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The Game of Thrones season finale was tonight, and I thought this picture was a pretty apt analogy of the insurgent role software is starting to play in a business' ability to dominate not just their industry, but multiple industries:
Amazon is now closing on its acquisition of Whole Foods, and this WSJ article headline sums up the impending carnage that acquisition will cause in the retail sector:
Ben Horwitz stated it succinctly in the a16z podcast when he said
"What Amazon is doing is the right approach, which is, you have one business; you get it working and it generates money, and then it can generate enough money for you to add another business."
Amazon is able to acquire Whole Foods and lower its grocery prices for shoppers because Amazon is not in the grocery business. It's also not in the books business, nor the retail business. Amazon is in the software business. Amazon's deep core competency in software (indeed AWS is the infrastructure that powers much of Silicon Valley) enables it to extract value from Whole Foods in ways that the grocer could not do independently. For Amazon, Whole Foods is a top of funnel platform to drive more Amazon Prime members; to bring more people into the Amazon ecosystem. It can afford to cut through the razor thin margins that most grocers depend on to run their core businesses, suffocating them in the process.
The rising dominance of software-first companies like Amazon, Google, Facebook and Netflix has happened so quickly (only in the last decade or so) that it's taken most large companies by surprise. And that's not quite the right way to put it either because I don't believe that most enterprises yet feel the urgency of needing to make software a deep core competency for their very survival over the next decade.
Let Kodak be a guide for all enterprises that are reluctant to fully embrace the way technology is transforming their industries. The sneaky thing about technology is that it can look laughable and cute at first blush. Kind of like those baby Game of Thrones dragons when they first hatched. Then it matures and scorches the earth -- and not just in one industry, but across multiple industries.
It didn't have to turn out this way for Kodak. A Kodak engineer named Steve Sasson built the very first digital camera in 1973:
"Sasson showed these devices to his bosses at Kodak in 1975. At the time, it took 50 milliseconds to capture the image but 23 seconds to record it to tape... His bosses were unimpressed. “They were convinced that no one would ever want to look at their pictures on a television set,” Sasson told The New York Times." - Business Insider
Kodak was a 131 year old company that employed 145,000 people at its peak. It invented and patented the first digital camera. In 2001, it acquired Ofoto, an early photo sharing site. But Kodak's key error was, as FastCompany writes:
"Kodak seemed to want to drive digital behavior back to businesses it knew and could control. Rather than embrace digital, it wanted digital to fuel printing. First with the creation of cameras for the Kodak Easy Share line, then for printers and ink, Kodak wanted the warm glow of the bright yellow box and the family memories of a “Kodak Moment” to shift from digital sharing back to physical objects.
Is it possible for a company with legacy business holdings, and a history of owning a narrow sales channel, to evolve into a thriving digital enterprise?"
Software-first companies are already gaining strong footholds across multiple industries. Tesla in automotive. Betterment in finance. Netflix in entertainment. Lyft in transportation. The secret weapon of these companies is that software is scalable. A deep core competency in software creates a cocktail that's impossible for traditional companies to beat:
1. Speed: Software enables companies to learn faster, and therefore respond to the market faster. As Mark Zuckerberg said in Reid Hoffman's "Masters of Scale" podcast,
"The strategy of Facebook is to learn as quickly as possible what our community wants us to do. And that requires a culture that encourages people to try things and test things and fail, and it also requires building infrastructure to enable people to do that, because culture isn't enough by itself and the stuff isn't magic. At the end of the day, it comes from building infrastructure that enables it. So one of the things that I'm the most proud of and is really key to our success is this testing framework we've built."
"When you're building internet software that you can change every day, I think there's really something to the strategy of 'just learn and go as quickly as you can'... that's really core; I think more than any single product that we're working on at this point, that focus on larning quickly is the strategy of the company."
2. High gross margins: Software is scalable in a way that traditional businesses are not -- especially on a gross margin basis. While the airline industry has a gross margin of about 5%, the software industry has a gross margin of about 90%. Software-first companies can scale up with very strong gross margin, which they can re-invest to drive growth in adjoining industries. This is why, for example, Amazon has only had a few profitable quarters over the past 20 years.
