Smith Sense

As Matt closes the door on his CEO days with Royalty Exchange and moves into a Chairman position, he speaks with Antony about when is it the right time to step aside and let someone else take the controls.

https://smith.substack.com/

As Matt closes the door on his CEO days with Royalty Exchange and moves into a Chairman position, he speaks with Antony about when is it the right time to step aside and let someone else take the controls.

https://smith.substack.com/

Matt chats with Bobby Casey from Global Wealth Protection about digital nomads, working from home and independent thinking

https://smith.substack.com/

This week Antony and I discuss a topic that’s too often overlooked by entrepreneurs: distribution. Whether you’re selling beef jerky or digital services, getting your product in front of your customers at the time when they need it most can mean the difference between success and failure. Companies that focus too much on their product and brand (or owning a specific distribution channel) leave themselves open to disruption from newcomers. 

Show highlights:

1:25 - Distribution trumps product utility and brand.

“Incumbents get beaten by upstarts when the upstarts discover new ways to distribute their product or service.”

3:21 - Distribution defined.

“It’s that intersecting moment when your customer is likely to consider you because it fits within the context of what they're doing in their normal day.”

5:12 - The principles of distribution apply the same in a physical or digital world.

“The limited attention and time that people have is true in a retail environment, and it’s true in a virtual environment, too. What you are able to see when you’re going through the physical aisle is not unlike  Netflix screen. You can only see so much on it at a time. The catalog is enormous, but your choice set is very limited because human attention is not that broad.”

8:00  - How upstarts succeed with distribution.

“Where you see upstarts take market share away from other companies is, as these new methods of distribution emerge, if they are early to adopt them, if they take it advantage with them first, if they are more nimble, then they can find a way to get market share where basically it didn’t exist before.”

12:30 - How an upstart YouTuber beat a true expert who was at it much longer.

13:40 - Playbooks for getting great distribution,

“In order to experience business growth, what you should do is focus on where your product could be distributed: How do you shape your business, your product or your marketing in such a way that you can increase the distribution? And by doing that, by changing the distribution, you can double the growth of your business in a way that you wouldn’t be able to do organically by focusing on just trying to dial in better the one distribution strategy you have.”

16:00 - Looking outside your existing channels

“Most of the time people are only aware of competitors that exist in the channel they already are in. Looking outside of that channel for new distribution is the key.”

18:00 - Why Apple went into retail.

“When Apple decided to open retail stores it was looked at by everybody — from Wall Street analysts to their customer base to retail partners — as a stupid mistake. And yet it turned out that, over a period of time, they were the most profitable per square foot retail in America.”

20:00 - Total control vs. no control.

“Any ideology that says ‘I don’t need to have an owner control platform’ is wrong. And any ideology that says ‘I have to have everything on my platform so that I have total control’ is also wrong.”

23:20 - Take vs protect. 

28:30 - How a baby bathtub business that Matt invested in grew distribution, and what it did next.

30:00 - Your list is the most important thing. 

“In marketing, I always think of it as the list is most important, then the offer is second, and the copy is third. Without the list, none of the other stuff even matters.”

The economic fallout from COVID-19 is highlighting one challenge that entrepreneurs face all time: regulation stifles innovation.

Entrenched interests

You don’t have to look farther than the recipient list of Paycheck Protection Program (PPP) loan program to see how even well intentioned regulations — in this case, to protect small businesses from collapsing — end up serving entrenched interests far more than the people they purport to help. Among the list are Kanye West, Grover Norquist’s  Americans for Tax Reform Foundation, perhaps most galling, the Ayn Rand Institute.

Especially in a crisis, people look to regulations as the solution. But added regulation almost never helps the entrepreneur just starting out who wants to build a better economic future for their family. Instead, it favors the entrenched interests who can afford to lobby government officials.

Via negativa

Most often the solution is not additive. Rather, it’s what Nassim Taleb calls via negativa — it’s removing something often actually makes things more possible rather than adding another benefit to people. 

I couldn’t schedule a dentist appointment for a period of time here in Colorado, but I could go to the pot shop. That’s the result of lobbying power. That regulation is not protecting my health as much as it’s protecting the entrenched interests of the pot industry.

CEO bailout

We bailed out the airlines, and in exchange they agreed to keep all employees on until the end of September, at which point they’ll lay them off. So we essentially took Americans’ money and set it on fire by filtering the dollars through the airlines. 

