Sergiu Negut On How to Build A Company, Angel Investing and Values in Business | Interview Show

I was programming during my undergrad, doing a bit of programming in Romania. In those days, it wasn't that glamorous as it may be today. So I basically worked for the Apple platform at the time. One day, some colleagues of mine were installing a network to a client and they needed some help, so they caught me along. I had a short interview there with an American businessman. The American businessman asked me if I could come and join him for a few months for a project. Maybe join him for a few months for the project, eventually because he wanted to pay me double. I figured out during that time that people in business were making more money and stuff like that, and she was very helpful to my suggestion. So I switched to business, increased my salary, got responsibility, started to work like 18 hours per day and stuff like that, at weekends and everything. I grew within that commercial organization trading steels and so on. After a while, I started to take my boss's place and he would rely upon me to do things, and he would be taking care of his things. So after a while, he retired from the business and I remained in charge. I grew to become at a very young age the general manager of that company. Things were changing very fast. There was one particular organization, Metal Steel from India, that was acquiring everything and they had the distribution network everywhere. There was no place for middlemen like us. So that's when I had to switch. I thought the best thing would be to do a very good school and go to probably the best MBA that I could go to. I started to do my research. I figured that would require an investment of maybe up to $100,000 at the time. I thought, how like getting this money, and I realized that I understood how the industry worked. I'm talking about the millions and me making some commissions and some consulting fees that allowed me to pay for a very expensive MBA. So I went to INSEAD, and this is the thing that actually changed my life. I did my research on the number of MBAs, went on-site to two or three of them, one in the States, two in Europe. At the end of the day, I chose INSEAD. INSEAD is still, I believe, the best management school in the world because it's very international, it's truly international, and you really get to interact with everybody else without anyone of any particular nationality having an edge over the others. So it's a very democratic platform. It's also because it brainwashed me, I'd like to say. I think this is the kind of brainwashing that gives you the instincts for a business. It doesn't give you knowledge, because knowledge is not something that stays with you. You forget the knowledge that you have absorbed, but the instincts, having the right attitude, having the right feeling for business, this is something that stays with you for a while once you build it. So after I graduated from INSEAD, I had to do something. What I chose to do was to get a job, not to continue my business, but to get a job because I thought, if I go to one of the best schools, why don't I go into one of the largest corporations? I did project management on an international expansion on a commercial operation with very different regulation environments in each of the countries, with very different commercial strategies adapted to the reimbursement environment in each of these countries. I think that was a very challenging and yet a very, very good job for a dynamic MBA graduate. So it was perfect. I did that out of Vienna, and then I moved to Switzerland. They promoted me to Switzerland to do further business development. I did a little bit of business development there, actually spent some time developing some distribution network outside of the area where Amgen has their operations. It's about ten years ago. I wanted to convince Amgen to set up an office in Romania and assign me. They didn't have any address at the time. I almost did it. I got somehow this idea of setting up a small office here, not a full rep office and so on. But by the time I was about to get all the approvals, my boss that was very supportive got changed from his position into a different position. So I said okay, everything went into postponement. I wanted at that time already to come to Bucharest. So I came to Bucharest and I joined a company that became Regina Maria. We rebranded it as Regina Maria, and I got there as an executive director, sort of number two, with number one being the owner. The target was very clear: we needed to grow the business aggressively and to attract an investor that would be able to work with us to make Regina Maria what basically Regina Maria is today. It was an amazing experience. I grew that company from a hundred people to a thousand people, revenue from like 3 million to like 40 million in the six years that I spent there. I acquired companies, built hospitals from scratch. Then the company that acquired us, I did not get along very well. We had different strategy views. I was in charge of a part of the business and I grew that, and the other things were lagging behind. Some frictions appeared, so I had to leave. I thought, what else can I do with my knowledge, with my practical knowledge of growing companies and with my theoretical knowledge of growing companies? Because I have this kind of not very often found mix of hands-on experience and theoretical background. I chose to brainwash other people. So I joined the Maastricht School of Management. I teach courses. I have an open course of mine that is teaching precisely business growth, and I get assignments to teach in other MBA programs all around the world within the Maastricht School of Management network. So this is something interesting. At the same time, I thought, this is very nice for my soul and for what I want to do, but also what else can I do business-wise? Business-wise, I figured there is this thing of being a business angel. Most of the business angels that you would find are very rich people that have a lot of money, and they assign something like five or ten percent of their wealth into very risky investments. I did not have that much, but still I chose to invest most of my money as a business angel because I thought this is something that I know how to do: to assist the owner in the growth of a company, to be able to prepare that company for an exit, to be prepared for a transaction, to be prepared to grow and make money at the same time. This is something that is not my success; it's the success of the business owners and the business founders of the companies that I invested in. But at the same time, I'm really happy when I can really help. All these companies that I have invested in, each of them grew perhaps ten times, perhaps fifteen times.

