P.S. You Should Read This

Do you know the difference between conventional logic and value innovation logic? I didn’t, at least until I read this article. The report proposes a very interesting framework to determine if your company focuses on value innovation or conventional logic, and notes how companies which focus on value innovation tend to perform better than ones which don’t.

The framework looks at 5 basic dimensions of strategy, and looks at what differentiates value innovators from conventional companies in these metrics. The dimensions are: industry assumptions, strategic focus, customers, assets & capabilities and product & service offerings. While you can read more about the differences in the article itself, the main difference highlighted is the fact that those who follow value innovation logic tend to focus less on their competitors, and more on themselves. They also do not allow themselves to be hindered by industry boundaries, but think out-of-the-box to maximize their growth.

While the framework seems to work in theory, I believe that it is a lot harder for it to be practically implemented. For starters, companies like to benchmark themselves by their competitors, especially as it gives them an idea of how well they are performing, or how they should be performing. Trying to completely ignore the competition would mean that the company would have no quantifiable measure to gauge their relative performance. Let’s take an example that a company has a growth rate of 10%, but its competition is growing at 12%. In absolute terms, it may be fine, especially if it is focusing on its own performance. The company might even consider this to be a “quantum leap in value” as proposed by the article. When compared to the competition, however, it is far less impressive. It should also be understood that competition matters in every industry, especially as all companies are going to be evaluated against their peers by clients and customers.

The study proposes that value innovators focus on the “mass” of buyers and willingly let some existing customers go. Apparently, it is bad to provide customization to serve different customer segments. I find such a strategy inherently flawed, as trying to serve a mass of customers will inevitably lead to a loss in focus. The company would be spreading its resources too thinly, and fall into the trap of the “Peanut Butter Manifesto”. While trying to meet all its potential customers’ needs, it just might end up meeting none of them. It would be far better for a company to focus and target a particular segment, and then work towards meeting all its needs.While the proposal is lacking in a few ways, it isn’t completely wrong. There are a few valid points which companies should keep in mind as they map out their strategy. Not being allowed to be bound by the industry conditions and thinking out-of-the-box are definitely goals that companies should strive for. Companies should try and source out markets and customer segments which haven’t been targeted, and become a leader in those areas. They should also keep thinking about new and innovative ways to capture a larger market segment, and unconventional means would be useful in doing so.

All in all, the concept of “value innovation logic” as proposed by the author has its pros and cons, and it definitely should be taken with a pinch of salt.

I recently read a very interesting write up on the link between entrepreneurs and criminals, and how criminals could be entrepreneurs if given the right type of opportunities.  This would seem like an alien concept to most, as how can entrepreneurs, who are lauded by our society, have any sort of a connection to criminals, who are vilified?

The arguments proposed are very valid and logical, but not something that is not intuitive.  Apparently, people who have shown characteristics such as a desire of independence and an aversion to rules can be criminals or entrepreneurs.  Just as criminals have an aversion to being bound by laws and social norms, entrepreneurs do not like being in a bureaucratic corporate environment that restricts their creativity and conflicts with their working style. The author even cites a statistical analysis that identifies a relationship between teenage crime and being self-employed once the other socioeconomic factors have been eliminated.

I concede that while both entrepreneurs and criminals might share similar character traits, it is quite a stretch to draw a link between them and conclude that criminals could become entrepreneurs under the right conditions.  There are plenty of differences between criminals and entrepreneurs as well, but these are not exposed in the article. To also propose a solution of using incentives to convert criminals to entrepreneurs is also a little too simplistic. Firstly, incentives could help any criminal become more productive, and not just the entrepreneurial ones. Secondly, criminals are not formed simply due to lack of incentives, but due to everything from upbringing to their environment. Society would have to change all these factors before criminals can be made more productive members of the community.

The importance of a formal education in entrepreneurial success is something which generates much debate. There are some who believe that an education is not required, and that the ability to be an entrepreneur is something people are born with. Others, such as Matthew Bandyk with the U.S. News, believe that an education can be extremely valuable. I believe that an education has both merits and flaws, but is nonetheless crucial to any budding entrepreneur.

In addition to the benefits already proposed in the article, I feel that an education can have another major advantage: credibility. Entrepreneurs who start working on their idea immediately upon graduating from high school often find it hard to market it to potential venture capital firms and investors. Sure, there may be the occasional idea which could completely blow them out of the water, but often, it takes a lot more to convince these firms to invest in the idea. The credibility gained from a college education, especially one which is top tier, can instill confidence in the investors, and make them a lot more open to new ideas. An education would also help entrepreneurs in the event that their venture fails, and they decide to seek a more stable job.

