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IT Innovation's Equity

IT Innovation's Equity

With its funny hairdos and acid-washed jeans, the 90's has received its share of bad press. But it's hard not to long for a time when men took great risks, when entrepreneurs really changed business and innovation had real pop. Nirmal Jain, chairman, India Infoline, was among those who defined that generation of businessmen and made the 90's memorable.

Take for instance how in 1999, Jain decided to give financial reports -- that most guarded resource of the financial world and Jain's own bread and butter -- away for free. "It was like playing for double or quits. Either we would make it really big, or shut down," he says in an interview. By letting that data loose on the Internet he hoped to increase the reach of financial intelligence and open up a new -- and enormous -- base of customers. It was so risky that core members of his team quit, according to his IIM alumni webpage.

Today, even if Jain's wild success with India Infoline is an old story, it still has lessons for enterprises that transact in a world walking through the molasses of a slowdown. Jain shares a little bit about what it took to live a vision ahead of its time and why the current slowdown can't hurt India for too long.

CIO: What has the Internet done for your business?

Nirmal Jain: The Internet is a great leveler. In the 90's, the world of financial research and broking boasted of big names like Bloomberg. But small investors had to be content with the advice of their neighborhood brokers. Only large banks and large institutions could access cutting-edge information.

The Internet changed that. Now everyone has equal access. Today, even in small towns and remote areas, people have access to information at no cost.

The Internet has also done something else: it made volumes immaterial. Before, a broker would not entertain small customers, but with the Internet, whether a transaction is made up of one person investing a lakh or ten thousand people investing a hundred rupees, it can be done with the same efficiency. Volumes don't matter anymore. That's the magic of the Internet. I saw this huge opportunity in 1999 and that is when we went online. The whole idea was not only to cut cost but also give free access to brokering and reports.

It must have been a pretty radical idea.

In 2000, when I launched 5paisa.com, brokerage rates used to be 130 basis points. We cut it down to five basis points. The logic was that the Net would allow us to cut out the costs of communications like telephones, couriering, etcetera. Today, more or less all brokers use the concept but back then nobody had thought of it. It was a paradigm shift and pretty revolutionary at that point.

What has been your strategy for India Infoline?

It's been 80 percent hindsight and 20 percent foresight. In 1995, we filled a gap in the market for research and information services. Note that even in 1997 I had absolutely no clue what the Internet was.

Probity, an erstwhile equity research firm was my first venture that sold company reports for Rs 20,000 (US$404) and sector research at Rs 10,000. With India Infoline.com, where research reports were distributed for free, we killed that model. In 1998, we were the first company to introduce a report on the IT sector, which was very well received. The key strategy was to think differently. I wanted to have a portal that could tell the layman everything he or she needed to know about the Indian economy.

In 1999, we had 250 clients and we felt that if we put all our research on the Net, we'd increase its reach for a fraction of the price, and still make profits. Instead of only 250 people seeing my reports, now 2.5 million could buy them. So my next strategy was to keep re-inventing ourselves.

We had a de-risked business model, but in our core we have always been a financial services company, and I've always stayed focused on that fact.

What were the risks?

When we decided to launch our research product online for free, we were ready to forego a source of revenue. That was one of the major risks we took in those days.

And although we were one of the few that survived the bust, we were not completely untouched. By 2000-01, we had committed a significant amount of capital to the business; hence we diversified into insurance distribution as well. In 2002, we were struggling to survive but managed to make it with all the cash on our balance sheet at just about Rs 3 crore. We faced multiple problems because under those circumstances companies have to make tough decisions. If we sacked people we'd have labor court cases, but there were also legal challenges if we pulled back from some of our commitments.

It was also a time when no one wanted to work with us because we didn't seem to have a future. Luckily, we realized a portal would not be able to sustain us, so we moved into equity broking and also started distributing mutual funds. Things started perking up in 2003 and by 2004 we were in the green again.

Do you have advice for today's entrepreneurs?

One needs to be open to change, that's the only way to grow. Listen, be humble, and don't come into the industry with pre-conceived notions. My grandfather used to say the humble grass bends to the flood and survives, while the mighty tree stands upright and is uprooted. That's what smaller companies should be like, bend with the times, till you get strong roots.

