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Feb 29, 2020

At some point, constantly repeating “without a barrier to entry, competitors willing to take a smaller margin will rush in and drive the return down to the opportunity cost of capital” will sound tired and overused. But not yet. medium.com/@sarahtavel/fo

8/ You seek out stories where this happens, and then you realise: ok, wait a minute, there are some businesses that can resist margin compression. How do they do it? And you stumble onto the concept of 'moats'. Turns out there are only 7 of them:

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Jun 10, 2021

I just published a 10400 word members-only summary of 7 Powers on Commonplace, probably my longest post ever. I've not seen very many summaries that do a good job of representing the nuances of Helmer's framework. So here's a thread on the highlights. commoncog.com/blog/7-powers-

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9/ Digression: you also quickly learn that moat building looks very strange in practice:

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Jun 13, 2021

If you’re an investor or analyst, 7 Powers is a remarkable lens you can use to analyse companies. But if you’re an operator, the book is a little … weirder. What I mean by this: the path to Power is totally weird and unique, and it’s more important to pay attention to that.

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10/ So I've just described my learning progression in business. All of these are obvious things — most people learn that Supply and Demand are things because they realise they have to make a widget to sell the widget, and then they learn all the hard bits of both. But!

11/ If you read a lot of business biographies, you'll begin noticing something strange. There are a whole class of moves in business that allow you to win that AREN'T related to Supply or Demand. Those moves are basically Capital. My goto story is John Malone's.

12/ Malone was early in realising that junk bonds were a thing, and then realised that he could a) rack up a ton of debt, b) never make a profit c) use that to buy MOAR cable businesses, d) use the cash flows to service debt, and e) use the losses to shelter those cash flows

The Games People Play With Cash Flow

13/ It's an old story, and it's really cool because Malone invented EBITDA in the process to explain what he was doing. I retell it here:

commoncog.com

One way that first principles thinking fails is when you build your analysis up from a deficient set of base principles. Everything is correct and true, but you still end up mistaken. Here's how that...

Deal Of The Century: How Michael Dell Turned His Declining PC Business Into A $40 Billion Windfall

14/ Anyway, once you realise that Capital is a thing with its own playbook, you begin to see stories of businesspeople using it everywhere. Here's Michael Dell doing some savvy financial kung-fu to save his company:

forbes.com

After years battling Silicon Valley skeptics and Wall Street adversaries, Michael Dell has pulled off the deal of the century, borrowing and flipping his way to a $50 billion fortune.

15/ And you find books like The Outsiders, which is basically a collection of CEOs whose edge is mostly in Capital. (They shore up their Supply and Demand pieces by delegating operational bits to their second in command). goodreads.com/book/show/1358

16/ Again, this is old hat if you've been in business for a bit, or if you've been an equity investor for any amount of time. What DiBello's triad mental model confirms for me is that there are JUST three legs to the expertise of business. Before I read her work, I wasn't sure.

10:04 AM · Aug 14, 2021threadcreator.com

17/ Anyway, what this gives you is the shape of the expertise to pursue, if you want to get good at business. And it gives you a lens to evaluate the mental models of good business people, since the way the triad is expressed is different depending on the industry.

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18/ If you want to read the paper where DiBello extracted the mental model, start here: wtri.com/wp-content/upl You may also read my blog post on the findings:

commoncog.com

Every Great Business Person Has The Same Mental Model of Business

Preview of a members-only post: how one Naturalistic Decision Making researcher successfully extracted a tacit mental model of business, and what that looks like in practice.