I love the following parable that Howard Marks included at the end of his latest memo.

Suppose that every day, ten men go out for beer, and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes (by taxpayer decile), it would go something like this:

The first four men (the poorest) would pay nothing. The fifth would pay $1. The sixth would pay $3. The seventh would pay $7. The eighth would pay $12. The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball. “Since you’re all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six? How could they divide up the $20 windfall so that everyone would get his fair share?

The bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to suggest the new lower amounts each should now pay.

And so the fifth man, like the first four, now paid nothing (a 100% saving). The sixth now paid $2 instead of $3 (a 33% saving). The seventh now paid $5 instead of $7 (a 29% saving). The eighth now paid $9 instead of $12 (a 25% saving). The ninth now paid $14 instead of $18 (a 22% saving). The tenth now paid $50 instead of $59 (a 15% saving).

The first four continued to drink for free, and the latter six were all better off than before. But, once outside the bar, the men began to compare their savings.

“I only got a dollar out of the $20 saving,” declared the fifth man. He pointed to the tenth man, “But he got $9!”

“Yeah, that’s right,” exclaimed the sixth man. “I only saved a dollar, too. It’s unfair that he saved nine times more than me!”

“That’s true!” shouted the seventh man. “Why should he get $9 back, when I got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

The nine men surrounded the tenth and beat him up.
The next day, the tenth man didn’t show up, so the other nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important: They didn’t have enough money between all of them for even half of the bill!

And that’s how taxes work. Tax breaks, quite naturally, flow to those that already pay the highest taxes. Raise rates too much, they get more creative (find loopholes) and take their money elsewhere.

Human Progress

In many (perhaps most) fields, veterans have stark advantages over rookies.

Sometimes the difference is structural. If you want to be an elite lawyer, doctor, or politician (is elite politician an oxymoron?), you simply have to put in your time and pay your dues.

Sometimes it has more to do with experience. Years in the trenches help you more readily recognize patterns and make better decisions.

But I love technology because it does not follow this model. If you come up with a novel new technology or business model, and you are adding real value for your customers, you can do well with almost no experience. It’s pretty 🍌🍌🍌!

Think about when Netscape first rolled out the web browser. At the moment, rookies and veterans were indecipherable because the web browser was brand new for everyone.

The same thing is happening in crypto right now. There are high school seniors that are more adept at building decentralized applications on the blockchain then software engineers that have been working in their field for decades.

In technology, it almost pays to be a rookie, at least in the earliest stages of building something new. It’s the only way to truly think from first principles.

(of course, adult supervision can be a great thing when it’s time to scale)

Philosophy

You’ve likely heard of the “golden rule.”

Treat others how you want to be treated.

To me, it made a ton of sense for a long time. Why would you do something to someone else if you wouldn’t like it done to you? Pretty straight forward.

But when you think about it more closely, the golden rule is ridiculous. In fact, I’d venture to say it encapsulates much of what is wrong with humanity. At the core, people are selfish individuals that can’t help but see the world from a first-person perspective. “Why wouldn’t everyone want to be treated like I want to be treated? After all, my views are right and true and pure.” 🤣

The reality is that people are different and have very different views about how they’d like to be treated. When I get frustrated, I like to be left alone. Quiet time and isolation are my preferred methods for reflection and introspection. Other people want to be comforted and asked if everything is ok. So to treat that person like I want to be treated is to neglect their emotional and psychological needs.

Lucky for me, my coach recently made me aware of the “platinum rule.”

Treat other people the way they want to be treated.

Makes FAR more sense!

My Latest Discovery

If you haven’t been to Koi in Bryant Park, do yourself a favor and go check it out! It’s a tad pricey, but the food is on point. Especially the crispy rice with spicy tuna!

Originally published at valueimprovementcuriosity.com on February 3, 2019.

TL:DR 😉

Buying gold (GLD);

a new trend toward decentralized publishing;

climbing new (figurative) mountains;

pre-paid debit cards.

Business & Money

Gold (and other precious metals by extension) is an interesting asset. Normally, when I make an investment, I want to make money from that investment. And that can happen in a number of ways.

A stock might appreciate if the company experiences earnings growth or perhaps you’ll make income from dividend payouts.

If investing in debt, I hope for yield in the form of interest payments.

With real estate, the income comes in the form of rent.

None of the above is true for gold. You might say it is a nonproductive or non-income producing asset. You only make money if someone is willing to pay more for it at a later date.

That said, there is a flip side to this story, and a powerful one to boot.

Gold is often referred to as a safe haven asset in that people flee to it in times of uncertainty. I imagine this is due to a long history of gold as a store of value. We no longer have the gold standard, yet every central bank on the planet stores hordes of it in their vaults.

I think this story points to investor behavior and investor psychology more than anything else. When people are afraid, they buy gold because it feels safe. And behavior/psychology is likely the most powerful force at play in markets.

