Profit Pools – fishing in the right pond!
The pandemic & recent global trends have brought about a shift in the way companies are thinking about profit pools at the early stages, but what’s really changed? and how does one go deeper into the value chain of an industry in quest of the right profit pool - tune in to find out
Rajinder:
Hi and welcome to Matrix Moments. Avnish, it’s great to do this with you again. Today’s podcast is titled Profit Pools, Fishing in the Right Pond. I don’t think we’ve spoken about profit pools that much at Matrix until very recently. I think probably sometime through 2020 we started discussing this term. Come to think of it it’s also become kind of a global trend. I’ve started reading a lot more content around this. What changed? Was it Covid induced, like what changed, why has everyone started talking about profit pools?
Avnish:
No, it’s interesting. Well, it’s good to be back. So I would say the first time I noticed it obviously the consultants amongst us have spoken about it in the past, I don’t think they’ve applied it correctly though. See, in venture capital in particular in early stage sometimes I could argue that it’s an overkill to talk about profit pools when you don’t even know about product market fit. There’re typically three stages of a business, there’s your early product market fit, then there’s scalable product market fit and there’s scalable profitable product market fit. We’ve spoken about this before. So clearly it comes towards the end but I’ll tell you the first time I really started noticing, started a little bit with Bhavish and Ola. And as the business was growing and scaling I could see him going deeper and deeper into the value chain of the industry and seeing where is the profit in that industry. Especially the analysis that strikes me and you were part of it was when we were doing Ola Electric.
Rajinder:
Yeah.
Avnish:
Right. Wherein the value chain it is. The other big one I think it was last Diwali when we had Sachin Bansal, Bhavish, few of these guys on the panel and then 2018 onwards we said we’re seeing a lot of these experienced founders, what’s different about them. Right, how do they think about life differently and I think we came up with six things. Things like domain expertise, they have lot of followership. But two things we very clearly came up with was they don’t take market risk and they chase deep profit pools. That really started hitting me because you talk to them and they’re talking profit pool. And I remember Sachin Bansal at our event saying I have chosen to be in financial services because there are these profit pools. So clearly that’s been kind of our exposure. Globally obviously the pendulum swings, there is this capital as a strategy which we saw doesn’t play out. At that time companies start burning a ton of money, then they start coming back and then they say we have to make money. And it’s not that simple. At that stage you have to step back and say where is the profit in my industry. And if you haven’t started and hopefully at the end of this discussion we’ll reach the same conclusion our experienced founders did which is start with the profit pool, start with the MOT. Maybe build gamification, you know, you should bring all these things together, but start thinking profit pool backwards because you can’t create them later. So I think that’s in my view that’s what got me thinking and trying to learn more about this business.
Rajinder:
So that I buy and I agree but how is profit pool thinking any different from profit margin thinking, it sounds like a nice way for consultants Mckinsey and the like to basically sell additional work to people where it’s pretty much the same thing.
Avnish:
Which firm were you at? Booz?
Rajinder:
Booz.
Avnish:
This is like the time to take a dig at Mckinsey, we have a lot of Mckinsey people here. I didn’t say anything, he said it. Two, maybe three, I haven’t thought of it like that but maybe two or three differences. One is at a industry level, the other is at a company level and so it’s more industry structure related. And two I think one is a point of time and the other is more historical and future analysis maybe using history to predict the future. So I think those are two important differences. Now this lingo by the way when I started researching it turns out it was first discussed in a HBR article by James Gilbert and Orit Gadiesh, if I’m saying the name right. And somehow it doesn’t get as much credit as – so you’re HBS, all these other frameworks that have come out like Five Forces and Balance Scorecard. So I would refer people to that, it’s a very technical paper and it goes through the methodology of how you calculate it. But if you zoom out net-net what you do is you take an industry, you look at the value chain of that industry and you kind of have to define the boundaries of your industry and when we go through some examples we’ll have to think about those boundaries. Auto, does it include ride hailing or does not include ride hailing. So but then you take those subsectors and sum up the profits of the individual companies to figure out where the profit pools are. The reason this is important and it is the context I think a little bit in that paper is we all often focus on TAM, addressable market. Market cap comes from profits not from revenues, now current market conditions almost bubble conditions, lots of revenue multiples and crazy revenue multiples, Snowflake and some of that. But I think the market is factoring in the profitability of that revenue, future profitability of that revenue. We’ve discussed this in the marginal value. I think, yeah, some of these they’re Tesla, some of that I don’t know but even Tesla seems like a massive MOT. So the point is market cap comes from profit so let’s analyze profit and profit pools and when you do that you may have some very counter, well, now it’s not counter intuitive, in those days used to turn out to be counter intuitive. For example the US auto industry in the late ‘90s. When you do this analysis who do you think makes the most amount of revenue in that industry, in the value chain?
