Author: MIKE

DHH joined Dan Andrews on the Tropical MBA podcast and it was good.

Why? DHH is a contrarian. Not for the sake of being one (though you do get the vibe), but because he has something to say. He’s the anti-VC voice.

Part of the reason venture capital is so prominent, Hanson says, is because they trumpet their successes. Chris Dixon told Shane Parrish much the same, “it (VC) gets a lot of attention in the press but it’s a very small industry.”

Hanson is a bit bolder, comparing VC to a casino, lottery, and cabal.

Here’s the beautiful part, both Dixon and Hanson can be right. VC is good, and VC is bad. What matters is whether it’s good for you. Hanson says that if you want to swing for the fences, be a unicorn, then VC might be the way to go. But it might not too.

Here are a few other things I learned.

1/ Invisible scripts. “Hey, why didn’t anyone tell me about these alternatives,” Hanson says about his desire to speak out. He wants people to know that bootstrapping “a nice $5M” business is an option. He wants to unveil this hidden option.

We’ve had invisible scripts pointed out before:

• Venkatesh Rao talked with Andrews about it.
• Auren Hoffman addressed it regarding college.
• Sarah Tavel addressed it regarding careers.

We also know how to bust invisible scripts: reframe them.

• Anthropomorphize the stock market into bi-polar “Mr. Market.”
• Flip a picture upside down.
• Reverse the question. (here’s how I did this for startups)

 

2/ You can’t measure friendship. “I’ve found a group of people that I do like spending a lot of time with and that’s more special than people give it credit for.”

This Hanson quote brought to mind something Charlie Munger wrote:

“Practically everybody (1) overweighs the stuff that can be numbered, because it yields to the statistical techniques they’re taught in academia, and (2) doesn’t mix in the hard-to-measure stuff that may be more important. That is a mistake I’ve tried all my life to avoid, and I have no regrets for having done that.”

Whether it’s business or life we can be careful about overweighing the numbered stuff that yields to statistical techniques.

If happiness = Lamborghini + Lots of Money + startup + marriage; Hanson would be set. Hanson found this wasn’t the case, writing:

It was like I had pulled back the curtain on that millionaire’s dream and found, to my surprise, that most of the things on the other side were things I already had.

3/ Humility. “I retain the humility of knowing that just because I have hit a homerun with Basecamp does not mean that I have some magic voodoo touch that’s going to turn everything else into gold.”

A lack of humility (hubris) can destroy hedge funds and inflate economic bubbles.

Humility helps. It can help one “survive the vicissitudes of life”, launch a startup, or dominate a sport. And you can be humble with an admission of luck.

Thanks for reading, I’m [@mikedariano](http://twitter.com/mikedariano) on Twitter.

Patrick O’Shaughnessy was on the – just launched – Meb Faber podcast. The interview was good. Faber should have a good podcast, though if he gets too far into the weeds I’ll need to learn a few more things to follow along. O’Shaughnessy kept things easy and here’s what I noted.

1/ Where you start from matters. “We like to say that stocks are guilty until proven innocent. You shouldn’t start with market weights and move away, you should say ‘I want to built a reasonably diversified but highly active strategy based on factors like this.’”

Every position has a default. Have you thought about what it is?

For example, “No” is a great default for making choices. Mellody Hobson said that one of her analysts had a default of no. “Her process is one of elimination, she assumes she doesn’t want to own anything.” Michael Lombardi said something similar, “scouting is not about finding players, scouting is about eliminating players.”

Others use it for better productivity. Tim Ferriss, Chris Sacca, and Cal Newport all say they look at new projects and think “No.” Only if it’s really good, will it change their mind.

 

2/ The Finish Line Fallacy. “If you’ve been a concentrated deep value investors over the long term you do really really well. If you checked your account every twenty years you’ve been doing great. But people don’t do that.”

You can’t try to wins someone else’s race, with someone else’s finish line. I do this when on the treadmill, always looking around at the speeds next to me. It doesn’t matter in the gym, and it doesn’t matter in your portfolio. 

Charlie Munger said, “I don’t think it’s a tragedy that one competitor had a little better ratio one period…I don’t think we should worry about the fact that somebody else had a good quarter.” Tadas Viskanta said, “if you get someone in the market, you need to also get them out.” Josh Williams wrote that when he played someone else’s game it was the beginning of the end for his company.

Jason Fried took a wider, wiser, angle. When asked what success was to him, Fried said, “something you would like to do for many days in a row.” You fail to achieve this, he explained, if you try to finish someone else’s race. If you try to be Jeff Bezos.

“His success (Bezos) is one that’s very very hard to achieve…most likely you won’t get there…the odds are stacked against you…and if you think that’s the only way you’re going to be miserable.”

 

3/ Invert, always invert. “There’s tremendous value in studying short sellers. Most of the time the focus is on long investors who focus on the best companies to buy. I think  it’s more interesting to look at guys like Jim Chanos and their methodology for identifying companies to short. That way we know what stocks we can avoid.”

Typically, it’s Charlie Munger who explains it best:

“For example, if you were hired by the World Bank to help India, it would be very helpful to determine the three best ways to increase the man-years of misery in India—and, then, turn around and avoid those ways. So think it through backward as well as forward. It is a trick that works in algebra and a trick that works in life.”

