In Conversation: Sanjay Kamlani and David Perla co-CEOs of Pangea3
Pangea3 is one of the most recognised companies in the Legal Process Outsoucing sector. Founded in 2004, the company has grown to become the largest "pure-play LPO" company in the world. In 2010, the company was acquired by Thomson Reuters. Bar & Bench's Anuj Agrawal spoke to Sanjay Kamlani and David Perla, in their final year in the company, about the company's co-CEOs on the story behind their growth, what they have learnt in the last decade and what lessons they have for future entrepreneurs.
Bar & Bench: How did you get the idea of starting an LPO?
David Perla: This is in 2003, in Manhattan [when working at Monster]. At that time I had both lawyers and non-lawyers working for me. I had non-lawyers doing what had previously been done by me or any other lawyer. A lot of the work such as contract drafting, filling out forms, reviewing documents on litigation etc could have been done by lawyers in India. The idea that you needed to be a US trained lawyer to do this was false. So in our view the value lay in getting lawyers who were more efficient and less expensive than those in the US. Not only that, but we felt that these lawyers would be more eager to learn. That was the theory.
Bar & Bench: But initially didn’t you face a lot of opposition from American lawyers? Did they feel threatened by this?
Sanjay Kamlani: Well, there may be opposition from the very young lawyers who might have been doing that work. But, for people who are running legal departments on a budget, and are trying to get things done in the most efficient way possible, for them it is a great opportunity.
Bar & Bench: So you started in 2004 with a funding of $1.5 million and then in 2006 you got another $4 million. What were the initial days like?
SK: So we started with 15 people in Mumbai’s Nariman Point and we hired people who had an engineering background because we were doing patent work. We hired corporate lawyers so that we could do contract drafting and we hired litigation lawyers who knew legal research.
We call this the “5, 5 and 5” approach. We taught these people functions and then we developed clients that worked in these areas. By the end of the year we grew to about 40-50 people.
Bar & Bench: When you were hiring initially, did you do campus recruitments or did you use agencies?
SK: Initially we used a recruitment firm, which brought us about 150 people to meet. We met those people and we made around 20 offers. It was a mix of people having anywhere from 1-6 years of experience. But after we launched, we started to go on campus and hiring directly from graduating law classes, offering summer internships etc.
When we started going to campuses, in 2005 we were not invited until maybe the 3rd round of the campus recruitment program. But within 2 years we were invited as a Day 1 recruiter.
DP: Also when we recruited the first batch in 2004-05, we did not go to campuses. We did not hire any freshers; everyone we hired was leaving their job.
So it wasn’t as simple as “Well I’m going from one place where I draft contracts to another place to draft contracts”. It was much more about being part of something they would get an ownership stake in, something they would be part of building and I think that excitement, as much as anything else, led people to start recruiting their friends, start spreading the word.
Bar & Bench: You mentioned the change from being a 3rd round recruiter to being invited for Day one recruiting. Do you think that reflects the change in the manner in which LPOs were perceived?
SK: Absolutely. I think every year you see surveys about how law students perceive LPOs and every year you see more and more law students saying “I view an LPO as a good career opportunity”. Today I think it is up to 50 or 60 per cent of law students looking at LPOs as a possible career opportunity. This is quite substantial in 5 years where they might have perceived it as “another call centre”.
Bar & Bench: So why do you think they would come to Pangea3?
SK: There are a few reasons for this. One is that we have created a western style meritocracy as compared to what they are experiencing in family law partnerships. You move up to the value chain in terms of salary, work etc. as you start putting in more work. It does not matter who you were or which law school you were from or whatever.
Also, we were working for the same multinational clients that you would work for at an Amarchand or AZB etc. But when you work for a law firm in India, the reason why Microsoft would be coming to you as a client will only be for the Indian transaction. But when those clients come to us, they want us to do work for them worldwide and throughout the year. So a lawyer at Pangea 3 would get to work with a company like that and be involved in the transactions that are going on in that company day in and day out.
Bar & Bench: Over the last decade, a large number of companies have tried to crack the LPO sector and failed. How have you managed to survive for so long?
DP: I think for us, it was just about really keeping our heads down. Our goal from the first day was to be number one. This did not mean we had to be the cheapest. It meant we had to hire the best people and deliver a world class product. So we just kept focusing on that. And it worked. Our growth rate grew in 2009 and in 2011 and now we are growing even faster. The other change, as Sanjay pointed out, was that lawyers and students started viewing this [a job at Pangea 3] as desirable. A lot of people don’t want to work in law firms.
Bar & Bench: – You mentioned that your retention rates were very high. How have you managed this?
SK: After the first year of employment, our retention rate is 94 per cent. The reason that people have stayed with us is that, apart from the quality of our work and client relationship, the growth of our organization has enabled them to be able to move up constantly. There is enough room in the organization for people to constantly be moving up the ladder.
Bar & Bench: Right now you have about 850 lawyers working for you. Do you see the company moving to establishing similar numbers in other countries as well?
SK: I think 5 years down the road, it would be likely than not that we are in another country. I would expect us to establish offices in other locations within India as well. We have seen growth rates of 40 to 60 per cent year after year and there is no reason to believe it would reduce.
Bar & Bench: What are some of the challenges you are facing? Do you think the BCI’s decision to challenge the Madras High Court’s decision is going to affect your business?
SK: I don’t think anyone believes that the BCI or anyone else would try and shut down an industry which employs tens of thousands of people. The LPOs are not competing with the local law firms, they are not a threat to their services. We never provide services to Indian clients and we never advise people outside India about anything with respect to coming to India. So at no point are we taking away work from an Indian lawyer.
