Manish Sabharwal from TeamLease on the upside of being a second-time founder

Karthik: My guest today is Manish Sabharwal, the vice chairman of TeamLease Services, one of India's largest employers. Manish has served as an independent director on the board of the RBI and is the Managing Trustee of the New India Foundation, which offers fellowships to write books about post 1947 India.

Writing, being his passion, he's been a columnist for Indian Express and a board member of Neev Academy. He has an MBA from Wharton School, we share that. Manish had a bachelor's degree from SRCC Delhi. And his journey, to me at least personally, has been a testament of the power of entrepreneurship.

I've seen two of his entrepreneurial journeys. 

Manish's columns at the Indian Express range from urbanism, policy, and of course, labour. Also he is a voracious reader. I'd highly suggest you check out his suggestions on Goodreads, there's some real gems in there, though I have to admit I've only gotten past Dalio and, and one other of other history books out there.

I know you're an avid reader of history and politics. On this episode of the Blume Podcast, we want to understand more about Manish's motivations, his ability to persevere, how he shaped the Indian workforce using TeamLease as a platform and his advice to other young entrepreneurs who are building. Welcome to the podcast, Manish.

Manish: Thanks, Karthik.

Karthik: So I think we've talked about a little, we've set a little context around the idea that this year's theme is the power of compounding, and that can mean different things to different people. So I wanted to understand what, at a high level, that phrase meant to you in different contexts.

And I always quote Manish Sabharwal with one epic quote, which I first read in The Economist back in 2006, where you said I don't know the exact words, It's not just a year; it's a unique moment in the lifetime of a nation that we're sitting on.

Do you think we've delivered on that promise in the context of this question, sitting 16, 17 years later? Have we done enough to see the power of compounding play out, to witness India's destiny for the century, basically?

Manish: I mean, I think so. I think that India had two reckless experiments in 1947. Political experiment has paid off spectacularly.

No other country had given universal franchise at birth. Some women in Switzerland got to vote in 1972. So I think the difference between India & Pakistan - born on the same night is that 3 million people in India win an election and 22 million people stand for an election! Now, from a sequencing perspective, can you combine mass prosperity with mass democracy?

Nobody has really done it at this scale. China made its citizens choose between their wallets and their freedoms. So we delivered mass democracy. But for the first 72 years, we didn't deliver mass prosperity. It wasn't God's will that it should take 72 years for 1.3 billion Indians to cross the GDP of 66 million Britishers.

We did that. I think 1991 was a spectacular break with the past. But we left out formalization, urbanization, industrialization, financialization and human capital. So we fixed the sins of commission, what we were doing wrong, but we didn't fix the sins of omission. So I think the last 10 years, which have gone into recognizing that… look, India doesn't have a jobs problem. We have a wages problem. Everybody who wants a job has a job. Our unemployment rate has been 4 to 8% since independence. But that doesn't mean jack-shit because our poverty is 35-40%, right? So our problem in India has always been employed-poverty, because you know, the poor cannot afford to be unemployed. So they are the self employed, which is self exploitation, or they are working on farms, which is again, self exploitation.

So I think now, you know, the down payment on sort of combining mass prosperity with democracy. We have digested the fixed costs. There are fixed costs of democracy. In China, they can take land without asking. And I mean, Deng Xiaoping was spectacular. He has moved 700 million people out of poverty. No other human has done that.

But I think there's a bunch of luck headed our way. Also, you know, Xi Jinping is to India- what the opposition is to the BJP, our best campaigner, right? He's made a list of everything Deng Xiaoping did right, and he is crossing it off. So India, in some sense, I mean the cynics may say India hasn't become prettier, it's become less ugly and so we have a bunch of global interest. I mean, 50% of India's foreign direct investment since 1947 has come in the last five years. Most people don't recognize that. 

Karthik: I know the numbers are large, but I didn't put in that context. 

Manish: 50% in the last five years. So I think clearly global investors, global companies have decided that look, we may be one of the few places in the world where secular growth is left for the next 20 years.

I mean, Europe is, demographically in a real tough situation, the US is amazing as an economy, but clearly political polarisation creates some challenges there. The honeymoon with China is over now that Deng Xiaoping's genius is being sullied by Xi Jinping. And so I think that if you were on a global board and you were to look at India, we would be the only secular & large…  and this is because of our past sins.

Manish: India and China had the same per capita as recently as 1991. And now they're five times more. So I think the opportunity right now for India is a bunch of luck and a bunch of skill. But obviously a bunch of choices, right? Dumbledore tells Harry Potter in Chamber of Secrets that it is our choices more than our ability. I think we made some crappy economic choices in 47. But 1991, we started fixing those choices. And in the last 10 years, I think we finally accepted that poverty is about productivity. 

Karthik: What a spectacular introduction to the idea of..where India can be, but if you now look at what actually, even if it is cliched, what actually worked on our compounding journey from ‘91 to now and what's missing, what would you say - where we need to double down and change certain vectors and variables so that we're a very different country in terms of productivity, scale, and this global love by let's say 2038, let's give ourselves 15, 20 years…

Manish: Yes. It would just be education, civil service reform, in my mind, because civil service reform is now becoming the same thing as regulatory reform or ease of doing business. When people talk of ease of doing business, without civil service reform, you don't, because there's 67000 compliances and 700 filings. More importantly, 26,000 ways to go to jail!

If tomorrow somebody issued a fatwa and got rid of all of these, the civil service would replicate it again in two or three years because of the mentality of prohibited till permitted. And I don't mean the 6,700 IAS officers. I mean the 25 million civil servants. Yeah. So I think that's the last we have… If you talk to global investors now, they're getting comfortable with education and skills, right? Yes, the IITs and IIMs are geniuses, but we had not fixed our skill system or we had not fixed our education system. In 1931, Gandhiji gave a wonderful speech in Wardha where he talked about nai-taleem and he talked about experiential education. He talked about interdisciplinary education. But the 1948 Radha Krishna report or the 1968 Kothari Committee, or the 1986 National Education Policy, didn't do it. But in NEP, the new NEP 2020, we finally are getting rid of the barriers between education and employability. We're finally allowing degree apprenticeships. We're thinking about interdisciplinary education. So I think NEP will also return science to universities. In 1950s, there was a big debate with Meghnad Saha and Nehru about should science be in institutes or should it be in universities and Saha sort of begged Nehru to keep it in universities, but then Nehru formed CSIR, which spends 35,000 crores a year, and we really have not got output from that. And so hopefully the new National Research Foundation will become a funding body rather than a delivering body. So I think human capital is always a binding constraint for any country. India exported more software than Saudi Arabia did oil in 2021. So clearly we got something right in human capital because no economist would tell you that a country with a per capita income of 2,500 would be exporting 200 billion of software. We got a hundred billion dollars of remittances, which is really a form of human capital. 50 billion or 40 billion of the pharma industry is also a form of human capital.

