Saeid Esmaeilzadeh: No-bullshit approach to building and investing in companies

Subscribe and never miss an episode!

Watch video: Saeid Esmaeilzadeh – no-bullshit approach to building and investing in companies

No-bullshit approach to building and investing in companies – Youtube transcript

Today’s guest is s as Saeid Esmaeilzadeh he’s a scientist with a PhD in inorganic chemistry a Serial entrepreneur who has co-founded managed and invested in over 30 technology companies so many more than we can count at list here on the show uh he’s currently serving as founder CEO of EAB isad holding uh which is a multinational company with a group with a net asset value of around 8 billion Swedish Kona say welcome to the show thank you very much so you have a quite unusual backr I think for someone What got him into the science and chemistry who’s a entrepreneur um and an investor you started off studying chemistry so I’d be curious what is it that first got you into the sciences and and doing research uh I don’t know really I mean I I mean I I I’ve always been interested in you know reading books and you know since I was a kid and and and kind of you know could been very nerdy in find in something and really digging into it and um so uh and when I when I uh when I was going to University you know I could have been mathematics or actually law was something that I was interested in and chemistry so it was a variety of different uh disciplines that I was interested in for some reason you know I think it was the you know the the the experimental part of chemistry that really interested me uh so I was accepted to lots of different universities and different uh uh sectors but uh I chose to to to do chemistry uh which I think uh helped me a lot in you know structuring and understanding more of empirical nature of the of science so you obviously did really well you eventually Getting started in business you got your PhD what made you then decide to go into business leaving Academia research and going into business yeah I think it uh well first of all uh I’ve always been interested in building something you know creating building and also you know as a researcher it is to some to some degree it’s very much you know you have to be entrepreneurial in to be in order to be successful researcher because you can’t do it alone so you have to build your own research group you have to recruit talented people you have to get uh financing for that and so on so so so I was interested in building already you know as a researcher and perhaps even before that but becoming entrepreneur and setting up businesses was not you know something that came to me naturally so uh I had a friend Ash that was more you know he went to Business Schools and wanted to start his own company and uh so together we it was a good match and uh yeah that’s where my entrepreneurial career started about 20 years back now so you had this kind of classic Silicon Valley type where you had a technical founder being you and then you had like the business person yeah you could say it seemed to worked really well yeah you could say that you could say that so yeah so the first Venture uh which was Failure like diamorph and and Serendipity those were uh really successful U most company I think most people who start a business they have some failures but it seems like I’m sure you guys have failures along the way but it seemed like you were able to be really successful from the start um not really would you say that’s the case no not really uh I mean first of all uh I’m used to fail uh and you know I sometimes I get a question okay can you uh can you mention one of your failures but you know there are so many uh and uh the thing is that since you know being in you know in in order to h building something new uh you have to be prepared for failures and since I’m failing so much in what I do I have to do it in a structured way I have to do it in a you know with some systematic so that it doesn’t break you you know it’s it getting back to chemistry you know that uh it’s okay you know to fail most experiments fail you know but you have to do it in a controlled manner so that when it fail it doesn’t totally you know you get you don’t get a big explosion and you people get hurt you know so you have to do it in a controlled way you have to do it in a small manner so that you know that okay you it’s not a huge investment that we have put into this so if it fails let it fail small so we you know we put lots of pressure on on the you know the the the seed so that we know will it going to is it going to attract some customers and when we get this few customers and then getting things rolling so that so that we don’t pump in lots of you know we don’t lots of uh Investments and suddenly you know everything you know go sou so um so it’s more working really with uh systematic in how to fail uh that’s the key to success so it’s sounds like you took Applying an empirical approach in business this you took all the lessons of how to do effective science like in chemistry the looking for the empirical process and failing but doing it in controlled manner so you applied it to business yes exactly I I would say uh being empirical in your approach uh I mean I’m not a very super smart you know I’m not I’m I’m not a genius in any way you know I’m I mean I’m I’m okay in my cognitive you know uh functions but uh definitely not a genius and you don’t need to be that’s the thing with being empirical process you know in the same way as you don’t have to be super smart super intelligent to get information about maybe you know 20 years ago 50 years ago then maybe you needed to be super smart to have lots of inter information stored okay in in the brain today you don’t need it because you have the tool you take your smartphone