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!

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

TRADITIONAL MERGERS & ACQUISITIONS: CAN YOUTHS BE BENEFITED?

NOT JUST A RECIPE, LIMITED TO BIGGER COMPANIES

Mergers & Acquisitions often relate to something which is only for major corporations in order to consolidate and further strengthen merged resources while bringing costs down significantly. Regulators such as central banks have used this tool to consolidate inadequately capitalized investment banks, commercial banks, mutual funds etc., which should not have been licences in the first place

Likewise pharmaceutical giants such as Sanofi & Aventis, automobile companies such as Mercedes & Chrysler teamed up few years ago along with other major corporations who opted to join hands with other market leaders rather than waste money on competition to gain bigger market share. Recently we have also witnessed major service providers such as Travelers Group & Citi Corp, then we have AOL & Time Warner. List of all major M&As can be seen on the right end of this blog

Post merger scenarios are not much difficult to forecast in bigger companies as they have ready markets, presold brands, deep pockets, access to strong market makers etc., which usually give them the leverage to come out much stronger while taking advantage of combined power of the merged entity. So everyone gets a portion of the bigger pie, including the small shareholder who sees growth in his value of shares as well as better dividend payouts

Having seen the better side of mergers, there is an equally challenging side which no one denies, that is the list of liabilities, claims, litigations, stuckup inventories etc., which experts may agree to overlook at the time of setting a fair price tag to the merged business in anticipation of handling such isseues without much of a problem

Lets now try to visualize a situation if we try to use only MERGERS in development of Youth Business for following reasons, assuming we team up 100 Youths in one project

a) per youth Investment of $5,000 doesn’t look adequate to gain much mileage in respect of getting factory supplies, no chance of getting price benefits, inconsistent supply chain, costly logistics, high selling costs etc., BUT when we multiply this with 100 youths coming in with more or less the same seed capital, this group stands at half a million dollars worth of seed capital, which would end up being a lot more potent, besides getting a team of 100 heads & 200 hands to work and push through for common goals & dreams – this scenario can make more business sense if banks could come in and offer low cost trade finance so the equity side gets complimented with equal amount or more in bank support – certainly food for thought

Going Public: SME’s highs & lows

Companies go public for 2 reasons – a) raise fresh capital and b) maximize shareholders value

Small-Medium size Businesses, due to lack of knowledge in respect of financial planning & structuring  often fails to plan and invest in gaining expertise to develop this equally important aspect of their business, which is to implement balanced mix of growth & income strategies, which would give regular inflow of revenues as well as long term sustainable growth –

SME companies, in most cases, try to save money for obvious reasons, but they fall short in realizing the need to employ right expertise in gaining the much needed ability to think ahead, establish present & future needs, not just from meeting competition head-on, but also to realize the future work force within the family (owners & employees combined)

One of my objectives to gain from this writup is to gain attention of our bankers and stock brokers – please exercise caution while handling small cap companies – they are not equipped to be tested against rough trading & speculative, shortlived strategies – because for this very reason, small caps are shying away, and in the process losing out to gaining control over their capital situation – even from stock markets perspective, it is critical that we put money on small caps rather than going after, rather queing up behind handful of so-called market movers –

I also take liberty to protest politely to regulators, that they devote time & money in developing secured environment, that encourages small cap companies to come and play their part in development of capital markets, as their cumulative impact is far greater & bigger than blue chips – its time if see this as an integral part of our risk management protocol

Another known reason for small caps to go public, is to maximize shareholders value, being on this road, companies may not really need significant amount of new capital but to gain strength in terms of asset valuation based on present & future business outlook – however, there is another aspect to look at, which is to consolidate by way of mergers & acquisitions – we can either acquire non listed private companies through exchange of our listed shares to shareholders of private ownerships and broaden the capital base, similarly we have another area to look at, are opportunities of merging with other listed or non listed entities and be able to strengthen business – I feel we need to build on this subject so we create much needed awareness for small caps to look upto capital markets, not just as a platform to raise money but also to create opportunities for private small investors and other vibrant & motivated outfits

 

