Whenever I see the success of Vodafone’s Zoozoos being celebrated or the iconic advertising that almost created brands from scratch (like Onida), I am bewildered about the context of the celebration. It’s almost feverishly praising the ‘idea’ and its execution while ignoring the wealth creation in the hands of the owners. It’s shocking how the agency then sells and transfers all this for a mere few lacs to brand owners. It’s an IP slavery model.

Advertising agencies are almost equal partners in some business creations and yet benefit the least. For the older and rock solid brands, they are the true ‘custodians’. I remember meeting an agency head to seek help on some confusing signals about a particular brand of toothpaste from a Unilever brand manager. He chuckled and said ‘These guys are new kids. They will grow and learn. The brand is about………’ and he gave me almost a Wikipedia like 1 hour plus analysis of the brand and what it stood for.

A case:

Imagine that you are the owner of a Rs. 1000 crore industrial air conditioning enterprise. The business is stagnating. Lots of small players are eating into your market share. You have to move from being a service business to becoming a product company that makes air conditioners for consumers – a business that is booming. All the assets to do this are in place. The business cash flow can support this logical expansion. It’s a giant leap but has to be made for you to survive and thrive.

Lots of questions remain unanswered – How will you create a new brand for ACs in the consumer space? What’s the product strategy? What’s your positioning and differentiation?? What is your consumer communication? Which media vehicles work best?  You have sold ACs to purchase guys in factories and malls – how will you sell them directly to discerning consumers?

Sure you could hire some professionals from existing consumer AC companies but that’s a path riddled with hits and misses.

Now, imagine that Advertising Agency ‘Olive & Mason’ that has helped sell ACs  for 50 years finds out about your plans & approaches you to help.  They have worked with over 10 leading AC brands in the past, made them market leaders, they have all the insights, research, market penetration data and the knowledge of what the market wants. Most importantly, they know what the market doesn’t want. Also they are not conflicted to work with you at this stage.

Their proposal is simple – they will charge you only their real costs in terms of research, media and creative costs that they will incur on your behalf.

Their upside is 2 % equity of your company’s extra valuation should this new business of yours succeed. So their entire profit is success based. The nitty-gritty of ‘success’ is of course negotiated hard between you and them and is a sure win-win for you and them.

If I were that owner, I would do that deal.

Your CFO however is much wiser and this is what he does:

Your company casually floats a general inquiry that you will be spending 200 crores in building a consumer AC brand. Of this almost 20 crores  (10%) will be spent only in consumer media (TV, Print etc) to launch the brand. In a few hours the 30 best agencies of India clamor to get into your reception door. Over the months, they pitch so sincerely and hard that you feel like hiring all of them. Finally, the best amongst the best is selected. The lucky agency crafts your product, strategy, creative and media plan. They wisely spend your 20 crores.

It was agreed between you and them that they will earn about 1 crores in the bargain (5% margin on the 20 crores as a blended commission on creative and media) but they secretly make 1.5 crores (ouch).  A few weeks later a media auditor calls your CFO and whispers about the 50 lacs extra surreptitiously earned and all hell breaks loose. You can now legally and morally strangle the agency anytime you wish.

At your end, the AC business has gotten off to a great start. The 200 crores investment is poised to create a 200-300 crore business in the next 3 years and your stock has risen to reward you with a market cap of an extra 500 crores (1.5x of revenue). Life couldn’t have been better.

The guy who fooled the ad agency is you.

If the agency had taken equity as compensation, their 2% would have been worth 6 crores and appreciating. They would have been your partners in many more milestones to cross. Today, they are a vulnerable vendor that has taught you everything and yet earned a negative reputation for themselves. This is classic win – lose.

The trade-off – fees vs. value creation.

Consider this:

Revenues of Indian cos that advertise* Ad spend (3.4% of revenues)** Gross agencies earnings
(assumed at 5% of ad spends) #
The topline that ad agencies helped improve of their clients @ The improvement in market cap of these companies (1.5 x revenue) If ad agencies earned out 2% equity of the upside
3,00,000 cr 11,000 cr 550 cr 30,000 cr 45,000 cr 900 cr

* Zenith Optimedia report

** LiveMint report

# Assumed blend between creative and 1-3% media commissions

@ Assumed that 10% of the topline increase was thanks to improved marketing and communication of ads.

