Moats Before (Gross) Margins
so you got to have gross margins, fat gross margins. But you end up doing only software
but you know Apple has not SW margins but it is a good company.
Gotta have moats moats moats, baby
so what are htese moats? Founders feeling the crisp air of the morning while standing on top of the tower and look beyond their moats. The fascination of military metaphors that is strategy 🙂
BTW of course a fixation on gross margin is ok if you have to win the startup race on the internet, everyone will have a go at the next tool, platform, aggregaotor and we know the rules of competition there. But then strategy does not stop there
Moats are just a beautiful, inspiring image
“By 1890, this stream of religious philosophy had morphed into a set of mystical beliefs in the power of thought to affect the material world beyond the self”
“Elements of New Thought have recently seeped into strategic thinking through literature on leadership and vision”
Excerpt From: Rumelt, Richard. “Good Strategy/Bad Strategy”. Apple Books.
also, confirmation bias from Fooled by Randomness, who has made money feels optimist until maybe they blow, maybe they don’t.
1. some says the stock market has matured, all blue chips company are pretty much well managed, so it does not really matter picking the right one, so passive investing
2. But some other noted that if you take out the value created by a 4% of high-performers the rest of the pubblic companies just thred water, so pick thos 4% and grow rich. So pick the google and facebook early. Buy a crystal ball
3. Or just get into any seed round you can, because someone says this is the best way to gt into those winners
1. would Maubouissin in this paper The Incredible Shrinking Universe of Stocks
2. would be The best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills
3. is Angel List If you miss the best-performing seed investment, you will eventually be outperformed by someone who blindly invests in every credible deal.
Moats & Trenches
“Voleva sapere che cosa c’entrassimo noi in quell’articolo e supponeva fossimo mandatarii di potenti concorrenti esteri. La prima volta era sconvolto e temeva il peggio. Quando indovinò la nostra ingenuità, ci rise in faccia e ci assicurò che non saremmo riusciti a nulla. Finì ch’ebbe ragione, ma prima che ci acconciassimo alla condanna durò non poco tempo e da Carmen furono scritte non poche lettere. Trovammo che l’articolo era irraggiungibile perché circondato da trincee.” La Coscienza di Zeno, Italo Svevo
“The most important thing [is] trying to find a business with a wide and long-lasting moat around it … protecting a terrific economic castle with an honest lord in charge of the castle,” Warren Buffet
Ancora nella Coscienza di Zeno: cut the loss soon let the profits run
“Curioso come a questo mondo vi sia poca gente che si rassegni a perdite piccole; son le grandi che inducono immediatamente alla grande rassegnazione.”
if you look closely at the fabric of reality you see it made of funnels, all sort of funnels that move along the arrow of time obeying to the principle of attrition. What lies at one
Used to the funnels of digital marketing, the funnel of medical R&D looks even more demanding, moving at its own glacial pace
The overall process from idea to product can therefore take from 9 to 16+ years to complete. Furthermore, historically only one in 20 compounds that start the development process ever become marketed drugs. This is not an enterprise for people with a low tolerance for failure or for those who need immediate gratification.”
“In general, the investment needed in discovery to carry out all the work to identify a potential new medicine can range from $25 to $30 million. This is what it takes just to get to Phase 1. Interestingly, these early costs tend to be fairly standard because it generally takes the same number of scientists and similar resources to discover a new drug for rare diseases as it does for drugs to treat the most prevalent conditions. Similarly, Phase 1 testing also tends not to vary among new medicines and so these studies amount to $10–$15 million per compound. At Phase 2, costs vary depending on the information that is needed to justify the major Phase 3 trials. Thus, a Phase 2 program can cost between $60 and $100 million. However, all of the costs to this point are dwarfed by the ultimate Phase 3 program. Before Phase 3, perhaps as many as 500 people have been studied with the new drug. Phase 3, however, involves thousands of patients in many different complex studies and testing for periods that can last for years. The large investment in Phase 3, anywhere from $400 to $800 million, requires full approval at the highest levels of a company.”
John LaMattina “Drug Truths”
Roivant, funded by Softbank. Unbundling and efficiency come to Pharma R&D
“Roivant goes looking for drugs stuck in turnaround—not because of problems with the science, but because of corporate changes-of-plan. “Once we take over those drugs, the same cultural attributes that allowed us to focus on specific drugs rather than general therapeutic categories allow us to focus on the process by which those drugs can be accelerated to the finish line,” Ramaswamy says
Drugome: Roivant has mapped 30,000 potential drugs, 2,000 mechanisms of action, and 10,000 endpoints this way—all from publicly available, mostly free databases.
1 some AI has percolated into AWS; Azure and other cloud services
2 some AI is done quietly under the hood in great many tech companies
3 in some companies AI has enabled uniue features, but the company does not go around selling “my AI will change your business” but rather “I alone have a cool feature you can’t do without
4 AI is applied to non-tech real world problems where data are in silos away from google and china
of course there is a stack of cloud, algos, devices that allow to unbundle old world problems.
Ai is a tech that is defining its S-curve much like databases, ML is the new SQL “\over the past few decades we moved through databases, ‘productivity’, client-server, open-source, SaaS and Cloud. In parallel with new client platforms, we had new waves of architecture or development model, and that’s really a better way to look at machine learning – ML is the new SQL (and maybe crypto is in part the new open source)”
AVC: give software valuations only to software company becuase onlòy those can sustain >75% gross margins. Software is eating the world but still software companies have higher margins than non SW. The Great Public Market Reckoning
Stratechery follows Christensen in saying that a technology company is one that can offer something intrinsically more valuable thanks to disruption – What is a tech company?
Bill Gurley replies to AVC with his 2011 mammoth post on startups valuation titled All Revenue is Not Created Equal: The Keys to the 10X Revenue Club
Mauboissin Competitive Advantage Period or CAP that explains valuation in firms with lasting competitive advantage Competitive Advantage Period “CAP,” The Neglected Value Driver
in the news, IPO’s of pure tech (SaaS etc) outperform transactional platforms and hardware first https://twitter.com/DKThomp/status/1183898414695755776