Author Archives: Blas

About Blas

Hi, I'm Blas Moros. I'm a half-Swedish, half-Venezuelan mutt who has been fortunate enough to live and travel the world. I spent the first 20 years of my life dedicated to tennis and this culminated in an amazing experience playing for the University of Notre Dame. I am now living in Chicago, working in the finance industry. I have a younger brother at the University of Chicago and a younger sister who is a senior in high school. My parents are unfailingly supportive and I won't ever be able to thank them enough for everything they have made possible for me.

95% Is Crap: A Plain Man’s Guide to British Politics by Terry Arthur

Summary

  1. “This book is a highly unusual, humorous, and down to earth exposition of the sheer humbug delivered continually by the vast majority of British politicians to the long-suffering public. The word ‘politician’ is used in a broad sense to include those industrialists, trade unionists and academics who influence political action, political journalists and economists, etc., as well as Ministers and Members of Parliament.”

Key Takeaways

  1. Types of crap
    1. Newspeak Crap – look at what plans do, and not what is said
    2. Contradictory Crap
    3. Meaningless Crap
    4. Statistical Crap
    5. Cheeky Crap
    6. Yes and No Crap
    7. Ideological Crap
    8. Misleading Crap
    9. Illogical Crap
    10. Useless Crap
    11. Fashionable Crap
    12. Prolific Crap

What I got out of it

  1. The examples are a outdated but his points are not. Pay attention to the logic and rhetoric, don’t blindly follow, see things for what they really are, look at the results rather than the talk behind them

7 Powers: The Foundations of Business Strategy by Hamilton Helmer

Summary

  1. Helmer sets out to create a simple, but not simplistic, strategy compass. His 7 powers include: scale economics, switching costs, cornered resource, counter positioning, branding, network effects, and process.

