Workshop Note: Culture & Conditions
"The most successful people I know don't question themselves, but they regularly question their ideas. They know when the water is too deep and are not afraid to ask for advice." Mike Cannon-Brookes
Last week I published my piece on Michael Bloomberg and did a deep dive on a very different story, that of Mike Cannon-Brookes and Scott Farquhar, the co-founders of Australian software company Atlassian.
Their origin stories couldn’t be more different. Bloomberg had been a trader and, after being let go from Salomon, had $10 million to start his company. And he wasn’t an engineer but a highly competitive salesperson.
“I hadn’t the interest or intellect to be a real engineer, physicist, or mathematician. What I really liked doing – and what I was good at – was dealing with people.”
Atlassian’s founders were both coders and, starting in Australia and during the “nuclear winter” following the dotcom bust, bootstrapped their company without outside funding.
What they share with Bloomberg is an emphasis on culture. Atlassian’s is all about collaboration and enabling teams to do their jobs better (they sell collaboration software) while Bloomberg’s was about being a fast, nimble, and a fierce competitor.
“When I joined Bloomberg Financial Markets, I wondered if I had joined a religious sect, such was the dedication of the employees to its founder, and their enthusiasm for the company.”
After listening to a recent podcast with Paul Black and Mike Trigg from WCM, the idea of culture is fresh on my mind. What does great culture look like at different companies - and at investment organizations? Two books I’ve read recently, Lessons from the Titans and The Power Law, offer perspectives on this question. I’ll write them up soon.
Another useful concept I found at both Bloomberg and Atlassian is that of creating the right conditions. I touched on this in the New Year’s Conundrum: rather than focusing on the goal (the future with its worries and hopes), we can turn our attention to the present. Are we creating conditions in our lives that make achieving our goals, our destination, inevitable?
Bloomberg had to compete against media conglomerates. He wanted his organization to be flat, aggressive, collaborative. A collaborative culture, he reasoned, “starts with dialogue. And dialogue depends, in no small part, on design.” As a result, he designed his offices to open, laid out like the trading floors he knew from Salomon where communication was fast and efficient.
Check out how Scott Farquhar recently described his role at Atlassian:
“I used to think building a company is like building a bridge. You spend a lot of time designing, it’s very prescriptive. … What I've come to the realization recently is it's actually more like tending a garden … much more organic. Though you plant certain seeds in the garden, and you fertilize and water them, you don't actually know what's going to grow.
Tending a garden is encouraging things to grow, giving the right conditions. … My job as a leader is to build a bigger garden every year and … make sure we have all the right conditions, the right values, the culture, and plant the right seeds of hiring the right employees and giving them the right opportunities. Trying to control things and have a predictable outcome, I've given up on that long ago and it's all about making sure we have the right conditions to grow.”
For those of you who haven’t read the Bloomberg piece, here are a few takeaways:
Bloomberg capitalized on his unique experience: “There might be better traders than me, and there might be people who know more about computers. But there's nobody who knows more about both.”
He was hungry and a hard worker: “As I would learn later in my life, it’s the ‘doers,’ the lean and hungry ones, those with ambition in their eyes and fire in their bellies and no notions of social caste, who would go the furthest and achieve the most.”
“I was quoted saying ‘Sunday night was my favorite night of the week because I was going into work.’ I said I didn't say that, but there’s a reporter who has it on tape.”
He believed his nimble company was at an advantage challenging the slow and bureaucratic incumbents: “At Bloomberg, we don’t want fair fights. We want to go into contests with an advantage.”
How did he sell his software product? “Promise users everything; then you build what you can and what you think they need.” He called this “the only successful strategy for a systems developer.”
But seriously, his edge was to constantly iterate and improve his offering. First he added basic analytical functions. Then he invested and improved the data and became the de facto benchmark provider. Finally, he added news and a chat function, creating an exclusive social network that cemented his position.
“It all began with a simple premise: putting more information at people’s fingertips, more quickly and more accurately than they could otherwise get it. That’s still the heart of the business.”
“You already provide charts and graphs that influence major trading decisions,” Matthew Winkler (first head of Bloomberg News). “Add text to that information and you’ll have something that doesn’t exist anywhere else. No one in debt or equity will be able to live without it.”
“Every significant advance I or my company has ever made has been evolutionary rather than revolutionary: small, earned steps – not lucky big hits.”
Have a great start into the week!
Bottom-up or top-down?
This is from early 2020 but worth revisiting. Brett managed to find common ground between venture capital and value investing and compared bottom-up and top-down, thesis-driven investing approaches.
“At Accel I was taught, ‘we need to have a prepared mind’ at really thinking about a segment, a category, and its coherence. So I came to Benchmark and I didn't know if I agreed with that. And my partner said, "don't you do that shit here." Throw that crystal ball out, you can't predict anything. What you can do is recognize when lightning strikes." Peter Fenton
“We increasingly live in a world of increasing returns. Success compounds and leads to more success. As a result, the ability to grasp the ground truth for a given industry or within a given company is more important than ever before.
Businesses, as Gurley writes are complex adaptive systems that cannot be modeled with certainty. In the early days of a company, the challenges of quantitatively modeling the future are even more magnified.
Some — Klarman’s “Greater Geniuses” — may be capable of envisioning the long term future state of a company, betting on it early, and willing it into existence. For the rest of us, a bottoms up approach to investing in the future represents the best — perhaps the only — path to repeatable, sustainable success.”
