MindTree co-founder Ashok Soota is on a mission to disrupt the software services outsourcing business yet again. Is Happiest Minds, his new venture, the answer?
Ashok Soota’s new online home is a bright and happy place. Sunshine yellow and lime green welcome visitors to India’s newest software services outsourcing startup Happiest Minds Technologies. Keeping with the times, the 67-year old co-founder and former chairman of MindTree (BSE: MINDTREE) outlines his vision and plans for the startup in a YouTube video on the site. And he has a contest running for creating a logo for the company. Soota is going out of his way to demonstrate that Happiest Minds will be different from any other software services outsourcing company in the country.
The Indian software services outsourcing industry is a $60 billion revenue business. It is dominated by giants such as Infosys Technologies, TCS, Wipro (which Soota helmed between 1984 and 1999), IBM and Accenture. They are followed by a second rung of companies such as MindTree and iGate. Then comes a vast universe of companies that make up the third rung which is struggling to keep up with the big boys. In fact, even companies in the second rung are on a constant quest for differentiation as customers of outsourced software services look for value beyond India’s low-cost advantage. What are the chances that a week-old startup will be able to disrupt this mature business?
A venture capitalist I spoke to says that given Soota’s experience he may succeed in creating something different, even usher in the next wave of software services outsourcing. Soota has already disrupted the market once. When he launched MindTree in 1999 with nine former Wipro colleagues, he decided to go the consulting way — something that no Indian player had ever tried. The gambit worked. MindTree hit $100 million revenues in six years. This time, going by the information available on Happiest Minds’s website, he’s betting on services on the cloud and integrating mobility and social networking to build differentiation. It could be argued that the big boys in the business are already integrating these technologies into their service offerings and they have the scale and muscle to do it faster. But as another venture capitalist puts it, “the larger players will probably have a tougher time adjusting. Plus they have to think of overheads, quarter-on-quarter growth targets, etc.”
In an interview to Business Standard Soota says that he will achieve $100 million revenues in six years. He’s in the market for funding and is talking to venture capitalists. He is well regarded in the community and has easily garnered its support in the past. Sudhir Sethi at IDG Ventures India was one of the venture capitalists who seeded MindTree back in 1999-2000 on behalf of Walden International. At IDG though Sethi currently has an almost single-minded focus on software product startups. Walden itself is also back in the market after a five-year hiatus. Firms such as Draper Fisher Jurvetson and Sequoia Capital have the resources and appetite for such deals. Soota will not want for suitors, especially given his predigree. In any case he can always dip into his own resources – his 11.1 per cent stake in MindTree is worth approximately Rs 1,600 crore at last week’s stock price.
The more important issue though is whether the software services outsourcing veteran can pull off a successful turn as a serial entrepreneur, especially in a business that has brought him mixed fortunes. MindTree, his first startup, is not in the best of health right now. It turned in a disappointing quarter in December 2010 with an over 40 per cent drop in net profits. A foray into mobile handset manufacturing with the 2009 acquisition of the R&D assets of Kyocera Wireless was aborted mid-way last year. At $272 million revenues now (as on March 31, 2011) it has a tough climb to its targeted $1 billion revenues by 2014 – a target that Soota had set in 2008. Various media reports speculate that disagreements over strategy between Soota and the other founders may have led to MindTree’s current sad state of affairs. These are unconfirmed reports though Soota’s shocking resignation from the company in January indicate deep rifts within.
With Happiest Minds Soota is out to prove a point. Whether that point is that without him MindTree will flounder further remains to be seen. Hopefully all that he wants to do is create another great startup.
Image Courtesy: Happiest Minds Technologies
A quick and interesting read for those of us who don’t regularly follow the software sector or know of MindTree’s disruptive business model. Like the last point which is actually the nub of the issue. What drives Soota now? Is it building a new business or heralding the decline of an old one.