Tuesday, December 20, 2011

All about taxes


One of the questions that was hounding me during my move back was how it would affect my taxes? Having income generated in the US (from my consulting business) and from India (from my Machine Vision solutions business) caused room for worry about double taxation, etc.

From the perspective of the U.S. tax system there are two scenarios

  • Investments or business undertaking of foreign persons present in the United States – known as taxation of foreign persons
  • Investments or business undertakings of U.S. persons abroad which are known as taxation of foreign income.
So I was moving from the first to the 2nd. 


The US taxes income of its citizens from all sources worldwide, whether they reside in United
States or abroad. Individual residents of the United States, regardless of nationality are exposed to U.S.
tax on their worldwide income. (There are some exceptions for which you will need to consult a CPA). As a consequence I report all my income (including capital gains/loss from stock transactions in the Indian market)  on my US tax returns.

But there's some good news. As a US resident you may qualify to exclude up to an amount of your foreign earnings ($92,900 for 2011, $95,100 for 2012). This is per the Foreign Earned Income Exclusion clause of the IRS. Keep in mind that this pertains to salaries and wage earnings and not capital gains (from sales of stock in the Indian market).

This blog only provides a brief overview of the residence aspect of international tax – there are many
exceptions, rules and regulations associated with the tax law – so please consult with a professional tax
expert before you act on any information. It saves you a tone of worry and headache which you don't want to deal with.

I've been working with Raj Prabhu in Bellevue, WA and will be happy to make an introduction.

From the Indian tax laws - the rules are more favorable for an NRI. You don't have to pay taxes on your foreign income in India.  However all your income earned in India is of course taxable in India. Due to a lot of tax evasion, the monetary system is remarkably tight. Any substantial transaction in India needs to be tied to your PAN (permanent account number), which is like a SSN in the US. More about my experiences with the Indian business regulations in an upcoming blog.

Sunday, December 18, 2011

You're hired - Part II

As mentioned in my earlier post my experience with hiring software developers in the silicon valley of India wasn't very positive.

However - I have had a reasonable degree of success with hiring a team for my Machine Vision Solutions business. Having had a shaky start early on with CS majors, I went in pursuit of Electronics engineers. In the first month of moving back, I did a round of campus recruitment from the engg college where I found that the large majority actually wanted to work in an industry that suited their line of study. Many also contacted us directly after having heard this from their juniors in college. As a start-up I couldn't compete with the MNC's offering hefty pay packages, which turned out to be a great filter to screen out folks who applied out of interest as opposed to money. We use a combination of a written aptitude and basic electronics test, followed by an on-site interview.

Also - I have never stopped hiring. I spend a quarter of my time looking through resumes and interviewing folks. You can never have enough of good talent in your team. This not only helps you be better prepared for growth, but it also makes it easier to transition non-performers out of your team. Given that we're a young company  we haven't been affected by  attrition, but it would be a matter of time. Having a steady hiring pipeline would make attrition less of an issue.

Monday, December 12, 2011

You're hired - Part I


Getting the right people is always the toughest challenge for a start-up to get off the ground. As a bootstrapped business you don't have the luxury of spending large sums on people with crazy salary expectations and inflated egos.

My hiring experience started a couple of years ago during a long vacation to India where I had decided along with another friend to  spring up a small team for our software consulting business.  My experience was from positive. It might be an outsourcing paradise, but it was definitely a hiring nightmare. Attrition is rampant, professionalism is almost non-existent and quality of candidates are terrible.

So how does the Indian service business still thrive? Redundancy is key. If you need 2 hire 4, if you need 10 – hire 15. That’s one bet . With all the redundancy, doesn’t the attractiveness with cost start to fade? Absolutely, but it’s still at attractive price points for most.

We used naukri.com as our advertising medium  and after much trial and error we hit upon a good equilibrium of being able to:
  • screen out resumes. 
  • assess candidates with a 15 min phone screen
  • screen basic technical abilities with a written test 
  • And finalize candidates with an on-site interview

The outcome – 350 resumes screened and 5 offers made (with a 20% hike in current pay). None of them accepted.