But we didn't get basic school education, right? So we got the elite right for 1 million, 2 million people a year, but..an army marches on its belly, a country marches on its schools. And that's the only renewable form of energy for any country. So I think that finally, and the progress made over the last 10, 15 years in education reform, school reform is taking human capital off the table for investors. In fact, they're recognizing that if you were to set up a global centre, you would have to consider it. There would be no other place you could. The binding constraint of infrastructure is also getting taken off the table. It still continues to bother people, but it's shifted from being a dagger in the heart to a thorn in the flesh.

So you can classify problems as thorns in the flesh. Education or human capital is now a thorn in the flesh for some people. Infrastructure too. The dagger in the heart in the last remaining reform, I would say civil service reform. If we don't do that, and we so far have shied away from doing it, we forgot a capacity building commission, which obviously the civil servants will have an antibiotic reaction to any reform, nobody cuts the tree they're sitting on.

But I think there is a widespread consensus that the steel frame has become a steel cage and prohibited-till-permitted or writing the law for the chore where drunk driving becomes an argument against cars, that's for sure. If you have a headache, you can cut off your head. Or if you have drunk drivers, you can ban cars.

But that's probably not the right solution. And particularly in a knowledge economy where innovation matters much more 

Karthik: Far more than ever before. 

Manish: India has never had a shortage of land, labour, capital, right? You could give every Indian household half an acre, they would fit into Rajasthan and Haryana. We never have a shortage of labour. 40% of our labour force is vella. Which capital shows up when you need it. 80% of India's venture capital investment has come in the last 10 years. But are you saying this, this has now become the single biggest impediment? I think total factor productivity, economists call it that but human beings call it innovation, technology, entrepreneurship, I think finally, now how land, labour, and capital combined has improved substantially, but not the regulatory cholesterol, which the Indian state has bred.

Karthik: You've always maintained this… 

Manish: So if we get this last bastion of civil service reform.. there have been 40 global companies who have done board meetings in India in the last one year and I think they're done with skills. They've accepted infrastructure. They're just a little worried about it…It's a difficult place to do business. The laws keep changing. 

Karthik:. This is when we have English to our advantage. We have this labor force that communicates very easily with the rest of the world. Despite that, there is this last block. 

Manish: The last item on the list for India to really reach our potential now is civil service reform. And hopefully the new government in its…among the first decision it makes next time we have obviously national elections should be civil service reform. 

Karthik: Fantastic. It's a wonderful introduction to what the idea of compounding can mean for a country. Now, if I can switch gears a little, people would love to hear what drove Manish Sabharwal, the college student at SRCC, down these various paths of entrepreneurship early in your life. What did you see in science in the 90s that prompted you to think that there were problems worth solving of the nature you picked up? And then the beginnings of Team Lease and maybe a little bit of that journey. However quickly you want to encapsulate that journey. 

Manish: I think I have the gifts and wounds of a civil service upbringing. Early in life, you realise you don't live in an economy. You don't live in a society. My parents were civil servants. My co-founder Ashok's parents were in politics. So both of us grew up in households where, being rich, thin or good looking wasn't the primary objective. You were told that there's more to life than being rich than good looking. And I think that's a wonderful gift to give. And so even when I went to SRCC, and then I worked for five years, and then I went to business school, I think the underlying theme was that we really need our next company to be three things. When we sold India-Life, which we both started out of School - College in some sense. And we were not experienced and we made a mistake. We took venture capital when we were just a piece of paper. which is why we didn't do that in TeamLease. We waited eight years before we took it so we could take it. Because once take money… I mean the money goes down, the meter goes down, the money has an expiry date, and we probably sold India-Life a few years earlier than we would have wanted to. So the experience of that meant that TeamLease, we did eight years of doing it ourselves.

But we also had the choice that, you know, we said we wanted our next company to be three things fun, profitable and good for India. People think we make this up later, but we genuinely had this conversation where we said, look, I had worked in an oil refinery and steel company that was profitable and good for India. It wasn't fun. We have some friends who have a cola franchise. That's fun and profitable, but not good for India. At least my dentist doesn't think so. And I agree. So in TeamLease, we've hired somebody every five minutes for 20 years. We were profitable and I think we're sort of fun because we get to make th e case that the only way to make India less poor is to give them jobs and a job changes a life in a way that no subsidy ever can.

So I think India Life was really a child of happenstance. But TeamLease was a child of India Life. We were a B2B company. Our customers from India Life asked us whether we would provide them with TeamLease services. Originally, when we started, my wife asked me, you went to Wharton to be a labour contractor?

But it was clear to me that whoever would control employers would control education, employability, and staffing. India's people supply chain - the binding constraint is not people. The binding constraint may be skilled people, but the binding constraint more than people or skilled people in the right place at the right time is really employers because there are 63 million enterprises in India, 12 million don't have an office, 12 million work from home, only 1 million pay social security.

There are only 23,500 companies in India with a paid up capital of more than 10 crores. So the binding constraint, we recognize that whoever controlled employers in some sense, or whoever serviced employers could always find kids. So we've never found jobs for kids. We found kids for jobs. Because we recognize that the employer is what is scarce..  Finally, you should focus on what is scarce if you want to create a large business. And so employers were scarce and employers cared about compliance. They cared about hiring. They cared about technology, but we were also in a hygiene business, right? We realized that, look, we're not a high margin business. And anyway, entrepreneurship is the art of staying alive long enough to get lucky. How do you get lucky? You buy more time. How do you buy more time? You be frugal with capital. Our paid up capital is 18 crores. Our net worth may be 1000 crores, but our paid up capital is 18 crores because we recognize that - we were not going to go offshore. So we had to build our cost structures for the Indian market. Nobody's going to pay you more just because you've raised more money and shareholders don't pay salaries. Customers do anyway. So the TeamLease evolution from saying we're going to start with the employment business. We're going to add the employability business. We're going to add the education business has after a point really been driven by customers because they shifted quickly from saying we care about attrition, we care about productivity and we care about time to hire. Now, can you solve the composite problem rather than just say trespassers will be recruited…this guy has a pulse, you hire him, I don't care whether he's productive or not.

