Indian founders that came to US very early as students or are US born contribute to more than half of Silicon Valley’s billion dollar plus IPO and M&A. But tech founder who started in India and moved as the CEO in their mid 30s or later are yet to find their feet.
As I head back from StartupBridge Salon, I was chewing these thoughts. Reminding myself that generational level changes takes time. One must focus on basics of making connections for strengthening the young roots of a mature transplant.
Every trip to the Valley unsettles you. Normal business rules seem out of whack here. Makes you wonder what type of business gravitation forces are at play in this region. To regain my sanity, I mark a reminder to myself to read again ‘Status Anxiety’ by Alain De Botton on my every plane ride back.
This time I ran into a decade long mentor. He is someone that has invested hundreds of millions of dollars in Indian startups in last 15 years. But he is always quick to remind me that those are mistakes that gave him expensive lessons, made him more humble.
I was expecting him to be in India to meet him when I get back, not on this plane ride. The discussion that took place in the airport therefore played out to me like the scene between Alex (the general manager) and Jonah (the professor acting as a coach) from the business novel Goal by Eliyahu Goldratt. Alex unsettled, Jonah as always balanced through the wisdom of his experience.
He pushed me further on “What am I learning from my Upekkha work specifically in the last 8 months ?”
Wondering why is my go-to expert asking me this, I rattled that it is the basics that everyone knows when it comes to building a global B2B SaaS business.
Pivot from India to Global market ; Take the courage to increasing price ; Get the positioning right ; Move up market and finally not to forget that Upsell is the bedrock of any subscription business.
Perplexed I asked him what was I missing. He told me softly that it is everything that I said and a tad bit more.
He said that it is an unfair affair for every B2B founder from India. They are uprooted in their late 30s to a new geography in US. They are plucked away from support system of their family that they rely upon. This founder has already been misled by Indian customers therefore has certainly built a wrong product. Now he has to do it all again in a foreign culture. He has to do this amidst the peer pressure of his classmates. Classmates that moved as students or early employees and are now managers in Google, Facebook making half a million or more in salaries.
These founders exhibit urgency to move to US thinking it is a sales problem but fail to realize it is a product market fit problem. If the founder has no prior experience working in US before then it is a deeper founder market fit problem as well. This is one of the important reason at-least 3-4 more years get added in them getting traction compared to startup peers in Valley. It is that human element of the transplant the hardest part.
If the goal is winning globally in products, the key bottleneck is in helping figure out the product market fit before moving to US.
Last 18 months my stint was as a Fellow-In-Residence (M&A) at iSPIRT (startup think tank), I spent my time on a big hairy audacious goal of leveling the M&A ratio of Indian startups to that of the Israeli ecosystem. Given the current market coordination failure of cross border M&A I had to challenge many assumptions underlying an investment banking model and run several different experiments. As part of it co-hosted two edition of StartupBridge India conference at Stanford in Dec 2016 & 2017. While I am yet to become an expert on the topic of M&A, like Kanyi here are my 10,000 hour reflections.
First and foremost, folks involved in M&A like to call it an art and they try to complicate it perhaps so that they can make a profit from that complexity. Personally, I found it to be quite straightforward.
Big corporation cannot innovate, startup rarely crack distribution and grow into a big corporation.
Every corporation big or small wants to innovate, in a large corporation market rewards it for being execution focused which means that it sheds innovation muscle. For it despite a best-articulated strategy of horizon planning (H1, H2 & H3) for innovation, acquisition is the most successful H3 strategy for innovation. Cisco proves the rule, and maybe Apple is an exception.
There is a supply and demand mismatch of startups between India and Silicon Valley.
Silicon Valley corporations wants to acquire the latest fads and trend, say a cutting edge AI & Machine learning startup now. Indian startups on the other are most prevalent in building business & workflow apps and must, therefore, look beyond the valley.
On who decides and influences
Corporate development folks are like the eyes and ears, and they should have seen and heard about the startup. It is the heart (VP Engineering or Product) and mind (SVP, GM, CEO) that makes the decision.
Buying a product is different from buying a company; it is much closer to the sale of Art. Value is in the eyes of the buyer, and different buyer means different price. Therefore, the price is always discovered through an auction
It is not scale-invariant
The dynamics of < $1m, $1–10m, $10–25, $25–100m, >$100m are all completely different. Experience and lessons from one do not translate well to another.
Some startups may never sell
Yes, every company in the world is up for sale at the right price. But there are the fisherman type entrepreneurs who as a matter of principle will never sell. Does it bode well for them, only time will tell.
Big Corporates are from Mars and Startups are from Venus, it is a colossal failure of communication.
Corporate describe their product, their sector, and the world they see using a map, and their strategic leverage is winning in that map while startup founders focus inside to describe the guts on the glory of their product with microscopic detail.
It is a people business
Companies do not buy other companies; it is people that buy from other people. Past relationship and the new strong connection all contribute way more than anything else.
Product brand is different from a Company brand.
The two are conflated again because startups like to talk about microscopic details while strategics like to describe the map
Investors have an end game; it is useful for entrepreneurs to have one too.
Entrepreneurs only focus on next fund raise and never think about their end game, but it is in their best interest to do so. Every investor in the 4th year & 7th year of fund brings up a pivot question for a startup inside her portfolio. Investors have a cycle of 10 year by which time they have start returning the money, in the 4th year they want know if a startup is candidate for IPO or more suitable for M&A. In the 7th year again if the startup did not do an IPO, they want to decide if they should mentally write it off for their fund returns. Entrepreneurs unaware of this can get adversely affected.
Lead is to a customer what PSP (Potential Strategic Partner) is to an acquirer
What a lead is to a customer, a potential strategic partner is to an acquirer. For the former, sales lifecycle may take two months; the latter takes two years. Thus one has treat this as a complex sales process with such long lead cycles.
You won’t get a marriage proposal when you are a terminally ill cancer patient.
