The skill in making coffee

Perhaps for the first time ever in life, I’m working in an office without a coffee machine. I don’t mind that so much for two reasons – firstly, having to go down 27 floors and then pay explicitly for a coffee means that my coffee consumption has come down drastically. Secondly, there is a rather liquid market of coffee shops around my office.

As you might expected, there is one particular coffee shop close to my office that has become my favourite. And while walking back with my flat white on Wednesday afternoon, I noticed that the coffee tasted different to the flat white I’d had at the same place the same morning.

Assuming that even artisanal coffee shops like that one are unlikely to change beans midway through the day, I’m guessing that the difference in taste came down to the way the coffee was prepared. Flat white involves some effort on behalf of the barista – milk needs to be steamed and frothed and poured in a particular manner. And this can vary by barista.

So this got me thinking about whether making coffee is a skilled task. And this might explain the quality of coffee at various establishments in Bangalore.

When the coffee bar is equipped with an espresso machine, the job of making an espresso involves less of a skill since all that the barista needs to do is to weigh out the appropriate quantity of beans, press it down to the right extent and then pop it into the espresso maker (I know these tasks themselves involve some skill, but it’s less compared to using a South Indian style filter, for example).

When you want milk coffee, though, there is a dramatic increase in skill requirement. Even in South Indian coffee, the way you boil and froth the milk makes a huge difference in the taste of the coffee. In Brahmin’s Coffee Bar in Shankarpuram, Bangalore, for example, the barista explicitly adds a measure of milk foam to the top of the coffee lending it a special taste.

And when it comes to “European” coffee, with its multiple variants involving milk, the skill required to make good milk coffee is massive. How much milk do you add.. How hot do you steam it.. Whether you add foam or not.. These are all important decisions that the barista needs to make, and there is a lot of value a good barista can add to a cup of coffee.

One of my biggest cribs about chain coffee shops in India is that the taste of the coffee isn’t particularly good, with hot milk coffees being especially bad. Based on my analysis so far, I think this could be largely a result of unskilled (or semi-skilled) and inexperienced baristas – something these chains have had to employ in order to scale rapidly.

The cold coffees in these places are relatively much better since the process of making them can be “fighterised” – for each unit, add X shots of espresso to Y ml of milk, Z ice cubes and W spoons of sugar and blend. The only skill involved there is in getting the proportions right, and that can be easily taught, or looked up from a table.

The problem with hot coffees is that this process cannot be fighterised – the precise way in which you pour the milk so that there is a heart shape on top of the cappuccino foam, for example, is a skill that comes only with significant practice. Even the way in which the milk is to be foamed is not an easily teachable task.

And that is the problem with chain coffee shops in India – lack of skilled labour combined with the need to scale rapidly has meant that people have tried to use processes to compensate for skills, and in most parts of coffee making, that’s not necessarily a good way to go.

The “war” on terror

In light of the terrorist attack in London this morning, when 29 people were hospitalised following an explosion in a peak hour District Line train on a massively crowded route, I nearly re-wrote this old blogpost of mine. I even thought of the very same examples before I figured I should once check.

Recently, Iraqi Prime Minister Haider Al-Abadi declared “victory over Islamic State“, and announced that the organisation had been defeated. In this statement, Al-Abadi conveyed his ignorance of the kind of conflict his government was involved in, for Islamic State is not a “normal country” and the so-called “war” the Iraq and others are fighting it is not a war – since it will never end the way normal wars do.

As I’d mentioned in the other post on wars, wars end in a political decision – a surrender, usually. Sometimes, it takes extreme measures to induce surrender, as it happened with Japan in World War 2. At other times, a slight advantage to one side might lead the other to concede, and strike a treaty. Either ways, in a conventional war, few sides are likely to fight on until last man standing.

