Beware the stupid!

During one of my random browsing through the internet on my mobile device, I came across an interesting set of laws – the basic laws of human stupidity. Yes, you read it right, stupidity. By Carlo M. Cipolla (read the original article here), an Italian-born former professor emeritus of economic history at University of California Berkeley. This is simply genius. This post is to help you find how these laws apply to the start-up ecosystem of today. Read on.

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The five laws

Let us first understand the five laws. The first law states:

Always and inevitably everyone underestimates the number of stupid individuals in circulation.

They are everywhere and appear suddenly and unexpectedly. Any attempt at quantifying the numbers would be an underestimation.

The second law states:

The probability that a certain person be stupid is independent of any other characteristic of that person.

There is serious diversity at act here. No race, gender, educational attainment, physical characteristics, psychological traits, or even lineage can explain the incidence of stupidity in a person. He says a stupid man is born stupid by providence, and in this regards, nature has outdone herself.

The third law is also labelled a golden law, and presents itself into a neat 2X2 matrix. It states:

A stupid person is a person who causes losses to another person or to a group of persons while himself deriving no gain and even possibly incurring losses.

This law classifies people in this world into four categories – the helpless, intelligent, the bandit, and the stupid. Organized on the two axes of gains for self and others, the helpless is fooled by others who gain at his expense; the intelligent creates value for himself as well as others; the bandit gains at the expense of others; whereas the stupid loses himself in the process of destroying others’ value.

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While the actions of others are justifiable, it is the actions of the stupid that are so difficult to defend – no one can explain why he behaved that way.

While it is possible that people may behave intelligent one day, bandit another day, and helpless in another place and context; stupid people are remarkably consistent – they are stupid, irrespective. No rationality at all – just pure consistent. And that makes stupidity extremely potent and dangerous. For the simple reason that you cannot erect a rational defence against a stupid attack, as it comes as a surprise, and more importantly, there is no rational cause for the attack in the first place.

Which leads us to the fourth law, which states:

Non-stupid people always underestimate the damaging power of stupid individuals. In particular non-stupid people constantly forget that at all times and places and under any circumstances to deal and/or associate with stupid people always turns out to be a costly mistake.

Even intelligent people and bandits (who are rational) underestimate the probability of occurrence of stupid people, are genuinely surprised by the stupid attacks, and are at a loss to defend themselves effectively against stupidity. Given the inherent unpredictability of stupidity, it is both difficult to understand in the first place, and any attempts at defending against it may itself provide the stupid people with more opportunity to exercise his gifts!

Which leads to the fifth law, which states:

A stupid person is the most dangerous type of person.

And by corollary,

A stupid person is more dangerous than a bandit.

The danger of stupidity cannot be sufficiently understated than this law. Given the irrationality of stupidity, and the costs associated with stupid behaviour, a stupid person is far more dangerous than any other type of person. An intelligent person adds value to society, a helpless fool may transfer value from himself to others, a bandit may transfer value from others to himself; but the stupid erodes value to the society by executing a lose-lose strategy. There could be bandits who might border the stupid (someone who can kill a person for stealing $50 – the value they gain is lower than the value you lose; but the $50 for them is as valuable as life for you). But given the power of stupidity, they can create far more harm than one can even imagine.

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The five laws of start-up world stupidity

  1. Stupid business models are aplenty – they rear their head everywhere, every-time. Irrespective of the context, they are omni-present. No exceptions at all. Do you remember business models like Iridium (by Motorola) and the FreePC experiment? It exists even today … Casper Tucker wonders why he should make his own IP redundant (read here).
  2. The probability of a stupid business model arising from a developed country, a venture of a large organisation, from the famed Silicon Valley (or Bangalore, Berlin, or Shanghai for that matter) is the same (and high). The start-up graves are littered with corpses of stupidity-induced deaths of both the firms, their investors, customers, and every other stakeholder you can think of. You think sandpaper for shaving or hair-removal is a bad idea, check this out!
  3. Do I need to tell you the costs of stupidity in the start-up world? I have come across founders who in the first few months of the business taking off, begin talking valuation rather than growth. In the process, they have destroyed value squarely and truly for everyone around them, including themselves. Nothing can match the stupidity of a founder who sacrificed his employment to start-up a firm, acquire customers and force them to make asset-specific investments, make wonderful investor presentations and get a few to invest as angels, PE, or VC; and then instead of worrying about making the business profitable, chase valuation. I surely have mentored a few, and do not want to name them for obvious reasons.
  4. The fourth law is the trick – stupid people thrive by their ability to surprise you by their conviction. And there are enough people who irrationally believe in them; but even the rational actors are unsure how to respond – till it all dawns on them. How many products listed in this article do you remember?
  5. And they are just plain dangerous – they can bring the entire ecosystem down. Remember how the Real Value Vaccummizer brought the entire innovative company down (do you know the firm was the first to introduce a portable fire extinguisher by the brand name Cease Fire, which by the way stays a generic name for portable fire extinguishers)?