Bar & Bench: In terms of revenue sources, what are the changes that you have seen?
DP: Well, when we wrote our [initial business] plan, we thought patents would be the largest growth area. We thought contract drafting would be enormous and legal research would be small.
Bar & Bench: And what turned out to be the biggest source of revenue?
SK: Now it’s electronic discovery for litigation which is searching documents, going through documents that are sitting on a company’s hard drive to find evidence in support your case etc. That is the biggest piece of business for us.
DP: If you see our business plan, no where will you find governments risk and compliance. This is an entire sector at Thomson Reuters. We believe it’s the biggest growth opportunities in the next five years and I don’t even think it appears in our business plans.
As the cost of non-compliance grew, what happened was that those became service areas and we went into them because we are excellent at complex, high volume text.
Just to give you an example, the US for example now has five major [financial] regulations, regulations which did not even exist when we went to law school. These are massive regulations to deal with. If you simply kept the lawyer population steady, how would you keep up with all the growing regulation? The answer is you need additional tools and technologies which is where we step in.
Bar & Bench: Ok now going way back. Do you find what you learnt in law school useful when you became an entrepreneur?
SK: Absolutely. When you are running a business, everything you do with a third party, whether it is with vendors or employees etc, everything you do is actually a legal transaction. So being lawyers has allowed entrepreneurs to be nimble and move quickly without the need to check with lots of other people about doing something correctly. You can move much quicker and be comfortable that what you are doing is correct.
DP: Well, the one thing that you learn in law school, which is very useful for any business, is what we call “critical thinking”. You learn to look at a given answer and say “that is not right”. You learn to question and do the underlying analysis.
So every time someone comes in and says “Well, this is the way we have to do it” the first thing we say is “Let us just assume that this is wrong. Now what are the other ways we might do it?” That is something you learn in law school.
Bar & Bench: As an employer, what are some of the lessons you have learnt in the last decade or so?
DP: Maybe the most important lesson we learnt had to do with people. Where you have people who are dysfunctional, as opposed to someone who is struggling, that person really has to be removed or dealt with quickly. A truly dysfunctional person can infect the whole organization.
When you remove that person, the impact of removing them is so positive and so dramatic that we realized that once you have someone who is dysfunctional, it almost does not matter what value they bring. You have to remove them. Ultimately the whole organization will grow. It’s a bit like having a foreign organism in a body; it just infects the whole company. I think we move quicker on that today.
Bar & Bench: What are the kind of attributes you look for in potential employees?
SK: We look for people who have somewhat of a western mindset, people who have the ability to communicate and speak their mind. When we interview lawyers in India we look for people who will speak up, who won’t say “I did that because you told me to do it even though I knew it was wrong”.
Bar & Bench: Moving away from the legal field for a bit, do you have any advice for entrepreneurs?
DP: There is tons of advice. In fact we are working on a book right now.
Bar & Bench: What is it going to be called?
DP: Well, we are still working on that. The book is about being multicultural CEOs and founders. One of the things I found very useful was to try and write some sort of plan, whether it is formal or informal. This exercise is highly useful in figuring out if it could be a good business.
At the same time you should know that your business plan is a work of fiction. You have to learn very quickly to pivot off of [the business plan] and adapt to new circumstances. The plan that we wrote for example, is nothing like what Pangea3 looks like now.
But becoming a successful entrepreneur requires a series of tests. A lot of people say “I want to be an entrepreneur” and they get stuck in the writing and analysis and figuring it out. Once you have done the analysis, make sure that the business you envisioned is possible to build, then just jump in and do it.
SK: A lot of entrepreneurs fail right? People decide that they are going to be an entrepreneur and start a business. And then they just start doing things but they are only able to think about the big dream. “I am doing this to build a huge LPO?” etc. They just do things every day but they find themselves not necessarily getting anywhere. Or they can’t see how they are getting to the ultimate goal.
Entrepreneurship does not mean you go sail off in whatever direction and just hope you get there. There is actually a way to get it done successfully and what David is saying is that you have to break that long-term goal into steps.
You have to come down to: “Okay what do we expect to accomplish this year and if we are going to accomplish this in a year, what do we have to do by the half-year mark, the quarterly year mark, in a month?”
This is a lot different from someone who thinks “Okay we are going to build a big company. Let me recruit people, talk to people about money, learn about the business” etc.
If you don’t figure out what you actually have to get done this month, and what gets you to the next month and the month after that, you won’t actually get anything done.
Bar & Bench: What has been your most proud moment with Pangea3?
SK: The thing that I am most proud of is that we have created an organization that is built to last. We have created an organization that is self-sustaining and has all of the values that we built into it. That is what I would say I am most proud of.
DP: I don’t think I have a “moment”. There are some very small things, anecdotally that were moments when I was convinced that we had a real business.
Two such moments stand out: one was the first time someone here came up to me and said “Hey I just wanted to give you a headsup”. That was a phrase that had entered the lexicon from the the clients side. It meant we were interacting properly with the client, and the person wanted to alert me to something that wasn’t yet a problem.
The other, and I don’t know if you can print it, but the first time someone came to me, openly and proudly, “I f****d up”. People are afraid of failure, and not this is true not just in India, and this was the first time someone said it without being ashamed of it and without being afraid that we would react. That indicated that we had a transparent culture where people were comfortable with admitting their mistakes.
The reason that moment stayed with me is that it meant we had created a place where people were entrepreneurial and willing to take risks.
That goes back to whole debate on entrepreneurship: if you are afraid to make a mistake, go keep your job working for a big company and don’t try and build something new.