Tag Archives: business

Data In, Who Know What Out

There’s no shortage of news pieces from prominent media outlets reporting on false information. Either the articles/pieces themselves are completely made up, the data they use is skewed and unreported, or the data is just totally made up completely. Well, how do we really know what is true and what is made up? There’s probably a model in psychology and/or economics based on this pointing out how circularly destructive false information is on the reported and the reporter (and outlet that reported); not to mention how social media exacerbates false information!

I’ve read an interesting use case scenario written by data.world promoting their data set hosting platform (http://www.kdnuggets.com/2016/09/behind-dream-data-work.html). The case itself was decent, BUT it reminded me of the saying: "Garbage In, Garbage Out", wherein the quality of findings is only as good as the quality of the underlying data. Makes sense. But it really made me think about how the data we use is actually collected.

I appreciate websites like data.world; I hope they continue really because practicing data analysis with data is important especially for beginners. One specific feature on data.world is interesting: verified sources, where the source of a data set (the person that posted your brand new .csv file full of information) shows up as verified if they are a verified member (i.e. Professor at the University of Washington, or Researcher at the Center of Disease Control). I guess we can think about it like Twitter’s verified user tag, but useful. These users also document the data collection methodology, engage in helpful conversation, and answer questions other users may have on its collection. I just hope that other practitioners don’t rely on this information to make decisions.

Prediction alert: I predict that other users will rely on the information to make decisions. And furthermore, these users will increasingly be making the wrong decisions based on poor data.

This isn’t surprising. Unless you capture the data yourself, how can you really know if it’s any good? The Catch-22 is that there’s no possible way to capture all of the data yourself and so you rely on third-party information to make decisions. See where this cycle gets out of hand, creating an exponential number of problems?

Perhaps going forward we should all just use the disclaimer: "This report/decision was based on the findings that was created for this specific set of data, and may not apply with new sets of data" with requisite links and sources.

Personally, I prefer to think in broad strokes. If the data (generally) matches the consensus (generally), then the result/report/decision should be made in a general sense. Disclaimers would help here, and they are very important.

Should the Best and Brightest Go Into Finance


Great question and interesting read. While there is a lot of data in this article, I can’t fathom exactly how they can pinpoint these metrics since GDP (and the per-worker statistic that is often referenced) is influenced by so many factors that it is difficult to extract the right information without lending any bias to data mining. Also keep in mind that I did not read the paper, only the article linked at the top.

Regardless, the analysis points out that a) finance can improve the GDP to a point where too much actually negatively affects it, and b) growth in finance competes with growth in other areas (labor competition).

“Their analysis of manufacturing industry data reveals that, as predicted by the model, sectors highly dependent on R&D do in fact suffer disproportionately during financial booms.”

That first aspect of the analysis interests me (but does not influence me) in that finance can improve the GDP, but only to a point, due to the risk adverse nature of finance itself. The article cites that the aspect of GDP of growth mostly influenced here is in physical capital, in this case the capital of buildings (manufacturing), computers, etc. As countries invest in this physical capital, they have more “opportunities” to grow because there is more availability of the required pieces of the business puzzle. Businesses rely on buildings to work in, computers to work on, and other physical things such as machines to work with (or create with). When there is too much physical capital, there is no demand or over supply, reducing prices.

For example, if there are 100 open offices and only 50 companies looking for office space, you’d expect the rent to go down, adversely affecting the amount of money the lessors will make, decreasing the amount of spending they will make, reducing GDP. The “finance” people help open offices, but they’ll never fill a building.

Taking that plus the second aspect of the analysis (intelligent workers not doing intelligent work such as R&D), there are less people doing the actual “creating”. Innovation is always the bottom line. The more a company or country can innovate, in the long run the stronger they will be. Innovative companies attract a stronger workforce, in a cyclical self-fulfilling prophecy sort of way. On the contrary, as we’ve seen numerous times (Yahoo), these companies can sometimes become the new “old guard” and drag themselves down in a heap of bureaucracy (aka Finance people), so it’s not easy to maintain the ideal balance between innovation and efficiency. When it does work though, it’s a legacy.

The Power of Control


As the High Net Wealth Individuals’ (HNWI) wealth grows substantially quicker than the rest of the population (http://www.ritholtz.com/blog/2015/06/hnwi-populations-statistics/), the question of control springs to mind. How much control (economically as well as politically) do these individuals hold? On a related topic: as unanimously agreed by everyone, big corporations continue to get larger. I’m sure there is a direct correlation between HNWI and Big Corporations (shouldn’t have to even mention it really) but on the topic of control ‘they’ have a not-so-hidden power to allow us to use only what ‘they’ want us to use. In the case of Apple, the selling point is quality control:

 “Imagine buying a car but having the car maker retain control over which roads you can drive on. Looking to go down that small road to the beach? Your car just won’t move. I think very few people would find that an acceptable limitation on how they can use a car, which after all, they have paid for. In the case of software, the limitation is less obvious. After all, you can download apps from the App Store for seemingly everything (“there’s an app for that”). But the second you dig a little bit you realize that Apple had and is exercising all sorts of control, including for example what ecommerce experience you can have, how potentially offensive content is treated and what you can do with crypto currencies.”

