In the first of a two-part series on business development strategies, we bring you a discussion from the INSIGHT 2012 program, where KV Kamath, Chairman of ICICI Bank, and Rajshree Pathy, MD of Rajshree Group of Companies, look at the various problems and solutions that emerge when SMEs attempt to scale up.

Interviewer: Let me ask you about business development strategies to scale up and how small and medium entrepreneurs can take the next leap. Rajshree, let me start with you. You started like everybody from scratch. You have built a business and you are still thinking of continuing to build it. What are the two or three things that you did according to you that helped you come to the stage.

Rajshree: I think it is very important for any entrepreneur to have a short-term vision and a long-term vision. A short-term vision that perhaps is a year or five years, and a long-term vision that is maybe ten, twenty years, whatever. That is up to them to define the deadlines for the vision. And to work on both these goals with commitment. Scaling up is a very committed sort of experience.

I would say that entrepreneurs are used to doing everything themselves and they have to learn to let go. I think that is the first lesson. Scaling a company from ten crores to five hundred crores is not the same as taking it from five hundred crores to thousand crores. The same team that made the first growth possible is usually incapable of taking the next step. You need to find different skillsets. You need to learn from people who have achieved those targets. We also need to develop leadership within the institution.

I have personally experienced that. When I felt the need to grow, I just went to consultants, I listened to people, I learnt from peers who have done this and it is about having confidence and commitment to the process because you can’t abandon this exercise halfway through and say “I don’t trust you.” You have to find people that you can trust. Take your time doing your homework to find those people that you can delegate responsibilities to and then let them function.

I think the mistake that most people make in SMEs is that the entrepreneur thinks he can do it all on his own. Every entrepreneur is limited. Everyone is limited by their exposure. Everyone is limited with their skillsets, and so it is very important to understand your own limitations and take help to take that next step.

Interviewer: Mr. Kamath, what would your recipe be for a business development strategy to scale up?

Kamath: I would agree with everything that Rajshree said. I guess building teams comes first. I think the people equation comes first. You then need to look at what are the other inputs that will help you along the way. Clearly, getting the financial equation right comes simultaneously. If there is a technological equation, you can leverage it. Getting that right comes thereafter. Commitment to focus on the task ahead, which is execution, comes thereafter. What I have found in my career is that Indian entrepreneurs are able to do most of these things. One characteristic which I find till recently was not visible was letting go. Letting go is very difficult, and particularly letting go of businesses, however important it is to us to let go our business to free up cash. The tendency was to hold onto this and then see if the other will find its own solution, which never happens. Another thing is letting go of equity and saying that you will do a convertible bond and you know all the problems that have risen with that.

I can tell you that every single entrepreneur who has got stuck on convertible bonds, I have spent at least one hour telling him, “Raise equity today, don’t go the convertible route.” But not one of them has listened. Their idea was, “Well, I have a brighter future tomorrow and day after. That’s when the conversion will happen. So, I will dilute less.” As a consequence, you have brought on a whole lot of burden on your shoulders. So I would think that traditionally, Indian business did not get the financial equation right. I think the people equation started falling right about fifteen-twenty years ago. The financial equation, they tried to get it right, a lot of them in 2003-2004 coming out of the crisis of the 1990s.

But, again they have walked into some sort of a trap. I think if small and medium industry understands that this is where the bigger companies went and this is where they have gotten stuck, I think they can tread their path carefully. The rest of the equations they have. They have entrepreneurial ability, ability to take an informed decision, they get most of their equations right and execute at a fair speed.

And you see, most of the large companies of today started small. I would think that inherited companies – if you look at how many companies which were inheritors are there in the top fifteen companies in India today as compared to 1980 – they will be zero. So, basically these companies have been built from scratch or they are government companies in the top fifteen list. I would guess that every entrepreneur here who is today a small, medium or an emerging company has to aspire for something much bigger and I am reasonably sure that almost all of them will succeed.

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