Lenny Rachitsky: evaluation

Transcript context

…Earlier I talked about these economic structures that provide durability of return in terms of refuge from withering arbitrage of everybody who wants to eat your lunch. And so that's what power is. So you have to understand what is an economics? You're asking me questions that get pretty deep into theory or I hope you don't, this is too conceptual. But you have to say, you have to understand how competition takes place and say what is it that creates some kind of refuge? And what it is is there's something in what you do that gives you either a cost or price advantage over others. So let's say you're lower cost and that's the benefit. And the barrier side is that there's something that is durable about that that makes it over time that you can't, the competitors can't take away from you. So benefit and a barrier, we call it the to be or not to be test. And if you have that, you can think of that immediately translating into a value because that will give you good margins out into the foreseeable future, which is what you're after. I don't know if that's... We're getting into the weeds here, but that's what it's about. And so power is those structures. Let me give you a quick example. So one I use in the book. So Netflix with scale economies, they have more subscribers. The cost of their content is a very large fixed cost, about 50% of their cost structure every year. They can take that fixed cost and spread it over more subscribers so their cost per subscriber is less versus somebody with fewer subscribers. So if they face the same prices for subscriptions as their competitors, they will be more profitable. And that's a scale economy and that's an example of a type of power and a common one I'd say. But these things are hard to achieve, right? Because there's the holy grail. So let's actually talk about achieving these powers. Essentially the argument here is your power informs everything you do because this is the thing that'll allow you to stay durable and competitive and last. There's seven powers. We're not going to talk about all of them. If you want to go understand each of them, go read the book. Yeah. Let's not. That conversation always goes too long.…

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