Sunday, February 26, 2012

Useless Research

The world of academics baffles me. I consider myself reasonably aware of business issues and yet I can't make any sense of most of the research publications that come out on business. Actually I can't make any sense of even the title - let alone the contents. I challenge you to figure out "Tabu Search for the Single Row Facility Layout Problem in FMS using a 3-opt Neighborhood" or " On the Blowout Preventer Testing Problem: An Approach to Checking for Leakage in BOP Networks". Yes, I know, I am a bit dense, but still ........

So it was with delight that I discovered the Ig Nobel Prize - given annually to what is euphemistically called "Improbable Research". 2011winners were

PHYSIOLOGY PRIZE : Anna Wilkinson (of the UK), Natalie Sebanz (of THE NETHERLANDS, HUNGARY, and AUSTRIA), Isabella Mandl (of AUSTRIA) and Ludwig Huber (of AUSTRIA) for their study "No Evidence of Contagious Yawning in the Red-Footed Tortoise."

CHEMISTRY PRIZE : Makoto Imai, Naoki Urushihata, Hideki Tanemura, Yukinobu Tajima, Hideaki Goto, Koichiro Mizoguchi and Junichi Murakami of JAPAN, for determining the ideal density of airborne wasabi (pungent horseradish) to awaken sleeping people in case of a fire or other emergency, and for applying this knowledge to invent the wasabi alarm.

MEDICINE PRIZE : Mirjam Tuk (of THE NETHERLANDS and the UK), Debra Trampe (of THE NETHERLANDS) and Luk Warlop (of BELGIUM). and jointly to Matthew Lewis, Peter Snyder and Robert Feldman (of the USA), Robert Pietrzak, David Darby, and Paul Maruff (of AUSTRALIA) for demonstrating that people make better decisions about some kinds of things — but worse decisions about other kinds of things‚ when they have a strong urge to urinate.

PSYCHOLOGY PRIZE : Karl Halvor Teigen of the University of Oslo, NORWAY, for trying to understand why, in everyday life, people sigh.

LITERATURE PRIZE : John Perry of Stanford University, USA, for his Theory of Structured Procrastination, which says: To be a high achiever, always work on something important, using it as a way to avoid doing something that's even more important. 

BIOLOGY PRIZE : Darryl Gwynne (of CANADA and AUSTRALIA and the UK and the USA) and David Rentz (of AUSTRALIA and the USA) for discovering that a certain kind of beetle mates with a certain kind of Australian beer bottle

PHYSICS PRIZE : Philippe Perrin, Cyril Perrot, Dominique Deviterne and Bruno Ragaru (of FRANCE), and Herman Kingma (of THE NETHERLANDS), for determining why discus throwers become dizzy, and why hammer throwers don't.

PEACE PRIZE : Arturas Zuokas, the mayor of Vilnius, LITHUANIA, for demonstrating that the problem of illegally parked luxury cars can be solved by running them over with an armored tank.

There is a Distinguished Academic amongts the "legions" of readers of this blog. Perhaps she would like to offer a rebuttal !!

Tuesday, February 21, 2012

“The Best Degree for Start-up Success”

“So you want to start a company. You've finished your undergraduate degree and you're peering into the haze of your future. Would it be better to continue on to an MBA or do an advanced degree in a nerdy pursuit like engineering or mathematics? Sure, tech skills are hugely in demand and there are a few high-profile nerd success stories, but how often do pencil-necked geeks really succeed in business? Aren't polished, suited and suave MBA-types more common at the top? Not according to a recent white paper from Identified, tellingly entitled "Revenge of the Nerds."

Interested? Yes, it does sound intriguing, doesn’t it? It is the start of an article, written by a journalist, based on a report by a company called “Identified”. In the report, you can find that “Identified is the largest database of professional information on Facebook. Our database includes over 50 million Facebook users and over 1.2 billion data points on professionals’ work history, education and demographic data”.

In the report, based on the analysis of data obtained from Facebook, under the header “the best degree for start-up success”, Identified presents some “definitive conclusions” about “whether an MBA is worth the investment and if it really gets you to the top of the corporate food chain”. Let me no longer hold you in suspense (although I think by now you do see this one coming from a mile or two, like a Harry and Sally romance), the definitive conclusion is: “that if you want to build a company, an advanced degree in a subject like engineering beats an MBA any day”.

