Marvin’s Best Weekly Reads October 18th, 2020
"Don't Complain about the world, Figure out a way to thrive in it."--Michael Mauboussin
I've always been a fan of John Cusack.
"And “you just don’t know” is the primary lesson a long career in Hollywood has taught him. A 30-plus-year veteran of the business, Cusack has known what it’s like to feel hot as an actor, and also what it’s like to feel the icy touch of irrelevance. When I ask about the difference between those two feelings, being hot and cold, Cusack pauses for a good long while and then says: “We-e-e-ell. I haven’t really been hot for a long time.”
https://www.theguardian.com/film/2020/oct/04/john-cusack-i-have-not-been-hot-for-a-long-time
110% agree with my friends at NFX.
"Incumbents are in a (historically) weak competitive position compared to startups
Think of a downturn as a bumpy road full of potholes, and incumbent companies as big cars. They are very efficient at carrying lots of things and people from Point A to Point B on smooth roads. But they can’t easily swerve when the road is bumpy and full of potholes. Startups, by contrast, are more like little, zippy bumblebee cars. They can swerve, adjust, and change direction quickly. They can drive on tiny roads that would be unnavigable for big cars. In a downturn, that small bumblebee can get from Point A to Point B faster and more efficiently."
https://www.nfx.com/post/10x-advantage-of-starting-a-company-now/
This is such a great story. I need to subscribe to his newsletter.
"Mr. Levine wasn’t always a darling of business media and finance Twitter. (The best measure of his audience’s devotion may not be his 112,000 Twitter followers, but rather the 3,000 that follow @MattLevineBot, a fan account describing itself as a bot that mimics his writing style.) He began his post-collegiate career as a Latin teacher, then worked as a lawyer at Wachtell, Lipton, Rosen & Katz before advancing to Goldman. Despite having made more money at white-shoe law and Wall Street firms than he does as a writer, Mr. Levine says he is happier now. He is doing exactly what he has long wanted to do. This is the story of his ascension."
https://www.nytimes.com/2020/10/08/business/matt-levine-bloomberg.html
Very laudable. The former Mrs. Bezos is shaking up philanthropy.
"With that, Scott far outpaced her ex-husband in the giving realm, and rewrote the typical playbook for high-profile tech philanthropists — who often operate as if they know best not just in business, but in solving societal problems, too."
"In July, via a Medium post, Scott announced she’d given away $1.7 billion of her money to 116 organizations, including Point Foundation. “A civilization this imbalanced is not only unjust, but also unstable,” she wrote, as she laid out the areas she’d contributed to, from “empathy and bridging divides” to “functional democracy.” Scott worked with the consulting firm Bridgespan Group to vet nonprofits, and wrote that she tried to choose groups led by people of color, women, or LGBTQ people where possible."
There is so much insight in this excellent interview with Ek, founder of Spotify. Highly recommended read.
"It's been fascinating to see some leaders lead one-to-one; they're the tentpole and everyone goes right to them for certain decisions. That’s not really my style or how I do things, but it's highly effective for some. Because, again, with a singular vision you can accomplish great things. Elon Musk comes to mind. Evan Spiegel actually comes to mind too. Leaders that fit that mold are very consistent and they can move very fast when making big decisions.
Collaborative decision-making is the other end of the spectrum. I have seen some amazing companies operate that way…though I haven't been able to scale group meetings. Facebook is able to have meetings with twenty, thirty people that are still quite effective."
https://www.theobservereffect.org/daniel.html
Talk about a monopoly. So fricking interesting.
"the founder of Nichols Electronics, a tiny Minnesota-based company, Bob supplied the music boxes — preloaded with dozens of jingles — for the vast majority of the country’s ice cream trucks.
In short order, “The Entertainer” was on Nichols music boxes all over the nation. And 25 years later, it has become the country’s ice cream truck song of choice.
That’s according to Bob’s son, Mark, who now runs Nichols Electronics alongside his wife, Beth. Today, Nichols Electronics no longer controls just the vast majority of the music box market; it is the market.
Mark estimates that the company, which he inherited, is responsible for up to 97% of the music boxes in circulation.
How did ice cream truck music become a thing? And how did one tiny family business secure a stranglehold on the market?"
The company that has a monopoly on ice cream truck music
"When you create great products, and people get engaged, you become a show. Shows create their own success: fans create more fans, just like product use creates more of itself. Conversely, if no one’s at your show, no one will go next time. If no one uses your product, it won’t improve. There’s no business on earth with a greater divergence of outcomes between the winners and everyone else.
There’s an old bit of wisdom that nothing is harder to sustain than an emotion. Momentarily putting on a great show is one thing; sustaining that environment and that emotion, not just for the fans but especially for the creators, is incredibly hard to do. Show business, in a nutshell, is the art and science and orchestration that happens around the show that keeps those emotions renewed, and not exhausted.
