Capital Arbitrage

Moneyball is an important idea because it represents hidden value.

Things that are valuable but not perceived as valuable cost less.

Things that are valuable can be exchanged for other things that are valuable.

We can call this idea “capital”.

Leadership capital. From Jocko Willink, when leaders make sacrifices for their team, their team will make sacrifices for them.

Social capital. The quality of a person’s relationships. This is difficult to measure.

Career capital. From Cal Newport, rare and valuable jobs require rare and valuable skills. For example, George Lucas cashed in some career capital in exchange for time capital to work on Star Wars.

Financial capital. Like emergency funds, an exchange of money for time.

Institutional capital. Financial capital with a specific set of terms: who, what, and how.

Venture capital. Financial capital with less specific, if any, terms.

Working capital. A business’s oxygen. There is a lot of gasping in Shoe Dog (Nike), The Inside Scoop (Ben & Jerry’s), and Chocolate Wars (Hershey, Cadbury).

The Bored Apes of 2021 was a capital arbitrage. Early crypto adopters spent thousands to buy cryptocurrencies which appreciated to hundreds of thousands and they bought Bored Apes. Were the Apes worth 1,000 or 100,000?

These capitals offer arbitrage too. It’s just up to you.

Mary and Rory: Two Great Brits

If you want to change, writes Katy Milkman, consider the advice of Mary Poppins. In every job that must be done. There is an element of fun. And a spoonful of sugar helps the medicine go down.

But we don’t do this. “When committing to a healthy new eating regimen, we buy a basket of the most sinless foods – broccoli, carrots, kale, and quinoa – without regard for taste.”

Ahh, yes. Of course! Rory Sutherland enters.

We are rationalizing creatures. We ask, Why is this so cheap? If junk food tastes great then healthy food must taste bad. It’s the gross medicines that work best!

But, but, but, Milkman butts in. That’s what the research shows.

Think of things you want to change as chronic conditions. Diabetes is a chronic condition. Stress can be chronic too.

But so is shelter. That’s a recurring problem people deal with every day. So is food. And Milkman argues, so are your habits. So make them fun.

We have learned a lot from Milkman and Sutherland because they both share lessons that work. It’s not whether something works, but where, when, and with who. Monster Energy is large, full of caffeine and calories, and it tastes great. It found a where, when, and with who. Snickers found a context too.

Boiling water softens a carrot and hardens an egg. Solutions must match their contexts.

The Starbucks of Authors

There’s no way this can be good, or so I thought. He’s the McDonald’s of authors. Cheap and everywhere. 

I was wrong, he’s more like Starbucks. 

James Patterson by James Patterson was fun! And reading should be fun. 

An “ego-biography” the book runs through Patterson’s life, from blue-collar Massachusetts to New York madmen to Palm Beach production. And the book runs. It’s fast. Short chapters. Strong stories. No wonder people love the guy. 

If there’s a summary of Patterson’s story it’s this quote from his grandmother, hungry dogs run faster. Peterson was hungry. 

He worked at McLean Hospital where “I had begun scribbling short stories…I couldn’t stop writing if I wanted to.” Catholic high school, Catholic college, a year or so at Vanderbilt, writing all the way. 

He moved to New York City. Patterson got a job at J Walter Thompson. The job was “hell” but “I’d write early in the morning, every morning. I’d lock my office door at lunchtime and write for half an hour. I’d write on the plane during every business trip. I’d write pages at four in the morning, and I’d write again until midnight. I refused to give up on myself.” 

He succeeded in New York City, rising through the ranks of J Walter Thompson. “Why? Because I chopped wood—I worked hard—and I could write. I could also write fast.” 

He wrote in New York City, finishing his first book. Then, he got “the best advice” from a fellow author, “Write another book. Start tonight”. So Patterson wrote. 

He sold in New York City. In 1993 he published the first Alex Cross novel. By 1996 he was just an author. 

And then he became ‘Starbucks’. 

At the same time I read James Patterson by James Patterson, Chat GPT became popular. The AI tool will reshape work. In Average is Over, Tyler Cowen writes about how the most successful chess teams are not computers or humans but humans using computers. Similarly, Chat GPT will not replace ‘knowledge workers’ but the best knowledge workers will use Chat GPT. 

That analogy makes sense.

Good organizations use leverage like people, money, and intellectual property to scale their operations. Technology companies are easy examples, but we’ve looked deeply at why Disney had to buy Pixar for the same reasons. 

That analogy makes sense. 

Except when it comes to writing. 

Patterson’s collaborations were icky, were too processed. But that’s the wrong analogy. 

