Brain Station 23 Founder and CEO Raisul Kabir is one of the most impressive individuals and entrepreneurs I’ve had the pleasure to interview. He’s one of the prominent technology entrepreneurs in Dhaka, an original thinker, and a wonderful human being.
In this fascinating interview, I’m sure you’ll find that Mr. Raisul is wise and generous with the lessons he’s learned over an accomplished entrepreneurial journey, how he thinks and approaches challenges, and maintains curiosity and eagerness to learn. He shares powerful lessons about growing a business from scratch, the importance of delegation and empowering people, creating a culture of safe learning, how to think about problems and challenges, how to investigate a potential strategy, how our limited exposure to life and work leads to strategic missteps, how to think about strategy and growth and how to ensure constant improvement in key areas of your personal and professional life.
This was a much longer interview, so we had to break it up into two parts. This is the first part of the interview. Please come back later this month for the second part of the interview. ~ Ruhul Kader
We last spoke in March 2017. At that time, Brain Station was a team of 151. You just closed your first investment from BD Venture and IPE Capital. The business was growing pretty fast. Could you give us an update of Brain Station today, what are the major changes? How much has the company evolved?
One major change would be we are a much more structured company today than a year ago. Our finance is much more organized. It has been very helpful to have BD Venture as our investor. They have been of tremendous help in organizing our finance and developing an overall process in the organization. We were not that serious about finance before. You know how startup companies deal with finance - most early-stage companies view it as a hassle. After the BD Venture investment in the company, we had to become more serious about financial matters out of necessity. Since we now have regular board meetings, there is always urgency. Transparency has become critical and a part of our operational DNA. It has also helped us to create interest about us in the market. There has been some development on the side of investment from a few companies based in the US.
We have made an active effort to build structures and systems in the organization. The operation was largely informal before. Now we are establishing a proper organogram and structure.
The other important development, which has been my wish for a while, would be: we are increasing the number of working partners at the company. After working for a year on it, we have made some progress. Board has approved a plan to offer equity and partnership opportunities to long-term employees who meaningfully contribute to the growth of the company. This is not a common practice in Bangladesh but it is a widely practiced thing in the US and many other markets.
The service we provide, which is software development, is to some extent similar to management consultancy. I understand that these are two separate things but my take is that both models are quite similar. We have seen that management consulting firms eventually make their people, who do well, partners at the firm. We are fascinated by that model. People grow to be partners. Since we find similarities of that with our model, we are working on developing a similar model at Brain Station. We are yet to implement the process fully but we have started the journey.
I believe that if we could do it well, it will meaningfully help the growth of the organization. I have seen that when I was trying to grow the business as a single partner, we were not growing much. At one point, I realized that we were stagnant as an organization. When we introduced this model, I could see the direct financial impact of this move on our business.
How big is your team now? How are you doing business-wise?
We are a team of about 185 people. We have grown about 30%, business-wise in 2017-18. The growth has slowed a bit. We grew much faster in 2016-2017, which was about 40%.
We have made some changes in regard to that strategy. We have decided not to go in the direction of building our own product from scratch, which, had we pursued, would have been a complete shift from our strategy as a service company. We made this decision consciously. The reason behind is that while contemplating on that product-first strategy, I have come to know something really very interesting about it and why service companies tend to fail while walking down that path.
At the time of our last interview, your revenue split between the local and international market were about 20% and 80% respectively. How does that ratio look like today?
Our local market revenue has seen meaningful growth - almost doubled in the past one year. But percentage-wise it is still about 25% of our total revenue because our revenue from the international market is pretty high. Our business has also grown meaningfully in the international market.
Europe has fully recovered from the recession and we are seeing an impact of that in the market. It is not like that we are being able to take full advantage of this development. The challenge for us has been in finding a really good technical manager who would take responsibility and provide the leadership necessary to grow the business. There is a scarcity of people like that in our market.
How do you plan to address this challenge, of finding good people to manage and lead and grow your business? Are you already trying something?
We are training our people. The government has done a wonderful job arranging the ACMP program at IBA. We sent about 30 people to that program. Google has this concept called Smart creatives - engineers who also understand business. To grow your business, you need people who are smart and creative, who can excel at both. In Bangladesh, we have a lot of great technical people but most of them have very limited or no interest in the business side of things. This is actually the case globally, creative people don’t like to get into the business side of things. They love everything about technology but sort of despise the business of it. ACMP has helped bring an interesting change where techies are now appreciating the business side of things. Now I see pure programmers showing interest in the business. Before they were not interested in it. This has created a great advantage for us.
We have not started to reap the benefits of ACMP training yet. When we do so, we will be able to invest more in training. Being a local and low-margin company, we could not invest much in people. Once we start to see a meaningful return from this training then we will be able to allocate more budget to it.
