Author: MIKE

Supported by Greenhaven Road Capital, finding value off the beaten path.

Thomas Tull thought that Legendary Films could be better after he saw newspapers advertising The Hangover. Is this really how we should market this? Tull thought.

As a sports fan who saw sabermetric’s ascent, he looked for an analytics group he could hire (buy) and found one started by Matthew Marolda who recalled meeting Tull on his jet and getting this pitch:

“‘Legendary is a benevolent dictatorship’ and that helps, having the guy at the top be like, ‘this is what we’re doing, get on board.'”

Listen to analysts in the game and you’ll hear how often this isn’t the case. With support, Marolda built up an analytics staff quite a bit larger than their Hollywood peers, at least at first. Marolda used to joke that his group was about sixty people, which was fifty-nine more than their nearest competitor.

Another thing that contributed to Legendary’s success was separating analytics from creative. This distance “ensures objectivity,” Marolda said in 2016.

Distance had its drawbacks. They reinvented the wheel, Marolda said, but they also came across new ideas and weren’t unnecessarily influenced by others. Malcolm Gladwell has wondered for years why basketball teams don’t do something like this.

Bill Simmons noted that they kind of do.

Maroldo wanted to figure out how conditions matter. What was the Hollywood equivalent to when baseball hitters were shown heat maps or coaches told about 3-point offense and defense? In what ways did talent fit well and how could data help market movies?

The talent advantage has been nebulous, at least as far as public information goes. The Great Wall likely barely broken even despite starring Matt Damon, an A-List actor who indexes especially well in China.

Legendary has had much more success in marketing movies. They remind people who are in the tent that movies are coming out and they ignore people like Marolda’s mom who’s never seen a Legendary movie. Which kind of makes sense when you see their list of movies.

Movie marketing is similar to sports sabermetrics. The traditional way was fine until new metrics, tools, and technology led to better outcomes. Traditional movie marketing looks like this:

• 70% on television
• 10% on digital
• 10% on outdoor and print
• 10% on fees.

However, for Krampus, Legendary flipped the marketing model and spent six times the normal amount on digital and one-third on television. Speaking generally Marolda said:

“It wasn’t to say that TV advertising was bad, in fact, it’s quite effective in the right context. Rather, can you bolster it, flip the order, have targeted digital lead the charge? That’s what I think where the immediate revolution has been.”

Digital’s advantage is being able to not target Marolda’s mom. She shouldn’t know about Godzilla vs. King Kong in 2020.

Marlo Vinasco of Uber spoke about how they’re using data for targeted marketing too. “That’s the key insight for marketing. Instead of randomly targeting hundreds to catch ten (potential churning customers or drivers), I’m going to target twenty to catch five or six. It’s a much more efficient vehicle for marketing investment than before.”

That said, digital still has obstacles. When asked in 2016 if Legendary might go totally digital Marolda balked.

“We’re not opposed to going 100% digital, we’re close to doing it. But the theory is that if you do that and then it fails, then that’s an easy way to point a finger. So we’re cognizant of that.”

Career risk exists, even with data backup.

Part of the reason for career risk is the narrative around a movie. For example, Warcraft was panned by critics, enjoyed by US fanatics, and loved by Chinese viewers, outearning Star Wars for the month. Marolda said, “Our industry is very domestically centric so people were watching the US box office but they didn’t really have their eye on what we were really thinking about, which was China.”

Without the inside story, commentators criticize baseball teams, tennis players, or Michigan brewers. Mike Reiss put it this way:

“At the end of season 4 (of The Simpsons), I left to take my Christmas break. I picked up a year-end magazine that declared ‘the writing on The Simpsons has gone downhill.’ That critique ruined my holiday. I obsessed about what I could have been doing wrong. Twenty years later, that same magazine declared season 4, ‘the greatest season of the greatest show in history.’ Thanks.”

