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Valuation

Business Valuation Simplified

by on 18 March 2016in Karthik Srinivasan

In today’s ‘hungaama’ around value of a business, it is quite normal to get carried away between creating a long term sustainable value for a business as against ‘milking’ a quick opportunity of generating a high share price for promoters to make a windfall gain.  Needless to say the media attention on the latter plus the common man’s constant fascination for rags to riches stories, significantly contribute to the hype. (e.g. Flipkart, Snapdeal etc.).

Every start up organisation or entrepreneur must have its thinking clear around the long term objectives as well as the core purpose of the venture.  Profitability and growth are certainly the key foundations – without cash there is no show.  But that alone does not drive the true value of the business.

The eco system is larger than just profitability and growth.  True valuation of a business is driven by multiple factors

  • What is the differentiation provided to the customer, be it a product or a service
  • Quality of the offering
  • Price at which it is offered
  • Longevity viz., if I buy this product how long will this last  (most of the Indian homes will have Godrej steel cupboards which have seen a few generations and still in tip top condition)
  • Innovation

A sustained focus on the above will ensure generating a long term value for a business.

Business Plan

Design Thinking: An Introduction to the Uninitiated

by on 14 March 2016in Praveen Udupa

Suppose you have a severe stomach ache (God forbid), and you go see your doctor. You imagine you might have appendicitis and tell your doctor as such. If your doctor responds, “Oh dear! You might be right. Let’s not waste any time. The operation theatre is free right now. How about we put you down for an appendectomy immediately?” What would you think of this doctor? Obviously you wouldn’t think too highly of his skills as a doctor. You would expect the doctor to have the common sense to first diagnose the issue before venturing into a solution.

But when we come to solving everyday problems, I wonder why we check our common sense at the door. Look around you. There are plenty of examples of Band-Aid solutions. There is severe traffic congestion in a city intersection. Let’s build an over-pass flyover, only to decongest that intersection and promptly move the congestion over to the next intersection. My restaurant has severe over-crowding during peak hours. Implement a fancy Tablet based order management solution. Delhi reels under severe pollution. Let’s implement Odd-Even formula. In this age of technology, almost everyone instantly jumps to an IT based solution.

Design Thinking is an approach to problem solving and innovation. Design Thinking is a set of structured thinking steps that promises to lead us towards a workable, long lasting solution to the real problem that is faced by the organization. There are five key steps in Design Thinking:

Step 1: Empathize. It means get into your client’s shoes and feel the problem. Experience the inconvenience that the issue causes to the client. Only when you truly empathize with your client, you will gain the perspective required to solve the problem.Step 2: Define. Real problems are never apparent at the surface. What is visible at the surface is always the symptom. The actual problems are the root causes buried underneath a pile of effects. Uncover the root causes to the symptom and define the problem clearly and accurately.

Step 3: Ideate. The thing about solutions is that it needs to work for this specific client, for these specific stakeholders. There are normally never one-size-fits-all solutions. It is therefore essential to brainstorm many possible solutions and pick a few that seems reasonable on paper.

Step 4: Prototype. Build a prototype of the solution. This is an actually working solution that may not be complete in all respects. The intention is to study the impact of the solution in a study environment.

Step 5: Test. Implement the prototype in the study environment and verify if it successfully eliminates the symptom, and that it does not create any other problems of its own. If the prototype is successful, great. Otherwise, go back to Step 3 and iterate until the right solution is determined.

Design Thinking puts the customer in the center; products / services are conceived as a means to solve the customers’ problems. Every individual must become a Design Thinker. Every start-up must adopt Design Thinking with gusto.

