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Entrepreneurs, Lo Behold!

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Lord Alan Sugar is a 64-year-old UK businessman who has risen from rags to riches. Currently, he is a member of the House of Lords. The Way I See It: Rants, Revelations and Rules For Life, the latest book from Sugar, is as interesting as the author's personality. The book is relevant to India as well given its business environment and the peculiarity of its current generation. UK is the only G7 nation that is similar to India in terms of parliamentary governance, judiciary, education and banking. Its economy is a few decades more advanced than India's and yet is not doing well. The book helps us understand what would happen if India manages its affairs well and what would happen if it does not. In both UK and India, small and medium enterprises (SME) contribute significantly to the overall economy. SME entrepreneurs in low-tech businesses, distributors in brown goods (consumer electronics), retailers, associates in cable television or direct-to-home (DTH) or owners of sports clubs would find this book useful with practical suggestions.

Sugar covers issues such as managing labour, immigration, absenteeism and redundancy dole outs, managing business and future trends in distributing brown goods, retailing, outdoor advertising, cable television and DTH and owning sports clubs. He offers tips and tricks for a slew of things — from managing loans, understanding wines and restaurants in order to entertain your overseas business associates more effectively to understanding new forms of costly financing that affects your labour and even buying a private aircraft shrewdly. According to Sugar, labour laws in the UK are highly inflationary, relatively unproductive and tend to be unviable for SMEs. A labourer can report sick for 150 days in a year (210 days if you count holidays), which could make the cost per man hour two and half times costlier. Heavily loopholed unemployment benefits allow absentee worker to claim costly unemployment benefits. Labour and coalition governments have created a difficult situation, worsened by the already lax and heavily loopholed laws of European Economic Community (EEC) nations. Safety regulations and safety costs are disproportionately large-fixed costs in relation to SME sales and employee strength. Entrepreneurs find insurance premiums for indemnity insurance (against accidents) highly unviable. Free legal aid for oppressions suffered in the family have also been withdrawn by the government. The effect of stress and oppression is now telling on families, too.

Some provisions in UK's labour laws are too much, to say the least. For instance, an employer is not allowed to ask an interviewee if she is pregnant, but have to suffer productivity and wage shock when she proceeds on maternity leave, rants Sugar rightly. In general terms, he continues, Hasidic Jews have adjusted better socially as compared to Muslims. UK's heavy expenditures and commitments to NATO presence in Iraq, Afghanistan and other nations have rendered it cash strapped. There is a huge shortage of prisons. This creates a huge supply of unrepentant, unproductive errant labour, lumpen elements and chronic law breakers whom entrepreneurs and citizens can do very little about. It has also demoralised if not weakened the police force. This scenario has made UK an oasis for immigration, haven for labour and a nightmare for entrepreneurs. To get around this, SME entrepreneurs try to recruit relatively more from Polish and Romanian immigrants. Being new entrants to EEC, they feel immigrants from these two nations are relatively "unspoilt" versus the rest of the labour market, at least for some time. Taken in perspective, we can now understand the recent spate of riots in UK.

For The SME Entrepreneur
The author shares entrepreneurial perspectives in low-tech industries. Brown goods brands are shifting over from distributor-owned showrooms to company-owned showrooms to save distributor commissions and improve profits. Obviously, sales are thin at present; below break-even point as far as many distributors are concerned. Branded retail showrooms are facing price cannibalisation challenges from online stores and are responding by shutting down many physical showrooms and sticking as far as possible to online selling. Television channels are increasingly using reality shows as a cost effective marketing tool as they are cheaper than advertising.

Selling outdoor media space (especially newer forms of digital media) can be big in sales and profits for SME entrepreneurs, provided accreditation is managed properly. Software company Amstrad subsidises the price of the mobile phone that carries its software. It is an emailer which, in "Google like, Gmail like fashion", shows you categorised ads by the side, along with a small red button. Click the red button of the ad that interests you and it takes you straight to the call centre of that particular service provider; very India-relevant and portable, considering our humongous growth in mobile phones. Amscreen is a digital advertising marquee screen, capable of providing catchment specific advertising. It comes with a camera and is centrally programmable by the service provider. It is a huge success in petrol pumps, banks and in retail chains. Its built-in camera and reporting software immediately deduces the age and gender of the person who watches the screen and reports it. It is a very brand-relevant and India-relevant product as the camera can also help counter crime.

