Don’t cheat yourself, by aiming too low!

“You want us to pay you $120,000 and I have a quote here from your [much larger] competitor for $30,000!”

Photo Credit: djfunny via Compfight

In our first startup, just as we had built up our reputation in a niche, we encountered competition from a larger Indian firm at one of our major customers.

The purchasing manager had become a good friend and didn’t mince any words. We did bag the deal, still at over three times what the competition had quoted but not without with some fancy footwork.

I am sure our competitor would have broken even, at their quoted price, but they could have both bagged the deal and made a very nice profit at half our bid. By bidding so low, they queered the pitch not just for us but intrinsically undermined the value of what they were delivering.

Their eagerness to win this account, while understandable, needlessly drove down the profitability of future deals for all of us. And this was with a technology firm! This was the first time that I realized how short-sighted it can be to lower value by charging far too little.

This experience brought to mind, how other visionary entrepreneurs – often self-made men brought a different perspective to building businesses.

“I had three rupees in my pocket when I first landed in Madras.”

It was hard for me to visualize my father arriving in the city as a penniless high school graduate and reconcile it with the globe-trotting CEO that I had grown up with. At least two other folks of his generation that I know well personally came to Madras with less than 10 rupees in their pockets — from Gujarat in one case and Kerala in another — and went on to build multi-million dollar business empires, in plastics and publishing.

I am certain that there are thousands of such unacclaimed, self-made men who started with little more than a dream and a great deal of determination, who through their hard work spanning decades, unwavering vision and a few lucky breaks have built successful businesses. A thousand mini-Reliances and Future Groups, as it were. This is the part of India and Indian businesses that makes my chest swell and gives rise to my unending optimism about India.

Yet our everyday experiences seem to bring us in contact not with these modern day Dick Whittingtons but with seemingly short-sighted tradesmen who are interested in making a quick buck, even it means burning bridges.

“The samples he sent were exquisite. My clients loved the color and quality of the granite — so distinct from the Italian stone they were used to.”

My friend, a mining engineer and consultant spoke of his experience helping buyers in Taiwan source stone from India.

“So you can imagine their shock when they received the first container load and most of it was second-grade and a good deal of it damaged. Having paid for the shipment with a letter of credit they had little recourse.”

My friend shook his head; the very recounting of the story was painful for him.

“And these were clients who were capable of moving hundreds of containers a month. The short-sightedness on the part of the seller to make a quick buck on the first container hurt not only his ability to sell again but set back the reputation of all Indian stone exporters.”

I wish I could claim this was one rogue trader. Alas, I have heard the story repeated – for leather goods, for handicrafts and pottery, bedsheets and linen, food grains. We seem to have honed the bait and switch to a fine art. Delivering good quality samples or first shipments and, once the buyer places a large order, shipping a lesser grade or worse to make a quick killing.

Of course this kills any chance of further business from that client or long term growth. And all too often damages the reputation of an entire segment or even the country as a whole. Why do we do this?

Lest we conclude that it’s just businesses that buy from Indian firms that face these challenges, consumers don’t have it a whole lot easier. Sure we’ve all read about how the Indian consumer is price conscious and finicky — businesses that don’t give them what they want are unlikely to survive, let alone thrive.

However, the demand-supply mismatch is so pronounced in favor of suppliers that most Indian businesses are able to get away with poor quality and all too often poor service.

As a reader of the Wall Street Journal recently put it “[their] focus [seems to be] on getting as many bucks as they can out of customers the first time they deal with them as opposed to cultivating repeat business. At least that is how I felt after paying 455 rupees for a beer at a pub in Khan market last week…”

The sort of behavior we are prepared to condone in our politicians — who after all may not be in power after the next elections — of making hay (or moola as may be the case) while they are in power, seems to infect many of our business folks, especially small businesses. This is particularly galling given our avowed belief in the concept of karma and a spiritual span of more than one life time.

This is why I have taken to hanging out at the railway station trying to spot the next Dhirubhai Ambani or someone like my dad so that my faith and belief in the visionary, long-term oriented Indian entrepreneur is restored.

A variant of this article first appeared in the Wall Street Journal online.