amitkux2010 at IIMC

Moved to WordPress

2010-01-08T13:24:00.000-08:00

http://amitkt.wordpress.com/

Equity in lieu of salary

2010-01-08T12:23:00.000-08:00

Problem: Evaluate a job offer which is part salary and part equity.

Interesting. My friend is pursuing an opportunity with a start up and wanted to know how to calculate what equity being offered is worth? Now, I don't know what that equity is worth because that entirely depends on how the future cash flows are. Having delivered a presentation on business plan today (which some people did listen to in half sleep and were courteous enough to tell that it was good), I had some insights into the start up stages. The venture in question being in concept stage, it was difficult to predict what the future would tell.

Here is what I told him and I hope I did not mis-advice him.

Assume that you expect your salary to be INR 3 M ( 30 L) and the firm in question is offering 2M in salary. So, the salary deficit, d = 1M.

Assume:
1. You will stick with the firm for 5 years
2. Your salary inside/outside firm will grow at CAGR (say, g) = 15% (reasonable, considering the food inflation!!)
3. The discount rate is the rate at which you got your PGPEX loan (say, r) = 13%

= 4.58 Million

The same calculation was repeated for multiple scenarios including CAGR of 25%, salary hit of 1.2M etc. and the range for equity negotiation was identified as 4M to 6.5 M.

I recommended that he should negotiate for his share in equity (sweat equity) such that it is valued at about 5M as of today.

I hope I am right.

2009-12-21T19:42:00.000-08:00

The CEO of a very reputed content creation company in India made a presentation to PGPEX class. In the conversation he raised concern on of Indian classical music (ICM). One of the reasons identified was nepotism in music education.

My thesis is that it is that since very few individuals (stars) can make a decent living from performing arts others just live in oblivion. It is the star which sells not the music. Example: http://www.washingtonpost.com/wp-dyn/content/article/2007/04/04/AR2007040401721.html

However, we do have a problem, as highlighted, beyond the current generation we don't have a healthy pipeline of people who can take ICM forward.

I have started working on the issue and am trying to figure out an IPL type model so that a larger pool of artists can hope to become star and ICM can scale new heights.

Ideas welcome!

Reva and GM partner

2009-09-26T20:41:00.001-07:00

Should we call ourselves visionaries??!!
In term 2, we did a project to understand Reva's marketing strategy. Our key finding was that Reva could not create the infrastructural changes required for an electric car to be successful in India. We claimed that best strategy for Reva would be to partner with some one like Ford or GM who has the scale and capabilities to change the landscape in automobile sector.

2 months later we see Reva going exactly the way we predicted.

No...we did not share our report with Reva!

Organizations are driven by profit, mission and vision are only marketing devices

2009-06-02T21:34:00.000-07:00

Yesterday in a session on designing effective organization, this statement brought me out of my long lost sleep. It was further added that firms are in business for making profits and vision and mission statements are just lofty ideals.

What if this statement were true?

My acquaintance with vision and mission goes back to 1995 when I joined Crompton Greaves, and the learnings are relevant even today. The vision provided the overall objective of where the company wanted to be, the mission provided the framework and broad guideline while quality policy dictated how the vision and mission will be followed by the organization. These three became the guiding principles on which the whole quality system (including business processes) was designed.

An article by Glassman explains the significance of vision/mission statement and also captures where firms can go wrong.

The vision and mission statements help a firm articulate its sense of purpose, its direction and to an extent keep the firm from wandering into non-core areas.

The experts for ages have been advising that firms need to identify their core and align their business to that core. Diversification is good but not without a core. A Reliance can be successful in Petrochemicals and in retail too, but the two groups are separate organizations with their individual cores. Mixing petrochemical business with retail may not be so successful (of course there are synergies for example, Reliance could combine the fuel stations and its retail store in the same premises - but that is different).

While the top level statements help provide a framework, in the moment of truth, it is laid down procedures, policies and culture which define employee's behavior. In the example from Glassman's article, John was guided by mission, alright. To me he appeared to be violating a defined policy. The policy probably was not in sync with the mission statement and that caused the heart burn.

Another point of the article which I would like to analyse is - mission statement may restrict firm's growth opportunities. I agree a very narrowly defined purpose would lead firm to not pursue opportunities outside its core business area. But then, Bajaj auto could define itself to be a scooter company and die, or, it could change its vision to be a two wheeler company (which in fact it did in the face of competition) and still face loss of market share, or it could define its business to manufacture low cost personal transport equipment. In post mid 90's, it would appear that finance should not be Bajaj's business, but prior to that, offering loans for two wheelers was an excellent strategy to stimulate demand for its automobile products.

Now coming to the point of profit centricity of firm, I think that at least for "For Profit" organizations that is their Raison d' etre and is therefore not required to be captured in vision and mission statements. Also, it is important to understand that while no loss making business would survive, profit is not what motivated Ratan Tata to develop Indica and Nano. He wanted to make profits by selling Indica and Nano not the other way round. There were significant challenges when Indica was developed and even more when Nano was. And the challenges were not just Singur!

To conclude, the vision and mission statements are not just marketing devices. They are important tools for:

defining and communicating a firm's business objectives.
formulating policies
managing culture change to align the firm with ever changing business environment

What Would Happen if Marijuana Were Decriminalized? A Freakonomics Quorum

2009-05-24T13:01:00.000-07:00

Read the blog here:
http://freakonomics.blogs.nytimes.com/2009/05/22/pot-quorum/

The question is not relevant to Indian society but the fundamentals are same.

