In this episode, Sajith Pai, Director at Blume Ventures, chatted with Srikanth Velamakanni, Co-Founder, Group Chief Executive & Executive Vice Chairman at Fractal Analytics. From being wary of becoming an entrepreneur to succeeding as one for 22 (almost 23!) years now, Srikanth shares the incredible story of starting Fractal, trusting bright 20-somethings in their initial rounds of hiring, and building a people-friendly company.
This transcript was AI-generated and went through multiple rounds of proofreading. However, there might be a few errors that may have slipped through the cracks.
Sajith: The rocket ship is a popular metaphor used to describe startups, but the number of startups that are genuine rocket ships, which get everything right from the launch, escape velocity and proceed successfully to unicorn status and finally, their destinations are rare. Most startups, in fact, are often unclear what their destination is. They often construct the path and the goal along the journey. And the journey is hard, arduous, often lonely as a founder and the founding team work hard to build and launch the product, work out the GTM, get distribution as they continuously experiment and iterate along the way. The journeys are also varied. There is no one defined journey to greatness. At Blume, we celebrate these varied journeys, long and winding, filled with fear, uncertainty, doubt and finally emerging to success and recognition. We like to use the word X-Unicorns to describe these experiments, which eschewed the formulaic unicorn creation approach of raising capital and using it to drive growth rapidly.
These are today's unicorns that played by their rules and took unconventional or even long-drawn-out paths to get there, such as Nykaa, Spinny, InMobi, Zoho, and Fractal.
And here you are with Srikanth Velamakanni, Co-founder, Group Chief Exec, and Vice Chairman Fractal Analytics, one of India's proud X-Unicorns. Just taken a long, initially turbulent, but later surer and steadier path to get to Unicorn status.
A bit about Fractal now. Fractal works with 135 of the Fortune 500, that is companies with over 10 billion in revenue. They're about 4,000 large and for last year, that's a financial year 2022, ending March, they had revenues of around 1295 Crores. That's USD 174 million. They're at a run rate of 2036 Crores or 267 million. It's fairly large. They've always been profitable. Founded in 2000, Fractal took over 20 years to become a unicorn, but it looks entirely different compared to the traditional tech unicorns that we speak about. It's profitable and has been consistently so, for being founded at a time when venture capital had yet to take off and they had to invest out of their profits to grow the business. Recognition came slowly but steadily through rounds led by TA Capital in 2013, Khazanah in 2016, Apax in 2019, and the recent 360 million mega-round led by TPG Capital. This conversation is a special one for me. Srikanth and I are batchmates from B-School. We've known each other for 26 years. We do not meet as often, but it's always special to have another chat with the Quanti geek on your campus.
So, Srikanth, I've spoken a lot enough to you. Before we get to the Fractal story, I thought it'd be great for our listeners to get a brief look at the journey that preceded it. So, welcome to the X-Unicorns podcast, and it'll be great for us to hear your journey.
Srikanth: Thank you, Sajith. Great to be here.
My story began early during my childhood. I was in Assam. I lived in Assam in a small town called Duliajan, which still has the oldest running oil well in the world and one of the things I learned while growing up was that my father used to work for the materials management division of an oil company, and he would always find people trying to bribe him or trying to threaten him. I saw once when we were taking our car out of the garage, a couple of guys came in and sort of threatened him with a pistol. That was the first time I saw a pistol, and I was pretty scared as a maybe 7- or 8-year-old kid and my father told me that they were trying to threaten me to do something.
His philosophy was an honest businessman is an oxymoron. I took that to heart. I told myself, I'm never going to be an entrepreneur. I grew up with those sort of middle-class values, went to IIT Delhi to do my electrical engineering, was an okay performer there, 7 pointers, so to speak. I was challenged by the entrance test more than my desire to do engineering. Frankly, I did not know what engineering entailed. I just was very fond of maths and I thought, this entrance test is really interesting. I should crack that entrance test. Similarly, the MBA entrance test also was something exciting and I decided to do an MBA as well. Went to the Indian Institute of Management, Ahmedabad. And then during that time, I think a few things changed, which were two assumptions basically I was working with before starting a business. The first assumption I had was, an honest businessman is an oxymoron. So, no point in starting a business. And the second assumption I had was that you needed capital to create capital. Only rich people have the money to invest in a startup business and we did not have those kinds of resources. So, I was going to work for a company and I was very clear that I was going to work for a multinational company and just build my career out there. So that was, that was the path I was taking.
I came across an interesting company called Infosys back then. It was a startup. It was a 15-year-old startup but around $50-100 million in revenue and they had just gone public in 1994-1995. The issue hadn't done well, and ICICI Securities was the sort of angel or underwrote the public issue and they also wrote a research report strongly recommending that people buy Infosys stock. I was quite taken in by the company. They did not have any money to invest, but this was during my summer internship at ICICI Securities. So I went back to my campus, to my business school campus and lo and behold, a month or two later, we had this very interesting course called Business Ethics, found, Dr. Deepti Bhatnagar, who was running that course. She invited Narayana Murthy, the co-founder of Infosys for a guest lecture, and he spoke about how he built this company on values, and how on the right principles. They used to have this saying called "powered by intellect driven by values." I was quite taken in by that. So my first assumption was that honest businessman is an oxymoron. I thought maybe it's a bit dated, maybe it's the 80s, the industrialization era in India, and now the world has changed. My second assumption around capital, that myth was broken in the 1999-2000 era. There are a lot of companies that raised money, a lot of startups came up. The first round of startups came up, and they all could raise venture capital money. There are quite a few venture capital companies that have started to spring up. So, I thought maybe you don't need capital that you already have to start a company. So with these assumptions invalidated, there was no reason to not be an entrepreneur.
One fine day, I met my friend Nikhil at McDonald's in Bandra and announced to him, this was his birthday, August 15th, 1999, I told him, Hey, Nikhil, I'm going to start a new business by the end of this year. I didn't know where that came from because I had no plans whatsoever. It's just empty bravado. But then 3-4 months later, there I was starting a business along with my classmates from business school. So, that's my background before Fractal.
