NON TRADITIONAL, LOW CAP PRODUCTS: KEY TO SME GROWTH & SUSTAINABILITY

This subject may sound very simple, everyday kind of debate, but the fact remains, most SMEs fail due to this very reason. Everyone wants to be in business, and also in fast moving products, so there are no issues of finding buyers, however what we tend to forget, is the fact that all major corporates deal in similar products, which are far better in quality & packaging, and they spend tons of money on brand building, much much more than SMEs total business capital. I can relate this situation to one incident happened in early 90s, Coke was relaunching itself in Pakistan, we used to have returnable glass bottles. Coke, instead of pumping millions into advertising, they knew that all they had to do is to make the product available across the country. What they did? they bought all glass bottles of their competitors including Pepsi, they broke all bottles & made sure their own product was available, not just on the shelf, they even went on to let customers have free drinks in all affluent restaurants for weeks

What I am trying to make SMEs understand, is that there are multiple risks in getting into high consumption products – a) competition from giant competitors, b) high production cost together with less impressive quality/packaging of SME versus very low cost & high quality presentation of large companies due to their volumes, c) weaker distribution network, and d) virtually zero marketing budget

I also want to present another scenario, lets assume we go ahead & develop a few fmcg products, say anti-bacterial soap, what are the pre-requisites? minimum production quantities, minimum production volumes of packing material, give atleast 30 days credit to distributors which means we need to have atleast 3 months inventory in respect of investment, we need liquid capital for marketing, deploy sales teams. Now comes the most critical factor, pricing structure, it is imperative for us to dish out much more discounts to distributors & retailers for them to trade our products, which could result in negligible income for the SME. Its important we relate this ” low income” to the actual costs because it may not even be enough to sustain, meet all costs input due to low volumes

Solution? its a bit challenging, we first must accept our ground realities, not in negative sense, we must be realistic and plan accordingly. Lets see how fruit & veg vendors operate! they make money with their meagre seed capital, selling from small kiosks, they remain happy, because they make better profits, enough to recycle full capital, save a bit and at the same time, eat from profits

Non-Traditional products bring much better profits, we would not pay a cent more on a soap knowing another equally good brand is being sold cheaper, however we wouldn’t question if someone is selling a smartly packaged, reasonably good quality picture frame for $10 because no one would question us on the actual cost, so this frame could be costing us not even $3 and yet we end up making very good return on our small capital

SMEs offer best growth potential but for us to be on a sustainable road, we need to come up with creative ideas, sell items no one or less people are selling, to avoid getting into serious competition, knowing things may get nasty like what we witnessed in Coke re-launch strategy

All the best!

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MISTAKES ARE GOOD, SO ARE LOSSES – ITS THE ONLY SOLUTION TO WIN

This is again something that we (parents, mentors, teachers etc) fail to tell our kids that its only natural to make mistakes, encourage them that they experiment, learn, and grow. That’s how a baby also learns to walk, he/she cannot even stand up, without trying to tumble & crawl

This process of constant encouragement must start from the very early formative years, at home, while attending schools, at universities, and at place of work – No one would mind if we enhance the selection criteria while selecting most deserving kids, even though its being most discriminatory, but its not going to hurt kids the way “negative, abusive, demeaning  remarks” do to one’s self respect

Every banker, charity knows the significance of developing SME businesses, and the benefits to reach out to youngsters at the grass root level, so if there is a genuine hunger, and desire to eat the best mango,  its only natural that we give all the attention to provide right nutrition & care to the tree during its entire life cycle

All I am trying to make charities, banks, NGOs understand, that this is the same formula they should adopt while developing SME & youth business ventures, please dont cut them down if they fail to bear fruit the first or the second or the 3rd time. All that’s required is our careful, matured evaluation to make sure that the person, we are putting our time & money on, is hard working, responsible, good family background, self motivated, ambitious, then committing little money on small 100 small businesses, in regular instalments is absolutely safe, much safer than dishing our millions to 1 corporate client

I have seen dozens of times, when SMEs, full of potential get verdicts against their life from banks on seeing small losses. It maybe a routine decision on part of the bank, but that person loses his/her hard work, confidence to stand again, leave alone losing seed capital, because the funding bank would have first right to reclaim its loan amount plus interest from sale of assets, which in some cases force an SME to give away their house to the bank as well

