MBA Essentials

100 snippets on Business & Leadership.

Aditya Kulkarni
 CONTENTS

INTRODUCTION

Day 1: THE PRINCIPAL-AGENT PROBLEM

Day 2: PROSPECT THEORY

Day 3: PRISONER’S DILEMMA

Day 4: SOCIAL PROOF

Day 5: FRAMES FOR ORGANISATION

Day 6: ECONOMIES OF SCALE

Day 7: COMPETITIVE ADVANTAGE

Day 8: STRATEGY IS LOCAL

Day 9: 7 HIGHLY UNDERRATED COMPETITIVE ADVANTAGES

Day 10: RATING SCALES DON’T WORK LIKE YOU THINK THEY DO!

Day 11: RETAIN THOSE CUSTOMERS!

Day 12: MEASURE THE RIGHT THINGS AND MEASURE THEM RIGHT

Day 13: WE DON’T NEED FASTER HORSES!

Day 14: GALL’S LAW

Day 15: 3 WAYS TO THINK ABOUT MAINTENANCE

Day 16: A LESSON FOR MANAGERS

Day 17: AMAZON’S PR/FAQ PRODUCT METHODOLOGY

Day 18: HOW DO YOU MEASURE “SIMPLE”?

Day 19: UNIT ECONOMICS

Day 20: CUSTOMER ACQUISITION COST (CAC)

Day 21: CUSTOMER LIFETIME VALUE (LTV)

Day 22: TIME IS MONEY

Day 23: NETWORK EFFECTS

Day 24: PURCHASING POWER PARITY

Day 25: ADDITIVE SYSTEMS VS. MULTIPLICATIVE SYSTEMS

Day 26: REDUNDANCY

Day 27: IDENTIFYING YOUR GO-TO-MARKET (GTM) STRATEGY

Day 28: PRICING POWER

Day 29: CHOOSING YOUR NORTH STAR METRIC

Day 30: IS REVENUE THE RIGHT NORTH STAR METRIC?

Day 31: 4 GAPS IN OUR THINKING

Day 32: OPPORTUNITY SOLUTION TREE

Day 33: WHAT IT ACTUALLY MEANS TO BUILD AN MVP?

Day 34: VIRTUOUS LOOP

Day 35: THE BULLSEYE FRAMEWORK

Day 36: A DECISION MAKING-FRAMEWORK YOUR CEO WILL LOVE!

Day 37: WHAT IS A/B TESTING AND WHY WON’T IT CHANGE THE WORLD?

Day 38: BLUF LIKE THE MILITARY

Day 39: (SAMPLE) SIZE MATTERS!

Day 40: COSTLY SIGNALLING AND HOW IT CAN HELP YOU GET YOUR NEXT JOB!

Day 41: WHAT YOU MEASURE IS AS IMPORTANT AS HOW YOU MEASURE IT!

Day 42: THE RACECAR GROWTH FRAMEWORK

Day 43: 5 MISTAKES TO AVOID WHILE APPLYING THE RACECAR GROWTH FRAMEWORK

Day 44: WHAT MANAGERS AND TEAM LEADERS CAN LEARN FROM THE PUBLIC GOOD PROBLEMS IN ECONOMICS

Day 45: PEACHES OR LEMONS? THE ADVERSE SELECTION CONUNDRUM

Day 46: PRODUCT MANAGERS AND FOUNDERS, AVOID THIS BLUNDER WHILE DOING MARKET RESEARCH!

Day 47: BRAND = TRUST

Day 48: LEVERAGE

Day 49: HOW TO FUTURE-PROOF YOUR BRAND WITH GREAT CUSTOMER EXPERIENCE (CX)

Day 50: PINEAPPLE ON PIZZA, ANYONE?

Day 51: COST OF CAPITAL AND WHY CRED MATTERS

Day 52: WHAT SEPARATES MANAGERS FROM LEADERS

Day 53: WHAT IS NET PROMOTER SCORE (NPS)?

Day 54: THE IMPORTANCE OF SETTING PRIORITIES AS A LEADER

Day 55: THE FENCE PARADOX

Day 56: SURVIVORSHIP BIAS

Day 57: HOW TO MAKE LIFELONG CUSTOMERS

Day 58: WHY DO STARTUPS THESE DAYS PUT CUSTOMERS ON WAITLISTS?

Day 59: WHAT HR MANAGERS NEED TO UNDERSTAND ABOUT ORGANISATIONAL CULTURE

Day 60: 4 REASONS WHY EMPLOYEES LOSE MOTIVATION

Day 61: BROKEN WINDOWS AND SLIPPERY SLOPES!

Day 62: CHURN AND THE TRICKY BUSINESS OF BUSINESS METRICS

Day 63: THRIVING ON THE EDGE OF CHAOS

Day 64: WHO CALLED IT ‘ADVERTISING’ AND NOT ‘CREATING MEMES’?

Day 65: THE GLOBAL SHIPPING CRISIS IS A LESSON IN SUPPLY CHAIN MANAGEMENT

Day 66: TWO WAYS BY WHICH BUSINESSES AVOID GETTING THEIR MARGINS SQUEEZED

Day 67: THE STORY OF HOW AMAZON COUNTERACTED GOOGLE SEARCH’S INFLUENCE IS A LESSON IN LONG-TERM,
HIGHER-ORDER THINKING

Day 68: IT’S ALL ABOUT THE INCENTIVES!

Day 69: WORKING IN THE TRENCHES

Day 70: A LESSON ON NEGOTIATION AND PLAYING POSITIVE-SUM GAMES

Day 71: HOW TO MAKE PREDICTIONS USING THE EQUIVALENT BET TEST

Day 72: UNDERSTANDING CONTRARIANISM IN BUSINESS AND INVESTING

Day 73: KNOWING MORE ISN’T ALWAYS BETTER!

Day 74: LEADING WITH THE INSIGHT

Day 75: LYING WITH AVERAGES

Day 76: THE LATE ANTHONY BOURDAIN ON GOOD BUSINESS MODELS

Day 77: HERE’S WHAT YOU CAN LEARN FROM DISNEY ABOUT GREAT PRODUCT PROPOSITIONS

Day 78: SUBSCRIPTION MODELS – YAYY OR NAY?

Day 79: DO AGGREGATOR PLATFORMS LIKE AMAZON AND FLIPKART HAVE THE LAST LAUGH?

Day 80: THE CATEGORY THINKING MENTAL MODEL FOR EFFICIENT DECISION MAKING

Day 81: DECODING THAT BUZZWORD FONDLY CALLED “EMPATHY”

Day 82: THE MAGIC OF THINKING IN FIRST PRINCIPLES

Day 83: TOP 10 INSIGHTS ABOUT INDIAN CUSTOMERS

Day 84: BUFFETT’S FIRST VENTURE SHOWS US WHAT GOOD BUSINESSES LOOK LIKE

Day 85: OCCAM’S RAZOR

Day 86: THE IMPORTANCE OF TRIAL AND ERROR

Day 87: GAMES DON’T HAVE TO MEAN LEADERBOARDS

Day 88: AN UNDERRATED SKILL THAT MADE STEVE JOBS SUCH A GOOD BUSINESSMAN

Day 89: THE ART OF CONVERSATION

Day 90: SPOTTING BUSINESS TRENDS LIKA A PRO

Day 91: IF YOU CAN ONLY KNOW ONE THING ABOUT HR MANAGEMENT, KNOW THIS

Day 92: I WAS CURIOUS ABOUT WHAT MAKES MARWADIS EXCEPTIONAL AT BUSINESS. HERE’S WHAT I FOUND

Day 93: SHOULD STARTUPS CHASE GROWTH OR PROFITABILITY? LET’S SETTLE THIS DEBATE ONCE AND FOR ALL

Day 94: A STORY ABOUT SECOND-ORDER EFFECTS, INCENTIVES, AND THE INNOVATOR’S DILEMMA

Day 95: THE GREEDY ALGORITHM AND HOW IT CAN HELP YOU MAKE BETTER DECISIONS

Day 96: BUILDING YOUR MINIMUM VIABLE AUDIENCE (MVA)

Day 97: LEARNING IS UGLY

Day 98: THE HUMONGOUS ADVERTISEMENT BUSINESS YOU DIDN’T SEE COMING

Day 99: 4 ELEMENTS THAT MAKE UP ANY GOOD STORY

Day 100: TO BE BRITTLE IS TO ONLY HAVE “ONE THING”

ACKNOWLEDGEMENTS
 INTRODUCTION

Business education is deemed unnecessary by many folks, especially entrepreneurs.

"You can only learn business by doing business."

For sure. I completely agree with that.

The major reason being any advanced content especially for people who wish to start their own business is
unscalable because of how context-specific and experimentation-driven it is.

Also, early-stage advice is high TAM but mid/advanced-level stuff is lower TAM and may also be contradictory. What
works for a specific market and a specific product may not work at all for another product-market combo.

But you can still help people understand fundamentals and first principles of businesses, markets, and human
behaviour — which are pretty agnostic for the most part.

And you can still help people flesh out the toolkit that will help them in their own entrepreneurial journey. It can be
just collaborating with others on projects, managing teams, conducting research, using tools, applying general
frameworks in specific contexts, asking for help, marketing yourself...

All these things aren't easy. And all these things are where people often get stuck, no matter how good the product
is. A simple thing like touting your own horn is unacceptable to Indians. But as a founder, you have to be your own
champion first, before people start championing you. You have to reach out, ask for help, learn how to collaborate,
negotiate, deliver on promises under strict deadlines.

All of this can still be learnt via a good business education.

With business education, you can't learn how to do business, but you can learn how to do it well.
 Day 1

THE PRINCIPAL-AGENT PROBLEM

Have you ever have your Uber driver call you up and ask you for your destination, and then eventually ask you to
cancel the ride?

This is an example of the Principal-Agent Problem, or as it is more commonly known — the Agency Problem.

The 'principal' refers to the person who delegates authority and responsibility to the 'agent.'

The agent acts on behalf of the principal, but the problem arises when the incentives of the agent and the principal
do not align.

In the case of Uber, the driver is paid a fixed bonus incentive/week based on making a no. of successful trips that
week (in addition to the money s/he makes on each trip).

This indirectly incentivizes the driver to choose shorter trips over longer ones. Because, by just meeting the no. of
trips/week, they're still getting the bonus incentive without putting in as many hours at work.

But this in direct conflict with Uber's incentive of providing a good UX to its customers!

Other examples:

1. Brokers who are paid a % commission are incentivized to maximize the buyer's budget spend and only show them
expensive properties when they could've gotten cheaper ones.

2. In pharma, the patient, the doctor, the payor, the drug co., the hospital, and the pharmacy all have different
financial interests. Each of these except the patient and drug co. are agents of one or more other parties, also with
their own interests.

3. In the case of hourly billing, the agent (lawyer/consultant) might artificially increase the scope of work to increase
the no. of billable hours.

4. Some employees can make decisions based on what’s going to look best on their resume rather than what’s best
for the business.

5. A college admission consultant earns commissions based on successful admissions. So their incentive is to ask the
client (student) to apply for colleges within easy reach, and not push or help them be more ambitious with their
applications.

How do you resolve the agency problem?

By changing the system of rewards in order to align priorities or improving the flow of information, or both.

For example, an investor who has equity in your startup is much more aligned to the interests of the founder, than a
consultant who gets paid regardless of how the startup performs.

Similarly, a hedge-fund manager who partakes in both the upside and the downside of their fund performance is
more aligned with the principal (the investor) vs. a manager who gets paid a bonus on the upside and doesn't lose
anything for the downside.

The latter is incentivized to make riskier bets, which wouldn't be in line with the investors' best interests.

Key Takeaway:

Incentives drive human behavior. Failing to recognize the importance of incentives often leads us to
make majorerrors, both in business and in life.

What other examples of the agency problem can you think of?
 Day 2

PROSPECT THEORY

What was your rationale behind buying term insurance?

Why did you choose to pay a monthly premium for a minuscule probability of a bad event that may or may not
happen sometime in the future?

Purchasing insurance plans is an excellent example of Prospect Theory at work.

Proposed by psychologists Daniel Kahneman and Amos Tversky in 1979, the theory states that one of the biases we
rely on when we make decisions is loss aversion:

We would rather get an assured, lesser win than take the chance at winning more (but also risk possibly getting
nothing). The opposite is true when dealing with certain losses: we engage in risk-seeking behavior to avoid a bigger
loss.

Take the example of Stoa. I often have MBA aspirants tell me about how they would still go ahead with the
traditional MBA program over Stoa School — not only because it was the safer, time-tested option but also because
it was easier to justify to their parents and peers.

Is this risk-averse behaviour irrational?

It is, if you think about the opportunity cost of a full-time MBA program both in terms of time and money. By
choosing the safer option with a promised payout, aspirants also take on long-term risk and debt, which they do so
to avoid the uncertainty with Stoa School and the tiny possibility of things not working out as expected.

The point is this:

We would all like to believe that we are logical decision-makers. However, when it comes to making decisions such
as whether to purchase something, we often choose to remain loyal to a specific product or service we are already
using over risking using something else that has a possibility of being better than our current method.

How do you apply Prospect Theory to your product marketing and UX?

Now that you know that people react more strongly to moments of loss, as a marketer you try to reframe your
messaging in a positive way. For example, you talk about 95% success rate instead of a 5% rate of error.

You can convince users to take certain actions by understanding what their inhibitions may be.

For e.g., prospective users may be unwilling to begin an application process online because they fear it would take
too much time, or need to put in information that is not readily available. If you are aware of this perception, you can
try to modify it by stating how long the application takes to fill on average, and what information would be needed
to complete it.

As a designer, resolving errors quickly also becomes paramount. Because, when everything works as expected,
people consider that the norm. But, once anything goes slightly wrong, people balk and remember those bad
experiences for much longer.

Takeaway:

Losses are cognitively stickier and more memorable than gains. Always design and market a product
considering that the consumer is hard to please and even small shortcomings can lead them to choose a
different product overyours.
 Day 3

PRISONER’S DILEMMA

Okay, here’s what I want you to do. Watch the video. And then read this post.

In Game Theory, Nash Equilibrium is the condition where no player has an incentive to deviate from their chosen
strategy after considering an opponent's choice. At Nash Equilibrium, no player is worse off than any other player in
the game and thus has no incentive to change his/her strategy.

However, the Prisoner's Dilemma is an example of a suboptimal Nash Equilibrium, where the optimal outcome
would be if both prisoners cooperated and got 1 year of jail time each. But since there's a coordination failure and
both are self-interested players, they get stuck at a suboptimal equilibrium.

How do suboptimal Nash Equilibria show up in the real world?

1. Many a time, economic underdevelopment in a geography can be a result of coordination failure – some
investments don’t occur simply because other complementary investments are not made.

2. Take the case of climate change. A lot of people ask this question:

"Our generation's race to the moon is the challenge to turn the climate change crisis around. Will we achieve it?"

Unfortunately, I expect climate change to be tougher because of incentives and getting stuck in suboptimal
equilibria, not technology.

The Moon race was a game of contest. The equilibrium was to invest resources to win.

Climate change is a public good game. The equilibrium is to let others make the effort.

3. There's also something called the Lock-in effect, which is another example of a Nash Equilibrium. If already many
people use iOS in your target market, it is less lucrative for other players to write software for Android and Windows;
something that happens a lot with apps, where they get developed for iOS first, or sometimes, only for iOS.
Clubhouse is a good example.

4. People throwing trash on the street. It can be an equilibrium optimal response to people to throw garbage on the
street provided everybody else is doing the same. The very same people however will refrain from these things if no
one else engages in them, for e.g., when Indians travel to the West.

Takeaway:
If there's coordination and communication failure between players, with everyone acting in their own self-
interest, it
is easy to get stuck in suboptimal outcomes — outcomes that could've been much better if all parties
involveddecided to cooperate.

What are some other examples of getting stuck in a Prisoner's Dilemma?

Click here for the video.

 Day 4

SOCIAL PROOF

How many times have you avoided going to a restaurant that looked really empty?

Is your probability of following someone who has 10,000 followers higher than someone who has 100?

How many times have you deferred buying a product on Amazon, simply because it had no customer reviews?

“When you say it, it’s marketing. When your customer says it, it’s social proof.”

Social proof is a psychological phenomenon where people assume the actions of others in an attempt to reflect
correct behavior for a given situation.

We look for cues in how other people behave to figure out the best and safest decision.

And we are more likely to do something when presented with evidence that others have also done it.

Think about a Pepsi or a Coca-Cola ad where they show you celebrating with your friends at some social gathering.
What purpose is the ad serving?

Absent any kind of social programming, you don't have common social scripts for "meeting with friends". What do
you do with your hands when you're not talking?

Here's where the Pepsi ad helpfully jumps in with a suggestion:

You consume Pepsi on such occasions. Now, because you know that everyone around you knows this script from the
Pepsi ad, you know it is a commonly shared social script. Your group can quickly coordinate on this script and you
won't be weird for proposing it.

Why would you consume Pepsi specifically? Because the shared script, the one installed by the Pepsi ad, says: Pepsi
is the norm, therefore it doesn't need to be justified. Choosing Pepsi when shopping for the party is safe.

The advertisement broadcasts a social script and thus creates social proof for that behaviour.

How can you leverage social proof in your product and marketing?

Some examples:

• Testimonials
• Social media engagement
• Follower count
• Customer Reviews
• Influencer endorsements/ Celebrity marketing/ PR
• Case studies
• Certifications
• Trust icons and authority signals
• Research Studies
• Awards
• Milestones
• Competition

The best way to get people to do something is to tell them that their neighbours are already doing it.

Mastering social proof in your communications can be your recipe to beat your friendly neighborhood "Sharmaji ka
beta!"

Here's an example of Elvis Presley using social proof for marketing his album 👇
 Day 5

FRAMES FOR ORGANISATION

Models are not reality.

But they can offer you a structured way of observing reality.

One such model is the Frames for Organisation Model of Management. The model offers 4 distinct but interrelated
frames that you as a manager can use to aid your decision-making within the org.

Why do you need this model?

Because it is so so easy to miss the forest for the trees. We often only look at the org from our own narrow point of
view. For example, if you ask the marketing team what is the biggest problem the org needs to solve, they would say
that marketing budgets are not enough or something like that. But if you ask a sales/operations/product team, they
will have a very different answer.

This model helps you build a near-exhaustive view of organizational incentives and helps you manage people and
resources accordingly.

1. Structural Frame: This frame helps you think from the perspective of how the organizational chart is
structured, and the resulting coordination and control structures defined by it. It's a rational, task-oriented
frame and focuses on theobvious 'how' of change. It concentrates on things like strategy, setting
measurable goals, and creating systems andprocedures.

2. Human Resources (HR) Frame: This frame helps you create harmony between the needs of the
organization and the needs of the employees. It recognizes that mismatches can occur between the two,
and works on giving employees the power and opportunity to perform their jobs well, while maintaining a
good work-life balance.

3. The Political Frame: This frame helps you observe and address the problem of individuals and interest
groups havingconflicting (often hidden) agendas, especially at times when budgets are limited and resources
are scarce and shared. How do you build a coalition between teams, resolve interpersonal conflicts, get
everyone on the same page,working in line with the organization's goals?

4. The symbolic frame: In this frame, the most important aspect of any event in an organization is not what
actually happened, but what it means for the long term. Is it okay for employees regularly showing up late
for work or doesit hint at a larger org-wide morale issue? Is it The symbolic frame also relates to the
company’s culture and addresses people's needs for a sense of purpose and meaning in their work.

These 4 frames — structural, human-centric, politics, symbolic — help you become a better observer by
wearingdifferent hats. And when you observe clearly, you can decide and act clearly.
 Day 6

ECONOMIES OF SCALE

Let's say you wanted to get t-shirts made for your employees that are printed with your company logo.

For this custom T-shirt, you would have to design a personalized silk-screen pattern that would be a significant part
of the setup cost.

If your company is just 10 members strong, this silkscreen cost would increase the price per T-shirt significantly as
the setup cost is getting divided between just 10 T-shirts.

But if your company were 10,000 members strong, the same setup cost would now get divided between 10,000 t-
shirts, reducing the price per T-shirt significantly.

In manufacturing, this phenomenon is called Economies of Scale.

Economies of scale are cost advantages companies experience when production becomes efficient, as fixed setup
and infrastructure costs can be spread over a larger amount of goods.

You need a lathe machine to fabricate one piece of metal casing. And you'll still need just one lathe machine to
fabricate 1000 pieces of that metal casing.

Buying a lathe machine to produce one piece doesn't make sense. But buying a lathe machine to produce 10,000
pieces does, because you can now recover the investment cost of the lathe machine over 10,000 pieces, while
managing to keep the price per piece low.

Economies of scale can have increasing returns once the up-front setup costs are taken care of. For example, high-
tech products—pharmaceuticals, computer hardware and software, aircraft and missiles, telecommunications
equipment, bioengineered drugs, and suchlike — are by definition complicated to design and to deliver to the
marketplace. They are heavy on know-how and light on resources. Hence, they typically have R&D costs that are
large relative to their unit production costs.

The first disk of Windows to go out the door cost Microsoft $50 million; the second and subsequent disks cost $3.
Unit costs fall as sales increase.

Takeaway:

The next time you decide to make an investment, consider whether a larger upfront investment would allow
you tobenefit from economies of scale in the future.

A good example is selling a course on Udemy.

The course might cost you 3 months of time and resources in planning and execution.

But once it goes live, the cost of replication becomes zero.

Now the course can be infinitely reproduced for a million students without any additional cost.
 Day 7

COMPETITIVE ADVANTAGE

In the last lesson, we talked about Economies of Scale and how once production scales up to a certain level, you can
gethigher levels of cost-efficiency.

However, economies of scale aren't enough. For them to be advantageous, they must be accompanied by other
sustainable competitive advantages.

What is a competitive advantage?

A competitive advantage is something a firm can do that rivals cannot match.

A firm that has privileged access to customers or suppliers or that benefits from some other competitive advantage
will create a moat around its business, and potential competitors without an advantage will choose to stay away.

Thus, competitive advantages are actually barriers to entry.

“Demand” competitive advantages give firms unequaled access to customers. This type of advantage generally arises
from customers’ habits, searching costs, or switching costs.

A good example:

Enterprise SaaS and hardware manufacturers.

These businesses benefit from high customer switching costs, which means that once a customer buys into your
service, it'll be pretty difficult for them to replace you with some other service due to the hassles of adoption and
integration.

“Cost” (or “supply”) advantages, by contrast, come down to a superior technology like a patent or intellectual
property that competitors cannot replicate.

These three factors — customer captivity, proprietary technology, and economies of scale — generate most
competitive advantages. The few other sources like regulations, government support or protection, and superior
access to information tend to be limited to particular industries.

Till a few years ago, Intel benefitted from all three.

1. Its customers, the PC manufacturers, were reluctant to switch to another supplier because of their long-
established relationships and infrastructure designed around Intel chips.

2. Intel’s many patents and years of production experience allowed the company to reach a higher yield rate —
fewer defects — in chip production more quickly than its competitors.

3. And because it could spread the fixed costs of R&D for each new generation of chips over many more units than
its rivals, it enjoyed major economies of scale.

Takeaway:

Economies of scale are just one out of the many competitive advantages a business can have. But they
aren't enough. For a successful business, you not only have to focus on cost-efficiency, but customer
captivity and otheradvantages like brand and IP that cannot be replicated.
 Day 8

STRATEGY IS LOCAL

About 2 decades ago, Pepsi announced that it would challenge Coca-Cola's global dominance, with a goal of
doubling its sales outside the USA.

But it made a crucial mistake:

It ignored the nature of markets in which it decided to compete.

Coca-Cola responded by attacking Pepsi in one market — Venezuela — where Pepsi was the leader.

Pepsi’s position there depended on its local bottler and distributor, which enabled Pepsi to realize economies of
scale in advertising, sales, support, and distribution.

So, in 1996, Coca-Cola made the bottling and distribution company an offer it could not refuse, displacing Pepsi as
its cola source and wiping out Pepsi’s strongest presence outside the United States.

Coke and Pepsi may be global brands, but their competitive advantages, as Pepsi found out the hard way, must be
defended one local market at a time.

Take another example of Netflix's India-first Strategy.

After launching its services in India in 2016, Netflix has been continuously tweaking its content strategy to make it
more broad-based, investing over ₹3,000 crores to ramp up original Indian content. It has also tweaked its pricing
strategy by launching a mobile-only plan at ₹199 in a bid to make its services more affordable.

Netflix's 3 biggest local insights into the Indian market?

1. Indians are language agnostic but prefer watching Indian stories

2. Indians consume a lot of content and movies on their smartphones. They call it India’s mobile-first ecosystem,
where 77% of digital content consumption is estimated to take place via mobile
2. Indians love dubbed content — they love watching the best content and franchises from across the world in the
language of their choice

These 3 insights and the new mobile-only subscription have allowed Netflix to expand and grow its presence in the
Indian market and monetize its user base significantly more than its competitors.

Takeaway:

Decentralization is critical for strategy.

Businesses need to get a proper understanding of the specific market they're aiming to capture, along with a deep
understanding of its taste, cultural preferences, and most importantly, the incentives that drive people there.

If your strategy isn't fine-tuned to the market your business is operating in, competitors who understand the market
better and have stronger relationships with other stakeholders in that market will win.

What are some examples you're aware of where companies had to tweak their strategy significantly to meet the
demands of the Indian market?
 Day 9

7 HIGHLY UNDERRATED COMPETITIVE ADVANTAGES

This past week we've talked about textbook advantages like network effects, high switching costs, economies of
scale, and intellectual property.

While they can certainly be powerful, let's discuss some under-discussed competitive advantages for a business.

1) Optionality

The more options a company has — multiple revenue streams from multiple business verticals, choice of procuring
skilled labour from multiple geographies, investments in uncorrelated sectors, multiple sources of capital inflow... —
the harder it is to knock down.

Optionality also builds robustness and antifragility in the business; if one part of the business takes a hit, other parts
can still keep the company afloat.

2) Aggregation

Aggregators have

1) a direct relationship with users,

2) zero marginal costs, and
3) demand-driven + multi-sided network effects with decreasing acquisition costs.

If a company has all three, they can conquer winner-take-all markets due to reinforcing network feedback loops,
speaking of which, let's talk about...

3) Flywheels

Flywheels, aka positive feedback loops, come in many powerful forms like self-reinforcing network effects, ever-
improving cost structures, reinforcing trust and loyalty in the brand, a company culture that attracts great talent
which then goes on to create an even better culture that attracts even better talent, etc.

4) Float

Getting paid by customers before needing to pay suppliers or fulfill a service is a great feature to have, especially
when a company can use its payables to accelerate reinvestments with high RoI.

5) User Generated Content (UGC)

If the network's content is user-generated, a growing network produces more UGC which in turn attracts more users
to the platform who generate their own content. It also means that the business will never need to pay for content
to attract demand.

6) High employee retention rates

When great employees stick around

- More internal knowledge is retained over time
- Companies can spend less time on hiring/training
- Organizational incentives are more aligned
- Long-term thinking is more widespread
- There's less friction and better communication between teams

7) Names that become verbs

Companies whose brands blur with language — especially as verbs — often have decent staying power. It’s also free
marketing.

“Google it,” “WhatsApp me,” “I’ll Uber over,” “put on a Band-Aid,” “Netflix and chill,” etc.

——

Can you think of any other competitive advantages that are not talked about very often?
 Day 10

RATING SCALES DON’T WORK LIKE YOU THINK THEY DO!

We increasingly hear people talk about environmental friendliness and the importance of using eco-friendly
products.

(Yes paper straws, I'm looking at you!)

However, a survey by the National Geographic Society and GlobeScan found that, across 18 countries, although
concerns about environmental problems have increased markedly over time, consumer behavior hasn't changed
much at all.

While most consumers agree that food production and consumption should be more sustainable, few of them alter
their habits to support that goal.

What’s going on?

It turns out that the relationship between what consumers say they care about and their actions is often highly
nonlinear.

Managers often believe that quantitative tools like surveys using linear 1-to-5 scales of importance will accurately
predict behavior.

In reality, research shows little or no behavioral difference between consumers who, on a five-point scale, give their
environmental concern the lowest rating, 1, and consumers who rate it a 4. But the difference between 4s and 5s is
huge!

Companies fail to account for this pattern—in part because they focus on averages. Averages mask nonlinearity and
lead to prediction errors.