I say all of this because I’ve been steadily increasing a gold position in recent months (this is not investment advice). And that’s largely because it seems to be that people are afraid and uncertain. I myself have a hard time not being an optimist. But the masses seem less optimistic about the future. So it feels like a solid trade for now.

The last thing I’ll say here to ensure that you all understand that I’m a novice when it comes to gold and precious metals, is that I’m a novice when it comes to gold and precious metals. This trade is purely based on a mental model wherein human beings are largely irrational actors in the market (perhaps also on the fact that a few people I follow closely share my belief). So given my lack of experience in this realm, I have a stop loss order that will automatically sell the gold (GLD) if it crosses a certain threshold in order to cap my downside risk in what is broadly a poor performing and very volatile asset class.

Human Progress

When I woke up on Saturday morning, I decided to kick off the day by reading the Axios China weekly newsletter. You can see a screenshot below of the beginning of this week’s edition.

I find the bottom portion of the intro (beginning with “And, if you want a daily…”) to be very interesting.

Axios is a media and entertainment startup that launched a couple years ago with a unique strategy centered around email newsletters (I love the email newsletter medium, in case that was unclear). At launch, they brought together many of the top email newsletter publishers (individuals, not companies) into one organization. The first was Dan Primack of former Term Sheet fame, then quickly followed by Bill Bishop who writes the acclaimed Sinocism China newsletter.

The interesting thing to me is that Bill didn’t stop writing his own newsletter when he joined Axios. So he continues to publish Sinocism China daily, in addition to his duties publishing Axios China every week.

This is an interesting and unique strategy. Axios allows Bill to promote his own newsletter at the top of Axios China, and I’m assuming Axios China gets additional reach from Bill’s existing readership.

This is in contrast to the way that most publishers operate. Typically a publisher cares about the promotion of its own brand above that of any individual contributor. But Axios empowers Bill, Dan, and many others to continue building their own brand in parallel to helping to build Axios. I love that idea.

If you think about the rest of the media and entertainment business, this approach runs in direct opposition to the way things normally work. Take musicians for example. The big labels control the industry and take most of the profits, while individual artists are often taken advantage of and spit out by the system. Can you imagine a world wherein an artist could use the resources of a label to promote their own music without a label getting a cut of those sales? Unfathomable!

The same is true in sports wherein most athletes shortly go broke shortly after their careers while owners and GMs continue to clean up.

How fantastic would it be if Axios represents the beginning of a trend toward decentralization in media and entertainment, if creators were fully empowered to flourish without having their legs cut out from under them by corporate interests?

I’d love to live in that world!

Philosophy

I was at dinner with my great friend and business partner a few months ago when he posed an interesting question.

“How many mountains do you think there are in the world that have never been climbed?”

It was less a literal question and more a philosophical one. He was pointing out the fact that it seems that there are so many people interested in climbing Mount Everest or Kilimanjaro, mountains that have already been climbed by tons of people. Meanwhile, there must be hundreds, or thousands, or perhaps tens of thousands of peaks that have yet to be conquered.

It’s a difficult question and one that likely lacks a definitive answer. To my knowledge, there is no centralized database which catalogs all of the peaks in the world and a record of which ones have been climbed and those that have not.

But more importantly, the conversation surfaced what I think is one of the key reasons that we work well together and invigorate each other so. We both have a burning desire to climb (figurative) mountains that have yet to be climbed. We want to place a flag atop a summit as the first visitors. And we will not rest until we do so, or at least die trying.

My Latest Discovery

There are a lot of interesting things going on in the financial technology space. One that I want to learn more about, but haven’t yet gotten the chance to read up on, is the prepaid debit card space. Companies like Green Dot are killing it (up 223% in 5 years). I imagine they are leveraging technology to serve a massive and historically under-served market in those that have poor credit scores and limited access to lines of credit. But more to come on this (perhaps a dedicated business & money segment in the near future).

It’s A Wrap!

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Happy New Year Everyone! It’s good to be back after taking a couple weeks off. I missed you! 😍

Onwards…

Business & Money

When you buy a stock, or take a long position, your maximum downside is your initial investment. So if you buy a share of stock for $10, you can lose a maximum of $10 if it somehow goes to zero.

By contrast, when you sell a stock short, the downside is unlimited. So it’s far more risky to take short positions when compared to taking long positions.

I’ll give you a simple example to demonstrate in case anyone is confused about what it means to sell short. When you sell a stock short, you are borrowing shares in hopes the price will go down.

So let’s use that same $10 share of stock. If I borrow 1 share of stock today from Jack, I can then sell that share to Susan for $10. If the price then goes down to $5 tomorrow, I can buy a share for $5 and return it to Jack. So I sold the stock yesterday for $10, bought it back for $5 today to return it to Jack, and pocketed the $5 difference as my profit (in reality there is also a borrowing fee, essentially interest you are paying on the loan).

