Monday, November 1, 2010

Sustainable Business

Sustainability chartImage via WikipediaWe are living in the 21st century with dwindling resources and rapid rise in costs of the inputs to business. How are we to work on these resources and how are we to deal with rising costs? 

The answers lie in the problem itself and as with all answers, we have to reword the question to get to the answer. First we begin with a question. What got us here? We came to the current place in the world due to the workings of the economic model of industry and rapid growth. We have to be thankful to this model for having gotten us thus far. But it wont take us to a great place in the future as this model is not based on sustainability.

What is the definition of sustainability? This answer can be best provided by the example of an agricultural farm. If we identify our Farm as a Industry, we provide all the inputs needed from outside, be it the seed, the fertilizer or the pesticide. So we assume that the farm as in itself is dependent on the outside to provide returns.

When we see it as a sustainable farm. A farm in which nature also plays its role. That there are natural fertilizers in the form of the earthworms, natural pesticides in the form of  birds and certain bacteria. Then the farm is an interdependent resource.This is sustainability.

All this talk of sustainable is fine but how in the living hell does it make a difference in business. It makes a lot of money sense. Assuming the first farm needs an investment of Rs 200000/- to make a profit ( reminder after outgo on the input costs) of about Rs 20,000/-. This profit is about 10% of the outgo.

Then what about the second farm, it will make a profit of 20,000/- but by only spending Rs50,000/-.This is because the farm is a sustainable model.

What this means is that less of the gross is needed to make more of the Net.

Makes a lot of money sense.

A business linked to this model will be highly successful. Particularly if it puts in a cash buffer to tide over the tough times. 
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