Author: MIKE

ESPN’s innovation dilemma

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One pant leg on is a local maximum. One problem is solved but the larger set is not.

Clayton Christensen’s series on disruption and innovation is about local maximums.

Money machine go brrr is a strong incentive to keep printing. Maximizing a profitable business makes sense, which is the dilemma! Organizations find themselves looking good in one pant leg.

The solution to local maximums is exploration. But this is costly – money, status (uh oh), time, reputation. Plus the stakeholder’s opinions.

The solution, Clayton Christensen writes, is separation. Different groups with different strategies, finances, and when possible physical locations.

Solutions via exploration are important because customer and consumer preferences – their JTBD – change.

“We are all under the Disney umbrella,” Brian Burke said, “ESPN.com is a huge enterprise with an army of people and is a revenue generator in so many ways. It’s difficult to change course. FiveThirtyEight is agile, nimble, and experimental so (publishing there) was a great opportunity”.

ESPN.com go brrr.

Which is the dilemma, and Disney/ESPN uses FiveThirtyEight as the exploration solution. Who knows if Burke’s writing approach is better, but the publishing strategy is a solution to the innovator’s dilemma.

“The next ESPN.com” will be different. Whatever is next will have a different business model than the current Great Firms (Christensen’s subtitle). Whatever is next will have a different maximum. It will be a short vertical video or the degradation of the sport monoculture or something we can’t predict today.

Or even an analytic forward analysis from Brian Burke.

What do these numbers really mean?

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“Cold hard facts” like 32 degrees, 26 touchdowns, and 8 billion dollars trip us up. But what can be so confusing about simple numbers?

Numbers anchor our thinking. The run-up of mortgage interest rates drew the headlines rather than the typical monthly payment. Humans are relative thinkers and initial numbers frame our thinking.

There are also contextual clues to each number we see. Forty degrees can be cold or warm depending on the humidity, sunlight, wind, precipitation as well as our exertion. Ideal marathon conditions are for the runners, not the spectators.

Lastly, numbers represent distributions of outcomes. We’ve seen this with Aaron Rodgers’ touchdown tails:

And two other January 2022 news stories. The University of Georgia football team was favored to win the national championship game by fourteen points. They won by fifty-eight.

Rather than a large error, we can think of the fourteen-point betting line as a fulcrum. That was the point that balanced bets between the most common forecast: a close TCU victory or a Georgia blowout.

Another is the estimation that Chat GPT is worth twenty-nine billion dollars. It’s not, said Ben Thompson. There’s a one-sixth chance it’s worth two hundred billion.

🔢

Numbers carry more meaning than we typically assign. Life’s numbers are presented by accountants – and we need to think like auditors.

Other posts in the numeracy series include handshake puzzles and birthday bets, the problem with hurricane categories, and white water whitewash.

There are many good books about these ideas like Tim Harford’s Data Detective and the new Covid by the Numbers by David Spiegelhalter who wants us as auditors to ask, why am I seeing this number?

Kinko’s JTBD

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When asked if he worried about Xerox vertically integrating, Kinko’s founder Pual Orfalea said ‘HAAHAHAHAH. No.’

It’s obvious with distance, hindsight, and present best practices that’s exactly what Xerox should have done. Move down the market, get closer to the customers, and let their purchase decisions drive product innovation. But Paul Orfalea just laughed.

And he’s right.

Xerox couldn’t have acquired Kinko’s because Xerox and Kinkos are two different businesses.

“We aren’t in the copy business. We are in the emotions business. We help people get jobs, make sales brochures, and celebrate the major moments of their lives.” – Paul Orfalea, founder of Kinko’s

People don’t want quarter-inch holes, the expression goes, they want to hang their damn vacation photos.

Orfalea figured that out and designed his organization around the idea. He empowered counterworkers to solve problems immediately. When customers came in worked up and stressed out about an errored order, the last they thing want to hear is ‘let me talk to my manager and see what we can do.’ No! An immediate refund and rushed redo was the solution, and it’s what Kinko’s did.

“Our customers didn’t particularly care how the work got done either,” Paul writes in Copy This,” But they cared passionately about obtaining relief, symbolized by the finished product.

Job to be done is a great theory for product development but it only works holistically. The Panera job is food and place. If either is ‘a mess’ then neither works. The things have to fit together as homeotelic systems. Actions A and B work toward the same goal.

Kudos to Kinko’s and Xerox for using the Rich Barton “Scrabble Letter” naming system. Orfalea credits the name of Kinko’s to his kinky hair and his mom noting that people don’t forget hard consonants, as our first is GooGoo Gaga.

Circuit Breaker Substack

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“There are so many people working so hard and achieving so little.”

Andy Grove

Bob Moesta has one of the most impactful perspectives on achieving more, and on his podcast with Greg Engel discusses how to make better products, better services, and more successes.

