Lectures on Leadership-1

These are lectures and interactions from last year.

The first of the set was on 12th January, 2007 at Netaji Auditorium by Mr. Vinod Dham, who is well known as “The Father of Pentium”. Mr. Dham gave a brief account of the turning points of his life before the lecture was made open for questions. A few of the questions he answered are as follows:

Q1.Despite all the work you have done and the success you have attained, don’t you ever feel tired?
A. I don’t see the point of feeling tired. The idea of relaxing by watching a movie is foreign to me! You keep getting wiser as you age, and I see no reason to rest with all that knowledge.
Q2.If I have an idea and I want you to fund me, how can I be assured that you won’t steal the idea when I tell it to you?
A. You are absolutely right. There is a round-about way to go through this without telling me your idea. What you can do is talk to us and tell us everything about the idea without letting us know the key to it. After you have our attention, we can direct you to a lawyer in the technology field to whom you can reveal your idea. If he feels that you’ve got something worth funding, he will advise us to do so without telling us the idea himself.
Q3. Are you open to funding BTech student projects for students in the campus?
A.Yes, we are definitely open to the idea. In fact, starting this year we have decided to allocate a small part of our assets to funding the very kind of projects you are mentioning. You will get to know how to get in touch with us about this shortly.
The second lecture in the series was by Mr. Rohit Agarwal, CEO of techTribe. His talk was “How Innovators Connect” and was a real eye-opener in terms of making us rethink about our concepts on entrepreneurship. He emphasized the importance of building a sound team of individuals through networking as he believed that teams are built and not hired.
He shattered a lot of myths when he said that one doesn’t need a VC to fund a start-up justifying his statement by saying that acquiring large amounts of money will make you complacent and it is best to have money in small installments. He pointed out that humility is one of the best qualities in an entrepreneur. He believes that we are at a turning point in the history of our country when we can go forth and take risks for believing in ourselves and our ideas. In an institute like IIT, he pointed out that we already have a network of really capable, smart and like-minded individuals (if you can forget hall rivalry for a short while!). The most telling point of his lecture was “The only crime is not making a decision!” A few of the questions he answered are as follows:
Q. Why do entrepreneurs sell their companies to bigger brands? Don’t they have faith in their product?
A. For an entrepreneur, a start-up is like a child, and at one stage they feel it is necessary to let it go since it is best for its future. Because if you don’t sell out to the brand, then you are going to be competing with them. This will make life difficult for your employees and your brand. As far as having faith in your product goes, the very fact that the bigger brands thought that they should buy you out since you are giving them a better service or product than they thought of, is enough to tell you that your product is good.
Q. How does one make a brand in a non-IT sector?
A. There are lots of ways; one example could be, say, jewellery. Now in our country, only old women wear the old fashioned jewellery. But if you are targeting a younger set of women then you could use a simple technique. If you got male models to strut around wearing your jewellery, it will cause quite an uproar, so you have your publicity area covered. The shock value will ensure that the mothers won’t approve of the jewellery, which means that the daughters are sure to buy it!!
Mr. Agarwal shared his contact information with us so that any interested students could get in touch with him and techTribe.

How free software makes money

Ever wondered why a perfectly respectable system like Ubuntu Linux ships completely free of cost all the way from Africa? While many people focus on this point, it is actually just a consequence of something else- Ubuntu is only incidentally free of cost. Good people donate to it and sponsor its shipping costs because they like it. Ubuntu is “free software” or “software libre”. Free as in freedom, not cost, means 4 fundamental rights:

 

1. The freedom to run the program, for any purpose.
2. The freedom to study how the program works, and adapt it to your needs. Access to the source code is a precondition for this.
3. The freedom to redistribute copies so you can help your neighbor.
4. The freedom to improve the program, and release your improvements to the public, so that the whole community benefits. Access to the source code is a precondition for this.

