Tuesday, August 07, 2012

Quality and Profits: About False Starts and Restarts

Start up or acquisition? This is one discussion that features prominently in my daily routine.  It isn't just a theoretical question, but one that I regularly face. As I am trying to work towards setting up a new generation Business School, and navigate my way through various options of raising money, I am told this again and again, that investors love something which is already set up rather than risking their money to a start-up. Indeed, this had made me think and change our strategy considerably, and I have tried to put an acquisition at the core of our strategy and lost some time pursuing one or other businesses to create a platform. After a few false starts, I am at a point of rethink now: I am increasingly concerned the baggage an acquisition will put on our idea that should ideally be constructed as a nimble start-up business, and I am wondering how to get around the challenges of raising money that I am facing now.

I indeed understand where the investors are coming from. The size of the investment needs private equity involvement, perhaps, and these are people who would grow money on trees if they could, but otherwise, they would rather seek and exploit arbitrage. Underlying most investment decisions they make, there is this fundamental belief that money makes money, and nothing else. I may have read too much of silicon valley fiction to think it is about ideas, hard work or persistence, but after spending some time in the conference rooms of private equity types, such faith is running low.

My problem with the acquisition route is that I don't see the value at all. What I am trying to do is to disrupt an industry, something that I believe is broken and in the middle of a change, and aligning with one or the other existing player is expected to slow down, or completely undo, the disruptive nature of the business.  I am amazed by the fact that some of these very smart private equity executives think more of the same is an option, and they see value in acquiring the private sector colleges in the UK, whose business models have just disappeared. It may be that people who are interested in education, by which they mostly mean K12 and not the kind of education we are trying to offer, are trained to think in terms of continuity, not disruption. So far, the only saleable thing in the education market was vintage, and one can't blame investors for trying to buy a bit of that. However, for someone in the thick of it, this is a time to challenge the notions and change the models, and this is why I even thought private capital will make the difference.

However, may be not : My understanding is that the people I am talking to are incredibly smart but blinded by the sophistication of their technique. The feeling I get is that they really believe that every business is reducible to some simple template where everything should be comparable to everything. Their art is of this reduction, which they have mostly learnt from the best business schools in the world. However, they are completely oblivious of everything else, the messiness of the real life business, the everyday social life, the human and emotional factors that differentiate success from failure, and the reasons why a business exist at all, escape their template. They have an underlying arrogance that if anything comes on the way of making money, that can be fixed: Rules can be changed, governments can be persuaded, media can be won over and activists can be bought, everything with a tried and tested techniques, a template, stored in the closet. 

This is a fascinating world I have now glimpsed from outside. None of this should actually be surprising, this is exactly why we have had the banking crisis, the LIBOR scandals and Standard Chartered syphoning money for the Iranians: When money is the only object to measure, it is difficult to see anything beyond it. [That's my problem with the adage - what gets measured, gets done!] However, I am increasingly unsure that this model works for education. My initial pitch that this is a long term business that needs to be built was greeted with the affirmation that the education business is flush with cash. Again, the rose-tinted vision that I had that the investors looking into education are in it for any greater purpose was swiftly dispelled.

Whether or not this gets my project off the ground, this sure helps my enquiry - into the models of For-Profit Education that can also deliver value to its students. Indeed, despite my lofty sentiments about businesses being there to solve social problems, the point of For-Profit is profit: It may come from creating education solutions for the students, but only through exploiting arbitrage, reaching out to students who the public institutions can not serve, or buying out the public institutions which have fallen out of favours and run out of funding. It seems that the disruptive ideas about education, of newer forms of institutions and of transformational models, which is not just about converting non-users to users but creating success where none exists, have to come from outside the realm of For Profit enterprises. In a sense, it shouldn't be surprising that the For Profit Education in United States and other places are not at the sharp end of educational innovation: The endowment funded institutions generally are. Despite my scepticism about mandatory philanthropy, which some countries seem to want to impose on education businesses (like India, where only not for profit institutions can offer Higher Education), this is my deja vu moment, the realisation that my goals may be best served by adopting a different approach, and a different model, to the job at hand. This is also the time to recognise that it is not the money, but the ability to do the work that attracts me. As long as I can stick to this, and wave a good bye to my millionaire dream, I may just seek out another form of getting the job done. 

No comments:

Popular Posts

How To Live

"Far better it is to dare mighty things, to win glorious triumphs even though checkered by failure, than to rank with those poor spirits who neither enjoy nor suffer much because they live in the grey twilight that knows neither victory nor defeat."

- Theodore Roosevelt

Last Words

We shall not cease from exploration
And the end of all our exploring
Will be to arrive where we started
And know the place for the first time.

- T S Eliot

Creative Commons License

AddThis