So, customers and investors, start-up founders and entrepreneurs, students and researchers, and everyone else, beware the stupid.

Cheers!

© 2017. R. Srinivasan

 

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Management theory – just mumbo jumbo?

I am writing here after a really long time. During one of my train journeys between Chennai and Bangalore last weekend, I happened to re-read this article that I had saved for later reading on my mobile device – this appeared on The Economist six months back (read it here). The Economist argues that management as a discipline is similar to the Medieval Catholic church that was transformed by Martin Luther about 500 years ago (business schools = cathedrals; consultants = clergy; the clergy speaking in Latin to give their words an air of authority = management theorists speaking in mumbo-jumbo that only their peers can understand; and having lost touch with the real world).

The Economist avers that all management theory is about four basic ideas – consolidation across industries rather than competitiveness, fewer entrepreneurial success than celebrated in popular discourse; maturing organisational bureaucracies that slow down firms rather than speed; and the seemingly inevitable globalisation being reversed by trends (including ‘Make America Great Again’ and ‘Brexit’). A redemption is therefore called for. Let me re-examine the four trends in the context of Indian business context.

1. Consolidation rather than competition

There is surely a trend of consolidation in Indian industry. The telecom service business is a case in point – the entry of Reliance Jio has led to severe performance pressures and possible consolidation of the service providers (read here); SBI merging its associate banks and other possible PSB mergers (read here); or even the retail industry (read here). Is competition really going down? I think a variety of management theorists would say no. From high velocity environments and hyper-competitive environments in the mid 1990s through mid 2000s, the discourse has evolved to disruptive innovation in the late 2000s, to Industry 4.0, Internet of Things, Artificial Intelligence, and Big Data in the mid 2010s. The fads have changed, but the discourse has always been dominated by some fad or other. We management theorists have and will always seek to sustain our legitimacy by maintaining how difficult it is do business ‘today’ and in the near future. Has there been a time when a management scholar has said that “we live in stable times”?

2. Entrepreneurial failures

Yes, we live in interesting times. There are more and more firms founded, especially in clusters like Bengaluru (erstwhile Bangalore) and Gurugram (erstwhile Gurgaon). But as The Economist argues, there are more and more entrepreneurial failures that the media reports. And these failures come in myriad forms – simple shutdowns like the ones described in these articles (25 failed startups in 2016), or sellouts to larger competitors (see this list of acquisitions by Quikr).

3. Organisational bureaucracies

With so much churn in the ecosystem, we management theorists propound that business is getting faster. Yes, network effects allow for some businesses to scale faster than traditional pipeline businesses. However, given the ubiquity of such businesses  and easy imitation of business models, a lot of startup failures are attributed to these businesses not scaling sufficiently fast enough! Think Uber in China, Snap Deal in India, and other such startups. Scaling is easier said than done.

4. Rise of nationalistic tendencies

This is possibly true of most economies in the world today – rise of nationalism, and the ‘de-flattening’ of the world. Right wing protectionism is on a steady rise, and in some countries, it has reached jingoistic heights.

Time for redemption. What can management theorists do?

It is high time we redeem ourselves and the discipline. Given these trends, here is a callout for management theorists to make their discourse relevant to the business environment of today. We (as management theorists) need to get off the ivory towers and start communicating to the managers of today and tomorrow. While research output as measured by top-tier journal publications is important for an academic career, it is equally important for translating that research into insights relevant for the business managers. The Indian management researcher has very little options to publish high quality research in Indian journals. The quality of Indian management journals targeted at academics leaves much to be desired. Neither are there a variety of high quality Indian practitioner-oriented journals. And the circulation numbers of these journals amongst Indian CEOs? And where are the cases on Indian companies? The number and quality of cases published by Indian academics on Indian firms are too low to be even written about.

