Investing in dabbil-dabbi startups

So the wife has come up with this new concept – “dabbil-dabbi startups“. Check out this scene from yedurmane ganDa, pakkadmane henDthi where miser Shashikumar is looking for the money that he has stored inside a series of boxes (watch at 3:48 here).

So the wife’s point is that startups nowadays are not adding value by themselves but instead simply offering an additional layer around an already existing product/idea. This, she says is similar to Shashikumar in the above scene putting one box inside the other – basically no real value is added.

I take this analogy further, perhaps distorting it in the process, like any analogy taken too far. Basically in the above scene, Shashikumar, after opening all the boxes inside boxes, retrieves money from the innermost box and rhetorically cribs that the money hasn’t grown.

Similarly, when an investor invests in a “dabbil-dabbi” startup, his money meets the same fate as Shashikumar’s in the movie – there is no growth!

So think twice before investing in a dabbil-dabbi startup.

Finance is boring, once again

So IIMB goes to placements this week. Two months back, though, in the first class I taught there, in an attempt to “understand the class”, I asked my students to tell me their “most preferred employer”. The intention was to tailor the course in a way that would be more suitable for their prospective careers.

Thinking back at that class, there is one thing that hits me – very few want to do finance (again that’s no indication of how many of them will end up in finance jobs this week). I initially thought it was a biased sample – there was a course of the same name offered to the same batch in an earlier term, and those that had taken the course then were not eligible to take the course now. Given the primacy of spreadsheets in finance, I thought students more inclined towards finance would have taken the course in the earlier offering. But then thinking about it (without data to back me), that so few want to do finance doesn’t surprise me at all.

When I tried putting myself in the shoes of my students and thought of what jobs I wanted to take, I realised that there weren’t any finance jobs that I could think of. With the derivatives world having undergone several downturns in the last decade, no one recruits for derivative sales and trading from IIMs any more (if my information sources are right – they could be wrong). And if you were to take out derivatives sales and trading, there is very little that excites about the other finance jobs that recruit MBAs.

There is investment banking (M&A, Equity/Debt Capital Markets) of course, but the job is insanely fighter, and while it is ultimately a finance job, finance forms a small portion of your day-to-day activities there (secondhand information again). Venture capital and private equity are again ostensibly finance but again there is very little finance you use in decision-making there – other “softer” stuff (such as evaluating “quality of founding team”, etc.) dominate.

Then there is commercial banking, which is finance only in name, for most jobs for which they recruit MBAs (data from a decade back) are in the realm of sales or business development. There is the odd treasury or risk management job, but those jobs are small in number compared to the others. And corporate finance jobs see excitement very rarely (when there is M&A or related activity). You have asset management and research roles, but they are again not the kind that you would call as “exciting”.

In short, finance has become boring, again. Most jobs on offer to fresh MBAs nowadays are for roles that are fairly routine and “boring” for the most part, and while finance still pays well, there are no adrenaline-pumping jobs on offer there as there used to be a decade ago. And from the macro point of view, that is a good thing.

Because finance is fundamentally a boring job, and is supposed to be a boring job. If finance had become “exciting”, it was because finance people were doing stuff that they were not supposed to be doing! Like taking highly levered bets for example, or concocting derivatives so complicated that nobody – not even most traders – would be able to understand it.

I had written recently that people have stopped considering coding “cool”, and that we should do something about it. A similar thing is happening to finance, where MBA students are not finding it “cool” any more (but people will take up the profession since it pays well). However, this is not a problem, and nothing needs to be done about it. This is how things ought to be. Finance is supposed to be boring!

Anyway, this might be biased opinion since if I could roll back nine years and were asked to pick a job, I couldn’t see myself working at ANY of the companies that had come to recruit from IIMB back when I graduated! So perhaps my hypothesis about finance jobs being boring now is a result of all typical post-MBA jobs being boring! Perhaps that explains why I’m doing what I’m doing now – a “job” so atypical it takes a lot of effort to explain to people what I’m doing.

Oh, and coming back to finance, I’m four weeks though with my Asset Pricing MOOC, and have been totally enjoying it so far!

