The Reluctant Entrepreneur: Travel

Today, a budding entrepreneur came to me for some advice. She felt that because she was starting small she did not have to think ahead. It is at the start up stage that she has more time to think, once the project is rolling there will be less time. By sheer chance when I started I got a chance to travel abroad for a conference. There was no doubt that in my mind thoughts that this was wasteful expenditure were flying all over.

Once in Singapore during the conference breaks, I contacted various moulders listed in the yellow pages and got myself three invitations to visit their factories. The visits were learning experiences. Consider this example. Back in India, I had seen moulding machines set up each with individual spaces and possible its own overhead crane. Here in a place where space was a premium, they were laid out side by side, just a meter gap between each, one crane serviced all 25 machines, similarly they was a another line on the other side. The corridor in the middle was used to service each machine, supply new moulds or take away ready parts, above the corridor was a platform with the RM feeders. In a space where in India I would have seen 6 to 8 machines, 50 were operational.

We used this thinking to good effect as we added machines in our factory. One vendor assuming we had no space refused to quote when asked. Later, he came to see how we had installed the machine we purchased from his competitor. The initial expenditure considered wasteful was actually an investment.

Over the years, this has become apart of my training. Visiting factories in different parts of the world and even India. India is also up there with the best compared to 20 years ago. When buying a large machine my french counter parts felt that we would have to also buy an automatic platform to load unload the moulding arm as was done in Europe. These systems are known to cost as much as the machine. A visit down under changed that perception. Australians seem to be more like Indians, have a jugaad mentality...they like us make it work with the most inexpensive means. In Australia they ran even bigger machines without the platforms, rather that climb up and work on an arm at a height, they inverted the arm and worked on it from the ground, brilliant. So my new machine does not have a fancy unloading station, we just work from the ground.

On the same trip, I noticed that after using a pneumatic gun to loosen the bolts, the nuts did not fall to the ground on the other side. Curious, since I had worked on retaining the nut in place without success earlier. These guys had over come my problem, I had tried to hold the nut in place by welding, however when the nut got damaged it was difficult to replace. They welded a sleeve instead and put the nut inside the sleeve, once damaged only the nut was replaced. Eureka.

Before I left for the Philippines to study, to me a factory had to be dirty, wires hanging grease on the walls floors, if there were pipes they had to leak and if there were oil sumps it had to drip. During the course I had an opportunity to visit factories practicing the concept of Kaizen. That was my moment of enlightenment, and I have never been the same again. I saw factories which were as clean as hospitals workers in white overalls. The advantage of white overalls was that if your overall got dirty it was a sign that there was a part of the factory that was not clean. I came back to India with a different perception, “FACTORIES CAN BE CLEAN”

The point I am trying to make to budding or seasoned entrepreneurs is travel and when I say travel I do not mean to sight see only, but travel to get a feel of how others do it and adapt accordingly. Get to a new place and thumb the yellow pages, there are always a few fellow entrepreneurs willing to host you, all you need to do is ask. The moral of the story travel is a great teacher. Bon Voyage

ROAD BLOCK AHEAD: Indian Super League in Progress

Nita Ambani's dream to see India play in the world cup has many supporters. I would also like to see India play at the football world cup, but surely there has to be some method in this madness. The first match (and rest of them too) of the Reliance back league in Goa was at the famed Fatorda stadium. We the citizens are available to be kicked around so that the Indian dream is realised.

The administration moved heaven and earth or should I say stopped, to ensure the match was a resounding success. No they did not play, I assume the top bosses were handed a few complimentary passes. Fortunately unlike for cricket matches duplicate tickets were not seen or heard off.

The administration decided that everyone living around the Stadium had to also stop their business of living and either sit at home or take a walk and watch the match. They decided that the players who are either yesteryears stars or stars in the making need to have a smooth passage to the Stadium.

We should be happy they did not decided to close the roads from Panaji or Vasco to ensure this. Some consolation for lack of application of mind or should we say crowd control techniques. Maybe we should send the traffic police or better the district administration on a European study tour. Problem is they will see no road blocks even if Manchester United is playing Arsenal.

The road leading to the stadium from the Margao- Panaji Highway is blocked at the highway itself. Is this logical? From Margao no right turn is allowed even if you wish to go towards ND Naik, one has to go ahead and pass the new presentation school and then proceed. Are the police applying their mind?

