WHY DID THE BUSINESS FAIL AFTER ITS INITIAL SUCCESS?

Rakesh Singh, having done M.A. from Punjab in 1965, ventured into a business by
inaugurating a shop of audio electronic equipments. The business fared well. For this, he
adopted two innovations. One, Rakesh started selling audio systems and equipments
(including loud speakers, turn-tables, tapes, complete music system etc.) through a store
specially meant for such products which were so far available only in a small corner at
general stores which caught the fancy of young generation then. He did not sit idle after
innovating new sales format. His second innovation was to import the equipments with
modern looks and latest technology from Japan (eg. Sony) and sell them in India. He took the
advantage of slight amendment in India’s foreign trade policy then. In no time, he established
hundred audio equipment shops throughout India. Rakesh Singh, being a glamorous man,
adopted appropriate business publicity stunts which ultimately helped generate attraction
among the young music lover generation. He was, henceforth, named as Rasik-balma. The
history of this Company can be divided into three parts. Rakesh Singh, wanting to design a
new creation out of ashes, came to the author for an advice. The history of his Company can
be classified into three different stages.

FIRST STAGE (1965 – 1988):

In this stage, Rakesh established 100 specialist stores of audio equipments. He mostly sold
Japanese brands and sometimes Philips and German Grundig Company products. His stores
did not even touch the inferior products from Indian music industry. Rakesh recruited young
employees at high salaries for his stores. He started paying hefty bonuses along with high
salaries. Customers were refunded for any fault in the music system without having asked a
single question. ‘No questions policy’ was introduced in his shops. In tandem with his
glamorous personality, he used to organise multiple events in order to increase sales. He used
to invite famous personalities from music and film industries. Sales increased a lot during
1965-80 but the sales growth rate and profit rate started declining during 1980-88, thanks to
the general stores, now, having started focusing on audio equipments business along with
traditional household products like ACs, Refrigerators, Grinders etc. sold by them. They
started demonstrating audio equipments and almost doubled the shelf-space for such products
in their stores. For increasing the sales, Rakesh used to organise programmes by famous
singers and instrumentalists. They were expensive and glamorous programmes but the
grandeur started losing the shine during 1980 to 1988. Rakesh Singh, due to his glamorous
personality, was successful in expanding his business. The managers, who worked extremely
hard due to high salaries and bonuses, were now working with diminished morale as many
Indian companies, now, started giving tough competition to Japanese firms in the industry.
Many new competitors entered the industry, thereby breaking Rakesh’s monopoly of having
special audio equipment stores.

SECOND STAGE (1989 – 2002):

Due to increased competitive intensity during this stage, sales of Rakesh’s stores started
declining. In order to tackle the problem of declining sales, higher salaries to managers, and
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rising publicity expenditure, Rakesh suggested the shop-owners to buy his shops for an
appropriate compensation. Moreover, Rakesh decided to go for the franchise route in order to
expand his business and protect his capital. In franchise mode, the shop-owners themselves
start their shops and the franchisor (original company) provides technology, know-how, logo
etc. to them along with incurring expenditure on advertising at national level. In return, the
franchisor gets royalty in the form of certain percentage of commission on sales. In short,
franchise is a form of licensing. Rakesh suspended the implementation of both of these ideas
and instead generated capital by selling equity shares after converting his private company
into public limited company. Karnamadhur was now a public company. Much private
information was now required to be revealed and made public. Director’s remuneration, his
own remuneration, salary of major managers etc. types of information had to be made public
now. Bureaucracy and red-tapism was on the rise in the company. In the final years of this
thirteen-year long stage, many senior managers quit their jobs due to the implementation of
strict financial controls. Centralisation of power increased within the company. Company was
still making profits in this stage but not surprisingly high as in its first stage. Many managers
were not feeling excited in working for the company now. Moreover, there was a strong
opposition by the shareholders for the extremely high level of salaries of the CEO Rakesh
Singh and the directors of the company. This issue became so important in the Annual
General Meeting of shareholders in 2002 that it was even highlighted and discussed in
national media. Rasik-balma defended by asserting that his income and life-style were his
personal matters and nobody should get involved into them. But, national media criticised his
stand and was of the view that the public limited company has to definitely make certain
matters public.

THIRD STAGE (2003 – 2010):

Furious about the above criticism, Rasik-balma, once again, made the company private by
acquiring public shares and thereby incurring huge expenditure. For this, he purchased many
shares from the shareholders. For celebrating his private ownership, Rakesh organised a
grand function spending crores of rupees (Yes crores!) inviting people from national and
international level providing them free air-travel tickets. However, the managers of
Karnamadhur Company did not appreciate this style of a 60-year old Rasikbalma.
Rasikbalma, in pursuit of hiding his failure, started threatening his managers. There was no
passion and venture left with the managers any more. Sales and Profits kept declining year
after year. Banks started increasing pressure on the company for the repayment of loans.
Customers started buying audio and video systems online. They got better deals on audio
equipments at very low prices as compared to the offline buying from stores. Moreover, trend
of downloading music from internet was on the rise. Rakesh and his company had filed for
bankruptcy.

