Ray Noorda

Jun 13, 2016

Noorda and Novell Ray NoordaIMG_2431



Ray Noorda was the CEO of Novell. He had bought in to failing Novell Data System and had turned it around. He ditched all the proprietary hardware and software and focused on Network Operating System software and  file server software on standard PC hardware.  He shipped complete systems by OEMing hardware for servers and NIC (network boards) from third parties. Under his leadership Novell grew rapidly and emerged as the market leader.

Starting at roughly the same point in 1984, Novell by 1989 had gone three times as far as Excelan as far as revenue was concerned. It was even farther ahead in profits. Even though, I was very proud of what we had achieved at Excelan, it all paled when compared to Novel. This was very educational for me as I was very contemptuous of Novell’ low spending on R & D, only 3% of the revenue; Excelan was spending almost 20% on R & D. Excelan was very proud of its technology prowess. Excelan could network PCs, both Apple and IBM variety to UNIX machines of all types; it could also connect them to DEC mini-computers and IBM mainframes. All this using industry standards of TCP and Ethernet. Excelan was seen by its customers as a savior as they had been buying all sorts of computers for various jobs. Novel, however, was a big innovator in Sales and Marketing. Novell practically invented the tiered VAR channel (Authorized, Gold and Platinum). It developed a third party product certification program (Novell Labs); it developed an education program to train and certify Network Engineers (CNEs); it had its own trade show (Network World) and its own trade magazine (LAN Times). Novell did not give a damn about standards; it just focused on file sharing between the IBM PCs using a file servers using a proprietary protocols. As PC’s sales soared, so did the sales of NetWare.

Novell acquired Excelan in 1989. After the merger I joined Novell board and worked as EVP of Novell and its CTO. Right after the merger, Novell decided to get out of the hardware business all together. With a big infusion of technology from Excelan, Novell very quickly was able to position itself as an enterprise networking solution with its Netware 3.11; which provided file sharing between PCs, Mackintoshes, UNIX machines, DEC minicomputers and IBM mainframes. This was Nirvana for enterprises. By 1991, Novell sales, profits and stock prices were skyrocketing. Novell stock grew 10 fold in two years. Excelan shareholders and employees had done well. Merger was seen as made in heaven for them and I was seen as a genius by one and all.

I championed acquisition of UNIX from ATT and to sell binaries on the Standard hardware through Novell channels. Novell did acquire UNIX but company had always seen UNIX as an enemy. Even when it owned UNIX, it was not able to overcome its visceral hatred of the UNIX as UNIX effort was not Utah based. Ray was of two mind, he liked the idea of UNIX being commodotized but bowed to his NetWare troops.

At this juncture Novell toyed with an idea of merger with Microsoft. Several meetings took place and a deal was agreed to also. Microsoft’s acquisition of Fox-Pro database without talking to Ray first put a kibash to it. Ray had always hated Bill Gates; used to call him Pearly Gates. But after merger was called off, this hatred only grew. Ray acquired DR DOS to go after DOS franchise, just when Microsoft was successfully transitioning to Windows. He also tried to merge with Lotus; acquired; Wordperfect and Quatropro from Borland to come up with alternate bundle to Microsoft’s Office. All this defocused Novell, which had done well being being a tightly focused company.

Meanwhile NetWare team decided to upgrade to NetWare 4 without being backward compatible and without offering the broad connectivity that NetWare 3.11 had offered. NetWare 4 was a big flop. Novell went into a steady decline. It hired Bob Frankenberg from HP as its new CEO to replace Noorda. Bob was not up to the job. I left soon after that.

At the time of merger discussions Novell’s market capitalization was about $12 billion as against Microsoft’s $20 billion. Three years later, Novell’s market capitalization was about $2 billion, roughly the same as cash on its balance sheet. Microsoft’s had soared to $600 billion. Ray Noorda had in fact destroyed Novell by going after Microsoft for no good business reasons.

I learnt many lessons during my six years at Novell. First and foremost was about the value of focus, especially in R & D. My 20% investment in R & D exposed the weakness; Excelan was getting only $5 of revenue for every dollar it put in to R &D. A whole lot of unproductive engineering effort! Novell was getting $33 for every dollar it put in R & D. Second lesson was that a business is never too big to fail. A CEO with two minds sends very destructive messages to the organization as it starts an internal war.