Interesting, right. But if you're not at that stage, you still need some formal education. You need to do some advanced management program. That's a different story. But if you're nothing at that stage, you may think pragmatically. If you look at your career over the next three years, yeah, you don't need it because your boss didn't have it, and perhaps his boss didn't have it. Perhaps some other guys that are very successful, you know, the major football players are very successful and they didn't get an MBA, you know, right. But I think if you get the right MBA, it's not only about the knowledge because the knowledge, as I said, is something that you build and maybe it's not there five years later, but you build an intuition and you build a framework. This is immensely valuable because it reaches your experience without you actually experiencing it yet. So it's fake business experience in fast track delivered into your mind and into your body, into your business feelings, business sentiment, and so on. This is why it's so powerful. Of course, I think it's a major enhancement for everyone. Of course, you can live your life without it. I think the most important benefit that you get out of that is not the short-term progress that you may or may not get in the job that you are right now, but basically opening up opportunities. Of course, you have to be able to seize them.

I think we should think perhaps a step back, right? Where we are now in Romania, there is this long-lasting culture of mediocrity in this part of the world where you can do things and if they are average, everything is okay. So what I think we have achieved in at least certain cities in Romania, if not in Romania as a whole, over the last 25 years is that we have created a new generation of people in Romanian cities that care about the quality of what they are doing and they are really willing to work very hard to do things better and better. Better and better is often, and now I'm crossing the borders of Romania or Eastern Europe, better and better is often better than your neighbor, better than somebody else. While in fact, it should be better than you of yesterday. You of today being better than you of yesterday, you of today not being as good as the you that you're going to build for tomorrow. This is a route about performance once again, about having something and making it efficient. Having a process and making it efficient is not enough. You have to do things that no one has taught you how to do. You have to initiate things. You have to distinguish between a good idea and an implementable idea. You have to distinguish between an implementable idea that doesn't make any money and an implementable idea that may actually turn into revenue and profit and value for the society. This is a shift in mentality that I'm talking about, right? Because you cannot confine yourself to merely doing things better. There is a ceiling on how much better is good. Beyond that certain ceiling, only innovation can take you further. You have to create value for new people because the world is dynamic. If you don't do it, somebody else will and will take your current customers and will take your business.

As an INSEAD graduate, of course I will go into the blue ocean and I will say this is an amazing book and Chan Kim and Renée Mauborgne have done an amazing job at creating this concept. But no particular framework is there to be applied as is. You have to use your guts. What is it all about? You can actually build things with the bricks that you have acquired from those books and those conferences and those lectures that you have attended and you have talked with others. You managed to use these bricks to build things. That's only when you have mastered it. No particular theory applies anywhere. Blue Ocean Strategy is very complicated in most of the markets to rebuild something into a blue ocean strategy. But it's always possible to take something as elementary as the Business Model Canvas of Alex Osterwalder and look at the nine bricks of the business. You can look at a particular segment that is maybe adjacent to the segments of customers that we approach right now in our business that we can serve with a slightly modified business proposition that will basically create more value, so you allow us to make more money than the competition.

