SEVEN BUSINESS CRISES

ByAjay DixitSr. Faculty

ENTREPRENEURSHIP DEVELOPMENT INSTITUTE OF INDIAAHMEDABAD, GUJARAT

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1. THE STARTING CRISIS

2. THE CASH CRISIS ( FIRST 3 FIRST 3 YEARSYEARS)

3. THE DELEGATION CRISIS ( 3 TO 3 TO

7 YEARS7 YEARS)4. THE LEADERSHIP CRISIS

WHAT ARE THE SEVEN CRISES?

5. THE PROSPERITY CRISIS (7 to 10 years7 to 10 years)

6. THE FINANCE CRISIS

7. THE MANAGEMENT- (TEN ONWARDSTEN ONWARDS) SUCCESSION CRISIS

WHAT ARE THE SEVEN CRISES?

• Inadequate “rounded” managerial experience/understanding in line chosen

• Underestimation of capital required for the project

FIVE CAUSES OF STARTING CRISIS

FIVE CAUSES OF STARTING CRISIS

• Lack of understanding/ arrangements of accounts

• Wrong choice of equipment/ technology/ project capacity

• Ignorance about taxation

AVOIDING STARTING CRISIS

• Choose the project line you are most familiar with (experience, education, market contacts, special knowledge, etc)

• Make realistic plans, not over ambitious

• Allow project report to ‘thaw’ and recheck optimistic assumptions

AVOIDING STARTING CRISIS (Contd..)

• Be conservative about income (low and late) and liberal about expenditure (high and early) in making cash flow projection

• Never start a project without assuring sufficient funds - change it, curtail it, drop it

AVOIDING STARTING CRISIS (Contd..)

• Use as much advice and information as possible from every sources

• Invest in an accountant at the earliest (learn what important financial data are needed)

• Visit officers of sales tax and excise

CRISIS II - CASH

• Excessive attention to profits and sales growth rather than cash-on-hand (Over investment in raw material stock, rising outstanding amount)

• Excessive investment in fixed assets by tying up funds

• Unplanned expansion in time and stages

FIGHTING THE CASH CRISIS

• Understand the difference between profit and cash & cash and assets

• Constantly watch for ways of economizing on cash

• Consult a good Accountant, Bankers, Financial Experts..

FIGHTING THE CASH CRISIS (Contd..)

• Constantly assess cash position, prepare cash-flow statements every three months in advance

• Monitor raw material stock, semi- finished goods, inventory of finished goods, and outstanding recoveries

CRISIS III - DELEGATION

• Inability to delegate responsibilities and share decision-making burden

• Psychological problem (only I can do better, lack of capability to guide and groom others, a lack of trust on subordinates.)

• Business grows, responsibility grows, time does not - business suffers, success ends up in failure

AVOIDING DELEGATION CRISIS

• Seek out or associate a second capable person to supplement “you”

• Test him, watch him and start sharing responsibilities

AVOIDING DELEGATION CRISIS (Contd..)

• Consult management experts or colleagues to identify own weaknesses and select the second person who is strong in your weak areas

• Be prepared for high salaries, appropriate status, authority and share of profits to retain key person

CRISIS IV - LEADERSHIP• Single owner or partners unable to manage

responsibilities of a large firm

• Failure to delegate and develop a management team

• Failure to change into new style of managing as effective leader - doing and checking oneself : no delegation of authorities to others

FACING LEADERSHIP CRISIS

• An entrepreneur must train, discipline and re-educate himself/herself in new management skills and style for growth

• Old habits, Old knowledge and management by one or two subordinates, physical check on everything won’t do.

FACING LEADERSHIP CRISIS (Contd..)

• Act more like a leader than manager/ supervisor

• Constantly evaluate “How you spend your time

• Concentrate on business strategies, future plans, competition, government policies etc.

• Develop a team of executives, give them authorities to create time for leadership responsibilities.

CRISIS V - FINANCIAL

• Failure to choose right source of funding for expansion (excessive dependence on borrowed funds)

• Failure to go public

• Over ambitious and unrealistic expansion plan using up surplus funds

• Psychological problems of losing control - 100% ownership of declining unit v/s 80% of a large successful firm

PREPARING FOR FINANCIAL CRISIS

• Sufficient delegation, good team and monitoring help effective planning to avoid financial crisis

• Consult experts and bankers to choose best source, time and mode of expansion funds

• Do not be afraid to go public

• Remember : 80% ownership of a growing firm is better than 100% ownership of stagnant/declining one

• Satisfaction with current success - caught napping

• Failure to watch out for new competition, technological changes, raw material substitute, new products, consumer tastes

• Loss of market share, profits

• Over confidence, a cockiness out of prosperity – ambitious expansion moves - intoxication of success

CRISIS VI - PROSPERITY

DEALING WITH PROSPERITY CRISIS

• Keep eyes and ears open, do not relax even in prosperity

• Remain firmly aggressive, not passive• Do not be over confident and enter into

unknown project/over ambitious expansion• Remember success today is no

guarantee of success of tomorrow

CRISIS VII - MANAGEMENT SUCCESSION

• Long illness, accident, unexpected death or incapability of the entrepreneur

• No one groomed to take over management responsibilities

• Second key person not having sufficient shares in the firm

CRISIS VII – MANAGEMENT SUCCESSION (Contd..)

• Death duty, estate duty obligations

• Failure to delegate, lack of planning, over confidence - all catching up

• Succession has to be planned - remove doubts and apprehensions.

