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You Heard This Lie Before
The Biggest Myth Related to Competitive Advantages
"Long-term consistency trumps short-term intensity."
This quote embodies what many fail to realize, that being a successful and high-achieving person results from the consistent effort. Success is a marathon, not a sprint.
One of the most important, though undervalued, aspects of evaluating performance is the environment.
I think one of the reasons the environment is so powerful is that it communicates with your subconscious and has a conversation that you’re not privy to in your conscious mind.
This may sound ridiculous, but if I’m trying not to eat potato chips and I see them, it’s easy for me to eat them.
And so, nudging your physical environment can shape your behavior because it’s having a conversation with your unconscious self.
For instance, especially in the new year, we have these desires to set goals and achieve these huge goals and change our lives, work out more, start a new relationship, and travel to different places.
And we have to overhaul everything. Now, that takes a lot of energy. That takes a lot of attention.
And when you set out to do that, the moment you achieve something like that, you also sign up for the process that’s going to get you there.
You also sign up for the effort that will get you there. And what happens to many people who try to make these enormous overhauls of time and energy and introduce challenging habits.
And I think it is often misunderstood because people over-index its importance. And what I mean by that is they overestimate how important confidence is.
I have learned from talking to professional investors how many lack confidence. Considering their career, it’s something really awkward to hear.
If you ask them how they succeeded for years, they’ll tell you that they don’t care about how they feel. Instead, they focus on their actions.
Confidence is often misplaced. Instead of being placed on the ability to bounce back, to learn from failure, its belief is based on something that might not be there when it needs it.
In the market, we go across similar experiences a lot of times. For example, have you ever got in a position/trade extremely overconfident and ended up losing money?
On the other hand, have you ever got in a position/trade where you didn't feel comfortable but ended up making a lot of money? That's happened to all of us. Confidence isn't an accurate predictor of success.
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It’s all about it
I think the primary thing is that in any organization, the whole premise of organizational life is that together you can do more than you can do in isolation, but that only works if people are connected.
It only really works if they trust each other and help each other. But unfortunately, that isn’t automatic and requires effort from leadership.
I mean, obviously, it’s imperative who you hire. So the signals you send to them and the kinds of behaviors you want are really important.
I think that having kind of critical people who appreciate generosity is a business characteristic for thriving companies.
It’s not something you just save for out-of-work time. I think that’s a really fundamental yet rare characteristic to find in different businesses.
Suppose you really believe that the value of collaboration lies in the aggregation or compounding of talent and creativity.
In that case, you have to have an environment where people are really prepared to help each other.
People are only really going to be prepared to help each other if they feel they will be supported when needed. If you think that, not egregiously, but respectably, you might get some credit for your contribution because people don’t like to feel invisible quite widely. Stanley Milgram wrote about this brilliantly.
He talked about how when we go into an organization, our moral focus shifts from wanting to be a good person to a good job, and we implicitly assume that doing a good job is doing what we’re told.
The person you work with is not identical to the person you are at home, which is probably not entirely consonant with the person you are on the golf course or the gym.
Identities are not as absolute and fixed as we used to imagine, so we have to be very alert to how we change in different environments and pay attention to what we leave behind and what gets amplified.
Organizations are much more complex than a single human being. Dealing with people from different cultures, economic backgrounds, gender, and so on is challenging.
After years on the road, interacting with different organizations, you figure that most companies are equally competent, though just a few thrive.
For Company A, even though they deliver good results, the management relies on complex and dizzy internal processes to make decisions. Company A just can’t keep track of what they need to do.
Meanwhile, Company B shows up knowing what they need to do, and they simply execute. Moreover, they deliver without any complex internal processes, which is excellent!
From Company A’s perspective, even though they’re competent, they see themselves in the position of not taking “reckless” and “hurry up” decisions.
From Company B’s perspective, they’re equally competent and wondered why investors compare them to Company A, as it was a close peer.
From investors’ perspective, they’re both valuable and competent firms, but not equally valuable. Company A is much more valuable.
This is interesting because it's a "what to add?" situation. Many employees believe the secret to gauging a career is delivering more value to the company.
