Name, Image, and Likeness

Monday, January 30th, 2023

The world of “amateur” college sports is going through its biggest change since the inception of the NCAA in 1905, thanks to NIL:

Since state laws and NCAA rule went into effect on July 1, 2021, student-athletes can profit off their Name, Image and Likeness for the first time in the history of college athletics.

[…]

Players can profit off endorsements, signing autographs, selling apparel, corporate partnerships, charitable appearances, teaching camps and starting their own businesses, among other things. They can also hire professional service providers for NIL activities.

The NCAA released updated NIL guidance in early May, stating collectives – groups of boosters and businesses – are not to be involved in the recruiting process or in the transfer portal. However, there are a number of states that have recently passed legislation that remove the prohibition of schools from directly or indirectly arranging for a third party to provide compensation to a student-athlete through NIL.

The origin of NIL traces back to the late 2000s when former UCLA basketball player Ed O’Bannon and 19 others sued the NCAA, arguing the organization violated United States antitrust laws by not allowing athletes to make a share of the revenues generated from the use of their in broadcasts and video games. A judge later ordered the NCAA to pay $44.4 million in attorney fees along with another $1.5 million in costs to lawyers for the plaintiffs in O’ Bannon’s class-action lawsuit.

California then pushed the NCAA to make a move in 2019 when state legislators enacted the Fair Pay to Play Act. Similar legislation started to pop up in other states across the nation.

The Supreme Court of the United States unanimously upheld a district court’s rule on the NCAA v. Alston, delivering a major blow to amateurism in June 2020. The ruling stated the NCAA was violating antitrust law by placing limits on the education-related benefits schools can provide to athletes. The decision made it known NCAA restrictions — including on NIL activity — could face serious legal challenges in the future.

And in the summer of 2021, the NCAA’s Board of Directors adopted an interim rule opening the opportunity for NIL activity.

Players across college athletics have tapped into the potential to pocket cash off of their Name, Image and Likeness since last summer. There have also been plenty of untraditional deals made. The On3 NIL Deal Tracker lists all partnerships across the NCAA for college and high school athletes being reported by players, collectives, agents and media.

A protein bar company in Utah, which is a large supporter of BYU athletics, agreed to pay the tuition of all 36 football walk-ons. McKenzie Milton and D’Eriq King signed on as co-founders of Dreamfield, an NIL-based platform focusing on booking live events for student athletes.

Quinn Ewers enrolled at Ohio State a year early to land a deal with GT Sports Marketing worth $1.4 million because the state of Texas does not allow high school players to be compensated off NIL. LSU gymnast Oliva Dunne, who has over five million social media followers, inked a mid six-figure deal with activewear brand Vuori.

The role of NIL in college athletics has completely changed the transfer portal, especially with the one-time transfer rule. Following his commitment to Miami, Nijel Pack signed the largest LifeWallet NIL deal to date – a two-year deal worth $800,000 which includes a car. Isaiah Wong’s agent gave an ultimatum to Miami, threatening to enter the transfer portal if his NIL compensation was not increased. He ultimately decided to stay and walked back his agent’s comments.

And NIL has created major ramifications in recruiting. An unnamed five-star prospect in the Class of 2023 has signed a contract with an unnamed school’s collective that could pay him more than $8 million by his junior year of college. It’s widely believed that Tennessee quarterback commit Nico Iamaleava is the recruit.

There is also a multi-million market rate for blue-chip quarterback recruits since the deal, too.

If you glance at the On3 NIL 100, you’ll see that the fifth most valuable college athlete is a female gymnast named Livvy Dunne:

Olivia Dunne is known as the “most followed NCAA athlete on social media” with more than 9 million followers, including 330,000,000 likes on her TikTok account. Dunne is originally from Hillsdale (New Jersey) Abeka Academy and trained at Eastern National Academy of Paramus. She qualified for the 2020 Nastia Liukin Cup and competed at the 2016 and 2017 P&G Championship and 2017 U.S. Classic before arriving at LSU in 2021. During her freshman season at LSU, she earned All-America honors on the uneven bars, including a 9.90 score at the NCAA championships and a career-best 9.925 on the event. She is also quite successful on the NIL front with big sponsorships from Vuori Clothing, American Eagle, Plant Fuel, Bartleby and others.

They estimate her annual value at $3.2 million. Judging by her Instagram account, her appeal might not be purely athletic.

Accounting is a wonderful tool for converting tautologies into useful information

Wednesday, January 25th, 2023

Accounting is a wonderful tool for converting tautologies into useful information:

Here, for example, is a tautology: when a company spends money, somebody receives that money. And here is a useful mental model that helps investors think about booms and busts, time industry cycles, and spot second- and third-order outcomes of news: one company’s expenditures are, very often, another company’s revenue.

