Tag: 1990s

The Lego Story (book review)

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The LEGO Group was founded in 1932 by Ole Kirk Kristiansen and the story is told in The Lego Story by Jens Andersen.

The takeaway, like all successes, is to work hard and get lucky. Rather than a review, let’s tour history through industry.

1919, Denmark’s economy slows. “Farmers in Billund and other districts benefited from Denmark’s neutrality during the First World War, by selling grain and meat to the warring nations and earning some extra hard cash by producing peat.” When farmers have money they can pay carpenters like Ole Kristiansen. And if farmers don’t, they can’t.

1925, a fire in Ole’s woodshop. This will be a recurring theme.

1929, the depression. “For a while, the future looked promisingly bright, but shock waves from the Wall Street Crash in October 1929 that wiped out billions of dollars in wealth quickly spread to Europe. Germany and England, Denmark’s biggest trading partners, were badly affected, and the price of grain, butter, and pork crashed.”

1932, anything that sells. Though woodworking had been his trade, it was the 1931 Yo-Yo craze that inspired Ole to make toys. “By the 1930s, yo-yo-ing had become a nationwide fad,” writes Chat GPT, “with tournaments and competitions being held across the country.” Ole’s brothers and sisters want to know why a good carpenter would waste his time, “I think you’re much too good for that, Christiansen—why don’t you find something more useful to do!”

1933. “We worked like dogs, my wife, my children, and I, and gradually things began to pick up. Many days we were working from morning till midnight, and I bought a cart with rubber wheels so the neighbors wouldn’t be disturbed when I took the packages to the station late at night.”

1940, Germany invades Denmark. Though occupied (and part of the resistance group, running grenades to saboteurs in LEGO boxes) it was a good time for LEGO. Parents were “keen to protect their children from hardship,” and during the five years of occupation, LEGO’s revenue grew.

1942, another fire in the woodshop.

1946, plastics? Ole buys a plastic molding machine. Through the early 1950s executives at LEGO will say no no no, plastic toys will never take off.

1947, Ole sees his first plastic brick from an English toy manufacturer. This is the seed for LEGO but will prove a thorn in their intellectual property side for decades to come.

1951, the top-selling LEGO toy is the (plastic molded) Marshal Plan-delivered Ferguson tractor.

1955, LEGO bricks roll out to toy stores.

1956, LEGO bricks roll out to Germany. Andersen writes, “Selling toys in Germany would be like selling sand in the Sahara.” LEGO advertises in one city, Hamburg, creating a two-minute film to play before features. Word spreads.

1958, good news, LEGO invents the tube on the underside of the LEGO brick. Ole Kirk passes away and his son Godtfred takes over.

1962, the Scale Model Line. Godtfred grows up playing LEGO, so do other people. What if we make LEGO for professional adults? The Scale Model line is for engineers to design with LEGOs. Even the everyman could create his own house. The project fails but leads to the 1/3 size pieces ubiquitous in today’s sets.

1968 LEGOLAND Denmark opens. It’s a hit.

1976 oil crisis. “A significant part of LEGO’s challenges in the 1970s could be ascribed to two separate oil crises, a stagnating global economy, Denmark’s falling birth rate, and a declining toy market abroad.”

1978 minifig enters. Lego, Kjeld Kristiansen notes, has three phases: blocks, wheels, and mini-figures.

1989 LEGO pirates. But Gameboy too.

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If there’s one consistent lesson through each decade of LEGO it’s the importance of sales. Every few years someone comes along and says the toys are good enough and every few years someone else reminds them but we have to sell these things. It’s just hard work.

Crazy Russian incentives

MIKE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Russian Markets

MIKE

Competition’s effect is the “market mechanism”. This example is from 1996 Russia.

Bill Browder is looking at stock in a Russian oil and gas company. The country’s companies have just become public, and though MNPZ has slightly smaller reserves than British Petroleum, it’s trading for 100x less. Why?

I was convinced that there must be some other explanation for the deep discount and spent the next several days searching for it.

Did the preferred shares have different par values? No. Was the ownership restricted to workers? No. Could the higher dividends be arbitrarily changed or canceled by the company? No. Did they represent only some minuscule part of the share capital? No. There was no explanation. The only reason I could fathom for why they were so cheap was that no one had showed up to ask about them-until I had.