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(c) 2017. R Srinivasan.

 

Free … continue hoyenga?

Well, writing here after a really long time. Finished teaching three courses, two mentoring assignments, and two cycles of a customised executive education programme for a client in the interim. A bad throat induced rest (well-deserved, that’s what I would like to believe for myself) gets me to write this short post.

Let them eat FREE

The title is inspired by the advertising tagline of India’s latest entry into the already crowded (dozens of competitors) in a highly penetrated market, Relinace Jio (see here).

Today morning’s story from Rohin Dharmakumar at The Ken is titled Let them eat free! His basic argument is that as regulators and governments are discouraging service and convenience fees, consumers are getting used to free services; which will eventually kill the free markets by taking away the pricing power of enterprises (especially in a highly competitive market).

Over the past few years, I have been studying platform business firms where one of the first concepts one learns in multi-sided platforms is that at least one of the sides of the platform (either the demand side or the supply side) needs to be subsidised to leverage network effects (or mobilise the network from scratch). Is subsidy therefore any different from free? I would say no. There are free lunches, for at least some people in a business. The business may therefore decided to charge someone else for giving these free lunches.

Think free food in temples and gurdwaras… prasads or langars. In fact the mess food at most military establishments in India is called a langar. In a society where there are a lot of people struggling to earn two meals a day, a free lunch provider was a celebrity. The village elder, the temple management, the birthday girl, or just about a casual visitor. Oh, this is religion and philanthropy, you argue. Business is different. Business is for-profit.

Subsidies

Businesses subsidise one side and make money from another side (think Internet search, where search is free, listing is free, and SEO/ Ad is paid); subsidise one product and make money from another product (think Gillette’s razors and blades, HP’s printers and cartridges); subsidise today and charge you tomorrow (think airline dynamic pricing); and/ or subsidise one segment of customers to charge from another segment (Aravind eye hospitals, Robin Hood). Remember, Skype is free (well almost); this WordPress blog is hosted on a free plan; so does your email (well almost all of it).

Is subsidy bad? No, as long as the “customer” who receives the subsidy knows where it comes from. If the business model is clear, and the subsidy receiver knows that she is receiving the “free lunch” because someone values giving it to her for free, it should not be a problem.

Subsidy is bad when someone receives a subsidy in return for particularly nothing. It is inefficient for the entire market when the customers do not know where the free is coming from, what the firm is going to do with all those intangibles (information about me, my behaviour, my preferences, and my network) I provided with them when I signed up.

Government subsidies

What happens when the government gives you something for free? Like the social security? Do you know why it is free? And how is it financed? In countries like India, the annual presentation of the government book of accounts is a celebrated ritual. See the official website here, and the Bloomberg “live” reporting here.

For long, successive governments in the Indian state of Tamil Nadu have been providing freebies to the citizens both as an electoral gift as well as a welfare measure. Most of these have been funded by the state monopoly liquor retail shops, the TASMAC (read here). But when these shops close/ scale down, the state government has to find new sources of funds and/ or scale down welfare spends.

Enjoy it till it lasts

A lot of my friends enjoy these subsidies (for instance a discount from ecommerce companies) knowing very well that the provider is giving it to them from their investors’ wallet. Like the Reliance Jio offer, like the cheap OLA ride to the Bangalore airport, or just the discounted products on the Flipkart’s sale day! They say, enjoy it till it lasts! The assumption is that they would attrition out when the prices rise, or the firms begin charging for whatever was hitherto free. Don’t the firms know this … they are trying to build and leverage multi-homing costs for your products/ services.

Be aware

I would therefore say, be aware; enjoy it till it lasts; use it as a trial; choose whether you want to multi-home and retain the flexibility to signout, and have fun.

Cheers.

(C) 2017. R Srinivasan.

FirstCry.com: Leveraging the power of offline

In my blog post last week, I wrote about how a hybrid online and offline strategy is useful for collecting small data. As a couple of my readers pointed out, what marketers and strategists call small data, ethnographers and sociologists call as thick data. Honestly, I had not heard of thick data. @fernandogaldino introduced thick data to me. I dug through the online references on thick data, and realized we are talking the same thing. Exactly the same thing. Thank you Fernando! So, I am going to continue using the term small data (that is what I have read academic articles about) with the caveat that small data is also thick data. Last week, I promised to delve deep into FirstCry.com and its online-offline strategy. Here it goes.

