Lessons for Entreprenuers - Marketshare vs. cashflow

If you are an entrepreneur, you should learn a few lessons from the current saga unfolding in the Air Deccan- Kingfisher saga. The whole episode has a lot of lessons to learn in corporate strategy – a model which worked elsewhere might not work in another as the conditions are not the same – so a low cost model in a country where most of the costs you face are the same as a full service carrier will not be the same as a south west or a Ryan air success, so think through. In game theory, we have games modeled called ‘battle of attrition’ where the first person to blink loses everything and the person remaining in the game get abnormal returns – in the airline business, that is what happened – where on the last day when Deccan was to make money, It was being priced out of the market.

But all those lessons are what have been written ad nauseum elsewhere. I look at Captain Gopinath and think of lessons for entrepreneurs. A visionary entrepreneur, who on the first counts made the right moves – built a strong team, entered the market and exploded it, had financial investors who believed in him (Ladhanis), changed the right parameters of the model (ticketing software, yield management software) and created history – but now sadly he has lost control of the baby that he gave birth to – having ceded control to Kingfisher. I think at sometime an entrepreneur has to choose whether the dream is larger or his control over the concept and I respect Capt Gopinath for the decision where he has let the dream grow, albeit with a changed identity but it will survive. Many Indian entrepreneurs can never see themselves two steps away from the company they gave birth to….

But then I ask myself how an entrepreneur can not have to go through this divorce – this premature rupture of control, of giving up the dream u built – remember the best returns are available when more and more people believe in the concept, the company and the team. So the longer you hold stake and mould the concept better it is. Remember, most Indian promoters hold substantial stakes in their companies and a slow dilution at multiple points over periods is the way to maximize wealth. The basic feature which most investors and books on investing will stress is – cash is king – topline is myth, bottomline is reality – so don’t chase marketshare at the cost of profits – I am not sure there are too many successful models where you have 60% marketshare, make losses and then due to scale economies start making money ( The other industry that comes to mind is the Newspaper industry – where larger you are ad revenues supposedly will flow in, so you have the gimmick of invitation pricing et al). Guard against managers who run and chase marketshare, it’s easy to throw money and gain marketshare, but you can’t throw money to get profits –Remember the goal of any entrepreneur should be to create an organization that not only survives him, but can’t be around after he is gone. A year in the life of a human being is long but compared to a life span of 65 years, it is small, and then for a company which is supposed to exist for centuries to come – what is but 2 years of slower growth to make the foundation stable.

I am sure people will talk of how the opportunity might go away – but that is the traders’ view of the world – an investor/ entrepreneur should believe in the power of the vision – work towards that outlive the people who saw it – yes it is difficult, non sexy, masochistic, painful and is guaranteed to give bouts of self doubt – but isn’t that the beauty of building great organizations?