and you can get the information directly okay so you can be average but you suddenly the phone makes you you know to another level takes you to another level in the same way empirical processes is that you can be average but if you apply it in a systematic way uh in a structure systematic way it can take you from average to very high level and that is what I am doing all the time so this t on something that I was going to talk about later but let’s go to it right now I think um you’ve had Saeid’s no-bullshit policy this concept of I know policy which I would love if you could explain what it means to you personally and why it’s important for business cuz my reading is that that comes from your scientific background and that you recognize that being open-minded being self-critical always being introspective is actually a huge competitive advantage in business so I’d love if you could talk about that yeah sure I’ll be happy to uh so no policy you know so I the last few years I’ve been thinking how come I’ve been success successful in what I’ve been doing relatively successful at least and um I’m I’m I’m all the times you know recruiting and hiring people that are more intelligent that I am and they are more hardworking than I am so so so how come they don’t recruit they don’t hire me you know how come they are not more successful than me so what’s the reason and I’ve been thinking and thinking and I think I and I’ve been Landing into it is my what I call the no policy and what is it it means that you know it is having two very different approaches at the same time so it is that um so it’s being very open-minded towards new ideas that are coming coming in and whatever crazy ideas that are coming being compassionate inquiry you know trying to really you know what are what is it that you are saying really I I I want I’m interested I’m I want to understand I want to understand what you are saying I want to understand this you know whatever crazy idea you might come I’m I’m intrigued I want to hear what you’re talking about okay okay at the same time being very critical to what you are saying okay hm let let us go deep into what you said here asking some more questions and find out whether it is you know it’s some substance to it or it’s just okay that’s the very short version of it you can read more about the policy document on our website so uh it is you know how to uh we have been structure it in how to you know approach new ideas and being open-minded but at the same time start you know your inquiry in order to understand but also in order to critically you know putting some questions question marks to it uh and if I give you an example you know I I was meeting you know this was a few months ago a CEO of a Swedish company and I usually I I use it actually as a My Kind of uh you know test testing you know and seeing you know pushing and seeing if people have how uh how do you say how uh uh how much they really think about you know the ideas that the concepts that they have in their in their head uh or is it just just they throw out something and they don’t think about it and they don’t care about and we were so I I asked him do you think it’s important with the you know the climate climate issue climate problem you know uh and uh what everybody’s talking about and everybody is having is uh worried about and so on and he said that yeah I think it’s very important and I said okay how important is it I mean how would how would you rank it and he was like well it’s the most important probably the most important issue for mankind and for our survival you know it’s some serious statements it’s the most important issue for mankind and and the survival of humanity you know it’s thing is quite serious and then my question was okay how many hours a week do you study it well well he didn’t study that much and what are you doing about it you know well he an electrical car you know H so you know that is for me okay and then I asked him okay so why do you think it is important and I said well because of carbon dioxide said okay what about carbon dioxide well it’s toxic no carbon dioxide is not toxic you know so people have some concepts of things they believe in something they are very opinionated but it’s just you know and that is my no policy in just you know to uh forcing his hands and saying come on if it if this was really something that you believed is you know the most critical important thing for mankind and it is you know our the survival of humanity depends on it the survival or your kids depends on it me for sure if I believed it I would sit and study it you know I would sit down and I would read about it and I would dig into it because my do if my daughter’s survival depended on it hell I would sit and read about it okay but people don’t and I would say it’s you know that that’s that’s that’s what I say you know kind of you know having a no policy and I don’t take uh you know people can live with if they want I don’t I want to live the world I want to understand my world and I want to understand my world the way it is and I don’t want to build up some fake you know wishful thinking kind of world you know so uh yeah as I think this policy like this attitude has probably helped you a lot in science but also in business when it Creating a culture of critical thinking comes to investing because you have to ask you ask yourself really tough questions yes and you’re you know find m had this quote about you shouldn’t fool anyone you’re the easiest person to fool so you really have to like but I’d love to to dive into this a little bit um obviously one part of it is personality like some people are much more geared towards first principal thinking and wanting to understand but there’s also a part of it that maybe can be systematized into