[…]

Higher returns to capital are a subsidy for reinvestment, and economies require a lot of reinvestment to keep going. Roads, railroads, ports, airports, power plants, factories, and homes are all long-lived assets with high upfront costs. For a country to have a lot of them, a smaller share of national income has to go to consumption so a larger share can go to investment instead. Importantly, shifting more returns to capital does not necessarily make all the capitalists rich (though it can have that effect!). It means there’s a race to identify good investments fast since there’s more money chasing them, and when this kind of policy continues for too long, the wave of capital looking for a return can end up subsidizing spending that simply doesn’t make economic sense. For example, in China circa 1980, pretty much any piece of physical infrastructure was probably worth either fixing up or tearing down and rebuilding entirely, so the country got good returns from holding wages down while reinvesting the proceeds of exports. Now that China is a richer country, with lots of infrastructure, it’s harder to find good homes for incremental money — but the money continues to flow.

[…]

High-income workers tend to save more money, and their savings rate goes up when they experience windfall gains. Lower-income workers are usually scrimping, deferring some purchases, and missing out on things they’d like to spend on, so higher wages for them tend to increase consumer spending.

[…]

When fab utilization is low, new demand just means that existing fabs need to run extra shifts. But when utilization gets high enough, it means the world needs more fabs, and needs more $200m-apiece EUV lithography machines to fill them.

This tends to be the big takeaway from looking at the world from a supply-chain perspective. When there’s slack in the system, or an ability to immediately respond to incremental spending, we see a pretty steady impact on every link in the supply chain: a surprise 1% increase in datacenter spending produces a 1% increase in spending on datacenter chips, which also leads the replacement of chipmaking equipment to tick up by about 1% — not because additional equipment was needed to increase supply, but because more is in use, which means more will need to be replaced.

But when there isn’t slack in the system, a small incremental increase in final demand can produce massive changes in total production capacity. The rough way to approximate this is to look at the useful life of the relevant investment, invert it into a depreciation rate, and then compare changes in demand to that depreciation rate. So if there’s some kind of asset that lasts for 10 years, another way to look at it is that in a given year, 10% of those assets are getting replaced as they wear out. A 2% increase in demand for whatever those assets produce, if they’re all being used at full capacity, means a 20% increase in demand for the assets.

This is James Daunt’s super power

Sunday, January 8th, 2023

Ted Gioia recently visited a Barnes & Noble store for the first time since the pandemic, saw a lot of interesting books, and bought a couple:

I plan to go back again.

But I’m not the only one.

The turnaround has delivered remarkable results. Barnes & Noble opened 16 new bookstores in 2022, and now will double that pace of openings in 2023. In a year of collapsing digital platforms, this 136-year-old purveyor of print media is enjoying boom times.

How did they fix things?

It’s amazing how much difference a new boss can make.

I’ve seen that firsthand so many times. I now have a rule of thumb: “There is no substitute for good decisions at the top—and no remedy for stupid ones.”

It’s really that simple. When the CEO makes foolish blunders, all the wisdom and hard work of everyone else in the company is insufficient to compensate. You only fix these problems by starting at the top.

In the case of Barnes & Noble, the new boss was named James Daunt. And he had already turned around Waterstones, a struggling book retailing chain in Britain.

Back when he was 26, Daunt had started out running a single bookstore in London—and it was a beautiful store. He had to borrow the money to do it, but he wanted a store that was a showplace for books. And he succeeded despite breaking all the rules.

For a start, he refused to discount his books, despite intense price competition in the market. If you asked him why, he had a simple answer: “I don’t think books are overpriced.”

After taking over Waterstones, he did something similar. He stopped all the “buy-two-books-and-get-one-free” promotions. He had a simple explanation for this too: When you give something away for free, it devalues it.

But the most amazing thing Daunt did at Waterstones was this: He refused to take any promotional money from publishers.

This seemed stark raving mad. But Daunt had a reason. Publishers give you promotional money in exchange for purchase commitments and prominent placement—but once you take the cash, you’ve made your deal with the devil. You now must put stacks of the promoted books in the most visible parts of the store, and sell them like they’re the holy script of some new cure-all creed.

Those promoted books are the first things you see when you walk by the window. They welcome you when you step inside the front door. They wink at you again next to the checkout counter.

Leaked emails show ridiculous deals. Publishers give discounts and thousands of dollars in marketing support, but the store must buy a boatload of copies—even if the book sucks and demand is weak—and push them as aggressively as possible.

Publishers do this in order to force-feed a book on to the bestseller list, using the brute force of marketing money to drive sales. If you flog that bad boy ruthlessly enough, it might compensate for the inferiority of the book itself. Booksellers, for their part, sweep up the promo cash, and maybe even get a discount that allows them to under-price Amazon.

Everybody wins. Except maybe the reader.

Daunt refused to play this game. He wanted to put the best books in the window. He wanted to display the most exciting books by the front door. Even more amazing, he let the people working in the stores make these decisions.

This is James Daunt’s super power: He loves books.

“Staff are now in control of their own shops,” he explained. “Hopefully they’re enjoying their work more. They’re creating something very different in each store.”

This crazy strategy proved so successful at Waterstones, that returns fell almost to zero—97% of the books placed on the shelves were purchased by customers. That’s an amazing figure in the book business.

On the basis of this success, Daunt was put in charge of Barnes & Noble in August 2019.

I almost never need a new book right now, so it feels wrong to pay full price, when I could so easily “get the second marshmallow” by waiting — but I must admit that I enjoy browsing physical books.

