The Hierarchy of Personal Investments

Just like we have Maslow’s Hierarchy when it comes to human needs and desires, I feel personal investments also follow a hierarchy based on the total amount of money available for investments.

The Base

When a person’s income starts exceeding expenses, that person may start looking for investing this surplus. At this stage, this person tends to be very cautious and invests with a motive of reducing risk on the capital invested.

Suggested Investments – Bonds, Fixed Deposits

The Shift

This is when the person’s surplus keeps growing and the person now starts thinking about being more aggressive with investments. A shift is seen in the investment approach of the person and investments with higher risk are typically looked at in this phase.

Suggested Investments – Mutual Funds, Real Estate

The Acceleration

Once the person starts saving more money, the risk appetite of the person starts going up at an increasing pace. The demand for greater returns drives the investing approach in this stage.

Suggested Investments – Stocks, Currencies, ETFs, REITs, Commodities, Indices, Bitcoin

The Peak

At this stage, the person starts looking at not only passive investing as above, but may actually start looking at active investments as well. The aim is to maximize returns using money and active participation in the asset operations and growth.

Suggested Investments – Crowd-Funding, Private Equity

My Strongest Addiction

Startups and Entrepreneurship have become an addiction for me. Looking for pain-points in daily life and thinking of how to do things better tends to keep me constantly occupied. I am hoping that the MBA I am pursuing now can help me look beyond, look at the broader picture, learn new and useful skills and give me a perspective which I am devoid of at present.

#startuplove #thinkbeyond

Key Metric – Landing Page Bounce Rate

The Landing Page Bounce Rate (LPBR) is a key metric in user conversions. This measures the percentage of people who leave soon after landing on your website. The only page the visitor interacts with is the landing page and that too for a short time.

Implications of a high landing page bounce rate can be:

Poor targeting of ad placements: If ad placements are not targeted well, visitors coming onto the portal may not be relevant and hence may decide to leave quickly.

Poor user experience: Visitors might be relevant but poor design may drive them away. This might be due to visitors not being able to completely understand the offering of the business. Another reason can be that these visitors may not want to trust the website due to this first experience.

Depends of landing page: A low landing page bounce rate may not be considered bad always. For example, if a user lands onto the contact us pages of a website, he/she might just want the number or email id and would leave upon getting the same.

The effect of a high LPBR is that it tends to reduce your ROAS, i.e. return on advertising spend. As a business, you should try to place your advertisements in relevant spots so that leads generated are relevant and useful for your business.

The best example for this is the Nigerian email scam. It is a fraud where a person gets an email such as below:

The aim of the fraud is that the person receiving the email gets interested in the ‘free money’ offered by the sender, replies back and after a few communications shares his/her bank details.

The email draft above is so direct and clearly smells of fraud. So I used to wonder why does the sender draft an email like this which looks so obvious? The reasoning behind this is ingenious. The sender of this email wants to target only those people who are very gullible and greedy and will even reply back to such an email. In a way, this email which clearly smells of fraud is a filter to weed out people who are highly gullible and will fall for something like this. Their aim is to reduce the bounce rate of people replying back so that they can concentrate only on the ones who potentially can fall for the fraud.

Robo Advisory – An opportunity which is here to stay

If you spoke about investing your money in stocks, bonds etc., you always had to read up to take calls or had to look for financial advisers to help you with the same. The first option was risky and time consuming as you had only limited knowledge and the second one was expensive.

In came the age of Robo-Advisors, i.e. online algorithms which understand your investment requirements and structure your portfolio accordingly. Robo-adviros were able to add value to the retail investing ecosystem in many ways.

Value created for Users

-     Cheaper & Less Prone to Errors: because of low human involvement in the process. Fees generally lie in between the 0.3-0.5% range, as compared to fees of financial advisors which tend to be over 1% depending on the portfolio size

-     User Control & Transparency: users are in control of their investments and can easily track their portfolio

-     User Experience: most platforms offer users a very ‘human-like’ interactive platform

Value created for the Platform

-     Scalable: scaling is easier with an automated platform. No (or very little) additional resources would be required when adding users

-     Incremental Improvements: an algorithm can be tried, tested and improved upon incrementally. Human advice has more subjectivity and is more difficult to do so

Now that we see that there is value created for users, we can work out some use cases for robo-advisory. Use cases can be based on end use or a potential user.