“Sustainable investing success, then, is less a matter of being light years ahead of one's competition intellectually and, as Ashby Monk notes, owed to structural and behavioral advantages developed over time.”
Marc Andreessen on the importance of timing.
I’m not a huge fan of Reid Hoffman’s podcast format. I find it far too structured with too many interruptions. However, he gets very interesting guests. His recent conversation with Marc Andreessen highlighted the importance of timing in startups.
“I’ll be meeting with a group of 25 year olds and they’ll be pitching some idea to me and in my head I can name the companies, 5, 10, 15 years ago that tried the thing and failed. … Half the time they’d say, “No, what were those?” Or they would just roll their eyes. “Well, obviously those guys were stupid, or they would’ve gotten it to work.”
As far as I can tell, there’s very little benefit in even being aware of the history. And in fact, being aware of history might actually be a negative, because basically the world does change. The conditions on the ground do change.
The markets actually do become ready for new things at a certain point. The technology really does reach the point where something is really going to work. Whatever are the other preconditions of success, they do happen. Most of these things do end up working.”
As Corry Wang would say: “Predicting the future is easy, making money is hard.”
Ryan Holiday on stoicism, tradeoffs, and life goals.
This conversation with Ryan Holiday resonated with me for several reasons.
Ryan highlighted many tradeoffs we face, like work and family, short-term results and longevity/sustainable performance. He also mentioned that his book Conspiracy (which I recently read to better understand Peter Thiel) had the best critical reception but was his least successful book commercially.
He touched on stoic virtues and the importance of not acting out of impulse (he mentioned Lincoln wrote letters in anger and put them in a drawer - and rarely ended up sending them). Ryan touched on his process for writing one book a year (now there’s a goal!) and the importance of meeting readers where they are.
Lastly, he very concisely articulated his goals in life: “great writer, great marriage, great father.” I strive to find this kind of clarity.
“Insatiability is the key differentiator in a lot of high performers.”
“I'd heard that Lebron James spent something like a million and a half dollars a year on his body. Trainers massages, medical treatments etc. ...The investment in the body and sustainability is really huge and it's very easy to be pennywise and a pound foolish on these things.”
Bill Miller’s risk tolerance is absurd.
In a recent interview with Consuelo Mack, Bill Miller said that his personal account was invested 50% in Bitcoin.
Consuelo: "Why the outsized [bet on Bitcoin], 50% of your net worth. I'm assuming the other 50% is in Miller funds, diversified...?”
Miller: “Actually, close to the other 50% is in Amazon. All of the rest of the investments that I have are basically there to support margin debt. I'm typically always on margin.”
Miller explained that he could liquidate those remaining stocks to pay off the margin debt and be left with Bitcoin and Amazon. Needless to say, don’t try this at home. This man’s appetite for returns (and stomach for volatility) is on another level. Recall that Miller lost most of his fortune in 2008 in no small part due to his personal leverage. Yes, he made it back. But as William Green pointed out, this was an exceptionally painful journey. Studying great investors seems to always yield equal parts valuable ideas and a sobering recognition of how different they are.
Your heroes disappointing you means you are learning.
They’re human after all.
“Relatively new investors typically uncritically adopt heroes and gurus; most commonly Warren Buffett and Charlie Munger. As they gain more experience, their list of idols grows ever-shorter as imperfections appear. They have increasingly long lists of who they dislike. But pointing out faults is trivially easy. I don’t know of a single strategist or investor who hasn’t had at least one incredibly bad call or intellectual blind spot.”
“Instead, the most impressive people I’ve asked usually have very long lists of influences. But they can usually precisely articulate what they have integrated and discarded from that person. Wilber’s Integral Theory drew from a vast range of fields in order to find the recurrent themes. Munger himself advocates taking in “the best big ideas from all disciplines.” He believes solutions to big problems are often found “over the fence” in other fields. The answers to important questions, and thus the secrets to superior performance, aren’t usually found in obvious places. Otherwise, everyone else would have found them.”
As Charlie would say: “I have nothing to add.” Except, perhaps one of my favorite quotes: “Absorb what is useful, discard what is useless and add what is specifically your own” - Bruce Lee.
Get away from the desk.
Just another anecdote for The Reading Obsession. Venture away from your desk and see the world with your own eyes. Talk to people. Look for information not easily accessible. “Intensity is the price of excellence,” as Buffett said. How many people care to find and read some report buried in an obscure department's bureaucracy?
The data on stock returns is a Rorschach test.
Many of you might be familiar with Bessembinder’s study of long-term stock market returns. I try to remind myself of this at least once a year.
"About 61 per cent of non-US stocks underperformed Treasury bills in the 1990-2018 period, and less than 1 per cent accounted for the entire $16tn of net wealth creation over the period.
The degree to which stock market wealth creation is concentrated in a few top-performing firms has increased over time, and was particularly strong during the most recent three years, when five firms accounted for 22% of net wealth creation."
Depending on how you think of your own capabilities as an investor, this information can lead to diametrically opposed reactions. If you believe you are adept at identifying long-term winners, you’ll try to buy and hold those outlier companies. If you don’t, you might humbly buy an index which at least lets the outliers ride and drops the losers over time.
Or you can try to earn a living in the middle of the curve, where the companies don’t compound for you long-term. Instead, you’ll generate your outperformance by outwitting the other players, taking advantage of the mispricings created by their biases and mistakes.
“I think I have provided some ammunition for the people who say it’s their business to chase moonshots,” Bessembinder said. “The skewness shows just how big the pay-offs can be if you’re good at this.”
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