DARE - Because Entrepreneurs Do

One of the biggest problems of SMEs is lack of awareness of just how much one could do by talking to financial insitutions during a tough time

The year 2008 was probably the toughest year for most small and medium enterprises in India. It was no different for us at Incite Cam Centre. What made it tougher was the capital investments made in the preceding years through bank loans. My co-promoter Radhika and I had committed even our personal funds for the expansion as was the case with many SMEs. But the downtrend during 2008-09 was one of the tough periods for our 10-year old company.

Hema Malini K R

But entrepreneurship is all about managing business cycles and challenges. More so in the early days of business as tough economic environment at different points of time also teach business practices which even biz schools don’t teach. So it was no different for us. In fact, having seen the tough environment and pulled through the recent downtrend, we are looking to take our business to the next level.

To get back to the story in the downtrend period, Incite faced a numerous obstacles in 2008. Our client base revolved around healthcare and auto but the latter had its own problems. In fact, for the auto sector, the trouble had begun much earlier, as early as 2007. As many would recall, even during the economic boom in 2007, the second half of the year witnessed a lull period for the auto sector.

In fact, a big saving grace was Toyota Motors’ decision to pursue its small car project despite the economic conditions. Being a tier-one vendor to Toyota, our order book was steady and production capacity was running without much trouble. Spurred by Toyota’s grit, we took a conscious decision not to cut down on our human resource. To keep the show going, we pushed up the focus on business development and increased the focus on projects that demanded innovation and smart solutions. We took up a number of projects to sustain volumes and used them as an opportunity for future selling. The biggest help came from the bank which allowed restructuring of debt so that we could pay up only the interest component of the loan which in turn reduced cash outflow.

The rest, as they say, is history. The downtrend has been forgotten by both large and small players and every company is sporting a healthy order book. In fact, there is again the need for second round of capital investment, expansion of resources. Companies have been forced to scale up in quick time to meet the growing demand. So we took a step back and thought about our options. Should we repeat our actions of 2007 when we expanded rapidly? We had learnt a few lessons from the last economic cycle and carefully put down a strategy to avoid the pitfalls. Though we have a long way to go in implementing them in totality, here are some take-aways for other entrepreneurs from our turnaround story:

• Be aware of funding options: One of the biggest problems of SMEs is the lack of awareness on the financial resources front. For instance, during the downtrend, the Government and Reserve Bank of India had mandated banks to restructure loans for all corporate borrowers. This enabled borrowers like Incite to repay only the interest component on loans during 2009-10 thus reducing the burden on cash flow. For some reason, SMEs don’t have the knowledge on these issues and banks too don’t inform them proactively. We could come out of tough times mainly because our cash outflow on our loans came down considerably during choppy market conditions.

• Keep your human resources: Laying off personnel is an easy option for any enterprise struggling to its operating cost low. But acquiring relevant talent is a bigger challenge for an SME than a large corporation. Hence, keeping the trained staff pool adds value in the long term as it enhances employee retention. Incite, for instance, didn’t resort to job cuts and that proved a big advantage when the economic recovery came about in quick time.

• Decide whom you want to deal with: Every business cycle forces the management to restructure its strategies and it is a necessity not  luxury. If initial years are all about customer acquisition and volume growth, the second phase should focus on revenue per customer. Incite has taken a conscious decision to deal with the big and the best in the industry as not only does it ensure stability but also addresses the problem of receivables.

Today, Incite boasts of some of the biggest names in the auto and healthcare sector. But, Tt wants to move away from a few activities that it  offered a decade ago. Today, the company wants to position itself as an integrated player in the components segment using CAD-CAM.