There is a similar argument over why Google should not be allowed to “hide” or move search results, as the results drastically affect who sees what links. Imagine looking up doggy-day-care services in your home town and only seeing the results of PetCo (or whomever, I don’t have a dog) and missing out on that great local business right in front of your apartment because it was link #8 or on page 2 (even page 4!). I rarely go beyond the first page of my Google results, expecting to find what I’m looking for at the top, or making due with the results. This type of control is the same argument that some proponents of the Open Internet use against the big telecoms and the Comcast/Time Warner merger! And if I recall correctly, the FCC determined that telecoms cannot exert their power of control to favor different types of services (such as Netflix—even though they still do, just not in Netflix’s favor for the sake of their own cable subscription services), and the merger failed! What makes control different between consumer goods and the services we use?


I know that consumers have the power to vote. And they use that power every single day. With every single dollar that consumers spend, they vote on who or what they believe deserves their money (and thus, power). It’s probably just more effort for some than they want (read: people are lazy and don’t care enough).

Future of Personal Consumer Finance

I’ve talked about it before, several times actually, but I believe that despite what the experts and futurists think, our big banks will continue to be pillars of our economy. There’s been a lot of talk within the last few years about banking moving from in-person branches to online-only services. With the meteoric rise of companies like Lending Club (consumer and currently small-business loans) and the huge press that goes to Robinhood (“free”, “no-fee” stock brokerage), GoBank and Simple (“free” online banking) it’s easy to make these conclusions. But, from the perspective of business strategy, the big banks will continue and perhaps grow even stronger from the added (and primarily digital) competition.

For now, I’m going to separate Lending Club from the pack and focus on the personal checking type banking side. I think Lending Club has a great business and massive amounts of potential, but they compete in a different landscape where revenue comes in the form of interest payments, one-time fees, and consulting services; for large banks I’d imagine a healthy profit comes from this segment of the business, offsetting some of the losses from the personal checking accounts. The other side of the business generates revenue through a few pieces: interest on the cash in the accounts (the bank invests the cash you leave in your checking account, pays you a small interest rates, and keeps the spread), various fees from activity/inactivity (such as monthly/annual fees, check-writing fees, wire transfer fees, withdrawal fees, etc.), and transaction fees (when you use your debit card at the store, when you withdrawal from a non-network ATM, etc.)

By their nature, the online banks don’t have the overhead current banks such as Bank of America and Wells Fargo have since they don’t have physical branches and only need to hire support staff (which can be done cheaply and remotely) and technology staff (the ones that test and develop the software). As far as revenues, I’d expect online banks to have roughly the same structure with some “marketing” alterations. GoBank, for example, promotes the “pay-what-you-want” fee structure where you can elect to pay a monthly/annual fee if you deem the service worthy.

With all “free” services though, it’s safe to assume that if you don’t pay for the product you are the product. GoBank (and I’m sure many others do/will) sells your transaction data to marketers and makes (or will make) a significantly shiny penny off of advertising revenue. This is something I’ve discussed before, banks hold a wealth of information about you, perhaps the most information of any service you use and perhaps the most value information of any service you use. They not only know your personal information (due to the Patriot Act they now require physical address and possibly a copy of your driver’s license), they know where you spend your money, how you spend your money, how often you spend it, where your income comes from, and who you share money with. The primary advantage of this type of data is that, while other services such as Facebook know what you like, in this case they know what you actually spend money on. You may like Rugrats on Facebook, but you’d never spend money on them. Banks know this, Facebook does not. This type of information requires the highest levels of privacy and it’s something I worry that the future of banking will pursue. If they didn’t have the profits of other departments (such as credit cards and loans), I’d bet the large banks would already have begun to sell this data, if they haven’t already.

With privacy concerns in the forefront, large existing banks have other advantages that new incumbents will surely find difficult to replicate: other revenue streams. Banks can offset their losses in multiple areas with profits in other areas, and do this on a daily basis. If their investment banking arm has a bad quarter, it is typically offset by something like auto loans. Smaller “digital” rivals don’t have this and one bad quarter in personal checking accounts can lead to ruin. Large banks can take advantage of this and let the little folk test, try, and fail with their new product offerings, eventually replicating successful services at no start-up cost with a massive existing customer base.