Patterson writes an outline and has his collaborators fill it out. But don’t think “middle school notes”. Instead, think about a manager asking someone to start a new product. James starts the car, the collaborators run the race. 

It works because Patterson is mostly hands-off. Peter de Jonge wrote, “One of the best things about working with Jim, and this may be the key to why he is a publishing juggernaut, is that he is almost pathologically open-minded. If an idea adds stakes or drama or weight or in any helpful way propels the story forward, he’s game. As he told me once, you can tell any story you want, but it has to be a story.”

It reminded me of how Apple built the iPhone. Steve Jobs told the team what to do, they built it, reviewed it with Steve, got feedback, and built more. Jobs didn’t tell them how – well, sometimes he did and sometimes he was wrong – he just told them what. The same with Patterson. 

And this is great. Patterson’s book was fun. Reading should be fun. More Patterson books, more fun!

Pump Up the Incentives

One human mistake is psychological myopia – thinking our view of the world is the world.

When Andy Galpin trained future NFL players for the draft he noticed something “odd”. These players stood to earn huge sums of money, achieve the highest success in their lifelong pursuit, and had all the resources in the world behind them – yet they skipped workouts.

Rather, they skipped Saturday morning workouts.

Our view, as a non-NFL player is, “C’mon focus!”

Their view as NFL players is, “C’mon, Friday night!”

Fortunately, we can design our modern environment for our evolved brains.

Galpin wanted Saturday mornings to be recovery: massage, yoga, stretching. Hence the low attendance. But once he added biceps and triceps attendance increased. The guys loved the pump. After the athletes were in the gym it was easy to tack on the recovery session.

Galpin’s (3-hour!) Optimize Your Training Program for Fitness & Longevity podcast is about intentionality and that takes design. Want to live your best, strongest, healthiest life? Design it.

“Your Product Sucks”

“Your product sucks,” said Steve Jobs.

It was 2010. Bob Iger and Jobs came together a few years earlier when Disney acquired Pixar. After years of a cantankerous relationship with Iger’s predecessor, the two titanic executives had become good friends.

But that didn’t spare him from Jobs’ biting criticism.

“Steve, you’re wrong,” replied Iger.

It wasn’t often that Steve Jobs was wrong about the consumer’s taste. But Iger had the research, experience, and authority to disagree.

With a budget of two-hundred million dollars, Iron Man 2 earned over six hundred million at the box office. Steve Jobs was definitely wrong.

These are huge numbers, from huge companies, but the lesson applies to entrepreneurs.

Your product is not for everyone. Steve Jobs was not the customer for Iron Man 2. When you listen to your customer make sure they are your customer.

This is a cross-post from the Daily Entrepreneur newsletter.

Selfie with Chewie

“May 28th we get Boba Fett and Fennec Shand at the Disneyland version of Galaxy’s Edge,” recalled Disney expert Jim Hill, “This is not in the timeline and we are in a moment, that to accommodate what Star Wars fans say they want to see, Disney theme parks are creating story bubbles.”

The canon, timeline, and story arcs do not matter. The back-to-the-future time travel restrictions are gone.

During a five-day four-night family vacation ya just want to see Chewie.

Me and Chewie, 2017

Similarly, when California Disneyland pitched the flying Spider-Man stunt, Paris Disneyland gave a demurred response.

“There’s research that shows,” Len Testa said, “one of the things people enjoy most about being in the parks is meeting characters.” And that’s what Paris chose, more Marvel meet and greats.

🤳

JTBD supply language is canon and source material. It’s engineering marvels. It’s THE Star Wars or Iron Man or Harry Potter.

JTBD demand language is the fan fiction and vertical video remixes. It’s character selfies. It’s what the people want.

Good products navigate between the absolutism of canon and the requests of the people.

Good products navigate between advanced engineering and more selfie opportunities.

Rotten and Fresh Jobs

It was May 16, 1999 and Star Wars: The Phantom Menace arrived in theaters.

The return of these Jedi is told in the Batman Batna post. This anniversary is a chance to celebrate a JTBD example from that era.

“Nineteen ninety-nine is when things really began coalescing…(Star Wars) episode one was a big kickoff point for the website because that’s the movie that everybody was anticipating, and coincidentally reviews-wise it was riding the line between fresh and rotten leading up to its release. People were sharing the Star Wars page in anticipation of its release.” Stephen Wang

The public asked, is it good?

The critics answered….

Movies, Roger Ebert wrote, “are a machine that generates empathy…movies let you understand a little bit more about different hopes, aspirations, dreams, and fears. It helps us to identify with the people who are sharing this journey with us.”

That’s true!

But it’s not what people want.

Movie critics, like Ebert, understand movies in supply language.

Movie viewers, understand movies in demand language.

