How I Lost $2.25 Million in 4 years?

Note: As written on 1st June 2019.

I have 3 simple reasons that will simply explain how I lost all this money in my garment manufacturing business. Here they are - Marketing. Marketing. Marketing.?

Hi Guys, my name is Nikhil. I am from New Delhi, India and I recently shut down my garment manufacturing company after losing $2.5 Million in 4 years.?

That’s it. There is nothing else to it. A lot of people will argue that it was the high cost of operations, poor efficiencies in production, a very “fancy” and expensive team, poor finance management, expensive business loans, etc. But hear me out, the only way to improve your efficiency, quality, productivity, cost of operations, and of course the absolute non-negotiable, bottom-line, is to constantly keep the plant running. Only then is it possible to constantly identify, resolve and improve the “issues”.?

Now in general, in my honest opinion, the apparel sector is going through a very tough time. There is immense pressure from brands all over the world to buy the product cheaper and cheaper, on the other hand, inflation is at 6% (in India). Go figure! The cost of doing business is increasing day by day, and so are customer demands. There is a new culture in the air of product guarantee otherwise it’s a chargeback to the manufacturer. Don’t get me wrong if I made something faulty then it is absolutely fair for the customer to expect a refund. However, the point I am trying to make here is that barring the chargeback situation the cost of running a manufacturing facility is going higher and higher, that too, a proper compliant facility that follows the standards set by international brands. You can no longer cut corners and compromise on the quality of people working for you, there is no dearth of manufacturing units in and around Delhi. To stand out you have to be armed with an army.?

Everyone is in the rat race, trying to undercut one another, trying to outbid his/her competitor. There is no sense of customer loyalty, you will lose orders for as little as $0.05. Can you believe that? $0.05!? So as Renee Mauborgne and W. Chan Kim would say, it's a bloody red ocean out there.?

Well, these could be general circumstances all over, aka, competition. Coming back to how I lost all this money. The journey began in mid-2015, I had been working in my father and uncle’s company/ factory for about 2 years. During those 2 years, I was not able to carve out a space for myself. Everything was in its own place moving at its own pace and I was the only change. It’s a whole another story of the challenges that are brought forward to one’s life when you are the 2nd generation in a business family. I am sure some of my family business friends know what I am talking about. I will leave that conversation for another time.?

Anyhow, I was not willing to work the way that organization was working. One of the key roles ironically where I started was Marketing and I learned very quickly that I need to be able to offer something worthwhile in order to attract customers. The market was changing rapidly and post the recession of 2008, the apparel export industry was forever changed in India. Frustrated with the way the organization was running, with the people in it, in the summer of 2015 I mustered up the balls and told my father and uncle that I am done. I no longer wished to be a part of their company and if possible I would like to run my own company doing the same business or do something else altogether.?

After about 2 weeks or so of discussion between my father and uncle, they decided to let me go my way and support me financially in my endeavor. Just to be clear, they funded me to set up my own company/manufacturing facility with my own team, systems, customers, etc. The works! Needless to say, I was thrilled, and I can surely say now, I was completely misguided by my own blind desire of proving “I know how to do it better.” And there began the disastrous journey (only in financial terms) of losing $2.25 Million. Looking back 4 years ago it seems like a dream. Knowing what I know now, it seems so unreal that this has happened. On the other hand, I can for sure say that I wouldn’t have known what I know now if this wouldn't have happened the way it did. Regardless of what conspired in these 4 years, the entire journey has been absolutely beautiful including the pain, frustration, challenges, tears, and whatnot. It has been a journey of immense learning, self-development, and me discovering so much about myself. Regardless of the financial failure, I was able to build an absolutely amazing team, it took about 2-3 years to build the team and then have it work as a team. If I had to do it all over again it’d probably take me 1 year at best. I learned so much about working with people during those 2-3 years of team building, that I simply fell in love with the art of building teams, teamwork, and of course, working with the people in it.?

Moving on, in its 1st year my company served as an ancillary unit to my father and uncle’s company. I used that time period to build a production team, set quality standards, get all necessary permissions, systems going in order to attract new customers. End of year 1, I cracked 2 customers, one a high volume with low to mid-price points and the other a low volume with very good margins. This was indeed very exciting, and the best part was they wanted to work with my company because of the way it was set up in terms of the facility itself, the systems, and the team structure.?