The new business model – Ad agencies becomes the Brand VC

The new business model would mean that Ad agencies get capitalized to run operations at their own costs (salaries and overhead expenses) and use the teams to then create and manage brands in exchange for equity. Its equity for knowledge just like VC operate using the equity for cash model. This creates a deeply valuable business model that not only can be externally funded but also create a deep synergy across the value chain – rather than being at conflict today (it’s well known that ad agencies need their clients to spend to survive – sometimes it’s not in the best interest of their clients to spend but that gets compromised). In a world that’s contracting spends and improving returns, we need partners in arms – not enemies in bed.

The risks in this model as Punitha Arumugam – CEO of Madison Media explained to me are manifold: The business of clients (and hence their stock) declining due to reasons other than good marketing; the inability of the agency to really control or influence a client like a financial VC; having the deep cash pockets required to sustain long term cash burns in the hope of accumulating equity etc.

Well, this is the brave new digital world and that calls for brave hearts. If google, twitter and facebook are the new media powers, it’s knowledge over brute media power that will win. More the reason to trade IP – not sell it to the highest bidder. As a starter, the big 5 agencies could incubate a VC agency model to service new start-ups and less risky business models as an experiment.

Mr. Martin Sorrell – are you game to become VC yet?

A week back, when I asked my driver Mr. Yadav Maharaj to drive me at 6 am to the  Mumbai Airport from home, he matter of fact said ‘Babu (Sir) – we will take the usual old route via Mahim… there is very less traffic that time’.

I was shell shocked. That’s when it hit me – I think of the Sea Link like a Googleesque tech nirvana – the more you travel on it, the bigger you start to dream and the faster you drive on it, the more you feel like stepping up on your own speed of growth.

Yeah, it just happens to be a bridge over water that also made life so much simpler. Mr. Yadav however thinks of it like an ‘avoidable’ cost that should be entertained only in dire straits!

The Seal Link is in trouble. On my way back from home that night, I noticed that at least 9.5 cars out of 10 were turning towards the old Mahim Road rather than taking the sea link. I am sure 9.5 of them were not residents of that route that had no alternative choice.  Most of them had Yadav mindset owners inside– saving 1.5$ and sacrificing 45 minutes of their lives in their bargain. ( If you take the Sea Link, it saves you at least 45 minutes in travel time, beyond the frustration of driving on bumper to bumper traffic etc)

Can you believe the math – burn in hell for 45 minutes, but save 1.5$ ?

There has to be a way to break this mindset and introduce the  Sea Link as the new way TO THINK for Indians. Screw who travels where and how. Once our people understand how to appreciate thinking BIG, they will use it in their own lives and demand the same from the companies they work for,  and their government !

I think:

  • The Sea Link should be free on random and unannounced days – this will surely get more drivers to try their luck – and get addicted in return.
  • Happy hours on the Sea Link?
  • Loyalty points like an airline program?
  • If you are 4 in a car – you go free. So even lesser traffic on the road
  • Give me a few advertiser inserts at the toll gate and let me ride almost for free?

As I believe, the Sea Link was never about making money. It was about solving  an age old horrible problem using technology, imagination and ambition! Isn’t that the only way to create value?

The more people use it, the more it will inspire them.

We need 10000 ‘Sea Links’ in India – In Politics, in Municipalities, in Hospitals, in Schools and most importantly in the Government itself…Sleepy Mantralaya – you capiche?

Every time I listen to my Ipod I remember Napster.

The record industry treated Napster like the Taliban of Piracy – they sued, fought and closed it down.

But wasn’t Napster actually ‘iTunes’ way before iTunes really came on the scene?

What would have happened if the Music Labels – the Virgins, EMIs, etc., had gotten together and invested in Napster or just bought it outright and made it their industry ‘digital music’ distribution channel? A Sony ‘walkpod’ a la iPod would have complemented the business: The music guys cranking out music, and the hardware guys making the stuff to play it on.

The moral here is that piracy needs to be understood before it is fought. Ask me about it: I run a casual games company that produces 15 games a month and has a library of over 350 games. So far, I know of 8900 websites that have stolen or as they politely say ’scraped’ our games.

