The Big Picture

Structural Market Deficiency or “How Do I Scale Our Team”

2009-11-17T20:42:00.000-08:00

Singapore is a vibrant city, with 4 million people and a number 1 rank as “best place to start a business”.

I moved to Singapore in August, over 3 months ago as part of the internet startup I am a co-founder of: iSyndica. Having spent 6 months in Singapore the year before, I had been accustomed to most elements of the city: the humidity, the food diversity (though I do call Subway my home about half of the week) and the culture. I had heard of great schools, NUS, NTU and SMU, among others. What I had not been prepared for, is the labor market that Singapore would subject our startup to.

The graph above highlights the type of profile iSyndica would like to hire given the current state we are in: early stage startup – less than 12 months old. We want someone who is entrepreneurial because we are all constrained by time, and talented so that he can be productive. A trade off of these two can be allowed since an entrepreneurial spirit can be guided, and a talented individual can be trusted to do a proper job. The issue is that in Singapore, there are market dynamics that affect the availability of the three desirable profiles, leaving tech companies in Singapore with an overwhelming, yet undercapacitated, supply of lower quadrant people.

First crunch: The right side of the graph, the group of talented people will seek to go to the US. This is the mecca for computer scientists, startup or not.

Second crunch: Asians are notoriously risk averse and tend to favor brands: Google, Yahoo, Microsoft, Avaya and the likes all offer CV validation, a steady paycheck and the comfort that one is on the right track.

Third crunch: Singapore has made the news in the US and Europe as providing a large amount of startup capital to young upstarts. This has made available a flurry of grants of $50,000SGD to a number of fresh graduates (or still in school) students with no experience to build and launch a product to market. Empirically, Singapore hasn’t had any global tech startups (ignoring the surprising story of Creative). Social Wok and Home Camera might be considered an exception (and where started by experienced individuals) given the overwhelming amount of individuals I’ve seen with their “Founders” or “Directors” business cards of companies. This easy access to funding has diluted the labor market for entrepreneurial people among small projects of 1-2 people.

Fourth crunch: We get money now what? Singapore’s great at providing money. I could be criticized for biting the hands that will feed me but I think my arguments are valid. Singapore is an island of 4 million populated in large parts by foreigners. If I am a Singaporean who has grown on the island, how do I understand how a consumer in the US or Europe (some of the bigger markets) perceives and uses internet services? I don’t. There’s no entry point into the mindset of your target audience, restricting your vision of the world to a smaller Southeast Asian subset.

Macro: Now with the rise of India and China as ecommerce and eservices consumer, Singapore could become a great hub. English-speaking, expat-friendly and politically stable. No, Singapore is too expensive and the labor isn’t there. China is boosting copycats of Youtube, facebook and google with the ferocity of the USSR government during the cold war. And geographically, it isn’t too great either. Being close to the equator means that distances to Europe, the US and China are still there. Over 6 hours to Beijing, 3.5 to Hong Kong, 24 hours to New York on a good day and 12 hours to Paris. I would pick Shanghai possibly as a better base. China has an overwhelming supply of graduates and they are aggressively pushing an R&D capability in computer software and hardware.

Little details: Being US-centric, most our customers and “partners” are in the US. With a 12 hour (13 during DST) time difference with the East Coast, it makes phone conversation, support emails and cold calling very difficult. For a while, one of my team member would be up all night responding to various issues.

Closing Remarks: Let it be noted that there are two dimensions that are important in my above analysis. The first one is that it concerns computer scientists and might not apply to other fields such as biotechnology. Second, Asia is more mobile oriented, which has driven a focus to Java based languages. iSyndica uses C#, .Net and MsSQL which are Microsoft supported technologies which might not be as readily available.

Despite the negatives, Singapore is a good place for Westerns to develop an idea – not develop a business. It is cheap for a developed country, the ease of living provides a nice balance to the toughness of a startup schedule, and getting a business incorporated is fairly easy. We were able to find a talented Chinese software engineer from NTU, giving us hope that we can bring more on board. However, we have begun looking more seriously at neighboring countries for help: India to begin with and probably China. Singapore for me is out.

Anecdotes: A friend who did some recruitment while at Motorola a few years ago complained that 80% of the candidates they interviewed couldn’t code a program in C to determine if a number was odd or even. Another friend working for Avaya similarly complained of recruiting difficulties.

A personal post: US vs. Singapore - the battle for foreigners

2009-09-14T08:36:00.000-07:00

CORRECTION: Lichtenstein has the largest GDP per capita at a massive $118K/capita. The US has actually a lower GDP/capita than Singapore. I stand corrected. Please note that these are PPP numbers and not nominal.
For more: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html

Post:

My life has put me in a interesting enough position where I think I can try to blend my personal experience with the issues I have enjoyed talking about on this blog. Today, I want to talk about my personal experience moving to Singapore. At this stage in my life I have lived and worked in France, USA and now Singapore. This has lead me to experience different cultures, both social and professional. Another element, is the bureaucracy of those countries and how they've made my life more or less easier.

Let's go back to where it started, my welcoming home country: I have named France! Putting aside the irritation we display at non-French speaking tourists and our hatred of other countries' subsidies when we gently fill our farmers' pockets with EU money, it has a few positive elements:
- France is neighbor to many countries and small enough that you always have to think "international" when doing business. Very few new companies will have the ability to generate billions out of France alone and speaking a second or third language is a given.
- Having a lot of holidays gives you an incentive to work hard, because at the end of the year you know you'll have the time to relax. You don't spend your time carefully protecting that little allowance that is your 10 days of annual paid leave.
- Healthcare: Well, the good side is you don't pay a lot for it. There's a bad side to it.

I tend to complain most of my time (French heritage), so I'll move on the negative:
- Visas are a hassle for foreigners. Two Indian women in my entourage had to jump through several hoops to work in France. One had to go through an international consulting company and the other one had to give up being paid because the project would have been over by the time her Visa would have been approved (something like 6 months. Does anyone know how to carry paper in French offices?). She ended up working for nothing.
- Work ethics are terrible. Labor laws don't help. There's a constant divide between management and employees. Many people will expand more effort avoiding work than actually getting it done. It's sad but true. Luckily many private sector companies have sustained a virtuous circle by having adopted US work cultures (i-banks and consulting companies)
- High taxes, painful labor laws and limited government support make entrepreneurship an unpleasant experience.

The US in contrast has an amazing work culture. It is easy to find companies at the different levels: Fortune 500, small regional player, private companies or early startups. People know why they are getting paid and don't take a paycheck for granted.
- The market is great. Launching a product in the US gives direct access to 250M consumers in the largest economy in the world. Even more so when you consider online businesses where critical mass in the US can be a determining international success factor.
- Labor laws are aligned with the mantra that you "earn your paycheck". There are a good deal of laws to avoid discrimination and protect employees from abusive employers (though there are always tug-of-war stories out there).
- Creating a company incorporated in Delaware costs less than $500 and can be done online.
- Life is pretty good there and when you're done working, the shops are still open (try to go grocery shopping in France on a Sunday when you're not living in Paris).

Negatives:
- Visas is my number one. It's been talked about and rehashed, particularly in the midst of this recession. The legal work required to get someone approved is time consuming and expensive. $4k is a typical pricetag, and the window of opportunity is small. If you are an entrepreneur there are some options, but if you are a founder looking to bring the rest of your team, the H1 Visas won't allow them in until October. This is also assuming that the quota hasn't been reached (which in 2007 it did in a day).
- Being a big market makes it easy to forget that there is a world outside. It's important to know that threat/opportunities can be domestic but also international.
- Health care is expensive. But US healthcare needs no introduction...millionaire doctors and a horrible system with incentives in all the wrong places.

This leads us to Singapore. I think Singapore deserves praise for a lot of things. The weather is not one of them (I find it too humid).
- It took me less than a month to get an employment pass
- Opening a bank account took me 1 hour and just a passport (and the good grace of a bank employee)
- Creating a company is more expensive than in the US but still reasonable in terms of costs (around $1k)
- Life is easy, public transportation great and cost of living affordable at basic levels (you need to adjust to local food, which on a day to day basis can become hard)
- Shops are open 7 days a week. You can eat, shop and live late (the gyms close a little early in my opinion).

