Category Archives: business

The Steven Davis Role

The first encounter between Liverpool and Southampton in the 2013-14 English Premier League season happened at Anfield in September, and Southampton won 1-0 with a Dejan Lovren goal from a set piece. So when the two sides met again at St. Mary’s in the latter half of the season, with Liverpool chasing the title, it was known that it would be a tough game for Liverpool.

Southampton dominated the first half, playing a front four of Steven Davis, Adam Lallana, Jay Rodrigues and Rickie Lambert. However, it was Liverpool who scored in that half, and led 1-0 at the break. Here is a picture I found on twitter that was uploaded at half time:

Southampton manager Mauricio Pochettino decided to change things for the second half. He took off his most unspectacular forward player Steven Davis and replaced him with Gaston Ramirez, the promising Uruguayan. Soon, Southampton unravelled and Liverpool completely dominated the second half as they won 3-0.

Now, there is no doubt that Ramirez is more talented than Davis and is definitely a better player in general. However, in the context of the rest of Southampton’s team, Ramirez’s introduction proved to be a disaster and there was little cohesion in their attacking play from the time he came on. Southampton became a disjointed team and went out of the game.

This has led me to define what I have come to call the “Steven Davis role”. It is basically a player who is not individually the best, but provides some kind of a glue that holds the team together. The player’s key skill, rather than looking at it from traditional axes such as passing or shooting or tackling or intercepting, is to change position, and to make sure that the team holds its shape at all times. It is to make sure that any players who are out of position are covered for, and that the attack retains its shape and focus.

Now, it must be remembered that last season Southampton’s attacking play was primarily based on strong movement and interplay between their front four. They had nominal positions defined, but they hardly stuck to those as they moved around in attack. Thus, Lambert who would start upfront would sometimes appear on the wing, with the nominal “number ten” Lallana going forward, for example.

And key to this system was Davis, who wasn’t particularly talented, but who would move in a way that would balance the attack. If the other three would move left to attack, he would take up a position slightly to the right – not too far away from the attack but providing a kind of counterbalance. He never led attacks himself, but he was always available to support the others’ attacks. And this is what made Southampton dangerous.

Once Davis had gone off, Southampton had no one to play this role. The kind of interplay they had in the first half disappeared. And their attacks became toothless and each attack had only one dimension which was easy to cover even for Liverpool’s normally shaky defence, as they kept a clean sheet.

It was a similar case I saw last night at the Camp Nou, with Barcelona’s Pedro Rodriguez playing in a “Steven Davis” role. Messi started in the middle and Neymar wide on the left. Pedro nominally started on the right. But soon it became clear that he was a kind of a “wide support striker” – his job was to appear in positions that complemented the rest of the attack rather than being in positions where he led the attack (though he did lead one glorious counterattack where he hit the post). It was like a kind of balance that he offered the team, and ensured their attacks had coherence (of course this being Barcelona they had Iniesta and Rakitic just behind to offer more “focal points”).

Last night was the last game of Luis Suarez’s ban, and it will be interesting what Barcelona do with him when he gets back this weekend. The instinct will be to remove Pedro in his favour, but it is not clear if an attack of Messi-Neymar-Suarez will be able to offer the same kind of coherence as an attack of Messi-Neymar-Pedro. That said, Suarez is an extremely intelligent player and showed in his Liverpool days that he is capable of being a “fighter”, so he might as well be played. But that will mean that Neymar will have to occasionally play the Davis/Pedro role, and it is not clear if he is capable of doing that.

We are in for interesting times.

The post has so far focussed on football but it is evident that his kind of a role is necessary in other team situations, including corporate teamwork, also. Sometimes you need that one guy who need not be individually spectacular, but is versatile and mobile enough that he can do several things, fill in for different people and make sure that any team he is part of will be “complete”. And in the absence of one such guy, the team can lose coherence and fail in its task.

Studs, fighters and spikes

In a blog post yesterday I talked about the marriage and dating markets and how people with spikes which can be evaluated either highly positively or highly negatively were more likely to get dates, while in the arranged marriage market, you were better off being a solid CMP (common minimum program).