Rajinder:
Late ‘90s probably GM, the auto maker.
Avnish:
So let’s not go company specific, value chain.
Rajinder:
Auto makers you said. OEMs.
Avnish:
Who else makes a lot of revenue?
Rajinder:
I mean linked to that I guess their dealers and distributors.
Avnish:
Who makes the most profit?
Rajinder:
Probably not the dealers and distributors.
Avnish:
Or the OEMs.
Rajinder:
Or the OEMs? Okay.
Avnish:
The maximum profit pool was in leasing, it was in financing, it was in used car sales. Now you have lived in the US, I have lived in the US. Again when you start studying these things suddenly there’s a light bulb that goes off. What are we used to seeing in the US when you’re driving down these roads. Like used car dealerships everywhere. Some of the largest like Carvana now, is it Carvana, that is now worth $40 billion. Suddenly it clicked. And by the way DST is invested in Cars 24. The profit pool is in used car not in new cars. The profit pool is in financing, the profit pool is in leasing. Now I guess you weren’t there at that time but in the late ‘90s there was a huge shift towards leasing cars. If I went to a dealership to buy a car they would try to lease it to me because that’s where the money is. So it is very, you know, the answers that show up are very interesting. Now let’s apply this to India, and kind of a little bit more of a instructive example for people. Let’s take the three wheeler auto industry, what do you think is the value chain. Let’s start all the way from – and by the way my personal bias is to take a customer backwards view. So like I was saying earlier profit pools are about distribution, how is it distributed, but I think more importantly about redistribution. We are future backwards investors and what we need to spot is where is the redistribution happening and we’ll go through some examples of that. But let’s first go to distribution. Start with a three wheeler, you have taken the auto, let’s go all the way back, who is making what. So is the driver making a lot of money?
Rajinder:
No, probably like, yeah, just about subsistence.
Avnish:
Subsistence.
Rajinder:
Then there’s the driver, there’s the OEM, there’s the energy/fuel provider.
Avnish:
Is energy making a lot of money except taxes? Well, more than the driver.
Rajinder:
More than the driver but I mean the market cap of those companies is very,very large.
Avnish:
OEM, what is Bajaj Auto’s profit margin.
Rajinder:
Actually it’s very high.
Avnish:
So unlike in the US who else is making money in this value chain. What is typically written back of an auto other than ta-ta, okay, bye bye, whatever.
Rajinder:
No, there’s also like it’s the financing part.
Avnish:
Hypothecated to and how do you think all these small subscale community banks are working in India. They’re making tons of money because they’re tapping into some of these communities and these auto drivers are – it’s actually a little bit sad but essentially the Bajaj Auto is making money, let’s not call Bajaj, but the OEM TVS whoever. That’s why they start captive finance arms and this is how the value chain is structured. Now we could go and analyze how this will change but I think that’s one example. The other example that is interesting is you know we had done this thesis on space. Actually let me come back to that, but I think the core point around profit pools is we have discussed in the past with MOTs and stuff which is the right to play, the right to win. What is your MOT, what is your strategic advantage? But very importantly we have to think about the right to earn. Where am I, so in my head the third framework that has come in is what is my right to earn. And then obviously sustainably, but that’s how I would think about profit pools.
Rajinder:
Frankly the examples we’ve spoken of thus far when I think about this value chain and companies that can play across this value chain it sounds like this is all very large company conglomerate kind of analysis of where is the money to be made and how do you tap into different streams of revenue and profit. What’s the learning for early stage founders and VCs like ourselves who are investing in companies which are rather narrow to start out with.
