Category Archives: Strategy

As computers get better, there are massive advantages of being older

Summation: Older people (over 50) and getting more advantages from computers than younger ones.  We should expect to see a huge renaissance the productivity of older business people in the future.

In business, there are advantages of being younger and advantages at being older.   And historically there has been tensions between the two.

Many advantages of Being Younger

Fearlessness: 
Youngers people have less fear of older ones.  They have less to lose, less social status, no mortgage.   If they fail, they will not be lower on the status ring.  The best soldiers are usually those in the 20s.  

Older people have much more to lose and that means they are often quite poor at calculating risks.

More time:  
The older you are, the more time commitments you gather. You eventually get married and have kids.  You volunteer at a non-profit. You get involved in your church.  You pick up golf as a hobby.  You go to the Sundance Film Festival and Burning Man every year.  

When you’re younger, you have not yet accumulated the debt of these commitments.  That allows you to spend more time working.  Of course, not every young person spends a great deal of time working (many spend an equal amount of time socializing) … but those that do concentrate on work have a massive advantage because working hours compound.  Almost all super-successful people worked insane hours in their 20s.  In fact, people who do not work insane hours in their 20s are at a massive disadvantage for the rest of their lives.

More raw brainpower: 
Younger people have better working memory, they have more stamina, and they have more calculations per second.  They are have a much faster CPU.  It seems unlikely that we will have a 55 year old chess champion.  And most Physics Nobel prize went to work that was done by people in their 20s or early 30s.

More ignorance of “what works”:
Older people are more likely to get stuck in their ways.  They have a hard time seeing that the Emperor really has no cloths.  So they are more likely to do things the way they have been done before.  The old saying “science advances one funeral at a time” applies to business innovation as well.  

But there are also many advantages of Being Older

Money:
Older people are a lot richer than younger ones.  Many older people gain leverage by hiring younger people and telling them what to do.  They are often able to rent the time, fearlessness, and brainpower of younger people.

Cunning:
Cunning is the ability to work with people and also work against people.  It is something one gets better at over time.  It is not something people are just born with.  A 55-year-old can often play two 25-year-olds against each other.

Wisdom:
While young people benefit from ignorance, older people benefit from wisdom (which is the opposite side of the coin).  Older people have had more time to read, learn, and compound knowledge.  

Connections:
While “What-You-Know” is now more important than “Who-You-Know”, who-you-know is still important.  Older people have had more time to develop meaningful connections.  And many of those connections will be other very successful people.  I did not know any major CEOs, U.S. Senators, world-renowned authors, etc. when I was 22 (but many of the people I met when I was 22 turned into these people).

Stature:
Older people have a history and a brand.  And while that history can work against them (like a voting record for a member of Congress), it gives comfort for others to work with them.  People with a brand have an advantage in recruiting talent, raising money, etc.  If an entrepreneur sold their last company for $300 million, it will be a lot easier for her to recruit people to her next company than a first-time entrepreneur.

Less competition:
Weirdly, older entrepreneurs have a lot less competition than younger entrepreneurs.  At least in Silicon Valley, it seems there are 100 times more entrepreneurs in their 20s than entrepreneurs in their 50s.  Most successful people in their 50s have no desire to go through the rigor of starting a company again.  They usually opt for less stressful lives (like deciding to be a venture capitalist or running a winery).  That means that those 50+ people that do decide to start companies have a pretty big advantage because there are a not a lot of wise, well-connected, monied people who they are competing with.

Young vs Old: Who Wins?

To summarize the post thus far:

AdvantageYoungOld
Fearlessness
Wisdom
Raw brainpower
Ability to buy brainpower and time
Time
Cunning
Ignorance
Connections
Stature
Less Competition

The advantages of being young seems to equal the advantages of being old … at least when it comes to starting companies.  

Historically young people have a way higher failure rate … but they also have a much higher rate of creating an iconic company (Google, Facebook, Microsoft, Apple, etc.).

