Chapter 2 1. Original sin

Around 1995 to 1996, Hainan Vantone, the parent company of Vantone, encountered a very big crisis, and it was this crisis that triggered our discussion and self-examination on the "Reflection Day", so we had our own We have recognized "original sin" and found the correct method to cure "original sin", that is, "socialization of capital, professionalization of companies, professionalization of managers, and localization of development." Our crisis at that time mainly focused on finance and internal organization, as well as the contradiction between the company and the external environment.Financially speaking, we expanded very fast at that time, mainly through leveraged buyouts and serial holdings. We invested in Wuhan SDIC and had three credit unions (one in Tianjin, one in Nanning, and one in Lanzhou); we also invested in Huacheng Finance Company, Tianan Insurance, Shaanxi Securities, and Minsheng Bank.For a while, we became the most attention-grabbing private enterprise.We then expanded through mutual lending by financial institutions, and invested in many industries such as real estate, commercial retail, and high-tech.In the process of expansion, our internal organization has actually been gradually divided. The one in Shenzhen is in the hands of Wang Qifu, the one in Guangxi is in the hands of Yi Xiaodi, and the one in Beijing is under the management of me and Pan Shiyi. In addition, Wuhan SDIC, Shanghai Wantong is co-managed by me and Liu Jun.As a result, great dislocations and conflicts occurred between financial resources and the company's operations. During the expansion process, the financial burden increased day by day.At that time, the funds used for investment were short-term loans at an annual interest rate of nearly 20%. If there was no gross profit of more than 60%, the investment would definitely lose money; Destroying the financial institutions in his hands and lending at high interest rates to more people and institutions, the result was worse, drinking poison to quench thirst, the company was overwhelmed, and came to the brink of collapse.

This financial crisis actually forces us to think about how capable we really are, and how we should obtain healthy investment and expansion capabilities instead of convulsive abnormal capabilities.At this moment, we understood that we must never invest with borrowed usury loans. The only way to save ourselves is to sell things to pay off debts, reduce company costs, get rid of burdens, and then increase capital and expand shares to introduce capital that does not need to be repaid.So we began to retreat in great strides, retreating and retreating until there was nothing to sell and nothing to retreat.Wuhan Guotou was sold, the securities repurchase seats in Beijing, Tianjin and Wuhan were taken back, the three credit unions were included in the local urban cooperative banks, Shaanxi Securities was sold, Tianan Insurance paid off its debts, Huacheng Finance Company went bankrupt, and the Northeast Hualian also sold.In short, this is a financial crisis somewhat similar to that of Deron later.At that time, we attributed the cause of the crisis to "short-term debt and long-term investment".

At the same time as the financial crisis, we have fallen into an organizational crisis, which is actually the choice and confusion faced by several partners (shareholders) under financial pressure.Since no one could think of a perfect solution, and no one could convince anyone, everyone proposed to divide and conquer. Guangxi and Shenzhen were cut off, and Pan Shiyi also founded a new company by himself.The so-called division method in the organization is actually the method of dividing the piece according to whoever is in charge of it.However, those who left got cash instead of debts. All the debts were left in Vantone’s Laogen, and I, Wang Gongquan and Liu Jun were responsible for handling them.Therefore, the separation of partners was the biggest organizational crisis during that time.

After 1996, assets and liabilities were still in the process of being compressed and sold, but the organizational division had been completed.At this time, Gongquan and I were faced with a realistic choice, that is, how should the company go down?This is a very heavy pressure.Under this pressure, I went to the United States and discussed it with Gongquan in the United States. Finally, we decided to "shrink": concentrate all businesses, reduce costs, and reduce personnel; domestic business is only real estate, the United States Vantone only makes venture capital investment.After making this decision, it will be September 13th, which is Vantone's "reflection day".The introspection of this year was done in Hainan. When we were introspecting, we wondered why Vantone has come to this point, with such a big financial loophole and owed so much money (in 1996, we owed The money is six or seven hundred million)?After the partners separated, the asset situation was even worse. Why?Why can't the few of us continue to work together?After careful discussion and analysis, we found that many problems did not appear in 1995 and 1996. We were indeed burdened with inherent paradoxes and dilemmas; There are great deficiencies and flaws in all the methods, some of which are due to their own limitations, and some of them are caused by the institutional environment.

For the convenience of discussion, we will call this problem "original sin".Since then, we have been constantly reviewing our so-called "original sin". The first paradox we discovered was that in China, people do not have money to start a company, and do not have capital to invest.This is completely impossible in the West, where only rich people invest and start a business. At least the start-up expenses can be borrowed through normal channels.Our starting point is much worse, empty-handed, and there are only three ways to get the initial capital: first, the savings of our own family members; second, "cheating" and "robbing"-"cheating" can be repeated three or five times, "Grabbing" is only once or twice, and it cannot be repeated, and the entrepreneurial process will be interrupted; third, when borrowing money, the creditor will give time, and the borrower will pay the interest. interrupted by the problem.

