This is true for many investment banks. And people pay for complexity.
But it's an odd world:
Founders chasing publicity on social media, focusing on “story-telling” instead of "product-selling".
Companies (especially funds) announcing (and celebrating) an investment or acquisition in a business, almost sounding like: “Look, we bought these guys” or “Hey I pulled that off, can you?”
Entrepreneurs focusing too much on beautifying powerpoint slide decks and looking for investors instead of devoting more resources towards building a real product and looking for customers.
Some people spend too much time going around begging angel investors and VC funds for money to build their business. I once told a friend: raising capital is equivalent to "cash flow from financing". Why don't you focus more on delivering "cash flow from operations?".
The same applies to private fund raising: If you have to wait to bring in OPM (other people's money) before kickstarting your fund, maybe you really shouldn't be in the PE/VC business.
The end result is the same: solving for that funding gap.
You are much better off spending your time and resources looking for customers (who are by the way, non-dilutive to shareholding) rather than "road-showing" month after month to investors.
I think many of us nowadays over-relate to what we read in social media. We constantly see how different forms of a Jeff Bezos and Elon Musk manifest themselves as visionaries of businesses: People who make sweeping, yet inspiring remarks about their entrepreneurial ambitions, and making the headlines through that process. A few days later, a large venture capital or private equity firm, a middle eastern sovereign fund, or some other titan of an investor with deep pockets take a minority stake in the company.
And weirdly (for a lot of people), a part of the brain puts one and one together concluding: "Go big, or go home", "If I passionately try hard enough, someone will acquire us some day", or "some big company will buy us out". It's easy to get caught up with the hype and optimism. After all, there are many precedents of successful tech founders who started from humble beginnings.
While it is true that if you don't die trying, you won't make it, too many folks forget that the most important part of doing any business is reeling in customers, not telling stories to investors (but what do I know, right?)
I also know a handful of folks who place too much emphasis on pursuing egotistic corporate titles, lamenting on why they aren't promoted or not given nice-sounding C-suite positions. Those who crave the adulation of social media and in the process, overcompensate themselves have no chivalry.
They are all doing it backwards. Real business is in working the P&L, not in fluffy words and lofty titles.
There is no point in calling yourself Chairman, CEO, CFO, CIO, (or any permutation of a CxO), Head of Business Development or Head of Investments if you have a lousy report card to show for. It's useless to garner a thousand followers if you can’t successfully monetise your product.
You can call yourself anything you want really, but at the end of day if your designation doesn't get the job done and bring home the bacon, then what is the point?
“Rome wasn’t built in a day but they were laying bricks every hour.”
"The problem is that it can be really easy to overestimate the importance of building your Roman empire and underestimate the importance of laying another brick. It’s just another brick. Why worry about it? Much better to think about the dream of Rome. Right?
Actually Rome is just the result, the bricks are the system. The system is greater than the goal. Focusing on your habits is more important than worrying about your outcomes. Of course, there’s nothing necessarily impressive about laying a brick. It’s not a fantastic amount of work. It’s not a grand feat of strength or stamina or intelligence. Nobody is going to applaud you for it.
But laying a brick every day, year after year? That’s how you build an empire."
[Excerpt from James Clear]
I've seen too many people attempt to be "heroes" in their organisations. They seek the recognition, adulation, whatever you call it. But a five-minute fame is short-lived. At the end of the day, it is about whether you and the company can bring home the bacon. That's all that matters.
In a fast moving and digital world that seeks instant gratification, patience and foresight, are two highly underrated attributes amongst the young and inexperienced.
August is shaping up to be one of my busiest months.
On top of three webinars every weekend, I have a couple of two-day on-campus classes. I think Zoom fatigue is real and the offline classes provide a huge reprieve. The valuation and financial modelling classes always made me think about how I could enhance my existing content and in-class experience in each successive session. I am not the most experienced and best modeller on the street. But I guess where I am different is my perspective of looking at financial modelling and business valuation. Perhaps that perspective is the value-add I bring to the table.
I thoroughly enjoyed the 2-hour talking session last night on Zoom. I was possibly the youngest panellist. We spoke and shared our views on what to expect in the next 6-12 months, personal experiences and opinions on valuation and investing, amongst others. We talked about the situation around the pandemic and how people and companies should remain flexible and adaptable for the uncertainties that lie ahead.
Going through motion.
I used to be a extremely 'agreeable' person. During my corporate finance days, I’m the junior 'play-maker', I don’t crave to be in the limelight. I'm happy to just sit in and meetings and watch the show. Occasionally, I get the ball, I pass, someone scores a goal, sometimes I score. Everyone gets paid at the end of the day. Everyone wins. I'm happy. Tired, yes - but happy. So I had spent most of the early chapters of my career being the nice guy, helping out where-ever I can, whenever I can.
On one occasion during my analyst days, a VP had requested some help for work to be done for an RFP due on Monday. An email was sent out to the analyst pool on a Friday and I was the only sucker that said yes. Sounds like a common Friday evening horror story?
I burned my weekend doing up the presentation deck. In fact, many weekends were like that. Sacrificial rites of passage. But someone put this in perspective for me: You're basically trading time for money.