In the past there was a tension between young and old. The young having big advantages in some societies and the old having big advantages in others.  If I had to pull a number out of my butt, I would say that the best age to start a company has been 34 (not exactly “young” but definitely not old).

The best age to start a company will get much higher as computers are becoming a bigger part of our lives …

How the age advantages shift with computers: advantage to the older

Computers significantly change the advantage calculation. 

Computers give younger people more access to wisdom through easy access to knowledge. The compounding advantage that older people have had in the past is going to be less important in the future. Computers also make it easier to find people and get in touch with them — so the Who-You-Knows are going to be less valuable in the future — and younger people, while still having less access to connections, are at less of a disadvantage here.

But computers help older people IMMENSELY.  

Computers are the world’s best way to get access to raw brainpower. And as more brainpower tasks are getting taken over by computers, people with money (older people) will have a significant advantage over those that don’t (younger folks).

The proliferation of tech services also advantage older people. You can get access to the best APIs and services with dollars. Of course, most people (especially older people) will have trouble selecting and managing vendors. Most people (especially old people) are going to be trapped in the 20th century paradigm (one that rewards hiring and growing people). The most important business skill in the 21st century is the ability to select and manage vendors. But the older people that can successful navigate the new world will have an advantage.

As computers get stronger, it gets easier and easier to buy time and brainpower. We already have compute-on-demand (AWS) and people-on-demand (UpWork).

The biggest disadvantage that remains for older people is being trapped in an old way of thinking. If science really advances one funeral at a time, innovation could be significantly slowed as older people have more advantages (and are living longer).

One of the advantages that older people have that seems to be not going away is lack of competition. It used to be that very few 24 year olds ever thought about starting a company (especially those that had lots of opportunities). Even when I started an Internet company in college in the 1990s, it was really strange to have a student entrepreneur. Today it is becoming easier and easier to for 24 year olds to start companies — easier to get training, knowledge, and seed capital. YCombinator and other institutions have significantly promoted entrepreneurism among the young. My guess is that the number of amazing twenty-somethings starting companies has gone up at least 5 times in the last decade … and that trend is happening all over the world.

But people over 50 are still not starting companies in large numbers. It never was big and I see no anecdotal evidence that it is growing. People that have been successful in the 30s and 40s are rarely opting to get back “in it” in their 50s. Instead, they are opting for easier and less stressful lives. So the few 50-somethings that do start companies could have increasing advantages. Especially those that still put in the long hours. (Even Bill Gates, one of the best entrepreneurs ever, hung up his business cleats before he turned 50).

More people in their 50s SHOULD start companies. It is actually a great time to start a company. Many people in their 50s are empty nesters (or at least no longer have super young kids). They can actually travel more and work harder than those in their 40s because they have fewer family obligations. They are usually more financially secure (maybe have paid off their mortgage already) and potentially more willing to take some sort of financial risk. And people in their 50s have so much more energy today than in years past — people live healthier, are more active, etc.

What are the societal implications of computers giving older people advantages?

The most obvious implication is wealth inequality. If older people get more advantages as they age, their wealth will compound faster. Coupled with living longer (and being active longer) means more wealth inequality.

Since the person in their 50s is more likely to build a one-to-n business than a zero-to-one business … it could mean less innovation for society and more incrementalism.

But it also could give hope to millions of people who are over the age of 50 and still have big dreams and ambitions. Ambition shouldn’t end at 45. Computers can keep ambition going way longer than in the past.

This also means that MORE 50-year-olds should start companies. However, I don’t think they will. So the few 50-year-olds that do should see very big advantages.

Summation: They advantage of getting older is growing. Computers are getting better at doing what young people do.  

Berkshire Hathaway’s Charlie Munger and Warren Buffett

We have reached Peak Planning … the declining Marshmallow Test advantage

We’ve finally reached “Peak Planning.”   

yes, we have reached “Peak Planning”

For the last 2000 years, one of the most important skills someone could have was the ability to plan ahead.  Those that could plan ahead would reap massive awards, those that didn’t would starve in the winter.  

