At its 40th anniversary, the contrast between Infosys and modern 'tech' businesses could not be starker
27-Dec-2022 •Dhirendra Kumar
The 40th anniversary of Infosys is being celebrated. Every Indian with a historical perspective on what has happened in this country over these four decades understands the significance of Infosys. The business was born in another India, which hardly exists anymore, and this company has played an outsize role in creating the new India. This impact is not just in terms of the business itself and the economy, but the psychological impact of how this business was founded, how it grew, the kind of people who founded it, its actual business activity, and much else. Nothing like it existed in old India, and nothing like it could have existed. That old India was highly fine-tuned to ensure that entrepreneurs of the Murthy, Nilekani, et al., kind would fail.
I won't labour these points anymore because everyone is talking about them. Instead, I think as savers and investors, we should pay attention to something that Nilekani said during the 40th anniversary celebrations, "What worries me is, do they want to build an institution? I think the hard part is to build an institution, it's a marathon race. Today we (Infosys founders) are as optimistic and have worked as hard as 40 years ago. Do these guys have the stamina to play the long game? That's what worries me because too much money is a curse."
To some people, that would have sounded like the kind of complaint that older people tend to make about young people. However, Nilekani went on to explain his point, which was that he did not understand companies being given money to burn, "Once you lose respect for capital, for frugality, lose respect for managing your expenses, then the game's over," he said.
Respect for capital and respect for frugality. That's a most unusual concept today. It sounds crazy from the perspective of normal times, but many, many businesses spend years in a situation where practically speaking, there is a target for spending. In a normal business environment, companies that have grown old and profitable sometimes get bloated and cost-inefficient. Now, we've created a business and investment environment where companies that have never made a profit and appear to be incapable of doing so are bloated and inefficient.
Why this happened is, of course, well understood by those who know the venture funding business, which Nandan Nilekani does better than anyone else. A business that succeeds by growing big over decades (as Infosys did), or succeeds modestly, is useless to the global funding ecosystem. All other pathologies are side effects of this disease.
Sometime last year, there was a trend of people juxtaposing the following two 'facts' on investing-related social media: In 1990, someone offered to buy Infosys for Rs 2 crore. The company is worth Rs 6.5 lakh crore today. Two: In 2021, Info Edge's Rs 4.6 crore Zomato investment became Rs 15,000 crore in 2021. Many people concluded that these two facts tell them the same thing about equity: over a long period, equity investments can give gigantic gains. Not just that, they feel they can draw some lessons for their investments.
Nothing could be further from the truth. You are operating under a gigantic survivorship bias when you look back and see how amazing the Infosys journey has been. Hundreds or thousands of businesses would have been founded at the same time, and many failed and disappeared. You don't know about those failures. Of the new-generation businesses that you see today, too, many will fail. However, you don't yet know which ones. So to conclude that Infosys succeeded, the new generation of businesses will also succeed is survivorship bias of the most misleading kind.
The past is a viable guide to the future, but it tries very hard to fool you. Instead of listening to today's cheerleaders, it's better to listen to those who succeeded yesterday.
Suggested read: Don't be a fool