It feels strange to juxtapose these two kinds of vocations. Making technology seems like a world apart from entertainment and show business. But in this new world, making is show business."
“The hardest thing to do is to create, and then keep creating. The people who make the greatest impact are the people who can keep creating, one thing after another, growing in impact each time. If you look at the world’s great makers - Elon Musk, Beyoncé, whoever you like - they don’t stand apart because of their raw talent. They stand apart because they’re able to sustain their creative output for year after year. They manage to keep shipping and compounding their success while leveraging the show around them.”
https://danco.substack.com/p/making-is-show-business-now
"Few realize it, but the New York City-based organization that offers the SAT and Advanced Placement tests is a nonprofit that operates as a near monopoly. Its tests, which have a stranglehold on their student-customers, fuel more than $1 billion in annual revenue and $100 million in untaxed surplus. It has $400 million invested with hedge funds and private equity, and its chief executive, McKinsey-trained David Coleman, 50, pulls down compensation of almost $2 million a year."
"But it’s the Board’s inability to safely adapt its operations to the pandemic that has prompted customers to opt out in droves. Since March, more than 500 colleges, including every school in the Ivy League, have joined the growing “test optional” movement. All told, more than 1,600 four-year schools will not require scores for admission in 2021, and a growing number are becoming “test blind,” meaning they won’t consider scores at all."
"A common theme we saw regardless of industry / business model was when it came down to certain software costs such as AWS / Azure / DataDog / Okta / Twilio, even If those represented a disproportionate amount of total spend, they were unable to turn those off; as they couldn’t operate their business without them, these systems were the “Central Nervous System” equivalent."
“It is our view that all recurring revenue can and soon be tradable.”
https://medium.com/@John_Street_Capital/recurring-revenue-the-rise-of-an-asset-class-eff0c4be9fa0
"Musk’s car company is now worth five times more than Ford and General Motors combined, and Wood has made a fortune. The nitpicking skeptics, she believes, have missed the big picture: As electric cars go increasingly mainstream, production efficiencies and advances in batteries and other technologies will cut what it costs to make them. And as sticker prices fall, demand will surge, including from businesses like ride-sharing companies. In September, Musk promised a $25,000 car within three years.
Meanwhile, Wood, 64, is perfectly happy to have a chorus of critics: “It almost makes me feel comfortable, to be honest, because it means if we’re right, then the rewards will be pretty enormous.”
Wood’s comfort with going her own way has helped her turn Ark into one of the fastest-growing and top-performing investment firms in the world. Its flagship $8.6 billion Ark Innovation Fund is up a staggering 75% in 2020 and has returned an annual average of 36% over the past five years, nearly triple that of the S&P 500."
“While most star stock pickers treat their work like state secrets, Wood makes Ark’s research freely available online and posts real-time logs of her firm’s trades. Instead of hiring MBAs, she prefers to bring onboard young analysts with backgrounds in subjects like molecular biology or computer engineering, figuring they’re more likely to spot the next trend.
Even the structure of Ark, an acronym for Active Research Knowledge, is original. Wood manages seven portfolios designed to capitalize on breakthroughs in robotics, energy storage, DNA sequencing and financial and blockchain technology, and makes them available to investors, particularly Millennials trading on Robinhood, as tax-efficient exchange-traded funds."
"So when a company has achieved IPO scale, and especially when the company in question doesn’t need money (as TTD did not — they generated mounds of cash and truly built the business on $8m in capital), what’s the motivation for the founder supporting a public exit? Some CEOs embrace it, others don’t.
And when there is a public/private market arbitrage (meaning that while there is abundant capital for private secondaries, I’d argue that the pricing isn’t a true proxy for a public market security, as you’re able to access a much broader array of investors in a public format than otherwise), it can lead to tense discussions where nary friction had been experienced in the prevailing 5, 7, 10 years."
This should be damn useful for founders and investors in consumer social vs. consumer subscription businesses. Good stuff.
https://www.unusual.vc/field-guide-consumer/consumer-subscription
"Financial crises have many causes, but generally they boil down to a few key elements:
-easy money
-poor regulation
-consensual hallucination that the market always goes up
The crisis is preceded by a cocaine-fueled party, where everything and everyone looks and is great. The party creates an asset bubble — a wave of optimism that lifts prices well above levels warranted by fundamentals — ending in a crash. The first documented asset bubble was the Dutch tulip mania in 1636, when speculation drove the value of the rarest tulips to six times the average salary at the time.
Story stocks are the new tulips, and Robinhood is the E*Trade of our age."
https://www.profgalloway.com/tulips-to-tesla?
