IF OLAM International boss Sunny Verghese could offer just one tip to budding entrepreneurs, it would be: Differentiate your business first, then scale up.
After all, Mr Verghese has a nugget or two of wisdom to share about sustainable and profitable growth.
Never mind that he started his agricultural commodities firm in 1989 trading one product, cashews, out of one country, Nigeria.
He is now group managing director and chief executive of an $8 billion company that trades 14 commodities and supplies multinational giants such as Nestle, Kraft and Sara Lee across 56 countries.
'In the commodity business, you need scale to survive. But I feel that if you differentiate your business first, then it will become routine and reflexive to scale (up),' said Mr Verghese, 48.
He was speaking to a crowd of about 250 at the Raffles Hotel yesterday at the Enterprise 50 Leaders Talk, organised by The Business Times and KPMG, about the challenges involved in managing a global trading business.
He said that 90 per cent of companies around the world have failed because they neglected to differentiate themselves.
To achieve profitable, sustainable growth, said Mr Verghese, companies must be able to meet three conditions concurrently: Grow the top line, grow the bottom line, and earn more than your cost of capital.
Citing findings of a Bain & Company study, Mr Verghese said: 'Over 16 per cent of companies in Singapore concurrently met all these three conditions. Globally, only one in 10 meets these criteria. And only one out of four growth initiatives actually succeeds.'
He added: 'The biggest lesson that I've learnt in the 19, 20 years that I've (steered) Olam's business... is: Any business you get into, if you can't create differentiation, exit that business.'
Mr Verghese also said the success of his Singapore Exchange-listed firm is due to its core belief that the business must 'maximise intrinsic shareholder value over time for continuing shareholders'.
The low profit margin and high-return nature of his agriculture commodities business are the 'building blocks' that create such value, he added.
Speaking later to The Straits Times, Mr Verghese said he believed the average level of prices for all commodities in the next 10 years will rise from the average of the last 10 years.
He said: 'We believe the correction in the commodities market was overdue, because commodity prices have run up quite sharply quite soon.'
He added that he expects rice prices 'will probably average US$500 (S$723) in the next decade', as they used to be US$250 per tonne, but shot up to US$1,100 before recently settling at about US$800.
Mr Verghese also said as his company is in the supply chain management of agricultural products, and not commodities trading, 'high commodity prices do not have an impact on Olam's profitability'.
This article was first published in The Straits Times on September 12, 2008.
