Platforms and Robo-Advisory

Last couple of years i have spent disproportionate time on Digital initiatives and Platforms and guzzled on loads of content on Robo-Advisory. The objective of this blog is to bring out the true validated attributes of Digital Platforms and Robo-Advisory. The following notes are insights from two relevant authentic books coupled with my experience.

The first book is Platform Scale by Sangeet Paul Choudary, the founder of Platform Thinking Labs, Singapore. He is currently ranked as a leading management thinker by Thinkers50. He is also the co-chair of MIT's Platform Strategy Summit. He explains the inner workings of new business models and their ability to scale rapidly. The starting point is Platforms are not in the business of building software but in business of enabling interactions among all stakeholders. His sixteen points on Platform Manifesto unravels the scope of platforms and how it can function as plug-and-play. The quest for Platform Scale starts with architecture. This cannot be achieved through marketing initiatives but through a series of architectural considerations for high participation for producers and consumers. Successful platforms ensure they capture rich data through learning "filters". Filters are created based on data captured on an ongoing basis through a user's actions. One question that crossed my mind was, - Is there any personal finance platform which has all 16 elements embedded in it? Lets park this question for few minutes.

Switching to my next book Fintech Innovation by Paolo Sironi, a FinTech Thought leader - Spokesperson IBM Investment and Risk Analytics. Reading this book, one can gain insights about the transformation of wealth management industry. Paolo has given rich inputs on Robo-Advisors, Goal Based Investing and Gamification. The main essence of Robo-Advisors resides in their attempt to institutionalize the “personalization” of the investment experience. It's quite obvious to me now - If personalization is paramount then Roboadvisory portals ought to have "filters" to enhance user experience. In other words, tech has to be the core. I concur with Paolo that incumbent firms are not aligned with the strategic imperatives brought forward by disruptive technology and demo-graphical changes. Tipping point may arrive when digital firms are capable of having emotional dialogue with investors. enlarged data-set can strengthen the positioning of the wealth management offer and enable one to act on sentiment.

My independent view is that most of the existing Indian Fintech firms are yet to leverage these tech trends. Hybrid solutions made up of technology and human advice B2B2C may thrive. Time for Robo-Advisory firms to go beyond captivating user interfaces and graduate to Robo-Advisors 2.0. Is there any real personal finance platform ? My take Platforms seems to be ubiquitous in Personal Finance space, but the fact is that at this juncture it is an elusive one.

THE RISE and FALL of NATIONS by Ruchir Sharma is an insightful book on changing landscape of world economies. At the eve of India's 70th Independence day, I found these data points on India very incisive. The following are extracts from his book.

Growth:

In the AC era, there are precious few nations that would qualify as rising stars by the standards of the BC era. In 2007, the year before the global financial crisis hit, the number of economies growing faster than 7% reached postwar peak at more than 60%, including China and India, and Russia. Currently, there are only 9 economies growing that fast, and only one of them is reasonably large: India.

In 1980, when there were only 124 countries on the Human Development Index (HDI), India ranked one hundredth. Over the subsequent decades, India's economy expanded by 650%, while the global economy by less than 200%, and as a result India climbed in the HDI rankings. It now stands at 89th among the original 124 countries, up 11 spots. 

Between 1989 and 2010 India generated about 10 million new jobs in manufacturing, but according to the World Bank economist Ejaz Ghani, nearly all the jobs were created in enterprises that are small and informal. Informal shops, many of them one-man operations, now account for 39% of India's manufacturing workforce, up from 19% in 1989.  

Crony Capitalism:

In 2010 billionaire list, the top 10 Indian tycoons controlled wealth equal to 12% of India's GDP. Between 2010 to 2015 India saw one of the world's sharpest gains in the clout of good billionaires. India's 2015 billionaire list is filled with new faces, and most of them are in productive industries like pharmaceuticals, education, and consumer goods.  

India has a bewildering array of publications, most too small to be economically viable. Of more than 13,000 dailies and 86,000 magazines, fewer than 40 have more than 100,000 readers. They set the tone of a business culture in which it is seen as quite routine to own a newspaper for the purpose of peddling influence. 

Consumerism

The state monopolies like MTNL and BSNL have been allowed to slowly wither in the face of more nimble private telecom companies, and together they now account for less than 30 million of India's 900 million telecom subscribers. For the government to protect these state behemoths is hard, given the consumer demand for better services.  

After completing this book, i felt if India reduces the protectionist measures and becomes more open economy it looks more promising.  As per the book, The most closed economies, with trade less than 50% of GDP, fall into 2 groups. One is a cluster of very populous countries like China, India and Indonesia that rely less on trade simply because their domestic markets are so large. The other group includes oil and commodity driven economies. The more closed they remain, the smaller their share of newly limited global trade flows. 

