Published November 7-11, 2020
One of the questions I get asked often is how to maintain a balance between work and life. My short answer is – it is a continuum. There are no sharp boundaries between what we think of as work and what we call life, especially entrepreneurs. For me, work has been my life because I have loved what I do – even through the tough times. The mind cannot switch off if you are running your own business – the subconscious keeps thinking about the problems and solving them. At no stage does this mean that family is undermined – it is just that entrepreneurs look forward each day (weekday or weekend does not matter) to getting one step closer to success, or one step away from failure. The family needs to understand the entrepreneur’s life and passion. Without their support, a difficult job can become impossible.
It is for the entrepreneur to be able to work out the balance. Whether it is time with the spouse or the kids, sacrificing family for the sake of business success is not worth it. No amount of financial success can replace loved ones.
I was taught this by my wife, Bhavana, shortly after the birth of our son. Abhishek was born 12 years after marriage, after 5 years of IVF treatment. (I have written about this on my previous blog.) I was 38 years old when Abhishek was born. I had spent most of my life as an entrepreneur – and the long hours that came with it. Even after Abhishek’s birth, my office hours did not change – 9 am to 9 pm. One day, a few months after Abhishek’s birth, Bhavana sat me down and said, “I can raise Abhishek on my own; I don’t need you for that. Just because he is sleeping most of the day doesn’t mean that he cannot feel and understand. You can continue working the way you want. But one day when he grows up and you find that he doesn’t have the personal relationship with you, please do not blame him or me. These first years are very important to build that bond. Once he is older, you may have the time, but he will have moved on. It is the early years when that connection has to be forged. One touch at a time, one day at a time. The choice is yours.”
I changed from that day. I started coming home early. I stopped all discretionary travel till Abhishek was three years old. I created a new balance between work and family. Today, 15 years later, as I see the bond between Abhishek and me, I always remember Bhavana’s words that changed me and my approach to work.
Create time and space for family. They are not just another “meeting” to be scheduled in the calendar. They are the only ones who will also experience your highs and lows – perhaps even more than you. They are the ones whose unquestioned support will push you to greater heights. Make sure you are always there for them.
I was talking to a colleague recently. We were discussing a particularly knotty business problem. I said, “We need to create more options. There has to be a different approach to problem. What are the different ways we can achieve the same end – ones that are not obvious and that we have not considered?” I told him a story from my past.
When building content portals during IndiaWorld (1995-1999), I did not know which verticals would work – I had a general sense, but wasn’t sure. During those years, I launched 13 properties – samachar, khoj, khel, bawarchi, indialine, dhan, itihaas, manoranjan, and so on. They covered many different verticals. 4 of them worked, 9 did not. I would never have known for sure had I not experimented and tried out the different themes. In a sense, I created “options” – the cost of doing each was low, while the upside of success was very high.
I have seen many leaders box themselves with pre-conceived notions of what will work and what will not. As a result, they constrain themselves at the early stage. This could be because they don’t want to waste resources. More often that not, they are worried about the consequences of the initiative not working. So, they take a defensive approach from the beginning itself.
An entrepreneur needs to do the opposite. Early life is all about experimentation in search for what is now called “product-market fit.” It is about trying a few different approaches to see what will work. Even now, I constantly think of how one can expand the options that are available. These can come through conversations with people outside our domain – people we would typically not speak to and whose worldview is very different from ours. So, keep the mind open to new ideas. It is this continuous search through creating options that creates the new openings and the big opportunities – but you will only know it when you actually do it.
Today and Tomorrow
As a business leader, we have to take care of the present – revenues, customers, cashflows. And yet, if we don’t look ahead to the future, we risk losing out on the turns that the road can bring. We do this reflexively when driving a car. We are watching the car in front, the ones at the side, glancing at the rear view mirror to track movements behind us, and also observing the traffic movements much further ahead. This is what we need to do when running a business – focus on today and also build for tomorrow. As the business matures, the time horizon for the future will also become longer. Initially, you will look ahead a few months, then a few quarters and finally, a few years.
A new book by David Cote, “Winning Now, Winning Later” discusses exactly this. From the introduction:
If you run a team or an organization of any size, you face a seemingly intractable dilemma each day: Should you focus on making the numbers, often at the expense of the company’s future health, or should you prioritize longer-term strategies, your quarterly or annual performance be damned?
Most corporate managers and executives choose the first option, running businesses quarter-to-quarter to the detriment of long-term performance. Leaders might value broader objectives like sustainability, competitiveness, and growth, and wax eloquent about their commitment to these long-term goals, but when called upon to allocate scarce resources, they focus on the current year’s plan and do what it takes to meet their numbers. In their view, they have no choice: their job depends on pleasing bosses and shareholders today, not tomorrow.
The notion that there is no way to pursue long- and short-term goals at the same time, and therefore leaders have no choice but to embrace short-termism, is one of the most pernicious beliefs circulating in business today… Short-termism has become so rampant that influential leaders are speaking out against it, with some advocating that we relax the reporting requirements on public firms so that leaders don’t feel such intense and constant pressure to make their numbers.
