A Crorepati who lives in a hut!

Successful Entrepreneur in the Making!!!

His story is an inspiration for millions. A self-made entrepreneur, his mission is to help the poor through job creation. E Sarathbabu hit the headlines after he rejected several high profile job offers from various MNCs after he passed out of IIM, Ahmedabad two years ago.

He instead started a catering business of his own, inspired by his mother who once sold idlis on the pavements of Chennai, worked as an ayah in an Anganvadi to educate him and his siblings. As a child, he also sold idlis in the slum where he lived. "We talk about India shining and India growing, but we should ensure that people do not die of hunger. We can be a developed country but we should not leave the poor people behind. I am worried for them because I know what hunger is and I still remember the days I was hungry," says Sarathbabu.

In August 2006, Sarathbabu's entrepreneurial dream came true with Foodking. He had no personal ambition but wanted to buy a house and a car for his mother. He has bought a car but is yet to buy a house for his mother. The "foodking" still lives in the same hut in Madipakkam in Chennai. Today, Foodking has six units and 200 employees, and the turnover of the company is Rs.32 lakh a month. But it has not been a bed of roses for Sarathbabu. After struggling and making losses in the first year, he managed a turnaround in 2007.

How has his experience as a 'Foodking' been in the last two years? Sarathbabu shares the trial and tribulations of an exciting and challenging job in an interview with Shobha Warrier.

A Tough Beginning

As I am a first generation entrepreneur, the first year was very challenging. I had a loan of Rs 20 lakh by the end of first year. I had no experience in handling people in business, and it was difficult to identify the right people. Though I made losses in the first year, not even once did I regret my decision of not accepting the offers from MNCs and starting an enterprise of my own. I looked at my losses as a learning experience. I was confident that I would be successful one day.

Sleeping on the railway platform

My first unit was at IIM, Ahmedabad. When we started our second unit in October 2006, I thought now I would start making money. But I made losses of around Rs 2000 a day. A first generation entrepreneur cannot afford such a loss. But I worked really hard, working till 3 a.m. in the morning. What reduced my losses were the birthday party offers.

I started the third unit again in Ahmedabad but it also made losses. All my units were cafeteria and I understood then that the small cafeterias do not work; I needed huge volumes to work. My friends who were extremely supportive in the first year when things were difficult for me. I had taken loans from my IIM-A friends. They were earning very well.

In December 2006, an IIM Ahmedabad alumni event took place in Mumbai and I decided to go there mainly to get a contract. I was hopeful of getting it. I also knew that if I got the huge contract, I would come out of all the losses I had been incurring.

I booked my train ticket from Ahmedabad to Mumbai for Rs 300 and I had Rs 200 in my hand. As the meet went on till late at night, I could reach the station only at midnight. I missed the train. I decided to sit on the platform till the morning and travel by the next train in the morning. I didn't have the money to check into a hotel. I didn't want to disturb any of my friends so late at night.

It was an unforgettable night as I was even shoved off by policemen from the platform. It was quite insulting and embarrassing. After two hours, people started moving in, I also went in.

A man who sat next to me on the platform gave me a newspaper so that I could sleep. I spread the newspaper and slept on the platform! I sleep well. I got my ticket refund in the morning and went back to Ahmedabad. And, luck did not favour me, I didn't get the contract.

In March 2007, I got an offer to start a unit at BITS, Pilani (Sarathbabu was an alumnus of BITS, Pilani). That was the first medium break for me. For the first time, I started making profits there though the other units continued to make losses. The reason for our success at BITS, Pilani was the volume; there were more students and there was a need for a unit like ours while in Ahmedabad, they have at least a hundred options.

If I made Rs 5000 a day at Ahmedabad in two shifts, here I made Rs 15,000 a day. BITS, Pilani unit gave me the confidence to move on. Unless you make money, you can't be confident in business.

What changed my fortune

When all my friends who worked for various MNCs made good money every month and I made losses with my venture. But I kept telling myself, I am moving in the right direction to reach my ambition and vision. My dream was to provide employment and I was doing just that. I continued to work till 3 a.m. but I never felt tired.

Through BITS, Pilani, I got the BITS, Goa contract and that was the biggest break for me. It was not a cafeteria like the earlier ones but the dining hall that we got. We had to feed 1300 students. We started our operations in July 2007. At Rs 50, for 1300 students, our sales was Rs 65,000 per day. We soon started making a profit of Rs 10 to 15,000 a day. Around 60 to 70 people work there. I gave the charge of the Ahmedabad operations to one of my managers and moved to Goa.