Without the insider’s reasons, we get outsider’s guesses. Warcraft worked for a number of reasons, one of which was the data. Marolda said, “because of our relationship with companies like Tencent and Baidu who actually sell tickets, we’re able to close loops in ways we can’t anywhere else.”

They targeted marketing and it worked.

Movies are an interesting business. Some things have changed, but others haven’t. For marketers who better target customers, it’s a fuller theater. We’ll give the last word to Robert McKee, “For writers who can tell a quality story, it’s a seller’s market—always has been, always will be.”

Supported by Greenhaven Road Capital, finding value off the beaten path.

Former Chairman of Legendary Films, Thomas Tull spoke with Shane Parrish.

A key insight to Rory Sutherland’s book Alchemy that we keep coming back to is doing more with less through psychological suggestion rather than physical improvement. One form of that is a see-it-to-believe-it moment. Tull experienced one at Hamilton College, which: “Had a profound impact on how to think, how to communicate, and that you could have efficacy in the world. If I had to distill the education down, it was looking at other people and the fact that you could have an impact on the world. It wasn’t just get up, do my job, and be slotted into my life.”

Hamilton taught him agency.

After college, Tull owned and operated an auto repair shop as well as some laundromats where he installed washing machines with dynamic pricing. Through those experiences Tull learned:

“If there’s any thematic to my business career, it’s that I’m not good with coming up with a new thing…what I’ve done okay at is looking at an industry or business model and saying, ‘Okay, where are points where you could improve this?’.”

Invent or optimize? Lay track or make the trains run on time? These questions depend on the phases of business and personal fit. Tull optimizes.

After a stint in venture capital, Tull started Legendary Entertainment in the early 2000s. We’ve noted here that some businesses like movies, wine, and restaurants tend to be terrible options because they pay in profit and prestige. Easier, though not easy, businesses are being Taleb’s Dentist or Charlie’s Plumber.

To succeed in making movies, wine, or food takes timing (luck).

When Thomas started Legendary, “a lot of big-box retailers were using (DVDs) as a loss-leader and the discs had great margins.” Combine that with “premium, grade-A, global, intellectual property.” Movies lacked capital and Tull saw an opportunity.

“I really had conviction because I looked at the economics and thought, if you can build it in a different way (partnering for distribution) and if you could have the right structure and draft off global infrastructure you could build a nice business.”

Tull’s first director was Christopher Nolan (more luck) and Legendary went on to make We Are Marshall, The Hangover, and Straight Outta Compton. The secret to these successes was to “Stand as close as you can to absolute talent.”

Tull also talks about the movie economics and how Legendary is closer to Disney than Blumhouse. If Jason Blum is the Warren Buffett of movie-making (don’t lose money) then Tull is like Disney. The scope of resources makes “each film is like a startup company.”

During this time Tull noticed how movie marketing changed. “It used to be that if you made a good movie, got good test scores, and got a good trailer, you’d be fine.”

But it was after seeing that The Hangover spent seven million dollars on newspaper advertising that Tull though, “that’s probably not an efficient use of capital.” Working with Eric Schmidt, chairman at Google, Tull bought a boutique analytics company founded by Matt Marolda.

“I wanted to insert ourselves into the decision point. If it’s clear to me that you’re not psychographically into this movie, I don’t want to bother you.”

This change was a “pretty material impact on our business.” This change is spreading from films to rides to films.

In 2016, Legendary Entertainment was acquired by the Wanda Group and Tull started Tulco Holdings. Tull looks to invest in companies with enough ‘there there’. That means aligning the stakeholders. For private equity like Brent Beshore it means one thing. For venture capitalists, it means another. Here’s how Andy Weissman put it:

“If you take money from a venture capitalist, the way the economics of the VC world work, are an investor like me needs to make 10 or 100 x on our money, which means we need these companies to be really large businesses for us to return money to our investors. If they’re not, those returns make less sense to us. When the time to take venture money is when you think your incentives are completely aligned with that. You have to believe it’s a big business. You are comfortable taking big risks, including existential risks around managing that business.”

