Triple Shot Saturday - Edition 16
Three of the highest signal-to-noise ratio snippets from the startup/tech podcasts for founders/operators.
Here are my favorite three snippets from the podcasts I read this week.
But before this, it would mean a lot to me if you could take 30 seconds to complete this reader survey.
Building a business model for the ‘average’ market conditions
Ernie Garcia, the co-founder and CEO of Carvana, was on the Invest Like the Best podcast with Patrick O'Shaughnessy. In this excerpt, Ernie emphasizes that to build a long-term business, one must understand the ‘average’ market condition and build your business for it.
Just that they would pass. Value creation in the world is about what's going to be right on average. And I think that every path—all of the various quantities that matter to how you're performing at any point in time—there's going to be variability around them. The number of cars that people are buying, where interest rates are, what's happening in the world from a macro perspective, which Omicron is an extreme version of that, but there's always variability.
But in the long run, the average situation is going to be consumers are going to have their average confidence, they're going to be buying cars at average amounts. Macroeconomy is going to be in an average place, and you've got to build toward that average.
And then I think you just have to be resilient enough to absorb when those quantities go negative on you. And I think our business—any scale business really, but I think our business in particular—it does have feedback in it.
So when you're growing, it gets better. For example, the simplest way where it happens, just as we grow and get bigger, we buy more cars, we have more selection for our customers, they're more likely to find what they want, their conversion goes up, so we grow again, and that feedback cycle occurs over and over again. And there are other areas of feedback in the business as well, but when it's going the wrong way, it's the opposite. All of a sudden, its demand has been reduced.
You're in a little bit of a worse spot, you're overextended, the world's giving up on you a bit. There's a bunch of negative articles out there that are harming your brand, and now you're shrinking your inventory, and a customer that shows up on the site is less likely to find what they want, and conversion drops. So you have to be able to absorb that, but on average, it's going to be the average. And so I think that the key to building a business is just build something that you believe is going to be good on average, and then make sure that you're able to absorb the blows that come inevitably when things go against you a little bit.
The importance of feedback loops
Shane Battier (two-time NBA champion), Ravi Gupta (GP at Sequoia), and Alex Smith (former NFL quarterback) host Morgan Housel on the Glue Guys podcast. In this excerpt, they talk about the importance of quick feedback loops to keep yourself focused and avoid being complacent. If such feedback loops do not exist in. your business or life, then you need to go out and create them.
Tying it back to your blogging point: you wrote something when you wrote for Motley Fool, people can comment immediately if it sucks, right? Immediately. When you run a big business and you're super profitable because of work that people did 10 years ago, when you don't get the feedback quickly enough that you stink, right? And as a result, it's just—you can be bad for too long, and therefore, like, you never kind of like hit the field. You know what I'm saying?
And so what you need is a quick feedback loop that tells you when you're no good. And what these businesses have and what, honestly, what people get sometimes when they're rich is like, the feedback loop extends too long or doesn't exist. And then therefore, they don't have any accountability. And as a result, they become shadows of themselves. And I think that, like, this is why you have to seek out real feedback and a short feedback loop.
Do you think, though, on that note—because football, sports are different, right? Like football, we toe the line every week. The feedback loop is short, and for Shane, it's even shorter. It's every—you know, when you play basketball, it's every two days, and you're really only as good as your last game. And that's kind of probably what's fascinating about that, right?
You'd be freaking Tom Brady. You go suck it up for a couple weeks, like you're going to hear about it, right? You know, look what Aaron Rodgers is going through. I mean, he is a first-ballot Hall of Famer, one of the greatest quarterback talents of all time. And it's just—you just, you toe the line, you go sneak out there, man, it's like they don't give a crap.
Practice makes you perfect
Adam Karr, President of Orbis Investment Management, a public equity investment co with $34B AUM, compares the ‘will to win’ with the ‘will to practice’ on The Knowledge Project podcast with Shane Parrish. He argues that while the desire to win is natural, the "will to practice" is far more important to become successful in any field.
How do we go about selecting the game we're playing in life? Set your life up for your obsession, because if you do that, you're all in. You're grinding at it in a way that very few other people will. You never want to compete with someone who's obsessed. Kobe Bryant, for example, he's at the gym at 4:00 a.m. shooting baskets. Are you at the gym at 4:00 a.m.? If you're not, you're competing against someone who is. It's about survival and adaptability.
If I had 10 minutes with a CEO and my goal is to determine if they're obsessed or not, what questions would I ask? One thing I like to ask is, "Talk to me about the will to win versus the will to practice." If you're a concert pianist, even though you're one of the best musicians in the world, you practice your skills every day. For us as investors, what's the equivalent of practicing skills every day? Talk to me about the blueprint—the first blueprint for me in investing.
…there are elements of it that involve thinking about the world probabilistically, and just continuing to practice that every day. It's about embracing the uncertainty of a situation, but not taking that for granted—really practicing it day after day. Essentially, you inoculate yourself to prepare for that.
It’s interesting because, as you were saying that, part of what popped into my head was looking at the greats in sports, since that's an easy reference. I talked to someone who played with Tom Brady, and they said that practice was a game. If you talk to someone who played with MJ, it’s the same—practice was a game. They weren't coasting, and if you were, they’d call you out. Kobe was the same way—treating practice with the same respect, the same effort, the same dedication, the same frustration. If they didn’t make a play, they didn’t half-ass it and expect to win on game day. They gave their best in practice.
Hope you enjoy this episode of Triple Shot Saturday. If you were forwarded this mail, consider joining the free mailing list below.
Rohit