I ask all our champions SME bankers, what do we call this? an incompetent, untimely, irresponsible reckless business decision? or “good governance” and/or “risk management” as they call it? that’s being totally inhuman, taking hasty decisions at the cost of ruining business, country’s economy and above all shooting down the entire household

I am also addressing the so called “banking regulators”, the central banks & SEC, that please be very responsible & conscious of the consequential damages that each single family has to face, in the event their lending bank’s sword falls on them. We can always cut down on the risk exposure by lowering loan amounts, and even get focused on only taking up trading ventures with short turnaround cycles so we keep funds moving all the time, its like taking up a position between standard SME size & typical micro credit situation, it may enhance operational costs but its worth the effort as results are guaranteed

Again, we go back to the same solution, we need “father figures” and not just another 9 to 5 banker who comes to make money during the day, no matter what happens to the client. Smart bankers wouldn’t get offended by my harsh remarks, instead, its an opportunity to set right footing and take advantage of the wide gap, which may not remain there for long

 

 

Right Attitude – SMEs, Women & Youth enterprises must present themselves as opportunities rather than seeking Sympathy

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Mainstream corporates call it product development, market positioning, capacity building, the list is endless. However the minute small medium enterprises run by women, young entrepreneurs go out to seek business, they are being looked at as if there are seeking charity, this unkind behavior from mainstream players whereby they assist smaller businesses (if they assist as 8 out of 10th times they make excuses or simply get rude to the extent of showing the door)  have gone too far, that they actually believe, a huge favor is being given to the ‘less privileged’

As much as we condemn this situation, its also critical to identify the actual problem so we address and solve this never-ending dilemma. In my opinion, no one can abuse or be rude to us, unless we allow that person in the first place. It’s not difficult to relate this with today’s SMEs, its no secret that a small business owner lacks self confidence when he/she tries to meet a banker or a big customer to discuss business across the table – let’s question ourselves, do we stand a chance to make an impression? Not at all! It’s a non starter, the minute we step into a hifi office building, we get intimidated by our surroundings – its pointless to debate if its a deliberate move on part of corporate giants or its just an inherent shortcoming on the other side because bottomline remains, SMEs lose the race before its started

If I can be honest, the solution if all of us are able to identify would not only benefit small-scale businesses, its infact more profitable to bigger companies to work with suppliers and buyers with low overheads and less appetite. It’s a win-win situation for all

I’m taking liberty to address SMEs – why do we get intimidated? If we have confidence in what we are selling, knowing its also other party’s need, then we must meet on equal terms. All we need to make sure, we must be well equipped to speak the language other parties understand. I’m not talking in literal sense, we must study the mindset of the person or the company we are meeting with so we know their values and long term objectives. It’s like going to an interview with a relaxed attitude, knowing the person we are meeting is not our boss to be! It’s imperative to set playing rules upfront, when we meet a business associate we must be respectful but not at the cost of losing our own ground, meaning we demonstrate confidence and maturity with a clear message that being respectful is mutual

“RIGHTS OF ADMISSION RESERVED” : TIME TO BUILD

Being a progressive & constructive discussion forum, we, as always, again restrict ourselves to find solutions than to be critical – lets go back in history to clearly understand the concept of “rights of admission reserved” and at the same time establish its existence even in today’s modern era, no matter how strong we try to advocate in defiance


If we glance through ground realities in the old days, in India, all across Africa, parts of far East and most of the Central America – we know those people used to exercise great caution, not to go near “no entry zones” such as high end shopping areas, public parks, restaurants etc., we have read, seen sign boards displaying “dogs & _______ not allowed” – lets not get into this debate of making accusations, as it was an acceptable practice during the time which was originating from days of slaveryIn today’s forward looking times, we know, that the West discourage “racism” strongly, yet, there are sure signs of “after effects” in the oppressed zones, no matter how hard they try, they still lack confidence, actually seeing themselves as inferiors, less intelligent and so on – bottom-line remains, they have accepted their state of  poverty, inability to stand right next to “a white man” –