In order to overcome our challenge with retention and build a great culture, we have done some good work. For example, trusting and empowering people. What do I mean by that? When you are dealing with a person, considering that he or she is capable and would do his job well - having faith in the capacity of people. When you trust people and empower them, then people who are really good they take ownership and rise up to responsibility. The people who are not good they fail to deliver and deviate from their responsibility to the extent that they willingly leave the organization after a while. It is the best strategy to build a culture of meritocracy.
When we interviewed you in 2017, you mentioned a few strategic priorities for Brain Station 23 at that time. Let me read back a quote from your interview: “Strategy-wise, the major shift will be coming up with our own products and market focus wise, we plan to increase our work in the local market while continuing our outsourcing work.” What are the updates on those two fronts?
We have made some changes concerning that strategy. We have decided not to go in the direction of building our own product from scratch, which, had we pursued, would have been a complete shift from our strategy as a service company. We made this decision consciously. The reason behind this is that while contemplating on that product-first strategy, I have come to know something really very interesting about it and why service companies tend to fail while walking down that path.
Everyone thinks that product is the ultimate outcome. That it is the ultimate business. But a product business has its downside as well. All software companies face some common challenges such as programmers leaving the company, project delays, payment delays on the client end, and so on. When you are handling all these pains, you think that this business is not good. The product is better. But the thing is people who think this they have no prior experience of doing product. Which means he doesn't know. He is guessing it. The software service provider thinks the guy who is in the fashion business is better positioned to succeed and has a better life than him. But he does not understand the fashion business. On the other hand, the fashion owner makes his product on loan. He takes loans and manufacture products. Then send them to the market. When you send it to the client, they find an issue that you missed and dismiss an entire lot of the product. When that happens, your entire business is done at one go. That’s the challenge with the product.
Many people say that we don't have great technology companies in Bangladesh because our people don't want to or can't build great technology products. We could not build Flipkart or Pathao. That when people think about starting a company, they think about starting a service company. But I beg to humbly differ. I think we should start more service companies in the technology space. We need service companies more. The reason behind that logic is that how many Pathao you can build in one market, no more than two. In many markets, if it's a technology product, there are only two players in a market. In many instances, it is only one major player, for example, Amazon or Google. That’s one.
Product has this risk. You could go out of business any day without doing anything wrong. You did nothing wrong but your business fails. Nokia was not a bad company but they failed regardless. But a service company all of sudden gone is very unlikely. The point is, in a product business you may make hundreds of crores of taka in one moment, in the next moment you may go out of business as well. The problem with the product is that competition can potentially kill you or you could make a terrible mistake and go out of business. But in service, your risk is always diversified.
We have made this wonderful internet banking software for the City Bank. We won awards for it. They also won awards for it. But could we make internet banking solutions for every bank in the country? Could anyone do that for that matter? The answer is a resounding no. But Pathao could potentially, at least theoretically, serve all the riders in the country. Product has a challenge that many of us tend to overlook. That’s part one of the story.
The second part is when we look at our vision (at Brain Station 23), - which is broadly, create employment, earn foreign currency, and later save foreign currency - it is not that we could serve that goal best with only being a product company. We could do that by being an excellent service company. You could argue that you should diversify as a product company to reduce your risk. Or you should be both a product and service company.
But it is rarely the case for a company to do two things equally well. Google is good at consumer products. Microsoft (MST) is good at the enterprise. MST seldom does well in consumer space and Google is struggling to find a foothold in the enterprise space. It is a universal case. So we wanted and decided to do one thing and do it really well.
Does that mean that we would never have products? No, we will have our products but our strategy would be offering a bundle - product along with services. Potentially product with a greater focus on service. What do I mean by that? Let me give you an example, we did not want to build an ERP of our company because there are so many great ERP softwares in the market. Instead, we took an open-source ERP software called Odoo, which is an excellent product, and customized that for our customers. We now offer a customization service on Odoo. If a customer has a special need, we do that for them on Odoo. We work on the Odoo and make the thing that they need. For example, someone needs an ecommerce solution, we do that on NopCommerce where we have specialization. For example, Ecstasy needs an ecommerce solution, instead of building an independent ecommerce product, we work on NopCommerce and build it according to the needs of Ecstasy. Ecstasy runs his product business and Priyoshop runs his product, we just give them services.
We don't make an insane amount of money but we create a lot of employment opportunities and we create a lot of impacts. We are fine with that. We don't want to invest a lot of money in developing products, we want to invest in growing our services business.
We are now working on hiring sales agents in different international markets. We will pay monthly salaries to these agents and their job will be to find more projects for us. We are working with a wonderful partner in Germany. This is an interesting story. They found us through content marketing. We published an article on AEM on Linkedin. A gentleman from Germany was coming to Bangladesh and he looked up on the internet whether there is any company in Bangladesh working on the AEM and he found us. Then he contacted us, came to our office and we liked each other after having an initial conversation. He then returned to Germany and started a company called Brain Station 51 and we became partners. We are getting really good work through them. Even we won a tender where one of our competitors was Accenture. It was a small project for Accenture but it was a big project for us and a huge win for us.