For example, suppose a firm did an environmental survey among two of its target segments.

All consumers in one segment rate their concern about the environment a 4, while 50% of consumers in the other
segment rate it a 3 and 50% rate it a 5.

The average level of concern is the same for the two segments, but people in the second segment are overall much
more likely to buy eco-friendly products.

That’s because a customer scoring 5 is much more likely to make environmental choices than a customer scoring 4,
whereas a customer scoring 4 is not more likely to than a customer scoring 3!

Also reminds me of Superhuman, the email client's technique of assessing product-market fit:
They simply ask their users the question:

How would you feel if you could no longer use Superhuman?

- Not disappointed
- Somewhat disappointed
- Very disappointed

Superhuman's criteria for judging if they have product market fit? More than 40% users voting for "Very
disappointed".

I think it's a good example of accounting for nonlinearity in human behaviour, for only users who vote very
disappointed are actually going to stick with Superhuman.

Takeaway:

Consumer preferences and behaviour patterns are nonlinear in nature. And a person who rates your product
a 7/10will probably not buy it again, but a person who rates it a 9/10 or a 10/10 probably will.

A lesson for #uxdesigners and #productmanagers designing quantitative surveys with 1-5 or 1-10 rating scales.
 Day 11

RETAIN THOSE CUSTOMERS!

Say your company has two customer segments that have annual contribution margins of $100.

Segment A has a customer retention rate of 20%.

Segment B has a customer retention rate of 60%

Now, most founders believe that it makes little difference to the net margins which segment's retention they choose
to focus on and increase.

If anything, most would say that increasing the retention rate of segment A would be better.

Here's why:

Customer lifetime value, (also known as CLTV, CLV, or LTV) is how much money a customer will bring your brand
throughout their entire time as a paying customer.

And LTV is a nonlinear function of retention rate.

LTV = MARGIN x RETENTION RATE / (1 + DISCOUNT RATE - RETENTION RATE)

When the retention rate rises from 20% to 40%, CLV goes up about $35 (assuming a discount rate of 10% to adjust
future profits to their current worth).

But when retention rates rise from 60% to 80%, CLV goes up about $147. As retention rates rise, customer lifetime
value increases gradually at first and then suddenly shoots up.

Most companies focus on identifying customers who are most likely to defect and then target them with marketing
programs. However, it’s usually more profitable to focus on customers who are more likely to stay.

Caveat: This applies to late-stage founders and established companies. Very early-stage founders testing for
product-market fit might be better off increasing their market size and benefitting from the nonlinearity and
exponential reach of network effects than focusing on CLV.

Takeaway:

Linear thinking might lead you to underestimate the benefits of small increases to high retention rates. The
benefit/cost ratio of retaining existing customers is higher than that of acquiring new ones, so increasing
the valueof your existing customers is a great way to drive growth.
You can apply the same logic to hiring and retaining employees as well.

While hiring, for a slightly higher paycheck, you can get an engineer who can not only do the work of 2-3 engineers,
but also be able to come up with ideas that an average engineer might not be able to at all!

Do not skimp on that CTC. For fast-growing startups, it's better to hire people who save time due to their
intelligence and efficiency, versus save some money and hire someone for cheap whose work will probably never
move the needle.

And while retaining, it's better to focus on retaining existing employees before hiring new ones.

When great employees stick around

- Project-specific contextual knowledge is retained over time
- You spend less time on hiring/training
- Company culture gets stronger and more consistent

What are some examples of nonlinearities you've seen at your workplace — where adding just a little bit more effort
would fetch you a lot more gain?
 Day 12

MEASURE THE RIGHT THINGS AND MEASURE THEM RIGHT

In its earlier days, Netflix decided that it wanted to focus on monthly customer retention rate as its high-level
engagement metric — meaning that every organization-wide tactic or product feature was aimed at directly or
indirectly moving the needle on this metric.

But using retention as a metric for all projects within the startup isn’t feasible. It’s a hard metric to move, and proving
a retention improvement from a newly implemented product feature or service requires large-scale A/B tests.

Lower-level metrics — proxy metrics — are easier and faster to move than a high-level engagement metric.

Here's how proxy metrics work:

Proxy metrics are directly related to a product feature and are thus easier to measure than a high-level metric like
retention.

Ideally, moving a proxy will improve the high-level metric (e.g., retention for Netflix), demonstrating a correlation
between the two. Later, you can find out whether it's really this proxy that is directly impacting the retention via an
A/B test.

Netflix's high-level hypothesis:

Creating a highly personalized experience will improve retention.

They then identified a bunch of proxy metrics and brainstormed projects/product features to move these metrics.

These are some examples of proxies for retention at Netflix:

- % members who add at least one member to their “Friends” list within six months. The assumption was that the
Friends proxy metric needed to surpass 20% to achieve a meaningful retention improvement.
- % members who stream at least 15 minutes of video in a month
- % members who add at least six DVDs to their queue in a month (make it easy for members to find and add
movies to their list)
- % new members who rate at least 50 movies in their first six weeks with the service. This metric was Netflix's proxy
for their personalization efforts.

Once an increase in the proxy metric is reflected in an increase in the higher-level metric, i.e., retention, correlation is
established. Netflix can then run an A/B test with or without that feature to find out if it's the one really responsible
for increasing retention.

Takeaway:
Trying to measure a higher-level product-wide metric directly can get tough when the product has as many
movingparts to it like Netflix does. Defining lower-level proxy metrics and then establishing their
relationship with the higher-level metric is a more rigorous approach.
 Day 13

WE DON’T NEED FASTER HORSES!

What would have happened if Apple didn't realize that people would perceive an MP3 player that provided “1,000
songs in your pocket” to be more attractive than one with an “internal storage capacity of 5GB”?

Would the iPod still have sold as well as it did?

The bedrock of modern marketing is the idea that by focusing more on consumer benefits than on product
attributes, you can sell more.

This directly ties into the Jobs-To-Be-Done (JTBD) Framework.

The JTBD Framework forces you to look at our product the way customers do.

It simply asks,

“What job is your product hired to do?”

For instance, most people would say they buy a washing machine to “wash clothes,” and this is true. But if a washing
machine company examines the higher purpose of washing clothes, which is,

“keep clothes clean, hygienic, and smelling good at all times,”

then it might forgo some efforts to make better washing machines in favour of developing a kind of cloth that
doesn't get dirty that often.

The JTBD Framework helps the innovator understand that customers don’t buy products, features, and services; they
hire solutions for something they need to get done. Henry Ford didn’t think about the “job” as a “faster horse” but
as “getting from Point A to Point B as quickly as possible.”

There are two different types of JTBDs:

1. Main jobs to be done, which describe the task that customers want to achieve.
2. Related jobs to be done, which customers want to accomplish in conjunction with the main jobs to be done.

Consider a Spotify customer:

One JTBD is to organize and manage music for personal use. An important functional aspect of this job is to listen to
music.

Some related emotional/personal jobs are

1. To organize and manage music in a way that feels good
2. To share songs with friends
3. To download songs from the Internet, make playlists, discard unwanted songs, and pass the time

Takeaway:

People buy products and services to get jobs done; and while products come and go, the underlying job-to-
be-donedoes not go away. This notion is at the heart of the jobs-to-be-done framework.

The next time you're thinking of introducing a new product feature, ask yourself:

What job does the customer need to get done here?

And how does this feature help them get it done?

 Day 14

GALL’S LAW

Imagine I asked you on one fine weekend to build your own car from scratch.

No premanufactured parts or plans allowed. Just a block of metal, a few simple tools, your knowledge, and your
imagination. How do you think your project will turn out?

Even if you're one smart alec and your car works, chances are it will be a complete disaster. It’ll be far less efficient
and reliable than even the worst car from a commercial manufacturer.

Now imagine building a modern computer, designing the power grid for a city like Mumbai, or building the Burj
Khalifa from scratch without relying on anything someone else has already discovered.

Inevitably, you’ll suffer through a series of expensive and demoralizing failures. If you succeed, it’ll take decades.

What's going on? Why can't we start these complex projects from scratch and still succeed in a short span of time?

The reason is that complex systems are built over time, starting from simple systems and then going through small
iterations. These small iterations capture a lot of environment-specific information over decades of experimentation,
that a system built over a weekend simply cannot capture.

As John Gall, one of the first major complex systems theorists, puts it:

All complex systems that work evolved from simpler systems that worked.

Complex systems are full of variables and interdependencies that must be arranged just right in order to function.
And uncertainty ensures that you will never be able to anticipate all of these interdependencies and variables in
advance, so a complex system built from scratch will continually fail in all sorts of unexpected ways.

This is called Gall's Law.

Here's what I think can be an example many of you will relate with:

How many times has a new over-eager intern pointed out "flaws" or "shortcomings" in the organization without
understanding the whole context behind why those flaws exist?

This happens when people don't understand the mix of interdependencies and incentives that exist within a complex
organisation, and focus on only one part of the whole.

Takeaway:
If you want to build a system that works, the best approach is to build a simple system that meets the
environment’scurrent selection tests first, then improve it over time. Over time, you’ll build a complex
system that works.

And sometimes, there's no substitute for being time-tested when it comes to complex systems. Time-
tested thingshave been subject to environmental selection forces while being designed over the years, and
are thus likelier to work.
 Day 15

3 WAYS TO THINK ABOUT MAINTENANCE

I've often thought that maintenance can bring about a kind of attention to the system as a whole that might be
impossible to summon during the rest of the organization's working hours. It can lead to effective and creative
problem-solving under constraints.

Usually, people think of maintenance as a process of finding and fixing broken stuff—maintenance as the routinized
search for problems. This allows many small fixes that are easier and cheaper, instead of a big one that's more
expensive and needs more downtime.

But there are some other ways to look at maintenance.

1. The first way goes beyond merely fixing what’s found to be broken or about to break. Refactoring code or
restructuring the company's document archive or Notion database is a common example.

If you do it right, nothing about how the service works externally changes. Internally, though, things run cleaner,
cooler, more efficiently, and are better documented.

2. Thinking of maintenance as an activity that triggers unexpected ways of looking closely at a complex system. This
kind of maintenance is an exercise in general system awareness and is often considered a good investment.

For example, a daily yoga practice is a form of maintenance, as is a weekly stand-up project team status meeting, or
a quarterly board meeting for a startup. Doing the same thing at a regular interval provides opportunities to
recognize when the system is beginning to break in ways that simple problem-finding wouldn’t catch.

3. The third and the best form of maintenance: designing your whole system in a way that focuses your attention on
changing operating and environmental conditions, and helps you fix the system to keep up with the change.

For example, a project team working on an ultra-high-stakes product launch needs to present rough work-in-
progress for low-stakes feedback from all stakeholders involved, several times before launch day. If it doesn't, it
won't be able to see new and disconfirming information and make the micro-adjustments to accommodate it, even
if these adjustments are what’s likely to make the launch successful.

Takeaway:

Maintenance by design highlights even small changes in expected operating conditions by quickly
adjusting its behavior observably but in small ways. These micro-adjustments don’t cause the system to fail,
and reveal how the operating environment has changed. You can then easily restructure and redesign the
system to accommodate thisnew information.
 Day 16

A LESSON FOR MANAGERS

Think of a person you know well — like your partner or a close friend.

How would you define their ‘character’? What traits would you say are fundamentally them?

Now try imagining that person in different situations.

How might they act if they missed their flight to an important meeting?

What would they do if they found an injured animal outside their door?

What would they do if they lost their keys or dropped their phone down a staircase?

For a close friend, you can easily imagine how s/he would behave.

We all do this; we make assertions about a person’s character, then we expect those things to carry over to every
area of their lives. We label someone as 'smart', or 'sensitive' or 'friendly' or 'dishonest' or 'calm' or countless other
labels.

Then we expect that someone we label as ‘smart’ in one area will be smart in every area. Or that someone who is
‘calm’ in one situation is calm in all situations.

The Fundamental Attribution Error is a logical fallacy:

Our belief that the way people behave in one area carries consistently over to the way they behave in other
situations. We underrate the influence of circumstances and how they can impact people's behaviour and falsely
attribute their behaviour to their innate characteristics and personality instead.

Believing that a single action can ‘speak volumes’ about someone’s character is a tempting way to approach
understanding others. Yet in reality, this advice doesn’t translate into reality. It’s impossible to know if someone will
be a good partner based on a single action.

And this tendency to pick up on small details as indicators of someone’s character can really backfire while making
hiring decisions. You see someone seems good in one area and assume that carries across.

In fact, hiring is difficult because we cannot expect a person’s behavior in an interview to carry over to their behavior
on the job. An autistic person, for instance, might struggle to explain themselves in an interview but be incredible at
their work.

Imagine you’re interviewing a financial advisor. He shows up on time. He’s wearing a nice suit. He buys you lunch.
He’s polite and friendly.

Will he handle your money correctly? You might think, based on the stated factors, that he will. But in reality, his
ability to manage his time or pick out a well-fitting suit has no relation to his money management skills. The shiny
cuff links are not a sign of overall ‘good character.’

Also, fundamental attribution error is also responsible for our tendency on social media to demonize people based
on single instances of immoral behavior, and then extending this judgment to all areas of their life.

(Hint: A certain entrepreneur cheating at chess!)

Takeaway:

We need to understand a person's character as specific to the interactions and interplay between the
currentsituation, incentives, and the person instead of ascribing it to his/her default personality.
 Day 17

AMAZON’S PR/FAQ PRODUCT METHODOLOGY

As a founder and manager, I've always been inspired by how Amazon uses documents to shape its product
development — I find it incredibly unique!

So here's how it works:

In line with Amazon's customer obsession, product documents are written by starting from the customer experience
and working backwards from that by writing a press release that literally announces the product as if it were ready to
launch. The doc also covers FAQs, anticipating the tough questions.

The total document — both PR and FAQ — cannot exceed six pages in length. And most of the time, if there isn’t a
doc there isn’t a meeting.

Also, creating this document is quite an exercise!

You write it with the understanding that every single sentence, assertion, or assumption that you include would be
uncovered and interrogated by the people reading it.

"A good PR/FAQ is one in which the author has clearly considered and grappled with each of these issues, seekingtruth
and clarity on each."

Once submitted, your PR/FAQ is reviewed in a one-hour meeting with the relevant stakeholders present.

Meetings start with reading. Depending on the length of the document, stakeholders read anywhere from ten
minutes to half an hour. Reading the doc is part of the scheduled time.

When everyone has finished, the writer asks for general feedback. The most senior attendees tend to speak the last,
to avoid influencing the others.

Now you might be thinking: what are some benefits of such a PR/FAQ Product Methodology?

- All of the information for the meeting is contained in the doc.

- People are not expected to find their own time to read.

- The document is fresh in everyone’s mind.

- Presenters don’t have to feel nervous about presenting in front of people.

- You read everything in your own voice and vocal communication barriers such as accents, vocal ticks, or handicaps
(e.g. stuttering) are not present in the document.

- There’s a wealth of current and past documents that serve as a good history of past decision-making.

- You know the person who called the meeting invested their time in crafting a document, which fosters a culture of
thoughtfulness.

- Feedback and discussions happen during the meeting. Comments can be answered asynchronously. If more
discussion is needed then the document is revised and a new meeting is scheduled to read and discuss it.

- And finally, by forcing multiple iterations on a PR/FAQ, you implicitly gain the approval of everyone who reviews it,
demands iterations on it, and subsequently approves it.

This then means that when a product passes the PR/FAQ process but subsequently fails in the market, people are
more likely to take collective responsibility.

Takeaway:

I suspect there is a competitive advantage to be found here. You only have to figure out how you can adapt
theseideas to your own organization's work and culture!
 Day 18

HOW DO YOU MEASURE “SIMPLE”?

There are majorly two questions you should ask of any metric:

1. Is it a valid metric?

A metric isn't valid if

- Some scenarios lead you to closer to the ideal outcome but do not make progress on the metric.

- Some scenarios lead you to hit your target metric but actually take you away from your ideal outcome.

- Hitting your goal metrics doesn't materially matter to your business.

2. Is it feasible, i.e., how easy/hard is it to measure?

Take the example of Netflix. One of their hypotheses was that a simpler member experience would improve
retention, which was their high-level metric.

But how do you measure “simple?”

And how do you show that it improves retention?

The Netflix team began exploring customer service data.

Why do members call or email Netflix with questions or complaints?

What links do they click on when they visit the help pages?
Where do customers get confused?

This was Netflix's plan of action:

- They talked to new members in one-on-one sessions and focus groups.

- They asked a small group of customers to write a journal describing their weekly activity with Netflix.
- They looked at existing data for the new member sign-up flow, as well as their first few weeks with the service.

After these exercises, the team realized that there was a point of confusion among new members: Netflix's early
DVD-by-mail service required customers to create an ordered list of movies that we would send to them.

But some new members failed to add any videos to their Netflix “Queue.”

Some new members chose a plan, entered their credit card information, then asked, “Now what?”
The notion of adding at least three titles to their Queue confused many new members.

The Netflix team identified that simplifying the sign-up process would make it easier for customers to create a list of
movies.

The proxy metric they devised was

"The percentage of new members who add at least three titles to their queue during their first session."

After making the sign-up simpler, Netflix saw that 70% of new members added at least three titles to their queue
during their first session. By the end of the year, after a series of fast-paced experiments, they were able to increase
this percentage to 90%.

Over the same period, they drove month one retention from 88% to 90% — both the higher-level metric (retention)
and the "simple" proxy metric moved together.

Takeaway:

Directly using a high-level metric like retention for all projects may not always be feasible.

Lower-level metrics — proxy metrics — are easier and faster to move than a high-level engagement metric.
Ideally,moving a valid proxy metric will improve the high-level metric (e.g., retention for Netflix),
demonstrating a correlation between the two. Later, you can prove causation via an A/B test.
 Day 19

UNIT ECONOMICS

Simply put, your business's Unit Economics answers the question:

Can you make more profit from a customer than the total cost of acquiring that customer?

And a business can only be successful if a single unit of product or service is profitable. Makes sense, right?

But first, what's a "unit?"

The “unit” is the fundamental business measurement, and it will depend on the nature of the company or business
operations.

For a retail store or manufacturing company, one customer is one unit.

For a service provider or SaaS business, one client represents one unit.

In case of telecommunications companies, they have their physical infrastructure, such as wireless towers and data
centers, distributed in various places. Each of this physical infrastructure come attached with significant capital
investment. In this case, the unit is not just the customer, but also the physical infrastructure itself.

Once you identify the unit, you’ll be looking closely at your customer lifetime value (LTV) and customer/unit
acquisition cost (CAC), and the ratio between the two.

(If you don't know what LTV and CTC are, don't fret — I'm going to be covering each of these in upcoming posts.)

As you decrease the CAC and increase LTV, the unit profitability should increase; creating larger gross profit margins.

An ideal ratio of LTV/CAC is considered to be 3:1. Proving this ratio is a green light for investors looking for low-risk,
long-term financial growth opportunities.

This means that each customer generates at least three times in profit of the money you need to acquire them over
the entire duration of their engagement with the company.

In cases where the unit is the customer or the user, the duration is the average customer or user life or lifetime. For a
telecommunications company, the duration is the useful life of the physical asset (wireless tower or data center) that
was set up.

If your LTV/CAC ratio is lower (e.g. 1:1), it will mean it costs you as much to acquire one customer as they spend on
your product.
If your ratio is high (e.g. 6:1), it means you could be missing out on valuable opportunities. As each customer ends
up being worth more to your startup than it costs to onboard them, you can afford to allocate more of your time
and budget to sales and marketing.

If your unit economics are favorable with high margins per transaction, then you can press on your marketing
because the more such unit transactions you have, the more profit you will make.

Takeaway:

To improve your unit economics, you need to either —

Increase your Customer Lifetime Value

(LTV) (or)

Decrease your Customer Acquisition Cost (CAC)

A Unit Economics approach gives you more insight into your business's current health, and serves as a good
predictor for its sustainability.

And without an understanding of unit economics, predicting whether your business can be profitable in the long-
term is all guesswork.
 Day 20

CUSTOMER ACQUISITION COST (CAC)

In 2011, when Netflix threw $100 million to build the TV series 'House of Cards', it was widely ridiculed as an
extravagant splurge.

Today, Netflix has become a household name, with movie producers launching entire movie franchises on the
platform.

What did laymen not understand about this huge investment in House of Cards then that investors and Netflix itself
did?

The answer lies in their customer lifetime value (LTV) and customer acquisition cost (CAC), and the ratio between the
two.

Today, let's talk about CAC.

As the name suggests, CAC is the initial cost incurred by your business to acquire or recruit a customer. It includes
variable costs of selling, marketing expenses and other costs that are aimed at acquiring customers and persuading
them to purchase your product or service.

How do you measure CAC?

You can calculate CAC by simply dividing all the costs spent on acquiring more customers (marketing expenses)
during a certain period by the number of customers acquired in that period.

For example, if your company spent $100 on marketing in a year and acquired 100 customers in the same year, your
CAC is $1.00.

But wait, it's not as simple as it looks! There are caveats to this metric that you should be aware of when applying it.

To understand them, let's take the example of a company selling organic coffee.

Let's say the company spends $100,000 on advertising last month, and its marketing team says 10,000 new orders
were placed. This suggests a CAC of $10, a figure that has no meaning in itself.

If a BMW dealer has a CAC of $10, the management team will be delighted because the price of a unit sold is way
higher in proportion to the $10 spent on acquiring the customer.

However, in the case of the organic coffee company, the average order placed by customers is $25.00, and it has a
markup of 100% on all products. This means that the company makes $12.50 per sale on average and generates
$2.50 from each customer to pay for salaries, web hosting, office space, and other general expenses.
Doesn't look very lucrative now, does it?

But what happens if customers make more than one purchase over their lifetime? What if they completely stop
shopping for coffee at a retail store and buy from only this company?

A $10.00 customer acquisition cost may be quite low if customers make a $25.00 purchase every week for 20 years!

To understand these nuances, we'll need to look into LTV — something we will discuss tomorrow.
 Day 21

CUSTOMER LIFETIME VALUE (LTV)

Yesterday, we discussed Customer Acquisition Cost (CAC), while touching upon LTV — and more specifically, the
question:

What happens if customers make more than one purchase over their lifetime?

Customer Lifetime Value (LTV, or also known as CLV) helps you look at the full relationship with a customer. Not just
one order, but a collection of all purchases the customer has made and will make.

It takes into account not just what that customer has purchased to date but the total income you expect to gain
from a new customer including any add-ons and/or upsells that you expect from the customer.

How do you calculate LTV?

LTV is what a customer is worth, outside the cost to acquire them. It is the margin brought in per customer over a
defined period of time.

A simple example:

A customer signs up for a $5 monthly subscription and they have been active for 3 months. Revenue to date is $15
($5x3).

Based on similar customers, you forecast they will stay active for 6 months.

Hence, their lifetime revenue is forecasted to be $30 ($5x6).

Your variable costs to service them for 6 months is $12.

This brings you to a projected LTV of $18 ($30 projected revenue - $12 variable costs).

Why is LTV important?

Lifetime Value is a key variable in revenue forecasting, as each additional customer brings additional revenue per
month and throughout their projected ‘lifetime’.

Tracking your CAC spend targets versus LTV also reveals whether you are spending too much or too little to acquire
new customers. Spend too much and you eat into your profit margins. Spend too little and you miss out on potential
sales.

For the unit economics to make sense, the CAC for each segment should always be lower than the LTV of a new
customer.

Different types of customers can have different LTVs, especially when you have different pricing levels for your
various offerings. In this case, it makes more sense to calculate the LTV for different customers based on the pricing

segment that they fall into.

Once you are able to segment your customers according to their LTV, you can allocate resources accordingly.

Customers with a high LTV should receive more resources depending on what stage of the customer lifecycle they
are in, especially if they are nearing the end of the cycle with potential for renewal.

A caveat:

An important input for your LTV calculation is the projection for maximum Customer Life. Most LTV calculations go
out 2-3 years, and you should avoid forecasting out to an unreasonable timeline.

For most businesses going out beyond 5 years is a mistake. Additionally, the further out you go, the more you will
need to consider the "time value of money", something we are going to discuss in detail in tomorrow's post.

Stay tuned!
 Day 22

TIME IS MONEY

Congratulations! You have won a lottery. Here are two payment options you can choose from:

Option A: Receive ₹10 lakh now

Option B: Receive ₹20 lakh 10 years later

Which option will you go with?

If you're a smart and savvy investor, you will base your decision on the Time Value of Money (TMV).

A doubling of the lottery amount in 10 years equals a yearly return of ~7%, compounded annually.

If as an investor, you're confident of generating greater than 20% return on your investments annually, option B feels
like a bad trade.

Despite double the value at the time of disbursement, receiving the ₹10 lakh today has more value and utility to you
than receiving it in the future due to the opportunity costs associated with the wait.

Such opportunity costs could include the potential gain on interest if you received that money today and invested it
in an asset that generates >7% returns annually.

The time value of money is the idea that all else being equal, money is more valuable when it is received closer to

the present.

Knowing YOUR time value of money can help you make sound investment decisions. I lay emphasis on 'your'

because it depends on how smart you are with your investments.

If like most people, you were to put it in a savings account or a fixed deposit, you would be better off getting the
₹20 lakh after 10 years, since an FD probably won't generate that much return after 10 years.

But if you were to, let's say, buy a piece of property in a fast-developing tier-2 or tier-3 city in India like Nashik, you

will probably see the value of your investment compound at a much higher rate than 7%.

TMV also helps while making business decisions.

For instance, suppose you as a CEO can choose between two projects:

Project A and Project B. Both projects have identical descriptions except that Project A promises a ₹1 Cr cash payout
in year 1, whereas Project B offers a ₹1 Cr cash payout in year 5.

If you did not understand the time value of money, they might believe that these two projects are equally attractive.

In fact, however, time of money dictates that Project A is more attractive than Project B because its ₹1 Cr payout has
a higher present value:

You can take the cash after year 1 and choose to re-invest in another project that would generate even more
returns.

Takeaway:

Time is literally money. The value of the money you have now is not the same as it will be in the future.
Knowingyour TVM can help you distinguish between the worth of investments that offer returns at

different times.
 Day 23

NETWORK EFFECTS

Would you buy from an Amazon or an eBay if these platforms only featured 10-20 sellers?

Would you use Facebook or Twitter if these platforms had fewer than 100 users?

Would you use Uber or Ola if the number of cabs available at any given time was pretty low?

If your answer to these questions is "No," think about why that's the case.

Is it because the greater the number of buyers, sellers, or users — the greater the value created by the offering?

And what do we mean by value here?

For a platform like eBay or Amazon, it could be the discoverability and aggregation of options available in the
market, along with cheaper prices due to economies of scale.

For an Uber, it could be greater convenience and reliability when more drivers join the platform.

For a social media site, it could be finding more diverse and interesting content and people as more of them sign up
on the platform.

This is called the Network Effect — a phenomenon in which the value of a product, service, or platform depends on
the number of buyers, sellers, or users who leverage it.

More users signing up > More value > More incentive for other users to sign up > Even more value

It's a reinforcing positive feedback loop where users drive engagement and value and that in turn attracts more
users.

This is true, not just for Facebook or Twitter, but even for a company like Apple with a closed ecosystem and services
like iMessage that benefit from these same network effects.

If you see your friends using iMessage, you are more inclined to buy an iPhone to use the service, which in turn
incentivizes more of your friends to get it as well.

For a two-sided marketplace with buyers and sellers, as more people from one group join the platform, the other
group receives a greater value.

Why are Network Effects important?

Because before pricing your product, service, or platform, it’s crucial to understand whether your market is subject to
network effects.

Why?

To maximize profit margin, businesses typically price their products as high as possible without exceeding their
customers’ willingness to pay. But when a market is subject to network effects, the driving concern isn’t so much
profit as it is market share— especially early on.

This is because future customers’ willingness to pay depends on the number of existing users. By growing your
market share early on, you increase your ability to raise prices at a later date — once you’ve driven customer
adoption as much as possible.

For this reason, many companies price their products low early on or give them away for free.

Once you’ve gained significant market share, you can often sit back and let the network effect take over. Your
existing buyers and sellers become your sales force. They attract more buyers, and you often have to do very little.

Perhaps now you'll realize why many loss-making startups today focus on distribution first more than maximizing
profit margins!
 Day 24

PURCHASING POWER PARITY

Consider scenario A:

You are a remote worker. To maximize your earnings in relation to your spending, you wish to work from a relatively
inexpensive country.

