2016—the year of discounted valuations

The speculation is about which two will first join hands in 2016 to compete with the US leader—Amazon—that has doubled in market cap in the last year and remains the formidable force to reckon with. Photo: Bloomberg

The speculation is about which two will first join hands in 2016 to compete with the US leader—Amazon—that has doubled in market cap in the last year and remains the formidable force to reckon with. Photo: Bloomberg

2015 was the year of discounted products. 2016 will be the year of discounted valuations. When will be the year of discounted cash flows?

When I was in Silicon Valley in January 2015, the thought of Indian e-commerce companies skating on thin ice was dismissed off as unfounded cynicism. The e-commerce veterans in Silicon Valley could not get enough of the Indian e-commerce growth. The excesses were part and parcel of any early-stage winner-take-all network-effects business vying for the big prize in a hyper-competitive market.

I started the new year in Silicon Valley again this year and the outlook is different in January 2016. The scepticism around hyper-funded Indian e-commerce start-ups seems as pervasive as the exuberance a year ago. Their indefensible position against US or Chinese equivalents seems beyond reasonable doubt. The speculation is no more about who will be the first to the top, but about who will be the first to fall and how. The speculation is about which two will first join hands in 2016 to compete with the US leader—Amazon—that has doubled in market cap in the last year and remains the formidable force to reckon with. The speculation is about which one will be acquired by the Chinese equivalent who considers India as the extended Asian battlefield in the territorial war. There is agreement that something’s going to give in 2016, and the speculation of what and how has begun 10,000 miles away.

And it’s different from how Silicon Valley looks at itself. The Valley took responsibility for the dot-com bubble of 2000 and now knows better. Wall Street took responsibility for the 2008 financial crisis and now knows better. They are both ready to take responsibility for the way Nasdaq has begun in 2016—down 10% since the start of the year. Yet, there is a quiet comfort about business as usual. These are movies they have seen before. They are on an upgraded version of the old software called portfolio theory. A theory that is inseparable from the business of investing in innovation. Most start-ups will fail and some will gain so much that it washes off the losses of the failures and then some. So will be with the unicorns. Some unicorns will fail and some will change the world all over again. They just cannot agree on which unicorn is in which bucket. Yet, India is different. For those in Silicon Valley, India is like the Valley during the 1999-2000 dot-com bubble. The gravity-defying economics of India seems different from the portfolio chess of unicorns. Here’s how.

In The Golden Tap: The Inside Story of Hyper-Funded Indian Startups, I borrowed Peter Thiel’s definition of innovation versus globalization and labelled Silicon Valley tech start-ups as innovation plays and hyper-funded Indian start-ups as globalization plays. Uber invented how you can get a ride at the push of a button. Ola localized the idea to make it work under Indian conditions. During his visit to IIT Bombay last week, Uber CEO Travis Kalanick revealed an alternate way of looking at this. He conjectured that in the changing world order, the three Bs—Bay Area, Beijing and Bangalore—will be the hubs for innovation. And then he gave a backhanded compliment to the Chinese for inventing subsidies. By that token, Bengaluru borrows the product innovation of Bay Area and subsidy innovation of Beijing, and tops it off with local innovation for India. The heat that makes this soup boil is the money from global investors and public companies that believe in the innovations and that they apply to India at scale. The investment thesis is to keep burning money until you are the last man standing. All Indian unicorns belong to that bucket. And there is no portfolio theory about that.

When Silicon Valley used the same lens as it does for US start-ups, India looked awesome last year. When China used the same lens as it does for Chinese start-ups, India looked awesome last year. As they spot the differences, the lenses are slowly coming off and new beliefs are being formed. How these conglomerates and investors operate in India will depend on these new sets of belief. The trouble with Indian entrepreneurs and investors though is that we have been at the mercy of others’ beliefs. The quicker we are master of our own creations than followers of others, we can start to innovate beyond localization. Till then, the investors will enjoy the deep discounts that consumers enjoyed last year. Bring your popcorn and grab a seat.

