Saturday, August 11, 2007

Abundance mentality and Entrepreneurship

Its time for a blog post on Entrepreneurship!

I was brought up in the north-west part of Tamilnadu, which happens to be the ‘textile-hub’ of south India. Most of the businesses are Small-And-Medium scale and are into producing textile products like cotton sarees, lungis, hankies and shirts. Also, there are numerous businesses in various aspects of the textile value chain -- dyeing, calendaring, bleaching, tailoring and printing. There are 24189 registered SSI units as on 31.12.2000 in the district besides 59 Large Scale Units. I have vivid memories of this business hub – dusty, vibrant and narrow streets, bullock carts carrying textile materials, chai and bhajji shops serving snacks, businessmen from the north and western part of India, daily wagers leaving their kids to nearby schools etc.

Most of these businesses are run by people who hardly have a university degree. Right from my school days I have always been spellbound by the entrepreneurial passion and hardworking nature of these people. These folks learn business from the streets and come up in a hard way. Compared to the high-tech entrepreneurial ventures, these businesses are extremely fragmented and commoditized. Due to high pressure and cut throat competition many of the firms have shutdown their business in the recent past. I personally know of friends, who have taken to a job as their family business is in vain. On the other side, the surviving businesses are operating on the same scale over decades. For quite sometime I was mulling over the reason for their ‘non-scalability’ and came up with some interesting observation:.

Most of these businesses are family owned businesses operating on ‘proprietorship’ model, where there is no concept of ‘equity shares’. All other people are hired as employees by paying salary and exploited to the maximum extent. Some of the high-performing smart employees are given more responsibility -– dealing with channel partners, getting new business, having a team built around them etc. These smart employees will slowly get contacts and open up their own shop in a matter of two to three years. The lower entry barriers added with strong channel relation built on the previous business helps these ‘recent-entrepreneurs’ to open up their shop in no time. They start competing with the ex-proprietor and the chain continues forever. Instead of increasing the pie, they cannibalize each others businesses.

The example I have mentioned above is a classic example for ‘conservative’ thinking instead of ‘abundant’ mentality. Any Entrepreneurial venture can scale up provided it has a core team working on a common vision with complementary skills. As the initial folks have totally different strengths, the business will start growing in multiple dimensions with each one of them leading in their area of expertise. When such people come together it is important to have properly defined profit sharing mechanism in terms of equity shares. This is one of the key factors to keep the core group as a ‘nuclear’ team and sow the seeds for long-term scalability. However this trait will not come easily to ‘normal’ people -- who want to have more power rather than profitability of the company. This is where the abundant mentality plays a major role as it has got to do with having a bigger heart. For example, having 80% stake in an Rs 10,000 profit is any day better than 2% stake in Rs 10,000 crore profits.

Most of the SMBs are not able to scale, mainly due to the ‘old-school’ conservative thinking. It is very critical to understand that the world is becoming more interdependent and knowledge oriented where looking for synergistic opportunities plays a vital role. Unless an Entrepreneur has the ‘new-school’ of thinking by shedding ego and craving for the power to control, the firm will not scale to a larger extent.

After all everybody understands the difference between water-gun and Niagara falls!

1 comment:

deepanjali said...

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