Humility is another trait that I look for. You listen a lot better if you are humble. And if you are a good listener, you absorb ideas from others
In the brief history of the Internet, Chennai-born Ram Shriram occupies a pivotal role. Yet, he is an MBA and not an engineer; in fact, his entry into the tech world was more a matter of chance and needing a job. But, as his resume attests, Shriram, 48, has played a central role in three of Internet’s seminal firms: Netscape, where he was senior sales executive from 1994-98 and part of its bruising and well-documented war with Microsoft; Amazon.com, where he served as VP for business development after selling to it Junglee.com, the online comparison shopping start-up which he headed; and Google as venture financier. He is believed to hold 5.1 million shares of Google, is a board director and still very actively involved in its phenomenal growth and development. In the process, he made a huge fortune and figures among the top 10 of Forbes magazine’s Midas 100 list of venture capitalists. Shriram keeps a low profile and has been described as a ‘one-man institution’. He is the only employee of his firm Sherpalo Ventures, and the name reflects his philosophy of acting as a guide or a ‘sherpa’ for young entrepreneurs. Clearly, there are plenty of learnings from Shriram’s experience and insights into technology trends and even more so from his own “Book of Mistakes”. Shriram is an investor in Info-Edge (India) Limited (naukri.com) and Cleartrip.com and is also watching India’s growth and transformation with keen interest
ML: Could we start by asking you about your early life and where you were born? Shriram: I was born in Chennai in January, 1957 from where my parents moved to Bangalore. My dad worked for Shell in India. He was a chemical engineer. Unfortunately, he died in a fire accident, when I was three years old.
ML: In the Shell factory? Shriram: He had left Shell to start his own business. Those were early days of refining and safety norms were primitive leading to a blast. He was a very ambitious young man, I was told. His death shaped my early life in a dramatic way, especially because I was the only child. My mother was a housewife and, after my father died, she went back to college and later became a professor of English at the Madras University.
It made a mark on me, because, although I had the comfort of a secure, middle-class upbringing, I always felt something lacking. That got me to be very determined and focused about the things that I wanted to do. Of course, I didn’t really know what I wanted to do when I was young. I studied at Don Bosco and then Loyola College in Chennai where I studied math and statistics. At 18, I left India to join a school at Ann Arbour, Michigan. I did my MBA and started working.
ML: Wasn’t it unusual to go to the US for undergraduate education? Did you have a scholarship? Shriram: In the 1970s, it was possible. That was probably the last time it was possible, after doing your GMAT (graduate management admission test) and GRE (graduate record examination), etc. I had nobody in the US. I literally got off the plane and got into town and started from there. No, I had no scholarship. It was paid for initially, and then I got a graduate assistantship. After school, I looked for jobs in the auto industry and other places, not knowing that the future was in technology. There was a recession in America in those days. The whole country was in low spirits and they were not interested in immigrants. So it was hard to find jobs.
Everywhere I went, I got through the interviews and was then told, “Oh sorry, we can’t sponsor foreigners because the labour laws do not allow us to give jobs to anyone who is not a US citizen”. I eventually worked for a company called Sycor, a small data-processing company. It was a systems engineering job, although my background wasn’t suited for it. You can say that in a bizarre way I got the vocational training to be an engineer by getting into a company that was small and willing to go through the labour certification process.
Sycor, later acquired by Nortel, became Bell Northern Research. From systems engineering, I later moved into marketing with Nortel. They moved me from Ann Arbor to Minneapolis and I did international marketing for two years. That was wonderful. I was single and travelled the world. Data communications as a field was just coming up. So I became a self-styled data communications guy, which turned out to be a great field to be in because it was a precursor to the whole data networking industry.
ML: Which year was this? Shriram: That was in 1981. After two years in Minneapolis, I moved to Santa Clara. The winters were too cold and I didn’t enjoy it. I used to fly out to the west coast. By then, I had spent two years in Ann Arbour and two years in Minneapolis. I had spent three years as the director of data communications selling EPABX which was a business with 120% gross margins.
