It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.

Can’t really argue with Steve. Customers are really good at asking for incremental improvements. At MProfit we field 100′s of request a month and many are useful but most are not. Most are requests for a single feature to help that person but of course that’s not how a customer spins it. They usually tell us “if you add XYZ feature you will get 1000′s of new customers.” However, companies don’t grow exponentially by adding one feature here or another there, it’s about completely flipping the mindset and getting many more new customers in the door.

One of my favorite quotes in regards to product development supposedly came from Henry Ford:

If I’d asked my customers what they wanted, they’d have said a faster horse

The car industry for the past 50 years has been stuck in this add one feature here or increase gas mileage by 5% sort of mentality. Innovation has been slow and hence General Motors, Toyota and Volkswagen each have taken turns for the top spot for most number of cars sold every year for the past 3-4 years. As a consumer, I would ask for a 500hp car that gets 50 miles a gallon, which is what Henry Ford was getting at.

Companies big or small need to think about innovation on a much larger scale and not get trapped in a feature war.  It’s tactical thinking vs strategic thinking, but many people forgo the strategic thinking because it sounds too dreamy/fluffy and doesn’t bring in revenue right now. However, Apple has shown it really pays to think different and essentially tell it’s customer to buzz off because they don’t know any better. And yet I still come back to Apple…genius.

What happened? It was a combination of high oil prices, hubris and Honda. During the 1960′s Detroit was obsessed with cheap fuel, big horsepower and open roads which led to their focus on muscle cars - Chevelle, Camaro, Mustang, Charger, Corvette, Pontiac GTO, and many others. Once the oil crisis hit in 1973, Detroit didn’t have a backup plan and the Japanese took the opening to launch their cars. The fuel efficient Honda Accord debuted in 1976 and quickly made a name for itself. Honda did all the right things and soon the Honda Accord became the number one selling car in America.

In the 80′s American car companies had a bad reputation for shoddy cars, interiors made of cheap looking plastic and designs that only a grandmother could love – case in point the Pontiac Aztec. During the 90′s the Japanese were doing so well in North America they all launched their own luxury nameplates – Acura (Honda), Infiniti (Nissan) and Lexus (Toyota).  This led to them selling even more cars and the Detroit automakers slipped even further in sales. All the American car makers were focused on fleet sales to the rental car companies who only wanted cheap and boring cars to rent which was an easy to market to go after, but margins were slim in that segment.

During the early 2000′s, American car companies were focused on the high-margin SUV market and captured that segment with force. However, once the financial crisis hit most of them faltered. The American car makers from Detroit approached the US government for a bailout and got close to $25 billion.

Since then, the American car makers have been making hit product after hit product. The Ford Fusion and the upcoming Dodge Dart are two examples of products that consumers actually want to buy. In addition, many consumers (myself included) who would have never looked at American cars are actually looking at them once again. The Chevy Cruze in India has been a moderate hit and looks quite nice, also the value for money is another reason its doing well in India.

When I was visiting Los Angeles in August, I was impressed with the number of Ford Fusion’s and Ford Flex’s on the road. Southern California is car crazy and if a car can sell in that hyper-competitive market it will do well anywhere. In fact Honda has their headquarters in Torrance, California and Honda used to reign over this market. Sadly, the hubris that hit the American automakers in the past is starting to appear at Honda. Honda’s highly anticipated Civic re-design was panned by consumers and Consumer Reports dropped the Civic as a recommended model. And the previous number one selling Accord has started to look dated compared to the competition, so the story continues…

A trend that I have noticed more and more during 2011 was in the area of seed funding for a startup. I’m not an angel investor but I get about 1-2 unsolicited pitches a week. During 2011, most were structured like this:

Idea Guy – I have a great idea and I need 1 million dollars to hire the entire team to do the work

Me – What do you mean by entire team?

Idea Guy – product team, engineering team, UI/UX team and marketing team

Me – So what is your role?

Idea Guy – I have the idea

Me – Do you have anything so far to show for it

Idea Guy – Of course not, hence I need the million dollars

Me – Do you have a website?