But there has always been a tension between the forgetful creative genius (the absent-minded professor type) and the Planner.  Of course, the most successful people were the combination of the Planner AND the Creative Genius (like Bill Gates and like Warren Buffett) … but that is a real rarity. For the last 2000 years, you were MUCH better off being the planner than the creative-type unless you were the BEST creative in your field.  The 1,000,000th best planner still did very well.

The Planner is typically someone who is really good at seeing the likely future and making plans to address it.  For instance, 2000 years ago, it was really important to plan for winter.  Things did not grow in the winter so one needed to store food.  In fact, thinking about food was extremely important because harvests were not certain so you would need to save grain from a good harvest to cover an eventual shortfall year.  

The forgetful creative genius (the absent-minded professor) was at a big disadvantage in society because of their lack of planning skills. At the same time, the Planner (less creative but very good at logistics for the future) was needed for most tasks. 

While both skills (planning and creativity) are important, the future will need more creatives types and less planners.

A history of the Planner advantage

Being a Planner 25,000 years ago (as a hunter gatherer), while important, did not pay huge dividends.  You mostly wanted to avoid being eaten by lions or bitten by poisonous snakes.  And you had a limit to how much you could succeed because humans where generally confined to small tribes of people.

But as the farming revolution spread and we domesticated, planning became more and more important.  By the time the Renaissance and (later) Enlightenment hit, Planners could rule vast lands or get very wealthy.

Napoleon would have passed the Mashmallow Test

Napoleon Bonaparte surely would have passed the Marshmallow Test.

Then came the industrial revolution and Planners became even more in demand. Alfred Sloan, the famous CEO of General Motors, was an incredible planner.

But planning was not just important in becoming a successful business person. Planning was ESSENTIAL in every-day life.  

In 1990, the people with great social lives were the planners.  If you did not not plan to meet your friends, you might not be able to meet them.  In the pre-mobile phone era, you needed to be constantly planing ahead.  The rewards, both economic and social, went to the planners.

And yes, there were still some extremely successful forgetful creative geniuses like Einstein.  But Einstein had a brain like Einstein.  He was an exception.  

Even the most famous 20th Century artists were Planners

People think that “creative geniuses” are not planners. But in the 20th Century (the century were planning mattered most), most of the great artists were planners.

Warhol was a planner. Picasso was a super Planner. And other “artists” are planning machines.  The successful comics like Seinfeld and Chris Rock were always planning.  Most of the best actors, musicians, etc. have been Planners. Planning was how you got ahead.

Until recently.

In fact, we’ve reached Peak Planner.

Today, it is easier than ever to do something in the last minute.

Want to watch a TV show? Not that long ago you’d have to plan to watch it. Seinfeld was available to watch only on Thursday at 9p. Later, when DVRs came, you’d still have to plan by setting up your DVR. Non-planners often had to resort to watching infomercials. Today, you just go watch the great show whenever you want.

Want to go on a good vacation? It is actually possible to plan the whole thing that day.

Restaurants? Yelp + OpenTable = instant gratification.

Need a ride to the airport? You can call a Lyft or Uber a minute before.

Want food? The biggest problem is picking from one of the 400 apps that help you do that.

Want to meet a special someone? Swipe right on Tinder.

Even businesses need less planning. When I stated LiveRamp in 2006 I had to plan ahead to buy servers. I remember the day when we moved our colo to a new host and we had a checklist of over 250 items. I fondly remember the celebration when we completed the move. But need more compute power for your application today? Simple to spin up more instances on Amazon Web Services.

You don’t even need to plan for office space — WeWork gives you office space on demand.

And you can even get workers on demand through UpWork and Mechanical Turk.

On-demand services are built by Planners to give non-Planners an advantage

The best planners are working themselves out of a societal advantage because they are spending their time planning logistical companies that give small benefits to other planners … but very large benefits to the absent-minded professors.

