Thursday, 25 September 2008

Review of - The Game Changer

This is a review of The Game Changer – How every leader can drive everyday innovation. By AG Lafley and Ram Charan, that I wrote for the Business Standard recently

The Game Changer is a significant book for two reasons.

First because of the credentials of the authors.

Lafley is the Chairman and CEO of Procter and Gamble. In his tenure over the last seven years P&G has tripled profits and has massively improved revenue growth and margins.

Charan is one of the most influential management thinkers in the world today. Born in a small town in UP, he worked in the family shoe shop, studied engineering and later went to Harvard for an MBA and then a Doctorate. He taught at Harvard and Kellog and is now a full time management consultant with several books and articles to his credit.

The second reason why it is significant is because of the importance of the subject the book addresses – innovation, or rather the management of innovation.

Innovation, to my mind, is or should be, central to the agenda of every high growth high performance company anywhere in the world.

The premise of this book is that an innovation led strategy is the best way for companies to attain sustainable and profitable growth. Lafley opens the book by saying that his job as CEO of P&G is to integrate innovation into everything that P&G does. It is the central principle around which people at P&G make decisions and seek opportunities for growth.

Innovation the authors say must be customer centric, customer driven and organisations must first structure themselves around the customer for this. The organisation and the people working there must possess a motivating purpose and values. The next stage in the process is to identify opportunities, and decide on goals and strategies and then leverage on core competencies to make it happen. At the execution stage organising for innovation involves putting in places appropriate structures and systems, building the right culture and ensuring the innovation process gets leadership.

Sounds like management jargon – well it is and the book has more than enough of it. It sounds great as a textbookish process when articulated like this – but it is the execution that counts. And Lafley did successfully follow this route at P&G.

Orchestrating an innovation centred transformation implies not being afraid of failure. Lafley says he gets worried when sixty percent of his innovations are successful. It means he is playing too safe and not pushing the envelope enough. In the book he candidly lists out the big failures of P&G over the last seven years.

The book is an interesting jugalbandi between Lafley and Charan – with both speaking in different voices. Lafley talks the reader through the transformation, which was centred around innovation, that P&G went through under his leadership. Charan puts the P&G experience in perspective and looks at other companies and industries where innovation has made an impact.

The Game Changer is useful for understanding how one large company pursued innovation to transform its fortunes and there is also prespective of how other large companies did similar things. It should be read by managers and leaders in large companies, by business school students and professors, and by trainers.

However if you are looking for a story with the romance of entrepreneurial brilliance at innovation, eureka moments, one mans passion and dream – the small start up in a garage that set out to change the world and successfully did – forget it. This is not that book.

In fact it is not a gripping unputdownable read. It needs to be read slowly and carefully and after reading a chapter you need to think through the import of what you have just read, perhaps skim through it again – make bullet points and discuss them with a colleague or friend while going through in your head the implications of what you have just read for your organisation.

The book is less about innovating and more about the organisation and management of innovation and the strategic importance of innovation.

It tells you that innovation is not the preserve of Silicon Valley start ups alone. It can successfully pursued by large stodgy companies, with low product or service differentiation, operating in mature markets and displaying moderate growth with steady or declining profit margins.

Thursday, 18 September 2008

Bootstrap before looking for funding

My September column in Mint.

Over the last several years many aspiring entrepreneurs have met me for advice – be it at business schools, through TIE, at conferences, at business plan contests or by simply sending me a mail and asking for time. Almost all of them have had an idea, a half written business plan – for which they were exploring the possibility of raising capital. Most believe that without committed funding by a venture capitalist they cannot start or will not succeed. Most struggling entrepreneurs would believe that it’s great to raise venture capital at the start – but is it really?

While many successful companies did raise venture capital early in their life cycle, yet there are many more that did not – Microsoft, HP, Dell are three such examples. Closer home Infosys, HCL and Reliance and many other first generation successes were bootstrapped and built the hard way. The fact is that most successful companies and most successful entrepreneurs reached where they have without raising venture capital.

In the company where I work – we managed to get external funding only after we had bootstrapped for ten years.We were delighted to raise capital when we did. However in hindsight, it was the bootstrapping experience that taught us valuable lessons that saw us through the later years.

There are many learnings you get by bootstrapping.

First bootstrapping is a test of commitment – if you are really committed to your idea you will muster up the courage to quit your salaried job, put in whatever little capital you have or can raise from friends and relatives, tighten your belt and somehow begin to execute your idea. If you aren’t willing to bootstrap then question your entrepreneurial motivation. VC’s understand this and they prefer to invest behind good teams that are bootstrapping rather than behind professional managers who are still in secure jobs but have a nifty powerpoint presentation.

Bootstrapping helps you to validate your concept for yourself, your team and prospective investors. Validation of the concept would mean that the startup team is in place, the product is ready and there are a few paying customers who are happy with the product and are willing to buy again and recommend it to their friends.