Activist investors are starting to put pressure on corporate boards to extract more enterprise value from their businesses. I expect we'll see a lot more takeovers like Amazon's of Whole Foods as companies that truly embrace software eclipse those that don't -- or won't. At Armory, we've divided companies into five stages of software evolution:
Businesses that remain stuck in Stages 1 & 2 won't be able to compete over the next decade with those in Stage 5.
The reason my co-founders and I started Armory is to enable any business to make software a deep core competency and a competitive differentiator, and to get to Stage 5. As I wrote in our Company Manifesto, the very first baby step to winning with software is being able to deploy that software continuously to users, in the background like running water. Without that, even the best boardroom strategy is just talk. Just ask Kodak.
I've never tried this myself, but I've heard it works extremely well -- and in fact, I'd love for someone to try this and then post a comment on this blog (ideally w/ pics!) describing how it goes:
As I've written about in the past, I've learned with Armory about the importance of putting customers at the center of the company's focus.
If you're the founder of a B2C startup, here's a great way to interview prospective customers:
"Experience is what you get right after you need it." - James C. Wofford
Armory is the startup I've always wanted to create. I'm applying everything I've learned over the past fifteen years from previous startups.
Below are some of those startup lessons explained as a series of Matryoshka Russian stacking dolls, with the customer sitting at the center, encompassed by product, company and tribe.
Build The Product Around The Customer. This sounds obvious, and I thought I knew how to listen to customers, but I've never done it like this before, and now I see companies of all sizes missing opportunities to build value around their customers' needs.
When Isaac, Ben and I started Armory late last year, I found a lot has changed since starting my last startup, Socialize, in 2008. There's a suite of new tools available to instrument a startup that didn't exist eight years ago, including:
I haven't yet blogged much about Armory because we've been busy building. But if you'd like to learn more about the Software Revolution and how Armory is involved, head over to our Company Manifesto. I've also written a CEO Manifesto that describes the main jobs of a CEO in a startup (and the importance of creating a Tribe culture), and if you're interested in working at Armory, take a look at why life is awesome over here!
If you're generally interested in startups, head over to my "So You Want to Start A Company..." hackpad with my best tips on startups.
One of my best "get things done" tricks: is that I focus on the "last mile" of whatever I'm doing.
Here's a picture to illustrate what I mean:
Most of the work went into building I-40. But for the three houses in the circle above that live off of Lomaki Road, most of the value came from the last mile of service roads that were built to make the interstate accessible.
I see people spending a bulk of their time on the big parts of a project -- the equivalent of building I-40. But then they leave the service roads -- the details -- un-built, which means they never actually unlock that value.
It just blows my mind how little we know about our bodies and how to keep them healthy. Most people I talk to aren't happy with the state of their bodies. They either feel like they're too fat, or too skinny, or some other complex. And it's not just feelings -- many people, especially on the Western diet, are too fat. And in fact, are clinically obese but don't know it. That described me for a decade. I was literally on the verge of metabolic syndrome and didn't even know it. That's incredible: I was putting my self at double the risk of coronary disease, diabetes and a slew of other diseases and I didn't even realize it. I see that same benign neglect of the body in most people around me. There's a general dissatisfaction of their bodies, but very little action taken to improve it, and I think it's because most people are a combination of confused as to what the best path forward is, and reluctant to make big changes without being sure they're making the right ones.
So while I don't necessarily have answers, I can offer a plan to help you begin your journey to figure it out, and the good news is, it's a very simple plan and so easy to follow that I guarantee this will work for you like it has for me. (Or "Your money back!" so to speak) You just have to decide you want to try. Here it is, step by step.
Step 1 in DROdio's "Achieve Your Body Goals" Plan: Adjust Your Attitude (Seriously.)
The very first thing you have to do is decide to take control of your body's fate, and not to let yourself feel like a victim. You are not a passenger along for the ride. You are driving. You have to believe that you impact the outcome with your actions, because you can, and you will. I have. For over a decade I felt like a helpless passenger. As my metabolism slowed down, I'd continue to put on the pounds and couldn't figure out how to stop it. I started hating the scale; hating that I was becoming someone other than who I knew I really was. It wasn't until I took this first step that I was able to take control. You have to really want to do this.
