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A monthly newsletter for business owners & entrepreneurs

August 2012

1. 2. Changing Times pg 2-7 Spotlight: a) How to professionalize family businesses pg 8-10 b) Evolution of the Indian shopper pg 11-14 3. Out of Box pg 15

News that impact your business

1. Changing Times

NSE models SME bourses on global peers

The National Stock Exchange (NSE) is all set to take on the Bombay Stock Exchange (BSE) in the small and medium enterprises (SME) segment. The NSE, which will make its debut in the space nearly five months after BSE saw the listing of the first SME IPO, has modelled the platform on the lines of Londons Alternative Investment Market (AIM) and the NASDAQ of the US. To ensure higher market participation, NSE says it has worked to create an eco-system and will allow companies with strong fundamentals to list on its platform. Even though grading for SMEs is not mandatory, NSE emphasis that SMEs opt for it, will instill confidence among investors. NSE has a tie-up with rating agency CRISIL. Their emphasis will not only be on the number of IPOs but on a strict check on quality of companies. Initially, we are ready to hand hold SMEs and facilitate them with means that will ensure high

investor participation. We want to ensure that companies coming on our exchanges are run by a professional management team.

SMEs witness faster growth with unified communication

Due to globalisation of markets and competitive developments SMEs today face a lot of challenges. This requires companies investing in infrastructure which are flexible, scalable and at the same time offer investment protection. One of the important aspects of SME's infrastructure is is the communication systems which they deploy. The company establishes its credibility, image over a period of time and communication works both as

complimentary and supplementary to that. The SMEs need a sound communication platform that allows them to collaborate with the key demographics despite geographical distances. A platform that would help such entities in effective communication with associates, partners and investors located across the globe that would help the SMEs establish a presence network that enables its clients and associates to stay connected. A unified communication system can give a competitive advantage. It will help in taking fast decisions which will provide advantage of new business opportunities, expanding markets and improve the overall efficiency of the organisation. Unified communications ensure a common platform where voice, data and video are integrated and treated as a single entity and at the same time providing the necessary flexibility of any form of communication. This ensures that the user does not miss out on any communication whether it is voice or data and provides him with a choice of getting the same in any required format i.e., voice or data. A classic example which comes to mind immediately is that of sales person who spends most of the time on field and very little on his desk. He or she does not need to worry on missing out on important customer calls, orders or for that matter the sudden change of sales targets assigned by his boss.

Having said this, the most important feature of the communication system deployed is storage, processing and access to the information. An information transmission system based on integrated information system leads to an improved administrative and operational efficiency. Lack of such a system may lead to issues like low productivity, long times in transactions ultimately effecting the growth of the firm.

1. Business News

Small and medium enterprises must invest cash lying idle in short-term plans
Given the various incentives by the government, SME contribution to GDP are expected to rise.However, most SMEs lack in one particular aspect, that of efficiently managing whatever small amount of cash they have at their disposal. Officials at large companies , which have grown from their humble days, say that with their cash every SME should keep three things in mind: liquidity, safety and return . However, in most cases it is found that unaware of the options available for generating higher returns on their cash, SMEs keep most of it in current accounts and bank FDs. These avenues give

them enough safety, some amount of liquidity but sub-optimum returns on post-tax basis. There are better investment options in the market which can help them optimize their returns. Among such investments are liquid and liquid-plus plans which offer high liquidity and higher post-tax returns, but come at a slightly higher risk. Back-of-the-envelope calculations show that post-tax returns from these funds are usually 8-12 % higher than what bank FDs can generate. Here, the point to remember is that like FDs, returns on liquid funds too are linked to the prevailing market rate. As an SME money manager, one has to keep this in mind. Another investment option is the fixed maturity plans (FMPs). These schemes give nearly a guaranteed return with a high degree of safety. However, investing in FMPs means sacrificing liquidity since investments in these schemes are locked-in for the duration of the scheme. Although these schemes are listed , there is hardly any trading in these papers.