Startups start a strategic partnership or acquisition conversation way late in their journey, with just a few months away from the end of their runway. It is exactly the worst time to go out in the market due to both signaling as well as weak negotiation leverage reasons.
When you have an offer, two is one, and one is none.
Just like in a fundraising situation, when you have an offer, the value gets determined through a reverse auction process. Startups must have multiple offers in hand.
It ain’t done unless it ain’t done.
Managing own psychology during the process is very critical. A combination of euphoric possibilities and the uncertainty almost grinds execution to still not just for the founder but the entire team. It is very important to put rhythm of making progress. It is at the time of a deal that the velocity of growth should be historically highest for high valuation of the deal.
My own biggest surprises.
Word ‘Exit’ is a misnomer
It is not an exit, but an entry for scale or growth. A startup can do well on solving problem & product, aligned with a strategic, it can solve distribution.
Most Corp Devs become VC’s
Corporate Development career seems to be the least rewarded in finding mispriced optionality. No wonder most people seem unfulfilled and hence find VC as the next logical career option as that allows them to set the incentive structure right for themselves.
Big old Indian corporates do not have technology FOMO
Indian corporates are not threatened by technology, nor do they have FOMO. At least not yet. It may be quite some time before ‘Dabur’ might act like ‘Gillette’ and cough up a billion dollar to sweep a new business model.
Indian products are world class in engineering and product
Indian Startup Product and engineering in sectors they operate are world class; they beat Silicon Valley and their Israel counterparts. In the last few years, they are beginning to catch up on marketing, positioning and packaging themselves well.
Balancing between fighting fires and strategic thinking is universal to startups.
Coaching startups on the importance of packaging is hard. A universal trait applies to SV/Israel startup, nothing specific to India.
Bad exit problem is poor entry problem
My biggest Aha has been that a bad exit problem is not just a structural issue but also a manifestation of bad entry, i.e., initial venture allocation thesis.
Things no one will talk about explicitly.
Importance and significance of geography in the discovery of strategic conversation.
Startups, investors have grossly underinvested in that. One of the biggest differences between Israel and India startups is the investment in Israel<>US bridge including efforts by the government. StartupBridgeIndia is some headway doing once a year match making, Israeli startups do this every month
It is indeed questionable that 2007 vintage funds from India have 20% IRR at the end of 2018. There are not enough M&A or no supportive public market.
Most startups handle inbound poorly, they underwhelm or overprice themselves leading to wasted cycles for corporates & startups and everyone involved. First-time folks initially stumble but learn after 3–4 failed discussions.
In every deal conversation there is an awkward situation where the board & investors incentive are aligned with the founder and the team, it is the founder who must step in to make the right decision for himself and the investors.
Indian regulation is most poorly optimized for exits and acquisition. Every founder may hire top lawyer their money can get, and it may still not help.
One must find a deal buddy, a recently exited entrepreneur who can advise on dealing with misaligned incentives and how a recent regulation issues must be resolved etc.
Finally four things any startup must think about
if M&A ever crosses their mind.
What is the map in which the startup & corporate is operating?
What is the narrative of the startup and the unique competitive leverage it possesses?
What Air Game will help the startup come on the radar of the Corporate/ Strategic?
Ground game — Who in the network can broker trust to kick off an initial conversation between strategics and startups to explore partnerships?
NN Taleb talks to mother nature, translates for rest of us. Skin in the game, latest episode
Skin in the game (SITG) was one of my most anticipated book. @nntaleb is nothing short of genius, it is as if he has conversation with nature and then translates that for rest of us mortals.
The book is still very hard to read but keeping his ‘looking the part’ principle I am not going to judge this for readability. It must be said though this is certainly not for 10 year old but the sophisticated reader but they also need to remember past 3 books and concepts from there.
SKIN IN THE GAME (SITG) — One cannot understand ‘SKIN IN THE GAME’ unless ‘ANTIFRAGILE’ is understood. ANTIFRAGILE cannot be understood unless we know how we conflate luck and skill and are FOOLED by RANDOMNESS. One cannot appreciate RANDOMNESS unless BLACK SWANS are appreciated.
Lets first recap BLACK SWAN
It points out a key ILLUSION. Life is navigated by us as a blind person with rear view mirror used for steering forward in the journey. Rearview mirror of past experiences and belief shape the mirror and the picture we see.
That is why VISION IS MOST CLEAR IN REARVIEW IMAGE — A forward looking vision is most beautifully explained through the rear view mirror. This is also referred to as the hindsight, narrative bias. A successful startup will tell the story how clearly they had the vision of where they are today.
BEST STORY TELLERs are STILL BLIND — One must keep in mind that Leaders are people with charisma that can tell the best story showing the mirror but they may not have any skills in navigating forward, as ill-equipped as the rest of the folks.
It is OK TO BE INSPIRED but FOLLOW THE ACTION — Don’t be swayed by story tellers, take choices that expose you to treasure (upside) and avoid land mines (downsides). Must keep in mind treasure take longer, land mines explode immediately.
LEARNING IS THROUGH TRIAL AND TINKERING — Since one cannot see or perceive the future through any human sense organ, only way to navigate is through trial and error. [All great discoveries has happened only that way, not inside academia or government]
HUMILITY > KNOWLEDGABLE — Don’t become arrogant of absence of an unknown and when you encounter it do not fear it but bow in front of it and pray to it. Some of the oldest wisdom advocated that.
LABELLING HELPS COMPREHENSION — Any new thing can only be understood if there is no to reference it. Lets label the event or thing that we don’t know but can affect us in good or bad way a black swan and be humble about it.
BLACK SWANS exist and they can either benefit us immensely or kill us.
SYSTEM IS DIFFERENT THAN UNIT — There can be black swan at the individual level but also at the entire system (humanity) level. One of the key confusion about black swan has been the difference between the two.
Next lets go over FOOLED BY RANDOMNESS
FOOLED BY RANDOMNESS is mistaking luck for skill.