It was a great time to learn in a company like that which was very successful and also had a big impact on the US data communication scene. It was a $10 billion-$20 billion company, which was pretty big in market cap at that time. At Nortel, I dealt with a lot of different businesses like healthcare, automotive and insurance in Europe and USA.
That was when the early modems, which you would connect to do half-duplex communications, were built into the EPABXs for the first time. You remember those Silent 700s, the Texas Instruments’ typewriter kind of early computers that you connected to a modem with a humungous Shriram-232 jack at the back? That was the beginning of data communications. The centre of it all was Nortel. They could easily have bought Cisco or Bay Networks at that time. In fact, they ultimately did buy Bay Networks.
This tells you that whenever there is a huge paradigm shift in technology, it is always quite hard, regardless of how good the incumbent is, to be the leader in the next new wave of technology. When we went from mainframes to minicomputers, IBM lost to Digital Equipment. When minicomputers went to PCs, both IBM and Digital lost and the victor was Compaq. The same thing happened in software. So anyway, I basically moved from being a pure data communications guy to more and more of a software guy.
Then, in one of the annual telecommunications conferences at San Diego, one of the founders of a young company called Sytek came up to me -- at that time, these young companies used to trawl for talent at such conferences -- and said, “we are only four people and we are trying to build a data communications product and sell it; would you come and join us”? And I said, “Great I will come and talk to you”. I took the job. Those days, I was single and had no encumbrances.
ML: In which year did this happen? Shriram: This was 1984 and that was my first start-up. Over the next 20 years, I have been through many others. I joined them as VP strategic planning at Mountain View, California. Very quickly, we did a very big deal with IBM and the original IBM PC network was built by Sytek. This was in the days when you used pre-cut lengths of cable. IBM took the technology from this young company and essentially created the PC network. This deal propelled us from zero revenues to $50 million overnight. We then licensed our ‘net bios’ or the layer above the Mac layer to Microsoft. Bill Gates was smarter and said “we want to buy the source code not the executables for $200,000”. These were the early days of the PC industry and I was fortunate to be there.
We did a deal with Apple later for ‘token ring’ technology, which was also pretty popular at that time for Mac II. We then licensed it to companies like Texas Instruments. It was a great time to be in that segment of the market. Data networking giants, 3Com and Cisco, were not even born until 1986. After three and a half years, IBM cancelled the contract and the company went back from being a $100 million to a $50 million company.
I then left with one of the founders to start a wireless networking company. Because what Sytek used to do was very similar to wireless. They were doing it over cable and you could apply it to wireless. The only problem was that we were 15 years too early in the market for wireless. So, like all good pioneers, we blazed a trail to death. We raised $30 million in venture capital spent $3 million dollars on the product and $27 million in creating a market for the product -- when a market didn’t exist. It was a great learning experience. I wear that failure as a badge of honour. Because it is OK to fail once, may be even twice. You learn from your mistakes. But if you fail repeatedly then there is something wrong with you. There were many mistakes at that time. You remember the Grid computer? Grid was the first rugged laptop, which was sold to the US military. We said there is no demand for a pure wireless company, so why don’t we merge with people who are making laptops. Compaq started as a desktop company and Dell started shortly thereafter in the drawing room of Michael Dell -- so they were all going towards producing laptops. First they were luggable desktops, then they were heavier laptops and, today, they are little Blackberry-like devices and, in India, the mobile is the PC, right?
Anyway, we merged with Grid and that was the kiss of death. The money went quickly because it was a hardware company and hardware spends money faster. The other problem was that we had this esoteric package which was like Lego blocks that you get for kids. You could attach multiple computers together using Ethernet. Except that each device required 64 screws and had to be hand-built, so it was labour-intensive. The only people crazy enough to buy it were the US military. So, we died. It is a fascinating story though of try, try and try again and even if you fail you don’t give up hope. I think being an eternal optimist is important to success.
ML: What were your thoughts when it went down? Did you want to go back to a job? Shriram: Oh well, along the way, I got married and had my first child. I had a big house from the successful sale of Sytek to a company called Hughes Network Systems. So I made some money out of that.
