Podcast Summary
SoftBank's $5 Billion Investment Accelerates Latin America's VC Growth: SoftBank's massive investment in Latin America has spurred a surge in VC investments, with promising potential in digital, internet-driven companies, ecommerce, and FinTech disruption. The region is expected to have the biggest IPO year in 2022.
The SoftBank Latin America Fund has transformed the investment landscape in Latin America, deploying an impressive $5 billion and just signing up to deploy another $3 billion. In just three years, they have grown the region's VC investments from $1-2 billion to over $25 billion. Latin America has a large population with high GDP per capita, making it an early adopter region for digital, Internet-driven companies, with huge potential for ecommerce and FinTech disruption. The upcoming IPO year of 2022 is expected to be the biggest in LatAm history. SoftBank's success has brought in new competitors, but competition makes the system better.
Exploring Investment Opportunities in China, India, and the US with Hamilton Helmer: Timing is crucial for success in the tech industry. Hamilton Helmer's proprietary accounts with tech giants such as Intel, Microsoft, Dell, and Cisco proves that investing in unpredictable markets can yield exciting opportunities.
The region of China, India, and the US is an exciting investment opportunity due to its unpredictability. Hamilton Helmer, author of Seven Powers, shares about his journey from a PhD in Economics to strategy consulting and public equities investor. He founded Strategy Capital and worked for Bill Bain before moving to California in 1994. Timing plays a significant role in success, as seen in the example of Jobs and Gates being born at the right time for Apple and Microsoft. Hamilton had proprietary accounts with big companies like Intel, Microsoft, Dell, and Cisco, which were involved in tech.
The Importance of Persistence in Building an Enduring Company & Strategic Thinking with the Seven Powers: Building a successful and enduring company requires more than just targeting a big market; it also requires defensibility and standing out in the market. Understanding the keys to persistence and utilizing a strategic mental model like the Seven Powers can guide founders in the right direction.
Targeting a big market is only half the equation of what makes for a great enduring company. To have a successful business, you need to have power in the market, such as defensibility and something that makes your company stand out. Understanding the issues that drive persistence is important to drive value. The path to establishing persistence is not linear; there is a step change in the take-off phase of the market. As founders move through space and time, they need a way of thinking about strategy that guides them in the right direction. A mental model like the Seven Powers provides a simple and relatively complete way of structuring strategic thinking.
Understanding Moats and the Seven Powers for Competitive Analysis in Business: In order to create a successful business model, focus on inventing something unique that provides both benefit and a barrier that prevents competition. The Seven Powers framework can help analyze and create effective moats, with counter positioning as a powerful strategy to challenge established players.
To create a successful business model, you need to understand the need and invent something that's better than what other competitors offer, and that materializes enough to tilt the needle. To have power, there should be two necessary and sufficient conditions, i.e., benefit and a barrier where not only there is a benefit, but something that will prevent smart competitors from taking it away from you. The Seven Powers are a careful and exhaustive articulation of the nature of moats, which are useful for competitive analysis when starting a business. Focus on creating something unique instead of beating the competition. Counter positioning is a fun power that challenges powerful incumbents with a new business model and provides a disincentive for them to respond quickly.
Counter Positioning Strategy and Network Effects in Business: Counter positioning is a strategy where a company creates a negative product for the incumbent while cannibalizing their market share. It is different from disruptive technology and can be a successful business strategy. Network effects rely on the value gained by users through growing numbers of users on a platform. Modern Treasury enables payment operations in products.
Counter positioning is a strategy where a company creates a new product or service, which is a net negative for the big incumbent, and is both a good business and cannibalizes the incumbent's market share. Incumbents often suffer from cognitive bias and agency issues, making it difficult for them to embrace new disruptive technologies. Counter positioning is different from disruptive technology as it does not always imply disruptive technology. It is possible to disrupt something but have a lousy business. Network effects are another classic strategy that relies on the value gained by users through the growing numbers of users on a platform. Modern Treasury is the worldwide leader in payment operations that enable anyone building products to add money movement and tracking right into the product.
Understanding the Intensity and Complexity of Network Effects: Analyzing network effects intensity, competition, and switching costs is crucial for profitability. Careful management of switching costs is necessary to avoid a win-lose situation. Companies embedded in processes become difficult to replace, but monetizability remains a question.