Their Circuit Breaker podcast covers:

  • how and why to unpack jargon: our loyal customers will buy this innovative healthy snack
  • that your product is the mustard on the sandwich in the customer’s lives
  • big hires and little hires

And more.

The Circuit Breaker Podcast Substack is my tribute to the show. Subscribe for a certain job. But first…

The LEGO company is one of the most successful organizations ever. Spanning nearly one hundred years, war, factory fires (three!), expansions and depressions, currency conversions, and Nintendo et. al. the toy company has survived and thrived.

Throughout LEGO’s history, there’s always been a manager who thought: the toy is great and people will find out. Let them come.

Throughout LEGO’s history, there’s also been a manager who knows: we have to sell this thing. We go to them.

People were busy, people are busy, and people will always be busy.

That’s the job of the email: subscribe because you are busy and you want a reminder about last week’s episode, further details, and more JTBD goodies.

Alice and Bob own soccer teams…

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Alice runs her team conservatively and finishes with 17 wins, 17 draws, and 4 losses. 

Bob runs his team with more variance and finishes with 19 wins, 11, draws, and 8 losses. 

Which is better? 

Let’s reframe, like the ball bet. Is it better to exchange 2 wins for 6 draws and 4 fewer losses? 

Haralabos ‘Bob’ Voulgaris bought a soccer team because he knows these answers because he’s seen these questions. 

After Moneyball but before Morey-ball, Haralabos discovered and gambled on basketball inefficiencies. The best known now is the three-point shot. Voulgaris thinks that soccer is similar. Teams earn three points for a win, one for a draw, and zero for a loss. Rather than three or two points in basketball, it’s three or one points in soccer standings.

Soccer’s business model is like the music business model. Artists lose money recording an album, break even touring, and profit from the merchandise. This had to be Pixar’s business too. Division three soccer teams lose money, division two teams break even, and La Liga or Premier League teams “print money”. 

Soccer teams can move up (promotion) or move down (relegation). Bob’s team, CD Castellón is in the third division and they need about sixty-eight points for a chance at promotion. 

Both Alice (17/17/4) and Bob (19/11/8) earned sixty-eight points – but they don’t seem equal. This is Bob’s point – it’s worth risking more for wins than less for draws.

The big question is: What are the right metrics for this system? 

  • Hurricane wind speeds are probably the wrong metric. Though easy to measure they don’t convey the potential storm damage which comes from the rain, surge, and flooding. Moneyball and Morey-ball are both descriptions of systems where the important metrics shifted.
  • ‘Draws’ is a wolf in sheep’s clothing. It seems fine – splitting the difference between a win and a loss – but the unique point system shifts the weight. 
  • Risking more – Bob’s approach – focuses on what matters. It’s the points stupid.

Humans are loss averse but the soccer standing scoring rewards bucking this trend. Alice and Bob own soccer teams, let’s see what happens.

Zone Two cardio

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When not listening to podcasts, I can often hold a conversation while running, and conversing is a proxy for Zone 2 cardio. It’s a Goldilocks exercise. Is this a better way to run?

Between Instagram stories, Andrew Huberman emails, and runner scuttlebutt, Zone 2 is in the zeitgeist. Without getting into physiology, can we figure out if it’s a fad or worth our focus?

Metrics. We count what’s easy. Miles and minutes are easier to count than training zone sessions. Hurricanes are graded by their wind speed but it’s the water volume that does the damage. Speed is easier to measure and report. Daily users were standard but it was people who used the product that gave Pinterest engineers a better signal. Easy to count, collect, and combine metrics are overrated.

+1 for Zone 2.

Incentives. ‘Why am I seeing this?’ is a good question. Who is selling me something? Vegetarianism is underrated because the people who sell it don’t have that much to gain. Status points, sure, but if something’s not being sold it’s more believable.

+1 for Zone 2.

Barbell approach. Sometimes average measures are worse. Exercise may be like that. Every workout at 145 beats per minute is not as good as some workouts at 170 bpm and others at 125bpm, though the average is the same. Zone 2 is easier than the 145 average which goes against the ‘more is better’ mindset.

+1 for Zone 2.

Swept up. It’s easier to get swept up in something. Housing bubbles. Crypto. Or just the feeling of a local sports team playing deep into the playoffs. The internet feed makes it even easier. Instagram knows my age, interests, and engagements. Oh, a forty-year-old running dude, the magic math concludes, here’s a bunch of running videos promoting zone two cardio. Is this an echo chamber?

-1 for Zone 2.

Conclusion: I’ll do more Zone 2 training. Happy New Year.

Crazy Russian incentives

MIKE

Around 1992 Russia privatized state companies. The government gave each citizen one voucher they could bring to an exchange for a share of that day’s company. A simple plan – until humans get involved.

