'Be Long-term Greedy'
Rashesh Shah December 23, 2017
When we started Edelweiss in 1996, we never thought where or how big we would be 21 years later. The only thought at the time was to thrive on the wave of privatisation (which was sweeping through not just Indian economy in general but specifically through the financial services space) by creating an organisation that was built on the ethos of quality, culture and strong risk management.
Initial Setbacks, Lessons for Life: When Venkat (my co-founder) and I started out, we were clear that we had to have capital of `1 crore to start with, primarily because that was the net-worth requirement for a category one merchant banker licence. We scraped through our savings, other people pitched in with small amounts, and I even convinced my parents to mortgage our house to raise the one crore finally! As luck would have it, the day we were ready with the application, SEBI came up with a notification that increased the net-worth requirement to `5 crore. It was a devastating blow - it was as if the backbone of our entire business model collapsed in one split second. It was our first exposure to what would be a series of setbacks.
In retrospect, that was one of the best things to have happened to us. Such a big setback, that too at the onset, taught us the importance of being able to find opportunity in adversity. Deal-making was core to us; so, we started working with new-age entrepreneurs who were coming up in large numbers at the time. We started helping the start-ups raise funds via the non-IPO route, by tapping PE and VC funds, which was then a rarity in India. As there was hardly anyone else focussing on this, we established a strong presence and quickly became the market leaders.
Beyond Business: Even then and for the next few years, we were very deal-oriented, jumping from one transaction to another. We were doing well, and that was all that mattered. Revenues jumped from `28 lakh in the first year (1996) to `11 crore in 2000. Things were looking great - the focus was on the here and now and to maximise profitability soon. It was not like we were not thinking about the future. We were and with big plans around it, but we could not look beyond the next three to four years. We were building a business but not an organisation.
However, the biggest jolts come when you least expect them. The markets turned bad, then 9/11 happened and all of a sudden, everything came to a standstill. Some concerns were raised about whether our growth was sustainable and how it was probably a flash in the pan. We did some serious introspection regarding our growth, plans and how we wanted to shape the Edelweiss journey going forward. To my mind, that was the period that defines the Edelweiss of today.
That was when we really started focussing on institution building. The mantra was not to run after short-term gains but to build an organisation for the long run - to be "long-term greedy", a term created by Goldman Sachs legend Gus Levy. Being greedy does not mean subscribing to the Gordon Gekko school of thought although a part of it does ring true. Greed pushes you to try harder, look for ways to improve and take an evolutionary step, which helps the society as a whole. Greed is neither good nor bad - it just exists. As long as it is tempered with the ability to look at the bigger picture and keep the interests of the larger society at heart, greed is good.
However, greed can be both short term and long term, and that is what sets apart the good from the great. Being short-term greedy might not be harmful, but the opportunity cost, in the long run, is certainly substantial. Moreover, the short-term focus may generate immediate payoffs, but the sustainability of those payoffs is always a concern. But being long-term greedy means you are always planning for the future and not just the future that is five years ahead of you. When we started out, thinking long-term meant looking at the next five years. Today, I can sit and visualise the next 20 years and start planning accordingly. As Jeff Bezos says, "If we have a good quarter, it's because of the work we did 3, 4 or 5 years ago. It's not because we did a good job this quarter."
Once our thought process was clear, I decided it was time to micromanage less and focus on the bigger picture - creating an organisation that could be sustainable and stable, yet continue to see strong growth traction every year. It was like going back to B-school - reading management gurus like Peter Drucker and Jim Collins all over again and learning something new with every reading. A lot of what Edelweiss is today has been moulded by my reading during that phase, particularly the two masterpieces by Jim Collins - Good to Great and Built to Last.
Culture and Human Capital: As we started charting out the various building blocks to create an organisation, I realised that we needed to hire more and more people. And not just smart, intelligent people who would be diligent in whatever they do. We wanted people who could fit into our culture - people who had an entrepreneurial mindset and could stand up and take responsibility. At Edelweiss, we have always felt that we would hire people who we felt were a great culture fit and could scale up as and when the opportunity would come. With the way financial services in India have evolved, the opportunity has been there, and this has helped us elevate our leaders over the years. These are the people who lead most of our businesses now, having evolved and grown with the organisation.
Managing Four Vectors: Over the years we have realised that essentially, the building blocks revolve around managing people, cost, risk and customers. As long as these four pillars are well-entrenched, building an organisation for the long term will take care of itself. Of course, there will be challenges along the way. But if we can maintain a good hold on these four vectors over a sustained period, growth and sustainability will come.
Being long-term greedy has been one of the driving mottos within Edelweiss as we have grown over the years. The way we have figured it out, it is a confluence of people, client, and risk and cost management. Culture is the connective tissue that binds all of these together. At Edelweiss, this has held us in good stead over the past 21 years, and we do believe that this mantra will continue to work for us going forward.
By Rashesh Shah, Chairman and CEO, Edelweiss