By: Benjamin Graham31-MINUTE AUDIO / 4,156 WORDS (8 PAGES)SYNOPSIS This book will not teach you how to beat the market. However, it will teach you how to reduce risk, protect your capital from loss and reliably generate sustainable returns over the long run. Warren Buffett calls the Intelligent Investor "by far the best book on investing ever written."  Benjamin's proven value investing approach replaces risky attempts to project future share prices with sound investments based on the underlying value of the company's tangible assets. The Intelligent Investor by Benjamin Graham gives you everything you need to equip yourself with the investor's mindset necessary to avoid the panic of market fluctuations that plague the ordinary investor. Don’t be ordinary. Be intelligent. DIAGRAMS View fullsize View fullsize View fullsize TOP 20 INSIGHTSThere are two kinds of investors. Defensive investors aim to protect their capital from losses, generate decent returns and minimize frequent decisions. Enterprising investors devote most of their time to manage their portfolios actively. An enterprising investor does not take more risks than a defensive investor but invests more in stock selection. Part-time investors should stick to defensive investment strategies. Defensive investors can achieve a decent result with minimum effort and capability. However, even a marginal improvement from this result is challenging and requires extraordinary knowledge and skill. An attempt to outsmart the market by spending a little extra time and effort will primarily result in below-average gains. Confusing speculation with investment can be a costly mistake. Speculators buy hot stocks based on future growth prospects. In contrast, investment is made on a thorough analysis of the underlying business to ensure the safety of principal and adequate — but not extraordinary — gain. Invest in a stock only when you can comfortably own it without following its daily share price. If you cannot resist the urge to bet on the next big growth stock, set strict limits on speculation. Keep a separate speculative account with less than 10% of your capital for speculative activities. Never mix money from the investment account and speculation account. It's a risky idea to speculate on high-growth industries, and high-growth stocks are a risky idea. The growth prospects for a business do not necessarily result in profits for investors. Because these stocks are often overpriced, growth may not result in proportional returns. Only eight of the largest 150 companies on the Fortune 500 list managed to grow earnings by at least 15% over two decades.Graham strongly urges investors to stay away from Initial Public Offerings. IPOs often happen in bull markets and lead to inflated valuations. When the bear market begins, these overheated speculative stocks are the first to crash and cause severe losses. An investor who bought every IPO at its public closing price and held on for three years, from 1980 to 2001, would have underperformed the market by 23% annually. A sure way to predict the end of a bull market is when the stocks of new nondescript small businesses are priced higher than reputed medium-sized companies. The bull run of the 1980s saw over 4000 stocks created. This lead to the 1987 crash. IPOs dried up between 1988 to 1990, which lead to the 90's bull market. During this time, over 5000 new stocks were created, which led to the 2001 crash of the dot com bubble.It is dangerous for ordinary investors to time the market. Value investors instead identify and invest in large, conservatively financed companies whose present value as estimated by tangible assets is substantially below their current stock prices. There is no attempt to predict an uncertain future, and there is enough margin to absorb unfavorable developments. Never buy any security far above its tangible asset value. Though outstanding companies are often worth several times their tangible asset value, the investor becomes too dependent on stock market fluctuations. In contrast, an investor who purchases stocks close to tangible asset value can ignore market fluctuations, confident that he has bought an interest in a sound business for a reasonable price.Price and value are two different concepts. Think of Mr. Market as an irrational investor in a business you also invested in. He frequently changes his mind and quotes wildly different prices for your share. His behavior will hardly change your fundamental perception about the value of the business. However, you would gladly buy when his price is far lower than the business value and sell when his price is far higher than the business value. The start of a bear market is good news for intelligent investors. They recognize that stocks become riskier as their prices rise and less risky as their prices crash. A bear market is a considerably safer time to buy stocks close to their asset value and build sustainable wealth.A defensive investor's portfolio must have 50% in high-grade bonds and 50% in common stocks irrespective of market conditions. Doing so will prevent them from buying excess shares in a bull market and rushing into bonds in the bear market. Once they set up their portfolio, the defensive investor checks every six months to rebalance it if market change alters this ratio by over 5%. Enterprising investors' confidence in their professional analysis may reduce their stock component to 25% when the markets are dangerously high and raise their stock component to 75% at the bottom of a bear market. However, a minimum of 25% in bonds is essential as it will give investors the cushion to hold on to stocks even through the worst bear markets. Purchase only tax-free municipal bonds unless you fall in the lowest tax bracket. Choose bonds that mature in five to 10 years as they remain relatively stable with interest rate fluctuations. Bond funds are an excellent choice for individual investors as they offer cheap and easy diversification to minimize risk. Both Graham and Warren Buffet recommend index funds as the best long-term bet for defensive investors. Index funds own a cross-section of the entire market without any stock selection. While they may be unglamorous and show steady returns compared to more aggressive funds, index funds have low risk and have historically outperformed most mutual funds over 20 year periods.If you enjoy stock selection, make the index fund the foundation of your portfolio and experiment with around 10% of funds. Buy only stocks priced below 22.5 times the average 12-month earnings. The stock price must not be higher than 1.5 times the book value. If the book value multiplier is low, the earnings multiplier can be higher. But the product of the multiplier of earnings and multiplier of book value should not exceed 22.5.Do not be swayed by home bias. Familiarity often prevents investors from doing the required due diligence before picking a stock. Many average investors make the mistake of buying familiar stocks or stocks of their own companies. On average, 401(k) investors keep between 25% to 30% of their retirement assets in their company's stock. Graham insists on using a multi-year average of past returns to calculate Price/Earnings ratio. Consider a company that earned $0.50 per share over six years but earned $3 over the last 12 months. At 25 times the P/E ratio based on the last year, the stock would be valued at $75. In contrast, valued at 25 times the average earnings over the past seven years, the stock would be valued at just $21.43. Prevention of losses takes priority over improving gains. Assume an investor buys a stock at the peak of a bull market that can generate 5% above average market returns. The bull market ends, and the stock drops by 50% the following year. Even if the stock gains 10% every year, it will take beyond 16 years to overtake market returns. The margin of safety is essential to ensure against loss and improve upside potential. The stock price must be substantially lower than its underlying tangible asset value. In 1973, Warren Buffet invested in The Washington Post when it was priced at $83 million, and its assets were worth at least $400 million. The investment had both a substantial margin of safety and massive growth potential. Graham designed his approach to craft a reliable portfolio that requires minimum maintenance and offers maximum odds of a steady return. By sticking to a formula for investment decisions, the defensive investor gives up the risk of speculating on stock movements and gains steady returns. After the initial curation, if the investor trades more than twice a year, it is a clear sign something has gone wrong.  SUMMARYPrice and value are two different concepts, and stock prices frequently don't reflect a company's actual value. More risk does not necessarily correlate with more gain. On the contrary, a substantial margin of safety and the difference between stock price and fundamental asset value can protect against loss while improving potential upside. Value investing can help you create a core portfolio that frees you from the need to track market prices and guarantee maximum odds of a steady return.Graham's value investing approach is a reliable, risk-free path to protecting one's investments and generating decent stock market returns. It replaces risky speculation on future stock prices with a systematic way to derisk investments and build wealth. INVESTORS AND SPECULATORSIt is essential to distinguish investment from speculation. An investment, according to Graham, is based on thorough analysis that promises both safeties of principal and an adequate return. Three components of this definition are essential:Base purchases on a thorough analysis of a company's underlying businesses. Focus on preventing severe losses. Seek "adequate" and not extraordinary gains.Speculators, on the other hand, buy stocks based on projected future growth in price. Every nonprofessional who operates on margin or buys "hot" stocks is effectively speculating or gambling. Speculation lowers the odds of building wealth. Do not speculate under the illusion that you are making an investment decision. If you wish to speculate, put aside a small portion of the capital (below 10%) in a separate fund. SPECULATIVE APPROACHES THAT DON'T WORK1. Betting on Growth StocksMany investors fall for the allure of growth stocks. Just because a growth stock performed better than average in the past and is projected to do so into the future doesn't mean it will — it's a risk. There is no foolproof way to select and concentrate on the most promising companies in the most reliable industries. Common stocks with good records sell for a corresponding premium. The investor may be right about the company's prospects and yet not benefit because he has probably overpaid for the stock.Unusually rapid growth cannot continue forever because the increase in size makes subsequent growth more difficult. From 1960 to 1999, only 8 of the largest 150 companies on the Fortune 500 list managed to grow earnings by at least 15% over two decades. Between 1992 to December 2002, funds investing in large growth companies underperformed the stock market by an average of 3.7 percentage points every year. Growth stocks swing wildly, giving rise to a highly speculative risk element. The more the stock advances, the higher the frenzy, the riskier it becomes. Experienced investors have had their investments wiped out speculating on hot Airline stocks in the 1950s and booming Internet stocks during the Dotcom Bubble. Avoiding a loss takes priority over improving gains. To make up for a 95% loss in value requires the investor to make an astounding gain of 1900%. 2. Initial Public OfferingsGraham warns investors to avoid purchasing Initial Public Offerings (IPOs), particularly in bull markets — for two reasons. First, IPOs offer a higher built-in commission, leading to a harder sell. Second, new issues are nearly always sold near the peak of a bull market. The initial IPOs in a rising market lead to profits fuelling a frenzy for subsequent IPOs. A clear sign of the end of a bull market is when IPOs of small and nondescript companies have stock values higher than medium-sized enterprises with a long history. Since the prices of these new stocks usually crash to new lows, Graham warns investors to stay away from this kind of costly speculation.In the 1980's bull market, 4000 stocks flooded the market, leading to the crash of 1987. IPOs dried up between 1988 -1990, contributing to the 90's bull market where nearly 5000 new stocks were listed. After the Dotcom bubble, only 88 companies issued IPOs in 2001. An investor who bought every IPO at its public closing price from 1980 to 2001 would have underperformed the market by more than 23% annually.  