Entrepreneurs face business risks in whatever they do – new product development, manufacturing, marketing/selling, profit-making, wealth creation, and managing growth. It is therefore imperative that they institute an effective risk management system. All key executives in the organization should be advised to include risk as an agenda item in all important meetings, maintain a risk log, and take proactive steps to accept risk, avoid risk, reduce risk, and transfer risk (to an insurance company or a third party) – whenever and wherever possible.
Here’s what Gary Cohn, American Banker and Vice-chairman of IBM, has to say:
WHAT DO YOU THINK?
Let me know in the comments section.
In this ongoing series #GreatMinds on my blog, I am shining a spotlight on the important ideas that some very successful people keep talking about in their public life.
An organization is like a chain having management (the entire scalar chain) and functional links (like production, marketing, finance). The strength of the chain will be determined by its weakest link. This weakest link is generally marketing (although in certain cases, it’s finance).
Small and Medium Enterprises (SMEs) are required to sell their product in a competitive market. The prominence of small businesses are allied with the balanced growth of Indian economy, playing an important role in generating millions of jobs. However, large scale units have an edge over SMEs in marketing because of the economies of scale, the financial strength to face setbacks and the competence to hire specialized professional managers.
SMEs depend upon retailers for marketing their products. Here, it is important to ascertain that SMEs get a fair price for their offerings from retailers. SMEs will generally find it difficult to export their products as they suffer from a lack of information and infrastructure relating to export procedures and their inability to undertake required market research. Expensive advertisements on TV and other media also present genuine constraints for SMEs.
INTERNAL CHANGES THAT CAN BE MADE
As a broad mitigation strategy against the above-mentioned constraints, it will be necessary to develop suitable mind-sets and owners will have to be trained like prudent investors and strategic problem solvers. They will also require training in planning, control, leadership, and management.
Small business owners will have to be trained.
An SME Entrepreneur must understand that the building market is more important than building production facilities. It is always a good idea to purchase a product in bulk from the wholesalers and sell it to end-users (what is commonly known as trading) as it is or after repacking to learn the art and science of marketing. Once the entrepreneur gets trained and understands marketing function – S/he can always resort to backward integration and take up product creation/manufacturing.
If the SME entrepreneur can handle marketing effectively, S/he can avoid manufacturing altogether and resort to outsourcing product creation function to a third party who either has the capability or spare capacity to undertake to manufacture. However, in such a scenario, the SME entrepreneur will have to take care of both the process and product quality through suitable inspection mechanisms etc.
EXTERNAL AGENCIES THAT CAN HELP
Various Cooperative Societies and Government Agencies can be engaged to help with market surveys and market research studies since these are expensive for individual SMEs. The data helps in identifying and developing new products and newer opportunities. A suitable collaboration model for such a linkage with such agencies and the participating SME will ensure the fruition of this concept.
Governments should support small businesses to grow!
The Government, through State Level Development Financial Institutions (DFIs), should support SMEs to explore such possibilities and to open new rural markets. DFIs will have to create competent and dedicated marketing cells to help and support interested SMEs on such an initiative. Alternatively, DFIs can rope in local marketing professionals and/or small consulting firms to work on this idea on a retainer-ship or assignment basis.
Due to the high population density in India, there are many opportunities to be grabbed. SME entrepreneurs should select their products based on the existing needs and wants of the consumers rather than trying to create a fresh need. They can also go for collaborations with medium and large firms wherein they can take the role of producer-suppliers, leaving marketing to the large enterprises.
DON’T IGNORE MARKETING!
SMEs have become the sector showing the spirit of entrepreneurship of a country. Marketing can function effectively only when there is full commitment from the SME’s management and employees involved.
What are the steps that you have taken for your small business with respect to Marketing? Are there any good stories or lessons learnt as an SME entrepreneur? Let me know in the comments.
In my last post about the mathematical formula to life, I had mentioned the necessary variables that ensure a healthy and happy life. One of the variables was “R&R.” It was basically an abbreviation of “Do not React, give a structured Response.”