O’Shaughnessy will look at what Jim Chanos condsiders important, and avoid companies that exhibit similar symptons.

Terry Gross said this works for careers too, “you find out who you are by finding out who you’re not.”

Mohnish Pabrai explained that Coca-Cola succeeded thanks to inversion as thinking. “The first thing you don’t do is losing half the brand name.” Coca-Cola had a great brand and what would have happened if they let other people use the Cola part of it?

Inversion was the jumping off point of my book; 28 Lessons from Start-ups That Failed. I found out how technology start-ups made money, personal, and strategy mistakes. Things like expensive marketing, fast hiring/slow firing, and not knowing customers were consistent start-up maladies.

4/ History rhymes. “It’s really expensive exciting stuff ($TSLA, $AAPL) for young people, really boring cheap stuff for older people, and if history rhymes, which it often does, that older, more boring and stodgier portfolio is probably going to do better.”

We’ll call this idea pattern recognition. It’s why Marc Andreessen and David Chang suggest people read biographies. They want to see patterns in successful decision making. Andy Weissman said pattern recognition is his best skill:

“If we were good at starting companies, we would start companies. We’re not good at starting companies, so we don’t. We don’t want to be involved in the running of the business, we can provide a good level of service because we have seen lots of different types of business at lots of different types of stages and we have good pattern recognition that provide frameworks for how to support the decisions entrepreneurs need to make.”

Tren Griffin pointed out the advantage of pattern recognition, stories, and history.  “Business school should be taught from more of a historical case format,” Charlie Munger believes, Griffin pointed out,  “that you learn from pattern recognition and in order to learn from pattern recognition you have to see a lot of examples.”

The value of pattern recognition is that it saves time and money (two things that kills companies).

5/ Smart humans do dumb things. “The company pre-announces earnings for no known reasons and the stock goes directly back to the strike price and I end up eating bologna and mustard sandwiches for a year.” – Faber

If humans are playing the game, they will do dumb stuff. When Richard Thaler began research that would form behavior economics he actually kept a list of theories title, “dumb stuff people do.” Charlie Munger talked about this too:

6/ Incentives matter. “There’s a law in economics that says when a measure becomes a target, it ceases to be a good measure. For example, there was a rat infestation problem in colonial French Vietnam. Their solution was that they would offer a small bounty for each rat tail turned in. People started collecting bounties, but then officials went out in town and noticed rats running around without tails. People were cutting off the tails and letting the rats return to the sewers.”

Shane Parrish was disappointed in the higher education incentives of you scratch my back, I’ll scratch yours. John Nagl studied different incentives for miltary surrender to see that sometimes you needed a carrot, and sometimes a stick. Napoleon Bonaparte’s troops sent their spoils home and created the incentive to keep fighting.

When you know the existing incentives you can also avoid them (inversion!).  Louis C.K. wanted to avoid traditional economic incentives when he made Horrace and Pete:

“I want to do this show for years I thought, but every time I took a big dramatic or tragic turn on the show, I thought, the only thing that keeps you from doing that in a sitcom or any series is that you need to stay within the margins so the show stays the same and so it can stay on the air. The decision to make big moves on a television show is economic.”

 

7/ Be there and eat your own cooking. “My advice is to be as hands on as possible, invest in this stuff yourself, eat your own cooking, live it yourself, talk to investors as much as you can – because investor psychology is everything.”

Wesley Gray said, “after being imbedded with the (Iraqi) people I started realize that culture matters.” You have to be there to best understand a situation. John Nagl found that the best military commanders were “smart enough to go out into the jungle.” Chris Dixon said places like NYC and LA are great because “with people in the arts and media and all kinds of different industries, and that creates a different creative dynamic.” Being there helps. 

But, we can invert this idea too. Josh Koppelman said “there’s a real benefit to not being in the valley echo chamber….to see how the rest of the world views technology is really compelling.”  He needs to see non-SF types use technology. Warren Buffett left NYC, said Jason Zweig, because too many people were whispering in his ear.

Tadas Viskanta put it best when he said, “you have to be much more of a conscious consumer.”

Thanks for reading, I’m @mikedariano on Twitter.

Wesley Gray joined Barry Ritholtz on the Masters in Business podcast. It was a pleasant surprise like the Andy Weissman interview. I didn’t know of Gray but enjoyed the interview. That’s the beauty of podcast subscriptions. Ready for the notes?

1/ When the pool of participants expands. When asked by Ritholtz what advice he would give young people, Gray said to  “build mental toughness,” because, “you’re competing not with Americans, you’re competing with the globe now. We have a lot of Chinese guys and they grind. They work harder, faster, stronger, so you gotta rise to the occasion.”

When the pool of potential participants expands, the competition is more intense. To put it another way; exploitable opportunities gradually disappear. Howard Marks said, “part of the luck is to get there early, and I did.”

In Full House, Stephen Jay Gould explains this in terms of a “right wall” in the distribution of results. As we get closer to the wall of limits (human bone density, speed of light, etc) then the competitors will start to bunch up. This is signalled in four ways:

1. Flattening of improvement. Record breaking results come at a slower rate. We see fewer Warrn Buffetts. 
2. Promise of even greater rewards. Financial, social, or other gains become available. It’s cool to be a startup, and you might even make some money.
3. Become accessible to all. When women were able to run the Boston Marathon, their times improved at a faster rate than the men.
4. Optimized methods of training. Bill Simmons said Lebron James is better than Larry Bird – esentailly because – he stayed healthy longer.