When I turned 39 last year, I knew I was in trouble, and although I hadn't recognized quite how bad my health had gotten, I knew enough to realize I had to do something about it. On my 39th birthday I vowed that by 40, I would be back in the kind of shape I had been in a decade earlier, when I'd turned 30.
Today is my 40th birthday, and I've not only hit that goal, but surpassed it. I might be in the best shape I've ever been in. I'm in much better shape that I was when I turned 30. Possibly even better shape than I was when I turned 20, back in 1995. In this blog post I'm going to share how I did what I never thought I'd be able to do: Take control of my body and health for the first time in my life, which would require me to overcome my genetic predispositions and a tortured relationship with food.
The formula is equal parts motivation + relationship w/ food + relationship w/ exercise. So let's break it down in that way:
I'm about to take you down a deep rabbit hole, on a path that will challenge what you believe about nutrition and health. This is a journey of experimentation, and I encourage you to keep a very open mind, and in fact, I hope you decide to experiment with these themes yourself. I'm not a nutritionist or doctor, but I am very passionate about finding ways to optimize my body and health (especially as I age), which is why I've been doing intermittent fasting for the past five months -- and that experience has been life changing. I've gone from XL to medium sized shirts, from a 38 to 32 waist, and most importantly, from 34.7% body fat to 24.5% (and my goal is to get under 20%). Intermittent Fasting has put me in control of my body for the first time in my life.
And just when I felt that I was really starting to figure it all out, this rabbit hole opened up. And it's called ketosis.
In addition to intermittent fasting, I'm experimenting with ketosis through the end of 2015, which is triggered by eating a ketogenic diet comprised of 75% fat, 20% protein and 5% carbs. Yes, that's right -- in order to lose fat and become healthier, I'm going to eat mostly fat. The mind blowing counter-intuitiveness of that statement is why I'm writing this blog.
But before we can talk about this ketogenic approach to nutrition and health, we have to understand how the body uses two energy sources -- glucose and ketones -- and why, with your diet, you are probably only ever tapping into glucose (and how that may be making you unhealthier, especially as you age).
I wrote this post in August 2014 comparing Betterment to Wealthfront, so it's been about 15 months, and I thought it'd be a good time to check in on relative performance, as a buddy of mine recently wrote:
"I saw your post on betterment. I'm thinking of moving everything over to a roboinvestor. What's your thinking on betterment vs wealthfront, and whether you'd just dump everything on there?"
As I wrote in my original post, I put $5k into both Betterment and Wealthfrontto test them against each other. To date, both have under-performed the S&P 500 by a considerable margin. S&P is up 10% since August 2014. Betterment is down by 2% and Wealthfront is down by 5.4%. So, should I just have invested in the S&P 500? And as per my other previous blog, Show Me The Money: Six Strategies to Put Your Cash to Work, how should I re-allocate based on this new data? And what would I recommend to my buddy? Let's dig into the data a bit to come to a conclusion:
When I wrote my orginal post Show Me The Money: Six Strategies to Put Your Cash to Work, one of the strategies I included was leveraging General Electric's high-yield money market account for the cash you want to keep readily available (i.e., cash you might need to access in the next 3 to 12 months). But GE has shut that program down as an overall strategy shift away from its GE Capital business, and so I was left searching for an alternative. In this post I'll detail what corporate money market accounts are, how they work, how they differ from other types of savings or income generating accounts, and which the best alternative is. I'll also tell you what I ultimately ended up deciding to do, which was different than I expected.
Why you should care about this at all:
One of the mistakes I made in my 20s was not being curious enough about financial instruments, and how I could leverage them to reach my personal goals faster. I was so focused on building startups that I didn't pay enough attention to how to optimize my investments. I set out to change that in my 30s, and I've been blogging about it in the hopes that anyone else who isn't yet leveraging these tools can learn about and use them.
As with anything in life, from optimizing your health to optimizing your finances, you have to start with a goal. My family's financial goal is currently optimized for asset growth, with a secondary focus of passive income generation. Since we're still (relatively) young, we're willing to take aggressive stances on both. Here's how this breaks down for us: