Bundling Economics in the Connection Economy

Economic bundling is a good idea for both buyers and sellers. It’s efficient. It’s easy. It’s also going to happen less.

People are unbundling goods and services that were previously bundled. Why?

Let’s try to figure this out through four question.

  1. Why are people “cutting the cord,” when the a la carte options end up costing the same or more?
  2. What are the economics of bundling? We’ll hypothetically merge Netflix and Spotify to explain.
  3. What are the four parts that make a good bundle?
  4. Why is bundling in decline?

Ready?

Cord cutting.

“Cord cutting” via Google Trends:

There are plenty of articles that explain why and how to cut the cable cord. Like this CNN Money Article, which says:

“Dropping cable TV can be a tough choice: You’ll save money, but you’ll have to work harder to watch your favorite programs when you want to see them.”

Well, I’m not above a little work to save money, what do I need to do?

First, set up an HD antenna. Then add Hulu, Netflix, Amazon, HBO, Showtime, CBS, and SlingTV. Hmm, that sounds like a lot. How much does all that cost?

$78 !?!?

Wait a minute, that only saves me $8 a month. What gives?

The same CNN article has the answer:

“When you call your cable company, make sure an Internet-only plan is the cheapest package it has to offer. Sometimes, cable providers incentivize customers to keep their TV subscriptions by making “double play” or “triple play” phone-Internet-TV bundles cheaper than any single option — at least for an introductory period.”

The bundle isn’t cheaper because it’s a promotion, the bundle is cheaper because of bundle economics. Once the cable company is providing you one service, it doesn’t cost that much to provide more.

Bundles also work because they “elongate the demand curve” which is fancy language for “more people will want it.” Imagine if Netflix and Spotify combined.*

“Netify”

The economics behind the idea go like this. I subscribe to Netflix (69 million subscribers)for $10 a month, but not Spotify (20 million subscribers, and also $10). I’m willing to pay something for Spotify, just  not $10.

I’m not the only one. There are other people in this willing to pay something group. Call us the $5 members.

Now imagine this. What if Reed Hastings — CEO of Netflix — woke up tomorrow and wanted to buy Spotify. He’ll combine the services — now called “Netify” — and offer both for $15 a month.

This is where economic bundling theory makes a prediction. There will be more revenue from the bundled $15 service than there was for separate services at $10 each because more people are willing to pay. 

Add in a host of other savings (salary costs, royalty negotiations, etc), and “Netify” will be cheaper to provide than Netflix and Spotify were as stand alone services.

A quick explainer in terms of food.

Anytime I go to a breakfast buffet I always eat one thing I never order: biscuits and gravy. You see, I like biscuits and gravy, but I don’t want it to be the only thing I eat.

A breakfast buffet has bundled all the food in a single package, so I (over) indulge. And others do too.

One more thing about the economics of bundling.

Economic bundling only works when the marginal cost is practically zero. That means that each additional item cost almost nothing to create.

It takes a lot of time and money for Taylor Swift to write, record, and mix an album. But once the master is done, the costs are almost nothing. A CD costs less than a dollar to make, the digital download less to host. The marginal cost for music is practically zero.

Low marginal costs exist elsewhere too. The cost to build and staff a hotel are up front, each additional guest adds almost nothing. The cost to build Google was up front, each additional user add almost nothing.

This raises the question:

If bundles are great for producers and consumers, and cable packages are bundles, why are people cancelling cable packages?

Why are people cutting the cord if bundling is so great?

It’s not that people save money. The NCTA is happy to note that Spongebob, True Blood, Mad Men, and MLB Season Pass purchased a la carte are more expensive than a monthly plan.

It’s not that the quality is that bad. The Sopranos, The Wire, Breaking Bad, and Mad Men are all great shows.

Ben Thompson at Stratechery has five reasons why people watch TV (or aren’t watching TV). Listen to the podcast (it’s really good) for the specific reasons. For us we only  need the general idea: people aren’t watching TV because those other things do what TV did. 

Entertainment now is Facebook posts and YouTube Channels and blog feeds and craft pins. Those things satisfies desires that TV used to. And they do so at a “good enough level.”

4 things bundles must do “good enough.”

The good news for bundles is that they don’t have to be perfect, just good enough. Netflix is a classic case of “good enough.” Note, Netflix is “good enough” for me. This is a subjective decision on the consumer level.

Netflix have enough okay kids shows, original series, and old shows to catch up on. Netflix does four things “good enough.”

  • Bundles have consistent quality. The TV shows on HBO are varied, but the quality isn’t. Girls and Game of Thrones are both different shows, but they’re both great shows. HBO has “good enough” quality.
  • Bundles have wide and deep offerings. If I like original programming, Netflix has it. If I like old TV shows, Netflix has it. Netflix has a “good enough” spectrum of options.
  • Bundles look like good deals.I’m going to get my money’s worth” goes the saying. At $10 a month Spotify is a “good enough” deal compared to a la carte pricing.
  • Bundles are convenient. Planning a vacation to the beach is more difficult than planning a cruise. A cruise answers questions like; when and where to eat, what to do, and where to stay. It’s a “good enough” vacation bundle.

Bundles don’t have to do all these things well, only well enough. The ultimate bundle of bundles does this well.

The ultimate bundle, Walt Disney World.

Here’s what’s great about Walt Disney World. Upon landing at the Orlando airport you take a Disney bus to a Disney hotel. From there a Disney shuttle takes you to a Disney park where you see Disney shows with Disney characters and eat Disney’s food.

Disney bundles; transportation, lodging, food, shows, thrills, souvenirs, and picture packages all into a single vacation. They call it “my Disney experience.” There’s an app you can use. It’s the ultimate bundle because Disney nails the 4 things:

  • Bundles have consistent quality. You know with Disney that the entertainment will be good, not great. It’ll be clean, with some humor, and not too deep.
  • Bundles have wide and deep offerings. Walt Disney World has thrill rides, peaceful rides, and children’s rides. There are comedy shows, singing shows, and 3D shows. There are cutting edge attractions and old favorites.
  • Bundles look like good deals. Here’s where Disney branding comes in. Parents don’t know if their kids will have a good time at a generic beach vacation, but are almost sure they will on a Disney one. A good deal can cost a lot if you get a lot in return.
  • Bundles are convenient. Disney is an easy vacation to plan. Pick a hotel budget. Pick what things you want to do. Done.

Compare the Disney bundle with the worst bundle, compact discs.

The worst bundle, compact discs.

Some CD’s are great bundles. I’ve listened to Blood on the Tracks by Bob Dylan for hundreds of hours — and it only cost me ten bucks.