an organization so one example Amazon famously rejected all PowerPoints because basos felt that if you have to write it down you have to be much more critical and clear in your thinking so are you trying to systemize in your group of companies somehow this way of approaching the world yes how do you go about that so I work a lot with uh you know U uh with researchers and people in Academia so we have U uh Yan deu that I work with since uh you know since this summer uh spec specifically on this no policy you know and uh and um his his research is uh uh he’s at Cambridge uh and uh he’s a historian historian is historic it’s well I don’t know what is in English exactly that discipline but anyway uh and uh so he he he for example we have workshops seminars uh we invite different people uh with uh with different ideas within a certain um topic whether it’s climate whether it’s uh uh you know equality whether it’s what what what does it mean with social responsibility what does it mean with uh what is the responsibility of a Ser us as business owner or what is our you know this kind of so we have this kind of seminars and workshops where we uh together with employees in in the company and U our portfolio uh in order to set the how do you say to have an you know the the combining these two you know being very open-minded to new ideas at the same time being very critical and putting the question marks uh I think it’s a it’s good to be open-minded is I think it’s this quote from grouo marks that uh it’s good to be open-minded but not that not not not not not that much so that your brain falls out so uh it’s good also to you know critically you know ER scrutinizing ideas uh so um you know when we were kids and when you were a kid and you as ask your dad dad why are cars why are they moving like you know uh on the roads and say well because they have four wheels uh yeah but why well because you need to have four wheels to be stable and moving forward but why you know you ask the question why usually if you ask it three times then you get to core of the a certain thing and some we lost it on the way you know so we have to go back and being a kid again and asking these questions to ourselves and you know to other people why why and why and then you then you have some very interest I promise you try that and you will see you will have some very interesting discussions then so that seems like to the companies that you invest in or or acquire Investment philosophy teaching them this model of problem solving or you know trying to find the truth essentially um is one of the values that you add or one of the value ad functions that you have what else what else is it um that you add as a holding company to the companies that you invest in like why do you think that why why basically why do companies decide or should decide to sell to you what are the things that you were able to add uh for well I’m I’m I’m a Libertarian so I believe you know I should be able to do what whatever I want to do you should be able to do whatever I want to do as long as I don’t harm you as long as you don’t harm me you know just do your stuff and I will do my stuff so and I believe that there is a huge potential in each and every individual if you have a good platform if you have a good vessel for that individual to grow and that is what we try to provide uh um I don’t say that we are the best in doing that but that is our approach and that is what to I think so what we do is that when we acquire for example a business for us it’s very very important to really acquire and invest in the best of the best it’s always profitable businesses it’s businesses that have been growing rather stable it doesn’t need to be you know this Hwy stic uh uh but you know stable growth somehow and uh but to but reli reliable and consistent cash flow and profitability and this is some that something that is important for us so when we acquire something we do it because they are the best of the best okay and what we say to them is that you know guys usually it’s guys sometimes girls but usually guys uh we want you just continue to do whatever you do and probably there are some steps that you haven’t been taking for example we acquired a business in Spain excellent business sauce business 100% uh uh recurrent Revenue license fees uh only sold in Spain okay and when we dig into it rather quickly you will find out that well the entrepreneur and the CEO which was the same then Spanish guy that speaks only Spanish you know then you have a natural threshold why he doesn’t go to German and why he doesn’t go to UK or nordics okay but that is something that we can add okay excellent excellent uh uh products and services that they uh they are Distributing so so so that is what we tell them that you what you do is excellent it’s perfect just continue doing that and now we can add some more things to that to the tool that you have for example we can take it to take your business to different countries or whatever you need maybe they sometime they they have there rather small mediumsized businesses they have difficulties in recruiting talents but in a bigger you know platform then it’s easier for us to recruit talents and so so it’s um yeah but very uh it’s a non it’s a it’s a non-invasive managerial approach so we don’t change the name of the brand we don’t change the and most of these companies they are run more or less like family you know so if someone comes and say oh we’re going to move your production from here to I don’t know to to Portugal from uh from Finland because it’s cheaper you know we don’t do that kind of stuff uh so we it’s not and I don’t say it’s bad to do that it’s just not our approach our approach is that finding the best of the best letting them continue and keeping the