SURVIVORSHIP and ATTRIBUTION BIAS hurts LEARNING — What successful think they made happen could be because of role of luck and chance ? Self attribution boosts ego & self worth but blinds learning
Many PROFESSION are GOVERNED BY CHANCE — In many domain probability plays a huge role , ex — venture, movie, books. For every Shahrukh Khan, Brad Pitt, Mark Zuckerberg, Stephen King there are 100s of wannabe.
RISK as LABEL mean MANY THINGS — Different people have different definition of risk. For example using averages, relying on standard deviation as risk has had huge perils. Accountants have drown, funds like LTCM have blown nobel prize winners
RISK AND UNCERTAINTY are MENTAL MODELS — Label of ‘Risk’ for ‘known unknown’ and ‘uncertainty’ as unknown unknown are useful ones to navigate situations. This way it helps differentiating between betting on horse races and star trek races. No one has or can study star trek races.
SCIENCE less CAPABLE THAN ATTRIBUTED, POPPERISM — There are only two types of theories, one that is wrong and other yet to be proven wrong
REPEAT AFTER ME — Absence of evidence is not evidence of absence — Refer to black swan thread again
Think about GOOD or HARM not PRESENT or ABSENT when it comes to black swan — Randomness can be good, great and harmful, we like it when it is harmless.
USEFUL in TRICKY DECISIONS — Burdani’s donkey that was perfectly equidistant between water and food can be saved from dying if a small nudge is given
WHAT YOU SEE IS NOT WHAT IT IS — Randomness is not completely random, they can be explained through path dependence.
NOT ACCEPTING RANDOM makes ONE LEGGED MAN — Guy who does not know that life is random and live it through picture in the mirror shown by others is like one legged man in ass kicking contest
RANDOMNESS EXPERIENCED teaches BETTER than PROBABILITY THEORY — Folks like cab drivers, movie actors, entrepreneurs know it intuitively, academics call it the probability.
AWARENESS SUFFICIENT UNDERSTANDING NOT NEEDED, INFACT ONE CANT UNDERSTAND IT ALL — If you are aware enough to be not fooled by randomness you have better odd to survive and succeed, understanding not needed.
IN THE SPACE BETWEEN BAD LUCK and YOUR RESPONSE LIES you POWER — If you don’t succeed remember that you have have no control on how luck behaves with you but you have complete control on how you respond to luck (bad) when it meets you.
RECAP ON ANTI FRAGILE
WHAT SURVIVES or THRIVES — If life is so random and one can be fooled by it then how does one navigate it ? Anything that has survived and thrived over time can give heuristics. To better understand something it useful to give it a label, call this ANTIFRAGILE
MANY LIVING SYSTEM ARE ANTI-FRAGILE Humanity as whole has survived and thrived time thus labelled antifragile, other examples are hydra, entrepreneurship
HEURISTICS ARE NUANCED — Humanity is antifragile has survived, humans are not they are mortal. Broader takeaway is that heuristics that apply to the system do not directly apply to its unit.
SYSTEM IS NOT THE UNIT — True for any system, knowing a neuron does not tell about brain, knowing an ant movement does not explain the colony, knowing one human bias does not say how market will behave.
IT IS THE MAGNITUDE — Recounting lesson from randomness, it is not the presence, absence, frequency of random events but the magnitude that is more critical.
WHAT IS TIME INVARIANT in NATURE — Lindy effect, if something has survived for long then it is more likely to survive for longer. It is not a theory but phenology, empirical time invariant observation.
SCIENCE CAN’t see NATURE fully. — Lindy effect at surface sounds un-scientific yet it is quite the opposite, points to limitation of science & human understanding. Nature is right till proven wrong, a scientific theory is not right until proven otherwise
OLD WISDOM > RECENT INSIGHT mostly — Grand mother’s insights advice are way better than that of a doctor, banker or scientist but still grossly undervalued
HUMAN LANGUAGE AND UNDERSTANDING very LIMITED — Like the greek story of Pastoral’s tile why the dog prefers a certain tile, many things in life are beyond language and human understanding. Survival is > than Knowledge
FOR SYSTEM ANTIFRAGILE, UNIT MUST BE FRAGILE — Another key heuristics is that for humanity to be antifragile (survive) humans are fragile
FOR SYSTEM ANTIFRAGILE, UNIT MUST BE FRAGILE — Another key heuristics is that for humanity to be antifragile (survive) humans are fragile
HOW CAN I THE INDIVIDUAL BE ANTIFRAGILE — Remember humans are story telling monkey, learning via tinkering is the only learning, have optionality- change mind any time & expose to convexity (more upside than downside), any human group is complex system with 2nd order consequences
HOW CAN I THE INDIVIDUAL BE ANTIFRAGILE 2— via negativa (remove things) for complex systems, avoid via positiva (don’t add) as new creates iatrogenics (unintended harm), beware of risk transferers, look for skin in the game. pad with redundancy
HUMANS are STORING TELLING MONKEYS — Humans are story telling monkeys, referred in the green lumbar fallacy., a situation where one mistakes source of necessary knowledge (greenness of lumber) for another less visible from outside, less tractable and narratable.
SHAPE YOUR LIFE REAR VIEW mirror through EXPERIENCE for BEING ROBUST — As humans we experience life through rearview mirror of stories & past experience and not in touch with randomness of the future. Tinkering and learning is the real learning as that helps be more antifragile
BELIEVE A SINNER more than a VIRGIN — He who has never sinned is less reliable than he who has sinned and recovered
OPTIONALITY >> KNOWLEDGE — At individual level anytime you have the ability change options, it is optionality. If you have optionality then you don’t need knowledge, skills, insights.
EXPOSE TO CONVEX OPTIONS In any option if there is more upside than downside it is called convexity.
VIA NEGATIVA a POWERFUL TOOL for BECOMING ANTI FRAGILE — via negativa simply means for survival eliminate all things that would kill you. Greatest contribution in life is by removing what we think is wrong. In life antifragility is reached by not being a sucker
SKIN IN THE GAME for a CONVEX OPTION — In an interaction with others (family, work, market, life etc) when the other does not have skin in the game then it does not lead to a convex option for yourself.