The problem with compact discs was that most weren’t a good bundle of songs. They failed in the same way HBO would fail if they only had one good show.

In How the Music Got Free, Stephen Witt writes about the confluence of conditions that led to changes in the music industry. There were many factors, but one of them was bad bundling. Quotes are from Witt.

  • Bundles have consistent quality. Bob Dylan aside, most albums weren’t very good. “For years the industry had been selling songs that even their creators acknowledged were not very good. Now they were paying the price. In economic terms, album sales were an example of ‘forced bundling’”
  • Bundles have wide and deep offerings. CD options were limited in a way that the mp3 — it’s successor — was not. You needed a nearby store to have an album in stock. There was no streaming, no digital download, no two day shipping.
  • Bundles look like good deals. Most albums never came down in price and didn’t warrant repeated listening. “Seeing something for efficiency gains in compact disc manufacturing brought the per-unit cost of goods below a dollar — a savings that was not passed on to the consumer, who was charged $ 16.98 retail.”
  • Bundles are convenient. Compact discs weren’t convenient to listen to.  The mp3 was much more convenient.

Bad bundling wasn’t the only thing that caused the shift in music, but it was one part.


Okay, so what do we know?

If you can do it “good enough” (HBO, Disney), then bundling has economic forces that make it smart for the provider and consumer.

If you stop bundling well (cable TV, compact discs) you may lose your chance.


The future of bundling.

I think bundling is over.  Ben Thompson notes that (same link as above), things don’t become unbundled and then rebundled the same way. There’s a reason things become unbundled and stay unbundled.

And I think it’s an emotional one.

Mystery Science Theater 3,000 (MST3K) had a Kickstarter where they raised $4.7M+. Sorted by backers it looks like this.

That green curve is PERFECT for a bundling opportunity — but it’ll never happen. There’s something that keeps that curve from being flattened and bundled. Today’s kids call it, “the feelz.”

The people who funded MST3K on Kickstarter are people with an emotional investment to the show. Ashley Holtgraver, a fan and supporter, wrote this on Medium:

My morning email check usually doesn’t contain anything worth (literally) jumping up and down about. But there I was, pre-coffee, bounding around my house, doing my best unintentional impression of an inflatable wacky waver tube man at a grand opening sale.

Emotional connection is the new transaction in the ledger.

People can now connect to a story, and be part of a story, and there’s value in that. It may not make financial sense to unbundle and choose a la carte options, but only because that equation misses something. It discounts the connection people feel. That matters too.

And connecting is so easy now. MST3K used Kickstarter. [Casey Neistat](https://thewaiterspad.com/2015/11/06/casey-neistat/) vlogs. [Alex Blumberg](https://thewaiterspad.com/2014/12/19/70-alex-blumberg/) (Gimlet Media) podcasts. [Tyler Cowen](https://thewaiterspad.com/2015/08/25/tyler-cowen/) blogs.

Through Twitter we can connect with our favorite authors, and they respond!

This connection is having “your band” or “your bar” or “your favorite author.”

In high school I remember a bunch of kids like O.A.R. They had some catchy songs, and were popular in school until the band became popular. Then no one listened to them.

The connection severed.

At first the the high school kids were connected to the band because they saw them. You could go to Columbus Ohio any weekend and the band was playing somewhere. As the band became more popular, things changed. The band toured and wasn’t in Columbus. The opportunity to connect wasn’t there.

That doesn’t happen anymore. Now every band has email and Twitter and videos. [Amanda Palmer](https://thewaiterspad.com/2015/01/14/82-amanda-palmer/) is the queen of this and writes about it in her book The Art of Asking.

Palmer writes that sending email to her fans was like giving them flowers. “The signing line is a cross between a wedding party, a photo booth, and the international arrivals terminal at the airport.” Palmer coordinated “ninja gigs,” (impromptu events). “I chatted constantly online, and listened to the input and feedback from the fans. If they wanted high-end lithograph posters, I made high-end lithograph posters.”

That’s the new exchange. That’s why people are happy to unbundle. People may pay more, but they get more. If you’ve ever supported a Kickstarter you know this. It’s about the person and idea, not only the reward.

Conclusion

Bundling can still work, but only if it’s done “good enough,” as judged by the consumer. That means:

  1. Consistent quality.
  2. Wide and deep offerings.
  3. The appearance of good deals.
  4. Convenience.

When these things don’t exist, consumers look elsewhere.

The internet has made connecting so much easier and that’s what people want.

Thanks for reading. I’m @MikeDariano on Twitter.

* This article was first published on Medium. There I completely forgot that Amazon Prime offers this bundle.

For more on bundling listen to @BenThompson and James Allworth on the Exponent podcast. Follow  @R_Thaler on Twitter. Learn from @TylerCowen and @ATabarrok at Marginal Revolution University, who explained bundling in a way that even I could understand.

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Scott Galloway

Scott Galloway (@ProfGalloway) joined Barry Ritholtz (@Ritholtz) in June 2015 to talk about brands, entrepreneurship (and implicitly dentistry), and so much more. At the end of the interview Ritholtz says that he encourages other people to check out Twitter if only to follow really smart people. That’s just like these podcasts. Galloway’s NYU course costs $6,000. You and I get to listen to him for free. Add in some great questions from Ritholtz and this is further proof that it’s a great time to be a learner.

As always, the interviews are more in depth than the notes. Here’s a few things we’ll try to cover:

– Unlimited tweets, but a limited budget.

– Don’t waste a crisis.

– The first rule of marketing is to have a good product.

– It’s never been easier to make a billion, but never harder to invest for a million.

– The wealthy dentist of Silicon Valley.

– Our death grip on smart phones.

– Don’t do what you love.

– The 4 (5th?) Horsemen.

– Signals, red flags, and brown M&Ms.

– Galloway’s book suggestions.

Ready? Let’s get to it.

Unlimited tweets, but a limited budget.

Marketing seems easy. Gary Vaynerchuk‘s books Jab, Jab, Jab, Right Hook and The Thank You Economy give step by step instructions for what brands should do online. Stir in Seth Godin who writes about Tribes and Permission Marketing and you have a recipe for success. Right?

Lathe leversWrong. Galloway says that there are four areas a digital brand can use; site, digital, social, and mobile. Each of these is like a lever that can be pulled for different results.

For example, if you want to drive engagement with younger users, you need more social. Even though you can tweet, flick, gram, and pin all you want, you don’t have the resources to do it well. You need to pick your punches.

And this is good. As we’ve seen before, constraints help. Kevin Kelly says that without unlimited money, he finds better solutions. Amanda Palmer says that without unlimited time, she has to choose what to do. Stanley McChrystal says that constraints were crucial to Ranger training.