DEFENSIVE AND ENTERPRISING INVESTORSThere are two types of investors, according to Graham: Defensive and Enterprising Investors. Defensive investors primarily seek to avoid losses, generate a decent return and minimize time spent on the stock market by creating a portfolio that virtually runs on autopilot.The Enterprising investor is willing to devote more time and effort to researching securities, hoping to make a better average return than the passive investor over the long term. Graham's enterprising investor is not someone willing to take more risks than the defensive investor. Playing with risk is the domain of a speculator. The enterprising investor must have sufficient knowledge of securities to consider his investments equivalent to a full-time business. The enterprising approach is physically and intellectually taxing, while the passive approach is emotionally demanding, asking the investor to do nothing for years. There is no room for a middle ground between a defensive and enterprising investor. An ordinary investor can achieve a decent result with minimal effort, but even a marginal improvement on this result requires extraordinary knowledge and skill. Putting a little more time and effort to improve outcomes through stock selection is sure to result in below-average returns. Therefore, most investors must recognize that they are defensive investors and should use suitable strategies. PRINCIPLES OF VALUE INVESTINGThe Predictive and Protective ApproachesInvestors can take advantage of market swings in two ways. Prediction involves estimating the future growth of a company's earnings through mathematical methods. Speculators attempt to time the market by buying based on growth predictions and selling based on predicted declines. Projection is dangerous because the future is uncertain, and inflation, economic recessions, pandemics and geopolitical upheavals often arrive without warning. Graham argues that it is a fool's errand for an ordinary investor to attempt making money by timing the market.Graham advocates for a protection-based approach that does not try to time the market. Value investors should identify and invest in large, conservatively financed companies whose present value (as estimated by tangible assets) is substantially below their current stock prices. A protection-based approach creates a margin to absorb unfavorable developments in the future. The focus is on ensuring tangible value in purchasing the stock at current prices. Think Like a PartnerA shareholder can see themselves as the buyer and seller of shares whose prices vary by the moment or as a minority partner in a private business whose value depends on the assets and profits of the enterprise. While many companies are worth far more than their net assets, the buyers of their stock become dependent on the stock market fluctuations. Investors should limit themselves to securities currently selling for not that far above their tangible asset value for both practical and psychological reasons. When an investor pays well above net asset value for a share, they become a speculator dependent on the vagaries of the stock market to generate a profit. However, an investor who buys shares near the net-asset value of a company can consider themselves the part-owner of a sound and expanding business acquired at a reasonable price. Unlike the speculator who paid high multiples of earnings and tangible assets, they can take a detached view and ignore stock market fluctuations. This conservative policy is likely to work out better than risky investments based on anticipated growth. Meet Mr. MarketGraham gives the allegory of Mr. Market to illustrate the investor's ideal attitude to the stock market. Imagine you paid $1000 to buy a small share in a private business. One of the partners, Mr. Market, tells you every day what your share is worth and offers to buy or sell additional interest in the business. Unlike a private buyer, Mr. Market often quotes exuberantly high values or absurdly low ones. Given this situation, there is no way a sensible investor will rely on Mr. Market to understand the underlying value of their shareholding. However, they would be more than happy to buy from Mr. Market when he quotes meager rates and sell to Mr. Market when he quotes relatively high rates. Similarly, a defensive investor who has made a value-based investment based on sound business fundamentals will ignore the stock market valuation apart from taking advantage of its swings. Graham goes so far as to say that the single biggest reason investors fail is that they pay too much attention to what the stock market is currently doing. Intelligent investors should be comfortable holding their stocks even if they don't see the daily stock market prices for years. Experiments have shown that investors who received frequent news updates about their stocks earned half the returns of investors who received no information at all.  A DEFENSIVE INVESTOR'S STOCK PORTFOLIOAsset AllocationGraham suggests a mechanical 50-50 split between stocks and bonds for defensive investors to guard against over-purchasing shares in a bull market and rushing into bonds in a bear market. The only action they should take is to rebalance their portfolio every six months if market developments alter this 50-50 ratio by over 5%.On the other hand, enterprising investors can increase their stocks up to 75% when markets are low and reduce it up to 25% when markets are at their peak. However, a minimum of 25% in bonds is necessary to give investors the peace of mind to hold onto stocks in the worst bear markets.BondsUnless investors are in the lowest tax bracket, they should purchase only tax-free municipal bonds. The only place to own taxable bonds is inside the 401(k) account. As interest rates rise, short-term bonds fall less than long-term bonds. But when interest rates fall, a long-term bond will outperform short-term ones. Therefore, to avoid guessing interest rates, it's best to buy bonds that mature in five to 10 years as they remain relatively stable. Bond funds are a better idea than individual bonds as they offer an easy way to diversify and reduce risk.Mutual FundsA defensive investor can follow two approaches to stock selection. First, they can rely on a diversified cross-section of the market through an index fund. Second, they can create a quantitatively tested portfolio of reliable stocks. Mutual funds are a fantastic way for a defensive investor to capture the upside of diversified stock ownership without the effort of actively monitoring one's portfolio. A defensive investor's best long-term bet is to invest in index funds that own all stocks in the market without trying to select the "best" stocks. The low trading costs and operating expenditures mean that an index fund will outperform most mutual funds over the long run. Both Graham and Warren Buffet recommend index funds as the best choice for individual investors to own stocks. Take advantage of dollar-cost averaging by investing the same amount every month in a portfolio of index funds. This simple practice ensures that you buy more shares when the markets are low than when it is high.Stock SelectionIf you enjoy the intellectual challenge of picking stocks, you can make the index fund the foundation of your portfolio and experiment with a small portion of funds (~10%) on stocks. Here are Graham's rules for the defensive investor's stock portfolio:There should be adequate diversification with a minimum of ten stocks and a maximum of 30. Avoid overexposure to a single industry. Each company selected must be significant, prominent and conservatively financed. Each company must have ten years of continuous dividend payments. The investor must not pay more than 25 times the average earnings over seven years and not more than 20 times the average earnings of the last year. Investors must not look for better than average returns by investing in growth stocks. They carry too much risk due to the high speculative element in their prices. Instead, they must confine themselves to large established companies with a history of profitable operations, stable financial conditions and reasonable profit/earnings ratio.Wall Street calculates the Price/Earnings ratio primarily on next year's earnings. However, Graham insists on calculating the Price/Earnings Ratio based on a multi-year average of past returns, which lowers the odds that an investor will overvalue the company simply because it had an odd profitable year or has high revenue projections. Let's say a company has earned $0.50 per share over six years but earned $3 over the last 12 months. At 25 times the P/E ratio (based on the last year), the stock would be valued at $75. In contrast, valued at 25 times the average earnings over the past seven years, and the stock would be valued at just $21.43. STOCK ANALYSIS FOR DEFENSIVE INVESTORSHere are Graham's criteria for stock selection:Size of the Enterprise: Choose companies with at least $2 billion in annual assets to ensure they are large enough to avoid high volatility in stock prices. Strong Financials: The company's current assets must be twice the current liabilities to ensure a cushion for difficult times. Long-term debt must not exceed working capital. In 2003, about 120 of the S&P 500 companies met this ratio. Earnings Stability: There must be some earnings for the common stock over the past ten years. 86% of companies in the S&P index had positive earnings every year from 1993 to 2002.Dividend Record: They should have processed uninterrupted payments for at least 20 years. Over 255 companies had paid dividends from 1993 to 2002. Earnings Growth: The company should show a minimum increase of at least 33% in per-share earnings over the past ten years. Over 260 companies met this standard as of 2002. Moderate Price/Earnings Ratio: The stock's current price should not be more than 15 times the average earnings of the past three years. This multiple, adjusted for 2002 levels, is 22.5 times the average earnings of the past three years. Moderate Ratio of Price to Assets: The stock price must not be more than 1.5 times the last book value. If the multiplier of earnings is below 15, it can justify a higher multiplier of assets. Graham's rule of thumb is that the company's total multiplier of earnings and multiplier of book value should not exceed 22.5. The overall portfolio of stocks must have an earnings/price ratio at least as high as the current bond rate. If you find this degree of analysis difficult, avoid stock picking and invest entirely in index funds.Graham designed this approach to create a core portfolio that requires minimal maintenance and a maximal chance of a steady return. After curating the initial portfolio, if the investor is trading more than twice a year, it is a clear sign something has gone wrong. The defensive investor wins the race by sitting still. By sticking to an autopilot formula for investment decisions, the defensive investor gives up the risk of speculating on stock movements and worrying about market swings. MARGIN OF SAFETYAn investor must insist on a margin of safety in every investment to absorb negative changes. This margin of safety is the difference between the percentage of earnings at the price paid and the interest rate on bonds. The price at which you acquire the stock is the crucial determinant of being a good or a bad buy. You should skip even the best company if the price goes too high and consider even the worst company if its stock goes low enough to create a substantial margin of safety. Assume an investor buys a stock that can grow at 10% per year at a time when the market grows 5% annually — but it's at the height of a bull market, and the stock drops by 50% the following year. Even if the stock continues to perform at 5% above market value, it will take the investor more than 16 years to overtake the market. All because they bought at the wrong price. By refusing to overpay, you minimize chances of wealth destruction. With value investing, you can achieve satisfactory investment results over the long run with reduced risk and without losing sleep over periodic market fluctuations. All it requires is the discipline to never purchase far above tangible asset value, resist the urge to invest in glamorous growth stocks and replace the mindset of a speculator with the investment approach of a partner. 

