Eight Lessons from Phil Knight and Nike

May 16, 2023
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In 1964, Phil Knight started selling imported high-quality, affordable athletic shoes out of his car. He earned $8,000 in his first year. In 2015, Nike earned $30.6 billion. And in April 2016, Phil Knight published his memoir, Shoe Dog, in which he wrote with humour and honesty about the trials and tribulations he – and Nike – faced over that half-century.

Shoe Dog by Phil Knight is an excellent read for any entrepreneur

Shoe Dog is an extremely well-written memoir, an absorbing story full of interesting, eccentric characters and exciting twists. But it also contains plenty of lessons for the entrepreneur. If you are looking for inspiration, motivation and reassurance as you grow your business, I highly recommend you add Shoe Dog to your personal library. I have found it an excellent resource on my own entrepreneurial journey.

Here are eight entrepreneurship lessons I got from Phil Knight’s story.

1. Sometimes, you just have to jump.

At its core, entrepreneurship is a leap of faith. Not all ideas will work out. Evaluate them objectively, discuss with experts, make a plan. But a day will come when you have to stop thinking and take that first step. As Nike’s tagline says, ‘Just do it.’

2. Every day brings its own crisis.

Problems come up all the time – from competitors to new technology, from regulations to finance, from supply issues to weather conditions. The problems of maturing companies are different from those of start-ups. But there’s never a time when all the problems disappear. Accept this and face each challenge with courage.

3. Keep innovating.

Bill Bowerman, an eminent running coach and part of Nike’s story from the time it was still Blue Ribbon Sports, figured out how to reduce the weight of a shoe by one ounce, saving 55 pounds over a mile. That philosophy of iterative improvement has driven Nike ever since. As the pace of technology development gets ever more feverish, embedding the innovative mindset in the DNA of the company is essential to stand out from the competition.

4. Trust is the key.

Five interrelated factors cause a company to lose its way: lack of trust; fear of conflict; lack of commitment; avoidance of accountability; and inattention to results. Entrepreneurship is full of uncertainty. A team that believes in the vision and faces these challenges unitedly is vital to come out of the tough situations. It isn’t that everyone in the company agrees about everything; rather, it is that everyone knows that they all want the company to succeed and views their disagreements in that light. When a company is young and fragile, trust is the glue that holds it together.

5. Failures will happen. Be honest when they do

Knight gives multiple instances of product recalls due to quality issues, mistakes that he made and decisions that, with the benefit of hindsight, could have been better. Nike treated their customers with respect by acknowledging errors, both internally and in public. Nobody is perfect, but when the internal culture of trust is matched by honesty to customers, the circle of trust can buoy a company through some very tough times.

6. Stay humble

One interesting fact is that it was Employee No. 1, Jeff Johnson, who came up with the name ‘Nike’. Throughout the book, Knight praises Johnson, Bowerman, legal counsel Rob Strasser, first COO Bob Woodell and many others, including his wife. Knight rarely mentions his own contributions once the company is more than just a car boot shoe sale. But he was the CEO – how likely is it that he didn’t contribute anything? It’s not an accident that Knight plays down his own role. He knows that success, like sports, is a team effort – and he never forgets to show appreciation for his teammates.

7. Find an outlet for the stress.

Entrepreneurship is demanding. Because the problems never stop coming, you will be tempted to never stop working. But you can’t look after your business if you aren’t around or aren’t in good health. An activity unrelated to work is an excellent way to get a clear, fresh perspective on seemingly insoluble issues. Phil Knight loved running, and running was his outlet. By finding a relief valve and paying attention to your own physical and mental health, you can be energized to keep going, no matter what.

8. Never stop.

For almost the first decade of Nike’s existence, Knight had to work other jobs to support himself. Suppliers ignored or shot down the company’s product ideas. Its first attempt to raise capital was a monumental failure. Advertising flyers got no response. But the team didn’t give up. As an entrepreneur, it’s easy to get disheartened. But if there’s one lesson from Shoe Dog that every entrepreneur should hold on to, it’s this: never stop.