Today I would like to elaborate on what I mean by this simple thought with an illuminating story from my own life. This is a true incident but I’ve changed the names of the person and places for the sake of privacy.*
My regular readers already know that at one point in my life, I was a promoter of my own tea business in Lucknow, Uttar Pradesh. This specific story dates to 2002. I, along with 3 members of my marketing team, was on a business trip to another Great City* in the state.
We had so many things to do on that day, but we wanted to start with the most important activity first – finding out an incumbent who can represent our company as our registered dealer for the Great City!
Of course, our business already had quite a few dealers in neighbouring towns around Great City, but the proper city was so far left unrepresented. So, our goal was to finalize a dealer for the city during this trip. We zeroed in on a well-known firm in the city to visit so that we could explore the possible options and hopefully, convince this firm to represent us as our agent. We were keen on cinching this deal for our business!
My team and I drove to this firm’s premises. Things seemed to be looking up as we were standing in front of their shop. After the usual exchange of pleasantries, I approached the head of the firm, Mr Yogesh. I told him the purpose of our visit as I sat across him on the table. I presented a sample of our product to him so that he could form his first impressions of our product.
Before I could elaborate any further, something happened that left all four of us in utter shock and disgust! My colleagues and I were not the only ones in the room with this dealer, but his subordinates were present too. They were equally taken aback by his behaviour.
This is what had happened. Mr Yogesh had just given a cursory glance to our brand’s tea-packet and thrown it away in full force. Our packet had fallen on the road right in front of his shop! Not only that, he also uttered these derogatory words – “Yeh sab yahan nahi bikta hai! (Such products will not get sold here!)”
My team sat there with me, stunned at this aggressive turn of events.
At this point of the story, I generally ask students to analyse this as a case study. What is shocking about the dealer’s behaviour? What was expected of him, and what did he do? What would they have done in this situation?
I gave him the benefit of doubt. As the biggest dealer in Great City, Yogesh thinks that our product will not have demand in his market. Maybe, in his marketing opinion and expertise on Great City markets, he is right. But one thing was certain: the way he greeted us, talked to us, and behaved in the meeting was absurd. The person had a bloated ego and self-aggrandizement tendencies. He probably had even forgotten the norms of normal behaviour!
I was in a difficult situation. My three colleagues working under me were present in the room, waiting and watching my actions. I always advised them, “You must demonstrate tact in handling delicate and sensitive situations.” Here I was, confronted with a complex situation, where even I felt that the matter had gone a bit too far. I had to think of a structured response and there was no time! However, I had to lead by example!
I knew that there was no point reacting or retaliating against this man in his office. It would only make matters worse. I wanted to avoid any ugly verbal exchange.
I remained calm. I continued to address the angry dealer politely.
I said, “Yogesh Sir, we have come from Lucknow to meet and talk about business with you. You are right Sir, that this product will not sell in your markets! I have no intention of challenging your expertise. But, since this problem has arisen, and if you allow Sir, I have three favours to ask of you.”
To this, again he hastened to react – “Bataiye! (please tell).”
HERE IS WHAT I TOLD HIM:
“FIRST, please send a person and ask him to bring back our product pack lying on the road outside your shop. We love our product, and this is causing us pain.”
“SECOND, if you feel that it is okay as per your custom and culture, serve us a glass of cold water for each one of us as courtesy. It is very hot in this city and we have taken a long journey to see you!”
“THIRD, I can understand that you have had a hard day and you are upset now. But I request you to keep these samples of our product with you. You can take your time to judge the product and let us know if you ever change your mind. We will come back again if it means we could do business together.”
My calm demeanour gave the chance to the dealer to react coolly again. He may not have wanted to budge from his position, but he had to oblige out of decency. So, one of his men picked up the sample from the road. We were offered water. The situation was still a bit awkward and tensed. I thanked him anyway, “Okay sir. Thank you for everything.”
I placed fresh samples on his table and got up to leave. As I turned my back, he called out to me, “Wait! Stay to have tea. Let us try your tea!”
I can’t tell you at what moment the dealer decided to change his tunes and correct his response. Nonetheless, this demonstrated to my colleagues as to how giving a structured response was better than being caught in the heat of the moment.
