The Pleasure of Pursuit

In 2011, Zoho Corp, a software product company headquartered in Chennai, opened an office in Tenkasi, Tamil Nadu, hoping to train and employ local youth. Last year, Sridhar Vembu, founder and CEO of Zoho, moved from his ranch in Pleasanton, California, to a village in Tenkasi. Vembu spent the lockdown practising what he preaches—grassroots capitalism. He wants to set up R&D and manufacturing projects in rural Tamil Nadu.

What do we mean when we describe a person or an organisation or a community as wealthy? I will first start with a thought experiment. Consider two villages of about 5,000 people, one in industrialised Japan and one in a poor rural district in India. Let us assume that the two villages have the same demographic profile. Now let’s imagine that the villages do a full exchange of people: for the next five years, the Indian village will be populated by the Japanese villagers and vice versa. The Indian and Japanese villagers are required to take only bare essentials along with them during this population exchange and in particular, the Japanese would not be able to bring any sophisticated machinery to the Indian village.

What would happen to the Indian village after five years? It would be much wealthier. The Japanese would have brought with them a higher set of skills and capabilities, and those skills and capabilities would have transformed the poor village into a much wealthier one.

First of all, the Japanese would be able to grow much more food from the same land in the Indian village, because they would have had the experience from Japan of producing a vastly higher output from a parcel of land than what is common in India.

Second, the superior agricultural productivity the Japanese achieved in terms of food production in the Indian village would have enabled them to produce surplus food at the village level, which they would have exchanged for purchasing machines and the like and that would set them on course to industrialise the village economy.

Third, the Japanese would have organised themselves into groups and addressed local problems of infrastructure, sanitation, education, basic healthcare and so on.

I hope it is clear how the Indian village goes from being poor to being wealthy: we need to create the skills and capabilities in our people to be able to lift themselves up from poverty into wealth.

I perform such thought experiments all the time, in order to understand economic and business issues and insights derived from those thought experiments that inform my actions. I try to visualise a more desirable state of the world that is different from the present and then figure out how to achieve it.

As an example, in 2003, I had raised this challenge with our team of engineers: can we raise our revenue per person to be much higher than what is common in the IT services industry in India? The Indian IT services industry achieves about $35,000-50,000 a year in terms of per person revenue, and that is about 3-10 times lower than the figures achieved by software product companies. So my challenge to our engineers was this: what does it take for us to close that productivity gap because only by closing that gap, can we durably lift incomes and create wealth.

Very often wealth is thought of as money, but money is a claim on wealth, not wealth itself. In other words, for money to be valuable, there have to be other things available for money to buy. If nothing can be bought with money, then the money itself is worthless.

To understand this issue, let’s consider a very recent and relevant example: New York City has had an extraordinary number of hyper-wealthy people. Why were all those hedge fund billionaires of New York City not able to do anything for their city during the height of the coronavirus pandemic? Whatever happened to all their collective net worth which must be in the hundreds of billions of dollars? Their hundreds of billions of ‘financial wealth’ could not translate to ventilators or masks or PPE, not in the timeframe that those things were desperately needed. The fact that many of those financiers played a role in persuading companies to become more ‘capital efficient’ or ‘leverage their balance sheets better’ or ‘outsource production to China’ or ‘use balance sheet capacity well’ or ‘go asset light’ and other finance-driven machinations directly led to the lack of resilience in the system, which has been exposed by the pandemic.

So if wealth is not money, what exactly is it? I think of wealth as the accumulated form of capital. Using the thought experiment in the previous section, I will offer this definition of capital: capital is the capability of a person or a group of people (such as an organisation or a society) to meet their own diverse economic needs. Everything about a group of people, including their skills and capabilities, their cultural roots, their ability to work together, their resilience to adversity, all play a part in defining the capital that inheres in that group.

Capital defined this way is an intrinsic attribute of an organisation, and it is not measurable. What we tend to do is to reduce capital to its monetary valuation, and that process itself does injury, because the monetary value then gets confused with capital itself. We then compare those monetary values and create a pecking order.

As a philosophical matter, I reject that approach. The present crisis of capitalism (not caused by the coronavirus) traces its origin to this substitution of capital with its monetary value, which, through a complex sequence of cause and effect, has led to a highly finance-dominated economy in America.

America has confused the resulting financial claims on wealth as wealth itself, even as the real wealth of the nation eroded progressively. The social and political crisis in America ultimately traces its origin to this real erosion of wealth.

From the American example, we know how to destroy wealth, but how do we go about creating wealth? How do we go about systematically creating wealth in a group of people? The only course I know is to lift the skills and capabilities in that group of people dramatically. That is why I am very passionate about education, even as I have serious reservations about the existing system of education, particularly higher education.

To me, education is the process of creating those skills and capabilities in a workforce. At higher levels of educational attainment, those advanced skills and capabilities cannot be separated from the work itself. In that sense, any company that is producing advanced and technologically complex products and services that require a high level of capabilities in its workforce is in the higher education business.