How do you go about finding one?

Consider scenario B:

Companies like Google are deciding to pay their remote workers differently, based on the location they're working
out of.

How do they make this calculation?

The answer to both these questions lies in a macroeconomic concept called Purchasing Power Parity (PPP).

PPP is a theory which states that exchange rates between currencies are in equilibrium when their purchasing power
is the same in each of the two countries.

In simple words, how much does it cost you in absolute $ terms to get a basket of goods in, say, the USA vs. the
same basket of goods in India, currency exchange rates considered?

When calculating GDP per capita, PPP gives a more accurate picture of a country’s overall standard of living.

Imagine country A has a GDP per capita of $40,000, while that of country B is just $10,000.

Does that mean country A’s people are 4 times as rich? It depends.

What if a basket of goods, plus housing, utilities, transport, and health costs are four times as expensive in country A
compared to B? The two countries’ standards of living then would be pretty similar.

The simplest way to calculate purchasing power parity between two countries is to compare the price of a "standard"
good that is in fact identical across countries. Every year, The Economist magazine publishes a light-hearted version
of PPP:

its "Hamburger Index" or "Big Mac Index," which compares the price of a McDonald's Big Mac in 55 countries.

But more sophisticated versions of PPP look at a large number of goods and services. For the 2003–06 PPP
calculation, each of the participating countries (about 147) provided national average prices for 1,000 closely
specified products.
But here's why we don't live in a PPP world:

PPP depends on the law of one price. In theory, once the difference in exchange rates is accounted for, then
everything would cost the same. This isn't the case in the real world.

First, there are differences in transportation costs, taxes, and tariffs. These costs will raise prices in a country.
Countries with many trade agreements will have lower prices because they have fewer tariffs. Socialist countries will
have higher costs because they have more taxes.

A second reason is that some things, like real estate and haircuts, can't be shipped. So, the comparison across
countries doesn't really make sense.

And finally, we live in a world where technology and software platforms built in the west dominate the world. These
companies charge about the same prices for their products across the world, irrespective of PPP.

So, maybe PPP doesn't hold a lot of real-world value.

 Day 25

ADDITIVE SYSTEMS VS. MULTIPLICATIVE SYSTEMS

"When the customer is buying $200 pants, they better have a good zipper. Because the customer will blame the
maker of the whole garment even if the zipper was the part that failed. A zipper will never make a garment. But it
can break a garment." — Trina Turk

Think about the time you invited your friends over for a party, and a dish you had prepared didn't turn out quite
right.

Was it a problem? Sure. But did it break the entire experience of having a fun dinner with your friends? Probably not.

A dinner is an additive system. Take some parts away or add new ones in, and you get a different outcome, but not a
binary, win/lose one. The meal still happens.

But most businesses, for example, work in a multiplicative system — where if the core functionality fails, it doesn't
really matter what other features the product has. It's still a failed product and business.

A SaaS business can often keep adding new features to the software but fail at customer service, so the customers
leave, never to come back. That’s a business that thinks it’s in an additive system when they really are in a
multiplicative one.

In a multiplicative system, the equation goes straight to zero even if one multiplying factor is zero, no matter how
large the other factors are. So the business needs to be resolving the big fat zero in the middle of the equation
instead of adding more stuff.

Let's apply this analogy to careers. Often, professionals who want to make it big in their career but just can't seem to
get ahead are missing one key ingredient that nullifies all other proficiencies they might have, like a great resume,
relevant skill set, good experience...

For a remote worker, this key ingredient is good communication. Fail at it and none of the other stuff matters.

For a founder, it may be having a deep understanding of her customers and their jobs-to-be-done. Fail at it and it
won't matter how fancy of a product you build.

These multiplicative factors are sort of your core priorities, and you'd be smart to focus on ALL of them first, before
you move on to adding new jazz. Because missing out on even one key factor will take the entire equation to zero.

On an individual level, health is one such factor that can break everything else if not paid attention to.

Moral of the story:

A chain is as strong as its weakest link. Even if one link breaks, it renders the entire chain useless.

While starting out on a new project or business, focus on separating multipliers (must-haves) from adders (good-to-
haves) and put all your energies on the former.

This is key to good prioritization and decision-making.

What are some examples you know of when someone failed to identify a crucial multiplier and that eventually broke
the system? Chernobyl comes to mind.
 Day 26

REDUNDANCY

I'm sure many of you must have heard of Tata Motors' share price falling due to unavailability of chips from chip
manufacturers, which has delayed their production of cars.

What would've happened instead if they had an existing inventory that could adapt to this temporary delay in the
arrival of supplies?

Extra inventory acts as a buffer against supply volatility. If you have a warehouse full of components, you can prevent
small stressors such as a supplier's truck arriving one day late from hurting you having to stop production due to a
lack of components.

Redundancy is your capacity to adapt to the changing environment. The more redundancy inside an entity, the less

brittle it is, all other things being equal.

Redundancy is particularly useful when volatility can be fatal to the game you're playing. For example, when you
invest all your cash in a single stock, and if it goes to zero, you are left with no more money to invest again. You exit
the game.

This is an example of having no redundancy. Contrast this with diversifying your assets in uncorrelated sectors, which

provides you a healthy buffer against volatility in one sector. Even if stocks from that sector are impacted, you still
have other stocks to bank upon.

Here's a common fallacy:

"It was inefficient to spend my money on that fire extinguisher, I never got to use it."

Or
"It was a waste to spend on a CCTV system for my store because no robbery or theft has occurred in the past 10
years."

This is an example of optimization without adequate redundancy. It is overoptimization (maladaptation) to a

temporary lack of volatility. You can never predict when a fire or a burglary is going to take place. Redundancy
protects you from these large unforeseen risks.

What are some caveats to redundancy?

1. Over-redundancy can be inefficient in bounded and non-complex domains with no fatal risks.
2. Over-redundancy can make you too lax and not work on solving underlying problems, because you're now too
reliant on the buffer to take care of the volatility. Great companies selectively remove buffers in order to surface
problems to solve them before they get too big and too costly to solve.

Takeaway:

1. Have a lot of redundancy, but only use it to absorb large stressors where you'd risk "game over."

Having parachutes on airplanes — even if they get used once every million flights — is wise, as there is
no coming backfrom death.

2. Keep yourself exposed to small stressors which surface problems and help you improve. Over-reliance on

the buffer will only make you ignore problems that grow so big till even the buffer cannot help you.
Developing chronichealth conditions like diabetes and lung cancer due to bad habits and over-reliance on
your body to take care of itself is a simple example. You don't want to be in that position.

What are some examples of useful redundancies you have come across in your life and work?
 Day 27

IDENTIFYING YOUR GO-TO-MARKET (GTM) STRATEGY

When a product is launched to the public, a company has two key muscles it can flex to take it to market:

Marketing and Sales.

If you’re marketing-intensive, the product is bought. If it’s sales-intensive, the product is sold.

You can’t afford to “sell” a $2 tube of toothpaste. To prove it, just take the total cost of the salesman and divide it by
the number of sales calls in a year. That’s why no one goes door-to-door saying,

“Let me explain the benefits of Pepsodent over Colgate.”

But, say you’ve got a product that costs $100,000 to build, you need to sell it for $200,000. Now you’re in a sales-

intensive go-to-market strategy.

But how do you decide if your product needs a marketing-intensive GTM strategy or a sales-intensive one? Here are

a few questions you need to answer:

1. Is this a large or small economic decision for the buyer?

Billions of people need toothpaste, but unlikely more than 100 airframe manufacturers are in search of a supplier of
jet engines.

In a small market with fewer paying customers, a sales-intensive strategy makes more sense.

2. Is it easier for them to find you or for you to find them?

When it comes to the level of complexity, some products are dead simple, while others require education, manuals
and customization to derive utility.

Consider the difference between a SaaS like Zoho or Salesforce and an app like Uber. The former can take hundreds

of people and a couple years to fully implement. The latter is just a simple app for the consumer.

A complex product is always sold, never marketed.

3. Can a customer self-serve to use or is education required?

Fit and finish ranges from out-of-the box solutions to something that requires multiple steps or points of support to
operate.

As a toothpaste or smartphone comes out of the box without the consumer having to work much on getting it ready
to use, it has high fit and finish. Contrast that with an airplane engine or even enterprise SaaS.

When education and support is required to use your product, your GTM needs to be sales-driven.

4. How long is the lifetime of your relationship with your customer?

A customer will buy hundreds of tubes of toothpaste over her lifetime. But she will only buy one under-graduate
program — or if it's an airlines — a few jet engines that will last many years.

A toothpaste has a very low switching cost and a purchase decision can be influenced by a coupon. But a product
that lasts many years, like a car or enterprise SaaS, has a high switching cost.

5. Does your business measure successful customer relationships by transactions or longevity?

If your product is bought often and transactions > longevity, you may not need high-touch sales. But if the customer
is going to use your product for a long time, she will deliberate more on her decision, meaining you need high-
touch sales.

A simple framework to identify your GTM 👇

Left = Marketing
Right = Sales
 Day 28

PRICING POWER

Can you significantly raise the price of your product and still keep most of your customers? If your answer is yes,
then you've got pricing power.

Pricing power is important because it reveals something core to your business:

It tells investors that you've got a product with some valuable differentiation, which is why customers do not seek
cheaper alternatives even when you increase prices.

People talking about selling their kidneys to buy an iPhone? That's pricing power.

Now I know the above is just a joke meant to mock Apple's exorbitant pricing. But I've surely heard of people selling

their farmland to buy iPhones.

Think of pricing power as a muscle you build over time. And there are a few ways in which you can build this muscle.

1. IP- or infrastructure-based monopoly

If you have patented technology or a huge infrastructure barrier that prevents newcomers from entering, then you

can raise your prices without people having an option to go anywhere else. That's a big reason why the telecom
industry is highly regulated: Communication services are considered a public good, so the government makes sure
that private players cannot take advantage of their large market share to hike prices.

2. Network or Ecosystem lock-in

Apple can maintain high prices partly because once the customer buys into the Apple ecosystem, it's very hard for
her to get out of it and adopt a Windows or an Android device.
3. Creating Habits

Consider the recent Zomato IPO or a company like CRED. Even though you might say these are loss-making

companies, that would be a myopic way to look at their strategy. What these companies are essentially trying to do
is to first create a seamless user experience so that customers develop a habit of using the platform. Once these
companies reach significant distribution, they can then start monetizing their products and services and achieve
pricing power.

4. Creating Brand

Strong brands like Apple or Ferrari create valuable differentiation by associating unique meaning, symbolism, and
aspiration with their products. They can keep prices high because price offers signalling power and directly adds to
the products being perceived as luxury.

5. Catering to a Niche

Great artists create their own niche with ardent fans. And an artist is a unique individual who is irreplaceable. If

you're a die-hard Beyonce fan, you won't simply go to a Taylor Swift or Kanye West concert if Beyonce decided to
charge more for her events.

Takeaway:

If you're building a product or service, it would serve you well to ask yourself:

What's that core feature/s that would make my customers not choose anything else over my product,
even if Idecided to raise prices?

Not only will it tell you the core problem your product is solving for your customers, but it will also serve

as your compass for making sound product decisions.

 Day 29

CHOOSING YOUR NORTH STAR METRIC

As a company, your North Star Metric(s) define what all of your company priorities are aligned around. And hence,
nailing the right metrics is crucial to the success of your company.

Broadly, there are six categories of North Star Metrics:

 Revenue (ARR, GMV)

 Customer growth (paid users, market share)
 Consumption growth (messages sent, nights booked)

 Engagement growth (MAU, DAU)

 Growth efficiency (LTV/CAC, margins)
 User experience (NPS)

Now, which one of these metrics is the right one for you?

1. For Marketplaces and platforms: Consumption Growth

Marketplaces and platforms make money from usage — the more consumption they drive within their platforms, the
faster they grow. Marketplaces that take a cut of each transaction, like Airbnb, Zomato, Uber, and Ola focus their
NSM on the volume of transactions (nights booked, rides taken, and orders placed, etc.)

2. For Paid-growth driven businesses: Growth efficiency

When your business is driven by performance marketing, there are two common NSMs: margins and LTV/CAC.

For example, companies that are purely digital like apps invest most of their budget into performance marketing,

like the meditation and sleep app Calm. Such businesses fixate on optimizing margins and unit economics. The more
RoI they get on ads, the faster they grow.

3. For Freemium B2B products: Engagement and/or customer growth

Companies such as Coda and Slack aim to first hook free users who then invite their colleagues. Eventually, after
they reach a certain level of usage, they upgrade to a paid plan.

4. For User-generated Content (UGC) subscription-based products: Consumption

Products that are driven by content creation, like Twitch and Loom, optimize consumption — say, five-minute plays,
or videos created that are viewed — rather than engagement. This is because the sharing and consumption of
content is at the heart of their growth flywheel.

5. For Ad-driven businesses: Engagement

Every company that monetizes through web traffic (by running ads), such as Facebook, Pinterest, and Snapchat, opts
for a North Star Metric based on engagement.

6. For Consumer subscription products: Engagement or Customer growth

Apps like Duolingo, Tinder, and Strava tend to choose either engagement or customer growth as their North Star
Metric.

In the case of companies with high user churn, like Tinder, they concentrate on % of paid accounts rather than an
absolute number of users. As people find their soulmates — Tinder is much better off if they can get users to

upgrade quickly.

7. For Products that differentiate on experience: NPS

Some products win or lose based purely on their user experience, like Stoa. Their success depends on how
delightful, easy, and useful customers find the product. Thus, these companies focus on a quality-oriented metric

like NPS.

We will be diving deeper into the nuances of this topic during this week.
 Day 30

IS REVENUE THE RIGHT NORTH STAR METRIC?

In the end, every company wants to make revenue and increase revenue growth. But sometimes, having revenue as
the North Star Metric can really obfuscate the underlying product usage patterns.

Companies like Figma, Notion, Patreon, and Superhuman can easily focus on revenue as a North Star Metric because
these companies make tools that can be used in a variety of ways and purposes. There is no fixed underlying usage
pattern that needs to be optimized for the company to assess whether they are on the right track.

However, take the case of Airbnb, Miro, Tinder, Spotify, or Twitch who purposely avoid focusing on revenue.

Why?

1. Because their customers have certain fixed jobs-to-be-done, which an encompassing metric like revenue doesn’t
focus on.

For example, “nights booked” is a much better North Star Metric for Airbnb.

In the case of Miro, its customers’ job-to-be-done is collaborating with colleagues remotely. Hence, number of
collaborative boards created is a better NSM for Miro.

In the case of Twitch, its customers’ job-to-be-done is ‘watch gamers play live’. Hence, focusing on “no. of 5+ minute
playbacks,” i.e., the number of users who have watched a stream for five consecutive minutes or more is a better
NSM for Twitch.

2. Revenue is volatile and depends on a lot of external factors which are out of the company's control.

At Airbnb, for example, revenue is often impacted by factors such as currency exchange rates, average lengths of
stay, and host pricing decisions. So, focusing on revenue doesn't exactly tell Airbnb what product features to work
on and improve.

3. A goal around revenue can sound dull, mechanical, and uninspiring to the team. Making money by itself is not
very meaningful.

People join companies to accomplish a specific mission; rarely is that mission simply growth in generating revenue.
It is rather to help people and create real value for them.

Even metrics that are only one step removed, such as the number of paid customers, are more motivating because
teams can assume that a paid customer is finding value in the product, so the company (and thus the employee) is
delivering value.
Takeaway:

Of course, in the end, everyone cares about revenue.

But as I said, there are some good reasons to avoid making revenue growth your singular North Star Metric.

Instead of concentrating exclusively on revenue as your north star, what’s another metric that is a leading
indicator
of revenue, one that is operationally easy to track and optimize?

It isn't easy to build a well-defined product roadmap around broad metrics. This is where proxy metrics
come into the picture. I've written in-depth about proxy metrics in one of my previous posts — if you
haven't read it, then do check it out here: MEASURE THE RIGHT THINGS AND MEASURE THEM RIGHT
 Day 31

4 GAPS IN OUR THINKING

We, especially entrepreneurs and product-builders, live in the era of creative knowledge work.

Our work isn’t strictly measurable. Nor are our problems well-structured.

The problem with not knowing the problem; the problem with ill-structured problems is that they have many
solutions. There are no right or wrong answers, only better or worse ones.

And the solver must start by defining the goal and constraints of the problem before exploring potential solutions.

This is not as easy as it sounds, and we commonly develop gaps in our thinking:

1. We don’t examine our ideas before investing in them.

As product managers we ask, “What should we build next?”

In both cases, what follows is an idea. Maybe two or three, if we are lucky.

Some of us rush off and build that first idea or two. That’s akin to rushing off and investing in the first stock we see
on the market before examining why it's a good investment.

2. We don’t consider enough ideas.

The rational part of our brain may help us slow down and examine our ideas. We might ask, "Why do I think this idea
is worth building?"
But here's what goes wrong:

We start with our idea and work backwards to consider our desired outcome. In the process, we often skip the

crucial step of asking,

“What else could we do to drive our desired outcome?”

We don't maintain the state of doubt for long enough to carry out a systematic enquiry. We don't consider enough
ideas.

3. We don't pit our ideas against a single framing of the problem.

In other words, even when we do consider multiple options, we often compare solutions that shouldn’t be compared
against each other.

We argue over the merits of two different solutions only to later realize that they both lead to solving a different
problem.

What we should consider instead is which problem each solution solves and make a decision about which problem
leads to a more valuable opportunity.

We then only want to compare solutions that deliver on the same opportunities. Instead of debating the merits of
each solution, we want to ask ourselves,

“Of these solutions, which one is most likely to deliver on the target opportunity?”

Systematic enquiry means that we consider multiple solutions that deliver on the same opportunity.

4. Our solutions don’t connect to an opportunity or our desired outcome at all.

In worse cases, we consider a solution that doesn't solve any real problem at all. We just like the idea of it.

Oftentimes, we miss this gap in our thinking because it happens in a step-by-step manner — where each step seems
reasonable.

——

Product clarity is an outcome of systematic and rigorous enquiry under constraints. And to be a good product-
thinker, it's essential to study not just the product, but our entire process of thinking about it as well.

Tomorrow we'll discuss how to go about solving these gaps in our thinking.
 Day 32

OPPORTUNITY SOLUTION TREE

Yesterday, we talked about 4 gaps in our thinking. These were:

1. Not examining our ideas before investing in them

2. Not considering enough ideas

3. Not measuring the validity of our ideas against a single framing of the problem
4. Ideas not providing solutions to our desired outcome at all

Today, I'm going to share a framework with you that will help you and your team focus your energies, bring
transparency to the process, and get buy-in from the whole team into the decisions being made and the solutions

being tested.

Say hello to Opportunity Solution Trees.

This framework helps you ensure that your team is prioritizing user needs and generating enough solutions in order
to allow the best solution to emerge.

Step 1:

Good product discovery starts with a clear desired outcome.

If your team uses OKRs, you might start with one of your Key Results.

If your team doesn’t use OKRs, you can use any single metric that you want to improve:

Metrics like engagement, retention, revenue, customer satisfaction, NPS, etc.

Some teams focus on more than one goal or metric at a time. If you do, make it clear which is the priority. If you had
to make trade-offs, which would win?

Step 2:

Good opportunities emerge from generative research.

Most product teams jump from a desired outcome to generating solutions. But we don’t want to do that.

We want to be continuously seeking opportunities in our market. Every day we learn more about customers, their

needs, and their pain points.

So, we want to frame these needs as opportunities and capture them on our tree.

Step 3:

Good solutions can and should come from everywhere, as long as they are bounded by an opportunity.

Let's not manage our manager's or boss' pet ideas. We want to be looking beyond HiPPO (Highest Paid Person's
Opinion).

The tree helps us look beyond and explore solutions that connect to an opportunity. Solutions should only be

considered if they help us deliver on one of our target opportunities. If they don’t connect to the tree, they should
be considered a distraction, and hence, removed.

Step 4:

Good experiments help you evaluate and evolve your solutions.

Experiments help you test the riskiest assumptions behind your solutions — not your whole solution.

By giving experiments their own row on the tree, it encourages us to think about sets of experiments that will allow
us to test a single solution.
To summarize:

- As the Product Manager, pick a desired outcome (ideally your high-level/proxy metric)

- Generate problem statements (opportunities) for achieving the desired outcome. Discuss as a team. If
your teamjumps straight to solutions, ask them what specific problem their solution solves, and capture
that.

- Brainstorm solutions to specific opportunities.

- Have the team vote on the solutions with the most potential for success.

- Design experiments for the top 3 solution ideas.

 Day 33

WHAT IT ACTUALLY MEANS TO BUILD AN MVP?

A common misconception about iterative and incremental product development?

To launch a car, you must first launch the

wheel > transmission > chassis > car

Imagine your team is using this approach to incrementally launch a car in the market.

You go to your customer and say,

"Here sir, here’s our first iteration, a front wheel. What do you think?”

Your customer is like,

“Why the heck are you delivering a wheel to me? I ordered a CAR! What am I supposed to do with this?”

With each delivery, the product gets closer to done, but the customer is still angry because he can’t actually use the
product. It’s still just a partial car.

And finally, when the product is done, the customer is like, “Finally! Why didn’t you just deliver this in the first place,
and skip all the other useless deliveries?”

In this example, she’s happy with the final product, because it’s what she ordered. In reality, that’s usually not true. A
lot of time has passed without any actual user testing, so the product is most likely riddled with design flaws based
on incorrect assumptions about what people need.
Many projects fail badly because they do Big Bang delivery:

Build the thing until 100% done and deliver at the end.

This is a misconstrued version of Agile. Technically, it might be incremental and iterative delivery, but the absence of
an actual feedback loop makes it very risky – and definitely not agile.

A better approach:

To deliver a car, you first deliver a

skateboard > skateboard bike > bicycle > motorbike > car

We start with the same context — the customer ordered a car.

But this time, we don’t just build a car. Instead, we focus on the underlying need the customer wants fulfilled. Turns
out that his underlying need is “I need to get from A to B faster”, and a car is just one possible solution to that.

And as opposed to the wheel in the first scenario, the skateboard is actually a usable product that helps the
customer get from A to B.

The key question is “What is the cheapest and fastest way we can start learning? Can we deliver something even

earlier than a skateboard? How about a bus ticket?"

We learn some things along the way:

The customer likes the feeling of fresh air on her face. And she travels through narrow lanes, not wide roads. For that
customer's use case, the bicycle may turn out to be a much better product than the car! We just saved the customer

tons of time and money, and gave her a better product in less time.

But shouldn’t we already have known that via up-front analysis of the customer’s context and needs?

Good point. But no matter how much up-front analysis you do, you’re still surprised when you put the first release
into the hands of a real user, and many of your assumptions turn out to be way off.
Think of the skateboard as a metaphor for the smallest thing you can put in the hands of real users, and get real
feedback.

So, what's your skateboard?

 Day 34

VIRTUOUS LOOP

Today I’m going to be sharing a framework by Sarah Tavel of Greylock Partners which answers the question:

How do you maximize your chances of building an enduring Unicorn Startup?

At the core, building an enduring company comes down to understanding how to maximize engagement.

Here’s the hierarchy Sarah proposes:

Level 1 – Growing Engaged Users: Focus on growing number of users who are completing the core action. The core

action is the action that forms the foundation of your product.

Examples of core action for different companies:

Facebook: Making friends

Pinterest: Pinning photographs
Snapchat: Snapping

YouTube: Subscribing to channels

The core action is most correlated with retention. In the case of Facebook, they realized that if they got a user to
connect to 7 friends in 10 days, there were high chances that they'd be retained for life.

In the case of Pinterest, the company realized that if a user pinned something, s/he was likely to come back to the

platform next week.

But it's not just about focusing on the core action but also other features that support the core action. For Facebook,

it'd mean making the act of uploading status updates and photographs as seamless as possible.
Growing users without growing users completing the core action is empty growth. It feels good, but it doesn't help
you.

Make sure you're focused on the right core action.

Ask yourself: What features would we build if we optimized for people completing the action?

Level 2 – Retaining Users : The product should be designed so as to get better the more it’s used. This way, you build
stickiness — users have more to lose by leaving the product.

How do you build your product to retain users?

Create compounding benefits as a user engages, so that leaving the platform becomes harder for them with every
engagement.

Put simply, "The more I use the product, the better it gets." and,

"The more I use the product, the more I'd have to lose if I left the product."

The more notes you add to Evernote, the more value you get and the harder it is to leave. Same goes for pinning
items and creating boards on Pinterest.

On Twitter, an increasing number of followers creates stickiness to the platform by getting you invested in your
identity and social reputation built on it.

Level 3 – Virtuous Loops: As users engage, they create virtuous loops in the product.

Virtuous loops are the flywheels that convert your users' engagement into fuel to power your company forward.

A Pinterest user might share a pinned item with a friend who is now incentivized to jump onto the platform and start
creating her own pins and inviting her own friends. It's a virtuous cycle.

Takeaway:
The ultimate metric for any product company is to look at the % of weekly/monthly users completing the
core actionand then try to maximize the total no. of users while keeping the % constant or by increasing the
% of users completing the core action, or both.
 Day 35

THE BULLSEYE FRAMEWORK

“Poor distribution — not product — is the number one cause of failure. If you can get even a single distribution
channel to work, you have great business. If you try for several but don’t nail one, you’re finished. So it’s worth

thinking really hard about finding the single best distribution channel.” — Peter Thiel

At any stage in a startup’s life cycle, one traction channel usually surpasses all others by a huge margin in getting

customers.

The Bullseye Framework helps you find THE channel that will get you traction.

The name Bullseye denotes that you're aiming for the bullseye — the one traction channel at the center of the target

that will unlock your next growth stage.

The framework involves 3 steps:

1. The Outer Ring: The Long Shots

This step is straightforward. You simply brainstorm and list down every single marketing channel you can think of for

your startup, and then come up with a testing idea for each channel.

The outer ring is meant to help you systematically get rid of your channel biases. It is important that you not dismiss
any traction channel in this step.

2. The Middle Ring: What's Possible

In this step, you run traction tests in the channels that seem most promising.
Often, depending on the domain your startup is in, not all channels will offer traction. But there will be a few
channels that will look promising. Promote those channels to the middle ring.

But don't shortlist too stringently. You want to have more than one channel in your middle ring. You can then test

these channels in parallel.

For each traction channel in your middle ring, now come up with a cheap traction test you can run to determine if
the idea really is good or not.

These tests should be designed to roughly answer the following three questions:

1. How much will it cost to acquire customers through this channel?

2. How many customers are available through this channel?
3. Are the customers that you are getting through this channel matching your customer persona?

3. The Inner Ring: What's Working

If all goes well, one or two of the traction channels you tested in your middle ring produced promising, outlier

results.

In that case, you should start directing all your traction efforts and resources toward this most promising channel/s.
You hit the bullseye! You’ve found your core channel.

Previously, you were going wide. Now, you will go deep and try to wring every bit of traction out of your core
channel/s by finding out how you can optimize channel performance.

The point of the Bullseye Framework:

1. Find out your most effective or core channel/s, and

2. Go all in and double down on your core channel without getting distracted by other channels that "sort of work."

However, if no channel seems promising after testing, you should repeat the whole process. But now you have all
the data from the tests which you can use to tweak your efforts and experiment better.
 Day 36

A DECISION MAKING-FRAMEWORK YOUR CEO WILL LOVE!

A decade ago, Gokul Rajaram was working as the product management director for Google AdSense.

During one of his presentations to Google’s CEO Eric Schmidt, a tough challenge related to Google’s display ads

business surfaced and the room got heated.

Schmidt's voice boomed, "Stop. Who's responsible for this decision?"

Three people including Rajaram simultaneously raised their hands.

"I'm ending this meeting," Schmidt said.

"I don't want you to return to this room until you figure out who the owner is. Three owners means no owner."

With that, the meeting was adjourned and the team dismissed.

Years later, Rajaram came up with a framework to make these tough decisions while he was working at Square.

The decision-making framework is called SPADE, an acronym that stands for

Setting
People

Alternatives
Decide
Explain

Let me walk you through the framework, step by step.

S — Setting

As the word suggests, this step tries to set up the "What" "When" and "Why" of the problem in a precise way.

What: What is the decision to be made? If you have multiple variables guiding the decision like the product, product
feature, demographic, etc., answer the "what" for each one of those.

