…..is a bad idea.
There are far too many things we do not learn in Business School (or any other school) that are learnt later the hard way. When I first interacted actively with Dada, as I shall call him, I knew that two of my classmates, who were going into the stock broking business with him, had made a big (very big) mistake.
Dada was (and, unfortunately, continues to be) full of himself. There is no doubt that he is a smart fellow, knows his Poisson distribution from the bell curve or onion peel, can pattern a technical analysis out of a cow’s random burps and make a presentation on the random walk theory that will stone a professor (but have a somnific effect on the audience). On campus, I had stayed away from Dada, but we now met often, as he lived in a bachelor pad in Indiranagar with other classmates, one of whom was a close friend.
A tall, generously built fellow, with a smile (that superior knowledge of the Poisson distribution always endows) and an infectious enthusiasm for anything to do with the stock market, he always dominated a friends’ conversation. What made his company particularly tiresome were his paens to his three loves - I, me and myself - never ceasing to advertise his proficiency. This made me step back and question the friendship – he didn’t, I reasoned, need friends, he needed an audience.
After a year and a half at a dead end job in Bangalore, Dada mooted the idea of starting a stock broking firm in New Delhi. It was late 1992; Harshad Mehta was on a roll, the stock market was ringing away and all was right in the best of all possible Worlds. One evening, there were five of us sitting in the bachelors’ pad, amidst a sea of stock market reports, magazines and dusty newspapers (that never failed to induce a bout of sneezing). I watched his voluble persuasion - a sales pitch to the gang to join up and start a broking company - affect two vacillating classmates, while the third (the friend I was close to) stayed unmoved. He spoke about the Tata Steel Secured Promissory Notes with a conviction that would have done Newton (or JRD) proud. Research was sniffing out the little gem, he intoned, not re-establishing that a donkey has two ears. Dada had his way; the two came onboard and another classmate joined later.
The company began with much promise. This was actually its problem, for it promised much to all those who chose it to manage their wealth. Dada, as the team leader, had the self-anointed role of the Brains Trust, the Bright Ideas Guy and he backed his ideas with Other People’s Money (that you could christen, OPiuM). This was taken a step further when Dada began to trade on his account – using savings or personal loans to buy shares in his own name.
Now, the problem with the markets is this: when things are going well, a monkey can make money, as indeed it did in a famous experiment years ago, for a rising tide lifts all boats. If you get in then, your success goes to your head and you get in deeper, playing for higher stakes, taking for granted that the music will not stop. This phase is, in the sophisticated language of the sceptics, called the Bigger Fool theory - you are buying in the hope of selling at a profit to a bigger fool.
The music does stop. Always.
A couple of years later, the markets had crashed, the broking business was in shambles, huge amounts were owed to all and sundry, and the fallout began as the company disintegrated, leaving one of the four (not Dada) holding the pieces. Friendship can scarcely outlive such trauma.
Yet, you might ask, how is this different from a situation where the four came together as business partners and not, originally, as friends? Would the outcome have been different?
If, I contend, they were coming together as possible partners (and not friends originally), the three would have been careful before saying ‘Yes’, sizing the others up and listening to their inner voice of caution. Friendship makes ‘No’ much more difficult and its easy to assume that all will be well tomorrow. It gets worse – friendship leads one to believe that the friends-cum-partners will agree on everything. Disagreements, as there always will be, become personal. When, to protect the friendship, a partner keeps quiet, the ‘lose-win’ result does not go away; it lingers beneath the surface. Doing business with those related to you, by the way, whom you know well, is just as risky.
An excellent book by Dan Ariely, “Predictably Irrational”, provides more light on all this (you should read it). Ariely notes that there are two norms for all of us : a social norm and a market norm, both of which don’t really go with each other. Any indication of money moves people (irretrievably) to the market norm. Say, you are a young male software techie who lives by yourself in an apartment complex. An elderly couple live next door : their son is about your age and he lives in the US. The couple tell you that they miss their son deeply; they are keen to build a friendship with you. As you become friends – the chat in the lift, the odd favour to each other including setting Skype up for them – the lady offers graciously to provide you dinner on weekends, cooking a bit more than they need. Home food!
Must you offer to pay?
Ariely says ‘Don’t’. If there is a cash exchange that results, the norm changes significantly to market: is the food good enough, you ask? Is he paying a market rate and what’s my margin, she muses? As the questions increase, the arrangement – a win-win otherwise - becomes tricky to sustain. A far better option is to provide her (or them) a gift occasionally to keep the reciprocity firmly in the social norm zone.
So much for theory. But, what happened to the gang of four and to the Invincible One, in particular? The two initial followers had to toil hard to pick themselves up and have just not met their potential as talented people. The One Who Stayed Back learnt his lessons on crisis management realtime and has done a pretty sound job – always the quiet one, when the going got tough, he got going. And Dada? A tribute to his resilience is the fact that Dada continues to provide advice – generally unsolicited – even as he tosses in the sea of the stock market.
Humans, except the good and the great, never learn.
Very interestingly, relationships where business partners become friends work much better. There are numerous examples, but I cannot think of one better than the equation my uncle had with his business partner, Sukumaran Menon, in Kochi – they ran an accounting firm for, hold your breath, about 52 years together, before this gentleman passed away. Along the way, they - and the families – became friends.
A final note :
I made one exception to my rule of not working with friends. When we decided to build a small cottage in our farm in Javalagiri, I had no hesitation in asking Peeyush, a close architect friend, to help design my home. The final outcome has been wonderful – a lovely home, even better friendship. How did that happen ?
While we set expectations and focussed on each other’s strengths, it was his genial, collaborative nature that was the key. You don’t find many like him.
