TAM, Bibliophilia, Collision Installs, and 'Touchy Feely'
Sajith Pai's usually irregular newsletter #28
Welcome to the 28th edition of my rather irregular newsletter! For the 1,200+ new subscribers who have signed up since my last newsletter, welcome aboard, and enjoy your first newsletter. There are just over 5,400 subscribers to this newsletter. Whoa!
Quick housekeeping announcements for the new subsribers. The newsletter has two permanent sections: Writings - where I usually write and / or refer to one or more original pieces that I published in the previous months, typically about venture or the startup ecosystem, and Readings - about what I read and learnt about. My reading diet is tilted heavily in favour of books and podcast transcripts, and against articles / newsletters. This will naturally reflect in the reading list.
This is a long newsletter - think of it as akin to a monthly magazine from me (only the frequency may not be monthly!). I don’t know if you can read this entire newsletter (and peruse the links) in one sitting, and even if you do a second run (or more which I very much doubt), you will have to pick and choose what to focus on. A good way to read this newsletter is to certainly read my original writing(s) below, and then glance through the rest and pick 1-2-3 items that pique your interest. Anything more is a bonus!
Writings
I wrote three original long-form pieces (okay, one isn’t very long!) over the past two months. One was my reflections on TAM (Total Addressable Market) and why perhaps TEM or Total Expandable Market is a better way to think about it. In the second, I look at how senior executives planning a later shift to venture-backed startups, or want to work / associate with them should think about the shift, and execute it. Finally, in the shortest of the three pieces, I look at how revenue alone is not a valid filter in the world of consumer brands investing.
1/ TAM: Notes and Thoughts
My thoughts on TAM or Total Addressable Market, that favourite VC coat hanger for rejecting startups, gathered into a piece. I have long held that most lazy VCs use TAM as an excuse to pass on you instead of working harder to explain their rationale for passing. I also feel that TAM is not very relevant for newer emerging categories, given that it largely measures existing demand.
The best founders and startups help expand TAM, primarily by removing friction in consumption, or by creating an entirely new customer experience via a Delta4 product. As Jason Calacanis said: “The best products induce a market to manifest itself”. But the best founders don't stop at just the great product. Subsequently they think about expanding TAM by expanding to new geographies, or selling to new customer categories, or through layering on additional new revenue streams (payments, lending, ads etc). So, really what matters is Total Expandable Market or TEM, not TAM. Finally, what matters is not so much TAM or TEM, so much as thinking about TAM in a structured manner, and bringing that structured thinking to drive business operations as well as VC discussions.
TLDR; Much like Eisenhower’s views on plans (worthless) vs planning (everything), TAM in itself is not very useful, but thinking and estimating TAM is extremely useful.
Link: ‘TAM: Notes & Thoughts’
2/ A VC's Thoughts on How Senior Corporate Leaders Should Explore and Approach Startups
Every other week, I get an inbound from a senior corporate leaders to 'pick my brain' or have an 'open-ended chat' around making a transition to venture / startups. It is hard for me to get on every call, do every coffee request or chat. I do try, but now it is getting to the point where a) it is getting repetitive for me – most calls have similar advice to offer b) it is beginning to suck out an hour from my schedule every week at least. So i thought I would convert the verbal advice that I usually share on calls into a written public piece. The advantage of this is two-fold - one, i can share this with the requestor as a pre-read, and perhaps obviating the need for a call, and two, by making it public, it would useful to a wider audience.
Here is the written piece contained what I share with them when we meet. Broadly there are four ways in which you as a corporate leader can transition to / engage with the worlds of venture and startups - join a fund, join a startup, advise, angel invest. How should you think about each of these options? And, how should you approach them? My post gives you my perspectives, both from my vantage point as a VC, and as some one who made a succesful transition six years ago from Corporate to VC.
Link: How Senior Corporate Leaders Should Explore and Approach Startups
3/ Revenue alone is not enough to estimate product strength of a consumer brand
A short post on the perils of relying on revenue alone for determining product strength of consumer brands. Yes, growing revenue is an important signal but it needs to seen along with own site revenue, repeats, stable or declining CACs and margins to arrive at a complete picture.
