Category Archives: Business

How the Unicorn Bubble will Pop


I flew into JFK, saw that the taxi line was really long, called a Lyft, and was on my way 2 minutes later. And I paid $10 less than I would have, had I chosen to wait in line for 30 min, ride in a hygienically questionable car driven by an uber aggressive maniac yelling into his phone, with the radio blasting in an unrecognizable language. Instead I was in a quiet, clean Camry driven by a polite person, with a free bottle of water. Unicorns are changing the world, making incumbent business models obsolete by improving the service by 10x while saving people money AND helping people earn a living. There is no doubt these guys are improving the overall wellbeing of Americans and in the long run it will be very hard for anyone to stop them. But Uber should not be valued at $50B valuable when you adjust that potential for regulatory and liquidity risk.

Are we in a bubble?
Yes, I think we are in a bubble. Nothing like the dot com bubble or the financial crisis of 2008, but a modest bubble in a more localized area of our economy; the tech private IPO market. The term private IPO is already an oxymoron (come on, private initial public offer?) which is a strong signal that the end is near. Investors are throwing billions of dollars to companies with audacious business models & goals without properly adjusting valuation for risk.

No Exit in Sight
Some of the unicorns are too big to be bought out, too risky to go public, and too expensive to operate to turn a profit in the short term. Who’s going to pony up $50B to buy Uber? $24B to buy Airbnb? $11B to buy Pinterest? Well, I guess the last one is not completely unrealistic, but the point is, this is not exactly a seller’s market at this price range.
Which brings us to the IPO as an exit option. How do you know you are operating a risky business? How about: When a leader gets arrested for merely doing his job. An IPO is a tradeoff of accessing large amount of capital in exchange for transparency and scrutiny. You can’t really take a company public operating in a regulatory gray area. You would also need a financial plan to justify a high valuation. Kind of hard when you thought you had a million contractors and overnight you may be stuck with a million employees with benefits. Adding to this, it is increasingly hard to get to cashflow positive in Silicon Valley nowadays when an entry level engineer will cost you $150K (with benefits) and you are competing against Google, FB, and Apple for talent.
Another way to return $$ to investors is to pay out dividends. LOL. Sure, that will happen in our life time.

What will trigger the bubble to pop?
Private companies are by definition less transparent and less liquid than public companies. Because valuation of these companies don’t get adjusted in real time like the public market, we see valuation jump up round to round, making it a bumpy uphill graph that looks like stairs. That is, until you exit and join your post IPO buddies, or you run out of cash and have to raise another round at (gasp) a lower valuation.
Is Uber worth $50B? I don’t think it is, not today after you adjust for regulatory and liquidity risk. Two things can happen when Uber runs out of cash and has to raise another round. The existing investors plus additional suckers driven by the fear of missing out doubles down at a higher valuation and extends the bubble period or (I think the more likely scenario is) Uber raises a round at a lower valuation, which triggers the bubble to pop.
What is interesting about this bubble pop is that it will be a series of smaller pops spreading over months or even years. Uber will cause the most significant splash and will affect the public market.  Then we will wait a few months until the next unicorn not ready for an IPO has to raise a round at a lower valuation, and then another. Each time this happens, the asset column on an investor’s balance sheet shrinks, investors and entrepreneurs become more risk averse, and startup fueled innovation slows.

So who’s getting screwed?
Investors, investors of investors, founders and employees will feel the most direct hit since they own these less valuable assets. Let’s think about what the ripple effect will be.

Early round startups: lose
There will be less funding to go around to the new new things. The apparent decrease in upside will make entrepreneurs more risk averse and it will be harder to convince early employees to leave a big company to join a small startup. VC’s will also have a tougher time raising funding.

Publicly traded tech companies: lose then win
A lot of focus will be put on righting the unicorns, which would include added financial discipline and perhaps rounds of firings and key employees leaving. I would think stock prices of tech companies will go down with the ripple effect but Google, FB, Apple, etc. are companies generating real profits with less regulatory risks and full liquidity. They had to overpay for engineers because startups were luring them with equity upside but disappointed rockstars will start leaving unicorns and tech giants will pick them up immediately. These are rare game changing talents that could show up in bunches. In the long run the tech giants will get stronger from this.

What’s next?
I think this series of events is just a hiccup on the hype cycle. A lot of unicorns are building businesses that are disrupting dysfunctional industries, creating jobs, and generally improving the world. Uber may not be worth $50B today but they just need to tackle the issues they are facing one by one and in a few years they could get there (or more). The cause of this round of bubble is less about the businesses faking value and more about investors making undisciplined financial decisions; a private company valuation inflation if you will. Unicorns are supposed to be hard to find. A billion dollar valuation represents more than just market size and potential but the ability to execute on and operationalize the opportunity. Some unicorns will lose their status after this is all over but that does not mean they are worthless. Some will figure things out and will make a dent in the universe.


