Management consultancy firm Goldratt India's founder Ravi Gilani does not mince words when he says that it is organisations' "stupidity" for not keeping enough cash to survive uncertain times. He believes this pandemic has revealed the underbelly of #IndiaInc's weakest links and shares his insights on how companies can manage cash during the good times to emerge stronger during the bad.
#Masterspeak2020 #RaviGilani #OutlookBusiness #OutlookMagazine #Business #CashManagement #Cash
#Masterspeak2020 #RaviGilani #OutlookBusiness #OutlookMagazine #Business #CashManagement #Cash
Category
🗞
NewsTranscript
00:00:00 (upbeat music)
00:00:02 - Hello, ladies and gentlemen,
00:00:11 it's a pleasure to host this edition
00:00:13 of Outlook Business MasterSpeak webinar series
00:00:16 brought to you by our presenting sponsors,
00:00:18 Hyperlink Infosystems and co-sponsor, RR Solutions.
00:00:22 Today we have with us a very special guest,
00:00:25 Mr. Ravi Gilani, founder and managing consultant,
00:00:27 GoldRat India.
00:00:29 GoldRat India is a management consulting firm
00:00:32 that enables clients to achieve sustainable improvement
00:00:35 in profits through the application
00:00:36 of Dr. Eliud Goldrat's theory of constraints.
00:00:39 We all know of the popular adage, cash is king,
00:00:43 but today in a post-COVID world,
00:00:44 the importance of cash has become all the more critical.
00:00:48 Who better than Mr. Gilani who can share his insights
00:00:51 as to how companies and small businesses
00:00:53 can navigate through this period of uncertainty
00:00:56 by making the most of what businesses have.
00:00:59 Mr. Gilani, thank you for taking your time out,
00:01:03 but before we deep dive into the challenges
00:01:05 that corporate India and small businesses
00:01:07 are grappling with,
00:01:09 could you give our audience a heads up
00:01:10 on what exactly is the theory of constraints
00:01:13 and how relevant is its application in business?
00:01:16 - Okay, thank you.
00:01:18 Theory of constraints was first created by Dr. Goldrat
00:01:22 way back in the early '80s.
00:01:25 The concepts are ridiculously simple.
00:01:27 What it says, a system is not some total of parts.
00:01:33 The system's performance is governed
00:01:35 by the performance of its weakest link,
00:01:37 what we call constraint.
00:01:38 For any organization, let's say manufacturing organization,
00:01:43 there at any time,
00:01:45 there cannot be more than one physical constraint.
00:01:49 And what are these four physical constraints?
00:01:52 Either you do not have enough orders,
00:01:54 typically we people say there's no demand,
00:01:57 or we have a shortage of capacity, manufacturing capacity,
00:02:02 or we have a shortage of input material or services,
00:02:06 or once in a while, today it is more common,
00:02:11 we don't have adequate cash to buy the raw materials.
00:02:16 Now, at any given time,
00:02:18 we will always have only one of these,
00:02:21 not more than one at any given time.
00:02:24 Now, unless we can focus on the weakest links performance,
00:02:29 output of the entire system cannot increase at all
00:02:33 other than a statistical fluctuation.
00:02:36 Let me give you an example.
00:02:38 If we have shortage of orders, increasing more capacity,
00:02:43 we still will not be able to sell anything.
00:02:45 If we have a capacity constraint,
00:02:49 then getting more orders or more material or more money,
00:02:52 unless we invest in expanding the capacity will not help us.
00:02:57 Similarly, if we have a raw material shortages,
00:03:00 increasing manufacturing capacity,
00:03:02 order generating capacity is of no consequence.
00:03:05 Unfortunately, when you are in a cash constraint
00:03:10 as the case today, the situation is extremely dicey.
00:03:15 When you are in a cash constraint,
00:03:18 you can go down or up either side,
00:03:22 very, very quickly because cash constraint
00:03:25 impacts non-linearly as we are seeing in the COVID-19.
00:03:30 When we started the lockdown, we had only 500 cases.
00:03:37 Today, we are getting 500 cases in one city alone
00:03:42 because it is having a exponential impact, non-linear impact.
00:03:46 Cash constraint also has an important thing.
00:03:51 Like we can go down very rapidly, if deployed properly,
00:03:56 if we use the right things,
00:03:59 then we can reverse it also very rapidly.
00:04:03 So this is a brief I can explain to you
00:04:06 about theory of constraints.
00:04:08 - Let's take a break, short break, and we'll be back.
00:04:12 (dramatic music)
00:04:20 - So before we get into more details,
00:04:24 I just had this question in mind,
00:04:25 are corporates, generally corporates or businesses
00:04:30 tend to take their eyes off cash flows
00:04:33 when the going is good in some sense?
00:04:35 And when only thing comes to a head
00:04:38 that the whole focus then kind of shifts
00:04:42 towards cash flows and look at the receivables.
00:04:44 And now today we have come to a situation
00:04:47 where you have absolutely zero sales
00:04:50 for the past three months,
00:04:51 you have got receivables which are piled up.
00:04:54 So how does businesses, corporates
00:04:57 kind of come out of this situation?
00:04:59 - A few things I can say, first I'm starting
00:05:04 with the immediate last two months,
00:05:08 one of my clients had almost zero sales, zero.
00:05:14 Yet it was cash positive never before
00:05:18 as in these two months.
00:05:20 Now this may be a surprise,
00:05:23 the reason is, the fundamental reason is
00:05:27 people behave the way they are measured.
00:05:30 And now I'm making some very strong statement,
00:05:33 I know people will like to kill me for that,
00:05:37 but I will state even if it is politically incorrect.
00:05:41 Most top management in the world,
00:05:43 they're financially illiterate.
00:05:46 I'll prove it in one minute.
00:05:48 Ask any CEO, what has been your sales last year?
00:05:52 Financially in 1920, he would have it on his fingertips
00:05:57 and he will immediately start lamenting
00:05:59 that but for one week of COVID,
00:06:02 because the lockdown happened around 23rd, 24th of March,
00:06:05 we would have done this, this, this.
00:06:07 So he's talking about sales.
00:06:09 Ask him what has been his profit before tax or after tax.
00:06:14 The chances are many will say,
00:06:16 either we don't know or it is being worked out
00:06:20 or even after two and a half months have passed by
00:06:22 when the year had been closed and there was no work.
00:06:25 Even if some of the people who are able to share
00:06:30 because their accounts have been finalized,
00:06:32 what has been the profit,
00:06:34 ask them what is your free cash flow?
00:06:36 They will have no clue.
00:06:40 And it's not only in India.
00:06:41 I'm taking you 15, 17 years back,
00:06:45 a company you might have heard about called Enron.
00:06:47 One month before Enron went belly up,
00:06:52 one month before, its chairman,
00:06:56 its managing director and its CEO and its CFO,
00:07:01 they did not know that within one month,
00:07:08 they'll run out of cash
00:07:09 and they'll have to declare for bankruptcy.
00:07:12 The reason is almost every company I go,
00:07:16 I ask them what do they measure?
00:07:19 They measure a lot of things,
00:07:20 but they do not either measure cash flow
00:07:24 or give very little time to discuss this.
00:07:27 Left to me, I will only measure cash flow and nothing else.
00:07:34 And let me give you a little bit more on this.
00:07:38 First of all, cash flow is the easiest thing to measure.
00:07:43 Easiest thing.
00:07:44 How do you measure?
00:07:45 You check how much money do you have in the bank
00:07:48 at the beginning of the period.
