Pandemic Memo

The following are my thoughts taken from a memo to family office investors I sent out today regarding the pandemic.


These are unprecedented times in modern history. Not since World War II has there been such a large disruption in daily lives across the world at such a quick pace.

The pandemic we’ve entered is a classic Black Swan — an unpredicted event that has extreme consequences. Of course, Black Swan events are relative. A surprise to you or I may have been wholly anticipated by others. And in this case, it very much was.

To epidemiologists and people who had seriously thought it through, a global pandemic quickly sweeping humanity was an inevitability. It was a matter of when, not if. In 2018 Bill Gates gave a short TED Talk about the dangers of a global flu-like pandemic and the measures we could take to help prevent or reduce it. As we’re now aware, the advice was unheeded.

The human lives lost from the virus will be a tragedy of epic proportions. The current and upcoming economic malaise may be nearly as bad — particularly affecting those without the means to ride it out. Recent wide-ranging government stimulus and intervention can soften the blow, but ultimately the only solution is getting rid of the virus.

This is another reminder that we live on the thin veneer of civilization — modern society is very fragile if we’re not constantly vigilant about it.

We will get through this, as humanity has always done in the past. When the entire world has a common enemy, people get creative. Everyone should expect the world to look different after. Especially in areas like healthcare, biotech, and government.

These differences will all be for the better. Humanity is always searching for higher peaks of “fitness”, and on the rough landscape of possibilities sometimes you have to go down to eventually go up. Life getting worse before it gets better has always been a common theme. From the shift to agricultural societies, to world wars, to global pandemics.

We just need to work together to get through it first.

Book Notes: Why We Get Sick

Back in December I read the book “Why We Get Sick” (1992) by Randolph Nesse and George Williams. While some of the information was outdated due to its age, overall I loved the book as it took a more wholistic, evolutionary approach to explaining sickness.

Given the global pandemic of 2019-nCoV (novel coronavirus) underway and the timely nature of my read, here are my brief notes I took from the book.


Why We Get Sick

Two kinds of explanations for disease:

  1. Proximate explanations — Answer “what” and “how” questions about structure and mechanism. Address how the body works and why some people get a disease and other’s don’t. A proximate explanation describes a trait — its anatomy, physiology, and biochemistry, as well as its development from the genetic instructions provided by DNA.
  2. Evolutionary explanations — Answer “why” questions about origins and functions. Show why humans, in general, are susceptible to some diseases and not to others. (Or why some parts of the body are so prone to failure.) An evolutionary explanation is about why the DNA encodes for one kind of structure and not some other.

Defenses. Mechanisms our body and immune systems designed specifically to combat an issue. A protective response to a problem. Coughing is a defense. The distinction between defenses and defects is important — defects are not preprogrammed responses, they are results of a problem. Skin turning blue from lack of oxygen is a defect.

Causes of disease:

  • Infection. External agents such as bacteria and viruses.
  • Novel environments. Environments our evolved bodies aren’t used to handling. A mismatch between our design and our environment.
  • Genes. Some of our genes are perpetuated despite the fact the cause disease. In the environments we evolved in, they didn’t harm us enough not to be selected out. DNA can also be mutated and create new bad genes.
  • Design compromises. There are costs associated with every major structural change preserved by natural selection.
  • Evolutionary legacies. Evolution is incremental and can’t make major changes quickly. Many of the design choices are not optimal and carry on anyway.

Signs and symptoms of infectious diseases

Symptoms of colds and other sicknesses and diseases can be unpleasant. But most of them are useful. It is an adaptation shaped by natural selection specifically to fight infection.

Fever is an adaptation to raise body temperature enough to assist with fighting infection. Body temperature is carefully regulated even during fever; the thermostat is just set a bit higher. Children who take Acetaminophen take about a day longer to recover from chicken pox. There are costs of a fever, of course. Otherwise the body would just always stay at 103F at all times. It depletes nutrient reserves 20% faster and causes temporary male sterility. Still higher fevers can cause delirium and lasting tissue damage. And because regulatory precision is limited, fever will sometimes rise too much and at other times not enough.

Iron withholding. Bacteria lack the ability to get iron easily. Iron is a crucial and scarce resource for bacteria, and their hosts have evolved a wide variety of mechanisms to keep them from getting it. The same chemical that helps induce fever greatly decreases availability of iron in the blood. In the midst of flu, such iron-rich foods as ham and eggs suddenly become disgusting; we prefer tea and toast. Low iron levels can help fight disease.