Sajith: That's fascinating. I think I was there for the first few months of Fractal where I saw some of the discussions that you guys were having. Having seen Fractal through the last two decades, I think it fair to say that Fractal can be divided into two parts. One is the early years when there was a little bit of turbulence settling down. There was a bit of evangelizing to sell the business model. Fundraising was a challenge and when I look at Fractal, I think we can really talk about four key struggles, in the first 7-8 years of Fractal. And one is getting really the sales engine going, second is getting that first funding which really allowed you to survive and thrive. Third would be, I think, it's well known now, the co-founder challenges, two co-founders moved out, etc, and finally the US GTM and then from there, building out the international GTM. So, take us a little bit through these and what were the learnings, what were the lessons, love to hear you talk about this.
Srikanth: Yes. The very first thing was we were an analytics company when there was no such thing as an analytics company. We were very early to the market. We had the classic curse of the inventors so to speak. We were trying to sell an idea whose time had not come. So, it's very hard. And the first thing we did was, why don't we go to the companies that we've already worked for and try to sell this idea to them.
We went to ICICI and my very good friend, Jairam, who was also my classmate from IIT, was part of the personal financial service. In other words, the retail business of ICICI bank. ICICI had recently acquired ICICI Bank, and they had become a big personal financial services lender, but they did not have the right mathematical models that underpin all risk decisions. So, they were relying on Fair Isaac Corp, which is a big credit company in the US, on importing some of those models and trying to make it work for India. Fair Isaac did not have any India data nor were they interested in building India-based models. So, we went and pitched that, "Hey, you know what? We are an analytics company. We can look at your data. We can build mathematical models that predict customer risk." So, of course, ICICI already knew that, but they didn't have any wherewithal to build it themselves nor did they believe that anybody else could build it.
They asked us the question, have you done this before, and our answer was, No, obviously not. We haven't. We are a startup. This is the first thing we are trying. Their question was, how should we trust you? Why should we trust you? We said, you know what? Here's the way we can break that log jam, this chicken and egg problem. We will spend 3-4 weeks researching all the various techniques around credit scoring. We will tell you exactly how to build these risk models. We'll compare and contrast all the techniques, and if you feel like we really know what we are talking about, then extend that trust to us.
We did that. Three-four weeks later, we had this 32-page white paper on how to build credit models. What are the tradeoffs, the process of building it and the techniques that are involved in it, and the pluses and minuses of all the techniques, etc. So they really liked it, but they still were not willing to pay for it. And we were okay with it because we wanted to try this out. We said, you know what, we'll do this for free, but as long as you provide us some recommendations or some endorsement of our service, after you are done with it. If this works for you, please recommend Fractal to others. Secondly, for any future work, please consider Fractal. They were okay with that. The next 2-3 months, we built those models. It was absolutely fascinating. It was just the best time of our lives because there were two things that came together in that. One is mathematics, which has always been my passion, and the second is consumer behaviour. I was always interested in that. During my engineering days, I spent more time reading humanities, doing humanities courses. I really enjoyed critical thinking, philosophy, modern fiction, modern contemporary fiction, and psychology and psychology was specifically very, very interesting to me. How do humans actually make decisions? It was quite fascinating.
To bring mathematics and consumer behaviour together in actually understanding, predicting customer behaviour through mathematics was something intoxicating. I mean, to put it any other way would be wrong. It was fun. We delivered the results and ICICI was thrilled, so they were willing to recommend us.
That was how we broke the initial challenge. We were also doing a lot of education literally. We would go to every single bank in the country and tell them about how we did this for ICICI and how we can do this for you in risk and marketing. It involved meetings with the asset head, the banking head, the CEO and everybody. We would do one-hour, one-and-a-half-hour sessions with them for 12 to 18 months. We would do like 15-20 sessions with them and eventually, some of them would say, you know what? I think we believe it. We'll work with you. So, it was hard. The initial days were hard.
One of the successes we got was with the HDFC Bank, who after taking 18 months, decided that this was good. Once they knew this was something that drove the quality of revenues for them and reduced their overall risk, they just went berserk in terms of implementing it. So, we had a great time implementing risk models across HDFC Bank that made a big difference to the bank and it made a huge difference to Fractal. They quickly became our largest client as well. It was fun. Initially, it was all about educating. It was about believing, and proving that this concept really works, especially in a market for which this was very, very nascent. That was the first big challenge like you said.
Going to the second challenge. The second challenge was about co-founders. We were six co-founders who started the business together. Six were co-founders. I generally tell entrepreneurs today that two people co-founding team is probably the ideal team because you should have one person who's like the CEO type and one person who's like the CTO type, and if you have that combination and if you can compliment each other and have a great amount of trust with each other, that's usually the best starting team. But when we were starting, we were very excited because we were all classmates. We were all good friends, and it was more the merrier. In fact, we were seven when we started. It became six, and after one year it became five. One of the co-founders left. And then five of us were building this business together. When the times were very bad, it was easy for us to work together because we needed each other for emotional support and comfort and knowing that, you know what? He also is sacrificing his career, not just me. So, it was a lot easier to hang in together when times were not very good.
Once we started getting some success, that's when differences started to emerge. Specifically, when we found success in the US and Singapore, our team split up into a Singapore team, a US team, and India team of co-founders, apart from others. And this was pre-Teams and Zoom days. So, we would have to have phone calls, very expensive phone calls and that means that our communication really came down. We were doing Skype calls, a few years later, but by then, it was hard to keep the relationships alive and then, trust broke down and eventually those co-founders left. It was very hard to manage that situation because losing your co-founders is not easy, especially if they are friends. So, it created a lot of challenges for us and took us 2-3 years. I think, for me, the biggest reason for that, the biggest learning for me was that I had to grow in order to solve the problem.