Ray Noorda was a brilliant but a flawed man. He was seen by his Utah minions as a traitor for expanding out of Utah and buying UNIX and rest of us saw him way over his head when it really mattered.


Stanford and UC Berkeley

Mar 12, 2016

Stanford and UC Berkeley are among the top 10 universities in the world. They are both in the Bay Area about 40 miles apart. But they are a world apart in their worldview. Stanford is a private University focused on excellence. Berkeley is much more focused on social justice.

Stanford churns out start-ups at a rapid pace. Google, Yahoo, Sun Microsystem, Cisco are a few of thousands Stanford start-ups. I can’t think of one of the top of my head as a Berkeley start-ups, though I am sure there are many out there.

I have been engaged with both of them for last 20 years, more so with Stanford than Berkeley. India’s telecom liberalization policy was forged at Stanford. Stanford runs an India Economic seminar every year. Berkeley is much more focused on cultural and political aspects of India.

Yesterday, Marc h 11th, I was at SIEPR’s annual economic summit at Stanford. It attracts top economists from all over. It had Larry Summers and Greg Manqiw of Harvard in attendance yesterday. They both have been the heads Council of Economic Advisers at the White House in a Democratic and Republican administrations. It also had Raj Chetty an up and coming economist of Stanford and formerly of Harvard. It was a delight to listen to arguments about the income inequality and its potential causes. Both left and right views were given an equal time.

Today, I was at Berkeley for a seminar titled “India under Modi”. I was a part of the panel on Digital Governance. I consider myself as a centrist with respect to BJP and Congress. May be not quite equidistant but I am distant from both parties. My observations that India a lot less corrupt now that it was when I was growing up and most of the petty corruption that one used to face on daily basis is mostly gone cam under instant barrage of attack. Most people had the dark (or darker) view of the technology. Digital technology under BJP is being used for nothing but nefarious purpose! Congress had a more benign view. I did not get to attend any other session but if my session is any indication, mind of the most people was made up before any debate.

Very interesting and stark contrast. Makes life very enjoyable in the Bay Area.

Why is India poor?

Jan 14, 2016

An Agenda for a New India

This post originally appeared in SiliconIndia on February, 2001

Indians are smart and creative people. They have also proven to be hard working and thrifty. India is a well-endowed land, with a good climate and plenty of natural resources. It has a vibrant, enduring democracy and the rule of law prevails. So why does India continue to be dirt poor after 53 years of independence?

What makes India poor and America a rich country, when there is a similar political apparatus in place, similar liberal ideologies and beliefs at work and, most significantly, an identical rich resource of talented and hardworking people. Why is it that the per capita GDP of India is $500, whereas it is close to $40,000 per American? Why is an American 80 times more productive? An educated Indian is very competitive in the US as evidenced by the fact that the average GDP per Indian-American is close to $60,000. In fact, what is it about this country that makes Indians perform better than at home and, indeed, better than his American counterpart in many cases?

I hear that India is poor because of its colonial legacy. But the fact of the matter is that Indians are relatively worse off compared to Americans after 53 years of independence. India was similarly situated as the Asian tigers or China not that long ago. They have all pulled ahead and left India behind in the last 40 years.

Let’s focus on India and the United States for the sake of argument. It is my contention that India is poor by choice and that it works very hard to stay poor. Conversely, the US is rich because it works very hard to not only maintain its wealth, but to get richer by the day. India is poor because it is fixated on poverty. Immense national resources are used to subsidize the poor and provide jobs for them. As a matter of fact jobs are sacrosanct in India, which goes to great lengths to preserve unproductive jobs. Contrast that with the United States where emphasis is put on productivity and productivity gains. In essence the relentless pursuit of productivity gains is at the heart of US prosperity and the mindless emphasis on preserving jobs is at the heart of Indian poverty.

Put even more simply, the US pursues the politics of wealth creation and India pursues the politics of wealth redistribution. In the absence of national wealth, India redistributes poverty and stays poor while the US gets richer and richer.

