Markets as Menaka
In one of our reviews in Netcore after we had failed to show progress in our international foray, one of our Advisory Board members asked: “Why are you chasing Menaka?” Seeing my puzzled look, he said, “Are you really serious about your international efforts? Or are they just so some of you can travel abroad periodically? Right now, you are chasing Menaka – it’s an attractive distraction.” Since that day, the phrase “Menaka – attractive distraction” has stuck with me.
I was reminded of that recently when I got a call from an investment banker saying that the markets are very hot and it would be a good time to do an IPO soon. Listed stocks were rising rapidly and trading at very high multiples. So, we should also take advantage of that. I listened to him and I thought to myself – our business fundamentals have not changed. We still need to deliver consistent growth. A PE of 50 or 100 would be very difficult to justify for the growth we had. Instead, they would probably distract us from the core task of building a solid business with long-term growth.
Public markets are a very different ballgame. They can create their own dynamic – as the stock rises, the temptation is then to do acquisitions or a QIP issue to raise more capital to justify the high price and accelerate growth. While some companies have pulled it off and built their model around continuous acquisitions, I did not think we were ready for that. In that sense, what the public markets do were a distraction – seeing the ups and downs of the stock prices daily would create undue pressure on us and also possibly push us down a path we were not fully ready for.
What the Nasdaq and BSE Sensex do is irrelevant to your business. Technology makes it so much easier for us to be aware of what is happening worldwide. Awareness is good, and in fact important. But entrepreneurs should not become obsessed with the markets. Focus should be on the business. Even if one wants to list on the public markets, it is an event which is likely to be a few years away. What the market will be then one does not know (or care about) at this point of time.
Too often entrepreneurs think of exit strategies (IPOs and MAs) even as the business is being built. This is the wrong approach. Build a business to keep, to manage forever. The business has to be something which makes you wake up every morning with excitement. One has to feel that the business can provide that joy – only then should one consider starting up. Exit strategies and wealth creation are incidental and not controllable by the entrepreneur. An IPO when it happens is just another milestone – it should not become an obsession. Once an entrepreneur takes in external capital, the increase – so that should be only done once there is clear visibility for future growth irrespective of circumstances.
So, watch the markets as one would watch a cricket match. Build the business right. There are no shortcuts to creating an institution that will last forever.