Anand Deshpande’s founder’s dilemma at Persistent

I’ve known Anand Deshpande, now chairman of Persistent Systems, for a while now. And each time that I’ve conversed with him, what has stayed with me is the clarity of his thinking. He doesn’t beat around the bush or mince words. What I do know is that clarity comes with deep thinking. 

That is also why I’ve followed his trajectory over the last few years with much interest. Why did he choose to concede control of Persistent—a company he founded when he was just 28—to a professional CEO? 

Then there is the fact that he understands technology remarkably well. That is why when I’ve had to wrap my head around contemporary trends, I’ve reached out to him. 

He has been candid with me in one-on-one conversations on what shape the India IT services story will take. What I hadn’t wrapped my head around though is why doesn’t the stock market and many analysts whom I have spoken to place a premium on Persistent Systems?

The middle of the pandemic was as good a time as any to ask Anand about all of this. Like I said earlier, he didn’t beat around the bush. He took time out to speak at length on making the shift from being a hands-on founder and CEO to the chairman who sits on the board. “Will the company be better off with me or without me?” was a question Anand said he grappled with. He spoke about how tough it was, the conversations he needed to have with friends and family, and how he eventually made up his mind. I thought it fascinating.

We then did a deep dive into technology and how the pandemic is accelerating change across domains. Anand linked that to what impact this will have on the future of the Indian IT services business, and why entities such as his are uniquely placed. But narrative such as his stays below the radar because the stock markets are wedded to an outdated narrative that is deeply flawed. 

My colleague Anmol Shrivastava and I had a great time listening to him. I’ve extracted some highlights from the conversation to give you a sense of the ground we covered. I’d urge you to take time out to listen to him.     

The conversation focused on two themes.

• Leadership transition
• A deep dive into technology and trends

Highlights from the conversation

Leadership transition 

When it’s time for a founder to let go

(Starts at 4:45)

I started the business in 1990. I was 28. Lots of crazy stuff happened. We had gone from being a start-up to being a listed company. It was all exciting. Then in 2012-13, after I turned 50, I made a list of all the things that I'm not doing today but would like to do. And I found many things on that list. 

One of them was that I need to contribute to the community. So in 2013, I said, I don't have to retire to make that happen and so I set up the deAsra Foundation along with what I was doing. 

That is also when I figured companies go through these S-curves. You are at the top of the curve and the team is not ready to transition to the next S.

So, there’s a whole bunch of things that had to happen for that. This included introspection and asking how long I need to stay in the business. What do my kids want to do? What if they want to do something different? So I wrote a list of all the things that I like to do. I spoke to a lot of friends as well. And I finally concluded that me staying on as the CEO was not necessarily the best for me and for the business. 

And that's when I decided that it's time to look for a CEO. Then of course, there was this thing about, do I need a CEO? Or can we do with a COO while I continue as the CEO?

Now, what settled this debate was a conversation that had happened as early as in 1997. We were about 40-50 people at Persistent and a question that emerged was, “Is Persistent my company or is it our company?” Until that point in time, I was involved with everything. This meant getting hands-on on all projects. 

One of the things that became clear to me then is that businesses need a CEO and if at a certain point I feel I am not best suited to do the job, I should move out. That started to make itself obvious about five years ago. There was another trigger that the chairman and managing director’s roles must be separated. 

Now, your next question may be, what all did you do to arrive at this decision? 

I talked to a lot of my contemporaries and seniors who have been through the CEO transition process. I wasn’t the first one attempting it. I was watching the transition at Intuit very closely. The founder moving on to the chairman’s role is very common. I spoke to a lot of friends of mine in India such as Ashank Desai at Mastek, Manu Parpia whom I am very close to, and Ganesh Natarajan as well who has been through something similar just before me.

What works for you may be very different from what works for others. So, you have to find what works for you. 

Should I sell-out or retain ownership?

(Starts at 13:30)

The first thing everybody told me is that you must have enough to do outside of your current role otherwise you will be interfering with the company all the time. So, you have to find meaningful ways to keep yourself busy and excited.

The second thing is how interfering should you be and at what point do you get in? This can be a very tricky problem. Many people have had to readjust. 

There is also this other option where you sell off completely and get out. But I was not ready to do that and did not want to exit. So, how to find the right balance was what it was all about.

See, when someone takes over as the CEO, they want to be able to take all the decisions. They don’t want you in the middle of all those decisions. 

The other challenge that happens in such situations is that there are people who have worked with you for long in the past. And they may or may not be performing as well as the new CEO wants them to. There may be disagreements between them as well. So, do you become the shoulder for your old-timers to cry on? This becomes a tricky part of the transition process. Because now there’s a new person in charge. He is responsible for the top-line, the bottom-line and if there are some people who have outlived their roles, how do you deal with it as a founder? 

Then there are culture-related issues. People may come up with issues such as “Hey, our culture has changed” and make a big deal about it. Now, there are some things you may not want to change. But there is never a clear line and what should change and what cannot. 

So, I found that talking to the CEO on a regular basis is a good way to keep things going. And I make it clear that there is a new person and I don’t allow people to come to meet me about  complaints they might have. Because if you provide a shoulder for everyone to cry on, you’re a bad sport.

