The Cancer Within Industry

Radiagate had a profound effect on me. My role model, Mr. Ratan Tata was dragged into the mess. I pray that in the days ahead Mr. Tata comes out unscathed. There are many Radia’s in India and Goa. They are called by different names, “Dalal” “Fixer” “Broker” or even the clichéd euphuism “Consultant”. Mind you here consultant is not going to get you any efficiency in operations, he simply suggest you ways to grease your application/files so they land where they have to quickly but for a price, It is another matter if that the price will be actually paid to the government servant or not.

The bigger danger comes when these “Consultants” work from inside, like a cancer, they eat away from the inside. This happens when an industrialist converts to a “Dalal”. The most obvious reason for doing so is that the main business is failing and broking provides an easy source of income. This situation can be a frustrating experience for his industry colleagues as there are existing relationships.

The other type is less harmful but dangerous all the same. This type discusses and decides a course of action in the group but goes out and does just the opposite. Or worse will go out and spill all the plans to the Ministers to get some browie points.

I remember when I had just joined Verna Industries Association and we had decided to start a Corporate Social Responsibiity project with the six schools around the estate. This would effectively mean that come election time there would be no funds for politicians but it would be channeled to the CSR project. While the decision was welcomed whole heartedly, at least two went back to their masters and also paid their dues but did not contribute to the CSR project. To their mind, the CSR project would not be good return on investment. It is another matter that once their mentor finished his term, their protection evaporated and then even the small fry made them dance.

Another example from my days as President of Verna Industries Association comes to mind. While we were trying hard to eliminate monthly payments, there were some who wanted the same to continue. Why? Simple, because of economics. If “X” was the demand, they would inform their employers it was actually “Y”. The difference they pocketed. Everyone was happy.

The nature of the “Dalal” job is such that to survive they need confusion. If things are open, transparent who would need their services. Therefore it is the nature of their business to propagate confusion, ambiguity and above all anarchy. This serves their purpose.

On the other hand pressure groups like industry associations try hard to simplify the rules, make changes to make things transparent and remove ambiguity. Therefore, Dalal and industry associations work at cross purposes. Neither one is good for the other. But since industry associations work for the good of many, it is imperative that the association writ wins irrespective of what the dalal wants. Therein lies the problem and why I said that the worst kind of dalal is the one that is inside industry and especially industry associations. They must be weeded out.

To my “Dalal” industry friends, if you feel the above cap fits you wear it and think what you can do to get out of the business. To my friends especially those among the MNC’s, please relook at your policy for hiring “consultants”. India/Goa are different today, you will find your work can get done through your HR or administrator without paying through your nose. Apart from the fact that the rules are far more transparent, there are many Government employees who are honest and who want to do a good job. Alternatively, you have strong industrial associations who can take up your cause free of cost. Give these government employees and the country a chance to avoid the evils of “grease money”.

Jai Hind.

The Reluctant Entrepreneur : Growth

A representative of ARZ, (an NGO working for the benefit of trafficked women) asked me my views on their proposed project to start “Kiosks” for rescued women as a means of rehabilitation and providing a source of income. Their proposal was not a long term solution. A “Kiosk” at best is a good photo  op for the politician inaugurating it. For the beneficiary it has an inbuilt drawback and one which every entrepreneur has to either be wary off or have a plan to address right from the start.

The draw back in a “kiosk” is the fact that there can be no growth over the long term. A lady opens a kiosk at a junction. A year down the line she gets married and starts a family. Do you imagine that her kiosk will provide increasing revenue to provide for her growing needs. Even if at an extremely buzy junction, how many chip packets can she sell? Sooner than later she will be forced to try and expand her kiosk to say set up tables around to provide meals. The moment this happens she will fall foul of the  law, This means the vultures among the enforcing agencies will approach her for their share or hafta in common parlance. This will be a permanent feature till one day an upright officer comes along and demolishes the unauthorized structure; All the investment made in paying hafta will be wasted.