RISK TRANSFERERS, people WITHOUT SKIN IN GAME have spread like PLAGUE in MODERN SOCIETY — In many aspects of life such risk transferors exist (bankers, academician, politicians, big company marketer/sales guy)
USE SKIN in THE GAME as COMPASS of LIFE, in INVESTING — Never ask anyone for their opinion, ask them what they have in their portfolio. SKIN IN THE GAME (in LIFE THREAT POSSIBILITIES) Don’t get on a plane without a pilot as that is without skin in the game.
SKIN IN THE GAME (in DAILY LIFE INTERACTION) Never let another person frame the question, in every question an answer is planted. Never respond to a question straight that does not make sense to you.
REDUNDANCY second PRINCIPLE for making SYSTEM ANTIFRAGILE — Next build redundancy, a margin of safety, avoiding optimization, mitigating (even removing) asymmetries in our sensitivity to risk
WEIGHTLIFTING , MUSCLEs BUILD through REDUNDANCY PRINCIPLE — Building muscle through weight lifting works because muscle develop more redundancy under condition of periodic stress and rest.
BEWARE OF Iatrogenics. Adding something to complex system creates un-intended harm. So as principle first do no harm, absence of evidence of harm does not mean no harm. Second the application of effects is non linear
BARBELL STRATEGY FOR CONVEXITY and THUS ANTIFRAGILITY — A dual attitude of playing it safe in some areas (negative black swan) and taking a lot of small risks in others (positive black swan) will help be antifragility. This approach is called barbell strategy
ANTIFRAGILITY is ABOUT SURVIVAL, to be individually be antifragile exposure is more important than knowledge, modify your exposure to treasures and learn to get out of trouble.
FINALLY SKIN IN THE GAME
SKIN IN THE GAME is a PRINCIPLE for DESIGNING ANTIFRAGILE SYSTEM. The book is a continuation from the book Antifragile (thing that survives and thrives with time), skin in the game is one of the two key heuristic introduce earlier, the other one was redundancy.
SURVIVAL IS THE ONLY RATIONALITY THAT EXISTS. Anything that hinders one’s survival at an individual, collective, tribal, or general level is irrational. With this enhanced definition skin in the game mean there being enough downside for individual that protects the system.
NATURE CARES FOR SURVIVAL, HUMANS CRAVE for MEANING — Not everything that happens happens for a reason, but everything that survives survives for a reason. Our body sense organs are optimized for survival not for sense making.
HUMANS ARE STORY TELLING MONKEYs — For them it is easer to sell a larger bigger than life than to describe the boringness of daily reality. Reality does not listen to stories but humans do most certainly investors do
OTHER MONKEY BIAS is RECENY BIAS — Also as humans we are prone to the availability heuristic, by which the salient is mistaken for the statistical.
STRESS TO FRAGILE UNITS MAKE THE SYSTEM ANTIFRAGILE — However any system that is not subjected to stress where individuals do not have skin in the game, the system does not become antifragile.
RISK TRANSFERERS are WINNING IN MODERNITY — We have been for long having system where people without skin in the game are winning by transferring risk. They are the biggest threat to system antifragility. You can never cure structural defects, system corrects itself by collapsing
LESSONS about SKIN IN THE GAME in examples of ONE SIDED ABSENCE, INTENSITY, CHANGE AGENT, EMOTION TRIGGERED — Employment and employee, religion, halal cut, gene adoption, language adoption, hatred of the privilege all teach about skin in the game
SKIN IN THE GAME, real CHANGE AGENT (MINORITY RULE) — A kosher (or halal) eater will never eat nonkosher (or nonhalal) food, but a nonkosher eater isn’t banned from eating kosher. It takes a small minority to have deep skin in game to bring change in a system
SKIN IN THE GAME, ABSENT SIDE can make SLAVE of the PRESENT SIDE — Someone who has been employed for a while is giving you strong evidence of submission. Employees stick to an employer because they have a reputation to protect.
SKIN IN THE GAME, ABSENT SIDE -> SLAVE of PRESENT SIDE — Dog vs wolf, the feeling of false stability. A dog’s life may appear smooth & secure but in absence of an owner, a dog does not survive. Most people prefer to adopt puppies, not grown-up dogs; unwanted dogs are euthanized.
SKIN IN THE GAME, ABSENT SIDE can make SLAVE of the PRESENT SIDE — The best slave is someone you overpay and who knows it, terrified of losing his status. One sided extreme skin in the game can lead the other to do total capture.
SKIN IN THE GAME , LONGEVITY OF SURVIVAL is proportional to INTENSITY — Religion (as a system of people) teaches that strength of a creed did not rest on “evidence” of the powers of its gods, but evidence of the skin in the game on the part of its worshippers.
SKIN IN THE GAME , LONGEVITY OF SURVIVAL is proportional to INTENSITY — People who had religion have survived, it brought cohesion: people who eat together hang together. The length of survival of something (an idea) is proportional skin in the game in it (some time literally)
PROGRESS WITHOUT SKIN IN GAME cause RESENTMENT — People resent when risk transferrers rise the top, they root for those that have had skin in the game.