Link: ‘Revenue alone is not enough…’
Readings
Notes on books and podcasts that I read over the past two months. I prefer reading podcast transcripts to listening. Yes, I know.
Books
9/ Double Entry: How the Merchants of Venice Created Modern Finance by Jane Gleeson-White
9th book of the year, hence the numbering starts with 9. This was a strange book. The first six chapters are highly readable, chronicling the birth of double entry bookkeeping, against the backdrop of Venice, the leading entrepot of that era, the adoption of 'technologies' from the Muslim East (algebra, the number system, Greek mathematics), the emergence of the printing press, the ongoing Renaissance etc. The origin of double entry bookkeeping is told from the perspective of Luca Pacioli, an Italian mathematician whose book carried the first detailed exposition of the Venetian method (double entry) of accounting. There is lots here to like and learn from, in these chapters, for instance, the Venetians pioneered Abbaco Mathematics, a branch of mathematics to do with commercial topics, and Pacioli was a teacher of that. Then there are passages on Pacioli's friendship with Leonardo Da Vinci and his mentorship by the humanist Leon Battista Alberti. But from the seventh chapter, the book morphs into the impact and issues that double entry bookkeeping creates including corporate scandals etc. I did a quick scan of these chapters but didn't read them. They were a major departure from the first six chapters, which makes for an enjoyable historical read.
10/ Court on Trial: A Data-Driven Account of the Supreme Court of India by Aparna Chandra, Sital Kalantry and William H.J. Hubbard
I enjoyed this slim and enjoyable book 'Court on Trial', reviewing the (mis)functioning of the Indian Supreme Court, through data. Highly recommended. It is surprising it hasn't created the kind of noise it deserves to, given the topic it deals with and conclusions it derives. The book was fascinating and infuriating in equal measures. Fascinating, because to a legal layman like me, it opened up the world of the Indian Supreme Court, and the challenges the court faces (the large number of cases, the pendency / delays, the power of the senior advocates, the lack of diversity on the court etc.). Infuriating, seeing the Supreme Court riddled with challenges which it has brought upon itself. The book lays out the challenges the Indian Supreme Court is grappling with, not through anecdotes (though there are some of those in the book) but through data which is not easy to come by, and was painstakingly assembled.
Through this data, the authors come to conclusions such as the Court, in trying to be a 'People's Court', takes on too many cases, and often unimportant ones at that. Most of these cases are of a kind known as SLPs (Special Leave Petition, a provision which was only meant to be used sparingly, but accounts for a bulk of the workload of the court). The court admits a sixth of the ~60k cases it is petitioned (far too much), with SLPs accounting for 88% of these, and passes judgement in ~1k of those. (In contrast, US Supreme Court admits 1% of the ~8k cases it is appealed). Because of the lack of time to deal with the ~10k cases it admits, the ~1k judgements it passes often do not cite legal precedent, give limited guidances to the lower courts, and thus often cannot be used for future judgements.
In different chapters, the authors cover different misfunctioning facets of the court including how the large number of SLPs lead to admission hearings on mondays and fridays, where the 'elite senior' advocates get facetime of 90 seconds per case, and charge anywhere from 1L to 15L per appearance. Many of these hearings are influenced by the signaling power (or 'face value') of the Senior Advocates. It looks at how the power shifted from judges to senior advocates and asks what can be done to redress that. Subsequent chapters look at topics such as diversity, political influence, the power of the Chief Justice in determining which judge is assigned to which case, etc. All of these are analysed, and conclusions are drawn through the use of data. Despite all of the legal arcana, the book was an easy read, even for a legal layman like me. It is also a relatively slim read (around 200 pages). Recommended read.
(Also check out Aparna Chandra’s appearance on the Ideas of India Podcast. This was a very good episode.)