Key Takeaways

  1. Strategy: the study of the fundamental determinants of potential business value The objective here is both positive—to reveal the foundations of business value—and normative—to guide businesspeople in their own value-creation efforts. Following a line of reasoning common in Economics, Strategy can be usefully separated into two topics: Statics—i.e. “Being There”: what makes Intel’s microprocessor business so durably valuable? Dynamics—i.e. “Getting There”: what developments yielded this attractive state of affairs in the first place? These two form the core of the discipline of Strategy, and though interwoven, they lead to quite different, although highly complementary, lines of inquiry.
  2. Power: the set of conditions creating the potential for persistent differential returns. Power is the core concept of Strategy and of this book, too. It is the Holy Grail of business—notoriously difficult to reach, but well worth your attention and study. And so it is the task of this book to detail the specific conditions that result in Power
  3. The Mantra: a route to continuing Power in significant markets. I refer to this as The Mantra, since it provides an exhaustive characterization of the requirements of a strategy.
  4. The Value Axiom. Strategy has one and only one objective: maximizing potential fundamental business value.
    1. For the purposes of this book, “value” refers to absolute fundamental shareholder value—the ongoing enterprise value shareholders attribute to the strategically separate business of an individual firm. The best proxy for this is the net present value (NPV) of expected future free cash flow (FCF) of that activity.
  5. Dual Attributes. Power is as hard to achieve as it is important. As stated above, its defining feature ex post is persistent differential returns. Accordingly, we must associate it with both magnitude and duration.
    1. Benefit. The conditions created by Power must materially augment cash flow, and this is the magnitude aspect of our dual attributes. It can manifest as any combination of increased prices, reduced costs and/or lessened investment needs.
    1. Barrier. The Benefit must not only augment cash flow, but it must persist, too. There must be some aspect of the Power conditions which prevents existing and potential competitors, both direct and functional, from engaging in the sort of value-destroying arbitrage Intel experienced with its memory business. This is the duration aspect of Power
    1. Benefits are common, and they often bear little positive impact on company value, as they are generally subject to full arbitrage. The true potential for value lies in those rare instances in which you can prevent such arbitrage, and it is the Barrier which accomplishes this. Thus, the decisive attainment of Power often syncs up with the establishment of the Barrier.
  6. Complex Competition. Power, unlike strength, is an explicitly relative concept: it is about your strength in relation to that of a specific competitor. Good strategy involves assessing Power with respect to each competitor, which includes potential as well as existing competitors, and functional as well as direct competitors. Any such players could be the source of the arbitrage you are trying to circumvent, and any one arbitrageur is enough to drive down differential margins.
  7. The 7 Powers
    1. Scale Economies
      1. Scale Economies—the First of the 7 Powers The quality of declining unit costs with increased business size is referred to as Scale Economies.
        1. Benefit: Reduced Cost
        1. Barrier: Prohibitive Costs of Share Gains
    1. Network Economies
      1. Network Economies: the value of the service to each customer is enhanced as new customers join the “network.” In such a situation, having the most customers is everything,
      1. Industries exhibiting Network Economies often exhibit these attributes: Winner take all.
    1. Counter-Positioning
      1. Counter-Positioning: A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.
      1. This chapter introduces Counter-Positioning, the next Power type. I developed this concept to depict a not well-understood competitive dynamic I often have observed both as a strategy advisor and an equity investor. I must confess it is my favorite form of Power, both because of my authorship and because it is so contrarian. As we will see, it is an avenue for defeating an incumbent who appears unassailable by conventional wisdom metrics of competitive strength.
      1. But nearly always, these featured the same outcome: the incumbent responds either not at all or too late. The incumbent’s failure to respond, more often than not, results from thoughtful calculation. They observe the upstart’s new model, and ask, “Am I better off staying the course, or adopting the new model?” Counter-Positioning applies to the subset of cases in which the expected damage to the existing business elicits a “no” answer from the incumbent. The Barrier, simply put, is collateral damage. In the Vanguard case, Fidelity looked at their highly attractive active management franchise and concluded that the new passive funds’ more modest returns would likely fail to offset the damage done by a migration from their flagship products.
      1.  
      1. What are the potential causes of such decrements? They could be numerous, but over several decades of client strategy work, I have noted two that seem common. The first involves two characteristics of challenges to incumbency:
        1. The challenger’s approach is novel and, at first, unproven. As a consequence, it is shrouded in uncertainty, especially to those looking in from the outside. The low signal-to-noise of the situation only heightens that uncertainty.
        1. The incumbent has a successful business model. This heritage is influential and deeply embedded, as suggested by Nelson and Winter’s notion of “routines,” and with it comes a certain view of how the world works. The CEO probably can’t help but view circumstances through this lens, at least in part. Together these two characteristics frequently lead incumbents to at first belittle the new approach, grossly underestimating its potential.
      1. As noted in the Introduction, Power must be considered relative to each competitor, actual and implicit. With Counter-Positioning, this is particularly important, because this type of Power only applies relative to the incumbent and says nothing regarding Power relative to other firms utilizing the new business model.
      1. Though this isn’t always the case, I have noticed a frequently repeated script for how an incumbent reacts to a CP challenge. I whimsically refer to it as the Five Stages of Counter-Positioning: Denial Ridicule Fear Anger Capitulation (frequently too late)
      1. Once market erosion becomes severe, a Counter-Positioned incumbent comes under tremendous pressure to do something; at the same time, they face great pressure to not upset the apple cart of the legacy business model. A frequent outcome of this duality? Let’s call it dabbling: the incumbent puts a toe in the water, somehow, but refuses to commit in a way that meaningfully answers the challenge. Counter-Positioning often underlies situations in which the following developments are jointly observed: For the challenger Rapid share gains Strong profitability (or at least the promise of it) For the incumbent Share loss Inability to counter the entrant’s moves Eventual management shake-up (s) Capitulation, often occurring too late
      1. Such reversals are rare in business, because contests typically take place over extended periods and with great thoughtfulness on all sides. Even a momentary lapse by an incumbent won’t present a sufficient opening. The only bet worthwhile for a challenger is one in which even if the incumbent plays its best game, it can be taken off the board. A competent Counter-Positioned challenger must take advantage of the strengths of the incumbent, as it is this strength which molds the Barrier, collateral damage.
    1. Switching Costs
      1. Switching Costs arise when a consumer values compatibility across multiple purchases from a specific firm over time. These can include repeat purchases of the same product or purchases of complementary goods.
      1. Benefit. A company that has embedded Switching Costs for its current customers can charge higher prices than competitors for equivalent products or services. This benefit only accrues to the Power holder in selling follow-on products to their current customers; they hold no Benefit with potential customers and there is no Benefit if there are no follow-on products.
      1. Barrier. To offer an equivalent product, competitors must compensate customers for Switching Costs. The firm that has previously roped in the customer, then, can set or adjust prices in a way that puts their potential rival at a cost disadvantage, rendering such a challenge distinctly unattractive. Thus, as with Scale Economies and Network Economies, the Barrier arises from the unattractive cost/benefit of share gains for the challenger.
      1. Switching Costs can be divided into three broad groups:
        1. Financial.
