A large organization is a complex entity – one where processes, systems and innovation combine to deliver a strategy in the real world. In our attempts to deliver maximum value for our content, we usually chronicle the practices and strategy adopted by some of the biggest companies in the country – organizations with size and scale, ones who have managed to create solid business processes around their central strategy, with huge future earning potential and minimized business risks.

This time, however, we decided to offer something different to our readers – and maybe more relevant. We started looking at companies that questioned the status quo – first generation start-ups that are at various stages of creating a robust organization and solid ‘business processes’ around their innovative ideas and strategy.

In this article, we feature exciting young ventures – all less than a decade old – that are scripting their ownsuccess stories. We had lengthy conversations with their founders on how they got started, how they got this far, their trials at the start and most importantly, their challenges in the coming years. We could observe five stages in the development of an organization from the birth of the idea till the organization could function independently of the founders while maintaining the innovation and agility that characterize them.

We have looked at three companies that are at different stages of their organizational development. The aim was to understand the challenges faced by first-generation entrepreneurs in creating a sustainable business around their ideas and subsequently take their companies into the public domain.

Bangalore based Metahelix, Delhi based Lemon Tree and Gurgaon based Orkash have all managed to go past the ‘start-up phase’ and are well on the road to creating successful, sustainable businesses. All three are an exciting mix of innovation and execution – Metahelix is an agri biotech company, which is challenging global giant Monsanto with its hybrid seeds. Lemon Tree is filling a long-neglected segment for affordable, high quality accommodation and Orkash is a developer of intelligent, operational risk management software products.

LEMON TREE HOTELS is India’s fastest growing chain of moderately priced, upscale, full service hotels. Anticipating the enormous latent demand for a right-priced upscale hotel product in India, Lemon Tree Hotels was launched in 2002. “I was convinced from the very start that the Lemon Tree business model offered the answer to the consumer’s search for a right-priced upscale hotel brand,” says Patu Keswani, Chairman and MD. The company today owns 11 operating hotels (with about 1000 rooms and 1250 employees in 9 cities) and is developing 9 more hotels across India.

METAHELIX LIFE SCIENCES is among the few Indian agricultural biotech companies with their own product of genetically modified cotton seed, rice (and many others in the pipeline). Dr. KK Narayanan, Dr. Gautham Nadig and Ravi Krishna have created an organization around innovation in the area of genetically modified seeds. This means that for the first time an Indian company has broken the monopoly of Monsanto, the multinational that controls the market for genetically modified seeds, not just in India but also across south East Asia. Metahelix was founded in 2001 and today has 240 employees, 30% of them in R&D and the rest in Sales and Marketing.

ORKASH is a management consulting and high-tech services company providing market intelligence, business assurance and operational risk management services. It is developing cutting edge proprietary technology to generate and customize intelligence from the web for applications ranging from creating customer intelligence, to profiling terrorist threats to piracy and money laundering. Ashish Sonal, a veteran from the Special Forces and recipient of the Indian wartime gallantry award, the Vir Chakra, founded Orkash in 2007 and today has 50 full time employees.

Early Days

The common thread of to all three start-ups is the people who founded these organizations - reputed professionals in their fields, well-known in the industry and who were able to leverage on this reputation to attract good talent when the risk was high in the early days. They all started small and focused on investing back in the business to fund growth.

Says Patu, “Entrepreneurship is good fun. In any case, my last job with Taj, was as COO of the Business hotels SBU which is the closest to what I am trying to do today. I was also convinced from the very start that the Lemon Tree business model offered the answer to the consumer’s search for a right-priced upscale hotel brand.” The hotel industry being a cash flow business, Lemon Tree started small and with each additional hotel adding to the inventory they were able to expand their vision and strengthen their teams and processes.

