My March column in Mint
If you are running a VC or an angel funded start up, it makes sense to pay special attention to managing your investors in a meltdown of the kind we are facing today. When a financial bubble bursts, those who invested at the peak, get really edgy. So, if you raised money any time in the last two years chances are you have a very nervous investor on your board, whose shareholder agreement with your company gives him powers that are disproportionate to the size of his shareholding.
While you are extremely unlikely to be able to raise more money in the near future, what you don’t want is your current investor pressing the trigger and putting a bullet into your head.
So what is it that you can do to manage your investor better.
Investor commitment is very important. If you already have an investor on board it is too late to raise this issue. You should have considered this when you were raising the money. When the going is good you will find that your compatibility is high with all kinds of investors and everyone expresses faith in the India story and your business. When the chips are down is when the investor’s mettle will be tested. In the last meltdown many VCs simply wound up shop and left India. Only very few stayed the course and rode out the bad times. It’s a good idea to have an investor who has a long term commitment to staying in India and doing business.
Spend enough time talking to your investors. Remember there is no such thing as overcommunicating in a crisis. Involve your investors in any key strategic decisions that you need to make. Explain to them the future that you can see clearly, but they perhaps cannot. Recognise the business reality and deliver any bad news early. Investors hate unpleasant surprises and being informed late about anything important.
Remember it is not your company alone. Once you have taken external investment you have to do what it takes to protect the interest of minority shareholders. You cannot jerk your investors around just because you have a majority shareholding. This is what lies at the heart of good corporate governance.
Manage expectations. Try to exceed investor expectations. In general it is a good idea to undercommit and overdeliver. So always be conservative in your projections. Don’t exaggerate to get a higher valuation or to look good today. When we raised our first round of funding we had made extremely conservative projections. Later even during the meltdown we exceeded our projections several times over – partly because we performed well and partly because we had made low projections.
Keep a frugal mindset. Be very careful how you spend money. Demonstrate to investors that you are as cautious with their money as if it had been your own. Lead from the front when it comes to cost cutting. Make a personal sacrifice – take a salary cut yourself before asking others to do so or before downsizing and asking people to go. Shift to cheaper offices to cut costs.
Focus on cash efficient growth and profitablilty. Nothing gives investors more confidence than a business that is turning the corner and is growing fast. What is equally important is cash efficienct profitability. Investors don’t just want to see revenues they want to see profits. And they don’t want to see profits rising along with receivables. They want to see money that is collected and in the bank. So focus on free cash flow.
Regard the investment as debt not equity. While an investor may have taken an equity risk by investing in your company, you must regard the obligation as if it were debt. The investor has put money in your company because he believes in you. You must treat the investment with the responsibility it deserves. If you display this attitude investors may be unhappy with business performance in a slowdown but they will not be unhappy with you.
Finally work on building trust. Spend time on the relationship. Don’t lie - tell it like it is. Never mislead investors. Remember institutional shareholders get more hassled if they learn they have been lied to than if they are told that they may lose some money.
Monday, 4 May 2009
Job hunting in a slow economy
My April Column in Mint
While much of the press in the recent months has focused on job losses and downsizing in Indian industry as a result of the global recession, the real crisis is in India’s engineering colleges, business schools and college and university campuses. Most of corporate India’s work force is still hanging on to their jobs – sure increments are low and some may have been downsized but by and large most people who were in employment are still getting a monthly pay cheque. It is those who are seeking employment for the first time who are struggling the most.
If you leave the top fifty B schools and the top hundred engineering colleges out of the discussion – in most campuses the majority of the graduating class is still looking for jobs and many of those who have managed to get a job have had to reduce their expectations and go for what they could get.
At engineering colleges, the IT Services sector is most responsible for the low off take of graduates. Many IT services companies simply did not go to colleges to hire this year. And those that did go, ended up either withdrawing offers or deferring the joining dates by several months or longer.