But, if the stock instead doubled to $20, I would have lost $10. Or if it tripled, I would lose $20. So the more the stock goes up, the more I stand to lose.

So, due to the risky nature of shorting stocks, and my limited knowledge and experience trading, I have never shorted a stock. (I got pretty close with SnapChat — should have pulled the trigger)

That changed a few weeks ago. Well, I guess you would say it kind of changed, given that I shorted the overall market as opposed to an individual stock. And I did it in a way that I didn’t realize was possible. Specifically, I came across the concept of an inverse ETF. That is, there are inverse exchange-traded funds that seek to provide -100% of the return of the target fund.

So you can buy SPY, which is an ETF that seeks to match the return of the S&P 500. Or you can buy SH, which is an inverse ETF that seeks to provide the inverse return of the S&P 500. (the goal is for SH to go down the same amount that SPY goes up — you can see the 2-year chart of SPY vs SH below)

So you are basically shorting the overall market, but the risk profile is similar to that of a long position given that you can only lose the amount of your initial investment.

Human Progress

If you have minor stomach pain, you might head to WebMD to do a bit of homework before perhaps taking a trip to Rite Aid. If you feel a throbbing pain in your head and blurred vision, you might want to head to the doctor, or better yet a neurologist.

Similarly, if you are establishing an LLC on the side to do a bit of consulting, you might be ok using LegalZoom and TurboTax for your legal and tax requirements. If you are leading a 1,000 person company with offices in 3 countries, you need a group of lawyers, accountants, and a CFO to ensure that all your bases are covered.

In other words, when complexity and the stakes are low, you can handle things yourself with the help of software. When complexity and the stakes are high, you need people, or better yet professionals.

I point this out because I keep getting the same question over and over from lots of different people.

How do you feel about robo-advisors? (automated software to handle passive investing)

If you’re opening up your first brokerage account and want to get your investing feet wet with a couple hundred or a couple thousand dollars, that equals low complexity and low stakes. So sure, tools like WealthFront and Betterment might be great options to “set it and forget it.”

If you have tens or hundreds of thousands of dollars laying around, the stakes are higher. And if you also have considerations like having kids or purchasing property, that adds significant complexity. So it might be time to speak to the professionals (all of which are not created equal).

Philosophy

Perhaps we’ll continue on this same thread as we move into the philosophy section.

Want to know what else is high stakes and high complexity? How about human choice and free will?

I read a fantastic article recently wherein the author had this to say of Google,

The search engine is no longer a model of human knowledge, it is human knowledge. What began as a mapping of human meaning now defines human meaning, and has begun to control, rather than simply catalog or index, human thought. No one is at the controls.

While it’s easy to focus on the internet giants given their massive scale and pervasiveness, the underlying fact is that more and more of our decisions are being made for us, and often when the stakes are high. Spotify wants to decide what we listen to. Seamless and Yelp want to decide where and what we eat. YouTube and Netflix want to decide what we watch. Robo advisors want to decide how we invest.

Perhaps this is just nature’s response to the havoc that humanity has reeked on the planet. Give us the tools we need to build machines that we ultimately lose control over, which eventually leads to some massive shock to the system in order to press reset.

My Latest Discovery

You have got to be kidding me! I know have a total of 4 GREY HAIRS in my beard!!

It’s A Wrap!

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Business & Money

It might seem counterintuitive to some, but the best time to buy stocks is during a downturn. And it’s no secret that the markets have been getting hammered for about a month now. My portfolio is down 11% from its September 28th high. That never feels good.

But you have to have a plan for times like these so I thought I’d share a bit of my approach.

I have a theory about what stocks perform best after market corrections. Okay, it’s not some special theory that I came up with on my own. But one I’ve taken from a few different people and places.

The theory is that there are 2 categories of stocks that perform best immediately following corrections: 1) stocks that are hit the hardest (fall the most), and 2) and those that hold the best (barely fall at all).

So a few specific ideas:

Starting with category 1: Netflix is down 27% from a July high. Trupanion (VIC 126) is down 46% from its July high. Blackline is down 27% from its July high. Illumina is down 15% from its September high. Grubhub is down 35% after its best quarter ever, a sign of what looks like indiscriminate selling. I’ve initiated and/or added to positions for each.

For category 2: Prologis is down 5% (VIC 118). American Tower (VIC 121) has continued a steady uptrend. I initiated small positions in both last week.

I have no idea if the market will continue to slide, but there’s no way to time the bottom so you have to have courage and conviction in your beliefs and you have to press the buy button when opportunities present themselves.

Human Progress

If you’ve ever read any of the Amazon annual shareholders from Jeff Bezos, you’ll notice that he always ends the letter by pasting in his first shareholder letter from 1997. He does that because of his famous idiom that “it is always day one.”

Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.

It’s such a powerful refrain.

And what’s interesting is that it applies far outside of business. Take this weekend for example. My wife and I were celebrating our 1-year anniversary at an incredible restaurant here in New York City called Blue Hill (I highly recommend it). The year has gone by so quickly and there have been many good times and also a few tough ones. But we remain utterly obsessed with one another and we thought that it would be a great idea to remind ourselves that it is always day 1 in our relationship. So we each read the other’s vows from our wedding day while we waited for our food. And it was such an incredible reminder of why we decided to get married in the first place. It brought back all of the happiness and elation from that night at The Metropolitan Building here in Long Island City exactly one year ago today. (and I may have cried at the restaurant just like I did when she read her vows to me that day 😭).

So whether you are building a company or a life together, I’d say it’s always good to remember that it’s day 1.

Philosophy

I’m so so lucky and my heart is filled to the brim with gratitude after this weekend!

The woman of my dreams threw the best birthday party I could ever Imagine.

Friends from many different parts of my life came together to celebrate.

So many wonderful gifts, phone calls, smiles and good vibes in general.

I’m in good health and high spirits.

Each and every one of you is so special and so special to me!

Thank you for your replies to the VIC newsletter!

Thank you for text messages and Facebook posts!

Thank you for the emojis on Instagram!

Thank you for your smiles and positivity!

Thank you for pushing me to be better and calling me out when I’m not good enough!

Thank you for the colorful balloons!

Thank you for so many gummy bears!

Thank you thank you thank you for being you! I have no idea what I would do without you! 😍🤗❤️

My Latest Discovery

Casa Dragones Blanco Tequila is absolutely delicious! It’s 100% pure blue agave and so so smooth!

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[In a Shakespearean tone]

Business & Money

These days, I have a lot of conversations about pricing strategy in the early days of company building. And it seems like the inclination is often to give the product away for free at the beginning. The thinking is that a free product will make customers more inclined to try it (lower barrier to entry) and that it will provide a good opportunity to validate your thesis. And that makes some sense.

That said, I always prefer asking customers for money from the very start for a few key reasons.

First off, you have precisely 0 customers if your product is free. The definition of a customer is someone who buys something. So if you are not getting paid, then you don’t have customers. Similarly, businesses have revenue. Of course, every business has to get that elusive first customer, so there will be a (hopefully) short time at the beginning when you have none, but revenue should be the goal (ideally with positive free cash flows).

Second, asking for money provides good qualification. If you’re not asking for money, people may try your product/service because they like you or want to do you a favor. They’re far less likely to do that if you ask for money. You have to solve a real problem or add some tangible value. So if they say no when you ask for money, then you’re probably not doing that to a sufficient level.

Finally, I think asking for money actually increases your chances of success. When people pay for things, they then have some skin in the game and thus are more incentivized to make sure that investment has a positive outcome.

So, all things considered, I think if you’re trying to build a business, then you are better served by charging people from day 1.

Human Progress

You often hear about the “black box” problem with regards to artificial intelligence. That is, the problem whereby machine learning algorithms are making decisions, but the rationale for said decisions is inherently unexplainable.

For context, the field of machine learning has two general methods: supervised and unsupervised learning.

In supervised learning, you have a data set and you know exactly what the output should be. So you might a ton of cat pictures as the input dataset, and the output should be a “cat” or “not a cat” label. So you feed in your cat pictures, all with a pre-existing label of “cat” or “not a cat,” and that’s how you train the model on discerning whether in fact there is a cat in the picture. So after the training, when you feed in a new picture that is not labeled, the model will try to apply a label based on what it has learned from the training dataset.

With unsupervised learning, you feed in a bunch of data without much of an idea of what the output will look like. So sticking with cats, this time we have a bunch of pictures, but none of which have labels. We then feed them all into the system and it’s up to the model to cluster the pictures as it sees fit based on some relationship of variables within the pictures (number of legs, size of ears, stripes, etc).

The key difference here is that unsupervised learning has no feedback system. So the system might say “cat” or “not a cat,” but will not be able to tell you why it made the decision.

So some people are not happy about that unexplainability (might be making up a word).

What I find interesting, though, is that human beings are inherently unexplainable. People make asinine decisions all the time that are seemingly counterintuitive. We are all trapped inside our own heads and see the world subjectively. You can talk to other people, but you can never really be sure of what they’re thinking or why they do what they do.

So it doesn’t seem to me like the two situations are really all that different.

Philosophy

I recently got a marketing email from an events coordinator about attending one of their upcoming events. The funny thing is, I was already registered. You’d think they would be able to see that in their CRM or system of record.

So I typed the following response:

“I’m already registered — please stop emailing me.”