Some issues arise around finding the right labor. Joi Ito said at a recent talk that Asians are a bit risk averse. This means they'll buy high...then realize they overpaid, panic and sell low. The same with employees, they all want to work for Google, Yahoo and other brand names. A startup that might just be the next Google will not attract them. This has made it hard for iSyndica, the startup I'm a co-founder of, to find developers.

The bandwidth in Singapore is AWFUL! This is a specific issue that wouldn't be one to many of you. As an internet startup, it ranks pretty high on our basic needs and we've all been accustomed to US and European bandwidth levels. Singapore can claim it has 100Mbps all over the island, it counts for nothing when you reach the US through an undersized backbone pipe going through Taiwan.

How macrostock photography is suffering from microstock

2009-05-30T09:15:00.000-07:00

I have done a very bad job at updating my blog. It's not for lack of thoughts or desire to write, but INSEAD has been an amazing and busy experience. My post MBA plans have (luckily in this climate) crystallized and I'm quite excited to be part of the founding team behind iSyndica, a cloud based startup. The concept is great and the team even better! But, on to the meat of this post

First, I'll start with a little story to explain iSyndica a little better: let's say Gabriel, who takes great pictures sells them on websites like iStockPhoto, Dreamstime, Shutterstock, 123RF (microstock photo websites). To sell his pictures he has to upload them to each website individually and input information for all of these pictures individually. Some semi-professional photographers spend 2 hours to do the submission to one site. For 5 sites, it increases to 10 hours. With iSyndica, someone just needs to do it once and he/she can distribute her content (images in this case) to 10-30 channels. The gain in time is huge and the coverage (access to channels) triples or even quadruples; iSyndica currently features 18 channels...and it's increasing. This coverage generates additional revenue and everybody wins. Finally, the images are now stored online, available 24/7 and the platform provides additional analytic services. Since microstock images are royalty free images sold for less than a dollar, the volume plays a big part. Microstock money = large volume X photo [$0.2 to $10.0]

Macrostock - the incumbent (Getty, Corbis and Jupiter to name the three biggest agencies) has been focused on professional content supplied by professional photographers. These agencies provide access to clients, manage image rights and revenue. These people had it great until they got under attack. Big Time. A recent interview I had with a photographer under contract with Getty said "(...)microstock is killing us (...) It has put tremendous downward pressure on prices...some of my friends are reporting drops in income by a factor of 2" (this set the tone of the conversation).

What is happening then? An industry analysis will reveal that two disruptive technologies are the driving factors behind these dynamic changes in the photo industry. The first one is the improvement of consumer electronics and the democratization of professional digital camera. The cost of taking high quality pictures became marginal compared to before: no photo lab, no expensive paper, no expensive camera (relatively) etc. This, in business term, is a barrier to entry that has virtually disappeared. The second one is the internet. Selling photography required the ability to promote one's work and provide it to clients at the quality they required. With the internet, anyone can now provide low quality or watermarked images for promotion and distribute their high quality content for a very small cost. This, in combination with an increase in the number of "photographers", has created a threat which we can call substitutes: microstock vs. macrostock. Microstock's value proposition is the availability of royalty free images at very low cost (and online). Macrostock companies are well aware of this threat with Getty having bought iStockphoto and Corbis being behind SnapVillage. Photographers, such as the one I spoke to on the phone, have trouble admitting that microstock has a valid claim on their pie. While in the past people had no choice but to buy pictures from photographers, they now have access to pictures that satisfy their needs at a much better price. Macro photographers will say that microstock has "vulgarized" photography. I would reframe this comment by arguing that micro is to photography what the ford T was to the auto industry. Not everybody needs, wants, or can afford a Bentley, Rolls Royce or Ferrari. Competitors of the Ford T were quick to debase it saying "it's not a car...it's just a Ford" and calling it a "flimsy contraption". The rest is history.

How can professionals defend themselves against this? I think the key lies in the following three parts: segmentation, promotion and branding in that order. Microstock has unlocked value by delivering photos of great quality at a much lower cost. Professional photographers however deliver the highest quality thanks to their training and material. Therefore, they need to focus on the clients that seek that quality. The second part is promotion. Microstock is about volume and large databases of cheap images. Macro is about serving images found nowhere else (exclusivity) and delivering a specific client need. I emphasize "specific" here because generic needs will most likely be filled by microstock. Therefore, someone needs to be able to find your work and know that you can deliver on that "specificity". Advertise yourself, show your portfolio and be flexible to requests. This brings us to the third part which is branding. Sign your images, write short notes about your latest photoshoot. Demonstrate the thought process behind your latest creations. Differentiate yourself from microstock photographers by highlighting the steps in your picture taking process that makes you a pro (the lighting, the lens, the editing etc.). If you think about the car example, ask yourself what Ferrari would do to sell itself.

Distribution in Ghana - the case of developing countries

2008-07-13T06:12:00.000-07:00

I just came back from a month long trip in Ghana as part of a volunteering activity doing community development in the Volta region (southeast ghana, centered around Ho, its regional capital). An advantage, and evident benefit I discovered, of that type of work is that I was placed within a community, far away from typical tourists hangouts and found myself very integrated into the local population. This gave me the opportunity to witness lifestyles, customs and economic situation I would otherwise never have observed or at least, understood.

One very fascinating aspect, yet not too surprising given its notorious brand, is the ubiquity of coke. In a country were getting flour, or even bread is challenging, one can always get a coke, or a fanta. Commanding equally high praises is Unilever, which sells everything from food staples, like oil and margarine, to health and beauty products, like soap and toothpaste. I will take a small step back to explain first the challenges these companies face.

Ghana was originally called the Gold Coast, for the country's rich gold ressources. But as it's name implies, the coast is gold. In general, the big West African capitals are located on the coasts, and as such the economic activity as well. In Ghana, the capital is Accra; if you wander in Osu, the definitely westernized neighborhood, you will see a dynamic and promising side of Ghana, showing it can keep up with the rest of the world. The nice cars, the foreign embassies and the brand new buildings are a testament of the changes that are taking place in this beautiful country. However, drive up north, toward the Volta region, then further up toward Tamale and the Burkina Faso border, and things become eerily similar to those dazzling pictures of African villages we have all seen growing up; the dirt roads, the straw roofs and simple houses. In the villages off the main roads, you get your water from streams, you may or may not have electricity and life is definitely more laid back and simple. It takes special operational skills to bring ice cream to the masses or 50 kg bags of flour in a remote village: take one dirt road in a mini-van for a few hours ride and it will become as obvious as gravity.

In that complex setting, where infrastructures are lacking, a second challenge is the fragmentation of the market. When I first arrived in Accra, I was seeing small shops, tended by one old lady, or some tired looking man. They would be selling phone units, or stacks of Unilever food products in a space not bigger than 4 square meters (that's 43 square feet for those living in the new world). I kept looking for stores and maybe super markets, but I never saw them. That's when I realized that those small retail spaces were the core distribution channel of Ghana. You have in essence a highly fragmented retail space where one individual will sell 3 or 4 bars of soap vs. his competitor 20 meters down who will sell 2. From a manufacturer's point of view, such as Coke, this means that no single buyer will have any leverage or consolidation power. However, there are lots of buyers, and if you multiply lots of buyers by any amount, it starts to become a large number.

What Coke and Unilever have understood, is that you do not need to create complex distribution networks and deliver the product in the hands of those who will sell them. There are too many. However, the economics are such that the people need products, and there are people that need products to sell, to survive and generate income. All Coke and Unilever need to do is to bring the product to the main areas and people will then buy the box of soap or the crate of coke and worry about getting that to their village where they will sell it. In Ho, the larger city in my area (for me it was a 1 hour ride on a tro-tro, a mini-van filled with people, 30 minutes on a regular road and another 30 minutes on a dirt road that could have been borrowed from a monster truck track), there is a spot known as "Coca Cola" set at a busy intersection. Crates of sprite and fantas move one at a time through the door of a simple concrete construction, sometimes more when a person is lucky enough to have a car or large pick-up truck. Similarly, Unilever has a large distribution center. Do they worry about the product getting to the village I was in? The answer is they don't need to. The people will do it for them.