By: Martin Reeves32-MINUTE AUDIO / 3,857 WORDS (15 PAGES)SYNOPSIS We live in a business world that is in constant flux. But when you learn and understand the five strategy archetypes and how to execute them, you will master your journey through this turbulent land of opportunity. In Your Strategy Needs a Strategy, authors Martin Reeves, Knut Haanæs, and Janmejaya Sinha explain how to navigate these various approaches and avoid common pitfalls. With a solid foundation of the five archetypal approaches, create a "pyramid" of strategy application. Combine multiple approaches and top the process off with solid leadership.  DIAGRAM View fullsize TOP 20 INSIGHTSA classical strategy approach, i.e., "be the biggest," should be deployed in relatively stable and predictable markets with established competition. Homogenous business models are more likely to experience modest growth rates and few surprises or disruption. Most traditional businesses fall under this category but beware of the assumption that it applies to yours.The turbulence of business return on sales has more than doubled since 1950, which has forced classical industries to re-think their approach. Analysis by BCG Strategy found that the top three market-share leaders' probability of also being the top three profitability leaders declined from 35% in 1955 to just 7% in 2013.An author-created survey found that nearly 90% of firms intended to employ a classical approach of detailed forecasts, and 80% translate those into long-term plans. Classical shouldn't mean mechanical or overly complex, however. Use familiar tools to achieve new, uncomfortable, and surprising insights.Emphasize scale if your business is among the top three in your industry. If not, focus on differentiation, especially if your targeted niche segment is sizeable. Products or services must be distinct and valuable to succeed. DHL invested $10 billion to enter the U.S. express freight business but struggled to compete until it focused on international delivery.If you choose a classical strategy, you still need to adapt to slow but significant changes. Electrical utilities have deviated little over the last century but have begun to diversify into alternative energy sources. UPS employed a classical strategy in 1907 then adapted to e-commerce when it invested billions per year on IT systems.Businesses should apply the adaptive strategy, i.e., "be fast," only when it operates in an environment that is both hard to predict and hard to shape. Examples include software, fashion, and any product that relies on minerals or resources, such as semiconductors.Adaptive business models yield more consistent performance if you continually invest a portion of resources into the exploration of new options or adaptation. A simulation of 30 adaptive strategies executed within a turbulent environment showed more frequent but smaller drops in profit compared to a classical strategy.Continually refresh your data on external change and have the analytic capabilities to uncover hidden patterns. Progressive Insurance uses its Snapshot program to track and analyze driver patterns, which creates real-time risk profiles for each customer. CEO Glenn Renwick called Snapshot one of the most important things he’d seen in his career.An adaptive strategy can only succeed if you refuse to get comfortable. This attitude underpins company culture. Netflix has an internal reference guide to "Freedom and Responsibility" that says employees follow processes exceptionally well, but it strips a company of its ability to adapt quickly. Netflix tries to eliminate rules whenever possible.The visionary strategy approach, i.e., "be first," should only be deployed when creating or recreating an industry. This strategy must be timed precisely to succeed, however. Megatrends that emerge, new technology, or consumer dissatisfaction with the status quo trigger the pivotal moment to act.Visionary approaches are commonly associated with start-ups, but established firms should familiarize themselves with this approach -- if anything, to understand how companies can disrupt or help your industry. Genomic analysis firm 23andMe made DNA breakdowns available to the public. This data has become valuable not just to customers but to pharmaceuticals and hospitals.Of companies that intended to employ a visionary strategy, 95% still used a classic development approach that included detailed forecasts. There are four steps to a visionary strategy: detect an opportunity, create a clear vision of what you want to achieve, “sketch” a plan that can be changed, and get people excited about it.Don’t confuse detailed plans with clear direction. Expect to adjust a visionary strategy as you go. Ninety percent of entrepreneurs fail. If you do manage to become the first, you may not be for long. Once you establish your business, you may need to adopt other approaches to sustain a competitive advantage.You can deploy a shaping strategy when an opportunity arises to write or rewrite an industry's rules at a time of evolution. This approach works best in highly fragmented, young, and dynamic industries, freshly disrupted industries, or new markets. Win this strategy through co-development of the market and industry with multiple players.Shaping strategies focus on the ecosystem’s mutual value proposition. Apple focuses its efforts on the development of the App Store ecosystem to attract developers and users rather than hyper-focus on a particular app. Ask yourself what part you play in your business ecosystem and how you can collaborate with other players to create value for everyone involved.A shaping strategy typically requires that you build a platform on which your desired ecosystem can grow. Examples include a digital marketplace, supply chain orchestrator, or digital distribution channel. The strategy is to manage the platform by controlling a few key variables, adding incentives, and making it unattractive for rivals to compete.Adopt a renewal strategy when your industry or company displays low or limited growth, company funds are on the decline, your firm has suffered an internal or external shock, or your situation poses a viability risk for you. This strategy is also appropriate when your industry or company has restricted access to capital.Painful cutbacks are not enough to survive in a turbulent business environment. Instead, think long-term by adopting a three-step renewal approach. First, economize to stay afloat, then pivot to a strategy of innovation so that the company can remain competitive or even visionary in your field. Lastly, use that innovation to facilitate growth.Large companies that operate in multiple business environments can benefit from an ambidextrous approach to strategy. Lockheed Martin has used a separation approach as far back as 1943. Handle this approach in four ways: Separation of strategies between subunits or functions, switch between approaches, self-organize, or rely on an external ecosystem.Global connectedness requires leaders to be more vigilant to changes than ever. Crises are no longer limited to one industry or region. Analysis revealed that roughly 53 out of 70 industries studied are so turbulent that businesses progress through various life cycles in half the time compared to 60 years ago. SUMMARYThe world has never been so connected. While an ever-changing global economy creates opportunities that were once impossible, it has never been more difficult to pick a business strategy. Good news – you probably have more options than you think.The Five Business Strategy ArchetypesImagine strategies as paint on an artist’s palette. Apply each "color" to different parts of your business, from geographies to industries and functions. Strategies can also be mixed and matched to fit various stages of a firm’s life cycle or an environment that each part of the business faces.CLASSICALBe BigThe classical approach to business is the most common method taught in business school and used by long-standing industry giants. Simply put, your goal is to become the biggest and the best.Mars, Inc. is an exemplar of classical strategy. As the most significant player in the chocolate industry and a major player in others like pet food and chewing gum, scale drives all facets of its strategy. It can focus on growth because the industry is established and predictable.Paul Michael, President of Mars, Inc., says that he develops plans with a one-year and long-term horizon. He focuses on what they can control directly, such as costs and profitability. Mars is already a household name and has been for decades, so the goal is not recognition so much as driving category growth.If we revisit the artist analogy, think of the classical strategy as a still-life painting. You aren't inventing the image. You can rely on the unwavering subject before you. As a result, employing a classical strategy does not require a great deal of agility. Analyze your industry to determine market attractiveness, the basis of competition, and your own firm's position, then execute step-by-step until your "masterpiece" is complete.How to know if a classical strategy is right for you:Your company is in a predictable, non-malleable environment.Your business is in an industry similar to utility, automobile, oil and gasKey indicators include low growth, high concentration, mature industry, and stable regulationHow to know if a classical strategy is successful:You will achieve scale and grow market share.Essential trap to avoid:Overapplication: don't assume that a classical strategy is always appropriate just because your company has used it forever or because it's the traditional choice of your industry.Size offers protection. Suppose you are buying your way into a classical marketplace but do not have the scale to compete effectively; focus on a niche within the market. For example, Huawei first gained a position in China’s rural telecommunication sector and used it to gain size and momentum before entering the competitive urban market. ADAPTIVEBe fastEmploy an adaptive strategy when forecasts are no longer reliable enough to create accurate and durable plans. Since the 1980s, turbulence and uncertainty strike businesses more frequently and intensely and persist longer. For this reason, industries more associated with a classical approach may need to consider an adaptive strategy instead.Fashion is the perfect example of an adaptive strategy. Like its competitors at the time, Spanish fashion retailer Zara had to guess which styles would be popular and hope for the best. This strategy resulted in a few wins — but also the need to discount half their stock each year. Zara holding company Inditex pivoted to an adaptive strategy and reacted to what customers were buying instead of trying to predict future trends.The firm shortened its supply chain, purchased only tiny batches and constantly experimented in real-time. Up to half of Zara's clothes are designed and manufactured mid-season. Production costs are higher, but Zara's profit margins were double the industry average in 2010.How to know if an adaptive strategy is right for you:Your company is an unpredictable, non-malleable environmentYour business is in an industry like semiconductors, textile retail, softwareKey indicators include volatile growth, limited concentration, young industry, significant technological changeHow to know if an adaptive strategy is successful:You will see cycle time and new product viability index.Essential trap to avoid:Planning the unplannable: Many firms cling to the top-down classical approach even as the market changes around them. Leaders should define an area of focus, rough direction, or aspiration, but strategies must remain emergent and dynamic.Frequently, the data you need to adapt quickly is right under your nose. Convenience store chain 7-11 utilized its point-of-sale system in Japan to create useful pools of information such as customer demographics, time of day, and even the weather. The company used this information to test hypotheses about how these variables drove sales in real-time and how store variables adjusted to accommodate their unique customer bases.VISIONARYBe firstReady to change the world? Then the visionary approach might be for you. Employ this strategy when your industry is ripe for disruption or can be re-shaped by an individual firm. It can also be appropriate if your industry displays high-growth potential but suffers from unsatisfied customers and few regulations.Visionary strategies are exciting but easier said than done. It's a unique mix between a fixed goal and a flexible mindset. You'll need to deeply understand emerging trends or connect the dots between converging trends to steer into them at the right moment.Identify an opportunityFormulate your visionSketch the plan (keep it loose!)Communicate your vision broadly to attract stakeholdersBefore Amazon, UPS recognized the future potential of e-commerce and invested heavily -- $1 billion per year – on IT systems to handle future transactions. This new infrastructure paved the way for Jeff Bezos to launch the first online bookstore. How to know if a visionary strategy is right for you:Your environment is predictable, yet malleable. You work in new industries or disrupted ones, i.e., the rise of the sharing economy (like Airbnb and Uber)Key indicators include high growth potential, no direct competition, limited regulationHow to know if a visionary strategy is successful:You will be first to market and achieve new user customer satisfactionEssential trap to avoid:Wrong Vision: It can be easy to obsess over a passing trend or an idea that doesn't offer a legitimate opportunity.The visionary approach is only appropriate for so long in a company’s life cycle. After all, a great idea usually spawns great competitors. Once you’ve done your job changing the industry forever, it’s time to change your strategy depending on the current environment.SHAPINGBe the orchestratorWhen an industry is new or recently disrupted, dynamic, and highly fragmented, the time could be suitable for shaping business strategy. Barriers to entry are often low, products are new to regulators, and the future is bright but uncertain.Disruptive innovations like social networks or smartphones can thrust a previously stable, non-malleable industry into a new phase of unpredictability.The Alibaba Group began with a B2B portal in 1999 to connect Chinese manufacturers with foreign customers. Its consumer variant, Taobao, launched just as internet browsers became