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July 31, 2005

What do Golf, Startups, and Slots have in common?

They all conform to one of the fundamental rules of human behavior conditioning - provide random and variable rewards to reinforce repeated behavior. 

Ivan Pavlov in a series of seminal experiments in the 1900's established all of this and now the gambling industry uses the same principles to "hook" and "keep" people.  As Alan Krigman wrote in this post:

Nearly everybody knows of the experiments by Ivan Pavlov in the early 1900s. Pavlov started by ringing a bell and presenting food simultaneously. When he stopped offering the food, the dogs still salivated at the sound of the bell. Later, to keep the dogs responding to the bell, he reinforced the behavior by accompanying it with food at random, but frequently enough that the stimulus was not futile too often. B F Skinner extended this work during the 1930s using conditioning to train animals such as pigeons and rats to perform various tasks. Tom Creed, a psychology professor at the College of St Benedict at St John's University, says that slot machines utilize similar conditioning processes to produce player behavior characteristics desired by the casinos.

Like slots, Golf and Startups provide the same conditioning response (though the only good news is that unlike slots in which the odds are conditionally designed for you to lose, Golf and startups provide opportunities for truly skilled players to hit the jackpot).  How often is it that you play golf and go through 16 holes of hell but remember that one great shot in hole 17 in which you drive within 6 feet of the hole and one putt it for a birdie - in my case very often - and it is that one shot that makes you want to come out and play golf again. 

In Silicon Valley, startups have some of the same conditioning allure of the slots.  Slots are designed to be "loud" and "blaring" when there is a huge payout so that all the other players around the slot realize that someone has won and thus get reinforced that they could also win.  This motivates the other slot players to play more often.  The same thing happens with startups - think Google.  In Slots, the machines are designed to have many "close" outcomes to trick players into thinking that they almost hit the jackpot.  The same thing happens in startups (not by design but just by their nature) when the startup is close to being acquired or when they get a major deal.  Slots make periodic payouts that condition players to keep playing.  Startups get acquired or go public in quick enough time frames that they resemble "payouts" to the employees and thus motivate them to start or join another startup.

Now please don't mistake this post to mean that startups are a "con" like slots.  Far from it.  Startups offer a truly unique opportunity for people to pursue their vision to create fantastic products/services, delight customers and make everyone wealthy.  Unlike slots which are destructive for everyone (except the casinos of course), Startups actually benefit society.  I draw the parallel only to show why startups are addictive to some folks.  They share the same conditioning response with slots and golf.  Hopefully my wife now understands why I still play that god forsaken game of golf.   

Posted by Venky Ganesan at 06:17 PM in Current Affairs, ventures, Web/Tech | Permalink | Comments (17) | TrackBack

July 25, 2005

Mark Cuban Wisdom

No.  This is not an oxymoron.  I had the pleasure of listening to Mark at the Always-On conference last week and found this pearl of wisdom.  Mark asked this rhetorical question:

"What is the #1 job of a General Manager of a NBA team?"

He answered the following:

"You might think it is to win the NBA championship or assemble a great group of players or get the best value for the budget but you will be wrong on all counts.  The #1 job of a General Manager is to keep his job because there are only 30 jobs like this and he/she gets paid millions of dollars to work 6 months a year"

This is so true.  There are lots of jobs especially high paying jobs in which the incentives of the folks working those jobs are not aligned with their employers.  Mutual fund managers come to mind (their goal is to maximize assets not returns), Studio execs (whose job is to keep their job) and some would even argue VC's (keep raising funds independent of the ability to invest it wisely)

Posted by Venky Ganesan at 11:46 PM in Current Affairs | Permalink | Comments (4) | TrackBack

July 19, 2005

The Channelization of Blogs

User generated content is red hot - you just have to observe the acquisition of Intermix by Fox Interactive for $580 million to believe that.  There was also the earlier data point of About.com acquired by the New York Times for $400 Million so now you have two anachronistic organizations making huge bets on user generated content.  So is this is the peak of Web 2.0 as Matt Marshall thinks . . .

