What matters? SKILL OR LUCK – a thesis paper summarized

In 2013, I read a paper by Credit Suisse – Alpha and the paradox of Skill. In the podcast “How I built this” – the host Guy Raz interviews successful entrepreneurs and ends with the question “Do you believe your success was luck or skill and hard work”? If you look at summary of answers to that question, successful people attribute 60% to luck and 40% to skill – on average.

Back to the paper on paradox of Skill. The summary of the paper in one quote:

In investing, as in many other activities, the skill of investors is improving on an absolute basis but shrinking on a relative basis. As a consequence, the variance of excess returns has declined over time and luck has become more important than ever.

Credit Suisse, 2013

To be clear there are opportunities for skill to shine. Those are opportunities where “game” is played by people with lesser skill.

The main lessons are that sometimes it’s more important to worry about the game you’re in than the skill you bring.

Summary of the REMITTANCES market Worldwide and key players

The WSJ has a piece today about the worldwide remittances market. It is roughly $554 Billion worldwide with the top recipient countries (no particular order)

  1. India $46B (from US, Dubai and Saudi Arabia), 3% of GDP
  2. Mexico $38B (from US primarily), making up 3% of GDP
  3. China $24B (<1% of GDP)
  4. Pakistan $11B (8% of GDP)
  5. Philippines $20B (10% of GDP)
  6. Guatemala $10B
  7. Vietnam $12B
  8. Bangladesh $15B
  9. Ukraine $11B
  10. Egypt $9B
  11. Nigeria $8B

The market was largely owned by Western Union, but now a host of startups are in the space including:

  1. Transfer Wise
  2. Xoom
  3. Remitly
  4. Money Gram
  5. Ria

What is force Majeure and why is it trending on google search?

The impact of Covid19 on several businesses is catastrophic. Many businesses entered into contracts with vendors, suppliers and partners for their business.

In legal terms, “Force Majeure” means a clause that has an “out”, caused by an event or effect that can be neither anticipated nor controlled. You may no longer meet the obligations of the contract since the events (e.g. Covid were beyond any parties control.

A force majeure clause in a contract would typically include an exhaustive list of events such as acts of God. War, terrorism, earthquakes, hurricanes, acts of government, explosions, fire, plagues or epidemics or a non- exhaustive list of events wherein the parties narrate what constitutes these events and thereafter add “and such other acts or events that are beyond the control of parties”.

Can Covid19 be a reason for Force Majeure?

You most certainly should consult your lawyer, but there are multiple startups I know that are reducing their ongoing costs of systems and technologies, by invoking this clause.

So how do we get back to the “new Normal”? #AFterCovid

1 in 10 Americans believe economy will never return to normal from ...

The biggest bottleneck with Covid19 right now is rapid testing and centralized reporting. If we can fix that then we can start to reopen “parts of the quarantine”.

Most data points to the fact that people who are suffering or dying from Covid19 are those who have preexisting medical conditions or poor immunity (old, infirm, etc.).

That is likely between 5% to about 15% of the population. (source)

The rest of the people would likely suffer mild to no symptoms from CoVid.

Instead of allowing them to go about their lives, everyone’s life is being disrupted to ensure the 5-10% dont die.

In no way am I implying that the 5-10% be dammed. In fact we should take more precautions to ensure they are safe. Quarantine them, provide extra medical attention, support and safety.

If we had a quick (say < 15 minutes) way to test Covid and an easy way to aggregate the data and report it to local, regional or central authorities, then those who dont test positive could be allowed to go on with their lives.

So how does this play out?

Imagine 5-10 startups that are all innovating on “rapid test” with reagents from your home. They send you a kit (pack of 12 test kits), you take the test and test results are uploaded to a service via your phone. If the test is positive, you have to quarantine. If the test is negative, you can go to “work” or elsewhere. Assume the tests will be valid for some short period – maybe a day if you are in a high exposure role (e.g. nurse) or once a week if less so (e.g. software developer). This sounds simpler than it is, but bear with me for the sake of argument.

Each kit comes with its own app to upload results, and they are all reporting their aggregate and specific data to local government.

Now public health and other officials know who is and who is not infected and can provide “discerning guidance”, instead of a diktat for the entire population.

Now to the next question: How do we ensure that those that don’t test positive infect those who are old / infirm / or with poor immunity?

