Startup bragging and exaggeration rights

It seems to be common knowledge that startups like to exaggerate their results when they talk to the media. While I’ve known this for a long time, I was rather startled to see the numbers put out by a company I know, which seems to be an order of magnitude larger than what is actually the case. And when I was discussing with someone else in the know, I was told that this degree of overstating (especially to the media) is a common thing in the startup world.

In “normal” companies, overstatement of numbers is a massive crime, and shareholders can prosecute the management for such activities. Yet, it seems like investors in startups (funded startups seem to do this all the time) don’t seem to mind this at all. What is the difference?

“Normal” steady-state companies usually don’t have to raise capital too often. After they’ve raised a certain amount, hit steady state and gone public, raising more capital is a rare event. Also that they are public means that you have “gullible households” who own equity, and investor protection laws mean that they need to state incomes and other financial information to the best of their knowledge, and any cooking of the books can lead to prosecution.

For a startup, on the other hand, raising capital is a “normal” (as opposed to “extraordinary”) event, and its investors are mostly sophisticated investors (apart from gullible employees who have been forced to take equity for “skin in the game”). By overstating its numbers, especially in the popular media (hopefully now with the Registrar of Companies), startups can hope to create greater buzz which increases the likelihood of getting a next round of investment at a higher valuation.

Notice that in this case investors are also okay with the books having been cooked since they aren’t playing the dividend game but have a short term goal of raising more funds at higher valuations. And if overstating numbers can help that, so be it!

No dosa on Saturdays and Sundays

Back when I was a student at IIM Bangalore a decade ago, I had tried to run this series on this blog (its predecessor, to be precise) on “delivery mechanisms in South Indian Fast Food restaurants”. I had half a mind to do a project on that, too, but then worse sense prevailed, and I did some random shyte on post offices.

Anyway, given that I’ve been living alone for a year now, I tend to frequent South Indian Fast Food Restaurants fairly often for breakfast (and tiffin, sometimes), and thought I should resume this series.

So this morning I went to “duplicate Brahmin’s” for breakfast. This is a place in Jayanagar 4th Block (next to the 560041 post office) and should not be confused with the “original Brahmin’s” in Shankarpuram. I don’t know if this Brahmins has anything to do with that Brahmins, though I’m pretty sure people would have outraged about a restaurant with a (upper) casteist name in these times. Some hypotheses go that this restaurant was started by disgruntled employees of the “original” Brahmins. Anyway, it doesn’t matter since the food here is pretty good (though not as good as at the original Brahmins).

This restaurant has aped a large number of features from the “original” Brahmins. The first is a limited menu – there are only some five or six items made daily. This is usually a good feature of fast food restaurants since it results in aggregation of demand and lower wastage, resulting in lower costs. It also results in significantly quicker service since there are only so many “lines” that need to be maintained in the kitchen.

The other feature this has aped from the “original Brahmin’s” is that there is no sambar. While this might shock Tamilians and North Indians, it’s a fairly normal thing in Bangalore. In fact, Sambar with breakfast is not normal for Bangalore, and most “traditional” restaurants only serve chutney. The advantage of this is (as Pavan pointed) that people can hold their plates in their hands (chutney is cold, unlike hot sambar), so you don’t need that much table space!

There are normally six items on the menu in the duplicate Brahmin’s (apart from beverages) – idli, vada, kesribhath, kharabhath, “ricebhath” (a redundant term like Avenue Road, I know; and this is only served during lunch. It’s a catchall term encompassing “tomato bhath”, “veg pulao”, puLiyOgare, chitrAnna, etc.) and masala dosa. And the odd man out is the last one for the rest are “made to stock”. Masala dosa is usually “made to order” since its quality “decays” quite quickly after it’s made.

It was pleasantly surprising to see a board saying “no masala dosa on Saturdays and Sundays” when I went to duplicate Brahmin’s this morning. The restaurant was already fairly crowded when I went, and there was a queue about five people long at the cash counter. The restaurant is designed in a way that there is this one not-so-large counter across which everything (coupons, food, beverages) is served, and there was a crowd today at every part of the counter (only the cash counter had a queue, at the rest of the places people just crowded around).

