Why companies stagnate

Companies that start quite well, often have a mid life crisis and start stagnating. Growth rates drop, operational performance gets impacted due to lower margins and reduced cash flows.

The response to stagnation and reduced cash flows is often cost cutting, reducing bench strength, hiring new managers, firing below par performers, restructuring operations, strategy sessions, hiring consultants etc. But stagnation continues.

Growth is a function of leadership. Owners and CEOs often refuse to accept that the problem lies at their doorstep.

Possible solutions could be to find a guru or a mentor who works with the CEO or the owner and has in confidence discussions with him. Close door sessions, heart to heart talk, honest conversation is a good way to restore owner confidence.

More mundane solutions could be working a new business acquisition strategy, improving delivery processes, re-structuring, decentralized decision making, empowerment etc.

India business expansion- overseas start ups

Many a times start ups especially those located outside of India look to short cuts to expand their business. They look to instant strategic alliances and tend to believe that local companies will sign on the dotted line set by them. This is due to insufficient knowledge of current trends, practices and maturity of Indian IT companies be they start ups or mature mid sized companies.

Any strategic alliance arrangement with a company should be preceded by a robust business due diligence exercise wherein not only the capability of both parties is understood but also the vision, business model and culture is understood. Alliances are between people- the company only provides an institutional arrangement. Rushing through increases the likelihood of failure.

A step by step approach to deal making lays the path to successful deal making.

India business expansion- overseas companies

There are a large number of small and mid sized Indian IT companies constantly looking out for IT jobs in the US. H1 B visas are getting now tougher to get. US regulatory requirements for India based professional services companies is becoming stricter. Local hires in the US are either too expensive, require a lot of retraining or there are not enough of them to service the US demand.

Innovative business arrangement between Indian Professional Services IT companies and US IT companies has become critical. A win win engagement model for both parties is required to be negotiated. Teaming agreements and acquisition appear to be good options. People are already working on new engagement models and doing it successfully. Transparency in negotiation is the way to successful deal making.

Forest land clearance- selecting land for setting up industry

Forest land clearance is an issue that exercises a lot of industrialists. Many of them take on board retired or serving Indian Forest Service officers in the hope that through them the red tape will get cut faster and the process of obtaining forest clearance less painful.

The process of getting permission to use forest land for a non forestry purposes is complicated and takes a lot of time. Optimally the process takes three years.

The best option is to select a piece of land that has not been notified as forest. In case there is no option but to select a piece of forest land for setting up an industry like opening a mine, it is best to avoid sanctuaries, thick forest, wetlands attracting migratory birds and other ecologically sensitive areas. Even if you are able to get the forest officer on your side, the counter pressure is often generated by wildlife lovers and media. The power to accord clearance lies with the Ministry of Environment and Forests and pressure from line Ministries and Ministry of Finance does not often succeed.

It is easier to wrestle with agricultural, private land owners and rehabilitation than the forest bureaucracy in India.

And mind you obtaining forest clearance is tougher in the Western developed countries than it is in India.


Business expansion- New market entry

This blog is for Indian companies seeking to enter a new market segment and/ foreign companies intending to enter into India.

Before entering a new market segment, new business area or a new market a competition, business climate, legal and financial scenario analysis is necessary. Most companies take the services of a consulting firm that undertakes the market research, works out possible business scenario and analyses prospects.

 

The analyses could throw up policy, operational, capability and financial weaknesses that prevent or impede successful entry. Solutions aimed at overcoming each of the listed weaknesses have to be worked out and action taken before the decision to make an investment into entering a new market is made.

 

Often strategic alliances to smoothen entry and reduce entry barriers are good options. The consultant can identify and bring to the table an appropriate strategic partner. This is followed by business due diligence and other deal making steps.

 

Policy bottlenecks work arounds often require advocacy within and without the government. This job in India, unlike the developed parts of the country, is done by individuals with network and connect. Public relations firms are used once the environment for policy change has been created. It is important that advocacy efforts are done with care, caution and ethically. Brand impact can be huge in case this aspect is mishandled.

 

Tomorrow's blog will be for major industries and infrastructure players and the focus will be on ecology and forest clearance issues ongoing debate

Business expansion- start ups

This post is based on my experience in turning around one healthcare publishing start up and helping build from ground up another start up in the food business.

This post is, to my mind, relevant to all sectors including IT.

Business expansion strategies for start ups is fundamentally different from mid or large sized companies. Start ups are often cash strapped, high on enthusiasm and fast learners. They are open to innovation and implement advice with gusto. This happens when trust is built between the entrepreneur and the consultant. Early wins help in rapid trust building.

Business vision and business model definition are critical to start up growth. Start ups require constant advice to keep them on the defined growth path. Consensus building is integral to defining business strategies and plans.

As they are often short of cash, new initiatives have to be carefully constructed. Business development strategies have to be high on human energy but low on cash inputs. Networks, innovation, research, analysis and constant review are some of the key tools critical to business expansion. Margin management, customer satisfaction and brand building are additional features in business planning and implementation.

Start ups have to forge then own path and leadership plays a determining role.

Tomorrow's post will be on market entry advisory strategies.

India business expansion-Investment

Mid sized companies ($20M to $500M) often look to strategic alliances to beef up their capability, business development and project delivery. Finding the right fit, ice breaking to create an environment in which a healthy dialogue between prospective strategic alliance partners, business due diligence, working out a win win deal acceptable to both parties are some of the critical steps here.

