The Chomp #043

Obvious Things That Are Easy to Ignore, Exit to Community, and More...

Hey Everyone,

Welcome back to The Chomp—your weekly dose of the best strategic thinking content and top emerging business trends from the internet and beyond, designed to expand your mind and get you thinking. If you’ve been sent this email and you’re not a subscriber, you can join by clicking on the blue button below. With that, let’s dive into it.

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Quick Bite

Obvious Things That Are Easy to Ignore: “Learning from something has two parts: whether it’s important and whether it captures your attention. The number of things that check the first box but not the second is higher than any of us want.

It’s not that the simple things are hidden. It’s that our attention is drawn to things we assume make the biggest difference, and the idea that obvious equals ineffective is more powerful than the reverse.”

Often the most obvious things are the easiest to ignore. While this is applicable across all facets of life, it has a profound impact in the domain of finance and money. When it comes to exploring the psychology of money, there are few writers on par with Morgan Housel.

In his most recent article, Housel breaks down two examples of obvious things that are easy to overlook in finance.

1. It is impossible to feel wealthy if your expectations grow faster than your income.

2. Few things fuel denial and ignorance like luck, randomness, and change.

At face value, these two points are, well, obvious. But in reality, they are quite easy to ignore. As Housel points out, “A thing that’s obvious but easily overlooked is that feeling wealthy has little to do with what you have. It’s more about the gap between what you have and what you expect. And what you expect is driven by what other people around you have.”

Whether you earn one million, ten million, a hundred million, or even a billion dollars, one can only really feel wealthy by maintaining the gap between what they have and what they expect. A good example here would be a rookie in the NBA. The current league minimum for a rookie is $893,310 per year. That is a huge sum of money. In most other professions that salary would have you towards the top of your field. Yet, for that rookie, he’s playing on an NBA team where the average salary is $7.7 million. Any All-Stars on his team are likely making over $25 million a year.

It’s easy to see here why this rookie might not necessarily feel '“wealthy”. When the people around you have so much more, it’s easy to ignore the obvious and to raise your expectations. To escape this trap, it quite literally pays to keep your expectations in check. To truly feel wealthy, one’s expectations must never rise in sync with their income.

Beyond rising expectations, luck, randomness, and change are also easy to ignore. When someone goes on a winning streak, they tend to overweight skill in their attribution of success. In reality, winning often comes from skill intermixed with luck and randomness. But it’s easy to overlook the latter two because winning and success feel good.

Yet, overlooking luck and randomness has been the downfall of many great men and women. Mistaking luck as skill is one of the costliest mistakes you can make. This, again, is pretty obvious. But just knowing that isn’t enough, because the most obvious things are often the easiest to ignore.

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Deeper Dive

Exit to Community: “At a time when politicians in the U.S. and Europe are starting to get serious about antitrust enforcement, companies could use federations, user ownership, or tokenization to preemptively spread out their market power while continuing to grow their networks. If they don’t, regulators could use a structure of this sort for forced restructuring.”

Back in 2016, when rumors swirled that Twitter might be up for sale, journalist Nathan Schneider wrote an article in The Guardian arguing that Twitter should be owned by its users. Rather than selling to the ranks of high-flying companies like Disney or Google that were mentioned as potential suitors, members of the Twitterverse could take an ownership stake in the platform.

Schneider’s article led to a rallying cry in which people across the globe started organizing for Twitter’s ownership in the form of what was coined “platform cooperativism”. One thing led to another, and a formal shareholder proposal made its way to Twitter. The proposal won nearly 5% of the popular vote at the 2017 Twitter annual meeting, which might not sound like much but certainly isn’t insignificant. The vote garnered a lot of attention as well, with articles in major publications like Wired and Vanity Fair.

Despite generating quite a bit of noise, the buzz around the shareholder proposal quickly faded; and, as we all know, ownership of Twitter hasn’t been turned over to the Tweeters. But, as Schneider lays out in this thought-provoking piece, the conversation around user-owned platforms hasn’t died out. In fact, it’s starting to pick up more steam now than ever.