Let everyone else call your idea crazy…just keep going. Don’t stop. Don’t even think about stopping until you get there, and don’t give much thought to where “there” is. Whatever comes, just don’t stop.

-Phil Knight, ‘Shoe Dog’

Podrain at the Consumer Electronics show

January 13, 2023
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Las Vegas hosted the 2023 edition of the Consumer Electronics Show last week (Jan 5-8) and representatives from Podrain were there.

It was great to see products we have worked on, showcased. (Some of our customers participated in the show). We also saw many innovative products and product ideas and hope to find a way to contribute to making them a reality.

A Cool Robot on display at CES

As the premiere event for the industry in the world, CES attracts visitors from around the world. Even those new to the USA could navigate the event easily. The transport, logistics, and general flow of events were all professional and made the experience very smooth. Of course, with the location being Vegas, there were many attractions and entertainments outside the exhibition venue too.

India Pavilion at CES was at a prominent location

India had a good presence through the India pavilion. Since it was also the hall with new electronics products and gadgets as well as award winners were showcased, our capabilities got a lot of exposure. However, the participation from larger firms or even some of our MSME peers was quite limited.

In comparison, China and Taiwan have a significant presence at the event. Speaking to potential customers, especially those based in the USA and Europe, we realised they aren’t aware of India’s capabilities as a manufacturing partner in Electronics. China, Taiwan and Eastern Europe, in that order, are top-of-mind destinations. So the current India presence was a good move and there is a huge opportunity for Indian companies to pitch their services since many of these companies are looking to diversify their supply locations.

All in all, it was a pleasure and a great learning experience to attend CES. The electronics manufacturing services industry’s future seems bright! And at the next CES, we will hope to have many more product displays by our customers.

Better Waste Management

December 21, 2022
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Modern manufacturing practices pay close attention to their environmental impact. Failure to do so has legal and regulatory implications as well as marketing ones: suppliers’ ‘green’ credentials are frequently a criterion for selection.

The electronics industry – and the PCB industry in particular – uses many metals and processes that create large quantities of ecologically harmful waste. Some metals are dangerous if not disposed of properly, and many that can be reused are often squandered in landfills due to poor waste management practices.

Better Waste Management Practices are the need of the hour

Waste in the PCB industry

A number of materials go into the assembly of a PCB. Most PCBs use resin epoxy, phenolic resin, fibreglass and copper foil. Depending on the complexity of the circuitry in the design, metals including copper, aluminium and iron, and several alloys, may be used. At the end of its life, a PCB that is discarded means those metals and alloys go to waste.

On average, a PCB contains approximately 70% non-metallic and 30% metallic material: organic materials, chemical residuals, heavy metals and high-grade precious metals including palladium, silver, gold and copper. It is estimated that up to 7% of the world’s gold supply may be found in e-waste.

But it is not just the product itself that contains potentially wasted value. A great deal of waste is generated during the manufacturing process itself. For example, during production a PCB must be rinsed several times, leading to water contamination by chemicals and metals, and the release of some acidic emissions into the air.

In February 2003, the European Union issued the Restriction of Hazardous Substances Directive, or RoHS. This directive states that PCB manufacturers wishing to operate in or sell to EU entities may not use six hazardous substances in any stage of their production process – lead, mercury, cadmium, hexavalent chromium, and the fire retardants polybrominated biphenyls and polybrominated diphenyl ether. As the EU is a large and influential market, over the years, PCB production around the globe has begun to comply with the RoHS regardless of where the customer is.

Also in 2003, the first WEEE (Waste Electrical and Electronic Equipment) Directive was introduced, regulating the recycling of electronic waste. Under WEEE, companies that manufacture, distribute or sell electrical and electronic equipment have an obligation to treat it responsibly.

The WEEE became more stringent in 2008 and the RoHS in 2011, increasing the amount of e-waste that is required to be treated and reducing the amount that can be disposed of.

How can waste be reduced?

There are several methods by which PCB manufacturers can address the challenge of managing their waste and minimizing their environmental impact.

