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Its All About Managing Inventory

2009-10-20T09:00:10Z

Walmart has adopted a cautious strategy to build scale in India focusing on the North initially Raj Jain president of Walmart India explains Read more

Walmart’s Passage to India

2009-10-20T08:20:00Z

The world’s largest retailer has found a new growth engine — in the holy city of Amritsar Read more

The Polishing of Gitanjali

2009-10-12T08:20:00Z

Mehul Choksi wants to become the world’s largest jewelry retailer He has no room for error Read more

Capt Gopinath Wants To Set His Terms For Cargo Industry

2009-10-14T07:30:00Z

He beats his own drums He treads his own path Gopinath is back at his old game Disruptive entrepreneurship Read more

Have We Learnt Anything From Satyam?

2009-10-20T05:44:09Z

In my twenties, I used to give anything to do with corporate governance a wide berth. It seemed like a dry subject divorced from the sexiness that surrounds financial markets. In my thirties, thanks to our clients, I am coming around to a very different view of the importance of corporate governance.

To be more specific, I manage a team of investment analysts and part of my job is to run around the world advising institutional investors. What I hear them say about Indian corporate governance and Indian accounting has made me realise that investors worry about these subjects much more than they about the daily news flow on earnings and GDP growth.

To give you a flavour of how worried investors are, I will give you a summary of my meetings in the US last week. Of the 20 institutional investors that I met:

- A quarter refused to invest in Indian stocks because they have been duped in the past by a cocktail of corrupt management and make-believe accounting.

- Another quarter refused to invest in Indian Power, Infrastructure & Realty stocks because they believe that the capital raised by these companies goes into the “wrong pockets”.

- The remaining 50% of investors have capital committed to Indian stocks but largely on the back of “longstanding….special relationships with promoters”.

So why is investor distrust of Indian management teams and accounts so high? I will dwell upon the three main issues that investors worry about and highlight some basic remedies.

While the Indian GAAP (Generally Accepted Accounting Principles) by itself is no more or less flawed than IFRS (International Financial Reporting Standards), our market suffers because of how these rules are applied. There are three areas which give particular cause for concern.

First, the lack of restrictions placed on auditors who do consulting work for the companies they audit. In a number of instances we have run into listed companies where the consulting arm of the audit firm earn advisory fees for help with M&A, new entity structuring, tax minimisation and so on. Often such consultancy fees dwarf the audit fees received by the accounting firm, thereby creating a conflict of interest. In western markets, following the Enron scandal, there are clear rules which limit how much consultancy work accounting firms can do for the firms they audit. India needs such limits to be put in place.

Second, in contrast to other large capital markets, the Indian market makes it all too easy for Annual Reports to be published many months after the financial year has ended. Since quarterly reports are unaudited, don’t contain a cash-flow statement and a balance-sheet, and don’t include subsidiaries’ numbers, the Annual Report is keenly awaited as it is the only document which gives a full picture of a company’s financial health.

Companies with weak cash-flows and weak balance sheets delay Annual Reports for six, even 12 months after the year-end by which time the market’s focus has moved on to the other things. The implications for investors in such companies is that they end up holding the stock for months without knowing how the company is actually performing. In stock markets larger than ours, the law says that the Annual Report has to emerge within three months following the year-end. We too need a similar rule and we need to compel companies to produce more comprehensive quarterly results.

In the Western world, the Boardroom can be divided into executive and non-executive directors, with the latter having a clearly defined stewardship role to play. In India, we have an all-powerful third force called the promoter who need not be an executive director but is more powerful than the Board. This inability to provide checks and balances on the promoter’s power is arguably the single biggest failing of our stock market.

Many western markets have now made it compulsory for the Chairman and the CEO roles to be split. We too need to think about such a split. Furthermore, we need more legal safeguards to protect independent directors from the promoter’s power.

Corporate shenanigans impose a very tangible cost on our country - Indian corporates have the highest cost of capital outside sub-Sahara Africa. One major reason for this is neither FIIs nor retail investors are fully convinced about the merits of long term investment in Indian stocks. As a result, money flows into our market are very volatile and this pushes up our cost of capital. If we want to change this state of affairs we have to raise our corporate governance standards.

You know it’s a recession when porn sales are down

2009-09-14T18:19:26Z

The Economist notes that the pornography industry is going through hard times:

Most of the industry consists of small private production companies whose numbers are secret, but Mark Kernes, an editor at Adult Video News, a trade magazine, estimates that the American industry had some $6 billion in revenues in 2007, before the recession, mostly in DVD sales and rentals and some in internet subscriptions. Diane Duke, the director of the Free Speech Coalition, the adult industry’s trade group, thinks that revenues have fallen 30-50% during the past year. “One producer told me his revenue was down 80%,” she says.

It’s not just the recession though. Pornography is going through the same structural shifts that are putting music, video print and other content companies under pressure:

Piracy is the main problem. And the internet, with its copious free clips, is an increasingly viable alternative to the paid stuff. Pornography in general has become “like potato chips, everywhere and cheap, to be consumed and tossed,” says Ms Hartley. It’s not the same as in the golden age when she joined. “The industry will shrink and stay shrunken,” she reckons.

Not to mention the threat of user generated content…

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Savings: The Real India Story

2009-10-07T15:29:03Z

That India needs $500 billion to finance its infrastructure-build is a well-known factoid, repeated endlessly in most news articles pertaining to infra financing. More specifically, as our Minister for Roads Transport, reminds us regularly that whilst the previous decade belonged to IT, this is the decade of infrastructure.