more commonplace in the household and broadband replaced dial-up connections. Alibaba handled larger transaction volumes than Amazon and eBay combined by 2013 and accounted for over half of all Chinese parcel mail.How to know if a shaping strategy is right for you:Your environment is unpredictable and malleableYour industry could be software or smartphone appsKey indicators include fragmentation, no dominant player or platform, shapeable regulationHow to know if a visionary strategy is successful:You achieve ecosystem growth and profitability and new product viability indexEssential traps to avoid:Over-managed ecosystem: Control key elements like profitability and scale, but avoid dominating your ecosystem, lest it reduces variety and dynamism.Implement a shaping strategy at all company levels, from culture to leadership and beyond. The point is to be the catalyst for innovation both inside and outside of your firm. Google holds developer conferences regularly to provide training feedback and encourages collaboration.RENEWALBe viableWhen an established business finds itself in a harsh environment, it should consider a renewal strategy. This temporary solution allows a firm to react, economize, and – when things calm down – focus on growth once again. American Express survived the 2008 recession with the mantra, “Stay liquid, profitable, and invest selectively to grow the business.” Then-CEO Ken Chenault said that although he launched a swift and aggressive restructuring program, he still had to be thoughtful and be governed by both short- and long-term considerations for the firm.Chenault encouraged the company not to "hunker in the bunker" but rather "survive and grow." Businesses undergoing renewal should focus on emerging better than ever.A successful renewal strategy requires a two-step approach:Economize: restore financial viability and close performance gapsPivot to growth: define a new strategic phase of transformation and reassess the current strategy approachHow to know if a renewal strategy is right for you:Your environment is harshYour industry is in a similar position to financial institutions in the 2008-2009 crisisKey indicators include low growth, decline, and crisis; restricted financing, negative cash flowsHow to know if a renewal strategy is successful:If you achieve cost savings and an increase in cash flow.Essential traps to avoid:Cost-cutting without a second phase: Don’t “burn the furniture” by continually cutting costs instead of looking to the future. Many firms declare victory after phase one but fail to develop a second phase of innovation and growth.Leadership is critical to a renewal strategy. Initially, these leaders will have to make the tough decisions while offering hope through clear, optimistic messaging about the long-term plan.  While everyone is busy saving the company, leaders must picture the end game and jump-start innovation to facilitate growth. BONUS STRATEGY: AMBIDEXTROUSBe flexibleAmbidexterity is not a "color" on our symbolic palette, but rather a technique for mixing those colors to achieve the desired result.Global businesses operate in multiple business environments that cannot operate with a "one size fits all" strategy. As a result, each unique geography, market, and product requires a different strategy or combination.PepsiCo pursues a classical scale and positioning approach but mixes strategies depending on the situation. The company employs an adaptive strategy that responds to shifts in consumer behavior. Products and services test in one country before rolling out on a global scale.As former PepsiCo CEO Indra Nooyi said, any large company must both run and reinvent the business in each business it operates inside.Ambidextrous strategy is challenging to implement because it requires a combination of measures that can be diametrically opposed. Research by The Boston Consulting Group (BCG) found that, between 1960-2011, less than two percent of U.S. firms managed to outperform during both stable and turbulent periods simultaneously. The Four Approaches to Ambidexterity:Separation: Deliberately manage which approach to strategy belongs in each subunit; division, function, etc.Switching: Manage a shared pool of resources and switch between approaches over time or mix them as needed.Self-organization: Each unit chooses which strategic approach to implement.External ecosystem: Different approaches are sourced externally through an ecosystem of players that self-organize.Essential traps to avoid:As with the adaptive strategy, beware of planning for the unplannable. Avoid being too rigid in your approach.Be open to discovery. Apple uses several approaches depending on its function. The Apple Store is a shaping approach; the iPhone was and continues to be visionary while shaping the manufacturers' ecosystem. The company adapts to changing needs and those it anticipates, too, while scaling the company to remain a global leader.

By: Scott Galloway32-MINUTE AUDIO / 3,857 WORDS (15 PAGES)SYNOPSIS What will the world of business look like after the coronavirus pandemic? The pandemic will accelerate every trend by a decade and redefine entire industries. Foundational sectors like healthcare, education and transportation are on the verge of unprecedented disruption as the market rewards innovators like Tesla with massive valuations. Scott Galloway, a professor at NYU Stern School of Business, presents a clear-eyed overview of this great transformation, the new business environment, Big Tech’s dominance, and who stands to win and lose in this new age. DIAGRAMS View fullsize View fullsize View fullsize TOP 20 INSIGHTSEcommerce's share of U.S. retail, which had been growing by one percent every year, jumped by 11% within eight weeks of the pandemic hitting the United States. The strong performance of big companies fueled the U.S. stock market recovery. However, medium companies declined, and smaller companies got hit the hardest. While the S&P registered growth by mid-July 2020, mid-caps were down 10%, and small caps dropped by 15%. Brands that were already going down, like JCPenny and Neiman Marcus, got hit the hardest. A large portion of the stimulus capital that entered U.S. capital markets went towards innovative firms. Tesla's valuation exceeds Toyota, Daimler, Volkswagen and Honda combined, even though it will manufacture only 400,000 cars rather than 26 million cars manufactured by the other four in 2020.  Sectors will witness market consolidation around innovators or market giants with solid balance sheets, high-value assets, cheap debt and low fixed costs. Firms like Costco, Honeywell and Johnson and & Johnson, which have $11 billion, $15 billion and nearly $20 billion respectively in their bank accounts, will have their pick of assets and customers when weaker competitors shut down. A company's survival depends on the sector's health and its position within it. Non-dominant companies within weak sectors must leverage current assets to pivot to new lines of business. Thryv Holdings, America's largest yellow pages company, used its relationship with thousands of small businesses to pivot into Customer Relationship Management. Companies must become capital-light and move to a variable cost structure by leveraging other people's assets. Uber rents space in other people's cars driven by non-employees. So when revenue went to zero during the pandemic, Uber's costs went down by 60- 80%. Despite the hospitality industry taking a huge hit, Airbnb is well-positioned to take a more significant industry share.82% of corporate leaders plan to allow partial remote work, and 47% intend to offer full-time remote work in their organizations. But remote work has its share of drawbacks. Serendipity is key to innovation, and presence strengthens accountability. Companies must offer creative perks like home office supplies and grocery debit cards to support remote work. After Covid, more employees will demand work from home from their organizations. Individuals with salaries over $100,000 will have an easier time making the demand. This will create a higher separation of classes after Covid. 60% of jobs that pay over $100,000 can be done from home compared to just 10% of jobs that pay below $40,000. The Brand Age, where companies sold mass-produced products for irrational margins by creating emotional associations through advertising, has ended. The Product Age powered by online discoverability has begun. When advertising spends return, they will flow towards online platforms. Facebook and Google will account for 61% of the digital ad market in 2021. There are primarily two digital business models. Companies sell products for a profit or monetize their users. Android offers cheaper, privacy-invasive smartphones, while iOS demands a premium for a product that respects privacy. As privacy becomes more central, these models will become incompatible. Apple will abandon Google search even when Google pays $12 billion every year.Post Corona, Amazon, Google, Facebook, Apple, and Microsoft's market dominance will only grow stronger. Big Tech makes up 21% of the value of all publicly traded companies. Amazon and Apple added Disney, AT&T/Time Warner, Fox, Netflix, Comcast, Viacom, MGM, Discovery and Lionsgate to their market capitalization between Jan 2019 to February 2020. Big Tech companies leverage their market dominance to create flywheels - virtuous cycles that generate growth without proportional costs. Apart from rapid delivery, Amazon Prime offers video streaming to increase the time spent on its platform. Apple dominated the wearables business (Apple Watch, AirPods and Beats) with $20 billion in revenue in 2019 because its flywheel connects phones, watches and wearables, an advantage that Rolex or Bose cannot compete against.Big Tech has transformed entire industries into features. Amazon has outperformed FedEx and made the delivery industry into Prime feature. The media industry, worth hundreds of billions of dollars, will become a customer acquisition vehicle for Apple and Amazon's core business. Massive market capitalization also creates problems for tech giants. Investors expect Big Tech companies to add nearly a trillion dollars in revenue over five years. Only a few sectors can provide that growth: Healthcare, Life Insurance and Education. Big Tech firms will have to enter these markets and compete with each other.Amazon's signature move is to transform cost centers into revenue heads. It does this by leveraging its scale and access to limitless cheap capital to make massive investments that others just cannot match. Amazon built the best data center capabilities in-house and sold them to other companies through Amazon Web Services(AWS). It leveraged its warehouse and distribution expertise to launch Amazon Marketplace.  Amazon has more customer insight than any insurance actuary. It can leverage that to foray into insurance. Further, it can enter healthcare and offer telemedicine services through Alexa as the pandemic has removed regulatory bottlenecks. Combined with its retail, pharmacy and wearables, Amazon can offer an integrated healthcare product to rival hospitals.Companies must find ways to create recurring revenue models by offering bundled services. As a product manufacturer, Apple should have taken a hit during the pandemic. However, it had transitioned into a software company with recurring revenue through massive investments in iCloud, Apple T.V., Apple Cloud and Arcade. Recurring revenue contributed 23% of Apple's 2019 revenue, cushioned it from the pandemic and doubled its valuation. Most products depreciate. To dominate, companies must build Benjamin Button products that become more valuable with every use. The Benjamin Button effect is the result of more user data and network effects. Spotify adds more users every year, attracting more artists and giving the company more data to improve its personalization. Similarly, Netflix's recommendations improve each time a user watches a movie or a T.V. show.Evolutionary psychology says that brands can appeal to customers in three ways. They can target the "brain," the "heart," or "genitals." Brands that appeal to the brain make rational claims of higher value or lower prices like Amazon. Companies like Facebook tap into the heart's instinct to care for friends and family. Finally, brands can appeal to the sexual instinct to feel more attractive to sell premium products at irrational margins like Tesla.Academia, healthcare and insurance are waiting for disruption. Industries are open to disruption when there is a dramatic increase in price without a corresponding increase in value, a heavy reliance on brand equity or customer ill-will. College tuition has increased 1400% over 40 years without significant value addition. The average family coverage premium has increased 54% in 10 years. After Covid, Big Tech will move into academia. Clayton Christensen predicted that 50% of colleges and universities would go out of business in the next 10 to 15 years. Big Tech firms may partner with academia to offer 80% value of a four-year degree to thousands at 50% of the cost. MIT and Google could jointly design a $50,000 two-year program that enrolls 100,000 students to generate $5 billion every year.   