How did Covid-19 and lockdown change your business trajectory?
This was the question I posed through LinkedIn and WhatsApp to my friends who are CEOs in SMEs and start-ups. Twenty responded. 45 percent of them said they were very adversely or somewhat adversely affected, but what is interesting is this: 45% said that they discovered new opportunities and new ways of working; 10% were somewhere in between.
I had the privilege of being involved in a medical device project as part of a task force to help a start-up branch into a completely new category of medical devices with a new product to be developed from scratch.
From Robots to Ventilators
On day two of Lockdown 1.0, I got a phone call from Prof. Amitaba Bandyopadhyay, the professor in charge of the Startup Incubation Centre at IIT Kanpur. He said that the government and Prime Minister had asked all IITs to come back with products and services that may be relevant to Covid and that he had sent a message to all startups in his contact list including two young graduates of the institute—Nikhil Kurule and Harshit Rathore, who were otherwise making robots for cleaning solar plants. He also said that they offered to design a high-end ICU ventilator to fight Covid.
“Can you talk to them and help me decide whether or not they’re making sense?” he asked me.
I got onto a WhatsApp discussion with these two boys. They sent me a short video of the prototype and said they could build it in the next six days and that it will be a portable device which can run on battery. They also sent me a 3D drawing. I could see pumps, sensors and solenoid valves. I realised there was merit in supporting them.
I set up a WhatsApp group called, “India Overcomes COVID” and reached out to a set of people who could help Nikhil and Harshit. On 29 March, we had in place a task force of 20 people. It was a diverse group of experts: CEOs of medical technology companies, one Padma Shri, one Padma Bhushan, a supply chain expert and a manufacturing expert.
For the next 82 days, this group of 20 would meet at noon over a Zoom call, and it became an unbreakable ritual. The call would be followed in the afternoon by email and phone conversations. Within the 82 day period, the product was not just designed but it also got certified as meeting international standards. It got clinically validated by well-known ICU experts at hospitals across the country.
The normal development cycle for medical devices globally is 18 to 24 months. We could crunch it to 82 days without cutting corners. How did that happen? What made this project a success? Let me walk you through our SIX success principles:
We set ourselves a bold and audacious vision. When we met for the first time on March 29, we said that to fight Covid, India needs a world-class ventilator that must be available not just in the showcase but for deployment, at an affordable price, by July in under 90 days. That was our goal and it was our first success formula.
Mission Mode Experts
We realised that as a country, we are very bad at managing day-to-day things like traffic, pollution, providing education for all and maintaining our roads; however, as a country, we work very well in mission mode. We launch rockets in space and can manage Kumbh Mela with millions of devotees and a clockwork precision. The noon zoom call became our mission mode.
Lessons from Chakde India
We learnt from the 2007 successful movie ‘Chakde India’ where Shah Rukh Khan becomes the coach of Indian women hockey team that had complete underdogs going into the Women’s World Cup. Shah Rukh uses what I call agile iterations, to make the Indian team win. In the first few matches, his secret weapon was young, tiny girl from rural Haryana whose pass was so good. Against the Korean team which resorts to man-to-man marking strategy, Shah Rukh iterates and pulls in a senior player who could break that man-to-man marking. India eventually wins the World Cup. In our case also, every day, we took stock of our roadblocks. We would iterate and make progress.
Constructive, not Destructive
Next factor was the method in which these 20 people worked together. The youngest in the group was a 23 year old engineer. The oldest was a 74 year old Padma Shri. We also had a 69 year old Padma Bhushan It had diverse age groups, skill sets and mindsets. Half of this group had never met each other before but they worked constructively, in a non hierarchical manner. Like Gary Kirsten, who gently and successfully coached India during the 2011 World Cup, we mentored the younger members of our team through the seniors.
The Power of Osmosis and Collaboration
We had everyone learning from each other during the process of collaboration. When David Warner first came into international cricket, he was a T20 and ODI player and not a test player. Between 2009 and 2011, when he played IPL for Delhi Daredevils, his team mate Sehwag told him that he could become very a good test player. Warner did not believe him. In 2011, he made his test debut and since then, he has been considered to be a very good test player. It happened because of osmosis in the intense IPL environment.