Jobs Versus Productivity
India has had a fetish about jobs. I have heard from senior ministers and bureaucrats that the government is all about jobs. High duties are imposed on assembled goods to create assembly jobs in India. ‘Screwdriver Assembly Plants’ became a way to go in the early 80s when the only capital equipment supplied by a manufacturer was a screwdriver. Draconian labor laws have provided extreme protection to the organized labor sector at the expense of everybody else. These laws have been a huge disincentive for businesses to hire people. Less than 6 percent of the labor force is in the organized sector. The following stories help illustrate my point as to why the emphasis on unproductive jobs leads to poverty.

My favorite story comes from first hand experience in the mid-80s. As suppliers of computer networking boards, we received a ‘request for quote’ from an Indian computer manufacturer for 200 unassembled boards or ‘knocked down kits’ as they called them. We did not ship our boards unassembled and asked for 20 percent special handling charges, which they readily agreed to. The Indian government, to encourage local job creation, imposed only a 70 percent duty on components as compared to 300 percent duty on fully assembled boards. How can paying 20 percent more for less, that is unassembled and untested boards, be economically viable? How can those jobs be considered productive?

On a recent trip to India, the Congress chief minister of Delhi lectured me, saying India was self sufficient in food. No thanks to the NRIs, she added for good measure. She said that India was proud of its economic progress since independence. Here is what I believe: 70 percent of the Indian population is engaged in agrarian activities, this translates into an Indian food worker producing enough food for himself and a surplus for less than half an Indian. An Indian food worker’s disposable income is no more than the food budget of half person. He will always be poor. Contrast this to US, where less than two percent of American population is engaged in agriculture or related activities. An American farmer produces enough food for 50 people including himself, with even more left over for export. Therefore the American farmer is very productive and very rich by comparison. Incidentally, anybody who claims to be proud of India’s record over the last 53 years has to be just plain ignorant and chauvinist.

I could go on and on. For instance, contrast the number of people employed per plane by Air India (800+) and United Airlines (about 40). American employees are twenty times more productive!

Unproductive jobs necessarily lead to poverty. Yet the question that begs to be asked is: What is to be done about the masses of people in India who need jobs? Many believe that our problems are rooted in a large population, or overpopulation. These same people also believe that nothing can be done about it because India is a democracy. I would agree to these points as valid if we were doing all that could be done and should be done to address these issues. We have very poor leadership, which has pursued proven bad policies for too long in the name of aiding the poor. Our socialist and statist national agenda has proven disastrous and needs to give way to an entrepreneurial agenda, where the state’s role is minimal with respect to industry and commerce. We ought not to use population as an excuse. This problem will take care of itself as the nation achieves prosperity, as has happened elsewhere. Meanwhile, we need to unleash the productive and competitive energies of our people. And we need to do it now!

Crying Out for a New National Agenda
In a nutshell, I believe India is poor because of wrong economic policies and vision. We have squandered our wealth in unproductive activities. We have suppressed our entrepreneurs and empowered our bureaucrats. Any industry the government has touched has been rendered unproductive. We have given fish to our people to eat rather than teaching them how to fish. Had we used the same money to provide education to our people, we would be an empowered race today. I believe India has what it takes to be a superpower, but it will take a great deal of political will and leadership to push the country forward.

The only way India will get richer is to focus on the productivity of human and physical capital. We need to produce more with our resources. The misguided sense that productivity increases will cause large-scale unemployment has not been borne out anywhere. When we talk about 6 percent growth in GDP, with a 2 percent growth in our population, we are talking about a productivity increase of 4 percent with the human capital. Human productivity increases through skills enhancement (e.g. education) and through increased capital deployment per person (investments). Productivity of capital is improved by putting the capital to the most productive uses.

Increase Competition
The main engine that drives improved productivity is competition, free and unfettered competition. It forces people to enhance their skills to stay competitive. It also forces capital to flow to where it has the highest returns rather than where politicians and bureaucrats ordain it to flow.

If you put a man on the track and ask him to run his best mile, he would be very happy to run a 15-minute mile. If you put a second person on that track and challenge the two to prove who is faster, it is a fair bet that even the loser would run faster than he would have run on his own. Competition forces people to perform better. Even losers are better off than they would have been without it.