Burton Malkiel said:

“As the market gets more and more professional, when people are better trained, when people have better sources of information…it’s then harder and harder to actually beat the market.”

Milton Hershey saw this in the caramel business. He sold his Lancaster Caramel Company for a million dollars and started in a less crowded area – milk chocolate.

Marc Andreessen explained the idea this way:

“We don’t foreclose the possibility that there will be another mobile killer or social killer app but it’s getting harder and harder and harder because more and more people have figured out that you can do these things and the winners have gotten very established. One of the ways to think about it; first you had Facebook and then Twitter and then Instagram and now Snapchat, and those all became big winners. What would it take to make the fifth one? You only have so many icons on the home screen of your phone. It has to knock one of the other ones off.”

The more people who play, the harder it is to win.

2/ Butterfly effects in the game of telephone. “Model creep is like the old game with the kids. The little girl says ‘the princess kissed the frog’ and by the end of the circle it’s ‘spider man beat up he man.’ It’s a totally different stories because you have small little changes.”

I’d never thought of the game telephone as a metaphor for the butterfly effect, but it fits nicely. Small changes in the system can make big differences.

 Phil Knight‘s waffle trainer (one of Nike’s first hits) opperated in this area.

A University of Oregon Alumni donated a million dollars for a new track. After the job was done, there were a few extra barrels of polyurethane around, and head coach Bill Bowerman took them home.

Bowerman was a tinkerer, and after seeing his wife make waffles one Sunday morning, he tried to pure the polyurethane in the waffle iron. It locked up the appliance. Bowerman didn’t stop. His next stop was an industrial processing plant that added a binding agent. A few more tweaks and a shoe that helped launch the Nike company was born.

If it hadn’t been for the donation, the extra materials, the waffles, or any other number of ingredients Nike’s shoe wouldn’t have been the same.

3/  Red flags. “We leverage a lot of technologies. People have built up statistical constructs to predict who will be red flagged as being a fraudster and at the outset, if you’re extreme red flagging on any of these things we remove them.”

As you get better with pattern recognition you can spot red flags more accurately. Gray employes the best pattern recognizers, computer algorithms. People can build this skill too. Jim Chanos credited his pattern detection skills. Chamath Palihapitiya said Dan Loeb leaving Yahoo was a red flag. Chris Sacca said it’s a red flag if “in the pitch the founder is trying to convince themself.” Naval Ravikant said a lack of energy, integrity or intelligence is a red flag.

Red flags can be anything, banks use trick questions, Van Halen used m&m candy.

Red flags are good heuristics, but only work when you know what to red flag.

4/ Facts > predictions. “If you have 50% margin year in and year out that’s probably a good business.”

Gray’s thesis is to invest in undervalued things that are still valuable. Easier said than done. Gray looks for cheap businesses that still have some good numbers. Not companies that are predicted to have good numbers, but actual-rock-hard-in-writing good numbers. 

Facts > predictions. 

“Extrapolation is a dangerous, generally invalid, and often foolish game,” wrote Stephen Gould.

Mellody Hobson said about the New York Knicks, “there may be a perspective of ‘they’re winning or not winning’ but we can look at the data like season ticket holders buying every year.”

Tren Griffin wrote that “what (Charlie) Munger looks for is a business that has a significant track record.”

B.J. Novak said, “you never know how something is going to play out until you test it…there’s no one smarter than the audience.”

5/ Busting biases (as best you can) “Even if you understand the biases. Even if you’ve memorized Kahneman’s book. Even if you know it, and how the biases influence you, you realize you still can’t control against the biases.”

If only reading this book could correct your biases. Sadly, it cannot. Even Kahneman(!!), who wrote the book on the planning fallacy still fell for the planning fallacy, said Jason Zweig.

6/ Humble pie is the best medicine for ego. “Thank god I had the opportunity to eat a lot of humble pie along the way.”

Gray said that early in his investing career he ate a lot of humble pie. Recent guest Ryan Holiday wrote a book that supports this kind of diet.

Chamath Palihapitiya cautioned, “ego is a terrible way to make decisions, it’s really good things to have, to make ourselves feel valuable and be confident, but that shouldn’t drive our decision-making.”

Jocko Willink said humility helps for leadership because “you gotta be humble and you gotta be coachable.”

David Heinemeier Hanson said, “I retain the humility of knowing that just because I have hit a homer with Basecamp does not mean that I have some magic voodoo touch that’s going to turn everything else into gold.”

Know were a little lucky. Know you could lose it all tomorrow. Try new things to remember being a pleb.

 

Thanks for reading, I’m @mikedariano on Twitter. Episode 023 of the Mike’s Notes podcast has two more ideas; stakeholders and culture.

Podcasting is still fun. I’ve found a balance between text and audio ones without too much overlap. My goal with the podcasts was like the blog, but different stories. 

Since update #1, here’s what I published.