There are more than 10 policemen zealously guarding the barricades which would give ideas to protestors in Hong Kong. Would it not be better and less stressful to move the road block to the start of the Y junction 50 mts inside. ?

Even this is not required. The advertisement for traffic arrangements states, says 60 VVIP cars and 2 coaches will be parked inside the Stadium. Wonder who paid for this half page advertisement? After the local MLA has worked to widen the roads pre Lusofonia, the stretch from the highway to the stadium has been mostly completed and the road is broad. There is no need to block the road, and harass residents for a few players and ofcourse as the advertisements included “MLA/Ministers”, the code word. Once you use this secret term all roads open, oops close. Why can they not drive as they have from Panaji on a common road, why is the need to close the road to vehicular traffic on this stretch and put every resident which possibly numbers 10000. Is this correct for 60 cars block of 10000 people?

And then where is the equality which is required or essential for democracy? A few days back a cycle race was not allowed because the organisers could not get permission from the district administration to close the roads for a short time. The reason, and rightly so, it would inconvenience many office goers. Different rules being applied by different administrators or is it a case of arbitrary decision making? Or are the residents of Fatorda liable for inconvenient times just because they probably came to live in Fatorda after the stadium was built.

We never saw this happen for the other football matches, can the powers that be ensure a smooth FLOW of traffic around the stadium without closing roads, they have to think as these matches are going to be a regular fixture. If they cannot, they should ask for help from some experts in crowd control. “LETS FOOTBALL”.

The Reluctant Entrepreneur: To Train or Not To Train

Shakespeare’s dilemma “to be or not to be” haunts every employer when it comes to training employees. For SME units this problem is compounded by the fact that employees usually leave after getting the necessary experience. Therefore if you train employees they will leave at a much faster pace, than if they were not trained. Given this situation the best option seems to be “DO NOT TRAIN”.

I joined a small Company way back in ’86, as their first MBA hire. We grew from a turnover of Rs 12 lacs/year with one factory to Rs 20 crores with 6 factories in the next seven years. Unusually, training was considered a normal requirement. All employees attend courses suited to their jobs regularly. I was sent to Asian Institute of Management to obtain an MBA degree. As far as attrition was considered there were two aspects. One, it was present but the scale did not suggest that because of training the rate of leaving the company was faster. Secondly, because of the interaction with other participants at training programs there was a constant flow of new ideas as well as increased network opportunities. This in turn benefited the Company through cost efficient methods, new customers and above all employees with a broader view.

Today, Quality, Delivery and Cost are at heart of any buying decision. It is now imperative to have trained manpower who understands the implications of not respecting the customers need for the Best Quality, at the lowest Cost and with the quickest Delivery schedule. To ensure this Companies have to deliver consistently at all levels of an organization. This can only be achieved with a trained workforce. That is why most quality certification making training mandatory.

We deal with MNC's and often hear, a particular employee is away from his seat for hours or days, he is in training. Two, very often the employee is rotated, so he may not leave but he is redeployed. The effect is that we get used to dealing with new “buyers”. The training imparted ensures that there is a standardised experience. MNC's like VOLVO or JOHN DEERE or Atlas Copco are close to 100 years old, so training must be important.

Training can be OJT. (On The Job) or special courses. Special courses can be in-house or conducted at the location specified by the trainers. Big or small training is a must. For a small company this means that they have to face the opening dilemma. Be that as it may be, in order to satisfy a customer an employee has to be trained for the present or the company will lose the customer. Hence it would be a bigger mistake to keep untrained people and lose customers than to train employees who might leave but the customer will surely stay.

Given that I also left the Company that trained me at a huge cost, it became easier to make training a part of Zarhak's genes. Training is also needed for owners/top managers. We invest money and time to ensure every employee gets trained and the results speak for themselves.

To stay in business the Company must train its employees on a continuous basis. The aspect of them leaving for greener pastures is separate and different measures must be take to keep trained manpower. These measures would mainly be to motivate the employees to stay by providing opportunity for growth, new challenges and a satisfying work environment. Notice I have not mentioned more pay. Personally, if an employee is staying just because he gets a fat increase every year, it would be in the interest of there company that such a person leaves, those motivated by money cannot be much use in the long term. SO “TRAIN” YOU MUST TO SURVIVE AND GROW.