The question is how this applies for jobs. Are you better off being a solid performer or if you are someone who has a quirky CV, with some features that can either be heavily positively or heavily negatively by some people. How will the market evaluate you, and which of them is more likely for finding you a job?

The answer lies in whether the job that you are applying for is predominantly stud or fighter (apologies to those to whom I mentioned I was retiring this framework – I find it way too useful to ditch). If it is a predominantly fighter job – one that requires a steady output and little creativity or volatility, you are better off having a solid CV – being a consistent 3 rather than having lots of 5s and 1s in your rating chart. When the job is inherently fighter, what they are looking for is consistent output, and what they don’t look for is the occasional 1 – a situation where you are likely to underperform for whatever reason. Fighter jobs don’t necessarily care for the occasional spike in the CV – for there is no use of being extraordinary for such jobs. Thus, you are better off being a consistent 3.

If it is a stud job, though, one where you are likely to show some occasional creativity, you are more likely to get hired if you have a few 5s and a few 1s rather than if you have all 3s. If the job requires creativity and volatility, what the employer wants to know is that you are occasionally capable of delivering a 5 – which is what they are essentially hiring you for. Knowing that people who are good at stud jobs have the occasional off day, employers of stud jobs are okay with someone with a few 1s, as long as they have 5s.

So whether you should be looking for a stud or a fighter job depends on what kind of a professional career that you’ve had so far – if you’ve had a volatile career with a few spikes and a few troughs, you are much better off applying for stud jobs. If you’ve been a steady consistent performer you are better suited for a fighter job!

Of course you need to remember that this ranking as a function of your volatility is valid only if you were to hold your “average rating” constant!

Looking for a voicemail product

I’ll be traveling abroad for 2-3 weeks next month, during which I will not have access to my phone (don’t plan to take international roaming). In this context, what I need is some kind of a voicemail product – where any call made to my airtel number (which will be “switched off”) will get redirected to voicemail, which informs the caller that I’m traveling and they should leave a message. And I should be able to log on periodically to some website where I can listen to my collected voicemail, and possibly call back some of them.

Does such a product exist? If not, does there exist a market for this, or does everyone who wants to use a product like this can afford international roaming?

And while we are at it, are there any good voicemail apps that I can use on my Android phone (when my phone is in the sim and connected to the network)?

Thanks much!

A culture of thinking and differentiated services

In a very interesting Op-Ed in Mint this morning, Anurag Behar argues against vocational training at the school level, arguing that the purpose of school education is to enable children to think, and that the ability to think is paramount in offering superior services.

He gives the example of a welder who understands basic geometry and the mechanics of metals, saying such a welder can offer superior services to one who has just been trained in welding. Thus, a welder who had been through school and thus understands the basics of geometry and mechanics can do a much better job as a welder than one that has just learnt how to weld.

Now, while this culture of thinking is important, another important pre-requisite is the culture of differentiated services. The question we need to ask is if the market here is mature enough to pay a premium for the welder who knows geometry and mechanics compared to an illiterate welder.

Intuitively it makes sense – an educated welder is likely to be more careful in his work and is likely to offer much superior quality. However, what I’m not so sure of is that the market in India is currently mature enough to recognize this increase in quality and thus pay a premium for such services. And unless the market matures to pay a premium for an educated welder, an educated person will choose a career other than being a welder and we will be only left with uneducated welders offering poor quality.

Chatting and messengers

So the wife has just moved abroad and I haven’t even bothered getting international calling enabled on my mobile phone. It’s not that I’m not concerned about keeping in touch with her – it’s more to do with the plethora of options to keep in touch with her than a normal phone call.

Firstly there’s whatsapp, which I’ve used for the last two years (the trigger to join whatsapp was the limit in the number of text messages one could send per day which was introduced in 2012 as a “rumour prevention mechanism”). A large number of people on my contacts list use WhatsApp, which means that it is extremely rare that i use normal text messaging to connect to them.

And earlier today, while she was waiting for a connection at Frankfurt airport, the wife asked me to install Viber, saying it allows us to talk without any international dialing cost. I just had a brief conversation with her and the quality was extraordinary (especially given i’m on a weak BSNL broadband here and she was in a car there). Then I looked at my contacts who are on viber, and the number of my contacts who are using Viber is insanely high! Almost makes me seem foolish for not joining in so far.