But before clicking send, I decided the email was in bad taste. So I typed this instead:

“I’m already registered — see you there 🙂”

So a few things:

One, I’m in sales and I know that CRM systems are often very messy. So I get it. It’s a mistake that my own business development team often makes.

Two, It’s a great example of why I love meditation. It has made me a much more mindful person that’s far more aware of my own emotions as they ebb and flow. So when annoyance bubbles up, I have a better chance of realizing it for what it is, without always acting on it.

Three, v1 of the email would have kicked off the spread of negative energy. I’m a huge fan of positive energy so hopefully the emoji in v2 made her smile and kicked off a chain reaction.

My Latest Discovery

A few weeks ago, I wrote about the Moment app for iOS that tracks your screen time. Now the latest version of iOS includes screen tracking as built-in functionality. Simply click the “settings” icon from your home screen, then click “Screen Time.”

I find it both sad and slightly comical when the big tech incumbents kill off an entire company with a software update. I think It will be very difficult for Moment to build a standalone business going forward.

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Business & Money

I’ve been thinking a lot about risk and decision making.

Here’s a question: how much money (or something else you value) would you have to be offered to play Russian roulette? Would you take on a 16% chance of blowing your brains out for $50,000? $50 million? $5 billion?

Me personally, I would never play. For the simple reason that I might blow my brains out. There’s no coming back from that. So it would be a terrible decision with far too much risk.

What I’m trying to get at is that there is no reversing course with certain decisions. For example, if you decide to take on significant venture capital dollars, there’s no going back from that (in most cases). You are making a decision to be one type of company vs another.

One decision that is perhaps somewhat less extreme has to do with portfolio allocation. How much money should be held in cash vs short-term liquid investments (stocks, treasuries) vs longer-term illiquid assets (real estate, private company stock options)?

Or you could even zoom in on just stocks and try to decide, of your positions, what percentage should be value vs growth vs income?

Based on conversations I have, I think my appetite for risk is a good bit above the average. But given where we are in the current cycle, I’ve been dialing things back a bit.

Human Progress

Have any of you noticed the new predictive typing feature in Gmail? While you’re typing, Google will try to complete your phrases and sometimes even complete sentences. It’s yet another example of how AI and machine learning are deeply woven into everything Google is and does.

But I wonder what data is being used to train these predictive typing algorithms. Are they looking at just MY email history and all the messages I have sent to build a profile of what I might be about to write? Or, are they looking at messages that everyone has sent to make the best guess at what I might type next?

It’s a nuanced difference but I think an important one.

If they’re just using my data, I’m perfectly ok with that as it will likely help me write messages more quickly and be more productive.

But in the second scenario, they would be pushing everyone toward the mean. So not helping me complete my own thoughts, but more so helping me to think like you. To me, that would be downright frightening!

Machine learning will continue to seep into every crevasse of our lives and I have no doubt that we’ll have a tough time navigating these waters.

Philosophy

I wanted to share a couple observations from the week.

It’s faster to delete an email than to unsubscribe. But unsubscribing is looking out for your future self. 8 extra seconds now so I don’t have to delete a similar message in the future.

Throwing away boxes is faster when you don’t break them down. But breaking them down saves space in the trash room, and also makes it far easier for the building staff and employees of waste disposal companies. And those guys work hard for meager pay.

Doing the right thing at any given moment is sometimes inconvenient. But it remains the right thing. Plus, you get a little dopamine hit along the way from your awareness of doing it.

My Latest Discovery

I was traveling last week when I realized that my Priority Pass (gives you access to airport lounges) card was expired. Luckily, a few google searches revealed that there’s a priority pass mobile app. So as long as you know your membership number, you can download the app, log in, and simply scan the mobile barcode to gain access. Also, it has search functionality built in so that you can find out which lounges are available in which airports. Nice!

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Last week I bought a few shirts from an e-commerce company called Twillory. I’m writing about this for a couple reasons.

First, I wouldn’t have known that this brand existed if it weren’t for Instagram. I initially saw an ad in my feed about 8 or 9 months ago. Then a few months after that, Instagram launched their e-commerce “shop now” feature where you can click through and make a purchase without leaving Instagram. So perhaps 3 or 4 months ago, I clicked through and browsed the site, but didn’t buy anything. Then last week, because I was traveling and didn’t have time to do dry cleaning, I figure it was a good time to buy a few new dress shirts. I immediately thought of Twillory, visited the mobile site, and made the purchase. Assuming that they know what they’re doing from a tracking and measurement standpoint, my path to purchase (IG ad impression > IG mobile site > IG ad retargeting > visit to mobile site > purchase) should be pretty clear to them.

E-commerce feels to me like the next big monetization opportunity for Instagram and I think they’re just getting started. I imagine that, in addition to collecting the ad revenue, they’re probably taking a portion of the sale if you purchase from within the app. So the idea that Facebook will struggle to find new and massive revenue opportunities feels asinine to me (which is why I’ve been buying more shares).

