The internet craze is back!

Looking at the newspapers in India these days, you would be forgiven if you felt a sense of deja-vu.  An internet gold rush, new models coming up every day, massive PE investments, fresh millionaires… did we just get transported back to Y2K?

Yes and no, it seems.  Yes – because the stories and the mood are the same.  No – because the underlying activity is a lot more real this time around.  Business models are built on revenue models.  There are now more than 80 mn internet users in the country.  Among the more attractive consumer segments (SEC A and B), internet penetration is near total.  A true web-generation has emerged.

How will is this panning out from a business perspective?  Well, travel has already moved online with a vengeance (perhaps repaying us for all those long hours we spent in queues trying to get tickets) – when’s the last time you didn’t buy a ticket off the net?  But that’s not the only segment.  Snapdeal claims to do 10,000 transactions a day (and are now in the market to raise 200 Cr).  Flipkart (valued around a 1000 Cr)  is rumoured to do revenues of 75 Cr.  If that sounds small –  compare that to the 200 Cr odd that Crosswords and Landmark make after dozens of years in the business.

The party’s just begun – and barring another recession, we’re certain to see mind-boggling levels of activity in this space.  And hopefully, we won’t be experiencing a sense of deja-vu in 2021!

Reverse Bata Pricing

We all know about Bata pricing

Marketers call it ‘Bata Pricing’, paying homage to the company that invented it and refined it to a fine art… Introduced nearly three decades ago when shoe-major Bata priced its shelf-star ‘Hawai’ chappals at Rs 39.99, this marketing mantra has outlived all the rules of the retail game except Kotler’s 4Ps. And is still going strong.

There are several arguments to justify the use of Bata Pricing.  One theory is that customers believe that an odd-price is indicative of a low or fair price.  Another popular theory is that a price of 99.99 is viewed as less than 100 – and is therefore more attractive.

But what about the opposite pricing strategy where a brand takes prices beyond a psychological threshold – and thereby sets the stage for future price increases without any major customer resistance.

Like the case of the Delhi-Gurgaon expressway which increased prices from Rs 20 to 21 earlier this month – causing immense customer dis-satisfaction – not because of the price increase, but because of the coinage issues. You can almost visualise the relief on customers’ faces when the price eventually moves to Rs 30!

The difference between Rs 99 and 101 is negligible – but the perception gap and the consequent expectations may be significant.  Is this an under-exploited, or under-documented pricing strategy?

Sholay and the principle of non-linearity

Kitne aadmi the?!

Has there ever been a more powerful dialogue?

Gabbar Singh, master of all he surveys (actually – some pretty pathetic rocks in the outskirts of Blr – but thats a different story), finds his authority challenged by the village of Ramgarh.  His first question is – Kitne aadmi the? (how many men were they?) .

For India’s services sector, this obsession with head-count continues.  A person’s importance is measured by the number of people he manages (Kitne aadmi hain?). Kaalia and his friends were more perceptive –  they refer to the mass of villagers as a gang of incompetents – knowing they faced no threat from them.  Little did they know of the real danger.  As Gabbar painfully realizes later on, a smarter, small team can be a lot more effective than a gang of followers .

Today, firms that are truly able to leverage the capabilities of a its people are found to demonstrate non-linear growth.  Analysts worship these companies.  But really, they should be thanking bollywood!

Bachne ka koi tareeka nahin hai…

… apne aap ko police ke havale kar do!

Thus spake the hapless police in movie after movie.  But true to our national resourcefulness (applicable only to those who are trying to break rules, or do jugaad), the bad guys always find a way out.  Spoofed brilliantly in Hero Hiralal, when the police comes in after all is over and proclaims that they are indeed at the right time!

It’s a bit like that in corporate settings.  H.O. spends enormous energy putting together rules and “governance mechanisms” to catch the rule-breakers.  Enormous energy goes into creating this rule-infrastructure – with non-compliance being threatened by a revocation of coffee privileges (actually, that might be a very effective deterant – wonder why no body’s thought of that yet?).

