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I came across this picture several years ago. of an animal that I had never seen or heard of.
It's called the Irish elk.
If you've never heard of an Irish elk, you're probably not alone, because they went extinct 10000 years ago.
But if you see a picture of an Irish elk skeleton, you will be stunned.
I've never seen anything like this.
Most elk and other animals that are similar to an elk have a set of antlers that are branch-like and they're thin.
They can be big, but they're thin.
The Irish elk has these antlers that are just solid plates.
It's hard to describe.
I would encourage you to search for one.
Obviously, I can't show you on this podcast.
They have these antlers that are A they are enormous, and B they are just one single plate of antler.
They're gigantic.
They were like comically large.
Their antlers could weigh over 100 pounds, which was like 10% of their body weight.
And of course, why does an animal get a big set of antlers like that?
It's because in some situations, they are competitive advantages.
With those giant antlers, they could fight prey and show mates that you're the real deal.
There's a reason why they had giant antlers like that.
But Irish elk antlers grew out of control.
And without any evolutionary check that said, okay, that's big enough.
We don't need antlers that are any bigger than that.
The elk just basically said, hold my beer.
And the antlers kept growing and growing and growing and growing.
And basically what happened was this.
Growing big antlers requires an enormous amount of nutrients, particularly calcium and phosphorus, which are rare.
And if an Irish elk couldn't eat enough in the summer, then energy that was destined to maintaining body mass in the winter was diverted to antler growth.
That led males to get weak when climate change made food even slightly scarce.
And so the bigger the antlers they had, the more vulnerable they were to environmental changes.
Young males faced an impossible trade-off.
Small antlers were required to survive low-food winters.
But big antlers were required to impress females to mate.
And so the species just kind of facing that trade-off spiraled into extinction.
I found this study from researchers at the University of Minnesota and they said the rate of change in the environment was apparently sufficiently great that Irish elk could not decrease antler size fast enough to to meet mass imbalance, constraints of nutrient availability and at the same time meet the sexual selection requirements for large antlers.
Now other species of european elk survived the same ecological conditions and all of them had smaller antlers than the irish elk.
So piece together this irony here.
Small, weak antlers that look like a disadvantage were actually the key to survival during this period.
I think there are so many takeaways and analogies that you could bring from that.
There are so many times in life when what looks like a disadvantage and something that you want to get rid of, and something that makes you lower or weaker than your competitors, is actually, in hindsight, one of the biggest advantages that you have.
Competitive advantages are very hard to get, no matter your profession or your career, and they're very hard to maintain as well.
They can also be great at one level and backfire at another.
And there's a corollary here.
Some things that don't look like competitive advantages can at some level be just that.
Let me explain a few of them.
In your personal life, in your career or whatever profession that you are in.
All right, number one, just a little bit of debt.
Having just a little bit of debt can be a competitive advantage.
That hurts admitting for me because I am so against debt in general.
Debt is an impediment to having options in life.
But having zero debt can give you so many options that you lack focus.
A little bit of debt can keep you away from distraction.
It makes you think about backup plans and rainy day funds and cutting bloat.
There is no way to learn the value of money without feeling the power of its scarcity.
And a little bit of debt is a constant reminder that you can't get too comfortable.
If you want, like MacGyver-like resourcefulness, bet on the single working parent who has to track every single penny of cashflow, not the trust funder who's never had to budget in their life.
The person who was forced to focus is almost always gonna do better.
One other version of this many years ago Zynga, the online gaming company.
That was a big thing 10 or 15 years ago.
When they went public, they warned their investors that its employees had made so much money from the IPO.
That quote.
It may reduce their motivation to continue to work for us.
The author Nassim Taleb writes, quote, Abundance is harder for us to handle than scarcity.
So true in so many areas.
Number two, being forced to start over from a clean slate.
Many years ago, a good friend of mine lost 60% of their avocado farm to California wildfires.
It was, of course, devastating to the family and for the community.
But there was this really interesting other side to the story.