More than ever we need the strong and able bodied to help those who are unable.

So the precautions that are recommended by physicians and medical professionals apply more to those that are infirm that those for who this is “like a flu”.

Wash your hands, use masks are all good recommendations regardless of whether you test positive or not. Everyone should take those recommendations.

Having everyone have their lives upended is hard for 85% – 90% of the population.

Only rapid testing can solve that for now.

Thanks to Bal for helping me think through this.

The Great Mobile App Migration of March 2020

Over the last few weeks as many in the world have been in lockdown, there has been a temporary “mobile app migration” happening. There are new apps downloaded and they replaced existing apps on the “home screen”.

While some of these apps are likely temporary use, for e.g. I have 6 “conferencing apps” – Zoom, Uber Conference, Webex, Google Hangouts, Blue Jeans and Goto Meeting. That is because of the many people I have conference calls with – each company seems to have chosen a different web conference solution.

Other apps seem like they will have staying power – Houseparty, for e.g. which has games, networking and video conferencing all built into one app to keep in touch with friends and relatives.


The apps that have moved away from my “home” screen, which I expect will come back once the crisis will be behind us include – Uber, Lyft and all the airline apps from Delta, Alaska and United.

What is Flexfacturing: Response to covid19 from Manufacturers

Over the last 2 weeks multiple companies in many regions have started to re-purpose their manufacturing to support new requests due to COVID19.

Flexfacturing is “flexible manufacturing” – the ability to use a production facility and assembly to “easily” move to manufacture another product based on demand.

Here are some examples:

  1. A textile manufacturer has started making masks in Gastonia, NC.
  2. Anheuser-Busch, a maker of beer will start to make and distribute hand sanitizer – the same for LVMH & Zara
  3. Distilleries in New York are making hand wash soap and anti-bacterial detergent

This is the transformers meets manufacturing. Companies finding out (for altruistic reasons or otherwise) that what they are building has low demand, and something else has high demand.

I believe this trend will continue to happen after Covid19. More manufacturing facilities will be spawned in multiple locations that are built from the ground up to be flexible.

That is Flexfacturing.

15 things that Can change because of the coronavirus in the next 5 years

Here are a list of 15 initial things that will change I believe because of the coronavirus (#covid19) in the next few years.

  1. First meetings go virtual. I get about 3-5 requests on LinkedIn with people wanting to meet for coffee to network. I don’t drink coffee but I like to network. Instead of asking “where / when should we meet”, it will get to be “when can we meet virtually”. This is not going back.
  2. More people get employed by the government globally. Until now, the western countries have largely had the military and certain government functions federally employed and many teachers, firefighters and police employed by local government. To guard against more future outbreaks, more medical professionals (not specialist doctors, but nurses, etc.) will come under government employment.
  3. Just like the “strategic oil reserve” in the US, or the “pork reserve” in China, more countries will start to have strategic “medical reserves”.
  4. Significant number of older (greater than 70 years old) people will start to take supplements, exercise more frequently and take care of their health a lot more.
  5. WFH will become the norm for many more roles, resulting in more office buildings (commercial real estate spaces) being converted to residential apartments in downtown locations.
  6. More tracking, monitoring and surveillance (much more than currently being done)of individuals with automatic sensors for many types of illnesses being automatically detected by sensors in many buildings, groceries, etc.
  7. We will all realize that grocery stores can be open only from 7 am to 11 pm and that works for 90% of the people and have more sane hours in the US for workers.
  8. Support for paid medical leave will increase from hardly there to workers minimum rights, and have up to 21 days of sick leave for all.
  9. Increase in usage of tele-medicine, tele-counselling, and internet everything.
  10. Most kids (K-12) will start to have only 4 day school week and likely move to studying from home 1 day a week.
  11. College students will find that most of them can study from home very well, resulting in at least 10% of students opting for remote education, saving on dorm, meal plans and binge-everything
  12. More “minimum manufacturing, and production facilities in each country will force China to no longer be the “manufacturing powerhouse of the world. More countries will start to require vertical integration manufacturing to have at least X% (10% – 50%) of all their needs locally manufactured / produced.
  13. Voting (elections) will go digital in a big way with a lot of requirements on security and emphasis on making every vote count.
  14. Many more countries will start to accept “universal basic income” for the lowest 10% – 20% of their economically poor.
  15. Cash will go in many countries from being the primary currency of exchange to secondary – mobile payments, credit cards and micro-credit will start to take over.