        1. Procedural.
        1. Relational.
      1. Switching Costs are a non-exclusive Power type: all players can enjoy their benefits.
    1. Branding
      1. Branding is an asset that communicates information and evokes positive emotions in the customer, leading to an increased willingness to pay for the product.
      1. Benefit. A business with Branding is able to charge a higher price for its offering due to one or both of these two reasons:
        1. Affective valence. The built-up associations with the brand elicit good feelings about the offering, distinct from the objective value of the good.
        1. Uncertainty reduction. A customer attains “peace of mind” knowing that the branded product will be as just as expected.
      1. Barrier. A strong brand can only be created over a lengthy period of reinforcing actions (hysteresis), which itself serves as the key Barrier.
      1. Brand Dilution. Firms require focus and diligence to guide Branding over time and ensure that the reputation created remains consistent in the valences it generates. Hence, the biggest pitfall lies in diminishing the brand by releasing products which deviate from, or damage, the brand image. Seeking higher “down market” volumes can reduce affective valence by damaging the aura of exclusivity, weakening positive associations with the product.
      1. Problem is, the qualities that make Branding a Power also make it hard to change; the considerable risk is dilution or brand destruction.
      1. Type of Good. Only certain types of goods have Branding potential as they must clear two conditions:
        1. Magnitude: the promise of eventually justifying a significant price premium. Business-to-business goods typically fail to exhibit meaningful affective valence price premia, since most purchasers are only concerned with objective deliverables. Consumer goods, in particular those associated with a sense of identity, tend to have the purchasing decision more driven by affective valence. Here’s the reason: in order to associate with an identity, there must be some way to signal the exclusion of alternative identities.
        1. For Branding Power derived from uncertainty reduction, the customer’s higher willingness to pay is driven by high perceived costs of uncertainty relative to the cost of the good. Such products tend to be those associated with bad tail events: safety, medicine, food, transport, etc. Branded medicine formulations, for example, are identical to those of generics, yet garner a significantly higher price. Duration: a long enough amount of time to achieve such magnitude. If the requisite duration is not present, the Benefit attained will fall prey to normal arbitraging behavior.
    1. Cornered Resource
      1. Cornered Resource definition: Preferential access at attractive terms to a coveted asset that can independently enhance value.
      1. Benefit. In the Pixar case, this resource produced an uncommonly appealing product—“superior deliverables”—driving demand with very attractive price/volume combinations in the form of huge box office returns. No doubt—this was material (a large m in the Fundamental Equation of Strategy). In other instances, however, the Cornered Resource can emerge in varied forms, offering uniquely different benefits. It might, for example, be preferential access to a valuable patent, such as that for a blockbuster drug; a required input, such as a cement producer’s ownership of a nearby limestone source, or a cost-saving production manufacturing approach, such as Bausch and Lomb’s spin casting technology for soft contact lenses.
      1. Barrier. The Barrier in Cornered Resource is unlike anything we have encountered before. You might wonder: “Why does Pixar retain the Brain Trust?” Any one of this group would be highly sought after by other animated film companies, and yet over this period, and no doubt into the future, they have stayed with Pixar. Even during the company’s rocky beginning, there was a loyalty that went beyond simple financial calculation.
      1. Our general term for this sort of barrier is “fiat”; it is not based on ongoing interaction but rather comes by decree, either general or personal.
      1. Another way to put this is that a Cornered Resource is a sufficient condition for potential for differential returns.
    1. Process Power
      1. I save it until last because it is rare. I will use the Toyota Motor Corporation as a case.
      1. Perhaps the best way to think of it is this: Process Power equals operational excellence, plus hysteresis. Having said that, such hysteresis occurs so rarely that I am in strong agreement with Professor Porter’s sentiments.
      1. Benefit. A company with Process Power is able to improve product attributes and/or lower costs as a result of process improvements embedded within the organization. For example, Toyota has maintained the quality increases and cost reductions of the TPS over a span of decades; these assets do not disappear as new workers are brought in and older workers retire.
      1. Barrier. The Barrier in Process Power is hysteresis: these process advances are difficult to replicate, and can only be achieved over a long time period of sustained evolutionary advance. This inherent speed limit in achieving the Benefit results from two factors:
        1. Complexity. Returning to our example: automobile production, combined with all the logistic chains which support it, entails enormous complexity. If process improvements touch many parts of these chains, as they did with Toyota, then achieving them quickly will prove challenging, if not impossible.
        1. Opacity. The development of TPS should tip us off to the long time constant inevitably faced by would-be imitators. The system was fashioned from the bottom up, over decades of trial and error. The fundamental tenets were never formally codified, and much of the organizational knowledge remained tacit, rather than explicit. It would not be an exaggeration to say that even Toyota did not have a full, top-down understanding of what they had created—it took fully fifteen years, for instance, before they were able to transfer TPS to their suppliers. GM’s experience with NUMMI also implies the tacit character of this knowledge: even when Toyota wanted to illuminate their work processes, they could not entirely do so.
  8. The Path to Power: “Me Too” Won’t Do
    1. Here’s the first important takeaway from our consideration of Dynamics: “getting there” (Dynamics) is completely different from “being there” (Statics). In other words, to assess which journeys are worth taking, you must first understand which destinations are desirable. Fortunately the 7 Powers does exactly that: it maps the only seven worthwhile destinations.
    1. The first cause of every Power type is invention, be it the invention of a product, process, business model or brand. The adage “‘Me too’ won’t do” guides the creation of Power.
    1. Planning rarely creates Power. It may meaningfully boost Power once you have established it, but if Power does not yet exist, you can’t rely on planning. Instead you must create something new that produces substantial economic gain in the value chain. Not surprisingly, we have worked our way back to Schumpeter.
    1. Power arrives only on the heels of invention. If you want your business to create value, then action and creativity must come foremost. But success requires more than Power alone; it needs scale. Recall the Fundamental Equation of Strategy: Value = [Market Size] * [Power]
    1. Invention has a powerful one-two value punch: it both opens the door for Power and also propels market size.
  9. Other
    1. By far the most important “value moment” for a business occurs when the bars of uncertainty are radically diminished with regards to the Fundamental Equation of Strategy, market size and Power. At that moment, the cash flow future makes a step-change in transparency.
    1. A primary driver of opacity is high flux: if a business is in a fast-changing environment, then the information facing investment pros tends to have much higher uncertainty bars regarding future free cash flow. But high flux also attends the sort of conditions which orbit the “value moment.” So if the 7 Powers can lead to alpha by identifying Power in these situations ex ante, it also promises to be useful in doing the same for those inventors on the ground trying to find a path to satisfy The Mantra.
    1. The 3 S’s. Power, the potential to realize persistent differential returns, is the key to value creation. Power is created if a business attribute is simultaneously:
      1. Superior—improves free cash flow
      1. Significant—the cash flow improvement must be material
      1. Sustainable—the improvement must be largely immune to competitive arbitrage

What I got out of it Helmer provides a simple, but not simplistic, strategy framework in which to analyze, build, invest in companies. SSCCBNP – scale economies, switching costs, cornered resource, counter positioning, branding, network effects, process. The book is well worth reading and re-reading. The real world examples he gives relating to his framework are helpful to better understand it all.

