SK – Page 104 – Pertinent Observations

Hosting arrangements and expense accounts

So the convention when you meet someone who has traveled to your city for whatever reason is that the host pays. It seems to be a result of the commenting that you offer food and drink to someone who visits you. So meeting someone even in a restaurant in your city is like you hosting them at a meet and so you pay for it.

And this is a convention that I’ve followed for a while now. If someone’s visiting Bangalore and I meet them here I pay for the meeting. If I’m travelling and I meet someone and they insist on paying, I let them. It’s all part of the convention.

What turns this around, however, is corporate expense accounts. I just met an old friend for drinks and dinner, along with a few other old friends all of who stay in Bangalore. Now we had met because this guy from Gurgaon was visiting, and convention demanded that rather than him paying, all of us together would pick up the tab.

But then it turned out that this guy was in town on work, and hence on a corporate expense account, and so the dinner expenses would be taken by his employer! So when he pot in his corporate card and insisted on paying, and we protested, he said “next time any of you is in Gurgaon you can return the favour”.

It’s all quite bizarre! The conventions have been completely overturned! All Thanks to corporate expense accounts!

Update

I just spoke to the sponsor of tonight’s drinks and he has confirmed that he sponsored them out of his own goodwill and that our drinks were not sponsored by his employer. The error is regretted

Weak ties and job hunting

As the more perceptive of you would have figured out by now, the wife is in her first year of business school, and looking for an internship. I’m at a life stage where I have friends in most companies she is interested in who are in roles that are at a level where it is possible for them to make a decision to hire her.

Yet, so far I’ve made few recommendations. I’ve made the odd connection but that’s been mostly of the “she is applying to your company and wants to get to know the company better. Can you speak to her about it?” variety. I don’t think there’s a single person to whom I’ve written saying that the wife is in the market for an internship and they should consider hiring her.

I initially thought it was some inherent meanness in me, or lack of desire to help, that prevented me from recommending my wife to potential hirers who I know well. But then a little bit of literature survey pointed out an economic rationale to my behaviour – it is the phenomenon of “weak ties”. Now I was aware of this weak ties research earlier – but I had assumed that it had only referred to the phenomenon where acquaintances are more likely to help than friends because the former’s networks are much more disjoint from yours than the latter’s.

Anyway, in a vain attempt at defence, I hit “weak ties and job hunting” into google, and that led me to this wonderful post on the social capital blog that contained exactly what I was looking for. Here is the money quote:

It turns out, that people generally don’t refer their close friends to jobs for two reasons: 1) they are more worried that it will reflect badly on them if it doesn’t work out; and 2) they are more likely to know of the warts and foibles of their close friends and believe these could interfere with being a good worker (e.g., Jim stays up late to watch sports, or Charles has too much of an attitude, or Jane is too involved with her sick father). Weak friends one can more easily project good attributes onto and believe this will work out.

So if I were to request you to hire my wife and it doesn’t work out, it can affect the relationship between you and me, so I wouldn’t risk that. When I’m recommending someone very close to me, I’m putting my own reputation on the line and I don’t like that. I’m happy referring cousins or other slightly distant acquaintances because there I have no skin in the game and hopefully some good karma can get created.

Now, while I’m loathe to recommend my wife to people I know well, I wouldn’t be so hesitant recommending her to people I don’t know that well! For while my tie with my wife is strong, my tie with these people is weak enough that it not working out won’t affect me, and there is little reputational risk also. The problem is when the ties on both sides are strong!

Venture capitalists, diversification and innuendo

Sometime back I was talking to a friend who is a venture capitalist, and pointed out about how one of the companies he has invested in has a great opportunity for diversifying their opportunities (I had a vested interest, for I wanted to get involved in the said diversification). This guy (the VC) wasn’t too pleased, and he said that while an opportunity existed, he wasn’t in favour of the company pursuing this opportunity.

Talking to other friends who are in the VC industry since then, I understand that in general, venture capitalists are loathe to let their portfolio companies diversify. I had never really understood why, until I discovered it for myself when I was writing this post on whether you should go to market with a focussed offering or offer a bouquet of related products. In this post on LinkedIn, I write:

..if you have venture funding, your investors will not want you to expand scope. Venture capitalists are extremely loathsome about their portfolio companies diversifying – for it makes it harder for the VCs to flip the company at a later date (the VCs themselves achieve their diversification through their portfolio, so they don’t need a particular company in the portfolio to diversify).

Bingo! There’s no surprise that VCs hate their portfolios to diversify!