For those looking to hire a software team in India, don't underestimate the hiring effort. Especially as a bootstrapped start-up. For this kind of business to work well, you need at least  10 people to make this work, so unless your business justifies it, stay away. My interactions with a number of heads of software companies and start-up also echo this sentiment. Finding quality people is the toughest challenge. Many companies focus their marketing efforts to attract employees than to earn new business -- interesting.

Our lack of success turned out to be a blessing in disguise. What we focused on instead was finding good consultants with the right skill set. This was more expensive on the micro level, but  turned out to be extremely efficient over all. You have the flexibility of scaling up and down hours easily. Most consultants themselves are entrepreneurs and are more efficient and professional than salaried employees. Had we started this effort as a small team, we would have been caught with our pants down if they had decided to leave mid way for a 10% hike offered elsewhere.

For my machine vision solutions business  - we have had much better luck with hiring and finding the right people. To be covered in part II.

Sunday, December 4, 2011

Bad customer service - All's well that ends well

We've all had our experiences with bad customer service. Sometimes, you let go swearing off the product or the service, other times you speak to a manager or a supervisor and seek remediation. Specifically with retail  customer service in the US is just fantastic. Return policy is generous, people are helpful and knowledgeable, staff are polite and well trained.

Mansa  recently had this experience where she shopped at the the Arrow showroom in Commercial Street. After buying a pair of trousers she was offered the choice of having the length altered. She had it picked up in a little while as asked and when it came home she found to her surprise that they hadn't been altered. She called the showroom and the lady who talked to her not only was unapologetic but demanded that Mansa take a measuring tape and double check the length as she wouldn't accept her word for it. Even after doing so - the customer rep wasn't convinced that there was fault with the store and asked her to drive (an hour) to get it checked. When asked to speak to her manager (who happened to be out) - Mansa could hear the rep telling the asst manager that "there's a a difficult customer who's creating a fuss"! Mansa succeeded in getting the manger's number and expecting a similar callous attitude, was ready to wage war with him. To her pleasant surprise - the attitude was completely different. He was completely apologetic, and promised to handle the matter personally. A few hours later, he had the asst manager personally hand deliver a new pair of trousers altered to the right length to our house!

We've had many such experiences after our move back, that the front-list customer support is just shocking, but  have had much better success with the next tier up. This is a good sign that there are people in the ranks that get that good service = happy customers = good business. I think it's a matter of time before it trickles down in the ranks.

Our philosophy - don't let go, make sure you report a bad experience, as all's well that ends well.

Saturday, December 3, 2011

Matchmaking 3.0 has arrived

A friend of mine (Siddarth) proposed the idea that a bunch of us entrepreneurs/founders get together last evening. He's the CEO of a an upcoming startup called FLOH. Apart from being a great evening and meeting a bunch of cool people with similar DNA - the concept of FLOH intrigued me!

Now those of you who know me, know that I met my wife on Shaadi.com - oddly neither one of us imagined at one point, meeting our spouses on a website. But it worked... this was matchmaking 2.0 in action! Now for those who have given this a shot - know this can be like searching for a needle in a haystack. The experience can be far from enjoyable and can have you give up on this. What might have been cool was bringing in a touch of personalization (say through FB integration). Ex: See if and how you're socially connected to potential matches.

What intrigued me about FLOH, was the concept that this was a curated "singles in the city" event network.
  • Barrier to entry is a referral by another member. This filters members ensuring a high probability of gelling with the group.
  • The events are well organized and are not ordinary run of the mill events
  • Membership is limited and in high demand, making this more of a must-have.
With a sea of singles in a city as vast as Bangalore, FLOH fits in perfectly for those of you looking to find your next match.

Friday, December 2, 2011

Perfect your signature!

