Random flotsam

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Bitter times make way for wry humor.  I can’t spend the rest of my life griping about deals that have slowed down, decision makers dragging feet.  It just is part of life. The other extreme is despair, clearly not an option for one with my supersized ego.  I have already taken three fortnightly vacations (to shake off the blues and to get some creative distraction) and the fourth is commencing by mid Oct and will last thro to its end.

 

Getting a lot of time to read and reflect.  Stock market, across sectors is going one way, that is down.  S&P Nifty closed 5% down today. Natural gas is puffing up, Steel is slimy. Paper is stationary. Retail is just left with a  tail. Pencils lost a few points. Power equipment is weak. Infrastructure is fluid, while refrigerators freeze. Light switches were off.  Iron ore mines turn empty craters. Diapers remained unchanged. Shipping lines stayed at an even keel. Consumer goods are bad because soaps don’t wash. And batteries exploded in an attempt to recharge the market.

 

I could focus a lot more on what’s happening around. Parents play a lot lesser role in bringing up kids. I see them bringing kids up only in elevators at the supermarket. In real life kids get what they want (unlike our times) and do what they like.  In effect, they raise themselves.  My daughter just got herself admitted to a keyboard class and asks me to finish the other formalities – to pay up !

 

So I settle down to talk to her about the importance of saving money early.  (No, she hasn’t shot back “Did you?”)  But how can I tell her to put her money in that big Bank because piggy banks don’t pay interest?  She reads newspapers and is already asking why big Banks go the Big Bang way?  Silly me, talking of trusting banks to the 13 year old that reads papers and watches TV.  She just told me her piggy bank will never go down with her money nor would she let Wall Street `uncles’ raid her nest.  I am buying her another piggy bank – capital protection comes first!

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“Who will take the risks?”

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Lately I got to read quite some stuff on credentialism.  I haven’t analyzed it enough to form an opinion though I firmly believe in my ability to influence, if not control, outcomes. Odds might be long, but they are rarely insuperable. The folklore of individual successes in business already confirms my thesis.  But I do have a great respect for meritocracy – that advocates crowning anyone that truly deserves - than credentialism.

 

Way back in 2005, David W Boles referred it as phony-on-the-surface and irresistible-in-the-depths separation of people by paper (degrees).

 

How about validation by the market place? Something like a true blue hands-on guy that boxed every norm and broke every tradition that beat all others to the top on just raw nerve and imagination; I would love those types.  They are so seeped in and when they start to tell, it hits you hard and shakes you up. You get your comeuppance.

 

But the system always demands more to keep out those it wishes to not welcome. As more and more people challenge the ivory tower power base with higher base degrees, the bar of perceived excellence gets higher and higher, just to keep the self-proclaimed majority elite in power; and that is accomplished by requiring more and more layers of bullshit to protect a process that is already overrun by pomposity and downward-nose-looking.

 

I see a lot of that in Investment banks and Private Equity funds. They recruit people that have expensive foreign degrees or MBAs with an added engineering background thrown in.  A few years with Wall Street I-Banks, you are THE guy.  Your level of awareness of local market systems, business laws, entrepreneurial culture and traditions hardly matter. You don’t need go far to seek why there are fewer multi-bagger exits in proportion to the sums invested. These are the guys that manufacture subprime crisis, invent alphabet soup like ABS, CDO, CLO that eventually screw up a vibrant market, bring out IPOs and later pressurize the issuer to withdraw when the sentiment thaws. When the market is at its peak, they open their treasure chests, buy minority stakes at mind boggling valuations.  Later when it slumps and valuations look realistic, they shirk even from their underwriting obligations and do fewer deals.  Small businesses like mine are beginning to feel the chill because of their frostiness.  We drive deals to these icemen and they sleep over it for weeks leaving us to face clients with no firm answers.

 

Soon they too will get their comeuppance. As James Fallows asked, “If everyone has the tenure and security that come with professional status, who will take the risks?”

Making sense of customer feedback

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Lately I’ve been spending some time with a startup (into interior décor design) helping them interpret customer feedback on their beta product.  The beta users gave all kinds of suggestions that ranged from “tweak-it-a-bit” to “break-it-down-and-rebuild-it”.  Many a time the customer hadn’t even used it yet felt a sense of colossal urgency to offer feedback. I asked one customer to explain what exactly he meant with the sole intention of prodding him to figure out what exactly does he want from us and will he buy if we make it for him!

 

Ah, you guessed it - he never came back.

