Watch out for get-rich-quick schemes

Good profitability comes from making the right-buying decision
 
HAVE you bought any gold in the last five years? If you had bought, either you are laughing all the way to the bank or you are worried sick that you might never see your life savings back in your bank account.

If you had bought physical gold because you believe the price of gold will go up, then you have made a great investment decision. If you had bought because there is a high income return in the form of interest or share of profits, then you have let greed cloud your buying decision. You are buying for all the wrong reasons.

Other than buying shares in the stock market based upon reliable insider information, I know of no other buying opportunities that guarantees you high returns in a short period of time. You might argue that corruption is a guaranteed clean profit scheme but then it is not a buying decision where personal financial risk is involved. It is always other people's money.

The only common denominator in any get rich scheme is greed. Lots of human greed preyed upon by conmen who will continue to thrive because of gullible people buying for the wrong reasons. Their belief that “there is a greedy sucker born every minute” is justified.

In business, you are hailed a marketing wizard when you sell well. If you had bought well, it will be reflected in your gross margins, cash flow and bottom line. So who should be rewarded more, seller or buyer?

Most businesses are obsessed with selling decisions and place less emphasis on buying decisions. You will find these businesses having higher cost of goods, higher obsolescence, poor cash flow and weaker profits.

In this era of commoditisation where final prices for similar products in the market tend to level out, the buying decision becomes even more important and crucial if you intend to eke out any ounce of strategic advantage over your competition. Buying accurately products that sells, negotiating for the lowest prices, buying the right quantity to prevent inventory overstocking, improving cash flow and in this process creating operational efficiency that will help you survive the battle and eventually win the war.

Even the biggest organisations make poor buying decisions. One great example is Tenaga Nasional Bhd's (TNB) buying deal with the original independent power producers. Granted that the buying decision was right in view of the energy crisis at that time, the one-sided negotiated deal to buy at high prices and all the power produced, caused massive amount of losses to TNB. Just to show how one major buying decision can change the fortunes of a company.

In contrast, AirAsia's early decision to buy massive numbers of new aircraft of one type and from one supplier has defined their success path that you are seeing today. New planes versus old leased planes reduces maintenance costs and are more fuel efficient. Reduced training required for flying and cabin crew. Familiarity breeds efficiency.

Planes can be rerouted anywhere and replacement easily available as there are same numbered seats in all the planes. Expensive spare parts are kept to a minimum and maintenance procedures easily standardised. AirAsia, being the single largest customer of Airbus Industries, will definitely pay the lowest price for an A320 aircraft with the best financing terms from European banks.

These buying decisions are driven by the low cost business model plan. The only buying decision beyond its control is the supposedly high charges of operating out of the new LCC airport. Protracted negotiation between the only authorised airport operator and its biggest customer who will win?

To make money when you sell at a lower price than your competitors, you must have a comparable lower operating cost and lower cost of goods. Selling price is now determined by your buying cost.

So if you want to go into a price war, just make sure you can continuously buy cheaper than your competitors and your operating cost kept even lower. The best example is Walmart, the biggest retailer in the world. Using its massive buying power to have the lowest cost of goods, it has out-priced its competitors by a margin across all categories. To ensure it has the lowest operating cost, it has deliberately built its low-cost warehouse buildings on low-cost land in the outskirts where labour is easily available and cheap.

Buy cheap, sell cheap. Forever cheap. Proven successful formula when products and services become commoditised. Just make sure your buying strategy is sustainable.

I have been trading for 27 years and I have lost count on how many wrong buying decisions that I had made. Some were really inexcusable silly mistakes, some were downright poor judgement calls and some out of pure greed. In all these cases, I was not focused enough and was buying for all the wrong reasons and it had caused me considerable amount of discomfort and agonising moments in my business life.

I have a successful brand because I developed a great buying strategy that is able to meet my customers' needs on a sustainable basis. I have a profitable company because I bought well and because I am personally involved in all the major buying negotiations.

If you are on your own, be fully involved in the buying process. What you buy determines what you sell and how you sell. How you buy determines your profitability.

Just remember not to buy pieces of paper that promises you immediate high returns. For your children's sake... Wise up!

ON YOUR OWN
By TAN THIAM HOCK

To access earlier articles of On Your Own, log on to www.thiamhock.com. Honest comments welcomed and approved.

Fluttering around for company

Social relationships may glitter like diamonds, but not all will last forever. And we need to accept that relationships that promise high benefits will also carry high costs.