It’s tough to let go

(Starts at 17:32)

You have to evolve into that. What helps is to have overcommunication. What helps is to have a reasonable transition period where we’re both available to take calls. I’m helping the new person who has come in and also suggesting that they should not be abrupt in making their decisions, particularly when it comes to people. 

Conversations with the family: Do I be the horse, jockey or the stable owner?

(Starts at 19:19)

When you start a business, you are a majority shareholder in the company. Now, if I sell out before without asking them, that would be unfair to them. On the other hand, assuming that they want to be in the business, that is also an unfair assumption on my part. Now, I have two kids. It’s unfair to ask them what their long-term plans are right now. But I just let them know that they are under no pressure to take a call. They can do whatever they want to and that I will support them. I am chairman of the company. They need to understand that ownership and management are two different things and both of these options are open to them. It is for them to decide. 

I've been drawing these things out and have shared it with my family. They know the options and understand that my being CEO was not that critical. Like I said earlier, it was better off me not being the CEO, and transition to being the owner instead. 

Let me share an analogy that a friend of mine shared. He started by asking me to look at things this way. You must decide whether you are the horse, the jockey, the owner of the horse, or the owner of a stud farm. You must make up your mind who you want to be. So, in this context, I started out being the jockey and the owner of the horse. But now I've moved off from being the jockey to being the owner. It is important for me to remember that the jockey is the CEO.

I spoke to my wife and told her let us travel the world. 

Trade-offs that a founder must make

(Starts at 26:10)

It’s pretty straightforward. This is the difference between ownership and management. As an owner you are part of the board. So, the board provides all the guiding details. On the day-to-day stuff though, the management team must take ownership of decisions such as numbers, targets, quotas and all else. This separation must happen and once you give up on being the CEO, you have to accept this change.

What if your children decide to get into managing the company?

(Starts at 27:46)

When you start a company, you can do it. For the younger generation who comes in it is actually harder because they must prove their competence to everyone around. This is because everyone around believes they got the job because they inherited it. So, those who are already in the company may feel hurt. The next gen has to prove themselves even though they are competent and capable of leadership roles. That is why I think it is important for them to spend time on the ground and before they take on leadership roles.

In Wipro, Rishad (Premji) did that. So, by the time he assumed a leadership role, a lot of people already knew him.

Technology and trends

IT landscape in the post pandemic world

(Starts at 33:12)

There are two parts to it. 

First, the way we work will change dramatically. 

• We have survived so far in spite of all of our infrastructure. People will get used to working virtually. Healthcare, entertainment, all of this is going to get disrupted.
• The gig economy will see a rise. People will do multiple jobs at the same time and I see more gig workers coming into the workforce.
• While we might say it will be a great idea to have everyone come back to work, I don’t think that is going to happen. Hybrid is here to stay.
• Traditionally, technology has taken a long time to get to other industries. Now, I have a list of nine industries that are up for disruption. These cater to the middle of the pyramid.     

Second, on the technology shifts that are likely to happen: Voice-driven interfaces, AI, 5G and more

(Starts at 38:24)

• We’ve been in the midst of the digital transformation for the last six-seven years. This means, creating better experiences for people. That includes customers, employees, and stakeholders in companies. 
• We are going to migrate from better experiences to better decisions. This means the rise of AI and it will be central to the plumbing of the infrastructure that is being created where decision making is happening.
• The second set I am very excited about is voice-driven interfaces in a big way. One example of this is Alexa. This is going to happen in an Indian context. Earlier, you wrote an application and there was a user interface attached to that application. But with Alexa, the user experience is getting attached to the user. The user doesn’t have to open an application. You’re talking to Alexa all the time. The apps have to figure out how to reach out to you. You don’t have to reach out for any app.

Overall, four big trends,

1. AI will help make better decisions
2. User experience will coming closer to the user with voice
3. Once 5G comes in, it will catalyze a bunch of others that are already bubbling such as Virtual Reality, IoT. We’ll see it being deployed in places such as surgery and machining, where there is much potential, but nobody has been able to do much.
4. Middleware is a big research area that needs to be worked out.

All of this is happening. It is not far out in the future. Take Netflix for example. When recommending a movie, it is not only helping you browse, but helping make a decision. This will happen across domains. 

The IT services narrative: Older and smaller companies will die

(Starts at 50:52)

1. On the developer side, we are writing code to a higher level of abstraction. So, it requires a lot less effort as compared to what was happening previously. And every generation of systems allows you to get a lot more done with far less.
2. Over the last few months, everybody is transitioning to the cloud. There is a lot of backlog here and that is what is keeping the IT services business busy. This action will continue for another two to three years.
3. Going forward, the industry will have to work to create pre-built solutions so it can roll it out for end users rapidly. That is where the next generation lies. 
4. Then there are learnings to be had from entities such as Google, Facebook, Microsoft and Amazon who manage their infrastructure, scale and deliver code at remarkable speed. This is at orders of magnitude much superior than the older companies and the smaller ones that are around. If these can abstract out learnings from how they learn and move as rapidly as they do, there is an opportunity to move the needle on the India story.

Future of Persistent

• We are working with the Top 25 product companies including those who are on the cutting edge. We have the ability to deliver code at breakneck speed and scale. Now, we have the ability to abstract our learnings and apply it on a larger canvas. That is a window of opportunity for us.
• How successful we are at that will depend on execution.