What always struck me about bookstores was how random the inventory seemed, especially in a section like Sci-Fi and Fantasy, where you’d find books two and five of a nine-part series and no guidance as to where to start in the genre.

TurboTax for customs paperwork

Saturday, November 12th, 2022

Ryan Petersen’s entire life seems to be a series of entrepreneurial experiments in ferrying items from Point A to Point B, culminating in Flexport:

The son of entrepreneurs, Petersen earned pocket money delivering sodas to his mother’s food safety business. After graduating from college in 2002, he worked alongside his older brother, David, re-selling Chinese scooters and motorcycle parts in the United States. As that business gathered steam, the younger Petersen moved to China in 2005 to monitor local operations. The disorganization the duo encountered inspired their next company.

In 2007, Ryan Petersen headed to Columbia for business school. The same year, he, David, and Michael Kanko – one of David’s former roommates – started a new endeavor: ImportGenius. The business collects data associated with global trade, organizing import and export records. This information is extremely useful for those searching for suppliers within a specific industry or looking for better visibility into a competitor’s supply chain. Over the following six years, the Brothers Petersen and Kanko developed ImportGenius into a profitable business, albeit one with a capped upside. Today, it is under Kanko’s stewardship and reportedly does millions in revenue.

Recognizing ImportGenius’s limitations and feeling ready for a new challenge, David Petersen applied to Y Combinator in 2013 with BuildZoom, a platform to initiate and manage the home remodeling process. Ryan reportedly “grabbed an air mattress and tagged along.”

Rather than becoming part of David’s startup, Ryan spent his stint in California developing an idea of his own. While he initially conceived of it being an extension of ImportGenius, he soon realized it was a much larger idea than simply searching trade documentation – trade itself was broken. After making his pitch for a “TurboTax for customs paperwork” in the spring of 2013, he was accepted into the following year’s Y Combinator batch. His acceptance afforded him the chance to work under the mentorship of the accelerator’s founder, Paul Graham.

When I asked Petersen what it had been like working with arguably one of the most influential thinkers of the last two decades, he noted that Graham remained an active counselor before highlighting his particular genius. “Paul is probably the best in the world at asking what’s possible rather than what’s likely.”

In Petersen, Graham saw someone willing to dream audaciously and endure discomfort to bring those dreams to reality. “Ryan is an armor-piercing shell,” Graham previously commented, “a founder who keeps going through obstacles that would make other people give up.”

With Graham’s support and Y Combinator’s signaling power, Petersen ended his time at the accelerator by closing a $4 million seed round with backing from Initialized Capital and Rugged Ventures.

In the years that followed, Petersen succeeded in expanding Flexport’s scope and growing revenue. What began as an ambition to improve global trade through a smoother customs process transformed into a fully-fledged freight forwarder with software at its heart.

It came with bumps in the road. Perhaps the largest arrived after raising $1 billion from Softbank in 2019. As well profiled by Forbes, Petersen revved up the company’s hiring – and burn rate – as if Masayoshi Son’s pockets would remain ever-full. After WeWork’s disastrous collapse, Softbank changed its approach, slowing investments and forcing Flexport to adjust. The company cut 3% of its team (fifty employees) and shifted from hypergrowth to chasing profitability.

It wouldn’t take long. The pandemic set shipping prices skyrocketing, pushing Flexport to a profit of $37 million. The company achieved new relevance during this period, with Petersen becoming an influential voice on various logistical crises. Though Flexport briefly looked to be on rocky footing a couple of years earlier, it entered 2022 with earned self-assurance and $3.2 billion in annual revenue.

Is the Albanian Army going to take over the world?

Saturday, October 29th, 2022

Back in December 2010, Jeffrey Bewkes, CEO of Time Warner, told the New York Times what he thought about the hype surrounding Netflix: “It’s a little bit like, is the Albanian Army going to take over the world? I don’t think so.”

It was the shot heard round the entertainment world:

By buying House of Cards, Netflix would change the market’s perception of what internet video businesses did. “Up until the moment we launched House of Cards,” Holland recalls, “everything that was made for the internet was webisodes — Funny or Die, people falling off horses or getting kicked in the nuts.” Other streamers like Hulu, says Holland, were making early investments in original programming, but it was what she considered “the Comedy Central space” — in other words, low rent. Netflix, they agreed, ought to begin by aiming high.

Because HBO was in hot pursuit, the only way Netflix was going to win was to make an astounding offer. At the time, in keeping with the new paradigm of tech investing, Netflix was selling its story to Wall Street based on rapid customer growth, not bottom-line performance.

The most important thing, according to the prevailing market view, was for tech disrupters to crush the incumbents. Wooing new customers with ludicrous prices that made little long-term economic sense beyond undermining competitors was not only tolerated, it was expected and rewarded. Traditional publicly traded media companies, by contrast, enjoyed no such leeway.

“There’s a thousand reasons not to do this at Netflix,” Sarandos told Fincher. “I want to give you one reason to say yes.” Sarandos and Holland outlined their plan to Fincher and MRC executives: Not only would there be no pilot required, but Netflix would commit to a two-season, 26-episode guarantee, which was unheard of. They also promised Fincher that they would not bog him down with any notes. He could make the show any way he saw fit. And then Netflix offered a staggering amount of money: $100 million for the two-season commitment.

