TIL2017 – External objectivity

Supported by Greenhaven Road Capital, finding value off the beaten path.

This post is part of the TIL2017 Summary Series.

Along with internal objectivity (know thyself) comes external objectivity. This is seeing the world as it is, not as you’d like it to be.

This came up as ‘tailwinds.’ That is, understand what part of your success wasn’t you. Wes Gray said that aside from the internet crash, any small-cap value investment went up. Michael Lombardi applied tailwinds to football to tease out if a team was good or bad. Absolute stats – see our Trust but Verify post – are limited. Instead, ask ‘compared to what?’

Bill Simmons wondered about this when he asked how good Dirk Nowitzki was. He tried to compare him to Kevin Durant but noted how difficult it was because they had different situations, Durant’s tailwinds are his teammates.

Maha Ibrahim and Kara Swisher talked about how this relates to gender. Like a bull market or a bad opponent, men have had tailwinds in tech. The men, these women note, often fail to recognize this.

Cliff Asness and Ray Dalio both wondered about the other side of their trades. Who is buying if you are selling? That’s a depth of objectivity neither of these successful investors has plumbed.

Objective thinking requires an out of body experience to not be tricked and instead be treated. Jason Calacanis advised to “think like a journalist.” Try to find the truth as you’d report it. Ken Burns said he tries to keep his thumb off the scale when he’s making his movies.

Matt Wallaert said to make sure you are solution agnostic. Esther Duflo saw this with her work in India and Africa. Our views of the world; political, social, physical influence our solutions. Our initial views are tainted. Instead, do what Wallaert and Duflo did, go out into the world and see what works.

Tailwinds, as runners and cyclist know, are hard to notice. All progress has friction, but some progress is helped along by outside factors. Try to figure out those factors and see the situation as clearly as you can.

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TIL2017 – Know thyself

Supported by Greenhaven Road Capital, finding value off the beaten path.

This post is part of the TIL2017 Summary Series.

Many podcast and book subjects have an elevated level of self-awareness. As Richard Feynman put it, “you must not fool yourself and you are the easiest person to fool.”

In some ways this includes the advice to follow your passion. Ken Burns said to do what inly rejoices you. Many investors have said that investing only works if you enjoy the work. It’s too easy to hire hard work. Your competitive advantage is focused in areas where you’ll do extra work because you enjoy it.

Understanding yourself also means pointing a spotlight on your blind spots. For Jason Calacanis it was ignorance about Airbnb users. For Scott Fearon it was ignorance of California diners. For Alton Brown it was ignorance about his skills in front of the camera. Mistakes led to self-awareness.

Another moniker is “soft spots” which may be a weak spot in decision making. Daryl Morey had to move away from his soft spot for big men who hustled and rebounded. Marcus Lemonis had to move away from trying to fix the people in the business he bought. Gregg Popovich had to move away from one style of basketball.

Self-understanding is a true mirror, not a carnival one. Brad Gilbert wrote that he sees too many amateur tennis players get upset at themselves for missing shots. So what! You’re not Pete Sampras, writes Gilbert.

Without self-awareness, the heat of the moment can cook our choices. Some preempt this and make their decisions away from the fire. Wesley Gray said to plan in System Two, alluding to Kahneman’s personifications. Ray Dalio created a layer of filters to reduce emotion in decision making at his investment firm.

Even though people have struggled with this, two ideas from modern times can help; zero fucks and identity footprints.

Though rarely expressed with profanity, many subjects don’t care what other people think because they understand themselves. They know the goal better than anyone else – often as the founder – and work toward that.

Equally important is a limited identity footprint. Suffering, said the Buddha, comes from attachment. Or colloquially, disappointment is when reality doesn’t meet your expectations. The idea is the same; don’t be attached to unimportant things.

TIL2017 – Winning

Supported by Greenhaven Road Capital, finding value off the beaten path.

This post is part of the TIL2017 Summary Series.

There were two kinds of winning that came up this year. Neither was “all I do is win win win no matter what.”

Win big lose a little. Asymmetrical bets came up again and again. Jason Calacanis said in multiple podcasts that angel investing is a great idea for five percent of your net worth. Consider not just the financial upside, said Calacanis, but also non-financial ones like networking and knowledge. These combined ‘returns’ make angel investing a wise investment.

