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1. Starting a business: tips and techniques.

Entrepreneurship has a lot of halo around it. Bankers, Consultants, CEOs; all
receive their dose of media bashing in a severe financial crisis, but an
entrepreneur is always celebrated and revered. When someone starts a business
of his own, he or she receives warm praise from friends and family and their
sincere good wishes. However, such goodwill does not last for long if one does
not succeed. For six months after starting a business, you can tell people that
you have started a venture of your own and they will respect you just for that.
After a year or so however, they expect you to shift to a bigger office. While
operating from home or a garage is romantic in the beginning, if your business is
not generating enough revenues in a year, you will start feeling the pressure. So
the first and foremost thing to remember when you are starting a business is not
to enjoy the halo of being an entrepreneur for too long.

Starting a business along with a partner can be a good idea. Often a business
partner has complementary skills. Maybe one partner is good at sales and the
other is better at managing operations; thus one takes charge of the business
tasks outside the office (sales and business development) and other can take
charge of things inside the office (managing employees, task management).
However, one should remember that all business endeavours are ultimately
about incentives at the end of the toil. Many business partnerships are destroyed
not because one of the partners was insincere but because his or her incentives
were lopsided. For example, if a business has 2 revenue units and a partner has
20 per cent stake in more crucial unit and 60 per cent in less crucial unit (less
crucial for the overall business success and for other partners).; this partner
would always end up putting his best for the less crucial unit No matter how
good the intentions of the business partners are, ultimately their behaviours will
align with their incentives. So it is vital to sort out incentives for all partners in
the very beginning.

Another thing partners should sort out in the beginning is paper work. Stories
about entrepreneurship are usually about the first client, first major assignment,
pitch to the venture capitalist or the eventual public offering in the stock
markets. Very few tales talk about the paper work required in all of these.
However at every stage of a business lot of paper work and documentation is
involved like registering the company and partnership contracts. It is important
to document as much as you can on paper, including all the policies and
procedures of the young company. The advantage of paper work is that once
guidelines or policies or contracts are well documented; the stakeholders have
more time on their hand to do the actual business. For instance if a partnership
contract is not detailed; each of the partner would spend undue time thinking
about the implicit trust he has placed in the other partners. On the other hand, if
the partnership contract is very thorough and covers all eventualities, the
partners would be spending more of their mental energies on improving sales or
operations of the business.
A common mistake many businessmen make while framing the policies and
procedures of their company is selectively picking all the policies which suits the
owners and not the employees of their company. Sooner or later, the employees
are able to sense this and they may harbour resentment against management.
Remember that policies and procedures of a company should be designed after
taking the interest of all stakeholders into account and should not be designed to
suit the whims and fancies of the management.

Last but not the least; picking right employees is vital for success of any young
enterprise. A businessman should be very objective while evaluating the skills
and talents of potential employees. A typical mistake most people make is that
they tend to like people who are too much like themselves. Every one tends to
feel that his or her way of doing things is better. For instance, people who have
been great salesmen in their past, tend to judge other people based on their
salesmanship. Similarly people, who get most of their knowledge from books,
tend to judge other people by their reading habits. However potential employees
may have a talent that is very different from your own talent. One should not
discount the skills and abilities, which are different from ones own skills and
abilities.

2. Beginning Marketing

There is a saying that all of business is marketing. Such statements are usually
enthusiastic exaggerations. However successful marketing is something very
vital for the success of a young business. Marketing is one of the few
fundamentals of business success along with people management skills and
capital allocation skills.

You start marketing your business the moment you start it, although you may not
be aware of it. Even a company name, business card and logo; few of the things
that most entrepreneurs design before they even registers their company, may
impute a lot about the business to the rest of the world. So it is important to
come up with a good name and logo for a business. It is also advisable to keep
the name and logo rather vague and flexible. For instance, if you are starting a
consulting firm in telecommunications industry, it is more advisable to have a
generic phrase such as professional rigour in telecommunications as part of a
logo, rather than a more specific phase such as research and consulting in
telecommunications.

