Sudhir Ahluwalia's Blog, page 14
August 18, 2022
What are the disadvantages of too much innovation?
Successful innovation requires to be implemented. Innovation implementation requires a change in a business process. In some cases, it may require acquiring new skills. In short, innovation disrupts the status quo. The business has to learn to adapt to the innovation. Learning and adaptation involve time to test, scale up, and for the company to profit from the change.
Let us take the example of Tesla, one of the leading innovative companies in the world. The electric vehicle from the company took years to develop, test, and finally go into production. Customers lined up much before the vehicle’s launch. The first few Tesla’s had huge development challenges. These had to be resolved first. Only when that has been achieved can full-scale car production be undertaken.
Imagine a scenario where the design innovation team started producing new, improved versions of Tesla every month. The production line will never stabilize. Customers will be confused, support backups will not be ready, and the supply chain will be disrupted. There will be general chaos, and the business will crash.
Successful businesses like Apple, Tesla, SpaceX, Amazon, etc., use innovation in design as a strategy. These companies space the release of new models to keep customers’ interest alive.
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August 17, 2022
What are some warning signs that a business might be sold soon?
A drop in customers, rise in customer complaints, high staff exits, inability to attract talent, rising debt levels, delays in payment of wages, and steady rise in the cost of capital are some signs of trouble for a business. When these persist, you know that the company is struggling. Cash flow starts becoming an issue with such companies. These problems are often not visible on the balance sheet and may continue to appear healthy. However, if you begin analyzing the numbers closely, you will be able to detect signs of trouble early on.
A Founder once approached me to help turn around his venture. It was an IT services company that was largely into staff augmentation. The company was regularly reporting profits, its revenues were growing yearly, and the staff strength was rising, but its founder knew they were getting into trouble. He was facing challenges on the receivables front. He was facing cash flow challenges and was forced to take on short-term working capital with higher interest rates.
When I looked at the project level data, I noticed that the unit level margins were below the debt servicing level leading to cash flow problems. From the outside, the company everything seemed to be looking good.
Corporate distress reasons will vary from company to company. Sometimes I have observed that the problem begins with management or senior staff disagreements.
In other cases, companies grow rapidly, and their supporting processes and structures cannot handle the growth. It leads to deterioration in product quality, rise in customer complaints, and diminution of customer base.
Such companies are candidates for sale. But will these find a buyer is a different question?
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August 16, 2022
Is environmental market positioning help my company achieve its business goals?
A company flourishes when it successfully builds a competitive advantage for the goods and services it is taking to the market. Competitive advantage is secured when the business’s products are fully aligned to the customer’s needs. Customers are more willing to pay for such products a higher price for their products when compared to their competitors.
Many people think they will successfully beat their competitors purely through operational efficiency. It is obtained by aligning the business strategy, business model, marketing strategy, and marketing to customer needs and preferences. When customers demand their companies to be environmentally friendly, successful companies strive to fulfill that requirement. Customers will notice that the corporation is truly environmentally friendly in such cases.
Therefore, the onus to be environmentally friendly lies not just on the company but also on the customer. During my business advisory work, I regularly notice strategic confusion in the mind of entrepreneurs who believe that building a great marketing plan or presenting an environmental front face will help them achieve their business goals. Such entrepreneurs rarely lead their companies to a sustained competitive advantage. These companies spend their resources but do not achieve the desired results.
You will be truly environmentally friendly when your customers demand that of you.
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August 15, 2022
Are fennel seeds good for ulcers?
Fennel seed is sweet and is eaten as a mouth freshener. It is a popular after-meal digestive in India. The Chinese use the leaves and stems in their cooking, with the seeds added as a spice.
In Chinese medicine, fennel is believed to strengthen eyesight, relieve cough, assist digestion, and treat stomach ailments, menstrual, and respiratory disorders. A poultice made from fennel was externally applied as a remedy for snake and scorpion bites. The Chinese believe that fennel brings balance to qi. Fennel was used in traditional Chinese medicine as a laxative to treat colds and liver, kidney, and spleen ailments.