00:07:50 And now you check how much money you are left with
00:07:52 at the end of the period.
00:07:53 If at the end of the period, more money is in the bank,
00:07:57 you have a positive free cash flow.
00:08:00 If you have less, it is negative free cash flow.
00:08:03 Now, I'll give you a more complicated answer,
00:08:08 not very complicated, but I must explain that.
00:08:11 How do companies calculate free cash flow?
00:08:14 It is profit after tax,
00:08:18 less any increase in working capital,
00:08:22 less any investment in that.
00:08:24 This is the typical way we measure it.
00:08:27 But the simple way I have already explained to you,
00:08:30 if you have not taken loans or repaid the loans,
00:08:33 then free cash flow is the easiest thing.
00:08:37 Check the money in the bank today
00:08:38 and the check money in the bank tomorrow,
00:08:40 whatever the difference,
00:08:41 positive or negative is your free cash flow.
00:08:44 Let me explain a little bit more on this.
00:08:47 If you don't make profits for long, it's like cancer.
00:08:52 You will die eventually.
00:08:54 But if you don't have cash, it's like a heart attack.
00:08:58 You will do now.
00:09:00 Because if you don't pay your employees salaries,
00:09:02 if you don't pay to the bankers,
00:09:05 the installment or the interest,
00:09:07 if you don't pay your vendors, their payments on time,
00:09:11 they will stop supplying you and you will close down.
00:09:13 There's no alternative to it.
00:09:15 So first, the very first thing every company should do
00:09:21 tomorrow morning, not day after.
00:09:23 Every owner, every CEO, every MD
00:09:26 should start measuring free cash flow.
00:09:28 I've given you two methods.
00:09:30 Now, let's move on to the next thing.
00:09:33 You said it's very difficult
00:09:36 to get money from our customers.
00:09:38 I do not agree.
00:09:39 The real problem is when we don't know a thing,
00:09:45 we think nobody knows how it can be done.
00:09:47 This is the biggest mistake.
00:09:49 I was attending another webinar on this same subject.
00:09:54 So I was asked, "Customers don't pay."
00:09:56 I said, "No, you do not know how to get the money
00:09:59 "from your customers."
00:10:01 There's a huge difference.
00:10:03 So in one of my customers,
00:10:06 who had almost zero sale in the last two months,
00:10:09 it generated 30 crores of collections
00:10:13 in the last two months.
00:10:14 Inventory remained the same.
00:10:16 They did not have any overdue payables to your vendors,
00:10:19 so they remained the same.
00:10:21 They had zero sales,
00:10:24 so whatever was their fixed expenses
00:10:27 in these two months was their loss.
00:10:29 Yet, they increased their cash by 14 crores
00:10:33 because out of the 30-odd crores what they got,
00:10:36 15-odd crore was the loss,
00:10:39 and another one crore money they had to pay
00:10:41 to some of their vendors, et cetera, service providers.
00:10:44 So net result was cash in the bank went up by 14 crores.
00:10:48 Now, how did they go and collect it?
00:10:50 Of course, nobody gives you money very easily.
00:10:54 You have to give something that,
00:10:56 "Look, if you don't pay us,
00:10:58 then frankly, tomorrow, we will not be able to service you.
00:11:02 You want to continue our relationship,
00:11:04 then it has to be done."
00:11:06 Not only this company,
00:11:07 I can give you the name of another company also.
00:11:09 And this time, it's in,
00:11:13 I cannot give you the name,
00:11:14 but I will tell you in what sort of a company it is.
00:11:17 It's in large infrastructure projects.
00:11:19 As soon as this COVID hit,
00:11:23 and because they're in infrastructure
00:11:24 and they were allowed as essential services,
00:11:27 and customer wanted to complete the project fully.
00:11:30 So they immediately put it that,
00:11:32 "Look, you have to pay all the money
00:11:35 you owe us due and overdue both."
00:11:38 Or let me say not overdue and overdue both.
00:11:43 Otherwise we will not start any.
00:11:45 They've got the money within 24 hours.
00:11:50 Often we don't know how to do the things.
00:11:53 That does not mean nobody can get it.
00:11:56 So first thing is,
00:11:58 you can have influence on your receivable, number one.
00:12:01 If you go with the assumption,
00:12:03 the other person does not have money,
00:12:05 I don't agree, that is bullshit.
00:12:07 I'll explain to you.
00:12:09 There's a large motorcycle company in the country.
00:12:12 It came with a Japanese collaboration in 1984,
00:12:15 you can guess the name.
00:12:16 As soon as the lockdown happened,
00:12:20 it made a statement,
00:12:21 "We will not pay our vendors."
00:12:25 They were saying force majeure as a clause,
00:12:28 because our dealers are not paying us the money.
00:12:31 Its CEO who was my colleague at one time
00:12:35 in my previous company,
00:12:36 I asked him, "What's the problem?
00:12:38 Don't you have money?"
00:12:40 He said, "Our money is blocked
00:12:43 either in interest corporate deposits,
00:12:46 or we have invested in shares
00:12:49 and we did not put enough money in the bank as free cash."
00:12:55 Now, another company also in the same segment,
00:12:59 taking a clue from this company,
00:13:00 they also decided, "We'll not pay our vendors."
00:13:05 Why?
00:13:05 What happened to the money you had continued
00:13:08 to accumulate for the last 20, 30, 40 years?
00:13:11 The fact of the matter,
00:13:13 I'm now jumping to another question,
00:13:15 why are we people in a cash constraint?
00:13:17 If I'll give you the answer, you will laugh at me,
00:13:20 but that's a fact.
00:13:23 Like we, we keep some money for the rainy day.
00:13:26 Keshav, do you keep some money for the rainy day or not?
00:13:29 - Yes, everyone does.
00:13:32 - How many days or months or years will you keep?
00:13:34 Supposing you don't get a salary,
00:13:37 how many days can you manage?
00:13:38 - Six months.
00:13:42 - Six months.
00:13:42 You have given me this answer.
00:13:46 Now, why can't the companies keep some amount of money?
00:13:50 I will share on this data something,
00:13:53 what, how different companies are doing.
00:13:55 Maybe somebody will keep for three months,
00:13:57 somebody will keep for six months,
00:13:59 somebody will keep for a year.
00:14:00 A few years back, Narayan Murthy was on record
00:14:05 that Infosys keeps one year of cash outflow in reserve
00:14:10 should they do not have an income for one.
00:14:12 And something even more, as recent as one month before,
00:14:18 Warren Buffett is on record that they have $135 billion
00:14:23 in free cash.
00:14:25 They said, we don't want to depend
00:14:28 upon anybody's mercy or kindness.
00:14:30 We want to live on our own.
00:14:31 The problem lies in our business schools,
00:14:35 in our financial circles, keeping cash,
00:14:40 very ready cash is considered a crime or sin.
00:14:45 It is stupidity of the highest order
00:14:47 not to keep any cash reserve.
00:14:50 That is the prime reason.
00:14:52 COVID-19 only exposed our underbelly.
00:14:56 COVID-19 is not the cause.
00:14:58 It just showed up a mistake we have been doing.
00:15:04 So first, every company in the world,
00:15:06 it will have to decide for itself,
00:15:07 should you keep for three months, six months?
00:15:09 For example, you have kept for six months, correct?
00:15:14 I keep for next 20 years.
00:15:15 I don't want to, what you call,
00:15:19 go to anybody and ask for money.
00:15:21 I have kept a reserve for 20 years
00:15:23 so that I'm assuming in 20 years is a good enough.
00:15:26 Maybe, maybe not.
