Sunday, March 15, 2009

Basic Small Business Management: Why Some Businesses Fail?

It always pays to read good business books. Why? Well, you’ll learn a lot. If you’ve been thinking of starting a business, or if you have been running your own enterprise for more than a decade, it never is a waste of time to read because in the process, you are able to update yourself to whatever changes or trends that are going on in your industry.

Let me highlight something on this particular post – what makes a business successful? Is it pure luck? By the way, is there such a thing as “luck” or is it just being the right person in the right place at the right time with the right goods or services to sell to the right people (which can happen if you’re observant of the industry changes and trends and has a keen eye for new opportunties)? How about destiny? Say, you were born into Filipino-Chinese parents, are you destined to get rich and become the next whatever tycoon?

So why do so many businesses fail? According to Clifford Baumback’s book on Basic Small Business Management, it is commonly due to POOR MANAGEMENT. “It is poor management…that is at the root of most of the operating problems of small business,” Baumback said. And poor management is evidenced by conditions such as:

1. Inventory Imbalance. According to Baumback: “Many business failures are the result of poor judgment in buying.” If you’re into retailing, maintaining balance in your inventory is crucial. Furthermore, he said, “An inventory may be out of balance in either direction; that is, it may be too large or too small. If it too large relative to the demand for it, the cost of carrying an inventory will be higher than it need be. On the other hand, if the inventory is too small relative to the demand for it (that is, if inventory turnover is too fast) stockouts will occur.”

2. Overextension of Credit. “Business is dependent on a constant rotation or turnover of capital. Some small businesses get into hot water because they extended unwarranted credit in their eagerness to make sales.”

3. Excessive Overhead and Operating Costs. Chinkee Tan said in his interview on Go Negosyo that the secret to most business successes is keeping low overhead costs. According to Baumback, “Some small businesses tie up too much money in fixed assets, while others lack adequate expense controls, and operational expenses become top-heavy.”

4. Cash Flow Difficulties. Baumback said, “In cases where a firm’s need for cash is greater than its cash inflow, the firm is not able to pay its bills when they become due and therefore is technically insolvent.” I guess, in most cases, it’s true after all – that you (constantly) need money to make money.

5. Competitive Weakness. According to Baumback, competitive weakness happens when (1) the firm is unable to overcome the lower costs of its more efficient competitors, (2) poor location, (3) business operators fail to understand the changing world about them.”

Wednesday, March 11, 2009

Managing Asia: Christine Tan's Interview with John Lim Gokongwei, Jr.

Hello everyone. Have you ever watched Managing Asia on ANC? I’m not sure if it’s still being aired, but I haven’t seen an episode lately. Anyway, I’ve been browsing the Web here and there (no I’m not wasting my time; I’m researching :-)) when I came across CNBC’s website. I didn’t know (just until the other day) that they have quite a collection of podcasts that you can freely download to your computer or mobile phone, iPhone or iPod, smartphone, etc.

I scrolled up and down and found this very short (yet interesting) interview with John Gokongwei. Here it is:

(START)
Welcome to Managing Asia, I’m Christine Tan. To mark the program’s 10th anniversary, this week, we put the spotlight in one of Asia’s visionaries, an entrepreneur with a classic rags-to-riches story. He has built an empire in the Philippines – with business in everything, from food, air travel to property development. He is Filipino tycoon John Gokongwei.

CHRISTINE TAN: “A true entrepreneur can find opportunities anywhere,” words of John Gokongwei – Filipino tycoon and one of the richest people in South East Asia. Known for his sharp intuition and business savvy, Gokongwei has done exactly that. He has found success by seizing opportunities even in his semi-retirement days in the past decade.

JOHN GOKONGWEI: I see an opportunity and go in. If that is an opportunist then I am an opportunist. But before we go into anything, we really make a study of what…that’s why we have been…90% successful in all our ventures.

CHRISTINE TAN: With his tough as nails reputation, the taipan has built up JG Summit into one of the largest conglomerates in the Philippines, leading in the food, airline and property sectors.

JOHN GOKONGWEI: When you go into business, then you are successful, you’ll learn. And you get…you feel..you know…you can compete against anybody, that’s why I, my personal feeling is, I live from competition, otherwise you will (weather?) away.

CHRISTINE TAN: Gokongwei who turned 80 last year, was born onto wealth, but he lost everything when his father died and his mother moved to China during World War II. At the young age of 15, he had to fend for himself.

JOHN GOKONGWEI: The only thing open for me was either I become a peddler, work for somebody else, or…so I decided to get a bicycle and become a peddler. And it was a very exhilarating experience. I’ll never forget it. In fact, I would look back as one of my, best time of my life.