Here is how it happened. In 2006, we had a CEO election. Before 2006, we were all a bunch of co-founders working as equals, and we had an investor, I'll come to that story a little later. The investor basically told us, you guys have to find a CEO. There has been a few years of doing this together like equal co-founders, you must find a CEO. So, Pranay and I were based in New York. Pradeep and Nirmal were based in Singapore, and RK was based out of Mumbai. We all decided that we should have this meeting in London because it'll maximize or it'll optimize the travel for everyone. So, as we were boarding that flight, Continental Airline's flight from Newark to London, Pranay and I were discussing who should be the CEO, now that we are going to elect a CEO in this process and we agreed that, you know what? RK should be the CEO because he is based in Mumbai. A large part of our team is based in Mumbai, and he's the senior most of the people because he had more prior work experience than the rest of us. So, RK should be the CEO. We all landed in London and the first thing RK said was, Look, I don't want to be the CEO because I don't find this idea very useful. This amount of accountability, visibility, talking to investors, I'm not going to have fun and I've got two kids, Purvi and Tanvi, so I don't want to do this stuff. So then we didn't have any option of who will be the CEO. And then Pranay and I stood for the CEO election and the three others unanimously decided that I should be the CEO. So I became the CEO. I was very happy with that. We all went to see Chicago, the musical, the next day in London. It was great fun. Six months later, the founders basically said, we don't like this structure. Let's go back to the equal partnership or let's just split the company. That was what happened, and I was very upset because these guys have just given me six months and look at how they're asking to split the company and so on.
We had a lot of trouble and eventually, we decided to not split the company. The investors decided not to split the company, which was, I think, a good decision. But I started to believe that these guys are the problem. These guys are guys who have given up on the stream. These are the ones who are destroying Fractal. But once I reflected on it after a couple of years almost, I realized that, look, I was part of the problem too, which is that they trusted me to be the CEO. They, in all fairness, decided to elect me as a CEO. Obviously, I screwed up in how I led the company. Once I realized that my ego is part of the problem and I apologized, I think this problem resolved itself. So that was a big learning for me. That's the second challenge that you are talking about.
Coming to the third challenge, which is about fundraising, it was very hard because in the early days, there were no venture investments in India. There were about 300 venture capital companies. We sent our business plan to almost everybody, but there was no response from most of them because of the post dot com crash, everybody's being very conservative in investing, so we were not getting any money.
Finding Sasha and Gulu Mirchandani and getting them to trust us was a big deal. They basically trusted the team more than the idea. They knew that, look, we'll figure out the idea sooner or later, but let's trust the team. It was all about persistence. We just had to hang in there and eventually find somebody.
You need only one person to trust you for fundraising. You don't need a hundred people to love you. One thing I have realized over the years is that don't try to convince other people about your business. Find the people who are already convinced and just do business with them. I was in this drive of evangelizing. I knew that analytics is a great business, so I was here to convince everybody that it is a great business. I think it's a very foolish idea. The right idea is to find somebody who already believes it and take money from them. Now when we raise capital, there's still those companies, those investors who don't believe. So we ask them, do you believe in what we do? If they don't believe, we stop talking to them because there's always going to be some who believe in us, and it's always about finding those people. So, that's been my learning in terms of the third lesson.
The fourth lesson, which you briefly alluded to, is about the US go-to-market. We were doing some very exciting, really good work with Indian clients. We were game-changing work in India. The work we did for HDFC Bank. We created this thing called a debit scorecard, which is using their banking information, checking accounts, saving accounts, information to infer credit risk, what happens if you give them a loan?
That turned out to be a very strategic move for HDFC Bank because they changed their entire business into acquiring customers on the liability side first and then giving them loans. We were very excited. We were very confident about the work we were doing. When we made the first trip to the US, assuming that, you know what? Whatever we are selling will sell very easily in the US. We were there for a rude shock.
It turns out that the US is a few years ahead of India in all of these things, and our pictures fell flat on them. "Oh, we did this five years ago. This is not the latest or greatest in the world of analytics." So, it was a rude shock. Pranay and I made our first trip to the US.
We came back and we put this chart on the board. We had sort of a triangle, which is like business, analytics, and technology. In the world of analytics, there are three key vectors. Either, you know, you're very good at business. Like McKinsey is really good at business consulting or you're very good at analytics or you're very good at technology. We agreed that we cannot be the best in business. There are many consulting firms. We cannot be the best in technology because there are lots of IT companies, but we could be the best in analytics. So, we said we have to be very sophisticated in the way we use analytics and that edge is required to succeed in the US.
That insight, coupled with a few failed sales experiments, we hired a gentleman called Matt who joined us very early on. He turned out to be our best salesperson ever. He is part of our executive team today, 15 years later. Some bets went well and many sales bets went wrong. But eventually, through trial and error, we figured out how to sell in the US, and that's also worked out quite well over the years. I think initially what worked was the clarity of our approach or clarity of our capability in the analytic space. We were really good in analytics, and we could demonstrate that we can take any problem and we can really go deep into it and bring some thoughts to the client, which was new to them. So, there was some value in terms of our innovativeness, our sharp differentiation with others, which worked well. And then obviously that is not going to work for the long term because people will obviously copy you and as over time, analytics has become more and more mature. So many other competitors would emerge.
The next thing that worked for us was to be very clear on who to serve and who not to serve. This is a thing I keep hopping upon a lot, which is you have to have clarity on your client. Who is my customer? This is a question you need to ask literally every few days. Who is my customer? And in our case, who's our client and we refined it to saying our client is a company that's at least 10 billion in revenue, 20 billion in market cap, or has 30 billion consumers. Because analytics is useful when you have many consumers to serve. So 30 million consumers, 20 billion market cap that is a way in which we are determining the size and worth of the company, 10 billion at least in revenue that gives us maturity of the business, how they run as a business. So we said mature companies that have a large number of customers, they're the best potential clients for us.