Everyone has their favourite inane Dilbert rule.  My personal preference is for attendance rules.  So much time spent on tightening the screws… par bachne ka tareeka hamesha hota hai!

February 06, 1995

What’s your favourite corporate noose?

What is an old economy business model?

At the time of the dot-com boom, we all started differentiating companies as being new-economy vs. old-economy.  The way we thought about these companies was a bit like this:

Old-economy stocks represent large, well-established companies that participate in more traditional industry sectors and have little investment or involvement in the technology industry. In contrast, so-called new-economy stocks are heavily involved in the technology sector and the more successful companies are able to build value at markedly higher growth rates.

But over the last decade, I think that distinction has become a little less stark.  Traditional manufacturing companies have regained some of their edge, and newer technology businesses have started looking a little less exciting.  This is probably more true in India, where technology companies are largely services oriented.

I think that today the way we think about old economy companies is more to do with the mindset of the management team, than the choice of industry. And central to that mindset is an obsession with making money.  Here is my take on how an “old economy” company thinks about money:

Cash is king, queen and knave.  P&L statements are for the birds. What matters is how much cash we generate, and how much of it flows to the owner

Profits are only one driver, and an inefficient one, of cash. After all, one has to pay corporate taxes on profits, and dividend distribution taxes thereafter.

What you don’t pay is yours to keep. An expense ain’t an expense unless you actually pay your supplier.  There are more fish where that one came from.

Tax planning, the (mucho) smarter way. Instead of paying taxes, find ways to take what the government collects from others.  Capturing those subsidies is a great starting point.

No compromises on capital investments. Especially when it flows back to my own, privately held companies.

Debt = Equity – shareholding. What if we don’t pay back the bank?  No, really.


The power of 35%

Its the mathematical magic of compounded growth.  35% growth, year-on-year, for 10 years – and your revenues are up 20 times from where you are today.  For a 5 cr company, it means that you’ll be reaching the coveted 100 Cr number.

Too often we get consumed by the magnitude of the target.  For a 5 Cr company, a 100 Cr number seems unattainable.  But if you look at it as 35% annual growth, it’s a little less intimidating (especially if you’re a start-up, or if you’re in a high growth market).

Simplify your life, focus on the 35%.

And the world goes to… Ameerpet!

Did you know about a place called Ameerpet?  It’s a small corner of Hyderabad where a 100,000 people are studying technology at any point of time.  What Kota does for engineering aspirants, Ameerpet does for tech aspirants – namely plug the gap between college education (or lack therein) and what it takes to get a job.  Yesterday’s Economic times had this article.

Ameerpet picked up on the desperation of thousands of students like Sudha when, almost a decade ago, it morphed from a quiet, residential neighbourhood into a renegade IT hub. Every crumbling building here seems to be crammed with institutes offering courses in SAP, Java, Oracle, C, C++ and a host of others. The training institutes range from a hole-in-the-wall place to large sheds converted into classrooms that pack in a few hundred students. There is at least one new institute springing up every day, but most are low on credibility and use unauthorised software.  Every day, hundreds of people like Sudha throng Ameerpet. They come searching for low-cost courses; for the experience of working on ‘live projects’, which are smuggled from all over the world, or for a crash course to upgrade their skills.

Many people come from villages to pick up tech skills and join the employment pool – more on that subject in a later post.  Employees of tech companies come here to brush up their skills (and actually learn what their companies are trying to teach them through e-learning modules).  Many of them also teach here, earning a 500-1,000 an hour.

Its a sad reflection on our colleges that students need to go through significant additional training in order to be employable.  At the same time, it’s a testament to private enterprise that finds a way to fill the gap.  Getting to acceptable standards of employment is often good enough.

As a trainer at an Ameerpet institute puts it: “It’s like having a plasma TV and a basic one in front of you. The basic one may not give you the superior quality and status symbol of the plasma, but does it mean it is not doing its job at all?”

One solution to the teacher scarcity

Import them! Like many colleges in India are now beginning to do.  No longer are colleges content with the occasional NRI wanting to return to India.  Now they’re actively going out and sourcing teachers from other countries.  And in the process, if they are able to improve their brand image (Global faculty!) and enhance their cultural diversity – nothing wrong with that either.  Sure, we will be given a lot of reason for cynicism.  But fundamentally it’s a nice solution.