The Effective Executive: The Definitive Guide to Getting the Right Things Done by Peter Drucker

Summary

  1. Most management books deal with how to manage others but this one deals with how to manage oneself; how to lead by example. Effectiveness is not natural and has to be learned and practiced deliberately. Being effective means doing the right things well

Key Takeaways

  1. Jim Collins did the foreword to this edition and highlights his 10 Key Lessons
    1. First, manage thyself 
    2. Do what you’re made for what you can be world class at. To work on exclusively what you’re bad at is foolish and irresponsible but you must address weaknesses which stand in the way of maximizing your strengths and achieving your full potential 
    3. Work how you work best and let others do the same
      1. You must focus on people’s strengths and build around that and not on their weaknesses. Find people who are better than you and who can deliver in specific areas bring them into your fold
    4. Count your time and make it count. This requires the discipline to schedule your time into blocks. The most effective people do one big thing at a time and don’t let distractions seep in. Create unbroken ‘think time’ blocks during your most lucid time of day and do them with regularity. Create chunks for people and random tasks which must get done. Attend only meetings that matter 
    5. Prepare better meetings by having clear reasons for the meeting and having disciplined follow ups. 
    6. Don’t make 100 decisions when one will do. Inactivity can be very intelligent behavior
    7. Determine what your distinctive impact can be in an organization – the one decision, behavior, or action that might not have happened if you were not there
    8. Stop what you would not start. Most people are too busy to work on truly important things so you must have a stop doing list and refine and rethink your daily tasks and objectives
    9. Run lean. An organization is like a biological organism in that the internal mass grows faster than what shows externally – the volume increases as a cube of the linear dimension but the surface area only as the square. You must fight and hold back internal growth which doesn’t help drive profits and goals.
    10. Be useful. Over success. Over wealth. Over fame. Be useful. 
  2. The best executives have personalities all over the map but Drucker found 9 shared traits
    1. They ask what needs to be done.
      1. You must prioritize this list every couple years. Once you tackle the biggest priority, you must redo the process. Can only focus on a maximum of two at any given time
    2. They ask what is right for the enterprise
    3. They make an action plan.
      1. This must include the name of the person who is accountable, the deadline, who this effects directly and must be made aware, who should be told even if they’re not effected 
    4. They take responsibility for the decisions
    5. They take responsibility for communicating the decisions
    6. They are focused on opportunities rather than problems
    7. They run effective and productive meetings
      1. End once the purpose has been accomplished. Announce the purpose of the meeting at the beginning. Sum up what happened, action items, who is accountable, deadlines, send to everyone involved
    8. They thought and said “we” rather than “I”
    9. Listen first, speak last
  3. The shift from manual labor and work to knowledge work is why the demands of executives today is so different than before
  4. Effectiveness is so important and must be learned. Especially in today’s knowledge-based economy. Knowledge work is not graded on costs or quantity but on results. Managers in the knowledge based field are those whose decisions have an outsized impact
  5. Hindrances towards effectiveness include being part of the system itself and not having enough perspective, not being willing to give up a lifetime of habits and work, not letting others step up, and not delegating enough.
  6. Events should not drive what an executive does. Rather, key criteria which help inform results and contributions should be his main focus. The truly important things are not the trends – they are what cause the trends and is why you should never focus on the events but on what lies behind them
  7. Effective executives have these skilsl
    1. They know where their time goes 
      1. Effective executives start with their time not with tasks because they know time is a limiting factor
      2. They record their time, they manage their time, and then they consolidate their time into long chunks.
      3. What can you do away with totally, what can you delegate?
      4. Don’t waste others’ time
      5. Reduce recurrent and predictable decisions
      6. Avoid overstaffing
      7. Reduce poor organization such as too many meetings
      8. Reduce poor information (wrong form or just wrong)
      9. Consolidated time is the key. Most executives don’t have more than 25% of their time at their disposal but if they come in chunks, it’s usually enough. Even if it was 75% but broken up, you’d never get anything done. 
      10. It is hard and rare to over-prune
    2. They focus on results rather than effort
      1. The focus on contribution over effort is the key to this whole book. This is what drives how you spend your time and the decisions you make. As a leader you must make a focus on contribution rather than effort the norm. This helps with communication, getting people to go all-in
    3. They understand what is expected of them and how they can get there
    4. They focus on and build on strengths not weaknesses – both theirs and others’
    5. They focus exclusively on areas where their focus will have outsized returns.
    6. They know that they have to do the most difficult and important things first and that there’s no time for the second things
    7. They make effective decisions and know that a few, big important decisions are the way to go. Many, rushed decisions lead to mistakes
  8. Although there are very many personalities, the one thing they had in common when making decisions was that they were slow and deliberate in personnel decisions
  9. Well managed business are boring and quiet. Crises have been anticipated and routinized. 
  10. Try to contribute in 3 areas: direct results, adding to culture and values, building the next generation 
  11. You must be able to see through the eyes of others and understand how they will use your output. This will help you use common language, put information in a usable form, etc. A generalist is simply a specialist who can translate their knowledge to a universal audience 
  12. You must always think and put tasks first and not personnel or else you will get politicking clash of personalities
  13. Jobs must be big and demanding for executives to see how they live up to it. You must judge the people you are considering by their strengths and what they would need to reasonably fulfill this job and you must have clear expectations and definitions of success
  14. With every strength comes a weakness so you must focus on and understand how does a person’s strength translate to a weakness 
  15. Staff for opportunities and not for problems
  16. You should remove incompetent men. Not only because of their lack of results, but because if they stayed on, it would hurt the rest of the culture. This is not a slight on the man but a slight on the leader who put him in the position to begin with
  17. George Marshall focused on strengths but also on weaknesses. He put Eisenhower in a position to learn about strategy and, even though he was never great, he was able to appreciate its importance later on
  18. Managing upwards is as important as managing downwards. You must make the strengths of your boss productive as their success and promotions will help you as well. Knowing yourself, and your strengths and weaknesses, and how to make your strengths productive is equally as important.  This is an attitude as much as a skill 
  19. The key skill is concentration on the first and most important things first and only doing one thing at a time. Effective executives also make sure that the organization as a whole focuses on one thing at a time. They review the past and anything which isn’t an emphatic yes, is curtailed or done away with completely, leaving time to focus on the most important things. Organizations need to stay lean and muscular just as biological organisms do
  20. Fresh eyes which give fresh perspective is vital 
  21. Setting priorities and posteriorities (a list of what not to do) is more about courage than knowing what to focus on. You must be future-focused – rather than looking at the past, you must look at opportunities rather than problems, you must be willing to set your own agenda and make your own decisions rather than relying on others, and aim high for things which will truly make a difference rather than playing it safe
  22. Effective executives ultimately make effective decisions. They take their time, know what’s truly important, focus on a few things at any one time, and know that quick decisions are sloppy and not impressive
  23. Effective decisions have these common traits
    1. Is this a generic or a specific situation and problem?
      1. As generic problems can have rules and principles to deal with where a specific problem must be dealt with individually.
      2. Executive executives don’t make many decisions because they don’t have to they figure out which problems are generic and through their rules and principles are able to adapt to situations quickly and effectively 
    2. They asked themselves if they would be able to live with the decision for a long time. If not, they keep on working on the solution
    3. They asked them selves, “what are the specifications of the problem they are trying to solve, what are the objectives, and how will they know if their decision has been a good one?” These are the boundary conditions – the minimum results necessary that must be achieved
    4. They ask what is right rather than what is acceptable
    5. They ask and figure out how to turn the solution and question into action. Asking who has to know is as important as understanding the capacity of the people involved in acting out the decision. You must build the execution of the decision into the decision itself which is very difficult
    6. There has to be a feedback loop. This has to be built into the decision to continuously test the assumptions and the actions as they face reality. You cannot get too removed from the process. You must touch the medium and see if yourself how the actions are being carried out and the reactions to it
  24. What is the criteria necessary to determine success and how do you measure that? The effective executive assumes that the traditional measure is wrong otherwise they probably wouldn’t be in this predicament. 
  25. The best executives consider alternatives and this causes dissension and disagreements which is very healthy and can lead to the better decisions and outcomes
  26. You must begin with trying to understand and only then trying to figure out what is right and what is wrong. Like a first-year lawyer is assigned to argue the other side’s case before they’re allowed to think about their own, we must truly understand all sides before making a decision
  27. The last question an effective decision maker asks is, “is the decision even necessary?” Better to not act at all if not needed. Act or don’t act. Don’t hedge or go halfway. Only act if your decisions and your actions are needed and important – if things will work out without your involvement, leave them be
  28. Above all, what is needed is courage. Courage to focus on what you think is right and ignore what you don’t believe will make a difference
  29. Don’t just say this was a great book figure out how it will change how you act and behave. That is the sign of a great book

What I got out of it

  1. Loved this book. So much to gain from reading and re-reading – focus on where your time goes, manage yourself first, know how you work best, focus on contributions rather than effort, know what your role is and how you can most impact the organization, few and deliberate decisions, have the courage to not follow the crowd, encourage dissension and sharing of opinions…

The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger by Marc Levinson

Summary

  1. Marc Levinson discusses the history of the container, the main characters behind it, and the ramifications its introduction and adoption have had on global trade. The basic concept of the container was that cargo could move seamlessly among trains, trucks, and ships.