Product substitution.

Several alternatives may be substituted for harmful items, especially for supplementary processes like packaging, where sustainable materials are available, which can make an immediate impact on the quantum and composition of waste, and which are relatively easily to obtain and adopt.

Replacement of hazardous materials.

In advanced manufacturing, new techniques, tools and materials are being introduced all the time. For example, when cleaning and preparing PCB surfaces, changes to the materials used, the safety precautions taken and the processes themselves can yield significant results. By using abrasive cleaning and non-chelated materials, manufacturers can reduce the amount of hazardous waste produced. A cascade cleaning system cuts down on the generation of nitric acid as a waste product. It should be noted that cascade systems are not new – for several decades, they have been used to clean machine parts in the heavy electrical industry. Customizing cascade systems for PCB manufacturing is a logical next step.

Material reuse or recycling.

Some of the materials used in the production of a PCB can be put back into the production process. Copper from the edge, tin and lead-tin from the solder dross are examples of this. By reusing parts, the process also uses less water. Copper oxide can be used to reduce the reliance on copper hydroxide, which is harmful to the human respiratory system.

Material recovery and segregation.

By joining in or setting up a well-thought-out recycling process, manufacturers can turn waste back into raw material, or supplement their earnings by selling their recovered materials to other industries. Alloys and metals are valuable and can be reused several times, reducing the amount of waste generated and the PCB manufacturer’s dependence on being able to source new materials on time and at the right price.

Traditional PCB recycling involves dismantling the boards, crushing them and physically separating them using magnetic or high-voltage electrostatic methods. This approach is relatively cheap and enables the recovery of metallic components, though it does not solve the problem of segregating heavy metal elements from high-grade precious metals.

Thermal or chemical recycling can obtain purified metals, is much more efficient and has the potential for a much greater economic return. However, the high processing temperatures or high-pressure requirements can cause hazardous fumes, thus creating a new problem while resolving the existing one.

Podrain has tied up with a reliable, pollution control board certified partner for waste disposal. We also return materials and components (unused or even partially working) to our customers so that they can be reused at their end.

We value sustainability and even if we move to an inventory led model we will hope to find solutions that will continue to keep our manufacturing sustainable.

November 23, 2022
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In my previous post we covered what to consider for factory location. Having selected a location in which to set up a factory, the next question is how to lay it out.

Factory layout refers to the arrangement of physical facilities so as to have the quickest flow at the lowest cost and with the least amount of handling in processing from the receipt of material to the dispatch of the finished product. The aim is to allocate and arrange space and equipment to minimise operating costs.

As with location selection, factory layout is a long-term commitment. To optimise the relationship between output, floor area and manufacturing process, an efficient layout must achieve multiple objectives simultaneously:

The proper and efficient use of the available floor space
Work should proceed from one point to the next without delay
Adequate production capacity and flexibility, including potential to expand, at least in the short- to medium term
Lower material handling costs
Employee health, safety, accident and injury prevention
Efficient labour and equipment utilization and productivity
Maintaining quality standards, managing waste and storing inventory
Ease of supervision, and control
Plant and equipment maintenance
Complying with local regulations

Factory Layout Options

There is no one-size-fits-all option. Each factory, location and industry is unique, though the basic principles remain the same.

For small and medium manufacturing units, there are three main layout options, for which the main pros and cons are laid out below:

Product (Line) Layout

Equipment is arranged in a single line determined by the sequence of operations in this layout. Advantages are that it is low cost, operations are smooth and have continuity. The production control process is also simpler. However, the layout lacks flexibility. One process breakdown can bring the whole factory to a halt.

This layout is best suited for mass production where the process is repetitive, demand is stable and material availability is reliable.

Podrain expects to use this design for our larger ‘volume production’ factory.

Process Layout

Sub-process equipment and staff are grouped together in this layout. This is flexible and adapts fast to changes in volume and product variety. It’s also possible to ensure specialised supervision where needed and ensure high utilisation. However, more skilled labour is needed and production controls need to be strong to avoid time lags and inventory accumulation.