Competition in the market place works because suppliers are forced to provide better goods and services at lower prices to stay in business. A guaranteed market ensures shoddy products and services. Our experience in India under the license Raj has been exactly what an economist would have predicted. Who are the winners in a license Raj? It is certainly not the public or the nation.

India should let market forces prevail, rather than tie down the economy with regulations and laws. Simply put, to be the best in the world we need to compete with the best in the world. Incidentally, we have nothing to fear on that count since we have shown on the world stage that Indians are very competitive people and do not need any protection.

I should also mention that guaranteed jobs are just as bad as guaranteed markets. At the individual level, a guaranteed job takes away any incentive to enhance one’s skills and move up the social ladder through hard work. Also, one doesn’t have to work hard or productively to keep his job. A lack of flexibility to get rid of unproductive or lazy workers is a great inhibitor for companies. Furthermore, guaranteed jobs lock people into unproductive situations and sap their spirit and dignity.

Moving Away From an Agrarian Society
Subsistence economies, where most people are employed producing food and other essentials of life, are by definition poverty stricken. It doesn’t take much productivity to accomplish it. The key is to produce all the food and essential goods with as few people as possible. This frees up resources to do newer things not possible before. What are these newer things? The potential here is endless and includes services, like education, healthcare, sanitation, entertainment, travel, insurance, banking and sports. As a society becomes more productive it starts to become more service oriented and it is the services that provide quality of life. One may not need to eat more than three meals a day but one can consume an unlimited amount of services!

To be frank, it is ludicrous to squander seventy percent of our manpower in agriculture. Our only chance for success is to getting these people off the farms and involved in productive activities. They should move off the farms into more rewarding and gainful economic activities. All this marginalized population needs from the government is education. Once educated, this unskilled manpower can change the destiny of our country. As in America, once people stop being involved in food production, they will become involved in industries that improve the quality of life. Today, the American economy is strong because of the strong service sector. Its number one industry is the medical sector followed by education and then entertainment. India needs to emulate and learn from the American economic model.

Creating, Not Preserving Jobs
India’s national policy should be to encourage the creation of new productive jobs. Continued emphasis on job preservation has shown it to be counter-productive. After 53 years of emphasis on jobs, India has produced only about 10 million industrial jobs, a pitiful performance in a nation of a billion people! This compares to 200 million industrial jobs produced in China in a comparable period. As we develop, we will lose less productive jobs and create new, more productive jobs. This is how the productivity of the nation as a whole is enhanced. Workers who invest in themselves will benefit and move up the income ladder. Those not motivated to invest in themselves will be left behind. These choices are freely made!

Encourage Foreign Investment and Trade
There should be only two criteria for approving foreign investment. Will this investment produce jobs in India? Will this investment improve the quality of products and services for the Indian consumer? If we use these criteria we soon discover that there is no such thing as a bad investment. All investments in India will bring prosperity and create jobs. The notion that Swadeshi is the sole path to development is a misplaced one. Only through a 100 percent commitment to economic liberalization and an open door policy can we hope to accelerate growth in India.

There are essentially no losers in free international trade. Countries quickly play to their comparative advantage and as a result become more efficient. India’s past emphasis on import substitution or appropriate technology (meaning older technology) was almost silly. It took some of the brightest engineers and put them to re-inventing the wheel or working on older borrowed technology. As we are seeing now in IT and in the diamond polishing industries, we can employ a lot of people at very high wages to supply world markets. We have a comparative advantage in these industries. I imagine there are many more such industries where India is a world-beater.

Indian bureaucrats and politicians hold multinational corporations (MNCs) in contempt. They have not allowed India to be used as a base of cheap labor for manufacturing for the world markets. The reason for this is the fear of worker exploitation. India has an abundance of human resources that need to be productively employed. Foreign employers must be allowed to use India as a base to manufacture for the world markets. It is much better to have Indians employed than subsidized.