Key Takeaways

  1. The Box, I hope, has contributed to public understanding that inadequate port, road, and rail infrastructure can cause economic harm by raising the cost of moving freight.
  2. Malcom McLean’s real contribution to the development of containerization, in my view, had to do not with a metal box or a ship, but with a managerial insight. McLean understood that transport companies’ true business was moving freight rather than operating ships or trains. That understanding helped his version of containerization succeed where so many others had failed.
  3. What is it about the container that is so important? Surely not the thing itself. A soulless aluminum or steel box held together with welds and rivets, with a wooden floor and two enormous doors at one end: the standard container has all the romance of a tin can. The value of this utilitarian object lies not in what it is, but in how it is used. The container is at the core of a highly automated system for moving goods from anywhere, to anywhere, with a minimum of cost and complication on the way. The container made shipping cheap, and by doing so changed the shape of the world economy. Low shipping costs helped make capital even more mobile, increasing the bargaining power of employers against their far less mobile workers. In this highly integrated world economy, the pay of workers in Shenzhen sets limits on wages in South Carolina, and when the French government ordered a shorter workweek with no cut in pay, it discovered that nearly frictionless, nearly costless shipping made it easy for manufacturers to avoid the higher cost by moving abroad.
  4. As ship lines built huge vessels specially designed to handle containers, ocean freight rates plummeted. And as container shipping became intermodal, with a seamless shifting of containers among ships and trucks and trains, goods could move in a never-ending stream from Asian factories directly to the stockrooms of retail stores in North America or Europe, making the overall cost of transporting goods little more than a footnote in a company’s cost analysis. Transport efficiencies, though, hardly begin to capture the economic impact of containerization. The container not only lowered freight bills, it saved time. Quicker handling and less time in storage translated to faster transit from manufacturer to customer, reducing the cost of financing inventories sitting unproductively on railway sidings or in pierside warehouses awaiting a ship. The container, combined with the computer, made it practical for companies like Toyota and Honda to develop just-in-time manufacturing, in which a supplier makes the goods its customer wants only as the customer needs them and then ships them, in containers, to arrive at a specified time. Such precision, unimaginable before the container, has led to massive reductions in manufacturers’ inventories and correspondingly huge cost savings. Retailers have applied those same lessons, using careful logistics management to squeeze out billions of dollars of costs.
  5. When transport costs are high, manufacturers’ main concern is to locate near their customers, even if this requires undesirably small plants or high operating costs. As transportation costs decline relative to other costs, manufacturers can relocate first domestically, and then internationally, to reduce other costs, which come to loom larger. Globalization, the diffusion of economic activity without regard for national boundaries, is the logical end point of this process. As transport costs fall to extremely low levels, producers move from high-wage to low-wage countries, eventually causing wage levels in all countries to converge. These geographic shifts can occur quickly and suddenly, leaving long-standing industrial infrastructure underutilized or abandoned as economic activity moves on.
  6. The solution to the high cost of freight handling was obvious: instead of loading, unloading, shifting, and reloading thousands of loose items, why not put the freight into big boxes and just move the boxes?
  7. Interest in such a remedy was widespread. Shippers wanted cheaper transport, less pilferage, less damage, and lower insurance rates. Shipowners wanted to build bigger vessels, but only if they could spend more time at sea, earning revenue, and less time in port. Truckers wanted to be able to deliver to and pick up from the docks without hour upon hour of waiting. Business interests in port cities were praying for almost anything that would boost traffic through their harbors. Yet despite all the demands for change, and despite much experimentation, most of the industry’s efforts to improve productivity centered on such timeworn ideas as making drafts heavier so that longshoremen would have to work harder. No one had found a better way to ease the gridlock on the docks. The solution came from an outsider who had no experience with ships.
  8. It was easy enough to conclude that containers would change the business, but it was not obvious that they would revolutionize it. Containers, said Jerome L. Goldman, a leading naval architect, were “an expedient” that would do little to reduce costs. Many experts considered the container a niche technology, useful along the coast and on routes to U.S. island possessions, but impractical for international trade. The risk of placing multimillion-dollar bets on what might prove to be the wrong technology was high.
  9. These two unrelated developments—the rise of New York, the neglect of Tampa and Mobile—revealed the economics that would affect seaports as container shipping grew. For ports, capturing container traffic was going to be expensive, requiring investments out of all proportion to what had come before. For ship lines, the days when vessels meandered along the coast, calling at every port in search of cargo, would soon be over. Every stop would mean tying up an expensive containership that could generate revenue and profit only when it was on the move. Only ports that could be relied on for large amounts of freight were worth a visit, and all others would be served by truck or barge. By the late 1950s, the lesson for public officials already was clear. As container shipping expanded, maritime traffic would be drawn to a small number of very large ports. Many established centers of maritime commerce would no longer be needed, and ports would have to compete to be among the survivors.
  10. Behind this frenzied expansion of long-neglected ports was the emergence of an entirely new line of thought about economic growth. Manufacturing was almost universally regarded as the bedrock of a healthy local economy in the 1960s, and much of the value of a port, aside from jobs on the docks, was that transportation-conscious manufacturers would locate nearby. As early as 1966, though, public officials in Seattle were sensing that their remote city, with little industry, might be able to develop a new economy based on distribution rather than on factories. The lack of population close at hand would be no obstacle; Seattle could become not merely a local port for western Washington but the center of a distribution network stretching from Asia to the U.S. Midwest. “Commodity distribution has grown out of the dependent sector to link production and consumption,” port planner Ting-Li Cho wrote presciently. “It has become an independent sector that, in return, determines the economy of production and consumption.
  11. The container contributed to a fundamental shift in the geography of British ports. In the precontainer era, London and Liverpool had dominated Britain’s international trade, their docks and warehouses filled with goods headed to or from factories located nearby. The two ports each loaded one-quarter of Britain’s exports, with no other port handling more than 5 percent. The container stripped Liverpool of its competitive advantages. Its costs per ton of cargo were too high, and it was on the wrong side of an island that was reorienting its trade toward continental Europe.
  12. “Unless a container terminal is available in Hong Kong to serve these ships the trading position of the Colony will be affected detrimentally.” And no government anywhere was more aggressive in preparing for the container age than Singapore’s. Immediately upon independence, the new government launched a crash effort to build the economy by drawing foreign investment, especially in manufacturing. Amid a general government crackdown on dissent, the Port of Singapore Authority was able to slash the size of longshore gangs from twenty-seven to twenty-three, institute a second shift, and boost by half the amount of cargo handled per man-hour. It put forth a plan in 1965 to build four berths for conventional ships at a site known as the East Lagoon, which had a breakwater but no major docks. Within months, the plan was scrapped. The containerships that were about to cross the Atlantic had captured the interest of port officials. They announced in 1966 that instead of conventional berths, they would build a port for containers. Singapore’s strategy was to use containers to become the commercial hub of Southeast Asia. With a $15 million World Bank loan covering nearly half the cost, the port authority began work on a terminal at which long-distance vessels from Japan, North America, and Europe could hand off containers to smaller ships serving regional ports. Singapore’s containerport grew beyond all expectations. In 1971, before the new terminal opened, the Port of Singapore Authority forecast 190,000 containers after a decade in operation. Instead, it handled more than a million boxes in 1982 and was the world’s sixth-largest containerport. By 1986, Singapore had more container traffic than all the ports of France combined. In 1996, more containers passed through Singapore than through Japan. In 2005 Singapore became the world’s largest port for general cargo, pulling ahead of Hong Kong, and some 5,000 international companies were using the island-state as a warehousing and distribution hub. By 2014, the equivalent of 17 million truck-sized containers moved across Singapore’s docks and the government-owned port management company had itself become a multinational enterprise, operating container terminals around the world and turning Singapore’s logistical know-how into a major export—testimony to the power of transportation to reshape the flow of trade.
  13. The launch of so many vessels resulted in a quantum jump in capacity. The basic economics of containerization dictated as much. Once a ship line had made the decision to introduce containerships on a particular route, other carriers in the trade normally followed swiftly lest they be left behind. The capital-intensive nature of container shipping put a premium on size; quite unlike breakbulk shipping, in which an owner of “tramp” ships could eke out a profit picking up freight wherever it could be found, a container line needed enough ships, containers, and chassis to run a high-frequency service between major ports on a regular schedule. When a ship line decided to enter a trade, it had to do so in a large way—which meant that on every major route, several competitors were entering with several vessels apiece. Capacity on the largest international routes increased fourteen times over between 1968 and 1974.
  14. United States Lines would achieve what it took to succeed in container shipping: scale. Scale was the holy grail of the maritime industry by the late 1970s. Bigger ships lowered the cost of carrying each container. Bigger ports with bigger cranes lowered the cost of handling each ship. Bigger containers—the 20-foot box, shippers’ favorite in the early 1970s, was yielding to the 40-footer—cut down on crane movements and reduced the time needed to turn a vessel around in port, making more efficient use of capital. A virtuous circle had developed: lower costs per container permitted lower rates, which drew more freight, which supported yet more investments in order to lower unit costs even more. If ever there was a business in which economies of scale mattered, container shipping was it.
  15. The equation was simple: the bigger the port, the bigger the vessels it could handle and the faster it could empty them, reload them, and send them back out to sea. Bigger ports were likely to have deeper berths, more and faster cranes, better technology to keep track of all the boxes, and better road and rail services to move freight in and out. The more boxes a port was equipped to handle, the lower its cost per box was likely to be. As one study concluded bluntly, “Size matters.”
  16. The true importance of the revolution in freight transportation would be found not in its effect on ship lines and dockworkers, but later, as the impact of containerization resonated among the hundreds of thousands of factories and wholesalers and commodity traders and government agencies with goods to ship. For most shippers, except perhaps government agencies, the cost of transporting goods was decisive in determining what products they would make, where they would manufacture and sell them, and whether importing or exporting was worthwhile. The container would reshape the world economy only when it changed shippers’ costs in a significant way.
  17. Many nonfreight costs undoubtedly fell with the growth of container shipping. Packing full containers at the factory eliminated the need for custom-made wooden crates to protect merchandise from theft or damage. The container itself served as a mobile warehouse, so the traditional costs of storage in transit warehouses fell away. Cargo theft dropped sharply, and claims of damage to goods in transit fell by up to 95 percent; after insurers were persuaded that container shipping in fact had fewer property losses, premiums fell by up to 30 percent. Faster ships and reductions in the time needed to load and unload vessels at ports resulted in lower costs for inventory in shipment. As Malcom McLean had understood back in 1955, it is the sum of these costs, not just the published rate of a ship line or railroad, that matters to shippers.
  18. Until then, vertical integration was the norm in manufacturing: a company would obtain raw materials, sometimes from its own mines or oil wells; move them to its factories, sometimes with its own trucks or ships or railroad; and put them through a series of processes to turn them into finished products. As freight costs plummeted starting in the late 1970s and as the rapid exchange of cargo from one transportation carrier to another became routine, manufacturers discovered that they no longer needed to do everything themselves. They could contract with other companies for raw materials and components, locking in supplies, and then sign transportation contracts to assure that their inputs would arrive when needed. Integrated production yielded to disintegrated production. Each supplier, specializing in a narrow range of products, could take advantage of the latest technological developments in its industry and gain economies of scale in its particular product lines. Low transport costs helped make it economically sensible for a factory in China to produce Barbie dolls with Japanese hair, Taiwanese plastics, and American colorants, and ship them off to eager girls all over the world. These possibilities
  19. The improvement in logistics shows up statistically in reduced inventory levels. Inventories are a cost: whoever owns them has had to pay for them but has yet to receive money from selling them. Better, more reliable transport has permitted companies to obtain goods closer to the time they need them, instead of weeks or months in advance, tying up less money in goods sitting uselessly on warehouse shelves. In the United States, inventories began falling in the mid-1980s, as the concepts of justin-time manufacturing took root. Manufacturers such as Dell and retailers such as Wal-Mart Stores have taken the concept to extremes, designing their entire business strategies around moving goods from factory floor to customer with minimal time in between. In 2014, inventories in the United States were perhaps $1.2 trillion lower than they would have been had they stayed at the level of the 1980s, relative to sales. Assume that the money needed to finance those inventories would have been borrowed at, say, 8 percent, and inventory reductions saved U.S. businesses roughly $100 billion per year.
  20. Container shipping thrives on volume: the more containers moving through a port or traveling on a ship or train, the lower the cost per box. Places with lower demand or poorer infrastructure will face higher transport costs and will be far less attractive manufacturing sites for the global market. In the 1970s and 1980s, when many U.S. industrial centers were dying, Los Angeles thrived as a factory location because it was home to the nation’s busiest containerport, and Los Angeles thrived as a port because it was well located to handle import volume from Asia, not just for California, but for the entire United States. The Pacific Rim became the world’s workshop for consumer goods, in good part, because large ports for containers gave it some of the world’s lowest shipping costs:
  21. The container has enabled logistics centers such as these to prosper by adding value to global supply chains, capturing jobs that were once performed elsewhere, or not at all.
  22. Malcom McLean’s genius was acknowledged unanimously: almost everyone save the dockworkers’ unions thought that putting freight into containers was a brilliant concept. The idea that the container would cause a revolution in shipping, though, seemed more than a little far-fetched. At best, the container was expected to help ships recover a tiny share of the domestic freight business and to benefit Hawaii and Puerto Rico. Truckers ignored it. Railroads shunned it. Even as ship lines talked up the container, most of them treated it as an adjunct to the business they knew, just another one of the many shapes and sizes of cargo that they were accustomed to storing in their holds. Labor was no more prescient.
  23. Whether containerships and containerports have reached their maximum efficient size, or even larger and costlier ships and ports could give rise to yet more economies of scale, making it still cheaper and easier to move goods around the globe, is a question of considerable consequence for the world economy.

