Lounge
Why Rashesh Shah of Edelweiss loves running metaphors
Summary
The chairman of Edelweiss talks about his journey from a scarcity to abundance mindset—one marathon at a time—and why business is about endurance
Rashesh Shah, chairman of the financial services conglomerate Edelweiss and an avid long-distance runner, was participating in a run in Khandala, near Pune, in 2015 with a specific target. He wanted to complete the distance, which included a 16km uphill stretch, in under two hours. Headphones on, he was focused, not interacting with anyone, and finished in two hours, three minutes. On the way back home to Mumbai, he was upset that he didn’t achieve his target. But by the time he got back, his outlook to running—and running a business—had changed, “from scarcity to abundance kind of a mindset," he says.
The next year, Shah was a “happy runner", agreeing to selfies, having conversations with other runners, and still pushing hard on his target. He finished in two hours, four minutes. “I lost one minute," he says, weighing in on its significance, “but I gained so much more in enjoyment. The same applies in business. We get so caught up in the outcome, the stock price, the market cap, which are all important because you need to reward your shareholders." But a positive frame of mind helps better in dealing with issues, he says.
The 30-year-old Edelweiss, with a diversified portfolio of seven independent businesses, including EAAA (alternative asset and investment management), mutual funds, asset reconstruction, corporate lending, Nido Home Finance, Zuno General Insurance and life insurance, has a market capitalisation of nearly ₹10,000 crore. The group employs nearly 6,000 people across over 250 offices, serving around 9.1 million customers, and managing over ₹2.2 trillion worth of assets.
Over the next year, the company plans to list its seven businesses on stock exchanges and eliminate debt, Mint reported in October. This will start with its mutual fund division, Edelweiss Asset Management Ltd, and EAAAM India Alternatives Ltd (previously Edelweiss Alternate Asset Advisors Ltd), each valued over $1 billion, the report said.
Shah quotes management guru Peter Drucker who said that if a factory lacks hustle-bustle, that means crises have been anticipated and converted into routine. “That is our business," says Shah, nursing a cappuccino at Mumbai’s Willingdon Club, where he swims every morning. “If you talk to any pilot, 90% of the flight is on autopilot. There is no firefighting going on. It’s also another analogy for business."
The 61-year-old often uses running analogies while talking about his business. Long-distance running is a significant and influential aspect of Shah’s life, one of the reasons why he is not part of late-night parties and leaves office before 5pm. His curiosity to learn, an affable personality, combined with his largely successful business, also makes him a media favourite.
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Shah belongs to an entrepreneurial family—his father had a business in stationery—which ironically initially drew him away from entrepreneurship. In the 1970s and 1980s, being an SME (small and medium enterprises) entrepreneur seemed like too much hard work, too much khich pich as he likes to call it, using Mumbai slang for bothersome. “In India, I always say entrepreneurs, they don’t bring equity only, they bring khich pich," Shah says.
He decided education was his way out, so he went to the Indian Institute of Management in Ahmedabad for his MBA, after becoming one of the first from the family to get educated in English medium. A job in ICICI Bank followed in 1989, straight out of IIM campus.
His future wife Vidya, who he had met in IIM, also joined ICICI, at a time when the Indian economy was opening up. Capital markets were exciting and as part of ICICI’s export groups, he got exposed to companies like Infosys. But around the mid-1990s, Shah and his colleague Venkat Ramaswamy felt like they should convert their excitement in capital markets into something else, which led to Edelweiss that they co-founded.
The period between 1992-95 was seminal for financial services, says Shah, because India reformed its financial industry with private sector banks, private sector mutual funds and the formation of SEBI (Securities and Exchange Board of India). “It all happened in bits and pieces, but they were all interconnected. Now in hindsight, it’s easy to go back and connect the dots."
“We (India) got our independence in 1947, but we got our economic independence in that phase. Edelweiss was born out of that," adds Shah.
The partners raised the ₹1 crore of equity—mostly borrowed—required to qualify for a Category One investment bank. Vidya, who was employed elsewhere, was one of the investors. “A lot of people ask me what is required to be an entrepreneur. I always say first have an earning spouse," Shah says with a wide smile.
