236: Mark Leonard's New Letter + Q&A for VMS Founders, Sony Bungie Jumps, Tobi from Shopify + Coinbase, Grid-Scale Liquid-Metal Batteries, and Taylor Swift

"I should use ‘pigeon chess’ more often"

Be strict with yourself and forgiving of others.

The reverse is hell for everyone.

—Kevin Kelly

🤔 Kind of a follow-up on re-founders and operators like Frank Slootman (⛄️) from OG supporter Nick Ellis (💚 🥃 🎩). He writes:

Some of Frank's observations make me think of first time founders. Folks that have not yet been to the Big Show and don’t know how to scale beyond a certain level only due to lack of experience and time) and we/shareholders can pay for founders to problem solve along the way, but that is risky and costly to us and them.

Frank has been to the Big Show at least 3 times, and he knows his way through the jungle, and Frank will/should waste less time than a first timer.

It’s a bit different, but it reminds me of how some artists peak early and then can never recapture what they had when everything was new and fresh and they were at peak enthusiasm and youthful energy, and others just keep getting better and better as they age (a lot of my favorite Nick Cave and Leonard Cohen albums come from their mid and later periods (though I don’t think that Cave has been the same since Blixa left the Bad Seeds, but that’s another story)).

I wonder what creates this divergence in trajectories 🤔

Is it innate?

Are some just better at learning and incorporating lessons from experience and deliberate practice, while others come out really strong out of the gate because of extremely high natural talent, but then get distracted or just aren’t disciplined enough to build on what they have..? ¯\_(ツ)_/¯

💧🔥 I’ve started doing a little research into water heaters, because mine will soon be due to be replaced.

A lot of people where I live have electric heaters (because of low-cost hydro). The house that we moved into two years ago (in March 2020…) has a natural gas 50-gallon heater.

I’m considering whether it would make sense to move to an electric heater (maybe a 60 gallon because it doesn’t heat up as fast as gas and I’ll soon have 2 teenagers..?), or maybe tankless/on-demand heaters?

There the main problems with the tankless electric ones up here in Canada is that city water gets really cold during winter, so the temperature differential that needs to be bridged to get water hot can be pretty enormous, so you end up with something that pulls 160 AMPS and uses 4x40AMP breakers on your panel…

Tankless gas probably does the job more easily even with very cold intake, but I think I’d like to move away from gas altogether, so even though tankless may be more efficient and burn less gas, it may still not be quite what I want…

On the tank-based side, there also exists higher-end models like a fully-stainless model (a friend of mine got one) that has a 40-year warranty and will probably last even longer. While they cost more upfront, the $ amortized over their life doesn’t seem too bad, and I wouldn’t mind not having to think about this for a while…

But #1 on my list is efficiency, and so maybe what makes most sense is some kind of higher-end electric model with extra insulation… It’s all trade-offs ¯\_(ツ)_/¯

♟💩 🐦 I should use ‘pigeon chess’ more often:

zeynep tufekci @zeynep

I think “pigeon chess” should be in everyone’s vocabulary. 😁 It’s also amazing how well it can work, at least for a time, especially within a closed-circuit environment. Sometimes having something described can help people recognize it better. (It is common on Twitter😁😁).

💚 🥃 We’re now at 4.83% of supporters to total free subs.

Getting close to the goal of 5%. I may soon have to dust off my podcasting microphone and do that ‘Ask Me Anything’ (AMA) I promised, if you guys & gals keep supporting me. Thank you!

Soon we may have to upgrade from a old-timey paddle-steamboat to some kind of cruise-ship. 🛳 (did you know that the largest cruise ship in the world, the Wonder of the Seas, has a maximum passenger capacity of 6,988? We’re getting there…)

I think it’d be fun to reach 8,000 by summer, and a full Hobart (12,000) by the end of 2022. Not that I have any control over any of this, but it’d be fun.

