Business Support Systems: The Stake

This blog post is a semi-continuation of the Money tree series posted in late July.

Please make reference to that post if you are to get a full picture of what I am discussing today.

There are certain business systems that are efficient in production and output, but they in their very nature face some serious challenges in standing on their own.

When starting up business, it is usually expected that a certain level  of reinvestment or recapitalization of the business will be necessary. It is critical to realize that sudden changes, or the natural progression of the business will require you to invest time, physical and financial resources into the business.

This may be due to the fact that, the business may expand much faster than what was expected, requiring a growth in the capital requirements of the business than what was originally foretasted.

The advantage of such things is that once a business is operational, there is a bit more substance to it and obtaining financing through external investment becomes much easier than when a plan is just on paper.

I have personally felt this pinch with one or two excellent plans that have been well researched but requiring a certain level of start up financing. Especially when you are  a new venturer and everyone else is looking through your portfolio seeking your prior achievements before they can surrender their finances into your hands.

But once a business is operating, even at a small scale, it bears testimony to what it is capable of, and income cases, through due diligence and cash reinvestment, minding cash flow management there is a very high chance that the business may even be able to recapitalize itself.

It may do this even through the acquired goodwill, that increase its value over and above the actual physical and financial asset value it has in its portfolio.

An example of a business system that may require extensive levels of recapitalisation that may take even decades to recover but will definitely be worth it is mining. Substantial amounts of assets have to be bought before production can commence. In cases such as oil rigging, billions may be invested at regular intervals even as the business itself is generating a sizable cash inflow.

However, care has to be taken that recapitalization does not become a perpetual occurrence. A good system is one that ensures that there comes a point when the business reaches maturity, and becomes stable enough to stand on its own and even provide a support base for other expansion plans of businesses in the portfolio of the owners.

Investment in other people’s businesses is also useful because as my mentor always says, “I am not  the smartest person in the world.”


Growth of Business (The Greenhouse Effect)

As the first leaves break through the ground, that is when the plant is at its most vulnerable.

A business is at its most vulnerable when it is at its infancy, because that is when it becomes exposed to the true environment in which it is to exist. It becomes exposed to competition, in some economies that is when it breaks the minimum tax levels and it becomes to various laws and legislation.

If not protected and well monitored this is the time that it can slink right back into the earth from whence it came.

The seed has to be nurtured by creating a rich mix or medium in which growth is to be fostered. Similarly a business dream has to be soaked in the right nutrients in order for it to have even a single chance at seeing daylight.

A business plan/proposal has to be thoroughly researched and complemented with the right support systems before it is actually launched into the market.

Systems have to be set up to ensure that when the business is rolled out every department and resource is available to kick into action when the relevant function is called into play. It would be a serious hiccup if the company was to produce a product only to realise that a major aspect such as packaging or labeling is not in place. Suddenly, you have an almost complete product sitting in your warehouse crunching money that you do not have to spare out of your pocket every extra minute that it spends there.

In the event that the product is easily perishable every extra minute stored is a minute closer to disaster.
Smart farmers prepare some plants before the season in which they are originally intended to grow in has begun. Some conditions are too harsh for the seedlings to flourish in. Therefore they need to be sheltered before they are exposed to the environment in which they are to spend in their existence in.

Sometimes in business you need to shelter your growing business and protect it from the full scale attack of an open market system, that is why in there are things such as trade restrictions. These are meant to protect the growing firms within a nation from the full scale impact of a harsh and developed economic system.

In this discussion we shall focus on a microclimate of developing a business. In some businesses it is wise to create a business and expose it to a controlled or small market releasing it as a pilot project in order to iron out any unforeseen challenges that would prove catastrophic in a larger scale.

It’s easier to recapitalize a business worth $10000 by 20% of its value than it is to recapitalize a $100000 business. The task of correcting a $2000 mistake is far easier than a $20000 mistake, at times the mistake involves the salaries of your human resources, and human resources are just one resource that you do not want to make a mistake with.

Every single disgruntled employee has the potential to bring down an entire company to its knees, employees are like the roots of a company and anyone of them may be the taproot, which if damaged the entire plant can just shrivel and die.