So I think India-Life was from 96 to 02, they sentenced me to two years in Singapore, which I hated, the king of a small kingdom is still king, we sold it to Aon Hewitt, but since then now, we recognized also that this was going to be our life's work, right? Putting India to work, which is something we put as our sort of vision and our slogan and our logo. And when we started the company, it wasn't something we were going to do in our lifetime. And I think that's been an unfair advantage for this company, because you've got a goal that you're not going to reach in your lifetime. And so that really becomes a real unfair advantage because you're perpetually one step behind what you need to be doing and what you want to be doing.

So my sense is that, obviously, as Eliud Kipchoge says, you run the first half of the marathon on your legs and the second half on your mind, right? We are now struggling with what brought us from zero to 10,000 crores is not going to take us to 25,000 crores. And I think so…But I think the other advantage we had, which we learned from India-Life, and we brought very ferociously to team lease was our shareholder role is different from my board member role, which is different from my executive role. 

Karthik: That is fantastic to recognize that early in your entrepreneurial life.

Manish: Most people think they're concurrent and they're guaranteed. The mind is quite clear. We'd rather be rich than be king. If someday somebody tells me the market cap will go up by you quitting, I'd be the first person to do it. But anyway, when you approach 20- 25 years..we're going to be 25 years soon..I think you also start thinking about what is the next best way to institutionalize the company. So the last 5-10 years have been spent on that. 

Karthik: I think it's fantastic to see that evolution. And this is the point I was trying to make on the motivation behind the podcast, because they don't hear from enough poster children who have actually gone through this kind of a journey in thinking. And the earlier you instill it, you have a shot at getting there. And this point that you made around these three different roles is widely misunderstood, maybe an aggregate entrepreneurial community in India. And sadly, even in a very educated, high profile, venture backed universe of really smart people. This is the elite of the elite who are getting this money. But the thinking is unfortunately still a little luddite on that front. 

Manish: How do you balance the next quarter and quarter century? It's not a trivial idea, right? And I grew up in Kashmir and they distinguish between Amanat and Jagir.

Amanat is misunderstood as trusteeship, but jagir everybody knows. The Maharaja of Cooch Bihar used to spend 50% of the treasury on Cartier and Rolls Royce. Yeah, it was his jagir. But amanat it's not yours, you're supposed to hand it over in better condition. Then you got it to the next generation. And I think it's hard, you know. I just met the chief minister of a large Indian state. And I asked him, “So how are you going to pay for these new pensions you announced?” He said, “But I don't have to pay these pensions. The chief minister 25 years later will have to pay these pensions.” Now, how is this different from..I was on the RBI board, and I remember an email from one of the goofy banks where this guy was...The treasury guy was selling a 300 crore derivative to a large Indian company. And the risk guy replies to him saying, “Why are you selling this? We're going to lose money and the company's going to lose money.” And the idiot replies, IBG, YBG. So the risk guy replies saying, What do you mean? He says, “I'll be gone, you'll be gone.”

So I think this notion of contraction of people's time horizon, that you should maximise for your three year, five year, seven year timeframe, I think is very corrosive. Because if you optimise for five or seven years, if you're playing a one innings game, then you will run your company very differently. You’ll capitalise your company very differently. You will hire very different kinds of people. Being consistently warm is so much more boring than being hot or cold. It may be more sustainable. I think it's more compounding. And I think that the test which you probably also give everybody. I was at Bangalore recently and I asked the kids, will you take 10 lakhs from me now or one paisa doubling a day for 31 days? And, obviously 65% of the kids took 10 lakhs, but one paisa doubling a day for 31 days is one crore six lakhs. But my Marwari wife, who for the first time went along with me, said something very interesting on the way back because she calculated it. She said, you know, till the 24th day, you're better off taking 10 lakhs. It's only in the last six days. So what if you die? What if you run away? What if you default? What if?.. So I think that the problem with understanding compounding is that you have dessert at the end of the meal, right? This jagir versus amanat… is dessert is the first course. I think dessert for the first course is really fun, but it's really unhealthy. So I think that all of us who now are looking back at people we admire. In retrospect, dessert is never at the front of the meal for most of the companies that I admire. HDFC, Infosys, or TCS, all the companies that have taken decades to do what they have done. The compounding, the real value has really come in the last decade, even though they've been around for 20-30 years.

Karthik: I love the analogies and this is what I kind of tell my partners at the firm that, yes, we've been at it for 12, 13 years. Haven't even seen the first cycle through. So the nature of our businesses is - I have no escape, but to see these cycles through. So every time I go out with a pitch deck, I've just signed off another 12-13 years of my life because it's a new fun cycle.But that's a core job.

But now I've reached a point as well where I'm wondering what is the thrill of this job and.. As I alluded before is… Can we see in every cycle two or three of these companies outlast even a 30 year journey? And to the point that you made, the compounding is going to come much later.

And you're also right that LPs are in a hurry to see their money back. So sadly, I might not see a lot of that compounding for the very investors who allowed me to back these companies. But if you want to have, not necessarily a book written on you, but if you want to actually make a dent as a venture capitalist, if those companies are not there on some exchange or some wall, 25 years into the future, nobody will ever remember your contribution of putting one crore or one million or ten million into some subset of the economy.

Of course, you've fueled the training for many, many entrepreneurial minds to fuel the country, but it'll be a footnote. And so we are yearning for that at this juncture. If you ask me what's keeping me hungry for..or expectation for the next 10-15 years is to see a dozen of these come out of my portfolio.

