The essay Increasing Returns and the New World of Business by Brian Arthur was influential to Bill.
There is a book called Complexity: The Emerging Science at the Edge of Order and Chaos. It is about the rise of the Sante Fe Institute. In that book, Brian Arthur is one of the heroes. He had a lot of radical, different ideas.
The notion of increasing returns: Some company that got to a big level would find it even easier to get to the next level.
I was covering Microsoft at the time on Wall Street. You could see this in play. The more of the OS that existed the more apps that were written for the platform. The more apps people wrote for the platform the value of the platform went higher. It just kept paying off. You ask yourself which other businesses are susceptible for this? This has been a mainstay mental model that I’ve kept in the back of my mind for every single investment we have ever made.
There is a concept that is known but no one has quite landed yet called the interest graph. This concept that there is a site or app you could go to and everyone that has your shared interest was already there. Example: I like mountain biking, this is my level, and I live here. I would then be automatically grouped with similar people. If you could do this it would monetize like crazy. I wouldn’t be shocked if a company [that does this] popped up tomorrow.
A rule to get a marketplace or UGC [user generated content] off the ground is to do tons of unscalable things. This drives 90% of entrepreneurs who have been to business school nuts. They say we can’t do this! How are we going to do this at scale? I say we aren’t going to do this at scale. This is a flywheel. We need to get it spinning. The cost of this activity today is irrelevant to the marginal cost of the activity down the road because we are going to stop doing what we are doing.
Example of this in the Glassdoor case: The very first company that was reviewed was Cicso. The founders went to the Starbucks near Cisco with a pen and paper and interviewed people for reviews. There is zero chance that’s going to be the long-term business effort but you have to seed the market.
I very frequently run into entrepreneurs who think they need to expand to 10 cities really quickly. I’m like no. If you have incredible unit economics and growth metrics in a single city - where it is obvious that your playbook is working - that is way more interesting.
I’m always surprised by what entrepreneurs can uncover. When it happens you say oh I should have thought about that. But you didn’t.
Until the Internet, there was no way to have perfect [or close to it] informational asymmetry. Now we can connect someone with a skill set being available and someone with that need. . . If there is a way to link these people there has to be more economic unlock. No one has really nailed that yet. [Tutors, coaches, plumbers, etc.]
We are creating more connectivity. Ideas can spread super fast. I’m amazed at the quality of conversations I have with people [some of which I didn’t know ] over Twitter DM.
A lot of people have started asking about vertical LinkedIn’s. That’s really interesting. I look forward 10 years and think won’t everyone who is in this occupation be connected in some way?
Certain businesses are prone to monogamy: babysitters, hair cutters, dentists, doctors. If things are succeeding you are not changing. Those businesses are tougher for marketplaces. Restaurants are prone to promiscuity. You go to your favorites but you want to try new ones constantly. That’s a different dynamic for a marketplace.
I’m fairly confident that in the very long run companies that are very good allocators of capital are going to trade at much higher multiples. Even if you are in a capital intensive industry you can understand this construct. I’m 100% convinced that Jeff Bezos has understood this since the beginning of Amazon but these entrepreneurs [some Silicon Valley entrepreneurs] don’t.
Bill’s essay on this idea: All Revenue Is Not Created Equal.
For the first time in history, private companies are the ones with more money and are attacking the long-held incumbents. That is a radical thing to think about.
[On the absurdity of IPO vs Direct Listing] Spotify is a little below its first trade price. Same as Uber and Lyft. But nobody says anything because no banker picked a price out of a hat and allocated capital based on that. Why? Because an algorithm properly determined how to match the buyers and sellers.
In the day of the Internet, you can know more about a subject matter than anyone else. You can keep narrowing the scope of that subject until you are the one who knows the most. Everyone else would run out of time.
I think it is critical to start with the historians of your industry and craft and know all that happened prior to now. [This is one of the reasons I read biographies of entrepreneurs on Founders podcast.]
For me that was having the bedrock of Munger, Graham, Dodd, Lynch. [Knowing this] gives me a different frame of mind than most of the people out here. You can do the same thing in any industry. Study the pioneers.
I still read today obsessively.
Bill’s talk Runnin’ Down A Dream: How to Succeed and Thrive in a Career You Love.
Learn from founders who came before you. Every week I read a biography of a founder and tell you what I learned on Founders podcast.
