Tuesday 9 November 2010

Desh Deshpande Interview

“Innovation and entrepreneurship in India and US are complementary”,
Serial entrepreneur, hitech innovator and philanthropist Gururaj ‘Desh’ Deshpande has been recently appointed as Co-Chair of National Advisory Council on Innovation and Entrepreneurship to US president Obama’s administration. He conversed with Shivanand Kanavi on the raison d’etre for the council and his recent entrepreneurial and philanthropic activities.
Excerpts of this conversation were published in Business India of Nov 1-14, 2010.

SK: Tell us something about your appointment as co-chair of the advisory council to President Obama on Innovation and Employment. What does the council do?

Desh: US has always been the most flexible economy that has led the world because it is driven by entrepreneurship and innovation. But there is increasing pressure for it to be even better. It is a global market and jobs move out of US. So the only way the US can maintain its standard of living, is to do things in a more productive way or more innovative way. So you need to have new mechanisms to drive the innovation economy. I joined the board of MIT about ten years ago. MIT is as good as it gets in the world but even there things can be done better. So we started the Deshpande centre for Technology and Innovation at MIT.
Every innovator has no lack of desire to have impact on the world but if you go and talk to the same professors and graduate students a few months later they will have ten more ideas. That is there business, the business of ideas. The real thing is to pick and choose which idea to pursue. Left to themselves they pick an idea based on their peers, whether it is Department of Defence or National Institutes of Health. They have their own criteria of publishability, elegance etc. The peer review mechanism gets them trapped into doing things that somehow gets them disconnected from the impact on the world. So the basic principle of ‘innovation plus relevance is equal to impact’, is what this centre is all about. It is a way to connect the professors at MIT with the real world. That is working really well.
The best innovation today is like what engineering was 50 years ago. Engineers designed the product and then went to the market and tried to peddle it. So the best of Universities invent something and the best among them patent it and then they try to peddle that patent. The new mechanism tries to do concurrent innovation. By the time the person finishes the innovation there is already pull in the market place. As a result you can create a more innovative economy.
You cannot mandate innovation but you can try to string them in a sequence where they have economic or societal impact then you will have a self-sustaining innovative economy. US spent $70-80 billion of public funds a year on research. The idea behind this council is to see if it can be done in a better way. Connect the thinkers to the market place. Thinkers very quickly get into the business of talking to only other thinkers and trying to impress each other and get trapped.
US is really having hard time maintaining the jobs and creating new jobs. So unless the country finds a way to accelerate the process it will find it hard to sustain its economic prowess. That is why they got this council together. It has entrepreneurs, venture capitalists and university presidents. It is a nice group of people and I hope we will come up with some good policies.

SK: Many times universities are in search of a market for their inventions and this is also another trap. They develop something without knowing what the market is looking for and then they try to peddle it rather unsuccessfully most of the times, whereas it is market intelligence that should set the agenda for R&D. Is that one of the ‘connects’ that you are looking for?

Desh: Absolutely! It is having a huge impact on the whole education system. The graduate students that come out of MIT are more likely to become entrepreneurs and innovators because they are connected to the market.
For example the very first company that came out of this centre at MIT Doug Hart is a micro fluid scientist. He creates turbulence, puts these particles and studies how they move. For this study he created a 3-D camera, which is a very simple camera that you can buy in a store with an off-centre hole and which goes round and round. His magic is in his algorithm that puts all these photographs together and creates a 3-D image. He was able to do so with 9 micron resolution. When he applied to the centre he said I can modify this and use it for Home Land Security. That did not make sense. We connected him up with a couple of MBA students. They looked at a couple of different markets and finally it got funded for dental imaging, because it is $4 billion market it he US and the only good source of dental imaging is to buy on that gooey stuff and take the impressions. Within a year and half they had a product which looks like a tooth brush and they got bought out. After that we created a course called IT-Innovation Team, where we put two engineers and two business guys together in a course. Each batch had 5-6 teams. They do not work on a business plan but on the route to market for a technology.