ML: So Sytek sold to Hughes? Shriram: It was a $100 million sale. I made a million dollars from that, which was a big amount of money in 1984-85. So I bought a big house, had a big mortgage and a new baby. It was tough; I had to shut this company down and literally rush to the bank to cash the last cheque before it bounced. Then I needed a job in 24 hours or I would have to put the house on the market, that too at a time when houses were not selling. I then took a job with some people I knew in the company -- JDS Uniphase who had started Bridge Communications and sold it to 3Com. I ended up working for a company that they had founded called Network Computing Devices (NCD), which was essentially an X-Windows business.
I had no passion for that business, quite frankly, but I needed a job. I parked myself in that company through the recession doing sales. In my time there, they decided to convert from a hardware systems company to a software company, which is hard. They were buying small software companies to make that transformation. This was at a time when Microsoft was still shipping Windows 3.1 before Windows 95. Basically, Microsoft Office was launched but sharing hadn’t come about and they were sold as individual licences on individual devices. Into that, NCD decided to be a stack vendor and come up with its own browser. The browser was to be something that would do Telnet, would do Gopher (which was a primitive browsing tool) and it would allow a bunch of Shriram-232 ASCII devices to be multiplexed so that you could have a single window through which you could use the device. X-Windows was a sort of precursor to that because it was focused on Unix. So, the early systems for browsing for the Net came about in Unix, because the whole Internet started as Arpanet in the US Defence Department. It was pure luck that I was there at that time.
ML: When was this? Shriram: This was 1994. Then I saw this news item about Jim Clark. This is a unique story. Jim Clark was a professor at Stanford and an expert in graphics language. He started Silicon Graphics. He was then thrown out of his own company by the management team that he hired and was very embittered. In the 1990s, Silicon Graphics was like Sun Microsystems is today, although it barely exists now. Steven Spielberg used SG products to create animation and graphics were used in aviation for creating aerodynamics and CAD-CAM and other interesting applications. After he was forced to quit, Jim was looking around for something interesting to do. He didn’t want to go back to teaching at Stanford. I read this news item about how he had gone to this motel called Days Inn to hire six programmers who had created a programme called Mosaic in the supercomputer lab at Urbana Champaign, Illinois. Then he gave Urbana $200,000 for the licence and founded a company called Mosaic Communications. He then took these guys out and hired them at $6-an-hour-programmers, literally at minimum wage. That is capitalism at its best! I sent him a blind email saying, “hey, I know how to spell browser and I am actually negotiating with AT&T to sell them a browser from this company called NCD. If you are interested, I would like to talk you”. I had a premonition that this young company was more likely to succeed better than this hardware company where I was working. This turned out to be true, by the way, because NCD actually paled and you don’t hear of them in the story about Netscape. Clark hired these six programmers and also gave them a lot of stock but very little cash and it became a huge success.
ML: So you sent him an email and then what happened? Shriram: Well, Clark responded and said come over and talk. I was hired. He was a mercurial kind of guy; he is very bright but can be blunt and abrasive. He was the CEO at that time and I said, ‘my God, I have to work with this guy’. Anyway, it turned out to be fun. He hired me in October and two months later hired Jim Barksdale as CEO of the company. He said: “I can’t be the CEO because I know I will upset a lot of people and they will leave”. But he was the chief strategist and vision keeper and great at it. It was a fun period where my job was to build market share for Netscape’s browser. I dealt with every CEO of every major company because we were in the middle of this whole revolution -- we were creating it -- I mean, we were making it up, literally as we went along. Today, we take downloads for granted -- whether it is software or ring tones. The first innovation in downloads happened at Netscape when we looked at how to distribute the product. We said, let it be free for users and businesses will have to procure a licence. That is how we built an economic model around it; doesn’t matter that Microsoft later killed that model by giving the browser away free to businesses as well. But that innovation happened inside Netscape and, at one time, all the traffic on the Internet had to pass through the Netscape portal, but they didn’t know how to monetise or build on it. In fact, Jerry Yang and David Philo of Yahoo! started in Netscape. They were two guys at Stanford who had created this search engine. We needed two things. One was email, so I licensed Eudora from Qualcomm, since we couldn’t get access to Microsoft APIs (application programming interface) for their mail product.
