👋 Hey there! My name is Abhishek. Welcome to a new edition of The Sunday Wisdom! This is the best way to learn new things with the least amount of effort.
It’s a collection of weekly explorations and inquiries into many curiosities, such as business, human nature, society, and life’s big questions. My primary goal is to give you some new perspective to think about things.
If you think about it, Homo Sapiens is the only species that is capable of hacking its own evolution, unlike others. We are going from a less efficient state to a more efficient state at an exponential rate.
No matter how much people complain, we are indeed living in better times. Payments are more secure, food is better, and the internet is awesome. It would be hard to find something that was more efficient in the past than at present. Traffic might have been better in the past, but traffic is a state. Cars are products that have significantly improved over the past decades.
If you think about it, all efficiency is in the future, and this process of going from a less efficient state to a more efficient state does put some obstacles in the path, and these very obstacles are opportunities to make money. In other words, if humanity is craving for something that is not there right now, it’s an opportunity to make money. The obstacle is the way.
For example, back in the day before spectacles were invented there was a strong need to see better, and it presented an obstacle to those with eye problems. Back when there was no electricity, it presented another obstacle as lanterns and candles weren’t very efficient. Before air travel, trains and ships took a a lot of time to go from one country to another, and you hit a wall when you wanted an efficient and faster means of travel. All these obstacles were opportunities for businesses, products, and innovations to make money.
Let’s take Shopify as a recent example. Before Shopify, if you had to start an online business, you had to invest a huge amount of money and engineering work to get everything setup. With Shopify you can get started in minutes.
Similarly, iTunes had made it extremely easy to get any song in the world without worrying about the price. Previously you had to buy the whole album, and the prices varied according to the record companies. With iTunes, you could get any song for $0.99.
Having said that, it doesn’t mean that if your new solution is just a bit better than the existing solution, it would simply take off. Every product or service can be thought of in terms of an old state and a new state, so it depends upon how much more efficient the new state is. Kunal Shah, an Indian investor and entrepreneur, refers this by the term Efficiency Scoring.
Take online railway ticket booking, for example. Previously you had to go to the railway station to book a ticket, or call up an agent and pay them commission to do it for you. Now you do it online, and there’s no way anybody can convince you to move back to the old state. Granted the online service isn’t the best experience—sometimes it’s slow, often the payment fails or the server crashes, but it’s still significantly better than the old state. In terms of efficiency, if the old state was 2 out of 10, the new state would be around 7 out of 10.
Even though the new state isn’t perfect, you’ll see that its efficiency is still dramatically better. From this, we derive this theory that whenever the delta of efficiency (∆e) => 4, it’s an opportunity to make money, or as Shah puts it, “unlock your pot of gold.”
What’s interesting about this concept is that whenever ∆e (i.e. the difference in efficiency between the new and the old state) is equal to, or more than 4, the change is irreversible. Like I mentioned, nobody in the right mindset would want to go back to the old way of booking railway tickets, or reading without glasses, or going about their lives without electricity.
Having ∆e >= 4 also gives you UBP which is more relevant than USP, according to Shah. UBP stands for Unique Bragworthy Proposition. This essentially means that everybody experiences the new and more efficient state would scream at everybody who’s at an inefficient state asking them to move to the new state. If the new way of booking a cab is so much better, you would tell your friends about it. You would become an evangelist of the service because it solves such a big problem for you, and you are proud of using it.
If the new way of setting up an email newsletter is so much better, or the new way of making payments is so much better, or the new way of way of listening to music is so much better, you would brag about it. When a product has a UBP, its users automatically become its biggest salesmen.
Shah gives the example of TrueCaller. It’s very likely that you didn’t download TrueCaller after seeing an ad. You downloaded it after hearing about it from a friend. Somebody came to you and told you, give me any number and I’ll tell you who it belongs to. After seeing its magic, you wanted to use TrueCaller for yourself. TrueCaller naturally has strong network effects.
In its early days, Facebook’s users were its biggest proponents. Anybody who wasn’t in the network felt left out. This is only possible when the ∆e is large enough, even if the solution isn’t perfect.
Uber or Ola aren’t perfect. Online ticket booking isn’t perfect. But we do have a high tolerance for them despite these issues, because despite these hiccups, they new way is still much better than the old way. In conclusion, any product or service that offers ∆e >= 4 creates wealth. And interestingly, by the same rule we can understand what doesn’t create wealth.
Take online shopping for example. The efficiency score in buying shirts online vs. offline is a bit fuzzy. Sometimes it’s great, sometimes it isn’t very efficient i.e., sometimes ∆e is negative. So every time you come across a product that has ∆e < 4, it ends up being a reversible behaviour. One bad experience would make you say that it’s absolutely useless, so there’s less tolerance. On top of that, the new state isn’t bragworthy. You won’t hear people telling other people to go ahead and try this new format of buying shirts. It might be good, it might be novel, but it definitely isn’t great.