And this is why there's an obsession around trying to find this characteristic in the DNA in the founder at seed stage, which is super tough. So, I thought maybe the next set of questions around this are.. I know you knew Ashok from all the way at SRCC, if I recall, and so there's one thing about knowing a single, a particular co-founder.

How do you amp up the kind of leadership teams that you put in place to believe in something like this early in the life of a company And we'll come to the challenges that you said you face today, which everybody at every decade, there's a new set of challenges. But how do you convince them to stay bootstrapped, stay frugal for like 8-10 years before you get your first burst of capital?

And maybe where I would like a pause on that is… Even at IPO, I use you folks as a great example of saying why are you scared of IPOing at a thousand crore market cap? I know this phenomenal company called TeamLease which did that not decades ago but six seven years ago and raised a measly two hundred crores, but then they were off to the races. They're like five times that value created in six seven years.

So what gives you that courage? Because it was not like you were young, you were not four or five years old, you were already a decade old by then. And, in that context also, you were not like a service that didn't exist before. You were competing with global giants like Manpower and Kelly and all of these guys, and they had seen this model elsewhere.

What gave you the ability to think you had the right to win compared to all of these guys? 

Manish: I think the second venture is an unfair advantage. Because we were clear that there are two kinds of companies and entrepreneurs can create a baby and a dwarf. Both are small. The dwarf is small and will stay small and the baby is small, but will grow. Now the difference between a baby and a dwarf is not more money or more food. It's really in DNA. And we talked a lot about .. what is the difference between a baby and a dwarf? The first one is clearly this sort of balance between the next quarter and quarter-century. You can't have if you only say about the next quarter, nobody's going to give you benefit for the next quarter century.

If you only talk about the next quarter century, you won't be around in a few quarters. So I think this balance of giving people a sense of an addressable market, but sustained growth, that's the biggest sort of signal. The balance between that is really embodied in three, four choices you make.

Most importantly, your cap table. Where are you taking money from? How long do they have a runway? It's okay if you have a seven year runway, there are lots of people in the market who at different stages are willing to take the parcel from you and move on. So we were quite clear because of our earlier venture, we had some capital, we put all that then we took private equity and they exited out in the IPO markets and IPO is the only perpetual capital in this country. And we're still a baby in diapers. So we needed perpetual capital for our dreams. So I think the cap table in terms of how you think about the evolution over the next 10-20 years. Specifics will evolve, but you do need to think about its evolution. At the end of eight years, I won't start thinking.

The next one is the cognitive diversity of the team. I'm an extrovert. Ashok is an introvert. I'm good at sales, he's good at operations. He's good at therapy sessions with cribbing employees. I make them cry. He's ugly. I'm good looking. I could go on. But I think our board members did something cool in one of our board meetings and said if only Manish had been around, the company wouldn't have survived.

If only Ashok had been around, the company would have been much smaller than it is. And so I think we tend to hire and hang out with people who are like us from the same college, same school… I think the SRCC was just a discovery mechanism. Otherwise, we were very different people. So my sense is that the key to ensuring that you do this 25 year journey is cognitive diversity.

The third one is just ensuring you don't do anything stupid, whether it's diversification, whether it is debt, whether it's compliance. Because the most dangerous lies entrepreneurs tell are the ones they tell themselves. And partly that may not be all a bug but it's a feature, because if you're not delusional, why are you going to chase big goals? But you need a hearing aid, a seat belt, or a mirror, in retrospect. Because if you don't have the hearing aid, seatbelt or mirror, you're going to do something stupid and that's going to reduce your chances.

So I think the way to ensure compounding is be thoughtful about cap structure, have cognitive diversity in your team, and then have these bunch of people who don't have a veto over you, but who can protect you from yourself. So I think those are the three lowest hanging fruits. There may be many other things that I can rattle off, but I would say for entrepreneurs, make sure cognitive diversity is there.

Make sure somebody has the power to slow you down. At least friction, if not veto, they can slow you down so you see what's wrong. And the cap table is obviously key. I can't understand many of these ratchets and anti-dilution clauses. These are not equity instruments.

At RBI, we dealt with idiots who borrowed their equity or who stole their equity. We ended up with 15 lakh crores of NPAs, which now we brought down. But equity was meant to be equity. If equity is quasi-debt or quasi-exploding or quasi-imploding, I don't know what people were thinking.

So my sense is cap tables are really, really important. And you don't fool around with that. There's no new way to do this.

Karthik: Fantastic lessons. I hope the entrepreneurs are imbibing all of this from your thoughts, but now, switching gears a little, I know for a fact… when I came and met you and Ashok in your offices, this was back in 2008 or so, it felt like you were exploding, like you were getting to 60,000 - 80,000 employees even back then and then I think I connected back two years later and you said, no, we decided to stay stable because we knew a lot of things were going to break if we continued at the speed.

So maybe your first point of reflecting on how you take a pause and a breather as you try to exponentially scale? And how often does that come in the life cycle of a company? Is it linked to a number of… I'm sure it is linked to a lot of variables, but when you think of 25 year growth points, historically, can you give some examples of why you were forced to take a pause and that kept you breathing and alive and stronger for the next part of the run.. different types of training in the marathon paradigm. And where are you today? Are you afraid of what your challenges are today? Just to give context that even as a public company, 10,000 crores or 5,000 crore plus market cap, I don't know the exact number, but somewhere in that vicinity, you still have challenges and you still have to build to get to the next level of scale.

So a little bit of that historic context of one or two examples. And maybe an honest view of where you think those challenges are today, as you talk to your team. 

Manish: I think the instinct to preserve is different to the instinct to create. Keeping the trains running on time is a different skill set from getting the train out of the station. It's fundamental to life that you do your IPO roadshows. You campaign in poetry, but you govern in prose. That goes back to cognitive diversity. A stereotype of an entrepreneur is poetry. But actually an important stereotype should be prose because customers are not always interested in listening to new things.