• Episode 022: 100-year-old business lessons (from Milton Hershey)
• Episode 021: Three lessons from business of parody. (Terry O’Reilly)
• Episode 020: Sunk cost missteps, including advice from [Mohnish Pabrai](https://thewaiterspad.com/2016/06/20/mohnish-pabrai/)
• Episode 019: Business strategies used by Phil Knight and Peter Thiel

Updates here will be monthly, subscribe to get the episodes; https://itunes.apple.com/us/podcast/mikes-notes/id1055386383, https://soundcloud.com/mikesnotes, or https://overcast.fm/itunes1055386383/mikes-notes.

Early reviews are positive. My wife for example, said, “I’m glad you found someone else to listen to you talk.”

I picked up the book, Walt Disney by Neil Gabler, after Marc Andreessen recommended it. The book is good, but it’s thick.

I’m only partially through the book, but entirely through Disney’s early career. Disney, like other noted people, has a lot of lessons from early in his career. Let’s see what they are.

1/ Disney was a grinder. “(The paper route) developed an appreciation of what spare time I did have and used it to great advantage in my hobbies.” – Walt “When he’d come home and long after everybody else was (in) bed, Walt was out there still puttering away, working away, experimenting.” – Roy Disney

Most biographers credit Disney’s work ethic to his demanding father, who worked on farms and factories. Disney was a relentless worker when it came to drawing cartoons, performing on stage, or filming movies. He did what Gary Vaynerchuk suggested:

“The people that win with my content are the ones who suck out everything I say for a year or two, then put their head down for 18 hours a day and then pop back up 3 years later and start reading more content from me because they’ve taken the first step and now they’re looking how to get from 1K to 1M.”

That’s what Walt did.

A girlfriend of an early animator who worked for Disney said, “he had the drive and ambition of ten million men.” Later on, when he married, Disney and his wife would go to the studio. She would take a nap while he worked, but as she slept he would turn the clock back an hour. Then, when she woke, he would point out that the time was still early and they could stay longer.

But you can’t be busy for the sake of business. You have to build up a valuable toolbox.

2/ Disney built up a skill toolbox.  “I found out that the inside and outside of an ambulance is as good a place to draw as any.”

Disney’s military service was sort, but valuable (see #3). He never gave up drawing when he was there. After he returned he started a cartooning business, and then film and animation. With each medium he built up valuable skills. He took art classes, checked out library books, and talked to the people who did the best work. 

The modern day example of this process might be Louis C.K.. He compared stocking his toolbox to the Matrix:

Louis C.K.: You know, like what’s the movie, “Matrix.”

Charlie Rose: “Matrix,” yes.

Louis C.K.: When there is a helicopter and he says to her, you know how to play helicopter. And she goes wait a minute and she loads the program. Now I do. Well, anyone can do that. It just takes longer. You can just load a program. So, now I know how to create a multi camera drama and mount it the same week that I shot it. And how to direct many great actors which I had never done before.

Malcolm Gladwell said you can built up a writer’s toolbox working for a newspaper. “It used to take me ages to write,” said Gladwell, “then I worked at a newspaper for ten years and I was cured of that.”

3/ Travel is a net positive. “(France was) a lifetime of experience in one package.”

Disney loved his time aboard. Jamie Foxx and Tim Ferriss both said travel affected them on a spiritual level (Africa and Japan).

Travel lets you see the world. Elizabeth Gilbert started to travel because she heard to write what you know but admitted she didn’t know anything.

Travel is much better than reading a book about a place said Tyler Cowen.

4/ **Barter as a starter.” “I got to be a little celebrity in the thing.”

Disney said that after he sold an early animation to a distributor for what it cost him to make, leaving no profit. The publicity he earned though was probably worth more. Another instance was when he traded work for office space, drawing cartoons for a newspaper. 

5/ Constraints help creativity. “The first Mickey Mouse was made by twelve people, after hours, in a garage.”

Disney created other successful characters, but lost them through legal poaching. One to a distributor, another to an early partner. Mickey Mouse was his third creation, and he only came up with it because he had to. It had to be something they could animate quickly. It would be an animal. It couldn’t be a cat.

Each constraint chipped away at the range of choices until Disney could only do so much, and out came Mickey Mouse.

Donald Campbell said, “the greatest thing about being Scottish is that you’ve got something to push against.” Jason Fried said “fewer official working hours helps squeeze the fat out of the typical workweek.” Terry Gross said she’s glad her show isn’t longer because it forces her to squeeze in a good conversation.

Constraints help us be more creative.

6/ Flyting. “We voice our opinions and sometimes have good old fashioned scraps, but in the end things get ironed out and we have something we’re all proud of.”

Though Walt may have had the last word, there was a lot of back and forth before he ruled.

Wilbur Wright said friend of the family George Spratt “was always ready to oppose an idea expressed by anybody…ready to jump into an argument with both sleeves rolled up.”

True, said Wilbur, but “a good scrap….brought out new ways of looking at things…helped round the corners.”

Flyting is a marker of places of genius. Ancient Greece had the symposia, Florence had workshops, Edinburgh had flyting (15th century rap battles), and Calcutta had the adda.

7/ You are never ready. “Everything’s fine. When I get back we’re going to make a big start…but he really didn’t have anything. And then on the train he sketched out some plans.” Roy Disney

Walt and Roy Disney learned their lessons the hard way. They oscillated between success and bankruptcy. They got scammed and taken. They hustled and were hustled. They were never ready for the business until they were ready.

The modern equivalent is the story of Nike that Phil Knight tells in Shoe Dog. Knight, like Disney, is never ready for the next thing.

