Confidence, Excellence and Independence: Business Lessons From 4 Great Leaders

BY Entrepreneur :LEWIS HOWES | July 8th, 2013

Great leaders often have great lessons to share. Their stories remind us -- in business especially -- that failure is not avoidable and that success in any endeavor is a choice.

While we cannot control all our circumstances, what we can control is our response. And that's what makes a leader great: his or her decision to take responsibility in the midst of chaos.

The following quotes are from four of the most influential people from the past and present. Below each quote is my feedback on how I've learned from these quotes in my own business, and how they can help you with yours.

1. Be confident in who you are.

"If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience and ability."
-- Henry Ford, founder of the Ford Motor Company

It can be easy to look at a successful entrepreneur and think to yourself, "I bet things come easy to them" or "They were just lucky." But after spending time with successful men and women I've learned that many of them were once broke, bankrupt and on the edge at one point in their life -- myself included.

What separates these people is their decision to not allow their financial situations to dictate their emotions, define their worth or give them a sense of superiority over others. These people know that money can be easily lost and easily made. The only thing that really matters is learning how to create and offer value.

Once you learn how to create value in your market, you can shift your feelings of security from what you have to who you are.

2. Think independently.

"If you want to succeed you should strike out on new paths, rather than travel worn paths of accepted success."
-- John D. Rockefeller, founder of Standard Oil Company

Read that quote again. It's the secret behind the biggest breakthroughs in innovation.

Innovation is not achieved by imitating the success of others. It's achieved by great leaders who choose to risk failure and ridicule in order to create something completely new.

The biggest turning point in my life happened when I declined the security of a 9 to 5 job and decided to build a digital business on the simple principal of adding value to the lives of others. I was scared, broke and alone, but the opportunity I saw drove me to push through all that.
Creating value is the driving force behind everything I do.

3. Know when to move on.

"Part of being a winner is knowing when enough is enough. Sometimes you have to give up the fight and walk away, and move on to something that's more productive."
-- Donald Trump, entrepreneur, television personality and author.

As entrepreneurs we've learned to fight for what we want, and hate losing. But not every fight is worth your time. The trick is to always remember the big picture and to not allow your ego to get in the way of being productive.

I've learned that there's a big difference between perseverance and stubbornness. Stubbornness involves me forcing things to work, while perseverance requires me to work consistently with what's already working. Some of the best decisions I've made involved saying no to a potential partnership or pulling the plug on a product that wasn't working.

4. Pursue excellence, not fame.

"Having success for a year or two, that's called being hot. Being in demand. Excellence is being able to perform at a high level for a long period of time."
-- Jay Z, music artist and entrepreneur

I know a number of people who have experienced overnight success with a product or startup, but allowed their success to fool them into thinking they were special. They neglected the critical business feedback they received from their partners and clients.

Once an entrepreneur stops growing, learning and being open to feedback, it can spell the end of his or her business. 

Unfortunately, some entrepreneurs need to "lose it all" before they learn this lesson. My recent podcast with entrepreneur, hedge fund manager and author James Altucher illustrates this point.

So make it a point to pursue excellence, not fame. Excellence is who you are. Fame is who you once were.
 

Banks must link import credit period to operating cycle: RBI

BS Reporter  |  Mumbai  July 12, 2013 Last Updated at 00:42 IST

Bankers say the directive from RBI is a step to rationalise credit usage pattern

As a step to curb building up risks from short-term credit, Reserve Bank of India on Thursday asked banks to link trade loans for imports to the operating cycle and trade transaction.

Bankers said the directive from RBI was step to rationalise credit usage pattern. With cheap rates for trade credit, there was tendency to borrow for period more than what operating cycle of a unit required. For example, if the operating cycle of units (importing goods and materials) was three months, it sought trade credit for six months to enjoy use of cheap funds in foreign currency. If the position was un-hedged it would expose units to currency risks in

A top executive of a public sector financial institution said the current volatile market conditions have heightened the risks. RBI is concerned with it and taking every possible step to contain further build-up of risks. Till now it was presumed that credit period was

linked to operating period. Now, it has been made explicit, said another public sector bank. Meanwhile, RBI extended the all-in-cost ceiling for trade credit till September 30 and is subject to review thereafter, RBI said in a communication to banks.

RBI also decided to keep the all-in-cost ceiling for External Commercial Borrowings unchanged. Currently, the all-in-cost ceiling over six-month Libor for ECB loans of a duration ranging from over three to five years is 350 basis points.  For long-term borrowings — duration of more than five years — it is six month Libor plus 500 bps. RBI said these ceiling caps will be applicable till September 30 and subject to review thereafter.

