Marcellus Blog: The First Commandment: Take Risks

1 message

Saurabh Mukherjea <saurabh@mail.marcellus.in> Wed, 14 May 2025 at 11:02

Reply to: Marcellus Investment Managers Private Limited* <reply-febf15757c60037b-1977_HTML-14739526-546002724-
7002@mail.marcellus.in>
To: itschanderkant@gmail.com

Summary: Take entrepreneurial risks. Train yourself to take EV (expected

value) positive bets early in life and then spend your life making as many EV
positive bets as you can. Make small bets initially but once you realise that
the odds are in your favour, load up and go as big as you can afford to
without putting your existence in jeopardy.

[To find out what the Ten Commandments of Indian Entrepreneurship are,
please click here: https://marcellus.in/blogs/the-ten-commandments-of-
entrepreneurship-in-india/]

“Successful risk-takers are good estimators. They are Bayesians, comfortable

quantifying their intuitions and working with incomplete information…

…you have to be comfortable turning your subjective feelings into probabilities

and acting on them. And in other enterprises involving risk, you have to be
willing to make at least a good first-pass estimate….

You also have to recognize that—as an outgrowth of Bayes’ theorem, which

works by revising your probabilistic beliefs as you collect more information—
your estimates will become more precise as you collect more data. But
sometimes your edge comes from being willing to act on a relatively crude
estimate to take advantage of an opportunity when other people are still mired
 in the fact-finding stage.” – Nate Silver in ‘On the Edge: The Art of Risking
Everything’ (p. 237). Penguin Books Ltd. Kindle Edition.

Disclaimer: Copyrights of the book is exclusively reserved with Author/Publisher of the above book; we do
not claim any rights on the same.

I remember that day in 2003 as if it was yesterday afternoon. It was a summer’s

day in London. I was five years into my management consultancy career and
struggling to get promoted. I had been told by the HR department of the
American consultancy where I worked that without an MBA they would not
promote me. Being an obedient employee, I had done my GMAT, secured a
respectable score (97th percentile) and was about to apply to the usual highly
ranked business schools when I did the maths on how much it would cost me
to do an MBA.

The cost of the fees and the salary I would forego to do a two-year MBA was
equivalent to a two-bedroom flat in the far-flung suburbs of London where I had
grown up. Even as I winced at the investment entailed by an MBA, I checked the
curriculum to see what I would be learning from an MBA at a respectable
school. Whilst the modules on Marketing, HR, and Supply Chain looked to be
new areas of learning for me, much of the content was the same as what I had
studied in my four years at the London School of Economics. Hence, I decided
to sit down with my line manager, Steve, to understand whether I should invest
several hundred thousand dollars on an MBA.

Steve – himself an alumni of Imperial College and London Business School –

was blunt. He said that a business school is like a “modelling agency rather
than the army”. Seeing my perplexed expression, he spelt out the metaphor
more clearly.

The army toughens you physically and mentally. By itself, a stint in the army
might not land you a good job. However, the mental resilience, discipline, drive
& determination that the army instils into you is more likely than not going to
help you rise in the world.

On the other hand, attractive young men & women go to modelling agencies not
to become more attractive but to get signed-up for modelling gigs. In this
sense, a modelling agency is almost like a clearinghouse for attractive people –
they supply their talent to the agency and agency finds buyers for this talent
e.g. advertising agencies representing corporates who want to promote their
products.

Steve said an MBA from a good business school is like being signed by a
modelling agency i.e. it wouldn’t make me any smarter, but it would increase
the chances of my getting a senior role from a prestigious employer. That in
turn would compel my then employer to promote me once I graduated from
business school.

“But why can’t the firm promote straight away rather than making me go
through this modelling agency-MBA drill?” I asked Steve.

What Steve said next changed my life. He said “Saurabh, most middle managers
in large companies do not want to take any risk. If we promote you and you
misfire on your next project then we will get a rap on our knuckles. Plus it will set
a bad example i.e. other people in the firm who are in your grade will also demand
promotion without an MBA. On the other hand, if you go and do an MBA and we
then promote you, everything changes. Because then if you screw up, we have our
bases covered thanks to the modelling agency – MBA having vetted you as a
credible executive who deserves a senior role.”