That’s where the “no masala dosa on weekends” board makes sense. With the dosa being made to order, people have to linger around the  counter once they’ve handed in their order until they have received their dosa. And given the rather small size of the counter and the weekend crowds, this simply leads to unnecessary crowding and shoving. It also seems like the demand for Masala Dosa at duplicate Brahmin’s is not high or predictable enough to warrant making it to stock. And hence, it’s a rational decision to ration the supply of dosas (to zero) on weekends.

The question is why the restaurant makes dosas at all (on weekdays), given that the original Brahmin’s doesn’t. The answer to this lies in a cost-benefit analysis. On weekdays, the supply chain is not tight and there are no people crowding at the counter. This means that the strain imposed on the system by people waiting around for their dosas is not too high.

Studying fast food restaurants can be a fascinating exercise.

 

Shoes and metrics

The best metric to measure the age of a pair of shoes is the distance walked in them

My latest pair of “belt chappli” (sandals with a belt going around the heels) is only ten months old, but has started wearing. Walking long distances in the said sandals has become a pain. The top is nice, the sole is fantastic, but the inner sole has gotten FUBARed. Maybe it was a stone that got stuck under my feet which I didn’t notice. Maybe it was several such small stones. But with the inner sole “gone”, time is nigh to possibly retire the chappal.

But then a good pair of sandals is supposed to last much longer (and I did 2 longish foreign trips in this period where this chappal didn’t travel with me). Historically, good sandals have lasted two years or more. And it is not that this one is cheap. I paid close to Rs. 2000 for it, and it’s branded, too (Lee Cooper), and I had found it after a lot o difficulty (three months of searching). That it has lasted less than a year is not fair.

But then the question arises as to whether I have the right metrics in place. The number of months or years that a pair of shoes lasts is an intuitive metric of its quality, but it is not the right one. For, a pair of shoes doesn’t wear when it is not worn! Of course there might be mild wear and tear due to weather conditions, but for a pair of shoes made of good leather, that can be ignored.

So maybe the best metric for a pair of shoes is the amount of time it is worn? Then again, while a shoe might wear while its worn, it doesn’t wear too much when it’s at rest –  I mean its shape changes to fit the wearer’s foot (over the medium term) and that might cause some wear and tear, but in the long run, there is unlikely to be much wear and tear at rest.

From that perspective, I hereby declare that the best metric to measure a shoe’s performance is the number of kilometres walked or run in it (latter causes significantly more wear and tear, but let’s assume that walking shoes and running shoes are mutually exclusive (which they’re not) ). This is an excellent because it takes care of a number of features that correlate with the wear and tear, and is not hard to fathom.

Going by this metric, my current pair of “belt chappli” has put in considerable service. Over the last ten months, the frequency of going on “beats” in Jayanagar has gone up, and the distance covered in each beat, too. Having pretty much stopped driving, I walk more than I used to, and this is my default shoe for such perambulations.

The problem now is the search cost – good belt chapplis that fit my feet are hard to find. It’s a liquidity problem, I think (:P). Maybe I should just consider getting the inner sole replaced and get on with this one.

Testing the counterfactual: footballers eating pizza edition

Five German under-21 footballers, including Liverpool midfielder Emre Çan, went out for pizza before their U-21 European Championship semifinal against Portugal, in which they got walloped 5-0.

Following the wallop, these players have been pilloried for going out before an important knockout game, for not having taken it seriously enough.

To understand whether people are right or not in pillorying these players, and whether the players were wrong in going out for pizza before a game, we need to test the counterfactual (we had done this here once before with Moeen Ali’s wristbands).

What if Germany had won the game against Portugal? Had they won it, would people have still noticed that these players were out on the eve  of the game (it was public information. One of them posted it to Instagram) ? Would players have still been accused of not taking the game seriously enough?

Note that I’m not defending the German players here. I’m only questioning the timing of the attack – on the back of defeat, which to me seems to be a case of correlation (players go out for pizza; lose game) being mistaken for causation (pizza caused loss, approximately).

Indian Americans and the Selection Bias

There is this one chart from the Economist that has been doing its rounds over the interwebs over the last few days:

Basically it shows that Indian Americans are much more accomplished academically and professionally compared to other immigrants. And there are many theories floating around as to why Indians are so successful.

The answer, however, is rather simple – selection bias. Migrating from India to the US was an extremely difficult task till the 1960s – there were some quotas that the US had for immigration under which the Indians had nothing. And when Indians did finally start migrating in the 1960s, it was mostly for education.