FirstCry.com

The firm was founded by Supam Maheshwari and Amitava Saha in 2010 as a pure online venture. By 2011, FirstCry.com opened its first offline stores. In an interview to TechCircle, co-founder Supam Maheshwari elucidated how a vertically focused ecommerce firm could survive and make money in a market dominated by horizontally spread competitors (you can read the interview here). He talked about replicating Quidsi’s business model in the Indian market, by owning a set of vertical markets like diapers.com and soap.com. In replication, firstcry.com has a sister website goodlife.com. The key difference, he said, between the Indian and the US market for baby care products was that, more than 95% of the products were imported. In fact, that was the seed for the enterprise – his own difficulty in finding good quality products for his child in India, whereas he could buy a lot of them during his international travels. That effectively makes this business inherently inventory-heavy. One needs to leverage economies of scale and scope in sourcing, hold inventory and invest in logistics to be able to service customers across the length and breadth of the country (read about firstcry.com inventory model here).

Omni-channel strategy

Here is where the omni-channel strategy helps. Instead of keeping inventory in dark warehouses, ready to be shipped, it was possible for firstcry.com to open retail outlets in tier II and tier III cities (where real estate was also likely to be cheaper), where ecommerce penetration was not as much as the tier I cities and the metros like Mumbai, Delhi, or Bangalore. The inventory holding was thus distributed across the various franchised retail outlets. The outlets also provided customers with the look and feel of the products before they bought them – you need to appreciate that baby apparel and shoes dominate the market, only to be followed by toys and diapers. Clothes and shoes … when was the last time you bought your own shoe purely online? Inventory provided increased footfalls to the store, created brand awareness, and inventory off-take. The decision to have the same prices between online and offline stores, coupled with large touch screen interfaces to shop online from within the offline store could have provided exponential growth in traffic and sales.

Promotion: The FirstCry Box

Firstcry.com began promoting using traditional mass media – television and online ads. They invested in Bollywood’s longest serving (possibly) celebrity, Mr. Amitabh Bachchan as their brand ambassador and launched a few television advertisements (see some of their ads on YouTube here). However, they soon realized that mass media advertising was highly expensive and yielded low returns for a niche range like baby care products. That is when the idea of the FirstCry Box was born. The FirstCry Box is a bundle of some essential products that the mother would need during the first few days of the baby and mother reaching home from the hospital. Firstcry.com has agreements with over 6000 hospitals, through which these FirstCry Boxes are gifted to the new mothers, congratulating them on the birth. These boxes also contained gift and discount coupons from major brands of baby products, that the parents could redeem at either online at firstcry.com or any of their retail outlets. This ‘welcome kit’ to parenting provided firstcry.com a significant opportunity to build brand equity and recall amongst the over 70000 mothers receiving these kits every month. Some marketers call this permission marketing (read about it here), or direct-to-parents strategy. For me, it is a wonderful platform, a two-sided platform mediated by firstcry.com. Parents, especially first-time mothers, are initiated into parenting with the help of these grooming products (basic diapers and lotions) and the gift coupons for free. The new mothers as a subsidy side is being financed by the brands that provide the products and coupons to be included in the box and act as the money side in the platform. For the brands, this is highly targeted sampling of their products, and most mothers would stay loyal to quality brands/ retail stores in baby products. In the entire transaction between the mothers and the brands, firstcry.com benefits significantly in three ways: (a) store loyalty resulting in increased sales, (b) small data about how these mothers use these products, the basket, frequency of purchase, and willingness-to-pay for quality; and (c) good quality prediction of demand in specific geographies, leading to efficiencies in inventory and supply chain management practices.

By the way, such welcome kits are not entirely new – a lot of employers have been on-boarding their employees with such welcome kits. I first heard/ saw such welcome kits when I was part of a team that delivered a customized training programme for the ITES service provider ADP India, a few years back. It was fascinating to see how the entire family was on-boarded into the firm! Not just ADP, a variety of other new age firms, I see have adopted this practice (read this article on how some Indian organizations welcome their employees). I wish I was welcomed like this by my employers!

Are hybrid models here to stay?