What I got out of it

  1. Amazing how big of an impact the simple container had – lowering transportation costs by orders of magnitude which reshaped the global economy, leading to globalization, and cheaper and better products for everyone due to specialization.

High Growth Handbook: Scaling Startups from 10 to 10,000 People by Elad Gil

Summary

  1. Elad discusses some key topics that entrepreneurs face from initial stages of a company to exit. He gets great insights from some of the best known entrepreneurs which is helpful to better understand how to navigate complex situations that naturally arise through this process

Key Takeaways

  1. Most startups, once they hit product market fit, shift more towards distribution focus rather than product focus. Distribution has proven to beat out product time and again 
  2. Coming out with a second hit product is often harder than the first but you need to keep iterating or else you’ll get left behind
  3. Pricing power is a key aspect of a moat. If you can’t raise prices, you’re in trouble. This is enormous leverage as it drops right to the bottom line and can fund new efforts, hiring, research, and more. Higher prices = faster growth
  4. Role of the CEO
    1. The CEO sets the vision of the company and communicates that to all stakeholders while hiring, growing, and fostering the culture.
    2. They are chief psychologist and need to be responsible for capital allocation.
    3. You must manage yourself, your reports, and your Board.
    4. You must learn to delegate more, audit your calendar, say “no” more often and make time for things you enjoy.
    5. Learn from an experienced executive, trial by fire, have dinner often with CEOs at other companies, get an executive coach.
    6. You must be able to get perspective and keep the big picture in view – this means focusing on the right things.
    7. Hold regular 1-on-1s, weekly staff meetings 
    8. Should write a “How to Work with Me” document which will help others quickly understand how you like to work 
      1. Great example of how Johnson of Stripe wrote her document
    9. Can’t have too many things be mandatory so must choose carefully 
    10. As a leader, you have to state the obvious and you have to do it often. Make sure people are on the same page. Create documents which outline your overall vision and strategy and shorter term documents for how you’ll get there. You must codify a set of behaviors and principles and adhere to them. You need planning procedures earlier than you think and they must start at the top and flow all the way down 
    11. There are five main jobs for the CEO
      1. Chief product officer
      2. Primary face of the company
      3. Steward for senior executives
      4. Chief strategist
      5. Cultural leader
        1. You do not want to preserve culture. You want to steer and guide it overtime
  5. Role of the Board
    1. Choosing your Board, particularly your independent director, is of utmost important.
    2. The book has some great examples of how you should approach, what you want at varying stages, etc.
    3. The Board’s role is advisory and they should come in asking, “how can I help?” and pose questions rather than demand action.
    4. It should be a collaborative open relationship rather than a hierarchical one.  
    5. One of your mantra’s has to be “do no harm”
    6. Board meetings exist to help the company and ensure proper corporate governance for all stakeholders.
    7. Board meetings should start with
      1. Board matters which should be a quick, high-level overview of key metrics which impact the strategy and the high-level vision
      2. Follow-up items from last Board’s meeting
      3. End with strategic initiatives which should take up most of the time.
      4. Send out the slides before the meeting so everyone has a chance to review them and think about everything
    8. Keep your Board to five or six people if possible as it starts getting political and unwieldy much beyond that.
    9. You have to set expectations early that there won’t be fancy PowerPoint decks just a sheet of paper with the key metrics and strategic points you want to talk about
    10. As a CEO and founder you have to manage the board
  6. Hiring and Training
    1. When hiring people, you should ask the same questions for people interviewing for the same roles so that you can calibrate. The faster you can interview and offer a job the higher your candidate conversion will be
    2. At the beginning, you should hire through your network and this will take a lot of time and effort. As you grow, you can use outside recruiters or bring someone in house to manage it all
    3. When someone is brought on board, send out a welcome email, have a care package waiting for them (such as a hoodie, a onesie for their baby, their laptop etc.)
    4. Assign them a mentor or a buddy for the first couple months and make sure they feel true ownership over whatever they were hired to do
  7. How to hire Executives, COO
    1. Your job as the CEO is not to know everything but to make sure all problems are solved. Hire people that complement you and can do certain things better than you ever could. These high level issues are perfect for a COO. 
    2. Great executives are thinking about and preparing for issues that will come up in 6-12 months. They’re not fighting today’s fires but figuring out how to solve others before they even start
    3. You must hire someone with the right experience. If your company is too large or small for a certain hire, the executive will be bored or over their heads
    4. There is no perfect Org structure and if you’re growing very quickly, you will literally have a different company and 6 to 12 months. So, you should optimize for the current needs rather than trying to optimize for where you think the company might be in a couple years.
    5. Reorgs, while difficult,  will happen both at the company level and at the functional level but they must be handled delicately, thoughtfully, and quickly 
    6. Rapidly growing companies should look to have a position that “fills the gaps.” Someone who reports directly to the founder or CEO and can help cover bases and fix problems until a bigger team and an executive is hired and built out. Fast growing companies are chaotic on the inside and that’s why a position like this is so powerful. Finding a good person, having them understand the problems, building out their team, and scaling takes time so you really need to be looking out for at least a year and hiring someone to fix the problems you think you’ll run up against.
    7. Early on make sure you have the proper scaffolding for your organization so that it doesn’t break when you scale. it doesn’t need to be large or require tons of people but it should be thoughtfully built out
    8. You can compromise on skill or experience when hiring quickly but never compromise on culture – no jerks. Say your culture and values so often that you get sick of it. Reward people on performance and culture to align incentives
  8. Other
    1. Product managers are the CEOs of a certain product lines and are responsible for addressing customer needs, desires, wants, and creating products to match that
    2. When fundraising, don’t over-optimize for a valuation. Raise money at a fair price and that way you can grow into it organically. In addition, later fundraising could be easier because metrics are more realistic and manageable to meet
    3. Right of First Refusal for secondary share offerings and/or a mandate in your charter discussing this could be helpful if you grow and employees want to diversify and cash out

What I got out of it

  1. A supremely helpful and insightful book for anyone thinking of starting a company, in the midst of starting one, or far along the path. Will come back to and reference often

Great reference website for more resources

Bad Blood: Secrets and Lies in a Silicon Valley Startup by John Carreyrou

Summary

  1. The story and scandal of Theranos, the once multi-billion dollar startup which promised to revolutionize the medical industry by making blood tests quick, affordable, and available everywhere. Holmes promised the world but is now in the midst of lawsuits claiming fraud and deceit 

Key Takeaways

  1. Holmes was evangelical in her mission to revolutionize blood testing but her knowledge about science and medicine was weak. She was able to convince investors, employees, customers, and partners that Theranos would eventually have the capabilities needed to revolutionize the blood testing industry do so but her ambition got the better of her. She ended up having to lie and deceive everyone involved to keep the company going. Elizabeth was wildly ambitious since she was a child and idolized Steve Jobs and his impact on the world. 
  2. People are more lemming-like than they would like to admit. Dozens of very intelligent people were mesmerized by Holmes’ charisma, ambition to change the world, and intellect. They wanted her to succeed so badly and help the world (and get rich too) that they ignored blatant signs and warnings that things were off. Be careful of what your biases are and what you are too emotionally attached to. They can blind you and make you irrational if they’re not kept in check 
  3. Few people truly do the difficult work necessary to understand things. In this case, people saw Theranos’ Board of Directors such as General Mattis, Henry Kissinger, famous lawyer David Boies, George Schultz, and others and assumed that their involvement was a stamp of legitimacy. At its height, Theranos reached a valuation of over $9 billion which made Holmes’ stake worth nearly $5 billion
  4. Amazing to see how outright lies, deceptive marketing, and hiding of information still didn’t keep people from investing and going all in on Theranos. It was clear to many both inside and outside the company that their claims and projections were wildly overblown but when greed, envy, FOMO, and a desire to change the world overlap, you get extreme behavior (lollapalooza effects)
  5. Tyler Schultz, grandson of Board Member George Schultz, started at Theranos full time after graduating from Stanford. Not long after starting, he realized that not all was right. He asked questions and wanted to quit but his grandfather urged him to stay a little longer. He did eventually quit and was a key resource in exposing the details. His family spent over $400k just in legal fees but his courage allowed for the word to spread and potentially saved many lives since Theranos was in the process of rolling out their mini-labs to partners such as Walgreens and Safe Way.
  6. She may not have set out to defraud investors or injure patients, but her blind desire to be the next Steve Jobs and to revolutionize the world made her susceptible to cut corners, lie, manipulate others, and do whatever it took to try to make Theranos successful. 

What I got out of it

  1. Extremes in outcome, good or bad, often instruct best (Munger). This is definitely the case here. Holmes and Sunny Balwani ran an oppressive, secretive, bullying, fear-based, and dictatorial company which fired or marginalized anyone who wasn’t blindly committed. They promised the world but ended with lawsuits Beware of what your biases are and what you are very emotionally attached to. They lead to blindspots which can cause mistakes 

Founders at Work: Stories of Startups’ Early Days by Jessica Livingston

Summary

  1. Jessica Livingston interviews some of the biggest technology entrepreneurs about their experience in the early days of their companies. You’ll get firsthand knowledge about the whole process and be able to pick up patterns across time (it’s always more work than you think it’ll be, almost none of these entrepreneurs foresaw how big their companies would eventually become). “Why the disconnect [between startups trying to seem like formal companies but actually operating far faster, often better]? I think there’s a general principle at work here: the less energy people expend on performance, the more they expend on appearances to compensate. More often than not the energy they expend on seeming impressive makes their actual performance worse. A few years ago I read an article in which a car magazine modified the “sports” model of some production car to get the fastest possible standing quarter mile. You know how they did it? They cut off all the crap the manufacturer had bolted onto the car to make it look fast. Business is broken the same way that car was. The effort that goes into looking productive is not merely wasted, but actually makes organizations less productive. Suits, for example. Suits do not help people to think better. I bet most executives at big companies do their best thinking when they wake up on Sunday morning and go downstairs in their bathrobe to make a cup of coffee. That’s when you have ideas. Just imagine what a company would be like if people could think that well at work. People do in startups, at least some of the time. (Half the time you’re in a panic because your servers are on fire, but the other half you’re thinking as deeply as most people only get to sitting alone on a Sunday morning.) This book can help fix that problem, by showing everyone what, till now, only a handful people got to see: what happens in the first year of a startup. This is what real productivity looks like. This is the Formula 1 racecar. It looks weird, but it goes fast.”