Avnish:
You know, with MOTs we talked about it’s the widening rather than the deepening that matters. I think with profit pools it’s the redistribution rather than the distribution that matters. And we will towards the end talk through it but every video cast we do or you do with me and make me do I get excited about starting a new business. I’m very excited about this, but with this and gamification and MOTs it’s almost like you know the building blocks. So I think it is very relevant, it is very relevant because things are changing. You know, there’s a tweet we should include from QED Investors which is a very good large fintech or they’ve done really well in fintech. Their tweet talks about the fact that they’re tapping into the profit pools of financial services and it is getting disrupted. You take me through an industry and we’ll go through these examples I’ll take you through how that redistribution is happening and who’s capturing it. So I think it is very, very lately there’s a lot of talk we’re investors in your credit card company, I’ve been seeing including this morning because of Afterpay’s IPO how Afterpay is capturing the credit card industry’s profit pool. Credit card industry has had a very deep large profit pool, may not have innovated enough along the way. So I think it is very relevant because it’s the venture capitalists as founders, we’re investing behind changes not at a point in time. Conglomerates by the way they’re the ones who get disrupted so they also need to be thinking. Dollar Share Club may have tapped into Gillette’s profit pool and so on and so forth. So I think it is very relevant. Now the other piece is remember that there are a lot of consumer preferences change. I think one of the biggest things that people miss is those changing consumer preferences. And I don’t want to make a very big deal about a fixed and growth mindset but I think founders, VCs, everybody really need to think. With the growth mindset you’re always thinking and there’s a Bill Gurley’s tweet on this about how growth mindset people are always looking at peers, always looking at other things and saying what do I need to do differently. I think it applies as investors and founders. So as customer preferences are changing are you constantly staying ahead of that and which is why it is super relevant in my view for us. Let’s take an example which is very, very in my view applicable to our industry. Let’s look at how consumer preferences have changed from dine in to delivery and it’s a topic that is very near and dear to your heart. So walk me through – so you’re the spender, when you go to a restaurant what all do you spend on and what all does the restaurant make.
Rajinder:
Honestly in dine in my average bill would probably be 3x, 4x, or –
Avnish:
10 thousand.
Rajinder:
Let’s not get into that, that’s embarrassing. But probably 3x to 4x of what I would spend if I was doing delivery. I to 1.5 x is definitely beverages, alcohol and nonalcoholic. I probably spend like --
Avnish:
But what is the full experience from the time you leave your house.
Rajinder:
Oh, include that then like there’s commute, there’s parking, there’s wait time, there’s waiting at the bar.
Avnish:
So what have you net-net paid for, what did you go for?
Rajinder:
I went for a great meal and a great experience.
Avnish:
So ambience plus food.
Rajinder:
Yeah.
Avnish:
What all does the restaurant spend on?
Rajinder:
Real estate, labor, materials.
Avnish:
So maybe a little bit on ambience, little bit on food but there’s a lot of this other overhead. Now let’s switch the example to the food delivery apps. So what do you pay for?
Rajinder:
Honestly I just pay for the food and the fact that it arrives in a certain period of time.
Avnish:
So kind of lose the ambience. What does the food delivery company pay for?
Rajinder:
Delivery, which is --
Avnish:
So you’re paying for food but they’re paying for delivery. Correct? They’re not spending on the food. So when you think about it as a customer what do you care about? So ambience let’s say harder to recreate, there are issues. All you care about and in your case specifically but you care about food, that’s what you’re willing to pay for. And restaurants and delivery companies are paying for all kinds of other things that you don’t want to pay for or you care about. So what kind of business should you be doing in food?
Rajinder:
Something that is just food or at least it gets me much better food.
Avnish:
So all the consumer brands that we’re doing which go D2C. If you list on a marketplace you’re going to have to deal with the logistics just focus on the food. Or cloud kitchens. Just focus on the food, don’t worry about anything else. Use all these things -- now if you think about it that’s where the profit pool will lie. All these overheads will go away and suddenly your restaurant which is a -- actually it’s not as much a gross margin business because of the rentals and overheads and stuff. Suddenly you’ll see that you can just move that’s where the profit pool is going. Why do you think there is a cloud kitchen? So I think I’ll give one other random example because it’s very recent for us. We did a space tech thesis, space has maybe 3 or maybe 4 parts of the value chain, there’s the launch services, the rockets and the launching and the satellites. Well, more rockets and then the satellites get launched and there’s satellite services where they send you stuff. Then there is – so this is called upstream, mid stream and then there’s downstream where all this data is there and you are doing all the analysis. Where do you think the most investment goes?