This is not true. A substantial value could be collected using your boss's perspective, such as reducing friction.
You don’t need to learn any new skills for this; you have to shift your perspective to your boss’s point of view and see how hard it is for them to get you to do something.
Then, like in nature, which removes mistakes to progress, you can draw things to survive and thrive.
Think about it this way. The C-level management has a limited unit of energy throughout the day to accomplish something.
Suppose your internal process spends much more on delivering execution due to constraining internal processes.
In that case, it’ll always be significantly less than a company with streamlined internal processes, despite their diligence in executing the strategy.
When we think of improving our value to an organization, we often think about the skills we need to develop, the jobs we should take, or the growing responsibility.
But, in so doing, we miss the most obvious method: reducing friction.
The first-entrant bullshit…
In the classic about corporate strategy, most start-ups advocate a competitive advantage being the first entrant and gaining scale faster than competitors.
Considering competitive advantages, you have two scenarios: if they're relatively low, competition will drive down the return on invested capital to the discount rate. If they're relatively high, it's a little more complicated calculation.
You have to ask yourself if the market growing. If the market is growing, then entry's difficult but possible. Think about AWS and the Data Centered Business.
The cloud is exploding; it's growing very fast; they have powerful barriers to entry there; they've been mastering this technology for years, but the market has gotten so large that, unsurprisingly, other competitors want to come in.
If the market is not growing, the entry's very unlikely. Entrants have a hard time entering stable markets or perhaps shrinking markets.
That's why the competitive advantages of AWS in the cloud business are likely to be getting stronger.
Growth companies tend to be overvalued when the estimated values depend on growth in businesses with a low barrier to entry.
In these cases, the feeling of seeing the company growing overcomes the fact that it is not generating value for shareholders with this growth.
For example, when new products and services are launched, there is almost always the one called the first entrant, meaning that the company was the first to explore the market and, consequently, grew a lot, which does not necessarily mean sustainable advantages of long term with high profitability.
High-speed technological change is often the enemy of customer captivity. Early adopters are constantly looking for new and better alternative products. Subsequent adopters look at available products and are disconnected without loyalty to any brand.
During periods of high growth, most potential users are not yet customers. Their number is usually sufficiently large compared to existing users that in the race for the economy of scale, being the last entrant is not a material disadvantage.
Rapid technological changes tend to minimize the advantages of proprietary technologies, as clients are always looking for the next disruptor.
Companies that dominated these markets generally entered a period when technology had stabilized, and there were enough users to generate economies of scale.
The Google search engine is an excellent example. Judging whether this point has been reached and what the best value proposition will look like is highly complex, even for experts. At the very least, it is far beyond most general investors' capacity.
For achieving customer captivity, it takes much more than execution. I don’t know if someone has ever written about it, but for me, corporate culture is the environment set by management.
Let’s take Walmart, for instance. It’s hard to argue they’re great at executing their retail operation, with a multi-decade operating track record.
Nevertheless, Amazon showed up and not only took their crown but created a set of different businesses, such as AWS.
If you go through Bezos’ letters, it’s easy to identify how vocal he’s always been about long-term, customer-centric, risk-taking, and new bets.
The cultural environment is typically about politics and signaling, not about putting people in a position to succeed.
The physical environment is about busyness and distraction, not focus and thinking. Unfortunately, neither of these environments lines up with good decision-making.
Contrast this to Warren Buffett. He has no computer in his office. His day isn’t full of meetings.
He doesn’t have an annoying boss that comes around and asks him for something tangible that he’s working on. Instead, he just reads and thinks. No wonder he’s so good at it.
If you want to think for yourself, you can’t have someone always whispering in your ear. If you want space to think, you need quiet and calm, not a bunch of smart people throwing out new ideas.
That’s why Buffett moved from New York to Omaha. “In some places, it’s easy to lose perspective. But I think it’s very easy to keep perspective in a place like Omaha,” Buffett says.
Shape your environment to maximize your expected value. This is true intellectual freedom. Look for companies that share similar authentic interests.