 

 Feedback has got a flip side too.  It influences your innate creativity and dilutes your deep, original ideas with shallow and sometimes even clichéd interest of another. It applies a sudden pause to your thought streams that gives in to the advice.  When you’re clueless about something, seek advice by all means.  Trust, but verify. It’s because an advice is just that and not necessarily a masterpiece.  It just opens up a new vista, shows you another way around a knot.  You know the destination and you’ll go it alone.  Along the way you’ll falter and fall, break a few limbs but in the end, you figure things out – and that learning sticks with you.

 

Steve Yegge, has another entertaining rant in the startup context that I would use here -

 

“Self-professed experts will tell you that requirement gathering is the most critical part of the project, because if you get it wrong, then all the rest of your work goes towards building the wrong thing. This is sooooort of true, in a skewed way, but it’s not the complete picture.

 

“The problem with this view is that requirements gathering basically never works. How many times have you seen a focus group gather requirements from customers, then the product team builds the product, and you show it to your customers and they sing: ‘Joy! This is exactly what we wanted! You understood me perfectly! I’ll buy 500 of them immediately!’ And the sun shines and the grass greens and birds chirp and end-credit music plays.

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“That never happens. What really happens is this: the focus group asks a bunch of questions; the customers have no frigging clue what they want, and they say contradictory things and change the subject all the time, and the focus group argues a lot about what the customers really meant. Then the product team says, ‘We can’t build this, not on our budget,’ and a negotiation process happens during which the product mutates in various unpleasant ways. Then, assuming the project doesn’t fail, they show a demo to the original customers, who say: ‘This is utterly lame. Yuck!’ Heck, even if you build exactly what the customer asked for, they’ll say: ‘Uh, yeah, I asked for that, but now that I see it, I clearly wanted something else.”

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I’ve developed the habit of listening to all advice I can get, synthesize them with present realities and carry them out only if it’s practical and convenient.  That’s how I figured out why my trash can is overflowing!

And now, the rubber hits the road

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Over the last three years, I’ve had opportunities to meet several young startup entrepreneurs - on professional lines as well as friendly.  Most of them were young and ambitious.  They bootstrapped their way to start their businesses mostly around internet and mobile applications.  The common thread I had noticed in all their businesses was low entry barriers, least requirement of startup capital.  A few college friends or past colleagues could pool in their savings and get going in a hurry.

But now they are facing some real tests. Rising inflation, slowing demand, liquidity crisis and business cycles are roughing them up.  Even getting to office has become expensive owing to surging oil prices.  Suddenly they need more working capital as suppliers no longer give them credit as they used to; and customers take time to pay up.  Double whammy!

I suspect they have little fat to cut and are operationally geared up to the max.  Stretch any further and they will break.  They need more gas to run and capital is fast drying up.  Debt is ruled out since they have no collateral to offer and interest rates are no longer benign on personal loans. There is no certainty in advance to say who has the constitution to survive the drawn-out agony of a serious slump. It takes both resilience and cash to withstand two or three years of grim business. Maintaining morale while carrying out redundancies and wholesale restructuring can defeat even the finest manager.

So now they seek external funding by way of capital support shedding their obsession with controlling stakes.  But VCs are strapped for liquidity as well since their previous investments haven’t yet matured. Likely that it will take longer to exit those since there is little or no appetite for public investors for IPO – the primary exit route preferred by VCs.  Secondary exit routes like M&A, buyouts happen during low interest regimes but inflation at 12% (in India) makes sure that interest rates keep inching their way up.

They have to stick around and survive.  I think this is one of their hardest test. Soon they will also witness political hurdles as well if the UPA govt fails the trust vote and reforms take longer to descend that will suck every last wind, not just of liquidity, out of the system.  In surviving those hardships and sticking out till the very end, they will earn their spurs and rites of passage.

But of course things could always be worse and exactly where their rubber hits the road. The only way for them to get around is to get all the more innovative, try even the most weird way to get everything past the gate. It’s your money in customer’s pocket and there are far more claimants to that ever shrinking pie.  Go grab it, fast !

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Ok founder, now get the hell outta’ here!

Remember VMware, the company as recently as January, had appeared to be rocketing into Silicon Valley stardom?

The company was founded in 1998 by Ms. Diane Greene and her husband, Stanford University computer-science professor Mendel Rosenblum, to develop software that allowed a single computer to run as multiple “virtual” servers simultaneously, with several different operating systems and numerous applications such as databases going at the same time. Mr. Rosenblum remains an adviser to VMware. The company was later bought by EMC, the Massachusetts data storage giant. EMC acquired VMware in 2003 for $635 million and retained 86% of its stock.

