Rajesh Patil is building a different kind of real estate firm - and reaping the rewards

[Photograph: Rajesh Patil(seated) & Sujay Kalele by Abhijit Bhatlekar of Mint]

In Pune's rapidly expanding real estate industry, most of his peers regard Rajesh Patil as a bit of an oddity. He has a reputation of being a maverick, someone who does not believe in following conventional wisdom and instead prefers listening to influential voices from outside their industry. As a result, they simply couldn't understand or relate to his world-view.

In 2010, the 50-year-old chairman and managing director of Kolte-Patil Developers had shocked the entire industry when he hired Sujay Kalele, a 28-year-old Indian School of Business (ISB) graduate, promoted him to CEO in a couple of years, and then stepped away to let a new team of professionals run much of his day-to-day operations.

In the conservative, hide-bound world of realtors, this was sacrilege. What if the new team mismanaged operations, brought his firm down to its knees and walked away with precious relationships? And then, there was more to follow. Patil spent big bucks to be mentored by Ram Charan, the world's number one CEO coach. Highfalutin management concepts were obviously nice to listen to, but were there too many large real estate firms in the country that had found any practical relevance? On the advice of his young CEO Kalele, Patil had brought in global IT major IBM to craft an 11-year-long business transformation project. The idea was to use technology to completely reinvent the way the firm was run. His peers dismissed it as just another Enterprise Resource Planning (ERP) project. What was the point in sinking so much money into IT? After all, a large majority of these ERP projects had, in any case, failed to deliver results. And to top it all, Patil had brought in Deloitte and KPMG as his auditors to tone up his internal governance systems. Now, how could a realty firm that had to pay huge amounts for political patronage afford not to maintain two sets of accounts?

How could a realty firm that had to pay for political patronage afford not to maintain two sets of accounts?

His friends initially tried drilling sense into him, but he turned a deaf ear. He continued to plough ahead with his seemingly grandiose plans. And every time his peers called him to their industry meets, he would throw up ideas that seemed preposterous. "One day, they decided to stop inviting me altogether," says Patil, with a faint chuckle.

Two years ago, he entered the Mumbai market, vowing not to use the all-too familiar political patronage model. "In 1989, when I set up the company after completing my engineering degree, I promised my parents that I would never associate myself with politicians and others. I've stuck to that philosophy. So when we set up shop in Mumbai, everyone asked me how would we survive without help from politicians and the bureaucracy? I made courtesy visits to all the key politicians, including the Thackerays. Neither did I ask them for any favours, nor did I ever receive calls from them," says Patil. In all, Patil says he's made two trips in his entire career to Mantralaya, the state secretariat and the seat of power in Mumbai. When there is a need to meet the chief minister, he says he prefers to leave that task to Gopal Sarda, a relatively young executive who is responsible for operations in Mumbai.

Inside the firm, Kalele, Sarda, and the young band of professionals are stepping on the gas. Kolte-Patil has already expanded beyond its base in Pune to Mumbai and Bengaluru. Last year, it clocked pre-sale volumes of 2.1 million sq ft. And this year, it has already exceeded 3 million sq ft, catapulting them onto the national stage. In the last three years, its top line has doubled to touch nearly Rs 775 crore. A new blueprint for growth is now being drawn up, with an entry into Delhi and Hyderabad on the cards over the next three-five years. The stock too has been re-rated twice in the last two years.

But more than the mere numbers, it is the quality of the growth—and how the foundations are being laid for the future—that is worth watching.

The trigger

Kolte-Patil's first five years weren't anything to write home about.

Patil had made one more promise to his parents: that he would eschew debt. That meant they had to double down on the speed of execution, reduce working capital and focus instead on cash flow so that their capital needs were low. And that's not how most realtors worked.

While this conservatism helped ensure that they were among the few realtors who survived three downturns in the last 15 years, it also placed curbs on their growth.

As a result, they couldn't acquire land at the same pace as other realtors. The key turning point came in 2005, when they bought about 60 acres of land in Hinjewadi, an upcoming IT district on the outskirts of Pune. Since he needed an equity investor to back his project, a friend connected him to Renuka Ramnath who headed ICICI Venture. Ramnath didn't seem interested at first. And his peers told him that partnering with a big financial institution could be a dangerous path to follow. "They will eventually take you over and throw you out," was the refrain that Patil remembers hearing from his friends in the industry.

