By N.S. Ramnath, Nilofer D'Souza| Mar 4, 2011
Even five years ago, it was as if the good times would never end. India’s economy was in full blast and its appetite for workers, insatiable. Manish Sabharwal, who spotted the opportunity early on and co-founded TeamLease, a temp staffing company, was right on top of the wave.
During those times, TeamLease was hiring in thousands and still could not keep up with the demand. In early 2007, it had over 67,000 people on its rolls; it was breathing on the neck of Tata Consultancy Services and was all set to overtake the software major to become the country’s largest private employer. Only, Sabharwal’s ambitions were even bigger — nothing short of one million employees.
And then came the financial crisis. It hit TeamLease sooner than any other company, and in a way that devastated Sabharwal. “I don’t mind asking people to leave for performance issues, but I find it painful to let them go for no fault of theirs,” he says. He had to fire more than 25,000 people during the downturn. He had no choice. TeamLease’s business proposition was to be ‘a spring board during the boom, and to be a shock absorber during the downturn’. The only way it could absorb the shock was by letting people go.
The shock also jolted Sabharwal into seeing things that were hidden in plain sight during the boom — inefficiencies and even strategic flaws. The fact that he had to interview 100 people to hire five struck him as preposterous now. More than anything else, he felt bad about not getting into ‘a retail business’, i.e. having a backup revenue stream from sources other than corporates. For instance, student fees. All his revenues came from corporate customers, and when they went out in the cold, he caught the flu.
It was clear to him that if he wanted to take TeamLease to the next level, he had to think ahead. Thinking ahead was never a problem for Sabharwal, a Wharton MBA. At the b-school, while his classmates were thinking about job interviews, Sabharwal was busy writing business plans for India Life, a pension management firm he would start upon his return to India.
He came back, founded the company with two friends — Ashok Reddy, a classmate from Shri Ram College of Commerce, Delhi, and Mohit Gupta whom he knew from his school days — and started gunning for pension management deals. Over the next few years, India Life got into pay-roll and benefits administration, and evolved into a human resource (HR) outsourcing firm. In 2001, multinational company Hewitt acquired India Life. A year later, sensing a huge demand for temporary staff, the trio started TeamLease. Those who know the co-founders say they make a great team. Reddy, like Gupta, is an operations guy, good at keeping the ship running. Sabharwal, who likes to speak in metaphors and finds public policy more challenging than running a business, is the big picture guy, the one who guides the ship. When TeamLease faltered during the crisis, he had to quickly figure out where it should head to.
In a way, the answer suggested itself: Vocational training. Getting into training would solve two issues in one go. TeamLease would now be able to convert more applicants into employees, because it could train the candidates before it hired. It would also diversify into a sector that was close to an inflexion point. Gouri Gupta, who leads strategy at the National Skill Development Council, says India needs at least 526 million skilled labour by 2022. “At Rs. 2,000 per person, it is more than a Rs. 1 lakh crore opportunity,” she says.
Sabharwal was hardly the first one to spot the opportunity, but when he looked at the landscape, he found the players fighting an impossible trinity: Cost, scale and quality. Those who pursued scale and cost fell short of quality. Those who wanted to give quality at scale, found the cost too prohibitive.
“We had a lot of discussions on whether it should be Greenfield [a fresh initiative] or Brownfield [utilising an underused asset or opportunity]. Both have their advantages and disadvantages,” Reddy says. Most of the companies they saw were driven by marketing and sales, all aiming to fill in the classrooms. However, an acquisition would give TeamLease immediate scale. The trio could always set the other things right. They took help from Gaja Capital Partners, a private equity firm whose portfolio included Career Launcher and Educomp, to scout for a target. They zeroed in on Indian Institute of Job Training (IIJT).
Founded in 2006 by Devesh Srivastava, IIJT had scaled up fast to 260 centres and a capacity to train 100,000 students. In March 2010, TeamLease took 25 percent stake in the company, which has now been raised to 75 percent. Sabharwal called the firm IIJT 2.0.
Over the last 10 months, Sabharwal and his team have been busy getting the hygiene factor right, says Neeti Sharma, who worked at Aptech before she moved to TeamLease six years ago, and now leads its foray into training. They centralised data, put processes in place, and took a look at the centres and faculty to weed out the ones that didn’t measure up. Result: 50 centres were closed down, and 30 percent of the staff was shown the door. In the next 12 months, the number of centres will be back to 210 and in two years it should reach 400.
