ALBA Graduation Speech 2012

I had the honour to be the guest speaker this year at the Graduation Ceremony of ALBA (the Athens Laboratory of Business Administration). This is the video, and the text follows.

Today is a day of celebration for you, but it is also, I suspect, a day of reflection. Because you will be going out to find work, or to start businesses, or perhaps to return to your jobs, in the most difficult economic environment we have seen for many many years.

It is a cliche, of course, that in the crisis there are opportunities. And it is a cliche that I will repeat today. But before that, let me give you another, even more obvious cliche: in the crisis, there are difficulties and dangers.

Now, in the course of your study at ALBA you have learned about key factors of success for a business, and how it will be gobbled up by competitors if it does not build those factors. You have learned about opportunties and threats. The literature and the case studies are very useful.

But maybe you have not had time in the classroom to discuss some of the threats that are most important in Greece today, and in countries like Greece (I mean other countries with weak institutions, from which some of our graduates today have come). Neither, perhaps, have you discussed some of the opportunities that arise specifically in such countries, especially in this crisis.

So before you go back into the dangerous and exciting world of real business, here are a few words of advice.

First, study the laws and regulations of your business.

Take time to understand both the letter of the law, and the practice of bureaucracy. In countries like ours, regulations and bureaucracy matter immensely. Indeed, this will be the single most important type of obstacle you will have to overcome.

There will be civil servants who will be obstructive, or will give you contradictory interpretations.

Or, you may have a clever business plan to cut out the middleman, because middlemen add a lot of cost to the supply chain; but you will discover at the very last moment that there is an obscure egkyklios (circular) which forbids you from doing that.

Or, you set up an eshop to sell beautiful designer sandals to clients in Russia or the US and you discover that for every single package you send, valued let us say at two hundred euro, you need to pay ninety euro to clear Greek customs, otherwise you will need to pay VAT, while your Italian competitor will not.

Or, you will discover that the civil liability of a corporation can abruptly become a criminal liability for its directors. And so on.

You need to understand all that, before you venture too much into new territory, or before you invest heavily into fixed assets, and before you take on debt.

Understand, but do not be deterred. So here is my second piece of advice:

Do not let yourself to get sucked in by bureaucracy.

I know entrepreneurs who try to tackle tax, and IKA and planning permits all by themselves. This is wrong. If you are a natural salesman or engineer or leader, it will be a waste of your time and your talent, and you will not have energy left for your customers and your product.

Find a good lawyer and a good accountant, and outsource all that. We have not produced much in Greece in the past thirty years, but we have produced a lot of lawyers and accountants. Many will be willing to help small  companies for low fees, in the hope that they’ll be important clients when they grow. Talk to a few of them and try them. Your primary criterion in selecting your advisor should not be low fees, nor a grand name. It shoud be practical expertise. Some of you have taken classes at organization design, where you have learned that a good team needs different sorts of people: entrepreneurs, administrators, producers, etc. Well, add ‘bureaucracy specialists’ to your list.

Third, as your business grows, your strategy for dealing with bureaucracy must change.

When it is just you, or just two partners, normally you will be below the radar screen; there is not much to worry about. When you become a small employer (or if you join a small employer) the risks increase, and the costs of compliance are very high in proportion to the size of the business.

That is where many choose to evade taxes, or to flout regulations. If you want to build a proper and long-lasting business, I advise against that. Not because you will get caught — you could probably avoid that in this country. But because the business cannot grow, cannot build quality assets, cannot attract real talent and cannot endure if it is based on breaking laws.

So you must have different strategies to minimize the cost of compliance, while staying within the law. Outsourcing is one of those, and my next bit of advice addresses that.

If you have a big company, bureaucracy costs proportionately less, and your worries shift to actual operating costs, including labour, of course. At this stage, formal organization and systems matter, and a company should invest in those — not only for productive efficiency, but because they also make compliance and dealing with bureaucrats easier.

So, fourth: if you have a small business, trust can be your most important asset. You need to outsource, but you also need to have excellent and reliable providers. You cannot afford to buy their loyalty by paying high prices or by buying great quantities. So you must have another way to keep them engaged. That other way is trust.

Now that may be standard advice in business courses, but in chaotic and low-trust societies like Greece most businessmen do not put much effort into building trust. The ones who do, however, stand out and stand to gain. A very successful and wise shipowner once asked me to help him manage a business which depended on produce from many small farmers. The first thing he told me was: when you tell somebody he will be paid on the 20th, pay him on the 18th. It is better to negotiate a longer payment date and pay earlier, than to miss your deadline. We tried this, and it did wonders for keeping our suppliers through difficult times.

