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🍺 Jeff Bezos’s beer tasting analogy
Podup | Best 3 Business Podcasts of the Week 🥉🥈🥇
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What you need to know
🍺 Jeff Bezos’s beer tasting analogy
🤩 Have you heard of the DHM model?
🐖 Consequences of team bloat
Focus on what makes your beer taste better
🥉 Third place (4 min read vs 1 hour 7 mins listening)
If you’re a first time listener of Acquired, this is the episode for you. Ben and David recap their 12 favorite lessons from 200+ stories they’ve shared over the past 7 years. There are too many gems to include in one segment, so I’ll focus on my favorite lesson from the one and only Jeff Bezos.
What they say
Jeff Bezos’s talk at YC in 2008
Jeff uses this analogy for AWS. He talks about European beer breweries around the turn of the 20th century.
Electricity has just been invented. This was this massive enabling technology. Breweries could now brew vastly more quantities of beer than you could before electricity.
The first breweries to adopt it built their own power generators. It worked fine for a few years but it was super capital intensive.
Then the utilities companies came along and the next generation of breweries just rented the power from the utilities companies.
[They beat] the first generation of breweries because guess what: whoever makes your electricity has no impact on how your beer tastes.
Jeff’s argument to all of these startups [at YC] was focus on what makes your beer taste better.
There’s two lessons here. One, which is what he’s arguing - you should focus on the attributes of your product that your customers are going to care about.
The second, if you look what Bezos did, not what he said, is that being a utility company is an exceedingly great business. Particularly, being an unregulated utility company.
It can be so defensible and powerful. If you can be a mission critical piece of infrastructure that other companies can use that they need, but doesn’t actually make their beer taste better, it’s a great place to be.
What I say
Why it matters: Let's focus on the second lesson - being a utility company. AWS is the biggest factor for Amazon being worth more than the GDP of Indonesia, a country that boasts 273M people. When you read stats like this, it puts into perspective how powerful tech giants really are. So, what makes them so powerful?
They’re all unregulated utilities. Businesses sell on Amazon, build apps for the iPhone, run ads on Google, and use hardware from Microsoft. None of these things make your beer taste better. But, they provide essential infrastructure to run your business. If you have your sights set on becoming a billionaire, you need to build the next big piece of infrastructure that businesses need to remain competitive.
Between the lines: Jeff Bezos is a wonderful storyteller. His annual shareholder letters are widely recognised as 101 reading for entrepreneurs. What goes under the radar is his speeches. He’s not the most charismatic, but he structures his storytelling in the same way that J. K. Rowling wrote Harry Potter and J. R. R. Tolkien wrote The Lord of the Rings. He uses the Hero’s Journey framework.
Let’s unpack this further:
Call to adventure. Breweries can now use this new, sexy technology called electricity.
Fear/uncertainty. Like any new technology, there were naysayers casting doubt and criticism.
Taking action. Bold early adopters used electricity, even if it meant creating their own power.
The abyss. Utility companies made it 10X easier for upstart breweries to use electricity.
New understanding. Only focus on what makes your beer taste great.
Sharing what you learned. Use AWS for your cloud computing needs so your team can focus on what makes your beer taste great.
We can all use the Hero's Journey in our day to day lives. Here are two examples:
Read how entrepreneurs can use this to support fundraising
Read how intrapreneurs can use this to get approval on budget requests
You want to hit the intersection
🥈 Second place (4 min read vs 59 mins listening)
Repetition, repetition, repetition. It can win you the United States Presidency with the phrase ‘Make America Great Again’. It can also improve your product strategy with the phrase ‘Delight customers in hard to copy, margin-enhancing ways.’
Gibson Biddle did the later as VP Product Management at Netflix. He repeats this phrase more times than I can count on Lenny’s Podcast. His repetition paid off. Gibson’s framework is stuck in my head like a catchy song (fun fact, this actually has a name - it’s called an earworm).
What they say
The DHM model
I learned it from Reed Hastings when I started at Netflix. He did a reference check on me and the only question he asked is ‘Can Gib delight customers?’
Back then, people were talking about satisfying customers - listening carefully, understanding them, etc. I said ‘No, no, no, the job is to delight customers.’ It’s 10X better.
The hard to copy part… I had a product leader, his name was HB. He focused on the non-member page [at Netflix]. He put a picture of a happy family on the couch where you put in your email. That got a lot more people engaged. I said ‘That’s great HB, but I bet my pay check that within a week, Blockbuster is going to put a happy family on their coach too.’ This is the problem of doing things that are easy to copy.
The last phrase, margin enhancement, that’s just a fancy phrase for making money.
The happy family on a couch example delights folks, it helps build a better business, but in that case, Blockbuster were able to copy it.
The hardest part in that model is how you balance delight and margin.
What I say
Why it matters: The next time you need to make a product decision, try using this Venn Diagram. You’ve hit a home run if you sit snugly in the intersection. This is the sweet spot where every circle overlaps and the decision is a no brainier. If you achieve two, that’s still a win, as long as it doesn’t negatively impact the missing element in a fundamental way.