Turning Excess Supply into a Business


It’s been a while since I last wrote a post. Meanwhile, my daughter who was a week old when I wrote my first post and was a tiny creature will be turning one tomorrow and has become a havoc wreaking human being.

Today I wanted to talk about finding business opportunities. No, I’ve never started a company and am yet to make my millions, but there are certain ways to look at the world to find your chance. Entrepreneurs don’t necessary start their businesses through these perspectives but not everyone is über passionate about that one thing in life either. I believe passion is necessary for an entrepreneur to succeed, but that passion does not have to be the subject of your business. There are successful people who own waste management companies, who may not be passionate about garbage.

Anyways, Excess Supply is today’s theme. If you look at some successful companies, they leverage existing assets that are underutilized.

For example:

  • Say I own a vacation home in Hawaii I use 3 months a year (25% utilization), there is Homeaway or Airbnb.
  • If I’m traveling, my car will be sitting in an airport parking lot for the next week, costing me money. Well there is FlightCar.
  • Speaking of cars, why own a car when you won’t drive it more than 2 hours a day? Zipcar.
  • What if I’m a bike messenger and I’m not always busy during the day? Postmates.
  • I run a website with a bunch of remnant inventory. That’s where DSP/SSP/RTB comes in.
  • You get the point.

    The good thing about excess supply is that it’s sunk cost for the owner. If I’ve already bought a car and it’s going to sit at the airport parking lot, I might as well rent it because making a couple of extra bucks is better than paying for a week parking. And “might as well” comes cheap. Why are listings on Airbnb cheaper than hotel rooms despite being bigger with wifi and a fully functioning kitchen? Because the renter is visiting friends in Boston for a week but she still owes the full month rent, so she might as well rent it for cheap than not rent it at all. The renter is better off, the visitor is better off saving money on hotels, and there is still money left for Airbnb to be in business.

    Every asset not utilized is an opportunity. Every parked car is underutilized. Every empty space (office buildings are completely empty at night and a lot of homes are empty during the day…). Restaurant kitchens in closed hours (maybe you can rent them to run your business from 2am?). Food delivery guys in non-peak hours (what else can they deliver?). If you go to the movies on a weekday morning, there are 3 people in a theater that sits 200, can’t they rent the space out to someone?

    Next time you walk around town, look for these underutilized assets because there maybe a business opportunity there. And any of the owners will gladly let you utilize the assets because, hey, they might as well.


    My War Story: Worst Project Ever


    People in Japan work long hours. Especially those in the IT sector. I spent 6 years working 60-80 hour weeks and was involved in some crazy projects. This is a first hand account on the worst project I have ever seen or heard of.

    I was probably 25 or so and it was the first project I was assigned to as a leader. I was to manage a couple of programmers (who were both in their 40’s, which is completely unrelated, but one of them used to program with punched cards. PUNCHED CARDS!) to develop a data migration tool. Yes, this project required 3 programmers full time about 6 months to develop a tool just for data migration. This was because we were a small part of a $10mm+ ERP project for one of Japan’s biggest companies to be unnamed, and the implementation was led by a public system integrator also to be unnamed. The data migration tool development was complicated but contained. However, the ERP implementation project was just insanely out of control. I got to sit court side for the fireworks.

    The lesson here is, never bite off more than you can chew. The main implementation partner did not have the skills or experience necessary for such a large scale ERP project. What ensued was your classic scope creep story that brought seemingly endless new use cases. With the client being so huge, they were basically customizing SAP to a level that the system was not designed to accommodate, but no one had the balls to say no. There were more than 200 developers coding furiously what seemed like 24/7 and people were getting worn out. Most developers were working 7days and putting in 100+ hours week in and week out and trying to handle an endless string of requirements change. The whole project room had a stench of guys not showering in a week and the atmosphere was literally that of a death march. There was no redemption or silver lining. We were bound to fail and there was nothing anyone can do about it. But for some strange reason, everyone worked their asses off and refused to see the reality that we were doomed.

