World is awash with capital, no better time to be an entrepreneur: KM Birla

World is awash with capital, no better time to be an entrepreneur: KM Birla

"Trusty old concepts like cash flows and gross margins will guide behavior and actions," Birla added on valuations.

Aditya Birla Group Chairman Kumar Mangalam Birla underlined the importance of gratitude in his note. Aditya Birla Group Chairman Kumar Mangalam Birla underlined the importance of gratitude in his note.

In a heartfelt letter ruminating on the year gone by, Aditya Birla Group Chairman Kumar Mangalam Birla has said that the exigencies of the pandemic have pushed the boundaries of innovation. A world where traditional rules didn't apply, freed thinking from its conventional shackles. As a result, the billionaire believes that the world is staring at an extraordinary decade ahead. 

"The world is awash in capital and there has perhaps rarely been a better time to be an entrepreneur, as everyone from angel investors to the public markets line up to back ideas," Birla wrote in a letter which the company put up on its LinkedIn page.

However, the 54-year-old business tycoon also observed that competition for investment opportunities and the Fear of Missing Out (FOMO) has driven up valuations of many fledgling companies to stratospheric levels.

He stressed on the fact that high valuation and business longevity will automatically follow for sustainable and successful businesses that generate tangible profits, prosperity, livelihoods quarter after quarter. 

Birla's statement comes against the backdrop of businesses enjoying high valuations despite not generating profits. For example, two start-up IPOs of last year had both raised huge funds through the primary market despite not charting out a clear path towards profitability.

Birla wrote that at some stage unit economics will have to matter. He added that "trusty old concepts," like cash flows and gross margins, will ultimately guide behaviour and actions of businesses. "The only sustainable moat is the one based on intellect. Large waves of cheap capital will eventually erode all other entry barriers," he wrote.

Birla conveyed that historically the key question for any new business was whether it fulfilled an unmet consumer need. However, the coin has been flipped now. He added that the hallmark of a new business today is that it seeks to use the brute force of capital, combined with smart technology and operations, to create new customer needs that they did not even know existed. He gave the example of the concept of 10-minute delivery which has taken off recently. 

He noted that the pandemic has made the nuances of supply chains and the intricacies of multi-modal optimisation central to public discourse. He further added that, although efficiency would win in the short term, at the end of the day it is resilience that will translate to value in the long term.

"Near shoring, reasonable inventory holding, multiple supplier alternatives and more sophisticated supply chain solutions are the near-term outcomes from this realisation," he wrote. 

Commenting on the changing economic climate, Birla noted that in India, a generation of entrepreneurs is now taking advantage of the economic reforms of 1991. "The twin-balance sheet problem of stressed loans and over-leveraged corporates is also behind us," he wrote. 

Birla believes that the coming decade will see an upsurge in capital expenditure across many sectors. "I believe, we have upon us a forthcoming decade of Capex Mahotsav in India," he added.

The billionaire added that the private sector is also firing on two engines, the conventional and the new-economy. Birla dubs this as "Double engine Growth". 

In his view, the word "sunrise sector" applies to the entire landscape in India, which includes both conventional sectors like cement, steel, power and auto and emerging areas like digital and renewables.

Birla acknowledged that society today is less bound by hierarchy as more experienced executives are willing to lend their hand to businesses run by youngsters.  "A 20-year-old can build a multi-billion-dollar company, proudly wearing the badge of a college dropout. At the same time, a 50-year-old entrepreneur can build a company in a new space, confident that she has years ahead to see her dreams come to fruition," he noted. 

Birla underlined the importance of gratitude in his note. He stated that gratitude should be extended towards "the healthcare professionals who spent the better part of two years in PPE suits, for the municipal staff who kept civic administrations running, towards the farm and factory workers who kept the economy chugging, towards delivery partners who toiled days on bikes to keep us supplied - and many more."

He noted that he often gets asked how to deal with the highs and lows of life. According to him, answer is "equanimity". "It is an acceptance that both adversity and windfall gains are impermanent. And that real success lies in the quiet acceptance of both. Equanimity helps one make sense of the vagaries of the world with the ability to dispassionately learn from the past and plan for the future," the Aditya Birla Group Chairman added. 

He concluded the note by borrowing a "philosophical insight" from the cryptosphere, which he thinks is unintentionally powerful --  "WAGMI! Indeed, We Are All Gonna Make It!".

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