Our family has no money, no ability, and we don't even support our own "purse bag company". The only reliable thing is to continue to borrow money.Therefore, the self-owned capital in our capital composition is negative from the beginning, and it is the capital converted from loan sharks. The pressure of return at the beginning is the pressure of "must make huge profits".Without windfall profits, how could it be possible to repay the principal and pay the interest (we borrowed money at the time with an interest rate of more than 25%), and still have to give ourselves some leftovers before continuing to toss?For example, I borrowed 100 yuan, and I lost money from the first day, and the debt ratio was over 100%. At that time, the interest rate was usually more than 20%, and the principal plus interest had to be repaid 120 yuan; Lose 120 yuan, spend 20 yuan on meals, spend 40 yuan on operating expenses, and still have 100 yuan left as capital. Earning 280 yuan with a principal of 100 yuan, isn't this huge profit?The first windfall process must be completed in order to maintain the initial scale.

Under normal circumstances, very few people will honestly repay the money and continue to develop according to the scale of the previous year; most of them wish to invest the 280 yuan they earned from the windfall profit to expand the scale.In this way, after earning 280 yuan, only a part of the loan was repaid, and then continued to expand the scale, borrow more money, and chase greater and more sudden profits.But it is impossible for this person to earn 280 yuan every time he invests 100 yuan, and he will definitely lose once after a long time.In this way, after making a profit, the brain starts to expand, and then borrow money to expand, but there may be a problem in the second round. If you lose half of the 100 yuan and there is still 50 yuan left, you will usually borrow another 100 yuan, and add 100 yuan to the original 50 yuan. This time, we must use highly leveraged debt to earn a gross profit of more than 290 yuan, that is, a rate of return of 580%, so as to solve all the remaining problems and maintain the previous year's profit scale.Obviously this is a huge gamble, and we need to find a place and project to gamble on.

Self-owned capital comes from usury loans, which will lead to a tendency to make huge profits. Coupled with the man's risk-taking psychology and the uncertain environment, the probability of winning the gamble is not high, so the more you gamble, the bigger the bet.This is why private enterprises are so risky.It is Deron who follows this logic to the extreme.We did not gamble to the death with many companies because we conceded in the middle and quit and stopped betting. In 1997, the company made introspection and began to integrate assets after fully realizing the "original sin" problem.At that time, the scale of assets under our control was 7 billion, but we gave up and started selling things to pay back the money. We cut off all the projects that had nothing to do with Beijing or real estate, and the changes among partners were also "shrunk". In the end, the assets shrank to 1.6 billion, which finally stopped the crazy running train.

I discussed it with Tang Wanxin of Delong. Before his downfall, Delong also controlled a large number of financial asset projects, but he couldn’t stop and went further and further on the road of vicious gambling.It is now disclosed that their asset size at that time was 60 billion.We went back when we had an asset scale of 7 billion, and we slowly came back to life after resolutely shrinking.Delong continued to gamble according to the capital (original sin) of private enterprises in that era—the profiteering logic. In addition to on-market securities repurchases, short-buying and short-selling treasury bonds, Delong also invented a method of cooperating with listed companies and managing money on behalf of customers. He borrowed a lot Money to speculate in stocks.In the early days, it was the era of Zhuanggu. If you made a few orders, the return to others was 10% to 15%.Later, on-site securities repurchase could not be done, and financial management on behalf of customers was no longer possible, so they began to form and acquire financial institutions, illegally absorbing 15 billion public deposits, and finally squeezed by the multiple forces of media public opinion, government investigations, and market fluctuations. Completely collapsed.

Delong's original accumulation comes from developing photos, collecting film from Xinjiang, developing it in Guangzhou and bringing it back, which is equivalent to a leather bag company developing photos.At that time, color printing was fashionable, and the supply of printed products in two weeks was in short supply. They made a fortune from this business.At that time, he was already a million-dollar household, but he still felt that there was not enough money to do a big business (Tang Wanxin said that he was still studying us at that time), so he started to toss from the on-market buyback in 1996.

Later I understood why he couldn't hold it.One is that after betting tens of billions, the company can’t control it like a wild horse; the other is that the direction is wrong, and the legal environment and market environment have changed. Market regulation was not very strict before 1996, and we still had the opportunity to correct our mistakes. At that time, it was too late to stop. As long as we really want to "learn well", the external environment will still give us opportunities.It's like a thief who stole something, and he is aware of the danger, so he can change it honestly; but in the case of "strike hard", even if the stolen goods are handed over, he will be sentenced.Deron belongs to the latter.