Beyond infrastructure, the other investment theme on which reams have been written is the Indian middle class and its burgeoning consumption power. These two “spending” related investment themes are so central to the ‘India story’ that another aspect of India’s success has been overlooked altogether. That story is savings or rather the composition of India’s savings. There are four overlapping trends that will combine to generate rapid growth in retail investments in the equity market and in life insurance/pensions.

One, with GDP growing at 7% per annum and population growing at 1%, my colleague, Dipankar Mitra points out that India’s per capita income (PCI) should grow at 6% per annum over the next 20 years. As a result, by 2030, India’s per capita income should hit $10,000 in real purchasing power (RPP) terms (compared to $3,000 at present).

Two, India’s savings rate has risen relentlessly over the past 30 years and is now approaching 38%. Based on our analysis of other developing and developed countries’ savings rates, we expect India’s savings rate to peak at 45% in 2030.

Three, equity investments currently account for only 5% of retail financial savings in India. As India moves towards the rich-country norm of 20%, the amount of retail money entering the stock market annually would grow a staggering nine-fold.

Finally, pensions/life insurance currently account for 30% of retail financial savings in the Western countries. Surprisingly, India has already hit this 30% ratio. However, as the overall quantum of savings rises, retail flows into life insurance/pensions will grow seven-fold.

Just in case you believe that these four trends represent mindless extrapolation, over the past 17 years, India’s savings rate has risen from 23% to 38% and the annual flow of retail money into the stock market has risen six-fold. So all we are predicting is a mild acceleration, based on data from the rich world, of what is already a well- established mega trend in India.

How to play the “savings” theme?

The market capitalisation of Indian banks, insurers and stock brokers is currently $100 billion, $20 billion and $5 billion respectively (insurers’ market cap based on analysts’ estimates). What’s interesting is that the smallest of these three groups – the stockbrokers - are ideally placed to benefit from the long-term trends highlighted above, both, as conduits through which people like you and I will access the stock market and as distributors of packaged financial products ranging from mutual funds to all varieties of insurance. Hence looking out over the next 20 years, established stock brokers are well-placed to be the best performers among financials stocks in India.

So where does that leave banks – the largest constituents of the Sensex? While we await the IPOs on Indian life insurers in CY10, we note that all of the top life insurers in India are owned by large banks. In fact, the banks’ branch-based distribution network pretty much makes them unbeatable because it helps them keep distribution expenses low relative to non-bank rivals.
However, looking beyond the life insurance IPOs, we can see life becoming more difficult for banks as competition intensifies within our financial sector and India transitions from a predominantly bank-based financial sector to a more market-based system. At its simplest, this means that as banks have to fight harder (versus stock brokers and mutual funds) for retail deposits, deposit rates could rise further thereby lowering the net interest margins of banks. This trend has already established itself as banks have lost around 100 basis points of margin between FY99-09.

However, all is not lost for the banks. The experience of rich world countries with market-based systems shows that as GDP grows, so does the credit to GDP ratio. This indicates massive upside for our banks if, and it is a significant “if”, they can grow credit from the current 15% of GDP to the rich country levels of 30%.

Capillary Wins Qualcomm B-Plan Contest; Gets $100K

2009-10-06T07:12:35Z

Capillary Technologies, a startup company by IIT Kharagpur alumni that offers mobile-based customer management solutions for retail, is the India winner of Qualcomm Ventures' international business plan competition, Qprize. With that, Bangalore-based Capillary has received $100,000 as seed money for the company.

The company, which offers services for apparel retailers now, will invest the money in branching out into other verticals. "We are planning to add coffee retail and quick service restaurants, consumer durables and mobile outlets, entertainment and leisure and grocery retail," said Aneesh Reddy, co-founder and director of business development, Capillary Technologies Pvt Ltd. The other co-founder is Krishna Mehra, who is the director of technology at the firm.

Started in November 2008, Capillary has nine clients in its portfolio with over 200 outlets across 75 cities in India. Its clients include Madura Garments brands like Peter England and People; Future Group promoted Indus-League Clothing brands like John Miller, Urban Yoga and Jealous 21; and Numero Uno among others. The company also offers services, which help retailers to reward their customers instantly while shopping in the store.

Qualcomm Incorporated is a Nasdaq-listed company engaged in developing wireless technologies, products and services. Through its QPrize competition, the company offers $100,000 seed funding each to four semi finalists selected to compete for the Grand Prize. The other three semi-finalists will be selected from North America, Europe and China. The Grand Prize winner will receive another $150,000 funding, totaling $250,000 venture financing for the company.

The Grand Prize winner will be selected at Qualcomm Ventures CEO Summit, which is scheduled to be held on November 3, 2009 in San Diego, California.

Apart from Capillary, the seven other semifinalists which competed for regional QPrize competitions in India include Birds Eye Technologies, a Mumbai-based company offering GPS enabled vehicles for traffic monitoring; Edutor Technologies, a Hyderabad-based portable learning device manufacturer for one-to-one tutoring and personal learning; Nimble Wireless, a Chennai-based low bandwidth wireless video surveillance provider; Optimystix, a Mumbai-based company offering location based real time classifieds on mobile; Svara, a Delhi-based mobile and audio based learning system; Virtual Wire Technologies, a Delhi-based low power wireless system for short range HD video distribution; and Xurmo Technologies, a Bangalore-based mobile social network platform offering real time personalised information.