11/ Accidental Empires: How the Boys of Silicon Valley Make Their Millions, Battle Foreign Competition and Still Don't Get a Date by Robert X. Cringely
Fun, racy, spicy, ultra-gossipy read of the history of Silicon Valley, and the shenanigans of the computer pioneers (Bill Gates, Steve Jobs etc) from the 1970s-80s. That said, it goes beyond gossip and funny anecdotes to cover the shifting technological trends and business dynamics of the industry as well. There is also a deep dive into the culture of then startups Microsoft, Adobe, Apple, Lotus etc., as well as behemoth IBM (the best one). Its ability to mix and cover tech trends, business strategy, as well as bad boy behaviour, equally well made it an enjoyable and interesting read for me. The book became notorious when it was first released in 1992 (apparently Microsoft tried to get it banned) because it mentioned stuff like Bill Gates not showering regularly, and drunk-bitching about IBM in a meeting with Lotus executives (which found its way to IBM). Should you read it? Well, if you have a deep interest in Silicon Valley history like I do, go for it. If you don't, then strictly don't bother, though if you do, you won't be disappointed!
12/ Write Useful Books: A modern approach to designing and refining recommendable nonfiction by Rob Fitzpatrick
A short and highly readable guide to writing the non-fiction book that dispenses actionable advice, and helps readers achieve their outcomes (books like The Lean Startup, Building a Second Brain etc., which the authors calls 'Problem-solvers') as opposed to non-fiction works that are edutainment products such as Malcolm Gladwell or Steven Johnson's books (which he calls 'Pleasure-givers'). Writing a 'Problem-solver' needs to be approached very differently, says the author, noting that much of the advice that is usually dispensed for non-fiction books is for 'Pleasure-givers'. For one, you need to define the scope and the audience tightly enough that there is a strong promise (it is hence 'Desirable'), it needs to deliver on the promise by offering a high degree of value ('Effective'), the reader should not have to work very hard to extract that value ('Engaging') and finally it needs to be aesthetically designed and well-produced ('Polished'). 'Desirable', 'Effective', 'Engaging' and 'Polished' add to the acronym DEEP, which is a handy way to remember the attributes of a successful 'Problem-solver'. Such a work, he says, will become a self-recommending title, because it is actionable and useful for anyone faced with the problem, that the book has solutions for.
The author shares a lot of useful tips to create self-recommending titles, such as 1) a descriptive Table of Contents, with each chapter's description being the benefit or value the reader gets from reading the chapter 2) front-loading the value - quickly getting to the meaty parts / main course instead of forcing the reader to consume a lot of starters or front matter 3) having 'listening' and 'teaching conversation' with prospective readers to validate the Table of Contents, and some key chapters 4) striving for high value per pages turned - reviewing the pages per value or benefits offered, and so on 5) Beta-testing the book with a select group of readers you recruit 6) a guide to self-publish and market the book 7) how to decide on the cover page, and so on. All in all, a useful read for anyone looking to write a 'problem-solver'.
13 / Beyond Market Value: A Memoir of Book Collecting and the World of Venture Capital by Annette Campbell-White
Interesting but ultimately disappointing book this, an autobiography by a venture capital investor and rare book collector. I was expecting an equal weightage to both topics, but sadly it is a bit weighted in favour of book collecting. As a female investment banker-turned venture investor, and as one of the few female VCs in her time, a detailed and comprehensive narrative of her career and investing experiences would have been fascinating to read. In fact we do get a few glimpses of this but they are too few and far between.There is far too much space given to books and book-collecting, and while there are some amusing anecdotes, sadly much of it is not as interesting as the venture part. Yes, your mileage may vary, depending on your interests. That said I have reasonable interest in both and yet, I felt the book collecting part overwhelmed the venture part, leading ultimately to a book that is not as intriguing as the cover and premise suggests. That said, a beautifully produced book.
Podcasts
1/ Capital Allocators Podcast: Dan Tennebaum on the case for India
Link to podcast.
I thought this comparison between India and China over the past 25 yrs was really interesting. By India public market investor Dan Tennebaum of India Capital (they have a concentrated 16 stock portfolio exposure to the Indian market) in the Capital Allocators Podcast.
The episode is a good listen for public market investors, especially how they research the true value of companies by digging into land records, talking to customers of the companies to estimate pricing power etc.
Explanations to the above in QTs and replies here - on Twitter, on LinkedIn -
and, reply by the author on LinkedIn
2/ Business Breakdowns: Saurabh Mukherjea on Bajaj Finance
Link to podcast + transcript.