The so-called “war on terror” (especially aimed at the Islamic State) is not a war for several reasons. Firstly, Islamic State is not a conventional organisation – it has transcended that to become a concept, to unite radical Islamists worldwide. Irrespective of how many layers of the top management of the Islamic State are eliminated (either by killing or by incarceration), the remainder of the organisation will regroup and continue to thrive. And the organisation continues to grow – with ordinary members constantly seeking to enroll new members.

This feature of the Islamic State not being a conventional organisation also means that there is no central leadership that has the power to concede defeat and declare the war to an end. Even if a nominal leader of the organisation were to take such a decision, the fact that the organisation is an extremist on might imply that this decision might be decried as “selling out” by the more extreme factions of the organisation, who will fight on.

Then, the Islamic State is a distributed organisation – even in terms of geography. The use of the internet for recruitment has meant that they have operatives in most countries, and after some initial training, these operatives operate independently. So even if a nominal “top management” of the organisation were to be eliminated, these independent operatives will continue to thrive. And they need to be taken down – to the last man.

In that sense, the “war” against Islamic State is hardly a war. There is no political objective since the Islamic State lacks a political leadership capable of taking decisions. The organisation is rather distributed and even killing the “main organisation” will not eliminate the branches (reminds me of this demon in Hindu myth who had the property that each drop of his blood that would touch the ground would result in a clone of the demon).

The fight is going to be a long one, and we’ll need measures both conventional and unconventional to defeat the organisation. Declaring victory, like the Iraqi PM did, can only prove counterproductive.

Poor food

Until about 1970, when the so-called Green Revolution happened, India as a country collectively didn’t have enough food (remember PL-480 and “ship to mouth existence”?). Until liberalisation in the 1990s, even people who could possibly afford it couldn’t get the food they wanted (remember lining up at ration shops?).

In other words, Indians (as a country – there are still lots of people who don’t get to decide on what to eat since they’re way too poor) have had a proper choice in terms of what to eat for just about one generation now. More than half the Indians who are currently alive spent at least some part of their lives at a time when it just wasn’t possible at all to eat what one wanted.

What this implies is that what we consider to be “traditional food” is largely “poor food” – we and our ancestors ate that not because it was what was the most nutritious, but because that is what was available, and what we could afford.

And so you have most of our traditional food being extremely heavy in carbs and light on almost everything else. I have friends who comment that most Indian vegetarian food hardly has vegetables – consider the sambar, for instance, which just has a few pieces of vegetables floating around. It is a correct comment, but that is because most of what we know as traditional Indian food evolved through times of shortages and poverty.

There are times when I attempt to give people nutrition advice, and while people listen to me politely, they end up saying something to the effect that if they start eating “traditional food”, all will be fine with their health again.

We’ve evolved to fundamentally trust the familiar, and distrust the new. And so it is with our food choices. Without really understanding why we and our ancestors ate the food that we ate, we consider “traditional food” to be good.

Now that I can afford it, I try to make sure I have balanced meals, and a lot of “traditional indian foods” that I grew up eating hardly get consumed in my house now. Consider the uppit – which is mostly carbs (semolina) with a small handful of vegetables and some fats thrown in – incredibly unbalanced stuff. Or beaten rice (avlakki/poha) – which is so light that you start feeling hungry within a couple of hours of eating. And so on – once you start looking at at the nutritional value of what you are eating, you will find yourself thoroughly dissatisfied with a lot of “traditional stuff”.

So my advice to you is this – if you can afford it, give what you are eating a thought, and make sure you get the right kind of nutrition without giving too much concern to your “priors”. And if you’re on a tight budget, optimise that to make sure it goes as far as possible in providing you a balanced diet.

Book Release

So my book Between the buyer and the seller is now available on Amazon, in both print and kindle versions. You can go here to buy. Thanks to Amazon’s print on demand service, it’s available worldwide.

It’s been a long time coming. I completed the first draft way back in April 2016. Writing it was no easy task, but was definitely helped by the presence of one awesome coffee shop close to where I was staying in Barcelona.

Having written one draft, I went around finding publishers. It wasn’t a trivial process. In the process, I found out enough about the publishing industry to get a new prologue for the book (I guess that should be part of the Kindle sample).

