I wonder what could be the reason for the hefty compensation package synonymous with this industry?

Is this because of the loads of money pouring in as revenue every quarter?

Probably not: there are other industries which are able to manage similar revenue in much better ways.

Is this to compensate for the lots of stress that the people working here go through?

Hmm.. Not very sure. Also it is still an open question whether the compensation can be linked to the mental stress level and whether stress level can be quantified and rewarded proportionately.

Is this to reward the enormous amount of risk taken by the industry as a whole?

Ah, this gets very interesting, Risk is something that has to be managed and reflects negatively if not managed properly. Rewarding based on the un-mamaged risk does not sound right to me.

Can Wall street pick up something from the software industry which seems to have overcome this problem much better;

Big players in the software industry including Microsoft had loads of money coming in (Remember Microsoft was once the unprecedented leader of software/operating system) and still had a good balance of compensation Vs preserving cash. Tens of billions of dollars stays as cash not just with Microsoft but that seems to be the norm for the entire industry.

The whole industry is moving towards a new business model which you have probably heard of… <Anything> as a Service including Software as a Service, Platform as a Service etc; I do not intend to get to the nuts and bolts of this model; but in-short the provider gives the service over the internet and collects the fees periodically as in apartment rental or car rental (Pay as you go); Financially this spreads the revenue over a long period of time and might appeal to Wall street who seem to struggle with the cash coming as a big bang.

Wall Street already adapts the Service model to things like Services provided to the Hedge Funds (Prime Brokerage) but it is probably time to add more services and I will let the brightest minds under earth (Wall Street themselves) figure out what are the possible candidates that can adapt the service model.

- Sakthi

Clearly mobile gadgets seem to be next wave of consumer electronics industry; with a number of innovations happening in this space during this decade including iPods, iPhones, eBook readers and even a gadget for tweeting… Leaders in the consumer electronics Industry including Apple have jumped into the bandwagon early on and are working hard to maintain its lead while others are trying to catch up faster.

Interestingly this wave has created some new players in the consumer electronics space including Amazon starting with the Kindle eBook Reader and Google coming up with their flagship operating system Android for mobile devices. I intend to limit this blog to Android operating system and pick your brain on whether it can attain success in this highly competitive space.

Apple seems to be the market leader in this space with a suite of superior products including ipods, iphones, ipod touch etc This game is getting very interesting since the focus is shifting from the products themselves to the applications supported by the product/platform. Apple is ahead of its competitors with the number of apps provided by the appstore reaching 100000, and billions of downloads already. Even with such a huge success by Apple, there is still room for its competitors to make a leap, if they manage to learn from the shortcomings of Apple’s mobile platform and be able to fix it.

One platform that could potentially give a run to Apple is Android platform from Google. Android to Apple mobile platform is what Linux is to Mac OS for the following reasons

1) Android can potentially appeal to multiple handset makers like linux’s appeal to multiple PC makers whereas Apple has to stick to its own handset like Mac OS with Machintosh Computer, which limits the number of choices available for the consumers.

2) Android is a truly open source platform like Linux, whereas Apple Mobile platform is not. Although Apple allows developers to write their own apps for their platform they have tight control over the app selection process which the app developers are completely disappointed about; since the apps selection process is not transparent at all.

3) Some might argue that Apple’s tight control policy improves the quality control but remember a true open source platform has the ability to self heal and promise quality in par with the closed source or proprietary platforms and has been proven time and again by multiple projects including Linux, Apache etc

As you can see Android closely resembles Linux, it is yet to be seen if it can replicate the success story of Linux.

-Sakthi

A sweet expample of a poorly managed company when it comes to growth is Krispy Kreme doughnut. What started as a family owned business in southwest during the 1930′s decided to go national and opened franchises all over the nation. According to one count there were atleast 2300 franchises in United States.

After going public in Apr 2000 the stock was trading at nearly $50 on NYSE up 235 percent. The company was in too much pressure to grow quickly and sustain growth, quarter after quarter as it is the case for any public company. The product line-up that Krispe Kreme had, did not support such a continuous growth unlike companies like McDonald’s corp, the gold standard in franchising. Due to these limitations, the company concentrated on growing the revenues and profits by introducing more and more franchising leaving behind the organic growth within a franchise. Though the company reported close to 15 percent revenue during it’s peak period, their same store sales was only one tenth of a percent hurting the organic growth of the individual franchisee. The franchisees were fighting for customers amongst themselves. By introducing more and more franchisees you might increase your overall sales, but the individual franchisee may become unfrofitable if there is no focus on organic growth i.e strategy to bring in new customer base.

Krispy kreme seemed to have gotten it and went through buybacks of several franchises and appears to gain momentum. What Krispy Kreme needs is, to apply brakes to growth by increased sales through new franchisees and just focus on the organic growth i.e. Increased sales at the individual franchise level. So sweet…

If you are already into or seriously thinking about doing business, you probably know that dealing with people is arguably the No.1 Entrepreneurial skill. This includes employees, customers, vendors and the list goes on ….If you are not a power persuader, you will end up being a loser in spite of all the handwork you put and the talent you have. So it is one of the most desired skill to win the entrepreneurial battle.

