Tren Griffin – Pulling the Thread

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_3** (0:59)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
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**Patrick O'Shaughnessy** (1:24)
My guest this week is a bundle of curiosity and that is one of the nicest things I could say about anybody. For several years, Tren Griffin has been writing a weekly blog post that highlights what he has learned from various investors, business people, musicians, comedians and more. Lately, he's also been tackling individual businesses and broad topics like scaling, competitive forces and product market fit. Tren's full-time job is serving as a director at Microsoft. He's also worked with or for several well-known business people and investors like Craig McCaw and written several books, including one on lessons for entrepreneurs, one on Charlie Munger and another on negotiation. We discussed value creation versus value capture, alpha in investing, sales, hip hop and why he teach high school students about convexity through a drunk driving analogy. I could have talked for Tren for much longer than I did, but sadly we both had flights to catch.
If you take anything away from this, I hope it is just how much fun it is to be curious about business and how you can learn a tremendous amount if you just keep reading about the things that interest you and talking to others. Please enjoy My Great Conversation with Tren Griffin.
So let's start to break into that universal business model. We'll talk about all sorts of different things that you've written about over the years, scalability, acquiring customers, virality, all these kind of interesting topics that are hot button issues in the business world. Maybe you could give your overall sketch, you mentioned the important terms, but maybe one or two layers of detail deeper into this sort of universal business model as you see it, the key levers that you're thinking about as you're looking at any business.

**Tren Griffin** (2:50)
I think the key thing is Steve Blank sort of has this definition, which I've shortened a little bit, but basically in a business model, you're trying to do things. You're trying to create value and you're trying to capture value and they're very different things.
And most people focus on creating value.
And the problem with creating value is most people don't actually create it. And so they try and find product market fit and they try and they try and they try and most people don't get it.
And even if they don't get it, they say, I'm running out of money, I better go try and grow it and they're growing a product nobody wants to buy. And so the key thing is there, you get a death from premature scaling, which is they never find and create true product value that people want to buy. As the Y Combinator people like to say, if you don't create something that people want to buy, it's over. You may as well put a fork in it. But even if you do that and you have a product that people want to buy, then there's capture value.
And this is where Buffett was really important for me, which is to understand that just because you have a product that people want to buy doesn't mean you're going to have any margin. There are a lot of great products that people love, like flying in a commercial airline or weed or meat or cattle or potatoes or whatever. Charlie said at a meeting two years ago or something like that, someone asked him, what do you think of the cattle business? And he said, it's a terrible business. When you're out of 20, you have a good year. But the point here he was making is people do it because they love it. People do it because it's a lifestyle. Buffett added that, well, maybe if you owned a bank on the side, you'd do okay. But also making cattle and making food, it's an important thing. Operating an airline, making wheat. But these businesses are commodity businesses that have a hard time capturing any return in excess of their opportunity cost to capital, as Mobizen would say.