
Why business is so difficult and unpredictable - rjyoungling
https://www.younglingfeynman.com/essays/artofbusiness
======
ThePhysicist
That’s an interesting but pretty academic view of innovation I think.

From my own observation there are only a few markets that really seem to reach
a Nash equilibrium and drive prices to the minimum sustainable value.

A great example is the mattresses business. You would think that there’s not
much room for high margins there since it’s such a commodity technology. Good
foam based mattresses for example can be mass-manufactured for around 30-50 $
according to industry sources. Shipping is also easy and cheap as they can be
vacuum-packed and shipped as regular parcels. Yet, the top selling mattresses
cost around 200-300 $. How can that be? I think there are multiple reasons for
it but the gist is that price alone does not determine which product wins,
psychological aspects play a central role as well. And while in the long run a
Nash equilibrium can be reached in practice it’s often the case that the
manufacturers in the market don’t compete too strongly on price since they
understand the meta-game and know that they might ruin the market for everyone
including themselves if they compete too strongly on price alone.

~~~
agumonkey
For markets like mattresses I think it's due to low rate of buying. You only
get there once a decade, the salesman can pull all the old tricks to take as
much money as possible.

~~~
rjyoungling
I think that behavior is few and far between because asymmetrical information
flow doesn't exist in the same way it did 2 decades ago. Especially as older
people are dying and younger ones are replacing them, they naturally google
everything. So when you're using sleazy sales tactics, you'll burn your
reputation.

(You don't even see it as much in the tourist restaurant business anymore
because of things like Tripadvisor.)

We already know from things like Yelp, Airbnb, Uber, eBay etc. that a minor
drop (say 4 stars vs. 5 stars) translates into a huge drop off in clientele.

In a world where every Uber driver has 5 stars, having 4.5 practically means
you're a maniac in the eyes of the consumer.

(Not entirely unjustified since 5 stars means 'average' for most people, and
not 'outstanding'. So to give less than that is actually quite a hurdle for
most people.)

~~~
agumonkey
young users won't google that

young users will react to ads, feel they should spend money to feel they got
something of value, get in the store on "super hot deal day" to get conned
(like their parents were the first time?)

I'm exaggerating a bit, some cultures put a lot of pressure on being
financially responsible. But for the rest I saw what I described with my eyes.

~~~
rjyoungling
I don't have evidence to back this up, but anecdotally it does seem to me that
younger people (Millenials) tend to use google to compare/look for reviews
when it comes to purchases that fall outside of the impulse buy category.

~~~
agumonkey
well maybe my entourage is too keen on impulse buy (plausible)

~~~
rjyoungling
It's certainly likely we're both victims of selection bias here.

------
hliyan
I tend to believe that business isn't difficult, but _modern_ business is
difficult. If by business we mean "selling goods or services at a profit",
then the type of cut-throat competition that exists today didn't exist
historically (or did so at a much lower intensity).

If you were a grocer, a butcher, a book binder, farmer or blacksmith from say,
three hundred years ago, your business would have been established decades ago
and would remain in a relatively steady state. If it made the same amount of
money year on year (inflation adjusted), it would be considered a success. The
current _growth at all costs_ paradigm did not exist.

~~~
streetcat1
I do not see cut-throat competition (I wish since that would lead to
innovation).

I see only monopolies.

~~~
tomrod
Monopolies are the entities that can afford R&D, dynamically, outside of
government.

Citizen science is cool, but doesn't extend outside of incremental value add
domains. Fusion and more will almost certainly be from monopolies or
monopolistic competitors.

~~~
defterGoose
No. Groundbreaking innovations like that have and will continue to come from
basic research; the type that's really only done at universities.

~~~
giovannibonetti
So, say, the iPhone was not a groundbreaking innovation since it didn't come
from an university?

~~~
chongli
The iPhone is not a groundbreaking innovation, it's a product. Like many
modern products, it is extremely complicated with thousands of different
components. Did Apple invent all of those components from scratch? No. Did
Apple invent the key components that made the iPhone different from its
competitors at the time? No.

The capacitive touch screen was invented by Bent Stumpe at CERN [1]. The
software technology that arguably made the iPhone possible, multi-touch, was
developed by U of T, Bell Labs, and CMU. Steve Jobs visited CMU in 1985,
though that obviously didn't translate into much back then.

The actual multi-touch software that went into the iPhone was developed by
FingerWorks founders John Elias and Wayne Westerman at the University of
Delaware [2]. Apple bought FingerWorks and incorporated the technology into
the iPhone.

[1] [https://en.wikipedia.org/wiki/Multi-
touch#History](https://en.wikipedia.org/wiki/Multi-touch#History)

[2]
[https://en.wikipedia.org/wiki/FingerWorks](https://en.wikipedia.org/wiki/FingerWorks)

