The need we meet & the problem we solve
If run professionally, a nascent business should become a high-ROIC, high-profit, high-growth, stable, sustainable, investment-worthy, listed, environment friendly, corporate-governed multinational diversified conglomerate in due course of time. Additionally, a small & medium business (SMB) promoter should get personal & social recognition along with financial security of future generations who would get dividends of the going corporate entity. But, in our survey of over 900 SMBs in India, we observed that due certain deficits or events within the SMBs or due to certain business environment factors beyond the control of promoters, they meet exactly opposite fate. Instead of gradually converting into corporate giants, most of them perform below average, remain stagnant, face financial crunch, face financial distress, face recovery actions from creditors, face auctions of business properties & personal properties, face insolvency & bankruptcy, face liquidations at scrap value, face civil & criminal litigations, etc. The promoters & those who lost financial interest in the SMB suffer from various health issues such as stress, high blood sugar, BP, heart attacks. Around 8000 SMB promoters even committed suicide in India in 2018 & the trend is too upwardly. Imagine the agony in the life of 110 million SMB employee families even if we take a small fraction. The employees lose their jobs. The business stakeholders such as suppliers lose business & nation loses tax/GDP. Millions of small-scale businesses (SMB) shut down every year bringing grief to the lives of promoters, employees & many other stakeholders.
The culprit of such massive economic destruction is not lack of technical or operational or marketing or allied competence in the SMBs but it is unavailability of adequate funds in time on reasonable terms & conditions. Debt institutions have their own stringent norms and they don’t & can’t look at the intrinsic merit & potential of a business. For them, an SMB is either ineligible or eligible-not-now or eligible-for-less or short-of-documents, etc. Further, debt is simply unavailable for distressed SMBs.
On the other hand, most type of equity investors are rational, logical beings & most importantly they have much more discretionary powers compared to lending institutions. They are not trustees of third-party money but owners of own money. They are ready to invest in an opportunity that matches their investment preferences & risk-return profile. But equity investments in SMBs virtually don’t happen! In fact, if given a deeper thought, SMBs are a better option to invest in compared to the listed companies for an investor with a few million dollars. They offer attractive growth on lower base, have lower valuation multiple, offer position in BOD, give visibility of internal affairs & control over affairs, have lower overheads & compliances, need managerial synergies of the investors to mention a few. Secondly, an investment in early stage start-up is most likely to evaporate. But SMBs don’t get funding whereas it is a rage to invest in listed companies & start-ups.
Why? Because the promoters of SMBs are technocrats & they don’t know the planet of investors nor the spaceship that reaches there nor the trajectory! The number of hurdles in bridging the gap between investors & eligible SMBs run into hundreds. Our survey of 900 SMB has shown that technology, product, process, operations, market, client network & visibility of a good profit margin aren’t the issues at all for 95% of them. The only issue is funding! A company requires all the knowledge, know-how, concepts (rather lack of misconceptions), operational documentation, communication, investment deal documentation, network of consultants & clarity of funding objectives. The large companies that have competent BOD, corporate department, strategy department, contracts department, finance department that take care of the elaborate equity funding process. SMB is run by one or two first generation technocrats who are typically not chartered accountants, company secretaries, business lawyers, MBAs, insolvency professionals neither can hire right kind of consultants for equity funding nor know the scope of work, time-frame, process cost & deal structure. All this is privilege of only large companies. We have a solution for this!!!
Why do many businesses become stagnant or lose financial attractiveness over time? Why do some businesses become or look more risky? Why do some businesses suffer from financial distress? Why do some businesses even fail causing massive economic hardship to many? Well, not factors leading to financial owes are always in the control of the company management. But, do you know a very few companies are affected by the external factors & most of the companies fail because they didn’t manage well the factors within their control! Most distress situations & failures are avoidable!! Typically, you can see that the companies are led by very good technocrats with a great understanding of the market & a huge stakeholder network. They also may have history of overcoming technical, operational & market problems successfully in the past.
A survey of small & medium size businesses shows that there are four incompetencies within most of the companies led by technocrat managements:
- Corporate Management: It is carried out only for compliance sake.
- Financing Strategy: It is focused only on lower cost of capital.
- Business strategy: It is typically absent or never revised for the current moment.
- Mergers & acquisitions: There are no or inadequate efforts spent on this resulting in stagnation or loss of competitive advantage.
In the context of India, large M&A firms, big strategic advisory firms are inaccessible to relatively smaller companies to fill in the above competency gap. This is mainly because the SME businesses, the top management has hardly any awareness of or hardly any time for the complex equity funding activity.
This is where Apohan comes in! Apohan provides end-to-end custom services right from problem identification to implementation with specific focus on solutions through mergers & acquisitions for our client businesses! Our motto is not to let a worthy business fail & not to let a scalable business remain stagnant.