In Ayurveda, fennel is considered good for digestive disorders and a general tonic. Fennel water has properties like anise and dill. Gripe water is prepared by mixing sodium bicarbonate and sugar syrup. It provides relief from flatulence in infants. Both the seeds and leaves are used as medicine. Fennel is said to stimulate appetite.
Fennel’s medicinal properties have been consolidated to include antioxidative, cytotoxic, anti-inflammatory, anti-microbial, bronchodilatory, estrogenic, diuretic, lithotriptic, galactagogue, emmenagogue, anti-thrombotic, hypotensive, gastroprotective, hepatoprotective, memory enhancing, and anti-mutagenic properties (Rahimi et al., 2013).
Based on this review, I would agree that fennel seeds should have a beneficial role in ulcers.
Additional reading:
Holy Herbs: Modern Connections to Ancient Plants
Asian Herbs and their health-giving properties
Natural Solutions for cancer, diabetes, and obesity (a tri-series)
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August 14, 2022
Why is scalability and organic growth in a startup critical to an investor?
An investor is in the business of making money from the funds he invests in a venture. Most investors place their money in a venture for five years or longer. Investment is a risky business. It is not uncommon for investors, especially angel investors, who invest their money in early-stage startups to see that the projected returns are unrealized. Business risk is an element that the investor factors in his financial model.
Statistically, only ten percent of startups succeed. With such high business risk, it is natural for investors to look to invest in projects that have the potential to scale up organically rapidly. Only when that happens will the investor earn enough to cover his risk. Let me explain this with the help of a small financial model further.
Suppose you are a startup. You are confident that your venture will give you an annual post-tax return of 30 percent. The investor’s share in your business is 30 percent, i.e., he owns 30 percent of your company. Given these parameters, the business makes sense to the investor and the startup only when it grows 15 times in five years.
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August 11, 2022
How long does a company like GE survive?
Du Pont and Colgate are some of the oldest companies in the US. In India, the Tata group of companies are of the same vintage. Then we have countless examples of really great brands just disappearing. The most quoted of them are Kodak and now GE.
No times are the same. It is especially so after the industrial revolution. Now in the internet world, change is happening at a pace faster than ever before. Consumer preferences are getting impacted by technologies. Products are rapidly becoming obsolete, and in their place, new products are continuously being invented and launched.
During my stint in the private sector, I noticed that my erstwhile company, Tata Consultancy Services, would undergo a major makeover every three or four years. Organization structures and business processes would undergo a massive change. The company was constantly looking for ways to maintain and improve its competitive advantage in the market. The status quo was disturbed now and then.
The leadership was encouraged to transform and adapt. The only other option was to exit quietly.
Business strategies of corporations require to be reviewed every few years. These have to be re-aligned with the change in customer preference. It is not just technology that changes. It is the spillover impact on the way things are done that alters. A change in strategy results in a shift in business processes and organizational structures. People retrain and retool themselves to the new reality, or they exit. Companies that can adapt to continuously changing customer preferences survive and last. They die and disappear when they are unable to do so.
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August 10, 2022
How is it possible to make a profit after selling at a loss?
Selling products at a loss to gain market share is a strategy we see happening daily but rarely notice. It is a business strategy that both large corporations and startups adopt. It is a strategy that companies adopt when introducing a new product or looking to reduce competition. In some cases, it is a predatory tactic. Samver in Germany used the tactic to bring a new Airbnb in Germany down to its knees but failed in the face of resolve and counter strategy adopted by the young Airbnb founders.
I regard this as a predatory tactic that regulation should seek to bring under control. Although, there are laws in most major jurisdictions that penalize companies for uncompetitive and monopolistic practices. The challenge in most cases is that it is difficult to prove that a product or service is being sold at a loss.
Smart companies use this tactic sparingly to weed out the competition or prevent a competitor gain market share. Once the objective is achieved, companies go back to normal pricing. Often such practices are labeled sales promotion. You would have noticed that new products are usually offered at attractive prices. Such sales promotion losses are documented in the company’s books as expenses for promotion. Regulators accept the practice.
Once the business objective of either successfully introducing a new product or an attempt to enhance the sales of a struggling product or service achieves its aim, the company returns to normal pricing.