Coordination is getting easier and easier

Coordination … especially between 2–10 people … is getting easier and easier. Not that long ago, if you wanted to meet someone you’d have to spend a lot of time coordinating it. You’d break out a map and plan your route. You’d call them a few days ahead of time and meticulously plan where to meet.

Today your mobile phone takes care of all of this in real-time. No need to coordinate. It is Planning for Dummies.

The Marshmallow Test will not be as important 50 years from now

The famous Marshmallow Test predicted that people who were good at delaying gratification would be more successful. These are people who better appreciated the value of compound interest. But in a future world where planning is not as needed as today’s world, delaying gratification may not be as important. 

I’m a planner and I benefitted from it.

And yes, you can still get big economic benefits if you plan.  I pay half price when I buy my GoGoAir Pass on the ground instead of in-the-air.  I can save a lot of money by packing a chocolate bar rather than buying one at the airport.  But the benefits to planning, while significant, ain’t what they used to be.

Yeah, I plan meticulously to queue up my reading so that I always have something good to read. I save book and movie recommendations from people. But while this lack of spontaneity has generally served this Generation Xer well, it is likely not a core skill that someone born in the last decade should be focusing on.   

Summation: While people that do well on the Marshmallow Test will still have an advantage … that advantage will be much smaller 50 years from now as it was 50 years ago.

Note: This is adopted from my 2017 Quora article on Peak Planning.

Amazon could up-end and dominate venture capital and venture lending

Thought experiment: How would Amazon enter the venture capital business?  

Use data from AWS to inform investment decisions

Amazon can leverage its proprietary data from AWS (Amazon Web Services).  Amazon’s edge is that most of the best technology start-ups are built on its services.  Amazon has a lot of information about how much these companies are spending, what services they use, what technologies they use, and more. 

The AWS data could be extremely predictive and give Amazon early signs that companies are growing fast or reaching an inflection point.  And it can use the data as a better diligence check of a company … for instance, the data could help determine which companies that claim they have “AI” are real and which are just marketing.  

(see some great comments on this Twitter thread)

Amazon has a real investing advantage.

Using this data to invest in public companies would likely not be legal since it could be deemed as inside information.   But using it for private companies is something Amazon could do.  

Of course, Amazon’s worry is that some of their AWS customers would get mad and move to Azure (which is the biggest risk of going into the VC business) … but that could be managed.   Amazon could just use information from the AWS bill (and not have to see any real trade secret information) to make the initial selection of companies they might want to focus investing in.  Then, of a company gives its consent, the Amazon VC team can view server logs, etc.  

Which leads us to the second thing: “your margins are my opportunity”

Amazon can win VC deals the way it wins in all its other businesses: price and convenience.

On price, Amazon can offer much better terms than traditional investors that need to take high management fees and carry.  Amazon wouldn’t need to do that and it would not need to, want to, or be able to (because of conflicts) take board seats.  So it would have a lot more leverage … especially in the late funding stages where data is increasingly important.

And while Amazon could potentially try to buy equity, it could also instead just focus on debt (which is a product it is already familiar with — see below).  

Venture capital firms’ returns net of fees (management fees and carry) have historically been very low.  But if Amazon really focused on its investments, it could earn an extremely high real return.  

Extreme Convenience: The easiest way to get expansion capital

Imagine logging into AWS and being presented with a term sheet.  Just click here, agree to these simple terms, and we will wire $10 million to you.  It takes less than 5 minutes.  Yes, that seems crazy.  But it IS possible.   

Amazon gives its merchants loans today (and it is an extremely good business).  Square also gives its merchants loans.  Both Amazon and Square use its proprietary data to make loans just to businesses they are confident will pay them back.  Those loans perform extremely well.  Square Capital is heralded as a fantastic business.  They can do this because they have unique data … and they can give an attractive price (lower interest rate) and make it more convenient (like the ability to get it in one click).  There is no reason Amazon can’t give loans to AWS customers.

