Pre-independence my family was in the tobacco business in Bellary, mainly dependent on consumption by army. Post independence, the soldiers were moving out of town. This reduced the demand for tobacco products drastically. Our neighbours produced a competing brand. Now, though the demand had plummeted, fearing that we may lose the labour force to the competitors, our family continued production at full capacity – suicidal. Obviously, stocks started piling up.  Hoping that suddenly better days would come, excess stocks were stored in a warehouse located just behind the manufacturing unit.

Bellary is well known to have only two seasons a year – hot and very hot.  Normally it doesn’t rain much in Bellary and ‘heavy rains’ were not heard of.  However, on one of those days around 1955, there were very heavy rains, so much so that the roof of the warehouse collapsed.  Tobacco products become unusable once they are wet.  The entire stock became worthless.  There was no known storm insurance concept at that time.  It was a heavy loss and the family could not bear this loss. At the same time, our business partner expressed his inability to bear his share of the loss and backed out.

That rainy night was the biggest setback to the family.  Imagine, just one incident, changed the entire fate of the family. The family, which was considered one of the richest in that locality was on the verge of collapse.

If we analyse the reasons for this collapse, there were a few management blunders.  The most obvious one – though demand had dropped permanently, production continued at same pace.  The production continued just for the fear that the competitor would take away workers.  On top of all, the most damaging reason was the feeling that if production drops and we let go of labour, society will look down upon us, a fear of loss of face.

If the social pressure had not  influenced the business, the history of the family status would have be different.

In a “guidance program for the youth” where I am a mentor, I have observed that even in today’s  independent and forward-thinking age, young entrepreneurs are trapped with similar problems.  In one specific case, though the profit margins were good,  expansion was being made to impress customers and competitors.  Collection of outstanding was ignored, stating “that delay in payment is okay, as long as I get business”.  They somehow considered that demanding the payments was unsocial from the people of high status. These so called high status guys took full advantage and effected the payments at their own will and wish.

On scrutiny, it came to light that though the customers were very happy with the socially-rich vendor, it led the business to cash starvation so much so that the business was at the brink of closure.   After studying the figures, I had to advise the owners, about 8 months ago, that for the sake of survival, they had to come out of this “social complex”.   Luckily they heeded to the advice.  On their path to recovery, they had to offer hefty discounts to get outstanding dues. Certain debts turned bad and led to legal recourse.   They closed all their unprofitable wings, stopped dealing with the late pay masters and concentrated on the healthy portion of business.  Though it was a painful process, atleast they survived.  They are now about to turn the corner, within 6-8 months.    However, had they continued with the “Social ego” problem, they would have definitely closed down by now.

Whenever we have problems, we start getting influenced by what the society would think. After I qualified as a Chartered Accountant, when I was in the Middle East, I had the opportunity to study the reasons for many loss-making businesses internatioanally and suggest corrective measures.

I observed, particularly in cases of businesses owned by high profile owners, that though they knew where they were making losses, they were not willing to take action. And in most cases, the reason was for fear of society.

The business normally have activities which give decent profits as well as loss-making activities.  Profits generated by certain activities are eaten up by by loss-making activities.

In one of my assignments, I had to face a severe ego problem.  They were very hesitant to close down the loss-making units just because when the owner would be in his social circles the next time, someone would say “oh, you have closed down so-and-so business”.  They sound sympathizing but are actually sarcastic. This was a case of ego clashing with business decision.

I then had to argue: “One, are they going to come forward and help you if you start going down the drain. Two, how hurt would you be in the social circle, if you had to close down the business completely, which is likely to happen if you continue to lose this way.  Three, those who are real businessmen, would appreciate your decision as an aware and sensible one. Please ignore society on this matter and do what is best for you”.  He ultimately listened, his business survived.

For the sake of our own survival, let fear of society not influence business principles.

Author: Badri Baldawa                                                                     Editor: Meeta Kabra