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Hope you’re having a great weekend.
If you missed my last newsletter, here it is: Prompt engineering... for humans? (How to give feedback to your teams).
This week, let’s look at something different. We’ve heard (and said) quite often, “You don’t need to be secretive about your business idea. Ideas are worthless. Execution is key.”
Let’s examine that.
1. Just how paranoid should you be?
May you be in heaven a full half-hour, before the Devil knows you’re dead.
— Irish saying.
I was reviewing my highlights from Narrowcast, Blume's excellent podcast compilation. And I came across this quote from an interview with Abhiraj Bhal, Co-founder of Urban Company:
Every MIS that I send out to my investors every month, my entire company is marked. Again, I’ve been asked this question by some of the fellow founders that what if it gets leaked.
If it gets leaked, it gets leaked. And what’s the big deal? This is not the competitive advantage. That sheet, or that MIS is not the source of competitive advantage for our business.
At a certain level, this makes sense. As we like to say, ideas are dime a dozen. It's the execution that counts.
Alex Tabarrok points out something similar:
Thomas Keller wrote a literal recipe book for the dishes he served at his world famous French Laundry restaurant and yet, the French Laundry did not go out of business.
Ideas are in heads and if you don’t move the heads, often the ideas don’t move either.
But the key lesson from this quote is not that ideas are worthless.
Rather, it's the last part of Abhiraj's comment:
This is not the competitive advantage. That sheet, or that MIS is not the source of competitive advantage for our business.
So what's the lesson?
Find out what your secret sauce is. Guard that with your life. You don't have to keep anything else secret.
But is that good advice?
Which secrets do you hold close?
There's a line in The Man Who Solved the Market, on Jim Simons' extreme paranoia about competition:
By the end of 1993, Medallion managed $280 million, and Simons worried profits might suffer if the fund got too big and its trades started pushing prices higher when it bought, or lower when it sold. Simons decided not to let any more clients into the fund.
Simons’s team turned more secretive, telling clients to dial a Manhattan phone number for a recording of recent results and to speak with Renaissance’s lawyers if they needed detailed updates. The additional steps were to keep rivals from learning about the fund’s activities.
“Our very good results have made us well known, and this may be our most serious challenge,” Simons wrote in a letter to clients. “Visibility invites competition, and, with all due respect to the principles of free enterprise—the less the better.”
Was the paranoia justified? We won't ever know. Because Simons' Renaissance Technologies became only the most successful hedge fund ever.
There's a key lesson here though:
Hold a secret close when (a) it's the source of your competitive advantage, and (b) others don't know about it yet.
The canonical example of this is, of course, Amazon's AWS.
As I wrote in How Microsoft became a multi-trillion dollar company:
Lesson 3: Guard your secret.
The story of Microsoft reminds me of how secretive Amazon was about AWS, for the first several years. And how important that secrecy was, in retrospect.
From Brad Stone's Amazon Unbound (via Cedric Chin's 7 Powers in Practice):
… both (Bezos) and Jassy lobbied to conceal the division’s financial details from public view, even amid the widespread skepticism that throttled the company and its stock price in 2014.
But in 2015, Amazon’s finance department argued that the division’s revenue was approaching 10 percent of Amazon’s overall sales and would eventually trigger reporting requirements under federal law.
“I was not excited about breaking our financials out because they contained useful competitive information,” Jassy admitted.
Nevertheless, that January, Amazon signaled that it would report AWS’s financial results in its quarterly report for the first time, and investors girded in anticipation.
Many analysts predicted that AWS would be revealed as just another Amazon “science project”—a lousy, low-margin business that was sapping energy from the company’s more advanced efforts in retail.
In reality, the opposite was true. That year, AWS had a 70 percent growth rate and 19.2 percent operating margin, compared to the North American retail group’s 25 percent growth rate and 2.2 percent operating margin. AWS was gushing cash, even as it rapidly consumed most of it to build even more computing capacity and keep up with the fast-growing internet companies like Snapchat that were piling onto its servers.
This reporting was a huge surprise for the analysts and investors who monitored and scrutinized Amazon, and likely even a bigger one for Microsoft, Google, and the rest of the enterprise computing world.
Bezos and Jassy knew instinctively that the moment others found out how lucrative cloud services was, they would come rushing in.
For what it’s worth, Bezos and Jassy were spot-on. Microsoft did rush in, and the result was:
So it's not just about keeping your competitive advantage hidden. It's about keeping your success hidden too!
Ergo...
Don’t guard just your secrets. Guard everything.
I’ve written before about Moiz Ali and his deodorant brand, Native:
I enjoyed listening to Shaan Puri's conversation with Moiz Ali on the My First Million podcast.
Moiz Ali is the founder of Native, a clean deodorant brand. He sold Native to P&G in 2017 for $100M.
Lots of lessons from the podcast, but one stood out to me:
Guard your secrets!