Theoretically it helps employees, but only a little bit and for a little period of time. In reality it helps the CEOs who’ve made terrible decisions for a decade.

Resources

Three Felonies a Day, by Harvey Silverglate

My good friend and mentor Doug Casey joins me on the podcast again to discuss world events, politics, U.S. monetary policy, and why Fedcoin isn’t as far-fetched of an idea as it sounds. We pick up on topics we discussed in our first conversation, “The Money System - An interview with Doug Casey.”

Doug is known for outlandish opinions, but the situation we find ourselves in now is something that he’s talked about for a long time. While we’re experiencing this turmoil here in the U.S., he’s watching it unfold from his ranch in Uruguay.

Doug: I feel rather smug watching the collapse of the U.S. comfortably on my widescreen as opposed to uncomfortably out my front window. Over the next six months I expect I can turn the audio off and put on Rolling Stones’s “Street Fighting Man.” 

1984 meets Brave New World

We essentially have two major issues coming together: the decline of Western civilization and its Enlightenment values and the rise of a police state.

Doug: It’s not quite Orwell’s 1984 and it’s not quite Huxley’s Brave New World, but it takes some of the worst elements of both of them. 

The problem is there’s not much anybody as an individual can do at this point. You can try to leave to avoid suffering the unpleasantness and inconvenience — but where can you go? All the countries in the world are going in the wrong direction. 

In my upcoming third novel, Assassin, our hero, Charles Knight, becomes an assassin to eliminate malicious government officials. So that’s one route. It’s a good thing I’m saying this in a novel; otherwise the men in black would be knocking on my door.

Stoking racial divides

When George Floyd was killed, it was the most unified in opinion I have seen America since 9/11. Everyone thought that cop was a piece of [expletive] who needed to be in handcuffs. Everyone thought he should’ve got the perp walk. 

A moment when there’s literal total agreement somehow gets turned into the most divisive issue of my lifetime overnight. How does that happen?

Doug: The pot was boiling. This was just the catalyst that made it all blow up. It’s been coming for some time. As bad as things are right now, things are still kind of held together because the stock market and bond markets are basically at all-time highs. When they melt down and the banks are in trouble and there’s another wave of unemployment, who can say what’s going to happen?

Too many elites

Russian-American scientist and writer Peter Turchin studies how societies grow and evolve over time. He’s getting some renewed attention now because in his 2017 book, The Ages of Discord, he warned that things would get worse by 2020. His underlying thesis is that there’s a overpopulation of elites in the U.S. and trouble happens when they start fighting each other, which is happening now.

Doug: My friend Jim Rogers said that at some point in the future, the guys driving the Lamborghini’s are going to be the guys driving trackers in the middle of cornfields, because commodities are going to go up. There’s lots of good arguments for buying farmland. At the same time, there’s lots of good arguments for continuing to stay away from them because the longest bear market in all of history is commodities.

Monetary reset

The monetary system seems set for a reset, something that’s happened a lot in the past. The U.S. dollar as the global reserve currency carries all kinds of implications. Add the fact that, like most countries, we have a huge amount of debt that is unpayable. Americans tend to believe that if something isn’t working right — whether it be education or healthcare — the problem is we’re not allocating enough capital.

In an environment where we have all these factors going on, it’s hard to imagine it’s not set for a monetary reset where things fundamentally change. 

The rise of Fedcoin?

One idea Doug floated a few years ago was the launching of a Federal Reserve cryptocurrency. It doesn’t sound as out there of an idea any more.

Doug: It’s going to happen. Bitcoin is popular. Everybody has a cell phone today, and the government loves the idea of something like Fedcoin. If you deal in Fedcoin, it’s all done electronically through your cell phone, which means they know everything that you buy and sell. There’s no cash anymore. At that point if they don’t like you, they can close your account.

On this week’s episode of the podcast my friend and colleague Antony Bruno joins me to discuss a fascinating academic research paper that concludes the cottage industry around entrepreneurship is failing us. The paper articulates many of the fears I have about mistakes entrepreneurs might be making in their journeys.

The rise of the Veblenian entrepreneur

The paper, “Towards an Untrepreneurial Economy?,” starts with an intriguing question: “What is driving the declining quality of innovation-driven entrepreneurship?”

The authors point to the rise of the “Veblenian entrepreneur” — or “performative entrepreneur” as we call it on the show — as the main culprit. These are want-to-be-entrepreneurs who are in it for the wrong reasons; they pursue it as “conspicuous consumption.” They aren’t innovating as much as pursuing a lifestyle and the status that society bestows on entrepreneurs.

