View all notes
High gross margins are a powerful growth factor because, as noted below, not all revenue is created equal. The key insight here is that even though gross margins matter a great deal to the seller, they are irrelevant to the buyer. How often do you consider the gross margin involved when you make a purchase? Would you ever choose Burger King over McDonald’s because Whoppers are lower margin than Big Macs? Typically, you focus solely on the cost to you, and the perceived benefits of the purchase. This means that it’s not necessarily any easier to sell a low-margin product than a high-margin product. If possible then, a company should design a high-gross-margin business model.
crazy to treat the topic of buying mcdonalds vs burger king [the most irrational, marketing-driven decision one can really imagine] as if it's this rational consumer choice thing. and margins kinda do matter insofar as they impact the [at least perceived] quality of the product
If a platform achieves scale and becomes the de facto standard for its industry, the network effects of compatibility and standards (combined with the ability to rapidly iterate and optimize the platform) create a significant and lasting competitive advantage that can be nearly unassailable. This dominance lets the market leader “tax” all the participants who want to use the platform, much as levies were imposed in the bygone Republic of Venice. For example, the iTunes store takes a 30 percent share of the proceeds whenever a song, a movie, a book, or an app is sold on that platform. These platform revenues tend to have very high gross margins, which generate cash that can be plowed back into making the platform even better. Amazon’s merchant platform, Facebook’s social graph, and, of course, Apple’s iOS ecosystem are great examples of the power of platforms.
they are just describing a parasitical monopolistic business model that should be tackled by antitrust legislation lol
[...] Broadcast television succeeded by providing the same thing to all its viewers—a model driven by the technological innovation of broadcasting content via wireless signals and later coaxial cable. Netflix succeeds by providing a carefully personalized experience to each of its many viewers, giving it a huge advantage over its traditional television competitors. Moreover, Netflix produces exactly what it knows its customers want based on their past viewing habits, eliminating the waste of all those pilots, and only loses customers when they make a proactive decision to cancel their subscription. The more a person uses Netflix, the better Netflix gets at providing exactly what that person wants. And increasingly, what people want is the original content that is exclusive to Netflix. The legendary screenwriter William Goldman famously wrote of Hollywood, “Nobody knows anything.” To which Reed Hastings replies, “Netflix does.” And all this came about because Hastings had the insight and persistence to wait nearly a decade for Moore’s Law to turn his long-term vision from an impossible pipe dream into one of the most successful media companies in history.
reading this paragraph gave me cancer
As we’ve already seen, most great ideas look dumb at first. Being contrarian doesn’t mean that dumb people disagree with you; it means that smart people disagree with you! Remember what happened when Brian Chesky, Joe Gebbia, and Nathan Blecharcyzk tried to pitch Airbnb? Investors like Paul Graham literally couldn’t imagine why people would ever use the service. This doesn’t happen because investors are dumb; most venture capitalists and angel investors are smart, and most smart, successful people would probably agree that investing in proven ideas is better than investing in unproven ones.
chuckled at this
On the infrastructure side, Amazon has deftly shifted from minimizing infrastructure spending, as it did during its early years by using techniques such as outsourcing logistics to book distributors like Ingram, to becoming one of the world’s great infrastructure companies. Amazon is so good at infrastructure that its fastest-growing and most profitable business (AWS) is all about allowing other companies to leverage Amazon’s computing infrastructure. Amazon also makes money by offering Fulfillment by Amazon to other merchants who envy its mastery of logistics, which ought to strike fear into the hearts of frenemies like UPS and FedEx. In addition to its eighty-six gigantic fulfillment centers, Amazon also has at least fifty-eight Prime Now hubs in major markets, allowing it to beat UPS and FedEx on performance by offering same-day delivery of purchases in less than two hours. Amazon has also built out “sortation” centers that let it beat UPS and FedEx on price by shipping small packages via the United States Postal Service for about $1 rather than paying FedEx or UPS around $4.50.
this is so cucked
For example, in 2015, Payal Kadakia, the founder of ClassPass (a monthly subscription service for fitness classes) decided that she needed to double the size of her staff in just three months so that ClassPass would be able expand into more cities. To achieve this kind of speed, Kadakia and her team abandoned traditional hiring processes and followed two simple rules. First, they hired people from their personal networks, with an emphasis on “branded” talent. For example, if an employee had a friend, and that friend worked for the management consulting firm Bain & Company, that friend got hired because ClassPass could assume that the person was smart and would get along with people. Second, some of the time saved by not interviewing for skills allowed the team to interview for alignment with the company’s mission. Crazy? Perhaps. But ClassPass was in a crowded, emerging market, and being able to hire faster than the competition helped it maintain and increase its leadership position.
lol
You’re also adding qualitatively different kinds of people to the team. One metaphor I use to explain this shift is to take yet another analogy from military history: the marines take the beach, the army takes the country, and the police govern the country. Marines are start-up people who are used to dealing with chaos and improvising solutions on the spot. Army soldiers are scale-up people, who know how to rapidly seize and secure territory once your forces make it off the beach. And police officers are stability people, whose job is to sustain rather than disrupt. The marines and the army can usually work together, and the army and the police can usually work together, but the marines and the police rarely work well together. As you blitzscale, you may need to find new beaches for your marines to take rather than ask them to help patrol the existing ones.
lol
The reality is that many start-ups are like pirates: they lack formal processes and are willing to question and even break rules. This flexibility is critical in the early stages of building a great company. Pirates don’t convene a committee meeting to decide what to do when an enemy ship is approaching—they act quickly and decisively, and are willing to take risks because they know that the default outcome is death.
sooo dramatic
One of the key ways to assess whether you’re being an ethical pirate or a sociopath is to ask, “Am I trying to change the rules for everyone, or just trying to get away with a personal exemption?” At PayPal, we broke the rules, but we did so because we were working toward a better set of rules for everyone. We felt that our actions were ethical because while we could technically have been in violation of the letter of certain banking regulations (we consistently argued that we weren’t a bank, but not everyone agreed!), we believed that in the long run we would be in compliance once we convinced the world to change the rules, and that the world would be better off as a result. History demonstrates that we were right. The various parties that were upset by our so-called pirate mentality—eBay, banks, regulators—all see the value of PayPal today. By changing the rules for everyone, we helped pave the way for other payment companies like Square and Stripe, which have improved the world of mobile payment even further.
really??????
This means talking with other smart people, often, so that you can learn from their successes and failures. It’s usually easier and less painful to learn from another’s mistakes than from your own. When I need to learn about a new subject, I’ll definitely devour some books on the topic, but I almost always supplement this reading by seeking out dialogue with leading experts in the field. Brian Chesky at Airbnb, another amazing learning machine, does something similar, seeking advice from mentors like Sheryl Sandberg and Warren Buffett. Brian told our class at Stanford, “If you find the right source, you don’t have to read everything. I’ve had to learn to seek out the experts. I wanted to learn about safety, so I went to George Tenet, the ex-head of the CIA. Even if you can’t meet the best, you can read about the best.” Brian lives this advice; he got many of his ideas by assiduously poring over biographies of great entrepreneurs like Walt Disney.
hhahahhaha