Amazingly, I found that this anomaly wasn’t restricted to MNPZ.

Nearly every company in Russia had preferred shares and most of them traded at a huge discount to the ordinary shares. These things were a potential gold mine.

If there’s a name, there’s a market mechanism. If the invisible is now visible, there’s a market mechanism. If something is weird, new, unknown, secret, there may not be.

Pricing power evaporates with the heat of the market mechanism. Sometimes though, in the far reaches, someone can, find a gold mine.

Russian Reading List

MIKE

There’s a financial advisor axiom that the best plan is the one you’ll stick with. For trainers, it is exercises done through a full range of motion. The best endocrinologists find an achievable plan, not an ideal one. There should be one for education too. With that in mind, here’s a list of Russian resources optimized for consumption rather than comprehensiveness.

We’ve done this before with books about China and related, history books that are business books.

The Rest is History (podcast). Some podcasts are better than books because the host(s) add context. Dan Carlin is great at this. Tom and Dominic do too, and their series on Vladimir Putin is excellent.

Red Notice. A finance thriller? Yep. Bill Browder spent decades opening, running, and closing a fund in Russia during the switch from communism to oligarchy.

Muppets in Moscow A 2022 book, h/t Marginal Revolution about Sesame Street in Russia.

Exporting Raymond. We love Phil Rosenthal’s Netflix travel/food show Somebody Feed Phil. This is the story of taking the show Everybody Loves Raymond to Russia.

Koylma Tales via Agustin Lebron called it “a collection of stories of people who lived in the Gulag, possibly the most revealing book on human nature I’ve ever read.” Takes place through the 1930s and 40s.

Sandworm: A New Era of Cyberwar and the Hunt for the Kremlin’s Most Dangerous Hackers. Forgot this source. “The true story of the most devastating cyberattack in history,” notes Amazon, “and the desperate hunt to identify and track the elite Russian agents behind it.” 2,000 reviews averaging 4.7.

‘Typical’ monthly mortgages (1971-2022)

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This is the ‘typical’ house payment for the last fifty years. ‘Typical’ being the median sale price and average thirty year rate.

If my parents had bought when I was born they paid $982. But if they bought when my brother was born, it would be almost two-hundred dollars less each month. A huge difference for a young family.

The sweet spot for modern buyers was October 2011 when payments flirted with $1,000. 

The Covid-19 drop and surge can be seen toward the right. It wasn’t until August of 2021 that payments crossed the trend line into wild heights. 

What difference does it make for someone now? Since the end of 2020, the ‘typical’ payment increased seven-hundred dollars a month. 

Interest rates are a headline metric, but are not the most important thing for buyers. The fall 2022 ‘typical’ monthly payment is: $2,580. A $50,000 decline on the purchase price is equivalent to 1% lower interest payments. Not only that, home prices have a .9 correlation with monthly payments whereas interest rates have a -.55 score.

Housing is easy news to consume. The bad is about rising prices and rates. The good is about remodels, flips, and luxury. The truth is somewhere in the middle, here it’s in color.

How “off track” are housing prices? The red line is the 2016- March 2020 trend line relative to the graph of median listing prices. Currently prices are a 33% premium to what the historical growth suggests.

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United States figures only.

The positive externalities of Eminem

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And I probably ruined your parents’ life
And your childhood too
‘Cause if I’m the music that y’all grew up on
I’m responsible for you retarded fools
I’m the super villain Dad and Mom was losin’ their marbles to
You marvel that? Eddie Brock is you
And I’m the suit, so call me—

Eminem, 2021, Venom

In complex systems you can’t do one thing. When he was chief economist of Uber, John List and his team ran an experiment to see how tips affected drivers. They rolled out the option to tip in four cities and collected the data. Tips, List wrote, work. When drivers earned more they drove more. But you can’t do just one thing. When tipping expanded to other markets other drivers drove more too. With the increase supply of drivers but the same demand, total earnings with tips were about the same as before. But the drivers ended up working more. It was more per ride but fewer rides.

As a teen I remember big concerns about what music teens listened to. In 1990 the parental advisory label started to appear on CDs. In 1997 Eminem release The Slim Shady LP. That music was for my car only, not the house. Eminem gets this. “I’m the super villain Dad and Mom was losin’ their marbles to”. It was NOT GOOD that we were listening to this.

