Can you process it?

We all know that we are bright guys.We want to come up with something innovative.Creative.We are capable of doing that.But does the entire world stop and take notice the moment you do that? Rarely.

There is a mysterious something that exists in between the moments that go down in history.Sometimes its hard work.Sometimes its pain.Sometimes its bull work.Sometimes its PROCESS.

To give a simple example to get the issue started, think of scaling.Lets say you have an very innovative idea for selling a product.You know, if you communicate with every client in a innovative manner which you have just figured out, you can sell the product to an entire continent.Great.

But the real work starts when you have to figure out how to reach out to the entire continent with your idea.Lets assume that there are a billion people in this continent.Now we all know that, if you yourself go out and sell it to each of these chaps, you'll get the idea across and sell the product.But this my friend can happen only in a perpetual world.

You now actually need to figure out a process through which even a uneducated salesman can go and sell your idea.Now hows this for a challenge?

This is what big organizations of made of.They are all successful in implementing the process be it in scaling or production or marketing. But sometimes we creative individuals get stuck inside a process loop and we start cursing it left right and center.My suggestion to all you guys would be to get into the process loop, study it, understand it and get out and apply it on your own :-)

Now, the process of scaling is what my example talks about and this does not apply every where.Take for example the Web.It is so well connected and networked,the process of scaling is not so very important if you can master the process of effective targeting.

To get some expert opinion on the subject, an interview by Subrato bagchi(Founder, Mindtree) to Knowledge @ warton where he describes in entirety the importance of process to start-ups, proves to be a worthy read...

"Let's take the example of process. There is a mistaken notion that every start-up [begins its existence in] a garage, and a [garage-sized firm] doesn't have to have a process. More start-ups remain at that size and then they go off the scene, because they fail to embrace process. Even if you start small -- and you have to start small -- you can pretend that, "You know what? I'm a Fortune 500 company, and I need to front-load my organization with the right process." This is because process is not about a framework that will bind you up; process is like plumbing. It's like infrastructure.
Let us imagine that you want to someday build a skyscraper. You have to pre-think what plumbing must go into the skyscraper. It cannot be an afterthought. The plumbing you require for building a skyscraper is very different from the plumbing that you require for a two-bedroom house. You don't build the plumbing for a two-bedroom house today and say, "As I build another floor, and then another floor, I will add to the plumbing." No. That doesn't work. So you have to pretend that, "I am a skyscraper." The inlet and outlet for the skyscraper is going to be very different. So pretending [or imagining] is a very, very important thing."


And further down in the article he describes how too much emphasis on process is also not good and a balance has to be striked.

"You talk about one of the indicators of the financial health of an organization through P/E ratios. When I was raising MindTree, one day it occurred to me that we were putting too much of an emphasis on process and building of process and process as an enabler. I found that the Human Resources folks -- we actually call them People Function folks in MindTree -- were becoming more process-centric, and process does not solve all problems. Process works only when it is given life through empathy. I didn't know how to drive home the point, and then it occurred to me that we could have a different take on the P/E ratio concept. I called those folks and said that we need to balance every process with empathy. Think of it as a new way of looking at the P/E ratio. Deal with every situation partly by looking at process and partly by looking at empathy.

Process is not a substitute for building an emotionally rich organization. Process without emotion can quickly bring you down to the lowest common denominator. It is very important while dealing with human situations, dealing with customers, suppliers, investors and with our own people. We must balance process with empathy. We must build on process but be led with empathy."

You can read the entire interview here

The intention of this debate is not to come to a conclusion on whether do we need processes. Its not a tutorial on how to implement processes successfully.It is to get us thinking on why sometimes mundane & boring stuff aren't really so dumb as we think.

Invaluable valuations!

For a couple of weeks now, I've had the opportunity to look at companies through an Analyst view point. Its quite fascinating actually to take an excel sheet, punch in numbers and tell a story at the end. It’s almost like you are having the horoscope of the company at hand and telling the company's stake holders where the hell they are heading. Let me describe the process a little briefly here.

First, you pick up the company and all its annual and quarterly statements of the past 5 years. Then, you painstakingly (yes, it is!) punch it into the excel sheet. This is the first stage, know as populating the sheet.

Next, you need to define Metrics. Metrics are the key drivers of growth of the company. This is where you need to really understand the business of the company to exactly figure out what the metrics are. In general, cues about the metrics will be present either in the annual report or the Analyst earning calls. But if its not there, you are going to have a tough time.

After you identify the metrics, you identify the trends of the metrics through available data. With this information, we forecast the future cash flows of the company. Now we use the standard discounted cash flow technique to value the company. Sounds simple?

You might feel now that valuations are as easy as I described it above. Well, its just a process and not a solution. Take a look at this company for example. ICGE. We have a company that invests in 20 -25 private e commerce companies. It actively gets involved in the management of 10-12 of them and the rest are through a short term investment point of view. Now, let’s look at the value of its assets. Look at what we've got here. Shares of 20 odd private limited companies. Okay good. Now how do we value these 20 odd stock holdings the company holds? Since they are private companies and more importantly start-ups, I’m sure most analysts and fund managers don’t have even a spec of an idea on how to value them. Valuating start-ups is a totally different ballgame. Its a game played by VC's and Angels. Even Private equity investors don’t dare to enter the realm.

The reason simply is, to understand a start-up, you really need an in-depth understanding of the product and the market the startup is trying to address and its really time consuming .The start-ups can be so dynamic. And so are their cash flows. And guess what, we have 20 of them sitting in this company’s portfolio. It’s not worth spending so much time on these start-ups if you are a fund manager minting money in high volume deals of blue-chip companies.

Let go of start-ups. Even Public Growth companies are so damn hard to valuate. The Numbers and Annual reports never give you the complete picture and the information about the companies too will be scarce.

There were a couple of firms which covered ICGE, and all they can do is to set the floor and possible ceiling values of the company. Nothing more. This is where, a person with a real insight into the e commerce industry and the dynamics of start-ups can be a killer. Are you one? Do let me know your thoughts on this fascinating company!! :-)

On the whole, Asset Valuation is such an exciting field partly because of the huge amounts of money at stake and also it involves loads of intuitive assumptions, deep understanding of the fundamentals of the business, and at last an good grasp of numbers, which is the only thing that can validate your story. As someone rightly pointed out Trend is your friend, but fundamentals are your lifeguard! :-)