The Road to Financial Freedom

Recently, I was invited to speak at Reliance Industries’ (RIL) corporate campus located in Navi Mumbai. It’s ironic given that our office (MProfit)  is just a couple buildings away from where Mukesh Ambani works out of – Maker IV in Nariman Point.

The topic was about personal finance and the presentation was titled “The Road to Financial Freedom.” It was a 2 hour presentation and the slides were only part of the overall presentation. Many people commented they liked the personal stories that were sprinkled through out the presentation.  The presentation will be an ongoing event at the Reliance corporate campus which has over 40,000 employees. Below is the presentation that I gave:

Can 12 Digits Save the Poor?

Over the past couple of years an initiative by the Government of India has been gaining momentum which could have far reaching implications for its residents. In early 2009, the Unique Identification Authority of India (UIDAI) was setup to issue universal ID’s (UID), they have called the program “Aadhaar” which means foundation or support. However, most people still refer to the program as UID. This is the one rare initiative from the Government of India that excites me because it could help the people that need it the most – the poor.

Currently, most government aid programs are pilfered so heavily that at one point Rajiv Gandhi famously said only 15% of the benefits reach the poor. The Public Distribution System (PDS) distributes subsidized food and non-food items to India’s poor via a ration card that is issued. However, the ration cards get duplicated and “ghost” accounts are created, then the food is taken and sold on the open market. Even before the food gets to the recipients there is “leakage” all along the supply chain – transportation, warehouses and government officials.

The aim of Aadhaar is to create a central database and provide proof of identity when using government services. Aadhaar will be technologically advanced in that it will be a combination of a person’s iris scan, fingerprints, photo and optionally include demographical information such as age, sex, address, father, mother, etc. With an iris scan you can be sure that only the receipt of the food or cash-subsidy is receiving the benefit and not a middle man, which is often the case today. Aadhaar has an ambitious goal of issuing 600 million numbers in the next 4 years. The Aadhaar number will be 12 digits long and oddly enough there is no card, it’s a piece of paper with a number. Users would authenticate their identify via fingerprints and an iris scan hence no need for a smart ID card. Aadhaar will be useful in 5 areas – 1. food distribution via PDS; 2. National Rural Employment Guarantee Act (NREGA) ; 3. health services; 4. education; and 5. financial services. Number 5 excites me the most since it might put an end to the poverty tax that so many citizens of India face on a daily basis.

The poverty tax is everywhere if you are poor in India.  If someone wants a loan they can’t goto their local bank because they don’t have the required documentation, which leaves them to the loan sharks where the interest rates charged would bring a tear of joy to any investment banker. When you receive money from someone you can’t put that into a bank account so you lose out on the interest that you might have received from a bank. If you receive a pension, you might have to pay a “fee” to the clerk to speed up the transaction. Same issue with food, subsided kerosene, government jobs, etc…if you want something you have to pay a fee.  That fee hurts more if you earn less and hence it’s called the poverty tax.

Financial institutions are thrilled at the prospect of Aadhaar because they can start to market their products to potentially 600 million new customers. With the large number of mobile phone users it also means that banks don’t have to setup branches in every corner of the country, they could use the mobile phone to keep track of balances instead of the old school passbooks. Near-field communications (NFC) is probably a couple years away from being adopted by the mass market but that is potentially another game changer in the way people transact in India.

Aadhaar would also streamline the plethora of numbers that many middle class people need to keep track of. If you are a taxpayer and an investor you might have several numbers such as PAN for taxes, TAN, TIN, MIN, DIN and folio numbers for investing in mutual funds. The reason for multiple numbers is because each group has a vested interest in keeping their numbering system because it creates jobs for them and more importantly they have access to the money flow. Knowing where the money is coming and going is a source of information that can be used against an individual.