In theory, the concept of community or user ownership makes a ton of sense. However, in practicality, it’s not an easy needle to thread. The main difficulty lies in both the funding and exit strategy for most startups. Initial investors want a return on their capital; and to date, there have really only been two ways to achieve that. Either through an acquisition or by going public. Both create liquidity events for investors and early employees allowing them to reap the rewards of their time and effort.

But, what if there was another way? What if, Schneider asks, a startup that builds and scales a community could go forth with an exit to ownership by that community? To achieve this, Schneider lays out three potential paths for an imaginary marketplace company to exit to community.

1. A Trust Buyout: Users would buy out investors through a trust operating on the users’ behalf through financing from a financial institution or foundation. Over time, Imaginary Company’s profits would pay off the loan and the trust would have rights to any dividends. The dividends could then serve a variety of purposes.

1. A Federation: Users would gain ownership by Imaginary Company distributing power rather than centralizing it. Imaginary Company could open up its software platform to independent companies and organizations to create their own nodes. These nodes then become communities, which over time could join together and build a cooperative federation. This federation could then obtain financing to acquire a controlling stake in Imaginary Company.

1. Tokenization: Through the use of blockchain technology, Imaginary Company could enable shared ownership of the platform by users through digital tokens. Tokens would enable holders to participate in governance as well as making shareholder proposals. Tokens could also function as a form of payment on Imaginary Company’s marketplace.

The more I think about the potential of these three models, the less radical (in a traditional business sense) they sound. While they may be fringe ideas and more of a thought experiment at the moment, I expect this concept to continue gaining traction. An exit to community will never be the right strategy for all companies, but there's a case that it could be an apt strategy for many.

This is a topic worth keeping an eye on, especially with the current environment around antitrust. I suspect the chorus behind Nathan Schneider will only get louder in the next few years.

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Chum Bucket

• How Netflix’s Reed Hastings Rewrote The Hollywood Script (Forbes)

• We Can’t Just Stick to Football (Matthew Stafford via The Players’ Tribune)

• The Reinvention of Retail (McKinsey)

• My Trip Down the Crypto Rabbit Hole in Search of the DAO Hacker (Bloomberg)

• Amp It Up!: (Frank Slootman - Snowflake CEO)

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Tweet of the Week

Alex Sherman @sherman4949

The No. 1 job requirement for TikTok CEO is your first name has to be Kevin.

Dylan Byers @DylanByers

Source familiar confirms the @nytimes reporting: Instagram co-founder Kevin Systrom is being eyed for TikTok Global CEO. If he got the job, he’d compete directly with his former boss at Facebook.

Song of the Week

Apple Music Link

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Books

Currently Reading

Recently Read

• The Lessons of History is nothing short of a masterpiece. Will & Ariel Durant’s achievement of distilling the most important lessons of over 5,000 years of history into 128 pages is truly remarkable. There are very few books I’ve read that offer as many interesting takeaways on a per-page basis. This is a book that I’ll repeatedly be coming back to my notes on for a long time. (5/5)

• In Certain To Win, Chet Richards does a great job of translating John Boyd’s legendary military strategy to business. Along with creating the OODA Loop, Boyd developed a number of additional theories and methodologies that have shaped our modern approach to warfare. While Boyd’s writing focused on military tactics and he never explicitly laid out business strategy, he studied it deeply. He voraciously read about the Toyota Production System and considered it an implementation of ideas similar to his own. Having been a close associate of Boyd, Richards is able to offer a unique lens into Boyd’s thinking applied to business. This quick read packs a powerful punch and belongs on the book-shelf of any so-called strategist. (4/5)

Parting Thoughts

This Week in History

• On September 16, 1985, Steve Jobs resigned from Apple after losing control of the company in a boardroom battle with John Sculley. 12 years later, to the day, Steve Jobs rejoined Apple as interim CEO. The rest is history. (Source)

“Man’s sins may be the relics of his rise rather than the stigma of his fall.”

— Will Durant

If you found something that piqued your interest this week, please help me out in expanding the reach of The Chomp by forwarding it along to a friend or sharing it with others in your network. Until next week.

-CM

This newsletter is created and authored by Cody McCauley and is published and provided for informational purposes only. The information in the newsletter solely constitutes Cody’s own opinions. None of the information contained in the newsletter constitutes—or should be construed as—investment advice.