Use Cases based on End Use:

Event driven: users may want to save up for some future event such as a child’s wedding, a child’s education etc.

Future purchase driven: users may want to save money to buy something in the future like a house, assets like jewellery, assets to start a business and so on.

Personal goals driven: users may want to start saving and investing their money to grow personal wealth or save for retirement or saving for an emergency etc.

Use Cases based on Potential Customers:

Young people in a job: looking to grow personal savings, buying assets like house and jewellery

Parents: wanting to invest for their children’s education, marriage

Aging people: looking to plan their retirement

The User Acquisition Funnel for Crowd-Funding Platforms

A crowd-funding platform is a 2 sided platform requiring fund raisers and funders to function effectively. Hence users include people who are looking to raise funds and people who are looking to fund projects.

The User Acquisition Funnel comprises of 3 parts:

-          Inviting

-          Engaging

-          Acquiring

PHASE 1: INVITING

This is the first step of the funnel where the platform uses different advertising strategies to pull in traffic.

Goal for this Phase: To get ‘desired traffic’

Here desired refers to what you quantify as traffic. Some platforms may consider all traffic received desired traffic. Others may want users to fill in a small interest form (maybe just name, email id, whether investor or startup etc.) to qualify as a lead received.

Action for this Phase:

Platforms need to draw out various use cases and use different advertising media to reach out to them. 

For example, an equity crowd-funding may be interested in very early stage startups and may reach out to accountants who assist in company incorporation. To get investors, platforms can reach out to seed investors and HNIs through professional networks. Scraping data from other platforms is also a good strategy to collect data and leads.

Important Metrics:

Customer Acquisition Cost (CAC): As defined above, you start by defining what a conversion is. For example, a visitor to the platform may be a conversion or a visitor having filled out a form on the platform may be a conversion. Then CAC has to be worked out based on the following:

Advertising Strategy Wise: assess the marketing spend on different media like SEO, SEM, Social, Guest Blogging etc. and calculate the CAC figure for each separately

Target Market Wise: do the same for different users targeted. For instance in the case of rewards crowd-funding, calculate CAC for film producers, technology product creators etc. separately.

Handy Tools to Use: GoogleAnalytics, Kissmetrics

PHASE 2: ENGAGING

This phase is about engaging the conversions from Phase 1.

Goal for this Phase:  To engage conversion from above.

Action for this Phase:

The best way to engage visitors is to give good and relevant content to them.

The content should be structured based on the nature of the visitors. If they are informed about the product, i.e. they are better qualified leads, showing them projects live on the platform, success stories, customer testimonials, FAQs & terms and conditions of the platform (in a concise and visually appealing manner) should suffice.

For informed visitors, i.e. if leads are totally raw and not qualified, you should start off by defining what solution your platform is giving in very clear layman terms. An example for a potential investor can be ‘earn higher returns than stocks or bonds’ or for a fund-raiser can be ‘raise money in 24% of the time required to raise seed funding’. After this, you need to clearly explain the benefits of the platform with facts and statistics to back this. Thereafter, you show the other content, same as in the case of the informed visitors. Since these uninformed visitors generally tend to enter the platform without sharing any details. Their data should be captured so that push marketing techniques can be used to bring them back if they leave. Filling up forms to download ebooks, guides, webinars etc. is a common trick to do this.

Content is the best way to build trust and must highlight all the factors which affect trust building with the platform. Data and monetary security is a big factor and must be addressed clearly with no ambiguity for the user. Tools such as chat should be used to ensure a continuous interaction of the platform and the user.

Important Metrics:

User Behavior: User flow on the platform must be analysed to see how closely it resembles what the platform had thought it would be. Here different metrics of importance include

-          User flow (planned vs. actual)

-          Pages viewed per user

-          Time spent on different pages

-          Total time spent/invested by users on the platform

-          Drop off rate at different points of the user flow

Content Metrics: To assess the performance of the content offered to users, the following metrics can be used

-          Times accessed (as a percentage of total users reaching it)

-          Time spent on it (if it is an online read)

-          Shared through Social Media etc. (if sharing option exists)

Handy Tools to Use: Kissmetrics, Zendesk Chat

PHASE 3: ACQUIRING

Here the user makes the desired interaction with the website.

