VG Siddhartha has proved to be a canny investor and a serial entrepreneur. What makes him so effortlessly successful?
“A lot can happen over coffee”, says the motto for India’s largest retail café chain, Café Coffee Day. This is very hard to disagree with considering the fortunes of a young man from Chikamagalur, Karnataka, who grew up on his parent’s coffee plantations and turned into a business pioneer in the new India.
If VG Siddhartha, chairman of Coffee Day Holdings, weren’t so successful, you would probably think he has a focussing problem, considering the seemingly unwieldy sprawl that makes up his conglomerate. His business empire now straddles coffee plantations, coffee retailing, furniture, agriculture, logistics, wealth management and hospitality with estimated revenues of around Rs 2,500 crore. This is not including all the bets he has made as an investor in IT companies such as Ittiam, Magnasoft, Liqwid Krystal.
Coffee has allowed Siddhartha the ability to increase his stake recently in Mind Tree, a software services exporter. It was little more than a decade ago when Siddhartha seed-funded a team of top notch technology entrepreneurs led by Ashok Soota co-founded MindTree. Upping his own stake—Siddhartha is now the single largest shareholder with close to 12 per cent in the company—is not just a re-validation of his earlier decision, but also a continuation of a business strategy that hinges on loyalty, humility and canny long-term bets—a distinct departure from the cut-and-run exits of the private equity world.
Siddhartha is that rare individual who effortlessly wears hats —as both a smart investor as well as a die-hard entrepreneur— and this is what probably makes him a winner in both arenas. He is both an operations guy as well as a finance geek who once took a bus from Bangalore to Mumbai, and hovered around Mahendra Kampani’s office till he forced Kampani to give him a job as an equity analyst.
So, what else makes Siddhartha stand out from so many others carving out business empires in India’s equivalent of the Klondike gold rush?
“I can tell you that he is one of the most fantastic investors that anybody would have the good fortune to have”, says Ashok Soota, co-founder of MindTree. “He is so supportive, with a long-term orientation. He sees the big picture,” he adds.
The legacy of Kampani’s tutelage has evidently found direct beneficiaries in the companies Siddhartha invests in. “He knows the FII investments that are coming in and going out from India and what will be their impact on the rupee and dollar rate,” says another MindTree co-founder, Rostow Ravanan. “Whenever we make an investment, he advises us as to what kind of mutual fund will give us better returns,” he states.
Perhaps, the biggest asset that Siddhartha has used to his advantage as an investor is his affinity for people and his ability to pick the good ones. “Generally, more of his investment philosophy is linked to his comfort level with people and his belief that those people will deliver good business models,” says Subroto Bagchi, another MindTree co-founder.
Siddhartha has proved to be an enthusiastic contributor of ideas and strategies to grow the businesses of the companies he has invested in. His rolodex has also helped. “He has introduced us to the people in his network which has given some of our largest client relationships,” says MindTree’s Rostow.
It is in the guise of an entrepreneur, however, that Siddhartha has showed his true chops—that of a hungry opportunist, relentlessly looking for ways to multiply the value of his existing holdings by seeking out and building vertically integrated businesses that happen to be first movers in their industry.
After working for Kampani, Siddhartha came back to Chikmagalur district—located in foothills of Mullayanagiri range and dotted with coffee and tea estates—where his family owned a 500-acre coffee plantation. In what would turn out to be a pivotal catalyst to his eventual flagship company, he started buying out coffee estates that had fallen on hard times, squeezed out of existence by an international coffee cartel that wanted to keep prices unnaturally low. (He now owns around 10,000 acres in Chikmagalur).
Siddhartha soon spearheaded a mission to New Delhi to persuade the government to end the monopoly on coffee pricing and almost overnight, the industry began to blossom. He set up Amalgamated Bean Coffee Trading Company Limited and began to export coffee beans from his plantations. In five years or so, he had morphed his operation into India’s largest exporter.
Then, inspired by a chat with the owners of Tchibo, a German coffee chain, Siddhartha decided to open his own chain of cafes in India, at the time a novel idea in a country that had no formative cultural grounding in cappuccinos.
Today Café Coffee Day is a leader in an industry that it virtually created. The chain is looking to add another 300 cafes to its existing 1,100 , during 2011 and hopes to have 2,000 of them in the next couple of years
It is a curious mix of acute understatement combined with a lead-from-the-front attitude that epitomises Siddhartha and explains his entrepreneurial success: “The thing that strikes you most when you come in contact with VG Siddhartha is his self-deprecating leadership style,” says Bagchi. “If Siddhartha could do it, he would rather be as invisible as ether. But make no mistakes, that ether is ever present. It is the medium.”
With Café Coffee Day, Siddhartha allowed the germination of a vital strategy that is playing a key role in boosting synergies across much of his portfolio today—essentially by vertically integrating his businesses and unlocking their true value.
His estates, for instance, supply timber for another company that makes furniture for all his Café Coffee day outlets. They provide coffee beans for his retail chain as well as for export purposes. A newly purchased logistics company, Sical, will handle the supply chain for all his properties amounting to 60% of its total business. His plantations may soon house upscale resorts. His latest venture is an effort to set up an IKEA-like business in India, offering moderately priced furniture to the growing middle class. These are considerable achievements but the road ahead is an exceedingly difficult one, fraught with different kinds of risk.
Starbucks, the global American chain, is scheduled to join the coffee-fray soon and while Café Coffee Day has first mover advantage , Starbucks has deep pockets, global experience and a well known brand. According to retail analysts, Starbucks will take at least 4-5 years in India to achieve scale. Still, Siddhartha will need to be able to thwart poaching wars over a limited pool of trained personnel and will have to keep a keen eye out for flagging standards while he’s trying to launch his ambitious furniture project.
Being a one-man-band doesn’t help either and the last thing his properties need is an umbilical cord to Siddhartha, worrying about how much time he can give them. “It is a known fact that his bandwidth is finite and he understands that,” says Jacob Kurien, partner, New Silk Route, who along with KKR and Standard Chartered Private Equity invested a record Rs 1,028 crore during April 2010 to grow his portfolio of businesses.
Siddhartha’s growth challenges, as daunting as they may be, are easily assuaged by observations on the true nature of the man himself. “he is a human being first and a businessman next,” says Bagchi. His capacity to quickly build empathy, to feel for the other person even if he is not personally connected to them is a very rare quality. Large hearted and affectionate, reading the tea-leaves even as he is serving you the coffee, that is Siddhartha for you,” adds Bagchi.
Source : Business Standard