Remembering Robert Viswanathan Chandran, who developed his own original framework for explaining why plateaus occur and how high-growth companies transcend them
On January 7, 2008 the world lost a visionary entrepreneur and I lost a good friend.
Robert Viswanathan Chandran was killed in the crash of a helicopter in Indonesia that was ferrying him around potential palm oil plantation sites. Bob died doing what he loved: developing new business opportunities.
Born and raised in Kerala, Chandran earned a degree from Madras University and an MBA at the Asian Institute of Management in Manila before going to the US in 1976 to start his fortune. His story exemplifies the success that many hard-working, well-educated Indians have earned there: starting with no resources and few prospects, he built over thirty years the world’s largest independent marine fuels company, Chemoil, which listed in Singapore in 2006.
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| Philip Anderson |
In the last year of his life, Bob developed and taught at INSEAD an MBA elective called “From Startup to Fortune 500.” Occasionally, INSEAD employs as adjunct professors veteran executives with a gift for teaching, to offer courses that rely more on practical experience than academic research. Bob’s course was about why successful entrepreneurial startups tend to plateau once or twice between $10 million and $50 million in annual revenues, and about how to overcome these barriers, creating the next generation of Fortune 500 companies. Nobody ever asked Professor Chandran what made him think he was qualified to teach a course about building a startup into a company with a billion-dollar market capitalization, because he had done it with Chemoil.
Bob developed his own original framework for explaining why plateaus occur and how high-growth companies transcend them. In this month’s column, I’d like to share with DARE’s readers an outline of his thinking, because he will never have the chance to write the book on this subject that surely would have emerged had he been able to teach it for another year or two. Bob conveyed an original point of view to his students that directed their attention to five inter-related factors explaining why most firms plateau while a few become great creators of wealth, jobs and opportunity.
First, he argued, the key factor determining whether a firm had the potential to achieve a billion-dollar market value was the drive and risk profile of the entrepreneur. Some entrepreneurs grow companies to a medium size at a stage in their lives when they are not willing to risk losing everything. One has to have a vigorous appetite for calculated risks to grow a company, and only young people or exceptionally aggressive older ones are willing to do that. Therefore, Bob’s experience taught him to look for four things when assessing whether an entrepreneur had what it takes to grow a billion-dollar company:
- Does the founder have a history of taking risks at the very start of an enterprise, making a business work early in life? “Sam Walton borrowed $20,000 from his father-in-law to start a store right after the war,” Bob remarked. “If you have small successes early in life, it builds up over time so you learn how to create bigger ones.”
- Did the founder overcome early hurdles when starting a business? Describing his own life, Bob said, “My first day in business in 1976, I was hit with a lawsuit for not paying a $10,000 bill. I put on a tie and started knocking on the doors of banks until I had a reasonable commitment for a $50,000 loan. That’s how I learned the first lesson of entrepreneurship.”
- Does the founder have an over-arching personal vision about who he wants to become, that goes beyond simply making money? “I think successful people have a bit of a Taj Mahal complex,” he told his students. “They want to build an edifice that will stand the test of time.”
- Do they listen well and learn from their surroundings? Bob would subtly lay opportunities on the table to see how an entrepreneur would respond. “If a guy just glances at it, then I wonder how many other opportunities he is missing,” Bob commented.
The second factor Bob examined was whether a company’s management team could scale. Bob started as an oil trader and by 1989 he had bought a refinery, so he believed that the only way for a team to create a billion-dollar company was by growing and changing. Behind most plateaus, he reasoned, you would find a management team that had tried a diversification or growth venture, lost significant money, and retrenched into a niche because of the scar tissue they had acquired. For this reason, Bob told his classes to look for problem-solvers who have a track record of not accepting “no” for an answer and who had a good balance of greed and purpose in life. These were the ones who would survive their first defeat and keep trying to grow.
The third factor Bob evaluated was whether a company’s products and services could scale globally. Except in the US and UK, he observed, it was very difficult to build a billion-dollar company unless one could find a defensible winning formula and replicate it from one geography to another. An entrepreneur builds an economic model that is big enough, then transports it from place to place. For example, the founders of Crocs, the wildly successful shoe company, originally started with a licensing deal to market the footwear. Realizing that this wasn’t a big enough footprint, they bought out their manufacturers so they could control the patterns and colors. Once they owned a big enough piece of the value chain, taking Crocs worldwide gave them a straight-forward growth path.
Fourth, Bob looked at whether a company had the right management systems to support a global business. That first meant moving the back office to a country with a favorable talent/cost ratio such as India; for example, Chemoil was a pioneer in shifting many administrative functions to Chennai before outsourcing became a major theme. The next key to growth was adding a “middle office,” an information center with advanced analytics aimed at mining insight from a single global database.
Finally, Bob assessed whether a plateaued firm had the ability to fund hypergrowth. Unusually for an entrepreneur, he saw finance as above all other things a marketing function. He spent years cultivating relationships with financial institutions and strategic partners so that he was able to raise funds when the market timing was attractive, not when he needed money. By marketing financing opportunities to prospective capital providers well in advance, he ensured that the pump was primed so he could do a financing deal swiftly when the time was right. He also believed in working with partners who had not only deep pockets but also strategic assets to leverage, which is why he accepted equity financing from the Japanese trading giant Itochu and spent the better part of two decades building a solid relationship with this partner.
The essence of Bob Chandran’s teaching was that plateaus start with the mindset of the entrepreneur and then cascade from there. “Most of the time, entrepreneurs find out how fast to grow by hitting a wall and stopping,” Bob explained. The primary reason why most firms never develop into billion-dollar companies is because an early experience with failure makes them conservative, so they erect structures and processes that reinforce that conservatism. Their management team learns to be wary. They settle for an economic footprint in the value chain that is too small to support global growth. They build back offices and middle offices that support today’s business, not a global enterprise. And they raise financing only when they need it, instead of laying the foundations well ahead of time for capitalizing growth.
Bob’s personal story exemplifies his own teachings: billion dollar companies are built by people who see failure as step on a journey, not a final verdict. In 1993, all of Chemoil’s businesses turned downward just as new legislation made US banks wary of financing anything that might risk oil pollution. Because Chemoil carried significant short-term debt, it was caught in a credit squeeze and forced into a workout by its banks. It was compelled to slash expenses, close offices, lay off employees, and impose a 10% pay cut on senior managers.
Recalling that situation, Bob told his students, “The first thing you go through during a crisis is the mourning cycle. You get desperate; blame yourself; your confidence is shaken and you question whether you can do anything right. This is the worst part. But afterwards, you realize that you have to live, you get mad and you fight back.”
That’s the final message from Bob Chandran that I want to share with you. Most businesses plateau when they suffer a setback late enough in an entrepreneur’s life that he decides to play it safe from that point forward. Very few billion dollar companies are built on an unbroken train of successes. The people who build companies of that magnitude have the will and the courage to survive defeat, build a big enough business locally, then scale it around the world.
INSEAD Alumni Fund Professor of Entrepreneurship, Director, Rudolf and Valeria Maag International Center for Entrepreneurship and Director, 3i Venturelab.
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