Become Rich Like Buffett and Bezos: Bet on Homeostasis

In my book Breaking out of Homeostasis, I have an early chapter titled “My Dark Prediction of the Future”.

This article builds off that.

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If you have to bet what someone will do next, always bet they’ll do more of what they’re already doing.

Because most people don’t change.

This is the central idea behind Buffett’s wealth. He does not bet that human nature will change.

He wants the investment decision to be as safe and predictable as possible.  (“I focus on the absence of change.”)

 

Jeff Bezos Also Bet on Homeostasis.

That’s Why Amazon is Successful

 

Being an entrepreneur, Bezos did it in a different way than Buffett.

In the earliest days of Amazon, Bezos went to a university (I think it was Harvard?) and gave a guest lecture about how his new company was gonna revolutionize the retail sector!

At the end of his talk, he asked the business class for advice. What should Amazon do? Their unanimous answer was: “QUIT while you’re ahead and consider yourself lucky if you’re bought out by one of the big retailers.”

Bezos’ answered:

You may be right, but I think you might be underestimating the degree to which established brick-and-mortars businesses, or any company that might be doing things in a certain way, will find it hard to be nimble or to focus attention on this new channel [Internet].

ALL the business students were untrained in psychology and mind-body mastery. They did not know about homeostasis.

But Bezos did, and he bet all on it.

The Difference Between Peter Thiel and Warren Buffett

Peter Thiel is a venture capitalist. He likes to buy IT companies and startups.

In case you’re not familiar with investing, the dynamics of financial success for a VC is the opposite of Buffett’s conglomerate-purchasing. If Buffett bets on homeostasis to go on, then Thiel bets that homeostasis will be broken.

This is a MUCH harder proposition, but it also pays more when you’re right.

The companies Thiel buys will succeed only if they can change people’s behavior. This is rare and hard, but when it happens, the monetary success is spectacular. Facebook, Linkedin, Google, Twitter, AirBnB, Ali Baba, Ebay, Dropbox, etc. You only need one of those. . .

But to change people’s behavior, they must either create something new and revolutionary, or they must provide a superior alternative to an existing solution. In both cases, the gizmo has to be so much better (10x) than its closest alternative, that the choice to switch is a no-brainer.

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Can you think of a similar example inside your field of interest?

Where you either make money by going with homeostasis, or against it.

I’ll start. When it comes to making money online, it’s either stupid enjoyment for Homeostasis Dwellers (casino sites, affiliate networks, and magic pill get-rich-quick schemes) or it’s providing high quality niche products for successful people who want to become even better. AKA: Homeostasis Breakers. There’s very little in between.

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READ THE BOOK: BREAKING OUT OF HOMEOSTASIS

 

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Comments

  1. Hah!
    Maybe you will invent your own homeostasis breed themd of VC / tech investing in a few years.

  2. ”… I’ll give you a boost in the Amazon search engines. But keep it between us.”

    So much for your word? (I guess it was relaxed request).

    I’m excited to read your book, happy that you finished it!

  3. I wouldn’t underestimate the role of chance in all of this. At that time, a lot of online companies were tanking, lost money and went out of business. We have to remember how close the Page and Brin duo were to selling their search engine for 750K US Dollars to the incumbent search engine company, Excite. Survivorship bias is strong in these types of things.

    That said, the general principle that you mention is sound: “When it comes to making money online, it’s either stupid enjoyment for Homeostasis Dwellers (casino sites, affiliate networks, and magic pill get-rich-quick schemes) or it’s providing high quality niche products for successful people who want to become even better. AKA: Homeostasis Breakers.”

    • Good point about survivorship bias. It is extra important due to the hazy bubble dynamics at the time.

    • Good point about survivorship bias. 99% of the promising startups and even looming giants from that era are vanished or reduced to pitiful has-beens. Aside from luck, and perhaps sharper business practices, what made Scamazon succeed? They seized a new niche – on-line book selling – firmly grounded in long established buying habits (mail order and book retailing). Then they expanded based on other existing methods – commission selling and general retail – at least eight centuries old. The only thing Scamazon gambled on was the “on-line” part.

      Sears or Walmart or Kmart or others with huge existing retail markets could theoretically have done this very easily, and I do not have the slightest doubt that many leaders in those companies appreciated the opportunity, but an organization that size (and age) can only change course very slowly.

      That’s a general truth about all organizations. For a nautical analogy, it’s rather as if every ship has the same size rudder as a sailboat, no matter how large it is or how much momentum it has built up.

      • “The only thing Scamazon gambled on was the “on-line” part.”

        –It was a rather big gamble though. They based the business on it from the start. Later, when fearing serious competition from retailers, they started poaching top execs from Walmart.

  4. The Bezos anecdote is cool. I didn’t know that.

    He was smart to factor in how difficult it would be for a large organization to change & adapt their work methods. Especially so given how fast the Internet was growing. Perhaps he was one of the few to realize that you had to be an “online business” in order to keep up with the evolution of the Internet?

    When I was in business school I would probably also have agreed with the class of students and thought “geez, here’s another revolutionary”. But now that I have some corporate experience having worked for two big companies, I can say that this was one smart dude.

  5. Yeah, there is a saying in business research that before you sell something look at what is already selling.

    If you go against that you are then betting/assuming that your product or what you offer is going to make these people change.

  6. Good post.

    “always bet they’ll do more of what they’re already doing.”

    This also goes for momentum (growth rate in *business* and success trajectory of *person*, what you call “winner effect”).

    There is even a “momentum trading” in the financial markets as I’m sure you know.

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