SUMMARYThe pandemic has accelerated every social and business trend by ten years and opened the floodgates for disruption in multiple sectors. This book tries to predict the future of business, education and society in the post-pandemic world. THE GREAT ACCELERATIONEcommerce's share in U.S. retail was growing at about one percent every year. Within eight weeks of the pandemic, the number jumped from 16% to 27%. A decade of ecommerce growth took place in eight weeks. Apple took 42 years to reach $1 trillion in value and just 20 weeks to grow to $2 trillion. Trends in economic inequality and unemployment have accelerated as well. Twenty million jobs were added over the last ten years. Forty million jobs were lost within ten weeks. Forty percent of households with income below $40,000 were laid off or furloughed compared to just 13% percent of households over $100,000.The pandemic opens opportunities for innovation as well. The three largest U.S. consumer categories - healthcare, education and grocery are being fundamentally disrupted. Most people were forced to access healthcare and remote learning and order groceries online. A decade's worth of habits became forged in a matter of weeks. The Strong Get StrongerAfter a brief plunge, markets continued to climb even as the death toll hit 100,000. This "recovery" is due to the outsized gains of Big Tech and a few other giants. By July 31, the S&P 500 had recovered to January 1 levels, but mid-caps in the S&P 400 were down 10%. Small-caps in the S&P 600 were down 15%. Firms with weak balance sheets were being slaughtered, including prominent names such as Neiman Marcus, JCPenny, Gold's Gym and California Pizza Kitchen. When weaker competitors shut down, the firms like Johnson & Johnson, which has $20 billion in the bank, will choose the best assets and customers. The most significant damage from an economic standpoint will come from medium and large companies with weak balance sheets and many employees. Markets make big bets on vision and growth narratives over hard numbers, leading to significant gains for innovators and market giants and steep declines for smaller firms and incumbents. Companies that have been doing well have benefited remarkably while weaker competitors have been shut out of capital markets had debt ratings cut, and customers worried about long-term deals. Firms that are deemed innovative are seeing valuations that reflect estimates of cash flows ten years from now discounted back at low rates. That's why Tesla's value exceeds the value of Toyota, Volkswagen, Daimler and Honda combined, even though it will produce just 400,000 cars in 2020 while the other four will build 26 million cars. ADAPTING TO THE CRISISThe company's sector and relative strength within the sector are critical determinants of survival. Companies in weak sectors without market dominance will have to explore pivots into more substantial sectors. Are there assets that can be leveraged to create a new line of business? The country's largest yellow pages company successfully leveraged its relationship with many businesses to pivot into a Customer Relationship Management(CRM) company. If the business is in structural decline, generate the last drop of revenue from the brand instead of giving it another lifeline. Plan a graceful exit by using those profits to ease the transition for employees and customers. Radical Cost CuttingFor weak companies, survival depends on radical cost-cutting. Get to the lowest cost-base as fast as possible by suspending rent-payments, selling inventory at reduced prices and reducing compensation, beginning with the highest earners. Explore alternative means of compensation like equity and vacation. Apart from cutting costs, try to do more with assets that cannot be shed. Universities have high fixed costs due to tenure, solid unions and facilities. However, many of them are investing in technology to lower costs per student by reaching more students.  Cloud Cover for Big DecisionsNow is a good time for businesses to start afresh and rethink their value proposition for a post-corona world. Companies get the cloud cover to make big decisions and bold bets as there is no pandemic playbook. Use this to reimagine market strategy, labor composition and place big bets for the future.The Covid Gangster MoveThe killer move is to have a variable cost structure by leveraging other people's assets. Uber rents space in other people's cars driven by non-employees. When revenue hit zero in the pandemic, Uber's cost correspondingly went down by 60% to 80% and its share price held value. For similar reasons, Airbnb is well-positioned to survive the pandemic and take advantage of the work-from-anywhere model enabled by a boom in remote work. LOOKING AHEADThe Future of Remote WorkThe open question is whether technology can disperse work without sacrificing innovation and productivity. Ideas emerge from serendipitous conversations, and presence is key to fostering accountability and building relationships. However, presence is costly in terms of real estate, commute and other costs. As of June 2020, 82% of corporate leaders plan to allow remote working some of the time, and 47% intend to offer full-time remote work going forward. Companies need to think of creative ways to support employees. Reduce office snack spends and offer monthly grocery debit cards. Offer gift cards for office supplies to set up good home offices. While remote work offers flexibility, a reduced commute and more savings, it also has its share of risks. A job moved out of metro areas can be moved overseas. Presence has implications for who is on the top of the executive's mind for promotions and opportunities. Remote work benefits will distribute unevenly to society. 60% of jobs that pay over $100,000 can be done from home compared to just 10% of jobs that pay below $40,000. Flexible satellite offices, distributed across the country, where people can work alone or in teams, could be the future.  From Brand Age to the Product AgeFrom World War two till the rise of Google, the formula for shareholder value was to create compelling brand associations for mass-produced products. Branding injected emotion into inanimate products resulting in consumers willing to pay irrational margins. In 2020, the Brand Age gave way to the Product Age. In the Brand Age, a traveler to New York would go to the Ritz because that's the brand she knows. In the Product Age, a Google search reveals that the Ritz is overpriced, and instead, she finds a boutique hotel based on crowdsourced recommendations. The losers in this transition are the media companies and advertising firms. When advertising spending returns, it will flow only to Product age firms like Google and Facebook and not traditional media. Predictions put Google and Facebook's combined share of the digital ad market at 61% in 2021.Two Conflicting Business ModelsThere are two fundamental business models. A company can sell a product for more than the cost of production. Otherwise, companies can offer subsidized products to sell customer attention and behavioral data. Most digital industries will bifurcate along this divide. Android phones offer a great product for low upfront costs but at the cost of privacy, while iOS offers a luxury privacy-conserving product for premium margins. These models will become increasingly incompatible as privacy becomes a core issue. Apple could give up its $12 billion a year contract to make Google the default search engine and develop a competitor. Similarly, Shopify leveraged exploitation by Amazon to offer a simple product to sellers. Sellers control the data, branding and the customer while Shopify gets a simple fee.THE MONOPOLY ALGORITHMFive months into the pandemic, major American companies like ExxonMobil, Coca-Cola, JPMorgan Chase and Disney were down 30%. But Amazon, Google, Facebook, Apple and Microsoft were up 24% in mid-2020. These five companies make up 21% of the value of all publicly traded companies.The Flywheel ModelCompanies like Apple and Google leveraged the lead given by innovation to create effective monopolies. They did this by concealing their market position and exploiting outdated antitrust laws. Finally, they have a flywheel to grow revenue without increasing input or cost. Amazon Prime attracts shoppers who want rapid fulfillment. The subscribers enjoy Amazon Prime Video, which increases Amazon Prime's stickiness and time spent on the platform. This business model makes sense for Amazon as the Net Promoter Score is zero for eCommerce companies, but it is strong for streaming video. This revenue model, combined with a lack of antitrust action, has led to massive companies that turn entire industries into loss leaders for protecting their core business.Similarly, Apple dominates wearables, becoming the largest watchmaker by a factor of four. Apple's wearables business generated $20 billion in 2019, making it one of the 20 most valuable firms in the world. Apple has created a Flywheel of connecting phones, watches and headphones, an advantage Rolex or Bose cannot compete against.  From Industries to FeaturesTech turns entire industries into features. Amazon has turned the delivery industry into a Prime feature. Amazon has leveraged its online penetration into 82% of American households to beat FedEx. With hundreds of billions of dollars in value and massive cultural influence, media is being "featurized." Media firms like Comcast, AT&T and Verizon will bleed value to Apple and Amazon, to whom it is not a core business. Between January 2019 and February 2020, Apple and Amazon added Disney, AT&T/Time Warner, Fox, Netflix, Comcast, Viacom, MGM, Discovery and Lionsgate to their market capitalization. Media has become a customer acquisition vehicle, not a standalone business. Size ProblemsSize creates its own problems for Big Tech firms. Investors expect them to add nearly a trillion dollars to their revenue over five years. They have to enter new markets and compete with each other. There are only a few sectors large enough for this appetite: Education, Healthcare, Life Insurance and Education. Turn Expense Lines into Revenue LinesAmazon's killer move is to turn expense lines into revenue lines using scale and ultra-cheap capital. Amazon took advantage of its massive data center volumes and its ability to invest nearly unlimited capital to build the best data center management capabilities. Then Amazon turns it around and sells it to other companies through Amazon Web Services. Amazon did the same thing with warehouse and distribution and launched Amazon Marketplace. Amazon will likely foray into healthcare, leveraging its massive customer insights to disrupt a bloated and much-reviled industry like insurance. It could also move to reduce the financial cost of healthcare by providing telemedicine services through Alexa. Amazon's healthcare platform could integrate with its retail, pharmacy and wearables platform for a "holistic approach" to health. The opportunity is open as the pandemic removed regulatory bottlenecks to telemedicine.  THE TRILLION DOLLAR DNAThe T Algorithm lists the eight essential elements for a company to have a shot at a trillion-dollar valuation. Appealing to Human InstinctThe most potent firms target the "brain, the heart, or the genitals" of a customer. Rational claims appeal to the brain. Brands that target knowledge (Google) or rational claims of value like Dell tend to have small margins. Brands that target the heart exploit the instinct to care for our own. Facebook appeals to the heart exploiting our need to connect to our friends and family. Luxury brands leverage the instinct to improve our sex appeal to sell products that make us feel more successful and good-looking.Career Accelerant: A company seen as a potent career accelerant attracts top-notch talent leading to higher innovation and greater success.Balancing Growth and Margins: Usually, fast-growing firms sell high volumes of low-margin products while luxury brands sell high-margin products at low volumes. Only a few firms can combine both.Bundle: A bundle of goods and services that create recurring revenue. Vertical Integration: This is a firm's ability to control the end-consumer experience by controlling most of the value chain. Apple controls end-user experience through controlling both the iPhone and the App Store. Benjamin Button Products: Unlike traditional products like cars, some digital products become more valuable with time. Facebook and Spotify become more valuable over time as the number of users increases the richness of personalization and data profiling. Visionary Storytelling: The ability to demonstrate progress against a bold vision motivates employees and attracts cheap capital. Likeability: The ability to insulate a firm from media and government scrutiny and create positive brand associations in customers' minds.TeslaElon Musk's vision, storytelling and far better products have provided cheap capital that other players can't beat. The firm is vertically integrated, selling cars directly. However, its core advantage is appealing to "sexual instinct" through every aspect of its strategy. Owning a Tesla is the ultimate status symbol indicating that the owner is wealthy with a conscience. Further, it makes its customers perceive themselves as innovators and visionary rebels. SpotifyWith recurring revenue and a "Benjamin Button" product, Spotify has all the ingredients of a trillion-dollar firm. However, it has a valuation of just $47 billion. Apple Music has most of the music available on Spotify, along with the advantage of vertical integration. If Spotify and Netflix merge and acquire Sonos for vertical integration, they could control video and music and establish devices in America's wealthiest homes.  DISRUPTING HIGHER EDUCATIONIn the past 40 years, college tuition has increased 1400% without any remarkable value addition or innovation. Premium universities have leveraged scarcity(low admission rates) to increase prices. These price rises have been enabled by federally subsidized student loans, leading to a total student loan debt of $1.6 trillion. In 2012, Clayton Christensen predicted that 25% of colleges and universities would go out of business over the next ten to fifteen years. By 2018, he raised the number to 50% pre-Covid. In exchange for time and tuition, a college offers a credential, education and the college experience. The pandemic gave most institutions a fiscal shock. Schools like Harvard that have low acceptance rates and offer exceptional credentials will be fine. So will schools that offer solid education at a great price without an emphasis on experience. However, schools that offer an elite-like experience at premium prices without credentials will face the heat.Online education holds tremendous potential as it can scale. Top professors and administrators in the top 10 universities will see classroom sizes expand and revenues rise. Almost everyone else in academia will make less. The most significant disruption could be Big Tech firms partnering with academia to offer 80% of a traditional four-year degree at 50% of the cost. MIT and Google could offer joint 2-year STEM degrees, enrolling 100,00 students at $25,000 per year in tuition, yielding $5 billion for a two-year program. In August 2020, Google began offering courses with career certificates that it and other participating employers will consider equivalent to a four-year degree in that domain. There is no going back to the previous normal. This pandemic will reshape entire industries, and the way we work and learn will change. Iconic old brands will die, industries will consolidate, and newer innovators like Tesla will see their fortunes rise. The world has fast-forwarded decades in one year.

