Building reccession resistant small business : Part - III

Innovation is denoted as a fundamental trait on entrepreneurs. However, it is also seen as a byproduct of practicing creative disciplines, in some or other forms .The ability to govern ourselves and channelise our energies in creative direction will lead to building up innovative ideas in due course of time. The small business has to focus more on governing internal factors then on governing external situation in bringing changes, which could positively resist recession. The team and the entrepreneur plays a big role on differentiation the small business by practicing innovation, in every range of activities. With the growth of Science and Technology humanity is more aligned to govern the nature , then to govern themselves . This creates an essential misbalance in the harmony of inside and outside realities . We pretend to be more comfortable with outside realities then inner realities . Small business could not afford this kind of mistake . Though present financial situations shows that even big business and financial institution could not afford to do so. More safe side strategy for the small business, would be where entrepreneur changes himself first, to provoke change in the people around him . Later he could also transmit this changes to his supplier and customer . There is no better way to have sustainable change other than one, which starts from an individual and moves slowly, and gently towards the collective. Moving from self governance to corporate governance is the path which would prevent any form of personal and organizational recession to happen . This is more inexpensive and better way to handle recession in comparison to creating debt cycles and worsening financial situations.

Building Reccession Resistant Small Business - Part II

The practical equivalent of abundant thinking is creativity . A person whose pattern of thinking is always engrossed with scarcity, has hard time to use his creative abilities . It is very important for small business owner, to have creative capital , who might be already scarced with financial capital . Infact , innovation and finding out new and efficient ways to deal with the pressure of recession, opens new business avenues for small business owners .

The process of innovation is referred as very disruptive . So the structural approach might not be so good to bring out the best form of innovation from people . Any recession, be it personal, organizational or family, has a very unstructured approach, which forces people to think differently. That is how some small business are able to take advantage, of the condition of recession, with smart application of intelligence and talent .

We can see this happened earlier . When Y2k surfaced, some of the people forecasted about the end of the road of software industry and going back to manual processes . It never happened that way , which we can see now. On the contrary some smart Indian companies really reaped benefit of the Y2k problem and turned themsellves to a global software major .

We can understand that innovation is the key on handling recession . We had to think differently about our businesses and life and then we can bring something so new and different that every Small Business Owners (SBO) could come out from the recesion with flying colours.

Building Reccession Resistant Small Business - Part I

Last couple of months , the mainstream media is continuously bombarding with words like recession, foreclosures , credit crunch ,rising food prices, share market fall , financial crisis . It is successful to build a mental state of 'fear' on recession globally . The media have even walked ahead and started comparing with the patterns of great depression in 1930 . They may be right and they can be wrong also . But , what is remarkable is the kind of negative sentiment of scarcity it has created in last few months . All these years we have been hearing that the natural resources are scarce . Now we have reached in collective mental state , where even the monetary resources around the world is scarce. It proves the fact that when we start thinking scarcity , we add more to block of scarcity . One of my friend , was telling me that in last 2 weeks he is not trying to look at newspaper and TV , and pulling himself hard to concentrate on the project where he could make a difference. I think ,it is the most wise thing to do , to prevent the economic reccession to take the shape of personal reccesion.

I think recession is a testing time of mental approaches. Often when a recession comes in a macro economic level , it gets converted into organizational and individual level very fast . I was a part of dotcom industry when it was hit by recession in 2001 . Suddenly, every customer of our organization , was scared about us, who were buying different line of web consultancy support . Though the kind of a recession which we are having at that point of time, was a correction of the inflated valuation which was associated with dot com industry . It has nothing to do with incorporating Internet as a part of Corporate strategy to reach out different lines of customer base , which we are offering to the market at that point of time . Yet , we are badly hit .

I know from my personal experience, that it was hard to call an motivated team member, and tell him about the pay cuts which is going to happen from next month . It created such a negative energy all around the team. I continued observing how the recession in the organisational level , is getting circulated in personal level . There were no longer training camps and extended group discussion where we felt a common bonding , about how the organisation and the project we are doing, was important to us .

Often ,organisation in the time of reccesion ,takes a very hard approach towards thier tangibles . It is the most smart thing to do . But when the tangibles like money get scarce , it had to meet up by intangibles , like time and good advise that the organisational motivation stays intact . It is this which makes a difference between a sustainable business and unsustainable one .