Jason’s advice was earned the hard way. When he was pitched on Airbnb he passed, imagining that only broke college students and serial killers would use the service. Errors of omission – like this – are the worst warned Bill Gurley and Marc Andreessen.

Jerry Kaplan had to explain this idea to his father. When Kaplan decided to start a startup rather than follow a corporate path his father assumed it was risky. Kaplan explained that the company shouldered the liabilities, not himself. His downside was limited, his upside was not.

Chris Cole explained this idea using the example of George Lucas and Star Wars. Lucas took a discounted director’s salary in exchange for future rights. Those future rights were at different levels. Merchandise sales were likely – to some degree. Sequels were likely – to a lesser degree. Video games, Disney themed cruises, and forty-years of runtime were unlikely. But as each thing became less likely it paid more. If Star Wars could live for fifty years it would be very valuable.

This idea can apply to sports too. Brad Gilbert advises amateur tennis players to not serve first because of the upside. If your opponent holds, that’s expected. If you break, that’s ‘worth’ more. If serve holds for the next three sets then you end up with a 3-1 lead, a numerical and psychological edge.

These small bets take a willingness to be wrong. Asymmetries only exists because large payouts are infrequent.

Choose games you can win. The second kind of winning was to choose your battles. This is the Buffett and Munger strategy of embracing limited understanding and filing things into a too hard pile.

In the 2017 NBA finals this came in the form of the Cavaliers strategy. They couldn’t beat the Warriors at their own game. They had to play a different way.

Another from sports was Gilbert on the tennis court. One problem amateurs have, he wrote, is that they play to look good rather than to win. Looking good means ripping winners down the line. Winning means returning serves to the center. The latter game is much easier to conquer.

Dwight Eisenhower knew this too, and so did his brother who told him to “never get into a pissing match with a skunk.” Ike’s military history and experience directed him away from fighting in Vietnam and Korea. It also guided him in the mano a mano battles on the hill.

In her work in poor countries, Esther Duflo conducted studies that could be repeatable. Rather than large, sweeping changes, Duflo, and her colleagues looked for small things that could make a difference. They found that gifted bed nets, incentivized vaccines, and efficient micro-credit were all positive small changes that could cascade into large effects. That’s winning.

Both of these strategies; asymmetrical plays and favorable situation, require humility. In the first there may be many small loses before a big win. In the second it means walking away from something because you can’t do it well.

TIL2017 – Curiosity

Supported by Greenhaven Road Capital, finding value off the beaten path.

This post is part of the TIL2017 Summary Series.

Readers are curious. Entrepreneurs are curious. Juvenile delinquents are curious. Yvon Chouinard pointed out this idea and it appears again and again. Each of these people wants the world to exist in a different form.

When the college dropout codes a technology pillar it’s because they were curious. People without the right avenues, wrote Ken Grossman, are troublemakers. This line is narrower than we realize.

More than a handful of podcast guests say curiosity is fun. It’s like hunting for Easter eggs said Wesley Gray. Curiosity was what Joe Peta did as part of his rehab. Walter Isaacson said a “playful curiosity” was what separates Da Vinci from Dariano (me, you). Tyler Cowen said it’s like being Sherlock Holmes.

These investigators of intrigue often suggest we go. Cowen said books are a great way to learn about things but to really taste a place you have to go there. Jenn Hyman said she got her business idea not while in business classes at Harvard but in her sister’s apartment. Esther Duflo went to Africa and India to solve the questions her curiosity produced.

Before you go, wrote Peter Thiel, believe there are secrets to find. If you go without expecting (hoping) to find something then nothing you will find.

Thomas Russo told Ted Seides to listen to things that surprise you. That’s what happened during Peta’s rehabilitation and deliberation. Why did this baseball team have that record?

To channel Charlie Munger, it will also help to know where not to go. That can be school. Ben Sasse said school is okay, but we need more options. Bloggers like James Altucher and Seth Godin disagree. So might Alice Waters.

Instead of school, go and ask a lot of questions. Scott Norton did this for his ketchup company. He asked experts at making food and experts at eating it. Marcus Lemonis said that he’s like an infant, asking why, why, why.