SK: Who are the other co-chairs in the council?

Desh: Steve Case who did AOL and Mary Sue Coleman who is President of University of Michigan.

SK: What do you think of Indo-US partnership in innovation and technology?

Desh: Both the countries are democracies and have a large number of entrepreneurs. But the innovation in both the countries will be of different nature. In India innovation is driven by scale and affordability. A lot of the solutions that India will come up with will have application in US as well. The US comes up with very innovative, very hitech but expensive solutions.
Look at software companies in India, it is amazing how good they are in recruiting people based on aptitude and after last mile education turn them productive in six months. That is done on large scale. There is no reason why US should not be able to do this. In the US every ten years the technology changes and the question comes of retraining people who have become unemployed. But US comes up with solutions which $100,000 per person. They do not look at $100 dollar aptitude search and $2000 dollar training programme.
I am quite excited about what we are doing in India as a foundation.

SK: Tell us something about it.

Desh: Five years ago, I and Jayashree asked, what should we do in India. Since we both went to IIT Madras, we thought perhaps we should do in IIT Madras what we have been doing in MIT, but somehow doing nano technology in India sounded too limiting. We thought why can’t we encourage innovation about simple problems in India. So we started this social entrepreneurship sand box.

The sand box is limited to 5 districts; to get critical mass, in which we fund 60 non-profits working in all kinds of fields: agriculture, livelihood, education, health. We have ten young men and women who spend a whole year here. In the summer time about 60 students come from MIT, Berkley, USC and so on. They do projects, say how to create 24 X 7 water supply in Hubli. It is a new kind of peace corp. However the biggest contribution comes from local leadership after all anyone who comes from outside can only be a catalyst. First we thought we should excite the college students. We started a programme called Lead. Today we have 8000 students doing this programme doing some 2000 projects. This is a massive outreach.
Then we have DFP (Deshpande Fellows Programme). These are rural kids between 23-25 and they go through 6 months of training. It leads to amazing transformation they get very confident in English and computers etc. When they graduate each one of them has 3-4 jobs, some with salaries anywhere between Rs 14000 to 22000! This year we have 50 of them. Some of them take jobs, some of them start their own businesses.
We also started a programme called Hubli Champions. They are 30-40 years old professionals, doctors engineers, businessmen etc. They spend one Sunday a month for six months. It is grooming leaders. We are on the third batch at Hubli and we are starting the first batch in Dharwad.

Now we have also started TIE (The Indus Entrepreneurs), Hubli. A lot of local businesses are between Rs 10-100 crores. But they have a boring life working hard 7 days a week. They make good 20% bottom lines. We have got them to think about how to hire people, how to delegate etc. We just had a CEO retreat and had one person coming from Boston to give lectures. I am trying get them hooked up with local MBA colleges, which do not have good faculty. They should have good local case studies rather than Harvard Business School case studies. In fact we have a professor from Harvard Business School right now, spending a week here, who wants to take this magic back to Harvard.
What we are drilling is nonprofit starts with a heart, whereas for-profit is Darwinian. However if we can bring the execution excellence of for-profit into nonprofit, then it can be amazing. The nonprofit should focus on one idea. If it fails it is OK, we won’t punish them. But if they succeed, then they have to scale up. Ones that have scaled are: Akshaya Patra, for mid-day meals to school children. The biggest kitchen is in Hubli. They do 1.2 million meals a day in Karnataka. You should go and see the kitchen in Hubli, it looks like a refinery and they have the best supply chain, best procurement and so on. For Rs 5-6 they give a good meal. Here in Hubli from one kitchen they do 1,85, 000 meals a day.
Then we have a programme called Agastya which is teaching science to rural children. They put 150 science experiments on a van. It goes and stops in front of a village school, till evening. To sustain it in the school, we find 5-10 young scholars in each school. Last year this organization taught 700,000 kids and next year they are signing an MOU with Karnataka Government to bring it to 7 million children.
We should bring the same discipline of a start-up to non-profit. Whether you scale a business in Hubli or a non-profit anywhere it is the same story. Non-profit is not non-performance. The non-performing assets in non-profits in US itself is quite huge.
We are thinking of taking this idea back to US starting in Lowell, MA. I am quite excited about this innovation and entrepreneurship cycle.

