Ep293: Sanjeev Chitre – You Need to Pivot Your Business, Not Change the Direction

Andrew Stotz 00:05
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning. In our community we know that to win in investing you must take risk but to win big, you've got to reduce it. This episode is sponsored by a Stotz Academy which offers online courses that help investors, aspiring professionals, business leaders and even beginners to improve the finances of their lives and of their businesses go to my worst investment ever.com right now to claim your discount on the course that excites you the most fellow risk takers. This is your worst podcast host Andrew Stotz. And I'm here with featured guest, Sanjeev tre Sanjeev, are you ready to rock?

00:50
Yes,

Andrew Stotz 00:52
I know you are because we've been rocking already by Yes. Turn on the recorder. Let me introduce you to the audience. Sanjeev is the managing partner at U group and a four time successful entrepreneur. He has 30 years experience of starting growing and executing liquidity of several major small and medium sized companies. He brings together an integrated team of industry and growth partners to creatively build value for the group clients. Sanjeev earned his master's in science in electrical engineering from the University of Wisconsin Madison, and a BS in Electronics and Telecommunications from the University of Pooh Ney, which I've been to beautiful little Mumbai. So Sanjeev take a moment and just filling further tidbits about your life.

Sanjeev Chitre 01:49
Well, thank you, Andrew, for the opportunity of sharing some of the fun things of life, which looking back, they're always fun, mistakes as they were, as you say it my life, it's quite simple. Right up in India, created went to schools came to the US for education, but wanted to know what entrepreneurship really is all about. And by default of the nature where visas were not easily available, I worked for a small company. And that forced me into understanding more about working temperaments, environments, tribulations of a small company. And that sort of, you know, reinforced my desire to become, as you call something burning in the back to making wanting to be an entrepreneur. And that's how I began the journey of, of the entrepreneurship in the early 90s. And my first company was sort of a learning experience, as I was talking to you about what not to do is to deal with venture capital people. You know, it was I was not the founder, but I worked for a company that was founded and funded by venture capital. And so I'm sure in your, in your interviews, you have a lot of people telling you some of their worst experiences with venture capital, but those are not their experiences only it is just the reality of the world of what venture capital is. And I do speak about that quite significantly in the book. But the fact is that you have to control your destiny. And and how do you do that was the second chapter of the book of my journey, which was starting a company that I took from was less than a million dollars in revenues, took it public, when it was unnecessary million dollars, grew it all the way to $450 million, straight up the curve in four years, and exited it, and the most of what I remember, Andrew is exactly what you are addressing in that, and is, you know, what are the things that you could avoid? Or what are the worst things that you did? And that's what I want to share with you. And thereafter, I thought, you know, maybe quite a few companies. And I thought it's much easier to share, and to enable others to not learn but to participate in a cross communication about the process. What out to do it better. And and and not just complain about it. And so that's that is why I'm so interested in having a conversation with you.

Andrew Stotz 04:43
Great. Well, we're Pat, I'm happy to bring it to the listeners who are definitely looking forward to it. I recall one of my episodes, 235 was with a man named Rand Fishkin, and ran a is a guy who started the company moss, which is a company that's basically SEO related company. And the title of that episode was, don't be afraid to stand up against the growth at all costs venture capital model.

Sanjeev Chitre 05:19
He wrote a book on that. SEO optimization engine. Yes, I

Andrew Stotz 05:23
did. Yeah. Yeah. And he's Yeah, that it made me think a lot about that. Because the venture capital world, for those entrepreneurs that don't know anything about it, and then they think, okay, now it's my time to go out and raise money from the VC fund. It's like saying, I'm gonna go out and pet these tigers, you know, without knowing anything about them, you know, they're not kittens, they're they got their function and their job that they're doing. And when you understand that it's a lot less blood.