Kashyap Deorah is the author of The Golden Tap: The Inside Story of Hyper-Funded Indian Startups. He is an entrepreneur and investor who shuttles between India and Silicon Valley.


Meet the first Indian start-ups to adopt IBM Watson platform

A file photo of IBM’s headquarters in Armonk, New York.

A file photo of IBM’s headquarters in Armonk, New York.

Kartik Mohla, a graduate in management information systems, used to work at an US investment bank before he came back to India to join his family business that helps companies boost the skills and productivity of their employees.

Now, he is the CEO of InspireOne Technologies, a talent development service (spun-off from the family business) which analyses employee e-mails to let them know what sort of leadership skills they display on a daily basis.

Sankar Nagarajan, a cloud computing and analytics professional with over 20 years of experience, floated a company called Textient Analytics in late 2014 to understand how analytics and natural language processing could be used to maybe build a platform that makes sense of large sets of data.

Now, Textient Analytics is a full-fledged product that automates market research with the help of artificial intelligence programs and offers strategic insights.

Mohla, based in Gurgaon, and Nagarajan, based in Chennai, have two things in common: they built their products from scratch in under a year, and centred around IBM’s cognitive computing platform Watson. They are IBM’s first official partners for this technology in India.

International Business Machines Corp. developed Watson as a supercomputer that could compete with humans on the quiz show Jeopardy, and beat them. This required Watson to process reams of text, analyse questions posed in “natural”, everyday language and generate the correct responses.

This is termed cognitive computing, which involves computer systems that use data mining, pattern recognition and natural language processing to mimic the way the human brain works, and are ‘self-learning.’ That was in 2011.

Fast forward to 2014, and IBM announced a new business unit around Watson to push for its commercial applications. It started opening up certain application programming interfaces (APIs), computer programs which allow applications to access data from each other. Over 30 Watson services are now available on the IBM Watson Developer Cloud on Bluemix, IBM’s cloud computing platform.

One of Watson’s biggest application areas is health. IBM recently bought Truven Health Analytics, a Michigan-based provider of cloud-based healthcare data, for $2.6 billion, its fourth major health-related acquisition since launching Watson Health unit in April last year.

“With the help of Watson, organizations are harnessing the power of cognitive computing to transform industries, help professionals do their jobs better, and solve important challenges,” an IBM spokesperson said in an e-mailed reply.

“As part of IBM’s strategy to accelerate the growth of cognitive computing, Watson is open to the world, allowing a growing ecosystem of developers, students, entrepreneurs and tech enthusiasts to easily tap the most advanced and diverse cognitive computing platform available today,” the spokesperson added.

Others see more reasons for Watson tying up with start-ups.

“It’s a platform play. IBM wants to leverage newer markets like India,” said Thomas Reuner Managing Director for IT Outsourcing Research at HfS Research.

IBM Watson works with start-ups identified as “ecosystem partners” and provides them access to its APIs and support for free, and chalks out a three-year renewable, revenue sharing agreement.

It now has more than 500 ecosystem partners across 29 industries, over 100 of which have already introduced commercial cognitive enabled apps, products and services to the market.

“There are more than 77,000 developers in total who are prototyping and building cloud-based cognitive computing applications. The Watson Ecosystem is seeing tremendous global growth across a variety of industries, and India is primed for a cognitive transformation,” said the IBM spokesperson.

“I was initially looking at building a couple of things with machine learning hiring software developers and what I thought I could do is probably 10% of what we’re doing now. We really leapfrogged after embracing Watson,” says Textient’s Nagarajan.

At Textient and InspireOne, Watson powers the companies’ core products.

Usually, social media analysis around brands is limited to giving out sentiment scores or saying it was positive, neutral or negative.

Using Watson, Textient is taking consumer data and applying machine learning models trained to recognise actual human sentiment to understand how a consumer feels about a brand.

InspireOne Technologies used customer data from its parent firm to develop models to analyse e-mail communication (it is “opt-in”, which means employees have to choose to have their e-mails analysed), and let employees know what sort of leadership skills they are displaying on a day-to-day basis.