Planet Money talked with Rob Cohen about making movies. Cohen directed The Fast and The Furious in 2001. After that he was one of the hottest directors in Hollywood. It led to the $135M movie, Stealth. Heard of it?

Probably not. Stealth’s worldwide gross was $35M. That’s a big haircut. Cohen’s career quickly cooled down. Then Jason Blum called to say that he wanted Cohen to direct his movies, but the budgets would be a bit smaller.

Blum was responsible for movies like  Insidious, make for a scant $1.5M but grossing $54M. A much better investment. About working for Blum Cohen said:

“You’re going to have to be clever, and that cleverness stretches you, it makes you think outside the box because the money panacea isn’t in your arsenal anymore. You have to fix the problems another way.”

Galloway’s point is that companies have to deal with constraints – and do so wisely. It’s not enough to just put pictures online (see Gary Vaynerchuk) or create an email list (see Seth Godin). No, what you want is a social method that is in line with your overall strategy. 

In this video (2:00 mark) Galloway talks about how Asos does this well.

His point is that even though they are a clothing company, they don’t always sell their clothing. Sometimes they publish photos of dogs and ice cream cones. “101 stuff” says Galloway.

Don’t waste a crisis.

In 2006 Macy’s stock crashed. Galloway was asked by a group of investors if they should buy the company and sell the land – which was worth more than the brand. Galloway said no, and tells Ritholtz that Macy’s has done great since then, going from $5/share to $72/share over the last seven years.

Screen Shot 2015-09-11 at 6.14.15 AM“A crisis is a terrible thing to waste,” Galloway says. Macy’s reorganized around being a place of convenience. People could order things on Amazon, but stores like Macy’s provide other services too. It’s those things, Galloway believes, that will bring in a new era of retail.

“We have these great warehouses,” says Galloway, “they’re called stores.” His perspective is that people will browse and buy online, but want to pick up their things at a store. Half of all car buyers don’t test drive before they buy he says. The new trend is to click and collect. Macy’s emerged from their crisis focused on this.

Galloway’s own life has had its own crisis. When he was young he had a health scare and it made him realize he didn’t want to be an investment banker. When his company IPO’d he cashed out and become a professor.

Jon Acuff said something similar when he talked with James Altucher. Acuff had planned for a big event, 1000+ people, early in his career. He had stickers made. He reserved a huge space. He rehearsed his speech.

Two people showed up.

Two. Rather than “waste a crisis” Acuff realized that he got a story out of the situation. How he reacted to this let down and how he shared it would determine whether or not he seized this opportunity.

The first rule of marketing? Have a good product.

It used to be – in the 1980’s and 1990’s – that you could get by with a merely good product. A good product with the shine of great branding could go a long way Galloways says. That’s no longer the case.

Now you need a great product and great branding to have something truly successful.  

There’s a reason, says Gary Vaynerchuk, that Lil Wayne doesn’t need a good social media profile. He’s a great artist. Gary goes on to say:

“The product you’re selling is the variable to success. If your product is shit, there is no great marketing that’s going to save you.”

Seth Godin wrote; “The best marketing isn’t advertising, it’s a well-designed and remarkable product.”

Ryan Holiday told James Altucher the same thing. Holiday has a reputation of doing outlandish things to market products. Like dogs in clothes.

holidayskateboarddog

People often come to him and ask about things like this. Maybe buy some weird name. Do something crazy. Holiday says that might work, but only if you have a good product.

Galloway says it has to be a great product and that’s where anyone should begin.

It’s never been easier to make a billion, and never harder to invest for a million.

In his classes at NYU Galloway says that he sees some of the brightest young people he’s ever known. “Millennials are the most talented generation I have ever worked with,” he tells Ritholtz. These millennials are entering a new work environment. The Hollywood Model.

We laid it out broadly in the post with Adam Davidson and Taylor Pearson, but if you missed it, here’s the big idea. Work is changing. Lifetime employment has been replaced by alliances. Skills and ratings matter more. Expect your job to have some “Yelp style rating,” writes Tyler Cowen in Average is Over. Don’t be a jerk, word will get around. Expect to freelance more. 

Galloway says that he’s seen this with the millennials he works with. They are willing to make tradeoffs. They stay for less time. Galloway says that creating loyalty is something he and his partners are working on. (For more on this idea, listen to the Phil Libin & Tim Ferriss podcast.)

Another change, Ritholtz says, “is that the middle class has really shrunk,” and Galloway agrees. What Cowen, Galloway, and Ritholtz all see is a larger upper class – maybe 20% – that earn most of the rewards of the future economy. The remaining 80% will see their earnings stagnate.

A corporate canary might be Apple, who earns 93% of all smartphone profits. Samsung collects a tidy 15%. Everyone else loses money. The macro trend is that some people will collect a bulk of the profits and some will make almost none.

That’s not to say things won’t get better. Facebook and other free entertainment is great. The internet, medical advances, and trickle down technology (which Alex Torenberg talked about with Cowen) will bring some rewards to everyone. But the real gains will be had by the ones that help themselves.

And it’s getting harder to help yourself.

Education has become so expensive, Galloways says, that people who graduate “have a headwind before they get out.” Too much debt means they don’t have the same chances that he and Ritholtz did.

They mention that university endowments are something that seems ready for change and Freakonomics (hosted by Stephen Dubner) had an episode on this. Endowments are more complex than they first seem says Harvard President Drew Faust.

“I worry a lot that there’s not a broad understanding of what endowments are. So thank you for this opportunity to say a little bit about it. First of all, an endowment is made up of gifts given to the university over time that are legally bound to certain uses. So some of the endowment is restricted to funding a French professor, or funding student aid. And that means that we have to use the income from that money for that particular purpose. And also at the same time preserve the corpus of the gift so it can continue to fund that in perpetuity. Now let me say one other thing about comparing Harvard’s endowment to Yale’s or Princeton’s or anyone else’s. It depends what a University does. Harvard is much, much bigger than Yale. So if we look at endowment per student, Yale actually has more endowment per student than Harvard. And if you think about some of the things that are funded by Harvard’s endowment, things like our art museums, things like a Renaissance research center in Italy, we can’t take that money out of that. It can only be used for that. But it gets counted in that figure of Harvard’s total endowment that you described. A major thing we use our endowment for is student aid. And we are able to fund in our undergraduate college student aid for 60 percent of our undergraduates because of the very generous gifts to financial aid that have been given over the years.”

