If you are an entrepreneur who built a startup with a small team of enthusiasts and are all set to experience a journey of high growth and scalability, it is time to pause and retrospect your team for delivering growth.

Restructure for growth

Typically, all startups are born with an idea and a group of passionate enthusiasts who are married to the idea, take up multiple responsibilities and are willing to walk the extra mile to meet business objectives. However, as a business starts to grow, it requires dedicated time and effort to perform each organizational activity—from just building and selling a product or a service to a wider set of functions. The same set of people who shouldered multiple responsibilities in the initial stages can no longer do justice to each function and will become impediments to the organization’s growth. These are the times when you, as an entrepreneur, need to step back and take a hard look at your team’s constitution to build competency-driven areas of excellence.

Draw the organization blueprint

Start by building the blueprint of your organization that will meet its growth requirements. This would require you to break the monolithic structure of your organization into specific areas of focus like marketing, sales, customer service and product design. Detail out each area of focus, including its key functions and areas of responsibilities. Review your current resource pool and classify each employee into one of the identified areas of focus based on his/her area of competency. Gather views and feedback from key stakeholders before making any structural changes.

Collaborate and engage

A key challenge in the restructuring process is to ensure employees understand and realize the rationale of restructuring. You cannot undergo a successful restructuring exercise without involving the relevant stakeholders who will be impacted. It is important for you to engage and involve people at all levels to explain the organizational restructuring objectives. Ensure there is complete clarity of role and responsibilities for each team and individual team members. This will ensure that the teams will remain aligned towards the common organizational objectives. Restructuring, if not handled with utmost care and caution, may lead to fear and confusion in your employees’ mind. The restructuring exercise should not only meet the organizational objective but should also provide each employee with a clear growth path to give shape to his career. Ensure that each employee in your team understands how the transition into a new role will help him in his individual growth.

Execute and monitor change

A change always introduces some level of uncertainty and chaos in the system. There are chances that you may run into productivity loss if there is no active supervision and communication across each newly defined function. Be a facilitator to ensure increased collaboration amongst the teams. Engage people at all level periodically to understand the sentiment post-restructuring—reinforce the organizational objectives to keep them aligned. Measure the performance of each team against common organization objectives to assess the impact of restructuring. The restructuring should propel your company into high growth trajectory without losing the advantage of the nimble team structure of a startup.

Professional guidance

While restructuring is the harsh reality of a growing organization, if not dealt with care it may become a reason for your failure. If needed, do not hesitate to take professional help from experts outside your organization to ensure a smoother transition.

Think about the results

Whether it is to mitigate the impact of your business operations or to integrate your business closely with the local community or just as a corporate philanthropy measure, lay down the results you are hoping to achieve before you embark on the CSR road. Ideally, it will be helpful to aim towards achieving results that help both your company and local communities or any stakeholders in your business.

Prepare a budget

Working on the tight budget of a startup, getting involved with CSR activities may seem like an added cost. You could set aside a percentage of profits or your turnover to invest in CSR. Also, you could set aside a part of your marketing budget and plan your activities in a way such that it directly benefits the environment or society, while helping further your marketing efforts. Either way, make sure you have a strict budget to invest in CSR activities before you get started.

Involve your employees

One of the benefits of associating with CSR activities can be a higher employee satisfaction, leading to increased employee retention. You could encourage your employees to donate to a cause so that they feel involved in the CSR process. However, it is important for you to ensure throughout the process that associating with the activities does not impact the core activities of your business.

Select an activity

Keeping in mind the results you wish to achieve, select an activity and a partner to associate with accordingly. If you are in the manufacture of sporting equipment or in sports education, you could look to working with schools or underprivileged children to create awareness about the benefits of playing a sport. This can help the children or school students while creating a better image for your business. It can also result in an increased awareness for your brand. You could select an NGO to associate with that works in the space you wish to focus your activities on. Then partner with them to take your initiatives forward.

Ascertain impact and compare results

Along the way, check the initiatives undertaken by your competitors. Also, keep in mind the results you were looking to achieve and make an assessment of the impact your CSR activities have brought about. Share the results with local communities and your employees to create goodwill for your company. This will help you ascertain what you are doing right and wrong along the way and aid you in deciding whether you wish to increase your company’s investment in CSR activities.

• Advertiser-based programs: These custom-made shows are built from scratch and programmed around your industry. Here, you can position your company as a successful player, talk of the benefits your product/service brings and highlight the differentiators you have.

• Commercial advertisements: Your 30-second claim to fame, a good creative agency can help execute this. If not, many channels have in-house agencies that will do the same job at their costs. These are run through the day and are advisable if you have sufficient funds.

• Shopping channels: A good bet if you are a startup or SME selling small products. Not only do you get visibility but instant sales too, given that anchors of the show spend enough time talking and marketing the product for you.

• Snippets: Not as costly as sponsoring an entire show, you could sponsor snippets of a particular news segment. Having your logo and company name on air can help build brand recall value.

• Sponsor weather: Another cost-friendly option for young companies. Sponsoring a weather report lets you place your company logo at prime time.

