☕ Good Morning! Sippers,

Here are this week’s notes!

All Happy Companies are different

The question “what valuable company is nobody building?” means that there might be an opportunity to create a company that could make a lot of money by offering something that nobody else is offering.

However, just creating something valuable isn’t enough. You also need to be able to make money from it. For example, U.S. airline companies generate huge amounts of value by serving millions of passengers and earning hundreds of billions of dollars annually. However, in 2012, despite an average airfare of $178 per trip, they only earned 37 cents per passenger.

In contrast, Google creates less value but is better at capturing it. Although it brought in $50 billion in 2012 (compared to the airlines’ $160 billion), it kept 21% of those revenues as profits, which is over 100 times the airline industry’s profit margin for that year. Google is so profitable that it’s worth three times more than all U.S. airlines combined. While airlines compete with each other, Google dominates the market.

So, when thinking about starting a business, it’s not just about creating value, but also about finding a way to capture that value and make a profit.

This means that even very big businesses can be bad businesses.

Economists use two simplified models to explain the difference: perfect competition and monopoly.

In Economics, “Perfect competition” is when all businesses in a market sell the same product and have no control over the price. New businesses enter the market if there’s money to be made, driving prices down until profits disappear. If too many businesses enter, some will go bankrupt, and prices will go back up. In the long run, no business makes an economic profit under perfect competition.

On the other hand, a monopoly is when one business dominates the market and can set its own prices because it has no competition. This is different from illegal bullies or government favorites. A good example is Google, which has no competitors in search since the early 2000s.

Contrary to popular belief, competition, and capitalism are opposites because all profits compete away under perfect competition. Entrepreneurs should focus on creating unique products or services to capture lasting value instead of building a commodity business.

Via, Zero to One: Notes on Start Ups, or How to Build the Future.

Now you see it, Now you don’t

Physical abilities and talents can be seen with our eyes, unlike intellectual abilities which are not visible. With practice and training, physical abilities can improve and produce visible results. This should dispel the belief that people are naturally born with certain physical abilities. There are examples of people who are not traditionally “athletic” or have physical limitations who have succeeded in sports, while some who appear physically gifted may not succeed.

You could see Muggsy Bogues at five foot three playing NBA basketball, and Doug Flutie, the small quarterback who played for the New England Patriots and the San Diego Chargers. You could see Pete Gray, the one-armed baseball player who made it to the major leagues. Ben Hogan, one of the greatest golfers of all time, who was completely lacking in grace. Glenn Cunningham, the great runner, who had badly burned and damaged legs. Larry Bird and his lack of swiftness. This should teach people that physical abilities are not solely determined by genetics, but also by hard work, dedication, and practice.

Boxing experts used “tales of the tape” which were physical measurements of a fighter’s fist, reach, chest expansion, and weight to identify “natural” fighters.

However, Muhammad Ali did not have the physique or classical moves of a great fighter and failed these measurements. Despite this, Ali had great speed and his brilliance came from his mind, not his physical abilities. He studied his opponents’ fighting styles and personalities and used this knowledge to defeat them mentally.

Ali’s adversary, Sonny Liston, was considered a natural because he had the size, strength, and experience, and his power was legendary. The matchup between Ali and Liston was considered ludicrous, with the arena only half full for the fight. However, Ali’s mental tactics and quickness ultimately led to his victory over Liston.

Why did Ali appear to “go crazy” before each fight? Because, Torres says, he knew that a knockout punch is the one they don’t see coming. Ali said, “Liston had to believe that I was crazy. That I was capable of doing anything. He couldn’t see nothing to me at all but mouth and that’s all I wanted him to see!” Float like a butterfly, Sting like a bee Your hands can’t hit What your eyes can’t see. Ali’s victory over Liston is boxing history. A famous boxing manager reflects on Ali: “ He was a paradox. His physical performances in the ring were absolutely wrong….Yet, his brain was always in perfect working condition.” “He showed us all,” he continued with a broad smile written across his face, “that all victories come from here,” hitting his forehead with his index finger. Then he raised a pair of fists, saying: “Not from here.”

Despite Muhammad Ali’s success, people still believe that physical abilities determine one’s greatness in sports. Looking back at Ali now, people see him as having the body of a great boxer, despite his initial failure to meet the physical measurements of a “natural” fighter. While Ali’s mental tactics and wit were bonuses, people still believe that his greatness was primarily due to his physical abilities. It is also puzzling to people how the experts failed to recognize Ali’s greatness from the beginning, despite his unconventional approach to boxing.

Via, MINDSET.