Author: MIKE

Netflix’s Two Customers

MIKE1 Comment

‘Who is my customer?’ is a key business question and the ways a company looks at that question influences its approach. For Reed Hastings the question is oriented around media consumers and media producers.

The consumers.

These two stakeholders influence the strategy. About the 1.5X speed feature that so many railed against, Hastings said, “it’s an experiment, we’re always doing experiments to see if consumers even care about that. If consumers cared a lot we would go and talk with creators and see the use cases.”

The future of competition will be measured, Hastings said, in, “How do consumers vote with their evenings?” And there will be a lot of voters. Hastings gets this, When host Andrew Ross Sorkin addresses the international market Hastings notes that “It’s not one market.”

Population tailwinds have built many great business: Coca-Cola and Hershey. As people move from the land of linear TV to on-demand the number of consumers will grow and Netflix wants to serve some of them.

The producers.

One of the early advantages Netflix offered producers of content was control. Ted Sarandos said that part-of-the-reason they won the House of Cards bid was because they ordered a full-season and promised not to interfere. This is part of Jason Blum’s advantage too.

When asked why somoene can’t just copy what he does, Blum replied, “It’s very hard for producers and executives in Hollywood to get out of their own way.”

It almost sounds as-if the Netflix strategy is out of a movie: if you build it they will come.

A few other quotes I liked:

  • “A bubble has to go down again…linear TV is both a huge revenue and time source that’s declining and that’s fueling the growth of all the internet services.”
  • “We’ll continue to push the edge in entertainment (and have content) that people feel is unusual, something they haven’t seen before.”
  • “The original quote was that we compete more with Fortnite than HBO meaning that Fortnite gets a lot more hours of viewing…but we don’t compete with Fortnite by doing something like that because we’re not very good at that. We compete by doing the most amazing TV shows you’ve ever seen.”

A New POV

MIKELeave a comment

A new perspective can be invaluable. One expression is that a change in point-of-view is worth forty IQ.

In her Masters in Business podcast with Barry Ritholtz, Barbara Tversky highlighted research about design and creativity. She said:

“In order to design we have to get rid of old ways and think in new ways. We just finished an experiment asking people to think of new ways to use old things. The good answers come at about the ninth answer. The way we got people to generate these new ideas—how to use an umbrella in a creative way—was to ask them to think of differing roles of people. How would a doctor use this? How would a gardener?”

Barbara Tversky

Host Barry Ritholtz said it reminded him of the props portion of Whose Line is it Anyway.

A new perspective tends to help because it’s a new way to look at an issue. Even though we may be well versed in an area, we also may be on a blocked trail. Our familiarity with one path could be our hinderance.

When Bill Gates was asked why he could contribute to something like polio research, besides just dollars, he said that sunk costs and biases seep in along with the work. Instead there has to be an outside perspective that asks, have you considered this?

Part of the reason comedy, like Whose Line, works so well is because it offers a contrast from a different point of view. Ricky Gervais’s joke about guitar lessons is just that. He reframes Twitter into a physical message board. He reframes followers as passersby.

It’s great to hear about Tversky research because it provides a framework for how this can happen. Think of ten jobs, pretend you’re that person, come up with one answer for each. That’s it.

Other quotes from Tversky I liked:

  • “We have to learn routines to get through the day. If everything is a new problem it’s going to take too long.”
  • “Memories start getting distorted the minute you use language because they don’t happen in language.”

The Disney Stroller Couple

MIKE3 Comments

It was going to be a long day.

One of the great advantages of living an hour from the Disney World parks is day-trips. Typically we won’t have access to the best attractions, but we’ll have access to many good ones. Plus, seven day-trips over seven weekends is different from a seven-day trip during the week. That’s just basic Alchemy.

Before we moved to Florida, we lived in Ohio and scheduled annual visits. On those trips we had to ‘get our money’s worth’. Tickets might be one-hundred dollars per day per person. Hotel rooms can cost a few hundred dollars too. We bought two ice-cream sandwiches during our last trip and those were twelve dollars.

Flying to Florida and doing Disney costs a lot of money, requires a lot of planning, and introduces some unexpected stress. Keep in mind, this is all a vacation. On our last trip we heard this exchange as a man tried to fold a stroller so he could board a tram.