The result, according to the papers authors, is essentially where we are today: “an economy which superficially appears innovation-driven and dynamic, but is actually rife with inefficiencies and unable to generate economically meaningful growth through innovation.”

The theory of the leisure class

The term is named after Thorstein Bunde Veblen, a 19th century American economist and sociologist and outspoken critic of capitalism who coined the concept of conspicuous consumption and conspicuous leisure in his 1899 book The Theory of the Leisure Class.

Veblen writes that the businessmen apply themselves in useless activities that contribute neither to the economy nor to the production of useful goods and services required for the functioning of society, while the middle and working classes apply themselves in productive occupations that support society.

Cottage industry that’s failing us

The rise of the leisure class spurned a cottage industry around selling service to want-to-be entrepreneurs that grew to $13 billion in 2014 and has been growing at a steady clip, 12% a year, for decades. 

It’s a cottage industry that I’ve participated in — offering entrepreneurs coaching, courses, and camps to improve their skills — and I’ve seen first-hand how much people buy into it.

The research paper’s authors conclude that some innovative entrepreneurs do get value from these services — but the majority of people do not and, in fact, perform worse than if they’d chosen a different path.

Ideology of entrepreneurship 

The paper’s authors argue — and I agree — there’s an ideology of entrepreneurship that’s conveyed to people from “thought leaders” (who are often failed entrepreneurs themselves) proclaiming things like “live your best life!” and “failure is good.” 

In this culture failure is a badge of honor. Everyone’s heard that 90% of ventures fail, and somehow that helps motivate more people to try. But if you stop to think about it, if 90% of entrepreneur ventures end in ruin — a failure that you don’t come back from —  that is not something to celebrate.

The problem with Gary V

Gary Vaynerchuk is the epitome of this performative culture. Don’t get me wrong. He’s an impressive guy in many ways. However, the impression people walk away with is that they need to be grinding all the time like Gary V and that will somehow make them a successful entrepreneur, or at least give them the appearance of one — which is really the point anyway.

This is what we like to call “hustle porn,” and there’s a lot of it out there. People watch how Gary V acts and them mimic that behavior. That’s Veblenian entrepreneurship. 

Seeking status

Partially because of the entrepreneurial industry’s success selling the dream and partially because of poor job prospects, people choose the entrepreneurship route  to increase their status within their community. 

If your job prospects are Starbuck barista or “business owner,” it’s not hard to see which you’d pick if you were primarily motivated to impress your family and friends. 

People don’t realize that most entrepreneurs actually make less than they would at an established company, and that being the owner of a business of any notable size gives you much less freedom. 

When you’re an employee, you worry about losing your job. When you’re a business owner, you worry about losing 25 people’s jobs (or however many employees you have) and the impact on their families.

If it’s status you’re after, you might be better off gaining valuable experience at an established company and then leveraging that to book your book tour (it’s a popular model followed by authors like Kim Scott, who wrote Radical Candor).

Opportunity cost

When I was in college, I ran a painting franchise with a group of very intelligent and talented students. I remember thinking, “Man, these people are so smart, why are we painting houses? We could be doing something big and exciting where we could make a difference and make a lot of money.”

There’s an opportunity cost to pursuing entrepreneurship, especially if you’re 90% likely to fail.

What’s the alternative

People fail to see how their alternatives can lead to meaningful work — to that big, exciting, rewarding thing that makes lots of money. But you can find them if you look.

When I was just getting started in my career, I sought out apprenticeships — though that’s not what I called them — with people I felt I could learn a lot from. I wasn’t concerned with how much I made or what my exact contributions might be. I wanted opportunities to learn from smart people, build skills, and figure out how I can contribute. 

That’s the path I recommend to many people who are young and thinking of starting a business. Go get some experience first. Build relationships. Then find a problem you’re passionate about solving and start a business.

Identity capital

In her book The Defining Decade, Dr. Meg Jay writes about the concept of “identity capital,” the collection of skills, relationships, and professional resources we build up over our lives.

When you’re in your 20s, she writes, you should focus on building your identity capital. People need to know you're capable and trustworthy and you have a sense of where you can have the most impact and where you should focus. Then, you leverage the benefit of that capital in your 30s.

