Satsheel Purification Private Ltd
Part 1 ( To be read before the class )
A case for discussions in SYB (Start Your Own Business) class
Developed by Prof S K Palekar of S P Jain Institute of Management
based on a real life but identities have been disguised to protect privacy
In April 2009, Sheela Joshi, 45, Managing Director of Satsheel Purification, was sitting her in office at Ujjain – a mid sized city in MP. In the last few months much had happened to bring her glory and recognition. Till a few years ago she was a nobody in influential circles; she was a mere successful doctor. But much had happened in the last 2-3 years that had changed her life. She had gone on a holiday to England, met an inventor of a “killer product” by chance, was able to negotiate with the company in the UK, was able to convince the bank to lend money, floated a company, got the Chairman of an international company to come to Ujjain, her name had begun appearing in the papers … and here she was as the MD of a company on the verge of its glorious journey to stardom. Everything had gone off smoothly till now but she had taken a lot of risk too. She frankly admitted;
“things have gone smoothly – too smoothly in fact – I am feeling apprehensive! Within 3 months I will know if I am destined or doomed”
Sheela is typical of those professionals who hail from mid-sized cities - who seem to have everything - education, respect, lifestyle and wealth - and yet they crave to be known as businesspersons. Sheela is a doctor by profession with 20 years experience and has a good established practice in Ujjain – a town with about 500,000 population – in Madhya Pradesh. Her husband is a lawyer and he too has a good practice. Both come from good family background : their parents and grandparents did well in their own days in respected professions like government service, medicine, law & education.
Why Does Sheela Want To Be In Business?
Sheela explained her craving to be in business in 2005
“After working for over two decades in my profession I have already achieved what I had to. I know I cannot do any better than this by being in Ujjain and yet I cannot tear myself away from the city. I have thought a lot - what I should do in the next 15-20 years of my working life ? I have money, I can take risk, my son is doing an MBA. Is it not natural then that I should think of getting into some business with all these resources at my command?”
She knows it will not be easy. In 2006, Sheela said,
“we are a service culture family; the business does not run in our blood and of course I know there will be start-up losses and teething troubles. But once the business starts making profit, we would have created a business which will continue to grow for several generations. My great grand children will thank us for having sowed the seeds of the business in the family! We would have been better off today had my grandfather thought like what I am doing now. Who knows - instead of starting my life as a medical intern - I could have started my life as the Director of a public limited hospital .. something like Apollo Hospitals!”
An Opportunity Knocks on Sheela’s Doors
In 2007, an opportunity came her way when she went on a holiday to England and stayed with her cousin Yamini Mali. Yamini’s father was Dr. Mali, who was settled in England for over 3 decades and was Vice President of a Company called “Puripen”. During various conversations with Dr Mali - over the 15 days she was in London with him - she became convinced that Puripen’s product was the opportunity she was waiting for !
Seeing her interest, Dr Mali organized for Sheela to meet the Technical Director of the company Dr Jim Watt. He was the inventor of the technology of Puripen and the Chairman of the company Theo Timbervelt had put in his millions into the company based on Jim’s brains and capabilities.
Jim told Sheela over a cup of tea in his office,
“ This product is nothing short of a marvel in this world - which increasingly craves for safe drinking water. It is a fact that fresh water is getting scarcer and also more polluted every year. The time for this product has come! My product can take any type of water – literally from the puddles on the street or streams from the country side – and convert it into safe drinking water in a minute - without using electricity - and without using heavy equipment! No more water bottles to carry !! This plastic glass weighs only 700 grams and is powered by 2 AA sized batteries. Just pour the water into the glass, press the button, stir the water for 60 seconds – and the water is safe to drink! The Ultra Violet radiation kills all the bacteria and makes the water safe. My product is first of its kind and I have several patents to prove it.”
After meeting Jim, Sheela had become a convert and wanted Dr Mali to agree to try and influence the Director of Intemational Operations of Puripen to make her an exclusive distributor for India. Dr Mali said,
“ Go back to India, talk to your supporters and come back with a firm intention to become an exclusive distributor of Puripen for India and I will see what I can do. The company has big plans for India and you would need to invest money and time and create an organization and infrastructure”.
Hearing this, Sheela was besides herself with joy and excitement. The picture of the product can be found at the end of the caselet.
From London she called her husband Satish,
“I am lucky ! We are lucky!! I had no idea that here in London I will find the basis for my dreams! I think we have found a “killer product” and the company is ready to appoint me as exclusive distributor for India. No one else can import the product into India. No one can copy this product because it is patented. I am coming to India tomorrow. Please keep all things aside and concentrate on lining up potential investors and bankers to meet me next week. I have promised to Dr Mali that I will be back in four weeks to talk about the contract. Needless to say, our son Suresh will play an important part in this venture and you ask him to come to Ujjain and skip his Business School for a week.”
