Making Exponential Money – Build Buy or Break Companies?

“Making more money is a noble pursuit” (anonymous)

For most of my generation as for me, “Pretty Woman” was the defining romantic movie – the corporate head honcho falling in love with the street girl is true fairy tale stuff. But one scene from that movie that stayed on in my mind for a long time, and resurfaced from time to time was when Julia Roberts tells Richard Gere – “so, you dont build anything, you actually break up companies and then sell the parts – like selling stolen parts of the cars”.

I’m sure all my investment banker friends winced at that scene – after all, the shipyard that Gere was “breaking up and selling” was tremendously devalued, and selling it off did make financial sense! Infact, this in essence is what makes for “abnormal returns” for most organisations – buying, selling, piecing together different parts of different companies. My husband’s company – and I’ve seen them for the past 10 years now – have made far more money buying and selling pieces of themselves and other companies in various sizes and forms than they have made by writing software — and they are purportedly a banking software product firm ( a market leader at that!)

I was reading some stuff about “differential accumulation” – which said that companies make exponential, i.e., above normal rates of profits in the following ways – by increasing “breadth” or “amalgamation” – which means hiring or buying out more employees (remember you buy out employees also when you undertake mergers and acquisitions) ; or by increasing “depth” – which could mean you work your employees more (cost cutting is one manifestation of it); or you could increase prices beyond your competitors (stagflation). Whichever way you do it, you essentially leapfrog the “growth stage” of your organisation and create exponential wealth.

But, how do PEOPLE make more money – i mean exponentially more money – abnormal rates of money? I remember my friend Adi – who is a C-Suite exec in a telecom major – coming over a couple of years ago, and saying – “i’m tired of the low ROI on my effort and my brains. Yes, i make much more money now than i did when i graduated from B School (omg, nearly 20 years ago even back then!!!) but i also have many more years of experience and i put in many more much more intense hours than i used to back then — so, its really “sweat” money — i want to now make “sweet money” – extraordinary money!

He looked hopefully at me and said OK, so you turned entrepreneur, maybe you’ll do it! At that point of time, this was laughable (if only i hadnt felt like crying) – my ROI was probably negative! I slept like 3 hours every 48, was completely bogged down with making ends meet ie paying rents and salaries, was earning zilch myself, saw my kids once a week, and they had nearly started calling me aunty!

Over several mugs of of Mallya-brew, we figured it was probably true — entrepreneurship was one of the ways to make extraordinary money. But this unfortunately didn’t happen during the journey as an entrepreneur – but at the exit – so when you sold out, or you IPO-ed. It’s true btw that economic growth of a country/ area is highly correlated to the abundance of small entrepreneurial firms in that geography! The only other way we could think about was – when you traded – i.e. you made money for your company, and by virtue of commissions, you made some for yourself (I still think the roi there isnt high either! – think of the high burnout rates)

Soon after, i was visited by another entrepreneur in the same space as my company was – this was a potential investor so we were being nice to him. We weren’t quite in the sell-out stage yet, so he was doing a bit of selling himself about why we should consider joining with him and his company. He said – you guys run a cool operation here – i can see it. On your own, you will achieve your 30 – 40% CAGR over 5 years – you will make your 30% EBIT (yep, we were in the KPO space – highly profitable!) – you may even sell off and make more money. But then, he told us about his co-founder – “Rishi is one of the few people who can do this “funny money” thing – ie, he can add 2 and 2, and make it 10, nay 20! and THATS how you will make “abnormal money” – he was again, a-la- Pretty woman, referring to deal making really – the ability to break up pieces/ structure deals differently, add non traditional pay offs, and hence catapult the company to non linear growth phases.

Its another matter that we did plod on doing our 28 hour days for another couple years after that. Even at the end, when we did sell, i dont really think we made exponential money – if you compute opportunity costs of the 8 1/2 years of low/ no salary @ 28 hour days, we probably didnt even break even.

But, as i reflect on those 8 years, i think i’m much richer now than i ever was – i touched nearly a 1000 families (amongst all employees, vendors, partners); hopefully made their lives richer (well, they all got married/ had babies/ bought bigger cars/ bigger houses 🙂 ); i built an asset in a space where none existed- outsourced social media analytics; i laughed/ cried/ swore/ failed/ tried again/ thumped backs/ celebrated…and i did, in my own small way, make a contribution to society!

So, in answer to the original question – can you make abnormal MONEY if you are entrepreneur? maybe…
can you create abnormal CAPITAL (human/ social/ mercantile) if you are one? Oh yes!

Ask Richard Gere – as he went climbing those stairs in pursuit of Roberts with flowers in his teeth!