They buy your product, they're interested in predictability, they're interested in stability. So my sense is every time you double your revenues, you choke on your growth. The structures don't work. The list of ingredients is obvious, but the recipe is not working. The list of ingredients looks the same, but the recipe is now different. And so my sense is every time you double your revenues, it's nice to digest your growth a little bit. Does that mean you have to slow down? Can you build anticipatory technology infrastructure? Can you hire people? You should buy a shirt two sizes too large and grow into it. But if you buy a shirt five sizes too large, you can't afford it. There's this dance between sort of capability and aspiration, which is more art than science, at least for us, which is a very linear business. We don't have that much operating leverage beyond a point. Especially in sales. Even in operations, if we can sort of do that. So our growth between 2002 and 2008 was purely driven by our customer base from India Life and we expanded our sales teams, the lessons we had learned. But then, going from zero to second floor doesn't take you from second floor to fifth floor. And that's when we had to change our org structures. Structures are very powerful things. You don't think about structure and people talk about culture eat strategy for breakfast. My sense is structures eat strategy for breakfast. Cultures are very nebulous things and you don't want monoclonal cultures also. I find the talk about culture that implies that there is one culture correct. And diverse cognitive diversity doesn't thrive in monoclonal cultures, but structures as elements of  strategic intent, structures as elements of accountability, structures as elements of buckets for resources where you allocate capital to structures, you allocate to people … but you allocate preferably to a structure rather than one person. So my sense is the structural evolution of a company, it's org structure evolution to keep up with growth is really as important as the technology investments like everybody. When they choke on growth, they'll raise their money. They spend on technology and they'll hire more expensive people. Both those are sort of putting lipstick on a pig. Finally, you've got to think about structures as you have stronger horizontals like HR, Finance, Marketing, and IT. Or do you have stronger CEOs and P&Ls? The difference between small markets is better serviced with stronger CEOs and P&Ls. But then I sometimes think, even larger markets.. because of entrepreneurship, when you have multiple businesses in a company, should you have an Ayatollah of HR who enforces the same HR policy across all five?

Maybe not. But financial control, there should be an Ayatollah of financial control. It should be the same for big business, small business, old business, new business. That's absolutely right. Marketing should be the CEO's job. So I think this horizontal versus vertical is an important evolution. And to me, that's really.. if you're moving from being a founder-managed to a founder-led to a board- governed company, which is what we're trying to do. Me and Ashok decided a long time ago, our kids are banned from joining TeamLease. So that by definition is liberating in some sense, personally, and professionally for everybody else. There is somebody in this company who has a shot at our job, within the next few years. But that also means we need a deep bench. You need to have four or five people whom you think can take the job, you need to expose them early. So I would say that this choking of growth is operational, but there's also strategic choking on growth. There's also governance choking on growth. Board members in the first 10 years are not the board members who are now important for us where we're going to do an entrepreneurial transition, where we're starting to recognize that sort of life in the fourth decimal place is as important as the big picture slide deck of four slides or three slides, which will convey everything.

Every morning we need people who are spending their life in the fourth decimal place as much as I'm doing my global bullshitting about India's place in the sun. So I think that the cognitive diversity point is really the only way companies become self healing. If you over index on either poetry or prose, you over index on either technology or processes.

So my sense is that companies are perpetual work in progress. Large companies, now I see they are… I've never met a small company that doesn't want to be a big company, but I think the arthritis and cholesterol that builds up in big companies is also a real problem. So the challenge for all of us who go from the ground floor to sort of 10th floor. We have an unfair advantage because our opening balance was zero, so everything we've done is measured from there. But the people we bring in at 10,000 crores will be measured from here to 25,000 crores. So the 25% growth rate or 20% growth rate.. which I think this company can do 10,000 crores for the next five years, is a very different driver.

Then what it would take to grow from zero to 10? Every entrepreneur should be honest with themselves about.. the most dangerous lies are the lies you tell yourself. I believe that I would be able to run this company at this stage was actually not even a lie. Ashok runs the company.

I help him do it in ways that take care of stuff that he doesn't like. For him, he'd rather have a root canal than do public speaking. I would rather have a root canal than attend an operations meeting. So it's a nice trade to have. I think from the beginning, it's TeamLease 4.0 now. 1.0 was with private capital.. 1.0 was with no external capital. 2.0 was with private equity. 3.0 was the first five years of being listed. 4.0 is now where 45% of the company is owned by FIIs. And the next stage is very different from here. And, I took some time off to ask investors. At the end when we finished five years, I took a month off and said, Look, we're moving from small cap to mid cap. The 350th company in India is worth 5000 crores, the 100th company is worth 40, 000 crores. That's the range now. So I said, now we have to be 40, 000 crores. That's our target. So let me go and meet investors and say, what are the characteristics of the people that you went to?

So there were 30 different characteristics of what they call companies who went from mid cap to large cap. But in my mind, the summary was addressable market, sustainable growth and effective governance, where the first word is more important than the second one. They said addressable markets because all markets are not addressable. Sustained growth for 10 years because anybody can grow for three years. When you grow for 10 years is what I care about. Compounding and effective governance is not the checklist of SEBI. It is genuinely recognizing that you will be around 25 years from now. So in my mind, as I reflect, the addressable market is just a proxy for how big a company you can be.

Sustained growth is just a proxy for plumbing. If you grow for 10 years, your plumbing is keeping up. And effective governance is just a proxy for “will you be around 25 years from now?”

Karthik: Wonderful. I think very succinctly summarised from what public markets teach us. And again, the wisdom of the public markets, I keep maintaining to my friends in the ecosystem and my entrepreneurs is probably a 100x that of that of the limited private market and its mindset.

Also, because if you think about it, who actually gives a “exits to all investors”, it is eventually a large publicly listed company that can come and buy, and is therefore accountable for those same actions. So they have to know what asset they're buying and whether it fits into the same three paradigms in some sense.

Manish: But I would go more upstream than you. In economics, the only real information in the economy are votes and prices. Everything else is a model. Everything else is just conjecture. Votes are: If somebody is pissed off, you won't get votes. If the economy is not doing well and prices are the only way. The beauty of public markets is people can buy and sell our company without talking to us.

I find people who are angry with me in investor-calls buying our shares. And I feel people who are being very nice to me selling my shares. And so obviously markets are created by buying and selling. So I think the beauty of public markets, it's really good for an entrepreneur because it creates a hearing aid in ways that sometimes your board isn't. When, if there are more people selling and then buying, then at some point you've got to stop calling them myopic. You've got to say, “Oh, they're not, they don't understand me. They don't understand my company.” So I think that if you really want amanat, I think a listed listing is probably the right destination that you should target, and the best way to do that is to run your company like we didn't have to change our auditor. Our auditor was a big four from the day we were born. We didn't have to change any accounting policy..it is to run your private company as if you were public. In its plumbing, in our board meetings, we used to have the board agenda..almost from 2008 to ‘15, our plumbing accounting was like that of a public company, because you must always act like who you want to be.