Once your concept is validated investors come in with much greater confidence and give you a much higher valuation then they would have at an earlier stage. You get to keep a larger share of your company for the same money. Most entrepreneurs don’t realise the importance of this until much later – should the company go on to become valuable.

Bootstrapping makes you stretch 24x7. It makes you think about survival, about how to break even, about where the next rupee is going to come from and about where it should be going or not going. You innovate more, you prioritise and focus on the essentials. You manage your cash flows better, you go out into the field and sell to customers yourself and you put in twenty hour workdays if required. It instils a culture of frugality in the company. This is a priceless asset.

At Naukri when we were bootstrapping, we had to break even to survive. We found ways of doing that - somehow. So by the time we raised money what we had to do was to scale up and enhance a validated business model. The fiscal discipline that bootstrapping enforced on us is now a part of our DNA. It ensured that we went through the meltdown and became profitable with 40% of the capital that ICICI gave us still in fixed deposits in the bank.

Bootstrapping ensures that you recruit missionaries and not mercenaries – after all you won’t have the money to pay high salaries. You will pay then in stock rather than cash – non believers will simply not join you. This core group of believers will be the people who will see you through the tough times that every early stage must go through.

It takes a lot of time and effort to raise money – preparing the pitch and the plan, doing the rounds of the investors and meeting the interested ones several times, negotiating and signing the term sheet, dealing with lawyers, going through the due diligence and negotiating and signing the final agreement. It is a six month process if you are lucky. This is precious time you can spend instead on building the product, putting together the team and finding paying customers.

And then after you raise the money you have to manage the investor – and that too takes time. The fact is that when you raise money you don’t just get the capital – you also get the capitalist. He will be on your Board and he will have ideas and suggestions to give – it’s called value addition. And he will have disproportionate powers. But you might want to do things your way. In such a situation it might be a good idea to take the business forward till you have something concrete to show and then raise capital.

So, commit yourself, validate an idea, build a team, be an entrepreneur, bootstrap now, raise money a little later.

Thursday, 4 September 2008

Entrepreneurship - It's not about the money

I recently began writing a monthly column on entrepreneurship in The Mint. My first piece is reporduced below. What this means is that I will post on my blog at least once a month.

Entrepreneurship is a much more celebrated term today than it was till the eighties. The world has turned around to look up at people who have executed innovative ideas to create value. Entrepreneurship as a career choice has gained social acceptability among the educated middle classes in recent years. I have been on this path for nearly twenty years now. Friends have always ribbed me about the fact that I preach entrepreneurship, but we started a job site -

Today entrepreneurship is going beyond mere social acceptability and even getting to be fashionable as a career choice. A large number of people are doing start ups – many of them out of a sense of herd mentality, after getting inspiration from hearing the stories of entrepreneurs who founded successful companies. This is a worrying trend.

There is a misplaced sense of romance about entrepreneurship. I would like to caution those considering doing a start up that the early days of struggle of successful entrepreneurs seem romantic to observers only in hindsight. When you are actually going through it – there is a lot of pain. And for every poster boy success in entrepreneurship there are a hundred who are still struggling. The failure rate is high.

The first thing to understand is that entrepreneurship is not about getting rich. Sure if the company you start does become successful chances are you will make money. However that is a happy incidental outcome. It should not be the main object of the endeavour.

If you want to be an entrepreneur in order to become wealthy – my suggestion is don’t. There are very few entrepreneurs I know who succeeded without a longish period of financial struggle, belt tightening and personal sacrifice.

More often than not success will take longer in coming than you think. There will be times when at the end of the month there will not be enough money to pay the office rent and employee salaries – but you will somehow scrape though. There will be times when you yourself will not be able to take home a salary for months. There will be years on end when you will be financially the worst off person in your batch from business school. During these years you will need to make compromises on your life style – the house you are able to afford, the car you drive, the holidays you take, the restaurants where you eat and the schools your children can go to.

And all this without any guarantee of success, in search of the big idea, hoping for venture capital funding – years without any light at the end of the tunnel.

During times like this only your passion, your commitment to the idea and your stubbornness will see you through.

So before making the jump ask yourself a question – will I love doing this for the rest of my life even if I am not financially successful? If the answer is a clear yes – then you have passed the first test of commitment.

Then, when is entrepreneurship a worthwhile career to pursue. If one in hundred will succeed surely it is an irrational thing to do.

You should become an entrepreneur only if you believe that that is how you will find fulfillment.

Entrepreneurship is about freedom, creating, a chance to build a brand, an institution, showing the world a new way of doing something, being your own boss, creating a legacy that will outlive you, identity, making a difference, obsession, ego, having a shot at something big, doing what you love, innovating, doing things your way……..

Whichever way you want to put it – it is about finding meaning in your life.

Yes it is an irrational thing to do – if you are well educated and you have a good career ahead of you as a professional manager.

It is an article of faith. A bit like religion. Or as my friend Nikesh Sinha eloquently put it – it is like falling in love.

It’s an irrational choice.