Upon sharing my observation with my sister, she mentioned a case study she studied at INSEAD. It was about the penetration of Unilever in the Indian market, and in general the success of Unilever at penetrating developing countries, because it understands the system. It understood how the economy relied on mom & pop shops that look no bigger or nicer than a 10 year old's lemonade stand in the US (obviously, I am exagerating here but you get the point). It is a pyramid distribution system where people closer to the source will resell to people further removed, who in turn will sell to people further removed, bringing the product deeper and deeper into the country. Unilever deserves recognition, in that this commercial success has enabled the presence of products like soaps and toothpaste in villages, driving hygienic improvements and standards of living. When I arrived in my village, I was surprised at the amount of products that were available. It wasn't a grocery store aisle, but it was something. And something is always better than nothing at all.

Dissecting office elevators

2008-05-13T19:22:00.000-07:00

After more than 20 months in my office building, I've become familiar with the elevators and believe that I have cracked, or reverse engineered, most of the behaviors programmed to elicit proper scheduling. In a way, the problem reminded me of a hard drive reading problem I studied back in College. In other words, you have several pieces of information (humans) stored on different parts of the actual magnetic drive (floors). What is the best way to retrieve those information to minimize wait time (angry humans waiting for elevators) and maximize throughput (angry humans waiting in motion).

Several algorithms exist to improve Hard Drive scheduling programs, some listed on the following page including FCFS (first come first served). This means that if I click the elevator button, whichever one is free will come to me first; or C-LOOK where if I click on the elevator button, I will be picked up by an elevator moving in my direction (if I desire to go in the same direction) but someone else might be on it.

Differences between elevators and hard drives are however sufficiently different that in the end approaches differ. First, more assumptions can be made about elevators, based on time of day and floor layouts, and purpose. For example, an elevator going up, most likely picked up someone on the ground floor. And most people going down, go down to that same ground floor. Also, a lobby typically has several elevators working in concert to deliver the best transportation experience to office workers eager to get to their desk, or get the "hell out" of there. For example, you might want to keep elevators in between floors during the day, but most of them at the bottom during the morning rush.

In the end, my personal observations have led me to understand the following about my office elevators.

Closing the door button doesn't help nor does snapping at the same floor button like a madman improve your odds of things going faster.
On the other hand, pressing buttons for several floors above you does (you could below as well, but that would just lengthen your trip). My thinking is that the elevator is tricked into believing it is transporting more people., and gets the signal that it should be moving to avoid making too many people wait (one person can wait).
When two elevators are at the ground floor, you want to use the one that came second. The reason is that the first one was dispatched to the ground floor for the purpose of picking up people while the second brought people down and is bound to be dispatched back up (unless someone already hit the up button in the first elevator). Therefore the scheduling algorithm hasn't assigned that elevator to pick people on the ground floor and will go to higher floors once the door close. And if someone steps in, it will close sooner, because the algorithm has another elevator on the ground floor to pick people up.
The elevator on the ground floor closes the doors when you've either waited a long enough time, or another elevator is on its way down to pick people up. Either way, pressing the closing door button, doesn't affect that.

In the end, it doesn't matter. I wait for the elevator like everyone else, and ten or more seconds on my ride up or down, shouldn't be that big of a deal. It is more important in my opinion to minimize how many miles an elevator travels a day, because that reduces the amount of energy used (which I believe my office elevators do to a certain extent), a much more valuable resource than 10 seconds of my time. In the meantime, I'll keep on using stairs whenever I can, and I welcome my 18th floor stairclimb to my apartment every night.

Fuel, up and up (bis)

2008-03-05T19:08:00.000-08:00

Well, it didn't take long since my last post for fuel to reach new highs. Today fuel broke $104/barrel. The following Financial Times article does a good job of summarizing potential causes and observations. Namely:

- Market fundamentals do not support current oil futures prices according to OPEC (hints at speculation)
- the US economy has pushed financial entities to use oil to hedge themselves against inflation (supports "speculation"....though hedging is a different matter) which I wish my company had done (I wonder why we even have a CFO)
- However global inventories are apparently declining (supporting the supply/demand concept and hinting that more supply would give oil futures some slack)
- Bush complains to Arab countries that they are making it difficult for Americans to go to work, live etc. - the same man that claims that the war's $3 trillion cost has nothing to do with the declining economy quoted as saying "I don’t think so (the war hurting the economy). I think, actually, the spending on the war might help with jobs." .....MIGHT HELP? Great way to support your words Mr. President. Has this man looked at the latest data on employement? Has he also taken the time to assess the amount of extra fuel required to run the army in Iraq? I hope he takes the time to read The Three Trillion Dollar War by Joseph Stiglitz and Linda Bilmes

Fuel, going up and up

2008-03-04T19:44:00.000-08:00

Yesterday, an earthquake came in the form of an email. Every week, at around 4 pm, lands in my inbox the average fuel prices for the US and its different regions. This week's average is a massive $3,658/gallon. I would say the magnitude of that number is a nice 7.3 on the richter scale. To put things in perspective, oil futures reached record inflation adjusted highs at almost $104/barrel last week. It wasn't that long ago (2005) that people were all clamoring that oil wouldn't break $60/barrel. Diesel being a derivative of oil (not in the financial term), diesel averages took a similar ascension, shooting up $1,032/gallon from a year ago to reach yesterday's high. That's a nice 40% increase, enough to squeeze everyone up to the consumer. If you eat at Potbelly's or Subway's you may already have noticed the price increases that took place in 2007.

My company arbitrages inefficiencies in the supply chain and splits savings with our customers/partners. However, unlike the market, a purchasing contract isn't a fluid contract. Buyers for foodservice companies will work with suppliers, usually once or twice a year, and work on contracts that define everything from product costs to transportation allowances if the customer desires to pick up its products - product deliveries tend to be income shelter for food manufacturers like Pepsi, Kraft and Marcal Paper; however some are very fair - we work partly with those numbers to identify areas where we can transport goods for cheaper, but those numbers aren't as dynamic as the fuel prices are. The outcome is that when fuel changes on a weekly basis on our side through our carrier costs, our revenue doesn't. It may not change for a whole year. The result is a dramatic margin squeeze. This makes work challenging but I don't really think I would want it any other way.

There are two things that have popped up from this situation. The first one is that my company has educated its customers into putting language in contracts that creates a more dynamic fuel scale that follows the industry "fuel surcharge" standard (the carrier industry tends to be the guide in thise case). This prevents suppliers from creating sheltered income, but it also creates more transparency in the chain by forcing the disclosure of true cost. The cost becomes fluid across all players in the chain, at least when it comes to fuel (the base price may still be designed to benefit the supplier, but I won't go into that here). This is a great thing. While it raises cost accross the board, it does so in a fair and uniform manner (my CEO would be proud to see me write the above). It preserves margins where there is a margin, but sadly it reduces the operating margins. Instead of getting 16 cents to the dollar (16 %), we might get 16 cents for every $1.26 spent (12.7 %). This means that our working capital increases. In other words, our cost of doing business increases. No surprise there but it needs to be recognized.

The second part is that while the company is putting measures in place to create a fair fuel payout in the supply chain, it hasn't done anything on a financial level. Everybody has been witnessing the ascension of oil since 2004-2005. Last year, it was even more dramatic. Yet, noone in our finance and accounting department judged it smart to hedge the business against fuel increases. My company I fear, doesn't have a notion of risk management, and the result is that actual net income for 2007 were 10% of the expected number; the biggest culprit being fuel. A hedge allows you to control your cost of business, but we have taken the stance to just deal with whatever the weekly average is. Instead, if we had decided to lock a specific fuel rate based on our projected fuel consumption (1.4 (our projected growth for the year) x the number of miles billed in 2007 would have provided just that) we would improve our financial planning and have the ability to provide guaranteed benefits to our customers. Instead we are too cheap to take that position. "What if it goes down?". Well a hedge is just that. It's a protection, not a money making scheme. You pay a premium for securing your business costs. It seems that acting now would be a little late, but since no one knows how high oil may go, I'd go with protection rather than none.