The German Race

2009-09-02T08:46:10Z

Right now the youthful BMW has its nose ahead59 but the elitist Merc is stepping on the gas too Read more

Powerwoman Kiran MazumdarShaw

2009-09-05T10:05:55Z

This biotech entrepreneur learnt the importance of selfreliance and personal reinvention at an early age That philosophy has held her in good stead through her life Read more

Intellectual Capital is not just about Patents – It’s Aggregated Intellectual Material

2009-09-03T06:26:20Z

I came across this interesting trivia about the late King of Pop from the “IP Marketing Advisor”: “In the 1988 video of the song Smooth Criminal, the pop star and his dancers leaned forward dramatically, seemingly defying gravity. It turns out Jackson didn’t just invent the move — he eventually patented it.

To do what became a signature move in live performances without the help of harnesses and wires, Jackson created a shoe “system” called “Method and Means for Creating Anti-Gravity Illusion.”
Granted in 1993 to Jackson and two partners by the U.S. Patent and Trade Office, patent No. 5,255,452 covers a “system for allowing a shoe wearer to lean forwardly beyond his center of gravity by virtue of wearing a specially designed pair of shoes.” A heel slot in the shoes gets hitched to retractable pegs in a stage floor.

Michael Jackson - Smooth Criminal Steps

Wearing the shoes, Jackson (or anyone) could seem to lean past his center of gravity without toppling. “I’ve used (Jackson’s) patent for years in classes to teach students what they can patent,” says lawyer Gene Quinn of IPWatchdog. Rather than licensing the shoes, Jackson probably sought the patent to keep the effect exclusive, Quinn says. “Just getting a patent may be enough to create marketing buzz in some cases, and he may have achieved that as well.”

There are some interesting points here. One that Michael Jackson a performer and entertainer invented a dance move and that it was patented, that the objective of the patent was to create marketing buzz by promoting exclusivity and that it is important for all to understand the value of an invention. Only then can that invention be monetized successfully.

As we rapidly move into the so-called Knowledge Economy, it is important to understand that information arbitrage can at best provide momentary gains but insights gained from knowledge of a market, process, customers, technology and so on provide long term value. Information arbitrage ceases to lose value when information becomes freely available to all as is happening in today’s world.

So what do startups and entrepreneurs need to do to develop insights?

There are no short-cuts. Insights come from deep and sustained engagement with a market and customers. It means being in conversation with customers, partners, prospects, and sometimes even competitors to understand the problems, opportunities and dynamics of the industry and the business. It means wide reading and talking to experts from industry, research labs and academia about the forces shaping the industry – regulatory, technological, economic and so on.

Every entrepreneur in every industry and business needs this kind of awareness to be able to create profitable and sustainable businesses in this economy. Unfortunately, a lot of the entrepreneurs I meet are still hesitant to go out and engage with the outside world.
They seem content being in their own company’s silo and view the world from that standpoint. This results in their being unable to see the lay of the land. Many a time, they aren’t even aware of their competitors and what they’re doing, what the sales challenges are, what the hiring and retention issues are, what the customer support expectations are etc.
These kinds of entrepreneurs tend to reduce the issue to one of just having adequate money. Money would not solve the problem of ignorance but rather money would be available to those entrepreneurs who can demonstrate their knowledge of the business.

Intellectual capital is not just about filing patents. It is the aggregate intellectual material – knowledge, information, intellectual property, experience – that can be put to use to create wealth in a company.

Here’s an old apocryphal tale that explains the situation. A computer expert billed a company $1,000 for solving an urgent computer problem at a company. The company was livid! How could he charge so much for just 10 minutes of work and for just typing a few lines on the console screen. The computer expert replied “$100 for the 10 minutes of my time and $900 for knowing what to type on the screen to solve the problem”.

What do you think?

_______________________________________________________________________

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings close to two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.

The article first appeared in FE and reproduced with author’s permission.

________________________________________________________________________

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Intellectual Capital is not just about Patents – It’s Aggregated Intellectual Material

Where Cash for Clunkers Ran Off the Road

2009-08-26T14:00:00Z

Published:	August 26, 2009
Author:	John Quelch

Editor's Note: Harvard Business School professor John Quelch writes a blog on marketing issues, called Marketing Know: How, for Harvard Business Online. It is reprinted on HBS Working Knowledge.

Today, let us celebrate the end of an unjustifiable drain on the U.S. taxpayer: the Cash for Clunkers (C4C) program.

True, C4C greatly boosted the number of consumers visiting car dealers. Doubtless, some new cars were sold to consumers who thought they had a clunker to trade in but, on discovering it didn't qualify, bought a new car regardless.

But why did taxpayers, having already bailed out GM and Chrysler once, have to do so again to the tune of $3 billion through the $3,500-$4,500 C4C incentives? This taxpayer money simply enabled the dealers to avoid having to offer discounts off sticker prices and to extract higher profit margins than they would have otherwise obtained on the qualifying new cars. The program proved so popular that inventories of the qualifying cars soon dwindled, further boosting the dealers' negotiating leverage and unit profit margin.

Did C4C sell more cars? Maybe in the short term but, in reality, the promotion stole largely from future sales with taxpayers subsidizing over half a million new car sales that would have occurred anyway.

C4C disrupted the even flow of supply and demand. New car buyers held back in advance of the launch of the program; in fact, many prenegotiated with dealers to do so. And, now the promotion is over, expect year-on-year sales to be lower than they would have been because so much consumer demand has been concentrated in the promotion period.

And were these C4C sales helping poor people trade in unsafe vehicles or buy a new car for the first time? Hardly likely, because auto loans still aren't readily available and many poorer people would buy a better quality used car rather than a new car. Used car prices poor people have to pay are now higher thanks to the compulsory destruction of half a million used vehicles.

Who came up with the $4,500 figure, way higher than any prior manufacturer incentive? No doubt, our friends in Detroit. American consumers know a good deal when they see one and burned through the first $1 billion in five days. The promotion was way more generous than it need have been.