I was still in debt by Rs 15-20 lakhs but I knew BITS, Goa would keep my dream alive. Within six months of starting our operations in Goa, I repaid all my debt.

I was called to give a speech at the SRM Deemed University. After the speech, I asked the Chancellor, can you give me an opportunity to serve in your campus? He said, "If not you, to whom will I give such an opportunity?" It's a food court but a big one, similar to the one at BITS, Pilani. There are around 17,000 students there.

Now, I have the BITS, Hyderabad contract, ready to start in July 2008. Other than the six units, I have approached a few more universities and corporate houses too. In the first year, I had made a loss of Rs 25 lakh. Right now, we have a turnover of Rs 32 lakh every month, which works out to 3.5 crore (Rs 35 million) a year.

I have hired about 200 people. Indirectly, we touch the lives of around 1000 people. By this year end, we will have 500 people working for us. Only 10% of my workers are educated, the rest are uneducated. I want to make a change in their lives. If they have any problem, I will take care of it. We support the marriages and education of poor families. We are paying more to the employees as the company is doing well. Now that the foundation is strong, I plan to have ten units and a turnover of Rs 20 crore (Rs 200 million) turnover by next year

His advice: Never give up!

In the last two years, I have given more than 120 lectures in various institutions in India. When I got the first opportunity to speak, I thought God had given me an opportunity to encourage or inspire entrepreneurs. When youngsters tell me they are inspired, I feel good.

When you just dish out the theory, nobody believes you. But when you do it, they believe you. What I tell them is based on my own experiences.
When I thought of starting a company, I felt India needed 100 people like Narayana Murthy and Ambani. If 100 such people support 2 lakh people each, imagine how many Indians get supported.

Entrepreneurship is needed to uplift the poor. It is not easy to be an entrepreneur, especially a first generation entrepreneur.
There will be lots of challenges in the beginning but you should learn to look for the light at the end of the tunnel.
Never give up even if there are hurdles. There are many who give up within a week.
You need determination and a tough mind to cross the initial hurdles.
If you are starting without much money, you should not have any overhead expenses.

He still lives in the same hut

As I am in the food business, I know how much the price of every food item has gone up. Many people will languish in poverty because of inflation. Had my mother been working as an Anganvadi ayah today and earning Rs 1500, she would not have been able to feed us and educate us.

On the one side, we talk about India shining and India growing, but we should ensure that people do not die of hunger. We can be a developed country but we should not leave the poor people behind. I am worried for them because I know what hunger is and I still remember the days I was hungry. That is why I feel it is our responsibility to take care of them.

I wanted to buy a car and a house for my mother. I bought a car first, not a house. I still live in the same house, the same hut. I can build a house right now but I want my business to grow a little more. I feel good in the hut; that's where I get my energy, that's where I lived 25 years of my life. I want to remind myself that the money and fame should not take me away from what I want to achieve.

But within six months, I will build a good house for my mother. Her only advice to me is, don't waste money.

Till I was in the 10th, there was no electricity in my house. I had to sit near the kerosene lamp and concentrate hard. That's how I learnt to concentrate.
The two year journey has been very enriching. It seems like a 20-year journey for me. I was living every moment of the two years, from sleeping on the Mumbai railway station platform to this level.

If Wishes were VCs..

IF WISHES WERE VCS...

A Young and successful entrepreneur can be a charmer or a bungler. It is easy to tell when the person faces venture capitalists. Jacob Cherian sits through a mock deal flow session.

YES. I do.” Those three little magic words that embark a person on the matrimonial pulpit on a journey full of uncertainties and hopefully big rewards. In the world of business, they are very occasionally uttered by venture capitalists to an entrepreneur who had fallen in love with their money. But when they nod, they walk into a relationship as complex as marriage, only with a higher failure rate.

It is quite natural that they relish saying “No, Forget It” much more frequently.
Making a neat, quick pitch to potential investors is one of the key skills that an entrepreneur must cultivate. The future of one bright idea or an early stage marvel may very well depend on those few minutes. Venture capitalists will refuse a proposal even if they have a slight doubt about its viability or the business leader’s ability to execute it. In many cases, the refusal may not amount to the rejection of the idea itself, but a safe option for want of conviction.

It is in this context that the event the other day in Mumbai was keenly watched. It had the tone of a high-profile conference or the mood of a law school moot court. It was Red Herring Atre 2007’s final event — Meet the Money — where entrepreneurs faced a panel of three venture capitalists, arguing why they must invest in their businesses.