Now that question is, what is the end product of being in this state of mind for generations? some of them die poor, but most tend to rebel, get into street crimes, not to take out their frustration, but to manage food for that particular day – which means, we need to see them & treat them with kind & helpful attitude – these youngsters committing crimes, taking drugs are actually in need to our care than our hate & will to punish them – this wouldn’t help at all, instead, it would destroy our new generation, God forbid

While the affected people continue to struggle to meet ends, the West has become more richer & continue to enjoy, not any intention to suppress anyone, they are just being benefited due to gaining on availability of surplus resources & opportunities – that’s why most of us, including the writer, starts believing in distress, that the West has changed its strategy from putting up   “dogs & _______ not allowed” sign boards to making daily use consumer products &  good food so expensive that no unwanted person dare come near them – well, this is not true, problem, actually is the absence of competition, and non existence of small business operators to tap into an ever growing world economy – this quote “you can lead a horse to water, but you cant make it drink” situation across 3rd world economies is no different, opportunities are there, its upto them to stand up, and start walking – as opportunities doesn’t come to us, we have to go to them – they have to come out of their “self pity” attitude, take control of their lives, be confident and go out with a “never give up” body language – end result is guaranteed, no one would ever complain of any sign boards


Realistic/Accurate Business Forecasts | SME’s lack of understanding & Possible Imbalanced Bank Credit

This is one area small business operators find very frustrating, leave alone getting excited to find out what they should earn in the new

year, in advance. Its a shame, banks claiming to be SME specialists fail to understand the root cause of this inherent short coming in majority of their potential customers. In my opinion, problem doesn’t lie in lack of understanding on bankers part, instead, its the “lack of responsibility” attitude which is only looking to attach “any forecast” to the applicant’s file just to satisfy documentary requirements. Few things that needs to be taken care of, either on bankers or SME operators’s part with only 2 benchmarks to focus on- CAPACITY & BUSINESS IN HAND

  • finding the right capacity to delivery each month – in order to pin point a realistic number
  • once capacity is known, see past months actual performance to gauge as to what percentage of capacity, been utilized
  • check for factors responsible in “under capacity” situation
  • set realistic growth, month-wise, giving room to progress steadily in order to reach optimum capacity levels – because if someone is hitting 10 laps, knowing he/she can do 15, there is no way one can achieve 15 overnight – small steps needed to gain good momentum

All above parameters are related to understanding & setting accurate capacity levels, lets look at the other side of the coin – “business in hand”

  •  no matter what our capacity is, bottom line remains that what volume of business does one have at the beginning of each year, so as to insert actual targets
  • being in this situation, one has to work backwards – since business in hand is known upfront, we simply divide it in months – again, 2 sub benchmarks, a) we divide business in hand by our own monthly capacity to establish realistic timeline to finish each job, or b) we get restricted time line from customers, in this situation, one needs to see what’s the best possible volume achievable given our capacity available each month – this will surely save us from last minute embarrassment & penalties in the event we fail to deliver promptly

While we discuss capacity & business, its equally important to establish accurate amount of gap between what SME owners has as his/her equity and what is there to be taken in bank support – this is critical, knowing no one refuses more money coming in – however in the absence of establishing accurate capital requirements, the ability to service bank credit remains a big question mark – it is therefore imperative for bankers & SME operators to realize the need to understand business credentials, in order to ensure sustainable growth, leave alone saving bank from losing out its capital deployed – its being most negative on bankers part to try seek beefy collaterals at the time of sanctioning loans, which in most cases is either business owner’s house or his place of work – meaning, if something goes wrong God forbid, bank would try to extract the last drop that is there to come out clean, lets not discuss what would happen to the business owner & his/her family

Its only being human to realize one’s responsibility to his family, friends, business associates – I don’t think that’s too much to ask dear friends

 

Democracy in Development of Emerging Economies – Its role in Progress, Socially & Economically

I have been wanting to write on the subject for a while, today while reading this blog http://blogs.cfr.org/coleman/2012/05/10/mobile-technology-and-global-economic-growth/ I am writing this blog more under a reflex action situation as I couldn’t even finish reading this article