A $2,500 incentive would have attracted the older, most fuel inefficient used cars. Instead, a $4,500 incentive attracted many perfectly serviceable vehicles. Because of government concerns over fraudulent recycling of trade-ins, vehicles had to be destroyed.

Signs point to the C4C program failing from an environmental impact standpoint. Whatever the mpg improvement of the new car over the clunker, premature scrapping of functioning vehicles is hardly a contribution to environmental sustainability. In addition, C4C buyers may well drive their higher mpg cars more miles per year than they did their clunkers. And two-car families that traded in their old SUVs for high mpg sedans may later trade in the existing family sedan for another SUV, resulting in minimal mpg improvement on a per household basis.

The administration of the C4C program has been cumbersome. Each clunker required dealer salespeople to complete 11 forms, the online computer system set up by Citi was slow and sometimes crashed, and extra workers had to be hired to process C4C claims. Only $145 million of $1.9 billion in claims have so far been refunded to dealers. Ironically, GM and Chrysler are using taxpayer bailout money to advance dealers the refund money they are waiting for from the U.S. government! In the end, administration expenses might well reach 10 percent of total program costs.

The Federal government should not be in the business of initiating and administering short-term incentive programs designed to shape consumer purchase behavior. It has no experience in such initiatives and proved itself incapable of forecasting demand associated with different incentive levels.

And the auto industry hardly deserved special treatment, when home appliance and furniture sales, for example, are equally in the doldrums.

Join the discussion on Harvard Business Publishing.

Quantifying the Economic Impact of the Internet

2009-08-17T14:00:00Z

Published:	August 17, 2009
Author:	John Quelch

Editor's Note: Harvard Business School professor John Quelch writes a blog on marketing issues, called Marketing Know: How, for Harvard Business Online. It is reprinted on HBS Working Knowledge.

Older Internet users may remember the battles over the commercialization of the Web in the early 1990s, when the first Mosaic browser was introduced. Back then, pioneering adopters passionately condemned the first Web advertisers and tried to bring down their sites with "flaming" attacks. The fight was lost as consumers voted for free information supported by advertising over subscription services.

Ironically, online advertising and the commercialization of the Web achieved important goals of the resisters: to preserve the Web as a medium for free publishing and communications. A recent TNS study reported the leading activities of Internet users as: used a search engine to find information (81 percent); looked up the news (76 percent); used online banking (74 percent); looked up the weather (65 percent); researched a product or service before buying it (63 percent); visited a brand or product Website (61 percent); paid bills (56 percent); watched a video clip (51 percent); used a price comparison site (50 percent); listened to an audio clip (44 percent ).

All of these activities either are subsidized by advertisers, or take the place of traditional advertising, information search, and purchasing and banking transactions. Free access to information entertainment, along with speedier and more convenient transactions, are a great deal for consumers. Social networks and the easy connections they facilitate are transforming social life and have helped to elect a President. They also increase productivity in the larger economy.

How can we quantify the economic impact of the Internet? A recent study we prepared with Hamilton Consultants for the Interactive Advertising Bureau uses three methods to value the contribution of the advertising-supported Internet to the U.S. economy:

Employment value. The Internet employs 1.2 million people directly to conduct advertising and commerce, build and maintain the infrastructure, and facilitate its use. Each Internet job supports approximately 1.54 additional jobs elsewhere in the economy, for a total of 3.05 million, or roughly 2 percent, of employed Americans. The dollar value of their wages is about $300 billion, or around 2 percent of U.S. GDP.
Payments value. The direct economic value the Internet provides to the rest of the U.S. economy is estimated at $175 billion. It comprises $20 billion of advertising services, $85 billion of retail transactions (net of cost of goods), and $70 billion of direct payments to Internet service providers. In addition, the Internet indirectly generates economic activity that takes place elsewhere in the economy. Using the same multiplier as for employment, 1.54, then the advertising-supported Internet creates annual value of $444 billion.
Time value. At work and at leisure, about 190 million people in the United States spend, on average, 68 hours a month on the Internet. A conservative valuation of this time is an estimated $680 billion.

The advertising-supported Internet also helps the economy by fostering innovation, entrepreneurship, and productivity, particularly among small businesses that create most new jobs in the U.S. In addition, larger companies in this sector, such as Cisco, Google, or Adobe, have been a haven of relative stability through the current economic downturn and boost the U.S. balance of trade through their global sales.

Consider also the social benefits of the Internet, harder to quantify but including the power of access to information as well as greater flexibility in balancing work and family obligations through telecommuting. The economic downturn is accelerating consumer interest in social networks and online communities as a source of support. And 19 percent of all U.S. marriages are now the result of bride and groom meeting via the Internet.

When regulators start trying to constrain the Internet, let's be aware of its enormous and ever-increasing economic and social impact. The Internet is an economic powerhouse that drives U.S. competitiveness and productivity.

Join the discussion on Harvard Business Publishing.

A First Look at HTML 5

2009-08-12T23:32:24Z

PHP Builder: "...the official specification expects HTML 5 to be completely functional and ready by the year 2022 - and no, that wasnt a typo, I did mean 2022"

Minimum Viable Product: a guide

2009-08-03T13:00:00Z

One of the most important lean startup techniques is called the minimum viable product. Its power is matched only by the amount of confusion that it causes, because it's actually quite hard to do. It certainly took me many years to make sense of it.

I was delighted to be asked to give a brief talk about the MVP at the inaugural meetup of the lean startup circle here in San Francisco. Below you'll find the video of my remarks as well as the full slides embedded below. But I wanted to say a few words first.