Are there lessons you learnt from then that can help your company thrive during this lean business period?

We went the IPO route in 2005, after we lived through the storm. We worked towards raising capital but always stayed frugal when it came to expenditure. In December last year, we raised $320 million (about Rs 1,600 crore) but only used about $200 million (about Rs 1,000 crore).

The principles I lived by, and drove the company with during that difficult phase, were directed at taking the best opportunity, trimming excess fat and valuing our best people. My co-workers place importance on retaining good customers, because I sincerely believe that even though the customer is the king, a bad customer can do a huge amount of harm to my business. I ensured that two things should get maximum attention: turnaround time, and thought-to-action, both of these have to be extremely short.

In times like the one we are going through, you need to keep your operating costs very low. It is easier to survive a downturn if your overheads and fixed costs are low.

And last but not the least, I have always believed that one should put technology to best use -- it can optimize a business tremendously. Use the Internet as an indispensable tool but never lose sight of the fact that technologies will constantly change and become more useful. One must capitalize on that.

What role has IT played in your growth?

IT has been at our focus right from day one. In 2002, payroll was processed just by one person, and back then we had 1,200 people. Today, we have 10,000 employees and payroll is still processed by one person. IT has also played a major role in mass customization, and has helped us get more customers.

The key is to identify the right security, which is again an area technology has helped immensely.

We use technology for all our functions -- not only for business but also to enhance customer experience. For instance, we have trade confirmations via SMS and stock-ideas and tips and several other services, all non-intrusive mediums. We have integrated our website with SMS allowing two-way communication.

I think technology allows you to keep your costs low, but that's just one part of it. It also enables mass customization. Plus, all support functions like accounts, administration, HR, can run on it.

Do you think cutting-edge technology is mandatory?

Yes. India Infoline has developed and deployed the Trader Terminal. It is a proprietary trading platform that is more user-friendly and has richer features than other trading platforms in the market. We have also successfully deployed a browser-based trading platform using .Net technology which is light and still provides users a rich experience. Account-related functions, research, live news updates, and customer help lines through instant chats have been integrated in the software, making it extremely convenient for customers to use. Having our own proprietary trading platform provides us an edge over competition. We can make software changes in-house and we are not dependant on external vendors.

Is India ready for a widespread equity business?

India is a very good market for this business. We have a very strong economy, and Indians are still hugely entrepreneurial. Even the demographics are favorable. Almost 60 percent of our population is below 35-years-old and that's when people start thinking about investing in policies, having a home, and security. So I think it's a ripe market.

Today's market has bigger players. How do you plan to handle this?

I was asked this question five years ago, and at that point we were very small. Today, we have significant size; our net worth is almost Rs 1,500 crore. That said, there are bigger fish out there. Our strengths are our customer base, and a great team that understands them. We believe this business requires a lot of hands-on, personal communication work. We are very close to our customers, and that is what drives our business. That will see us in the face of any competition, and anyway, I think the price war ended in 2000.

What trend do you see for the Indian investing market?

Despite this indefinite slowdown, I think many global capital market players will have no choice but to come back to India eventually. We are not officially in a recession and there are few markets left where global market players can make money. There is very little competition left in the UK, European and US markets. Indian markets will do well just as soon as the global slowdown recedes.

Growth will surely come back. In about five years, I foresee the financial research business being bigger than what it is today, and structure and technology will have a big role to play in this change. I see a bright future for the financial research business.

What role does your CIO play in your company?

Our CIO is an integral part of the management decision making. We meet a number of times a month, and we keep scanning for new applications that could help us grow.

I've always believed that business in the finance markets is driven by people, and as long as you get the right people, it makes no difference to the customer whether it's a foreign broker firm or an Indian one. It is because of these revolutionary ideas that we have been successful in establishing an online equity business in India.

I think what matters is taking people from similar cultural backgrounds. Since we are very down-to-earth, we make it a point to hire like-minded people. You also need to be honest with your people, you need to spend time and make them a part of the team -- that chemistry is very important. You should not allow any lapses in principles and values. Trust that is built like that is reciprocal. We have to earn loyalty, that way it sticks.

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