Learning Curves

I just wrapped up teaching a class on Managerial Economics for MBA students this semester at Father Saturnino Urios University. One of the topics we covered was the use of learning curves in business. In a nutshell, learning curves are used by managers to help understand how organizations become more productive over time as people get better at doing their jobs. The basic premise is that as people get better at their jobs with time, they become more productive and the organization reaps the benefits when errors are reduced or corrected. The idea is simple. But to reap the benefits, people must learn to reduce their errors and make the necessary corrections.

What do learning curves have to do with this week’s Small Business File? Well, everything! Because this week I’d like to discuss how people, especially foreign small business owners, must make an effort to learn to get better at reducing their own errors in the Philippine context. Failing to learn from your errors in the Philippines will result is more failures in business, and in life in general. There is a real danger in relying on Western conventions when undertaking business in the Philippines. Why danger? Because the Philippines does not have the same business traditions, foundations and characteristics of other countries.

Too many foreign small business owners try to bring what they perceive are better business practices with them to the Philippines and expect those practices to result in success. Rarely does this happen. Now I’m not saying it is impossible to introduce small changes and create incremental improvements. But I am saying it is vitally important to remember: “When in the Philippines, do as the Filipinos do!”

After one has lived here long enough, many often learn that there are generally very valid reasons why things are done the way they are in the Philippines. What may appear to be strange, inefficient, or unproductive is often not the case. Laws, regulations, norms, checks and balances, employee and management training, wages — all of these factors and many more combine to form what have become generally accepted business practices in the Philippines.

Successful foreign small business owners work within the Philippine framework. Unsuccessful small business owners rage against the system and get absolutely nowhere. Complaining and making derogatory accusations towards Philippine business practices only alienates these small business owners to others, both foreign and Filipino. Instead of swimming upstream and crusading against Philippine norms, one should embrace the Philippine business culture for what it is and learn from it! This brings us back to learning curves.

The best way to make improvements in productivity for your small business is to learn from your mistakes and take corrective actions. It’s time to stop believing western methods are ‘correct’, when in fact they may not have increased your business volume, or worse, alienated many customers. If your suppliers are having trouble meeting your orders, find out why. Don’t simply jump to the conclusion that Filipino suppliers don’t know what they are doing and care less about your business. Many small business owners burn bridges this way. They don’t realize that stocks may not have arrived with the supplier yet — shipping companies face ship break downs or weather delays which cause shipments to miss by weeks sometimes.

I remember ordering supplies from Manila about three years ago and faced such a problem — there were typhoons in Luzon, and after the weather cleared up the ship to northern Mindanao was dry docked for a week for repairs. I received my order almost 3 weeks late. But that’s hardly the fault of the supplier I ordered from. I followed up with my supplier and the shipping company and learned about the cause of the delays. Both delays are a part of doing business in the Philippines.

Another foreign small business owner faced the same problem, but instead of investigating what the problem was, he simply called up his supplier, ranted about how backward the Philippines was and threatened to never do business with the supplier again. Bad move. The supplier simply decided not to do business with him again. Of course the foreign small business owner couldn’t find another supplier and his business failed soon after. I’m sure he continues to believe the Philippines ‘just doesn’t get it’. I am pretty sure it is he who just doesn’t get it. Typhoons do disrupt transport. Ships do break down. There aren’t many other alternatives when you think about it. Claiming this would never happen in a ‘western’ economy is ridiculous. Just ask anyone trying to get something delivered in one of the gulf-coast states after a hurricane has made landfall.

The lesson here is to respect Philippine business norms — build in appropriate times for delays; make sure you have an inventory system that can handle delays; be on good terms with suppliers so they can help you find alternate ways of solving your problem. You’d be surprised how easy it is to get help by simply asking for it nicely! Filipinos are used to the idiosyncrasies of doing business in the Philippines. Why not ask them to help you navigate through it? Seems to make a lot more sense than running down the business culture and wishing things worked ‘like they do in the west’ or wherever else.

Learn from your mistakes and take corrective action. Learn how to do things in the local context. Sure, introduce outside methods if they make a difference in day-to-day operations, but don’t be fooled into thinking such methods will always work. Sometimes they won’t. Don’t keep trying to force the issue. Learn that some methods and practices just won’t work. Learn from the experience and try to find out how you should be doing things to be more successful. Make the correction and be better off for it. If you’re interested in increasing productivity, adapt to local norms. You just may learn that doing so not only makes sense but improves your bottom line.

F&B Insider: Leasing Space

F&B Insider is a special column that appears on occasion in the Small Business File. Each week the Small Business File addresses some interesting topic related to entrepreneurship or small business management in the Philippines. F&B Insider columns focus on issues of particular interest to those small business operators in the food and beverage and hospitality industries in the Philippines.

Not many restaurateurs or bar owners start out with their own building in a prime location. In almost all cases, finding an appropriate commercial space to lease is the norm.

When thinking about where to lease a commercial space for your restaurant or bar, you really must follow the timeless adage: location, location, location! But what does that exactly mean for a F&B operation?