The Reluctant Entrepreneur: The cookie Jar

Congratulations to Business Goa for completing a milestone 5^th year. Every year adds to the wealth of experience and strengthens the magazine for another year ahead. All the very best to Team BG. Even as this is written “SHAKTI” enters its 20^th year.

A cookie jar is more western in usage. It usually denotes an easily accessible jar in the kitchen which anyone can put their hands in and get a cookie (reward). In our companies we usually make policies and systems which unknowingly create cookie jars. Related or unrelated stake holders, find them and help themselves. When it is discovered, it leaves a bad taste as it implies the Company was short changed.

When sitting late into the night in Shanghai and catching up with a junior from the Asian Institute of Management, he told me a story. He was a senior expat manager at an FMCG company. They had faced a peculiar problem, sales to a nearby district (X) were almost zero. While sales to another district (Y) a few 100 kms away were flourishing. Yet, when the marketing team visited the district X, the market was flooded with the product. Surprised and perplexed, they did a quick survey and found out that they were being supplied by the Company distributor itself. The catch was in the freight factor. Freight to the X was far less than freight to Y. So the salesmen decided to book all orders on District Y, claim higher freight, but ship to product to X. The difference was split between the transporter, distributor and salesmen.

Closer home, we noticed that it was difficult to get our workers to agree to an hour of OT, however if we asked for 4 hours there was less resistance. This was becoming cumbersome. After a little study the reasons became apparent. We used to offer an incentive with 4 hrs, a food allowance and somewhere along the line an additional transport allowance got added. This was in addition to the statutory double salary for OT. All this was not available for 1-3 hours. So our workers adapted to the situation and either did 4 hrs OT or nothing. We had made the rules, the employees were only tweaking them to their advantage. It took us some effort to correct the situation.

Another common use of this cookie jar phenomena is leave, not much can be done to stop employees from clubbing sick or casual leave with a long stretch of public holidays and making it even longer for themselves at the cost of productivity and customer service.

The above clearly demonstrates that management policy defines and guides behaviour. This can be positive or negative from the Companies point of view. Another word which describes the cookie jar syndrome is “loop holes”. People are always looking for loop holes to exploit and get a better deal for themselves Not wrong in itself but when the other persons perspective is taken, it is wrong. Take any situation mentioned above or look at some of your own and you will notice it is not fair to all.

One way of avoiding such situations to to think thru your decision making process to include checking if COOKIE JAR situations are possible. This is easier said than done as decisions are taken on the run. The other way is networking, where you meet other owners & managers and discuss situations and avoid the same in your organisation. If, despite all your precautions, you do end up with a cookie jar situation, be sure to take immediate corrective action. All the best.

The Reluctant Entrepreneur: Predicting Storms

If everything is coming your way, it is said you are in the wrong lane. Usually in business and every entrepreneur worth his salt will testify that there is never a dull moment. I am reminded of the movie JAWS and its sequel. Just when you think it is safe to go into the waters, JAWS 2 comes along.

The usual suspects are a cash crunch, a customer complaint or even an unexpected demand from a statutory agency. We have had our share of these “big waves” over the years. Each wave taught us a lesson and strengthened the Company. History does repeat itself. One thing is clear, had we being paying attention to the environment, had we been reading between the lines we could have seen it coming. Unfortunately we get so bogged down by day to day fire fighting that we fail to look up and survey the horizon.

We had to face a bouncer even before we started production. The factory was ready, the machinery was in place but there was no power. It took three month and some follow up to get the power department to stretch their line 200 odd meters. The next next memorable bouncer came after five years. I returned from the US to find the factory shut as we produced to order and there were no orders. Our main competitors had slashed prices 33% and the trade expected us to follow suit.

Today, once again we are staring at a “power” wave. We had imported a CNC machine which requires good quality power to run. A private power supplier had just started operations. Despite the rate being higher by 25% we opted for it. Subsequently, out of sheer laziness we continued using private power despite a consumer unfriendly attitude and rising cost (approx 4 X higher than Government power). Lazy because we should have actually been working on looking at alternative ways to use the cheaper government power.