Brian Grazer wrote a book about curiosity. Brad Gilbert started his own little book about it. Gilbert lost a tennis match to an oaf. How did he beat me? Gilbert wondered. He sat down to watch the guy’s next match and tracked his play, taking notes in a little black book. At their rematch, Gilbert won and he expanded his notes to include more players.

Let curiosity sprout come from novel notions.

Ken Burns said he never picks films because he knows about the subject. He does the opposite. He picks things he doesn’t know about. Jason Calacanis advised pretending you’re a journalist.

The quality of curiosity is quantity. Alton Brown called it the greatest force in the universe. Kevin Delaney said that success comes from ideas.

If I were magical this is the first spell I’d learn. I’d cast curiosity.

 

TIL2017 – Trust but verify

Supported by Greenhaven Road Capital, finding value off the beaten path.

This post is part of the TIL2017 Summary Series.

“Trust but verify,” – a Russian expression – is helpful and relevant with more accurate and accessible data. Data is a key to the right lock.

Feelings are not facts said Ray Dalio, Ken Burns, and Travis Sawchik. Each of them encourages us to move from the world we expect to the world that exists. Included in the basket of feelings are opinions, biases, inclinations, and ideas. We have to test that stuff.

One favored verification is out of sample tests. This test, said Cliff Asness, is “very calming.” Dalio suggests we find timeless and universal data.

We don’t tend to do that. Instead, we can get tripped up. Extrapolation is a common downfall in sports like the NFL.  Blowout wins in college football, for example, is a poor predictor.

Other times we need to verify how much numbers really matter. Ben Sasse said that a 40:1 student to faculty relationship sounds a lot better than 300:1, but doesn’t matter. So long as there are “five nerds” doing all the talking, the experience for the rest of the students is mostly the same.

Numbers like 99% can be convincing too but upon further inspection may not be. Former football lineman John Urshell expressed doubts about how often brain damage occurs in football.

Other times we can see a complicated system. This is often just marketing said Wesley Gray.

Ideally, we get to control the data from the point of collection. Ben Falk said this is what happens with the Philadelphia 76ers. The team tracks three-point shots made in practice. The players have to prove themselves before they get the green light during a game.

Data control is what sent Esther Duflo into the field. She was concerned that too much foreign aid was assigned by demand and supply wallahs. “Wallah” is Indian for a person involved with a specific thing. Duflo et al. call politicians from both sides to the carpet. Why? They don’t verify their assumptions. Rather than parroting that supply/demand will fix X, run experiments to see what really happens.

When asked about what led him away from market cap weighting, John Montgomery gave Barry Ritholtz this answer, “research.” It’s a funny moment in the interview. Rather than pontificate Montgomery levels. In the same interview, Montgomery explained how he tracks his time. It’s laborious, he said, but it’s something he needs to do if he’s going to verify how he spends his time.

The Nike running team did this with Eliud Kipchoge. Rather than assume that marathon times were a good indicator, they measured oxygen, gait, and diet to verify that the runners were performing at their peak.

Layered on to all this is our biases. The The GMs talk about solving this problem and come up with some good ideas such as writing down your ideas and revisiting and blind voting.

Infinite verification is impossible but basic verification is not. A few calculations or internet searches can give us some idea whether to trust, or verify more.

 

 

TIL2017 – Be Different

Supported by Greenhaven Road Capital, finding value off the beaten path.

This post is part of the TIL2017 Summary Series.

We’ve already had a post about Being Different. It was like the song of the year though, so it gets repeated here.

Being Different is valuable because it distinguishes you from others. It’s like when my seven-year-old daughter says ‘Let’s race!’ but speeds off before telling me where the finish line is. If the end is different you can be the first one there.

Danny Meyer did this for restaurants. He wanted to put flavor notes together in a new way. He wanted to emulsify tastes. He wanted new food in New York – and he’s largely succeeded.

We can hold up Meyer and the others in hindsight but the journey to different is lonely. You have to be a loner, a cynic, a skeptic wrote Scott Fearon to be a short seller. Jason Calacanis warned against investing in obvious things. Meb Faber said that “me too” funds will often fail. Marc Andreessen said to look beyond the non-obvious.

Okay. How?

One way to be different is to do something you know. Andy Rachleff suggested this. Create something that you love to use, said Rachleff. In other words, eat your own dog food.

Another way is to learn about something. This is what Scott Norton did when he created a new ketchup brand. If there’s a manual about how to do a thing, it’s not a new thing Norton said.

