“Nobody celebrates just simple businesses that work.” – Matt Haughey
Nice. But. There are reasons for that. A bunch of the reasons are prosaic side effects of the conventions of story telling and the appetites of the audiences of reptilian brains. Setting those aside, but near neighbors, are reasons arise from our perverse fascination with creative destruction. And that has a tangle of threads, the most toxic of which is the confusion caused by a preference of robber barons to be called entrepreneurs. A trick made possible almost entirely by virtue of our presumption that a hero must appear in any story since all the stories we tell have heros.
But once you get past all, well. Simple businesses tend to be road kill waiting to happen. Simple businesses tend to lack a solid competitive advantage. For example a potent barrier to entry. They also tend to fail to accumulate sufficient body fat to survive a vicious downturn or the arrival of a game changer in their midst. When you step back, simple businesses are often just tragedies waiting to happen
MeFi is a delightful institution, a business that has worked for years. Or has it? It took six years to achieve lift off. So it’s been a functional business for maybe five. MeFi’s 10%/year growth is low for an durable internet business, but it’s not that exceptional. Just possibly what he means by simple is businesses with non-cancerous growth trajectories. Reading the interview where Matt says that you can see how other businesses have appeared around it. Many of these didn’t survive and some of these are much larger.
I have opinions, but certainly no predictions, about MeFi’s trajectory going forward. It would be tragic if it fails as a business, if only because of what Matt would suffer. MeFi is a member of a class, i.e. places where questions are answered. Yahoo has one. Google had one. The puzzle in these is how to leverage crowd sourcing on the one hand and control quality on the other. If MeFi succeeds in the long run it will because they found a course thru that space. Doing that isn’t simple.
All this resonates with the blurb from a paper (pdf) in my to read stack:
Good word of mouth requires a simple, compelling argument. Stock clubs and individuals select stocks from the same universe of choices, but members of clubs have to convince each other to buy a stock whereas individuals need only convince themselves. This paper shows that stock clubs tend to choose stocks that have a compelling rationale that is easy to communicate. Unfortunately, those compelling rationales don’t lead to better stock-picking performance.
I guess the good news is there is they don’t write “leads to worse performance.” But all this, brings us to a curious detail. That many businesses that are celebrated for their simple virtuous nature, well they usually aren’t that simple. It’s more likely the story teller didn’t know what to ask. Those stories are usually a fairy tale. They may be virtuous though, but that’s hard to say.