Found Quotes 3

Let’s start with a test: Do you have any opinions that you would be reluctant to express in front of a group of your peers? If the answer is no, you might want to stop and think about that. If everything you believe is something you’re supposed to believe, could that possibly be a coincidence? Odds are it isn’t. Odds are you just think whatever you’re told. ― Paul Graham

If you’ll laugh about something one day, you may as well start now. ― Paul Graham

Be patient, calm, compassionate. Know that existence is fleeting.― Ettore Sottsass

A person’s success in life can usually be measured by the number of uncomfortable conversations he or she is willing to have. — Tim Ferriss

We start from the presumption that our people are talented and want to contribute. We accept that, without meaning to, our company is stifling that talent in myriad unseen ways. Finally, we try to identify those impediments and fix them. — Ed Catmull

Adventurous men enjoy shipwrecks, mutinies, earthquakes, conflagrations, and all kinds of unpleasant experiences. They say to themselves, for example, ‘So this is what an earthquake is like,’ and it gives them pleasure to have their knowledge of the world increased by this new item. — Bertrand Russell

Reality provides us with facts so romantic that imagination itself could add nothing to them. — Jules Verne

1) Don’t sell anything you wouldn’t buy yourself, 2) Don’t work for anyone you don’t respect, 3) Work only with people you enjoy. — Charlie Munger

The game of life is the game of everlasting learning. At least it is if you want to win. – Charlie Munger

Glotz Builds Starbucks

It is 1980: You’ve just inherited Starbucks, a small Seattle business that roasts and sells coffee beans in 4 locations. How would you build it into a company worth more than $30 billion in 30 years?

(Before continuing, make sure you’ve read the template to this post, the famous essay by Charlie Munger about Glotz building Coca-Cola.)

Start with big, no-brainer decisions

Coffee beans are a commodity, so we’d have to find a way to attach a brand name and get customers to repeatedly buy the brand even when similar alternatives are available. Seattle and the Northwest are too small to account for this size of coffee business, so we would have to sell our product to the rest of the country and likely in other first-world countries around the world. There is currently only a small percentage of people in the U.S. that desire to buy high-end, dark-roasted coffee.

So to increase the size of this niche we would have to make it more convenient by selling individual cups of fresh coffee that we brew in each store location. Stores would have to be plentiful with very conveniently accessed locations. This would make it easier for infrequent instant coffee drinkers to try us out and further develop their habit for coffee and Starbucks. Even if it’s higher quality, people still wouldn’t pay much for a simple cup of coffee, so we would have to also sell espresso and milk-based drinks like they do in Europe. These are higher margin and can be highly customized by the customer, which makes it more likely they’ll buy and be attached to the experience.

Numerical fluency

For the business to be worth $30 billion, it would have to be earning pre-tax at least $1.5 billion if the company was doing well. The worldwide potential market would perhaps be around one billion people — if we could achieve 25% market share that means 250 million customers. If each store served 15,000 people, our total store base would have to be about 16,500, which means opening 550 stores a year from now until 2010. This would be a difficult number to achieve so we’d likely have to franchise or sell licenses to increase locations.

If all 15,000 customers per store spent an average of $4 per month at Starbucks (1-2 drinks), that would give us $12 billion of revenue in 2010. Many people already drink coffee every day, so this shouldn’t be too much of a problem. We’d have to achieve a 12.5% operating margin at this level, which is 31 cents for a $2.50 drink. No supplier — other than coffee beans when supply is restricted — has bargaining power and we will be buying their product on a massive scale so minimizing cost of goods sold wont be an issue. Our biggest overhead cost will be rent and wages, though many associates will be part-time due to sales being concentrated in the morning hours as customers commute to work.

Psychological lollapalooza

The caffeine stimulus in coffee will aid habit formation in customers. Habit formation will also be increased by letting people customize their drinks and designing stores with local interests in mind (excessive self-regard tendency). By putting our logo on every cup, we’ll promote social proof.

If customers have a good feeling and good mental association with our brand, they will be more likely to buy and like the product (halo effect). So we must make sure their in-store experience is good, which means good design and paying employees well. We should make stores comfortable enough that people will want to go there regardless of the product. Promoting charitable causes and giving our brand a good environmental image will help as customers become more socially conscious.