Anyway, while I was editing the above post, I realised that there are some instances where I’ve written stuff that can potentially have double meaning. Since I had written those lines when I was in the flow of writing the post and I wrote them with the best intentions and no puns intended, I let them remain. Here is possibly the best (worst?) of them:

Secondly, expanding after you’ve penetrated is hard on several counts

Read the whole post!

Missing data in IIMB Alumni Directory

Recently, I got a mail from the IIMB Alumni association asking me to contact batchmates who are not part of the association mailing list. The objective of the mail was to ensure that every alumnus is registered with the association and can be reached for whatever purpose. Among other things (including exhorting us to mail our class mailing lists, etc.) the mail contained statistics of the number of students in each graduating batch and the number of students who are not part of the alumni mailing list.

The pattern in the proportion of people not on the mailing list was quite interesting so I thought I’ll share it here:

For the earlier graduating batches, you can see that the proportion not on the mailing list is very high. And then there are two deep drops, one in the mid-nineties and one around the turn of the millennium. The latter I would associate with all students having a valid email ID at the time of graduation which would have allowed them to be reachable and be part of the alumni association. The former also would be associated with penetration of email.

What is also interesting is the bump around 2010 – while the enrolment rate up to the batch of 2009 seems to be pretty good, something seems to have gone wrong after that. The enrolment rate for the batch of 2010 is as bad as that for 2002, which is quite bizarre! Wonder if the alumni association messed up, or if there were some technical glitches around then or if for some particular reason that batch hated IIMB so much that they didn’t register!

All in all, though, a very interesting dataset.

Batch size at IIMB

A few days back I had written about how the new IIMs with a sanctioned batch size of around 60 and a faculty strength of 20 are unviable and need to scale up quickly. My argument was that one of the big strengths of the older IIMs is its faculty size which leads to a large number of electives, which allows students to shape themselves the way they best feel. In this context it would be interesting to compare these IIMs to one or more of the older IIMs.

I recently received a mail by the IIMB Alumni Association asking me to reach out to batchmates who are not part of the association. This mail had been sent to all IIMB Alumni who are registered with the association, and the purpose was to increase membership and reach of the association (and no, there are no membership fees). And the mail came with a very interesting data set, and one of the fields was the size of each graduating batch at IIMB.

It can be seen that IIMB also started rather small, with about 50 students graduating in the first batch in 1976. By the end of the decade, the number was close to a 100, which is where it stayed through the 1980s. Around 1990 was when the batch size increased to about 150, and the number stayed within the 150-200 range for another decade and a half (the 2004 batch was bigger than the ones around it, possibly due to the IT slowdown in 2002 when this batch entered IIM).

And then after 2006 (when I graduated), the batch size increased. My batch had three sections as would have the 15 batches prior to that (based on this data; IIM sections normally consist of 60-70 students). In fact, the “quantum” nature of the increase in batch size at IIM can be put down to the concept of sections – so the increase from the 100 to 150 level was a function of addition of a third section, and so on. After 2006, though, the batch size has exploded, and the current batch (2013-15, who I’m teaching) has a strength of almost 400 students (divided into six sections).

A good addition to this dataset would be some data that could show the prominence or measure of success of IIMB Alumni who graduated in each batch, which can then allow us to examine whether batch size has had anything to do with continued career success of the students. It would be interesting to examine how this additional data can be collected.

YoY calculations should be based on Hindu calendar

Deepak Shenoy at Capitalmind has an excellent post dissecting the 4.2% drop in the Index of Industrial Production in October. One of the keys to the drop, he says, is that this year both Diwali and Dasara fell in October, and since factories give workers off for these two festivals output falls. He has an informative (but ugly) graph showing this:

I was talking to a retailer recently and he was talking about sales in terms of Indian festivals – like Diwali and Dasara and so on. Retail analytics, we figured, need to take into account things like “Diwali sale”, “Aashada sale” and so on.

So while we have been using the Gregorian calendar for most purposes, it seems like our business cycle still follows the Hindu calendar. From this perspective, issuing statistics based on Gregorian months (such as October YoY IIP) is simply wrong, and has the ability to mislead.

I hereby propose that we go back to our roots and start publishing these YoY statistics on Hindu months. The only problem is we won’t know how to deal with the “adhika maasas”.

Day 1 of teaching at IIMB

As I had mentioned yesterday I’ve started teaching at IIMB. Some thoughts after day 1.