Rotten Tomatoes succeeded by translating one language into another. Businesses have to find a fit between the supply and demand aspects, between what they can do and what people want done.

🍿

Real Advice

Mary-Ellis Bunim and Jonathan Murray wanted to create a television show for MTV that capitalized on the 90s teen culture.

But they had a problem. 

Scripted shows like Beverly Hills, 90210, and Melrose Place were expensive. So the staffers looked to MTV’s roots for inspiration. 

Successful businesses deliver value to customers in a sustainable way. Apple doesn’t sell iPhones for less than the cost to make them. The local lawn care company won’t mow for less than the cost of labor. 

MTV’s original secret was just that. The musicians paid for their own videos. MTV got them for free. MTV sold advertising on the broadcast and the artists got attention

Bingo, thought Bunim and Murray. Find “free” content.

MTV’s Real World premiered on this day in 1992. 

Around the same time, Mike Reiss was writing for the Simpsons. In his book, Springfield Confidential, he writes that he’s not a religious man but he’s spiritual in the sense that there’s always a perfect joke. Every gag, prompt, and setup has a perfect punchline. They didn’t always find it, Reiss writes, but they always tried. 

That’s was Bunum’s and Murry’s mindset – find a way. 

When money is tight, when skills are scarce, when growth has stalled – find a way. 

This is part of the Daily Entrepreneur series, sign up here.

Three Bob-isms

This is from The Circuit Breaker reset email. It’s my tribute to Jobs theory using the podcast by Bob Moesta and Greg Engle as a base. When their podcast is on, the newsletter will recap, summarize, and provide additional links. When their podcast is off, like now, it will keep the good times rollin’.

Subscribe here -> https://thecircuitbreakerpodcast.substack.com/

Unpack here -> https://thecircuitbreakerpodcast.substack.com/p/postseason-2


The Secret Language Of “Bob-isms” introduced three Moesta mantras. These are BIG ideas with later explanations. 

Your product is the mustard, not the sandwich. Bob met with members of TransUnion who were proud of their product: credit scores. No, no, no begged Bob. People do not care about their credit scores. They care about buying a home or a car – for that, they need a credit score. After this Moesta meeting, TransUnion teamed up with businesses that helped customers make those purchases. 

Context creates value. Baby carrots were created to help with cooking but when the product was tested, consumers wanted them for snacking. That context: I’m at home and want something healthy, easy, and tasty to eat or serve created a category and most carrots sold today are baby carrots. The End of Average discusses this idea further.

Contrast creates meaning. Consumers are okay-ish at communicating importance. Asking “What do you want” isn’t helpful. Instead, Bob and Greg use contrast and bracketing. Is this for you or you and the family? Did you drive or fly to the hotel? So this was too expensive/cheap or long/fast or sweet/salty? When people eliminate options they share what’s important. 

Homework: Continue to do Jobs thinking. Reply to this email or share in the comments with the slightest idea.

Base Rate Neglect(or)

In Thinking Fast and Slow, Daniel Kahneman writes about the planning fallacy. He’s in a group of professors tasked with writing a textbook. Each proposes a timeline. Each is confident. These are well-established professors after all.

But then Kahneman asks a group member who actually contributed to a textbook: How long did that take? Hmm, he thinks, never less than our longest guess.

It’s a ‘textbook’ planning fallacy. We error to optimism. Michael Mauboussin thinks of a home remodel. The neighbor’s project has delays and cost overruns but ours?

I know this. I’ve written about this for more than seven years. I make this mistake.

Our daughter’s high school is planning choir trips. The possibilities include Pigeon Forge, New York City, and Northeast Ohio.

Ohio, I exclaimed, that really stands out.

Yeah, my oldest said, we might go to Cedar Point.

Cedar Point? That’s awesome! How is that on your teacher’s radar?

Maybe, my wife said, he’s from Ohio or a member of the coaster club.

Oh, I said, If you’re going to Cedar Point I bet he’s a member of a coaster club.

I started with my inside view. Another approach is starting with the outside information and shifting from there: Kahneman’s textbook author, Mauboussin’s neighbor.

I grew up in Cedar Point. We know people in coaster clubs. That was my inside information. Upon inspection, it looks like <10,000 people are members of such clubs.

But 16,000-30,000 people leave Ohio for Florida each year.

Thinking in base rates (or like Fermi) prevents my error. Are there more people from Ohio who move to Florida than people in coaster clubs?

Change the framing, change the process.

I can still hear the ‘thank you for visiting America’s roller coast’ before clacking up the Magnum hill, feeling excited, enjoying the view and the breeze, marveling that something so tall can be so narrow, and feeling my stomach lift through my torso.