At some of the best B-Schools many students are still without jobs, and at others those who have got placed have had to accept offers from companies they would not have dreamt of joining till just a few months back. The situation in the lower ranked B schools is a lot worse. The B-School situation is compounded by the fact that over the last five years the course fees has risen to a level that graduates need to get jobs paying a certain minimum amount to as to be able to repay education loans taken to do the course in the first place.
While this may be bad enough there is worse news to come. While it is hoped that the Indian Economy and the hiring scene in general will pick up in the second half of this financial year – the fact is that hiring at the entry level will pick up a lot later. It has been observed in the past that entry level hiring gets hits first in a slowdown and it picks last in a recovery. Do not expect any great joy in the next placement season.
So what should a fresh engineer or MBA do in the current market.
First accept the new reality. The market has changed and till it changes back for the better you are going to have to scale back your expectations. Internalise this fact. Sure it’s not your fault and this is not what you studied hard for but that’s the way the cookie crumbles.
Be flexible about the industry you wish to join. If IT is not hiring, it is not hiring – period. Either join a smaller company in IT or a start up or else look at other areas. There are many other industries that need engineers and some companies there may be hiring – telecom, manufacturing, chemicals, electronics etc. Be willing to look at something different.
Scale down the bar on salary. The average salary for the graduating class at the Business school where I had studied has gone up by close to forty times in the twenty years since I graduated. And my class mates and I had considered ourselves fortunate and privileged at that time. While twenty years is a long time, a forty times hike in salary during this period is great going by any standard. I am pretty sure the wage inflation in the graduating class of other B Schools and Engineering colleges has been as much if not more over the past two decades. So be happy - you’ve done well. Count your blessings.
Consider other functions and roles. Yes you always dreamed of joining a bulge bracket firm as an investment banker. But those jobs are simply not available any more. Take what you are getting and run with it. More opportunities will emerge as the economy recovers. Till then get some experience under your belt.
Think about a further course of higher study. If the job market depresses you or you are just not able to get what you want - evaluate a further qualification and come back into the job market a couple of years later when things are better.
In short, roll with the flow. Over a thirty year career span what you are experiencing today is only a minor setback.
While much of the press in the recent months has focused on job losses and downsizing in Indian industry as a result of the global recession, the real crisis is in India’s engineering colleges, business schools and college and university campuses. Most of corporate India’s work force is still hanging on to their jobs – sure increments are low and some may have been downsized but by and large most people who were in employment are still getting a monthly pay cheque. It is those who are seeking employment for the first time who are struggling the most.
If you leave the top fifty B schools and the top hundred engineering colleges out of the discussion – in most campuses the majority of the graduating class is still looking for jobs and many of those who have managed to get a job have had to reduce their expectations and go for what they could get.
At engineering colleges, the IT Services sector is most responsible for the low off take of graduates. Many IT services companies simply did not go to colleges to hire this year. And those that did go, ended up either withdrawing offers or deferring the joining dates by several months or longer.
At some of the best B-Schools many students are still without jobs, and at others those who have got placed have had to accept offers from companies they would not have dreamt of joining till just a few months back. The situation in the lower ranked B schools is a lot worse. The B-School situation is compounded by the fact that over the last five years the course fees has risen to a level that graduates need to get jobs paying a certain minimum amount to as to be able to repay education loans taken to do the course in the first place.
While this may be bad enough there is worse news to come. While it is hoped that the Indian Economy and the hiring scene in general will pick up in the second half of this financial year – the fact is that hiring at the entry level will pick up a lot later. It has been observed in the past that entry level hiring gets hits first in a slowdown and it picks last in a recovery. Do not expect any great joy in the next placement season.
So what should a fresh engineer or MBA do in the current market.
First accept the new reality. The market has changed and till it changes back for the better you are going to have to scale back your expectations. Internalise this fact. Sure it’s not your fault and this is not what you studied hard for but that’s the way the cookie crumbles.
Be flexible about the industry you wish to join. If IT is not hiring, it is not hiring – period. Either join a smaller company in IT or a start up or else look at other areas. There are many other industries that need engineers and some companies there may be hiring – telecom, manufacturing, chemicals, electronics etc. Be willing to look at something different.