Marc Andreessen would tell you to look at fringe groups. What are they doing? We see this through history like when the radio went from a novelty to a luxury to a necessity. Cars, phones, dishwashers too.

Sometimes you won’t be different. This is why Gimlet Media doesn’t have a sports show said Alex Blumberg. Until they can do something different than the existing podcasts they’ll sit out.

Sometimes your different thing will be really different. Who, for example, would want to watch eleven hours of civil war pictures? Ken Burns found out that a lot of people would. Burns and Alton Brown both succeeded because they remixed existing ideas to make something new. For Brown that epiphany was when he wondered what a combination of Julia Child, Mr. Wizard, and Monty Python might look like.

Different isn’t a Silver Bullet. The thing still has to be excellent. Jenn Hyman tested the Rent the Runway idea on her sister and friends in college. Scott Galloway tells his NYU Stern students – and anyone else who listens – to build a great product before you worry about marketing. So does Ryan Holiday.

If the different thing succeeds it will be temporary. Others will join this one person race. Edges don’t remain said Ed Thrope. Sports is a petri dish full of examples from Jeff Luhnow to Daryl Morey to The NFL.

Being different will always be hard and sometimes be valuable.

Alice Waters

Supported by Greenhaven Road Capital, finding value off the beaten path.

The tldr version of this post is that Alice Waters started Chez Panisse with obliquity. She knew what to do thanks to a DIY education, lots of (failed) experiments, talking with others (including customers), and keeping her cost low. Her differentiated product focused on a few key things and she hired independent employees.

Also, Alice owned her building, Tren Griffin addresses this in his post on wholesale transfer pricing and restaurants.

Alice Waters is the force behind Chez Panisse and her story is told in Coming to My Senses and Alice Waters and Chez Panisse. I’d have never read these books if not for Rory Sutherland recommending the book Obliquity. This quirky little book by John Kay is about working toward big ideas, it’s about Alice Waters and Chez Panisse. It may be about starting any company.

Kay writes that the biggest brands in the world all started as small companies with big ideas. It was about design or culture or feelings. When I think about Apple, Coca-Cola, Nike, Subaru, WordPress, or NYC I sense an essence. That’s what founders, like Waters,  aim for.

“How the slapdash, make-it-up-as-we-go-along little hangout and its harried mistress became such icons is a story of adventure, misadventure, unintended consequences, steel will, pure chance, and utterly unrealistic visions.”

“Alice decided to cook her way straight through Elizabeth David’s French Provincial Cooking. The book was about more than just good recipes. It portrayed a way of life — honest, elemental, caring — from which a tactile, sense-engaging way of making food emerged as naturally as a plant form the earth.”

“Alice knew, at last, what she wanted. The Montessori way – direct sensory experience, experimentation, optimism, confidence – would be the way of her restaurant. As for the practicalities, she had no specific ideas. She had never heard of a business plan. She had only faith that things would fall into place.”

The restaurant’s goal was “to evoke the sunny good feelings of another world that contained so much that was incomplete or missing in our own.”

Waters had a grand vision for what she wanted her little place in Berkley to be. She got there by bypassing the traditional education system. In high school:

“I cried at my desk…I felt I was just not smart enough.”

“My grades were good generally but I was distractible.”

She graduated high school and enrolled at Santa Barbara. It was too much of a party school. A friend and the culture pulled Alice to Berkley. From there she traveled to Europe. She kept learning, just not in the classroom.

“The dreary classrooms of the Sorbonne versus a joyous immersion in French cuisine in the sparkling, spotless dining rooms of Paris’s restaurants – for Alice it was an easy choice.”

“But I got the whole French aesthetic, from beginning to end. What those thick curtains looked like, what the fruit bowl looked like, how the cheese was presented, how it was put on the shelves, how the baguettes twisted. The shapes, the colored, the styles. Everything in Paris was magical to me.”

Waters traveled with friends and learned about food, culture, restaurants, hosts, and gardens. Back in California, the people came to her; she met filmmakers, foreign students, and academics. The DIY education paired well with Alice’s temperament.

Back in the states she started cooking for friends. Dinner parties and films, dinner parties and themes, dinner parties and experiments. Alice got the idea to start a restaurant. She had seen women running places throughout Europe. She had seen places in California doing things she might like to do. These were here see it to believe it moments.

