The Exchanges

Q of separation between first mover and the creative act. Often founders are told when it comes to the creative act and the invention that they're creating, it has to be 10 X better. I have no idea where 10 came from, but it has to be 10 X better. How do you feel when you hear this, having seen so many innovative companies really creating categories that you have done?

A So I utterly disagree. So as best as I know, the 10 X came from Andy Grove, the CEO of Intel, and that's what he observed in the semiconductor Was that for a generation to be different, it had to be 10 X. And in his space, that was probably a very reasonable empirical statement, but it is no guide in general. So for example, if you, Harry came up with a battery that was two times better density and met every other criteria of current batteries, you'd be a billionaire. And we'd have 600 mile Teslas instead of 300 mile Teslas. That's two X. So the correct measure of this, and you know this as an investor, the correct measure of this is fuzzier, but more general and correct, I think. And the correct measure of this is compelling value, which is that when you raise the possibility of this new product or service with a customer, the response is, oh, that's nice. Tell me when you have a beta. It's, oh my God, I have to have it. And so that's a very fuzzy response, but that's really what we're dealing with here.

AI assessment note: “So I utterly disagree.”

Q of separation between first mover and the creative act. Often founders are told when it comes to the creative act and the invention that they're creating, it has to be 10 X better. I have no idea where 10 came from, but it has to be 10 X better. How do you feel when you hear this, having seen so many innovative companies really creating categories that you have done?

A So I utterly disagree. So as best as I know, the 10 X came from Andy Grove, the CEO of Intel, and that's what he observed in the semiconductor Was that for a generation to be different, it had to be 10 X. And in his space, that was probably a very reasonable empirical statement, but it is no guide in general. So for example, if you, Harry came up with a battery that was two times better density and met every other criteria of current batteries, you'd be a billionaire. And we'd have 600 mile Teslas instead of 300 mile Teslas. That's two X. So the correct measure of this, and you know this as an investor, the correct measure of this is fuzzier, but more general and correct, I think. And the correct measure of this is compelling value, which is that when you raise the possibility of this new product or service with a customer, the response is, oh, that's nice. Tell me when you have a beta. It's, oh my God, I have to have it. And so that's a very fuzzy response, but that's really what we're dealing with here.

AI assessment note: “So I utterly disagree. So as best as I know, the 10 X came”

Q Now, one of the seven powers is brand, and brand is such an overhyped and overused word in many cases. Which in some cases kind of has lost its meaning in certain cases, so I'd love to hear your thoughts on how do you define brand first? Let's start with that.

A So it's very important, and this is just a choice of vocabulary, it's very important to distinguish between brand as power and brand awareness. So for my investment business, I could run a Super Bowl and, of course, the SEC would probably put me in prison, but aside from that, I would then have brand awareness, but that's not power. I paid for that. Other people could do it. It's as the academics say, it's imitable. So there is no barrier associated with that, and it's just a marketing expense. So brand as power is that somebody will pay you more for a good or service that's objectively identical, and the reason that they'll do that is either it makes them feel good. So for example, in the US, there are many people, I haven't helped me, I'm probably one of them, That if I pull out an iPhone in front of somebody, I feel a little bit better about that than if I pulled out a Samsung, you know. And Apple can charge more as a result, even though they're probably, for all intents and purposes, objectively identical. Apple would argue that, of course, but that's probably the case. So it makes you feel good, or there's an uncertainty reduction. So when IT manager in an enterprise is buying a computer service from somebody, it's the old thing about you buy IBM and you can't go wrong. It's that they can purchase something that is probably identical, but there hasn't been a history that g…

AI assessment note: “brand as power is that somebody will pay you more for a good or service”

Q Yeah. I mean, the takeaway there is never bet against Elon. Um, uh, the ultimate question, what's the single biggest challenge of your role with strategy today?

