Journey of a Serial Entrepreneur

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How to get from where you are to where you want to be

5 Steps to Better Inventory Management

“Every company has metrics that track performance. The key question is whether these metrics really provide visibility to performance as viewed by the customer.” Steve Matthesen

Inventory management is an aspect of business which needs to be given more attention than what it currently receives. It is certainly not the most glamorous aspects of running a business. Inventory management is a basic business building block like marketing, sales or finance. Simply put, inventory management deals with how efficiently an organization manages it stock cycles. Stocks in inventory, relate to aspects of business that are exposed to risk when accumulated beyond certain thresholds. In the case of a service business, it is the amount of outstanding payments. Efficient inventory management helps a business to maximize its existing assets by increasing turnover. Listed below are five steps to assist your business in managing inventory cycles better:

1. Inventory Velocity: This is an essential metric, which measures the speed at which a business can move it’s stock. The speed at which a business moves it’s inventory will impact substantially on its profitability and ROI. Inventory velocity can be calculated by simply dividing the cost of goods sold by the average inventory for the period. This is a benchmark all businesses should watch very closely. To learn more about the importance of measuring inventory velocity please click here.

2. Forecasting: Mistakes made by forecasting incorrectly will impact directly on the level of inventory at the end of a financial period. There are three important aspects to be considered when constructing forecasts. The forecasts need to be based on data acquired from the market, sales channels and the current pipeline. Based on these aspects, we can construct forecasts for multiple scenarios which enable us to put measures in place, for the best and worst case scenarios. It is important to remember that forecasts are only as good as the assumptions they are based upon. To learn more about how to forecast revenue for your business please click here.

3. Communication Channels: When there are insufficient channels of communication between the producer, distributor, retailer and customer inventory, management becomes challenging. The information gap needs to be bridged by implementing several communication channels which include, allocated representatives, conference calls, real time stock levels and feedback channels. When information is allowed to flow freely from the customer to the producer, changes can be made faster and everyone in the chain stands to benefit. To learn more about the various communication channels please click here.

4. Technology: Organizations such as Walmart and Dell have shown the power of technology to optimize inventory management. Today, entrepreneurs have access to several tools such as bar coding, inventory management  and billing management software, which can help give small businesses an edge in managing their inventories optimally. To learn more about different types of technologies available for inventory management please click here.

5. Internal Policies: Policies and controls need to be selected carefully. Their main objective should be to facilitate bottom line growth for the business. These objectives act as guiding principles, and policies are intended to facilitate reaching those goals. Proper inventory management can impact bottom line figures and results for the business substantially. Policies pertaining to ordering, review and collections need to be mapped out in detail to ensure proper management of inventories. To learn more about internal policies relating to inventory management please click here.

Operations and supply chain management are the nuts and bolts of all businesses. Without smooth operations and proper controls, we could have a great website, killer marketing strategies and still come up short. When a customer does not get the product in time, or at the right price, we lose the customer. It all comes down to execution, and ensuring that we have systems in place to manage each order optimally. Inventory management is a critical aspect of this chain, and I recommend all business owners review their inventory cycles and work out ways to optimize them.

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Inventory Management Internal Policies

Policies are many, Principles are few, Policies will change, Principles never do. John C. Maxwell

A common answer I get when I ask individuals why they chose to become entrepreneurs is, “We did not want to get buried in bureaucracy and policies which stop us from performing optimally.” I completely understand where they are coming from. It is true that in some larger organizations policies and controls become so complex that it leads to much frustration. However, I do not advocate running a business without any control measures. Policies and controls need to be selected carefully. Their main objective should be to facilitate bottom line growth for the business. These objectives act as guiding principles, and policies are intended to facilitate reaching those goals. Proper inventory management can impact bottom line figures and results for the business substantially, and is an area where entrepreneurs need control measures to ensure that things move smoothly. Listed below are a few policies which may be helpful:

1. Ordering: If your business depends on manufacturers to produce your product, it is best you have documented your specifications in detail. It is also advisable to get quotes from a number of manufacturers before deciding to go with a particular vendor. This not only helps gather market information, it enables you to get the best price as well.