She found a house in Berkley, but with no money had to beg and borrow from everyone she knew. But she kept a low overhead and spent 1971 looking for supplies in flea markets.

Alice knew – unlike some starups – that she had to talk to her customers.

“Alice had good reason to believe there would be a public for her cooking. Nearly everyone who had come to dine at the little house on Dada Street said that hers was some of the best food they’d ever tasted.”

“I was in the dining room, and I knew what things people were really likening, or how they were reacting to special little things that we’d try for just a few people, and I would feed that back to him.”

She knew what people wanted thanks to a lot of experimentation.

“We were willing to fail, which is absolutely essential to any kind of learning. Truly momentous disasters occurred on a regular basis, both in my artwork, which I destroyed and in her cooking, which she destroyed.”

“Jeremiah would try anything…Fuckups? We had a few. More than a few.”

The testing was what allowed Chez Panisse to be different.

“Much of the food that Alice loved most was la cuisine du marche – market cooking.”

The Chez Panisse hunter-gatherer culture “was was something that no American restaurant had ever done.”

In the first year of the restaurant Waters drew her line in the sand. She found what the most important things were.

“It was simple: ‘No corners cut,’ she told everyone. ‘Ever’.”

“That’s what distinguishes a great salad from a good one — a great one is alive.”

Good ingredients and good cooking of French recipes with small twists was the menu for the early years of Chez Panisse. This wasn’t an easy thing to prioritize. Great ingredients meant new logistics, new inventions, and new processes. Guided by obliquity, Waters didn’t care how long it took or how much it costs. This took a lot of non-glamorous hard work.

About the first year, “It was a train out of control, a wreck about to happen.”

“Nearly always, Chez Panisse managed to present a calm, contented face to the world. Nearly always, there was something going haywire behind the scenes.”

Said a friend, “That’s how I think of Alice…always moving so quickly…She has never wanted to stop. She’s is not a contemplative person.”

Through hard work and word of mouth the restaurant grew it’s top line revenue, bottom line revenue, and bottoms in the seats. With this Waters hired more people. She found that serving great food didn’t necessarily mean food service skills. Instead, Alice looked to hire someone with esprit. Once hired, you operated under the Chez Panisse decentralized command.

About flowers “With Alice’s devil-may-care carte blanche, Carrie’s artistry was also stunningly expensive.”

“If a waiter, or even a buster, wanted to try cooking something, that was fine – though it would never appear in the dining room unless it passed Alice’s unsparing review.”

Alice went through extensive training with new employees so that once they started they could function on their own.

“When somebody would start, I’d take them into every little nook and cranny. They’d have to go into the narrow closet to see how narrow it was. They needed to go outside and see how we took care of the garbage…How hot it was in front of the ovens. How it all felt.”

“After just a couple of weeks, Alice trusted me to do it on my own — that’s one of her characteristics, to trust people. She’s less worried if you don’t’ have the competence if your heart is in the right place and you’re shooting for the right aesthetic. I got in over my head, as did Chez Panisse constantly.”

Waters wasn’t absent. She understood that she didn’t have all the answers and only in brainstorming with the staff would they settle on the right dish.

“The kitchen staff met early every afternoon. The first order of business was to compare what was on the published menu with what was actually in the house. If salmon was scheduled for Friday night and the salmon that had come in that morning was, in Alice’s opinion, anything less than pristine – well, did anyone have a suggestion?”

Early feedback from one patron pointed out that some female servers weren’t wearing underwear. Waters didn’t care. She wanted chic. It was all in service of the spirit of Chez Panisse.

Over time Alice got better at; exploring, cooking, listening, and managing. But this excellence came at a cost. To get 10,000 hours you need support.

“Finally, Alice had to choose between Tom Luddy and Chez Panisse. No one was surprised when she and Tom parted ways — she was married to the restaurant, and both she and Tom recognized that she could never give him the time and attention that he required.”

“She had yet to meet a man with whom she could imagine having a child. Her most recent lover was a cook at Chez Panisse, handsome and sexy and smart and focused — and fifteen years young. She had hardly ever found a boyfriend outside the restaurant, so total was her inhabitants of it.”

 

Thanks for reading. I’m mikedariano.