On getting fired

On Capital Mind, Deepak Shenoy has a great post out on the TCS layoffs. TL;DR: TCS could have handled it better, but getting fired is a part of corporate life. And 3 months’ severance is generous. He also adds that we should hedge – build your brand, build savings, build skills so that getting fired won’t hit you so hard.

An argument that is being bandied about in relation to the TCS layoffs that if you need job mobility, then job insecurity is a related price you have to pay. For example, check out these tweets from Raj:

So the basic argument here (which I completely agree with) is that you can’t have one-way optionality. A generation ago, there was almost no optionality. You couldn’t get sacked, and it was very difficult for you to leave. That was the way the world worked back then.

Soon, the economy expanded, and you started seeing mobility. You started seeing optionality – the job was a one-way option. You could choose when you wanted to leave, but given the high growth and general shortage of skilled talent back in the days, companies couldn’t sack you. That sweet spot existed for a short while.

In the last decade or so, though, this has started changing. Companies realised that keeping deadwood on the books is a lot more expensive than their financial cost-to-company. A “no firing” policy sends out the wrong incentives – people without motivation are more likely to stick around than the ambitious. And that can never be good for the company. So now companies want optionality both ways. And as the TCS episode illustrates, people are not liking that the optionality exists both ways now. It seems like they were used to the one-way optionality street that existed for a short while during the rapid expansion of the IT sector.

The problem with the above argument (encapsulated in Raj’s tweets, which I agree with), however, is that it assumes that employees have a choice. When you say that “if you want mobility, you get insecurity as part of the package”, the subliminal message is that it there exist jobs where you can choose to forego your mobility in order to save yourself from insecurity. Unfortunately not too many such jobs exist. And it is a matter of liquidity.

Yes, there still exist plenty of jobs where there is strong two-way commitment. However, they are nowhere as numerous as jobs where there exist two-way optionality. The simple matter is that the “market has moved”. Most people are comfortable with the “latest” arrangement, where you can leave easily but also get sacked easily. Given that most people are comfortable with this arrangement, companies are also comfortable with this and have moved to this arrangement. And that has led to a virtuous cycle and the number of companies and number of people who like this arrangement have hit a critical mass.

In other words, if you want an “optionless” job, that is like living in the world until yesterday. But it is not enough that you want to live in that world. The world as we know it is social, and for us to live a certain way, we need other people to agree to live the same way. In other words, we can’t live our chosen lifestyle in isolation without counterparties living that way too.  And when most employers have moved on from the optionless regime to the two-way optionality regime, even if you want to live in yesterday’s world, there aren’t too many companies that still live that way. So you don’t have a choice!

So you need to learn to adapt to live and thrive in the new regime. And it is not that this regime will last forever. I’m sure people will innovate and other regimes might supersede this regime. Some people are slow to react to change, but liquidity makes the world ruthless, and punishes you badly for not adapting. That is the hard truth that some of these people who are cribbing about getting fired from TCS need to digest.

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!

Value of skill in rural India

Earlier today I had blogged about wage rates for unskilled workers in rural India. Now, we will use the same dataset and see what premium people pay for skills. The same data gives wages for certain occupations – carpenters, masons, cobblers, blacksmiths, etc. There are also wages given for various types of farm labour, and for the purpose of this exercise I’ve used ploughing to be representative of farm labour.

The following plot shows the wage rates for different skills in different states. A note on how to read this graph. The x axis represents the state and the y axis represents the daily wage for that particular skill. The skill itself is represented in text form. So for example a carpenter in rural Kerala gets about Rs. 600 per day while a sweeper in Bihar gets about Rs. 100.

Source: Labour Bureau. Numbers for April 2013
Source: Labour Bureau. Numbers for April 2013
  • Notice that even skilled jobs in other states don’t fetch as much as an unskilled job in Kerala. Tamil Nadu and Punjab come closest
  • The skills most in demand in rural areas across states are carpentry and masonry, if you go by this data
  • In most states, cobblers earn lower than “unskilled workers”. This is interesting because there is skill involved in making and repairing shoes. The low wages for cobblers indicates a caste bias. It is also possible that since cobblers are mostly self-employed their wage rate is inaccurate
  • Blacksmiths are again not too highly valued in villages
  • The high numbers for Kerala could be a function of the state’s lower urban-rural divide compared to the rest of India. Kerala is generally described as a semi-urban continuum with no strongly delineated urban and rural areas. Rural workers could be expensive since they are in demand for urban jobs also, unlike in other states.