Honestly, after the initial shock, I am quite glad about the situation. It proves that what we create is valuable – since only valuable things get robbed. And we have creatively leveraged piracy to help us succeed. More on that below.

Recently, I asked a 13-year-old teenager if she would ever walk into a CD store, lift a CD from the shelf and take it home without paying for it. She clearly said that she would not. Yet the same girl was zapping MP3s and singles to her friends across the web… when I explained to her that she was actually ‘stealing’ – she just didn’t get it.

Piracy is the new consumer ’speak’ and ‘do’, and it’s here to stay. Like it or not, piracy or not, music and all forms of entertainment is going to be zapped all over the world without any restrictions.  It’s the job of the industry to capitalize on it rather than squander it away.

This is what is good about Piracy and the Pirates behind it and where value possibly lies:

  • Piracy creates economies of scale-

Distribution by agencies and companies is history. Consumers distribute content amongst themselves – leading to almost tsunami like waves of consumption and distribution. So, in effect, the cost of digital entertainment is actually reduced, thanks to the non-hired help.

Creators can price their wares very aggressively given this new economic dynamic.

  • Piracy creates democracy-

It’s no longer a chance meeting with a music czar  or a gaze by a producer at a bar that creates stars today. Digital distribution is the ‘lowest common denominator’ that anyone with creativity gets noticed and famous. Pirates are the best advertising agents out there. And they come for free.

The stars in the making need to partner with this global tide rather than fight it.

  • Piracy creates innovation-

The big gaming-console companies did not succeed in markets like China due to rampant  piracy. Their game CDs were copied and sold in the black market. They felt cheated and held back. That created a massive vacuum in the market that was filled by the online game companies that created games that were meant only for the browser that required subscriptions and virtual goods purchases. This was the stepping-stone to games like Farmville and Mafia Wars.

How to win

It’s painful to be robbed of what’s yours. Yet if one thinks beyond the hurt, there may be a bigger opportunity out there.

  • Upcoming artists now make more money from concerts and live appearances than selling CDs. Pirate marketing is the new currency of value. They tell fans about new bands without spends on ads. Pirates can be the new career launchers.
  • Shouldn’t the big music companies still create a competitor to the iPod and iTunes?
  • Make everyone in the eco-system win. Our secret sauce to leverage piracy was something called ‘inviziads’ – we placed invisible ads in our games that went with our games when the pirates took them. These ads automatically become visible on pirate websites. The interesting concept is that the content remains pristine. The consumer wins (gets content without paying), the pirates win (become popular thanks to evergreen content) and we win (thanks to the ads in the content).

The next battle starts when the e-book readers like the Kindle begin to get high penetration. Original books, new and old, will begin getting zapped across friends and families. Authors, publishers and booksellers will be on the receiving end of the tsunami – they will not be paid in this round. Let’s see how many of them try and fight the flood and drown vs. those who swim with the tide and survive and win with innovation.

I love VCs. They are the reason I exist. 7 rounds and 2 exits later, VCs and I co-exist like the sky and the clouds.

Having said so, I deeply reflect on my experiences with VCs in companies that I own, mentor and closely follow &  wish that they learn a bit of bonsai.

Why?

Because I firmly believe that:

Small is the new Big, and Small is how big Value gets created.

So, what’s the point?

In most VC funded companies, there is a sudden expectation from VCs to explode value creation just after the funding.  To me, that is quite unrealistic.

Like a Bonsai plant that takes time, you cannot ever ‘force’ value to  suddenly grow in a company. Growth comes over a longer period of massive pavement pounding, relationship building, slow but sure adoption and acceptance of a product or service and so on and so forth.

In the ‘Outliers’, Malcolm Gladwell actually empirically proves that it takes 10,000 hours to become great – that’s at least 5-7 years of non stop work.

So what happens when newly funded start-ups are held at gun point to grown in value?

Here are 7 deadly mistakes that typically ‘kill’ the business :

1. Good money is thrown into advertising -

Great brands take time to become valuable. No amount of ads can make you valuable. This leads to massive drainage of funds and when the ads stop, the brand becomes invisible again. Ask the 2000 dot com club for more details.

2. Hiring the President of America to run your company -

If you manage to get Obama to run your company, he will probably run it into the ground. These ‘names’ are useless. They come from Fortune 100 companies with 100s of people to take orders. Ask these pow-wow CEOs how many times they have sat outside a client’s office for 2 hours before a meeting to beg for a deal. That’s what happens in start ups and this is not what these guys are used to.