Thanks for reading.

Supported by Greenhaven Road Capital, finding value off the beaten path.

Daniel Ek spoke with Patrick O’Shaughnessy about Spotify. It was fantastic. Music streaming seems like a difficult business because of the supplier power, competition, legacy agents, defaults, bundles, and varied stakeholders but Ek and his teams seem well prepared. Let’s see how.

The theme of Spotify’s success is to think about the job-to-be-done for suppliers and consumers. Ek believes that discovery is a common job to both music and podcasts.

“We don’t think the job-to-be-done is different at all between podcast and music. It is really the same thing, audio. And people are more than happy to have one service fulfill that… If you’re listening to music but also discover other things you may care about, that could be a great source of a way to learn about new shows.'”

But not for Spotify Kids:

“Maybe the most important part is that it’s a 100% curated experience, we don’t let anything into our kids product that isn’t vetted by our editors. So the job to be done, even though it’s similar content, ended up being vastly different because of the constituents.”

Musicians have a different job too: distribution. Ek said musicians earn 80% of their revenue from touring. Artists hire Spotify for marketing.

Jobs-to-done can be difficult to figure out. Uber’s job is transportation, sometimes via bus. Wine’s job was for Saturday, but become employed Tuesday too. Cinnabon’s job is decadence, not low-cal. Businesses succeed when they find a job and help their customers do it.

For Spotify their first job was to make listening easier. When asked how he competed with the early (illegal) download sites, Ek noted that the experience was awful. You had to find the song, hope it was what it was, get the song and son in. Though the music was free, the transaction costs were high. “It was clear from the beginning the magic experience would be if you had all the world’s music on your hard drive. That’s the feeling I wanted to invoke.” That was the job.

Identifying ‘the job’ can be tricky. Only buyers aren’t liars and businesses would do well to administer The Mom Test. At Spotify, they identify jobs partially thanks to their decentralized command.

“In our case, we do hack weeks like many other companies. But unlike maybe most, we don’t force people to go in one direction or another. We give them helpful context and guidance for things we’re interested in as senior leaders, like, ‘Here is where the strategy is going.'”

But don’t take ‘hack week’ or ‘decentralized command’ and copy-paste it. Ek said, “Unless you understand the system, you can’t just take one of the concepts out of it and expect it to work in your company.” As Chris Johnson explained, Discover Weekly was built by four engineers.

Thanks for reading.

Supported by Greenhaven Road Capital, finding value off the beaten path.

When addressing the social science replicability crisis, Rory Sutherland said something to the effect, for me it doesn’t matter that it doesn’t repeat in the lab, all that matters is that it might work on the street. In his Talk at Google, investor Chuck Akre noted that “There is no correct way, this is just the way it works for us.”

Any of our notes might work and none are universal. Let’s see what Akre’s advantages have been.

One traffic light. Akre’s offices are in Middleburg Virginia.

“We work in a town with one traffic light and that makes the decision process much simpler, (in other places) we’d be surrounded by hundreds of people who are very bright and very interesting. The reason we’re in a town with one traffic light is that their stuff would be intellectually appealing to us and distract us from what we do well.”

Another one-light researcher is Ken Burns who said the “tiny village in New Hampshire (allows) us to do the necessary research.” Ed Catmull said George Lucas moved from Hollywood to San Francisco for this reason.

Conditions matter. Teens harass less when they have something to do. Hotels allow weakness without pull-up bars. Quarterbacks waste away in the wrong system.

Business models. ‘Who offers what and why’ might be a good question for figuring out an incentive system.

“They (morning finance television) have a different business model, and it’s mostly supported by financial and consumer institutions who want your eyeballs. If it’s a brokerage firm they want to create transactions. “

Stakeholders. If you want to go fast, go alone. If you want to go far, go together. But that only works with people going the same direction.

“We tell our clients and our prospective clients that our goal is to compound their capital at an above-average rate while incurring a below-average level of risk.”