Now the question is why can't you serve everybody? What you realize is that if you clearly choose who to serve, you have to clearly choose who not to serve. And once you choose who to serve very clearly, you get better in understanding how to fit into their ecosystem. For example, if you want to serve big companies, you have to understand the complexity of those organizations and work within those complexities. Many of those companies have many vendors, partners, etc. You have to work with many of them to drive results inside the company. You have to make sure that you understand how the budgets are made, who has the budgets. You have to understand these things. This is going to be very different for an exciting startup. None of these answers would be valid for an exciting startup. If you want to serve an exciting startup and a Fortune 100 company, you're going to struggle in both. So, we picked our lane and that also became very helpful.
The third thing I would say is just building a sales engine, building a machine that can go and approach these. Now you know exactly who to serve. Therefore, the list is already small. We had a list of 250 to 300 companies that we wanted to serve, and now we built a sales force that could go and have conversations with them to build that. And then obviously we had built a marketing engine, etc. But the third piece is about making sure that you have the relevant conversation and you win what I call moments of truth. Zeroth moment of truth, meaning if people are searching for analytics, will they find Fractal. We were not the ones because you know we didn't have the marketing dollars to win the zeroth moment of truth. The first moment of truth is when they have the first conversation with you, are they convinced that you are really good. And we had to get really good at that and we were. Off and on, we keep losing the edge and gaining the edge as well, but that was the second one. Third one is the second moment of truth, which is once they start using you, do they really believe in what you do? Because have you delivered flawlessly? And once we crack those three moments of truth, I think we could build a company that could grow and be there for a long time.
Sajith: This is reverting. Thank you for being candid about the early challenges. Now to the Fractal that had grown up. So, the later part of the zeros, Fractal started coming into its own, started reading headline numbers about Fractal, etc. At that point, such as late zeros to today, what has been that journey, like? What are the challenges that came up there? And, I'd love for you to kind of double-click into some of these challenges. How was the experience of serving the Fortune 500 companies, the 10, 20, 30 guys? What are the challenges in, for example, hiring? I suppose capital would've made it easy but you didn't raise capital for a long time. I think early 2000 or 2001, you raised that first round from Gulu, the Mirchandani Family, not even Kae Capital, I don't think they existed then. And then till 2013, there were 12 years of no capital or you only had profits really to plow back. Take us a little bit through Fractal in those years, the years of growth.
Srikanth: Yes. So, we raised capital. We've raised about $400,000 in today's dollar terms from Gulu and Sasha and so there's not a lot of money. And clearly, you couldn't even hire a single salesperson in the US with that money. So, we had to be profitable and because we were solving some interesting problems, even though India is famously not good at paying companies like us, we were able to create some profits and reinvest those profits and eventually build the US go-to-market, like we just discussed. After that, we basically were growing and we decided that we would not take any money. Not because we did not want to, but because we could not raise money because we had this founder dispute that was going on, which we had just discussed. So, we had many, many term sheets from very reputable VCs like Nexus Venture Partners, etc. But unfortunately, all of them were conditioned on this founder dispute going away, and it was not going away. So, by the time the founder dispute went away, I think there was a global financial crisis happening.
So we did not raise money. And then there was also this thing that I mentioned, many of them would not want to invest in a business like ours. "Okay, how do you scale this business? Is it really scalable? Is it services business?" There are many of those things.
One of those stories I'll tell you is we had an Indian VC firm, actually it's a global VC firm with an India presence, and this guy who used to run it was a senior of mine from my engineering college. So, he and his US partner, they both visited us for one full day in the Fractal office in Mumbai. They really loved the business and at the end of it, this person, he comes to me and says, Srikanth, I think you have built a decent business. We really like your business. The problem is we don't like you. I don't think you can scale this business. I don't think you can grow this business. So, unfortunately, you're too important for this business. So, we are not going to invest in you. It was just a hard-hitting realization. I mean, frankly, I took a day to process this because I was so crestfallen, so to speak.
Next day I discussed this with my executive team. It was very hard to bring it to the exec team because just to tell them that I am the reason why we can't raise money.
But you know, I've realized time and again, that feedback is very important. Feedback is very hard-hitting. I take feedback very badly. I'm really bad at processing feedback, it stings a lot, but over the years, I have realized that absorbing this feedback and acting on the feedback is important. So, it took me some time, but again, I had to make sure that it's not affecting me too much because if you tell yourself that you're not good enough, it's difficult to get out of that trap. The idea was that, look, I can get better. I can get better, and maybe he's right and maybe he's not. Who knows? Let me work on it and let's see if, if we can succeed. Frankly since those days, we've raised another $675 million of capital. So, we've obviously proved him wrong in some ways, but in some ways maybe he was right and maybe I just got better over the years.
Those were the initial challenges of fundraising. Because of all of this, we did not raise capital. We were forced to use the capital that we had and grow with that. But eventually, we got to a place where Fractal had scaled to some 7-8 million in revenue. It was growing fast, it's growing faster than every year and that was the time when we knew that we could go and raise a round of capital. TA came in. They invested 25 million and then things took off from there and then the challenges there were you have already built a business. You've established that Fractal can do good work, but that doesn't translate to delivering flawlessly on every client because now we are hiring people. It's not a 50-people company, it's a 100-people company. It's a 200 people company.
I tell a lot of founders that the nature of a business changes dramatically once you hit scale in terms of a number of people. The complexity of business should be measured by the number of people. Once you hit 50, new complexities emerge. Once you hit 200, another set of complexities emerges and usually, there are crises before you come out of them. You have to deal with those crises because when you hit 50, at that scale, everybody doesn't know what's going on. There are different versions of the truth floating in the organization so that starts to happen at 50. At 200, you have a lot of crises because many of the people have no idea what the top is thinking. They are not talking to them. Teams are formed, which are doing their own thing and there is usually some kind of a leadership crisis unless you've created an executive team and you're able to cascade communication nicely to the whole organization. You're running town halls. You need a lot of cultural interventions as you get to 200. So, we hit those kinds of constraints. Thankfully, we built solutions around that. The first of those was, can we deliver flawlessly? Yes! If Srikanth is involved in building a mathematical model for a client, we will do well. But Srikanth doesn't have the time to build or none of my other co-founders or senior executives have time to work on every project. We had to hire people and they had to be really good and we had to nurture and grow them. Building those processes where we could deliver flawless to every engagement was not easy. We cracked that problem.