Scale down the bar on salary. The average salary for the graduating class at the Business school where I had studied has gone up by close to forty times in the twenty years since I graduated. And my class mates and I had considered ourselves fortunate and privileged at that time. While twenty years is a long time, a forty times hike in salary during this period is great going by any standard. I am pretty sure the wage inflation in the graduating class of other B Schools and Engineering colleges has been as much if not more over the past two decades. So be happy - you’ve done well. Count your blessings.
Consider other functions and roles. Yes you always dreamed of joining a bulge bracket firm as an investment banker. But those jobs are simply not available any more. Take what you are getting and run with it. More opportunities will emerge as the economy recovers. Till then get some experience under your belt.
Think about a further course of higher study. If the job market depresses you or you are just not able to get what you want - evaluate a further qualification and come back into the job market a couple of years later when things are better.
In short, roll with the flow. Over a thirty year career span what you are experiencing today is only a minor setback.
Friday, 20 February 2009
B Schools need to nurture misfits
A common misconception is that the IIM’s do not produce enough entrepreneurs.
Last weekend I attended the twenty year reunion of my class at IIM Ahmedabad. It was fun - going back to campus and schmoozing with old friends, catching up on each others’ lives, imbibing bootlegged liquor surreptitiously and also finding time for some serious discussion.
One of the recurring themes in many of the discussions was how so many people in the class had ended up pursuing entrepreneurship as a career – out of 175 in the class more than 35 have founded companies. At least seven of these companies have achieved scale, three have listed and several others are expected to grow big in the years to come.
This is a very high strike rate by any standard. So what is it that made the Class of 89 different.
Unquestionably timing and circumstance had something to do with it. When the economy began to open up in 1991 many in the class were in the right place at the right time. We had gained some work experience, yet were still green enough to not have mentally committed to a long term career as an employee manager. We were earning relatively low salaries (the average starting salary in our graduating class was Rs. 3800/- per month) and so the opportunity cost of entrepreneurship wasn’t very high – we could take the risk and not lose a very fancy salary. When we went out to get business for the companies we started the growing economy gave us the breaks. To a large extent we were products of economic liberalization.
But it wasn’t just timing and circumstance that made the difference. There were other factors at play.
In the eighties the admission policy at IIM A ensured that there was diversity in the class - you had students from different academic backgrounds and different kinds of work experience. There could be a maximum of 50% of the students in the class from any one academic background. This made for a 360 degree experience with several points of view on the table during class discussions. There were a fair number of mavericks and independent thinkers – many of us simply did not want to work as employee managers and we had said so in the admission interview. Today India’s best business schools including IIMA seem to be ignoring the value of diversity in the class. Today, the admission policy at IIM A has changed - 93% of the students in the current first year batch are engineers – a retrograde move. If you reduce diversity you produce clones. And a class of clones is likely to produce fewer entrepreneurs.
The second factor is what we were exposed to at IIM A. There was a whole suite of courses that were relevant to entrepreneurship. In most other B Schools there is one course on entrepreneurship – I ended up doing five such courses. In fact till the early eighties there was even an Entrepreneurship Concentration Package which you could do. There were case studies of start ups and small enterprises – an entire body of knowledge had been created. Today this has expanded into a centre for innovation, incubation and entrepreneurship.
The third factor at play was the demonstration effect. One by one as more and more people in the class started companies, others mustered up the courage to do the same. And we are not done yet. Some more are likely to become entrepreneurs in the future.
So what should a business school do if it wants more of its students to become entrepreneurs?
First admit a more diverse class without compromising on academic rigour. In order to do this do not rely simply on hard criteria such as the CAT score – do a 360 degree assessment of the candidate. The best business schools in the world look at the GMAT score as only one out of half a dozen criteria for admission.
Second create a separate academic department for entrepreneurship and introduce a number of relevant courses in that area. Create and source material relevant to entrepreneurship – case studies, handouts, books etc. Allow students to major in entrepreneurship.