And then in the course of the backs and forths with the publishers I found a lot of what I’d written to be absolute shit, and so revised the book two times. Then in December last year, the Takshashila Institution decided to publish it.

And then they sent it to some experts for expert opinion. Said opinion came back positive but with some suggestions. So I revised the book yet another time and implemented these suggestions. Then there was the copy editing process and yet another revision. Then the book design (if not anything, doesn’t it at least look good?) and typesetting and stuff. And formatting.

In the meantime, Shashi Tharoor and Bibek Debroy wrote some nice blurbs for the book – they’re printed at the back of the book now. And then some more hoops and procedures and printing and publishing and fighting with Amazon and the book is now out! For you to purchase.

I want to put out a special word of thanks to Anupam Manur, who has effectively “produced” the book, managing the entire process on Takshashila’s behalf. He’s been patient with my periodic abuses, and diligently got work done. The night before his wedding, he was up fixing some stuff on Amazon for the book.

Anyway, enough of my story. Now go buy the book and read it. Let me, and others, know what you think of the book. And spread the word!

Oh, and I want to thank all of you, my patient blog readers, for the encouragement through the last 13 years. It’s your collective effort and support that has made me a better writer, and resulted in this book coming out!

 

Why Twitter is like Times Now

One reason I stopped watching news television about a decade back is because of its evolution into a “one issue channel”. On each day, a channel basically picks a “topic of the day”, and most discussion on that day is regarding that particular topic.

In that sense, these “news channels” hardly provide news (unless you bother to follow the tickers at the bottom) – they only provide more and more discussion about the topic du jour (ok I’m feeling all pseud about using French on my blog!). If you’re interested in that topic, and willing to consume endless content about it, great for you. If not, you better look for your news elsewhere (like the <whatever> o’clock news on the government-owned channel which at least makes a pretence of covering all relevant stuff).

One thing that made Twitter attractive soon after I joined it in 2008 was the diversity of discussions. Maybe it was the nature of the early users, but the people I followed provoked thought and provided content on a wide array of topics, at least some of which I would find interesting. And that made spending time on twitter worthwhile.

It’s still true on a lot of days nowadays, but I find that Twitter is increasingly becoming like a modern news channel such as Times Now. When there are certain events, especially of a political nature, it effectively becomes a one-topic channel, with most of the timeline getting filled with news and opinion about the event. And if it is either an event you don’t care about, or if you’ve moved on from the event, Twitter effectively becomes unusable on such days.

In fact, a few of my twitter breaks in the last 2-3 years have followed such periods when Twitter has turned into a “one issue channel”. And on each of these occasions, when I’ve joined back, I’ve responded by unfollowing many of these “one-issue tweeters” (like this guy who I don’t follow any more because he has a compulsive need to livetweet any game that Arsenal is playing).

That Twitter becomes a one-topic channel occasionally is not surprising. Basically it goes like this – there are people who are deeply passionate or involved in the topic, and they show their passion by putting out lots of tweets on the topic. And when the topic is a current event, it means that several people on your timeline might feel passionately about it.

People not interested in the topic will continue to tweet at their “usual rate”, but that gets effectively drowned out in the din of the passionate tweeters. And when you look at your linear timeline, you only see the passion, and not the diverse content that you use Twitter for.

Some people might suggest a curated algorithmic feed (rather than a linear feed) as a solution for this – where a smart algorithm learns that you’re not interested in the topic people are so passionate about and shows you less of that stuff. I have a simpler solution.

Basically the reason I’m loathe to unfollow these passionate tweeters is that outside of their temporary passions, they are terrific people and tweet about interesting stuff (else I wouldn’t follow them in the first place). The cost of this, however, is that I have to endure their passions, which I frequently have no interest in.

The simple solution is that you should be able to “temporarily unfollow” people (Twitter itself doesn’t need to allow this option – a third party client that you use can offer this at a higher layer). This is like WhatsApp where you can mute groups for just a day, or a week. So you can unfollow these passionate people for a day, by which time their passion will subside, and you can see their interesting selves tomorrow!