The Wealthy Dentist in Silicon Valley

Ritholtz and Galloway turn the conversation to the HBO show Silicon Valley. Both guys like it because it’s real enough. The show shows that it’s not always glamorous to be an entrepreneur. “On a risk adjusted basis,” Galloway says, “you’re better off going to work for a platform, than be an entrepreneur.” If there’s a better introduction than that for Nassim Taleb, I don’t know what it is.

Taleb begins (p.20 actually) his book Fooled by Randomness with the story of John Doe A and John Doe B. Mr. A is a janitor who has won the New Jersey lottery and moves into Mr. B’s neighborhood. Mr. B is is a dentist, “who has been drilling teeth eight hours a day over the past thirty-five years.”

Even though Mr. A, won millions of dollars, he is not wealthy. Taleb explains:

“If John Doe B had to relive his life a few thousand times since graduation from dental school, the range of possible outcomes would be rather narrow. At the best, he would end up drilling the rich teeth of the New York Park Avenue residents, while the worst would show him drilling those of some semi deserted town full of trailers in the Catskills… as to John Doe A, if he had to relive his life a million times, almost all of them would see him performing janitorial activities (and spending endless dollars on fruitless lottery tickets), and one in a million would see him winning the New Jersey lottery.”

Taleb’s points is that we should consider the alternate histories, not just the realized one. 

Timely (September 2015) for this post, was this letter. A teacher from the Bay Area wrote an open letter to Steph Curry asking that he not come to speak at his school. The teacher’s point was that it would encourage students to think about the lottery option without thinking about the alternate histories.  Steph Curry made it to the NBA with lots of hard work. That doesn’t mean that lots of hard work will get you to the NBA. 

We suffer from the survivorship bias. We see the examples that have survived, and these are often successes. There’s no movie about a college student at the University of Nebraska who dropped out to make a social network. But dollar to donuts, he’s out there.

We see the janitor who wins the lottery, we don’t see the ones who’s a janitor. We see Steph Curry, not the kid who wanted to be him. We see entrepreneurship* this way too. Maybe instead we think of things on “a risk adjusted basis.”

“You can pry it from my cold dead hands.”

No, not guns. Something more valuable – smartphone. Galloway says that Apple has become the new luxury brand and is headed for a trillion dollar valuation. Like Sherman’s March to the Sea, Apple’s wake will be filled with companies that stood in their way. If you’re thinking the carnage will be Microsoft tablets or Fitbit bracelets, you’re wrong. The next victims are the luxury brands.

“There’s only so much disposable income in the ecosystem that goes to products that cost between $300 and $1000,” says Galloway. Apple is the premier item in that space. If you can only get one thing from that price point, you’ll probably want an iPhone.

On his podcast, John Gruber talked about the same thing. He was thinking about Apple sales in with regards to the shaky Chinese economy. Gruber doesn’t think it will be that much of a problem. People will cut out a lot of things before a new phone. Vacations and luxury items will be sacrificed in lieu of a new phone.

Don’t do what you love.

Follow your passion is bad advice. I’ve never heard a successful person – no matter how they define success – say that it was passion that got them where they wanted. No, the thing everyone says is hard work. “Find a platform and work really hard at it,” says Galloway. Entrepreneurship (like the lottery or professional sports) success is rare. It’s also not for everyone. Galloway suggests that instead people can find a company to work for, and do good work.

Add that to the other advice:

  • Gary Vaynerchuk said to be so good that venture capital companies come to you.
  • Brian Koppelman said to get great at writing.
  • Ramit Sethi said that you get passionate about something once you get good at it.

We always come back to this quote because it explains it so well. In his book, So Good They Can’t Ignore You, Cal Newport quotes Steve Martin:

“Nobody ever takes note of [my advice], because it’s not the answer they wanted to hear,” Martin said. “What they want to hear is ‘Here’s how you get an agent, here’s how you write a script,’…but I always say, ‘Be so good they can’t ignore you.’”

The 4 (5?) horsemen.

The podcast covers a lot of “The 4 horsemen.” Rather than summarize it here, this video will explain it.

And here is where things get interesting.

It’s academic to create models that fit what’s happened. It’s profitable to create models that fit what will happen. Galloway admits that he may be wrong about all this, BUT what if he’s right.

These companies all have five things in common.

  1. Truly differentiated products and intellectual property. You can open another fro-yo store, you can’t create a Google competitor. 
  2. Visionary capital. It costs them less to borrow.
  3. Control of the end user (vertical integration). No one get mess things up in the last mile.
  4. Vanity. People want to be seen with their product.
  5. Maternal. These places are all great places to work.

What might be next? Galloway’s guesses include; Nike, Alibaba, Starbucks, and Uber.

Now, to reduce the options further. Let’s create a multiple regression that includes market share, stock prices, working capital…. wait a minute. We don’t want to do any of that.

The beauty of Galloway’s five points is their simplicity. In the book, Gut Feelings: The Intelligence of the Unconscious, Dr. Gerd Gigerenzer writes that there is a problem with too much data – it overweights the past.

“In an uncertain world, a complex strategy can fail exactly because it explains too much in hindsight.”

The more data we put into a model, the more noise we get.

When Michael Mauboussin talked with Barry Ritholtz, he said that as skill increases, luck plays a larger role in successes. 

This is how  Zach Lowe ended his post about the NBA champion Golden State Warriors:

“Yep, the Warriors got lucky. They suffered no major injuries, beat teams that did, and got through the West without facing the Clippers or Spurs. Guess who else got lucky: every team to ever win the championship….The Warriors, on balance, were luckier than most championship teams.”

In an uncertain situation, the more complex a model of prediction, the more it weighs things that were luck. Galloway may be wrong about which company will excel in the years to come, but his model is right.

Signals.

The conversation between Ritholtz and Galloway was full of a lot of good signals. Rather than spread them widely, I collected them here.

    • How to spot an industry ready for disruption. If you want to see where disruption might strike next, says Galloway, look where prices have outpaced inflation. Galloway bets that education is ready for disruption.
    • How to appear sexy. Have an Apple product. We are in a time when a lot of signaling is done by the products we wear, Galloway says. Right now there is no better brand than Apple.
    • How to tell if the stock market is too high. Ritholtz says to look at the prices of classic cars. Classic cars – or any scarce good – go up in price when fewer are on the market. Fewer are on the market when more money is available to buy them.
    • How to tell if you have a good product. When Galloway started L2’s Digital IQ Index he did so to conduct academic research. After he published his results 40 companies began to call him about using that data. This was a good indicator for business.

Some classic signals include.

  • Ramit Sethi looks for certain words in interview responses to see if someone really has the skills.
  • What Barry Ritholtz says that when he hears “Sharpe ratio,” it’s a signal people want a hedge fund. When he hears traders say “ugh,” it might be a stock worth investing in.
  • Van Halen used brown M&M’s, actually a lack thereof, to see if their equipment was set up properly.

