How does one explain the mess that Vijay Mallya is in? His crown jewel, Kingfisher airline, has run up a debt of 7000 Cr, has reported losses for every year of its operation, and now stands grounded with its license suspended. There are arrest warrants against him for bounced cheques (withdrawn recently), the KF staff has not been paid salaries in 7 months, and his own net worth has slid down substantially and he is a mere ‘millionaire’ from being a ‘billionaire’ earlier. The storm that had gripped his business and personal life has not spared his young 25 year old son too, who for no fault of his has taken unreasonable amount of flack. This collapse is surprising for someone with the pedigree of Vijay Mallya and who has been a role-model for business leaders in India. He is known to be a great deal maker, has shown a great marketing mind, and built business in a wide range of fields with most of them had been doing well until recently.
So how could he let things fall so low?
WELL BEGUN IS JUST HALF THE STORY
When KF airline launched, the experience was truly differentiated and better than everything else in the sky – the food, the service, inflight entertainment. You were his personal guest on the airline and he himself welcomed you on-board in a pre-recorded video with a great line ‘I appreciate your business and I know you have a choice of other airlines’. He understood marketing well, and every product touch-point was designed to ensure a superior product experience. He was passionate about this business and presented himself as the face of it. His flamboyant lifestyle went along with the imagery that he wanted to cultivate for his airline. As a result his business gained marketshare rapidly. He went on a debt fuelled expansion spree by adding more air-crafts to his fleet. He even acquired Air Deccan which gave him a short-cut to starting his international operation, his ticket to global spotlight for his business.
But he had built his airline business on wrong assumptions…
- His operating costs were too high, and on top of that he added to the fleet too fast without allowing the business to become sustainable. Thus, higher marketshare came at increasing costs and even higher losses.
- He overpaid for the Deccan Air acquisitions given that he acquired it merely to start international operations and soon exited the low cost airline business.
- He made more losses every year but he pointed out on every occasion that the core reason was the airline fuel charges, and if only they were more reasonable then his airline would become profitable. Some of the other airlines meanwhile ran a tighter ship and stated making profits, denting his claim that structural issues made the airline business unprofitable.
- He claimed that all his debts were marginal compared to the assets and equity that his business portfolio had. He believed in this logic so much that soon his own good money started chasing his bad investment in the airline, with no light at the end of the tunnel or path to profitability in sight.
- His ability to raise more debts and his relationships with the influential people created an aura of inevitable success, till everyone deserted him.
- He was probably hoping to get a foreign investor, and was pursuing market share growth to get a high valuation, but the rules on FDI in aviation changed too late for him, and KF valuation meanwhile crashed. Now the fleet is grounded and is down to 7 aircrafts from 70 at one time.
MISSING THE TURN
This is the story of passion gone wrong, and all the proponents of Passion as the driver of success may do well to take a lesson out of this. We are taught that persistence is essential to success, but here is a story where it led to a meltdown on a grand scale. Surrendering in a lost battle can save you men and resources and which could be more important than personal pride. The lesson is best captured by the ‘Gambler song’ sung by Kenny Rogers–
You got to know when to hold ’em, know when to fold ’em,
Know when to walk away, know when to run.
But how does a business leader decide when to stop? If you are timid then you might stop too early, but if you are overly optimistic then you will lose too much while chasing an impossible dream. There are no clear rules that can help you decide and this is where the art of management and leadership comes in. There are however some principals that can guide your decisions.
Mountain climbers use a principle of turnaround time when attempting to climb summits like Mount Everest. They will turn around at a pre-set time even if they are a few hundred meters from the summit. This rule saves lives (after a certain point in the day the snow becomes soft and prone of avalanches etc), and even the best of climbers who break this rule have paid for it with their lives. Businesses need to set their own rules for turnaround time based on their capacities to take losses, capacity to invest in capital, energy and time. If these pre-set targets get breached, it simply means that their assumptions about the business are wrong and everything needs to be re-evaluated. But doing this isnt easy.
B-schools do teach you the concept of sunk costs, but they dont prepare you to overcome the emotional baggage in implementing the concept in real world. This is especially tough when the executive is deeply involved in the business, or when his pride is at stake. He starts believing that the elusive success is just one quarter away and which will lead to a turnaround story, and even a small ray of hope is held on as evidence of improvement. Soon the pre-set benchmarks start to shift as per the leaders convenience, especially when someone as charismatic as Vijya Mallya is leading the charge. All internal dissent can get sidelined and poor decisions are taken to appease the bosses till the business hits a wall.
Vijay Mallya will surely rise up again. But this time hopefully he will not mix up the flamboyance and extravagance of his personal life, with the more modest and thrifty outlook needed for running a profitable business. Maybe he will learn not mix his pride with the cold dispassionate view needed to run a profitable businesses.
Here is wishing his business and his ego a speedy recovery…