The 3 venture investment styles, Tobi Lutke & ‘inevitability debt’.

Sajith Pai's (sort of) weekly newsletter #2020-03

Writing: ‘What kind of venture investor are you?’

I wrote a piece on the 3 styles of venture investing - emphasising market over team and product, then emphasising team over the other two, and finally stressing on the product / tech. I looked at these three types or styles of venture investing via three personalities who embodied these styles - Don Valentine, founder of Sequoia (market), Arthur Rock (team) and finally Tom Perkins (product / tech).

It is a fun read - here is the link to the piece, and here is the twitter thread

Podcast: ‘Invest Like the Best: Tobi Lutke of Shopify’

I though the recent Invest Like the Best podcast by Patrick O’Shaughnessy featuring Shopify founder Tobi Lutke was quite good. Covered a range of topics including systems thinking, design, strategy games, personality typing, Stoicism etc. Some good thinking blocks. 

Sharing the highlights from the podcast

  • We vote with $ each time we buy from Amazon or a big box chain versus a local business. You are voting for everything that the the big chain stands for. Shopify focuses on the merchant, who are in many cases, the makers themselves. This influences our product design and strategy - why Shop our latest launch is not designed as a marketplace, but more a shop of shops. It emphasises the merchants you have already purchased from. It intensifies the relationship between the buyers and the brands they patronise, as opposed to a traditional marketplace, which point you to a larger variety of merchants and is kind of not friendly to the merchants. The typical marketplace reduces the merchant’s income for sure.

  • Minimum quality bar: Germany, Austria, Switzerland - products from these countries have high quality bar (cultural trait). They are not exactly entrepreneurial places. They don’t ship faster. USA has a lower minimum quality bar and they ship faster. China an even lower bar. Shopify has historically had a very high quality bar. Due to pandemic, they made a conscious decision to lower the quality bar; so as to ship faster and help the merchants.

  • Loosely governed, highly aligned: Everyone has 5 creative hours in a day, and when he hires someone, he would like to have that those 5 hours for Shopify. This is how mission-driven cos work. His hope is that those 5 hours can be fully applied to Shopify and hence works to reduce any frictions that stand in the way of that application. Loosely governed, highly aligned is the ideal general principle to build a co.

  • Tobi believes that video games are good to learn focus. Not all video games are created equally (real time or otherwise strategy games are better). Factorio is a game that everyone at Shopify can expense - you learn in a compressed format what it takes to run a co like Shopify. Believes that there is good transfer learning from certain types of video games, especially strategy / world-building games.A real time strategy game played at a very high level 1:1 is essentially a great test of how well you can allocate or invest your attention. You can do things to your opponents that drains them of attention.

  • Shopify has 6k people. It is a high context co. To succeed in Shopify you have to understand the thinking of Shopify. And one of the most important things senior folks do is to get people up to context. Hosts an internal weekly podcast revisiting all the old decisions and see how it worked out.  For the quarterly board meeting he shares a pre-read which he shares with the employees after a week. Incoming employees read it to learn abt the co. There is a centralised system of record / documentation where they capture info on all products etc.

  • Default to open: Shopify is a default to open co. But it is not a context push co. It is up to you to push for more info outside your sphere of work if it will help you make better decisions.Say to incoming employees, you will do better at Shopify if you have archaeology tendencies.

  • Ground state: Tobi’s ground state is The Investor: “what do you do when you don’t do anything? when you are not expending energy” Tobi - lucky that his ground state is ingesting info.

  • Blueprint: Tobi lays out his personal operating system in a document he calls Blueprint and shares with his colleagues. This is to get people up to speed with me, so that you don’t have to spend a year learning how to deal with me. More people should do it says Tobi.

  • Stoicism: Romans never expected that their Gods would have any interest in human affairs - hence there was a Cambrian explosion in life philosophies - Epicureanism, Cynicism, Stoicism. The last is the one Tobi found came closest to the life philosophy that Tobi developed himself.  The book ‘Guide to Good Life’ deals with stoicism. Tobi recommends it. Stoicism really deals with area of influence. What do you really have influence on? Aurelius: the only think I can influence is my own brain. Nobody insults me. Someone said something, and I allowed that to enter my brain, and I allowed myself to feel insulted. In this vein, he says “My job is to do the best thing I can. Not to make someone think I am doing the best. Not to make my company thing I am doing the best.”

  • Everyone has to chart their own path of reading and discovery, and cobble together a cohesive version of their home-brewed philosophy. Philosophy is just how to think well. Of all the things we study, isn’t this is the most important thing to study, asks Tobi?

  • Parting words: “There is no speed limit to personal growth.”

Readings

(1) Benedict Evans wrote about how 'inevitability debt' piles up in declining industries, and how COVID and crises like this, forces its reckoning, overnight.  Lots of fascinating charts in this one.

(2) This interview of Scott Galloway, on the topic of what COVID-19 and forced remote education does to the economics of college education is interesting. Galloway is a marketing prof at NYU’s Stern B-School who has become famous for his takedown of richly funded startups, and has a reputation for critiquing, some times i think excessively, anything fashionable and prestigious. Nonetheless this is worth a read. Broadly, he says

  • The top 50 universities will do well and will probably get larger - perhaps via tapping more students for say a virtual class offering / degree, while campus education becomes a luxury product. Lower-tier colleges will go out of business.

  • Expect big tech + big U partnerships - Apple + Stanford, Google + Harvard etc., as big tech cos hit the limits of how much they can expand in their lines of businesses, and look to education for scale as well as margins. There is a good comparison of both big tech and big U as having strengths in admissions certification & signalling, i.e., in both, getting in conveys prestige and the brand is built on exclusivity, in hiring / admissions.

  • Interesting ideas on what could replace the physical / on campus experience - like an Americorps / Peacecorps idea. Equivalent in India could be Teach for India.

(3) The Information had a really good piece (paywalled) on how Apple’s manufacturing brains are all now in their 50s and above. This is indeed, unusual by Silicon Valley standards, but so much about Apple is different - they are WFO vs WFH, focused on manufacturing and the physical product over the virtual etc. The piece is hard-paywalled, but sharing 2 screenshots I found interesting.

The extent of knowledge transfer that happened from Apple to China / Taiwan in manufacturing / machining intelligence:) isn’t funny.

It is interesting to see Apple's Advanced Process Lab as to manufacturing what Google AI unit is to machine learning.  A corporate division that is spurring as much research and new thinking as academia.

That’s it folks, catch you soon; hopefully next week!