Clayton Christensen Profile in The New Yorker

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The New Yorker has a great profile of Clayton Christensen, author of The Innovator’s Dillemma. I’m not sure when it came out, like many things it may have been sitting in my Instapaper queue for a long time.

It’s long. I read it over a solo dinner recently. Christensen is a fascinating human, full of contradictions. I particularly loved two things.

First, this bit.

But Christensen was a man of function, not form. He loved machinery, he loved to see how things were made and problems solved. Every Christensen family vacation included a trip to a local factory, and it was usually Christensen’s favorite part of the trip.

I did this recently, in Italy. I took a trip to Naples for the express purpose of visiting a factory. Not only did it quench my mechanical mind’s thirst but the journey itself led to a set of incredible experiences. Understanding the details gives you a different view about how to solve problems in any context.

Second, a great anecdote about a large company (probably McDonald’s) who couldn’t figure out how to sell more milkshakes. How they approached the question is definitely worth reading. For brevity I’ll leave out the why and jump to their conclusion:

“Once you understood what job the customers were trying to get done, how to improve the product became clear: you make the milkshake even more viscous. You stir tiny chunks of fruit into it, not to be healthy, because they didn’t hire it to be healthy, but to make the commute more unpredictable—they’re driving along and—upp!—a lump of fruit. And you move the dispensing machine to the front of the counter and give people a prepaid swipe card so they can just gas up and go.

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Going the other way

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The nav said turn right. It was a dirt road. It went straight down and disappeared into trees. I checked around. There’s no other road. It had to be that one.

I was taking a quick morning drive to an out of the way small town on the Amalfi Coast before a meeting in a small town an hour inland later in the day. I wanted to avoid the highways. I’ve seen highways in plenty of countries. I live in the land of highways.

The drive started up a mountain. I stopped at a small town shop to have an espresso. The lovely older woman refused to let me pay.

The road to the top of the mountain was as winding as they come. My little rental Audi took them like a champ. I was driving in Le Mans. O can’t think of a time I’ve had more fun driving.

Then the nav told me to turn right. It seemed straight down. And leading to nothing. I thought of the scene in The Office when Michael drives into the lake because the nav told him to.

Back on the dirt road the car is barely making it through the brush. I stopped a few minutes in and got out. I had a feeling I was driving on someone’s farm.

According to the nav I was on Via Casa Falcone. Am I in the Falcone’s driveway? Aren’t movies made about people with that name? I’m in a small town in Southern Italy driving on the Falcone’s property.

It was getting smoky. In a clearing I come across the man who must be the farmer. He’s burning some trash. I’m definitely on his land. I waved. He waved, cigarette in his hand, with the baffled look only a 70 year old farmer in the middle of nowhere who sees a black Audi driving through his farm can.

I kept going. There was no use stopping. I speak the kind of Italian that gets you a coffee without sugar. Not the kind that explains why I’m trespassing on his farm. My best hope was that the road didn’t dead end at his house forcing us to meet again. A few minutes later I was back on pavement.

I followed the nav again. Take a right at the fork. There’s no way the car will fit through that passage. It did. Another. It’s smaller. It fit. All the while I’m passing parked cars. They made it. Surely I will.

Just in front of a shop the road forked again. But one way went up and the other down. A three dimensional fork. Shit. I have to turn around. How?

And there’s a dog that keeps getting right behind me. Now I have to do a 45 point turn while trying not to kill a dog.

A lady just came out of the shop to watch me. That must be her car I have to avoid. It’s more fun to watch me suffer than to move her car.

I just need to get back to the fork. This time I’m going left.

For the next 20 kilometers it was back to the same kind of erratic, winding wildness of the first part of the drive.

I come to the base of the mountain. I see water. I don’t know where I am but there’s water. And a restaurant.

And now I’m sitting at a cafe on the Amalfi Coast having a salad.

Then I’m getting in the car and making the two hour drive to my meeting in a small inland town that Anthony Soprano claimed his family was from.

It’s noon.

 

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V for Wikipedia

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After a great week in London working with our investment partners I decided to take a week to putz around Europe. After all, what are airline miles for?

When I travel I like to explore random places and off the beaten path restaurants.

Atlas Obscura once led me to a donkey refuge in Palo Alto that was only a few blocks from my hotel. 

I keep long Evernotes about every city I visit to recall or share with others friends who live there and interesting places I want to remember to go to again. I also star a ton of places in Google maps.  

One of my favorite new apps for discovering cool places is V for Wikipedia. I came across it thanks to Kevin Kelly’s weekly Recommendo email newsletter. 

It shows you Wikipedia entries for things close to you. Or close to a location. And the UI is beautiful. 

It’s led me to a few interesting places around the ancient city of Pompeii. And it provides a ton of history wherever you are. 

It’s a paid app and even if you don’t travel frequently I highly recommend it. 

