Secret Diary of an Entrepreneur 2018

"If you don't have a compelling competitive advantage, don't compete"

Secret Diary Of Pramod Bhasin — Part 2

Bahrain - no country for brown people

After completing my CA, I moved to Bahrain with a single suitcase. I picked Bahrain because unlike Qatar and UAE, there you were allowed to drink in bars those days. So, the decision was very strategic but not in the right way. The firm, which later affiliated itself to Touche Ross, was run by Palestinians and Kuwaitis. 

I learnt about Palestine from them. I made a lot of Palestinian friends and understood how they had been uprooted from their lives. I spent a month in Beirut during the civil war. We would head home from dinner outside and stop by the side of a wall because there was firing going on in the next two streets and then duck into our hotel.

I was doing quite well and they were offering me a much bigger role but the prevailing discrimination in Bahrain was getting to me. There was a beach open only for white people. Besides them, only the Emir could go there. Mediocre foreigners had club memberships while Indians would not be allowed. Indian labourers would sleep in tin sheds in 45°C heat and their passports were held back by their employers. Although I could have made a lot of money I could not live there, and so after two years I returned to the UK and joined a company called RCA. There again luck and timing came to my rescue. 

Nobody in the UK gave me a job at the managerial level that I deserved as they said my experience didn’t count. That was quite agonising. I was interviewing with many companies and eventually met David Wise, an American who was the head of internal audit for RCA, and he said, “I can't offer you as much money as some of the others but come and join me.” RCA was a diversified company; it owned Hertz, NBC, manufactured TVs; I took the job though it paid less because I liked David, and became part of the internal audit team that covered everything

David later got an assignment as the CFO of RCA Brazil. Instead of looking for a replacement, he said that I was to take over from him. I fell off my chair. I was a junior guy. I said, “Are you kidding me? I have only been here for nine months or something,” He said, “You are it.” There couldn’t have been a better example for me to learn about trusting people and talent. He saw talent and pulled me out of nowhere. It was a fantastic example of breaking through hierarchy. Naturally, it ruffled feathers and the questions began flying. “He is an Indian guy in England”, “He doesn't know any foreign language” and so on but he defended me saying, “I trust him. He is competent and a great guy. Put him in charge.” It was my first taste of this form of Americanism, of the lack of hierarchy, which influenced me for the rest of my life. David gave me the biggest break I could have possibly imagined and suddenly catapulted me to a level I didn't think I would get to. 

I was 29 years old and running an internal audit team for RCA. Slowly, the team warmed up to me, and eventually gave us everything outside North America. So we were auditing Australia, Brazil and every other part of the world, including China and Taiwan. We were travelling 70%-80% of our time. It was a fantastic experience interacting with every nationality from Americans to Asians to Australians and dealing with a variety of businesses from RCA Records to Hertz. After a while, RCA asked me if I would be willing to move to New York from London. I agreed as I was newly married, my wife didn’t love London too much and I was enjoying getting to know the Americans. So we moved in 1983-84. 

Then two things happened. One, I thought I would be working out of the iconic RCA Building at 30 Rockefeller Plaza. When we reached New York, I got to know that they had moved our division to Princeton. I was like, “Oh God! I was looking forward to living in New York.” I had never lived in an American suburb, so that took me a while. The second development was even more transformative. It was December 1985. We were settling down, I had just applied for a Green Card and on the television there was news that General Electric (GE) had acquired RCA. Jack Welch aka Neutron Jack’s audit staff would soon be scanning through all of RCA for cost inefficiencies. He was known as Neutron Jack because post the acquisition he would leave the building standing but the people would disappear. That was Welch’s best era as he was backed by CFO Dennis Dammerman and M&A strategist Mike Carpenter, who would later move on to Kidder Peabody & eventually to Salomon Smith Barney.

Suddenly our world threatened to go topsy-turvy. I had no Green Card and we were all going to get fired. The GE audit staff was the Marine Corps of GE; the heart and soul of that engine. The entire world knew that the best of the best were drafted into GE’s audit staff. RCA was also excellent but we were not that driven. We were old-fashioned internal auditors; GE’s audit staff was truly a consulting arm of GE. So, when the acquisition happened it was very obvious from day one that our group wouldn't survive for long. 

Strangely, when the integration got underway, the GE guys came to me and said you are in charge. There were far more senior people in RCA audit than me and most of them left almost immediately. Working with the GE team soon taught me why GE was successful and RCA was not. Their hierarchy was informal and direct. I remember meeting the CFO of RCA once for an hour in three years and when he came to the UK, we met for may be five minutes. At GE, which was 5x the size of RCA, I was talking to the CFO, almost every week. There was very little politics at GE, which I just loved. You could always skip many levels and go to the top. It was perfectly acceptable and the level of talent management was fantastic.