I don't think so.  I believe we are in the early stages of the "user-driven" phenomenon that is going to change media forever.  It is fun to speculate how this space will evolve and here is my take:

a. I think the current "blog aggregation" model perpetuated by folks like Bloglines/Yahoo/Newsgator is not going to scale.  I already have over 200 blogs in my "read" list and that number is only going to increase and currently Bloglines does not give me a good way to manage them

b. Aggregators aggregate blogs but what I really want is postings not blogs.

c. I also want these aggregators to "filter" these postings because I am interested in a few topics and I would rather "see" those postings than all the postings from a certain blog

d. This "filter" can be automated (think rss feeds of Delicious tags) or be done by a human e.g. Nivi's VC's channel

e. There will also need to come up with a better way of filing and storing the posts so that they can be retrieved easily

What do you guys think?  How else should this space evolve?

Posted by Narasimha Chari at 05:29 PM in communications | Permalink | Comments (25) | TrackBack

July 18, 2005

Does Valuation matter?

You probably are thinking - Duh! of course it does. 

Sure valuation matters but is it the end all and be all of all venture transactions or is it just one piece of the puzzle? By valuation I am not just referring to the price but also to terms.  I was at a conference recently where a bunch of early stage venture guys were talking about how valuations have creeped up and how they were no longer seeing single digit pre-money deals.  That got me thinking - why are folks so caught up with valuation?

I do mostly early stage deals (Seed/Series A) so this reasoning is confined to the early stage (middle and late stage deals are a different cup of tea.)  My thesis is that if you are doing early stage deals the MOST important thing for you is to BACK a big winner.  Basically your goal is to shoot for a Amazon/Google/eBay/Juniper/Verisign and you want to do everything to maximize your chances of getting into one of those deals. 

Now here is the rub if you are shooting for one of these "verb" companies you are playing a high beta game which means that you are either going big or going home and in both cases valuation does not matter.  Because if the company becomes big, it would not matter if you did the deal at $5 pre or $15 pre e.g. Amazon was done at $27 pre, Google was done at $60 Million pre, Netscape was done at $21 Million pre, and eBay was at $27 Million pre, etc.  And if the company bombs then again valuation does not matter because you ain't gonna get much back.   

Posted by Venky Ganesan at 10:37 PM in Current Affairs, ventures | Permalink | Comments (15) | TrackBack

July 17, 2005

My money is on America

Suketu Mehta wrote an Op-Ed piece on the NY Times on July 12th 2005 titled "Passage to India."  Suketu is a wonderful writer who  recently wrote a book called "Maximum City:  Bombay Lost and Found" which I really liked and recommend for those trying to get a sense of India independent of the cliches of poverty, outsourcing, and the caste system. 

I was however disappointed with this piece because I did not understand what it had to say and I definitely disagree with some of its conclusions.  Here are some excerpts from the piece:

Now I face the possibility that my children, when they grow up, will find their jobs outsourced to the very country their grandfather left to pursue economic opportunity.

Okay folks let us do some Math - the US economy is $15 Trillion growing at 2-3% a year which means the US economy is adding $300-$450 Billion a year.  The Indian IT industry in its wildest goals would be happy to be a $100 billion industry in 2010.  Even if the Indian IT industry attains its goals it would still be less than 1/3rd of the growth of the American economy every year.  Its hyperbole to think that this is going to deprive your kids of a job.

But I am here because the country of my ancestors didn't understand the changing world; it couldn't change its technology and its philosophy and its notions of social mobility fast enough to fight off the European colonists, who won not so much with the might of advanced weaponry as with the clear logical philosophy of the Enlightenment. Their systems of thinking conquered our own. So, since independence, Indians have had to learn; we have had to slog for long hours in the classroom while the children of other countries went out to play.

Ah, Suketu you might want to get out of your upper middle class Indian perspective and smell the roses a bit my friend.  Most Indians *barely* go to school and even when they do, they do it in schools with no text books or competent teachers.  Yes the Cathedral school types might be studying but most Indian schoolkids are just happy to get a "free lunch" in school. 

When I moved to Queens, in New York City, at the age of 14, I found myself, for the first time in my life, considered good at math. In Bombay, math was my worst subject, and I regularly found my place near the bottom of the class rankings in that rigorous subject. But in my American school, so low were their standards that I was - to my parents' disbelief - near the top of the class. It was the same in English and, unexpectedly, in American history, for my school in Bombay included a detailed study of the American Revolution. My American school curriculum had, of course, almost nothing on the subcontinent's freedom struggle. I was mercilessly bullied during the 1979-80 hostage crisis, because my classmates couldn't tell the difference between Iran and India. If I were now to move with my family to India, my children - who go to one of the best private schools in New York - would have to take remedial math and science courses to get into a good school in Bombay.