Goal for this Phase: Users makes the interaction desired.

For example in an equity crowd-funding platform, a startup starts a fund raising campaign or an investor makes a commitment to a project.

Action for this Phase:

This step is about customer onboarding. The platform needs to guide the user step by step as to what has to be done. Information and help must be provided and also tools like chat can prove useful to ensure successful onboarding. The platform should also integrate tools to get back any users who abandon the process half way. For example if a startup founder is filling up a new campaign form and leaves the process half way, a reminder email can be sent to bring back this user.

Important Metrics:

User Flow: Since the user acquisition funnel completes in this stage, the following metrics to be assessed based on different advertising strategies deployed and different potential users targeted

-          Final conversion rate for the whole funnel

-          Total time taken to convert for the whole funnel

-          Drop off points of users in the funnel

-          Pages viewed and time spent on them

-          Step at which final conversion happens. Users may skip certain parts and reach this final          step directly.

-          Usage of different tools used (like chat)

Complete vs. Partial Acquisition: Here user abandonment during the onboarding stage needs to be studied. High abandonment may imply a long or unclear form, confusing terms and conditions etc.

Handy Tools to Use: Kissmetrics, Zendesk Chat

Thin File Customers – Who are they?

A person having a thin credit file, i.e. insignificant or no credit history, is referred to as a thin file customer. Traditionally credit has been offered based on the credit history of a person. However, this has led to a large part of the population across the world not having access to credit. Credit scorers have now started using alternative criteria such as online social and professional networks, education, earning potential, mobile connections, utility connections etc. to bridge this gap and come up with a rating for thin file customers.

Some thin file customers can include the following:

Students – School and college students tend to have no previous credit history.

Young Graduates – People in their first job or looking for a job may not find it easy to get credit.

Immigrants – An immigrant to a country will not have a credit history in that country and may find it difficult getting a loan.

Older Generations – Credit was considered risky by the older generation and was avoided as much as possible. Hence a lot of the older people tend to have very thin credit files.

Housewives – In developing countries especially, housewives tend to have little credit history as most loans are taken by their fathers or husbands.

People in Small Cities &Rural Areas – People residing in smaller cities and rural areas get loans from local money lenders and friends & family in cash, which largely remains unaccounted for. Hence they are not able to build up their credit files.

Startups & SMEs – Even in the corporate sector, new companies tend to have lower credit histories and find it difficult to obtain loans from financial institutions. Additional security like a collateral is required in most cases.

The ‘6 Whats’ Problem Solving Framework

Having a framework for problem solving is important as often we wonder where and how to start. The '6 Whats' Framework is a a good one which helps you think through the problem and act accordingly.

What is the problem?

Stating the problem statement precisely is very important. Try to keep it as simple and straight forward as possible. Confused or unclear problem statements can lead to deviation from the core pain-point.

An example is “Conversion rate of free customers to paid customers is going down”

What does the problem mean?

Define all terms in the problem statement to ensure the problem is clearly defined and well understood. This is particularly important for the sake of all members of the team who are working on this problem.

In the above example, conversion rate needs to be defined very clearly. Also what going down means needs to be clearly defined.

What is the goal of a solution?

If you do not know the solution, you cannot work towards it. Again what is important is a clear definition of the solution. Clarity is key.

In the above example, a solution can be “Stopping the fall in the conversion rate and put it in an increasing trend”

What factors drive the solution?

This is where the analysis happens. You need to take the various terms of the problem statement and analyse them thoroughly. Different causal factors need to be identified and corrections need to be worked out. Analysis should be as microscopic and detailed to ensure that good causality and correlations are found. Once these factors are found, try to address them by offering different solutions.

In the above example, reasons for conversion rates need to be assessed. Data should be broken down and looked at in detail. The more detailed you get, the better would be the understanding of the problem.

What should you do now?

The implementation plan is the next step. Solutions worked out above need to be implemented with a plan in mind. Implementing incrementally is a good idea so that assessment can be made about the results of the same.