2. Inventory Review: I recommend setting up a policy to review inventory stock levels periodically. This helps determine current worth, idle stock alternative strategies to be offloaded can be discussed, and it provides management with a holistic view of the level of risk they are currently exposed to. For a service based business, this can identify customers not paying on time, and adjust their credit lines accordingly.

3. Collections: This is an area where entrepreneurs face a lot of challenges. If you have outstanding payments for products sold through retailers or for services rendered, it is essential that a mechanism is in place to receive this payments as soon as possible. I would recommend setting up periodic reminders through, email, phone calls and personal visits to speed up this process. Depending on your business model, having a collection policy which is adhered to closely, can increase short term liquidity substantially.

Inventory management is definitely not the most exciting aspects of business. It is however, a critical function which needs to be given a lot more focus. Through appropriate policies and control measures, we can achieve optimal inventory velocity and increase the likelihood of turning in even greater profit.

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5 Steps to Manage Startup Risk

“I think that only daring speculation can lead us further and not accumulation of facts.” Albert Einstein

In the first post of this series, I added a video which stated life = risk. If we shield ourselves from all sorts of risks by staying in our small comfort zone we will not be living life fully. It is our perrogative to find a balance to ensure that we live life to its fullest. The points below relate how to find that balance when starting a business.

1. Market Risk: Our world is in a constant state of flux and with mind boggling technological advancements taking place, we have to be constantly aware of the changes taking place around us. This requires us to monitor our competitors, be in touch with our customers and suppliers, and watch for trends which could potentially make your business extinct. To read more about how to manage market risk please click here.

2. Operational Failure: All companies operate on a set of processes. These processes drive all avenues of business, ranging from Internal operations, business development, sales, marketing and execution to name a few critical functions. When these processes are not optimized or closely scrutinized a business will not be able to scale effectively and reach its target goals. To read more about how you can avoid operational failure please click here.

3. Financial Risk: Without financial controls a business loses its foundation and is on shaky grounds even when the company is making steady profits. Ensuring that you have sound and reliable financial controls in place will allow you to minimize your exposure to financial risks and allow your business to grow more effectively. To read about how you can add financial controls to your startup please click here.

4. The People Risk Factor: You hear it all the time, “Our people are our most important asset”. Its like a mantra that has been wedged into our sub conscious and is constantly repeated from board meetings to your daily staff meetings. However, I am always surprised that though this is such an important asset, very few steps and measures are taken to mitigate the risk associated with this asset. To read more about how you can add effective control measures to mitigate these risks please click here.

5. Lessons in Risk: Having been in this line of work for some time now there have been several risk factors which I have witnessed or experienced first hand. These cover the time you should start, what the risks of starting without a plan are and the kind of risks you have to deal with on a daily basis. To read more about these lessons please click here.

In life and business, if you stop taking calculated risks, or if you let doubt  paralyze you, moving forward becomes close to impossible. It is only when you make mistakes that you learn from them and eventually move forward. Along the way we have to manage the types of risk faced and ensure that we take precautionary measures to avoid risking it all if we do not know where we are headed. Once you know what you want and how you want to get it, take action , because thinking ‘what if’ is just about the worst thing you could do to yourself!

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Personal Experiences With Risk

“Be brave. Take risks. Nothing can substitute experience.” Paulo Coelho

The risks mentioned in prior posts provide a framework on mitigating risk in various divisions of business. Some of the risks and counter measures mentioned in this post are general and some those I have personally encountered during my journey as an entrepreneur. 

1. Start as early as possible: The younger you are , the lower the  risk level when embarking on new startup ventures. This is a point in life when you do not have many personal responsibilities and can hence take on greater leveraged risks, for greater payoffs. There will never be a right time. If you wait around for it, you drastically reduce the level of risk you can take . 