00:15:27 I don't know.
00:15:28 Everyone has to decide for himself.
00:15:30 Okay, coming back to very specific.
00:15:33 First thing every company should start making
00:15:37 is free cash flow.
00:15:39 Now free cash flow has two components,
00:15:41 profit and working capital.
00:15:45 Now, profit I know,
00:15:47 while I will come to,
00:15:49 it can still be increased.
00:15:51 I'll come to that a little later.
00:15:53 But easier thing is reducing your working capital.
00:15:58 In working capital, there are three elements,
00:16:01 receivables, payables, and inventories.
00:16:07 Both in receivables and payables,
00:16:09 one outside party is involved.
00:16:11 But there's one thing in which no outside party is involved,
00:16:16 that is inventory.
00:16:17 Like, I have difficulty in getting cash
00:16:23 coming into the company,
00:16:24 but I should have full control in cash
00:16:26 going out of my hand.
00:16:28 Do you agree?
00:16:29 - Right.
00:16:31 - So first thing they can do immediately
00:16:34 is to see how they can cut their work in progress.
00:16:39 Work in progress is very easy to do.
00:16:41 Most often we start,
00:16:44 try to use our capacity to the fullest.
00:16:47 This is the most stupid thing.
00:16:49 - Let's take a break, short break, and we'll be back.
00:16:52 (upbeat music)
00:16:55 - RR Gifting.
00:17:00 Gifting for memorable brands.
00:17:03 All out.
00:17:04 - Most of the time, at this moment,
00:17:06 when you have a cash constraint,
00:17:08 trying to use your capacity to the fullest
00:17:11 is most stupid thing.
00:17:13 Is this clear?
00:17:13 So first thing is,
00:17:17 have few jobs, but once you start, finish them very fast.
00:17:20 There's another reason I'll come to that
00:17:23 in a few minutes from now.
00:17:25 First thing is you should reduce your WIP.
00:17:28 Second thing is,
00:17:30 reduce your raw material or input inventories.
00:17:34 It is possible to do so.
00:17:36 In the past, we again made a major mistake.
00:17:39 Almost every company does it.
00:17:41 What we call local optimization.
00:17:43 If they have to get a material
00:17:46 which gets consumed one ton is used,
00:17:48 let's say in one month,
00:17:50 they will get 10 tons.
00:17:52 Why?
00:17:53 Can you guess the reason?
00:17:55 Make a guess.
00:17:56 - To ensure continuity and so that
00:17:58 as if they expect more orders.
00:18:00 - No, no, no, no.
00:18:03 It is to utilize the capacity of the truck fully.
00:18:07 I want to save freight cost.
00:18:09 So I want to use a bigger truck of 10 ton
00:18:12 rather than getting a part load in one ton.
00:18:15 Most of the time,
00:18:17 many, or same thing when you're importing the material.
00:18:19 I want the full container,
00:18:20 which might last for two years,
00:18:22 but I will take full container
00:18:24 to save freight cost.
00:18:26 Now, important thing is,
00:18:29 we don't know whether after two years
00:18:30 you will be alive or also not.
00:18:32 - Right.
00:18:33 - There are many things that company can do
00:18:36 to reduce its raw material inventory.
00:18:39 Just to give you an idea,
00:18:40 in one of my clients,
00:18:43 we could reduce our raw material inventory
00:18:46 by almost 67%.
00:18:49 We could bring it down to one third
00:18:51 in about 18 months time
00:18:54 by using some very basics,
00:18:56 nothing complicated.
00:18:57 We could do that.
00:18:59 So assumption that I do not know
00:19:01 how to reduce RM.
00:19:03 Okay.
00:19:05 I'll help anybody.
00:19:06 I don't want to charge any fees.
00:19:08 I'll give them mind this thing,
00:19:09 a very simple way,
00:19:11 how they can reduce their RM,
00:19:12 how they can reduce their WIP.
00:19:14 Now, something more.
00:19:16 When you reduce WIP,
00:19:18 your cycle time
00:19:19 to manufacture goes down.
00:19:23 Now, one good thing is going to be there
00:19:25 in the near few days.
00:19:28 Either we will have famine of orders
00:19:29 or feast of orders.
00:19:30 It will happen.
00:19:31 You might have noticed also.
00:19:33 Look at some time,
00:19:35 if you have been ordering groceries online,
00:19:38 sometimes you had a queue of two or three days.
00:19:41 And sometimes they can deliver immediately.
00:19:44 How come?
00:19:45 Because the entire system is right now
00:19:47 in a chaotic environment.
00:19:48 So if you're in a chaotic environment,
00:19:51 what we can do,
00:19:52 when we get an order,
00:19:54 we service it fast.
00:19:56 That is the requirement.
00:19:57 And how do we do that?
00:19:59 Once you develop a capability
00:20:02 to manufacture or service fast,
00:20:04 your WIP comes down.
00:20:06 You don't have to keep
00:20:07 so much finished goods inventory also,
00:20:09 because finished goods inventory
00:20:12 is a function of the time you take to manufacture.
00:20:16 If you take very little time to manufacture,
00:20:18 you don't have to keep finished goods,
00:20:20 because by the time the customer orders,
00:20:22 if you can manufacture it to start it,
00:20:24 why do you have to keep any finished goods inventory?
00:20:27 So coming back,
00:20:29 once again, I'm repeating two steps.
00:20:31 Start measuring your free cash flow.
00:20:34 That is priority one.
00:20:35 Start measuring the components of free cash flow.
00:20:38 First, let me say inventories.
00:20:40 Within the inventory,
00:20:42 start measuring RM, WIP and FG.
00:20:45 When you start reducing WIP,
00:20:48 the need to keep so much FG will automatically reduce.
00:20:53 As soon as you reduce your WIP,
00:20:56 actually you will find your RM inventory will go up,
00:20:59 and you don't have to buy any more money
00:21:01 from outside in the next couple of weeks or months.
00:21:05 Once again, your cash outflow has reduced.
00:21:08 Now comes to the receivables.
00:21:10 I'll give you a few tips here.
00:21:12 First of all, in most companies,
00:21:15 wherever I have gone,
00:21:16 when we say how much is your receivables,
00:21:20 there are never one answer.
00:21:22 There's one answer which finance and accounts tell,
00:21:25 and one answer which the marketing people tell.
00:21:27 So first step would be,
00:21:29 please reconcile within your own company
00:21:32 how much money your customers owe.
00:21:34 That's number one.
00:21:37 Then today we have less work,
00:21:38 why can't the finance and sales people
00:21:40 come to an agreement?
00:21:43 Is that possible?
00:21:44 What do you think?
00:21:45 - Yes.
00:21:47 - Okay.
00:21:49 Now let's go to the next step.
00:21:51 Once you got within your company the reconciliation,
00:21:54 now start reconciling with your customer.
00:21:57 Okay, they don't have money, we'll talk later.
00:21:59 But at least have a reconciliation with them
00:22:03 that how much money they owe you
00:22:05 and how much money you have to get.
00:22:08 Regularly you are so busy, you don't have the time.
00:22:11 I have seen companies who have not reconciled
00:22:13 for the last few years, forget about few months.
00:22:16 Third thing,
00:22:18 prepare a list of all the bills
00:22:23 you have issued to your company, a company, a customer,
00:22:26 and show how much money was received on time
00:22:30 and how much money was delayed.
00:22:33 Send it to the CEO of that customer company
00:22:37 or the very high authority
00:22:39 so that let them have a look at it
00:22:40 that it's not a one-off situation.