In his talks Akre’s clear about how they find that kind of risk. This kind of clarity prepares participants. One financial advisor put it this way, “The easiest clients to work with are the ones that know the most.”

Pricing power. Akre told Patrick O’Shaughnessy:

“I used to joke about the dominatrix business model. She could price however she wanted to price. My example of pricing power is as follows: It’s a big holiday weekend. Your wife is having a hundred people to a party in two hours and the toilets are stopped. You will pay that plumber whatever he asks as long as he can get there before the party.”

Brothels have pricing power too. Sometimes brands build pricing power. Pat Dorsey has spoken a lot about this. Sometimes brands think they build pricing power. In the 1950’s Budweiser thought they did but their $.15 per case increase allowed Schiltz to become the market leader. That’s only $1.45 today. Wisely the company reversed course, lowered prices, and changed their advertising.

Market mechanism. Good for consumers, bad for producers, depending on your perspective.

“Mastercard and Visa are earning returns on capital that, as we say, you could cut in half twice and still be above average for an American business. Something extraordinary is going on there. The company does not talk about what that is. We don’t talk about it, but we spend a lot of time thinking about it, trying to understand what it is.”

When asked ‘Why not share?’ Akre said, “I don’t think we’re giving away anything but I want to make sure we’re not.”

Argue well. In a 2019 talk, Akre appears with John Neff who recalled his pitch to Chuck. It was a decade early and Neff thought Moody’s Corporation was a good investment. He thought that the banks misrepresented the credit-default-swaps and “the problem was upstream, with the banks who securitized these products.”

This was a special situation, an ugly duck. Akre disagreed, but kept an open mind. Later, after Neff was hired, the duo went and visited the company. Akre believes in good companies run by good people with good opportunities and after meeting with management they invested.

Neff reflected that this was, “A wonderful lesson that I would never forget. He could have said, ‘I am Chuck Akre, I’ve been doing this a long time, the answer is ‘No’. But when he was presented with a good case he changed his mind.”

That’s how to argue well.

Books. Akre said he reads a lot of business biographies, “because they inform me about human behavior.” Additionally, The Money Masters was “a very important book for me.” 100 to 1 In the Stock Market, “really made me come around and focus on the idea of compound return.”

“There’s a book out called Dear Chairman and it’s about activists and companies, and trying to change the behavior of companies, typically because of their reinvestment histories.”

Thanks for reading.

 

Supported by Greenhaven Road Capital, finding value off the beaten path.

After the story of Barefoot Wine, and a history of looking at difficult businesses like movies, and restaurants, it seemed appropriate to think about selling wine. Wine-making pays in profits and prestige and as such will attract extra competition. It’s a market mechanism on steroids. To succeed, someone needs to be excellent rather than simply above average. There are no Bemidji plumbers here.

Before we start we should note that selling wine means a lot of things. Some vineyards only sell fruit, some wineries only have events, some are large and some are small. We’ll focus on only one part of winning the wine game: the marketing.

What matters for marketing is ease.

That might mean an easy decision (Thinking Fast, heuristics). It might mean signaling and reducing cognitive dissonance. ‘Easy decisions’ does not mean simple. It means easy for the individual in that moment.

…

As Michael Houlihan and Bonnie Harvey of Barefoot noted, wines in the eighties were “Saturday night wine(s) where the men would sit around and talk about things like mid-notes. But it turned out the majority of wine buyers were a thirty-seven-year-old mom with two-and-a-half kids pushing a cart down the supermarket aisle and she wanted a Tuesday night wine.”

Barefoot was one company that made wine buying less whining. They made it easy, partially through their brand.

Mark Ritson said that the best brands have a DNA. Remove the copy, logo, trademark, etc and excellent branding still makes clear what company is being displayed. (see image)

That’s not the case for wine.

Instead, wines need to win the label.

For the back label, wineries will do well to include information about food pairing, taste, and history of the vineyard. These make it easy for a host to plan a party. One study put it this way:

“For the overall sample of wine consumers, information on the history of a winery including a unique production method and the quality statement had the largest positive impact, followed by elaborate taste information and food pairing advice.”