First Steps
Sheela was advised by Puripen against setting up a factory initially : “develop market first and put up factory later”; she was told. It was therefore decided to import the products initially - for a few year till the volume justified a factory. Although the import route will be somewhat costly, Sheela saw good sense in the advice of focusing on creating market first. Having decided thus, it was clear that it will essentially be a trading business and it would become important to tie up with a commercial bank to borrow money for financing the stock and the debtors. Thus a meeting with the bankers was organized.
Sheela’s son Suresh, after a few days of analysis, made a good presentation to the bankers who had shown preliminary interest in financing the business. His last remarks served to summarize the thinking of the company,
“ Gentlemen, we are talking of drinking water - something which no living being can do without even for a day- and there are 110 Crore living beings in India today. It is well known that the water is getting more scarce and more polluted with the passage of time. There is no question of not having a market for water purification in India. So let us go to the next question : can we capture this market ? The answer is decidedly “yes”. It is the most advanced product and is protected by patents. It has features which no one else has. It can literally take water from the puddle on the street and using an apparatus that weighs only 700 grams – which runs on batteries – the water becomes safe in less than 60 seconds”.
The bankers were impressed with this thinking and showed willingness to go ahead with the project. Things were falling in place for Sheela.
Company Formation
In 2008, Sheela went to London to wrap things up. Things began taking shape quickly after her return. A Private Limited Company called “Satsheel Purification Private Limited” was formed. Sheela, her family and friends became investors. Earlier, Sheela had invited many friends to witness the presentation Suresh made to the bankers. The positive outcome did not fail to impress the friends : they were eager to become shareholders! The need of the equity capital was worked out as Rs. 1 crore. Sheela & her family retained Rs. 51 Lakhs (controlling interest) and five of her friends shared the remaining Rs 49 Lakhs equally. Giving Rs 10 Lakhs each was not really a problem for Sheela’s wealthy friends.
Sheela was elected to be the Managing Director in October 2008 - due to the pioneering work done by her. Her good friend Christine said,
“I agreed to be a passive investor and wait for my dividend to come every year when the company began making profits”.
Sheela was firmly in the driver’s seat !
Dr Mathur joins
While the company was being established, Sheela hired Dr. Ashish Mathur as the Technical Head of Satsheel – an eminent person who was the Head of Chemistry in a college in Ujjain. He was a Ph D in microbiology with 30 years experience behind him and he, in fact, had taught Sheela when she was a student in the same college. Sheela was happy to have a trustworthy and senior person like him in her company. He could command respect wherever he went due to his knowledge.
Dr. Mathur visited Puripen’s manufacturing facility at Coventry in England and was impressed with the professional way they adopted to develop, make, test and ship the products. The company sold 80% of its products outside of England in several countries and treated Dr, Mathur with respect and care reserved for important export customers. Dr. Mathur brought back Several samples in July 2008 and tested them in the local laboratories and was satisfied with the results. Ordinary municipal water, when treated with Puripen, gave bacteria free water!
Market Entry
In January 2009, soon after becoming the MD, Sheela brought pressure on the International Department of Puripen to make the founder and Chairman Theo Timbervelt to personally come and launch the product in India. His diary was busy but he finally managed to squeeze 2 days in April 2009 for Satsheel launch. Due to flight timings and the need to travel from Indore to Ujjain by road, effectively onely 1 day of Theo could be utilized. This was a gold lettered day in the life of Sheela. She was able to do what no one else in whole of Ujjain had done. She got the Chairman of an international company to come and launch the products and conduct a national press conference in Ujjain.
This date created a lot of pressure on everyone in Satsheel. The products had to be available nationally before the national press conference. Sheela was thankful that Dr. Mathur offered to help her out in this marketing task although he was not really a marketing person. Although 55, he travelled to 30 major cities in the country and appointed over 50 distributors in these cities. After doing all of this, when Sheela asked him the reaction of the distributors, he replied analytically as follows.
“Since we have to pay import duties, as you know, the price worked out to be Rs 4500 per unit and this worried me a lot because other products available in the market which worked without the use of electricity and running water were far cheaper and were marketed by big marketing companies! Hindustan Unilever sells its “Pureit” at Rs 1200 – Rs 1800, Eureka Forbes sells its “AquaSure” at similar prices and Tata Chemicas sells its “Swach”at Rs 900. But after going to the market the distributors allayed my fears. All these products were bulky, and not portable, and hence essentially for in house use. Our products is very light and portable and works on batteries. There is no comparison !! They all saw a vast potential”.
The supply system specified by Puripen was based on a distributor placing an order 3 months ahead of the need by opening an LC. This enabled Puripen to procure materials and supply in time. A distributor was free to indicate staggered monthly deliveries.
