In theory, theory and practice are the same. In practice, they are not.
Life is so unlike theory.
âAnthony Trollope
đ€ I recently made a note to research buying a CO2 detector for my home.
I already have a couple carbon monoxide (CO) detectors because we have a gas furnace, but this would be more about air quality than safety...
After a quick look, I found a few on Amazon that arenât too expensive, but I wonder if consumer-grade models are sensitive enough to be used to optimize/modulate airflow somewhere (like my office), or if theyâre more about warning you of very abnormal situations, but are otherwise not really useful purely to tweak things at the margin.
Another rabbit hole for another time⊠¯\_(ă)_/ÂŻ
đ§ This is follow-up to what I wrote in edition #197 about how our brains perceive 3D space visually and are able to mesh complex data and compress all that info into just a âfeelingâ that we have that something is close or far, big or small.
Thinking about this some more, another aspect of the brain that I find fascinating is the low-level language used to transmit and store data.
With digital computers, weâre used to thinking of hardware and software separately.
Itâs the most useful way to abstract things.
With the human brain, hardware and software are a lot closer to being the same thing in many ways, with physical structures that hard-encode a lot of the âsoftwareâ that our brains run, which is why weâre all a lot more similar than weâre different â weâre not blank slates that could go in any direction in the vast expanse of possible minds, our brains are evolved organs with a certain shape and architecture that constrains possibilities heavilyâŠ
Anyway, this makes our brains more similar to early arcade machines than general purpose computers in some ways. As far as I know, these used to be hard-coded at the hardware level to play a certain game, and couldnât do anything else. Thankfully our minds are more malleable than that, but weâre also not like a Linux server that can download and run anything and access and modify its own low-level kernel to debug things and make changes.
Though if you want to be really precise about it, our digital computers are also united on the hardware-software level.
If you were to scan a computer with enough precision, youâre going to find a physical manifestation (physical, electro-magneticâŠ) to every â1â and â0â inside of the SSD cells, and whatever it is that we think of as purely non-physical âsoftwareâ still somehow leaves a physical trace everywhere it goes.
Back to my original point: Iâm fascinated by the âbinary codeâ of the brain.
How the signals that cary all this sensory and thought information are sent across nerves, how memories are stored for short periods, and then consolidated for longer storageâŠ
All this has to be written in a certain language. Iâm sure itâs pretty weird and convoluted because evolution tends to not be able to undo mistakes that arenât bad enough to cause everything to stop working (hence the blind spot in our eyes where our optical nerve is mounted backwards on our retina), but there are also selective pressures for economy and simplicity.
But still, this language is understandable, and someday, likely with the help of a lot of machine learning, weâll be able to decode a lot more of it, eventually all of it⊠And write new stuff in it too.
You may literally need different languages or variants for different parts of the brain, because nothing says it has all to run on the exact same thing, but with enough time and data and science, nothing prevents us from eventually being able to read & write everything to every part of the brain.
*That* is pretty cool to think aboutâŠ
đ„š There are two kinds of people in the world:
1) Those who buy the plain versions of chips and nachos.
2) And those like me who wish that there was twice as much chemical-cheese-dust on Doritos and that there were 50 extra flavors to pick from.
What can I say, when I feel like eating crap, salty snacks are my weaknessâŠ
Layâs made one of my favorite flavors in recent years, but they did it as a limited run thing and now theyâre gone⊠ugh
If anyone at Layâs is reading this, please make the Guacamole/Habanero âcollisionâ SKU part of the permanent lineup please. Thx.
đ đ„ The price of a couple coffees or one alcoholic drink isn't a bad trade for 12 emails per month (plus đ€đĄđđđđđ đđđđ„đđ đđ€) full of eclectic ideas and investing/tech analysis. Thatâs 77Âą per edition.
If you make just one good investment decision per year because of something you learn here (or avoid one bad decision â donât forget preventing negatives!), it'll pay for multiple years of subscriptions (or multiple lifetimes).
