174: Digital Industrialists with Avnish Bajaj and Rajinder Balaraman
Aug 18, 2023
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Avnish Bajaj and Rajinder Balaraman, co-founders of a large profitable digital company, discuss the emergence of digital industrialists, the potential impact of the digital industry on the economy, building multiple successful businesses and investing as a venture capitalist, approaches to setting up conglomerates, and creating value the right way through success stories like Ola Electric and Flipkart.
Digital industrialists focus on expanding into areas that strengthen their core businesses, creating synergies and driving additional value.
Supporting digital industrialists can be a win-win situation for investors, potentially generating better returns and value creation for all stakeholders.
Deep dives
The Rise of Digital Industrialists
The concept of digital industrialists is emerging as a new term in the startup world. It refers to experienced founders who have built successful businesses in the digital space and are now exploring new opportunities and expansions. These digital industrialists have already achieved entrepreneurial milestones, such as creating value, establishing highly profitable ventures, and attracting talented human capital and substantial capital investment. They are driven by a desire to do more and see the potential for further growth and innovation in their respective industries. It is important for digital industrialists to have a cash generation machine as their core business, which can fund their expansion endeavors. Additionally, they need to possess the ability to identify adjacent businesses or strategic insights that allow them to strengthen the core while venturing into new areas. While the path of becoming a digital industrialist is not suitable for every founder, when executed properly, it can lead to significant value creation and benefits for investors, employees, and the parent company.
Digital Expansion and Strengthening the Core
In contrast to traditional conglomerate models, where diversification is the primary strategy for expansion, digital industrialists focus on expanding into areas that strengthen their core businesses. This approach involves identifying businesses or domains that align with their existing capabilities, such as product expertise, innovation, scale, and lower costs. By leveraging their core competencies, digital industrialists can create synergies between their different ventures and drive additional value. Examples like Amazon, which expanded from retail to cloud services, or Ola's expansion into Ola Electric and other related businesses, demonstrate how digital industrialists strategically broaden their reach while reinforcing their core offerings. This framework of expansion allows for continuous innovation and differentiation in a rapidly evolving digital landscape.
The Journey of Becoming a Digital Industrialist
Becoming a digital industrialist is not an easy feat. It requires founders to navigate through various stages of entrepreneurship, from inexperienced first-time founders to experienced entrepreneurs and finally infinity founders. Only after achieving significant value creation and profitability in their core business can founders consider venturing into new domains. Digital industrialists must possess a growth mindset and an appetite for continuous learning. They should be willing to delegate and hand over responsibilities in their existing ventures, focusing on their current zero-to-one or one-to-ten growth stages. As they embark on new ventures, digital industrialists need to apply filters and guardrails, such as having unlimited ambition, an infinite resource generation capability, and a strong strategic insight that gives them a competitive advantage in the industry. It is crucial for digital industrialists to approach expansion with caution, recognizing the high failure rate associated with unrelated diversification and ensuring alignment with their existing capabilities and market opportunities.
Investor Perspective on Digital Industrialists
From an investor's perspective, supporting digital industrialists can be a win-win situation. Investors should evaluate whether founders have earned their right to explore multiple businesses by successfully building a cash flow generating machine and demonstrating their ability to attract top talent and capital. By investing in digital industrialists, investors can stack the odds in their favor and potentially create better returns for their portfolios. However, it is essential for investors to approach digital expansion as a value creation mechanism rather than a value capture strategy. This includes ensuring that all existing investors are treated equally, giving them the right to invest in new ventures and maintaining transparency to avoid any perception of value transfer. While there is no single playbook for structuring digital expansion, founders should consider whether internal expansion within the same company or spinning off separate entities aligns best with their growth goals and the overlapping customer base. Overall, supporting digital industrialists holds the potential for significant value creation and benefits for all stakeholders involved.
After building a large profitable digital company, what do such infinity founders do next?! Become “Digital Industrialists!”
Up next on Matrix Moments, we discuss a counter narrative concept – that its okay for infinity founders to start multiple businesses as long as it is about value creation for all stakeholders and not value capture. As big a violation of first principles of company building as it sounds, we invite you to tune in to know more in our latest episode.
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