First, a definition: the minimum viable product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.

Some caveats right off the bat. MVP, despite the name, is not about creating minimal products. If your goal is simply to scratch a clear itch or build something for a quick flip, you really don't need the MVP. In fact, MVP is quite annoying, because it imposes extra overhead. We have to manage to learn something from our first product iteration. In a lot of cases, this requires a lot of energy invested in talking to customers or metrics and analytics.

Second, the definition's use of the words maximum and minimum means it is decidedly not formulaic. It requires judgment to figure out, for any given context, what MVP makes sense. As I talked about in a previous interview, IMVU's original MVP took us six months to bring to market. That was a pretty big improvement over a previous company, where we spent almost five years before launching. Yet in another situations we spent two weeks building a particular feature that absolutely nobody wanted. In retrospect, two weeks was way too long. We could have found out that nobody wanted the product a lot sooner. At a minimum, a simple AdWords smoke test would have revealed how utterly bad the concept was.

Without further ado, the video:

Slides are below:

Minimum Viable Product

View more presentations from Eric Ries.

Embrace technical debt

2009-07-29T12:55:00Z

Financial debt plays an important and positive role in our economy under normal conditions. Yet, especially in times like these, it’s easy to rail against the badness of being in debt; it’s a very human feeling. Remember Hamlet?

LORD POLONIUS:
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

Technical debt works the same way, and has the same perils. Here’s one of my favorite introductions to the subject, courtesy of Martin Fowler:

In this metaphor, doing things the quick and dirty way sets us up with a technical debt, which is similar to a financial debt. Like a financial debt, the technical debt incurs interest payments, which come in the form of the extra effort that we have to do in future development because of the quick and dirty design choice. We can choose to continue paying the interest, or we can pay down the principal by refactoring the quick and dirty design into the better design. Although it costs to pay down the principal, we gain by reduced interest payments in the future.

The human tendency to moralize about debt affects engineers, too. Many conclude that technical debt is a bad thing, and that teams that incur technical debt are sloppy, irresponsible or stupid.

In this post, I want to challenge that idea, by talking about real-world situations where debt is highly valuable. I hope to show why lean and agile techniques actually reduce the negative impacts of technical debt and increase our ability to take advantage of its positive effects. As usual, this will require a little theory and a willingness to move beyond the false dichotomy of “all or nothing” thinking.

I won’t pretend that there aren’t teams that take on technical debt for bad reasons. Many legacy projects become completely swamped servicing the debt caused by past mistakes. But there is more to technical debt than just the interest payments that come due. Startups especially can benefit by using technical debt to experiment, invest in process, and increase their product development leverage.

In a startup, we should take full advantage of our options, even if they feel dirty or riddled with technical debt. Those moralizing feelings are not always reliable. In particular, try these three things:

Invest in technical debts that may never come due.
The biggest source of waste in new product development is building something that nobody wants. This is a sad outcome which we should work very hard to avoid. Yet there is one silver lining when it does happen: we wind up throwing out working code, debt-riddled and elegantly designed alike. This happened quite often in the early days of IMVU.

For example, I’ve talked often about our belief that an instant messaging add-on product would allow IMVU to take advantage of a network effects strategy. Unfortunately, customers hated that initial product. The thousands of lines of code that made that feature work were a mixed bag – some elegantly designed and under great test coverage, others a series of hacks. The failure of the feature had nothing to do with the quality of the code. As a result, many technical debts were summarily cancelled. Had we taken longer to get that feedback by insisting on writing cleaner code, the debt would have been much deeper.

Accept that good design sometimes leads to technical debt anyway.
Discussions of technical debt are usually framed this way (again from Martin Fowler):

The metaphor also explains why it may be sensible to do the quick and dirty approach. Just as a business incurs some debt to take advantage of a market opportunity developers may incur technical debt to hit an important deadline.

This framing takes for granted that the quick and dirty approach will incur significantly more technical debt than the slow and clean approach. Yet other agile principles suggest the opposite, as in YAGNI and DoTheSimplestThingThatCouldPossiblyWork. Reconciling these principles requires a little humility.

Most of us think we know a good design when we see it. Unfortunately, no matter how much up-front analysis we do, until the design is tested by actual practice, we can't really know. Outside the world of hypothetical examples, it's more important to make continual progress than to build the ultimate design.

For example, at a previous virtual world company, we spent years developing an architecture to cope with millions of simultaneous users. Unfortunately, we made two critically flawed assumptions: that customers would primarily consume first-party assets that we shipped to them on CD and that they would tend to congregate in a relatively uniform way. Neither assumption proved remotely accurate. The design failure meant that there was constant thrashing as the servers struggled to provision capacity according to the “elegant” algorithm we’d designed.

As in many scalability decisions, we’d have been much better off investing in agility, so that we could change the architecture in response to actual customer demand, rather than trying to predict the future. That’s what Just-in-time Scalability is all about. Sometimes quick and dirty actually incurs less debt.

Leverage product development with open source and third parties.
Financial leverage refers to investing that is supplemented by borrowed money. Similarly, product development leverage refers to situations in which our own work is fortified by the work of outsiders. For example, early on at IMVU, we incorporated in tons of open source projects. This was a huge win (and we were delighted to give credit where it was due), because it allowed our initial products to get to market much faster. The downside was that we had to combine dozens of projects whose internal architectures, coding styles, and general quality varied widely. It took us a long time to pay off all the debt that incurred – but it was worth it.