 

8/ Want more than money.  “If you want to know the real secret of Walt’s success, it’s that he never tried to make money. He was always trying to make something that he could have fun with or be proud of.” Ward Kimball, Animator

Money is nothing more than fuel. Nicholas Megalis comared it to gasoline. Phil Knight compared it to blood in the body. Robert Kurson found that treasure hunters wanted to find treasure to fund their next treasure hunt.

Money, said Tim Ferriss is “wampum.” It’s the thing that leads to the THING.

9/ Home field advantage.

Part of the reason the Disney’s lost their intellectual property (#5) was they didn’t know the rules of the game. Walt especially was too trusting of early partners and Roy’s role grew as he had to keep Walt from making too many errors.

Walt’s domain of expertise was in creating art, not negotiating distribution. He was a skilled basketball player who sometimes mistakenly dabbled, on a baseball field.

Actual baseball players, the Chicago Black Soxs made the same mistake. They had no gambling experience (or plan) when they threw the 1919 World Series. They failed to win, and failed to get well paid.

Napoleon Bonaparte often created home field advantage. When he didn’t, he faced the worst loses; Waterloo, Spain, Russia.

Warren Buffett said, “we don’t look at something like that (Amazon.com) and try to beat them at their own game. They’re better than we are at that, and we aren’t going to try to out Bezos Bezos.”

 

Thanks for reading. Thanks for reading, I’m @mikedariano on Twitter. The podcast version of this blog (with different stories) is available wherever podcasts are posted; https://itunes.apple.com/us/podcast/mikes-notes/id1055386383, https://soundcloud.com/mikesnotes, https://overcast.fm/itunes1055386383/mikes-notes.

 

Alex Blumberg was on the Tropical MBA podcast to talk about work/entrepreneurship. It was a good podcast. The Tropical MBA guys – Dan Andrews and Ian Schoen – did an episode in 2015 when they put themselves in Blumberg’s shoes, and retraced his steps, commenting about they would have done. Now Blumberg joined them to talk about his company – Gimlet Media – and what’s happened along the way. Here are a few notes I took.

1/ Marry the right person. “If she wasn’t on board, I definitely couldn’t have done it.”

Malcolm Gladwell joined Stephen Dubner on the Freakonomics podcast to talk about this. Here’s Gladwell on  the 10K hour idea:

“to me the point of 10,000 hours is: if it takes that long to be good, you can’t do it by yourself. If you have to play chess for 10 years in order to be a great chess player, then that means that you can’t have a job, or maybe if you have a job it can’t be a job that takes up most of your time. It means you can’t come home, do the dishes, mow the lawn, take care of your kids. Someone has to do that stuff for you, right?”

Someone has to do that stuff for you. Blumberg has this. His wife has a  job, but supports his startup. Brian Koppelman said that marrying the right person was the best decision he ever made. Chris Hadfield wrote that he could never have been an astronaut without his wife. Brett McKay and Rich Roll both run their businesses with their wives.

Tyler Cowen and Stanley McChrystal said stable home lives are valuable. In part because they let you stretch at work. Stable homes mean you can stay late, or volunteer for a project. 

2/ Pattern recognition. “This American Life worked. Planet Money worked. After Planet Money worked it felt like you can take this kind of storytelling, this kind of long form journalism and you can apply it to a bunch of different places and now we know that this is fertile ground for this kind of storytelling….then Serial comes along and demolishes everything in its path and then it was very clear that it was the right instinct.” 

Startups fail because they run out of two things; time and money. Pattern recognition extends both. Warren Buffett said “pattern recognition gets very important in evaluating humans and businesses.” Jim Chanos relies on it too.

Tren Griffin said that Charlie Munger thinks, “business school should be taught from more of a historical case format, that you learn from pattern recognition and in order to learn from pattern recognition you have to see a lot of examples.”

Andy Weissman said:

“we can provide a good level of service because we have seen lots of different types of business at lots of different types of stages and we have good pattern recognition that provide frameworks for how to support the decisions entrepreneurs need to make.”

If you can’t do, the next best thing is to read. It’s why David Chang and Ezra Klein said biographies help this pattern recognition.

3/ Podcasting is more than telling stories. “The power of audio is that it’s a more empathetic medium than TV. People hear our words, so they know we’re real people but they’re sort of creating their own images of who we are, and in that act of creation, as they listen to us, we are now part of them in a way.”

Ben Thompsen talked about this in episode 82 of exponent. He said that podcasting is a way for people to relate to him, and if they like what they hear, to read more from him.

About 4-6 years ago the “free ebook” was a lead generator. I wonder if we are entering a parallel reality only for podcasts. Especially now that any fool can have one.

4/ (Empathy) Like a Boss. “People are really really brave. I wasn’t even aware of how brave people were being until I really sat down and thought about it…it took me a while to understand what it meant to be a boss, it meant you can fire people.”

Part of Blumberg’s show StartUp was about admitting mistakes. The most glaring example was episode #1 from season #1. Blumberg pitched Chris Sacca and was painful. Especially because Blumberg is so well polished. It was like when Michael Jordan played baseball.

When it came time for his employees to be that honest, Blumberg realized might not have been as easy for them. They had to balance admittance with existence, to tell good stories and to keep their jobs.

