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Integrity or Stupidity?

I met a friend a while back. He was coming back after getting his watch repaired. Here’s the conversation we had:

Friend: the businessman was stupid?
Me: why?
Friend: when i went to the shop this guy said he would charge me 250 for the repair. Today he told me that it actually cost him 550 rupees but since he had committed 250, hence he would charge me only that much.
Me: (interrupting him) Wow!
Friend: wow? How stupid!!!

We didn’t pursue the conversation any further. While I was thinking, what great integrity, my friend must have been thinking what a stupid businessman. I think both of us are thinking right. Lets see how.

Stupid businessman: Ideally he should have said something like, “I am sorry, I underestimated the issue and the part that had to replaced was way expensive than what I had thought. It actually cost me 550 bucks so it would be nice if you could pay me the same.” My friend would have argued a little and maybe after some fuss he would have given 550 or maybe negotiated for 500 lets say. The business of a business is to do business. Which means he should not suffer a loss knowingly and should make every possible attempt to assure profitability for his business. Perfect business sense. But since he did not do so, hence a stupid businessman.

My opinion: By telling the truth and still not asking for the extra (actual) money, the businessman showed his integrity. For him his integrity mattered much more than 300 bucks! If I was there instead of my friend, I would have insisted and paid him the entire amount, not sure whether he would have accepted it. More importantly, I would have shared the incident with other friends and would have recommended in case they were looking for watch repair shops (in the same vicinity). Actually, I have still shared the story and would still recommend :)Eventually, it *might* get him more customers. However, I feel that’s not important. What’s important here is the self respect for the business owner. He would have had a good sleep that night, which, in my perspective, is far more important than anything else.

Like The Bhagwad Gita says, there are no right or wrong answers, there are only perspectives.

What’s your take? What would you have done?

(first posted on abhinavsahai.com)

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6 Comments

  1. Hi Abhinav,

    I am in full support to your POV.

    As I believe ” Fundamental sincerity is the basis of long term business relationship”

    Sooner or later people will come to know the difference  🙂

    Cheers

    Rrahul  Sharrma

  2. Hi Abhinav,

    I disagree with the point about he being a ‘Stupid Businessman’. This transaction still makes perfect business sense. Apart from the immediate profit or loss, the  concept of ‘Lifetime value of a customer’ comes into play.

    Had the businessman insisted on additional Rs. 300, there was a probability that your friend’s ‘Lifetime value’ to him would have stayed at Rs. 550. However, now he has ensured that it will be much much more. Thus Rs. 300 of lesser revenue would be insignificant for him in building his business.

    Thanks.

  3. Lets hope they do 🙂

  4. yeah, that’s what I also thought. Lifetime value vs 300 bucks!

  5. This is my view, expressed as an article I wrote :

    Mr. Marwari – Have you met Mr. Tata?

    In the past 12 years of pavement pounding and boardroom hustling, I have had the honour of doing business with the biggest companies in India.  Nothing compares to the experience of dealing with Tata companies. For me personally, coming from a traditional Marwari (trader) family, this is special – it helps me juxtapose my Marwari training vs. how a corporation like Tata thinks and behaves.

    Some thoughts: 

    My Salt tastes better than yours!

    The best way to explain this is to narrate a conversation I had with Sam Balsara of Madison Media a few years back. Sam was invited by a Mega Marwari Corporation (MMC) for a chat to help create a Salt Brand. Sam was asked by the grey haired senior executive, ‘how much money would it cost to build India’s greatest salt brand?’ Sam thought for a moment and said ‘Say 20-30 crores (4-6 million US$) in media spends. Assuming your product is great, that should take you to the top’. Mr. Grey Hair heard this and almost fell off his chair…

    He said ‘Sam – with that money, I can build 5 more Salt factories!’. Sam pointed in the direction  across the street and said ‘Mr. Grey Hair – the folks just opposite your office created Tata Salt. Today, every salt factory in the country goes to them to supply them unbranded salt. The one solo Tata Salt brand is more valuable that 100 plain factories put together. Adding 5 more factories to your collection will not do anything for you’. Mr. Grey Hair looked perplexed.

    From the first day of attending my father’s business, I was told ‘advertising is a waste of money’. It gets you mixed up with wrong people. Just invest all the moneys in factories and machines.

    How short term is that! Once in a while, I look at a toothpaste tube of Colgate in my bathroom & flip the side and read ‘Made by xyz in abc fatory’. Mr. Grey Hair and his 5 factories come to mind. Just consider the economics – If he were in toothpaste supplies, he would be paid 4 months after supplying his goods to Colgate, while Colgate would have collected money from me in advance even before I opened my toothpaste box.

    Its ironical that I left my father’s business to start a digital advertising business.  And I have learnt that no matter how great your service or product is, if you can’t brand it and communicate it, it will not create long term value. 