This brings me to what Paul Buchheit, the man behind Gmail said, “If your product is Great, it doesn’t need to be Good,” which means, if your product or service solves one or two major obstacles, the other menial missing features or bugs won’t be an issue. Before Gmail, all email service providers provided only 4MB storage quota. Gmail started with 1GB. That one feature in itself gave the new state ∆e > 4. It didn’t matter if Gmail didn’t have a good address book because when ∆e >= 4, the tolerance is extremely high.
One good thing about users, and humanity in general is that, we inherently know when ∆e >= 4 for us. If I don’t have time to do laundry or dishes, it makes more sense for me to get a domestic maid. It’s cheaper and more efficient than getting a laundry service. Similarly, no matter how efficient BigBasket of Grofers is, it’s still far more convenient, time saving, and efficient for a large segment of people to get groceries and veggies from nearby local shops.
Services that don’t have 4+ ∆e artificially increase efficiency by giving heavy discounts and cashbacks to retain customers, thereby eroding wealth instead of making wealth. Don’t invest your time and money where ∆e < 4 because humanity will not brag about it. Make something bragworthy instead!
The world is a big market, and there’s ample amount of user segments to make money from, so you definitely don’t need everybody to start using your new product or service. Having said that, this is a good framework to keep in mind when you are thinking of building a business, or putting money in somebody else’s business. It’s a common sense approach that is very likely to give you a good picture of the future value of a business, thereby saving you from a lot of bad decisions.
An Idea For You
The most important moments of your life are decided not by what you know, but by how you think.
The question you ought to ask yourself is: how do I think when I face a problem I haven't seen before?
Your answer to this is gonna make all the difference in the world.
It's practically not possible for you to know everything. But you can change how you think, how you approach a problem, how you deal with adversity and stress. These are skills that can be learnt. They'll give you a framework to deal with all sorts of unknown situations.
Work on them.
I Enjoyed Reading
Who Feels Rich Really? — “You can probably think of at least one person who is wealthier than you are. Well, that wealthier person likely has some wealthier friends, so they can think of someone wealthier than themselves as well.”
Let’s Stay Together — “Memphis photographer Jamie Harmon took to the streets and asked his neighbours to stand for portraits of life under lockdown.”
The Best Bit Of Advice About Problem Solving You’ll Ever Get — “Problems, we love them—bigger and badder the better. Of course you have to be sure you have the right problem. And then you have to remember that as much as some people may want to claim it, business—and life—cannot be approached like one big engineering problem.”
The Moral Bucket List — “It occurs to me that I’ve achieved a decent level of career success, but I have not achieved that. I have not achieved that generosity of spirit, or that depth of character.”
Larry David, Master of His Quarantine — “Our lives now depend on staying home and doing nothing. We are cooped up with no end in sight, getting increasingly irascible. So I thought I would reach out to the world’s leading expert on the art of nothing: the endlessly irascible man whose mantra has always been: “It doesn’t pay to leave your house — what’s the point?”
The list of all the articles I’ve written can be found here. And the past three editions of Sunday Wisdom are here: 34, 33, and 32.
I Enjoyed Watching
Never Split The Difference — “How do FBI hostage negotiators never split the difference? Can you use the same techniques? Chris Voss draws upon his 24-year career with the FBI to show you how to use tactical empathy with the ‘bad, the mad and the sad’ in your daily life to never split the difference and still have great relationships.”
The Importance of Dancing like an Idiot — “Dancing is one of the most releasing and necessary of all activities—but we too frequently hold back from the worry that we can’t dance. This film usefully reminds us that there’s no such thing as not being able to dance, that the whole point is to move about wildly without shame—and that in doing so, we connect with others and with important forgotten bits of ourselves.”
The Philosophy of Creativity & The Castle of Indolence — “What is creativity? I take a look at the philosophy of creativity to try and find out. Plato said the inspiration is a kind of madness. To the Ancient Greek philosopher, creativity was a kind of divine inspiration—it came from outside the limited understanding of men—a burst of lightening not reducible to human reason.”
Who Is Friedrich Nietzsche, What Did He Believe In, and Why Is He Important? — “Nietzsche’s body of work touched widely on art, philology, history, religion, tragedy, culture, and science, and drew early inspiration from figures such as Schopenhauer, Wagner, and Goethe.”
Vice Guide to Iran — “Over the past weeks and months, Iran has descended into chaos. From the downing of a passenger jet to the assassination of a top general, and now one of the world’s largest coronavirus outbreaks, life in the Islamic Republic is facing its toughest challenges since it was founded in 1979.”
Worth Thinking About
I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.
— Charlie Munger
Before You Go…
If you’re finding this newsletter valuable, share it with a friend, and consider subscribing. If you aren’t ready to become a paid subscriber yet, you can also buy me a coffee. ☕️