Built to Sell.. For India

I really love this book. If you haven’t read it by now, then you should soon enough (Click on the picture for the Flipkart page). John Warrillow narrates a simple story about a person (like you and me) who wishes to sell his business off and chill.

But he can’t.

Because like many first time entrepreneurs and a majority of Indian Businessmen, he creates a business that is fundamentally unsellable.

The book walks you through a relatable story of a good guy who wants to move on and expects to be rewarded for all the work he has done in building up his company.

Unlike what Steve Jobs and his ilk might say, I feel that selling out a business, which you have created, is a very valid exit route. Steve Jobs might have found ultimate happiness in creating highly priced touch screen toys for the hipster crowd but many others just want to retire on a beach and spend time with their families. After all we are all in it to make a profit.

In this post I choose not to ‘recreate’ stuff written by others since I don’t feel good about restating what has already been written (rather well at that). However I feel that a few rules apart from those given in Built To Sell are relevant for Indian Startups and businesses.

 

10 ‘Built to Sell’ rules for India

1. Black Money – Most startups or young businesses in India really depend on Black Money in one form or another. Informal markets around India, especially in the urban centres provides most entrepreneurs with the capital to start businesses at low or moderate interest rates. Sometimes this money is from a relative or a friend who wants a piece of the action. With cash still King, not only in the financial but also the physical sense, this is a fairly easy and painless form of capital. Our risk-averse banking system really isn’t made for first time entrepreneurs and that’s where the black money market helps support millions of small businessmen across India. The problem happens when your business can not graduate from Black Money based capital and transactions to white money based business operations. If dealers, vendors, customers etc are dealing with you in off-the books transactions and black money then it becomes very difficult for a large players (who themselves are highly regulated and well known) into buying your company out. It also restricts the actual sales you can declare. With most buyers being progressive, large domestic or MNC firms who are, in general moving towards cleaner operations, this is a real issue. Even if you have a great business, the best step is to wean your business off black money and work on white.

2. The Law – Indian businesses have a penchant for breaking laws, not taking all the licenses, permissions, not getting into contracts, agreements and having a multitude of cases against them. Due to our fabulous (read slow, lousy and corrupt) legal system, most businessmen don’t really mind cases against them as long as it doesn’t lead to a stay against major business operations. However a prospective buyer will in all probability put his money only when he knows that there are no extenuating legal issues against the business. If there are, then the buyer considers it a potential threat to future revenues and business operations. A firm interested in buying you out will look at long term contracts, agreements, permissions etc since it not only considers them as safeguards to business activity but also increase long terms revenue projections and hence the valuation of the business.  

3. Family Members – Involving family members in a small business which looks to spread its wings and grow fast seems like a great idea in the beginning. After all you are ensured order, loyalty, motivation, a quasi-managerial set of people and low salary expectations. This also leads to the dreaded mix of the personal and the professional. In many cases it leads to family disputes, ego hassles, staff loyalty issues and development of company fiefdoms. This is a major turn-off for buyers.

4. Markets with major player interests – This is really a no-brainer but for some reason most people get this one wrong. A businesses’ ability to sell itself to a major player/MNC/Domestic Company only exists when (A) It’s an exciting sector where a number of players are looking at gaining traction and market share (not necessarily revenue… yet) (B) FDI limits are 100%/high/Going to increase hence ensuring that buyouts can happen by a foreign player for domestic presence. This also increases domestic competition (C) The sector is strategic in nature i.e. it is important from a technological, geographical or social perspective and not only from a revenue point of view. (D) Low regulation by government agencies.

5. Process Process Process – My biggest issue with Indian businesses and startups. The lack of process and systems. The absence of it makes most prospective buyers jittery and unsure, leading to lower valuations for your business. A proprietary process and system set up for your operations and sales will make it really easy for a professional business to put faith in your business and buy you out. A process and system oriented management shows that the company is poised to take on scalability issues head-on.

6. Documentation – Usually this would be a part of the above point, but I just don’t think that would cut it from an Indian perspective. Indian startups and businesses refuse to document. Actually it’s not in our cultural DNA since we are a verbal story-telling based culture. While this may lead to some great traditions and promote faith the in informal business sector, it also leads to bad records, adherence to policy and issues with creating processes and systems. It makes duplication of results and activities really difficult while making the business extremely people dependent and reduces organizational intelligence.

7. Don’t offer to sell everything to everyone – This is a like a disease which afflicts every Indian startup and business at some time or the other and totally goes against all practical advice regarding scalability, identifying differential advantage, identifying your TMS, creating great products/services and organizational focus. Too many companies have lost money, time and resources trying to please too many people at too many price points in too many ways. This also confuses the living hell out of a potential buyer of a business since they want to fulfil a specific need by buying your business but can’t identify what to do with all the rest of stuff that you seem to be doing. It makes your business look poorly organized and very muddled. Why? Because it is.

8. Hire a great CA – Just take it from me. Hire a great CA. Pay him more than you pay yourself if you have to. Just make sure your ass is on the right side of the law/tax department and that your financial papers look ready to be entered into the next Harvard Case Study series. It really really helps.

9. Build a Board – Most boards only exist on paper and consist of family members who either are already part of the management or don’t even know what you do. That is a fatal mistake. A board made up of local business leaders, professionals, professors and socially known /respectable citizens not only make it easier for you to do business and look good, leads to better credit ratings and it also increases valuation.

