and a frequent speaker on the topic of startups and inbound marketing. He has a B.S. from UAB and an M.S. from MIT. He can be found on twitter as @dharmesh.

Ajit Balakrishnan is perhaps one of the most tech-savvy entrepreneurs in the country. And his IT-savvy does not lie in using technology for its own sake, but using it to create services for the consumer. Always striving to create technologically sophisticated platforms but with a penchant for user-friendly and simple interfaces, Ajit is a part of important think tanks such as the review committee on Indian Information Technology Act and Confederation of Indian Industry s (CII) task force on e-Commerce.

In a no holds barred interview with Tabrez Khan, the Rediff CEO almost manages to give one a feeling of a virtual tour of IT’s evolution in the Indian Industry.

What are the key factors that determine success in your industry? How are you as a company responding to these challenges?

We are a consumer business in the sense that we deal with users. In India there are 30 million PC users and 100 million on the mobile phone. Success is not essentially about technology but figuring out what are the real issues people have in life and trying to solve them through innovative use of technology.

For example recently when the CAT results were announced, 300,000 candidates and their multiple relatives wanted to simultaneously know how they had fared. We responded by enabling CAT results on the mobile phone, which meant that candidates or their well-wishers just had to send an SMS with their roll numbers and they would get the results by SMS.

So a lot of it depends on quickly responding technologically to an existing demand, which solves people s anxieties. Soon after Mumbai terror attacks we had a facility where people could upload videos, and some of them were quite remarkable.

Increasingly we see our role as a media entity is to provide a platform which is technologically sophisticated but at the same time simple to use. If you have a thought to express which is political, post it on a message board, if you want to meet people with similar views with one click connect to them. If you have a video you want the world to see for social justice reasons or entertainment or for any other reason, we have a platform which lets you do that.

So all these are recurring themes, mobile, PC, user generated content, collective intelligence of people brought to bear on a particular topic, all this generates the cutting edge. But this has to be done in an absolutely simple and user-friendly way. They call me the chief simplicity officer here, because with every new product we make I question my team, will my mother be able to use that? If the answer is no, we need to make it simpler.

What has been impact of the US meltdown on your business? How are you coping with the current recessionary business climate?

I keep telling my younger colleagues that this is the seventh recession of my work life, since I graduated from IIM Calcutta in 1971. We have roughly one recession every 4 years or so. So we have the recession now driven largely by the Wall Street crisis, before that we had one in 2000 when the dotcom bubble burst, in 1996-97 which was led by the Asian financial crisis and we had a horrible one in 1989-90 that led to India becoming bankrupt. And we had a few before that. So recessions come and they last typically for two years.

Each time we were faced with a recession it looked like the world was going to end, but like the sun sets recessions also go away. However as long as it lasts, revenue becomes hard to get, you no longer grow at the breathtaking pace as during a boom, forget growth even remaining at the same place becomes a challenge, very often you see declines. If you are staying at the same place during a recession often you are doing very well, it is foolish to try and grow by spending more on advertising and distribution. But the other feature of recession is that costs also go down.

Like recently we had to shift our office in New York from one location to another. We got it for the equivalent of Rs 65 per square feet, air-conditioned and fully done-up and for a period of 10 years. What that means is that in Mumbai real estate prices have to go down to Rs 40 per square feet. So the point is that costs go down during a recession and these are opportunities. Sometimes you bring down costs to such an extent that in the first year after recession you witness a bumper profit. But you need not always control costs by firing people, if they are incompetent you would fire them anyway, recession or no recession.

Also during times of boom there s a lot of irrational exuberance, which gets dealt with during a recession?

Yes, very true. Recessions are often the midwives for the transition from one economic era to the other. So during the transition from one economic era to another, the revenue hit you take is the least of your problems. Actually your business model might be becoming out of date and you have to watch out for that.

For instance, investment banks in New York and elsewhere did good business for 5-7 years on a business model that comprised borrowing $35 for each $ that they owned and taking bets on derivatives, which is a good thing to do, but whose risks they did not fully understand. And they discovered that their business model had become outdated.

Over the last ten years large enterprises have automated their business processes and increased their efficiencies by deploying information technology, what has been your own experience in this regard?

We are centered on technology so acceptance of technology here is universal, sometimes too much. We are at the leading edge of technology adoption in India.

Some of the things we are doing might sound arcane, nonetheless what keeps us awake at nights is to make sure everything we create is visible on every device such as PCs, mobiles, a Nokia or a Microsoft smart phone or a Google android phone. In the US they have 250 different types of mobile phones and four to five different PC types so how to design sites and make them work across different devices is a challenge which we just conquered. Our editors can now publish an item and it gets distributed across devices, as a result none of the device has a more than eight percent market share.

The other thing is that Internet penetration in India has a lot to do with languages. So we are working to ensure that we have a technological solution which enables conversion of content we create to multiple languages and its distribution. This is our other preoccupation.

Thirdly, we have been great supporters of Open Source. All our services run on open source software. Also things like Semantic tagging are gaining traction but they are very specific to us. Besides that we have converted all our internal services into web services. Recently I was asked to speak an audience of CIOs on web-enabling of services and I found a very skeptical audience to whom I was trying to explain that I am not a technology vendor dishing out marketing hype. So I have a feeling that Indian IT folks are 5 years behind time.

Moving forward do you see technology becoming increasingly critical to business success?

