Raj Shankar's Blog, page 36

Finance for Entrepreneurs: Difference between Finance and Accounting

One of the big reasons why most entrepreneurs don’t learn finance is because they mistake finance for accounting. In fact most non-finance professionals (as they like to call themselves) use the words interchangeably; just as numerous other pairs of words are used interchangeably: invention and innovation; market and industry and so on…

Accounting and Finance are different terms with their own individual meanings. For a beginner it is good to understand ‘accounting’ as the language of finance. An analogy can be ‘Sanskrit’ is the language of the Vedas (repository of ancient Indian Knowledge). If one wants to master the Vedas, one needs to know ‘Sanskrit’ – but how much and why, makes a whale of a difference.

For example a person who wants to be able to understand the meaning of the ‘Bhagavad Gita’ (The philosophical masterpiece found in the Mahabarata) and apply it to daily life, one need not learn how to write Sanskrit and learn the tough grammar rules that come along with it. All one needs to do is read a translation of the text (word to word), read up the commentary, and take help / clarifications from a scholar when it gets tough. In a similar manner when an entrepreneur starts looking up finance, it is good to learn the lexicon of the finance world by understanding the various terms used in the statements that you use regularly. It is good to understand what the important statements are and how they are used.

Finance, is similar to learning the ‘Bhagavad Gita’. The knowledge and philosophy of the ‘Bhagavad Gita’ can help in daily life and in better decision making. But for this one need not learn Sanskrit, deconstruct the terse grammar constructions, translate, interpret and then learn. Scholars of Vedanta do that for us. We use them to gain access to the meaning in the scriptures and apply the understanding in our lives. Accountants do that equivalent work for us in the field of finance. They do the work of constructing and deciphering the financial constructs for us. Entrepreneurs need to understand the meaning and import of the constructs in finance. Interpreting and applying the meaning in decision making is what is important for entrepreneurs to learn.

An example is – what is an income statement? What does it contain? How is it structured? What can I look up in that? For what information should I look up this statement? What are the terms that usually come up in that? What do they mean? Learning this helps in making sense of the performance of an organization. This will help an entrepreneur in fine-tuning the enterprise for better performance. NOTE: We will learn about it in the future lessons. If you don’t understand how, don’t worry!

So, accounting is the language (including lexicon and grammar) of the world of numbers in business. It provides some standardization when trying to understand a company. It also helps in taking some quantitative help in making decisions. Finance is the aspect of reading, interpreting and applying the meaning of the accounting statements in business. If an entrepreneur learns how to read what the accountants write, it should make them run healthier enterprises.

Business exists to create a customer; a customer exists because an enterprise creates and disburses value to them; and this whole equation sustains itself only if there is a surplus in this relationship. What better way to measure it than numbers? Then, how can we avoid accounting and finance in business.

Hope the following are achieved:

Understanding the difference between the two terms ‘accounting’ and ‘finance’; and
Remove the fear that we will have to learn a lot of accounting to make sense of finance

“If Only” – This one thing?

I travel to all corners of the country and irrespective of the location I hear the youth lament. Be it a metro or a small Tier-3 town, people widely use the phrase “If only” – and I am now beginning to think that they may not even be understanding why they are using it!

Every aspiring entrepreneur I meet and in fact every small business owner I meet uses the same phrase too “If only” – do they know what they are speaking? Are they thinking and then saying what they are saying? Not sure!

Over the last few instances that I heard people use it, especially the early stage entrepreneur community that I interact with almost on a daily basis – I decided to dig deeper to understand where this phrase is coming from and what are its effects. The results of my discussions were entertaining and mind blowing, not just for me but also for the entrepreneurs themselves. As we discussed why the entrepreneur was saying “If only” and we quickly realized that it seemed like a valid reason, a good rationale for why someone else was able to scale a business and why the entrepreneur in discussion could not. Being smart young minds, many of their reasons were valid and quite tough to prove otherwise.

So I led the discussion to why this “If only” reason was stopping them from actually growing? This line of discussion led to some fascinating discoveries. We found that entrepreneurs in their desperation had focused on the reasons stopping them (the ‘if only’ list), when in fact they should have been exploring potential solutions or alternatives. In most cases the entrepreneur started realizing that while the “if only’ option was valid and impenetrable, alternate solutions were not thought about. Now this seems too simple to be true – but the truth of the story is, it is! Once I broke the impasse in thinking along the route of the first possible solution being impenetrable, numerous alternate routes started showing up. Some of these again got on to the “if only” list, which required too many external changes to make change happen; there were quite a number of solutions where the entrepreneur could move ahead and make growth happen.