The learnings were typical of what it takes a startup to succeed in attracting other people’s money and how easy it is to botch it all up. At the ballroom in Taj Land’s End Hotel, the air was thick with the talk of money. Except that none was involved. It was an event where the VC pitches would be heard and decided, but no money exchanged at the end of the day. It was just a game after all, we were told.

But the three entrepreneurs and the venture capitalists were real. Ajay Kumar Kapur, CEO of Sidbi Venture, Promod Haque, managing partner at Norwest Venture Partners and Harshal J Shah, CEO of Reliance Technology Ventures played the potential investors, judging whether the entrepreneurs deserved funding to scale up their operations.

Alex Vieux, CEO of Red Herring, spelt out the rules of the game and acted as the moderator for the evening. Each aspirant had to make a 60-second presentation and answer queries over a fourminute session.

First on stage was KP Vinod, director of BigTec. He sauntered on to stage, probably rehearsing his pitch but wasting some of his 60 seconds. He had a faint smile on his face, almost betraying a casual approach that this is only a game.

Describing his company as a diverse portfolio company, Vinod said, “We fund products ourselves,” and asked for VC funding so his company, in turn, could put the money behind innovative ideas. He went on listing the areas the company was interested in, from software engineering to biochemistry.

The short presentation over, Vieux asked, “How much money are you looking for?” Vinod popped out, “Ten million dollars.”

On being asked about the team, Vinod related the names of all the people involved in the company and who headed which department. “But you’ve said only the names of the team member. That doesn’t tell us anything,” protested a panellist. Then, Vinod went on to relate the names of departments attached to each name. “But what is their background?” an impatient Vieux asked. Vinod was obviously nervous and could muster enough of an answer.

“You’re basically an incubator,” Norwest’s Haque said.

“We wouldn’t call ourselves an incubator. We are a product innovation company,” countered Vinod.

“But you are basically an incubator,” Haque insisted. “For a startup incubator, why are you spreading yourself across three different sectors?”

“We have the option to shut down all the other technologies and focus only on one thing. I think that innovation is a fundamental part of our DNA. And that means we have a pipeline.”

Not much impressed, the panel quizzed him on cash flow and he said his company would go on incubating early stage and late stage innovations. Eventually, the technology would be spun off as a product and money would, one day, surely come in.

Vieux asked the three-member panel to vote. “NO,” “NO” and “NO”.

“Here is the issue,” said Vieux, taking charge of the floor. “When you communicate your value proposition, you make your company seem more unfocused than it is in reality. You are in the bio-tech sector. You are in a very good niche. You want to make it look bigger than it is, and because of that it, seems like you are doing something very fuzzy. And there’s another thing VCs don’t like. VCs don’t like people who do their job with others’ money. It is their job to fund companies and fund innovation. And you are then telling them that you want to take their money so that you can fund innovation. So you are in a genre that they don’t like.”

One of the VCs then took over. “I know someone who relocated from the UK for his company. He said this is all I’m going to focus on. He was like ‘I am either going to make it or break it’. That is the kind of passion and dedication we want to see. If you’ve got that, then you’ve got it. You want to diversify your portfolio for us, remember that we are already good at diversifying. It is better for you to focus on one thing and gain that market.”
Vieux continued: “If you are an entrepreneur, burn all your ships.

Don’t worry. If you are going to sink you are going to sink. But burn all your ships. Go for it and go for that one thing that you are good at it. Don’t hedge yourself. If you hedge yourself, it means you are not sure that you are going to succeed. If you want someone to invest in you, you have to be that sure.”

Up next was Netalter. Its vice president for communications, Gurudatt Shennoy, unveiled his wooing plan. “We have some very innovative solutions for the internet. We are developing the Netalter browser. Our mission is to have the Netalter browser on every computing device in the world. We are also looking at having our solutions for the enterprise market. We are talking to a couple of major players in Europe who are interested in our P2P technology. Their clients are interested in this. We will get our revenues from this by licensing our technologies. But we need funding so that we can get the human resources and set up the infrastructure there.”

Sidbi Venture’s Kapur asked, “What pain point are you dealing with? Why would people want your product?”

“With current browsers there are security issues, spam, cookies and privacy. We have a secure P2P technology that we have invented and patented. This will create an opportunity for a more organised network than the current network.” This was Shennoy.
“Do you have beta customers?”
“No. That is why we are seeking funding. Because we believe that we can come out with our product within three months. The key thing would be to get them to shift over to this. It could be for e-commerce or social networking or other such things.”
“Who will be your beta customer?” the panellists wanted to know.
“People who are not satisfied with the internet. People who feel that their time is wasted on the Net. For instance, I get a lot of spam in my mail and it wastes my time. It would be for both individuals as well corporates. The basic browser would be free. For the corporate to work on the browser, it can be customised.”