A So I think for me, I'm always looking for what are ways to extend the concepts in an interesting way. And the thing that I'm really interested in now is granularity around the issue of What really comes under a power umbrella? Because when I talk to founders, and they're always thinking, should we go into this product? Should we go into this market? Should we add this feature? All these things, and power, as you can guess from this conversation or from reading the book, is really hard, and it's really valuable, and so if you get it, it is so important to fully exploit the advantage of it. And so what does it include? And so I'll give you one quick example, which is a question's often asked of me. Should I go international? And so this comes back to your question about granularity of power. So for example, if you ask that question of Uber and you asked it of Netflix, you get completely different answers. So if you look at Uber's source of power that they might have versus, for example, an upstart, it would be the scale density, physical scale, regional scale density. In a particular region like the Bay Area, if they have enough riders and enough customers, they can have far more efficient takes of ride, which for a customer translates into a cheaper ride that arrives sooner. If you then take that model to Ulaanbaatar in Santa Clara County, it doesn't help you at all. You have so…

AI assessment note: “I'm always looking for what are ways to extend the concepts in an interesting way”

Q Can I ask, how granular do you have to be in terms of determining the attractive destination? Is it determining the exact economy of scale that you're looking to achieve? Is it determining that it's data network effects as opposed to just network effects that you want to achieve? How grand does one have to be?

A Yeah, so there are two ways of thinking about that. One is in the early stages when there's a huge amount of moving parts, the granularity at first may not be that great, but ultimately It is extremely granular and idiosyncratic. So when you think about scale economies, just saying that doesn't get you terribly far. You have to know exactly what's going on. So if I had a nickel for every time somebody said to me, oh yeah, we're going to get more data, and that gives us more information about customers, and that allows us to serve them better, and that gets us more customers in our positive feedback group, that almost gets you nowhere at all. It has to be way, way more granular than that. For example, is that Curve linear or non-linear. So if that flattens out, the competitors are essentially equal to you, even though they may be smaller, then it's no longer a scale economy that's important. And just to give you an example, if I were looking at a company to invest in, it would probably take me, and these would be well-known public companies, it would probably take me weeks to try to understand exactly what was going on. And that's with all that information. So you can imagine going forward if you don't even really know. So in the end, it's highly granular.

AI assessment note: “ultimately It is extremely granular and idiosyncratic.”

Q Absolutely, and if my mother is listening, please erase the Hermes bag from your memory, mother. That does not happen. I do want to ask there, Hamilton, in terms of the brand itself, is it an attainable strategy alone to target, or is it the byproduct of something else, of social validity, of customer adoption? Is it a sole strategy, or is it the byproduct?

A I think it depends on the stage you're at. So if you're an earlier stage business, it's not a thing that you would want to pin your entire future on. It's certainly something to aspire to. That's perfectly reasonable. But if that's the only aspiration that you have, you better be careful. And the reason for that is, one, it takes a long time. How long? I don't know. At least 10 years, I'd say. Maybe it can be done in some cases shorter, but if it gets much shorter than that, you worry about whether there, in fact, is a barrier, because others can do it, and then it's no longer a source of power. And the other is that establishing a brand is hard. It's fraught with all kinds of uncertainty. So, If that were your only strategy to begin with, the likelihood that you'd get there is a remote, because we're back to creative acts again. Building a brand involves enormous number of correct creative acts over a long period of time. Think of all the decisions to go into what products, and how you advertise them, and which celebrities you use and don't use, and which segments of the market you go after, and how far you extend the brand. And they're hard. I mean, I give you an example. I have in my cabinet at A bottle of Hermes cognac, and the story behind that is a friend of mine is one of the Hermes family, and he was over for dinner one night and brought this bottle with him, and Hermes…

AI assessment note: “it's not a thing that you would want to pin your entire future on.”

Q Can I ask, how granular do you have to be in terms of determining the attractive destination? Is it determining the exact economy of scale that you're looking to achieve? Is it determining that it's data network effects as opposed to just network effects that you want to achieve? How grand does one have to be?

A Yeah, so there are two ways of thinking about that. One is in the early stages when there's a huge amount of moving parts, the granularity at first may not be that great, but ultimately It is extremely granular and idiosyncratic. So when you think about scale economies, just saying that doesn't get you terribly far. You have to know exactly what's going on. So if I had a nickel for every time somebody said to me, oh yeah, we're going to get more data, and that gives us more information about customers, and that allows us to serve them better, and that gets us more customers in our positive feedback group, that almost gets you nowhere at all. It has to be way, way more granular than that. For example, is that Curve linear or non-linear. So if that flattens out, the competitors are essentially equal to you, even though they may be smaller, then it's no longer a scale economy that's important. And just to give you an example, if I were looking at a company to invest in, it would probably take me, and these would be well-known public companies, it would probably take me weeks to try to understand exactly what was going on. And that's with all that information. So you can imagine going forward if you don't even really know. So in the end, it's highly granular.

