While I always focused on sustainable businesses, scale and profitable growth as a mechanism and businesses as extension of individuals, this year I spent quite sometime talking to and learning from small and medium enterprises (SMEs) and Community based organizations. Very interesting and insightful experience.
Over the 125 SMEs I met, most owners only intend to grow and develop their firms. It is usually assumed that all SMEs desire growth. But only 45% of firms survive after 10 yrs and 5% of those create 50% of new employment. Business growth for most of SMEs is purely for survival – to meet the inevitable 8-10% annual cost of living adjustments. Majority of firms do not grow. Many of the promoters would have made it their lifestyle business. Owners of these firms do not think beyond adequacy of their income from activity they enjoy. No long-term business strategy. Change is brought when the business begins to fail, most likely because of market changes. Distant from technology adoption, they thrive purely on relationship based marketing just enough to survive. Interestingly, most of the promoters started out as entrepreneurs, give up their inherent ability to take risks and to respond to rapidly changing circumstances that are essential for growth firms. Whatever the reason, if these firms do not grow, there is hardly a chance for their people and customers to stay healthy. When firms die, they actually dampen the spirit of people in and around them. They also kill the budding entrepreneurs who have considered these firms and promoters as role models. I think it is important to keep firms going beyond the lifetime of promoters or their interests…
Capturing some interesting notes… (all names changed since the promoters wanted to maintain silence on usage)
Siri Infozone started business in 1995 to develop and sell e-learning content to corporate customers. It was started by two IIT graduates and was supported by university incubation scheme. By 2005 the firm had gone into liquidation. This was due to over-reliance on one big customer who glued them in full with over 80% bonded commitment and cancelled the work subsequently as they developed internal capacity to do the same work. Additionally, there is evidence that market was not ready for online training!
Sigma Gift Paradise started in 1985 and is owned by a husband and wife team. The firm designs, manufactures and sells gift products with design based around fish themes. The wife is the designer and husband manages the business. There are ten full time employees with an add-on temporary strength of 15-25 folks in peak season. The firm operates on the principle of “caring”, This can be seen through their products, employee policies and customer relationships. With over 5 crore in revenue and continuous growth of over 10% y-o-y, they live up their mission of “running successful small, ethical business with an intention to commercialize beautiful designs made by wife.
Water Experts was started by Dr Girish, in 1987 with an intention of providing services to building contractors and governments by analyzing water quality and soil strength. The firm grew rapidly in mid of 90’s with over 50 experts and total of 75 employees. Though there are government departments and labs operating in the same area, the firm had a good reputation and business. Early 2000, owner shifted his focus on to IT business and made Water experts a professionally run independent firm. Over the next 10 years, when construction industry picked up tremendous pace, this firm lost out to multinational competition and eventually got sold to a larger firm in 2010. Dr Girish is struggling with his IT business and contemplating a retirement soon.
Green Pastures is located in outskirts of Bangalore. They are experts in landscape design and nursery products. With over 25 yrs in business, they have over 135 customers with long-term contracts for their industries and big-bungalows. Their revenue has increased consistently in the range of 10-15%. They took a decision not to add more customers three years back and extended good offers to existing customers for a 15 yr term. They manage to convert over 90% of them positively. They are now focused on delivering their services to this captive base. They owner in his sixties, is thinking of converting the firm into an employee ownership model and retire in next 3-4 yrs. Most of the 75 employees joined this firm as their first job and remained here.
Jaguar Furniture was started by Srinath in 1999 after his voluntary retirement from a nationalized bank. With a small portion of money from his savings and a simple loan from friends, he started off with trading in steel furniture. Two years of pass time activity turned serious with a big order from a school. This required a huge working capital. Given that the margins were healthy and customer was dependable, Srinath gave it a serious thought. Being a banker himself, he figured out that instead of trading, a small manufacturing unit will help him and his customer. He shopped a tiny unit for 20% of the capital required for trading. It had 5 full time and 15 part-time employees. He made a proper business case and got a loan sanctioned under Small Scale Industries provisions. His original employer agreed for a better interest too. What followed in next twelve months was a miracle. There were two more big orders and the factory took off nicely. Over next 12 months, Srinath worked towards identifying a set of managers for factory, sales and customer relationship. Last year, he got a full-time CEO and CFO and created a functional board of directors. The CEO made a promise of over 100 crore business in two years and they are now around 95% near the target.
Singam Consumer Society started in 1987 by Chidambaram was a community initiative to help farmers come together and sell their produce as a collective, buy seeds, fertilizers and farm goods as a collective. Collective bargaining provided a good platform for everyone to prosper. Though it was anchored by Chidambaram, farmers got very active and took it seriously as an enabler for their survival. There was working committee structure for every need identified and voluntary membership ensured participation and results. Membership grew to over 1450 by 1995 and group turnover was around 10 Crores. Zero debt and over 15% margin reinvested in the functioning had ensured steady growth of the society. During summer of 1996, Chidambaram decided to move to near by city due to his mother’s health condition and gave up the activities at the society. Things changed drastically. There were allegations on misuse of funds, political lobbying and representations from non-farmers. Soon, government had to interfere and constitute a board to oversee and run the society. Bureaucracy set in. Farmers became customers. Machines and educated class as they say, took over the reigns of the society. There are over 3200 members registered in 2012. Society is running a debt budget of over 120 crores. Some farmers who were part of starting the society are now contemplating of starting a producer company. Consultations are in progress.
Sunny Holidays was started in 1997 by Harish as a hobby. A nature enthusiast and photographer by interest, this techie quit his IT job in the top company in the country to purse full time his hobby of conducting planned closed group tours. What started as a yahoo groups program, soon moved to an onsite portal, corporate package and calendared event. Today, they run around 54 programs through out the year all pre-scheduled, matched for age and interest groups. There are life time, annual memberships, followed by drop-in arrangements. They always get the complaint of not having enough vacancies for scheduled trips. Harish is happy with the progress and his team of over 75 employees. He is getting a lot of offers from big companies for a take over. His tie-ups with leading vacation/holiday business brands is making him reconsider options of diluting the stake or selling it other big companies. In his late forties, Harish believes in keeping the business as is for another ten years or so.
Sandhya started For Your Careers, a placement agency in 1997, as a part time job to keep herself busy while taking care of her twin daughters. Given the boom period, she got good requests for software developers. Network of friends in IT companies helped her get candidates and position openings continuously. She had a strict discipline of keeping the focus on work only between 11:00 and 13:00 hrs in the morning and 19:00 to 20:00 hrs in the evening. Over first 12 months, business grew well and gave around 10 steady customers and over 200 placements. Seeing the cash flow and low risk aspects, she made a bold move to hire two assistants and kept her involvement on the same lines. Though there were lot of hick-ups in operations due to her inability to focus full time and different response styles of her employees, business was healthy. They made over 700 placements that year. Sandhya then realized the need for focus and bandwidth. Worked with a consultant from a reference, she built a 5 yr plan for her business. Being disciplined, helped her get the company become professional and grew it over and beyond original goals. In 2007, she had a run rate of over 2900 placements a year. With her husband interested to move over to US on his job, she decided to sell the company. In 2008, she sold the firm for over 50 Crores and moved on to join her husband. Ever since, she is contemplating to start one more venture. But yet to kick-off.
While there are so many different versions and similar stories, I think the drive to profitably grow small businesses is mostly resting with the promoters. Many of them pretend as if the business environment and technology penetration has least impact. Growth for many of them is a greedy word while sustaining the business is a lifestyle requirement.
It is truly a big world of small enterprises!
Wish everyone a great and remarkable new year 2014!