Why: Why does this decision matter? Why are we making it?

When: By when does the decision need to get made?

Open your calendar and get exact. Your decision's when should reflect the timeline itself as well as the reasoning
behind it. Why that date? Why that duration?

P — People

Identify the people who should consult, approve, and most importantly, a single person who is responsible.

Responsible means accountable.

The person who makes the final decision is empowered to own both the execution and success of the choice.

A — Alternatives

Come up with a set of alternatives that are feasible, realistic, and diverse — they should not all be variants of the

same situation, and comprehensive — they should cover the problem space.

Brainstorm publicly with all stakeholders and note alternatives.

D — Decide

Once you've laid out all the alternatives — complete with their respective pros and cons and quantitative models —
get your consultants to vote.
The voting needs to be private because difficult decisions can have controversial solutions. Giving feedback privately
ensures that it stays impartial and is not influenced by corporate hierarchy or groupthink.

E — Explain

Once you've decided, go to the CEO and lay out the alternatives and your argument. If you created a high-quality
decision framework, they're unlikely to veto it.

Call a meeting and explain your decision and the way forward to everyone. There might be disagreements but the

more information you provide, the better.

After the meeting, chart out the next steps and broadcast the decision via email.

Takeaway:

I'm posting a template to the framework by Rajaram himself that you can start using for your decision-
making. Allthe best!
 Day 37

WHAT IS A/B TESTING AND WHY WON’T IT CHANGE THE WORLD?

A few days ago, Kunal Shah (Founder – CRED) tweeted,

“Nobody changed the world by doing A/B testing.”

And boy it cooked up a storm on Twitter!

But before understanding the meaning behind his tweet, let’s first try to understand what A/B testing means.

Imagine you run a business that sells products via a website. One day, your teammate comes to you and says,

"Visitors on our website are growing rapidly. But we are facing high number of drop-offs on the homepage, so no
one's moving onto the payment page. What should we do?"

On further enquiry, your teammate tells you,

"We are currently asking the user for their mobile number, but others are suggesting that users are typically not
comfortable giving out their phone number so maybe we should ask them for their email address instead?"

Now, if you as a product manager see no clear reason from a product POV to pick one over the other (this is

important and we'll come back to it!) and just want to maximize user conversion from the homepage to the payment
page, the best option here would be to test both options using an A/B test.

A/B testing is essentially comparing two versions of a web page by splitting users to each version to figure out the
better performing variation.

So, in this case, half of the users selected at random will be asked to put in their phone numbers and the other half
will be asked to put in their email address.

The goal is to see which version wins, i.e., improves your conversation rate.

A/B testing typically involves looking at existing usage data, setting goals to improve conversion rate, generating
clear hypotheses behind both options, and running the experiment.

And you run the test for several weeks to account for random volatility in user behaviour or changes due to external

events like festivals.

Now that you understand what A/B testing is and when it is used, let's come back to Kunal's point.

Remember I said that you run the test when you have no clear reason to pick one option over another?

Now, imagine the kind of product decisions you can make with this A/B testing approach. I bet only very small ones,

like seeing which line of copy converts better, or which button placement works better.

But you cannot decide product- or category-defining features with A/B testing. That needs product vision and a very

opinionated approach towards building.

Steve Jobs didn't come up with the idea of an iPod or an iPhone via A/B testing.

Ford didn't make the move from the horse carriage to the car by asking his customers and doing A/B testing.

Elon Musk didn't come up with the idea of reusable rockets via A/B testing.

Moral of the story:

You can only use A/B testing to optimize small product decisions. You can't use it to decide what the product
itself isgoing to be.

A product built that way will either be very conventional and boring, or it will simply fail in the market.
 Day 38

BLUF LIKE THE MILITARY

At Stoa, we take writing detailed documentation and async communication very seriously.

And the reason is obvious:

We are a fully remote company with team members located across India. And it is sort of absurd how much good

documentation, or heck, even being systematically better at communicating on Basecamp and Email can add to a
team's productivity.

Because the cost of a poorly drafted document or email can result in lots of wasted time, reduce company morale,
create misunderstandings between teammates, etc.

Similarly, time invested in learning how to communicate clearly will always have a big positive return.

In fact, you'd be so much better off in your career if you only learned how to write better emails. And I think, with a
few simple tips, it is achievable for most people.

Today, I'm going to share with you a simple yet effective framework the US Military uses to write emails with military
precision.

It is called the Bottom Line Up Front (BLUF) Technique. As the name suggests, Military professionals lead their emails
with a short statement known as the BLUF.

It declares the purpose of the email and the action required. The BLUF should quickly answer the five W’s: who, what,
where, when, and why and it should distill the most important information for the reader.

And it starts with having clear keywords in the subject of the email itself.
Some of these keywords include:

ACTION – Compulsory for the recipient to take some action

SIGN – Requires the signature of the recipient

INFO – For informational purposes only, and there is no response or action required
DECISION – Requires a decision by the recipient
REQUEST – Seeks permission or approval by the recipient

COORD – Coordination by or with the recipient is needed

Here is an example of a BLUF adapted for corporate use:

***

Subject: ACTION – Approve designs for Independence Day Campaign

Hey Priya,

Bottom Line: The designs are ready with all feedback incorporated and I need you to approve them so that they can

be handed over to the social media team for posting. You can find the designs here:

<link to the designs>

Background:

This social media campaign is scheduled to go live on 15th August and I will need your approval latest by 12th

August. If you want to refer to the last round of feedback, here it is:

<link to feedback>

Cheers,
Swatishree

***
This way, Priya knows that she needs to act on something because it is marked as ACTION. And she gets all the
necessary context in the email in order to give the approval.

Takeaways:

1. Start with a keyword mentioning what the email is about/what needs to be done

2. Provide complete context about what needs to be done in a single statement at the start of the email
3. Provide background context that might help the recipient make the decision quickly

Do you use any communication/email framework in your company?

 Day 39

(SAMPLE) SIZE MATTERS!

In daily life, a lot of bad decision-making can be attributed to a lack of accounting for sample size when analyzing
the data.

It may be due to multiple reasons, out of which the prime reasons may just be motivated reasoning or plain
confirmation bias.

After all, we all intuitively know that results of larger samples can be trusted more than those from smaller samples.
Even people who haven't studied statistics just get the law of large numbers and the safety it provides.

But applying this intuition in the real world can get tricky sometimes!

In one of their papers on decision making, Kahneman and Tversky demonstrate this with the following question:

A certain town is served by two hospitals. In the larger hospital about 45 babies are born each day, and in the
smaller hospital about 15 babies are born each day. As you know, about 50% of all babies are boys. However, the
exact percentage varies from day to day. Sometimes it may be higher than 50%, sometimes lower. For a period of 1

year, each hospital recorded the days on which more than 60% of the babies born were boys. Which hospital do you
think recorded more such days?

A: The larger hospital

B: The smaller hospital
C: About the same

Most people incorrectly choose 3. The correct answer, however, is 2. We are much more likely to observe 60 percent
of male babies in a smaller sample than in a larger sample.
Why?

Because smaller samples demonstrate larger variance. For example, it's easier to get 80% heads in a set of 5 fair coin
tosses than it is to get out of 100 coin tosses.

The larger the sample set, the more the probability approximates the actual probability.

But, is sample size the only factor to consider? Not at all.

“Part of understanding statistics is understanding when a single data point indicates more than an anecdote, and

also when a full analysis of a large dataset is nothing more than an anecdote” - Harry Crane

It also matters how random the sample set is. For example,

If a medical study is performed on patients being treated by a single hospital, increasing the number of patients
adds little to the significance of the study, for it cannot rule out that the hospital was a determining factor in the

results of the study.

If the observations in a dataset are all correlated, they are still an anecdote!

Another bias may also get introduced into our readings if we focus on the average of the distribution in a field that
that takes values over a large/potentially infinite space.

Wealth is such a distribution, while height isn't.

A Jeff Bezos simply walking into a bar may increase the average networth of a person in that bar by a million dollars!

But a Great Khali walking into that same bar might not increase the average height of the person in that bar more
than a few cms.

Takeaways:

Be very careful what the numbers actually mean in the context of your measurement and application!
 Day 40

COSTLY SIGNALLING AND HOW IT CAN HELP YOU GET YOUR NEXT
JOB!

Why did CRED choose to hire Bollywood actors and cricketers and sponsor the IPL?

Why did BYJU'S choose to advertise itself on the Indian International Cricket Team Jersey?
Why are IIT/IIM graduates preferred by recruiters over candidates from other colleges?

The answer is:

Costly Signalling.

Costly Signalling is a concept in behavioural economics that states that any change in behaviour or any new choice
involves risk. So, it is rational for people to seek reliable (costly) signals before even trying something new.

What's a costly signal?

A signal is costly if it is something you did and were capable of doing to showcase your fitness for a job or a role,
even though it wasn't necessary for you to do so.

For example, when a CRED or a BYJU'S chooses to go for television/print/outdoor advertising and spends millions of

$$$$ for the same, it is signalling to the viewers that we are a company that can put in considerable investment in
talent, capital, and craft to make these ads.

This indirectly reflects on the reliability and future prospects of their own product.

“As seen on TV” therefore conveys something which “As seen on Facebook” does not.

The rationale in the consumers' minds is:

It would not pay to advertise a bad product heavily, hence anyone spending big on advertising must have a solid
product!

If I'm relying on an app to pay my massive credit card bills seamlessly, without defaulting on the payment, then I

need to be sure that the company is capable and reliable enough.

How does CRED prove this?

By hiring Bollywood stars and cricketers who already have a lot of trust and goodwill with the masses and hence

would not choose to associate with a bad product. It is signalling quality via association.

How can knowing this advertising tactic help you get your next job?

For that, you need to understand that the entire hiring process is one big exercise in advertising yourself as the

product.

Now, if you want to signal fitness and capability for the role, you need to put out some costly signals that took you
considerable time and effort to produce, which 99% of people would not be willing to make.

An IIT/IIM tag on your resume is such a signal. It takes a lot of work and intelligence to get inside these institutions,
so any lazy recruiter will take these tags as a sign of merit.

(Although it's not that simple!)

Another example would be sending a personalised, well-researched cold email to the recruiter versus sending a

generic one.

Or having a well-designed personal website with your published work instead of just offering a one-page resume.

In fact, having a nice WFH setup when you appear for an interview is also a costly signal which shows that you're
taking it seriously!

Costly signalling is a good test for your sincerity. The more sincere you are, the more effort or cost you're willing to
put in.

And you'd be foolish to ignore it!

 Day 41

WHAT YOU MEASURE IS AS IMPORTANT AS HOW YOU MEASURE IT!

Data is extremely manipulable. And people who are motivated to show you a particular side of the story can do so
very easily if you're not careful.

When looking at any graph or set of data, ask yourself:

1. Are these the relevant metrics to measure for testing the given hypothesis?
2. Are they being measured in the correct way?
3. What are the key assumptions behind these metrics?

4. What's the relationship between these metrics? How are we comparing them?
5. Why is the comparison useful? What does it show us?

If you look at the news headlines citing results from a study, they will often have what's called the "insight" or the

"takeaway."

But if you only read the headline or the summarization, you get rid of all the context behind the study.

You don't know what the methodology was.

You don't know what were the key assumptions being made.

You don't know how the data was measured, and more importantly, what was left out of the measurement.

Consequently, what you're left with is the illusion of knowledge.

How can you even evaluate the veracity of the results without knowing how they were arrived at?
Being rigorous in interpreting data can help you from avoiding confirmation bias and motivated reasoning — a
phenomenon where you're bound to interpret data in a way that fits the answer you already have in your head!

So, the next time you come across a news headline citing a shocking finding from a study, remember that editors are

incentivized to write catchy, surprising headlines so that the article gets passed around due to the shock value.

But if you want to get at the truth, you should ideally read the complete news article AND check out the study being
referred to. Otherwise, you'll be left with a conclusion that doesn't follow the premise and is thus flawed.

Picture credits: Sir Michael @Michael1979 on Twitter

 Day 42

THE RACECAR GROWTH FRAMEWORK

If you ask people within your company,

“How does our product grow?”

you’ll get 10 different answers.

Some will say, “By going on 1:1 sales calls.”

Some will say, “By building an amazing product people talk about.”

Some will say, “By doing content and focusing on SEO.”

This is an underrated misalignment within the organization. It leads to a conflict of incentives and different teams
working on misguided projects that don’t lead up to a single goal.

Developed by the Reforge community, the Racecar Growth Framework helps you develop a good collective
understanding of how your business will grow.

It involves thinking about your business as a high-performance race car. The parts of the race car will be the different

components of your growth strategy.

1. The Engine

These are self-sustaining growth loops that drive most of your growth.
- Performance Marketing: FB, AdWords, TV, etc.

- Virality: Word-of-mouth, referrals, inviting friends, etc.

- Content: SEO, shareable videos, or newsletters, etc.
- Sales: Outbound (and inbound) salespeople

You'll need to validate which one or two of these is right for your business and commit to them. Refer to Day 35 of
this series if you want to know how exactly you can do this.

2. Turbo Boosts

These are one-off events that accelerate your growth temporarily but don't last:

PR, Events, IPL ads, etc.

These tactics aren’t “engines,” because in most cases they aren’t sustainable and repeatable at scale.

Any startup that has received the “YourStory boost” knows that it can give you a nice spike in traffic, but it’s often
not clear what to do next.

It’s hard to use that initial press boost to earn more press.

3. Lubricants

These are optimizations that make the growth engine run more efficiently. They primarily involve:

- Improved Customer Conversion

- Stronger Brand

- Improved Customer Retention

Of these 3, retention is usually the most important. It is the core of your growth. If you improve retention, you'll
most likely also improve the rest of your funnel.

4. Fuel

This is the raw input your engine needs to run on.

- Capital: Paid marketing and sales engines need capital. This is why payback is an important metric to measure

marketing and sales engines: it determines how long it takes for enough cash to be generated to start the loop
again. To learn more about payback period, refer to Day 19, 20, and 21 of this series.

- Content: Content engines will of course need more content which will attract more users.

- Virality: This engine only needs more users which in turn refer additional users.

These are the 4 components that will help you make up your high-performance racecar and optimize its growth for
peak performance.

But.

There are some pitfalls you can face while working with this model. We'll be discussing them in tomorrow's post.
Stay tuned!
 Day 43

5 MISTAKES TO AVOID WHILE APPLYING THE RACECAR GROWTH

FRAMEWORK

In Day 42 of this series, we discussed the Racecar Growth Framework and the 4 components that build your business

racecar.

In today’s post, I’d like to take you through 5 common mistakes companies make when applying it.

After all, any framework is only as good as its application based on real-world context, and can be quite useless or
even harmful if applied independently of reality.

Mistake 1: Focusing on ⚙️Growth Engines when you actually need 💥Turbo Boosts

Before you have identified your growth engine, have your first set of users or capital, you need to find ways to get
going. To spark the engine, so to speak.

You do this via Turbo Boosts — for e.g., leveraging your close community of friends, family, and peers as your initial
users, or using PR to drive that initial growth in users.

Early-stage startups can make the mistake of focusing too much initially on building their growth engine and
exhausting their capital, even before they’ve gotten their initial set of users via Turbo Boosts.

Mistake 2: Mistaking a 💥Turbo Boost for a ⚙️Growth Engine

This is the opposite of the above, where startups invest too heavily on Turbo Boosts (unscalable) and never focus on
building a growth engine (scalable).

Turbo boosts can help you with getting your initial set of users, but post that, you need to be building and

optimizing your Growth Engine.

Mistake 3: Focusing on 💧Lubricants, when you need a ⚙️Growth Engine or a 💥Turbo Boost

Optimizing conversion even before capturing a majority of potential users first delivers pretty low ROI. You’re often
better off focusing on Turbo Boosts to drive more users than optimizing what you already have.

Mistake 4: Focusing on a new ⚙️Growth Engine when you need 💧Lubricants

If you fail to realize the depth of the market and the depth of the current marketing channels in your Growth Engine,
it might lead you to prematurely focus on building new Growth Engines.

This may lead to sacrificing a lot of upside that you can still benefit from in your existing engine.

Mistake 5: Not understanding what type of ⛽ Fuel your business needs

Sometimes, the business model is such that capital is the best fuel. The more capital you pour into performance
marketing, the more customers you get.

And in cases where your primary growth is driven by word-of-mouth and strong customer retention, then

1. reducing friction in signing up for your product, and

2. making it as easy as possible for your existing customers to recommend your product to others
should be your main fuel.

Takeaway:

Any framework is good, but it is no substitute for understanding the nuances of your own situation and
seeing whatthe best strategy would be for YOUR business.
 Day 44

WHAT MANAGERS AND TEAM LEADERS CAN LEARN FROM THE

PUBLIC GOOD PROBLEMS IN ECONOMICS

Consider this scenario:

A legislator proposes a bill in the parliament that heavily taxes a few corporate companies to disincentivize certain
practices that may pollute the environment.

Let’s say this legislation implies a long-term benefit of ₹1000 on the 10,00000 individuals living in the area who are
affected by this pollution. At the same time, it also imposes a cost of ₹10 Cr each to these 10 companies who will be

affected by the legislation.

Who will bid for and against the law?

And who will bid more strongly?

It will be these 10 companies.

Because the benefit from this bill is divided amongst 10,00000 individuals who share a public good — the
environment. But the cost of it is divided across just 10 individual companies. Consequently, they have a much
stronger incentive to lobby against this bill.

Being just 10 units, they can organize more easily to oppose the bill.

Even the amount that these companies have to shell out as bribes to oppose the bill will be much lesser than the
cost they would incur if the bill were passed.

Why? Simply because the larger public isn’t incentivized enough to push the bill the other way.
The small benefit spread across 1 mn people doesn’t justify the cost of going out of one’s way as an individual to
support the bill via monetary donations.

Hence, the amount the small group of companies is able to offer politicians to oppose the bill will be more than the

amount the large public will offer to support it.

In Economics, this is known as the Public Good Problem.

The problem is reinforced by a second consideration — information costs.

Assume that information about the effect of legislation on any individual can be obtained, at a certain cost of effort,
time, and money.

For the individual who suspects that the bill may benefit him by ₹1000, it is not worth obtaining the information

unless it costs <₹1000. His possible benefit is small and so is the effect of any actions he is likely to take on an
individual level to help the bill pass.

Moral of the story:

The member of the dispersed interest chooses to be worse informed and incentivized than the member of the
concentrated interest. This is rational ignorance; it is rational to be ignorant if the cost of information is greater than

its value.

Key takeaways for leaders:

- Small teams with clear owners and tangible outcomes will always be better incentivized to work for the
company than large teams without clear ownership.

- Employees with more skin in the game will always be better incentivized to take the right decisions as they
will be
the first ones to incur the costs of those decisions.

Final thoughts:

Now that you know the Public Good problem and cost of information, think about

1. Why most voters in a democracy don’t choose to be well informed

2. Why global warming is a problem that’s very difficult to solve!

 Day 45

PEACHES OR LEMONS? THE ADVERSE SELECTION CONUNDRUM

I’m pretty sure most of you who work in #banking and #insurance must be aware of the term 'Adverse Selection'.

What it essentially means is that the seller knows that the value of the product is lower than its worth. But s/he is still
able to convince the buyer to buy it because the seller knows the buyer's criteria, but the buyer doesn't know waht
the seller knows about the product.

This can leads to sub-optimal outcomes down the line.

The term finds its origin in “The Market for Lemons” — a paper by economist George Akerlof.

Akerlof’s example:

The seller has either a quality product, a ‘peach’, or a faulty product, a ‘lemon’.

The consumer has a fixed price by which that they can afford to purchase a car, which is in between the cost of a

‘peach’ and a ‘lemon'.

From the seller’s perspective, they know whether they hold a peach or a lemon. So they will try to sell the lemon
over the peach.

From a second-hand car perspective, used cars differ in quality. Adverse selection means that the worst ones will get
sold first.

As a result, consumer expectations fall alongside the expected prices. So consumers expect low quality and cheaper
goods.
However, at the same time, the sellers of ‘peaches’, or high-quality second-hand cars are pushed out of the market,

leaving only ‘lemons’ behind.

Some other examples of adverse selection:

1. Insurance

A prime example of adverse selection in insurance coverage is a smoker who successfully manages to obtain

insurance coverage as a nonsmoker.

The smoker knows that insurance premiums are lower for non-smokers and is able to successfully hide information

about his/her smoking habits from the buyer — the insurance company.

2. Resume Filtering and Job Interviews

If it's an established company, the interviewee knows what kind of signals the recruiter will look for in the resume
and interview process. She will fake those signals and get the job, regardless of her real skill level.

3. Community Brands

Think of a community brand as a bunch of explicit signals being put out as to what the community values over what
it doesn't. Once the outsiders know these signals, the community can fall prey to people who can fake these signals

and get in without sharing any of the values.

4. Content Marketing

If content marketers know what specific kind of content works for their target audience and go all-in on that, but the
audience isn't aware of all the content that can possibly exist, it can lead to the creation of echo chambers and an

audience who is blind to other information outside of their consumption habits.

This can lead them to make sub-optimal purchase decisions.

(Like going for expensive MBAs and signing up for expensive coaching classes to get into prestigious institutions
when other career options are equally or more lucrative!)
What other examples of adverse selection can you think of?
 Day 46

PRODUCT MANAGERS AND FOUNDERS, AVOID THIS BLUNDER WHILE

DOING MARKET RESEARCH!

“You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’llwant

something new.” — Steve Jobs

But then, the natural question that would arise in any person's mind after reading this is:

How can you build for customers if you don't know what they want?

Hint: It's not about NOT knowing what they want, it's about directly asking them what they want.

There are a few problems with such leading questions.

Let's say you go ahead and ask your friends,

"Hey I'm building this product. Would you be interested in using it?"

OR

"Hey, I'm building this app. What features would you want in it?"

Now, the problem with the first question is that your friends love you and they will lie to you.

They will tell you that they're interested so that they don't need to have the hard conversation around why what
you're solving has never really been a problem for them.

And that you're simply wasting your time.

The problem with the second question — asking for feature ideas directly assumes that the person you're talking to
will be using your app.

For all you know, they might not even download it as it's not a problem they face on a regular basis.

So then, what are the questions you should be asking?

Any question you ask a potential customer should be aimed at identifying their CURRENT lifestyle, problems, and
behaviour, not what they WOULD WANT.

The questions you ask should lead to factual answers, not hypothetical statements based in some time in the future.

Some examples of good questions:

1. Is X a problem for you on a daily basis?

2. If it is, what have you done to solve it?

If they say X is a problem, but they haven't really done anything to solve it, that means it is not really a problem for
them. And they most definitely won't be paying for a solution any time soon.

But if they say that X is really a problem they've been trying to solve, you can follow up with questions like:

1. What is the hardest thing about X?

2. What happened last time when you encountered X?

3. Why was this hard?
4. What don't you love about the current solution?

Observe that none of these questions talk about a product at all!

Rather, they try to identify and get at the root of the real problem the person is facing.

Ideally, you want them to be as honest as possible and tell you if it isn't a problem for them at all.
And finally, instead of quickly jumping to pitching ideas like, "What if you had an app that solved X?" or "What if I
built Y to help you with X?" — again, hypothetical questions — try to talk less and listen more.

Allow the person to talk about the issue in-depth, along with everything else in their life that is relevant to it.

Additional tip:

Read the book 'The Mom Test' that covers this topic in depth. Highly recommend it.
 Day 47

BRAND = TRUST

Many people say,

"Your Brand is what people say about you when you're not looking."

Or they might say, "It is something that's authentic about you."

While these definitions may be true, I think there's a higher-resolution way to look at a brand, especially if you're
running a business — where your end goal with creating a brand is to earn money and gain pricing power.

And this better way involves factoring in a key ingredient that makes or breaks any brand:

Trust.

More specifically,

Your brand is the customer's trust in you to do X, where X is a job to be done.

(If you're not aware of the jobs-to-be-done concept, please refer to Day 13 of this series.)

And so, it becomes important to study the nature of trust. Here, I'll highlight some key properties of trust:

1. Trust is scarce and non-fungible — it rests with a few specific parties and cannot be easily transferred to other
parties.

2. Trust is mimetic — if someone you look up to and admire trusts someone else, your propensity to trust the other

person increases. It feeds on other trustworthy signals.

(That's why Word-of-Mouth beats any other marketing strategy!)

3. Trust is fragile — it can take years to build trust but only a few instances to break it, especially in high-risk

products like pharma or automobiles. Simply because people are risk-averse and register losses more quickly than
gains.

4. Not all trust is the same — the uniqueness of the job to be done matters as much as the trust in the brand. Not all

jobs to be done are the same.

People trust Tata as a brand but when it comes to salt, they'll be easily willing to buy some other brand as well since

salt is not scarce or unique, it's a commodity.

But when it comes to buying Veblen luxury goods, getting the right brand is crucial for the customer, because it
serves a unique job-to-be-done.

5. Trust compounds and is built in the long term — it isn't the result of a one-off interaction but consistency and
reliability over multiple interactions across time.

It's hard to easily trust inconsistent people and products.

6. In two-sided marketplaces, even trust is two-sided because the job-to-be-done for both sides is different.

For example, when someone joins Stoa as a fellow, their job-to-be-done is learning business fundamentalsand
transitioning to a startup job with a higher paycheck.

For companies hiring from us, their job-to-be-done is to get quality talent that's able to ace generalist business
roles.

For Stoa to create build a solid brand, we will have to focus on both these jobs and consistently outperform other
institutions at these jobs.

——
An exercise for you:

Find out how your brand rates on each of these properties, and figure out how you could make things better in each
of these to boost trust.

——

Have any thoughts on what makes a good brand?

 Day 48

LEVERAGE

Thinking in terms of leverage is what separates leaders from employees.

And the higher up you climb the career ladder, the more important this mental model gets.

Time is a limited resource. And earning money in exchange for your time and effort will only get you so far.

Once you have enough money, to keep growing, you have to start thinking of money as a way to earn more money.

You have to start thinking of money as a lever.

What are some other levers available today?

1. Stoa's pilot Twitter thread got 1,000,000+ impressions. It got us our first customers for our Premiere

Cohort. Since then, we've been successfully able to get 300+ customers and generate ₹3 Cr+ in revenue with
negligible ad spend.

Social media offers a whole new kind of leverage — something conventional colleges have yet to catch up to.

2. Technology and automation are levers on productivity. Software is a lever on production. Once you develop an

app that's infinitely replicable and reproducible, the marginal cost of reproduction is zero.

3. Platforms are a lever on reach and distribution. Once you put in a one time investment in creating a piece of
content, you can sell it to a hundred thousand people without any additional resources.

4. Relationships are a lever on opportunities. Being connected with the right people and being in the right circles

and communities helps you get access to opportunities and resources you may not have access to via conventional
means. And these beneficial relationships compound over time.

Sharing a summary of the chapter on leverage from the Almanack of Naval Ravikant as it summarises this mental
model beautifully 👇

What are some other unconventional levers you know of?

 Day 49

HOW TO FUTURE-PROOF YOUR BRAND WITH GREAT CUSTOMER

EXPERIENCE (CX)

How many times have you used a product which fulfilled the basic task but missed out on the tiny but important
details?

I, personally, have been through many such experiences.

It’s like going to a 5-star hotel and interacting with service personnel who are rude and often have a frown on their
face. The amenities may be great, but the customer experience still isn’t the best because the higher-level needs of
the customer like warmth and friendliness haven’t been paid attention to.

The Gartner CX Pyramid is a framework to understand what separates the most powerful customer experiences from
the rest. And a CX that is well-thought is going to be a key differentiator for brands of the future.

Each level in the pyramid, starting from the base, defines an incrementally stronger way to forge relationships
between your brand and your customers.

The general idea:

The bottom layer meets the most basic expectations while the top offers the deepest fulfillment. Items at the bottom
of the pyramid are not less important than items at the top — they are simply more specific and tangible.

Stage 1: Communication Level – Provide customers with the information they can use via the right channel at
theright time. This involves targeting your customers at the most convenient touchpoints — the ones which are
the most in line with your customers' consumption habits and your brand.

Stage 2: Responsive Level – Solve the customer’s problem quickly and efficiently.

The first 2 stages form the base layer of your CX pyramid. They answer the question: How effective is a company in
meeting their customer's needs?

To measure impact at the base layer, use the metric Goal Completion Rate (GCR) and Customer Effort Score (CES)
which asks the customer:

Were you able to reach your goal?