Ideally the location should be in an area where there is a high concentration of potential customers during the day and the night. This doesn’t mean your business will be open from breakfast to late evening, but it is nice knowing you have the opportunity to do so in such a high traffic location. You have flexibility to expand your hours if that is the case. The drawback is that rents are usually much higher in such prime locations.

The other option is to locate in a less prime location. This is not exactly a bad idea. In locating in not so prime locations, you get the opportunity to take advantage of lower rents and may face little or no competition in the immediate area. You may not have the visibility you would like when starting up, so sometimes this strategy works best for established businesses who can pretty much move wherever they want, knowing their customers will follow them.

Once you find the right location, you will have to talk to the owner or manager of the space to see if they will accept your offer to open a business in their space. Be prepared to be told ‘no’ if you plan on doing cooking of any nature. Many commercial building owners do not allow food-related businesses to open in their buildings, as there are increased possibilities of fires and/or pest-related problems. This is an extremely frustrating part of the search for an appropriate commercial space, but it is a very real problem.

When you find a space that does allow cooking, then the real negotiations regarding the lease can begin. In general, there are at least twenty important items to consider when contemplating signing a lease for your restaurant or bar. Three of the most common and important considerations are: (1) term of the lease and any renewal options; (2) base rent and security deposits; and (3) provisions for renovation and/or alteration of the space.

The first consideration is very important. There is no point opting to lease a space for the duration of say a year if you intend on spending a considerable amount of money renovating the space to meet the ambiance desired for your restaurant or bar. You really need to seek out landlords who will grant you at least a 3-year lease on the space. Furthermore, you should try and see if you can add in a clause allowing you the option to renew the lease for another 3-years once the initial lease is up.

The second consideration is linked to the first. You will need to negotiate the base rent for the space. Most commercial building owners want a regular monthly rental payment. These are the best kinds of landlords. Try and stay away from any landlord who asks for a base rent and a percentage of sales. You will find it very hard to make any money with leases that take base rent and a percentage of sales. It is not worth the trouble.

In addition to the base rent, landlords will want a security deposit that includes an advance rent portion and a damage deposit portion. There are many landlords who require a 6 month advance rental and a 3 month damage deposit. Try and stay away from such locations as much as possible – I’m pretty sure everyone could find a better use of capital than to tie it up in deposits. Good landlords will want to help you be successful so they get paid regularly. If you find a landlord who asks for 1 month of advance rent and 1 month of damage deposit, consider this a very favorable situation for your fledgling enterprise.

The third consideration concerns what renovations and space alterations will be permitted by the landlord. If you have serious re-design ambitions, you will need to make sure the landlord approves of any changes to his or her building or structure. Don’t be vague at this point. You don’t want to find out half-way through construction that the building owner will not permit you to make certain changes or add certain features to his or her building. If you stick to a basic design, you will encounter few objections.

Good luck in finding the space and lease that is most appropriate for your F&B business. Until next time, Bon Appétit!

More and more expats and OFW’s are getting involved in small businesses that fall under the food & beverage industry umbrella. F&B Insider articles will focus on some of the key issues that can help small business owners gain an edge over other establishments in this very competitive industry.

Best Addresses

Sometimes I take the little things for granted. Like all of you, I’m a busy person. Most of the time I assume that readers who come here to the Small Business File already have a fair bit of knowledge about small business. That’s simply not the case. I know there are people who are just starting out. I remember when I was first getting involved in entrepreneurial activities, and I’m happy to admit, I too was very ‘green’. So this week I’m going to offer my views and reviews of three websites I think offer excellent information to people who have recently been bitten by the ‘entrepreneurship’ bug. I’ll revisit this topic at different times in the future, so I’ll only start with a handful of sites today.

I personally find the three sites below are extremely useful. I can recommend them simply because they are comprehensive, and, in the case of the third site, laden with the correct information many small business owners need to not only understand, but to fully comply with the laws and regulations associated with undertaking a business venture in the Philippines. Moreover, these three sites offer both breadth and depth. What I mean by this is that most topics on small business in the Philippines that you could possibly think of are in fact covered, and normally in rich detail. In many instances there are links to related topics or articles that provide guests with more than a cursory understanding of the most pertinent issues associated with whatever happens to be the topic of interest.

The first site I would like to review and recommend is the website for Entrepreneur Magazine (Philippines). The website is no substitute for the actual print issue, but it is still an excellent resource, especially for OFW’s and people living abroad and thinking about opening a small business in the Philippines at some point in the future. This website contains many articles and links of use to entrepreneurs in the Philippines. There are sections on finance, technology, human resources, etc. Of course there is also information on current and upcoming issues of Entrepreneur Magazine (Philippines). The ‘workbook’ section of the site is especially good for those hoping to expand their list of small business ideas.

The second site I would like to review and recommend is the website for EntrePinoys. This particular website is one of the best internet ‘hubs’ devoted to small business investment and livelihood opportunities in the Philippines. The amount of excellent information on this site is very impressive. Guests can search for topics or can browse according to a number of categories that includes food related businesses, agricultural businesses, and a wide variety of other small business opportunities. There are even ‘How To” videos that guests can watch so as to learn different tips and techniques used in a wide variety of small business pursuits.