The representative understood my point, went back to the drawing board and came up with another idea. A laundry, they surmised that given the number of industrial units in Goa, they could tap the growing need to launder uniforms, and they could look at retail outlets too. Now this idea was much better than the first, in the sense that one could see that the business could be grown. Hard work would be needed but the potential was there.

Our business rotomoulding, in the US, is a highly developed process , out of a 100 products manufactured only 1 is a water tank. In India, when we started, out of 100 products manufactured by this process 99 were water tanks. I believed there was a huge potential in the non water tank segment. We started with water tanks and today more than 50% of our products are non water tanks.  Once our new factory in Pune is fully functional, our growing water tank sales will constitute only 20% of our output.

There are number of examples where a unit is successful and supplies as an ancillary to a mother unit. Things are hunky dory as the hassles are limited to one major customer. Till one fine morning the major customer collapses or goes on strike. At that time running around for a new customer is not feasible and soon the supplier too closes down. Ideally one can start with a dominant customer. However it makes good business sense to grow the business (find new customers) in such way that the major customer has say a 10% share. This way the company is insulated from the problems that may occur in the dominant customer.  

A  young man tried to start a tempo service in the industrial area, I mentioned to him to avoid driving the tempo himself. That way he would be limited to just one vehicle. I advised him to mange rather than operate. Today, he has five vehicles operating and is looking at increasing his fleet, while on the other hand the owner drivers who waited at the stand are still waiting and still have only one vehicle. Of course the young man had an advantage he was qualified and therefore easier for him to speak to customers  or bankers.

Growth has to happen and an entrepreneur has to plan or look for an opportunity to grow the business right from day one. business to survive.

Blaise

Suggested reading material: read the stories of successful business and how they reached where they did or why they failed after getting to such heights.

The Reluctant Entrepreneur: When to Launch

June is a special month for my Company, 21 June to be exact, it is the day we commenced production in 1996. Our factory was finally ready in March 1996; however we were unable to start as there was no power. We watched helplessly as the peak season rolled by and we twiddled our thumbs. Finally, with the rains came power and believe me we cursed all and sundry for the lost opportunity.

The next three months were hard, but by the end of August we were singing a different tune. We no longer believed that we had lost an opportunity. Rather we believed we were fortunate that because of the delay we were forced to launch during the off season.

Our rejection rate in those early months was close to 28%.  Power failure accounted for 90%. This was easily rectified with the addition of a generator. The balance, attributed to employee training. Training took a longer time as everyone had to understand the technology in a factory situation. The theory seemed so simple.

I can only imagine the situation had we launched during the peak season. Far from capturing the market we would have cut a sorry figure with delayed deliveries and shoddy service. This would have irritated our new found dealers and direct customers. It is said that, it costs ten times more to add a new customer than to retain one. Surely we learned our lesson, but were spared the hard way.

Yet launching at the start of a new season is the flavour of the day decision. Just check out the advertisements launching new restaurants at the start of every season in Goa, then check out how many were still around in the next season. Also look for restaurants which start pre season and usually they are around then next time the season starts.

If you have watched kids play with body boards in the surf? You will notice it is the ones who struggle with the little waves, who finally get far enough and catch the big wave for a cool ride back to the beach. But the big ride means lots of spills initially on the way out. After some trial and errors, the kid figures it out and he rides back easily with every outing.

With a pre season or lean period launch you can address the bugs in your system; the falls will be small and can be managed. A supplier may need to be changed because his material is substandard, since you are doing things at a slower pace you can catch the defect. You are running out of clean cutlery, well you can calculate how much more you may need. If the place was operating at 100%, it would be pretty embarrassing would it not?  Another analogy, driving a car at 100 km/h on the first day, a recipe for disaster.

Maybe, I am old fashioned and my idea of slow and steady might seem like a plodding strategy. For those who wish to hit the ground running, I would recommend lots of dry runs to fine tune delivery strategy and remove system bugs. In addition the team must be in place for at least 2-3 months before launch date so that they develop an understanding between each other. This would pre-empt but not close out all interpersonal issues which can play a huge role in the eventual success. Last but not the least the Boss must be free to look at customer issues immediately and close them to the customer’s satisfaction.