How easy was it?

Stage 3: Commitment Level – Listen for, understand, and resolve customers’ unique needs. This can involve staying
in touch with your customers via surveys, emails, phone calls, or other feedback mechanisms.
Stage 4: Proactive Level – Provide experiences that resolve needs before customers ask. This can involve building
inintelligent mechanisms in your product to assess your customers' needs even before they're made explicit.

Stage 5: Evolution Level – Make customers feel better, safer or more powerful.

This is your “true north”— and refers to your customer experience overall. How do your customers feel about your
company as a whole? Do they feel your products help them be a better version of themselves?

At this stage, you can use a Customer Satisfaction metric to judge how satisfied customers are with your service
overall.

The brands of the future will only succeed when CX is integral to their service blueprint and guides not just product
decisions but the company culture as well.

Know any brands that do CX well?

 Day 50

PINEAPPLE ON PIZZA, ANYONE?

In one of my posts in this series, I talked about how Jeff Bezos entering a bar of 100 people would raise the average
net worth of everyone in that bar by at least $100 mn, or maybe more.

Today, I want to emphasize more on the danger of averages.

But first, some context.

In his Incerto series, Nassim Taleb introduces the concept of Mediocristan and Extremistan.

What are these two categories?

Mediocristan is any metric that is non-multiplicative, i.e., it doesn't compound or lead to domino effects. A simple
example would be the height of a population.

One person being 6-foot tall is mutually exclusive from another being 4-foot tall. And if an 8-foot man entered a bar
of 100 other people, it would hardly make a difference to the average height of people in the bar.

Because height has a very small range of values it can take, with an upper bound. The distribution of height in a
population is thin-tailed with little variance.

Not the same case with say, a contagious disease that multiplies exponentially due to network effects with no upper
bound, or a person's wealth, which again has no upper bound.

These are highly nonlinear, fat-tailed distributions.

Now, coming back to the topic of averages:

Averages don't work well in Extremistan. They often don't reveal anything about the sample set.

For example, if I were to tell you the average household income in a village, it would actually tell you nothing about
the individual incomes of households in the village.

Maybe a typical house in that village has an income near the average income; maybe it's nowhere near that, with
one multi-millionaire household in the village skewing the numbers.

Let's take another simple example of people's preferences when it comes to food choices, which are highly nonlinear
and differ on an individual basis:

Some of them are mostly binary — a clear yes or a clear no.

An example: Pineapple on Pizza. Some like it, others hate it.

But if the government designed pizzas, each would be 25% covered in pineapple, since that is what the average
pizza customer wants.

In reality, nobody wants this at all: they either want the pizza to be full of pineapple or they do not want it at all.

Takeaway:

Stop trying to solve for the average. Especially if you're working in Extremistan — where individual
preferences andtraits can vastly differ from the average preferences or traits of the group.

By serving the best solution to your customers on average, you're not serving anyone.
 Day 51

COST OF CAPITAL AND WHY CRED MATTERS

If you’re in the world of business and finance, you surely must’ve come across the term Cost of Capital.

Perhaps, even calculated it many a times for making purchase and investment decisions in your business.

But for those of you who aren’t aware of the term, what is Cost of Capital?

Say you’ve got an idea for a new product, or a way to revamp some existing vertical or function within your
organisation; something that’ll bring more efficiency to the company.

But before you spend the company’s hard-earned money, you’ve got to prove to your company’s leaders that it’s

worth the investment.

You’ll likely be asked to show that the return on the investment will be better than your company’s cost of capital,
i.e., the rate of interest at which your company acquires the capital to deploy it.

Let's say your Cost of Capital is 12% and the RoI you're expecting from the new installation is 15%.

Then, the investment probably makes sense for you.

But if say your cost of capital is 18%. Then, the same investment will not make sense for you anymore as it doesn't
reap RoI > 18%.

Cost of Capital calculation in the real world usually also involves concepts like discount rate, opportunity cost, and
other tax considerations. However, we won't be covering them in this post.

But now that you understand the basics of cost of capital, let's discuss the primary second-order effect and WHY
cost of capital matters.

And it really boils down to this:

Cost of Capital is different for different people and organisations. And in a world where investment decisions
compound, these differences in the cost of capital can lead to vastly unequal outcomes in the long term.

If you have two people, and one can get a loan at 8% interest rate and the other can only get it at 12%, the 4%

difference can compound over the years and lead to huge inequality down the line.

In fact, cost of capital also has higher-order effects on a societal level. In India,

You can get:

Education Loans at 12%

Personal/Car loans for salaried ppl at 8-10%

Corporate bonds at 7-10%

but microfinance for mom and pop stores and micro-businesses at 18-24%!!!

Over time, this only disincentivizes small-scale entrepreneurship and forces people from poor backgrounds to go
into employment, as they cannot afford the cost of capital.

This is where I think startups like CRED can really make a difference —

By using credit scores and trust as an indicator of financial responsibility, they can lower cost of capital for deserving

individuals.

Not based on their wealth, but based on their trustworthiness.

As they often say, good people need to be rewarded. And although these rewards today can come in the form of
cashbacks and discounts, the real reward in being a part of CRED Club lies in your enhanced ability to procure

capital at cheaper rates in the future.

Got any views on this?
 Day 52

WHAT SEPARATES MANAGERS FROM LEADERS

“As much as possible, avoid hiring MBAs. MBA programs don’t teach people how to create companies. Our
positionis that we hire someone in spite of an MBA, not because of one.” – Elon Musk

Shocker? Well, here’s what I think.

Students in the best MBA programs are smart, no doubt. They have all the right raw materials to be coached into
strong product managers and leaders.

But with a traditional MBA program, there are definitely some things they need to unlearn.

One of these things is leading with control.

MBAs can often equate management with leadership. They think that managing people amounts to acting like “the
boss.”

Leading with control is familiar to most. The boss approves and directs initiatives, sometimes to the point of direct
oversight — telling her employees what to do and how to do it.

Leading with context, on the other hand, is more difficult but gives more freedom and ownership to employees.

You provide your teammates with all of the information so that they can make great decisions and accomplish their
work without oversight or micro-managing.

By doing this, you help your teammates build that decision-making muscle to make better independent decisions in
the future.
What would be an example of Leading with Control versus Leading with Context?

In his book ‘No Rules Rules’, Reed Hastings (CEO – Netflix) gives a great example.

Imagine that you're the parent of a sixteen-year-old boy. Lately, he has started going to parties with older friends on

Saturday nights. You've already told him you don't want him to drink alcohol and drive, but every time he goes out
you worry.

There are two ways you might approach this problem:

1. You decide which parties your son can go to and not go to. If he wants to go out on Saturday night, he has to
explain to you who will be there and what they will be doing. Then you will speak to the parent who owns the house
where the party will be held and if alcohol will be available. From this, you decide whether or not your son can go.
Even when you give approval, you still put a tracker on your son's phone to assure that this is indeed the only party
he goes to.

This would be leading with control.

2. The second would be to set proper context: You talk to your son about why teenagers drink and the dangers
associated with drinking and driving. Once you see he clearly understands the dangers of drinking and driving, you
let him go to whatever parties he likes without any process or oversight restricting his actions.

This would be leading with context.

Some takeaways:

1. Leadership is not Management. And it involves a lot of emotional labour and work that’s hard to measure.
2. If your employees understand the context well and are integral to the decision-making process, they’ll be more
than able to manage themselves.

3. Admitting what you don’t know and can’t know and trusting your employees is crucial to good leadership.
 Day 53

WHAT IS NET PROMOTER SCORE (NPS)?

Put simply, Net Promoter Score is a metric that checks for customer loyalty.

You calculate it by surveying your customers and asking them a very simple question:

“How likely is it that you would recommend our company to a friend or colleague?”

Based on their responses on a 0 – 10 scale, you group your customers.

People who rate 9-10 love your product. They are your Promoters.

Those who rate 7-8 are your passive customers.

And those who rate from 0-6 don’t really like your product. They are your detractors.

Once you group the Promoters and Detractors, you then subtract the percentage of detractors from the percentage
of promoters and you have your NPS score.

The score ranges from -100 (all detractors) to +100 (all promoters). An NPS score that is greater than 0 is considered
good and a score of +50 is excellent.

In addition to asking this question, companies may also ask:

“Why did you give our company a rating of customer’s score?”

The aim is to understand what factors drove the customer to rate the way they did.

But now the question arises — Why ask customers about their likelihood to recommend your product as a test for
their loyalty?
Here’s why.

Customer loyalty is about much more than repeat purchases.

Even someone who buys again and again from you may not necessarily be loyal to your company but instead may
be trapped by habits or inertia.

And repeat purchases may not mean that the customer loves your product.

However, a loyal customer will often talk about your product to her friends, family, and colleagues.

Such referrals and recommendations are actually one of the best indicators of loyalty because by recommending
your product, the customer is putting her reputation on the line.

And people will risk their reputations only if they feel intense loyalty.

How do you measure NPS?

NPS for online products is typically collected by sending a survey via email or via in-product prompts to give the
survey.

But there are a few challenges involved in conducting it. One of them is selection bias.

Engaged customers are more likely to respond to surveys than non-engaged customers.

This skews the NPS results in a positive direction because you’re essentially not hearing back from the detractors.

So you need to make sure that your survey sample is sufficiently large and randomized to reflect your actual
product-wide engagement.

Then, as Saptarshi Prakash’s tweet suggests, there’s also the issue of gaming NPS by framing your questions in a way
that leads to high NPS!
“When a measure becomes a target, it ceases to be a good measure.” — Goodhart’s Law

Takeaways:

NPS is a good metric for understanding how your customers are perceiving your product, and how well you’re
executing on your product strategy.

But as it is with all metrics, over-reliance on NPS may make people want to

game it.In the end, it's all about designing good incentives!
 _

Day 54

THE IMPORTANCE OF SETTING PRIORITIES AS A LEAD

"Friends congratulate me after a quarterly earnings announcement and say, 'Good job, great quarter.' And I'll
say, 'Thank you, but that quarter was baked three years ago.' I'm working on a quarter that'll happen in 2021
right now."
— Jeff Bezos in 2018

Jeff Bezos is famously known for always working 2-3 years into the future.

Why? Maybe because being the CEO of Amazon, he thinks he's the best person to be thinking about the long-term
vision and roadmap of Amazon.

As a leader, you will need to prioritize.

In fact, the ability to prioritize tasks based on RoI is one of the key traits that separates senior business leaders from
their juniors.

This means, saying 'No' to a lot of urgent things that may pop up on your calendar.

You have to protect your time to allow you to do that one specific thing you're the best at, which no one else in the
company is capable of doing.

Delegate everything else.

Saying 'No' may come as a very hard thing to do for most Indians because most of us are people-pleasers.

We don't like disappointing others by saying 'No.'

But it's the right strategy for the longer term.

Time is a precious and limited resource.

By saying 'Yes' to one thing, you're saying 'No' to several other things.

But by saying 'No', you're only making a decision to not work on one specific thing.

It's a more precise way of operating.

 Day 55

THE FENCE PARADOX

Do you drive a car?

If you do, you must be aware of the Anti-lock Braking System (ABS) feature.

For those of you who don’t, what ABS essentially does is in times when you’re driving the car at high speed and you
need to push the brakes in an emergency, the ABS prevents the wheels of the car from locking up.

Without ABS, a driver who pushes the brakes hard would immediately cause the wheels to lock up and the car to
skid out of control.

But with ABS, the wheels don’t lock up and maintain traction with the ground so that the driver still has ability to
manoeuver the car after she hits the brakes.

Great feature, right?

I mean, I would imagine that it would certainly cut down on the number of deaths due to car accidents.

Well, you’d be wrong!

Counterintuitively, historical data shows that ABS has INCREASED the number of deaths at the wheel, though it has
reduced the number of incidents.

How is this possible?

Well, it has to do with the Fence Paradox.

If you build fences around a system for protection, people start leaning on the fence too much. And when the fence

breaks, you suffer more losses than you’d have suffered without the fence being there in the first place.

In this case, what it means is with increased safety provided by ABS, people are incentivized to drive at even higher,
potentially fatal, speeds.

Now, ABS would work well if the driver were penalized in some way every time it was engaged. But since drivers

aren’t penalized, drawing a protective fence actually makes people turn more complacent!

Let’s say there’s risk involved with a certain activity. To mitigate risk, the government creates fences, and builds

regulations.

But fences make people underestimate the risk.

Then, when the fence breaks, many fall down. This time, not just one. They felt safe with the fence, they were wrong.

1. If getting education loans is too easy, you get trillions of dollars of student loan debt. You create an education
loan bubble.

2. Popping painkillers hides underlying symptoms, allowing patients to continue their unhealthy behaviours. You get
the population addicted to painkillers.

3. With Universal Basic Income, you create a necessary dependence on the government. But all hell breaks loose
when the monthly welfare paycheck stops, and governments can’t afford to let it happen. So the currency keeps on
inflating beyond measure.

4. Believe it or not, even college degrees and GPA are a protective fence. Colleges make you believe that your
degree is something you can fall back on.

But let's say degrees become irrelevant. What will you do?

Takeaway:

The best policies protect the population by allowing them to take small risks while protecting them from
larger ones.
The worst ones obfuscate risk entirely by creating fences and even absorbing small risks, which doesn’t let the
population adapt well to the changing environment.

Overprotective parenting makes for weak children!

 Day 56

SURVIVORSHIP BIAS

I’m pretty sure many of you may already be aware of the term “Survivorship Bias.” It is often accompanied by this

very same picture of an airplane riddled with bullet holes.

But for those of you who haven’t yet come across the term, here’s the tea:

The most famous example of survivorship bias is from a scenario in World War II and a mathematician called
Abraham Wald.

The American Military asked Wald to study how to secure airplanes so that they wouldn’t get shot down mid-
combat.

The existing approach had been to observe planes that had returned safely from combat, see where they were hit

the worst — the wings, around the tail gunner, and down the centre of the body — and then reinforce those areas.

But Wald realised they had fallen prey to survivorship bias.

The military was missing a valuable part of the picture: the planes that were hit but that HADN’T made it back.

These were the planes that were actually hit in the areas that were vulnerable.

But the military only saw planes that had returned safely, and hence, they were planning to armour all the wrong
parts.

The bullet holes they were looking at actually indicated the areas a plane could be hit and keep flying – exactly the
areas that didn't need reinforcing!
Now that the story’s out of the way, let’s discuss all the examples of survivorship bias in our daily lives.

1. Getting inspired to undertake highly risky ventures seeing only the people who succeeded, while ignoring the 99%
who failed.

2. Asking only those customers who completed the onboarding about the ease of the onboarding experience.

3. “Steve Jobs, Bill Gates, and Mark Zuckerberg dropped out of college and became billionaires, so will I.”

I’m pretty sure there are endless examples.

But today, I want to discuss the survivorship bias going on in the Indian Education System.

Who are the survivors?

They are the degree holders. They are the people who have the big B-school labels on their bios.

I’m one of them.

And let me tell you — if you’re looking at me, you’re looking at the 0.1% of planes who made it back.

And if you look at us, you’re again falling prey to survivorship bias. You’re only looking at people who could excel at
one proxy IQ test.

And then you admire our traits, select us over other candidates, and society, on the whole, enters this self-
reinforcing feedback loop where only test-taking ability is considered to be the gold standard of merit and skill.

Enter coaching classes and all sorts of hopium-driven preparation aimed at just clearing a stupid IQ test.

What about the 99.9% who couldn’t make it through?

What parts did they need reinforcing in?

And why are we not focusing on those people and helping them get better at the key areas they are lacking in?
How can we equip the 99.9% with useful skills that help them compete on a level playground?

This is a question I’d like to leave you with.

 Day 57

HOW TO MAKE LIFELONG CUSTOMERS

In his book Alchemy, Rory Sutherland talks about the power of altruism and selflessness in persuasion.

He talks about how a seemingly selfless act like going out of your way to help a customer without the expectation of
a reward can help you make a customer for life.

Even if you visit small towns and villages in India, where the power of community is strong, you will see just how
non-transactional everything is between community members.

Relationships are based on mutual support and trust more than monetary incentives.

But like Austen's tweet suggests, it's easy to game this behaviour — where you create the impression of building
unique relationships with each of your customers when, in fact, it's just a marketing ploy for you.

And surely you must've experienced this yourself — when someone called you their "best friend" and it made you
feel special and exclusive. But later you found out that they call every other person their best friend, so it was
meaningless!

This also happens with compliments, where someone who compliments everybody is actually complimenting
nobody.

What's missing? Why do seemingly nice acts, when overdone, lose all appeal?

As we've discussed in an earlier post in this series, it simply has to do with the concept of cost and costly signalling.

Altruistic and selfless acts only have appeal when they come at a significant cost to the bearer. And if something is
expensive, it's by default, not for everyone and reserved for a special few.
This brings us to the title of this post:

How do you make lifelong customers?

By GENUINELY CARING about them and their success.

Yes, it's that simple. But it isn't easy!

You'll have to do a lot of things that don't bear any RoI in the short term.

It will take lots of courage to go against the grain.

And that's often what separates short-term players from long-term ones:

The latter are willing to pay the price.

 Day 58

WHY DO STARTUPS THESE DAYS PUT CUSTOMERS ON WAITLISTS?

If you keep yourself updated with all the startups that are coming up these days, you must have noticed one very
peculiar method of onboarding customers since the past few years:

The Waitlist.

If I jog my memory back, the waitlist method was first brought to mass attention via the email client startup
Superhuman.

After which, many products like Clubhouse and Mighty App chose to go the same route.

But surely making your customers wait doesn't feel like a good strategy at first glance?

What's going on here?

To understand why waitlists work for certain products, we will have to first understand the kind of customers that

exist in your target segment.

For every product or service, there are some potential customers who are affected by the problem you're trying to

solve.

But each of these isn't affected in the same way by this problem. And the magnitude of how much it affects them
also varies.

So as a startup that is launching a completely new solution for an existing problem, it is impractical to target
everyone in the first go.
You instead try and get to a great product-market fit first by only targeting people who this problem affects the
most.

And that's where waitlists come in handy.

1. Waitlists help you narrow down PMF

Some companies like Superhuman use the waitlist to narrow down potential users so that only those who truly fit

their niche can use their product.

This helps when getting product feedback, because now, only those who ardently use your product will be giving

feedback and it will be valuable to your product decision-making.

2. Waitlists help you generate hype

If you make someone wait to try out your product WHILE they're constantly hearing from other users just how
awesome it is, you generate a lot of FOMO and hype.

Some companies like Clubhouse even go a step further and urge users to go onto social media platforms and ask

existing users to share a referral with them.

Other platforms also give everyone on the waitlist a unique referral link. The more people signing up via your link,

the faster you yourself get access.

3. Waitlists give you time to iterate on your product before mass release

Many companies whose products are just MVPs at this stage create a waitlist to start getting people at their door
even before they launch.

This works because when they do release their product, they already have a group of initial users and early adopters

who help them develop and iterate on their ideas with quality early user feedback — without having to scale up
operations with an inferior product.

So, although the waitlist may sound very counterintuitive, it actually serves quite a few purposes for the startup. For
app-based startups, the waitlist provides a good way to ramp up slowly while getting a lot of traction.

Have you been on a waitlist for any product? What were your reasons?
 Day 59

WHAT HR MANAGERS NEED TO UNDERSTAND ABOUT

ORGANISATIONAL CULTURE

“Culture” is a confusing and messy term.

Every company strives to have a good culture.

But if you were to ask your employees to define the company culture in one or two pithy statements, you would
most likely get 1. empty stares or 2. several different definitions, some of them even contradicting each other!

So, what is culture?

It is an error for large companies to assume a collective company culture.

While there may be common cultural elements across a large company, the culture that we care about is found in
specific teams of individuals.

As an HR Manager, you are usually better suited if you identify one or two values that do resonate as true for most

employees and then embrace the fact that there will be several sub-cultures across the organization that cannot be
controlled in a top-down manner.

In his seminal article on org. culture in 1984, Edgar Schein defines a set of people or a team as:

1. Who have been together long enough to have shared significant problems
2. Who have had opportunities to solve those problems and to observe the effects of their solutions
3. Who have taken in new members

Why are these 3 points important?

Because according to Schein, the culture of a company emerges and solidifies in two ways:

1. Positive problem-solving processes: How the company reacts to and solves new problems
2. Anxiety avoidance: Learned reactions to minimize anxiety

The culture around problem-solving processes is fluid and can shift as new problems are not always the same as old
problems.

But the anxiety-avoidance behaviours are hard to change.

For example, one common behaviour we see in large orgs is the employees' tendency to default to the highest-
ranking person's opinion in times of conflict.

And once a response like this is learned because it successfully avoids anxiety, it is likely to be repeated indefinitely.

Another example of anxiety-avoiding behaviour would be not pitching in new ideas or ways of doing things due to
the fear of being ostracized and judged by teammates.

As an HR Manager, how do you mitigate this?

By incentivizing exploration, not penalizing employees for time wasted in exploring avenues that did not work, and
understanding that learning cannot be enforced top-down. It’s a messy process that may not take you in expected
directions.

But Aditya, how do you arrive at company culture?

Well, here are 4 questions that will allow you to identify it:

1. What is a belief that people seem to hold here?

2. What is a way of behaving that is rewarded here?

3. How do people solve problems, especially when stressed?

4. What is something that an outsider might say about your team?
After conducting this exercise, you may find out that your company's espoused values that are listed on your
website may be hugely disconnected from reality!
 Day 60

4 REASONS WHY EMPLOYEES LOSE MOTIVATION

In his book ’12 Principles For Effective Management’, author Luca Dell Anna talks about the 4 primary reasons why
your employees may lose motivation.

If you’re a manager or someone leading a team, this is for you.

Reason 1: Expecting a reward but not getting it

When your employee thinks she did a good job, she expects the good work to be acknowledged and recognized in
*some* way. It can be a simple thank you, it can be a small note of appreciation for a job well done, it can be
something more tangible like a raise.

But if she doesn't get any, she will learn the lesson that in her work environment, results aren't rewarded.

She will adapt by losing motivation.

Crucially, what matters is not whether she did a good job, but whether she thinks she did. This is also the reason why
clarity is paramount in setting objectives, standards, and expectations.

By clarity, I mean specific praise. General praise is vague and is often rejected. But specific praise highlighting what

she did well is welcomed and can act as good feedback for her growth.

Reason 2: Expecting reprimand but not getting it

If your employee thinks she failed your expectations, she secretly expects you to point it out. She expects you as the
manager to tell her that her performance wasn't up to standard.
If this doesn't happen, she will learn the lesson that in her work environment, low performance is okay. She will
adapt by decreasing her future performance.

Reason 3: Expecting someone else to get rewarded or reprimanded, but it doesn't happen

When your employee thinks that a team member did an excellent job (or a terrible one), she expects you to call it
out.

If it doesn't happen, again the employee will learn the lesson that in her work environment, performance doesn't
matter. She will adapt by lowering her efforts and caring less.

Reason 4: Expecting a project to evolve into something, but it doesn't happen

If your employee is working hard on a company initiative and is fully invested in the project, she expects it to bear
results for the company and herself.

Perhaps, she expects her role in the project or in the company to grow in importance.

If this doesn't happen (for example, the company "changed its priorities"), she will learn the lesson that in her work
environment, it is not worth spending time and energy on new initiatives.

Takeaway:

Management boils down to clear communication that sets the right incentives and factors in second-
and third-order effects of the organization's decisions on the individual employees.

If the task isn't well-defined,

If the end goal isn't clear,

If there's lack of operational clarity,

If there's lack of timely feedback when employees get stuck,
then the second-order effect is frustration and a lack of motivation amongst employees.

Have you witnessed this happening in your own organisation? If yes, how did you solve for it?
 Day 61

BROKEN WINDOWS AND SLIPPERY SLOPES!

In the mid-1970s, the state of New Jersey in the USA announced a "Safe and Clean Neighborhoods Program," to
improve the quality of community life in 28 cities.

As part of that program, the state provided money to help cities take police officers out of their patrol cars and
assign them to patrol on foot in the streets.

The state's reason?

Officials believed that foot patrol would cut the crime rate in these areas. Police chiefs disagreed.

Police offers were also against the idea, simply because it was hard work and kept them outside on cold, rainy
nights. But they eventually went along with it.

Fast-forward to five years later, the state published an evaluation of the foot-patrol project.

And what they found was something very expected and surprising at the same time:

The foot patrol had NOT reduced crime rates.

But residents of the foot-patrolled neighborhoods seemed to feel more secure, tended to believe that crime had
reduced, and took fewer steps to protect themselves from crime (for e.g., staying at home with the doors locked).

Moreover, citizens in the foot patrol areas had a more favorable opinion of the police than did those living
elsewhere. And officers patrolling on foot had higher morale, greater job satisfaction, and a more favorable attitude
toward citizens in their neighborhoods than did officers assigned to patrol cars.

But how can a neighborhood be "safer" when the crime rate hasn't gone down?

Because not only are citizens are afraid of violent crime, but they are also afraid of being bothered by disorderly
people who are not necessarily criminals, like drunks, addicts, rowdy teenagers, pranksters, loiterers, and the
mentally disturbed.

What foot patrol officers did was to elevate the level of public order in these neighborhoods and prevented unruly
behaviour from these folks.

On a larger note:

At the community level, disorder and crime are usually inextricably linked.
Social psychologists and police officers tend to agree that if a window in a building is broken and is left unrepaired,
all the rest of the windows will soon be broken.

Why?

One unrepaired broken window is a signal that no one cares, and so breaking more windows costs nothing.

Untended property becomes fair game for people out for fun or plunder, and vandalism goes up once communal
barriers like civility and decency are lowered by actions that signal "no one cares."

Disorder is a slippery slope. An orderly neighborhood can turn into an inhospitable jungle in a matter of a few
months. Small mischief, if not nipped in the bud, will give way to violent crime and muggings.

What's more?

If many residents think that crime is on the rise, they will use the streets less often. And when on the streets, they will
move quietly with averted eyes and hurried steps.

"Don’t get involved."

But Aditya, how is this related to management in organizations?

I'll let you smart folks figure it out!

 Day 62

CHURN AND THE TRICKY BUSINESS OF BUSINESS METRICS

There are a few metrics you may have heard entrepreneurs talk about while mentioning the progress of their
company.

ARPU, MAU, DAU, CAC, LTV, Churn, Retention Rate…

But let me tell you something.

Not every metric has the same meaning or can be measured in the same way across businesses. Based on your
product, market, and business model, the way you measure your metrics can vastly change.

Let’s take the example of churn.

Put simply, churn measures the % of customers you lose over a given period.

And like any other metric, it is wise to examine the assumptions that founders use in a churn calculation since it is
possible to tell a very tall tale by misrepresenting the impact of churn.

“We have a very high churn rate, but as soon as we turn on email marketing to our user base, people will come
back.”

“Yes, of course. The reason that people leave our service and don’t come back is that we have not been sending
them enough spam. That makes total sense to me, too.”

Nuance 1: The higher the Customer Acquisition Cost (CAC), the more important lower churn becomes.

For example, if you pay ₹800 in CAC to acquire a satellite TV customer you can’t afford much churn and have a
positive return on investment.

But if you pay only ₹30 to acquire a prepaid cellular customer, churn can be relatively high and yet the unit
economics of the business can still make financial sense.

Nuance 2: Acceptable churn rate varies by business model and industry

In some industries, you can require a customer to commit to a contract with a term that is relatively long so as to
reduce the risk of churn.

The trade-off?
Services that are not terminable on a monthly basis have higher CAC.

Also, if the customer is not creditworthy, a contract is not worth much anyway.

On the other hand, “freemium” services and products are particularly prone to churn.

Nuance 3: If you try to increase ARPU (price), you will naturally increase churn.

Nuance 4: If you try to be more aggressive with your marketing strategy, not only will your CAC rise, but your churn
may also rise, as a more aggressive program will likely capture customers of lower quality.

Nuance 5: For virtually all businesses, new customers will have a higher churn rate than mature customers. Some
form of segmentation is necessary to have a useful churn rate.

For example, you may want to only report the churn rate for customers who have been around for at least 90 days.
Or you may want separate churn rates for all sorts of demographics and tenure.

Nuance 6: Lag Time — By the time you see an increase in your churn rate, it may be six or eight months after the
point in time when you actually failed the customer.

Anything you do now will be too late to influence your churn.

