Construction And Biotechnology: What Is The Connection?

13 April, 2012

Not a day goes by when I don't see some interesting signage above a store or on the street  side which causes me to do a double-take. But recently I saw two in a single day that were awe-inspiring. In a crowded bargainers' paradise in Bangalore called National Market, I saw a sign saying, ‘Raju opticals and guns’

Heck of a cross-sell I thought to myself. One clear indicator of the how well the overall economy is doing is to see what percentage of the roadside hoardings are empty or occupied. Obviously, now being the good times, I would guess that over 90% of the hoardings have ads, with over half of them being real estate ads. Usually I don't pay attention to the real estate ads, but the other day, as I was driving in North Bangalore near my home, I noticed one that really caught my eye. It read, ‘Kumar Builders. Construction and Biotechnology’

Now, I often tell entrepreneurs that it's always good to be thinking about extending the business and not being a one trick pony, and that one needs to continuously innovate. But the Kumar folks seem to have taken it completely to another level. Perhaps there are two brothers, with one being a nuts and bolts real estate magnet and the other a recent US returnee with a Ph. D. in molecular biology. The two wanted to do business together and hence the not your commonplace marriage of two drastically opposite ends of the spectrum.

In the first case, the shop was selling eye glasses, and presumably also selling gun-sights, so with a slight stretch I could convince myself of the relationship between the two. But the "construction and biotechnology" blew me away. Then I thought, perhaps it's not all that far- fetched in India that the same business house would be into real estate construction and biotechnology. This is a country where one asks "why not" rather than "why". Anything is possible and anything is doable. This is a country where every budding entrepreneur wants to emulate the Tatas, Birlas and Ambanis and be literally in everything from soup to nuts, or in the Kumar Builders case, from steel to molecules.

I have actually met a bunch of startup entrepreneurs who, from the get-go, want to be everything to everyone. Their argument often is somewhat reasonable. In many sectors, the local market is relatively small, so if one were to try and create a large company, that can only be done by conglomerating several businesses. An example, of course, is a company like Infoedge with forays into the core jobs market, but also matrimonials, property, and several others via their investments. But at least in Infoedge's case, they are all online businesses, for the most part.

Over the past three years in India, I have come across a variety of old school businesses that have done a phenomenal job of expanding into seemingly unrelated areas. But there are some who do have a method to their madness. I have met executives from several textile houses over the past few years, for example, primarily from the south that happened to have significant real estate holdings. It's an obvious way to park money and also play in both above the table and below the table markets. Like any business oriented family, they look to monetize that real estate via two fairly obvious mechanisms hospitality and education.

I have often said that  the sure shot way of making money in India is by investing in schools, hospitals and temples. So, every single one of these families has set up hotels or service apartments, and educational trusts running colleges and universities, for which there seems to be insatiable appetite. On the education front, it's a matter of getting affiliated with some overseas university that sounds grand but maybe a fairly no-name university in the Midwestern United States, Scotland or New Guinea, hiring some folks in the educational infrastructure (curriculum, some accreditation etc), putting up the building with the steel girders still sticking out (indicating to the outside world that they will be looking to expand in the future by continuing to build additional floors) and boom, they are in business.

So, let's follow the path. Start with textiles, buy real estate that provides an entrée into hospitality and education (two booming sectors in India), and thenâdrum roll please. What everyone in India wants Power. Yes, the same textile families have now gotten into natural gas and Cleantech. Initially they did so to take advantage of the accelerate depreciation benefits allotted to wind farms for example, but now they are extending into solar, hydro, natural gas fired power plants, biomass and anything else where a combination of subsidies, low interest rates and a clear market potential exists in India.

I am a big fan of focus, but the above large and now highly diversified family houses have proven to me time and time again that in India it might be less about focus, but a whole lot more about sheer across-the-board execution. And to the extent that these same small conglomerates (looking to become big conglomerates) can hire the right people, and leverage the connections (whether in the financial sector, government or otherwise) to establish and grow very different businesses, they ask the question, "why not?" So, as much as we don't expect software giants like Bill Gates, Larry Ellison or Steve Jobs to be getting into construction or FMCG businesses in the US, in India it would not surprise me to see software startups, over the years, expanding into infrastructure, retail, logistics or anything else opportunistic.


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Construction And Biotechnology: What Is The Connection?

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