My business partner and friend Gary Young joined me on the podcast to discuss “frame,” a term we use to describe someone’s point of view on the world. We discuss how entrepreneurs can hone their frame to influence and sell, and why the best salespeople tend to be introverts.

Gary: “Frame is part worldview, part identity, and part posture. It tells people, ‘This is who I am, and this is my posture towards the world.’

We live in a mimetic society, which means most people with weak frames copy the opinions and actions of those with stronger frames. To be successful as an entrepreneur, you want to develop a strong frame and use it as a lever of influence. 

Why I hire people with strong frames

In last month’s “Hiring & Firing” episode,  I shared that I like to hire people with strong points of view because great ideas come from passionate people disagreeing. I’m essentially looking for people with strong frames. Yet, they tend to be in short supply.

Gary: “Most people haven’t really thought about the situation that they’re currently in before they’re in it, which makes it hard to have a frame.”

Frame in everyday life

When you find yourself falling for somebody, or believing everything someone says, or you change your views based on something you hear — you’re being influenced by people with stronger frames.

Gary: “The standard dating advice is ‘just be yourself.” Problem is, most people are mimetic creatures and should not be themselves because they’re boring. If you do interesting things that you care about, then you just tell people what those interesting things are, and that’s like 80% of dating. That’s an example of your frame.”

You want to be seen

The main idea is that you want to be seen. If you want to influence and not be subject to the whims of others, you have to have a strong point of view. You want to eliminate the things that make it hard for people to see you — it could be simple things like how you dress and introduce yourself — and get them to focus on your ideas and point of view.

Gary: In the simplest form, your frame could be standing in front of a mirror telling yourself affirmations — remembering your victories, things you survived, things you know —  so that when you confront someone who disagrees, you can respond with confidence: “That’s interesting, because I had a different lived experience and I’ll tell you about it.”  

Confident for a reason

Having a strong frame gives you an inner confidence because you know what you stand for. People will notice that confidence and try to mimic it. But that’s missing the point: A strong frame starts with a sound intellectual underpinning that doesn’t rely on others.

Gary: “If you tell yourself before you go into a meeting that everybody there loves you and thinks you’re awesome, you’re going to behave totally differently — and vastly more effective — than if you go in thinking, ‘Let’s figure out who likes me and who doesn’t.’

Mimetic theory

Philosopher Rene Gerard’s mimetic theory teaches us that most human conflict can be explained by people wanting the same things and copying one another to get them. Ours is a copycat culture in which people form opinions by looking around to see what others think.

This might have evolutionary benefits, but it seems like a fundamental flaw in humans that we look so much to others to form our own point of view.

Using frame to influence

In every moment someone’s frame is getting stronger and someone else’s frame is getting weaker. It’s like an erosion. Entrepreneurs who understand the concept can use it as a vehicle of influence. When faced with a strong frame, people don’t fight it — they adopt it.

Gary: “If you don’t have a frame of your own, you will end up adopting someone else’s.”

Frame in selling

You need to prepare for sales calls like a prosecutor building a case: Do your research and master the facts. Understand the value your product or service delivers and try to understand the worldview of the person you’re selling to. That builds confidence and conviction in what you are saying.

Gary: “Almost all of the really good salespeople I’ve ever met are way more disagreeable than most natural extroverts are.”

When the potential customer says, “This doesn’t sound like it’s for me,” offer a confident response: “You could be right. This isn’t right for everybody, but it has worked for a lot of people. Do you mind if I ask you a question?” and then ask them something that helps you understand where there might be a misunderstanding.

By making it clear to the parties involved that you have the strongest frame, people will naturally move over to your side.

Gary: “Someone who doesn’t really know anything about your product will often tell you, ‘Oh, that’s just not for me,’ and often the salesperson will accept it. And that’s weird because they don’t know about what you’re selling yet, and you’ve accepted their frame.”

Developing your frame

In the simplest form, your frame could be standing in front of a mirror telling yourself affirmations — remembering your victories, things you survived, things you know —  so that when you confront someone who disagrees, you can respond with confidence: “That’s interesting, because I had a different lived experience and I’ll tell you about it.”

Gary: “Half the battle is figuring out what price you’re willing to pay and paying it. If your position costs you nothing, your position is not particularly strong.” 

Hone your map and strategy

When someone doesn’t get what they want out of a situation, it’s typically because one of two things is wrong: They’re either operating with the wrong terrain map or they’re following the wrong strategy.

If you have high confidence in those two things — because you have a strong intellectual underpinning — that’s when you develop an indestructible frame. The world needs to break in order for your frame to break. 