As Bezos would say of Prime, youâd be downright irresponsible not to be a member, it takes 19 seconds (3 secs on mobile with Apple/Google Pay â if you donât see paid options, itâs because youâre not logged into your Substack account):
Investing & Business
The Value of TAM expansion & âHow we build software at Cloudflareâ
After IPOâing just Ë2 years ago, Cloudflare has now passed $60bn in market cap, from a starting point around $5bn.
Friend-of-the-show Peter Offringa (đż) wrote some interesting stuff about the marketâs realization that Cloudflareâs TAM may be bigger than it used to think, which may explain some of the rerating (though maybe not all of it..?).
I like how Peter put it in his newsletter from November 2:
Looking at the stock's chart, the catalyst for the rapid price ascent appears to have been triggered by Cloudflare's Birthday Week that started in late September. From a low of $112 on September 30th, NET has appreciated about 70% over the subsequent month, far outpacing peers. This price movement pushed NET's P/S ratio over 100. Yet our most recent checkpoint of revenue growth stands at 53% y/y, coming out of the Q2 report. Something clearly changed in market sentiment separate from reported financials.
Given this behavior outside of an earnings release, I wanted to better understand what changed and how that could have impacted NET's relative valuation. The only conclusion that I can draw is that Cloudflare has convinced the market that its addressable market is much larger than previously expected and that their accelerating product release velocity will ensure that they can capture a large portion of that. All things being equal, that is the primary headline coming out of the last month. Based on this, I decided to dive deeply into Birthday Week and look for the signals that might explain Cloudflare's narrative shift.
I think itâs the only explanation that makes any sense. I mean, it could be purely speculative in nature, the market just suddenly fell in love with the name, pushing valuation up for no reasonâŠ
But if weâre giving Mr. Market some credit, it has probably updated its view on the duration of growth and eventual size of the business based on what its been seeing. It probably also took a while for many to understand the business, because itâs complex and not everybodyâs a digital infrastructure geek ÂŻ\_(ă)_/ÂŻ
What this elicited is an even greater appreciation for Cloudflare's pace of innovation. Collectively, they announced a set of product releases during Birthday Week that dwarfs anything done previously. The potential impact of these is many times larger than what was released during Birthday Week 2020. This underscores the CEO's contention that the pace of product delivery is not only fast, but continuing to accelerate. It also helps that he repositioned Cloudflare's competitive set to be the three hyperscalers. His vision is that Cloudflare will become "the fourth major public cloud."
In other words, if you expected a business to be playing in a market about X big, and to be executing well enough to grab about Y% of that over 10 years, but now you realize that the opportunity is actually much bigger than X, and that theyâre executing so well that they have a real shot at grabbing much more than Y% because theyâre out-competing others, that makes the company much more valuable (at least the probabilities of it being much more valuable are higher than they were â time will tell how things actually turn out). So maybe it wonât accelerate like crazy right away, but maybe growth will decelerate more slowly than expected and terminal value will be much higherâŠ
In more concrete terms, letâs say a few years ago the market expected Fastly and Cloudflare to split the edge computing market fairly equally. Today, maybe it thinks that market is much bigger than before, and that cloudflare will get a much bigger share of it too (and that theyâre similarly becoming more competitive in the security market, etc). Thatâs a pretty big difference.
Peter wrote about it in more detail in this blog post, including a lot of what the company announced recently that may have made the market do a double-take and re-evaluate things. Check it out.
To add more context to this, thereâs an interesting post by Nick Wood at Cloudflare that describes a bit how & why they can build software with a velocity and ambition that few other companies can match:
Cloudflare comprises dozens of globally distributed engineering teams each with their own unique challenges and contexts. A team usually has an Engineering Manager, a Product Manager and less than 10 engineers, who all focus on a singular product or mission. [...]
we take a more nuanced approach where we allow teams to decide which methodology they wish to follow within the team, whilst also defining a number of high-level concepts and language that are common to all teams. In other words, we are more concerned with macro-management than micro-management.
