Why do many entrepreneurs fail? Really it’s a million dollar question.Here is case study of V. G. Siddhartha – (1959 – July 2019) was an Indian businessman from Karnataka.He was the founder of the cafe chain Café Coffee Day and served as its chairman and managing director. He also served on the board of directors of Mindtree, GTV, Liqwid Krystal, Way2wealth Brokers, Coffee Day Natural Resources, and Way2wealth Securities. V. G. Siddhartha is now Rest In Peace for ever but as per wikipedia(5th August,2019) his net worth is INR 25,000 crore (US$3.6 billion).
I am not the originator and I am just coping as it is from the Linkedin article published by Mr. Raman at:
This is a note I received by email, am not sure of the originator, hence am copying it as received.
Forwarding Note on CCD episode received from a Senior Banker. Long but cogent
The lessons for any entrepreneur are….
A. If you borrow and grow then borrow carefully and within limits. Speed doesn’t pay beyond a point. There is the concept of sustainable growth in every business. VGS opened too many stores too soon. Some rented at high cost and some owned. The capital expenditure and increasing working capital requirement started him on a borrowing spree. In the last year alone, his short-term borrowings went up 5 times to well over 3000 crores. This is a disaster waiting to happen! Coz any company will find it impossible to pay interest (service the borrowing) and short term borrowings come at much higher rates than normal.
B. Secondly and this is a cardinal sin as far as financial principles go -the asset / liability mismatch. Using short term borrowings to finance long term needs. He has kept borrowing to repay the earlier borrowings. This is what happened with DHFL also. They kept borrowing short term CDs (Certificate of Deposits), as did ILFS to finance long term needs and either getting the lenders to roll over the same when the maturity date was reached or borrowed afresh to meet the interest or repayment obligations of other loans. In CCD there was too much of borrowings from banks in any case and the short-term obligations burdened it even more. This is a treadmill from which one can’t get off easily.
C. Like with many Indian promoters, VGS too has invested in multiple businesses. Real Estate, Logistics, Forest in Amazon as back end to a furniture business, passive investing in non-related businesses like Mindtree etc. Different businesses have different liquidity issues, business cycles and their respective growth challenges. Promoters tend to borrow or get equity money in a business that is doing well or the most known and divert to their other businesses and i suspect that too has played its part in this situation. When he reached a desperate situation, he tried to salvage by attempting sale of businesses in whole or part and sale of investments. He successfully sold Mindtree shares for over 3000 cr. But selling businesses takes time.
D. There are plenty of ways to have unaccounted cash moving in and out of businesses especially those that are retail. I think here too.
E. Most promoters use and benefit from political connections. People like Azim Premji are the rarest of rare. When it was Congress rule in the center and in Karnataka, I think he pretty much got at least indirect benefits and maybe direct, from being SM Krishna’s son in law.
I wanted to make these points as a finance professional who has dealt with Indian promoters for decades and seen and studied the financial aspects of diverse businesses, to say that while we may feel sorry for the passing away of a human being who by all accounts was an affable, hard working person with an entrepreneurial spark, we must understand that he brought this disaster upon himself by pursuing non sustainable growth in too many businesses and being financially reckless. I see people mixing up their assessment of him and even admiration of him as a person and his performance as a businessman and find that people are blaming external sources such as banks, Income Tax and politics for driving him to his death. He has benefited from the system as long as he was able to but he has only himself to blame if he didn’t have the patience to grow in a financially responsible and sustainable way.
I close with all respects to a good human being who deserves respect for his being. May his soul R.I.P.
This is worth a read too : Dare to declare capitalism dead – before it takes us all down with it By George Monbiot – https://www.theguardian.com/commentisfree/2019/apr/25/capitalism-economic-system-survival-earth