Ezra Klein intervied Jessica Valenti and her perspective about being a woman included a lot of things I hadn’t considered. Hopefully her perspective made me more empathetic.  Reading fiction builds empathy. Empathy from working in teams, rather than alone builds emptahty too.

Thanks for reading, I’m @mikedariano on Twitter. If you liked this post, but don’t have time to read, I have a podcast; https://itunes.apple.com/us/podcast/mikes-notes/id1055386383, https://soundcloud.com/mikesnotes, https://overcast.fm/itunes1055386383/mikes-notes. My wife must think it’s good because she told me; “good, now you have someone else to talk to about these things.” 

 

Mohnish Pabrai gave a great talk to a UC Irvine class. Thanks  Jana Vembunarayanan for sharing it.

It delights me that a one-time talk to a small group of people on a certain day is now available anytime to anyone in the world. But being available isn’t enough, we need to avail ourselves of this. Let’s do just that.

1/ Skin in the game. “Roberto Goizueta himself owned 2% of Coke, he had a significant economic interest.”

The first chunk of Pabrai’s talk is about the Berkshire Hathaway investment in Coke and he says that Coke had Lollapalooza effects because it was a great business with a great manager (Goizueta). Why was he so good? Because he has skin in the game.

Skin the game changes decision making. Tim Ferriss said he plays poker different with his own money. Mellody Hobson said that managers act different. Chris Dixon said a16z succeeds – in part – becaus of “aligned interestes.”

2/ Understand the simple things. “It’s not the numbers. The factors that drive long term success don’t have much to do with spreadsheets. They have to do with understanding human nature or nuances of how things work…(for example, a) distribution engine is very difficult to recreate.”

Pabrai explains the history of Coke so well, and with no numbers. Coke succeeded because good branding, distribution, costs, and human psychology. Don’t think the simple things are easy to understand, they often aren’t. Charlie Munger said “plain vanilla stock picking is hard enough.” Jocko Willink said good leadership is “simple but not easy.” Napoleon Bonaparte aimed for simple instructions because they held together better in the fog of war. 

3/ Learning things. “They (Buffett and Munger)  get a little more information because they’re willing to dig deep and read a lot, which most people aren’t willing to do.” “You would do well if you enjoy reading…reading from the context of ‘I’m going to get better at knowing how the world works.’”

When I received my graduate degree I thought I was done with formal education, and most learning. Finished. Complete.  I knew there were ‘life lessons’ ahead of me and I’d have to learn how to fix a clogged sink, but book learning had passed me.

Now I read more than ever.

My inflectin point was Shane Parrish’s blog Farnam Street, where it was okay to “go to bed smarter than when you woke up.” Not only that, to live a fuller life meant more books. 

Podcast episode #016 looked at  Sebastian Junger’s conversation with Tim Ferriss. Here is what Junger said about his enlightenment about learning:

“I wrote a thesis about Navajo long distance running, and I just came alive academically doing that. I was a pretty indifferent student, I was much more of an athlete than a student. The idea that you could just go out in the world and gather information, gather research, interview people, and bring it back and then turn it into words that people will read and be moved by and maybe changed by was such an extraordinary idea.”

And our learning never stops. Pabrai said, “I’m getting an education in the insurance business, and I’m finding out that I’d rather own See’s Candy.”

4/ Sunk cost bias. “When we spend a lot of time on something, we feel we should get something in return for that time, it’s a danger if you say, I’m going to research a company and decide if I want to invest or not. I think you’re better off researching a company with no such preconceived notion.”

Investing is hard. “It’s not easy to be a weekend investor…it’s a lot of work reading 100 years of annual reports,” said Pabrai. Charlie Munger said “plain vanilla stock picking is hard enough.” Auren Hoffman said, “do it as a full time job” or don’t do it at all.

Now layer on the sunk cost bias.

Richard Thaler guessed that part of the reason the standard economic model has yeilded so little to the behavioral economic model is due to the sunk cost bias. People invested too much of their careers to give it up. 

Pabrai’s suggestion is the machete to the vines of sunk costs. Walk out of bad movies. Put down unexciting books. Turn off awful podcasts, especially mine.  Take Marc Andreessen’s advice; have strong views but weakly held.

5/ Hitting the reset button. “I have a rule I’ve followed for my entire career: if on Monday morning I’m not fired up for work I do two things. Number one, I don’t go to work. Number two, I hit the reset button.”

I loved the clarity and conviction Pabrai expressed when he said this, but also the explanation. At first it sounded Silicon-Valley-ostentatious, do what you love, follow your passion, man. But, being excited can lead to better work. 

“One trick related to passion is that you are not likely to be passionate about something you do not understand.” Tren Griffin

Pabrai pointed out that the safety net in America is pretty good. Many failed startup founders said their journey was hard, but net-net it was worth it. They may have lost time and money, but came out as better, different people. Phil Knight said the same thing about running a shoe business:

“If Blue Ribbon went bust, I’d have no money and I’d be crushed. But i’d also have some valuable wisdom which I could apply to the next business. Wisdom seemed an intangible asset, but an asset all the same.”

It doesn’t take a lot of money either. Casey Neistat bought one computer to start making vidoes. Sophia Amoruso scoured used clothing at estate sales. Ramit Sethi gave free talks at college. Daymond John sold homemade hats out of a garbage bag. 

