Despite being small, you can still hire the best to build a high value, high margin business: Mano Sekaram
The weight of history, tradition and ‘how things have always been done’ are difficult barriers to overcome for companies eager to transform their businesses. Sri Lanka’s organised private sector had its beginnings in plantations and trading, and then some manufacturing businesses were set up. Until a few decades ago, few details have changed.
However, firms that haven’t already abandoned these old priorities are realising that their continued success requires an overhaul of company cultural beliefs. Younger workers – often educated overseas – are less willing to work for an organisation that doesn’t give them
a strong sense of purpose and achievement.
This demand from young workers for jobs that contribute meaning to their lives goes beyond the pay and perks model managers have grown used to. Businesses are wondering if these desires will ebb when the young workers marry, have kids, obtain a mortgage, have to financially support elderly parents and still go on paid annual vacations.
Evidence suggests, however, that millennial and many mid-career professionals too, despite the financial responsibilities of modern life, are less willing to separate how they make their money from how they find meaning in their life. Because the best people can find jobs anywhere in the world, the market for top talent is competitive. Companies have started to compete by establishing a corporate culture focused on building employee competencies, expanding their horizons and by contributing to a wider social goal. However, corporate culture can mean different things for different organisations. For some, it’s the image the company projects to the world. Another view of culture is it describing a company’s cherished habits and idiosyncrasies. A third view is what happens around the water cooler, often something opposite to the formal rules.
Many companies believe that culture, which gives a firm an identity and expects employee behaviour, is important. By their mission statements, they attempt to express this cultural
By design or default, every company has a culture. However, if by design the right things are not emphasized, employees may make poor business choices or lack integrity in their dealings. A misguided culture can bust an organization, like it did Ceylinco Group, which had dealings in real estate, hotels, hospitals and financial services when it collapsed. Disregarding corporate governance, poor business sense and a leadership adulatory culture prevented searching questions about risks facing Ceylinco’s various businesses. When the group’s financial services firm was found insolvent, the crisis quickly spread to its other businesses as well.
While a progressive culture attracts and engages employees, a toxic one can ruin an organisation. Mano Sekaram, founder and chief executive of IT firm 99X Technology, had culture imbued early. “The first company I worked for told me which toilet to use via a handbook,” he quips of the hierarchical culture common during his early career. Decades ago, businesses rewarded loyalty and centralised decision-making served them well. Compared to today, pay and advancement was correlated to the length of service rather than an individual’s performance.
Sekaram, who founded 99X Technology in 2000 when software development was emerging as an industry here, is circumspect about past staid corporate cultures. Sri Lanka’s early business success was in tea plantations, an industry where the work culture was in contrast to knowledge industry jobs now being created by service sector firms.
Employee surveys over the last five years have recognised 99X Technology’s unique culture, ranking it as one of the top technology firms to work for. Sekaram discussed his learnings from transforming a corporate culture to attract and retain the best talent by providing a better balance for employees.
Here are five learnings from 99X Founder Mano Sekaram.
1. A defining issue of our time
“I always planned that, when I build my own company, I will build one with the values that I stand for,” Mano Sekaram says during an interview. 99X was founded in 2000, a couple of years after raising venture capital funding. Culture should be central to strategy, says Sekaram, attributing that focus to most of 99X’s success. The firm now has 160 employees,
mostly IT engineers, and serves European customers.
Software product engineering, 99X’s area of specialisation, means that they are contracted by other proprietary software developers to build products or parts thereof. “There is no fooling them. They won’t buy from you unless you are twice as good as they are!” It’s not unusual that software product engineering firms are relatively small, but add enormous value per employee. An engineer at 99X is billed at $60,000 annually, a rate more than twice that achieved in the same industry in India. However, in Europe, the best software product engineering firms can bill up to a million dollars per employee annually. If you want to build a great company, delivering excellence is critical; and the other factor is culture, he says. Many of its mostly software engineer employees have grown up outside Colombo and take their first job at the firm after graduating.
For a conformist used to a hierarchical organisation structure, Sekaram says he realised early on that people no longer believed in loyalty and conforming to cartelized decision making as the way for career advancement. “My generationplayed by the rulebook. But none of the high achievers here will work such a system.”
2. Leadership credibility
Does a company have a toxic culture due to its leadership style or do toxic cultures lead to authoritarian leadership? Do companies decline due to a toxic culture or do they acquire a toxic culture in their decline?
Mano Sekaram, whose affable personality makes him approachable, highlights the trust gap between managers and employees that can be bridged by credible leadership. “How do you reate trust?” he asks rhetorically with the confidence of a leader who can answer the question. “You have to demonstrate transparency in everything you do.”
For a private company its size, 99X is transparent with its financial performance, employee productivity and decision-making. The firm sticks to its ‘default to open’ without judging if the information is positive or not.