entrepreneurial spirit in the Incentives, deal structure and autonomy business so it seems to have been really successful for you you grown uh n n value for instance hugely in the last couple years um a big piece to making that model work work is obviously getting those talented existing management to stay on board and to be incentivized to keep delivering Excellence so I’d be interested to hear about what have you learned about incentives how do you structure the deals or or or maybe just like the yeah how do you set things up to make sure that the people who are running the business are incentive and incentivized and motivated to keep on delivering Excellence yeah what are your thoughts on incentives in general well uh well I have many thoughts on incentives and incen vising people I mean uh I mean human human human being I mean we are you know we’re we’re complex in some you know in some manners but we are very simple in other parts you know and the Simplicity in how to incentivize Who We Are so uh so you know sticks and carrots uh it’s uh if you perform well you know you have a very good upside and if you perform worse then um then we have the STI uh and uh um and it works pretty well so for example when we acquire business you know we are very generous in terms of so we say that typically we say okay we buy your company but we pay 70% now and we pay 30% in 3 years or and that’s our earnout structur and an earnout structure can be we have three years we have actually earnout structures up to 10 years okay and we pay you 70% now we pay you the rest 30% in 10 years but those 30% can be you know more than the first payment that you got depending on how you deliver so we are very generous on the upside but we are very harsh on the downside protection saying that if you drop you know if you make I don’t know2 million euro in profit and if you have an average profit that is after three years that is less than this then we have a clawback and we can you know pay you nothing for example depending on how it goes and so on so uh which uh we almost never have had to execute on the downside because people are so eager in not delivering you know bad results when they have very clear incentives in what is waiting them so so it’s but that works well and then and then also there are other incentives in terms of uh for example that uh giving you autonomy I’m not going to tell you who to hire or fire you decide I will not tell you and I will not you can if you want our help we will help you but if you want to decide yourself you decide yourself okay and we don’t so the autonomy I think is a very big incentive that we offer that many other uh many other business owners wouldn’t so uh and it is very much Bor boiling down into I think a philosophy of how important it is in and how much power you really have in um you know the power that you can release you can power that you can um you can grow within an individual if you provide the right vessel yeah I you know entrepreneurship Building vs investing in companies is a core value at at a your compan it’s like you’re you’re you’re trying to create a system that allows the entrepreneurs to flourish I think that is also something that I mean many people uh I mean if it’s a private Equity Fund that is running you know and doing some Acquisitions typically they there are people that went to business school and then they are sitting at you know some Financial you know headquarter whether it’s in Helsinki or if it’s in Stockholm or it’s London they’re sitting with their Excel sheets you know number crunching I mean when it comes to you know for me but not only me my colleagues most of them have uh been building their own businesses you know successfully and they have uh been at some time maybe exited and selling their business with someone so I would say that we are we are company Builders we are we are entrepreneurs at the core and uh our experiences in entrepreneurship makes that better investors and our experience in in invest investing makes us better entrepreneurs and so yeah yeah I think B had a quote exactly like that um so is there anything because you built companies and you’ve seen so many companies being built from the inside is there anything that you look at um is there kind of a qualitative analysis that you make in evaluating companies that someone who only looks at the spread might miss like what are the things you look for that are just not purely quantitative financials uh well if we take if we so so resilience resilience resilience that is what we’re looking at so businesses with great growth that’s good okay but uh we want to have re resilient reliable long-term cash flow and so we want to you know really be sure that we have a cash flow and we have a business and we are delivering a service or a product that is critical and it doesn’t matter if uh Putin invading Ukraine or if it’s a pandemic or whatever you know this so for example we have a business in one of the companies that I started 10 years ago uh traffic light Automation in Stockholm you know it needs to work it doesn’t matter if it’s pandemic or not it doesn’t matter if it’s a the we have a war going on in Ukraine it doesn’t you know it needs to work you know so it’s a system critical business you’re or so that’s that’s that’s the core of you know we try to do all the way all from the search that we do trying to find businesses that have this kind of very sticky and very U reliable resilient you know services or products uh when we acquire them and making sure that the structure is in a way that there are good incentives in order to get it going in the same way and then the last part is you know how what is the next step for this business how can we take it to you know maybe we can take the same processes that we have here we