All of a sudden the private power supplier decided to stop or curtail production of power. This move has left not just us but a large number of companies in a lurch. Had each of these companies been aware and paying attention to the situation, none would have been caught unprepared. This is where the theory at B school comes to mind, scan the horizon for possible pitfalls, changes in policy etc. Had we paid attention to the “Power Purchase Agreement” between the supplier and the Government of Goa, we would have known or seen this coming years ago. The Government is committed to buy this expensive power because of the agreement, once the agreement ends no Government would ever be able to justify buying at that exorbitant rate, since the Government was buying approx 50% of the power the company survived. With the agreement ending on 14^th August 2014, it would have been pretty clear the supplier would wish to shut down once his 50% customer exited. As a consolation, a few of us had got together to a few days before the supplier decided to unilaterally stop the plant citing technical reasons.

Now, we have to work overtime, organise funds to be able to handle cheaper government in lieu of high cost quality power. It is now a pressure situation where our customers are effected because our production is effected. If only we had kept a better watch on the horizon.... we would have seen this storm coming and taken action earlier.

Moral of the story: scan the horizon, keep your eyes open and ears tuned to sights and sounds beyond your Company.

The Reluctant Entreuprener: ROC

Those familiar with the latest fast food addition in Margao (Goa) would mistake ROC for “Royal Only Chicken”. A nice place to go to but keeping the thrust of my column in mind, it refers to Registrar Of Companies. The ROC, is more relevant today with the enactment of the Companies Act 2013.

Way back when we first started, we opted for a “Pvt Ltd” form of Company for two reasons, one: to ensure that later the name would not change and two: it allows for capital formation. The first reason is important because one can start a partnership with just about any name. Subsequently if you go to register with the ROC, the first thing you need to do is get your name approved. At that time if you find the name you were using not available it can be quiet a loss.

In the early days, I started to two Companies, today I will think twice, I would rather set up a division under the first rather than incorporate a new one. While we went fast forward running one Company the other fell on the back burner. We had a table space, registered office in Panaji and the owner closed it. One fine morning we got a court notice. We had not filed our returns. Now, believe me you do not want to be going to court for not filing returns, it is a criminal case and personal presence is required. At that time the fine was 500/- but my other shareholder who was abroad had a warrant issued against him for not being present. Today, the rules do permit late filing, one has not to go to court and the fines have increased and some offenses coupled with imprisonment of directors. So pay close attention to the annual return.

Actually, an entrepreneur would be well advised to get the services of a Company Secretary from day one. The law allows smaller companies to self manage. What actually happens is that when you have to get certified by a CS, your paper work is non existent or in a total mess. At, Zarhak because of my previous experience, we had minute books, statutory registers, etc. and with an early run in with ROC, filing returns was always a priority.

The other issue which we had a hard time was closing our Company. Initially, we tried amalgamation, that proved too be too costly, so we filed nil returns as it was a cheaper option. Basically, amalgamation is a court procedure so it is time consuming and the most expensive part is the lawyers fees which both companies have to pay. We were fortunate as the ROC announced an easy exit scheme. Under that we were able to close easily. Now, the same provisions are applicable so closing is easier. If you intend to close, liquidate your assets, ensure all employees dues settled especially statutory like PF etc., buy back your shares and ensure no creditors are on the books.

Today, unlike then every Director has to have a DIN (Director Identification No), if you are a defaulter in any way your DIN is blocked and you cannot transact. Surely not a good situation. The fines and jail terms are much stiffer under the new Act. Most of us are only hearing about the CSR mandate that the Act has now made mandatory for certain type of Companies. It would be wise to get your Companies Act (pun intended) together and pay attention to the ROC's requirements sooner than later.

Suggested reading: The Companies Act 2013

The Reluctant Entreuprener: Paying Commercial Taxes

A happy new year to the readers and given the situation, a safe one as well. The Christmas season is also a business opportunity. Alert, commercial taxes department decided to ensure that this festive season no one evaded taxes. So, they literally got up early, went to the interstate bus stop and caught a hapless passenger with a suitcase full of Christmas decorations. He had no bill and the INSPECTOR who had only the State’s interest at heart wanted to collect the tax. We must all give this brave and committed officer a standing ovation. He actually sacrificed his sleep and added a few rupees to the States empty coffers. Meanwhile thousands of rupees slipped in on trucks and even the roof of the bus.