These big shots are great when the company is on a massive scaling up etc.., but not when its starting up.

3. Signing of irrelevant agreements and contracts -

In the bid to show ‘traction’, management is compelled to sign all kinds of MOUs, Letter of ‘Intents’, blah blah… These toilet paper documents rarely get consummated and just waste crucial top team time.

4. Rapid Changes in Business Plans -

It takes a long time for a business to become a business! Funded companies sometimes think of business models like fast food – just ready to buy, try and die!  I have seen so many companies fail because they changed what they set out to do and then adopted ‘what’s hot’. Well, by the time they got around to doing that, their original business became hot again!

5. Bad Board Room Karma-

Board room management is such a killer. VCs sometimes begin to take offensive positions and their cross fire assassinates the CEO. In mobile2win China, we had Chinese and German investors and an Indian CEO. They all hated each other!  All of them spoke their native language in a common board meeting! One VC told me that he wished the company was dead because he hated the CEO! I politely reminded him that his money was at stake but he just shrugged his shoulders.We finally exited the investors, fired the CEO, and got really lucky with Disney buying us after the resurrection!

6. Bad business deals and decisions-

In the hurry to show revenue and cash flow, sometimes deals get signed at negative values that haunt the company forever. Such stinking agreements become precedents in the markets and strangle the company.  Clients never agree to improve payouts and it becomes a vicious cycle.

Management needs time and space to think through a business and how to model revenues and cash flows. It can’t be done in a hurry.

7. Let 100 companies fail as long as we get 1 right-

This is the deadliest problem. VCs sometimes play a simple mathematical game of hoping that 1 out of a 100 investments they make, gives them a 300-500 times return, hence getting back 5 times on their overall money.

Where does that leave the 99 entrepreneurs who didn’t sign up to be part of an experiment?

Its like throwing  100 folks in a middle of the ocean and asking them to swim to the shore. 99 will not be able to – they will drown.

If you did that to the 100 in a swimming pool, all would make it to the wall. Do it 50 times and then take them to the ocean. The results will be different.

I think VCs need to understand that each business and every entrepreneur is unique  and approach their investments with lots of time and patience. Their returns will be far more spectacular than what they enjoy today.

Bonsai is a great starting point!

Credence Clearwater Revival (CCR) inspired me to write this blog. If you haven’t heard CCR, I suggest you do – its immortal rock music that will heal your soul.

So, what’s in name? Would you call your band ‘Credence Clearwater Revival’? Try saying the name fast. Or if were a food entrepreneur, would I call my restaurant Mc Kejriwal? What on earth does ‘Lays’ chips mean? I don’t care where Altoids came from. Oh my God, my ketchup is called Heinz and my cereal is called Kellogg’s. What do I make of The Oberoi, or The Hyatt? Hell I want a coffee really badly.. Starbucks here I come…hmmm…that’s hardly the appropriate name of a place that would sell coffee! I love Sony…. Please just explain the brand name to me one day.  Honda, Toyota, Samsung, Yahoo et al, we know today because of their amazing products and services. Not because their name got us to buy them.

Spending time and money on the perfect ‘brand name’ creation is all bunk. Those who pretend that it matters are the false advertising types whose livelihood depends on making people spend money that they don’t need to.

My hypothesis:

  • Consumers remember brands that perform for them – so be it a great ‘Jet Airways’ flight or a fantastic pizza from ‘Dominos’ – I remember these brands for what they did for me – NOT what they pretended to call themselves.
  • Consumers don’t care about brand base lines and logo’s. God knows how much money is spent by brand owners getting their logo’s and base lines ‘perfect’ – it just remains an ego trip for the top bosses.  Try asking Johnny on the street what the seven colors in your logo mean or quiz your business partner about the half sun that appears in your logo… They will stare blankly back at you.
  • You can call your brand and business anything. Family name, city from where you come from, girlfriend’s mothers name or the hospital in which you were born. If you are good at what you are selling, you will become the next Hertz (car rental service or even Meeru Cabs for that matter)

Put your money where it matters. In making your product or service the best. Your brand and what its stands for blah blah will be taken care of by your customers.

