Bootstrapper.com - Confessions of Serial Entrepreneurs

While on a recent pleasure trip to my home country, India, I visited the new R&D centre of Google. What a facility – wow! This sprawling research centre houses about 150 of the brightest minds from across the world to further Google’s engineering capabilities. I met Phd’s who apply their expertise to launch consumer-relevant products and services. Most people I interacted with are geography-agnostic. All they care about is a place where they can work with like-minded thought leaders. Google has built a unique culture with its 80:20 philosophy to achieve effective human resource management. The engineers work independently – donning the hat of an entrepreneur; and each one of them MUST devote atleast 20% of their time on special/personal projects that are eventually brought to the market through Google’s global work-force collaboration. A classic example of the success of this amazing entrepreneurial culture is the launch of Google Finance. What started off as one of the 20’s project for three bright engineers at Google has become a case study for lean production in digital media. In the process, Google has dismissed the age old theory that mega corporations are less likely to be nimble and fleet footed, when it comes to breaking the shackles of organizational hierarchy and the associated bureaucracy. The company has successfully designed an organization structure that fosters innovation and the spirit of entrepreneurship. In addition, Google has overlaid efficient systems and process that ensure maximum yield and employee productivity. This visit to the Google campus has reinforced the thought that entrepreneurial instincts don’t just come by birth. It is not a genetic phenomenon. Rather, the spirit of entrepreneurship can be fostered by intelligent management practices – through an organization structure; systems & processes; and culture that is deliberately designed to achieve desired outcome – in this case, developing market leading products and services to sustain the competitive advantage. No wonder - not only leading head hunters are making cold calls to the Google R&D campus; but leading VCs (from around the world) are trying to lure these Google entrepreneurs in ‘Search’ of the next big thing!

Here’s a short story of my dear friend, Nidhi, a proverbial ‘Serial Entrepreneur’. The literal translation of the name Nidhi (in ancient Indian language of Sanskrit) means ‘Treasure’ - and true to his name, my friend Nidhi did amass a treasure, within a short span of time. He created wealth by being smart, and by out-thinking the herd. One of the pioneers of an industry that is today popularly known as ‘Offshore IT Outsourcing’, Nidhi was the co-founder of iVega, an IT offshore outsourcing company that had marquee clients such as BofA and Wells Fargo to its credit. Nidhi made a fortune selling his stake and private paper in iVega to a Swiss magnet. This was a truly historic event, since very few, at that time, had heard of Offshore IT Outsourcing. Nidhi then went on to create Saintlife Research, an offshore outsourcing company specializing in undertaking clinical research. Again, he sold Saintlife Research to a NASDAQ-listed company. His next idea was truly radical – buying defunct print brands and converting them into online brands – a novel idea at that time, since the print industry was in a state of terminal decline. I met him after he had acquired a couple of properties in UK, and he was in the process of reviving the titles by digitizing the content. I wrote the business plan, designed an organization structure, and helped him implement best practices in an effort to organize the business better. As a consultant, there’s only so much one can do – indeed, I tried everything I could including running road shows etc. Eventually, we decided to sell the nascent business, even before achieving any sort of critical mass, since there was very little appetite within the investment community to think-through the model. Today, it’s a different story. All major PE players are in this business – buying struggling print businesses and turning them around to sell profitably. Time Inc could be the next one going the LBO route, or atleast, part of it. We just tried the model too early, and in a country where print industry is thriving. While im back to selling my professional services, doing small projects to earn my livelihood; Nidhi is back to his next Treasure Hunt. As Louis Pasteur once said “Let me tell you the secret that has led me to my goal. My strength lies solely in my tenacity.”

Here are the excerpts from an interesting piece of analysis by Michael Nathanson and team at Bernstein Research. According to the research, the five media conglomerate (CBS, Viacom, News Corp, Disney & Time Warner) CEOs are paid an average of $27 million — 2.3 times more than the CEOs of other large U.S. corporations. At the top end of the list is CBS’s CEO, Les Moonves, at $36.8 million, while Time Warner’s new CEO Jeff Bewkes received the least at $19.5 million.  The median total compensation for CEOs of the largest 250 companies in the S&P 500 Index is $12 million. Media conglomerate CFO’s, while paid materially less than their CEO counterparts (an average of 60%  less), were paid an average of $10.8 million each.  Viacom’s Tom Dooley was the highest paid at $16.4 million, while Time Warner’s recently-retired CFO Wayne Pace netted the least at $8.4 million. 

The bulk of the compensation was driven by bonus plans, which are mostly cash payments. On average, about 44% of CEO and 40% of CFO total compensation was paid through the annual bonus. Base salary accounts for only 13% of CEO total compensation, and 16% of CFO total compensation. Rupert Murdoch was paid a base salary of $8.1m, which is over 3 times higher than the peer average of $2.6m.

The authors conclude that the best compensation plans (for shareholders) are the ones that are most aligned with shareholder interests.  In general, the best compensation plans offer a high degree of stock-based compensation and bonus structures tied to fundamental stock drivers. Within the media sector, contend the authors, investors have traded-in their focus on EBITDA generation for EPS growth.  So, at the very least, a “good” compensation plan should focus on EPS, not EBITDA, growth. The Bernstein Research favours compensation structures at Disney and News Corp., while claiming that the compensation structure adopted by Viacom and Time Warner as less relevant to investors.

