2/14/2011 A business Fiasco and what you can learn…

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A Business Fiasco in India: A Case About Chillibreeze

Study Chillibreeze offers content
writing services to customers
chillibreeze writer — Ramana Rajgopal
from all over the globe. We
also leverage our experience
Background information
in the content industry to
Mahesh Garudachar is an aggressive and hyper ambitious entrepreneur. He is publish ebooks about niche
35 and has already had a few failed start-ups in his life. His only employment, topics.
after he got his Engineering degree, w as as an Executive Assistant to a highly
successful entrepreneur w ho developed and successfully marketed a Services
household product. This w as immediately after he graduated. Mahesh was
extremely impressed by the methods developed and implemented by his Content Development
mentor/boss. The strategy developed by the latter was so successful that See all writing services
many others in India have copied it. Pay per Month!

Having seen the insides of a business from the top, Mahesh decided that he Content Editing
too should become an entrepreneur and w ith borrowed funds from his family Editing Services FAQ
leveraged to high debt from a commercial bank started a small scale industry Proofreading, Light Editing
manufacturing an industrial consumable item for which the project report was and Substantive Editing
obtained from a public sector Industry Development Corporation which Express Editing Services
predicted high demand. By the time the product was ready for launch, the
rules of the game changed and import duty was slashed enabling Chinese Design & Presentation
equivalents to be available at low er prices than his manufacturing cost. He Design services
closed dow n the unit and w ent into the then hot potato, “dot com” ventures, Power Point and 3D Graphics
with a series of start-ups, all fated to fail.
NEW!
It w as during this period that he met some European entrepreneurs, who
Corporate Training
suggested that he w ork w ith them as a supplier of goods for direct marketing Download eBooks
into the USA and Europe, sourcing the goods from Indian manufacturers and Participate in Malaria Comic
distributing them via the Internet/post/courier. He agreed and did so well that Book
within three years, he paid off all his loans, and was cash rich to the extent of
over Rs. 15 crores. By that time, he had also become a Non Resident Indian, by e-Publishing
setting up an office in Dubai, “Universal Logistics Dubai” operating out of Publish Your Book
Dubai, to save on Indian Income tax as, all his income was from overseas. How e-Publishing Works

His w ife, how ever, w as not keen to shift out of India - neither were his parents
who w ere shell-shocked and in severe depression following the death of their
elder son, a Captain in the Indian Army, in an anti-insurgency operation in
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2/14/2011 A business Fiasco and what you can learn…
elder son, a Captain in the Indian Army, in an anti-insurgency operation in
Kashmir.

He w as already filthy rich; making more money almost on a daily basis and to
pay income tax in India w as galling for him. He had to single-handedly handle
all the logistics as the information and database was too valuable to be
shared w ith employees. He decided then, that the future lay in selling off his
business to his associates and returning to India with a hefty bank balance.
He decided to do this, after first setting up a few businesses in India, which
would enable him to be active and launch him into a high growth business
environment.

He roped in a close friend, Ashok Damodar, a classmate from his college days.
Ashok w as already a partner in his current business, handling the Indian end
of the logistics and traveling the w orld for sourcing. With his wife Gayathri and
Ashok as his fellow directors and himself as the Chairman, he formed a holding
company called Universal Holdings Pvt Ltd, (UHPL) based in Hyderabad. The
objective of the holding company w as to start up new, commercially viable
subsidiary enterprises; after they became viable, take them public and get out,
Expanding into
to start new ventures. The companies were to be completely debt free and
Europe
operating from funds given by the parent as equity. Reliable & qualified
support. Experienc ed
UHPL hired a small office and started the process of recruitments. An Executive
with start-ups.
Assistant for the Chairman, a Human Resources Executive, a Finance Manager www.auxe vo .com
and a Company Secretary w ere employed to build up the businesses.
Import Goods from
The areas into w hich Mahesh decided they would operate were as follows China
FedEx™ Launches
1. A global trading company, sourcing from anywhere and supplying to New Flight between
customers anyw here, preferably UH-branded but also unbranded India and China. Open
commodities. an A/c Now!
Fe dEx.Busine ss-Shipping…
2. An advertising agency w hich w ould provide all the services needed for
the group companies as well as be self-supporting by getting outside InsightChina Biz
Solution
clients.
China Biz Planning
3. A global packaged-food trading company, which would outsource Setup Management
manufacture for UH-branded products to be targeted at the overseas Local Expert Advisory
Indian consumers. Consulting
www.insight-china.co m
4. A company to seek and exploit opportunities in rural Indian markets.
Education Franchise
The logic behind each of these businesses w ere as follows
Offer
Be a Franchise &
1. Ashok w as already trading in a small way in chemicals and doing
Enjoy Benefits Join
reasonably w ell. Ashok w as also a great negotiator and salesman with
Hands with Us Today!
wide ranging contacts. He could spear-head the trading operations from www.i360tra ining.in/
Hyderabad.
2. Mahesh already had some experience in advertising, during his stint
Birla Sun Life Growth
as an employee and had interacted with a number of advertising
Mutual Fund. Watc h
professionals to develop various advertising materials for their product Your Wealth Grow
and company. With Us. Invest Now!
Mutualfund.Birla SunLife.c…
3. Ashok’s friends included some people who were already
manufacturing and marketing packaged food products in India and were
looking for w ays to expand. It w as Mahesh’s experience during his
travels that good quality packaged food products for the Indian
Diaspora was inadequate.
4. Mahesh came from a farming family whose grandfather had migrated
to Hyderabad to seek employment and a better livelihood. Mahesh
wanted to return to his roots and purchase some agricultural land and
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2/14/2011 wanted to return to his roots and
A business Fiasco
purchase and what
some you can land
agricultural learn…
and
eventually, become a gentleman farmer.

