The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google by Scott Galloway
OVER THE LAST TWENTY YEARS, four technology giants (Apple, Amazon, Facebook, and Google ) have inspired more joy, connections, prosperity, and discovery than any entity in history. The Four have generated unprecedented wealth ($2.3 trillion) that, via stock ownership
Amazon
Fundamental to business is the notion that in a capitalist society the consumer reigns supreme, and consumption is the noblest of activities. Consumption has taken the place of shared sacrifice during times of war and economic malaise. The nation needs you to keep buying more stuff.
Few industries have created more wealth by tapping into our consuming selves than retail. Of the four hundred wealthiest people in the world (excluding those who inherited wealth or are in finance) more names on the list are in retail than even technology.
The difference this time is that this value has been created with unprecedented speed by a single company, because, being virtual, Amazon can scale to hundreds of millions of customers, and scale across almost every retail industry, without the traditional drag of having to build brick-and-mortar stores and hire thousands of employees. On Amazon, Bezos realized, every page can be a store and every customer a salesperson. And the company could grow so fast that there wouldn’t be any corners left for competitors to carve out a niche.
Brands are two things: promise and performance.
Amazon has had more access to cheaper capital for a longer period than any firm in modern times. Most successful VC-backed tech companies in the nineties raised less than $50 million before showing a return to investors. By comparison, Amazon raised $2.1 billion in investors’ money before the company (sort of) broke even.
Through storytelling, outlining a huge vision, Amazon has reshaped the relationship between company and shareholder. The story is compelling and simple—the power couple of messaging.
The Story: Earth’s Biggest Store.
The Strategy: Huge investments in consumer benefits that stand the test of time—lower cost, greater selection, and faster delivery.
Most retailers trade at a multiple of profits times eight.46 By comparison, Amazon trades at a multiple of forty. In addition, Amazon has trained the Street to hold them to a different standard—to expect higher growth but lower profits. That enables the company to take the (substantial) incremental gross margin dollars it earns each year and plow more capital back into the business—and avoid that whole tax thing. And that in turn funds the digging of deeper and deeper moats around the business.
Normal business thinking: If we can borrow money at historically low rates, buy back stock, and see the value of management’s options increase, why invest in growth and the jobs that come with it? That’s risky.
Amazon business thinking: If we can borrow money at historically low rates, why don’t we invest that money in extraordinarily expensive control delivery systems? That way we secure an impregnable position in retail and asphyxiate our competitors. Then we can get really big, fast.
Most uber-wealthy people have one thing in common: failure. They’ve experienced it, usually in spades, as the path to wealth is fraught with risks, and often those risks end up being . . . well, risky. A society that encourages you to get up after being beaned in the head, dust off your pants, step back into the batter’s box, and swing harder the next time is the secret sauce for printing billionaires. The correlation is clear. America has the most lenient bankruptcy laws, attracts risk-takers, and, as you might guess, has most of them
These days, it’s easy to forget that Amazon did not turn its first profit until Q4 2001, seven years after its founding,59 and has dipped in and out of profitability ever since. Between drones, 757/767s, tractor-trailers, trans-Pacific shipping, and retired military generals (no joke) who oversaw the world’s most complex logistics operations (try supplying submarines and aircraft carriers that don’t surface or dock more than once every six months), Amazon is building the most robust logistics infrastructure in history.
There is a rebel force of innovative retailers out there who are fighting the empire: Sephora, Home Depot, and Best Buy, to name a few. These firms are zigging as Amazon zags and investing in people—beauty associates, blue shirts, geek squads, and gold canvas aprons. They couple this investment in human capital with a deft investment in technology. Consumers no longer go to stores for products, which are easier to get from Amazon. They go to stores for people/experts.
Apple
Apple:
Malcolm Gladwell, the Jesus of business books, highlights the parable of David and Goliath to make the key point: don’t fight on other people’s terms. In other words, once you’ve made the jump to light speed as a tech firm, you need to immunize yourself from the same conquering weapons your army levied on the befuddled prey.
The middle class used to be 61 percent of Americans. Now they are the minority, representing less than half the population . . . the rest being lower or upper income
Relationships make us happier. The legendary Grant Study at Harvard Medical School has borne this out. The study found that the depth and meaningfulness of a person’s relationships is the strongest indicator of level of happiness
Churchill said that WWII was won with British brains, American brawn, and Russian blood.
The New York Times, for example, gets about 15 percent of its online traffic from Facebook.29 The Times agreed to let Facebook post its articles natively on the platform. That means you can read the whole article without leaving Facebook and stepping onto the Times’ site. The quid pro quo was that the Times gets to keep the ad revenues.
Google has become the nerve center of our shared prosthetic brain. If Google represents the brain, Amazon is a link between the brain and our acquisitive fingers—our hunter-gatherer instinct to acquire more stuff. Facebook, by contrast, appeals to our hearts.
AT SOME POINT, there will be a Fifth Horseman, a company that combines a market valuation of one trillion dollars with sufficient market dominance to define its corner of the world. Or more likely, one of the Four will be replaced. Can we identify companies more likely to join this elite group?
Among the Four, these eight factors are prevalent: product differentiation, visionary capital, global reach, likability, vertical integration, AI, accelerant, and geography. These factors provide an algorithm, rules for what it takes to become a trillion-dollar company. In our work at L2, we use the term T Algorithm to help firms better allocate capital.
Here are the eight factors:
1. Product Differentiation
2. Visionary Capital
3. Global Reach
4. Likability
5. Vertical Integration
6. AI
7. Accelerant
8. Geography
Personal Success Factors
On average, smart people who work hard and treat people well do better than people whose thinking is muddled, who are lazy, or who are unpleasant to colleagues. That has always been and will always be true—even if the occasional jerk proves the exception. However, talent and hard work only get you in the top billion on the planet. There are other, more subtle centrifuges and separators that create the cream of the digital age.
Certification - Seek certification
The Accomplishment Habit
Winners, first and foremost, have to be competitors. You cannot win without stepping on the field, and it’s only by taking that risk (you may get beaned in the face), exposing yourself to failure, that real accomplishment is achieved. Competing requires bravery and action-orientation.
Get to a City
More than 80 percent of the world’s GDP is generated in cities, and 72 percent of cities outperform their own countries in growth. Every year, a greater percentage of GDP moves to cities, and it will continue to do so. Thirty-six of the hundred largest economies in the world are U.S. metropolitan areas, and in 2012, 92 percent of jobs created and 89 percent of GDP growth came from those same cities.
Pimp Your Career
You need a medium to spread your awesomeness, as the path to under-compensation is doing good work that never gets explicitly pimped or attached to you. Yes, it’s unseemly, and your work and achievements should speak for themselves.
Boom(er)
Equity and the Plan
Nobody becomes super-wealthy through paychecks—it takes equity in growing assets to create real wealth.
Serial Monogamy
The strategy is serial monogamy. Find a good employer where you can learn new skills, garner senior-level sponsorship (somebody who will fight for you), get equity/forced savings, and fully dedicate yourself to that company for three to five years.
Stay Loyal to People, Not Organizations
Be loyal to people. People transcend corporations, and people, unlike corporations, value loyalty. Good leaders know they are only as good as the team standing behind them—and once they have forged a bond of trust with someone, will do whatever it takes to keep that person happy and on their team.
Manage Your Career
Seeking Justice
Regression to the Mean
Go Where Your Skill Is Valued
Sexy Job vs. ROI
Strength
Ask for and Give Help
What Part of the Alphabet Are You?
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