Every milestone breached by India’s second largest IT company Infosys, from its Nasdaq listing to its USD 1 billion in profits, makes headline news. But the story that still fires the imagination is the genesis and how it all started in a 10x10 room 27 years ago. NR Narayanamurthy is the man who started Infosys.

Excerpts from CNBC-TV18’s exclusive interview with NR Narayanamurthy:

Q: One of the reasons that compelled you to start Infosys in 1981 was that you wanted to experiment with your version of the enterprise, entrepreneurship, capitalism and it was your rejection of Leftism, socialism and economic system. Take us through why that intellectual premise occurred.

A: The genesis of Infosys lay in a desire to conduct an experiment in entrepreneurship. I was a strong Leftist in my student days. I was brought up under the Nehruvian model of socialism. However, after spending a few years in France and discussing with a lot of people, I came to the conclusion that the only way we can solve the problem of poverty in countries and societies like India is by creating jobs through entrepreneurship.

Secondly, it is not the responsibility of the government to create an environment where there is incentive for more and more people to become entrepreneurs.

Thirdly, every human being requires some incentive to do whatever he or she wants to do, be it becoming an entrepreneur, a good student or a good CEO. So, based on this, I returned to India and got a little bit of experience in the corporate world. Then, I found six colleagues of mine who were all working together at Mumbai and had very similar values and that is how Infosys was born.

Q: I have heard statements that Sudha Murthy made where she says that business was synonymous with loss, where you have to sell everything or something to survive and to make good. That was the background you came from. What is it that gave you the courage to take that move to give up a salaried job, to give up being employed and to become self-employed?

A: Somehow I had in my mind that if I don’t plunge in now before I am 35, I would not be able to take the risk. Fortunately, my wife had a very good job. She was with the Tatas here. Our child was with her parents in Hubli. I said if I don’t take this decision now, I would not be able to do it. In some sense, I think that is what pushed me.

In addition, there were a few major transformations that were taking place in the world at that time. First, availability of super minicomputers and minicomputers that provided hardware power at much cheaper prices than the mainframe.

Secondly, availability of industrial strength, database management systems, and online transaction processing engines on these impressive super minicomputers.

Thirdly, we realised that India had lots of smart people, well-educated engineers and scientists but very few of them had “jobs”. Fourthly, it was around the time when Borland introduced the first sub-100 dollar software package. They introduced a C-compiler. It had nothing to do with what we were supposed to do, but that introduction demolished the myth that software had to be expansive. Of course, my wife was very kind to say, ‘I will be there, don’t worry’.

Q: She gave you Rs 10,000?

A: Yes, Rs 10,000 put by all of us. She gave my part of Rs 10,000.

Q: Is she still paying a lot of your bills?

A: I used to borrow a lot of money from her.

Q: In 1990, the year before Infosys listed, there was a turning point. I believe there was someone who was willing to buy everybody out and at that point, your colleagues were weighing the options very critically and you actually went out and said, if you will decide to sell, sell it to me.

A: Yes, there was a feeler sent to us that we could sell the company for USD 1 million approximately. Somehow my view was that we had already run this marathon long enough, and that we had gotten used to this depravation. I said when you have gotten used to all of this, when our wives have given up on us in terms of being successful, there is no downside. Then I said maybe we should push along a little bit more because nine years is a long time. By then, I was 44.

I said I cannot go back and then that started them thinking that if this guy has so much confidence, maybe they also should. In a matter of 10 minutes, Nandan was on my side. He said, I will be with you and will also join in. It was not that he had any money, because each of us knew how wealthy we were. Then, in a matter of about 30-45 minutes, everybody said they will continue this journey.

Q: Infosys turned 25 a couple of years ago. Do you want to take us through the decade - 1991 to 2000 and correlate how it helped your business. What was happening in the environment around you?

A: The economic reforms did four things: they abolished licensing in our industry, which meant that we did not have to go to Department of Electronics to get any license to import computers.

Secondly, they also reduced friction to business. Then Reserve Bank of India introduced current account convertibility, which meant we could open offices abroad, could send our people abroad easily, could get consultants from abroad for training in quality, marketing, branding, etc.

Then Dr. Manmohan Singh abolished the Office of Comptroller of capital issues. Finally, Dr. Singh made another important reform and allowed multinationals to have 100% ownership. In that sense, these four or five things created a new mindset, a new paradigm and a new way of doing business. That is when we decided to go public in 1993. We raised something like Rs 13-14 crore and spent part of that on building the first campus on our quality initiatives, on getting some consultants from abroad, etc.

We built India’s first software campus and realised that because we were going public we could create stock option plans and attract good talent. That was another competitive advantage we were creating.

We said we will invest very heavily in technology. Even today, I believe that we spend the highest percentage of revenue on technology of all Indian companies. So, in that sense we never turned back from that day because it allowed us to focus on the market, not worry about licensing, telephones, foreign exchange for traveling abroad, etc.

In other words, all friction to business was by and large removed. It allowed us to focus on the market.