SOLVE FOR ENVY DESIGN SYSTEM FOR RICH TO BECOME POOR — Therefore true equality is equality in probability. A dynamic (ergodic) equality takes into account the entire future and past life that is rich can become poor and poor can become rich
SKIN IN THE GAME,OLDER SYSTEM > MODERN SYSTEM less AGENCY — Older system designed skin in the game to preserve the system. Building falls, builder killed. Modernity has advisors, bureaucrats that are away from reality. Beware of someones advice if he does not has downside for it
SKIN IN GAME as COMPASS of LIFE, BELIEVE ACTIONS — In interacting with someone check what someone does rather than what he says as that is true indicator of skin in the game
SKIN IN GAME as COMPASS of LIFE, WATCH OUT FOR RISK TRANSFERERS — Whenever the cost takes longer to manifest but (small) benefit can be demonstrated people game the system. Example Bankers & CEO’s
SKIN IN GAME as COMPASS of LIFE, ACROSS TIME BE ETHICAL — When dealing with others below in a hierarchy as you would want above you to treat you you bring skin in the game across time.Treat your parent the way you would want your child to treat you, go to friends funeral
SKIN IN GAME as COMPASS of LIFE, REAL SKIN IS WHAT OTHER is AFRAID to LOSE, ASK FOR IT. In an interaction with others that get affected by skin in the game what matters isn’t what a person has or doesn’t have; it is what he or she is afraid of losing.
BACK TO CENTRAL QUESTION, NAVIGATING RANDOMNESS OF LIFE — Rationality does not depend on explicit verbalistic explanatory factors; it is only what aids survival, what avoids ruin.
USE SKIN IN THE GAME FOR SURVIVAL to navigate life that presents with a series of good and bad random events
SHED THE ‘SCIENCE LIKE’ FOCUS instead FOCUS on RANDOMNESS, SUPRESTITIOUS MAYBE BETTER THAN SCIENTIFIC — The scientific may criticize the superstitious however a superstition that survived is risk mitigation for a risk that has long been forgotten.
ONE MORE THING ABOUT RANDOMNESS is ERGODIC — A situation is deemed non-ergodic when observed past probabilities do not apply to future processes.
IF YOU DIE PLAYING, a billion dollar PRIZE MONEY is NOT WORTH IT — In a strategy that entails ruin, benefits never offset risks of ruin.
RATIONALITY THEREFORE is avoidance of SYSTEM ruin.
When the beard (or hair) is black, heed the reasoning, but ignore the conclusion. When the beard is gray, consider both reasoning and conclusion. When the beard is white, skip the reasoning, but mind the conclusion.
Naval is a first principle thinker, his ability to think about anything deeply and articulate them in the most lucid way is unparalleled, very rare to find an individual like this. Many have interviewed him on their respective blogs, podcasts and conference. Several of these places have curated nuggets of his thinking, here is my own curation of notes that I refer to from time to time.
During the exercise of making my notes what I found even more fascinating is the other deep thinkers that Naval attracts, the mind stretch that they further create over Naval’s initial thoughts. Some of my additional notes of these folks below.
Tribe that he attracts
“Only the individual transcends” — @naval
“There’s no community that’ll get you there. Everybody’s journey is unique. We all have to find the sources that speak to us.When you start going your own way, you start to disconnect from your friends and family because they have a consensus model of who you are. And they don’t want you to deviate from that model. “ — @Steve Maxwell
“If you attack someone’s identity, you shut down all conversations with them.” –@naval
“How tightly our ego grips to concepts & labels we hardly ever examine.” — @amirmotlagh
“Logic of violence determines the structure of society” –@naval
“Logic of violence is not about ease but desire to assimilate — evolution on v. long scale, a desire to create families for humans” — @Alexandroulykos
“Uncertainty, not outcome, is the root of stress.” — @naval
“Outcome leads to even more uncertainty” — @lpolovets
“Possible uncertainty is the by product of expectation.” — @henocki
“The problem with getting good at a game, especially one with big rewards, is that you continue playing it long after you should have outgrown it” — @naval
works both ways. Problem with being bad at a game with high rewards is that you continue playing long after you should have given up.-
“Life is a single player game.” -@naval
“With no owner manual. Multiple controllers at the start. Single controller for the self actualized.” –@henocki
Correlation and Causation
“Correlation isn’t causation but neurons that fire together wire together. Thus the confusion.” –@naval
“Evolutionary, getting too many false positives is more beneficial than getting too many false negatives. Hence the bias.” — @DellAnnaLuca
“Desire is a contract that you make with yourself to be unhappy until you get what you want.” -@naval
“once you get “what you want”, and realize it didn’t make you happy, it’s time to rethink the terms of the contract” — @fortierfinance
“To be without some of the thing you want is an indispensable part of happiness” @xochinla
“People who live far below their means enjoy a freedom that people busy upgrading their lifestyles can’t fathom.” — @naval
“Not wanting something is as good as having it.” @L1AD
“If you’re leveraged with capital, code, or people, and own equity, then good decisions have a much larger earning impact than hard work” — @naval
On the other hand, higher leverage narrows your margin for error. It turns a small mistake into an existential threat.
Investing time/money behind someone? — Do you like them? — Can they teach you something you want to learn? — Good economics? If so, invest. @naval
“Consensus” is just another way of saying “average.” — @naval
“Icecream Principle — Tell 10 people to get ice cream with one condition; they all have to agree on one flavour. That flavour is going to be chocolate and or vainalla every time. Groups of people don’t agree on whats cool or interesting, they agree on what’s easy to agree.” — @Patrick Buggy
“You get paid for being right first, and to be first, you can’t wait for consensus.” — @naval
“You can wait for a consensus of early adopters, though this is risky” — @paulg
“You can be right first and not see a dime for your efforts. You get paid for creating consensus first.” @mr_james_c
Best investing attitude is contrarian, patient, informed optimism. As @m2jr says, “non-consensus and right.” –@naval
First principle thinking is going beyond metaphors, mental models and involves asking deeper ‘why’ question recursively till one can’t do it any further. To every such thought it is important to reflect on counterpoints so that the original thinking can be strengthened. As @VBrunschpoints out it is important to do it actively. I don’t know whether Naval does such a practice proactively or not, who am I to ask or judge. I personally find this tribe helpful to challenge Naval’s thoughts for myself. When I think the thoughts Naval introduces, several times this tribe is source of an anti-thesis that help me move beyond admiration of Naval to appreciation of the thoughts and then eventually to add my own thinking to make my version.
Bhajan, Gita and Veda are hindi words when translated into english it stands for Metaphor, Mental Model & First Principles level of thinking.
