Archive for November, 2008

4 ways this recession is changing our world forever

It’s been a few years since I’ve written here, so I thought I’d start by going back and reading some of my old posts.

The following paragraph jumped out from something I wrote in 2005.

U.S. real-estate slowdown will have global consequences: Interest rates, U.S. bond prices, U.S. consumer confidence, dollar exchange rates (and hence the offshoring business), combined with the huge (and increasing) U.S. trade deficit are all pieces of a fragile domino game. This game could easily turn ugly if the U.S. real estate market accelerates its slowdown, or even worse, turns out to be a bubble. Bad news in the U.S. housing market could trigger a global recession.

(From Predictions for 2006 from an Indian perspective on VentureWoods, emphasis added)

This seems all remarkably prescient and oracle-y now, and I almost made a suitably massive upgrade to my ego. But like recent Sensex rallies my ego quickly came crashing down when I read some of my other predictions – e.g. Yahoo will start catching up with Google (Hope is eternal, and I might yet come back to gloat).

But lets get back to more important things:

There seems to be a tendency amongst many to regard a recession as a finite event, associated with a numerical reduction in GDP or stock market values. Business writers seem to compare a recession with a winter, where you hunker down (“cash is king”) and hibernate on minimal life support – after all, spring is just around the corner.

That might be a useful survival strategy, but it misses the bigger point – recessions (and especially this one) are discontinuities with totally unpredictable consequences (gosh I sound like a Nassim Taleb fanboy). To continue my useful but terribly flawed nature analogy, recessions are not like winters, but more like the Ice age that made the dinosaurs extinct. Like the Ice Age, this recession has already essentially destroyed the US Investment Bank business model.

What other changes will this Ice Age bring? I see a few possibilities:

1. Currency changes – The hegemony of the US financial industry (and the financial industry in general) is over. As I write this, the G-20 is meeting to discuss what could very well be the birth of Bretton-Woods II. A covert agreement to safely achieve a massive devaluation of the US Dollar is not out of the question (what will the Rupee do ?). Nor is it impossible to envision the emergence of an alternate reserve currency (or more likely a basket).

2. Consumer changes – We have lived, learned and grown up in a world where the world (now mostly China) manufactures and the US consumes. That world has changed. The US consumer is now on life support. She might live for a long while more, but that vitality and voracious appetite is unlikely to return. For the sake of my mental well-being I prefer to not imagine the consequences of this to the Chinese economy.

3. Fiscal policy changes – The ghost of Keynes is stirring – World governments will unleash the mother of all fiscal (deficit) spending rather than allow deflation to take hold. This sort of worldwide government stimulus is unprecedented, and its implications (or even its effectiveness) are unknown at this point. Will all the stimulus go into productive areas of the economy or will it be gambled away ?

4. Political landscape changes – The current bonhomie between nations and “global co-operation to solve the crisis” is very fragile and based on mutual fear. The Doha talks fiasco shows that developing nations are no pushovers now. There is a real chance that this “united in fear” sentiment could morph into a very ugly blame game. The parallels of the current situation to the Nixon Shock (when the French demanded gold from the US in return for dollars) are eerie and very scary.

So my question to the readership of this blog is this – does anyone see these changes too ? And more importantly, what other seismic shifts do you see occurring in our economic and business landscape ?

Create Your Own Job

For those of you going through tough times, especially those looking for jobs, I suggest you consider “creating” your own job. Here’s Rafat Ali’s story on how he created his own job and became an entrepreneur.

I think periodic recession is good for health!

If these economic jolts of last few weeks are called recession; I am pretty amused by it.

– Pleasantly amused by my all brokers (companies like ICICI Direct, Kotak) sending me mailers explaining different plans and simple logic behind them. None of them cared a quarter back. Last year it was a “take it or leave it” attitude.

– Pleasantly surprised that companies are talking about online, mobile, low cost models, leveraging technology etc etc. A quarter back, everybody was in a land grab mode – open as many outlets as possible, hire as many people as possible

– Pleasantly surprised when I went to my school back at ISB. Students’ expectations seem to be with rest of the world. An year back – everybody was dreaming for a Cr job

I think two main +ive developments have happened:

1.) Businesses are willing to spend time with their customers. There is a thought of “Customer Retention”.

2.) Cost of doing the business – from real estate cost, talent cost etc has come down.

Overall, I think lot of arrogance, which comes with growth have moderated. I understand that a recession also brings lot of pain (I lost my entire savings of last year) but I think it’s necessary to set things right for further growth. Thoughts? Comments?