But the rules changed soon, from ₹1 crore to ₹5 crore, breaking their entire business model in the first three weeks. They adapted, moved to mergers and acquisitions to work with entrepreneurs on their private equity, which was new then. Cold calls led to clients, starting with a Thiruvananthapuram-based manufacturing company, an internet content firm, a BPO among others.
After five years, they managed to raise ₹5 crore of capital, putting all their earnings back in the company, expanding and investing . “It’s never a binomial outcome," Shah says about startups. “That either the business fails or succeeds. There are degrees of that. Nothing fails. You ultimately find a way."
“In India you need what I call a bifocal approach," he adds. “Because India is a strange country. For example, when we (Edelweiss) became 25 years old, we were also 100 quarters old. Each of the 100 quarters has been horrible. But the 25 years have been great."
When he started his career, Shah remembers, the BSE Sensex was about 800 points; it is close to 80,000 now. India has a huge amount of short-term volatility, which is khich pich, or chaos, as he calls it, but somehow in the long term, India has been growing.
When one looks at the present, he explains his bifocal vision, there’s always some trouble, like an income tax claim on taxes or a legal case. “All this existential. It’s not hypothetical, not academic. But it affects your business."
He summarises his theory in one line: India is a bad movie to watch but a great picture postcard to see.
“There is a lot of short-term upheaval in India that you have to go through to get to the long-term pot of gold. Binomial means either things are great or horrible. While bifocal says they are great and horrible at the same time."
By 2000, Edelweiss, named so because of the song from the movie The Sound of Music and for the flower’s ability to grow in hostile environments, had expanded into capital markets. Vidya too joined the company—she is now the chairperson and CEO of EdelGive Foundation. The firm got into insurance, asset management and wealth management during the difficult period post 2008 while focusing on scale over the last decade. He describes their company as having a one-year budget, a three-year plan and a ten-year aspiration.
He himself spends most of his time on strategy, people development, capital allocation and client relationships. “This founder and co-founder are empty statuses. Just because you were there when the baby was born, doesn’t mean you have grandfather rights forever," says Shah.
One of their business strategies, a commonly practised one, is growth through adjacent markets. The second is, he says, “When the business is down, you want to put in the most amount of effort, most amount of your resources. When the business is doing well, it can be on autopilot."
The third is a long-term approach. In every business, in the early days, the hassle is more and the payoff is less, he says. After five-seven years, the payoff equalises before surpassing the bother. “It’s like your kids," he adds, grinning, “after 18-20 they are educated, they have degrees, they are earning money, all that. Your work on them is the highest when they are young, right?" Shah’s son and daughter both study in the US.
He says the company has had its share of errors, like not investing enough in technology and processes. He feels their capital allocation was not well thought out, which he has learnt more about in recent times.
“We all look at P&L and balance sheet, few people look at the cash flow statement. You get a lot of nuanced information in the cash flow statement of a company in the annual report. But nobody really teaches you. You have to learn it the hard way," says Shah, who reads about 70-80 books in a year, mostly business thrillers, about two-three simultaneously at any given time.
His running metaphors are understandable, evidence of his deep interest in the activity. When growing up, he was not allowed to play any sport because of his asthma. But he realised as an adult that it should have been the other way. He started playing tennis in his later teens before an elbow injury grounded him. He took a shot at the annual Mumbai Marathon, that had started in 2004, running the half marathon. But he cramped and staggered so badly towards the end that he decided never to do it again.
But long-distance running can be addictive; so Shah went back to it. Over the years, he has run in some of the best marathons, till tendonitis brought a pause to it in 2013. Instead of giving up, he added swimming and cycling to his activities and became a triathlete.
“My real passion is endurance because it’s amazing how the human body deals with endurance. The same thing applies to business, which is about endurance not about the sprint, especially in India.
“I have another analogy—you don’t run 42km at a time, you run one kilometre 42 times. So doing it again and again, quarter after quarter, you just keep on doing it."
Until 2015-16, also coincidentally when he turned 50, he felt that he didn’t have enough time, enough capital, opportunities, people to achieve his goals. While running, he would say it was too hot or too cold or he didn’t run fast enough… but that changed along the way. “At the end of it," says Shah, “all that you want to feel is grateful. That I was able to do it."