The third site I would like to recommend is the website for the Department of Trade and Industry in the Philippines. Every small business owner will have to register with the DTI before they begin operations, so I highly recommend visiting the DTI website so that you can get comfortable with the different rules and regulations required in establishing a small business in the Philippines. But the DTI website offers even more than the usual pages associated with rules and regulations. There is also a whole lot of additional information of use. There is information on upcoming trade fairs. There is information on upcoming trainings. And there is a very interesting section on the OTOP Program (One Town, One Product). If you want to learn what different towns in the Philippines are best known for in terms of local products or services offered, the OTOP site can help!

I hope you all decide to bookmark these sites and visit them regularly. If you’re like me, you’ll constantly be amazed at how much terrific information is available on these sites.

I would be interested to know what sites many of you small business owners find especially useful, so please feel free to submit comments on the websites you find are most useful for entrepreneurs and small business owners in the Philippines.

They Did It: RK Franchise Consultancy

‘They Did It’ is a special column that appears on occasion in the Small Business File. Each week the Small Business File addresses some interesting topic related to entrepreneurship or small business management in the Philippines. ‘They Did It’ columns showcase businesses developed by foreigners and OFW’s. The goal is to provide insights into how different entrepreneurs have found success here in the Philippines, and provide encouragement to others by demonstrating that running a small business in the Philippines is not only possible, but can be rewarding as well!

This week ‘They Did It’ examines the efforts of an Austrian entrepreneur, who has established a franchise consultancy firm here in the Philippines. RK Franchise Consultancy opened its doors in 1995, and is without a doubt one of the top franchise consultancy companies in the Philippines. Since opening, RK Franchise Consultancy has assisted over 350 Filipino companies in developing their franchise systems. The types of companies that RK Franchise Consultancy has assisted includes everything from food and beverage companies, to personal care companies, to computer businesses, clothing and retail businesses, and even gas stations and pharmacies.

Name: Rudolf Kotik

From: Austria

Residence: Cubao, Quezon City

Business Name: RK Franchise Consultancy

Business Description: RK Franchise Consultancy is a full-service franchise consultancy company in the Philippines. The company is based in Metro Manila, and has an office in Cebu City that handles services for the Visayas and Mindanao. RK Franchise Consultancy assists existing companies by developing franchise systems for them. Furthermore, RK Franchise Consultancy also helps individuals wanting to open a franchise by matching them with an appropriate company that offers franchises based on the individual’s various criteria and interests. For those businesses wanting to offer franchises to help grow their business, RK Franchise Consultancy offers a comprehensive package including: structuring the franchise; developing the franchise contract and related agreements; developing an operations manual and a franchiser’s manual; developing materials related to the business as well as training programs; developing guidelines for store uniformity and set-up; website development.

Q: Can you give our readers here at LiP’s Small Business File some background history about how and why you started up your consultancy business in the Philippines?

A: Before coming to the Philippines I had extensive experience in the European franchising industry. I realized that much of this experience could be used in the Philippine context, so that is why I decided to try and see how I could use my experiences and adapt them to the Philippine market. The decision to engage in this type of business has been very good to me, as I have been a franchise consultant in the Philippines for more than fifteen years now.

Q: What aspects of running this type of business do you like the best? Least?

A: What I like most about being a franchise consultant is meeting so many different people and the variety of businesses that are interested in developing franchise systems to grow their sales and develop their business in new markets. The least interesting aspect also happens to be a very important aspect, and that is going through and proof-reading the various franchising manuals my staff help develop with our clients. Most of these manuals run into the hundreds of pages, but they are critical components of every franchise system and must be developed with great care and attention.

Q: What are your keys to success?

A: I believe the keys to business success are in being very focused and very professional. We are 100% client oriented and strive to offer the best service possible. As a company, we try to be both flexible and innovative when it comes to offering tailored services to meet our client’s needs. This is a major key to our success and helps us stay one step ahead of a number of competing consultancy companies.

Q: What are the biggest challenges in running this type of business?

A: To be honest, there are very few major challenges in helping our clients develop a franchise system that meets their business needs and goals. I see it more as a pleasure than a challenge when it comes to developing a franchise system for any one of the companies we work with. We enjoy what we do at RK Franchise Consultancy!

Q: What are your future plans for the business?

A: Franchising in the Philippines is still growing by leaps and bounds. In many ways the market for franchise development in this country has enormous potential and there is a tremendous amount of room for continued growth. The prospects are great for RK Franchise Consultancy and for a number of the other leading franchise development companies in the Philippines.

I would like to thank Rudolf for providing us with some insights into what it is like to run a successful consultancy business here in the Philippines. Clearly it is possible to harness previous life and professional experience and use these experiences to develop a niche consultancy business in the Philippines. There are many different possibilities and potentially lucrative niches waiting to be filled. If you are an expert in a particular field and have a passion to help others achieve their own personal or organizational goals, you too may be able to open your own successful consultancy service in the Philippines.