While I do agree that many of us feel that “if only” we had what someone else had, we would have also scaled; the truth is, most of them were in our situations and did not care to get stuck with the “if only” syndrome. It is because they moved beyond the “if only” that we see them and say “if only”!

The next time you find yourself saying “if only”, think about it differently!

Vedantic Wednesday: Why we need philosophy?

There are times in life when big questions get raised in our heads. All the knowledge of the world does not seem to help with answers. We feel confused, anxious, agitated and worried about how to handle the situation and how the future will unfold? Under these circumstances one eventually lands up in philosophy. ‘Philosophy’ – the subject that asks and answers the really big questions in life! I once came across a book titled ‘Why business men (women included) need philosophy?” and it’s not surprising that it did not do very well. Why will it? The way we land up in achievement or celebration is not how we land up in philosophy. While the former is always done in groups, the latter is always alone. When you sit back and ask questions like: “Why me?” or “Why are some people more privileged than me?” – Inevitably the worldly knowledge cannot give satisfying answers. An answer that satisfies one person may not satisfy you. Hence, everyman will have to ask the questions to himself and then seek answers.

So should everyone learn ‘Vedanta’? Is ‘Vedanta’ the only solution to all big questions in life? No, not at all! There are many systems of philosophy and one should expose themselves to some or all of them before choosing the school of philosophy to pursue.

Which one should i choose?

Choose the one that fits your personality.
Choose the one that you relate to.
Choose the one that you have access to.
Choose the one that can address your big questions satisfactorily.
More importantly – Choose one and stick to it.

At least in philosophy, variety can create more confusions than solutions. Try to avoid it, however tempting. Because ‘philosophy’ should not become entertainment! It can create more ruckus than not having known philosophy at all.

Think about it!

Global Ranking of Indian Universities 2013 – Where are we headed?

Over the past few weeks there were a few news items in the papers regarding the world ranking of Universities. The bigger question in the newspapers was around the low rankings that a few Indian universities managed to get! Universities across the world are ranked by various agencies across a variety of parameters. It is rather surprising that across two popular rankings no Indian University ranks in the ‘Top 200’. Here are two links showing us recent ranking efforts and in both the listings the earliest occurrence of an Indian University (not surprising – The IITs) comes only around 225. Here are the links to the recent rankings:

http://www.topuniversities.com/university-rankings/world-university-rankings/2013

http://www.timeshighereducation.co.uk/world-university-rankings/2012-13/world-ranking

How are Universities in Taiwan, Korea and China able to come into the ‘Top 200’? What makes these Universities rank higher than us? It is also not surprising that some of these countries are competing in the international market with differentiated products and technologies. Are the research and development efforts of the Universities in the above quoted countries of higher quality or more market relevant than ours?

Being the person who I am, I wanted to give the benefit of doubt to our Universities and hence went on to check if the parameters chosen for the research were biased towards the other nations but to my dismay it was not so. Here are some of the parameters and how we scored on them:

In the QS World Ranking Survey here are the scores across parameters for India’s top ranking University (IIT Delhi) – http://www.topuniversities.com/node/2583/ranking-details/world-university-rankings/2013

In the Times Higher Education World University Rankings here are the scores of India’s top ranking University (IIT Kharagpur) – http://www.timeshighereducation.co.uk/world-university-rankings/2012-13/world-ranking/institution/indian-institute-of-technology-kharagpur

The above two are the highest ranked Indian University’s in the respective listings’ and present are their scores across various parameters. Across both the score sheets one thing that hit me hard was that our Universities were doing well in industry income and placements. Both of which result in better pay packages to students and faculty!! Is it surprising that all other Universities below them (rest of them in India) are trying to do the same – focus on making more money?

I am big fan of teaching as a profession and hence will always prefer that faculty are paid and taken care of well, but if primary focus is on enhancing the pay packages of students and in turn the pay packages of faculty; it may be not be a very good long term strategy in a country where ‘Knowledge is considered sacred to be even traded’. Where is knowledge creation headed then?

While I am not trying to pass judgements on anyone or any system in particular, I think as a country we need to ensure that the education sector finds its core purpose and devise policies that put Saraswati ahead of Lakshmi in their policy. Should centers of learning not have their priorities in this order? Just as business places Lakshmi before Saraswati!

Let’s all, who care about the future, think patiently and thoroughly on education!

Who thinks you’re different?

Is that an important question to answer? Absolutely! Most entrepreneurs think they are different, their products are different, their solutions are different, their services are different and everything about their business is different. In fact, if you listen to them you will wonder how they even think so. Quite obviously many of them will seem extremely similar to what’s available or just a slightly modified version of the existing option. This leads us to the question – “Who thinks you are different?”

Does the potential customer think so?

