Raj Shankar's Blog, page 32

Finance for Entrepreneurs: When and Why are these statements prepared?

Usually in India we find entrepreneurs engaging an accountant to maintain the books of accounts either manually or using software. The most common software product used in India is ‘Tally’. While most software tools provide the option to generate a statement for any period as defined by the user, most often they are never used. Entrepreneurs depend on the chartered accountants at the end of the year to prepare them for the sake of regulatory and compliance requirements. There are number of entrepreneurs who don’t even look at them and understand them – all they do is sign it on the day prior to filing to the regulatory body.

Accountants have gone on to define a financial year (01st April to 31st March in India) as a period for regulatory purposes. In different countries the regulatory periods are different (Example: 01st January to 31st December in USA). Every registered company needs to prepare and submit a copy of its performance for the financial year. We will not get into the regulatory requirements of preparing and submitting these statements. They are mandatory requirements based on the laws of the land. One needs to adhere to it so as to protect the reputation that an enterprise has or intends to build.

Apart from regulatory requirements, entrepreneurs almost never prepare these statements. This is why the power of financial statements in business decision making is never seen. Early stage companies in particular and entrepreneurs in general must prepare these statements (Income statement, Balance sheet, and Cash flow statement) on a monthly basis. If you (the entrepreneur) are not the one maintaining the accounting software, then request your accountant to print a copy of the above statements for you every month.

Once an entrepreneur starts looking at the statements on a monthly basis, he or she is bound to get comfortable looking at them. One starts recognizing their structure, the terms used, the places where they tend to appear, and connections between the statements. These are the first step in becoming financially literate. During the early days of the business, the statements may not look too exciting from the view of a financial analyst. One must refrain from comparing the statement with those of large companies and attempt to draw parallels. These are dangerously wrong practices that can hurt the utility value of financial statements and the literacy that comes from learning to read them.

The act of regularly printing and looking at statements (at least monthly) is a discipline that entrepreneurs must develop. It is almost like a ritual. Doing this will increase confidence and help make connections across statements and time periods. Entrepreneurs will be able to locate trends and possibly extrapolate some of the financials into the future. This will help entrepreneurs estimate financial requirements early and be prepared for them by taking suitable actions.

Vedantic Wednesday: Feeling BIG by Making Others feel SMALL

The world seems to understand the concept of relativity. It is one of the finest fundamentals to recognize the magic of life and living. But a big part of this understanding which distinguishes our level of maturity depends on where we place our reference point. Where is your fixed point, with reference to which you are moving?

Most of the time when we engage in conversations we find everyone wants to speak! There are hardly any listeners. Even more startling is that all of this talking has nothing other than how one is better than most others. Almost without exception most of us will respond with a bigger act of achievement as soon as we hear one in a group. I have found most people can’t stand listening quietly without speaking about their achievements.

It is becoming extremely difficult for anyone today to let go of an opportunity to feel bigger than most others around, if not everyone else. We go to great lengths to make sure this happens. If we are not able to do this in absolute (which is the case in most average human beings in society), then we try to establish this feeling by putting others down. By putting down institutions and people around us we make ourselves look big. This need to feel good and bigger at any cost is the source of most agitations that we experience. The recognition of this fact and questions thereof initiates us into spiritual advancement. But sadly even in spirituality we find there is tremendous competition to prove who is more spiritual than the other! There doesn’t seem to be any end to this madness, at least in the way we understand relativity.

There is a substratum on which the movement is happening, but that cannot be in the world. Now that’s plain logic. The truth is that all changes happen on something that is unchanging, but it takes effort and courage to go beyond our comfort zones and delve deeper to find it out. If we do our life will be full of peace and happiness. But why are we not even making the attempt? It is because of this misguided thought that we can feel peace and happiness once we achieve and live up to our dreams. If we possess and experience, peace and happiness is a given. Bigger, Better, Richer seems to be the mantra and today happier is also getting added to that list. Some people even showcase this in a relative sense and this entices the ignorant.

Truth is fairly obvious. We ignore it just to align with the larger herd of society. The woman (men included), who doesn’t fall prey to this illusion, evolves. Is that not the reason why every prophet in some way was a revolutionary figure?