Two years and a lot has changed

2008-02-25T19:34:00.000-08:00

A good friend, currently pursuing a PhD at Yale, pointed out my previous criticism of Kellogg students and contrasting it to my current views (pro-MBA). I laughed, guilty as could be, now that I have my sights on such a program. It lead me to think back about my views then.

1. Why was I so critical then

When I took my first MBA class, an operations management course at Kellogg, I hadn't worked ever. I was a virgin mind, still waddling in the academia amniotic fluid. My neurons breathed formulas and the abstraction of a multidimensional polygon representing the solutions to my optimization problems; to top it off, the focus of my studies was operations research. The classes I took as part of my master's covered everything and anything that could have possibly been covered in that class, minus the business cases - and to the author of that oversimplistic Pizza Pazza case: Pizza Mimi existed long before the INSEAD alumni responsible for this venture even attended the school. But I digress! The class I took, was a core class. It is not a class for a master's student. It is a class to help MBA student get well rounded. Some people came from advertising, some from consulting or maybe even finance. However, that doesn't matter: noone really uses those complex formulae in a company: they usually leave it to the quants, or like most management consultants, rely on estimates and common sense. I learned the hard way that in business, you can't always push for the "optimal" solutions. What is easy in a class isn't so straightforward in the real-world. I was being critical of kellogg students, but I was missing the point that there experiences were different, and that they sought knowledge in this class that was different from my expectations.

2. MBA, lots of money for relatively easy coursework?

As mentionned above, the operations management class had left me disappointed; fairly easy and straightforward; not to mention lenient on the grading. When you are used to taking the hardest classes in the engineering school for 5 years (try explaing to your friends in their theater class why an Operating Systems class might turn your life into a black hole), I think your threshold for what you consider easy becomes a little too high. Now that I've been working for 2 years, I might find myself pleasantly challenged by the material in an MBA. In addition, a topic other than Operations Research will certainly be more of a challenge and a novelty. I wonder what my opinion would have been then if I had taken a product pricing class in the marketing department.

3. The MBA is only partly about the classes

What I have learned to cherish is the value of networking; something you cannot truly appreciate when the college life provides all the comfort and security in the world needed (thank you mom and dad). What has networking done for me? More than I ever grasped:
- internships, a job, a consulting engagement, help from various people solving technical and conceptual problems in the business world, new friends etc. What has my networking done for others? Make it the same: jobs, internships, help, friendship. The world is one big network and it only gets better as you get connected to more dots. An MBA, is a new place to make friends, and certainly good ones. You will maybe find the one person that truly believes in your idea and wants to help you start a company. You will hear someone speak of the craziest opportunity ever and be so thrilled that you will join him. You will become friends with people who are bright in areas you are not, and get the chance to build great teams. Undergraduate classes foster competitiveness and (individual) excellence. An MBA fosters teamwork, or the art to contribute different pieces to a puzzle whose whole is greater than the sum of its parts. No matter what you learn in class, if you know the same thing as the kid next to you, there is one too many in the room.

4. I want a break from IBanking

If you work for a couple years, an MBA is a certainly a time to have fun and relax. Take a large breath before taking that next step in your career. No wonder Kellogg has Friday Kegs and several other parties. It's not when you work that you are going to have 400 of your friends ready every weekend to celebrate like its Oktober Fest in your school's atrium.

5. I'm a sellout

Completely! Please do call me out on it.

Food in the US

2008-02-21T10:03:00.001-08:00

Those two links provide great background information on the over-intake and production of foods in the US:

The following link to Men's Health highlights how restaurant fares quickly rack the calories

The following link to the NY Times (thanks to Dave for sharing) describe the state of cattle production in the US, and points back to the economics of it - and how government subsidies actually hurt the economy as a whole, a point made by Finkelstein in his book (read previous post)

As a reminder, I live in the US. As such it is the information I find myself the most exposed to. This doesn't mean that similar problems don't occur in other countries (though the amount of meat consumed in the US is head and shoulders above world levels).

Discovering a new social cast

2008-02-20T18:07:00.000-08:00

Today's Red Eye had an article, which had a great teaser titled "Fat-O-Sphere" on the cover, about a social niche growing in the blogosphere for overweight ("fat" in the Red Eye's own term) people looking to eliminate weight discrimination and promote weight acceptance.

While I think this is a great way to enable people to lead happier lives, learn to regain self-esteem and provide support at large in a society that likes to point the finger at those "apparent" oral hedonists (read: enjoy drinking and eating) for being solely responsible for their condition, I fear that this might be a serious double-edged sword. While a great passage quotes Catanese, an instructor of psychiatry and behavior sciences at Northwestern University Feinberg School of Medicine, as saying "You can be overweight and healthy as long as you're exercising, eating a nutritious diet" , the article is quick at pointing out that the wide acceptance of obesity could result in an even larger increase in obesity.

Without going into the whys and how of obesity, I'd like to bring up the following press release by Aramark. Aramark is a major foodservice player and has it's thumb on the pulse of food consumption in the US, so when it announces in 2006 that "(it) found that American adults now report an average weight of 188.3 pounds, up 2.5 pounds over last year’s level – a national increase in weight of about 550 million pounds according to recent U.S. Census Data", it is quite alarming. 550 million extra pounds is 2 trillion extra calories consumed. In other words, 2 billion Chipotle Burritos or 3,5 billion Big Macs per year. That's some small change compared to the cost of a War in Iraq but that's still some 12-13 extra billion dollars(using a $6.5/burrito estimate) spent that aren't spent on other things in the economy and certainly increases several other costs: Fuel to transport heavier people on trains, airplanes and cars, but also the extra food consumed that needs to be produced and transported; Healthcare expenses for people taking Bacchus' gift too much to heart; New clothing to fit that new waistline, and additional fabric needed to produce larger items. The list could probably go on but obviously, the implications of a population that's heavier has a non-negligible impact on resources.

The key word I want to highlight is resources. And this is why I see obesity as something that should never be accepted as a social norm. Obesity is a threat to society at large: it consumes/wastes natural resources that would be saved if people didn't carry those extra (several extras) pounds. If a third of American's are overweight, using 300 million inhabitants and 10 lbs of extra mass per overweight person on average, that's at least 1 billion pounds of human fat that requires energy to be moved and maintained. That is considerable. When you include healthcare costs, extra fabrics for larger people and the many inefficiencies that result from larger individuals (think of two airplane seats needed to a 300 lbs person...) it becomes hard to accept obesity as a good thing. Individuals are right by saying that they are free to do what they want with their body and eat until they explode, to the extent that it doesn't affect anyone else. However, society at large is hurt by that behavior and for those reasons, obesity and weight should remain a focus for the well being of society at large.

So to go back to our double edge sword, it is important to offer support for overweight people. They are humans with the same rights. And for many, the factors resulting in those extra pounds can be very complicated and should inspire compassion. However, they potentially represent a heavy burden to society, and not just themselves. The needed support could come from within as is happening with the fat-o-sphere but in my opinion, only education can help Americans understand what good nutrition is, because people seem to entertain erroneous conventional wisdoms as demonstrated by the following remark from the Red Eye article: "Fantastic, this post has just cheered me up so much! I try to eat right and exercise regularly, but the dial on the scales just stays the same, and yet, every time I go for a check up, I'm told that I'm ticking away inside just fine!" This person assumes that the dial should go down because she eats healthy? She doesn't acknowledge that eating healthy has enabled her to maintain her weight as opposed to gaining more weight.

Food companies love to brand products as low fat, low carbs or low calorie. People never learn to eat well and attempt to resort to calorie counting to "eat well". Restaurant operators serve larger than needed servings (possibly to lower their per pound cost) and increase menu prices (sure it looks like a better value...but I would rather eat half of that at 75% of the price). Coke creates a can that includes multivitamin, and diet or cholesterol lowering pills have people thinking that miracle drugs will offset any of their excesses. Just make the sound choices; everyone out there is out to get your money regardless of wheter or not that low-fat brownie is actually good for you or not.

