26th March 2020 BUSINESS STANDARD
Conzerv Systems and HUL
(*The writer is an author and corporate advisor. He is a Distinguished Professor of IIT Kharagpur. He was a Director of Tata Sons and a Vice Chairman of Hindustan Unilever).
In an earlier Innocolumn, I wrote about the case of an unknown, but highly successful start-up called Galaxy Surfactants—a start-up nurtured by ex-HUL stalwarts. This firm practiced four principles of long-life start-ups and went on to a successful IPO. The principles of building long-lasting start-ups are: first, practice the principle of ‘society-first’; second, be a perpetual learner; third, execute, learn, and again execute; fourth, move beyond founder-leadership to scalable leadership. Sounds simple and self-evident? Why do not so many start-ups follow these principles?
Along with my co-author, R Narayanan, I am engrossed in writing a book, titled Wisdom for start-ups from grown-ups: discovering corporate ayurveda. Often start-up executives behave as though the experience of grownup companies like HUL and Tata is not relevant. They think that they must learn ‘new ways of working’ because:
Of course, they are right—but only partially. They know that, and so do we.
Apart from Galaxy Surfactants, I have come across Conzerv (earlier called Enercon), which has been successful by heeding advice from grownups. Lift Off: transforming Conzerv by Hema Hattangady and Ashish Sen was excerpted in BS of 22nd March.
Conzerv was set up in 1988 by Sri H Vasanth Rao. The firm began with the lofty purpose of improving the consumption efficiency of electricity. Electricity customers measure voltage and current, as a surrogate for power consumption. Conzerv set out to manufacture digital instruments that would measure energy, which is what the customer pays for. Within five years of starting, principally due to a faulty sales arrangement, the company became cash negative. The founder’s dreams were in tatters, a frequent condition among start-ups.
The founder’s son, Ashok, had qualified as a US-trained technocrat and joined the firm in 1992. At a time when venture funds were unknown in India, Indus Ventures was promoted by former HUL chairman, T Thomas, my former boss at HUL. Deeply impressed with the honesty of the founders and their creative ideas, his fund invested. He felt that he could remedy what the firm lacked: a business mind-set.
Thomas and retired HUL leaders like PK Chadha, KK Nayar and RR Nair guided the firm–first, to recruit a new CEO, Ms Hema, an IIMC alumnus (incidentally also Ashok’s wife); second, to introduce people processes; third, to adopt measures for quality enhancement, branding, customer intimacy and capital usage.
Between 1998 and 2003, the CEO & CTO duo returned the company to profits (15% of revenue), revenues increased from $1 million to $6 million with a path to quadrupling, and the company started paying dividends. In these days of lavish venture funding, these accomplishments may appear trivial. However, these results were achieved with a six-word, sagacious mandate arising from Thomas’s ‘grownup company’ wisdom, “Make the company profitable and professional.”
Conzerv learnt other valuable lessons from HUL: (i) never compromise on ethics (ii) listen to good advice from board directors (iii) balance impatience with a demanding style (iv) sponsor the MD to the expensive Harvard AMP to develop top leadership and (v) connect with people emotionally. This last item was exemplified when a company leader, called AKP, died in the tsunami at Indonesia; the company fashioned a death benefit in the same way that HUL did in similar cases.
In 2009, French multinational, Schneider Electric, acquired Conzerv at a handsome multiple. The new owner loved the values and culture of the start-up to the point that Schneider Electric retained the brand, Conzerv, for a global product category. Start-ups should achieve three goals concurrently. First, become valuable, second, be financially independent and third, be profitable. Since 1980, the global economy has got intoxicated with the bonanza of low interest rate and plentiful liquidity. This cannot last forever as the events of 2008 and the corona episode of 2020 remind us.
A recent Edelweiss analysis of RoC data shows that the top thirty-five Indian start-ups have revenue of Rs 21,500 crores and a loss of Rs 15,500 crores! Start-ups add value only if they build a sustainable business model. When will Indian start-ups understand this?
William Hesketh Lever said of Unilever over a century ago, “the company employees are like masons who set out to build a highway on which pilgrims will travel for many years without ever giving a thought as to who built the highway in the first place.”