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Death and the Present Moment

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Note: this is a part of an email and real life conversation I am having with a friend about people living with terminal diagnoses. After sharing my thoughts on When Breath Becomes Air he suggested I watch a video about Claire Wineland and asked me what I thought. This was my response. 

I took some time to reflect on this. I mentioned that earlier this week, I read When Breath Becomes Air by Paul Kalanithi. He was a 35-year-old neurosurgeon and aspiring neuroscientist. He entered that field because he found it to be the most efficient way to explore man’s interpretation of existence…he wanted to learn what gives life meaning and to do that he studied both literature (man’s written interpretation) and the science of the brain (what makes it be).

What I find most interesting about both stories is the respective characters’ conscious exploration of the tension between what is supposed to be and what is.

We all know we’re not guaranteed a tomorrow. But humans are not good at projecting events over long time arcs. So it is no surprise that we are miserable at truly understanding how soon our death may come. This all changes for those who facing terminal diagnoses. Most interestingly, though, in neither case (nor generally in medicine) do they have clarity on when. So while they know they will die “soon” there is no exact time.

What I’ve found most fascinating about both stories is how the close proximity of the end reorients them to the present moment. I’m not so much interested in the fact that they live in the present as I am in observing a) what that actually looks like and b) the very present tension they fight between what a life is “expected to be” and what they want theirs to be. But each of them has a different struggle. I learned from the contrast.

In Claire’s case, thanks to her youth, she is less programmed in the heuristics of life. She has less to unlearn. Conversely Paul (the writer of the book) is 35 when diagnosed and is in the middle of the very programmed path of doctor/scientist. His basic struggle is the same as Claire’s but with the added complexity of exploring what it means to live a life you are proud of versus what he’s been programmed to do.

He struggles with figuring out what he wants. And his greatest tension is with not specifically knowing when he will die. If he will die in ten years he should do X because X takes 7-10 years to complete. If two years he should do Y because it’s more short-term.

I don’t think I would gain as much from either story if I hadn’t encountered them in sequence.

This is all very similar to how as kids we play and as we grow we play less. We play less not because we hate laughing but because we are programmed to see play as childish…bad. To return to our child-like state we must unlearn so much.

I recall my own experience of exploring what I call internal orientation which is otherwise thought of as marching to your own beat, keeping your own score, etc.. For years I read all of the self-help gurus’ explanation of doing your own thing. And then I lived it. And the experience was completely different than both what is written and what I imagined it would be. It was much harder to break away from the heuristics.

Similarly in the case of death I’ve read extensively about living in the present moment because “tomorrow may not come.” And in these two cases I observed it on opposite ends of a spectrum.

I would have been inspired by Claire if I encountered her story alone. But seeing it contrasted against someone whose life experiences made it harder to follow the present path was the most powerful. It made the value of unlearning much clearer.

Claire summed it up best when she said “live a life you can be proud of.” That has a hint of Jeff Bezos’ regret minimization framework.

Bezos’ states that we should think about what we would regret when we are 80. His view is an inversion of looking at the future from the present state. Both are useful. But when your life is surely going to be short but you don’t know how short, you can’t look at it from the position of 80 year old you.

So in a sense that forces you to be more present-state focused. You don’t have the luxury of waiting. So you must be proud of every moment. Right now.

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Zach Ware

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Edge.org’s 2017 Annual Question

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I stumbled across Edge.org last fall thanks to a friend’s recommendation. Each year it presents a question to a group of experts across a massive number of scientific fields.

Last month Edge.org released its annual question and to-date, it’s received 206 answers from the world’s leading experts in their fields. This year’s question is “What scientific term or concept ought to be more known?

The annual questions make me feel like I’m being let in on a bunch of secrets.

This year, as in past years, some of the answers are uncomfortable. That’s a good thing. We should maximize our exposure to ideas that don’t conform to our world views. Uncomfortable ideas help us check our thinking and make sure we’re not operating with any biases.

Think of the beauty of this question. You get the opportunity to ask hundreds of brilliant people what they think the most important concept in their world is. It’s one of the more magical things about our networked world.

I recommend saving the entire set of answers as one massive PDF and reading it like a book. Trying to read it in-browser will probably set your computer on fire.

If you’re a skimmer you can skim the table of contents but be careful not to overlook ideas that don’t seem interesting at first. I’ve learned some of my most meaningful concepts from random situations.

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Berkshire Hathaway’s Annual Report

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I learn so much by reading annual reports. Most of the reports I read are from companies whose size dwarfs anything we have ever invested in (or might ever invest in). But they give me a strong sense of the state of many markets. I learn the most from the reports of seemingly random companies.

So for this reason the list of companies whose annual reports is comprised of companies pulled in bulk from sectors relevant to the businesses we are in: retail, logistics, manufacturing, import, consumer, food.

