Monday, May 23, 2011

Where lies the rhetoric?

Its amazing how many debates exist out there on what should be the 'right' reasons to start a business. There are so many theories around making-meaning, start-to-scale, greed-is-good, fast-company etc... The proportions of these principles contradicting each other is high. Equal number of empirical evidence exists to hold each of these theory on its own. The empirical evidence is mostly either in the form of demonstrated success stories and strong learning post-success or some are retro-rationale (as some call it). Are there enough based on the principles of failure in this culture and economic context? Are there enough which are from here (India) and not pre-canned?

There seems to be camps which discourage entrepreneurs-in-the-making (EIM) to first find the 'right' reason. If the reasons does not match the eye-of-the-beholder, they are quick to dismiss the EIM as a wannabe. There is also a term 'wannapreneur' for such dismissals. This seems to be applicable to the ideas as well, which gets discouraged cause the beholder has a strong opinion against it. Woah!!!

Funnily enough, these dismissals does not come from the Investment community. Most of the investors I have come across or heard of have mostly NEVER dismissed an entrepreneur based on the stated right or wrong reasons of the EIM. Generally, the Indian investment community (I have no interactions with others) is really a mature lot in understanding that there is no point being predictive and judgmental about the reasons. Also the investors confess that they have no way to even tell, as a matter of fact, if a given idea is a great scalable idea which will have huge returns or not. They have invested in ideas they think are awesome and failed (Ok, there are many reasons to fail. I agree), and have passed great ideas, where they did not have enough gut-feel (yes, that feeling in their stomach, not the brain) but later found that it was a big hit (Yes, there are equally many reasons to succeed).

Shouldn't people start business based on whatever reasons, principles, theories they believe-in is right? If the reasons are 'strong enough' to make a difference then it shall find the early-adopters, and if it is 'right enough', they will cross the chasm.

If the markets are the best course of correction, then, shouldn't we encourage every one who is willing to crossover, to do so, independent of their reasons? Shouldn't the eco-system have a healthy amount of failure for everyone to figure out the cost of failure (or a new path to succeed) for whatever the reasons may be?

I am of the belief that India lacks by huge margins (yet) in the number of startups per year (given the per-capita measure). Also, it is way-early to define reasons/principles of success which are context, economy and culture specific, as there are very few successful startups or number of exits (yet). The only way to increase this is to initially increase the size of funnel before applying any "qualifications" to the funnel. The qualifiers are not known yet. Even if (hypothetically) known, its not reason enough to stop the inflow of entrepreneur-energy-capital.

Entrepreneurial-Energy is a scarce resource. Kindly, encourage them to start...

Sunday, May 22, 2011

What's the price?

I assisted a friend to purchase an assembled computer recently. There were 2 equally good vendors who offered the goods. One of the vendors was close to where we live while the other was about 30mins away. We approached the vendor nearby (In J P Nagar) and bargained on the price (common while purchasing assembled goods). The vendor nearby quoted INR 27,300/- for the same configuration while the other vendor was willing to go down to INR 27,150/. My friend settled to place an order with the vendor nearby as the price differential was only 0.5%.

Next we went to the nearby bookstore to browse some books. Friend decided to (after my rave reviews) pick the "The Black Swan" priced at INR 495/-. When we approached the desk, the gentleman behind the desk advised that a paper back version of the book discounted at 30%, is available in another store near Indiranagar (which is 40mins drive). We drove to Indiranagar to purchase the book.

Reflecting upon the events, the mental math made for NOT travelling an additional 30mins to save 0.5% off a purchase price, was offset (on the same day) by the mental math of saving a 30% off another product for which friend decided to drive 40mins.

In absolute terms, the savings in either case was INR 150/-. We clearly choose one versus the other.

Basic observation using this as an analogy for product pricing
(Eliminating the details around same-product versus like-to-like price comparisons)
Having a list-price of your product set to a ideal-ask price and then providing a relative discount to the list price has an edge compared to having a lower-list price and not offering discounts (while the absolute sale price being the same).

Behavioral Economics supports these observations and conclusions.

Worth pondering ?