 

There are many other free software products that aren’t necessarily free of cost- Ubuntu Linux is only one of them. How do these other companies manage to make money?
Traditional software companies create something, package it, and sell it, the same way a vegetable vendor sells vegetables on the street- price per piece. Simple revenue model. How do I “sell” free software though? Certainly not like vegetables on the street, because everyone has the right to redistribute it. So who’s actually going to come to me and pay for it? Well, it turns out that there are many other creative ways to make money. Since the models tend to be complicated hybrids,

I’ll illustrate with examples:
SpikeSource is an example of a very successful company that follows a pure service model. They specialize in maintenance, certification, and integration of free software into large workstations. They capitalize on the fact that they have the power to study the source code (modifying it when necessary) and pinpoint exactly what went wrong during tech support. Free software typically comes with no warranty of any kind. SpikeSource fills this void for large corporations.

RedHat offers RHEL, or RedHat Enterprise Linux which they build by gluing together various free software components and charge for the service of maintaining it. They capitalize on the fact that they are familiar with exactly what they built.MySQL and Trolltech Qt follow a double-license model. Why would people choose the proprietary license? The proprietary license offers some additional rights over the software over and above the fundamental free software license rights. Yes, it works. The proprietary license is available at a price.
Many companies also tend to maintain two versions of their software: a free software “community” version that the community continually improves and a proprietary version that can be purchased at a cost. Zimbra, the email client, is one significant example. Their desktop edition is free software but their network edition for large enterprises comes at a cost. RHEL/ Fedora is another example- RedHat constantly use ideas and code from Fedora, the community edition, to maintain RHEL (No, RHEL isn’t proprietary, but either is it developed by the community).
Many free software projects are funded by companies interested in seeing the project come up. SuSe, for example, sponsors a project called OpenSync because they want to see certain features in it that they probably wouldn’t see otherwise. They additionally get some good publicity and a major say in any crucial  decision. Instead of creating their own synchronization solution for their operating system, why not sponsor an already ongoing project? It’s far cheaper and they get additional programmer passionate about the software to work on it for free (yes, I worked on it for a while too because I liked it). Just like Google pays Firefox (yes, firefox is free software) to get their homepage opened at startup by default, several companies might have interests in different popular free software. For example, if OpenSync becomes really popular and supports synchronization with Nokia and Sony phones, Motorola will immediately jump in and help OpenSync support their phones by funding the project. Zimbra did so well that it was acquired by Yahoo! in September 2007.

Making Sense of the Financial Crisis

How does a 158 year old company, the 5th biggest investment bank in the world go bankrupt overnight? Why the TV channels have lost their obsession with Sarah Palin and are hanging on to every word uttered by Hank Paulson, US Treasury Secretary.

Though popular articles may have you believe that Lehman Brothers went bankrupt overnight, it actually was a culmination of a series of events which started as 2002, the beginning of the US subprime mortgage crisis. There is no single cause of the mortgage crisis they range from poor scrutiny by lenders, lack of regulation even insider trading in credit derivatives (there has been considerable evidence to account for this possibility). This mortgage crisis led to the housing bubble burst in 2006 and triggered off the global financial crisis. Lehman was greatly affected by this credit crisis due to its large investment in BNC Mortgage, its subprime lender and also its investment in other low rated mortgage securities. Failure to raise further capital and its tumultuous losses, led to its bankruptcy on September 15th.

The mortgage crisis set in motion a series of damaging events that would engulf the world in a recession unlike any other since the Great Depression. The $3500 bn US money market fund, used by banks and companies for their short term financing was locked. Many Hedge funds that used Lehman as their prime broker suddenly found their collaterals frozen due the complicated structure that Lehman used for its bankruptcy filing application.

A week before Lehman filed for bankruptcy, the Federal government announced takeover (or placing into conservatorship) of two of its biggest government sector enterprises, Freddie Mac (Federal Home Loan mortgage corporation) and Fannie Mae( Federal National Mortgage Association). Two companies considered to be “too big to fail” failed, ringing warning bells all across Wall Street.