The sweetener (idli-vade-chutney) at SN refreshments is awesome but leads me to take a route that is heavier on traffic than the more optimal route (via Sanjay Gandhi and East End). Too many school buses and office cabs that move haphazardly make it less than a pleasant drive
My car was again waved past at the IIMB gate. No questions asked. I’m still not sure how they do it every time to my car, given there is no insignia on it! I don’t believe that they remember the car from when I was a student!
IIMB has a new classroom complex and I “inaugurated” one of the classrooms there. It’s quite nice, students set out in a wide U format which I quite like. The projector takes HDMI input which is awesome!
The class started off rather quietly. I had to put on my sarcastic side and helpfully mention that “there is still time left to drop this course”. Participation picked up after that.
For an 8 am class, no one slept, which I take as an achievement! But then it is the first day of the term. Maybe they’ll learn as they go along
There were zero objections when I put up my “pie charts are evil. don’t use them” slide. This is the first time I’m not facing any resistance for saying that! In the past I’ve had people say “but then I used a pie chart once and it was very well accepted”, and this after I’ve told them about the perils of anecdata!
Everyone calls me “sir”, from the students to the administrative staff and officers. I’m letting them call me thus. It’s funny how one of the administrators who I used to call “sir” when I was a student now calls me “sir”.
The drive back was horrible. Insane traffic all along Bannerghatta road till I got past the ring road. Then it was smooth but the 3rd block circle was again jammed. But then IIMB is giving me office space so once I get that I’m unlikely to drive back immediately after the class.
I need to manage my voice better. Half an hour in, I realised I had come close to losing my voice. I need to be less hyper and “conserve my voice” at least for the duration of the class.
And no, I won’t put such an update after every class. Just that today was the first day so ..
I came back and added “adjunct faculty, IIMB” to my linkedin profile 😛

Teaching at IIMB

Starting tomorrow I’ll be teaching at IIMB. It’s a course called “Spreadsheet modelling for business decision problems”, and targeted at term 6 MBA students. I explicitly warned them to not take the course if they don’t consider themselves to be competent at mathematics. Yet, some 60 students have registered (current IIMB batch size is ~400)!

This promises to be fun. The only part that may not be so much fun is that in order to make it compatible with the rest of my work I requested for the 8-930am slot on Mondays and Tuesdays so that means I need to get back to my early-to-bed-early-to-rise ways which have served me so well for most of my career (last few months though I’ve become a late riser).

Now, for everything that I do I like to have a “sweetener” – something that is totally unrelated that spurs me to do whatever I’m doing. Usually the sweetener is something that sounds quite trivial but is actually useful in spurring me on. The sweetener in this case is that SN Refreshments in JP Nagar 2nd Phase lies on my way from home to IIMB, and they make absolutely awesome idli-chutney. So the plan for tomorrow (and every other class day in the next 3 months) is to leave home early and have breakfast there and then head on to IIMB.

I’m hoping for a nice lively class. I’ve reserved 20% of the evaluation for “class participation”. I hope at least that spurs them to be nice and lively! Then again it’s first thing in the morning on Mondays and Tuesdays so you never know..

I’ll keep you guys updated on anything whacky that might happen in class. Oh, and I’m going to be starting a “class blog” for my students where they can write for extra credit. Will send out the link once it’s up and populated.

Now to decide whether to go by car (for some strange reason when I take the car – the same one I had when I was a student at IIMB – I never get stopped by the security guys at the gate. there’s no sticker on the car though) or by motorcycle (easier to navigate traffic and park near SN)!

Fragility of two-sided markets

Two-sided markets are inherently fragile for participation of each side depends on a certain degree of confidence in participation on the other side. Thus, small negative shocks can lead to quick downward spirals.

Following the ill-advised ban on Uber and other taxi aggregators in four Indian states (Delhi, Karnataka, Andhra Pradesh, Telangana), business for drivers who ply their services via such apps has dropped significantly. While on first inspection you might expect it to go to zero (given their services have been banned), the fact that enforcement is tough (there is nothing to identify a cab as “belonging to Uber”) means that apart from Delhi (where Uber has pulled its services) these cabs continue to ply.

In the days after the ban, various news reports have interviewed drivers who ply for Uber who complain about drastically reduced services. While numbers vary from report to report, the general sense is that so far the number of trips per driver per day has fallen by half. And I expect this to fall further unless drastic steps are taken – such as issuance of new regulations or removal of the ban.

In a “normal” market (where the owner of the market is also a participant), when demand for a particular good drops, price is expected to fall and availability is expected to increase. If demand for a particular item that you have in stock drops, you need to take steps to get rid of the excess inventory that you have. You are most likely to indulge in discounting or other such promotional activities, in order to make it more attractive for the buyers to buy, and thus take the inventory off your shelves.