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How does a host guard against infection? (Expanding on the above chart.)

  • Hygiene. Avoid exposure to pathogens.
  • Skin. Erect barriers to keep them out of the body and act quickly to defend and repair any breaches.
  • Pain and Malaise. Generalized aches and pains are also adaptive. They encourage inactivity — which favors the effectiveness of immune defenses, repair of damaged tissues, and other host adaptations. Medication that merely makes a sick person feel less sick will interfere with these benefits.
  • Expulsion and Pain. Flag any cells that lack proof of identity and expel them from their entry portal. The body must have openings for breathing, intake of nutrients, expulsion of wastes, and for reproduction. Each of these openings offers pathogens an invasion route, and each is endowed with special defense mechanisms. The defenses at each body opening can be quickly increased if danger threatens. Coughing, spitting, vomiting, nausea, diarrhea.
  • Mechanisms to attack invaders. If all the above defense lines are breached, it can poke holes in the pathogens, poison them, starve them, or do whatever is necessary to kill them. If it can’t kill them, it can also wall them off so they can’t spread. Macrophages constantly wander the body searching for foreign invaders. If they find one, they transfer it to a helper T cell, which then finds and stimulates whichever white blood cells can make an antibody that binds to the foreign protein. This impairs them and labels them for attack by specialized larger cells.
  • Damage and repair. If all the above still doesn’t work and they’ve caused damage, it can repair it or compensate for it in some way.

In order to choose appropriate treatment, we need to know if the cough, or other symptom, benefits the patient or the pathogen. Instead of just relieving symptoms and trying, perhaps ineffectively, to kill the pathogen, we can analyze its strategies, try to oppose each of them, and try to assist the host in its efforts to overcome the pathogen and repair the damage.

Evolutionary arms race

The relationships between hosts and parasites are so competitive, wasteful, and ruthlessly destructive that arms-race terminology offers an entirely appropriate framework for describing them.

Evolution consists entirely of trial-and-error tinkering. The process is slow and unguided — in some ways misguided — by there is no limit to the precision and complexity of adaptation that the Darwinian process can generate.

Bacteria can evolve as much in a day as we can in a 1000 years. We cannot evolve fast enough to escape from microorganisms. Instead, an individual must counter a pathogen’s evolutionary changes by altering the ratios of its various kinds of antibody-producing cells. Fortunately, the number and diversity of these chemical weapons factories are enormous and at least partly compensate for our pathogens’ great evolutionary advantage.

An unsanitary water supply is only one example of what Ewald calls cultural vectors. The history of medicine shows repeatedly that the best place to acquire a fatal disease is not a brothel or a crowded sweatshop but a hospital. In hospitals, large numbers of patients may be admitted with infectious diseases normally transmitted by personal contact.

Natural toxins

Natural toxins are those that are found commonly in our evolutionary environment.

Our best defenses against these toxins are the same as infectious diseases — hygiene, expulsion, avoidance. Many swallowed toxins can be denatured by stomach acid and digestive enzymes. In the liver for example, specialized enzymes will alter some toxic molecules to render them harmless, and bind to others which are then excreted in the bile back into the intestines. For instance, our protection against cyanide depends on an enzyme called rhodanase, which adds a sulfur atom to cyanide.

Many plants make substances that interfere with the nervous system: opioids in poppies, caffeine in coffee beans, cocaine in the coca leaf. Why do the plants contain these toxins? A few coffee beans might give us a pleasant buzz, but imagine the effect of the same does on a mouse. Potatoes contain diazepam (Valium) but in amounts too small to even cause relaxation. Other plants have toxins that cause cancer or genetic damage, sun sensitivity, liver damage — you name it. The plant-herbivore arms race has created weapons and defenses of enormous power and diversity.

If our livers are overloaded with too much toxins, they cannot process them all and excess toxins circulate throughout the body, doing damage wherever they can. Some exposure to toxins can stimulate increased enzyme production in prep for the next challenge. So perhaps with toxins, as with sun exposure, our bodies can adapt to chronic threats but not to occasional ones.

Grazers and browsers limit their consumption of certain plants to avoid overloading any specific toxin. This dietary diversification also helps to provide adequate supplies of vitamins and other trace nutrients. We minimize the damage caused by dietary toxins by this instinctive diversification, as well as with out own special array of detoxification enzymes.

These enzymes are not as potent as those in goats or deers, but are more potent than those of a dog or cat. We could be seriously poisoned if we ate a deer’s diet of leaves and acorns.