So I have read the report…

[insert deep sigh]

and – how shall I put it – I have a few doubts… ( = polite English euphemism)

Although Identified has “assembled a world class team of 15 engineers and data scientists to analyse this vast database and identify interesting trends, patterns and correlations” I am not entirely sure that they are not jumping to a few unwarranted conclusions. ( = polite English euphemism)

So, when they dig up from Facebook all the profiles of anyone listed as “CEO” or “founder”, they find that about ¾ are engineers and a mere ¼ are MBAs. (Actually, they don’t even find that, but let me not get distracted here). I have no quibbles with that; I am sure they do find what they find; after all, they do have “a world class team of 15 engineers and data scientists”, and a fact is a fact. What I have more quibbles with is how you get from that to the conclusion that if you want to build a company, an advanced degree in a subject like engineering beats an MBA any day.

Perhaps it may seem obvious and a legitimate conclusion to you: more CEOs have an engineering degree than an MBA, so surely getting an engineering degree is more likely to enable you to become a CEO? But, no, that is where it goes wrong; you cannot draw this conclusion from those data. Perhaps “a world class team of 15 engineers and data scientists [able] to analyse this vast database and identify interesting trends, patterns and correlations” are superbly able at digging up the data for you but, apparently, they are less skilled in drawing justifiable conclusions. (I am tempted to suggest that, for this, they would have been better off hiring an MBA, but will fiercely resist that temptation!)

The problem is, what we call, “unobserved heterogeneity”, coupled with some “selection bias”, finished with some “bollocks” (one of which is not a generally accepted statistical term) – and in this case there is lots of it. For example – to start with a simple one – perhaps there are simply a lot more engineers trying to start a company than MBAs. If there are 20 engineers trying to start a company and 9 of them succeed, while there are 5 MBAs trying it and 3 of them succeed, can you really conclude that an engineering degree is better for start-up success than an MBA?

But, you may object, why would there be more engineers who are trying to start a business? Alright then, since you insist, suppose out of the 10 engineers 9 succeed and out of the 10 MBAs only 3 do, but the 9 head $100,000 businesses and the three $100 million ones? Still so sure that an engineering degree is more useful to “get you to the top of the corporate food chain”? What about if the MBA companies have all been in existence for 15 years while all the engineering start-ups never make it past year 2?

And these are of course only very crude examples. There are likely more subtle processes going on as well. For instance, the same type of qualities that might make someone choose to do an engineering degree could prompt him or her to start a company, however, this same person might have been better off (in terms of being able to make the start-up a success) if s/he had done an MBA. And if you buy none of the above (because you are an engineer or about to be engaged to one) what about the following: people who chose to do an engineering degree are inherently smarter and more able people than MBAs, hence they start more and more successful companies. However, that still leaves wide open the possibility that such a very smart and able person would have been even more successful had s/he chosen to do an MBA before venturing.

I could go on for a while (and frankly I will) but I realise that none of my aforementioned scenarios will be the right one, yet the point is that there might very well be a bit going on of several of them. You cannot compare the ventures started by engineers with the ventures headed by MBAs, you can’t compare the two sets of people, you can’t conclude that engineers are more successful founding companies, and you certainly cannot conclude that getting an engineering degree makes you more likely to succeed in starting a business. So, what can you conclude from the finding that more CEOs/founders have a degree in engineering than an MBA? Well… precisely that; that more CEOs/founders have a degree in engineering than an MBA. And, I am sorry, not much else.

Real research (into such complex questions such as “what degree is most likely to lead to start-up success?) is more complex. And so will likely have to be the answer. For some type of businesses an MBA might be better, and for others an engineering degree. And some type of people might be more helped with an MBA, where other types are better off with an engineering degree. There is nothing wrong with deriving some interesting statistics from a database, but you have to be modest and honest about the conclusions you can link to them. It may sound more interesting if you claim that you find a definitive conclusion about what degree leads to start-up success – and it certainly will be more eagerly repeated by journalist and in subsequent tweets (as happened in this case) – but I am afraid that does not make it so.

Sunday, February 19, 2012

Why do smart people do stupid things

There's something about the corporate world that makes smart and decent people do incredibly stupid things. Maybe its the anonymity of being part of a company. Maybe its the pressure generated to perform. Maybe its the brutal focus on the ends and not the means. Don't know what .