Key Takeaways

  1. Apparently sprinters reach their highest speed right out of the blocks, and spend the rest of the race slowing down. The winners slow down the least. It’s that way with most startups too. The earliest phase is usually the most productive. That’s when they have the really big ideas. Imagine what Apple was like when 100% of its employees were either Steve Jobs or Steve Wozniak.
  2. In this book, you’ll hear the founders’ stories in their own words. Here, I want to share some of the patterns I noticed. When you’re interviewing a series of famous startup founders, you can’t help trying to see if there is some special quality they all have in common that made them succeed. What surprised me most was how unsure the founders seemed to be that they were actually onto something big. Some of these companies got started almost by accident. The world thinks of startup founders as having some kind of superhuman confidence, but a lot of them were uncertain at first about starting a company. What they weren’t uncertain about was making something good—or trying to fix something broken. They all were determined to build things that worked. In fact, I’d say determination is the single most important quality in a startup founder. If the founders I spoke with were superhuman in any way, it was in their perseverance. That came up over and over in the interviews. Perseverance is important because, in a startup, nothing goes according to plan. Founders live day to day with a sense of uncertainty, isolation, and sometimes lack of progress. Plus, startups, by their nature, are doing new things—and when you do new things, people often reject you. That was the second most surprising thing I learned from these interviews: how often the founders were rejected early on. By investors, journalists, established companies—they got the Heisman from everyone. People like the idea of innovation in the abstract, but when you present them with any specific innovation, they tend to reject it because it doesn’t fit with what they already know. Innovations seem inevitable in retrospect, but at the time it’s an uphill battle. It’s curious to think that the technology we take for granted now, like web-based email, was once dismissed as unpromising. As Howard Aiken said, “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.” In addition to perseverance, founders need to be adaptable. Not only because it takes a certain level of mental flexibility to understand what users want, but because the plan will probably change. People think startups grow out of some brilliant initial idea like a plant from a seed. But almost all the founders I interviewed changed their ideas as they developed them. PayPal started out writing encryption software, Excite started as a database search company, and Flickr grew out of an online game. Starting a startup is a process of trial and error. What guided the founders through this process was their empathy for the users. They never lost sight of making things that people would want.

Summary

  1. Very rich read which provides great insights into how these entrepreneurs think, how they reacted and adapted to situations, and how persistent and creative you have to be to survive. Highly recommend for anyone thinking of starting their own business or in the midst of it now. Many parallels and patterns to learn from

Subscribed: Why the Subscription Model Will Be Your Company’s Future – and What to Do About It by Tien Tzuo

Summary

  1. Tien Tzuo, employee number 11 at Salesforce and co-founder of Zuora, discusses the rise of the “Subscription Economy” and its benefits.

Key Takeaways

  1. The goal of business should be to start with the wants and needs of a particular customer base, then create a service that delivers ongoing value to those customers. The idea was to turn customers into subscribers in order to develop recurring revenue. I called the context for this change the Subscription Economy.
  2. Simply put, the world is moving from products to services. Subscriptions are exploding because billions of digital consumers are increasingly favoring access over ownership, but most companies are still built to sell products.
  3. We’ve found, for instance, that companies running on subscription models grow their revenue more than nine times faster than the S&P 500 (check the Subscription Economy Index at the end of this book for the latest data on that topic).
  4. Your organization is fluid but cohesive, recurring and responsive, and above all, relentlessly centered around your customer.
  5. We have new expectations as consumers. We prefer outcomes over ownership. We prefer customization, not standardization. And we want constant improvement, not planned obsolescence. We want a new way to engage with business. We want services, not products. The one-size-fits-all approach isn’t going to cut it anymore. And to succeed in this new digital world, companies have to transform.
  6. This shift, from a product-centric to a customer-centric organizational mindset, is a defining characteristic of the Subscription Economy. Today the whole world runs “as a service”: transportation, education, media, health care, connected devices, retail, industry.
  7. It’s about starting with the customer instead of the product. It’s about establishing ongoing relationships. It’s about flipping the script—starting with the digital experience, and then building the store.
  8.  “Make it easy for customers to leave if they want to. You can certainly ask them why they’re leaving, or try to win them back, but don’t get in their way—the digital equivalent of blocking the exit with a hulking security guard.”
  9. “Number one, you must be focused on experiential retail that creates an experience in your store that becomes a destination for the customer. And number two, you have to extend that experience from brick-and-mortar to a digital-mobile relationship.”
  10. We eventually wound up supporting subscriptions for all of these things, but early on, they were just fun theoretical discussions. Here’s the secret we used to answer all of them in the affirmative—tease out the service-level agreement that sits behind the product. It works for everything. So instead of a refrigerator, it’s the guarantee of fresh, cold food. Instead of a roof, maybe it’s a guaranteed source of solar energy. Instead of excavators, it’s the expeditious removal of a certain amount of dirt. Service-level agreements are replacing bills of sale.
  11. Ownership is dead. Access is the new imperative.
  12. All these new services aren’t just about adding convenience, they’re about accelerating outcomes.
  13. I think everyone would agree that brands are still very important, but today you communicate your brand through experiences, not ads. The best sales pitch for Netflix is binge-watching a great Netflix show. The same principle applies to buying glasses from Warby Parker. Or conducting a Google search. Or looking up a prospect on Salesforce. At the same time, we’re also hearing a lot more about how all these companies have in-house teams of “growth hackers,” which on a surface level sounds a lot like, well, marketing. They’re trying to come up with smarter ways to drive sales. But these folks tend to reject that label. Stitch Fix has more than ninety data scientists on its payroll. These people aren’t thinking of snappier punch lines for billboards; they’re looking for ways to optimize growth within the service itself. It’s almost as if the engineers have taken over the marketing shop: building freemium models, creating upgrade incentives, offering in-app purchases.
  14. In the old world, you could grow by doing three things: sell more units, increase the price of those units, or decrease the cost required to make those units. In today’s world, you have three new imperatives: acquire more customers, increase the value of those customers, and hold on to those customers longer. If you’re doing it right, expansion—that is, gaining more revenue from dedicated subscribers over time—should happen naturally. When you expand your value, then the commercial benefits will follow. The ability to develop customer relationships over time is where the really amazing subscription companies distinguish themselves from everyone else. If you have a business model that grows as your customers grow, then renewals and upsells will take care of themselves. Hustling add-ons and locking people into onerous terms is a drag and serves only to get people upset.
  15. In working with hundreds of companies, we’ve learned that the solution to sustaining a high growth rate is to diversify your approach to growth and embrace multiple growth strategies:
    • Acquire your initial set of customers
    • Reduce your churn rate
    • Expand your sales team
    • Increase value through upsells and cross-sells
    • Launch into a new segment
    • Go International
    • Maximize the growth opportunities of your acquisitions
    • Optimize your pricing and packaging
  16. We call this the world of happy business: happy customers, with happy companies, reinforcing one another, iterating forever, with no beginning and no end.
  17. The following figure demonstrates the two primary levers of growth in the Subscription Economy—average revenue per account (ARPA) and net account growth. If the total billings number of a company goes up, that means at least one of two things must have happened—either the number of accounts being billed went up or the amount each account was billed went up.

What I got out of it

  1. Really helpful read to better understand the subscription space, how to enter it, how to transform into one if you’re not already, and the many benefits for both the organization and the consumers.

Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman, Chris Yeh

Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies by Reid Hoffman, Chris Yeh

Summary

  1. Blitzscaling is when you put speed over efficiency, even in the face of uncertainty. This constant and fast feedback will help you adopt, evolve, and move forward faster than your competitors. Getting this feedback early and moving quickly on it is the name of the game – especially if you are a platform and have a two sided model. Blitzscaling is a risky decision but, if your competitor has taken this path, it is less risky than doing nothing. This book will walk you through how to do it, when to do it, why to do it, and what it looks like. The cost and inefficiencies are worth it because the downside of not doing it when new technology enables is far greater – irrelevance.

