The business of business...

Continuing with thoughts on business models...

To exist, businesses must deliver value to its customers - this is different from the debate on creating value for shareholders vs stakeholders. Preferably, value must be tangible, but in some cases, it is notional. The industry that best demonstrates value creation is IT. Just imagine the time and effort wasted on mundane tasks everyday if we didn't have Windows and Microsoft Office.

Of course, value creation is not as obvious in all cases. Entertainment and television, for example. Some people would argue that television is turning us into morons and is actually value destroying. Yet, the industry is exploding. This is a case of notional value, where people are ready to lap up any and every form of entertainment. It can be risky to bet on such models because they fundamentally rely on exploiting consumer preferences. Very similar to what the fashion industry does. The value created is not by clothing people but rather by making people feel that their clothes are better than others. This is also the business model of our local quack, palmist and other fortune tellers – they all make the consumer feel better.

The ability to deliver notional value on top of real value is the holy grail of a successful business. Which means, not only is the product good, but you also take pride in ownership. The ipod and iphone are perfect examples. World-class products enhanced by the “Apple” brand. Even here, the relative magnitude of the tangible and notional values matter. So long as the tangible value is much larger than the notional one, the business is stable. Microsoft, for example, probably has a negative notional value, but is yet a profitable business because it offers unmatched tangible value. On the other hand, FMCG products do have some tangible value, but rely heavy on notional value. I doubt if any of us can differentiate between two shampoos in a blind test.

The simplest way to check whether a business adds value is to ask if it helps people do stuff “faster, better and cheaper”. Ideally, all three aspects must be addressed but sometimes addressing even two is okay.

I mint?

Great ideas sound exactly like foolish ones - until they work that is. That's my favorite Scott Adams' quote.

The thought occurred to me when I saw the ad for imint on the back of a bus. It is a rewards system where you earn points every time you spend, which can be later redeemed for gifts or vouchers. Nothing radical about the concept itself. Credit cards have been doing this for a long time now. But here's what puzzled me. Is there an opportunity for a third-party to make a business out of it?

I dont know for a fact how imint works, but my guess is they have consolidated the rewards system of some retailers and cards so that the customer is able to get points for all transactions in a single "currency". So no more 100 points with ICICI, 250 points with HP, 50 points with Jet with none of them sufficient by themselves to do anything. Now, we get 450 imint points that is good enough to get a mug or something.

I guess imint adds some value thru the economies of scale it gets by consolidating the rewards system. So that explains why ICICI, HP and Air India have hopped on. Their points now make some sense to customers. But how would imint get new customers? For instance, why would HDFC or Jet sign on? Its destructive to both HDFC and ICICI because their customers wont see any difference in using either card, thus resulting in mutual cannibalization. In fact, I wont be surprised if ICICI has an deal that prevents imint from signing on competing financial institutions.

So how can imint grow? Well, by encouraging customers to spend more. That I think, personally, is a friggin stupid model to run a business.

Front Page

There was a time when the front page of a newspaper was a precious piece of real estate. Only the most important of the important news would find mention, and even then, the story would be cut short and continued elsewhere for it was unwise to waste so much space on a single story. (The exception being the Hindu, which always has complete stories.)

Although I dont have first-hand experience, I think there was a time when the front page determined newspaper sales. Especially during high profile murder trials or controversies, people would buy the paper after glancing at the headlines. Also shown in innumerable movies where paperboys at busy signals are carrying tabloids screaming with the latest headlines.

Well, all that would be history soon. Our newspapers have realized how precious these front pages are - literally. The front page has dumped news in favor of ads. I believe every single major newspaper now comes a "wrapper" with ads on both the front and back. The trend started with tabloids such as Mid day and Mumbai mirror but even TOI and HT have adopted this. I wonder how long before our dailies go the magazine way where ads dominate and content has a token presence.