If the customer doesn’t think you are different or unique or original – then it doesn’t really matter what the entrepreneur thinks! It is essential that the entrepreneur understands this and seeks out the potential client audience every time he / she thinks they have something unique, to validate the uniqueness. If the potential audience you speak to does not seem to express this opinion, then it doesn’t matter what, the entrepreneur needs to go back to the drawing board.

Re-think the product! Re-think the service! Re-think the value! Re-think the solution! Re-think the communication! Re-think the delivery! Re-think the relationship! Re-think the price!

Fundamentally re-think! And again go back to the audience – ask them once more! Continue this approach till the potential client group whose problem / challenge you are trying to address tell you that you or your offering is different. Once you make this happen, you have the great opportunity to be a successful enterprise.

“Who thinks you’re different?” It matters – and it’s a significant aspect of business that needs repeated validation.

Think about it!

Interesting Links This Week: 13-October-2013

A quieter week led me to spend a little more time reading online and catching up with my books offline. Here are some interesting links that i thought all of you would also find interesting among the many I read this week.

Entrepreneurs are always a mystery to understand; serial entrepreneurs even more! So, when some research talks about what may be going on in their heads and hearts, it is worth listening carefully. Management School Associate Professor Wayne Stewart of Clemson University.

Link: http://www.fastcompany.com/3019350/dialed/the-science-and-psychology-behind-what-drives-serial-entrepreneurs

Did you know that Sir Salman Rushdie worked as a copywriter under the legendary marketing and advertising thought leader David Ogilvy before turning into a full time writer? Looks like some learning from the master writer held create one of the leading writers of the current times – Check out some of the learning that helped Sir Salman Rushdie – some could help you as well.

Link: http://www.copyblogger.com/copywriting-ogilvy-rushdie/

Making connection is an inevitable activity and a continuous one too. Entrepreneurs don’t have much choice but to constantly build and sustain their interconnectedness. Not every tip on networking works for everyone, so keep listening to as many tips as you can receive; pick and choose what works for you. Here are 7 more…

Link: http://www.inc.com/marla-tabaka/7-tips-for-making-powerful-new-connections.html?cid=em01016week41e

Books and Me: The Dance of Shiva

Book Title:  The Dance of Shiva 

Author:  Ananda Coomaraswamy

I didn’t know what this book was really about when I bought it. I picked it up at the airport bookshop for multiple reasons. I like the way Rupa and Company had made the book.  I liked the title “The Dance of Shiva”.  I liked the fact that it belongs to a series called “Rupa Antiquities Series’. I was curious to know  what a person who lived till India’s independence thought about art, culture and his times.  But in reality,  I was extremely surprised and delighted by what I read, as I started my journey with the book.

The book is actually a collection of 14 essays, of which one essay bears the title of the book.  That particular essay tries to look at the meta physical meaning of the cosmic dance of reality. It no doubt is a brilliant exposition on the dance form.  Every one of the other thirteen essays looks at the Hindu view to art, duty, culture and society. The one aspect that runs through all these essays is the deep intellectual analysis into what art actually means and how it differs from modern day reproduction of art. While every essay is independent and can be read without the other, each goes to great depth bearing art, culture and philosophy as the basis.  There are references to trends being viewed in the early part of the 20th century, how India was losing her greatest asset, which is spiritual integrity and what could this degeneration actually mean for India’s future.

While I did enjoy all the essays, my favorite was the one titled “That beauty is a state”. The extent to which beauty as a subject can be thought of and how it differs from the view point of the creator, the enjoyer and the art itself was mind boggling. Throughout the book there are triggers to kick start the philosophical thinking of the meta-physical in life and there is enough to encourage the reader to consider art both as creator and enjoyer. There are numerous references to ancient texts which makes me wonder why the education system fails to capitalize the enormous and in-depth store house of wisdom created by our fore fathers.  More than learning about the dance form of Shiva, popularly called as Nataraja, I received fresh perspective to the way I will view art and beauty.  I received a very different approach of using art as a way to understand philosophy. In my journey of trying to be an artiste, this understanding will enable me to practice art more fully.

Though it is not an easy read, I would urge every person interested in art and life in general to read these essays closely.

Finance for Entrepreneurs: Importance of Finance for start-ups

Over the last few years of teaching entrepreneurship to faculty, students and practitioners, all of them have asked for more material on finance. With a plethora of books and web links providing more than adequate amount of information about finance, I always wondered why my entrepreneurial folks would always feel let down by these resources! The reason has become clear to me only recently – they don’t want to learn finance; they want to learn how to use finance in understanding, showcasing and running their businesses better. But considering that most of these people (serious entrepreneurs) are from the engineering, technology or creative domains, most if not all get anxious the moment the word ‘finance’ is brought on to the discussion.

