Intractabull

The Power Law

I recently just finished reading The Hard Thing About Hard Things by Ben Horowitz. If you are unfamiliar, Horowitz was an early tech entrepreneur and executive from the 1990s era of the internet. He helped build companies like Netscape, which competed with Microsoft for a decade before Google and Apple joined the web browser space.

After his tenure as a tech executive, Horowitz and Netscape co-founder Marc Andreessen founded the renowned venture capital firm Andreessen Horowitz. Commonly referred to as a16z1, their most famous investments include Facebook, Twitter, Airbnb, Lyft, Coinbase, and many other prominent businesses across many sectors.

Of the more than eight hundred venture capital firms of the day, only about six had delivered great returns for their investors.

-Ben Horowitz - The Hard Thing About Hard Things

a16z is one of the few top dogs in venture capital, an industry suspect for following the power law.

In essence, the power law shows us that most of a venture capital firm’s portfolio returns come from a small number of investments. This is approximate to the Pareto Principle, commonly known as the 80/20 rule. Most investments deliver modest or negative returns. However for the small handful of their investments that do win, they tend to win big.

We see the power law at play in other walks of life:

  • In business, often most company revenue comes from a small handful of the customers.
  • In social media, most of the likes or views belong to a small number of influencers.
  • Most of the wealth in the world is owned by a small minority of the population.
  • Most of the taxes are paid by that same small minority, even with access to the best accountants.

Most of our productivity, success, or happiness comes from a small number of everyday decisions or habits that influence a large portion of the outcomes.

There’s a saying that most successful people claim they simply got lucky, but when you dive deeper you find they were opportunists who did a phenomenal job of putting themselves in a position to get lucky. I am not saying luck does not play a role. What I am saying is that successful people formed the everyday habits and decisions that would give them the type of success they wanted. It is up to the individual to determine their own goals and how they should spend their time. I often find my time most fulfilled in some type of flow state2 - which comes to me during a small number of mental activities.

Although success has many different flavors depending on the individual, the framework for achieving it often comes from simple habits made every day over a lifetime.

Closing thoughts

I suppose as I write this I am telling myself to read The Power of Habit. But I am currently on Boomerang: Travels in the New Third World by Michael Lewis.

a16z found a way to take significant advantage of the power law to achieve success in an industry that generally performs poorly for the masses. But Horowitz also discussed the tradeoffs and impact his work-ethic had on his relationships and habits.

So we can take his success and tradeoffs and ask ourselves fundamental questions:

  • Have I found a way to take advantage of the power law to achieve success in my own life?
  • Do I even know what my definition of success is? It is not as black and white as what society expects of me.

I know I certainly have not figured it out and there is no one size all solution. But I do know there are everyday choices I make and those will determine my future self.

Footnotes

  1. a16z comes from an abbreviation method where the first and last letter are maintained and then each letter in between is counted. So “Andreessen Horowitz” becomes “A, 16 letters, Z”. This means “globalization” becomes “g11n” or “localization” becomes “l10n”. Here is a thread if you are further curious. ↩

  2. “Flow is a state of full task engagement that is accompanied with low-levels of self-referential thinking. Flow is considered highly relevant for human performance and well-being and has, therefore, been studied extensively. Yet, the neurocognitive processes of flow remain largely unclear.” https://www.frontiersin.org/articles/10.3389/fpsyg.2021.645498/full ↩