Idea's space

This blog is dedicaded to share ideas coming randomly from my experiences

Posts Tagged ‘investment

Bootstrapping, a way to make stronger businesses?

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IT entrepreneur

Some entrepreneurs unfortunately lost their business or project, because they made it with some investors who wanted to have a certain short-term return on investment level. As the expected return on investment was not reached, the founders of the project were sanctioned by the investors and pushed out of the company.

I read in the Belgian economical magazine Trends-Tendance, the story of three partners who had to face such adventure. These three engineers decided to start a new project, but following a totally different business model. They build a new business in the field of digital imaging, a technology having customers in the medical and aerospace sectors. The major concern of this business was to protect the intellectual property of such technology. The patent price for such technology is expensive, and the three partners have to allocate the major part of the profit of the activity to the deposit of such patent. To reach that goal, the challenge was to make the needed profit, and in this case to do business based on a low cost model. They have no offices. Each of the partners is working at home, having only meetings when necessary. They are using free open sources software, communicating thru free voices over IP systems, like Skype. They have no company cars, and are maximizing their travel with public transport, and eventually renting a car when really necessary. One of the partners explain that to work in such a way has of course an impact on their professional and personal life. It implies to have new habits, but the conclusion is that they keep the control on their business and they are very happy.

By thinking about this experience, we note that these entrepreneurs took the option of bootstrapping. Bootstrapping means that you start your activity or business with limited funds and without partnership with investors. It implies that you will have to contract only the necessary costs to develop your business. In each case, you will consider if there is an opportunity to spare money, or to contract a service or a good for a better price. You will also consider if you can do it yourself. The chance to succeed in such process is linked to the competence level of the partners. What you can do yourself is an opportunity for cutting costs. A partnership with members having different and complementary competences will be definitively an asset. In such process, we can maybe see an opportunity to build businesses with much more added value. As your margin are thin, more attention will be paid to the return on investment of the contracted expenses, and maybe the basis of the business could be stronger. You will probably invest money in tools providing more added values to your project and more return on investment after, instead of investing in a luxurious car, which can bring maybe more appearance but which will not contribute to increase the quality level of your product or your services. With the development of technologies, we can more easily see than before, the level of people competences and services performances. This is what the customer is looking for.

But do not forget that such approach is not always a guarantee of success. Each project needs a minimum of capital in order to be implemented. The lack of capital make that some projects are never concretised. Nevertheless, this way to operate will make that people will probably do business on another way, with long term views contributing to develop a sustainable economy where imagination and creativity will be the motivation and the profit the middle to make the dreams work.

Written by Eric Saint-Guillain

March 21, 2011 at 22:25

To hire at lower prices.

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To hire at the lower price, a good deal?

Recently, I attended an event organized by a recruiting partner. These events are always the opportunity to meet colleagues and to exchange news and informations about the business trends. If we can hear and read about better results for the economy, it seems that the situation remains difficult regarding the job offers, even for permanent jobs than for interim management opportunities. I was discussing with a colleague looking for new opportunities, and she told me that she received some proposal and had some interviews, but that the offered salary for a proposed job was ..40% lower than her last salary! On the other side, I read in some newspapers than top salaries apparently remain unchanged compare to before the financial crisis. Where is the mistake?

For the time being, there are a lot of available candidates on the market, which has a negative effect on the salaries level. And of course, companies try to hire the cheaper candidate. But is it really a good deal to hire somebody with the minimum salary, and for some candidates a lower salary than their previous assignment? Maybe on a short term basis but what about the long term?

The question is what about the project of the company. Does the company wants to have a long term collaboration with the employees? If the employee finds an opportunity where he can have a better salary, he will leave the company. This means that you will have to hire somebody else, spending and loosing time to restart a recruitment process, and increasing your recruiting costs. More than this, the time spent by your employee during the few months he worked for your company is a pure loss, and a part of the know how is lost.

A recruitment process should include the same criteria than an investment. One parameter is the price, but the other parameter is the quality of services I will get for the money paid. You want to have the better ration quality-price, but think about the quality you really want to contract. Think also about the motivation of your employee. The salary is a part of the motivation, and the productivity and the work quality will probably be better if the salary level meets the candidate expectations. Think also about the fact that a long term collaboration with a candidate means a better knowledge and control of the processes, the business, and gains of productivity.

The solution to give the lowest salary is not the best one on a long term basis. As an investment, you will analyze the return on investment you will get from the disbursed amounts. Consider your employees as an investment, on which you can expect a good return. We never talk so much about human capital than now, but human capital seems still to  be stillconsidered as a cost and not as an assets. By paying bad salaries, you underestimate the human capital. And as you know, if you pay peanuts, you will get monkeys.