Not all Russians wanted to own shares. Local markets emerged. A small fish bought all the vouchers in one neighborhood, a medium fish bought all the neighborhoods in a town, a large fish bought all the towns in a region. Eventually sacks of vouchers made it to the national exchanges.

Though unintended, these mini-markets worked. Free economies FTW. So far so good.

Each exchange had a schedule. A modern Monday might be 1,000 shares of Apple at nine, 200 of IBM at ten, 500 of Ford at eleven and so on. If only one person showed up Monday at nine they would get all the shares for their vouchers. It was the market mechanism at work. It’s cheaper (more valuable) to not bid against someone in an auction. When one companies shares went up they shut down the airport the day before their voucher offering. Another company ignited a tire fire on train tracks leading in and out of town.

Insiders were insistent on owning their companies because the valuations were way off. By one estimate, the voucher privatization program valued the entire Russian economy at ten billion dollars, or one sixth the market cap of Walmart. If you could buy a legitimate twenty dollar Amazon gift card for one dollar would you? Rather, how many? This economic transition was called a katastroika. A combination of the catastrophe and perestroika – Gorbachev’s politics.

George H. W. Bush has his last year as president, Achy Breaky Heart finishes the year as the fifteenth most played song, and there’s money to be made in Russia.

“I went to someone in the investment management division,” Bill Browder writes in Red Notice, “expecting him to hug me since I was sharing the most joyous jaw dropping investment opportunity he would ever see. Instead he looked at me as if I was suggesting the firm should invest in Mars.”
Russian privatization was a huge opportunity. Everyone at Salomon Brothers missed it. Why? Incentives.

On Browder’s first day, his first manager explained the system: generate five times your salary or you’re done.

“Nobody at Salomon Brothers could divorce themselves from their own narrow mindset. Perhaps if I had been more subtle and clever I could have pierced their myopia, but I wasn’t, I had no political skills. I presented my idea for weeks and weeks hoping that through repetition I would get through to someone.”

Incentives and culture form what people do when they’re not told what to do.

At the London office the formula – which worked wonderfully – was fees through consulting.

Eventually Browder’s repetition got through and he got a call from Bobby Ludwig in New York. Two days after a phone call with Ludwig, Browder pitched the idea. An hour later Ludwig delivered twenty-five million dollars and marching orders. At the New York office the formula for Bobby Ludwig was to make money.

When Browder returned to London he had to switch departments but couldn’t find a desk. “Bill, why are you bothering me with this?” Ludwig asked when Browder appealed to him, “If they won’t give you a desk just work from home, I don’t care where you work. This is about investing in Russia, not desks.”

…
There’s this idea that to understand what’s going on in the world someone has to know the history or stay on top of things. But sometimes we can come back to first principles. We’re all humans with incentives. Also, the Red Notice audiobook performance is amazing.

Open 24 Hours

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What do you want? is the wrong question.

Customers speak in the language of problems.
Businesses speak in the language of solutions.

When Netflix asked customers what they wanted, the customers said more new releases. So Netflix bought more. Then they looked at the data.

Engineers compared churn rates for customers who got new movies quickly with those who didn’t and the results were indistinguishable.

What customers wanted were faster movies. If customers got a movie within a few days of returning the previous they were less likely to churn out than customers who had to wait longer. Bingo. Netflix’s solution wasn’t more new releases, it was shorter shipping times.

Good for Netflix – but what about us? What about businesses that don’t have data engineers?

“From 1984 to about 1987, I proselytized about the wisdom of staying open for 24 hours,” Paul Orfalea writes in Copy This. Orfalea was a unique manager.

Rather than spending time at the office, Orfalea was on the road talking to Kinko’s partners, customers, and anyone who found something that worked.

“I’d met a convenience store owner who found his overall sales jumped 50 percent when he decided to stay open for 24 hours. At first, the increase seemed like a mystery. His foot traffic wasn’t great during the overnight hours. But his customers liked knowing they could patronize his stores any time day or night. They never had to worry when he was open or closed.”

Bingo.

Kinko’s business wasn’t selling copies – it was managing emotions. Customers needed help. Kinko’s helped them get jobs, celebrate moments, or create the brochure that needed done yesterday. Being open 24 hours helped.

Will and Mike’s 2023 Advice

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One of the biggest ideas from 8 full years of writing this blog is Michael Mauboussin’s success equation.

Outcomes are a mix of skill and luck. Persistence is a measure of skill: coaches making the playoffs, sales staff hitting targets, or personalities in the news. Skills are things which can – and should – be controlled.

But sometimes life is luck too.

He’d (my dad) seen enough of the big time, so to speak, and we went to lunch one day, and I said to him, “I think I’m going to try this comedy thing. I think I’m going to give it a shot. Do you have any advice for me?” And his big gut talk to me was, “You know what? I think you have the skill, but it takes a lot of luck. If you don’t make it, don’t worry about it. You can just try something else.” Like, don’t worry if you fail, because it’s a crapshoot anyway. And so, from that point, I was like, Oh, I’m just playing the lottery here so I might as well just go have fun.