~~~
agumonkey
I think it's too strict of a definition. Assembling a tons of known knowledge
into something that wipes a market (and zero history in it..) is not a normal
event either. Maybe it's innovation at the consumerism layer.

------
rsp1984
_This problem is further exacerbated by the fact that we go through
traditional education by default. A system that’s not designed to teach
independent thinking but rather to reward obedience and implementing rules._

Not only this, but it baffles my mind that most (high-) schools put
(interesting but almost completely irrelevant) subjects such as literature,
comparative studies, dead languages etc. above skillsets with _massive_ real-
life relevancy such as financial literacy, programming, psychology and
leadership.

The world's school system is completely and utterly broken but everyone's just
too busy with their own BS to change it. It's heart-breaking.

~~~
rjyoungling
I completely agree. I think you'd be hard-pressed to find people that
disagree. The thing is, we can't agree on how we should do it instead.

Some people argue that there are 2nd order effects one needs to take into
account, e.g. abolishing grades; what would be the impact on the hiring
market, where grades often are a proxy for discipline, work ethic, etc.?

I think Sal Khan was on to something when he hypothesized that we should do
homework at school, and the lectures at home. Essentially flipping the model.

Most of these big problems haven't been solved in 1 fell swoop but by many
people nibbling on the edges. I suspect this will be no different. In large
part due to the inertia of culture.

~~~
AnimalMuppet
> I think Sal Khan was on to something when he hypothesized that we should do
> homework at school, and the lectures at home. Essentially flipping the
> model.

I think that works better for at least some people. I'm pretty sure that it
works _worse_ for some people, too. What it does is _change_ which group is
more successful. That might be nice, in promote-equality kind of way, but it
isn't necessarily progress.

Actual progress would be figuring out which people do better in which kind of
educational approach, and putting each person in the environment where they do
best.

~~~
rjyoungling
Thank you for adding the clarification. That was actually what I meant but I
should have been more precise in my communication.

Anytime we try to force a sufficiently large group of people into one system,
we're bound to create artificial distortions as a result of sanding down the
rough parts, i.e. the outliers.

Part of the solution will have to be the offering of multiple paths toward
becoming a productive/successful citizen.

There's a second problem here as well, the status quo problem. When a
sufficiently high percentage goes through university (and all in the same age
bracket as well.), you create a signal that if you don't go through
traditional education, you're somehow defective. Thereby, removing the option
of choosing a different path because of the stigma (e.g. starting university
at 36 instead of 18).

------
cortesoft
I feel like the Groupon example could have been solved with science, too; it
doesn't require art.

You just have to analyze the data for the long term, not just the short term.
If your unsubscribe rate increases, but purchase rate increases more to
compensate, that makes sense for the short term but not the long term. Long
term, churn is going to cost more and more, since it persists, and you will
eventually run out of new subscribers to add. Retention matters more in the
long term, and that is not 'art', it is science.

~~~
rjyoungling
That's a very fair critique. I have this discussion often with colleagues.

But I can't help but feel like it's cheating a little bit. Because you can
call anything rational (including irrationality) in hindsight, provided you
simply expand what you deem to be rational post-facto.

For example, increasing price to increase demand would seem irrational and
receive a lot of push back in most companies. If you pull it off and it
actually works, people can claim it was rational all along.

(This has been my experience with mathematics vs. psychology too. In
psychology, people always claim what you say is obvious even though it isn't.
Probably because the problems can be stated in plain English. In math, it's
the opposite. People find everything incredibly difficult, even though it's
super obvious. Probably because mathematical symbols are a little intimidating
at first.)

But I get your point of view and I agree. Maybe some day we'll have enough
data, or the right kind of models such that we can pretty much always know
what the right thing to do is with absolute certainty.

------
alexashka
Business is difficult because it involves people, who make decisions based on
feelings, which vary wildly and depend upon many many factors, including the
weather.