What do you think changes?

Conversations with 21 Chief Strategy Officers: 2020 will be the year of digital transformation acquisitions

Over the last 10 years many in the technology industry have heard of and used the term “digital transformation” to support their case to a) move to the cloud, b) revamp old systems, c) leverage new technologies such as IoT (Internet of Things) or Blockchain or d) replace older internal IT systems to newer “born on the cloud” technologies.

In December 2019, I spent time talking to 21 corporate development leaders in mainline industries such as finance (banks, insurance), healthcare (providers) and manufacturing (automotive) to get a sense for their priorities.

The big takeaway from my discussions is 2020 will be the year that many startups founded between 2011 and 2019 will get acquired by companies in their industry. There are 5 major reasons why they believe this to be true.

  1. The stock market is at all time highs, valuing their stock significantly, which gives them lots of optionality to purchase startups with stock instead of cash. Many anticipate flat to lower gains in the stock market this year.
  2. Board level discussions around moving quickly before high valuations get even more frothy have been asking corporate development teams to come up with options quicker. While there are multiple stories of unicorns with lower valuations in the public markets (e.g. Uber, Lyft, etc.) the private markets are still richly valuing their companies.
  3. Many CEOs fear being disrupted by early stage startups more in “mindshare” and “eyes of the customer” than necessarily in revenue.
  4. Related to stock prices, debt financing is still relatively cheap and widely available, making it an easy option for larger, cash flow rich companies.
  5. Over the last 5 years (2015 – 2019) there has been a rise in corporate development roles within large companies and an increase in product or business line executives taking over the role from a previously “finance” executive. This has led to changes in the way “strategic” acquisitions are considered versus financial transactions.

Why Visa bought Plaid for $5.3+ Billion

This morning  Plaid, a fintech (finance + technology) company that had raised about $350M so far and was valued at about $2.7 B in its previous round, 1 year ago in Dec 2018, was acquired by Visa for $5.3B.

The company itself is about 6+ years old and provides APIs to help companies such as Venmo, Robinhood get API level data access to their users Bank accounts, credit cards etc.

If you have been around for a bit think about companies such as Yodlee and others.

I remembered when Mint was acquired by Intuit. Yodlee powered Mint, but Yodlee was B2B and Mint was the consumer facing app. They got the huge value.

In this case, there is no doubt that the fintech companies (59 unicorns) that depend on Plaid are valued richly, but the infrastructure provider – Plaid, also deserved the huge valuation.

In looking at why Plaid was acquired, there are 5 reasons given by Visa. (pdf file)

  1. Over 75% of internet consumers use at least 1 fintech app and Plaid provides the underlying plumbing to all / most of them – meaning, there are more customers to get.
  2. Plaid provides data and network access, which is fairly similar to Visa’s business model – making it an easy to justify acquisition
  3. Developers are driving new fintech app adoption and Plaid provides solutions to developers – a new audience for Visa to target
  4. As opposed to old banks (yesterday’s fintech companies), the new fintech companies depend on Plaid
  5. Plaid can help Visa with international API driven access to other fintech organizations beyond the US where this is just beginning.

Overall, a super impressive story. I am not sure this is worth $5.3 Billion, but who am I to question or value it. It is worth that and more to Visa and they are paying.

Controversial: “Many entrepreneurs take plenty of risks—but those are generally the failed entrepreneurs, not the success stories.”

I am reading a book Originals – How non conformists move the world. It is about folks that challenge the norm. In it, the author quotes from Malcolm Gladwell

“Many entrepreneurs take plenty of risks—but those are generally the failed entrepreneurs, not the success stories.”

This is not new and very controversial at the same time. He mentions multiple examples of highly successful entrepreneurs from the founders of Warby Parker to Bill Gates, as folks who had a side-gig in their venture before they plunged into something.

On the other hand, my experience has always been that when you commit to anything full-time you get a lot more success, as I have seen in my own case.

I am curious, how many of you are doing a side-gig or a project that you hope someday turns into a full-time opportunity or startup?

I’d love to also hear if you think that committing full-time versus doing it on the side will get you to your goal.

As an investor I never invest in any entrepreneur that’s seeking investment for an opportunity they are doing part-time. Should I be changing that perspective?

The personal blog of Mukund Mohan

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