would not be any less elegant. Ghodawat, though, would face an unlikely dilemma. Which car to choose? A Ferrari? A vintage Plymouth? A Bentley? Or, his favourite, the Rolls-Royce Phantom? Ghodawat, to be accurate, has 102 choices. That’s right, he has 102 cars to choose from. And, the collection is growing. “I want to get a Bugatti Veyron next. It’s among the fastest in the world,” says Ghodawat, carefully twirling his Dior shades.

It’s been a long journey for Ghodawat since 1988, when he trundled along in a beat-up tempo, hard-selling a pan masala called Quality, shop-to-shop across Karnataka, Maharashtra and Goa. “I clocked over five lakh kilometres on that tempo,” recalls Maharashtra’s own Vijay Mallya, who bench-presses 60 pounds everyday. By 1992, thanks to his interstate sojourns and ear to the ground, a new and improved gutka called Star was born.

Star would alter Ghodawat’s fortunes. Today, the Group has a turnover of about Rs 1,000 crore. Gutka makes up only one-fifth of its revenues, with the rest coming from a big basket of products, across a variety of markets. The group sells salt and mosquito coils in India; it exports oxalic acid to Netherlands and Greece, and exotic flowers like Gerbera and Bird of Paradise to Europe and Japan. And much more.

Indore-based Vinay Chhajlani cut his teeth in software.In 2006, when the family called to revive its newspaper, Nai Dunia, he responded, and turned it around.

Ghodawat is far from done. Ghodawat Energy, a group company, is planning a grand push in the energy space. It owns and operates about 150 wind turbines, which generate about 100 mw of electricity. The company is also setting up a hi-tech manufacturing facility in Kolhapur to manufacture 300 tubular towers (windmills, in common parlance) per annum. “We plan to invest Rs 400 crore in the next five years in energy,” says Ghodawat. It is also whispered in Bollywood circles that director Madhur Bhandarkar’s next flick, Jail, is partly bankrolled by Ghodawat.

Kanpur To Karur

The incredible thing about Ghodawat’s business empire is that it’s almost completely based and fully run from Kolhapur­—a small town that’s mostly known for its pungent chicken cuisine and rich Maratha history. Ghodawat is not a one-off case of a large industrial house with roots and branches in small-town India, away from the arc lights. From Kanpur to Karur, from Doraha to Indore, business groups with several hundred crore of turnover are being built, often catering to complex markets several continents away.

Almost every small town has its share of self-made, self-sufficient businessmen, each with a fascinating story to tell. Like S Susindran, based in Karur, Tamil Nadu. This chartered accountant-turned-textile exporter supplies to the likes of Wal-Mart, JC Penny and Target (See Page 58). Or Jagjit Singh Kapoor, who runs the world’s fifth largest honey processing plant from Doraha, Punjab, with his eyes set on the number one spot (Page 64). Or Indore-based media baron Vinay Chhajlani, a vipassana-practising serial entrepreneur who took over an ailing Nai Dunia, the newspaper his grandfather founded, and turned it around (Page 60).

Back in Mumbai, the Chief Executive Officer of Barclays Wealth, Satya Narayan Bansal, is working hard to tap business houses like these. “The big obstacle is, how does one identify such groups? They are usually shy and keep a low profile,” says Bansal. He, nevertheless, has no doubts about the potential wealth in these small-town businesses. “Although there’s no official data, we conservatively estimate that there are over 100,000 dollar-millionaire families (about Rs 5 crore and above) in India. Of these, at least 15-20% are outside the top eight metros,” adds Bansal.

Besides managing investments, Barclays also helps family-owned business groups with succession planning. And business, says the wealth manager, is booming. “In the last six months, we have been talking to over 100 families in B-class and C-class towns to set up family trusts. Their businesses vary from $20-250 million,” says Bansal. “There’s a tremendous base of entrepreneurship in these towns waiting to be tapped.” Like Indian cricketing talent, the next wave of Indian big business is likely to emerge from small-town India.

Clocking Up Numbers

About 1,500 km from Kolhapur is Kanpur. At the bustling but ill-named Hospital Road, shops peddling firearms outnumber medical shops 5:1. The city’s popular ladoo retail chain, Thaggu ke laddoo, still proudly sports its 48-year-old slogan: aisa koi saga nahin, jisko humne thaga nahin (there is no kith or kin, whom we have not conned). This is North India, irreverent and loud.

On the city’s Grand Trunk Road lies a nondescript, three-storied building that has the look of the office of a small software company in a metro. This is the headquarters of one of India’s largest FMCG companies. The group’s name, Rohit Surfactants, won’t ring a bell, but its flagship product will: the detergent, Ghari. At about Rs 1,400 crore last year, the Ghari brand ratchets up more revenues than all of Godrej consumer’s brands (including Cinthol) put together. It clocks more revenues than Reckitt Benckiser’s renowned Dettol brand in India. In the last four months alone, Ghari sold detergents worth over Rs 600 crore. To put that figure in perspective, FMCG giant Hindustan Unilever’s largest brand, Wheel, records annual sales of about Rs 2,000 crore. Rohit Surfactants claims to have a market share of over 40% in detergents in the populous states of Uttar Pradesh and Madhya Pradesh.