Don’t put down others in conversations, it is actually hurting us in the long term and making us agitated. Every time you hear even a small achievement, simply acknowledge and encourage. If you feel the urge to showcase your greater achievement, just remain silent. It is fine if the world does not hear it just now. The best part of this is the resulting peace within us.

Try it!

Entrepreneurs, packaging is important!

A Lindt chocolate is beautifully packed, not because the chocolate is bad!

An Apple product is made to look cool, not because it won’t work well!

A bottle of qua mineral water seems beautiful not because water is not good!

In a recent discussion with CEO’s of technology driven enterprises, the question of why packaging was so important came up – as it always does. Why should we spend time learning how to package – is it to cover the flaws of the product? I patiently listen to all the engineering minds give me reasons why they feel packaging is basically camouflaging and why good products should be discovered by the customers and not be attractively packaged just to be sold. So they detest learning how to make good designs, good packaging, good presentations, good communications, and all other aspects of the soft side of product / service development. Surprising that this thought exists today, even in an Appl’ed World!

The misconception arises from a misunderstanding of the problem. While many technically driven entrepreneurs are beginning to agree that making a first impression is important even in highly technical products, they still believe that technical prowess should provide the answer. While they still insist that customers will appreciate the technical ability of their innovations, what they don’t realize is that before customers experience the promise, they need to be cajoled to try. This requires some thinking about the way products / services are packaged and sold. When entrepreneurs sell their wares, they need to start thinking from the customer’s viewpoint. They need to impress upon the potential markets the need for the solution and how their solutions are probably ones that should be explored. Good packaging is not just in the literal sense! It comprises of well designed products, well made packages, attractive presentations, clear communication of value, great pricing, power-packed presentations, highly creative messages shared on the right channels.  All of this is packaging. Packaging is a very important factor in influencing perception. Think about it!

Entrepreneurs need to realize that people buy solutions to their problems – the more beautiful they are the better. If one can buy a well designed solution for a premium over an average one, everyone would love to have the better made one. This thinking extends even to industrial products as much as to consumer durables. As the world gets richer (even in the relative sense), it is bound to look for more than utilitarian benefits. To gain access to anything beyond utility, good packaging is the beginning. Hence as entrepreneurs, as business owners attempting to revolutionize consumer experience using unique and innovative products, it is important to keep an eye on aesthetics. If not anything else it is bound to entice consumers to try your products over that of competitors. This could make customers recognize and acknowledge the technical prowess of your product / service too.

Try it!

A Day Out with Young Indians of Coimbatore

Last week I was invited to lead a day long workshop with about 50 Young Indians (YI Group of CII). Young Indians are a sub group of Confederation of Indian Industry (CII). They have chapters around the country and I was happy to be invited to spend a day with such an inspired group at Coimbatore. The fact that it was Coimbatore made it even more exciting for me. Having grown up in Tamil Nadu and heard about the entrepreneurial activities of the Coimbatore-Tirupur belt and the success they have enjoyed over the last few decades, I always look to interactions from this place.

This time the topic was ‘Getting to Market’ and the entire audience comprised of entrepreneurs who seemed to be developing interesting and new businesses. Some were 2nd / 3rd generation entrepreneurs who wanted to fork out of the foundation that their parents / grandparents had already created. They had come to learn how to look at taking a start-up to market.

We discussed the importance of looking at the question of marketing differently. We looked for ways to reach markets. We acknowledged the limitations within which start-ups function and looked for ways to effectively find customers, reach markets, inform potential buyers and convince them to try the products / services. As in most of my earlier workshops I had people getting excited at the worksheets and asking a whole lot of questions. All our class discussions were based on the cases of entrepreneurs in class. It provided the much needed debates, critical analysis and divergent inputs, so as to look at problems differently. Overall the participants went back happy, having spent a day thinking about their marketing and also with a bunch of homework to be done. They also exposed themselves to the tool called SME Toolkit that IBM has created and is maintaining. The tool has a variety of resources to enable the small business ecosystem to sustain and grow. I will write about it in a separate post but for the time being, you may have a look at it here: www.smetoolkit.org

I learned from them a lot of new questions. They asked me how they should price, how they should seek fresh channels, how they can groom their sales and marketing staff, how they can make their messaging creative, how they can improve their packaging, how they can create experiences even in mundane products, and so on. I came away rich – with a repository of questions. Interestingly I also came away with many of them asking me to come back for a review when I visit Coimbatore in about 10 days. I now sit with these questions and with the hope that I will be able to go back and give them more useful pointers to finding answers. As I always let my entrepreneurs and mentees know, the answers are for them to find. My job is to refine their questions and also provide them different views to look at their challenges. After all they are entrepreneurs – isn’t it? They can go well beyond where we can take them. So let us not limit them in any way.

