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Case Analysis: A Moment Of Reincarnation

This unexpected derailing may just be the right medicine a startup company needed in its quest to become great!

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Imagine a Formula 1 driver racing his car at 300 mph, all systems working at top efficiency, pit stop folk ever alert and super charged to keep the machine in fine fettle; and out of the blue, Bernie Ecclestone, CEO of Formula 1, announces that drivers must stop in their tracks, push their cars to the pit stop and exchange their old turbo fuel with a new non-polluting fuel that is still being manufactured somewhere! Now, go win the race Mr Nico Rosberg!

One is always taught to expect the unexpected, brace oneself for unforeseen risks. But 8/11 saw Nachiket Arya face a situation that is totally unexpected and unimaginable even in the wildest dreams. Not only was his cruising business brought to a halt in its tracks but demonetisation also forced Nachiket to deal with a crisis that could potentially wipe out Sahas. His single largest raw material, hard currency notes, changed its colour overnight. His revenue, which came from customer transactions, came to a screeching halt as he had to first move old cash back and organise replenishments of new cash. And most importantly, the new raw material is still being manufactured!

CEO the Chief Crisis Manager! It was important for Nachiket to take control of the situation and guide the organisation to safety. It was admirable to see the CEO head straight back to the office to personally lead crisis management. One critical factor in dousing a fire is to get your top team on the same page so that all actions can be seamlessly understood and coordinated. Another important aspect is to sequence what came first and what followed. There are actions for now and there are actions that could wait for a few days. Often, one sees CEOs delegating crisis management to someone else lower down the ladder but I believe it works the best if the CEO takes it upon himself to diffuse the crisis. If he messes it up, he is the one to hold the can and that is a responsibility that comes with the job!

Deal with your customer first: The immediate priority for Nachiket was to ensure that each of his ATMs was shut by midnight so that no old currency notes were dispensed to any customer even by mistake. Any such dispense would have put the customers into great despair. Sahas India would not only have broken the law by dispensing any old notes but more importantly, it would have lost customer’s trust forever. While the news of demonetisation was well publicised and travelled very quickly, given that Sahas was operating in rural areas, closure of ATMs at the earliest was vital so that no unsuspecting customer withdrew old notes any more. Nachiket rightly focused on this task right up-front.

Salvage what you can control, ASAP! The need to chop off wasteful expenditure is the immediate next priority. In a crisis like this, if you know you can’t restore operations immediately, priority should accorded be to eliminating all ‘variable’ or ‘controllable’ costs immediately. With no revenue in sight till new currency notes arrived, it is vital for a startup company to minimise cash burn. While the decision on fixed costs can be taken after an assessment of the time lag between the starting of disruption to the restoration of normalcy, variable costs that can be controlled must be brought to a halt right away. Here again, Nachiket rightly focused on ensuring that the old cash sitting in the ATMs is returned to the banks immediately. Any delay meant that he would be incurring unnecessary interest costs. Reconciliation of cash sitting in remote locations, an aspect that always worried Nachiket, is an unexpected silver lining in an otherwise gloomy situation. Flexibility, quick thinking and alacrity are always critical in times such as these.

Apart from the immediate direct costs, Nachiket will also have to look at all other ‘semi-variable’ costs such as Cash Movement costs, AMCs, etc. The company must evaluate if each of the cost lines can be either contained or reduced or eliminated. Force-majeure situations such as these always provide for re-negotiation of contracts with key partners. If the cash supply situation isn’t going to get sorted out in the near term, Sahas must also explore the possibility of pruning other semi-fixed costs such as rentals, employee costs and benefits. It is always a tough decision to touch people costs but in force-majeure situations, people always understand and stay loyal to the organisation so long as the CEO can transparently and honestly communicate immediate issues and explain the larger restoration effort.

Any actions on pruning fixed costs must be thought through carefully as the cost one would incur in re-building can often end up higher than the savings one can accrue while pruning. That’s a fine balance Nachiket must achieve based on the ground level situation.

Get the engines revving again:

Once you deal with what you can directly control, the next priority for Sahas would be to get the machines up and running. This will require Nachiket and team to intensively look for alternate and quick methods to source the new raw material. Given the overall shortage of currency notes and given that Sahas is a fringe player in the larger banking ecosystem (remember he just runs 2,000 ATMs out of the country’s 225,000 ATMs), it is quite possible that Nachiket may have to sit at the far end of the queue, waiting for his turn to source currency from the banks he already tied up with. That could take months, which means that Nachiket’s factories would be shut for a long time. He must explore alternate means of sourcing cash – newer banks he never worked with, innovative ways he never thought of in good times.

Very often, crisis breeds innovation. Given that Sahas runs rural ATMs, he should also explore going back to the regulator for help and support as it is likely that rural customers may be experiencing a harder time than their urban counterparts. While the current regulation does not allow Sahas to tap into large retailers for private sourcing of currency, he must try and influence a policy change. Nachiket could potentially look at tapping into retailers such as Big Bazar, e-commerce players such as Flipkart/Amazon and distributors of FMCG companies, etc. Nachiket should also look at PR and social media to get his point heard in a large ecosystem like the banking industry with a din that has hit the crescendo.

Hold your flock in tough times – communicate & communicate: While the restoration efforts are on, Nachiket must quickly deal with the anxieties of employees. As a start up with limited financial resources, no revenue and unending cash burn, there is a real danger of anxious employees interpreting the health of the company in their own way. It is very important for Nachiket to put the real picture out on the table and address any anxieties. The positive fall out of the demonetisation effort will be an economic revival in the medium term. With so much cash coming back into the banking system, especially into the Jan Dhan accounts of rural populace, sooner than later there will be a sharp upturn in business. In addition, the entire experience might permanently force people in the way they bank, in the way they save and manage their cash. Nachiket must trigger the employee’s imagination on this potential positive outlook. Rekindling their imagination is very critical at this stage. Here again, Nachiket must lead the charge.

Look at new horizons: Most big innovations are born out of crisis situations. Sahas too must explore other possible business models. Given the focus on digitisation, team Sahas should look at how his fleet of ATMs can play a role in the changed world. Can his ATMs be integrated into UPI ecosystem? Can they look at bill payments as an opportunity? Given the Governmental push on ‘Micro ATMs’, can Sahas look at using its infrastructure to tie up with banks to set up Micro ATMs? Nachiket must set a task force to lead this new product charge on an urgent basis. Innovation and new way of doing things is always a great way to get out of the crisis.

So if account holders and users of money are facing one kind of difficulty with the demonetisation, then look down the chain and see that ATM owners are enduring another kind, as we see in the case of Nachiket Arya. ATMs being backroom operations, their angst goes unsung, unknown.

Stay alive in the short run, the future will be bright: In summary, the biggest challenge for Nachiket is to stay afloat in the short run till normalcy is restored. While the positive fall outs of post normalisation period can be very exciting, Nachiket must survive the next 2-3 months with minimal cash burn and minimal erosion of net worth. For a startup company like Sahas, this can be a huge moment of ‘reincarnation’. After all, this unexpected derailing may just be the right medicine a startup company like Sahas needed in its quest to become great! Tighten your seat belt again Mr Rosberg!

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

K. Srinivas

The writer is the MD and CEO of BTI Payments, the second largest white label ATM player, which runs over 4,000 white label ATMs under the brand name ‘India 1’

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