We have realized that the product is not aligned with our vision. We neither have the deep pocket to invest in a product for an infinite amount of time. Our ambition is different and we believe we could achieve that through investing more in doing well what are already doing.
This has been a profound realization for us. When we finally realized that we are not a product company and we don't want to be one, it was a liberating experience and it helped us to focus and do our work better. Before we were thinking like all other software companies that product is the holy grail and that if we launch a product, it would solve all our problems.
While going in that direction, I came to see that we and many other software companies, we're failing on our ambition to turn ourselves into a product company. It is tough to build products. It is a difficult and different skill. As a result, most software companies that take that route fail. Let me give you an example. I have seen many of my colleagues in the industry to make these mistakes. When they enter the market they start with offering services because they needed money to survive. They plan that we will do service for now and earn enough money and then eventually invest in building a product and it will end our misery once and for all.
Everyone starts with this sort of ambition. The problem with this way of thinking is that he is not paying enough attention to his service business, which is his main business at the moment. He is multitasking in a way and is not trying to make a profit and grow his service business. If someone asks him to do a job at 3000 taka per day, he happily agrees to do that despite the fact that it is not profitable. He thinks very differently. He thinks that I have 3000 taka expenses per day per person. If the customer even pays me three thousand taka, it should at least cover my cost and in the meantime, I would be able to develop my product. Then I will sell the product and get rich. The problem with this thinking is that making a product is expensive and you would never be able to build a good product through this half-assed strategy. On top of that, it is unlikely that you will become a success on the launch of your product. You will need to work hard for a sustained period of time.
It means everything becomes risky for him. Had he thought a little differently and thought that I would stay in the service business and this is my main business, then he would think differently. He would think that if I do this job at three thousand taka how would I make a profit. This is my business and if we don’t make a profit, we will eventually die. Then he would make a very different decision and at least bargain with the customer for a better price. Then he probably would have gotten a better deal and with the proceeding could have tried to hire more people and grow his business.
This was a huge advantage for me. When I started, there were not these many distractions. The competition was not this much either. What we wanted to build was something like Infosys. What Infosys does, is in the outsourcing business. So I knew from day one that I have to make a profit from each of my work. So I never thought of making products from the beginning. Instead, we made profits from every project and hired more people with that money because we wanted to provide services. Through this process, the company has grown.
Despite that whenever there were some issues, like everyone else, I also thought that product is probably the solution to all the challenges. We have to invest in the product. But then I realized after a while that it is not the right strategy for us because our vision is very different.
That does not mean that we would never do any product. We are doing products but we are giving more emphasis on the service side of things.
I came to see that we and many other software companies, we're failing on our ambition to turn us into a product company. It is tough to build products. It is a difficult and different skill. As a result, most software companies that take that route fail. Let me give you an example. I have seen many of my colleagues in the industry to make these mistakes. When they enter the market they start with offering services because they needed money to survive. They plan that we will do service for now and earn enough money and then eventually invest in building a product and it will end our misery once and for all. Everyone starts with this sort of ambition. The problem with this way of thinking is that he is not paying enough attention to his service business, which is his main business at the moment. He is multitasking in a way and is not trying to make a profit and grow his service business.
That’s a very thoughtful answer. What are the major goals for the next couple of years?
There are a couple of them. Continuously growing the team is a priority. Building better structures to complete projects. When an organization grows, building supporting structures so that we could remain efficient and effective is critical. Then comes creating a structure for employee growth. These are some of the priorities for us now.
Let me explain that, in small organizations, employees get salary increments every six months or so regardless of whether they get promoted or not. There is no process and these increments happen automatically. Since there is no process, the increment happens even if someone fails to achieve their goals. The increment does not happen against any goals, or positions. It just so happens. This had been what we were doing even a few months ago. As we are growing as an organization, we now understand why large corporations like Google and Evernote build structures.
Let's take a bank as an example. In a Bank or companies like Google and Evernote, say, for example, an employee starts his job at BDT 50,000 salary. How much increment does he get after a year? Say 2,000. He does not get BDT 55000 after a year. He does not get 60,000 either. He gets an increment of 2000-3000. He would get this increment for two years or so and in the third year he would get a promotion and his salary would jump significantly. You see the progression. Your salary does not jump initially. It grows slowly at first and then when you get some extra responsibilities your salary jumps meaningfully. The growth remains the same but you get more for your responsibilities. We did not understand all these things. As a result, we had this process where people continuously get increment regardless of changes in their responsibility.