Mantras-for-the-mind

The Mantras of Running Effective and Efficient Operations

by on 14 March 2016in Admin

Have you ever found yourself in a position where the returns your business brings in as revenue is often barely sustaining your expenses? Or in an event where the processes seem to be not entirely under your control? You aren’t in unchartered waters. It’s an issue a lot of fresh ventures as well as some of the more experienced businesses run into. Businesses usually find themselves caught in the loop of overspending rather not optimising their expenses. The target here is to maximise the operational efficiencies of a business thereby creating profits and not just breaking even. Here are a few operational tips towards the same:

1. It’s not just about high revenue
Businesses often focus on increasing their revenue each month, every quarter, however forgetting that the total costs of production and management keep increasing with time. If the revenue increases but the business continues to spend a great deal of it, it will soon fizzle out and run into debts. The key here is to decrease expenses and spend prudently.2. Hire the right number of people and the right kind of people
When a business starts out, often the entrepreneurs themselves don multiple hats in a way of cost-cutting. Obviously this wouldn’t be a long-term arrangement. Instead, hiring a small team of multi-faceted self-learners who are capable of handling more than one area of work, or outsourcing as much of the laborious tasks like book keeping, marketing etc. to software shall prove to be better at the earlier stages.

3. Set up clear-cut processes
Some large enterprises make efficient, secure business processes a prerequisite for doing business with them. To develop efficient business processes that meet the requirements of your partners, your business needs a secure, reliable network infrastructure.

4. Communication is paramount
The problem often faced by businesses is when there isn’t a flow of communication or information gets miscommunicated as it gets passed on. It is important to establish definitive communicative channels with a follow-up mechanism in order to ensure that information is neither miscommunicated nor lost. This also increases accountability in the business.

5. Cutting corners isn’t a bad idea
Reduction in expenses which could be avoided in the initial stages like office supplies, furniture etc. whereby the business cuts corners without affecting the quality of the product is a smart thing to do. Rented furniture, shared office spaces etc. are some methods whereby businesses can increase its operational efficiency.

Funding

Conquering the Herculean Task: How to get Funding?

by on 14 March 2016in Admin

While a lot of startups and MSMEs consider bootstrapping during the initial days of the business, some businesses which is unable to do so go ahead and try to procure funding for the same. Now there are several avenues through which funding can be acquired. Initially, money usually comes in through friends and family in exchange for a percentage of the stocks. This money is what sustains a business for its initially couple of months unto which point that a larger source of funding is required. Here we have angel investors, incubators, accelerators and excubators who provide you with funding and other services (maybe even mentoring) for a percentage of the company.

Now one thing we must remember is that every time a company goes out for funding or a third party decides to invest in the business, it is for a share of the pie. The question which surfaces most often in the minds of entrepreneurs is whether this kind of dilution in your share in the company is bad. The answer is no, because the assumption is that your pie is getting bigger with each investment as the business grows. But, yes, dilution has its shortcomings as you are losing control of your company.

It is only when the business has set itself up, established and gained traction with its initial customers that it goes for seed funding. They invest an amount which is usually north of 2 crores which is disbursed over a period of time. This level of funding is what facilitates the scaling up of the company. Your first VC round is your series A. Now you can go on to have series B,C etc.

At some point either of the three things will happen to you. Either you will run out of funding and no one will want to invest which will result in your business dying. Or, you get enough funding to build something a bigger company wants to buy, and they acquire you. Or, you do so well that, after many rounds of funding, you decide to go public.

Technically an IPO is just another way to raise money, but this time from millions of regular people. Through an IPO a company can sell stocks on the stock market and anyone can buy them. Since anyone can buy you can likely sell a lot of stock right away rather than go to individual investors and ask them to invest. So it sounds like an easier way to get money.

Other ways of procuring funding for a company includes going for crowdfunding or securing a government grant (which usually requires you to carve your niche). This is usually a lot simpler for businesses which are based on more development-oriented, social entrepreneurial ventures whereby the target is to maximise benefit and development through optimal pricing and steady profits and not profit maximisation through market-driven prices.

