Secret Diary Of An Entrepreneur

"One can't be an entrepreneur without taking calculated risks"

Secret Diary of VG Siddhartha Part-2

Photograph by RA Chandroo

By 1993, something else was brewing. I had already accumulated about 3,000 acres of plantation by then. Back in 1985, when I had started buying plantations, it sounded like a no-brainer – coffee prices averaged around $1.20 for 17 long years between 1970-85. In a frost year, it would hit $3 and if you had a bumper crop it would fall to 75 cents. But Indian farmers were getting only 35 cents because we were not allowed to export directly. If this changed at some point, the realisation would go up phenomenally – the payback could happen in a year’s time. I went with my gut and kept buying bit by bit. 

35 cents someday $1.2But natural, I was delighted when the regulation changed in 1992. My father, being a wise man, wasn’t as overwhelmed. Finance minister Manmohan Singh didn’t waste time – apparently he asked the delegation that presented the case, “Why did you not come with this proposal before?” Allowing direct exports was far more efficient than for the government to buy coffee through the Coffee Board and sell it on barter to Russia and other countries. But my father could see how things would unfold. “It was great for the big guys but not for small growers, we will face the music soon. The Brits had created the board system only to save the growers from the clutches of the traders,” he said.

I was least interested in coffee trading – it was pale compared to the stock market. But then, we set up Amalgamated Coffee Bean Company to export coffee beans from our estates and from other growers. If there had been no frost in Brazil in 1994, maybe we could not have distinguished ourselves so early on…Coffee prices soared from 75 cents to $3, but we honoured all our contracts at the agreed prices and became the darling in the international market…people knew we will keep our word under all circumstances. In 1995, we became India’s biggest unroasted coffee exporter. 

coffeeI did not expect that one dinner meeting, where I was dragged by my trader friend Raghu would change the course of Amalgamated Coffee the way it did. I forget the name of the person, but he belonged to the Herz family, the owner of Tchibo, the German coffee chain. I presumed the family must be in the business for at least a couple of centuries to be the second largest in Europe, so I asked how many decades they had been in business. He said his grandfather started selling coffee in a 10x10 store in 1948. That startled me. Between 1948 and 1995, they became the second largest in Europe! 

I knew that very moment we had to go retail – there was no point selling a commodity. I hurriedly set up small retail stores to sell freshly ground coffee. I knew branding it was the only way to extract better realisation. We soon had 450 outlets and were going great until I figured out the real future… 

fresh and groundNarendra rubbished my idea of setting up a café on Brigade Road. I should have known – you can’t expect anything better than linear thinking from MBA folks! All he asked me was what price would you sell the coffee? When I said Rs.25, he said, “No chance, period.” Brigade Road was still a posh place in Bangalore but there was great coffee being sold for Rs.5 there. Why would anyone pay Rs.25? I chickened out. 

Some six months passed. I was having dinner at Singapore’s Boat Quay with my friends Gopi and Rajneesh. After we stepped out, I saw this brightly lit store where people were sitting with beer mugs. I excused myself for a few minutes, peeped into the store, and it was like I had hit a jackpot of an idea. I knew what I want to do next. 

Sketch of cafeI told Narendra I wanted to put up an internet café, when I came back from Singapore. He dissuaded me again. But this time I said, no, we’ll experiment. It would cost us about Rs.1.5 crore – we’ll try, no sweat, even if we failed. I put in Rs.50 lakh in deposit, Rs.50 lakh for furnishing and Rs.50 lakh for computers – IBM computers were very expensive and so was internet connectivity. People came because it was something new and novel – they were enamoured by large screens and internet itself…everyone was curious. In 1996, internet was just catching on – it was a big thing!

All my friends – Nimesh, Durgesh – would say don’t take too much risk. But I have realised one can’t really be an entrepreneur without taking those calculated risks. You could fail spectacularly but if you didn’t take those risks you would not have given yourself a chance to succeed. 

The fun part of setting up the café was, I would wind up from office in the evening and at 7 PM sharp, I would pick up my wife and sit on the top floor of the café. We would peep out of the window to see people on the footpath, trying to guess who’ll step into the store. We kept guessing all evening. As I learnt in the stock market, no venture can continue to make money if you do not have a moat. We had none – everyone copied the idea eventually and we had to look elsewhere.

We decided to focus only on coffee – retail was picking up at the time. We quickly rolled out 22 stores in the South by 2000. We did not go to Bombay or Delhi. Suddenly, something hit me. Competition had put up 10 stores in Bombay and 10 in Delhi. I felt left out…How can somebody copy our idea and do better than us? I felt miserable. We had to expand rapidly. That meant we needed money…

I went with what the bankers advised – without much thought into whether I could have raised money myself. We raised money from AIG and started expanding. 

I had little clarity about their exit, had no clue if we would list…And then, one day, Nandan and I were having lunch at the Taj West End. Nandan asked me how much I had raised from AIG. I said $12 million. He asked, “Was it necessary? Could you not have managed it by selling any of your own investments?” I said, yes, I could have, but I thought it might be good idea to have a good investor. Nandan looked disapprovingly, “Did you really need to dilute? Are you sure you want to go public?” We didn’t speak much after that… 

AIGI was in Hong Kong the next day literally, and negotiated to hand back the money with some reasonable return – that was April 2003. Since then, Nandan has always been my go to man for clarity in business. For moral support, Durgesh is standing by. For everything else but business, Malavika is always there.

Coming to think of it, that fund-raising was so unnecessary. We managed to expand, by the very next year we had rolled out 200 stores. And kept growing steadily before we thought of raising funds again in 2007 – this time our need was higher, we had a good story to tell, and at some stage we knew we had to go public if we had to pursue our ambition. 

$ bannI can’t forget that day in 2007 – the mood was exuberant those days, everyone around was bullish, and we did a deal with Deutsche Bank to raise $100 million. I came back home happily after signing the dotted line, the day after next, the money would have hit our bank account, but there was a nasty surprise waiting…I plunked myself on the sofa and switched on CNBC to see that the central bank had just notified to disallow dollar inflows to rein in the strengthening rupee. There went our deal for a toss! It was a depressing day but thankfully, having been in the stock market you are prepared to deal with any surprise.

Nothing has deterred me from doing what I have wanted to do, but nothing motivated me to do better for myself than what Mike Moritz of Sequoia Capital told me.

This is the Part 2 of a three-part series. You can read Part 1 here and Part 3 here


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