Leave your Feelings Outside the Corner Room

Courtesy- Bluesky Knowledge Centre

Investment bankers love to point out that promoters should not get emotionally attached to their start-ups.Thats easier said than done when you have nurtured a business or people over decades.Still,India Inc is learning to take hard decisions with the sole objective of creating value,say Kala Vijayraghavan & Kausik Datta

When Dilip Dandekar opted to sell a majority stake in Mumbai-based Camlin to Kokuyo of Japan the announcement was made on Monday it was one of the most difficult decisions of his life.After all,the 59-year-old chairman and managing director of the colour and school stationery maker was easing his grip on the family jewel his father had set up eight decades ago.It was a tough decision and,after deliberating for over a year,we decided to induct a strong partner, says Dandekar.Still in Mumbai,another feisty owner of one of Indias most renowned names in fast-moving consumer goods,who does not want to be quoted,is in a dilemma.The first-generation entrepreneur would love to have his daughter take over the reins of the business yet he wouldnt like to thrust it on her.If she is not inclined,it will be bad for both, he shrugs.In a recent conversation with his daughter the patriarch told her: If I can sell the brand today I will get a much better price for it than you will. Thats not all he told her.But the money will not appreciate as much as the value of the brand will, he added.The builder of the brand is in an unenviable predicament: His heart tells him the show must go on and stay in the family.His mind,however,raises the doubt about whether his daughter will have as much fire in the belly as he did.Investment bankers will be glad to make the point that owners should never get emotionally attached to their businesses.And that when a lucrative opportunity comes along,they should go ahead and clinically clinch the deal.Just as Camlin did it needed fresh capital and modern technology to get to the next level.Not all entrepreneurs are so willing to let go not when theyve painstakingly built a business with their sweat and tears.However,emotional attachment to an asset can be a dangerous obstacle to creation of value.Increasingly,business owners are finding themselves caught between reason and emotion.And theres little choice when you have shareholders to answer to but to let the former prevail.Emotion threatens to play a spoiler in numerous situations and its not always just about assets but also about people.What,for instance,if a professional is more suitable to take over the reins than a less competent blood relative Or,what if a choice has to be made between two equals in experience and ability And then there is the question of employees what if they have been with the business right from the time it was a fledgling but are not needed any more;should they be clinically dealt with,with the good work and goodwill of the past forgotten

THE RIGHT MIX

From professionally-run organisations to family-run groups,a large section of India Inc is grappling with how to keep emotions out of boardroom and corner room decisions.Says Gurcharan Das,a former CEO of Procter & Gamble who is now a management guru and author of The Difficulty of Being Good: Smart companies are beginning to learn the importance of having enough empathy to handle situations correctly by ensuring the right mix of emotions and rationality. The empathy Das talks about is vital when organisations have to make critical but delicate changes at the top.A few months ago when Wipro chairman Azim Premji decided to do away with his joint CEOs,the decision invited brickbats for two reasons: One,as an analyst points out on condition of anonymity: If there was an issue of performance,the entire board needed to be fired,not just the two CEOs.The second aspect,however,is a more sensitive matter even assuming the decision was the right one,the episode could have been handled with more tact.A person close to Girish Paranjpe,one of the CEOs who lost his job,says Paranjpe was extremely hurt by the decision and felt the organisation could have handled the issue better. Says Milind Sarwate,head of HR at consumer goods company Marico: There is still plenty of surprise involved in Indian companies when top managers are fired. He feels employees should be regularly given feedback of their productivity and performance so that they have a back-up plan for their career and life.We need to understand that organisations are about people, adds Sarwate.

BRING IN THE PROFESSIONALS

Boards and promoters also find themselves torn when they have to decide between meritocracy and seniority,the former being a more rational premise of the two to go by.TV Mohandas Pai,a longterm Infosys hand and head of human resources,quit recently after being passed over for the top job.He subsequently said it was incorrect of the company to give importance to seniority over meritocracy when it comes to senior positions.Pai was referring to Infosys policy of giving each of its co-founders a shot at the CEO job.Pai,who joined in 1994,thus lost out.You cant blame the former CFO and HR head of Infosys if he felt strongly for an organisation he helped built and worked with for 17 years.But then in business,as Kishore Biyani,founder of Future Group,points out: You have to use both logic and emotion. Thats exactly what he is attempting to do in his family business that revolves around organised retailing.As far as Biyani is concerned,a person who can do the most damage to an organisation is the one who built it.He could do so by crowding the business with family members rather than professionals.Biyani says he wants to avoid that trap.The business has to survive beyond me.Ultimately the person who creates a business can also destroy it and so the business has to be protected from him too, he says.The point Biyani is trying to make that having built an organisation,he now has the bigger responsibility of protecting it.Over 200 million people come to my store,and some 60,000 people work with us.So there is a larger responsibility involved the business has to be above me, says Biyani.Biyani,whose Future Group includes Pantaloon Retail Indias largest organised retailer has directed family members to let professionals run the business.This has left some of the family unhappy.Rakesh Biyani,a cousin of Kishore,was initially said to have been less than enthusiastic about a decision to move to a newlycreated entity called the Family Business Board,leaving the coast clear for professionals.The founder,for his part,was clear about the road ahead.I do not think family members have to be involved in day-to-day operations of our business or be accountable for profit and loss.Instead,family members will play the role of mentors in the business, Biyani said.

