HOW TO KEEP YOUR BUSINESS EMPIRE FOREVER....!!!

HOW NOT TO LOSE YOUR BUSINESS EMPIRE

By Imran Furkan ACMA (U.K),
ACMA (S.L)

Independent Economic Analyst

The collapse of the Ceylinco group, the arrest of Raj Rajaratnam the founder of the Galleon Fund and the collapse of many a business empire in recent time has highlighted a seemingly pertinent point-Building and Keeping a business empire are two different capabilities .The following article attempts to provide some simple but surprisingly ignored business advice.


1. Put an astrologer/soothsayer/economist on your board as a Non Executive director.

Contrary to popular belief the future is entirely predictable, the problem is the difficulty in finding someone who can do the predicting accurately and then listening to the person when he makes the prediction.

Example-

When the media picked up an analyst’s prediction on the imminent collapse of the real estate market a couple of years ago –

“(Aug 25, 2007 (LBO) – “In classic bubble style more players jumped in because earlier developers had made exceptional profits,” says Imran Furkan, an independent market analyst.

“The buyers they speculated about are not around anymore.”

(Please refer link for original article http://www.lankabusinessonline.com/fullstory.php?nid=910673774)

A large conglomerate went to the extent of issuing a press statement attacking the analyst –

“(Sept 15, 2007 (LBO) – “A top Sri Lankan property developer says real estate is a sound investment because house prices do not fall, and construction costs goes up rather than down. The Ceylinco group says the property market has been a shock absorber to act as a hedge against inflation and other economic concerns in the past. The company was responding to a recent story on LBO on the housing market.”

(Please refer link for original article - http://www.lankabusinessonline.com/fullstory.php?nid=893501206)

Today the de facto founder of the group who holds the Deshamanya title is in remand accused of fraud due to investments connected to real estate going bad –

“Trouble for Ceylinco Group finance firms, high exposure to real estate” (Please refer link for original article - http://sundaytimes.lk/090308/FinancialTimes/ft316.html )

Had the business group spoken to the analyst concerned instead of attacking him, and ascertained his views, more prudent steps could have been taken to avoid the collapse of the great Ceylinco Empire.

Sri Lankan Politicians who have actually won elections regularly consult astrologers before making important decisions. If it works is there anything wrong with the practice?

The point here is simple; to survive in the future you must know what the future is going to look like in advance-to paraphrase using the wording of the logo of Dialog-“The future today”

2. Stick to your knitting

Companies who fear the future sometimes try to diversify in to non-core areas in a bid put their eggs in more than one basket. The inevitable results are that they lose their eye on their core basket and all the eggs in all the baskets slip out and crackExample:-

In a BusinessWeek Magazine study, companies that had stumbled were five times more likely to say they've lost focus. They were more likely to believe that the marketplace had changed, and they no longer knew their place in it. And they were significantly more likely to say that their current marketing efforts aren't working.

In another study, this one by Bain & Co., a sample of CEOs of companies that had failed was asked what went wrong. According to Bain, "the overwhelming majority, 70% of them, cited a lack of management focus." These company leaders didn't make excuses based on external uncontrollables like Lankan CEOs are so fond of doing but blamed "their failure to focus on the core business."

Take the automotive market. A few years ago, Volkswagen introduced the Phaeton, a luxury car more expensive than some of its upscale Audi models. Who wants to spend more than $60,000 for a VW? Not very many people, it turned out, which is why the Phaeton's sales never got off the ground.

It happens in the restaurant industry, too. Boston Chicken became Boston Market, losing its focus and stumbling badly. As one analyst put it, "Boston Chicken's finance department failed to keep a sharp eye on the profitability of its restaurants, while its strategists failed to preserve the unique focus of the concept."

And then there's the retail industry. Staples (a large retail chain in the U.S) lost focus several years ago, trying to broaden its appeal to the home-office user. In doing so, it became less of a good fit for its core customer -- small businesses. Once Staples realized this, it returned to its roots and has since been doing better.

Home Depot suffered a loss of focus earlier this decade as well, as its rapid growth caused service standards to fall. Before its execs knew it, they weren't meeting customer expectations and growth came to a halt. They, too, have since righted the ship.3. Don’t Promote on Seniority but on merit

Seniority is an admirable quality because it implies loyalty and commitment. However in a competitive world it becomes essential to promote staff to key positions on merit rather than merely on Seniority.

Example-

The General that led the military to a successful victory of a thirty year war was speaking at the Post Graduate Institute of Management Alumni’s (PIMA) annual ‘Counter Point’ seminar for 2009 in his first public appearance after the end of the war. As the keynote speaker, he described how this strategy worked for him as follows -

“General Fonseka said he appointed commanders of his choice based on merit, not superiority. Good people were put into the ‘mainstream’ while others were put into the ‘common stream’”.

A30 year war that many said couldn’t be won has been won.

