Here I’ll present ideas on what high-level constraints I’d impose on my future work.
As much as this sounds like a priori over-rationalization, I do think I should write this down now. Hopefully, to help me make my thoughts clearer. But I’m OK even if this is useful only to, in a few years, amuse myself with how naive I was in 2018.
The constraints are based on:
- Admirable partners
- Ambition for meaningfulness in the world
- Unfair advantages
Let’s go through them one by one.
The top-down constraints
First, I’m not aware of any sufficiently interesting endeavor that is completely solo. More generally, it actually feels like a central part of our lives is about being engaged in great relationships. So, the first and foremost constraint must be about people: I seek to partner with people I deeply admire. My (current) best definition of admirable people is: brilliant and trustworthy.
Brilliant people figure out things you haven’t yet. Things that, after you’re told, become magically clear and obvious. They add information to a given discussion. Also, they are constantly self-policing themselves against BS. You simply learn a lot by interacting with them.
Trustworthy people do the right thing. They care about reputation over the long-term (i.e. their entire life). They don’t have hidden agendas. Interacting with them is easy since there isn’t much friction involved. No need to spend time and effort coming up with what-ifs. A good litmus test to grasp one’s trustworthiness may be: watch how one acts when she has an upper hand to exploit or to belittle other people.
Next, the business gotta be ambitious about being meaningful in the world. Otherwise, why would I spend my very limited time alive doing it?
It’s important to have in mind that nothing starts off hugely meaningful. Moreover, evaluating the potential for meaningfulness a priori is very tricky and I don’t really know how to do itPeter Fenton, from Benchmark, says he asks himself during the investment process: “What does this business look like in full potential?” Source. I am no successful VC, he probably knows it better.
At least for now, I think I’m satisfied with merely having the ambitionA valid potential concern regarding ambition: Could it be that stating one’s ambition so much in advance actually reduce one’s chances of achieving meaningfulness? Well, I don’t feel like that’s the case.
, a strong desire, to be meaningful. The path and the odds to it seem too hard for me to specify in details now.
A tentative definition of meaningfulness would be:
\[\footnotesize (amount \space of \space people \space impacted) \space within \space some \space (depth \space of \space net \space positive \space impact)\]
During the first few years of the business, a meaningful amount of people is, give or take, \(\footnotesize (hundreds \space of \space thousands \space of \space people)\).
Setting objective and observable metric for impact is tricky, but to base it out of timeThe main alternative to time would be money. But coming up now with an impact metric in money for a potentially global business would be even trickier (e.g. $100 means wildly different things to people around the world, time has less variance).
, the scarcest resource of all for preference allocation, seems good enough. So: \(\footnotesize (one \space hundred \space hours \space per \space person \space within \space the \space first \space years)\)
As an entrepreneur, in order to have the odds of achieving meaningfulness in the world somewhat in my favor, I must believe I have some kind of unfair advantage trying to solve the problem at hand.
At early stages, the most predictable source of unfair advantage I am aware of is deep, deep interest in something. When you care more than anybody elseA nice side effect there is that your personal interests may become a fundamental part of your labor. That’s probably a great way to have a good, fulfilling life.
, you obsessively put the hours (exploring, tinkering, prototyping) and, hopefully, you develop some kind of valuable insight that becomes your initial advantage. Being luckyLucky as in finding some relevant boost that, honestly, was completely unimaginable a priori. A boost that was not even part of educated guesses going into it.
should be the ice on the cake, not the main strategy.
Summarizing the constraints: partner with admirable people [to do something that is] ambitious about being meaningful in the world [while enjoying] some initial [strong] unfair advantage.
A final remark regarding their types: people and ambition for meaningfulness are constraints of binary type. Either the people are admirable or they are not. Same with ambition, it’s just yes/no. Unfair advantages are subtler. There are grades of advantage. They’re relative and, therefore, they’re better suited for rankings and comparisons.
More on unfair advantages
Since unfair advantages is a key (but subtle) concept. Let’s expand on them a bit further.
In more established companies strong unfair advantages usually come from moatsThe measure of the competitive barrier, if any, that gives a company an advantage over its rivals and allows it to generate above-average returns on invested capital. Source.
: high customer switching costs, economies of scale, intangible assets (such as brands, patents, or regulatory licenses), and network effects.
Given my current context and intent, leave established businesses aside and focus on startups. Due to their nature (smaller, relatively unknown, etc), startups are in a different position in comparison to their more mature counterparts, especially before product-market fit.
As of now, I don’t have a sound and comprehensive classification of unfair advantages for startups. I do think, though, that considering the spectrum of sources as internal vs external can be a useful lens.
What do I mean by internal vs external spectrum? It’s that unfair advantages in startups can be sourced:
internally: from the team (e.g. domain knowledge, privileged access to gatekeepers, etc), or
externally: from something occurring in the world, independently of the team (e.g. emergence of a new technology enabling significant cost reduction, a cultural evolution that alters what is desirable, a regulatory change, etc)
I’ve alluded in the previous section, when talking about my constraints, that deep interest in the problem at hand might be the most reliableIndeed, they do seem to be more realiable in the sense that they are roughly under one’s control. It’s your time and interests, after all.
initial source of unfair advantage for a startup.
In addition to that, I’d even go as far as to conjecture that often there may be some kind of self-expression impulse in creating a business from scratch, like an artisticIt may be the pleasure of creating something in your image and likeness. As creator and creature.
endeavor to some extent. Self-expression can also be seen as an authentic answer to: Of all the possible things, why should this exist? And why is this team the one to build it?Yes, these questions do sound very missionary-ish.
But, of course, internal sources are not the only ones. In fact, external sources of unfair advantages likely are stronger.