Key Takeaways

  • Blitzscaling Overview
    • Blitzscaling will help you make better decisions where speed is the ultimate super power
    • Blitzscaling works as both offense and defense – you can catch people off guard and as if you don’t, you might not survive. You can leverage your initial competitive advantage into a long-term one before the market and competitors can respond. You can get easier access to capital as investors prefer to back market leaders allowing you to further your advantage of competitors. Blitzscaling allows you to set the playing field to your advantage
  1. McKinsey found the companies that had 60% growth when they reached $100 million in revenues are 8x more likely to reach $1 billion then those who are growing at 20% of the similar size. They have first scaler advantage. At this point, the ecosystem around this massive company recognize them as the market leader and shift their behavior to better suit them which leads to positive feedback loops
  2. Startups, just like certain materials and chemicals, go through phase changes. A dominant global leader is not simply a startup times of thousand it is a fundamentally different machine. Just as ice skates are useless on water, the same tactics used in the startup may be useless once you have achieved product market fit.
  3. The five phases of Blitzscaling: Family, tribe, village, city, nation
  4. The first step is creating a business model that can grow. This sounds elementary but it’s amazing how many startup founders miss this simple piece. You must have a business model that can scale or else it’ll break before you can reach dominance. Business model innovation is more important than most people think as technology today is not the differentiator it used to be. Most great startups are like Tesla which combine existing technologies in a unique and special way rather than like Space-X where they had to invent their own technologies 
  5. Blitzscaling is a strategic innovation and hurls much common wisdom out the window. Founders should only blitzscale when they determine that the most important factor in their company’s survival is speed into the market. It is a big bet but can pay off handsomely.
  6. The revenue model don’t have to be perfect when you do it. Your only goal is scale into a market that is winner take all or winner take most. However, not every company should blitzscale if product-market fit isn’t there or if the business model isn’t there
  7. You should blitzscale when there’s a big new opportunity, when the size of the market and gross margins overlap to create potential huge value. You should also blitzscale when there is no dominant market leader or oligopoly that controls the market 
  8. Another way to think about blitzscaling is by climbing learning curves faster than others
  9. Blitzscaling is not meant to go on forever. You should stop when growth slows, when average revenue per employee slows, when gross margins begin to climb, and other similar leading indicator show that your growth is slowing. You should also slow when you are reaching the upper bounds of a market
  10. In blitzscaling mode, raise more cash (much more cash) than you think you’ll need. Typically you should try to raise enough money for 18 to 24 months of survival. When trying to raise money nothing is more powerful than not needing it. Only spend money on things which are life or death if not solved
  11. As startups blitzscale, they have to balance responsibility with their power
  12. Try to partner with currently blitzscaling companies or companies which have blitzscaled in the past
  13. Managing Growth
    1. The role and skills needed by the CEO and top management are different for every level and size of the startup. It is never static and is always changing
    2. Business model growth factors
      1. Market size – paying customers, great distribution, fixed and expanding margins
      2. Distribution – leveraging existing networks, virality
      3. High gross margins – more revenues lead to more cash on hand which can be put to use, more attractive to investors
      4. Network effects – direct, indirect, two sided, local, compatibility and standards
    3. There are two growth limiters: product market fit and operational scalability
    4. 8 key transitions 
      1. From small teams to large teams. This can be a tough psychological change for founders and early employees as it is now impossible to be part of every decision and have clarity into every department 
      2. From generalists to specialists 
      3. From managers to executives. Executives organize and lead managers and managers execute day to day operations. Hire people who are known to at least one current team member, start them small and let them prove their value and gain other’s trust, then think about promoting them
      4. From dialogue to broadcasting. Establishing formal and consistent communication is extremely important as you grow. Chesky sends out a weekly email on Sunday nights which highlight growth metrics but also give the team updates and clarity on how the company is doing and other important topics so that everyone continues to feel involved and informed
      5. From improvisation and inspiration to data. At the beginning you have no customers to listen to but over time you have to track team metrics and analyze the data so that you can improve and adapt. Track the number of user’s raw engagement and churn to begin with and then customize and go deeper as is necessary for your product or service. No company should have more than 3 to 5 metrics as more tends to lead to confusion. It doesn’t necessarily matter what data you collect but what data gets presented to decision-makers. 
      6. From single threading to multithreading. The author doesn’t know of one start up that didn’t start out as singularly focused. They can branch out from there but it is important to have a deep focus when you’re first getting started
      7. From pirate to navy. From continuous offense to a blend of offense and defense. You must strike a balance between the power of being small and nimble and the benefits of being large and having scale. Much like JBS Haldane stipulates, you are fundamentally different when you scale. You can’t run a city the same way you run a tribe and you can’t run a nation the same way you run a city
      8. From founder to leader. Your role as the founder will change as the company scales and grows and you must adapt to it or you won’t be serving the company as it needs you to. You have to keep your personal learning curve ahead of the businesses’ growth curve. There are three ways to scale yourself: delegation, amplification, and simply getting better.
    5. Doing things which don’t scale when you’re growing quickly. It might be best to find a hack that you’ll have to throw away later than taking your time and running an elegant piece of software
    6. Ignore your customers at least at this stage in your growth. You have to provide whatever customer service you can that doesn’t slow you down – most likely this will be no customer service. However, you cannot ignore culture a strong culture is really important and is defined by consistent values and actions across the company. The executive in charge of the functional area which drives the culture of the company tends to be the natural successor to the CEO
  14. Awesome analysis on Zara the clothing retailer who uses split scaling techniques. Although it is a retailer, they use speed to their advantage and focus less on efficiency
  15. Incumbents have some natural advantages such as scale, the power and resources to continuously innovate, longevity, and mergers and acquisitions but the disadvantages include poorly aligned incentives, managerial overhang, lack of risk appetite, public pressure since they’re publicly traded, etc.
  16. A good way to gauge risk is by thinking through the knowns and the unknowns and systemic risk and non-systemic risk. Therefore, you must act immediately if there’s some big systemic risk, do something short term to solve your problem, note the problem now so that you can solve it later and let it burn (if unknown and non-systemic)
  17. Instability and change are the new norm and the only way to thrive is to know that you have to adapt faster than the change around you.  Be an infinite learner, be a first responder who is willing and able to act, veer towards industries, people, and companies that are biased towards blitzscaling as this is where the fastest and biggest growth lies
  18. Other
    1. Real value is created when innovative technologies allow for innovative products / services, with an innovative business, model to emerge
    2. It’s important to differentiate between first mover advantage and first scaler advantage. First movers often die but successful first scalers tend to achieve a very powerful position
    3. Do everything by hand until it’s too painful. Then automate it
    4. Common patterns of dominant businesses:
      1. Bits versus atoms (software/digital rather than physical)
      2. Platforms
      3. Free or freemium
      4. Marketplaces
      5. Subscriptions
      6. Digital goods
      7. Newsfeeds which drive user engagement and retention
    5. You must focus on adaptation rather than optimization
    6. You should always have a plan a Plan B and plan Z that you can fall back on in case your first option doesn’t work out and then your option in case worst case scenarios come up
    7. In the early days prioritize hiring those who can add value immediately and not the absolute perfect candidate
    8. Tolerate bad management. At the beginning it is more important to move quickly than to have perfect organization and processes in place
    9. Launch a product that embarrasses you. You don’t want to wait so long until it’s perfect want to get out and see what the market thinks of it
    10. You have to listen to your customers. Not only what they say, but you also have to know when to ignore them – must learn to blend data/intuition
    11. You have to know which fires to fight which ones to say no to and which ones you actually have some control over. Only then can you know which problems to tackle and in which order. Distribution, product, customer service, operations are some of the most important

What I got out of it

  • Blitzscaling is the pursuit of growth and speed, even in the face of uncertainty. It is a big gamble but is necessary sometimes if coming to market first, fastest, and biggest gives you a shot at owning a big market. A great playbook for anybody thinking about pursuing this strategy