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We’ve all heard the saying “the customer is always right”, it stems from the fact that the customer has money and never argue with a potential paying customer. Based on Apple’s latest earnings, I’m starting to rethink that age old quote. Apple announced a record $46.33 billion in revenue, of which 73% came from iPhone’s and iPad’s. The iPhone and iPad were created completely in-house with zero customer interaction or focus groups. One of Steve Jobs quotes about product developement:

It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.

Can’t really argue with Steve. Customers are really good at asking for incremental improvements. At MProfit we field 100′s of request a month and many are useful but most are not. Most are requests for a single feature to help that person but of course that’s not how a customer spins it. They usually tell us “if you add XYZ feature you will get 1000′s of new customers.” However, companies don’t grow exponentially by adding one feature here or another there, it’s about completely flipping the mindset and getting many more new customers in the door.

One of my favorite quotes in regards to product development supposedly came from Henry Ford:

If I’d asked my customers what they wanted, they’d have said a faster horse

The car industry for the past 50 years has been stuck in this add one feature here or increase gas mileage by 5% sort of mentality. Innovation has been slow and hence General Motors, Toyota and Volkswagen each have taken turns for the top spot for most number of cars sold every year for the past 3-4 years. As a consumer, I would ask for a 500hp car that gets 50 miles a gallon, which is what Henry Ford was getting at.

Companies big or small need to think about innovation on a much larger scale and not get trapped in a feature war.  It’s tactical thinking vs strategic thinking, but many people forgo the strategic thinking because it sounds too dreamy/fluffy and doesn’t bring in revenue right now. However, Apple has shown it really pays to think different and essentially tell it’s customer to buzz off because they don’t know any better. And yet I still come back to Apple…genius.

Everyone loves a great comeback story and recently Detroit has a great one to tell. Beginning in the 1950′s, the American car makers Chrysler, Ford and GM all based out of Detroit helped shape America. The “roaring 50′s” as it was called allowed people to live in Suburbia and yet commute to work because of the car and the government’s road infrastructure build out. When you watch the highlight reels of new car introductions from that era it’s similar to the Apple launches of today. The world would wait and watch in anticipation of what new “awesomeness” would come from Detroit. The job to have back then was working for an automaker. Detroit was the hub of industrial activity, home of Barry Gordy and Motown Records, the first record label for Michael Jackson. Then the late 70′s came and Detroit was no more.

What happened? It was a combination of high oil prices, hubris and Honda. During the 1960′s Detroit was obsessed with cheap fuel, big horsepower and open roads which led to their focus on muscle cars - Chevelle, Camaro, Mustang, Charger, Corvette, Pontiac GTO, and many others. Once the oil crisis hit in 1973, Detroit didn’t have a backup plan and the Japanese took the opening to launch their cars. The fuel efficient Honda Accord debuted in 1976 and quickly made a name for itself. Honda did all the right things and soon the Honda Accord became the number one selling car in America.

In the 80′s American car companies had a bad reputation for shoddy cars, interiors made of cheap looking plastic and designs that only a grandmother could love – case in point the Pontiac Aztec. During the 90′s the Japanese were doing so well in North America they all launched their own luxury nameplates – Acura (Honda), Infiniti (Nissan) and Lexus (Toyota).  This led to them selling even more cars and the Detroit automakers slipped even further in sales. All the American car makers were focused on fleet sales to the rental car companies who only wanted cheap and boring cars to rent which was an easy to market to go after, but margins were slim in that segment.

During the early 2000′s, American car companies were focused on the high-margin SUV market and captured that segment with force. However, once the financial crisis hit most of them faltered. The American car makers from Detroit approached the US government for a bailout and got close to $25 billion.

Since then, the American car makers have been making hit product after hit product. The Ford Fusion and the upcoming Dodge Dart are two examples of products that consumers actually want to buy. In addition, many consumers (myself included) who would have never looked at American cars are actually looking at them once again. The Chevy Cruze in India has been a moderate hit and looks quite nice, also the value for money is another reason its doing well in India.

When I was visiting Los Angeles in August, I was impressed with the number of Ford Fusion’s and Ford Flex’s on the road. Southern California is car crazy and if a car can sell in that hyper-competitive market it will do well anywhere. In fact Honda has their headquarters in Torrance, California and Honda used to reign over this market. Sadly, the hubris that hit the American automakers in the past is starting to appear at Honda. Honda’s highly anticipated Civic re-design was panned by consumers and Consumer Reports dropped the Civic as a recommended model. And the previous number one selling Accord has started to look dated compared to the competition, so the story continues…

If you were looking for a year end Top 10 list, sorry to have disappointed you. On the whole, 2011 was a year that many people would like to forget especially the Indian equity markets. On the upside, many technology startups such as Dropbox, Evernote and Twitter received even more funding. I would say 99% percent of the people were unhappy with 2011 and 1% were ecstatic about 2011.

A trend that I have noticed more and more during 2011 was in the area of seed funding for a startup. I’m not an angel investor but I get about 1-2 unsolicited pitches a week. During 2011, most were structured like this:

Idea Guy – I have a great idea and I need 1 million dollars to hire the entire team to do the work

Me – What do you mean by entire team?

Idea Guy – product team, engineering team, UI/UX team and marketing team

Me – So what is your role?

Idea Guy – I have the idea

Me – Do you have anything so far to show for it

Idea Guy – Of course not, hence I need the million dollars

Me – Do you have a website?