Our enzyme systems can apparently cope with low concentrations of tannin, and many of us like its taste in tea and red wine. Small amounts of tannin may even be helpful by stimulating production of the digestive enzyme trypsin.

Human diets expanded after fire was domesticated. Because heat detoxifies many of the most potent plant poisons, cooking makes it possible for us to eat foods that would otherwise poison us.

A new variety of disease-resistant potato was recently introduced that did not need pesticide protection, but it had to be withdrawn from the market when it was found to make people ill. Sure enough, the symptoms were caused by the same natural toxins the Andean farmers had spent centuries breeding out. An evolutionary view suggests that new breeds of disease-resistant plants should be treated as cautiously as artificial pesticides are.

Novel toxins

Novel toxins are a special problem not because artificial pesticides such as DDT are intrinsically more harmful than natural ones, but because they are so different than what we evolved to cope with.

Furthermore, we have no natural inclination to avoid some novel toxins. Evolution equipped us with the ability to smell or taste common natural toxins and the motivation to avoid such smells and tastes. In psychological jargon, the natural toxins tend to be aversive stimuli. But we have no such machinery to protect us from many artificial toxins, like DDT, that are odorless and tasteless.

Tests on rats are of limited reliability as models for human capabilities, and there are many political difficulties that can frustrate public action on environmental hazards.

There is no such thing as a diet without toxins. The diets of all our ancestors, like those of today, were compromises between costs and benefits.

Pregnancy

Embryonic and fetal tissues may be harmed by lower concentrations of toxins than adult tissues are.

Morning sickness is often the first reliable sign of pregnancy. This nausea and its associated lethargy and food aversions are common. For some women they mean many weeks of misery, while others aren’t bothered much.

Nausea and food aversions during pregnancy evolved to impose dietary restrictions on the mother and thereby minimize fetal exposure to toxins. A healthy, well-nourished woman can often afford to eat less. The food she is inclined to eat is usually bland and without the strong odors and flavors provided by toxic compounds. A lamb chop that smells fine to a man may smell putrid and repulsive to his pregnant wife.

Women who have no pregnancy nausea are more likely to miscarry or to bear children with birth defects.

Pregnant women should be extremely wary of all drugs, both therapeutic and recreational. Do not succumb to the urgings of others to eat what you are inclined to avoid.

Certain kinds of clay, as mentioned in the discussion about acorns, tightly bind soluble organic molecules, including many toxins. In other words, they may relieve symptoms in the best way possible — by removing the harmful cause.

Advantage Flywheels

Competitive advantage can be represented visually as 1 or more feedback loops. These create the advantage “flywheel” that maintain and grow a moat over time. Think of a big, heavy wheel that takes some effort to get started but then coasts off its own momentum.

Before continuing, check out Eric Jorgenson’s primer on the flywheel mental model here.

Flywheel archetypes

Here are 6 simple examples of common advantages represented as flywheels (or “causal loops” in systems terminology). These loops are generalized — they’ll be expressed uniquely in every company that has them.

A few examples of how each advantage flywheel can vary:

archetypes.jpg

  • In the Economies of Scale flywheel above, the primary driver of more volume is low prices. This fits for most consumer businesses, but lower prices aren’t always the outcome of lower unit costs. If prices are maintained or increase, scale will yield higher margins → more resources to spend on growth → more sales volume.
  • The Brand Habit flywheel exhibits the typical loop for habit-reinforcing association of a brand with a specific quality or job-to-be-done. Think “thirst quenching happiness” for Coca-Cola and “low prices” for Wal-Mart. Another example of brand advantage is more of a social proof effect: Product has success → the cool kids want it → improved perception of product → …

As Eric discussed in his flywheel post, each wheel needs a push to get started. Written in green on a few of the archetypes above are initial advantages to get the wheels moving. Whether it’s a better user experience, a technical breakthrough, or a bootstrapped network based off of an existing network (college campuses for FB) or a useful utility (Instagram).

Real world examples

The above archetypes can be combined to create more comprehensive flywheels modeling the driving “engines” of each company’s moat:

examples

The most successful moats have multiple flywheels that feed off of each other’s momentum. Google’s technical advantages enable stronger brand allegiance and vice versa. Coca-Cola’s marketing-driven brand feeds off of it’s distributor/bottler based network effects. Facebook’s brands have at least 3 reinforcing network effects: direct (social network), 2-sided aggregator (advertising and developers), and brand-driven social proof.