Metahelix and Orkash being research-centric companies, needed to find sources of revenue while developing their products. In the early days, both companies chose to leverage on their internal strengths to do research and consulting for clients as a source of revenue. Metahelix knew that product development could take up to 10 years of research until they could start seeing any results. “At that moment, the solution to the funding challenge came from N.S. Raghavan, co-founder of Infosys who invested the initial capital required to start Metahelix. We decided to run two parallel businesses: A revenue generating consulting & research outsourcing business, and a long-term product development lab,” says Dr. Narayanan.

After 3 years, Metahelix shifted the revenue generation from consulting to building their own distribution, sales and marketing capabilities in the seed business. “Today, after 8 years, we run a rapidly growing seed business and the best R&D team in India at par with any multinational company”, says Dr. Narayanan. This was a very important decision for the business as it shifted the focus from building assets for others to investing in growing their own capabilities. Today Orkash still needs the revenue generating business from their consulting arm to keep the investment in R&D going. The company is investing the cashflows generated from consulting into building state-of-the-art risk management and decision making technology product.

Building it – Brick by Brick

Once the idea is crystallized, entrepreneurs need to build the right team for implementing the idea. Building the core team and creating the right culture becomes the main focus - from recruiting the right talent, to finding the right way to compensate them, to creating mechanisms to identify and retain top performers and finally, in creating a culture of engagement, success and growth.

Recruiting for Talent… and Attitude

In terms of attracting top management talent, the founders of all three companies were able to rope in senior and experienced people who had worked with them in the past. For the operational levels, each company has followed a different recruitment strategy. Orkash hires top performers from tier 2 schools. “We always hire toppers and gold medalists - which surely demonstrates their hunger for achievement and success”, says Ashish. The company aims to get the right attitude on board without having to pay the premium for ‘top-tier-school’ graduates and without having to deal with the cumbersome attitude that those students might sometimes carry. Lemon Tree hires from premium hotel management institutes, but also recruits for attitude since they train people with the required skills to deliver quality service. “People who exhibit the brand values of fun, freshness and spirit (with a desire to serve) and who are happy to take on challenges are our first choice”, says Patu.

“For Metahelix, the advantage was that the organization was built on a very solid foundation as the people who started the company in 2001 had outstanding reputations within the industry” says Ravi Krishna, Head of Marketing, who joined them in 2005. This helped in attracting the best talent to join forces with a team that would achieve significant breakthrough in developing products that were under the monopoly of multinationals.

Compensation & ESOPs

“All entrepreneurial organizations face the challenge of having to recruit the best talent to achieve their goals while having difficulties in competing with multinationals in terms of pay and benefit packages”, comments Dr. Gautham Nadig from Metahelix. “We have, hence, always encouraged independence, accountability and created mechanisms to share the upside with key positions in the organization”.

In the early 2000, ESOPs were very much in fashion and companies like Metahelix and Lemon Tree offered options to the management team to create a profit sharing mechanism. Normally ESOPs work very well in an environment where there is an exit opportunity in the mid-term like, for example, in a service business like Lemon Tree. For Metahelix, the challenge was that the uncertainty of success was quite high and product gestation time-lines were long; the founders still opted for ESOPs to create an emotional linkage between the success of the company and the employees.

The choice of compensation structure has both fixed and variable component in all cases with a steep increase based on performance. “Since we do not hire from top rung institutes, we start with relatively lower salaries and a variable component and then give substantial increments based on performance,” says Ashish from Orkash.

Cloning the Drive

“A sense of ownership can be built by having your people participate in profit sharing and ESOPs. However, to build a company with an entrepreneurial mindset goes well beyond this and requires total employee engagement. This can only happen with the right culture,” says Patu. Entrepreneurial organizations have unique ways of achieving high levels of employee engagement. The reasons start from the recruitment stage itself - employees join these organizations because they either believe in the vision of the founding team, or they are looking for a bold new work life away from the monotony of large organizations. This engagement is further strengthened because of the quality of work and the level of responsibility young firms can offer.

