Durable sources of value

Removing blackberries, or innovation. You choose.

Real Quick: Who is an authority to you? I’d like to learn, and will share what I learn with this list next week. Please take 60 seconds to tell me: https://pmc-authorities.paperform.co

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A TEI participant told me he’s read this email at least 10 times. I re-read it and thought it was good. I’d say that justifies a re-run!

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Generally, I think we should ignore every piece of business advice that comes out of the mouth of superstar performers.

They’re too far ahead of us. They’ve long ago solved for whatever would get us to the next level of success, and the problems they’re working on are so different from our own that their advice is not very relevant.

On top of that, they might have achieved success quickly. This is the absolute worse, because they might be simply “reading you their winning lottery ticket“, but doing so under the guise of business advice.

That said, there are a few relevant things Jeff Bezos says in this interview: mobile.twitter.com/producthunt/status/1125038440372932608?s=11 Bezos is a superstar performer, but he did not achieve his success quickly, and so he’s worth listening to (with a critical ear, of course, but still worth listening to).

I first came across the Bezos interview in this Farnam Street blog post: fs.blog/2019/05/bezos-business-success/ I thank them for transcribing this excerpt:

What we’re really focused on is thinking long-term, putting the customer at the center of our universe and inventing. Those are the three big ideas to think long-term because a lot of invention doesn’t work. If you’re going to invent, it means you’re going to experiment, you have to think long-term.

This is absolutely relevant to us.

I assume — correctly most of the time — that over a long enough time window, every skill will become commoditized. What globalization has done is accelerate the time window to commoditization for many skills. What computer technology has done is the same thing for other sets of skills. Between these two forces, most pure skills[^1] can go from rare and valuable to fully commoditized within a single human’s career.

This means that skill alone is not a durable source of value in the marketplace. You need more than skill alone. For a services business, we’re left with the following durable sources of value:

  • A willingness to focus on skill-based work that can’t easily be commoditized (ex: this is generally unpleasant work that’s not portable, like removing blackberries or whatever the equivalent is in your discipline, or skill that’s niche enough that it’s ignored by those driving the commoditization of skill)
  • An ability to build an economic engine that leverages commoditized skill (ex: certain productized services, or serving clients in wealthy countries with a team based on a low cost of living country)
  • Specialized expertise that requires human judgement (ex: business strategy decisions, or product strategy decisions, or other strategy decisions)
  • An ability to innovate, or innovate on behalf of others

I like the expertise and innovation options from this list. I do not like — at least for myself — the “removing blackberries” and “managing an overseas team” options.

And so I like Jeff Bezos’ sentiment that you need to have a long term focus in order to bear the cost of innovation. Because it is expensive, and it doesn’t pay off right away, and it is risky.

If there was a better alternative, I’d recommend that. But in the face of commoditization driven by globalization and computer technology, I don’t think there is a better way to create durable value than investing in expertise and innovation.



[^1]: Let’s define skills as things that can be transferred to someone else with a relatively small amount of training, or things that can be expressed as a process or algorithm. In other words, things that require only a basic level of human judgment or a small amount of insight.