The second was a search engine. So we let these two guys come and host inside Netscape because we had lots of infrastructure, they had no money and were good PhD students. They spent nine months building Yahoo! inside Netscape. Then Netscape decided that they didn’t want to have anything to do with the search engine and told these guys to go and raise money or come and work as employees. They went and raised money, and the rest is history. It was all very interesting and a lot of companies were born that way. Netscape became like what Fairchild was to Intel and the entire semiconductor industry. Most of the computing industry happened outside the Silicon Valley. IBM was in New York, Digital was in Boston, and Compaq was in Houston. Anyway, it was a delightful four years from 1994 to 1998.
ML: What did you do next when Netscape folded up? Shriram: In 1998, I left to become the President at Junglee. When I took my sabbatical after Netscape, it was after a bruising battle with Microsoft that is widely documented.
ML: And were you at the forefront of it all as the sales guy? Shriram: Not just the sales guy but also strategy -- it was not just about revenue, it was about owning the platform. So they had all of the underlying architecture for that platform, because the operating system was what the browser was built on, except that new applications were written on that platform. And today, 10 years later, that platform exists and Microsoft owns it. But it took the death of a company and the fact that there was so much harm done. It wasn’t all because of Microsoft; there were a lot of mistakes inside Netscape as well. So, in 1997, I started writing down all my mistakes. We are very good at critiquing other people’s mistakes but very poor at writing down our own follies and foibles. That process has enabled me to become better at my business.
ML: Have you done anything with what you wrote? Shriram: No, I am not blogging it or anything. But everybody can do it in his or her everyday lives, whether it is dealing with your spouse, your kid or anything. You can actually shine a light on yourself and learn from it.
ML: If you have to pick up a few of the learnings that came out of your mistakes, what would they be? Shriram: I have applied a lot of that to everything I have done since, but one of the most important things I learnt is to hire well. Google, for instance, has hired extremely well. Because, A people hire other A people and B people hire C people, C people hire D people. The more incompetent people are, the more insecure they are and hire people weaker than themselves. It is pure human psychology. Smart people are less insecure, but sometimes, smart people are also hard to manage and are disorganised. Each one is a package. If there are pure creative people or innovators, you want to handle them differently from those responsible for execution. Rarely do you find people who combine those qualities; and when they do, they become incredible leaders, which is what Larry Page is, for example. So, one learning was about hiring. The other was being really careful in your spending. Companies that are frugal in terms of capital actually succeed better. Those that face adversity, succeed better than those that don’t. So if you look back, in the 1980s, there was Microsoft; in the 1990s, there was Cisco; and, in 2000, there is Google. Each decade produced a $100 billion company. And what is common across them is that they were all started during a recession. Google was a product of the dot com bubble bursting. They were lucky to raise money before the bubble burst, because nobody was interested in funding a new search engine company. So you learn to understand that there are times when capital is scarce versus times when capital is easily available, as it is now.
This is the time to be a contrarian, because there is so much money flowing yet again, six years after the last bubble. People forget quickly, I think, though there are more real businesses this time. Still there is a lot of money being invested and, at times like that, you get cautious. Those who have been through business cycles understand that. If you are young and a greenhorn and haven’t actually seen the business cycles, you think the world is just a bed of roses. A third thing I look for is efficient use of capital. For instance, how is a brand built? Brand is not built by spending a lot of money on advertising; at least not in the Internet businesses. It is built by what the customer associates with your name when you are not present. So when I am thinking of Cleartrip.com, what am I thinking? I am thinking comprehensive choice, not the cheapest price, but very close to the cheapest price and simple, easy completion of transactions. But you don’t get to that realisation until you get to see many cases where people spent a lot of money and failed to build a good product and were not particularly user or customer-centric.
Young companies need to be focused externally, on the user-customer, rather than being hierarchical about things. The best ideas must flow freely within an organisation where they are open and willing to listen to others. Humility is another trait that I look for. You listen a lot better if you are humble. And if you are a good listener, you absorb ideas from others. I have seen very good managers who are poor listeners; and that becomes a weakness in somebody’s arsenal.