As I was explaining blockchain, bitcoin, ethereum to few folks interested in ICOs I found it useful to explain it through above three levels of focus. Being a new space there is ton of information out there, folks end up mixing all different level thinking and it confuses more than clarifying.
Not just blockchain any novel or unprecedented topics it is useful to dial focus with the above depths of thinking.
To define something at Bhajan (metaphor) level is to ask if it passes the ‘Grandmother’ test for comprehension and ‘Chinese whisper’ test of repeatability.
Gita (mental model) level is arriving at the right mental model for something that makes it tractable to address most aspects related to it. Farnamstreet blog is a treasure trove for thinking about mental models in general in life.
In the Veda(first principle) level everything is questioned, sometimes recursively till one runs out of question and asks what has changed in the most fundamental way and how to adjust our understanding of current mental model.
99 % of the world operates at the Bhajan (Metaphor) level, < 1% like Charlie Munger attempt to learn the Gita (Mental model) level, a very tiny fraction amongst philosophers, scientists & certain type of entrepreneurs (Elon Musk) question in first principle.
Key point of my explanation to ICO interested folks was that enthusiasts can suffice with Bhajan (metaphor) level of understanding, most investors may operate at Gita(mental model) level but entrepreneurs and investors must operate at Veda (first principle)level & easily traverse all the the three or it may end up being too risky.
Few things that stood out for me when thinking about cryptoassets
We don’t have very good Bhajan (metaphor) yet in the cryptoassets world.
No other space like crypto where the changes across Bhajan (metaphor), Gita (mental model) & Veda (first principles) level are so interconnected and rapidly changing.
Regulator who eventually decides something to be legal is most often a Gita (mental model) level thinker and gets swayed by strong Bhajan (metaphor) movements. (Ex – Net Neutrality)
There are many good thinkers out there in the crypto space and it is attracting some of the best thinkers towards it. Below is my mental map of the various type of thinkers that are out there. How would you revise it ?
I was meeting a classmate from college after many years who is now a senior engineer at the Mountainview office of Google. We were toasting his 10 year anniversary at Google and our conversation shifted to Indian startups.
Pretty soon his exasperated question to me was – “Where are the big startups that we have been talking about from India since ages. Where is India’s own Google or Facebook that we have been dreaming about ?”
“2007 to 2017 is good 10 year window to look at this. There has been one Flipkart which has grown exponentially but even that is yet to create liquidity for investors and thereafter pretty much everyone else are valuation fluffiness. For someone joining as an engineer at Google or Facebook in 2007 (10 years ago) was the wise career move to make” he quipped.
I said “ Peter Thiel asked simillarly of Silicon Valley for flying cars but got Twitter instead ” and that twitter has still helped overthrow governments potentially far more impactful then the imagined flying cars.
It is hard to predict when non linear change takes hold, one should not predict but be prepared for the inflection by having a view when it might come around. 4 years in startup & 5 years in a large corporate in trying to innovate for India & from India market has led me to a few observations that I shared with my friend.
I said “think of it as CAGROMOTA — CAtegroy, GROwth, MOat, TAm”
CAtegories of new market
Indeed very few new market categories got created in the last 10 years, i.e 2007–2017.
Broadly speaking Internet Commerce for India (Naukri, Makemytrip, Flipkart, Zomato, Matrimony, Ola, Naukri etc)
And Software Products for global market (Druva, Eka Software, Zoho, Freshworks, BrowserStack, Fusioncharts, Wingify & others)
Few categories that looked promising eventually were not — Digital & Mobile Payments, India focussed games, Social media, Mobile VAS, Portals, OnlineNews. There never was sufficient demand in digital games in India to make it an Industry that can compete with Bollywood. Confusion on who will regulate killed the mobile payments market in 2008 (a similar fate is looming for Fintech in 2017). Facebook for India is Facebook and not Minglebox.
Even there winning in an existing market category involves a different playbook than creating a new one (see market map). When creating a new category it is almost like a designing a new game, getting it included into olympics and playing to emerge a winner. In fact new market categories can’t be copied or created, they emerge.They emerge due to a combination of many reasons. A a shift in user behavior and demand that creates a strong pull in the market, combined with straight forward regulation environment for operation and global comparative advantage (i.e something unique to India)
In playing within an existing category one has to train for the unknown game and find unique strengths.
“Is it better to get Kabaddi added to Olympics or train to win in Iceskating”
Key to look for here is not a copy of silicon valley success, Google from India will not look like Google at all.
Technology Industry is expected to grow at 20%. Lets compare some key data in India.
Macro growth rate for India is stellar compared to any (other than China).
Anyone invested in the Indian stock market would have made 2X more compared to the US.
Some industry category had grown faster than expected baseline whilst others are yet to. It is hardly a surprise why few hedge funds have poured billions and chasing the winner in Internet commerce category.
Public market IRR in India comparable to private market IRR in US
Overall macro growth is great, some categories are amenable to non linear growth and some don’t , in some inflection point are yet to hit.
[graph data is sourced from various place, collated here]
Staying a market leader is as important as becoming one. Different business, market yield to different kind of moats. In India economies of scale through owning proprietary infrastructure & distribution has been a key source of advantage. Iterating business at the speed of the regulator is another one. [Agreed such fast change in regulation has also vaporized many moats]
Top 5 brands of India in 2007 are not the top brands of 2017, hardly any business in India gets value multiple through network effects. Brand stickiness, network effects have not been amongst the strong moats. Raising more capital than competitors has looked to be a a short term advantage but claws future options. Outdoing others in fund raising is hardly going to help preserve a business. Anyone doing so may not be a likely candidate (the race between Amazon and Flipkart seems to be illustrating that so far. )
TAm — Total Addressable Market
At 49 millions small business alongside 50 million Urban Indians and 250–350 India2 & India3 consumer market size, the TAM argument never fails to inspire. However of all the above discussed TAM seems to be the biggest source of disillusionment.