Despite its many benefits, having an education has its costs as well. A four year course in a top university is a sizable amount, not considering the opportunity cost of lost income. Within college itself, there can be a lot of pigeon holing in form of majors and courses which could restrict the type of classes an entrepreneur could take. This in turn could affect and control his thought process, possibly hindering his ability to generate innovative ideas. Peers influences can also play a huge role in college, where the potential entrepreneur could be made more risk averse than he initially was. He might even end up dropping his ideas completely to go for a more mainstream job.  

By no means is college a free lunch, as there are costs to go with the benefits that it brings. Picking the college which adds the most value is therefore crucial for any entrepreneur’s success.

I found an article on BusinessWeek which talks about how college graduates are turning away from jobs on Wall Street. As I am currently studying in a top-tier business school myself, I am able to appreciate many of the ideas brought up in the article.

Call me cynical, but I believe that the media has sensationalized students who have chosen alternative careers to either financial services or consulting. I applaud those who had the option of choosing a profitable career path but chose a more humanitarian cause, especially if there was a huge difference in the salaries and stability. That is an extremely hard decision to make, and one which few would attempt to do. For others who say that they are looking at alternate career fields because they became ‘philanthropic’, I’m a lot more skeptical of their actions. I believe that the primary reason why they would switch out of the traditional career paths is when these fields are no longer as optimal, such as in these currently depressed markets. Should you offer these recent college graduates a top job, I am positive that many, if not most, would drop their philanthropic interests in a hurry.

This brings me to my next point. If given the choice, should recent grads be choosing the more charitable job? Don’t pelt me with stones, but I’m going to have to answer: not necessarily. I’m a firm believer that every person has their own niche, and that their goal should be to maximize their marginal utility to society. For example, if you are a much better banker/consultant than a NGO worker, don’t drop everything you have to try and save the world. Both you and society would be a lot better off if you did what you were best at. Should you continue to have humanitarian inklings after working in your career for years, you should then take the leap and do what you desire. You’d have a much larger say in the world by then, and therefore, you could make that much more of a difference.

Something else that would make me reconsider working in philanthropy upon graduation is the fact that many of the organizations (such as the World Bank or the United Nations) are very bureaucratic. Starting off your career by working there could mean that you would have to spend years trying to rise up the ladder before you can make a significant impact in your projects.

I recently read an article that looks at the clash between choosing a business idea as being a business and being a hobby. The author proposes that no successful idea can be both a business and a hobby, and that the originator of the idea has to choose between either of the two. Although I believe that there will be many who would disagree with such an opinion, I think it is important that people should go into implementing any business idea with a clear picture of what they want it to be. Some might say that it is impossible to truly succeed at something that isn’t enjoyed, and therefore any business should also be a hobby. On the other hand, I believe that once the business becomes too much of a hobby, it becomes harder and harder for business decisions to be made objectively. For example, you could be a manager with numerous employees under your watch. Just because you become good friends with your subordinate does not mean that you can turn a blind eye to his performance. Should there be a need to replace him with a better performing individual, emotions shouldn’t be allowed to cloud your judgment.

There might be individuals who take pleasure in making money, forming cordial non-personal relationships, and being completely objective in all their decisions. I believe that in such scenarios, there really isn’t much of a difference between their hobbies and business interests, and that only in such a scenario can a business also become a hobby.

What I find to be a far trickier situation is when a business turns into a hobby or vice-versa during the course of running it. Person X might initially enjoy his car-washing business, in which he leisurely mingles with his regular customers as he washes the car. Clearly this qualifies as a “hobby”. Over time, his customer base might get larger and larger, and he may realize that the opportunities he now faced were endless should he turn his “hobby” into a business. So what does he do now? Stick to keeping the washing service as a hobby and limit himself or take the leap and convert into a business? What about those relationships that he formed —- Is he willing to sacrifice them?

It is often extremely hard for someone to realign his or her goals midway through the implementation of the business idea. The business environment might also change during the process, requiring a reevaluation of whether the right choice had been made. I therefore propose that such a “biz vs. hobby” evaluation be conducted throughout the implementation process, and even during the running of the business.