In India we have changed our views about technology quite historically since the 1980 s and 90 s when technology was supposed to be a job destroyer. In the 80s and early 90s we used to have periodic strikes against automation in LIC or railways offices because people perceived automation as something that took their jobs away. But then the IT services boom happened, people realized technology was not a job destroyer but job creator. You had iconic companies like Satyam and Infosys come up and people hoped to get jobs in them.
The positive feel was further enhanced when these companies announced adding thousands of employees each year. Indian policymakers then started to think technology meant jobs while in the US they took an exactly opposite view. In my personal view neither of this can be the reason why you adopt technology. The real reason should be convenience, benefits for users and use of technology to extend services to users. For instance ATMs enable you to save time and effort by avoiding going to bank branches and the railway reservation system is similarly convenient. I am a great fan of using technology to extend services to people and make their lives easier.

As an industry person who has observed Indian industry closely, do you think Indian businesses use IT strategically or just as a tactical tool?

I don’t think in India they use it strategically. For instance take this example of a leader of a large enterprise which is known for extending technology to rural areas. I met him once at an event and while interacting with him found out that he does not have an e-mail id. His secretary receives his e-mail and prints it out for him to read everyday. And this for the leader of a company that has a specialized IT division, is known for rural extension of technology and even has a Harvard Business School case study done on it for innovative use of technology.

So Indian business executives who are currently at the top, have not had to learn anything technologically, it has not been important. They have grown in the licence-permit raj by their ability to get licences from government or getting government to deny licences to competitors or being able to raise capital quickly or raiding the stock markets. But using technology to shape things is something that has not mattered really to many companies in India. I think all this will change as competition intensifies.

What about your own use of technology? Is it strategic or merely tactical?

For us it has to be strategic because our business is centered on that. For me to say anything else would not be correct.

What are your expectations from somebody who handles IT in your organization?

One issue we have is when we recruit people for finance or other functional areas, it is hard to find those who are IT-savvy. Today when everything is digital, people in all functional areas need to be IT-savvy. For instance in order to implement Sarbanes Oxley controls you have to do it digitally.

On the other hand, we have a lot of IITians who are very IT-savvy; they know data mining and computer science but lack the business or marketing skills. Our education system and the curriculums we set have a lot to answer for this. For instance, the IT syllabus for Chartered Accountancy courses is 15 years behind time. If you look at some of the leading business schools, including the IIMs, and I am on the board of IIM Calcutta so I have seen it closely, they have heavy duty IT and marketing courses, but nothing that intersects both.

Personally, are you gadget-savvy? What are the gadgets you use?

I personally love gadgets and the most exciting thing about them is that now you can do a lot many smart things on smartphones like iPhone and Android. Anything that provides applications comparable to a PC, I find exciting, not just for productivity purposes but also for fun. I think the action arena in the future is clearly going to be mobiles.

Source: CXOToday

It’s an amazing list of 101 ways to make your day a beautiful one.

• Get enough sleep the night before your awesome day.
• Clean your room the night before so that you wake up to a nice clean room.
• Have a refreshing shower or a nice warm bubble bath.
• Pick your favourite oufit or one that flatters you.
• Eat a healthy breakfast.
• Go for an early morning jog.
• Read the newpaper.
• Have a cup of tea or coffee.
• Have scones or muffins with jam and cream.
• Let someone else drive.
• Spend your day with friends or your family or your loved ones.
• Go to the beach.
• Go shopping and spoil yourself.
• Get a haircut. If you are a woman, get highlights too.
• Take your phone with you in case you need it.
• If you are very overwhelmed with life leave your phone in the car whilst you walk on the beach.
• Put your toes into the ocean.
• Wear suncreen with a goog SPF.
• Be around people that make you feel good about yourself.
• Say a prayer.
• Do something that you have been meaning to do for a long time.
• Spend some time on your favourite website.
• Look good wherever you go. That will help you to feel good.
• Smile!
• Tell a joke to make other people laugh.
• Do something for the poor.
• Eat your favourite food.
• Watch your favourite tv shows.
• Do some gardening.
• Spend some time with the kids.
• Wear a cool hat.
• If it is winter, go for a wak in your new coat.
• If you don’t have a new coat, buy one.
• Go onto your favourite social networks.
• Read a book.
• Paint a picture.
• Don’t think about things that make you stressed or angry.
• Express your feelings in art or poerty, or by talking with an understanding person.
• Spend some time with your pet. Animals love attention from their owners.
• Jump in puddles if it is raining.
• Go to a park with a group of friends.
• Have a picnic.
• Sing a song.
• Cook something.
• Pick a flower in your garden.
• Read a joke book.
• Write in your diary.
• Go for a jog or to the gym.
• Relax in your slippers.
• Avoid arguments and be nice to other people.
• Go on a boat.
• Page through a magazine.
• Have more tea or coffee.
• Wear a wacky outfit.
• Gossip (but not too much).
• Laugh
• Bake with your mom.
• Go to your favourite restaurant.
• Drink water.
• Have a power nap.
• Buy someone a gift.
• Go to the zoo.
• Go dancing.
• Brush your teeth and flosh.
• Go to a game reserve.
• Collect the post or send a letter.
• Play with stickers.
• Make a hub page.
• Play the My Little Pony Game Online.
• Watch the news.
• Make new goals.
• Use a nice cream or beauty product.
• Look at something shiny
• Go star gazing
• Watch the clouds.
• Go fishing.
• Go for a hike.
• Go mountain biking.
• Go to a fun fair.
• Facepaint your face.
• Kiss your sweetheart.
• Stock the fridge.
• Go to macca’s.
• Text your friends
• Make a snowman.
• Swim
• Play Tennis
• Sit in the sun.
• Eat a pie on a bench
• Give yourself a makeover
• Get a cool dvd.
• Roast marshmellows on a camp fire.
• Tell your friend a secret.
• Make money online
• Learn a new word
• Do a crosword puzzle.
• Wear something crazy
• Paint your nails
• Buy some Swiss chocolates.
• Wash your hair
• Give yourself a break.

Source: HubPages