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'I have nothing against MBA or number-crunching'
While hiring an MBA may seem like the most reasonable thing to do in a business, sometimes, entrepreneurs also need to look at the other side of things, says Prem Sagar, Founder, Tapprs.com, a start-up that rents photographic equipment to enthusiasts.
Once upon a time, there lived a simpleton!
He came from a far-off village and his education was so-so. Teachers at his modest Government school would often say, 'you only know to eat, why do you even come to school'. Somehow he struggled through to complete Class 8 -- the equivalent of a degree in his village.
Now that education was 'done with', his father reminded him of his family duties -- getting any job that would help reduce the family's burden.
Just like every 'educated person' in his village, he too set off to that paradise called Hangalore in search of a career. High hopes and a smile on face.
Life is a bitch and reality hit him hard.
This was no paradise, it was a ghetto. People ran. All the time. Behind buses, behind jobs, behind money, behind health and hospitals.
People woke up. People worked. People slept. They ploughed through life.
During the weekend, they deceived themselves into living a life by visiting blocks of concrete called malls. Or they would watch a movie. It appeared like they were compelled to have a 'good life' during the weekend just to update their online profiles about what they did.
Life was just another word in the dictionary.
Our simpleton kept looking for a job and always got rejected. People told him that he was too 'naive' and advised him to go back to his villlage. But fear of his father and the burden of a large family stopped him.
Finally, he ended up in a hotel as a cleaner. Free food and stay and Rs 3,000 as salary. He happily agreed.
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His tea and vada became popular
The simpleton that he was, he tried to do a good job of whatever was given to him.
Sometimes he would mop the floor, sometimes take over the tea-master in his absence, sometimes deliver tea to the office nearby. In six months, he became a waiter.
He spoke to customers, enquired about their health and well being and served them with a genuine smile. Customers loved him.
Now, he was earning Rs 6,000 a month. He sent Rs 4,000 home, saved Rs 1,000 for a rainy day and spent very little.
Life looked good.
Until the day his boss died of a heart-attack.
The boss' son working in a software company had no interest in running a hotel. Promptly, the place was shut down and everyone packed off -- our guy was on the street again.
A regular customer of the hotel, let's call him Mr A, suggested to our man that he could run a roadside tea-stall and that he would give him some ready business from his office.
With the little savings he had, he got a cycle, a couple of flasks and some stuff and started a mobile tea stall. He would go round and round in his area selling tea. Soon, he added hot vada's too.
His tea and vada became very popular.
While the man ran the hotel, the MBA looked into its management
Now, Mr A, a decent investor in his own right saw how people loved our man's tea.
He suggested to our man that he open a small hotel with funds from Mr A. 50-50 per cent partnership. Fair deal.
Our naive man was overwhelmed. He couldn't say no to his Godfather.
They opened a simple and very small hotel with funds from Mr A.
Our man did all the work himself initially. Cooking, cleaning, serving, cash ... everything.
Soon, the place grew. Out of need, he hired one and then two and soon, he had 10 people in the hotel.
Business was booming.
Our man, with the little education he had, could never get his head into complex theories of running a business. Instead, he kept it simple.
Every day, he would look at three things like a hawk:
- What is the general mood of the customers leaving the hotel?
- How long a customer has to wait for a seat?
- What is the cash position at the end of each day
He would obsessively look into every single detail including the quality of flour used to condition the table. He would gently push his employees to do better. And better.
"Keep that table clean", "ah, take this sambar off, its too salty", "did you deliver tea to Lawyer's office on time?" -- he kept telling his employees.
Soon, business was such that they had to hire the first floor to expand into. And very soon, they were on the second as well.
And soon, they opened a second hotel in a nearby area.
In less than three years, the hotel became quite prominent in Hangalore.
Mr A recovered his smallish investment. And more.
Now, remember, Mr A is a pretty decent investor. He discussed the hotel with his 'MBA' friends at office.
The common suggestion was that -- the hotel was too important to be left in the hands of a 8th grade waiter. His hard work would have made it a good hotel, but he would definitely not be able to grow it from here.
Growing the now-popular hotel needed 'skill' -- they all said.
Mr A was worried. After all, he had 50 per cent in the hotel.
He went straight to our simpleton and asked him how he intended to build the hotel from here on.
Our man, with respect, simply said "Saar, you know me well. We will simply focus on the customer and serve him good food. Beyond that, I don't even know what we would do next month, let alone next year."
Very worried by such a naive reply, Mr A went back to his MBA friends.
Our MBA friends, full of wisdom from having read Efficient Market Theory, DCF calculations, Peter Drucker, Mr Porters five forces and such, state in confident style, 'Mr A, do you know your ROI? Do you even know the cost structure of the business? What percentage of expense is fixed costs? What do you think is the cost per plate of food? How much are you charging him? Are you under-charging him?'
A barrage of questions and Mr A was lost. Needless to say, very very worried.
Illustration: Uttam Ghosh
'Why are we paying these stupid villagers salaries in excess of Rs 7,000?'
That night, he kept thinking.
"This villager will drive my business to the ground without all that knowledge. What do I do? How do I get a better person to manage the hotel and simply have the villager run the back operations?"
Mr A is convinced about the need for an MBA educated manager to replace our guy. Our guy tries his best to convince Mr A that he has the ability to run the place for a while more. And that when he feels he is no longer able to run the place, he will himself step down.
Mr A will have none of it.
A new manager with a shiny MBA is hired. Our guy is now pushed to managing the back operations.
Our new manager, with his solid three years of experience as a team lead handling customer service agents at Airtile, takes over with vigour. He draws upon his vast experience at his previous organisation and brings in change.