Of course it’s possible to manually implement this, but I know that if I unfollow them today I might forget to follow them back tomorrow. And there are countless examples of people in that category – who I unfollowed when they were passionate and have thus missed out on their awesomeness.

 

The nature of the professional services firm

This is yet another rejected section from my soon-t0-be-published book Between the buyer and the seller


In 2006, having just graduated from business school, I started my career working for a leading management consulting firm. This firm had been one of the most sought after employers for students at my school, and the salary they offered to pay me was among the highest offers for India-based jobs in my school in my year of graduation.

The elation of being paid better than my peers didn’t last too long, though. In what was my second or third week at the firm, I was asked to help a partner prepare a “pitch deck” – a document trying to convince a potential client to hire my firm for a piece of work. A standard feature in any pitch deck is costing, and the cost sheet of the document I was working on told me that the rate my firm was planning to bill its client for my services was a healthy multiple of what I was being paid.

While I left the job a few months later (for reasons that had nothing to do with my pay), I would return to the management consulting industry in 2012. This time, however, I didn’t join a firm – I chose to freelance instead. Once again I had to prepare pitch decks to win businesses, and quote a professional fee as part of it. This time, though, the entire billing went straight to my personal top line, barring some odd administrative expenses.

The idea that firms exist in order to take advantage of saving in transaction costs was first proposed by Ronald Coase in what has come to be a seminal paper in 1937. In “The Nature of the Firm”, Coase writes:?

The main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism. The most obvious cost of ‘organising’ production through the price mechanism is that of discovering what the relevant prices are.

In other words, if an employer and employee or two divisions of a firm were to negotiate each time the price of goods or services being exchanged, the cost of such negotiations (the transaction cost) would far outstrip the benefit of using the price mechanism in such a case. Coase’s paper goes on to develop a framework to explain why firms aren’t larger than they were. He says,

Naturally, a point must be reached where the costs of organising an extra transaction within the firm are equal to the costs involved in carrying out the transaction in the open market.

While Coase’s theories have since been widely studied and quoted, and apply to all kinds of firms, it is still worth asking the question as to why professional services firms such as the management consulting firm I used to work for are as ubiquitous as they are. It is also worth asking why such firms manage to charge from their clients fees that are far in excess of what they pay their own employees, thus making a fat spread.

The defining feature of professional services firms is that they are mostly formed by the coming together of a large number of employees all of whom do similar work for an external client. While sometimes some of these employees might work in teams, there is seldom any service in such firms (barring administrative tasks) that are delivered to someone within the firm – most services are delivered to an external client. Examples of such firms include law firms, accounting firms and management consulting firms such as the one I used to work for (it is tempting to include information technology services firms under this banner but they tend to work in larger teams implying a higher contribution from teamwork).

One of my main challenges as a freelance consultant is to manage my so-called “pipeline”. Given that I’m a lone consultant, there is a limit on the amount of work I can take on at any point in time, affecting my marketing. I have had to, on multiple occasions, respectfully decline assignments because I was already tied up delivering another assignment at the same point in time. On the other hand, there have been times (sometimes lasting months together) where I’ve had little billable work, resulting in low revenues for those times.

If I were to form a partnership or join a larger professional services firm (with other professionals similar to me), both my work and my cash flows would be structured quite differently. Given that the firm would have a reasonable number of professionals working together, it would be easier to manage the pipeline – the chances of all professionals being occupied at any point in time is low, and the incoming work could be assigned to one of the free professionals. The same process would also mean that gaps in workflow would be low – if my marketing is going bad, marketing of one of my busy colleagues might result in work I might end up doing.

What is more interesting is the way in which cash flows would change. I would no longer have to wait for the periods when I was doing billable work in order to get paid – my firm would instead pay me a regular salary. On the other hand, when I did win business and get paid, the proceeds would entirely go to my firm. The fees that my firm would charge its clients would be significantly higher than what the firm paid me, like it happened with my employer in 2006.