Resources

“10 Rules To Live by for More Success, Happiness, and Freedom,” by Craig Ballantyne.

Mimetic Theory, by Rene Girard.

How do ideas that were once unthinkable become accepted policy?

In this conversation with Royalty Exchange cofounder Gary Young, we discuss the Overton window — the range of policies politically acceptable to the mainstream population at a given time — and what it means for entrepreneurs.

The concept, named after Joseph P. Overton, frames the range of policies that a politician can recommend without appearing too extreme in order to gain (or keep) public office, given the climate of public opinion at that time. 

The concept offers a helpful way for entrepreneurs to think about their own individual biases and the ideas that shape their daily reality. Many of these can be self-limiting, so it’s helpful to examine them.

I outline four ways Overton windows change over history:

1) Crisis mover (9/11, Covid-19).

2) Gradual persuasion (same-sex marriage, decriminalizing drugs).

3) Charismatic salesman (MLK with civil rights, Ronald Reagan with taxes).

4) Provocateur (Alexandria Ocasio-Cortez, Tucker Max, Malcolm X).

Gary adds a fifth way: 

5) A shift in media technology that allows people to observe variances in different people’s Overton windows (talk radio, social media).

Our advice:

• Know what boundaries you’re operating within. Test where they are and see if they’re useful. 
• Don’t be an agent of the Overton window, by shaming and guilting people for their thoughts and actions. Independent thinking will help get you out of an Overton window.
• Be an anti-agent: Speak the truth (see “The Turkey Problem” episode) and plant seeds in people’s heads.

Resources

“What You Can’t Say,” by Paul Graham

“The Turkey Problem” (previous SmithSense episode)

In his best-selling book The Infinite Game, Simon Sinek writes that there are fundamentally two ways of interacting with the world.  In one view — the one traditionally taught in business school — the world is finite in size. In order to get a bigger piece of a fixed pie, you must take from someone else. 

In the other view, the world is infinite and you can’t even imagine how big the pie might get. You focus your energy on expanding the pie so that everyone can win.

Competition is for losers

Peter Thiel wrote that competition is for losers. If you look at the world as a competition with others, you’re setting yourself up for a finite game, which is a losing game.

Make them owe you

A lot of times people are hesitant to give too much because they’re worried that the other party is not going to reciprocate. That’s a finite-game thinking.

In the infinite game, there is more than enough to go around and the pie is always expanding. Make your customers and anyone else in your life feel like they owe you — that you’re delivering more value to them than they can give to you. 

What’s your just cause?

To play an infinite game, start by defining your company’s “just cause.” This is the reason your company exists, beyond making profits and employing a large workforce. Your company makes money and employs people for some larger reason, and it’s your job to define it. 

Three elements of a just cause

The three elements of a just cause are:

1. It’s for something.
2. It’s inclusive.
3. It’s service oriented.

SpaceX isn’t just building rockets

The just cause at SpaceX isn’t building rockets. Elon Musk believes it’s critical to have cost-effective mechanisms to get humans beyond earth for the long-term survival of humanity. His just cause is saving humanity.

Netflix wasn’t just renting DVDs

When Netflix first started the technology to achieve its just cause — to bring unlimited entertainment to people’s houses — didn’t even exist yet. So they started with DVDs and kept working on their bigger vision. 

Live your just cause

At Music Exchange we recently went through a process to define our just cause. At our core, we believe in the power of markets and that transparency provides the information that people need to be able to transact with one another properly. So that guides everything we do — even if it’s uncomfortable to post all of our deals publicly.

Communicate your company’s humanity

There are two main reasons for defining your just cause. One is effectively communicating your company’s humanity to the world.

Especially as businesses get larger and people work to maximize efficiency, the human element can get rung out in the process. Defining your just cause and communicating it to employees can help instill what matters in your company.

It’s like planting a flag in the ground: “This is what we stand for.”

Millennials workers want meaning

Another important reason to state your just cause clearly is that younger workers are searching for meaning in their work. By helping them describe their work in terms that go beyond profits and KPIs, you are putting them in the best possible position for when a friend or family member asks, “So, what are doing these days?”

Unearth the passion

Take a close look to find where the meaning and passion lies in your company, and then do the work to summarize and communicate it to employees, customers, future employees, partners and others.

Resources

Finite and Infinite Games, by James Cross

The Infinite Game, by Simon Sinek