HOW TO START UP WITHOUT GETTING SUNK
Who are we talking to?
There’s a whole lot of advice floating around for would-be entrepreneurs which are simply a re-hash of what some American is saying. There is also a whole lot of stuff advising people about Start Ups, which it turns out basically means setting up some kind of disruptive App which will be the next Uber or Zomato or Swiggy or whatever and talking about zillions of dollars, unicorns, exit valuation etc.
If all that makes little sense to you, then please go ahead and read.
We are talking about someone who wants to start a small brick-and-mortar manufacturing or job working outfit or a small shop or neighborhood business. That someone happens to represent the largest number of MSMEs in the country; the kind of outfits which on average employ 2 or 3 people.
We are talking, by and large, to young women and men who may have a degree under their belt or may have dropped out and are toying with the idea of doing ‘something’. They could be from the middle-class or lower middle-class, with little or no family business background. They have a lot of confusions about what to expect and how to go about things.
Lack of qualification is no dis-qualification
It will be a relief for you to know that qualifications or the lack of it in a particular line has not stopped entrepreneurs from going ahead and making a success of whatever business they started. You don’t have to look to Bill Gates to know that.
If you check up the people who are in business, in India, you will be astonished to find an M.A. in history running a swish restaurant or someone with a commerce background manufacturing Smart Cards or people with zero qualifications, who started out in life as a workman, running multiple, highly successful units in the air-conditioning industry.
The idea is only the beginning….
Every business starts with an idea. It may be that you are working somewhere and think that you can do the same business better in a scaled down, personalized kind of way. Or as a vendor to the very company where you work or to some other companies in the same industry. Maybe you have no work experience but understand that there is enormous potential in rooftop solar installations and want to get into it.
For most people the ideas die in their own head. An idea is like a small flame, which every wind, is trying to blow out. Say conservative parents, who are shit-scared of what you are getting into and would be happy if you took up a regular job. An idea will also die, if you don’t take efforts to flesh it out and build on it.
If there is one single mantra for a business it is “action”. If there is one single difference between the people who became entrepreneurs and those who didn’t it is that the former “acted” on their ideas, the latter simply dreamt.
Knowledge is everywhere….
Forty years ago, I used to say ‘’anything you want to learn, there is a book.” Now there is the Internet.
It is now absolutely true. There is almost nothing that you cannot learn from the internet. Apart from pages and pages of knowledge on virtually every subject, from some of the finest libraries in the world, there are actually free online providers of education on a range of subjects, some of which could be relevant to your business. U-Tube boggles the mind, with the extent and range of films one can find, on anything, from how to set up a garage to bee keeping or floriculture as a business.
Discipline and discrimination are required to sift the wheat from the chaff, absorb what is required by you and not get lost in the mass of information, now literally available at your finger-tips.
Then there is learning from others. And this doesn’t stop even after you set up the business. One of the first things which I learnt working with an entrepreneur was “Kuch bhi sikna hai tho kisike dadhi may haath daalna hai tho daalo”
If you knew everything you would be God…
It is crucial to understand that you do not have to understand everything. Many young people confess that they are crushed by how little they know about things. Everything from how to figure out costs, to locating a place, to legal aspects like a lease agreement, how to recruit someone or what to pay them.
It is this feeling of not knowing ‘’anything’’, which destroys confidence, makes one diffident and kills a fledgling entrepreneur. The things which are absolutely crucial for running the business, one HAS TO KNOW but there are a zillion other things for which there are service providers, whether it is filing your tax returns or coping with environmental issues or labour laws or setting up your production line.
Today there are a vast number of Workshops, Seminars, Certificate courses etc. on technical and non-technical topics being held by Universities, Micro, Small and Medium Enterprises Development Institutes, Industry & Business Associations.
If it is any consolation, the number of things even successful entrepreneurs don’t know is simply astounding.
Make a profit, everything else can be handled….
At a time when the largest businesses like Uber and Ola seem to run on hot air and losses, for years together,it may seem obscene to point out that businesses are supposed to turn in profits. At least the kind of businesses we are talking about have to deliver profits almost from day one, if possible.
We started out at the beginning accepting that we have very little room for failure and there is a huge burden of family expectations, sometimes even dependence.
It is, therefore, very important to zero-in on a business or service with a ‘killer’ or high margin of profit to begin with. This kind of margin is required because you may be shouldering the financial burden of the family, even as you need to put in funds to grow the business and service any loans that you may have to take.
Patience and self-belief – Almost nothing go as planned…
One of the variations of Murphy’s Law is that “if something can go wrong, it will”. In starting a business, it is important to imprint that in one corner of your mind. Because things will go wrong. However, meticulously you think you have planned your business, it can get disrupted.
The main or even the only customer to whom you are supplying, suddenly closes down due to a strike in its factory. A batch of whatever you supplied is rejected. The company which paid you on the 30th day, suddenly defaults.
When to remain and when to exit
It is crucial at this early stage of the business, to be clear-eyed enough to understand,whether the crises hitting you periodically are because the business is fundamentally unviable for some reason or it is just an unfortunate mix of short-term events, which will get sorted out in time.
Making a mistake, getting into the wrong business or even being ahead of time, is not unknown.
For example, a friend of mine entered into the nascent line of computerizing accounts in the 80’s when the first personal computers came to India. Each computer was costing Rs.3.5 lakhs at that time, of which he bought several.
Mind you, there was also a great deal of resistance to the computerization, because it involved giving out financial information to an outside party, which is a fate worse than death for most of our businessmen!
But what really killed that business was that within a couple of years the PC price had dropped down to Rs.60,000, when it became feasible for many companies to buy one and computerize their accounts in-house.
The good news is that they re-invented their business and went on to become a large Financial Services Company.