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CASE ANALYSIS

Markets are dynamic in nature and very few companies can enjoy its leadership position for
more than 15-20 years. Competitors are always waiting for the opportunity to pounce upon
and defeat the leader company the same way as Pepsi acquired Coca-Cola’s market share.
Rakesh had drowned himself. There is no advice needed to be given at this point now. There
is no point in closing the stable door after the horse has bolted. But the post-mortem of the
case can be readily had.

FIRST STAGE (1965 – 1988) ANALYSIS:

Rakesh must be congratulated for his business venture. Where nobody could see any business
opportunity in the field of audio equipments, Rakesh could see it. Recognising the quality of
Japanese audio technology, he established specialised shops of audio equipments. He took the
advantage of the youngsters being passionate towards music in the country. In those days, it
was a brave decision to sell premium quality audio products at a lower price through new
‘outlets’ (shops). In marketing language, he introduced new products. Taking sales to a new
height is called ‘growth stage’ in marketing. Rakesh also introduced Japanese products in the
market and invented new format of specialised outlets in order to sell them. This way, he
applied his mind at two places. Consequently, he did not have to face any competition in the
initial stage. There is always ‘first mover advantage’ in the market. For example, H. L.
Commerce College was the first commerce college established in Ahmedabad. It enjoys first
mover advantage even today. In the same way IIM Ahmedabad enjoys first mover advantage
in setting up IIMs in the country. In the first stage, Rakesh publicised his business through his
lifestyle. Rasikbalma projected the audio products as lifestyle products in the market and
thereby making youngsters feel mad about it. Remember, colour Television was not
introduced in Indian market during 1965 and nineteen years hence. Indira Gandhi allowed
introducing colour television broadcast in 1984 during the Asiad sports. The programmes
prior to that were of primitive standard. Only one film was broadcasted weekly. Rakesh took
an advantage of expanding Audio business market. Moreover, due to Rakesh Singh,
consumers got the advantage of Japanese products in audio market.

The leadership style of Rakesh was an added advantage to the Company. He was visionary
and was able to spread his vision among his staff. He recruited young and fresh employees
and motivated them with the help of high salaries and hefty bonuses which could be
considered as his innovation. But his vision could not last.

SECOND STAGE (1989 – 2002) ANALYSIS:

In marketing, this stage is called Maturity stage after which decline stage follows. Many
competitors entered during this stage. Competitors imitated the selling style of Rasikbalma.
Rakesh continued to derive ‘first mover advantage’ for 23 years starting from 1965 up to
1988 and vanished thereafter. Rakesh formed public limited company in order to expand his
business and tried to create new capital by issuing equity shares but ultimately he was
trapped. There are hundreds of restrictions in a public limited company. Even the smallest of
the public companies have to obey legal rules. In the wake of these developments, Rakesh
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lost most of his freedom. Public limited company has to display transparency in its operations
which was not favourable to Rakesh’s centralised style of working. The relationship with the
shop-keepers started fading away. Rakesh was under new sort of pressure when he had to
compulsorily declare at least minimal level of dividends for his shareholders. Company’s
autonomy type of culture changed. Shareholders felt that Rakesh was over-expensive in his
style of working and thereby wasting company’s resources. Moreover, a company becomes
monopolistic and autonomous when there is only one person enjoying both the positions of
Chairman of the Board as well as CEO.

THIRD STAGE (2003 – 201) ANALYSIS:

Rakesh regained his autonomy during this stage after converting his public company into
private but the environment had already changed. Sales and Profits were declining. Company
was facing loss in this stage. Company and Rakesh had to file bankruptcy. This is considered
as Termination stage. Rakesh failed in adapting as per the changed environment. He failed in
marketing through websites. Other competitors took maximal advantage of the website and
internet era. Moreover, company lost its customer base as the customers started downloading
music from the internet. Rakesh could not survive against competition.

RAKESH: Dear Professor, can you help me in this phase of mine?

Prof. MEHTA: No, I can perform the post-mortem but cannot make dead alive. Rakesh, you
had a charismatic personality in those days but it could not survive for long. Unlike Buddha,
Christ, Gandhiji or Mahavir Swami, your charisma cannot survive for centuries to come.
Every person needs to reinvest at regular interval of time. Steve Jobs, from Apple, reinvested
in himself. You shall have to start afresh here on.

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