Secondly, the end-to-end experience I described above all happened on my iPhone. Which may seem like an obvious thing to say, but I’m not sure investors really appreciate the mobile commerce opportunity (at least in the US, this is pretty obvious in a market like China).

I have a few dedicated commerce apps on my phone. In order of purchase volume starting at the highest dollar amount, those are Amazon, Chewy, and Seamless (not including transportation, music streaming, or investing).

I expect that the dollars flowing through these apps will increase at a steady clip and that, as a result, mobile advertising will increase proportionally. And Google, Facebook, and Amazon will be beneficiaries. I’m long all 3.

Human Progress

I read something once that contrasted an industrial view of education to an agrarian one. Bare with me.

In the industrial model, students all traverse the assembly line that is the modern education system. They all take the same path through the factory and are stamped and molded into consistent, reliable, predictable human beings.

In the agrarian view, you might think of future educators as gardeners that don’t so much try to control the students, but instead focus on cultivating the conditions under which students have the best chance to flourish.

Of course, it’s an abstraction without any concrete prescription on what might be wrong or how to go about making changes, but I find it to be an interesting way to think about things.

Philosophy

Remember Newton’s first law? An object at rest wants to remain at rest and an object in motion will remain in motion, unless acted on by an outside force.

While the law pertains to objects in the physical world, you might also apply it in a more psychological sense.

Take an example. It seems to me that cultivating an ability to maintain focus and attention for prolonged periods of time might the be the most important skill there is. And it seems that the unfocused and inattentive person reveals that tendency in a multitude of ways. Whereas, if you cultivate focus and attention in one area, it becomes far easier to apply those abilities in other domains.

So I try to think about Sir Isaac when making decisions about how to invest my time and attention.

My Latest Discovery

Travel is exhausting. I’m ready to go home!

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Most of you know by now that Datorama (the software company where I work) was recently acquired by Salesforce. The exact value of the deal was not disclosed, but the internet will peg it somewhere between $800 and $850 million. Whatever the exact amount, it’s a pretty remarkable outcome after only 6 years in business. I joined about 3.5 years ago and feel incredibly fortunate to have been able to partake.

I’ve been thinking about this for the last few weeks and thought I’d share a few musings.

It’s all about the people

This is a huge cliche. But the thing about cliches is that they become cliches because they’re true. There are two specific things about the people at Datorama that come to mind when I say “it’s all about the people.”

First, it’s so much fun to work with A players. It’s easy to grind and work late nights when you’re in the trenches with A players. You know, without question, that they are giving just as much, if not more. You never have to worry about their level of preparation. Their competence, desire, passion, and commitment are sure things.

Second, A players stick together. Of the first 100 people (I was around #40), I’d estimate that higher than 50% previously worked with one of the founders or early employees at a previous company or spent time together in the Israel Defense Forces. Because real A players are so hard to find, you keep them close once you find them. I can safely say that if our founders start another company together in the future, I’d have to seriously consider joining them for round 2.

Frugality

Our founders and management team are incredibly frugal. We never spent much on advertising or sponsoring events. The snacks in our office don’t compete with other Silicon Valley kitchens. We’ve always subleased out empty seats in our offices, that is, when we weren’t sublease tenants ourselves. We maintain strong unit economics. We hire responsibly.

Startups are hard

I think the frugality has something to do with a recognition about how hard it is to do what we did. We count our lucky stars every day for having come as far as we’ve come, and we are by no means guaranteed continued success. As such, financial responsibility is a must.

Further, 0 to however many millions in 6 years is 🍌! But it didn’t always feel like that on the inside. We had quarters when revenue targets were missed. We had periods of increasing churn. We lost tons of deals.

Even many crazy unicorns out there don’t have purely “up and to the right” stories. Slack was founded via a pivot from a failed gaming company. Airbnb came from the founders needing extra cash to pay rent. When they launched out SXSW, they got 2 bookings. Then they apparently lived on cereal while being turned down by a series of investors, before finally being accepted into Y Combinator.

Basically every single startup will face challenging times. It’s part of the journey.

Tailwinds

Because things are so hard, I find that it’s best to pick companies with tailwinds. I found out about Datorama via a chance email from a recruiter. Complete luck. But when I met with the VP of sales and saw the platform, I immediately recognized tailwinds.

The ways to advertise online are too numerous to count. There’s an investment bank called Luma Partners that releases a market map of all of the different companies involved in digital advertising. The map went from about 100 logos 8 years ago to having over 7,000 companies now. Thus the challenge facing people trying to reach an audience online has gotten exponentially harder. Thus, I felt fairly confident that the need for a platform to deal with all of the resulting data would increase over time, and at a pretty healthy clip.

