What did it feel like when I decide to leave VI Group, a notable private equity house in Vietnam, to run my own start-up ventures on the end of raining November season of 2013? After all of the exciting feelings of walking life my own way, I feel scary. So scary that I felt it in the air on every breath I took. I saw the color of it. I saw how the future turns out if everything falls apart. I was on a special situation where I don’t have any time to waste. And this 3 years counting from November 2013 will dictate where my life will go in the next 20 years. So I feel like I have no room for mistake. The feeling was like jumping off a high cliff in a stormy sky. The house’s protection had expired and, from then on, I need to flap my wings without any guidance. Employer’s brand is a thing of the past, now strength is the proof of my existence. On retrospect, I feel the amount of uncertainty I had to deal with was massive. Here and there are deals my partners and I hadn’t finished structuring it yet. There was a really big deal we were working together; however, we don’t know how the deal would be in the end. The visions were divert everywhere as we didn’t have enough minimum information to see it the same thing. There was another deal we messed it up altogether, and after months of running the deal went nowhere. I was there, all alone, on the final meetings with our counter party, cleaned up all of the shits we created, took the blame and wished our counter party the best for their endeavor. There was another time everything was really exciting. We had golf session on 6-stars luxury resort on an island that was larger than Singapore. We tried to arrange the trip from Ho Chi Minh City to that place by helicopter (finally we could not get the flight route permit). Then we played with a top Vietnam golfer and powerful businessmen. Afterward were fine dining, fine dining on every meeting. We talked about energy visions, large M&A plans, foreign countries business opportunities, recovery of Vietnam stock market (when VNIndex was something like 420-440 points), the markets of North Europe, North Asia, and North America. Months later my oversea partner notified the team on counter party betrayal and disappearance which costed him a few millions dollars. If there is something to mark my life this period, and possibly in the next at least 5 years, it will be what I call “a massive amount of uncertainty”. Fortunately enough, I love uncertainty and love to ride my wings amid the clouds. So I embrace it. That’s how we have my 4th lesson of my 25: Dealing with uncertainty.
Time of realization: Early 2014
On Ventures: Board Member of Cloudjet Solutions, CEO of NTS Partners
Understanding uncertainty and risk
Uncertainty is not risk. Many understand uncertainty only a half of it. Uncertainty is the variance. Variance itself is not risk, too. Variance has two side: upside and downside. Upside uncertainty is what makes Facebook Facebook and makes Flappy Bird Flappy Bird. Downside uncertainty is the “true risk” and what makes millions of apps have never hit like Snap Chat or get a hit that is enough for their survival. Therefore, the good news is, on the baseline, to deal with uncertainty we have 50% chance of being favor. Of course, not all uncertainty comes to us are on the baseline. Some battles we have to fight it up-hill, but let’s not forget we have a baseline of 50% upside uncertainty on our side.
Risk, on the other hand, is what we really scare of. As my learned-it-the-hard-way experience of once being broke and constantly being tested of survival: protecting capital is more important that expanding capital, defense is more important than offense. Riding the offense is a sophisticated matter. Two similar businesses may get hit on the same ground, but being led by two different entrepreneurs may lead to notably difference final results. For example MySpace and Facebook, they do quite the same thing, MySpace is a hit too on early Social Network era but MySpace’s hit was never like Facebook’s hit. Facebook knows how to lead the upside uncertainty well over MySpace. On the same token, on a rising stock market, most people made money like what I saw on 2006-2008 period on Vietnam’s stock market. From the average house-keeper to top-notch investors, still, top-notch investors were likely to know what to do on that environment and made more on the upside. However, nobody gets broke by making money, and if you don’t make it to the top of the upside, getting the hit is enough to open a firework party. On the other hand, handling downside uncertainty – or risk – is what makes the outstanders outstanding. In business and gambling industry alike, many rise and fall on a blink. To make success lasts, handling the downfall is crucial, and it’s better to outperform in bad time rather than in good time. The reason is simple: on bad time it threats our survival, on good time it’s just about who get more fun.