This layout is best suited for non-standard product lines, smaller quantities and where frequent changes to design may be needed. Podrain currently uses this layout in its prototype and small batch manufacturing facility.

Combined Layout

This blends the product layout and process layout where some steps of production are laid out by product line and others have sub process equipment and staff grouped together. this is a very complicated layout to design. When done right, it can offer efficiency and better production controls. However even a small error can lead to being stuck with bottlenecks in the production process. It’s typically used in very large manufacturing organisations for FMCG items.

Single-Storey vs. Multi-Storey Factory

Land is scarce, and suitable land is scarcer still. So, having selected a location and figured out the plant layout, one is left with the decision of a single-storey versus a multi-storey building.

Single-Storey Building -Advantages:

Greater floor loads, no structural strength needed to support upper storeys
Lower noise transmission and building vibration
Ease and lower costs of building and expansion
Natural light and ventilation
Higher floor area usable for processing – no stairwells, lifts, shafts, etc.
Concentration of service facilities centrally yields lower operating costs
More efficient layout and material handling, product routing
Lower cost of supervision

Multi-Storey Building – Advantages:

More efficient utilization of land area, and smaller land area requirements
Temperature management costs are significantly lower
Greater structural strength, higher construction quality, fireproof and longer-lasting
Upper storeys dust-free, especially for precision manufacturing operations
Downward chutes are cost-effective for material movement
Compact, more efficient layouts – though there is a limit to the benefit of this

Whether single- or multi-storey factories are more economical to build and operate per square foot of usable floor space is hard to determine. Local and regional considerations regarding regulations and land prices may play a significant role and costs may vary over the course of time. For example, our Bangalore factory is a multi-storey facility. While production control is a little more difficult, land availability at a central location in the city is a key factor in our choice.

In conclusion, siting, designing and building a plant that’s conducive to business success is all about balancing the trade-offs between costs, time, complexity and benefits in pursuit of the goals of the company.

November 16, 2022
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India

Entrepreneurship is all about making decisions and one of the key decisions every manufacturing entrepreneur faces is the best location and layout for the plant or factory. Should it be in a city, semi-urban or industrial area? Is proximity to an employee pool, educational centres and public transport important? What about public utilities? Taxation and incentives? Which amenities are likely to be most vital to success?

We’ve been thinking about this at Podrain and went back to basics on it.

Plant location is a strategic decision that is nearly impossible to change without incurring considerable losses. The ideal location is one that minimizes the cost of production, supports a large market share, maximises social benefit and eliminates risk. Locational analysis that takes into account demographics, trade area (availability of and access to customers), competitive, economic and traffic analyses and can help determine the right location.

A location in which some costs are higher may still be the best choice if it maximises net advantage, i.e., its overall unit cost of production is lowest.

Here are some things we are considering when selecting a suitable location for a factory:

Natural or climactic conditions
Cost of land or land lease
Availability and access to raw material
Transport costs – inward, to bring in raw material, and outward, to sell or distribute finished products
Availability and access to market
Availability and access to infrastructure – developed industrial sheds, link roads, transport hubs, public utilities, civic amenities, means of communication
Availability and access to both skilled and unskilled labour, as required, and local labour rates
Availability and access to banking and financial institutions
Safety and security of the plant, its workers and its assets
Government and regulatory environment – positive and negative incentives, including cheaper utilities, tax relief, liberal local labour laws, pollution control and waste disposal regulations, among others
Personal reasons, such as being close to family, familiarity with a particular place, or a network of known associates whom we can call upon for financial, operational and emotional support. This isn’t intuitive to admit but it’s really important to have a good support system.

Not all these considerations carry equal weight. For example, government incentives cannot compensate for poor public infrastructure. Running costs at a plant can contribute significantly to the overall cost of manufacturing, and poor location selection can cause a business to fail as its growth and efficiency are constrained.

MSMEs like us often do not have the financial or operational capacity to compensate for the shortcomings of public infrastructure , so our ability to adjust to an unsupportive environment is extremely low, particularly in the early stages of the manufacturing journey.