So the mistakes that are made in a controlled environment are far better than those involved in full scale implementation.

10 disgruntled employees are better managed than a 100. Once a business has grown sufficiently it can gradually be exposed to a larger market growing into new markets and gradually adjusting to correct practice as it grows.

Once it is healthy enough it can fully branch out and realise its full rollout and it has a better chance of success. There is greater possibility of success once you have gained confidence in the viability of your business and you have a few loyal clients to fall back on as well as good contracts with suppliers and markets.

Your human resource base will also be in a better placed position to handle the pressure that is associated with running large scale corporations.

Once an entity has also proven a model at a smaller scale, this means that it is feasible for implementation at a larger scale.

Growing plants/The new enterprenuer

“…If ye had faith as a grain of mustard seed…” (Luke 17:6).
Someone once told me something that I found to be very profound when I first expressed interest in farming. He told me that farming was so advantageous because you know the plants actually want to grow.

All you have to do is help them realise their dreams,……. yes the dreams of the plants, and you shall realise your own.

The same things apply in business, business is all about meeting an expressed, implied or expected market need. The market needs the product, they are actively or inactively seeking it by their actions and words.

Usually the need is known and commonly accepted. It is when a need is most common that the highest possible realisation from commercial work can be realised.

When most people think about engaging in any business activity they usually view it as a major adjustment process that will require trying to coerce people into buying products that they do not actually want.

Products exist because a set need has been identified and someone has made a move to provide the good and or service to the consumer.

So the question that a marketer must ask himself is not, “how do I convince the client to purchase this good?”, but, “how do I make the client recognise, acknowledge and feel the need to do something to meet the need that is within them for this good?”

You have to believe that the business also has the inherent desire to grow and realise the best that it can be.

But you have to realise that the business also undergoes the same developmental cycle as a plant grows. Nature is the best teacher on growth. Plants are conceived as seeds, planted, they die to self as seeds into the seedlings that are but a shadow of the sometimes massive trees to come.

“The Money Tree”: Land Preparation – Part 2

When farming, it is essential that the land that is to be used for the production of crops be kept as free from rocks and stones and other impediments to growth as possible.

A growing, well prepared seedling can even fail wither and die if it meets a rock under a seemingly fertile ground. You will notice a wide difference between it and the surrounding crops and you are left
wondering why some growths appear to be strong and healthy whilst others appear to be failing yet the fertilizer was distributed evenly and even the pesticides applied the same.

You as the principal promoter has to take the initiative to instill the culture of thoroughness and preparation for the environment in which production is set to take place.
Stones or hindrances in the production process can be found in the case of bottlenecks in production or the transfer of one semi-finished component to the next stage in the cycle.

Plant layout should be made in such a way that components can be transferred from one stage to the next with the least amount of effort and time delay possible.

Smooth running is essential especially when dealing with huge volumes or a consistent flow of goods and services as any slight delay will be felt throughout the chain of production and output.
The losses realized from idle time in machinery, human resources and equipment can at times prove catastrophic.

I know of a construction project that required the use of a hired crane for which they were paying $15 000 per hour. Unfortunately the site where the construction was to take place was open without any
undergrowth vegetation, and it happened to rain just before construction could commence.
The engineers were forced to lay some several layers of rock on the ground so that it would be able to hold the crane. The loss was quite a lot, as the project hours for the day were extended for six to seven
hours, that means an extra $100 000 was spent.

The amount though huge, was far less than what would have been experienced if the crane had become wedged into the ground and had been stuck for two to three days as they search for another even larger
crane to pull the first one out.

So at times it may be necessary as we explained earlier to experience some losses in order to avert realizing an even greater loss later on.

Another approach that would also make sense if possible is to identify land that best suits your individual business. It is far easier to go into an environment that has already been altered and modified to suit the needs of your business.

In most cases, you find that there is considerably more expenditure on real estate areas on a continual cash flow basis on areas that have already been made suitable for the intended business, classified as
prime real estate areas, than what is spent on altering the state of the environment to suit the needs of the business.