“We made the richest offer that had been seen for something that hadn’t been made yet,” Holland says.

Their sales pitch worked. Fincher’s team chose to go with the streaming newcomer over HBO, the reigning king of home entertainment. Plepler and the programming team were stunned at Netflix’s two-year commitment. “We couldn’t do that,” Plepler says. “We didn’t have the financial flexibility to make that commitment.”

(From It’s Not TV: The Spectacular Rise, Revolution, and Future of HBO.)

That’s ten times the population-to-restaurant ratio

Wednesday, October 26th, 2022

Thai restaurants are everywhere in America, but why?

With over 36 million Mexican-Americans and around five million Chinese-Americans, it’s no surprise that these populations’ cuisines have become woven into America’s cultural fabric. Comparatively, according to a representative from the Royal Thai Embassy in DC, there are just 300,000 Thai-Americans — less than 1 percent the size of the the Mexican-American population. Yet there are an estimated 5,342 Thai restaurants in the United States, compared to around 54,000 Mexican restaurants; that’s ten times the population-to-restaurant ratio. So, why are there so many Thai restaurants in the US?

[…]

Using a tactic now known as gastrodiplomacy or culinary diplomacy, the government of Thailand has intentionally bolstered the presence of Thai cuisine outside of Thailand to increase its export and tourism revenues, as well as its prominence on the cultural and diplomatic stages. In 2001, the Thai government established the Global Thai Restaurant Company, Ltd., in an effort to establish at least 3,000 Thai restaurants worldwide. At the time, Thai deputy commerce minister Goanpot Asvinvichit told the Wall Street Journal that the government hoped the chain would be “like the McDonald’s of Thai food.” Apparently, the government had been training chefs at its culinary training facilities to send abroad for the previous decade, but this project formalized and enhanced these efforts significantly.

[…]

At the time of the Global Thai program’s launch, there were about 5,500 Thai restaurants beyond Thailand’s borders; today there are over 15,000. The number in the US increased from around 2,000 to over 5,000.

[…]

Inspired by Thailand’s success, South Korea, for example, has earmarked tens of millions of dollars beginning in 2009 for its Korean Cuisine to the World campaign. Taiwan has followed suit, as has Peru with its Cocina Peruana Para el Mundo (“Peruvian Cuisine for the World;” quite creative) initiative, as well as Malaysia (“Malaysia Kitchen for the World 2010” — clearly there’s a pattern here).

The firm took four non-consensus positions

Saturday, October 8th, 2022

Y Combinator is not really a VC firm:

Depending on how you parse it, you can make a case that it’s any one of these five things:

  1. A university that treats companies, not people, as the atomic unit
  2. A startup that monetizes through an uncapped income share agreement
  3. A for-profit college that scales (and is not a scam)
  4. A social network for some of the world’s best entrepreneurs
  5. An industrialized venture firm

[…]

It does not seem hyperbolic to suggest it may be among the most consequential entities across industries of the last twenty years. Not only did YC support Airbnb, Stripe, Coinbase, DoorDash, Flexport, Rappi, Reddit, Vanta, and many others, it popularized a now-ubiquitous philosophy of company building. “Make something people want,” “do things that don’t scale,” and “getting to default alive” are gospels that owe their proliferation to YC. Over time, it has turned its success into a series of compounding advantages that make it look very different than anyone else in the market.

[…]

None of YC’s founders had ever been venture capitalists before. To learn as quickly as possible, they landed on the idea to fund a “batch” of companies, all at once. Rather than learning from ten startups stretched over an investment period of three years, they’d follow that many over just three months.

[…]

In hindsight, many of YC’s core innovations were visible in this first class. The firm took four non-consensus positions:

  1. Investing terms needed to be standardized. Seed funding was immature when YC got started. As a result, there were no benchmarks for typical deal terms. Founders often cobbled together cash from family and friends. YC decided to standardize the process by offering $20,000 for roughly 6% equity.
  2. Entrepreneurship is teachable. Innovation is often depicted as resulting from a single stroke of genius rather than a concerted process. YC’s curriculum challenged this notion by teaching new founders how to build a business, step by step.
  3. Hackers make for better founders than suits. YC is optimized for a different kind of entrepreneur. Rather than pursuing grey-haired executives ready to leave the bower of big business, it sought technologically-gifted youngsters. Over the next two decades, this would become the prototypical profile for tech entrepreneurs.
  4. Startups can be funded synchronously. Venture capital firms traditionally funded companies one at a time. By experimenting with funding ten businesses at once, YC uncovered a crucial lesson: connecting early-stage entrepreneurs to one another is extremely valuable. This marked the beginning of YC’s network effects.

Reddit proved to be the breakout winner of the batch, though it took some time for it to fully play out. Several other startups, including Parakey and TextPayMe, were acquired.

On an individual level, the caliber of talent assembled was extremely impressive. YC’s summer 2005 batch (abbreviated to “S05”) included Sam Altman, Alexis Ohanian, Steve Huffman, Aaron Schwartz, Brett Gibson, Blake Ross, Joe Hewitt, Emmett Shear, and Justin Kan. Outside of Reddit, that constellation has been involved with the creation of companies and funds including Twitch, Firefox, Initialized Capital, Seven Seven Six, and OpenAI.

