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Business, Capitalism, Economic Growth, Growth, India, Leadership, Management, SMEs, Strategy, Technology

Destruction to Resurrection – the Indian SMEs!

Banks are flush with liquidity. The CEO of the nation exhorts all of us to become Atmanirbhar (Self Dependent) while the media anchors and industry icons – irrespective of  which side of the political spectrum they wine or dine with – ask us to forget about 2020 or even 2021 and invest for 2022 onwards.

It is a nice summary, isn’t it?

But what does an SME Business Owner or a CEO do? Fold up their company for 2 years and go on a vacation paid for by an angel?

Obviously, not!

No business owner is going on a vacation these days. Not only because the fear of COVID-19 makes a cold sweat trickle down their spine – quite erect nowadays – but for the lack of a few empowered successors they can trust their company with for just 2 weeks of absence. Even the few who had a vision for themselves – lounging at a seaside resort, their plastic enough to realise any indulgence for themselves or their families – are poring over their cash-flow statements and struggling to secure it in green for the next 6 months.

Does that mean an SME Owner cannot afford to have a vacation with their families till 2022?

To get a sense of an answer, it may help to look at what the pandemic has left bare and naked for all to see and accept. There are principally three kinds of SME Businesses in the market today with nowhere to hide.

A. In Red: Those with Jammed Balance Sheets even before COVID-19 struck

  • Business model stuck with no competitive advantage
  • With no hopes of getting any further loans or equity infusion
  • Working Capital stuck in Receivables & Inventory
  • Tier-2/3 job workers, dependent on OEM/legacy supply chains
  • Traditionally working on low profitability and high credits

Future: Monetise assets, Change business model Or Exit – Destruct to Resurrect personally

B. In Green: Those with Robust Balance Sheets

  • Need Short-term Working Capital to overcome -ve cash-flow due to Lockdown
  • Business Model changed/ Revenue streams created from new markets/ products/ technologies/processes developed over last years.
  • Higher profitability and faster inventory turnaround – better cashflows!
  • Have invested in Movers & Shakers (Successors) to lead Growth strategies

Will Survive & Thrive

C. In Blue: Those with Thin Balance Sheets

  • Need long-term Risk Capital (Equity) for investment in plant/ machinery/ space/ people
  • Can Change Business Model – Create new Revenue Streams
  • Need to optimise cash-flows, improve efficiencies
  • Brace for a long grind – build differentiators through People & Sales strategies
  • Focus on revenue streams with higher profitability & faster inventory turns

Can Survive and Resurrect

I have been speaking to a lot of people who are in the thick of the SME business world. A rough estimate of what lies denuded by the lockdown may be more like the picture painted below:

caveat – Am not an academic or represent any Industry body with access to actual data

Even if the Jammed Balance Sheet (BS) category is lower than 80%, it is nothing to rejoice or pick a debate upon. A debate could rather be about facilitating or not, the Destruction of this category so that we, as an economy & society could Resurrect ourselves into an Atmanirbhar Industrial Society.

I do not know what the PM really means when he says we need to become Atmanirbhar. For me, it should mean Three things, to keep it simple:

  • Businesses should not be Nirbhar on Government doles or bailouts. Those In Red should be allowed to get Destroyed. Their Assets – land and anything else worth monetising – should be pooled back to those In Blue who have the will to Resurrect or to the ones In Green for them to flourish!
  • Businesses need to become Atmanirbhar on their own Cash-flows or Shareholder (Risk) Equity for long-term investments!
  • Nobody becomes Atmanirbhar with rusted and pitted assets, be it technology, machines, processes, management or markets. Scrap them!

I am reminded of what one of my Board Members (of a German MNC I worked for) once explained about how SMEs or traditional family owned Mittelstand companies preferred to work in Germany. They would never go for loans or debt to finance their capital investments, instead look at growing their business with cash-flows and reserves from their ongoing business. The graphic below illustrates what the Mittelstand (Micro & SMEs) stands for or the Germany economy stands upon.

 

 

The German financial press and academia have lamented for decades about the restricted financing options for the Mittelstand. Despite that, the stupendous success of the SMEs in Germany over the last 70 years is yet to be challenged by SMEs anywhere in the world. Financial conservatism seems to have paid dirt, probably because these guys practiced Atmanirbharta, cleaned their house of rusted ad pitted assets periodically and ventured into new markets and technologies like possessed beavers.

Two major Insights we can learn from, are given below:

  • German SMEs are highly innovative: Companies with fewer than 250 staff are investing more than twice as much in R&D as companies with between 250 and 499 employees. More than 70 percent of companies with fewer than 20 employees engage in research with several partners.
  • Even small firms enjoy international success: Half of the small enterprises with an annual turnover of € 2m-plus (17 Cr.) is active in foreign markets. Only 8 percent of SMEs have more than 10 employees.

For India to become an Industrialised economy and fulfil its tom-tom’d potentials, destruction of the rusted & pitted supply chains and its components is a no-brainer. For Resurrection to happen, leadership, entrepreneurship and innovation are the cornerstones to be planted and nurtured.

Let us stop playing this stupid game of fulfilling expectations of lobbies or politicians. Covid has provided us – Business Owners/ CEOs – a great opportunity to torch our way out to Beyond Expectations!

 

About amitbeyondex

Amit practices as a Change | Growth Facilitator for Individuals, Managers & Organisations. He draws upon over two decades of practical experience in building up people, teams and businesses in Indo - German companies. ‘Beyond Expectations’ (www.beyondex.in) is a growth facilitation service to help Companies & Managers uncover their own positives, priorities, real options and arrive at their own decisions through their own convictions & resolutions. Amit facilitates you to come up with your own definition for Growth, Success and Happiness. He is neither a teacher nor a consultant. He is a practitioner, who dives deep into what is natural and facilitates the discovery of potentials. Amit specialises in mentoring German companies that need to develop their Organisations & Businesses in India. He facilitates the entire process; from Strategy Creation - Change Management - to Execution. He facilitates the Selection & Grooming of Top Management teams; helps the Management to develop appropriate Organisation Design, Structure, Roles & Performance management. He is always available to your Managers as a bouncing board for their ideas and uses question techniques to help people discover Options and make Choices! Amit has been a Guest Faculty at IIM, Bangalore & AIT Business School, Bangkok on Leadership & Change Management. He does workshops on invitation on Growth Management and has conducted such sessions with companies like Lufthansa, Ansell Inc., Cognizant Technologies, WeP Peripherals, Biological E, Magene Biotech, SLN Technologies, DOZCO, etc.

Discussion

One thought on “Destruction to Resurrection – the Indian SMEs!

  1. An excellent perspective Amit with strong rooting in reality. Offering loans to SMEs is like giving them a bigger spade to deepen the hole they are struggling to emerge from. As an entrepreneur I can personally empathize with the blue thin BS category. And it’s heartening to know that my company has been following the practices of the self funding Mittelstand SMEs of Germany, so we are on the right track. Atmanirbharta should be a core principle of small businesses, we don’t need politicians to preach it to us.

    Posted by debashisbose | June 13, 2020, 6:44 pm

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