Fake It Till You Make It?

I had a thought-provoking discussion with a friend the other day. We were debating about how much effort it really takes to launch a business in the Philippines. After batting ideas back-and-forth, we quickly eliminated the usual problems and settled in on one that we felt was difficult to reconcile.

What we found interesting was the contrasting approaches taken by two types of entrepreneurs: (1) those who jump right in and tackle problems as they arise; and, (2) those who study and plan extensively before launching their venture. We agreed that both approaches can be taken, and both approaches can result in business failure and success.

We all know and celebrate entrepreneur success stories. It is hard not to admire the stories of those entrepreneurs who jumped in and ‘took the bull by the horns’. Popular examples are often those of the entrepreneurs who ‘new nothing, and more importantly, made something out of nothing’. I like these stories just like everyone else, but I don’t personally know anyone who falls into this category of entrepreneur.

I do know of many here in the Philippines who tried this approach, but none have found any success thus far. I concede that there have to be examples out there. Perhaps I don’t mingle with the crowd who falls into this category and gets rich seemingly overnight. But I do know and share experiences with different types of entrepreneurs and small business owners.

Many of the entrepreneurs I know tend to be more calculated. That is not to say they are adverse to risk, or are not quick to act on opportunities that present themselves. It simply means they make an effort to eliminate the potential for reckless risk so they can concentrate on taking risks that have a greater likelihood of paying off. These entrepreneurs generally place a greater emphasis on planning, preparation, and information gathering. They are very different from the ‘fake-it till you make-it’ type of entrepreneur.

They arm themselves with information and tangible business-related experiences to augment their ‘instincts’. They rarely divert their time and resources away from what they know best. They don’t pretend to know about running businesses they actually know nothing about. They don’t fall into the trap of having blind trust in their own abilities and instincts.

I don’t know what it is about the Philippines, but too many would-be entrepreneurs make the same mistake. They adopt the ‘fake-it till they make-it’ approach. As I stated earlier, I’m not saying this approach cannot result in success. But in my experience this approach has never resulted in any measurable success. For foreign small business owners in the Philippines, it is tempting to think you can ‘fake it till you make it’. In reality, Filipinos are savvy consumers. If you aren’t really proficient, or can’t produce what you say you can, you will lose credibility very fast. Your business suffers as a result, and everyone knows about it rapidly — it is amazing how quickly word gets out that the foreigner’s place is not up to par with what is expected by the Filipino consumer!

The margin for error in small business is narrow. It is even narrower when you are attempting to do business in a foreign country. My intent in this article is not to discourage people from opening a small business in the Philippines. Instead, my intent is to caution against thinking you can do more or get away with more in the Philippines than you could somewhere else.

My Dad always told me ‘Don’t pretend to be someone you are not’. I think this same kind of common sense is useful for aspiring entrepreneurs. The key is finding a small business opportunity that really resonates with you, and that you have sufficient background in so that you are more likely to succeed once you get up and running. It only makes sense that you improve your likelihood of success if you engage in a business you know something about! Leverage your previous life-experience and you’ll have far fewer headaches and disappointments.

Let’s end on a positive note, with some examples on how to leverage previous life experience for use in the Philippines.

Example One: You spent the past 10 years working in a car dealership. You probably don’t have the capital to open your own car dealership in the Philippines, but why not open a small business that leverages your experience with vehicles? How about a car wash with an edge — don’t try and compete on the washing of cars alone. Use your experience in pleasing car-loving customers by offering over-the-top service. Provide waxing service. And detailing that makes even a rust-bucket shine. Have a small lounge where customers can have a coffee or drink while they wait. Have car magazines for sale and to browse while they wait. Offer the whole range of air fresheners, key chains, bumper stickers and more. This kind of operation doesn’t cost much to get up-and-running, but clearly this kind of set-up is in a class above and beyond what typical car washes offer in many parts of the Philippines. You leverage your experience and love for cars by engaging in a business that is linked to what you know and have a passion for.

Example Two: Before moving to the Philippines you spent the previous 15 years running the bakery at a major grocery store. You know there’s no way you’ll go back to the long, crazy hours required of a baker, but baking is what you know best. Why not open a specialty cake service that only makes cakes for weddings and high-end birthdays and anniversaries? You can run this kind of business out of your own house! You can pick and choose which events you’ll provide your services to. If you’ve spent any time in the Philippines, you’ll know how much money is spent on lavish parties. And every party host loves to announce that their amazing cake was made by a foreign baker! Just be sure to make sure your cakes are in a class of their own. Before start-up, really learn the techniques used by great cake decorators. You already have the basic baking knowledge down-pat. Read a few books, watch some videos on You-Tube, make some trial runs that you can impress your friends with and get constructive feed-back from, and then get the word out!

I’m sure each one of us can think of other examples that puts their previous experience to good use. Good luck thinking through opportunities that make use of your own past experiences. I believe with a bit of effort you’ll find something that will work and that you have reasonable compentance in, and then you won’t have to try and ‘fake it till you make it’.

Where I Live: Butuan City

Mabuhay!