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August 9, 2022
What is the best way to pitch your small business?
Pitching is a step-by-step process.
Many startups believe hiring a content writer to create a beautiful presentation highlighting a venture’s strong points and financial viability will do the trick. I see startups putting out job posts for pitch decks and financial models on UPWORK and other platforms. Many of these are in a great hurry. They want the content writers to send a presentation in a few days. The budgets that they offer are small. No wonder most startups are unable to get the interest of investors.
It is not great presentations and financial models that present a picture of exponential growth and high profits that will interest a hard-nosed investor who wants to invest in ventures that will give him outsized returns. I see so many such fancy presentations on funding platforms. These sit there evoking no interest. Startup founders blame that on bad luck. It is anything but that.
Create the pitch yourself if you do not have the funds to hire a competent business consultant. You will do a better job at it than a young content writer who is skilled in creating pretty present presentations. A pitch should present a comprehensive analysis of your sector, competition, and business model, a study showing that your solutions are designed to give you a competitive edge. Ask for a business case, not a business plan. These are two different things.
Investors are seeing dozens of pitches a day. Your pitch would bare get a few seconds. Follow a 3:30:3 model. The first three seconds are spent on the headline. The next thirty seconds will look at the main arguments. The investors decide to go and explore a project further in these opening seconds. Therefore, the opening case must contain information that forces the investor to look further.
Another strategy that I have found to be quite effective is to create a three-slide teaser. It focuses on the core idea of your project. Send the presentation teaser to all the investors in your segment. If you persist, you will get a response.
Now is the time to have your business case ready. Use that to discuss the details with the investor.
All the best!
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August 8, 2022
What business models will survive the impending recession?
Business models help a business execute a strategy. Strategy is the foundation on which a business model sits. No amount of window dressing to the front end can help a business survive a recession.
Therefore, a business must look at its strategy and make changes that will enable it to maintain a competitive advantage even in difficult times.
Let us explore this concept further. In a recession, discretionary spend is reduced to the minimum. Businesses in the discretionary spend segment like hotels and hospitality, restaurants, electronic goods, and automobiles are likely to get impacted most in deep recessionary times.
I do not, though, envisage that the impending recession in the US and Europe will be deep. It will be a shallow and short recession. Excess liquidity in these economies is being drained out by Central Banks steadily, and interest rates are being raised rapidly. These measures will tamp down inflation and force the economies into a recession.
Geopolitical changes are leading to the disruption of settled supply chains, and new supply chains are simultaneously getting created. The twin facts of excess liquidity and supply chain disruptions will force North America, Europe, and parts of Asia into a shallow recession.
Businesses must prepare themselves for this impending steady drop in demand for discretionary goods and services. You do that by a series of measures. Workforce levels will be brought down. Big corporations like Google, Microsoft, and others have publicly stated their intent to pare down staff. I also suspect that a cut in research expenditure will also take place. Cost cutting, paring down debt, and reduction in M&A activity are other measures that are likely to gain prominence.
In summary, strategic shifts will help businesses prepare for a recession.
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August 7, 2022
Why are companies interested in ESG?
Companies are interested in ESG because they regard doing it as good for their business. Let me elaborate on this.
People who are also customers are beginning to understand that climate change is triggering extreme weather events. That is affecting the lives of common people. The heat waves, the extended flooding of coastal areas, excess rain, and droughts are all scientifically validated to global warming. It is triggering the demand to move to use energy sources that do not emit GHGs (greenhouse gases). The entire energy-producing and consuming business segments are getting affected by this. As everything requires energy, its transition to greener sources impacts the global economy.
Improved communication is driving the exchange of knowledge. Societies are beginning to understand that social justice like gender justice, ending racial discrimination, and equity is values we should all strive to achieve. It is another trigger driving businesses and brands to adopt business practices that support these values.
Internal governance of business, to my mind, is another imperative that supports business performance. If you were to scan the business landscape, you would notice that companies with quality governance have adopted high human resource management standards, have a humane approach towards society, are customer-centric, and tend to perform better. These are sustainable businesses.
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Climate change and business opportunities
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