Five Minutes with Jerry Rao, ’81
What do you consider your
To be able to attract a lot of very
talented people to work with me in a
startup that nobody had heard of,
purely based on my reputation for
trust. I never used a headhunter; all the
people came through word-of-mouth
references. The reputation that I was a
person who could be trusted, who
would treat them fairly, helped.
It’s true, Jaithirth (Jerry) Rao has had good timing. He also was well prepared when the moment came to launch his own company. Raised in India and educated in the United States, Rao had spent nearly 20 years working in information technology when his corporate career hit a plateau. In the late 1990s, surrounded by entrepreneurs starting their own firms, Rao decided to start his own.
In 1998, he founded the software company MphasiS. He added a call center the next year, and merged with an Indian firm in 2000. The new firm, MphasiS BFL, became the sixth largest software company in India in seven years. This summer, he sold 52 percent of the firm to Electronic Data Systems (EDS) for $380 million; the IT outsourcing giant had been seeking a way to boost its offshore presence in India for two years. “It’s timing—seeing the confluence of various trends coming together and being able to ride that wave,”Rao said.“Why didn’t other people see the crest and ride it? That’s where I took some risks.” That approach has earned Rao, ’81, the 2006 Distinguished Entrepreneurial Alumni Award.
After earning a bachelor’s degree and an MBA in India, he entered the PhD program at the GSB. He worked toward the doctorate for two years but stopped before writing his dissertation. Instead he decided to head back to the business world. He spent the next 17 years at Citicorp, a move that took him from New York to South America, India, England, then finally California. In the UK, he built Citibank’s consumer business. As head of the development division, Rao was among the top 50 managers in the firm. “But I wasn’t going to make it to the top 15. My career had plateaued, and I didn’t want to stay unless I was moving up.”
Rao had been running a technology center for Citicorp. “I’d be handing out $1 million and $2 million contracts, making small investments in some companies, and I thought, ‘Why am I letting these guys get rich? Why can’t I be part of the flow?’” He also had been a director of the bank’s investments in the IT sector in India, and his uncle ran a successful IT firm there. An idea began to coalesce. “California in the 1990s was a funny place. Everybody you met was starting companies,” he said. Rao and a bank colleague, Jeroen Tas, decided to launch their own software development and consulting company, raising $5 million and starting MphasiS in December 1998.
Business took off. Rao contributed his own funds the first year and had to raise more money in a second round. In 2000, one of the initial investors, Barings Private Equity Partners India, recommended MphasiS consider merging with BFL Software Ltd., an India-based IT firm.“We were based in California, and Barings had a 25 percent interest in us. They said to me, ‘The CEO has quit at BFL, and we have a 52 percent interest there. Would you consider a reverse merger where they take you over and you become CEO of the joint company?’ We decided that was a good way to scale, and that’s when things really took off,” he said. But as the first year came to an end in March 2001, the IT bubble burst. “We were in deep trouble as our growth rates plummeted,” Rao said.
What saved MphasiS were the call centers Rao added to the firm in 1999 as a favor to a friend.“Initially, I said ‘No,we’re a high-end IT company. We don’t do grubby stuff like call centers,’” he said. “When the IT industry slowed down, that call center started growing gangbusters, 100 percent quarter on quarter.” Today, Rao said, it’s become a BPO (business process outsourcing) service provider that handles such tasks as tax returns and equity research.“It became our engine of growth. Today we’re a combined company with a top line of about $200 million—$60 million from the BPO side and $140 million from the IT side,” he said. “We have a total of 12,000 employees.There were two of us in 1998.”
Such growth has allowed Rao to take an active role in India’s historic economic boom.“More than half the employees are women, and these are women who have suddenly become the highest wage earner within their family,” he said. Stating in 2004, Rao pushed MphasiS through a series of strategic acquisitions to broaden its product offerings. In addition to its headquarters in Bangalore (one of 10 offices in India), the company also has offices in Japan, China, Singapore, Australia, Europe, North America, and Central America. When executives at EDS decided to ramp up the firm’s offshore presence in India, they set their sights on MphasiS.The deal was settled in June. “It makes us feel very good that in eight years, we’ve created something that can give fulfillment on so many counts—shareholders, customers, employees,” Rao said. He agreed to stay on and oversee the transition.“I can’t simply sell it and walk away. There’s a moral connection to 12,000 people whether you like it or not.”
Rao said it was partly luck that enabled him to be part of India’s resurgence. “Twenty years ago, India had a 3 or 4 percent growth rate; today, it’s 8 or 10 percent. Twenty years ago, there was no Indian IT industry; today, it’s considered a major player in the world. If I were 74 instead of 54, I would not have been able to participate.”
He also attributes his success to the way his corporate career came to a close. “If they had promoted me, I would have stayed,” he said. "They didn’t.They did me a favor.
“Sometimes out of dark clouds, a light emerges.”