“Your article last week on customer value touched the core of my heart as I am constantly fighting for this cause,” wrote my valued reader Commodore G S Kanwal, retired from the Indian Navy. “But we are more or less in a Catch 22 situation.”
Small businesses, like the 44-bedded hotel service that Commodore Kanwal runs and is fighting various social and career factors to retain trained staff in, are the real backbone of our country. I’ve promoted the cause of MSMEs (micro, small and medium enterprises) in this column as well as detailed how to encourage their activities in my books Jalebi Management and its sequel Strategic Pokes. We should always remember that all big companies began as MSMEs. Courier service UPS, with over $55 billion revenue, started with just four bicycles in 1907 and is now among the world’s best companies. Another example of an MSME blooming is the $473 billion Walmart retail company that started as Walton’s 5&10 in 1950 — a dime store in a small US town called Bentonville in Arkansas.
Among developed countries, the outstanding performance and internationalisation of Germany’s MSME sector is worth emulating. According to Sequa gGmbH, a development organisation where Germany’s top four business membership organisations DIHK, ZDH, BDI and BDA are shareholders, Germany’s economic structure is determined by MSMEs that account for almost 99 per cent of all businesses, and employ about 80 per cent of regular workers. The government has several support programmes and measures to promote MSMEs. Contributing significantly to GDP, they’ve made the German economy the strongest in Europe today.
Unlike in Germany, about three-fourths of India’s MSMEs cannot access banks or institutional financing as per a study by industry body Assocham and finance advisory Resurgent India. Without adequate credit, most MSMEs actually borrow from their family and friends, which naturally impacts their business planning in terms of time and ability to raise the required amount. A new kind of short-span, flirting with money entity, has mushroomed in our economy; the start-ups funded by angel investors. Start-ups remind me of the attitude some bachelors have regarding their girlfriends. By hook or crook, these start-ups have to prove their model is working. They try to hike valuation to sell out and encash big money within a short span of time. In relationship analogy, it’s like working hard and making a name to grab the plum dowry that’s waiting when he opts for an arranged marriage, ditching his girlfriend. Most angel investors look for short-term investment and quick earnings. This influence of working to finally sell out is not setting a good example. To become a solid entrepreneur, you have to drive your business for the long term.
Let me note some hard truths that MSMEs face in India’s modern economy:
1. MSMEs often run like a family business where there’s no question of hiring hardcore professionals.
2. The younger generation does not want to carry forward the business the father set up. Having witnessed the fair amount of struggle required to run the show, these youngsters prefer to become an employee with less responsibility and the assured monthly pay slip.
3. Entrepreneur fathers consider that only their generation can do business. Having sent their children to the kind of schools they themselves have not gone to, the children develop an outlook that’s rather dissimilar from their parents. Thereafter, the father develops low confidence in his child’s capability and the son doesn’t want his father as boss at work.
4. For arranged marriages and social recognition, the value of young people working in big corporate houses and being the manager of a large number of people is higher than if they were working in their father’s business.
5. To be an entrepreneur, you need to have three skillsets: (a) Knowing your product in depth so you know its selling point; (b) People management skills to keep employees motivated and reduce attrition; (c) Be an outstanding salesperson to play in a competitive marketplace. It’s not always the case that one person will have all three competencies. As an entrepreneur, you may have one or two of these skillsets, so it’s extremely important that you find an appropriate partner.
6. An entrepreneur who does not have the right capability for the segment of business being pursued tends to spread out into diverse business areas. But without single focus, a long-term steady business can never be built up.
7. Such diversification leads to most funding institutes not trusting the competency, sustaining strategy and capacity of MSMEs. To safeguard their loans, banks ask for detailed documentation and securities that leave MSMEs flummoxed. Even short-term working capital on credit is not easy for them to get. Actually banks have evidence too of suffering non-performing assets on having loaned to small businesses. So for MSMEs, cash flow is a constant problem to run day-to-day operations and fuel their future growth.
In these points I’ve listed, there is a big role the government can play. Several industry and government bodies already exist to facilitate MSMEs, but how concretely is help provided? It’s essential to create “World-class MSME India” as a driving force where the two basic requirements for MSME business growth would be customer centricity and retaining a defined global quality standard.
My earnest request to our new government is to take non-bureaucratic action in this area. Among such actions could be the professional handling of MSMEs to represent their interests in capability building and getting loans, having our embassies overseas promote business with MSMEs, encouraging them through consultancy to develop innovative power, and having a dynamic TV channel by Doordarshan exclusively dedicated to MSMEs with inspiring stories and professional advice to get ahead. When MSMEs flourish, employees will not leave their jobs so easily, and the country’s GDP can experience galloping growth.
Shombit Sengupta is an international creative business strategy consultant to top management. Reach him at http://www.shiningconsulting.com