If you aren’t excited to do some work, try a reset, and know that it doesn’t take much.

6/ Have extras. “Don’t focus on being fully invested.”

Pabrai said that he looks for companies with a good moat and runway. To have the option to buy them though, he needs (extra) cash on hand.

Greg Ip wrote about extra physical and financial space between us and danger. Nassim Taleb wrote, “mother nature likes redundancy.” Microsoft’s extra cash allowed them to buy LinkedIn. Jocko Willink shared the military mindset, “two is one and one is none.”

When we don’t have extras, bad things happen. Charles Ponzi ran out of extra money before he could turn his scheme around. Niall Ferguson wrote:

“The Ming system had created a high-level equilibrium – impressive outwardly, but fragile inwardly. The countryside could sustain a remarkably large number of people, but on the the basis of an essentially static social order that literally ceased to innovate. It was a kind of trap. And when the least little thing went wrong, the trap snapped shut. There were no external resources to draw on.”

Extra [______] allows you room to move when conditions change, and they always change.

Thanks for reading, I’m @mikedariano on Twitter. If you’d rather listen to these kind of posts, I have a podcast; https://itunes.apple.com/us/podcast/mikes-notes/id1055386383, https://soundcloud.com/mikesnotes, https://overcast.fm/itunes1055386383/mikes-notes.

 

I started a podcast, it’s like this blog, only you listen to it.

If you like this blog, you’ll probably like it. If you don’t, you won’t.

You can subscribe on iTunes, Soundcloud, or Overcast.

Recent episodes include:

• 6 takeaways from Sebastian Junger’s podcast with Tim Ferrriss.
• Lesssons from Charles Ponzi, very similar to the Charles Ponzi post.
• Strategic blunders from the 1919 Chicago Blacksoxs.

Upcoming episodes include:

• How Nike implemented Peter Thiel’s framework –  40 years in advance.
• Warnings about sunk costs.

Lonely Island is the music trio of Andy Samberg, Akiva Schaffer and Jorma Taccone. Their latest project is Popstar: Never Stop Never Stopping. They joined Terry Gross on Fresh Air to promote the new movie. The interview fascinated me.  Amanda Palmer reminded us that we are all creating something, we are all artist, and the Lonely Island trio talks about how to make good art.  Here are 3 things I learned from Lonely Island.

1/ Constraints help. “Sometimes lightening strikes and inspires you. In the movie, he (Connor) puts out a new record. It flops, and people think it’s kind of an offensive record and don’t think it’s good. That gave us – in the writing process – a lot of freedom to come up with songs that we thought ‘let’s make the silliest version of a song that fails’ that gives you so much creative license to make the silliest song you can think of because it’s not supposed to be ‘good.’”

A lot of artists point out that creation doesn’t come ex nihilo. Part of How to be a Genius involves constraints; from Da Vinci (because of his station at birth) to Michelangelo (squirming as he painted). Austin Kleon’s work was limited to newspapers. Maria Popova was limited to classic books.

Constraints help in other domains too. Jason Fried wrote, “fewer official working hours helps squeeze the fat out of the typical workweek.” Ryan Holiday addressed marketing, “Because these companies didn’t have access to the ‘luxuries’ of an ad budget or the burden of proper training, they were able to be creative enough to broaden the definition of marketing to immense advantage.” Sophia Amoruso wrote how constraints helped her:

“When people write about Nasty Gal, the articles almost always note how I built the company with no debt, because that’s a pretty unusual feat in the business world. And yes, once I finally got a job and started working for my money, I was extremely responsible with it. But what these stories usually leave out is that it wasn’t by choice that I built the company debt-free. It simply wasn’t an option, because no one would even give me a credit card, never mind a business loan. This was frustrating; however, it was also a blessing in disguise.”

From ancient times to modern, from art to business, being constrained helps.

2/Comedy = Comprehension. “The idea behind it (the song Equal Rights) is talking about how people will sometimes piggyback a social cause to leverage goodwill. In this case, Connor is trying to piggyback the gay marriage cause and get behind it, but he has trouble wrapping his head around what he really is saying and maybe is not as behind it as he claims to be.”

This segment of the interview was an excellent explanation of what it means to understand something deeply enough to make fun of it. The Lonely Island trio needed to understand how people felt about gay marriage, what was taboo and what wasn’t, what they could say about it and what they couldn’t. Then, they had to consider all those questions from the main character’s point of view.

Jason Zweig said “the ability to define a term in such a way to be cynical or funny is a measure of your own skepticism.” Garry Shandling said, “the struggle in the writing room, is getting people not to write just words.” When B.J. Novak handed Steve Carrell a script, Carrell told him “these are not just jokes.” Novak didn’t get it at first. Later he did.

To be good at anything requires a deep understanding, comedy is one demonstration of this. If something is funny, it’s because it exposes something more.

3/Too busy for an existential crisis.  “One of the advantages of Saturday Night Live (SNL) is that because it’s happening every week, no matter whether you felt like you had been successful the week before or failed the week before…there was another one the next week. You couldn’t really dwell on anything. There were moments of excitement, but we were just head down, working so much that we didn’t really focus on anything more than that.”