After six months of trying, Patil says he managed to persuade Ramnath to visit the site and show her the potential. Ramnath was impressed. She quickly spoke to IT industry stalwarts like Infosys founder NR Narayana Murthy. Murthy told her that Hinjewadi had the potential to become the biggest IT hub in Asia. Convinced that there was merit in investing in the project, Ramnath began putting pressure on Patil to raise his ambitions and think bigger. That meant pushing for a 300-400 acre township. Initially reluctant, Patil says he began to see the upside and started acquiring more land.

But there was one issue: his organisation simply wasn't geared to manage such large-scale projects. "Renuka kept telling us that we needed to professionalise our organisation so that we could handle the scale of projects," recalls Patil. "We could no longer adopt the tight set of controls that almost all family-managed businesses had—and continue to depend on loyalists to run the business."

We could no longer continue to depend on loyalists to run the business.

She introduced Patil to other entrepreneurs like Kishore Biyani. "To be fair, I couldn’t connect much to what Biyani shared. Much of it had to do with finance—and it sailed way over my head," says Patil. He also met the then ICICI CEO KV Kamath and management guru CK Prahalad at a seminar, hosted by ICICI. "They said real estate was a huge opportunity. But we needed to build a different kind of organisation to tap into that opportunity."

For the next six months, Patil says he tried wrapping his head around what it would take to professionalise his firm. It initially didn't make much sense to him. How could outside professionals tell him how to run his own firm better? How could they be trusted to take decisions that would benefit the firm without constant oversight? Even as he mulled over the issue, he continued to sign up for management seminars in India and Singapore, particularly those relevant for family-managed businesses.

In 2006, Kolte-Patil decided to list their company on the public markets so that it would bring in greater accountability. Till then, Patil himself acknowledges that their accounting systems were not up to the mark. Thanks to Merrill Lynch and Edelweiss, who managed the public issue, he was able to understand what they needed to do to improve governance, compliance and accounting standards. That's how global accounting firms like KPMG and Deloitte came to be their auditors.

"Yet when we went abroad on our road show, I could see that investors were simply not interested. That was the time that DLF was on a high. And unless you had a large historical land bank, investors were simply not interested in your story." Patil realised it would take a lot more for him to convince the markets that his story was worth listening to. That cash flows and strong execution capabilities—and above all, respect for the customer—mattered just as much, if not more, than a historical land bank.

The family—younger brother and vice chair Naresh, brother-in-law Milind Kolte and he—got into periodic huddles to discuss the need to bring in professionals. When they did, the first tryst didn't go off well at all. Many of the pros exited within a year or so. In hindsight, Patil says every time a new solution was proposed by the lateral hires, the family tended to either side with the old loyalists or look to the old-timers for cross-validation. That frustrated the professionals. This setback further prompted Patil to hunker down and understand where they were going wrong.

He began seeking out a bunch of people for a series of open-ended conversations on how to professionalise his firm. During the course of those meetings, he ran into Sujay Kalele, a young professional who worked with real estate consultancy Jones Lang LaSalle India (JLL). The young man had come to him with a proposal and struck him as unusually bright and ambitious. So he kept in touch and occasionally invited the young bachelor home for lunch on Sundays. He kept plying Kalele with questions on how professionals like him worked at a global firm like JLL, without an owner directly overseeing their work on a daily basis. Kalele explained to him that global firms used incentives systems to manage performance.

After six months of interactions, Patil asked if Kalele would like to join him. It took almost six months for Kalele to come on board. Initially, he was attached to a small project so that he could get hands-on experience of operations. After a few months, Patil asked Kalele if the real estate industry interested him at all. And whether he saw an opportunity to build a different kind of realty firm.

Once Kalele was fully on board, Patil asked him to spend the next six months to a year to understand the space and personally took him around the world introducing him to all his partners, including California-based construction firm Portman in the US, the top echelons at ICICI, and many others. Even though he was designated as vice president, Patil says he made sure that Kalele started to take many of the big decisions that an acting CEO would make: on whom to hire, whom to let go, what commercial deals to chase, etc. This time, Patil made sure that he left no doubt among his staffers who was really in charge.

Two years later, he promoted Kalele to the CEO's job. He was happy to let the young CEO be the public face and communicate with investors and customers. "I never saw the point in doing that and wasn't good at it. I could effectively handle the conversations internally, but if you put me in a public forum, I wasn't sure how I would fare," says Patil. And yet, building confidence in the company and the brand was a critical part of the transformation project.