Welcome to Butuan City, the “Timber City” of the south.

The name Timber became fashionable during the decades when logging was the main source of livelihood for many people living in the Agusan provinces. But over-exploitation and little to no attention payed to replanting tress makes many wonder whether Timber City is in fact a relevant name any longer.

Butuan City is also known as the oldest city in the Philippines, and for that reason, the city government is now trying to re-brand Butuan City as “The Ancient Kingdom”. It has been a trading hub since the 10th century, and there are many important archaeological sites found in and around the Butuan City area.

No matter what moniker is used, Butuan City, or Butuan for short, is home to approximately 300 thousand people. It is the administrative center and main hub of commerce for the Caraga Region, which covers the northeastern most provinces of Mindanao.

Butuan is a medium-sized city. It does not have the same kinds of amenities one would find in a larger center like Manila, Cebu, or Davao, but it does have many of the amenities that other smaller cities in the Philippines may not have. There are several well-regarded post-secondary educational institutions. There are a number of hospitals and specialist clinics. There is a shopping mall. There are numerous hardware stores. There are a variety of restaurants and entertainment venues. In short, it is a very livable city. But livable to some is not livable to everyone.

There is a busy airport in Butuan that services flights from both Cebu Pacific and Philippine Airlines. Most flights are to Manila, but there are also flights to Cebu. Those who prefer taking the ferry can travel to and from Butuan via the seaport of Nasipit, which is a 20 minute drive from Butuan. The port of Nasipit has vessels leaving to many destinations, including Manila, Cebu, and Bohol. Driving to larger regional centers is also easy to do from Butuan. It takes approximately 4.5 hours to drive to Davao. It takes approximately 3.5 hours to drive to Cagayan de Oro. Both stretches of highway are well-paved and easy to navigate.

There are many small festivals that occur throughout the year, but the two largest in Butuan are the Kahimunon Festival and the Balanghai Festival. The Kahimunon Festival is celebrated every third Sunday of January and is similar to the Sinulog Festival in Cebu. Like the Sinulog Festival, the Kahimunon Festival celebrates the Sto. Nino. Kahimunon means ‘gathering’ in one of the local dialects, and the main activity during this festival is street dancing, with participants using colorful attire made from native designs and patterns. Participating teams of street dancers for this festival come from far and wide.

The other major festival is the Balanghai Festival. The Balanghai Festival celebrates the historical significance of the nine Balanghai boats that have been unearthed in the city. These Balanghai boats provide the strongest evidence of Butuan’s economic and cultural role in the ancient Asian maritime trade that dates back as far as the 10th century, long before the arrival of the Spanish in the Philippines. The Balanghai Festival is celebrated during the third week of May, and coincides with the feast of Butuan’s patron saint, St. Joseph. In fact, the whole month of May is loaded with events, and the city is very busy at this time, with many balikbayan’s returning home to participate each year.

Butuan has relatively few tourist attractions compared to other spots in Mindanao. The regional museum is one such site worth visiting. The beaches near the town of Carmen are also nice places to visit on the weekend.

Luckily, Butuan is located very close to other places tourists typically gravitate towards. Many visitors to Butuan take the time to go off and explore the beautiful beaches of Surigao and Siargao, or travel a short distance to visit the enchanting island of Camiguin, known as the Island Born of Fire. Surigao is only a 2 hour drive from Butuan. Getting to Camiguin involves a 2 hour drive, and a 45 minute ferry ride.

The cost of living in Butuan is not much different from many other medium-sized cities in the Philippines. House and apartment rentals tend to be fairly-priced, but purchasing land is usually a much more expensive proposition. All day-to-day living essentials can be purchased in Butuan, and more exotic or imported goods can be purchased during sporadic visits to places like Davao or Cagayan de oro. There are several major car dealerships in Butuan, along with an assortment of second-hand dealers. Appliances and furniture can be bought here at some of the more established retailers, so there is little need to bring such items from afar. The only thing really lacking in Butuan is a major mall like a Robinson’s or Shoe Mart. In the future, if such a shopping center were to open in Butuan, there would be very little reason to leave this peaceful, easy-going city.

I hope you enjoyed this brief introduction to my city, Butuan. Like many other cities in the Philippines, Butuan is a city on the rise. It is a historic city, but many of her residents believe that best is yet to come for Butuan and the Caraga region.

Hope to see you in Butuan some day!

Shocking Electricity Charges

Power. Not the political kind. Nor the kind associated with professional athletes. Not even the awesome power mother nature can unleash. This week’s topic for the Small Business File is simply about power of the electrical kind.

This past week I needed to get a temporary electrical permit. It is for a project I have been working on and is at a new site different to where I live and have a business. When I went to the local electrical cooperative, we were told that the permit would not be processed until the account of the previous occupant was settled. Now, imagine how I felt when I was told we’d have to pay P17,000.00 Pesos, because that is what the previous occupant had rung up in charges and skipped out on. I was a little bit shocked, but  perhaps perplexed is a better word to describe my wonder.