There is also a need of changing our mental approaches from scarcity to abundance . Recession is a testing time for of our collective mental attitude towards scarcity . If we collectively think , something is scarce, it has multiplier effect, and then we see everything around is scarce . Our collective mind has a enormous power, to turn a thought which is bombared by mainstream media into a collective thinking pattern . So , the modern media and global connectivity has a huge negative multiplier effect , which will definitly add on to the reality of the global reccession .

That's to build reccession resistance the individuals and institution has to nurture the thoughts of prosperity and abundance and realise that universe is abundant . Infact ,to take a more practicle example we have to look at the our body and the different organism which functions in the body. Could they be valued in reference to money ? As says mastercard ad ... ' which I liked very much ' there is certain things which money can't buy' - it can't buy a starry night , it can't buy true love , it can't buy your exact body.

We have to understand that reccession is a mental approach . Unfortunately ,our economic theories are based on this mental approach . The fundamentals of economic understanding is based on scarcity . We have to raise questions about the validity of these fundamentals ,otherwise the world can never get out from the trap of economic reccesion , though the nature is always abundant . There is requirement of new theories which is based on the ideas of abundant thinking .

( To be continued ..)

SME learning experience

Starting a small business is always a exciting experience . There are also lot of problems. However , I would like to refer them as learning opportunity . To start with there is lack of clarity with the business .I think , that is not the right time to incorporate the business . As there are lot of things, gets changed.

So, it is more important to wait for sometime to let the ideas to settle down. There is also requirement of intensive market research inorder to make the idea more clear and to get a clear set of target customer. Besides, it is a common tendency to spend a lot of money in the office and decoration . However, it is not a wise idea to spend a lot of money in office and decoration , unless the business requires a retail outfit to start with.

The rules of starting and small business is in fact applying the " Keep it simple " principle.

Integrating SME Financing and Business Incubation alongwith sustainable business

Can these three most important fields of SME's be integrated ?

SME Financing and Business Incubation though sound closer .Sustainable business stands as world apart.

Let me ask you to look it more closely ? Are they not related ?

Sustainability is a value which every organization should have in there DNA, in order to sustain for a long time. If sustainability is not a part of a business strategy for SME's , it is very hard for them to survive in the present Global situation where we see a certain degree of environmental and social consciousness in the mass. To enable this strategy in a grand scale we need financial instruments and that's why SME finance is inter-related with Sustainable business strategy . The missing link is the business incubation by which SME's could get a infrastructural back up before they startup there enterprise .

From these point of view , three most important factor for SME growth is - a business strategy which is sustainable in nature and which can access to different SME funding instruments and get the infrastructural back up for its intial phases, that its business comes into maturity faster.

New age of learning

Technology is redefining the scope of learning . Just in time learning is become more common place. The human society is moving in a lighting speed to a zone where learning would become as pervasive as it can. In future we could have robotic angels who would deliver us whatever we want to learn at any point of time.

Until we reach there, there is WiZiQ, an educational auction service from Educomp, which helps teachers to offer there services to the students. Its free . Earlier there was dimdim which had also the integrated conference framework which was also free, compare to WebEx .I have used WebEx , I have used DimDim and also WiZiQ . I could only say the things are really getting better and better, in the syncrhonous elearning space .

Lately , there was also concept of Semantic learning and Mobile learning . I published a research proposal on semantic learning 2 years back , when people where not talking about semantics so much as it is now . The paper was published by idealist.

http://www.ideal-ist.net/Countries/IN/PS-IN-406/?searchterm=PS-%20IN-406

At, that point , I conceived about the same angel, who would, deliver us whatever we want to learn at any point of time, through the semantic web reskiller.

Doing Business in India

Recent World Bank Study on "Doing Business 2009" has ranked India 122 on the ease of doing business . The rank of India has increased by 2 points, from the earlier rank of 120 in 2008.The report mentions that India significantly reformed on the trade between borders and usage of information technology on providing citizen services.

More regulatory reforms were recorded worldwide between June 2007 and June 2008 than in any previous year, according to Doing Business 2009. For the fifth year in a row, Eastern Europe and Central Asia led the world in Doing Business reforms. Once again, Singapore tops the rankings, followed by New Zealand, the United States, and Hong Kong, China.

