Pride, promise, politics

The untimely demise of 59-year-old VG Siddhartha has made me angry and sad. It was back in September 2015 that I met him for the first time, right before Coffee Day Enterprises’ IPO. I had a special fondness for Café Coffee Day, for it was the Worli store that was my favourite place to hang-out with colleagues at work. Before CCD, we were unexposed to the coffee culture. For Mumbai journalists, the conversations were at the water cooler, and the coffee was cutting chai. The food indulgence was butter dosa at anna’s tapri. Coffee and conversation at CCD was a novel idea.

Writing for Business Standard Smart Investor those days (2000-2007), with my limited understanding of businesses, I thought Coffee Day would be a great business. I would certainly buy the stock if it ever listed. It was only when the draft red herring prospectus for Coffee Day Enterprises came out in June 2015 that one understood, the business was not as great as one thought it to be. One, the company was not exactly the coffee retailer one wanted to invest in – it was an amalgamation of businesses of which coffee was a smaller part. Investors don’t like diversified businesses, they detest crossholdings. The company had 40 subsidiaries across the coffee, technology parks, logistics, hospitality and financial services verticals. Besides, the consolidated debt stood at Rs.28 billon, of which the holding company had a debt of Rs.10 billion. A significant part of that debt was raised to buyout existing shareholders — Sequoia Capital — in the retail business. Plus, an additional Rs.2 billion was borrowed to buy Mindtree shares.

Not that Siddhartha did not know the ways of the stock market – he started his career as a stock trader after all. But in his wisdom, he did not pare down any of his holdings and went ahead with the listing. During the IPO his logic was these businesses will create substantial value in the long run, so there was no need to sell or hive them off as long as there was no dire need.

Coffee retailing was an idea whose time had come – it was a great consumer story. Like several other retail-oriented businesses, Siddhartha had still not demonstrated how profitable the business could be – there were investors who bought into the consumer story with the belief it would pay off in the long run; others ignored it because it didn’t show the path to super profit nor did they fancy the complicated structure.

It did not matter. Siddhartha was pursuing an audacious dream – of creating India’s Starbucks. Those were the days of optimism – everything was booming and every entrepreneur was building for growth. Siddhartha was no exception. Café Coffee Day had established over 1,500 stores by the time of its IPO.

I did not invest in the stock despite my love for the coffee chain, nor did we recommend the stock, but we did a cover story for it was a wonderful story to tell.

It was only when I met Siddhartha later for profiling him in our special edition Outlook Business Secret Diary that I really discovered the person he was. It wasn’t easy to convince him to do a personal profile – he was happy to meet but extremely reluctant to be profiled. Siddhartha remained very low profile and avoided the media completely till his company went public.

I met him around lunch and we pretty much spent the rest of the day doing a four-hour long interview and then some more conversation. He spoke from the heart. He was very positive about getting the business right – was candid about the challenges in the business, and accepted that there were some parts of the business he had struggled to fix – it was all still work in progress. But what left an impression on me was his empathy, a quality highly underappreciated in the world of business.

He talked about his childhood, parents, value of friends and relationships, how deeply he felt about his employees. “How can you expect a person, who comes to work after some two hours of travel – and these are people who come from very ordinary backgrounds, they face all kinds of family challenges – and we expect them to come to work and whatever their situation may be, paste a smile on their face and serve,” he asked with a degree of exasperation. I was perplexed and asked him, ‘how can you run a business if you are so emotional’. He laughed in his characteristic loud yet coy way and said, “These are the problems, Ma’am.” He was very aware of the leaks, fixing would take time. “We’ll get there, slowly,” he said, even as he was stretching himself travelling four days a week to get his stores in order.

He surely was not a guy who was chasing success at any cost.

Business often calls for quick action and very harsh decisions – shutting down ventures, layoff people, accepting that not all assumptions and growth plans may turn out right, and the toughest of all – swallowing one’s pride when the situation demands. An entrepreneur needs to be very thick-skinned to take the rough with the smooth. Not natural for a person like Siddhartha for whom his word and pride was of supreme importance.

It will be clinical to jot down where Siddhartha may have gone wrong – the pain points, as also articulated in his letter (the authenticity of which is in question) were many. The IT raids and the unaccounted money seem to be an outcome of deals within deals, allegedly involving political friendships, done to pay off his debt and provide exit to his investors when the reality of the business failed to measure up to deliverables. Caught in the quagmire of politics and money, the change in the political dispensation seems to have intimidated him to an extent that he felt unable to stomach the humiliation, if things unraveled. “Name is everything,” he told me during our meeting. More stories – founded and unfounded will unfold in the coming days.

Having said that, one can’t underestimate the challenges any entrepreneur goes through in a country like India. Retail isn’t easy for sure – there are many multinationals in India which have made meager or nothing in profit and continue to run their operations in India for years. But for those multinationals, you have a deep-pocketed parent willing to write that cheque. In the case of a private equity funded enterprise, you have no option but to deliver return in a time frame set by the investor.

The Herculean challenge of standing up against a global player such as Starbucks is no mean feat. But then the problem is businesses can go wrong, awfully wrong. May be the assumptions are flawed, may be the challenges in execution are insurmountable. Prudence and pragmatism must prevail, but it is not usually in the nature of entrepreneurs to give up or lose hope. “As an entrepreneur, you just can’t afford to lose hope,” were Siddhartha’s very words.

The nature of business though is that it is inherently fraught with risk – things under your control and things beyond your control. But as an entrepreneur, Siddhartha, too, was chasing his dream relentlessly. What proved costly for him was he was doing so on borrowed time and money. He seemed to have partners in profit and none to share the risk. That’s pretty much the story of a lot of private equity funded firms today, because many a times private equity is actually private debt. If you do not make money, your investors can’t make money – period. Raising debt to buy out equity is highly risky.

In hindsight, accepting a business problem and cutting your losses and being upfront with investors when things are not working out may be the best way to address the issue when assumptions go wrong. But that hindsight is coming from a journalist, not an entrepreneur.

Siddhartha was an amazing human being – an epitome of humility, one rarely finds that in successful people in any field. He had a degree of empathy few leaders truly demonstrate. Keeping his word – small or big the promise – was supremely important to him.

That day, after our final conversation, he ushered me down the elevator, till the building gate of his office on Vittal Mallya Road, promising to make it for the unveiling of the edition at our leadership conclave Leading Edge.

It so happened, the date clashed with his trip to the US to visit his son. His secretary told me, he rescheduled his trip to accommodate our event. He only had one request – ‘Please don’t ask me to be on stage’. I persisted with him being on a panel on 'Creating Indian Icons’. He graciously agreed. During the panel discussion, he mentioned, "In next 10-15 years, we have an aspiration to build this brand which every Indian would be proud of”.

He was surely dreaming big, trying to navigate his way through a tough business in a humane way. With all its fragility, it proved to be his undoing. Godspeed, my friend.