However, this sort of understanding of what can be done with data (and how) is still developing in the market.

“Just having data doesn’t help, you have to know what to do with it, and IBM has to concentrate on customer relationships and making sure this understanding is conveyed. It also has to compete, with technologies like Wipro’s Holmes, although it is much newer compared to Watson,” said Reuner.


Billionaire Wisdom: 8 Insights From a Quartet of the World’s Most Effective Entrepreneurs

Billionaire Wisdom: 8 Insights From a Quartet of the World's Most Effective Entrepreneurs
Until very recently, taking on grand challenges was off-limits for most people. Historically, going big meant huge capital outlays and multi-decade bets.

It meant staging personnel in dozens, sometimes hundreds, of countries. Assembling the astounding array of talent required an infrastructure for hiring, retaining and retraining it as technology evolved. But with the wealth of crowdsourcing tools available to today’s entrepreneurs, the entire playing field has shifted.

Technology lets companies to scale up in size as never before. Small groups can have huge impacts. A team of passionate innovators can alter the lives of a billion people in an eyeblink.

A quartet of entrepreneurs have harnessed technology to build multibillion dollar companies that forever changed the world: Virgin Group founder Richard Branson, Amazon CEO Jeff Bezos, Tesla Motors CEO Elon Musk and Google CEO Larry Page.

Each of them mastered a rarely discussed skill fundamental to bold pursuits and enterprises with exponential growth: the ability to think at scale.

Based on my in-depth interviews of these men and other sources, I have distilled eight strategies for business success:

Related: How the Next Five Years Will Revolutionize Business

1. Take risks but mitigate them.
richard branson

Richard Branson
Image credit: Richard Branson via Instagram
Just about everything Sir Richard Branson has done has involved taking brazen risks. But he also runs his Virgin Group empire like a competitive ecosystem, letting some companies live, others die and always ceaselessly experimenting.

He is quick to rapidly iterate his ideas and quicker to shut down a failure. While Branson is known to have started tons of companies, he has also shed ones that didn’t work for him.

Branson understands that risk mitigation is critical.

“It looks like entrepreneurs have a high tolerance for risk,” he told my co-author Peter H. Diamandis in an interview for our just-published book, Bold. “But, having said that, one of the most important phrases in my life is ‘protect the downside.’ It should be one of the most important phrases in any businessperson’s life.”

It was a “big, bold move going into the airline business,” Branson said of his launch of Virgin Airlines after initially starting Virgin Records. But Boeing allowed for him to “give the plane back after 12 months.”

“That meant I could put my toe in the water, I could see whether people liked the airline,” he said. “But if it didn’t work out, it wasn’t going to bring everything else crashing down.”

Added Branson: “I’d be able to look my record company bosses in the eye and we’d still be friends because they’d still have jobs.”

“Protecting the downside is critical,” Branson said. “Make bold moves but make sure to have a way out if things go wrong.”

Related: Richard Branson on Taking Risks

2. Rapidly iterate and experiment until things are right.
jeff bezos

Jeff Bezos
Image credit: James Duncan Davidson | Flickr
Jeff Bezos is a busy man. He isn’t interested in small shifts in direction or polite progress. He wants to effect change on a massive scale, tapping customer-centric thinking for the long term.

The Amazon CEO also understands that the only way to really succeed is via experimentation. He knows that this approach will occasionally produce spectacular mistakes. “Failure comes part and parcel with invention. It’s not optional,” he wrote in a 2014 Amazon shareholder letter

Staff at his company “believe in failing early and iterating until we get it right,” Bezos added.

“When this process works, it means our failures are relatively small in size,” he wrote. “Most experiments can start small.”

“And when we hit on something that is really working for customers, we double down on it with hopes to turn it into an even bigger success,” Bezos said.

Related: Google, Fidelity Invest $1 Billion in SpaceX to Spread Internet Access Across the Globe

3. Be driven by passion and purpose.
elon musk

Elon Musk
Image credit: Heisenberg Media | Flickr
Nothing is more important than passion and purpose for Elon Musk, who also heads up Space Exploration Technologies and SolarCity.