Of course I refused to pay the charges, but the billing clerk told me that was their policy. I proceeded to ask if it would be OK for me to charge anyone at my coffee house P1000.00 for their cappuccino, simply because they happened to sit at the same table as a previous occupant who skipped out on paying their bill. Of course, this was a fictitious example, as no event ever happened, but the example was provided to demonstrate how ridiculous such a policy is. To me, it is just not possible to even think that anyone with absolutely no connection to a previous account should be held liable for the actions or account of another.

It didn’t matter. I was still informed: “That’s our policy, sir.”

So, I did what needed to be done. I asked for the person in charge of billing to write it on company letterhead that it was their policy to force new accounts to pay the delinquent accounts of total strangers before their permit could be processed. I also asked that the letter stating that as their official policy be signed by the officer in charge.

In 10 minutes, my permit was processed, with no more questions asked, and no more word of any outstanding charges to be paid.

What happened to me at the electrical utility is not likely to happen to any of you, but it could. The real issue is how difficult it can be to get your utilities lined up when opening a business. There is a lot of red-tape. Forms to be filled out. Lines to wait in to pay deposits and fees. Then more lines to take that paperwork to. In my case, after spending a whole afternoon getting the permit signed off on, I was told to come back in 2 days to get my free meter and 30 meters of wire. After days of getting my paperwork together, then a whole afternoon arguing as to why I should get my permit, I was just happy to have the permit approved. I could wait the two days, even though it was an inconvenience.

After two days, now Thursday, I returned to collect my meter and 30meters of wire, but was told “Sorry, sir, no stock”. Come try again next Tuesday. I left. What else could I do? Again, the point here is to state the obvious: don’t expect things to run smoothly when dealing with utilities or many other government or quasi-government line-agencies. Sometimes things work out great, but many times you’ll face red-tape from bottlenecks like this. It’s part of being an entrepreneur in the Philippines!

There are a few other things to consider regarding electrical power in the Philippines. Commercial accounts pay higher rates per kilowatt hour than residential rates, so please remember to take this into consideration when costing out electricity charges in any business planning activities. And because electricity in the Philippines is in general much higher than in other countries, there is a real need to watch electricity usage very closely. If you’re not an environmentalist, you better become one fast! If you don’t try and conserve electricity, you just may find your utility charges run higher that just about every other input cost you may have in your entire business. That’s no joke. You read it correctly. Utility charges for commercial accounts are extremely high and a major obstacle to many business ventures, small or large.

So what can we learn from today’s article?

First, build in very large allowances of time during start-up to get things like utilities lined up and in working order. It will take much longer than you could ever imagine.

Second, be prepared to pay higher rates for power utilization as a small business owner.

Third, be energy conscious. Spend a bit more and get energy-efficient appliances. Use energy-saving light bulbs wherever possible. Have staff turn off all lights and appliances when not in use or needed.

Good luck to all of you facing similar adventures in power utilization!

F&B Insider: Kitchen Design

F&B Insider is a special column that appears on occasion in the Small Business File. Each week the Small Business File addresses some interesting topic related to entrepreneurship or small business management in the Philippines. F&B Insider columns focus on issues of particular interest to those small business operators in the food and beverage and hospitality industries in the Philippines.

In this inaugural F&B Insider article we examine the importance of proper kitchen design and how it relates to overall customer satisfaction with the dining experience.

Last week I hosted 8 friends from Singapore who traveled here to the Philippines for a week of island hopping, snorkeling, and plain old fun in the sun, sand and surf. The trip was a success as we are able to share incredible memories and photos of beautiful beaches, amazing coral, and fine sandy beaches. But as enjoyable a trip it was, everywhere we dined we faced long wait-times when it came to getting our meals — be it breakfast, lunch, or dinner. It seemed as though the majority of the places we stayed had difficulty in getting orders out to our table in reasonable amounts of time.

Being in the food & beverage industry myself, the long-waits made me think about what the problems may be in these types of situations. Sometimes the problem is having too large of a selection on the menu, creating a logistical nightmare for kitchen staff. This problem is further compounded if there happens to be a shortage of staff in the kitchen on that particular day. But based on my observations, this was not really the issue at the places we visited on our trip.

In all but one case, the various menus at the different establishments we dined at were not overly complex. The problem seemed to be related to kitchen size and design in relation to the number of tables and chairs that made up the dining area. How did I come to this conclusion? Even though it took between 1 and 1.5 hours for our table of 8 to get served, most dishes, when finally served, arrived cold. Can you imagine how we all felt after a long day out on the boat, only wanting to come back to a nice, hot meal? Then, we would have to wait much longer than anyone would ever think possible, only to be served a plate of cold food.

What was happening was obvious — there were not enough burners available to handle tables with groups that were larger than perhaps 4 individuals. The meals were cooked one at a time until the entire order was complete. Those meals cooked first got cold as the subsequent meals were made. As a result, maybe 1 or 2 of our dishes were actually warm once delivered to the table. The kitchens were basically not set up to deal with the size of the dining area.

