Archive for June, 2008

Courting herd

June 19, 2008

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I am totally confounded by all this talk of impending recession, liquidity crunch, inflation and all things catastrophic.  Sometimes I think, “Gawd, will there be an economy when I wake up tomorrow?”

 

I am not saying this is all babble.  But what annoys me more is that nobody tells me what to do or how to cope.  Tell me `this is your last day on earth’ – there is some finality to it.  But clearly that’s not the case because nobody has a clue what it is going to be like.  Nothing is clear.  But they still twaddle. 

 

So, left with no options, you follow the herd.

 

There is a tendency for business leaders to mimic their peers: following the herd is a safety mechanism. Should the herd start running, one instinctively follows, regardless of the threat. More often than not this makes sense, unless the threat has changed but the herd responses have not.  Herd behavior thus is of limited merit in a rapidly changing environment. In any case, herd theorists will no doubt be aware that those who choose to follow the group spend most of their time wading through the mire.

So we see talk of innovation and competitive advantage instantly replaced by sustainability and survival. “Bringing costs into line with revenues” becomes the new mantra.  But what if this impending recession is actually one of a series of seismic adjustments that can be attributed to inevitable realities such as globalisation or the web? If so, then simply battening down the hatches until the storm blows over is at best a tactical response and at worst one that might permanently damage an organisation’s ability to cope with turbulence.

Enlightened business leaders will see economic clouds as an opportunity to steal a march on their competitors.  The fact that it is unclear when there might be a return on this innovation investment should not be reason to abandon it – periods of inactivity do not just halt progress, they reverse it. Fair weather innovators, like fair weather athletes, never reach their full potential.

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Reflections – At home, on Father’s Day

June 18, 2008

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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

June 15, 2008

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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

June 10, 2008

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?

June 9, 2008

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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Comfortable being misunderstood

June 4, 2008

Jeff Bezos is about my age, 44.  So he would be to many of you too.  What sets him apart? 

Achievement. 

His company Amazon.com first changed the way we bought, read or reviewed books. In 2007, his business pulled in revenue of nearly $15 billion, up 38 percent from the previous year. Amazon’s stock keeps rising, and Bezos becomes ever richer. His estimated worth is about $8 billion.  The 13-year-old company is the biggest online retailer in the world, but recently Bezos has taken Amazon beyond retailing; it now sells its computing, warehousing, and delivery services to other companies. Even tiny startups can rent just about anything Amazon does. And the company made news with its debut of the Kindle, a slim electronic book reader with iPhone-like cachet.

I bring in a small nugget here.  Amazon was incorporated by a divorce attorney!  Here he comes clean on several such interesting stuff.

Thanks to Ben Casnocha, I read that interview. But what I liked most was his reply to two specific questions [by Conde Nast Portfolio.com] –

“One of your big initiatives, a search engine called A9, fell flat. What happened?

If you decide that you’re going to do only the things you know are going to work, you’re going to leave a lot of opportunity on the table. Companies are rarely criticized for the things that they failed to try. But they are, many times, criticized for things they tried and failed at.

Did you ever get criticized for some­thing you tried that worked out?

When we pioneered customer reviews, it was incredibly controversial. I got letters from publishers saying, “You don’t understand your business. You make money when you sell things. Take down those negative customer reviews.” We’ve never done anything of real value that wasn’t at least a little bit controversial when we did it. But if you want to be a pioneer, you have to be comfortable being misunderstood.”

Are you comfortable being misunderstood?

Here is my little take on pioneering where I said “So much of the pioneer’s time is preparation, so much is routine, and so much retrospect, that the path of her genius contracts itself to a very few hours.”

For more, just click the tag “Life” under the title `Categories’ to your right.

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