Young Indians in Coimbatore is an exciting group and an energized group. They are all young, interesting, energetic, inspired and motivated. They have ideas, a supportive ecosystem and fair amount of resources. But they need to be inspired to think about their businesses more. They need to be fed with fresh tools and frameworks to re-look at their business, the Indian way. I hope to keep going back and see if I can enable the growth of these young enterprises, which have potential and promise.

In my attempt to create indigenous frameworks for entrepreneurs and entrepreneurial firms, ‘Getting to Market’ frameworks and tools have been my first area. I have created and shared my finding and creation with close to 200 entrepreneurs so far and the results have been encouraging. A few have already seen direction for their enterprises, some have changed their target markets and many of them have already changed their go to market plans. I have received a few enterprises see results in less than 90 days and they are in the right direction. I will attempt to share these ideas a lot more of the entrepreneur ecosystem in India soon. Look forward to share some more results and developments as I work with such enterprising groups across India.

Thanks to NEN, IBM, YI and CII for making such a day possible. Thanks to all the attendees for making sure we had a lovely day together, professionally. I look forward to meet more of them and their growing enterprises soon.

Interesting Links This Week: 24-November-2013

Does passion create success? Or Does success stimulate passion? One proposed by Scott Adams, the creator of Dilbert and the other by Peter Drucker. Which do you agree with? Here are their individual views – Link: http://thedx.druckerinstitute.com/2013/10/dilbert-meets-drucker/

Who does not have the need to avoid communication these days? Even the most introvert amongst us needs to engage and entertain to spread their message. Everyone who wants to lead has to definitely learn to communicate and really well too. Here are 7 Tips which one can emulate and practice to enhance their communication effectiveness – Link: http://www.inc.com/kevin-daum/7-things-really-amazing-communicators-do.html

The world seems to be facing too many social problems. With the information revolution expanding firmly into the developing world we are getting to know about more challenges that we as a global society are facing or going to face. But who is going to solve these issues? Are we to wait for them to come in the form of non-profits or non-governmental organizations or wait for the government to tackle these? Here is an interesting TED Talk from Strategy Professor Michael Porter of Harvard Business School sharing thoughts on how businesses are well placed to take on this challenge directly.

Listen here – Link: http://www.ted.com/talks/michael_porter_why_business_can_be_good_at_solving_social_problems.html

Books and Me: Tribes

Book Title: Tribes – We Need You To Lead Us

Author: Seth Godin

This is a book whose subject is so common that it is so easily missed. Ironical as it may seem, every human being inherently seeks connection. It is very difficult for a normal human to stay alone and avoid human interaction. The difference lies only in the quantity and quality of connections. So what gets people connected?

From time immemorial till recently people have always attempted to group, be it for hunting or for launching a rocket to the Mars. In each of these cases we can notice that the word “crowd” is conspicuously missing. Seth Godin in this little book attempts to codify this inherent need amongst people.

Every tribe seems to be a group of people with a shared interest and a way to communicate. Every tribe has a leader whose only job is to enable people who share similar interests to join, connect and communicate. With huge reductions in communication costs and the internet destroying geographical boundaries, we are now seeing the possibility of forming tribes who have no limits. Today we have tribes around people, around causes, around common interests, around products, around companies, around artists, around brands, and every possible way in which we can belong. Belonging is such a longing for every human being (social animal). The book also shares characteristics of a good tribe, what makes a good tribal leader, and how to make tribes thrive. It is very clear the tribes do not form around commercialization or personal benefits of the leaders or sponsors.  Real tribes have a far greater shared interest, want to share their uniqueness, and are willing to let go of those who don’t belong. Tribes are becoming voluntary and they are getting easier to start, sustain and scale. Trust, honesty, transparency enable the creation of tribes and evangelists within them. Tribes grow by members bringing more members. The leader just strengthens the platform and amplifies the voices of the members.