How to acquire persuasion skills?

1) Attend Management consulting seminars; Since persuasion is one of the very important entrepreneurial skill, a lot of Management Consultants conduct classes or seminars on the topic

2) Number of books and tapes are available on Persuasion skills

3) Find out, if the community colleges in your area offer this as a part of the continuous education program

4) Find a mentor for yourself and your business, in the rotary clubs and community organizations in your area, where you can learn this skill directly from a person who probably practiced this skill in his entire life.

Persuasion skill is not new to us; we were experts of the skill when we were kids and fail to recognize this or apply it at work after we are grow up. Remember those days when you got anything that you wanted from your parents; that is a very good exhibit of persuasion skills. Though we cannot resort to kiddish behavior, we can pick some of the techniques from them when it comes to persuading.

1) Apply the pressure of time

Have you noticed kids going with their report cards to their Dad only when the dad is busy getting ready to office, particularly when they have a poor score? This is a great persuasion technique used by kids, by applying the pressure of time, which can be used by adults at work or business.

2) Ask for more than you need

Asking for more gives you room for negotiating; Haven’t you heard of kids asking for a visit to the theme park and probably settling for a movie; Perhaps the kids didn’t even want a theme park; they just wanted a movie; Since they came down from a high demand they are probably granted of the request. What they do here is they use the persuasion technique of asking for more than they need and then coming down in their request. Other important persuasion techniques include behaving consistently based on some values, having a proof of written materials during persuading, which you can learn more about using one of the ways discussed above.

It is easy to pick up the skill when it is practiced just at home; the next time when the kids want something from you just be open to appreciate their persuasion skills.

Cash flow refers to the movement of cash into or out of a business. Even a business with a healthy Balance Sheet can fail due to poor Cash Flow. When the cash moving out of the business is more than the cash moving in for an extended period of time, it hurts the potential of the business to pay the vendors, employees, utilities etc. Cash Flow is important not only for the Small and Medium Business (SMB’s) but also for the big corporations including Fortune 500 Companies. Classic examples of the companies that failed due to poor cash flow includes some of the the respected banks in the Wall Street including BEAR STEARNS, where investors started pulling out money (Cash Out Flow) questioning the ability of the bank to withstand the financial crisis, which resulted in a situation where the bank did not have enough cash to be operational and was bought out by JPMorgan.

How liquid is your business?

Companies with adequate liquidity will be able to generate the cash required by selling off the liquid assets in this situation. It is for this reason banks like CITI and AIG are improving their liquidity by selling assets and trimming down their business though retaining those assets would project a bigger Balance Sheet.

Is your profit good quality?

Even if your business generates a positive Net Income (Profit), if the Net Income is composed of large non-cash items it is considered as low quality. This happens when you use Accrual Accounting where you realize the revenue when the business transaction happens and not wait until cash really flows into your business. Almost all businesses use Accrual accounting these days particularly after the popularity of the credit transactions with the usage of credit cards. When your company does a lot of business in credit, it will be notionally profitable but generate very little operational cash leading to a situation where your business fails due to shortage of cash.

In a nutshell cashflow which represents the ability of the business to pay bills and remain operational has to be monitored at all times. Failure to manage the cash flow is a shortcut to disaster.

After digesting the idea for a while and debating in your mind over and over again whether to pursue this idea or wait for another one, you finally roll up your sleeves and jump into action, willing to do all the sacrifices that entrepreneurship comes bundled up with.

Every time you face a challenge like a cash flow problem or rejection from your potential client your mind starts the debate again, whether you made a right decision in pursuing this idea. After doing this back and forth a number of times, over a period of time; you get to a point where you are sold up on this idea and begin to stop questioning your idea and start attaching something other reason to your setbacks. This attitude develops over time and gets to point where you resist to change your idea even when you realize that your idea is flawed and is not going to work. This is understandable particularly when you have put a countless number of hours in your idea but will not make you a successful entrepreneur. A successful entrepreneur will always have to question his idea and be willing to change course when you realize that your business plan is irredeemably flawed. One of the successful entrepreneur of our times Reid Hoffman founder of Linkedin has attributed this as one of the secrets of success. He is quoted as saying “Entrepreneurs tend to believe, “I’ve got my idea, I’ll go until I die.” But I advise them to take seriously about whether their business plan is irredeemably flawed and whether they need to change what they’re doing. Be diligent about failing fast so that you don’t spend five years doing something that’s just going to fail.

I know what you are thinking, “Is it OK to keep changing your entrepreneurial attempt often without giving your best? My answer to that would be, The line between stubbornness and perseverance is very thin, if you are emotionally and professionally convinced that your idea is sound, then be stubborn, but don’t resist to go to your drawing room and periodically validate your idea because it is expensive to work on an idea that is going to fail anyway.

- Sakthi

Though Organic growth is a vital part of your small business during the early days of your business life cycle; it is difficult to sustain growth without looking at other alternatives like Mergers and acquisitions. The primary capital for organic growth in a small & Medium business is loans and that market is essentially frozen.