Sports clubs are loss makers for the SME entrepreneur due to unhealthy labour practices, but are iconic attractions for fans, vote bank opportunities for politicians; TRP and circulation gainers for media and commercially disastrous business opportunities for lending banks. It is an unsavoury business opportunity at present. Political interference in sports clubs should be disallowed because they are vote-bank driven, costly for banks and tax payers and ultimately render the business unviable. Due to senseless conventions, club players and club managers are allowed to say whatever they want on media; club owners are only supposed to keep funding and keep quiet. Further, huge transfer fees are charged when a player floor crosses from one club to the other. The brokerage payable to the player's agent is 30 per cent. Compare this to the 1-2 per cent paid to a real estate broker. Football is UK's national sport, but UK's football clubs make huge losses despite selling telecasting rights at high prices. The reason: bad labour practices. Players' salaries in the UK go up to as high as 92 per cent of total revenue earned by the club. Gate receipts are poor, despite good attendance, as tickets are priced low. Merchandised T-shirts earn poorly. Despite this commercial crosswind, frenzied fans get riled if the owner tries to shut down a loss-making club.


The Lender's Issue
Banks are expected to bankroll losses despite bad credit, while vote-bank politicians look the other way. They should be allowed to lend only to the 'real' creditworthy and without political interference. For the SME entrepreneur, understanding the nuance of creditworthiness is important. SME startups in low-tech industries should be funded only if they put up some initial capital of their own. Lending terms can be more liberally considered only if the business is medium tech or high tech. In lending money to a low-tech SME, the bank should be allowed to consider finished goods inventory at 50 per cent of MRP, receivables from large customers at 75 per cent, receivables from small customers at 25 per cent and components, consumables and production equipment at low to nil value. The banks should be allowed to have a fixed and floating charge and debenture over the whole company.

Sugar moots an elegant economy-friendly idea, which could be excellently adapted to India. Those who are above 55 years - who have worked for more than 20 years and have paid all taxes and national insurance - would be paid a Rs 1 crore bond provided they do four things: no moonlighting or having a job on the side, pay off house loan or buy a new house in the country, buy a new car assembled in India and go to an Indian holiday resort at least once annually. Smart thinking, isn't it? It not only creates jobs by making way for the young, but also helps the economy grow.

Wine And Aircraft
Sugar also gets into the wine business. SME entrepreneurs would do well to understand wines, sauces and cuisines — just so they can entertain their foreign associates effectively. They should classify restaurants into two categories — specialty (authentic cuisine) and poseur (pseudo cuisine). They should ensure that you that wine waiters are not allowed to go on refilling glasses. Recurring top-ups of wine glasses tends to spoil the taste of wine — particularly white wine. Entertaining guests at poseur restaurants would make the prospective foreign associate feel as if the entrepreneur is not very sharp or aware.

As an SME entrepreneur, you need to be aware, that new forms of usurious and scam prone financing are emerging and are targeting your labour, in order to make them more debt prone. Credit card companies may charge the customer upwards of 29 per cent per annum and hope that customers do not repay credit card debts fully or promptly. A dangerous and upcoming trend in the UK is financiers who offer pre-payday cheque-cashing facility. They offer loan against the collateral of forthcoming salary cheques. Needless to say the interest rates are usurious.

If an SME has grown to a level that merits purchase of a private aircraft, the entrepreneur needs to be shrewd. Sugar has a few strong tips here. He says buying an aircraft is the sporting equivalent of batting a curved ball. Be shrewd and avoid getting conned by slick presentations. Aircraft accessories and their pricing are horrendously different as compared to cars. A bare-boned car is far more functional than a bare-boned aircraft. Frills matter in planes. What's worse, if you retrofit these accessories, to overcome the mistake of not having ordered them in the first place, they would cost you more than an arm and a leg. Hold your breath, fitting an oven in your private plane might cost you five times more than buying a house.

Two Bloopers, Though
To conclude, while one may agree with most of the author's views, two points beg a rejoinder. First, on Sugar's take on libel and slander laws. In the UK, the cost of litigation far exceeds the award of damages— irrespective of whether the plaintiff wins or loses the case. Using this loophole, media often resort to slandering to build circulation. The author makes politicians out to be honest. That is a bias. Secondly, his prescription for dealing with drug menace in UK needs to be taken on. In prison-deficient UK, 90 per cent violent criminals and possibly 50 per cent prisoners are those driven by the desire to get money to buy drugs. The author recommends legalising production of cocaine in the UK. He calls for legalising sales of cocaine and marijuana in low price sachets and ensuring that they cannot be exported. That logic just won't fly. UK's drug problem is linked to the country's poor economic growth. Prior generations were far more prosperous than the current one. Misgovernance added to the woes. The labour force is already ridden with high absenteeism and non-productivity. Legalising drugs would only ensure that labour reports for work intoxicated. Barring these two bloopers, the book is extremely useful for SME entrepreneurs wishing to improve business savviness. One last thing: this book, sadly, lacks an index.

The author is a retail consultant in Chennai