Weekly I/O: Why top 10 schools remain unchanged, Best business framework, Perfect seating for comedy show
#70: Top Schools Unchanged, 7 Powers Framework, Seat and Temperature for Comedy, Diversity is Multifaceted, Make Art Inevitably
Hi friends,
Greetings from San Francisco!
This week I revisited a business book I read a long time ago, and had some notes on three episodes from my favorite podcast host for interesting questions.
It's significantly longer than usual, but I hope you enjoy it!
Input
Here's a list of what I'm exploring and pondering on this week.
1. Why do the top 10 companies change every decade, but the top 10 schools remain unchanged?
The top American universities by most rankings have remained largely unchanged since 1920, while the list of top companies by market cap experiences significant turnover every decade. What makes the difference?
The reasons for this difference are obviously complex and not one dimension. First, there's a lack of experimentation at the institutional level for universities. For example, procedures for tenure in the top 50 research universities are almost the same.
Second, the entry costs of forming a new university are very high, and it's not just because there's a formal toll you have to pay or specific legal restrictions that prohibit you from doing so. Just as a practical matter: sociologically, institutionally, accreditation dynamics, established reputations, and long histories of the existing university that's hard to replicate.
Third, schools have a more stable customer base, as students typically attend for several years, while companies must constantly adapt to changing market conditions and consumer preferences.
And finally, there's no good measurement for improvements in productivity in education, despite the internet's emergence. Combined with the branding effects of other established universities and the long commitment of the students and faculty, the lack of suitable measurement makes it even more difficult for a new school to defeat the incumbent.
The last point is also related to the Baumol effect covered in #20, which explains why prices of labor-intensive services (higher education) keep rising regardless of low productivity growth, as shown in the chart below.
2. 7 Powers Framework for business strategy: Counter-Positioning, Cornered Resource, Scale Economies, Network Economies, Switching Costs, Branding, Process Power.
7 Powers by Hamilton Helmer is the best book I've read on business strategy framework. In the book, he listed 7 market powers that have the potential to realize persistent differential returns. It will be too long to explain in depth what all 7 powers are, but here's a concise version of each definition, the benefit for the power holder, and the barrier for the challenger.
The 7 powers listed in the book are:
Counter Positioning:
Definition: The adoption of a novel, superior business model that incumbents can't replicate due to the anticipated cannibalization of their existing business
Benefit: Lower costs and/or higher prices due to more valuable product
Barrier: Cannibalization of existing business
Cornered Resource
Definition: Preferential access to valuable resources
Benefit: Possibility of higher prices, cost savings, or superior products
Barrier: Range from legal protections to retention of crucial talent
Scale Economies
Definition: Unit Costs decrease as production volume increases
Benefit: Cost savings
Barrier: High expense associated with gaining market share
Network Economies
Definition: Each additional user enhances value for all users
Benefit: Ability to charge higher prices due to more value provided
Barrier: Difficulty in gaining users due to less value of smaller networks
Switching Costs
Definition: Customers expect a net loss from switching to an alternate
Benefit: Ability to charge higher prices for the same product
Barrier: Competitor has to incentive customer more to switch
Branding
Definition: Benefit from higher perceived value to a similar offering for its established reputation
Benefit: Higher pricing due to higher perceived quality or lower uncertainty
Barrier: The lengthy and uncertain process of building a brand
Process Power
Definition: Organizational activities enabling superior products or lower costs, replicable only with significant commitment
Benefit: Product enhancements and/or cost reduction through optimized processes
Barrier: Significant commitment of time or resources to emulate processes.
It's important to distinguish between the strategies used for the Statics, or "Being There"—which, for example, refers to what makes Intel's business consistently valuable—and the Dynamics, or "Getting There"—which relates to the developments that led to this favorable position.
For the "Being There" concept, he chose the term "Power" over the more traditional term "Moat" because "Power" implies a proactive approach, whereas "Moat" suggests only defense. And when discussing "Getting There," it's essential to understand that a business must leverage different types of Power at various stages, as illustrated in the subsequent chart.
3. Perfect seating arrangement and room temperature for comedy show: a little bit tighter and colder than comfortable.
Podcast: Noam Dworman on Stand-Up Comedy and Staying Open-Minded (Ep. 185) | Conversations with Tyler
Noam Dworman owns the renowned Comedy Cellar in New York City, where I once watched Louis C.K. perform live. He believes that, for an optimal comedy show, the audience should be seated slightly closer together than they might typically prefer.
The claustrophobia of the room is extremely important. Despite receiving complaints about cramped seating from time to time, Dworman said he wouldn't make changes to address this issue because the intenseness makes the comics funnier. The fact that you are enjoying it with your friends in a close and physical way helps amplify the laughter.
Laughter is contagious. In some ways, it is like a chain reaction in which you must be positioned close enough and over critical mass to create a powerful wave of shared amusement. I experienced this firsthand at Ronny Chien's show. While I don't consider him the funniest person in the world, the audience's collective laughter was so compelling that I found myself laughing to the point of physical pain.
Moreover, Bill Grundfest, the founder of the Comedy Cellar, discovered that when the room temperature gets warmer, it seriously affects how the comedians perform. Noam Dworman thinks that a little bit colder than comfortable is the best room temperature, which is supported by this article arguing that a warmer setting makes audiences lethargic, exhausting the energy and spread of collective laughter. This paper might also be related because it suggests colder temperatures make people less aligned with social norms, which can be better for comedy.
Thanks to Morris Hsu for sharing this podcast episode with me.
4. Diversity is multifaceted. People with correct points of view can be less diverse than those who are wrong because there are many more ways to be wrong.
Podcast: Patrick Collison has a Few Questions for Tyler (Ep. 21 - Live at Stripe) | Conversations with Tyler
Tyler once wrote a blog post saying, "Well, there's a lot more diversity amongst supporters of Trump than supporters of Hillary Clinton.", which got him a lot of trouble. People usually think Democrats are more diverse, but many kinds of diversity exist. Tyler posits that while Democrats prioritize ethnic and racial diversity, non-Democrats may see diversity regarding geography, occupation, or perspective.
Here's another way to understand the multifaceted nature of diversity: people with correct points of view can be less diverse than those who are wrong because there are many more ways to be wrong. Therefore, being entirely right about something can sometimes indicate a lack of diversity, even if the members feel they are more diverse in areas like religion or ethnicity.
5. The object isn't to make art, it's to be in that wonderful state which makes art inevitable.
Book: The Creative Act
This quote from the American painter and teacher Robert Henri reminds me of "Forget goals, build system" from Atomic Habits. The objective is not to accomplish great work. It is to build a system that makes great work happen inevitably.
Output
Here's what I've published since the last time we met.
1. Remove Labels
Short article on why I hate school hoodies and company swag, how labels deter us from exploring freely, and when we should embrace labels.
That's it. Thanks for reading. Please share which input you found the most helpful or intriguing. Just reply to this email with a number—it's quick and easy!
And as always, feel free to send me any interesting ideas you came across recently!
Looking forward to learning from you.
Cheers,
Cheng-Wei