When they Start off their Ventures, Most Entrepreneurs look to take them to The Pinnacle of Success. Then what Makes them quit them Midway and Chart a new Course?
25 years ago, Ram Chander Aggarwal never thought that his dream venture would be sold off. During his earlier interaction with 4Ps B&M way back in 2005, he expressed his extreme exuberance regarding the growth of his company - Vishal Retail. In 2005, the company achieved a net profit of Rs.30 million from Rs.2.62 million in the year 2001. Vishal’s manufacturing-to-retail business model was widely applauded and feted... even till 2008.
But the slowdown, financial deficit and rising real estate costs caught the brow beaten Vishal’s operation, and the group finally sold off the entire business to US -based private equity fund TPG Capital. Vishal Retail received Rs.700 million through the slump sale approved by Delhi High Court. It was one of those terrible retail debacles that shocked the entire industry in that period.
Nothing should hurt a founder more than selling off his entire venture. But, both the emotional and business aspects differ from business to business. For Ram Chander Aggarwal, managing the financial deficit was a problem and he’s now looking for new business opportunities. For Capt. Gopinath, it was the difficulty in managing the low cost aviation model. In the same league, when Malvinder Singh sold off Ranbaxy, he commented to 4Ps B&M that he has learned from his father to move on for newer opportunities if the existing one is becoming an obstacle. It shocked the Indian corporate world, but the Singhs would be quite satisfied with the decision.
The well known British business woman, environmentalist and human activist – Anita Roddick, was already afflicted by a deadly disease when she sold off her brand – Body Shop – for £652 million to MNC giant L’Oreal. Her declining health was a major reason for her to sell off the brand. After the sale, she likened her position to that of a ‘Trojan horse’, who, by selling off her business to a large firm, wanted to secure the brand.
“In case of Anita Roddick & Body Shop, selling off the brand gave an insurance to the brand. Competition often makes it difficult to sustain with a brand,” feels Ramesh Chauhan, Chairman, Bisleri International. In the early nineties, he sold off his brand Thums Up to cola behemoth Coca Cola for mere $60 million. The pressure that came from both the cola giants compelled him to do so, and he moved on to focus intensively on the bottled water business. Now Thums up has emerged as a cash cow for Coca Cola, but does Chauhan regret letting Thums Up go? “At that point of time, creating the distribution network required for Thums Up was difficult and then, focusing only on Bisleri helped me to create a generic brand,” feels Chauhan. Like Chauhan, Sumeet Nair also sold off his creation – the country’s first fashion week – to HUL’ s Lakme and later created more such fashion weeks like Wills Lifestyle Fashion week and others of their ilk. So do these entrepreneurs lack the patience and vision to sustain a brand in the face of competition?
It’s not always lack of vision. At times, selling a brand without compromising on the ownership also helps in massive expansion. For the country’s leading apparel exporter Gokaldas Exports Ltd., the promoters sold off 68% stake to US-based PE firm Blackstone Group. Post expansion, the company possesses 46 factories spread across 45 locations and is manufacturing more than 2.5 million garments per month. The Hindujas still enjoys a 20% ownership in Gokaldas. But for Delhi based Fun Foods, although selling off the business to a German MNC resulted in proliferation of the business, the original promoters had to bid adieu to the brand. For the founders Rajiv Bahl and his son Viraj Bahl, an offer of Rs.11 million (more than 3 times the actual sales of Fun Foods at the time of acquisition) was too lucrative and as 30 -year old Viraj points out, “Holding a business in the long run might not always be profitable for a promoter and then, the experience gained in one business definitely creates the key-stone for another business.”
25 years ago, Ram Chander Aggarwal never thought that his dream venture would be sold off. During his earlier interaction with 4Ps B&M way back in 2005, he expressed his extreme exuberance regarding the growth of his company - Vishal Retail. In 2005, the company achieved a net profit of Rs.30 million from Rs.2.62 million in the year 2001. Vishal’s manufacturing-to-retail business model was widely applauded and feted... even till 2008.
But the slowdown, financial deficit and rising real estate costs caught the brow beaten Vishal’s operation, and the group finally sold off the entire business to US -based private equity fund TPG Capital. Vishal Retail received Rs.700 million through the slump sale approved by Delhi High Court. It was one of those terrible retail debacles that shocked the entire industry in that period.
Nothing should hurt a founder more than selling off his entire venture. But, both the emotional and business aspects differ from business to business. For Ram Chander Aggarwal, managing the financial deficit was a problem and he’s now looking for new business opportunities. For Capt. Gopinath, it was the difficulty in managing the low cost aviation model. In the same league, when Malvinder Singh sold off Ranbaxy, he commented to 4Ps B&M that he has learned from his father to move on for newer opportunities if the existing one is becoming an obstacle. It shocked the Indian corporate world, but the Singhs would be quite satisfied with the decision.
The well known British business woman, environmentalist and human activist – Anita Roddick, was already afflicted by a deadly disease when she sold off her brand – Body Shop – for £652 million to MNC giant L’Oreal. Her declining health was a major reason for her to sell off the brand. After the sale, she likened her position to that of a ‘Trojan horse’, who, by selling off her business to a large firm, wanted to secure the brand.
“In case of Anita Roddick & Body Shop, selling off the brand gave an insurance to the brand. Competition often makes it difficult to sustain with a brand,” feels Ramesh Chauhan, Chairman, Bisleri International. In the early nineties, he sold off his brand Thums Up to cola behemoth Coca Cola for mere $60 million. The pressure that came from both the cola giants compelled him to do so, and he moved on to focus intensively on the bottled water business. Now Thums up has emerged as a cash cow for Coca Cola, but does Chauhan regret letting Thums Up go? “At that point of time, creating the distribution network required for Thums Up was difficult and then, focusing only on Bisleri helped me to create a generic brand,” feels Chauhan. Like Chauhan, Sumeet Nair also sold off his creation – the country’s first fashion week – to HUL’ s Lakme and later created more such fashion weeks like Wills Lifestyle Fashion week and others of their ilk. So do these entrepreneurs lack the patience and vision to sustain a brand in the face of competition?
It’s not always lack of vision. At times, selling a brand without compromising on the ownership also helps in massive expansion. For the country’s leading apparel exporter Gokaldas Exports Ltd., the promoters sold off 68% stake to US-based PE firm Blackstone Group. Post expansion, the company possesses 46 factories spread across 45 locations and is manufacturing more than 2.5 million garments per month. The Hindujas still enjoys a 20% ownership in Gokaldas. But for Delhi based Fun Foods, although selling off the business to a German MNC resulted in proliferation of the business, the original promoters had to bid adieu to the brand. For the founders Rajiv Bahl and his son Viraj Bahl, an offer of Rs.11 million (more than 3 times the actual sales of Fun Foods at the time of acquisition) was too lucrative and as 30 -year old Viraj points out, “Holding a business in the long run might not always be profitable for a promoter and then, the experience gained in one business definitely creates the key-stone for another business.”
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Source : IIPM Editorial, 2011.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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