Effort and entropy

I recently read an insightful post by James Clear on entropy.

I remember first coming across the concept of entropy in physics class back in High school. In that context, entropy is a measure of the disorder or randomness in the movement of the atoms and molecules in a thermodynamic system. And in any closed system, entropy increases over time.

What is insightful about the post is that it takes the concept of entropy as described in physics and applies it to our daily lives. Specifically, the post points out that, left to its own devices, each area of our lives also becomes more disorderly. Our health declines. Our personal relationships wilt. And our workplace teams disintegrate.

Fortunately, we can reverse entropy by exerting effort. We can keep our mind and body sharp by reading and exercising. We can retain the relationships we value by communicating and showing care. And we can achieve progress at work by defining clear targets, working towards these targets, and motivating our colleagues to do the same.

In other words, we can selectively choose the areas of our life where we put in the effort necessary to locally reverse entropy and create more order for a period of time.

Seen in this light, effort is a good thing. This in contrast to its treatment in economics. Economics was one of my majors back in college and whenever our economics professor would model an individual’s utility function, there was a cost assigned to exerting effort.

As the concept of entropy shows, reality is more nuanced. Not all effort is a cost.

In fact, our lives consist of applying effort to the areas we value in order to locally reverse entropy for a specific duration of time.

Eid

Today is the second day of Eid, the 3 day holiday at the end of Ramadan.

In previous years, my wife and I would bridge the holiday with the weekends before and/or after it to take a week long trip outside of Turkey.

This year, we have a 2.5 month old son new to our family. Since he’s not at an age when he can travel a long distance, we’re spending this Eid in Istanbul and Bursa, a city which is a 2 hour drive from Istanbul.

Although these aren’t hip international destinations, when you have a son, they bring a whole new level of happiness.

Eid Mubarak.

Personal motivation

Draymond Green of the Golden State Warriors was drafted in the second round of the 2012 NBA draft, as the 35th pick. He is now the heart of the team that has won the NBA championship for 2 of the past 3 years.

Draymond’s teammates are an important contributor to his success. The opportunity to play with these teammates is partially driven by Draymond’s choices and partially driven by the choices of the Warriors management which brought these players together. So part of Draymond’s success is because of external factors.

But the internal factor of personal motivation also helps. Here is Draymond reciting the names of each of the 34 players that were drafted before him.

Building tech businesses in the Middle East

Souq, Namshi, and Careem are 3 of the most successful tech startups in the Middle East.

Horizontal e-commerce business Souq was recently acquired by Amazon for $650M, 51% of fashion e-commerce business Namshi was acquired for $151M by Mohamed Alabbar’s Emaar Malls, and car hailing business Careem is valued at over $1B.

Each of these companies is proof that large tech businesses can be built in the Middle East.

Here’s an interview hosted by Wamda Capital‘s Fadi Ghandour featuring the CEO’s of these impressive companies, Ronaldo Mouchawar of Souq, Faraz Khalid of Namshi, and Mudassir Sheikha of Careem.

Term sheet making and taking

In venture capital, sometimes you have the luxury of being a term sheet maker. In other words, you get to have a strong say on the terms at which you’re investing in a company.

The conditions under which this is more likely to occur are when there is limited competition for the deal, you have a unique ability to add value to the company which is recognized by the founder, you’re investing a relatively large check size, and, better yet, a combination of multiple of these conditions.

But often, these conditions aren’t present. There are multiple bidders at the table, each of these bidders is in a position to add value to the company or at least this is what’s perceived by the founder, and your investment amount is relatively small.

When this is the case, you often have to take the term sheet that is put forth by the company. In other words, the company dictates most of the terms.

While this is suboptimal from an investor perspective, not doing these deals would mean missing out on some great companies. In fact, some of the conditions which produce an environment where you need to accept being a term sheet taker are the direct result of the quality of the company. For example, higher quality companies attract more bidders to the table and this gives the companies a stronger say on the investment terms.

When this is the case, if you really want to be part of the company, you have to take the term sheet on the table.

Rinse’s Series B round

Rinse is a tech-enabled laundry and dry cleaning managed marketplace where we’re investors. The company recently announced the closing of its $14M Series B round of funding led by Partech Ventures.