This year's top reformer is Azerbaijan.It improved on 7 out of 10 of the indicators tracked by DB and moved up 64 slots in the overall rankings.

Strategies and tactics : How they differ ?

1.0 The Difference of Strategy and Tactics

Strategies are different from tactics . One is more holistic in nature and the other is reductionist. The most important differences of strategy and tactics are given below :

1.1 Strategies are proactive and tactics are reactive.

1.2. Strategies are internal in source and the business venture has absolute control over their application.

1.3. Strategy can only be applied once, after that it is process of application, with no unique element remaining.

1.4. The outcome is normally a strategic plan which is used as guidance to define functional and divisional plans, including Technology, Marketing, etc.

2.0 The Content of Strategic Planning

Strategic planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions:

2.1 "What do we do?"
2.2 "For whom do we do it?"
2.3 "How do we excel?"

3.0 The Important aspect of Strategic Planning

The most important aspect of strategic planning in Business is how do we beat the competition.In many organizations, Strategic plan is viewed as a process for determining where an organization is can survive competetion the next year or more -typically 3 to 5 years, although some extend their vision to 20 years. In business lingo this is referred as Sustainable Competitive Advantage.In order to determine where the organization is going, the organization needs to know exactly where it stands, then determine where it wants to go and how it will get there. These analysis is the pretext of resulting document which we know as "strategic plan".

East Indian SME's

The entrepreneur and their SME's constitute an important part of the economy of East India. The SME's here constitute a quarter of India's unorganized manufacturing companies. Employment in East India's SME's constitutes approximately a third of the employment in India.

Given the critical nature of the entrepreneur to this region's economy there would be following measures taken to encourage the local climate of innovation.

1. Small Business and Entrepreneurship training institute should be started where grass root entrepreneurs can learn the basic business skills.

2. Government should help to encourage credit and lending for start-up companies.

3. Intellectual Property Rights (IPR) should be promoted and protected.

4 Red-tape should be reduced, single window system should be introduced.

5. Foreign investment should be facilitated; small companies can be service providers to foreign companies.

6. Infrastructure, connectivity enhanced.

7. Entrepreneurs should have facilities that can they rise up after failure . For this purpose,there is a need of
restructuring Bankruptcy laws .

8. Government should encourage entrepreneur to start export oriented units and provide necessary support in case
they where subject to Bad debts.

Business Formulae

Once you find your own business formula , you can take you business in many levels . Its just like mathematics, where there is a importance of understanding the formula.In business, the business model is the formula. Further it is important to understand, how to apply that formula, to solve different Business problem.

I think,that is the Journey of Business , from idea to implementation.

The Export Scenario of Indian SMEs

Indian SMEs have achieved considerable progress in terms of growth of number of units, gross output, employment generation and exports, yet  exports of manufactured goods from India from the small scale sector still constitutes less than 10 percent of the total output of this sector.  This is due to the vast domestic market for manufactured goods in India; the Indian small entrepreneur hesitates to venture into the export markets due to his inability to undergo risks of international trade. 

It also needs to be emphasised that the modern sector of the Indian SMEs, which uses latest state-of-the-art technologies, has already developed a niche in establishing sound sub­contracting arrangements among large enterprises in India in the automobiles, electrical, electronics, chemicals, pharmaceuticals, software development and other sectors. 

Indian SMEs have already attained a status, in terms of technologies and managerial skills, to enter into supply arrangements for a number of intermediate products to support the output of large industries at costs and standards which are internationally competitive. SME’s contribution to exports is significant, more than 50 percent including indirect exports.  Their contribution is particularly phenomenal and more than 50 percent in marine products, processed foods, woollen garments and in traditional products.

 Indian SMEs achievements in the  consumer durables industrial electronics and software development have been acknowledged all over the world and exports of electronic soft and hardware products from India have already achieved a niche in the international markets.

 

Smaller enterprise are much greater in number

In most economies, smaller enterprises are much greater in number. In the EU, SMEs comprise approximately 99% of all firms and employ between them about 65 million people. In many sectors, SMEs are also responsible for driving innovation and competition. Globally SMEs account for 99% of business numbers and 40% to 50% of GDP.