Such flexibility in name and logo is needed, because an entrepreneur may have
to adapt his original idea to the realities of the marketplace. For instance, an
entrepreneur may start with a consulting firm in telecommunications, but after 6
months he or she may realize that it is more profitable to be a broker in the
industry and may want to change his business model. Having a generic name or
logo, comes handy in such a situation. A sudden change in positioning or name
or logo, is like a hammer on the mind of the consumer. However a flexible
company name and logo, allows the entrepreneur to gradually change the
positioning of the company, giving the clients and customers time to adapt to
the new offering.
Policies and Procedures of a company impute the values of the company as well.
Something as simple as a dress code, can say a lot about the company to
potential clients. Many start ups and young businesses tend to romanticize a lack
of structure or lack of dress code, but such policies of the company should be in
tune with the overall positioning of the company. It is ok for a technology start up
to have a casual dress code, but it may not be ok for a start up law firm. An
argument can be made that clients who judge firms by their dress culture are
guided by their perceptions. Logically they should judge a firm by the quality of
its work. However, most of the marketing is guided by perceptions of the target
audience, and not by logic.

Website is also a good positioning tool for a young business. People should not
judge a book by its cover, but they do. Clients should not judge companies by
the slickness of their websites, but they do. However it is important not to get
carried away. Many young entrepreneurs end up exaggerating the achievements
of their business, the number of offices and the strength of the tem on the
company website. They feel that they can get away with it and it is ok to do so
as long as it gets them projects which are delivered well. Such tactics may get
you some projects, but the clients will notice sooner or later that your website
exaggerates your companys present status; and they will be left with a vague
feeling of being cheated. Such tactics can also lead to negativity in the mind of
employees, as they feel that they are working for bosses with not so strong
moral fibre. If the bosses can bullshit their clients and the rest of the world, they
would not hesitate to bullshit their own employees.

If the entrepreneur started with a detailed business model; he is aware of the


target audience he is trying to reach out to. In case a business model was not
well defined in the beginning (as some entrepreneurs test the waters by deep
diving in them), it is recommended to at least identify a target audience as early
as possible. Identifying a target audience, allows the business to structure its
marketing efforts. Once a target audience is identified, a right size sales team
can be formed to reach out to them. They can be given specific targets to meet;
like number of cold calls to be made in a period, number of written proposals to
be e-mailed in a period, number of conferences to be attended etc. Without such
a structure, many businesses often have too many salesmen, doing marketing
work which can be done by a team of lesser size.

3. Selling 101

Some entrepreneurs have significant sales experience. They are delighted at the
prospect of doing sales for their own business. They are used to the pressure of
meeting sales targets and closing deals. However some entrepreneurs take on
sales responsibility for the first time in their life, when they start a new business.
Good news for such entrepreneurs and for anyone taking sales responsibilities
for the first time is that salesmanship is largely a learnable skill.

Sure, sales are very easy for some people. Yet, there are plenty of examples of
great salesmen who learned the skill over a period of time. Warren Buffett is
known as the greatest living investor in the world. He is also acknowledged as a
great sales guy, by those who have worked with him. However, Warren was a
very shy and introverted young man. He was shy of the ladies and terrified or
public speaking. He gradually learned the art of selling. And one of the reasons
he succeeded at sales is that he understood the importance of communication in
business.

This is the first step in becoming a good salesman. You should understand why it
is important. Many people have a negative idea about sales, and think of
salesmen as some sort of con artists. But even if you have the right ideas in
business, you should have the communication skills to get your point across.
Great salesman knows how to get the point across. Some of them may misuse
their communication and interpersonal skills; none the less salesmen add lot of
value in the business world. For instance, Warren was a great investor who had
the best ideas for his clients. However, he needed communication skills to
convince other people to trust him and his ideas. In the asset management
business, it is considered imperative to have great sales skills along with great
capital allocation skills. Similarly business consultants need sales skills, to
generate buy in from the clients, for their ideas. The consultants suggestions
may be great for the clients business, but unless he has the communication skills
to convince the client that they are indeed great, they will not be implemented.