“I didn’t go into the rocket business, the car business or the solar business thinking this is a great opportunity,” Musk told me in an interview.

“I just thought, in order to make a difference, something needed to be done. I wanted to have an impact. I wanted to create something substantially better than what came before.”

4. Think long term.
Google X chief Astro Teller told Wired how he imagined wheeling a time machine into Google CEO Larry Page’s office, plugging it in to demonstrate that it worked only to have his boss ask why it needed a plug and wouldn’t it be better without having to draw from an electric power source?

This was to illustrate Page’s focus on 10x thinking, which Teller has referred to as making something 10 times better.

For Page, the answer for him and Googlers always sits at the intersection of long-term planning and customer-centric thinking.

“We always try to concentrate on the long term,” Page told me in an interview. “When we first looked at YouTube, people said, ‘Oh, you guys are never going to make money with that, but you bought it for $1.4 billion. You’re totally crazy.'”

“We were reasonably crazy, but it was a good bet,” Page said, noting YouTube’s revenue growth.

Added Page: “Our philosophy is that the things that people use often are really important to them and we think that over time, you can make money from those things.”

Related: Google Co-Founder Larry Page to Step Back From Duties to Focus on ‘Bigger Picture’

5. Emphasize a customer-centric approach.
Branson’s fiery devotion to fun is relayed to his dedicated clientele and fervent fans. The net effect is a business strategy based on experimental customer-centrism. If Branson thinks a particular service might be beneficial to his customers (and fun), he tries it out.

This is why Virgin Atlantic offers free seat-back TVs, onboard massages, a glass-bottomed plane and stand-up comedians.

“Unless you’re customer-centric you might be able to create something wonderful, but you’re not going to survive,” Branson told me.

“It’s about getting every little detail right. It is running your airline like you would an upscale restaurant — the kind where the owner is there every day,” he added.

“Virgin Atlantic started out with one plane,” Branson said. “On paper, we should not have survived. But because we were customer-centric, people went out of their way to fly us.”

6. Broaden the view by tracking probabilities.
Thinking in probabilities (a business has, say, a 60 percent chance of success) rather than deterministically (if I do A and B, then C will happen) doesn’t just guard against oversimplification. This type of thought process protects an entrepreneur against the brain’s inherent laziness.

Musk strives to broaden his view by thinking in probabilities.

“Outcomes are usually not deterministic,” Musk told Kevin Rose in a 2011 interview. “They’re probabilistic.”

Added Musk: “The popular definition of insanity — doing the same thing over and over and expecting a different result — that’s only true in a highly deterministic situation.

“If you have a probabilistic situation, which most situations are, then if you do the same thing twice, it can be quite reasonable to expect a different result,” he concluded.

7. Be a rational optimist.
elon musk

Larry Page
Image credit: Niall Kennedy | Flickr
Larry Page famously said in a keynote address to Google’s I/0 conference in 2013, “Being negative is not how we make progress.”

“I’m tremendously optimistic,” he said. “I’m certain that whatever challenges we take on, we can solve with a little bit of concerted effort and some good technology. And that’s an exciting place to be.”

Page observed that this meant his company’s “job is really to make the world better” and that the world needs “more people working on this. We need to have more ambitious goals.”

Said Page: “The world has enough resources to provide a good quality of life for everyone. We have enough raw materials. We need to get better organized and move a lot faster.”

8. Rely on fundamental truths.
Musk urges entrepreneurs to seek direct, blunt, critical feedback from friends. “It’s not going to be easy, but it’s really important to solicit negative feedback,” the type that “helps you recognize as fast as possible what you’re doing wrong and adjust course,” he told me.

“That’s usually what people don’t do,” Musk said. “They don’t adjust course fast enough and adapt to the reality of the situation.”

Often, he says, people do things because “others are doing them” or they spot a trend. They see “everyone moving in one direction and decide that’s the best direction to go.”

At times “this is correct, but sometimes this will take you right off a cliff,” Musk said.

Considering fundamental truths “protects you from these errors,” Musk concluded.