It is not the size of population but is when the market becomes serviceable it is useful to consider. That happens when an underlying infrastructure and access is available (mobile, internet, roads, payments). To repeat number of people is not equal to TAM, the infrastructure available to serve people with any service is what should be used to calculate TAM. 2009 was the turning point of pre flipkart era and post flipkart era while the number of people stayed the simillar.
Underlying infrastructure that makes a population size serviceable is a more appropriate lens for TAM.
There is still a great macro, nice category specific growth rates, very different sources of moat and need for a better lens for TAM.
“It is the India thesis not the India theme”
A theme led approach will feel like moving in a blindfolded game. It will be initially exciting and if you did not get lucky soon frustrating later on. While with a thesis led approach it would be like sensing the terrain with a blind walking stick.
Instead of excitement and despair in broad theme based outlook having a unique view such as a thesis around CAGROMOTA may help find the Google that we are looking for.
I get to meet and hangout with many product entrepreneurs in India across a wide variety of spectrum (wannabe, early stage all the way up to category leader). I have been one and have crossed a few early stages myself, based on my experience I see 3 type of founders
The Surfer, Voyager & Fisherman
Surfer is someone who is riding a tide, has unique skills, most often flamboyant but certainly a great story teller. Some may call him lucky for the tide is responsible for his greatness and he may have been only there at the right place and time.
He however believes that he can read the wind & the wave and that he has his board in so much control that can swerve smoothly against the biggest tide.
Investors could be referred to as bystanders on the beach making bets on surf board, tide or surfer himself to win.
Press makes a celebrity of him for it becomes a sport worth paying attention to for the adrenaline kick that it can produce.
They however have the same fate that movie industry mete to its heros & heroines, i.e post their short lived hotness they are relegated to the archives of history.
Many yesteryear consumer internet and e-commerce stalwarts are good examples of this. We are yet to find our Rockstar/Shehenshah/Thalaiva heroes that are timeless in this category.
Voyager is like the columbus, an italian in spain, a master storyteller as well. He is going for the glory and riches but also believes and leverages his experience of past expedition by a previous voyage.
He sets sail to find India but discovers America. He also finds other backers to to chase the dream.
After the Surfers, Voyager becomes a great story to write about so they get their share of press as well.
Good examples are engineers, product managers from other successful big product companies like Yahoo, Veritas, Symantec, Google, Microsoft (MNCs) & Zoho, Tally (Indian Companies) etc.
He is someone who also faces the vagaries of the sea but goes to catch fish. His work is not sexy and it may stink but feeds him and so many others. He may choose to fish where nobody is fishing or have to compete and jostle with other fishermen going after the same fish. His journey is a long one.
Story of a fisherman comes only when stories of other two types have been repeated to boredom. Many call this as the bootstrapped entrepreneur.
They are different but have few things in common. Each involves skills but given the odds has self doubt. Some play the game for 3–4 years, other spend decades.
Surfer does not create the tide
Voyager can only envision his prized destination in a rear view mirror.
Fisher man does not create the fish.
Many first time entrepreneurs are confused on what persona they would like to choose or what choices are even available to them. As the startup ecosystem ebbs through greed and fear the god that founder look up to changes, in times of boom the surfer is the god, in times of gloom fisherman is the god. Also when one type is treated god the other type is berated.
Wish there was more understanding amongst them and about them to reduce the pain they go through. For contribution they do to society through society they all deserve salute.
[original post date 25 Dec 2016, migrated from ubedge.com]
Rants are not worth responding but
I have known Nikhil for 10 years and have the highest respect for him, after Om Malik he is my most favourite technology journalist for his deep and incisive views. I also admire his courage to deliberate topics which are normally deemed outside the ‘overton window’ (non discussable topics)
So despite the rant I had to sit down and had to think on this because this is Nikhil asking these questions. However after reflection I found that I can’t agree with him on several counts, well this is not our first time
I also feel more compelled to do so because while he talks technology & politics in the title of his post but it seems to be a complaint against iSPIRT. And I am on the side of iSPIRT, have been part of iSPIRT from the day it officially started and many years before that. Moreover now I am a full time ‘Fellow In Residence’ since last four months running the M&A Connect program.
His rant has many factual errors including about UPI that Nikhil Kumar already points out in his tweets.
If I understand it right the following seems to be major points he rants about
Unsettling adoption pace in Digital Identity & Payments
Muddled debate on digital colonization
Subversion of choice in technology diffusion
Close relationship of technology and politics
Technology is the yin, policy the yang of new markets
Technology as Kevin Kelly beautifully points out is a force of evolution, it is an unstoppable force of nature. Definition of politics or policies in this context is it is allocation of scarce resources in the face of change. Technology creates new possibilities while policies moderates those by setting up the new rules of game. Looking across time or geography this relation has been so empirical that technology and policy have been the yin and yang of new market creation.
Sometimes policies or regulation kills a market. Peer to peer music file sharing — Napster anyone ? DMCA killed it. Closer home about 5–7 years ago every mobile payment startup in India died because it was not clear who defined the policies when it came to mobile payments (RBI or TRAI)
Over time this is the reason why the ‘challengers’ just like the ‘incumbent’ have learnt to engage not only to understand the new game (technology) but to also influence the rules of the game (policies). More pronounced recent debate of defining the rules of the game for being challenger friendly is Net Neutrality of which Nikhil was the chief crusader himself.
Makes me wonder what makes one crusade(er) more noble than another.
Poor understanding of Digital colonization
Digitization is going to happen to everyone in the world, that is the force of technology. Digital or not is not the choice we have, how in the new digital world can we influence net positive societal impact is a more apt question.
I am not in favour of a state hand in speeding the process of digitization but in the digital world does one want to be in control of a private hand whom you can’t influence. I would rather prefer to yield in to the power of who I can vote out not a global private lord that dictates a feudal system.