Enterpreneurial tips from Narayana Murthy:

Mohit Dubey of Carwale.com: How do you bring everybody on a table and create value in the system? How do you motivate them for the right behaviour and basically create a social system for the organization?

Murthy:We are very fortunate in this country. We have had an extraordinary role model in Mahatma Gandhi. He led by example, he walked the talk. So, if you want a large number of smart people to buy into your wish, the only way that can happen is if they trust you implicitly. The only way you can develop trust in people is if you ‘Walk The Talk’.

Kalpana Bansal of Beanstalk Organisation Consulting: One of the biggest challenges in an intellectual services company is creating a brand, which is a sum total of the collective intellect of people and making it bigger than yourself. Any thoughts on that?

Murthy: I have this theory that brands are created by doing unusual things and making newspapers, TV channels write about you and cover you free of cost.

Brands in our business are not created by advertisement. So do things which are unusual and I can assure you many papers will write, many TV channels will call you for interviews, many youngsters will see you on TV, read you in newspapers and will want to be part of it. That is the principle we have used.

Dheeraj Gupta of Jumbo King Vada Pav: When we started Jumbo King and the concept of branding the Vada Pav very clearly, our inspiration was McDonalds. Recently we are trying to target exactly the same market, the same audience and we realised that if we do the same things we are not going to get anywhere. It is a situation where you have a role model who has perfected a certain way of doing business and you are inspired by that, but you cannot exactly do the same things.

Murthy: If you are not in a position to do something completely unusual and create discontinuity in the market place, then your idea has to achieve one of the following things: It has to reduce the cost to the consumer, maybe if you are in a technology product you really improve the productivity of the user or you reduce cycle time.

In other words, look at the four or five dimensions that bring value to the consumer and see how you can provide incremental value above what your competitors or established players are all giving today, then there is an opportunity.

Hitesh Mulchandani of Landmark Hotel: To grow everybody needs money. Being specifically from the family managed business background, we have always been of the view that ploughing back profits is one of the safest ways and you are not much at risk. But nowadays with Venture Capital is approaching us at every point in time, which one is more beneficial and is growth actually very fast with Venture Capital?

Murthy: If you took Venture Capital, then the equity that you the founders will hold in the company will be smaller because you give away, by and large, majority of equity to Venture Capitalists.

On the other hand, if you can do without Venture Capital it is an ideal thing. For example Bill Gates did not take Venture Capital and Infosys did not take Venture Capital. The result is that we are left with a lot more equity for ourselves.

In our model, it was simpler because we are a services company. We said, ‘we would get advances from our customers to cover the first three-months of operations by which time we would come out with a delivery report.’ We have worked our contract in such a way that we would have delivery reports almost every month. We would have a steady stream of revenue.

The second principle we used was that we would spend less than what we earned. In this industry, if we want to go public at some stage, we have to be profitable from day one. Secondly, we said we will declare dividends and pay tax on those dividends and put back the after tax dividend as our contribution to the equity.

The advantage is that we did not have to take loans from banks just before we went public to subscribe to our part of the equities. So, it depends on your situation but in an environment like ours, where we could get advances from the customer, we did not have to take Venture Capital.

Q: In this era of uncontrolled attrition and “designation inflation”, how does one build a sustainable leadership pipeline?

Murthy: If people see an exciting future, if they see an opportunity to do challenging work in your company; if the leadership articulates a grand wish, can raise their aspiration, make them get excited to come to the office bright and early in the morning, then these designation inflation and salary inflation issues can be handled.

Q: How have you stepped down at 60, though you could have still gone strong in that role you had as Chairman?

Murthy: We have always believed that there must be an opportunity for everybody to assume bigger responsibilities. I was 55 when I stepped down from my senior position and at 60, I retired and become the non-Executive Chairman. Nandan thereafter was doing a very good job for five years as the CEO. Kris Gopalakrishan has taken over as a CEO. We have clearly sent a signal to the 92,000 employees of Infosys that there is an exciting future for them and that nobody is going to sit there till he dies or she dies, as the CEO or whatever it is.

Q: In today’s market situation and ongoing talent crunch in India due to outsourcing, do you think entrepreneurship will last long?

Murthy: It is almost like Ken Olsen the founder of Digital Equipment Corporation saying, “who needs PC’s at home” or it is almost like Watson saying, “how many computers are needed in the world 5-6-10”. So, I think that there will be even greater and greater opportunity for entrepreneurship because entrepreneurship is all about a good idea that transforms the works, makes it cheaper, faster, better and more productive for the consumer. We Indians are on a path of extraordinary growth.

We have a large number of poor people who have to be lifted out of poverty. There is nothing better than entrepreneurship to do that. So, I am very positive about entrepreneurship.

Q: Define success because it is a relative term. According to you, what is success and at what stage in your life did you feel successful?

A: If people around him or her have a smile on their face in his or her presence, I think that person is successful. As far as I am concerned, I really do not want to use such superlative words like successful. Sometimes I have certainly brought happiness to my colleagues and my family but sometimes I have not. So, I do not think I can claim to be successful.