I would say, yes. We saw how Amazon was opening stores in our blog last week. We also discussed how Amazon.in was using firms like StoreKing to reach the Indian retail hinterland. I read last week that their Indian competitor, Flipkart.com was also opening offline store to reach users in small cities (Flipkart to open offline stores as well). And in vertical markets like baby products, it has become all the more important to target your promotion very narrowly, and focus on the backend (inventory, supply chain, and logistics) efficiencies, while at the same time achieve scale.

Is vertical ecommerce a winner-takes-all market?

Three industry conditions define a platform market as a winner-takes-all market: presence of strong cross-side network effects, high multi-homing costs for the users, and the absence of special requirements. The baby products retail market is dominated by imported brands, is a highly fragmented industry, and the brand owners are dependent on their retail partners to promote their brands. The demand for these products are relative price inelastic, and consumers would be willing to pay premiums for sustained quality and reliability. An aggregator platform like firstcry.com would significantly aid in establishing and reinforcing the cross-side network effects between the brands and consumers. Second condition – the quality and reliability concerns of the parents would ensure significant store loyalty and brand loyalty. As long as there are no serious concerns, consumers would be loath to switch; and when the fill rates are high (there are no stock-outs of items that they want to buy) in their preferred stores, would not multi-home. In other words, consumer switching costs for brands are high, and as long as these brands are available with their favorite retailer, they would not shop from multiple outlets. And most infants have the same needs – diapers, creams, lotions, oils, and basic toys. Special preferences begin showing up only when they ‘grow up’. Some of them don’t ever grow up, but that is a different matter!

Firstcry.com and BabyOye merger and further consolidation

Given the industry conditions of geographically distributed year-round demand, operational efficiency and leveraging economies of scale and scope become key success factors. Consolidation is inevitable to achieve both backend (sourcing, inventory, and supply chain/ logistics) efficiencies as well as frontend scale (online and offline stores distributed across the country). That is why we would see waves of consolidation in such strong vertical markets. Like how firstcry.com and BabyOye merged their operations, I agree with Supam that this market will see more and more such mergers (read his interview here).

Lessons for enterprises focused on vertical markets

Based on what we have discussed over the past few weeks, I would urge enterprises focused on vertical markets (like firstcry.com) to (a) seriously consider your business model to include online and offline consumer touchpoints … for instance, online furniture store, Urban ladder is ‘pivoting’ to offline stores (read the news here) and are positioning their offline stores as customer experience centers; (b) invest in collecting and analyzing small (or thick) data through these omni-channel (or hybrid) business models; and (c) critically evaluate if the market conditions favour winner-takes-all dynamics.

Hope my readers from India and the diaspora had a great deepavali festival! Greetings from Bangalore.

Disclaimer: I am in no way related to FirstCry.com, Goodlife.com, its investors, or its founders.

(C) 2016, R. Srinivasan

Collecting small data in the world of big data

It is a chilly morning in late October in Bangalore, India. As I return back home after a short walk to the bus stop to drop my daughter off to her school, my colleague walking with me begins collecting bird feathers on our way back, of all hues and sizes. We start debating which birds have what kind of feathers, and when she is done collecting four different kinds of feathers, she stops. Another colleague urges her to collect more, but she says “four is good for today”. And she sets me thinking on what is the power of small data. While the world is raving about leveraging big data and the power of mass customization, I argue in this post about why successful firms must also invest in small data.

What is small data?

The best definition of small data comes from none other than Martin Lindstrom, who wrote a book titled “Small Data: The tiny clues that uncover huge trends”. He distinguishes big data from small data thus: “Where big data is all about drawing correlations, small data is about identifying causation” (read more here). Big data is typically collected through a variety of sources, from your credit card spends, loyalty card behavior, search algorithms, and mining of transaction data. What big data analytics can do is pretty visible and known to all of us – patterns that can aid prediction. In his book and other writings, Lindstrom write about the need to uncover the causation behind these patterns. One of the examples he often cites is how a US bank found customer churn using big data, and with the help of small data, discovered that they were moving their assets and mortgages around, and possibly leaving the bank not because of poor customer service, but they were going through divorce!

