Can technology prevent bankruptcies?

Across the globe, organised watch dog functions have not prevented failures. The rating firms could not predict Lehman collapse, the auditors could not prevent Enron bankruptcy and human referees continue to make wrong decisions in sporting arenas.

Audit firms want consulting revenue, rating firms want revenue retention and the referees play role ( sometimes) in fixing matches. If you have seen the oscar winning documentary “Inside Job”, its a cess pool.

On the other hand, a number of sports have implemented technology to remove /reduce human judgement errors — take the example of 3rd eye view for LBW decisions in cricket. Or the camera close up view for in/out calls in tennis.

What If?

What If typical control failures are codified and control breaches are made public, after providing a window for correction?

Lets take an example.

The systemically important institution IL&FS in India which is an infrastructure lending organisation works on funding long term projects. The fact that it did that using short term money was a disaster waiting to happen. What if this control breach was automatically flagged by technology ( with access to company books of accounts) ? Would that have triggered a more prompt action preventing defaults ?

The checklists/controls used by auditors to assess a company’s financial health can be monitored by technology more assiduously than any human.

Any breaches of controls/thresholds are first highlighted to management for action and post a certain time window, made public by technology. Just as a tv viewer can make out whether a tennis shot is in /out, a common investor can clearly see how good is the company running.

While there could be many objections to this from vested interests, one cannot dispute the fact that technology enabled open data can help prevent disasters before humans do.

Multiplier effect and Valuations

Over 50% of the US market cap is from tech companies — FANG ( Facebook, Apple,Netflix and Google). Many new age companies with poor profitability have valuations that are difficult to believe for the traditionalists. What gives?

The factors that drive these valuations have implications for any startup /ideation not to build valuations but to imagine a business model and product for the digital age.

There are a number of multipler effects in play that cause these valuations and here are a few below:

1. User Adoption : Most of the digital natives focus initially on user adoption rather than revenue/profit. While this is not to belittle the criticality of cashflows/profit, the reasons for user adoption are different. Most of the digital natives reimagine a business model and rewrite the traditional methods. This needs users to adopt to the new way of doing things , realise the benefits and create ‘word of mouth’. Focus on bottomlines initially takes the focus away from user adoption and building a sizable user population.
2. Upgrade Cycles: Once the user population is built, the focus is on user engagement to keep them hooked on to the platform, come back to it more often, spend more time on the platform, try newer features of the platform. Every click on the platform is noted, analysed to ‘learn’. This enables upgrades, buy paid products /services in a ‘freemium’ model and build stickiness/moat.
3. 24/7 Feedback and weekly /daily enhancements: User engagement enables continuous feedback to switch on/off new features , focus on enhancing the items that users care about and make quick corrections. When Xiomi makes weekly software updates based on user feedback on the platform/forums, Amazon talks about customer centricity — measures metrics on each feature every minute, when startups update apps ‘on the cloud’, all of this is to get it ‘absolutely right for the user/customer’.
4. ‘Almost Zero cost of Cross-sell’ : Once Paytm has millions of customers using the platform and there are mechanisms to bring them back all the time, cross selling is as simple as adding a new category/offering on the platform and instantly its available to the user population to try and add to topline/bottomlines. Every new offering addition to the platform comes at much much lower costs improving the margins and enabling geometric profit growth.
5. Built in Non-Linearity : Built in non-linearity means addition of users do not mean costs for every user added.

Thus the factors for valuing the digital firms is quite different and the traditional models of Discounted cash flows, P/E multiples , peer comparisons do not work here. Having said that, each business is finding the emergence of ‘digital duopolies’. Thats a topic for another post.

Engineering the 'Switch'

Whether you are planning a new product /platform/service, it is most likely that the target customers are already doing the same thing in a ( less efficient/more cumbersome/ costlier/ longer) way but doing it all the same. Be it a financial transaction or a business process or a life activity.

It is also likely that the alternatives to ‘current way of doing things’ are also many. In the digitally native world, there are literally 100s of taxi ride apps, e-commerce apps, payment apps, news apps, personal finance apps….

So you are starting with a ‘set, old way of doing things’ and a bunch of alternatives to ‘ do it better’. Since digital world is all about ‘user adoption’, getting the user/customer to ‘do it your way’ is the absolutely critical thing.

How to engineer this switch?

1. Power of Inertia : Nothing is your bigger enemy than inertia. Inspite of cheaper loans, cards with better rewards, data plans with better goodies etc, only a small percentage of customers switch to the ‘smarter’ option. Why? Simply because it takes effort to change and also the comfort with the present.
2. Small ‘Delta’ : No matter how great you think about your product/service/platform and consider everything else to be from stone age, most of the times customers find that the delta between the ‘current’ and ‘new’ is not significant. Combine this with the pain of change and you can be sure , what the customer would do.
3. Power of ‘Viral’: Functionally an Amazon Pay or Google Pay or Apple Pay might be better than Paytm. But if paytm is viral across the population compared to others, the functional differentiation does not matter.
4. Power of ‘Soft’ factors : Inspite of how ‘you want the customer to think’, customer processes/likes/dislikes on their own criteria. Customer may pick a product not necessarily based on what gives most value but which is ‘easiest/smoothest to use’, which is ‘more fun to use’ ( think gamification) and which has nicer bells and whistles.