The entrepreneurial spirit
Entrepreneurs’ spirit to deal with uncertainty (both upside and downside) should be placed at the paramount. Investors face a lot of downside uncertainty too. On each investee, they face business risk, financial risk, key man risk, execution risk, and leadership risk. On the whole portfolio, they face macro risk and systematic risk. Each of the risks are prominent. Through deals flowed through my hand and deals I observed, I have clear cases for each of the micro-risk listed above. Once a micro-risk sparks, other micro risks follow; such as when good time everybody is happy, when financial risk strikes the company, there is likely to have key man risk to follow and lead to execution risk. Each of the case is a huge headache. For macro risks, we have Thailand Crisis in 1997, Global Financial Crisis 2009 that put thousands of companies to bankruptcy and millions to be unemployed on the scary same moment. To an investor, her track record is critical, when the first fund blows up, it is incredibly hard to raise the second fund. However, investor’s business cycle is typically longer than entrepreneur’s business cycle. For example a VC/PE investor may have a fund life for 10 years with an addition extension for 2 years on the final exit. Home-run win can still happen at the last minutes. Overall, a VC may have a portfolio of 50 companies and one of it hits really big may already make the fund extremely successful. This is because a fund has many deals and the deals protect each other. On the other hand, entrepreneurs’ business cycle is shorter, typically 1-2 years toward the first investment round and a total of 5-6 years toward the first hit. Past that horizon, it’s maybe better to work on the next idea. Besides, entrepreneurs focus on a single business, so effectively they put all eggs into one basket. The downside uncertainty is then very concentrated and makes the feel very heavy.
What is the key to deal with uncertainty?
The key is to believe we can do it, ride the upside and deal the downside. It was like if we come across a seemingly unbreakable puzzle, when we know the puzzle can be solved, we already go half of the rough way. Yet we seem to lose the ability to deal with uncertainty during the time we grow up. During the time when we were children, everything is uncertainty, every step we made toward the world was a reflection of dealing with uncertainty. When we grow up, we are told what to do: parents, friends, primary school/secondary school/high school/university teachers, then seniors and supervisors. Therefore it is strikingly scary to do something on our own after years of being told what was right and what should be done. Flapping our own wings start with first we have to believe that we can fly, then willing to risk a lot of thing on the way trying – including some of the really bad hits on the face. Believe that we can do it is the first and the most important requirement.
There is a scene in Game of Thrones this season I really like, it was when the Lady of Tart meet the Hound and Arya, she wants to take care of Arya from the Hound to the safe place. The Hound answers: “Safety, where is that?”. It is somewhat similar to the business world today. I look into my left, right, front, behind, and ask myself: “Safety, where is that?” – I see a no clear answer. So if I don’t learn how to deal with uncertainty now, be the person I want to be as soon as possible, then it will already be too late to start later and too risky to hide in a safety place. And where is that place anyway? Supposedly not in a big corporation with 10 years of experience in something where the experience get obsolete equally fast with technology and new business models.
How can entrepreneurs deal with downside concentrated risk?
I will protect myself with partnerships. Some fear it after bad relationships roll-out. Many of the very high level, successful, and respected persons I know claims not to invest in any private deal passively without control (without control supposedly would be: less than 51%, without information right, and a controlled Chief Accountant/CFO position). One control deal would be doable. When we decide to do deals instead of a deal, it would be too much heavy to control everything. To diversify and build downside protection, I believe the best we can do is form weak/strong strategic allies with our partners/prospect-partners. Weak/strong partnerships are partnerships where we don’t have to meet on a regular basis and have a close-knit personal relationship with but those persons share the same core values, be ethical, hold the same vision (you can have multiple visions), and complement each other on skills and knowledge. Never forget partnership risk, therefore, partnership is one of the largest risk we will take on our lives. Just like investors, entrepreneurs are the ones who have a hand into the deal flows. Rarely any entrepreneurs I work with lack of anything to do in their lives at any time. If they fail in one idea, there is another deal will flow into their hand and partners who want to form partnership with them. Be an unreliable person, then their downside protection is gone and then all of their eggs are really in just one basket.
That’s it – anything worth doing can’t be done alone. It’s the doing awesome things with awesome people make life worth living as well as protect us from the downside uncertainty. Be very selected and wise, guard your partners with all your ability. Build the relationship and the road. They will be the ones who ride with you on the upside and protect you on the downside.
10:55 PM – July 12th 2014, Tokyo, Japan