I think there is a yin and yang in this business scenario. I see lots of very inspirational people talking a lot about motivation and heart and doing things with all your will and passion. It's not well anything. And I see lots of finance professors talking about numbers and strategy professors talking about the mind. I think business is equally about mind and heart. I think you have these two wings, if you want. You have the rational part with strategy, with marketing, with business model. And you have the emotional part. You have to love the people around you and use that to better understand and anticipate their needs and desires. Answering to a need today is not enough. There are many people answering to a need of a customer, right? And to a need of a person that is looking for a job, that's very basic in the hierarchy of Maslow. But going further, creating a relationship with someone who is about understanding desires, understanding needs beyond that superficial level, this is about your heart. So it's heart and mind, and they work together. Funnily enough, they have to be coherent. The numbers, the business model, the business plan, the financing scheme, the debt to equity ratio, the value that you build in the company, that has to be perfectly coherent as well. Only when the two are strong and balanced together can you actually build success.

I'll go with the priorities of the business, right? I think why? Because if you ask people in the room, they will say, yeah, make money, profit. But funny enough, others from the NGOs will say it's people. But fundamentally, the most important priority of the business is survival. Just be there two years from now. Why is that very important? Because more often than not, the way the business is structured, the way the business world is structured, is that managers are rewarded for the current performance. Managers are rewarded for the current performance means short term. Short term versus long term means if I am a manager, I have to think about the success of the company in five years from now, but for that I have to sacrifice some short-term gains now. Short-term gains are about my bonus and my team's bonus, which is more important than my bonus actually for most of the managers, and me being able to keep this team happy and hire more people and grow their salaries and stuff like that. While long-term is probably the success of my successor in my job. Even if you have a long-term plan, it's still not going to pay you ten years from now for your success of today because you might not be there. Most of the companies that were unable to adapt built inefficiencies, built lack of flexibility. So survival is the most important thing. Once you have ticked the box of survival, the second priority is money. All businesses must make money. Once you've made money, what else do you need? To make more money. And once you've made more money, even more money, no, right? That's how business is structured. There is always an owner or many other stakeholders that would demand you to make more money. That's a metric. That's how it works. If you are a social enterprise that feeds poor people, well, you have to be able to feed more people this year than you were able to feed last year. That's about fundraising, about mobilizing people, about growing. And that is when you measure everything also about growing in money or money equivalent. A third priority of the business is what I call the 'Miss World' stuff. It's the kind of things that make this world a better place, the impact that you're making. This is relevant when we have the opportunity to change jobs and when you're really unhappy with what happened yesterday in your job, what your discussion was yesterday with your boss. When you had a bad discussion with your boss and today you have to go to work again, you look yourself in the mirror and you find the good arguments: very nice people, very nice company. It's about those team buildings that we do, it's about those social visions and purposes that we have, it's about us hanging out together and going to play soccer every Tuesday or having a beer after work. But if your colleagues and your boss is a jerk and the company doesn't live up to the espoused values, then probably you're going to change. You're going to update your LinkedIn profile and call some people and have some coffees with them. The difference is there because often if you're really happy in your job and you get a 20% higher salary proposed from somebody else, you still don't change jobs. In other situations, you change jobs even with the same money or even less. I think that makes sense. That's based on the fact that we as humans care much more about the emotional side.

Let's talk about growing pains and risks because for a lot of people that are watching, some of them are maybe corporate and they have big teams, whatever, but most of them are in teams of ten, thirty people. So what would you say is the difference? Take Regina Maria as an example. This is a brilliant example. You guys went from one hundred to a thousand. That's a big scaling, right? So what would you say are a couple of things that mattered in you being able to scale that and still provide the same quality of services and all those things? I think I'll touch only on this. This is a vast topic. I can talk for one day about growing pains and risks and how it's done. But I think the most important thing is the human factor. When your tribe reaches a hundred people and approaches 150, you as the alpha individual running the show run into major issues because the clan structure, the family structure, the tribe structure doesn't work anymore. So you have to create a federation of tribes. Your business has, from the human point of view, to work as a federation of tribes. That means middle layers, communication, and systems. Middle layer, what is that? Good management. What is management? Management is an expensive activity. So suddenly your cost base per unique output, be that a credit file for a bank, a patient for a healthcare company, or a notebook for some reason, without any change, your costs per item have increased. What do you have to do? You have to increase the quality and the perception of quality to the level where you can increase prices. Can you do that? Is the quality really going up once you as the owner of the business are no longer involved in the day-to-day? On the contrary, the more you grow, the more you have to be careful on how you handle and how you make sure you get the right people around you to help you bridge that gap. But I can't go into the details of how you do that, of course.