The new Company Secretary soon registered the new subsidiary companies,
all as private limited companies. They w ere all named with the word
“Universal” to start w ith as follow s.

1. Universal Traders Pvt. Ltd.

2. Universal Advertising Pvt. Ltd.
3. Universal Packaged Foods Pvt. Ltd.
4. Universal Agriculture Enterprises Pvt. Ltd.

Since Mahesh had to be in Dubai to handle the day-to-day affairs of the

sourcing and distribution for his existing business, Gayathri became his point
person at Hyderabad. Gayathri w ho, prior to joining the group, as a full time
employee/director, w as w orking w ith the Indian arm of an American IT
company as a team leader. She w as a Computer Engineer from a prestigious
institute of engineering. She w as made responsible to get all the companies
staffed and operational.

She set out to do this and first appointed a Chief Operating Officer. He was to
oversee all the employees and their functions and set up systems and
processes for the parent company as w ell as for the subsidiaries. It was
decided that the parent company w ould provide all administrative support to
the subsidiaries, w hich would be staffed exclusively by operational personnel
only. The subsidiaries w ould be charged a fee for the services rendered.

The next step w as to hire places for each company, as well as hire/buy
furniture for them. No expense w as to be spared for decorating the offices to
reflect a high profile modern organization. Money was of no criterion, and a
special task force of four people w ere hired with experience in “administration”
and they w ere let loose.

For six months, this process w ent on w ithout any revenues being generated
and the funding coming entirely from the parent company, which was receiving
money from Dubai as equity and in turn, financing the subsidiaries as equity.

In the meanw hile, the HR function w as stepped up with a full time HR manager
supported by a team of five executives and recruitment went at full speed for
the parent company as w ell as for the subsidiaries.

Ashok w as made Director in Charge of UTPL and UPFPL. The other two
companies w ere to be under the direct charge of Mahesh, and Gayathri was
made responsible for the complete computerization operations of the group. It
was intended that the group w ould strive to be paperless and all employees
connected to each other through netw orks available on a 24/7 basis.

Ashok, during his periodic visits to Hyderabad, would address small groups of
employees of his vision and get to know them individually. During these
meetings, he w ould talk about his past and hopes and how he wished that the
employees w ere considered as important assets and not vassals. While back
in Dubai, he w ould constantly be on the phone with his key people during and
after office hours. He would talk for long periods of time about various
thoughts that w ould occur to him and keep apologizing for taking up so much
time.

Now w e shall see w hat w as happening in each subsidiary company.

Universal Traders Pvt. Ltd.

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2/14/2011 A business Fiasco and what you can learn…
Universal Traders Pvt. Ltd.
The HR Executive (HRE) w as given the job of hiring a General Manager who
was to decide on how he w ould build his team.

The HRE promptly suggested to Gayathri and Ashok that she could steal a very
good man from her previous employers. He was interviewed by both and found
suitable. He promised that he w ould move w ith customers in Europe and the
USA for three specialty textile items. He also brought along with him, his
previous assistant w ith experience in w eb sourcing and marketing.

The first item that the new GM brought on board was an item (BB Tape), which
he said could be sold in Europe for US $4.50 per Kg. He suggested that before
he joined, and during the notice period w ith his current employer, some one
visit China to tie up sourcing. The Assistant promptly located three sources and
Ashok visited China and found that the item could be sourced at US $0.38 per
Kg. Samples w ere manufactured to rigid specifications and sent to the
prospective customers. In the meanw hile, the GM joined duty and started
follow ing up. Tw o other items w ere also identified, to be sourced from within
India and also China and the sampling process started. All this took three
months from the time he joined UTPL.

In the meanw hile, another very interesting development took place. Mahesh
wanted to buy a safe w ith an electronic lock and went looking for it in Dubai
without any success. He promptly advised Ashok, already in China to look out
for manufacturers of the same. He decided on branding the safe as Unisafe
and arranged for outsourced designs for packaging, logo etc. and also
arranged for the trademark to be registered. This gave the idea to hire a legal
team to handle such w ork, which w as, but natural to increase as business
grew and one senior law yer w as duly appointed.