You see the growth is the same for both people - one working at Brain Station and another working at a bank. The person who gets a 50,000 salary at Brain Station 23 gets 70,000 after three years and it is the same at a bank as well. But the difference is that for us people are jumping from 50,000 to 60,000 and then to 70,000 without any promotion or following any process. But in the bank, they first get an increment of 2000, so after a year it becomes 52,000 and then they get a promotion and salary goes up to 70,000.
Two growth is almost similar but the difference is that the person who is working at a bank or companies like Google and Evernote, fights for going to the next level. He works for it. He thinks very differently. He knows that he would get a promotion but he also knows that to get the promotion he has to do certain things. Number one: I have to prepare succession planning so that someone could take over my job. Number two: I have to prepare myself for the responsibilities that would come my way when I move to the next level. It means he invests in himself. But it does not happen at Brain Station 23 because we don’t have the process. Instead, the person keeps doing the job that he was doing a year ago but he gets increment regardless.
This structure is not good for growth. The Bank or Google/Evernote structure is good for growth. At the same time, the structure that we used to follow is not good for employees either. When an employee gets an increment for doing the same job a little better year after year, he does not invest in his personal development. If he leaves for some reason and goes to another company, he would be in difficulties. The bank structure is good for the employee as well because he is upgrading himself, learning new things.
After a long period of hard work, we have brought this structure to Brain Station 23 this January. Now everyone in the organization has a grade, a level, and several increments like bank and government offices. No one has the only salary anymore. We have been able to build this structure.
MJ Ferdous Bhai, Former Technical Lead of Microsoft, has joined us. Since he joined us, our local operation has become more structured. He would initially focus on regional growth and then outsourcing. He used to look after the Southeast Asia market for Microsoft. He would also find ways to collaborate further with Microsoft in these markets.
On the outsourcing side, my friend Mizanur Rahman is looking after our outsourcing business. We are also making Ferdous bhai and Mizan partners at the company. Mizan also looks after our cloud business along with outsourcing. We have done some significant cloud migration work recently. It is a growing segment for us.
What are the challenges for Brain Station now?
Building proper infrastructure and systems to support organizational growth.
We want to open sales offices abroad. Currently, we are exploring a few markets through sales partners and agents. We are doing pretty well but if we could open our onsite office and grow using our own salespeople, we would be able to grow even faster.
When I started to trust people to this degree, two things happened: 1) they started to take ownership 2) and I became free and I could focus on other important things and expansion of the business.
You started as a three-person company and today, you are a team of 185 people. It has been a phenomenal journey so far. How have you grown the business? What have you done to grow?
Initially, when we were small, the main challenge for us was employee retention. Now our retention is very good. In entire 2018, we had only one person who properly left us. We lost one person who was basically preparing to go to Germany and so he decided to leave. And we lost another person who left because of my mistake. We hired a bad manager and one of my people left because of the bad behavior of that manager. It was mostly my mistake.
To overcome our challenge with retention and build a great culture, we have done some good work. For example, trusting and empowering people. What do I mean by that? When you are dealing with a person, considering that he or she is capable and would do his job well - having faith in the capacity of people. When you trust people and empower them, then people who are really good take ownership and rise up to the responsibility. The people who are not good fail to deliver and deviate from their responsibility to the extent that they willingly leave the organization after a while. It is the best strategy to build a culture of meritocracy. We have never taken the strategy that we would give the highest salary in the market. Our strategy has always been that we would give a salary above 80-90% of the companies in the market but not above the 100% companies. So if someone wants to take advantage of a situation they leave after a while when they get a better opportunity.
People who are genuine love the environment and stay with us. This strategy has helped us in employee retention and ultimately in growth. Whenever we made any profit, we kept reinvesting that money into the company. We would hire more people with the proceedings of every project so that we could work more and invest in further growth.
The other aspect of trust was that when we had a project I used to connect the programmer assigned to the project and the client and allow them to directly collaborate and get it done. There is a risk associated with this approach that the programmer and the client could both leave along with your project and business. Many people fear that and seldom allow a programmer to directly work with a client. But I thought differently that it is a good thing if a bad client and a bad employee both are gone!
When I started to trust people to this degree, two things happened: 1) they started to take ownership 2) and I became free and I could focus on other important things and expansion of the business.
It has helped our growth tremendously. Many organizations don't do this introduction for two reasons mainly. Fear of losing is one of the reasons. The other reason is that if I introduce between my developer and client, it could happen that my developer might not do a good job at communicating with the client. But I decided to believe in people and their abilities. I set a high standard and then tell that we have to meet this standard. As a result, even if someone is not good at communication, after trying hard for a while he becomes good. Initially, they face some hiccups but after that, they grow pretty fast. This has been the secret to our growth.
Update on February 04, 2019: We misspelled the name of Mizanur Rahman, a senior leader at Brain Station 23. It has been updated.