Sunday, March 13, 2011

Villgro Blog: Simply Fly Chapter 6

In the last chapter, Gopinath obtained funding for a hangar, and had a company agree to lease him a helicopter. Yet he still has no funding for a helicopter. He goes to banks and VC firms but they won’t lend to him.

What is ironic is that it is also in this chapter that Gopinath is invited to join a highly prestigious MBA program. Despite this recognition he is not able to get funds. This made me think that funding is a problem for all enterprises in India, not just SMEs, or those serving the poor. In fact, Gopinath was able to get a bank loan for his farm, but not for his helicopter business.

Gopinath finally gets a loan/equity investment from a Sindhi (Gopinath describes them as some of the most astute businessmen in the country) and some others. The Sindhi “rate of interest” is usually quite high, although Gopinath says that this particular business charges less. He finds him through his financial advisor.

While loans from Sindhi businessmen may not be an appropriate source of finance for Villgro’s enterprises because of the high rates of interest they charge, it made me wonder whether Villgro should be giving greater emphasis to informal sources of finance in its mentoring of incubates. The Amazing Secrets of Millionaire Inventors talks about giving both debt and equity to your family and friends. However, I know that when I was at Villgro, the capacity building sessions for innovators seemed to downplay those sources of finance in favor of venture capital.

In this chapter Gopinath also sets a date for the launch of his helicopter business when he still has several licenses and clearances to secure. The date is particularly ambitious because he does not allow more than two to three days for the clearances from the Directorate General of Civil Aviation (DGCA), when normally these clearances take two to three months. Gopinath feels compelled to do it because he knows that as soon as the helicopter is transferred to his business, he will have to start paying interest and lease rental. Therefore, it will be suicidal for his business if he does not start earning money the moment the helicopter is transferred to them. The way in which Gopinath pursues this goal shows his ability to be strategic. He invites the chief minister and other ministers to join the civil aviation minister for the inaugural flight, assuming that the DGCA will do their bit and oblige with the necessary clearances because their bosses would be the chief guests.

Villgro Blog: Simply Fly Chapter 5

This chapter furthered some of the impressions that I have gained of Gopinath in earlier chapters, namely that the way in which he chooses opportunities to pursue seems haphazard, and that there is a contradiction between his love of nature and the environment, and his venture into aviation.

Gopinath visits China in 1995-1996, and he emphasizes the importance of this visit in taking him, “on a course that would not have otherwise been taken”. Gopinath’s observations of China are that:

…Destroying the topsoil to create buildings would ultimately mean destroying the world. In China I could sense disaster waiting to unfold. The picture was the same everywhere: in the countryside, in district towns, in sleepy hamlets, and in busy cities. On the positive side, the frenetic, relentless pace of industrialization had taken China 20 years ahead of us.

While in China, Gopinath reads a newspaper article about a Vietnamese helicopter pilot who flies investors and aid workers to different parts of the country. Later on in the chapter, Gopinath quotes Peter Drucker saying that entrepreneurs, “…create something new, something different; they change and transmute values; and, on a size and scale that will impact society”. Gopinath emphasizes that entrepreneurs must impact society for the better, and suggests that the helicopter business he decides to start will do so.

Yet, the uses that Gopinath sees for the helicopter business are for VIP visits, industrial surveys, mapping, tourism, aerial photography and videography, film shoots and medical evacuation. This point seems important because it is often argued that, “all enterprises are social enterprises, and create social impact”. However, of all the uses that Gopinath envisions for the helicopter, it is only medical evacuation that I see as having the potential to create significant social impact. Gopinath is certainly an ethical entrepreneur, for example in his refusal to pay bribes. However, I would not consider him a social entrepreneur.

Nevertheless, this chapter contains useful insights on how the helicopter business was started. Gopinath emphasizes the importance of having a great team, and describes in detail his efforts to recruit his partner, Captain K.J. Samuel (Sam), a financial advisor, Mohan Kumar, a pilot, Col. Jayanth Poovaiah, a helicopter engineer, Vidya Babu, and the board. In the case of Sam, Gopinath is only willing to accept him once he is so taken with the idea of a helicopter business that he leaves his job, even though he has three children to support in Bengaluru on a pension of only Rs.7,000. Gopinath justifies this by saying that only if you are unable to sleep because your business may go bankrupt, will your business succeed. However, in this particular instance, Gopinath had his farm and agricultural consultancy to depend on, while Sam had nothing.

Gopinath and Sam incorporate the company as Deccan Aviation, but then spend two tormenting years obtaining a No Objection Certificate (NOC) from the government. This episode is clearly an example of Gopinath’s persistence, as he visits the office of the joint secretary (the officer who deals with the initial stages of the application) fifteen times! Gopinath compares both his visits to the joint secretary’s office for the NOC, and to banks for a loan, with his experiences making similar visits as a farmer. After several rejections, the Karnataka State Industrial Investment Development Corporation gives them a loan of Rs.43,00,000 for spare parts and a hangar. They were then able to convince the Chief Minister of Karnataka state to give them land for the hangar.

Even as the company was getting established, they received free publicity through several newspaper articles. They hired Tata Consultancy Services to prepare a business plan. They prepared training and engineering manuals to comply with the requirements of the civil aviation ministry. Gopinath emphasizes the importance of having funding, people, and the government license before buying or leasing a helicopter.

However, obtaining the helicopter is not easy either. A leasing company, ITC Leasing, decides to offer Deccan a helicopter, then withdraws their offer because of India’s hung parliament in 1997, but then agrees once again when the political situation stabilizes.

This chapter also contains several digressions, such as generalizations made by the president of ITC Leasing, on the differences between Chinese and Western women. These could have been edited.