4. Potential/turnover/profits are all vanity but Cash is reality

Examples:-

According to the Dot Com bubble and crash; the dot-com theory stated that, an Internet company's survival depended on expanding its customer base as rapidly as possible, even if it produced large annual losses. For instance, Google and Amazon did not see any profit in their first years. Amazon was spending on expanding customer base and letting people know that it existed and Google was busy spending on creating more powerful machine capacity to serve its expanding search engine. The phrase "Get large or get lost" was the wisdom of the day.

At the height of the boom, it was possible for a promising dot-com to make an initial public offering (IPO) of its stock and raise a substantial amount of money even though it had never made a profit — or, in some cases, earned any revenue whatsoever. In such a situation, a company's lifespan was measured by its burn rate: that is, the rate at which a non-profitable company lacking a viable business model ran through its capital served as the metric.Public awareness campaigns were one of the ways in which dot-coms sought to grow their customer base. These included television ads, print ads, and targeting of professional sporting events. Many dot-coms named themselves with onomatopoeic nonsense words that they hoped would be memorable and not easily confused with a competitor. Super Bowl XXXIV in January 2000 featured seventeen dot-com companies that each paid over two million dollars for a thirty-second spot. By contrast, in January 2001, just three dot-coms bought advertising spots during Super Bowl XXXV. In a similar vein, CBS-backed iWon.com gave away ten million dollars to a lucky contestant on an April 15, 2000, half-hour primetime special that was broadcast on CBS.

Not surprisingly, the "growth over profits" mentality and the aura of "new economy" invincibility led some companies to engage in lavish internal spending, such as elaborate business facilities and luxury vacations for employees. Executives and employees who were paid with stock options instead of cash became instant millionaires when the company made its initial public offering; many invested their new wealth into yet more dot-coms.

Over 1999 and early 2000, the U.S. Federal Reserve had increased interest rates six times and the economy was beginning to lose speed. Many dot-coms ran out of capital and were acquired or liquidated; the domain names were picked up by old-economy competitors or domain name investors. Several companies and their executives were accused or convicted of fraud for misusing shareholders' money, and the U.S. Securities and Exchange Commission fined top investment firms like Citigroup and Merrill Lynch millions of dollars for misleading investors.

Various supporting industries, such as advertising and shipping, scaled back their operations as demand for their services fell. A few large dot-com companies, such as Amazon.com and eBay, survived the turmoil and appear assured of long-term survival, while others such as Google have become industry-dominating mega-firms.The dot-com bubble crash wiped out $5 trillion in market value of technology companies from March 2000 to October 2002.

5. Cheap people make

expensive mitakes..............

slowly.

At one time or another, most businesses get seduced into the idea that you can hire great people for very little cost.

Then they experience the heartbreak and frustration of seeing projects mishandled, delayed and even abandoned.

Hiring the best typically ends up saving and making companies much, much more money than what it costs.

Meanwhile, hiring people because they’re cheap has usually resulted in companies losing invaluable time (from delays in the project to dealing with problems associated with the person supposedly doing the work), paying more overall (a person may have a lower hourly rate… but may spend days doing something a pro can do in a few hours) and, as a consequence, losing money.

Many deceive themselves into believing that someone who promised the world for much less than the other guy could actually deliver.

6. Pay your workers fairly

Example:-

The famous Henry Ford was a pioneer of "welfare capitalism" designed to improve the lot of his workers and especially to reduce the heavy turnover that had many departments hiring 300 men per year to fill 100 slots. Efficiency meant hiring and keeping the best workers.

Ford announced his $5-per-day program on January 5, 1914. The revolutionary program called for a raise in minimum daily pay from $2.34 to $5 for qualifying workers. It also set a new, reduced workweek, although the details vary in different accounts. Ford says that with this voluntary change, labor turnover in his plants went from huge to so small that he stopped bothering to measure it.

When Ford started the 40-hour work week and a minimum wage he was criticized by other industrialists and by Wall Street. He proved, however, that paying people more would enable Ford workers to afford the cars they were producing and be good for the economy. He labeled the increased compensation as profit-sharing rather than wages.

7. Be ethical

Greed, fraud and discrimination among many other unethical things may work in the short term but in the long term your whole castle will come tumbling down in your face. This is because the whole empire that was built on unethical behavior had no basis to stand in the first place.

Example:-

According to LBO, the Sri Lankan-born founder of the US Galleon group, accused of insider dealing, has said he is considering winding down the hedge funds in the face of redemptions by investors.

In addition to add salt to his wounds according to the New York Times the Galleon group has also lost $ 30 million on trades using that inside information!

Conclusion

Building a business requires many attributes such as risk taking, cutting corners, ruthlessness etc.But there comes a point where there needs to be a trade off between getting to your goals and keeping what you have got already. The above lessons should help entrepreneurs and top employees alike to think about sustainability-because businesses that don’ last- never existed as far as the world is concerned, in the first place!!!!

dailymirror.lk