When I used to work in my fathers socks factory I learnt a unique lesson. A worker whom I used to work on a machine with would be extremely co-operative and proactive during the day shift that would end at 1530 hours. At 1532 he would change and step out of the factory gate. At 1536 along with a bunch of other workers he would shout the most imaginative of all slogans against me, my father and our company and blow his lungs out. The next day, at 0700 hours, he would be saintly working the machines till 1530 hours.He was protesting for things he wanted while respecting the business that employed him. He was getting noticed in the right way.

What happened at Jet Airways was outright disgusting. The pilots in question actually hijacked the airline – just that the planes were on the ground. Not flying and leaving passengers grounded  is as good as flying the planes and threatening to crash us if demands are not met. Either way they ‘screwed’ us.

Jet Airways in India is no longer an airline with planes that flies people around – it’s the gold standard of the new business model in India. Each flight demonstrates precision, etiquette, attention to detail, safety, and comfort – the essential ingredients of any business today, be it serving pizzas, running an airport or managing a mall. As India migrates from an agrarian and manufacturing based economy to a service oriented one, we need thousands of Jet Airways to be replicated. Sure, there need to be logical and business like processes to redress employee issues – but showing a gun means you are a criminal.

I believe that the afflicted passengers should file a class action suit against the pilots and sue their pants off. They should be held responsible for inconveniencing the lives of not just the travelers but also the folks they were to meet – be it family, business etc. These hijackers need to be told something that Ronald Regan immortalized – ‘you can run but you cant hide’

I just completed 70 hours of one of the most amazing experiences of my life – the DSN course of the Art Of Living (AOL). I am a dedicated AOL follower and worship Sri Sri Ravi Shankar as my Guru.

I checked into the course at 1630 hours on Thursday and checked out on Sunday just around 12 mid-night – with a few hours allowed in between to go home to shower and nap. In effect, 3.5 days of non-stop action.

The experience was simply amazing. Just imagine the place to be a military-yoga la ‘miliyoga’ camp. The almost non stop sessions of 19 hours comprised classic yoga, meditation, introspection, self-development, ego bashing, sharing and caring, acting, spontaneity, improvisation, singing and dancing, serving and even spot fund raising… a mélange of the most intense of emotions all served ‘red bull’ style. The thoughts that emerged in my mind in random order were ‘wow’, ‘what the ****’ , ‘god, thank you, ‘ I’m a CEO – what the hell am I doing here’, ‘what was I waiting for’, ‘how do masters become masters’, ‘isn’t this what life was supposed to be all about’, ‘thanks for all that I have’, ‘get me the hell out of here’….

There was one (non physical) session in which I cried non-stop.

At night my level of energy was so high, thanks to the special and almost magical meditation that just 4 hours of sleep was enough to move on to the next day.

I would recommend this to everyone.  You need to start with a basic course to qualify. A must for all of us in the bad bad world. You come out like a phoenix.

Interestingly, the Art of Living seniors describes the course thus :

‘if you think you are tough, come and find out how tough you are, and if you think you are weak, then check out how tough we make you’

Contact me for introductions.
alok@c2w.com

In an increasingly alarming rate, I have begun to receive a panic stricken call from close friends who have been cheated of their esop/ equity/promised /founder shares in start up’s and VC funded companies.

This is what is I keep hearing:

  • There was no paper work in place while I was there, and when I left
  • The CFO kept changing
  • I just received a letter stating that I have shares – nothing else was given to me
  • I was told that the company is incorporated in Mauritius and you have shares of an Indian company
  • Oops – once you left, your shares ‘expired’
  • Don’t worry – when the company gets sold, you will be taken care off

All this is ‘cockroach’ s**t. I say cockroach s**t coz even bull s**t is usable and hence valuable.

Start up companies typically in the Internet space lure mainstream professionals to join their rocky, unheard of, highly risky and usually doomed to fail venture on 2 promises:

  • Better cash compensation than the last job
  • Equity!!! That’s what’s supposed to make you rich… get you the flat in Mumbai, the flight to Brazil and the upgrade from Old Monk to Blue Label

This is what goes wrong:

  • Once the VC money hits the bank, the founders just get warped into execution, solving problems, managing VC expectations, firing and hiring and honestly saving their own jobs
  • The promise of esop’s exists but no one really cares – the VC’s have their shares in place and the management is on a tightrope – their deliverables are revenues and traction rather than good HR practices
  • The CFO doesn’t care/doesn’t get it/ is just not in the groove. His priority is burn management, filling in the VC templates and just making sure that the funds are being used productively.