All three companies have been very successful in creating a very high level of engagement. Orkash engages its people by offering them the opportunity to work in cutting edge technology areas and getting them hooked to the adventure of success. “Every year we take the full team to experience how to take up challenges that might look impossible”, says Ashish. “I engage people to explore things that they thought they will never be able to do. As a team we go on outbound adventure trips and do activities like climbing a mountain in the dark or jumping from a cliff. This helps the team to understand that nothing is impossible and that we can achieve things that we dream to do.”

“For Metahelix, the idea of contributing goes beyond the organization–it goes to the country at large”, the team agrees. This vision is supported by a very collaborative management style, and freedom and empowerment to employees. For Lemon Tree, creating engagement goes beyond salaries and ESOP plans. Quick growth, recognition and rewards play a very important role. “As a rule, with our very rapid growth, we promote employees internally as far as possible. Hence, the career development opportunities we offer are by far the best in India.”

Managing Performance

In various stages of organizational maturity, performance management seems to be the one process that entrepreneurs pay a lot of attention to. The ability to measure people’s performance and potential is important to ensure that every single individual contributes to the ultimate goal.

The ease of tracking, however, is dependant on the intrinsic nature of work. For instance, it is easier to evaluate the performance of operations teams, like at Lemon Tree, based on customer feedback and service delivery or of sales teams, like at Metahelix, based on sales targets and revenues. The task of tracking and managing performance becomes challanging when the nature of the deliverable is highly uncertain, like in the case of Research and Development teams.

Metahelix tracks performance from their R&D team by fixing goals aligned to product development milestones and activities. For Orkash, performance of the R&D teams is evaluated on the individual answer to the following two questions: “what have I created?” and “if I leave, what do I leave behind?”

Performance management and compensation are highly interrelated in all three organizations and seems to follow a structured process in all cases. Entrepreneurs see this function as one of the key processes to identify, reward and engage high performing employees and to keep track of the achievement of company objectives.

Challenges Ahead

Retention of talent seems to be one of the biggest challenges for entrepreneurial organizations. There are many reasons why their employees become very attractive to the competition: on the one hand, attitude, enthusiasm and performance have already been assessed by a highly demanding founding team. Additionally, job responsibilities at start-up organizations are normally very demanding for the experience levels of employees, allowing for a steep learning curve. Finally, in the case of new technologies or R&D, the exposure to cutting edge technology and innovation makes these employees very attractive to the competition.

For Lemon Tree, retention is an absolute necessity as the number of people needs to be constantly aligned with the company’s growth plans. Says Patu, “Since 2004, we have doubled our manpower each year and we will continue to do so till 2012. To retain talent, we must deliver on the promised quick growth and train individuals to be able to successfully handle each growth stage of his/her career with Lemon Tree Hotels”.

For Orkash & Metahelix, their employees are very attractive to other competitors as the exposure to their kind of cutting-edge technology is not easily available in India. The challenge for these companies is to retain employees using intangibles like culture, empowerment, vision over-and-above compensation, as competitors can always raise an offer.

Business challenges, too, are very different for the three companies as the stage of their maturity is quite different. For an early stage organization like Orkash, getting the team in place and being able to motivate them with the vision of the organization is one of the biggest challenges. For a more mature organization, most internal processes have been laid down and the structures are clear, but the dependency on the founding team is still high. The team at Metahelix feels that they need to create a more robust succession plan to ensure that the organization can function and grow independent of the promoters. For organizations that are further up the ‘maturity index’, like Lemon Tree, the challenges become similar to any other business - people, capital, processes and staying true and focused to a business model that works. The success of creating systems and processes eventually lies in building an efficient organization that maintains the culture that made it successful in the first place. Towards this aim, Lemon Tree has hired a leading global HR consulting firm for a 12 month assignment to help retain its culture, improve internal processes and define the way forward as they continue to grow.

In building an organization from an idea, entrepreneurs deal with a number of challenges – related to people, capital and processes. But the key challenge for organizations as they mature is to stay agile by retaining the culture of innovation and drive that made them successful in the first place.