I’d say this argument should work 90% of the time, but let’s consider services such as PayPal and Venmo (both arguably successful) who have established themselves out of nowhere. This MUST be seen by the large banks as total failures on their part. I believe they got lazy and should have squashed the competition before they got big. They’re all now (a bit late in the game) reacting by offering digital wallet/payment services, mobile transfers (still slow to develop), and email transfers (very slow to develop). Their size, while a valid argument, may play a part in why the large banks fell behind, but I don’t buy it. An essential part to any company is their ability to innovate and R&D should always be a part of their business. I believe they realize this, better late than never, and will come out stronger by year end.

The Role of the Corporation to Employees

What is the role to the corporation to individual employees? What is the best way, as an employee, to think about the corporation?

In today’s ever changing society, there is a shift from those working long-term for a single company to making several jumps in a career to new companies, freelancing, or even starting a new company. This leads me to wonder how others view companies, but I’ll include here my thoughts (assuming things like salary, selfish desires, etc. do not play a role):

A company, to me, is an organized pool of talents. There are many resources of individuals, who do their specific task to the best of their abilities, working alongside many other individuals who do their specific task to the best of their abilities. When these individuals are organized in a way that they can collaborate, they leverage each others skills and make something even better than the sum of two parts. In other words, the role of the corporation should be to make this formula work: 2+2=5. It fails when either customers are not on board or when 2+2=<4. I’d even throw in factors like mismanagement, bankruptcy, culture clashes, etc. into the failed formula group since it means that leverage was not satisfactorily achieved and resources were not properly placed. Another reason for failure are unforeseen external factors (i.e. overall market or economy, or perhaps failure/success of a comparable company), typically this cannot be managed (outside of risk management and scenario analysis) so it doesn’t factor into this topic even though it is certainly worth mentioning.

When 2+2>5, success follows. Some reasons for this could be culture success, high performing individuals, synergy, and excellent resource management. As with before, unforeseen external factors can help a firm succeed, but in the long run 2+2 MUST > 4 so we’ll exclude external factors. The role of the corporation, in these cases, is to leverage individual skills into a singular “team” (or sum of smaller products/services). These individuals are given the right tools (or enough tools to be useful), have the right knowledge (or enough knowledge to be useful), and the right amount of time (or enough time to be useful) to create this 2+2=>5. It seems that when individuals feel their contributions to this formula do not sufficiently equate (or their contributions could be improved but are unable to improve it themselves), friction exists causing resources to leave. And, like any team sport, the whole is only as good as it’s weakest link so under-performing team members must necessarily be removed from the equation (or separated from the whole) to keep the balance.

In summation: The role of the corporation for employees should be to give them the tools they could otherwise not obtain so that their individual contributions can, when combined with the contributions of other individuals, create something better than the sum of its parts. 2+2=5. When individuals believe their contributions are not sufficiently utilized, the friction causes them to leave. If an individual believes they can do better on their own, or they (usually do to empirical experiences) find that they are better utilized outside of an organization, they create their own venture.

The question I have is, if this is all true, is the feeling of under-utilization (or alienation) of an individual come from more experience in the workforce, or is it more weighted towards our general cultures such as the Millennial generation? It’s easier than ever to venture out on our own, especially when the market is as “frothy” as it is now. Costs to create a company are way lower than ever, it’s very easy to hire freelancers to do basic (or complex) tasks if specific skills are needed, and the information is readily available to anyone willing to put the time in. Will we be seeing a “freelancer” economy in the future? (I don’t think so) or will we move back to the “company-man” culture as corporations get more data on how to retain employees and how to better utilize their individual skills? I believe we will see “leaner” organizations in the future, where companies are run solely by more “experienced” individuals looking for responsibility without the headaches of “hot-shot” companies run by young entrepreneurs or large corporations. Perhaps they themselves were ex-entrepreneurs. Think co-op but for larger scale business solutions. Run on a non-profit tax status or taxable with low retained earnings.

Venture Backed vs Community Capital – Reading Thoughts


Venture Capital vs Community Capital by Nick Grossman

Great read! Interesting analysis of a presentation during the Paris OuiShareFest about the power of technology and dynamics. Specifically, it’s another interesting way to look at the platforms of technology in a way of (typically) venture/finance backed firms (such as Microsoft and Facebook) and community backed protocols/technology/firms (such as Bitcoin, the HTTP standard, and Android—though not exactly community backed it’s an open system vs iOS’ closed system which would be in this case “venture backed”).

It seems that in Grossman’s analysis of the community type ventures, their primary motive is to disrupt the incumbent industry. Using Microsoft as an example, he mentions that they’ve survived two waves of community disruption: the OS and Office productivity suite. Well known competition includes Open Office, which as the name implies is “open” software available to the community. The community version attempted to disrupt Microsoft’s stranglehold on the productivity suite via it’s open capabilities but in the end Microsoft overcame the obstacle. While I agree that community backed ventures are commonly disruptive, I believe they have great potential to create something bigger.