Kalele hit the ground running. Kalele says he realised the importance of deploying technology in a host of areas: in serving customers well, in building Big Data and analytics for better marketing decisions, in creating more effective global sourcing and even faster decision-making. He had a clear vision of what we wanted, but the question was: how would he, as CEO of a mid-sized realty firm, attract the attention of global tech giants? He found a way soon. Towards the end of 2012, he signed up for a four-day annual seminar on How to Scale Your Enterprise, organised by the Isha Foundation and led by Ram Charan and Sadhguru Jaggi Vasudev. IBM's country head Shanker Annaswamy and its head of consulting Jeby Cherian were mentors at the seminar. On the sidelines of the conference, he pitched the idea to them.

It took several months to thrash out the broad contours of the project. It was a complete business transformation project that used technology to significantly enhance the customer experience and beef up internal decision-making. It meant tearing down existing processes—and creating new ones, using technology to drive transparency, set up global sourcing systems and exception-based reporting systems that freed up management time for more strategic decisions. And what's more, IBM would be paid partly on the basis of the outcomes it helped drive.

The larger cultural transformation was even more critical, and it needed to start at the very top. After all, the bottleneck was usually at the top of the bottle. Kalele says he gently nudged Patil to call in Ram Charan to mentor him and the leadership team. Soon, Ram Charan would fly into Mumbai and meet Patil one-on-one at the Four Seasons hotel for a couple of hours—and then mentor the leadership team headed by Kalele over the next couple of hours. The first thing Charan made him do, says Patil, was to write down his ambition, his current skill-sets and where he'd like to be five years later. "I was obsessed with how the American firms like Portman and IBM had globalised. Most of them started out as family-owned firms who had grown from a small town and spread their wings across the world,' says Patil.

After Patil listed out his skill-sets, which included managing the environment, getting approvals on time, managing operations, etc, Ram Charan bluntly told him that none of those skill-sets would be relevant, going forward. It came as a shocker. "First, I couldn't fathom what he was saying. So after a few months, I wrote him a rather candid mail saying that none of his advice was making much sense. And perhaps they ought to consider abandoning the idea of these mentoring sessions entirely," says Patil. Ram Charan then called him for a tete-e-tete. He told Patil that his mentoring plan was based on Patil's own aspirations. "It entirely depends on what you want to become. You said you want to become like a global US firm. And for that, world-class processes, an institutionalised culture,organisation and leadership development, etc were prerequisites. However, if you aim to be the biggest real estate company, like say, what GM Rao aspired to be in the infrastructure space, the plan would be shaped accordingly," Charan told him.

The mentoring exercises picked up pace once again. And today, Patil says much of their current work and progress on building the organisation has come about, thanks to the advice and direction he received from Ram Charan. But creating a hothouse of ideas by bringing in bright, young people may be the easy part, building a sustainable organisation was far more difficult.

The IBM project helped them snag the next set of leaders. Manjusha Raulkar, who had worked with GE and Suzlon, says she came in as the chief people officer because she was attracted by the larger intent at professionalising the company. She says the leaders have walked the talk, much more than what other family-owned organisations that she has been part of. Shraddha Jain later came on board as CFO. Between Kalele and Raulkar, they went looking for bright, mid-level leaders from campuses like ISB and IIM-A.

Patil says while he's made himself more or less redundant, there's one aspect that he’s closely involved in: organisational development. Much like the way he spotted Kalele, he says he keeps in touch with youngsters in the organisation to spot potential that might otherwise go unrecognised. And one of the ideas that these young new hires have recently given him: to hire freshers across all departments. Since customer-centricity was a critical attribute, hiring from other realty firms didn't quite help because almost all of them simply didn't care much for the customer. Most realtors rarely delivered projects on time, didn't bother serving customers or responding to their complaints—even when customers were often forking out more than a crore in buying apartments. The plan now is to induct these youngsters and build a culture of superior customer service. Patil also says they are now starting to benchmark themselves to leading Singapore-based firms on the quality of their construction—to see how they can reach those quality standards.

Earlier this year, Kolte-Patil organised a fair for customers in Pune. It attracted walk-ins of nearly 30,000 with high conversion rates. Typically, the annual fair organised by the real estate industry association CREDAI attracts 15,000 walk-ins.

So how has this internal drive to raise standards been received by his peers in Pune and Mumbai? "Most of them still don’t get it. They are far too steeped in the traditional way of doing things. But guess what: the new generation that's entering family-managed realty firms, at least in Pune, are now asking their fathers and uncles: why can't we run the firm like what Sujay Kalele and his team at Kolte-Patil are doing? For them, Sujay is their role model, not oldies like me. It's the same story in our firm. The young people in our firm simply reject the old ways of doing business. They don’t want anything to do with that world."

(With inputs from Nikeetaa Ghaneckar)

[An abridged version of this article appeared in Mint]