“I used to try out new formulations for detergents at home,” explains 63-year-old Murlidhar, founder and Chairman of Ghari group, in chaste Hindi. Ghari’s transition from a homemade brand to a trans-state player was gradual. It did not go for the big-bang, wide-dispersion advertising strategy normally adopted by FMCG companies. It couldn’t afford to. So, like a true guerrilla warrior, it attacked the market town by town, mohalla by mohalla. Today, it has 3,000 distributors nationwide, 800 of them in UP alone. A small city like Kanpur has 25 dealers.

Zafar Amin’s companyexports leather products worth $75 million from Unnao, 50 km from Kanpur. Since professionals are reluctant to move to Unnao, he mostly manages by himself.

“Nayi cheezen try karte hain (We like to try new things),” explains Murlidhar. Passengers boarding the train to Guwahati from Lucknow, last summer, might have heard announcements about the arrival of ‘Ghari Express’ and seen the whole exterior of the train painted with Ghari branding. “To avoid double taxation and excise duty, we have set up over 24 factories across several states,” explains Murlidhar. Canny marketing and maintaining prices are the secret to Ghari’s success, says Murlidhar. Success brought suitors who wanted to buy the company. “We got several offers from large players a couple of years ago, when we were smaller. Now, we are too big,” he says.

The Uncommoners

Businesses in small-town India have their own character and quirks. At the Ghodawat Group office, clocks­—digital displays, clocks that look like tables, oval clocks, square clocks—are omnipresent. Lobbies, conference rooms, Ghodawat’s own chamber and even parking lots have clocks fitted in. Reason: Ghodawat is a stickler for time. Another industrial house in Kolhapur had a mini-zoo, complete with a hundred rabbits and a few monkeys.

Having said that, small-town India is not a land of milk and honey, or monkeys for that matter. Businesses face real problems. Kanpurites risk deafness from the blaring back-up electricity generators on street corners. Power cuts last six hours a day. The roads are clogged. And corruption is rampant. Leather-processing units allege that although they have cleaned up their act, authorities use the pollution in the river Ganga as a stick to extort money. “We have installed waste-treatment plants. It’s just an extortion racket,” says a leather tanner based in Jajmau, a suburb of Kanpur. The authorities point to the colour of the Ganga as proof, in turn.

These are systemic problems that exist in parts of the country, in different degrees. In Maharashtra, for instance, power supply is an issue, but the roads are far better and corruption is less. Then, there are issues and problems that only small-town businesses face, across geographies. They are beginning to engage with these issues more actively. Still, it’s not easy, given that resolving these issues requires them to embrace the ‘outside world’ they have been insular to (See box: Risk Factors).

Talent Hunt

Even though most entrepreneurs continue to swear by the towns they grew their business in, most complain of one problem: a shortage of managerial talent. Even as it is easy­—and cheap—to find factory hands in small towns, experienced middle and senior management talent is tough to find. “In order to attract talent, I need to have offices in cities,” says S Susindran, CEO of Sabare International, a Rs 250 crore furnishings supplier, with multinational retailer clients like Wal-Mart and Target. “My roots will remain in Karur,” says Susindran. “Wal-Mart came from small town Bentonville, and continues to remain there. Bentonville is actually half the size of Karur.”

Professionals like 26-year-old Ashutosh Mishra, born and raised in Kanpur, are more the exception than the norm. Barely a year out of a local B-school, he has travelled to Singapore and Malaysia, scouting for clients, while his classmates who moved to Delhi and Mumbai are cold-calling people for credit cards and cellphone connections. Does he consider himself lucky? “Yup”, Mishra replies, in a clipped, anglicised accent. He works as a senior executive with the international marketing wing of the Superhouse Group, a leather shoes and accessories exporter headquartered in Unnao, 50 km from Kanpur. Last year, Superhouse’s exports crossed $75 million, and its shoes can be found on the shelves of retail giants like Carrefour and Tesco.

Mishra’s boss, 26-year-old Zafar Amin, Joint Managing Director of Superhouse Group, is a globetrotter himself. “We hire our marketing personnel from Kanpur and Lucknow, and train them extensively. It’s easier to hire senior marketing talent in Delhi or Mumbai, but people from big cities don’t want to move to Kanpur or a town like Unnao,” says Amin, who himself commutes from Kanpur to Unnao regularly. Therefore, Superhouse hires smart people from local institutes, like Mishra, and trains them in-house. Similarly, Ghodawat is setting up an engineering and management college in Kolhapur, with all facilities. “There are no good colleges here,” says Ghodawat.

But not everyone is willing to do the long haul. Mirza International, the makers of Red Tape shoes, was once headquartered at Unnao. But when it got listed in the early-90s, Mirza moved its corporate office to New Delhi. “Once you are listed, you need to know what’s happening in the markets. One needs to network with the right people. Hiring senior sales people is also easier. That’s why we moved to Delhi,” explains Tasneef Mirza, Director, Mirza International. So, what stops Superhouse’s Amin from doing the same? “Family,” answers Amin.