The X-Factor: The Government
What the government did was remarkable. On 9 April, India was in the lockdown and 60% our components to make the ventilator had to come from Southeast Asia or Far East. There were no flights and courier services. The Indian government stepped in, spoke to the Indian High commission in Singapore and figured out there was an empty Singapore Airlines flight coming to Bombay to fly back stranded Singaporeans in India. The High Commission helped in the airlines carrying our consignment from Singapore. Thus the government stepped in at the crucial moments.
To summarise, our six success factors or the operating principles that can be applied to businesses are:
1) Having a bold vision
2) Working in mission mode
3) Working in Agile iterations
4) Being non-hierarchical and constructive
5) Gaining from Osmosis and collaboration
6) Engaging the government effectively
Silicon Valley Loses its Sheen
The biggest learning was that time, space and expertise are no longer a constraint. We no longer have to only dream about achieving bold, accelerated growth. There are huge implications for India. If we look at the startup community, we can imagine that the Silicon Valley can be reinvented in India.
The Silicon Valley is after all a tiny little area, 121 sq-km, south of San Francisco. There are great universities generating great ideas, there is great talent available and there are investors with capital and experts who mentor young people. All of them sit in close proximity, work together in cafes and bars and create great companies like Facebook, Google Etc. That is the magic of Silicon Valley. Because of the pandemic, such places no longer have this advantage, at least temporarily. Right now, it does not matter if one lives in Silicon Valley or Dehra Dun or Nigeria. This is a good opportunity for India to catch up and leapfrog, if possible.
We are in the ceramic tiles business. It’s a third-generation business. I look after the tiles part of the multiple brands at Somany Ceramics. We are 90% into tiles and the rest into sanitaryware and bath fittings.
Realty in Tatters
We had been in a situation where we were very reliant on the real estate sector. But it has probably been at a low for the longest time ever, since 2014. With RERA and some reforms coming in, filtering has happened and a few big boys have emerged. In order to get market share, we gave some extra credits in the market, which came to bite us in 2019. We also had a reasonably decent exposure with the large builders in the country.
In 2017-18, we started moving away from these builders towards retail space and 85% of our revenue is now coming from Tier 2 and under-Tier 2 towns. Thus, we have reduced our dependence on the greater metros. But there was a cash flow mismatch in the entire system.
The Big Cluster
Indian ceramic industry is the second largest in the world after China; we have a cluster in Morbi, Gujarat. It’s a small area near Rajkot, which is the nearest airport to Morbi. There are about 900 plants and so we have 900 brands in the country. They thrive on evasion of taxes and duties. They run their plants efficiently from cost point of view but inefficiently from an environmental aspect. They were cheaper and used to give extended credits—180 to 270 days. The dealers obviously were extremely attracted towards them and the larger brands stagnated. In the last four years, we haven’t really grown. Our CAGR came down from 16% to a mere 4%.
Covid Gives a Glaze to Tile Business
Covid has had a huge positive impact on our business. We have year ending in March. So March is generally one-and-a-half month of sale and April is a duller month. By 15 March, we got hit with things slowing down. Our inventory started building up.
As the lockdown continued beyond 14 April, it dawned on us that this is far more serious than what we envisaged it to be. We thanked God that it happened in the middle of March, because otherwise we would have had about a 250 crore arrear on the receivables in the market. Now, we had our stock and money in tact in our warehouse rather than being out in the open.
Survive, Respond and Recover
Our team came together and our first reaction was how to survive. We started looking at every little line item. We took salary cuts and negotiated with our unions. We have 10 factories and each factory has about 500 to 800 people. As our plants were shut, it was a month in our history where there were no receivables, sales and production.
The team did a brilliant job of responding. We did a zero budget. We were preparing ourselves for 50% demand reduction. Then came the recover moment where the entire economy was opening up. May 4 was the first opening up. Our plant started on June 1. Labour started trickling in.
We gave incentives and packaged it well to bring money back into the system. We did not want to take a moratorium. We effected 25% salary cuts, part of which was to be paid six months later after a review. People came together and stood united.
When the production resumed, I spoke to about 700 dealers. Everybody said they would rather deal with us because the Morbi cluster was no longer giving credit. The dealers were not sure of their production and deliveries and preferred to deal with brands like ours. The dealers requested us for price reduction. We modified our production programs to give the dealers and customers what they wanted. We did take a hit on down trading and realisation but gained in market share.