00:22:42 Most companies, even in a normal period,
00:22:47 will not pay you the money
00:22:50 unless you insist till the very last day.
00:22:53 They will always pay you a few days later
00:22:56 than the agreed credit period.
00:22:58 Why should we allow that?
00:23:01 Now, another area people always are afraid,
00:23:04 specifically salespeople,
00:23:06 that if we start demanding too much from the customer,
00:23:10 he will stop giving us order.
00:23:12 This is stupidity.
00:23:13 No customer is doing you a favor by giving an order.
00:23:17 Similarly, no supplier is doing us a favor
00:23:20 by giving us material.
00:23:22 It meets the requirement of both.
00:23:24 All we are asking our customers
00:23:26 that whatever were the agreed terms,
00:23:28 we should, you should honor them,
00:23:30 we should honor our things,
00:23:32 and you should honor your things.
00:23:34 Are you clear about it?
00:23:35 - Right.
00:23:36 - Now, one more thing which we can do.
00:23:40 Most companies are unable to deliver their material on time.
00:23:46 You may recall almost six years back,
00:23:49 I've written an article for you, six years back,
00:23:54 that while our quality is reasonably good,
00:23:57 but on one area, we are still not doing a good job,
00:24:02 that is deliveries.
00:24:04 Most companies do not measure their on-time
00:24:06 in full delivery performance.
00:24:08 Please start measuring it on time and in full.
00:24:10 This is customer satisfaction.
00:24:12 Do you deliver 100% on time?
00:24:15 Every one day late is too late.
00:24:19 One piece short is too short.
00:24:22 If a customer has ordered 10 items,
00:24:25 you have to supply all 10 in full quantity,
00:24:28 what was you have agreed,
00:24:30 not one piece short in one SKU.
00:24:32 As soon as you start measuring it,
00:24:35 you will see some interesting things.
00:24:38 Most companies' performance by this standard,
00:24:40 the way I'm telling you, is less than 10%.
00:24:44 Most do not even measure it.
00:24:45 Those who measure it also, it will be 10%, 12%,
00:24:49 nothing more than that.
00:24:51 Now comes another common complaint.
00:24:54 These days, there's no demand.
00:24:56 That's again bullshit.
00:24:57 There is demand.
00:24:59 Already the orders you have,
00:25:01 if you're unable to deliver them on time,
00:25:04 getting more orders, how will that help you?
00:25:07 Is this clear?
00:25:09 - Hmm.
00:25:10 - So anybody who's complaining that I have everything,
00:25:15 but I have a shortage of orders,
00:25:17 okay, if you have a shortage of orders,
00:25:19 start delivering on time.
00:25:20 That's all.
00:25:21 Now here comes once again,
00:25:25 some wrong behaviors of optimizing locally.
00:25:29 They want to have large batches.
00:25:32 In large batches, you delay what is required today,
00:25:35 but you are manufacturing what will be required
00:25:37 one month later.
00:25:38 Just to take advantage of the machine utilization.
00:25:40 Stupidity.
00:25:41 So actually for most companies, even today,
00:25:46 I would say they don't have shortage of orders
00:25:48 because whatever orders they have,
00:25:50 have they delivered it on time?
00:25:52 Now comes the last thing.
00:25:54 Something very significant,
00:25:57 which I invented almost 19 years back
00:26:01 because of a client.
00:26:02 I'm going to give you the full story about that.
00:26:06 Many times you have a severe cash shortage.
00:26:09 You have orders, you have no delayed orders.
00:26:12 You have enough people to work it out.
00:26:14 You have suppliers who can pay you the,
00:26:17 give you the material, but they're demanding cash up.
00:26:20 Now this is a concept called cash velocity.
00:26:24 I'll explain.
00:26:27 For a simple way, let us say we have decided
00:26:31 that we'll run our company for the next couple of months.
00:26:35 Our input material cost,
00:26:36 let's say is about 50% of sale value.
00:26:39 So when I, and I'm short of money,
00:26:43 what it means is if I can borrow 50 rupees
00:26:46 for something from someone, convert into a finished goods,
00:26:50 sell it and collect the money within one month,
00:26:53 all put together, what has happened?
00:26:55 I'm able to convert 50 rupees to 100 rupees in one month.
00:27:02 Supposing the same money I would have kept in a bank
00:27:05 who also gives me 100 rupees after one month,
00:27:09 what is my rate of interest from that company?
00:27:12 - That's 100%.
00:27:13 - This is what I call cash, this I call cash velocity.
00:27:18 Now I'll explain a little bit more.
00:27:22 Let us say in this particular case,
00:27:24 our cash to cash cycle time is not one month, but two months.
00:27:31 So now I'm getting 50 rupees after two months.
00:27:36 So this time I'll calculate the compound rate of interest,
00:27:42 not simple rate of interest.
00:27:44 It will come to 41.4%.
00:27:48 Approximately it will come 41.4%.
00:27:53 I call it cash velocity.
00:27:56 I'm not considering any fixed expenses,
00:27:58 allocation, any nonsense.
00:28:00 Look, I'm short of money.
00:28:02 Now let me tell you something very interesting.
00:28:05 Typical, a ordinary vegetable seller
00:28:08 who comes near our home to sell on his cart,
00:28:12 he typically buys the material at 50 rupees a kg
00:28:17 and generally will sell at 100 rupees per kg.
00:28:19 And this poor fellow does not have money
00:28:22 to buy the material in the market.
00:28:26 From the money he has no money.
00:28:28 He borrows it.
00:28:30 Do you have an idea what is the rate of interest
00:28:33 he would be paying to the lender?
00:28:36 Any idea?
00:28:37 - Very anywhere between 25 to 30% or more maybe.
00:28:43 - 25 to 30% what?
00:28:46 - Interest.
00:28:47 - Per year, per month, per week, per day, tell me that.
00:28:53 - That's per year I'm saying.
00:28:55 It is ranging between one to 10% per day.
00:29:00 The concept of month is not there.
00:29:02 Concept of year is not there.
00:29:05 Now let me explain to you and its relevance
00:29:08 when I'm going to talk in a few seconds.
00:29:10 Let us say he has borrowed money of 100 rupees
00:29:13 from a money lender at 10% per day, 10% per day.
00:29:16 How much he has to return at the end of the day?
00:29:20 - He has borrowed 100 at 110.
00:29:24 - He has to pay 110.
00:29:28 Generally he sells at twice the price in the market.
00:29:31 Generally.
00:29:32 So if he's able to generate even 150 rupees,
00:29:38 he still makes money.
00:29:40 He's not literate.
00:29:44 He's not a financial savvy.
00:29:49 He's not MBA.
00:29:50 He's not a CA.
00:29:51 He's not a cost accountant,
00:29:52 but this he knows more than many other people.
00:29:55 There was a company called Indo-Asian Fuse Gear Limited.
00:30:00 I'm talking about the year 2001.
00:30:03 They had exactly the same thing.
00:30:07 Their raw material or variable cost
00:30:09 was 50% of the selling price.
00:30:12 And their cash to cash cycle time
00:30:15 used to be three days to manufacture.
00:30:18 And they used to sell in the,
00:30:20 what you call retail market dealers.
00:30:24 And normal collection period was 60 days.
00:30:27 And they used to get very rarely money on time.
00:30:31 But let me say,
00:30:32 even if they were getting the money on time,
00:30:35 their cash to cash cycle time was 63 days.
00:30:38 And they did not have cash to fulfill the orders.
00:30:43 They had a lot of orders.
00:30:44 So the owner came to me.