10. Don’t look at the US/EU valuations – Please understand, the US/EU (especially the US) is a crazy place where valuations go into bubble mode at regular intervals. The US/EU markets have a very well developed M&A market/players, with deals being done every day and companies being used as short/long term investments by PE/VC firms. In India we don’t have a developed market for M&As, we also have FDI restrictions, low valuations, cultural aversion to selling out and most importantly we have the Rupee (not the dollar). So don’t expect to be offered a deal on the lines of the US. You will be much happier and will also close the deal better. Don’t convert your Rupee valuation into dollar, unless you like being depressed.

Books that changed my worldview

The book that taught me that economics and finance has played a great part in our world wars. And that history taught by our CBSE books is overly simplistic at best and just wrong at worst.

Taught me the difference between how rich people treat their money and how poor people spend it. It has shaped my life immensely and given me a few sound rules of how to manage money.

This book reminded me that reading great literature is still a labor of love and requires great effort. It solidified my dislike for Chetan Bhagat class of books. It also proved to me that great literature is not necessarily written in English. With its multiple points of view of narration, is probably the best way to view the world.

The first book that showed me what India was really like before I was born. Dark, depressing, painful, this story really created beauty out of abject hopelessness and the travesty of life. We are lucky to finally have gotten out of the 70s and 80s.

The book that conclusively taught me, that men who increasingly control the modern world, are those who understand money and allocate capital. It also taught me the one thing I wish they had taught us in B-Schools, how the bond market control the fortunes of countries and how decisions made almost a hundred years back can affect us today.

This crack of a book taught me that everything is connected. It’s just that the authors decided to project it through economics. Which makes sense, since macro and micro development/phenomena may be expressed as a function of finance or culture or both.

Opened my eyes to the science of consumption in a retail setting. It gave me great insight into what makes us buy. Why was it revolutionary? Because this science was created by enterprising retailers rather than theoretical scientists. And now we have the opportunity to apply most of this in India.

Taught me finance, Period. I wasted my money on an MBA. If you don’t understand balance sheets, P&L statements and cash flows for you startup, this is what you must read. It taught me how accounting is more of an art and hence requires a great understanding of the rules, to be able to bend them. Essential read for all aspiring entrepreneurs.

This guy tells a story. And he tells it well. Read this book and it will give you great guidelines into how to make a business that is not dependant on you, the founder/s, but can run as an entity on its own. Also gives you great tips on how to made you business saleable. Will dedicate a post to this one for sure.

Every time I go through a tough trying time, I end up reading the Guru’s book, Seth Godin. Most of us will be able to finish it off in a couple of hours. But what it really does is that it tries to explain the one obstacle most high performance professionals/entrepreneurs/businessmen/executives face. The Dip. When things are going so bad, even when you are trying real hard, this is the book that explain why.

Conclusively proves why probability, mean, medians etc and all that math stuff which I could never get, is important in life... simply to understand that you can’t base financial decisions on them or any projection model. It states that one can never decisively predict the future in detail by working with tools and knowledge of the past. A thick dense read. But fantastic stuff. And NNT isn’t just writing this as a theory. He runs a company which bets on the black swan and bets against all the financial mathematical models crammed with algorithms.

Though the book might been seen by most as this 1000+page mammoth effort for readers, for me it started as just another book, I had to prove, that I could read. I never intended on liking it. But now I understand why it is possibly the greatest novel ever written. Leo Tolstoy explains Tsarist Russia and its aristocrats, with Russia’s multitude of battles with Napoleon’s France, as the setting. But what captures one’s imagination is the insight he offers into people during those testing times of war and how they were so different from us... and yet so alike. Masterpiece.

The Book that started it all for me, which led to my fascination with amazing companies. Though a little dated, it’s a must read for any senior executive and entrepreneur who wants to create a company not just for its bottom line, but to really make a difference. Personally I feel that’s why anyone should run a company

Flipkart and its Bomb/Earthquake/Apocalypse resistant packaging

I love Flipkart.

I have bought around 20 books from them over the past year and have another 70-80 lined up on my wishlist.

Their service is fantastic and they really follow the oft stated and almost never followed rule of customer delight

“Under-Promise and Over-Deliver”

 

They still have a few issues with how they run things. I sent them an email detailing all of them. Never got a reply. Wasn’t really happy about that.

But this post if not about the other issues.

It’s about their famed packaging. And while I appreciate the effort, I don’t like the end result.

I don’t know where they picked it up from and who thought of it, but I have a few major issues with it.

1. It’s really difficult to open it up/unpack it. I don’t relish wrestling with the book when all I want to do is to smell the fresh pages.

2. What purpose does it solve? I am sure it comes in contact with some not-so-gentle hands and machinery. But this isn’t really a 120 year old bone china tea set that I am trying to courier over the Atlantic.

3. You are ruining the environment!

 
I am sure there are tons of people who are extremely happy about their books being ‘Bomb/Earthquake/Apocalypse/Mother-in-law Resistant’. But could you do me a favor and send me lesser cardboard on my book. If you can’t do that for everyone (understandable) a little tick box could help us indicate the amount of packaging we want.

And could you get me in touch with your packaging & warehousing guys? I need to get my bomb shelter padded up for end 2012.