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A Loop Mobile store in Mumbai. Photo: AFP
A Loop Mobile store in Mumbai. Photo: AFP

The business of shutting shop gracefully

Winding up without loss of face is not easy when you have one million customers, but that is precisely the challenge for Loop Mobile

Communication holds the key

Vimal Kejriwal, president, transmission and distribution, KEC International Ltd

Keeping the company’s reputation is important for three sets of stakeholders—company management, promoters and employees, says Vimal Kejriwal. The stigma of closure can make life difficult for any of them, he says.

If the company that is shutting down is part of a group and if the promoter is the face of that group, then a bad reputation can affect all group companies, points out Kejriwal. “Investors have a short memory, but lenders have a long one. So, a poor reputation of a closing company can affect the future of other group companies," warns Kejriwal.

Communication holds the key to salvaging reputation, feels Kejriwal. “You have to be clear and transparent in communication, and it can help reduce the pain of closing down."

A responsible company should clearly communicate to its vendors, customers, and employees through emails or investor calls so that they know the company has taken all efforts to minimize their loss and inconvenience. The company could also place employees with competitors or vendors, says Kejriwal. “When a company does this for employees, it helps immensely in getting them jobs."

“Providing good reference letters will also go a long way, as it communicates that the employees are not in blame for the fate of the company," says Kejriwal.

Time it well and move fast

S. Raghunath, professor, corporate strategy and policy, IIMB

Timing is very crucial in such scenarios, says S. Raghunath. “You have to be careful and you have to move very fast." A smaller company needs to be very sensitive of the advantages it holds, which might be higher revenue per user and local market knowledge, as in the case of Loop. “Had they been sensitive to the fact that it was the customer base, the higher ARPU (average revenue per user), which were creating the higher valuation, then the story could have been different," he says.

However, the Bharti deal has failed and there are not many positives left for the company. “The only choice they have now is to control their own liabilities. They need to ensure that they take care of their customers. Ensure that whatever is due to the customers is cleared," he says. Loop should help customers switch to other networks, he points out.

Companies must clearly assess the market risk, risk related to regulation and risks related to technology to avoid disappointments, says Raghunath. “Risk mitigation model of such companies has to be thought through very well and implemented very well," he says.

Had the company addressed these crucial factors differently, the closure would have been much faster and positive for Loop, he says. But having failed to do so, there are not many options. “Because if that is the way cookie has to crumble," there is nothing much to do, he says.

Ensuring smooth closure a big task

Harish H.V., partner, Grant Thornton

Every business has a lifecycle. There are very few businesses that survive through generations. Ensuring a smooth closure is one of the biggest tasks that a firm needs to undertake, says Harish H.V.

If the company in question is consumer-facing, open communication with suppliers, lenders and shareholders is important. “The firm should distribute the remaining funds among its vendors, lenders and shareholders if the firm is on the verge on bankruptcy. This will ensure that the promoter reputation is not tarnished significantly," says Harish.

The reputation of a firm or its promoter takes a hit when stakeholders sense that they are being cheated, says Harish, adding distributing the remaining funds in a transparent manner will ensure a peaceful closure. If the company is offering a service, it should help customers migrate to another service provider. “Tying up with another service provider will lead to a hassle-free transition for the customers. In case a tie-up is not possible, the customers should be alerted well in advance about the company’s closure," says Harish.

Most employees are usually well aware about the stress their firm is facing and the most talented are the first ones to exit. “For the remaining employees, however, the firm should hire an HR firm in order to place its employees in other organization," says Harish.

Again, it will make more sense if a firm readies itself for a closure. For instance, it can ask other service providers to acquire its assets and customers well in advance. “This will not only allow a smoother transition for customers, but will also fetch the company some money to pay its dues," says Harish. These measures, along with clear communication within and outside the organization, will allow a firm to shut shop with considerable ease, says Harish.

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