The number of agreements cut by India went from 0 to 18, including agreements with major economies all over the world.  

Author concludes it very aptly - India's prospects are holding steady and it continues with its long tradition of confounding both optimists and pessimists.

ELON MUSK by Ashlee Vance

Elon Musk’s tweet about Tesla Model 3 launch made headlines in India. The Guardian states 400,000 people worldwide have pre-ordered this car and Musk said it is the biggest consumer product launch ever. To my mind - It’s an incredible product campaign - as deliveries of this car will start only at the end of 2017.  I was naïve to think like this… What if Elon Musk owned an Asset Management company? How he may have looked at designing Mutual Fund Products? I started reading Elon Musk by Ashlee Vance to know more about Tesla.

In 1990s, Elon was keen on building a full-service financial institution online. Navigating through regulator was not an easy one, but he still started X.com, a finance start-up. The company had in fact secured a Mutual Fund license but later moved into to Internet payment solutions. My question was answered when I read about his views on Financial Services. He says, all the bankers did was copy what everyone else did. Looking at Elon's track record – he would have created a mutual fund scheme which is highly compelling to invest. 

Ashlee Vance narration about Elon Musk's life is extremely engaging. After reading about Telsa and SpaceX, one can presume that people working in Detroit and Boeing would have never imagined like Musk. In other words, a start-up can catch large corporates unaware.

Mr.Vance story telling on as to how SpaceX was built and team’s experience at early stage is captivating. SpaceX venture demonstrates many insights – about creativity and execution skills. The office was made more like living, because of the number of hours team put it. SpaceX took 6 years and 500 people to make first privately developed liquid fuel vehicle to go into the orbit around the Earth. An inspirational one. Why do large corporates doesn’t create an environment to nurture creativity and get the execution right?

Couple of days ago, I saw a tweet from one of the celebrated fund manager from India that Elon Musk got Tesla and SpaceX right due to sheer luck. I vehemently disagree to his statement. One of the board of directors of Tesla puts it aptly – that ability to stay focussed in the midst of a crisis stands as one of Musk’s main advantages over other executives and competitors. Ashlee Vance has skilfully elucidated the leadership skills of Musk. He has mastered the art of getting the most out of his employees and hence maximized the power of the individual. 

I suggest that this book is a must read for parents. The first few sections of the book tells the story about his grandparents and parents in Africa and his life in Canada. This teaches us how insane set of experiences can alter the way we look at risk. Do parents strive to give powerful learning experiences to their children? Musk attributes his success to his suffering that helped to make him who he is and gave him extra reserves of strength and will. 

The Golden Tap - Kashyap Deorah

I started reading "The Golden Tap" during the Initial Public offer of Infibeam-the first e-commerce company in India. They were aggressively marketing, but I was very skeptical as their proposition was not compelling. Its a coincidence, that this book refers to the story of Internet IPOs in India during 2005-2008. Only three companies were well funded during that period, later none of them got significant funds. May be the Infibeam promoters understood the timing well and investors didn't. 

As we all know e-commerce business is a red hot sector for Venture Capital (VC) industry. I always had this question -what makes VCs to veer towards a startup and lavishly fund them? Hence, I was very keen to read this book. The book captivated me, when i read a section on This-of-That investing. This=established market spaces. That=emerging market countries. Ideas that are successful in the US, pick the ones that will apply in the Indian Market and then infuse funds. My view this investment strategy is very naive one. Its similar to using copy & paste function in an MS Excel sheet to copy a formulae. A razor-sharp section explaining the VC investment process. 

Mr.Deorah's journey from IIT-Bombay to Silicon Valley and then back to Mumbai is a breezy read but with lots of substance. I liked the way he started his new business venture- Chaupaati Bazaar and sold his venture to Mr.Kishore Biyani. It was inspiring the way he set up the firm, and the way the deal was closed with FutureBazaar.com. 

Mr.Deorah has shared an interesting observation about early days of Flipkart.com, they were fanatical about customer experience (CX) at any cost. Mr.Bansal, co-founder owned up the entire brand experience for his customer. I felt, Flipkart implemented CX culture in early days (2009) where in most of large corporates may have realized it only post 2013. No wonder, they have a great brand loyalty. 

The kernel of this book is about perspectives on valuation of Flipkart, Housing.com and the way the speculative funds are flowing into the start-up ecosystem. His view on Unicorns made me realise about valuation game. I agree with Mr.Deorah's view on Housing.com episode. Getting excess funds alone cannot drive success, leadership skill at the top is key success. Now, I started respecting Zomato as a firm - they had not raised money from global funds in its journey to becoming a unicorn. The section on Unit Economics is a very prized one. In a funding driven e-commerce companies the operating losses (loss per transaction excluding fixed costs) ranged from -15% to -30%. 