For Aadhaar to work it needs to be made mandatory, currently it’s optional and that might be more of a political move. If Aadhaar was mandatory on day one then people would jump to the next logical step – using Aadhaar for voting. And changing anything to do with the voting process would absolutely disrupt the status quo and would be shot down by politicians in a heart beat. However, once end-users start craving for the “optional” Aadhaar then nothing would stop its mass adoption which would make it mandatory in the end. The second thing that needs to happen is that Aadhaar should be an acceptable form of Know Your Customer (KYC), this would help financial institutions, mobile phone providers or really any one that needs to authenticate an individual for a companies product or service. Since the government would have validated someones identity then why go through the process again, this would also lower the acquisition costs for companies and allow them to provide “no frills” type services.

Facebook Connect in the virtual world has turned into the de-facto standard for identify, whereas Aadhaar has the same potential in the real world for India. Aadhaar could be the catalyst to open up many more markets for companies and also bring products to a set of customers that have previously been excluded from financial services.

The above article was syndicated on

June 4 – View a quick 10 slide summary about Aadhaar (via SlideShare)
May 18 – India’s Poor Yet to Reap Full Benefits of Its Anti-Poverty Programs (World Bank report)
April 30 – India’s $9 Billion Jobs Program Fails its Poor (WSJ link)

Re-routing Cisco

Last week one of the most respected CEOs in Silicon Valley, John Chambers, admitted that Cisco Systems had lost it’s path (only a true geek would recognize that pun) and was planning to do something about. I figured Cisco would take some time to make those changes and then I could write about it, but John has already started the process by scrapping the Flip camcorder division. The interwebs lit up when it was announced and most of the comments were along the lines of “who couldn’t see that coming.”

As a past employee of Cisco I think John is a stand-up guy and a VERY charismatic speaker. I would joke with people that if John told us to sell cocaine, I would because he was so persuasive. However, as a shareholder of Cisco I think John really needs to clean house and take a hard look at the direction of the company and more importantly look in the mirror.

Since John’s admission, many columns have been written about what ails Cisco. Most articles are going for the low hanging fruit such as get rid of the consumer focused product line and get back to basics with enterprise and service provider customers. But there is a much bigger issue that goes to the heart of Cisco – people.

Executive Departures
John has been around since 1991 and has had the top spot since 1995, he runs a tight ship and probably to tight of a ship. So much so, that I believe many top executives are leaving because he won’t give up the throne.  The list of departing executives include Tony Bates (left for Skype), Sue Bostrom, Judith Estrin, Charles Giancarlo, Kevin Kennedy, Don Listwin, Carl Russo, Jayshree Ullal and Mike Volpi to name a few.

Failed M&A Strategy
Cisco was once hailed for it’s inorganic growth via their M&A (mergers and acquisitions) strategy. That strategy worked early on for Cisco when it acquired companies such as Crescendo (the heart of their LAN switching platform), Kalpana, Grand Junction, StrataCom (WAN switching IGX platform) and Calista (IP phones). Most of these deals took place on Mike Volpi’s watch when he used to run the M&A group. In a Fortune Magazine article back in May 15, 2000 they called Volpi the Cisco M&A wunderkid.  Volpi had a great reputation within Cisco of being super bright and potentially could have led Cisco.

But, over the past 7-8 years that strategy has been a complete disaster with acquisitions such as Scientific Atlanta, Linksys and Pure Digital Technologies (Flip camcorder line). It appears many of the consumer focused acquisitions happened under Ned Hooper, the recent M&A head. It’s easy to say the strategy was completely flawed in hindsight, but Ned took a chance and unfortunately it didn’t work out. However, a lot of money was flushed down the toilet in running this experiment. Little known acquisitions such as Monteray Networks were shut down within a year of signing a $500 million term sheet. Internally, Cisco talked about how quickly they could integrate these new companies into the Cisco machine. Unfortunately, many founders of these companies left just as quickly and started new companies. Such as Dev Gupta who sold two companies to Cisco, Dagaz and MaxComm in 1997 and 1999 respectively.