Why else would some British honcho in Sony decide to raise the price of Whitney Houston's albums on her tragic death. There was surely going to be a memorial upsurge in sales of her records. But what sort of a decision is that to raise the prices then ? Predictably there was a huge outcry; Sony had to back down and I'm sure the guy who did it has egg on his face.

Similar is the decision by some Starbucks Manager near the World Trade Centre to raise the prices of water on that fateful day in 2001. Or the decision by the Chairmen of the auto giants to fly by private jet to Washington to plead with Congress for a bailout. Or the insistence by Jack Welch to award himself retirement benefits that included an apartment in New York and free food and wine - chicken&^%$ in comparison to his personal wealth.

Why does this happen. Unfortunately  corporate environments seem to be dangerous grounds where a decent person's normal human values have every risk of being left at the door. Perhaps there is something dehumanising about the seemingly dog eat dog environment. Perhaps people are blinkered, or even blinded, by the single minded focus on the rat race.

There is a lesson for us all here. Every action we take must be viewed through the prism of two criteria - will we squirm with embarassment if the decision were to be dissected on Breakfast TV or come in the front page of the newspaper. And secondly would we squirm if we have to explain it in the barest detail to our mothers.

Sunday, February 12, 2012


Miracles do happen. They do, rarely in real life, but a little more often in sport. One such miracle has happened in the city of New York. Or should I say, to the city of New York. All of New York has been infected with "Linsanity".

One of the, if not THE most famous entertainment and sporting arenas in the world is MSG - Madison Square Gardens in the heart of Manhattan. The home of the New York Knicks - one of the most famous basketball teams in the world. Professional basketball - the NBA - is an extremely competitive  sport in the US. It is filled with superstars - like Kobe Bryant, LeBron James, Dwight Howard who earn zillions every year and have supersize egos. Thousands and thousands aspire to join the NBA each year - barely 50 or 60 make it.

The New York Knicks are a famous but perennially disappointing team. They have achieved precious little in recent years. A year ago they paid huge sums of money to acquire two superstars - Amare Stoudamire and Carmelo Anthony. Nothing changed - they continued to perform poorly this year. Until a week ago, that is.

Both the superstars were unavailable and a few other players were injured too. The coach , out of desperation, turned to an unknown rookie, who wasn't even with the team, but just happened to be around. Enter Jeremy Lin, an American of Taiwanese origin. Nobody had even heard of him before.

All that changed in an instant. He simply took over the Knicks team as a playmaker and the team has won 5 games on the trot. Each game, Lin has scored 20+ points. Against Lakers and Kobe Bryant on Friday, Lin scorched the court with 38 points. Their two superstars are not playing, but the Knicks are winning. Sellout crowds are greeting them everywhere. They are chanting LIN LIN at deafening volumes. They had to print Lin T shirts literally overnight and you can't get them anywhere for they are all sold out. The media has gone completely ga ga. In seven days he's the hottest property in the NBA. Such things simply don't happen in real life and nobody can believe it.

Lin is a Harvard graduate no less. He's a clean god fearing humble fellow - no outrageous tattoos all over his body. He seems rooted to the ground and hasn't gone insane with the media circus. He's become an icon for Asian Americans. He credits the success to teammates and not to himself. Everybody in New York has gone completely crazy, bowled over by "Linsanity".

He may flare and soar even higher. He may burn out. Who cares. Jeremy Lin has already proved that miracles do happen.

PS - 2011 salaries
Amare Stoudamire - $ 18.2 million
Carmelo Anthony - $ 18.5 million
Jeremy Lin - $ 762,000 (signed one week ago)

Wednesday, February 8, 2012

The Business February 8th 2012, "Andy Haynes & Katie Compa" Edition

The Business has no Alex Koll this week, but we've made up for it with two very special guests: Andy Haynes and Katie Compa!

Andy Haynes was raised in the shadow of Mt. Rainier on a diet of fresh salmon, wild berries, and lots of coffee. Now based in Los Angeles, Andy's diet mostly consists of stacks of money - because he's a wildly successful stand up comedian that makes so much money he doesn't know what to do with it! You may recognize Andy from his stellar stand up performances on Late Night with Jimmy Fallon, the prestigious Montreal Just for Laughs Comedy Festival, and from walking around Hollywood Blvd with dollar bills coming out of his mouth.