By: Brian Christian and Tom Griffiths24-MINUTE AUDIO / 3046 WORDS (13 PAGES)SYNOPSIS Can computer science teach us the secrets of life? Perhaps not, but it can shed light on how certain everyday processes work and how to exploit them. Algorithms are everywhere, from following a recipe to the order in which you sort your email.In Algorithms to Live By, programmer and researcher Brian Christian and psychology and cognitive science professor at UC Berkeley Tom Griffiths share the many ways that algorithms shape everything from the way we remember things to how we make big and small decisions.  DIAGRAMS View fullsize View fullsize TOP 20 INSIGHTSThe "37% rule" refers to a series of steps, or algorithms, that someone must follow to make the best decision within a set amount of time. Someone allots 37% of their time to research before they make a decision, then commits to the very next "best choice" they find. The "explore/exploit" trade-off refers to the need to balance the tried and tested with the new and risky. The payoff of this algorithm depends entirely on how much time you have to make decisions. People are more likely to visit their favorite restaurant on their last night in town than risk something new.Developed in 1952 by mathematician Herbert Robins, the "Win-Stay, Lose-Shift" algorithm uses slot machines as a metaphor. Choose a machine at random and play it until you lose. Then switch to another machine; this method was proven to be more reliable than chance.A psychology study found that given choices, people often "over explore" rather than exploit a win. Given 15 opportunities to choose which slot machine would win, 47% used Win-Stay, Lose-Shift strategies, and 22% chose machines randomly instead of staying with a machine that paid out.Hollywood is a prime example of the exploit tactic. The number of movie sequels has steadily increased over the last decade. In both 2013 and 2014, seven of the Top 10 films were either sequels or prequels. The trend is likely to change if new movie ideas draw more box office dollars.The A/B test is similar to the two slot machine scenario in that you stick with the option that performs best. More than 90% of Google's $50 million in annual revenue is from paid advertisements, which means that explore/exploit algorithms power a large portion of the internet. The Gittins Index provides a framework of odds that assume you have an indefinite amount of time to achieve the best payoff, but the chances reduce the longer you wait. For example: choose a slot machine with a track record of one-to-one wins/losses (50%) over the machine that has won nine out of 18 times."Upper Confidence Bound" algorithms offer more room for discovery than the "Win-Stay, Lose-Shift" method. This algorithm assigns a value based on what "could be" based on the information available. A new restaurant has a 50/50 chance to provide a good experience because you have never been there.The "Shortest Processing Time" algorithm requires that you complete the quickest tasks first. Divide the importance of the task by how long it will take. Only prioritize a task that takes two times as long if it is two times as important.Laplace's Law calculates the odds that something will occur with only small amounts of data. Count how many times that result has happened, add one, then divide by the number of opportunities plus two. For example: Your softball team plays eight games per season. It has already won two games. 2+1/ 6+2=3/8, or a 37.5% chance you win the next game.The Copernican Principle allows you to predict how long something will last without much of anything about it. The solution is that it will go on as long as it has gone on so far. Based on this principle, Google will reasonably last until 2044 (23 years since 1998 + 23 from 2021)."Power-law distribution" considers that, in life, most things fall below the mean and a few rise above. Two-thirds of the US population makes less than the mean income, but the top 1% make almost ten times the mean. Few movies make "Titanic" level money in the box office, but some do.The "Nash Equilibrium" explores the phenomenon of two-player games and the way that players form strategies that neither wants to change based on what the other person does. This creates stability. In Rock-Paper-Scissors with three options, players adopt a 1/3-1/3-1/3 strategy unless the other person changes tactics, and the process starts again.Human brains have a nearly infinite capacity for memories, but we have a finite amount of time to access them. This results in the "forgetting curve." A study by Hermann Ebbinghaus found that he could recall nonsense syllables 60% of the time after he read them, but it declined to 20% after 800 hours.Ebbinghaus' "forgetting curve" was shown to closely match how often words are used in society. The recurrence of words found in headlines of The New York Times declined at a rate of 15% over 100 days and implied that human brains naturally tune their processes to the world around us.The stock market "flash crash" of May 6, 2010 was caused by an "information cascade." When one person does something different, then other people follow suit, assuming that the first person knows something they don't. This behavior causes people to panic buy or exhibit mob behavior.Sociologist Barry Glassner noted that murders in the United States declined by 20% throughout the 1990s, and yet the mention of gun violence on American news increased by 600%. An information cascade can be caused more by public information than private information.When authors Brian Christian and Tom Griffiths scheduled interviews for the book, they found that experts were more likely to accept a narrow, predetermined window than a wide-open one. It is less challenging to accommodate restraints than find another solution.Believe it or not, randomness is part of life's algorithm, too. Nobel prize-winner Salvador Luria realized that random mutations could produce viral resistance by watching his friend win the jackpot on a slot machine.The best-laid plans are often the simplest. Jason Fried and David Heinemeier Hannson, founders of software company 37signals, use a thick marker when they start to brainstorm because it limits room and forces them to keep it simple and focus on the big picture. SUMMARYOptimal StoppingLook versus leapLife is full of situations that require us to make the best possible decision in the shortest amount of time. Drivers search for the perfect parking space. Managers search for the best job candidate for a job, and property owners must decide on whether or not to accept a sale offer before the real estate market changes again. This dilemma is called "optimal stopping.""Optimal Stopping" problems refer to dilemmas that require the best decision in the shortest amount of time. How do you balance the need to get all the facts with the need to act before it's too late? Common examples include searching for the perfect parking spot, when to rent an apartment before they're all taken and when to hire the best candidate for a job. The latter has been thoroughly examined and discussed by mathematicians since the 1950s. This problem is known as the "Secretarial Problem."If an employer interviews 100 secretary applicants, that person should allocate the first 37% percent of interviews to familiarize themselves with the talent pool and best qualities. If they hire the very next applicant that appears to be the "best so far," the company has a 37% chance of that person being the best candidate. The odds become greater with fewer applicants.A renter on the hunt for an apartment in San Francisco might be inclined to take the first available unit due to high demand. If that renter needs to find a new place to live within 30 days, the "Optimal Stopping" algorithm suggests that the renter commit 37% of their time, or 11 days, to explore options without any commitment. On day 12, the renter must be prepared to commit to the first place that they consider to be the "best so far." Explore versus ExploitLaura Carstensen, a psychology professor at Stanford, hypothesized that people strategically reduce their social circles as they get older. In one study, people were asked if they would rather spend 30 minutes with an immediate family member, an author that wrote a book they read recently or someone they'd met who appeared to share their interests. Older respondents chose the family member, while younger people chose to make new friends.When time was added or taken away, however, something interesting happened. If older people were allowed to live 20 years longer, their choices matched those of younger respondents. If younger respondents imagined they were about to move across the country, they chose family members instead.Life is full of uncertainty, making the decision process that much more of a struggle at times. To take some of the life or death pressure out of the equation, let's turn instead to something a bit less dire – the casino slot machine.Dubbed the "one-armed bandit," slot machines come with various payout odds that have baffled gamblers and fascinated statisticians for centuries. In 1952, mathematician Herbert Robbins proposed a solution to the age-old dilemma of whether you should hold out for the next big win or quit while you're ahead. He called this the Win-Stay, Lose-Shift algorithm.Robbins proposed that a person should choose "an arm" at random (explore), then pull it as long as it pays off (exploit). Once the machine fails to pay, the person should move to another one, and so on.Minimal RegretSometimes you have to weigh the risk with potential regret to find the solution to your particular problem. Amazon CEO Jeff Bezos had a steady, well-paid job on Wall Street before starting Amazon. The risk of the first online bookstore, he found, was outweighed by the possibility that he might regret not trying, a "regret minimization framework.""I knew that when I was 80, I was not going to regret having tried this," Bezos said. "I was not going to regret trying to participate in this thing called the internet that I thought was going to be a really big deal. I knew that if I failed, I wouldn't regret that, but I knew the one thing I might regret is not ever having tried.""Upper Confidence Bound" algorithms offer more room for discovery than the "Win-Stay, Lose-Shift" method. This algorithm assigns a value based on what "could be" based on the information available. A new restaurant has a 50/50 chance to provide a good experience because you have never been there.Algorithms can't guarantee a life without regret, but they show how our willingness to take risks is reduced by how much time we think (or know) we have to take them. When we are children, we explore our worlds and discover new things with great enthusiasm. As we grow older, we tend to rely on the "tried and true" decisions based on what we've learned, i.e. exploit them. Plan with PurposeOften, those tasks with a due date can be tackled from the nearest deadline to the furthest. If you have multiple tasks due simultaneously, it is best to sort them by how long each will take. To approach this type of schedule, especially if you have multiple clients, you can reduce the amount everyone must wait using the Shortest Processing Time algorithm. Simply put, always tackle the quickest task first and so on. Imagine a Monday morning in which you have one big project that takes four days to complete and a smaller project that takes one day. If you deliver the big project first on Thursday (4 days) and the small project on Friday (5 days), your clients will have waited a total of nine days. If you deliver the small project first on Monday (1 day) and the big one on Friday (5 days), your clients will have waited for a total of six days between them. This is known as the "sum of completion times."Another approach is to assign a weight to each task, such as how much money it will bring in. Divide each task's weight by how long it will take to complete, then work in the highest to lowest order. For a freelancer or independent contractor, this allows you to determine each task's hourly rate. Divide each project fee by its size and work from the highest hourly