When investing or in farming terms, sowing into your business, ensure that you make the land as fertile as possible. You can do this by creating sufficient and efficient support systems for the crops or
engines of the business to perform well.

For example in a law firm it would not make much sense to load a professional and exceptionally performing lawyer with tones of data entry work.
This job can easily be performed by another subordinate. If necessary where large volumes of work are involved a personal secretary may even be necessary.
You do not want a situation whereby every partner within the firm shares the same secretary and each one tries to prioritize their work.

It’s like several plants all fighting for the same nutrients, at the end of the day the plants will end up weak and produce very little output.

So such little support systems have to be put in place to ensure that efficient production takes place, though measures have to be put in place to ensure that the right resources are availed at the correct time. There is such a thing as over-fertilization, were too many resources are given to the employee
to such an extent that the firm begins to realize negative returns from the addition of further resources.
So you have to be careful that an optimal number of inputs are maintained at any one time.

The Fine Print 2

Please ensure that you have read “The Fine Print” before reading this note.

“The Fine Print” series is focused on PRACTICAL implementation of business strategy.

Take baby steps. There is no newly born baby that just got up and started walking.
Business and any project that you are going to carry out involves a certain level of coordination effort and experience.

If you do not have the capacity or resources to immediately carry out your project in its entirety, you may have to take the winding path up the mountain by building up to your vision.

Sometimes it may be necessary to take up other projects that are intended to finance your ultimate vision or goal.

Lets take our million dollar target at the end of twelve months example, (this is assuming that you have read the “fine print” post. If you havent, u may need to do so), you may have find it beneficial to build up to the set target rather than attempt to make $1200 per day if you are an ordinary person like me.

Urban legend tells of a guy who did a small job an got a few dollars, with those few dollars, he managed to buy a cluster of bananas.

He took them and sold them managing to double his income in the process, instead of spending the profits, as most of us would, he bought two clusters the next day, and the next day he bought and sold four clusters, this continued for a while until the man owned a chain of stores and was making thousands per day when he started out only with a few dollars.

So that may seem like an old story, but the ingrained concepts remain the same throughout ages.

In simple terms what I am saying is, consider a step by step financing system. Start off with a smaller business model and work your way to larger models with a larger cashflow and net revenue.

As we stated earlier keep your main focus on the bottom line. Some businesses involve a lot of cashflow, which is basically a lot of money exchanging hands, but the net gain realised in each transaction is very low.

These businesses are found for example in the form of retailing. These may be very dangerous because they depend entirely on a high rate of goods turnover. You should only take up such a business if you have a lot of implicit knowledge about the industry and market in question.

However once you gain a significant market share, they often prove to be a reliable source of a constant cashflow.

Anyway back to our discussion, it may prove useful to start off with a business that requires low levels of cash input to start off and build up the client base and rate of turnover on this one business until you have a unit that is able to stand on its own without much intervention from you as the principal.

Please note, this is the most critical aspect, the business should be replicable and be able to run on its own after a while without your constant monitoring. That is the key ingredient. If that does not happen, the model will not work. (We shall have to dedicate a section to discussing how to make an independant business model)

Now it becomes possible to take some of the profit generated by the initial business and direct it towards a new business startup financing.

Some entreprenuers may find it easier to sell off the business and take up the total recieved from selling the business and start a totally brand new project.

But my thoughts are that if something works, why shut it down? In business the gambling principle that you should get out while you are still winning does not hold true. In business you create your own luck (we shall also discuss this topic in detail later).

So once you have a small business running on its own independent system, you are now free to take up that extra net income and direct it towards financing a new bigger business that generates even more cashflow.

Please note that this method is relatively safe, but there is a possibility of making a few errors along the way, but do not be discouraged, because your initial investment is still quite secure.

As you continue to set up functional business systems, you take up bigger proposals and begin to generate even more net revenue.

The intention is to create an exponentially increasing business model composed of several little business models within it. It may sound a little complex, but it is the safest method of startup, because as you gain experience in running a small business model you gain the confidence to expand and realise greater income.

To be continued…..