Business
From LakshyaWiki
You are a student and you need books. A businessman is someone who will fulfil this need and charge you money for satisfying your need. So the owner of a bookshop is a businessman. The whole world revolves around needs. We need cars, televisions, computers, books, movies, etc. And there are businessmen who make these things available to us, even though they do it with the selfish motive of making money. However without them life would be unimaginable.
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Economic environment
There are countries where the government assumes the role of satisfying people’s needs. These are leftist or communist economies. Government produces everything and equally distributes what it produces. These governments try to make a uniform standard of living for its people. However as government takes all decisions, people closer to the government tend to benefit more than the general public. Due to its contradictions, this system has pretty much failed. Biggest example of this failure is the collapse of Russia. Most countries in the world are now rightist or capitalistic economies, these countries allow private businesses to compete with each other to serve the needs of people. Until 1991, India was more like a leftist economy, Indians could choose between one car, one government phone company and one nationalised bank. However since 1991, we have opened our markets to private participation and now we can choose between 100s of cars, 10s of mobile phone companies and lots of banks.
Skills for success
Let us think of a simple business. Assume you know that all your 60 classmates will love to have a pen with a round cap on it. So you buy 60 pens for INR 10 each and 60 round caps for INR 1 each. You put caps on pens and now you have 60 products at a cost of INR 11 each. Then you sell all of them for INR 15 each. You would have made a profit of INR (15*60 – 11*60) 240, with which you can go to see a movie. Imagine your business is successful and you keep growing your business. You expand your market to other schools, then to the whole city, then to the whole state and so on. At some point you would be unable to do everything yourself, for this you can hire people. However, for a larger operation you would need more initial capital, if you want to sell 100,000 pens you need INR (1,00,000*11) 11,00,000 for raw material plus the money to support your employees. While the potential for making money is huge you could make INR (1,00,000*4) 4,00,000; in case you could sell only 70,000 pens you would make a loss of INR (70,000*15 – 11,00,000) 50,000 + salary of your employees. In business, risk and return go hand in hand. To summarise, these are the skills you would need to be successful in any business:
- Daring to dream and take risks.
- Understanding needs of your customers.
- Organising resources. In your case you need to find INR (11*60) 660 of investment money, a pen supplier and a round cap supplier.
- Planning. You need to ensure no one else implements your idea before you do, your customers do not change their mind by the time you have your product ready and in case you have unsold pens with round caps, then you know what to do with them.
As businesses get bigger and more complex, the list of skills needed increases. However these four remain compulsory skills for success in business.
Types of ownership
There are different formats of owning a business. When you were selling pens with round caps in your school, you had a “sole proprietorship” business. This means that you were the only one running the business, you would get all the profit of your activities, similarly you would bear all the losses you may incur.
As you keep dreaming bigger you will reach a point where you can no longer risk your own money. Imagine if you invest all the money of your family plus you borrow from a bank and then you are unable to sell your products. You will be left with a bank loan and no means to repay it. You will never want to be in such a situation. However, as you know big successful businesses are almost a necessity. To solve this problem, the world of capitalism invented the idea of a “private limited company”. A private limited company has two features:
- 1. It is a separate legal entity - this means that even though you continue to run the business, in the eyes of law your business is different from you. For example, if you invest INR 15,00,000 in a business (where INR 3,00,000 is your own money + INR 12,00,000 is a bank loan) and the business fails, then the business will declare bankruptcy and not you.
- You have limited liability – this means that the maximum you can loose is the amount you have invested. In the case above, if after declaring bankruptcy all the assets of the business can be sold for INR 7,00,000; the bank will get all this money and you will not have to repay the remaining INR 5,00,000 – the bank will take this loss. You will obviously loose all the INR 3,00,000 you had invested.
Dreams have no end. A private limited company owner can keep dreaming bigger - so big that he has no more money to invest nor any one bank has enough money to lend him. For these situations capitalism invested the idea of a “public limited company”. A public limited company is owned by thousands of investors, who invest in the company by buying shares of the company. There are so many owners that it is difficult to take every one’s opinion while making decisions. So the company is run by a management team which is appointed by a board of directors which in turn is elected by the shareholders; during these elections, each vote is weighed in the ratio of amount invested. And since the dreamer/entrepreneur/visionary is usually the biggest investor, he manages to control the company, even when he is not the only owner. For example, Bill Gates owns 14% of Microsoft shares, however he controls the company because when the Board of Directors is chosen the second largest shareholder has a very small percentage of total investment, the third largest even smaller and so on. It is difficult for all of them to unite against the biggest shareholder. Just like a private limited company a public limited company is also a separate legal entity and every shareholder can loose a maximum of what they have invested, which in the case of a public limited company is the value of shares they have bought.
A day in the life of
Five years ago I started with a small shop selling second hand spares for scooter mechanics. Some of my customers became good friends and I had observed how almost everyone complains about visiting authorised showrooms: it usually costs a lot of money even for simple problems. I borrowed some money from my father and opened a scooter workshop in partnership with my mechanic friends. Our service was very good and we soon expanded to 5 workshops in the city. As business expanded, I registered my business as a private limited company and today we have 25 workshops across the city.
I wake up around 6 AM and go out for a quick run. On Wednesdays and Fridays I play golf with some businessmen, and while playing, we talk generally about businesses, economy and how the next budget will impact trade. I have an office overlooking the main street in our workshop which is in the centre of the city. I try to get to work around 9 AM and in case I am late I let the workshop manger know in advance.
I keep my mornings free for external meetings. Today the Tax Accountant is visiting to discuss implications of changes in Value Added Tax rules. Then I will meet the water purifier supplier for changing drinking water facilities at all our workshops. After this I will stroll through the workshop and randomly choose a mechanic to observe him and to ensure that we are meeting our high quality standards.
Post lunch I usually chat with a customer to get a feel of his needs and his satisfaction with our services. Mostly the feedback is positive and I have a good afternoon, however if I get a negative feedback, I spend most of my afternoon finding and fixing the root cause of the problem. We are a small business and cash is vital to us, I sign every check and match up computer report with actual cash in the till every evening. This tight control has served us well and we have had only one occasion of fraud, where in another workshop the cashier and manager colluded to siphon off INR 50,000; our Chartered Accountant found the disparity and I fired both the employees involved. I just cannot stand dishonesty.
While driving back home, I was torn between two thoughts. On the one hand I was thinking that since we were doing so well, we could think of expanding our market at a national level. Possibly we will have to register as a public limited company as we do not have so much capital; my bankers will guide me on this in our meeting day after tomorrow. However, my other chain of thought is that cars are getting so cheap and loans so easily available, maybe in a few years there will be very few scooter owners and we will be out of business unless we think about expanding the scope of our workshop to cars.
I forget all worries when I get home and my two daughters (7 and 4 year old) tell me all about their day. Soon my wife will make some lovely dinner. And after watching the world news at 10, I am usually asleep by 11 unless I have to attend a party.
I normally sleep well but sometimes I have nightmares of fire in workshops and a loss of lives. I am so heavily invested at the moment that even if one workshop stops working for 3 months, I will be making a loss. Even though my personal loss will be limited, this business is more that a livelihood for me, it is my dream which I have nurtured for so long. I want to be rich and famous. Maybe I should think of ensuring my workshops.
World’s best
Bill Gates (richest man in the World) is the best example of a great businessman. While Bill Gates was in college, personal computer was still being developed. Observing the world around him, he had a vision that in future every house will have a computer and that the computer will need some software so that non technical people can use the personal computer. Bill Gates dropped out of college and in his home started working on such software. Today we see that his vision has become a reality and almost every computer uses his Microsoft windows.