Sanjeev Chitre 05:51
What did they also, by the way, Andrew, they also have a science to that it's not just, you know, some kind of ad hoc probabilities, you what happens when you look from the outside. But, you know, part of part of building the value with them, is a choice. And now in today's economy, Andrew, there are much better choices, because trillions of dollars of private wealth is seeking investments directly in the companies. And that is probably the biggest transformation that you are going to see in the next decade. venture capitalist will they do a small amount, yes. But the ability to tap in directly into that wealth, which is a non controlling equity, or a non controlling participation is critical to the process where you are not a number. And you are not a return on investment calculation of a portfolio company, you are a human

Andrew Stotz 06:55
being. And it's reflected also in the number of stock market listed companies in the US just keeps going down. And part of that is the access to capital and the access to the VC capital and private equity. In Asia, particularly China and other countries in Asia, the number of listed companies is actually rising pretty substantially. But I think we're gonna get into more of that. So I think it's good now to share your worst investment ever, since no one ever goes into their worst investment thinking it will be. Tell us a bit about the circumstances leading up to it, and then tell us your story.

Sanjeev Chitre 07:42
You and I talked about

07:43
that. Oh,

Andrew Stotz 07:45
one second, we're gonna have to pause because we got a break up there. Okay, so. So I'm going to read that again. And then and then then just go, now it's time to share your worst investment ever. And since no one ever goes into their worst investment thinking it will be tell us a bit about the circumstances leading up to it. And then tell us your story.

08:04
Yes.

08:04
Okay. Thank you.

Sanjeev Chitre 08:05
So I don't consider, you know, for practical reasons of life, anything as a worst investment, it is the best I did. At that point in time, each one of us does, at that point in time, the best we could the best we know, it turns out to be a misaligned state of existence in something. So if you called yourself the worst, then then then you know, you're only evaluating the result, not the journey. And I focus on the journey. So let me tell you some of the worst, some of the not so right missions that I made. And one of the things about the wrong decisions, Andrew, to you, to your readers, to your watchers is very simple, which is you accept that it was not the right thing to do. And you say, I will never do it again. That allows the world around you to change because and that is something that I will share with you in the story that you asked me to focus on. So in building my first public company, which I said to you, I had five people in the company had less than a million dollars in revenues. And it was in one of the not so desired spaces of the venture capital space, which is semiconductor and semiconductor chip making equipment. And yes, the business was 15 $20 billion. Then I'm talking about the mid 90s. Now and and and and you can see how things haven't really, you know, radically changed but you can feel the power here of what what has really happened. So I took the company public because it Public venture fund, and, and it was five people getting a $25 million valuation. and building a company trying to, you know, act like we are public company holders at that time, we didn't have Sarbanes Oxley. So there was the seal. I burned, I began the company with that stock, we acquired another company, which was 30 times bigger than us, but illiquid. So there is something for your readers here, look at the value of liquidity. That was, that was probably a smart thing. And during that process, you know, the everything read as Oh, the sparrow acquires a whale. And, and when you do that, some kind of an acquisition, of course, indigestion becomes the first thing, right? So, so that in that process, we got through it. And then I was so confident that being Of course, ignorant of what reality was, I was so confident that I began the acquisitions of other companies. And so in my journey from 1 million to 450 million in state of this for years, and I was the fastest growing company, for general Entrepreneur of the Year, you cannot be can't imagine the accolades you get for making stupid mistakes sometimes, but it is what it is. And so in building that I acquired a company, and here is the sort of disaster. So another five companies, the two were fantastic. I mean, they were just claimed alacra, you could say, of course, I was lucky. The other two sort of average, you know, and the last one, if I had to, you know, put it in really rough world, they burned my ass, ma'am, but, but in reality, they really took everything that I could have avoided, and put them into an execution path, because the eagle of mine overtook the rationality of business. And the eagle was driven by the fact that, you know, was not so much it is about me, but a, you know, we have to do something better in forgoing technology. And so we are going to change some of these elements of the disruptive world that you see now, and I'm going to conclude with what could have been different but in changing, we were going to reduce the cost of materials, by reprocessing them in real time on something like that. And, and I outbid some other buyer in that, because I thought it was so critical that I have and create this technology. Of course, it was a great deal for the seller, if the company that would normally work $12 million, I paid $30 million for it, you know, and, and that and obviously, being responsible for as, as the chairman, CEO, or founder of the company, now I was responsible for making that happen. And I spent the next three years in trying to drive what should have been a mistake, the first day should have made the mistake the second day, to make prove that my thought process was correct. And I decimated the value of the shareholders in that particular investment. The reason I see that it's important for your readers is because we tend to forget that execution has to be risk mitigated and like you just said, right, but nothing about this was risk mitigated, it was purely driven maybe through ego but underlining I am going to change this and then you pour good money after bad money. And and and three years go by the customers are complaining, and of course, you're taking the you know, the rap on the other side of the business, because you can deliver on this side of the business. So my suggestion, my thought process to your readers are absolutely look at this in a very, very practical way. Because in today's world, if we can define a risk mitigated execution, then do not let the ego get into the way and I read it, I was wrong. I would never do it again. But it was a loss of nearly $100 million over the next three years of trying to change. Of course, fortunately, the other side of the business did extremely well. So You know, we escaped through the process we build, we sold the company for a billion dollars. But I could have sold it for a lot more. And that's what I was trying to say, looking back at it, this package may look like a success. But to me, it taught me tremendous value, which is, you know, do not let a, you know, some of these kinds of revolutionary disruptive changes that we all entrepreneurs want to make happen, unless you have a risk mitigated path of execution.