Takeaway:

When it comes to metrics, not only the ‘what’ but the ‘how’ is important as well. Measure a crucial metric
wrongly and your business will fail.
 Day 63

THRIVING ON THE EDGE OF CHAOS

Have you seen children at play?

They toss things around, fumble, fall down, dust themselves off, get back up, fall down again.

They’re constantly exploring, trying to find the limits of the world and building a mental model of their environment

in the process.

Sometimes, it’s funny how they’ll play with the toy in every other way but the way the toy is “supposed” to be played

with!

Children break all paradigms and rules in order to learn the world anew. And it’s not surprising that the very early
years of childhood are when we all learn the most.

What can startups learn from children?

It’s learning how to thrive on the edge of chaos.

Mario Andretti, one of the most successful F1 racecar drivers has famously said:

“If everything seems under control, you're not going fast enough.”

Startups are meant to be slightly chaotic.

Because when a business is young, it is still trying to find its feet and fit in the market.

If they become too stable too quickly, they fail to respond to changing conditions in the environment, and put
themselves at a competitive disadvantage.

At the same time, startups that change too often also go belly up because they aren’t able to build any momentum
in a given direction.

And yet, there is an optimal place between these two — the edge of chaos — where the business is at its most
creative, and undergoes the most learning and adaptation.

In complex adaptive systems and nature, there’s a principle called “Hormesis.”

Hormesis means applying stress to an adaptive system to increase its adaptive capacity.

In the gym, you have to stress a muscle to get it to grow.

If you’re lifting really light weights, there's no input to the system that says the muscle needs to be bigger. And as

there's a cost to getting bigger, it's only gonna pay that cost if it's being stressed.

The same is true for exposing yourself to more heat and more cold than is comfortable. By doing that, you gain

greater metabolic flexibility to deal with heat and cold.

This means that if you always choose to stay in an environment with air conditioning, you will actually lose your
capacity to adapt to changing weather.

And maintaining the capacity to adapt to the changing environment is what differentiates nimble startups from slow
and rigid corporate structures.

It is critical for pre-PMF startups to design their product in a way that it can quickly adapt based on market feedback.
Especially for tech products, the system architecture needs to be designed in a way that makes changes easy. And it

is much easier to build a product that never changes and a lot harder to create a product that does.

We learn and be creative only when we operate at the edge of system disintegration.

And to grow as an individual or as a business, you will have to find that sweet spot!
 Day 64

WHO CALLED IT ‘ADVERTISING’ AND NOT ‘CREATING MEMES’?

“Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic
functions: marketing and innovation.” — Venkatesh Rao

Today, let’s talk about marketing.

More specifically, let’s talk about memes.

Did your eyes light up, at least a little bit, when you read the word?

Did a funny meme pop up in your mind?

But I’ll tell you what…

Memes aren’t just funny images created by extremely online people.

They, in fact, form the fundamental structure of all our knowledge and behaviour. They are what allow us to have
language, use tools, and be generalists — unlike other animals.

Our brain is a house for symbols and patterns a.k.a memes, which allow us to learn quickly and adapt to any

environment, not just on earth, but even on the moon!

Memes make us the generalists that we are.

Essentially, a meme, as originally defined by Richard Dawkins, is “a unit of cultural transmission, or a unit of
imitation.”
Dawkins’ examples were “tunes, ideas, catch-phrases, fashion, ways of making pots or of building arches.”

Today, the list includes gifs, emojis, acronyms (iykyk, TL;DR, imo), viral TikTok dances, business models (starting a
substack, “Uber for x”, etc), and more.

And the nature of memes is to be mimicked, because they work.

When I see someone do something, and I see that they’re getting desirable results from it, I want to do it too.

If the benefits of adopting the meme seem to outweigh the costs, then the meme becomes integrated into my

framework of beliefs (memes) that determine my behavior. I become a carrier for the meme.

Then I start spreading the meme, to other people and then they become carriers, too. However, this will only happen
when

1. Spreading the meme is easy and low cost

2. It reflects well on me and serves me in some way

3. It is general enough for me to edit it to suit my needs

4. It describes a relatable pattern that people care about or can connect to

Internet memes, on one level, are about sharing a joke to boost your social status. But on a deeper level, they
function as a label for specific patterns that happen in the world.

If you could build a perfect database of all the memes in people’s heads, and had a good understanding of the
mechanics by which memes spread, you’d become a master marketer!

Once a meme has spread through a population, it becomes a recognized *pattern* of information.

As a marketer, you can then switch out components of this structure, and use it to seed ideas about your product
that the population might not otherwise be receptive to.

Takeaway:

"A customer is a novel and stable pattern of human behavior."

If you understand your customers and their set of memes, you can market your product to them in a way
they willnot only resonate with, but will also incentivize them to share your message to others.

What are some memes you've liked recently?

 Day 65

THE GLOBAL SHIPPING CRISIS IS A LESSON IN SUPPLY CHAIN

MANAGEMENT

Shipping containers are piling up by the thousands inside shipping ports, leading to higher shipping costs.

Exporters are lacking the empty containers they need to send their goods abroad.

In fact, the disruption is so bad that the head of the American Apparel Association recently urged consumers to do
their Christmas shopping in the summer!

So, what are some issues that have caused this systemic problem to unravel globally?

1. Bottlenecks

In a supply chain, if one stage of the chain takes much longer to do its job than others, that stage becomes the
bottleneck for the system.

In this case, U.S. longshoreman unions are proving to be the bottleneck, where the labor contracts decrease port

productivity.

Ships are worked 16 hours per day at LA, Long Beach, and terminal gates only operate 88 hours per week, versus
24/7 operations in Asia.

Thus, U.S. ports create a bottleneck where factories are working 24/7; the terminals in Asia are generally working
24/7 but North American ports aren’t. Also, many ports’ Customs offices — required to clear and admit goods into
the United States — are closed at nights and weekends.

2. Trucking Shortages
Outside of dedicated port trucking companies, most trucking companies won’t touch shipping containers.

Why?

Because of long wait times at ports and warehouses. It's like going to D-Mart on Diwali, but having only ONE cashier
for thousands of customers.

And most port drivers are independent contractors, leased onto a carrier who is paying them by the load. Whether
their load takes 2 hours, 14 hours, or 3 days to complete, they get paid the same, and they have to pay 90% of their
truck operating expenses.

Naturally, trucking companies aren't interested in registering their trucks to haul shipping containers because these
same companies can get higher rate loads outside the ports.

The solution?

To relax a bottleneck, you widen the neck of the bottle.

Run EVERYTHING 24/7 — ports, trucks, and warehouses, along with increasing chassis and trucking capacity. But,
there's another problem.

3. Misaligned Incentives

Nobody in the supply chain wants to pay to solve the problem.

The backlog of containers doesn’t hurt the owners of shipping companies. It hurts anyone paying shipping costs —
that is, manufacturers and consumers.

If the congestion is so bad that you can’t get the container back into the port when it is due, the container company
and the ports themselves can charge massive late/storage fees. Warehouses can charge massive premiums for their

services, and so can trucking companies.

In fact, the more the congestion, the more every point of the supply chain cashes in!
There is literally NO incentive to change.

Conclusion:

I can't see this problem being solved any time soon. All I can say is:

As a consumer, get ready to pay more for your purchases, along with longer delivery times!
 Day 66

TWO WAYS BY WHICH BUSINESSES AVOID GETTING THEIR MARGINS

SQUEEZED

If you’re into tech news, you must’ve heard of Amazon recently launching their own line of TVs with Fire TV Omni

and 4-Series.

At first glance, this might appear like the usual vertical integration — where businesses own the entire value chain,
end-to-end, right from manufacturing to delivery to customer support.

But there's something more to it.

And it's called Wholesale Transfer Pricing (WTP):

If my product is dependent on a part only you make, you can steal all my profits by raising the wholesale price of
that part. And I won’t be able to do anything about it because I’m dependent on you for that one thing that’s
essential to my product!

Amazon realized that they could get their profit margins by being on external TV and OEM manufacturers to have
the Amazon Prime app shipped with their TVs out of the box.

Hence, they decided to make the TVs themselves to own the entire value chain.

This is similar to what Samsung did in the late 1990s and early 2000s where instead of outsourcing production to

external suppliers and thereby transferring the capital investment and inventory risk, Samsung decided to build its
own chip and display manufacturing facilities as a core competence.

Some other examples of WTP:

Netflix turning into a production house: The more content Netflix owns, the less wholesale transfer pricing power of
studios is an issue.

Restaurants owning the building: In Manhattan, New York, the old school restaurants that survive own their

buildings. If they had just been tenants, the landlords would've just increased the rent, making all profit margins
disappear.

Another way businesses try to retain their profit margins is by commoditizing their complement.

What does this mean?

Well, a complement is a product that you usually buy together with another product.

Gas and cars are complements.

Computer hardware is a classic complement of computer operating systems.

And the demand for a product increases when the prices of its complements decrease. Hence, smart companies try
to commoditize their products’ complements.

Amazon did it with the Kindle.

Tesla is doing it with charging stations.

Microsoft commoditized PC hardware to boost sales of Windows OS by not selling exclusive licenses to its operating
system.

IBM spent millions to develop open-source enterprise software because IBM was turning into an IT consulting
company. IT consulting is a complement of enterprise software. Thus, IBM commoditized enterprise software by

supporting open source.

Netscape open-sourced and commoditized their web browser because the real money was to be made on servers.

Takeaway:
Overreliance on another business is a recipe for decreasing profit margins. Vertical integration and
commoditizingyour complement are two ways out of it.
 Day 67

THE STORY OF HOW AMAZON COUNTERACTED GOOGLE SEARCH’S

INFLUENCE IS A LESSON IN LONG-TERM, HIGHER-ORDER THINKING

Did you know that Amazon is also a search engine?

As consumers, we often tend to look at Amazon primarily as an e-commerce platform and forget that it is the largest
search engine for e-commerce:

Nearly 54% of total online product searches now take place on Amazon.

In fact, if we exclude YouTube as part of Google, Amazon is technically the second largest search engine in the
world!

But it did not start this way.

When it started in the late 1990s, Amazon relied heavily on Google Search to bring shoppers to its website.

But in the mid-2000s, executives at Amazon started worrying that the long-term future of the company could be in
jeopardy if Google itself ever decided to launch its own e-commerce platform.

They developed an internal "Google reliance" metric, which focused on how much the company was paying Google
to bring shoppers to Amazon through search ads.

Consequently, Amazon's solution was to convince shoppers to start their product searches on Amazon rather than
on Google, by heavily investing in their own in-platform search experience.

The lesson?
If you find yourself over-reliant on another business for an essential job-to-be-done to make your own business
work (discoverability, in the case of Amazon), it makes sense for you to recreate that feature in your own business.

If you can do that well enough, you can incorporate the business model too. For Amazon, creating a search engine

meant being able to sell ads on top of product searches.

And that's exactly what Amazon did.

For doing this, the company had to forego short-term scalability doubts, because having to actually build the
product listings pages, store the products, and ship them makes the business less scalable.

But you know what? It also made the business much more defensible.

Amazon built and integrated a sufficient subset of Google's capability in its own business, and if Google decided to
launch its own e-commerce platform in the future, it would be really expensive for Google to build a meaningful
subset of Amazon's other capabilities to fight back.

From a larger point of view, antifragility is the capacity for future optimization, not current success.

Businesses choose fragility because they believe they can grab the short-term success and then pivot to grab the
long-term one too. But they don’t understand that by becoming fragile and over-optimizing for the present, they’ll
lose their long-term capacity to pivot.

If Amazon had tried to optimize the business as it existed then, it would have not undertaken the arduous and
expensive task of building its own search capability, weakening its long-term defensibility to giants like Google.

Optimizing for the present necessarily means losing the capacity to adapt to the future.

And understanding this is what separates successful CEOs from not-so-successful ones.
 Day 68

IT’S ALL ABOUT THE INCENTIVES!

If it's a persuasion problem, it's an incentive problem.

If it's an unresolved comprehension problem, it's an incentive problem.

If it's a sales problem, it's an incentive problem.

Almost all issues in business can be dialed down to incentives of the stakeholders involved and their resulting
higher-order behaviors.

And a good part of building a good product, team, or company culture is addressing issues on the level of
incentives.

Here are some examples of incentives and how they affect the world around us in different contexts:

1. By running ads that ruin a customer's experience — for e.g., ads that run on the lockscreen or pop up inside apps,
you're selecting for customers who click on ads rather than selecting for the customers you want. These customers

generally have an incentive of earning money by watching and clicking on ads, not buying your product.

Also, incentivised ads that pay for user attention are the least valuable ad type; the most valuable ads have high
intent, which explains why Google is Google and none of the lock-screen ad companies are anything today!

2. Speaking of ad businesses, Apple's so-called "privacy" changes that prevented third-party platforms like Facebook
from getting access to your usage data has obviously turned out to be a jackpot for its own advertising business. Ad

buyers are now buying Apple's own advertising real estate on its app store and other properties because it's the only
avenue left.
3. In Amazon, every hiring process is assigned to an employee called a 'Bar Raiser'. A Bar Raiser belongs to a special
class of individuals within Amazon who are effectively the ‘guardians’ of the interview process and ensure that every

new hire ‘raises the bar’.

The Bar Raiser is given the absolute power to veto any hiring decision. If they say no, the candidate is out.

Why does Amazon do this?

To counteract the incentives of Hiring Managers. If you are a manager and your team is understaffed, it is extremely
tempting in such a scenario to temporarily drop your hiring standards, in order to get people in quickly so you can
hit your quarterly goals.

Also, Bar Raisers never belong to the team that is hiring — with very different incentives from the hiring manager’s
and the recruiter’s.

4. Speaking of hiring, an MBA degree from a reputed institute also works for the same reasons: it reduces cognitive
load of the recruiter and takes away personal liability and blame for making a bad hiring decision down the line. If

you're from an IIM, I as an HR will feel safe in hiring you.

5. A doctor won't be blamed if he gives a drug that has side-effects but risks being blamed if he doesn't prescribe a
drug and the patient gets worse. There's very little incentive for any kind of placebo therapy, although it's been
shown to work.

Takeaway:

You will never make money if your thesis is that someone is ‘stupid’. It means you don’t understand
their incentive structure.
 Day 69

WORKING IN THE TRENCHES

"The role of the CEO is basically to figure out and decide what the company should do and then make sure it does
that.

The hard part is that most people want to just do the first part, which is figure out what the company should do. In
practice, time-wise, I think the job is 5% that and 95% making sure that it happens. And the annoying thing to many

CEOs is that the way you make it happen is incredibly repetitive."

— Sam Altman, Co-founder & CEO of OpenAI, ex-Chairman – Y Combinator

People see a CEO role as a glamorous job.

Especially in a status-driven society like India, the typical imagination of a CEO is donning a 3-piece suit, putting

your feet up on the table and commanding your employees to do stuff.

Leaders do play the role of a visionary for the company. But great things only happen when vision meets execution.

And that execution is often fraught with a lot of mundane, repetitive work that is often boring and makes you feel
like taking a vacation.

Stepping up to a leadership role might initially look quite exciting and you can ride the adrenaline rush of standing
at the wheel and navigating the ship.

But it very quickly can turn into a loaded calendar with stacked meetings and a lot of busywork.

It becomes a small challenge each day to keep the department's larger goal in mind and persevere.
Figuring out what to do is only valuable if you can make it happen.

And that happens in the trenches, where people are busy executing.

Executing something well often takes a lot of support, not just in terms of capital or resources, but also in terms of

morale-building and greasing the machinery with impactful and lucid communication across teams.

Do you know why Larry Page chose Sundar Pichai as CEO of Google?

It wasn't because Sundar was the smartest, or the most visionary person around.

It was because other leaders just couldn't agree with each other on certain decisions unless he was there to mediate!

The same is the case with Tim Cook and Apple. Without Steve Jobs, some of the leaders couldn’t agree with each

other without Tim Cook in the room.

Low ego, high EQ is an underrated leadership quality.

And for that, you need to work in the trenches together with your team.

Keeping up the motivation and enthusiasm while working on boring stuff can only happen if you detach yourself
from the label of CEO and focus on solving problems for your users.

If you're deeply involved in solving the problem, you will do anything and everything in your capacity to make things
happen, and in a calmer fashion.

You will also be able to handle critiques more objectively as now it isn't about you or your role, it is about something
much much bigger:
 Day 70

A LESSON ON NEGOTIATION AND PLAYING POSITIVE-SUM GAMES

“In a tough negotiation, it's not enough to show the other party that you can deliver the thing they want. To have
real influence you have to help them see that collaboration with you will avoid a greater loss and that you can be
trusted with their longterm best interests.” — Chris Voss, Never Split The Difference

Many people get too selfish too soon. And it hurts their long-term prospects.

Here’s an example to illustrate the point better:

You’re not happy with your current salary.

So you think that you’ll go get a job offer letter from another company and tell your boss you’re leaving if they don’t
match/exceed it.

Don’t do this, friends. The strategy may work well in the short term, but in the long run, it will hurt your prospects.

Here’s why:

Let’s think about second-order effects of what will happen if you did that.

You go to your boss and tell him, “Something something… match this offer or I'm leaving.”

Now think from your manager’s point of view.

You’re essentially putting her in a bind. She wasn’t expecting it, and she cannot afford to let you go right now (which
is why you may have decided to pull this move in the first place!).

So she says, “Ok let me see what I can do."

She goes to Finance and, although she can't match the other job offer, she gives you a decent raise to try to keep
you happy.

So, you decide to stick around, considering you’ve worked there for many years.

But your boss can’t stop wondering if you’ll pull that trick on her again.

And more importantly, she now knows that you’re interviewing with other companies and aren’t really into your job
all that much.

So she starts thinking about hiring your replacement in case you try to leverage some offer letter again.
If a new project comes up, she won’t give it to you although you’d be the most qualified one to handle it. Because
it’s risky now. You might leave midway.

Consequently, she puts you on smaller, more trivial projects with fewer liabilities.

Eventually, you have a hard time even finding good projects to demonstrate your skills. You’re stuck on a bunch of
small projects since you threatened to leave. And it’s hurting your future job prospects also.

Now instead of doing this, what if you had asked for a raise in all sincerity and played a collaborative game instead
of a competitive one?

What if you told her,

“I genuinely love working here. But I think my salary should be a bit higher based on the excellent work I'm doing for
more than 3+ years now. (Here’s proof.) I would like a raise. Can you help me with that?"

In this scenario, you 1. establish your worth and hence get the same raise, and 2. get yourself recognized as an
excellent employee and set yourself up for even better opportunities down the line.

Moral of the story:

Whenever in a negotiation, choose the collaborative frame. Always. That’s how you play positive-sum
games where everyone wins.
 Day 71

HOW TO MAKE PREDICTIONS USING THE EQUIVALENT BET TEST

In his book 'How To Measure Anything', author Douglas Hubbard writes about a simple test you can conduct to
check if your confidence in a belief is real or imaginary.

Because it's easy to be confident when the stakes are low and there's not a lot to lose. But when the stakes are high,
that's when you need to really think about how confident you really are about a certain decision.

The equivalent bet test is an easy thought experiment to find this out. This is how it works:

Suppose you’re asked to give a 90% Confidence Interval (CI) for the year in which Newton published the universal

laws of gravitation. In other words, you're asked to give a range of years in which you think Newton published the
work — a range that makes you feel at least 90% confident of the actual year falling under your given range.

Now, once you've made your guess, you can win $10,000 in one of two ways:

1. You win $10,000 if the true year of publication falls within your 90% CI. Otherwise, you win nothing.

2. You spin a dial divided into two “pie slices,” one covering 10% of the dial, and the other covering 90%. If the dial

lands on the 10% slice, you win nothing. If it lands on the 90% slice, you win $10,000.

Which option do you prefer more to win the $10,000?

If you find yourself preferring option 2, then you must think spinning the dial has a higher chance of winning you

$10,000 than option 1.

That suggests your stated 90% CI isn’t really 90%!

By preferring option 2, your brain is trying to tell you that your originally stated 90% CI is overconfident, and it
probably is really 70% or 60%.

If instead, you find yourself preferring option 1, then you must think there is more than a 90% chance your stated

90% CI contains the true value.

By preferring option 1, your brain is trying to tell you that your original 90% CI is under-confident.

To make a better estimate, adjust your 90% CI until option 1 and option 2 seem equally good to you.

I've found it to be a good trick to force honesty in your decision-making. When ten thousand dollars is on the line,
your brain automatically tells you the truth.

That is also why having skin in the game is important to make your opinions count.

Because if you're wrong, it is you who will have to pay for them!
 Day 72

UNDERSTANDING CONTRARIANISM IN BUSINESS AND INVESTING

What does it mean to be a contrarian?

Why does it pay to be a contrarian?

How does one truly make contrarian bets?

Let's discuss a few quotes from renowned investors and businessmen to understand the nuances behind this much-

abused idea of being contrarian.

“Being ‘right’ doesn’t lead to superior performance if the consensus forecast is also right.” — Bill Gurley

If you're right but the crowd is also right, it's already priced in and hence, there is no outsized return to be had. You

simply can’t be part of the crowd and at the same time beat the crowd.

The only way to make outsized returns as an investor and as an entrepreneur is by being right and non-consensus.

What does it mean to be right and non-consensus?

It's all about Information Asymmetry.

Successful contrarian investing isn’t about being contrarian for the sake of being contrarian; it’s about exploiting
expectation gaps.

If the crowd takes something to an extreme, either bullish or bearish, it creates a disconnect between fundamentals
and expectations. And capitalizing on this gap between fundamentals and expectations is what allows you to make a
good investment.

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You
can’t buy what is popular and do well.” — Warren Buffett

In other words, one person’s mistake about the value of an asset is what can create an opportunity for another
investor to outperform the market.

“For a security to be mispriced, someone else must be a damn fool. It may be bad for the world, but not bad for
Berkshire.” — Charlie Munger

How do you find out expectation gaps? How do you seek 'alpha'?

To achieve superior returns on your investments, your insight into what can create value in the future has to be
superior. You must learn things others don’t, see things differently or do a better job of analyzing them.

“Most of the big breakthrough technologies/companies seem crazy at first: PCs, the internet, Bitcoin, Airbnb, Uber,
140 characters. It has to be a radical product. It has to be something where, when people look at it, at first they say, ‘I

don’t get it, I don’t understand it. I think it’s too weird, I think it’s too unusual.’”

But, there's a caveat.

“You just have to remember that contrarians are usually wrong.” — Jeff Bezos

So, why does it still pay to be contrarian?

Because it is the magnitude of success and not the frequency of success that matters for an investor.

“We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some

home runs.” — Jeff Bezos

Kunal Shah is known to have invested in 200+ startups. Even if 90% of them do not survive and he loses all his
investment, he can make up for them just by the outsized success of the remaining 10%.

Stoa is my contrarian bet on the future of business education. What's yours?

 Day 73

KNOWING MORE ISN’T ALWAYS BETTER!

Imagine owning a coffee shop in an IT Park in Bengaluru and wanting to predict whether the next customer entering
will order a Filter Coffee or an Espresso.

You record the behaviour of 1000 customers and discover the following:

Filter Coffees are ordered by 90% of Bengaluru natives, 80% of customers wearing formals, and 51% of customers
with a bag. The rest order espressos.

You build two models, a simple one and a complex one.

The simple model says: if the customer is a Bengaluru native, predict Filter Coffee; otherwise, predict espresso.

The complex model instead weights the three parameters (native place, attire, and whether they are carrying a bag).

Here's something counterintuitive:

The simple model will be more precise, for it only pays attention to informative indicators (native place) whereas the
complex model also pays attention to indicators with little predictive power (attire and bag).

In general, the most significant parameter is likely to be signal, while other factors which are less correlated only add
to the noise, and you might as well get rid of them completely.

This brings us to the question:

Is more data always better than less?

It's common to believe so. I mean who would say that more data is worse, right? One might easily argue that you
always have the option of ignoring data you don't want to use or that which isn't relevant and only focus on the data

that you do want to use.

But the scientific research on information overload suggests that this assumption is wrong, and that more data can

lead to less rational decisions for 3 reasons:

1. First, the human mind is easily distracted and as presentations and documentation get longer. It is easy to lose

sight of the main topic and get lost on tangents.

2. Second, details can mount up on multiple dimensions, but not all details matter equally. Sifting through useless

information can get taxing.

3. Third, behavioral research shows that as people are inundated with more data, their minds often shut down and
they revert back to "mental shortcuts" — simplistic decision-making tools that throw out much or all of the data

designed to help them on that decision.

It's the case of more data leading to less information!

Hence, here are 3 suggestions for anyone in charge of convincing stakeholders of organisational decisions:

1. Start with the conclusion, and follow it up with evidence. If the evidence involves a lot of data, you can add it to
the appendix for anyone who wants to go through it. But for the rest, you can only include the conclusion gathered
from the data in your presentation.

2. If you want to convince, build a story, and only add in-depth evidence that helps the story. If a certain piece of
information doesn't add to the story, remove it.

3. Eliminate boilerplate language and verbiage that doesn't help in conveying the point.

Keep it simple, keep it crisp, make it digestible!

 Day 74

LEADING WITH THE INSIGHT

You may not immediately believe it when I say this:

A lot of our culture was shaped by extremely smart and observant marketers who were able to get at a crucial
insight — a piece of knowledge that encapsulated a pattern of general human behaviour.

It wasn't data.

Companies with a lot of data at their disposal can often fall into the trap of thinking that just analysing the data will
tell them everything there is to know about customer behaviour.

But what they fail to realize is that data analysis is top-down, and you can interpret the same data in multiple
different ways.

A more fundamental, bottom-up way of developing good product and marketing intuition is to understand human
psychology.

Let me give you a few examples.

1. Uber, in its initial days, was facing a problem of customers cancelling their rides due to long wait times (>10
minutes). If you were to just look at the data, the data would've advised you to reduce waiting times and somehow
get drivers to respond and reach faster (a much much harder problem to solve).

But here's the insight Uber had: Customers cancelled their rides, not because of the long waiting times, but because
they did not know where the driver was and if they were coming or not.

This missing information introduced a lot of anxiety in the UX.

What did Uber do? They just added a map that shared the live location of the driver at all times. It solved the
problem.

2. The tea industry in India created the tradition of the chai break not out of altruism but to sell more tea.

But what was the insight here?

Everyone appreciates more breaks at work and you can easily build a culture around them.

3. The crucial insight behind Fogg deos was that a lot of people complained that their deos got over very fast. Fogg
used this messaging in their advertising with great success.
4. Tanishq, in its early days, started offering 18-carat jewellery instead of the more common 22-carat. Their reasoning
was that 18-carat gold will enable them to make cheaper and scratch-proof jewellery.

But it turned out to be a huge mistake. In India, people don't buy jewellery just as an accessory. Gold is seen as a
symbol of wealth, purity, and value. Hence, consumers never adopted the 18-carat gold.

5. Henry Ford introduced the two-day weekend in all his factories — which then spread to the rest of the US
industry.

"Leisure is an indispensable ingredient in a growing consumer market because working people need to have enough
free time to find uses for consumer products, including automobiles."

If all these companies were to just go with the data, they would come up with very rational but wrong approaches.

People aren't rational and utilitarian decision-makers. And personas shouldn't be about demographics, as they do
not reveal consumer preferences or behaviour in themselves.

What's needed is an insight into the real problem you’re solving for.

H/t: Kunal Shah

 Day 75

LYING WITH AVERAGES

Having received a good promotion with that corner office and a massive hike in your paycheck, you finally decide to
buy your own house.

And you get in touch with me, a real estate broker.

Being a smart broker, I figure out that you want to live in an affluent neighborhood. So, I tell you that the average
household income of the neighborhood I'm showing you a flat in is ₹15 LPA.

This convinces you of how premium the locality is, and you decide to buy the flat.

A year or so later, you see that a member of your society committee is making a plea to cap the housekeep salary to
a certain amount. After all, the average household income in this neighborhood is only ₹8 LPA a year.

Perhaps you go along with the petition in this, because who doesn't want to pay lower wages, right?

But you can't help being surprised to hear about that measly ₹8 LPA a year.

So, was I lying to you or is the society member lying now?

The answer is neither! Neither of us was lying.

The only trick I used was applying a different kind of average to come up with the ₹15 LPA figure.

Here's some Statistics 101 for you:

There are 3 kinds of averages. Mean, median, and mode.

The mean is the sum of all samples (figures) in the set divided by the total number of samples.