On Aug. 13 last year, EMC spun VMware out as a distinct stock offering and the company was an instant hit, recording the biggest technology initial public offering since Google’s in 2004. Its stock shot up from a $29 offer price to $51 at the first day’s close of trading. Within a few weeks, VMware’s market capitalization placed it as the world’s fourth most valuable software company. But VMware’s stock price, which peaked at nearly $125 on Oct. 31, has been in a tailspin in recent months and the company faces increasing competition from Microsoft, Oracle and Sun.  Going by the recent downward revision of its earnings guidance, VMware’s stock fell $13, or a little more than 24 percent, to $40.19 at the close of trading.

And then? Instant justice. Reacting to the decline in its fortunes, the Board of Directors fired co-founder and Chief Executive Diane Greene, replacing her with a former Microsoft executive Paul Maritz apparently to help the company combat its growing competition and take it to the next level.

Often founders find themselves in the crosshairs when performance suffers or a founder’s style clashes with that of a new boss. Shares of Sun Microsystems climbed immediately after founder Scott McNealy announced he was leaving the CEO post. Jones Soda founder Peter van Stolk left amid languishing profits saying, “I didn’t want to be one of these guys who hang on too long. As the company grows, different skills and requirements are needed to move the thing forward, and they aren’t necessarily entrepreneurial skills.”

This Harvard Business School case study concluded that “An inherent paradox in succession is that a founder who has been doing a good job actually increases the chance he or she will be fired.”

But there can be such a thing as showing a founder the door too soon. Often, a clear transition hasn’t been mapped out. Other times, the founder has specific relationships with vendors that are vital to the company’s operations. Sometimes, the Street just likes the person.

There are of course conflicting reports of EMC’s high handed interference that Ms.Greene detested.  But I find the inherent flexibilities (or are they liberties) remarkable.  If Board finds the CEO can’t take the company to the next level, be she a co-founder – she can still get canned.

I think here is a lesson for many smug founder entrepreneurs that stay anchored as CEOs refusing to acknowledge their role has become less relevant.  So is here some learning for Boards to play a proactive role – that of an activist - in ejecting those CEOs to save the day for customers and shareholders.  I am not saying that is the case at VMware, a truth that will be revealed only in the days ahead.

But I certainly like the spunk.  And the insecurity that comes with it spurring many a CEO to deliver or else.  Steve Jobs was fired by the Board of Apple and we all know how he got back and delivered.  Hope Ms.Greene shall have her go too.

 

Winning isn’t everything; it’s the only thing

 

Winning as a commodity is in desperate short supply in our lives.  It isn’t everything; it’s the only thing.  That’s the reason why I liked the U-boat metaphor in the expression “if you sink, sink like a submarine”.  It exhorts us to triumph against all odds and resurface.  While winning is important, we should build resilience to face defeat.

Winning is important because it validates excellence.  It blunts the naysayers. The winner displays an energy that only he knew existed.  While in the trenches, skeptics stare him down with the spiteful expression - “what makes you think you are unlike the rest of us, you idiot”.  The mainstream majority is so awash with egomania that doesn’t easily recognize the winner’s right to be different. All is fine if he joins them, loses all exclusivity, never rises above mediocrity.  Trudge along - is the norm.   

Achievers don’t really conquer anything more than their own worst fears and self-doubts. Winning needs a good combination of gut instinct as well as strategy with dollops of positive outlook and self-estimation. They start on some impulse that gets iterated gradually.  The scathing derision from all around can hurt while starting out. Face up to it and it fades away.  Then you are on your own, on the path to victory leaving all else behind, way behind.

That scares them.  Know why? Short-term thinking and risk aversion dominate this planet.  A person like me who embraces intelligent risk and thinks decades ahead doesn’t fit in very well here.  That was a bit of a problem for me when I was younger, but now I just embrace it.  It’s simply who I am.  I get all the support I need from my connection to my purpose and from feeling a sense that I’m working to serve all that I believe in.  The whole world could turn against me, and it wouldn’t make me want to give up.  It would probably just inflame me more.  I never get discouraged because I believe my approach to life will produce some amazing results in the long run.  It’s only a matter of time. I overcome fear of risk by tapping ever more deeply into what I love most.  The thought of taking a risk produces excitement instead of anxiety.