On a recent trip to Canada, I welcomed the size of the dishes served. It was also refreshing to see a population with a much smaller waistline, highlighting the challenges that appear specific to the United States, though France, Germany, Britain and even Japan are suffering from increasing obesity numbers. While I don't see the situation changing much, a recent article in the FT Times about a book by Eric Finkelstein (The Fattening of America) offers some interesting insights into what needs to be truly addressed: the market fundamentals. The article says "blame government agricultural subsidies, which have lowered the cost of corn syrup used in the production of fizzy drinks, making fruit a comparatively less attractive crop". Finkelstein's conclusion, paraphrased by FT is to create "technological inventions...that succeed in countering the economically-determined spreading of our waistlines."

On that last note, I'll reflect on how lucky I am to enjoy my warm bowl of Oatmeal every day (and night...and whenever I feel like it).

Reacting to a news

2008-02-06T18:21:00.000-08:00

Yesterday, to much noise, United announced that they would begin charging a fee for second baggages checked. While I do not perceive this new rule as an aberrant rule, I view this as a rule that leaves a lot of other questions unanswered. But first, let's take a step back.

Airline industries, particularly in the US, suffer from rising fuel charges which chips the margin. If a single airplane pays $200 more per flight, and that plane runs twice a day for 365 days, you find yourself paying an additional $150,000 - multiply that by all the planes a given company may run, and this will quickly add up to huge amounts. Not to mention that $200/flight is a large underestimate. A Reuters news brief stated "Every dollar increase in the price of crude oil raises United's annual costs by about $65 million, the airline has said previously." A single dollar!

Working for a company that handles transportations, I understand the pressures that airlines face. Running a business like theirs, is a business of frequency. You don't make a lot on one flight. You might actually lose money on a plane that is half full. But if you run that flight every day, every year, it adds up to interesting amounts. In a similar fashion, at my company, we have trucks running daily, weekly or monthly, which will generate profits whenever they run; almost like a perpetuity, except that the economics fluctuate, including fuel or demand. So when fuel rises, the extra money paid for fuel comes directly from your margin. You can transfer a bit to your customers or partners, but your costs have risen, and your margin percentages take the hit. Either way, the business has to manage tighter margins and has less room for errors. As my first manager and triathlon friend puts it: "It's a business of pennies and dimes."

Now going back to Airlines, a few things are affecting fuel usage on a plane and a notable one is weight. The more passangers you have, the more fuel you will burn. The more luggage you have, the more fuel you will burn. The heavier the passengers are, the more fuel you will burn. The more wind resistance (in a way, resistance is a weight) a plane faces, the more fuel it will burn etc. Of those many factors, luggage is truly the one that can be used without discrimination. Luggages are tangible objects, already weighted as part of the regular checking process. No behavior changes on the customers' side. They just need to pay more. Families complain that on travel trips, this will add up. I understand their concerns, but flying is not a right. A for profit company is a "for" + "profit" company, not a charity. The same way people have been led to believe that the housing market would only go up, and that everyone could pay for mortgages, people have assumed that they should be able to fly for cheap whenever they wanted.

My first question is why target a "second bag" when you have in-cabin bags and still leverage on that first suitcase. You are not completely affecting the weight. Noone prevents someone from buying a much larger suitcase that will fit up to the maximum allowed. Instead of 2*15lbs, I will just grab one large suitcase. The remaining weight could be stuffed in a cabin bag. As it stands, people are already heavily pushing the limits and on my latest flight, the crew was forced to check in bags at the last minute. In addition, they claim that frequent travelers and business trips business execs will not be affected. This makes for a rather precise target, almost pointing fingers at those that are already stacked like KFC chickens in the economy class, that they are to blame.

I like the idea of an overall fuel surcharge much more as it is applied uniformly across individuals and benefits from a much larger scale. For the airlines to knit pick on those that travel maybe 4 or 5 times a year seems strange.

If I could have it my way, I would want airlines to charge a "weight" fee. Although a completely politically incorrect statement, if a man or woman weighing 300 lbs go on a plane, they should pay a surcharge just as much as a person bringing two heavy bags on a trip. To be cynical, they are carrying some serious luggage. More generally, every one with a nice beer belly should be tagged with a $50 weight surcharge. Maybe that could help reduce the nation's obesity rate.

To close that parenthesis and move on, I think airlines need to scale back: serve those customers you can serve well. Kill the routes you do not make money on, even for the sake of growing market share and focus on making your customers loyal. I have begun paying for upgrades to united's economy plus section. I pay a little more, but the added comfort goes a long way. In addition, reducing routes will allow for clearer skies, reducing operational issues at crowded airport. Lastly, accept to raise prices. All airlines competed on price when they were designed to be polyvalent: first class, business and economy. United went bankrupt. Delta went bankrupt. So did US Airways. American Airlines nearly did. (I think I have all those right). Clearly, trying to grow across too many market segments didn't serve them too well. Southwest understood that part, offering a targeted/unified approach: cheap and reliable flights. Airlines understood that and United's post-bankruptcy plan incorporated some of these ideas. However, the pricing still seems to be a problem when you are thinking of adding a a charge on a second bag checked that will affect a subset of your passengers. I think that to solve one side of the airline problem is to solve the revenue side.

While this post is all talks, and my experience in airlines very limited, pricing has been one of the toughest issues I have faced at work. Although it doesn't deal with millions of passengers, I deal with carriers for whom, a cost per mile model is still the number one pricing model. It is simple, reflecting the distance a truck travels, but it misses on so many other factors...

Random thoughts on network effects

2008-01-30T19:34:00.000-08:00

In the past weeks, I have been working on business cases for several of my company's customers. Aside from the opportunities this has allowed me to create for my company, it has given me an interesting snapshot of how well these customers manage their logistics. As could have been expected, the snapshots run the full gamut: well managed and cost-efficient companies on one side, and antique business still relying on fax machines and god's gracious blessing on the other. However, contrary to what one might expect, most are thriving foodservice outlets (either distributors or food chains) and they all made the obvious smart choice of turning to us. The question I ask myself, is how companies at such extremes can both do well, when the competitive disadvantage of some of these are readily apparent.

The key, though not infaillible, I realized, is one many companies know - from cable companies, to cell phone big wigs - the network effect. I remember the network effect from an info session held in Chicago by INSEAD professor Karen Kool.

Quoted from Wikipedia: "A network effect is a characteristic that causes a good or service to have a value to a potential customer which depends on the number of other customers who own the good or are users of the service. In other words, the number of prior adopters is a term in the value available to the next adopter."

The companies we deal with, all grow exponentially stronger with each new customer because their businesses are based on networks. The company that shocked me as being so antiqued that anyone with a decent mind could save them millions of dollars, had customers with such huge revenue that, as a result, it had attained a large bargaining power allowing it to remain very competitive. However, it had now reached a point where without the proper infrastructure, it couldn't continue growing.

So those companies have in common that their business models are supported by network effects. My company, itself, integrates them in its network, creating in essence a business relying on a network of network effects. So we benefit from our customers growth in an exponential fashion, and because of our business model, they benefit from their relationship with us in a more than exponential manner. But as the definition from Wikipedia reminds us, the value of the service to new users depends on the amount of previous users, and more generally points to the notion of "critical mass". Before a network effect can experience its dramatic ascent, the network must reach a certain size. Unfortunately for my company, we aren't at that point yet but most of us expect that to happen this year. The recent economic turnaround has sparked a new focus: Instead of growing revenues, people are now concerned about cutting cost. They all go back to the equation "profit = revenue - cost." This means that more customers will increasingly seek service providers like my company to help them reduce their supply chain costs.

weather

2008-01-19T21:55:00.000-08:00

It's unbelievable to think of a +2 million inhabitants city where half the year, people find it all too normal to be restricted by the weather. This weekend, temperatures in Chicago dropped near the zero. And no, I am not talking in celcius, though it would be the preferable outcome at this point. I woke up at 8 am, trying to think of ways to get to a cycling class. A quick glance outside discouraged me: the streets, usually fairly active on Saturdays, even in the early hours, were deserted. In hindsight, it was probably wise, as I am not equipped to shield my face, toes and hands properly from such conditions. My biggest surprise was in Spanish class this past Thursday, when to get acquainted to each other, among several other questions, we asked what was the thing the person disliked the most about Chicago; uniformly the answer was the weather. If that is the case, why are people staying?