We can’t regulate our way to long-termism—the problem is too complex and deeply entrenched. Instead, we need a comprehensive mind-set shift on the part of leaders and managers at every level. Somehow, we’ve convinced ourselves that we can only invest in the future if we let short-term performance tank. But that’s not true. Strong short- and long-term performance only seem mutually exclusive. As a leader, you can and must pursue both at the same time. Unless you do, you and your team or organization will never reach your full potential.
He then outlines three principles of short- and long-term performance: scrub accounting and business practices down to what is real, invest in the future, but not excessively, and grow while keeping fixed costs constant.
This is sound advice – and even more so for entrepreneurs. Think of the cars around as competitors, and the mountains ahead as the landscape. Even as you keep an eye on competition, make sure you are watching the changing scenery. In internal reviews, set aside time to discuss the long future. Some bets will not pay off immediately but need to be started now to make sure you are not caught unawares when the future arrives.
The One Number
I was recommended William Thorndike’s book, “The Outsiders”, by a friend about 18 months ago. It is one book that I wish I had come across much earlier in my life. The book answers a simple question: “What makes a successful CEO?” Thorndike’s answer: “it is the returns for the shareholders of that company over the long term.”
Explains Thorndike: “The metric that the press usually focuses on is growth in revenues and profits. It’s the increase in a company’s per share value, however, not growth in sales or earnings or employees, that offers the ultimate barometer of a CEO’s greatness. It’s as if Sports Illustrated put only the tallest pitchers and widest goalies on its cover…In assessing performance, what matters isn’t the absolute rate of return but the return relative to peers and the market. You really only need to know three things to evaluate a CEO’s greatness: the compound annual return to shareholders during his or her tenure and the return over the same period for peer companies and for the broader market (usually measured by the S&P 500).”
The book discusses why this is the most important metric of a CEO’s performance and tells the stories of eight of the greatest CEOs as measured by this number. And key to long-term success is to understand capital allocation. More from Thorndike:
CEOs need to do two things well to be successful: run their operations efficiently and deploy the cash generated by those operations. Most CEOs (and the management books they write or read) focus on managing operations, which is undeniably important.
Basically, CEOs have five essential choices for deploying capital—investing in existing operations, acquiring other businesses, issuing dividends, paying down debt, or repurchasing stock—and three alternatives for raising it—tapping internal cash flow, issuing debt, or raising equity. Think of these options collectively as a tool kit. Over the long term, returns for shareholders will be determined largely by the decisions a CEO makes in choosing which tools to use (and which to avoid) among these various options. Stated simply, two companies with identical operating results and different approaches to allocating capital will derive two very different long-term outcomes for shareholders.
Essentially, capital allocation is investment, and as a result all CEOs are both capital allocators and investors. In fact, this role just might be the most important responsibility any CEO has, and yet despite its importance, there are no courses on capital allocation at the top business schools.
What I like about Thorndike’s idea is that it distils success down to a single, measurable number – with a focus around capital allocation. This is something I have been thinking a lot about in recent months. It is not something I did earlier – because we never had enough capital to invest. Profits made through the years have now given us money beyond the margin of safety which we can consider deploying for growth.
So, spend a day reading Thorndike’s book – even for early-stage entrepreneurs there are many good ideas to learn as they seek to build their business.
What a year 2020 is turning out to be! Coronavirus crept up on us and took over our lives in a way none could have imagined. Businesses have been upended – some have flourished while others have floundered. The health scare has changed buying behaviour of consumers. The switch to online has done in a few months what would otherwise have taken many years. In India, the banning of Chinese apps by the government transformed the fortunes of some overnight. 2020 will be seen as a year of inflection points.
Investopedia defines an inflection point thus: “[It] is an event that results in a significant change in the progress of a company, industry, sector, economy, or geopolitical situation and can be considered a turning point after which a dramatic change, with either positive or negative results, is expected to result. Companies, industries, sectors, and economies are dynamic and constantly evolving. Inflection points are more significant than the small day-to-day progress typically made, and the effects of the change are often well known and widespread.”
Rita McGrath, writing in Fortune in January 2020, says:
Strategic inflection points—changes that alter the taken-for-granted assumptions underlying a business model—can feel sudden. In reality, however, they tend to build up slowly, gathering momentum until a transformative shift becomes clear. Andy Grove, who coined the term, said it referred to change that was 10 times more significant than a typical change encountered by a business.
When these shifts occur, companies tend to fall into three categories. The first are those that have missed the inflection point entirely. These firms often shrink or disappear…The second group comprises those that realize an inflection point is underway and place a huge, last-minute bet on catching the wave…The third set of companies are ones that have placed a number of small bets over time to position themselves to take advantage of shifts when they happen. These investments are in effect options companies can exercise once the new landscape is more clearly in view.
The challenge for senior leaders is: How do they prepare to see an inflection point coming—so they don’t need to make a last-second turn? And how do they bring the organization along into the post-inflection point world?
The Internet in 1995, Apple’s iPhone in 2007, the launch of Jio in 2016 can all be seen as inflection points which led to a 10X change in our lives. And 2020 perhaps upends them all. As entrepreneurs, these are moments of great disruption and opportunity. The impact of inflection points plays out over time, but entrepreneurs who have made the small bets, created options and invested in tomorrow will have a disproportionate advantage over others.