âSHIPâs and âEpicâs
At the highest level, our unit of work is called a âSHIPâ â this is a change to a service or product which we intend to ship to customers, hence the name. All live SHIPs are published on our internal roadmap, called our âSHIP-boardâ. Transparency and collaboration are part of our DNA at Cloudflare, so for us, itâs important that anyone in Cloudflare can view the SHIP-board.
Individual SHIPs are sized such that they can be comfortably delivered within a month or two, though we have a strong preference towards shorter timescales. Weâd much rather deliver three small feature sets monthly than one big launch every quarter. [...]
You might think that letting teams set their own process might lead to chaos, but in my experience the opposite is true. By allowing teams to define their own methods we are empowering them to make better decisions and understand their own context within Cloudflare. We explicitly define the interfaces we use between teams, and that allows teams the flexibility to do what works best for them.
This heavy decentralization and level of team autonomy reminds me a lot of Amazonâs two-pizza teams (though I donât know how much of that is still as true today, and how much is folklore from an earlier era) â the whole organization is nimble, working on bite-sized objectives, and everything is built on a flexible platform that is the same one that customers can build on (dogfooding), and the various âlego blocksâ that make up the product are structured in ways to avoid too many dependencies on other teams (which is often how things end up taking much longer than expected, I think).
Basically, in John Boyd parlance, they seem to have a very fast OODA loop.
Teams are orienting themselves without needing to wait for high command to pass down orders and micro-manage projects, they can move quickly, and theyâre not waiting around on too many other parts of the organization to be able to achieve their objectives.
A lean, mean, killing machineâŠ
When is a dollar not a dollar? đž
Everybodyâs heard about âdiminishing returnsâ, but I donât think many people integrate it enough into their general worldview.
I donât think itâs a tool that you take out once in a while when a very specific situation demands it. I think it should be part of how almost every decision is weighted, at least as a background process.
When is a dollar not a dollar? When itâs on top of another dollar.
I often talk about the importance of really figuring out what you want to do, what makes you happy, because if you donât, thereâs plenty of people and forces out there that will steer you, often to places where you donât really want to go (doing jobs you hate for âprestigeâ or keeping up with the Jones, who you donât even like anyway, doing what you think your parents want you to do, etc)âŠ
Itâs important to know that stuff, because only then can you know what âenoughâ is.
Otherwise, you risk feeling like nothing is ever enough, and just keep going forever without stopping and thinking, itâs not just how fast Iâm going, but am I driving in the direction of where I want to go?
Itâs too easy to miss out on all this other stuff that wouldâve been more fulfilling for you (because life is trade offs, whatever you do takes the place of something else you donât do).
If you have enough money, you should make decisions based on other more scarce things, like time, relationships, personal growth, removing things that make you unhappy and adding things that make you happy.
Anyway, I donât mean to turn into some advice column on you, but Iâve had this stuff on my mind lately, and figured Iâd share.
Constellation Software Q3
*drumroll*
Revenue grew 30% (7% organic growth, 5% after adjusting for FX)
Higher organic growth than Topicus (though the same after the FX adjustment). Probably not something weâll see too often going forwardâŠ
Free cash flow available to shareholders +25%
Maintenance and recurring +6% organic ex-FX (thatâs where most of the value is created. Not bad at all. -13% on hardware sales, but thatâs a lot of non-recurring revenue with small margins⊠Not every dollar of revenue is made equally).
During Q3: âA number of acquisitions were completed for aggregate cash consideration of $126 million (which includes acquired cash). Deferred payments associated with these acquisitions have an estimated value of $47 million resulting in total consideration of $173 million.â
John Billowits becoming chairman, Mark Leonard staying president.
Hereâs what impressed me most:
Subsequent to September 30, 2021, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $329 million. Deferred payments associated with these acquisitions have an estimated value of $41 million resulting in total consideration of $370 million.