While access to capital continues to be a challenge there is more money available for strategic partnerships and Merger & Acquisitions, the reason being, the sponsor of this activity is in essence buying the cash flow of your company, which is perceived to be less risky than even the organic growth. M&A promotes growth by increasing revenue stream and job creation, if you are expanding your business with the increased access to capital.

Do not consider M&A only during the downfall or at the verge of failing, consider the same as one of your growth strategies, YouTube is probably one of the better example of M&A as a growth strategy.

Lack of access to capital stunts business growth and owners of small and Medium business will have to get innovative and realistic with their growth strategy.

Is your business acquisition ready?

- Sakthi

You might have come across a lot of names who started business just out of college; in their garage or in their dorm, The Entrepreneur whiz kid thought is so much deep into our minds that we ought to think that someone who is not an entrepreneur in their late 30′s is a loser corporate drone. But I’m not sure where we caught that thought form. Research shows, for the knowledge intensive sectors, the average age of entrepreneurs is 37.6 years. According to a new study from the Kauffman Foundation, a Kansas city think tank, that studies entrepreneurship, the typical founder is middle age– 40, on average, when launching a first company. Seventy percent of first-time founders are married; nearly 60 percent have at least one child.

There are a number of advantages when you wait longer to start your own business including,

1) Finding Money: You will be able to find the money that is needed for your business relatively easily by funding yourself (from your savings or by asking your friends and relatives) or by reaching out to your banker for a loan, based on the relationship that you have built over the years

2) Connections: You will have a lot of connections from your previous work experience; perhaps your one time co-workers are decision makers in a business related to yours and you might be able to reach them easily for making a business deal, these connections could be your potential customers.

3)Expertise: You might have most of the expertise required by your business from your work experience and you don’t have to spend from your own business for gaining the knowledge

I do not deny the fact that starting your business early has it’s own advantages including,

1)Time: Younger people without family commitments can spare a lot of time for their business

2)Risk Appetite: Younger people have more risk appetite to try out new things, even if they go broke in a business idea, they have time to recover.

I’m not in favor of one over the other, but I strongly feel you don’t have to think yourself, a loser if you do not have your own business even in your late 30′s; It is not important WHEN you start your business; than WHAT business you are starting. If you find the right business early on, go for it; if not do not worry until you get one, after all Harland Sanders waited till 65 years old, to franchising his Kentucky Fried Chicken (KFC) restaurants.

- Sakthi

Ths shows that FCC wants to play a bigger role in the mobile networks to keep the mobile space more open, which is a good news for app developers. Don’t you think Apple has not been transparent with the rules for the selection of applications to be listed in its Appstore,

This is not the first time Apple has rejected a popular application wholly or partially; Earlier when Skype wanted to get into App store with its voice application, it was allowed to work only on Wi-Fi connections.

Apple is notorious with it secrecy policy and keeping its products secret and closed; the fact that they allow community participation in the app store by itself is a major shift in paradigm perhaps due to the pressure from competitors (Google ??) who wants to keep everything open including Chrome browser, Android operating system

Apple has been historically successful with its secrecy model and would not change overnight; but with FCC’s persistence we could expect some fairness and consistency in the selection of iphone apps in the future. Though FCC will not get involved in each and every iphone app rejection from the AppStore, its involvement will streamline App selection process a little bit.

So get ready with your next iPhone App, when FCC straightens the AppStore filtering process.

- Sakthi

Yahoo lost in the Search advertising business even before GOOGLE became a popular search engine when YAHOO, the prospective buyer of Page and Brin’s program failed to close the deal. Learning the power of Search advertising from Google, YAHOO invested billions of dollars in the search technology by buying other search engines including Altavista and Inktomi in addition to investing in their own search technology. In spite of all this, all they could was a mere catch-up game

Remember the days when YAHOO used to be the place where people wanted to hang out in the web; Those days are long gone when socializing hubs like Facebook and Myspace supplanted Yahoo in that area; After 6 years and billions of dollars spent, YAHOO finally realized that it has to get back to its roots, Content & Display advertising. From the Search deal with Microsoft which will take effect from 2010, in spite of retaining 88% of search advertising revenue arising from Yahoo properties, it also gets an estimated saving of $200 million in capital expenditure. In short though Yahoo will not be able to increase the revenue, it will have a improved margin in Search advertising because of reduced operating cost (a margin of 88% without any investment in search technology is a pretty good deal, though this deal is only for the first five years of agreement)

It appears that the deal will work in favor of YAHOO in terms of preserving cash to focus on its core business the Media & Advertising, This deal would provide YAHOO what it needs the most, CASH; With all the cash YAHOO’s focus will be to become the TO GO PLACE in the web. In my opinion, what went wrong with YAHOO is that it failed to focus on their Niche, the Display advertising and went on to build a Search technology instead of outsourcing the same to Search engines like Google or Ask which was their original strategy.

Can we conclude the path of success to be as follows
- Identify the industry
- Find a niche in the industry
- Focus on the niche
- Try to be the leader

- Sakthi