In the above example, if we analyze that making the free signup more detailed and changing the paid plans are 2 solutions, we should implement one first.

What are the developments?

The key is to implement and assess and then implement and then assess again. Implementing incrementally gives you the benefit of being able to assess each possible solution you implement. 

Quote About Decision Making

Ask Yourself This Before Doing Anything

Approaching Sales in a Different Way

Game Theory Applied to the Growth of Fintech

Game Theory involves the study and construction of models of different decision nodes and the outputs resulting from them. The players involved, which may include individuals, corporates or any other organizations, have different options to choose from and do so based on the payoffs they expect from it.

The current state of Fintech startups presents itself as a very interesting game, the decisions of which will impact the growth and future of this upcoming space.

My understanding of the current Fintech space and the game which can be constructed based on it is as follows:

The Players:

The players of the game include a Fintech startup & an Incumbent (like a Bank).

Possible Actions:

Fintech startup – can either Compete or Cooperate with incumbents.

Incumbent – can either Compete, Cooperate or Ignore.

Payoffs:

If the Incumbent & the Startup Compete – the startup has certain advantages in terms of focus, agility and cost and can gain a good market share in the particular focus area. However, the incumbent, owing to its size and customer base, will have an advantage.

If the Incumbent Competes & the Startup Cooperates – again, the result will be as above as the incumbent holds advantages of scale and existing customer base.

If the Incumbent Cooperates & the Startup Competes – a startup wanting to compete with an incumbent looking to cooperate will prove detrimental for the startup. Startups will find it very difficult to match the advantages an incumbent has owing to scale and the data it owns. Also an incumbent can easily find another startup looking to cooperate.

If the Incumbent & Startup Cooperate – this seems like the best case scenario for both as the synergies between the cost advantages of a startup and the scale advantages of an incumbent can result in significant value creation.

If the Incumbent Ignores & the Startup Competes – the startup will gain advantages as the incumbent is not willing to react to the former’s progress and is losing out business in that area of its business.

If the Incumbent Ignores & the Startup Cooperates – since the incumbent has chosen to ignore the startup’s actions, the payoff remains as above.

Finding the Equilibrium:

Looking at the Startup’s payoffs, it should always choose to Cooperate as the payoffs are higher for it in either of the options selected by the incumbent. The same holds for the Incumbent as well. Hence, Cooperate-Cooperate is where the equilibrium lies.

The 3 ‘U’s in Defining a Use Case

A Use Case is defined as a potential usage of a product or service for a particular customer. It is or generally should be the first step in assessing who your customers can be.

To define a Use Case, the following 3 ‘U’s need to be defined:

Usage: This is the first U and states the solution offered by the product or service. For example, a use case for a crowd-funding platform can be ‘helping companies with thin credit files raise money’.

User: This is the second U and refers to the potential user of the product/service. In the example above, a ‘startup’ can be the user.

Utility: This is the final U and measures the utility of the solution offered to the user. A case which does not offer adequate utility to a user constitutes a weak use case and should be disregarded. In the above example, the utility of crowd-funding platforms is high for startups as the latter find it very difficult to raise money from traditional investors and in different geographies.

Hard Work Pays Off

The ‘Bid-Ask’ Model for a Customer Purchase

A good way of looking at any customer purchase is by analysing it using a Bid-Ask Model, where the customer’s Ask has to be matched with the business’s Bid to result in a transaction (just like a stock market transaction). The customer Ask is the value a customer requires to make a purchase and the business Bid is the value which is offered by the product/service the business is selling. This concept is particularly interesting and useful for early stage companies and startups as these businesses are not or less sure about how potential customers will accept the product/service offered by them.

So the concept seems simple. However, calculating the same is the tricky part. So let me try to define the terms in more detail.

The Customer Ask – This is the value the customer is looking for before buying the product or service. Any value under this value might not be enough for the customer to switch from the current solution he/she is using. To calculate this, we need to start off by identifying the best current product/solution which customers are using. The best way to identify this is by looking at the market shares of various products in your space or by simply asking the customers themselves. In addition, we would also need to calculate an additional factor, i.e. the Spread.