Creation of tribes is an interesting activity especially for entrepreneurs.  Every start-up essentially should be a tribe. It must be in Seth Godin’s terms a purple cow (remarkable) which intends to make change happen and hence difficult to ignore. Tribes are also a great way for start-ups to find fans and evangelists for their radical ideas. The book contains the usual dose of challenging questions, interesting quotations, numerous cases and examples and a bunch of further readings. Thanks Seth Godin for triggering in me to think deeper around tribes in my domain of work (Entrepreneurship and Small Business).

Finance for Entrepreneurs: What is a Cash Flow Statement?

Over the last few weeks we have been trying to understand the three main financial statements at the high level. We covered Income Statement (http://rajshankar.wordpress.com/2013/11/01/finance-for-entrepreneurs-what-is-a-profit-loss-statement/ ) and Balance Sheet (http://rajshankar.wordpress.com/2013/11/08/finance-for-entrepreneurs-what-is-a-balance-sheet/ ) over the last two weeks, and now we shall turn our attention to the third of the statements – Cash Flow Statement.

In my opinion Cash Flow Statement is probably the most important for an entrepreneur to track almost on a daily basis. Why not? It is after all like checking if we are breathing and have access to enough oxygen to breathe in the near future as well! Cash is the oxygen for a business. Without cash a business, however viable, fails. The way to track cash professionally and in a structured manner for any business is using the Cash Flow Statement.

Similar to an Income Statement, the Cash Flow Statement is also read top down. There are typically three sections, namely: Cash Flow from Operations Activities, Cash Flow from Investing Activities, and Cash Flow from Financing Activities. Each section contains cash inflows, cash outflows, and net cash contribution (nil or positive or negative). This gives an idea from where the cash is actually coming into the system and is also finding its way out of the system. We will take a quick look at what each section contains.

Cash Flow from Operations Activities: This is probably the most important of the three sections. It talks about the cash flow with regards to operational activities of the enterprise. Since this includes the primary business (core) activities of a business, it shows the inherent strength of the business. An operationally positive cash flow indicates that the fundamental economics of the business is healthy and functioning well. It also indicates the amount of cash available to the company for investing and growth initiatives. An operationally negative cash flow need not make one immediately look at the company in pain, it could be because of many growth related decisions that the company may have taken in recent times.

Cash Flow from Investing Activities: These contain as the name suggests contains all cash related transactions because of either investment into assets or divestment of assets. Whenever there are changes during the period under consideration in the asset base, it will result in cash movements as well. Investment into assets (mainly for long term growth) results in cash outflow from the system. Divestment of any assets results in cash inflow. The net cash flow from investing activities speaks a lot about the decisions the company has taken during the period, with regards to its growth.

Cash Flow from Financing Activities: This section contains cash flows pertaining to any financial instruments and their implications. They are mainly debt / equity and the resultant charges that are paid on them (interest or dividend). Whenever a company raises money either through debt (loans) or equity it results in cash inflow and when interest or dividends are paid out, it results in cash outflows.

A study of the cash flow statement gives us an idea of the source from where the cash required to keep the system running comes from. If there is positive net cash flow from operations and it can cover the negative cash flow from investing and financing activities, then it is really indicative of a healthy business system. At times the company may need to raise money from financing activities to fund its investing activities, since operations may not have too much excess cash to fund internally – which is also not an uncommon situation amongst growth related firms. But if money is being sourced from financing activities to fund operational activities, it is a cause of concern and it needs to be handled at the earliest. Many possibilities exist and hence there are no standard rules to reading these statements – it depends on the business under consideration and also the various other non financial parameters.

While these are just initial thoughts on reading a Cash Flow Statement, we shall go into depth in our forthcoming lessons to analyze the statement in great detail.

Announcements: Tata First Dot powered by NEN 2014 Edition

Entrepreneurship is gaining momentum across the country. In fact with the economy not really in great shape, everyone is looking to entrepreneurship as a tool to catalyze socioeconomic development. In this context, this unique event ‘Tata First Dot powered by NEN’ deserves attention.

