THE JOURNEY TO BUSINESS PROSPERITY AND SUCCESS
THE JOURNEY TO BUSINESS PROSPERITY AND SUCCESS — BASIL SPRINGER COLUMN APPEARED IN THE BARBADOS ADVOCATE’S BUSINESS MONDAY ON 22 JUNE 2009
“This book of the law shall not depart out of thy mouth; but thou shalt meditate therein day and night, that thou mayest observe to do according to all that is written therein: for then thou shalt make thy way prosperous, and then thou shalt have good success” - Joshua 1:8
An optimal path to sustainable economic growth is to develop one successful business enterprise after another. Sustainable economic growth is a desirable goal since it implies a better socio-economic well being which is the goal to which most of us aspire. It seems sensible, therefore, to focus on creating successful business enterprises.
We are often told that the failure rate of new businesses in developed countries may range from 60% to 90% within the first two years of operation. There is no reason to believe that the corresponding statistics for Caribbean countries are any different.
I do not accept that, because these statistics are factual, nothing can be done about it. Indeed, it is my life’s mission to test the hypothesis that the failure rate of businesses in the Caribbean is a function of weak management of the four main pillars of a business (marketing, operations, human resource development and money). I propose therefore that we invest in strengthening the management and observe the results. I look forward to the day when these statistics are reversed and we shall then be proud to state that the success rate of new businesses ranges from 60% to 90% within the first two years of operation. Such statistics are a manifestation of economic growth which is indeed our goal. To achieve this we must be spiritually moved, emotionally stable and practically guided.
An important underpinning of this metamorphosis of failure rate statistics is the revelation of the spiritual belief that “thou shalt meditate therein day and night, that thou mayest observe to do according to all that is written therein: for then thou shalt make thy way prosperous, and then thou shalt have good success”.
A second important underpinning of this metamorphosis of failure rate statistics is your emotional stability in contrast to emotional volatility.
A third important underpinning is the accompanying practical guidance required in the interpretation and implementation of “the management factor” and in the efficient sourcing of money. Once the money is sourced then management can be accessed either locally, regionally, globally or in optimal combination. Optimal in the sense that the value of the management output must ultimately be greater than the cost whatever that cost may be.
The interpretation of management is facilitated by the dichotomy which relates to shepherding (mentoring and hand-holding) of managers themselves, on the one hand, and the execution of the management functions themselves on the other hand. The classical sequence of these functions is planning, organising, staffing, leading and controlling.
There is already evidence in the early practical applications of the CBET Shepherding Model, where a shepherd is assigned to the entrepreneur as the first order of business, that the entrepreneurs are having an incredible experience in terms of the awareness of the full potential of their business in terms of its contribution to the growth of the country’s economy as well as to its own shareholders. This is apart from specialist knowledge that they are gaining from shepherds and other business advisors about how to manage the marketing, operations, human resource development and financial portfolios of the business. The hypothesis may be restated “Without shepherding - business failure; with shepherding - business success”.
The phrase “Shepherding as Collateral” has been coined because the shepherding activity mitigates the risk of business failure. A commercial bank, when processing an application for a loan, carries out risk assessment on the likely success of the business, then determines what “hard” collateral is required to secure the bank’s deposits. Note that the requirement of hard collateral by the bank has absolutely no impact on the chances of success of the business. The advent of shepherding, therefore, not only enhances the chances of business success but may also minimise the need for “hard” collateral by the bank.
The entrepreneur relies on the shepherd to advise on the efficient sourcing of money. There are primarily four sources: grants, private equity, loans and venture capital. (1) Grants may be regarded as loans with zero interest rate and no requirement to pay back the principal. Entrepreneurs are unlikely to refuse this form of capital. (2) Private equity may or may not be available from the entrepreneur, family, friends or the general public who become shareholders and partners within the business and with whom there is no guaranteed exit strategy. These shareholders may not be looking for an exit strategy and may be content to receive dividends annually. (3) Loans attract a rate of interest, require the principal and interest to be repaid monthly and currently “hard” collateral is required before the proceeds of the loan are released. (4) Venture Capital is a form of equity but there is a buy-back clause in the equity agreement which allows the entrepreneur to purchase the shares of the venture capitalist when the cash flows of the business are strong enough to do so. Venture capital is the most expensive form of capital but sometimes without it a business does not get off the ground.
(Dr. Basil Springer GCM is Change-Engine Consultant, Caribbean Business Enterprise Trust Inc. - CBET - Columns are archived at www.cbetmodel.org)