after a while we understand and we get better understanding of the business say wow this we can do not only in Stockholm we can do it in this in many other cities you know and can do it more efficient what are your thoughts when you look at a company and say let evaluate like future growth let’s say Finding growth opportunities for instance expanding geographically into into Europe like how do you look at those things as like yeah how do you think about growth and and what what are the areas uh where you think where you typically see like oh this is an easy this could be low hanger food this is an easy way to grow and what are some potential growth scenarios where you’re like Ah that’s probably a too risky you know when companies start talking about like new products or expanding into Germany like how do you think about different growth Avenues and their risk versus versus reward just in general well I would say it’s uh again uh very much having the empirical approach you know try small pieces you know make some experiments so if you want to go into a new jurisdiction first of all since we have businesses in different jurisdictions uh we say that okay we have a Polish it business for example say and they are working in Poland but they have a great product and they have a great offering and they want to expand say okay let’s see we have businesses in the nordics we have business in UK we have business in Spain uh so we don’t have so much in in Germany so let’s let’s try to in Sweden for example okay we we tried two jurisdictions in a small way in a small manner try to get attract five customers in Sweden and five customers in UK and see how it works okay and we have companies working there so you can talk to them you can get help from them you can exchange experiences do it in a small you know experiment uh before you scale up uh and then we will find out well for some reason no this offering that doesn’t work in Sweden it can be some regulatory issues or whatever you know that we didn’t know before we get to start you know and and that’s the thing that’s the empirical approach is so you know efficient because there are so many things that you can sit and you can read about it and you can but you don’t really understand it in depth until you really do it you know that’s that’s why you can’t you can’t be a chemist by only reading chemistry books you have to do the experiments then you will understand got it is there anything Nordic company cultures because presumably you’ve seen you know come across hundreds of Swedish and Nordic companies um is there anything that you that stands out in terms of a pattern of like U you know they’re typically great at this whether it’s like the product but they typically lack like the iation when it comes to some other area is there any patterns in terms of you know what what Nordic companies are good at and first of all you can’t say Nordic companies I mean you can’t trust the Danes we all know that no but uh but it’s very different cultures it is I would say Swedish and Finnish corporate culture is quite similar you know and I think it come it goes back to you know it’s really industrial Nations you have to plan for something you have to you know develop some product and then you scale up and you have a factory and then you go and sell it while you know the Danes they are they are always the middle middleman so you have to you know in order to make put food on the table for your family you have to there are coming PE Ships coming you know and you have to buy it cheap and sell it expensive you know that’s the core of you know the business uh culture the Norwegians fishermen you know so they have to go out you know to catch the the the fish of the day you don’t know what you get someday it’s good someday it’s not good some some sometimes you don’t come back you know it’s a Suddenly It’s a storm and you don’t come back so so Norwegians are much more Cowboys in that term you know uh so much more Risk Takers I would say so it is not uh SW Sweden and Finland is quite similar but then I would say it’s not uh and what what I experience being a Swedish you know company when we go to Spain for example or Poland um we find out that you know the Spanish entrepreneur they are very happy to sell to swedes because we have a brand of being transparent and you can trust you are trustworthy and they trust more in Swedish people than they do in in in Spanish people you know so uh so it is a good it’s it’s a it’s a good good uh good brand or good uh yeah uh to to be Nordic uh I don’t think the Spanish people can distinguish so much between you know the Danish culture or Swedish and fin Finnish culture but uh yeah but there are some big differences I would say yeah it’s interesting point like that Nordic brand could really be an asset yeah for when you’re thinking about yeah going abroad yeah for sure it is um I’d be curious to or you know imagine Preparing to sell your company that there’s someone listening to this podcast who is a business owner entrepreneur who’s looking to sell their company or you know thinking about selling their company maybe a few days years down the line is there any advice you could give to this person of like is there anything they can do today in order to prepare for it and and um to make sure that the process when it comes if it comes is as smooth and successful as possible like is there something you’ve seen companies like you know you you should really put these things in order because otherwise it’s going to diminish the value of your company or it’s going to make it harder to sell I mean uh so for example we tend to build our businesses I mean we have a like handful of larger uh Enterprises uh and I mean they’re privately hold I mean privately own but we we try to implement processes