In India, SME constitute an important segment . The contribution of SSIs alone has been greater than 7% to GDP and 40% to Industrial production. It is the second largest provider of employment after agriculture. SMEs also contribute to 35% to total exports directly and a significant amount of exports indirectly through large trading houses or third parties. The SMEs are dominant players in some of India’s major export sectors namely Textiles and Garments, Leather products, Gems and jewelry, Handicrafts among others. They also contribute substantially in industrial goods segments in sectors such as electricals, engineering, rubber and plastics.

Addressing participants in the award ceremony for SME sector in 1st Sepetembor,2008, the Indian Prime Minister, Dr Manmohan Singh, elaborated the importance of the SME sector for employment generation.

"The very positive contribution that this sector makes to employment is of utmost importance to our vision of shared and equitable growth. This sector provides employment to over 42 million people. It contributes about 45 per cent of the total manufacturing output and nearly 40 per cent of India's exports. It is the capacity of this sector to generate economic activity at the local level that prompted Gandhiji to give the pride of place to Khadi. He dreamt of an India comprising of self contained villages using local raw materials, local skills, serving local markets and providing employment to people locally near the places where they live," said Singh.

The Prime Minister further elaborated the resilience and the adaptability of this sector in the wake of a changing economic scenario.

"This sector has shown continued dynamism in terms of growth in the number of enterprises, production and the capacity to contribute to manufacturing output and exports. There were apprehensions about the impact of liberalization on the growth of this sector. However, experience during the past decade has amply demonstrated that this sector cannot only survive competition, but can also grow faster than the overall manufacturing sector. This demonstrates the high degree of resilience, entrepreneurial skills and the capacity for adaptation of people operating in this important sector," he added.

This again shows the importance of the SME in the growth of Indian economy, and also its unique contribution on employment generation.

New RBI Governer ? Good news for Indian SME ?

The RBI wants inflation down at 7 percent by the end of the 2008/09 fiscal year in March. It stepped up monetary tightening aggressively in June and July as inflation, driven by high fuel and commodity prices, headed for double digits.

The benchmark lending rate is at 9.0 percent, its highest in seven years, and the central bank has also tightened banks' reserve requirements to stop surplus cash stoking prices.

The effect of tightening monetary policy had directly fall on the interest rate of Loans where both SME's and household got effected. The tightening monetary policy has also showered its curse on the growth of the SME Sector.

While economists expected Dr. Subbarao to keep the central bank's anti-inflation stance with tightening monetary policy, as a Bank regulator it is yet to experience what would be his stance on opening up the Banking sector to more foreign Banks.

Further,there are real concerns about how he would handle the relationship between the finance ministry and the central bank as the government heads towards national polls due by May, with India's budget pressured by subsidies and policies such as a loan waiver for poor farmers.

While the central bank has gained greater independence in recent years, the finance minister has often urged banks to keep their interest rates steady to ensure credit flow for development, even as the RBI was raising them.

Dr Subbarao's task will be tricky. Long term, the government wants the $1 trillion economy to grow 8-10 percent a year to reduce poverty and create jobs but it has slowed from annual rates of 9 percent or more in the past three years.

At the same time, as elections loom, policy makers are concerned inflation will be a ballot box issue as it hits India's millions of poor the hardest.

The challenge is the growth rates have to go up to 10 percent to fight poverty and deprivation. At the same time, inflation will have to be kept under control given the political expectations in numerous elections coming up. Inbetween , Dr Subbha rao has to really do a lot of balancing act to make the both side of equation, in a stable condition. Once this balance is achieved , it could be really good news to SME's.

Increasing sources of risk capital

Sources of risk capital is extremely limited in low income countries . Infact , that is the reason at first place , that those countries are denoted as low income countries. There should be an initiative taken to increase the supply of such financing .As , risk capital is the basis of entrepreneurial ecosystem in a particular domain and demography.

The Investor could invest by using an wholesale approach , establishing a private equity like vehicle which will be managed by Independent Investment Management Firms , which could be selected on a competitive basis. Thus it will develop the capacity of Investment manager to successfully invest risk capital in small business in low income countries.

