The best deals are the ones you DONT do.
A classic Oxymoron?
Nope. This statement is the truth of life—business, personal and everything in between.
From the fantastic book, "The Smartest Guys in the Room", which documents the incredible ruin of Enron:
"It is business wisdom that a company’s best deals are the ones it doesn’t do.
That was never the belief at Enron, a place that was defined by deal-making.
“The corporate culture was such that you never said no "to a deal,” says someone who worked in corporate" finance. “It was ‘how do you make a deal work?’ ”
"In 1998, Person A, who served for four years in the Risk Department, opposed a deal promoted by Enron executives in Europe, who wanted to invest about $20 million in a British company named Techboard, which made fiberboard for kitchen cabinets.
Person A opposed the deal because the company was in the British equivalent of bankruptcy, and even the projected returns—which assumed the company would be able to navigate its way out of the mess—were negligible.
He refused to sign, but the deal was still done. Three months after signing the agreement, the company went into liquidation, and Enron wrote off its entire $20 million "investment."
***
Learnings:
- Byju's major trouble has been its non-stop accumulation of EdTech
- Jet Airways Airways' downhill began after it bought Kingfisher
- Future Group's aggressive M&A never made sense. Why on earth buy Amar Chitra Katha or enter Media Advertising or even the Food Business? (Food hall)
So, why do companies immolate themselves?
- The relentless "pursuit of "topline growth"
- Bankers, Brokers and Dalals who keep misselling things for their commissions
- VC and Investors who aggressively insist on "scale".
Lesson: Say NO more than Yes.
#dhandhekibaat
Can you share examples of companies that suffered badly after buying from other companies?