Lenders asked to boost export credit

BS Reporter  |  Mumbai  July 12, 2013 Last Updated at 00:44 IST

Banks want lower provisioning burden on recast debt, interest on cash reserve ratio deposits

The Reserve Bank of India (RBI) has asked banks to strengthen rupee export credit and lower interest rates for those borrowers, in the pre-monetary policy deliberations with the chief executives of select banks. RBI would announce its first quarter policy review on July 30.

"In view of the widening current account deficit, the central bank sees a need to boost exports and interest rates in that sector should be lowered," said a banker who was present in the meeting.

Recently, the government has decided to extend the interest subvention of two per cent on rupee export credit to March 31, 2014, on pre and post shipment rupee export credit for certain employment-oriented export sectors. In addition, certain sectors like handicraft, carpet, handloom, sports goods, toys, were also made eligible for the interest rate subvention.

Bankers, on the other hand, said there was not much demand for loans from the exporters. Banks have requested the regulator to lower provision on restructured assets which were recently raised following the Mahapatra committee recommendation.

"We have said provisioning that was introduced in the restructuring should be reviewed because there is tremendous pressure on demand for restructuring and banks might find it difficult to make such provisions," said K R Kamath, chairman, Indian Banks' Association and chairman and managing director, Punjab National Bank.

"Provision requirement on restructuring is quite onerous and they are going to be a significant expense on the P&L (Profit & Loss) account and they need to be re-visited," said Diwakar Gupta, managing director and chief financial officer of State Bank of India.

RBI has hiked the standard asset provisioning requirement for restructured assets to five per cent for fresh loans (came into effect from June 1) from 3.3 per cent. The Mahapatra Committee had recommended higher provision for recast loans, as there was a view than banks and their borrowers are taking undue advantage of the loan recast mechanism and resorting to it to delay non-performing asset formation. Banks are also required to increase the provisioning of existing restructured loans in a phased manner.

Though bankers have demanded leeway, RBI has not made any commitment that such a request would be granted. Top officials from Punjab National Bank, Bank of Baroda, State Bank of India, Union Bank of India, Citibank, Karnataka Bank were present in the meeting. All the four deputy governors of the central bank also attended the meeting.

Banks have also demanded an interest on cash reserve ratio (CRR).

"We have requested that if RBI can give some interest on CRR, it would be most welcome," Kamath said.

Unlike the past however, bankers didn't make a fresh pitch for a CRR cut. "Bankers themselves believe that liquidity is really comfortable, so a case for CRR cut does not really exist," said Gupta, of State Bank of India.

Bankers also demanded RBI to reduce the tenure of foreign currency non resident (FCNR) accounts and non resident external (NRE) deposit accounts from the current one year to improve dollar flow in the country. "We have said that currently the FCNR and NRE deposit - the minimum period is one year. We have requested that if it can be reduced to at least six months, it would help us to bring some more dollars into this country" Kamath said.

RBI in this calendar year has so far reduced repo rate by 75 basis points to 7.3 per cent and CRR by 25 basis points.

Murthy’s miracle at Infosys?

Mobis Philipose  :Live Mint :: Fri, Jul 12 2013. 10 34 AM IST

This is hardly the time to get excited about a percentage point or two more of sequential growth, when Infosys has admitted it is in dire straits

Less than a month ago, N.R. Narayana Murthy asked Infosys Ltd’s shareholders for at least three years to turn around the fortunes of the company. Investors are now behaving almost as if he’s done the job in a month’s time.

The company’s shares have risen by 11% on the back of better-than-expected results. Revenues rose by 2.7% sequentially to $1.991 billion, compared to Street expectations of growth of less than 1%. Year-on-year growth looks impressive at 13.6%, especially given Nasscom’s industry growth target of 12-14%. But exclude the recently acquired Lodestone business and sequential growth falls to 1.7%, while y-o-y organic growth is just 8.5%.

More importantly, though, this is hardly the time to get excited about a percentage point or two more of sequential growth, when the company has effectively admitted that it is in dire straits and needs to put its house in order. Post-results, the company has said that it is cautiously optimistic about the rest of the year, and the fact that it hasn’t raised its weak guidance for the year shows that it is still mindful of the erratic performance in previous quarters. Besides, as the company’s chief executive officer S.D. Shibulal pointed out in an interview with ET Now, Infosys still has a disproportionately high exposure to business related to customers’ discretionary spend, which is still under pressure.

Investors are conveniently ignoring these ground realities. Infosys shares have now risen by about 28% from its lows in April, after the company’s March quarter results made it evident that it is nowhere near the road to recovery. In the process, they have outperformed stocks of better performing companies such as Tata Consultancy Services Ltd. Investors seem to have concluded that Murthy will undoubtedly turn around the company and bring it back to at least industry growth rates.

