Weighing Consequences (8/2/20)
Hey friends!
Another week, another four lessons. Thanks for being here. If you’re reading this but haven’t subscribed, join Sunday School by clicking here!
This newsletter has been surprisingly fun for me and something I’m committed to every week. For example, this week I was largely offline Thursday - Sunday, but finished this up Wednesday night to make sure I don’t miss a week. Going for 52 straight weeks here!
This weekend I’m out of California and visiting Chicago. I’ve spent the weekend here visiting with friends and family and then I’m heading to St. Louis for the week. It’s been interesting flying for the first time since March. Airports are different, but not so busy, so it’s really not a bad experience.
I’m excited to share my most popular essay to date this week along with a few other awesome bits of content.
Here we go!
Homeroom
My Essay: What Tech Doesn’t Understand About Education
I published this essay Tuesday morning and by Tuesday night it was already my most widely read piece. It was a bit of a grind to produce and went through a lot of editing, but I’m very happy with the end result.
Higher education is a topic I write about often and anyone with an interest in that area should give this a read. My hope is that those at higher education institutions aren’t too disheartened at the current state of college, and this is something that might provide a rebuttal to tech’s viewpoint.
There are really two main ideas here:
There is still value in college for the widest part of the student market
Tech is focused on building a replacement for higher education when it should be focused equally as much on reforming accreditation. Once colleges fall, and many will, accreditation and employer acceptance of neo-education will be the bigger hurdle.
This essay is quite niche, but I learned a ton during the process. My thanks to Steven Knieser and Ben Greenman for some awesome editing.
Risk Management
Essay: The Three Sides of Risk by Morgan Housel
If you’ve never clicked a link to an essay in this newsletter I beg you to make this one your first. Morgan Housel is my favorite online writer of all time and this essay is one of his best. Housel is a partner at The Collaborative Fund, a venture capital firm, and a former contributor at several investment publications. I especially love any writing that is uniquely personal, and this essay exemplifies that. In other words, only Morgan could have written this.
Here Housel takes a look at the three sides of risk through the lens of a fascinating story from his youth. The three sides are:
The odds you will get hit
The average consequences of getting hit.
The tail-end consequences of getting hit.
Housel’s conclusion is that the tail-end consequences are all that matter. We can all quickly assess the odds and predictable results of risk, but it’s very hard to fathom the worst-case scenario.
You won’t regret the few minutes it takes to learn from this story.
Big Tech Studies
Link: How Big Tech Makes Their Billions
This is a pretty awesome visual showing how big tech makes big money. By “big tech” we’re talking about the five largest tech companies, AKA “ApaAmaGooBookSoft”. It’s interesting to compare revenue streams for each of these companies their vastly different business models.
A few of the most interesting takeaways:
iPhone makes up over half of Apple’s total revenue. It seems obvious in hindsight, but I would have never guessed it would be that much.
Microsoft is easily the most balanced and most diverse. They’re ingrained in non-tech businesses with their Office Suite and that corner of the market still wins the day.
Facebook is entirely ads. This also highlights how important big ad clients can be, many of which have pulled advertising in protest of Facebook’s lack of content regulation.
During this past week, the CEOs for each of these companies (except Microsoft…not sure how they got out of this…) have been testifying on Capitol Hill as part of government antitrust hearings. This crew of tech behemoths has been humming along for years, but there could be bumps ahead for the time being, particularly Facebook and Amazon. Watch your stocks!
International Trade
Here’s a fun fact that I recently learned that’s worth noting.
Converse puts a thin layer of felt on the bottom of Chuck Taylors.
Why do they do this? Is felt a superior shoe bottom?
It’s because importing fuzzy shoes (like house slippers, etc.) can decrease the import tariff from 37.5% to 12.5%. Those are substantial savings!
When you apply this to the scale of Converse’s business it’s a big savings for them.
What’s also interesting is that it’s almost as if this layer of felt is fake. I’ve never had a pair of Chuck’s, but I hear it usually rubs off within the first few weeks of wearing them.
Sneaky business!
Contrarian Bets
Finally this week, I’d like to talk about contrarian bets.
CEOs usually come across several key “turning point” moments over the course of their tenure where they have to choose between a conservative approach or a bold approach.
Bold CEOs often make contrarian bets, and when they pay off those decisions fundamentally change their company.
Restoration Hardware CEO Gary Friedman has been an interesting example of this during COVID. While most companies are spending time and money optimizing for eCommerce, RH is doubling down on brick-and-mortar revenue streams.
They’re making brand new investments in partnerships with hotels and residences (pre-furnished homes and condos), and they’re even preparing a yacht called “RH3” that can be chartered in the Caribbean and Mediterranean.
These are the moments that make or break a company. Friedman believes in the power of his company’s aggressively physical experiences and has gone all-in with his actions to back up that belief.
Let’s be honest, it takes a TON of guts to make contrarian bets of any sort, but those with the vision and conviction to back their belief with a bet are often the ones who soar to the top.
Quote of the Week
"Confidence is positive and empowering, but arrogance is deadly. Be confident, but not at the expense of your respect for others." -Ralph Marston
Photo of the Week
Photo: Stu Forster/Getty Images for ECB Choosing this photo this week because of the striking precision of the team’s formation and the lines on the field. This is Ireland’s cricket team posing for a very 2020 socially-distanced team photo before their match against England at the Ageas Bowl in London.
That’s all for this week, thanks for attending!
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See you all next week!
-Ryan