This episode on Bajaj Finance where Matt Reustle interviews Saurabh Mukherjea of Marcellus Investments is an exceptional one. Worth a listen / read even if you are not in fintech, if only to understand what an incredibly tight biz model Bajaj Finance has built. The market share numbers (Bajaj Finance accounts for a sixth of India’s non bank lending) and growth numbers (50% Profit After Tax CAGR over 16 years( are mind blowing, resulting in a $50b market cap and a 1,000x increase in share price over the past 16 years. Whoa!
They say there are 4 elements to a lending business - cost of capital, cost of acquiring customer, quality of underwriting, and ability to collect. You need to great at at least two of these and ok at the others (cant be bad) to run a profitable lending biz. Bajaj Finance is that rare lender, who is great at all four elements, from what I understand from the podcast.
This screenshot, on the data advantage they have, was mind-blowing. I heard once that Bajaj Finance is Salesforce's 2nd biggest account globally. I couldn't believe it then, but now after seeing the below I do, and can understand why.
3/ Ideas of India: Karthik Muralidharan, UCSD Professor
Link to podcast + transcript.
Enjoyable and interesting episode where Shruti Rajagopalan interviews Karthik Muralidaran, author of the book ‘Accelerating India’s Development’, a prescriptive book where he writes on how specific interventions around improving the quality of expenditure in areas such as healthcare, education can yield dramatically improved outcomes. I haven’t read the book yet though the podcast episode gives you a sense of the contents. The core message of the book is that too much rhetoric is devoted to what the government should do, while remarkable little is around how it should do it, and that matters because thinking about the how, and interventions around these can generate very high returns for the investment undertaken. I found the discussion on centralisation vs fiscal federalism in the context of India and US respectively utterly interesting. The other interesting theme was around government pay (high) and recruitment (too few) in India and how that limits state capacity. During the course of the podcast, Karthik Muralidharan shares this deeply thought-through ideas such as the Practicum and Empanelment, and interventions around local hiring, as well as hiring a second anganwadi worker etc. A good read / listen for those with an interest in public policy and statecraft, and India, or all of these.
4/ Lenny Rachitsky Podcast: Dalton Caldwell, YCombinator
Link to podcast + transcript.
Dalton Caldwell is an exfounder and YC Partner. His podcast is an enjoyable interesting one covering a lot of frameworks such as how to think about pivots and when to pivot (has anecotes of Retool, Brex, Segment pivots), tarpit ideas (which look good but ultimately are doomed to fail, like serendpitious meeting apps) and the importance of talking to customers, and driving customer validation for the idea / product. Every month he says the founder should review the previous month’s calendar and see if at least 20-30% of the time has been spent in in-person meetings with potential customers. There is also a fun anecdote of the Collision Install, where Patrick Collison of Stripe would do the installation himself, to ensure the onboarding happened:)
5/ Lenny Rachitsky Podcast: Carole Robin, Stanford Professor
Link to podcast + transcript.
Really enjoyed this interview with Stanford Professor Carole Robin who teaches an ultrapopular course ‘Interpersonal Dynamics’ popularly known as ‘Touchy Feely’ with the objective of helping people build strong relationships, because as she says “people do business with people, not ideas or products”! The conversation covers topics such as why vulnerability is central to strong leadership (why should someone follow you?), how to progressively and safely be more vulnerable in a relationship, the three realities underpinning any interpersonal interaction, why feedback is never negative, and why feedback is central to every relationship, but advice can hinder relationships.
I found three concepts especially useful - first the part about anger being a secondary emotion covering up for fear or hurt, was a very interesting one. Second, on the leader’s job being to ensure that the best answer is found and not necessarily by him or her, and creating a culture and environment where everyone is empowered to come up with the best answer. Thirdly, and finally, that behind every behaviour is a choice, and there is a belief and underlying mental model underprinning that choice and behaviour. We need to unlock the belief / mental model driving the choices really.
Bye!
It is time to wrap this! As I shared earlier, you should think of this substack as akin to a monthly magazine - you don’t have to read it all in one sitting, and you don’t have to read all of it!
That is all for now folks. Feedback, or your own ruminations, in the comments or at sp@sajithpai.com (Please don’t send pitches or CVs or anything work-related at my personal id; I won’t respond to them at this id; instead please use sp@blume.vc for pitches and any official comms please).