A thoughtful weekend read and a timely reminder for reflecting on all bad decisions made this year and in the last four years...
"Life is tricky. It is never clear when you are at your peak (and about to head downwards into a death spiral) or at your bottom (and about to skyrocket upwards to your greatest heights). Right now, you could be sitting at the very peak of your life (or you could be sitting at the very bottom of your life), and there is no way to tell which is which. It is the scary truth for all of us. This truth applies to people, companies, and countries. Change can happen gradually over time or it can happen instantly. For me, success is the greatest imposter. In life, business, or martial arts, winning is a falsehood. It seduces smart people into thinking that they are invincible. It tricks good people into believing that they are infallible. And it robs all people of reality and truth. Don’t believe the hype. And don’t eat your own bullshit. Or you will lose everything. The only antidote to the poison of success is humility, hunger, and gratitude. Stay humble. Stay hungry. Stay grateful. And outwork everyone. Always." - Chatri Sityodtong
Despite being familiar with the names of the titans in private equity, I consistently revisit the stories that chronicle their professional lives:
"Henry R. Kravis...is an American businessman, investor, and philanthropist."
"Stephen Allen Schwarzman...is an American businessman, investor, and philanthropist."
"Weijian Shan...is a Chinese economist, businessman, and author based in Hong Kong."
One thing that is common in all the opening lines of their wiki pages is the word businessman.
Good investors are businessmen.
Good investors are inherently entrepreneurs. They either have owned businesses before, or have been placed in a position of making decisions, such as opening markets, launching new products, retrenching staff, etc,
These decisions also have a direct and consequential impact on them.
If the business does well, managers reap the profits and bonuses. If not, they get axed from their roles. How people deal with their successes and failures are often reveal more important attributes about their attitudes as investors rather than their curated abilities.
Do they let success get to their heads? Do they become arrogant and conceited? When defeated, do they remain beaten? How do they pick themselves up?
Without going through first-hand, the experience of a founder, it is nearly impossible for any good investor to genuinely feel what it is like to be on the other side of the table...
This also includes fundraising, pitching and sourcing for customers, managing employees and payroll, engaging with competitors and other business people, and worrying about the day to day cash flows.
Execution is everything.
The turnaround of Continental Airlines was probably the hallmark transaction of TPG's founding days. The deal embodied more than just investing capital but also the hard work of returning the airline to profitability. In successfully doing so shot the private equity firm to 'stardom'.
But had the transaction gone sideways, history would have been written very differently. I believed that Continental Airlines came back to life because of the folks driving the day-to-day leadership, management and execution, and not by simply throwing money at the company.
Anyone who has founded and built a business appreciates what it means to be putting your money on the line. The notion of “every dollar of revenue counts” takes on a very different perspective for a business owner as compared to a passive investor in the side-seat, running a company using someone else's money. Much less so for employees (even managers in senior positions).
But the majority of people take this for granted.
Prudence is a virtue.
I used to know of some junior investment bankers deliberately staying late in the office to claim dinner and transport allowances, even though they could have gone home earlier. While this amount wasn’t significant, it was the attitude that revealed (i) the ‘employee’ mindset and (ii) how one treats money.
Per diems, transport and meal allowances are benefits rendered to employees who put in the extra hours, go the extra mile and work hard for the firm. These are absolutely necessary. However, the problem is with the few who either feel "entitled" or consistently find loopholes within the HR manual to exploit these benefits..
Any fund manager who doesn’t appreciate the value of thrift and prudence should not be managing capital - especially third party capital.
So what if you have money?
Some years back, I met a family-run manufacturing firm based in Southeast Asia on a potential deal. They brought in their freshly graduated kid into the meeting. He had basically near zero professional experience and showed little interest in furthering the ambitions of the company. The owners were also incredibly averse to the idea of bringing an external investor to the table because of many horror stories involving strict quarterly reporting requirements and the need to achieve ambitious sales and profit targets.
I can totally feel for them.
At the end of the day, if my business is raking 10 million in operating cash every year, why would I want to give it all up for 80 million and live with the pain of an external party harassing me over the next 5 years? I’d be much wiser and better off keeping the status quo for 8 years and achieving the same financial result (disregarding time value and opportunity costs).
Although we eventually did not invest in them, I spent the rest of the meeting getting them acquainted with the workings and dynamics of the private equity and venture capital world.
Raising a fund isn't everything.
"Let's raise a fund leh...". Too many people today want to start a fund because it sounds glamorous to manage money. It’s just the wrong way to go.
Some of the same folks I know see the buy-side as an omnipotent force in the investment world, top of the food chain. They crave for delusional respect and worship from the target companies they meet. But in reality, most of them are just employees at a very large firm.
Henry Kravis from KKR says, "Don’t congratulate us when we buy a company. Any fool can buy a company.” I'd like to rephrase that to:
"Don't congratulate us when we start a company. Any fool can start a company..."
Much like the congratulatory notes by friends and colleagues when starting a new business, many people continue to give the thumbs up to those who announced that they have started their own fund (in good faith nevertheless). It offers a glimpse of hope and inspiration for those wanting to pursue the same track. But too few understand what they are really getting themselves into. Setting up and running a fund certainly does not represent the pinnacle of success in the business world.