Wow. Theyâre going to end the year with the biggest capital deployment in their history by far. Even if they didnât do a single acquisition starting today until new yearâs it would still be a strong year.
Interview: Kyler Hasson
Speaking of Constellation, I met Kyler a few years ago in Toronto at their AGM. I really enjoyed our conversation and thought he was a great guy, very smart, very funny. So weâve stayed in touch on Twitter since (where else?).
I was very glad to see in my podcast app the release of a conversation with friend-of-the-show and supporter (đ đ„) Bill Brewster:
I like the discussion of past mistakes and how theyâve evolved as investors.
It all feels very familiar to me â I think anyone who does this for a while has some scars and has paid some tuition to the market gods. Canât be avoided ÂŻ\_(ă)_/ÂŻ
I also enjoyed the quick overview of Constellation Software (I call it âquickâ because if I did it, it would be 4-hour long).
Science & Technology
Microsoft Trying to do to Notion what it did to Slack?
When Microsoft first announced Teams, Slack famously took a full-page ad in the NYT (which is kind of a very 20th century thing to do, but the idea of doing it is eternal) welcoming the competition.
Slack didnât exactly do badly after that, but Teams definitely sucked a lot of oxygen out of the room and grabbed a big part of the pie through Microsoftâs incredible distribution and execution engine.
Looking at the latest demos of the MS Fluid stuff, now rebranded as Loop (thatâs actually pretty good name, IMO), I have to say that it looks like Notion is now in the crosshairs.
Fairâs fair I guess, Notion went after the Office jewel, so Microsoft was always going to respond.
Obviously, Microsoft has some advantages over Notion in this fight, and I donât mean just cross-promotion/distribution. For example, they can integrate natively with Word and Powerpoint and Teams in ways that Notion canât, and that can make for some pretty useful features:
Loop components are live pieces of content that can exist across multiple apps, updated in real time and free for anyone to jump into. That could be a list shared in a Teams channel and also editable in a Loop page, or notes in a calendar entry that are also available to be pasted into Outlook and edited in real time within an email. [...]
Loop pages are the individual canvases where people can share and collaborate on Loop components. Itâs like a modern version of a whiteboard but far more powerful because you can insert and share components that people have created outside of Loop. Not everyone even needs to be part of the entire Loop page, as the individual components could be edited in real time from other apps. (Source)
So while it looks like Notion, itâs actually a lot more than that.
"Microsoft Loop components will now arrive in Teams, Outlook, and OneNote this month, and the main Microsoft Loop app will be released at a later date.â
Iâll be curious to see how well it works in the real-world.
Peter Attiaâs Podcasting Setup
Thatâs probably the cleanest letâs-record-a-podcast-over-Zoom setup Iâve seen.
I like it.
I havenât had a chance to listen to his latest episode yet, but it sounds interesting:
The Arts & History
âDeath toll of WWII in Europeâ (as percentage of population at the time)
Some of the stats donât match this source of âWorld War II casualtiesâ, but it still gives an idea of the horrific carnageâŠ
World War II was the deadliest military conflict in history. An estimated total of 70â85 million people perished, or about 3% of the 1940 world population (est. 2.3 billion).
Deaths directly caused by the war (including military and civilian fatalities) are estimated at 50â56 million, with an additional estimated 19â28 million deaths from war-related disease and famine. Civilian deaths totaled 50â55 million. Military deaths from all causes totaled 21â25 million, including deaths in captivity of about 5 million prisoners of war.
Loved this part -- "Itâs too easy to miss out on all this other stuff that wouldâve been more fulfilling for you (because life is trade offs, whatever you do takes the place of something else you donât do).
If you have enough money, you should make decisions based on other more scarce things, like time, relationships, personal growth, removing things that make you unhappy and adding things that make you happy."
The only thing I'd change is that sometimes it's even removing things that make you happy and adding things that make you happier. Enjoy your weekend!