Idea Guy – No, I couldn’t get the domain name, I couldn’t figure out which hosting company, but I have a PowerPoint slide deck…

At this point, I usually just mentally shut down and hope my cafe latte is still hot enough to enjoy while being tortured into viewing the slide deck. I could spend hours talking about how bad most of these slide decks are but honestly that is not the most concerning thing. The most concerning thing is the “Idea guy” wants a million dollars and then everything will happen, that is not how it works. You need to bring some talent to the table.

I can understand if you don’t have the technical skills to acquire a domain name, start a blog or get a basic website running but you might have friends that can.  The early days of a startup are about conserving capital and trying to persuade people whether it’s to buy your product or get things done cheaply. This “idea guy” wanted to hire PaperPlane one of the best UI/UX companies in India to design the site, sure why not it ain’t his money.

Recently there was an article about Dropbox founder Drew Houston who had to hack the Apple operating system to understand how the desktop icon images worked. This was something that even other engineering teams at Apple couldn’t figure out. I’m assuming the VC firms are backing Drew as much as Dropbox, as they know what is possible with him.

Bottom line, if you can’t figure out how to get a blog started (or know someone that can) how in the hell are you going to run a company. I can envision that million dollars being spent very quickly, which is not what people want to see when they are investing in an idea, person or company.

Sadly this blog past has been in draft mode for over 6 months and since then it seems everyone is coming out of the woodwork to say the same thing – user interface (UI) design isn’t everything. Lately, it’s been a beauty pageant of sorts when a new product comes out, everyone says “wow, looks great and the interface is awesome” then the next question is “what the fuck does it do?” and that’s the problem.

Something might look beautiful but if it has no real purpose…who cares how great it looks. You’ve heard this same story before in the context of dating, “he is really good looking but talking to a door knob is more fun” or “she is a California dime but absolutely dumb as a rock.” Instead of focusing on the needs of a customer, many startups are spending way too much time on packaging (user interface, funding sources, PR, etc…).  A great example of this is Color.com, it received a ton of press because it was funded by Sequioa for $41 million and when the application was released people were clueless about its usage. Since then they have gone back to the drawing board for version 2.

Some of the comments from the web that really got me to think about this user interface debate:

@erickschonfeld For social apps design matters very little. It's all about being where your homies are at. Most were on FSQ.

December 5, 2011 11:52 pm via Twitter for MacReplyRetweetFavorite

@Percival

Sean Percival

Design and user experience is the new intellectual property. --Ron Conway #sus11

October 30, 2011 5:50 am via Twitter for iPhoneReplyRetweetFavorite

@garrytan

Garry Tan

Ron Conway is a legend in the VC space and you can’t really argue with his track record but I disagree with his comments. Not only that, but I’m pretty sure you can’t have IP rights to the way something looks.

Design is becoming a competitive advantage for startups http://t.co/j5Or9Wd8

December 5, 2011 4:00 am via BufferReplyRetweetFavorite

@sahilparikh

Sahil Parikh

Design might be a competitive advantage if there are many players in the same space, but it really depends on the category. Facebook had a pathetic website when it launched in 2004 when compared to Friendster. But people gravitated towards Facebook because it served a social utility, gradually over time the Facebook interface got more polished.

An example of an interface that is absolutely horrible to look at is Tally – an accounting software for the Indian markets. Most people still use the MS-DOS version and it’s reported it has 90% of the market in India. Why does it dominate the market? Because it does one thing really well – calculate numbers.

The dust has settled between SKS Microfinance and Vikram Akula and the verdict is in…a complete disaster for investors in the public markets. Rewind back to 2009 when Akula was the poster boy for microfinance institutions (MFI) and was on the cover of Forbes India. A year later SKS went public on August 10, 2010 at Rs. 935 a share and closed at Rs. 1171 for a gain on the first day.  Today, SKS is trading at under Rs. 100 a share, down over 90% from its peak of Rs. 1407. Akula has since resigned from SKS and investors are resigned to the fact that they lost a lot of money during the IPO. So what happened?

The press has had a couple theories of that went wrong, one of them states there was a power struggle between Akula and the duo of CEO (Rao) and CFO (Raj). The SKS model is similar to other MFI’s in that they loan small amounts largely to village women and then the village women ensure they all pay off the loan with interest. It’s a great way to push the risk management down to the village level. This has been done successfully for many years and continues to do well. What hurt SKS more then anything else was being a publicly traded company.

When you have shareholders, their goals are pretty simple – grow the top line revenue, grow the bottom line profits which will lead to a higher stock price. In order to do that at SKS you have to find more people and give out more loans, which is very similar to what caused the economic crisis of 2008. If the investment banks wanted to sell more mortgaged backed securities (MBS) they needed more loans which meant the lending standards were relaxed – if you had a pulse you got a loan. With SKS something similar happened, they were giving loans to anybody and everybody in the state of Andhra Pradesh. Some people had 4-5 loans outstanding and those people couldn’t manage to pay them back. This led to SKS reporting less than impressive quarterly numbers which led to a downward spiral of their stock price. In addition, once the government realized people had multiple loans and SKS was charging as high as 36% in interest they hit the pause button on the SKS business model. This again led to the stock price getting pushed down even further.

I believe SKS would have been fine if they remained a for-profit but privately held company. I can understand the founding team of SKS wanting an IPO as it provides an excellent liquidity event for them to cash out, however the short term goals of the investors are completely out of sync with the long term mission of what SKS was trying to achieve.