Monthly Archives: June 2016

Brazil and Argentina

My wife and I will be visiting Brazil and Argentina over the next 10 days.

Neither of us has visited South America before so we’re excited to discover each of Sao Paulo, Rio de Janeiro, and Buenos Aires.

Each of these cities is 6 hours behind Turkish time. So the daily posts that I publish each Brazilian/Argentinian morning will appear about 6 hours later than usual.

One of those days

There was a terrorist attack at Istanbul’s Ataturk Airport yesterday evening. As of now, there are 36 people dead and more than 140 injured. I offer my condolences to the families and friends of those who passed away.

I heard about the attack before going to bed yesterday night and I couldn’t sleep. Although I believe in continuing despite the pain because that is what I believe those we lost would want us to do, it isn’t always easy.

Today is one of those days.

Inquiring before advocating

The United Kingdom (consisting of England, Scotland, Wales, and Northern Ireland) voted 51.9% to 48.1% in favor of exiting the European Union (EU) last week. The reaction of my Twitter feed was overwhelmingly negative. It ranged from expressing disappointment towards those who voted to leave, to criticizing them, to making fun of them.

The best summary I came across for the events which led to the referendum, the thinking of those who voted to leave the EU and those who voted to remain in, and the likely future repercussions of the vote (if Britain does indeed leave, which isn’t certain because the British parliament has to ratify the vote, and individual countries where a majority of people voted to remain, like Scotland and Northern Ireland, could call for separate referendums) are in the Featured Comment by Gareth in response to this Wait But Why post.

Although there are other reasons why people voted to leave, including most notably the limitations which EU membership places on a country’s ability to operate outside of EU regulations and directives (the former must be implemented whereas the latter give members some room to decide on the specific implementation), my take is that the primary reason is economic. Basically, the UK’s EU membership allowed for the unconstrained flow of people and goods across the borders of the UK and other EU members, and this doesn’t benefit everyone in the UK.

The unconstrained flow of people, in other words immigration, makes a country’s workforce more competitive. However, this can come at the expense of locals who, because they are less qualified or work less hard or both relative to immigrants, lose their jobs.

As for the unconstrained flow of goods, according to the theory of comparative advantage, this lets each country focus on producing that good that it produces at the highest output to cost ratio, and then freely trading that good for other goods produced by other countries.

While the unconstrained flow of goods contributes to the overall economic strength of each EU member it also disadvantages specific sectors in each country. If you happen to be part of a sector where your country doesn’t have a comparative advantage, being part of the EU makes you economically worse off.

Locals who are negatively impacted by the free flow of people and goods can make up for these challenges by acquiring new skills and moving to other sectors but this isn’t always possible or takes a lot of time. Voting to leave is an easier short-term solution.

And this is why economic growth alone isn’t sufficient for a country’s well being. Income distribution, training programs for those adversely affected by immigration and free trade, and safety nets for the same also matter.

Although the results of the vote were surprising to me, my Twitter feed, and likely most of the readers of this blog, rather than criticize or make fun of those who voted to leave, we need to understand where they’re coming from. We need to inquire before we advocate. Only then can we hope to come up with sustainable long-term solutions.

Modanisa’s use of Facebook Lookalike Audiences

Our portfolio company Modanisa is the world’s leading online fashion retailer for conservative Muslim women. Modanisa is fast expanding its international sales and it does so by actively using new online marketing tools that help it cost-effectively acquire new customers in its target geographies.

A great example of this is Modanisa’s use of Facebook’s Lookalike Audiences advertising product. Rather than simply serve Facebook ads based on target keywords, Lookalike Audiences lets you serve ads to Facebook users who display similar characteristics (such as location, age, gender, and interests) to the audience of your choice. For example, you can serve ads to Facebook users who are similar to your existing customers or similar to Facebook users who liked your company page.

It turns out that this is much more effective than keyword-based targeting. During an 11-day campaign in March when Modanisa used Facebook’s Lookalike Audiences product for its advertising to Facebook users in Germany, the company achieved a 4X higher return on ad investment than previous keyword-based campaigns in the country.

You can read about the successful case study here to see if it makes sense for you.

This year’s NBA finals

Last year, the Golden State Warriors won the NBA championship by defeating the Cleveland Cavaliers 4 games to 2.

