Head of the Post Graduate Programme
It is a true story shared by the founder of its venture who had lost rupees thirty crores in thirty months, virtually wiping out all that he had earned in thirty years of his life. The story of the Failed Venture is an autobiography of a qualified Chartered & Cost Accountant, Mr. Prashant Desai.
The story of The Failed Venture of rupees thirty crores has been summarised by Dr. Neelam Tandon (Professor and Head of the Post Graduate Programme at JIMS Kalkaji) and Mr. Mahendra Sarin (Chartered Accountant)
Founder’s Profile
Mr. Prashant Desai, a qualified Chartered & Cost Accountant had worked for 30 years with prominent investors in India before starting his venture. His enriched experience and passion helped him to reach the net worth of his firm to rupees thirty crores.
Project Profile
The mission of the firm was to develop an Indian sports brand like Nike. The business model adopted by Mr. Prashant Desai was to market and distribute sports shoes and sports apparel through retail outlets and an online e-commerce website.
Product Design
The product was designed in the United States of America and Europe and manufactured in China to minimize marginal cost and derive high marginal utility for the middle-income group consumers. The price of the product was planned to accommodate the purchasing power of the emerging middle class in emerging countries. To promote the product agreement was signed with NEW ERA, Broke and renowned cricketers, and Bollywood actors.
Process Design
Mr. Prashant Desai made a partnership with an experienced person who had worked as a country head in a leading shoe company. Seventeen premium and exclusive retail outlets were established in seven cities of India. Exclusive online sale agreements were signed with the best online e-commerce site. For marketing the sports apparel items Mr. Prashant had signed an agreement with a leading US company and for branding of the product, he had signed an agreement with a leading cricketer and Bollywood star as brand ambassadors.
What Went Wrong??????????
The business had lost Rs 30 crore in 30 months, virtually wiping out all that Founder has earned in the last 30 years.
1. Poor Team Building
Facts
Mr. Prashant recruited a known friend and elder brother for managing the supply chain process. As a result, the errors and delays in the shipment were not reported to higher management. For example, process-driven customers had placed orders of 12000 shoes and promised to pay fifty percent of marketing expenses, but their shipment was delayed by more than a month and it was not reported to higher management.
Reasons for Failure
High reliance on familiarity over competence led to a lack of compliance in systems and processes. Also, the role and responsibilities of team members were not well defined. The opportunity cost of more preference for personal relationships over professionalism incurred a huge loss to the organization.
2. Profit Maximization Versus Value Creation
Facts
The founder was a very successful investment banker, during his employment tenure, he executed excellent deals, and sold companies at attractive valuations, for him money was everything. Industry experts advised him to; Explore the layout and set up of other sports retail stores, b. Open a few retail stores, c. Look for strategic and financial investors, d. Change product color and design, e. Focus more on advertising product quality over celebrity and f. Focus more on marketing and selling sports apparel than shoes and, g. Tie up with a big retail chain like Future Group/Reliance.
Reason for failure-
Given preference to wealth creation over development of business/brand and value creation. previous successes had made the founder more arrogant and egoistic. He failed to listen and take inputs from Industry stalwarts. The founder was short-tempered and aggressive in nature. The Founder and Team had never come together and celebrated small victories.
3. Goof Up with Accounts & Finance
Facts
Landed cost wrongly calculated by adding 20% on FOB price. Intermediate costs like freight, insurance, and other costs were vaguely considered rules related to input credit were not properly evaluated. GST on capital expenditure was not considered and it caused an increase in cash outflow by Rs 72 Lacs. Different GST rates applicable on sports apparel below Rs 1000 were not explored. Extensive discounts were offered to distributors without realizing its impact on net cash inflow. Discounts were not deducted from MRP. Rental agreements for retail stores were not thoroughly reviewed, it caused the forfeiture of the security deposit of Rs 2 crores. He Opened 17 retail stores in 3 months at prime locations and spent huge Capex on interiors. Capital items like furniture, air conditioner, and the computer were disposed of based on their weight than on functional value. The profit and loss account for each retail store were not shared with the concerned retail head.
Reasons for failure-
Failed to identify possible financial and functional risks and failed to understand the impact of GST and its compliances. Funds were not earmarked for contingency. Aggressive spending in setting retail stores. No regular review meeting to discuss financial and cash flow.
4. Poor Investment Decision
Fact
Some venture capitalists offered to invest USD 10 million for a minority share.
Reason for failure–
Greed for higher valuation had stopped the founder to induct new investors.
5. Failed To ‘Know Your Customer
Facts
The founder Ignored customers’ feedback. Failed to distinguish between online and offline customers’ perceptions. The product was offered at Rs 3,000 per pair whereas a better product for the premium brand was available at Rs 4,000.
Reason for failure-
The founder assumed himself as a customer and failed to understand the psychology and aspirations of middle-class customers
6. Spent More Money on Brand Promotion than Brand Development
Facts
The company paid Rs 2.15 crore to brand ambassadors, retainers, agencies, and celebrities for showcasing the brand but spent less on the brand itself.
Reason for failure-
Failed to understand that product is more important than outer packaging.
7. Poor Online Marketing Strategy
Facts
The company paid no attention to showcasing the product in ONLINE Stores, search lines were not matching with product offering, product shoots were dull & unimpressive, and customers failed to connect with the product.
Reason for failure-
Failed to understand the technology and process of online retailing.
Head of the Post Graduate Programme
For more information visit: https://www.jagannath.org/