Books(!)

Here are some of Galloway’s suggestions.

  • The Alchemist. A great book. Don’t take my word for it. Pharrell loved it. James Altucher too.
  • Winds of War. From Amazon, “A Masterpiece of Historical Fiction-The Great Novel of America’s “Greatest Generation” Herman Wouk’s sweeping epic of World War II, which begins with The Winds of War and continues in War and Remembrance, stands as the crowning achievement of one of America’s most celebrated storytellers.”
  • Adventures of a Bystander by Peter Drucker.
  • John Irving.

Thanks for reading. I’m @MikeDariano.

* Taleb has said that entrepreneurship is good, for us at large. You don’t want to be the one who takes the risk to open a new restaurant, but if someone in our town does, you and I get to reap the rewards. Taleb has even suggested a national entrepreneurship day where we celebrate the risk takers.

#118 Steven Kotler

Steven Kotler (@KotlerStevenjoined James Altucher to talk about the future, progress, and his new book Tomorrowland: Our Journey from Science Fiction to Science Fact. Kotler has been on the podcast twice before, once on episode #10 where he talked about the flow state. Later with Peter Diamandis in epsiode #93 where they pair talked about the 6 D’s of the future. If you haven’t gathered, Kotler is very much about the future and where we go from here.

riseofsupermanThe interview starts with a message about finding mentors from David, the podcast producer. I try to do something like this with our book club. If you want to join over 50 other people, sign up soon, we just started Influence: The Psychology of Persuasion.

As the interview begins, Kotler tells James that he wrote Tomorrowland in response to many of the questions he heard while on his book tour. Austin Kleon (episode #19) told James that his second book – Show Your Work – was born from the same womb. Jack Canfield (episode #90) also uses this technique. In his books, he includes a place you can send your own stories. Canfield then uses them when he writes. Any enterprising person could collect questions almost instantly via Twitter…

The takeaway from each of these authors is that there isn’t an instantaneous moment of clarity. They all have a moment of need to write, but it never comes fully developed. Kleon likens it to a bucket that gets filled with water. The only way to have a full bucket is to make many tiny drops into it. In writing books – and life – there is no hose that readily fills your bucket.

Kotler tells James that his career has been like this as well. “When you are coming up as a writer, you think I’ll get one book out and it’s going to level me up. I won’t need to worry about making a living and do what I want with my time. Which is not true at all.”

For Kotler it took 7 books before he felt like he was a writer. James says that it took him 10. When he looks at his progress now, Kotler says that he sees three phases.

  1. Develop your voice. Kotler says that people liked his voice, but not necessarily all of it. “We want you to write Kotler like pieces,” he recalls one editor saying, “and this isn’t it,” as he threw an early draft back.
  2. Spend time in the box. Kotler realized that he had to write in a certain way. His articles at GQ were done one way. His articles at Wired another. There was a path the editors expected his articles to follow, and it was up to him to find it.
  3. Work four-times as hard, but on what you want. Now Kotler writes about what he wants, but works much harder. Stephen Dubner (episode #110) told James much the same thing. He was fortunate Freakonomics succeed or else he would have to go back to phase two.

“How did you figure this out?” James asks, in an attempt to peel back another layer of the process. I try to be the “dumbest guy in the room,” Kotler says. He aims to focus on the details that go into a book and get them right. But once a book is gone, it’s gone. Adam Carolla (episode #25) had the same sort of detachment that Kotler has. Do your best possible work and put it out there and let it go. It’s gone. You can’t do anything about it.

Kotler also echoes the advice that Andy Weir (episode #92) told James. Weir’s second piece of advice about writing was, “don’t tell people.” He says that when you tell people you begin to feel like you’ve done the thing.

Kotler’s books often deal with big, futuristic ideas and James asks him, “how do we separate the real deal from the raving mad med?” Try these two filters:

  1. Ask about the first principles. He tells the story of Elon Musk who looked at the costs of battery components and realized that the components didn’t cost that much. If a battery costs 100, but the parts only 20, where does that extra money go? Ah, if we can build them a better way they will be cheaper. If the first principles inspire you to think, well that’s not too bad go on.
  2. Look for user interface. If there is an easy way for many people to adopt a technology, it will be adopted. This blog is one example. The wonders of WordPress, Evernote, and Downcast – the tools I use to write with – make it easier to write. Clay Shirky wrote about this is Here Comes Everybody. The point there is that once technology is easy, we can all use it to do the things we haven’t yet done. Not doing something now doesn’t mean you won’t do something once it becomes easier.

Kotler tries to take these filters and apply them in his latest book, Tomorrowland. James says that the chapters on anti-aging piqued his interest and asks if he could be the six million dollar man. No, he can’t, even if he had the money. Planet Money did a podcast and asked if the new 6 BILLION dollar man television show would be financially possible. (tl;dr – no, not even the government could spend that much).

What you might see, says Kotler, is more performance enhancements in sports and other parts of life. We’ve seen life elongation on the front end with better sanitation and medication. The back end is where things get more difficult. Kotler says that we are using things like stem cells to regrow body parts like the cornea and that’s where we should expect things to head.

In another instance Kotler says, “I met a blind man and then two days after (vision surgery) he could drive a car around a parking lot.” Robert Kurson (episode #116) told James that one of his early books was about a man who regained his sight.

When you break it down, the pair resolve, our senses are as much peripherals as they are a part of us. Think about, our bodies can detect sound waves but don’t have a discernible way to identify the cellular radio waves that bounce about us all day long. We can’t tell how much solar radiation is out and about – well actually, we can – it’s our tan lines. What if we could pick up on cellular or solar waves more readily?

One of Kotler’s contemporaries, David Eagleman, tries to answer that question in this TED Talk:

Okay, this is informative, but how I can use this for personal or professional gain asks James. Kotler tells him that neurochemicals work, but we don’t know exactly how. Both Tim Ferriss (episode #109) and Peter Diamandis would have better suggestions he says. Kotler says that rather than take something, try do something. How well do you use flow Kotler might ask. Take a diagnostic test at the Flow Genome Project to get an idea about where to start. If you have a roadmap, Kotler says, it’s easier to know where to begin and what shortcuts to take. Ultimately, “you have to conduct the experiment yourself.”

Self experimentation, it needs to be done. From Neil Strauss (episode #113) to Gretchen Rubin (episode #97) to Scott Adams (episode #112), they all experiment in their lives.

