30th May 2019 BUSINESS STANDARD
(*The writer is a corporate advisor and Distinguished Professor of IIT Kharagpur. During his career, he was a Director of Tata Sons and a Vice Chairman of Hindustan Unilever)
Many Indian startups, designed on Silicon Valley principles, appear to be aiming to ‘destroy the enemy’ and to grab the prize of ‘winner takes all’. In the process, they are drowning in a dangerous ocean of swirling losses. I cannot understand why so many Indian unicorns are eulogized for business savvy and growth, even though they incur every year a loss of 3-4 times their revenue.
Commenting on Silicon Valley, The Economist (20th April 2019) reported that twelve or so American unicorns who have listed are likely to post combined losses of USD 14 billion for the last year, with cumulative losses of USD 49 billion. The poster boy startup for stupidity in funding and management’s preoccupation with valuations is Theranos. Among well-established companies, the Xerox inability to read emerging consumer needs has been well documented as a case of losing focus.
Cycles of human folly have played out for centuries, so why would people not continue foolish acts? On the flip side, there are magnificent startups which invested heavily, incurred losses but built up unbelievably valuable companies. Remember, it is not the incurring of losses that is incorrect. How come losses work for some, and not for others? Winners are consumer-focused, not competitor-focused. Companies like Microsoft, Amazon and Apple, which invested in in deep technologies behaved differently from undifferentiated, copycat companies which simply out-advertise competitors.
In my book titled “CRASH: lessons from the rise and exit of CEOs”, I have reviewed the pernicious and damaging effects of power on leaders. The suppression of the empathy neurons in the brain results in an over-assessment of their capabilities—recall how Napoleon invaded Russia foolishly in 1812 when he famously said that ‘impossible’ was a concept among fools. Such an arrogant and self-preening leader is the least aware of the effect of power on his or her behavior.
As argued in some writings, (HBR, Mark Bonchek and Gene Corfield, 28th April 2016), customers are individuals, who are a sort of tiny enterprise. Individually, consumers are changing faster than the company; their needs are quite liquid, and they are concerned with the service that suits them, not with the service provider or the technology. Changing consumer preference is the reason why getting a management’s eye off consumer-orientation produces unintended consequences.
Modern design thinking lays great emphasis on the role of empathy. This is quite foundational and requires you to put yourself in the hearts of people and experience the feelings of the other person. When the voice of the product, the voice of the system and the voice of the process are all heard together, then an infinitely superior product experience emerges with effectiveness. A technique known as TRIZ is used by experts.
An institution that is competitor-focused to a fault comes through as self-preening and over-confident, especially when a firm has enjoyed a winning spree. During the creep of Nirma into Hindustan Lever’s detergent business from 1970s to mid-1980s, there were many internal discussions about the unfair tactics of the competitor. When the company waded from ankle-deep to hip-deep in hot water, a spirited Chairman and Vice Chairman (Ashok Ganguly and Susim Datta) massively aligned the company back to consumer-focus, creating Wheel. Wheel detergent played a cardinal role in restoring the company’s focus and became a valuable brand for HLL over time.
Patanjali Ayurved started with huge bluster, captured through the personal image of Baba Ramdev. It was highly competitor-focused. The company pretended to be in national service, and about to blast MNCs off their profit-sucking ways. Equity analysts wrote fawning reviews, so did the pink press. Patanjali has lost its way amidst its own competitor obsession.
It is not only companies, but other institutions as well that should avoid competitor-obsession. Among political parties, history suggests that if communications to the voter ooze with self-praise and obsessive derision of the competition, unexpected results can emerge. As examples, recall the self-preening behavior of the then ruling political parties (once Congress and once BJP) who lost elections in India in 1977 and in 2004; think of the superbly confident Yahya Khan before the Pakistani elections of 1970, resulting in the East Pakistan revolt.
Arrogant, self-centered, competitor obsession is more than likely to fail—whether a company, a political party or any other institution.