Over tea, the dealer and us had a long conversation on our business, our marketing strategies, our trade policies for dealers and our company’s plans for the future.
They say all is well that ends well. This adage came true in our case. Our structured response managed to secure an impressive first order from our new dealer, Mr Yogesh. We continued a fruitful business relationship of mutual benefit with him for a long time thereafter.
Themoral of this story: When the going gets tough, the toughgets going! Always remember to respond to a situation by remaining cool. It may be a high-stakes business deal, or a low-stakes tiff with a friend. Never let your buttons be pushed!
Let me know what you think in the comments. How would you have reacted in this situation? How do you generally deal with conflict in your life?
In Part 2 of the Rulebook on Family Business, I continue to list the ways you can prevent things from going too wrong. If you have missed the Part 1, read it here.
Since the nature of a family business entails the various relationship dynamics, it is important to keep the following points in mind.
11. AVOID MAKING PERSONAL ATTACKS
Avoid laying blame or making personal attacks on other family members. Never agree to anything you have reservations about without voicing your concerns and reasons; encourage other family members to do the same.
12. GO FOR MERIT BASED EMPLOYMENT ONLY
All family members should have significant work experience outside the business. Family members should only be employed on merit and in positions that they are qualified to occupy.
13. DO NOT CONFUSE REMUNERATION WITH RETURN ON EQUITY
Remuneration of family members should be no more favourable than that of equivalent non-family employees. Do not confuse remuneration with a return on share ownership.
14. INSTITUTE FAIR APPRAISAL PROCEDURES
Institute appropriate appraisal procedures for all employees, whether family or not. Use outsiders, possibly non-executives, for appraisal of senior family management.
15. DO NOT HESITATE TO OFFER SENIOR MANAGEMENT POSITIONS TO NON-FAMILY MEMBERS
Non-family members should not be excluded from senior positions because of fear of loss of control by the family. If non-family members are more suitable for the job, use them. Do not ignore outsiders – professional management may produce higher returns for the family in the long-term than an ill-qualified family member.
16. A JOB IN THE FAMILY IS NOT A BIRTHRIGHT
If there is no suitable employment for family members, employing them is fraught with risks. A job in the family business should be regarded as an opportunity, not a birth right. Family members should be prepared to work harder than others to prove themselves.
17. DO NOT PRESSURISE FAMILY MEMBERS TO JOIN FAMILY BUSINESS
Do not pressurise family members to join the business – this can cause problems in the long run.
18. FINDING MENTORS FOR FAMILY MEMBERS
Find a mentor for family members both inside and outside of the business.
19. REAL AUTHORITY COMES FROM RESPECT
Remember, real authority comes from the respect you have earned, not from the shares you have inherited.
20. BE OUTWARD LOOKING
Be outward-looking. Consider using the services of a non-executive director (not a family member) to provide a more objective view in the planning and decision-making process.
On a final note, I wanted to add— the challenge for business families is that family, ownership, and business roles involve different and sometimes conflicting values, goals, and actions. It becomes necessary to draw clear boundaries. However, everything said and done, one should also remember to place a high priority on emotional capital— the family success that unites them through consecutive generations!
Running a family business is just like running any other small, medium, or large business. However, certain issues are specific to operating a family-owned business. I have compiled the best practices you will find in a well-run family business.
1. CLEAR COMMUNICATION IS HALF THE BATTLE
Create an atmosphere for open discussion among family members. Go for consensus rather than edict. Do not ask others to relay messages for you: speak directly to one another.
2. REMUNERATION SIGNALS FAIRNESS
Remuneration of family members should be no more favourable than that of equivalent non-family employees. Use outsiders, possibly non-executives, for appraisal of senior family management. If non-family members are more suitable for the job, use them.
3. RIDE THE CHANGE WITH GRACE
Accept that change is inevitable. Do not accept ‘it has been done that way since Grandad’s day’ as an excuse for not making change. When commercial reality requires change, change!
Individuals’ objectives change over time – respect these changes and ensure they are articulated.