I would like to mention at this point that I only had a basic team in place with me, a lot of the pre-production team required was being shared between the two companies. Although I am grateful to my father and uncle for letting me piggyback on their company, I know now very clearly, that I should have built that team right from the word go. That’s where I lost about 2 years in the team-building process and focused marketing for my company.?

Nonetheless, that's all in the past. Having cracked 2 customers was not enough as they would only occupy maybe 50% - 60% of the capacity we had so we continued using my company as an ancillary unit for my father’s company. So we are about 1.5 years in at this point, the plant was nowhere near in profits or breakeven for that matter. Therein began the journey of building my own pre-production and marketing team. Around summer 2017 my father and uncle decided to wrap up their operations and consolidate everything in my company. My uncle took a permanent retirement from the garment industry, but he was never able to switch off financially as we are a joint family and in the back of his head he was always clear about the risk we had taken. It was a huge huge huge risk and it didn’t pay off.?

So, we are about $1 Million in, which includes movable assets, pre-operative expenses, and working capital. And, nowhere near the word profit. I’d like to rewind a bit at this juncture to somewhere around July/August 2016. Without getting in the thick and thin of it, some events transpired (mismanagement) that led to me losing my A1 team, the team that delivered all but 1 consignment with quality on time every time. The team that worked so hard and passionately with me to set up an exemplary factory. How did I lose my team? That’s for another time. There began a journey of rebuilding a team and trying to merge them into my existing culture. Don’t even get me started. It was a nightmare.?

Now, back to summer 2017, the period between me losing my A1 team to summer 2017 was full of whatever can go wrong will go wrong and whatever should not go wrong also went wrong. So everything that one can imagine and more happened. It was a battlefield with no planning, with no one at the helm, with 3 leaders but none on the same page. Frustration, frustration, frustration. Blame game. Company politics. What a roller coaster ride. Somehow we went through it but it punched a massive $250,000.00 hole in our pockets due to consignment delays, cancelation of goods, AIR shipping, and quality claims. By the end of this period or as we call it “season” in the garment export industry all my mistakes were clear to me and so were the changes I needed to make. I thanked my stars for all the learning I got in this period and so early on in my attempt to be a business owner. August 2017 marked the beginning of the journey of cleaning up, attending business coaching classes, and self-development.?

I had to get all the junk out of my head, start fresh and rebuild the company and team, AGAIN. Mind you, no one left this time around but everyone needed to be brainwashed and of course, I had 1 or 2 people that needed to be removed from the team.?

So year 3 now, despite all the wisdom I seemed to get above, I made a huge mistake of taking very expensive business loans. I had bled to death and had no working capital left. I found one of those online companies, oh sorry, aggregators. Took no less than 6 (very expensive) loans amounting to approx. $200,000.00 and funded my loss with what I now call another loss. This was followed up with another genius move of changing our bank, with a request for a higher credit limit. Exporters get very competitive borrowing rates as compared to domestic businesses so all in all this wasn’t really a bad move. We did it to fund our business further as it was going to be “The Year” for us. Despite all the issues we were expecting, one of the two initial customers wished to continue with us and give us much larger orders. This was not a dream in our heads, we had multiple meetings with the customer who assured us of the numbers and that we are true partners who will work together and grow together. In parallel, we were able to add new (domestic and international) clients as well which gave us the confidence to infuse more money into the company in the shape of loans.?

Oh boy o boy, now I am focused, pumped up, armed with financial backing, business coaching, self-development, and a never-quit attitude. Determined to turn my company around I start attacking areas of improvement, I nosedive into the implementation of systems (learned at business coaching) and cleaning up my team. But alas, who was doing the marketing and sales? Well of course the marketing and sales guys. We had no systems in place for sales. We didn’t even have a basic sales funnel. I relied on my personal efforts along with my sales team to secure the orders we needed. Loaded with heavy borrowings and losses, there began the journey of NO ORDERS. Well, the orders did come in but they were nowhere close to what was promised. Everything collapsed within a matter of 2-3 months. In January 2018, my father decided to shut the company. He met with my uncle (his brother), they have a chat, one thing led to another and I think it was around February 2018, that it was decided to give it another shot. In March 2018, my father borrowed $300,000 to fund a business that was in massive losses and had no new orders in the pipeline. Just hope and determination. Big mistake! Don’t get me wrong, I don’t mean to show him in a bad light at all. The purpose to share this story is to help you avoid making the same mistakes we did. Or maybe, you are not making mistakes but you can avoid making them in the future after reading this memoir.?