Youths & Women Groups: challenges or opportunities

Its just like 2 people seeing out of the window and seeing 2 different things – the same issue we have today is the fact that some of us sees youths & women groups as steep challenges that are eating into our limited resources, and there is people who sees an entirely opposite picture, they believe that these 2 segments have been or being neglected, but both reflects strong energy & growth potential

In my opinion, its a case of believing in their capabilities and burning desire to be self reliant – its just a matter of showing them that we do care and we present ourselves as someone who is not only feel responsible but also allow our new generation and neglected women work force to lean onto us in this time of need & motivation

In a situation of no negative thoughts or pre-decided opinions, it’s not overly difficult to gauge the strength of these 2 sectors – lets first look at the scenario being developed in almost all developing countries – their population’s major share comprises of people within this age group of 18-35 years and high income segment is well under 10% – therefore we have an opportunity situation knowing these are young nations, BUT at the same time risk is equally great, because in the absence economic opportunities, confidence building, motivational environment, youngsters pose a much bigger threat of getting into criminal activities, which could result in degeneration of social health, economic growth, leave aside education & medical health

On a positive note, however, lets build a happy scenario – UNDP’s 2007 stats put Pakistan’s under 25 population at 103 million whereas there are over 10 million people between 20-24 years – its therefore not unfair to say that if we allow half of this 10million work force to get involved in any form of economic activity, assuming they have a small capital of $100 & they trade this money 3 times a week times 43 working weeks annually, we are looking at a cumulative impact of this group equivalent to $64 Billion, thats over 30% of Pakistan’s total economy size of $210 Billion (based on July 2011 figures)

Friends, we are not looking to conquer Everest or K2, we just need caring, motivated bunch of simple people, there is no need to be a Phd to know that when we are capable of raising billions in charities for food, education, health – we can also reach out to raise funds needed to get these kids self employed – if we target 5m youths needing $100 support – lets reach out to donors asking for $1m a piece, we are only looking to tap 500 donors – I am sure you all would agree with me that its not a heavy price to guarantee peace, harmony, contentment while evolving new economies!

IT Companies: Quest for Sustainability

The IT Buzz has been with us since early 90s, with every IPO getting over-subscribed by many times, venture capitals been investing left right & center, investment bankers coming up with outrageous valuations. In short everything seemed too good till the time, the so called “bubble” had burst, which resulted in severe market depression

Since then, the IT Industry, no doubt, has struggled bravely, it has been evolving to gain firm footing, eventhough, everyday is a new challenge, smaller companies going bankrupt against the tidal wave from the big boys, who have deep pockets to invest in R&D, leave alone bring new products and smarter technologies

Today, as we speak, we are being faced with 2 scenarious; one is the promising looking future outlook, as technology companies aim high, they have gained strong footing in countries like China, India, Pakistan where they are blessed with over 2 billion consumers – no wonder prices have come down like 9 pins – website companies have given open end applications, with built in hosting & email services, telecom giants are not going to sit back either, billions being spent in gaining bigger market shares, while the usage cost for consumers continue to drop

Having seen the above roller coaster ride situation, its only fair, that today’s IT and technology sector is looking to gain stability, so they dont remain completely dependant on market dynamics. With so much in terms of filtered data on our finger tips, why cant we see this scenario from a different perspective? why dont we say, this is an opportunity, we have all the data we need, readily available, so dont we start connecting these consumers directly to mainstream business! this route is not only safer, but offers a lot of sustainability while promising captive clientele. Having worked in such a situation, we would reach a stage where the platform becomes mechanical, one just needs to pump in new products every day

Lets also look at the picture from bankers, and investors perspective; we dont need to risk high capital injection everytime technology changes its face, risk is spread beautifully amongst millions of consumers, target audience should be low-middle income masses, so they remain motivated due to the “need” situation, less dependency on market forces, very strong sustainable business model, ensuring consistent capacity building, and gaining cumulative impact like never before, while ROI goes up as we would get short turnaround cycles, so even if we make 5% a trade, fully asset back, realistically assuming, we achieve 2 cycles a week, we are set to gain over 100% in return over investment – which means this could be a platform to develop asset backed hedging instruments. Lets build on this discussion, folks!