'Ah! Cost of gas has gone up. So has the cost of ingredients. Yet, let us NOT raise prices.
Let us reduce the size of the glasses and plates... silently!'
Brilliant! Bravo! Mr A was pleased. We didn't raise price at all. And yet, we are more profitable.
Our simpleton protested. He said, 'we need to at least put up a notice announcing the changes'.
Our MBA would have none of it. 'In our previous large company, we never announced new plan changes to existing customers. Why do it here and get into unnecessary trouble?', he said.
Next thing -- look into payroll.
'Ah! Why are we paying these stupid 20 year old villagers salaries in excess of Rs 7,000? Cut it down by Rs 1,000!'
Again, our man protested. 'Saar, paying a decent salary will keep them happy. And if they are happy, they will serve the customers with a happy face. That will only make the customers happy saar. Also, my simple daily calculation tells that we are making good profit per day even after paying them this amount. Why not pay them well?'
'Have you ever heard of a ROI calculation? What do you know? Do you know what is the meaning of 'cost of capital'? Have you ever done any compound interest formula calculations?' our MBA shuts down our simpleton again.
He 'measured' everything.
'How many employees do we have?'
'What is our average customer count?'
Why do we have a special cook for the 'biriyani'? Why can't our regular cook learn how to cook the same biriyani? Let us fire our special cook and save the Rs 12,000 paid to him.'
Our man, with the experience of having built a business ground up, said 'Saar, please, let us not focus on short term savings. Let us do things that are right for the customer and things that will keep them happy. Rest will happen on its own.'
Our MBA will have none of it. 'You know, when I was with Airtile, we used to have those daily metrics of how many customers you handled in a day.'
People in my team would handle a customer every two minutes. After two minutes, if you were still on call with the customer, we would get mad like hell with the agent. It was the final number at the end of the day, it had to be big!
It was beautiful logic. The bigger the number, the happier my boss. And better the incentive. Of course, we used to send a customer satisfaction feedback request, but that was usually ignored.'
Poof! Special cook gone. So is our special biriyani.
Customers notice the change and the popularity of the biriyani dips! However, that is masked under the recent price hikes.
Monthly revenue is up 15 per cent!
Genius!
'An excel sheet is a work of beauty'
Mr A is buoyant with the 'short term' performance.
Our MBA buoyed up by recent performance gets a computer.
'It's an excel sheet. It's a work of beauty. You get all information about your business from it,' he tells our simpleton.
Our simpleton is very confused. He keeps thinking, 'All the information I ever needed, I got from talking to the customers directly. They would give me honest opinion and we would make changes. Why do we need a computer for that?'
Our MBA is very angry!
Six months pass and things are a bit average now. All of a sudden.
Our MBA approaches Mr A and says that our simpleton is too intrusive in his work and he is finding it hard to 'work' and it is impacting the hotel's 'performance'.
Mr A is very angry too! He strictly tells our simpleton to give Mr MBA a free hand. He even reminds our man how helpless he was when he had started and how Mr A had helped him build the hotel.
Helpless and hurt, our man stops looking at the changes that MBA brings in. Silently, he starts preparing to move out and start on his own, again.
After a month, our man draws upon all his courage and tells Mr A of his intentions to sell and leave. Mr A happily strikes a deal and settles our man a very nominal amount. Our man leaves, only to start a new hotel in another part of Hangalore. Needless to say, a few loyal employees go with him as well.
The MBA, now in full control of the place gets an assistant manager to take over some of his load. As part of the assistant manager's metrics are numbers like profit margin per month, total revenue, cost structure, etc.
One of the major exercise is to reduce expenses. So they replace some of the high cost ingredients with lower priced ones. And employees with higher salaries are let off, replaced with low salaried ones.
Again, the monthly figures look impressive. Higher than average profit margin.
He sends Mr A an excel sheet with all sorts of numbers. Profit margin. Cost of goods. Revenue per food category. Fixed costs. Variable costs. Pie charts. Line charts.
And more charts!
Bravo! Mr A thinks 'this MBA has a real knack of running a business'.
Few months later, the cracks in the ceiling appear.
Mr A notices that there are quite a few people grudging while paying the bill.
And then, on a busy day, he is surprised to see lower than normal crowd. 'Perhaps, it's a IT holiday' he convinces himself.
The MBA is sitting at one corner, looking at his excel sheets, looking worried. Upon prodding, he comes to know that they had missed paying a vendor on time and he had stopped supply and they had to look for an alternative in very quick time.
The next month, the excel sheet tells a different story. They have a small loss.
Our MBA justifies it to Mr A. 'Sir, its a short term blip. Don't look at the short term performance. Focus on the longer term.'
Three more months pass. The crowds have dwindled. Few key employees have left. The new ones are very average.
The excel sheet looks even worse.
Mr A is now very worried. 'Give me three months, Sir. Everything will be alright', our MBA says.
Three months pass.
Our MBA has a new job offer from LICE, to sell insurance. He did very well in the interview with his knowledge of ratios, balance sheets, profit-loss statements and such. He conveniently masked the fact that the hotel was now running under losses for six months straight.
The interviewing panel, super impressed by his glib talk and 'number' skills gave him a 40 per cent hike. Happily our MBA took up the new job.
Mr A, without a team, was forced to liquidate his assets at depressed value.
These days, he hates numbers!
He even tells his doctor to not mention his blood pressure in numbers.
PS: I have nothing against MBA or number-crunching. In fact, I do it myself all the time. However, I have realised over time the importance of the 'other side'. This post is all about that. That's it.
Illustration: Dominic Xavier