Every other field involving manipulation of people is difficult, because
people.

If you want answers, fund and study the brain.

~~~
rjyoungling
I agree with this so much!

In some weird sense, I feel like mathematics is way easier. I often half-
jokingly say that but there's an element of truth in it.

All your definitions are painfully clear. (How often do you see people
disagreeing, only to, later on, find out they actually mostly agree but were
operating under different definitions.)

You control every single variable. If I want to create a 'lab' to constrain a
variable, you just write down 'Let n be an element of Z' or something like
that. Tada, now you're only working in Z. Try controlling variables in
business haha.

I'm glad to see behavioral economics and psychology are slowly starting to
take off more in business.

Thanks for reading btw.

------
serjester
I don't get the impression the author has much experience scaling. The problem
with modern business is it's dynamic and chaotic so a comparison to academic
studies isn't fair.

Imagine trying to predict who's going to be relevant on YouTube in 5 years. In
my eyes the problem is creators dynamically adjust their content based on
their viewers and what other creators are doing. Then the recommendation
algorithm introduces randomness. And finally any growth that does happen
rapidly compounds. As a result it's a chaotic system and trying to predict it
on any longer timeframe becomes impossible. Similar concept applies to modern
tech businesses.

~~~
rjyoungling
Thank you for your comment. I think we're fully in agreement here. Maybe I
didn't do a good job but that was the point I tried to make. It's precisely
because in business, degrees of freedom are high, and it's a dynamic and
complex environment where butterfly effects play a significant role. This
means that trying to outthink the market will likely fail and you just have to
try different things and iterate based on the feedback the marketplace
provides.

I wrote this essay about that specifcally:
[https://www.younglingfeynman.com/essays/physicsenvy](https://www.younglingfeynman.com/essays/physicsenvy)

------
bluetomcat
People and nature are unpredictable and so is the world. Businesses don’t
exist in a vacuum. What’s valuable to a specific person is tied to their
current environment and their location in space and time. A business that
satisfies such a need and is discoverable from such a demographic profits.

~~~
rjyoungling
Yeah that's probably true provided they can get the unit economics to work,
and there isn't anyone who does a better job of addressing their needs.

------
z3t4
Biggest takeaway from this post: Don't be a parrot, think for yourself before
you spread other peoples truth. Especially if they say what you want to
believe.

~~~
rjyoungling
I'm glad it has had a positive impact on you. Thank you for taking the time to
read it.

------
Rainymood
What is the connection with feynman? For me, I didn't read the article, I
found the website to be unbearable. Also couldn't find an "about" section
about the team behind this website. Feels like an ad for their "double your
revenue, pay nothing up front" service.

~~~
wffurr
I would guess "Feynman" is RJ Youngling's partner:
[https://www.linkedin.com/in/rj-
youngling-1a4546171](https://www.linkedin.com/in/rj-youngling-1a4546171)

No connection to the physicist.

Not sure what about the site was "unbearable". It's just text. There weren't
any banner ads or taboola chum. I guess I have low standards for what
constitutes a decent site.

The writing was a little growth hackery, one weird trick to supercharge your
business, with a dusting of math theory. It was definitely an ad, but in the
sense of "write compelling content and they will come to your site", as
opposed to spray-and-pray low rent banner ads.

~~~
TheOtherHobbes
It's REALLY BIG TEXT saying very little of interest by making some hand-wavey
references to math that is interesting but irrelevant.

How many business domains end in a Nash equilibrium? How many end up with a
monopoly or a small number of cartel players? How many businesses really only
compete on price? How many try to inflate perceived value with branding and
narrative management? What does "invent" mean in the context of a company like
PayPal, which essentially just copied and repurposed one part of the banking
system?

"Business is hard" has nothing to do with the replication crisis. If your
business is succeeding, you're reading the market correctly by definition. If
it isn't, there may be other reasons besides not reading the market correctly.

It's hard because the number of failure modes is bigger than the number of
success paths. And the success paths are culturally disguised and non-obvious.
(E.g. hard work, VC finance and advice, a good company culture, and so on are
not a success path. Ferociously trying to monopolise a market while paying
your employees as little as you can get away with and producing minimally
competent products boosted by PR, ads, branding, and aggressive sales tactics
is far more likely to lead to "success.")

What is the point of this article? It's certainly not to offer actionable
strategic intelligence.