B Schools need to stop bragging about their success using average salaries, people placed overseas and placement rate. These indicate a mindset of managerialism. Instead celebrate successful alumni entrepreneurs. Lionise entrepreneurs who can be role models. The decision to quit a well paying job and start a company is frequently an emotional and irrational one – people need to be inspired to do it.
Encourage frequent interaction with entrepreneurs – let the students know their stories.
Finally the goal of every good business school should be to produce a fair number of misfits – because that is what entrepreneurs are. They do not see themselves fitting into existing corporate structures.
Last weekend I attended the twenty year reunion of my class at IIM Ahmedabad. It was fun - going back to campus and schmoozing with old friends, catching up on each others’ lives, imbibing bootlegged liquor surreptitiously and also finding time for some serious discussion.
One of the recurring themes in many of the discussions was how so many people in the class had ended up pursuing entrepreneurship as a career – out of 175 in the class more than 35 have founded companies. At least seven of these companies have achieved scale, three have listed and several others are expected to grow big in the years to come.
This is a very high strike rate by any standard. So what is it that made the Class of 89 different.
Unquestionably timing and circumstance had something to do with it. When the economy began to open up in 1991 many in the class were in the right place at the right time. We had gained some work experience, yet were still green enough to not have mentally committed to a long term career as an employee manager. We were earning relatively low salaries (the average starting salary in our graduating class was Rs. 3800/- per month) and so the opportunity cost of entrepreneurship wasn’t very high – we could take the risk and not lose a very fancy salary. When we went out to get business for the companies we started the growing economy gave us the breaks. To a large extent we were products of economic liberalization.
But it wasn’t just timing and circumstance that made the difference. There were other factors at play.
In the eighties the admission policy at IIM A ensured that there was diversity in the class - you had students from different academic backgrounds and different kinds of work experience. There could be a maximum of 50% of the students in the class from any one academic background. This made for a 360 degree experience with several points of view on the table during class discussions. There were a fair number of mavericks and independent thinkers – many of us simply did not want to work as employee managers and we had said so in the admission interview. Today India’s best business schools including IIMA seem to be ignoring the value of diversity in the class. Today, the admission policy at IIM A has changed - 93% of the students in the current first year batch are engineers – a retrograde move. If you reduce diversity you produce clones. And a class of clones is likely to produce fewer entrepreneurs.
The second factor is what we were exposed to at IIM A. There was a whole suite of courses that were relevant to entrepreneurship. In most other B Schools there is one course on entrepreneurship – I ended up doing five such courses. In fact till the early eighties there was even an Entrepreneurship Concentration Package which you could do. There were case studies of start ups and small enterprises – an entire body of knowledge had been created. Today this has expanded into a centre for innovation, incubation and entrepreneurship.
The third factor at play was the demonstration effect. One by one as more and more people in the class started companies, others mustered up the courage to do the same. And we are not done yet. Some more are likely to become entrepreneurs in the future.
So what should a business school do if it wants more of its students to become entrepreneurs?
First admit a more diverse class without compromising on academic rigour. In order to do this do not rely simply on hard criteria such as the CAT score – do a 360 degree assessment of the candidate. The best business schools in the world look at the GMAT score as only one out of half a dozen criteria for admission.
Second create a separate academic department for entrepreneurship and introduce a number of relevant courses in that area. Create and source material relevant to entrepreneurship – case studies, handouts, books etc. Allow students to major in entrepreneurship.
B Schools need to stop bragging about their success using average salaries, people placed overseas and placement rate. These indicate a mindset of managerialism. Instead celebrate successful alumni entrepreneurs. Lionise entrepreneurs who can be role models. The decision to quit a well paying job and start a company is frequently an emotional and irrational one – people need to be inspired to do it.
Encourage frequent interaction with entrepreneurs – let the students know their stories.
Finally the goal of every good business school should be to produce a fair number of misfits – because that is what entrepreneurs are. They do not see themselves fitting into existing corporate structures.
Subscribe to:
Posts (Atom)