00:30:48 I told him,
00:30:49 we will sell the material at 50% lower price.
00:30:54 Sorry, my mistake.
00:30:55 Their raw material cost was 40% of the selling price.
00:30:59 So we'll sell at the 50% price reduction,
00:31:05 but money upfront.
00:31:06 He said, by this we'll close even earlier.
00:31:11 Why do you want to close down so early?
00:31:13 I said, let's do the calculation on paper.
00:31:16 Now I'm doing it for every minute.
00:31:17 It is very simple.
00:31:19 They have a shortage of cash.
00:31:21 If they can get 40 rupees more after 63 days,
00:31:24 how much money will they get?
00:31:26 - 40 rupees?
00:31:29 - 40 rupees of raw material they buy,
00:31:34 and then they produce in three days
00:31:36 and sell it and collect the money after 60 days.
00:31:39 So in 63 days, how much money will they get?
00:31:42 100 rupees, correct?
00:31:46 Now I told him that let's sell it at 50 rupees,
00:31:51 but payment upfront, no credit.
00:31:55 So here is the method.
00:31:57 The manufacturing time will take three days.
00:32:00 And I said, even if that person had given me the check,
00:32:04 it may take another three days to get me money in the bank.
00:32:09 So my cash to cash cycle time now goes down to 60.
00:32:12 Do you agree?
00:32:13 - Right.
00:32:14 - But how much money I'm getting?
00:32:16 After I put 40 rupees, I pay 50 rupees,
00:32:19 I get 50 rupees after 60.
00:32:21 Do you agree?
00:32:23 - Right.
00:32:24 - Now look at the ratio.
00:32:27 Money is getting multiplied every six days by 25%.
00:32:31 Are you clear?
00:32:32 - Yeah.
00:32:34 - 40 becomes 50 in six days.
00:32:37 So how much 50 will become in another six days?
00:32:41 It'll become 62.5.
00:32:45 25% of 50.
00:32:49 Another six days, it will be another approximately
00:32:55 15 and a half days, which will become 78.
00:32:59 So in 18 days, 40 has become 78.
00:33:03 And in 63 days, how many six day cycles are there?
00:33:08 10 times.
00:33:10 There are 10 cycles of six days.
00:33:14 So we worked out that if we have 40 rupees with us,
00:33:18 in 60 days, it'll increase to 9.58 times.
00:33:24 As against two and a half times, 40 was becoming 100.
00:33:30 Now here, same 40 was becoming almost 10.
00:33:35 Four times more, even though we are selling at 50%,
00:33:40 lower.
00:33:43 This company adopted such a principle.
00:33:46 They sold a part of their capacity at such a price.
00:33:51 They got out of the cash constraint,
00:33:54 and eventually they sold out to a very large company
00:33:57 at a very huge profit, a French company,
00:34:00 Lagrange, something like that.
00:34:03 It was sold out in about 10 years, Lagrange.
00:34:05 So I'm giving you an actual example.
00:34:08 Same thing, today I'm now giving further
00:34:11 how to reduce your receivables.
00:34:14 For most companies, cash velocity, in my experience,
00:34:19 ranges between 20 to 40% a month, 20 to 40% a month.
00:34:24 So if they have to give discount of 5% per month,
00:34:31 5% per month to their customers to collect the money faster,
00:34:36 should they do or not?
00:34:39 - Sure, ideally.
00:34:41 - But yes, at Jindal Steel and Power, we did this.
00:34:46 We sorted out many issues.
00:34:48 Another area, you have legal disputes.
00:34:51 You have legal disputes which go for years together.
00:34:55 And I'm recommending them settle,
00:34:59 no matter what the settle, just settle.
00:35:02 I'll give you an example.
00:35:03 Let us say cash-to-cash velocity
00:35:06 of a company is 30% per month.
00:35:09 And a case has been pending for more than two years,
00:35:12 and you're expecting that it will take another two years
00:35:15 before you get your amount, if you're lucky.
00:35:18 I'm saying you settle at 25% of the current, your claim.
00:35:25 25%, most will agree.
00:35:28 Now 25%--
00:35:31 - But that's just one question on that.
00:35:34 If it's a statutory due, it may not be so easy
00:35:37 for you to kind of get and kind of--
00:35:39 - One moment, well, stop, stop, stop.
00:35:42 I'm talking from customer receivable.
00:35:45 - Okay.
00:35:46 - I'm not talking about statutory dues.
00:35:48 - Okay.
00:35:49 - I'll give you something more on statutory.
00:35:50 Good that you reminded me.
00:35:52 I'll give you a statutory dues also.
00:35:53 Now 25%, 25 rupees, you put in a bank deposit
00:35:59 at 30% per month.
00:36:00 Approximately in three months time, it will double.
00:36:05 Do you agree?
00:36:05 - Right.
00:36:06 - So 25 becomes 50 in three months time.
00:36:11 Another three months time, it is already 100.
00:36:14 It is six months.
00:36:15 You will be struggling for next two years,
00:36:18 paying the lawyer's fees and still not sure
00:36:20 whether you'll get any money.
00:36:22 - True.
00:36:24 - Same thing on your obsolete material.
00:36:26 You will not sell it because it is below my cost.
00:36:29 That nonsense cost is nothing to do.
00:36:34 I have worked with companies and saved them
00:36:38 only by selling their scrap.
00:36:39 Just by selling the scrap,
00:36:43 you need very little money to turn it around.
00:36:45 In fact, I'll send you my links on,
00:36:52 what you call, some videos on the YouTube
00:36:56 where this has been discussed in more detail.
00:36:58 You can put it there along with this
00:37:02 so people who want to know more about it,
00:37:04 they can learn from there.
00:37:05 So coming back, it is possible to reduce your receivables.
00:37:10 But first thing, which is more fundamental in the mind,
00:37:15 when people say it can't be done, this is a big problem.
00:37:21 This is a psychological problem.
00:37:23 When you say it cannot be done, it means two things.
00:37:26 I know that I cannot, which is okay.
00:37:29 But I know in the whole world, nobody can do it.
00:37:34 This is the wrong.
00:37:35 Just because you don't know,
00:37:37 that does not mean it cannot be done.
00:37:38 So coming back, on statutory dues, I'll give a tip.
00:37:45 I'm sure if people hear it,
00:37:47 the government will do something to correct it.
00:37:49 I'll just prove it in a few minutes.
00:37:52 Most of the time,
00:37:53 do you have something called month-end syndrome?
00:37:57 Have you heard this?
00:37:58 - No.
00:38:02 - The sale in the last week of the month
00:38:05 is almost 30, 40, 50% of the whole month.
00:38:08 Now, supposing you are dispatching something
00:38:14 on the 30th of the month.
00:38:16 Let's say you're dispatching on 30th of June.
00:38:20 You have to pay in the normal times,
00:38:25 is GST of 18%.
00:38:27 I'm just taking 18% by the 20th of next month.
00:38:30 Do you agree?
00:38:32 I'm suggesting to all my clients,
00:38:35 do not dispatch in the last three days.
00:38:38 Do not dispatch any.
00:38:40 If the client is okay,
00:38:41 don't dispatch in the last three days.
00:38:43 Why?
00:38:44 You delay getting your payment by three days, maximum.
00:38:49 So don't dispatch on 28th, 29th and 30th.
00:38:54 Instead, dispatch on the first.
00:38:57 What is the advantage?
00:39:01 We get 30 days more to pay the GST.
00:39:05 It's something like street smart,
00:39:09 nothing rocket science.