Is there something else we should include? What is your experience. Do write to us or add your comments to let us know.

October 20, 2022
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In PCB manufacturing, repeatability and consistent quality are critical – whether for large-scale production, small batches or prototypes.

Skilled and experienced technicians can and do create excellent work, but relying on individuals to establish, deliver and sustain top-quality results is risky. Programming Automatic Inspection Machines and processes is expensive, time-consuming and not always practicable, especially when prototyping.

Testing

Prototype QC needs to ensure that the design will work; that it is safe, and meets certain standards of quality and reliability; that it performs to expectations; and that it addresses its purpose.

Small batch PCBs have some rather unique attributes:

High Mix, Low Volume (HMLV). It’s likely that the PCB manufacturer builds several board designs in this environment to ensure efficient use of their production infrastructure.
Higher performance, reliability and quality requirements. Small batch and prototype PCBs are often intended for critical applications where more stringent IPC standards apply, like aerospace, automotive safety or medical devices. Quality and reliability expectations can be significantly higher for these critical system applications.
Complex designs. Prototypes are created to solve specialized and often complicated challenges, which means their designs are complex, requiring atypical manufacturing processes

How to ensure the best quality standards for prototypes and small batches

In-circuit testing (ICT). Provides a reliable, high-fault coverage verification method for the majority of PCB assembly electronic components that’s free of human error. It’s great for big assemblies or ball grid arrays and after assembly.
Short circuit testing. The main cause of PCB prototype defects is a short circuit between its larger components. For example, a fastener between two proximate pins can damage the microcontroller by triggering a short. It is vital to gauge the impedance each voltage node to the ground. Faulty components or incorrect soldering can cause components to overheat.
Flying probe test. A practical, cost-effective technique for prototypes and small batches that tests PCB probes from one spot to another, looking for singular issues in the circuit – shorts, capacitance, resistance, inductance, opens and problems with diodes.
x-ray inspection. As the prototype is being manufactured, an x-ray technician runs tests to locate defects, looking for elements that may be hard to discern with the naked eye – for example, joined connections, internal traces or barrels.
Functional testing. The #1 criterion for a prototype’s success is, “Does it work?” Performing a functional test requires the parameters for ‘success’ to be clearly defined. Functional testing takes a long time, because it simulates the real-life environment in which the prototype is expected to work. But in terms of long-term value, it’s worth doing. A great deal of money and time can be saved by identifying potential operational pitfalls and eliminating them at the design stage.
Burn-in testing. Intended to identify failures early and initiate load capacity. Burn-in testing helps identify potential dangers relating to power being pushed through the electronic components for extended periods of time. One must keep in mind that individual prototypes may be partially or even completely damaged by a rigorous burn-in test, and the test’s utility to prototype QC should be decided based on the destination application of the PCB.
Automated optical inspection testing (AOI). Camera-based visual inspection to identify issues that may emerge on the board during the preliminary phase of assembly. It’s wisest not to rely entirely on AOI, but to complement it with an ICT or flying probe for more accurate QC results.
Inverted polarity testing. The more manual assembly, the higher the risk of human error. The simple act of ensuring that each individual component is set up based on its polarity can prevent the complex and delicate components of your prototype being badly damaged. Protection diodes can protect PCBs but add to their power consumed.
Populated components testing. A simple BOM cross-check to ensure that the components selected fit the board design can save investigative time and effort later in the process.

Several other QC approaches, including tests for PCB contamination, solderability and peeling; micro-sectioning analysis; and time-domain reflectometers, can identify faults or be used in combination with those discussed above, like ICTs and flying probes.

Choose the right QC test(s) for your prototype

It begins with clearly defining the purpose and desired performance levels of the PCB; weighing the pros and cons of the available tests – which include costs, time required, destructive vs. non-destructive; and always keeping in mind, especially when prototyping, that the design-test loop can flex and adapt as the product design is iteratively perfected.