From the business side of things, Kotler doesn’t know exactly what to do. Mark Cuban (episode #24) told James that we’ll look back with disbelief that we all took the same quantities of medicine so maybe that’s one area.  But whatever it is, you must be passionate, says Kotler, “You have to build these businesses on the back of passion because it’s so god damn hard to be an entrepreneur.” Gary Vaynerchuk (episode #2) told James much the same thing in his interview. But it’s not just about passion. It’s about being passionate enough and good enough.

You can also help things out if start with a small monopoly. Peter Thiel (episode #43), borrowing the structure from Anna Karenina, advises:

“All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape the competition.”

The interview ends with some book recommendations from Kotler: Anything by Neil Stephenson, William Gibson, or Richard K. Morgan (Altered Carbon especially).  Ready Player One is also very good.

Thanks for reading, I’m @MikeDariano. If you want more book suggestions, I have a monthly email you can subscribe to. Also, please consider a financial donation or answer two questions about this blog and the book it’s becoming.

#27 Seth Godin

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Seth Godin joined James Altucher to talk about how he got started telling stories, the power of placebos, and the only two things we should teach kids in school.

James begins the interview by talking about book sales with Godin, telling him that it took all of 1,800 copies to get on the New York Times list. Godin says that’s nice, but for him metrics don’t matter so much as the impact of his books. This is something he echoes in his second interview with James #86, telling him, “I want to be judged by what people who learned from me, teach other people.”

Metrics and media can be trick because they can be warped, like a funhouse mirror distorts what you look like, so too for the media. An early 2015 example was the shipyourenemiesglitter.com trend. Ryan Holiday (guest #18) interviewed the creator of the site, Mathew Carpenter to talk about how he worked his way up the media chain, leveraging lazy reporting at one level to get to lazier reporting on another. The full summary is available at the Observer but the lesson is that what you see isn’t always what there is.

Godin’s origin and storytelling epiphany came from his time spent at Algonquin Park in Canada. There, he was the lowly canoe instructor among the cool sailing and windsurfing ones. Only seeing four people an hour, he realized that something had to change, he decided to try two things; put on a show, and let people grow.

“People go where they grow.” – Seth Godin

Godin tells the story of Joanna Gerwin, a camper that resorted to hitting her fellow campers in the face at the first sign of frustration, but once she got in the canoe, once she learned not to fight with the wind, she changed. Godin taught her to “Breath and think and manipulate the tools at your disposal to make the thing you want to have happen happen.”

James attempts to summarize what Godin is saying and doing, wondering if “to really attract people we have to build a stronger story.”

To which Godin replies, yes, almost:

The story is never about the teller. The story is always about the person hearing the story, and that is where selfish marketers always fail. (Click to Tweet)

Godin says that in both Lance Armstrong and Oprah Winfrey we share some part of their and in following them we were following parts of ourselves. Oprah’s appeal isn’t that she’s so wealthy, it’s that she still struggles with her weight, relationships, and other things and so do we. You read these posts and listen to the podcast because in the best summaries, and in the best episodes, you hear something about yourself and want to learn more.

James tells Godin that Purple Cow and Free Prize Inside were “the most important books you’ve written.” At the time James was running an internet company and he needed to find an alternative to traditional advertising. One of the things Godin taught James was to find something cheap, easy, or unique to give to your customers rather than advertising. Old media advertising is dead (at least in its effectiveness). Godin says that recent brands like Lululemon, Chibani, and Beats have all succeed without relying on the “TV industrial complex.”

Let’s test this. What was the number one commercial from the 2014 Super Bowl? The most watched TV event of the year, not that long ago, and you can’t remember the most popular one? I couldn’t remember any. Here’s 10.

Godin noticed that the way advertisers could command the attention of their audience was changing. He built some products for Prodigy, a precursor and access point to the World Wide Web. It was a rival to AOL. There Godin saw that it was expensive to serve up ads and get people to be online. In those early stages were three lessons:

  1. Constraints matter in creation. Godin had to create something that didn’t take up a lot of resources (bandwidth = money). He made it so his game, GUTS, could only be played once a week for a few minutes at a time.
  2. Provide value. People liked playing the trivia game, even when it featured branded advertising. The simplicity of an online trivia game seems small now, but back then it was new, untapped. It was a glimpse of what the connected world might be.
  3. Give high value, low cost rewards. The compensation for winning a week of trivia was your picture on the front page of the site. This cost Godin almost nothing, yet meant a lot for the people playing. This type of thinking applies to other domains of life, even negotiation. In the classic Getting to Yes, Roger Fisher writes that we need to brainstorm ideas so that we can give up low cost ones to get back high value ones.
Only a screen shot of a digitized newspaper had relevant information!
Only a screen shot of a digitized newspaper had relevant information!

Godin eventually sold his company to Yahoo! in 1998 and became vice president of direct marking for a little over a year. In hindsight he tells James that it seemed odd companies could be valued for so much money, but be making so little. The climax came on March 10, 2000 when the NASDAQ peaked before cycling down.

Selling his company to Yahoo! may seem like a stroke of dumb luck, and Godin admits that it was but also says that “getting up to bat” mattered too. He failed many times before and many times after the sale and only hit a homerun because he struck out so often.

Another interesting nugget from this part of the interview was Godin’s comment about how much of “ones identity as an entrepreneur is really tied up in what you do all day. And that identity was stripped.” This happens to many people, from astronauts to retirees. It’s why Scott Adams advocates for system rather than goal thinking:

To put it bluntly, goals are for losers. That’s literally true most of the time. For example, if your goal is to lose ten pounds, you will spend every moment until you reach the goal— if you reach it at all— feeling as if you were short of your goal.

Yeah, but what happens when we reach our goal, we’re all winners right?

If you achieve your goal, you celebrate and feel terrific, but only until you realize you just lost the thing that gave you purpose and direction. Your options are to feel empty and useless, perhaps enjoying the spoils of your success until they bore you, or set new goals and reenter the cycle of permanent presuccess failure.

One of Godin’s systems is to think in terms of stories, and one character is a placebo. Godin and James talk about placebos, which Godin says can “create an environment to make people better.” Godin tells James that an ethical placebo is one where the customer won’t feel violated when they find out that there was a placebo effect. Consider the cookie.

OatmealCookieBite

Look at the oatmeal raisin cookie. It looks fine, we wouldn’t eat that cookie because someone has taken a nice bit out of it, but the cookie looks acceptable enough to eat otherwise. Contrast that with the cookie below.

wrappedcookiesThese cookies are wrapped in a bow. They are in focus and you can see the edges have a bit of crunchiness while the centers look like they still retain that gooey goodness. Plus these have dark chocolate and we all know that dark chocolate chips are good for us. These cookies we want. These cookies are a gift.