Having the right credentials and experience, an impressive business network, formulating a strategy of simply buying undervalued companies and saying that you'll sell them for a profit after 5 years - is too trivial and over-simplified.
Aside from the corporate finance and investment banking skillsets of business valuation & deal structuring, you missed out on the complexity of human-to-human relationships and negotiations, effective (and efficient) deal sourcing and the many intricacies of fundraising that goes beyond just lining up an LP roadshow. And, did you think post-investment value creation is that easy? It's more operations and roll-up-the-sleeves kinda work, instead of the heroic corporate dramas that you read in your MBA and Harvard Business Review case studies.
Pure ambition and skill sets are not good enough for getting into the fund management business without a well grounded mindset and right perspective.
No glam in the startup camp.
Approximately 1 year ago, I met a friend over coffee at Starbucks to catch up. He knew that I had started out on my own in 2016. Amongst other things, he asked me, “how do you cope with the stress of cash flow (or the lack of)?”.
“It takes a bit of time to condition yourself psychologically but after awhile you just get used to it.”
On hindsight, I realised that this simple answer doesn’t say enough about what most founders have to go through on a day to day basis. The media frequently sensationalizes entrepreneurs, start ups and new funds that are coming to the market. And a handful of friends and acquaintances that I’ve met at countless meetings and conferences often tell me:
"Wow! So good, you must be doing well! Running your own business!”
Don’t get me wrong, I am not a pessimist. I am at worst, a hard-core realist. I like to say, “If I can’t see a dotted line to the end goal, I probably won't do it”. This goes against the conventional wisdom in which most start-ups don't really follow a fixed trajectory in the development stage of their businesses. The model is constantly evolving and the reality is that many founders often do not end up at where they had initially set out to be - which may not necessarily be a bad thing.
But running a business takes a lot of work. More than what you can imagine and think.
You think working for a boss is tough? Go start a business, be your own boss, work for everyone - clients, suppliers, partners, employees, vendors, etc. Want to make a million bucks before 40? Climb the corporate ladder in an MNC or work in a large investment bank. Even if you don't get to the top, we still can live a very good life. A lot of people don't realise that just diligently being an employee allows you to cover your bills comfortably and very possibly, fund the purchase of your second property, pay for trips to Europe, Japan or any other vacation destination of your choice. Want to turn your life upside down? Go start a business. Burn a lot of cash. Meet nasty people. Open your eyes up to a whole new world.
Bottom line, starting up isn't for everyone.
On top of maintaining sanity, founders deal with the day to day chores of hiring, accounting, invoicing, designing websites, collaterals and many countless miscellaneous things. If you can afford to ignore the rapidly declining cash balance in the bank, it can be quite fun. You are literally building an enterprise from ground up. You get to decide on the corporate colors and fonts to use, the type of projects to take on, the types of products to sell, who you want to hire and/or work with. That said, you are also responsible for sales and overheads.
Pain that does not go away.
These days I wake up with a pain in my head that just does not go away. It is the nagging feeling of upcoming payments, bills, payroll, secretarial fees etc.
It’s really a struggle sometimes - to keep the lights on not only at work, but also at home.
Once you come to terms with this, you realise that all your
Dissatisfaction around puny year end bonuses
Annual leave days that you could not take
Overtime hours spent in the office and;
Countless weekends burned because of a working on a deal or RFP
just don’t matter. They really don't matter.
Rain, shine, bull market, bear market, pandemic or not, everyone who is employed in a full-time job gets a fixed pay-check at the end of the month.
The smartest people in the world are not the entrepreneur 'heroes' portrayed in the news, but those who have managed to stay in their jobs for the last 10-20 years, drawing pay-check month after month, surviving through the ups and downs of the economic cycles.
As Steve Schwarzman from Blackstone once said, “There are no brave old people in finance”. If you are doing well today, it is not because you had a billion dollar idea that can change the world, but because you were boring. You adapted well to the times and had a good handle of managing risk at every stage of your life and career.
In the toughest of times.
In the toughest of times like these, I remind myself of the various resources that one has.
Experience. You can acquire specific experiences and memories, depending on how much money you have.
Knowledge. You can get access to the pathways and platforms that offer knowledge. But there's no guarantee that it can be internalized.
Health is a 'depreciating' asset. You can attempt to prolong this "asset life" but it'll catch up with you eventually. Also, there are always some parts of your biological system that cannot be replaced.
Friends. You can acquire the means to make friends - at the workplace, meetings, gatherings and at school. But friends who have been around for many years and been through ups and downs together, cannot be substituted, especially those who have shared specific experiences and memories with you.
Family and time. There is no way that you will ever get back family and time.
After you lay them all out: money seems to be the one thing that can always be replaced - either immediately or at some point of time in the future. Not that it is a resource that is easy to acquire, but, money is just money.
To acquire the rest of everything else, you either have to nurture, build and develop them progressively, or earn them through heart-felt experiences. Or, sometimes, you just gotta make the best of it while it lasts.