We have been selling SHAKTI tanks in this State for close to two decades. When we started we had a level playing field. We were exempt from paying sales tax for some years, and the competition did not pay tax i.e. available without bill. Now, these tanks come into Goa not in a suitcase but by the truckload. I know, I caught one and handed it over to the Department. Unfortunately the officer concerned was not as energetic as the bus stop inspector and the consignment was released, to be sold without tax.

When India, joined the VAT regime, we lost our level playing field. Now we pay the tax and our competition continues to sell without bill. At that time Mr. A.T. Kamat, Commissioner of Sales Tax asked industrialists to make a sacrifice for the Nation and not oppose the loss of the sales tax exemption. My question then is relevant today; when will the Commercial Tax department start batting for the State/Nation and begin doing their job and get every item to be sold on an invoice with the taxes paid so every establishment has a level playing field?

I once gave another Commissioner Mr. Pai Bir,"intel". He was told that a truck load of tanks was headed to Goa and from the brand, I also told him it would go to South Goa. Two hours later he called me, very upset. He was waiting for the truck at the Margao end of Zuari Bridge with his team and no truck was visible. One can only laugh because everyone but this department knows that trucks cannot cross the Zuari bridge due to laod restrictions.

When you start your business you will calculate the price that should be feasible in the market. Now, on finding that adding the tax and doing business legitimately puts your company at a disadvantage, many smaller players opt to follow the same path i.e. sales without bill. Even if caught, and the chances of that happening are slim, one can assume an escape with a payment below the table. With such a low down side on one hand and on the other hand a loss of market share if sold with tax, what would you choose? This is exactly what the bus passenger did – he bought without a bill, and would also sell without the bill.

The other major hassle of registering with the Commercial Tax dept. is the paper work. You have to file returns, you have to go for assessments, you have to follow up for C forms etc., and chair bound officials keep calling you to remind you of the due date to deposit the VAT collected. If you are unregistered, then no one knows you exist and therefore there is no paperwork. Some businesses opt for dual model, show some sales officially and rest in is cash. A la, best of both worlds.

Despite the many pluses of avoiding VAT, I would suggest that each new start up and possibly even those currently avoiding any kind of taxes, pay them in the interest of your own growth and peace of mind. For your customer it is “proof of purchase” and access to after sales service. It is a bit harder but surely more profitable in the long run. As technology advances, the playing field will become level, be there to take advantage. For the customer this "proof of purchase" is very important in case he wishes to enforce his rights as a customer in case of a defective product. The customer should consider paying VAT as an insurance against a defective product.

In the meantime, petition your local industry Trade body to force the department to make the playing field level. Happy selling.

The Reluctant Entrepreneur : The Launch

I recently attended the launch of a social entrepreneurship initiative “ “, for of and by women of Fatorda. The brand was aptly chosen HOME WORK. One can easily write it of as a political initiative but that would be missing the wood for the proverbial trees.

Lets get the political issues out of the way so we can focus on the business of doing business. The launch was at the hands of the Governor of Goa, not someone who will come for every product launch, but given the fact that it was a community initiative and effects the lives of so many under privileged women, it is normal. The concept was thought of by the wife of a politician, and concerned only the local MLA's constituency. Once, we get into the business part it will be clear that there was depth and thought was applied in this project, also it was not a spur of the moment decision, it had evolved.

For any entrepreneur, the starting point is an idea which generates income. The idea here is to organise normally stay at home women to do some activity which will generate income, this inturn will help raise the standard of the women's family. What struck me instantly at the launch was the brand name HOME WORK. This was a huge change from the previous display at exhibitions of the group I had seen. Then I used to think, without a brand how will they be recognised?

This is a point lots of entrepreneur miss, branding. We know of 100's of people who make cakes, chocolates and food at home, how many brand it.? If it is not branded how will any one recognise it, how will any one recommend it, how will you know in Mapusa, that this is the same sweet brought in Margoa which tasted nice? Branding. Branding Branding.

The down side of branding is a customer knows what to avoid. How will you ensure that the customer has a positive experience when he tries the product most of the time. Product testing. And this launch showed that prior to the launch a lot of effort had gone into product testing. The unbranded displays at exhibitions would have also helped fine tune the product mix, but more important was the inclusion of the experts testimony when referring to the “SOAP” that was one of the products launched. Not every product can get away being tested by the customer “a la Tata”. This process will be on going simply because customers taste choices are on going.

