Spotlight

Moving up—slow and steady

Calsoft has moved up the value chain—started by the passion of its entrepreneur, and sustained by the perusal efforts of his team. Renuka Vembu writes about the journey of the company—its highs and lows

Calsoft (California Software) was started in 1992 by Sam Santhosh, with a handful of five employees, and no financial support or venture capital. After being in the business for more than a decade and half, over the past few years, they have witnessed a significant growth and a fourfold increase in their turnover, ending the financial year 2008 with revenues of $58 million. In the previous two years, 2006 and 2007, they posted total revenues of $26.1 million and $36.5 million respectively. The spurt behind the company picking up steam has been their acquisition strategies to combat and survive this phase of financial strain.

The start-up

The fascination with and the passion for technology made Santhosh embark on this venture, and this formed the company’s DNA as well. Despite being a small company, they found big brands approaching them due to their technological effectiveness. Santhosh and his team were happy and comfortable in their cocoon and did not feel the urge to grow out and compete against the larger players in the industry. This was until they were severely crippled and left behind in the dotcom wave.

This made them to revisit their business model and chart out new modified measures; this was when they decided to set foot on the enterprise side of business. Since they could not start off from base once again, they planned for a few acquisitions which took them to a level from where they were able to build newer products and solutions.

The growth model

The company during this period identified two core growth engines—Outsourced Product Development (Product Engineering) and ERP (Oracle, Microsoft). They have also been undertaking a dual strategy of organic and inorganic growth for their identified growth engines.

Calsoft has made a host of acquisitions in various spaces that have strengthened and added to their expertise. These have essentially been in the areas of networking and communications, and embedded software and hardware development. Also, a couple of their acquisitions have given a boost to their delivery capabilities in the ERP space for both Oracle and Microsoft, as also another which has enabled them to provide payment processing solutions on a SaaS model to US universities.

In 2009, Ixia, a provider of performance test systems for IP-based infrastructure and services, signed a five-year product development contract with Calsoft and together they have set up an Ixia Center of Excellence (COE) in Chennai. They aim to add 100 engineers over this year to this account, and this partnership would also enable them to open up a new practice around the Ixia product-line and gain access to over 6000 of Ixia customers worldwide. This has also been one of their major achievements in recent times.

Calsoft also expanded its presence in newer geographies like the Middle East and Cairo. This year, they are on the verge of opening up a new line of business by adding Infrastructure Management Services to its portfolio of offerings.

Sam Santhosh, President and CEO, Calsoft, said, “One of the key factors that worked for us was our ability to extract value from our acquisitions and strategic investments, quite early in the cycle. For a company of our size, attracting experienced and highly qualified talent remains an uphill task. The acquisitions gave us the needed experienced manpower and we were able to tap this. The group was able to restructure its operations into independent business units and focus on expanding its footprint—both in the outsourced product development and the enterprise space.”

Strategy followed

Being a specialized player in niche areas and domains has given the company an edge in the expertise, knowledge and value-addition that they bring to the fore for their customers. They have followed the plan of first identifying a niche area and then partnering with companies that have an established presence in that space. Some of the examples to corroborate this policy has been in the embedded software and hardware development space which they saw as potential growth area, and then undertook partnership with industry stalwarts like Phoenix Technologies and Adobe. Santhosh added, “Through these partnerships, we have the license and source code access to both Phoenix Technology Products and Adobe Flash Lite and are thus able to provide our customers with a unique advantage. Similarly, we provide product-based solutions leveraging our relationship with partners like Ixia, Oracle, etc.”

Clients—national and international

In the OPD space, Calsoft boasts of client names like Ixia, Radware, PEQ, Kronos, Symmetricom Inc, etc. In the enterprise space, they have to their credit, some of the customers like Motability, Farmers Insurance, Chemoil Corporation, AP Moller Maersk, Aitkin Spence.

90% of their revenues is from the international market which can be segregated as—65% from the US, 20% from the UK and 5% from rest of the world.

Trends and roadmap

The two key trends that Santhosh foresees are in the products space:

• Strengthening of the business opportunities for the SaaS model within the small and medium sized enterprises.
• Cloud Computing—Utility software which takes the concept of Software as a Service a step further and delivers reliable software and hardware service through data centers built on servers with different levels of virtualization technologies as a metered service similar to traditional public utility such as electricity.

Calsoft will focus on expanding its footprint in the infrastructure management space. It is currently also considering a minority investment in a US based company in the same space to accelerate its growth in this area. They are also looking to make synergistic partnerships and joint ventures in the OPD and ERP space that they operate in, to create more value in newer geographies and with added offerings.

The tough times

Santhosh reflected, “Small companies need to have specific differentiators and have to identify growth areas.’ We have adopted the mantra, ‘Come and grow with us.’ The acquisitions have also helped us sort the problem of good senior management, which most small organizations face. Now we have core people who are willing to stay and grow with us.”

Last year, Calsoft’s revenues have shrunk by 5%, and slipped down from profit to loss. When the markets improve, their first task at hand will be to get back to the profit-making mode. They have cut down on expenditures and also reduced the salaries across board by 5%-15%. He viewed that this is a game that has to be played together as a team, and being fair and transparent will take them forward in this tide.

The organization is focusing on building partnerships and investing its time and resources in enhancing these relationships.

renuka.vembu@expressindia.com