SME finance gap - The reason SME requires to build good Business Plan

A substantial portion of the SME sector may not have the security required for conventional collateral based bank lending, nor high enough returns to attract formal venture capitalists and other risk investors. It stands in between the two extreme zone of risk averse investment and risk prone investment. In addition, markets may be characterized by deficient information (limiting the effectiveness of financial statement-based lending and credit scoring). This has led to claims of an "SME finance gap" – particularly in emerging economies.

There have been at least two distinctive approaches to try to overcome the so-called SME finance gap.

The first has been to broaden the collateral based approach by encouraging bank lenders to finance SMEs with insufficient collateral. This might be done through an external party providing the collateral or guarantees required. Still ,it is seen that, to convince both the external party and the Bank , SME would require good business plan .

The major obstacles a SME faces are mainly in the form of:

• lack of satisfactory business plans, accounting and other information;

• inadequate assets for use as security; and

• insufficiently high levels of profitability, gearing, liquidity, stability, and other business-financial performance criteria on the part of funding applicants.

The second approach has been to broaden the viability based approach. Since the viability based approach is concerned with the business itself, the aim has been to provide better general business development assistance to reduce risk and increase returns. This often entails a detailed review and assistance with the funding agency.

A common aim or feature of the viability based approach is the provision of appropriate finance that is tailored to the cash flows of the SME.

Although the returns generated by this approach in less developed countries may never be attractive to Western venture capitalists, they can be significantly better than conventional collateral based lending – whilst at the same time being less risky than the typical venture capitalist project. Some investors have promoted this approach as a means of achieving wider social benefits, while others have been interested in developing it largely in order to generate better financial-economic returns for shareholders, other investors, employees, and clients.

In the past, a significant obstacle to applying this approach in less developed countries has been getting the information required to assess viability plus the costs of transferring and providing business development assistance. However, in the last several years improved information and communications technology have made the process easier and cheaper. As technology and information sharing etc. continue to improve, the approach could become significantly more cost-effective and attractive to established financiers with viability based approaches and to consultants providing business plan development assistance to SMEs in other, more mainstream areas.

With higher profitability than traditional SME finance and lower risk than traditional venture capital, this might even be dubbed the new "Growth finance sector".

Emerging Market , Private Equity , International Financial Corporation

Emerging market is a new destination for successful PE funds. Most of the SME of Emerging Asian market is drawing a substantial ammount of PE funds. At the same time,Private equity is becoming an increasingly important sector globally, in emerging markets. In fact, the past year was a remarkable one for emerging markets private equity: fund raising for the asset class tripled, driven largely by a strong rise in exits and cash returned to international investors. The numbers were up for all regions.

Perhaps even more telling, the picture that is taking shape today is fundamentally different from before: private equity in emerging markets is no longer considered an exotic asset class. Private equity professionals are breaking down the borders of investing by bringing innovation in investment, and recognizing that globalization is transforming the private equity business.

Emerging market is also redefining International Financial Corporation (IFC) role in the sector

Over the past 20 years, IFC's had experienced that there is a strong relationship between fund performance and development impact, and that the quality of the fund manager is the main driver of performance. Consequently, IFC's current investment strategy for funds has a strong focus on experienced teams with a proven good track record. It also seeks managers who add commercial value to the companies in which they invest, rather than just supplying capital.

Sabse Tez - The Bajaj Brand of fans

It is interesting how Bajaj builded one of the largest dealer network of fans . Fans is a product which has largely indifferent customers .The category is a low involvement category and the decision maker is usually the male head of the family. There is a widely held consumer belief, which was unearthed in a systematic probing of indifferent minds, through extensive research.However , Bajaj could understand this essential disadvantage of the category, very fast and create an emotional tune on its of Fan Product . What was the emotional tune ? It was keyword - " Sabse Tez"

This insight is that the fan that moves fastest gives the maximum air and hence induces maximum cooling and thereby gives the maximum comfort. As long as the body can ‘feel the air’ satisfaction is assured.

Bajaj Fans decided to capitalize on this core category benefit sought by the consumer and decided to position the umbrella brand Bajaj Fans as a range of “Subse Tez” or “Incredibly Fast” fans and hence a range with the highest air delivery. The “Subse Tez” tag line also made the fans being perceived as “Technically Superior”, which was an added consumer benefit.