What must be avoided?

Loss of brand name or trademark, slipping quality of product or consumer experience.

As we grow, our success will cause other companies to copy our strategy, especially in cities or areas where we aren’t. To minimize this, we will have to expand very quickly, first in major metropolitan areas and then outward from there. Word of mouth and some marketing should help spread brand association and make it easier for us to compete in new areas. If another similar coffee company has already established dominance in a certain region, we should attempt to buy them because it would likely be too costly to break local habit.

Stealing time from customers

When you make a good product or service more efficient, you are giving your customers time.

Never take any of that time back in the future or customers will never forgive you. New versions of a product should always take less of customers time (or the same time at the very least).

How do you take time from customers?

  • Make the product/service less efficient
  • Add unnecessary features
  • Make things slower
  • Leave bugs that confuse and stop flow where it was seamless before

Sure, the newer product may still be better than anything people had before. But you’ve already given them that time, and it’s too late to go back. Charlie Munger calls this “deprival super-reaction syndrome” — another way of saying loss aversion.

Cross-posted on the Atlastory Blog

Charlie Munger on business education

From Charlie Munger at the 2011 Berkshire Hathaway meeting:

Costco of course is a business that became the best in the world in its category. And it did it with an extreme meritocracy, and an extreme ethical duty—self-imposed to take all its cost advantages as fast as it could accumulate them and pass them on to the customers. And of course they’ve created ferocious customer loyalty. It’s been a wonderful business to watch—and of course strange things happen when you do that and when you do that long enough. Costco has one store in Korea that will do over $400 million in sales this year. These are figures that can’t exist in retail, but of course they do. So that’s an example of somebody having the right managerial system, the right personnel solution, the right ethics, the right diligence, etcetera, etcetera.  And that is quite rare. If once or twice in your lifetime you’re associated with such a business you’re a very lucky person.

The more normal business is a business like, say, General Motors, which became the most successful business of its kind in the world and wiped out its common shareholders… what, last year? That is a very interesting story—and if I were teaching business school I would have Value-Line-type figures that took me through the entire history of General Motors and I would try to relate the changes in the graph and data to what happened in the business. To some extent, they faced a really difficult problem—heavily unionized business, combined with great success, and very tough competitors that came up from Asia and elsewhere in Europe. That is a real problem which of course… to prevent wealth from killing people—your success turning into a disadvantage—is a big problem in business.

And so there are all these wonderful lessons in those graphs. I don’t know why people don’t do it. The graphs don’t even exist that I would use to teach. I can’t imagine anybody being dumb enough not to have the kind of graphs I yearn for. [Laughter] But so far as I know there’s no business school in the country that’s yearning for these graphs. Partly the reason they don’t want it is if you taught a history of business this way, you’d be trampling on the territories of all the professors and sub-disciplines—you’d be stealing some of their best cases. And in bureaucracies, even academic bureaucracies, people protect their own turf. And of course a lot of that happened at General Motors. [Applause]

I really think the world… that’s the way it should be taught. Harvard Business School once taught it much that way—and they stopped. And I’d like to make a case study as to why they stopped. [Laughter] I think I can successfully guess. It’s that the course of history of business trampled on the territory of barons of other disciplines like the baron of marketing, the baron of finance, the baron of whatever.

IBM is an interesting case. There’s just one after another that are just utterly fascinating. I don’t think they’re properly taught at all because nobody wants to do the full sweep.

Found Quotes

If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people… Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue. — Jeff Bezos

A mistake is an event, the full benefit of which has not yet been turned to your advantage. — Ed Land, Polaroid

Do not imagine that you have to know everything before you can do anything. My own best work was done when I was most ignorant. — Freeman Dyson

Those who dream by night in the dusty recesses of their minds awake to find that all was vanity; But the dreamers of day are dangerous men, That they may act their dreams with open eyes to make it possible. — T. E. Lawrence

Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past. — Charlie Munger

The world’s biggest problem is that not enough people are working on the world’s biggest problems. — Max Marmer, Student of Life, January, 2011