The micro, small and medium enterprises (MSME) ministry has initiated a process to broaden the definition of such companies. The commerce ministry has also sought the change in the definition to allow overseas single-brand retailers such as Swedish furniture retailer Ikea to meet local sourcing rules. Indian laws define SMEs as companies that have invested $1 million or less in plant and machinery. Ikea, which plans to invest as much as 1.5 billion in India after the government allowed 100% foreign investment in single-brand retail, has asked the industry department to change the definition of SME to allow it to source from comparatively larger companies. The rules mandate that foreign retailers source 30% from small and medium enterprises; Ikea wants to be allowed to comply over a period of 10 years. We would like a change. In India, the definition is based on investment, in some parts of the world; it is based on turnover or number of laborers. In some countries, it is a mix of two or three criteria, the official said. There are many options which are possible. We will take a final view after the standing committee submits its report.

MSME ministry may broaden definition of small firms


Startup ventures are betting big on India's small-town boom

In places largely bypassed by the big-name brands, enterprising businessmen are building malls, multiplexes and retail businesses to take the latest in shopping and consumer trends to small-town India. Ventures such as Promart, Stargaze Entertainment, eDabba and Miraaya are catering to an increasingly affluent set of consumers living in cities and towns like Ajmer, Kurukshetra and Tinsukia who are demanding the same products and services that metrodwellers have easy access to. And, as these entrepreneurs are finding out, small-town consumers are also willing to spend, if not more then at least as much as metro-consumers. A Nielsen study late last year mentions that Middle India, a region made up of approximately 400 towns, each with a population of 1-10 lakh, is home to 100 million Indians and accounts for a fifth of the overall consumption of fast moving consumer goods. "The Indian economy is going to be fuelled increasingly by the 400 million people who live in small towns and entrepreneurs who recognise this have an advantage." says Justin Sargent, MD-Consumer, Nielsen India.

"These entrepreneurs are following a smart model of meeting small town aspirations."

Why India needs 1000 startup incubators to spark mass innovation

India needs many more entrepreneurial firms to meet the myriad needs of its population. There are many reasons as to why India lags behind in the number of startups relative to the scale of requirements or in comparison to other entrepreneurial nations such as Israel or the US. Lack of early business support and mentorship is probably one of the most important reasons why India does not generate sufficient startups. Firstgeneration entrepreneurs require extensive mentorship, guidance on business and legal matters, a conducive and collaborative work environment and necessary infrastructure. Incubators generally follow three distinct operating models: academic, real estate oriented, or accelerators. Academic incubators are generally situated on the campus of an academic institution. The Harvard iLab is a good example of this model; it is based in a 30,000 square feet facility on the Harvard Business School campus.

The second incubator model is real estate oriented. Since 1999, the Cambridge Innovation Center has leased over 155,000 square feet of space to startups of all kinds. 500 companies are clustered over 7 floors in a mid-rise building owned by MIT but leased out by the Cambridge Innovation Center. Companies range in size from 1 to 15 employees. Startups find the environment and buzz highly attractive. As the Cambridge Innovation Center has grown, it has created its own ecosystem. VC, legal, and design firms have offices in the Center providing entrepreneurs access to highquality services. The third incubator model is a mentorship-oriented model such as Y Combinator and TechStars. These accelerators run a selection process to bring in 20-40 startups for a 90-day boot-camp experience. Y Combinator has 9 partners that provide extensive mentoring to their start-ups and extends funding, rarely more than $20,000, in return for 2-10% equity in the company. Many VCs are associated with Y Combinator and startups are able to raise money rather quickly. The Y Combinator partners are experienced entrepreneurs and provide high-quality mentorship. India needs over 1000 incubators in the next decade. Out of the existing 120 incubators almost all of them are government sponsored and affiliated to academic institutions. SINE, IIT Bombay,

NSRCEL, IIM Bangalore and CIIE, IIM Ahmedabad are success stories but clearly this is insufficient. Many incubators fail over time. The factors that lead to their collapse include inability to manage the difficult chemistry of high-quality startups, extensive mentorship and value-added services. Given these circumstances, it is probably best for governments not to directly fund incubators and accelerators. Participation of the private sector through PPP or for-profit models is crucial. If incubators are able to successfully support startups then they will thrive; otherwise they will fail the market test and shut down.