IN our brief lives, we always look out for good company. Like butterflies, we constantly flutter in the air, gazing at flowers, and sometimes landing on a petal which gives us a good feeling like we’ve never had before.

Although rarely do we linger for long, deep inside we all secretly hope to find that perfect petal to rest upon forever till the end of our brief lives.

Sometimes, people want much more than a social contract.

They yearn for a closer social relationship, with greater social commitments.

They are willing to invest all their efforts and emotions on a single relationship.

It can revolve around family, friendship, work or even a political, religious or social organisation. Wel- come to the Social Company.

Finding the right petal is very much like starting the right business company. A company is formed by business people of similar business interests.

They become shareholders and partners, and they have rights and responsibilities against each other. Whilst a contract is used for a one-off transaction, a company is used to get down to serious business for the long haul.

When a company is riding the high tide of success, its members have every reason to grow in confidence of greater things to come.

Why fear for the future? When the party is rocking, everybody’s singing and dancing, and nobody cares too much about who’s cleaning up the pool and picking up the broken shards later on.

But sometimes it’s good to turn on the lights, and check that everything’s alright. When the party’s over, and it will be over, there’s a heavy hangover waiting the morning after.

Likewise, when a company collapses, and no company is too big to fail, its shareholders, creditors and employees are bound to suffer heavy losses. Think of Enron, Lehman Brothers and Kodak.

That’s the difference between a mere social contract, and a social company. In a breach of contract, only the parties involved will be busy squabbling with each other.

However, in a breakdown of a company, there’s collateral damage to various third parties.

Thus, as much as it’s important and cool to live the moment, it’s also important (though less cool) to occasionally stop to think, have a sobering reality check, and account for what’s been said and done.

Under the law, it is mandatory for a company to perform annual audits on their financial affairs.

Likewise, people should constantly review their deep social relationships, to make sure that their company doesn’t turn from good to bad.

A simple example of a social company is marriage. It’s about two people exchanging vows to stick together through good times and bad times.

Sadly, nowadays, many people fail to follow through such vows. Divorces may be hard on the innocent spouse, but it’s definitely devastating to the innocent children.

They are robbed from enjoying a normal childhood filled with love and affection, and sometimes, deprived from sufficient maintenance and educational support.

So before entering into a marriage, think hard about the serious commitments that come with it, and the catastrophic consequences that follow if the marriage falls apart.

Think about your future children. Think about your relatives who will be forced to take sides, and spilt into irreconcilable clans.

Problems may also arise during the courtship stage, prior to marriage. Many of us are guilty of being consumed by love, or at least what we perceive as love.

After all, two’s a company, three’s a crowd. It’s easy to manage a company of two, whilst letting the rest of our family and friends fall by the wayside.

We ignore their calls and advice. We tell them to mind their own business and get the hell out of our lives.
But the easy thing to do is not always the best. Someday, you will long for their company.

Being married to our career can also be taxing on our social lives.

We burn all our days and nights for the sake of levelling up our corporate status.

We console ourselves that it’s only momentarily, until comes harvest time when we can reap the fruits of our labour.

But there is truly no end to the cycle. By the time we eventually find the pot of gold at the end of the rainbow, chances are we are too old, too weak and too late to share our riches with our loved ones.

These are mere examples of the larger problem, which is putting one’s entire mind, heart and soul into a shngle social company.

The key is to be aware that every deep social relationship takes a toll on our other relationships.

Social relationships may glitter like diamonds, but not all will last forever.

And we need to accept that relationships that promise high benefits will also carry high costs.

Hence, we need to think deeply before we leap into any social company. If we cannot bear the high cost, then don’t.

But if we do, we need to be bold enough to back out from a social company once the cost spirals beyond what we can bear.

In our brief lives, someday our wings will turn brittle and our favourite flowers will wilt away.

Until that day comes, we should cherish the freedom of the skies.

Sometimes, we may flutter too closely to a pretty petal in a thicket of thorns, and get our wings clipped.

But even then, we should never fear to flutter away. For there will always be a bed of flowers below to catch our fall.

Putik Lada By Raphael Kok
> The writer is a young lawyer. Putik Lada, or pepper buds in Malay, captures the spirit and intention of this column – a platform for young lawyers to articulate their views and aspirations about the law, justice and a civil society. For more information about the young lawyers, visit www.malaysianbar.org.my