Cultivate Entrepreneurship
For the economy to thrive, the government needs to let go and to let Indian entrepreneurs take over. It should encourage entrepreneurs and let them succeed and reap the rewards or let them fail. Although our small-scale industry policies are meant to help entrepreneurs, in reality our policies work to prevent them from growing or becoming productive by a strange regulatory regime. Under these policies, one is small not by size but by how much capital is employed. Strong disincentives are in place to keep the capital investments low. Strong penalties accrue for those who succeed in the marketplace. As a result of these silly policies, India is a non-player in the world market where ASEAN and East Asian entrepreneurs rule the roost. This is a very typical case of Indians being held back on the world stage by government policies!

Entrepreneurs are by definition restless and relentless people who always seek better ways of doing things. It is the competition between entrepreneurs that adds dynamism in the economy. As they succeed for themselves they create jobs and wealth for the society. They are the engines that pull the whole economic train along.

Respect Profit
Profit is a bad word in the socialist vocabulary. I remember that profiteering was the ultimate sin in the scarcity-ridden India of 50s and 60s. Profit in the real sense is the measure of efficiency and productivity. It is the profit that makes the whole process self-sustainable. Pursuit of profit is the goal that entrepreneurs pursue and lack of profit quickly leads to failure. It is the lack of profit in our public sector companies that has bogged down India. Instead of producing surplus they have become bottomless pits and a drain on the national treasury.

Role of the Government
What is the government to do if it does not provide jobs or subsidize the poor? Let me start by saying that even the best of governments cannot create productive jobs or create wealth. There are no examples where this has happened on a sustained basis. The government’s job is to provide stable and fair environment so the citizenry can thrive on its own.

Internally, the government needs to focus on a few basic things such as universal primary and secondary education, primary health and especially primary infrastructure. The operative word here is primary. Anything that can be done at profit by entrepreneurs should be left to them. The government should just ensure a level playing field and competition in the marketplace. The government also needs to shed the policies and regulations that stifle productivity.

It is time to move away from subsidies of all types. Subsidies are wasteful and create dependencies that are not healthy or sustainable. Instead of subsidies the money should be used in social investments. An educated Indian is a competitive Indian!

Lastly, state policy should encourage investments of all sorts. We ought not to choose or favor one industry over another. One of the most foolish things I heard in 1998 was when the BJP came out with a slogan ‘computer chips and not potato chips’. This implied that investments in high tech computer chips are welcome but investment in potato chips is unwelcome. India needs investments in potato chips, essentially, in agribusiness,  more than it needs investments in computer chips. India’s rural economy needs investments that boost value more than anything else at this time.

Our national mantra should be new productive jobs, and more new productive jobs through new investments!

No Room for Confused Ideology
In conclusion, I believe that on the whole India has suffered on both the economic and political fronts because we have not had a clear economic vision. We need to focus on things that enhance our national productivity. There is no room for half-hearted measures or romantic ideologies. Our commitment to socialism was ill founded and has proven disastrous. It is time to move on and it is not too late to do so. The state ownership of industries has been an unmitigated disaster. It is time to give up the omnipotent state control of industries. And incidentally, it is not time for another boondoggle like Swadeshi either.

India has six percent annual growth in GDP. At this rate it will take us more than 50 years to get where Mexico is today. Why can we not achieve 10 percent a year? At that rate we will be where the US is now in 50 years.

After 53 years of socialism we have attained neither growth nor equality. The Indian government has to realize that democracy and a free market are a matched pair, you cannot realize the full potential of one without the other. A free market after all is the democracy of the marketplace where a consumer votes with his rupees day in and day out.

It is time to pursue the politics of wealth creation in India. There will be time enough to distribute it once we have created it. It is time for the first thing first!

DOT Hatao, Desh Bachao

Jan 12, 2016

DOT Hatao, Desh Bachao: Get rid of the Dept of Telecom to save the country

This was my clarion call to reform telecom sector. PM Vajpayee after taking the oath for the office in the fall of 1998 talked about IT as India’s Tomorrow. I got inspired and requested a meeting. In that meeting I told PM that if he thinks IT industry is India’s future then he has to do a couple of things quickly. A strong industry can not be built on a third world telecom infra-structure that India had at the time. I also told him that he also has to allow a VC industry to emerge in India.Continue Reading