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Business & Investing

Mark Leonard’s new letter to… ‘CSI employee entrepreneurs’

There’s a new Mark Leonard letter, but this one isn’t to shareholders, it’s to would-be startup founders inside of Constellation Software, as part of their new VMS Ventures VC-like fund:

One of the few benefits of my advancing age, is the sense that I am justified in providing unsolicited advice.

I was 39 when I started CSI. I had 4 kids, all under the age of 10, a modest house, and a mortgage. I drove a Toyota Camry and my wife had an ancient Chrysler minivan. I knew how to work ridiculously hard, and I had a decade of experience in the venture industry. That decade taught me how to collaborate with small, motivated teams, and the difference between a good and a bad business. I badly wanted to start a business where I would be fulfilled. 

Wow. I’m 39. I guess I could have done the math any time, but I hadn’t really thought about what age Mark was when he started CSI…

The most important revelation of my venture career was that vertical market software businesses have great economics but had been poor venture capital investments because they served small markets. To start CSI, I tweaked the normal venture capital playbook in an unusual way, concentrating upon the permanent ownership of many small vertical market software businesses that could share best practices. The rest, as they say, is history.

What I see as the main thing that Constellation does when it acquires a VMS is give it good re-investment opportunities. These businesses don’t have much to do with the cash they generate standalone, but when they can send that cash to CSI’s M&A team (which is now very decentralized and includes many of the operators themselves, who know their niche and competitors better than anyone), the value of those cashflows increases significantly.

I tell this story to give two pieces of advice: 1) you don't have to be a twenty-something year old with no dependents to start a business, and 2) it is hugely advantageous to start that business in a sector where you have an "earned secret".

VMS Ventures will finance dozens of CSI employee entrepreneurs. We are seeking CSI employees who have demonstrated a burning desire to win, an enormous capacity for sustained effort, and an intimate knowledge of their vertical. We expect that their effort and experience has imbued them with an earned secret… knowledge of an opportunity in their industry that isn't obvious and will allow them to be an early mover, parlaying their secret into a sustainable competitive advantage. 

With the earned secret clear in your mind, we believe that your drive, intelligence, and vision will attract a small group of bright and motivated folks to join you in creating the sort of business in which you've always wanted to work.  

So, what's the next step? Approach your business unit manager and tell them about your idea. If the idea is attractive and small enough, they may fund it from their BU's cash flow. If the idea requires a larger investment (either immediately or after an initial investment by the business unit) and has the potential to turn into a $10MM+ opportunity over the next decade, either you or your business unit manager are welcome to approach VMS Ventures about making an investment.

This is all so very Mark.

They even have a simple-but-cool-logo that looks a bit like an astronaut mission patch 🚀👩🏻‍🚀:

The symbolism of the star shooting out of the constellation is just *chef’s kiss*

They also have a long Q&A from early December 2021 with gems 💎 such as (it doesn’t say anywhere that this is Mark giving answers, but you can tell it’s him):

• “Does CSI have any entrepreneurs left? Haven't we converted them all into acquisitors? Who's going to run these large Initiatives?”

What other company would answer this to that question:

A few energetic employees find their way into our dozens of tiny to small initiatives, where we treat them poorly. They get virtually no upside, considerable downside, and are limited to missions which, even if wildly successful, are expected to lead to the creation of low single digit million dollar revenue businesses which usually get reabsorbed into the sponsoring BU over a 5 to 10 year period.

VMS Ventures will finance larger initiatives with standard venture capital equity ownership structures. Initiative employees will own the majority of the business at the seed stage. No BU manager or PM will be peering over their shoulders. Rarely will the initiative employees be diluted below 20% ownership. In successful ventures they will likely own far more equity than that. We expect the initiative entrepreneurs and their teams to work at a frenetic pace that leaves the average CSI employee in the dust. They will have high upside and no safety net. That risk / return formula will only appeal to a small group of entrepreneurial employees.

Here’s another Q:

• “Won't we be creating businesses that compete with our existing BU's? Will they be sold to our competitors (e.g. could Tyler buy one)?”