• Tickers: Lowest in cost, you can pay for a ticker that scrolls at the bottom of the screen. Not the most visible promotional tool, but you never know who is watching and when.

Constant communication

Whichever option you choose, remember that your communication must stay more or less consistent. The message you are giving viewers—who are your target audience, current or potential—should not change with each promotional tool you use over a period of time. While you may have the budget for only lower-priced options initially, there may come a time in the future when you will have bigger advertisement budgets at your disposal. However, your brand positioning on television should continue to focus on the lines you started off with. So, before racing to a satellite television channel office, think through the position and sales proposition you want to be known for in the long term.

Partnership vs Firm

The dissolution of a partnership differs from the dissolution of a firm. Section 39 of the Act provides that the dissolution of partnership between all the partners of a firm is called the dissolution of the firm. Dissolution of a partnership merely involves a change in the relation of partners; whereas the dissolution of firm amounts to a complete closure of the business. It implies the complete break down of the relation of partnership between all the partners.

The partners enter into a Deed of Dissolution to record such cessation and the Registrar of Firms is notified accordingly. Upon dissolution of the firm, the business of the firm ceases to exist since its affairs are wound up by selling all assets and by discharging all claims and liabilities of the partners.

Many ways for one deed

A partnership firm may be dissolved either: (i) by contract; (ii) by consent; (iii) by notice; (iv) upon occurrence of a contingent event (in the absence of a contract to the contrary); (v) by operation of law; or (vi) by an order of a court.

In our experience, the most common cause of dissolution of partnership businesses are disputes and differences in the style of operation and management of the business or breach of trust between partners. In these circumstances, one or more partners may either agree to dissolve the partnership by separating themselves from the partnership firm or may dissolve the entire firm and wind up the affairs by appropriating the assets and liabilities among the partners.

To illustrate the some forms of separation of partnership businesses we shall consider the following two case studies.

Keeping the brand

Two highly qualified professionals came together in the late ’70s to establish a retail business in Mumbai by setting up a 50:50 partnership firm. Over a period of time their business and brand acquired significant reputation in the industry and in the 90’s they set up another retail outlet under a second partnership firm in the same ratio. During the last decade differences arose among the two partners and they mutually agreed to separate the business.

Instead of dissolution of the partnership firm, the partners decided to restructure the current operations of the business in such way so as to leverage on the goodwill and reputation created jointly by the partners in the retail business over 30 years. However, before finalizing on the new structure, the partners took adequate advice from advisors to ensure tax efficiency and enforceability of the business restructuring process.

Each partner decided to retain ownership in one firm each and retire from the other. However, as a partnership firm requires a minimum of two partners, before each partner’s retirement, a friend/ relative of the surviving partner was admitted as a new partner in that firm. All the assets and liabilities were valued by an independent valuer jointly appointed by the partners. The assets of each firm were either adjusted against liabilities of the partners or distributed in equal proportion.

But the real challenge was the division of the intangible assets of the business, i.e., the brand name and the goodwill associated with it. Since neither partner was willing to give up their association with the brand, the parties by conciliation agreed that each party shall re-brand the new businesses by using the original brand name as part of the new brand. For example: the original brand “A&B” was re-branded to “A of A&B” and “B of A&B”.

In addition to distribution of assets, in the interest of protecting each others businesses, the parties agreed to not compete with each other by setting up or operating new outlets within certain limits of the existing retail outlets in Mumbai for a limited duration, after which there would be no bar on either party to carry on business anywhere in Mumbai.

Going the whole hog

Three individuals set up a partnership firm to carry on business of rendering professional services. Over a period of time, the partnership firm, through its partners jointly acquired certain immovable assets using the reserves of the business. Differences arose between the partners and one of them decided to dissolve the partnership and set up a separate business.

After consultation with tax and legal advisors, the parties agreed that, the firm shall pay the exiting partner, upon his retirement, a sum equivalent to one-third share of the assets of the firm. The parties jointly appointed an independent valuer to determine the fair market value of the assets and based on such valuation, the two surviving partners paid the exiting partner a sum equivalent to one-third of the total valuation amount.

In addition, the firm also had some receivables due from clients for projects towards which the firm had rendered services. Although such payments had not been made by the clients, the parties agreed to pay one-third share of all amounts receivable the clients to the exiting partner upon retirement.

The exiting partner agreed to relinquish his rights to the brand name and goodwill created by the firm, however, retained the right and license to use references of the past assignments created by him as a partner of the firm, provided that credit was given to the other partners as well. All parties were free to carry out competing businesses with out any restrictions.

The written word

In both these cases, the entire restructuring process and separation of partnership business was recorded in writing by way of a Business Restructuring Agreement. In order to ensure the right and obligations of the parties are protected, it is always recommended that adequate stamp duty is paid on the agreement as per the laws of the state and thereafter, although not mandatory, the agreement is registered with the local authorities for ease of enforceability in a court of law.

Increasing Awareness
The IT industry accounts for over five percent of India’s GDP and over 2.5 million people are employed directly or indirectly with it. This is the biggest reason why awareness about the industry has spread so successfully. India is the 12th largest country in the world in terms of broadband internet users. This is another indication of growing awareness.