The reason I call it a big mistake is that we had no certainty of orders, all we knew was we have a great factory and never quit attitude. While those are really important, without having a clear and sure way of procuring orders it was shot in the foot. So there we are, having shot ourselves in the foot, bleeding to death, trying to turn around the company. With no marketing and sales plan.?

We are now approx. $1.3 Million in, its early summer 2018. Very small orders in hand, no concrete pipeline in place. Just determination. This was by far the biggest mistake, looking back now, I don’t even know what were we thinking. The writing was on the wall, all signs pointed to a dead end. We were battling it out in a Red Ocean dying by the second. We burn through a few more months. Finally seems like lady luck has decided to stop by at our company, we get 3 solid customers/opportunities. We got on board in the vendor matrix. Booked orders. The skies are blue again, the sun is shining bright, the ocean was still Red, somehow we forgot to look down, pay attention to where we are. The new business requires us to use specialized material available in China, the Chinese do not give credit and baam! We shoot ourselves in our other good foot. Here comes a massive borrowing of approx. $450,000.00, this marked our imminent death.?

Believe it or not, it gets more interesting from hereon. Since we were projecting a good number of orders and working at full capacity, my father decided now would be a good time to start a very small production unit for our customers who give us very very low volume orders but are extremely profitable. This way our main facility will be free of potential bottlenecks caused by the small orders. While this was a good operational decision and made life easier in terms of production but it was definitely not a good financial decision. You might be thinking, these guys were just out to get themselves, maybe we were, we just couldn’t see it!? After this, it was just a matter of time before we would “see it”. If my memory serves me well between September and October 2018, my father infused another $200,000.00 into the company. And, it was around October or November 2018 when we finally decided to shut shop. Unfortunately, we had booked a huge number of orders so there was no way we won’t honor our commitments to our customers. The order pipeline was flush till about April 2019 so we decided to never visit this decision again and do whatever it takes to ship everything on time with the lowest possible cost.?

Many things transpired during this time period, one of them was me being convinced that I can find a customer for my loss-making business. And believe it or not, I did, within 30 days of starting my search. It was the heavy practice of the Law of Attraction and Manifestation. These are the only 2 things that I can credit along with my blind belief and passion for my company that led me to find a potential customer. After a couple of meetings, a lot of email exchanges, I believe it was somewhere around February 2019 that I got my dream offer. It was everything that I had Manifested. This marked the beginning of due diligence etc. to ensure whatever numbers had been shared with the potential buyer will hold their weight. I am not going to be sharing details about this journey but we reached a point in the second week of April where everything was concluded, we shook hands on the deal and it was all Green after that. Don’t ask me how what or whatever, approx. 4 hours later we lost the deal. I tried my best for the following 2 weeks to save it but there was no coming back.?

And there we have it, we finally reached our imminent death. We had more orders booked during this time period, with deliveries going to the end of June. My father and I met our CA (Chartered Accountant), friend, and advisor somewhere in May 2019. He gave us the brilliant, life-saving advice to shut down the plant by end of May. This was followed up by meeting customers, requesting them to move the orders for June production to other suppliers in their matrix. I cannot tell you enough the value of having good relationships and work ethics. Each and every door we knocked on was opened for us, all our customers supported us. I cannot thank them enough. Not only our customers but our key suppliers understood the situation as well and extended their support to us. Needless to say, we are not in a position to pay our suppliers but it goes without saying that we will clear our debt to the penny. It doesn’t end here, my entire team supported my decision, they stayed with me till the end. I cannot thank each and everyone enough who supported us in this process. Something I was not sure of. The universe is kind indeed.?

All right, back to the numbers. It's May 2019. We are $1.75 Million in, we do the numbers and realize we will need another $500,000.00 to come out of the mess we created. So my father and my uncle pull money out of their retirement savings to fund this loss. The rest is painful history.

There it is, the story, the blunders, the good, the bad, and the ugly decisions we took. I have captured the big amounts that we infused or borrowed from time to time, there was an instance where I infused 90% of my savings of 10 years in the company, of course, it’s all gone now into the deep heavens of the world of business.?

If you enjoyed reading this or it resonated with you in any manner do leave a comment below.

Thanks a ton for your time!?It reallymeans a lot!

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