The median is the figure that appears halfway in the set if you arrange the figures in ascending order.

The mode is the figure that appears the most frequently in the set.

Naturally, if you want to check how premium a locality is, you want to know the average household income as

defined by the mode or median, and not by the mean.

Why?

Because even 3 millionaires living in the area can boost the mean household income by a huge number, even
though most of the people living in the locality are poor.

A median in this case, would actually reveal the most information. If I told you that the median household income in
₹8 LPA, you would know that at least half the population in the locality earns above ₹8 LPA.

Takeaway:

I remember a thing Ajay Bohora Sir said when he came for a session during finance week at Stoa:

"Always look at the story behind the numbers."

You may read a news article and find out that the average household income in India is so and so. You

should not try to make too much out of that figure unless you also know what the definition of
"household" has been used to mean, as well as what kind of average this is.

You should also ask how this data was collected and from whom.

It's very easy to fool with graphs and numbers if you aren't careful.

Credits:
This post was inspired by a chapter in the book "How To Lie With Statistics", a book I highly recommend everyone
should read to think more critically about numbers you come across on a daily basis.

Also, refer to the Day 50 post in the series as a complement to this one.

You can find the page here: PINEAPPLE ON PIZZA, ANYONE?

 Day 76

THE LATE ANTHONY BOURDAIN ON GOOD BUSINESS MODELS

"If I go to Mexico, I eat what Mexicans eat. Meaning that if there are a whole lot of Mexicans eating at a street food

stall, I don’t really need to know what’s in it or where it came from.

A whole lot of people from the neighborhood are eating it and seem to like it. This is a business model based on

feeding your neighbors, meaning that no one’s running a successful small food business by poisoning their
neighbors.

Are the stalls busy?

Are they popular with locals?

Are they moving product?

Those observations are key.

Hawkers and street food people are not in the business of poisoning their neighbors. That’s a bad business model.”

— Anthony Bourdain (American celebrity chef, author, and travel documentarian)

———

A simple quote that tells you so much there is to know about a good business!

Here are 4 things that came to my mind when I read this:

1. Social Proof often sells better than any marketing or promotional activity you can run. If people can see other
people like them buying from you and being happy about it, they don't need to be convinced.

2. Trust is the most valuable currency you can earn as a business. It makes you anti-fragile and acts like a reserve
currency in times of chaos and volatility.

"Cash is the equivalent of financial Valium. It keeps you cool, calm and collected."

I'd say the same, but for trust.

3. Alignment of incentives and skin in the game go hand-in-hand.

"No one's running a successful small food business by poisoning their neighbors."

Running a street-food business is having utmost skin in the game. You don't just have your face and name on the
brand, but you're a part of the community. There's no way to survive by duping your customers.

4. Locals are invested. Tourists aren't. Attracting the former is always a better sign.

Find out what 'locals' and 'tourists' mean for your business.

- Locals play long-term games. Tourists don't.

- Locals value trust and relationships. Tourists value novelty.
- Locals are here to stay and be repeat customers. Tourists will fly off to other attractions.

———

I honestly think this quote should be a part of all MBA programs, simply because it packs a ton of insight about
legacy businesses.

What else did you learn from this?

 Day 77

HERE’S WHAT YOU CAN LEARN FROM DISNEY ABOUT GREAT

PRODUCT PROPOSITIONS

Name a brand that comes to your mind when I say happiness.

I bet for a lot of you it's Disney.

Somehow the association just fits.

Disney makes theme parks and movies for kids, and we generally associate kids with happiness and joy.

I doubt if there's ever been a more dominant media company than Disney.

Although it was late to the Streaming Video On Demand (SVOD) space, in just a matter of weeks, Disney+, Disney's
D2C OTT platform managed to acquire 30 mn+ subscribers!

And I think it had a lot to do with how they marketed their product value proposition.

Have you ever noticed the Disney+ logo?

If you're observant, you'll notice that it never stands alone by itself.

It is always accompanied by "Disney + Pixar + Marvel + Star Wars + National Geographic"

And although this sounds too long and tedious, and one might immediately be drawn to the conclusion that this will
be hard for the customer to understand, it has been incredibly effective.

By doing this, Disney has gone out of its way to communicate its exact value prop — what is being sold, offered, and
why you would want it.

For perspective, consider the competition.

What is HBO Max and why do you want it?

What is Apple TV+ and why do you want it?

What is Netflix and why do you want it?

HBO may market Game of Thrones and Netflix may market a stand out series like House of Cards or Black Mirror,
but the remainder of the product besides the series is a big question mark.

It doesn't answer the question,

"Why do I need to subscribe for the whole year just to watch one or two great shows?"

By the "Disney + Pixar + Marvel + Star Wars + National Geographic" messaging, Disney+ is clearly establishing that
they own the exclusive airing rights to content created by any of these production houses.

Just Marvel itself has a considerable fan-following to make consumers flock to the Disney+ platform, even if you
ignore the others.

It is clear and compelling branding. And by looking at the Marvel brand, customers now have a strong intention to
buy in, because they're invested in their superhero stories.

They feel like they MUST watch the latest releases.

Just look at the hype and FOMO created around the latest Spider-man: No Way Home movie to know why this is
true.

It's insane!

Another thing Disney realizes better than the competition is that investing in quality pays off rich dividends down
the line.

Disney now owns Fox, giving it entertainment assets like The Simpsons — the longest-running primetime show in US
history, with more than 650 episodes.

Investing in these classics puts Disney in a position to attract customers even years down the line.

Key Takeaway:

Leveraging customer intentionality is valuable while selling products.

And the way you do that is by pitching a clear product value proposition that customers already have a
strong affinity towards.
 Day 78

SUBSCRIPTION MODELS – YAYY OR NAY?

In the age of information and content overload, curation and bundling have turned into necessities. Consequently,
subscription business models have become all the rage these days, considering the savings in cognitive bandwidth

and decision-making for customers.

But, are all products suitable for subscription business models? Not quite.

At its core, a subscription is a periodic contractual commitment from a customer.

Naturally, subscription business models only work for products that are consumed on a regular basis. They do not
work for occasional, discretionary purchases.

For example, a subscription model for Blue Tokai Coffee or a Dollar Shave Club works well because these are
products customers buy on an ongoing basis. Getting a subscription just saves them the hassle of decision-making

and transaction costs every time they need to replenish their stock.

The same applies to not just commodities but also content-based products like Netflix (entertainment) or Duolingo
or Brilliant (Educational).

But of course, there is a big catch here. Just by virtue of being a regular purchase doesn't mean your product will do

well with a subscription model.

Here are a few caveats that you should be aware of:

1. Product-Market Fit: Just having a subscription model doesn't get rid of the need to have a solid product-
market fit. Remember, a subscription is a commitment from the customer; a lock-in. And to get the customer to

commit forlong periods will need you to spend more on 1. the product quality itself to minimize churn, and 2. the
marketing
and sales push needed to spread awareness and convert customers.

2. Optionality: “Wealth is not about having a lot of money; it’s about having a lot of options.” — Chris Rock

The less cash a consumer has, the more they will value optionality. When the market is cash-poor, they will choose
to buy products on a per-unit basis because they need to preserve the optionality of whatever little cash they have.
They can't afford to have their cash locked up in advance in a single subscription.

This means that subscription business models usually only work well in markets with high expendable income
consumers.

3. Price Uncertainty: Flat-rate pricing for a long period can act like an insurance policy for customers and

provideprotection against surging prices.

But, for the business, this means that they have to absorb all the volatility of price fluctuations involved in

manufacturing the product.

Some products have more uncertainty than others. Subscribing to a gym is different than subscribing to a magazine

which is different from subscribing to pet food or skincare essentials.

Hence, the advance payment can be considered as a premium for bearing such a risk.

Takeaway:

Not all products are conducive to a subscription business model. These caveats will help you decide whether
subscriptions are the right way to go for your specific product and market.
 Day 79

DO AGGREGATOR PLATFORMS LIKE AMAZON AND FLIPKART HAVE

THE LAST LAUGH?

“Customer is King.”

That’s how the saying used to go before e-commerce platforms arrived on the scene.

In any marketplace, there are two sides: demand and supply. The demand is generated by the consumer and the
vendors offer the supply for that demand.

Before e-commerce, demand > supply in the power dynamic.

Physical markets used to coalesce in the same area due to competitive nash equilibria and supply chain economies
of scale. The customers also benefitted from more choices and lower pricing due to competition.

Enter e-commerce platforms like Flipkart and Amazon. Now,

Aggregator > Demand > Supply

How? Let me show you.

A general rule of thumb for any market innovation is:

“Apply more speed and more transparency to any market.”

An aggregator does exactly that. But aggregators, while launching, face the chicken-and-egg problem. Should they
sort out the supply side first or the demand side?

The answer is: The supply side. Because an aggregator doesn’t hold any meaning or value without a vast collection
of suppliers. So, to get suppliers to your side, you have to make sure they’re winning. No suppliers, no aggregation,
no demand.

But once an aggregator builds a moat, they start gaining power over both suppliers and consumers.

Because they’re high-frequency platforms, the consumer always goes to an aggregator platform for discovery, price
information, and the convenience of being able to explore the market in a single place. The downside being that
they’re now stuck within a single platform and are at the mercy of the aggregator for product discovery — which
may not be unbiased.

For a supplier, an aggregator platform like Amazon is a double-edged sword. On the one hand, Amazon is good for
product discovery due to heavy footfall. But on the other, Amazon also leads to cut-throat competition and a
reduction in profit margins. Hence, what you gain in discovery and increased sales volume, you lose in competition
and decreased profit margins.

Also, the more good substitutes there are, the more elastic the demand will be for a specific no-name brand. And
the side that has a harder time searching for the other often loses.

For example, consumers have many substitutes to buy shoes and they are hard for a shoe merchant to find. So
consumers get free search engines/aggregators and businesses pay to advertise on these aggregators.

So, the aggregators win.

Some questions to think about:

1. What does this mean for strong brands? Should they open their own distribution channels?
2. More importantly, what is the user behaviour like for your product category? Does the user have a brand in mind
and then go on Amazon or Flipkart to buy it? Or do they first go to Amazon or Flipkart and then decide which brand
to buy?
3. Is the added friction of getting the customer to your own website to buy your product worth it? What would make
it worth it?
 Day 80

THE CATEGORY THINKING MENTAL MODEL FOR EFFICIENT DECISION

MAKING

Here’s the problem with problems:

Once you solve one, another one pops up. And then when you solve that one, yet another one pops up. And so on
and so forth, endlessly.

But what if instead of combating all problems individually as they emerge, we could solve all problems within one
category at once?

To put it more clearly, the question we need to ask ourselves is,

“What problem, once solved, would prevent me from having future problems?”

This, friends, is called category thinking.

You’re using category thinking when instead of trying to solve one problem, you try to solve a whole category of
problems at once.

You can either try to perpetually keep fixing a broken system, or you can try to replace the system itself.

For example, if you have a hard time avoiding late-night binging on snacks, a temporary hack would be to use your

willpower to discipline yourself against not doing it.

A category thinking hack would be to not keep any snacks at home in the first place!

Category thinking requires a mindset switch — you need to go one level up from the level at which you’re currently
looking at the problem. You need a different set of solutions for an individual problem vs the whole category; and
generally, these solutions will look very different.

It’s the difference between giving a man fish to eat for one day versus teaching him how to fish.

You can apply category thinking to both personal and professional domains.

What’s a decision I can make now that removes the need for future decisions?

Which question, if answered first, would provide answers to most other questions?

If you try to fix the foundational problem or make a foundational decision, you will never have to fix the same
problem or make the same decision again. The system will do it for you on autopilot.

And you will only be able to do this when you have a deep understanding of the system you’re working on, whether

it is your own life, or a product/business you’re building.

The game is about understanding, not discipline. If you make a blind rule and use discipline to follow it, then it is just

a matter of how long you can go before breaking the rule. But if the principle is foundational, based on
understanding, you won’t consider breaking it — at least not very easily.

What is a recurring problem you’re currently facing in life and how can you apply category thinking to go just one
level up and fix it at its root?
 Day 81

DECODING THAT BUZZWORD FONDLY CALLED “EMPATHY”

It’s common to come across words like “empathy” when people talk about good communication.

And empathy is crucial. But what does it really mean? Because simply knowing the word doesn’t mean

understanding how it shows itself in a real situation.

So, let’s unravel empathy and what it really looks like. No buzzwords, I promise!

1. Overcommunicate

While describing a situation or project to your teammate, a good rule-of-thumb is to always err on the side of
providing more context than what you think is necessary. It’s easy to assume that someone else would have the

same information as you do, but if they’re in a different team, they probably don’t.

To be empathetic here means to communicate more. For example, waiting to reply because you don't have an
answer yet or haven't finished the task makes the situation worse. Silence frustrates and confuses people.

It's better to say, "Hey, will need a day more. Still working on it."

Empathy.

2. Understand

You can disagree well only when the person you're disagreeing with knows that you've understood their point well.

Starting disagreements with

“Let me see if I understand your point.”

“Let me see how much we agree before our disagreement begins.”

“Do I understand you correctly?”

goes a long way.

Empathy.

3. Clarify

If you're on the receiving end of a vague ask, it's your responsibility to ask clarifying questions. Try to make things
precise.

Be clear about exactly what is expected. People have different expectations, understand situations and interpret
instructions differently; all of these communication gaps create friction and frustration.

Empathy.

4. Detach

Sometimes, your manager might not be happy with your work on some specific project. They might tell you as
much. But their criticism of something specific doesn't have to do anything with you as a person. It just has to do
with the task in question.

On the other hand, if their criticism is vague and sounds like,

"I'm not happy with your work."

"Mazaa nahi aa raha hai."

"This is crap."
they might have done it because they're loaded with work (although it's not an excuse!). But you can make an effort
to clarify. Ask them to be more precise in their critique.

Empathy.

5. Trust

Without trust, all communication breaks.

"In any human interaction, the required amount of communication is inversely proportional to the level of trust." –
Ben Horowitz

If I trust you completely, then I need no explanation at all, because I know that whatever you are doing is in my best
interests. But if I don't trust you, then no amount of talking, explaining, or reasoning will have any effect on me.

How do you build trust?

By simply having a track record of making good decisions. If you have that, a good manager will empower you to
make more decisions with less friction.

Empathy.

Now, the next time someone says "empathy", you will know what it means.
 Day 82

THE MAGIC OF THINKING IN FIRST PRINCIPLES

Every online person today knows about SpaceX and Elon Musk.

If you were to ask anyone what the defining feature of SpaceX was, they’d probably tell you “Reusable rockets.”

And while that is true, one massive industry assumption Elon Musk tried to break with reusable rockets, along with
the very assumption that rockets can’t be reused, was around price elasticity:

People in the space industry have traditionally thought that launching payloads into space on rockets is a business
that does not result in significantly more demand if there is a price drop in the tech.

This prevailing assumption resulted in traditional space launch providers not investing new resources in technology
that would reduce prices, simply because they taught that reduced prices don't increase demand.

It was actually this underlying business assumption that Musk decided to question. The reusable rocket tech was a
result of Musk going against the grain and really believing that cheaper rockets can and will increase demand for
space launches.

Also, the fact that reusable rockets decrease the cost of space launches by not a small factor but by a magnitude or
two means that the Total Addressable Market (TAM) for space launches will increase and new use cases will come
up.

This brings us to our central topic for today:

The ability to free oneself from old mental models and think afresh from first principles.

Usually, if we have a hunch that something will work, we'll build the easiest, quickest MVP. But what if we started
with the end goal in mind?

Let me give you Stoa’s example.

Traditional MBA is expensive and time-consuming. But what is the end-state with an MBA or any education for that

matter?

It is to earn more, find job satisfaction, and build a better, richer life for yourself and for others.

So, we asked ourselves:

With job fulfilment and wealth creation as the end state, what's something we can do that — although doesn't
magically get you all these things (wouldn't that be lovely!) — is still close to getting you there and is much much
more accessible than the traditional MBA?

The answer was Stoa

Another example:

We all know Kodak's failure story. But did you know that Kodak did go and develop a range of digital cameras? In
fact, it was the first to market!

The company even recognised the power of the internet, buying Ofoto, a photosharing site, in 2001, nine years
before Instagram was founded. Then why did it fail?

Kodak failed simply because its execs viewed Ofoto as an opportunity to sell more physical prints, not as a chance to
connect people via photos of their shared experiences.

They were stuck in the mental model of their old business.

Takeaway:

Thinking with the magical end goal in mind and trying to achieve the closest possible alternative to it often
results in monshoot thinking. You free yourself from old paradigms and start thinking from the ground up.
 Day 83

TOP 10 INSIGHTS ABOUT INDIAN CUSTOMERS

1. People buy from people.

In a low-trust society like India, if you aren’t an established brand like Tata, you are better off establishing trust with
people on a personal basis. People place their trust in other people more easily than in organisations or brands. Also
related to this is the second insight:

2. Indians will almost always prefer getting on a call to get their issues resolved.

This becomes all the more important in cases where a large sum of money is at stake. For e.g. if the customer hasn’t
yet received a big order or the money has been deducted from the bank without the goods being received, the
anxiety is always better alleviated by talking to a person than texting on a chat.

3. Indians don’t buy a lot of software/SaaS products.

We’d rather make our own tools than spend monthly on software. I also have a hunch it has to do with an inability

to calculate RoI generated on the tools being used + the lack of a mental model for evaluating software pricing.

4. If you’re selling a high-ticket size product, calling works best.

This ties into insight no. 1. People may read up all about you on your website and social media handles, but without
enough social proof or word-of-mouth from friends, they’ll still need to get on a call with you to make up their
mind. For more on this, refer to Day 27 here IDENTIFYING YOUR GO-TO-MARKET (GTM) STRATEGY

5. For an elevated audience, in-depth long-form content works better than short-form.

Short-form content might work better at a higher frequency for getting customers into the funnel, but what will
finally convert them is the depth and expertise conveyed through your long-form content.

6. They tell you to educate your customer. It may not always work in India.

Sometimes, a customer will consider it rude if you try to educate them about obvious things. It gives them the
impression that you think they're stupid or naive.

7. Value for money > anything else.

If you're catering to a large (TAM), you should consider marketing your product as value for money. Convince them

that you're offering them ₹500 worth of value in ₹200.

8. For sales, hire locals who can converse in the local dialect.

Nothing makes a customer feel more comfortable on a sales call than being able to talk to a person in their local

language. Not only does it make it easy for them, but they will also reveal tonnes of information that they wouldn't
have revealed if they were speaking in English.

9. For UX writing, Indian English > proper English.

The point is to help the customer understand quickly what needs to be done and not show off polished English
skills.

10. Make the refund service smooth/instantaneous.

People hold their money dear, not just in India, but everywhere. If they know that they won't lose money and it will
be refunded instantly if something goes wrong, it reduces massive friction involved in making a purchase.
 Day 84

BUFFETT’S FIRST VENTURE SHOWS US WHAT GOOD BUSINESSES LOOK

LIKE

When he was 17 years old, Warren Buffett struck upon a business idea that would one day lead him to be the best

investor in the world.

The business idea:

Set up a used pinball machine in the local barber's shop.

The insight:

Bored customers will play games on it while waiting for their haircut.

The setup:

Buffett got along with his friend Don Danley who fixed up the old pinball machines while Buffett handled
negotiations with the barber, Frank Erico.

Their pitch to the barber:

“We represent Wilson’s Coin-Operated Machine Company, and we have a proposition from Mr. Wilson. It’s at no risk
to you. Let’s put this nickel machine in the back, Mr. Erico, and your customers can play while they wait. And we’ll

split the money.”

The business model:

Buffett has called it, "the best business I was ever in."
Let's understand why.

Buffett and Danly bought their first pinball machine for $25. The biographies on Warren Buffett state that

subsequent machines cost $25–$75. Let's say, it cost $50 on average to acquire a pinball machine and fix it if it's
broken.

This $50 is an upfront cash outflow or investment in the business. Once this $50 is invested, the pinball machine

generates cash for its owners every week.

The first machine had $14 in it at the end of the first week. Out of which, the barber took a 50% cut, leaving Buffett

and Danley with $7.

Also, let's say repairing the machine cost $2, i.e., maintenance CAPEX. So, that leaves $5 as earnings/week.

So, to start off with, we have a $50 cash outflow to acquire the machine. This is followed by a series of $5 cash
inflows every week, as the machine generates cash for its owners.

Essentially, the machine pays for itself in just 10 weeks! Whatever cash it generates post that is pure income.

And being the smart-aleck he was, Buffett reinvested his weekly earnings into setting up another pinball machine,
and then another one, quickly having pinball machines operating in barbershops all over Washington, D.C.!

Once there were 2 pinball machines running, each generated $5/week. That's $10/week.

This means that there was enough cash in just 5 weeks to buy and set up Pinball Machine 3.

Pinball Machine 2 arrived in 10 weeks.

Machine 3 arrived in 5 weeks after that.

4 would arrive in 3.33 weeks after 3.

5 would arrive just 2.5 weeks after 4.

See the pattern? Each successive pinball machine took less and less time!

This is the essence of compounding in business. Great businesses are able to RE-INVEST their profits back into

themselves to grow these profits at increasingly faster rates over time.

Via this business, Warren had "discovered the miracle of capital: money that works for its owner, as if it had a job of
its own."

Takeaways:

1. Understand customer behaviour

2. Offer risk-free propositions to partners
3. Have manageable CAPEX and great unit economics
4. Reinvest in growth
 Day 85

OCCAM’S RAZOR

Do you have a friend who is into conspiracy theories?

If you do, you would know the kind of magical connections they make based upon a hundred conditional
statements (assumptions) being true at the same time.

They sound unbelievable, don’t they?

And the reason for their unbelievability actually boils down to a very simple but useful thumb rule called Occam’s
Razor.

Introduced originally by William of Ockham, an English friar and philosopher, Occam’s razor states that the simplest
explanation is preferable to one that is more complex.

Simple theories are easier to verify. Simple solutions are easier to execute.

For the simple reason that it is easier and more probable for two things to be true at once than it is for ten things to
be true all at once.

"When you hear hoofbeats behind you, think horses, not zebras."

How does this apply to startups and businesses? Here are a few examples.

1. For a retailer, it’s extremely useful to know whether a customer will be back or has abandoned them for good. In
the late 1980s, academic researchers began to develop sophisticated predictive techniques to answer that question.
They used the customer's order history and a few more data points to build their predictive model of whether the
customer will buy again.

Actual retailers, however, stuck to simpler techniques, such as simply looking at how long it has been since a
customer last bought anything, and picking a cutoff period (9 months, say) after which that customer was
considered inactive. What they found was that this rule-of-thumb was better at predicting individual customer
behavior than sophisticated models.

2. Many businesses equate the number of features with the value of a product. But products with too many features
distract a consumer and reduce product utility.

3. If your ideal customer persona (ICP) has many traits, it's harder to target the right customer because the
probability of any customer having all those traits together is pretty low. It's much better to keep the ICP description
as simple as possible.
4. While marketing, it's easy to demand that the consumer follow you on all your channels to make up their mind.
It's much easier to convert them on a single channel with as few content pieces and CTAs as possible. Asking them
to go on a different channel introduces friction and reduces their chances of converting.

5. The most persuasive business proposals focus on a single pressing pain point, rather than offering a whole bunch
of "sometimes useful" solutions.

6. McDonald's used Occam's Razor with the marketing line "Would you like fries with that?" to reduce the cognitive
load of choices a customer had to make while ordering something. Via this catchphrase, marketers created a simple
way to sell fries and increase profits.

So, the next time you want to test something, keep it simple!
 Day 86

THE IMPORTANCE OF TRIAL AND ERROR

"You waste years by not being able to waste hours." — Amos Tversky

At the outset, trial and error sounds like the clueless person's strategy to go about anything.

Since childhood, we are conditioned to take pride in our facts and our knowledge about the world. To attain more

knowledge, we are always advised to read and study more.

Hence, when someone talks about trial and error, our instinctive reaction is one of disdain towards it. Because it's
haphazard. It isn't structured, like knowledge in a book or a course is structured.

But, here's a fact:

Being really good at trial and error is a businessperson's secret superpower. It's what differentiates her from others.

Why does trial and error work better in a lot of cases?

It works simply because it can be as thoughtful as the person who does 'thinking and insight'; it works because it
never lies.

It lets the market become your teacher.

As strategists and entrepreneurs, we might have some intuitions about what will work and what won't when it goes

out in the market. But our intuition can be biased towards our own experiences and may be wrong.

Hence, when the cost of testing and failure is low and there are many unknowns, trial and error is usually the best

strategy to pursue.
Successful businesspersons are better because they are better at trial and error. And they feel no shame in not
knowing and appearing clueless.

Hence, they are able to quickly change their minds with new evidence and need fewer iterations to learn the right

lessons. They just get the hang of things and move forward from their stumbles.

However, there's one thing you need to be careful about:

Make sure that for any decision you make, your positive outcomes vastly outweigh your negative outcomes. You
don't want to be doing trial and error in areas where decisions can have irreversible consequences for your brand
and business.

Planning only works and can be successfully executed when you have concrete and trustworthy information about
the system you're working with. But with trial and error, you don't even need to have a plan, you only need to test
with low stakes repeatedly in order to hit the jackpot!

Trial and error is how children learn while playing. It's how humans and other species on the planet have evolved.

Simply because you can't know everything when you're testing the waters. And thinking that you know everything
might be dangerous.

Like the quote at the start of this post says:

"You waste years by not being able to waste hours."

 Day 87

GAMES DON’T HAVE TO MEAN LEADERBOARDS

Gamification is all the rage these days.

Every other product manager I see wants to gamify their product experience in one way or another.

The rationale is that when you put numbers on something, people try to optimize and compete on those numbers.

Voila! Gamification.

But is it that straightforward? Nope.

Let me help you understand this via an example of gamification done well.

The New York Public Library asked a game designer for help with a big problem: young people did not come to

physical libraries anymore.

Like most product managers, the Library’s idea was to solve this by offering points for checking out books and

achievement badges for visiting different branches.

But here's the thing: awarding points and badges didn’t tap into what these young people were passionate about.
Moreover, how does getting points for checking out books really do for building a meaningful relationship with the
library? It's not a great solution.

The game designer came up with a better solution.

“We need to figure out what feels like a real challenge to young people, and then give them that opportunity."

Through research, she found that 92% of Americans under the age of 30 would want to write a book someday.
Seeing how this motivation directly tied into the kind of value added by libraries, she proposed designing a game
that turns young people into published authors.

The game consisted of an overnight challenge in one of the library’s underground floors with restricted access.

Before they were permitted to leave the underground room, each participant had to publish a book they had
written.

It was an intense challenge, but participants were so excited about writing their own books that they spent countless

hours in the library.

Instead of offering points, the game offered a meaningful and tangible reward that was worth coming to the library

for.

Also, framing the experience as a challenge — and the library as a tool that helped them overcome that challenge —
made the players develop an affinity and appreciation for the library.

They left with a feeling of accomplishment: of accomplishing something THEY wanted.

The reward of the game tied into something that helped them further THEIR aim.

Moral of the story:

The challenge with gamification is not how to make things competitive, but how to make the experience meaningful
for the players.

Competition is one way to ascribe experiences with meaning. But it's not the only way. And it is definitely not the

way when the things you're striving for are based in a personal sense of accomplishment more than comparison
with others.

So, the next time you're thinking about "gamifying" the experience, think about what's the user's motivation to play
the game in the first place?

Is it to win the game?

Or is it to have fun in the act of playing, while trying to win is only instrumental to facilitating that fun?
 Day 88

AN UNDERRATED SKILL THAT MADE STEVE JOBS SUCH A GOOD

BUSINESSMAN

Steve Jobs is mostly known today as a design visionary and master marketer. But few talk about his acumen as a

businessman and a leader who could prioritize decisions with phenomenal clarity and accuracy.

What’s the secret to prioritization for any businessperson?

One word: Leverage.

And by leverage, I mean the hidden nonlinearities in decision-making that only people who think in long-term
higher-order effects are capable of seeing.

Let’s take the example of making hiring decisions.

Hiring more often doesn’t make you go faster if that hiring is not deployed on those 1-2 critical projects that are
responsible for getting you most of your revenue. When you have extra people working on non-bottlenecks, it does

nothing to increase overall speed.

Steve Jobs was maniacal about focus. He figured out early on that it was much smarter for Apple to focus on the
iPod than to make printers, even though selling printers also made money.