2. Don’t start without a plan: Starting a business is a lot of fun and very exciting, however, if you do not have a solid business plan which has been well researched and developed, get working on that first. I am not a fan of shotgun startup ventures who are clueless about where they want to go and how they plan on getting there. 

3. Learn to trust your gut: There will be times when the plans looks too good to be true on paper, but your gut feeling is to be wary. On the other hand ,there are times when the pieces do not fit into place initially, yet, your gut says this is worth exploring. Learning to trust your gut allows you to hone into your inner guidance system and intuitive capabilities.

4. Don’t forget your core values: We are constantly faced with challenges where compromising on core values could lead to substantial benefits. However, going down that path poses great personal and moral risk . I have personally known someone who went down this path and ended up losing everything that mattered in his life. It was an incident which left a deep impression. Compromising on core values is one of the greatest risks you can take and one where the consequences are long lasting & long term.

Some of the concepts mentioned in this posts have many counter arguments. Such as the first one, which is to start early. Some argue that it is better to get some work experience before venturing out into the startup world. Others believe in just starting a business and hoping to eventually make some money. I would really like to hear what your thoughts about this are. Look forward to hearing from you.

 

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The People Risk Factor

Our mission statement about treating people with respect and dignity is not just words but a creed we live by every day. You can’t expect your employees to exceed the expectations of your customers if you don’t exceed the employees’ expectations of management.” Howard Scultz

You hear it all the time, “Our people are our most important asset”. Its like a mantra that has been wedged into our sub conscious and is constantly repeated from board meetings to your daily staff meetings. However, I am always surprised that though this such an important asset, very few steps and measures are taken to mitigate the risk associated with this asset. As a startup this is one of the most dangerous sort of risk we are exposed to, due primarily to our size. When a critical team member or employee leaves, the entire business can be brought to its knees. Listed below are a couple of risk control measures you can use to protect this asset .

1. Strict selection policies: At early stages, startups are usually 2-3 individuals who know each other and are comfortable spending days on end locked up in an office, working on the next big idea. Adding new partners or employees represents a large undertaking, and requires serious looking into . If you make the mistake of adding the wrong individual, productivity in the office takes a nose dive and the cost of replacing the employee is high. So use this list along with your own requirements to ensure that you select carefully.

2. Ironclad contracts for new employees: A lot of private data is shared regarding costing, pricing and internal processes with new employees. Many startup companies fail to get employees to sign non compete and confidentiality clauses. The risk of losing an employee to a competitor with your trade secrets represents a phenomenally large risk against which you should take counter measures .

3. Quarterly one of one reviews: I usually have quarterly reviews with most of the individuals whom I work closely with . This is an open and candid session where I learn about their level of satisfaction, frustrations and other problem which may be hindering them from performing up to mark. These sessions provide critical feedback and allow you to take precautionary measures to ensure you do whatever is necessary to retain your most talented performers.

4. Provide training and development: Most startups run on strict financial budgets, however if they have used strict budgeting controls as stated in my previous post, a budget for training and development should be in place to provide your team with training ,which will help improve their productivity and skills. This helps in creating stronger bonds between management and employees. It also increases the overall morale and productivity levels of the organization.

5 Fair rewards & recognition: If your team is generating high levels of growth for your organization they need to be compensated fairly. In some startup companies, which are not heavily venture backed this can be a challenge as funds are usually very tight. However, management needs to ensure that performance and rewards are tightly linked. If they are not, you stand a high level of risk to lose your rainmakers. To read more about rewards and recognition please click here.

We have to do whatever is necessary to ensure that we cater to our team wherever possible. It is a difficult juggling act to manage expectations and requirement, at the same time maintaining an environment where productivity and morale is high. If not correctly maintained there can be nasty repercussions which can bring your organization to a standstill and expose it to extremely high levels of risk. However if it is correctly managed, this asset becomes your organization’s competitive advantage, and paves the way for greater achievements.

 

 

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