Manish: You must dress like who you.. 

Karthik: I would humbly submit. That's been the biggest failure of the venture backed ecosystem, because all of that has been pushed kick down the road. 

Manish: But why? 

Karthik: I think, two things. One, it requires a certain board level discipline and training for founders who have never done it before.

And there is incredible peer pressure and market pressure to sort of catch up with the Keep up with the Joneses in some sense in terms of velocity. So if your competition is not behaving in that fashion, you feel you lose out by investing. This is why I also alluded to how did you have the courage to stand up to your competition at that point? Because that seems to be the biggest fear here. And a lot of first time founders who may not have had the India Life journey that you had, we see second time founders be much better at this because they know they're not building for the short term, and they grapple with these situations. They may not have solutions on day one, but they grapple with them at least far more much earlier in the life of the company. The first time founders tend to…you have to force the education down. And recently we were having this governance  conclave as a part of the G20 discussion set up by Amitabh Kant and we met at Alibaug and there was a debate around the table.

So the entrepreneurs very bravely, one of them, including another Manish in my portfolio, the CEO of Purplle, saying, “no, no, it's my responsibility. I, as an entrepreneur, should not be waiting for anybody to teach me this.” Inherently I should have it, but I was actually alongside.. you know.. let's say Vivek of McKinsey, who I was on the side of.. You know.. we have far more experience and oversight and, and judgement and wisdom over 23 year olds, 27 year olds, 32 year olds.

And we've seen this across multiple boards. We see the ramifications of not getting this right. What are we waiting for? It has to be education on day one. Instead, the VCs worried about whether you can get a hot valuation round and get more capital into the company, you're postponing some of this plumbing.

Manish: But do you think VCs who have operating experience are better than people who are bankers or financial types, or that's not a fair sort of distinction? Because I've seen both. And intuitive theory would say that somebody who's run a company is better than somebody who's purely been a financier. But I guess a good board member is about judgement more than anything.

Karthik: That is correct. And so there, I would say the private equity folks are even more trained in watching or looking for this very carefully because they deal the fear in India on whether you're getting a clean founder mid-stage in their journeys. So their eyes are trained to actually look for all of these anomalies.

Because they're checking in eight years, nine years, 10 years later, in a lot of the cases. And that's probably half the audience you've met, if not all of the audience. Venture, unfortunately, is a little different, which is the school of thought I've come from. And therefore... you tend to postpone this because saying, “Hey, these are just kids trying to innovate and they're still building products, and they're still trying to find a fit to the customer.”

Let's worry about these.. postponing these problems. And then you get into a rat race around trying to get capital in and compete with your...so you don't have time to pause and breathe, reflect, And then the trainers are failing in some sense and pushing that blame onto the founders. Where for six years or five years, you've not told them any of anything about this, that it's important.

This slowdown is helping a lot, if you ask me. It is forcing these dialogues. It is crushing certain companies which were badly run. Thankfully, not at least in the public domain, not as many alarming cases of outright fraud and mismanagement. But every one of those strikes at your heart, the fear that they might be in your portfolio. 

Manish: Stupidity is not illegal, right? So if you made stupidity illegal, then, you know, there would be nothing in life. So I think we have to start distinguishing between... 

Karthik: Outright fraud, you can't control. You were going to have 5% of that.. and learn from that and put better controls. But stupidity, you got to train these individuals and you can't say, “Everyone's going to be as wise as Manish or Ashok when they were starting off and they're calibrated right at the outset.” And then you can't say, “Hey, learn that from your peers by sitting in coffee shops” because that's the conversations they're having. They're not getting this audience with you, right?

And so, which is also my primary motivation for driving some of these podcasts topics because they just don't get heard. Who's Manish? How do I access him? How do I hear his thoughts? And, and how come even in the tech world, how come a Zerodha got to where they were without capital?

So there are other formulas and they're well run companies, right? And they can be under the scrutiny of RBI or SEBI or the public market.

Manish: My sense is.. you know, Maya Angelou once said the universe isn't made of atoms, it's made of stories, right? So role models really matter. And, you know my parents retired to live in Kanpur. Whenever I go to Kanpur, some kid will track me down and say, chalo aapko minister ya MLA se…I'll take you. We'll get a hundred crore contract and we'll marro 50 crores. Because his role model is Dinesh Trivedi or Ponty Chadda or Subroto Roy Sahara. In Bangalore, we got lucky because Nandan, Azim Premji, Kiran, said don't care about how much your company you own.

That was always the advice they've given, don't care about valuation, focus on just building a great company. And so I think some of us are in that sort of cohort. There is some such thing as generational luck. I think all of us are sort of going through generational luck, but our role models turned out to be people who were saying… I met one of the Unicorn guys and asked, "What's your strategy?”

“It's raising more money than my competitor”. And I was like..that cannot be a strategy, right? Field Marshal Rommel in the Army had once said, sweat saves blood, blood saves lives, but brain saves both! So, sweat and blood is not a strategy. Brains is strategy. So I think that we have to recognize that our role models, at least for a bunch of us cohorts, were… role models matter more than any amount of stuff.

It has already happened in public markets, right? If you see what happened in FMCG - Britannia, Pidelite, Marico, Darbar, all the families have hired multinational alumni and seen their market cap go up 20 times. I mean, Varun joined Britannia when it was 8,000 crores, now it is one lakh crores. Duggal joined Dabur at 10,000 crores, it was 1 lakh crore when he left.

Saugata joined Marico at 6000 crores and it has a 60,000 crore market cap. So we have seen this..role modelling in FMCG in public markets where you're sharply dividing your shareholder board member and your executive role.