But even if he is successful in doing so, the road to recovery will without doubt include the high cost of increased sales and marketing expenses and other investments. In short, profit margins will be under pressure and earnings growth, if any, will be muted

PSU Banks may face the same fate as state-run peers in telecom, aviation

There is a transformation which is happening in the Indian banking scene where state-run companies dominate three-fourths of the market.

 Sangita Mehta & MC Govardhana Rangan, ET Bureau | 10 Jul, 2013, 04.00AM IST

Indian banking is experiencing a tectonic shift. Holding a stick to state-run bank chairmen to revive the economy will do more harm than help the nation's cause.

 PSU banks may face the same fate as state-run peers in telecom and aviation. 

If the government does not change its way and banks don't focus on service, both may end up as losers.

Finance Minister P Chidambaram might not have directed public sector banks to reduce lending rates citing State Bank of India example if only he had had a detailed look at the deteriorating financial ratios of other banks over the past few years.

There is a transformation which is happening in the Indian banking scene where state-run companies dominate three-fourths of the market. That is the best part of the story. The disturbing factor is that barring State Bank of India, all other state-run banks are staring at a low-cost funding crunch that could change the banking landscape forever.

Corporation Bank's annual analysts' presentation for the last fiscal year tells the story. A few inches at the bottom right of page 16 in the presentation is a diagram which is hard to identify — it is hard to tell whether it is a tree or a stick. That is the space which should have indicated the percentage growth or fall of its lowcost deposits — known popularly in banking circles as CASA (current account savingsaccount).

If 26 entities have applied to own a bank including non-bankingFinance companies, the dominant thought was they could get access to CASA which will help them earn more profits.

However, what is plaguing state-run banks is exactly the opposite. Over the last few years the likes of Punjab National Bank (PNB), Bank of Baroda Canara Bankand Corporation Bank have been losing CASAmarket share to nimble, technology-savvy private sector peers such as HDFC Bank and ICICI Bank.

The New Delhi-based PNB's CASA has fallen to 39% of its total deposits in 2013, from 46% in 2005, squeezing its profitability. But ICICI Bank's has risen 24% in 2005, to 41% in 2013, helping it raise its profitability.

"If you have low-cost deposits then you don't need to take as much risks on the lending side to make the same amount of profits," says Anish Tawakley, director, equity research,Barclays Capital. "If you start with a high-cost deposit base then to earn a profit you have to lend at a high rate, effectively taking on more risks. These earnings are seen as riskier."

When low-cost deposits for state-run banks in general have fallen to just about a quarter or in some cases even lower, State Bank of India has its CASA at 44.8%. Indeed, it has also improved as it is seen as a proxy for the government and, therefore, considered the safest, even though other state-run banks have similar profiles.

SBI's base rate is at 9.7%, the lowest among the lenders and PNB's is at 10.25% and Bank of India's is at 10%. These banks have since their meeting with Chidambaram reduced interest rates. But one could be sure that their profitability could be squeezed if their low-cost deposits do not rise which looks the most likely possibility.

"Eventually, banks will have to settle for lower NIMs (net interest margins)," says BA Prabhakar, chairman and managing director at Andhra Bank. "But if they can migrate from compliance to business opportunity in rural India, they have a better chance of improving CASA."

Private lenders such as HDFC Bank andAxis Bank have been gaining a higher share of low-cost deposits due to their service offerings to individuals and corporates which many state-run banks have been slow to realise.

Absorption of technology has been an important factor. Taking strides in internet banking, mobile banking, facilitating bill payments, online trading, credit card payments and electronic clearing system payments are some of the features that induce the salaried class to keep cash with private sector banks. Corporates are also lured with facilities such as cash management and portfolio management.

"Given the network and presence that PSU banks have in our country, they should at least have maintained their market share," says Vaibhav Agrawal, vice-president, research, banking, Angel Broking. "Building and maintaining a sustainable CASA profile is easier said than done as it involves significant execution challenges. With a customer-centric approach, right from the branch level, private banks have managed to gain a sizeable market sharefrom state-owned banks." Rising bad loans, the prospect of new banks and the option of keeping surplus money with mutual fund schemes would not help public sector banksimprove their positions any time soon.

Although the Reserve Bank of India has cut policy rates in the last one year, many banks have been raising fixed deposit rates. Since companies are defaulting or falling behind on payments, banks have to keep attracting new funds to maintain the assetliability mismatch.