There would be multiple reasons for this discrepancy in fees, the most straightforward being administrative costs (though that is unlikely to account for too much of the fee gap). There would be a further discount on account of the firm paying me a regular salary while I only worked intermittently. That, too, would be insufficient to explain the difference. Most of the difference would be explained by the economic value that the firm would add by means of its structure.

The problem with being a freelance professional is that times when potential clients might demand your services need not coincide with the times when you are willing to provide such services. Looking at it another way, the amount of services you supply at any point in time might not match the amount of services demanded at that point in time, with deviations going either way (sometimes you might be willing to supply much more than what is demanded, and vice versa).

Freelance professionals have another problem finding clients – as individual professionals, it is hard for them to advertise and let all possible potential clients know about their existence and the kind of services they may provide. Potential clients have the same problem too – when they want a piece of work done by a freelance professional, it is hard for them to identify and contact all possible professionals who might be able and willing to carry out that piece of work. In other words, the market for services of freelance professionals is highly illiquid.

Professional services firms help solve this illiquidity problem through a series of measures. Firstly, they acquire the time of professionals by promising to pay them a regular income. Secondly, as a firm, they are able to advertise and market the services of these professionals to potential clients. When these potential clients respond in the affirmative, the professional services firms sell them the time of professionals that they had earlier acquired.

These activities suggest that professional services firms can be considered to be market makers in the market for professional services. Firstly, they satisfy the conditions for market making – they actually buy and take on to their books the time of the professionals they hire, giving them a virtual “inventory” which they try to sign on. Secondly, they match demand and supply that might occur at different points in time – recruitment of employees occurs asynchronously with the sale of business to clients. In other words, they take both sides of the market – buying employees’ time from employees and selling this employees’ time to clients! Apart from this, firms also use their marketing and promotional activities that their size affords them to attract both employees and clients, thus improving liquidity in the market.

And like good market makers, firms make their money on the spread between what clients pay them and what they pay their employees. Earlier on in this chapter, we had mentioned that market making is risky business thanks to its inventory led model. It is clear to see that professional services firms are also risky operations, given that it is possible that they may either not be able to find professionals to execute on contracts won from clients, or not be able to find enough clients to provide sufficient work for all their employees.

In other words, when a professional joins a professional services firm, the spread they are letting go of (between what clients of their firms pay the firms, and what professionals draw as salaries) can be largely explained in terms of market making fees. It is the same case for a client who has pays a firm much more than what could have been paid had the professional been engaged directly – the extra fees is for the market making services that the firm is providing.

From the point of view of a professional, joining a firm might result in lower average long-term income compared to being freelance, but that more than compensates for the non-monetary volatility of not being able to find business in an otherwise illiquid market. For a potential client of such services also, the premium paid to the firm is a monetisation of the risk of being unable to find a professional in an illiquid market.

You might wonder, then, as to why I continue to be a freelance professional rather than taking a discount for my risks and joining a firm. For the answer, we have to turn back to Coase – I consider the costs of transacting in the open market, including the risk and uncertainty of transactions, far lower than the cost of entering into a long-term transaction with a firm!

Old preface

So my book will be released on the 8th of September. You can pre-order here. In the next 10 days leading up to the book’s release I thought I’ll publish some bootleg stuff here. This is basically chapters or sections that were in one of the earlier drafts but didn’t make it to the final cut.

What this means, of course, is that in the eyes of me and my publishers, what I’ll be putting here is inferior to what has actually gone into the book. So this post (and the ones I’ll put in subsequent days) put a floor on the quality of my book.

We’ll start with what was supposed to be the preface of my book. This was written back in November 2014, when I had little clue of what would finally go into the book. But I sat down one chilly evening on the outskirts of Bangalore and wrote this off in one stretch. Pasting it here verbatim without editing.


Continue reading “Old preface”