Tobi the hedgehog

In his 2001 classic “Good to Great,” author Jim Collins borrows from an ancient Greek metaphor to describe two types of entrepreneurs: the fox, who is good at many things, and the hedgehog, who is the best at one thing. “To go from good to great requires transcending the curse of competence,” Collins wrote in an essay expanding on the hedgehog concept. “It requires the discipline to say, ‘Just because we are good at it—just because we’re making money and generating growth—doesn’t necessarily mean we can become the best at it.'” I thought about that mental model while reading this engrossing Brad Stone profile of the hedgehog Tobi Lütke, Shopify’s founder and CEO. Lütke, to me, is one of those idiosyncratic and demonstrably brilliant entrepreneurs who had not just the audacity to take on the fiercest of rivals—Jeff Bezos and Amazon—but the resolve and intense focus to make the strategy successful. One concept that surfaced during this interview that I found especially provocative was Lütke’s approach to chaos engineering; the notion that intentionally introducing failures into an organization can be a mechanism to actually make companies more resilient.  (As a matter of disclosure, we are long-term shareholders of both AMZN and SHOP.)

“Trying to talk to Lütke about pretty much anything is a perilous journey into an intellectual labyrinth built out of management books and discursive thoughts. His current fixations include the concept of the Trust Battery, which is how he gauges his confidence in employees, along with the hypothetical that one of the most critical pieces of technology, the web browser, couldn’t be introduced today because Apple Inc., Google, and other app store owners wouldn’t allow it. In any Lütke discussion, you’ve got to be ready for sentences like ‘I know how to exoskeleton my time’ and ‘I fundamentally find nondeterminism more interesting than determinism.’ Before the pandemic, like a lot of tech CEOs and investors, he read Nassim Nicholas Taleb’s Antifragile: Things That Gain From Disorder and became fascinated by chaos engineering, the idea that allowing for both unanticipated calamities and intentionally introduced failures can make people and organizations stronger. ‘Nothing can become truly resilient when everything goes right,’ Lütke says.”

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The cascading effects of a global logistics meltdown

“The supply chain is like your car,” Hamid Moghadam, chair of Prologis, said this week in a sprawling FT piece on the pandemic-era changes unfolding across the global logistics industry. “If it runs, you don’t give it much thought. But when it breaks down, you sure know the difference.” Global supply chains have, to put it mildly, suffered from significant disruptions over the past year; what’s interesting to me is how certain organization’s logistics strategies may have permanently shifted in post-pandemic world. This shift has created all sorts of complex second and third-order effects, as global goods, manufacturing centers—and even capital—gets re-routed across the globe. 

“The changes are being driven by the pandemic and the supply chain shock that followed. But they also reflect the geopolitical tensions between China and the west and the growing pressure on companies to reduce their carbon footprint. Tens of thousands of tiny changes are fundamentally reshaping the way things are designed, manufactured and sold. In some cases, these shifts are driving up costs and contributing to inflation, but the end result may be more reliable, more local supplies, reducing both price volatility and future carbon emissions.”

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Learn from your mentors; don’t become them

My friend Alex Morris has a thoughtful essay this week that grapples with the concept of developing one’s own “investment identity” in an industry that often incentivizes groupthink. I very much believe that true investors are artists: We may borrow ideas learned from the greats and from our mentors, but to become great artists ourselves, we must develop our own vision—even when that vision may be perceived, by some, as crazy.

“Looking ahead, I want to fight against the urge, the comfort, of an artificially small circle of competence. The future will bring new technologies and new business models (or at least business models that may be different when operated at a previously unimaginable level of scale). It will happen with or without us, presenting meaningful opportunities, and risks, along the way.”

A few more links I enjoyed: 

Thinking About Life – via Michael Batnick
“If you knew that you only had ten years to live, what would you do differently with your life? This isn’t a fun question. It’s uncomfortable to think about the end. I spent about five seconds pondering this before I moved on. No thanks. Even if I only had another ten years, no chance I would want to know about it. But we are going to die—all of us. What you choose to do with that knowledge is up to you.”
How does Spotify win the creators, Jeremy Deal & Sleepwell Capital? – Good Investing
“So the more users, the more people use it, the bigger the list, the more people upload. The more do-it-yourself, the more songs that are uploaded on a daily basis, the more podcasts, the more creators. All of it just compounds exponentially. And we’re never going to be able to look at a specific KPI because this is within Spotify’s secret sauce. You’re never going to be able to probably quantify that – that exponential growth. Like you can’t. You don’t really see that within Google, you just know that it’s an element of the business that becomes the second engine that just grows much, much faster.”

PS – Part 2 of my conversation with Matt Smith and Emmet Peppers went live recently. We go deep on Tesla Energy and the future of renewables. Link here. 

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