Rajinder:
Definitely upsteam, sending something to the space.
Avnish:
Sending rockets up.
Rajinder:
Yeah.
Avnish:
Where do you think the most money is to be made? How many times do you send rockets up, meaning a company will ultimately send a few times. The most money is in the downstream. Now this is where someone like – so now because this first upstream is so expensive --
Rajinder:
The most money or the most profit?
Avnish:
Profit, sorry. Money being profit. Because it’s so expensive 80 percent of investment in upstream goals is done by the governments obviously because of defense and other reasons. Then they will capture all of this profit. Why do you think Elon Musk is now the richest man in the world other than Tesla and this is an example, we’ll go through Electric, how it is. This again is going to be a little bit more example heavy but how that whole industry was disrupted. He’s taken the most – he has realized that the biggest profit pool is in downstream but the right to win and the right to earn comes by owning upstream but upstream is very expensive. So what has he done?
Rajinder:
He’s actually disrupted upstream.
Avnish:
How?
Rajinder:
Redesigning --
Avnish:
Reusable rockets. Who thought that a rocket would be reusable? It takes off and it lands again. Suddenly you’ve taken a very expensive upstream capital intensive business and made it into capital efficient. Then you have the right to all these profits. So I just think it is fascinating but thinking about the right to earn that sustainably and often it comes with very high capital expenditure, it doesn’t have to be. And you can see it with people like – and we’ll talk about Amazon and Bezos because what we have discussed in the past and I tweeted about it how Amazon converted every cost center into a revenue center. I think this guy Elon has converted this atleast in space has converted the capex center into a profit center because he is sending other people’s satellites in that and he is the only one whose rockets land back.
Rajinder:
He’s a different order of a founder. But you mentioned Amazon and Amazon I know you put out that post which I really liked as well but it seems to keep coming back in all of our podcasts.
Avnish:
It’s a perfect company, isn’t it?
Rajinder:
Yeah. I mean I don’t know, like what gives, like why do they – all these years this is a company which everyone had written off and frankly everyone thought of it as a boring company, it’s a retail company which seems to be pushing margins away from retailers and away from sellers.
Avnish:
Your margin is my opportunity.
Rajinder:
Yeah, but you know now everyone celebrates it as the ultimate example of --
Avnish:
I think it’s an unbelievable one but let’s go through your personal P&L to give this context that every cost item is a revenue item. What does your personal P&L look like? So you get some salary, some capital gains income where what are the top three line items that you spend on and I won’t make fun of you.
Rajinder:
Rent, actually I spend on salaries but I probably spend on food, food would probably come number 2. Salaries probably number 3 and travel/entertainment is a close number.
Avnish:
Okay, so let’s take the top three. So rent. So you’re spending on rent at home, how do you create – I’m not saying this will necessarily suit your lifestyle but how would you convert that into a profit center?
Rajinder:
Well, I could lease it, put it out on Airbnb.
Avnish:
One room?
Rajinder:
One room. Yeah, no brainer.
Avnish:
And the monthly rent will always be lower than even if you were renting a room on a weekend.
Rajinder:
Yeah. No brainer.
Avnish:
So 100 was your revenue as your income, 20 or 30 was going in rent. Now that 20-30 goes away and 100 becomes let’s say 120 because it’s a profit.
Rajinder:
No, I almost feel like there should be purpose built accommodation just for this. Like someone should be building houses in parts of cities where people will actually want to live. Unfortunately no one will want to rent my room.
Avnish:
Because he knows that’s just the nature of you. You could bundle in food with that. But the point, so how do you make – let’s take another example. How do you make – you’re saying salaries, so salaries of your staff.
Rajinder:
That I’ve thought of which is because I’ve actually – because my driver, God bless him, he parks the car and --
Avnish:
And he’s free the eight hours.