To understand, I take a step back and look at the reasons that brought me to Chicago: college. College kept me busy. It allowed me to be outside during the day, not trapped behind a desk, surrounded by ugly colored walls. If nothing else, I had the freedom to enjoy the better days, to survive the harsher times. Most of all, the college population was fairly heterogeneous compared to what I experience nowadays. And here is where "la verite fait mal": I am now mostly surrounded by people from the Midwest. I cannot think of many people I interact with who are not from the Midwest. At work, people are predominantly from Iowa, Ohio, Illinois and Indiana. My friends who have remained in the Chicago area grew up predominantly in ....Illinois, Minnesota or Wisconsin. I won't deny the presence of many immigrants: French in Lincoln Park, Mexican, Irish, Koreans and Chinese but Chicago is predominantly white. The diversity was pushed outside by the richer white inhabitants (source: http://xinia.social.uiuc.edu/outcomes/census/chidata.htm ). This makes for a poor multicultural environment and when combining this with a deeply flawed transportation infrastructure, you have a recipe for uniformity building across geographical communities. I am white, I live in downtown Chicago, close to work in the loop. Most neighbourhoods within 20 minutes transportation are the white ones. This is a drastic stimulus change from college, where just next door, I could talk to a Thai student from Miami, or a girl from Turkey.

To tie it back to the original question, we can hypothesize that those who stay are those who grew up in the Midwest, stay close to family and, excuse my rude judgement, do not know better. I will forever remember my freshman year roommate travel log: USA and Canada...the apple didn't fall far from the tree. While I do not like to generalize, my personal experience appears to validate that. In other words, I am guessing that a large majority of Chicagoans have never lived more than 2 weeks outside of the Midwest - studying abroad in college and spring break in Cancun or Jamaica doesn't count. The first one, because you are part of a group similar to yourself (other students). The second doesn't need an explanation. Coming from France, having traveled to several places I have enjoyed deeply and experienced culture shock with various degrees of comforts, I do not feel rooted to Chicago. My experience is one growing up in France, but it also includes spending time in Germany or Austria in schools or summercamp - long trips in Indonesia or Japan, attaching feelings and emotions to different cultures. The USA is so large, it is hard to get away from it. I myself got caught in it, not realizing it until a trip this summer that took me to Fontainebleau, Prague and Kyushu: Woah, the world has so much to offer and I have no good reasons to endure the Chicago weather any longer.

I've been working for over a year, and it's become apparent that Chicago, as a place to live - not study, doesn't have the environment I thrive in emotionally. I know that next year, I will be somewhere different. I might not want to stay there forever, but I will experience something different, meet different people, and hopefully avoid weathers that prevent me from enjoying my number one hobby: running.

On that note, here's to hoping that I will soon discover Africa. Enough of the bad rap that region gets in the medias, the same one so gossip hungry, and time to give myself the opportunity to make my own judgement.

NB: This is by no means to be taken as facts, and would love to discover how wrong I can be. This is my personal experience, take it as it is.

Ohare franchisees should sue the TSA

2007-07-30T14:48:00.000-07:00

On my most recent international trip (that would be Friday) I rediscovered the joys of going through security checks. It's interesting that no matter how many consultants Ohare Airport seems to hire (I remember an industrial engineer Professor explaining to us the use of Arena, a simulation tool, and queuing models to forecast average wait times and determine how many stations should be open and when) there are always terrible lines. The scariest part is one need not look hard to know where the security check is. The line extended enough that it could be seen from pretty much any point in the terminal. What does this mean? Well if you're playing the cautious card it's: I need to get in line now because who knows how long it will last. And once you're inside you'll spend time to well...eat and relax before the flight unless...

Here comes the trouble I want to address here: Ohare's international departures terminal (number 5) has a major commercial design flaw: its stores and food court lay outside of the custom checked area. This means that while you can usually control how long it takes you to eat, you have no control over the TSA induced lines of hell. With common sense, we understand that this likely presses users to complete that stage as soon as possible. This results in lost sales opportunity for all the stores laying outside. One man in line was asking a woman holding McDonalds take-out bags why she'd grab food and waited in line. The answer came as a double blow: a/ The line was long enought that we (she was with her son) didn't want to risk getting on our plane just in time b/ there is nothing beyond the custom check.

Yes people, nothing but expensive stands that sell M&Ms, some alcohol and godiva chocolates. No storefronts, no restaurants, nothing. You're pretty much stuck with airline food at this point and pray that your sleepong pill will put you out of your misery soon enough.

Bottom line: lost revenue for the stores in terminal 5 mainly because of their rather odd position within the whole check-in/boarding process, and also because of the TSA's inefficiency. While one was known, one obviously worsened beyond franchisees' control in the wake of post 9/11 security increases. Mostly though, the inability of the TSA to seriously improve waiting times over the years. I would like to look at the income sheets of the units operating in terminal 5 and analyze the revenues over the past 5 years as a function of the daily volume of passenger. I am willing to bet that the average revenue per passenger diminished as a result of individuals feeling the need to complete the custom check as quickly as possible.

Kellogg really puts the business in business school

2006-06-09T20:15:00.000-07:00

On an earlier post, I complained about the lack of understanding of certain students in my Kellogg class, and their appalling level of insight when faced with new material. Now that I've reached the end of the quarter, I found myself even more in disbelief when our final required "a computer". We were asked to bring a computer with excel spreadsheets used during the course. It was used on only one question, and it could have been done by hand, because closed form solutions exist (a closed form solution means that there exists a mathematical formula to compute an answer, as opposed to using a numerical approximation). That isn't all, continue below for the following juicy details on Kellogg grading.

Kellogg students pay a lot of money to go to Kellogg, so much that the moment they decide to invest their money in an MBA, they want to put it to work: good GPA, active in student clubs, and lots of drinking (Every Friday the Kellogg atrium turns into an Animal House debauchery of idiots). Now the drinking and student club doesn't concern me much. I've done the former and am doing the latter (I recently founded the Northwestern Triathlon club). The grading is what is of great concern.

It turns out that I know a few of the people that grade the very class I enrolled in: Operations Management (a Kellogg core course) and because of the significant overlap with Industrial Engineering (Supply chain management, quality control etc.) they tend to hire students from my department to do the grading; clearly not an option for me as I was taking the course. The following are true statements that have been revealed to me:

-Professors request that the graders be more lenient and give out more points
-Professors argue that if they are "harsh" (read "fair") Kellogg students complain
-A person that has incorrectly answered a question has been granted full credit, by one of the Professor on top of that (it was a yes/no question with a justification in relation to the book "The Goal") , even better: the explanation had nothing to do with the answer.
-The above example is not unique

Now clearly, we can see the power of money at work. As a friend says:"I can't believe those are the supposed leader of tomorrow who will be in charge of operations etc." I lay in disbelief too. Grade inflation is silly. People have learned to take a GPA at face value and this has created powerful incentives for both the students and the professors to increase them: Higher GPAs means a student comes off as more competitive. This benefits the student who will obtain more interviews, and the school who will broaden its network and receive more money in the future from alumni and increase its brand.

I am a from France, where the baccalaureat has seen similar grade inflation issues. Money isn't the driving force however, politics is. It is seen as crucial to obtain the baccalaureat in France, and as such, people who do not obtain it get rarely a chance at being more than a blue-collar worker or self-made man. Sociological issues being what they are, minorities are the biggest victim of the educational gap in France. Therefore politicians believe that this dirty fix would resolve everything (silly French politicians) and get them precious votes. The situation in the US is the same: people are pushing for everyone to get a bachelor. In itself, it is a worthy cause, but anyone who has read "A brave new world" by Alduous Huxley knows that a society of alphas will not thrive. Shortage of professional workers such as plumbers, electricians, waste management employees would create an imbalance in an overeducated society which would take years to correct.