AI assessment note: “ultimately It is extremely granular and idiosyncratic.”

Q Absolutely, and if my mother is listening, please erase the Hermes bag from your memory, mother. That does not happen. I do want to ask there, Hamilton, in terms of the brand itself, is it an attainable strategy alone to target, or is it the byproduct of something else, of social validity, of customer adoption? Is it a sole strategy, or is it the byproduct?

A I think it depends on the stage you're at. So if you're an earlier stage business, it's not a thing that you would want to pin your entire future on. It's certainly something to aspire to. That's perfectly reasonable. But if that's the only aspiration that you have, you better be careful. And the reason for that is, one, it takes a long time. How long? I don't know. At least 10 years, I'd say. Maybe it can be done in some cases shorter, but if it gets much shorter than that, you worry about whether there, in fact, is a barrier, because others can do it, and then it's no longer a source of power. And the other is that establishing a brand is hard. It's fraught with all kinds of uncertainty. So, If that were your only strategy to begin with, the likelihood that you'd get there is a remote, because we're back to creative acts again. Building a brand involves enormous number of correct creative acts over a long period of time. Think of all the decisions to go into what products, and how you advertise them, and which celebrities you use and don't use, and which segments of the market you go after, and how far you extend the brand. And they're hard. I mean, I give you an example. I have in my cabinet at A bottle of Hermes cognac, and the story behind that is a friend of mine is one of the Hermes family, and he was over for dinner one night and brought this bottle with him, and Hermes…

AI assessment note: “if you're an earlier stage business, it's not a thing that you would want to pin”

Q Now, one of the seven powers is brand, and brand is such an overhyped and overused word in many cases. Which in some cases kind of has lost its meaning in certain cases, so I'd love to hear your thoughts on how do you define brand first? Let's start with that.

A So it's very important, and this is just a choice of vocabulary, it's very important to distinguish between brand as power and brand awareness. So for my investment business, I could run a Super Bowl and, of course, the SEC would probably put me in prison, but aside from that, I would then have brand awareness, but that's not power. I paid for that. Other people could do it. It's as the academics say, it's imitable. So there is no barrier associated with that, and it's just a marketing expense. So brand as power is that somebody will pay you more for a good or service that's objectively identical, and the reason that they'll do that is either it makes them feel good. So for example, in the US, there are many people, I haven't helped me, I'm probably one of them, That if I pull out an iPhone in front of somebody, I feel a little bit better about that than if I pulled out a Samsung, you know. And Apple can charge more as a result, even though they're probably, for all intents and purposes, objectively identical. Apple would argue that, of course, but that's probably the case. So it makes you feel good, or there's an uncertainty reduction. So when IT manager in an enterprise is buying a computer service from somebody, it's the old thing about you buy IBM and you can't go wrong. It's that they can purchase something that is probably identical, but there hasn't been a history that g…

AI assessment note: “brand as power is that somebody will pay you more for a good or service”

Q Yeah, absolutely. No, the kind of overriding North Star. I do want to ask, because you spoke about the higher level there. Another thing that you said that really resonated with me before, which is all stress Strategy begins with invention. Talk to me about this. What did you mean by all strategy begins with invention?

A So a lot of the discussion that you hear about strategy is static. It tells you what's an attractive destination. So Facebook with network economies and a huge user base. Boy, what a nice place to be. The pressure is off to an extent. I mean, not to say that they don't feel pressure, but it's a lot different than it was when they started. But that doesn't answer the question about how you get there in the first place. And the how you get there in the first place is that it's a creative act, and every founder knows that in the fiber of their being. They don't go around with this carefully analyzed playbook where they can say, I'm going to do exactly this today and this exactly this tomorrow and have good visibility for the next five years. They are having to create a company as they go forward, and if you think of each of the seven powers, each of them depends on creating something. Brand, or it might be a business model, but getting that going is how you get there. But the thing is that if you're in that process, you need to know what attractive destinations are before you can understand what's a good way to get there. So it's not that you start by knowing, oh yeah, I'm going to be a scale economies business right from the start or something, but you need to know the scale economies per se are attractive so that if the opportunity for them arises, you seize it.

