17th January 2019 BUSINESS STANDARD
(*The writer is a corporate advisor and Distinguished Professor of IIT Kharagpur. His new book titled “CRASH: lessons from the rise and exit of CEOs”, has just been published by Penguin Random House.
Reportage and commentaries on startups attract huge interest, creating as unreal an image about startups as Bollywood and Cricket. In a Martian’s reading of our newspapers, startup founders need not bother about a path to profits, they should chase something called GMV and losses over long periods of time are alright. Startup founders are considered as innovative, youthful and energetic, untrammeled by the bureaucracy of ‘grownup’ companies and PSUs. Within five years, they magically create companies with a value that it took the grownups fifty years to achieve. However, these test-tube-cultured adults also cry like infants, loud and shrill, for example, for protection from foreign capital or intrusive tax regimes and regulations. Amidst such cacophony, the Martian would read a recent article by a young founder, who eulogized an old truth– continuing losses don’t constitute a sustainable business model. “Aha, the rules of entrepreneurship have not fundamentally changed”, the Martian would think.
Startups are not confined to yuppies, bursting with irrepressible technology ideas. Godmen too have been entrepreneurs, leveraging their considerable public influence. Think of Osho Acharya Rajneesh, Bala Yogeshwar, and Maharishi Mahesh Yogi; they ran a business-like institution, often accumulating huge sums of wealth.
In the relatively staid Indian FMCG market, one ‘upstart’, Patanjali, made huge impact through a superb timing of entry and scaling up. After incredible bluster and posturing, Patanjali’s leadership has settled down to reality now. I reflect on what such a FMCG entrant must be watchful of to convert such a big-bang beginning into a sustainable, long-term business.
First is excessive brand extension and distraction. So long as the product range is squarely in the wellness space, it will pass muster with the consumer. Patanjali has a choice to make: create scale by being a minor player is a huge number of categories or be a significant player in chosen categories.
Second is the ability to deliver a consistent quality, day after day, year after year. FMCG companies have built systems of quality assurance, safety, food standards and general excellence over decades. These are not rocket science, but delivering results reliably requires a strong systems-orientation. Because consumers are hassled with lifestyle pressures, they long for the natural, grandmother, and ayurveda remedies, which stand pre-sold in the consumers’ minds. They trust blindly, and that trust must never be broken in terms of ingredients, quality, and freshness. That is a tall order to deliver. Some of the quality complaints displayed about Patanjali in the social media are horrendous.
Third is to remain focused on the consumer rather than on the competitor–who is portrayed as the national enemy. The fact is that long-lasting, value-creating consumer companies are rarely controversial entities, they are almost self-effacing because they are always trying to strengthen consumer trust! Advertising or product claims that get struck down by legal courts or by Standards Councils do not augur well for Patanjali. Suggesting that other edible oils in the country carry carcinogens or claiming that the product is ‘chemicals-free’ after adding sodium benzoate as a preservative are avoidable! How can a detergent be chemicals-free? The consumer does not really care whether Patanjali deals a death blow to MNCs or other Indian manufacturers.
Fourth is to work on product distribution. ‘Hero-related’ brands like VLCC and Body Shop rely on exclusive stores rather than general trade. Patanjali offers tight retailer margins but reaches well under ten percent of the retail universe. It may succeed in expanding distribution, but there is a long, long way to go.
Fifth is to dilute the political connections of the business. Consumer research data shows clearly the disapproval of consumers when business folks make political statements. Changes of government regimes can change fortunes, for example, the availability of bank loans, favorable tax breaks, easing up of investigations into pending quality/tax cases, access of the business to powerful people and so on.
Sixth is the Icarus syndrome. If an entire business is constructed on the platform of one brand ambassador, there is inherent risk for life-after. With growing success, differences of opinion and compatibility among the stakeholders could crack open.
History shows that it is only when commercial god men die that the putrid remnants of their ashram or empire became visible to the public.