ML: So you then moved to Junglee from the Netscape experience. Shriram: Well, Junglee was a short stint. We were essentially doing comparison-shopping on the Net. I walk in and we need to raise money very quickly. That was the beginning of e-commerce on the Net. It was a service to allow people to buy books, music, and video at the cheapest price possible with the maximum choice. We had to consider doing a private placement to raise money because our valuation was such that venture capital would not have come in. I called up my friends in the industry and everybody wanted to buy us, rather than help us build a business. So I quickly decided that it was the best outcome for the business, if we could get a handsome price. And frankly, it was a product of the bubble. We had not yet built a big business, but we had the potential to build a business. Very much like Hotmail was a product of the bubble or many others were at that time. But Netscape was very much a real business, but before its time. I want to make that distinction.
Amazon bought Junglee and I moved out and worked for Jeff Bezos for some time. It was a delightful time. In any success, there has to be a little luck, so I would credit a little luck to being at the right place in the world of e-commerce. Working for Jeff, I did the AOL deal and the Yahoo! deal. Amazon was not a portal and they had to pay to get traffic to come to Amazon. What we were really trying to do is innovate a new way for consumers to buy products on the Internet that we would physically ship to them. We were banking on having the best user interface, the search metaphor for e-commerce and, ultimately, the best customer service across categories.
With that period having ended, I decided that I was no longer going to run a company or be in the execution side of the business and be more of a ‘mentor capitalist’. That is how the next stage of my career started. I had actually started doing that even before my investment in Google, by investing in some other companies. Critical Path was one of them. It no longer exists today, but they were essentially a mail aggregator. Today, Webmail has replaced a lot of those services.
ML: When did you make that investment?
Shriram: That was in 1997. The company then went public and I made money on it. So I said, ‘hey, I could be good at this too. I do know the markets, the stakes, the different businesses and technologies and the people in the industry’. The industry had now got pretty big, but I knew people in the systems, hardware and the networking segment. Having been a pioneer in the Internet business, I knew most people in that segment because most of them started at Netscape. And yes, there are a number of bright new people coming into the business, and smart people coming through the universities, but that layer of knowledge and experience hasn’t dramatically changed.
My investment in Critical Path was one of the first. Then Jeff Holman introduced Larry Page and Sergey Brin to me. That was in early 1998, before I had actually left Netscape. I had said, ‘we missed the opportunity to buy Yahoo! when they were a young company’. But in retrospect, if we had bought them, we would probably have killed them. Not because we would want to kill them, but because innovation dies in large companies. Very few people know how to manage innovation inside a large enterprise.
So, the Google guys were introduced by Jeff. I said I am not sure there is an opportunity in search. I saw the product, which was great. Some 300,000 sites were indexed inside the Stanford network. I did a blind test comparing their search with Yahoo! and Infoseek, of course, from their limited index. They were faster and more relevant. So I said, go take this to the other guys and come back and tell me what they say. They went and visited Yahoo! and Infoseek.
ML: Was it to sell the company or the software? Shriram: Either sell or go work there. These guys actually wanted to go and work in biotechnology in building supercomputers for computation of DNA sequences. They had experience in those spheres from their database knowledge, not necessarily search algorithms. But nobody wanted to buy the company. They said, “well, it is very interesting but, we are not focused on search and we have an existing business and we don’t want the page views to be cut down because that would be a drag on our advertising revenues”. I felt, ‘what about the consumer, wouldn’t they be interested in a better search? So let’s take it to them’. These guys then said, “we are passionate about doing this, although we have other interests as well”. I said, I would be happy to fund the company. I wrote the second cheque for Google, within a few days of Andy Becholsteim who wrote the first.
ML: What did you have in mind when you actually wrote the cheque? What did you think they would do? Shriram: What I had in mind was to continue to develop the idea and go and hire five or six new engineers. And I would come by a day or two each week and guide them through hiring people, helping find new customers and thinking through the business model. We didn’t want to be another media company. We had the benefit of seeing AOL and Yahoo! and other media companies and we wanted to be very different if we could, just based on the fact that the technology was very focused around search. The other thing is, there are, to this day, only two really big applications that people care about - email and search. I search 50 to 60 times a day. And it does not have to be device-centric. It could be on a Blackberry or a cell phone.