Selling is also one of the great learning experiences in the world. It forces you to
become more tolerant and patient about people. Imagine you are running your
own grocery shop. All sorts of people will walk in. Since you have to sell your
goods, you will be forced to be patient about their idiosyncrasies and their
irritable behaviour. You will have to patiently answer their questions. You are
doing this because you have to make a living. But over time you will realize that
it is better in life to be patient and tolerant about other people, who may be less
informed than you. This is what good salesmanship is all about.

Salesmen are also accused of projecting phoney warmth. They are good at
striking a rapport with people they have just met, although they may not mean
in it. But the truth is you cannot project phoney warmth for too long, unless you
are a warm person deep down. This is perhaps the most elusive quality. If one is
not a warm person, he may never be a great sales guy. None the less he can
always try hard and be good at it. The bottom line is that one cannot shirk away
from sales responsibilities for too long, if he or she is staring a new business.

So why are some people terrified at the prospect of doing sales and meeting
sales targets? Such a fear usually starts with a hesitation. Some people are
hesitant to take sales responsibilities in the beginning of their careers. The
hesitation may snowball into a phobia if it is not taken care of. This is not very
different from the fear of taking to opposite sex that some teenagers may have.
And the remedy is also similar. One should expose himself or herself to as many
sales situations as he or she can, whenever he gets the opportunity. You may
stumble in the beginning, get embarrassed a few times, but you will get over the
hesitation and may start blossoming to a great sales person.
Let us run a though experiment. Suppose you are given a task to sell 30 vacuum
cleaners in a community of 300 households. How would you design a sales pitch?
There is no hard and fast rule for finding a solution to this task. Some people
may say that they will do extensive research about the community. Some may
say that they will read very thoroughly about the product. However a simple and
effective way to develop a sales pitch is to pick up a phone and start calling the
households. Your pitch may be embarrassing at first, some people may hang up
on you; but after a few phone calls, your pitch will evolve into something good.

4. Managing your budget.

That you have to manage your budget while running your business sounds like
stating the very obvious. However, managing the budget of your organization,
while you are trying to create a new business or scale up an existing one,
involves some of the trickiest tradeoffs an entrepreneur may have to make. In
this article, we will analyse some of the tricky business expenses. Then we will
discuss some general principals of sound budget management. The good news is
that some of the golden principals from personal budget management have
proven to be applicable in managing budget of a business organization.

Let us start by discussing some critical business expenses. Office expenses are
very limited, when one is operating out of a garage or home. Operating out of a
garage is romanticised in the technology start up culture. But the harsh reality is
that people judge you and your organization, if you are operating out of a small
office, even after a couple of years of starting your own company. The
conclusions people draw are that the business must not be doing well and the
company is not making enough revenues. Now this need not be the case. You
may just be a conservative entrepreneur whose company is cash rich; yet you
like keeping things modest and do not see any need for a plush office. You may
be ready to shift to a new office, but that will reduce the cash buffers or cash
reserves of your organization. So how do you make this tricky decision?

There are really only three reasons which justify the high rent of a swanky office.
One, if your revenues are so high, that the office rent expense is a small
percentage of it. Second, paying a high rent is justified if it will help you get more
clients. In some businesses like consulting, many clients will judge a company by
its office. However in some cases, like asset management, the clients may just
be interested in what the firm or business delivers for them. Third, paying a high
rent is justified if it will help you attract new talent. Fresh graduates and MBAs
are fussier about the office environment than people with some work experience.
So if your business model demands hiring of fresh talent from good campuses,
than a plush office may be a painful necessity.

Another major expense is the salary of the employees working for you. You have
to take a call if you want to be an employer which pays the best compensation
packages or an employer whose pay scales are below average. Very few
business models would allow you to get away by paying lot lower than peers.
However you have to understand your business model well to know how much
compensation you can set for your employees.
Office rents and employee compensation are tricky in themselves. However the
really tricky bit is that while scaling up your expenses is difficult (you should
have the revenues to support the increase), cutting them down is much more
difficult. You may be tempted to switch to a new office and you just might afford
it. But imagine that after six months of switching to a new office, you realize that
you cannot afford it, as you are not getting as many projects as you thought you
could. Do you think it will be possible to go back to the old office?