Small data for listening to customers

A couple of days back, I read an interesting article on why Amazon is opening physical stores by IMD Professor Howard Yu (read it here). In that article, Yu labels Amazon’s book stores as not so much distribution channels, but “research laboratories”. Laboratories where customer journeys are observed, what they like and how they spend their time browsing; simple things like which aisles do they reach first, do they pick up the books first or read the reviews pasted below, do customers get influenced by recommendations, and the like. Small samples, but rich inputs on causation. Retail stores have long been using small data – have you not read about why bread and staples are placed at the end of the alleys and chocolates at the check-out counters? Small data like this helps identify why certain shoppers behave the way they do, whereas big data will be good to classify shoppers into dashers, economists, the pros, and the candy store kids. [Dashers know what they want and dash in and out of the store, picking up her favorite brands/ products/ pack sizes and rushes out. Economists, on the other hand, rummages through deals and offers, and typically shops at warehouse clubs and wholesale shops. The pros are those who do considerable research on the deals and offers, analyze value for money, wait for the right time to buy (like festive seasons), and typically get the best deals. The candy-store-kid is the retailer’s delight; she behaves as the name suggests – impulsive, compulsive, and extensive shopper. Read more about it here.] On the other hand, small data will help analyze when does a typical dasher behave like a candy-store-kid. I was in Barcelona recently, and typical to my urban foreign travels, I was shopping in supermarkets. I noticed that a lot of these stores had “male zones”, where typical electronics, electrical goods, FC Barcelona memorabilia, and beer are stocked. Small data, could suggest that men would hang around the ‘zone’ till the women shop for all the essentials, and just as they reach the counter, these items are added to the cart and billed. Given the festival season, maybe even the textile showrooms of the famed Chennai’s T. Nagar might have implemented this!

Small data for innovation

There is no better use of small data, unless you listen to customers. And better still, if you could listen to your customers at the prototyping stage, well before product design and introduction. User innovation spaces provide opportunities for firms and innovators to collect valuable small data well before the product design. In fact, such small data could help innovators listen not just to the prosumers (innovative proactive consumers, who engage with the firm and are typically early adopters), but a wide variety of consumers as well. One such experiment on early-stage user innovation platform is a physical store-like service manufactory at the Nuremberg city center – JOSEPHS®.

JOSEPHS® – the service manufactory

JOSEPHS® is a unique concept, where user and open innovators could come together with real consumers, consumers who could walk-in to the store as if they shop for goods and services in the city center. The ambience and feel is designed to look like a retail store with spots housing different innovators and a coffee shop at the entrance.

Set up by the Fraunhofer IIS in collaboration with the Freidrich Alexender University at Erlangen-Nuremberg in the city center of Nuremberg city, Germany; JOSEPHS® is envisaged to be a platform for bringing University researchers, Fraunhofer scientists, innovative entrepreneurs, and retail consumers to co-create services. Much like the prototyping TechShops, MakerSpaces, HackerSpaces, or FabLabs for designing products, JOSEPHS® aims at integrating users (randomly walking in) with innovators; a micro-factory for services.

In order to attract walk-in customers, JOSEPHS® has a coffee shop at the entrance. In order to sustain the innovation and create spaces for co-creation, there is denkfabrik, a workshop space, and meeting areas.

Please visit the website of JOSEPHS® at http://www.josephs-service-manufaktur.de/en/. For more information on how the concept works, you could watch the YouTube video at https://youtu.be/eoW3zJkYqzw. [If you would rather watch it in German, please visit https://youtu.be/MIwKdYa3_9A and https://youtu.be/0ndvx-LrBBI]. If you are an academic and want to learn more about JOSEPHS® and teach about it in your class, you can download a copy of my case on JOSEPHS® from the Harvard Business Publishing for educators at https://cb.hbsp.harvard.edu/cbmp/product/IMB567-PDF-ENG.

[Disclaimer: I am a visiting professor at FAU, Nuremberg and have been involved in the conceptualization of JOSEPHS®, as well as the author of the case mentioned above. Read about my journey to FAU here. And about my course at FAU here.]

Summing up

So, why does Amazon open retail stores? How does FirstCry.com manage its online and offline ventures? Think small data. Time to integrate small data with big data to get real deep insights. In the next post, I will delve deep into the business model of FirstCry and elucidate the synergies between online and offline stores.

(C) 2016. R Srinivasan.

Social Buffering – Is it lonely at the top?