-Mukul

Opportunities At The Cusp

Pakistani entrepreneur Ashar Aziz does a phenomenal job explaining how to find and develop innovation opportunities at the cusps of different domains.

Exodus Founder B.V. Jagadeesh

For those of you who have admired the Exodus story from afar, here’s your chance to listen to Jagadeesh telling his story.

MindTree CEO KK Natarajan

I recently interviewed KK. Some of you may be interested in checking the series out.

Concepts and Clients : The eternal challenge

Over the last couple of years have come across several entrepreneurs and new start ups presenting product and service delivery models on the Internet and mobile channels. This blog being an extremely vibrant forum for both groups, would like to outline a few observations and challenges faced in converting these propositions to business models and consumer reality. ( and this from a client’s perspective)

1.Detail : It always comes in handy to have a crisp minutes document circulated post meetings. This ensures clarity for all concerned, espescially if new concepts are involved. A detailed product specs document may be submitted at a later stage, but critical that the core proposition and offerings are articulated clearly upfront in the early stages.

2. Target Audience : A critical ingredient in marketing which often gets ignored in B2B sales is in clearly defining and understanding the target group within the client organization. Chants of USSD & J2ME to sections of a client audience struggling to send SMS messages can be rather disenchanting.

3. Adaptability : A key desired benefit of working with young and lean outfits is in being adaptable wrt business models, product roll outs etc. This should ideally be a key USP in the current environment. Re-engineering is critical. There have been several instances where the larger relationship opportunities have been sacrificed as the services required to be re-packaged. Re-engineering can be a complex challenge, but needs to be in the genetic code.

4. Business Model : In the event of both parties clearly sharing their business objectives and revenue streams, the resultant business and pricing models may take on new un-chartered dimensions. Fairly transparent exchange vis a vis cloak and dagger pre-negotiation tactics works rather well. A chunky upfront license fee in the last quarter may just not work!

5. Participative Product Development Process : Let the pre-sales process commence at the product development stage itself. Invite potential clients to participate in the product development process. Invite them in their individual capacities and not merely from the perspective of closing a sale. This could augur well for the client as well potentially resulting in lower lead times to commercial launch if a sale were to materialize.

This also comes in extremely handy to access the clients insights into industry and end consumer trends. Consumer reasearh can be expensive and an extremely time consuming process for start ups, so please feel free to piggy back.

6. Understand the Sale Process : I had an enchanting interaction with a vendor a couple of months back. He constantly reinforced the fact that he was an empaneled and certified supplier. This translated into client speak, meant that the NDA, agreements, vendor verification processes and payment codes had all been sealed or set up. This in effect could save over six weeks of processing time and hence time to market. Quite a unique USP!

You may find some of the observations to be rather rudimentary, but you would be surprised with the consistency with which they are not practiced.

Would welcome your views.

Rediff Enterprise Value $24M

Interesting coverage on rediff – its now at $24M enterprise value. As much as for a long time, Rediff commanded high valuations that few could explain, it now seems to have gone in the other direction. Would love to get people’s views on whats happening here.

As a bellwether for Indian internet industry, these numbers reset expectations on the entire sector and near term expectations. Naukri is just over $200M on EV, which I do believe is healthy because of their earnings (P/E ~ 20).

I also wonder what series B valuations for Internet companies would be now – till 12 months back, companies with less than 200K users and zero revenues were getting $24M valuations…

Bill Gates in Delhi – Nov 6th, 2008- Opening wallets to Fund Research

I attended Mr.Bill Gates’ talk– heard some very interesting ideas from Mr.Gates about opening wallets for research on the world’s pressing problems.

The Bill and Melinda Gates Foundation is practically “giving away” US $100,000 grants to researchers based on 2-page summaries of innovative ideas.

I didnt post the longer article/snaps in venturewoods- because I felt it may be too long OR too controversial– but it’s there at my blog http://delhivoice.blogspot.com.

Posted below is a extract on Mr.Gates’ views on funding medical research on problems affecting the lowest rung of society.
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(as before, reproduction or publishing any of the text below without express written permission of the author is forbidden – nsnsns(at)gmail(dot)com).

Mr.Gates said while capitalism is the best system developed till now, the way capitalism works, miniscule amounts of money are spent solving problems for those at the bottom of the pyramid.

The amount of money spent annually researching polio and cures for polio till recently was about 10% of the money spent researching cures for baldness.