It is no secret that I worship Warren Buffett and Charlie Munger. The Berkshire annual report is to me what a new Harry Potter book is to millions of sane people.

This year I took a special interest in a few topics from Buffett’s letter. His tone is amazing. As always it is jovial and humble. I encourage you to read it. Here’s this year’s report.

A few specific thoughts:

Intrinsic Value

His discussion and deep explanation which evolved into a theme, about their use of and focus on intrensic vs book value. In startup terms this is similar to the difference between book value (P&L/balance sheet) and valuation.

Berkshire struggles with how GAAP accounting standards force a differences between the intrensic value of public and private holdings. His illustration is useful. Book vs intrinsic is the difference between the price of a steak and the price of the sizzle. In our business we tussle with the difference between the two considerably.

Increasingly our investment focus is shifting towards companies with stronger fundamentals so while we reduce the confusion we experience with startup valuations, we still face the problem of valuing the sizzle. HIs letter provides great insights on how to think about this problem.

Socially-useful investments

As a result of Berkshire’s acquisition of a controlling stake in MidAmerican Energy delivered them “many large opportunities to make profitable and socially-useful investments.” The terminology is masterful.

In the retail sector we are bombarded with socially-concious companies. Some of them are good businesses. When measured over the long-term, the companies that do the most social good are often the ones that find success with consumers even if they have no social mission.

Taking this approach in fact increases the potential for social good. A strong company has more resources to do good things. These companies build great products and a great business first and market their social good features second.

This hierarchy is important. Consumer social values change over time, often negatively in periods of economic challenge. Consumers rarely stop valuing truly high-quality products at a reasonable relative price.

I have a good friend who once owned a donut shop next door to a juice bar. He was fond of saying that people come to the building for a juice, but leave with a donut. According to Nielsen, 55% of consumers are willing to pay more for products and services committed to positive social impact. In 2016 US auto sales hit a record, led by SUV growth.

Staying calm

Buffett has a reputation for staying calm. He often says Berkshire is fearful when everyone else is greedy and greedy when everyone else is fearful. I’ll just let this line speak for itself:

“During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”

Buybacks

I found his deep exploration of the topic of share buybacks interesting, specifically his indifference to repurchasing Berkshire shares vs acquiring another company. This is an example of his and Munger’s obsession with focusing on opportunity costs. Many companies buyback shares to boost stock prices.

Say a company that does this experiences a 5% boost in the stock price (intrinsic value) of the business. Buffett argues that if there is an opportunity to buy another business whose intrinsic value is greater than 5% more than the cost to buy it, buying the other business is a better deal for owners.

This approach requires checking your ego at the door.

Humility

This man is possibly the most intelligent investor of all time and he spends a an inordinate amount of time talking about his mistakes…always assigning blame directly and singularly to himself. When identifying successes he most often identifies the manager responsible for the business unit.

A few people have asked me how I go about collecting and reading so many of these reports. My assistant collects the reports in from this list at the end of every month, mostly from the SEC EDGAR site. When I add a new company to the list she knows it’s new because the AR Month column isn’t filled. The AR Month is the month the company typically posts its annual report. I read a few a day.

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SaaS Lifespans

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This was part of an internal discussion about advice to give a SaaS company that I felt worth sharing. 

There is a limited lifespan for microservices built with an outside platform dependency.

The fragility of these businesses cannot be overstated. They need 1) market mechanics that favor the need for the tool and 2) deficiency in the underlying platform necessitating an overlay tool. Those are for the business.

For a company contemplating an exit, you also need a liquid buyer which is either 1) the underlying platform seeking to correct its deficiency (e.g. snapchat bitmoji, twitter twitpic), 2) a roll up buyer that also sits on top of the platform and seeks to increase its service offering or 3) a sass rollup person who doesn’t care what the tool is but is just good at driving long-term cash flow and will buy it.

So when considering what guidance to give, consider whether you feel that all of the above business concerns are stable enough in medium term to ignore an exit overture which, considering the relatively small size of the acquirer base, is a tough set of conditions align repeatedly.

In other words, be careful not to mistake strong cash flow today as a sign that the business is stable. Sometimes opportunities come at the perfect time. For fragile businesses, don’t be overconfident and pass up an exit opportunity that likely will never come again.

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Relative Luxury: My $10 Watch

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I wear a $10 watch. It’s a Casio. It tells time. It doesn’t display the date. It has a scratch on it from a recent surfing crash in Ventura…the same crash almost destroyed my surf board. Somehow it didn’t destroy me.

I bought the first Apple Watch the day it launched. Quickly I was overwhelmed by the notifications.

Over the past year or so I’ve put a lot of effort into minimizing the ingestion of undistilled information. The Apple Watch conflicted with that. I turned off most notifications and was left with a watch that tracked fitness poorly and needed to be charged every day.

