As Karsanbhai Patel hits the news headlines with his jaw-dropping $1.4 billion acquisition bid of Lafarge India, it is a great time to look at the entrepreneurial lessons his original business success offers. Nirma, the company he set up in 1969, is a case study in marketing schools, and Patel is often hailed as the original price warrior. Not for him though the scorched earth discounting that characterizes the e-commerce model of today where gross merchandise value (GMV) reigns supreme while profits are left for the wimps to worry about.
What Nirma achieved was phenomenal—it first created an entire market segment. Detergents till then were for the rich and privileged and the big boys of the business, multinationals like Hindustan Lever Ltd (now Hindustan Unilever) served that small premium market with high-cost washing powders. For the laity there were crude bars with which you scrubbed the clothes till the dirt and often the fibre itself came out. Patel targeted this segment. His own humble roots told him better than any market surveys could that in the middle and lower middle class households it was the women of the house who washed the clothes, often a process that entailed soaking and scrubbing long and hard. It wasn’t just intuition. He knew because he had made detergent in the rear of his house in Khokra near Ahmedabad and gone door to door to hawk his wares.
While the exact numbers are a bit fuzzy now, he crashed prices to a quarter of what the equivalent product from his competitors cost. But given the concentrated and daily use of his products, he couldn’t afford to put out something that could damage clothes or more importantly the hands using it. He needed to, and did have, a great understanding of the mix of chemical compounds including linear alkylbenzenesulfonates and bleach that make laundry detergent what it is. No surprise that, for before he started his journey in business he had been a chemist at the Gujarat government’s department of mining and geology.
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Patel wasn’t focused on the price so much as he was on the cost of his products. To keep his costs low, he also took a leaf out of fellow Gujarati Dhirubhai Ambani’s play book. Backward integration was the key to controlling both quality and cost and so his company went on to manufacture all the ingredients that went into its final products. Today, 90% of its raw materials are made in-house and the group is one of the largest manufacturers of soda ash, a key ingredient in the making of detergents. To ensure he stayed in the small-scale business category which would allow him excise concessions in the initial phase, Nirma’s products were made without use of electric power.
By the mid 1980s, Nirma had moved ahead of giant Hindustan Unilever and was now threatening its premium market as well with soaps. It launched Nirma Beauty which by 1999 was already the second largest manufacturer of toilet soaps in the country, trailing market leader Hindustan Unilever by a margin but ahead of another big Indian group, Godrej.
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But growth came with its own set of problems and early on Patel was confronted with obduracy of the retailers who would only stock his products on extremely stretched credit terms. The ensuing cash crunch following the large accumulated credit could have been the kiss of death for a fledgling business. That’s when Patel displayed another, less discussed, facet of his entrepreneurial genius. He used advertising to create a massive consumer pull-based demand for his washing powder.
For over a month, the company withdrew all stocks from the market even as its first great jingle in 1982 filled the airwaves and resonated in Indian homes throughout the country. The jingle itself was earthy, simple and easy to sing along, featuring a little girl (his daughter) in a frock which was as white as milk. With that one jingle, Nirma cut across segments and classes as the Jayas and Sushmas alike embraced this new washing powder that promised more cleaning at lower costs. The ad was an instant sensation and with consumers asking for Nirma in stores, retailers queued up at the company’s doors to request for the product on favourable credit terms. By taking his proposition directly to the consumer, Patel had won the war against market intermediaries.
Above all, Karsanbhai loves his product and the business he built around it. He named it Nirma after his beloved daughter Nirupama who he lost in a tragic car accident. The product became a metaphor for life as all the love he would have showered on the little girl accrued to the business. This is what gave him that rare fifth P of business—passion. That is often what separates those who stay and build from those who quit or sell out. Nirma’s helix is all Karsanbhai much like Wal-Mart was Sam Walton or Wipro is Azim Premji. Try prising a percentage of their company out of their grasp and you will find out what it means to them. Compare that to the hot new start-ups whose promoters are often down to single-digit holdings in the first few years of setting up.
Of course time and tide wait for no man and with the evolution of the market into many other segments Nirma isn’t any more the powerhouse it was. Hindustan Unilever too regrouped and doubled its efforts in the space and with the launch of Wheel it neutralized Nirma’s price advantage. Patel lost some personal steam over the years though his latest billion-dollar acquisition is a warning that the old spirit isn’t yet tamed. But the story of Nirma inspires as much as it offers instructions to today’s generation of generously funded entrepreneurs.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.