Go find an intelligent risk you can take today.  Most likely it won’t pan out.  But what if it does?  Celebrate either way because no matter what the outcome, you’ll gain courage just by making the attempt.  Recognize that there is no safety in passivity either.

 

Reflections - At home, on Father’s Day

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Last nine months have been tough for global business and mine too suffered.  Deal velocity has significantly slowed down with the thawing market sentiment.  Family loves me because I spend more time at home now than ever.  We’ve had three week long outings already and I was home for my daughter to wish Father’s day for the first time - normally an event marked by a terse text message over mobile.  A rare event in my otherwise strung life.

 

Nonetheless, entrepreneurship is indeed challenging and that’s what I like about it most.  Not one boring moment.  You are either hard pressed for time doing deals or you are busy thinking up next best way to sell.  For me, it’s business services like Private Equity fundraising, Business due diligence and research based deal making.  I hate analyst reports if I don’t see a deal at the end. Deals give me the high. This is the only filter I apply when I look for business relationships and the reason why I have so few.  Those I chose to drop off have all been gruesome brainsuckers. They try to feel you up and get their convictions examined with no specific goal.  It’s ok if you think you’re smart; but it’s something else if you don’t realize that it’s entirely arguable.  In the inscrutable world of business, nothing goes unresearched; everything is questioned. 

 

One thing that has always baffled me is why certain people hate capitalism so much. Aren’t they missing something? Ever since I was young I knew that being an entrepreneur was the most fun you could have with your clothes on – it is the greatest adventure modern life has to offer. And if you’re lucky and astute, you might even get rich in the process. Why is that so terrible? Yet all too often capitalism is blamed for many of the ills of modern life, from global warming to poverty.

 

One of the wonderful things about markets is that they self-correct ruthlessly: companies that fail to serve the customer will be overwhelmed by rivals – and go bust – and see their assets reallocated. But governments move slowly, ideologues can be stubborn and damaging legislation can take years to rescind.  Most people focus on the risks of free enterprise and are scared to join the ranks of the self-made. Some have learned to play the system of government and institutions like a game, and enjoy power, pension and profit from their position in the state sector. Why should they encourage choice and competition when they have such a safe haven as a bureaucrat, trade union official, academic, etc?

Churchill understood this when he said: “The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery.”

You’ve to ride the wave as it comes. Growth is secondary. In this sort of environment question is of survival. Businesses don’t go bust because they make losses. They go bust because they run out of cash.  So manage your resources better. Stay liquid. A slowdown in the economy and rising unemployment might just stimulate more to start their own business as an alternative.  This is the only way to beat a looming recession fueled by liquidity crunch and oil price propelled inflation.  Go create wealth and pay your taxes.  No magic mantras.

 

Motivator #1 - your goal

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If you want to run a marathon you don’t just go out that day and run 26 miles. If you want to be a tremendous success in business you don’t just wake up one morning and are running a $100 million company. Whatever you are looking to achieve in life the steps along the way and the overall mindset of success are critical. We need to celebrate each day’s success and build on it for the next day. We need to start thinking of ourselves as successful and then live into that reality. We do create our own reality and by thinking we are a success or thinking we are not that is exactly what we are.

Most people recognize a champion only when he steps up the podium, but he actually has become a champion far before it. In fact, he has become a champion years before that glorious moment; because to reach that moment, first and foremost he has to become a champion in his daily life. He has to train hard for years, control his diet, and deny a lot of pleasures to prepare for the contests. While other people can live whatever way they want, he must live a disciplined life. Most people only see him in the glorious moment, but it is this lifestyle that actually brings him to the podium.

I think of my own early years.  I had spent over 15 years of my life working for different companies.  I was lucky to have a mixed bag for superiors – a few that were brilliant and others downright mediocre.  I was happy to learn an awesome lot from the former but having to put up with assholes was awkward.  In fact that drove me to start out on my own even as I was hardly prepared for the associated risks. By then I had acknowledged the omnipresence of mediocrity and recognized that brilliance is hard to come by.  The funny part was, I wasn’t too sure into which crucible I fell.

But I was certain about something.  If I were patchy in some area, I certainly would like to improve.  I was ready to admit and change. Soon I will be good at it because I worked at it.  That’s a trait you don’t find in assholes.  They are dodgy and they shirk a lot, passing the buck at every slip.  Do not hope to achieve great things if you don’t want to pay the price in the first place.  The journey to mastery is long and difficult. You need sustained motivation to walk it.  Set yourself a goal and pursue it arduously.  That is your motivator #1.

