Ben Thompson: evaluation

Transcript context

…If we’re talking about tech, where there’s high potential for convex or asymmetric returns, is not the real puzzle that we don’t see a lot more mistaken strategies? Because companies arguably should be taking a lot of chances, which maybe have poor modal outcomes but high expected value. You might think, “Well three-quarters of the time, we’ll just be seeing mistakes, mistakes, mistakes.” And actually, so-called bad strategy is, in a sense, profit maximizing. Do you agree? No, we do see tons of bad strategy. All the thousands and tens of thousands of failed start-ups that didn’t get any traction and then went by the wayside. That’s the model of Silicon Valley. People sometimes ask, why do I spend more time on large companies? In part, there’s more information; there’s more impact in general. But also, those are the ones that have made it and actually can afford to make strategic decisions. The venture capital model, in many respects, is not about having a great strategy and in finding the right team to implement it. No, it’s funding a whole bunch of teams, get the ones that get traction, and then build up from there. So, strategy is very much a follow-on to initial execution. initially gaining product market fit. Then, even with the large companies, you see failures all the time. Google in particular is notorious for this, for launching products all the time that never succeed. But it doesn’t matter because they have that core product with the huge network effects that lets them do that end fail. Amazon’s made an entire business out of this. Amazon is spinning up new things all the time. Amazon’s almost like an internal VC sort of culture, where their money-making businesses throw off tons of profits that they reinvest in all these sort of initiatives, many of which don’t work out. What are venture capitalists chronically underrating?…

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