Business Reforms

There is a need to promote reforms that support private sector development. Drawing on our knowledge of best practice, we provide advisory services on reforms to clients in the public and private sectors in developing countries. Depending on the specific priorities and needs of the local private sector, we target the most critical areas affecting local businesses, such as burdensome business regulations, and bring small businesses into the public-private dialogue.

Allindialive aims to be a knowledge center in the area of implementing business environment reforms. We collect, summarize, and analyze various data on the successes and failures of business environment reform efforts, and develop practical guides for designing and implementing these reforms. We are currently focusing on business registration, business licensing, business inspections, municipal simplification, corporate tax administration, export/import procedures, building the capacity of business membership organizations, and alternative dispute resolution.

How to create enthusiasm in SME Ventures

Small and medium-size enterprises, especially in developing countries, are a dominant part of the GDP of a nation, and employ a large part of the population. SMEs provide flexibility to the economic structure of a country, and often respond to market needs faster than larger enterprises can. From a developmental perspective, the SME sector is widely recognized as essential to economic growth and poverty alleviation.

Despite the growth and development potential of the SME sector, however, much of this market remains untapped by financial intermediaries. In fact, a recent World Business Environment Survey conducted with 4000 firms in 54 countries showed that SMEs cited inadequate access to finance as their primary constraint. There are several reasons:

• Financial institutions—especially in developing countries—lack reliable information about SMEs;
• Transaction costs of funding SMEs given the smaller value per deal, are too high;
• Lenders are uneasy about the risks involved, or fail to see quality in small portfolios;
• Sometimes SMEs do not have adequate collateral.
  

Given these constraints, in a traditional relationship lending or corporate lending environment, the SME sector has not been profitable to financial institutions.

The advent of new technologies has changed the competitive landscape, and offers an opportunity to: reduce transaction costs; improve credit risk management capabilities; increase volume of investment in SMEs; introduce a range of additional financial services (for example, payroll processing, receivables management, and supply chain distribution); and access broader markets. By shifting strategy from "relationship" lending to a "mass-customized" approach, financial institutions can capitalize on these technologies and make profitable inroads into the SME sector.

The five key operative components required to develop a strategy for SME finance:

(1) conducting market research;
(2) developing products and services;
(3) strengthening delivery channels;
(4) improving information infrastructure;
(5) addressing policy and strategic challenges.

Once these kind of focused activity could be carried on then there would be lot of enthusiasm on SME ventures too.

SMEs Redefining Innovation

Innovation sometimes looks like, not invention , but using the existing ideas on new context. In fact, these is how a lot of our ancient wealth of knowledge can be redefined and brought to new context. Indian Entrepreneurs has shown how traditional Indian knowledge's and practices can be put into new context.

Recently in New Ventures Investor forum there was banana-leaf materials, light posts, and packaged Indian foods. These were some of the offerings on display by entrepreneur finalists. Only the banana leaves were fashioned into modern kitchen ware, the light posts were solar powered and the traditional Indian foods were harvested under an organic, fair trade system designed to exceed the most stringent international standards.

Span Pump’s water pump Witness the example of Span Pump, a company that adds a carousel or see-saw component to the technology of the many water pumps that dot India’s rural areas. These “Funflow” pumps build upon conventional technology to create a device that harnesses the energy of children at play to pump water for sanitation and agricultural purposes.

Span Pump is just one example of the modern-traditional innovations on display at the Forum. Others included bikes by Kabirdass which mimick the two-wheelers that are ubiquitous in cities like Bombay, but with electric, zero-emissions motors. Ankur Scientific presented power plants that utilize the jatropha weed, common in rural India, as a fuel source. Each SME taps into Indian traditions and practices of water management, agriculture, and other knowledges.

These companies are far from just feel-good projects - they are increasingly being backed by mainstream investors.

The challenge for India now is to support enterprises like these New Ventures finalists that are applying their business skills to connect traditional Indian knowledge and technologies with high-growth markets for sustainable goods. Investors are showing interest, and the ideas are everywhere amid India’s thriving entrepreneurial ism.

These entrepreneurs should be showcased and mentored properly in order to drive a new order of Indian entrepreneurial growth.