Bharat spends more than India

Consumption in rural areas growing faster than in cities, towns for first time in 20 years, Crisil report says Consumption in rural India is growing at a faster pace than in cities and towns for the first time in two decades, a new report by credit rating agency Crisil Ltd said. It attributed the growth to a rise in household incomes due to greater non-farm job opportunities and government-initiated employment generation schemes. Between 2009-10 and 2011-12, additional spending in

in rural India was Rs.3.75 trillion, significantly higher than the Rs.2.99 trillion in urban parts of the country.

Source: !

India Factoring: the way to get SME credit beyond banks

The role of a factoring business is yet to gain ground in India wherein small and medium

Google launches premier SME partner programme

Led by strong demand for digital advertising from small and medium sized businesses (SMBs), Google India on Wednesday launched Premier SME Partner programme to maximise its reach to SMEs businesses spread across the country. The company will provide specialised services to SMEs to grow their businesses through digital advertising. Googles Premier SME Partners will be trained to offer the highest level of expertise and proficiency in developing, launching and managing digital campaigns for SMBs. These partners will offer end-to-end marketing solutions like search engine marketing, localised marketing solutions across Google properties and mobile advertising platform. The company will also invest in helping partners with dedicated marketing and sales support that includes direct access to Google, co branded market collateral, market research, training, offers, technical and operational support, assigned account manager and joint sales pitches.

enterprises (SMEs) struggle to get funding support from banks on concern of asset quality. At a little higher cost of funds, a factoring company can well be the liquidity generator to scoot the SME growth engine. Small businesses sell their products to other big companies, which do not immediately release cash. Meanwhile, the former, with limited wherewithal, require more funds to expand their business. Banks are not so keen to extend credit to them beyond a point. Here comes the role of a factoring company, which gives 80% of the assignment money upfront at an interest cost in the range of 14-15% per annum to the seller (chargeable on monthly basis). The factor will recover the money from the product buyer after a stipulated period. If the SME client does not repay interest, the factor will deduct it from the rest 20% at the time of final realization.Typically, business entities with turnover of Rs 20-200 crore avail this form of credit facility. For India Factoring, ticket size is in the range of 2-18 crore.
Source: nce-capital/india-factoringway-to-get-sme-credit-beyondbanks-746989.html

2. Spotlight

a) How to professionalize family businesses?

I joined my family business in 1971. My family, a large joint one, owned diverse businesses collectively managed by family members. The businesses ranged from trading to manufacturing, but none leveraged any significant brands. In this backdrop, I strived over the subsequent two decades to create a distinct identity for a successful brand-based FMCG business. Still, in 1990, when we carved out the FMCG business into a new company called Marico, it was a leap of faith for me personally and a quantum jump for the business, which then had a turnover of Rs 80 crore. The separate corporate existence did impart a sharper focus and enhanced the growth potential. But it also held out a challenge how would a new, unknown company attract talent? We inherited about 200 employees of our parent, Bombay Oil. But we needed fresh talent to build profitable brands. We could not afford mass advertising. So we adopted an innovative approach. We came out with two news-styled recruitment ads. The first dramatically announced: '200 Employees Walk Out of Bombay Oil'. The second screamed: 'Mass Killer Nabbed'.
Mr Harsh Mariwala, Chairman & MD at Marico Industry shares insights on how Marico became an FMCG behemoth we know today by seeking the right professional expertise.