Amazon could create a product that gives companies funding at super attractive terms with just one click.  As an added bonus to cash flows, Amazon wouldn’t even need to wire these companies the money.  It could instead give companies AWS credits.  If a company is spending $500k/month on AWS and believes it will continue doing so in the future (as many technology companies are), getting $10 million in AWS credits is pretty much the same thing as getting $10 million in hard dollars.

Other examples of successful technology companies starting venture capital firms

Amazon would not be the first big technology firm to start a successful venture capital firm.  Both Google and Salesforce have extremely large (and, I’ve heard, very successful) VC investments (in the billions of dollars for Salesforce and in the tens of billions for Google).  Apple does not have a VC firm (even though it also has a huge data advantages).  But while it seems against Apple’s ethos to run a VC firm, Amazon relishes in challenging new industries and using its proprietary data to its advantage. 

Debt would likely be easier to initial product than equity

The first victims of AWS funding private companies would not likely be tradition VC firms.  It would more likely be the venture debt companies.  That could significantly hurt some of the traditional debt providers (like Western Technology Partners) and some of the new aggressive players (like TPG, large hedge funds, and other new lenders).  

Prediction: Amazon will not start a VC firm

If Amazon was a little less ambitious, it would enter the venture capital business line.   The only reason Amazon doesn’t start a VC division is precisely why it could: because the VC industry is small and the gains, while in billions, may not be worth Amazon’s effort.

Also: Amazon might be worried this could hurt their AWS business. Certainly many responses to my Twitter trial balloon believe this:

Summation: while Amazon will not likely challenge the incumbent venture capitalists and venture lenders, it is a really interesting thought experiment to see how it could.

yes VCs, your margin is my opportunity

the poor position of car companies in the next two decades

The car companies (like Toyota, GM, Ford, Honda, BMW, etc.) have a tough business.

First: it is SUPER competitive.  It is one of the most competitive businesses around.  No one car company is even close to dominant.  The competitive nature means it is very hard to make money (and even harder, though not impossible, to really invest for the future).

Second: auxiliary revenue streams are going away. For a while, car companies were able to sell a suite of additional services like OnStar (subsidiary of General Motors), SiriusXM, navigation, financing, and more.  Fewer of these services are value-add today (than just 5 years ago).  The smart phone has taken over these services and is generally 10x better.

Third: Car companies are not capturing good data.  Presumably car companies could capture maps of cities (from the cameras), traffic, breaking, driving habits, tire pressure, and more.  Presumably they could use the data to give the drivers better experiences.  They could even have additional revenue streams selling the data (like TV manufacturers do).  
But very few car companies take advantage of this data.  It is not clear WHY they don’t collect it.  Collecting the data is easy.  Sending the data to a central system is easy.  This is not hard stuff.

Yes, Tesla does this.  But Tesla does a lot of things incredibly well.  It is unfathomable why ALL the car companies do not collect this data. And they are not ceding their position to Tesla.  It is not Tesla they should be worried about.  They are ceding their position to the smart phone OS (like Apple and Google) and to some of the great apps on the smart phone.  And while the driving data collected on the smart-phone is massively inferior to what could be collected by the car, it is much better than tiny data.  And tiny data is what most car companies are collecting today.  It makes no sense, but a lot of things in business make no sense.

Fourth: Car ownership is declining due to the abundance of new transportation options.  Uber and Lyft are amazing.  So are the new scooters.  And electronic bikes are becoming bigger for the suburbs.  Forget self-driving cars (that may not be a reality for 50+ years).  Declining car ownership is happening now.  It is like cord cutting … it starts off very slowly but then picks up steam rapidly.

Summation: the car companies are in a tough spot.  Some great ones will innovate but many are going to be in more and more trouble in the years to come.  

(thank you to Evangelos Simoudis for helping me think through this topic)