It’s always a good idea to partner with a manufacturer who is committed to the best quality; has documented and traceable processes; has the necessary quality and classification standard certifications; is experienced at HMLV manufacturing; and leverages technology to ensure high-quality, repeatable results.

Podrain collaborates closely with its clients when prototyping and producing small batches, and meets the highest quality and classification standards. We advise clients on the right mix of testing to ensure that their prototype PCBs meet the final test of quality – sustained, reliable, top-level performance in the field.

Why We Need to Near Source Electronic Components

June 16, 2022
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Why we need to Near Source Electronic Components

The past two years have offered some harsh lessons to all in the PCBA industry on the value of inputs. For a long time, the cost paid was the only consideration. The supplier might be located on the other side of the world, but if the cost was marginally lower, the choice was clear. But the pandemic changed all that. The cost of logistics / transport that used to be negligible ballooned beyond expectations. And for some parts – no matter what cost we were willing to pay – the availability just did not exist.

PCB Assembly

In India, we import more than 90 percent of the components required for assembling PCBs locally. These imports come from 4 countries – China, Taiwan, Vietnam, and Malaysia. A break down at one source country, as we saw in 2020 and 2021, drives up the cost of doing business for all.

Here’s our experience with supply trends for some of our major inputs:

Bare PCBs:

Bare PCBs are the stronger point in our supply chain. We have seen reliable suppliers of Bare PCBs based in Tamil Nadu and in Gujarat. We (and many of our customers) have been able to source Bare PCBs in the past 18 months with no major issues. Supply lead times have remained consistent and price increases have stayed within tolerable limits.

Assembly Machinery:

Machinery needed for PCBA is mostly manufactured outside India by majors like Yamaha, Fuji, Panasonic, and Siemens. While prices have stayed stable, lead times have increased considerably. What used to be available in 4 weeks now takes 4 months to get delivered. We’ve had to plan and order earlier than ever before for any capacity enhancements or repairs and replacements.

Other Components / Services:

Integrated Circuits (IC’s), their component resistors, capacitors et al, solder paste etc. are mostly imported and have all seen prices and lead times zoom up. 52 weeks is now the new normal! Companies like Micron, TI, Cypress, Infineon, Latis, NXP have factories based in China, Taiwan, Malaysia, and Indonesia. When supply and manufacturing centers were shut and major ports slowed down, component shortages have visibly hit every industry from automotive to computers and mobile phones. Even stocks held by major distributors Avnet, Future, Arrow, or online suppliers like Digikey, and Mouser could not tide the industry over for long.

This is the area where India needs to attract investment and build manufacturing capacity.

What Next:

The government has already recognised the need for building an electronics components manufacturing ecosystem. It is doing its part by offering Production Linked Incentive programs and other sops to encourage manufacture of components in India. It is now up to us in Industry to pick up the challenge and partner in building a strong local eco-system for components.

Agritech: High-end Hardware Applications for Indian Agriculture

January 26, 2022
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The global human population is projected to reach 9.8 billion people by 2050. Food security is a critical concern worldwide. Resource availability, distribution and access imbalance, higher agricultural and dairy output, and sustainability are major challenges.

The Indian agriculture sector is valued at over $370 billion. It employs 40% of the population and contributes nearly 20% of India’s GDP. Agritech is vital to ensuring our nation’s food security issues. A 2020 E&Y study estimated that the Indian agritech market could reach $24 billion in the next 4 years. Another study put the number at $35 billion.

Indian Agritech has great potential

Over 1,300 Indian startups are working in this space as of October 2021. They use AI, ML, IoT and other digital technologies to improve productivity, efficiency, revenue and profitability for farmers. In 2020, Indian agritech startups received $242 million in funding in just ten months.

These startups offer a range of products and services including sensors, signal conditioning, processing and security, power management, connectivity, and positioning. As a precision-engineering EMS manufacturer, Podrain works with IoT-driven agritech startups to create the hardware required for smart farming. Some of the many applications are:

Precision agriculture and farm management.

Geospatial and weather data, IoT sensors for humidity, temperature and other variables, resource and field management, energy and water use, and robotics on farm equipment.