A customer at an upscale restaurant in Panaji was dissatisfied with the service levels. However once the owner ,who was not present, got to know, he not only apologised but reassured the customer of meeting his standards the next time and door delivered a free order to try and make up. Imagine if you were the customer, I am sure you would be delighted. He had just launched.

Contrast this to another fashionable restaurant in the back of beyond in Verna, on a week day it was full. The customers are waiting for their order, jokes are being exchanged across the tables, and waiters are being harangued. The owner, who was present, coolly sips his drink behind the bar and looks the other way.  You take a guess which one will be around longer, if serious corrective action is not taken.

At the end of the day, launching and handling front end carefully after launch is all important.

Greed, the essence of any financial product sale

My Professor Limligan at the Aisian Institute of Management when discussion the case of Mike Milken and his junk bonds gave us a very important lesson.  He said that the way to sell such products which have a dubious by nature is to appeal to a persons greed, not reason.

Some years ago my mother was a victim of a ponzi scheme. She had heard that someone was offering 36% interest  and paying it on a monthly basis. Wow imagine struggling 9 to 5 and making nothing, here was a God sent opportunity, ofcourse the narrator had a good experience, he was paid on time every month.  So promptly my mother joined the soon to realize that they were duped. Sure enough once the scheme reached a critical mass, the operator raised his hands. The lucky ones who had invested early got away lightly, hopefully having learned their lesson.

The next time I heard the greed bait had struck was when a friend mentioned that he lost heavily in a similar get rich scheme. Apparently his wife’s hairdresser was the harbinger of the good news. For 5000/- an investor was given a packet of powder which had to be boiled for seven days in a liter of milk and thickened. They also gave a set of bottles in which the paste had to be put and returned to the office for onward sale to a European cosmetic concern. For their troubles they would be paid 7500/- or some such no. By the time the proverbial  s*&% hit the ceiling there was a whole lot of milk left around and some very broke folks. None of the effected had even thought of cashing in ie taking the 7500/- and running. All of them opted to take 2 or 4 or 6  or more packets more by paying the difference after each visit. So they simply sank deeper.

I had seen the “Speakasia” advertisements on the Times of India and even saw one outside the Goa airport.  I did think of checking it out but forgot about it later. I was reminded about it again when I saw huge advertisements once again claiming innocence and blaming all kinds of rivals for the false propaganda. The ads promised payment as soon as the company could complete formalities which would allow then to make payments in India. The strange thing about these ads was the fact that they were devoid of a name or address other than the website. Something’s brewing I thought to myself.

Sure enough the Economic Times carried the now familiar story. Pay money do some odd job, in this case carry out some survey and they returned an equivalent of 10% per week. By the time some smart alec  decided to complain the value of the con is in hundreds of crores. Guess with internet the whole of India was the target market, no need to set up physical, these guys operated out of Singapore.

You will notice that while the ploys changed the basic ingredient greed stayed the same.

TAXIS TAXIS More on Taxis

3.45 AM, the ringing telephone forces me out of my slumber, it is the Meru Taxi driver due to pick me up in 15 minutes asking for directions. It also serves as a wake up call, as I need just 15 minutes to be dressed to head for the airport to take my flight to Goa. I step  into an air-conditioned clean taxi. The driver, indicates he is starting the meter and off we go. At the airport, he prints the bill and heads off to where ever.  He accepts the fare of Rs 220/- for the 11 Km journey. DELIGHTED CUSTOMER

I get off at Goa head for the pre paid taxi counter, announce Verna as my destination and pay Rs 450/-. I then trudge with my bags 250 mts and wait while the driver gets the car. The, Omni has seen better days but it is ok. While driving to Verna, I ask the driver why for the same 11 km drive I have to pay twice as much in a non AC car. He replies that he does not get a return fare and petrol is expensive.  I wonder if the meru driver got free petrol to pick me up and then travel from the airport to the next customer. CHEATED CUSTOMER