One amusing fact is the number of signatures are required to get anything done in India. I recently opened up a life insurance in my daughter's name (not even mine), and I had to sign 12 times. Opening up a brokerage account required close to 40 signatures! If you submit a copy of any document (like your passport), you have to 'self attest' before it is accepted. Nothing moves without your signature. I think a large part of this is due to the prevalent fraud present in the system - so I don't blame the obsession with signatures required for paperwork. In the US - I hardly signed anywhere. Opening a bank account required 2 signatures. Moreover if I was physically present -- you show your ID and you're authenticated. In India - your signature has to match or your screwed.

I recently had an interesting experience with my stock brokerage. I have a modest stock portfolio and abiding by my principle of 'avoiding the DIY syndrome', I decided to have this managed by a financial adviser. The process is simple. You have your shares sitting in your demat account. You have to transfer them over to another demat account accessible by your adviser. To do that you have a shared transfer slip you have to fill out and sign (just like a check).

After this was submitted by my accountant, I got the dreaded call that my signature didn't match. I asked if I could answer some secret question to prove it was indeed me that authorized this transfer - but she would have none of that. Resignedly I made the drive towards the city the next day with my proof of ID. The manager there refused to look at my ID or listen to any argument about proving my identify, but insisted that I had to sign exactly the same way that's in his system. I literally ended up signing (in different ways) 20 times on a piece of paper after which he went back inside, cross-checked with his system and came back to tell me which one matched. I carefully signed like the matching signature - and boom everything was golden!

You aren't who you say you are until your signature matches. So, a bit of advice ... perfect your signature!

Wednesday, November 30, 2011

Reliability and lessons learnt

One aspect which you will learn to deal with  you on your return back is what I would call the reliability factor of people in India. Here are some of my experiences in various situations.
  • Directions from pedestrians: There have been a number of instances where I have had to stop and ask for directions on the road from random people. Due to lack of appropriate sign boards and the ever changing rules (in terms of one-ways and blocked roads), getting directions from passerbys are sometimes a necessity. What initially surprised me was that everyone seemed to know exactly where I was headed with confident nods and answers. Pleasantly surprised, I would heed their directions only to find myself stranded in the completely opposite direction. People never seem to say NO to a question - but in the eagerness to help often times send you the wrong way! Lesson Learnt  -- Ask for directions 2 or 3 times to make sure they tally up.
  • Coworkers and employees- My experience here again was similar. People were either afraid to say "no" or "I don't know". Be it the fear of admitting ignorance or an unwillingness to do something, the first tendency was to say yes and figure out things later. Often times the 'later' would never come and would lead to missed deadlines and wrong directions with work. Lesson learnt  -- Double check  folks understand what they're signing up for and encourage saying no when necessary. 
  • Real estate agents -- Anyone who would narrate their experiences with real estate in India would probably recount some unpleasant encounters with their realtors. I happened to buy some property a few years ago while I was visiting. Given the time frame I had we had engaged a 'known' realtor who would help us out. We ended up seeing property after property, but when it came down to meeting the owners for negotiation, the owners were no where to be seen. Only later were we told that this was a common bait and and hook tactic used by realtors. They bait you with lots of property which aren't really for sale, claiming exorbitant prices for them. then they show you the one they're really trying to push with a lower cost. In comparison this looks like a steal and you're hooked. Lesson learnt - there's no such things as a quick investment in real estate. Homework is key. I'm working on a blog post on my property buying experience, so stay tuned for that.
  • Vendors,  Business partners and customers -- I could write a chapter on this, but one that springs to mind was with a vendor, a fairly large established company that takes up machine building and fabrication. We had contracted out some lab equipment to them and were working on a tight deadline. One of my engineers was following up closely with their progress. One milestone was to examine the equipment before it was finished to approve the design and functioning. He takes an appointment and double checks before leaving (with the owner of the company) that it's ready for inspection. To his surprise when he arrives - the machine isn't there. He was given some lame excuse that his supplier didn't deliver the machine. I was so pissed that I confronted the owner on the phone and what was shocking was his lack of apology or regret. He flat-out denied that he said the machine was ready for inspection. Lesson Learnt: Find a vendor/partner you trust and don't let them go. 
However in light of these experiences and frustration - I noticed that reliability which was until then taken for granted -- presented a huge opportunity to differentiate. Realiability has been a mantra which I periodically bring up with my team. Putting this in practice has been a challenge, but one which is slowly yielding results. We have good feedback and trust from customers. One even recently mentioned to me that they had recommended my firm (Qualitas) to their management as a company not to be lost at any cost. Lesson Learnt - Don't take reliability for granted.