The next big problem to crack was can we be really client-centric. Right? See, once success starts to come arrogance also builds up. The first sort of victim of success is your humility, right? And you start to believe that I don't really need these clients. And we were a famously client, non-centric organization for some time. And then one day it struck us that this is a problem.
There's a gentleman called Shreekant Gupte, who used to be the CEO of one of Marico's businesses. I found him to be an executive coach. I brought him into our company. He spent some time walking the aisles and he comes and tells me Srikanth, you are the most client-unfriendly organization I've ever met. I was like, no way. This is not true. Again, resisting feedback and I'm famously bad at taking feedback. So, I said, no Shreekant, this is not true. We are very client friendly. Look at all the problems we are solving and we are doing such amazing work for our clients. How can you call us client unfriendly? And he said, No! There are no client conversations happening and you are very excited about the craft of analytics, but you don't care about the client you are serving. You don't care about their success and whenever you talk of clients, you're always criticizing them. Oh, they don't know this. They can't implement this. Problem is always at the client's end as far as you are concerned.
It took me a couple of weeks to process this and then I brought our executive team into thinking this together and then we decided that, you know what? We will be the most client-centric organization on the planet. Let's make the switch and next year, in fact, we stopped selling. We said, let's just work on our existing clients and make sure that we deliver really, really well. It turns out that even without selling, we grew very nicely in that year and forever, we turned ourselves into a client-centric organization. Today, I mean, people won't even recognize the Fractal of 2012 because we are such a client-centric organization 10 years out. But that happened. So, we continued to conquer new challenges like these. After we raised funds, we had to make sure that we are able to raise funds every now and then. So, we built a nice team, which would do fundraising and so on. Challenges have kept changing. The latest challenge has been about can we build an M&A engine? Can we build an engine where we can nurture and grow our own startups within Fractal? But the good thing about entrepreneurship is that there is never a dull day. Every day is a new challenge. Every day is a new catastrophe waiting to happen, and your actions make a difference. So it's exciting.
Sajith: No, this is fascinating. I particularly enjoyed the part where you talked about how Shreekant Gupte influenced the change towards Fractal becoming a more client-centric organization. I just want to double-click a little bit deeper into that. Were there certain cultural kind of practices or cultural statements or culture creation that you are to do to kind of drive, for example, culture is all about, what CEO rewards, Founder's reward or what the founders do. How did you change and how did the top team change to drive this client-centric setting? I would love you to double-click into this.
Srikanth: Firstly, I will acknowledge that every challenge of Fractal has been personally a growth challenge for me. I realized that every time I could grow, I could grow the company. I'm at any point of time the biggest strength and the biggest threat to the company because the moment when my growth is constrained, I constrained the growth of the rest of the company.
This client friendliness, I realized, was my problem because I was just a really arrogant guy. The whole entrepreneurship journey for me has been an exercise in ego destruction. I've been able to cut my ego to size at every scale. If you have a very high ego about what you do and your craft of analytics, client is just an incidental thing. To actually be able to serve, we would have a problem in even mentioning the words "serve" because we are subservient to serve somebody. That would be the kind of mindset we would've had. But now we are very comfortable in saying we serve our clients. Everybody has to serve somebody, as Bob Dylan also said. We recognized that Fractal is here to serve clients and our goal is to actually make our clients successful, which was a very big deal.
We developed what we called a TCS strategy, Total Client Solution strategy. And we did a strategy exercise along with Shreekant Gupte, and we said that there are three options in terms of strategy for Fractal. This is a model called the Delta model of the firm and one of the options is being operationally efficient. Be the lowest cost provider, like Michael Porter also says. That's one strategic option. Second strategic option is differentiation. In that, for Fractal, it would be the best product. We are so good at analytics that you have to work with Fractal. You have no options. This is naturally the part that Fractal would've taken because that was a natural way in which we operated. The third option, according to this Delta model of the firm, was what we call a TCS strategy, which is Total Client Solution strategy. The idea was to create client lock-in by serving them so well, by understanding their ecosystem and being so important to them that you will be irreplaceable. We said we want to be that company. We want to completely pivot to client-centricity and really drive great results for our clients. There was a fourth model which was not applicable to us. I'm not going to go there.
We picked that strategy option, we decided that we will not sell to any client for the next one year. We'll only focus on our existing clients and really grow the business. And we created a set of rules. For example, we said that we have to make sure that we understand all the partners that this client works with. Naturally, let's say a partner would be an Accenture. We would normally hate Accenture because they are competitors. They're taking our business. In this new world, we decide that no Accenture is a friend because working with Accenture or within Infosys or with HP, we can drive better results, let's say for P&G. The idea was to drive results for P&G and work with everybody as required to drive the results. It takes some maturity to get there, but once we got there, once we worked effectively with them, things started to move.