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Refuge of the feeble minds

Indian businessmen and executives may not yet be the most meticulous executioners of management principles in the world. But when it comes to keeping the Gods and lady luck happy, they leave no stone unturned.  Hang on!  Is that just an Indian prerogative?  Not really.

Heard Barack Obama lately carries a Hanuman idol to beat his rivals in the race for the White House.  Now that he has successfully put Hillary behind, he’s sure to bank on its charms to beat McCain:)

Here is a list of other famous people that harbored mythical attributions to their endeavors…..

Where reason ends, fickleness begins. The goal of every culture is to decay through over-civilization; the factors of decadence - luxury, scepticism, weariness and superstition - are constant. The civilization of one era becomes the manure of the next.  Legend becomes part of the process; over time it slides from the realm of individual belief into that of an enterprise habit, more so if it has its origins at the very top.

But when Venu Srinivasan of TVS motors sends first 21 units (motor cycles) to his choice of religious shrines before he starts commercial production, he is not exactly appeasing the Gods; not when oil is peaking at $140 a barrel :-) 

Not all of them mix up superstition with security.  Perhaps they know to strategize better and had realized that security does not exist in nature, nor do the children of men as a whole experience it. Avoiding danger - to them - is no safer in the long run than outright exposure. Life is either a daring adventure, or nothing. You don’t have to rate excellence and innovation so low below mythical tales because when you do that, you are in fact bidding good bye to creativity altogether.

 

 

How much is it about growth, of what?

Is it all just about growth?

It is a sad truth. I constantly have startup founders throw the number of people they have in their company in my face as a benchmark of success.  Perhaps the dream of going public some day blurs the merits of their smallness and the greater client focus that it affords.  It is funny because these companies have 5x the resources in both people and capital yet have very little to show for it. It is not how many people you have,  it is the impact those people have and what they are able to accomplish. It shouldn’t matter if that is a team of 40 or a team of 4. I know quite a few companies have done a great job of showing that it doesn’t take a lot of people or a huge amount of money to be successful. We should all thank them for being a shiny beacon of light in an oversized and over-funded world.

When is it good to chase growth?  How much does growth matter?  Hell, is it sustainable to keep growing for growth’s sake?

Wouldn’t you like to be a small giant that’s a great company?  How about accent on customer focus and employee friendliness?

If it were up to me, I’d most likely be working with teams no bigger than, say, 20 people. I’ve found that number as the ideal balance between a small but solid and enjoyable team, and when it exceeds, everything that used to be cool about working at a given place may likely start sucking.

Earlier I had a consulting client, a technology startup. When I was hired, they were a mere 8 people on board. Now they’re nearing the seventy-something employee mark, and while the people on charge have done a rather stellar job of preserving much of the laid-back attitude that defines them, they lost a lot of startup values in the process of scaling. Holding an impromptu discussion over a project in the kitchen is no big deal with a team of 5 people. Not so with 50. The more people they got on board, the less of a grip they had on everything, and the more likely the implementation of rather annoying control systems. Goes without saying that, should I be taking care of a startup of my own in the future, would rather be in charge of a small team.  Now it’s just me and most services outsourced (am a great fan of *buy* than `build’) and I’ve never been happier. As long as business is good and allows me to put food on the table and then some, I should be good to go and be happy.

Public companies have too much pressure from investors to keep growing, but there’s not enough emphasis on whether it’s good for customers (and hence for the business), employees and other stakeholders.

Apple has grown by developing good products that people want, broadening their offerings within narrow categories and using their products to cross-sell the rest of their lineup. iPods became popular because they were good.  People who were happy with iPods decided to buy iBooks and iMacs. Company grew. Investors that bought Apple stock in 2001 and 2003 were up by over 15x.

Compare that to many companies that try to grow through M&A when they can’t grow organically, and have all sorts of issues with merging cultures, branding, overcoming resentful customers, etc. Most mergers suck. Employees get laid off or even leave, customers face worse service and higher costs, savings aren’t fully realized because the integration costs so much, etc. and ultimately the investors lose their shirt.

So before you take the next M&A bet, try this test in addition to all that you normally do – just see how much better-off is the customer post merger. Does he have to spend a Rupee more or less for buying the same unit and quality stuff?  As a corollary, do you pay a Rupee more or less for buying more stuff (enabled by scale) from your vendors? If it’s more, don’t waste your time. 

Investment bankers would kill me for saying this, I know

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