On the other hand, in the global scenario, from January onwards, there has been an anti-dumping duty enforced against China in Indonesia, Australia, Brazil, Mexico and US. These are all net importing countries. They were already importing top-end products from Spain and Italy, but the bottom-end was 100% sourced from China. This sudden upsurge has given an opportunity to India as we are the next most competitive tile producer in the world. In fact, we are as competitive as China. It is just that they dump in the market.
In June and July, the American, Spanish and Mexican economies opened up for us. Other than that, there were a whole load of traders across the world—Canada, Europe, Middle East, etc who were buying 100% from China. Now, they wanted to hedge themselves. If they were buying 100 units from China, they now want to buy 70 or 80 units from China and the balance from India and other competitive tile producing nations like Turkey. This demand too came to us.
To give you a perspective, last year, on a 35,000 crore rupee industry annualized, we exported about 10000 crores. This year, just between June July and September, we have already done exports for 7,500 crores.
These are huge positives for India. It will bring in a lot more ancillaries and manufacturing firms to benefit India. We still buy a lot of our machinery and our top glazes from the likes of China, Spain and Italy. A lot of Italian players, who would move to China for making machinery and getting raw materials probably will move to India.
Top branded players in the building material space—plywood, electric fittings, pipes, paints, etc have the same story to say. The top three to four players in the industry have gained significantly in receivables and in market share for exactly the same reasons that I mentioned for our tile industry.
The mid 30 to 50 players have suffered because they were not large enough to take massive cost cuts. Neither did they have an efficient and scale of manufacturing to immediately relate and respond to the market.
We moved from the ‘now’ stage and the ‘next’ stage to the ‘beyond’ stage. In other words, we went from the ‘response’ to ‘recover’ to ‘recognize’ stage. We recognize this is a huge potential for India. We are readying ourselves for a potential expansion next year, as an industry and also as a company.
Today, we can go even to a large builder and ask him for a bank guarantee or an LC. The entire industry is working more efficiently and more carefully. Cash is the king.
We are already the 13th largest player in the world. If this trajectory goes on and if the government helps us a little bit, we should be amongst the top 10 in the world both in terms of volume and value.
• Peel-Works is a tech enabled multi-brand distributor of staples, oil and consumer goods and trade through app. Taikee is the B2B e-commerce app of Peel-Works catering to kirana stores. We make it convenient for grocery store owners to source a wide assortment from over 600 products at low prices, through the user friendly Taikee app.
• Consumers will like to have wider choice, they will like to buy at the least possible price and have the order delivered promptly. Post Covid, Peel-Works continued to offer all these three.
• We accepted cheque payment instead of DD and drove convenience for the retailer.
• We focussed on category level fulfilment as consumers were more concerned on categories than about brands.
• We followed up closely with authorities and administration and where necessary, educated the officials to ensure smooth flow of logistics.
• Not a single employee was laid off during the pandemic.
• We are into the business of recycling waste water since 2011 as a MSME. We cater less than 25% to real estate.
• Recycling of water sounds good in presentations but until the cost of recycled water comes below that of fresh water, it will not work out.
• Many waste water recycling plants installed with fanfare are not operational.
• During lockdown, our projects stopped and lot of our money got stuck. In June, when we resumed work, many skilled people who had left for their hometowns did not return.
• One large customer for whom we completed 99% work on 29 July did not pay us. On the day of completion, they sent us a termination notice saying that our people didn’t turn up and that we didn’t complete on time. Our cash flow was seriously impaired.
• For our senior staff, we reduced salary, but not for workers. Vendors threatened us for delay in our payments to them.
• In our quest for growth, we took a lot of larger projects which demanded a lot of working capital. In the next 6 to 12 months, we decided that we will not enter into any projects that will require huge working capital and long time lines. We focussed on multiple small projects with shorter time lines and better cash flow potential.
• We negotiated with vendors for better payment schedule and ensured rotation of money.
• Many of the existing plants installed by us were closed down during lockdown. We offered to restart them at a very reasonable cost. This was well received. If we hold our customer’s hands when they face tough times, they will reciprocate.
• Instead of setting up plants on Capex, we now offer on Build-Own and Operate (BOO) basis that is on Opex basis. There is a lot of scope for this model, especially in the hospitality sector.
• Our employees stood as a team during this crisis. On Ayudha Puja day, they all took a pledge to mark a new beginning. It was truly a moving gesture.