Visa Inc (NYSE: V) successfully concluded a mammoth $10 billion IPO, which attracted everyone’s attention; and your’s truly is no exception. Like Google (NASDAQ:GOOG), Visa is a stock that every portfolio investor would want to own. However, the comparison doesn’t end here. In fact, the two have a lot more in common than I had original thought. Both Visa and Google are the current undisputed leaders in their respective industries. While Visa has well over 50% of total volume and value share of global electronic payments market; Google has roughly 50% share of the global online advertising market. Both the companies command an absolute leadership position – Mastercard, the number two behind Visa is less than half Visa’s size; while Yahoo the number two online destination is less than one third of Google’s size.

The global payments industry is undergoing a secular shift from paper−based payments, such as cash and checks, to card−based and other electronic payments. Similarly, the global advertising industry is undergoing a major shift from traditional media, such as Radio, Newspapers, Magazines and TV, to internet and other new media. While Visa’s real competition is cash and checks, which combined represent 57% of the total global payment volume of $20 trillion; Google is trying to compete with traditional ad budgets, which represent over 90% of total global advertising of $700 billion.

Both Visa and Google leverage strong brands to grow their respective businesses – both are number one brands in their respective industries. From a technology stand point, Visa global payments processing platform is extremely scalable due to a centralized architecture. Similarly, Google search platform has a central architecture and is powered by the same algorithm engine globally. The combination of brand leadership and technology edge has enabled the companies to embark on rapid globalization initiative relatively seamlessly. Organizationally, both the companies are functionally aligned at a global level; however, their respective regional operations are integrated to facilitate better regional coordination and management. The result is both companies earn a large share of their revenues outside the US. Roughly 50% of Visa’s volume and about 35% of its revenue is from outside the US. In the recently concluded quarter, Google declared that it earned more than 50% of revenues outside the US.

While Google has always been an active acquirer; Visa Inc CEO, Joe Saunders, indicated in a recent analyst conference that Visa’s focus is on looking at acquisitions that will provide technology that will enable to bring some of Visa’s strategic initiatives to market more quickly or to enhance them. Clearly, this indicates an increased appetite for acquiring companies in the future.

Undisputed market leadership; favourable secular shift in their respective industries; and large international operations have made Visa and Google relatively shock-proof in the event of a recession or an economic slowdown. Further, both the companies are continuously innovating to develop and launch cutting-edge products.

However, there could be a potential area where Visa and Google may end up competing with each other. Google Checkout competes directly with PayPal in online payment solutions. Visa commands a 47% market share in online transactions, compared with 3-4% for PayPal. Yet, in one of the recent analyst meetings, Visa CEO Joe Saunders expressed that the company considers PayPal as a competitor. Further, Visa is aggressively expanding not only in online transactions but also in the mobile transactions space. With its participation in the recent US wireless spectrum auction, and project Android, Google has made its intentions clear about mobile. Only time will tell as to if, when, and how, the two giants may end up competing with each other.

Since the time I entered the digital media world, I have rarely looked at it from a media planners’ perspective. As a matter of fact, most of the available research is overwhelmingly skewed towards the sell side – the side that is so heavily fragmented that its really a nightmare being a media planner in today’s online world. Exception being search – the ease-of-use and simplicity that the medium brings, particularly Google, to online media planners

Let us look at what’s on offer in Europe for a media planner exploring content categories to target and run a campaign. I began looking at the comscore numbers by category to figure out how to allocate my budget.

The UK automotive category is quite well-spread among the internet population – reaching 45% of UK internet audience. However – within the space, my only chance of reaching any meaningful scale is via the leader of the pack, Trader Media Group. However, even if I buy the slots on all of their welcome pages, my campaign will reach only 17% of UK auto category population. Behind the leader is the trade group – Automobile Association Ltd. – with a reach of 12%, but with engagement levels so low that it would be futile buying the site. Within the top 10 are the car majors – who have audiences that are either incredibly loyal or are soon to be one. Is there any point for me to run a competitive campaign on these sites? – is this possible? – OK – let’s move on. I’m already beginning to get frustrated. Same story in France – although the automotive category reaches 34% of internet population, the top site Caradisiac reaches only 30% of online automotive enthusiasts. In Germany, the story is slightly better – auto category reaches 32% of online population, but the combined reach of top two, Mobile.de and AutoScout24 is a massive 70% of online auto enthusiasts.

At this point, I became very intrigued, and wanted to research another hot sector from a buy-side perspective – Money and Finance. In the UK, this category reaches about 80% of internet audience. However, within the top 10, which is where the category is concentrated, my only chance of running a successful campaign is Moneysupermarket.com with a reach of only 25% of UK Money and Finance category; and Reed Business Information and BBC, which have a combined reach of 12%. Wow! – I thought – isn’t this a text boon scenario of ‘Fragmentation’. In France, this category reaches about 56% of online audience, but I have no chance of running into any sort of success here, because I couldn’t find a single, consumer web destination, with any reasonable reach. Disaster, isn’t it? In Germany, the Money and Finance category reaches about 50% of online audience, and the leader, Sparkassen-Finanzgruppe reaches about 30% of this category. I felt relieved.

But to be honest – the entire experience has been truly frustrating, and I begin to think – if I should follow my friend Pete, who makes his job so simple – buy buying only Google keywords – for both Brand and Performance campaigns. It’s so easy, and value for money – so measurable etc. Surely, this strategy has its limitations, but atleast Pete can enjoy quality time with his family and indulge in his favourite pastime – Golf.