Article 9 – Minimise wastage
by Tan Thiam Hock
Last night, I wasted good money taking my daughter to the Elton John concert. The music was irrelevant to her. My idol, the fat old man in garish outfit was nowhere as good looking as her cute little Archuleta. While she spent her time on Facebook with her iPhone, my wife and I sang and danced the night away.
With my vast experience and profound consumer insight, I should have realised that she prefers to be at a K Pop concert, listening to music without lyrics and watching a group of good looking slick dancers trying to sing in tune. It was just pure wastage. Her study time and my precious ringgit.
How many times have you wasted effort, time and money on projects that won’t work and on products and services that won’t sell? What was your excuse?
And don’t get me started on wastages by the Government. What do politicians and civil servants know about managing restaurants in London? Or buying race horses or cow breeding? What is their excuse?
For entrepreneur wannabes, you can have a much healthier start to your business if you can reduce your wastage from day one. Just ask yourself some relevant questions, be honest with yourself and you will be surprised at how little you know about the business that you intend to invest in.
Business is all about buying and selling. Everybody is trying to sell products or services to everybody and anybody who wants to buy. Whatever industry or sector you are in, there is a supply chain design already in place. Do you know where and how your business model fits into this supply chain?
Just imagine a simple supply chain design in the oil and gas industry.
The Government owns oil fields via Petronas which invites oil companies to explore and extract oil and gas from the offshore oil fields. The refineries will then refine the oil and gas into consumer and industrial products for sale. You, the end consumer, will buy the gas for cooking and the RON95 from the petrol stations for your car.
Petronas will have a no risk and high profit sharing arrangement as they are the rightful owners of the oilfields. The oil exploration company will undertake the high risk, high return business model. This high margin and high volume production sector attracts suppliers of platforms, pipes, barges and helicoptersbut these are capital intensive projects where only major entrepreneurs can participate. Smaller entrepreneurs will supply safety products, nuts and bolts and services like catering and labour. Smaller volume but still high margins. This production or upstream sector produces the most billionaire and millionaires in the industry.
Then in the distribution sector, entrepreneurs will end up as a gas dealer or a petrol station owner buying from the oil companies to resell to end consumers. These are low margin business models but yet capital intensive as oil companies work on cash on delivery basis. Petrol station owners now have to supplement petrol sales income with a mini market and a car wash operation, not forgetting their station stays open for long hours and throughout the year. Lower income but a steady business if you have the right location.
Understanding how and where your business model sits in the supply chain will help you identify opportunities in terms of volume and margins. It will also help you understand your own limitations in a competitive environment. Will your business model be able to compete and survive?
For small entrepreneurs, I always recommend low turnover, high margin business models. Unless you have rich parents, your project should not be capital intensive as it is relatively difficult to get bank loans. Because of low entry barriers, competition will be stiff and brutal. Hopefully you have a unique differentiation strategy.
Can you survive? If yes, can you thrive? If no, then don’t waste your time. No point going into a new business just to survive. Chances are, you will fail when you plan to survive.
And you will survive when you plan to make loads of money.
For those with spare cash to invest, say goodbye to your spare cash. If you think this is the maximum investment that you are prepared to lose in your new project, then you will most likely lose everything. It is like going to a casino with a “maximum loss” mentality. Why invest when you are not confident of winning? You have no clear winning strategies in place and no clue to your positioning in the supply chain. So don’t waste your precious capital.
Good investment opportunities are hard to come by nowadays and competitors are as smart as you. Minimising your wastage in time, effort and capital will only improve your chances of survival.
As for me, as a seasoned entrepreneur, I will never waste an opportunity if it comes my way. With a RM250mil loan at 2% interest, I will build the biggest international cow breeding centre in the world right next to Gemas. Sexiest cows, strongest bulls.
Frisian, Kobe, Wagyu, Spanish, white, purple, blue etc. the more exotic the better since the Auditor-General does not know the difference between one bull from the other. And I will prepare a cow and bull parade in Gemas when the A-G comes for an audit just to make sure the numbers add up.
I will not buy properties especially high-end condos with the loan money. Too many questions asked. But nobody will question me if I lose a moderate RM8mil a year which means I can slowly milk my cows and hope they multiply like rabbits.
To all the poor struggling entrepreneurs, don’t go breaking your heart. You can sing till the cows come home but you will never, ever have the opportunity to enjoy such bull s**t on your own.