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Preface
Think back for a moment to your school
days….
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Preface
• When you come right down to it -> business is
very simple. There are universal laws of business
that apply whether:
– You sell fruit from a stand or
– You are running a fortune 500 company
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Preface
They have what I call Business Acumen = (ketajaman
berdagang, kelihaian berusaha) = the ability to
understand the building blocks of how a one person
operation or a very big business makes money.
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The Street Vendor’s Skill
Selling fruits and vegetables to make a living!!
He just has to figure out what to buy that morning → what
quantity, what quality, → he can sell that day (Sales
forecast).
Then what prices to charge and enough to adjust price as
needed during the day. He doesn’t want to carry the fruit
(the inventory) home with him → the value will be less
tomorrow.
He need the cash → all day long he has to weigh whether to
cut prices, when to cut them, and by how much. → if he is
indecisive or makes a wrong trade off → he may lose out.
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The Street Vendor’s Skill
• Every morning…
• Put the best looking fruit (merchandising)
• He watch the competition (also thinking
tomorrow)
• If he has trouble selling his product → cut the
price (increase the value of the customer) or
• Re-arrange the display or yell louder
(advertise) to attract attention to his stand.
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The Street Vendor’s Skill
How does he know if he’s doing well?
• When he has cash in his pocket at the end of day.
• Every language has a word for this.
• How will he buy goods for the next day? He
needs cash to stay in business.
When personal cash savings are hard to accumulate.
• The vendor may borrow cash to produce fruit in
order to make some more money.
• To make a living, he has to make enough money
to pay back what he borrowed (interest +
installment) → with some left over (profit margin)13
Every business is the same inside
What we learn from the street vendor?
Running a one person business may seem simple
→ it requires many decisions.
You probably are not a street vendor or a shop
keeper. But whether you are just beginning your
career or an executive at the top of a silo → there
is much you can learn from the street vendor →
who knows every aspect of his business →
product, sales, customer, profit margin, return on
assets, → HOW TO MAKE MONEY!!
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Chimney or Silo Mentalities
MA ACC COL
PR
RKE OU LEC
OD
TIN FIN TIO
UCT NTI
G AN N
ION NG HR
CE
Etc
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Money making in business has 3 basic parts:
1. Cash Generation
2. Return on Assets (Margin and Velocity)
3. Growth
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1. Cash Generation
Does the business generate enough cash?
What are the sources of cash
generation?
How is the cash being used?
Any business person who fails to
ask these questions and figure
out the answers → eventually
stumbles (tersandung,
terhuyung-huyung)
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1. Cash Generation
Cash Generation = the diff between all the cash
that flows into the biz and all the cash that
flows out of the biz in a given time period.
If all the biz on a cash basis → cash and income
are one and the same.
But must companies extend credit → so cash
and income are different.
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1. Cash Generation
Cash gives you the ability to stay in biz → it’s a
co’s oxygen supply.
Lack of cash, decreasing cash, or consumption
of cash -> spells trouble even if the other
elements of money making – such as profit
margin and asset velocity – look good.
Exp : - Sales increase Collection
- Bad debts
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1. Cash Generation
Do you know whether your company is a net
cash generator?
If it’s not Generating Cash → is this because
your management is investing in activities to
grow the company, or because you have too
much inventory that you’re not selling?
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1. Cash Generation
Everybody counts...
Account Receivable VS Account Payable
Days of account Receivable VS Term of Payment?
A sales Rep who negotiate a 30 days payment from
a customer VS 45 days is cash wise. -> the money
sooner → that better.
A plant mgr whose poor scheduling results is
accumulation of a lot of inventory → consumes
cash.
Exp. Amazon.com Cash
Exp. Dellcomputer Machine
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2. Return on Assets
You are using your own or someone’s money to
grow.
You borrow from a bank or use your savings.
The money → represent your investment or your
investment capital.
Your investment then takes → inventory, plant
and equipment, account receivable.
Tangible assets → you can see and touch.
Fixed assets → big items – that are not expected
to be sold. 22
2. Return on Assets
Return on Assets (RoA) → are you making
enough of a return on those assets?
Some people would rather talk about Return on
Investment (RoI) or Return on Equity (RoE).
→ these things are technical.
You don’t need an MBA to understand RoA!
Exp. street vendors selling…..
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2. Return on Assets
The word velocity → idea of speed, turn over,
or movement.
Think about raw materials moving through a
factory and becoming finished products → to
the shops → moving off the shelf → customer.
That’s velocity.
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2. Return on Assets
Some people use the term inventory turns to
describe inventory velocity.
How many times does the inventory turnover in
a year?
Wal-mart has 360 inventory turns in toilet
tissue → that means the entire inventory of
toilet tissue is sold almost every day. Each day,
wal-mart gets back the money it spent on its
inventory plus some profit → that’s a terrific
use of shelf space. 25
2. Return on Assets
SO, THINGS MUST MOVE THROUGH A BIZ TO
THE CUSTOMER – THE FASTER, THE BETTER
(UNIVERSAL LAW OF BIZ).
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2. Return on Assets
Total Sales
Inventory Velocity =
Inventory
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2. Return on Assets
Is it better than last year and the year before?
Is it better than it’s competitor? Should be?
The best co, ROA > 10 percent after Tax.
One truth about business is = ROA has to
greater than the cost of using your own and
other people’s money (bankers’ and
shareholders’), the cost of capital.
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3. Growth
Growth is vital to prosperity.
Every person, every company and every
national economy must grow.
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3. Growth
If you don’t grow, means :
– Competitors will eventually overtake you.
– People will not have opportunity to be
promoted and move forward.
– Begin to cut costs, cut no. of employees, cut
layers.
– Best people will leave, people will suffer, and
eventually the co will go into a death spiral.
Exp. Westinghouse VS GE
Exp. Digital Equipment Corp (DEC)→ Compaq acquired it.
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3. Growth
Growth has a psychological dimension.
Growth energizes a business → attracts talented
people with fresh ideas → Creates new
opportunities.
Exp: Top co’s easier to get the graduates from
the best schools and retaining their top
performers → like Cisco, Intel, Microsoft,
Oracle, Google.
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3. Growth
Growth has to be profitable and sustainable.
So, don’t use size as a measure of success.
Pushing for more sales dollars → isn’t
necessarily good biz. You have to know how and
why you’re growing. And you have to consider
whether you are growing in a way that can
continue??
Is your profit margin improving or getting
worse??
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Customer
The street vendor knows his
customer well, simply by
watching them, he can detect whether they
like his fruit or are growing dissatisfied, and
whether their preferences are changing.
CEOS with business acumen have the same
close connection with customers and that
the business can’t thrive W.O. Satisfying
them → it ’s Universal
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Customer
Try to explore “what the customer needs and
wants”
Exp: Sam Walton (wal-mart) and
Jac Nasser (Ford)
Exp: Steve Job → Ipad, Iphone
(Customer willingness in the future → BW)
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Customer
As You think about customer, keep it simple!!
It might not the physical product alone they are
buying. May be they’re buying:
– Reliability
– Convenience
– Service, or
– Trustworthiness
Customers need a simple reason to buy from
you!!
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Figuring out Business Priorities
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Wealth is More than Making Money
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The Right People in The Right Jobs
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The Right People in The Right Jobs
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Dealing with Mismatches