A day after the Lehman filed for bankruptcy, Federal Bank announced $85 billion rescue package for AIG, the world’s biggest insurer. If AIG had failed, it was said that an average citizen’s savings and checking accounts could be in jeopardy. To gauge the magnitude of the issue, just try to imagine a situation where, you are not sure if your money is safe in a bank!

Since Merill Lynch was bought over by Bank of America to save it from going bankrupt , the next victim of the financial crisis became Washington mutual, the largest US savings and loans association. The bank’s home loan department took a big hit, a hit big enough to affect the $307 billion bank. Within 10 days customers pulled out $16.7 bn, increasing the urgency for a rescue act. This was the first case of direct government intervention, where the Federal Reserve put pressure on WaMu to find a buyer and even held a secret auction where JP Morgan was announced as the highest bidder.

The next step by the US government was the much publicised $700 bn bailout a.k.a the Paulson plan. Most of the $700 billion will be used by the Federal Reserve and Treasury to buy out liquid mortgage backed securities. This is done to increase the liquidity in the market.

Let us stop here for a moment. Within two weeks two of the five largest investment banks, two of the biggest GSE’s (govt. sector enterprises) seized to exist and the biggest insurer was saved by last minute government intervention. This is excluding all the activities going on with Wachovia, Britain and Iceland.

There is no doubt that the catalyst for the sudden crisis is the bankruptcy of Lehman Brothers. Unlike Bear Stearns which got a lifeline about six months ago from the Federal Reserve, Lehman got no such lifeline. “I never once considered it appropriate to put taxpayer money on the line in resolving Lehman Brothers”, Hank Paulson, Treasury secretary, said the day after Lehman’s demise.A statement he would probably reconsider. Of course arguably, things could have been a lot better were Lehman Brothers still present. I personally think that the financial crisis is too overwhelming to be stopped by the rescue of Lehman Brothers.

There has been quite some criticism that the government intervention came a little too late. There is also another sect of people who are against Hank Paulson assuming the role of god, (a role the US assumes very often when it comes to foreign affairs) with tax payer’s money. Only time will tell if Paulson’s plan is indeed sufficient to avert a bigger disaster, which indications in the financial market from the last few days seem to suggest.

Innovation speed in startups

Research-based start-ups are new business start-ups that develop and market new products based on proprietary knowledge or skill. Such startups form the basis of technopreneurship, which has received a great deal of attention from academics in the last couple of years. Although considerable research has been done in the field of resources, strategy and industry environment of new firms, little attention has been paid to the factors which control the speed of innovation in startups.

Innovation forms the heart of every technopreneurial venture and hence it is essential to study the forces which affect it. It is widely accepted that tangible assets such as starting capital and the stage of product development at founding and intangible assets such as team tenure, experience of founders, and collaborations with third parties are important antecedents for innovation speed in startups. Intuition suggests that starting capital and stage of product development encourage innovation speed. Moreover, its understood that team tenure and experience of founders lead to faster product launch. And of course, alliances with third parties should also affect innovation speed positively. But research says otherwise.

Now why is innovation speed so important?

Innovation speed is directly related to the time required to market or time between firm founding and product launch. This might seem strange but it takes months to market the product even after product creation. Especially for new ventures, time to market is a crucial factor for these reasons

(i) gaining early cash flow for greater financial independence,

(ii) gaining early market share, and

(iii) to increase the likelihood of survival.

Moreover slow product development leads to increasing costs and no immediate financial returns. There are several ways in which a firm may obtain the required financial resources, such as selffinancing, loans, obtaining angel-investments and venture capital, and of course grants. It is seen that most firms which have to expand quickly go for venture capital. However, surveys indicate starting capital has no significant affect on innovation speed. This discrepancy is best described by the following reasons,

(i) venture capitalists may push firms to ramp up their commercialization efforts, diverting attention and investments from R&D toward marketing and sales, which may delay product completion, and

(ii) venture capital and high amounts of initial investments might be associated with more ambitious projects, which inherently face longer development times.