My work in the area of entrepreneurship both as a writer and teacher gives me a chance to travel the length and breadth of the country. While working closely with educational institutions, I am seeing a marked interest from all stakeholders towards entrepreneurship. Even traditional and conservative educational institutions are now exploring the avenues that entrepreneurship can open for their students. What initially started as an extracurricular activity amongst students has now resulted in students running enterprises on campus. And now we have an event, which provides all these student entrepreneurs and campus companies to compete for national level acknowledgement and exposure. The hope is that this will catalyze the creation of entrepreneurs with many (if not most) of these student entrepreneurs graduating, along with their enterprises. This will not only enable growth of small businesses, provide the basis for a few more high growth ventures as well as, create jobs.

We must appreciate the good work initiated by National Entrepreneurship Network (NEN) as ‘First Dot’ in 2010, which is now being run by the Tata Group. The event ‘Tata First Dot powered by NEN’ is a unique event as it provides student start-ups a chance to showcase their efforts. It is a big motivator for those who are treading the not so comfortable path.

I am happy to be involved in this event, right from the first year of its inception till date. I am happy to see the progress, reach, and impact that it is having on entrepreneurial students across the country. I am sharing this message regarding the 4th edition, to spread the message in my own small way. Please ask your student entrepreneurs to participate and spread their wings. For details look up the following web sites:

Tata First Dot – http://www.tatafirstdot.com

National Entrepreneurship Network – http://www.nenonline.org

Good Luck with your efforts!

Books and Me: Tiya – A Parrot’s Journey Home

Book Title: Tiya – A Parrot’s Journey Home

Author: Samarpan

‘Tiya’ is not just a story book. It is not just another novel. It is not a fable with prescriptive lessons at the end of every chapter. It is a very differently done book with a subtle message weaved beautifully inside a well structured fable. The story is about a parrot named ‘Tiya’. Her journey out into the world and how she finds her way back home.

Losing our way in the world is not a new thing – after all we all do it every day. The beauty is more in the way the author describes the experiences we face. I think the very first instance of the parrot listening to his inner voice and moving away from the banyan (his comfort zone) is in itself not a common happening in many of our lives. We rarely listen to the voice within, and even if we do we give in to the worldly necessities, peer pressures, attachments, and routines. This does not let us move out of our comfort zones at all. I stopped reading this book at this point and fell into deep reflection. How can we listen to the voice (a Swan’s in Tiya’s case) within and make that courageous step to let go and move ahead. If you are one who has faced this situation and has made that great decision, you will be happily surprised that you are an exception.

The various worlds that ‘Tiya’ passes through are simply fascinating. Every world is made up of imaginary creatures, who share a lot of the characteristics with various types of people we meet in the process of our journey. The world is actually made up of many worlds! Many times during the reading, I also felt that many of these worlds are what every one of us passes through.  Few of us fall in love with the sight, its beauty and stay stuck, only to realize that what we see is not the complete picture. A few of the worlds described by the author are nothing but the attitudinal types that we interact with every day. Some may even be the behaviors that resemble how we behave in different spheres of our life.

The beauty in describing the various types of worlds that a person will go through if they decide to start this journey is amazing. On deeper reflection, they also resemble worlds that we may encounter if we attempt a journey back to our source. If I get a chance to meet up with the author, then one thing I would ask him is if these worlds are inner worlds or outer worlds? Apart from the descriptions of the characters and the world’s they live in (actually they create), the beauty with which we fall prey to their illusory attractions is another amazing feature that makes the book interesting. Tiya and her various traps, some where she almost gets caught, but manages to escape to continue the journey is what makes the book interesting.

At every point of exasperation, there are two choices in front of ‘Tiya’ – one to get back to the Banyan tree (or the earlier worlds) from where she started or passed through or see the little ray of hope in venturing further. While the past always provides firmer views to hang on to, it is in keeping the curiosity of the search alive that makes one move ahead (Tiya in this case). Tiya’s plight during those moments of decision making brings out the challenges and the immense courage to wage that inner battle to move ahead. It is a tough journey to evolve in life. No wonder every philosopher cites courage as the basic requirement or spiritual evolution. Towards the end of the book, Tiya’s experiences get confusing as she begins to see highly developed but not evolved beings. The last stage before she finds her way back to the question that initially made her leave the place seems the hardest. But the beauty is that after all this struggle ‘Tiya’ returns to her good old banyan tree (looked on as eternal by the entire population of the tree). What made her take this arduous journey? What question or statement pushed her out of where she was so comfortable and seemingly happy? I will leave it to you (the reader) to find out. After all if there is no suspense in life, then what fun?