00:39:10 But startingly, this can only happen
00:39:16 once you remove your primary parameter
00:39:20 of sales and profit as the prime parameter.
00:39:24 If you have a cashflow as a prime parameter,
00:39:26 then there's no problem.
00:39:27 Are you getting this point?
00:39:30 - Right.
00:39:31 - Okay.
00:39:32 So it is possible to reduce your receivables.
00:39:37 It is possible to reduce your,
00:39:40 what you call inventories.
00:39:43 And now let's say we are still short of cash.
00:39:46 We are still short of cash.
00:39:48 Now, why can't we borrow?
00:39:51 Most companies who are struggling for cash,
00:39:56 they take a long time negotiating with the banks
00:39:59 or the money lenders to haggle on the rate of interest.
00:40:04 To my mind, it is stupidity.
00:40:07 How much rate of interest can you charge?
00:40:10 I mean, let's say I'm taking an extreme case,
00:40:13 20%, 24% per annum, do you agree?
00:40:17 How much will you reduce it?
00:40:19 If your cash loss is upward 30%,
00:40:22 every day you waste time in getting this money
00:40:28 you are losing at the rate of 30% per month.
00:40:31 Instead of getting a reduction of one or two
00:40:35 or three or 5% per annum,
00:40:37 you are losing 30% per month.
00:40:41 What can be more stupidity than that?
00:40:43 Same thing with weekend vendors.
00:40:46 If some vendors have enough money,
00:40:48 tell them I'm ready to pay you 2% more price,
00:40:54 give me one month extra credit.
00:40:56 3% per month.
00:40:59 If your cash velocity is significantly higher
00:41:02 than what you're offering to either to your client
00:41:05 or you to your lender or you to your vendor,
00:41:08 go ahead and do it.
00:41:09 I'm not saying just give anything.
00:41:11 You know how much is your cash velocity.
00:41:15 You have to take a decision if money is available,
00:41:18 let's say at 5% per month.
00:41:20 You take it today 5% per month
00:41:24 with a clause that I can return without any,
00:41:27 what you call early payment penalty.
00:41:31 Tomorrow you are able to get at a lower price,
00:41:34 lower rate of interest, return this and exchange that,
00:41:38 that all can be done.
00:41:40 - But the point that you said that,
00:41:42 without the prepayment penalty,
00:41:43 it might work in case of a big guy,
00:41:45 I mean, big company,
00:41:46 I mean, with the kind of loan that they borrow.
00:41:49 But if it's a small SME kind of guy,
00:41:51 the banks will not even first of all entertain.
00:41:53 And if he says that you lend me
00:41:55 without a prepayment penalty,
00:41:56 though the bankers will say,
00:41:57 you can take a walk,
00:41:58 there are a hundred more out there
00:42:00 who will listen to what I have to.
00:42:03 - Once again, Keshav,
00:42:05 we are only going by our experiences.
00:42:08 You are talking about banks.
00:42:11 Have you heard of NBFCs?
00:42:13 Have you talked of small money lenders?
00:42:16 Go ahead.
00:42:17 Who's saying that?
00:42:18 I'm saying, give them 24% per month.
00:42:21 Sorry, per annum.
00:42:22 What's your problem?
00:42:23 They don't have a prepayment penalty
00:42:27 or anything like that?
00:42:27 - I'm saying alternative sources of funding.
00:42:29 Why only look up to the banking system?
00:42:31 - I didn't say banking.
00:42:33 I said, go to a money lender.
00:42:35 Even your friends will give you.
00:42:38 Supposing somebody says,
00:42:41 I'm ready to pay you 50% per year,
00:42:43 4% per month.
00:42:45 How many of us will be tempted?
00:42:50 Specifically, the people who trust us,
00:42:53 will they be tempted or not?
00:42:54 Now, let me give you one important parameter.
00:42:58 I made this statement way back in 2008 at Las Vegas.
00:43:03 At that time, there was a meltdown,
00:43:05 you may recall, 2008.
00:43:07 I was making a presentation once again,
00:43:10 at that time also on cash constraint.
00:43:11 There is no shortage of money in the entire world.
00:43:16 There's a shortage of trust.
00:43:19 That is the problem.
00:43:20 There's no shortage of money.
00:43:24 Money has not gone anywhere.
00:43:25 Nobody has burnt the notes anywhere.
00:43:26 Banks who had given the loans are not ready to roll over
00:43:32 because they don't have confidence.
00:43:34 Vendors are refusing to supply you more material
00:43:37 because they lost confidence on you.
00:43:39 So, money problem can be solved.
00:43:44 Now, let me come back to one important parameter
00:43:46 called demand.
00:43:49 Now, I have a belief.
00:43:50 People pay money when we solve their problems.
00:43:55 Do you agree?
00:43:56 - Right.
00:44:00 - So, I'll modify this.
00:44:01 People pay us money when we solve their pains.
00:44:06 Correct?
00:44:09 Now, the reverse is also true.
00:44:15 Whenever there's a pain,
00:44:16 there's an opportunity to make money.
00:44:18 Do you agree?
00:44:19 - Right.
00:44:19 - Tell me in the entire world,
00:44:24 is the total amount of pains in your opinion,
00:44:27 are they going up or going down?
00:44:29 - Going up.
00:44:32 - What have you just said?
00:44:35 If pains are going up,
00:44:37 opportunity to make money is also going up.
00:44:39 - Right.
00:44:40 - So, it is possible
00:44:45 that current pains may shift,
00:44:47 but overall amount of pains in the entire world
00:44:50 are not going down.
00:44:51 I'll prove it in one minute.
00:44:54 During the lockdown period,
00:44:58 did you add any house help
00:44:59 or you did all the stuff yourself?
00:45:01 - Ourself.
00:45:03 - Now, you understand what is the pain
00:45:10 of washing your utensils,
00:45:13 mopping your home,
00:45:15 preparing the food,
00:45:16 chopping the vegetable, et cetera, et cetera.
00:45:18 - Precisely.
00:45:19 - Tell me now,
00:45:20 now I'm saying,
00:45:21 supposing I start a service,
00:45:23 I certify that the person who's coming
00:45:26 is certified Corona free.
00:45:28 Certified Corona free.
00:45:31 And that person is excellent.
00:45:35 How much money you will be ready to pay?
00:45:37 Will you pay him or her 1000 rupees?
00:45:41 For one day's work?
00:45:42 Yes or no?
00:45:43 - Yes.
00:45:45 - See, the opportunity is there.
00:45:50 - It's a question of your ability to pay.
00:45:52 What you pay in months,
00:45:53 it may be for,
00:45:54 it's like a sweeping statement, right?
00:45:58 Who can afford to?
00:45:59 - Yeah, but a lot of us
00:46:02 who are earning more than a lakh of rupees,
00:46:04 they can afford.
00:46:04 What's the big deal about it?
00:46:06 And you're talking more than a lakh.
00:46:09 And you're talking about afford.
00:46:11 In any case,
00:46:13 your expenses going to the malls,
00:46:15 your expenses on going out,
00:46:17 petrol, et cetera,
00:46:18 all have vanished.
00:46:19 What's the problem?
00:46:20 This, today,
00:46:23 you are spending only on basic food stuff.
00:46:26 What else?
00:46:27 So I will just--
00:46:29 - But that's because your salary has not been cut.
00:46:33 If we can't--
00:46:35 - I'm cutting on salaries also.
00:46:36 I'll also do that also.
00:46:39 IT couples.
00:46:41 I'm now saying IT couples.
00:46:43 You know what is the biggest problem of all IT couples,
00:46:45 at least in India,
00:46:46 I do not know much about abroad.
