Wednesday, March 9, 2011

No. 19: Define the Ability of Your Company Precisely: Sorrow of a Venture Company

A venture company of electric vehicles in Japan announced on March 1, 2011 that it would shortly file for voluntary bankruptcy. The amount of debt is 1.1 billion yen, and the company dismissed most employees on the same day. The company got an order from Japan Post for its EVs, but Japan Post cancelled the order in January this year for fear of possible delay in delivery. Believe it or not, the number of EVs that the venture company had to deliver is 1,030 units. The contract required the company to delivery 30 units of the 1,030 units between January and February this year, but the company was not able to deliver them. This means that the company failed to deliver even 30 units of the contracted 1,030 units on schedule. Where are the delivery plan and production plan? The company seems to be dreaming the day of three cheers all employees shout together in line when it finishes delivering the 1,030 units.

It is questionable that Japan Post placed such a big order for as many as 1,030 units for 3,500 million yen with a venture company, and it is more questionable that a venture company capitalized at less than 500 million yen took such a big order. Konosuke Matsushita, the founder of Panasonic, taught us “No one can go up to the second floor in one stride,” but this company tried to “go up to the 10th floor in one stride.” Business does not end with the delivery of ordered products. Think about the business of a medical doctor. His business does not end with diagnosing his patient and writing a prescription for him. When his patient resumes his healthy daily life and shows his heartfelt gratitude to the doctor, a doctor knows that his business with the patient ends. The business of an ad agency does not end with placing an ad on the TV screen or newspaper. When the designed advertising campaign successfully increased consumer awareness of the product and made the client happy with increasing sales, the ad agency can say that the business with the client ends. 

If you think about business in the above way, you will realize how big an order the venture company took. Suppose that this company successfully executed this big order, is it realistic to think that it can get such a big order again in the future? Technological progress is growing faster and faster. Think about Sony’s Trinitron technology. It is an outstanding technology when it was introduced, but it cannot be outstanding forever. Sony forgot this fact. This is why Sony was late in entering the flat-screen TV market. Because Sony is such a big company, delay in market entry is not a big problem. Actually, it is now the world’s second largest flat-screen TVs manufacturer following Korea’s Samsung. However, medium-sized companies including venture companies should not take an example from such a big company as Sony.

Another big problem exists with this company. It does not have the main bank that usually should be one of the leading banks in Japan. As soon as the order with Japan Post was cancelled, financial institutions naturally asked the company to reimburse the loans. For all companies whether they are big or small, the last hope is always the main bank. Even more, political power should not be ignored in this business because the customer is Japan Post that is formerly affiliated with the Ministry of Post and Telecommunications. You have to remember that reemployment of retired bureaucrats is still widespread despite the new regime’s promise to eradicate it. No company can live only on ideas and technologies, however excellent they are.

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