Similarly, consider another scenario where after a relatively good quarter, you
generously increased the salary of your staff; only to realize two quarters later
that you cannot afford to pay so generously. Do you think it will be easy to tell
your staff that they have to go back to the original lesser salary?

People make similar mistakes in their personal finance. When the economy is
booming and optimism is in the air, one is inclined to take spend lavishly and
take loans, thinking that good times will continue in the near future. However,
the global economy may turn sour without much warning, people lose jobs, and
they are stuck with EMIs for gadgets and equipments that they could have very
well done without.

The rule of thumb, to avoid such mistakes (either in your personal finance or
while running a business) is to have a margin of safety. Keep a significant gap
between your total expenses and total revenues (or cash inflows); so that even if
there is a lot of variation in your revenues (or cash inflows), they are always
large enough to meet your expenses.

5. Growing your business: how to.

Some things are simple and complicated, not in turns but at the same time. For
example, the worlds favourite game football is simple and complicate. One can
easily explain the game to a kid. Take the ball and put it in the goal. Yet it is also
very complicated, as there are all sorts of strategies and tactics involving
defence, offense, formations, mind plays and rough tackles. If one would ask an
average man on the street how to grow a business, a common reply would be
get more customers. It is really as simple as getting more customers. It is also as
complicated as getting more customers. But before that, let us understand why it
is important to grow a business.

Sounds like a silly question. A business should grow as it means more revenue,
more profits and hence a better life. A bigger business has more stability and can
withstand economic turmoil. All such reasons are valid. However, there is a more
subtle reason why an entrepreneur should strive to make a business bigger.
When you run a small business you work 40-50 hours a week. When you run a
large business, then also you work 40-50 hours a week. Sometimes it takes the
same amount of time and effort to operate a big business as it takes a small one.
So why slog in a small business for lesser profits, when you can work the same
hours and make more money with a bigger business.
However not all businesses are scalable. Asset management, consulting practice,
law practice are some of the businesses that will not go out of bankrupt easily,
but will not become very big either. An entrepreneur should have the ability to
identify business models that are scalable. A business model that is scalable
identifies target customers it will be serving over time. However, it is one of the
more difficult things to do in business.

Many big corporations make mistakes in defining their target customers.


Sometimes you define your target audience too narrowly and sometimes you are
targeting a very large set. For instance IBM made the mistake of thinking that
computers can only be sold to scientists and mathematicians. They had a myopic
view of their target audience. Blackberry thought they can sell their business
phones to everyone, even when iPhones had arrived. They had too broad a
target in mind.

A crisply defined target audience is fundamental to any sound business model.


Yet an entrepreneur should not be so much in love with his initial definition of
target audience that he overlooks the harsh realities of the market place he is
operating in. No business models are perfect in the beginning. They may evolve
into a perfect strategy. An entrepreneur or CEO should be open minded enough
to redefine his target customer base, if the facts before him demands a
redefinition.

If a large target audience is identified, a business may scale up its operations to


service the larger base. This is the point where external funding may be sourced
by the business. There are two ways of sourcing the external funding, debt and
equity. There are no hard and fast rules for preferring one over the other.
However, one should be careful to avoid a psychological trap in seeking external
funding.

Out of the two sources of external funding debt and equity funding; the latter
gets a lot of media coverage. When a young start up is financed by a well known
venture capitalist, the deduction made by most people is that the start up has
crossed a particular hurdle. That well may be the case in most scenarios, but
since external equity funding is so celebrated, young entrepreneurs overlook a
simple fact that while they have obtained funding, they have also ceded control.
And if the business does become very big, someone else may end up reaping the
larger rewards.

We are not making a case against venture capitalists. We are only suggesting
that all external funding must also be evaluated from a more grim perspective
you are selling a part of a business that you created. Are you getting sufficient
return? Do you stand to gain sufficient return if the business becomes very big?
Perhaps you stand to gain more, if you sought a good old fashioned bank loan
instead of the more glamorous equity funding.