CHRISTINE TAN: What early lessons did you learn from your childhood struggles and hardships?

JOHN GOKONGWEI: Most important thing is to have people trust you, work hard, try to get as much education as you can, but there were no schools open then. And (austerity?) to a certain degree. And the other virtues, let’s say, Confucius, I think I believe in that, in fact I practice that up to this day.

CHRISTINE TAN: Gokongwei made his first million when he was 30, running a cornstarch factory. But he struck a bigger goldmine producing snack foods. In the 1990s, JG Summit diversified into other businesses, including telecoms, petrochemicals, aviation and banking services – a timely move which analysts say helped the company weather through one of Asia’s most challenging periods – the 97 crisis.

JOHN GOKONGWEI: Like our food business, in a recession, I have noticed the last 40 years, it’s never really been affected. Airplanes, very bad. Because peoplehave no money to travel…but they eat, they have to eat. So it depends on what business…but one is important, you must have reserves. You must have reserves. In a crisis, you don’t declare default. Because if you…are…declared…in default, you are in big trouble.

CHRISTINE TAN: Since then, Gokongwei has aggressively expanded the company’s footprints abroad. So where does the visionary get his ideas from?

JOHN GOKONGWEI: I travel a lot. I read a lot. Ask me…about…very big entrepreneurs or business people in the West or Japan, or even Asia. What they do. I spend 2-3 hours reading every night.

CHRISTINE TAN: How do spot business opportunities just by reading?

JOHN GOKONGWEI: No. you read then you know what’s going on. Then you travel around, see, like C2, that’s already a very…the exceptionally successful. We launched it 2 years ago. I know about the thing by travelling in China. I see…Chinese…drink…tea for free…you know, status symbol. Everybody has that. So, I had a meeting among our people, we decided to go into it, so we’re doing a very big way. And the success…was also in a very big way. The…we were…astounded by the results.

CHRISTINE TAN: Do all your business ideas come into fruition?

JOHN GOKONGWEI: Not all. Not all. There are some that are not very successful. We had an ice cream project that we had for 20 years. We decided to close it. Anything that doesn’t give us the return, we just close it.

CHRISTINE TAN: Your move into aviation and telecommunications really surprised everyone. How did you calculate the risk when it comes to entering new businesses?

JOHN GOKONGWEI: First of all, I have 4 rules. First, we make a study whether we can do it. Secondly, do you have the capital or deep pockets needed? Third, do you have the people and can you compete? The fourth is, can you sleep at night? I guess I can have all 3, sleeping at night maybe I’m having a little difficulty, but I actually, during the daytime, naps, so I recover. Sometimes at night, you know, when you’re entrepreneur, you’re not 9-to-5, you always think of the problem, you know. But I usually don’t, I just go to sleep, I love to sleep, it’s one of my “virtues” I think, I love to sleep.

CHRISTINE TAN: So nothing keeps you up at night at all?

JOHN GOKONGWEI: Not nothing. Some do.

CHRISTINE TAN: Like what?

JOHN GOKONGWEI: Surprises, maybe.

CHRISTINE TAN: Surprises or crises?

JOHN GOKONGWEI: Or crises, either one, you know.

CHRISTINE TAN: Looking at your empire, the Gokongwei empire, spanning across 8 core business, do you ever get worried that the company gets too big, too clumsy and too slow, slow-footed?

JOHN GOKONGWEI: We’re in 8 areas, and we feel we’re not going to go beyond that, we’re doing very well in the last 5 years. It’s been increasing. I have put in place a very good, we have a foundation that owns 30% of the company now I gave half of my shares to the foundation. My son is running it as president. My brother is chairman. And the 2 of them combined, what, 50 years of experience in the company, so if I’m not around, they can run it as well, maybe even better, who knows. And we have a complete line up f very good professionals though. We had a, McKenzie did a thorough job of analyzing our company, about 8 years ago, and they recommended that, some steps which we are taking, and which we feel is, with some revisions, very useful for us, and this has made us a more efficient company, and more willing to take risks that are more understandable risk. So I think in the end we are in the right place and our, looking at competition, I think we’ll do well.

CHRISTINE TAN: Where do you see the company in the next 10 years?

JOHN GOKONGWEI: I don’t think I’ll be around, but, it’ll be in good hands. Top, still, will be run by members of the family, the lower, the presidents and below will be run by professionals. And we’ll be very competitive, I’ve seen around the kind of competition and, we’ll survive.

(END)

I guess Mr. Gokongwei was quite nervous during the whole interview. If you want to listen to the podcast yourself, go to Managing Asia Podcast.