I remember Dave Calhoun. We were at the same level at the audit staff. He was 28 and I was 32. We were having dinner and he asked me what I wanted to do over the next few years. I told him since I've done this audit stuff for a while I would like to move into some business and do some financial analysis or stuff like that. In turn, I asked him what he wanted to do. He said, “I want to be the chairman of GE.” I looked at him startled. He reiterated, “I am going to be chairman”. I asked him, “What makes you think you can do that, Dave?” He said, “I know what I am good at. I know I am capable and I am willing to learn.” He didn't become chairman but he did end up as vice-chairman! That was a pretty damn good prophecy, coming from a 28-year-old. 

GE for many years was the best company in the world for a very good reason. We played hard, were boundary-less and it’s where I learnt the power of culture. Dennis Carey, my boss from the audit staff soon moved to the leveraged buyout group at GE Capital. Again out of the blue, he asked me to join him as his CFO in 1988. He was a long-term veteran of GE, he could have called anyone but he picked me. There was also another group in GE that wanted me as CFO of a smaller unit that was managing satellites called Americom. It was based in Princeton and I knew it well as it was an ex-RCA company. While I was vacillating, Dennis asked me, “Do you want to do something safe or something extraordinary?” Thank God! I accepted despite knowing nothing about GE Capital or financial services.

GE Capital, I soon discovered, was a behemoth on Wall Street run by Gary Wendt, who had uncanny vision. Gary would actually eat a styrofoam cup during meetings and we thought he was completely off his rocker. He would also pepper the discussion with caustic comments like, “Where did you dream that up?” Daniel Mudd and I used to work together and he would always say, “Watch out for Gary's third question on any deal.” And the deals were amazing. One day it would be containers in the UK, the next day used-car lending in Thailand, an oil refinery project and so on. Every day we were asked, “What is your new idea?” “What's the next big thing you are thinking about?” “How are you going to grow faster than everybody else?” Gary would often say financial services consist of four variables: principal, interest, collateral and time. You switch one, it becomes a credit card, you switch the other, it becomes a mortgage, you switch the third, it becomes a commercial loan, the fourth, education loan and so on. You can play with the four variables anyway you like. It was a simple way of explaining that what matters is the customer not the product that you want to sell. 

We were working on Wall Street with all the big boys in investment banking and real estate. I was the CFO of the LBO group, and Fairfield (GE HQ) would say, “We need net income of another $30 million this quarter” and we would scramble around to sell what we could. We were in the heart of it. I woke up every morning and read about the deals that we had done. And then the junk bond market collapsed and we went from making a net income of $180 million in 1990 to losing $150 million in 1991 as all our deals turned to dust. We had a bad loan portfolio of $4 billion-$5 billion and I was moved to the portfolio restructuring team to recover as much money as possible. 

We were trying desperately to fix or sell the businesses we had ended up owning or held as collateral. The portfolio included shoe stores to burger chain franchisees. I was trying to sell a store chain and negotiating with a Jewish real estate guy. If anybody ever wants to learn the art of negotiation, they should meet a few Jewish real estate guys in New York. We haggled quite a bit and he was ready to offer $30 million for 26 stores. But at our next meeting he said, “We sign an agreement, you hand over your stores and I will run it for you. If we make money I will pay you. If we don't, we will call it quits and go home. As it is, it is not worth anything now anyway.” I looked at him and said, “Are you mad? You were offering me $30 million and now suddenly this.” He said, “Look, I have been to all of your stores. Fifteen of them are not in good locations, and 11 of them are. You can do this deal or I am going to open a store opposite each of yours and run you out of town. What do you want to do?” We were GE Capital but the nimbler guys were running circles around us. He added, “You will go to your boss and say ‘bad luck’. I own my stores, you own nothing. Every day I wake up, my nose is in my store.” Similarly with the shoe stores, he rubbed it in, “Your shoe stores are badly run, they don’t make money and are in the wrong locations. Other than that, there is nothing wrong with them.” On our books, they were worth $400 million-$500 million. It was a huge learning experience dealing with different businesses and it made me the entrepreneur I am today. Besides the rigour to fund management steeped in execution, the biggest takeaway was, “If you don't have a compelling competitive advantage, don't compete.”

This is part two of a three-part series. You can read part 1 here and part 3 here.