AI assessment note: “how you get there in the first place is that it's a creative act”

Q killer of all startups, and so if you have constructive dissonance, it actually is such a delay on time and productivity that although it may be very effective in coming to, like, the right outcome over the long term, actually, in the earlier days, almost kind of effective dictatorship is more efficient from a time perspective. How do you think about kind of constructive dissonance without being an unnecessary delay?

A So, remember, getting strategy rights Gives you the potential for creating value. To realize that, you have to have operational excellence, and that's what you spend almost all your time on. So if I looked at the CEO or founder's time, 99% of their time is spent on operational issues. So that's one answer is, in those situations, there needs to be sometimes command and control. But I think the deeper point here is that in the early stage, you're often at sort of a pre-power stage, Where you're trying to scale very rapidly or something like that, and then executing well is very important, but it's not enough. So if you have an operationally incredibly effective company, you're very efficient, but you miss the strategy issue, then in the end, it won't be an attractive business model. So it's not an either or. There are times when being highly efficient and operationally astute is the key thing, but in the background, in those times when you do consider strategy, which is not 20% of your day, but when you do consider it, that needs to be an open discussion with that kind of framework.

AI assessment note: “in those times when you do consider strategy... that needs to be an open discussion”

Q you really come? Kind of dive in. And he gave me some suggestions. And so the next bit is largely Daniel. I have to give him full credit for this, but his first one was when you look at seven powers today and the incredible impacts that it's had, how would you encourage founders to use seven powers when they build out their MVP and their initial go to more?

A I think that when you're building out a company, you very often don't really know what your power is going to be. You have some maybe hypotheses and And so it's not like you're going to say, oh, okay, five years from now, we're going to have scale economies, and this is how we're going to do it. It's more that you want to be aware of what it is that creates a durably attractive company, and that's what the seven powers are, and just have multiple people in the company have that as a useful framework. Then you can have intelligent conversations about it as you go forward. But keeping in mind that in early stages, it's so important To be adaptive. There's all kinds of stuff that you simply can't anticipate. Way back when, maybe a hundred years ago, Frank Knight and Seminole work had made this great distinction between uncertainty and risk. So risk is when you know the probability distribution, like flipping a coin, and uncertainty is things that you just don't know. And I think Keynes used the example of what's the copper price going to be 15 years from now, or something like that. And no amount of analysis or anything can narrow that down. And so you're facing uncertainty. So that's why I come back to the first question you asked about mental models. You want a number of people in the company to have a solid mental model of strategy so that they can have ongoing discussions abou…

AI assessment note: “You want a number of people in the company to have a solid mental model”

Q Yeah, absolutely. No, the kind of overriding North Star. I do want to ask, because you spoke about the higher level there. Another thing that you said that really resonated with me before, which is all stress Strategy begins with invention. Talk to me about this. What did you mean by all strategy begins with invention?

A So a lot of the discussion that you hear about strategy is static. It tells you what's an attractive destination. So Facebook with network economies and a huge user base. Boy, what a nice place to be. The pressure is off to an extent. I mean, not to say that they don't feel pressure, but it's a lot different than it was when they started. But that doesn't answer the question about how you get there in the first place. And the how you get there in the first place is that it's a creative act, and every founder knows that in the fiber of their being. They don't go around with this carefully analyzed playbook where they can say, I'm going to do exactly this today and this exactly this tomorrow and have good visibility for the next five years. They are having to create a company as they go forward, and if you think of each of the seven powers, each of them depends on creating something. Brand, or it might be a business model, but getting that going is how you get there. But the thing is that if you're in that process, you need to know what attractive destinations are before you can understand what's a good way to get there. So it's not that you start by knowing, oh yeah, I'm going to be a scale economies business right from the start or something, but you need to know the scale economies per se are attractive so that if the opportunity for them arises, you seize it.

AI assessment note: “how you get there in the first place is that it's a creative act”

Q you mentioned market size there, and honestly, Hamilton, I've had many investors on the show, and you get very divergent opinion. Peter Fenton said he laughs when people say they look for big markets, but then the majority of others say you've got to have a huge town. Where do you sit in terms of market size analysis, and how would you advise my thinking? Because often I honestly oscillate.