As a venture capital investor, I can tell you that nothing destroys trust between investor and entrepreneur more than a surprise – a bad surprise. If a young company struggles to fulfill a big contract and is in danger of losing a key customer, the investor should know this as soon as the entrepreneur knows this. If he walks into their regular meeting after two weeks, and the entrepreneur casually says “and, by the way, we lost Vodafone”, that will be the end of trust. Good investors expect that new companies will have difficulties, but they also expect to know the full extent and soon. That way, they can work with the entrepreneur to overcome the problems. If not, they will try to cut their losses and exit as soon as possible.

So remember your basic economics: a scarce commodity commands a higher return. In Greece, trust is a scarce commodity, so those who own it can profit from it.  

As George Burns used to say about acting: “Honesty is the most important thing in an actor; if he can fake that, he can fake anything.”

But I do mean it. Being honest with your partners is sometimes painful, and being reliable with your suppliers may add to your financing costs, but believe me, it pays.

Five: (Now is time for the cliche  about the crisis being an opportunity). The greatest underutilized asset in Greece are the skills and ambitions of the self-employed.

If you have the chance, try and observe the following people: Small farmers in Corinthia who grow the finest white seedless grapes in the world, to the highest specifications of British supermarkets. Teachers in frontistiria, who devise their own teaching methods to ensure their pupils do well in exams for university entrance or for foreign-language certificates. Doctors who follow the latest developments in medicine in their own time and  by their own initiative. Taxi drivers who have discovered, via Taxibeat, that they can build their own brand of politeness and cleanliness. Tour guides, who weave enchanting narratives of history and archaeology  in Epidaurus or Delphi.

In every occupation you will find people like that. They are self-employed and they acquire skills and tacit knowledge by their own drive and ingenuity. They value the quality of their work not only for the money, but also for their sense of self-esteem. If you can tap into their skills and ambitions, you can build great businesses around that.

But, you may ask, if this is such a great asset, why don’t we already have successful companies on the basis of such skills?

Here is my point number six: The crisis has shifted the incentives for these talented people.

Before 2009, most of them, or rather most of us, I should say, could make a decent living in the domestic market. And the domestic market was regulated in a myriad ways by the state, so there was little incentive to innovate, and in many occupations one could have a comfortable income just by being there. This has now changed, both because domestic demand will remain depressed for many years, and because old regulations are being lifted.

As an example, take take doctors, of whom we have too many. They cannot hope to make as much money out of prescriptions and diagnostics in the local market as they used too. On the other hand they may have new opportunities to be partners or employees in medical service companies that are controlled by investors; such companies were not permitted till very recently.

So they can now try to build offerings for the global medical market, in what is called ‘medical tourism’. Greek governments and companies and individuals have already invested heavily in hospital buildings and in equipment and in medical education. We have the fixed assets and the human capital that we need to become a major destination. What we did not have up to now were the incentives, the enabling legal framework, and the systems. Investors and businesspeople can now organize the systems and mobilize the doctors. I hope we will witness the birth a some global leaders in this field in the next few years.

My seventh and last tip is this: there are great opportunities in the combination of cultures.

You know three basic compettive strategies: One is to compete in the global market is by building leading edge technologies. Another is to replicate what western factories do, but at lower cost.

A third, of course, is by differentiating your offering: this is the only international strategy that can work for most Greek businesses. But a differentiated offering cannot be created just  out of the ingenuity of one entrepreneur. She or he will need to build either on special local materials, or on the special skills of the people around them.

This is where local culture becomes important. Greece is rather strange for a European country: we thrive by bending rules, we prefer the small scale, we value our independence over being part of a stable hierarchy, we invest a lot more in education than is economically rational, and we mix business with private life in the layout of our cities and in the use of our time.

These are the preconditions here for a special type of creativity. The problem is that these Greek skills cannot be sold globally in their raw form. Somebody must uncover their value, must package the offering, must create useful services out of this chaos. That someone can only be an entrepreneur who understands both worlds: that of the remote client (who may be a consumer in California or a company in India), and that of the undisciplined but motivated Greek provider. I will not give examples of business models here; but I hope many of you will discover your own.

 – – – – –

This was my short list of business tips for this time of crisis and change. It is a difficult time, but you can be sure of this: all crises come to an end.

In the case of Greece, what will happen when the economy starts growing again is that a million new jobs eventually will be created. It will not be people going back to their old jobs. It will involve professionals and young people moving into sectors that have been neglected over the past thirty years: the so called tradables, which are exposed to global competition. Agriculture, specialty foods, light manufacturing, design intensive artifacts, professional services for the global market, technology.

So, who is going to take the initiative to plan these new businesses? Who will be  both visionary and serious enough to attract capital for these? Nobody, I am afraid. Except for you people, in this room. Thank you.

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