Between the lines: Be excited. You can now upvote your favorite episodes and discover new episodes on Podup. Will the new platform delight readers in hard to copy, margin-enhancing ways? Let’s find out:
Delight customers. A lot of you have said you see value in discovering the top rated episodes from any given podcast. This should be a big yes.
Hard to copy. The platform isn’t technically difficult to build. But, it’s hard to copy in so far as it would take months for someone at Spotify to bypass the red tape and get this feature approved.
Margin-enhancing. This newsletter hasn’t been monetised yet, so this is a fail. I need 5K subscribers to have a shot at this. So, my dear Podup reader, please help me get there and share this with 2 friends. Thank you!
Be a lean, mean, fighting machine
🥇 First place (6 min read vs 1 hour 2 mins listening)
Team size is a vanity metric. A larger team does not equal higher output. It can often indicate the opposite. Sam argues that the more you grow, the less efficient you get. I wholeheartedly agree. There’s a reason why most incumbents get displaced by startups over time.
What they say
Avoid hiring too quickly
I think people over hire. I’m really fascinated with the idea of hiring less people who are higher quality and paying them a lot more versus hiring a ton of people and most of them are pretty average and you pay them a medium market rate.
I understand why you want redundancy. If you rely on 5 people and 3 of them quit, you’re really screwed.
I think a large percentage of jobs at most companies are bullshit jobs. They’re only there because the person who’s running this division hires more so they get more responsibility and seem more important so when they go to their next company they get paid more and climb the ladder.
The hidden communication cost
When you go from one person to two people, generally productivity increases every time. It’s almost always a win.
Two people to three people is usually a win but there’s usually a cost which is now we have to have meetings. Once you have three people, no longer does everyone know everything that’s going on.
There’s a rule that for every double of your employee base you square the amount of communication required. If you go from 4 to 8, that doesn’t double the communication it 4X communication.
What I say
Why it matters: Hiring has so many under appreciated costs. Most managers don’t consider the 30% of salary you should account for to cover facilities, taxes, pension, and other benefits. Most managers don’t consider the impact a new hire will have on their own time, let alone the compounding effects this will have across the business.
Startups are particularly guilty of this. The VC model is analogous to a 21 year old receiving $1M and being encouraged to spend it in 2 years. The same way a 21 year old will spend carelessly on an extravagant, party-fuelled lifestyle, the same can happen with founders who go from having nothing to a bank balance beyond anything they’ve dreamed of.
The harsh reality is that well run businesses let go of 5-10% of the workforce regardless of the economic outlook. Every year, they let go of C players, retain B players, and promote A players. If you’re only thinking about cutting 10% to weather the storm, think again. That number should be your default every year, not the year we enter the biggest recession since ‘08.
Between the lines: Serious suggestion. Cut half your team and see how it impacts productive output. My bet is in 99% of cases, it doesn’t at all. I know, I know, you’re not going to do this. But more of a realistic ask is for you to consider doing this in one team. Think of it like an A/B test. If it works, you cut costs by 50% without impacting productivity. In today’s market, that could be the difference between life and death.
Bonus framework: Shaan recaps how Charity: Water organises memorable events.
Charity: Water is known for their events. You feel like you’re at some Hollywood party. They raise ~$75M in a night and that funds clean water for a lot of people.
I remember asking Scott [the CEO] what is the secret sauce? He goes ‘That’s my wife Victoria, it’s her thing. She has this phrase which is it’s the moments between the moments that matter.’
They thought about the walk between the cocktail hour and the dinner. Yeah, you can traverse through this hallway. But what can we do in the hallway that will send the message?
They created a visual light show of a women in Africa. She starts when you start. She’s carrying 60 pounds of water. You see her carrying it and 15 steps in there’s one sitting on the ground that you can pick up.
By the end of it you’re like ‘Dang, that was heavy. I only walked 54 steps. She does that for 3 hours a day just to get clean water for her family. Are you likely to donate at the end of that? Yeah.
Scott is big on integrity so let me be clear, that’s not exactly what happened. That’s what I kind of remember when we were drunk 6 years ago and he was telling me what they did.
This level of creativity blows my mind. It’s so clever and so extraordinary that the easiest response is to say ‘Cool story’ and move on. I challenge you to apply the moments between the moments framework into your day to day life.
Here’s one example to get your gears turning. At the start of every Medicspot leadership offsite, Mike Pallett (Chief of Staff) asks everyone to name 3 feelings from the wheel of emotions.
This does two things:
Your walls are down, you’re empathetic, and you know how to adapt your communication style with different people when important issues are discussed
You can never again say how you’re feeling without glancing at the wheel of emotions for guidance - it’s as if you can’t make a decision on your own without looking at the wheel!
This small moment between the moment idea puts everyone in the right frame of mind to debate tough issues and drive the business forwards.
Note, these quotes were pulled at different points of the episode. Some sentences were left out to make the narrative clearer and more concise. Podup is not associated or affiliated with any podcast (unless otherwise stated). All roundups are independently written and do not imply any sponsorship or endorsement by the podcast.