A My view is that if you can pretty carefully estimate your market size with great confidence, you're probably too late. So I'm probably not giving you much solace here. And this comes back to one of the things I loved about Steve Jobs is, I think he formed it in these words, but it's the distinction between wants and needs, right? So what you'd like to do When you create something is to understand a need that somebody has, but is not yet really expressed in a want. And so that's why market surveys fail in really new stuff, because customers don't know what you're talking about. But you as a founder can look at a space and say, you know, with this technology emerging and our expertise and stuff, we can do this thing that will really make people happy, even though they don't really have the thought in their mind right now that they want it. What does that tell you about market estimation? It tells you that nobody really knows, but you can look at big things. So you can look at, does the need that you're satisfying, does it sort of have a character of being rather large? And so I'm talking large error bars here, but kind of order of magnitude estimates. And I believe that is a reasonable thing to sort of look at the space and say, you know, this kind of seems like it's a big deal. So Amazon shopping, you know, but even that's a moving target. So Amazon started books, right? But I t…

AI assessment note: “if you can pretty carefully estimate your market size with great confidence, you're probably too late.”

Q Yeah. I mean, the takeaway there is never bet against Elon. Um, uh, the ultimate question, what's the single biggest challenge of your role with strategy today?

A So I think for me, I'm always looking for what are ways to extend the concepts in an interesting way. And the thing that I'm really interested in now is granularity around the issue of What really comes under a power umbrella? Because when I talk to founders, and they're always thinking, should we go into this product? Should we go into this market? Should we add this feature? All these things, and power, as you can guess from this conversation or from reading the book, is really hard, and it's really valuable, and so if you get it, it is so important to fully exploit the advantage of it. And so what does it include? And so I'll give you one quick example, which is a question's often asked of me. Should I go international? And so this comes back to your question about granularity of power. So for example, if you ask that question of Uber and you asked it of Netflix, you get completely different answers. So if you look at Uber's source of power that they might have versus, for example, an upstart, it would be the scale density, physical scale, regional scale density. In a particular region like the Bay Area, if they have enough riders and enough customers, they can have far more efficient takes of ride, which for a customer translates into a cheaper ride that arrives sooner. If you then take that model to Ulaanbaatar in Santa Clara County, it doesn't help you at all. You have so…

AI assessment note: “granularity around the issue of What really comes under a power umbrella”

Q you mentioned market size there, and honestly, Hamilton, I've had many investors on the show, and you get very divergent opinion. Peter Fenton said he laughs when people say they look for big markets, but then the majority of others say you've got to have a huge town. Where do you sit in terms of market size analysis, and how would you advise my thinking? Because often I honestly oscillate.

A My view is that if you can pretty carefully estimate your market size with great confidence, you're probably too late. So I'm probably not giving you much solace here. And this comes back to one of the things I loved about Steve Jobs is, I think he formed it in these words, but it's the distinction between wants and needs, right? So what you'd like to do When you create something is to understand a need that somebody has, but is not yet really expressed in a want. And so that's why market surveys fail in really new stuff, because customers don't know what you're talking about. But you as a founder can look at a space and say, you know, with this technology emerging and our expertise and stuff, we can do this thing that will really make people happy, even though they don't really have the thought in their mind right now that they want it. What does that tell you about market estimation? It tells you that nobody really knows, but you can look at big things. So you can look at, does the need that you're satisfying, does it sort of have a character of being rather large? And so I'm talking large error bars here, but kind of order of magnitude estimates. And I believe that is a reasonable thing to sort of look at the space and say, you know, this kind of seems like it's a big deal. So Amazon shopping, you know, but even that's a moving target. So Amazon started books, right? But I t…

AI assessment note: “if you can pretty carefully estimate your market size with great confidence, you're probably too late.”

Q and I like the element there of kind of picking the macro trend and trying to kind of eyeball that from that perspective. Do you want to ask, because with the trend itself and with the market itself, there's always competitive This is in the market, and I have to ask, in terms of competitive mindset, what mindset do you advise founders take when it comes to assessing their composition?

