Malaysia Entrepreneurship

Understand Your Numbers

During the last few years of using Xero (a web-based accounting software), I have learned enough about accounting that I am able to do my own book-keeping. Of course, everyone have their own preferences for their own accounting software so I am not about to start evangelizing why Xero is better than your accounting software, but the main point is you should be able to read the key reports that is generated by your accounting software.

Some may argue that the most important metric in their business is their cash flow and they stopped at that. That’s like saying the most important organ in the human body is the heart. Of course cash flow is important but it doesn’t tell if you are profitable or not. One simple example is companies that get capital injections through external fundings and loans. Cash flow will be positive for a period of time until it’s not, and instead of going back to the drawing board to look at the viability of the company’s product, founders who only rely on cash flow to run their business continues to look for even more funding. A company that doesn’t generate profit for too long is not a very motivating place to work in.

An in-depth understanding of your business’s Management Report which comprises of your Profit & Loss, Balance Sheet, Receivables and Payables statements will give you a very clear understanding or your company’s financial position and assist you in making better decisions. You can definitely still be successful in growing your business without accounting skills but without actual data to back you up, you are at the risk of not being able to monitor your expenditures or expanding in categories where the growth is plateauing.

It’s hard to argue with facts and figures. So, don’t start.

2018-07-31T16:21:45+00:00July 29th, 2018|Entrepreneurship|0 Comments

On Diversification

The whole point of diversification is to reduce risk, because if we are 100% sure of the gain in our choice, we wouldn’t need to insure ourselves against the possibility of loss. Alas, there’s not many events in our lives which we can be 100% sure we will come out positive and thus we employ various tactics to ensure that we do not lose everything that we have or to a certain extent, to at least protect what we’ve already gained.

However, diversification on its own is not sufficient. For instance, you set out with RM1 million to invest in start-ups which have no track records. The closest thing you can rely on is the personalities of their founders. You are given the option to invest a minimum of RM100,000 in any of the startups, or you can choose to invest the entire RM1 million in a single start-up.

In order to reduce your risk to the minimum, the ideal strategy is to spread out the RM1 million into 10 lots and invest them in 10 different start-ups and to ensure that all 10 start-ups belongs to very different industries. We also assume that the RM100,000 will give all 10 start-ups enough runway to last for the next 12 months, which should be enough time to proof the demand of their ideas with real paying customers.

If you think after signing the cheques to each of your investees is the end of the story, then you’ve missed the whole point of diversification. Spreading out your risk is only the first step, but by having stakes in 10 different companies, you also have an added advantage- the opportunity to learn from 10 different companies simultaneously. This does not mean you have to get your hands dirty and meddle with each of the start-ups. Instead, you now have a chance to get up close and personal with the development of the start-ups, observe the decisions that the founders make in the critical phase of their start-up, and most important of all- the mistakes that they committed during this period.

Only by actively monitoring and studying your diversified interest like a lab experiment would you be able to make the best out of your RM1 million investment, and having 10 companies to learn from is definitely better than just one.

Yet, there’s also the chance where all 10 companies is going to fail but if you have been taking notes during the entire process, you should have acquired enough experience to help you make better decisions in your next investment.

In short, while you diversify, you must also leverage on the opportunities to learn critical lessons from each diversification which you can apply on your future investment. Don’t just diversify for the sake of diversifying because if you do that, it’s no different from playing a game of roulette in the casino where you are just betting on sheer randomness.

2018-01-24T00:08:39+00:00January 24th, 2018|Entrepreneurship|0 Comments

Top Line vs Bottom Line

balance sheet

Enterprises are paid to create wealth, not to control costs. But that obvious fact is not reflected in traditional measurements. First-year accounting students are taught that the balance sheet portrays the liquidation value of the enterprise and provides creditors with worst-case information. But enterprises are not normally run to be liquidated. They have to be managed as going concerns, that is, for wealth creation.

To do that requires information that enables executives to make informed judgments. It requires four sets of diagnostic tools: foundation information, productivity information, competence information, and information about the allocation of scarce resources. Together, they constitute the executive’s tool kit for managing the current business.

Peter Drucker, an excerpt from ‘The Essential Drucker’

Very often, I find myself trying to cut down expenses at the expense (pun not intended) of long term growth. There’s only that much savings you can implement on your bottom line. Every resources you throw at maximizing your bottom lines is an opportunity cost to your top lines. That is why it can be a dangerous habit seeking business advisories from your accountant. Leave your accountants to bookkeeping.

In my own experience, I have seen business owners who don’t give much thoughts on their operating expenses. To be fair, they do not splurge on fancy furniture and grandiose renovations in their business premise. But these business owners are very focused on the revenue aspect of their business. They spend a lot of time on customer acquisitions,  working on their sales pitches, training their sales team and perfecting their sourcing strategies. They spend very little time comparing quotes that don’t have much impact on their bottom line. Electrician A might be 5%  more expensive than Electrician B, but if A can fix the problem right away, he gets the job.

They also don’t worry too much on how much they are taxed. Rather, they worry about the sales they are missing out if they spent too much time agonizing over their tax relieves and deductibles.