In addition, third-party services and API’s enabled us to do more with less, but at a cost: taking on the technical debt of products and teams outside our direct control. We’re not accustomed to accounting for technical debt that occurs in code that we don’t write, but this is short sighted. It’s important to learn to see the whole system that makes our product work: human as well as machine, internal as well as external.

For example, IMVU’s early business model was made possible by Paypal’s easy self-serve and open access payment system. However, we’ve often had to put up with unreliable service, caused by their inflexible internal architecture. We had to live with their technical debts without being able to repay them. It was still a good trade.

Not all debts are created equal.
Interest rates vary, so we should be selective about taking on new debts. Given the choice between incurring technical debt in a particular end-user-visible feature and incurring the same level of debt in a core system, I’d much prefer the former. Here’s why:

There’s a chance that I’ll never have to pay for that particular debt, because the feature may have no value for customers.
It’s possible that the feature, even with debt, might be good enough, and therefore not need revision for a long time. Technical debt manifests as rigidity or inflexibility. When modifying a part of the product afflicted by debt, the work requires a lot of extra – and unpredictable – clean up. But if a given feature is rarely modified, its debt is much less expensive.

The opposite is true with debt in a core system; it’s much more likely that this debt will slow down our ability to make changes later on. For example, an unreliable library deep in the core will manifest as intermittent defects all throughout the product, each of which is hard to localize and debug. Side-effects that reduce agility are the most damaging symptoms of technical debt.

Lean vs. debt
In the world of physical goods, the leaner a supply chain is, the less debt is required to operate it. This makes lean supply chains more robust in the face of the unexpected: if sales suddenly dry up, they are stuck with less unsold inventory and simultaneously have less debt to service. The just-in-time nature of the value chain reduces risk in the face of uncertainty and is also more capital efficient.

A similar relationship applies to technical debt. Teams that practice an agile or lean development process are able to minimize the accumulation of technical debt without sacrificing speed, because they work in smaller batches. They also take better advantage of debt, because they find out sooner if a particular investment has paid off. Traditional development teams, by contrast, often build and deploy large systems before learning if their early choices were sensible, and therefore wind up with a much larger debt to pay. In fact, by the time they become aware of it, they’ve already started to pay significant interest on that debt.

Invest in speed instead of features or debt
This relationship between lean and debt opens up new approaches for dealing with technical debt. The usual debate is phrased as an either-or choice between taking more time to “build it right” or taking a shortcut and incurring more debt. But those are not our only two options. Taking on technical debt does allow investing energy elsewhere, but other new features are not the only option.

We can trade technical debt for process improvement, too. If that improvement pays off (by reducing the batch size of our work, for example), it becomes easier to address all technical debt in the future – including the debt just incurred. And because any particular debt might never come due, this is a better trade. To take one concrete example, it’s often worthwhile to write test coverage for legacy code even without taking the time to refactor.

This reverses the standard intuition about what engineering activities add value, which usually concludes that test coverage is a form of necessary waste but a refactoring is value-added work. However, a refactoring (by itself) might go stale or introduce unintended side-effects. Adding test coverage will make it easier to refactor in the future and also reduce our fear of making changes elsewhere.

Investing in the dynamics of development is more valuable than investing in the static status quo. Startups are always moving, so invest in moving faster and better.

Technical debt in the real world
So far, all of these considerations have been framed in the form of abstract either-or tradeoffs. Real life seldom presents such comparable choices. Instead, we balance lots of unknowns. How much technical debt will a particular approach incur? How likely will customers ultimately use that feature? How painful will it be to refactor later? How much will it slow us down in the meantime? And how much more expensive would it be to do it right? Oh, and how likely is it that the “right” approach actually is?

Luckily, there are better options for these complex decisions than picking an easy extreme, like “never incur technical debt” or “anything goes.” Instead, we can choose a disciplined approach to making proportional investments in prevention and paying down debt, such as Five Whys. They work by focusing our energy on making process and technical changes in precisely those areas that are causing the biggest waste and slowdown.

This is better than making abstract choices about where to invest: better design, paying down old debts, or better process. Instead, techniques like Five Whys teach us to view the entire application and product development team as one integrated system. From this holistic viewpoint, we can optimize accordingly.

Once we can see opportunities for truly global efficiency gains, all that remains is to ensure our team actually makes room for those investments. To do that, we add specific speed regulators, like integrating source control with our continuous integration server or the more elaborate dance required for continuous deployment. This produces a powerful combination: the speed of just-in-time experimentation wedded to a discipline of rigorous waste-reduction.

One last thought. When I talk and write about the advanced product development process at IMVU today, like the cluster immune system or the disciplined approach we take to split-testing and interaction design, it may sound as if we had that capability from the start. Nothing could be further from the truth. The early IMVU was riddled with legacy code and technical debt. We spent endless hours arguing about whether we’d made the right choices in the past. And with the benefit of hindsight, it’s clear that we often made serious mistakes. As one engineer recently told me, “Once we had money in the bank and were near-profitable, I think we would have been well-served by increased up-front product and technology planning. As a culture, we hadn’t yet learned how to make long-term decisions.” He’s right.

In the end, what mattered wasn’t that we did everything right, but that our fundamental approach was flexible and resilient. At no point did we stop everything and do a ground-up rewrite. Instead, we incrementally improved our process, architecture, and infrastructure, always learning and adjusting. The blur you see today is the result of the beneficial compounding interest of that approach applied with discipline over many years. Trust me, it’s a lot of fun.

(This post was tremendously enhanced by a number of early readers from the Twitterverse. You know who you are. Thanks so much.)

The Joy of Sachs

2009-07-17T04:00:00Z

Goldman Sachs’s record quarterly profits show us that the investment bank is very good at what it does. Unfortunately, what it does is bad for America.