Companies are often misguided when relying on their mission statements to express their cultural DNA that somehow don’t appear to matter in the day to day.
Mano Sekaram admits that the company took some years before getting its culture right. Things started falling into place when people started trusting the organization’s interest in helping each of them achieve their ambitions. Building trust is a continuous challenge, he says. “They don’t just expect it from me; they look at everyone in the organisation. Everyone has to demonstrate credibility and trust.”
Sekaram’s upbringing in Kandy shaped his values. Pivoting the corporate value set to reflect Sri Lankan sensibilities, he says, should be possible on a wider scale. “These are in our DNA, like being nice to people, being open and inviting even strangers in.” He says embracing a work culture that makes it possible for you to help and mentor the other guy should be far more natural. “Somehow, we have lost these along the way,” he sighs.
Sekaram sits on the boards of the University of Jaffna and University of Colombo as a representative of the IT sector.
3. Profit imperative
Companies that define their culture and consistently stick by it at all levels are far more profitable than ones that don’t. 99X is debt-free, says Sekaram, and its bottomline is about twice the industry average, referring to the profit margin. “I personally believe that, if you have fantastic and happy employees and customers, you will be profitable.”
Sekaram does not reveal revenue numbers, but if 120 of 99X’s 160 employees are billable workers at $60,000 annually, the firm’s revenue would be around $7.2 million. The company also grew 35% annually during 2010-2013, the period after the global financial crisis. He’s now targeting 20% annual revenue growth.
Going up the value chain took some time for 99X from its beginnings as a software services company building for others what they required, a fiercely competitive segment of the IT industry. By 2008, the firm had moved up the value chain to do product engineering work for clients with advanced needs. Their next phase of evolution, Sekaram says, is doing product research for clients, where few competitors exist.
Since 99X Technology is a relatively small company, it makes leading cultural change easier. Many of 99X’s competitors are based in Europe, where concentrated IT workforces don’t exist. These companies have fewer than 100 high-performing employees.
Sekaram is circumspect about 99X’s ability to scale due to limited skilled IT workers in Sri Lanka. “Scale is finally valuation,” he says, “We can easily get a multiple of the valuation of most software companies. They will buy me for my customers and the reputation.”
However, 99X’s venture capital investor was dissatisfied with Sekaram’s reluctance to aggressively scale the business to a 1,000-man operation. “It’s not that we can’t do it. The issue is that it then doesn’t become a boutique, high-quality, high-performance company,” he explains. In 2008, six years after the funding, Sekaram bought out his investor at a five-times multiple.
“I’m protected by this boutique specialisation, but also by specialising in building products.” 99X is efficient because it does not have staff at client sites, everything is done at its rather compact head office in Colombo. He says the firm has already built 150 products for customers, and is building 20 products at any given time.
Some global players in the industry like Thought-Works, GlobalLogic and Persistent have scaled. 99X is financially conservative, having zero debt. Sekaram is open to the idea of selling down, but is now picky about the value an investor brings to the firm, in addition to valuation.
4. Weathering change
Despite its relatively small size, Sekaram says the firm is able to hire the top graduates from Sri Lanka’s most prestigious universities in competition with US-listed Virtusa and WSO2, an Open Source software developer, two high profile and much larger companies. Only graduates with a first class from a competitive technology university are considered for positions at 99X, and the interview process can be grueling.
When the global financial crisis hit in 2009, not long after Sekaram had bought out the venture capital investor, 99X faced the prospect of having to let go many employees because IT spending had taken a sudden dip. “My management team was willing to take a 20% pay cut to save every job. To have your management suggest that is great. I didn’t tell them to do that. It’s the culture.”
However, the firm managed without enforced job losses in an organisation that had 60 people at the time. “I’ll guarantee that if we go through a bad time again and enforce a 20% salary cut, my attrition will be less than 20%!”
Despite challenges, a strong and positive organisation culture will drive performance and remain intact in the face of organizational changes like fast growth and mergers. At 99X, employees are upfront about their intention to migrate. “We know who has applied for Australian PR because they tell us; this way, I have predictability. For me to replace someone is hard, so we have to create a culture where people are honest and they tell you when they have problems, too.”
Mano referrers to 99X as a highly predictable company, meaning that the rate of defect is almost non-existent. “In the last three years, we have had zero defects. That’s our benchmark, and our schedule variation in any project is less than 5%. Our rework is 2%; Microsoft’s rework is 23%.”
In many ways, 99X is a corporate culture pioneer, eschewing short-term financial profits narrowly focused on shareholders for long-term gains that benefit more stakeholders and create a sustainable business model.
Many organisations no longer pay and promote people based on the time served. However, many haven’t also discovered the impacts a positive corporate culture can have on stakeholders. Those that do will soon discover a business edge that surprises them.