Full story here.

Acquisition joy and heartbreak

Used to be a time when selling the company was akin to selling the family silver.  Not anymore.  Many companies today are “built-to-flip” – i.e. created in the expectation that they will be bought out by a larger player at some point.

It’s a tricky game.  Sell too early, and you’ve lost a lot of the value.  Sell too late, and you may actually find very few buyers out there (many tech companies in India are discovering that today).

And, how does one position oneself for a sale?  What is the right way to maximise value for oneself?  What are the things that  may go wrong?  Really little literature on the subject – one is forced to go by the advise of people around you.  Hopefully they’re right!

And for those who come close to a sale and fail, it can be heartwrenching.  Years of work, the smell of success, and the numbness of the rug whooshing from under one’s feet.

Which is why this is a really interesting story of joy and heartbreak.  Backblaze – the online storage company went through the roller coaster, and has now told the tale.  Some excerpts:

We Signed The Offer!
Woohoo! Pop the champagne! Well, actually, it was around 2am at this point, so it was more like “woohoo, go to bed”. But, with some trepidation about the decision, we were all excited to have signed and to move on to the next step.

Fast forward a few months:

Saturday. Exclusivity expired.

Warning bells went off. It was possible that Cogswell forgot the exact date of exclusivity expiring and thought they were still under exclusivity. Maybe Cogswell wasn’t worried about it because we were so close?. While both were possible, the paranoid senses were saying something was wrong.

Monday morning I got a call from Cogswell’s CEO. “I’m sooo sorry.”


We were roughly back to where we were six months earlier.

The TAS rejuvenates itself…

… If not wholly, then quite substantially!

In our time, the TAS was seen as the elite within the Tata Group.  They formed a cadre that worked across the group, and were generally seen as future leaders of India’s top business conglomerate.   However, over a period of time the importance of the TAS has probably diminished.  At the IITs and IIMs, the TAS is no longer seen as the top job.  Meanwhile, many of the individual Tata Group companies are now large and strong enough to attract outstanding talent by themselves.

So why have the TAS?  I speculate, but the TAS still has several advantages:

1. Not all Tata companies are able to get the right talent, and the TAS does fill that need to some extent.  Especially in old-economy companies which really struggle to attract and retain fresh talent

2. TAS managers work across companies and industries – and are able to bring in best practices and ideas from across the group

3. Since they may owe some loyalty to the holding company, I would imagine that the TAS also drives the Chairman’s vision and agenda to some extent

It seems that the third point is at play in the ongoing restructuring of the TAS.  This article in today’s ET points out several of the changes being made.  The training period now includes a rural stint as well as international assignments.

On the rural posting:

“TAS was conceived as an elite service of young managers. But this rural exercise shows them the reality that exists in their own backyard which they have never experienced,” says R Gopalakrishnan, executive director, Tata Sons. “If we believe that a large part of our population actually lives in rural areas, we want to build leaders who are relevant to this country and to its future,” adds Satish Pradhan, executive vice-president, group HR, Tata Sons.

And then:

After two months in the villages, the 35 recruits in the 2009 TAS batch were dispatched to many corners of the globe. The next couple of months were spent on projects in the operations of group companies such as Tata Beverages or Tata Communications in countries like South Africa and UK. This ‘village-and-the-world-in-120-days’ break-in drill is a recent introduction to the 53-year-old programme and part of an attempt to reinvent itself to meet the group’s new talent requirements.

The Tata group is clearly orienting itself for two of their stated strategic thrusts:

1. The fortune at the bottom of the pyramid, and in the villages (Tata Nano, Swach etc)

2. Going global (Jaguar, Corus etc)

And what better to do this than to immerse young recruits in both environments, right at the start of their careers.  Importantly, they are now looking to recruit international staff into the TAS – thereby breaking the India-centric mentality that would otherwise dominate.

How many other  companies are able to use their recruitment and training programmes to drive a strategic agenda like this?