Rajinder:
And he is free the entire day.
Avnish:
He should be going and like you should take 20 percent cut off his earnings or send him on Ola.
Rajinder:
I’ve actually asked founders why don’t you actually allow me to plug my private vehicle into your network and allow me to make my own.
Avnish:
Why isn’t he parking cars around here, and he should give you 20 percent or you should charge 100 rupees for parking and give you 20 percent.
Rajinder:
Actually it’s a good idea. I didn’t think of it.
Avnish:
Cost center is a revenue center. So I think it’s very powerful because you start realizing that it’s just all profit and Amazon has the following, data center and hosting was their largest costs. They started AWS is their biggest profit center. Warehousing and logistics second biggest cost, they have something called Fulfilled by Amazon revenue center called profit center. Payments another cost, Amazon Pay. And in fact in India they’re pushing Amazon Pay a lot. Books, Tindle. products, Amazon Basics. It’s just unbelievable and the tweet was around marketing, it is unbelievable that Amazon is making more from people – or is close to making more from people advertising on their site than they spend on advertising. Where is their fricking cost center, there’s nothing left. So I think it is the ultimate business model MOT. Now to be fair well, you know, I think the world of our conference rooms are named after Bezos, Jobs, Musk and much before they all became the richest people in the world. I think some of it was necessity is the mother of invention, right, so there was a tweet from Dan Rose which we should include who talks about early 2000s why did Amazon start AWS and how did they start AWS. Because they were running out of money, they had no money to pay the data center and hosting costs. And they were running on Sun Microsystems and Sun Microsystem was worth $300 billion at that time. I think it went bankrupt somewhere along the way. So they moved from all of that platform to Linux so that their own cost would come down because they were going to run out of money and then they realized oh, wow, we are using such a powerful platform we can actually rent it out. But I think some of it was serendipity but the necessity, the resourcefulness of the founder showed by actually changing the business model, but then a lot of it is thinking like it’s just so thoughtfully stitched together.
Rajinder:
You know, I think we had spoken about this in a previous episode how – and you mentioned this again in the context of Sun that how all the most valuable companies or large companies in the world somewhere along the way they cede their position to someone else and it sounds like that means that the profit pools in the industry are likely also shifting and so I’m just thinking again now today if I look at the companies which are most valuable like let’s take Tesla as an example. It’s more valuable than the entire auto industry but does that now mean that profit pools are actually the only answer and frankly they’re more important than MOTs even or what is your view?.
Avnish:
It’s always the flavor of the day for us. But I would say the right to win is MOTs, right to earn is profit pools. But you need MOTs for profit pools to be sustainable. Let’s take the example you mentioned Tesla, you know, again going back to the US auto industry value chain 99 percent of the profits would lie in the value chain we spoke about, OEMs, dealers, financing, leasing, so on and so forth, spares, used autos. Now you said energy companies, so gas companies, whatever, petrol companies were making a ton of profit. Now see the amount of disruption that happens with EV, see the amount of disruption that happens with ride hailing. Do you really need to own a car, see the amount of disruption that happens with self driving cars. So you can – there is an analysis and a paper, I think it’s BCG, God bless the consultants, which says this might capture 40 percent, all of these changes that are happening out of the 99 percent of the value chain. Now if you look at an auto manufacturer what do they really build, they build the engine, they obviously build the chasis and stuff. In electric there is no internal combustion engine, the drive train so called are much – you know, Tesla is really a battery company. And if you remember all the issues with regard to production used to be related to batteries. Now where is your right to win as a GM or an OEM or let’s say you were a component supplier to these companies where is your right to win with batteries.
Rajinder:
In the technology and the --
Avnish:
Do you have that skillset? I mean you’re used to mixing diesel and petrol and lighting things on fire which is a bad idea with electric vehicles. So I don’t think you have a right to win. So the whole skillset changes. You know, which is the most famous chip company that you know?
Rajinder:
Intel?
Avnish:
What’s the market cap, it’s about 200. You know the company that’s worth 300 billion that I didn’t realize till I was doing this work, Nvidia.
Rajinder:
The graphic chip.