So how to engineer the switch?

a. Focus on the product attributes that make the delta the largest possible

b. Look for items/ make it easy to share /crowd source/like/viral

c. Sweat the ‘soft’ stuff. Remember , most of the digital natives are young and younger. User Experience, Gamification, Fun…

Maze or Amaze?

In the history of times, when something amazing happens, many people do not realise it. After it has happened, there is no need to justify the amazement.

Something similar is happening in our times and you either get caught in the Maze, be Amazed or make the best of it.

1. More of the global wealth creation is happening in Services, intangibles, intellectual property and Data , rather than hard assets like land, gold, oil etc.
2. Consequently economies are powered by services with lesser contributions from manufacturing, agriculture.
3. Amassment and accumulation for future proofing is also in the above areas and not the traditional asset classes. ( Alibaba and Tencent buying everything in Digital, $500Mn AI venture fund, 50% of US market cap in the hands of digital firms…. , Dead dinosaurs like Blackberry, Motorola, Nokia living on IP royalties…)
4. Resetting and reskilling every few years becoming the norm, thanks to the Gig economy. Job categories disappearing every day.
5. Digital is touching every sphere of life from flipping elections, citizens deciding on how to spend the tax money, overthrowing governments, uprooting old business models and industries..
6. Typical barriers to start a business crashed already. You must have heard of 1 or 2 person companies, outsourcing everything to Amazon cloud, specialist firms and starting a business from an idea over a weekend.

While sceptics doubt anything will touch them, the revolution is taking place. Hopefully you don't miss it and only realise it after the fact!

" "

( this post has no title, and it's not by mistake)

When are we most peaceful and happiest?

There are 4  States of consciousness. The first one is the conscious state. The second one is the dreamy state. The third one is the subconscious state. The fourth one beyond all three is the happiest.

We are in this state every night when we go in to deep sleep. There are no thoughts,the mind is not active and there's nothing to distract.

This is the happiest and the most peaceful state. We all know it ,yet we try to avoid it all the time.

Be it our need to be recognised ,to be part of a group ,to be continuously in touch,to be continuously busy ....

Technology and more importantly the businesses are trying to help us do all the above, not for our sake but for their commercial needs.

While it's easy to blame the technology to keep us forever busy, it is our innate need to be a social animal that makes us embrace these technologies with gusto.

What is forgotten or ignored is to be at peace with nothing and nobody. That's really the deep sleep state in which we are the happiest.

The more desperation with which we try to be in the first three states ,the more restless and unhappy we become.

Our natural state is the fourth state. You are at once more peaceful and blissful when you tried to be in the fourth state than the others.

That is not a technology issue but your own choice.

The 'Unseen'

In the great Indian epic of Mahabharata, the great archer   Arjuna is asked by his teacher on what he sees. Unlike his peers who see a number of things such as trees, objects, people, sky etc, Arjuna replies that he sees only the eye of the bird. Arjuna then shoots the bird to kill with one arrow.

Cut to the world of innovation. When everyone sees noise,chaos, lots and lots of things, if you are able to see far into the future on how your idea will change the world, the impact it can potentially make and the consequential success it can make, its the first step to make the kill.

When everyone is finding reasons why the idea won't work, why its not a 'good'idea by conventional wisdom, how its not the way 'things are done by us', nothing matters more than the clarity of thought. Are you able to see through the mess/clutter/chaos to a better world? Are you able to mute the noise, ignore the distractions, think 10 steps ahead ?

How did Jeff Bezos see the world of single click purchase when people were afraid to use credit cards online? How did Muhammad Yunus see the group thinking benefits of micro finance when people only thought of individual lending? How did the Blockchain founder ('X') see disintermediation when everyone saw databases? How did Travis Kalanick see ride hailing when everyone saw maps?

Popular opinions serve the common denominator not the disruptions that change the world. People are comfortable with 'Status Quo' as its less risky and more predictable. The clarity of vision and thought and the ability to see the 'unseen' before everyone else is worth going against the tide!

Data is Money, Or.....?

 One of the reasons for high valuations of Google, Facebook etc is the sheer volume of data they hold which they can monetise. It is the reason Google assistant is able to answer you better than Alexa or Siri. The sheer volume of data it learns from.

Very soon, many players will have data. In the traditional world, there are many organisations which sit on mountains of data already. Then how is it they are unable to encash?

Before you think this note is a veiled pitch on analytics, it is not.

Let’s take an example. Spotify,itunes,Google music and many others have the same catalogues or content. Apple and Google have tons more money than Spotify. Then how is Spotify able to retain a large market share? What gives?

From the user behaviour, it has figured the right way to enhance playlists so it knows exactly how to delight you with a song based on what you just heard ,or heard before. This is why people are hooked to Spotify that it is able to 'know' exactly what they like and is playing the 'right' thing.

Apple and Google with the same catalogue of content haven’t figured this ,yet.

Bottomline is the value is not just in content( which will soon become a common denominator among quite a few), but in the connections to those pieces of content that could be the differentiator to hook the user.

You need not own the data, if you have the magic sauce of making the 'right' connections that bring value to the user!