IPL Redux

I have not posted in a long while, but since the second season of IPL (Indian Premier League, for those who don't follow cricket) is around the corner, I figured I couldn't go wrong in resurrecting an old article that was published in BusinessGyan, a monthly business journal published from Bangalore. It might even be marginally interesting to see if the learnings I wrote about are any less true the second time around...
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LESSONS FROM IPL
Posted with permission from the editors of BusinessGyan
Published: June 2008

I have been keenly watching the IPL matches - for the cricket, of course, but interestingly also for the learnings that come across, embedded for all of us entrepreneurs to mull over. Here are my observations and I hope it sparks off some debate!

1. What's the Product?
The Indian Premier League started off, I thought, without a clear idea of what the product was all about. Was it about cricket? Entertainment? New masala medium to spike the TV ratings for some privileged channels? New line of business for jaded conglomerates? A radical form of sports entertainment never tried out in the country? Vijay Mallya was asked about this on TV on Day 1 and responded by saying "let them play cricket, we will give the entertainment!" A case of dissonance between the investor and management? So, what was this new venture all about? Who was the target market and what was the business model? This confusion has beset ventures of all kinds, including established businesses who ought to know better. In the 1990s, Xerox woke up to the reality of shrinking markets, threat to its core high margin enterprise xerographic systems, and an inability to articulate what it stood for - great products or a service-oriented IBM-style lease business. In the same decade, Mazda Motor Company had identity pangs, especially in the North American market. Was it sporty niche cars anchored by the RX series with the Wenkel engine? Was it small sedans for the starter pack? How did it wish to differentiate itself from the rest who had a bigger line up and production volumes? Dunkin Donut was not spared either: its great coffee drew the crowds into its coffee shops and there was enough data to prove that, but it sought for a while to push its other wares to make a statement that it was more than just coffee. But coffee got the crowd in who bought the rest anyway. It sells more coffee than donuts. So where was the beef? I happened to be living in the Valley when Borders (of Borders Bookstore) founded Webvan, a venture that was funded $450 million for its celebrity founder and the strength of its idea. Webvan spent the next couple years rapidly running down its funding without a clue as to what it was really about, investing in pricey, designer vans and highly automated warehouses to supply its yuppie customers - placing a $1 billion order, for example, with Bechtel to create its robotic warehouses. Ironically, a few years later, I found myself living in Skokie, Illinois (north of Chicago), which was the home of Peapod, a venture that had a similar business model to Webvan and with a clearer perspective of what it wanted to be. Peapod still exists; Webvan is long gone.

2. Hype & Reality
Tremendous hype has surrounded this league. It's a paradigm shift; no, it's a game changer. It's gonna revolutionize the game of cricket, become the fulcrum of the game. Sounds rather suspiciously like the hype in the late 90s when the Internet went commercial. In 2000 Victoria's Secret scored more than 2 million unique visits for its webcast fashion show live from Cannes, France. Page views for most merchants skyrocketed and new software and hardware arrived on the market at a rate that outstripped the ability to install it. In 1999, average spend on customer acquisition by online retailers in the US was about $150, with some spending as much as $600, compared to $12 for the average offline retailer. The absurdity is evident when you note that online revenues that year for the average online retailer was less than $65 per customer. A BCG study put this in perspective: the online retailers spent 58% on customer acquisition, 31% on brand awareness, and 11% on customer retention - in other words, about $70 on acquisition, $40 for brand, and $13 for retention on average. Based on the hype, VC funding for ecommerce ventures shot through the roof - from $7 billion in 1998 to $32 billion in 1999 and $15 billion in the first quarter of 2000. Yet, by the start of 2001, most major players had become e-liquidators! The Industry Standard that year listed over 80 companies, many of them erstwhile high profile names, that had ceased operations in just 12 months. Hype has a tendency to be its own worst enemy and the jury is out if the IPL can afford to peddle hype that has little connection to reality.

3. Valuation
There is a reason for all the hype - valuation. The Mumbai franchise was much touted in the media as being the most valuable. By whom? On what terms? With what reckoning? A huge conglomerate had bought out the team for the highest bid and it had an icon player and the assumption was the team was the most valuable! Does valuation matter? For a startup, valuation is purely notional; an arbitrary number arrived to decide on investment and dilution. Real valuation comes when the venture has something to show - products that are perceived to have value in the market and begets revenues. Until then, the valuation game is a king's feast no one - especially the entrepreneur - can afford. What's the valuation today of the Mumbai team? You tell me. Performance gets the valuation, not the numbers cooked up before the venture has a story to tell. Pre-money valuation is all about the stage of development of a venture - ie, principally existence of revenues, expense, and a sound management team. For the Mumbai franchise, its "management" is its 11 players on the team; its revenues are the ratings-driven property value for its TV games, in-stadia advertisements, and sundry other sources of revenues such as ticket sales, team branded merchandise, etc many of which have yet to be demonstrated; and its performance is in the achievement of milestones - games it is yet to win. Does the initial valuation really matter today?

4. Team
If you have any doubts that a great team can do wonders, you only have to check out the Rajasthan Royals. It's a story of an inspired team that had self-belief and and a will to succeed. We're just midway in the season, but from where they've come it's entirely a story of team performance that worked like magic. Managerial incompetence, team friction, hubris, and a profligate culture were the preeminent traits at Boo.com, a high profile UK-based sports and high fashion online retailer that was hugely funded by LVMH and J.P. Morgan, and one that can be identified with several elite IPL teams that came with guns blazing but now languish at the bottom of the league table. A stark example of a dysfunctional team that just couldn't get its act together and lost valuable momentum occurred at Apple under the leadership of John Sculley. Silo-ed engineering, development, marketing, and communications led to rapid inability to manage product lines and confusion in the market. As confusion reigned, projects proliferated, many of them coming up with un-viable products, to a cycle of belt tightening and internal funds crunch and leading to ransacking projects among influential managers. Today's huge successes at Apple belie the death wish it had owing to severe team management problems in the late 1980s and 90s.