Power Landing

Mythili Bhusnurmath recently wrote a piece on our inability to wait until the plane comes to a complete halt before turning on our mobiles. But its not just the mobile phones we are after. Barely a second after the plane touches down, and before it has even started to taxi, seat belts are popped open, mobile phones turned on, overhead compartments opened, and a beeline is made for the exit. Were it not for the locked doors, the adventurous might not even wait for the stairs and consider making the 10-foot jump. Such abject disregard for rules and safety is unheard of in any other country and makes one wonder why someone spending a couple of hours twiddling thumbs in the air would suddenly get so excited and active to save a few minutes at most. After all, our flights are usually off by more than a few minutes.

Here's the point: It's not those few minutes that people are after. It is the resultant delay that could be in hours if those few minutes are not well utilized.

Let me explain. We live in India where power laws surface even in the most mundane of instances.“Power laws” is a term used to indicate a non-linear, usually exponential, relationship between two variables. Let’s say it takes you an hour to drive from home to work. If you start at 7, you reach at 8, start at 8, you reach at 9 and so on. If you plot your start time on X axis and arrival time on Y axis, you will see a diagonal straight line that indicates a linear relationship. But let’s say, if you start at 7, it takes you an hour, but if you leave at 8, it takes an hour and 30 minutes. At 9, it takes two hours and so on. Now, if you plot these, you will get an exponential curve. The point being, if you are 5 minutes late in getting off the plane, it might take you an hour longer to reach your home or workplace.

What does a typical domestic traveler do on arrival? Pick up the baggage and head for the exit. Now, in the US and other countries, there is a clearly marked lane with several cabs waiting. One simply gets into a cab and zips off. Here, though, we have the prepaid taxi counter - a monopoly that cares a damn for travelers. They are in no hurry to get people out fast and are often seen engaged in shouting contests with cab drivers. So if you are late by even a minute, you see 10 people ahead of you in the line at the counter. That also means 10 opportunities for things to go wrong. Someone does not know the exact name of the locality so the guy at the counter denies a cab and an argument ensues. Someone isnt carrying change - another argument. The 2 minute delay in getting off the aircraft has already snowballed into a 20 minute delay in getting out of the airport.

There's more. The roads leading out of the airport arent broad enough so the traffic is typically crawling. During peak hours, traffic starts piling up and a smart cabbie tries to save 30 seconds by cutting across a lane and creates a mess that takes 30 minutes to clear. Your misery just keeps compounding...

Am not saying that the precious headstart of a minute or two will ensure you will reach your destination in time. There will be several other traps along the way that are impossible to avoid. Just that getting out of the airport quickly is the only aspect under your control and it would seem foolish not to use it. I am willing to bet that the moment our airport facilities and services ensure that we can get out of the airport without hassles, people will be much more relaxed. In fact, I think we are much more relaxed when arriving at new Blr or Hyd airports that are much less congested.

Gandhi Jayanti

Why is Gandhi Jayanti a public holiday? Shashi Tharoor thinks the Mahatma would have wanted us to work this day, for he advocated work to be worship. But Mr. Tharoor, we are so busy worshipping work the rest of the year that Mahatma's birthday provides the perfect opportunity to step back and reflect on whether our work is worth worshipping at all. Of course, most of us end up spending the day in the bed, in front of a TV, or in a movie theater, but it is not our fault entirely. The essential ingredient for such reflections has been denied to us on the day when we need it the most. Not everyone has the option to stock up liquor ahead of time or consume it in their homes. In any case, given the levels of corruption in our government offices, the holiday at least minimizes underhand dealings on Mahatma's birthday.

I am not quite sure why Gandhi is revered today. Whether his ideals still hold is questionable (and will need a separate post), but why cling on to something that happened 70 years ago? He gave us freedom, you say? Sure, thank you Mr. Gandhi. But it is time to move on. Why do I have to thank this man every time I breathe?

Granted that it is in the human nature to hold on to events and people because it gives us identity. But it is also what prevents us from breaking the shackles of the past. Drawing an analogy from the business world, organizations routinely shake up the top management when growth stalls. In fact, leaders are chosen based on whether their management style fits the need of the hour - aggressive managers for growth and conservative ones during bad times . Why then are we singing paeans of non-violence and truth when our neighbors are needling our buttocks with nuclear missiles?