Karthik:. What I think I’m attempting to do in a humble way is to almost bridge a little bit of a generational gap that has sadly set in. So while the baton was passed from the Kirans to the Manishs and the Ashoks and whoever else I have on my show, somewhere that slipped in the last decade. The narrative shifted, role models were hot raising unicorns, etc. And they have not paved the path either. If they had, you could justify their lessons, and said, “Hey, they finally figured it out.”

They're sadly being berated every day. They're being trashed by the public markets. And then even today, that narrative is sadly, “Oh, it can happen. It's okay. They're still our champions.” Right? And I sense a little bit of that. And I have nothing against them. They're all great founders. But riddled with too many mistakes, where there are much, much better examples, just if you peek five or eight years prior to that.

Also, you brought up this bizarre stat about the last five years bringing in more than what the other 70 plus years brought in terms of capital. In the venture world… I don't have a perfect number, but nobody has disputed my saying of this. I think 75% of what we have seen in the venture world in terms of people employed, capital deployed, number of startups, number of unicorns, and revenues has all been built up in the last six years compared to everything prior to that, right?

The ratio is absurdly skewed towards what mindset was instilled in the last six, seven years. A lot of the people who are in these ecosystems were either in college or were outside of that ecosystem prior to 2015-16. 

Manish: But that was a global mispricing of capital or was it an Indian thing? 

Karthik: No, it is a global mispricing of capital, but there is a legacy that the markets of the US can lean on and there is an inherent strength in the economy and consumption power that a market like China can lean on even if it's a younger ecosystem.

We don't have both. As you said, just because you throw stupid money at the problem, customers are not going to pay more or buy more. We have a limitation in our spending capacity on one side. So you can't compare yourself to China blindly. And the U.S. has seen cycles where even if there was exuberance in a 4-5 year stream, that same fund manager - in six cycles before that has delivered spades.

Because there was sanity in those markets and things were built well. And even Cisco and the Apples, and the Googles and the Facebooks were built with venture capital. And they were legitimate business models. So they might look absurd in the way they grew, but they have underlying revenue that supports that.

We don't. That's the reality. You can't say I want to be a 20 billion dollar company and have one tenth the economies of Facebook when it comes to actually the revenue model. So I think we overshot our mandate in that sense. And I'm trying to claw back and say, “Hey, just look five years back. Maybe you were in college and you didn't figure this out, but there are these gentlemen and these women who built it the old school way in an improved technology environment. They're thriving alongside the best. So what's the problem?” So anyway...

Manish: You think it is role models? You think it's a demand side problem or supply side problem? Because see, finally good judgement comes from experience and experience comes from bad judgement. I think one of my favourite courses at Wharton was a guy called Gultekin who used to talk about stupid entrepreneurs and wise society, right?

That entrepreneurs need to be delusional. 10 of them. Society needs all 10 to believe the delusion, but society only needs one to succeed. But since it doesn't know which one, it will encourage all 10 to be hormonally imbalanced. 

Karthik: Which is absolutely.. you can take that quote and apply it to what defines venture capital. I'm perfectly aligned with that thought. I don't need each of my companies to become grand public companies or forgo risk for this audaciousness. 

Manish: But you think the ratios and the odds got a little... 

Karthik: You can't apply American laws and Chinese opportunity sets to a market that's not ready yet. That's all. I think the moment will come, right? 

Manish: India is not a big market. It's a small market with a big potential and your business plans need to provide for it

Karthik:. And when you can't do that, you should rightfully go chase global markets like Mr. Murthy and Nandan did and what Kiran does. So these are, they're not...

Manish: Or you'd be like us who chases India with a paid up capital of 18 crores. 

Karthik: That is good. So you make that choice right? And so it's not sexy enough for venture capital, but then keep venture capital funds small and those returns will look outstanding. Right? That's what I said… There was a little bit of a greed offset, which ran ahead of the need, there was no fear at all. And now it's set in. It should correct. It's a good time for everyone to reflect. I'm reflecting through the sessions. So last question before I get to rapidfire… you've been wonderful with the insight so far money. But we didn't touch upon one of your passion areas. You talk about it. This vision that you had for TeamLease around employment, employability and education. I know, you've established a primary school through your family.  And I know you've had a brush in the early years with employability. How is all that playing out? And how do you see TeamLease evolve into these three areas? Because fundamentally, you're right. You have to go solve it at the root of the problem. You can't catch them at 23 and say I'll fix all of them.

So where's your head on that...

Manish: If I have learned five things, The hard way, you know, we wrote off 100 crores on IIJT. So we wrote that off. Thank God it wasn't fatal. But the five design principles for the intersection of education, employment and employability are learning while earning.

India will be the first country where employed learners cross total learners.. full-time learners. Learning by doing. Soft skills are not taught, they are caught. Learning with modularity, three month certificate has to become opening balance for one year diploma has to become opening balance for three year degree.

Learning with flexible delivery, online classroom - on job classroom, onsite classroom and on campus classroom have to be equal. And then learning with employer signalling value. IIMs and IITs are good places to be at, but they're better places to be from. Fundamental value has to be employer signalling value.

Employers use these places as lazy proxies. So degree apprenticeships are where we are now focused on…and we now have an 800 crore business, which doesn't get consolidated with TeamLease and TeamLease Skills university. 

Karthik: It doesn't, you said?

Manish: Not yet. Because it's a university. But it's a non-profit.

Karthik: And it's a single location?

Manish: No, it's across all employers, right? It's online plus on the job. It's not a campus. On campus, we only have 100 kids. Our primary model is going to be on-site, on-job. So you combine, the innovation lies at..see, a degree is a bipartite contract between a kid and a university.

An apprenticeship is a bipartite contract between an employer and a kid. That's correct. What we need is a tripartite contract between university, kid, and employer. Which is what degree apprenticeships finally do. So it's still early days, but I think the work globally, the world of education, employment, and employability is converging primarily because…

My parents had 35 year careers, I'll have 45 years here. My kids will have 55 year careers. So the notion that they can live off their 10 plus two plus three plus two system upfront is just delusional. I think there's multiple on ramps and off ramps. The multiple classrooms are really the future of education. And again, just like controlling the employers is what allows you to find 30 kids for jobs rather than find placement for 30 kids. When you're already finding placement with 30 kids, it's just too late. You you had them for 12 years. I can't teach him English in three months. I can't teach him to.. you had him for three years, you should have told him to shave, cut his nails, tuck his shirt in and take a bath before the interview.