[…]

Many connections within the YC community occur on the internal platform, Bookface, which grew out of one of the accelerator’s creations: Hacker News. In 2006, Paul Graham launched Hacker News (then called Startup News) as a way for YC founders to communicate, connect, and ask for help. The following year, it was opened up to the public. Eventually, in 2013, YC formally bifurcated the platform: the external forum retained the Hacker News name while the internal version became Bookface. Today, it acts as a place for YC’s 7,000 founders to connect, ask questions, and learn from one another — a private social network for some of the world’s best entrepreneurs. Many end up partnering or selling their products to one another.

It turns out there wasn’t a next Palantir or SpaceX

Friday, October 7th, 2022

Anduril is a rare, paradoxical creation, Mario Gabriele argues: a defense contractor that moves like a startup, a software business disguised as a seller of hardware, and a weapons manufacturer, in pursuit of peace:

Anduril is a company that few in Silicon Valley thought needed to exist. Because of the foresight of Trae Stephens and Palmer Luckey, America and its allies have a software-first defense provider capable of impacting current conflicts.

[…]

Before joining Palantir in 2008, Stephens had spent time at the offices of Ohio congressman Rob Portman and the Afghan embassy in Washington D.C. His public sector work seemed to skew towards the technical, with Stephens “building enterprise solutions to Arabic/Persian name matching” for the Intelligence community. Stephens used and bolstered this experience as part of his six-year stint at Palantir.

While venture capital rarely draws from defense backgrounds, there is an exception: Founders Fund. Established by Peter Thiel, Ken Howery, and Luke Nosek in 2005, Founders Fund holds a unique position at the nexus of Silicon Valley and Washington D.C, thanks to Thiel’s co-founding of Palantir and particular geopolitical worldview. The firm was early to back SpaceX (one of the few recent startups to secure meaningful governmental contracts), while Ken Howery went on to serve as ambassador to Sweden during Donald Trump’s presidency.

Stephens was a neat fit at Founders Fund, as was his mission to find the next great defense business. SpaceX and Palantir had made significant impacts, but they were the rarest of exceptions. By and large, venture-backed startups had failed to disrupt the established patterns of the public sector in general and military in particular. Stephens was hopeful a new generation of entrepreneurs would change that.

Despite his best efforts, Stephens came up empty-handed. “I didn’t find anything,” he said. With the benefit of hindsight, the investor noted there wasn’t a business he had overlooked: “There was nothing to miss. It turns out there wasn’t a next Palantir or SpaceX.”

Though Stephens didn’t find a ready-made defense startup during this period, he did meet a founder who would play a starring role in Anduril’s creation: Palmer Luckey.

A year before Stephens started his venture career, Luckey set out to raise a Series A for his virtual-reality startup, Oculus. He found a willing partner in Founders Fund, who became the company’s “first institutional investor,” per Stephens.

It took little time for that faith to pay off. By March the following year, Facebook announced it had acquired Oculus for approximately $2 billion in a mix of cash and stock. Barely twenty years old, Luckey was suddenly a wealthy man.

Around the time of that acquisition, Stephens and Luckey got to know one another, discovering themselves to be somewhat kindred spirits. “He was super interested in national security,” Stephens said of Luckey. That fascination pre-dated Luckey’s creation of Oculus. Indeed, while working at Bravemind, an organization that uses VR to treat veterans with PTSD, Luckey first created a prototype of his revolutionary headset.

For the next three years, Stephens and Luckey stayed in touch. By 2017, much had changed for them both. In March of that year, Facebook fired Luckey, a decision he claimed was politically motivated, catalyzed by a $10,000 donation he had made to pro-Trump “shitposting” organization, Nimble America.

Meanwhile, Stephens had reached an impasse in his search for a modern defense prime contractor (a “prime”). It was increasingly clear that if he wanted such an organization to emerge, he would have to build it himself. He made his pitch to Luckey, explaining the status quo as he saw it. In particular, Stephens saw two major shifts to which America’s military had failed to adapt:

  1. The shift to software. Defense technology had traditionally been hardware first. Stephens was confident that future wars would be defined by software that worked in concert with intelligent devices and machinery.
  2. The brain-drain. In previous eras, the military could reliably attract the best technical talent. Historic minds like John von Neumann lent their abilities to branches of the armed forces. That is no longer the case. Today, many of the best technologists work at companies like Google and Meta. “We’re not in a position where our best and brightest are working on national security,” Stephens said.

Luckey was impressed with Stephens’ diagnosis and proposed cure. “He was super excited about it,” the investor recalled. The two began work on the company that would come to be called “Anduril.” As with many Thiel-affiliated entities (see: Palantir, Valar, Mithril), the business took its moniker from Lord of the Rings. In Tolkien’s books, “Andúril” is the name of a mythical sword which means “Flame of the West” in elven tongue.

[…]

On June 6, 2017, Anduril’s founders officially set to work on its first product: a sentry tower that leverages artificial intelligence to monitor border crossings. “It was totally Palmer’s idea,” Stephens said, noting that Luckey had sketched prototypes before Anduril had gotten off the ground. It can take years for a defense contractor to ship a new product; Anduril had its sentry tower in the field within six months.