Maybe?

List’s Uber experiment explains an externality. Do one thing and this other thing happens too. Eminem’s other thing is health. Venom is my favorite workout song and Eminem is the 13th most popular artist on Spotify with fifty-three million plays. A month! That’s 100k hours a day. If one-fourth of those hours are someone exercising, that’s 14,000 pounds lost each month.

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Behavior change starts with easily understood stories. Tell someone a story they agree with, or understand, or can tell to others (which raises their status). Eminem’s explicit lyrics are something to warn against. But telling a positive story through some Fermi thinking sounds good too.

Energy for change

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This post is part of our thinking about ease and its counterpart design.

Football in Florida in February

John List begins his book, The Voltage Effect, with the example of Nancy Reagan’s D.A.R.E. program. That program, failed, List notes because it was based on a false positive. “It was a pretty large scale study in Honolulu,” List said, “the problem was it was only one study, it was never replicated, and it was never the truth.” Part of the reason D.A.R.E. is a case of something is always happening is the social incentive. It felt good to have a solution. It felt good to align with Nancy Reagan or local law enforcement or your child’s school.

A modern parallel is Michelle Obama’s Let’s Move! program. My year of AmeriCorp was in this heyday and it felt good to align with a political party or athletes or your child’s school.

Contrast Obama’s and Reagan’s initiatives with what I witnessed the first week of February: Florida football. This park was swarming with kids. Every NFL team was represented (and what a rollercoaster the kids on the Bengals team went through) and the parents were into it.

There’s no lack of football in Florida. If the current First Lady wanted a win, she should create a program that further promoted football in Florida. And the reason why is the ease. There’s not friction for Florida football. The weather is good to great (though dangerously hot) all year long. The culture welcomes football. There’s lots of people already doing it, so doing more of it wouldn’t be too much. Contrast Florida football with ‘Just Say No!’ or ‘Let’s Move!’. All the things in favor of Florida football are missing for the former First Ladies.

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How to vaccinate the world: Hire the smartest, most attractive, and persuasive medical students (doctors and nurses) to go door-to-door across the country. Or along the football theme, get the best recruiters. Have them sit on the couch, look the person in the eye, and sell them on vaccination. That would work. But like ‘Just Say No!’ and ‘Let’s Move!’ it takes too much energy. But football in Florida? No energy needed.

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There’s a gap between things I would like this person to do and things this person does. Energy closes the gap. Wordle wonderfully demonstrates energy. It’s easy to learn, easy to share, easy to play, easy to habituate. But Wordle will fade because it struck kindling. Unlike football in Florida there’s not a lot of factors working in its favor like with Facebook or automotive culture or take-out-pizza.

Energy, ease, friction, design – they’re all ways to address the same idea, how to change.

Just a monkey with a fasting app

MIKE4 Comments

The Matrix (1999):
Kung Fu

This came to mind when a friend asked my advice on fasting. I told her what worked for me, what I thought were best practices, and suggested the Zero fasting app.

The app has 330,000+ ratings. It’s in the top 100 Heath and Fitness apps. Which is kind of crazy because, it’s a timer.

Designs matter a lot in our actions. Using the app I make probably 90% of my fasting goals. Days without the app and the number is probably 25%.

One design theory is to consider appropriate information. If fasting is new to someone they need baby steps: an app that shows how much time has elapsed, guides to the ‘right’ fast, and advice, tips, community, etc.

Appropriate information feels like a weird concept until we see it. It’s like, oh, this other way of describing the world exists too Huh. Temperature is one of these areas. What’s the best way to convey information about thermal energy: Celsius, Fahrenheit , or Kelvin? It depends! What’s the gap between the individual and the information? Celsius and Kelvin work great for science and scientists because the information-individual gap has been narrowed by years of education. For the consumer though, Fahrenheit rules the day as the most legible.

Another is how to classify an avalanche. What’s the gap between an individual and the information? The US and Canada, for instance, use different systems. In the States avalanches have five levels according to “the path”: sluff, small, medium, large, major.