Even during my consulting and mentoring fieldwork I have found entrepreneurs and small business owners not too comfortable to discuss finance and accounting. In fact most of the finance work in early stage and small businesses starts and stops with the accountant. Even the fact that finance and accounting are different is not obvious to them. Most of them consider finance as accounting and compliance and hence spend the time with their chartered accountant (individuals or firms) when the compliance deadlines arrive. Most of the statements are prepared and filed so as to ensure compliance issues are avoided.

What happens to the statements prepared by the accountants? Are statements prepared more often than the statutory mandated dates? If they are, what is done with them? Most entrepreneurs tell me they don’t do anything with these statements even if they are generated.

The other reference with respect to the term ‘finance’ commonly is (mis)understood to be raising money! Similarly there are number of misconceptions around finance and these have made the use of finance in entrepreneurship limited and underutilized! But surprisingly the entrepreneurs themselves seem too uninformed to utilize this tool well in their business especially for making important decisions on growth and sustenance.

I am starting this series titled “Finance for Entrepreneurs” to write a post every week on finance with a special focus on entrepreneurs and small business owners. All professionals who think they are non-finance executives can follow this series and make themselves aware of the subject in a slow but structured manner. If some are in a hurry, I hope they will find inspiration from the blog to go ahead and pick a few books or courses to hasten their learning.

Entrepreneurs need to understand ‘finance’ – that’s a paramount need. It will make them use more concrete inputs in business decision making.

Hope you will all join in and keep the conversation on learning finance going. If you are an entrepreneur then feel free to write to me on topics that you would like to learn about; and if you are a seasoned professional / consultant / mentor to start-ups, please leave your suggestions on topics that you feel need to be covered here as part of the series.

Look forward to lots of learning and discussions so as to create financially literate technology enabled creative entrepreneurs – India needs them!

What makes a good value proposition statement?

When a customer reads a value proposition statement, he / she needs to quickly understand what problem / challenge of theirs it addresses and why it is better than other options that they have. If these two are not present in the value proposition statement, it is no wonder that most customers don’t seem to relate to it.

If you are already in business and don’t find too many customers flocking to your business, go and read your value proposition statement and ask yourself – “Will you buy the product / service?”

Ask if the value proposition statement is answering the following two questions:

Does it clearly identify the problem it’s trying to solve?
Does it clearly tell why one should buy this and not other options?

If any of the above is not clear, re-write your value proposition statement till it does.

Then do the following test:

Show the value proposition statement to at least 25 potential customers
Ask them to read it without asking you for clarifications
Ask them to tell you what the product / service is
Ask them if they will buy the solution (at least consider it when they face the problem)

Make good value proposition statements. They are the basis for a lot of marketing and sales messages and collaterals. Your marketing efforts may not be working, not because of your marketing collaterals or marketing methods or marketing channels, etc, but because the inherent value proposition is not clearly articulated. It is one of the root-cause problems to be resolved in business.

Vedantic Wednesday: Miracle and Trust

Many people especially the ones who deeply believe in God or God-men profess having witnessed or experienced miracles. The intellectuals normally rubbish these as imaginations and tricks. Both schools of thought are right. While reasoning is what human beings should engage in because of the innate instrument given to them – all scientists (who are worth something in their fields) have declared that there are limits to what reasoning can detail. They sense something deeper but the proof always eludes them. They submit to this greater power that ensures them the intuitive insight and thereby they become extremely humble. They trust this greater force but in most cases they realize this very late in their lives. Vedanta says ask yourself deeper questions early.

What are miracles and to whom does it happen? It happens to people who trust! Be it trust in Gods, God Men, Science, or anything else; it is trust that enables one to see miracles! But how will one develop trust without having seen miracles in the first place. The intelligent mind wants proof before trusting. In this process of searching for proof without adequate development of the intellect or reasoning power, we become critical and doubtful about everything. In fact many times the ability to destroy belief through rational questioning is seen as intelligence. No wonder that in most cases it’s only a calamity or loss that makes one seek miracles.

Which should come first? Seeing a miracle or trust? It’s like the typical “which came first” challenge – there is no right answer. But the truth is, it is a cyclical process. Most people in arts seem to give in to the muse or the divine power or whatever they call it and in the process allow the greatest of works to happen through them. Scientists exploring the outside world take a long time to reach the stage that an Einstein or Bohm reached? Most don’t! So they don’t end up even asking the question.

Life must be a good mix of reasoning and miracles. To see miracles one needs trust – else we dismiss all miracles. On the contrary one must not accept every incident that can’t be explained as miracles – then the process of reasoning stops. So it is a mutually reinforcing process – one of trusting and one of seeing and experiencing miracles.

Think about it.