Ship Platinum, Receive Gold

Within a system like an office, neighborhood, or team there are two main levers which drive behavior: culture and incentives. Culture, says Ben Horowitz, is what people do when they aren’t told what to do. Incentives are the rewards from actions. Incentives are easy to create but don’t always get the intended action.

One incentive might be fines for thin plastic bags. One potential action is customers switch to re-useable bags. Hey look! That’s was the plan.
Hannibal Loves It
Another potential action is using thicker bags. In this case the incentives led to the opposite anticipated actions: more plastic trash.

A family friend pays his kids for good grades. It works, but it’s likely a combination of culture and incentives. This is an incentive system that could easily go awry.

Another incentive that goes awry is rewarding for gross figures rather than net. This was the case in the record industry said Will Page:

“They would ship a platinum record because shipments were what qualified a platinum record. It wasn’t actually sales, if half-a-million albums came back to the factory gate it was up to the CFO to deal with the cost of returns. Once you create rules to play by people will bend those rules. If bonuses are related to platinum status and platinum status is related to shipments, then what do people do? They ship a million records.” – Will Page

1978’s Sgt. Pepper’s Lonely Hearts Club Band soundtrack was reported Platinum but was a sales bust. The following year the rules were changed and Platinum meant shipments minus returns within 120 days. That number has crept back down to thirty. It’s incentives all the way down!

A Platinum album is one million units. Gold half that. Album certification – ship Platinum, receive Gold back – feels like a thing of the past. But incentives are not.

The Last Lecture sign

On September 18, 2007 Randy Pausch entered a Carnegie Mellon University lecture hall and gave his ‘last lecture’. Pausch’s lecture was one of a series hosted by the university where varying academics spoke about “what mattered.”

What made Pausch’s lecture so moving was that weeks before he learned his pancreatic cancer had gotten worse. Pausch passed away ten months later.

Pausch’s story is beautiful and someone can join the twenty-million views on YouTube. But we want to think about something different, Pausch’s book, The Last Lecture.

“It’s not the bestseller that interests me,” said John Thompson, “it’s the world that makes bestsellers possible.”

There’s a lot of good stories every year, why was TLL a New York Times bestseller for 112 weeks and not some other book? Part of the reason is the business model.

“How do you value this book? You have fifteen pages of an outline by an author who has never written a book before, how much are you going to pay for it? It went for 6.7 million dollars. I thought that was crazy, who would pay 6.7 million for a book by an author who had never written a book and may not even live long enough to write it.” – John Thompson, Oxford Bookes University, November 2010

Thinking like an anthropologist, Thompson’s first order of businesses was to figure out the business landscape. Every industry has competitors and collaborators. There are explicit and implicit incentives.

A few landscape changes took place through the 1980s. Small independent bookstores yielded to chains. Scale meant changes in bargaining power. In that decade literary agents grew in stature, slightly empowering writers. Publishers meanwhile consolidated in number and power.

By the late 90s and early 00s the book selling economics was like venture capital or film: around 30% of books, estimated Thompson, generated the bulk of the revenue. Along with the need to grow, the incentive was to find Big Books like Dan Brown’s The Da Vinci Code (2003).

Finding a “Dan Brown” was a dream, quite literally. Instead, publishers looked for new authors with good ideas. Lacking that they tried something we are more familiar with in 2021: platform.

Walk into a 2010 bookstore said John Thompson, and each of those books at the front table were paying $1 in rent to be there. Books had to sell quickly or they were returned to the publisher. Without a “Dan Brown” the next best route was someone with a platform and so in 2004 Paris Hilton became a NYT bestseller.

Randy Pausch had never written a book, but Randy Pausch had been written about. Two days after the lecture, Jeffrey Zaslow featured Pausch’s pronunciations in the WSJ. Following that Oprah and ABC got in touch. After that Hyperion publishing.

This era feels like a shift in celebrity, as least through the lens of book sales. While Pausch’s talk wasn’t the most popular it was on the growing site YouTube. In 2005 Ronaldinho’s Touch of Gold was the video people shared. In 2006 it was Evolution of Dance. EOD became the most viewed YouTube video with ten million views. It had the most viewed crown, lost it, got it back, loses it (this time to Avril Lavigne), gets it back and loses it for the last time to ‘Charlie Bit My Finger’.