Until the Bill and Melinda Gates foundation chipped in, researchers could not typically expect rewards for their efforts. In US and even more outside the US, researchers just did not see rewards or money for solving the tough problems that affect the poorest, the most needy and the most deprived people in the world.

Many long, tough-to-understand descriptions are submitted and there’s a tiring and exhausting process for meager funds.

So, the last time they invited ideas to fund; they asked-for and got two-page descriptions. They got 4000 short descriptions from many researchers- and they got 60 people to evaluate the ideas- each evaluator got 150 ideas to evaluate and rate. And they told the judges the following:
(1) Each evaluator selects three ideas he liked best.
(2) Automatic US $100,000 funding to the idea each evaluator liked best- and the Gates’ Foundation would get back in a year to see how much progress was made.
(3) For the idea each evaluator liked second-best:
a. If the idea was from the US, then it would get $100,000 in funding if three evaluators liked it in their top three ideas.
b. If a idea was from outside USA then even one evaluator liking it as second best would get the idea $100,000 funding- because they want to get people all around the world working on ideas- they want researchers to be finding and developing solutions to the world’s most pressing problems, rather than worrying about funding.
c. For each idea selected as a third best idea by any researcher, more criteria will be applied- but whatever happens, Mr Gates felt that opening up the purse-strings would really get people digging into and researching ideas.

A 2-page synopsis by a lady in India, suggested a way of controlling AIDS by creating nano-particles which mimic the AIDS-causing HIV virus- and when the virus interacts with those, the virus to gets deactivated.

Mr.Gates added that since this was presented as a 2-page outline only, they don’t know if it’ll be useful or not.
But the evaluator liked the idea- so they gave the lady who proposed this idea $100,000 for her research- and they’ll get back to her in a year to see what progress she’s made- a year later.

Sounded like a interesting approach to to me; what say ?? do comment/write-in… also about the pitfalls/possible negatives of doing stuff like this…

Navigating through the Economic Blues

Like many other small to medium companies we are also being tested in the economic conditions – delayed payments, delayed sales decisions, delayed cash inflow. I would like to share some thoughts on how we can counter this situation. We are implementing many of the following to gear up for the rough weather. I hope others find this useful and hopefully some others can provide better suggestions:

1. Dont put complete faith in investors for cash flow
Its good to be a funded company in this environment. However, I would like to caution my fellow entrepreneurs that unless you have the money in the bank dont count on it. Many investors release payments in tranches over a period of time (say 5-6 months). Assume the worst case – investors may not able to release the latest tranche when the time comes. Its not because they dont want to give, its just that may not have the cash to give. Remember, investors (such as VCs) themselves raise funds from other investors. With the current cash crunch, its better to be prepared for the worst (and given the current economic uncertainty “worst” case is quite likely to occur). Dont make the mistake of planning your execution based on cash you “definitely” expect to get next month (or even next week). Treat investor cash as an added “bonus”. This particularly applies for services based companies which usually should be able to do well without investment as well.

2. Laser Focus on BD
Sales is the life blood of business. Put all your energies on actually meeting sales targets. Have daily sales update calls. Change the incentive structure – reduce the base salary and instead add two layers of bonus structure. Maybe if they achieve 50% of their targets they will get their original salary. When they achieve 75% they get more. When they achieve 100%
their total payment is actually much more than what they would have got before. The idea is – your competitors are as desperate as you are, without concerted sales efforts there is no way you can tide this crisis. In fact increase mktg/ sales budgets. If something is working in mtkg double the investment in that – of course make those investments in the right areas and in the right people.

3. Everyone should sell
This is an offshoot of the previous point. Think of ways where everyone (including admin, technical) contributes to sales. Often it takes an yr or two for small companies to consistently predict revenue flows. During this time everyone is figuring out the right value prop that sells. You will invariably find a few sales people who are actually meeting their targets and many who are not. Follow the 80/20 rule and cut down the sales team which is generating only 20% revenues. Instead rope in admin, development to augment the star sales people. Admin can make calls, fix up meetings. Technical folks can accompany sales and provide compelling arguments to convince the customer. This will ensure that your number dogs get more time to actually focus on meeting numbers and not on how to convince customers.

There are other obvious mantras to be implemented. They have received wide coverage and everyone knows them so I wont expand on them:
1. Cash is king
2. Prepare for the worst
3. Cut your workforce to the bone. Its better to cut more than cut less. In fact cut so much that you have money left to hire the best.

Hope this helps.