[…]

Despite the unpopularity of its work, Anduril kept shipping. It followed the sentry tower with sensors, drones, and autonomous submarines. Though these products represented hardware innovations, the heartbeat of Anduril’s work was its orchestrating software system, Lattice.

[…]

The software system acts as a command hub, pulling in information from sensors, drones, and other field assets. Using artificial intelligence and computer vision, Lattice constructs a live, detailed view of a battlefield, accessible via computer, tablet, or VR headset. Critically, Lattice is built such that it can sync with assets made by other companies. It is an open system that seeks to play nicely with third parties.

In addition to intuitively presenting important information, Lattice streamlines decision-making. It does so by offering potential next moves. For example, if a field sensor identifies an enemy drone, it will show up on Lattice along with a prompt to intercept it. In the push of a button, an operative can decide to send an asset to meet and disable it.

Talent and not money is the truly scarce variable

Tuesday, October 4th, 2022

Rob Henderson finds Tyler Cowen’s latest book, written with Daniel Gross, thorough yet breezy, providing useful tips for how to develop a talent-spotting mindset with insights from psychometrics, management, economics, and sociology:

Cowen and Gross note that in the U.S., from 1980 to 2000, the main cause of income inequality was whether a person graduated from college. But from 2000 to 2017, income inequality primarily existed within educational groupings. In other words, talent appears to be more responsible than education for economic returns.

Cowen and Gross each describe how often they reject proposals, and they conclude that “talent and not money is the truly scarce variable.” But where does it come from? They acknowledge that talent can differ between individuals, but they also stress the importance of practice. Indeed, those with the potential to cultivate serious talent sometimes practice to the point of obsession. Discussing which attributes predict eminence in a field, psychology professor David Lubinski has said that passion for work is key, and that highly creative people tend to be “almost myopically” fixated on work.

Relatedly, Cowen and Gross observe, “If you are hiring a writer, look for signs that the person is writing literally every day. If you are hiring an executive, try to discern what they are doing all the time to improve networking, decision-making, and knowledge of the sectors they work in.” Developing the habit of practice and self-discipline — the authors describe it as “sturdiness” — is critical for talent acquisition. “Sturdiness is the quality of getting work done every day, with extreme regularity and without long streaks of non-achievement,” they write. “If you are a writer, sturdiness is a very powerful virtue, even if you do not always feel you are being extremely productive.”

Accordingly, the book cites research indicating that perseverance is a stronger predictor than passion for success. When it comes to achievement, persistence pays off more than pure passion.

The authors’ favorite interview question about browser tabs is meant to tap into this question about whether a person spends his or her free time practicing. What the book describes as “downtime revealed preferences” are more interesting than “stories about your prior jobs.” For instance, asking what newsletters or subreddits a person reads is often more illuminating than asking what a person did at their previous job.

The book is very much about identifying high performers, as opposed to average workers. This is particularly true of its interview section, which gives guidance on unstructured, as opposed to structured, interviews. Most research indicates that interviews are more effective for higher-level jobs.

Talent provides several fascinating questions designed to yield interesting answers. How did you prepare for this interview? What’s a story one of your references might tell me when I call them? Which of your beliefs are you most likely wrong about? Whether the candidate can draw on intellectual and emotional resources to answer is a sign of broader stores of intellect and energy that he or she will bring to the job. The authors suggest that interviewers should not be afraid to let a question hang in the air after asking it; better to hold the tension to make clear you expect an answer.

The authors suggest using challenging and unusual questions to identify those with more style than substance. As they put it, “Beware of verbally adept storytellers.” Most of us have a bias toward well-spoken and articulate individuals. Bear this in mind, for it can lead you to hire what the authors describe as “glib but unsubstantial people.” They conclude this line of advice with, “Do not overestimate the importance of a person’s articulateness.”

The military can’t afford iPhone-level software

Tuesday, August 30th, 2022

As consumers, we are spoiled by how easy our phones are to use, Austin Vernon notes, and critics expect the military to have software as capable as our phones:

If you examine the numbers, it quickly becomes apparent that the military can’t afford iPhone-level software. Apple, Google, Microsoft, and Facebook had combined operating expenses of over $600 billion in 2021. The military’s total budget is around $750 billion.

The mass of all the physical products these companies sell is probably less than one Ford-class aircraft carrier, and the number of SKUs is relatively limited. And remember, a defining feature of the software business is that marginal cost is near zero. It costs about the same to design high-quality software for 100 F-35s as for 200 million copies of the plane.

Grids have excess capacity 95% of the time

Monday, August 29th, 2022

There are many ways Texas’s grid could have avoided disaster during winter storm Uri:

Being synchronized to one of the other wide-area grids in the US is one way. Another is not to have ~50% of its households rely on electric heat.

Cold weather causes demand to spike while also hampering supply. ERCOT is not the only grid to have suffered significant supply outages during cold weather. But other grids like PJM in 2014 were bailed out by imports and lower shares of customers using electric heating.