Once Steve had helped me understand that corporate life in a successful

management consultancy was about taking as few risks as possible, I realised
that I had to move on from such an environment. In spite of what you might
think of Bengalis, I come from a family of risk takers. My maternal grandfather’s
dad was the first major real estate developer in Kolkata. My maternal
grandfather was a successful lawyer and a real estate investor. My paternal
grandfather migrated from what is now Bangladesh to Kolkata a year before the
Partition and proceeded to set up a successful legal practice. My father and I
were actually the first people ever in our family to enter salaried employment.
My chat with Steve took place in 2003 when I was in my mid-twenties. My wife
and I took stock of our modest savings after my chat with Steve, and she gave
me two years to build a successful business. As my wife put it “Investing two
years and GBP 20K in building a business feels like a better use of our savings
rather than spending that money on your becoming a capitalist drone at some
business school. And if your venture doesn’t work out, you can always go back
to salaried employment.”

Three months later I quit my job as a management consultant to become a co-

founder of Clear Capital in London. I invested my modest savings and whatever
talent I had into that venture. The firm made a name for itself over the next four
years. I learnt to cope with adversity (when our cash reserves were about to run
out), to pitch to VCs, to sign-up clients, to hire talented staff with a super tight
budget and to be the office clerk, cleaner, receptionist & peon whenever the
need arose. In short, I learnt how to take risk and build a small, profitable
business which at its peak was earning us GBP 1 million. And by the way, whilst
we were doing all this, I also became one of the top rated Smallcap analysts in
the UK.

We saw the Great Financial Crisis coming from a mile away and sold the firm in
May 2008. The modest profit I made on my GBP 20K investment allowed my
wife, myself and our 9-month-old son to migrate to Mumbai in 2008 and buy an
apartment in the Maximum City (after property prices had collapsed due to the
Great Financial Crisis).

I never considered doing an MBA thereafter. I focused my life in India on

spotting business opportunities, taking risks and making the most of the vast
economic potential of the world’s fifth largest economy.

As I became a more seasoned entrepreneur, I found with a simple equation to

help me decide which risks to take and which ones to avoid:

Expected Value of a bet = [Probability of winning x Upside from winning] -

[Probability of losing x Downside from losing]

So, for example, in the summer of 2018, my wife & I sat in a forest in southern
Spain and did the following math BEFORE Marcellus was created:

Probability of Marcellus succeeding = 60%

Upside if Marcellus succeeds = $100mn
Probability of Marcellus failing = 40%
Downside if Marcellus fails = $1mn i.e. the money we could afford to
invest to create Marcellus

The EV of the ‘bet’ to create Marcellus therefore is [60% x 100] – [40% x 1] = 60

– 0.4 = $59.6 mn
Note: The expected value calculation presented in this blog is a hypothetical example for illustrative purposes
only and does not represent actual or projected performance. Readers should not interpret this as a
guarantee of future outcomes.

In the jargon used by poker players, that’s an EV+ bet i.e. the EV of the bet to
create Marcellus was well above zero. So, sitting in the forest in Spain, I dialled
my colleague Sudhanshu in Mumbai and requested him to begin work on
finding an office and incorporating the firm.

As secure, structured employment in large companies becomes a thing of the

past, millions of Indians will have to learn to make such EV+ bets. The scale of
the Indian economy, its diversity and the pace of technological change in the
country naturally lends itself to a proliferation of such EV+ bets. Provided one
 has the courage & the wherewithal required to deal with a bet which goes
wrong, all one has to do is train oneself to identify EV+ bets and have the
capital necessary to move in when such bets present themselves.

Saurabh Mukherjea is the Chief Investment Officer at Marcellus Investment Managers

(www.marcellus.in). This material is for informational and educational purposes only and should not
be considered as financial, investment, or other professional advice. The inclusion of any book does
not imply endorsement or recommendation by the writer or the publisher of this material.

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