Now nobody is saying these establishments must immediately go out and buy a whole bunch of fancy kitchen equipment and appliances. The lesson for those small business owners, either already in or contemplating starting out in the food and beverage industry, is to make sure your kitchen can handle the needs of the dining space outside! In other words, if you have 10 tables and 40 chairs, you should probably have more than 2 burners for cooking. The number of burners/microwaves/refrigerators should be sufficient given the number of tables you have.

How do you plan for this? As a rule of thumb, try and determine how long it would take for you to get orders out to all your seats in 15 minutes or less. Any longer, and you’ll turn customers off. Turnover of seats is what helps you increase your sales volume, so if your kitchen is designed in such a way as to get orders out efficiently at your most peak hours, you can be sure you’ll generate more sales on a consistent basis.

Moreover, your food preparation area should be designed so that those responsible for cooking can easily reach different areas without having to take more than 5 steps in any direction. Refrigerators, wash areas, the stove/burners and preparation tables should all be easily accessible to your kitchen staff. Moreover, try not to place your kitchen between the dining area and the store room — inevitably, servers will rush through the kitchen to get to the storage area, and the excess traffic could cause problems during very peak periods. When you hear plates crashing in the kitchen, 9 times out of 10 it is because servers are getting in the way of kitchen staff.

I hope this inaugural issue and future issues of the F&B Insider will help aspiring restaurateurs and bar owners to plan accordingly for many of the challenges typical in the food & beverage industry. Until next time, Bon Appétit!

More and more expats and OFW’s are getting involved in small businesses that fall under the food & beverage industry umbrella. F&B Insider articles will focus on some of the key issues that can help small business owners gain an edge over other establishments in this very competitive industry.

Blind Trust

In the past I have written about the need to build up trust within a small business setting in the Philippines. Building up trust is critical to long term success and relationship building between your small business and your suppliers, customers, employees, and others who may have an interest in your venture. But building trust over time is very different from having blind trust in any person, idea or relationship. Blind trust needs to be avoided as much as possible in the context of small business development in the Philippines.

What exactly do I mean by blind trust? Well, put simply, it is placing too much risk in your own hands rather than aiming to spread any risks out over time or finding ways for the risks to be shared by others whom you or your business are dealing with. Granted, there will be times when every entrepreneur will be faced with having to take a leap of faith, but the smart entrepreneur aims to avoid this as much as possible. The risks associated with having blind faith are not the same as taking a carefully considered and calculated risk.

Perhaps the best way to illustrate this point is to offer a handful of examples of how many small business owners fall victim to the detrimental effects of blind trust.

Example One: Placing blind trust in suppliers.

Don’t assume that a supplier is offering you the best deal you can get. You’d be surprised to learn how suppliers often manipulate prices offered to buyers. Always make a point of reviewing your input prices from time-to-time and solicit price lists from competing firms. Sometimes, even if the other vendor does not offer exactly what you are after, it is enough leverage to see whether your current vendor can reduce his prices to you so as to keep your continued patronage. Don’t risk any erosion of your profits because you failed to realize your suppliers weren’t giving you the best deal you could receive.

Example two: Placing blind trust in sub-contractors.

There are some instances when it is wise to out-source some portions of your business that can be done better or cheaper than what you can accomplish ‘in-house’. The caveat though, is not revealing any trade secrets to the sub-contractor. How you assemble a finished product should never be known to any sub-contractor who is providing an input to your business. You’d be surprised to learn how eager competitors are to learn your trade secrets, and if they can learn them indirectly through a sub-contractor, they will certainly try to do so! Don’t risk your future business success by sharing how you do things, even with a third party that is not a direct competitor.

Example three: Placing blind trust in your own managers.

This is a tricky one. You need to build trust among your staff, and especially your managerial staff who will be relied upon to keep others productive and operations running smoothly. But placing blind trust in a new manager whom you have not developed ‘in-house’ is a recipe for disaster. Even seemingly honest people can turn out to be very dishonorable. Make sure you have a good record-keeping system in place before handing the reigns over to your managers so you can tell very quickly if there is a significant variance between past sales/revenues/profits and what happens as you move forward. This way you can know very quickly if something is not quite right, especially in the cash or inventory department. Don’t place blind trust in your staff. Always have other ways of checking performance and ways to monitor the health of your business even if you aren’t physically there all the time.

Example four: Placing blind trust in vendors for work not yet completed.

Paying a vendor the full amount in advance for work to be completed or supplies to be delivered is a big mistake. We all know it is, but you would be surprised in knowing how many entrepreneurs make the mistake of paying too much up front in an effort to speed up the time it takes to build up trust with suppliers or vendors. Don’t take on all the financial risk just to please a supplier. Cash on delivery is the norm, and payment according to a project completion schedule with agreed to milestones is also a common practice. Be smart. Don’t take on risk unnecessarily.

Example five: Placing blind trust in your own abilities or ideas.