That’s kind of interesting. It’s not how the wine hits the stomach but how the label hits the brain.

Another study noted that retail consumers prefer wines with simple labels. Rather than metaphorical, consumers wanted the literal. An award helped too. Gold medal winners had an inelastic demand.

For Millenials (and presumably others), the label mattered a lot. In a blind taste test, Millenials preferred the taste of ‘boomer wines‘, 3:2. When the labels were revealed the preferences reversed. This blind taste test shows home important branding, labels, and marketing is for consumer goods from Domino’s Pizza to Coca-Cola.

Branding is the context and everything has a context. Wine, Clay Shannon of Shannon Ridge Wines, said that all they’re selling is fermented grape juice. It’s a commodity. Unless that is, a bottle is differentiated on price, quality, or story.

It was episode 282 when Gary Vaynerchuck spoke with Shannon and the duo took calls from people within the wine industry. Without a doubt, Gary’s advice was on marketing the wine. To the callers, Gary said to focus on the big and the small. The big was creating content and sharing things on social media. The small was knocking door-to-door to make as many sale calls as necessary.

Clay said that he’s noticed, “consumers want to be closer to the grower these days,” and Gary added, “it’s all storytelling isn’t it?”

…

Winning wines are easy choices. Depending on the consumer (target market) needs (job-to-be-done), wine-makers can tell their story (differentiate). With some luck, they’ll succeed.

One proxy for wine is the bar. Companies like RXBar, Larabar, etc. differentiated, went DTC, and used new marketing. Their labels were unique, their ingredients novel, and their story was powerful. That could work for wine. We’ll let Gary, as he often does, have the final word:

“All my ‘som’ friends want to shit on Australian Shiraz because it’s over-extracted and guess what, if you want to be a scientist they’re not wrong. My thing is, if I’m hanging out with my buddies and I’m watching WrestleMania I wanna have a cabernet that was fucking aged in bourbon barrels.”

Thanks for reading.

Supported by Greenhaven Road Capital, finding value off the beaten path.

On Variety’s Strictly Business podcast, Bill Abbott, president and CEO of Hallmark Channel parent Crown Media Family Networks spoke about the obstacles of running the business.

“When you say it’s a ‘Hallmark movie, you know what it is.” 

There’s a lot of emphasis on branding because a good brand affects a business like an All-Star affects an NBA team. With one, everything is easier. In 2013, Mark Pendergast finished his book about the Coca-Cola company. Near the end of a very thorough research process, he asked if he could finally see the secret recipe. Mark got lucky, a spokesman let down his guard and…

“He grinned, ‘Mark,’ he said, ‘let’s say this is your lucky day. I happen to have a copy of that formula right here in my desk…There you go. Now what are you going to do with it?”

Mark might sell it, but it would have to be a different name. He might market it, but not with those classic red and white colors. He might hint that it tastes just like Coca-Cola but as he found in his research, it’s not so much the taste that people like. Coke tastes better when people see the label (wine is this way too). Brand is one way to create Alchemy.

The Coca-Cola Company also has a successful distribution network. Hallmark, does not.

“(Disney via Hulu) shouldn’t have the ability to not carry us and carry Lifetime in a premium position when they own half of Lifetime.” 

Alex Rampell called this ‘the TiVo problem‘. Can incumbents with distribution creat innovation before upstarts with innovation attain distribution? We saw this same problem play out with Barefoot Wine. In that case, the founders tweaked the distribution model. 5-Hour Energy.

As content evolves, the distribution economics evolves too. Eventually (probably) the Hallmark content will be on their Hallmark Movies Now service, however, those economics are tough.

“I think the whole SVOD ecosystems has to go through a major change because there are now ways the economic model works if you’re creating this volume of content.” 

“It’s too much content for too low a price.”