Customers using electric heat don’t pay the costs of their impact on the grid when they only pay a fixed price per kilowatt-hour. Electric resistance heaters and air source heat pumps see power usage spike dramatically during the coldest events. The overall kilowatt-hour usage only sees a slight increase on the monthly bill, but the peak power might be two or three times higher than the norm.

Bromberger pegged additive manufacturing at 2-3% of the $12 trillion production market

Sunday, August 7th, 2022

Additive manufacturing — 3-D printing — is on the cusp of being adopted more widely by industry — still:

In May, Goodyear opened a $77 million plant in Luxembourg that centers on 3-D printing and can make tires four times faster in small batches than with conventional production. Goodyear also is testing its new 3-D printed airless tire technology on Tesla electric vehicles and Starship Technologies’ autonomous delivery robots. It has been working for the past several years on improved manufacturing techniques at an R&D center near Columbus, Ohio.

By 2030, Goodyear aims to bring maintenance-free and airless tires to market, and 3-D printing is part of that effort for the Akron-based tire-making leader founded in 1898 and named after innovator Charles Goodyear. Currently, about 2% of its production is through additive manufacturing and more integration into the mix is in sight.

“Like with any innovation, targeting the right use case is key. 3-D printing is not for every job. We’re using additive manufacturing for higher-end, ultra-high performance tires that require much more complexity, and in smaller lot sizes,” said Chris Helsel, senior vice president, global operations and CTO at Goodyear. “There is still a benefit of making large runs of tires efficiently through a normal assembly line.”

Leveraging the new technology takes patience. “You can’t bring it in, turn it on. It is not a short journey. We have been on this route for 10-12 years,” Helsel said. In an initial commercialization of its 3-D printed airless tires in 2017, Goodyear started equipping premium lawnmower models made by Bad Boy Mowers.

[...]

Primarily useful for making specialized high-value parts and smaller production volumes, Bromberger pegged additive manufacturing at 2-3% of the $12 trillion production market.

3-D printing industry consultant Wohlers Associates expects additive manufacturing to grow at a relatively strong pace and predicts the market worldwide will reach $85.3 billion in 2031 from $15.2 billion in 2021. The leading industrial sector using the technology is aerospace, followed by medical/dental and automotive, while the most common applications for 3-D printing are for making end-use parts and functional prototypes, according to the firm’s Wohlers Report 2022.

The main advantages of the technology include design flexibility in various 3-D shapes that can perform better or cost less, and customized production of parts. Other advantages are cutting out time-consuming, pre-production processes and making products on-demand from digital files.

A chief barrier to adoption is investment costs. Prices for industrial 3-D printing machines can vary from $25,000 to $500,000 and up to $1 million for huge systems. Further limitations are a lack of engineering talent to implement the technology, a knowledge gap among businesses about why and how to use it, cultural resistance on the shop floor to change, and too few end-to-end 3-D printing systems.

[...]

But stock market reception of 3-D printing as a pure-play investment theme has not been good in recent years. Desktop Metal has lost almost 80% of its value since going public in 2021, and the performance of other 3-D printing sector plays has been poor even as the technology advances.

[...]

For Boeing’s Millennium Space Systems subsidiary, acquired in 2018 as a maker of small satellites for the national security space, 100% 3-D printed satellites have been made this year with 30% less cost and a five-month reduction in production lead time. A regular user of the technology for several years, Boeing also has 3-D printed parts for helicopters and seats for the Starliner spacecraft, as well as components for the Boeing 787, and tooling for 787 aircraft wings.

Diamonds are forever

Friday, August 5th, 2022

Back in 1982, Edward Jay Epstein asked, Have you ever tried to sell a diamond?

Until the late nineteenth century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil, and the entire world production of gem diamonds amounted to a few pounds a year. In 1870, however, huge diamond mines were discovered near the Orange River, in South Africa, where diamonds were soon being scooped out by the ton. Suddenly, the market was deluged with diamonds. The British financiers who had organized the South African mines quickly realized that their investment was endangered; diamonds had little intrinsic value — and their price depended almost entirely on their scarcity. The financiers feared that when new mines were developed in South Africa, diamonds would become at best only semiprecious gems.

The major investors in the diamond mines realized that they had no alternative but to merge their interests into a single entity that would be powerful enough to control production and perpetuate the illusion of scarcity of diamonds. The instrument they created, in 1888, was called De Beers Consolidated Mines, Ltd., incorporated in South Africa. As De Beers took control of all aspects of the world diamond trade, it assumed many forms. In London, it operated under the innocuous name of the Diamond Trading Company. In Israel, it was known as “The Syndicate.” In Europe, it was called the “C.S.O.” — initials referring to the Central Selling Organization, which was an arm of the Diamond Trading Company. And in black Africa, it disguised its South African origins under subsidiaries with names like Diamond Development Corporation and Mining Services, Inc. At its height — for most of this century — it not only either directly owned or controlled all the diamond mines in southern Africa but also owned diamond trading companies in England, Portugal, Israel, Belgium, Holland, and Switzerland.

De Beers proved to be the most successful cartel arrangement in the annals of modern commerce. While other commodities, such as gold, silver, copper, rubber, and grains, fluctuated wildly in response to economic conditions, diamonds have continued, with few exceptions, to advance upward in price every year since the Depression. Indeed, the cartel seemed so superbly in control of prices — and unassailable — that, in the late 1970s, even speculators began buying diamonds as a guard against the vagaries of inflation and recession.