TOUGH DECISIONS

The greater good of continuity would have convinced Dandekar to sell equity in a company started by his father in 1931 to sell liquid and tablet inks.The legacy of the brand wouldnt have made Dandekars task easy.He had grown up hearing stories of how his father converted the family kitchen into a laboratory in the evenings for want of a proper manufacturing place;of how he changed the firms logo from a horse to a camel (because a fountain pen stores ink in a manner similar to a camel who stores water ); and how his father combined the words camel and ink to christen his company Camlin.That the second-generation Dandekar was associated with the company for 40 years he grew from trainee to CMD would have only heightened his sense of belonging to the company.Rahul Bajaj would know all about that.Since the 1970s,Bajaj Auto reigned supreme in the scooters market,with Bajaj Chetak being the blockbuster brand that consumers were willing to wait years for.Then,the multinationals came in,chipped away at Bajajs share,and created a shift towards motorcycles.Bajaj Auto was slow in reacting to the shift,and analysts attribute that to the senior Bajajs attachment to scooters.And when the chairmans son decided to exit scooters a few years after he took over as managing director,Rahul says he was not only not convinced by the move but was hurt by it,too.Rajiv is reported to have countered : I care less for the solution from emotions,I believe more in the magic of logic. Rahul says,We publicly disagreed on the subject but company decisions are taken by the managing director and not the chairman. Rahul Bajajs short point is that business has to work with both logic and emotions.Without logic the business will go to the dogs,and without emotions it will be made of stone. By selling a majority stake to Kokuyo,the Dandekars would seem to have got the balance of logic and emotion right.The Dandekar family had two options, says Nitin Potdar,M&A partner,J Sagar & Associate,a legal firm.They could have outright sold the company and walked away with their money.Or,they could have sold a majority stake to a strong industry player which could take the company to the next level even as they hold on to a small stake, adds Potdar,who advised the family on the transaction.Between the various family factions,both options have been exercised.While one faction of the company not directly involved in the business will cash out,another group will continue to hold a small stake;and Dilip and nephew Shriram will hold on to their shares and continue as chairman and executive director,respectively (the Dandekar family will hold 13% once the transaction is complete).

PULL THE PLUG,RUTHLESSLY

The Dandekars could be a rare case of a business family that has sold a majority stake but where the family still hopes to play a significant role.In fact,that role extends beyond Dilip into the next generation (the third).I have given my son Rahul the liberty to pick a career outside.But he chose to join Camlin, says the chairman.A post-graduate in economics,Rahul joined the sales and marketing department last year. Dilips daughter also works with Camlin. Sometimes, even after an asset is sold away,an emotion still stays back that of regret.When the Shah family of the Anchor Group sold its electrical switches operation in 2007 to Panasonic for Rs 2,000 crore,the valuation stunned everyone.Except the Shahs,who decided to walk away with the stash on a cloud of euphoria.Today,the Anchor Group is wondering what on earth made them sell.Says director Hemang Shah: Even today we keep wondering why we sold a brand that we had built with passion over 40 years.I will sincerely advise people not to sell their business unless absolutely necessary. The Shahs are now trying to create a new brand to fill the void.They will soon launch switches branded GreatWhite to challenge the brand they created four decades ago.In sharp contrast,KK Modi,father of Lalit Modi of IPL fame and chairman of Godfrey Phillips India,is pragmatic about the sell option.Modi has made legal provisions to sell his over Rs 4,000 crore empire,which spans from cigarettes to chemicals,if the heirs fail to reach a consensus on a successor.Every entrepreneur would want to ensure that the business stays in the family for generations.But I do believe that division of assets leads to a loss of energy and is not healthy from a growth perspective, says Modi.In that case,my view is: Get the highest valuation for the entire enterprise and share the proceeds, he adds.Such pragmatism can also go a long way in cutting losses and moving on.Consider for instance,the process of drug discovery in the pharma sector.A high-risk gambit,companies often invest for years across several stages of trials only to realise that the molecule has no hope of making it to market as a drug.In such cases,it is imperative that the promoter is able to pull the plug quickly and ruthlessly.If you fall in love with a molecule you have a serious problem.Then you keep on pouring money behind something that is never going to take off, says Glenn Saldanha,MD & CEO,Glenmark Pharma.Saldanha adds that is where his role as CEO is critical.The scientists get completely attached and that's where I come in to make an objective decision. If you cant be that objective,accept what you are and work around it,accordingly that would be Ramesh Chauhans credo.The chairman of Bisleri International says since he is very emotional,he never takes decisions that can affect the profit & loss account. He adds that he choked and wept in the presence of Coca-Colas board in 1993 when he sold iconic brands Gold Spot and Thums Up.Yet,at the end of the day hard-nosed commerce did prevail over sentiment.