ML: Was the site up by that time? Shriram: The site had been up, literally from day one when we invested. Stanford told them to exit the network, because they were adding to the strain on the Stanford network traffic. We gave Stanford roughly 1.7% of the company, which they sold. It is public knowledge that they made $350 million on it, which is great and I think that universities in India must do more of that. But you cannot be too anxious about returns either because it is impossible to know what will work. If you ask me today whether I could have predicted that it would even be a $100 million company -- no way. I didn’t even know if we would have had any outcome. I knew that these two guys were very smart and that they knew their stuff very well. What I didn’t know is that they were also very good at business and would be very good at hiring good people. They had very good business judgement. That is another learning from my “Book of Mistakes”. Judgement is very important in the following way. When you have all the facts present and you have to make a judgement as a CEO, it is fine. But frequently, the more important your position in an organisation, you have to make a judgement without having all the facts and extrapolating when there are gaps in the facts. It is then that you tend to make mistakes and base your decisions on emotions.
For example, when you say, I want to get into mobile payments, it is an early space, not just in India but also everywhere in the world. In a sense, you are making a judgement call, an intuition that this could be a great new market space to invest in. Over a period of time, you begin to develop segments in that market that will trend towards mobile transactions earlier or later. So you put the puzzle pieces together and build the business. That early stage of picking a good company is a little like picking fine wine. When it gets bigger, the issues are different. It is about scale, about execution and making sure that the operations are run well and who is performing and who is not. ML: Since you work alone, how do you cope with work and expectations today? Shriram: Yeah, you can’t scale infinitely. I like to keep my activity different from the regular venture capital activity. I am still a one-man institution -- and I say that with all humility. The fact is that I pick very few things to work on and I only pick things where I think I have domain knowledge and can add value. There is a lot of general knowledge that I can impart to any business but I would rather impart very specific knowledge to the business where I have a passion.
ML: Now that you are a success, you must be flooded with proposals for mentoring. How do you decide who you will look at, especially when you work alone? Shriram: Well, fortunately, I have people like Sandeep Murthy in India to sift through things I do here. In the US, I sift through things myself. Since I do just three or four investments a year, I want to do things that are consumer facing and are fun. And I cannot take credit for Cleartrip.com, that is for the founding team plus Sandeep (Murthy) here. And I cannot take credit for Stumbleupon.com which is another investment I made. It was started by three guys from Calgary, Canada, who then moved to California, because I said I am not going to fly to Calgary to meet them. Today, they have broken through the Alexia 500 traffic rankings and they are now a pretty well regarded entertainment site. I am just picking these two as examples of something that has had dramatic success in the last 12 months. Stumbleupon has a global footprint, while Cleartrip is focused on travel in one country.
The other thing is that I have a long-term view. The businesses that I have shepherded, I continue to be involved with over a long period of time. Google doesn’t take as much of my time as it used to; but I am still emotionally involved in the business and cannot extricate myself from it because I enjoy it. There are a few things I have done that I haven’t succeeded in. I am happy to say there is no magic here. You do your best and occasionally there comes a time when you have to cut your losses and decide to move on.
ML: What has been your best investment so far? Not necessarily financially. Shriram: It is Google, because financially you can’t do better. But Google is an exception. You cannot have a Google happening everyday; it happens once in a decade. Just like Cisco happened for those who were involved with Cisco and Microsoft happened to those who were involved with Microsoft. So you can’t look at the world through rose-coloured lenses and say I am going to go find the next Google. For those who say that, it is pretty naïve. The moment you start to measure your success against the next analogue, you begin to lose focus on what you are doing. Are there going to be other successes? Yes, there are going to be others. I think we are in the early days of this whole world of Internet-based applications which are going to be quite rich. And the platform for most of the world is going to be the mobile. The mobile is going to be the new PC and a lot of applications are going to be written for it; in fact, it already is. So that is my story.