Highlights 2020: Week 19
Ditching optionality, Thorpe's real edge and the cost of discipleship
Great founders maintain Zero Optionality. Not because they are crazy risk takers. But because they just don’t see the huge risk. They have no back-up plans. They see The Future.
Jason Lemkin, “If You’re Going to Do a SaaS Start-Up… You Have to Give it 24 Months”
I used to vehemently disagree with the idea of sacrificing optionality. Since markets are chaotic systems and chaotic systems are unpredictable, it seemed like a stupid idea to make a huge bet on an unpredictable system.
My experience backed this up. One year we launched ~25 products to find one that had the metrics to scale on paid media. Predicting what customers want is a tough. So, lack of backup plans seems like a willful self-delusion.
Then, I stumbled across an idea that makes me think of reducing optionality and focusing in. Maybe there are situations where the margin of safety is high enough, that the bet just makes sense to follow.
Follow logic and analysis rather than sales pitches, whims, or emotion. Assume you may have an edge only when you can make a rational affirmative case that withstands your attempts to tear it down. Don’t gamble unless you are highly confident you have the edge. As Buffett says, “Only swing at the fat pitches.”"
Edward O. Thorp, A Man for All Markets
Ed Thorpe’s book had two major lessons for me.
If you’re unsure about your “edge” (read: advantage), you don’t have one.
Focus is the key to finding an edge.
For most of my career, I wasn’t sure I had an edge, so attempted to take small bets. I don’t regret this strategy at all. Now that I’ve got an idea where I think I’ve got an edge, my goal is to test that edge as cheaply as possible. My guess is, no edge survives contact with the dealer. But focus can help you uncover something deeper.
In a competitive world, adversity is your ally. The harder it gets, the better chance you have of insulating yourself from the competition. If that adversity also causes you to quit, though, it counts for nothing.
Seth Godin, The Dip
Difficulty is the easiest moat. Assuming we can survive it. This is one I celebrate on my good days, and lament on my bad ones.
[…] which of you, intending to build a tower, does not first sit down and estimate the cost, to see whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it will begin to ridicule him, saying, ‘This fellow began to build and was not able to finish.’
cf Luke 14:28-30, The Bible NRSVCE
The dip is the only stupid place to quit. All the money, time and effort invested is guaranteed to be lost. To paraphrase blogger, Taylor Pearson, “pull a pot-roast out of the oven early and it’s the same as not putting it in at all. You can’t eat it.”
Outcomes are [nearly] always better when I count the cost. When I became a Christian in early college, I knew it was going to cost me volleyball friends and an active nightlife.
But, done right, these costly bets are asymmetric. We know the cost of taking the bet, but not the potential upside. (Sidenote: if my bet that heaven is real pays off, I’m more in the money than I could ever imagine).
When my bets haven’t worked out, the worst that happens is I’m out the money, time and energy I knew I could potentially lose. I don’t regret these times. A recent cold calling test comes to mind.
The times when I haven’t counted the cost, I’m tempted to throw good money after bad and fall into the sunk-cost fallacy.
The flipside is, I often don’t even know what the costs will be. It’s hard to count the cost of a new idea. So where’s the room to experiment? To dabble? To tinker?
If you know, let me in on the secret 😉