Updated: Facebook Inks Mobile Deal In India With SMS Gupshup

2009-07-29T11:40:48Z

Update It’s official: we’ve just received a press release from SMS Gupshup confirming what we had reported last week: the company has tied up with Facebook for SMS updates. It appears that the long code we’ve mentioned below (92FACEBOOK) is the one being powered by Gupshup for Facebook in India. Original Story (July 21st, 2009, 14:07pm) Facebook [...]

More at MediaNama.com

Will India Produce A Google?

2009-07-24T10:52:48Z

I am sitting at Changi Airport of Sngapore as I write this piece, having just spent a couple of very interesting days at a conference titled “Leapfrogging Technologies” run by a group called TTI Vanguard which has on its advisory board a few legends including Nicholas Negraponte, Alan Kay, Len Kleinrock, Gordon Bell etc.

I had the honor of presenting the realities of India, and the various challenges and opportunities that exist here. Much time was spent at that conference debating the definition of “leapfrogging technology”. It was very clear that the audience, consisting primarily of senior technology executives of large multinationals, were technology biased, in the traditional sense.

In other words, the way Silicon Valley might think of leapfrogging in true high tech fashion (megabits/sec to gigabits/sec; order of magnitude better or faster). But towards the end of the conference after looking at examples in India, Bangladesh and Philippines, many realised that leapfrogging often has as much to do with technology application, often with a local twist, as it does with technology development. Let me explain further.

Admittedly VCs (including myself) have been harsh with the Indian entrepreneurial community for not being innovative enough, not thinking big and thinking incremental rather than monumental. Call it an epiphany or just a delayed “wake up call”, I am changing my thought process.

Leapfrogging In Indian Context

In India and many other developing economies, at this stage, it’s quite honestly less about groundbreaking technology development (except perhaps the MNC R&D hubs), and much more about leveraging existing technology to significantly impact quality of life, and making a business of it.

And of course, the scale in terms of number lives impacted is potentially earth-shattering in India and other developing nations. Take mobile telephony, for example. That definitely represents leapfrogging, since legacy infrastructure didn’t really exist to adequately serve a country of over a billion people. Obviously the mobile phone, once affordable, has led to over 400M subscribers on its way to many hundreds of millions more.

There were innovations along the way with respect to distribution, business model, and generally getting the scale the telecommunication sector has achieved in India. Similarly, dish has gained traction where no landline infrastructure exists (I love seeing them on top of slums, for example); and surely wireless broadband will eventually break through where no optical fiber or copper has been buried underground.

At the conference, I also had a good chance to interact with several Chinese entrepreneurs and investors. After speaking with them, and also looking at the recent success stories that have come out of China, the point that hit me like a Dhoni chauka (for readers in the US, use a 2x4 as a metaphor) across the face was the fact that companies like Baidu, Sohu, Alibaba, Ctrip, Focusmedia are Chinese companies that became massive while focusing (at least initially) only on the Chinese market.

They could do it better than their US counterparts partly due to language and cultural understanding, some technology and I would argue partially due to national pride. Similarly if we look at India, companies are emerging and will continue to emerge in a broad range of categories targeting the Indian market.

Local Winners, Local Advantage

Let’s take travel, for example. Cleartrip and Makemytrip, not Expedia or Travelocity are recognised names. For online jobs, it’s Naukri, not Monster. In matrimonial, it’s shaadi or bharatmatrimony, not match.com. Even in local search, the number one name is not Google, but Just Dial, which, by the way, gained momentum not from the new media (online, mobile) but from the old one (plain old telephony).

Then there are completely “Greenfield” areas where India holds tremendous potential. In consumer media, one could argue that India currently does not have its Amazon, eBay or Craigslist (at least at any decent scale). The entire area of online and mobile commerce holds tremendous promise. There is no real e-commerce or m-commerce for hard goods (travel, matrimonial, movie tickets are early successes for obvious reasons), due to lack of both remote transacting capabilities in many cases (credit card penetration); logistics and distribution (reverse and forward logistics) and sheer trust for online or remote transactions.

But Amazon didn’t become today’s Amazon on day 1. It took years, just like it will take years in India. But whether it is broadband connectivity (mobile and fixed); credit card worthiness platform (a la FICO score in the US) or a reliable logistics infrastructure, opportunities exist for startups to truly have an impact in making the remote commerce dream become reality, and by doing so, create India’s own online giants.

Opportunities

There are significant opportunities wherever one looks – in healthcare, education, energy/power, water, transportation and list goes on and on. Let me delineate a couple. The area of healthcare provides phenomenal opportunity. Indian lifestyle (fried food, lack of exercise) as well as hereditary linkages mean that India is a time bomb waiting to explode when it comes to diseases like diabetes, hypertension, and heart disease.

Opportunity exists to create an HMO like infrastructure (without hopefully the juggernaut that has been created in the US) that truly ties insurance, pharmacies, and the medical community. On the energy/power front, there are 400M people in this country without access to electricity. That problem won’t be solved by extending the grid necessarily, but rather by generating distributed power (locally produced; locally used). By the way, DFJ and Cisco recently sponsored the first ever Global Business Plan competition in June of this year.

Scores of plans were submitted by entrepreneurs from around the world including China, Russia, Israel, all across Europe, Latin America and of course, the US. The winner was not some quantum leap technical innovation, but rather a small company called Husk Power, with its base in Bihar, India. Husk Power is using crop husk as feedstock for distributed power generation in villages with several pilot plants already up and running. Again, this is an example of using existing technology, with more of an Indian wrapper, to address a potentially multi-billion dollar market that will lead to successful companies here locally.