I'll give you one little story around that. This was one of our largest clients that you can guess, but I won't name it, they decided to pick Fractal, as a vendor in 2006. They did a global search, 25 companies, and they picked Fractal. And the next two years, we were doing some business for them. It took several months to set up. They would come and say, Are you ready for scaling? And we would say, Yes, we are ready to scale, but we'll have very little business from them. Eventually, we got a project which is almost a million dollars, which is a very big deal for Fractal. It would be like 10% of our revenues or something like that at that point of time. We were doing that project and one fine day this client comes in and says you know what? I've decided that I'm going to give this project a width, and I just want you guys to transition this work to this vendor. We were crestfallen because this would be a body blow to the business. But you know what? If you have to serve this client and we have to make them successful, we have to make this transition happen. So, we did a great job of transitioning this business to them. It took us 3-4 months. We made sure that everything we were doing perfectly could be replicated by this other vendor. It happened. Client was very happy with us, and as part of that, they realized that, okay, Fractal is hurting because they're giving all this business away. So, they decided to give us some more business. So, first of all, they sort of compensated us for, being so nice in the way we transitioned this work. It turns out three years later or four years later, they came back to us and said, Fractal, can you do this piece of work that we asked you to transition out 3-4 years back. I thought you had selected another vendor. They said, No, no. We realized that you are much more expensive, but you are actually better value for money because you are doing the same work in three weeks, which the other vendor is taking three months to do. So, they gave that work back to us.
My lesson from this is, putting the client first and doing what's best for the client actually worked out quite well for Fractal. This is a big cultural shift. So you asked for a culture shift, that is a one big cultural shift.
The second major cultural shift was becoming more people-centric, building a great place to work, right? Naturally when you're a small company, when you're less than 50 people, every company is people-centric. Work is always fun. It's great, right? So, retaining that at the scale of 200 and then 1000, and then 4,000, that is not easy. We all think that, hey, you know what, we are different. But every company goes through that, as far as I have seen. So we went to a place where we had just raised a round of capital from TA and we were growing nicely, but suddenly, we were not as people-friendly as before, and we were hiring this really bright set of people, and I was not sure that we were taking good care of them. So the question Pranay and I asked ourselves was, Okay, look, we started Fractal when we were 25 years old, and we are hiring all these very bright 25 year old. Each of them could potentially start a Fractal, but are we extending the same level of trust to them as we extend it to ourselves when we started Fractal? Why not? These guys are as smart as us, and if you don't give them that much trust, why should they hang around at Fractal?
It was some soul searching we did and we went and created the set of things called "People Principles." We had seven principles around how to manage people. I mean, I'll not give you all the details of that, but the essence of those seven principles were trust, transparency, and freedom. How can we extend a lot of trust? Treat them like adults, right? Don't treat them like kids. Give them a lot of freedom. Let them be the CEO of their career and everything in Fractal should be transparent to everybody. Everybody should be able to ask an honest question and get a full answer. So our board decks, the presentation decks we present to the board and the ones that we present to our people in a town hall meeting are exactly the same. No slide changed, no word change in a slide. That's a big deal. And by the way, we took that to clients as well. You would say the same slides to clients, same slides to the board, same slides to the people.
That is another big cultural change for us to be this people-friendly company, which is built for the long term. So, these are two major cultural changes that we have accomplished over the last many years.
Sajith: This is really interesting. I just want to move on to one interesting element I've seen in Fractal, which is how there are companies spinning out of Fractal, Qure, of course, and Theremin are clearly the two big ones which have raised external funding, but there are also many others. So I'd love to understand how this came about? Was it to really work with these young folks who are coming and who could theoretically launch companies like Fractal? Was it a way to reward them? Or did it organically evolve? Would love this Srikanth, because I haven't seen this in too many other companies. I actually have hardly seen it in any other company.
Srikanth: The inspiration for this was an interview that I watched of Jeff Bezos by Charlie Rose in 2009, and Jeff Bezos has always been one of my inspirational role models, back in the early days of Amazon as well because I used to really enjoy his shareholder letter. His ability to see into the future. I was quite fascinated by some of that stuff. Two things, he said in that interview, which really sort of moved me. Charlie Rose's question was, you are just a dot com company selling things on the internet. Why can't other people copy you? Why should Amazon exist for the long term? This is in 2009. And Jeff says, Look, there are two reasons why we would be successful in the long run. Number one, we are very customer-centric. We are so customer-centric that we will invent and invest on behalf of customers. So, that was a big, big "aha moment" for me because customer-centricity in terms of serving our customers well or serving our clients well and doing what's best for the client, we had already got that right. But the thing that I recognized was that to be truly client-centric, you have to invent and invest on their behalf. So, if you're creating an iPhone, customers don't want it yet, but you have to create it before they ask. You have to invent on their behalf. That was a big moment for me to think that this is the way we can make the client-centricity story of Fractal even better. So that is the first one. And the second one he said in that was, extreme long-term orientation. Jeff's comment was, most companies when they think long term, they think three years, sometimes they think five years. But as Amazon, I can think seven years ahead and he had just started Amazon Cloud AWS back then, 2008-2009 and around that time. You can see that he was right, almost all count, taking that extreme long-term view. So these are the two things I've tried to learn from Jeff over the years.
The idea of investing and inventing on behalf of clients, what led us to starting businesses within Fractal. Around 2012-2013, we created Fractal Sciences. This is the first time we were investing a significant amount of money in R&D. Otherwise, as a services business, you can say clients are asking for problems. We solve the problems. You're good, right? You don't have to invest in R&D as a services company. So we said, No, we will invest up to 12.5% of revenue in R&D. That is a big commitment from us. So, we created a team called Fractal Sciences, and then Fractal Sciences came out with lots of interesting stuff, including a bunch of product ideas. And then we wanted to see how we can give wings to those ideas. These were like little babies that were incubated within Fractal. Now, we have to see if you can really grow them into fine adults and send them to college. The entire philosophy around these spinouts was like, can we send our products, our businesses to college? And around the same time, Google had just split its business into Google and Alphabet. So the inspiration was, Okay, can we split Fractal? Fractal, the core business, fractal.ai and Fractal Alpha, which is creating all of these product companies, and can we make sure that we set up these product companies in a way that they can raise their own capital and eventually, lead their own life as an independent public company.