Idea Guy – No, I couldn’t get the domain name, I couldn’t figure out which hosting company, but I have a PowerPoint slide deck…

At this point, I usually just mentally shut down and hope my cafe latte is still hot enough to enjoy while being tortured into viewing the slide deck. I could spend hours talking about how bad most of these slide decks are but honestly that is not the most concerning thing. The most concerning thing is the “Idea guy” wants a million dollars and then everything will happen, that is not how it works. You need to bring some talent to the table.

I can understand if you don’t have the technical skills to acquire a domain name, start a blog or get a basic website running but you might have friends that can.  The early days of a startup are about conserving capital and trying to persuade people whether it’s to buy your product or get things done cheaply. This “idea guy” wanted to hire PaperPlane one of the best UI/UX companies in India to design the site, sure why not it ain’t his money.

Recently there was an article about Dropbox founder Drew Houston who had to hack the Apple operating system to understand how the desktop icon images worked. This was something that even other engineering teams at Apple couldn’t figure out. I’m assuming the VC firms are backing Drew as much as Dropbox, as they know what is possible with him.

Bottom line, if you can’t figure out how to get a blog started (or know someone that can) how in the hell are you going to run a company. I can envision that million dollars being spent very quickly, which is not what people want to see when they are investing in an idea, person or company.

Something might look beautiful but if it has no real purpose…who cares how great it looks. You’ve heard this same story before in the context of dating, “he is really good looking but talking to a door knob is more fun” or “she is a California dime but absolutely dumb as a rock.” Instead of focusing on the needs of a customer, many startups are spending way too much time on packaging (user interface, funding sources, PR, etc…).  A great example of this is Color.com, it received a ton of press because it was funded by Sequioa for $41 million and when the application was released people were clueless about its usage. Since then they have gone back to the drawing board for version 2.

Some of the comments from the web that really got me to think about this user interface debate:

@erickschonfeld For social apps design matters very little. It's all about being where your homies are at. Most were on FSQ.

December 5, 2011 11:52 pm via Twitter for MacReplyRetweetFavorite

@Percival

Sean Percival

Design and user experience is the new intellectual property. --Ron Conway #sus11

October 30, 2011 5:50 am via Twitter for iPhoneReplyRetweetFavorite

@garrytan

Garry Tan

Ron Conway is a legend in the VC space and you can’t really argue with his track record but I disagree with his comments. Not only that, but I’m pretty sure you can’t have IP rights to the way something looks.

Design is becoming a competitive advantage for startups http://t.co/j5Or9Wd8

December 5, 2011 4:00 am via BufferReplyRetweetFavorite

@sahilparikh

Sahil Parikh

Design might be a competitive advantage if there are many players in the same space, but it really depends on the category. Facebook had a pathetic website when it launched in 2004 when compared to Friendster. But people gravitated towards Facebook because it served a social utility, gradually over time the Facebook interface got more polished.

An example of an interface that is absolutely horrible to look at is Tally – an accounting software for the Indian markets. Most people still use the MS-DOS version and it’s reported it has 90% of the market in India. Why does it dominate the market? Because it does one thing really well – calculate numbers.

The dust has settled between SKS Microfinance and Vikram Akula and the verdict is in…a complete disaster for investors in the public markets. Rewind back to 2009 when Akula was the poster boy for microfinance institutions (MFI) and was on the cover of Forbes India. A year later SKS went public on August 10, 2010 at Rs. 935 a share and closed at Rs. 1171 for a gain on the first day.  Today, SKS is trading at under Rs. 100 a share, down over 90% from its peak of Rs. 1407. Akula has since resigned from SKS and investors are resigned to the fact that they lost a lot of money during the IPO. So what happened?

The press has had a couple theories of that went wrong, one of them states there was a power struggle between Akula and the duo of CEO (Rao) and CFO (Raj). The SKS model is similar to other MFI’s in that they loan small amounts largely to village women and then the village women ensure they all pay off the loan with interest. It’s a great way to push the risk management down to the village level. This has been done successfully for many years and continues to do well. What hurt SKS more then anything else was being a publicly traded company.