A bachelor is now a commodity, and the MBA is slowly taking the same path. A conversation with professors at two top b-schools have yielded the insight that admission competitiveness has declined: an MBA isn't worth its money, and certainly isn't worth what it was. The result is the people who are admitted aren't on average as good as previous classes, and that an MBA merely puts you at par, rather than give you an edge. It's time to put that "graduate" in graduate degree to work fellow Professors. Graduate school should be harder. Graduate school shouldn't be for people to do undergraduate all over again. That's what college is for. Give students difficult material that will truly force them to learn and not merely cruise through. The MBA is in the gutter. Leaves the MD, MS and PHD. I know where I'm putting my money: do you?

stock gains that are barely audible...

2006-06-05T19:42:00.000-07:00

First, I would like to apologize for the poor pun above. Second, as the title hints at, I am going to talk about a little company called Audible . I am a person who's always had an interest in the market and when you pay close attention to what is happening in a given sector (ie: computers) you can find some companies that are really doing well but haven't yet been discovered. NVidia, WebEx and Blackboard, are all examples of products that you notice in your personal environment telling yourself: this is really nice. I want to use it, and I am pretty sure a lot more people will too. You can tell upfront: if a company designs good products, chances are the people behind it will do good things in the future too. NVidia has since become a major player in graphic cards powering the latest PS3 (sadly this will probably hit them, as the PS3 is rumored to suffer from underperforming capabilities in addition to Sony being in a general slump) and had an amazing stock year with shares growing 300% in 2005 back to bubble levels. Blackboard has slowly becomed ubiquitous in universities (including mine).

This brings us to the company that is Audible. Audible was fancy. It rose to$20 over the summer before plummeting to $14 and then $10. Management has been playing the "long-term" card, which to be honest is fine with me but not with Wall Street. I wish more people investing had that mindset but the world being fast paced, this doesn't cut it anymore. Audible had a good value-proposition: downloadable spoken audio-content. In short, if you're looking to "listen" to the Wall Street Journal or The World is Flat, Audible is where you'd go to fill your needs. I was pretty excited. Audiobooks were things I had meant to start buying, being an avid endurance sport person, I enjoyed listening to Good to Great while training for my half-ironman.

The past month I had been thinking about buying the World is flat. The eponymous best-selling book by Thomas Friedman. I figured that it would be just what I needed to focus my attention while training for upcoming triathlons or laying on the lakefront during Chicago's sweet summer months. A few days...a few weeks spent hovering on Audible couldn't get me to buy the product. First, the price of the download is more expensive than Amazon's Audio CD price. And Amazon isn't the cheapest place on the internet (but a very reliable one). Second, I get a crippled format that has some form of DRM and is mostly geared toward ITunes (which I despise) and IPods. So if my computer crashes or I want to listen to it on different platforms (CD in the car, MP3 while running, computer while working) I am bounded by restrictions that just shouldn't be there. Instead, I got the 20CD unabridged version, and first thing I did was get the first 5 CDs on my computer. And it's just great. Who cares about the time it takes to rip CDs, just do one every day and you are set. I do this with music CDs too. I buy them, rip them and put the CD away. However, I have the CD, the material good, not some digital data that is easily lost and a lot more painful to manage. A friend of mine recently lost her whole ITunes collection after her computer crashed. Nevermind that she paid to download those songs, they are now lost.

Companies believe that they can rightfully put outrageous restriction on users in the name of "technological" moves. However, it is namely because of restrictions that people fail to make the move. Only mindless sheeps do not care to see their freedom restricted. Until then, I will continue to buy CDs, because it gives me guarantee, freedom and more flexibility with the end result. Until then, I will ponder the question: to sell or not to sell my shares.

The lesson I learned from this is: allthough a company sounds exciting and so does the product, take it a step further "Would I really use it? Would people really use it? How does it compare to competing alternatives?". Those basic questions would have gotten me out of this investment, and I would have stayed with NVidia (which in retrospective I should have). Never underestimate the necessity of due-dilligence and mostly common-sense.

Wonderful things: Triathlons

2006-05-23T16:56:00.000-07:00

Being a fellow triathlete, I've been enjoying the pleasure of switching from being a fish in a tight wetsuit to a knight armed with my fellow bike to conquer the race before running the last miles like a proud Greek messenger. What I have observed during my short but continued career is that doing a triathlon carries a significant cost to it. There isn't a low barrier to entry like your local 5k where your gym shoes and 25$ will get you in. Of all amateur sporting events, Triathlon is like golf, except that you actually need to be fit.

A quick summary of what you need: wetsuit/swimsuit (swimming wetsuits will run you anywhere from 200$ to 500$, and if you need one, it usually means that the water is so cold that even a polar bear would think twice before taking a dip), goggles and hours spent in a pool or in a lake practicing (gym membership with a pool 45$ a month if you are lucky). The lake is free but cold if you live in the Midwest and I wouldn't recommend anyone to train in Lake Michigan during the winter.

Triathlons are typically on-road meaning that you would go for a lighter/faster road bike. An entry level road bike goes for $500 without the helmet, locks and repair kits you need to save yourself from being stranded 30 miles away from home with a flat tire. Entry level triathlon bikes which have a different geometry and offer a more aerodynamic position begin around $1100 and go as high as $5000. The high end wheels go for $2000 a pair and if you think it's overrated, I can tell you first hand that they are not. Then you would need biking shoes etc. To sum up, the bike part of a triathlon is very expensive. Luckily, the run is standard: a good pair of shoe.

That would be the end if it weren't for the fact that you start in the water and finish running: special clothing exists that you wear from start to finish and those go for $100 a set. Finally, the race itself is an expensive event, with standard triathlon entry fees being around $100 and going as high as $500-600 for the prestigious Ironman (depending on the location).

Now my observation is the following: you have a sport that requires considerable investment both in terms of money and time, attracts over-achieving, hardworking and influential people: Where is Nike? Where is Adidas? Where is Reebok? Besides the top bike brands which are generally well known to cyclists (Trek, Cannondale, Cervelo etc.) you have apparel made by companies such as Quintana Roo, Orca, Louis Garneau and Speedo. Has any non-triathlete individual ever heard of these brands? (Speedo being an exception) Why, when I was stepping into a sport ready to invest a lot of money toward equipment did none of the big brands show up. Instead of going for the safe choice I had to research companies, look at athlete endorsements to make myself my own idea as to what company I would trust for products.

Sport companies, open your eyes: Triathlon is growing and brings with it a lot of $$$ opportunities. Jump in before companies in the Triathlon segment have a brand strong enough that they can move to other sports and compete with you.

UMD Movies: The autopsy of a doomed format

2006-04-19T17:05:00.000-07:00

Sales for UMD movies using the proprietary Universal Media Disc have been slipping, and at least two major studios have completely stopped releasing movies on UMD. Retailers are also cutting back on the amount of shelf space they've been devoting to UMD movies, amid talk that Wal-Mart is about to dump the category entirely.
...Universal Studios Home Entertainment has completely stopped producing UMD movies, according to executives who asked not to be identified by name. Said one high-ranking exec: "It's awful. Sales are near zilch. It's another Sony bomb -- like Blu-ray."
- halflifesource.com

UMD, stands for Universal Media Disc. It is used in the very pretty and high-tech Sony PSP (Playstation Portable...smart people in the Marketing department). It is a proprietary format, meaning Sony owns it, and noone else uses it. Most importantly, the only device you can use a UMD with is the PSP. No, there are no stand alone players, no, there are no UMD burners (the way we have DVD recorders etc.). What this means is: for an individual to buy a UMD, it has to be consistent with the PSP's capabilities and be unavailable on other platforms. Let's take a closer look at two group of products: Games and Movies.

PSP stands for...Playstation Portable...which means its primary feature is to play games wherever one wants. Games on the PSP can be played on the go (planes, intro to sociology classes (no dad, I do not do that), in the park) or on the couch after being tired from an amazing run by the lakefront. This indicates that because the games offered by the PSP have the following attribute: high graphic quality, portability and are better than what competitors offer (Nintendo is the only competitor with the Nintendo DS and tends to appeal to a different audience) they will sell. As a user, it makes sense to buy games. From 20$ to 40$, I have a game that will last 20-30 maybe 100 hours. As a customer I perceive a high level of value.