    For me the most interesting part was seeing how people snapped under this extreme stress. The overall project manager developed ulcers and had to pass stones with his urine, which apparently was excruciatingly painful. But he was better off than some people. I actually saw ambulances come in to the office on two different occasions. Once in an afternoon on a Wednesday where a guy was getting carried off sitting on a stretcher, staring at blank space seemingly lost the will to move. The other one was on a Sunday afternoon. This guy must have not left the office or taken a shower in days. Two paramedics held each of his arms and he had wet his pants and was drooling and screaming incomprehensible words while he got dragged away. This guy was in such a primal state of being that he was barely functioning as a human being.

    More than a year later the project was halted with nothing to show for. The contract guaranteed deliverables, which meant the client didn’t have to pay a penny and the main implementation partner bared all cost. For the 200+ people involved, not a single person was better off (except arguably for my team. We got paid, were relatively unharmed, and I got to see some things you don’t see everyday).

    This was my war story. Anyone else got some interesting war stories? Let’s trade war stories.


    Horrible Bosses: The Uber Micro Manager


    I finished up a management training recently, and that got me thinking about my past bosses. I’ve worked for quite a few managers, some good, some bad, and two distinctively horrible. One was your classic horrible boss. He was incompetent, always looking for opportunities to steal other people’s credit, and a general scumbag. The other one was a more rare and interesting case. He was extremely logical to the point of being robotic and his issue was definitely not incompetence. He was the ultimate micro manager and had to control 100% of your effort, down to your thought process. I have to say working for him was the turning point of my career.

    I was 25 years old and had 3 years of experience as an IT consultant at the company. I had moved back to Japan for this job and was getting comfortable with the culture and gaining confidence at work. When I was assigned to the project, my colleagues had warned me about the project manager. In the five years that he had worked there, he had sent numerous young consultants to therapy and a lot of them would never come back. He had a reputation of being too tough but he would get challenging projects done and the company valued that.

    The first three months of the six months project was tough but bearable. It was a three person team and I would get yelled at sometimes but it wasn’t anything I couldn’t tough it out. After three month, the other member of the team had rolled off the project and from there, it was a living hell. There was not a day that went by without getting yelled at. Every powerpoint slide, every excel sheet, every word I mouthed, every output I created was absolute shit. Everything I did was illogical and wrong and everything I had ever done in my life was worthless. If this was just an asshole boss, I could have shrugged it off and bad mouthed him behind his back over beer to feel better. What really sucked about working for him was that he was always logical and every feedback he had was backed with facts. He had notes of my actions and words that he would pull out as evidence and he created an environment that forced me to face the fact that I was wrong, illogical, stubborn, immature, incompetent, and useless.

    A lot of times when he asked me a simple question, something like “what happened to that meeting material?” and it would take me a split second to answer because some thoughts crossed my mind unconsciously. Before I could answer, I was getting yelled at again for the thoughts that he somehow knew was crossing my mind.He would be able to verbalize my thoughts better than I could. “When I asked you this, your initial thought was X and then you thought Y. Those thoughts are inefficient and worthless.”

    After getting tired of giving me the same feedback over and over, he made a list of things he wanted me to be always aware of. Every morning I come into the work, I would spend the first 10 minutes reciting the list to him. It went something like: “I will listen to what you say. I will make sure I write down every instructions given to me. Before I ask for your review I will confirm that the output achieves the objective.” and so on. When I did something wrong during the day, which inevitably happened multiple times every day, I would have to go back to the list and recite again.

    The most intense part of the project was only for three months, but it was the longest and toughest three months ever. I became the first person to go through a two person project with him and not end up in therapy, although I have to say I was pretty damn close. I definitely came out of the project stronger and a lot more humble (that’s what happens when every single non fact based confidence is shattered). Could I ever work with him again? Hell no! However, I do have a weird appreciation for what he had done, I guess it’s similar to Stockholm syndrome or maybe just the result of the brainwashing. After the project I did grow as a consultant and became a lot more disciplined. I also learned how not to manage a team and the importance of treating your team with dignity.

    In my defense, I am a smart and logical professional (I swear!) and even back then I was a competent consultant. I consider this period as boot camp and I needed a little ass kicking because let’s face it, I was a spoiled brat. However, I believe extreme stress is not always the fastest way to grow or succeed. I don’t need to beat him as an individual (and I don’t think I can) but I hope to be a better manager and a more effective leader than him. I look up to him in many ways but at the same time, he is my anti role model as a manager.


    Strategy Means Nothing without Operations


    ” A vision without action is just a dream; an action without a vision just passes time; a vision with an action changes the world.” ~ Nelson Mandela

    Substitute the word “vision” to “strategy” and “action” to “operations” and that’s your business quote of the day.