Andrew Stotz 15:36
All right, so tell us how would you summarize the lessons that you learned from this?

Sanjeev Chitre 15:41
Well, the first lesson that I learned from this is, if you get the right people together. Because I was driving it, the ball, you know, because of my success. In other The ball was letting me you know, take a look at these kinds of things. There were enough signals around the people in my team to saying that we shouldn't be doing this. So I, I should, the first thing is, you know, take a look at what the overall team is saying, respect their decisions, or respect their feedback. Second is, don't get involved in a competitive landscape, where you have no knowledge of what that outcome is going to be, I did that I thought I could change the primary purpose of the company from from A to B, because of the market position I commanded. And that I would never do that again. And lastly, I think it's very important to realize that I did not cut my losses early enough and move on, I put good money after bad money. And that is some of the mistakes, a lot of us as entrepreneurs do. So those are my three mistakes.

Andrew Stotz 17:02
Got it? Okay. So let me summarize a few things that I took away from that. Well, first thing I wrote down when you were talking was, you know, looking back at our mistakes, and I think for the listeners out there, this is a really, really important message. And that is, I made the best decision at the time, with the knowledge that I had, and the tools that I had. And I think that that's what I wrote down when I listened to you talk about the way you look at the past. And I think that that's a great lesson for all of us to take it easy on ourselves. But what you talk when we talked before, we talked also about hindsight bias, you know, looking back now Oh, it's you know, so it's so clear, but it's not that clear when we're in the middle of it. So take a break, take it easy on yourself. The second thing is something that most people never really even think about is the value of liquidity, making an investment investable for institutional clients, for other for all the people that want to invest in it. And particularly here in Asia, a lot of businesses are family businesses. And when they want to list on the stock market, what they want to do is put the least amount of shares out in the market, which means there's no liquidity. And then you end up with a company that's really not a publicly, you know, it's not really a public company, so, and liquidity has value, I have a story of back in the old days in Thailand, there was a company that a guy that had two companies, he had a company that was a hotel business in a company, it was a restaurant business, and he merged them together, I was just a young guy. And I didn't really understand the meaning of this. But he later built this company into a company called minor group. And he built it into a very huge company in the market. And that's when I realized that the power of liquidity in the accumulation of assets, there is a important part role that that plays. The other one is diversification, which you know, of course, you were focusing on your worst investment ever. But you were also saying how there were other investments in your portfolio of companies that did well, you know, two that did very well, and two that were kind of average. And already that's a pretty good, that's a pretty good batting average right there. Because normally, it's like, one out of 10 does really well. And the rest of them, you know, don't do that. Well. But the point is, is that with diversification, you're never going to get them all right. And therefore the trick is to get a couple of them right. And for the ones that you get wrong. Of course that brings you down to that last point, which is what's your exit, you know, what's your plan for cutting loss? When I look at investing in stocks in Asia, one of the things is I look across a lot of different markets. And it's very difficult to know the drivers of each market at times and therefore a stop loss for investing can make a lot more sense than it does, let's say investing in the US as an example. And the last thing I take away from your story is the idea pivot, the very common sexy word to use in the world of startup. And that is, well, we're pivoting. Well, be careful when you talk about pivoting. Generally, you, when I think about pivoting, I'm thinking about a two legs and one is in the ground, you know, and the other one is moving around, like kind of like a compass. And that's a pivot. That may make sense. But a pivot of completely changing a business is just chasing a dream, rainbows chasing rainbows. Yeah, and it's chasing rainbows with money that has been allocated to you to pursue a particular vision. And then when you start to change that vision substantially, you know, you, you start to have to, you know, it's just, it's a much bigger thing, so fine to pivot, and try different things and all that, but to actually really change the business model. Probably better just to stop the business