Local Talent Pool
Every year, India produces about 5,00,000 engineers and the level of education in Tier II and Tier III cities is on par with the metros. Cities such as Jaipur, Trivandrum and Kochi have emerged as places also known for quality education and work force. The people, too, have grown cosmopolitan from years of exposure to various cultures and considerable migration to and from the states. Eagerness to seize opportunities within hometown also helps ensure a highly stable and productive workforce and makes these cities rich in potential local talent.

On the other hand, metros already have numerous industrial clusters and other business units. This is an important consideration for an entrepreneur for two reasons. First, the concept of outsourcing is driven primarily by the desire to have less expensive talent and reduce operational costs. Second, social displacement or the need for people to migrate in order to find work. Tier I cities are becoming saturated with people and their infrastructure is nearing its limit. These factors have a powerful adverse effect on the ability to reduce costs while operating in Tier I locations.

Hiring and Training Manpower
One of the primary attractions for setting up an IT enterprise in Tier II cities is the abundance of talent pool. So, it is best to reach out to colleges to hire freshers, who can be trained according to the requirement of the services one plans to offer. Apart from reaching out to fresh college graduates, one can explore opportunities with professionals who work in other cities but would like to come back to their home town, given an opportunity; as far as lateral hiring is concerned. The compensation can be set according to industry standards—which often vary from a metro to a small city. It is always better to do a thorough research on this before hiring.

Licenses and Registration
The registration process for an IT firm is the same as is for other businesses. One has to start with obtaining Director Identification Number. This can be obtained online from the Ministry of Corporate Affairs portal in a day and costs around Rs.100. Then, one must get digital signature certificate (online) from a private agency authorized by the Ministry of Corporate Affairs. This costs Rs.1,500 and can be done in three days. Then reserve the firm name with the Registrar of Companies, stamp the company documents at the state treasury or authorized bank (private), get the Certificate of Incorporation from RoC, and make a seal (private). All these should take around nine to 10 working days and would cost around Rs.18,000 to Rs.19,000. Permanent account number and tax account number are taken care of during other processes.

Services Offered
Services offered cannot be different from what one offers in Tier I cities. This is why often the biggest competitors of a small and mid-sized company are the well-established enterprises. One needs to focus on the strengths instead of trying to offer all possible services to the clients. If you plan to start an IT enterprise in a Tier II and Tier III city, make sure you identify the expertise of each partner and plan the service offers accordingly.

Resource and Facilities
Resources and facilities are two important factors that need to be considered when setting up an IT firm in semi-urban cities. These cities offer another key differentiator that entrepreneurs should consider—the ability to build large centers that offer a great number of job opportunities but are dispersed around towns and smaller cities.
What has been called an IT “necklace strategy” is an effective way to deal with social displacement issues. Eliminating much of social displacement in this manner is a major benefit to technology firms. Also, there are no environmental concerns as IT is a service industry. An entrepreneur must research thoroughly about a town or city to know the availability of required resources and facilities. He must be convinced about the commercial advantages before investing in such a location.

The Competitive Landscape
Apart from the abundance of talent, another aspect to the competitive landscape is already the intense competition among cities for new technology companies. This means cities must grapple with building their infrastructure in order to attract entrepreneurs. By infrastructure I mean all the facilities that make a city a good place to live in—good schools, civic amenities, entertainment options, etc. It must be a place that attracts workers and their families.

Marketing and Publicity
Perhaps the single most influential new technology is mobile phone. India housing more than half a billion mobile phone users means entrepreneurs have an extraordinary new cost-effective tool with which to reach out, engage and build relationships with prospective customers, as never before. India has many semi-urban cities that could prove to be advantageous locations for new enterprises. The industry will only continue to grow for years to come. Will you become a part of it?

Getting a search firm
At times the board members might just be too busy to get involved in the hiring process. So, if a company wants the search spectrum to be broad or has a long list of candidates, getting a search firm to do the job may prove beneficial. At times investors of startups also suggest CEOs but getting a search firm to do the job is a better idea as these firms are well networked, keep a track of vacancies and people willing to move out and also know the background of candidates in question. One may go for a small, boutique firm that focuses on a particular market segment. Partners at these firms tend to do all the work themselves rather than delegating it to the less experienced associates. Nevertheless, the fact that an entrepreneur might have to run many checks himself cannot be discounted.

Eyeing the right skills
While there are many quantitative measures to judge the effectiveness and efficiency of a candidate, importance should be given to softer and qualitative attributes. Life in a startup is not easy and one can expect plenty of upheaval in day-to-day working. Someone who is calm, composed, inspiring, holds high integrity and can help stabilize the business will perfectly fit the bill. While presentations and past performances can help gauge a candidates worth, informal discussions will reveal finer details.

The process
 Determine the key values that the new CEO must have to take the company to the next level and compliment the skills of the founder.

 A preliminary assessment of competency, skill and knowledge can be made for all potential candidates.

 Have a team comprising board members and interview candidates in depth to check competency and behavior.

 Deliberate the results of interviews to determine the best person for the job.

©Entrepreneur October 2011