Evolution of Dance was number one for about as many days as Baby (Bieber) and Despacito (Fonsi) and half as long as Gangnam Style (Psy). It was the first viral video.

I remembered TLL as a dual feel good story. Both the message and that the message shined through. It does, but TLL succeeded because of the business model. Publishers wanted hits and lacking a “Dan Brown” looked for people with a platform.

Pausch’s story is beautiful and as a teacher I hope he would appreciate this post. In Internet time 2007 feels like a long time, but the things we did then we do now and we did before. There’s lots of change in actions but much less in reasons. Looking back at this moment is a nice (dual) reminder about how we live.


A couple other tent pole moments: 2010 – Old Spice, the man your man could smell like. 2012 “Hi I’m Mike founder of Dollar Shave Club dot com…” and 2012s Gangnam Style is first video with one-billion views.

Hiring stakeholders

Every business has stakeholders. Each entity in “the supply chain” is a stakeholder. There are supplier stakeholders: credit card companies deciding who or not to service. There are customer stakeholders: voting with their feet. There are government stakeholders: adjusting the dials of the economic system as if it were an aquarium.

There are also employees as stakeholders.

“I think of Masterclass, I think of Coda. I think of a company that we just invested in. They’re very clear and upfront about their culture and the process. And I think that A, attracts people who are excited about that type of culture and B, by the time that somebody has actually gone through the process, it’s very clear to them what working in the company is like.” – Roseanne Wincek, Invest Like the Best, August 2021

The LTV/CAC idea applies to all stakeholders. There are many ways to lower the CAC, and it’s one of the more interesting business questions because the lower the CAC the better the business model.

But even a CAC of one doesn’t work if the LTV is zero. The most important part then is getting the right stakeholders, and the best way to do this is clarity. We are the kind of people who do this sort of work.

This isn’t easy. It’s not like a business can say: this is our business model, because alpha erodes. And, it’s not just competitor stakeholders that affect how an organization runs. Any stakeholder can change the rules. Landlords raise rents. Suppliers vertically integrate. Life changes!

Zappos once ran a campaign with a CAC of $18,500. That was inefficient. But a company who does more convincing that clarifying will have the same results: a lot invested and little to show. For instance, Ottawa Canada is a phenomenally good place to built a software company?

“If I hire someone through this very intricate hiring process that we have, there’s an understanding the chance of us still working together in ten years is really high. It’s a commitment from both sides. The company needs to be worth working for in ten years, but because of that, we can have a very different relationship than in a place where the expected tenure is eighteen months.” Tobi Lütke, The Tim Ferriss podcast, June 2020

Shopify filters employees through an “intricate hiring process.” Investment managers filter limited partners through ominous letters. Brands filter customers through advertising.

Maybe flexibility is the best way to think about stakeholders. How much do your stakeholder restrict your range of motion, and is there a way to increase ones flexibility?


Erik Jorgenson calls analogies our mental ‘sporks’. Brilliant!. The credit card companies were top of mind because the OnlyFan payment situation was news around the same time as the episode. Visa and MasterCard have stakeholders too. Sometimes it’s situations like this that provide opportunity for a business. If someone won’t “do X”, that’s a smaller market and more of a chance to avoid alpha erosion. Lastly; CAC, alpha erosion, and stakeholders are all on the list of my favorite ideas.

Tailing Aaron Rodgers

First, the New England Patriots pre-season win totals…

“If you forced me to make a play I’m circling the under at 9.5 (wins) at -120. I think there is a longer tail to the under here; if they stick with Cam Newton a little too long, if Mac Jones is a little farther away than people realize, if there are injuries in this relatively aging defense, if the offensive line isn’t quite as good, if the offensive weapons don’t really make a contribution. There are a lot of ifs that are potentially negatives for the Patriots and I am perfectly fine playing the win total under.” – Drew Dinsick, Deep Dive Podcast, July 2021

During the 20/21 NFL season we ‘Tracked Tom‘ to see if Tom Brady would hit the over on his passing yards for the year. The theory at the time was the same that Drew describes: more can go wrong than go right. The question wasn’t about how well Brady played, per se, but rather what big events might happen and which way would they break? For Tom, everything was terrific and he hit the over.