Large and Mid sized companies with stressed balance sheets are at a disadvantage when seeking funding. Finding the ideal strategic alliance partner or an early stage investor is tough. The company has to be open to restructure, realign, share majority management control to improve chances of a deal. Strategic intent of the company seeking financial assistance is important. VCs and PE's fund houses focus is on efficiency and return. The final deal often includes major re-structuring in operation management. On the other the strategic investor who is in the same business space as the company seeking financial support is looking at integration and alignment with their business vision. Deal making advisory, like in the case mentioned above is result linked but accompanied with a small consultancy charge.

Companies having niche products with reasonable track record are good candidates for acquisition by large and mid sized cash rich companies. The acquirers are often open to a range of options aimed at giving comfort to such providers. Good deals can be secured if well negotiated.

Start ups often seek finance from Angel fund houses, high network individuals and even banks. Such companies are almost wholly entrepreneur owned who is often obsessively reluctant to share control. Restructuring and organic growth models are often best suited for such companies as fund houses are reluctant to lend without collateral or any other form of capital protection.
 

India IT business expansion- Inorganic growth

Mid sized and large companies look to inorganic growth model for giving their business a upward push in a geography of their choice. The approach of large and mid sized companies to inorganic growth is often different. Mid sized companies look to immediate revenue accretion as the goal while larger ones have a more strategic view towards making investments in another company.

 

Strategic alliance building could be opportunistic and restricted to achieve a limited objective of acquiring or executing a particular deal or project. Pure play strategic alliance seeks to achieve long term business growth for both companies or in case of acquisition to the acquiring company.

 

Inorganic growth models require the consultant to not only have a good network in the industry but also has domain understanding of the sector. This is critical to company finding- perhaps the first critical step in inorganic deal making.

 

Pure play chartered accounting, legal and strategic consulting firms are not ideally suited for company finding and preliminary due diligence. As discussions move ahead specialist accounting and legal firms can be brought in to perform specific tasks aimed at formalizing a strategic model agreed by both parties. 

 

Inorganic deal making requires conjuring a win win situation for all parties. The inorganic growth path is best taken by mid sized and large companies. This deal making is generally done under the radar and confidentially.

 

Most of these engagements are result linked with a small upfront consulting fee aimed at covering initial travel, board and office maintenance cost of the consultant.

 

Monday's blog will be on securing pure play investments into a company.

India IT business expansion- Private sector

Even though the major IT companies in India have over the years built great technology and manpower capabilities, the focus is still on India government business. This is because very few of them have created plug and play products. Also, many of them find it more profitable to focus on overseas business where they get higher margins and the sales cycles are short.

The exception is the BFSI segment where core banking, treasury management and indeed the entire banking and financial management suite which some companies like TCS or Infosys have acquired or developed over the years. Success in business acquisition and implementation in the BFSI segment is therefore much higher than in other market segments.

Indian private sector, unlike government is not rule based, looks to plug and play solutions, rapid roll out and efficient post roll out management. Companies that have, over the years, built solutions for the private sector are successful in penetrating the Indian private sector market relatively quickly. Many of them have built long term relationships with their customers are getting repeat orders and are making a good profit.

Private sector selling is also different from government. Consulting capability and sector knowledge play an import part in both business acquisition and delivery.

Private sector is the another way to go in the Indian market.

The next blog will be on inorganic growth.

Business expansion India- Government business

Many large, mid and small companies view government as a key customer in India. This is true. However anyone who has worked in government would know that while deal sizes can be huge, profit margins can be low and companies often bleed during project execution.

Government business is rule based and knowledge of inner working of government that includes the decision making processes, internal dynamics, interplay between the bureaucracy, politician and public all play a critical role in securing this business.

Brokers who sell dreams and offer short cuts abound in this market and many companies look towards them for a quick deal. They often don't understand that the deal that they have finally secured would have been secured even without the broker.

Business acquisition in government requires substantial networks within the system, large deals in particular require intense multi level engagement with decision makers and patience. In the era of RTI, informed competition and active media the government business mine field has to be tread with care.

Niche solution providers with unique product line can look at win win strategic partnerships with other companies to secure and/or execute government business. Deal qualification and business execution models can make all the difference between your making a profit or a loss in government.

Government is a great customer to work with if you know how to crack it.

Business expansion in mid sized companies

Mid sized companies that have stagnating or below par growth require innovative handling to re-ignite them into a high growth path. After all, such companies were at one time start ups. They succeeded in establishing them in the market, competed and became mid sized. Most of them were lead by entrepreneurs with vision and dynamism. The market over the years has changed and the owner/ entrepreneur finds himself unable to sustain the growth that he once had. This is a typical story of many IT mid sized companies.

I advised a couple of them over the past year or so and found that the biggest challenge that they faced was leadership. Employees from top notch companies were hired by them to provide direction, assist in formulating new growth strategies. Success continues to be elude these companies inspite of substantial investment and high cost of manpower.

Employees from top notch companies, may be great strategists but are unable to understand the entrepreneur mind set and come up solutions that are financially not suited to stressed balance sheets. They try and bring in practices from their previous companies without realizing that entrepreneur lead mid sized companies require different solutions.

The answers lie in innovation, low cost experimentation, implementing growth strategies that are acceptable to the owner, open dialogue, consensus building, team work and building on successful strategies.

Turnaround is possible.