[…]

To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever — “forever” in the sense that they should never be resold.

[…]

Movie idols, the paragons of romance for the mass audience, would be given diamonds to use as their symbols of indestructible love. In addition, the agency suggested offering stories and society photographs to selected magazines and newspapers which would reinforce the link between diamonds and romance. Stories would stress the size of diamonds that celebrities presented to their loved ones, and photographs would conspicuously show the glittering stone on the hand of a well-known woman. Fashion designers would talk on radio programs about the “trend towards diamonds” that Ayer planned to start. The Ayer plan also envisioned using the British royal family to help foster the romantic allure of diamonds. An Ayer memo said, “Since Great Britain has such an important interest in the diamond industry, the royal couple could be of tremendous assistance to this British industry by wearing diamonds rather than other jewels.” Queen Elizabeth later went on a well-publicized trip to several South African diamond mines, and she accepted a diamond from Oppenheimer.

Immigrant-founded companies are valued at $1.2 trillion

Monday, August 1st, 2022

Immigrants are 80 percent more likely than native-born Americans to found a firm, according to a study by researchers at the Massachusetts Institute of Technology, but this might not be so impressive if the businesses are laundromats, nail salons, and gas stations:

According to the NFAP, a nonprofit that researches trade and immigration, immigrants have started 319 of 582, or 55 percent, of America’s privately-held startups valued at $1 billion or more. Over two-thirds of the 582 companies “were founded or cofounded by immigrants or the children of immigrants,” notes the NFAP. For comparison, approximately 14 percent of America’s population is foreign-born.

Together, the immigrant-founded companies are valued at $1.2 trillion and employ 859 people on average. Elon Musk’s SpaceX has the largest valuation at $125 billion, employing 12,000 workers; Gopuff, a food delivery service valued at $15 billion, has 15,000 employees; Stripe, a payment platform valued at $95 billion, employs 7,000; and Instacart, a grocery delivery service valued at $39 billion, has 3,000 workers.

These findings are notable, the NFAP points out, since “there is generally no reliable way under U.S. immigration law for foreign nationals to start a business and remain in the country after founding a company.” A large share of the immigrant startup founders came to the country as refugees, on family-sponsored green cards, or through employment-based pathways for other companies.

“Our employment-based pathways for immigrant entrepreneurship are so poorly designed, migrant businesses are often associated with non–employment based pathways,” points out Sam Peak, an immigration policy analyst at Americans for Prosperity. Peak notes that refugees “have the highest rates of entrepreneurship of any other immigrant group,” and family-based migration, “especially among siblings, is also strongly tied to new business formation.”

The effects houses bend over backward to keep Marvel happy

Wednesday, July 27th, 2022

An anonymous VFX artist notes that working on Marvel shows is really hard:

When I worked on one movie, it was almost six months of overtime every day. I was working seven days a week, averaging 64 hours a week on a good week. Marvel genuinely works you really hard. I’ve had co-workers sit next to me, break down, and start crying. I’ve had people having anxiety attacks on the phone.

The studio has a lot of power over the effects houses, just because it has so many blockbuster movies coming out one after the other. If you upset Marvel in any way, there’s a very high chance you’re not going to get those projects in the future. So the effects houses are trying to bend over backward to keep Marvel happy.

To get work, the houses bid on a project; they are all trying to come in right under one another’s bids. With Marvel, the bids will typically come in quite a bit under, and Marvel is happy with that relationship, because it saves it money. But what ends up happening is that all Marvel projects tend to be understaffed. Where I would usually have a team of ten VFX artists on a non-Marvel movie, on one Marvel movie, I got two including myself. So every person is doing more work than they need to.

The other thing with Marvel is it’s famous for asking for lots of changes throughout the process. So you’re already overworked, but then Marvel’s asking for regular changes way in excess of what any other client does. And some of those changes are really major. Maybe a month or two before a movie comes out, Marvel will have us change the entire third act. It has really tight turnaround times. So yeah, it’s just not a great situation all around. One visual-effects house could not finish the number of shots and reshoots Marvel was asking for in time, so Marvel had to give my studio the work. Ever since, that house has effectively been blacklisted from getting Marvel work.

Part of the problem comes from the MCU itself — just the sheer number of movies it has. It sets dates, and it’s very inflexible on those dates; yet it’s quite willing to do reshoots and big changes very close to the dates without shifting them up or down.

[…]

The main problem is most of Marvel’s directors aren’t familiar with working with visual effects. A lot of them have just done little indies at the Sundance Film Festival and have never worked with VFX. They don’t know how to visualize something that’s not there yet, that’s not on set with them. So Marvel often starts asking for what we call “final renders.” As we’re working through a movie, we’ll send work-in-progress images that are not pretty but show where we’re at. Marvel often asks for them to be delivered at a much higher quality very early on, and that takes a lot of time. Marvel does that because its directors don’t know how to look at the rough images early on and make judgment calls. But that is the way the industry has to work. You can’t show something super pretty when the basics are still being fleshed out.