Katie Compa was raised in DC, started comedy in SF, and now lives in NYC. That's a lot of places and a lot of initials! Katie was a finalist in the 2007 Battle of the Bay Comedy Competition and a semifinalist in the 2009 California's Funniest Female Competition. We're happy to have her back in town.

We also have Business regulars Bucky Sinister, Caitlin Gill, Chris Garcia, Chris Thayer, and Sean Keane rounding out the line up. That's 7 comics for just $5. What a deal!

Sunday, February 5, 2012

The tale of two events

Two completely unconnected , and perhaps insignificant, events in Bangalore provide the fodder for this Sunday's post. Both were unadvertised, and both were free in the sense there were no tickets. But the contrast could not be bigger

Today I went to a short Carnatic recital by Ranjani and Gayatri who are renowned singers in this genre. Carnatic music is enjoying a revival after it had gone comatose some 15 years ago. The recital was in Chowdiah Hall , Bangalore's only decent theatre hall. To my amazement, the hall was full; some 1000 people came to hear the duo sing. Granted the audience  mostly had white hair (or no hair) , but still ......  . Ranjani and Gayatri sing very well , they tandem together beautifully. Even if you don't have a taste for this genre, try listening to this piece from them. Lovely music. But even then, the packed hall stunned me.

A week ago, the National Badminton Championships were held at Bangalore. India is near world class in badminton. China, Indonesia etc are a class apart, but India nowadays features in the first division. Saina Nehwal was not taking part, but there was enough class on display. This year saw the emergence of the highly promising talent in 16 year old PV Sindhu who won the women's title. She is already near 6 feet and has a lovely game which will improve with age. In two years time, the prospect of Saina and Sindhu representing India in the Uber Cup makes you want to drool in anticipation. But back to the Nationals. Total audience - 50 ; of whom 49 were parents or friends of the players. Yours truly was probably the only unconnected  fan.

Getting a crowd in India should be no big deal - after all there are a lot of people in India. Chowdiah Hall fills up for any type of concert; any genre of music. Rock or Hindi film concerts have to be held open air in Palace Grounds to accommodate maybe 10,000 people. And there were 50 people to watch the badminton Nationals.

Now you know why India produces soulful music - Hindustani, Carnatic or Film. Now you also know why India wins nothing in sport.

Thursday, February 2, 2012

Face the music

A terrible decision for the company and its founder. A great decision for everybody else. Welcome to the crazy world of private equity.

Facebook needs an IPO like a hole in the head. It doesn't need the money. The only possible use it has for it is to pay off some tax liabilities being triggered by doing an IPO. Most of the money is going to be invested in US government bonds - impeccable logic of raising expensive equity and investing in bonds that yield nothing. The business itself is a cash spewing machine - it doesn't need more cash. On the contrary it doesn't know what to do with th cash already being generated. Actually the risk when too much cash is sloshing around is that the Board will go and make a stupid headline grabbing acquisition.

Mark Zuckerberg doesn't want to do an IPO either. He doesn't need the "valuation" to prove to everybody that he is rich. He's going to lose every autonomy he had in running the business - now he has to pander to the quarterly whims of so called experts called analysts. Being listed is like a curse - the number of regulatory and legal constraints the company will have is enough to make you lose your senses. An independent Board of eminent personalities will sit in judgement over everything Zuckerberg wants to do. Two quarters of missing forecasts and they will have to sack him. Companies that need capital have no other option but to eventually list. The slight problem is that Facebook does not need any more capital.

Its the current shareholders, minus Zuckerberg, who want an IPO badly. They want to encash the fortune they are sitting on. The likes of Aegis Capital, Goldman Sachs, etc. The employees with stock options want to become millionaires. They love the IPO too. The investment bankers who are handling the IPO are beside themselves with excitement - the prospect of fat fees of unimaginable proportions makes you drool doesn't it. Especially when they need to do no work ; after all the shares are going to be bought up even if a donkey handled the issue. The "market" loves it - it will provide employment to a clutch of useless analysts who will write learned treatises on the company without having a clue about it. Day traders will buy and sell everyday, speculating and punting like crazy. We, the wonderful public, can now learn all about its innards and criticise its decisions.

Mark Zuckerberg knows all this. But he probably had no choice - his shareholders must have pushed him and after holding off for so long, had to eventually give in. Facebook can go only one way now - down. What a waste.

PS : Full disclosure - This blogger does not like Facebook. He does not go there.