Longreads + Open Thread
Cloud Kitchens, Encana, DEC, Websites, Irish Banks,
Business Insider has a weird article ($) on Travis Kalanick's post-Uber venture, Cloud Kitchens. Some of the complaints sound real, but some of them—that nobody knows the value of their equity in an early-stage company—are pretty universal. Reading between the lines, the company has adopted some of what made Uber such a high-growth company, and applied it to a business where a competitive advantage in dealmaking is even more valuable.
Inside the rise and fall of energy giant Encana. One big part of the answer is, of course, that oil prices went down. And another is the largest-market-cap-in-Canada curse (other companies that have been the biggest in Canada include Valeant, Blackberry, and Nortel).
A look at life in the last years of DEC, as well as a very good story about incentives, anchoring, and how to get a negative correlation between bonus size and how much the bonus in question is appreciated.
Net Interest on the boom, bust, and aftermath of the Irish banking and real estate business.
A reader provided some very interesting feedback on the Paul Graham essay on how people get rich. As a refresher, PG looked at the original Forbes 400 list in 1982, and noticed that the big sources were inheritance, oil, and real estate. Today, finance and especially technology are better-represented. But, as this reader notes:
In hindsight, the high oil prices of that era look like a blip on any long term chart, as do the low equity prices. A quick google search shows that market cap/gdp back then was 0.3, vs. 2.0 today, and as of 1980, 6 of the 8 highest market cap companies were oil (a lot of Standard Oil progeny behind IBM and AT&T). I think you can basically map back how much that would distort a list ranking who had the highest wealth - the magnitude we're talking about here is huge.
He also says that most of the new entrants on the list are founders, which is not what you would expect with power laws. Since the biggest companies are 10x or 100x more valuable than the next tier, you would expect a lot more early employees and investors from super successful companies and fewer founders from the next tier. More Steve Ballmers, if you will. That might just be a measurement problem - I think it's always been known that these lists miss a lot of anonymous Omaha residents, and so maybe it misses a lot of very rich people that don't hit an SEC disclosure requirement - but if not, that would be interesting.
This is a very interesting point! If there's such a strong power law distribution for company returns, why don't we see more cofounders, employee-#1s, and ultra-early angels on the lists? We do see some, but not many. One possible reason is that founding and investing skills correlate—two of Google's earliest investors did not get rich investing in Google, but got rich by co-founding Sun Microsystems and Amazon, respectively.
Skunk Works: a very readable and quotable memoir of working at Lockheed during the development of the U2 spy plane, the SR-71 Blackbird, stealth, and more. It's a very good look at a high-performing organization. And, helpfully, the book has many anecdotes from other people who were affected by the core story, from politicians to pilots.
Pop!: Why Bubbles Are Great For The Economy, a quick and breezy book on why bubbles have positive effects, including some very interesting details: the founders of US Steel, RCA, and GE all got their first jobs during the early telegraph boom, for example. While the book's main thesis is that we misjudge bubbles in their immediate aftermath and forget about them later, part of the book is a testament to how much start and end dates matter when judging long-term trends. For example, the book notes that New Deal financial reforms were responsible for America's large and stable financial structure, which, as of the book's publication date in 2007, were 20% of the economy and an even larger share of corporate profits.
As always, drop any recommendations for books and articles you feel Diff readers would enjoy into the comments. (There is no restriction on submitting things you've written!)
Solar power costs seems to have declined much faster than wind over the last decade. (For example, see here.) Is wind going to be an important part of the energy mix in the future, and, what's driving that?
The payments sector, like adtech, seems to support arbitrarily many value-adding (or value-capturing) intermediate layers. What are some of the interesting ways people collect their basis points?