Since it w as felt that it w ould be a cakew alk to market the safe in Dubai and
also in India, orders for three container lots for staggered delivery on an
advance payment basis w ere placed on the Chinese supplier. The first
shipment w as to be sent to Dubai to be marketed directly under the
supervision of Mahesh.

The packaging material w as duly designed, and arrangements were made in

China to get them manufactured there and handed over to the manufacturer
of the safe. Ashok visited China a few times to ensure that the manufacturers
of the safe, as w ell as the packaging material, were meeting quality

parameters.

The GM w ished to appoint an agent in Dubai who was known to him from his
previous dealings. This agent w as a respected clearing and forwarding agent
besides being a w holesaler of a range of products. He was located in one of
the free trade zones and had a team of salespersons marketing his products
in the gulf region.

Perfect. The GM visited Dubai and got Mahesh and the agents together and
everything w as tied up bar a w ritten agreement.

Since marketing could start only after the goods arrived in Dubai, a lot of
promotional material w as ordered to be produced in Hyderabad. Brochures,
operating manuals, w arranties w ere all printed and sent to China to be packed
and dispatched along w ith the goods.

In the meanw hile, due to the summer vacation break there was a lull in
activities in Europe and business plans w ere drawn up assuming the purchase
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2/14/2011 A business Fiasco and what you can learn…
price at the know n price for the BB tape,and the presumed sale price as
indicated by the GM. Similar business plans were drawn up for marketing the
Unisafes on the assumption that the three container lots will be sold without
any problem, if only, the sales force could be trained to replicate what Ashok’s
old company in India had done.

The business plans showed such a rosy picture that the company was
expected to be off and running and self financing besides paying dividends to
the parent company in just a few months’ time. A team of marketing persons
to sell the Unisafe in India w as hired and sent off into the field to set up a
proper distribution channel.

All this w as costing money and the supply side was beginning to show strains
as all the other companies w ere also draw ing large sums to set up and get off
the ground.

Just as the summer vacation in Europe came to an end and the prospects
conducted quality tests on the product, another product came to the attention
of the GM which too could be sourced in India and sold to various companies in
the Far East and Europe and efforts to tie up the sourcing were initiated.

The new s, w hen it came, w as completely devastating. The price that the
customers w ere w illing to pay for BB Tapes was not US $4.50, but $0.45. There
was a typo in the early communications between the GM and his prospect,
based on w hich all the euphoria w as generated.

Desperate attempts to get the suppliers to reduce their price further failed and
the margins simply did not offer an attractive enough cushion for international
trading w ith all its attendant overheads. This was such a devastating
development that the GM simply w ithered away totally demoralized, as he
became the butt of all jokes w ithin the group. His heart was simply not on the
job, though he put up a brave front and tried to divert his attention to the
other products in the basket.

In the meanw hile, the container of Unisafes had reached Dubai, and the GM
went there to launch the same. The dealer network there, promptly asked for
consignment basis sales as; they did not find much scope for the product for
sale ex counter. The strategy of direct sales to the various offices in the
Emirates w as then considered, and they came up with the problem of dealing
within the free trade zones, w here security is very high and the number of
calls that could be made per day considering the peculiar local needs, were
just not adequate to generate enough business. Except for a few units, the
stock remained with the agent accumulating stocking charges and rent.

In India, the scene w as slightly better but only slightly so. The product could
be sold but against other imported safes being sold at much cheaper prices by
other importers. The margins again could not finance the kind of overheads
that w ere already built into the operations.

The GM in the meanw hile sought to return to his earlier employer who readily
accepted him and he left. Similarly, the team hired for the local marketing
sought and found other employment elsew here and quit. Another experienced
GM w as appointed w ho required six to nine months time to set up a completely
new operation and after three months, he too decided to seek his fortunes
elsew here and quit.

The other tw o containers meant for the Indian market, already paid for, landed
up and had to be taken delivery of and stocked at a considerable expense in a
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2/14/2011 A business Fiasco and what you can learn…
storage facility.

As this report is being w ritten, the stock in Dubai remains unsold and has been
diverted to Hyderabad and some stocks of the local variety have been sold at
distress prices.

The company is now staffed by one trader, doing some local trading and just
managing to meet his costs. That is, how ever, unable to support the
infrastructure already built.

C hillibre e ze 's disclaime r: The vie ws a nd o pinio ns e xpre sse d in this article are tho se o f
the a utho r(s) and do not re flect the views of C hillibre eze as a com pany. C hillibre eze ha s
a strict anti-plagia rism policy. P le ase co ntact us to re po rt a ny co pyright issue s re lated to
this a rticle .

O ut o f 5 “chilies”, o ur editorial te am ga ve this a rticle .. .

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