 

Yesterday (24th August), I connected three dots. First dot: I met with a couple of my friends from 20 years back (we were batchmates) – one of them celebrated his tenth year of entrepreneurship this week, and another was taking baby steps into entrepreneurship in the last three months. Second dot: I read a piece on LinkedIn on why Samsung cannot be Apple. Third dot: I read an article in the Strategic Management Journal (SMJ) on executive anxiety. And tossing and turning on my bed, late in the night, the three dots connected. Voila.

Dot #1: The entrepreneurial fetish with fund raising

When two entrepreneurs meet with a business school professor, it doesn’t take long for the conversation to veer from business models to fund raising. So it did happen yesterday. The conversation was going towards evaluating if angel investing is better than crowdfunding, and we agreed that the money raised is much less valuable than the insight/ knowledge/ resources/ network the angel investor(s) would bring in. Isn’t that why those investors are called “angels”, as they have some magic wands in their hands? Slowly, bit by bit, I evaluated their business plans and broke the entire fund requirements to an amount that was so small that they would not take money from anyone other than one with an enormous network or experience in that domain. As entrepreneurs, it was extremely important that they realize that money from the right source is far more valuable than the denomination of the currency (or the balance in the bank). The value of the advice and mentoring the angel investors bring in is severely under-rated in today’s entrepreneurial ecosystem. Here’s calling all entrepreneurs to evaluate your list of mentors – what specific insight, learning & knowledge, experience, resources, network do each one of them bring in. Prune/ add ruthlessly.

Dot #2: Singularity

The drive back home from North Bangalore to South Bangalore in the evening traffic is not something I enjoy, unless I have some company or reading to do. Yesterday, I had both. The reading was this LinkedIn post by Anish Behera on Why Samsung will never be Apple? (read it here). If you have returned back to this blog after reading his piece, you know where I got the three dots idea from, right!

His primary argument is that it was important for Steve Jobs and the American culture to be autocratic and not suitable for Korea and Samsung. He argues that American culture of Singularity is more suitable for innovation than the Korean (in fact, he extends his argument to most of Asia as well) culture of Conformity. Though I am glad that he included Mahindra under the singularity dimension, I think it is a slight stretch. But that is a different debate and discussion.

The substance of his argument was that Apple ha(s)d both singularity (one person) and an opinionated (non-conformist) culture that fostered innovation. What it means for entrepreneurs of today is not so much to create a person who is as charismatic (and possibly maverick) as the leaders he quotes, but to have a singularity of purpose that guides decision making. Strong vision, broader search for alternatives, speed of decision making, and discipline in execution arise out of singularity and non-conformity. Both, together; not a preponderance of one over the other. Pure singularity without a culture of non-conformity would result in a narrow search of alternatives and may lead to phenomena like groupthink. Non-conformity without a strong purpose and direction would result in slow decision making and lack of discipline in execution, and may to phenomena like predictable irrationality.

Dot #3: Social buffering

A couple of weeks ago, Apple CEO Tim Cook asked, “Hey Siri, why am I so alone?”. In an insightful interview with The Washington Post (read it here), he talked about a variety of things including not being able to replace Steve Jobs. But what caught my attention yesterday was the statement that “running Apple is sort of a lonely job”. And when I read an academic article on the Strategic Management Journal (yes, that is my primary job) by Michael J Mannor, Aadam J Wowak, Viva Ona Bartkus, and Uuis R Gomez-Mejia titled, “Heavy lies the crown? How job anxiety affects top executive decision making in gain and loss contexts”, (SMJ, 37,9, Sep 2016) the dot #3 emerged. The heavy crown of leadership can lead to significant anxiety in top executives (so beautifully articulated by Tim Cook when he talked about how he prepared for a congressional hearing – have you not read the interview, yet?). An effective insurance against such anxiety is to surround oneself with a team that is supportive of one’s decisions, effectively buffering the executive from threats from the environment. Building such a supportive team, that shields the top executive from the external world without a risk of opportunistic behavior from the buffer themselves is what the authors label as social buffering.

The implications of social buffering (according to the authors) are three-fold. Higher the perceived threat from the external world (and therefore the anxiety of the top executive), more likely the social buffering behavior. Secondly, in spite of the social buffer, it is likely that anxious executives might be more risk-averse than others. And finally, in contexts that represent losses (rather than gains), executives would be more likely to build strong social buffers. For instance, executives leading firms in declining product-markets may build stronger social buffers than those in high growth contexts. To put this in simple terms, the more vulnerable the top executive feels about the environment, the more she will surround herself with supporting team members (who share the same thought processes); it will make her more risk-averse; and more so, when faced with losses (than gains). Given that loss aversion is more pronounced (executives worry more about losses than celebrate equal quantum of gains), this social buffering can become more and more pronounced in malevolent environments.