So, what’s the big deal? Any company in a similar situation would have done just that. But, Sabharwal is adding two layers to it. At the front end, he is offering students a chance to go to the job market, or work towards a degree. At the back end, he is taking on the impossible trinity.
Gopal Jain, managing partner, Gaja Capital, says that TeamLease’s staffing business is a huge advantage. “There is no other company which addresses both the issues [employment and employability] the way TeamLease does,” he says. While vocational training plus staffing makes business sense, it doesn’t complete the picture. In fact, there is a big white space in the education-employment ecosystem. In the US, half the enrolments at college-level happen at community colleges, and only 35 percent of the students there go on to complete their degrees. The rest join the job market. That is missing here.
Sabharwal started talking about the missing bits in the system to various policy makers. In Hasmuk Adhia, principal secretary of education in the Gujarat government, he found a kindred spirit. Earlier this year, TeamLease signed an agreement with the Gujarat government to set up a vocational training university with 22 community colleges across the state. It will offer a two-years associate degree programme. A bill is expected to be passed in the state in the next one or two months. Once it’s in place, a student who enters a training centre could get a certificate in a functional area, say finance or retailing, and get a job; or he could use those credits to work towards a degree.
Sabharwal is in talks with the Karnataka government for a similar initiative. The plan is to roll out the university on a national scale. It would need about Rs. 25 crore for the training centres, and about Rs. 30 crore for the university, Reddy says. An official says the company is in talks with ICICI Venture and that the going has been good so far.
If the term “university” evokes images of quadrangles, high ceilings and large windows, perish the thought. IIJT centre in Bangalore is a three-storied building not far from the bustling shops of Brigade Road. Inside, students in their late teens or early 20s occupy the classrooms — some so narrow that each row seats only four. The small, sparsely furnished offices behind the reception double up as interview rooms for visiting companies.
Not your typical university campus. Yet, this could do what some of the colleges have failed to do — produce employable students. The centres would be small, functional, located close to students and most importantly, cost less. TeamLease has centralised common functions (such as HR, legal, finance and IT) even to the level of trainers. Star trainers are hard to get in the hinterland, and expensive to hire anywhere. From its centres in Bangalore and Delhi, these trainers interact with students in multiple centres.
Centralisation and use of technology will not only bring the cost down, but also help in quality. The secret sauce of quality however comes from the staffing business. Over the years, TeamLease has developed a framework which looks at the specific skill sets that an ideal candidate needs for a specific job profile. It tweaks the syllabus every three months to keep it relevant to the job market. “Here we all pray to only one God, and that is Jobs,” says Davluri P. who is in charge of academics.
Still, the organisation has become more complex. TeamLease University is a Section 25 company (a non-profit organisation), IIJT is for-profit. Its staffing business is corporate and training, retail. Managing franchisees can be a pain. (One in three centres is now franchisee run.) To counter this, Sabharwal has brought in experienced people. He hired Zarir Batliwala, an HR veteran from Hewlett-Packard who has overseen four mergers. The company’s new chief financial officer, Ravi Venkatasen, is from Sun Microsystems. “In my experience, the hallmark of a good entrepreneur is the ability to attract talent, and Manish has been able to do this,” says Gaja Capital’s Jain.
But Sabharwal has to convince more than a few corporate honchos to get this going. Regulations are a big hurdle. Convincing the state governments across the country to permit vocational universities and credit conversions will be uphill tasks. Sabharwal is hoping to convince the Centre to change regulations nationally. That would demand all his charm and persuasion skills. Even if he gets that, a lot would depend on the willingness of students, government and the organisation to pay for the course. Courses at IIJT cost anywhere between Rs. 1,000 and Rs. 50,000; university programmes, Rs. 30,000 to Rs. 55,000. Sabharwal hopes that the government (through a voucher programme) and companies (through some arrangement) will each subsidise a fourth of the cost. And that banks will be more forthcoming in giving loans.
Sabharwal is aware of the risks, the difficulties. But he is also aware of the possibilities of a booming India.
Not long ago, he attended an alumni meet at Wharton. As old classmates looked back at their lives, Sabharwal was struck by the thought: You don’t regret doing something; you always regret not doing something. “Twenty years down the line I will be kicking myself if I don’t do this today,” he says.