The Spread – The spread is the additional value a customer requires to move to a new solution. This value depends on a lot of factors like

- the type of customers – demographics, buying behaviour

- the particular Industry – essential or non-essential, nascent or mature

- the utility and importance of the product/service in the customer’s life – measuring customer stickiness

So to put it in a formula,

Customer Ask = The Best Current Solution + The Spread

The Business Bid – This is the value the business’s solution offers to its customers.

FOR A SALE, THE BUSINESS BID = THE CUSTOMER ASK

Now that the concept and the terms make more sense, how do we go about calculating the bid-ask for any business? What are the various features which add value to a product and how much value does each hold? Since the customer has to buy the product, she is the right one to ask.

For a startup, asking some potential customers (through family, friends, communities, online groups, social media etc.) to fill a Survey or participate in a Focus Group Discussion would be a good idea. It makes sense to ask potential customers and not existing customers as the latter are already buying your product.

The aim of the above is to get the following:

- attributes important for a customer in a product

- weights for each attribute

- the current best solution which the customer is using

- ratings for the various attributes for this solution

- how important the product is for customers and how open are they to try a new solution

These inputs will then need to be used to calculate the Ask of the customer and also the Bid of your business. 

The Components of Success

Learning is Lifelong!

As I head to the Netherlands for my MBA tomorrow, I truly believe that learning is a lifelong process and with the pace at which knowledge and processes evolve today, it becomes imperative for all to keep renewing their skills.

What Leads to CHANGE?

The Easiest Path to Failure

The Customer Purchase Bid-Ask System

Just like in the stock market, a purchase involves a bid-ask system where a Customer Ask has to matched with the Business Bid. Businesses need to understand this to convert a potential customer into a customer.

The ‘Customer Ask’ is the pain which the customer is going through currently to solve a particular need. This involves all the investments a customer makes in buying a product or service. This investment can be in any of the following:

Money – the actual price of the product the customer is currently buying.

Effort – this involves the effort the customer is making to purchase a product. For instance, since factory outlets of fashion brands are generally on the outskirts of a city, a customer might have to travel 25 kms to reach there, which is the investment the customer is making in buying the product.

Time – some products have along delivery time and hence the wait is the investment made by the customer. The investment varies with how quickly the customer needs the product.

Harassment – some purchases might involve some level of harassment for a customer. For instance, a lot of people feel shy of going to a chemist and buying condoms. This is also an investment.

A business looking to acquire a customer has to quantify these costs as closely as possible and needs to set a price (including the monetary price and the services offered along with it) for its product/service which can convert the customer to buying its product. This price is called the ‘Business Bid’ and the difference between the bid and ask, which is called the ‘Spread’, should be big enough for the customer to see the value in changing his/her purchasing process.

Keep Moving Towards Something

The Biggest Loss of Being an Entrepreneur

Entrepreneurship is a very exciting journey. It teaches one a lot and personally, it helped me develop an understanding of business which I probably could not have in the same period of time if I was doing something else. Having said this, once their companies fail, entrepreneurs do face a lot of challenges and losses. Other than the monetary and time losses, the biggest loss of being an entrepreneur is that you tend to have developed no specialized skills which can earn you a living going forward in your life. If you decide not to startup, getting a job becomes a task.

I am facing this very predicament now. My startups have taught me about running a business as a whole and some things about each and every part of the business. However, now that I am looking for a corporate career, I realize that I have no specialized skills which can make me easily employable. I am having to identify one aspect of business which I feel has potential and which interests me and am reading up on it, so as to ensure that I can master some skill which can improve my chances of getting a desired job in the near future.

The Entrepreneurial Spirit

Why Investors Invest Together?

Most private equity investments see various investors part-investing with each other. One investor tends to be the lead investor while the others commit a certain amount in the round. Traditionally investors were seen as pure competitors. However, co-investing has become a norm today due to the various advantages it brings with it.

2 Brains are Better Than 1 – Different investors look at different businesses in their own ways. One may look at the scaling potential while the other may be more focused on profitability. Co-investing ensures that more aspects of the business are analysed well before making any monetary commitments.

Division of Risk – Since the amount raised is divided between investors, the risk is also divided.

More Skills on the Table – Different investors bring different skills and resources to the table. Some may have better technology skills with them while others may be more focused on marketing. Some may have a better network for follow on investments. The more the investors, the more skills which are brought to the table.