When you have shareholders, their goals are pretty simple – grow the top line revenue, grow the bottom line profits which will lead to a higher stock price. In order to do that at SKS you have to find more people and give out more loans, which is very similar to what caused the economic crisis of 2008. If the investment banks wanted to sell more mortgaged backed securities (MBS) they needed more loans which meant the lending standards were relaxed – if you had a pulse you got a loan. With SKS something similar happened, they were giving loans to anybody and everybody in the state of Andhra Pradesh. Some people had 4-5 loans outstanding and those people couldn’t manage to pay them back. This led to SKS reporting less than impressive quarterly numbers which led to a downward spiral of their stock price. In addition, once the government realized people had multiple loans and SKS was charging as high as 36% in interest they hit the pause button on the SKS business model. This again led to the stock price getting pushed down even further.

I believe SKS would have been fine if they remained a for-profit but privately held company. I can understand the founding team of SKS wanting an IPO as it provides an excellent liquidity event for them to cash out, however the short term goals of the investors are completely out of sync with the long term mission of what SKS was trying to achieve.

The new rules allow major big box retailers that sell many brands like Walmart, Carrefour and Tesco to own 51% of the business. Whereas single store brands such as Reebok, Apple and Prada can own 100%. The timing might not be great but India is the last big market that has not been tapped yet and many brands might try their luck at the Indian consumer to grow their sales.

Locally, the retail industry is divided into two categories: organized and unorganized (aka kirana stores). Many reports have shown that 90% of all sales flow through the unorganized retail segment.  With the new guidelines, many are hoping that the organized retail sector can grab a larger share of the pie and in the process bring about a better experience for the consumer. Once of the reasons the bill was stalled for so long was the concern about how the “kirana guy” would cope if Walmart setup shop next to his store. That’s a valid point, however I think it forces the kirana shop owner to provide a much better customer experience since he can’t compete on price. Unfortunately, the concept of customer experienece is so alien to them that many will end up closing shop since they won’t be able to adjust.  On the flipside, I see many kirana shops converted into an extension of a major retailer who would service the local area and deliver the goods.

The bigger question for me is how the e-commerce space is going to play out with the new rules in place. If Amazon.com sets up shop in India will it partner with FlipKart.com or Pantaloons? Will the kirana store replace companies trying to build out the last mile mechanism for delivery (Chhotu) and payment collection (GharPay)?

It’s very early days in the retail sector and I would imagine whatever worked for these big box retailers in other countries will be very different from what ends up working in India. That’s where the local retail partner comes in and adds value since they know the local demographs, environment, buying patterns, etc… Most of the retail stocks are up today since the future looks very bright for retail and the companies that are already executing in the retail space.

Some startups go off course when revenue is the only metric that is looked at. It’s similar to people that are only concerned about the money they will make. For individuals compensation is one aspect, there is also career development, knowledge and many other things to look at. Likewise, when startups only focus on revenue they might look for a quick deal to bring in revenue or might view an IPO as the ultimate path to the big payout. In the past many startups have IPO’d however many of them have faded away as their team, passion or perseverance was not strong enough.

Revenue is important but profit is what really needs to be looked at. You might bring in a large 2 million dollar deal but if you spent 5 million to get the deal, then there is something clearly wrong with the business model. Growing your revenue and profit organically is the best way to build a startup into a company. With the 4 P’s – people, passion, perseverance and profit you have a combination that is tough to beat and it’s the qualities that any startup should strive to achieve.

The above article was syndicated on VCCircle.com and GQindia.com.

The latest collapse is even more sinister then the first one. At least during the Refco collapse Phil Bennett took a loan to cover his proprietary trading (aka prop trading). However, it appears MF Global took customer segregated funds to shore up their losing prop trades on bonds which is hugh no-no. The reports are still filtering in as to what exactly happened and who knew what. However, this quote from a lawyer really ticked me off “To the best knowledge of management, there is no shortfall”. A very carefully worded statement which essentially says “don’t hold the management team accountable”.

