Old chums meet is a lot fun. I look forward to it especially after delivering up on weary assignments. Last weekend I met up with a couple friends from college days and we had a go at a nearby watering hole. We caught up on a lot of things but given our age and times, it centered mostly on our careers and life in general.
They all envy me. No office policy enslaves me, no boss to rankle me. I decide what to do, how to do, every day. I am at liberty to pick and choose my clients. I operate singly and have a home office for added comfort. No long and tiring daily city travel. A very lucky man – as they see it!
While I have some of those liberties, my hassles are more from a business angle.
Lack of institutional steam: Clients want big names. They are not ready to suspend their disbelief that individuals are capable of driving PE deals. My first 15 minutes are invariably spent on convincing them that even in big firms, they operate as silos. PE firms have no problem. In fact they are kinder because I am available 24x7x365 as opposed to big firm executives that stick to workdays. I now even get tipped by them on deal prospects over after dinner chats. But I lose deals as well for this apparent old fashioned one-on-one work model, that some see as lacking in glamour.
Knowledge is a curse: Before approaching any client, I do a complete top-down and bottom-up research of its business and its industry. Then I compare with global and local peers, last few transactions done by others, inter-firm comparison, cyclical nature of industry and apprise myself of its prospects in the short, medium and long term. This knowledge often is a baggage. I give presentations of case studies why a client should do a deal only after he goes a few notches up over competition that could be easily achieved with some minor tweaks to his operations. Clients are desperate sometimes to get into a transaction that is clearly against their interests. Wary investors seize this moment and offer pittance seeing the client’s level of desperation. A couple weeks later, I get enquiry from another investor for that price I had indicated earlier but the deal is no longer there. The client had sold out in a hurry.
Dilution issues: In India, majority holdings in most enterprises are held by one or two families, sometimes over generations. It takes a lot of convincing to explain that it makes sense to cede control if it entails holding 40% stake in a Rs.100 crore ($25 MM) Company than holding 100% stake in a Rs.25 crore ($6 MM) business that took generations to build. Believe me, I’ve lost a lot of deals on this count alone. Sometimes I get excited seeing their successors returning to business with advanced B-school degrees from Wharton or Harvard. But after a couple years, they go the elders’ way instead of turning the elders around.
Valuation mismatch: “Big firms can fetch us better valuations”, clients say. I tell them “go try”. I follow up after a couple weeks, status quo. I pay another visit with hopes of getting “defogged” signal after illusions get dispelled. Some do come around. Others settle for big firms for the same or lower valuation than I had indicated, grudgingly bearing a 4x fees than what I had quoted.
Does it read like a sales pitch? So be it. Who can stop me?! 🙂