There are richer business angels that are doing it more aggressively than me. They have a portfolio of 10 investments, so they do two investments per year and that's it. They do the exit and that's how it works. You get many proposals, so you have to develop some sort of a screening form. Like pretty much everything else in business, this is something where you can prescribe a set of rules. If the rules are not met, you don't qualify. If the rules are met, you qualify, but it's not a guarantee of success. That being said, the most important things are the team. Do they have the right skills, the assertiveness, the experience to run a business? Are they able to run that business? That business means some competence in the area, in the industry that they are acting. If the business is early-stage enough, you have to be able to land some customers. You have to be able to have some sort of unfair advantage compared to everybody else that is competing in that marketplace. So again, the team. You as an investor, or me as an investor, bring something that will be good for your business. If I'm not going to be there, you're better off with a bank. If the market is very interesting, very often I get approached with business ideas that are targeting such a narrow market that even if successful, this is going to be a half a million dollar business at the end of the day, or maybe 1 million if it returns 100 percent. I'm pretty sure this guy is going to be able to build this business, who's going to be able to pay him a good salary, but me as an investor, not much opportunity to be part of it. The amount has to make a difference and get you to the next level where you're actually able to get 1 million from a VC fund or 1 million from the market from the clients. If the amount is not relevant, then it's not going to make sense. Very important: a route to exit. I'm investing in a business not for my children to be co-owners with your children in that business. My objective is that we build this together and in five years we exit together. For that, I have to make sure that the business that I get into is something accessible. There is an additional layer: having somebody else as a co-investor, being able to syndicate that investment with somebody else. If I am or if you are the only person in the universe that believes this is a good idea, then maybe we are wrong. Interesting. This is what also I think Ray Dalio does. He has for every position in his company like co-CEOs, co-CIOs. I always want to have a second opinion. I think that's really interesting. Not a lot of people do it though because they want to stay in control.

I think there are two ways to look at it. One is you look at your career. Your career is something that has perhaps ten years visibility. You can build something for the next ten years. Then you look a little bit longer term on what is going to happen to change this universe in the next 10 years. It's clear that technology as a whole, the digital as a whole, understanding human behavior as a whole, local versus global. Actually, local and global without analytics, with critical thinking, with ability to empathize. These are very powerful skills. They tell me what we invest in for the next two years, probably not. Then we go into the technology waves that you mentioned. I think not all the technology waves are actually creating a shift in business paradigm, a shift in business model. We talked about blockchain for quite some time, for obvious reasons, because everything in the banking sector is very well regulated. Let's look for comparison at high definition television. By definition, television was invented in the 80s, yet it became available in the 2000s. Why? Because the ecosystem was not there to support it. The ecosystem hadn't shifted from the infrastructure, the innovations that work, all the cable access to television, all the satellites, all the stations. People can put something HD on a weekly television precisely. If you don't have all that, you may have a very nice technology, but that's still just technology, not a business paradigm. If I look at data analytics, one way or another, a bit of artificial intelligence, machine learning, I think we're going to see a lot more out of that over the next 10 years. But we are going to see already applications that are going to make money over the next three years. This shift is actually a shift that is at least 10 years old of people wanting longer, healthier lives. So this is about gyms and sports apparel and sport apps and healthy food. You see all these hipster communities. They all grow to the level where they represent a relevant segment of the market. What's important is to differentiate, to have local brands that are not the global brands. That's why you see a massive offensive of the global brands acquiring rather than eliminating lots of small local brands. So these are the waves. Not all the waves are linked to technology. All the waves are linked to the way we as consumers are perceiving the world.

I don't have that heroic picture of myself. I just want the people that I interacted with, most of the people that I interact with, to be able to have a slightly better life and a slightly more optimistic view about their own abilities. After we have interacted, within our area of influence, this program of yours with the followers that it has, the people that come to attend my conferences and my classes, people that are my partners and my businesses, everybody, the taxi driver, the Uber driver, the people that spend 10, 20 minutes in the car, if that fine experience allows these people to live slightly better lives, I think we're getting somewhere.