It’s Plus EV Analytics who thinks this way, in part from reading Nassim Taleb. And from him we’ve got another for the 21/22 NFL season!

There’s a chance Aaron Rodgers says chuck-it, and goes on to host a game show and he throws 0 touchdowns, a 100% decrease from the line of 38.5. There is no chance he Proves them All Wrong™️ and has a 100% increase to 77 touchdowns (the league record is fifty-five, only three players have thrown more than fifty).

Visually the idea looks like this:
Graphically

Take the under on Rodgers.

But not all systems are like this. Sports can be under on the idea of injury alone. Financials can be under too. Cryptocurrencies, for instance, can be hacked, regulated, or fall out of fashion. If someone put the over/under line of Bitcoin at $38,500 at the end of the NFL season, a similar set of arguments and conclusions flow.

To a point.

Unlike Rodgers, Bitcoin could double. It’s a different system. Businesses are more like Bitcoin than NFL lines. Most of the Amazon services started out as bets: will this thing work? Amazon’s wager was the outlay in resources but Amazon’s winnings, unlike Aaron’s TDs, could easily double, triple or more. Here’s how Jeff Bezos put it.

“We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.” – Jeff Bezos, Invent and Wander

Fat bottom tails make the complex world go ’round and a basic understanding of distributions, curves, and areas helps.

Three star recruits

The success equation notes that results are combinations of skill and luck. Some parts of life have a larger luck outcome than others.

So, to improve, we look at the skill slice. Poker’s appeal is this idea. Play more hands with positive expected value. But not every sport is as clean as poker. Football, for instance, is messier.

One way to work around the football outcomes is to focus on the football inputs. For instance, recruiting is important, how many highly rated recruits does a coach get each year? That seems like a nice input as the percent of “Blue Chip” recruits correlates well with wins.

Ah, but incentives are tricky.

“There are stories you hear, anecdotal but I’ve heard more than a few, about how different coaches may have a financial incentive to have higher ranked recruiting classes, and they may be involved in the process of lobbying to get guys higher stars.” – Bruce Feldman, Wharton Moneyball, September 2021

Incentives are like the weather. Just like a bunch of measurable aspects (temperature, pressure, wind, humidity) combine to form ‘the weather’, a bunch of measurable aspects of a job combine to form the incentives. A football coach has incentives to win, but also to pay his daughter’s tuition and take his family on vacation. And it’s not just football coaches, it is all of us.

What to do? Work is a combination of financial and non-financial rewards. Alchemy offers a way to tweak the non-financial rewards. Culture works well too, and that comes from the top.


Here’s a story on auto incentives (thanks Stephen!). Incentives were one of my favorite ideas, get all 62 as a daily email drip on Gumroad. Find them on Amazon too.

Using Drafts

The problem with Notion and Roam is aesthetics, and the design consequences. Notion looks polished, like a webpage. Roam’s thought graph looks like art. Apple Notes lacks features. Evernote has too many, which get in the way. If you use text expanders, keyboard navigation, or have browser extensions like Vimari or Vimium installed, then Drafts is the note system you should use.

The design choice of Drafts prioritizes keyboard input, usage, and output. Rather than a ‘How to…’ post for Drafts, this is my macro case for taking notes. There’s not much specific advice because keyboard-heavy-users will thread their own note system in no time.

Note everything. Any idea that comes up when watching, listening, or reading gets a note. Any bit of interestingness is a signal from the (sub)conscious that there’s a there there.

For instance, on the Circle of Competence podcast, Colin Keeley said that his first act after buying a business isn’t to swoop and poop but to conduct a sludge audit on the business’s processes as well as clean up marketing.

Swoop and poop is a great expression, so it gets a note.

Tag everything. Tags are the digital organizer, but unlike ‘sock drawer’, notes can be multiple things. Tags are the drawer. Which tags?

Medium. Tag notes by the content medium: book, YouTube, podcast, audiobook.

Person or podcast. These tags are good for searching but not important for the actual note.

Activity. This is the secret tip. The thing you’re doing will be a recall trigger. Some of mine are dog walk, run, home, and car.

Idea. It doesn’t have to be well thought out, sometimes looking back mine make no sense at all, but ideas like incentives, business model, and marketing are pretty common as well as more abstract ones like year (1980s, etc), nudge, numeracy, retail, and TiVo problem.