In his book, Mindless Eating, Dr. Brian Wansink wondered if we valued this second batch of cookies more, so he did an experiment and found that people will pay 3X as much for a brownie served on glass china compared to one served on a paper napkin.

Godin says that if we were all “MIT graduates” maybe stories wouldn’t have this same effect on us.

Toward the end of the interview Godin tells James, “the only two things we should teach kids in school is how to lead and how to solve interesting problems.” This mimics his TEDx Talk and ebook, Stop Stealing Dreams.

The interview ends with James asking about Squidoo, which Godin says they are still experimenting with. As of August 15, 2014, it was acquired by HubPages.

Please let me know about any typos or weak points on Twitter @MikeDariano or (559) 464-5393. If you want more from me, subscribe to my newsletter.

#84 Ben Mezrich

mezrichBen Mezrich (@benmezrich) joined James Altucher to talk about writing, infectious disease, and the real information highway (it’s not the internet, but contains some of the same content). Mezrich has a new book out, Q, “basically it’s about quarantine law and what happened if a crazy Ebola like disease hit New York.”

Mezrich has an exciting bibliography, most notably Accidental Billionaires and Bringing Down the House. I remember reading Bringing Down when I was in college and it nearly brought me to create my own gambling ring, which I was glad I didn’t. Not only was I not as smart as the MIT students – who are the subject of the book – but my constitution to walk through an airport with $200,000 taped to my body was much lower. But it was for Mezrich too. In an excerpt that appeared in Wired when the book was released he writes:

I try to control my breathing as I stroll through Logan International Airport. Terminal C is buzzing and chaotic, an over-air-conditioned hive of college students escaping Boston for a long weekend. I am dressed like everyone else: baggy jeans, baseball hat, scuffed sneakers. But in my mind, I have as much chance of blending in as a radioactive circus clown. There’s enough money hidden under my clothes to buy a two-bedroom condo. And to top it off, there’s $100,000 worth of yellow plastic casino chips jammed into the backpack slung over my right shoulder.

Mezrich tells Altucher that part of the reason he writes books that translate so easily to Hollywood movies is that he’s drawn that those ideas. He says that Gonzo Journalism has always appealed to him since reading Hunter S. Thompson and he says, “that’s how I wanted to write it.” To pursue this style means dealing with the critics; of which there are many. Mezrich’s books read fast – like I suspect he wants – but they also read loose. Know this when you read his work.

But Mezrich isn’t bothered by the criticism. He tells James, “there will be people who debate different pages in it (his books), but overall the people who were in it will say this is their story.” He also doesn’t worry about falling outside of the traditional non-fiction styles, saying, “non-fiction doesn’t need to be written in a single way.”

Mezrich tells James that it took two years of solid writing, 190 rejection slips, and 9 mediocre novels before he signed his first book advance. Then in 2003 he wrote Bringing Down the House: The Inside Story of Six MIT Students Who Took Vegas for Millions, and everything changed. He was on the TODAY show, and in Playboy and Wired and things just took off. Each printing of 1,000 books sold out and he estimates 3 million copies have sold.

Altucher asks him why he didn’t give up at 180 rejections and Mezrich said he was just kind of used to rejection in other areas of his life and he just wanted to be a writer. Even after sketching out other careers, he still planned on how he could write.

A bit of delusional thinking goes a long way in getting things done. Past guest Alex Blumberg (#70) told Altucher much the same thing, that you have to be “stupidly optimistic” and “a little self-delusional.” If you’re still afraid of the rejection part, don’t worry, there’s a game for that. Jason Comely created rejection therapy, the game. You can get his prompts – ask a stranger for gum – to practice getting rejected and eventually he says it won’t bother you. Hear Jason tell his story on the Invisibilia podcast. Altucher himself has a system for dealing with rejection, writing an entire section in Choose Yourself and saying, “Every day, in all aspects of our lives, we are rejected. Rejection is probably the most powerful force in our lives.”

Mezrich began researching Q during the SARS epidemic when he began thinking about who might be the front line of defense in an outbreak. He tells James that it won’t be doctors or nurses, but rather emergency responders. He also says that quarantine laws are “almost unlimited.” The recent case of Nurse Hickox in Maine is the modern example, but there is a precedent for lockdown. In the 1900’s  you wanted to avoid Typhoid Mary who infect 53 people and was forcibly quarantined. Mezrich mentions that Cuba quarantined their AIDS patients in the 1980’s to great success – and he’s right. A National Institute of Health article reports “Cuba’s national AIDS program is the most successful in the world based solely on statistics, and this country also has what many believe is the most interesting program in the world.” It’s not a clear victory because for eight years the government sent all positive HIV cases to the Santiago de Las Vegas AIDS Sanatorium – and kept them there.

Mezrich says this is a big problem because “If you interview virologists and infectious disease specialists, every single one of them says it’s not if but when.” Past guest Nassim Taleb had some interesting thoughts about nature (GMO’s rather than infectious diseases but both include similar themes) in a recent interview at EconTalk.

bluehonda

When Mezrich dives into the details about contagion Altucher asks if this is just the like noticing a blue Honda. Once you buy one, you see them everywhere.

This gem of observation is the availability heuristic, and it is pervasive – when you know to look for it. First, in the context of the interview, Altucher wonders if some of the medical scares we see are a result of media manipulation fueling the availability. For example, which is more deadly, the seasonal flu or Ebola?*  The flu, more than 6 times as many people die from the flu in the United States alone than die worldwide from Ebola. We don’t know this difference because we don’t hear about it. The Freakonomics podcast has a great episode on this and it’s worth listening to just to hear about the connection between Osama Bin Laden and Polio.

Mezrich’s thinking is that Ebola isn’t great, but isn’t dangerous. Respiratory infections on the other hand will be pandemics. He says to look at the seasonal flu and how a small mutation has made it a national news story and while a person could walk around New York City (as one did) with Ebola, a respiratory infection is more likely to spread.

Toward the end of the interview Altucher suggests that Mezrich has a certain style in his writing, welding the high stakes to gray area decisions and Mezrich says this sounds about right. A similar moment occurred in episode #83 with Simon Rich when James noticed that his writing is themed around the absurd meeting the normal. (Do watch the clip for Rich’s new show to see what this means).

Mezrich tells James that The Sun also Rises was his favorite book but that he wrote Q as a fictional book because he “wanted to write something like Fahrenheit 451.” It took time for him to find his own voice, saying he read Bright Lights, Big City “hundreds of times” and when he started out he wanted to be Jay McInerney. This “almost ruined my career” he tells James. This is not uncommon.