Thursday, November 24, 2011

Encounter with a street cart vendor

Our 2 year old was was on a 2 day excursion with grandparents, we didn't have to think twice to grab this opportunity to venture out on a date night on a Wed evening.

As we passing by Jain College (Mansa's old college), she had this sudden urge to eat her favorite street food during her college days - a tiny food cart vendor off Diagonal Road in Basavangudi. Not having dared to experiment with street food in 10 years - I was pleasantly surprised with some of his innovative methods that he used in his business:

  1. He had no need for running water
  2. He didn't use any heat to prepare food (it was fresh snacks) 
  3. He used disposable gloves to prepare food (periodically disposing them)
  4. His only non-compostable waste was a piece of paper on which he served the food (he places that on a piece of dried leaf)
  5. He uses seasonal fresh fruit/vegetables which he sources daily and makes sure he washes thoroughly before serving. This could be a risk during summer months where gastroenteritis is common (I should mention that as of the next day our tummies were still doing great :)
Now - on an average his dishes cost Rs 10 ($ 0.2). People we saw would order 3 on average. We extrapolated that on a good day he would see around 400 customers (given the vicinity to a college close by). 
Mansa about to dig into some delicious 'tomator puri'
Using gloves to prepare food
Thriving Street Food Business run out of  a cart without fire and electricity

That makes Rs 12,000/day!  There are minimal operation costs - no rent, electricity and I would be surprised if he was a regular with the Indian Income Tax department.

Some street food for thought!

Monday, November 21, 2011

Starting a business in India

Starting a business in India is overwhelming but simple. The steps involved are cumbersome, but with around $2000 or Rs 100,000 you can hire an attorney or a CA who can complete all the formalities for you. I think there are hundreds of blogs and pages which get into the details of this. Here's an example. However contrary to a lot of myths out there - you don't have to stand in long lines for hours,  paying bribes to a dozen folks and wait for months to get started. With the right professional help you can get this done in a couple of weeks.

However some tips and some basic rules worth mentioning on running a company in India:

1. There is a strong DIY tendency in the US --- resist the urge. Especially with paperwork and dealing with authorities. Get a good lawyer/CA, etc to take care of this for you. Also if you can manage it - find a good admin right away. Paperwork and procedures are overwhelming you want this delegated to the right person at the soonest.

2. File returns and taxes on time!! Government authorities don't bother you if you have everything in order and filed on time. This includes income tax (to be paid in installments, VAT returns, excise returns, final balance sheet and income tax returns). Do it on time and you are golden.
3. Document everything! you make a Rs 1000 payment to your plumber - get a cash paid receipt for this. You need a document for every little thing in this country. This just leaves it open for authorities to hassle you later. Maintain a system that preserves all your documents for 10 years!

I'll be posting a few other tips about this topic, so stay tuned.



Sunday, November 20, 2011

Rent-a-driver

As a supplement to my earlier post on the 'traffic crisis', I just learnt of a new service which allows you to rent a driver. I know folks who use this service a number of times especially during peak hours when a lot of driving is required, on day trips and especially when you're out drinking.

There are two or three companies that offer this. DzireDrive is an example. The way it works is that you book a driver (like you would book a cab), by calling in a number and schedule a time. The driver shows up, drives you around in your car. For half a day you pay up something like Rs 200 + tips and you're all set. What a small price to pay for the added convenience.

However there is of course the reliability factor - you have no track record of their driving history. There are cases of young college kids who do this for a few extra bucks and don't take care of your car too well. So there are some downsides, but for the most part the service companies make sure there is some screening done before they are inducted into the service pool.

So next time you have a hectic travel schedule in the city - renting a driver might be a good DIY alternative.