Less Competition – Since investors are co-investing, it reduces competition and the risk of these investors investing in competitor companies. This works out better for investors and entrepreneurs.

Emotional Comfort – Other than the tangible benefits mentioned above, investors also have an intangible benefit of getting in other investors. If any investment goes wrong, an investor gets comfort in the fact that there were other investors as well who believed in the business.

Co-investing is hence a trend which benefits both investors and entrepreneurs. Investors can support each other and bring more to the table. Entrepreneurs tend to benefit as well as a result.

Halllp Needs a Mentor

I have previously highlighted the importance of getting a mentor (link) and I feel Halllp is in a stage where we need one.

First time building a classifieds business – Since I do not have experience of building a startup in this space, the role of mentor is very important in giving direction to the startup.

New geography; culture, marketing methods – Both my previous startups have been targeted to India and hence this would be a very different market and experience for me.

Building a scalable model – Help with building sustainability and scalability in my business model is key.

Confirming validity of idea – Having someone with experience in this domain give feedback can prove very beneficial for us.

Tech co founder – I am looking for a Tech co-founder. A mentor can help me in connecting to some potential co-founders in his/her network.

The Cost of a Mistake

We all make mistakes in life. Making a mistake is part and parcel of life. Be it in personal or professional life, we make a lot of wrong decisions which cost us in some way or the other. So if this is true, how should you minimize the loss suffered by you due to these mistakes?

Every mistake has a cost. So we should look at minimizing this cost. The cost of making a mistake rises exponentially with time. The longer you keep making a mistake, the more it will hurt you.

This is the exact philosophy behind what we say ‘Going Lean’. Keep assessing your actions so that you can figure out quickly when you have made a mistake. Making the same mistake for long can seriously affect some part of your life. In your business, a long duration mistake will have accelerated actual and opportunity costs attached to it. In personal relationships, the longer the mistake, the bigger the dent it leaves. The same goes for any addiction as well. The longer you are addicted to anything harmful, the effects keep on getting accelerated over time.

Making mistakes is not wrong. Making them for very long is!

The Biggest Threat for a Growing Company

A company is as good as the people behind it. Hence I feel that the biggest threat any growing business faces is that of Talent Acquisition & Retention. Getting smart people to join who are a good fit for the business is a must to drive growth. This is one factor which I feel is not highlighted enough and where a lot of large startups also fail.

Why even the best fail at this?

Google is the World’s most valuable company (as on May 12,2016). That being said, even the startup has not been very successful in retaining talent as well as acquiring the smartest guys lately.  Most of the new products at Google have been acquired and not developed in house. And the interesting thing here is that a lot of ex-Googlers have developed these products. A few examples of these would be Youtube, Doubleclick, Android, Blogger etc.

I believe to deal with this, one needs to understand answer the following questions:

- What is the culture of the company I am trying to build?

- To build that, what type of people do I need to recruit? Also how do I assess whether my existing workforce is maintaining and growing the culture?

- Is the culture I envision there in my company? If not, where are we going wrong?

Google has always been known to be a very innovative company with a focus on rolling out innovative and scalable solutions for customer problems. Google has been known to hire the best engineering talent. However to build scalable solutions, the business side of these solutions is where I feel the gap exists. To maintain or further enhance its growth, Google must address this gap and look at insourcing a lot of the innovative products it intends to offer its users in the future.

The Right Way to Startup

Stay-at-Home Budding Entrepreneurs

I see a lot of people who want to start some business but are not able to owing to some obstacle or the other. For instance, in India, a lot of societies are still not open to women going outside the house and working. Also a lot of women cannot go out to work because they have new-borns to raise.I believe if a person really wants to do something, he/she can find a way of working around these issues.

Look Internally- Look at your daily routine and see if there is something you are doing well, which can be done within what you are allowed to do. For instance, if you cook really well and cannot leave the house because of some problem, why not start a catering business from home. A mother who has raised children can advise other mommies on the best practices and so on.

Identify & Build Skill Sets – If you cannot identify any skill set which can be monetized, build on some. Figure out what you like doing and start reading and learning more about it. Once you feel more confident, work out a business model wherein you can work comfortably within the limitations you have.