I came away feeling eternally grateful to the author for a strong and intense reminder of one of the most important questions that we refrain from asking ourselves in life. As I am myself in the early stages of my search, this book came as a soothing reminder of its importance as well as the pleasure of going through all the struggle and pain. Answering the most important question in life is why we are here?

It will make our life just like how ‘Tiya’ feels when she was back on the Banyan after all her travels.  This journey begins only when one doubts the life we are living to be unreal and the possibility that reality is something beyond what we see today. Even spiritual evolution starts with a doubt – isn’t it?

Before I close the review, let me also complement Harper Element to have made such a lovely sized, light weight, well printed and well bound book. It made carrying it and reading it so easy. Hope to read more in this imprint and also more from the author.

NOTE: 14th to 20th November is celebrated annually in India as the ‘National Book Week’. As part of the celebration I am posting ‘book reviews’ daily. Happy Reading!

Books and Me: The Unreasonable Fellows

Book Title: The Unreasonable Fellows – Journeys of ten entrepreneurs from around the world, whose unreasonable attitude is changing the lives of millions

Author: Myshkin Ingawale and Nikita Singh

I have read number of books which chronicles entrepreneurial stories. They are generally a source of great inspiration. I share them in my classes on entrepreneurship so that the next generation of students try their hands at it. This book is one such collection of ten stories, but the theme here is even more focused – socially minded entrepreneurial journeys.

I picked the book up since it referred to something known as the Unreasonable Institute and the people chosen by them, ‘Unreasonable Fellows’. One of the co-authors (Myshkin) is himself an unreasonable fellow. He has written this book to chronicle the stories of his peers who spent the fellowship time together at Boulder, Colarado. The other co-author (Nikita) is probably the one who catalyzed the project and made it come in a book form soon. Credits to both the authors for bringing us a good collection of inspiring journeys in the area of social entrepreneurship!

The book helps us in two ways – one it helps gain inspiration for making life entrepreneurial, and two, it helps us look at social challenges across the world very differently. There is a strong sense of passion that comes out of reading every story. The protagonist in every story has a unique story, they have unique backgrounds, they have unique upbringing, and unique routes they have taken so far. Their stories are not about just social start-ups. They are about themselves, their families, friends, and their formative years. The stories are filled with experiences that have shaped them in becoming unreasonable fellows.

There are stories from across continents, across demographics, across lifestyles, across cities and towns. There are people who have struggled for basic school education and there are those who have been educated in the best of universities. Irrespective of their backgrounds, their locations, early years, and education, all of them have taken courageous steps towards their inner calling; they have all braved social pressures; they have all taken risks; and the driving reason behind all of them has been a real social cause. Some causes were discovered by them through their own experience, some through the experiences of their families and friends; while some were discovered while studying, as part of immersion programs, and at times due to lack of meaning at regular high paying jobs.

How so many of them let go of promising lives in high paying corporate jobs to struggle for the sake of the causes they relate to most, still remains a mystery. When one completes the book, one will be very inspired to reflect on whether such a magical opportunity lies within every one of us? The surprising but simple answer is a big yes. We all have hidden passions that make the innermost core of us – but we don’t listen to that voice and take the bold step to live life for the sake of that reason. We give in to excuses from every quarter and eventually to our own as well. We get caught up more and more in the rigmarole of life and after a while, we almost live like machines. Books like these are meant to remind us that, there are ordinary people amongst us who lead extraordinary lives, albeit quietly.

Hope a lot of our aspiring entrepreneurs, especially the socially inclined ones, read books like these. They surely and convincingly show us that doing business can be done by doing good, and it does not require any great talent or lucky birth or great education. All it requires is only tremendous will and the courage to live our passion. Finding one’s true calling is something that education is not really teaching us these days, but in the coming weeks, I will review a few books that seek to find ways of helping us find our true nature.

In the mean time read books like these and find opportunities around areas close to your heart. Build businesses that not only create value for you, but also for your society at large. After all if there is no society, where is the need for business?