5. Leadership
The IPL is a great example to talk about leadership. Who *is* the leader in a franchise team? The owner or owners? The captain? The coach? The new-fangled CEO or manager? Even in these early days of the league's existence, the evidence appears stark. The teams that have worn its celebrity owners on its sleeves - think Vijay Mallya of Bangalore, the Ambanis of Mumbai, or Shah Rukh Khan of Kolkata - have had pitiable little to show for themselves, possibly arguing that real leadership has to come from elsewhere. On the contrary, Jaipur and Chennai have had its owners largely hidden, but sought to portray its leadership as originating with its players, especially the captain. Again, the leaders have been devoid of flamboyance and quietly gone about their business (unlike Mallya's hot sauce glamor on offer that hasn't done wonders). Leadership has been likened to an elephant that several blind people see different things in from their unique perspectives. While styles differ - autocratic, democratic, hands-off, participatory, etc - its larger characteristics lies actually in what is accomplished and how, and in that sense three things seem to matter: vision, accountability, and sensible management that fosters trust and empowerment. If you can say with conviction that SRK really holds the key to all three, you have your answer as to who the Kolkata team's real leader is. But, chances are, the arrow points someplace else. Both Autodesk and Adobe - strangely enough, founded the same year - exemplify the quiet quality of leadership that emphasizes focus, stability, vision, and steady management. These are exactly the characteristics that studies of hugely successful German SMEs that became leaders beyond compare in their chosen areas worldwide have revealed.

6. Technology
"Build it and they will come" is an oft-heard expression, and an idea that is quite well entrenched in tech companies. This view places a premium on the product or technology and gives short shrift to customer value or market propensity. The list of examples of tech-focused products that bombed in the market is numerous: the Apple Newton, Sony Betamax and eVilla, Segway, the Ford Edsel, New Coke, CueCat, and on and on. Corning tasted near bankruptcy with its ill-fated focus on optic fibers that completely misread the market. In recent years, TiVo (a digital video recorder) and SlingMedia's Slingbox are dangerously close to finding out if their ventures are of the "technology first" kind and its expected markets slipping away from its grasp. At the IPL, one may think of the "technology" as equivalent to the icon player. In a decision that fundamentally set expectations, it decreed that certain city teams would have "icons", who would be paid more, and be the fulcrum of the respective teams. Hence we had Tendulkar fronting for Mumbai; Ganguly for Kolkata; Singh for Punjab, and Dravid for Bangalore. This was a case of shooting oneself in the foot as the total price cap together with the premium required to be paid for icons meant the icon teams had little left over to bid aggressively with. Result? Chennai and Hyderabad made the most of it. But the larger context here is the focus on the "technology" that became the leitmotif for the teams supposedly fortunate enough to have the icon players. It set the stage for a "technology"-driven franchise venture that was expected to do the trick and when that bombed - as when Tendulkar could not join the team or Dravid failed at the crease - the teams were left scrambling to recover. Focusing on technology here meant reliance on individuals (a la single technology products), while focusing on the market would have highlighted the total team component, the need to jell, and bring a holistic dimension to how value could be delivered on the field. The difference was one of perspective: should the approach be from the outside in or inside out? The Mumbai Indians are still vainly hoping that their "technology" (Tendulakar's entry finally) would turn the tide around. The alternate perspective of where value has to be sought has been on display with the Royals.

7. Culture
Organizational culture has become synonymous with a type of management fad today. Pity. In a very real sense, the initial founding culture defines what the enterprise will be or how it will become what it sets out to be. Yesterday's match between Bangalore and Chennai was a lot about the cultures of the respective teams. One founded on glitz and glamor that flowed from a flamboyant owner and the sexy aura of being associated with some of the strongest Indian and foreign brands - think ubiquitous Kingfisher beer, luxury Kingfisher airlines, F1 motorsport, and the hipness of the Washington Redskins cheerleaders - while the other had, well, nothing much to trot out with the exception of Sivamani on the drums. It is not possible to say if culture can fundamentally define a venture's performance: Oracle's corporate culture under Ellison leaves no one in doubt about who calls the shots and who decides on where the company is headed (does any one even recall Miner or Oates who started out with Ellison?). Yet, it has been a success. The same can be said of Apple under Jobs. At the other extreme is Whole Foods with its almost libertarian culture or the contemporary ventures such as CraigsList and Wikipedia. Two examples I can think of in the Indian context are Sridhar Vembu's AdventNet that has almost zero attrition and a highly productive, innovative, workforce, and the Murugappa Group. As with Oracle and Whole Foods, Murugappa and Reliance represent opposite ends of the spectrum in organizational culture and both are extremely successful. So, while a particular organizational culture does not appear to predispose the likelihood of success, it can point to issues that may detract from a startup venture's initial focus and ability to perform. Bangalore probably suffers from the destructiveness of an aggressive cultural overhang that its players find difficult to dissociate from.

The ideas above may not find agreement with all, nor is it expected to. It merely lays out some rather common issues of entrepreneurship that we would confront and to frame these in such a way that a young venture is able to see the larger context of decisions it or its founders may make. As I set out on my own venture, some of these issues are front-and-center for me: should I seek funding now (I have decided not yet); what is my product? how do I aim to demonstrate value?; how should I create a culture of creativity and innovation? and so on.