Learn Markdown. (for blogging) As someone who knows no other code – but has attempted many times! – Markdown is the no code code. Rather than ctrl-b for bold, it’s a double asterisk. Markdown is easy because of the repetition. There’s not that much html and it doesn’t take long to straighten out if the brackets or parentheses come first for a link.

Wonka

Srsly. A more frequent meme than Mr. Wonka is the dating couple where one says to the other, I do have a blog/podcast/newsletter. That’s fair. But have one for you and your internet friends. Writing on the internet is a way to learn in public and writing is consistently praised as a great way to learn.

“For me, writing is an act of finding clarity and it’s an iterative act. You try to write. You realize don’t understand. You go back and try to figure it out. You try to write again. You realize you still didn’t figure it out. But it’s all a process of finding clarity.” – Bethany McLean

Share something. We’re out here together. Share the work.

Most things are not read. Write online and you soon find there is no connection between time plus interesting-to-you and page views. Fine. Page views aren’t an appropriate proxy for what we are doing. There are only two goals: learn yourself and contribute to the fat tail. Most of my internet searches end up in the fat tail part of the internet. Help me and future me’s and write online.

Notes are also crucial to the three ways to spend your day.

How much coding do you *really* need?

There are some ideas where I feel more or less confident about being true, this is one where I am confident it is a thing, but I am not so confident I understand it.

How much should someone code? Is “=CORREL” enough? What about HTML? I use RSS and Markdown and emojis all the time but I don’t code any of those things. Yet, there’s a lot of talk about needing to code. You need to code to get ahead. You need to code to keep up. We need to code the code’s code! But coding is situational. Replace “code” with “cook” and its like, oh yeah, that’s pretty varied.

What we really mean when we say, “people should know how to code” is that people should be able to use tools to deliver value. Code is a tool that does a job. The appeal of code, says Richard Feynman, is that it’s so dumb it’s fast. Code can also be copied. Code is a tool that delivers value unrestricted to time or place.

There’s a lot of ways for code to be a tool, it depends on the level. Sometimes =CORREL in a spreadsheet cell is the right amount of code. A spreadsheet is code too. There’s a bunch of math behind =CORREL that someone doesn’t need to know. That function is a tool within a larger function, the spreadsheet. All these functions within functions are the User Interface (UI).

“Consciousness is more or less the UI for how your brain works. Much like a UI, it wouldn’t help if Microsoft Word made me code in the structure of a document. There are programs, like LaTeX, that allow you to do that, but they are a pain in the ass to deal with because you have to specify the underlying details. The whole point of a UI is that it is an abstraction that sits on top of all the stuff underneath. For the most part our conscious is the UI for what is happening in our minds.” – Kyle Thomas, Stoned Studies August 2021

This nesting-doll nature of code is to be expected according to Brian Arthur. Yes, he tells Jim Rutt, that it has gotten more difficult to repair the things we use but this is because, like code, we create sub-systems for convenience of use.

“One of the things that happens is that if some sub-system is used often, it might have say 54 parts to it. If it’s used again and again and again, over several models and years it becomes modularized, becomes its own thing and it’s separately manufactured and it may have a cover on it. It may not be accessible to amateur mechanics, and it may only be accessible if you’re trained by Mercedes or Audi or whoever it is. And you’re properly trained. You have the proper tools. So as the lesson here is that as inner parts are used again and again, in the same configuration, the tendency is that they become modules.” – Brian Arthur, The Jim Rutt Show, August 2021

What is code? What does it mean “to code”? It depends!

This is good news. Rather than “learn to code” we should focus on “learn to solve problems”. Many of those problems will require tools. Some of those tools will be code. It is these kinds of problems: needs repeating, needs scaling, fits-with-existing-modules where code will be the tool for the job. Sometimes that code will be deep in the nesting dolls. Sometimes that code will be a simple spreadsheet cell. How many layers of UI depends on the problem to solve, the job to be done.


Arthur is famous for his comments on the Increasing Returns Economy.

Also, this. It gets good around 7:00.

Day to day designs

There’s a lot of advantages to designing day-to-day decisions. It’s may seem unglamorous but changes add up. For instance, try to leave your phone out of reach.

But the internet is on there!