Avnish:
The graphic chip, gaming chip company but guess what because they were in gaming chips they have a lot of this data processing power and artificial intelligence and all of that where did they use it, in autonomous vehicles. So they have two key drivers now, both forward looking industries. So if one has to bet on which company will be larger in five years you almost know the answer. Intel has grown market cap by I don’t know like 50-60 percent and Nvidia has grown by 20x. Nvidia is 330 billion market cap, Intel is 200 billion. I really didn’t know this and I was shocked. So this is about shifting profit pools. Now Intel was obviously not in vehicles but they didn’t stay ahead of these trends of gaming, autonomous vehicles and stuff like that and see how much the profit pool changed. So I think incumbents realize it, GM, Ford, all of these guys are investing a lot. Ola obviously has a big initiative with Electric in capturing these profit pools but it’s not that easy. Do you really have the capability set? So I would really analyze with the changing trends, with changing customer preferences which we haven’t spoken enough about but I think people really miss it when customer preferences are changing. In India by the way when I was growing up we used to have these two wheeler scooters. When I came back to India they were gone, it was all motorcycles. Now with EV you’ll see scooters again. And because women are starting to ride more and women don’t really like riding bikes. So lot of these customer preferences and stuff matter and the whole profit pool shifts, I think the key comes back to do you have the right to win or will you innovate fast enough in that particular industry to actually have the right to win.
Rajinder:
I’m just curious like the other example that comes to mind and I’m not even sure how it happened but content, OTT, there used to be these studios who basically produced shows and it was appointment viewing and it was a relatively oligopolistic industry. Now you’d like to believe with the Internet that it isn’t an oligopolistic industry.
Avnish:
It’s a great example, Rajinder, so let’s take -- and we should include the link to this Scott Galloway’s 2021 predictions because I kind of got this idea from there though I had been thinking about it and believe that. So I’m Disney, another one of our conference rooms, I have created this massive empire or market cap and all of that and now I have Netflix and Amazon and various other platforms who seem to be able to dictate terms. When I was Disney in my old world there were these cable companies. We have Tata Sky here. In cable companies you get a placement and therefore you get a challenge, you pay what is called a carriage fee. When you have Netflix and all of these – by the way Netflix, sorry to digress for a second, but that’s the ultimate business that took it’s right to win, let’s spend a minute on that, into the shifting profit pools. They started off renting DVDs and then they saw the trend going to streaming. What was their right to win they actually had a channel into the customer. So they said we have the channel into the customer, we’re going to be the first ones on streaming as well. So I think an excellent example of pivoting quickly and capturing the profit pool. Now coming back to this example I’m Disney, what’s my right to win against Netflix or Amazon Prime. I don’t have the direct channel into the customer that the rest of them --
Rajinder:
Maybe exclusive content.
Avnish:
Mickey Mouse, everything that Disney has is so exclusive to them, that’s their right to win. Nobody else has it. And this is where the Galloway’s thing comes in, there’s this whole thing of rundling which is rebundling or something, you’ll probably know it better. Which is can you bundle a bunch of things. So I have my right to win because I have the content that nobody else has, I won’t give it to Netflix. Apple, what is Apple’s right to win to have Apple TV Plus. Now they’re creating original content, they don’t have their content but they have me, they have the customer. So actually we might end up with and is there a big problem having like we used to have channels eight OTT platforms, no. I’ll just switch between them, it’s painful. I would like to get all the content in one place but therein lies a business opportunity of aggregation. But that is the point, that Disney has a right to win, they have the exclusive content, they will then bundle that thinkbox, they will bundle their cruises, if they’re listening to our gamification podcast they’ll gamify all of this stuff because they can naturally gamify a bunch of these things. And the next thing you know I actually think Disney will do much better than people think as an old world media company because they have the right to win.
Avnish:
Whoever has that also has a right to win because they have that franchise.
Rajinder:
The way you’ve described it almost sounds like there’s a playbook to follow here and I’m just wondering like for all the founders who are starting companies and who want to chase these profit pools and who are looking at the industry what’s the --
Avnish:
Rajinder, do you know sometimes we have these debates internally no deals in a sector. I just think there are no deals in a person’s head or in those founders and whatever – I’m not talking about people here. I think there’s opportunity and disruption everywhere. What are our most important sectors?