Friction and limiting factors

In systems thinking, reinforcing feedback loops are almost always slowed by a balancing loop attached to it. Growth doesn’t continue unchecked, and flywheels always run into friction.

Some of these limiting factors are overcome, others are so strong they stop or reverse the entire growth engine.

What are some typical examples?

  • Switching costs & network effects — product quality slips as the incentives to improve aren’t strong when customers can’t leave → value of a competitive offering overcomes switching cost.
  • Learning curve of proprietary tech — hitting top of the S-curve, output efficiency declines, and competitors catch up.
  • Direct network effects — any source of decreasing value to users, which could cause users to exit and turn the virtuous cycle into a vicious one.

Moats Move

Using the analogy of a feedback loop helps to think of an advantage as a moving, changing system. A system that needs catalysts to get started, and will gain momentum at first but still be slowed by friction over time.

When thinking about how a business will grow over time, ask:

  • What advantage archetypes does it fit?
  • Where are the sources of positive feedback?
  • How do you get the flywheels moving? What strategies can help get inertia? (For example, “doing things that don’t scale.”)
  • What are the current or future limiting factors?

 

Featured photo from Ruth Hartnup on Flickr.
Thanks to Eric Jorgenson for feedback on the final version.

Polaroid, Apple’s spiritual successor

I just finished 2 books on the history of Polaroid 🌈*. A remarkable tech company with enormous success in consumer and industrial applications for decades. It’s also remarkable just how much Apple was influenced by Polaroid.

A brief history

As a child Edwin Land found a copy of the 1911 edition of Physical Optics, a textbook by the physicist Robert W. Wood. He obsessed over its contents, lingering on one chapter in particular: the polarization of light.

In 1928, Ed Land was 19 when he invented the first thin-sheet polarizer. He cofounded Land-Wheelwright Labs with a friend in 1932 after dropping out of Harvard. Their first products were polarized versions of headlights, sunglasses, etc.

They grew slowly with mostly small industrial contracts for 6 years, then reincorporated as Polaroid Corporation. During the war sales grew an order of magnitude, 80% of which went to the military for products like polarized goggles.

In 1943 Land came up with the idea for a film camera that can process right away instead of in a lab. R&D started immediately, but it wasn’t until 1948 their first camera, the Model 95, was released. It went on to sell 900k units in 5 years.

The 95 was a classic disruptive innovation: worse quality than traditional film cams, dismissed as not “real” photography, but appealing to a new market of customers. And profitable: camera for $90, film packages with 60% gross margins.

With all the new cash flow, they could plow it back into R&D. To Land, they had “. . . created an environment where a man was expected to sit and think for two years.”

Polaroid’s growth lasted decades longer, peaking in the ’80s right when, ironically, they won an historic years-long lawsuit against Kodak for patent infringement.

Apple, the spiritual successor

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Back to the Apple comparison. The similarities are clear: from values, to marketing, to org structure, to product launches and demos.

Just like Jobs, Land was at the top of every invisible organizational chart. An anonymous former colleague: “Don’t kid yourself, Polaroid is a one-man company.”

When faced with scientific illiteracy or lack of imagination, Land resorted to a restrained bit of showbiz. As it turned out, he was strikingly good at explaining his work to people, and powerfully persuasive.

Ed Land was one of Jobs’ childhood heroes. Jobs met with him later and connected when when Land said his products have always existed, they were just invisible: waiting to be discovered. Apple exemplified Land’s motto “Don’t do anything that someone else can do.

Polaroid’s downfall started long before the digital apocalypse with their sidelining of Land in the ’80s. His final mistake was giving little thought to his own succession and the future of the company in the new generation. When they all but kicked Land out, Jobs met with and scolded management, saying Polaroid would turn into “a vanilla corporation”.

And it did. Jobs would take this lesson to heart many years later with his own succession plan.

Snapshot

Evan Spiegel is also heavily influenced by Land and Polaroid. But alas, Snap is not a camera company—they’re a communication company. And I think they’d do better in the future remembering that.

Inspiration, not imitation.

snap.jpg
Polaroid Variable Day Glasses; Snap Glasses.

I’ll finish with a Land quote from 1970: “We are still a long way from the… camera that would be, oh, like the telephone: something that you use all day long … a camera that you would use as often as your pencil or your eyeglasses.”

