Category Archives: Business

 A subtle but powerful insight from Jeff Bezos, founder of Amazon.com, via this Q&A in Portfolio:

One of your big initiatives, a search engine called A9, fell flat. What happened? If you decide that you’re going to do only the things you know are going to work, you’re going to leave a lot of opportunity on the table. Companies are rarely criticized for the things that they failed to try. But they are, many times, criticized for things they tried and failed at.

 

Did you ever get criticized for some­thing you tried that worked out? When we pioneered customer reviews, it was incredibly controversial. I got letters from publishers saying, “You don’t understand your business. You make money when you sell things. Take down those negative customer reviews.” We’ve never done anything of real value that wasn’t at least a little bit controversial when we did it. But if you want to be a pioneer, you have to be comfortable being misunderstood.

Paul Graham’s latest essay on Cities and Ambition has some parts I agree with, some parts I do not (as usual), but I found this footnote particularly amusing:

How many times have you read about startup founders who continued to live inexpensively as their companies took off?  Who continued to dress in jeans and t-shirts, to drive the old car they had in grad school, and so on?  If you did that in New York, people would treat you like shit.  If you walk into a fancy restaurant in San Francisco wearing a jeans and a t-shirt, they’re nice to you; who knows who you might be?  Not in New York.

One sign of a city’s potential as a technology center is the number of restaurants that still require jackets for men.  According to Zagat’s there are none in San Francisco, LA, Boston, or Seattle, 4 in DC, 6 in Chicago, 8 in London, 13 in New York, and 20 in Paris.

(Zagat’s lists the Ritz Carlton Dining Room in SF as requiring jackets but I couldn’t believe it, so I called to check and in fact they don’t. Apparently there’s only one restaurant left on the entire West Coast that still requires jackets: The French Laundry in Napa Valley.)

Embedded below is a great 4 minute video of Tom Peters on the definition of leadership. The essence is captured by Robert Altman’s lifetime achievement Oscar acceptance speech: "The director allows an actor to become more than they’ve ever dreamed of being."

Peters also says that people often ask him about the key to leadership in the 21st century. He says "nothing has changed." The key to leadership in the 21st century B.C. is the same as it is in the 21st century A.D. Yes!

Tom Peters on the Definition of Leadership from Tom Peters on Vimeo.

From the FT’s review of George Soros’ latest book:

In markets, Soros says, participants’ thinking plays a dual function: they try to understand the situation (the "cognitive function"), and to change it (the "manipulative function"). The two functions can interfere with each other; when they do so the market displays "reflexivity".

So an investor’s misperception of reality can help to change that reality, begetting further misperceptions. When market actors’ decisions affect outcomes, patterns emerge. If a lot of people are bullish about internet stocks their price goes up. Soros used the theory to predict, and profit from, a series of "initially self-reinforcing but eventually self-defeating boom-bust processes, or bubbles". Each bubble "consists of a trend and a misconception that interact in a reflexive manner".

A key implication of this is that markets do not tend towards "equilibrium", as predicted by modern portfolio theory. And they will not move in the "random walk" promulgated by efficient markets theory, which holds that prices always incorporate all known information and so move randomly in response to new information.

This is important, as the architecture of modern capital markets depends on these theories. And it begins to look as though the credit crisis was the tipping point at which academics and practitioners decided a new paradigm was needed to replace the efficient markets hypothesis. Alternative theories borrow from experimental psychology, advanced mathematics and evolutionary biology and have been built in response to experience in the markets.

The theory of "adaptive markets" – that markets follow trends until they become overblown and then start building up other trends – seems to be gaining ground as an alternative paradigm.