I was very interested to read Kathy's recent post about India's Tata Nano -- a 2-cylinder, 33-horsepower microautomobile that made big waves several years ago when it was announced that the car would sell for 100,000 rupees, the equivalent of about US$2,500. While the company has achieved its goal of producing a "people's car" along the lines of Ford's Model T and Volkswagen's original Beetle, the company has thus far attained just a small fraction of its optimistic sales projections (sales of the the Nano stood at just 5,451 units for the month of June 2011, down 29 per cent from June 2010), and an opening has been created for competitors to leap in.

So what went wrong with the Nano, and what lessons can entrepreneurs learn from Tata's experience?

Perhaps Tata's first mistake was in its production of the car. Tata planned to expand its Singur plant in West Bengal to handle the Nano. This would enable production of an initial allotment of 300,000 cars. However, farmers protested the forced sale of their farmland to Tata (even burning effigies of the Nano to demonstrate their displeasure), and these protests grew in both size and violence throughout 2007 and 2008. As a result of intense political pressure, Tata abandoned its 95-percent-complete West Bengal Nano plant in October 2008, and the company decided to move production of the Nano to a new factory to be built on the other side of the country. Unfortunately, this factory would not be able to begin operations until June 2010. So instead of producing the allotment of 300,000 cars originally planned, Tata could only scrape together 50,000 units when sales did eventually begin.

The next big mistake was that the car was late to market. Instead of hitting the market by the end of 2008, the production glitches pushed out the first deliveries of the Nano to July 2009. Unfortunately, by this time, public interest in the Nano had already begun to cool. By December 2010, Tata had sold a total of only about 77,000 Nanos, a number far less than the 1 million cars the company's chairman Ratan Tata had in 2005 confidently announced to the world would be sold by that time.

Marketing of the new vehicle within India turned out to be another huge problem area. While the car was a darling of the international media because of its status as the cheapest car in the world, the Indian media was not quite as enamored with the product. Gautam Sen, editor of Auto India, suggests that the reason behind the car's weak sales is "...a total marketing failure...the Nano won the 'Indian Car of the Year' award, but the Tatas did not leverage this at all. They have not leveraged anything. I think there has been a sense of overconfidence and arrogance on the part of the company. They thought the car would sell itself because it was 'the Nano' and [because of] the kind of coverage it received around the world. They just took their eyes off the ball."

All this has given the competition (companies like Japan's Suzuki and Korea's Hyundai) an opening for products that come close to the price of the Nano, while offering better features. Tata has now lost its first-mover advantage, and will in many ways be playing catch up from now on.

If there is a silver lining to this story, it's that Tata has recognized its problems and is now taking action to solve them. Tata has a brand new marketing team and strategy for the Nano, and they've learned a lot from their mistakes. And what more could any company hope for?