Him: “This thing is so hard to fold because of all the stuff under here.”

Her: “Welcome to being a dad.”

I felt the frustration like the Florida sun.

…

Disney’s Animal Kingdom has a few fantastic rides, some nice animal viewing areas, and a few of our favorite shows: A Great Bird Adventure, Finding Nemo, and Festival of the Lion King.

At the big finish of Festival of the Lion King, performers choose children from the audience to take a lap around the stage. One girl got to shake hands with Timon, the singing meerkat. If someone can smile with their entire body she did. It was magical.

Many people believe that Disney’s advantage is their IP—but it’s not their only one. Disney magic is an advantage too. These moments for guests don’t happen because of a character but because of a person.

When I walk around Galaxy’s Edge it’s neat—but when you watch Storm Troopers hassel guests it’s great.

If the stroller couple had a magical moment, they’ll be back. Guaranteed. They’ll look back on the trip, and it won’t have been a long day, but a great one.

Maximizing a 401K

MIKE2 Comments

There’s an interesting investing idea in personal finance to be like Rip van Winkle. If investors don’t earn the market returns because they churn, maybe they would be better off setting it and forgetting it, of sleeping-on their investments.

I was reminded of this story because I forgot a password. Does invest like you forgot your password have the same flair? Eventually I logged in and checked our contribution amounts for 2020.

While poking around I wondered what a retirement account would look like if someone were to maximize their 401k ($19,500 in 2020) each year. Sometimes the government changes the limit of what an employee and employer can contribute to a retirement account. As someone who likes simple and effective plans I thought this was great financial advice. I could see advisors telling their clients, just aim to hit the max number each year and you’ll have this much.

I calculated the rate changes each year and found out that contribution limits change at about the same rate of inflation. Of course. The IRS calls these ‘cost of living adjustments’. Sometimes you just need to stumble on things yourself.

The S&P average over the last thirty years was 9.69%. The picture looked like this.

This doesn’t account for an employer match, social security, or other savings but it’s comforting to know that the real 4% withdraw at retirement is $93,000 annually.

Digging into this made me realize how much variation can occur in planning. Cost-of-living, family situations, businesses, multi-income families, income levels, mortgages, taxes, and so on can all swing the equation one way or another. Ditto for flexibility in needs and wants.

However, just because there is a lot to consider doesn’t mean there’s not a simple plan. Specific predictions are futile but ballpark approximations are possible, helpful, and a good way to frame potential outcomes.

Collaboration on Optimal Designs

MIKELeave a comment

One important thing Rory Sutherland’s book Alchemy did was remind people about the importance of subjectivity. In her talk, Balancing Order and Chaos in UX, Katie Dill (Lyft, Airbnb) talks about how Virgin Atlantic made people feel different even though their seats are the same size and material.

Mohnish Pabrai said something similar about Southwest, “I go on a Southwest aircraft and I’m in coach and I usually find I’m happy. I’m in a happier state of mind in coach in Southwest versus business in American. Why is that? I don’t know.”

On the easy metrics, Pabrai is getting less value. But he’s happier. There’s hidden metrics at play.

Companies like Virgin and Southwest or Disney, Dill explains, have an advantage because they own the experience. For marketplaces, like Lyft and Airbnb, Dill has advice on what a business operator can do to create the same perceived value advantage as “full stack” companies.

  1. Zoom out, “have a perspective on what you are trying to deliver, it’s not just one moment.”
  2. Look out, “where can the shit hit the fan and where can we solve for it prior?”
  3. Set the stage, “use guardrails.”
  4. Don’t overstep and smother the user’s quirks.
  5. Open up, “the community is the key.”

Good design (and its rewards) aren’t about the finished style but the production style. Design is about collaboration. Dan Lockton said, “When people feel they are being influenced in a way that doesn’t match their understanding of the situation they will rebel.”

The best designs serve users. The best designs pave desire paths.

A Path has Appeared! from DesirePath

We focus on design because of the potential upside. In his talks on The Hungry Brain, Stephan J. Guyenet brings up the optimal foraging equation.