rate to the lowest.Predict the FutureAstrophysicist J. Richard Gott III developed the Copernican Principle in 1969 – a method to predict how long something will last. When he visited the Berlin Wall, he wondered how long the wall would last. Since he didn't know how long the wall's life span would be, Gott could assume that, on average, his arrival would be around halfway through. Therefore, he guessed that the wall would stand for another eight years. In this case, the Berlin Wall stood for 20 years, not eight.The Copernican Principle isn't perfect – a 90-year-old man is unlikely to live to be 180 – but there are instances where it works well. Long before Gott gave this algorithm a name, statisticians tried to estimate how many tanks the Germans produced each month during World War II. The solution was to double the serial number seen on the tanks and estimate that at least twice as many existed. In this case, they estimated 246 tanks were manufactured each month, compared to the 1,400 suggested by aerial reconnaissance. After the war, German records confirmed the actual number to be 245.Forget About ItYour brain was designed to forgetThe human memory seems to be a fickle thing at times, but there is a method to the madness. Hermann Ebbinghaus, a psychologist at the University of Berlin in 1879, studied himself to understand memory better. Each day, Ebbinghaus would memorize a list of nonsense syllables and quiz himself. He then created a graph to show how long it took for his memory to fade. The likelihood of recall predictably declined with time, from close to 60% just after reading something to just 20% after 800 hours.John Anderson, a psychologist and computer scientist, reexamined Ebbinghaus' work in 1987 to see if he could design computer systems around the human brain. He discovered that our brains forget information when it is no longer relevant to the world around us. Anderson analyzed headlines from The New York Times and found that a word is most likely to reappear right after first being used. The likelihood of seeing it again reduced more over time. Side by side, the appearance of the chart looked nearly identical to Ebbinghaus' data. Seek Balance… or NotThere is a natural balance in everything, especially in two-player games or scenarios that include at least two competitors. Mathematicians call this phenomenon "equilibrium" because it is stable. Equilibrium is especially evident in poker, where players stick to their strategies unless a significant change occurs.Example: In Rock-Paper-Scissors, there are only three options for players to choose from. Players naturally pick a random choice or 1/3 strategy. If one of the players starts to use rock more often, the other play adapts and uses paper. The other player will then balance things out again by changing strategy, i.e. scissors, etc., and the process starts again.Mathematician John Nash, immortalized in the book and film "A Beautiful Mind," proved in 1951 that every two-player game has at least one such equilibrium. This discovery earned him the Nobel Prize in 1994 Economics. Often referred to as the "Nash Equilibrium," this principle offers a prediction of the stable long-term outcome of any set of rules or incentives. This algorithm is used to plan and shape economic policy and social policy – but sometimes, "stable" does not necessarily mean "good."If a town has two shopkeepers that attract the same customers, the first will lose business if they work six days a week while the other works seven. The Nash Equilibrium suggests that if both businesses take a day off, they will both get rest, but both lose business. So, both owners work seven days a week.Change the GameIf your friend jumped off a bridge, would you do it, too? The human instinct to copy one another can be a survival trait, like turning to look when you see others do just in case danger lurks nearby. Fads and fashions come and go. Is it better to play it safe or make your own way for better or worse?"Whenever you find yourself on the side of the majority, it is time to pause and reflect," said Mark Twain.People tend to make decisions based on assumptions they derive from the actions of someone else. If everyone bought Beanie Babies, they must be valuable, right?When this process begins to avalanche out of control, it is called an "Information Cascade." The real estate crisis of 2007-2009 was an example of home prices rising due to demand, only to crash. People assume that because many others do something that urgency exists. (Toilet paper in 2020, for example.) The results can be catastrophic.Be wary of cases where public information seems to exceed private information. The representation of events in the media does not match frequency in the world. Sociologist Barry Glassner noted that murders in the United States declined by 20% throughout the 1990s, and yet the mention of gun violence on American news increased by 600%.Sometimes, in the face of an Information Cascade, you have to change the game. If you are a Christian shopkeeper or have strong convictions about work-life balance, to close on Sunday is a non-issue. If you see people around you fall into an urgent trend, start to panic buy or become disturbed by sensational newspaper headlines, you can alleviate the stress by inserting more data.

By: Ashlee Vance26-MINUTE AUDIO / 3,700 WORDS (16 PAGES)SYNOPSIS On January 7, 2021, Musk was named the richest person in the world with a net worth of $188.5 billion. Remarkably, Musk not only topped Jeff Bezos, but accrued $150 billion of that net worth in the prior 12 months alone. Experts described it as the fastest bout of wealth creation in history.In Elon Musk, the South Africa-born inventor opens up to writer and reporter Ashlee Vance about the rocky road he traveled to become America’s most innovative modern industrialist. DIAGRAMS View fullsize View fullsize View fullsize View fullsize TOP 20 INSIGHTSMusk has always been a man with a mission and a higher calling. In college, he became convinced there were three areas that would change the future of the world for good: the internet, sustainable energy and the ability to live outside our planet. Musk came to see man’s fate in the universe as a personal obligation. If that meant man should pursue cleaner energy technology or build spaceships to extend the human species’ reach, then so be it. Musk had a deep commitment to explore Mars and he would find a way to make it happen. Vance believes Musk will leave an indelible mark on the world through his transformative work. Vance asserts that Musk has what so many in Silicon Valley lack – a meaningful world view. “He is less a CEO chasing riches than a general marshaling troops to secure victory. Where Mark Zuckerberg wants to help you share baby photos, Musk wants to [...] save the human race from self-imposed or accidental annihilation,” Vance writes. When the dot-com bubble burst in 2007, it left behind a slew of empty-handed investors and mediocre companies. Silicon Valley sank into a deep depression. Although Google emerged and began to thrive in 2002, and Apple soared when it launched the iPhone in 2007, these startups were anomalies. And the hottest new things – Facebook and Twitter – looked nothing like their predecessors Intel, Hewlett-Packard or Sun Microsystems, all of which employed thousands of people to make physical products. Silicon Valley had morphed into a play-it-safe haven as countless entrepreneurs and dot-com strivers chased easier money and churned out simple apps and advertisements.By all accounts, Musk should have been part of the malaise that washed over Silicon Valley. Instead, he founded his first startup in 1995, Zip2, bought by Compaq in 1999 for $307 million. He took the $22 million he made on the deal and invested all of it in his next start-up, X.com, which eventually morphed into PayPal. As the largest shareholder in PayPal, Musk became enormously wealthy, when eBay bought PayPal for $1.5 billion in 2002. Musk headed for Los Angeles and threw $100 million into SpaceX, $70 million into Tesla and $10 million into SolarCity. Musk had become a business titan who, in one fell swoop, brought about the most significant advances the aerospace, automotive and energy industries had seen in decades.Musk and other Silicon Valley influencers at the time shared the belief that innovation had come to a hard stop after the bubble burst. Jonathan Huebner, a physicist at the Pentagon’s Naval Air Warfare Center, used a tree metaphor to describe what he saw as the state of innovation. Man has already climbed past the trunk of the tree and gone out on its major limbs to mine most of the really big, game-changing ideas – the wheel, electricity, the airplane, the telephone and the transistor. We now dangle at the end of the branches at the top of the tree, left only to refine past inventions.PayPal, the first blockbuster initial public offering after the 9/11 attacks, came to represent one of the greatest assemblages of engineering and business talent in Silicon Valley history. The founders of startups such as YouTube, Yelp, and Palantir Technologies all worked at PayPal. Its employees pioneered techniques in online fraud that have formed the basis of software used by the FBI and CIA to track terrorists and of software used by the largest banks to combat crime. This group of super-talented employees became known as the PayPal Mafia, or essentially the “ruling class” of Silicon Valley, with Musk as its most famous and successful member.Musk’s willingness to tackle the impossible has earned him the respect and reverence shown to the greats like Steve Jobs, Howard Hughes and Google founder Larry Page. Only Steve Jobs could claim similar achievements in two completely different industries, such as when he launched an Apple product and a new Pixar movie when he ran the two large industry behemoths simultaneously. The difference between Musk and his innovative peers is that Musk wants to build something far grander than anything Hughes or Jobs produced. Musk’s mission has always been to rethink conventional norms in the aerospace, automotive, and solar industries and then make as much as possible from scratch in his own startups.Musk’s software skills and ability to apply them to machines would drive his success. Famed software engineer Edward Jung marveled at Musk’s gift of integration – the ability to harmoniously meld software, electronics, advanced materials and computing horsepower. Musk also is a self-taught coder with a natural ability to master complex physics concepts in business planning and conceptualize a path from a scientific concept to a for-profit enterprise. Musk is determined to pave the way toward an age of awe-inspiring machines and sci-fi dreams come true.Musk always managed to find bright, ambitious people. He snagged the best talents in the aerospace industry and the same could be said for Tesla, where engineers got to work on things not typically done in U.S. auto companies. Musk would personally reach out to the aerospace departments of top universities to inquire about the students who had finished with the highest exam grades. It was not unusual for Musk to call students in their dorm rooms and recruit them over the phone.It was not until Vance walked through the doors of SpaceX that he realized the magnitude of what Musk had done. “Musk had built an honest-to-God rocket factory in the middle of Los Angeles. And this factory was not making one rocket at a time. It was making many rockets – from scratch,” Vance writes. Musk wanted SpaceX to build the workhorse for a new era in space and establish the U.S. as the world leader that can take cargo and humans to space. It’s a threat Musk believes has earned him a great number of fierce enemies. SpaceX represented America’s attempt for a fresh start in the rocket business, which Musk believed had not evolved over the past 50 years. If SpaceX could make rockets cheaper than what the Russians offered at the time, SpaceX would have the technology needed for his mission to establish life on Mars for at least a million people over the next century.The aerospace companies built a “Ferrari” for every launch when a simpler car could do the job just as well. Instead, Musk would apply start-up techniques from Silicon Valley to run SpaceX fast and lean and capitalize on the advances in computing power and materials that had occurred over the past two decades. SpaceX would operate as an independent company and avoid the waste and cost overruns often associated with government contractors. Tesla defied all odds for success in the auto industry. Its automotive expertise amounted to two guys who loved cars with one who created a series of science fair projects based on technology the auto industry considered to be ridiculous. But Tesla did what start-ups do. They hired a bunch of young, hungry engineers who figured things out as they went. Never mind that the Bay Area had no real history that this model would work for something like a car, or that building a complex, physical object had little in common with software application writing.Tesla revealed that each electric car it built would cost $90,000 and had a range of $250 per charge. Thirty technology billionaires had committed to buy a Roadster in 2006. Musk promised that a cheaper car – a four-seat, four-door model under $50,000 would follow in a few years.  