The old argument about cannibalising your own businesses applies… you should do it before someone else does. That theoretical answer aside, CSI’s software has high switching costs resulting in low attrition, so our new startups would be nuts to compete head-to-head with CSI

There’s a lot of good questions and answers, I recommend the whole thing.

h/t to DS Cap

Mark Cuban’s ‘Cost Plus’ Online Pharmacy

Despite the huge need for reform, it’s so rare to hear good news from the US healthcare sector (especially after the past 2 years of pandemic) that I felt the need to highlight this:

The Mark Cuban Cost Plus Drug Company announced the opening of its online pharmacy Wednesday. The pharmacy says it will bypass health care industry "middlemen" and help consumers avoid high drug prices by charging manufacturers' prices plus a flat 15% markup and pharmacist fee. [...]

One drug for diabetes patients, metformin, sells for $3.90 for a 30-day supply, compared to a retail price of $20, the pharmacy said. A 30-count of imatinib, which is used to treat leukemia and other cancers, goes for as low as $17.10 at Cuban's pharmacy compared with $2,502.60 at other pharmacies. (Source)

I can’t know all the details on whether this has hidden downsides or is the model of the future, but we certainly need more of this kind of experimentation and disruption in the space, while we wait for deeper reforms to improve this colossal drain on society (just the lack of mobility and risk-taking from tying healthcare to employers has to have a huge cost).

‘Sony buying Bungie for $3.6 billion’

This reminds me of John Malone’s speech about the big bubbles and the small bubbles, and the free radicals in the media world. He was talking about video content, but the same seems to be applying to video game content:

Sony Interactive Entertainment today announced a deal to acquire Bungie for $3.6 billion, the latest in a string of big-ticket consolidation deals in the games industry.

After the deal closes, Bungie will be "an independent subsidiary" of SIE run by a board of directors consisting of current CEO and chairman Pete Parsons and the rest of the studio's current management team.

Sony has said Bungie will remain a multiplatform studio, with the option "to self-publish and reach players wherever they choose to play."

At present, the studio is working on maintaining Destiny 2, expanding the Destiny franchise, and working on new IP. (Source)

A deal like this had to be in the works for a while, so it probably can’t be said to be a direct response to Microsoft’s acquisition of Activision+Blizzard, but if we zoom out a bit, I think it’s fair to say it’s part of the general trend that includes this deal and others (ie. Bethesda).

‘Shopify CEO Joins Coinbase Board of Directors’

I guess it shouldn’t be too surprising to those who noticed that Tobi changed his Twitter username to a .eth address a little while ago ¯\_(ツ)_/¯

Coinbase writes on its blog:

[Tobi] also deeply believes in the power of crypto and was an early adopter of crypto through Shopify’s integration with Coinbase Commerce. [...]

“The concepts of decentralized finance and entrepreneurship exemplify the promise of Web3 where opportunity exists for the many, not the few,” said Tobi Lutke. “Coinbase and Shopify share this like-minded vision, and I am excited to join the Board to support the future that Brian and the Coinbase team are building.”

‘You should die broke’

I don’t know what I think of this and I haven’t read the book, but this blurb by Kevin Kelly made me go 🤔 and I figured it would probably provoke some thought in you too:

To maximize your life enjoyment, you should die with no money left over. Spend your money while you can get the most experiences from it, not when you are old. Give away what you are going to give away (to kids or charity) while you can enjoy and direct it, and when it makes the most difference to the receiver. That’s the well-reasoned, persuasive argument of this book, Die with Zero. (The message is similar to Die Broke, a book that I have recommended in the past, but Die with Zero is much better in its explanation,  and practical advice on how to balance your account to zero.) Everyone should consider this positively affirming strategy. It’s been life-changing for me. — KK

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Science & Technology

Grid-Scale, Liquid-Metal Batteries (how cool does that sound? 🤘)

I’ve long been intrigued by grid-scale, liquid-metal batteries. Potentially one of the most important technologies that almost nobody talks about.

I think the first time I heard of them was about a decade ago in this presentation by MIT prof. Donald Sadoway.

