The Refrigeration Technician's Cold-Chain Decision
Ravi, 34, has spent eleven years repairing commercial refrigeration units in Coimbatore. He has noticed that small pharmacies in his neighbourhood discard roughly ₹18,000 of heat-sensitive stock each month because their staff cannot monitor temperatures reliably and because the two large distributors in the city will not extend cold-chain service to stores buying less than ₹2 lakh a month. Fourteen pharmacy owners have told him they would pay ₹3,500 a month each for scheduled pickup, delivery and temperature logging, but they want 60-day payment terms. Ravi has ₹6 lakh in savings and can borrow ₹4 lakh from family. A cold-chain franchise he is considering costs ₹15 lakh upfront plus ₹40,000 a month. His wife has a stable government job; they have two school-going children and a home loan. Ravi is technically excellent but has never sold, hired or managed cash flow. He is excited and wants to sign the franchise agreement next week.
1. Using the evidence in the case, screen the opportunity and recommend go/no-go with explicit conditions.
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Screening logic and decision
- Problem severity: spoilage of about ₹18,000 per pharmacy per month is a direct cash loss, and temperature-sensitive medicines create safety and regulatory risk. Strong pain.
- Willingness to pay: 14 owners × ₹3,500 = ₹49,000 per month of stated demand. But these are verbal commitments, not contracts with deposits. Treat as moderate evidence, not proven revenue.
- Competitive gap: the two distributors will not serve stores below ₹2 lakh monthly purchases, which explains the gap. The gap exists partly because small drops are expensive; Ravi must prove route density, not just demand.
- Founder fit: eleven years of refrigeration repair is a genuine advantage for temperature logging and uptime. There is no evidence of selling, hiring, or cash-flow discipline.
- Unit economics and cash: the franchise costs ₹15 lakh upfront and ₹40,000 per month. ₹40,000 consumes 82% of the ₹49,000 revenue before fuel, driver, and repairs. The 60-day payment terms also tie up roughly ₹98,000 of cash. The franchise is not affordable on ₹10 lakh of available funds.
Decision: conditional go, but on an asset-light model, not the franchise. Conditions: at least 20 signed stores with 30-day terms or a one-month deposit; total upfront spend below ₹4 lakh; one van and one driver only; at least ₹3 lakh cash buffer retained. If these are not met in 90 days, stop.
2. Which entrepreneurial-mindset biases are most likely to distort Ravi's decision, and what concrete countermeasures would you prescribe?
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Likely biases
- Overconfidence and the inside view. Eleven years of technical work can feel like proof of business capability. Technical excellence does not validate route economics, collections, or sales.
- Planning fallacy. Fourteen verbal yeses are treated as certain contracts. Owners often underestimate the time to sign, collect, and renew.
- Escalation of commitment. Signing a ₹15 lakh franchise before testing would make him defend a bad decision because of sunk cost.
- Loss aversion. Fear of losing ₹6 lakh of savings can push him toward a franchise that feels safer because it comes with a brand, even when the fixed fee is ruinous.
- Illusion of control. He may believe he can manage collections because he knows the pharmacy owners personally.
Countermeasures: run a pre-mortem ('it is 12 months later and the venture failed because...'); separate the franchise decision from the service test; set written kill criteria before starting; use a small experiment with money he can afford to lose; get one adviser who has run a route-based service business.
3. Design a 90-day low-cost experiment with success and kill criteria.
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90-day experiment
- Lease one insulated van for about ₹35,000 per month, hire one driver at ₹18,000, and buy three temperature loggers for ₹15,000. Do not sign the franchise.
- Recruit 8 pharmacies at ₹3,500 per month, with 30-day payment terms and a one-month deposit. Revenue is ₹28,000 per month.
- Track: spoilage avoided per store, on-time pickup percentage, cost per stop, collection days, and referrals.
Success criteria at day 90: cost per stop below ₹1,800; spoilage avoided above ₹4,000 per store per month; at least 12 stores ready to sign; collection days below 35. Kill criteria: more than two stores churn, collections exceed 45 days, or the van runs below 60% route utilisation. This spends under ₹1 lakh to buy real evidence instead of a ₹15 lakh franchise.