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Assets are important to certain businesses. Right!!!

Though this is not about being right or wrong, this is about how businesses should be done in a manner that can yield best stakeholder value. Recent news about Ola Cabs investing in purchase of Cars to cement its position as a viable investment option in the future, just validates this thought process.

This news just reemphasised the key operational and strategic business parameters of a company that I am associated with as a strategic advisor and Investor. We have been doing rounds of the investor fraternity, and had the usual retorts coming our way. “Yours is not an asset light model”; “such businesses have very heavy balance sheets, we invest in only Tech businesses and hence a pass” – are some feedback that came our way.

The more we heard this feedback, the more we felt saddened by the state of our investing world. But we weren’t disappointed! We know for a fact that not all businesses can be done without having control over assets – assets in a business is going to be a big plus… a huge plus -- I reiterate. Earlier Meru, and now Ola has gone the asset way.

In today’s investment world, it is not new to see bloated balance sheets as a result of losses from high marketing/ customer acquisition costs. Surprisingly, nobody thinks of such balance sheets as heavy balance sheet. Most spends on marketing is experimental, as the customer acquired is not loyal, and companies just end up spending more money on acquiring the same customer. Without realising, that they are strengthening the balance sheets of Facebook and/or Google, and not their own.

But larger problems that continue to plague our ecosystem remains :

  1. Is the current trend or what I call herd mentality, to support only tech businesses a fad?
  2. Why are the asset led businesses not appreciated or not part of internal mandate of the early stage ecosystem? Is it a belief that only tech oriented business will generate more value in short term?
  3. Or have we got used to binary outcomes for our investments… which is difficult to achieve in asset-led businesses well supported by technology :)

All I wish to say through this note is, that businesses are supposed to be done in a manner that provides best results in every way… operational, financial efficiencies, business dynamics – which in toto increases stakeholder value. The disruptions brought in by proponents of technology and asset light businesses may beyond a point remain relegated to text books when it comes to value creation, and that is what is happening in India. In the quest for speedy execution, higher GMVs, etc we have succumbed to external pressures and are blindly following the wave without applying logic to long term business proposition. I see this changing very soon.

And I see most of you nodding in agreement :)

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