This was the Pixar problem. Their movie investments only paid off if their movies were always awesome. One slip was trouble, two slips and bust. Pixar’s acquisition changed the economics.

Abbott is open to different ideas. As Rory Sutherland fondly notes, maybe your problem has already been solved someplace else.

“The landscape has to change in some way…the video game business has been very successful in portioning out pieces.”

“Yeah, if you want to find out if the guy gets the girl, fifty cents at the end.”

If peripheral content (like Pixar) is one model then video games are another. No matter what direction Hallmark strikes out in, they’ve got a good start. It’s a strong brand, selling out advertising each holiday season, even turning down questionable ads and being #1 in the women 25-54 bracket.

…

I wrote an ebook based around the content of this blog. It’s Idea Trails and it’s a collection of 50+ ideas from the blog with stories that go along with them. My concept was a book of trailheads of ideas worth exploring. Here’s an audio sample.

Supported by Greenhaven Road Capital, finding value off the beaten path.

Decision making is full of analogies. A latticework of mental models, the two-jar model, the urn of uncertainty. Today we’ll introduce another, the everyday carry (EDC). 

Like the other models, EDC has multiple dimensions. The inspiration for this idea comes from Marc Andreessen’s answer to Tyler Cowen about what television shows he recommends:

“The conceit of the show (Burn Notice) was that this spy had every conceivable skill. He could make explosives out of bleach or disarm someone with a mop handle. Whatever circumstance he was in, he had the skill. Basically I look at him and I think, that’s a good founder. A good founder has to have every conceivable skill.”

Good founders can work in product, marketing, finance, legal, and human resources. The list, Andreessen said, “goes on and on and on and there is no substitute for these things.”

EDC is an internet subculture. Often an EDC includes a flashlight, wallet, watch, and a multitool. Sometimes there are handguns, knives, and lighters. Their motto might be, *better have it and not need it rather than need it and not have it.*

In every EDC there is money and money is a great tool because it’s immediate. Order and pay.

What’s lost with quick-payment is interesting-learning. [Michael Lombardi](https://amzn.to/2D3kELw) wrote about this, “If copycatting were a useful shortcut to success, there would be Bagasse-Style restaurant in every city and San Francisco 49er clones in every football stadium.”

Casey Neistat noted this too in “Being RICH vs being POOR – a video essay.” Money solves all the immediate first-order needs like shelter, food, and bills but money won’t solve for the conditions that led to those predicaments. 

That’s where the EDC comes in. As Stephen Soderbergh said when questioned about filming with an iPhone, “if you don’t know where the camera should go, it doesn’t matter what you’re shooting on.” Ditto for using a wheelchair. 

This is what Andreessen is getting at. Money will only get a person or a business so far because what’s really important is the know-how of the EDC. 

The EDC approach is the heart of sabermetrics in baseball. Wins and payroll are weakly correlated. Rather than the wallet, teams reach for the tool. The Direct To Consumer revolution is filled with products that demonstrate the tool of ‘talking to your customers about what job they’re hiring for’. Large organizations could have spun up Edible Arrangements, Harry’s Razors, Instagram, Rent The Runway and so on but they didn’t. 

The EDC is there and ready. Are you?

Thanks for reading. 

Supported by Greenhaven Road Capital, finding value off the beaten path.

People view acts of omission—the absence of an act—as far less intrusive or harmful than acts of commission—the committing of an act—even if the outcomes are the same or worse. Psychologists call this omission bias, and it expresses itself in a broad range of contexts.

That’s from Tobias Moskowitz’s Scorecasting. The opening chapter is about how referees tend to ‘swallow their whistle’ and let the players play. The action is decided on the field.

Fans, again, tend to, be okay with this because as one referee put it, “People aren’t paying to see us.” We want the great athletes battling it out. But while this omission tendency works in sports it doesn’t work in investing.

Marc Andreessen explained errors of omission nicely. If an investment doesn’t deliver, all that’s lost is 1X the money and time. However, if an investor misses an opportunity “you can lose 1,000x because that’s the upside of what you could have gotten. All of the mistakes I care about are mistakes of omission.”

