20/2015 – Plan short cycle projects, watch political developments

by Tan Thiam Hock

Saturday, 21 November 2015

My wife asked me recently on whether I had any regrets selling the business and not leaving it for the children. We have just had a discussion on the difficulties faced by young entrepreneurs on establishing a successful business in this tough and competitive environment.

It had taken me a total of 25 years to sell a business which was built over 15 years plus an earlier 10 years of experimentation and steep learning curve of the trade. Back in the 80’s and 90’s, entrepreneurs started businesses with the intention to grow big and to last the next generation.

The dream was to build a company worthy of a listing in the main board of KLSE. To be followed by slowly easing the children post graduation into the business. Then pass the reign to them when they are ready as you move up to being Mr. Chairman, probably in your late 60’s. Standard script for baby boomer entrepreneurs. Just look at the successful companies in KLSE where the second generation have taken over and you will know what I mean.

But not all family businesses continue successfully into the second generation. Most of the time, the business model is antiquated and difficult to modernize. Their children equipped with western degrees prefer the glitzy attractive world of finance and technology, more in tune with the future than what is in store for them at home.

I could not see my two sons being happy selling lipsticks for a living. Waiting for my daughter to take over would require me to continue managing the business for another good 15 years. My main competitor is the biggest cosmetic company in the world and their senior management team gets younger by the year.

Imagine a 60 year old Chinaman in the ring on a daily grind against a 40 year old Harvard Business School/ Insead MBA graduate. Experience against youthful enthusiasm looks a bit lopsided in the short term but a continuous change of youthful aggressiveness would eventually wear you down no matter how much experience you have.

If you believe in feng shui, I believe in business cycles and product life cycles. Depending on industries and types of products, life cycles varies in length and depth. But what is certain nowadays and going forward, life cycles are getting shorter and shallower.

There is a pressing need to make things better, looks nicer and deliver it faster. Continuous disruption of the old means shorter life cycles. What used to be management by objective, it is now management by life cycles. Life cycles determine your planning period. It is now getting more difficult to justify long term investment in shorter life cycles of industries, products and brands.

So how can I plan to handover a business to my children in 10 years time when I am unable to look beyond the next year? I concede that next year will be a very difficult year for all businesses. Frankly speaking, beyond 2016, can anyone tell me whether the Ringgit will be devalued, revalued or of no value? Will the current negative political climate be resolved or will our nation declined into a chaotic policed state? How do you invest locally for the long term when the immediate short term looks bleak and uncertain?

Even Malaysian politicians and parties of both divides have shorter life cycles . Everything is in short supply nowadays. Trust, loyalty, intelligence and integrity. Massive amounts of money have disrupted the core ideals of elite politicians serving the nation. The nation now serves the elites.

Whilst the established entrepreneurs have managed to work around changing political scenarios, young entrepreneurs should strive to be more alert when assessing socio economic and political life cycles. The present government is also the largest commercial organisation in the country having a hand in every major industries. Our Finance Minister is actually the most powerful CEO of Malaysia Incorporated Berhad and its group of companies.

In the light of an uneven playing field amidst short political life cycles, my advice to young entrepreneurs would be to plan short cycle projects with an eye always watching the fast changing political developments in the country. Just remember, political chaos will result in loss of economic and consumer confidence and the economy can unravel and spiral downwards in the blink of an eye. Do be careful before you invest.

If you ask your children nowadays whether they would prefer you leave behind for them a thriving business or just cash and properties, which answer would you expect from them?

If I follow Tan Sri Vincent Lee’s advice, my children will get nothing from me. Zero. Zilch.

“Make them hungry” says my experienced and wise friend and they will strive hard in life to make it good.

So readers, what do you think I should have done and what should I do? Don’t sell the business and leave the business to them? Or just leave them cash and properties?

Or horror of horrors, leave them nothing?

Penny for your thoughts at thiamhock.com

Published: http://www.thestar.com.my/business/business-news/2015/11/21/management-by-life-cycles/

Advertisements