“The leather business is one of finer details...touch and feel. One constantly needs to be in touch with the shop floor,” explains Amin. He says the Mirzas could afford to move, thanks to the fact that they have a larger family—four brothers. Some brothers could move to Delhi, others could stay in Unnao supervising the factories. “In my case, it’s just my father and me. Even though we have hired professional managers, it’s not enough,” says Amin. Superhouse has 15 factories, which need to be monitored constantly. “I might be able to find a couple of good professionals. But to find 15 of them is pretty tough in Unnao,” he adds.

From a nondescript, three-storied building in GT Road in Kanpur, Murlidhar has built a detergent brand, Ghari, whose revenues exceed all of Godrej Consumer’s brands.

Venkat Subramanyam, founder and Director of Veda, a Chennai-headquartered investment banking firm, feels small-town businesses are not doing enough to address the talent issue. Subramanyam, who has worked with dozens of small-town businesses in South India, says location may not be the only reason why a senior professional may not want to move to a business headquartered in a small town. “There are cultural issues too,” he says. “There might be legitimate concerns among professionals about their ability to adapt to the culture of these businesses, which are family run.”

Subramanyam cites the case of a small-town entrepreneur who was complaining that senior professionals were unwilling to move to smaller locations, despite being offered huge salaries. “When I asked him if he was willing to offer stock options, and let 2-3 professionals share a 5-6% stake of his company, the answer was a clear no. He was willing to double the salary if needed, but he wasn’t willing to dilute his stake,” adds Subramanyam.

Family Matters

Trust is a big feature in family-owned businesses, as holdings tend to be complex, contends Barclays’ Bansal. The result is that one has several family members and family friends occupying key positions. Ghodawat’s head of energy business, Ram Kolli, is a classmate of Ghodawat’s son, Shrenik Ghodawat. In informal conversations, he refers to Sanjay Ghodawat as ‘uncle’.

At Doraha, 25 km from Punjab, Jagjit Singh Kapoor is confident that his company, Kashmir Apiaries Group, the country’s largest honey exporter will earn revenues of Rs 350-400 crore in 2009-10. About 40 of his 1,000-odd employees are relatives and friends, some in key positions. “I’m proud I have been able to do something for my people,” says Kapoor.

These groups are now aware of the need to professionalise and simplify shareholdings, in order to access institutional sources of finance and financial markets. Ghodawat is currently restructuring his group of 25-odd companies into eight entities. Barclays Wealth is handholding the group through the process. The group is also actively scouting for a private equity (PE) partner for its energy business.

Likewise, the Kashmir Apiaries Group is also going through a restructuring to simplify group holdings and will then look at getting some PE funding at a group level. “We are willing to step back from day-to-day operations and let professionals take over if needed,” says Shahzada Singh Kapoor, Jagjit Singh Kapoor’s son, and Managing Partner, Kashmir Apiaries.

But playing the PE game is not easy. “Small-town companies are yet to learn the art of unlocking value,” says Veda’s Subramanyam. “A Bangalore-based company will have an M&A or an exit option in the second or third slide of its presentation. If you talk about an exit to a small-town company owner, you might not leave the room without being bruised. There is a loss of face associated with a sale,” he adds. Ghari almost sold a minority stake to Citigroup Venture Capital India in mid-2006, but the deal fell through on valuations.

Wealthy, But Unwise

Small-town businesses are not linked to mainstream financial networks and are often ill-informed about wealth management. “These people are good at what they do. But they are so busy running their businesses that they are not clued into what is happening in the various asset classes,” says Bansal. Most of them invest in the one asset they trust and can easily acquire: real estate.

Bansal gives the example of a conservative family-owned business in North India, which chose to enter the stock market when the Sensex was around 18,000. “The younger members convinced the family that they should enter the market. Needless to say, they lost heavily,” recalls Bansal. He feels that any change in these business houses would take time, as there are several stakeholders (read family members), especially in second-generation businesses.

Ghari’s Murlidhar partly agrees with the charge that small-town business houses have been slow to professionalise their operations. “Yes. There’s some truth to it. But, if you look at us, in the last few years, we have adopted technology a lot more...put in systems like ERP in place,” says Murlidhar, who is non-committal about an IPO or a PE stake sale anytime soon. Change, unlike Ghodawat’s chopper, may be slow coming to small-town businesses.

Risk Factors

Three issues that small-town businesses face:

• Inability to attract Good managers: Factory hands come easy, but experienced middle and senior management talent is tough to find. Professionals don’t want to move into small towns and are wary of working in a family-run business.
• Complex shareholding pattern: Cross-holdings within the family can lead to control wars. Several family members and family friends occupy key positions, complicating decision-making in second-generation businesses. Complex shareholding also makes it difficult for the business to access institutional finance.
• Poor wealth management: Since they are not clued in to mainstream financial networks, they are often ill-informed about both company and personal wealth management. Most invest only in the one asset they trust and can easily acquire: real estate.

By TV Mahalingam With Sriram Srinivasan, Sudipto Deyand Ajita Shashidhar