For a long time, I thought that when investors wanted good deal-flow it was to avoid a market mechanism. People get better deals at garage sales than on eBay because there are more bidders. Now I see that the deal flow involves the chance of a good price but also any price at all.

Missed opportunities can be quite large. During the 2019 DJCO meeting, Charlie Munger said that the family fortune would be twice as large if not for a mistake of omission in the 1970s. The viewer gets the sense that Munger is frustrated less by the dollar loss and more by the mental misstep. Buffett too, notes that omissions are his “biggest mistake“.

To make this mistake, Buffett advises, focus on what really matters to a business.  Leases, contracts, patents, etc.  “are not the things that count.” Rather, “What counts is…whether you’ve really got a fix on the basic economics and how the industry’s likely to develop.”

Venture investor Bill Gurley saw this with Google. The team was well qualified, confident, and in a growing market. Gurley’s problem was the price and he neglected to invest. But, “I go back and the learning is that if you have remarkably asymmetric returns you have to ask yourself, ‘How high could up be and what could go right?’ because it’s not a 50/50 thing. If you thought there was a 20% chance you should still do it because the upside is so high.”

To get the Buffett’s fundamentals or Gurley’s ‘how-high?’ it helps to argue well. At Lux Capital, Josh Wolfe assigns, “a devil’s advocate, someone to identify why we shouldn’t do the deal, ask a priori what could go wrong.” They debate issues because the consensus ones tend to be the ones they’ve been most wrong about.

Omissions in investing are easy to see thanks to prices. Money is an easy metric but there are opportunity costs everywhere. Thanks for reading.

 

Supported by Greenhaven Road Capital, finding value off the beaten path.

Pauline Brown was on the Hidden Forces podcast to talk about her work at LVMH and her book, Aesthetic Intelligence. Brown’s framework requires two guidelines.

First, everything is a want. Short of tragedy, modernity has only wants. People need minimum shelter, food, and safety but we’ve blown past minimum, adequate, and ‘enough’.  In the context of needs and wants we’re in the ‘gorge’ range. Brown said, “There’s no reason to buy any of them (luxury goods) for utility.”

Second, everything matters. The utility of something like food is the calories and nutrients but we go beyond that because of the other dimensions of something matter. A birthday dinner at Waffle House is different than a surf ‘n turf downtown, though both are just a meal.

Taken together, these ideas form the guardrails for aesthetic intelligence. As we noted during AI Week, there is no silver bullet solution to problems. Big data isn’t a magic wand, it’s a hammer. Aesthetic intelligence is a flashlight. It’s a latticework of tools that makes situations solvable. Let’s look at some examples from the podcast.

…

Air travel has gone from good to bad to bearable. Using ideas that Rory Sutherland evangelizes, we need to keep in mind what metrics matter. During the phase from good to bad, airlines looked at the economic number. Flights got fuller, seats got smaller, perks disappeared. In the bad to bearable transition, organizations realized that the easy to measure things aren’t the only things that matter.

For example, being able to work while traveling is quite nice. Sitting while traveling is nice. So too is when companies remove the ambiguity around waiting.

Working, sitting, and understanding are difficult to measure. It’s only by being there that organizations find this thick data.

Not talking to customers, said Brown, is a problem that’s “ubiquitous and a real disadvantage. The reason entrepreneurs are gaining so much share is that they are connected to the marketplace.” Brown doesn’t have this problem. “I love going to stores, not even to shop. For me, it’s like an anthropological experience. I get more joy than kids do at zoos.”

Brown said that the top bosses at the best brands all spend oodles of time in their aisles. This was something Carl Turner Jr. did too, noting, “As CEO I’m told all kinds of things about our stores but until I get out to hear from the frontline employees and from the customers, I don’t get the real truth.”