4. SUCCESSION IS ABOUT HOW YOU DO IT, NOT WHAT YOU DO.
Succession planning needs to be started sooner rather than later. Ten years before retirement is not too early. Consider all the succession options with an open mind – avoid sentimentality. Discuss them with others. Commit your succession plan to paper.
5. DOCUMENT THE VISION
Develop a vision for your family business which should consider aspirations of important family and non-family members. Create an environment for open discussion among family members to identify and document the family’s objectives and core philosophies.
6. STRATEGIC PLANNING IS NOT OPTIONAL
You must resort to long-term strategic planning – duly document all your plans and strategies. Make sure the family understands the business is a commercial venture that needs to be run professionally. Focus on objectives rather than personalities.
7. INVITE OPINIONS
Help family members avoid tunnel vision – let them generously embrace opinions and suggestions from people outside the business as well. Business associates, dealers, and other stakeholders will be of great help.
8. ENSURE EVERYONE KNOWS THEIR ROLES & RESPONSIBILITIES
Role and responsibilities of all family members must be clearly defined. Have clear-cut policies for all kinds of monetary compensation (like salaries, dividends, and others) payable to non-participating family members.
9. BE CAREFUL OF HIRING (AND FIRING) OF FAMILY MEMBERS
Avoid hiring family members who are not adequately qualified or lack the necessary skills and abilities. Create suitable organizational mechanisms to fire them when it is clear they are not working out.
10. LOOK OUT FOR THE TURNOVER OF NON-FAMILY MEMBERS
Watch for high turnover of non-family members. Find out reasons as to why such people are leaving the organization. Hold exit interviews and initiate suitable corrective actions based on the feedback obtained.
STAY TUNED! I shall continue with another 10 rules on my next blogpost. I write every Saturday. Make sure to follow my blog!
I have written this article in response to several suggestions from my senior students who come from business families and have been either working in their family business or thinking of doing a venture in active collaboration with their families. I have cited some secondary sources to find relevant study material which should fulfil the learning appetite of my such readers.
A family business is, like the name suggests, an actively owned and/or managed by more than one member of the same family. It may also mean that a group of people belonging to one or more families run one business enterprise. In this arrangement, the family exercises control over business in the form of ownership or in the form of management of the firm where family members are employed in key positions. Family business in India is largely caste-based. The succession of family business goes to the next generation.
Multiple generations in a family hold the command to lead the company, set its vision, mission, goals, and objectives, and take all crucial decisions in a family business set-up. They are closely identified with the firm through leadership or ownership. Owner-manager entrepreneurial firms are not considered to be family businesses because they lack this multigenerational dimension which brings with it unique dynamics of relationships within the family businesses.
The term – Family Business (FB) – has always been familiar to me. I was brought up in a joint family which was involved in the textile business. My thinking was largely influenced by my father and other three uncles who could think and talk of nothing else but business. Consequently, I developed a liking for business. Business jargons like planning business, cost-benefit, growth, and profitability, sounded familiar and natural to me.
Although now I am better known for my work as a Professor, Consultant, Mentor, and Blogger, these have been my new names which I acquired after I turned 60. Before that, for about three and a half decades, I was working in a variety of roles in several organizations like a Chemical Engineer in Nylon Polymerization Unit in Kota, Rajasthan (India), a Project Engineer in a Design & Engineering Company at Jharkhand in India, as Deputy Manager in a renowned Central DFI (Develop Financial Institution) at Kolkata and Mumbai Regional Offices.
I was also an HOD in a Multinational Corporation in Mumbai looking after new ventures and diversifications of a Chemicals Conglomerate and as General Manager (Special Projects) for a large telecom company in Mumbai. I also promoted an independent FMCG company of my own in active participation and collaboration with my family in Lucknow (India). I was the designate Managing Director of this company, managing its affairs daily for almost 14 years in a row.
So, you can see, how my active life of over 3 decades from the age of 24 to 60, I was engaged in business the whole time, either for myself or for someone else who had employed me to take care of production, marketing, project planning, or some other business function. During this period, I had opportunities to put on many hats as an entrepreneur, intrapreneur, profit centre head, HOD, and as a Business Planner. I also handled many exciting roles as a front-line functionary. These experiences provided me with umpteen number of opportunities to learn about business through real-life situations involving both family and non-family businesses.