Sanjeev Chitre 21:00
trip. Yeah. And by the way, pivot you, when you and I started speaking earlier about this, I said, one of the things that I shared with you is that when you are different, the definition of failure is fundamentally a misalignment with your vision, and the reality of the marketplace. Now, if you are watching it, then you can change that, to the measurable side of making, how does the market misaligned? That's a pivot to me. But if you go to radically change the market, that is what you are seeing, that's not a pivot, that's a new investment business in the process. And so you are absolutely impeccably correct in stating that if the pivot is a change of not the ad, it has a one pillar strong, or it's one pillar, entrenched into something in order to pursue the alternative. But if you pursue a totally different alternative, then it is not it should not be called a pivot, it's just a restart of something different.

Andrew Stotz 22:16
Yeah. And I was just looking up on the web, about the definition of the word pivot. And pivot can be used as a verb, which is to turn on or as if on a pivot. And it uses an example like he swung around pivoting on his heel. But actually, the noun form of the word is what you know, is the origin. And that is the central point, pin or shaft on which a mechanism turns or oscillates this. And that tells us that when we talk about pivot, and I think this is a great, great, you know, way of thinking about it, that pivot means moving only a small distance from the original point, and still having a connection with the original point. But basic,

Sanjeev Chitre 23:01
right. That's what I was trying to say to you. When I said, if you look at failure as an analysis, because you embrace failures, you don't, you don't, you know, manage failures. And the best is you leverage failures, but failure and success, as I told you, if the person who was successful, looking back, instead of making 10%, they could have made 25%. Was that a failure? Well, it was a damn failure, because you didn't get the damn 25%. But so that is again in the same field. Similarly, if you look at failure, and you say, Oh, I have not aligned with the marketplace. Let me twist. Let me pivot. Yes, I agree with that thinking process. And I do not agree that oh, I am in the grocery business. And now I'm going to go into the business of the farming business. That's, that's not a pivot, you know. So that's, that's sort of the process that you are actually confirming, thank you for that.

Andrew Stotz 24:03
I really love that message. And I think for the listeners out there that are involved in your own businesses and involved in managing businesses, you're facing challenges during the COVID time and you're thinking, how do we change our business? This is a great discussion on the difference between, you know, fundamentally changing a business and pivoting and when you think about fundamentally changing a business, you know, one way of thinking that is that if we didn't have this business, would we go out and start this new business on this fundamental change? Or are we just chasing something? Because we're not successful in what we're doing? And that's a you know,

Sanjeev Chitre 24:43
if you have a minute, I'm going to share with you something very, very specific this. So we were creating a company in the presence of about six months ago when we started this process funding called Beverly Hills beauty factor. And the purpose of Beverly Hills beauty factor was to eliminate the purpose of all hotstar selling the product, it was a combination of a shark tank, or it is a combination of a shark tank, with X Factor, you know, and home shopping network all combined on a technology platform. And, and the purpose was that X Factor audiences will be present. But things changed. Because suddenly the audience would work for the product with the judges had disappeared, there is the couldn't do it. So then the challenge in the channel, was how do we get back to the model? Or shall we move on and do something and the pillar was that you can now have the people vote remotely, rather than being in physical presence in the shop. And it fit the model change in the pandemic environment. And so Beverly Hills beauty factor pivoted as the economy transformed, but into a very productive, scalable entity to create kind of, you know, expansion in the confirmation of what is today the reality of audience.