Thinking about how credit cards make the bulk of their profits, they charge fees (both monthly and per transaction) to businesses when their card is swiped. One of the reasons why American Express (Amex) is not available to use everywhere is because they charge a higher per transaction fee, which they counter by offering better customer service. There are now TONS of competitors trying to break into this space by eliminating credit card margins, charging smaller or even no transaction fees to the consumer or business (such as Square). I assume some are open standards, available to use anywhere by anyone, but in the end success in this area will come down to two factors relating to volume: number of users (consumers using the platform) and number of transactions made. Software is free, the ability for software firms to scale is virtually unlimited (mainly constrained by data servers), so I imagine there is still HUGE potential for open platforms to disrupt the way most businesses interact with their customers and business “partners” (such as credit card providers)

By offering the “open” platform, community backed ventures in the industry of credit cards can grow the number of transactions (since nobody likes paying fees) but are severely limited by the number of users. It makes me wonder, if the open platforms are free (or significantly cheaper) and only limited by marketing (getting people to actually use it), what value does the large corporation give? The answer, I’m guessing, is service.

Which leads me to my final point: When community backed ventures can be an essentially free, more disruptive, version of an existing product, companies can profit by offering services. The United States is a service based economy, and the cycle between actual product (community backed) vs service (venture backed) can be a clearly paved path to mutual success.

VCs on Private Equity


What VC Can Learn From Private Equity by Fred Wilson


This is an interesting read, pointing out the main differences between Private Equity investing and Venture Capital investing. It’s something that has run through my mind several times as I’ve struggled to find what interests me. I’ve always had a fascination with Venture Capital, especially the non-glamorous side of it: investing, figuring out financing methods and terms, and performing market research (the glamorous side is also interesting but that’s more ‘bells-and-whistles’ to me: sourcing, finding investments, etc.) Private Equity, on the other hand, is a much larger beast to handle.

In general and assuming my knowledge is correct, Venture Capital (VC) tends to rely on limited partners, smaller angel investors, and endowments for funding whereas Private Equity is financed through major banking and wealth management firms. Their goals are similar: make more money than you put in; but their methods are much different. Venture Capital is the ‘buy-and-hold’ methodology with a lot of talk now of value add (value of a VC firm as an investor vs another). The leading VC firm typically gets one or two board seats able to influence the company leadership, and a priori rights to invest in the following rounds.

Private Equity (PE) on the other hand is the ‘buy-and-build’ methodology, believing that the companies they invest are underperforming. They typically buy a commanding share of the firm allowing them to dictate (rather than influence) management. Sometimes they invest in order to break up a company and sell off the pieces, sometimes they replace management all together, and sometimes they just build the company (sometimes they also fail at all three). Private Equity is a much more active type of investment and for job candidates it’s much more difficult to get into (not that VC is an easy task).

Having thought it over many times, I’m surprised at how Fred talks about value add by VC firms. My interest in VC took a much more PE approach. I believe VC firms have a lot to offer start-ups, much more so than one or two board members. VCs are well connected (at least they should be) and have their hands in many different pockets. Most of their investments are expected to fail, sure, but it seems like VC firms are simply not managing the risks appropriately. I’m not saying VCs should make smarter bets, I’m saying they should treat every investment like an active investment. After all, the more money an investment makes, the more money the VC firm can return to investors. Perhaps there is a lot VC can learn from PE, a lot more than I expected.

Current Schedule

On my schedule:

1. Practice Case Studies – Mainly doing this to prepare for interviews, but also see the more practical and immediate use of fostering my creativity. Also, it’s kind of fun. Book: Case in Point

2. Programming in Python – Python seems to be a very useful language, and was recommended to me during a recent interview I had to support my SQL skills. Also, I plan to create some mobile games and obviously (see the books I’m reading for this stage) it’s practical. Books: A Programmer’s Guide to Data Mining; Invent Your Own Computer Games with Python; Making Games with Python & Pygame; Python Reference Book

3. Making the aformentioned Mobile Game – The idea I have now is quite simple and should be easy to make using the skills I gain from the previous point

4. CAIA – Deciding if this is something worthwhile to me. Seems like it is so far, but really depends where my next job is. If it’s in Product Management (or similar) I might look more into Six Sigma, if it’s in FP&A perhaps CAIA or CMA (possibly even CPA but more likely one of the other two), and if it’s in Consulting I’d need to see where that leads. But I do enjoy the challenge and fun learning something new so these certifications are great.

To sum it up, in the short term I’m going to continue as I am, which should put me around my August deadline at work (contract end) in which case I’ll probably have the idea for #4 and launch into a new phase of my career. At least, that’s what I hope.

Timeline: #1: 2 weeks; #2: 4 weeks (realistically); #3: 4-6 weeks; #4: long-term