And then earlier today I spoke to someone in Singapore using Skype. Call quality wasn’t that great – we dropped a couple of times – but it was still pretty good. And then there is google hangouts. And then there is apple’s facetime (perhaps the main reason the iPad fell my side when we were dividing our assets prior to the wife’s move is that I could have an Apple device with me so that we can FaceTime!).

The number of options for messaging is so large that I wonder how long the whole calling and messaging model will continue. I had shown in a recent blog post (on my public policy blog) that the number of SMSs sent per user in India peaked three years ago and has then been on a secular decline. And now there is news that the telecoms regulator in India is thinking of instituting a fee on providers such as WhatsApp and Viber because of the revenue losses they are causing to the mobile phone service providers in India (like Airtel, Vodafone, etc.).

The question therefore is what the future of telecom will look like given the large number of internet based reliable communication providers who are springing up. My prediction is that the phone call is not going to die – what sets apart a phone call from a Voice over IP connection (such as Skype or Viber) is that it is “online” (i forget the technical term for it – ok got it it’s “network switching” as opposed to “packet switching” which is how the internet works).

To explain that in English, when I talk to you over the phone (normal phone call) there is a dedicated line that goes out from me to you. Basically your telecom provider and mine and the network interchange come together so that a virtual line is drawn from me to you, and this is exclusive for us as we talk (call dropping on mobile phones happens when we try to move from one “cell” to another and get lost in between).

The internet doesn’t work that way. When I send you a “voice message” over the internet, it goes one hop at a time. There is no dedicated line from me to you. The reason we are now able to voice chat online reliably is that the bandwidth available is so much that packets usually get connected quickly enough (think of a bus network so dense that you can change buses instantly to get to your destination – it virtually simulates a “direct bus”). When the network is busy or the bandwidth clogged, however, there might be some delays (while a phone call once connected remains connected).

Given this distinction the phone call offers a level of reliability that packet switching based voice messengers can never reach. And there will always be a market for extremely high reliability. Hence the phone call is not going anywhere.

The SMS, on the other hand, is again packet switched, and a mechanism in which carriers could extract large amounts of money. The SMS will soon die a natural death – kept alive only by means of government mandated services such as two factor authentication of credit card transactions.

While the fees on carriers such as Viber might become a reality in a place like India they are unlikely to sustain as international norms become uniform. What we are likely to see instead is mobile carriers coming to terms with existence of such providers, and some interesting internet pricing plans.

Currently, to use Viber for a fair bit you need a fairly high FUP (fair usage policy) limit on your phone (carrying voice digitally takes a lot of bandwidth). Carriers might introduce some kind of a graded payment structure such that they can partly recover (through higher internet charges) the lost revenues thanks to lost call charges.

If any mobile phone operator is reading this and needs help on devising such pricing mechanisms, feel free to use my consulting services. Among other things in the past I’ve done revenue management for airline ticketing and cargo (the holy grail of revenue management) while working for Sabre – the pioneer in revenue management.

Impact of online retail on offline retail

The other day we had to buy a couple of electronics items, and we went to this long line of electronic stores close to home. Since what we were looking for was closer to the long tail, we eschewed the small “standalone” stores and went to the chain stores. And the service at each store was simply underwhelming.

Sales staff seemed extremely demotivated, and seemed to have no incentive to make a sale. There seemed to be no senior sales staff around who would guide these staff to serve us well. They just stood by standing around, and the only thing they did was to pull out the item that we requested, and then look at the price tag and tell us the price.

With the coming of online retail, one reason for people to shop offline is service. When we had to buy a refrigerator recently, we wanted some human help in determining the pros and cons of various brands, and which are the faster selling ones. And off we went to the nearby (standalone, non-chain) “white goods store”. And we had booked a refrigerator on our way out!

What online sales is doing is to set a higher bar for salesmanship in offline stores, and stores need to recognize this. Just standing around when a customer shops and showing him price tags will not cut it any more – what offline stores need to figure out is what service they can offer that online stores don’t. And provide that aggressively, in order to not lose business to the e-retailers.