    What comes first – Reputation or Profits?

    If you go to most family owned companies, their core focus is profitability. How much and how soon? Little time or money is spent in building a reputation. When I visit many of the big India business group offices in India, I rarely see a poster in the visitor’s area that communicates:

    What are their business practices?
    What do they stand for?
    What are their values?
    What are their views on treating their employees?

    In most Tata Companies, I see that Value Statement at eye level while sitting on the sofa at the reception. It makes me feel nice.

    By not aggressively creating a positive reputation, Companies stand the risk of being determined by legacy and hearsay. That’s a big risk that can cost you your business.

    A few years ago, after buying a new car, the showroom lady called me up and asked me my preference of insurance companies. All the insurance offers were uniformly priced. I asked her to rattle the name of the Insurers and the minute I heard a Tata Company name, I just said ‘buy that one’. Why I made that decision, I still cannot rationally explain.

    Building a reputation may be tough and non productive in the beginning, but ignoring it can have serious implications on your business.

    White money is more nutritious than black.

    After my first round of VC funding, I ran into my uncle at a dinner. He had read about the financing in media and cornered me. ‘So you’re rich! Why are you looking so gloomy?’ he said. ‘Huh’ I asked? ‘My Company’s the one that got funded, not me! No one got rich. The VCs got poorer and a long arduous road lies ahead of me to return the money to the VCs many times over’. He chuckled and said’ ‘What nonsense! The first rule of the funding game is to siphon out 25% of the funds and make yourself-rich. Investors can be dealt with later’. Shucks… hadn’t I heard that story before? Many of my relatives have floated public issues that were nothing short of scams and they still boast about it!

    This ‘get rich, siphon out’ philosophy left so many old industrial houses bankrupt. They were never capitalized to take advantage of acquisition opportunities and punished their shareholders so harshly that they could never raise capital again. Think Mafatlal, Dalmia and many more.  Even today I meet embarrassed professional managers working in ‘family’ firms who get paid salaries in ‘half white and half black’ to avoid taxes!

    It takes a Tata DNA to create a TCS, Tisco, Telco + 100 other Companies with massive cash reserves on their balance sheets. This was especially tough during the Indira Gandhi emergency tax regime when the Income Tax rate was over 90%. Almost everyone gave up and resorted to siphoning off money from the Balance Sheet, but the Tata Companies hung on.

    When you build a cash war chest, and deals like Corus or Land Rover come your way, you have the ability to execute.

    On a depressing note, look at the state of Hindustan Motors and Fiat India today. Even though they dominated Indian roads for decades, they are bankrupt today. Even the mighty Bajaj could not build a Nano (the natural progression after a scooter). It took the Tata group to do it. Of course, on the flip side there are the Mittals and Ruias who have built massive empires in the past 20 years. 

    Outsiders stay away. We are the Adam’s family.

    12 years ago, I visited a large (100 crore+ topline) textile factory in Gurgaon (Delhi) and met the CEO, COO, CFO, CMO, and CTO. They all had Kumar printed as their last name! On inquiring, it turned out that the family tree right down to the grass roots was involved in running the show. In conversations, all they did was nod at each other for consensus. No one had the guts to tell Grand Dad Dinosaur that he was wrong. It seemed so stifling and stuck. When I asked the young 23-year-old MBA what his vision for the Company was, he said something that I felt was his father’s vision and definitely not his own! 12 years later, I did a recon – the Company had shrunk to 20% of its market cap.

    Companies like these have no future. Their boardroom antique furniture doesn’t think laterally and has no clue of new business lines. They would get a heart attack to pay Accenture Rs 1 crore to suggest a strategy to uplift them. They don’t hire gold standard professionals because they can’t expose their business loopholes to them.

    Think of it – most of the old family run companies I know still make steel, cement, ingots, rods and all kinds of cloth, while the Tatas play in Software, Telecom and other value added businesses.

    Like the Tata retirement policy, all the granddads need to be sent home and professional CEOs hired across the board to run the Company. Else, most family concerns will cease to exist.

    Sometimes an Opera Singer can make the best CEO.

    If you go for a live music concert or a dance performance at the NCPA (National Center of Performing Arts) in Mumbai or listen to an Opera at the Jamshed Bhabha auditorium next door, you will marvel at the massive contribution the Tatas have made to the Art scene in India.

    Given this background, if I were an Austrian CEO who can run a steel plant as efficiently as I can play the Oboe, I will be far more motivated to join the Tatas as the CEO of TISCO rather than become the CEO of some Industrial House in India whose CEO cannot understand if the Oboe is a wind instrument or a Shoe.

    Life and business is being cultivated way beyond the dusty corridors of factories and sheds. I wish that all wannabe entrepreneurs and inheritors of family businesses understand this early on!

    ******

  6. Great stories, thanks for sharing Alok

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