Cisco Globalization Center East
I get annoyed every time I read an Indian business magazine and Wim Elfrink is talking about how he re-located to India to setup Cisco’s second biggest campus.  It’s a catch-22, is Cisco East something truly revolutionary? If so, then please communicate that better to the world so we can learn. If it’s not revolutionary then get over it, many large technology companies do it all the time – it’s called cost arbitrage.

In summary, John Chambers has one goal and that is to keep his shareholders happy which has not been happening. Cisco was the internet darling in the 90’s and all the way to March 25, 2000. On that day, Cisco became the largest company by market capitalization in the world at USD 579.2 billion, few companies can say that. Since then it’s a different story, if you bought Cisco in April 2001 you should have paid around USD 18.00 a share which is exactly where it is today in April 2011…over those 10 years it hit a low of USD 9.50 and a high of USD 33.00. Compare that to Apple, in April 2001 you would have paid USD 12.00 a share and now it is hovering around USD 330.00…the lure of the consumer market.

The Customer is King

I recently read through “Delivering Happiness” by Tony Hsieh who started, the worlds largest shoe store, and it surprised me how quickly the company multiplied around a simple decision – be customer focused. It’s almost cliche when a company says they are customer focused or care about their employees however at Zappos it’s genuine.

At one point within the company they were debating whether to outsource customer service, but they decided it was a core function of the company and that should never be outsourced. That decision is what defines Zappos today. It’s not some new technology they created, it’s not some cool application they coded, it’s just basic customer interaction in helping a customer with their buying needs.

Have you heard this story before? I have, it’s called Nordstrom. Nordstorm is a large department store chain in the US that was known for their customer service back in the day (I don’t know about today, have not visited in years). Like Zappos they also wrote a book documenting their path called “The Nordstrom Way to Customer Service Excellence.” In one story, a customer wanted a refund for tires that were bought.  The salesperson refunded the money to the customer even though Nordstrom does not sell tires.  I’m guessing the salesperson figured they could take the tires to the actual store and get a refund and then payback Nordstrom. I’ve noticed more and more companies emulating the Zappos model in the apparel vertical including Bonobos. They have a heavy internet presence but if you need assistance you can call them on the phone and talk to a “customer service ninja” who can guide you through the process.

As I mentioned before Zappos was looking to outsource their customer service department and of course India was at the top of the list.  If Paul in the US can help a customer at $15 an hour, then someone named “Paul” in India can do the same thing much cheaper, it’s all about labor arbitrage. So naturally you would think Indians living in India would have access to amazing customer service everywhere…WRONG.

It’s almost a given that you can expect poor customer service in India, whether it’s a store, restaurant or your mobile phone provider. I believe it’s because there is so much pent up demand that these companies are just trying to scale to meet the demand.  At some point when the market is saturated you will see companies offer true customer service.  In the meantime the companies that are providing a high level of customer service are growing exponentially such as Flipkart.  Flipkart is what happens when Zappos meets Amazon, they are an online bookstore with excellent customer service. I swear by them, I might goto Crosswords to browse books but I usually end up going online and buying them from Flipkart.  I recently order a book on a Monday night and by Tuesday evening I had it in my hands…that customer experience just blew me away.

I would love to see a company like Bonobos or J. Hilburn start in India, considering India has such a rich textile history. Imagine the customer service they could provide by sending a “tailor/ninja” to the customers house, take measurements and then show various fabrics available. Then come back a week later for a trial fitting and then deliver the final product in a couple weeks. This would also solve the issue I always hear from entrepreneurs that getting commercial space in Bombay is very expensive and throws every business model out the window.

Honestly, there is no excuse for an Indian company to provide sub par customer service today.  With all the technology that is available via forums, Facebook, Twitter, help desk software, blogs, podcast, etc…you can constantly stay in touch with your customers and find out if they are happy or have issues. By getting a customer addicted to your customer service you have locked in a customer for life. Granted you might end up targeting early adopters but these same early adopters will tell all their friends and family about their experience just like I did with Flipkart.

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