Then came the inevitable question: “How will you get your revenue if you offer it for free?”

And then the familiar answer. “We want to create the market first. We are already tied up with content providers. When we launch we will tie up with job-portals, travel sites and such like.”

“Who are your competitors?” asked the VCs. “There are no specific competitors currently. However, as we develop up all the big companies will develop similar technologies. We will have a search engine, a browser. The P2P platform can be converted into a grid. We call it a democratic grid. If you participate in the grid, you can use it to search for information using other computers as well. The results can also be outputted on your mobile phone.”

Clang, and it was time up. Again, all the three said No. However, Kapur did seem a bit interested and said “No as of now, but possibly with another round of discussion. I still do not have clarity on what this is about.”

Shennoy attempted a quick exit with a “Thank you” but Vieux cut him off and said, “Don’t go. Time to debrief. Don’t be too intelligent for your own good. You are trying to hedge. You have a first product and a second product and a whole lot of other things. My advice to you is to do one thing and do it well. People don’t understand why you have different things. This communicates a lack of focus and VCs don’t want to see that. This makes you too intelligent for your own good. You ought to focus on creating differentiated value.”

The final aspirant was from MAIA Intelligence. “You have had companies before you and the VCs are used to saying no,” Vieux said welcoming CEO Sanjay Mehta. A confident Mehta was unruffled. “Let’s see if we can change that.” Meanwhile, pamphlets describing MAIA’s product were being distributed among the VCs.

“We are in the intelligence space. My background: I am a serial entrepreneur with four startups behind me,” Mehta said. “We entered this space as we saw that people have issues in reporting their progress on the operational front. We saw that they typically use excel or people are writing queries. So we decided to target this space. We already have this product out and some of our clients are Reliance Capital, Edelweiss Capital. With one of our clients, we have 1,200 users. We are looking at becoming the largest BI user base in India. We have just got our first customer in the US,” he says.

“Are you looking for money?”
“We are looking for $15 million as we are looking at marketing and branding, not product development.”

Reliance Tech Ventures’ Shah asked, “How much of your revenues comes form Reliance?”
“We have 37 customers and one of them is Reliance. And every deal is around (Rupees) 9 lakh each,” Mehta replied.
“Can you tell me about your team?”
“We are six people. Totally we are two chartered accountants, three on the technical side and one on the alliance side.”
“What are your plans for the $15 million? How are you going to take it?” the VCs asked.

“We can take it $5 million at a time . The product is already ready. We need the funding to take it to market.” At this point, Vieux interrupted.
“Twenty years ago I used to work with enterprise software. My first company went public. From that experience, I know you don’t need that much capital.”
Then, Kapur asked the entrepreneur what was the market size for a product like the one being described. To which, Mehta began citing a Gartner study but Kapur cut him off and asked, “What is your number?”

Mehta conceded that he didn’t have a number, but “by 2009 March, we should have 400 customers with an average deal size of Rs 15 lakh.”
Time for the final vote of the day. And at last, those magic words of approval were heard. Shah of Reliance Tech Ventures said. “Yes, but I want to qualify my ‘yes’ because I would always like to look at a company that has managed to sell to Reliance. I know how strict Reliance is when deciding a purchase. Also, I’ve seen a domino-effect happen with other companies in the past. Get Reliance as a customer and their competitors want to have a look at you.’

“Yes, this is true,” said an obviously relieved Mehta.
Haque then gave his verdict. “No. I would not invest in a company that is built around a reporting product. I have experience in this field myself.”
And thus ended a session that saw virtually every trick in the book that wouldn’t work while talking to venture capitalists. As a parting advice to Mehta, Vieux said: “When you go and talk to a venture capitalist, do your homework. For God’s sake, do your homework. Come out with market size, numbers, percentages, your plan of action, your team. Be crystal clear and crisp. You aren’t prepared even though you knew that you had to make this presentation for the past few days. When you talk to those people, you need to be prepared with your numbers. You have three things going for you: You are a repeat entrepreneur. The second thing is that you have a proof of concept that is selling and you sold to one of the most difficult companies. Finally, you are at the right place at the right time in business intelligence space.”

Article Resource:
The article appeared in The Economic Times, Mumbai in one of their successful columns on Entrepreneurship/Start-ups called "Starship Enterprise".