My first brush with the industry (albeit indirect), after completing my course and returning home…
The Setting: An informal chit-chat between my client and my father
The Background: The ongoing recession and the contribution of MBAs in ‘creating’ this recession (!!!!)
Client: Arre Mr. Kataria, I am telling you…its these MBAs only who have brought about this recession..
Dad: How?
Client: Lemme explain how Sir…you see, we all have not studied as much as them…right?
Dad: Very true Sir…
Client: Hmmm…Bhai hum log to mehnat kar ke khaane wale log hain…we strive our whole lives vying to make our businesses as big as possible…so when our business attains a decent size, we think of making it bigger…of ‘professionalizing’ it because everyone says that running a business in the typical ‘Lala’-type manner won’t take it far…so we hire a couple of these kids from these Hogwarts-castle like colleges…
Dad: Haha…Sir, you put it forward in a nice manner…
Client: So these kids walk in, and the first thing they want to do is analyze your Balance Sheet and P/L account…they find out YoY growth rates and CAGR and all that fancy stuff…and then tell you that despite your phenomenal growth in the last 2 yrs or 3 yrs or 5 yrs, you have actually lost XYZ amount of business and these 1-2-3 areas are the root cause for your losing business…your turnover is at such-and-such level whereas it could have easily been at least 30%-40% more!!
Now the moment you hear this, your brain is sure to go for a toss!! I mean, ye ladka abhi abhi aa kar aapko ye bata raha hai ki aapne actually itni demand haath se nikal jaane di, whereas till yesterday you were patting yourself on the back on your growth!!
The next thing they will do is ‘analyze the market’ –find the market size, number of similar players…and do some more fancy stuff and tell you that in the next 5 years, the market is going to go from ABC level to MNO level and hence you should gear up for it…you should “plan” well in time so as to take advantage of the market conditions at that time…
You will also think, “Well said!” “Well thought out!” … and you are all ears…the MBA will say, “Sir, I think there is a desperate need for you to increase your production capacity…otherwise you won’t be able to meet the desired supply level after 5 years. Rather than going in for a huge Capex at that time, I suggest that you go for planned, incremental Capex Plans from now only, so that you won’t put too much trouble on your financials later.”
You will also agree to this point, obviously…you also understand that incurring so much Capex at one time is very difficult…sucks out the liquidity from the business.
Dad: Plus, it takes time to build capacity, and it’s possible that you might have missed the bus by the time you are ready…
Client: Very true…to hum bhi unki haan mein haan milate rehte hain…
Then he will tell you that you must set up your manufacturing facility in such-and-such place and that will entail a total of so much expenditure…”But don’t you worry about that…I have figured out a way for that too…your Balanced Sheet is unlevered till now…its always better to have some amount of debt because it reduces equity risk…and banks will lend to you at very reasonable rates…and your Interest Coverage Ratio is also very high, etc etc….” aapko saara logic samjha dete hain, and trust me its all convincing!
So you start setting up your facility…which will invariably be up and running in the next 2 years…the MBA will say, “Its apt time because now you can start increasing your production and supply” So you start doing that, realizing only a little later what you have done! You have actually created a money-guzzling monster! You can’t stop production and the market’s demand doesn’t quite increase as smoothly or constantly as it is shown on paper…moreover, not everyone in the market is your customer and not everyone will become your customer…and you will see liquidity drying up irrespective…either in your stocks or in your receivables…slowly but surely, you will be overstocked with whole warehouses of goods…you will be literally begging your customers to buy some more but to no avail…arre baba, even the end consumer has to buy na…she will look at 50 sarees and then buy 1…but you have already made 500 in the hope that she will buy more, that you will “create a niche”…now if the whole bazaar does like that it only means that the market will be overflowing with sarees…and all this will happen before the predicted 5-year “boom”…you will only go “bust” and never live to hear any other sound except the “boom” that you created!!!
Mr. Kataria I can’t tell you how many have suffered this way…ye padhe likhe log hi market ko kharab kar dete hain…. (!!!)