In a “two-sided market” (one where the owner of the market is not a participant), however, things work differently. It is a popular saying that in such markets “demand creates its own supply”. A corollary to that is that “lack of demand creates lack of supply”. Let us take the case of Uber itself. Over the last few days, irrespective of whether the ban on the service is official or not, legal or not, the number of people who have been requesting for the service has dropped.

Now, if you are a driver using the app, you realise that your potential revenues and profits from continuing to use the app are not as high as they used to be. Thus, if there are other avenues for you to make money, you are now more likely to take those avenues rather than logging on to Uber (since the “hurdle rate” for such a switch is now lower thanks to lower Uber revenues). As many of you take the same route, the availability of cabs on Uber also drops – something that I’ve seen anecdotally over the last few days. And when availability of Uber cabs drops beyond a point, I start questioning my trust in the service – a week ago I would be confident that I would be able to hail an Uber from anywhere in Bangalore with very high confidence; that confidence has now dropped. And when my trust in the service drops, I start using it less, and when many of us do that, drivers see less demand and more of them pull away from the market. And this results in a vicious cycle.

Notice that things would work very differently had Uber been a “traditional” taxi service which owned its cabs and employed its drivers. In that case, falling demand would have been met with a response that would have made it easier for customers to buy – price cuts, perks, etc.

The point is that platforms or two-sided markets are inherently fragile, and highly dependent on confident in the system. I leave my car at home only if I have enough trust in the taxi platforms that I’ll be able to get a cab when I need one. A driver will forsake other trips and switch on his Uber app only if he is confident that he can get enough rides through the app.

The same network effects that can lead to a rapid ramp-up in two-sided markets can also lead to its downfall. All it takes is a small trigger that leads to loss of confidence in the service from one side. Unless that loss of confidence is quickly addressed, the “positive feedback” from it can quickly escalate and the market grinds to a halt!

Another good example of lack of confidence killing two-sided markets is in the market for CDOs and associated derivatives in 2007-08. There were standardised pricing models for such products and a vibrant market existed (between sophisticated financial institutions) in 2007. When house prices started coming down, some people started expressing doubts in such models. Soon, this led to massive loss of trust in the pricing models that underpinned such markets and people stopped trading. This meant companies were unable to mark their securities to market or rationalise their portfolios, and this led to the full-blown 2008 financial crisis!

So when you build a platform, you need to make sure that both sides of the market retain confidence in your platform. For in the platforms business loss of confidence can lead to a much quicker fall than in “traditional” markets. This dependence on confidence thus makes such markets fragile.

Getting along with popular people

I’ve been thinking about this for a while now but it all came together a while back. The basic funda is that I find it extremely hard to hang out with people who are generally popular and who everyone wants to hang out with. On the other hand, I find it significantly easier to hang out with other people who generally most people consider as being “arrogant” and hard to hang out with.

I wonder if it is connected with what Christian Rudder writes in Dataclysm on people who have been rated a few 5s and a few 1s being more likely to find a partner than one who is rated a consistent 3 (holding average rating constant). Basically if there is someone who is generally popular, they are something like a consistent 5, and they are perhaps generally popular because they exhibit the kind of behaviour or attributes that most people like. Effectively they cater to what I can uncharitably call the lowest common denominator of popularity among people, and that generally means they spend most of their effort catering to that (being “generally nice” and all such) that there is very little idiosyncrasy that they can offer which makes them interesting!

And with time the fact that they are popular affects them, and they expect that everyone like them to the same (high) extent as everyone else! And when you start asking yourself what the big deal about them is, and start wondering why they’re so popular, there is a “respect mismatch” – the respect you are willing to offer them doesn’t match up to the respect they expect (thanks to being generally popular), and you can’t hang out for long.

With people who are generally not particularly popular and branded as “arrogant” by most people, firstly there is no expectation of respect as they generally know that they are not particularly popular. Secondly, the fact that makes them arrogant also makes them interesting to people who are interested along that axis. The fact that they are not generally popular means that there is an idiosyncrasy about them, and if you happen to like that you can get along very well with them!

Of course, I admit to selection bias here. There definitely exist people who are generally classified as “arrogant” who I also find arrogant and don’t hang out with. But there exist a lot of people who are generally classified as “arrogant” who I get along quite well with!

Going back to Rudder’s ratings, I’m likely to rate people who are generally considered “arrogant” either a 1 or a 5 – the idiosyncrasy sends them to either extreme. Thus there are a few of them who I love hanging out with irrespective of what the world has to say about them. As for the popular guys, I’m very likely to rate them a 3 – basically unspectacular, and going by Rudder’s theory, “meh”. And since they expect the general counterparty to rate them higher than that, there’s a mismatch when I meet them and things fall apart.

Makes sense? What has your experience been of people in relation to how other people rate them?