Emotion Gets In the Way When

A promoter has to decide on a business he has fostered for years because there are no enthusiastic successors within the family. A next-generation member of the family feels that the business the patriarch has founded and nurtured for years has no future A promoter has to choose a professional over a family member because the former is more competent to run the business. Promoters have to choose a successor between two equals he may like one although the other is more suited for the job Employees who have grown along with the
business almost like a family have become redundant in the new scheme of things.

It's Time to Fire Some of Your Customers - Anthony Tjan - Harvard Business Review

It's Time to Fire Some of Your Customers - Anthony Tjan - Harvard Business Review

As we move into volatile times (again), business leaders more than ever need to maniacally focus on the few customers that matter most to them — and spend much less time on the rest. The customer may always be right, but not every customer is right for you.

Some years ago, when our venture firm was starting one of its first retail ventures, I met with a highly successful CEO in the retail services industry to better understand how he did so well across all of his stores (he had some mind-blowing numbers). It was abundantly clear when you walked into any of his stores that his customers were genuinely delighted. I asked him for his secret. His response surprised me and has therefore stuck with me: "When we open a new location we quickly grow to a database of 8,000 customer names — and then work hard to get it down to 1,500 names."

At first I was taken aback, as it seems counter-intuitive to shrink rather than build your customer base. Upon a little reflection, however, it made absolute sense: ultimately, business is not about growing revenue, but about growing profitable revenue with the right target customer. To get that right customer, you sometimes need to start by casting a wider net, figuring out which customers are the most attractive, and then temporarily shrinking the business before you grow it again. With each iteration, you get smarter and more targeted towards the ideal customer profile.

By focusing on customers with the highest potential in terms of repeat purchases and larger average transactions, one is able to create a more successful business because marketing and customer service efforts (and costs) can be allocated where they matter most. But for many CEOs and founders, the mandate for growth creates a bias for quantity of revenue over quality of revenue. At our venture firm, when we evaluate a business model we think very differently about a dollar of revenue with a high probability of recurrence (i.e. a customer who will buy again, making it high quality revenue) versus dollars of revenue that need to be constantly be replaced with new customers. We believe the threshold for a high-quality-of-revenue business is a revenue recurrence rate of over 85%, meaning losing no more than 15% of a customer base each year. Such businesses have higher predictability in their business model and greater leverage in their sales, marketing, and customer service. A higher quality of revenue means a better long-term business.

If you look hard at who is buying your wares, you can quickly get a sense of where the money is coming from and where your money is being spent. Some businesses exhibit the classic 80/20 rule, with their top 20 percent of customers making up 80 percent of the revenue. We have also seen a good number of firms with even more skewed revenue distributions that are closer to 90/10. Yet organizational efforts and resources are often poorly mapped to, or unaligned with, that revenue distribution pattern. In fact, it is often the opposite. That is, the bottom customer quartiles take disproportionately from a company's sales, marketing, and customer service resources. Some of the most challenging customers are those who in the "low-middle" bucket, buying relatively little, but needing very high touch and maintenance.

Why do so many of us fall into the trap of spreading our efforts evenly across our customer base, or even skewing them towards the lowest-potential customers? It is tempting to embrace every customer equally — and we naturally want to understand why the lower customer deciles are not behaving like the higher deciles. We want to believe that we can nurture and develop all customers to reach high potential levels over time. However, in the companies in which we have been involved, the data do not support that thesis. It is always tougher to change customer behavior than to find new customers similar to your existing top-buyer profiles.

The top priority for a business that wants high quality of revenues starts with understanding everything possible about the top customers. Drill deep to understand their demographics, psychographic, and purchase behavior preferences of your "super loyalists." Where do they come from? What is their attitudinal profile and what bundles of goods do they like best and at what price? Getting an intimate clustering of your top customer base is the foundation for a high-quality-of-revenue business.

By directing more customer acquisition and loyalty costs towards that top cohort, you will be implicitly de-focusing or "firing in advance" the less valuable customer segments. Yes, the term "fire" is a little melodramatic, but it is a clear reminder that limited resources need to be carefully allocated — and that just because you sell something to someone it does not necessarily mean it is a good thing.