The irony here.
"Anttonen’s concern is curious for a man in the oil business. A former energy trader, he now runs his own Helsinki-based firm, called St1. The company, which had 2019 revenues of $7.8 billion, refines over a billion gallons of oil each year, operates 1,300 gas stations in Scandinavia and has a 15%-plus share of the diesel fuel market in Norway, Sweden and Finland."
"But Anttonen is determined to move beyond fossil fuels. St1 has put $200 million into renewable energy projects over the last three years, equivalent to 44% of its net profit during that period, or 1% of its revenue. Anttonen is lobbying European governments to charge firms for their carbon output and to restrict short-distance flights. At conferences and EU summits, he shows up with his “energy transformation” PowerPoint in tow. Despite the oil under his fingernails, Anttonen hopes to become a credible engine for change. “It is our responsibility to contribute,” he says."
Nuff said. Relevant to many places in the world ahem....USA is tops here in bad way.
“You can have the best health system in the world,” Gostin says. “You can have the most expert scientists in the world as the UK has. But if you don’t have a leader that can effectively implement good policy and effectively communicate the importance of risk avoidance behaviors, you’re finished.”
https://www.vox.com/2020/10/10/21508165/covid-19-uk-cases-news
"We’ve gone from a world where advertising could largely be on autopilot where once a course is set you can trust your partners to successfully land the plane to one where to succeed you need to make course corrections on a daily basis, collect and rapidly interpret feedback from every instrument that can measure any aspect of a campaign or activity."
"Our current platform era is really built on the back of self-serve advertising. The Top 5 largest advertising businesses are all built on self-serve revenue."
https://sparrowone.substack.com/p/self-serve-ads-and-the-rise-of-diy
No Surprise here.
Back in the Office January 2021? Not so Fast.
https://www.linkedin.com/feed/news/back-in-office-jan-2021-not-so-fast-5200250/
"What does this mean for you? It means this is the right time to focus on asset accumulation. It doesn’t matter what it is (we already gave our big three tech/healthcare/crypto). All that matters if you focus on being an “accumulator” of assets for the next few years. Ownership in anything that uses robotics/high tech should do well as it reduces costs dramatically.
On a final note, this is actually good timing for you as well. If you’re making good money, we wouldn’t recommend showing it at this time. The socio-economic divide has escalated rapidly. In fact, Luxury home sales are up 42%… That is an insane figure.
So you can see that the divide between the rich and poor got a lot bigger this year. So? Adapt to the situation. Accumulate assets, wait for the economy to normalize and socio-economic stability to return. At that point you can go back to flexing on the gram if you feel like it."
https://wallstreetplayboys.com/adapt-or-die-some-things-wont-be-like-the-past/
Neat new VC fund.
"Something really interesting is also happening in venture capital right now — almost a ‘back to basics’ return to the pure essence of venture capital. As established firms grew large in size they were forced to develop ‘platforms’ to justify the management fees of their large AUMs and to create a form of differentiation. In this new era, I question the continued value of expensive platform divisions that provide hiring, HR, or data services to their portfolio companies.
Instead, I am excited to see the rise of the founder-investor who has walked the same path, developed a strong network and can act as the founder’s consiglieri on their own journey. In the era of COVID where so much is being disrupted but personal relationships are ever more valued, I have seen this become far more valuable than anything a large and less-personable VC firm can offer."
https://medium.com/monochromevc/announcing-monochrome-capital-and-our-first-investment-e7a175a56a7a
“the secret to doing good research is always to be a little underemployed. You waste years by not being able to waste hours.”
The same is true for a lot of jobs.
The traditional eight-hour work schedule is great if your job is repetitive, customer-facing, or physically constraining. But for the large and growing number of “knowledge jobs,” it might not be.
You might be better off taking two hours in the morning to stay at home thinking about some big problem.
Or go for a long mid-day walk to ponder why something isn’t working.
Or leaving at 3pm and spend the rest of the day envisioning a new strategy.
It’s not about working less. It’s the opposite: A lot of knowledge jobs basically never stop, and without structuring time to think and be curious you wind up less efficient during the hours that are devoted to sitting at your desk cranking out work."
The Advantage Of Being A Little Underemployed
Everyone needs to listen to this podcast and read this. TWICE.
"Which is, in modern life, what happens is the person who is the best at doing something in the world will get to do it for the entire world through a combination of leverage and distribution, accountability, and specific knowledge.