Most people who migrated from India to the US even in the 1960s and 70s did so to go to graduate school. And this meant that they already had 16 years of education in India, which either meant an engineering or medical degree, or a masters in one of the other fields. So basically most Indians migrating to the US were highly accomplished already.

And considering the kind of foreign exchange controls imposed by the Indian government, the only Indians who could afford to go to the US for an education were those that received a fellowship or support from their universities. Thus increasing the seelection bias! (Now that I’ve mentioned foreign exchange controls, you should listen to this song, which was apparently meant to parody such policies)

Yes, you had the odd Patel without much education who made it to open a “Potel” (Patel run Motel), but that is probably the reason that the Indian bubble in the above chart is not farther out!

So that Indians have done better than other migrating communities in the US is not about innate Indian intelligence, or innate Indian ability to work hard, or because the Americans took in the Indians much better than other nationality. It is simple selection bias, based on tight immigration controls and tight emigration controls and stupid foreign exchange policy on the part of Indian government (which, at one point of time, only allowed citizens to take out eight dollars from the country).

To illustrate this point, look at the country that is “second” (quotes since we are looking at two dimensions here, so second is subjective) in this list – Iran.

Axes of diversity

Companies and educational institutions, especially those that have a global footprint and a reputation to protect, make a big deal about diversity policies. It is almost impossible to sit through a recruitment or admissions talk by one such entity without a mention to their diversity policies, which they are proud of.

And they have good reasons to have a diverse workforce. It has been shown, for example, that diversity leads to better decision-making and overall better performance. Having a diverse workforce brings together people with different backgrounds, and since backgrounds influence opinion, a more diverse team is more likely to have more diversity of opinion which results in better decision making. And so forth.

The problem, however, is that it is not easy to simultaneously achieve diversity on all possible axes. Let’s say that we have defined a number of axes, and are looking to recruit an incoming MBA class. If we want diversity on each of these axes, selection of each candidate is going to rule out a large number of other candidates and we will need a really large pool to choose from. In other words, it is akin to the eight queens problem (where you have to place eight queens on a chessboard such that no two of them are on the same row, column or diagonal). For those of you not familiar with chess, think of it like a Sudoku puzzle.

Since the pool of candidates large enough to achieve diversity on all axes is simply not feasible, firms and schools choose to prioritise certain axes over others, and seek to achieve diversity in these chosen axes. And since they can arbitrarily choose axes that they can prioritise, the incentive is to pick out those axes where diversity is most visible.

And so when you go to a global organisation or school that preaches diversity, you will notice that they indeed have a very diverse workforce/student body in terms of gender, race, and nationality, which are fairly visible dimensions. Beyond this, the choice of dimensions to impose diversity on is a matter of discretion. So you have organisations which seek diversity in sexual orientation. Others seek diversity in age profile. Yet others in educational backgrounds. And so forth.

The result of prioritising more “visible” dimensions to ensure diversity is that organisations end up becoming horribly similar in the “sacrificed dimensions”. Check out this excerpt from Peter Thiel’s Zero to One, for example, on the founding members of paypal:

The early PayPal team worked well together because we were all the same kind of nerd. We all loved science fiction: Cryptonomicon was required reading, and we preferred the capitalist Star Wars to the communist Star Trek

Now, remember that this was a fairly diverse team when it came to ethnicity, nationality and sexuality. But in a less visible dimension, the team was not diverse at all. And Thiel mentions it in his book as if it’s a good thing that they all thought so similarly.

On a similar note, I once worked for an organisation that made great shakes of its diversity policy, and the organisation was pretty diverse in terms pretty much every visible axis of diversity. And the seminars (some compulsory) they organised helped me significantly broaden my outlook on issues such as race or sexual orientation. But when it came to work, the (fairly large) team was horribly similar. Quoting from an earlier blogpost (a bit ranty, I admit):

First, a large number of guys building models come from similar backgrounds, so they think similarly. Because so many people think similarly, the rest train themselves to think similarly (or else get nudged out, by whatever means). So you have massive organizations full of massively talented brilliant minds which all think similarly! Who is to ask the uncomfortable questions?

So essentially because you had a large organisation of people from basically similar educational backgrounds (masters and PhDs in similar subjects), their way of thinking became dominant, and others were forced to conform, leading to groupthink, which might have potentially led to mishaps (but didn’t, at least not in my time).