 

 

The same caveats that apply to the previous post apply to this. We don’t know the sample size or the accuracy of the survey. Nevertheless, some interesting insights come out.

US MBA Admissions

B-schools based in the US use a unique self-selecting mechanism to filter out applicants who might be a bad fit for a management job. This they achieve by making the application process more complicated, but in a way that the kind of people they hope to attract find it simple.

Let me explain. Like most other graduate programs in the US, B-schools also require applicants to get a set of letters of recommendation. Unlike other programs, though, these are not simple letters of recommendation. Rather than the recommender simply writing out one essay where he/she extols the virtue of the candidate he/she is recommending and requests the university to grant admission, here he/sh has to answer a bunch of questions that the university is asking for. These questions might range from the mundane sounding (I’m told there’s a catch, though) “How do you know the applicant?” to some high-sounding stuff like “What is your opinion of the leadership qualities of the applicant? How can that be improved?”. World limit for all questions put together comes to 1500 words.

So now, if someone comes to you asking for a recommendation, unless you are really invested in their careers you will not want to put the enthu of putting so much effort. If you like the candidate, you might be willing to put in some time into it, but you are likely to wholeheartedly produce four good essays for each school the applicant is applying (note that no two schools ask the same question) only if you feel really invested in the applicant’s career, the probability of which is really low.

By having such a complicated system of soliciting recommendations, the schools ensure that all candidates fall into one of two categories. Either they should have done so well in one of their jobs that their boss or client feels invested enough to spend a few hours of their time writing recommendations, or they should have the necessary people management skills to go to bosses and clients and professors to get them to write the recommendations. Of course, irrespective of how good your people management skills are , it is unlikely to get someone to spend so many hours on your recommendation letters. Still, the minimum you require is to convince them that you will write the recommendation yourself and they should rubber stamp it. No big deal, that.

This way, all applicants to US B-schools are people who have a knack of getting things done. The age at which application happens (mid to late twenties) also minimizes parental participation in the effort. Apart from the self-selection and filtration, the amount of time and effort required for application also helps weed out frivolous candidates (remember those that “wrote CAT just as a backup”?).

I don’t know what to name this bias

So yet again I’m at that point in my life when I’m pondering about my career, pulling up my socks and asking myself uncomfortable questions. I’m asking myself what it is I really want to do, what it is that I really enjoy, what is the best way I can monetize my skills and the like. I’ve been pondering between radically different alternatives – from staying on in Wall Street to becoming a hippie; from becoming a professor to starting a company. I’ve been thoroughly confused and have been talking to a number of people about this.

The one common strand I extract from my conversations with all these people is that most people give you advice that is aligned with what they are doing. When I talk to the prof, he talks to me about becoming a prof, and about why I’m suited for it. When I talk to the corporate whore, he tries to convince me that there’s no way out from corporate whoredom and that I must simply embrace and accept it. When I ask the hippie, he thinks it’s no big deal if I keep switching jobs, and that I’m being dishonest with myself continuing to do something I don’t enjoy. And the entrepreneur tries his best to push me into becoming an entrepreneur.

Given my thoroughly confused state of mind, all this has been mostly adding to the confusion, but now that I’ve managed to extract this common strand, I been able to add the appropriate amount of spices to all the advice I’ve received, and making more sense of it. While I continue to figure out what’s the best course of action for me, I wonder what it is that makes people want other people to be like them.

I must mention that this is not a recent phenomenon. Back when I was in college, I remember talking to a senior who went into consulting, and he convinced me that I should do that, too. The banker talked about how banking is perfect for my skills. Till I was in 10th standard, I had no clue about the existence of IIT until a rocket scientist uncle told me about it, and about how going there would be the best thing I could do.

Of all the people who have given me career advice, perhaps the only person who didn’t clearly show this kind of bias was my father. He was an accountant, and he used to work as a regulator. And right from the beginning he made it clear to me that I should neither become an accountant nor should I work for the government.

And I’m trying to think of what kind of advice I dish out. Perhaps because I don’t have one clear “career axis”, I don’t really show this kind of a bias. Or maybe it’s hereditary.