In their head, they just keep telling themselves, “The show must go on!”

2017-04-07T14:27:08+00:00April 7th, 2017|Entrepreneurship|0 Comments

Entrepreneurs Are Risk-Takers?

Cliffhanger

This pretty much sums up what I’ve always felt about running your own gig. When you’ve decided to stop living on the security of regular paycheck and charting out your own path into unknown, it’s all too easy to let your adrenaline do the planning.

A year or two ago I attended a university symposium on entrepreneurship at which a number of psychologists spoke. Although their papers disagreed on everything else, they all talked of an “entrepreneurial personality,” which was characterized by a “propensity for risk-taking.”

A well-known and successful innovator and entrepreneur who had built a process-based innovation into a substantial worldwide business in the space of twenty-five years was then asked to comment. He said: “I find myself baffled by your papers. I think I know as many successful innovators and entrepreneurs as anyone, beginning with myself. I have never come across an ‘entrepreneurial personality.’ The successful ones I know all have, however, one thing – and only one thing – in common: they are not ‘risk-takers’. They try to define the risks they have to take and to minimize them as much as possible. Otherwise none of us could have succeeded. As for myself, if I had wanted to be a risk-taker, I would have gone into real estate or commodity trading, or I would have become the professional painter my mother wanted me to be.”

This jibes with my own experience. I, too, know a good many successful innovators and entrepreneurs. Not one of them has a “propensity for risk-taking”.

The popular picture of innovators- half pop-psychology, half Hollywood- makes them look like a a cross between Superman and the Knights of the Round Table. Alas, most of them in real life are unromantic figures, and much more likely to spend hours on a cash-flow projection than to dash-off looking for “risks”.

Successful innovators are conservative. They have to be. They are not “risk-focused”; they are “opportunity-focused”.

Extracted from ‘The Essential Drucker’, by Peter F. Drucker

 

 

 

2017-03-27T04:20:05+00:00March 13th, 2017|Entrepreneurship|0 Comments

The Focus Dilemma

That’s one piece of advice I am sure you have been given many times by successful entrepreneurs and in many business books- stay focus.

I am saying it’s good or bad advice but allow me to elaborate a bit on that advice. Telling someone to focus is like telling someone to work hard. It’s a very vague advice and can potentially do more harm than good. Why is that so?

From the point of the recipient, the well-intended advice of working hard can be interpreted as unless you are willing to work your ass off, there’s no chance you will succeed. Unfortunately, you can be working hard your thus far but you might just not be achieving the results that you want.

Yet, there’s nothing wrong with working hard. Every successful entrepreneurs I personally know truly worked very hard, especially in the beginning phases of their ventures. To put things in context, by successful I mean the venture is making profits and the company’s culture is healthy with a team of great people working together to grow the company. However, the critical difference here is not just working hard but rather what are you working hard on?

You can work hard in ensuring every one in your company washes their hands after using the bathroom but that would hardly create any positive impact in your company’s bottom line.

Therein lies the most important piece of puzzle that you must figure out. You may have the talents, perseverance, discipline and even the passionate drive to succeed. But if you are working on the wrong stuffs, you will only be ‘rewarded’ with the results you don’t want.

Take a step back and look at the bigger picture. Slow down or even stop whatever you are doing just to gain clarity. You cannot see very clearly with all that noise that’s constantly seeking your attention 24/7. Re-calibrate your compass and regroup your soldiers.

Speed is important but speed in the wrong direction can sometimes be fatal.

2017-01-18T02:57:49+00:00January 18th, 2017|Entrepreneurship|0 Comments

This versus That

Ever since we started setting up e-commerce stores 6 years ago, we’ve been using OpenCart – one of the most popular open-source shopping cart systems. And the more we use OpenCart, the better we get at maximizing the features it has to offer. We also realized some of the stuff that OpenCart doesn’t do very well.

And then it comes to a point where you start evangelizing the product you use. Because you now understand the products much better, you become more attached to it. Which is a good thing, in my opinion.

However, it only becomes not-so-good when you start to spend time trying to convince someone who’s using Shopify or Magento (both of these are also shopping cart systems) on why OpenCart is superior than theirs. It’s like the whole Android vs Apple thing. Pointless. A solid profitable e-commerce business depends not just on the shopping cart system, but a lot of other factors as well. You need a good selection of products, photography skills, copy writing skills,  inventory system etc.

Just a few minutes ago, out of curiosity, I attempted to setup my first WordPress-based Woo Commerce store. I am actually quite impressed with the whole setup process. There’s a lot of things I think Woo Commerce has got it right. Of course the Woo Commerce team knows what they are doing- they got bought over by WordPress and I don’t remember any other theme or plugin developer who got to that status.

So, instead of cheer leading for just one particular product, your perspective will be expanded much more when you attempt to solve a problem with a variety of other solutions. Sometimes, this also forces you to look at the problem from a different angle, which you’ve never thought possible. Let the fanboys fight among themselves.

It’s what you ultimately produce that really matters.

2016-11-26T03:06:28+00:00November 26th, 2016|E-Commerce, Entrepreneurship, OpenCart|0 Comments