Vijay Mallya and Kishore Biyani are among the best known entrepreneurs in India, but both of them are now going through hard times. Their response to the grave challenges that threaten their businesses hold great lessons to young entrepreneurs on how to handle a severe crisis and, more importantly, how not to. By Vivek Sharma

Vijay Mallya and Kishore Biyani. They are among the best known entrepreneurs in India. Both of them built leadership positions in their respective sectors, but have been facing rough weather in recent years. Their response to the grave challenges that threaten their businesses hold great lessons for young entrepreneurs on how to handle a severe crisis and, more importantly, how not to.

Mallya inherited the business from his father at a very young age. The UB Group was one of the leaders in the alcoholic beverages business, and a small player in select other sectors such as engineering. To establish his dominance, Vijay Mallya fought many bitter battles with Manu Chhabria who took control of UB's competitor Shaw Wallace in the mid-80's.

This long saga had all the ingredients of a potboiler. Chhabria's younger brother Kishore who was the managing director of Shaw Wallace later joined hands with Mallya, before Mallya took him to court for trying to take control of Herbertsons which then owned the Bagpiper whiskey brand. Following Manu Chhabria's death in 2002, Mallya finally achieved his ambition of taking over Shaw Wallace when the Chhabria family sold their stake in 2005.

After emerging as the undisputed leader in the alcoholic spirits business, Vijay Mallya benefited enormously from the consumption boom over the last decade. As business valuations soared, Mallya joined the world's billionaires list for a few years. Not content with the domestic market, UB Group acquired Whyte & Mackay of Scotland even as it forged partnership with global majors in the beer business.

Mallya entered the airline business with Kingfisher Airlines, promising to revolutionise air travel in India. To gain market share in the airline space, Mallya took control of low-cost rival Air Deccan. In the meantime, Mallya bought the Bangalore franchise in the IPL and later a Formula 1 racing team. Both ventures enhanced his larger than life, flamboyant image.

In contrast, Kishore Biyani is a self-made man who rose from humble beginnings to become India's largest retail industry pioneer. Kishore started at his father's small textile trading business, but soon ventured out on his own with garments under the Pantaloon brand. Within a decade Pantaloon grew into a chain of clothing stores and Biyani took his company public.

He was one of the earliest to spot and capitalise on the retail opportunity, when he launched Big Bazaar in 1996. His genius was in absorbing all the best practices from world's largest big box retailers, but at the same time giving his stores a unique Indian feel. Big Bazaar stores are not the most organised, can be noisy, crowded and sometimes even chaotic. They were designed that way on purpose - to appeal to his target middle-class customer group, which could be intimidated by fancy malls but is perfectly at home at the messy local bazaars of our cities and small towns.

Biyani's growth was phenomenal. During the boom years just before the global financial crisis, Big Bazaar was opening a store almost every week and expanded its footprint all across the country. He added other retail formats such as electronics, a joint venture with Staples to retail office supplies and development of malls exclusively for his stores. Without stopping to even steady his breath, Biyani diversified into financial services and insurance.

To reflect the diversified business interests, Biyani changed the group identity from Pantaloon to Future. His even tried out a new model to grow new businesses under Future Ventures, bringing in highly experienced professionals at eye popping salaries, offering them large equity stakes to develop new businesses in their respective areas.

Though their beginnings were very different and their businesses were dissimilar, both Mallya and Biyani enjoyed spectacular growth rates over the last decade. Both diversified away from their core businesses, with Mallya depending more on acquisitions and Biyani preferring organic growth. But there was a common element in their strategies that was to bring them much grief subsequently. The rapid growth of both UB Group and Future Group was fuelled by very high debt levels.

As growth slowed after the 2008 global crisis, both groups came under severe financial strain. High interest payouts wiped out the profits, while debt levels rose to dangerous levels. Their attempts to raise additional equity capital failed, as the weak equity market valuations dissuaded investors. The troubles at UB group, especially at Kingfisher Airlines, are well known now, and have diverted some of the attention away from similar problems at Future group.

But the responses of these two well-known entrepreneurs to the debt problem could not have been more dissimilar. Despite all his troubles, Vijay Mallya is still living in denial. With more than Rs7,000 crore of debt and a severely depleted fleet, most promoters would have exited or shut down Kingfisher Airlines long back. But not Mallya.

Margins have come down substantially in his alcoholic beverages business but, instead of preserving cash, UB Group continues to spend millions of dollars in sponsoring Mallya's sports owner fantasies in cricket and car racing. He doesn't even seem keen to sell at least part of UB's Whyte & Mackay, leveraging the growing global demand for Scotch whisky, and raise cash to retire some debt before it is too late.

In sharp contrast, Biyani has taken some hard-nosed decisions to pull the Future group from under the debt pile. He sold off a majority stake in the Pantaloon clothing retail chain, once his flagship business, to the Aditya Birla group. Realizing that he need to raise more cash, Biyani has also exited his retail finance venture Future Capital, for which he once had big plans.

Selling off businesses that were nurtured over several years is not easy, but so far Biyani has not allowed emotions to cloud his decisions. True, even after these divestments, the debt levels at Future group still remain high and operating cash flows are poor. But Biyani is in a much better position than he was at the beginning of this year.

The stories of these two business leaders hold several lessons for budding entrepreneurs in this country. First and foremost, while diversification into unrelated businesses has its merits, you should be prepared for the downsides as well. It may not always be a good idea to enter every business that grabs your attention.

Secondly, excessive leverage may help you explore opportunities during booms, but will kill you in a downturn. And finally, if you love taking risks and are prepared to use leverage, you should be equally willing to cut your losses quickly and run, when the tide turns against you.