An insight from Mr. Harsh C Mariwala, Chairman & MD Marico

The campaign was fresh and unique, and fetched us the desired attention. The transition towards professionalisation is crucial for a family business. In such an enterprise, typically, members of the family handle virtually all key aspects. They take most decisions with or without professional qualifications or business exposure. However, a mix-up between ownership and management could lead to conflicts in decision-making. I have seen organisations where relationships among owner-manager siblings get too complex. Finally, the business wilts under emotional strain and lack of business focus. Interestingly, the seeds of such a decline are sown during growth itself. The evolution phase is exhilarating. Ownermanagers carry limitless energy and are eager to do well. But that is against the backdrop of potential conflicts on how to deal with the growth, and the dreams and thoughts that underlie growth ideas. There could be more sparring and deadlocks on the arrival of the next generation, armed with better education, more sophisticated exposure and new ideas. Families could differ over the pace of growth and the investments required or eventual aspirations. This eventful phase in the scaling up of an enterprise is crucial and needs careful handling. A key institutional decision that needs to be taken is about the role of professional managers. My experience with professionalisation has been excellent. Since I stressed on professionalism, Marico's business has grown 50 times from Rs 80 crore in 1990 to Rs 4,000 crore in 2012. Let me share with you what I learned from my own growth journey. Professional managers bring in specialisation in general management or expert functions. They are qualified and experienced to deal with growth. They can take decisions and run the business on sheer merit, not yielding to undue influence. The merits are many. Therefore, the dilemma before owners is not whether to professionalise. It is about when to do so. Scaling up business requires scaling up the organisational apparatus and management. Usually, there comes a point beyond which the owner family cannot meaningfully organise and manage the business. If a family business does not professionalise in time, it could end up restricting its growth orbit. I do, however, reckon it is natural for family businesses to be and stay confused about the need, suitability and timing of inducting professionals. I recommend that a family take time to get concurrence. It is also important to send out a unified and sustainable signal to build a good brand in the talent market, to attract the best

possible hands. This strategic clarity on recruiting professionals enables the owner family to tap head hunters with a clear brief, precise needs and realistic targets. A family business may have to struggle to overcome the initial challenges of the professionalisation process. My experience is that it pays to be resourceful in this struggle. For instance, it could take time before one starts attracting quality talent. In the mean time, growth could reveal talent gaps. I filled up such gaps resourcefully, using individual consultants. Another challenge is presentability. The growth story may be attractive, but the physical presentability to prospective talent could be suspect. I faced a unique challenge. Our office was in the crowded commodity markets of Masjid Bunder, hardly a place a bright MBA would visit, forget join! I dealt with this creatively. I would fix the first meeting in the top-class environs of Willingdon Sports Club. That provided a fitting ambience to "sell the Marico dream". I would, of course, take the newcomer to Masjid Bunder. But that would be later, when the talent was sold on the Marico story.



2. Spotlight

b) Evolution of the Indian Shopper

Nielsen's Shopper Trends Study sheds light on the evolution of the Indian shopper over the last seven years. The annual study takes place across 52 countries to understand shopper attitudes and behavior. In India, Shopper Trends is conducted in 14 cities including Mumbai, Delhi, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad and Pune. Respondents include household influencers between the ages 18 and 65 in SEC A, B and C. Over 3,300 respondents were interviewed for the 2012 Shopper Trends Study.

Highlighting the emergent breed of Indian shoppers


1/5th of Urban shoppers shop at Modern Trade Indians are deal seekers as compared to their other Asian counterparts Indians are willing to try out new brands/variants as long as they are getting an attractive promotional offer


14 key markets (mega cities and boom towns) account for 3/4th of Indias modern trade sales! Delhi NCR has seen the fastest Modern Trade growth followed by Indore, Jaipur and Pune!


2 out of 5 consumer actively looking out for premium products! The Rural shopper is now switching to larger packs due to convenience and value for money!



20 miles above Earth on a shoestring

19 year old student Adam Cudworth floated a balloon 110210 ft into the stratosphere equipped with a 30 camera from eBay to capture incredible footage of the Earth.


Why does coffee never taste as good as it smells?

So its got to do with 2 senses of smell not one. Read more about it.

Stop, Smile, Ponder, Amaze, Mull over !! READING ZONE

Top 5 Business Bestsellers for the month:

Liver transplant makes 61-yr-old young again

We have heard about the adage that Life depends on the liver. But is the liver a fountain of youth?

1) Steve Jobs- Walter Isaacson 2) The Power Of HabitCharles Duhigg 3) Imagine-Jonah Lehrer 4) Thinking, Fast And SlowDaniel Kahneman 5) Mobile Wave-Michael Saylor Source: t-sellers-books/hardcoverbusiness-books/list.html


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