Some common problems that can occur in family-owned business include:
There can be arguments among family members and others over daily operations. There are differences in opinion about dividing and spending theprofit. Many people feel that they are underpaid, but what do you do when relatives are unhappy with their share of the profits? Different opinions do not always produce disagreements. However, the emotional relationships between family members can make it hard to make objective decisions.
If any special allowances are made, it leads to ineffectiveness and a growing perception of unfairness. The roles and responsibilities for all employees, including family members, should be clearly expressed. The authority to suspend or discharge any staff member that violates company rules should also be clear.
A weak succession plan can also lead to serious conflict. So, there should be a strong succession plan that can guide your business through a change in management. The question of who will take over the business, if something happens to the family member who owns or manages it, must be addressed at the earliest.
One of the most common issues in a family business is the pressure to hire a relative. The emotional aspect of family relationships can make it difficult to refuse the request. Try to make the decision based on what is best for the business and not on emotional connections. If you do hire a family member, it should not affect the relationship that you have with other members of your staff.
Holding relatives to the same standard as non-family employees can prove challenging. Some family-owned companies have trouble with high turnover among their non-family employees. An exit interview gives departing employees the chance to explain why they are leaving, which can help you understand why turnover is happening. Once you know what factors are affecting turnover, you can take steps to address them.
Some common practical tips for family business are:
When presenting new ideas for business improvement, particularly where spending is involved, base your information on facts to provide an objective perspective of what is best for the company. Family members can then make an informed decision based on concrete information.
You can also hire a business advisor. Relatives will sometimes accept the credibility of advisors – such as bankers, accountants, or lawyers. Paid consultants can also help confirm the value of expenditures for the business and can devote additional time and effort to specialized projects that could require further research.
Benefits like deferred profit-sharing plans, pension plans, and insurance programs can also be used to divide the profit. Providing benefits can satisfy family members and help them build their personal assets.
Stay tuned for another post on this topic next week where I shall list the rules for coping up with a family-run business.
If there was a choice presented to me to hire an efficient or an effective manager (with the condition that I am not allowed to choose one who is both efficient and effective) – I shall reject the efficient and choose the effective…. Want to know, why? Read on…
As a manager, you must be effective first and then efficient. Before I explain the meaning of these terms, let me give you few examples. John, the Production Manager at a bakery in Nasik, is busy rolling out buns even though he has the pressure of dispatching bread loaves against an order which is already delayed. Then, there is the example of Priyanka, a young entrepreneur managing her popular boutique in South Mumbai. She is busy with production planning for the next quarter while there are 7 serious customer complaints pending for over last 4 days. Even a routine E-mail has not been sent to these customers acknowledging their concerns! Finally, think of this example— a young student called Rohan has his accountancy examination tomorrow morning but he is putting his efforts on improving his English vocabulary. He believes that good English is necessary for his professional future.
None of the protagonists in the above examples (John, Priyanka, or Rohan) are wrong. They are faced with multiple urgent tasks to do. All of them are intelligent, hardworking, efficient, and sincere professionals. They are also focused towards their goals. But then the way they fix their priorities at any point of time is certainly wrong.
If I were to properly advise them – John should have been rolling bread loaves and not buns. Priyanka’s priority should have been attending to customer complaints first and doing production planning later and Rohan should have given preference to preparing for his tomorrow’s examination rather than focusing on improving his English vocabulary.
Now, let me get back to the terms I introduced earlier – effective and efficient. Being effective means that you clearly know what is necessary and important for you to do at any time. However, being efficient means working in the right manner so that you complete the work using minimum resources. In fact, efficiency has to do with economizing on resources and/or to bring down the cost of production or the cost of doing work in any manner whatsoever – like minimizing resources, improving production cycle, reducing down-time, cutting wastages and pilferages to a minimum.
Therefore, I urge you to always remember:
“While effectiveness is doing the right things, efficiency means doing things in the right manner.”
By the way, this is the bookish definition of these two extremely powerful words in business management commonly found in most management textbooks. However, this choice continues to perplex accomplished professionals and students alike!