If you’re the best in the world at doing something, if you’re the best teacher in the world at math, you should be teaching the entire world math. If you’re the best podcast interviewer, you should be doing all the top interviews and their returns will accrue to you, especially in this highly digital world where we live in, where the cost of distributing something is very close to zero. And so what you kind of want to do is, you want to productize yourself into a business, and then you want to own that business."
https://tim.blog/2020/10/15/naval-transcript/
"Most of USV’s big wins have been in companies where we were the first institutional VC to talk to the company or where we had way more conviction about the opportunity than other investors at the time of our investment.
There was no social proof on these investments other than the fact that nobody else wanted to make the investment as much as we did. You can call it negative social proof."
https://avc.com/2020/10/negative-social-proof/
"The world is experiencing incredible turmoil right now. The election in the US. Brexit. Covid lockdowns. Economic recession.
Everything is changing in front of our very eyes.
But this doesn’t have to be darkness. As Simon has frequently written, the world is not coming to an end. We just have to be aware and expect radical change.
Tax laws will change. Business regulations will change. Immigration policies will change.
But just because all these changes are happening doesn’t mean life will be worse.
We’ll need to make adjustments, sure. But we can still take control.
Smart, talented people don’t stress about change. They accept it.
They learn the new rules and use the resources at their disposal to figure out new, creative ways to accomplish what they want to achieve."
https://www.sovereignman.com/trends/the-first-time-we-went-to-see-the-germans-29089/
This was a crazy educational read. Impressive founder grit and so much learning. Every founder should read.
And re: their board member and investor. Cray cray.
https://ryancaldbeck.medium.com/transitions-fa7ce4af435
The Bull case for Airbnb.
"The most valuable private firm in America is Airbnb.
I believe this time next year, Airbnb will be the most valuable hospitality firm in the world and one of the world’s 10 strongest brands. (Note: rankings of “the world’s best brands” are a desperate yelp for relevance from ad agencies begging clients to buy more media and cling to the nineties, the Brand Era.) The SF platform will likely be worth more than the three largest hotel firms, combined."
https://www.profgalloway.com/airbnballer
I sometimes take for granted why its awesome to be in the key center of tech startup world.
But other tech startup communities are growing. Why it's important. Decentralization & spreading the wealth and knowledge.
"Instead of teaching people to cut out “unhealthy” foods, community leaders were able to accomplish successful behavior changes as a result of the framing of the campaigns: Rather than disciplining citizens to eliminate salted foods and shaming them for having too much of it, the focus was on ways to still enjoy their local foods, but in ways that could complement a healthy lifestyle. They encouraged eating pickles and salty noodle broths, but to only have it in moderation, and doubled down on efforts to promote fresh, seasonal vegetables from the area, and taught communities how to cook with it.
But lessons from Nagano can also be applied to the way you approach health at home: Instead of relying on willpower and strict dieting, emphasize moderation with the foods you love, and add fresh fruits and vegetables that you enjoy. The foods we love and enjoy can coexist with the foods that nourish, heal, and build our bodies — this was the key idea in getting Nagano to change for the better."
https://heated.medium.com/how-a-sick-city-became-the-heathiest-place-in-japan-5abf6c7b1c92
The importance of a good partner in business.: A Multiplier or the Voltron effect.
https://justinjackson.ca/multiplier
Good summary of recent VC news. Also good discussion on SPACs and VCs. Expect a lot more VC firms to adopt SPACs.
https://www.protocol.com/newsletters/pipeline/spac-and-going-full-stack?rebelltitem=5#rebelltitem5
This is long overdue and I'm glad this is coming together.
"I decided on the name Hyphen Capital because we are cross-cultural entrepreneurs and investors who bridge both East and West. Many of us grew up in a Western world that values independence and individuality, a culture that promotes and rewards taking risks and being bold.
We also grew up in Eastern families and homes that encouraged filial piety, humility and diligence. The hyphen bridges our two worlds that we straddle every day of our lives and represents who we are as a generation of third culture kids."
https://medium.com/@davelu/announcing-hyphen-capital-8284fd13a744
"There are real reasons to consider locations outside of traditional tech cities like San Francisco and New York. Where a founder chooses for HQ and location (or none at all) sets the tone of the company. The decisions founders make now will have lasting impact on the company’s values and the talent it attracts.
At the end of the day, it comes down to people; the pandemic time period has shown us how unique we all are, whether we prefer working from the office, working from home, living in cities or the suburbs, or hanging in a “hacker house.” Where to set up HQ will be a key consideration for the next generation of founders, and may be less obvious than it was nine months ago — and also, a bellwether of where the startup world is heading."
Many Are Fleeing Cities Like San Francisco and New York. Where Are All the Founders Going?”
This is a crazy good detailed fundraising guide. Must read for founders going down this path.
https://www.lennyrachitsky.com/p/a-playbook-for-fundraising
Really useful for both investors and founders. Good framework for how to build an enduring & VC fundable business.