Farm infrastructure and equipment.

Industrial automation using machinery, tools and robots to seed, harvest, and handle materials. Greenhouse systems, temperature and humidity monitoring, environmental controls, irrigation and water management, heating and ventilation monitoring.

Dairy farm optimisation.

IoT sensors monitor the health parameters, milk production, eating patterns and nutrition, fertility and reproductive cycle of individual cows, and overall herd health. Diseases can be detected early. Digital milk analysis devices measure fat and water content, SNF and contaminants at every stage.

Cultivation and land use.

GPS data have applications in land mapping, soil quality, crop placement, soil sampling, weed identification, determining the right time to harvest, pest management and optimum pesticide use, and water availability and irrigation, among many others.

PCBs are a foundational component of IoT-based digital technology. Podrain has vast expertise in developing customised solutions and solving highly complex problems for our clients. We apply our talents to the vital area of agritech. It presents a large and growing opportunity to harness the power of digital technology to improve the quality and quantity of agricultural and dairy output, and the economic well-being of 40% of India’s population.

Access to capital: the Msme money maze

November 16, 2021
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The government’s Make in India strategy demonstrates how important MSMEs are to India’s growth story, but capital is still hard to get. If you are considering launching a startup, here are some things to keep in mind:

KEEP FRIENDS, FAMILY AND FOREIGN FUNDS CLOSE

Most credit schemes are aimed at MSMEs that are at least three years old. If your company is newer, informal sources like family and friends must be part of your fundraising strategy. Quite often, this means looking abroad for help. Even if you are looking at a VC / PE funding, the Indian ecosystem is in its infancy and you are likely to go beyond India’s borders. But this can lead to a problem. Indian financial institutions need at least 75% Indian ownership to qualify you for most of their loan products. This is intended to encourage Indian entrepreneurs, but as a startup that might be considering all options for support – make sure foreign investors hold less than 25%.

CAUTION: COLLATERAL AHEAD!

Typically, financial institutions ask for collateral that equals (or exceeds) the loan amount. This can be a term deposit or a mortgage on your home. Indian financial organizations are very cautious about lending. Read the loan terms carefully and include all supporting documentation with your application.

PLEASE MIND THE GAP

The Small Industries Development Bank of India (SIDBI ) was established to bring MSMEs and capital together. This is excellent news for MSMEs but the execution is not perfect. Rules can be unclear and confusing. Decision-making does not always follow the on-paper criteria. If your application is rejected, you may not know why.

Government schemes to support MSMEs working on Covid-19-related projects face similar challenges. Companies that qualify for credit on paper may still be rejected without an explanation.

WHAT CAN CHANGE

Podrain’s experience has taught us that patience is key. It also helps to have an experienced, trusted financial advisor or mentor who understands the options and provides guidance on processes and documentation. Some signposts and directions from financial institutions will make navigating easier.

MSMEs should be able to quickly and easily understand what each regulator is responsible for. Clearly stated eligibility rules for each scheme and a simple explanation of the risks and benefits of each option will help entrepreneurs who are not always financial experts make the right choice. A single-window approach to clearances will make MSMEs’ search for capital much easier. Regulators can also help to match MSMEs with the right funding source for their needs. We can then rely on financial institutions and their lending officers for guidance on the right capital products and schemes.

Financial institutions also need to look beyond traditional collateral-based criteria. Very often these show only the borrower’s existing financial strength and not the intent to repay. To help new MSMEs get started, lenders may consider performance-based criteria to approve loans. For example, whether a startup pays its employees’ salaries, its taxes, and its statutory dues (GST, PF, etc.) on time is a good indication of its intent to pay. Market-based criteria used by PE/VC funds may also be used with modifications that reflect the lower risk appetite of the lender. These forward-looking strategies are consistent with the idea of financial institutions as partners in the Indian MSME growth story.

By adopting a partnership mindset, financial institutions can make capital more easily accessible to MSMEs who want to Make in India.

Posts tagged "Make in India"