Accordingly, sometime in January 2009 Sheela, Suresh and Dr Mathur began making sales estimates. Suresh, being an MBA student, was keen to make a scientific calculation. The three of them explained the basis of their sales forecast to the bankers as follows at the time of opening the LC,
“The total population of the top 30 towns in India is 12% of India; and is 13 Crores. It is always a guesswork how many will buy the product. We have made a safe assumption that at least 5% would buy our product during the first 12 months. This means 65 Lakh units :or 5 Lakh units per month. We therefore want to open an LC for 15 Lakh units which will arrive by ship at the rate of 5 Lakhs every month – in March, April and May.
The stage was thus set for the launch.
Satsheel Purification Private Limited
Part 2 – To be distributed in the class at an appropriate time
A case study for class discussions developed by Prof S K Palekar - Based on a real life company and people - But their identities are disguised
APRIL 2009
The visit of Theo Timbervelt went off well. Sheela was on top of the world. She became the toast of the town, darling of the journalists and even politicians began clamoring for her attention. The event agency however reported that the press conference story appeared only in Indore based publications prominently. In other states and nationally there was hardly any coverage of the story. The commercial people murmured that the orders from the distributors were far lesser than what was envisaged. Instead of the sale of 16000 units per distributors, the actual sale was only about 1000.
MAY 2009
The sale plummeted sharply in May and in fact many distributors were reluctant to place any orders because the stock had not moved. There were various recommendations from the distributors and Sheela could not make up her mind which was the right suggestion, how much to spend on it and, most importantly, where to get the money from ? Whatever money the company had had gone in paying for the inventory and the banks would not release more unless the distributors bought and paid as planned. In reality the distributors were not at all buying as planned and were not even paying for what they bought. The recommendations were as follows.
- The company should spend in advertising
- The company should appoint sales force to canvas to the retailers
- The company should reduce the price
- The company should give a discount to the retailers
- The company should give more margin / credit to the distributors
- The company should take back the stock and give a credit note
JUNE 2009
By now everyone knew that something was wrong – seriously wrong. There was a panic among the employees – some left the others began thinking of leaving. The distributors wanted to return the stock and wanted the money back in cheque form and wanted to stop dealing in Satsheel products. Even Dr Mathur told Sheela that she had failed to create a good marketing team. Friends started pestering her as if the company had become bankrupt.
DISCUSS
Is anything really wrong ? Why did this happen?
Satsheel Purification Private Limited
Teaching Note
The case has 2 parts : Part 1 and Part 2. Part 1 is to be given for the students to read and come prepared to the class.
Begin the class with following questions on the board
- Would you have invested in this company ?
- What are the chances it will succeed ?
- How good and salable is the product ?
- How good is the price ?
- How good is the marketing plan ?
- How much it will sell in its first year ?
Each one of these is a debatable topic. Let multiple views come out in the open and let the students understand the multiple issues involved.
After this the teacher should distribute Part 2
The students will be surprised at the turn of the events. Now re-visit the same questions as above and see if any new viewpoint comes out :
- How good and salable is the product ?
- How good is the price ?
- How good is the marketing plan ?
The teacher should then bring out the following key issues
If you were Sheela
· Should you only by how great the technology is and not consider whether Puripen was actually commercially successful ? What was its performance in other countries ? NOT ENOUGH SECONDARY RESEARCH DONE BY SHEELA.
· To whom would the features of the product appeal? How many such people were there? Did Sheela know where they were and how to approach them? Or she will have to hunt for them as if they were needles in a haystack? VALUE PROPOSITION WAS NOT RESEARCHED WELL BY SHEELA.
· Why did Sheels not get Customer feedback by Market testing ? Test Market ?
· She did not know that Puripen had already gone to all Indian firms. She did not move enough into the market to know this!
· Sheela did not follow the planning process : She hurriedly ordered the stock without having a strategy to sell it
· Sheela kept her personal needs of glorification above the needs of the market. She could have launched the product in a bigger market and not in Ujjain to meet her personal PR objectives.
· She ran the whole company by herself – she had no governance structure – she had no checks and balances – no one to tell her if she was wrong
· She aimed for a big scale only based on a “paper forecast” : she could have gone step by step gradually.
For Sheela (and you ) to introspect
· Was Sheela influenced by Media / Social circle / Fashion ?
· Was Sheela an expert ? If not what was done to correct this ?
· Did Sheela understand the business ?
· Was she passionate and fascinated about the business ?
· Did Sheela see herself into it and dream about it ?
· Did she check if stakeholders liked her plan ? Customers ?
· Did she figure out how to make money in it ?
· Did her organization reflect her strengths / weaknesses ?
· Was she driven by incoming circumstances or a plan ?
· Could she have scaled up gradually in phases ?
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