Entreprenurial Optimism or Ponzi scheme?

Many companies are today in some kind of trouble. It is fashionable to cut something or the other in the name of a slowdown – so right from the toilet paper to sugar in the coffee everything is under some scrutiny. However, it is difficult for many CEOs to cut salaries and bonuses. So even in bleeding sectors like retail, life insurance, mutual funds, brokerage houses, very few people have actually cut salaries.

Should you blame entrepreneurs for being over optimistic – right from R Subramanian of Subhiksha non-fame to Ratan Tata for the JLR deal?

Entrepreneurs by nature have to be optimistic. They thrive on optimism and that is what keeps them going. There is a lot to be said for it – it is the main thing which keeps things cheap. You can get a pain balm bottle for Rs. 70 in a drug store, at Rs. 65 in a shop like Subhiksha and Rs. 52 for a set of 4 in Metro! As a consumer you can smile from ear to ear. Optimism is what makes mutual funds (there are 43 in all, only 2 are profitable) fall over themselves to woo the distributor hoping he/she will sell their funds.

There is no law against entreprenurial optimism except the simple law of cash. If your cash runs out before your optimism runs out, the vultures will pick you clean. It has happened to Raju. It happened to R Subramanian at Sterling Holiday resorts, it happened to R Subramanian at Silverline. It seems to be happening to R Subramanian at Subhiksha. It seems to be a sheer coincidence that all 3 of them are R Subramanians (they could have spelt the name a lil differently, am not sure).

Why it is so close to a Ponzi scheme is the entrepreneur also believes that money from the shareholder can be used to pay the banker, money from the banker to pay the salary, money from the creditors to pay the landlord, …it is more like a ponzi jugglery. If you drop one ball, all other balls fall on your head.

However, like I said earlier, there is no law against entreprenurial optimism. That is why many of them exist, inspite of knowing / seeing the writing on the wall.

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One Response to “Entreprenurial Optimism or Ponzi scheme?”

  1. I like this word ‘entrepreneurial optimism’ – and I also agree that if you are on your own you should be optimistic. However, I have found companies which make projections – and not achieving it for the past say 10 years – but continue to believe in those nos. Is it because of a sense of desperation I have no clue! How do you tell an entrepreneur that he is talking through his hat?

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