Entrepreneurship is always going to be a great career move! It will be a source of a happy, remunerative engagement option.
Seize the untapped potential
There are so many possibilities! You can be a Corporate Entrepreneur, a Social Entrepreneur, and/or join your Family Business! You may be itching to start a new venture from scratch in domain areas like education, healthcare, training & skill enhancement, and many more! It could be virtually any sector that creates positive vibrations in you.
There are numerous ways to get engaged with your business, all at your convenience. Like most people, you can work full-time, part-time, or organize such a model where you simply invest but stay away from day-to-day business operations.
What gets me thrilled about entrepreneurship is that there is no barrier to entry. Tech enthusiasts can become “TECHNOPRENEURS,” middle-aged mothers with semi-independent children can become “MOMPRENEURS”, educators can become EDUPRENEURS, and so on. There are endless opportunities since the vast ocean of entrepreneurship will always have uncharted spaces to explore. You can build a viable business around any one idea which you like or love!
Above all, I get excited about the young graduates (irrespective of their specialization) jumping in headlong into the foray of entrepreneurship or intrapreneurship. It is great if you are from a business family and are either interested to expand the family business or keen on marking your own identity with an independent venture of your own.
Frankly, I would even include the non-graduates and “not so qualified” individuals. Someone who is neither qualified nor has a family business to fall back on can also opt for entrepreneurship. They will have to start small, taking baby steps, and growing slowly in stages by adding various modules to their basic business idea – one by one.
Although anyone can become an entrepreneur, a small percentage of the population build the resolve to work on their business idea while the vast majority becomes employees. There is nothing good or bad or right or wrong about this. It is just the way it is! Indeed, we need both entrepreneurs and managers (employees) to perform complementary activities and contribute to the growth of an economy.
According to me, Entrepreneurship is a willingness to take risks both personal and financial in a calculated manner to ensure that the odds remain in your favour!
Here’s my advice!
For students:
If you are coming out of your colleges or universities, you must give a fair chance to entrepreneurship. You could have a stable plan of working for a few years, accumulate some money, gain relevant experience, and then try to stand on your own feet.
Alternatively, you can go for your business straight-away without working for any organization. Both options have their merits and demerits.
For the Professionals:
If you already boast of a professional degree, start with a full-time job with a reputed business organization. This kind of beginning is popularly known as the ‘corporate entrepreneurship’ model. Here you lead a stable, financially independent life earning and learning at the same time. After you have done this job for about 5 to 7 years – you can talk to employers for feedback and their impression of you. More importantly, you can negotiate your long-term association with them. Such discussions can often open doors for a more lucrative future for you. You may be offered better incentives, commission on sales, profit sharing, E-SOPs and even an opportunity to head an independent business unit or branch as an intrapreneur!
Being an intrapreneur as we all know, means working as an entrepreneur where you have no investment and share zero risk.
For the underqualified:
If you are the son/daughter of a businessperson but do not have the benefit of good education or exposure, you can safely opt for the family business. What you could also do is start a new business with suitable support and linkages from the parental business. As you go along, you can also do some part-time courses and acquire additional skills needed for your business!
For the Unemployed:
If you are moderately qualified and cannot secure a great job, there is no point in going for a job that only makes your ends meet. Whereas many may think that such persons are not so lucky – my feeling is exactly the opposite. It is like having a blank slate and writing your destiny – remembering all the times that sky is your limit!
Start your own business right away and build the dream business module by module, slowly and in stages.
With a small capital in form of equity raised from your parents, family, friends and by working part-time or through crowdfunding etc.
Avoid taking secured loans from banks or DFIs till you learn the art and science of earning and handling money.
Work on 100% equity (with few unsecured loans from family, friends, credit cards etc.) for a period of 12 to 18 months. Then go for financial assistance from banks and DFIs.
Try to gain ongoing support from a professional well-wisher (ideally a formal paid mentor with payment linked to enterprise sales turnover). This will act as a check valve and prevent the business from suffering bad decisions, ill-informed actions and inappropriate strategies!
If this excites your imagination, send me an e-mail on info@kktandon.com and we shall take it forward from there.