“These categories are in relation to path size, so a size or class number is not so meaningful without information on, or familiarity with, the path.” – Avalanche Institute

Locals have a small information-individual gap because they know the area. Compare the American system to the Canadian system, which also has five categories: relatively harmless, could bury or kill a person, could destroy a small building, could destroy a rail car, and largest known. There’s no information-individual gap when the warning is largest known.

It makes sense then that “just a timer” works for so many people. It’s not just a timer. It’s a tool to close the information-individual gap. Oh, I get it now. And even though the gap seems small (Siri set a sixteen hour timer), it’s large enough to matter.

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per avalanche-center.org there’s also an international classification system.

the “just a monkey with a…” idea comes from Erik Jorgenson’s Navalmanack curation.

The Last Lecture sign

MIKE

On September 18, 2007 Randy Pausch entered a Carnegie Mellon University lecture hall and gave his ‘last lecture’. Pausch’s lecture was one of a series hosted by the university where varying academics spoke about “what mattered.”

What made Pausch’s lecture so moving was that weeks before he learned his pancreatic cancer had gotten worse. Pausch passed away ten months later.

Pausch’s story is beautiful and someone can join the twenty-million views on YouTube. But we want to think about something different, Pausch’s book, The Last Lecture.

“It’s not the bestseller that interests me,” said John Thompson, “it’s the world that makes bestsellers possible.”

There’s a lot of good stories every year, why was TLL a New York Times bestseller for 112 weeks and not some other book? Part of the reason is the business model.

“How do you value this book? You have fifteen pages of an outline by an author who has never written a book before, how much are you going to pay for it? It went for 6.7 million dollars. I thought that was crazy, who would pay 6.7 million for a book by an author who had never written a book and may not even live long enough to write it.” – John Thompson, Oxford Bookes University, November 2010

Thinking like an anthropologist, Thompson’s first order of businesses was to figure out the business landscape. Every industry has competitors and collaborators. There are explicit and implicit incentives.

A few landscape changes took place through the 1980s. Small independent bookstores yielded to chains. Scale meant changes in bargaining power. In that decade literary agents grew in stature, slightly empowering writers. Publishers meanwhile consolidated in number and power.

By the late 90s and early 00s the book selling economics was like venture capital or film: around 30% of books, estimated Thompson, generated the bulk of the revenue. Along with the need to grow, the incentive was to find Big Books like Dan Brown’s The Da Vinci Code (2003).

Finding a “Dan Brown” was a dream, quite literally. Instead, publishers looked for new authors with good ideas. Lacking that they tried something we are more familiar with in 2021: platform.

Walk into a 2010 bookstore said John Thompson, and each of those books at the front table were paying $1 in rent to be there. Books had to sell quickly or they were returned to the publisher. Without a “Dan Brown” the next best route was someone with a platform and so in 2004 Paris Hilton became a NYT bestseller.

Randy Pausch had never written a book, but Randy Pausch had been written about. Two days after the lecture, Jeffrey Zaslow featured Pausch’s pronunciations in the WSJ. Following that Oprah and ABC got in touch. After that Hyperion publishing.

This era feels like a shift in celebrity, as least through the lens of book sales. While Pausch’s talk wasn’t the most popular it was on the growing site YouTube. In 2005 Ronaldinho’s Touch of Gold was the video people shared. In 2006 it was Evolution of Dance. EOD became the most viewed YouTube video with ten million views. It had the most viewed crown, lost it, got it back, loses it (this time to Avril Lavigne), gets it back and loses it for the last time to ‘Charlie Bit My Finger’.

Evolution of Dance was number one for about as many days as Baby (Bieber) and Despacito (Fonsi) and half as long as Gangnam Style (Psy). It was the first viral video.

I remembered TLL as a dual feel good story. Both the message and that the message shined through. It does, but TLL succeeded because of the business model. Publishers wanted hits and lacking a “Dan Brown” looked for people with a platform.

Pausch’s story is beautiful and as a teacher I hope he would appreciate this post. In Internet time 2007 feels like a long time, but the things we did then we do now and we did before. There’s lots of change in actions but much less in reasons. Looking back at this moment is a nice (dual) reminder about how we live.

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A couple other tent pole moments: 2010 – Old Spice, the man your man could smell like. 2012 “Hi I’m Mike founder of Dollar Shave Club dot com…” and 2012s Gangnam Style is first video with one-billion views.