The problem as Brown, Turner, and Wang note, is that while spreadsheets, models, and data can help, they’re not perfect. They’re maps, not the territory. When Kenneth Jeffery Marshall talked with Jake Taylor, he said that he doesn’t have a Bloomberg terminal because he wants even better data:

“I love to read, I love to think, and I love to talk to people who are in the thick of an industry. Not equity analysts that cover the industry, but the people that drive the trucks, repair the units, make the products – those kinds of people.”

Once executives get out and see what’s happening they’ll see how to fix retail. “It’s not that traditional retail stores are dying,” Brown explained, “but that they’re formulaic and forgettable. They’ve lost their way.”

We believe that retail needs to shift hard to either a buying focus or shopping focus. The buying stores will optimize for convenience. Grocery stores offer this with pre-packaging ready-to-bake meals, milk near the front, and ’10 items or less’ queues.

The flip side to that is to offers shopping. This is Brown’s wheelhouse. Customers are looking to look at makeup. Customers want to feel the cream, the lotion, the product.

Businesses must figure out all the jobs their customers hire for. Champagne is booze but with panache. Brown has an eye doctor friend who told her that one of his busiest days is after New Year’s Eve. The logical solution to this is to better barricade the bubbly. But that wouldn’t work at all. The corking, Brown said, “is part of the aesthetic experience of having champagne, it’s part of the ritual.”

Screw-top beverages might store just as well but it’s not part of what people want.

The entire episode is good but the part at the end, about Disney, is top-shelf. Thanks for reading.

Supported by Greenhaven Road Capital, finding value off the beaten path.

I was rereading one of my favorite philosophy books that’s disguised as a finance book and the idea of ‘retirement’ came up. The author lamented about abuse from the Internet Police, who mercilessly profile him. Retirement means not working, end of story. All these FIRE folks are done working!

Wait, why does anyone even care?

FIRE exists for two reasons: media and the markets. It’s easy to share your story and it’s easy to look like a genius during a looooong bull market. Those two factors make FIRE seem like a blip and the answer to, is this time different a resounding ‘No.’

Wait, but what if it is? What if the 1% of participants will double next year because this time different? 

One trick from a friend is to create mental IF/THEN statements. IF someone says to him that they should meet for lunch, THEN he immediately tries to set a time.

So if we hear that this time is different, then we can ask, ‘okay, what’s changed and is it something that changes fast?’

Some things change slowly. Coca-Cola changed slowly. People’s desire to drink Coca-Cola changed slowly. Warren Buffett’s affinity for Coca-Cola changed slowly. Some things like the tastiness of sugary beverages, the laws of physics, and human nature all change slowly.

Other things change rapidly; economic models, fashion trends, and governments. And work. People went from a single manual job with (mostly guaranteed) pensions to multiple intellectual jobs with a market retirement. Work has shifted from Coase’s firm to the iPhone and Slack. Taylor Pearson calls this the blockchain individual.  Some industries like Hollywood have long worked this way but due to falling transaction costs, maybe everything will.

Technology might be a canary that sings, yes this time is different. It’s the case for war. Carlin’s October 2019 podcast, Supernova in the East III focuses on this. It didn’t matter how many anti-aircraft guns were bolted onto the Pacific fleet, they weren’t effective against the Japanese airforce. This time is different. The Romans saw little changes, the Allied forces saw many.

In a history book, the separation from 1914 to 1944 is small. Landmasses didn’t move, consumers didn’t suddenly want more asparagus, and cars weren’t designed with three wheels. But countries were reformed, governments overthrown, and chemistry and physics were mechanized. This time is different. 

In an effort to understand people better I’ve started to read more fiction. I’m enjoying How to Stop Time and this quote in particular:

“The longer you live, the more you realise that nothing is fixed. Everyone will become a refugee if they live long enough. Everyone would realise that their nationality means little in the long run. Everyone would see their worldviews challenged and disproved. Everyone would realise that the thing that defines a human being is being a human.”

Thanks for reading. If you want more here’s a new ebook. It’s a collection of big ideas from this blog.