Lots to insights from Mr.Deorah's venture - Chalo app - customers could use this in restaurants for a seamless experience. The way he went about striking a deal with OpenTable was brilliant. My take away from both Chalo App & Chaupaati Bazaar was Mr.Deorah knew the significance of product which most Indian tech entrepreneurs don't attach importance. After completing the book its tacit now what drives the VCs to gaze at start-ups. A must-read for all start-ups. 

It appears to me that the story has not ended as the Golden Tap has not gone dry yet. The question is - After the tap goes dry - who will pay for the "convenience" e-commerce companies or Indian consumers?

Zero to One -Peter Thiel

Why do large companies fail? This question always bothered me as these firms have access to abundant resources and tech knowhow, but why does  "consistent growth" elude them?

Only 12% of the 1955 Fortune 500 companies were on the list in 2015, and nearly 88% of the companies from 1955 have either gone bankrupt, merged with (or were acquired by) another firm, or they still exist but have fallen from the top Fortune 500 companies. Source: American Enterprise Institute.  

In India too, over a ten year period, the Sensex churns by around 50% i.e. of the 30 stocks in the Sensex at the beginning of a decade, only 15 are left by the end of it. Source: Ambit Capital.

After reading Peter Thiel’s book, I have got many answers to my question on consistent business growth. In times to come, this book will recognised as a great "classic”. I was told this book is relevant for start-ups and but I believe it’s highly relevant to large firms too. His notes on "how to build a future" may salvage many large firms.

His 7 questions that every business has to answer, unravels the perception of every business model. They are proprietary  technology, the timing of business, market share, people , distribution , durability and the last is the "secret" question. I wish, all the promoters & CEOs read this as this may save lots of dollars. It’s so relevant in the current context of global economy.  

If we were to start analysing companies based on these 7 qualitative parameters – I am certain many companies may fail in these parameters hence may not be around after few years. For Instance regarding distribution - I spent more than 15 years in Mutual Fund Distribution , I completely related to his perspective on “distribution” and its significance for the success of a firm. I found his approach very pragmatic - superior sales and distribution team can create a monopoly without a product differentiation. 

His viewpoint on business success is attributed to luck or skill is sharp.  His  stance on of how firms operate in "Indefinite Optimistic" mode is shrewd. If one analyses this philosophy, here the business simply believes the future will be better, but it doesn’t know how exactly to get to this mode , so no specific plans. 

Now if we were to look around the companies which operate in this mode - there are plenty without a specific plan and eventually may disappear. To my mind, some of the new firms entering into manufacturing of smartphones are in indefinite optimism mode. They may be believing that surge in demand of smartphones in future will invariably rev up their product sales.

"Secrets" section of this book is worth reading many times as it is profound. Generally most of us operate in a mode of "I know all". He says most people think only in terms what they have been taught. There may be place to look for business opportunities where no one is looking. Companies may be seeking & working within their experience boundary akin to a personal computer - seeks & reads file from existing files & folders. 

 

Triggers

Marshall Goldsmith's previous book "What Got You Here Won't Get You There" was very insightful and a must-read for the corporate world. His latest book "Triggers" is an exceptional and pertinent book for the present-day world.

A "trigger" is any stimulus that reshapes our thoughts and actions. 

What will trigger us in a desired behaviour path?   

This book helps you understand how to close the gap between  "ideal you" and the "real you"

His understanding on why don't we become the person we want to be is worth reading many times. He calls this as "Belief Triggers" these stop behavioural change in its tracks. Generally we employ these to justify our inaction and then wish away the result. This sets the context for behavioural change and leadership.

He makes one realise, the high correlation of our behaviour with the environment we live in. His example on how spending time on airplanes has changed over last three decades is lucid to make us understand about environment triggers. Three decades ago being on plane was ideal environment for reading and writing in a place of serenity. But, now phones, screens and inflight environment has dragged the productivity. We think we control our environment but in fact it controls us.

I felt these are precious:

A) executing the change we hold as a concrete image in our mind is a process. The act of self-questioning- so simple, so misunderstood, so infrequently pursued- changes everything.

B) The concept of daily questions - "commitment device" - this focusses on where we need help, not where we're doing fine. It compels us to take things one day at a time. By focussing on effort, they distract us from obsession with results.

This book intends to spark many positives in you and make it last for a longer time. 

A marvellous book by Mr.Goldsmith