It is cheaper to fly to Bangkok than fly to Delhi from Mumbai.  This summer the whole family  went to Puket.  Phuket was a longish kind of island and our hotel being at the end furthest  from the action areas, we decided to hire a car. The bell desk made a call and the driver arrived with a Camry automatic at what was a bargain price if you come from Goa. Rs 1800/- for 24 hrs plus petrol. The whole family, numbering five had a swell time driving around. DELIGHTED CUSTOMER

Once we landed in Mumbai , the ordeal started. The meru cab could not accept my request as they are not allowed to ply from the international airport. So after immigration, baggage and customs we had to stand in another line to book a BLACK & YELLOW taxi.  We, made our way to the stand, two rickety FIATS with carriers were assigned to us. The dicky was occupied by a CNG tank. Since I had booked the taxi to an area, the driver felt I would have to pay extra for door delivery. I objected, ten minutes were spent arguing with the driver and the policeman and finally we left, nothing extra was due. HARRESSED CUSTOMER

A friend staying  at a South Goa Hotel and wanted to catch up with me. Instead of asking me to pick him up he decided to take a taxi. Wow 6 hrs 60 km for 2000/-. Since he was on holiday he said ok, on the other days 6 days, he just stayed put in the hotel and enjoyed the pool and hotel food. No sight seeing for him.  IRATE CUSTOMER

Hiring an AC Indica in Pune or Delhi, where I go on work is easy and hassle free. All operators charge Rs 850/- for 80 kms. Again the hotel receptionist will make a call and the car will arrive with minimum fuss. An operator can come to any hotel to pick guests, no territorial rights are assigned nor any alpha male syndrome at work here. SATISFIED CUSTOMER

If we look at the pattern above you will notice that business is booming where the customer is satisfied or delighted. Black & Yellow taxis are facing the threat of extinction in Mumbai. In Thailand taxis support the booming tourist industry.  In Goa, the taxi trade and the hotel industry, both vital arms of the tourism industry are at logger heads.  Till they arrive at a “win win” formula both will lose, the taxi trade more than the hotel industry.  The only way forward is for the taxi trade to focus on the “local”. If the local market is tapped it opens up a constant and ever present customer. This segment is price sensitive. Higher the price, lower volume and lower the price, higher volume.  What is the solution?

Forget corruption go after fraud

As published in Oheraldo on 25th July 2011

Recently in an interview to Heraldo, our beloved Chief Minister said that corruption is everywhere, the tone seemed to suggest that it is a way of life and nothing could be done about it. Therefore saying that GIDC is corrupt and Alexyz famous cartoon “GID Cor(rupt)poration” should be ignored. Why single out one entity.

The problem with corruption is by nature it is secretive. The giver and receiver would like to keep the transaction under wraps. One major reason is that under the current laws, if detected both parties are liable to punishment. The other reason is that usually the consideration for favours granted is CASH which is very difficult to prove. Speaking at a function, Mr Narayan Murthy suggested making bribe giving legal, he feels that this way the giver can subsequently complain without falling into trouble as accepting bribes would still be illegal.

In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The Indian Penal Code defines fraudulent actions under Sec 25. “A person is said to do a thing fraudulently if he does that thing with intent to defraud but not otherwise”

Elements of fraud: Common law fraud has nine elements:

1) a representation of an existing fact;

2) its materiality;

3) its falsity;

4) the some GIDC employee’s knowledge of its falsity;

5) the some GIDC employee’s intent that it shall be acted upon by the GIDC;

6) GIDC’s ignorance of its falsity;

7) GIDC’s reliance on the truth of the representation;

8) GIDC’s right to rely upon it; and

9) consequent damages suffered by GIDC.

Even if we consider just the 35000 sq mts involved in the SK Desai/Mehul Developers Pvt Ltd/ Watson case, all the above elements are applicable. This case represents not just one fraudulent act but a series of acts. There are many other similar cases.

The other sections under the Indian Penal Code which are breached are

IPC: Section 168. Public servant unlawfully engaging in trade

The punishment for this is jail or fine or both. GIDC officials are public servants as the order to suspend one official was issued under Central Civil Services (Classification, Control & Appeal) Rules 1965. They sure do not act like that.