SK: Tell us about the Sycamore Networks’ experience. It entered Nasdaq with a huge bang and then the market collapsed in 2001. What are the learnings?

Desh: Cascade Communications hit the market and kept going. When we did Sycamore Networks, there was a big dearth of bandwidth. Bandwidth on demand was the cry. It was a hugely successful idea. The core technology was lasers, fibre optics and so on. Wall Street valued it so highly and every corporations started putting money into it. Because of this we all started doing 200-300 laser beams on one fibre, whereas the customer wanted perhaps 5.
There was an overshoot and margins collapsed and then it was not necessary to do such complex things. Sycamore did a very good job of getting out of it. We did not see it as a cyclical thing but an overshoot of technology from which there is no way of coming back. We got out of hardware and optical technology and stuck with switching and software. Most of the other companies that started with Sycamore are gone. The margins dropped to 30-35% at that rate you cannot survive in the US where the R&D costs are very high. You can only survive in India and China. But we retained the money. We still have a billion dollars and we are giving back some of that to the shareholders.

The new business that we have launched is to make wireless businesses more profitable by caching very close to the starting point. Dan Smith navigated through the whole thing. After 2000, I became the chairman and assumed the role of a coach rather than handle operations. After that I have done one profit and one non-profit every year totally six of each.

The other exciting thing has been Tejas that we did here in India. They do back bones for wireless networks. We have products which can convert current wireless networks into broadband networks using Ethernet. They are probably number one in that segment. We did about 650 crores last year.

The big difference in building companies in India and in US is that in US the opportunity is always because of your technology. You should be ten times better than the competition and keep it up year after year and quickly reach a billion dollars. It is like a sprint.

In India, it is long term play. Tejas has really established itself. Initially the carriers could not believe that an Indian company could do any good. But now there is no doubt. Whether it is Knowledge Network or Defence Network or carriers they have huge respect for Tejas. They are positioned nicely for the next ten years because India is going to build many large networks in the coming years. Tejas has an opportunity to lead that. They are internationalizing quite a bit. They just bought a company in Israel.

SK: Are they planning to go public here or on Nasdaq?

Desh: It will be in India rather than Nasdaq but all in good time. It is not that the founders want to cash out.
The other exciting company is A123. It started in 2002.

The idea was that energy would be a great opportunity. Technology in the area of storing energy has gone from lead acid, to Ni-Cad to Lithium. Lithium was the last good idea. But Lithium explodes if you put a lot of energy into it. So an MIT professor came with an idea called Lithium Ferrous Phosphate, which charges very fast and discharges very fast. It is light weight.
A123 is a very hitech company with 80 PhDs and 200 Masters in Boston. We manufacture these batteries and sell them to handheld power tools and so on. Black and Decker could redesign their whole range since our batteries provide more power than mains.
It has application in transportation like buses, cars, hybrids. We do 200-300 Hybrid buses every month. Then there is electric grid, especially during peak hours. We have these 18 wheelers with our batteries, which can store 2 megawatts. We just went public and raised $400 million. Then the Obama government gave 250 million dollars as a green initiative for building factories as grants and another 250 million as loans. Michigan government also gave 100 million as loan.

Another company we did was Airvana, which built 3G networks for Verizon, Sprint etc. It went public and now recently got bought out by private equity. It was very hitech and had a 200 people R&D centre in Bengaluru.

I have also put together a Hedge Fund called Sand Stone, based in Mumbai to bring money from US into India mostly into public equity but also some in private companies.

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