Jose Thomas

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Monday 26th July, 2010



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As I continue to write and post more stories, I am prompted by my readers on a variety of subjects that I will be addressing in the future. The thread of the following story is based upon various emails I have received from budding entrepreneurs with questions relating to their little ventures. I dedicate this story to them.

You all know that I too was young when I came into the business world and faced several road blocks and earned my experience the hard way. Today I meet many young entrepreneurs, some who are employed and that too, in good companies, approaching me with questions likes “what should I do to become an entrepreneur?”

To be a businessman or entrepreneur, I have always believed a Commerce Degree or an MBA alone won’t help but what one needs is a strong sense of making it big, an urge to make money and increase wealth in a consistent manner and learn to retain it. However, remember one thing; not everyone is born to be a businessman. The world needs young professionals to work for business, or where else will these businesses find great employees to run them?

An entrepreneur cannot be easily defined. I believe each one of us is born for a purpose and we are destined to be somewhere in life - some to be doctors, some engineers, educationalists, and many, these days, to be businessmen, not to mention more. You need to have a few qualities to be a businessman or an entrepreneur i.e. - a definite aim, self confidence, an urge to increase wealth, initiative of leadership, imagination, enthusiasm, innovation, clarity of thought, power of concentration, ability to take risks, perseverance and so on. You may be able to walk into a book store and buy a book on ‘How to make money’. Though there are many such books available,
I don’t believe in these theories. You must have a desire to make money.

It is to be remembered that wishing for something is not the same as desiring to have it. A wish is the pure form of passive desire. Only out of intense desire will your action fall in place.
Most people don’t advance beyond the ‘wish’ stage. I am not going to illustrate on each of the above aspects, but rather talk about what one needs to know before you put your foot forward in entrepreneurship. What I’m writing here is just not theory but is simply real.

You want to be a businessman? You need a clear story, a clear dream driven by passion supported by an even clearer business plan.

These days, I notice, very often, youngsters get on an ego trip, wanting to quit their jobs without considering the risk of starting their own business. An IIM graduate with a business and finance specialisation need not be the most ideal businessman or entrepreneur. At the same time, I am not saying you need to be of a specific genetic wiring to be an entrepreneur.

This is a growing phenomenon today. These youngsters want to quit their jobs and start “my own business”. In today’s day and age, the concept of “my own business”, in other words, by one individual, does not really work unless and until you are absolutely lucky and I will never recommend playing with your luck and testing your business success. The moment you say “my own business”, you are automatically reducing your vision and making a small package of your business idea. Small packages, usually, are not easily marketable. You need money to do business and I don’t recommend you start with borrowed capital. You need to have the required capital and then choose a debt route which is borrowing from banks, or equity route, which is using other people’s money to do your business.

During the past15 years, the financial system world over has undergone a major transformation. Banks have tightened norms, all governments have brought in more controls, foreclosures becoming more and more effective, stricter compliances with non performing assets monitoring looming large and to top it all every Central Bank of a country has stepped up their surveillance procedures on banks. All this has led to road blocks in raising funds from banks. While I do feel some kind of restrictions are required especially for a fast emerging country like India, I feel young entrepreneurs may find it an uphill task to raise new funds. Bankers do not lend money without a capital base! And decent ratios, backed by a proper business plan and a guarantee that the business will generate funds to service the debt. Banks are tightening their lending norms. They move very cautiously in lending money. They prefer parking funds in government bonds, investing in mutual funds and funding established companies with strong balance sheets. But when it comes to lending money to small and medium enterprises, the challenges are one too many.

Recently I heard something that was astonishing that banks have started to demand a lady guarantor especially for small loans. When I heard this, I was quite perturbed and wanted to know why? I found out that it was just for timely repayment. The borrower will ensure his ‘lady guarantor’ does not step into the witness box in court.

For a small businessman or budding entrepreneur, choosing the equity route is not practical unless and until it is another Google or Facebook super success story. Yes, it can happen but it’s not that easy. Millions of youngsters have ideas but unfortunately they start off course by making the wrong move to begin by saying I want to start “my own business”. If you do not have the necessary capital you can always take your ‘idea’ to a corporate house or investors and make a deal with them, whereby you drive the ‘idea’ and the rest is handled by your partners. Sign the deal in a way you get a share of the profit and that too, legally well documented. For example, if you are a writer and have a niche product in mind like a magazine or publication, instead of starting a publishing house on your own, approach a well known publishing house and make a good presentation and make the deal. This way you can avoid getting into unfamiliar and difficult terrain and working yourself into wrangles. Once you have accumulated enough earnings through your profit share you could take the next step of exploring the possibility of starting your own venture. Friends, you need patience!

Another way to start a business is the equity route, where you sell your idea to the public and convince a merchant banker to help you raise funds to begin with, through the private equity route and later on taking the company public and getting it listed. This path is the most interesting way to approach a business but you should have sufficient capital and bring onboard experienced talent with the necessary skills to run the business. You may have to offer them a stake in the company.

Next is the environment where you want to start your business which needs to be conducive and this is a big factor. India is a growing economy but we have our own issues.

Now let us look at a little story, rather a synopsis.

A young entrepreneur with a great idea and with all the necessary tools goes for a new venture.
He forms a company, negotiates with a bank and gets his loan sanctioned with a 12 month moratorium to start the re-payment. Everything looks fine. He begins drawing against the limits and starts to build a factory. This happens to be in God’s Own Country, Kerala. You know the moment you start digging the ground, you will see flags, demands and disputes with head-load workers which can drag the project. This young entrepreneur also faces hartal's, bandh's, work stoppages, delay in power connections, port strikes where his imported equipment doesn’t get to his factory on time.
The clock begins to tick and the project is behind schedule. All you see are delays, delays and more delays. Time flies, the bell rings, the moratorium expires and the first installment falls due to the bank and the entrepreneur is unable to service the re-payment on time.

As per current NPA norms, on the 90th day from the due date, your account is classified as ‘irregular’ and technically, the bank can begin recovery proceedings. This entrepreneur, who started his company with a great vision, ends up being a non-performer, thus facing the wrath of litigation from the bank. I don’t think the young entrepreneur knew what he was getting into! See where he landed up! Yes, he had great aspirations and dreams but he could not sustain them, not only due to his financial issues but purely due to factors beyond his control. If the entrepreneur had approached the bank for a re-schedule in repayment terms, he could have saved the project and carried on with his vision thus the paving way for creating wealth for himself and contributing to the government by way of taxes.

This is a clear failure of an industrial scenario. We need to create an environment that is more industry friendly. The government must ensure a secure environment for industrialists to start businesses.
I would like my young readers to ponder this carefully and make a good decision before thinking of starting “my own business” and think twice before you kick up your job. You should take careful steps before you attempt to begin a business as a lone individual, and not simply because you want to start “my own business”. However I don’t mean to discourage any of you, all I advice is to take careful steps and try to distribute the risk.

During my time, in the 80’s the present scenario did not exist. There were no NPA norms, banks were much more liberal and they would accept any collateral even agricultural property (they do not accept these as security anymore) and have plenty of time to repay over dues. Had the current NPA norms been in existence then, I doubt I would have been in business today and this is a fact!
I wish all my young entrepreneurial readers who aspire to be in business all the very best!
Watch your step.

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