• Take advance action in selecting and grooming a management – successor

• It is more reliable to have one person with general management skills and have a few others for special skills of the entrepreneur

PLANNING FOR “MANAGEMENT -

SUCCESSION”

• A team is better than single “Prince”• Invite competent persons on the Board

of Directors• Develop a club of like- minded

businessman• Constantly interact with Bankers and

Investors

PLANNING FOR “MANAGEMENT-SUCCESSION” (Cont..)

• Prepare a will, transfer shares and plan for death duty etc.

• Brief your family, son, wife about assets, liabilities and key elements of business

PLANNING FOR “MANAGEMENT-SUCCESSION” (Cont..)

PLANNING FOR SURVIVAL AND GROWTH

• Entrepreneur attitude, psychology, behaviour, more important than functional knowledge of management

• Crises primarily due to internal causes (the entrepreneur)

• Planning is a pre-requisite of success : more important for SSIs.

• Myth - Entrepreneurs are high risk-takers, too much in hurry and do not plan

PLAN FOR DELEGATING WORK

The boss should have a clear picture of the objectives of his department, the activities necessary to accomplish each objective in sequence of importance and the distribution of the total work load to his subordinates.

This is best done on a worksheet – a practical visual display – and should be reviewed as often as necessary. This worksheet should serve the purpose of a discussion guide.

PLAN FOR DELEGATING WORK

The boss should have a clear picture of the objectives of his department, the activities necessary to accomplish each objective in sequence of importance and the distribution of the total work load to his subordinates.

This is best done on a worksheet – a practical visual display – and should be reviewed as often as necessary. This worksheet should serve the purpose of a discussion guide.

WHY DOESN’T THE BOSS DELEGATE MORE?

1. He doesn’t want subordinate to Learn too much about his Job.

2. He doesn’t want to Lessen his importance both to the organization and to his subordinates.

3. He is qualified to move quickly and get things done better than turning the job over to someone else.

4. He focus that the development of younger Men/ Women might force him to retire earlier.

WHAT EFFECT DOES THIS HAVE?

The boss is loaded down with Details. He does not have time for his own Growth and Development, and necessary qualifications for advancement for advancement to larger responsibilities. There is also lack of development of his own staff.

FOLLOW THROUGH

Periodic follow-through is necessary in respect to time schedule, check points, performance to determine whether changes should be made in the assignment or remedial action initiated.

If the boss is relax with follow through, subordinates develop Lack of concern and assignments “drag” on or are sometimes even forgotten.

BENEFITS OF DELEGATION

Boss frees himself for the performance of his most important Function.

1. To get things done through people.

2. To look for improvement

3. To develop subordinates

4. To do other things he is accountable for

It is a Necessary tool for the growth and development of subordinates.

HOW TO DELEGATE

1. Acceptance, Understanding

The “Boss” is accountable for seeing that an assignment is understood and interpreted correctly.

That the person who receives the delegation knows exactly What results are expected and When

Tell ing alone is not enough.

HOW TO DELEGATE

2. State the End Result f irst

The Boss should take the time to think the assignment through to the point when he can state clearly the END Results Before beginning a detailed discussion.

3. Put him on his own

Once the delegation has been made and accepted and the employee understands the time schedule, the check points, the performance standards, and WHERE TO GO FOR HELP, then he should be Left alone as far as possible.

DELEGATION

Management Climate Influences Delegation

This climate or atmosphere has a direct Influence on the effectiveness with which delegation of responsibility and authority can be made.

If climate is Favourable then it is relatively easy to MAINTAIN effective delegation.

If the climate is Unfavourable then the boss of the unit and his subordinates will need to understand how this influence affects their relationship and the manner in which delegations can be made by the boss under the circumstances.

DELEGATION

Whenever the delegation of an assignment is made the following steps help to achieve the desired results:

• Get acceptance and understanding

• State end results first

• Put him on his own.

WHAT DOES THE ORGANISATION WANT?

1. Economic welfare and growth

2. Maintenance of adequate staff to accomplish workload on schedule within standards at competitive costs.

3. Maximum utilization of total work force.

4. Good relations between management and employees TEAMWORK Loyalty.

WHAT DOES THE EMPLOYEE WANT?

1. Job security

2. Chance to advance on basis of Merits Performance.

3. Maximum utilization of ability, skills and interests.

4. Comparable compensation, incentives, welfare, fair and uniform treatment.

PERFORMANCE IMPROVEMENT PROGRAMME

PLANNING SHEET TO AVOID DELEGATION CRISIS

Sr. No.

List out various areas / activities of your enterprises which has scope of delegation according to you. (Be specific for Fin. Mktg. A/cs. Banking, G M, etc.

Why do you wish to delegate?

To whom do you want to delegate?

When? (Time Frame)

How?How will you monitor?

Remarks

1.

2.

3.

4.

PERFORMANCE IMPROVEMENT PROGRAMME

PLANNING SHEET TO AVOID DELEGATION CRISIS

Sr. No.

List out various areas / activities of your enterprises which has scope of delegation according to you. (Be specific for Fin. Mktg. A/cs. Banking, G M, etc.

Why do you wish to delegate?

To whom do you want to delegate?

When? (Time Frame)

How?How will you monitor?

Remarks

5.

6.

7.

8.

PERFORMANCE IMPROVEMENT PROGRAMME

PLANNING SHEET TO AVOID DELEGATION CRISIS

Sr. No.

List out various areas / activities of your enterprises which has scope of delegation according to you. (Be specific for Fin. Mktg. A/cs. Banking, G M, etc.

Why do you wish to delegate?

To whom do you want to delegate?

When? (Time Frame)

How?How will you monitor?

Remarks

9.

10.