Saturday, November 12, 2011

Solve the traffic crisis


One of my biggest nightmares about moving back was  dealing with the poor infrastructure.! This is probably the single most aspect that impacts your day to day life the most. Be it when you have an important meeting that you can't make, or when you need to get your poor child to a hospital in a jiffy -- traffic is where rich and poor alike suffer from equally! Roads are poor, traffic management is worse and the state's public works projects are just the icing on the cake. 

I don't think anyone in Bangalore is immune to it. On average the people I talked to traveled an hour each way to get to work. On bad days it could sometimes double. That's like  10% of your day disappearing or if you're like me and don’t like to compromise on sleep, it's  like  15% of your conscious day! I wasn't going to throw away 3 years  in a career of 20 or so in the Bangalore traffic! This was not a problem - this was a  huge crisis, which had to be solved

In the first 3 months of having moved back, I worked out of my dad's office  which was about 45 mins from where  we lived. Half the week I used a driver to take me to work - which allowed me to catch up with my emails during the commute  (the internet dongle is the next best thing to sliced bread - I even handled conference calls during my commute).  However that  still required you to drive for the rest of the days  - besides tiring you out during the journey.

My wife who had taken over a business had it worse - as she had a 2 hour commute each way!  After a month of this - we couldn't take it anymore and accelerated our plans to move into an office space close by - a one minute walk from where we live. We moved in on month 3  after our relocation  - and the transformation was magical. 

Suddenly I had time to go to the gym,  come home for a hot lunch, devote a lot more time to our daughter. Most importantly we maintained our sanity during the week. Although there's no empirical evidence, I even think this has a direct correlation to the number of fights that I had with my wife  :)

Our aversion towards travel also reduced. 

My simple advise to those contemplating a move back - solve the traffic crisis! Get a driver or move closer to work - there are enough problems to deal with, you don’t want traffic to be one of them.


Monday, November 7, 2011

Return to India - The economics

Quitting a safe paying job and jumping into entrepreneurship was a big one. I had talked to many people who gave me a variety of perspectives from  advising that it's never too early to quit' to getting your venture off to a successful start before quitting. What I concluded at the end my little survey is that the timing of when to quit depends on your appetite for risk. That said, entrepreneurship is all about taking risks, so playing it too safe might mean you don’t have the tolerance for risk and perhaps venturing off on your own. At the same time all risks need to be hedged and every one's situation is different in the way and means this can be done. While there are many factors to be considered in this decision, one cannot ignore the economic one -- earnings and runway to stay afloat. My decision was based heavily on this economics given where I was  at  my point in my career. 
 Some quick math and extrapolation of my potential earnings made me realize that my salary was growing at roughly 9% annually while my consulting business (which I had started with a modest sum in 2005) would grow at 50%. At this rate, it would take my business another two years to catch up with my salary at this rate. Had I made this decision three years ago, I would already be there!
Now - I have to mention that had I been on a super-star trajectory at MSFT, I suppose the story would have been different as a 50% annual growth would be a reality. While I knew some at MSFT who were on this trajectory - I also knew that I wasn't one of them. Here were some specifics:
 The earnings table looked something like this:

In a graph the above looks like this:

Basically I was betting on the fact that the economics of entrepreneurship would catch up with my salaried job.


The next decision was one of sustenance – would my finances allow a decent standard of living for two years?  My calculations and estimates revealed that the cost of living in Bangalore is about $2,500/mo. Granted this was on the higher side compared to what some others might consider a 'decent' standard of living. However - this was also based on the fact that there were so many changes going on - the last thing we wanted was squeezing on our lifestyle and making this adjustment a lot harder.
In the worst case of no profitability for two years, it would mean a burn of $60,000 into my savings. In the best case, I need not dip into my savings – the existing consulting business would sustain the transition. Armed with this information I knew I had nothing to fear! At the end of two years, if my little experiment failed, I believed I would get a similar job in either India or the US. What would be more important would be the thought that I had at least failed trying. 
ps: At the time of writing - I've broken into a net positive cash flow on my machine vision business (Qualitas Technologies) in India. My Software consultancy business has a modest growth rate.
Once I was convinced, it was on to the next most important thing… convincing your wife!


