The economics of Indian Corruption

I write this post because every entrepreneur should understand why corruption is rife in India.

The biggest issue I have with a chunk of the ‘Social Society’ is that they behave like quack doctors who spot the disease in a patient, give out the wrong diagnosis and hence recommend the wrong medicine.

Just like fanatical and idealistic Marxism or Laissez Faire Capitalism, this stuff just doesn’t work in the real world. It just makes it worse.

This post is dedicated to all those people who really feel that Corruption in India is just wrong, because they need to know that the answer isn’t just tougher laws and better morals. The answer lies in economics.

The one amazing thing about India is its 365 days a year political churn. Unlike many other countries, there is no season of elections. They happen all the time. National, State, Municipal, Panchayat, College, By-elections etc… You name it, we have an election for it.

Now these elections cost money. Ever wonder where comes all the money for canvassing, getting thousands of people transported by trucks for speeches, helicopters, convoys of cars, feeding supporters, banners, salaries for the hundreds and thousands of party workers? And there are hundreds of parties with thousands of candidates campaigning almost every day.

Answer No. 1. Donations

There are lots of laws like The Companies Act 1956 which prohibits no more than 5% (recently recommended to 7.5%) of average profits of the last 3 years. Or the fact that parties need not keep a list of names of people who donate less than Rs. 20,000.

The joke is that many companies consider political donations as CSR since many declare it as donations to affiliate organizations of political parties. I wonder if the recent push to get companies to pay up a part of their profits as CSR had something to do with political parties arm-twisting these companies to give them white-legal money for their kittys.

In most of the cases, there is a mutual understanding between parties to allow the corporate to convert their black money into party contributions. Such arrangement also gives a leeway to hawala, untraceable and undeclared money transfer.

Donations are also non-taxable if above Rs. 20,000. Despite all the laws, most records are fudged or non –existent.

Answer No. 2 – Corruption

The reason why the commonwealth games, just like defence purchases, are under scanner is because they represent the single biggest contributor of funds to a political party in power. After all, they need to fight elections in states and a general one in a few years.

Contracts for roads, highways, public infrastructure go to the same big boys, because they are more than willing to pay a part of the contract (our tax money) to the political party who granted them that contract.

Unfortunately, to maintain profitability, most of these guys cut back on quality. And over time, due to lack of competition, this becomes the norm.

Major foreign investments not just bring in tax money and jobs, they also bring black money in chunks as ‘donations’ to political parties.

However, when people are greasing party coffers, they too are left with a little grease on their hands. That’s where they make personal fortunes.

And the real trouble begins…

A rule of organizations – “Great change always happens from within and mostly from the top of an organization. Conversely that’s where the rot steeps in”

Local politicians make money the way the Romans, Greeks and the Ottomans did. By selling offices. That’s why one hears of stories of cops being asked to cough up 30 lakhs for a favourable position, or of small time clerks paying up lakhs for their 10,000 a month salary.

This is where economics comes into play.

Since these officials have already paid up, they need to make back their investment somehow, so in collusion with higher ups, they involve themselves in the petty bribes that make it all worth their investment. Not to mention the fact that they must collect enough booty to get their sons into the system as well (in some cases).

Imagine entire government departments/arms collecting bribes just to be able to pay for our glorious and proud tradition of election and democracy.

And since there is no moral authority with politicians, judges or officials at various levels (especially the top), this just keeps going on and on.

So when you, as an entrepreneur, decide to set up your restaurant, and someone asks you to pay 20-50 lakhs for your bar license, rest assured that the money is going, atleast in part, to the political process.

My Point

If you want to solve the menace of corruption, then one has to understand and break the economic model. Only then will well meaning, moral, law abiding politicians, officials and judges (there are many) be able to enforce the multitude of laws, we already have against corruption.

If you still don’t believe me, then believe this. The max expenditure allowed per Lok Sabha Candidate per election is 25 Lakhs. The Cost of 3 Tata Sumos.

Saying ‘Bye Bye’ to Customers!

Ever since the first day I stepped into the marketing class of an exceptionally caustic professor, I was told that ‘A Customer is God’. In fact Peter Drucker, The Grand Father of Modern Marketing explicitly states that “The Purpose of a business is to create a customer”. Now that is all good and nice. In fact it’s one of those ideal, lofty ambitions which get lapped up by newbie B-School babas.

To be fair, it makes intrinsic sense to not only increase the number of customers but also revenue per customer, to increase overall revenue and profitability. Once we get to Customer Lifetime Value (CLV) we find it to be just one of those obvious universal truths. If you want to make more money and more profits, sell more to existing customers and create new ones. Basically aim for a bigger piece in the pie of market share. Or better yet, increase the pie.

But just like all ‘Universal Truths’ this one is simple… and yet complicated.

Customers aren’t only those who pick up soaps and toothpaste at the store. They are also those who subscribe to services, become clients and (in a way) are those serviced by social businesses or NGOs.

So our relationship with customers isn’t just based at the moment of transaction. It’s a much longer (and complicated) relationship since products and services have longer lasting benefits and effects than just the moment of transaction.

Sooner or later, your customers will demand more. Which is good since that’s the fuel for great innovation. Unfortunately all customers don’t want the same thing. They all want new features, services, add-ons, discounts etc but since our individual needs are different; our wants from our products/services are different too.