With infinite options come increased cognitive load. The ROI on the Apple Watch was negative. So I got rid of it.

When I distilled my desire for a watch down to the essence of my need I realized I wanted to know the time and, more often, the date, without needing to break out my iPhone.

I wanted to be stylish so I tried a few hip $500 watches. I tried the Apple Watch 2. I tried a Garmin Fenix 3. I found all of them to be either too huge to be comfortable or lacking in basic features (e.g. what time is it) to accomplish the primary goal.

So I bought a $10 Casio at Walmart.

Laughably, it took a few tries to get it right. I tried the terrorist watch and found it laughably small. I tried a Timex Indiglo and found it too technical. I landed on this Casio even though it doesn’t display the date. But it is the perfect size for my wrist both in terms of width and depth.

I had to buy it in-store because it was otherwise impossible to predict how large it would be on my wrist. This turned out to be a harder thing to nail than I anticipated.

The oddest thing about this watch is how often I get complements on it. I’ve worn big, expensive watches for a couple of weeks at a time and generally no one noticed. I average a complement about my $10 watch about once every two days.

People ask me what it is. They comment on how neat it is. People ask me where I got it. I usually just say I don’t remember so as to avoid the vitriol of the Walmart haters.

I love my watch. I’ve been looking for a new band to make it feel slightly less utilitarian (the band is rubbery plastic and makes my wrist sweat).

Some consumers buy luxury brands because of the status those purchases convey to others. As we get older we tend to care about this less.

There’s a philosophical post in here somewhere. In fact in my first draft I had a long bit about multiplicative systems and the relationship between perceived luxury and scarcity.

My view boils down to this: for some people a watch is a status symbol. For others it’s an extension of their information consumption devices. For some it’s a time piece. For some it’s a reflection of a passion for watches.

For me, it helps me know where I need to be. I still haven’t solved the problem of knowing the date. In fact if you ask me the date on any day that isn’t my birthday or a national holiday, there’s a 90% probability I will not know. I’ll find a new $10 watch to solve that problem one of these days.

I love this watch because it represents one of the few times I’ve made a purchase decision based purely on my needs and not the perception the purchase will create. On my journey towards internal orientation, it’s a true win.

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In-Store Tech

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I’ve been thinking about this topic a lot recently.

Since a large part of our thematic focus (and portfolio share) is focused on the configuration of the retail store the question of how it will be tackled is top of mind. And based on this CB Insights data, we’re not alone.

I think the general rule that applies to the physical world as applies to software. Master your domain before you add others. And so the successful physical retail companies of the future will be one of three things:

  • Microservices that do one thing well or
  • Platforms connecting the above or
  • Mature companies assembling a full-stack offering of the above two (think Salesforce).

I don’t think this rule applies to solely software services. I think it’s true for items that appear in the physical world.

If you want to be a full-stack physical retail company and you want to tackle the entire store at one time (POS, fulfillment, analytics, digital interactions) you need to do it over time. Otherwise your success will be leveraged against your ability to execute a lot of complex things simultaneously.

That approach never works. Founders who think they can do that as an early stage startup are crazy. I have some experience with this topic.

Not to be cliche but I’m reminded of a well articulated line of thinking from Sam Altman.

Very often, the first thing we do is help hard tech founders find a small project within their larger idea that fits the model of quick iteration and requires a relatively small amount of capital. This project is often the smallest subset of their technology that still matters to some user or customer. It may at first look like a detour, but it’s a starting point that lets founders build measurable momentum–for themselves, for recruiting employees, and for attracting investors.

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What’s In My Blood – Q4 2016 Edition

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I’ve been doing detailed blood tests every quarter for the past year. The first test was a part of a 30 day measurement experiment to quantify the impact of eliminating alcohol from my system. Oddly I haven’t had a drink since that first day.

I use WellnessFX for testing. In Q2 I tried another service which I didn’t like as much so this September I went back to WellnessFX.

The testing takes 10 minutes and can be done at any local Quest Diagnostics Center. I do comprehensive testing which means I have to give lots of blood. This center had epic views of LA to distract me.

August and September were bad months for my diet and exercise lifestyle. Until July I was a machine. Then I fell off the wagon, at least relative to my current standards. While I don’t believe travel or stress are acceptable excuses for unhealthy living, I leaned them to eat lots of tacos and ice cream.

So the general trend in my blood data shows multiple signs of a higher presence of fat and the physiological reactions to processing it. Left unchecked these behaviors will most certainly lead to an increase in general inflammation, something I focus heavily on avoiding.

These deviations from norm are expected when you cram as many tacos down your throat as I did in August and September. So the test date served as a solid reminder to reset and get back on track. Small deviations can easily become large problems if left unchecked for long periods of time.

Here’s my blood. More context on my lifestyle and past testing is here.

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