Stephen King addresses this in his wonderful book, On Writing, where he writes:

Stylistic imitation is one thing, a perfectly honorable way to get started as a writer (and impossible to avoid, really; some sort of imitation marks each new stage of a writer’s development), but one cannot imitate a writer’s approach to a particular genre, no matter how simple what that writer is doing may seem. You can’t aim a book like a cruise missile, in other other words.”**

Compared to interviews with other writers, this one is notably shorter on talk about writing. One specific exception is when Altucher notes that Mezrich often uses short sentences, to which Mezrich notes that it fits his style of action. This isn’t accidental, it’s literally a writing tool. Tool #18 to be exact. Roy Peter Clark writes about writing tools and suggests that the short sentence serves to do three things; simplify, create suspense, or focus on the emotional truth. Clark writes, “the writer controls the pace for the reader, slow or fast or in between, and uses sentences of different lengths to create the music, the rhythm of the story.”

The conversation nearly ends when the pair talk about the sewer system as the real information highway. I’m not surprised Altucher jumps on this idea as he’s mentioned more than once a smart toilet that gives biometric feedback. Thankfully they end talking about Mezrich’s upcoming book, Once Upon a Time in Russia. Mezrich says it’s “The true story of this battle between oligarchs and this incredible rise of wealth. And Putin.” Seven of the wealthiest men in Russia put a “low-level KGB agent” into power as their puppet but the puppet pulls down the strings. You can preorder Once Upon a Time in Russia (but have your salt ready).

* Now, if you guessed correctly you circumvented a different logical fallacy, system 1 and 2 thinking. If you’ve read this note and this sounds interesting then your next book should be Thinking Fast and Slow which explores all this and more.

**What is so great about that King quote is that he uses the analogy of a cruise missile and then uses the example of Tom Clancy. If you have any interest in writing, you have to read On Writing.

I’m a writer and earn a living by writing posts like this. If you enjoyed it, please consider a $3 donation

If I missed it, messed it, or meant something else let me know on Twitter, @MikeDariano.

#79 Dick Yuengling

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Dick Yuengling joined James to talk about business, beer, and why Yuengling beer hasn’t taken over the beer business.

Yuengling beer has had a bumpy road to become the oldest and largest American owned brewery in the country. Dick says that the brewery was nearly sold in the 1960’s but when his grandfather found out that the guy wanted to scrap it, they decided not to sell. Part of Yuengling survival has been just that, survival. Nassim Taleb writes that sometimes the best thing to do is just not die.

The brewery has been in the Yuengling family for six generations and Dick’s grandfather left Princeton to take over. Besides nearly turning to scrap in the 60’s the Yuengling company had to deal with prohibition from 1920 to 1933. As they couldn’t sell beer, they sold “near beer,” built a dairy to sell ice-cream, purchased real estate, and Dick’s grandfather even became a bank president. In that diversification that even partially owned the Roseland Dance Hall, and James remembers going there.

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Throughout the interviews James brings up the expressions “shirt sleeves to shirt sleeves in three generations.” The expression means that the first generation will create something, the second will build it, and the third will bring it down. HBR reports that only 10% of all privately held companies are in existence after three generations.

Part of this problem is how the conditions change for each entrepreneur. For the founder things are always harrowing, rough, and getting by with just enough. For the second generation things are a bit easier, maybe too easy. For the third generation things are too easy. Paris Hilton, for example, is a 4th generation hotel Hilton.

What might make the Yuengling family different is the stressors they’ve withstood in various generations. Prohibition in the 20’s, slow business in the 60’s, getting lucky in the 90’s. Each stressor served as a reminder about what their core business is.

Malcolm Gladwell calls these things desirable difficulties and says that they matter quite a bit. In David and Goliath he writes that being dyslexic, being unorthodox, and losing a parent can be good because they force us to grow, think, and act in new ways. Nassim Taleb subscribes to the same process, though different terminology. He calls them stressors and writes that they are good for a system to have because it makes the system adapt – like Yuengling did. One final proponent is comedian Carol Leifer who told James, “you should be failing in your career because it’s through these failures you really get better.”

Dick took over the business in 1985 and began to modernize the facility. He tells James that he was a production nut. From his time in high school to now he’s been in the factory, knowing, learning doing. This was the theme in Mark Cuban’s interview too, where he knew the ins, outs, ups, and downs of his business. Samuel Zemurray, the man who popularized and delivered the banana to the United States did much the same thing, riding the boats from New Orleans to Honduras while his competitors stayed in Boston. Zemurray saw things, his competitors read about them. A favorite Zemurray saying was, “they’re there, we’re here.”

James brings up the idea that wheat may have been partially developed to make beer and both were created 8,000-10,000 years ago. For the full beer story, check out the Stuff You Should Know Podcast about beer.

Dick and James have a tennis match like conversation, James lobs a suggestion for the business and Dick sends it back. James tries again, Dick returns. This part of the conversation leads to a slew of great pieces of advice from Dick. He tells James that “they don’t jump into things” and “we don’t have to be the biggest.” I live in Ohio, a state where the arrival of Yuengling beer was a big deal. It used to be that if someone was traveling to or through Pennsylvania, it would warrant a stop, like Cuban cigars only iron city lager. James is talking from a similar east coast perspective about expansion, it seems like Yuengling could take over the world.

Eventually James comes around and says “you found your ideal space to form a monopoly.” He goes on to say, “that’s a hard thing for entrepreneurs to realize, they don’t have to do everything.”

In episode #43 Pete Thiel tells James the same thing, “you don’t want to start the 100th online pet food company or 500th restaurant in San Francisco.” This goes to the point that James makes to Dick (explicitly) and Dick makes to James in the interview (implicitly) that too much competition is going to squeeze you. About Coke and Coors, Dick says, “we don’t want to play in their space.” Thiel says, “extreme competition, extreme undifferentiation is not synonymous with capitalism.”

“Click to Tweet: “Build a monopoly and scale it if you want to take over the world. – James Altucher”

Rather than the ideas for expansion, Dick tells James they can grow in their current markets – Yuengling has only a 3 or 4 share in many of their markets, even capping out around 10 in Pennsylvania.

 In the interview James guesses that Dick might be worth over a billion dollars, to which he says that’s “a figment of someone’s imagination” and it doesn’t sound like he wants to cash out. Dick echoes what Sam Shank says in #78, wondering where he really wants to be. Sam is in a startup, in an area he knows, with good people, and room to grow. That’s what he wants so why sell. Ditto for Dick, who’s happy making beer.

 If you like this post, please share it on Twitter, email to a friend, or thank James for doing it. If I missed something, let me know on Twitter, @MikeDariano.