as if they would be listed so we have quarterly reports uh we we get these things in order rather you know early uh and I think it builds lots of value in the business because then you have to you know do things you know in a processed manner in a structured Manner and um it puts some costs and some you know tension in the organization but when they adapt to it then it’s great you know it’s everybody understand that uh well it’s good that we did it so essentially you your companies could benefit from maybe adding a little bit cost to creating doing things in a bit more professional structur systematic building you know because you are building also uh you know you are building structure capital in your business you know so that someone is taking over the business you know they can do it without you so you need to also do yourself more and more redundant so I I say I mean the best the best business to buy is really profitable business great business and they’re going like you know um but with a not so good entrepreneur because then you know that’s okay I will make it also if if it was done with a with an average guy then you know so so I’m very C much very cautious when I meet you know a great entrepreneur you know because then I need to think once or twice what happens if this guy suddenly want to go sailing you know and not running the business how dependent is the business on this guy uh so and that’s difficult to understand you know during a due due diligence process of you know six weeks you need you you try to understand that for over a six week period it’s difficult so um yeah so that’s a bit counterintuitive is that being a great entrepreneur may not even lead to like the the great business outcome in terms of when you want to sell your company of course of course but uh having an external CEO perhaps at a certain stage at that you know it’s difficult to say when and so on I mean if I I would rather buy a business that I see oh this a great business and very profitable strong cash flow with an external CEO and the owner of the business he’s coming to the company every six months you know that’s a great business to buy okay because I’m buying from someone and I know that guy is not going to be crucial to the business yeah I think that’s really good Why Saeid’s not focusing on trends advice um I know you’re a busy man so you know going to let you go here in just a minute but one last question for you you’re someone who thinks a lot about thinking about kind of Frameworks and understanding of the world so I’d be curious to know what are you paying attention to right now let’s say I’m going to give you a caveat which is you can’t say AI because everyone said everyone knows about AI but is there anything that you’re looking at and you think wow this is really interesting could be business science anything that you’re kind of paying attention to uh well I mean there are so many lwh hanging fruits uh you know people are suddenly blockchain AI I don’t know what kind of buzz word you want to use uh I mean blockchain AI cyber security you know this is my business and then you know suddenly everybody is interested no we don’t do that because it’s so difficult to foresee how the future will look like and so on so we try to position ourself in a way that um whatever technology comes you know we are going to be agnostic about it so that we can take that technology using it for so uh so there are so many lwh hanging fruits so we don’t we don’t do this kind of analysis that well that’s that’s going to be the you know that’s going to be the best thing to invest in rather we see you know again resilience resilience resilience you know uh we don’t want to go into a business where even if we see that the business is going like this so I I mean consumer products we don’t go into so as as an example Pokemon go you know if someone would tell you three months before it you know peaked if someone would tell you look in three months from now you will have adult people running around the town finding Pokemon or their smartphones you would say you’re delusional okay and then you know it peaked and and I thought that wow this is going to be a revolution in augmented reality and you know everything this is the P the the the Tipping Point and at that stage if someone would tell you in three months from now this will be gone you wouldn’t believe it you would say no you’re delusional this is here to stay you know but three months later it was gone so it’s so difficult to see you know the trends and where are we going and or long term you can see on shorter term it’s very difficult so so we try to not speculate on that and really stick to the core which is resilience resilience resilience strong reliable long-term cash flow that’s it so yeah I think there’s this uh Lindy principle or Lindy effect where the longer something has been around the more likely it’s to be around in the future okay as well so like relying on yeah that seems to make a lot of sense why speculate about something where you can do something that’s yeah um Z it’s been a real real treat and a pleasure to talk to you thank you very much um for people who want to follow you and what you’re doing you’re thinking about no other ideas about idas um what’s the best ways LinkedIn don’t any Instagram or any other uh social media so LinkedIn is the only one that I use so you will find me on LinkedIn and you can follow my both business-wise but also some other thoughts that I publish sometime perfect we’re going to put the link in in in the show notes um yeah thank you so much for coming on and I hope you have a great rest of the day thank you very much thanks for having me on the P thank you for listening you can find all episodes of growth pod on Spotify YouTube and apple [Music] podcasts