Additionally, many of the early customers were some of the largest and most complex advertising organizations on the planet.

So if you’re planning to take a bet on an early stage company, looking for tailwinds seems prudent.

The why

Lastly, and perhaps most importantly, there needs to be a why if you’re planning to give so much of yourself for something. And I’m not talking about the highfalutin “what impact am I having on the world” type of why. That’s all good and well, but I’m talking about the more pragmatic type of why. For me, it comes down to two things.

I’m a fan of learning. And there’s no better place to learn than a high growth technology company. As a team and an individual, you’re constantly forced outside your comfort zone and it’s learn & adapt or die.

Further, I hope to build and lead an important technology company of my own in the not too distant future (the wheels may or may not be in motion as we speak). So I am being a sponge to everything happening around me and what it takes to scale a company, hire incredible people, iterate quickly, and the like.

So that’s all I have for you. And to be clear, all the credit goes to our founding team and all the thanks to our customers for placing their trust in us. But hopefully you’ll find these thoughts somewhat helpful.

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I coined this formula a couple years ago: MD = CI + NE. [Market dominance] equals [critical infrastructure] + [network effects]. For companies that are covered by this formula, they make it on to my “high conviction list.”

One of the companies on the list is Chinese internet giant Tencent. The companies lead offering, WeChat, is the definition of critical infrastructure. WeChat is Facebook (social) + WhatsApp (messaging) + Venmo (payments) + Apple/Google (mobile operating system and app distribution) + Activision Blizzard (leading game publisher) for 1 out of 1.4 billion Chinese citizens. That’s 🍌🍌🍌!

On the network effect side, the more people that join and the more services available via WeChat makes it more valuable for all of the existing users. Add to that the data network effect that powers the machine learning flywheel… what more could you ask for.

So why bring this up? The stock is down 30% from its high in January. And I have a rule about high conviction stocks. When they drop 20%, I add to my position. When they drop 30%, I add even more. So you can guess what I’m currently doing with TCEHY.

That’s not to say there aren’t risks. People like to bring up trade wars and geopolitical risk. But Tencent largely operates in China and only deals with intellectual property, as opposed to commodities like steel or soybeans. So I don’t see why tariffs and trade wars should be a big deal (please share if you feel differently).

Then you have censorship risk from the Chinese government, which feels like a more serious headwind. Censorship has definitely hit profitability in recent quarters. That said, given China’s desire to compete head-to-head with US technology and AI supremacy, it would seem counterintuitive to seriously hamstring one of your own tech darlings.

All things considered, TCEHY feels as “high conviction” as it ever has.

Human Progress

I’ve written here before about the power of compounding. I believe all previous mentions were in monetary terms, but the concept applies equally to other areas. Here’s a great example:

It’s no secret that venture capital is not a very diverse industry. Take race for instance:

The tally went from 2% black to 3% in two years. And while that seems meager, a 50% growth rate over two years is actually high. Following the logic of compounding, over 1/3 of all VC will be black by 2030.

What if we look at gender:

That’s an even higher 2-year rate of growth at 64%. Carry that forward and we’re at gender parity in VC by 2022.

I’m not trying to be literal here. You’d have to take into account the demographics of the overall population, the law of large numbers (becomes harder to maintain growth rates when starting from a higher base), and many other factors to attempt an accurate forecast.

But that’s not the point. The point is to say that compounding is a powerful force. If there is some area of your life, or of life more broadly, where you’d like to see progress, starting small can yield massive results over time.

Philosophy

I went on a gorgeous hike this morning near Lake Tahoe. It traversed 2,100 feet of elevation, 3.6 miles of trails, and just over 2 hours. It was a great time to think and I thought I’d share a couple thought bubbles with all of you.

There were numerous occasions when you were forced to travel downhill for 40 or 50 yards before heading back uphill. And each time, it felt counterintuitive. When hiking to a peak, it feels like a waste of time and energy if you’re not going up. But after a couple times, you realize that the downhill stretches are important elements in the overall journey and, better yet, a great opportunity to catch your breath. I think there are many moments in life where things don’t feel right and it seems you’re wasting time, but those are just parts of the journey.

Certain people out on the trail seemed focused on finishing quickly. But then we passed them around mile 2 and they looked spent. They had attempted the proverbial sprint in the midst of a marathon.

Similarly, we underestimated the amount of water that we would need. There were a couple times when it felt right to crush what was left in the water bottles. But remembering the marathon, we conserved the little remaining and made it last. It’s so important not to deplete resources too quickly.

When scaling 50 and 60-degree cliff faces, presence takes on a new meaning. Each step needs to test the rocks before planting and the same goes for each hand grab. You’re paying close attention to your center of gravity and ensuring that, if you slip, you want to fall forward and not backward. This level of presence and focus is scarce in modern life. If only we could approach every task with something similar.

