The Pseudo Entrepreneur

By Jayaram Rajaram

Two years ago I was having dinner with a first-generation founder and CEO of a company in the wireless and mobile application space. This person happened to be a friend of an acquaintance of mine. This acquaintance had invited me to meet this dashing CEO who was ready to scale great heights. I love meeting people, so I gladly accepted his invitation for dinner at an upmarket fine-dining restaurant in Bangalore.

After exchanging pleasantries, this CEO started off about how he hates family-businesses despite knowing that I came from a family business background. I decided to let him air his opinion as everyone has opinions and I love to get perspectives. I played on and asked him why he didn’t like family businesses? He started off by saying family businesses lacked professionalism and sons, daughters and grandsons and granddaughters of the founders took over whether they had the qualification to take over or not. There was no meritocracy in the system and heirs didn’t know the difficulty of starting off and the value of money etc. He spoke for a good 5 minutes on all that he felt was bad about family businesses and 2nd and 3rd generation entrepreneurs.

Once he finished and after giving him a patient hearing, I politely told him that I had two questions for him. With his permission I asked him (Jayaram Rajaram “JR”)  “How much money have you invested in your business?”

His response (1st generation Founder-CEO “FC”): “USD 5 million”

JR: “That’s great. Where did you get this money from?”

FC: “I raised risk capital. It was a really tough process you know.”

JR: “That’s great. Did you invest any personal money in this venture?”

FC (Getting a little serious): “No, I’m putting in sweat and have run from pillar to post to raise this capital to pursue my dream. Unlike a 3rd generation entrepreneur like you who has it easy and all set up!”

JR: “I get it. I can imagine that it would have been a hard process to raise this capital. By the way I would assume that as an entrepreneur you are drawing a very small sustenance salary considering your company is currently burning cash and is on investment mode?”

FC (Getting more serious): “Yes I have taken a significant cut on what I used to earn as an employee in the CXO cadre in my previous company”

JR: “I know it is a personal question , but to make this conversation more interesting may I know how much this sustenance salary would be and what your ownership is in the company?”

FC (Very uncomfortable now): “Hmmm I’ve taken a 50% cut from my previous Rs. 20 lakhs per month package (USD 36,000 approx) as an employee to support the startup. I own 45% stake in the business, considering I am a co-founder.”

JR: “I’m not even going to ask you about your perks. Now let me tell you why accountability is much better in family managed businesses”

So I explained to him that we as a family had personal money invested in the business, and most of us (Partners and family members) hardly took anything out by way of salary, and profits were normally reinvested into the business. Since it is our own money, we do have the privilege of being able to draw from our current accounts on need basis, but we do not have other people’s money to pay ourselves fat salaries or spend without thought when the business is making losses or going through tough periods. In fact any debt is based on asset collaterals that belong to us. In effect, if the business were to suffer financially, the family suffers. So, we couldn’t behave like today’s Pseudo Entrepreneurs and many (not all)  ‘Professionals’ who pack up, go back to employment or raise another round of risk capital and start another business with absolutely zero accountability. This silenced Mr. Founder- CEO and Pseudo Entrepreneur. It may be worthwhile to note that Mr. Pseudo Entrepreneur’s company went bankrupt and no longer exists as I type this blog post today. I do not believe in taking names and publicly embarrassing people, so I shall keep the individual’s and the company’s name confidential. My objective is to drive home a point to the entrepreneurial community and young aspiring entrepreneurs and not to pass judgement.  I also do not say failing is bad. Entrepreneurs DO fail many times before they succeed and that is GOOD, but what I question is the entrepreneur’s Value-System. Failing while trying to create value earnestly is very different from draining your own company of its resources and walking away with no guilt.

I’m not for a second saying that none of the 1st generation entrepreneurs backed by venture / PE funds function with a solid value-system, but the numbers are dwindling. There are of course many 2nd and 3rd generation entrepreneurs eroding value big-time too.  Every B-School student wants to eventually become an entrepreneur. If youngsters think being an entrepreneur is cool and you make loads of money easily, I tell them to TRY AND BE A REAL ENTREPRENEUR. I tell them that they have to be ready to go through humbling periods of failure and literally be ready to be on the road with just their undies on. Real entrepreneurs start with their own capital (However insignificant it may be), real 2nd and 3rd generation entrepreneurs will have to learn not to be arrogant and realize that it is as hard to run a company that has been handed to you in crazy markets of today. I say this very humbly as I have failed many many times already and it hurts; but entrepreneurship is a way of life for me and I LOVE IT. I just love waking up and going to work, as my brand Bril is my baby.

I’ll sum up by saying VCs and angel investors should STOP investing in these pseudo entrepreneurs who pay themselves and their teams obscene salaries before the company turns a profit. These pseudo-entrepreneurs are no less than THEIVES who take away and erode value before adding any value. The situation is getting worse today because these PE funds are being handled by employees (Professionals) who are playing with someone else’s money! You get the drift? THERE IS ABSOLUTELY NO INTEGRITY OR ACCOUNTABILITY IN THE ENTIRE CHAIN!?!

I will leave you with a brilliant graduation speech by Prof. Deepak Malhotra to Harvard’s Graduating class in April 2012, that resonates brilliantly with my thought process (Make sure you pay attention and watch the video from the 17th minute to the 21st minute even if you do not watch the entire video).  Watch this amazing and relevant message for every young graduate and surely for current and future entrepreneurs.

 

About the Author:

Jayaram Rajaram is the Managing Partner of Bril (www.brilindia.com ) and the Managing Director & Chief Dreamer of ELSA Learning Private Limited (www.elsalearning.com / www.brilart.com ). Jayaram writes about his personal experiences that range from parenting to entrepreneurship & leadership.