Unfair advantages for startups surely can come from what is happening in the world at a given moment. I’d argue that one should observe what is changing in the world and surf the greatest waves of change one can catch. This can be such a powerful force that a team may catch early success by surfing a wave without even being aware of the original causes for a while.
In a way, externally sourced unfair advantages can be a healthy balance on what could be an extreme “self-centered” thinking. Too much self-expression impulse can lead someone to think herself can impose her own vision alone onto reality. Instead, it seems wiser to consider that there is no vacuum in business.
To put it differently: it feels that one should be mindful about all the current equilibria found in reality. If the current state of the world is the way it is, there probably are deep reasons and incentives for that to be the case. Again, there’s no vacuum.
Interestingly, it very rarely (never?) happens that anyone single-handedly changes reality and have the resulting wave entirely for herself for too long. And, very importantly, if a wave is big enoughSee the World Wide Web, the “cloud”, the App Stores on mobile, etc.
, it probably has at least a few other relevant ripple effects available.
The best single word to describe what we are calling “external sources of unfair advantages” is, simply, timingPeople use the word timing kind of too loosely and this framework may help improving our thinking about it.
. And, as people say, timing may indeed be everything.
In effect, if one truly has great unfair advantages, then the answers to the classical questions about timing are sort of corollaries: Why now? What has changed in the world that makes it now possible?
To end this digression about frameworks, it’s important to keep in mind that, at the end of the day, one wants as much unfair advantage as one can possibly get. So, internal or external, get a lot of both!
How to apply these constraints and frameworks of unfair advantages to me personally?
My circle of competence is around consumer-oriented software companies. No coincidence, that’s my academic and professional background as well.
I do find truly fascinating and rewarding to create experiences for people to vote with their own time and money. People with actual people needs, people subject to human (universal) virtues and biases.
On top of that, my current interests are:
- Health, aging, and longevity
- Learning that happens outside traditional institutions
- Investing, especially as practiced by the masters of capital allocationBerkshire Hathaway, Constellation Software, Amazon
In order to build and to spot unfair advantages in these areas, I must expand my circle of competence. Additionally, I should probably partner with people that have complementaryThis website is a way to force myself to properly articulate my preferences and hopefully attract future partners.
competences to mine.
Also, whenever possible and wherever appropriate, I’d try to have a business model that competes asymmetrically against the powerful players in the marketplace. Having that is certainly a great way of crafting unfair advantage.
Here’s a definition of what I mean by asymmetric competition in the context of startups vs incumbents:
[…] incumbents are motivated to ignore the innovation, for whatever reason. For example, the innovation does not meet the needs of incumbents’ existing customers, or the incumbents’ cost structures or business models are such that they would be unlikely to make money in the initial market for the innovation. As Christensen puts it, in this scenario the market entrant is protected by the shield of asymmetric motivation and has time to develop the sword of asymmetric skills that enables it to threaten and (in some cases) displace the incumbent.
Think Airbnb vs hotels, Wealthfront vs traditional financial firms. Potentially, Bitcoin vs government-controlled money.
In other words, I’d like to be as smart and thoughtfulIn more mature businesses, asymmetric competition often happens by commoditizing complements. Here are key excerpts from the Strategy Letter V by Joel Spolsky: Every product in the marketplace has substitutes and complements. A substitute is another product you might buy if the first product is too expensive. Chicken is a substitute for beef. […] A complement is a product that you usually buy together with another product. Gas and cars are complements. Computer hardware is a classic complement of computer operating systems. And babysitters are a complement of dinner at fine restaurants. All else being equal, demand for a product increases when the prices of its complements decrease. […] In general, a company’s strategic interest is going to be to get the price of their complements as low as possible. The lowest theoretically sustainable price would be the “commodity price” — the price that arises when you have a bunch of competitors offering indistinguishable goods.
as possible about how to compete.
Finally, yet about how to compete, I should say that, in addition to increasing the odds of meaningful success, there’s something very appealing about understanding how and why things work in depth and then coming up with an asymmetrical take that deconstructs them in my favor. It really is something from which I extract lots of intellectual pleasureIt’s even better than solving a hard math problem, because this one would be in the real world and, in many ways, also still “open problem” (i.e. a previously unsolved problem).
As for closing remarks, I thought it would be a good idea to compile a few great quotes summarizing the process of creating new things.
Let’s stand on the shoulders of giants after all.
I like to find (a) simple solutions (b) to overlooked problems (c) that actually need to be solved, and (d) deliver them as informally as possible, (e) starting with a very crude version 1, then (f) iterating rapidly.
Startups are business model innovations, often enabled by new tech.
[…] Understand how people work, […] understand what people need […] A lot of the success is really kind of understanding what technology means to people, how it works in general, and the fact that we all crave seamless, friendly interfaces to it.
And last but not least:
Characteristics of the best ideas: (a) powerful people dismiss them as toys; (b) they unbundle functions done by others; (c) they often start off as hobbies and/or (d) they often challenge social norms.
The best ideas come through direct experience. When you differentiate your direct experience from conventional wisdom, that’s where the best startup ideas come from.
How do you develop a good idea that looks like a bad idea? You need to know a secret — in the Peter Thiel sense: something you believe that most other people don’t believe. How do you develop a secret? (a) know the tools better than anyone else; (b) know the problems better than anyone else; and/or (c) draw from unique life experience.
Founders have to choose a market long before they have any idea whether they will reach product/market fit. In my opinion, the best predictor of success is whether there is what David Lee calls ‘founder/market fit.’ Founder/market fit means the founders have a deep understanding of the market they are entering, and are people who ‘personify their product, business, and ultimately their company.’
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