Avocado trees take nearly a decade to fruit, so once they are planted, you tend to leave them there.
The old farm before the fire had trees planted in a formation that were designed for outdated irrigation technology.
But the farmers left it in place like that because the cost of ripping out and replanting trees that take a decade to bear fruit was out of the question.
So after the fire, it gave them this opportunity to start from a clean slate.
Plant new trees in the ideal way that they always wanted them to be in the first place.
They have gone through many hard years, of course, but look, 10 years from now and on an annual basis, they are likely going to be better off than they were before the fire and more productive than the neighboring farms that maybe the fires spared.
The two highest costs that many companies face are employee compensation and an attachment to sunk costs.
Sunk costs are so entrenched that it often takes a disaster to wipe them away.
One of my favorite examples here.
Part of the reason that the German military was so powerful in the early years of World War II is because it had to forfeit every gun and tank and ship and plane to the Allies after World War I.
Which meant that when it rearmed in the 1930s, it rearmed with brand new, state-of-the-art supplies, while other armies were using outdated equipment.
Having everything taken away from them in 1917 was a counterintuitive competitive advantage.
And now, if you can't relate to that, as many people maybe can't?
A practical example of this is when successful new industries can only be rung by young people because they're not burdened with the past conceptions of what a product is or how an industry should be managed.
Many years ago, this investor named Dean Williams.
He once said expertise is great, but it has a bad side effect.
It tends to create an inability to accept new ideas.
I love that.
Number three, this one's about investing, a low valuation.
Every startup, every business maybe the businesses that you work for wants to raise money at a huge valuation, have the highest stock price they can.
And CEOs and founders and employees and previous investors.
They reap big rewards when they raise money, when they have a huge valuation, when your company's worth a lot.
But of course there's a downside to a high valuation, especially when it's a crazy valuation that is just built off of a narrative instead of actual results.
Reversion to the mean is the most powerful force and an unforgiving force in finance.
So a crazy valuation today increases the odds that in subsequent years your stock price is gonna be lower.
You're gonna be raising money at a lower valuation, which does two things.
One.
It can repel potential investors who don't want to fund the down round, as the industry calls it, where you are backing a company that is raising money at a lower valuation before.
A lot of investors don't want to do that.
And worse and more important, it can put employee equity option compensation underwater.
So those employees who were granted stock or granted options when they became employees, all of a sudden those stock grants are worth way less.
Maybe they are worth zero.
Now, the stock market has done very well in recent years, but I found this article from 2008 of course, a great financial crisis that was talking about this concept in the Wall Street Journal.
It said quote CEOs at 90 of those companies also held options worth less than their strike price, which effectively meant at that moment they were worth nothing.
A crazy valuation can become the equivalent of huge antlers on the Irish elk, too big to maintain during the lean years and coming at the expense of what you need to survive.
All right, number four, last one here.
Having just enough competition.
Here's what Nassim Taleb said once again.
He said, quote, Another very good quote.
The same thing with lower stakes, of course, is that business competitors destroy each other.
Businesses without competitors destroy themselves.
This is not just true for businesses, but I think people in their individual careers are like that.
If you are competing with other people at work, you're in a very competitive field.
You are much more likely to stay ahead and work hard and figure out how to be productive.
If you have the place to yourself, you are giving yourself the green light to slack and relax.
And that is when you are the most dangerous and vulnerable, of course.
Over time, few businesses avoid direct competition.
Most businesses have competitors, of course.
But there are periods when very few direct competitors can be found, especially with a new product.
For businesses, those can seem like gift times, like glory times, and there's no competitors.
But it can actually be very treacherous.
Part of the reason is because without a direct competitor, you have no one to learn vicariously from.
No one chasing you out of bed in the morning.
No customers threatening to switch if you don't get any better.
One way to sum that up is being scared and running can actually be better than fat and happy.
That's true for businesses.
That is true all over the place, no matter the industry.
That's it for this week.
Thanks again for listening and we'll see you next time.
