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Time to adapt or perish

Small businesses can’t solve all their problems. But in order to survive, they should ensure that they are not caught off-guard.

Narayan Krishnamurthy        Print Edition: November 27, 2008

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In 2000, fresh out of IIT Bombay, Vishal Gupta started his company, Herald Logic, to develop intelligent software for the enterprise market. The general mood then encouraged new ideas and venture capitalists (VC) wanted to fund them. “The concept got funding, but when I needed $1 million to get going, the VC ditched me,” says Gupta.

Successful businesses spring from a combination of hard work and dumb luck, says Sridhar Vembu, who founded AdventNet in 1996, in Chennai. “Starting a business is easy, sustaining it and meeting challenges is the tough task,” he says. In 2001, AdventNet was impacted by the doctom bust and then the idea to develop SaaS (software-as-a-service) products emerged. In 2003, Zoho, a complete consumer and enterprise software suit was in place.

The increase in business opportunities in India comes with an increase in risk. If you are an entrepreneur, you must accept this reality —you can’t make it to the big league without being a good risk-taker. This is especially true during bad times.

Sanjiv Singhal, Abhijit Tannu, Ram Ramdas, Vishal Gupta
From left: Sanjiv Singhal, Abhijit Tannu, Ram Ramdas, Vishal Gupta

"We were one of the first occupants of the incubation cell. Today, we are able to manage on our own despite changes in the business cycle."

Company:Herald Logic

Business: Provides tracking, monitoring & software solutions

History: Began in 2000 as a campus start-up at the IIT Bombay Incubator; had to stay there for a long time as the VC ditched them in the aftermath of the dotcom bust.

Today, entrepreneurs are faced with two choices: stand still and go out of business, or recognise the changes and go with them. Gupta and his partners at Herald Logic are not overtly worried about the changing economic scenario. Neither is Sridhar. “Challenges are part of business and more so when you have employees to take care of,” he says.

That seems to be the prevalent mood among entrepreneurs. In Faridabad’s industrial area, Ritesh Bansal, manufacturer of clutch cables, says, “I have seen two down cycles in the past 10 years. The best way to survive is to cope with the changing environment.”

Bansal employs about 100 people and has invested in an auto dealership, and a service centre with a big car manufacturer as well. “I realised that car purchase is a one-time investment, but maintenance is a routine expense that one can’t dispense with,” he says.

Today, when his cables business is facing a slowdown, he has reduced working hours and is planning a five-day week. “It is better than cutting jobs now,” he says. Experts say that expansion and scalability are the best ways an enterprise can survive an economic downturn.

Entrepreneurial activity in %
RANK200520062007
Brazil11.511.912.8
RussiaNA4.92.7
IndiaNA10.28.5
China13.916.116.4
Source: Global Entrepreneurship Monitor, 2007

“We are looking at different solutions for different businesses and that has widened our customer base and spread the risk,” says Ram Ramdas, co-founder and chairman, Herald Logic. In a lowcost structure, scalability risk is manageable. “The key is to avoid over-spending and have realistic targets,” adds Ramdas.

The biggest boost to entrepreneurship has been low capital and possibility of high returns. The Internet has also helped; most companies today boast digital supply chains that enhance efficiency and reduce costs. But this has also brought in a few business risks.

“Some say the current fear echoes the chaos and financial strain of the post-dotcom era,” says Bansal. But back then, many businesses had successfully deployed strategies to stay afloat. Some retrenched, some diversified, some simply hung on by a thread. It’s impossible to cover all your bases. But if you ensure that nothing catches you off-guard, you can survive the current crisis too.

What’s the risk?

All enterprises constantly face challenges and threats due to internal and external situations.

Internal risks

Cash flow: Credit periods can cut both ways; borrow prudently and be equally careful when extending credit to customers.

Product cycle: The time taken from the idea stage to marketing is shrinking, so there’s no point waiting for a good time.

Scalability: Expanding and sustaining a business calls for capital and resources that may be difficult to find during a recession.

External risks
 
Global financial shocks: You may be a supplier to a big company. If they are hurt, you may suffer too.

Regulatory and compliance risk: Change in excise and import duty laws can affect operating margins.

Cost inflation: The raw material cost may increase. Dollar-rupee parity also matters for exporters.

Consumer demand: Consumer needs may change with innovation and put your business at risk.

 Odds and means

» 99.4% entrepreneurs did not want a routine job; 74% got family support.
»  63% entrepreneurs were self-financed.
»  Only 16% chose a sector that was linked to their educational background.
»  50% experienced difficulties while seeking statutory clearances and licences.

Based on a survey in 2008 by the National Knowledge Commission

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