Higher stage of product development significantly reduces the time to market the product but this is true
only for non-software firms. Surprised? For software firms, it is seen that the launch of a beta version considerably delays product launch. This is obvious because customer involvement leads to repetitive modifications to the product which ends up delaying product launch. This situation does not apply to non-software products probably because for such products repetitive modifications are often impossible or pricey and hence customers don’t get to dig in their noses too much!

Thankfully, team tenure and experience counts and assists innovation as predicted by common sense. A better team shall always lead to more efficient product development. But alliances with third parties may hinder innovation speed. Collaborations with private firms show no effect on innovation speed. Collaborations with universities slow down innovation speed but this must not be taken as a setback because such collaborations can be  considered a long term investment and may show profitable results in the long run.

Does Inflation spell doom for India’s entrepreneurship boom?

On the 15th of August 2008, for the first time ever, a consul general (Neelam Deo for India) rang the closing bell at the US stock market. As recognition of the fast growing Indian economy, the giant billboard overlooking Times Square also had the Indian Tricolour being displayed with the text ‘India Independence Day’. The recent upheavals in the market notwithstanding, it can be clearly seen that the Indian economy has been on a steep rise since the past 5 years and is brimming with promise to accommodate more influx to synergise this growth. In a country of billion odd people like ours, where millions live below the poverty line and millions more are unemployed, where do we start to bring about a change so that the country keeps surging ahead? One of the obvious answers is to get more jobs for people. To do this, there is need for enterprising individuals among us who will be responsible for generating wealth from within the country.

Entrepreneurship is a critical element of a growth economy, and many believe India is poised to unlock a Silicon Valley like entrepreneurial boom through the next 10 years. The beginnings are already in place, steps have been taken in the right direction and change is afoot.

But what about the problems brought about by inflation? India has produced the most impressive set of corporate results anywhere in the world, in the recent past. However government policies and nature of coalition government, deprive India of more encouraging economic policies. So what are the entrepreneurial options left for a young Indian? Going deeper into understanding the nature of India’s entrepreneurship and the current economy will give us a better idea about the future prospects of an aspiring entrepreneur.
Mrs. Sramana Mitra, a successful Indian entrepreneur in the Silicon Valley, believes that the excess capital chasing Indian start-ups and the lack of fundable deals is clearly manifested in India’s entrepreneurship today. Going by past trends, consumer internet turned out to be a big trend from last year, for India, while
Sramana feels that non-tech sectors like retail and real estate are also big money-making opportunities in the future.

Talk about retail and real estate hogging the limelight in the future; it seems to be universally accepted. Land has, from ancient times, been deemed as a symbol of wealth. Even today, its one of the most orthodox yet sure-fire commodities to invest in. Mr. Michael Sexton, President, Trump University also seems to agree to the above thought, suggesting investing in real estate as a way of benefiting during the current heavy inflation period. It’s what the millionaires and billionaires are doing today. So, is future of entrepreneurship in real danger? Does the current inflation spell doom for those willing to establish start-ups now? Clearly, the answer is no!

Despite facing innumerable challenges, the entrepreneurial energy that now radiates across all activities from almost all parts of India is greater than what one has seen over the past four decades. Mrs. Sramana is indeed very optimistic about India’s entrepreneurial potential. The enormous successful growth of most existing Indian companies, as also the promising start and rise to fame of many young Indian entrepreneurs both domestically and abroad in a very short span of time, is a very encouraging sign to say the least. So, he answer is not to bide your time waiting for the tide of inflation to ebb down to manageable levels, its infact to try to use inflation itself as a stepping stone to get a head-start.

But will this trend last? Certainly for the next few years, says Mr. Omkar Goswami, in a BW article. He believes India’s entrepreneurship is now second to none. So, maybe you are indeed in the right country for entrepreneurship at the right time.