Being part of the emerging economies, having lived, worked in developed economies also, its fair to boast my knowledge & understanding when it comes to judging if the glass is half empty or otherwise. Having said this, being a motivator, as I am, I just cannot see the glass half empty, so lets build a positive outlook while identifying inherent threats and short comings – like I always say, its good to criticise when you also give solutions

Whenever one talks of democracy, things that instantly ring a bell – freedom of expression, free judiciary, accountability, public services, sharing, vote the right person & the list goes on

In all fairness, are we witnessing progress in the name of democracy? do we, as men, give freedom of expression to our women? leave along giving them right to take a decision? why cant we understand that if a Mother can carry a baby to full term, spend sleepless nights, toil the entire day, keeping our wishes on priority, making home a place worth coming back each day after work – why cant we entrust them with giving us hope to make our countries our homes! irrespective of cultures, most families in 3rd world countries give priorities to their boys when it comes to education & health, it is the mindset that we need to address, make parents believe that girls are equally important, if not better

When we talk of backbones, we never visualize how well a country would evolve, if we target youths & women – they are our backbones, no house can turn into a home without mother, wife, daughters, & boys of course – why cant we see this happening on a macro level, and ensure long term sustainability across the board

Teachers, counsellors tell us, there is no shame to learn from a junior student or a colleague, so why cant be focus on women! its high time, we address the problem in its true perspective! let our women be given respect, confidence, allow them to express their opinion, encourage them to take decisions – always remember, women are better managers by default, they are disciplined, more matured – even science has proved that women can think of atleast 3 subjects at a time, men can do only 1 🙂

Why most SME Banks are failing worldwide as an Industry?

This is no secret that banks across the globe are eyeing small medium business customers since early 90s – but most of them have or are failing to make an impact, leave alone make money on this “niche portfolio” as they call it

In my opinion, they will continue to struggle or may just bow out of the race – what is actually needed, to even make a start, is to find the right set of minds (not necessarily bankers) who understand the nature of SME business operators, their inherent shortcomings, inability to develop hifi business plans, lack of exposure of international markets – another very important ingredient that we need to look while selecting our “relationship managers” is the heart, the desire to help those aspiring entrepreneurs desperately in need of a” mentor” and not just a commercial bank

It is critical that banks first send their managers to get trained, oriented to be able to tune-up to come down and be able to sit on the ground if need be, in order to let the person feel comfortable to share his vision with his potential banking partner

Folks, please, we cannot sell a Merc without an engine, and we cannot leave our home, aiming to travel, without knowing our destination – it really doesn’t make sense to try make the targeted “SME” speak our language, it must be the other way round, we need to learn to speak their language first- now, having tuned our bankers, its time we show them the road map so they have a clear vision and a good sense of direction to make a start – 2 things need to be focused on; CUMULATIVE IMPACT & CAPACITY BUILDING

As a finance house, one should stop looking at charging hefty mark-ups which we usually do to satisfy our risk managers and secondly, knowing that the customer doesn’t have a choice so whatever we ask, he/she will agree – that’s poor judgement – there are millions of ways to secure one’s credit, instead of charging a fixed percentage, we come out as partners, as take a percentage on each turnover, and help customers to do as many turnovers as possible – it must be realized that someone who has taken the initiative to be in business with all his heart, risking way over his limits, doesn’t have to be told that its high risk business, this will only kill his motivation – responsible, humble bankers, not smart bankers, if there are, would not let their small customers fall down by making their presence felt each day by being mentors, advisers, counsellors and a guide to show the path ahead

From risk management perspective, when we are spreading, say  a million dollars in 1,000 customers to do simple trading, who also come with their seed Capital of say $1000, our risk is well spread as the customer is also carrying half of the stake, we try to make sure there is atleast 1 turnover per month  and if expected profitability is, say 20%, we ask him to let us take 3% of total capital as partners, which would fetch us 6% per turnover, under a fully asset-backed situation

We achieve 2 objectives – we help 1,000 customers to give us a cumulative annual turnover of $24 million & cumulative gross income of $4.8million out of which banks pick up $288,000 on a credit of $1,000,000 or 28.8% pa – banks who are able to understand the dynamics, can visualize the infinite potential of ensuring sustainable growth and income from this small, yet most profitable clientèle