YouTube

That same approach works for design. The cost for a good design is relatively low and the gained value—especially because all value is perceived value—is relatively high.

Good design is why Pabrai likes Southwest, even though the seats are smaller. Good design is often hard to measure but the results show there’s something there.

Trees on Buildings are not Easy

MIKE2 Comments

On the 99pi episode, #385 Shade, Roman Mars and Kurt Kohlstedt talk about the trend of trees on terraces. Kohlstedt said:

“One of the things that always cracks me up when looking at their (architect’s) renderings is that you’ll see all the trees on the sides of the buildings and they’ll depict the plaza below with a couple of trees. I can’t help but think; if you want to go all green, the easiest way is to add more trees on the ground. Which makes you wonder, what is the purpose?

What’s the purpose? That’s a good question. Here’s a YouTube video of some ‘plans.’

I call this fancy recipe syndrome. It’s the idea that if a chef blogger shares a recipe it needs to be distinguishing. It’s hard to stand-out with simplicity, efficiency, and time-tested recipes. Though my favorite cookbooks, are just that.

Okay, okay. They’re standing out. What’s the big deal?

Well, on net, these green buildings are a zero. They cost more to build and maintain than they offset. Yet they persist. What’s up with that?

Whenever we see the illogical, it’s an invitation to dive deeper. Everyone is locally logical. Bob Moesta said, “the irrational becomes rational with context.”

There are multiple part-of-the-reason explanations but I’d guess the predominant one is the contrast between the visible and the less-visible and the idea of importance and unimportance. We tend to think that visible = important and when the entire side of a building is covered in trees our thinking fast reaction is, wow, that building must be green.

However so much is working against us, including how we see vertical versus horizontal spaces.

Shepard’s Table – Gif Demonstration from illusionporn

It’s helpful to remember that action doesn’t always mean effective. In productivity circles there’s the Cal Newport deep work ideas. In investing there’s the advice to, ‘don’t just do something, sit there.’ In architecture it might be to just plant more trees on the ground.

I was talking to a neighbor about refinancing a house and shared these calculations. Looking back, a re-fi is like putting trees on a building. It’s flashy, it’s easy to count, it makes sense. But in the scope of a personal budget there are much easier and effective things worth doing.

The Only Honest Sport

MIKE8 Comments

Sports are good case studies. The outcomes are binary, the statistics are plentiful, and the rewards are large. There’s glory, attention, and interest. What’s not to love?

The most recent version of this (on my radar) was the double-edge sword of luck. In his paper, (Kyle Siler) writes about how lucky breaks in football lead to job losses and job opportunities. One part:

“Luckier outcomes were conducive to the retention of coaches and players. Less lucky teams were more likely to replace coaches and players. In turn, people are credited or blamed for accomplishments that were at least in part out of their control.”

In an era where people emphasize the process and not the outcome, where resulting is a four letter word, this objectability makes sense.

Well, only sometimes.

What makes sports great: bountiful numbers, is also what makes it prone to errors. Al Davis had it wrong.

Image result for just win baby gif"

But Davis knew he was wrong, even as he said it.

Go Like Hell was a great book because it had great characters, the race was secondary. Bob Iger‘s most-important early lesson was that sport wasn’t mainly about broadcasting. My short ebook emphasizes the jobt-to-be-done of sport.

Al Davis knew all this. Davis is still relevant today because he knew that winning was secondary to relevance. Sports is about storytelling. Sport is about narrative. Talking heads are imperative to this. Analytics haven’t taken over sports because they’re not conducive to storytelling—at least not yet. That means there’s one sport, one champion, that understands this. The only honest sport is the WWE.

Millions of Dollars or One Ring?

MIKELeave a comment

Money solves a lot of problems and it’s a stable form of compensation. That makes it a great incentive.

Here, take this thing that you think is valuable and others think as valuable and thanks to the computer in your pocket you don’t actually need the thing but a code on a site that sends the digital version of the thing to someone else. Trust me, this works.

But money isn’t the only incentive. Eventually it’s not even the most important. However, not thinking about money as an incentive requires imagination. Nothing is official but here’s one reported consideration for the NBA.

This is a terrible idea.

