Apple iPhone 5C: Return of the Ordinary

Steve Jobs is gone and is gone forever. Nothing more can reinforce the fact in our subconscious than the release of Apple iPhone 5C by Apple Inc. (AAPL) on 10th September 2013.

Apple, to most of us, is almost the final word when it comes to product design, seamless consumer experience, imagination, and yes, perfection. All this was achieved by not aiming to make analysts and strategists happy, but by completely focusing on user experience with Apple products – starting from packaging to fonts to the casing to design to overall manufacturing and feel of the product.

All this core user experience was achieved not only by keeping the focus on every aspect of product design/manufacturing but also keeping the number of products low. Apple is probably the only company in the world with such a large balance sheet size (USD 424 Billion Market Cap, 37% EBITDA margin, USD 170 billion cash reserve) and such a limited range of products and equally limited models. Probably tells us a thing or two about focus or rather Zen-like-focus!!!

However, the launch of iPhone 5C changed everything and suddenly Apple 5C symbolizes everything which Apple was not.

Describing the Zen of Steve Jobs, Jeff Yang in his weekly column “Tao Jones” describes the impact of Zen teachings in Job’s work and style, and how Jobs was proud of things that Apple didn’t do as he was of the things it did. One of the things which Steve Jobs definitely didn’t like was having a bunch of never-ending models designed to capture every segment of the market.

With the launch of iPhone 5C, Apple has moved from user obsession to market obsession where it no longer aims to delight its users but wishes to service number-crunching analysts in order to justify its share price/market cap/valuation and those crazy EBITDA multiples.

Hence, iPhone 5C is not the continuity of the same series of models but rather symbolizes the break from whatever Apple has been so far, and in one stroke, Apple ceased to exist as a bold company driven by a Zen practitioner, which dared to imagine the future and create it.

Instead, now the boardroom is filled by a timid group of managers who find the legacy too big to hold and wish to get comfort from analyst reports, focus groups, journalist views, and hide behind the fig leaf of banality, and aim to build by not imagining but looking at everybody else for guidance. In that sense, Apple of yesterday is gone forever and is taken over again by the era of ordinary, which touched Apple in 1985 and almost killed it, but for Steve Jobs. Alas – he is no more!

RIP Steve. RIP Apple.

Why has India Failed to Produce Tech Giants like Apple, Google, Facebook, Twitter, etc.?

This was a question asked at Quora about the failure of India in producing tech giants.

While there have been many answers with the focus on obvious villains like the Indian education system, lack of vibrant technology market, risk-averse VCs, and Blah! Blah! Blah! I think the root cause is much deeper and fundamental.

First, I think the obvious villains are too obvious like in any crime thriller and do not point to real symptom/villain, and second, I am not so negative on Indian education system as the popular wisdom would like us to believe – that Indian education is that bad as far as basic issues are concerned. Given the success rate of entrepreneurs and their ability to create mega large companies in a complete resource scare situation, one can’t just conclude and say that Indian education system has been a failure. I don’t know if the American education system works, given the academic performance of American children in Maths, Science, and Humanities these days!!

Basically, lack of great product companies like Apple / Google / Facebook in India points to a much deeper and fundamental problem and relates more to culture and society than the mere education system.

The bigger issue is that we as a nation/society have never valued craftsmen/artisans, or in a nutshell – product makers. As a country, we have respected/valued traders/money-owners or managers more than anything else, and have continued this tradition of following generalists than craftsmen (No wonder generic degrees like BA / MBA have been more popular in India forever).

The aspiration to be a project manager rather than being a hardcore coder is just not limited to the software profession only but is fundamentally prevalent in all walks of society. Where we as a nation always celebrate the king/minister or bureaucrat but rarely the architect or craftsmen – be it Sambhalpuri / Banarasi weavers, or brass craftsmen, or a passionate creator, or even the architect of The Tajmahal!!! It is Shah Jahan‘s Tajmahal and not Ustad Ahmad Lahori’s Tajmahal.

Hence, in India, everybody is aspiring to be a supervisor or manager or project manager, rather than being a great machinist, a great brick-layer, or a great coder, because as a society the respect goes to the person who doesn’t do things by his hands, but to the guy who supervises, and majority of the time, practically knows nothing. Unlike the Western world where the business was driven by craftsmen themselves – be it Samuel Colt or Louis Vuitton or Ford Motors, In India, business was always driven by a money-owner with little understanding/respect or liking for the craft. All that mattered was money and profit margin, and hence, India achieved huge success in the service industry as all you needed here was to hire a battalion of people and drive them without going deeper in the craft.