Businessplan

Getting the basics right: How to make a good business plan?

by on 14 March 2016in Admin

If there is one thing that has remained constant in how businesses are created over the years, it is the indispensable, ever-so-sacrosanct ‘Business Plan’. The business plan of a company serves a similar purpose as a mind-map does when you ideate; it visually represents and puts down all the core and peripheries of a particular idea. A business plan is the heart of the business which explains how a business works and how it shall succeed.
It essentially helps entrepreneurs to break down the business into meaningful chunks and put in place processes like products, sales, budget, projections, milestones etc. However there are certain aspects which set aside a regular business plan from a great one. Here is a list of top 5 things which make a good business plan:

1. Brevity and simplicity are vital
Long and verbose business plans make it tedious a reader to understand the business. Brevity comes with clarity of thought. Morever, the communication ought to be universal and not targeted at a specialised audience. When an idea is put forth succinctly in simple language, it ensures that all stakeholders, experts and laymen alike, are able to grasp the essence of the business. While the technicalities are important as in the case of a tech idea for example, they can be included in the appendix. Customizing communication is key.2. Protect the business idea and intellectual property
The business plan is the first pitch/expression of the entrepreneur’s business idea. In such a circumstance it is absolutely critical to establish evidence of its originality prior to revealing it to a third-party. An unprotected business plan, which contains the business’s IP and trade secrets, is an open invitation for theft by unscrupulous parties looking to steal your valuable work. It could be anybody from a competitor to a mere disgruntled employee. As business plans are often circulated amongst several parties, it’s important to ensure the safety of the business’ intellectual property.3. Create your pitch
Your business plan is your pitch. It needs to convey how you create value and tackle the pain areas of the customer. What is it that sets you apart from your competitors? What is the business viability of your idea? These are some important aspects which need to be included alongside an executive summary. It needs to allure potential investors and customers into realising why the industry/market absolutely can’t do without you.4. Dynamism
A good business plan is one which is constantly reviewed, updated and dynamic in nature. Planning doesn’t entail predicting the future and following it despite variations. It is a continuous steering process which is subject to regular review and course correction.

5. Keep it real
The most crucial measure of any plan is how realistic it is. An excellently researched, eloquently written and beautifully formatted plan for something that’s unworkable is a bad business plan. While assumptions are inevitable, externalities need to be considered thoroughly too.

Business-Idea

Find the elusive business idea

by on 14 March 2016in Admin

In a world of opportunities, one only needs to take a chance to succeed. The world that we live in today no longer considers entrepreneurial ambitions to be a niche space for the more privileged or financially endowed group. With a bare minimum sum and a great idea which could potentially storm the world, inventors, ideators and entrepreneurs bloom today in all walks of life.

For an individual who wishes to start something on their own, the point of departure is with the great idea which he/she discovers. While most characterise this discovery to be epiphanous, it usually is a eureka moment when one consciously looks around and understands his/her world, and that beyond this ambit better.

Now where do we find this business idea if we were to pin-point or make a check-list of places to look?

Popular literature and celebrity entrepreneurial guidebooks would ask one to “do what they love doing most”; something which would “quench their thirst for personal satisfaction and ambition at the same time”. While these books aren’t entirely wrong, it seems to be a bit facile for the lay man – it’s like saying if you are hungry, then you should probably find some food. Maybe a better way to look at it would be to tackle what you identify to be the greatest frustration or “pain-point” in your life when you do these things that you love.

The greatest ideas are born out of ideating solutions to simple problems which people tend to overlook. Now combine that with something that you love doing. What is the biggest irritation that you are forced to deal with when you do it? And that is your great business idea, right there! So maybe finding something which will let you walk through the streets without having to look at your GPS (Lechal Shoes) or cut a slice of pizza and lift it to serve (Pizza Scissors) is what the world needs.

Now taking this further, people often feel business ideas are born solely out of innate creativity or futuristic visions. These two are key components of a great idea, definitely. However, great ideas come to those who are in the habit of looking for them. So if you’ve been racking your brain for a way to start your own business but keep coming up short, you might just need a change of scenery. It is important for one to broaden their intellectual bandwidth and move beyond what he/she already knows or has experienced. So maybe its repurposing an existing idea which could make you the next big thing; something which isn’t pristinely original but are those which are out there waiting to be noticed. Everybody knew of cameras and how to take pictures of themselves (selfies). But to put it together to create the selfie stick? That’s an idea that sells.

In conclusion, great ideas aren’t an exclusive realm. One only needs to look and seize the moment. And to do anything, just anything, is a great place to start.