It's not enough to just understand network effects; you must also analyze the intensity and complexity of its impact. Profitability from network effects depends on various factors such as the density economics, competition, and switching costs. Switching costs can create a win-lose situation with the customer and must be carefully managed. It's important to note that switching costs only matter if there's a repeated economic interaction, requiring the customer to buy more. Companies can become especially strong when embedded within a company process, making it difficult to switch out. Slack is an example of a company with both network effects and switching costs, but the question remains if they're sufficiently monetizable.
Switching Cost and Customer Acquisition in SaaS Companies: SaaS companies need switching costs and customer acquisition to maintain power in the take-off phase. Counter positioning is only a partial source of power, to achieve real durability, other sources of power are needed.
SaaS companies benefit from having good switching costs, which is a primary source of power for them. However, customer acquisition cost can be a challenge as it can arbitrage out the value of switching cost. To maintain power in the take-off phase, SaaS companies need to combine switching cost with something that gets them customers in the first place. Incumbents that aren't highly software-centric may struggle to adopt a software-centric approach because it could require a significant change to their business model. When considering counter positioning, it's important to remember that it's only a partial source of power and doesn't answer the power question for potential competitors. To achieve real durability, companies need to have another source of power.
Competing against Established Companies in Tech: Consider potential or existing competitors like Amazon, Microsoft, or Google. Look for a category of one, with cornered resources that make your company unique. Executive talent and founders are valuable resources.
Competing against big, established companies in the same technology vintage and with the same resources is challenging, as they may have already established a lead in the market. It's important to consider whether potential or existing competitors like Amazon, Microsoft, or Google can successfully compete in the same space as your company. Cornered resources, such as patents, are rare in tech, but executive talent and founders are not cornered resources as their value can easily be arbitrage by the market. A more interesting investment opportunity is when there is a category of one, where there's nobody else quite like the competitor, and they have cornered resources that make them unique.
The Importance of Leadership and Beyond in Strategy: Great leaders are essential for successful strategy, but sufficiency and a strong team with experience and sensibility are equally crucial. Understanding the importance of critical decisions, such as acquisitions, can also drive success. Unique platforms, like Fundrise, offer accessibility to private real estate assets.
Leadership is crucial in strategy as all strategy begins with invention and building something around it. However, having great leaders may not always be sufficient as seen in the case of Intel with their memory business. Sufficiency is the question we need to ask. Pixar's success also came from a core group of people with experience and sensibility in creating compelling animated films. The brain trust itself was not enough to guarantee success. Disney's acquisition of Pixar was a critical decision made by Bob Iger, who understood the importance of animated films to the Disney franchise. Fundrise is a unique platform that allows anyone to buy fractional ownership in private real estate assets.
Direct Access to Real Estate Asset Class for Retail Investors.: Fundrise provides individual investors with the opportunity to invest in real estate assets while allowing them to have granular control and low-cost management, providing the best of both worlds. Understanding technology trends can help identify growth opportunities.
Fundrise provides retail investors with direct access to real estate asset class like sophisticated institutions without paying high management fees of REITs or other public real estate vehicles. Fundrise gives investors granular control and low overhead of buying and managing properties themselves, combining the best of both worlds with low minimum diversification and ease of use. Understanding how technology moves through an economy from its most gross or macro application to devices and applications helps to identify when opportunities for power and growth exist in different markets. Identifying subtleties about what comes under a power umbrella is essential to figure out what comes next and extend power. This involves understanding fixed cost technology assets, market by market analysis, and the best ways to extend power, including geographic expansion, scale economies, data analysis, and the crossover of content development.
The Importance of Extending Power for Business Success: Increasing a company's power through brand extension can boost economic success. However, extending power is a complex process that goes beyond just acquiring streaming rights or expanding reach. It requires careful research and consideration of various factors to sustain growth.
Having a high probability of power is crucial for a company's economic success, as it increases certainty about its value. Companies can take advantage of their brand by extending their power to more customers or situations. Fox did this successfully by acquiring the streaming rights to Indian Premier League Cricket, which had relevance all around the world and was a big part of its acquisition by Disney. However, extending power is a deeply researched area, and the question of what comes beyond that remains. While precision of logic can be achieved through math, whether or not to include it in books is subjective and can generate bimodal reader responses.