Another advantage for offline stores is in terms of letting the customer touch and feel the goods – a refrigerator or a washing machine or a television, for example. The downside is that inventory costs can be prohibitive and there are only so many models that the retailer can put on display – but then based on sales patterns they can choose which models to actually put on display (the top selling ones).

One reason mobile phone sales have so easily moved online (Moto and Xiaomi, for example) is that even at an offline retailer you don’t have much opportunity to touch and feel a mobile phone – in a large number of cases it’s dummy models that are stuck there rather than working ones, and that doesn’t particularly add value to the customer in terms of purchase decision.

Finally, based on my limited sampling of “white goods” stores on 10th Main, Jayanagar 1st Block, Bangalore, I think the coming of online retail is not going to affect the standalone family businesses (that the BJP seeks to protect) as much as it is going to affect the chain stores. The former are agile and able to adapt to customer needs. It is the latter that are sluggish and seek protection.

Damodaran on Uber’s Valuation

It is fascinating to watch this back-and-forth between NYU Prof Aswath Damodaran and Uber board member Bill Gurley on the taxi company’s valuation.

To set the context, when the latest funding round for Uber was announced, valuing it at USD 17 billion, Damodaran – a guru in valuation – wrote his own analysis which valued the company at about a third of that value. While it was a typical Damodaran post – long, detailed and making and stating lots of assumptions – it was probably intended as an academic exercise (the way I see it).

Instead it seems to have really caught the fancy of the silicon valley investment community, and led to a response by Gurley (I admit I haven’t read his full response – it seemed to attack straw men in places). And Damodaran has responded to the response. Now that the Three Way Handshake is complete I don’t expect any more backs and forths, but I won’t rule it out either (it’s possible but not plausible, to use Damodaran’s terminology).

What fascinates me is why an academic’s academic post on valuation of a company has created so much of a flutter – so much to merit a long-winded response from the board member. I’m reminded of two things that my valuation professor had told me some 10 years back when I was in business school.

1. Valuation is always wrong
2. Value of a company is what the market thinks it’s valued at

The first of these is a bit of a motherhood statement and adds no value to this particular discussion so let’s not take that into account. It’s the second reason that has got the investors’ knickers in a twist.

In the past, I’ve seen Damodaran publish valuations of companies that are about to go public, or are already public – Tesla and Twitter for example. It is usually an academic exercise, and Damodaran’s valuations value these companies at lower than what the market values. However, given that these posts have appeared after there has been a broad consensus of a company’s valuation, it has not really impacted a company’s valuation, and thus have been treated as an academic exercise.

The problem with Uber is that it is a private company, and unlikely to go public for a very long time. The problem with a private company is that it is difficult for investors to agree on its valuation – there are very few trades and the stock is illiquid (by definition). And illiquidity means extremely high bid-ask spreads (to put a technical spin on it) and widely varying valuations.

Sometimes, when nobody knows what something is valued at (like Uber – which is creating a new category which no one has any experience in valuing), what people look for is some kind of a peg, or an “anchor”. When they see what they think is a reasonable and broadly reliable valuation, they tend to use that valuation as an “anchor” and if a large number of investors agree on one such anchor, the anchor ends up being the company’s valuation itself.

To reiterate, value of a company is what the market thinks it’s valued at. Nobody knows what Uber is valued at. Investors and existing shareholders agreed at a particular valuation, and did a deal at that valuation. However, this valuation is not “deep” – not too many people agree to this valuation.

It is in this context that an (very well renowned) academic’s valuation, which values the company at far less than the last transacted price, can act as an anchor. Damodaran is extremely widely respected in investing circles, and hence his valuation is likely to have received much attention. It might even be possible that his valuation becomes an “anchor” in investors’ minds of Uber’s valuation. And this is where the problem lies.

Even if you were to account for the consistent downward bias in Damodaran’s valuations and adjust Uber’s valuation accordingly, it is likely to lead  to a much lower anchor compared to the last transacted price. And this is not likely to be good for existing investors. Hence, they need to take steps to quickly debunk Damodaran’s valuation, to make sure it doesn’t end up as an anchor! And hence the long response by Gurley, and the silicon valley investor community in general!

To summarize, all that this entire brouhaha on Uber’s valuation shows is that its price discovery so far has been rather shallow.