When working with Refco during the transition to Man Financial (which eventually became MF Global) it was surreal. I just landed into India with plans to stay for 6 months while we got everything up and running. And within 10 days my dreams turned to despair. I had a great vantage point as I was sitting next to Vineet Bhatnagar, MD of Refco-Sify India, as everything was collapsing around the world for Refco. We would hear reports of what was happening via the newswire or rumors from the “New York guys” but during all this craziness Vineet was calm and cool throughout the entire ordeal. He gave interview after interview saying how the India operations were “ring-fenced” and things would be back to normal. Certain parts of the business came back to normalcy faster then others, it was a trust thing. I think the institutional guys understood their money was safe but many retail clients didn’t care what was being said.

In any event, our new fund was completely crushed…100% wanted their money back NOW. All the investors got their money back and said they would re-invest once the dust had settled. Sadly, some of India’s most prolific investors who were in the first fund did not return for the second fund which we started in March 2006 under the Man Financial banner.

Right now there are two types of people that exist at MF Global-Sify India, people that witnessed the first collapse and the “new guys.” Anyone who was there during the first collapse is a little concerned but have seen this movie before. The “new guy” is probably shitting in his pants. Having worked with the Indian management team there is no doubt they are top notch and everything continues to be above the board. There was a report in DNA Money newspaper that Vineet “had put in his papers”, I almost choked on my morning coffee when I read that. Not because “oh my god he is leaving” but rather “oh my god he would NEVER leave India”. Of course, people love sensational headlines and the MF Global collapse definately provides it.

It’s easy to get excited about a PowerPoint presentation and the “hugh” market potential of industry XYZ. In most instances whatever you put down for milestones in your business plan or PowerPoint will most likely not be met. You expected to reach 10,000 customers in your first year but what if it takes 5 years? You might have the passion for the idea but what you really need is the mental toughness to get through the tough times that you will invariably face.

The story of retail heavyweight Kishore Biyani is a classic text book example of perseverance. It may appear he captured the Indian retail market overnight with Pantaloons, Big Bazaar and his various other brands but that is just not the case. Kishore started his career several decades ago selling acid-washed jeans all the while tinkering with the idea of organized retail. For Kishore it took him several decades to be an overnight retail success.

Another example of perseverance is Audi, in the mid 80′s it was dealt a serious blow to it’s flagship Audi 5000 car. In 1986, US television news magazine 60 Minutes aired a segment on the Audi 5000′s “unintended acceleration” problem. In the end, the US government concluded that the problem was caused by drivers confusion in pushing the wrong pedal and not a design flaw. But, the damage was done and overall Audi sales went from over 75,000 a year to around 12,000 a year.

At the time, people were calling for Audi’s demise and hinted it might leave the lucrative US market because of the public relations disaster it faced. However, Audi redesigned the car and sold it as the Audi 90/100 series. Almost 25 years later, Audi is stealing the thunder from the other German brands Mercedes and BMW. Now people look to Audi for design cues and it’s much talked about headlight designs which have been copied by almost every high end car manufacturer.

When hiring, perseverance is one of the toughest attributes to look for in an individual because it’s such a personal trait.  Some people can work on something for 15 years whereas others get disillusioned after 15 days.  Many people like to say luck plays a major role in why a startup might have succeeded but the reality is if you try something 2-3 times you will most likely fail every time. However, if you try something 1000 times then you have a much better chance of succedding. It comes down to trying, trying and trying some more until your product/service is the right fit for the market.

The above article was syndicated on VCCircle.com and GQindia.com.

UPDATE: After I published this blog post, Fred Wilson had a similar blog post that really summed it up – “The Second Year“.

Steve’s demise was bound to happen, but knowing what he had done in the past I figured he could dodge another bullet. Starting a company, getting kicked out and then coming back and kicking ass. In between all that drama he started a couple more companies and in the process became the largest shareholder in Disney.

While most of us fail to leave a mark on anything this guy left his mark on many markets – personal computing (Macintosh), animation (Pixar), music (iPod & iTunes), phones (iPhone) and mobile computing (iPad). I mean what the f!@#$…brilliant.

I remember when I saw my first Apple Computer and first NeXT computer, I was blown away by the interface. At that time, I was hacking away on an IBM PC with a 1200 baud Hayes modem while screwing around with MS-DOS commands.  The Macintosh user interface just seemed so natural to use…simplicity.

P.S. The title of this post was going to be just a placeholder till I finished the post. However, the draft title says it all.