The best business is one in which you invest only brains…
What applies to many unicorns or companies with billion-dollar valuations in one sense at least, applies to our small brick-and-mortar business or service. Uber & Ola are famous as disrupters. All they had or needed was technology and an app to link millions of service providers and customers across the world.
With suitable variations, that is something which needs to be seriously considered.
Just as many people are seriously re-considering whether it is necessary or even financially sensible to purchase a property for their residence, it is equally necessary to ask yourself whether there are realistic alternatives to taking loans and investing in a shop or business place or factory.
For one, with today’s communications technology, a laptop is as good, working out of home,as it is out of an office. There are shops and factories available on lease. If marketing is your strong suit, it is quite feasible to start the business rolling and getting your products manufactured in existing factories with unutilized or poorly utilized capacity. The perceived risks in farming out manufacture are exaggerated and can be intelligently managed.
Minimizing risks, maximizing profit
Unlike America in particular and the West in general, India, Japan and China are family-oriented economies, which is to say that we don’t splurge our money like they do in America. We are savings oriented and risk averse in general.
It is not as though our businessmen simply do not take risks. But it has never been part of our DNA, to contentedly make losses for half a decade, while growing the business enormously and garnering market share, with the hope of making a killing from the sixth year.
No, Sir. We people believe in making profits from the first month, if not the first day if possible. The high-risk strategy of making money is normally not in our blood. Nor is borrowing. Though some of these attitudes are changing, even as I write.
It is also a fact that till date large corporates have been cornering a lion’s share of Bank loans in India, accounting for 83% or 21.5 lakh crores out of Rs. 26 lakh crores lent to industry. In the circumstances, when as MSMEs we normally depend on our own savings or loans from relatives and friends to start our business, being risk averse makes great sense.
Be nimble – In the future, change is the only constant
If you have no great desire to become a multinational corporation and would like to have a proper work-life balance, as many young entrepreneurs feel they should have, there is nothing like a micro or small industry in the coming years.
The next couple of decades of around 8% growth should loft India into the No. 3 position behind America and China. Entrepreneurs who catch this wave and manage to ride it out will be lofted sky high. But this rise is also likely to be a roller-coaster ride for entrepreneurs, as there are likely to be constant disruptions due to new technologies.
Like those in the taxi trade who were affected by Uber and Ola, hotels by Oyo and Trivago and restaurants by Swiggy and Zomato.
Mind you, many of these disruptions are equally opportunities waiting to be grabbed.
Who wants to predict the future?
- Technology will be the backbone of almost anything we do
- Totally new products will appear
- The pace of technological change is gathering exponential speed
- Solar, wind and biomass are revolutionising the power sector.
- Augmented Reality and Virtual Reality will revolutionise entertainment, education and training.
- 3 D Printing which will not only revolutionise manufacture but enable its dispersion.
- Artificial Intelligence, the glimmers of which we already see in our lives through Google is likely to supplant many occupations, trades and businesses.
- Robotics which is moving from welding and painting to many other areas, including warehousing.
- The Internet of Things (IOT) where everyday things like cars, refrigerators, washing machines and even houses are becoming increasingly smarter and more networked.
Is there a greenfield unexplored area?
Every technology which came up during the industrial revolution dictated the aggregation of people and consequently the growth of towns and cities. Mass production required huge machinery, vast quantities of water and power and a large number of people to run the machines. Huge railway yards and ports were required for bringing in vast huge quantities of raw material from the hinterland and abroad and similarly for their dispatch when sold.
On the other hand, almost every technology which has developed and is developingnow IS ENABLING THE DISPERSAL OF SERVICES & INDUSTRY.
Where is the growth going to be?
India is unique in the sense that most of the developing and developed world first developed agriculture, then industry and finally services. In India while we do have industry contributing 29.02% of the GDP in 2016-17 and agriculture 17.32%, the services sector simply leap-frogged over industry with a stunning contribution of 53.66.
India is equally unique in that we have roughly 712 Districts &6,49,481 villages, with approximately 66.46% of the total population, say around 830.75 million people living there in 2017, according to the World Bank collection of development indicators, compiled from officially recognized sources.
- Given the fantastic reach of technology which can deliver high quality education and high-quality medical services to the remotest corners of India,
- The fact that Government aims to connect 1.5 lakh gram panchayats via optical fibre by mid-2018 under BharatNet, out of a planned 2.5 lakh villages,
- The fact of the rapid construction of the Freight Corridors that is being built along the Golden Quadrilateral connecting Delhi, Mumbai, Chennai, Howrah and its two diagonals, Delhi-Chennai and Mumbai-Howrah) and new indigenously built passenger trains with speeds as high as 180 kms.
Disperse and grow
Every development, both of technologies and infrastructure indicate, both the sense and the possibility of keeping our rural population substantially where they already are, instead of bringing them and cramming them into rat-holes and on the pavements of our already crowded cities.
It is possible to visualise tremendous growth in far-flung towns and cities which will be springing up along the Freight Corridors and the inland waterway networks being envisaged by the Government.
There will be tremendous opportunities for the more adventurous who are ready to venture out into these new high-growth areas. Entrepreneurs are poised for truly exciting times ahead as India races into the future to meet its destiny as a Great Power.
Author: Seshan Ranganathan
Seshan Ranganathan is the Executive Editor of TISA, Trustee of HEAD Foundation & former CEO of SSEA, TTC. He has been championing the cause of MSMEs for more than 3 decades and is a perceptive observer and writer on a wide range of subjects.
Increasingly, the main concern has been that the compliance burden should not weigh down businesses from expanding, and at the same time, th...
Increasingly, the main concern has been that the compliance burden should not weigh down businesses from expanding, and at the same time, th...