We have been fighting battles to win over deceases such as TB and cancers (oral and lung). I fail to understand the economics behind harvesting tobacco. Today I saw a notice in ToI about warnings on packs of tobacco products. It is pretty graphic for smoking products but appeared pretty benign for chewable products.

Will they deter our youngsters to not indulge in - remains to be seen. I think the negative externality of its social impact is not reflected in price of tobacco products. It should be internalized and passed on at the grass root (farmer) level. Giving subsidies to farmers (free electricity, water, even fertilizer) will not allow the externality to be internalized even with tax on final product. Also, while cigarette appears to heavily taxed, other products such as chewable tobacco are not.

IPL-MC

2009-05-24T12:50:00.000-07:00

While watching the IPL final a few hours back, I decided to choose IPL as my topic for Managerial Communication submission. Here is why:
"Mukesh Ambani is not throwing money into cricket because he loves the game; it is hardcore business for him." Sources say that Reliance applied its normal business filters on the IPL franchise too. As a policy, the group does not get into any new business unless it has the potential to generate a return on capital employed of over 35% in the medium term. Sources say that Reliance is convinced that its Mumbai franchise can exceed this target.

Read the related stories.
http://www.blonnet.com/catalyst/2008/02/21/stories/2008022150020100.htm
http://business.outlookindia.com/inner.aspx?articleid=1036&subcatgid=501&editionid=31&catgid=9

Not that there is anything new in what I read, even the articles are more than a year old, what attracted my attention was the way Modi handled the challenge of elections. First the IPL itself and then holding it in SA!

Snakes, HBW and Sensex

2009-05-18T01:47:00.000-07:00

Yesterday while cleaning the house, Aparna spotted a baby snake of unknown origins. She managed to remain calm and waited till the creature left the house on its own.
The Pygmalion effect seems to be at work: we were talking about them and now snakes seem to be everywhere. I just saw one on my way to library.

Sensex seems to be inspired by the sudden jump in snake population in IIMC.
[“ Correlation may not cause causation, but I find that they often occur together.”]
It jumped so high, that the market had to be closed. What a way to get a holiday for BSE and NSE staff!

Time to get back to HBW for that is the exam I have to write tomorrow. Tomorrow I will calculate the probability of snake appearing again in my kitchen - the distribution function appears abnormal with mean at 500 and variance approaching infinity.

Another video covering IIMC

2009-04-24T18:14:00.001-07:00

CNBC TV18 aired a report on executives leaving stable jobs to pursue education during recession. Here is the clip.
http://www.in.com/videos/watchvideo---2827821.html

PGPEX III at IIMC

2009-04-11T06:22:00.000-07:00

Not too long ago, I was looking for information on One Year management programs of Indian Institutes of Management. While the two year programs are very popular and there is a lot of information available including that on CAT, on campus life and placement, there is very little write up on one year programs.

I am starting this blog with the hope that information here will help some of the aspirants for PGPEX program of IIM Calcutta.

The first step - GMAT

The GMAT score of last 3 batches of PGPEX is

2006-07 Mean

2007-08 Mean 706, Median 710

2009-10 Mean 719, Median Not available

I took my GMAT on Jun 26, 2008 and scored 720.

As it turned out later, GMAT is just one of the components and not the most important one.

Next Step Application form

The most significant and difficult part of the whole process (of getting into IIMC...!!) was filling the application form. If you need help with this part, I can review your application to provide feedback. Trust me, the rest of the admission process will be a cakewalk if this turns out well.

The interview

On my educational qualification, some questions on electrical engg. fundamentals (I am an Elect. Engr by training), some on power industry, some on semiconductor. We had a good discussion on inflation and its impact on economy, whether it is good for a developing economy, what should be done to keep it in control and economic trade offs. The question I goofed up was: geometrially prove the result of (a+b) square. We also discussed my reasons for applying to this program and what I intended to do after PGPEX.

I was fortunate to have participated in the admission process of IIMA and IIMC. The interview of A was much more general in discussion and had an extempore item. I was asked to comment on a quote whose central meaning was : Humans are by nature polygamist, all talks of monogamy are plain bullshit. I would not like to comment on this quote in this blog...

The set of people I met during interviews and then on Yahoo groups made the whole process worthwhile. I was really looking forward to becoming a part of this group.

And then the agonizing wait

Fortunately, it was not too long. IIMC's result came out on 29 Oct, exactly 9 days after A's interview.
IIMA decided to put me on the wait list and then I never heared from them.

From Nov 08 to Apr 09, the Y! group had been on fire, it was only after we were in campus with IIMC e-mail ids that the group became silent.

The period between Nov and Apr witnessed huge changes in world economy. The variables on which the decision to pursue PGPEX was based, had been threatening to go out of hand. We kept asking for information on PGPEX II placement (PGPEX II was likely to be over in Nov end). It came in bits and pieces and was not very encouraging. Look at the posts in http://groups.yahoo.com/group/IIMC_PGPEX2009/ [contact the moderator for access]

The market situation has not changed much but IIMC was able to place all the people in PGPEX II.

The coverage of PGPEX placement on TV

http://www.youtube.com/watch?v=OUPRXenO1VQ&feature=dir

I am closing this post now, will keep posting as we progress in the program. In the next post I will share my experience with loans and logistics.

Btw, PGPEX III has its own blog - http://iimpgpex0910.wordpress.com/