Try having a conversation on just about any business topic with V. Shankar, co-founder of CAMS, and there is one thing you are guaranteed: clarity of thought. Shankar, who is also an active angel investor with The Chennai Angels, is well known in India’s financial services industry for setting up and building CAMS into a leading transfer agency for the Asset Management industry in India.
Over time, CAMS also evolved into a technology-enabled solutions provider for insurance companies, PE funds, banks and NBFCs, as well. Today, CAMS is a joint venture company with three shareholders – NSE Strategic Investment Corporation Limited, a subsidiary of National Stock Exchange, HDFC Group and Acsys Investments Pvt. Ltd (which is owned and managed by Shankar).
This article aims to give you a glimpse into an incredible entrepreneurial journey – one filled with pivots, challenges, and learnings. Shankar speaks about the ‘reverse interviews’ he had to do to convince people to join CAMS, why he remained focused on the domestic market and how in the early 2000s he focused on institutionalizing the firm. The interview also touches upon his views of India’s now booming entrepreneurship ecosystem and cautions that it may make sense to encourage budding entrepreneurs to create good, profitable companies, not necessarily unicorns. Shankar says, the creation and evolution of CAMS “is an accident of good timing” and urges entrepreneurs to start something that is not too ahead of its time, not too late.
Read on, to find out more.
Since you started up CAMS in 1988, the company has gone through 2 or 3 large transformations (or “pivots” as we call it today). What were these transformations?
From a business perspective, the company went through two pivots since its inception in 1988. First was the transformation from software to ITES, and then a switch to platform-based services. Each of these was a major pivot involving new technologies, domains and different types of people we needed to hire.
From an organization perspective, though not a pivot, there was a conscious decision to institutionalize from somewhere in the early 00s, and this transformed both the internal and the external perception of the company.
At CAMS, you scaled up a platform-based services business for the Indian market, at a time with most entrepreneurs were looking to service global clients. What prompted you to remain focused on the domestic market, and that too the mutual fund/financial sector?
If you see, the wheel has turned a full circle, and entrepreneurs today focus on the domestic market! So maybe we were simply prescient! But seriously, the global business, even today, is basically around supply of warm bodies (there are exceptions), while the then nascent Indian market offered huge scope for partnership to building a market. Even today, the domestic Financial Services market is small in comparison with other countries, so it makes sense to be focused on it.
Why did we not go global? There is a nice HBR article that someone sent me recently; it neatly summarizes the reasons we decided to not go global. In summary, we would have been an also ran, with little brand, and in a competitive market, quite the opposite of our position here.
Take me through a conversation you had with a senior leader early on in your career, which influenced through your journey at CAMS?
In those days there was no ecosystem or support system. Support meant that a few kind people would spare an hour once in a while to meet with you. There have been several senior industrialists who have been kind enough to mentor me in my early years. One iconic figure (who is no more) was probably the most influential in simply being massively supportive of the idea of entrepreneurship. Being in his presence and listening to a few words of support was enough to take you through the next year! His key one liner was ”Take care of your people and your work is done.”
Another prominent figure continues to be an icon for me (and for many others), and his one liner always was to grow only at that rate at which we could maintain quality and financial stability.
So it was mainly about providing moral support and comfort in a lonely journey.
As it is often repeated, putting together a solid team is crucial for any venture? Take me trough the hiring interviews you did?
As a small company, it was important for me to fully trust the early management. I therefore reached out to my alumni network; people who I had implicit faith in both on integrity and competence. I am very happy I did that; all such people continue to be the pillars of CAMS even today. Given their profile and their then employment, the interviews were often about me convincing them (reverse interviews)!
What is your earliest memory of starting CAMS?
Some of my early memories include opening the shutters of the office myself; of fighting over a single phone connection we had; of frequent all-nighters when projects reached deadlines; of tech crises when equipment crashed or power failed; of good people being suddenly poached away. All look so romantic in the sepia tones of history, but so many were heart-in-the-mouth crises at the time.
Was raising money tough in those days? Take me through your experience of bringing in HDFC as an investor?
There was no concept of “raising money” per se. It was like marriage, something you did perhaps once in your life. Companies had to generate profits to grow, and they could accelerate growth if they managed some bank finance.
We were very focused on being profitable from day one, and whatever we needed to do (in terms of delivery) to deserve those profits, we did. Frequently, we took on challenges that were deemed impossible and achieved them. That’s how people agreed to pay us what we asked.