Will Ferrell, Sicker in the Head

That’s our advice for the year ahead: Work hard on skills and have fun with luck.

2022 Books

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These are the books I finished. Each is an Amazon Affiliate link.

Reading is slightly underrated. Get the most out of reading by starting more books, quitting more books, and diving into themes.

Personal maintenance. Familiar subjects and books to “remind me”.

Atomic Habits I was late to this because it’s not too new. The book is built around adjusting the friction in our lives. Clear does a great job explaining these things and the book is a reminder to redesign gunky systems.

Never Split the Difference, a reread. Voss’s best-seller is heavy on his own stories and I skip these parts for the tactics like: two copies? or help me understand or that’s right or how am I supposed to do that? Be empathetic and talk to people in their world with their words.

Courage is Calling. Holiday adds stories to his stoic virtues series. I need reminders like the one above my desk: don’t be overheard complaining about life at court, not even to yourself.

Fiction used to feel unproductive because there wasn’t a story to write or a way to hack novel solutions into our daily optimization. I’m dumb. Fiction is fun. And if you need – like I still sometimes do – a rationalization, remember that these are stories written about people by people for people. The payoff is humanity.

All the Light we Cannot See. Good and I can’t wait for the Netflix series. The fictional account of fleeing families during WW2, personal growth and love, attention, and riddles and mazes.

The Nightingale. Like All the Light… and last year’s Alice Network this book follows a pair of women (sisters) during WW2. Why read historical fiction about women during WW2? I’ve no idea. This book, man this book had it all, even a few good sniffles at the end.

Fellowship of the Ring. At the Council of Elrond, the members are amazed at the dangers Aragorn has faced. “There is little need to tell of them”, said Aragon, “if a man must needs walk in sight of the Black Gate, or tread the deadly flowers of Morgul Vale, then perils he will have.” I think about this a lot.

Better off Dead (Jack Reacher). Each year Lee Child writes a new book, mostly the same structure, always focusing on Jack Reacher. Each year I read it.

Prey. A Patrick O’Shaughnessy recommendation. Written in 2002(!!!!!) the book holds up. This was the only aged passage: “I had a ten o’clock meeting with my headhunter, Annie Gerard. We met in the sunny courtyard of a coffee shop on Baker. We always met outside, so Annie could smoke. She had her laptop out and her wireless modem plugged in. A cigarette dangled from her lip, and she squinted in the smoke. “Got anything?” I said, sitting down opposite her.” I’ll only add that thermite makes a great white elephant gift.

JTBD books. JTBD is a problem-solving approach we’ve covered a lot.

Demand Side Sales. A collection of stories from Bob Moesta’s experiences. But my favorite story is from the introduction by Jason Fried:

I noticed that when people browsed shoes on a wall, they’d pick a few up and bounce them around in their hand to get a sense of the heft and feel. Shoes go on your feet, but people picked the shoe with their hands. If it didn’t feel good in the hand, it never made it to their foot.

Jason Fried

Start With No. Recommended by Chris Voss. It’s a little JTBD and a little Never Split… though Camp’s stories are as good as Voss’s or Moesta’s. A good book to ’round out’ these ideas but not essential.

The Sandler Rules. Recommended by Bob Moesta. Another ’round out’ book. Full review here.

Other

The Accounting Game. This a short fun read for an introduction to accounting. Though I still don’t ‘get it’. What I want is a holistic approach. How did Buffett understand float? How do I understand high fixed costs relative to accounts receivable? Accounting is a bathtub problem. Right?

Virus of the Mind. Richard Dawkins coined meme but this book (by one of the designers of Microsoft Word) goes into it. Through evolution, we developed preferences for messages built around danger, food, and sex. Certain types of those messages (stories, images, etc) spread better than others.

Status Games. There’s a set of books like Miller’s Spent and Hanson’s Elephant… that address the idea of status, mimicry, and imitation. Status Games was the best personal fit because of its evolutionary focus. Miller’s is more commercial (it was also good) and Hanson’s never clicked for me.

Parenting Teens with Love and Logic. My daughters’ school suggested this one. The warning for books like this is that most of parenting is making sure kids are physically, mentally, and emotionally safe from the big stuff. The rest is just tweaks. What I liked about this book was the contrast between parents being ‘helicopters’ or ‘consultants’.

Nomadland. Stories of people living as nomads. Usually, people didn’t intend to end up as nomads but if they did it was because they lost their health, house, job, or spouse. Instagram #vanlife isn’t real, and these stories are tough lives – but there’s something to this. Why do people live in one place? What are the limits? If jobs, insurances, paychecks, fulfillment, and family photos are in the cloud does that change how we live?