In face of creative destruction it is indeed the responsibility of the state and the society to rehabilitate the farmer or the cobbler that loses a job because of change in technology. To shoot the messenger that warn about the creative destruction and is helping preparing everyone for the change is naive.
Dealing with Illusion of Choice
It is easy to score a debate by calling something as ‘attack on choice’. In world with natural monopolies (key digital infrastructure) options out there are merely illusion of choice. Many other countries are discovering now that Google, Facebook control identity than most countries would like to yield it. These countries have already yielded their choices and data to large corporation. Internet is fundamentally a aggregation of private data which is retailed to highest bidder. Due to India’s ability to leapfrog an architecture around data for the first time we can even enter into a dialogue about data and privacy. The debate and the policies on this has not been settled. Questions on these are great, rolling sleeves with an alternate solution even better. Standing by the side and only complaining the least useful.
Debating Issue Vs pointing fingers without facts is not cool
People in iSPIRT are rooting for positive change like Nikhil and everyone involved feels responsible for the consequence of change that takes place especially those that get influenced by them. They think deeply about the societal impact and have had major share of disagreement with the Government as well. To cherry pick links and blog post to say things iSPIRT is very close to just one stakeholder is totally unwarranted and uncool.
India stack — one of four building blocks for Product Nation
iSPIRT is a part of the ecosystem and works with everyone within it — entrepreneurs (entire spectrum of ‘new’ to ‘seasoned’ ones), policymakers, global corporates, academic researchers, developers, investors, banks, other industry bodies, global think tanks and more.
The vision for iSPIRT is building India as a Product Nation, our thoughts captured in the annual letter 2016 here. For realizing that vision building public goods is a declared motto. Four type of these building blocks of public goods is Technology (India Stack), Policy , Market Catalyst (InTech50, M&A Connect), Playbooks (Roundtable, PNGrowth, iKEN). Belief systems formalized to make this happen as credo has stood us for last four years.
As much impact as India Stack if not more is happening in other blocks as well — Innofest that is championing support of grass root innovators that will help build the ‘India 2’ (beyond metro) market. A fintech leapfrog council (FTLC) that is helping public sector banks navigate the nonlinear change, a huge step in helping banks arrest the negative impact of technology disruption. Startup Bridge India a roadshow for Indian startups in the valley declaring the arrival new global category leaders from India that silicon valley should take note of and partner. Helping grooming the next ring of category leaders in India through PNGrowth bootcamp led by practitioner entrepreneur who are few years ahead (senior doing group study for juniors). How do we know that this is creating an impact, NPS (Net Promoter Score) of each of the initiative hovers around +80.
Of course iSPIRT works with policy makers as well to ensure that when rules of game are drafted the challenger is not endowed with a structural disadvantage. When iSPIRT supported Nikhil on similar rules creating exercise with respect to Net Neutrality I do not understand why engaging other stakeholder should not be done.
I have gone through many red pill moment myself to later realize that it is also recursive, it feels smart to have the first red pill moment but is humbling when there is realization that there is a red pill’s red pill (Matrix Revolution gives a more detailed picture than just the first Matrix movie). In times of unprecedented change cognitive dissonance is bound to happen, wisdom is measured by how much cognitive dissonance one can handle.
“Nikhil, do continue to ask tough questions on important topics regardless of how discomforting they are, for we all will benefit by finding answers to it. However to attribute wrong intent to people and organization especially without facts is uncool even in a rant for you have been the gold standard of teaching India to form points of view supported with facts.
Also I would encourage you to define why should one crusade be called more noble than another one”
[original post date 1 Apr 2017, migrated from ubedge.com]
I asked my manager on what are things that I could do to be a better a product person. Her tip which took 2 minutes to implement when I started putting in practice had profound impact on me. Since then I have shared it with scores of entrepreneurs and some reported a had 100X return for them too.
We engage in conversation with folks that have scarce attention span, the more senior in a decision making capacity somebody is the more scarce their attention is. In meetings when asked to explain something i.e a new product feature, a business plan, a startup idea we are in so much in love with what we do that we start with telling the birth story of how we started and from there describe a journey line of how it reached till current stage.
Her tip was to invert the messaging architecture, i.e when there is limited attention span first describe the conclusion and then go down a pyramid of how it layered up. In other words first narrate your message as trailer and not as the making of the movie. It is only when folks get excited in a trailer will they decide to watch the movie and a very select few even care about the making of the movie.
Most folks, especially engineers instead start with explaining the making of the movie.
[original post 3 Apr 2017, migrated from Ubedge.com]
Recently was having a conversation with a Private Equity friend and was trying to explain the challenge that has captured my imagination and full attention, ie exits for software product startups in India. He felt that the data about the exit structural deficit that I was trying to point out felt too bearish to be true. My counter argument was that my intent is not to sound bearish but instead be a realist, after all acknowledgement of a problem is first step to solving one. Post that conversation I thought should put this data out publicly so that through crowdsourcing can at the very least improve my understanding if it is off by wide margins.
Above data indicates that Israel was able to generate 1.8X of the money that went in while in India in the same period only 0.2X. The right comparison is exits from 2012–2016 with VC investments from 2005–2009, iSPIRT report does that comparison but results are even less encouraging.
Exits follow a power law, however in India it seems like a power law’s power law.
Not only is the volume of exit is challenge but also the structure, any ecosystem exits follow a typical power law. For every $1 bn exit, there are ten $100m deal, for every $100m there are hundred $10m deals.
Top 7 deals in India account for ~$2.5b of the $4b in exit. About 250 of 391 deals total a deal volume of $97m which means the size of an acqui hire i.e in long tail is about 0.5m, which is inadequate even for an angel investor. Lack of many $10–100m deal means there is a missing middle of the long tail.
Tim Ferriss's 4-Hour Workweek and Lifestyle Design Blog. Tim is an author of 5 #1 NYT/WSJ bestsellers, investor (FB, Uber, Twitter, 50+ more), and host of The Tim Ferriss Show podcast (400M+ downloads)