The tag line which speaks for the brand was there and put so well, “MADE FROM THE HEART. MADE AT HOME”. In these days where everyone is looking for an elevator pitch, this could not be better.

To sell any product one needs to decide a “price” point and again they impressed. The usual thinking is if a product is made by struggling women then it has to be cheap. It was neither cheap nor expensive, it was priced right. Someone had done homework for sure, pun intended. Importantly the price point was chosen at the start, there is no way a product launched at the bottom can move up later or vice versa, if it is attempted it will fail. Remember the CIELO car, they dropped the price drastically and what happened, the car faded into oblivion.

Finally, they expressed their goal, it was not just a constituency, this model can be quickly deployed across Goa, India or the planet by people. UNNATI for people and planet. They have their work cut out to reach their stated goal. They know where they are headed and they are on the way. A lijjat papad or Fab india in the making?

One down side or an area where they can consider a rework is the website. A google search for UNNATI showed 2 lacs results, not the best way to start searching for this specific site and its people ideas and products. The actual website is a more complex “unnatipeopleplanet.com”. This can be worked on, even a search on “homework” will lead you nowhere. In these days where life is online, a company especially a startup misses a lot when they get lost in cyberspace.

While wishing the ladies behind Unnati the very best, after all well begun is half done. The launch was was a learning experience for startups. It is a great idea and surely it will teach us more in the future.

The Reluctant Entrepreneur: Private or Public Bank

“If a banker gives you a loan and it goes bad he will stand to lose his pension. If he does not give a loan he can become the Chairman” This was my concept of the banking sector, especially related to the MSME sector. This concept emerged out of my experiences in trying to get a loan for the new unit we were planning to set up.

Generally you need an introduction and that defines your choice. Rarely will an entrepreneur have the liberty to make a choice based on the banks fundamentals. We had our fair share of applying in vain and wasting time. The process is “manager” dependent and therein lies the rub. They can generate 101 legitimate excuses, the one that comes home to roost is they are over exposed to a particular sector. If that was the case how come individual banks had such huge exposures to the barge and truck business?

We decided to approached a top nationalised bank without any reference. The Manager here was keen to do business but he needed collateral security in the form of FD’s. Our plea that such a request is absurd because who would keep FD’s and borrows at double the cost against them. Even if an entrepreneur was naive enough to do so, if something went wrong, the bank would encash the FD’s right. So what is the bank doing lending at such a high rate when they have no risk.

The Chairman was visiting Goa and he made a statement that there is money but there are no takers. The editorials went to town stating that even if there is money one has to have guts to borrow and do business and Goans lack what it takes. Our objection to such a statement in the media, shook the top brass of SBI and a meeting was fixed. The outcome, there is no such need to give FD’s as security to borrow. So why did the manager make the demand, simple, he wanted to be chairman one day.

We spent 15 years banking with them. Once in, it was a different ball game especially if the company performs. We learned one big lesson, without the support of your banker the Company cannot grow. Therefore honesty and openness must be the bedrock of this relationship. After all if the Manager is going to support you he must know the correct picture. We also learned to structure the balance sheets so that the correct picture is presented. Eg: interest on loans from promoters should not be put under short term loans, but correctly under long term sources, but more because the ratios get affected and bankers go by ratios.

When we went in for an expansion we fell for the lesser interest sales pitch of top private bank and are we regretting this decision. In the five years we are associated with them, it is clear that at the level where bank and customer interact there is no expertise, simply postmen in ties. The money saved by the lower interest rate already snatched away under the guise of charges. The personal touch is absent as everything is system and controlled by an anonymous central operations team, somewhere. Cutting edge technology surely does not make up for a face to face discussion to sought the issue.

We have now embarked on a mission to switch back to a public sector bank, with our track record of no default over 20 years one would assume the banks would be lining up to get our custom, that is far from the truth, for MSME companies there are takeover norms. Kingfisher type companies will get cores despite defaults but for an MSME it is an uphill task. The lesson here is get into a good public sector bank at the start, and stick with them. They do take time to get comfortable with your business but once they do, both your company and the bank will benefit.