By the middle of 2007, Tesla had grown to 260 employees and did the impossible. It had produced the fastest electric car the world had ever seen. All it had to do was build a lot of the cars – a process that would nearly bankrupt the company. The greatest mistake Tesla’s engineers made in the early days were assumptions about the Roadster’s transmission. The issue forced Tesla to delay its November 2007 launch of the Roadster and begin developing a new transmission in early 2008.Tesla consumes a huge portion of the world’s lithium-ion battery supply and will need far more batteries in the future to meet the needs of its businesses. This is why in 2014, Musk announced plans to build what he called a Gigafactory, or the world’s largest lithium-ion manufacturing facility. Each Gigafactory would employ about 6,500 people and help Tesla meet a variety of goals.Musk helped his cousins, Lyndon and Peter Rive, develop SolarCity’s business model and became the company’s chairman and its largest shareholder. Unlike other companies, SolarCity would not manufacture their own solar panels. Instead, they would buy them and then do just about everything else in-house. They built software to analyze a customer’s current energy bill, the position of their house and the amount of sunlight it typically received, and built up their own teams to install the solar panels. When Vance asked Musk one final question for the book: Just how much will you put on the line? His response was: “Everything that other people hold dear. I would like to die on Mars.” SUMMARYBy 2012, Musk’s companies had done such unprecedented things and disrupted so much industry that even his greatest critics couldn’t help but recognize all he had accomplished. SpaceX flew a supply capsule to the International Space Station and returned it safely to Earth, Tesla produced an alluring all-electric car that took the auto industry by surprise, and as the largest shareholder of SolarCity, Musk created a successful solar energy company ripe for an initial public offering. UNIFIED FIELD THEORYThe simple way Musk manages his businesses and decides business strategy to start is embedded in his Unified Field Theory. Each of Musk’s businesses is interconnected in the short term and long term. This operating theory reduces workload and helps all of his companies provide mutual external support to each other so they grow and prosper by. For instance, Tesla makes battery packs that SolarCity can then sell to end customers. SolarCity supplies Tesla’s charging stations with solar panels, which helps Tesla to provide free recharging to its drivers. SpaceX launches satellites for Tesla, which allow Tesla to provide user navigation services, and SpaceX uses batteries manufactured by Tesla to power their system. They exchange knowledge around materials, manufacturing techniques and the intricacies of operating factories that build so many things from the ground up. To this day, Musk manages his companies through a business model of full integration and support, and if he encounters obstacles he cannot solve, he starts a whole company on it. SpaceXMusk has always believed that the very idea of America was intertwined with humanity’s desire to explore. However, his fears that mankind had abandoned all gumption to push technology boundaries were confirmed when he visited NASA’s website, where he found nothing, not even a mention, of any future plans to explore Mars. Dumfounded, he headed to Russia to see if he could buy a rocket himself. The Russians pushed Musk around with ridiculous prices and other skullduggeries, which strengthened his commitment even more. Elon studied intensely how rockets are built and declared he would build the rocket himself from a spreadsheet that detailed exactly how to do it. That is how SpaceX was born in 2002.SpaceX tested reusable rockets that could deliver payloads to space and return to their launch pads on Earth with precision. If the company can perfect this technology, drastically reduce the price per launch and perform launches on a regular schedule, SpaceX would deal a devastating blow to its industry competitors. These innovations could potentially cripple industry giants of the U.S. military industrial complex such as Lockheed Martin and Boeing. Musk also competed with nations, most notably Russia and China, in the space race. SpaceX made a name for itself as a low-cost supplier in the industry. But that alone was not enough to win in the space business. Musk also had to navigate the politics, favoritism and protectionism that undermined the fundamentals of capitalism. Steve Jobs faced similar challenges when he took on the music recording industry to bring iTunes and the iPod to market. However, compared to Musk’s foes who built weapons and countries for a living, Jobs's challenges may well have been a “walk in the park.”Vance captured the following key milestones that SpaceX, Tesla and SolarCity had achieved at the time of this writing:SpaceX Key MilestonesSeptember 2008: The Falcon 1 rocket was the first privately funded liquid-propellant rocket to reach orbit. This launch paved the way for the development of the Falcon 9 rocket.December 2008: NASA awarded SpaceX a $1.6 billion contract for commercial resupply services to the International Space Station. July 2009: The Falcon 9 Flight 5 made history as the very first privately developed liquid fuel rocket to deliver a commercial satellite to Earth's orbit. TeslaWith Tesla Motors, Musk has tried to transform the way cars are made and sold, as he built out a worldwide fuel distribution network worldwide. When Musk started up Tesla, he was well aware that Chrysler was the last successful startup in the U.S., founded in 1925. To design and build a car from the ground up is wrought with challenges, but the ability to get money and know-how to build cars by the thousands is what stunted efforts to get any new company going. Elon had always seen a future of all-electric cars. So, when Martin Eberhard and Marc Tarpenning approached Musk to become the first investor in a company called Tesla, Elon was all in. He wanted the car to be a luxurious representation of a sustainable future.As Tesla began to fulfill its first round of pre-ordered Model S cars, things were shaky. Parts for the car were way too expensive and everything was behind schedule. Musk was not happy and called for the board to replace CEO Martin Eberhard as CEO. They agreed and the original founder of the company was gone. When Musk took over in 2008, the future of Tesla and SpaceX hung in the balance. By Musk’s calculations, he only had enough money to save one company. Rather than panic, Elon was able to keep his cool long enough for SpaceX to win a contract to become NASA’s official supplier for the International Space Station. Another “Tesla might go out of business” occurred again in 2013. It was so bad that Elon had a handshake deal with Google for them to buy and save Tesla. That scenario never materialized because Tesla’s sales team was able to beat projections, which sent the stock through the roof. Instead of hybrids, which in Musk speak are suboptimal compromises, Tesla aims to make all-electric cars people lust after, which push the limits of technology. Teslas would not be sold through dealers but rather through Apple-like stores at high-end shopping centers. Unlike traditional car dealers, Tesla does not expect to make a lot of money on service for its vehicles, since electric cars do not require the oil changes and other maintenance of traditional cars. Tesla’s solar-powered recharging stations now run along many major freeways in the U.S., Europe and Asia, which reenergize a Tesla in about 20 minutes. Tesla owners also pay nothing to refuel. As much of America’s infrastructure crumbles, Musk’s goal is to is build an end-to-end transportation system that enables the U.S. to eclipse the rest of the world. His vision and execution have been described as a blend of the best of Henry Ford and John D. Rockefeller.Tesla Key Milestones 2010: Tesla goes public, raised $226 million in its IPO.2012: Tesla delivered an electric car that goes over 200 miles, goes from 0–60 mph in under four seconds, and looks great. Tesla achieved that target with the Roadster, and then again with the Model S.2013: Tesla posts its first quarterly profit.2014: Tesla announces its Nevada Gigafactory, where the company will manufacture the batteries for all its products.2015: The company enters the solar power market and announced a line of products to power homes and businesses based on a combination of solar panels and batteries. SolarCityMusk’s cousins, Lyndon and Peter Rive started up SolarCity with a $10 million investment from Musk, who became its chairman and largest shareholder. They developed a plan to drive down solar costs by controlling the experience from sale to installation (while third-party manufacturers provided the panels). They hired 150 employees, the majority of the construction workers, and by the next year, the company had installed about 70 solar systems per month around Northern California. The business began to grow, and the company eventually expanded to more than a dozen states. Musk was not involved much beyond the board level so he could take time to grow Tesla and SpaceX.Six years later, SolarCity had become the largest installer of solar panels in the country. The company had lived up to its initial goals and made panel installation painless. Rivals rushed to mimic its business model. SolarCity had benefited along the way from a collapse in the price of solar panels, which occurred after Chinese panel manufacturers flooded the market with products. It had also expanded its business from consumers to businesses with companies like Intel, Walgreens, and Wal-Mart who signed up for large installations. In 2012, SolarCity went public and its shares soared higher in the months that followed. By 2014, SolarCity was valued at close to $7 billion.SolarCity Key Milestones 2012: SolarCity went public and its shares soared in the months that followed.2014: SolarCity was valued at $7 billion.2016: Tesla acquired SolarCity $2.6 billion to make the company a truly integrated sustainable energy company that could develop, produce, sell, install and service these products in the most seamless way possible.Vance’s up-close look at Musk’s life in order to write the book convinced him that Musk’s relentless commitment to his mission and his indomitable spirit will leave an indelible mark on the world. “Because of Musk, Americans could wake up 10 years from now with the world’s most advanced transit system run by thousands of solar-powered stations and traversed by electric cars,” said Vance. “By that time, SpaceX may well be sending up rockets every day, taking people and things to dozens of habitats and preparing for longer treks to Mars. These advances are simultaneously difficult to fathom and seemingly inevitable if Musk can simply buy enough time to make them work.”