Why do I hear such reasoning so often from Indian immigrants?  Let us see - you were part of a group of fortunate well educated, upper class Indians who managed to migrate from India to Queens.  There you ended up going to a public school and found yourself to be more competent than the students there.  What is the surprise ? How would a student who actually went to a "public school" in India compare to one in Queens or what if Suketu had attended Philips Exeter instead of a public high school.  Also I am not sure where Suketu's kids go to school but the other day I was looking at one of my partner's kids homework (she goes to a private school in Cambridge) and I found her Math homework hard - granted I am not that smart but still I am a product of the "fabled Indian school system"

The rich countries can't have it both ways. They can't provide huge subsidies for their agricultural conglomerates and complain when Indians who can't make a living on their farms then go to the cities and study computers and take away their jobs. Why are Indians willing to write code for a tenth of what Americans make for the same work? It's not by choice; it's because they're still struggling to stand on their feet after 200 years of colonial rule.

Whoa, hold on a sec.  Now I am totally lost.  Are you for a second suggesting that because of agricultural subsidies in the west, rural farmers in India are leaving their fields to write code.  That's absurd.  Indians are willing to write code for 1/10th the price because that is a lot of money in India and its worthwhile for them to do so economically.  They are not making any grand statement on colonial rule - they are just trying to make a buck like everyone else.

But we have a resource of incalculable worth right here to help us compete: the immigrants who've been given a new life in America. There are many more Indians in the United States than there are Americans in India. Indian-Americans will help America understand India, trade with it to our mutual benefit. Just as Arab-Americans can help us fight Al Qaeda, Indian-Americans can help us deal with the emerging economic superpower that is India. This is the return of the gift of citizenship.

And just in case, I'm making sure my children learn Hindi.

Yes Suketu, I agree that we "Indian American" immigrants can help America.  We help America and Americans understand India better and help them to take advantage of the economic opportunities India offers.  India's emergence as an economic power is not zero sum but rather its a huge positive for the world especially America.  We as Americans benefit as India grows economically as we can then sell India our goods and services (movies, technology, drugs, etc.) and also create economic value by leveraging the tremendous talent India has. 

I am also glad that your kids are learning Hindi.  I am trying to teach my kids Tamil - not because I think this is going to be of economic benefit to them but rather I would like them to stay in touch with their cultural heritage and be able to enjoy their visits to India more. Isn't it ironic that while you are teaching your kids Hindi, there are 300 Million Chinese and 200 Million Indians who are  desperately trying to learn English for economic benefit.  Are they wrong?

India, China and (name your favorite developing country) are all great places and its in all our interests for them to grow and be economically successful.  However lets not get too carried away.  America has 230 years of building a capitalistic society based on property rights and personal freedom that is not easily replicated overnight.  America has an unique ability to absorb people, customs and social mores from all over the world and mix it into the American melting point. This is our biggest strength and until this stops happening I am not worried.  There is no other place in the world where a 16 year old with no money and no family can come to a country and build a career, where an Austrian body builder can marry into blue blood society and became governor, and where immigrants can get a chance to build a life.  That is why my money is in America and why I will make sure that my kids can speak and write English better than I (not too hard).  And Suketu I suggest you also do the same. 


Posted by Venky Ganesan at 01:43 PM in Current Affairs | Permalink | Comments (10) | TrackBack

July 04, 2005

Thank you

Sorry for the hiatus folks but have had a few life events to celebrate and appreciate. 

Not to mention, the good ol 4th of July. 

This independence day has got to be even more symbolic for we have hundreds of thousands of our brave young men and women out in Iraq fighting for Iraq's as well as our freedom.  To those of you out there and to all your families and friends over here, THANK YOU!!  Your commitment, hardwork, and patriotism is what allows America to be the place it is.  Be safe and come home soon.

Posted by Venky Ganesan at 01:38 PM in Current Affairs | Permalink | Comments (5) | TrackBack