My Journey As Consultant - 3

 Market Opportunities and Insights gained from early assignments

It took us six months to establish our credentials as trustworthy and reliable consultants, or rather, partners in progress, of the owner-managers of small and medium businesses. We learnt the art of navigating our way past the maze of road-blocks in each of the three  principal categories of consultancy assignments on which we focused our attention. Here in brief is our mantra for success.  

We built the wherewithal for the first category by establishing our credentials with a public sector bank which was the major lender to many small and medium enterprises in Hyderabad. Companies that were in this category were businesses which were having financial problems due to various reasons and were approaching the banks for more money to manage their day-to-day affairs; such units usually got referred to us through the bank for stock audits and diagnostic studies. 

Personal references of well-known businessmen like my friend GVS Murthy (referred to in the last post) and building a portfolio of success stories brought success for us in the second category. These were businesses that were doing well but the promoters were having difficulties growing the business and were seeking outside help. This approach worked well for us in Hyderabad but is an infallible route to success anywhere in the country. 

Market studies and project reports are a major opportunity for any consulting business and formed the third category of our assignments. Building a portfolio of well-documented and thoroughly researched reports, backed by extensive field work, built our credibility both with entrepreneurs and banks. These were new projects promoted by first-time entrepreneurs looking for funding from financial institutions. They needed a market survey along with a project report to be presented to these institutions and, if necessary, our help to negotiate with them for getting approvals.

Looking back at those engagements, we notice certain patterns of issues in each type of assignment. The businesses facing financial problems were of two types. In the first case, there was systematic diversion of funds from working capital to other purposes and covering up these with overstating the value of their stocks to get more funds from banks. These diversions could be deliberate or misguided decisions to use working capital to build long-term assets like an additional building or expansion of capacity, hoping to get more business which never came.

The second  category was mostly due to inability to manage receivables from their customers effectively, thereby upsetting the working capital cycle. In some of these cases our diagnostic study also brought out an interesting aspect. When the units were running a small business with a short working capital cycle they were very profitable. But when they expanded capacity and started going after newer markets, mainly  with large government organisations as their clients, the working capital cycles increased, eroding their margins and also affecting the cash flow. Since we were engaged by the banks on behalf of these units, our role ended with submitting our findings to the bank and also to the business owner. Since the units were already financially stressed, no additional work came from these units.

The second category  of businesses had different sets of problems. They were financially very successful. The original promoter had started with a few known, trusted people working for him who were essentially good errand-boys but very loyal. They also had the ear of the promoter. Once the firms started growing steadily, they needed to hire new people to work for them who also had better professional qualifications and were younger. These newcomers had expectations of growing in their careers. They also wanted to earn more and most of them, coming from a middle-class background, wanted for job security. In those days, in the command and control economy, public sector jobs were paying better than many of these smaller organisations and there was job security. Most youngsters who had joined these client organisations right out of college used these jobs as a learning  ground to gain experience and quit the moment they got a job in a government-run organisation. To add to their discomfort, the older employees who were with the promoter from the beginning used to carry tales about them behind their back, which also made the promoter distrustful of them. So, getting and retaining people to help manage the growth was a big challenge for which these  units had no immediate solution, affecting their growth. 

Another related problem was that these units also had no proper systems and procedures, and the owner was used to taking all decisions on an adhoc basis as he was in charge of all business activities and everyone was expected to do his bidding. This culture continued even after they started growing and this caused a lot of resentment among the employees. I got many of these insights when I insisted on starting my engagement with an attitude survey  of employees in an unstructured freewheeling discussion with a cross-section of the employees before coming up with ideas for improvements. This is also when I realised that I was confronted with the challenge of change management along with growth management. I also noticed that the older employees who formed the inner circle of the owner resented my being appointed as consultant and were constantly trying to  undermine my work. So the first focus was to get the promoter to trust me.

When I used to present my initial findings in confidence to the promoters, they would willingly agree, saying that they didn't see any  other way to deal  with their situation but realised that the  problem was with themselves. So my first engagement was to help them set up proper systems and procedures, along with some semblance of structure and an information system, so that all work would go on as smoothly as possible without the owner getting involved in every aspect of running the business at the operating levels. To keep the old-timers at bay, I suggested that they be given independent responsibility for particular areas of operations where they had already established an understanding of the business operations and they had to now report to the owner only these aspects and nothing else. 

In the beginning, this was not easy but I noticed that, with my role as an external change agent -- and constant  prodding -- some order finally came into an otherwise chaotic situation. 

The next challenge was to recruit, at the middle management level, professionals who also had exposure to working in a structured organisation. This is when we took the responsibility for recruitment and placement activity, where we had to use our network along with some head-hunting to identify good candidates. We noticed that in those days many youngsters who were working in other big cities but had roots in Hyderabad were looking to shift back here. We were able to identify such individuals and sell them the idea that, since Hyderabad had a large number of mid-sized organizations who could gain from their experience and would give them a good opportunity to grow, why not consider these options? After initial hesitation, they would join and we as consultants would make sure that they made a smooth transition and stayed put in their job. 

This kind of role also ensured that we were with the same organisation, implementing and monitoring our recommendation over a longer period: in some cases, the association lasted for 2 to 3 years. This also got us steady revenue from a few of these clients over this period. Some of these clients subsequently engaged us for helping them in diversifying their business operations. 

In a few cases, the professional equations became closer than the arm's-length one usually seen between consultant and client. Some of them went to the extent of trusting me in particular with their personal issues at the family level, and many employees also started confiding in us. I realised that we were getting sucked into roles for which we were not trained or engaged and decided to  move on by slowly winding up these assignments. 

In the third category, where market surveys and project reports were required, we found two types of clients. The first type were the most avoidable since they approached us to fix a deal with the financial institutions to get funding in such a way that their margin money was also funded!! We took a stand of saying a point-blank “No!” and let go of such opportunities. In a few instances, however, we found that it was possible to convince the promoter not to do this if he was serious about earning by running a successful business, since such an approach was doomed to failure. 

The second category was the  serious promoter who wanted to go by the rule books but found that in many financial institutions in those days there were some black sheep who would not fund a project unless they were taken care of. This is where we were able to take advantage of our connections to bypass such individuals while making sure a solid project report, backed by a good market study well defended by us, would get the funding it needed. My Bangalore  associate had become particularly good at this over a period of time and he used to handle such assignments. 

During this period we also had to hire additional staff, particularly to conduct market surveys. Most of these were industrial market surveys which required our staff to visit potential clients located across the country, to assess demand gaps and opportunities for new entrants. We also tried to use them to do some follow-up work on getting new prospects. We soon realised, however, that they were not  coming up with new clients since they required a deep understanding of the selling process for client acquisition and closing the deal, for which they were not yet trained. 

Between 1983 and 1986, we had regular business in Hyderabad and  Bangalore but we noticed that in Chennai, where we had registered our firm hoping to get more business from an established industrial base, we were not getting any new business after the first study we got in the beginning of 1983. I shall discuss in the future posts how this kind of skewed business development causes its own problems in running a small consulting outfit. 

Apart from this, we also got a few large assignments which gave us big exposure in Hyderabad and we started getting enquiries about our services from prospects. These assignments also gave us a good exposure to markets in some industries, and challenges involved in launching a new consumer product. I shall discuss a couple of these engagements in the next post.