The induction of investors at each stage was not with the objective of raising money (in each case they were secondary deals); they were milestones in the journey of institutionalization that I referred to as a pivot earlier. Each of the investors added to our DNA in such positive and long lasting ways, that I cannot even imagine what (and if) we would have been without them.
What has been CAMS financial philosophy through the years? And its approach to scaling up? In hindsight, would you have done anything differently?
Our financial philosophy was conservative in keeping with the times. We never raised external money, and all our growth was funded by internal accruals. Funding was rarely a constraint to our scaling up.
What I might have liked to do differently is to perhaps get some more management personnel earlier in life than I actually did. We were very publicity shy, and in hindsight I might also have raised the profile of our company earlier than we decided to.
You’ve been interacting with a number of early stage entrepreneurs in India today. Obviously, there are many, many more people starting up today. What excites you about India’s booming entrepreneurship ecosystem? What scares you?
The fact that so many young people do not feel constrained by a traditional career, and their friends and family support them in this thinking, is very exciting. I come across so many young people who genuinely and passionately want to do something that is their own, even right out of college, and I find there is an ecosystem that helps them along.
Equally, there are some young people starting up with dollar signs in their eyes. Money has no value for them since they perceive it as a free flowing commodity. That worries me, since over time, capital will be a priced (not free) commodity, and a DNA of capital inefficiency and ‘growth-over-profit’ focus setting in means these startups have a very tough time ahead.
I am sure you get this question a lot. What is the right time to say, hey, it’s time to turn profitable? We’ve scaled enough, now lets focus on profitability. Obviously, this refers to the slew of firms that are making a serious dent in the entrepreneurial landscape, yet their financial foundation seems to be weak or too long-term.
The question cannot be answered as a specific time horizon, but as one of ideology. I have no objection to a business plan that says that you will be below variable cost for a year or two, then negative EBIT for a few years, then profitable. Each of these periods can vary but there must be a clear focus towards becoming profitable, and evidenced by steps that one is taking to become profitable at minimum impact to growth.
As I mentioned earlier, the current ideology seems to be like politics – I will own this Company only for x years, so let me grow it in my tenure and the next owner will take care of profitability. This is not right. A Company must be built ground up with the potential to generate profits.
What are key elements that’ll shape up the future of India’s entrepreneurship ecosystem? What are some missing links, you’d like to see fixed?
An expectation of windfall gains is shaping up every level of India’s startup ecosystem. As we mature, we will find more patient money, some genuine double bottomline money that will help create profitable but not necessarily massive businesses. A few Unicorns make us feel good, but what India needs are thousands of “lifestyle” businesses that will generate local employment.
Today any business that is deemed as “lifestyle” cannot raise any money. I would like to see patient capital sources – maybe P2P – to fund such businesses and take their return as dividend or buybacks with an IRR of 14% or 15%.
Tell me about a time you failed? What did you learn from it?
We have failed a few times – We entered IT Education at a certain time, but failed to persist; it was not in my blood. We created a distribution platform, but it was far too early for its time so it languishes along.
For me, entrepreneurship is about pursuing a passion and earning money along the way. The education venture reinforced that fact since it was not really my passion. Perhaps in today’s world, the investors would have hired a divisional CEO and grown that business.
Timing is also very important. Our entire company – CAMS – is an accident of successful timing; the platform was an accident of premature timing; so I have learnt that timing is very important. Sometimes one can foresee it, sometimes one cannot.
What advice would you give early stage entrepreneurs?
- As they gear up to raise money?
- As they gear up to scale up?
- As they gear up to “change” and “transform” their ventures
I would tell entrepreneurs to start up something that you are passionate about; if that is not feasible, become passionate about the startup you are getting to do. Read up, espouse its cause, network and effectively become the startup. The passion comes through when you meet investors, and they like to see that.
As you scale, the major challenge is in getting coworkers who can handle responsibility and who gel with you. Focus more on that than on raising money. Be prepared to share the equity of the Company with early management. Today money is chasing companies, so if you have a good team and are visible, money will find you.
Changing or transforming a venture is not easy. It has impact on all your stakeholders. Try and get a mentor who can be a sounding board to your ideas. Join forums like Entrepreneur’s Organization or Round Table where others like you are going through similar journeys.