00:46:48 What is the pain?
00:46:49 They work very hard.
00:46:52 They both have come late in the evening.
00:46:54 Who will do the household work?
00:46:56 For them,
00:46:59 if they can get a reliable service,
00:47:02 1000 rupees per day,
00:47:03 what's the problem?
00:47:05 Any worthwhile IT guy
00:47:07 must be getting 50,000 to a lakh of rupees.
00:47:10 If both couple is earning,
00:47:12 what is their problem?
00:47:13 Do you know most of the time,
00:47:15 IT couples in the normal times go hungry?
00:47:18 Why?
00:47:20 Tell me why do they go hungry?
00:47:21 - Because no one would be in a position to cook.
00:47:28 - Both are fully tired.
00:47:30 Why does the lady should prepare?
00:47:32 She says,
00:47:33 "I've worked as hard as you,
00:47:35 so why it is on me to prepare the food?"
00:47:37 And both are tired.
00:47:39 Despite the fact they're earning a lot of money,
00:47:42 somehow,
00:47:44 they are not able to get good food.
00:47:46 The typical pains of IT,
00:47:48 who will get the clothes washed,
00:47:49 who will get it ironed and all that stuff.
00:47:52 Provide the service.
00:47:53 You make money.
00:47:54 I'm only saying,
00:47:57 so long there are pains,
00:47:59 money can be made.
00:48:00 Now let me come back to hardcore stuff.
00:48:04 How do small companies manage?
00:48:07 Now here is actual case study I'm sharing.
00:48:10 I'm not giving a hypothetical one.
00:48:12 A client of mine,
00:48:16 they increase the salaries of their workers by 7%.
00:48:19 Specific data, 7%.
00:48:21 For the lower and middle management,
00:48:25 they did not give any rise.
00:48:27 And whatever was the increase in the salaries,
00:48:32 the increase in the salaries of the workmen,
00:48:35 they asked the senior management
00:48:37 to take a proportionate cut
00:48:41 to compensate for that.
00:48:42 Now tell me in this company,
00:48:44 where the senior people have cut their salaries,
00:48:48 lower and middle management remain the same,
00:48:50 but workers have increased.
00:48:53 What do you think in this company is that,
00:48:56 what do you,
00:48:56 and not one person laid off.
00:48:58 Not one person laid off.
00:49:01 What do you think will happen
00:49:03 to the ownership of the employees for this company?
00:49:06 - It will go up.
00:49:08 There will be increased sense of.
00:49:10 - And one more example,
00:49:12 Asian paints,
00:49:13 you might have heard about it.
00:49:14 - Yeah.
00:49:15 - Asian paints have increased the salaries
00:49:17 of all its employees.
00:49:19 Great.
00:49:19 So coming back,
00:49:22 my recommendation,
00:49:25 first condition, no layoff.
00:49:27 If through your medium arm saying,
00:49:31 if any company,
00:49:33 any company wants to turn around,
00:49:36 I'm ready to help them,
00:49:39 not necessarily free,
00:49:43 but my only condition is no layoff.
00:49:46 - To come to the very quick questions,
00:49:48 which you can,
00:49:49 like you said,
00:49:50 you can address the pain points.
00:49:51 So right now the most,
00:49:54 the smaller guys,
00:49:55 if you say,
00:49:56 looking at,
00:49:58 what was once a fixed cost
00:50:00 has all become variables,
00:50:01 taking us laying off people
00:50:04 and maybe shutting off some part
00:50:07 of the operations
00:50:08 or maybe exiting the business.
00:50:11 So is there any other way
00:50:13 now that some have taken this moratorium
00:50:16 that the banks are giving?
00:50:17 So what else can a small business
00:50:20 or medium sized business do
00:50:22 to come out of this crisis?
00:50:26 - (speaking in foreign language)
00:50:32 (speaking in foreign language)
00:50:36 (speaking in foreign language)
00:50:39 (speaking in foreign language)
00:50:43 (speaking in foreign language)
00:50:47 (speaking in foreign language)
00:50:52 (speaking in foreign language)
00:50:56 Now, moratorium is like a painkiller.
00:51:06 (speaking in foreign language)
00:51:09 Are you clear?
00:51:11 - Right.
00:51:12 (speaking in foreign language)
00:51:15 (speaking in foreign language)
00:51:19 (speaking in foreign language)
00:51:24 Do you invest all of them?
00:51:35 (speaking in foreign language)
00:51:39 - You see.
00:51:40 - What happens
00:51:43 in the wrong pursuit of growth in sales and profits,
00:51:48 companies have exposed them to the bone.
00:51:53 They have to correct it now.
00:51:57 Now, I'm saying,
00:52:00 if required,
00:52:02 we'll reduce the salaries of the people,
00:52:05 including the workers.
00:52:06 I'm ready to do that.
00:52:09 People will agree,
00:52:10 we can offer them.
00:52:11 (speaking in foreign language)
00:52:13 (speaking in foreign language)
00:52:17 So first thing is,
00:52:18 you have to build that trust
00:52:20 between management and employees.
00:52:21 (speaking in foreign language)
00:52:27 You run in your Mercedes
00:52:29 and you're doing the way you have been doing in the past
00:52:32 and you want me the lowly paid
00:52:34 to take a salary cut.
00:52:35 (speaking in foreign language)
00:52:36 Are you clear?
00:52:37 A small example.
00:52:38 One of my client,
00:52:41 he was in great difficulty.
00:52:42 I'm not talking 10 years back.
00:52:44 He had a Mercedes.
00:52:45 One day I saw the Mercedes parked in front of the office.
00:52:50 I found out whose Mercedes,
00:52:53 it is the owner.
00:52:55 So I went across to him.
00:52:57 I said,
00:52:58 even if you sell Mercedes,
00:53:00 not much money will come,
00:53:02 but please don't come in this car.
00:53:04 It evokes psychological negative feelings.
00:53:07 (speaking in foreign language)
00:53:09 He's coming in a Mercedes.
00:53:10 Are you clear about it?
00:53:11 People should see that you are also adopting,
00:53:15 you are also tightening the belt.
00:53:17 They must see it.
00:53:19 And they must,
00:53:19 it should not be a show off.
00:53:21 So it is possible to turn around.
00:53:25 I'm still saying,
00:53:27 it is possible to turn around any company.
00:53:29 I'm not talking about one company.
00:53:31 My GSPL had a huge problem.
00:53:35 Today,
00:53:38 their sales in the month of April and May
00:53:40 are higher than corresponding period of last year.
00:53:43 Forget corresponding period of last year.
00:53:46 They are higher than March
00:53:49 in lockdown.
00:53:50 - Okay.
00:53:52 - That may be the only company in the steel industry,
00:53:57 the entire world,
00:53:59 whose performance today is better than one year back.
00:54:02 So what I'm trying to share with you is,
00:54:07 because now I'm getting that confidence,
00:54:09 small company or big company,
00:54:11 I find it very,
00:54:14 I mean, it's no brainer.
00:54:15 In fact,
00:54:15 the problem is,
00:54:16 the bigger the company,
00:54:17 they got a big ego.
00:54:20 Small companies are very good.
00:54:23 They know we have no choice.
00:54:25 Nobody's going to give us a loan.
00:54:27 - So what now,
00:54:29 in a scenario where there is no clarity
00:54:33 on when demand will kick in,
00:54:35 how does the big guy
00:54:38 and the small guy,
00:54:39 how does he kind of
00:54:40 ride this period of uncertainty?