As I often explain to our people, Zoho University is not separable from the broader Zoho Corporation. In short, Zoho itself is the University.

The process of creating advanced skills and capabilities in a workforce is highly contextual—a biotechnology company needs a very different set of skills and capabilities than a medical electronics equipment company and that is different from a cloud software company, and so on. The very process of creating these technologically sophisticated products ends up lifting the skills in the workforce that creates them. It seems hopelessly circular but that is the essence of learning by doing.

Let me perform another thought experiment that I challenge budding entrepreneurs with. Imagine that you are required to move to the poorest district in India. You will be provided the means for food and that is about it. You have to live there, and you have to figure out how to build a Boeing 747 plane (or an MRI machine or a search engine) over the next 20 years of your life.

That seems like an impossible goal. Yet, Asian countries like Taiwan had lifted themselves from poverty to wealth in a generation, about 20 years. Those experiences tell us that it can be done. But how do we go about doing it?

First of all, you do not set out to build a Boeing 747. That is an impossible cliff to climb for a poor rural district. We must start with something far more basic. How about the humble nail clipper? It turns out these humble personal care items, such as nail clippers or scissors for cutting hair, are not so humble after all. They require a fairly high grade of steel that can cut well, and that grade of steel is not trivial to manufacture. Even after one procures the steel, the nail clipper needs machinery that can shape that steel into the desired form, and those machines are not trivial either.

Finally, we need skills in the workforce to operate the machines at first and eventually we need the skills to be able to invent or enhance those machines. At the end of that process, the poor rural district would be quite a wealthy one.

This systematic approach is what I have called the Eklavya strategy. The character from the Mahabharata that left a lasting imprint on me is Eklavya, who, after Dronacharya refused to teach him archery, taught himself to become the world’s best archer by mentally adopting Dronacharya as his guru.

Eklavya performed a thought experiment with Dronacharya in order to become a master of archery. He visualised the state of the world he wanted to get to and then systematically proceeded to achieve that state of the world he had created in his imagination.

We tend to think of building a company and creating wealth as the outcome of a highly rational long-term project, with detailed plans and milestones and metrics and so on.

Those plans and milestones and metrics do not capture the essence of it, not by a long shot. Ultimately, building a company is as much a product of the powers of your imagination as it is a rational project. In that sense, it is a highly romantic project, and I use that word advisedly here, because you have to be deeply and passionately in love in order to be able to sustain these efforts for the long haul.

After all, it is certifiably crazy to talk about building a Boeing 747 in the poorest district in India. Yet you have to be crazy to be able to even think of something like this. You have to be in love with that idea to be able to pursue it long-term. The pragmatic approach will guide us on the sequence of steps necessary to achieve that goal. The Boeing 747 may well have to start with a nail clipper.

We now come to the important question: Why do we even need wealth?

After all, I don’t get to eat any more idlis (I love idlis!) just because I have wealth and I cannot imagine using 50 iPhones or driving 35 Ferraris. So what good does wealth do?

I describe wealth in terms of the qualities it confers: resilience, durability, ability to influence other people, freedom of thought and space for action and finally, and most importantly, the ability to serve a broader purpose.

Wealth confers resilience to adverse events in life. When a person does not have much wealth, events such as a job loss or illness or accidents can cause far more pain than their immediate damage. They could cause crippling financial anxiety and land the person in serious debt. A wealthy person or a company has the room to make mistakes and recover from them.

The resilience that wealth confers comes from the durability of wealth. Owning a home provides a long-term shelter from the elements. Owning our own offices allows us to reconfigure them for our needs as they evolve.

Wealth enables a person to think more freely, without fear of immediate privation. A poor person may face that fear and where there is fear, there is loss of freedom. Of course, a wealthy person could live in fear of losing their wealth, and so surrender their freedom of thought from that fear. Having nothing to lose is also a form of freedom.

Wealth also provides the space or room for action. A poor person in contrast faces a life of constraints and wealth removes many of those constraints. Once again, this could be a mixed blessing: a wealthy person may face the paradox of choice, and this particular illness seems to affect the children of the wealthy more than the wealthy themselves.

I believe every human being needs their space—space to be themselves, space for exploration and space for action. A wealthy society provides that space to more people. By space, I also mean sheer physical space—our living quarters, the amount of open space available and so on.
One major reason I prefer rural living is the open space available.

The only real purpose wealth serves for me now is to be able to serve others in need. I long ago realised I don’t enjoy the luxuries of life—my lifestyle has barely budged over the last 20 years, during a time my supposed wealth exploded. I am no self-denying monk—I live exactly the way I like to live, and that way turns out to be fairly simple and does not require very much money.

Yet, wealth permits me to alleviate other people’s suffering and that gives me immense joy, a joy that no luxuries can ever give me. People who relentlessly pursue wealth may want to keep this in mind when they do achieve what they seek.

 

entrepreneurstechnologywealth creationWealth Issue 2020Zoho Corporation