IPC: Section 169. Public servant unlawfully buying or bidding for property

This covers buying or bidding in the name of another and punishment includes jail, fine and confiscation of property.

The Government of Goa responded to calls for action into the affairs of GIDC by appointing a TASK FORCE to study unutilised or under utilized lands. This was mainly because the fraudsters were holding lands to transfer to parties willing to pay the unofficial premium upto Rs 3000/- per square meter.

The MD of GIDC replied to a report of a joint committee of the task force with a document wherein he has misrepresented the facts atleast in the case of Mehul Developers. While he maintains in Feb 11, that Mehul developers was under construction ( TF report is unutilized), a reply tabled in the Goa State Assembly in Mar 11, states that the Mehul plot was transferred in Nov 10.

Under the Indian Penal code "Misrepresentation" is also an offence, and I am sure that under the “Conduct of Service” rules which govern government employees there is a breach. Lying to a public committee in writing should have its penalties, the least of which should be sacking.

In summary, Mr. Chief Minister please do not waste no time and begin action under the Indian Penal Code and bring the culprits to book for fraudulent acts which have resulted in loss to the exchequer and a created a huge dent in the image of the State.

The reluctant Entreuprener: Do we need a Business Plan?

A business plan in the old days was also called project report. Today with venture capital funding jargon like business plan and elevator pitch have made an appearance. However the basics of industrial /project security remain the same.

Recently GCCI had a business plan competition. Being old fashioned I would worry about participating in such a competition. Imagine not only your competitors but also potential copy cats would be lurking in the audience. I heard a few and all could be copied by anyone. There was no technology at the heart of the project to prevent the idea from being copied.

An elevator pitch makes sense to me. Goa has power shortages so if someone wants to manufacture gensets it would be of immediate interest to an investor and he may want to hear more. Then a business plan would be needed to take the discussion forward.

Let me give you an example of how dangerous it is to have actual business plans floating around. Years ago, I applied to EDC for a term loan to finance my project. EDC officials had a preference for Boroplast another rotomoulder who also wanted to manufacture water tanks. While we wanted Rs 30 lacs, Boroplast wanted Rs 1.3 crores.

My application kept getting delayed for one reason or the other. One day the dealing hand asked me for a market study. A market study can be considered a sub set of a project report or business plan. In my opinion it is the heart of any business plan.

Making a market study was child’s play using a laptop and an excel spread sheet. I did it over the weekend. Ofcourse, I was sure that if any one used my market study to start a rotomoulding water tank manufacturing facility he would be surely lost. None of my actual thoughts were reflected in this document. My fears were proved right, I saw the dealing hand take my market study out of the EDC office. When I asked him, he said he was studying the same at home. Hehe I thought to myself he fell for it. Ultimately EDC funded Boroplast who closed in six months without paying back the money borrowed, if I am not mistaken till date. We were financed by MFSC and not only are we still around 16 years later, we have a no default track record. No prizes for guessing why EDC ends up with OTS (one time settlement) cases.

The point I am making is, every entrepreneur should be careful with his business plans. A genuine business plan should not be distributed like a free gift. Before handing over a copy to a potential investor, an entrepreneur should spend some time studying the track record of the investor. One alternative is to give a synopsis of the business plan to a potential investor, this should have numbers if any which are masked. By masked I mean if sales is say 100 in first year, then in year two, 130 would represent 30% increase. Similarly expenses could be 60 in first year (ie 60 % of sales) and 58% in the second year. These numbers reflect the real situation but do not give too much away. Also avoid spelling out strategies or details of what is the Distinctive Competitive Advantage (DCA) of your approach.

The same approach can be used for submitting your project report to a nationalized bank for funding. You never know who will read your report.

A word of caution for would be entrepreneurs, do not let the decoy business plan fool you. You must be sure that you have a reasonably good idea that will work. Do not tweak the numbers just to make profits on paper, with excel spreadsheet this is a no brainer. At the end of the day if your idea does not make money you will lose first.

In summary, while you will meet many who will either try and help or take advantage of your situation. The key is to remember that you are on your own and you must watch out for pits falls or traps, no one else will.