Daybreak - Byju’s had one escape route. Now, it is in limbo

Episode Date: August 24, 2023

Over the course of a year or so, we’ve seen how one by one, the chances of Byju's survival have been narrowing down. However, there’s one thing that could possibly save it from falling apart: Aakash, the offline coaching chain that Byju’s had acquired in 2021 for a staggering $950 million. Now, with its IPO upcoming in mid-2024, the struggling edtech giant has a lot riding on Aakash's success.But Byju’s is turning out to become quite the troublesome partner for Aakash, no thanks to its aggressive sales tactics. These selling hacks are driving a wedge between the two teams on the ground and the plans to integrate have been put on hold.Tune in.RecommendationAakash’s sales force has no love lost for Byju’s Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me. My interruptions, my analogies and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Never stop selling. That is one thing that Bayju's has ingrained into its sales force. And this is the mentality that pushed it to become one of the most valuable ed decks in the world. But Buy Juze is now in a big moment. mess. And over the course of a year or so, we've seen how one by one, the chances of its survival

have been narrowing down. But there was one thing that could possibly save it from falling apart. Akash, the offline coaching chain that Baidu's had acquired for a staggering $950 million in April 2021. It has a lot riding on it. But now, this merger is in a sort of a limbo. Now, as you can imagine, Bayju's has really been counting on Akash to boost its revenue. It also wanted to make the most of Akash's spotless reputation in the test prep and offline courses space. You see, Akash is an entity of its own that has nothing to do with all the confusion that has been going inside Bayju's.

And this is what is really working in Baidu's favor. Akash is one of India's most cherished test prep brands and it has a clean, uncomplicated business model. Unlike Bayju's that saw its auditor Deloitte washed their hands off from its messy financials. Actually, my colleague and the Ken's CEO, Praveen, said it best in an edition of his newsletter, The Nutgrave. He said, in the dysfunctional, somewhat eccentric family that is Bayju's and all its companies, Akash is the quiet, industrious uncle working in another city, reading everything on the family WhatsApp group and offering no comments. Now though, Baidu is turning out to be quite the troublesome partner for Akash.

And all of it goes back to that one personality trait that we all know too well about Baidu's. It's aggressive sales tactics. Naturally, for Baiju's sales representatives, thanks to the solid reputation that Akash enjoys in the market, it is a lot easier to sell Akash's products. But these selling hacks are driving a wedge between the two teams on the ground. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Da Sharma, and I Don't Chase the News Cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays,

I will come to you with one business story that is worth understanding and worth your time. Today is Friday, the 25th of August. One of the earlier episodes of Daybreak are told you about how Bayju's is likely to try and fatten up Akash before its IPO. In June, Bayju said in a statement that it will love. launch Akash's IPO by the middle of 2024. Akash's revenue is already on track to reach 4,000 crore rupees with an EBITDA of 900 kore rupees. It is already opening new centres at breakneck speed.

A report by the business standard from June last year had mentioned how Akash, under the leadership of Baidu's, plans to add 50 to 60 new centers by the next academic year to meet the market demand. It has already nearly 300 centers now. and it is also looking to expand space in 100 of these in the coming months. It is also hiring new employees by the thousands. Clearly, Akash is a great cash flow business for Bayju's. So what Byju's did was it very smartly used its sales force

to pitch Akash's flagship offline test prep classes. At the same time, it also used Akash's course content to start an online offering. And it makes sense, right? If Baidu's can sell more of Akash's courses, it is a win-win. Akash's top line will surge, and once the integration of the two is complete, any uptick is a booster for Baidu's. After all, it has to make the most of its $950 million investment. But an investor had told the Ken two months ago that it could also have a breaking point if Baidu's puts too much pressure on Akash too quickly.

Turns out, he was right. Stay tuned to find out how. Once an acquisition takes place, it is common for companies to cross-sell each other's products and share revenues. So Baidu's took its aggressive sales tactics to Akash. But very soon, these tactics raised red flags among Akash's sales and franchisee partners. You see, over the years, Akash has created a brand known for being highly effective. In 2023, of the top 100 rank holders, in the national eligibility come entrance test or any E.T, about 40% of them came from Akash.

Naturally, Akash was highly sought after by parents and students. So, for the Baidu's team, which is used to hustling and creating all kinds of elaborate sales pitches, selling Akash's products turned out to be cakework. A Bayju salesperson told my colleagues Arundati and Olifia that it is a self-selling product. So 25 to 30% of sales byju's salespeople were making were Akash and Baiju's products. A former Baiju salesperson told the Ken, and I'm quoting, if it took us a year to sell one crore rupees worth of Baiju's products, we could achieve the same within four months when we sold Akash's courses.

End quote. And how did all this work? Each time a Baiju salesperson made an Akash offline classroom course sale, 70% of the revenue went to Akash. But when they sold the online products, Bayju's could claim the entire amount. A former Akash executive confirmed this to us. So if Akash had about 1,500 salespeople across its 300 branches,

Bayju's gathered 3,000 sales executives to drive Akash and Bayju's products. And this, dear listeners, is how Bayju's carried over its mis-selling ways into Akash. More details in the next segment. Buy-you sales folks began selling Akash's courses for prices at which an Akash employee would never sell. At least five of them described their modus operandi to reduce prices to the kin. The most common one was giving out scholarships based on an unmonitored national level online exam conducted by Akash. Buy-U sales executives would get their hands on customer registrations and take the test on behalf of the students. One of the sales managers said that the grades would be adjusted depending on the discount that was being offered.

A former executive told us that the discounts could go up to 90%. A senior executive close to Akash pointed out that parents were also colluding here, so they too share the blame. Then, Bayju's sales team also began offering their online products under Bayju's and Akash at a reduced price to parents who were considering Akash's class. room courses. They would encourage these parents to switch to the offline course, and this allowed the parents to get their desired service by only covering the price difference. And what did it do for Bayju's? It got to keep all the revenue generated from the online mode. It was only in mid-2020 that Bayjus and Akash decided to fix these issues, especially the scholarship part. The former Bayju sales executive told the can that if any student got a scholarship of over 35 percent,

they were asked to take another test at a center under supervision. But it was a bit too late. Students and parents acquired by Bayju's agents had started complaining about being misled. Not just this, a former sales executive from Akash told us that the Baiyu sales team was making promises that Akash never offered, like mentorship. All this made things worse. The mistrust between the two sales teams was at an all-time high. So from December 2022,

Bayju's salesperson could no longer sell Akash's classroom products. Obviously, these were much better than the online products that they were still being allowed to sell. And to add to Bayju's woes, the integration of the customer relationship management systems between the two companies that Bayjuze wanted to carry out desperately has also been put on hold. Dear listeners, this is just a part of all that is going wrong between Akash and Bayju's. There are also serious concerns regarding revenue recognition between the two. To acquire Akash, Bayju's had had to pay 70% cash and 30% in stock of its parent firm Think and Learn Limited. But Akash's founder, J.C. Chaudhari, and his family do not want to trade their shares for Bayju stocks.

To find out all about it, you must read Arundhati and Olifia's detailed report. I'm linking it to the show notes of this episode for you. Thank you for listening. Great weekend, I'll catch you again on Monday with a brand new story. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps, and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website.

I am Snigda Sharma, your host, and today's episode. This episode was edited by my colleague Rajiv Sien.