In a post about last year’s finals, I wrote that although the Cavaliers’ LeBron James is the best player in the world, his individual performance wasn’t enough to overcome the Warriors’ collective performance. Specifically, I wrote that “… nine different Warriors [scored] in double digits at least once during the series …”

This year, the Cavaliers won the same match up 4 games to 3 after falling behind 3 games to 1. And a big part of the reason why is because two things changed. And these things are related to each other.

First, LeBron James was more humble. Although the Cavaliers fell behind 3 games to 1, giving the Warriors 3 chances to close out the series, LeBron James didn’t respond by stating that he’s the best player in the world. This time, he recognized that for Cleveland to win, he needs his teammates. This was reflected in the second change whereby six Cavs scored in double digits at least once during the series.

While that’s not quite as impressive as the nine Warriors who showed the same performance in last year’s finals, basketball is played with five players. So six players, including the best player in the world, playing well was just enough.

Despite their improved team play, the Cavs still could have come up short. The final game of the series was tied at 89 with 1 minute and 40 seconds remaining, and Andre Iguodala of the Warriors seemed to be headed for an easy layup when LeBron James came, seemingly out of nowhere, to block the shot. The Cavs went on to win 93-89.

So having the best player in the world on a great team helps. Here’s the block to recognize that.

The past, present, and future of on-demand

Gagan Biyani, the founder of on-demand healthy meal company Sprig, recently shared his thoughts on the past, present, and future of on-demand companies in a podcast hosted by Greylock, one of Sprig’s investors.

In the podcast, Gagan talks about the key differentiators between Sprig and its recently failed competitor SpoonRocket, why beginning to serve new cities isn’t necessarily a measure of success for an on-demand company, and the worker classification issues which on-demand companies face.

You can listen to the full talk below.

From TV bundles to online bundles

I was looking over my monthly TV bill recently. I’m a Digiturk subscriber. Digiturk is the leading satellite TV provider in Turkey, offering a combination of cable channels as well as its own thematic channels in categories like sports, movies, and documentaries.

For example, Digiturk has the rights to broadcast the games of the Turkish Super League, the country’s soccer league. It also has the rights to broadcast the games of the Turkish basketball league as well as first division soccer games in countries including England, Spain, Italy, and France. The latter is offered to subscribers under the Sports Extra package.

In addition to my regular Digiturk membership, I’m also signed up for the Turkish Super League package and the Sports Extra package. Regular Digiturk membership costs 20 TL (~$7) per month, while the Turkish Super League package and Sports Extra package cost 58 TL (~$20) and 17 TL (~$6) per month respectively. So, of my total 95 TL (~$33) bill, I pay ~80% for sports content.

What’s more, the only reason I pay for regular Digiturk membership is because it’s required in order to be able to access the sports content. I draw much less than 20% of my subscription’s value from the non-sports content. The actual value is pretty close to zero. So if there was an alternative way to only pay for and access the sports content at the same level of quality as what’s available on TV, that’s what I would do.

There actually is a way to only pay for and access the Turkish Super League content. It’s an online service called Digiturk Play. Digiturk Play offers standard quality streaming of Turkish Super League games at a cost of 339 TL (~$120) for an annual subscription, or 28 TL (~$10) per month. It also offers high quality streaming at a cost of 519 TL (~$180) per year, or 43 TL (~$15) per month.

The standard quality streaming falls well short of what you get on TV. The high quality streaming is better, but it’s still not good enough for me to subscribe to it over my current TV subscription. The 20 TL regular Digiturk TV membership + 58 TL Turkish Super League TV package – 43 TL Turkish Super League Digiturk Play package  = 35 TL (~$12) per month that I would save doing so isn’t worth the more pixellated display and sometimes interrupted live streaming experience offered by the online option.

But the online option will improve. As internet bandwidths rise, live streaming video quality improves and interruptions fall. Eventually, live online streaming will offer the same quality as TV without needing to subscribe for content bundles you don’t want. So you won’t have to pay for unwanted content.

At least that’s what should happen in theory. But when online content streaming becomes the mainstream norm, rather than the exception, what’s going to happen to the unwanted content? Chances are that it isn’t going to go away. Instead, it’s going to once again be bundled with the content you want. As long as a single provider has the rights to wanted content, it knows that using unwanted content to justify charging a few more dollars per customer brings in more in margin than it concedes in volume.

As a result, TV bundles aren’t going to give way to a la carte online content streaming but to online bundles.

Idemama Market

Idemama, where we’re investors, is an online marketplace connecting individuals and businesses with designers for their logo, corporate identity, branding, and website design needs.