    I like to use a bicycle analogy to talk about what strategy and operations are, and how they relate to each other. When you are riding a bike, you are performing two main tasks. Steering and pedaling. Obviously steering is strategy and pedaling is operations. In order to get to your destination quickly, you need both components performing. It is much easier to steer a company that is already pedaling well. When you try to shift the strategy of a wobbly bike, you risk falling flat on your face. Strategy means nothing without the operations to back it up.

    So, what does it mean for a strategy to be backed up by operations? It means your resources are shifted towards the strategy. At the most granular level, it means your sales person is calling prospective client A rather than client B. It means your account manager is creating an additional slide and product manager is adding a few lines to the requirements document. Management is shifting some members from one team to another. In short, strategy is only effective when action takes place.

    In a corporation, the way to ensure these actions happen is by reflecting the strategy into the budget. When you look at a company’s budget there should be a storyline. The numbers next to the line items needs to illustrate how the strategy is to be executed. If you can’t read your strategy in the budget, it’s not going to happen.


    Personnel Announcements as Communication Vehicle


    In the past couple of days, I talked about why office politics suck and how corporate culture is set top down. What’s also really interesting is HOW culture is communicated throughout the organization.

    The strongest messages from management to employees are delivered through personnel announcements. Promotions, demotions, disciplines, dismissals, transfers, etc. The message is stronger than any presentation or training because it is REAL.

    We’ve all seen promotions that makes you say WTF? But there is a line of thinking and justification behind every single personnel move, and that is a manifestation of the leaders’ values and a representation of the corporate culture. No one ever gets accidentally promoted. Some may get an undeserved promotion, but even those are intentional.

    A personnel announcement is essentially a list of who’s getting rewarded and who’s not. Team members know their leaders and fellow employees, and they share information amongst themselves. They know WHY each of the personnel changes took place or didn’t take place and this common understanding creates the foundation of culture. So if you want to create a certain culture in your organization, be careful of who you surround yourself with, because no matter what you say in your new employee training, your actions will speak a lot louder.


    Culture is Top Down


    Corporate culture is determined top down. There is no such thing as great corporate culture despite the leaders. Great culture only exists when leaders exhibit the qualities they want to see from their teams. The worst is when managers complain about their own team culture. “I don’t understand why my team is always bitching and complaining!” Touche.

    Why is this? It’s because people, for the most part, are coachable and want to succeed (I say “most part” because unfixable assholes do exist and that is a hiring problem). Corporations are organized in a way that incentives upward mobility. So for the most part, employees are looking up and learning what they need to do to go up. If they see leaders politicizing and getting rewarded, they will mimic those behaviors, creating a political culture. If leaders exhibit teamwork and integrity, that will trickle down the organization and create a positive culture.

    So if you are a leader of an organization and want to build a good positive culture, first look at yourself and how your fellow leaders are acting. You may be able to fix your corporate-wide culture issue just within the leadership team.


    Office Politics Suck


    Office politics suck. It sucks for the company and it sucks for the employees.

    It sucks because it is so resource intensive. It takes time and effort to learn the dynamics of the organization (the rules of the game), play the game, and be good at it. This is time and effort that should have been used for more productive activities.

    It sucks because the asset and skill set you build are not transferable. You are making your investment in people and how they perceive you, and people change in organizations. The boss may get transferred or fired or may hire a new favorite. The company you work for may go bankrupt. You and the investment you have made are at the mercy of these changes. Also, that nice title you got without the competency to back it up will bite you in the ass in the future (and everyone below you will be laughing).

    So why do many (most?) companies fall into the trap of unproductive, political corporate culture? The answer is simple game theory. The team’s output is maximized when none of the members are playing politics. However, from an individual member perspective, if someone else is playing the game, you are better off playing, even at the expense of hurting the productivity as a team. Once the game starts, you can’t expect the members to take one for the team and get screwed over. As Ice-T once said, with office politics certainly on his mind, “Don’t hate the playa, hate the game”.

    If you want to build a productive organization you need to prevent the game from starting by taking these two steps. First, you have to hire the right people. One bad apple can really mess things up, especially if that person is higher ranked. Trustworthiness is more important than experience and knowledge. Second, as a leader of a team, you have to stay disciplined. Management laziness and ignorance creates a breeding ground for misaligned incentives. If you can’t see through the bullshit your reports present you with, you don’t deserve to be overseeing that area. If you see a bad apple, you need to have the discipline to fix the problem.

    In The Five Dysfunctions of a Team Patrick Lencioni illustrates a pyramid that summarizes the essential components of a productive team. Not surprisingly, trust is the base of everything. Team members trusting each other that they won’t play politics will ensure a bullshit free (not conflict free) environment, leading to a more productive team.