We incubated a few ideas. Qure was one of the first, Qure.ai and obviously, it has been very successful raising lots of capital lately and doing some very game-changing work in making healthcare accessible and affordable. That's been very successful. We set up Crux Intelligence, which is about the future of decision-making. So, we would take these to our clients and show them that here's how we are inventing and investing on behalf of you. So, this is the logic over the years we have created seven or eight different startups like these. We've also killed a few that didn't work out. We have this creative destruction process.
But eventually, we created a process called "Ideas to Business." How do you nurture ideas? How do you create a business out of that? How do you make sure that we raise capital? How do you make sure that we help grow these entrepreneurs so that they can build fine businesses? So, Prashant was the first one, Prashant Warier. He was a Fractalite. He left Fractal and I managed to convince him to come back to Fractal and then, he brainstormed. Qure was born and Qure has been very successful. Natwar built Crux Intelligence and so on. Over the years, we built some that we incubated and in the last couple of years, we've also invested in companies or bought companies, for the same reason. So, samya.ai was an acquisition. Analytics Vidhya is an investment. Senseforth is an investment, senseforth.ai. and so on.
Sajith: This is interesting. Thanks for taking me through the background. So, we kind of nearing, I would say, the end of this and we started with you, then we went to Fractal, we saw Fractal's growth and now, I want to come back to you a little bit and in the last 5-7 minutes, I just want to kind of double-click into Srikanth, Srikanth's production function and what really makes Srikanth. So just a little bit about what Tyler Cowen calls your production function. How's your day? How do you structure it? A little bit through what helps you kind of get a 100% output, etc? So I'd love you to kind of double-click into that.
Srikanth: One thing I learned over the years is that as you become more senior in the organization, you need to have more free time. One of the business school professors told me that, as a CEO, you need to have 40% of your time available so that you can respond to the unexpected, to the emerging situation.
There are always some emerging situations at any point of time in a company, and you have to free up your time so that you can think and you can creatively solve that problem. I have not got there yet in terms of having 40% free time, but I try to keep a little bit of free time. I end up reading a ton of books every day, so whenever I have any free time, I'm reading something or the other. And I try to process it and most often I try to teach what I read in the book so that I can learn from it because teaching is the best way of sort of retaining the information that you have gathered from a book. So, I do that with my colleagues and so on. So that's what I do. In terms of time spent, for me, clients are obviously very, very important. So I try to see if I get at least two or three client discussions in a week, at least every single week.
The second thing I do is to spend time with people. So, I spend a lot of my time with my direct reports and Fractal at large. For example, I have this thing of making sure that in any conversation, let's say with my direct, I don't bring any agenda. I have a weekly one-on-one with every single direct report, and I go in with agendaless. I'm here to discuss, and every person who works with me brings their agenda. Okay, these are the things I want to process. It could be personal, it could be professional, it could be anything. But I am there at that point of time to actively listen and brainstorm and solve some problems together.
We don't spend time on looking at the metrics or doing reviews of business, etc, because I know that there are other forums for that. In one-on-one, the idea is to help this person drive more success at Fractal and in their own lives. So, that's another thing I do.
Then recently what I've started doing is to talk to a few people who are at Fractal, who are exiting. One big philosophy that I propound is that how you treat people on the way out is a bigger determinant of your brand than how you treat them on their way in. So, when people leave Fractal and many people leave Fractal, right? Because we have a pretty decent attrition rate and a large part of people who touch Fractal are not Fractalite and or ex-Fractalite. I make sure that I understand the reasons for their exit. I spend this like a town hall-like setting where I ask all the exiting Fractalite questions around what made them leave, what was their experience, how was their experience, vis-a-vis other companies that they've worked for before, etc. It's very fascinating. I get some very good insights.
Then we do this weekly town hall with people. Every week since Covid began, we've done 150 of those town halls where we spend 90 minutes answering people's questions. Anybody can ask any question anonymously, so all kinds of questions come up and we try to answer them. That keeps the accountability of the company going, transparency of the company going, and if you do something stupid, literally very next day, a question will pop up in the town hall. It's a check and balance to make sure that we are doing the right thing as a company. So that's where I spend time.
My calendar is quite blocked, but I found that trying to free up some time is useful. So, I'm trying to get better at creating more free time.
Sajith: Talk a little bit about reading books. You have spoken about The Breakthrough Company as a book that inspired you, which gave you principles for going from say 5 or 10 million to 100. What are the other books or podcasts or YouTube videos, which have been useful for you in your learning?
Srikanth: Yeah. Firstly, I seriously believe in books. I think books are the cheapest way to learn things because somebody spent their whole life and put two or three years of hard work into creating a book and they sell it for $10. I mean, it's the biggest bargain you can ever get.
I was speaking with one of our advisors and asked her. She's a CEO for a Fortune 100 company. She's recently written a book, and she told me she took six years to write the book. Six years as a Fortune 100 CEO. She wrote that book, and I'm like, Okay. I get to read that book for 10 bucks. I find that a fascinating investment.
I read a lot, typically 50 to 75 books a year. Over the years, they have been more non-fiction than fiction. I moved my selection to non-fiction more than fiction, but lately, since the last two years, I've decided that I'll have a healthy mix of fiction and non-fiction. So, a third fiction and two-thirds non-fiction. That's really how it is going.
The books that I've influenced me the most, if I were to mention them, one would be Influence: The Psychology of Persuasion by Dr Robert Cialdini is probably the best book on psychology ever written. It was written in 1984 and re-written and updated in 2021. It's a brilliant book. Anybody and everybody should read. The other book that's over the years has inspired me a lot is, this one called Man's Search for Meaning, Viktor Frankl, which is a fascinating book. The books written by Chip & Dan Heath. I love those, Made To Stick, Decisive, Switch. I mean, if Chip & Dan Heath have written a new book, I'd be buying it. I'd be preordering it typically, usually for Dan, I really as well I would love his books as well. Another writer I love a lot is Jonathan Haidt. He is a professor. He wrote some amazing books. One of his is called The Righteous Mind. It just opened my eyes. It's a book on moral psychology, a beautiful book on what are the various values that people have? And he clearly sort of shows the difference and values between Democrats and Republicans. It was quite an eye-opening book for me. The Coddling of the American Mind, Happiness Hypothesis. He's written lots of amazing books. I love reading him. So these are some of the ones. I also read a lot of books on Positive Psychology, Tal Ben-Shahar, Raj Raghunatha, Sean Aker. All these guys have written some amazing books on happiness. So, these are non-fiction-type books. I also read some business books, Negotiations, for example, Chris Voss. Never Split the Difference. Great book. Love some of those kinds of books.