People who go on podcasts believe work is a good thing to get lost in. Casey Neistat called it “the religion of work. Rich Roll said “the only time that I’ve actually ever accomplished anything noteworthy was when I allowed myself to be out of balance.” To which Gary Vaynerchuk added, “I’m not interesting in the politically correct version of everything right now. I’m not interested in having a conversation around how to raise my kids. I’m not interested you imposing your will on me on how I meditate.”

Jason Fried said that he finds his mind in two modes; default and focus. In his default mode, he said “the mind is wandering and the mind tends to wander towards worry.” That’s not good, said Fried.

Freud said the secret to a happy life was “love and work.” Lena Dunham told Judd Apatow “I’d always wanted to be a person who worked so much that I wasn’t even available to go to dinner.”  Percy Fawcett wrote:

“One learns little from a smooth life, but I do not like roping others into the difficulties which have dogged me so persistently . . . It is not that I want luxuries. I care little about such things—but I hate inactivity.”

Work can be a philosophy, a religion, an attitude.

Thanks for reading, I’m @mikedariano on Twitter. If you liked this blog post, I have a podcast too: iTunes, Overcast, Soundcloud, & Medium.

Finally, I couldn’t catch in the interview which of the guys said what, sorry for the lack of attribution in this post.

I love podcast like this. I had no idea who Andy Weissman was (he’s a partner at Union Square Ventures). I had no idea what his firm did (thesis based investments around network effects). Basically, I knew nothing, but learned a lot. Here’s 5 things I learned from Weissman’s interview with William Channer at Dorm Room Tycoon.

1/ The “No’s” never stop. “We got told ‘no’ a lot and it hurt and it stung and it stayed with us and we used it to motivated us. Part of being a founder at the early stages is that you’re running up against a wall a lot. Going with that rhythm and not really getting discouraged is a really important piece because in the early stages the words ‘no’ or ‘this is dumb’ come up a lot no matter what. I have seen it in every single company. You have to be able to roll with that and learn from those difficult periods.”

A lot of people who are big time say that when they were small fries they heard the word ‘no.’ They also say  it still happens. Louis C.K. said he just gets personal ‘no’s’ now. Jack Nicholson for example, called him to say; “the writing’s terrific, but I’m not going to do it.” Brian Grazer said people still tell him ‘no’ a lot, only now it’s in a nicer way.

2/ Know thyself. “From being a founder to a manager, there’s a scaling process that goes with that.”

Weissman said there are two ways companies need to scale; in business and in management. Sophia Amoruso was quick to realize she couldn’t scale as a manager and stepped aside as CEO. Ezra Klein said, “I can’t do teleconference calls.” Elizabeth Gilbert said “I needed to go roll around in the world.”  Knowing yourself is a great help.

“I’m always saying, better your strengths and punt your weaknesses.” – Gary Vaynerchuk

Tren Griffin said; “one of the great contrasts in life is between people who know a moat when they see it and people who know how build one out of nothing.” Weissman recognizes this too, “we don’t run these companies…if we were good at operating companies we would operate these companies, but we’re not.”

“You really want to study your strengths and reverse engineer your successes.” – Brett Steenbarger

If you – as a founder – know you can’t scale yourself or your business, don’t do it. Weissman said, “if you take money from a venture capitalist, the way the economics of the VC world work, an investor like me needs to make 10 or 100 X on our money.” That sounds fine, who could have a problem with that? Weissman continued: “you must be comfortable taking big risks, including existential risks around managing that business.”

3/ Pattern recognition. “We have seen lots of different types of business at lots of different types of stages and we have good pattern recognitions that provide frameworks for how to support the decisions entrepreneurs need to make.”

In my my research on failed startups, startups always needed more time or more money – sometimes both. You can save time with a good guide, one that knows the lay of the land, that is, one that knows the patterns. That’s what Weissman provides.

In the 2016 Berkshire Hathaway meeting Warren Buffett said, “pattern recognition gets very important in evaluating humans and businesses.” Jim Chanos credited pattern recognition for his stock shorting success.

4/ Scratch your own itch. “A characteristic that resonates with us is a founder that has real direct experience with the problem they’re trying to solve. They feel that problem on a personal level because they’ve experienced it, therefore they have an intense desire to solve that problem.”

Another finding from my research on failed startup was the surprising number of founders who didn’t really care. They hoped to strike gold, but when things got tough, they bailed because they never cared. Farnam Street was Shane Parrish’s attempt to scratch his itch for education. AngelList was Naval Ravikant’s attempt to scratch his itch for a better connection place for startups.

5/ The availability bias. Interviewer William Channer asked, “when things go wrong, how does a founder get fired from his company?”  

Weissman answered, “It’s a reality in business, it’s not specific to taking on venture capital. We notice it more acutely, all of us who are in our startup world because we see when it happens. I don’t know if it happens more or less.”

Part of the problem with a diet of only podcasts is the type of people who go on podcasts. Ezra Klein said it this way, “there are an unusual percentage of people who get to go on podcasts who have this particular schooling experience.” He was referencing smart(ish) kids that were bored at school. Chris Dixon said, “VC gets a lot of attention in the press, but it’s actually a very small industry.”

On the other hand, the availability bias can help. Ryan Holiday said that it helps him write his books.

Thanks for reading, I’m @mikedariano on Twitter. I’ve started a podcast to scratch my own itch,: iTunes, Overcast, Soundcloud, & Medium.