The other minor issue stems from the fact that as a society, we do not celebrate or accept failure. Given the resource scarcity, it’s not appreciated that a person can be callous enough to try many options and waste resources rather than focus on making good of whatever he has got. Hence, just 15-20 years ago, changing job was almost unheard of.

And these two factors have created a situation where there is very less focus on craftsmanship and more on trading, with limited risk-taking appetite and intent to destabilize the status quo, and that reflects in the lack of great product companies in India. However, last 10-15 years have caused a significant shift in behavior patterns and clear-cut changes are visible.

So for a country where the VC industry is less than 10 years old, mega products giants will come, and probably with changing times, this will change as well.

(This question was asked at Quora where it received some 44 responses. The above post in my answer to that question.)

(Source: quora.com)

Startup Pitch: An Insider’s Guide on What Do VCs Want?

As a VC, we suffer death by PPT (on a cue from Alexei Kapterev) almost every day. Every month, we see 100s of PPTs and attend many events where again one is drowned by pitches and more pitches… all vying for a time which is equally captured by e-mails / social chatter and other noises.

However, the majority of those (almost 99%) become dead on arrival or rather lose the plot in next 60 seconds. A lot of them are great business ideas or have better teams but all is lost in enthusiasm/eagerness to impress or in storytelling. Given the constant bombardment of pitches, a lot of startups don’t get a second chance to pitch again and lose a great momentum as a result.

This presentation is just an attempt to guide entrepreneurs to weed out unnecessary details and focus on the core belief of the startup. You might be having the next best idea, but if you are not able to put things forward succinctly, chances are that you might miss the bus, and we as investors might end up doing Type I / Type II error, as the case may be.

Remember – your first pitch is not about getting a cheque but is all about getting a second meeting, so work on the pitch to get attention / second meeting rather than drowning in details and losing the plot. Hope this pitch gets your attention or at least tries to achieve what I am preaching (or maybe I also lost the plot!!! ;))

Startup Pitch: An Insider’s Guide on What do VCs Want?

So You Want USD 5 Mn Series A Valuation for Your Startup: Some Key Metrics?

Venture Capital: What metrics does a VC look for in a consumer internet startup, e.g., a social networking site to fund a typical Series A valuation ($4m – $5m)?
I would like to know about the metrics such as:

A) How much revenue?
B) How many users?
C) What is the rate of growth?
D) How viral?

Also, please mention if there are any other metrics that VCs look for.

This question was posted on Quora with a request for an answer. This is a question which keeps on appearing at regular intervals in meetings / informal sessions/conferences or in secret whispers where people try to unlock the secret code of VCs on valuation related to a company.

Every entrepreneur wishes to know about those handles / lever-points, which will catapult their startup to get some particular valuation at Angel / Seed or Series A.

So what are the metrics which make us quite dizzy early in the morning and shows us dollar signs all around?

For any company (startup/growth/pre-IPO/listed-stock), any investment round is not the end but part of a journey where whatever enters at one point exists at another, and hence, let me rephrase this question and ask, “What metrics will get a startup USD 50 Mn valuation after 4/5 years?

USD 1 Mn revenue or 5 Mn?

EBITDA multiples 8 / 12 / 40 / 60?

Will you benchmark with Amazon (USD 54 Billion sales / USD 107 Bn EV) or Overstock (USD 1 Bn sales / USD 303 Mn EV) or Facebook / XING / LinkedIn or Groupon or LivingSocial?

Frankly, there is no clear answer as it all depends on the path the team takes it on since one can see from above-mentioned names that valuations differ greatly despite visible success in same vertical.

Web business is winners’ game and it’s 1 or 0 where winners take all, so factor that, and also-ran or 2nd / 3rd companies are valued at a fraction of what winners make.

On a broad basis, valuation is a function of earning and growth. Hence, earning and growth remains the fundamental case as far as financial metrics related to valuation works and all investment opportunities with financial objectives since the key parameters are bound to be valued on the basis of earning and growth only. Hence, there is no reason why a startup as it matures won’t be measured against these two metrics.

However, for Series A, valuation is more a function of many other factors, and in many cases, is also not very dependent on the startup itself and has more to do with market dynamics, investor internal road-maps / goals as well as peer group actions.

Hence, rather than worrying about Series A 5 Mn valuation, think of what it will take to make it a 50 Mn or 100 Mn or 1 Bn company (whatever the numbers are), since Series A valuation is a small stop-over and is not going to change or impact you for few % basis points here and there.

If you get a real bad valuation in Series A and do exceedingly well, Series B will take away all pains of Series A, and if you get very good valuation in Series A and don’t do well, there won’t even be a Series B, and you would end up having good paper stocks which can’t be used even as paper-roll!!!