About 3 years ago, a new video of Sadoway gave an update on the technology, and in the meantime he co-founded a company called Ambri (Bill Gates is an investor in the company, btw).

This recent interview with Sadoway is very good. He gives an overview of the technology and its development. I think you’ll like it:

“As I like to say, liquids have no memory” (that was a cool line, when describing why these batteries can do so many cycles without degradation)

His explanation of “cost-informed discovery” reminded me of IKEA’s process for design.

You start out with the attributes that you’re looking for including cost and then you design for that. It’s pointless to invent a really cool battery chemistry if it uses rare and scarce elements and is super expensive and complex to make…

“If you want to make something dirt-cheap, you better make it out of dirt… Preferably locally sourced dirt.”

The part near the end where he talks about getting inspiration from electro-metallurgy and aluminium smelters is really cool — look outside your field, don’t think about it the same way everybody else is thinking or you’ll have the same kind of results as everybody else..

According to the company roadmap, Ambri plans a “1 MWh Commercial system developed, certified and deployed for trials” this year, and “250 MWh production shipped for commercial projects” in 2023.

Hopefully everything works out all right and within a few years there are many GWh of these being deployed at decent costs, helping to integrate a larger share of intermittent renewable into our grids.

Interview: Matthew Walker (😴 but in a good way)

This was a great interview with Walker by Andrew Huberman (I keep being impressed by the quality of his podcast), but most importantly, it wasn’t too redundant even if you’ve read Walker’s book or (even better) listened to the great 3-part interview (+2 Q&A follow ups) he did with Peter Attia. Check it out:

• Dr. Matthew Walker: The Science & Practice Of Perfecting Your Sleep

Cracking a $2m Hardware Crypto Wallet

Friend-of-the-show and Extra-Deluxe supporter (💚💚💚💚💚 🥃 ) Byrne Hobart:

Crypto sometimes gets described as the world's biggest distributed bug bounty program, and it has transferred a lot of wealth from people who are not great at security to people who are very good at subverting security measures. In this case, it's fortunately a white-hat scenario, where the wallet owner forgot his PIN. Forgetful people turn out to be a subsidy for crypto security, while hacks remain a tax on not having enough of it.

The Verge:

cryptocurrency data firm Chainalysis estimates that more than 3.7 million Bitcoins worth $66.5 billion are likely lost to owners.

This is some Mission Impossible shit 🥸:

Rashid found that when the Trezor wallet was turned on, it made a copy of the PIN and key that was stored in the wallet’s secured flash memory and placed the copy in RAM. A vulnerability in the wallet allowed him to put the wallet into firmware update mode and install his own unauthorized code on the device, which let him read the PIN and key where it was in RAM. But the installation of his code caused the PIN and key stored in long-term flash memory to erase, leaving only the copy in RAM. This made it a risky technique for Grand to use; if he inadvertently erased the RAM before he could read the data, the key would be unrecoverable.

Sounds stressful…

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The Arts & History

🎤 Taylor Swift gets Acquired 🎸

I never thought I’d put an episode of Acquired in the Arts section, but well, friends-of-the-show Ben & David (💚 🥃) really pulled off something quite special on this one.

The business aspects are interesting, but it’s really a hybrid where the artistic-biographical aspects take center stage and drives it (mixing metaphors here — I probably should’ve said “takes the wheel” 🤔).

• Taylor Swift (Acquired’s Version)

I now find myself wishing they did one on, I don’t know, Martin Scorcese or Metallica’s rise from Kill ‘Em All to the Black Album or something like that. 😍

I didn’t even know much about Taylor Swift.

Hadn’t really heard her music until a couple years ago when I decided to check out a few albums. I think I ended up mostly getting familiar with ‘1989’, and then listened to ‘Folklore’ a few times when it came out.

In fact, the pod made me watch the ‘Miss Americana’ documentary on Netflix. I thought it was good. I always enjoy following artists in the studio, watching their creation process.

And oh yeah — she’s still only thirty-two.