And what of the Ivy League schools that again pride themselves on (visible forms of) diversity? Here is an excerpt from William Deresiewicz’s excellent 2008 essay:

Elite schools pride themselves on their diversity, but that diversity is almost entirely a matter of ethnicity and race. With respect to class, these schools are largely—indeed increasingly—homogeneous. Visit any elite campus in our great nation and you can thrill to the heartwarming spectacle of the children of white businesspeople and professionals studying and playing alongside the children of black, Asian, and Latino businesspeople and professionals. At the same time, because these schools tend to cultivate liberal attitudes, they leave their students in the paradoxical position of wanting to advocate on behalf of the working class while being unable to hold a simple conversation with anyone in it.

So the next time you want to make your organisation diverse, think of which axes you want diversity on. If you are public-minded and want to brag about your diversity, the obvious way to go would be to be diverse on visible axes, but that leaves other issues. On the other hand you could put together a team of people that look the same but think different!

It’s entirely up to you!

 

Ganesha, wine and vodka

I know the wife has been intending to blog about this for a while now, but in this big bad blogosphere, intent counts for nothing, and given that she hasn’t written so far, I should go ahead and write this blog post. The basic funda is that Ganesha idols in “traditional” Indian culture, wine in European culture and smirnoff plain vodka in “modren” (sic) Indian culture are all similar.

So two days back I got invited to a “bring your own liquor” party. Now, there were other attendees who mentioned they were bringing stuff that I knew I was interested in drinking, like Desmondji Agave and Amrut Two Indies Rum. From that perspective, I knew that I wouldn’t be drinking whatever I carried. Yet, not carrying anything would make me look like a cheap guy, and this is one circle where I want to preserve my reputation. So what did I do? I picked up a bottle of Smirnoff plain vodka, simply because it is the most “fungible” drink. I’ll explain later.

Similarly, when you go for a function in India and don’t know what to gift, and are “too traditional” to gift gift cards, and think it’s not appropriate to give cash, you give a Ganesha idol. So for example after our wedding we had tonnes of Ganesha idols at home (similarly after our housewarming last year). Why did people gift Ganeshas? Because it is the most “fungible”. Again I’ll expect later.

And the wife reliably informs me that in Spain, when you have to go for a party but don’t know what to take, you take a bottle of wine. I don’t know about the fungibility of wine, but the fact that it is universally drunk, can be shared widely and is seen as a classy symbol makes it a popular choice of gift. So what connects these three?

So what connects? Fungibility of course. Economists have long argued that the best gift is cash, for the recipient can utilise that cash to buy the item that gives her maximum utility. Any non-cash gift decreases utility from the maximum that can be achieved by giving cash. This is a different discussion and I’ll not touch upon that now.

When you are going to a party, you can’t take along cash, so since the top choice is not available you take the “second best” option. What is the “second best” option in this case? Something that is close to cash, or something whose general utility is so high that the recipient values it as much as she would value the equivalent amount of cash. Of course you don’t assume that the recipient will sell your gift for cash, so you gift something that is a “safe option”, that you think they will have the least chance of rejecting.

So why did I take vodka? It is a universally popular, colourless odourless tasteless liquid, and I estimated that there was a good probability that the demand for that is going to be high. So even if I don’t drink what I carried, I posited, someone else will, and that will help me deliver maximal utility to the party.

With wine in Spain, you know everyone drinks and appreciates it, and there is a chance that it might be opened at the party itself. Even if it isn’t, wine in a sealed bottle doesn’t “depreciate”, and the host can then pass on some of the unused bottles at a party  that she attends! And soon there will be the virtuous wine circle. So essentially wine doesn’t disappoint, and is put to good use.

And it is exactly the same story with Ganesha idols. Like wine, it has intrinsic value. Who doesn’t like idols of a cute elephant-headed God? Maybe people who already have too many such idols? But then Ganesha idols don’t depreciate either, so all you need to do is to keep it in a safe place and pull it out the next time you’re going to a function! And thus the virtuous circle of Ganeshas will continue!

As it happened, at the end of Tuesday’s party, the bottles of Desmondji and Amrut Two Indies were empty. The Smirnoff I took remained unopened, as did another similar bottle which was possibly brought by another safe player. But I’m not concerned. I’m sure the hosts will consume it in due course, and even if they don’t, it will come of good use when they go to a party next!