If there weren’t a publicist waiting for me at Cellini, the excellent Italian restaurant at Mumbai’s Grand Hyatt, there would be little chance of me identifying Srikanth Velamakanni, the CEO of Fractal Analytics.
When she ushers him to my table, I note that Velamakanni looks not a day older than a fresh-faced 21-year-old engineering graduate. And the suit—without a tie—doesn’t add any years. Yet, at 34, Velamakanni is chief executive of one of India’s top analytics firms (more on the fine art that is analytics later).
Velamakanni is an intense man. When he speaks he leans forward purposefully, his suit jacket rolling up into folds behind his neck, his palms pressing on to the tabletop. His answers are precise and, to be honest, a relief for a journalist looking for a clean quote.
Perhaps it is the mathematical, data-intensive nature of his work that makes him so ordered and precise. Or perhaps the intensity is an outcome of the pressure of guiding his company through a turbulent period in its history. Begun in 2000 by five Indian Institute of Management, Ahmedabad alumni, at a Mumbai flat, the company grew rapidly, winning an enviable base of domestic and international clients before running into leadership turmoil about a year ago. Two of the five partners left in circumstances that were said to be less than cordial.
When I ask Velamakanni about the crisis that was widely reported in the media, his face falls and he goes quiet. “This is a tough question for me,” he says. I try to coax him along: Was it a leadership issue? A disagreement on the forward path for Fractal?
Finally when he is ready, Velamakanni explains: “If I were to look back at it all…in hindsight…it was all ego. Nothing else.”
However, understanding this clash of egos involves going back to the genesis of Fractal Analytics and Velamakanni’s career moves after business school. As we crack open cans of Red Bull, he recounts the story.
In 1998, Velamakanni joined ANZ Investment Bank from business school in the structured debt department. It was an interesting job, Velamakanni recalls, and he got a chance to work with clients such as Enron and in sectors such as aircraft finance. A move to ICICI Bank’s structured products group followed—“due to lifestyle issues”—and this is where Srikanth and Pranay Agarwal, eventually a co-founder at Fractal, worked on India’s first collateralized bond obligation (CBO) in 1999.
CBOs, for the uninitiated, are similar to those subprime mortgages that have walloped global markets out of shape over the past few months. “Friends point fingers at us and say we’re behind this financial disaster,” Velamakanni laughs.
It was also while at ICICI Bank that Velamakanni and CBO-buddy Agarwal—both deeply involved in financial math in their jobs—decided that there was potential to use math to help businesses such as banking do better. “We both knew mathematics and we both knew finance. The only question was if we’d make any money selling math to companies.”
But what is analytics, I ask Velamakanni. How do you use fancy math to help companies make money?
First, Velamakanni gives me the analogy he uses to explain to students what it’s all about: “Imagine you leave home for office at a certain time everyday. You know how long this signal will take, how much traffic will be there at a particular junction and so on. Then you use that information to change your schedule when you want to. Analytics is like that. Using raw data from what you experience in business everyday to take better future decisions. You keep refining your estimates based on factors you think are important.”
I nod along understandingly and secretly wait for the real-life example that will clarify it all. Velamakanni obliges. “For instance, we were recently working for this American auto lender. We help them with collecting their receivables. Now, in many cases when people take loans they can’t pay, repayments go overdue and in the end the company charges off the loan and sells the car.”
Now human intuition, Velamakanni explains, is to assume that a history of long periods of delinquency before charge-off means that the borrower is a bad customer. But Fractal’s data analysis threw up a surprising result.
The longer the period of delinquency—the longer the borrower struggled to pay off the loan—the better the chances of recovering future loans. “When we went back to double-check we discovered that these customers really do want to pay their loans. They tried really hard to keep the car by making payments somehow. They were much better potential clients than guys who just bought the car rashly and gave it up as soon as they couldn’t pay.”
Of course, while the example sounds fascinating, Velamakanni, points out, it was very difficult to get any work with their math models in the early days: “Companies would look at us and wonder what these young MBAs could do that their own people didn’t do or know already.” So, little wonder that it took almost a year before Fractal billed its first client.
We pause briefly while I bite into a tomato-mozzarella salad and Velamakanni sips his Red Bull—once during a holiday in Europe, Velamakanni and his wife drove past millionaire Red Bull owner Dietrich Mateschitz’s house: “His story was quite an inspiration!” Velamakanni says pointing at the ubiquitous blue and silver can.
Velamakanni then interrupts the Fractal story to point out the most important lesson he picked up in those early days: “When we started, we thought of establishing ourselves in India first before going abroad. We should have been more ambitious and taken bigger risks!”
Velamakanni says that companies outside India were much more open to innovative ideas than Indian ones. “Our first client in Singapore awarded us a risk management project over several bigger, more established names. They were ready to trust us.” Today, he says, he sometimes wishes they’d headed off to the US and South-East Asia sooner than they did.
Velamakanni recounts start-up stories of sleeping on the floor of their one-bedroom apartment-cum-office’s floor and then— when the office expanded into the bedroom—dozing off precariously stretched out over three chairs. And then of taking on a slew of “challenge projects”—euphemism for assignments that they got paid for if they produced results.
But Fractal grew steadily from five partners in 2000 to the 160 employees—“mostly math geeks”—it has today. “Right from the early days we decided we wouldn’t appoint one single CEO. We were all equal partners and were equally involved in the business.”
It was a year ago that this harmonious arrangement began to show cracks. Velamakanni, visibly distraught, explains what happened: “Each one of us worked in one global region and we all thought that our own area was important. This was creating issues in allocating resources. Also, decision-making was slowing down.”
A bad decision taken in time, Velamakanni says, is better than none at all. “If you can quickly correct mistakes and tweak your decision…then you should just take them without endlessly debating.”
A round of discussions within the partners ended in an election to choose a CEO that Velamakanni won unanimously. “But egos had been hurt by then. And things didn’t improve.” Finally, two partners walked out. It was a painful turn of events that shook the entire firm.
But the crisis, says Velamakanni, has left his team stronger. “We are a better firm for it. We are much better positioned to handle problems because of that.” Velamakanni only shifted back to India in May 2007 from the US. “Last year, I was on tour for 200 days. It was very difficult. Now I’ve decided to reduce the load a bit.” But not by much. He is still on a plane once every three or four days.
After dinner, as he drops me in his car to the nearest taxi stand, I ask him if he has any regrets. “Well, I’ve always wanted to have a mentor. Someone to help me with being a CEO. That would have been nice.”
If there are any wizened old business barons out there looking for a student to take under their wings, Velamakanni is a good bet. If nothing else, we know he is good at math.
Born: 16 February 1974
Education: Bachelor of engineering, IIT Delhi; MBA, IIM Ahmedabad
Current Designation: Chief executive officer and co-founder
Work Profile: Joined ANZ Investment Bank in 1998 and then moved to ICICI Bank before setting up Fractal in February 2000
Management Inspiration: Velamakanni and his partners try to pick up and implement policies from other top firms. Free catering for all employees came from SAS and soon, taking a leaf out of Google’s book, a 10% “personal project” time may be implemented
Insecurities Of A Young CEO: “Sometimes when I am out seeing a movie with the family, I look at myself in T-shirt and jeans and wonder if that’s appropriate CEO attire. What if an employee saw me?”