Before selling to P&G, Moiz and his team did zero PR for Native. No fawning TechCrunch pieces, no branded sweatshirts, nothing.
Heads down, silently scaling their business.
Once P&G acquired Native for 100 million, everyone realized how lucrative the space was.
And within 12 months, there were tons of "Clean" / "Parabens-free" deodorants on the market.
Contrast this with the story of Xerox PARC.
Back in the '70s, Xerox PARC kickstarted the personal computing revolution. The Graphical User Interface (GUI), the mouse, even text editors like Word - they were all invented at Xerox PARC.
Yet, you likely haven't heard of it.
Why?
Because it made no attempt to keep secrets. And Apple and Microsoft didn't need to be invited twice.
The rest is history.
Aside: This led to a hilarious altercation between Steve Jobs and Bill Gates in the ‘80s.
Hearing that Microsoft was working on a GUI for MS-DOS (which would later become Windows), Jobs was furious!
He summoned Gates to his office (Microsoft was a vendor to Apple at the time), and ripped into him, "I trusted you, and now you're stealing from us!".
Gates calmly responded, "Well, Steve, I think there's more than one way of looking at it. I think it's more like we both had this rich neighbor named Xerox and I broke into his house to steal the TV set and found out that you had already stolen it."
Coming back to secrets: In Startups and Uncertainty, Jerry Neumann talks about uncertainty as a moat. He begins:
Uncertainty can be seen everywhere in the startup process: in the people, in the technology, in the product, and in the market. This analysis shows something more interesting though: uncertainty is not just a nuisance startup founders can’t avoid, it is an integral part of what allows startups to be successful.
Startups that aim to create value can’t have a moat when they begin, uncertainty is what protects them from competition until a proper moat can be built. Uncertainty becomes their moat.
As a startup, you don't know what your moat is / will be. And if you don't know, neither will potential competitors.
This uncertainty... IS the moat.
Therefore, don't just guard what you think is your moat. Guard everything. Keep your success hidden for as long as you can. Let your competitors underestimate you.
As a wise man once said, "Only the paranoid survive".
Coda: On the other hand...
Now, you may point out: There will come a time (or so we hope) when your success can no longer remain hidden. The uncertainty will no longer exist.
If the uncertainty was your moat, what do you fall back on?
There are only two sustainable moats:
A. Work real hard. Harder than you thought possible.
Or as I say in The great thing about hard things, “run upstairs”.
B. Move real fast. Faster than you thought possible.
Or as I say in If you want to build a new habit this year…, speed is a competitive advantage. Maybe THE competitive advantage.
If you want to win, start running. And don’t ever stop.
As Po's father would say in Kung Fu Panda:
There is no secret ingredient.
Before we continue, a quick note:
Did a friend forward you this email?
Hi, I’m Jitha. Every Sunday I share ONE key learning from my work in business development and with startups; and ONE (or more) golden nuggets. Subscribe (if you haven’t) and join 1,600+ others who read my newsletter every week (its free!) 👇
2. Golden Nugget of the Week.
So many of our problems are of our own making. Don't handicap yourself.
3. Another week, another AI advancement that blew my mind. 🤯
The latest app to take the Internet by storm is Suno.
Describe a song you want, and AI will generate it for you.
Here, for instance, is a melancholy ballad about the MIT commercial license:
Sorry, I couldn't resist making one about Sunday Reads. (The chorus is quite peppy, even if I say so myself.)
4. The true meaning of "AI". 🤣
I read this news about Amazon last week:
Amazon is reportedly phasing out its checkout-less grocery stores with “Just Walk Out” technology, according to The Information Tuesday. The company’s senior vice president of grocery stores says they’re moving away from Just Walk Out, which relied on cameras and sensors to track what people were leaving the store with.
Just over half of Amazon Fresh stores are equipped with Just Walk Out. The technology allows customers to skip checkout altogether by scanning a QR code when they enter the store. Though it seemed completely automated, Just Walk Out relied on more than 1,000 people in India watching and labeling videos to ensure accurate checkouts. The cashiers were simply moved off-site, and they watched you as you shopped…
Just Walk Out was first introduced in 2016, presenting Amazon’s biggest and boldest innovation in grocery shopping. The technology seemed incredible, but there were some stumbles. It often took hours for customers to receive receipts after leaving the store, largely because offshore cashiers were rewatching videos and assigning items to different customers. The system of scanners and video cameras in each store is also incredibly expensive.
Guess some of us didn't receive the memo earlier.
AI = Anonymous Indians.
PS. These guys called it years ago 👏👏👏.
That’s it for this week. Hope you enjoyed it.
As always, stay safe, healthy and sane, wherever you are.
I’ll see you next week.
Jitha
[A quick request - if you liked today’s newsletter, I’d appreciate it very much if you could forward it to one other person who might find it useful 🙏].