Firing your customer does not mean to literally bar the door, but to set conditions whereby lower- priority customers self-select out and higher-potential ones self-select in. For example, for many businesses, first purchase order size is a good leading indicator of future purchases. If you knew that $50 was the average of your top loyalists and $30 was the average of lower tiers, you could simply raise minimum price on an opening order, or only offer free shipping on orders of $50 or above. As another example, for current customers who spend little but cost dearly in terms of customer support or other costs, consider a new pricing structure where higher support services are only free for accounts of a certain size. In effect, you can offer customers the choice to become profitable cohorts or to leave.

Your top-cohort customers are super fans who have voted with their wallets. They are the ones who will recommend you more often than other customers and would miss you most if you no longer existed. Find more people like them, and spend less time trying to turn others into people like them. Thank your best customers to death for their great patronage and worry less about — or simple "fire" — the others.

The Manager's New Role

"My children don't seem to need me anymore," a friend complained to me the other day. That isn't unusual; I often hear parents express their concerns about how little their children learn from them nowadays or ask them questions. From finding the meaning of words and searching for street addresses to understanding how things work, children are increasingly turning to the net instead of their parents.
In the workplace, a similar transition is taking place with the widespread adoption of information technology. Managers are increasingly taking a back seat as information providers. From the moment employees sign up, organizations direct them to company intranets to understand different aspects of the job, the organization, clients, company policies, and often, the performance development program and its measurement metrics.
For the first time, perhaps, managers find themselves overshadowed by the net's omnipresence in answering questions about the what and how. Their authority as information-providers is eroding quickly, putting to rest that once-key role. As executives adjust to that new reality, they are asking themselves what team members seek from them today.
To find an answer, let's go back to parenthood. As a parent, I understood our kids' changing needs only gradually. Instead of a knowledge bank, they wanted me to be a mentor and a friend who would help them succeed. Rather than feeling insecure that they had access to a source of information bigger and more powerful than I was, I chose to join them. Together, we searched online for the information they needed; decided how credible it was; and how we could apply it. Divergent expectations converged into a pool of collective benefit, and yes, it helped restore harmony around the home.
At a recent meeting with young managers, I asked them what value they felt they added to teams. These smart people recognized the change in their roles. Instead of being controllers or hoarders of knowledge, they viewed themselves as collaborators or mentors, trusted for their experience — not their gigabytes of memory.
How do you think a team would respond if, instead of being a gatekeeper to information, a manager transferred the responsibility of staying abreast with changes to team members? Some may argue that doing so would chip away at the manager's respect. It may affect the manager's role as the knowledge leader, but having the confidence to lose some control and share responsibility might actually add to his or her respect too.
In this cloud of change, value zones have moved to the frontlines. These frontlines are dominated by digital natives adept at finding information and hungry for empowerment. By transferring the ownership of change to team members and assuming the crucial role of empowering the value creators, a manager could end up earning more respect as the navigator who guides the ship to the port of success.
Would you agree?

Stop Chasing Too Many Priorities

Overloaded and overwhelmed is the norm these days. Most leaders feel they have too many conflicting priorities. But research has shown that the more these executives have to do, the less their company earns. In fact, high-performing companies have leaders who focus on high-priority initiatives, not everything under the sun. Stop asking: How can I find more opportunities? Instead try: How can I focus on opportunities that will help my company excel? Know what you are best at—the capabilities you have that others don't—and focus where you can succeed. Learn to say no when things seem appealing and even lucrative, but do not offer you a real chance to win.

Use Stories to Persuade

When it comes to persuading others, rhetoric has its limits — it can sound didactic and boring. Stories are a much more effective way to convince others of your point of view. Here are three tips for shaping and telling a story that influences:

1. Know your message. Underneath every good story, there must be a point. Remember your message and weave your narrative around it.
2. Use the right example. Your story should center around a character that your audience likes and relates to.

Support with facts. Your story is only effective if it is based on and supported by facts and figures. At the beginning or end, share relevant data to convince your audience that your point of view matters.

Exercise Good Meeting Hygiene

Meetings, meetings, and more meetings! Don't contribute to the dread. Next time you need to gather people together to advance your project, make sure you do the following to make your meeting worthwhile:

• Make sure it's necessary. Before sending out the invite, ask yourself whether there's another way to move the project forward. Can you get input via e-mail? Can you gather a sub-group to solve the current issue?
• Be clear about the objective. State the purpose of the meeting in the invite and again at the beginning of the meeting. Be sure to explain how the meeting will advance the overall project goals.

• Focus. Just because you have an hour scheduled, don't take it. Keep the discussion centered and avoid unnecessary side conversations.

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