 


* “Instant: The Story of Polaroid” by Christopher Bonanos (2012).
Land’s Polaroid: A company and the man who invented it” by Peter Wensberg (1987)

The Scale of Large Projects

$100 million +

  • Midsize commercial airplane — $120m ^
  • Big budget video game — $150m ^
  • F-22 Raptor jet — $157m ^
  • iPhone R&D (2007) — $185m ^
  • Titanic (1912) — $190m ^
  • Big budget movie — $250m ^
  • SpaceX Falcon 9 v1 R&D — $350m ^
  • Empire State Building (1931) — $400m ^
  • Modern cruise ship — $750m ^
  • Hoover Dam (1936) — $863m ^

$1 billion +

  • Modern sports stadium — $1.3b ^
  • Modern skyscraper — $1.5b ^
  • Space Shuttle launch — $1.5b ^
  • Erie Canal (1825) — $4b ^
  • Human Genome Project (2003) — $5b ^
  • Panama Canal (1912) — $9b ^
  • Hubble Space Telescope (1990) — $9b ^

$10 billion +

  • Global Positioning System (1989) — $10b ^
  • Large Hadron Collider (2009) — $13b ^
  • Great Pyramid of Giza (~2500 BCE) — $20b ^
  • Three Gorges Dam (2009) — $25b ^
  • Transcontinental railroad (1863) — $30b ^
  • Manhattan Project (1945) — $30b ^
  • F-22 Raptor development (1997) — $42b ^
  • Great Wall of China (220 BCE) — $50b ^
  • SR-71 Blackbird development (1964) — $90b ^

$100 billion +

  • International Space Station — $150b ^
  • Apollo program (1969) — $200b ^
  • U.S. Interstate Highway System (~1980) — $500b ^

Many of these numbers are rough estimates. Figures adjusted for inflation after 1900 that weren’t already. Any figure before 1900 was adjusted via per capita GDP to more accurately reflect the scale of the undertaking.

If it were possible, the best metric to compare the scale of projects would be something like “Man-years + Value of Raw Materials (possibly in ounces of gold)“. This is especially true for projects like the Great Pyramid, the Suez Canal, the Great Wall of China, or the Manhattan Project which used mostly unpaid or low-paid labor.

Related: The Tallest Skyscrapers in the World, Pyramids vs. Skyscrapers

Tokenized Securities and the Future of Ownership

In the coming years, Tokenized Securities are poised to take over existing financial markets and create many where they didn’t exist before. This is only now possible due to the invention of decentralized blockchains along with the recent influx of interest and capital.

So what are they? Here are a few good resources to start with:

token_types.png
A breakdown of token types from The Token Handbook. Tokens will have many uses but I think the biggest will be on the Securities and Asset side — not currencies as many believe.

There’s plenty of related buzzwords like blockchain, crypto, ICOs, colored coins, etc., but forget all of those for now. Tokenized Securities are digitized, programmable ownership. Legal ownership requires enforceable scarcity. Normally anything digital isn’t scarce, but they can be thanks to decentralized ledgers (blockchains). Continue reading “Tokenized Securities and the Future of Ownership”

Books: 2017 Reading List

Competing Against Luck — finally a full writeup on “Jobs Theory”, and required reading for anyone involved in product strategy & UX design (i.e. all startups).

The Change Function — good, simple model to think about how valuable a new innovation is (all about UX, or if (perceived crisis > cost of adoption)).

Marketing High Technology — best book on distribution you can find, for technology or otherwise.

Shoe Dog — Great story; wish he would have spent more time in the later years of Nike’s growth.

Doing the Impossible — too dense overall, but I loved hearing the story of the moon mission from the inside, especially from such a talented project manager that made it happen.

Scale — not as good as hoped, but a good “skim” with lots of interesting ideas around a theme.

21 Irrefutable Laws of Leadership — great leadership advice + stories to go along with, Dale Carnegie style (but could have been much shorter).

Hard Drive — 3rd reading of the best bio of Bill Gates & Microsoft’s early years.

The Elements of Computing Systems — I never had formal CS education so this was a great practical explainer, from translating binary to assembly, to how an OS works.

A Mind at Play — always been a huge fan of Claude Shannon’s work, mind, and humility.

Turing’s Cathedral — a little long in places, but great overall history of computing & early people who shaped it.

Softwar — Reading now. Interesting insights about early Oracle, also gives me new appreciation for Ellison. [Update: I would not recommend this book. First part is good but last half rambles on, fawning over Ellison with random stories. “The Difference Between God and Larry Ellison” is much better.]