Until recently, Idemama served its members exclusively through a contest model. Individuals or businesses looking for a particular product would launch a contest for which they paid in advance, collect submissions from multiple designers, request revisions from the ones they liked, and then pick the one that they liked best. While this approach lets the contest creator influence the final outcome of the project and pick from among tens of alternative submissions, it has two drawbacks.

The first is that there’s a chance that the contest creator isn’t going to like any of the submissions. Although this is a small chance, it exists. And this possibility represents a hurdle for contest creators who think twice before launching a prepaid contest.

The second drawback is that, since only one designer wins each contest, many designers spend a lot of time working on a project for which they eventually aren’t compensated. The demand side has relatively more leverage than the supply side and this can discourage designers from participating in contests.

As a result of the pros and cons of the contest model, it appeals to a certain group of buyers and designers, but not all of them. Many buyers want to know what they’re getting at the time of their payment and many designers want to work on designs which they have a higher chance of eventually getting paid for.

This is why Idemama recently launched the Idemama Market. In contrast to the contest model, the Idemama Market is simply an e-commerce store which displays hundreds of alternative logo designs. Although the Market only showcases logos so far, it will expand to other product categories in the future.

Each logo is displayed together with its price. This way, buyers know what they’re getting before making a payment. And once a buyer chooses a specific design, the designer responsible for it is guaranteed to receive payment. Since the design is pre-made, designers don’t work on submissions that eventually won’t be selected. Competition to attract the buyer’s attention takes place among existing designs, not new submissions for each project.

I think that the contest model and the Market model will eventually coexist. Neither model is better than the other. Each meets the needs of different buyer and designer profiles. And the more alternatives a marketplace offers its members, the better off they are.

Technology in soccer follow up

I wrote about how technology could be used to improve referee decision-making in an earlier post. In that post, I shared how there was an offside position before England’s goal in a friendly match against Turkey and the goal should have therefore been disallowed. The offside position could have been identified in real-time using video recording and replay technology.

Yesterday night, Turkey beat the Czech Republic 2-0 in the Euro 2016 competition. Turkey needed to win by at least a two goal margin in order to have a chance of progressing from the group stage so both goals were crucial. And this time it was Turkey’s second goal that came from an offside position and should have there been disallowed. You can watch the goal below.

Turkey was unfairly penalized during the England game, and unfairly rewarded against the Czech Republic. As part of the Euro 2016 competition, the Czech Republic game is more important than the friendly against England. So in this case Turkey ended up gaining more than it lost.

But the problem isn’t whether you’re on the winning or losing side of referee mistakes. The problem is that there doesn’t need to be a winning or losing side at all. Using technology, both mistakes could have been corrected and soccer could be a fairer game.

A founder’s responsibility

When a founder decides to take outside funding for their startup, they have a responsibility to their investor to do all they can to build a successful company that eventually returns that money and more back to the investor.

Sometimes startups fail even though their founders do all they can to carry out their responsibility. When things clearly aren’t working out, investors need to be reasonable, take the write-off, and encourage the founders to pursue another opportunity. Although the investors may continue to have a financial interest in the startup, there comes a point in time when this financial interest is outweighed by the founders’ opportunity cost from continuing to work on a startup that isn’t going anywhere. In this case, investors have the responsibility to support the founders’ decision to wind down the company and do something else.

In other cases, the startup is very successful and develops into a company with proper management and systems in place such that it is no longer reliant on the founders. The founders have done their job, exercised their responsibility towards their investors, and want to work on something new. Investors should support founders in this case.

However, what about the middle case? What if the startup isn’t failing, isn’t a clear success, still carries a lot of potential, and needs the founder in order to have the best chance of realizing that potential?

If founders haven’t taken outside money, they have no responsibility to anyone but themselves. They’re therefore free to act as they wish.

If founders have taken outside money, there might be legal clauses like vesting schedules and non-compete agreements that limit the founders’ ability to work on something else.

But, even if these legal clauses are absent or have expired, founders have a moral responsibility to their investors to continue to work full-time on the business. As long as the business has a good chance of producing a good outcome for both the founders and investors, it’s the founders’ responsibility to continue to do all they can to generate that outcome. That’s what it means to take outside money.

Taking an investor’s money and jumping ship when the ship could reach greener pastures if you continued to serve as its captain is an abdication of a founder’s responsibility.