Follow up on "The Pygmy Effect"

(Reader Warning : Long post ahead - this is in reply to Aditis comment on my last post - Pygmy effect)

Hey Aditi, welcome back was afraid I had lost a reader, and thanks for taking time out to comment, and apologies for not having replied back on the previous ones….

Here goes : Why pick on the family owned entities : I don’t think I have too much of a hope for the government entities… they served a purpose in the planned economy stage and are probably tied down due to vicious cycle of their own (some of them are fantastic organisations mind you - there is a nice theory on their second level contribution to the economy - subject of my next post), you have highlighted a few reasons and there are many more… I am a born capitalist when it comes to matters related to capital finding its own way and demand being addressed (my socialistic tendencies are there but as one of my well known Profs told me "if u think you are best suited to earn money then do that damn thing, leave social upliftment to the ones more qualified to do it, if money is all u can contribute so be it!!!". There is a role for a regulator but mostly the I love the concept of a market, make it competitive, let labour and capital flow freely and then magic happens

But the decision to analyse the family owned firms is (my guess here on the number) probably 80% of the enterprises in India are family owned or controlled and unless they are able to come out of the cocoon of treating the business as an extension of family and self, ( don’t know your background, but in corporate law, what I am saying is similar to the divorce of management and ownership or what we call the lifting of corporate veil but more on a financial and operational control part is what I want) the companies will not grow…. Why do I want them to grow : multiple reasons - industrial cycle follows a predictable pattern : unorganized sector - few organized - many organized - large companies/ small unorganized - niche warriors with large companies - multiple smaller but larger than stage 3 companies. In the past when you had tariff barriers, information asymmetry, no 'global supply chain', the market and the competition was largely local and we could get away. But since we are opening up and largely the world trade is becoming freer, this phenomena is both an opportunity and a risk…. If you are not large, you might be the largest organised player in India but in the global industry cycle you are already in 4th stage and risk getting wiped out and even if I assume we will be able to graduate to the next stage and occupy niches, there is lot to be done……..

Size gives a different swagger to your moves, opens up your mind (makes you reckless also!!), allows you to see at an opportunity differently, allows you to setup systems, attract professionals, attract capital, beat down the bank which will offer you PLR when you are a 30 cr company and will offer you PLR -300 bips when you 300 and then allows you name your terms when you are 1000 and will restructure loans to suit you when you are 3000 ( don’t believe me, check the CDR packages doled out in this country in the last downshift we saw - case study a few steel companies, oil companies). Economics 101 teaches us about Scale and Scope economies - a critical mass sets off a chain reaction - talent attracts talent, money attracts money, opportunities attract opportunities

And on the other note, why are professionals important : a entrepreneur serves a purpose in the birth and evolution of an organization, his/her intolerance to status quo and creativity gives birth to a business, his hunger for more gives fillip to grow and his/her 'animal instincts' (its an economic term :) ) keep the economy growing when both fiscal and monetary policy are screwed up…. So by definition, they come with vision…. Some prodding is required to enhance its coverage and scope, this is the void advisors (pseudo, proxy, quacks, intelligent, experienced, effective, gyan giving - various forms of consultants!!) come in…. A professional on the other hand is by definition mostly attuned to a systems mindset - setup/ follow/ break systems mode….not a radical free thinker…. The fear of failure for most professionals is what he feared when he gave his last entrance exam but for an entrepreneur it is that order which if it did not materialize would have meant 30 employees going without salary and his precious wealth vanishing…. The reactions are different in the face of adversity and the capability to visualize is different. I once was presenting to a very successful entrepreneur and told him they will need 800 cr to meet his vision, he said 'Why not' but it had taken me 15 days to convince his whole management team to even persuade them to let me present this to him :)

And on the visionary note : they are far and few I agree…… but there are levels in visionary behaviour I think - like sports which starts are second division to olympics/world cup level - you need to define the level you want to operate…. My advise is "everyone jump 3 steps on the vision, atleast then we will have a few more nationally important entities (and Olympic gold!!) . 'Cutting corners' is by definition an dangerous area, but one of the IAS officers I worked with used to say, "only thing which is atleast light shade of grey is the word illegal, both immoral and unethical are new shades which can be called 'invisible grey' " - So in this I will go by what my B-school taught me - don’t do that thing which you don’t want your mother to read in the next days newspaper - my sole test :) else we are all prisoners of choice - the master piece 'Bhagvad gita' was born out of doubt and the problem of choices to be made.

And lastly, is profit a byproduct of vision or can that be the vision? Yes it can be your vision, but I would say it’s a gulli cricket level vision, if you defined your vision as "I will make 100 cr profit in year 2010" (unless you are making 1 today). A business in my mind, a tool/ a purpose/ a calling of a higher order that cannot be just confined to profits, but profit is an essential ingredient and probably not the end result, its just one of the many measures…..

And on a lighter note, yes maybe a tinge of disappointment, I keep telling my friends if my grandfather had been a land grabber or even a normal bribe seeking government employee rather than the well respected but not well paid writer he was, I would also have been employing people like myself rather than peddling my wares to the corporate world :) so yes, ovarian lottery worked in a different form in my case…..now its left to the rich/influential father in law to do the trick - hope I atleast get a consolation prize there :) !!