That's all just an unfair expectation from the employer. So I think education, employment, employability - NEP allows that. There was regulatory cholesterol. But the funny part is the world is also sort of recognizing that the world has produced more graduates in the last 40 years than the 400 years before that.

So 60% of taxi drivers in Korea have a college degree. 31% of Walmart checkout clerks have a college degree. 15% of high-end security guards in India have a college degree. So college isn't what it used to be, but social signalling value matters. So I think degree apprenticeships are our bet for the next 10 years.

Karthik: One last question on this because it keeps coming up and I thought I was done, but I definitely want your view on this. You deal with a lot of jobs, which are usually like entry level or operational in nature, and there's this huge talk of AI being a threat of eliminating some of these, jobs because they're repetitive tasks or they do not need to be on field, they can be at a desk. And that machines can consume a lot of that. Do you see that as a threat or opportunity? How do you skill and against that? 

Manish: What is the nightmare of the U.S? That 40% of their labour force will generate 15% of GDP. We are already there now hamaara kya ukhaad loge. Getting from 2,500 to 10,000 dollars is a very obvious phenomenon. When we get to 60,000 per capita income, which is what the US is, or 80,000. I think 30 is the new 60 anyway. Technology has been very deflationary. So a lifestyle you can get for 30,000 USD, what you used to only get at 60,000 USD.

But for India right now, I would not worry about AI, Automation, Machine Learning - being destroyers of capital because 40% of our labour force is close to zero productivity already. So if we just take everybody in India to 10,000 dollars, if everybody in India lived in Bangalore, then India's GDP would be more than China’s.

China’s GDP is 12,500USD and India's GDP is 2,500USD. So finally, it is about productivity. There is no such thing as poor people. They are only people in poor places. An electrician moves from Bihar to Bangalore, gets four times more salary, moves to Switzerland, gets 25. But we always view places as physical places, but it's also which sector, which company, and which skill you are at. You have to now in the 21st century, not just define places as cities, states and countries, we have to define which sector, which company, and which skill you have, and then you'll get the wage premium.

Karthik: Super. No, this has been fantastic. Thanks a lot, Manish. I'm just going to humour you and the audience with a bunch of quick rapid fire questions. It can be short, it can be a word, it can be a phrase, and then we'll wrap up. 

A breakthrough belief that has stayed with you so far? I know you have many, but what's your favourite, like a quote?

Manish: I think it is more It is our choices more than our skills or our luck.

Karthik: Harry Potter? No, it is Dumbledore right?

Manish: Dumbledore, yeah.

Karthik: Having been brought up with the civil servant mindset, as you say, what drove you to then think big.. because that had a level of contentment around.  

Manish: I really think Wharton can change the size of my thoughts.

I think I've never lived in another country. It changed the size of my thoughts. I landed in the US in August 94. By September, I was saying these Americans aren’t smarter than us. Why are they richer than us? And that was just about this ambition and their knowledge.

Karthik: How would you describe education in one line? 

Manish: It's an old one, but it is the lighting of a fire rather than the filling of a bucket. I think our education was the filling of a bucket. 

Karthik: Okay, you wanted to move to the light. You think the NEP gives us a chance? 

Manish: I think it has a real shot.

Karthik: What would Manish Sabharwal be spending his time with if he had to design a different life from where you're at today?

Manish: I don't think it would be very different. I worry because if you change something in the past, I may not end up where I am today. And so I think the right combination of sort of private, public, and non profit is what I've managed to get to now.

Karthik: Lovely. I know you've already found that balance despite being at the helm of TeamLease for the last ten years. You've actively started moving this. It's fantastic. Thanks for all your service in that sense to the nation. I know you're an avid book reader. Specifically for this audience, I would say, I know you'll have many favorite books, but if the bulk of our podcast audience are young entrepreneurs who want to learn from you and your experience, what would be good go-to books that you could recommend?

Manish: I would say the ultimate cognitive capability in people I admire is strategy, right? Strategy is the art of reconciling unlimited aspirations with limited resources. There's a history of strategy by Lawrence Friedman… I mean, I read India after Gandhi every year again by Ram… but I also read strategy by Lawrence Friedman, which really thinks about strategy, how it came from military to politics, to business, and how to think choices.

Karthik: So you value that as an entrepreneur and you feel like it is something you've gone back to..

Manish: Every successful entrepreneur has got a strategy, right? That's the most upstream skill. And it is something which some people are born with, but like with most skills, I think it can be learned.

Karthik: Super. And other than books, where do you draw a lot of your inspiration from? I know you're an extrovert and you meet people…

Manish: You only learn by the books you read, the people you meet and the roles you play, right? I went to Wharton, but the best finance classroom I've ever been in was five years on the RBI board.

So I think if we put ourselves in different roles, which are maybe 2 feet away or 10 feet away from our day jobs, having relationships which are cognitively diverse, don't hang out with MBAs is probably key! And then, and obviously diverse reading. So my sense is, this lifelong learning plan that you have..everybody has to craft for themselves based on they know what time they learn best or from whom they learn best. It's very customised, but It's people really, it's people, relationships and roles are really the only three ways. 

Karthik: I'm fortunate enough to be married to a practising artist. And that audience and that crowd sort of fills so many different parts of your brain and your experiences, which is exactly how I relate to what you just said.

Again, fantastic set of insights. Manish, thank you for your time. I think I will personally force a lot of people to hear snippets of this if they don't know Manish Sabharwal, because I think what you laid out today, starting from this idea of strategy being at the helm of how an entrepreneur should..  that's the biggest competitive advantage.. If you can shape your frameworks to all the wonderful narratives around India and your learnings from team leads would be great learnings for our entrepreneurs. Thank you. 

Manish: Just get them to think about Amanat versus Jagir also. 

Karthik: Yes, that is actually the only thing that leaves you hungry and aspirational for the idea of compounding in some sense. And, sadly, it's not well understood. Somebody wrote to me recently on the back of our first episode of the podcast. And all I could think was, okay, one entrepreneur's mindset changed. And so it's one by one. We'll keep pushing and thank you for contributing. 

Manish: Wonderful. Great to catch up.