On the fiction side, like I said, I haven't read too much fiction lately. I actually read The Handmaid's Tale after 20 years of whatever, 30 years of it being published. But I really loved it. Plan to read the Testaments. Now next. Recently I picked up a book called The Seven Husbands of Evelyn Hugo. I don't know if you've seen that one. It's written by Taylor Jenkins Reid. It's actually a beautiful, beautiful book. I really enjoyed reading that. And The Lincoln Highway by Amor Towles. So these are some of the fiction books that I've recently read. My thing was maybe I'm not going to learn much. If you have a very strong learning orientation thinking about fiction, maybe I won't learn much, but it's actually quite good. You might learn fewer things, but you learn them better when you read fiction. That's my insight about that. So those are the books.
I also watch a lot of late-night comedies on YouTube. So Stephen Colbert is my favorite comedian. I also listen to John Oliver, Jimmy Kimel, Jimmy Fallon, Trevor Nova, Bill Maher. I love all these people.
For news, I listen to PBS NewsHour, which is very center unbiased coverage of US news, which I listen to. I listen to some of the stuff by the Print, by Shaker Gupta as well. So these are some of the things I consume on YouTube.
Sajith: Oh, thanks for this. Just a little bit now. I know you're a math geek. So this is really to the inner math geek in you. Do you have a favorite math equation, like something that you find beautiful because a lot of mathematicians find meaning and beauty in mathematics? So just curious.
Srikanth: Sajith, I think this question is like asking a painter, what's his favorite color. I think I love a lot of math equations. But, if I have to distill everything into one math equation, that's probably the most beautiful math equation of all time. It's not even an equation, you should call it an identity. It's called the Euler's identity. It is e^(i*pi) + 1 = 0.
Now, this is a simple equation. It's not a big deal. e^(i*pi) is cos pi plus i sign by which is -1. So +1 equals zero. So it's as simple as that. But look at the beauty E, which is a transcendental number. It comes from a very different background to the power i, i comes from complex numbers, complex numbers, square root of -1, pi, which is an irrational number, comes from geometry, and circles and so on,+1 which is one of the most unique numbers in the world, and zero, obviously a fascinating number in itself. It combines five of the most fascinating numbers in mathematics into one identity. So, it's just the most beautiful identity you can look at. Of course, many other equations are beautiful as well, but this is the one, if I were to pick one, this would be the one.
Sajith: Oh, that's really fascinating. So, slightly kind of, people might say this slightly gruesome question, but asking this of some of the founders in this series and I thought I'd love to kind of get your reaction to this. Fav last meal and why.
Srikanth: See, over the years, my diet has changed, so I have moved to a diet called whole foods plant-based diet. So it's sort of like veganism. Except that it's vegan, but I don't eat processed food either. So, you can have a bag of chips that's vegan, but I try to avoid processed food as much as possible. So, I have a whole foods plant-based diet. So that's my diet and my sort of plan is that over the years, I am going to make it stricter and stricter and reduce the pallet further. So, if I live for a long time, I hope to live for longer, then I'm hoping that from a vegan or whole food plant-based diet, I'm going to become a raw vegan after some time, which means that I have no cooked food and eventually, move to fruits and nuts. That's my eventual goal. I don't know if I'll get there. Obviously I need others to support me in getting there, but if my last meal would probably be a bunch of fruits. It could possibly be guavas, raspberries, blueberries, peaches. Those are my favorite fruits and maybe some nuts.
Sajith: Fascinating. Thanks, Srikanth. This was an absolute pleasure. Thank you for being candid. Thank you for being open to sharing what all you have learned over the past 20 years. Thank you for being vulnerable.
Thank you all for checking out X-Unicorns. This podcast is a Blume Ventures offering, and we will be releasing a new episode every Tuesday. No podcast is produced alone. It takes a village and our sound engineer is Shreya Tiwari, and our producer is Vedant Naik of ManicPod Studios. They helped us put this together. See you all next time. Cheers!
Part of X-Unicorns
What is a unicorn? A mythical creature, known to be proud, untameable, fiercely independent and difficult to capture. When venture capitalist Aileen Lee first coined the term, the definition was strictly limited to privately-held companies valued at over $1 billion within a decade of its existence. This definition was applicable to only a select few Indian companies such as InMobi and Flipkart. That’s all there was in 2013 that fit this definition.
After more than a decade at Blume, it is now becoming clear that India is birthing new variants of this mythical creature and we’re calling them ‘X Unicorns’. But when we look at a Carbon Clean or a Dunzo, they don’t look like typical unicorns. Some look like zebras and hippos, others rhinos, gazelles, and seahorses. They look like they could be any shape or size as long as they have spouted a large single horn or even two for effect.
It doesn’t matter what the path to the unicorn is, it doesn’t matter when they go public, it doesn’t matter whether they have a body of a horse or any other creature in the animal kingdom — as long as it reaches there and we want to look back and celebrate the ones that have entered and are soon entering the X‑Unicorn club. The age of the X‑Unicorns is upon us. Silently, they grow unnoticed and emerge valiantly into the limelight.
Srikanth VelamakanniCofounder & Group CEO, Fractal Analytics
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Sajith PaiSajith is a long-time media executive turned VC. At Blume, Sajith supports investments in media, edtech and ecommerce, while simultaneously helping Blume building a research and knowledge platform. Before Blume, Sajith worked…
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