“What doesn’t kill you makes you stronger.”Friedrich Nietzsche
“And if at first you don’t succeed,Try Again by Aaliyah featuring Timbaland
Dust yourself off and try again,
You can dust it off and try again.”
Another useful mental model that I’ve put into my investing toolbox, is looking for products/businesses that have survived near-death experiences.
I think we’ve all heard the quotes at the top and I’ve found that those simple axioms are certainly true in entities like products/businesses.
Here are some examples of this in recent business history:
- AMC Theatres coming out the other side of a pandemic
- Chipotle Mexican Grill surviving the e-coli public relations nightmare
There’s more but these two examples are illustrative of a few things.
The first is the importance of a real and true moat. Be it switching-costs, the power of your brand, the ability to withstand external onslaught or massive customer dis-satisfaction but still having paying customers.
Warren Buffett said it best when he said that, you have a poor business if every time you raise prices on your products / service you have to have a prayer session. This can also apply to when you change a product or service and still survive like New Coke.
The characteristics of the moat allow for mismanagement, allow for “foreign invaders” on the business and can survive your customers voting with their feet. If that’s not the simplest definition of a economic moat, I don’t know what is.
All the more reason to use the mental model of inversion (as Charlie Munger recommends), to discount products / businesses that have catastrophic / systemic risks that can easily topple over or have the potential for cascading failures.
I think that’s what Jeff Bezos is referring to about how he attempts to steer Amazon away from “Day 2”.
“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”Amazon’s 2016 Letter to Shareholders, Jeff Bezos
The way I see it is this:
- All businesses tend to die (over time).
- Businesses/products can die quickly or be a melting ice cube.
- Like all things, there is a cycle of life, death and sometimes rebirth.
- If you’re dying and live to tell the story, you’re more likely than not to possess an anti-fragile, resilient organization.
- If you know where/when/how you’re going to die, you can try to fight entropy by reliving Day 1.
- If you’re a melting ice cube, you better have good management who knows how to harvest the proceeds and channel it into something productive and profitable.
- If you can die by your own sword, you can do so better on your own terms and take those lessons-learned to do it better the next time.