FF Insights #653: Ice cream economics

May 18, 2022: Fresh ideas; Shake-up on Startup Street; Thyme bomb

Founding Fuel

[From Unpslash]

Good morning,

A couple of years ago, English actor and comedian John Cleese published a short, brilliant book called Creativity. It’s short—you can finish reading it in one sitting. And it’s brilliant—it’s full of practical advice, rooted in his own experience and validated by research from across the world.

One of the chapters in the book is about how to keep your literary juices flowing even late into your career. He writes, “If you want to be creative in the world of science or architecture or medicine, you have to spend years educating yourself before you are ready to start thinking creatively about anything your colleagues might not already know.

“However, in the Arts, it sometimes happens that successful novelists never quite achieve the originality of their first novel. This is because beginners sometimes have a freshness in their approach that later fades away. Picasso said that he drew better when he was ten than he ever did again. Edvard Munch’s later paintings never recaptured the intensity of his earliest ones.

“The Buddhists have a phrase for this—“Beginner’s Mind”—expressing how experience can be more vivid when it’s not dulled by familiarity. It’s the psychological equivalent of the Law of Diminishing Returns. This is why even the very best minds seem to produce work that can divide itself into three stages. First, they produce original work as they learn their craft; second, when they’ve mastered their craft, they begin to express their mature ideas in their best works; third, there’s a tailing-off of their powers, as their insights become more familiar.

“It seems that it’s rare for someone creative to maintain a constant high level of freshness. Many people, in the course of acquiring great understanding and knowledge of a subject, become conventional in their thinking. Others, like Richard Feynman, the theoretical physicist, manage never to lose their ability to come up with fresh ideas. In other words, they learn to nurture their unconscious, and to trust it. Feynman spent a lot of time playing the drums. The great mathematician John Conway spent much of his time playing games.”

Have a great day, and find some time to play!

Ice cream economics

Ajay Shah and Akshay Jaitly place an interesting thought experiment in the Business Standard. When the heat surges, demand for ice cream goes through the roof. In fact, demand for ice cream is greater than that for electricity. However, there are no officials regulating ice cream supplies. If anything, they point out, “For some firms, a heat wave is an opportunity to launch a new product. The market for ice cream works across the worst heat wave, with no shortages, because there is no government official in the picture.”

What is it about electricity that makes shortages endemic to India? “The problems with electricity are the lack of a market, the generous application of the coercive power of the state, and the consequently wrong incentives of private players. State control has removed the incentives for private persons to supply more and demand less. The result is the quaint term from the good old days of socialism: A shortage,” Shah and Jaitly point out.

Is there a way out? “In the short term, we are in the central planning paradigm, and there is no way out. But we should look deeper, beyond tactical questions, into root cause analysis. Strategic thinking is required today to lay better foundations for the heat waves of 2023 and 2024.” 

Dig deeper

Shake-up on Startup Street

Even as stock markets across the world are beginning to feel jittery, it is now apparent startup founders are going into a tizzy. The news coming in from Silicon Valley doesn’t sound pretty. Writing in The Wall Street Journal, Heather Somerville has it that venture capitalists have started to ask questions and the focus is beginning to shift from scale at all cost to profitability.

“Many big money managers have fled startups. Venture capitalists are steering clear of high valuations and demanding that companies spend less and improve their margins—an about-face after years of profitability taking a backseat to growth. The pressure, combined with uncertainty over where the next investor cheque will come from, has prompted startups that seemed to be soaring just months ago to fire staff members, cut marketing spending, cancel projects and do whatever they can to make their money last.”

Somerville’s conversations with those in the ecosystem such as Mike Volpi at Index Ventures have it that “This is clearly not a speed bump. This is a proper correction. The end of a cycle.”

Wired Magazine reports a similar narrative. “Cash reserves will be increasingly important to weather the storm—startups that didn’t raise a round recently will likely have more difficulty going forward. The first three months of 2022 marked a record high for VC dealmaking among late-stage startups, but that frenzied pace has begun to slow. Now, many investors have advised founders to spend conservatively with the expectation that raising the next round might not be as breezy.”

This is not to suggest there is no silver lining. “Many of today’s hottest companies—Uber, Airbnb, Square, Stripe, Facebook—started during downturns.” 

Dig deeper

Thyme bomb

(Via Reddit)

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Warm regards,

Team Founding Fuel

About the author

Founding Fuel

Founding Fuel aims to create the new playbook of entrepreneurship. Think of us as a hub for entrepreneurs- the go-to place for ideas, insights, practices and wisdom essential to build the enterprise of tomorrow. It is co-founded by veteran journalists Indrajit Gupta and Charles Assisi, along with CS Swaminathan, the former president of Pearson's online learning venture.