I did not regret doing what I did. I disliked the mundane work, but I just wanted to show up and be a team player.
As time passed, I increasingly became the go-to guy for a lot of what we knew as JIT (just-in-time) projects. A comps table that needed refreshing an hour before a client meeting. A model that needed updating before a meeting. A pitch-book that required assembly in 24 hours.
I had been one of the most efficient and effective analyst in the team. Sure, I took pride in what I did, and I still do today. But in the frenzy and rush of producing all the work, I had unwittingly lost sight of the investment banking business model. I just did what I was told and had very little bandwidth to develop myself more professionally in other aspects. As the days passed into years, my professional growth became increasingly stunted and fuelled by the mindless monotony of 'spreadsheeting' and churning pitch books.
So, if you blindly follow the corporate 'rulebook' set out by your bosses and let the insecurity of losing your high paying job get to you, you stand to lose out a lot more in the longer term.
Small gears. Large gears.
In negotiating any compensation, one must first ask the difficult question: What value do I bring to the table?
When you graduate from school and someone hands you a $10k paycheck, you are expected to be the most powerful sponge on earth. Your job is to soak up anything and everything as fast as possible. You are the "smallest gear" in the entire system required to produce the highest torque - that’s your leverage. That leverage has a premium and that is what companies are paying for.
When you eventually evolve into middle and senior management, you become the large gear. You are measured based on your ability to drive as many smaller gears as possible. A large and heavy gear which does not drive anything is both costly and redundant, and will inevitably be scrapped.
Therefore in starting up any business or pursuing any career, one needs to first understand your role within the firm - are you the small gear or the large gear? Regardless of which one you are, if you can't make a difference to the organization you work for and its clients, there is really very little that you can ask for commercially. Don’t get me wrong and under-price yourself. Shoot for the sky if you can. But remember that if you ask for high fees or draw a high salary, you must deliver. And don’t get cocky. More importantly, don’t ever be complacent.
Know that once you stop being an effective gear in the system, you become irrelevant very quickly.
羊毛出在羊身上
It was much later in my investment banking years, and after starting a business, that I truly appreciated what revenue model and cost structure really means.
As an employee, your salary is a cost to the organization. And your main job is to bring revenue to the firm. Everything else that you do in the process is contributory to that main task. Beyond salaries, the firm incurs other ancillary expenses such as rent, administrative expenses, etc, all of which are important in supporting the infrastructure of the business. The firm's only focus is to grow revenues as much as possible, and it depends on the best salesmen to achieve that goal.
Usually, the people who are most instrumental to that growth will be rewarded, but in larger organizations, there is always bound to be some dislocation of credit. So don't get disgruntled when you get paid a lesser bonus than expected.
Unless you run your own enterprise, your remuneration is never perfectly correlated or proportional to the firm's profits. You are just an employee, a cost center, and not a shareholder.
Understanding this cost structure early on in your career makes you more sensitive to not only the firm’s P&L, but also the need to strategically and smartly source for sales.
Over the years, when I started my own business and spoke with more people outside the banking industry, I increasingly appreciated the costs of relationship building and customer acquisition. All of your work experience is worthless if you choose to sit behind a desk doing endless powerpoint pitches and spreadsheets.
In banking, the one thing that many junior analysts (and even associates) fail to realise is the importance of doing small talk with professional parties, engaging colleagues from other departments within the bank and even client interaction. And every client is different. Some like to go deep into numbers, others like to hear the big picture. Some like bragging about their achievements while others just want to complain and vent their frustrations to an external party.
Regardless of the shapes and sizes that clients come in, they are ultimately the ones who bring home the beef that pays the salaries and bonuses. You can systematically and independently acquire technical skills from a corporate finance manual, but there are no handbooks for learning the ropes of business from the "School of Hard Knocks". So don't get too frustrated if you aren't hitting home runs by showing off your beautiful presentation or financial model to your bosses or clients.
Sometimes, your greatest value is in just showing up or being a small cog in a big system.
Being commercial.
From a statistical point of view, not every one will make managing director in an investment bank. This is not abnormal.
In an ideal world, the funnel is straight, and 100% of all analysts would make associate, 100% of all associates would make VP and VPs to MDs. But the reality is that attrition happens at every rung. Making Partner or MD isn’t the pinnacle of your career. I used to think that MDs were the creme de la creme in the investment banking world. But the truth is, many of them are just successful in navigating corporate politics and hierarchy within the firm.
Managing Directors are really just highly paid salesmen within the bank. They exist only because the banks believe that their relationships with senior industry people and clients can be monetized at some point of time. Their KPIs are based on the bank's revenues and not on whether they get along well with their co-workers. It is also because of this that most cultures in investment banks are toxic. Don't take it personally, it's just sales.
If you focus too much on pleasing your bosses and co-workers as part of climbing the corporate ladder, you'll find yourself rudely awakened ten years later into a miserable job.
Everyone - junior or senior - needs to be commercial, and that means understanding how the business works and who the real customers are. Above all, be smart, be a good listener and nurture good analytical skills. Learn more to solve problems rather than pleasing people.