Written by Eric Saint-Guillain

October 27, 2010 at 21:58

The financial crisis is over and good practices back! Really?

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The fall of Lehman Brothers on 15th of september 2008

Most of you probably know through the media the solvability problems some countries are facing, like Greece. And some speculators are finding an opportunity to make money by creating additional problems in an already difficult environment. And Greece is not the only country facing to budget deficit. Let us remember that with the financial crisis and the uncontrolled risks taken by some banks, a lot of countries over the world have to make actions by funds injections, in order to save then and to save the money of their customers. The consequence is that the private debts of the banks became public debts, it means a charge for each citizen.

This subject was discussed by the finance ministers of the G7, but until now, it is the status quo! And it seems that the game of speculation and risky investments started again. The problem is that in such games, like in most of games, they are winners and losers. But what is unacceptable is that the losers are not part of the game, I mean the people who will have to support the increase of the national debt and who will suffer of the consequences of budget deficits. For who is the crime profitable?

I can notice that today, in such context, there is a confusion between the speculators and the entrepreneurs. The financial and economical world is considered in a negative way. In this difficult time, it is not a good thing, as we absolutely need the creation of companies and activities in order to compensate the jobs losses. In order to maintain a social environment, we need to have a strong economy where everybody can play a role and live with dignity. But to have a strong economy, we need entrepreneurs with innovative projects and activities, and the essential tools, financing sources, to develop such projects and activities.

By meeting recently some entrepreneurs, there were mentioning to me the financing problems they were facing. They were wondering how to find financing sources and partners without dealing with sharks? The traditional banks are not enthusiastic to finance such projects, because they have not enough return on investment on it. But how could we explain and understand that they are investing in more lucrative investments but much more risky too? The explanation could be the following:  if things go wrong again for the banks, they count to the government to make new capital injections. But with the debts the governments contracted to save banks, will their still have the capacities to perform another capital injection? And what could be the economical, social and political consequences of such new intervention?

Is the human being able to learn from his mistakes? Yes, he is, but on another way, he thinks that things are linear, that he can always have control on things, and that there will be always a solution to solve a problem without too much consequence, that he can always escape to critical situations and not be concerned by then. That is what was probably thinking a certain..Bernard Madoff !

Picture source: http://www.etftrends.com

Written by Eric Saint-Guillain

February 10, 2010 at 22:22

Posted in Economy

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Professional training : which return on investment ?

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2_txtRecently, I answered to a question proposed by one of my LinkedIn contacts.
The question was to know if trainings given to employee of a company should be considered as a cost or an investment ?
When we talk about an investment, we are talking about mid and long term. The key element is to know if the company defined a clear vision and defined long term goals.
With these two elements, the company can define several projects in order to meet these long term goals. The next step is to know if all the team members are subscribing to the vision and the projects of the company, and following their respective competences, which role they can play in the organization, a role matching with their expectations. In other words: “The right people at the right place” If these two conditions are true, then we can define the tasks and the responsibilities of each team player, but also define which are the competences and tools needed to fill their assignments. These ingredients are the conditions to develop a long term partnership and a training program. In this context, the trainings given to the employees will represent an investment.
If these conditions do not exist, there is a risk to see an employee leaving the company few months later after having followed the training, because the gained expertise with the training is an asset to face a new challenge with better conditions. In this case, it will be clearly a cost for the company.
Another reason I already heard, why companies are considering some times training as a cost is that when people are following training sessions, they are not operational, not productive during the training time. And sometimes, they are under work pressure and have no time to follow trainings.
If we have look to the definition of an investment, it is usually defined as an expenditure which will create future benefits. The goal of a training, is to acquire new knowledge and competences. These new competences will help the employee to work on a more efficient way, to perform activities on a faster way. The time spent to follow the training will be largely compensated by the future gains of productivity.
I would like to take an example: the information technologies. It is obvious that IT represents a revolution in the work organizations. The computers should help us to execute processes on a faster and efficient way. But how can we use the potential offered by this technology, potential increasing every day, if we do not receive the related trainings? What’s the necessity to change the hardware and software every five years to more performing tools, if we are not able to use all the offered power ?
By providing the necessary trainings, you are increasing your return on investment on your IT, and on your training’s investments too.

We have to think also that by giving trainings, and in this way, tools helping to fill their assignments, people are more motivated to solve issues, to find solutions and learn by themselves.

As conclusion, I would say that training represents an investment if all the conditions mentioned below are there. Even if salaries costs are booked as expenses in accounting, the human capital is an asset, which can provide sustainable added value.

Written by Eric Saint-Guillain

August 26, 2009 at 21:36

Posted in Human capital

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