A If you don't mind, I'll use a personal analogy here, and it will betray my own view of life for better or for worse. So I think when you think about your own career, you can pursue it from the inside out or the outside in. And the inside out is that you have your own creative core And dispositions. So for me, I'm kind of an idea person, and kind of a large-scale concept person, not great on details, and very interested in sort of economic relationships, and that kind of thing. And so you have these inner drives that are you, and then if you can figure out a way to earn a living from that, not only will it be enormously satisfying, because it will Touch what is really you and your own creative core, but ironically, you actually will be more successful because since it touches that creative core, you can be an original, and so when you go to work, it's just you, and that's incredibly powerful, whereas the outside in is, oh, well, let's see, now I've got to get into a great school, and then I should get a job with this kind of company, and then I should do that, and then I should get my advanced And then collect all these markers, and then everybody will think I'm brilliant, and blah, blah, blah. So you're driven by what the expectations of you, of others, and what is normally considered success. And the problem with that approach is it drags you away from what's uniquely you. You…

AI assessment note: “if you're a company that focuses just on competitors, it's an outside-in”

Q and I like the element there of kind of picking the macro trend and trying to kind of eyeball that from that perspective. Do you want to ask, because with the trend itself and with the market itself, there's always competitive This is in the market, and I have to ask, in terms of competitive mindset, what mindset do you advise founders take when it comes to assessing their composition?

A If you don't mind, I'll use a personal analogy here, and it will betray my own view of life for better or for worse. So I think when you think about your own career, you can pursue it from the inside out or the outside in. And the inside out is that you have your own creative core And dispositions. So for me, I'm kind of an idea person, and kind of a large-scale concept person, not great on details, and very interested in sort of economic relationships, and that kind of thing. And so you have these inner drives that are you, and then if you can figure out a way to earn a living from that, not only will it be enormously satisfying, because it will Touch what is really you and your own creative core, but ironically, you actually will be more successful because since it touches that creative core, you can be an original, and so when you go to work, it's just you, and that's incredibly powerful, whereas the outside in is, oh, well, let's see, now I've got to get into a great school, and then I should get a job with this kind of company, and then I should do that, and then I should get my advanced And then collect all these markers, and then everybody will think I'm brilliant, and blah, blah, blah. So you're driven by what the expectations of you, of others, and what is normally considered success. And the problem with that approach is it drags you away from what's uniquely you. You…

AI assessment note: “if you're a company that focuses just on competitors, it's an outside-in”

Q Got you totally. That makes sense. When you think back to your time and the incredible journey with Netflix, what were some of the takeaways for you on the mental model construction and implementation that you really took away?

A Yeah, I mean, Netflix is an amazing company, and I'm a big fan of their leadership. I think Reed is amazing, and Ted is amazing. There are many other amazing people there. So one of the key things is that when you face a complex strategy challenge like Netflix did, it changes over time. I mean, think of the difference between their competition with Blockbuster and the Red Envelope business and their competition with Disney and streaming. I mean, these are just entirely different types of situations. You have to be adaptive and And culture and leadership really matters, and on the strategy side, I'm a huge believer in fostering a culture of constructive dissonance, which by that I mean is what everybody is after is the right answer, not to prove themselves right, because there's a lot of uncertainty around these things, and you need to have open, frank discussions with differing points of view, and that's how you can arrive at something that is strategically viable.

AI assessment note: “fostering a culture of constructive dissonance, which by that I mean”

Q killer of all startups, and so if you have constructive dissonance, it actually is such a delay on time and productivity that although it may be very effective in coming to, like, the right outcome over the long term, actually, in the earlier days, almost kind of effective dictatorship is more efficient from a time perspective. How do you think about kind of constructive dissonance without being an unnecessary delay?

A So, remember, getting strategy rights Gives you the potential for creating value. To realize that, you have to have operational excellence, and that's what you spend almost all your time on. So if I looked at the CEO or founder's time, 99% of their time is spent on operational issues. So that's one answer is, in those situations, there needs to be sometimes command and control. But I think the deeper point here is that in the early stage, you're often at sort of a pre-power stage, Where you're trying to scale very rapidly or something like that, and then executing well is very important, but it's not enough. So if you have an operationally incredibly effective company, you're very efficient, but you miss the strategy issue, then in the end, it won't be an attractive business model. So it's not an either or. There are times when being highly efficient and operationally astute is the key thing, but in the background, in those times when you do consider strategy, which is not 20% of your day, but when you do consider it, that needs to be an open discussion with that kind of framework.