Not only that, he also took into consideration the difference between skill levels while hiring.

“The difference between the best worker on computer hardware and the average may be 2 to 1, if you’re lucky. With
automobiles, maybe 2 to 1. But in software, it’s at least 25 to 1. The difference between the average programmer and
a great one is at least that. The secret of my success is that we have gone to exceptional lengths to hire the best

people in the world. And when you’re in a field where the dynamic range is 25 to 1, boy, does it pay off.”
Steve Jobs was able to prioritize well because of his intuitive understanding of nonlinearity when it came to driving
business metrics.

Another example is his approach prioritizing product decisions and his design-first philosophy in general:

“The problem is, in hardware, you can’t build a computer that’s twice as good as anyone else’s anymore. Too many
people know how to do it. You’re lucky if you can do one that’s one and a third times better, or one and a half times
better… Then it’s only six months before everybody else catches up. But you can do it in software. As a matter of

fact, I think that the leap that we’ve made is at least five years ahead of anybody.”

Instead of focusing on features he knew others were equally capable of replicating, he chose to focus on the design

aspect of software which he knew would become intellectual property and unique to Apple's DNA.

And all this boiled down to his ability to sense how nonlinearity works. In fact, it even reflected in how he marketed

product features — consistently using language laypersons would understand, rather than using engineer-speak —
which over time, led to Apple being perceived as a brand that deeply understood its customers.

“1,000 songs in your pocket” > “Internal storage capacity of 5GB”

Higher-order effects and nonlinearities. If you get good at thinking in both, your chances of success in business
skyrocket.
 Day 89

THE ART OF CONVERSATION

"The single biggest problem with communication is the illusion that it has taken place." — George Bernard Shaw

Today's post is about not forgetting why we communicate and converse in the first place.

Why do we communicate? Initially, when language was being invented, I'd imagine humans would communicate to
coordinate their activities in groups to ensure survival.

But today, we don't just communicate to coordinate on a task, but also do so when we want to create a shared

reality about something. And we initiate a conversation on one basic presupposition:

That both parties engaged in a conversation can mutually surprise each other.

Really, that's all it boils down to — unearthing and revealing new information from each other.

With this essence in mind, what is one thing that can absolutely destroy any conversation?

It is uncharitable interpretation, or as they say, talking in bad faith.

Imagine someone states an opinion. You have can interpret it in two ways:

1. Interpreting charitably: You start by assuming that the argument might be true, and you try your best to see how
it could be.

2. Interpreting uncharitably: You start by assuming that the argument is wrong, and you try your best to confirm this
assumption.
Open-minded people generally interpret what they hear charitably while close-minded people stick to what they
think is right and don't bother entertaining other arguments.

An open-minded person asks, "How could this be right?", a close-minded person asks, "How is this wrong?"

And underlying and uncharitable interpretation is a desire to win more than a desire to learn.

In conversation, saying something is only one side of the coin: in order to keep things flowing, you must also give

space and opportunity for the other party to respond. It’s a dance. And you can only do that when you default to
trusting the other person and their intentions and moving from there.

The best way to do this?

• Listen to what’s being said

• Repeat what you just understood

• Have them confirm if that’s what they meant

If you do just this, I can guarantee you that all your conversations will not only be more fulfilling, but you will also

manage to learn quite a lot out of them.

Also, with the recent debate around Shark Tank India there are some cultural aspects to the tone and language
people may use to convey the same idea, and the problem of navigating them.

But I'll leave that for another post.

Reminds me of Rahul Mathur's tweets around how to get business done in India —

"Always refer to another person as sir or ma'am - doesn't matter who is older or younger; even better if you can use
"ji" after each person's name. Will get work done."
 Day 90

SPOTTING BUSINESS TRENDS LIKA A PRO

Have you ever envied an experienced entrepreneur’s ability to spot great business opportunities while going about
something mundane, like grocery shopping or running errands?

What makes them so good at spotting trends and how can you develop an eye for the same?

Here are 8 methods I’ve learned from many exceptional entrepreneurs I’ve talked to over the years on how to spot
trends:

1. Talk to teenagers. Whether it's via online forums, WhatsApp groups, or siblings or nephews, observe these kids
and their content consumption and entertainment habits. They're consuming memes and media you're likely not
exposed to, and speaking in ways that sound foreign. What they care about today, will soon bubble into something
larger tomorrow. Video games, when they were first released, were deemed to be trivial. But today, they’ve grown
into a multi-billion dollar industry.

2. Browse Product Hunt, Kickstarter and Indiegogo for massively upvoted or funded projects. What this
reveals are concepts, products or services, which don't exist in the market, but people are dying for.

3. What is something people hate doing but they do it anyway? Why are they doing that? Is there a better
way?

4. What do your friends do that you find surprising? Early morning running, multiple locks in-house,
therapy,spending a tonne on gyms and health food subscriptions. Why is it surprising? And is this behaviour
more mainstream than you think?

5. What are companies posting on their job boards? Oftentimes roadmaps are exposed for free, for all. What's
aboutto be built, but not known, is frequently revealed.

6. What are people doing in spite of governments not allowing it? Avoiding taxes, buying drugs, speaking
freely. What are motivations for those behaviors? How would you solve for these motivations legally?

7. What generates complaints? Where is there pain and annoyance? Where does the pain point seem
to becompounding on itself?

For example, we know the cost of university tuition has been skyrocketing while the value of a college degree in the
market has remained stagnant. The price of university tuition is not going down any time soon. So, pressure is
building underneath the surface.

There are huge incentives on the demand side for that problem to be solved. That means that society might be
more open to solutions now than ever before. Timing is key, but usually one big upheaval, like a pandemic, is
enough to usher in a better solution.
8. What will acquire more scarcity value and pricing power as the price of a product drops?

For example, if content is abundant, curation becomes a scarce resource.

If sensors to collect data are abundant, data analysis becomes a scarce resource.

Takeaway:

Observation is key. Curiosity about human behaviour and motivation is key. Whenever you see needless
friction, ask yourself if eliminating that would be widely appreciated, and hence, be a good business
opportunity.
 Day 91

IF YOU CAN ONLY KNOW ONE THING ABOUT HR MANAGEMENT,

KNOW THIS

HR Managers are often the butt of jokes in large organisations.

I think it's pretty unfair, considering they're dealing with all sorts of people, everyone with different incentives and
goals — even within the same team, let alone company!

It's complicated.

And when they ask employees what they want, they often get the WRONG ANSWERS.

So, if you could only know one thing about Human Resource Management, know this:

People don't always know what they do.

I repeat.

People don't always know what they do.

Chris Argyris, one of the founding fathers of Organisational Development, often highlighted the difference between
people’s stated theory — what they say they do — and what they actually do.

With half a century of organisational consulting on his belt, he observed that there often was a huge gap between
the two.

What's even more concerning is that people fail to notice this gap themselves due to all sorts of incentives at play.

Argyris called it, "Covering up the gap, and then covering up the cover-up."

Even if people know what they do, they don't always know why they do it. Most people will be able to post hoc
rationalise why they did what they did, but it probably won't be really why they did it.

Also, when #HRManagers ask questions as a form of data collection, the context in which the employee is
functioning is ignored.

So, when you ask people to describe what they see going on in the organisation, their reports will be a mixture of:

1. What they actually see (but this is rarely the case)

2. What they think they should say in order to get what they want: career progression, more respect, more salary,
more work-life balance, etc.

3. What they think they should say in order to avoid getting what they don't want: getting fired, getting demoted,
getting a bad appraisal, etc.

4. What they think they shouldn’t say at all: don't ruffle feathers, don't stick your neck out, keep your head down,
don't criticise your manager, etc.

Along with this, there's also a perceived failure on the part of HR to close the feedback loop. What I mean is, when
you ask employees what feedback they received or the outcomes they observed based on the input they had
provided, their answer will usually be "None whatsoever."

In fact, the decisions taken as a result of these interventions are often diametrically opposed to the input they
provided.

And if someone can't see necessary measures being taken after they've provided feedback, they naturally won't be
interested in giving feedback in the future.

The takeaway:

If you’re considering using any culture assessment tools or exercises, you MUST ensure that any
organisation-wide decisions based on them are validated by the relevant employees.

If the feedback doesn't inspire good measures, people lose trust in their HR Management.
 Day 92

I WAS CURIOUS ABOUT WHAT MAKES MARWADIS EXCEPTIONAL AT

BUSINESS. HERE’S WHAT I FOUND

Being an entrepreneur myself, I'm always curious about what makes good entrepreneurs in India and what I can
learn from them.

Here are the top 5 lessons I learned from Marwadis, based on anecdotes I came across on the internet.

1. On Being Robust

The Marwad region of Rajasthan is known for having extreme and harsh weather. High temperature and low rainfall,
desert and semi-desert conditions presented hardships in everyday life. Invasions and wars made living worse. This
hardened the Marwadis and forced them to spread out in search of more stable pastures.

"We Marwadis are never afraid of such expansions or going places, we started with it and are continuing with it.
There is an old phrase which says, ‘Jaha na pahuche Bailgadi, waha bhi pahuche Marwadi.'"

"One biggest positive point in baniyas which I admire most is they are not fussy. Even the richest baniyas will eat any
type of food, live in any modest accommodation, and travel in any train compartment without making a fuss —
provided they get an opportunity to make money."

2. On Being Frugal

"We keep our expenses to a minimum which maximises the profit. This quality has come from the limited natural
resources which Marwad offered us. Many call us 'Miser' (Kanjoos) for this reason. But minimum expenses have
ensured that our business survived the rough phases also."

3. On Being Adaptable

Irrespective of which part of the country or world they are in, Marwadis adopt the local language, customs, and
culture, and gel quickly with the locals.

"I know of a small snacks and tea shop run by a proud Marwadi. At the end of the board beside his WhatsApp no.
and shop address is also written in bold letters: ALL PARTY AND WEDDING ORDERS ALSO ACCEPTED HERE.

In his 10x10 sq metre shop, he is selling anything and everything the public demands. Even at better prices than
local competitors. And guess what? He speaks fluent Marathi at ease. It is only when I had a discussion with him, I
realized he comes from the faraway “Pali” village of Rajasthan and it was hardly a month he shifted here."

4. On Building Relationships
In India, people don't know the name of the business. They know the owner by face. That's how your business
develops. If you're a son of a Marwadi businessman, he will make you sit at the shop entrance after school. That way,
when he gets old, his customers are already accustomed to the next generation of people handling the business.

"There are some customers who buy only 1-2 grams of gold. You don't see much profit from a few grams. Yet my
grandpa used to call them at every family wedding. He treated customers as a part of his family."

5. On Realising Opportunity Cost

After any neutral deal (no loss - no profit), a normal person will say,

"Koi bat nai Loss toh nahi hua."

A Marwadi will say,

"Profit nahi hua matlab loss hi hai!"

 Day 93

SHOULD STARTUPS CHASE GROWTH OR PROFITABILITY? LET’S SETTLE

THIS DEBATE ONCE AND FOR ALL

Almost every other day you will come across someone who is complaining about a lot of our Unicorn startups not
being profitable.

But I feel there are some nuances people often miss in such debates around growth and profitability, around getting
VC funding vs. bootstrapping it.

And there is no right or wrong in this debate, there is only using metrics for one kind of business and applying it to
another where they do not fit.

A startup, by definition, is a company designed to grow fast.

“Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on

technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else
we associate with startups follows from growth.” — Paul Graham, Co-founder – Y Combinator

Every year hundreds of thousands of new businesses are birthed across India. A tiny percentage of them are

startups. Most are small service businesses aimed at achieving profitability and positive cashflows on day one. These
are small hawkers, shopkeepers, barbers, mechanics, and so on.

They aren’t startups.

Because to grow fast, you need two things:

1. A large Total Addressable Market (TAM)

2. A way to serve that TAM
Small businesses aren’t focused on such a thing. But if you call yourself a startup and wish to get venture funded,
this is what you should be aiming for. Otherwise you’re playing the wrong game.

Why are VCs so focused on growth at the expense of profitability?

For this, you need to understand that the venture funding model works that way. VCs only back companies that are
optimizing for fast growth, which typically correlates with giant businesses in the future. Because they’re only

estimating 1 out of the 100 companies they invest in to become hugely successful and make up for the 99 other
failed investments.

They’re looking for 1000x returns.

Giant businesses often change the world — they create new products that are available to the masses and change
consumer behaviour on a fundamental level. Once this shift in user behaviour happens, the thesis is that you can

then monetize it because you then have pricing power and dominant market share. You have distribution.

Now, there’s nothing wrong with aiming to build a small bootstrapped business with cozy cashflows and not a lot of

stress. In fact, I would advise most people to build those instead of vying for crazy valuations and venture funding.

VCs look for scale. Because that is how they make their money.

Startups are defined by scale and scale is their path to eventual profitability.

For VC funding, the most important metric is TAM and growth.

For bootstrapped businesses, the most important metric is cashflow.

If you only understand this, you will realize the game most Indian tech startups are playing.
 Day 94

A STORY ABOUT SECOND-ORDER EFFECTS, INCENTIVES, AND THE

INNOVATOR’S DILEMMA

In 2005, before AWS was even a company, they went to one of IBM's largest clients — Bank of America.

At the time, Bank of America was a big user of IBM’s X Series servers, x86-based servers, and they had big server
farms that ran a lot of applications. A lot of their online and on-demand type workloads ran on those.

Amazon’s pitch to BoA?

"Look, we've had big server farms, and we have to build these things to manage huge spikes, and so during holidays
and certain periods of the year, we're right up to the limits of our capacity to be able to that workload, but a lot of
part of the year, we have all this spare idle capacity. And so, Bank of America, would you be interested in leasing or
renting or using some of this?”

This was the birth of what would eventually turn into Amazon Web Services (AWS).

Upon hearing about this, Mike Hill, who was the VP of emerging offerings at the time at the Global Technology
Services (GTS) division at IBM, suggested that IBM could go into this new space called the ‘cloud’.

IBM could be the arms dealer, provide all the kit and infrastructure to public cloud providers. Or it could be the
integrator of all the technologies. Or it could be a provider of cloud services.

But Mike Daniels, senior VP and general manager of GTS at the time, felt threatened by these offerings. His rationale:

Cloud services would cannibalize a big piece of his outsourcing business because outsourcing clients would choose
to consume it as a service through IBM’s public cloud offering instead of signing these huge multi-year, million- and
billion-dollar outsourcing contracts.

So, he squashed the idea.

Fast forward two decades and today, AWS is a $60B business growing 40%/year, while Kyndryl (IBM's spun off
outsourcing business) is a $20B business shrinking 5%/year.

But, the issue here wasn’t a failure on IBM’s part to look at second-order effects of cloud services. In fact, IBM was
first to launch cloud services back in 2002 with “Linux Virtual Services” (LVS), and Amazon was probably the 4th
player to enter the market in 2005.

Then why does everyone only hear about AWS today?

IBM LVS never achieved product-market fit. They tried selling it to their existing corporate customers. They didn't
want it.

And IBM's own incentives were misaligned; salespeople didn't want to cannibalize existing accounts. It was against
their incentive structure.

In contrast, Amazon had no existing IT customers to cannibalize. They had to sell AWS to someone, or they wouldn't
get paid. That's how they found their first best customers: independent software devs and startups, paying by credit
card.

The cloud was ultimately adopted bottom-up, not top-down. AWS laddered up to enterprise customers from there.

The lesson:

An incumbent unwilling to cannibalize its existing business ends up eaten by the disruptor.

This is the Innovator’s Dilemma.

 Day 95

THE GREEDY ALGORITHM AND HOW IT CAN HELP YOU MAKE BETTER
DECISIONS

In programming, Greedy is an algorithm that finds its way to a solution step by step, always choosing the next best
step that offers the most obvious and immediate benefit.

To explain it simply, here's an analogy:

Imagine you are hiking in the mountains and your goal is to reach the highest peak possible. You have a map but
you already know that there are thousands of possible paths leading to the peak. And you don't know which one is
optimal.

More importantly, you are too lazy and simply can't be bothered to evaluate each of them. So you say,

"Screw the map!"

You decide to start hiking with a simple strategy:

Just take the next path that slopes upwards the most.

Simple, right?

Just take the path that slopes upwards the most and you'll reach the peak the fastest. The only direction you need to
go is up. Sounds straightforward.

But hold on, not quite!

When you reach the peak and survey the landscape, you realize that this isn't even close to the highest peak! And to
now climb the highest peak, you will have to go almost all the way down and take a different path.

A greedy algorithm picks the best immediate choice and doesn't look back or into the future. And it is best used to
find the local maximum, not the global maximum.

So, what's the lesson here?

Early on in your career, you are like this hiker who doesn't look at the map. More like you don't have the map. You're
still discovering yourself, and finding out what you're good at and what you enjoy doing.

If at this stage, you don't think long-term and choose the Greedy Algorithm instead — deciding to go with the next
job that pays you the most — at some point down your career, you might find yourself stuck in a local maximum,
with no way to move upwards.
What does thinking long-term look like?

It means investing your time and energy in developing valuable assets: skills, work experience, relationships —
everything that pays you rich dividends down the line. Also, experimenting and surveying the landscape goes a long
way when you're starting out because the opportunity cost is low and you have little to lose.

The same applies to pre-PMF products.

If you choose to go the Greedy way and pander to customers who pay first, without thinking about product vision or
being opinionated, you might reach a place from where growing becomes difficult unless you pivot and start over
afresh.

Not all customers are the same.

Not all jobs are the same.

Early on, deciding your next path based purely on pay will keep you from discovering your highest peak; your global
maximum.

Also, a paycheck boost gives you that dopamine boost only once, till your lifestyle matches up to eat that paycheck,
and then you start looking for more.

But the people you work with have the potential to make you feel good or bad about life multiple times a day.

Choose wisely.
 Day 96

BUILDING YOUR MINIMUM VIABLE AUDIENCE (MVA)

Traditionally, marketing has been used to working with the Target Group (TG) or the Ideal Customer Profile (ICP).

But with social media being the dominant channel for marketers today, our mental models need some updating.

Today, it's more about Ideal Audience Profile (IAP) more than ICP. And Seth Godin talks about this when he says,

"Build a Minimum Viable Audience first."

Strategy is more about "what NOT to do" than "what to do." An ICP tries to filter out people who don't match the
persona, so that you know what not to do.

Likewise, an IAP decides who are the kind of people you need to attract first, and decide what you wish to talk about
and share on your socials to attract them.

When you're in the early days of building an audience for your personal brand or your company, don't seek to
engage with everyone.

Focus on creating a small group of people who love and believe in what you do.

A good sign of heading in the right direction:

You have an audience who cares and would notice if you weren't publishing your work. These are people who will
miss you in your absence.

And you want them because unlike paid marketing which is more diffused even with good targeting, what you put
out yourself on your socials regularly as an individual attracts what — and more specifically — WHO you want to see
more of.

The targeting is much, much sharper. And the people you attract this way are supremely aligned with your own
interests and vision.

Two things happen when you find your MVA:

1. You discover it’s a lot larger group than you expected.

2. They tell the others.

You have to make a very specific group of people like you first:

Individuals in this group are authorities in their own circles. So, if THEY like you, then EVERYONE THEY KNOW will
like you and want to join your community or buy your product.

And you have to avoid doing the opposite — attracting the people who repel others from joining your community.

You reap the audience you sow.

 Day 97

LEARNING IS UGLY

“Gyaan” is almost used as a disparaging and derogatory word in the world today.

Practitioners look down upon it, and for good reason. Such gyaan gives the reader a dopamine rush without helping
them do anything. And generic advice without nuance and without a reality check is damaging many careers.

But our impulse to share our knowledge as a species has been great since the stone age. And it is a noble impulse.
Then, the question is:

How to do it well?

Well, it starts by understanding two fundamental things about reality that follow from each other:

1. Reality is ill-structured.
2. Learning is an ugly process.

Let’s talk about point no. 1 first.

By ill-structured, I mean that reality is multi-dimensional and has a lot of nuance.

There is great variation from case to case regarding which concepts and frameworks will be relevant. Especially in
the case of business, general principles will not capture enough of the dynamics of the situation at hand.

That is why they often say that the best way to learn how to do business is by doing it.

But there’s one thing learners can still do:

Learn from past examples and cases. If generic principles need to be useful, they need to be accompanied by many
cases demonstrating those principles in action.

In fact, this is why experts are better able to handle novelty when compared to amateurs: they have a large library of
cases to refer to in their decision-making.

For example, when explaining price as a competitive tool, Charlie Munger says:

“Up until the Great Depression, Pepsi and Coke were priced the same and Coke was dominating the market. But

then Pepsi cut their price per ounce by half and their sales took off, with profits doubling too. Price can be a
powerful competitive tool when you have a good substitute product.”

Notice that “price can be a powerful competitive tool when you have a good substitute product” — is too context-

dependent to be useful. But when told in the context of a story, Munger can make a nuanced point about two
brands in a price war whose products can be easily substituted for each other.

Now, coming to point no. 2.

Most failures are unavoidable. You have to learn your own lessons because your situation is unique. This makes

learning an ugly process.

All learning is accrued via failure. If a baby has to fall 100 times while learning to walk, preventing one fall just delays
the inevitable 100th fall.

In fact, I think that the highest privilege one can have in life is the liberty of failing as much as needed without
having to quit the game.

.
.
.
.

P.S. — Makes me think how we fail 50% of our population by judging them too harshly for their failures and
stopping them from failing — all due to our own social conditioning.
Yes, I’m talking about women.

For all the women in your life, the best thing you can do is support them while they fail towards eventual success.
That’s the least you can do.
 Day 98

THE HUMONGOUS ADVERTISEMENT BUSINESS YOU DIDN’T SEE

COMING

A quick note before we start: Read this post in conjunction with the Day 79 post in the series.

Youtube's ad revenue in 2021 was about $29 bn.

Snapchat's revenue in the same year was about $4 bn.

Do you want to know what was Amazon's ad revenue for 2021? Hazard a guess.

It was $31 bn. And a bulk of it came from on-platform advertising — retailers buying space on Amazon for their
products to feature, i.e., sponsored product placement within search.

Its ad business is now roughly the same size as the entire global newspaper industry, and it now makes more money
than Microsoft, Snapchat and Twitter combined on advertising annually.

Also, out of the $31 bn, Amazon produced $18.5 bn as the operating income. Which means the business is super
profitable.

Now the question is...

Could this have been predicted from afar? I would say — yes, if you are good at higher-order thinking and the first
principles of how supply-demand and marketplaces work.

Let me illustrate this with the example of a study published in 2007 around the information asymmetry in the fishing
market in Kerala.

Between 1997 and 2001, mobile phone service was introduced throughout Kerala. And what the researchers found is
that the adoption of mobile phones by fishermen and wholesalers was associated with a dramatic reduction in price
dispersion and disparity throughout the fishing market. It also eliminated wastage completely and both consumer
and producer welfare increased due to standard pricing throughout.

Simply because communicating price across the market was now possible.

The lesson:

When information is limited or costly, agents are unable to engage in optimal arbitrage.

Aggregators like Amazon solve this problem, leading to perfect competition. And while on the one hand, Amazon
helps discoverability, it also erodes margins.

The only way a seller can then unbalance the scales in their favour is by purchasing advertising on the platform.

This also has to do with search costs for the other side. On Amazon, consumers have many substitutes to buy shoes.
But they are hard for an individual shoe seller to find. So, consumers get free search engines and sellers have to pay
for advertising.

There is also this big question whenever anyone wants to sell an FMCG product:

"Should I list on aggregator platforms like Amazon or build my own distribution via a website with a checkout
page?"

The answer lies in, once again, asking yourself — what do I have to tip the scales in my favour and retain pricing
power?

Building your own distribution introduces massive friction as consumers are likely to always go on Amazon for better
product and price discovery.

The tipping factor would either be 1. an excellent product or 2. an excellent brand.

So, you either spend on advertising, or you spend on building your own brand.

Take your pick!

 Day 99

4 ELEMENTS THAT MAKE UP ANY GOOD STORY

Did you know that in the history of Disney animated movies, there have been exactly 18 types of songs?

These songs include ones establishing the protagonist/antagonist of the movie, songs about building hope, songs
about establishing side characters, montages, dances etc. that appear repeatedly across all Disney movies.

18 distinct formats.

Why am I telling you this?

Because it reveals one crucial aspect of what makes a good story:

1. How deeply rooted that narrative is in our psyche.

We all know the hero’s journey.

The rags-to-riches story.
The underdog story.
The lovers reuniting story.

Using one of these many archetypal tropes makes our stories resonate instantly. Moreover, they capitalize on an
established pattern the audience already knows. They are simple, easily grasped, easily told to others, easily
remembered.

2. Another aspect of good storytelling is FLOW.

Think about a story as a chain of states that flow from one to the next. Each of these states makes certain claims
about the world.

- “I was thirsty"
- "I poured a glass of water"
- "I drank it"

This is a story where each state has a strong "fit" to the next state.

This means that this story "flows". It builds meaning.

- "I was thirsty"

- "Purple elephants ran wild over the park"
- "I hope nothing bad happens to my family"

This is a story where the "flow" doesn't work. The states don't fit each other.
The secret to a persuasive pitch is maintaining a logical flow from one assertion to the next. What you say in slide 5
should naturally follow from what you said in slides 3 and 4. Otherwise, too many questions pop up in the minds of
your audience, leading to an interruption in the story.

3. Painting a scene

When we want to tell if a story is true, we do that by evaluating its claims against some set of observations.

To help the audience evaluate this quickly, you supply them with anecdotes that help them visualise a scene and
connect your story to their own experience.

A good story always leverages the content that’s already present in the minds of the audience — raw material that
they can use to visualise and aid your storytelling. Your job as a storyteller, then, is to make them recall their past
experiences that fit in with your story.

4. Filling in the gaps

Look at the image below.

It is actually a black and white picture. An artist has drawn some colour lines through it. And our brain is filling the
rest of the colours even though they aren't there!

Good stories work the same way.

They help us establish coherence between different data points or facts and fill in gaps that could or could not be
filled in by logic alone, but only by the total sum of our experience.

Facts are context-less. Stories and anecdotes contextualise them as they manifest in the real world.

And it is this contextualisation that helps the audience truly relate to your story.
 Day 100

TO BE BRITTLE IS TO ONLY HAVE “ONE THING”

Most businesses die due to only a few, most common reasons: bad timing, bad business model, bad product, bad
team...

However, there's another highly prevalent reason that could kill your business even if you have everything else in
place.

It is to only have "One Thing."

The thing that is keeping your business afloat. And the thing that could kill it as well.

☠️ Maybe the initial marketing channel quickly saturated, and your growth stalled.

☠️ Maybe the initial marketing channel did good for a while but external forces ate it up. For example, other
businesses with deep pockets tripled the cost per click, Google’s SEO algorithm changed, new technology made
your tech obsolete, the content that was getting you eyeballs lost cultural steam, the viral hooks that once made
your content popular do not work anymore...

☠️ Maybe your business was too reliant on one customer representing 80% of your total revenue, but that customer
cancelled.

☠️ Maybe a key employee left the company, which caused the company to fail.

☠️ Maybe your product was integrated as a feature by a giant into their product and you're now irrelevant.

☠️ Maybe you were running your entire database from a single server that crashed irreversibly, damaging your
brand and killing your business.

There might be many such reasons. But the point I want to make here is you can have a great business and it could
be easy to break at the same time.

The only solution to this brittleness is introducing redundancy.

For example, never allowing one customer to contribute to more than 25% share of your revenue. Or having a
backup database. Or focusing on two marketing channels instead of just one. Or investing in multiple diversified
businesses so that if one business or industry goes down, your portfolio isn't hit significantly.

Redundancy creates robustness. And most importantly, it allows you to have a good night's sleep. And all good
things are downstream of having a good night's sleep! ;)
 ACKNOWLEDGEMENTS

So, here we are, at the end of the 100 days. Feels surreal!

The journey has been a fantastic experience in providing value.

But hey, this was just the start. And the things I mentioned about brittleness and focusing too much on that "one
thing", apply here as well.

The #100DaysofMBA was just an experiment I chose to run alongside the main thing — the Stoa Program.
And I wouldn't be able to do this if it weren't for the Stoa Program.

So, if you really wish to see us delivering high-value business insights daily, make sure you recommend your friends
who are looking to get into business roles at startups to check out Stoa and Stoa Program.