The heart of design is to change a situation so that something is more or less easy. The beauty of design is that the change is not always in proportion to the effect. And we need designs because as Byrne Hobart notes, we have a lot of muscle memory.

“There’s a lot of muscle memory typing ctrl-t Reddit dot com. It is really important to resist that stuff because it is a continuous tax on your ability to accomplish things. This is a good reason to buy physical books or magazines. If can force yourself to focus for awhile, you can get non-linear benefits from learning a whole lot about narrow topics and understanding new topics by using analogies from previous ones.” – Byrne Hobart, World of DaaS, August 2021

Here Hobart offers a couple of useful ideas in an interesting way. One is design but he also frames Reddit as a tax. This is clever.

Tax is normally associated with money and with being bad. Tax reframed here keeps the bad part but shifts the focus to time. That works with travel budgets too.

Personal productivity is another one of the Large N small p cases. It may not seem like we are ‘doing a lot’ but small changes add up each day.

Being better than Superman

Maxim four from Richard Zeckhauser is: “When trying to understand a complex real-world situation, think of an everyday analogue”.

Alex Tabarrok has been using this strategy to communicate about vaccines.

“To me the vaccines are like a superpower. Superman is immune to bullets and I tell people: ‘Wouldn’t you like to be immune to bullets? The virus has killed many more people this year than bullets have, and the vaccine makes you immune to the virus, it’s better than being immune to bullets!'” – Alex Tabarrok, July 2021

In Dan Levy’s book about Richard Zeckhauser he includes a section from Gary Orren who used the everyday analogy strategy to describe the AmeriCorps service program. AmeriCorps, Orren told legislators, is like a Swiss Army knife, it does many things well though it’s never the perfect tool. A few weeks after addressing the governmental staff Orren returned to their offices. “Oh yeah, I remember you. Swiss Army knife.”

This strategy helped, Orren explained, because it focused his thinking and the audience’s understanding. A lot of times our thinking is FAST and analogies shift complex concepts into simpler situations.

Simplification isn’t the end though. Extremes, like questioning the Ohio vaccine lotto, are not the final answers but a first foothold. If we can understand an issue’s basic components first, it can be easier to build up to the rubber-meets-the-road challenges of IRL.


My year of AmeriCorps was health based, and I remember many vision screenings .

Selling shirts, planning planes

We’ve looked at a few different customer acquisition cost strategies : F1 racing, Zappos’s mistake, and P.S. I love you, from Hotmail.

The CAC ideal is to acquire the best customers for free. That’s ideal. L.L. Bean started when Leon Bean mailed his catalog to out-of-state hunters. Michael Dell sold newspaper subscriptions, but sourced his leads from the “Just Married” records. Both men found pretty-good customers for a pretty-good price.

Customer acquisition might be the most interesting puzzle in business because the lower the CAC the more flexible the business model. Today we’ll add two more.

About Mike Wolfe, of American Pickers:

“He would go from barn to barn and buy some cheap stuff, something sold in the store for fifty bucks. We would buy something like an old motorcycle that was art which we could sell for twenty grand. And each day all these people, from all over the country, would come into the store and we would probably sell five-thousand-dollars worth of items and probably thirty-thousand-dollars worth of t-shirts.” – Sam Parr, My First Million, August 2021

The American Pickers television show is the customer acquisition vehicle for selling merchandise. Brilliant right? Okay, the second one.

“Growing a financial services company is so brutally difficult, and the growth is so restrained by customer acquisition costs that it is literally worth it to start flying people around the country. That is the most cost effective way to sign people up for credit cards, and the credit card business is so lucrative it is actually worth it.” – Byrne Hobart, World of DaaS August 2021

The business model of airlines is to operate a hub location that allows for network effects and to maximize the capacity of each plane because each additional customer costs, per Hobart, a drop of fuel and bag of nuts. Hobart’s whole interview is wonderful.

Finding customers has evolved over time. When customers were rural, catalogs ruled the day. As customers moved to cities, it was the department store. Then customers got cars, and the mall and big box retail came to be. The most recent step then is to the internet. It’s the same question Bean bandied in 1912: where the customers for what I am selling?


bonus: look for ‘lost’ monetization opportunities, like Matt Levine’s Money Stuff Bloomberg email.