AI assessment note: “when you do consider it, that needs to be an open discussion”

Q Got you totally. That makes sense. When you think back to your time and the incredible journey with Netflix, what were some of the takeaways for you on the mental model construction and implementation that you really took away?

A Yeah, I mean, Netflix is an amazing company, and I'm a big fan of their leadership. I think Reed is amazing, and Ted is amazing. There are many other amazing people there. So one of the key things is that when you face a complex strategy challenge like Netflix did, it changes over time. I mean, think of the difference between their competition with Blockbuster and the Red Envelope business and their competition with Disney and streaming. I mean, these are just entirely different types of situations. You have to be adaptive and And culture and leadership really matters, and on the strategy side, I'm a huge believer in fostering a culture of constructive dissonance, which by that I mean is what everybody is after is the right answer, not to prove themselves right, because there's a lot of uncertainty around these things, and you need to have open, frank discussions with differing points of view, and that's how you can arrive at something that is strategically viable.

AI assessment note: “fostering a culture of constructive dissonance”

Q I've wanted to ask this for quite a few years, so I'm really taking the opportunity here, Hamilton. No startup starts with economies of scale. What have been your kind of lessons and observations from seeing the transition from startup without that inherent kind of pricing power of economies of scale to your Amazons of the world with inherent and incredible economies of scale today with their power and leverage?

A So when you talk about power, it's a very high bar because it's a, if you think mathematically, it's an inner envelope concept. It has to be an advantage, not just relative to this company or that company, but relative to every single current and potential situation. So it's both direct competitors and functional competitors. So Amazon would have to compete with Walmart, for example, as a functional competitor. It's also potential competitors. So a startup may feel like They have a scale economy relative to a startup down the street that got started a year earlier. But if you play that out versus the larger set of people they have to consider, then it's probably not the case. So really powerful scale economies. There are many instances of it, but in terms of being the source of power against all the types of competitors you have to consider, they're much rarer than you would think.

AI assessment note: “So when you talk about power, it's a very high bar”

Q I've wanted to ask this for quite a few years, so I'm really taking the opportunity here, Hamilton. No startup starts with economies of scale. What have been your kind of lessons and observations from seeing the transition from startup without that inherent kind of pricing power of economies of scale to your Amazons of the world with inherent and incredible economies of scale today with their power and leverage?

A So when you talk about power, it's a very high bar because it's a, if you think mathematically, it's an inner envelope concept. It has to be an advantage, not just relative to this company or that company, but relative to every single current and potential situation. So it's both direct competitors and functional competitors. So Amazon would have to compete with Walmart, for example, as a functional competitor. It's also potential competitors. So a startup may feel like They have a scale economy relative to a startup down the street that got started a year earlier. But if you play that out versus the larger set of people they have to consider, then it's probably not the case. So really powerful scale economies. There are many instances of it, but in terms of being the source of power against all the types of competitors you have to consider, they're much rarer than you would think.

AI assessment note: “when you talk about power, it's a very high bar”

Q you really come? Kind of dive in. And he gave me some suggestions. And so the next bit is largely Daniel. I have to give him full credit for this, but his first one was when you look at seven powers today and the incredible impacts that it's had, how would you encourage founders to use seven powers when they build out their MVP and their initial go to more?

A I think that when you're building out a company, you very often don't really know what your power is going to be. You have some maybe hypotheses and And so it's not like you're going to say, oh, okay, five years from now, we're going to have scale economies, and this is how we're going to do it. It's more that you want to be aware of what it is that creates a durably attractive company, and that's what the seven powers are, and just have multiple people in the company have that as a useful framework. Then you can have intelligent conversations about it as you go forward. But keeping in mind that in early stages, it's so important To be adaptive. There's all kinds of stuff that you simply can't anticipate. Way back when, maybe a hundred years ago, Frank Knight and Seminole work had made this great distinction between uncertainty and risk. So risk is when you know the probability distribution, like flipping a coin, and uncertainty is things that you just don't know. And I think Keynes used the example of what's the copper price going to be 15 years from now, or something like that. And no amount of analysis or anything can narrow that down. And so you're facing uncertainty. So that's why I come back to the first question you asked about mental models. You want a number of people in the company to have a solid mental model of strategy so that they can have ongoing discussions abou…

AI assessment note: “have multiple people in the company have that as a useful framework”