Rajinder:
Marketplaces, fintech.
Avnish:
So let’s go one by one. What is the big disruption in commerce and marketplaces, we already discussed. We discussed it in Marketplaces B2B, B2C. We also discussed interactive commerce, so big. Fintech, what is the disruption?
Rajinder:
Frankly there’s disruption everywhere like NEObanks.
Avnish:
Lending. It’s all based on – a lot of it is based on catering to customers better based on their own data. What are the other big sectors? Mobility, disruption everywhere, we’ve discussed it.
Rajinder:
Edtech. I mean abound.
Avnish:
What’s the disruption?
Rajinder:
Well, frankly just access.
Avnish:
Remote learning. What are the two most valuable companies in the last one year in India? Byju’s or Momentum has an academy also, right, we just read about it. What are the other big sectors? I mean so we can go through example by example. Pharma and healthcare, telemedicine. Travel and tourism, we’ve talked about work from home. Aggregation I think space tourism. So I just think you pick a – I think real estate people don’t realize if some of this work from anywhere remote all of this will stay real estate is going to get disrupted. I was just reading the other day that the trend around co working spaces is going to pick up more than people realize. Are you really building things where if companies decide that 20 percent of their workforce will always work from home – by the way work from home and work from anywhere are different things. People may choose to work from anywhere, they may go to their hometown and work out of a space specially designed to work from anywhere because they don’t want to sit in their houses and have the disruptions that come with it. I just think it’s everywhere. Agriculture, I mean there’s a strike going on because of the disruption.
Rajinder:
Yeah, some of it is regulatory. You know, you spoke about founders and we have all our conference rooms have been named after founders. How would you think about like some of the most famous founders out there and how they’ve actually applied these learnings?
Avnish:
Yeah. And I would say look let’s apply it more base level which is the richest people in the world what did they do. They all disrupted industries, they just completely disrupted the profit pools of the industry. Starting with Bill Gates with Windows, it used to be the – maybe people say he copied the Mac but whatever, he completely disrupted the industry. Very easy to see with the Google guys, very easy to see with the Facebook guys. Elon Musk disrupted an industry. So I think the biggest learning is -- by the way I don’t know if I’m going to be right in this because I don’t know enough about Bitcoin to know if it is real or not real. But if it is real the richest guy is going to be the founder of Bitcoin because he has I don’t know how many millions of Bitcoin he has. If he has 10 million and each Bitcoin is – what is the current price of Bitcoin?
Rajinder:
30,000.
Avnish:
Yeah, it went to 40,000 it’s back down to 30,000. If it goes to 100,000 and you have 1 million Bitcoins you’re worth, what’s your net worth?
Rajinder:
100 billion. Wow, seriously. It’s great.
Avnish:
He might have 10-20 million Bitcoin, he may be the first trillionnaire. But I don’t know enough about Bitcoin but he disrupted an industry, he deserves it. So anyway I think my bottom line is that every time you do one of these things I start getting excited about industry so I think there’s opportunity, there’s shifting. Again it’s not distribution but it is the redistribution and we went through every industry there is something or the other going on. I think the biggest thing that people miss is the changing customer preferences and a lot of changes in profit pools come from changing customer preferences. I think as we speak people are missing, a lot was made about millennials and their difference. I don’t think enough is being discussed and thought about including with us internally on GenZ and video and how are the preferences changing and how the profit pools will change. So I think the key is right to win is the MOT, right to earn is your sustainable MOT but that’s the profit pool. I think these two things go really hand in hand. But if one were to put all of the things we have discussed together one could argue that one should analyze the industry of shifting profit pools and start a marketplace business specific to that maybe it’s interactive commerce and gamify it to create the MOTs other than what we’ve discussed. I think these things can really come together and they apply so it’s not ‘either/or ‘it’s ‘and’. Each of these elements are more top down strategically important ways of building a business.
Rajinder:
So, thank you.
Avnish:
Excellent. Good fun.
Salonie:
Thanks for tuning in. For more Matrix Moments episodes, you can head to www.matrixpartners.in/blog. You can also follow us on Twitter, LinkedIn, and YouTube for more updates.