So, if you wanna make sure that your sacrifice is worth the shares that came in return, do the following:

  • Insist on a clear esop vesting schedule – how many shares will you get, when, at what price and in which company.
  • Check on conditions of expiry of your rights when you leave – that should not be the trap that you fall into
  • INSIST – and  I retype – INSIST that you get physical shares of your due every vesting cycle (so every 6 months etc) – no shares mean no shares. Don’t be disillusioned that your shares are ‘somewhere’ – if they aint with you, they aint with no one.
  • Try and understand the capital table ‘cap table’ of the company without being too nosy. Just understand if your 200 shares comprise 0.2% of the company or 0.02% or 0.0000002%  ….. get the drift?
  • If there is a procrastination from the management, CFO, etc on your esops and where your shares are, write to the VC member on board. Trust me, they don’t want their investee companies to be frauds. They just need to be alerted.
  • On exit, make sure that your paperwork is in order and that your quitting/getting fired has no impact on your existing shares
  • When in doubt, simple ask a lawyer!!! Its so amazing – when we get a flu or a high fever, we run to a doc – why cant you simply ask a lawyer for help for your soon to be made fortunes!

In a successful exit, shares change hands very rapidly and the transaction closes without delay. You better have your shares in place for that golden moment.

When I drive for over a kilometre in Mumbai, I usually encounter a maniac who swerves into me from the left or right, a taxi parked on the side that blocks the road ahead, a smiling man who crosses a busy road without a care and of course public bus drivers who want to kill me.

I used to fume, take ‘revenge’ and even contemplated buying a run down SUV that I could then use as a bash up car.

Until I thought of applying some Zen to the situation.

I now think of driving as a Zen meditation test. I think of myself standing in front of a Zen monastery, applying to get in and this challenge being handed to me as an admission process.

The obstacles on the road are tests that are meant to trouble my mind. The people are ploys to distract me from being ’sane’. My approach is to smile when someone cuts into me & smirk when the taxi up in front suddenly decides to take a U -Turn. Make every irritation a giggle event. I truly believe that if you train yourself to overcome road rage and make it a spiritual quest, there will be a remarkable up-liftment of your state of mind.

Be like ‘cloud – water’ – float and flow and let nothing perturb you. Specially a road journey that you forget in minutes after it is over.

After 10 years of trying to sell the Internet Media in India, the one big stumbling block I have finally figured out is the ‘Mamaji Effect’

This is linked to the undying faith that the marketing folks (I regularly chase) have in Television Media, as their most preferred media choice.

It’s the Kanpur wala Mamaji (uncle) who calls up a couple of days after media breaks and says to my elusive brand owner ‘wow beta, I saw your company’s ad on TV… wah wah… very good stuff.. looks like you are doing well, keep it up’

That one call signals reach, recall and effectiveness to the brand owner! The ad has worked, the media has delivered – After all, the Mama’s and Mami’s are calling

And so unfortunately, Mr Mamaji hasn’t surfed Orkut or my Games2win or any of the other websites we do campaigns on and therefore not called my client up.

The point is that while there is no denying the scientific reach and effectiveness TV can achieve, the Internet in India has arrived and how! 

We have 40+ million users. Sites like Orkut alone can singularly deliver 10 million + unique users per month. With rocket science technology like Behavioral Targeting and simple frequency capping, Internet media today can deliver such an effective bite to a marketing persons marketing objectives… if only we got a fair chance. 

Our ads can be measured, tracked, creatively changed by performance, used to dynamically capture reactions and direct consumer data – so much more than what TV delivers, yet we remain a fraction of TV buys. I am not even bothering to compare costs of Internet campaigning vs. TV buys. 

I am patiently waiting for the new generation 25 year old marketer who is now getting into the decision making groove in the big Fortune 500 brands. A couple of years later their buddies will call and say ‘ hey dude – saw your facebook app – amazing branding and interactivity – way to go’ 

My phones will never stop ringing from that day on.