One Quote:

"Enjoy the little things, for one day you may look back and realize they were the big things." - Robert Brault

No moment is too small or insignificant to provide a new depth of understanding.

Small things become big things.

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One Framework:

Network Effects

Network effects are a powerful framework through which to evaluate businesses, startups, money, human societies, and nature.

But I have generally found that there is a lack of baseline understanding of how they work.

Let's fix that...

A network effect is a phenomenon by which each incremental user of a product or service adds value to the existing user base. The product or service becomes more valuable to the users as more people use it. It is a positive feedback loop.

The idea originated with Theodore Vail, the president of American Telephone and Telegraph (AT&T).

In the company's 1908 annual report, Vail wrote, "[The telephone's] value depends on the connection with the other telephones—and increases with the number of connections."

While the term "network effects" had not been created, it was clearly at the heart of Vail's comment. The value of a telephone relies on its connection with other telephones in the network. For an existing user, this value increases with every new telephone added to the network.

The concept of network effects wasn't popularized in its current form until the late 1900s, when Metcalfe's Law entered the mainstream lexicon.

It's namesake, Robert Metcalfe, was the inventor of the Ethernet, though it was technologist George Gilder who coined the term Metcalfe's Law in 1993.

Metcalfe's Law stated that a network's inherent value is effectively equal to the square of the number of users in the network. New analysis has suggested the relationship between users and network value is not this simple, but the basics hold.

More users = more value per user.

Let's illustrate with a simple example. Imagine a telephone network. If there are two telephones in the network, there is only one potential connection. If you add a third telephone, there are three potential connections. If you add a fourth, there are six. And so on...

The key point here is that the 4th telephone user added more value to the network (via 3 new potential connections) than the 3rd telephone user (via 2 new potential connections). Each incremental user adds more value to the network than the prior incremental user!

While it took until the 20th century to have the concept of network effects be formally identified and named, it is a basic feature of human society and has existed for millennia. Language, religion, and early forms of money all exhibited (and benefitted from) network effects.

There are two core types of network effects:

1. Direct Network Effects
2. Indirect (or 2-Sided) Network Effects

Let's cover the basics of each type...

Direct Network Effects

Direct network effects are clean and simple.

They exist when the increased usage of a product leads to increased value of the product to each user.

To reiterate: more users = more value per user. The telephone example from above is a clear example of a direct network effect.

Indirect Network Effects

Indirect network effects are more nuanced.

In an environment with two sides—supply-side and demand-side—indirect network effects exist when new users on either side add incremental value to users on the opposite side.

An example: the Uber business model.

Drivers are supply-side users. Riders are demand side-users. New drivers add value to existing riders—easier access, lower wait times. New riders add value to existing drivers—more rides, less downtime.

The indirect network effects of the Uber business model created powerful growth loops. More riders led to less driver downtime, which encouraged new drivers to join, reducing rider wait times and encouraging new riders to join.

Investor David Sacks highlighted the loop with this chart:

When network effects are present (or embedded) in a business model or industry structure, the environment tends to become winner-take-all (or winner-take-most). This often leads to a mad rush to raise and deploy capital to accelerate user growth and become the market winner.

Network effects can be a powerful mental model through which to evaluate the world. Hopefully this primer has added a helpful new tool to your mental toolkit!

One Tweet:

Really interesting thread on a crazy (that's the good kind of crazy) bio-hacker named Bryan Johnson, who sold a company to PayPal for a ton of money and has proceeded to invest a great deal of it into developing a plan for reducing aging.

The plan he developed is called Project Blueprint. Some highlights:

• 3 daily meals, all plant, seed, and nut based.
• Daily supplementation regimen that includes a bunch of fish oil, vitamin D, zinc, probiotics, and 25 other items.
• Heavy progress tracking with a lot of scientific testing.
• Focused daily exercise prioritizing mobility and strength.

It's all quite interesting (and a bit overwhelming). I think I'll stick with my own plan, but you can read more about The Blueprint here.

One Article:

​The Need to Read​

Paul Graham is one of the greatest business essayists in the game. My rule: When he writes something new, I read it.

This short piece was on the importance of reading well and the power of writing to solve complex, ill-defined problems.

One key quote stood out:

"You can't think well without writing well, and you can't write well without reading well. And I mean that last "well" in both senses. You have to be good at reading, and read good things. People who just want information may find other ways to get it. But people who want to have ideas can't afford to."

It’s no small thing for a technologist to say that reading and writing will hold up against the pressures that AI will impose in the years ahead.

Take note.

One Podcast:

Tinkered Thinking: White Mirror | Infinite Loops Podcast

This episode of infinite loops was legitimately gold. Wide-ranging and interesting throughout.

My favorite line (for obvious reasons):

"Curiosity solves any sort of insecurity or lack of confidence because you’re too busy exploring something to have the wherewithal to be self-conscious."

They also propose an interesting writing challenge: See if you can write every morning for 20 minutes and produce something discrete and cohesive, ideally without the need for additional editing.

I might try this in December and see if it’s possible (sort of life journaling+).

Listen to it here.

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