This one may be the most important example of them all. Just about everyone is susceptible to overconfidence, and this is especially true of entrepreneurs who may have gotten off to a successful start with their small business. But having blind faith in your own ideas and abilities is perhaps the single biggest obstacle to continued or prolonged success. Past performance is not always indicative of future success. Always challenge yourself and any underlying assumptions you may make about your plans or new ideas. Solicit feedback from others whom you have a healthy respect for, especially if they are small business owners themselves. And don’t put blind faith in your own abilities. If someone else can do a better job at something than you can yourself, have them do it! You’ll be wasting resources otherwise, and worse, demonstrating to your staff that you really aren’t so adept at leading and managing effectively. Put your efforts into those tasks where you really do make a difference.

I hope the above examples provide some concrete examples as to how and why you should try to avoid placing blind trust in any person, idea, or relationship. Building trust is important, but avoid blind trust and you’ll avoid a lot of headaches.

PS        I would like to thank everyone for their comments on my last article. I was away on a vacation to Surigao and Siargao Island last week and was unable to post replies to a number of comments made. Rest assured, I’ll go over the few I missed and make sure I share my thoughts on your much appreciated comments.

Yes Sir, Yes Maam

Getting contrary views that may shed some perspective on your latest and most innovative business plans or ideas can be difficult in the Philippines. In most cases, Filipino friends will often give their support to an idea, even if they do not fully believe it is that great. Employees will go along with whatever the employer wants to do. Why is this? Is it really that big of a deal or something a small business owner should be concerned about?

It is a big deal, and in my experience two possible explanations for why it is hard to get constructive feedback come to mind. The first is the desire of Filipino’s to make sure relationships with others run smoothly. Many Filipino friends would rather not cause any unpleasant moments by speaking their mind or by being overly critical of their friends. If they are not 100% sure, chances are they will simply agree with your plans and ideas. Why put a strain on the relationship? It is much easier for them to nod their head in agreement and by doing so they believe everyone is happy.

The second possibility as to why it is so difficult to get differing perspectives on new business ideas is not related to Filipino culture. Rather, it is a common issue plaguing business the world over. The concept is known as groupthink, and it was first written about by the late Irving Janus, a Yale University Psychologist who conducted research on a number of interesting topics, including group behavior. In a nutshell, groupthink is a mode of thinking that occurs in highly cohesive and insulated groups, where the desire for unanimity overpowers any realistic appraisals of alternative ideas or courses of action.

What is extremely disturbing is that the two possibilities are not mutually exclusive! In the Philippines, it is certainly within the realm of possibility that both groupthink and the desire to keep relations smooth could actually work in concert, and this would only serve to greatly compound the original problem. In fact, I would argue that this happens more often than many would like to believe.

Let me give you an example. Lets imagine a foreign small business owner in the Philippines who runs a small resto-bar. His little resto-bar is extremely popular and does a fairly good business. One day, a high-roller from a neighboring city suggests the same kind of resto-bar would be a huge success in that neighboring city too. The foreign small business owner decides to think the opportunity over. He runs some quick numbers and considers how he might make such an expansion work. He says to himself, why not? Lets go for it! But first he decides to see what his friends and employees think of the idea.

His friends tell him it is a great idea, because he is successful, so why wouldn’t he be successful elsewhere? Rather than probe and ask to know more about the business plan for the expansion of the business, they simply nod their head and agree he’s got to expand if that is what he wants to do.

Then the businessman turns to his employees, who have worked with him and have shared in his success. Rather than think critically about how such an expansion will put pressure on their human resources, create potential supply and oversight problems, and put a squeeze on their cash flow, they simply agree that expansion must proceed. Why not? What could possibly go wrong? We’ve done it once, we can do it again!

In the above example, cultural norms combined with groupthink tendencies make it almost impossible for the business owner to get realistic and fundamentally sound feedback. His friends just want to maintain their good relations and really have no personal interest in the actual expansion, so why bring up anything negative. His employees believe in their success and are eager to expand so they can get a promotion and be a part of the growth and development of the business. But they have not invested any effort in determining all the pitfalls associated with expansion, nor have they done any market research in the neighboring city. They are simply caught up in the success of their past efforts and have little interest in exposing any problems or difficulties.

So what they can an entrepreneur do in the Philippines to try and get a more robust perspective or contrary views on any new business ideas or plans that may be in the works?

First, be cognizant of the fact that these two problems exist in the Philippines! If you want honest advice, you need to make sure those you solicit feedback from have been given more than just a brief overview of your plans. You need to really give them a great deal of information. Filipino’s will share their experience with you, but only if they feel they know a great deal about the subject. Don’t expect honest answers if they are asked to be critical and they have not been given enough information. Chances are they do not want to say anything negative because they do not want to strain a relationship if they cannot be very sure of their answers they will share with you.

Second, be aware that groupthink exists. Regularly point out those things your business fails to do particularly well, so that employees are prevented from falling into a trap and start believing that success is a given and that the business is invulnerable to most pressures and complications. Try to be skeptical of data that confirms your preconceived notions and instead provide incentives for those who uncover data that might reject the prevailing views (but do this is such a way that other people don’t lose face). Try to get outside views on why you should NOT proceed in going ahead with plans you may be considering. And lastly, be prudent and cautious when and if you do decide to go ahead with new plans and ventures.