Fake it Till You Make it?

Metrics and Platforms

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DTW

During the Week, an interesting story went viral where suspicious business practices were reported at Ozy Media. The report was centred around an incident in February 2021 when over a conference call with Goldman Sachs for a 40 millions dollars fund raise, Ozy's cofounder and chief operating officer Samir Rao tried to impersonate a YouTube executive Alex Piper (the head of unscripted programming for YouTube Originals). This expose brought lot of focus on the metrics around start-ups being thrown around for achieving growth and funding. When you look at some of these metrics, it is becoming harder to distinguish between fake-it-til-you-make-it hype and possible fraud.

Juwon Park @juwonreports

Wow “When YouTube learned that someone had apparently impersonated one of their executives at a business meeting, its security team started an investigation…the voice on the call belonged to Samir Rao, the co-founder and chief operating officer of Ozy..”

nytimes.comGoldman Sachs, Ozy Media and a $40 Million Conference Call Gone WrongThe digital media company has raised eyebrows for its claims about its audience size for years. Then came the strange voice on the phone.

It is a different matter all together that after being brave for less than 5 days since the NYT’s report , Ozy Media is shutting down after its the chairman of it’s board, Marc Lasry resigned on Thursday and lot of others had expressed doubts about the competency of the executives in running the company. More than just one start up getting caught up in the hype-centric metrics and possible consequences, this incident has highlighted that many of these metrics are blurry and possibly self-serving thus completely irrelevant to the future of these enterprises.

Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.

-Goodhart's law by British economist Charles Goodhart

When a measure becomes a target, it ceases to be a good measure.

-Generalization by Marilyn Strathern, an anthropologist

I wrote about Zerodha $e Zomato Tak (Z$ZT) and discussed fund raising for the Indian Platform Business Ecosystem which has important lessons going forward. I basically spoke about three different cost metrics-

1. User Acquisition costs: Also called customer acquisition costs or simply CAC, this is an important reason for burgeoning losses in the initial growth stage of platforms.

2. Operating Expenses for Existing Customers: This is another tricky expense as platforms might end up spending more to retain the customer till they achieve end-user network effects. This also means that the platform would continue burning cash to encourage users to transact on the platform.

3. Corporate Expenses for running the platform : These may include R&D, G&A and depreciation. Many platforms continue to spend big dollars to retain best talent and more often than not spend on acquiring latest technologies.

As I write in my first post titled Measuring Growth in Platform Businesses, if you can not measure it, you can not improve it- goes an insightful advice from Peter Druker, one of my favourite management thinker. But this obsession with measures/metrics can create bad incentives for corporations especially the executives whose compensation and status might depend on the growth of the enterprise.

Elon Musk @elonmusk

Am considering taking Tesla private at $420. Funding secured.

Whether it is Elon Musk’s bravado over the short sellers that he managed to pull off with only a slap on the wrist by SEC (a small issue of 20 millions dollars fine) OR OYO’s founder Ritesh Agarwal buying back shares in his own company in 2019.

Business Insider @BusinessInsider

The founder of SoftBank-backed hotel startup Oyo is buying back shares in his company in a $1.5 billion deal

businessinsider.comThe founder of SoftBank-backed hotel startup Oyo is buying back shares in his company in a $1.5 billion dealIt is unusual for founders to buy shares back from their investors.

If you want to read more about Metrics for Platform Businesses, you may want to read this insightful article from a16z.

OTW

Over the Weekend, friends at PBEL City organised an Eco-Bazaar to promote a sustainable life style and brought the community based eco-entrepreneurship to forefront. Focus of the activity was on showcasing products and services from residents focused on groceries, Menstural hygiene , gardening, cutlery amongst others. It was apt for the occasion of Mahatma Gandhi Jayanti who stood for gram swarajya and sustainable living.

Talking about metrics and Gandhian thought, I would like to reiterate his talisman for decision making whether in government or any other public role-

"I will give you a talisman. Whenever you are in doubt, or when the self becomes too much with you, apply the following test. Recall the face of the poorest and the weakest man [woman] whom you may have seen, and ask yourself, if the step you contemplate is going to be of any use to him [her]. Will he [she] gain anything by it? Will it restore him [her] to a control over his [her] own life and destiny? In other words, will it lead to swaraj [freedom] for the hungry and spiritually starving millions?
Then you will find your doubts and your self melt away."

Source: Mahatma Gandhi - The Last Phase, Vol. II (1958), p.65

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I Love You

Shailendra

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