Connecting the dots

Find an investor who “has been there, done that” + Build a culture of singularity & non-conformity + Beware of social buffering

While it is important that you seek angel investments from someone who brings in a lot of experience, insights, expertise, and a network, it is also imperative that you build a culture of singularity and non-conformity in your organizations. If you do not pay active attention to these details, you may end up surrounding yourself with a social buffer, promoting and highlighting only those in your network who conform to your thoughts and beliefs while letting others go, you run the risk of running your enterprise to the ground with high anxiety, low risk appetite, and conformist thinking. Without an active innovation programme, replication and possibly fast following strategies are likely to dominate the organizational discourse.

Prescriptions

  • Seek out investments carefully. Do a proper due diligence of your investors’ resources and networks
  • Keep checks on how your advisors and investors encourage/ dissuade innovation and risk-taking
  • Make sure that you surround yourself with a variety of perspectives, and ensuring that your social buffer is not counterproductive to your innovation and external orientations

Cheers.

Building your brand

This is not a post about marketing, though it may sound so. This is a post about how entrepreneurs and leaders communicate. This is relevant for brands and firms as well. Read on.

I listened to a very insightful TEDx talk by Simon Sinek on inspirational leaders. Listen to it here. He talked about how inspirational leaders focus on the inner most ring of what he called the golden circle. In the inner circle is the why, followed by the how, and then the what. He cited examples of ineffective communication, when firms and brands and individuals focused on the what to drive the how and why, and how successful people and brands and firms focused on the why first, before highlighting the how, and what. If you have not listened to it yet, please do so, before you proceed.

19.1 Brand communication

As we see a tramline of enterprises biting the dust, liquidating/ selling off to powerful competitors/ selling off at a fraction of its past valuations to firms in complementary businesses, this message is becoming far more relevant. Couldn’t resist this contrast …

Yahoo is a guide focused on informing, connecting, and entertaining our users.

https://about.yahoo.com/ 

Google’s mission is to organize the world’s information and make it universally accessible and useful.

https://www.google.com/intl/en/about/company/

 

Just take a look at how these two pages are organised – Yahoo’s page flows like this – a statement of what they do – inform, connect, and entertain; how did they start, how is it to work for Yahoo, and what does it offer for developers, advertisers, partners, and research. Google’s page begins with the company overview (that includes their history), who they are (culture and locations), what they believe, and then what they do.

If your communication focuses on what problems you solve (why you exist), and then lead towards how you solve those problems, and therefore what products and services you offer; I am willing to listen to you. On the other hand, there are entrepreneurs and firms that begin with what they do. For instance, early this week, I heard someone talk about building the Uber of Indian tractors for farmers (if the one who talked about this is reading this, don’t take it personally). I had to probe deeper and deeper to understand what problem was being solved and why did Indian farmers needed a mechanisation solution in the lines of Uber.

Virgin’s Richard Branson also wrote today (11 August) about why successful entrepreneurs should seek problems, and create solutions (read it here). Begin with the problem and the opportunity; the business model and the solution will follow; and thence products and services.

So, whatever brand you are building – of yourself, your firm, your products/ services, please begin with the why, the how, and then get to what. Build a robust brand that stands for something, signifies why it exists, and speaks to the ecosystem on why it exists. Remember the arrow that connects A and z in the Amazon.com logo? Everything from A to Z.

And in today’s world, as firms simultaneously diversify and depend on a cluster of complementors to provide (each others’) customers with unique value, it might not be out of place to conceive of your brand as a platform. A simple platform (like how the automobile companies use the word) upon which your complementors and partners could build on, customise, co-develop, co-innovate, and co-create. Brian Monahan’s post titled “More than a promise: Brands are platforms” (read it here) develops this argument very well. Brian’s primary argument is that brands transcend the promise and should allow for other firms and its partners to shape the consumer experience. Imagine brand Android!

Borrowing the idea from Simon Sinek’s talk, leaders communicate why more than the what. How is your brand communication structured?

Would love to listen/ read/ hear about your brand stories.