Now that Rinse has solidified its playbook for expanding into geographies and bringing these geographies to contribution margin profitability, it will be using the new funding to apply the same playbook to grow to 10 new US cities. Rinse is currently operational in San Francisco, Los Angeles, and Washington DC, and among the 10 new cities that it will expand to are New York, Chicago, and Boston.

We commend the Rinse team for their decision to achieve operational excellence with their existing model before rolling it out to new cities. This requires patience and this patience eventually pays off.

We also thank Partech and Rinse’s existing investors for continuing to support the company on its exciting journey.

Internalizing an outcome

I remember reading that visualizing what an outcome looks like makes you more likely to reach that outcome. For example, visualizing yourself after you’ve built a successful company increases the odds that you build a successful company.

The reasoning behind this line of thought is that visualizing an outcome places in motion the subconscious changes in your actions which are necessary to achieve that outcome.

The problem was that, after trying the approach on some small goals, I noticed that it doesn’t work for me. So I tried a different approach. Rather than visualize what the outcome looks like, I decided to write about it. My reasoning was that the general practice of internalizing an outcome might be right while the specific medium which I was using to internalize the outcome might be wrong for me.

Sure enough, when I began to write down what specific outcomes would look like, I began to achieve them much more readily. It turns out that I think through writing rather than images. Given the fun I have writing this blog, this isn’t surprising.

So if there’s an outcome you seek to achieve, it helps to internalize the circumstances of the outcome through whatever medium works for you. This could be by writing about it, visualizing it, recording yourself talking about it, or another medium specific to you.

The hype around initial coin offerings

There’s a new hype in cryptocurrency land these days. They’re called initial coin offerings (ICO’s) and they’re basically a way for aspiring services to raise money by issuing new digital tokens on the blockchain. If the services are successfully built and widely used, these tokens appreciate in value, thereby rewarding early investors.

People much more knowledgeable than I am on the topic have written about ICO’s at length elsewhere. I’m not going to repeat what they’ve said, but will point out one flaw in the arguments that ICO advocates are making.

In particular, advocates of ICO’s state that ICO’s are a great way to solve the chicken and egg problem when attempting to attract users to a new service with network effects.

A service with network effects is one which becomes more valuable for users as more other users use the service. This makes it difficult to attract users at the beginning, when there are few other users using the service. As a result, centralized service providers resort to offering incentives (financial and non-financial) for users to participate in the network. The discounts that car-hailing companies offer passengers and the bonuses that they offer drivers are great examples of this.

Since ICO’s offer investors the potential for appreciation in the value of the service’s underlying token, the argument is that they help solve the chicken and egg problem. They do this by giving early investors tokens which, since they will increase in value if the service is widely used, the investors are incentivized to use.

The problem with this argument is that, while centralized service providers traditionally give money to their users to use the service, services that perform ICO’s are requesting money from their users. In other words, the direction of money transfer is reversed. You will get a lot more people to use a service by giving away money than by requesting it. As a result, services built upon ICO’s appeal to a much smaller pool of potential initial users than services built by centralized providers. The solution which ICO’s offer to the chicken and egg problem is therefore not nearly as big as ICO advocates make it out to be.

In addition, if we think of the people which a service gives money to as its users, and the people which a service takes money from as its investors, services built upon ICO’s are currently claiming to create a new class of investor users. The problem with this is that the level of diligence required to be a user of a service is different than the level of diligence required to be an investor in the service. In the former, you’re consuming, and consuming is easy. In the latter, you’re producing or at least understanding how something is being produced, and that’s hard.

ICO’s are currently making people believe that it’s easy to do what’s hard.

This is an attractive value proposition. It explains why there’s so much interest in ICO’s, to the point where services are raising millions of dollars in minutes for a service which they often have yet to build.

The problem is that, in reality, doing what’s hard isn’t easy. As the services built upon ICO’s are built, or are not built, and are used, or are not used, reality will emerge.

Performing on auto-pilot after thoughtful preparation

My High school basketball coach always said that when you’re on the court, you have a single responsibility. And that’s to perform to the best of your abilities.

The alternative is to think about how you’re performing. While valuable in order to improve your performance, the right time to do this is when you’re off the court. If you do it while playing on the court, you end up second guessing your performance, and the resulting feelings negatively impact how well you perform.

In other words, when you step onto the court, your performance is already predetermined by the practice and thought that you put in up to that point. You’re effectively on auto-pilot.

The same is true for your non-athletic goals. You perform best when on auto-pilot after thoughtful preparation.