00:54:44 - Tell me the vegetable seller.
00:54:48 (speaking in foreign language)
00:54:53 (speaking in foreign language)
00:54:57 (speaking in foreign language)
00:55:01 (speaking in foreign language)
00:55:05 (speaking in foreign language)
00:55:09 (speaking in foreign language)
00:55:10 - The assumption is that he is dealing in a business,
00:55:13 let's say,
00:55:14 of essentials.
00:55:15 So that is,
00:55:16 and you know,
00:55:17 that is this whole thing that you will outgo
00:55:19 and there will be a certain amount of demand.
00:55:21 Like in other businesses,
00:55:22 that's not the case, right?
00:55:24 Assume you have inherited a business as it is,
00:55:29 today.
00:55:29 Now you're told the entire plus and minuses
00:55:34 have given to you.
00:55:35 And you are a fresh entrepreneur.
00:55:39 We have given you zero money.
00:55:42 Plus with all its liabilities.
00:55:44 (speaking in foreign language)
00:55:47 If there was a new person at the head,
00:55:49 what are the chances he will say,
00:55:51 "No, no, I can't do it.
00:55:52 "I'll run off."
00:55:54 It just can't be said.
00:55:55 Or people would say,
00:55:57 (speaking in foreign language)
00:55:58 "What do you think?"
00:55:59 (speaking in foreign language)
00:56:02 (speaking in foreign language)
00:56:06 The assumption that the cake size is limited is wrong.
00:56:13 - So I have a question from Harini Loza,
00:56:17 the founder and CEO of Hyperlink InfoSystem.
00:56:19 His question is,
00:56:21 "How financial management can help businesses
00:56:23 "after this tough situation to gain more profit?"
00:56:27 - Now an important parameter is,
00:56:32 irrespective any product or services
00:56:36 sell to anybody else in the entire world,
00:56:38 what are we saying,
00:56:41 take my product, take my service.
00:56:45 My explicit or implicit promise is,
00:56:49 that through my association,
00:56:51 your goal units,
00:56:53 which I'm assuming is to make money
00:56:55 in the amount of cash will go up.
00:56:57 That's an assumption.
00:56:58 Now, today, the people who are in the service sector,
00:57:04 when they go and offer a service,
00:57:07 they have no clue how the profit
00:57:12 or cash of the customer will go up.
00:57:15 They must learn that.
00:57:18 For example, Keshav Dev,
00:57:21 if I were to offer something to Outlook,
00:57:23 anything to Outlook,
00:57:24 unless I can prove it to you,
00:57:28 that with my help,
00:57:30 your circulation and eventually
00:57:33 your cash in the bank will go up,
00:57:36 how will you decide how much to pay me?
00:57:40 The only possibilities,
00:57:43 some words of mouth,
00:57:45 and what are the alternatives?
00:57:48 But any seller,
00:57:51 any seller,
00:57:52 if he can say,
00:57:53 you take my help here,
00:57:55 it is likely that your cash will go up by X amount,
00:57:59 and which the customer is ready to accept,
00:58:04 yes, if this happens,
00:58:06 then my this will happen.
00:58:08 Now you have a much better chance of
00:58:11 both getting a deal
00:58:13 and getting a good price.
00:58:17 I've done it for last 20 years.
00:58:19 My standard formula has been,
00:58:21 I'll increase your profit.
00:58:23 In fact, I used to say double the profit,
00:58:26 and I want 20% of that,
00:58:28 20% increase in the profit.
00:58:29 I told you that I keep 20 years reserve money,
00:58:36 right in the beginning.
00:58:37 If I can't make money for myself,
00:58:41 then I'm a quack telling others how to make more money.
00:58:46 So I'm very clear.
00:58:47 I will make money for myself as well as for you.
00:58:49 And I will charge a big chunk.
00:58:52 I'm not going to be,
00:58:52 I'm not come loose change,
00:58:54 but I'm ready,
00:58:56 I'm ready to link my compensation
00:58:59 to actual results achieved.
00:59:01 - Right.
00:59:03 Question is from Mukund Prashist,
00:59:05 director of RR Solution.
00:59:07 His question is,
00:59:08 how can I increase my value proposition to boost my sales?
00:59:14 - Now, the correct way of doing is,
00:59:18 we have,
00:59:19 RR Solutions has to solve a problem,
00:59:21 which increases the bottom line
00:59:25 or the goal units of its customers,
00:59:28 in such a way that the competitors cannot offer.
00:59:32 Now corporate gifting,
00:59:35 now what is so special about them,
00:59:38 which others cannot,
00:59:39 and how does it solve the pain of the customer?
00:59:42 So first they have to know,
00:59:44 what are the pains customers have in corporate gifting?
00:59:47 They must find some problem.
00:59:49 Like corporate giftings,
00:59:52 maybe they supply direct to the customers.
00:59:56 Its customer gives them the addresses to it,
01:00:00 where it has to be sent, et cetera.
01:00:03 Does it reach in a proper packaging?
01:00:06 Does it reach the proper address?
01:00:08 Does it reach at the right time?
01:00:09 In case they are supplying directly.
01:00:12 In case they are not,
01:00:14 let's say they are supplying direct to its customers,
01:00:17 who in turn is giving to other customers,
01:00:19 other their customers.
01:00:21 Then they'll have to look at it,
01:00:22 go and look at it,
01:00:23 what are the pain points,
01:00:25 its customer is having,
01:00:27 managing the same.
01:00:29 I'm sure there'll be a problem.
01:00:31 Sometimes the right packaging material is not available.
01:00:35 What can they do,
01:00:36 so they don't have to do too much of effort,
01:00:40 and eliminate its problem.
01:00:42 And it's achieving the direct result.
01:00:45 So that is the way it will have to do that.
01:00:48 But in reality,
01:00:50 I'll take it a broader question.
01:00:52 Basically, keeping the fixed costs the same,
01:00:56 how do I increase my contribution or throughput?
01:00:59 This is net sale minus truly variable cost.
01:01:02 Frankly, what they should look at it,
01:01:05 are our solutions.
01:01:07 For various products,
01:01:08 for various customers,
01:01:10 they will see the contribution percentage,
01:01:14 which is contribution divided by the selling price,
01:01:17 will be different.
01:01:19 Now, is it possible,
01:01:22 that how can they increase the sales of those items,
01:01:26 where the contribution is much higher?
01:01:29 So what can happen,
01:01:31 within the same sales quantity or value,
01:01:36 they can increase their contribution.
01:01:38 So that's the real question they should be asking.
01:01:41 In my view,
01:01:43 there are whole way,
01:01:45 I can give them some,
01:01:47 what you call direction.
01:01:49 It's called creating a mafia offer.
01:01:52 There is a book by Dr. Ellie Goldratt.
01:01:55 It's called "It's Not Luck" or "Gold II".
01:01:59 He should read that book.
01:02:01 It will give him a lot of ideas,
01:02:02 how to create a compelling proposition,
01:02:06 to its customers to buy more from him.
01:02:10 - On that positive note,
01:02:12 it was a pleasure hosting Ravi Kilani.
01:02:15 And as usual,
01:02:16 it was free and frank conversations.
01:02:18 And that is,
01:02:19 I think more takeaways,
01:02:22 for just about every businessman,
01:02:23 to really implement that.
01:02:26 Thank you very much, Ravi.
01:02:27 And hope to see you soon.
01:02:30 - Thank you, Keshav.
01:02:31 All the very best.
01:02:32 Thank you.
01:02:32 Bye-bye.
01:02:33 (upbeat music)