Bill Simmons—who we like—understands why. In his version of the in-season competition, Simmons awards teams a better chance to win the NBA championship. In zero-sum competitions, people would give body parts to win. How much does the marginal million matter?

It’s not just sports. After a certain salary, company culture matters more than company checks.

Incentives are like a series of dials: culture, mission, pay, people, autonomy, and so on.

Bob Iger wrote that he and others stayed at Capital Cities because of loyalty. Plus it was a great place to work. Once in the Disney machinery things changed. Iger again, “If you stuck to your budget and behaved ethically, Tom and Dan (Cap Cities) gave you room to operate with independence…Disney was the opposite of all that.”

It’s great that money isn’t the only motivator. This allows for interesting solutions. If you need some ideas, try some Alchemy.

The Need for Speed

MIKELeave a comment
Tom Cruise Quote GIF by Top 100 Movie Quotes of All Time

You know a mental model is good if you continue returning to it. Taleb’s antifragility is like this. Munger’s emphasis on inversion. Another is Boyd’s OODA loop.

Run the numbers on a fifteen or thirty-year mortgage with the mindset to invest the difference and both are good choices. Avoiding mistakes is more than half-the-battle.

When I finished that post, I thought good choices were low variance. “Don’t be house rich and cash poor,” my dad advised. With too much house, a job loss would introduce a lot of volatility. Similarly, an emergency fund tempers variance. So does ‘living within your means.’

However, variance isn’t the first principle.

What matters more is response cadence. We’ll call this articulation of cadence and the OODA loop: Variance Response Time (VRT).

A public school teacher will have a high VRT due to the nature of hiring. With seasonal hiring and year-long contracts, a teacher must step into another industry or live off their savings. A large emergency fund (dollars are units of time) will make the transition more comfortable.

Medical providers will have a low VRT. While their emergency funds vary, a physician, nurse-practitioner, or medical assistant can immediately find work. With a lower VRT these people can recover from choosing from a mixed bag of good and bad choices.

A tree has the longest VRT. A force outside the normal ecosystem conditions and that’s it. Kaput.

While money, knowledge, and transfer (i.e. licensing requirements) will all affect VRT, so will complexity. It doesn’t matter how much money or knowledge someone has if they don’t know which question to ask first. Boyd’s first ‘O’ is Orient. Or as Steven Soderbergh put it, “If you don’t know where the camera should go it doesn’t matter what you’re shooting on.”

None of this is new but examples seem to help drive the point home. Catholic churches do read the same gospels each year. So, am I able to adapt quickly or am I setup so I won’t have to?

Competitive Advantages: NBA

MIKELeave a comment

It’s interesting to hear successful people talk about physical location as a competitive advantage. We should probably hear more of it.

George Lucas left Hollywood for San Francisco. Ken Burns lives in rural New England. Buffett is in Nebraska. Brent Beshore, successful in his own niche, operates in Missouri. All of these places are advantages, not disadvantages, to the participants.

Getting away from the cacophony of a major city helps someone do a certain kind of work. For these individuals, the loss of interactivity is offset by a new set of actions.

Daryl Morey spoke about this to Bill Simmons. Morey noted that in addition to no state taxes, Houston Texas had more to offer players. Great weather, fine recreation, good culture, and so on. In addition to dollars and moneyball, Morey has a large competitive advantage. I often wonder why the local Orlando Magic doesn’t offer more to their players about brand building, as one of the greatest brands in the world shares the same ‘magic.’

The nature of these competitive advantages came up in a podcast with Zach Lowe and Howard Beck who said (39:30):

I don’t think it’s fair to the fans when you treat every injury to every player like it’s a national security matter and the Nets have done that. That’s Sean Marks embodying the Spurs’ culture.

This is Marks’ mistake. He’s taken too much. While the Spurs have a great cultural reputation it was time-sensitive. The next great culture team will have to find the first principles and not the outcomes. It wasn’t that the Spurs kept things secret but that they did so for a reason. That’s the key, and it’s important to ask if that still matters.

At the 2019 Sloan Sports conference, Beck and Lowe were on a panel with Paul Pierce who said, “team style of play is created around their best player.” Any competitive advantage is contextual. The time and place matter just like the people and actions.