Since low-cost funds are with private sector banks, PSUs such as Bank of Baroda, and Indian Overseas Bank have no option other than to raise rates on fixed deposits. That raises the overall cost of funds, limiting their ability to lower lending rates. Furthermore, attractive rates from liquid schemes of mutual funds are also luring corporates away from banks. "Liquid funds offer 8-9% against the current account balance of zero percent. So, more and more corporates are parking their surplus funds with mutual funds," says Andhra Bank's Prabhakar.

The prospect of lowering lending rates appears to be distant if managers just go by their cost of funds. But if the government coerces banks to do so as it did in forcing them to lend, it would weaken their finances further. For policy-makers who are looking to revive theeconomy, the choice may be to swallow the fact that the banking system, after years of abuse, is not in the pink of health. So, one might have to wait for the rottenness in the system to be purged before getting back to normal.

Four reasons to let rupee be

We are a mostlyopen middle-income economy with a floating exchange rate — but our policymaking capacity is still designed for the old India.

By Ajay Shah :ET : 11 July 2013

Nifty and the rupee are the two most important numbers telling us how India is faring. We may not like the message, but we should not attack the messenger. At a time like this, what India needs most is risk-taking speculative capital: blocking this capital is not in our interests. We are a mostlyopen middle-income economy with a floating exchange rate — but our policymaking capacity is still designed for the old India. 

As with all financial market measures, Nifty and rupee look forward: they report on the expectations among market participants about the future. In both cases, the price is made by a large and liquid market that has both onshore and offshore components. In both cases, roughly half of the activity is overseas. At the same time, the onshore and the offshore markets are tightly linked by arbitrage. 

To help fix intuition, consider trading in shares of ITC on the NSE and BSE. While both venues are distinct, the two prices are tightly interconnected. We would do wrong to think of the BSE price for ITC as being distinct from the NSE price for ITC. Arbitrage binds both markets together and, de facto, there is one unified pool of liquidity that is resulting in one price. 

The same is the case with the rupee There is an onshore and an offshore market, each of which has exchange-traded and over-the-counter parts. All four components are connected by arbitrage. All four elements work together to result in the price. There is nothing wrong in this arrangement. The market is a messenger: it aggregates the views of all market participants and reports one number, the price. It is like an opinion poll, except that people are putting their money where their mouth is. 

Hard to Manipulate 

Both the Nifty and the rupee are vast markets with innumerable participants. It is very hard to do market manipulation of these markets. As an example, RBI fitfully tries to put large orders on the currency market, in an attempt at doing market manipulation, and fails to make any difference. If a trader as large as the RBI lacks market power, nobody has market power. 

In recent days, we in India are seeing an array of authoritarian responses. Sebi and RBI have clamped down on market activity on the onshore exchange-traded currency derivatives. There are newspaper reports that RBI is interfering with the freedom of speech of employees of banks, trying to persuade participants to not take positions on the rupee, and trying to interfere with onshore/offshore arbitrage. 

These dirigiste responses are wrong for four reasons. First, if we believe that the market's price is not sound, the solution lies in more liquidity, more speculation and more arbitrage. The actions the government is taking are reducing market efficiency; they are worsening the informativeness of the market's price. A less-liquid market will be more volatile and have bigger mispricings. 

Second, even if it was thought wise to clamp down on rupee trading, all that the Indian authorities can achieve is to shift activity offshore. Onshore persons who want to bet on the rupee will find ways to do this abroad. 

The third issue concerns the respect that policymakers command. India is a middle-income economy, with a GDP of $2 trillion, with a mostly-open capital account, and a floating exchange rate. We require a commensurate capability in macroeconomic and financial policy. The recent actions are advertising a bankruptcy of ideas. In panic, the people in charge have fallen back to rusty socialist tools. Each of these moves reduces confidence in India. 

Quality of Staff 

Everyone watching the show is wondering whether the people in charge have the knowledge required to do macroeconomic and financial policy in today's India. This is particularly disappointing since with P Chidambaram's return to the ministry of finance, we have a topflight policy manager. But what about the quality of other staff ? That's what experienced market-watchers are wondering. 

Speculate More 

The fourth issue concerns funding the Indian current account deficit and stabilising the rupee. Buying the rupee today is a risky proposition. Who will stabilise the rupee today, by taking a long position on rupee futures? Only people with a real appetite for risk will take long positions in the rupee today. To stabilise the rupee, we need more speculators, not less. By reducing speculation, we are inducing overshooting. The rupee will have to drop by more before it finds its floor, in a market with fewer speculators. 

Badly-structured laws and institutions, and low staff quality, was fine when India was a mostly-closed, mostly-socialist least developed country. The game has changed. Across the world, emerging markets have learnt about the importance of building state capacity for economic policy. We need to do likewise. 

(The writer is professor, NIPFP)