The PSP wasn't solely designed for games. It incorporates remarkable multimedia features and offers wireless connections. This means that you can play movies, southpark episodes and video clips. Even your family vacation photo album can be viewed on-the-go. This is great but here is the first of two issues: For individually created/owned content that isn't on a UMD, your only solution to put content on the PSP is through a memory stick designed by Sony. "Surprisingly" it is the most expensive memory card format on the market, yet found its place on the PSP's hardware. Sony your greed is biting back: by putting a high price tag on the PSP's potential memory expansion (Read: how many memory cards am I willing to pay for), you reduce the possibility to store more content and add precious "system life" (being an international student, I enjoy being able to save my soul from the poor movies shown in-flight...I don't blame the airlines, but the movie industry which believes silly movies and average scenarios still sell). I cannot put more than one movie on the system, barely enough to last until Canada when flying away from Chicago. This, hurts the PSP when being compared to traditional Portable Media Players.

This leads us to the second issue: the UMD movie. This would appear to be a solution to the reduced system capacity. You can buy a movie and watch it on your PSP. Just pay 20-25$ (Europeans experience even higher prices) and you add 2 hours of entertainement to your system. Well, this doesn't really solve my problem does it? 20-25$? This doesn't sound like a deal does it? What do I get: a low resolution version of the same movie on DVD (and pay more for it). I get barely 2 hours of entertainement on-the-go. Compared with a game, that's not much. In addition, I don't get the chance to use that UMD in my living room, on my DVD player (so I need to buy a DVD too?). Compare that to existing portable media players that let you store 20GB of media content and portable dvd player, the PSP is left in the dust.

Now the question is: where is the value? Sony? Did you think about your customers? Sony has made a similar mistake by supporting the mini-disc (a music CD alternative). A hugely popular format in Japan but a complete flop in the rest of the world: a proprietary system that requires proprietary hardware: you can't play it on your computer, cannot share it with friends, forces you to find a way to harmonize your hybrid media collection (because you owned CDs before). In the end, having this additional media format is a drag. This is not value, it is the opposite. Sony doesn't learn from its mistakes - UMD Movies: Proprietary format facing an established standard (DVD-ROM), limited use and requires additional hardware and on top of that a high price tag. This isn't rocket science but Sony set itself for failure the moment it opted to have movies on a proprietary format.

Of course, it's easy to point the finger and blame people without giving a solution. Therefore, here is my advice to Sony as to how it should have handled that issue:
1. Sony should have offered increased storage capacity: at least 4GB to make the PSP truly portable on a media dimension.
2. Sony should have discarded the idea of offering physical UMD movies: you will not make use of a UMD collection the way you use a DVD collection: If you are at home, you like the big screen, the high quality and the ability to know that you can share with your friends (and vice versa).
3. Set up an internet store offering movie rentals at 2$. Because of the sufficient storage, people can download 4 movies or more on their PSP and even more. The added bonus to that, is you can draw people to Sony's music service and away from ITunes. On top of that, you reduce your cost of distribution and manufacturing. Your margin on downloads are ridiculously high given the potential volume and the price appeal to customers increases exponentially. You can even add DRM protection by making each PSP unique and adding a key at download time based on the user's psp (The PSP having a USB connection, this would be trivial).

Of course, Sony didn't do that. Sony is a big corporation. Sony has great engineers, but it also has stupid executives directing their music label: The two like to collide (It made Sony miss the MP3 Player revolution) forcing Sony electronics to design items offering synergy with Sony Music products (Audio content mostly) but cannibalizing their potential.

On a last note, I would like to point out that Universal Studios and the like weren't doing their homework either: The movies released range from new hot items such as Chronicles of Narnia and Harry Potter, to long forgotten movies and music UMDs: Prince - live at Alladin, Species and Speed (did anyone remember this movie existed? Chances are, those who do already own it on DVD). Studios trying to make money at every cost need to pick up a dictionary and look at "value".

Kellogg students

2006-04-15T12:39:00.000-07:00

This quarter, I decided to enroll in Operations Management, a kellogg core course. The rationale was that it would be a good complement to my (very very) quantitative coursework in my master's program. Turns out it was the perfect timing, as I am taking a required production and logistic class that looks at the same issues but with the quantitative part to it: Abstract/Theory (IEMS) + Practical/DumbedDownFormulas (Kellogg) = good overview of Operations issues in manufacturing (or services).

Everything sounds good except the part that makes a class, well a class and not private tutoring: classmates. For a business school that has a worldwide reputation, a lot of students are far from stellar. I don't know if my section (and another one I attend on Fridays) is just lower than average, but there is a lack of understanding of 1/ concepts 2/ applications. It starts when they answer: everything is convoluted, with buzzwords here and there. A one sentence answer becomes a monologue where the speaker is enamored with the sound of his voice. The result is the professor needs to reformulate everything in a concise and succint answer.

At the heart of the past two weeks' lectures is Little's Law. Little's Law, born from queueing theory says that the number of items in the queue is equal to the processing time * the arrival rate. In Kellogg/Business language this becomes: I=R*T (I:Inventory, R:Throughput rate (or departure rate), T:Flow time/Processing time) where the formula is applied to a process such as "Pizza making" or "House building".

Our Professor drew a house building flowchart on the projector. After evaluating the process, the bottleneck of the process was identified (a bottleneck is an operation in the process that limits the throughput or production rate of the whole process. For example, if you assemble a car and assembling every piece takes 5 minutes except for the engine that takes 10 minutes, then you will never be able to produce more than a car every 10 minutes). The bottleneck was the assembly, which took 5 minutes. 10 minutes later, looking at another operation (Roof building) taking place before the assembly one student questions why we cannot process things faster. I remind him of the bottleneck following the operation, essentially blocking the roof process. His answer: Oh? So the assembly is the bottleneck? - Even if he didn't pay attention, doing his reading and looking at the "Whole process" he should have been able to answer his own question.

Later, a complete confusion arose when a buffer of 20 pre-roof parts was introduced before the roof operation. A buffer is the technical term for inventory in this case. You have a part waiting to be processed in front of a machine. This means that the operation that takes place before (creating the pre-roof part for example) can still produce parts as long as their is space in the buffer. The situation was the following: assuming the system is full (20 items in buffer, and the corresponding parts being processed at the other operations), how long would it take for a new house to be built. The answer, worked by hand was 110 mins. (20 houses from the buffer coming out at the throughput rate + the time for the new house to go through the process). Silence in the class, suddenly one ...two...three students start being confused. More join in : "why don't we subtract one minute here?...The formula gives 105 mins!...why isn't it less...." etc. On top of that, put a cocky, ugly looking individual that says "You're wrong" and points at the students not understanding why it's 110 (though he was never able to understand why 110 was the right answer, trusting the professor instead), and you have a very scary thought about the damages that occur in companies when these students become managers.

The answer was simple: the students were focused on the single operation that was feeding off the buffer. They forgot to 1/Understand the meaning of the formula 2/Look at the "whole process" and not the individual components. Because, the formula turns out, produces the right value of 110. They just didn't plug the right numbers because they looked at the number of parts in the buffer: 20. Intuitively, you would think that your house will be the 21st to come out (21*5=105 minutes). It turns out, there is a house being processed at the assembly, and this fellow kellogg students, adds a 1 to your 21. You have 21 houses in front of you, and a cycle time of 110 minutes for whatever new house is produced. The question to take 1 minute off from a previous operation is similar. The formula is right again, because you are looking at a transient system (a system exhibiting its long-run/average behavior...in other words, stable). Therefore, allthough you sit in front of the first operation (which lasts 1 minute), you cannot begin until the previous pre-roof part is processed and goes in the buffer.

There is more to tell than anyone would be willing to read about, but since the beginning of this quarter, I have been a little shocked by how slow Kellogg students have been. Hopefully, this class will change a little bit of that.