By the classical definition of Peter Drucker, a business should then go ahead and fulfil these demands to get new customers. Sounds a little difficult, if not absurd. Your costs of production, servicing, marketing etc will go through the roof. But the biggest hit will be on the image of your brand and your company. Because now no one knows what you stand for.

You are now Brand Confused. Diluted. Spread Thin. On your way down.

So what can startups do now?

1. Remember the 80/20 rule. 20% of customers lead to 80% of profits and revenues. My advice is to get rid of the last 20%. They are pulling you down.

2.  Take a Stand. Understand the future. Make products/service based on a good understanding of what people want and what they may want. Take a stand and refuse to go in any other direction, unless heavy evidence suggests otherwise.

3. Listen but don’t lose sleep. It takes a certain kind of entrepreneur to listen to criticism and take judgement on what to do and what not to. Sometimes it’s easy to get overwhelmed by a hundred people telling you that they want a hundred different things. But it’s important to take a call on what you feel is right. Just remember, a carriage runs well only when all horses are pointed in the same direction.

4. Your top 10 list. Conventional wisdom states that one should make the top 10 customers by revenue as the top 10 most important people in the world for a company. I think while one should treat them well, it’s essential to talk to those 10 customers (potential or real) who are creating businesses for the future rather than just now. Your chances of creating a better product/service based on your goals increase drastically when you listen to them.

5. Analyze. Create systems and processes that let you analyze the true cost of doing business with your customers. You could be spending great resources on your customers without making much money. Hell, in most cases you could be losing money. Constantly analyze and try to revive unprofitable relationships. But if they are on the way down. Abort.

6. Don’t hesitate to say Bye. There is a certain hesitation in letting go of a source of income. These customers are usually the ones who give you a migraine and don’t pay you so much for it. What this does is that it takes the 2 most important resources of your company and makes them inefficient. Focus and Time. If there is more you can do with these finite non-scalable resources then one must learn to lose such customers.

7. Be Nice. Now that you are ready to make more revenues, profits, products etc after getting rid of dead weight customers, please note. Be nice to them even after they are no longer your customers. Not because you want to stay in their good books, your reputation might get sullied and that shifting executives may lead to major accounts not coming your way. This is all desirable. You do this because they deserve it and you should genuinely be nice to people who have ever done business with you.

10 Dumb Powerpoint Mistakes

Another Quick list of 10 dumb powerpoint mistakes

1. Font Size “I-Cant-See-Jack”. Major Issues with a number of presentations. Your audience isn’t there to read a paper on a big screen. You font needs to be nice and clear. So do me, yourself and your poor audience a favor. Make the font size for text a minimum of 26. Make it 34 for Headlines and 40+ for Slide Titles.

2. Opps I forgetting  to chek Splelings and grammer. Major Killer of any presentation. The intelligent ones in the audience or your bosses will never feel the impact of the point you are trying to make, if you cant get the spellings and grammar right. Personally, it pisses me off and tells me that you don’t respect me or the audience enough to get this simple basic thing right.

3. Action film on the Slide. Dear newbie powerpoint empowered person. Please note that the point of making a presentation is not to depict the Star Wars trilogy using animated arrows. Every animation that you put in must serve a purpose and should be subordinated to the real point you are trying to make in a slide. Any animation done just because it looks ‘snazzy’ or ‘cool’ or ‘awesome’ is worth Kingfisher Airlines right now.

4. My Grandma Cant understand. “You do not really understand something unless you can explain it to your grandmother” – Albert Einstein. And if you cant explain your point or the concept to the audience then most wither feel dumb, switch off or worse, think you don’t know what you are talking about. Most presenter who give bad presentations, usually don’t know what they are talking about.

5. Rainbow Overload. Yes, we know there are lots of colors in the world. No, we don’t want them all to be on the same slide or presentations. Classic disasters of using blood red or light yellow fonts on white background, Multi-color pointers just because they are different points and using splashes of color because it looks pretty. Aww. So cute. But its wrong! Create a color template based on what you want to present and stick to those 2-4 colors throughout.

6. Disco Dancing Slides. When you don’t use master slides, you slides, logos, animations do the disco once slides change. Very very unprofessional.

7. Hindi Movies of the 90s. No story. Every good presentation needs to have a story. Or they will bomb just like the hindi movies of the 90s. To capture the attention of your audience please just create a storyline. And stick to it.

8. The rendition of War and Peace on powerpoint. Lots of words. Loads of them. Just because you are scared you might miss something. The audience is not there to read your presentation. They want to hear you out. Please impress them with what you have to say and how you say it, rather than just offering them a wall full of text.

9. First-pic-from-google-syndrome. You want to make a point. You want to be classy. Good enough. So you do a google search and put in the first picture that comes your way. Fail! Major Fail!. Why? 1. Because tons of other people would have put the same picture somewhere. Believe it or not, other people know how to use google too. 2. Most people just put in low resolution pics that look like grainy mug-shots when projected. 3. Most pictures are not relevant to the topic. Unfortunate.

10. You. You don’t know your topic, your script, your material, your audience, your slides. Your tone makes people go to sleep and your jokes makes them want to wriggle with pain. You have little empathy for the audience. You are usually the problem, not the slides.