Andrew Stotz 26:29
Okay. So based upon what you learned from this story, and what you continue to learn, I want you to think about a young person that's out there and beginning of their career, they're having success, they're faced with the same situation that you were faced with back then, what one action would you recommend them to take to avoid suffering, the same fate.

Sanjeev Chitre 26:54
So the single most action that I believe is important is integrity, intellectual integrity with yourself. Right. And in everything that I have done, when I have not been intellectually in integrity with myself, which is the purpose by which we proactively create the pivoting, or whatever you want to call it. So my request to that young entrepreneur is, you know, take a look at the challenge that you're managing, compare it with how that challenge has been solved with other industries, and bring that translate the knowledge from that industry to apply to your specific application. Because this, the Bollywood could easily have easily solved this problem. But they didn't, they didn't know how to write. So what did we do, we went to a totally different industry where remote voting was already a possibility. And so my request to that entrepreneur is take some time, look at where such solutions exist, and bring them into your space to create an a much more workable solution. Because if the model has worked in other industry, it is much more likely to work in your industry without you re inventing the path.

Andrew Stotz 28:22
Alright, so now, next question is, what's your number one goal for the next 12 months.

Sanjeev Chitre 28:30
My number one goal for the next 12 months is to publish my book, which I shared with you on what not to do in entrepreneurship. And the reason being very simple, Andrew, the number of entrepreneurs are increasing in leaps and bounds. But the probability of success of the needle is stuck at one to 2%. And that is because entrepreneurs consider entrepreneurship as an art of success. But there is a methodology to this madness. And I created what is called as a periodic table of entrepreneurship, much more to transform the chaos of entrepreneurship into a methodical formulation of science offering so that we can move the needle in and that is my focus, to help entrepreneurs to transform the art of entrepreneurship into the science of creating wealth. And hopefully, it is a lot less dependent on venture capital and private equity.

Andrew Stotz 29:43
Great, and when do you plan on having that live that book?

Sanjeev Chitre 29:48
So my book will be targeting by the first first quarter of 2021. Right? And, and, and I was fortunate enough to get people like yourself You know, who has experience to interview from movies making to, you know, people who made banks and people who things good and bad bankruptcy and I, that's a part of the section of the book and the other part of it of course, is is my children you know, so, to do to those entrepreneurs and I have one request that there must be four things in the business that we have to see if there's some way fit in our model and this is absolutely after interviewing, writing investigating, this is my request to all that first look at any market that you are going to address, if it is confused, if the market is not confused, then you have a significant challenge if you got it right now, confused market means you know, like electric car coming at that when gasoline cars are doing extremely well, or overcoming and, you know, somewhere in between when you rental cars or all kinds of things, you know, so you can it's very easy to understand what the second is in a confused market, can you create a differentiation

31:19
Alright, differentiate

Sanjeev Chitre 31:21
differentiation in the confused market, it is worthless,

Andrew Stotz 31:25
you just add to the confusion,

Sanjeev Chitre 31:27
you just you just become a part of the damn confusion. Right. Okay. Is as number three portion of it is how big is the market that is confused and that you have a differentiation in. Because at the end, your growth and your return on wealth creation is a part of how big the market is. So you have to be make sure that these three elements are there as you pull together a team to address and that's the fourth point, get a team that can address the above three benefits are perfect.

Andrew Stotz 32:09
Alright, listeners, there you have it another story of loss to keep you winning. Remember to go to my worst investment ever.com to claim your discount on the course that excites you the most. Now as we conclude Sanjeev I want to thank you again for coming on the show. And on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience? No, just

Sanjeev Chitre 32:37
keep the entrepreneurial spirit fully engaged. And entrepreneurs are made for passion of life. They are not made for an event. That's my message.

Andrew Stotz 32:48
Beautiful.

Sanjeev Chitre 32:50
Thank you so much. Opportunity.

Andrew Stotz 32:52
Well, that's a wrap on another great story to help us create, grow and most importantly protect our well fellow risk takers. This is your worst podcast host Andrew Stotz saying I'll see you on the upside. Thank you.