Who came first? The chicken or the egg ? The egg cannot “come” so it obviously was the chicken. The centuries old question has been solved.
Ok lets try another question. Who came first, the son or his father? Its son because only after he was born, did his father become a father.
If you notice, the world is no longer “confused.” Its very clear on a lot of things. Well only in the talking aspect of things. We have learnt to have quick answers to so called tough questions due to the art of articulation and not necessarily having a proper answer.
Talking is free. So it really doesn’t matter these days on what one says. But in this whirlpool culture, the ones who have been caught on the wrong side and are “paying “for it are the businessmen or entrepreneurs. Let me tell you how.
A humble Indian guy became a barber. He was good at his work and slowly gained prominence in his field and was going steady till “ They” came to him one day. They now sold their “dream” template to him, as they do to several innocent businessmen. They are the powerful liquidity carriers and dream sellers called Investors. Suddenly he came up with several barber shops, added more through franchise model, added top line to his business, did a brand valuation and voila was ready for an IPO ( initial public offering or share issue ) of 600 million Indian rupees. His name is Javed Habib. God knows about the IPO but his dreams still live on as long as some private investors keep coming in and out of his balance sheet.
A small retailer of flavoured milk in Delhi had these investor visitors one day. From selling nice fresh Delhi milk in several flavours, he has now become what we call “Keventers” today. Valued recently at 1100 Indian crores.
By the way if you sell a single finger on your hand for 1 million, both your hands are valued at 10 million and the entire body at 1000 million, this is how “Value” is decided these days.
So several businesses, which needn’t have any scale in themselves, are scaled up through liquidity. Barber, milk seller are examples I have used above. But the real issue is that today, with this becoming common knowledge to all, most businessmen have started to dream this big valuation theory, forgetting that hot money that investors carry can pull down the business if we dont focus on what the business needs and do what the investors need. Let me give an example:
Indian Banks.
The banking story is such that investors earlier took “Loan Growth” as a parameter to judge a banks performance and valuation. So banks stopped seeing what needs to be done with their own banking business and rather wanted lofty valuations for themselves and their owners for which they incessantly went on lending lending lending to match the criteria of the investors “ Loan Growth Valuation Theory” Now, because they didn’t do what the business needed, which is loan disbursement diligence, suddenly we have a banking crisis. Look here what happens, the same investors suddenly pull out the hot money from such banks and deploy it to banks where there is lesser loan growth but asset quality is good. Which means HDFC bank is the clear winner because it never went into the wholesale loan business inspite of the world doing it at the cost of its own growth. It did what the business needed and here you are today. India has a 12 lac crore banking NPA crisis. So see how investors changed their parameters overnight, This is the caution that businessmen need to take.
Work for the needs of the Business and not the Investors. They will follow you as long as your business is right. Never forget this mantra ever. You don’t chase investors, let them chase you.
In our logistics field, the investors have made “top-line” as a parameter today. In E-commerce and logistics, they say, profit is not important, top-line is everything. And we are all swayed by the glamorous stories of loss making dot coms who have sky high valuations. Logistics companies having 3-4 % PAT levels but market caps decided by top-lines. Top companies have even given internal long term messages on “top-line” sales like 2 billion ( those who know will know which company i am referring to).
To aid this top-line growth, balance sheets are being loaded on the debt side. Equity is being diluted. Bad customers are bought into the system. Systemic risks are created due to easy terms to customers. The party is on and the valuations are on the books and exchanges. But I can assure you that every businessman true to his heart will never like it deep within him. He knows well that what he is doing is not good for the business, its only good for his valuation. The parameter given by the Investors. Let him not forget that hot money has no loyalty to anyone. Be loyal to your business and its goals and do what is needed to be done. Not what they want us to do. I am sure the day is not far when all eyes will open and the parameter changed to : Bottom -line” Till then, keep swimming.