The entrepreneurial success stories of the next decade or two will come from companies that are at least mostly, if not exclusively targeting the local Indian market, and within large and growing Greenfield spaces, only some of which are mentioned above.

Bottom Of The Pyramid

Then there is the entire bottom of the pyramid piece with massive opportunity around the same sectors as previously mentioned (telecommunications, education, healthcare, water, power) but with its own set of challenges around distribution, payments etc., but those issues will be addressed over time creating several large companies in the process.

The question that was asked of me at the conference was “will India produce a Google?” My answer was a very convincing “yes and no”. If one is asking the question from a technology innovation bias, then the answer is “no”, at least not in the near future (IMHO). But if one is asking whether new billion dollar companies will be created in India that leverage technology, then the answer is an absolute “yes”. Whether that happens in the next four-five years, I don’t know, but will it happen over the next decade, absolutely.

Leapfrogging: Developed Vs Developing Nations

Coming back to the point of leapfrogging, in developing nations, I would argue leapfrogging comes often as a result of Greenfield opportunities like mobile phones leapfrogging fixed infrastructure, or wimax leapfrogging landline infrastructure, dish leapfrogging analog TV, essentially where the inertia of legacy infrastructure doesn’t exist. Leapfrogging in developed nations usually involves quantum leap in technology itself or getting a whole lot more out of existing infrastructure since that investment has to be recouped. While developed nations think about better, faster, cheaper the developing nations are simply thinking of “anything at all”.

I think innovation or leapfrogging has its spectrum. When a country has nothing, going to something at all is considered leapfrogging, usually having nothing to do with technology improvement or invention, but rather either process innovation or pure execution utilising existing solutions. The next phase most likely is indianising the product or process.

To give an example, one of DFJ’s portfolio companies is Attero, an electronic waste recycling startup based in Noida (near Delhi in Uttar Pradesh). They have licensed some parts of the process but rather than fully automating the system, they have used inexpensive but readily available and trainable labour to create a more cost-effective recycling process.

Only once the existing technology is saturated or close to it, does there come a necessity to innovate as a grassroots technology level. The key question is whether India will feel that necessity or desire (one could argue that Israel doesn’t need to invent - outside of defense perhaps - but has an intellectual capital and sheer desire to do so). Finally, there needs to be an ecosystem for entrepreneurs (specially for technology entrepreneurs that US VCs tend to be biased towards) that is just starting in India. Fear of failure and stigma attached to it still exists. There is a lack of seed capital in the country to really get startups off the ground. Some are doing their part, no doubt, but much more needs to be done.

Bottom line: India is a goldmine of opportunity for smart teams that can truly execute on vast spaces. I predict that those same large spaces will produce several billion dollar enterprise value companies over the next decade. There may not be leapfrogging technology that comes out of India in the near future for the world to adopt, but phenomenal sustainable success stories will be created in India (initially for the Indian market) that leverage technology in interesting ways, and execute flawlessly to create our own version of Google, Cisco and Apple.

How to Install PHP 5.3 on Windows

2009-07-07T07:22:17Z

With all the excitement surrounding Firefox 3.5, it may have escaped your attention that PHP 5.3 has also been released. This is the most significant update since version 5.0 and several features that were originally scheduled for version 6.0 have been slipped into the build. You’ll be hearing about these on SitePoint soon but, first, we need to install PHP 5.3 on our Windows development systems.

A Word of Warning…

PHP 5.3 is new and you may experience some problems (see below). If you already have a stable PHP environment, ensure you keep a backup of your current php folder and settings.

Web Server Installation

If you have not installed Apache, refer to How to Install Apache Web Server on Windows. Optionally, you can also install the MySQL database — refer to How to Install MySQL.

PHP 5.3 Installation

Windows PHP distributions are now available from a dedicated microsite at http://windows.php.net/download/. The choice is a little bewildering and the instructions are vague but, since we will be installing PHP as an Apache 2.2 module using the Apache Lounge build, so you should download the VC9 x86 Thread Safe Zip file.

General note:
Download the VC6 builds if you are using the standard Apache.org web server. The VC9 builds should be used for the Apache Lounge binaries or IIS.

A Thread Safe version should be used if you install PHP as an Apache module. The Non Thread Safe version should be used if you install PHP as a CGI binary.

You can now follow the instructions at How to Install PHP on Windows from step 2 onwards. Note that, in step 3, php.ini-recommended is now named php.ini-development; you still need make a copy and rename it php.ini.

If you have previously defined a working PHP configuration file, a tool such as WinMerge can help you compare and copy existing values to your new php.ini file.

PHP 5.3 Error Reporting

The first time you load your previously bug-free PHP application, you are likely to be confronted by reams of long-winded error messages. Don’t panic! PHP 5.3 introduces a number of new error directives which are enabled by default in the development php.ini configuration:

E_STRICT suggests improvements that ensure best interoperability and forward compatibility of your code, and
E_DEPRECATED warns you about code that will not work in future versions of PHP.

Very useful. In my experience, the majority of messages report that a time zone has not been defined and assigning a return values using new by reference is deprecated.

Unfortunately, applications can display so many minor errors they become impossible to use. You can disable the new error directives by setting the error_reporting value to "E_ALL & ~E_DEPRECATED" on line 514 of php.ini and restarting Apache.

However, several web applications, including WordPress, define their own error_reporting settings and may continue to show messages. It will take a developers some time to upgrade their applications to full PHP 5.3 compatibility.

Have you installed PHP 5.3 successfully? Have you experienced any major issues or problems with existing code?

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