As we progressed up the mountain, there would be an occasional spray-painted dot on a rock or tree trunk. These would remind you that you were headed in the right direction. Occasionally you would head off in a direction and fail to find any dots. At those points, you head back to the last one and try to rechart the course. Or sometimes you momentarily split up and communicate by voice to see if one or another person can find the next dot.

So, during the steep parts, you’re focused on the next step and the next hand grab. When things are more stable, you’re on the lookout for the next dot. But never much further than that.

I often hear people talk about their 5 and 10-year plans. And I think planning is all good and well. But, in reality, it seems that much of what happens 10 years from now is completely out of our hands. So, for me, I try to stay focused on the steps, hand grabs, and dots.

My Latest Discovery

Tahoe is one of the more picturesque places I’ve ever been.

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Business & Money

I read a recent blog post wherein I happened upon a new financial ratio, the “hype factor.”

The hype ratio = VC / ARR [annual recurring revenue]. On the theory that SaaS startups input venture capital (VC) and output two things — annual recurring revenue (ARR) and hype — by analogy, heat and light, this is a good way to measure how efficiently they generate ARR.

For example, take Trupanion, which I wrote about a couple weeks ago in VIC 126. They raised $9 million in venture capital and had $84 million in revenue in 2013 (before listing on the Nasdaq in July 2014). So the hype ratio would be 9/84, or 0.11. Put another way, they convert VC into revenue at a rate of 909%. For every dollar of investment, you get $9 in revenue and no hype (all heat and no light).

By contrast, Dropbox raised $1.7 billion in VC, and had $1.1 billion in revenue the year before their IPO, for a hype ratio of 1.55. So they’re converting VC into revenue at a rate of 65%. Every investment dollar produces $0.65 in revenue and $0.35 of hype (65% heat and 35% light).

I don’t think you’ll find the hype ratio in brokerage interfaces any time soon, but I think it’s a very interesting point of analysis, particularly comparative analysis.

Human Progress

You hear a lot these days about intellectual property theft perpetrated by Chinese companies, and by extension the Chinese government. From what I can tell, there seems to be some truth to this, while it also seems like excellent fodder for identity politics.

In any case, what I find more interesting is China’s borrowing of our strategic approach to international development following WWII.

One of the most intensively covered topics in Chinese media (at least as it appears from the outside) is the Belt and Road Initiative. It’s a foreign policy initiative proposed by the Chinese government that focuses on infrastructure investment and regional connectivity with neighboring countries in Asia, Eastern Europe, and East Africa. It’s easy to list out tons of motivations for the BRI (new markets for Chinese companies, export excess capacities of commodities, economic development of Western China, etc), but the largest and most apparent would appear to be the creation of an economic and political powerhouse in Eurasia, led by China, similar to the transatlantic one dominated by the US.

Maybe it’s just me, but this seems fairly similar in motivation to the Marshall Plan. It’s easy to say that the Marshall Plan was all about rebuilding Western European economies following WWII (though its impact is up for debate), and a worthwhile goal that would be. And I hate to be a cynic, but foreign policy initiatives are never as altruistic and benign as their authors would have you believe. I don’t believe it would be crazy to say that the Marshall Plan was about rebuilding Europe in the image of America. In other words, it was about making strategic investments and building institutions that would further our values and cultural norms. And it worked perfectly. A long period of harmony and economic expansion continue right up into the present moment.

So, while DiDi may have cloned Uber and Baidu may have cloned Google, I think Xi Jinping is studying the history of empire building a bit more closely than the source code of our internet giants.

Philosophy

My wife loves plants, succulents to be specific. Those tiny little plants seem to melt her heart.

So I started to think about what plants, or perhaps what category of plants, might be my favorite. And for a while I was drawing a blank. But then I landed on moss.

You might be wondering, “why moss?” They don’t offer any blooming flowers or colorful designs. They just cover surfaces with a few centimeters of their little green fluff.

But in reality, mosses are exquisite.

These tiny plants aren’t very competitive in an ecological sense. They’re quite small and they don’t acquire resources very efficiently. So, as a result, they have to occupy spaces where many plants don’t do very well.

Yet, they’ve managed to persist as one of the oldest plant species that we know. They’ve been around for something like 350 million years. So I’d say they’re doing something right.

What’s fascinating is that they have an incredible ability to cooperate with surrounding organisms and their environment. Mosses manufacture soil. They purify water. You might say they’re something like coral reefs of the forest floor in that they provide homes for a myriad of tiny creatures.

They may not grow very tall (unless on a wall, of course), but mosses are powerhouses of persistence and biodiversity. And I happen to think they’re pretty cool.

My Latest Discovery

This game is so much fun!

If you have a barbecue, picnic, or beach outing coming up, I’d highly recommend picking one up.

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