Saturday, October 8, 2011

Decision Pyramid


One of the symptoms with the X+1 syndrome are deep discussions amongst friends and family about the pros and cons of returning to India. We were certainly exhibiting a lot of it  with discussions raging on about bringing up children in the US, whether one could be economically more successful in India as opposed to the US. Life with maids and drivers, dealing with stand-still traffic and pollution.
With the topic of bringing up kids there was the popular belief that the US was better with all kinds of exposure from music to sports. You would be encouraging your kids into a profession driven by passion as opposed to societal pressure. On the other hand - we all have heard the argument of raising kids in India with first hand exposure to the Indian culture and being close to grandparents, etc.

Is the standard of living better? After all life with maids, drivers, and cooks at one’s beck and call doesn't sound too bad.

The economic situation of India was also a topic of debate. While living in India was becoming more expensive, it was also true that the earning potential residents was exponentially growing.
When the subject was social life and fun, the debates got more interesting and diverse. I had spent my post-college life in the US, I had made some very good friends here - moving back after so long, was like moving your teenage kids to another school. On the flip side - who cares about that when you're so close to family. 
Clearly, a number of good points were being raised. This was mostly related to our daily living. But things got philosophical too - How would we want to leave an impact? After all making money and having fun is not what life is all about. The debates then turned to discussions on philanthropy as we mulled about how to create an impact, and whether the impact you can have would be more fulfilling in the US or in India?
Philanthropy is routine in the US. The culture and society promoted giving. Students in the US were more prone to giving to their alma mater in later years than those in India. Plenty of companies match dollar for every dollar you give to charity. Microsoft has a full day dedicated as the Day of Giving, which the employee utilizes for charitable contributions. I’d never heard of this scale of giving in India (I’m sure it exists). This year alone, Microsoft and it’s employees gave away $2.5 billion in charity.
Surprisingly, a lot of the money donated in the US are for Indian causes… clearly the cause of social and charitable uplift is India. So would we make a greater impact donating dollars for Indian causes?
This reminded me of my dad who had started a charitable initiative with like-minded people of his community.  They took over a ramshackle government school and turned into a center which boasts of the highest pass rates compared to others in the city. That wouldn’t have been successful with pure dollar donations. We need motivated Indians residing in India to judiciously use the funds to make a charitable cause successful.
All these points above reminded me of an awful lot of "Maslow's Hierarchy of Needs". Except that it looked a little like this:
Return to India Decision Pyramid


Most of us contemplating our return to India is looking at one more aspects of the above and weighing out your options weighted by it's priorities. Right from basic necessities like housing, clean air, and raising children, to that of creating a social impact. Over the next couple of posts, I will discuss my experiences with each of the above during my one-year stay in India. 

Wednesday, August 3, 2011

X+1 = 11


When an Indian professional becomes a ‘Non-Resident Indian’ in the United States , he soon starts suffering from a strange disease. The symptoms are a fixture of restlessness,anxiety, hope and nostalgia. The virus is a deep inner need to get back home. Like Shakespeare said, “The spirit is willing but the flesh is weak.” The medical world has not coined a word for this malady. Strange as it is, it could go by a stranger name, the “X + 1″ syndrome.”
“In other words if ‘X’ is the current year, then the objective is to return in the ‘X + 1′ year. Since ‘X’ is a changing variable, the objective is never reached. Unable to truly melt in the ‘Great Melting Pot’, chained to his cultural moorings and haunted by an abject fear of giving up an accustomed standard of living, the Non-Resident Indian vacillates and oscillates between two worlds in a twilight zone. Strangely, this malady appears to affect only the Indians – all of our Asian brethren from Japan, Korea and even Pakistan – seem immune" --- RK Narayan 


This blog is about my journey back to India - after 11 years... my professional experiences as an entrepreneur and other musings.