The Interesting Times: Toil is the Root of all Evil

Hey there,

Last week I was in Las Vegas for the EQDerivatives 2022 conference. Not a big Vegas guy but it was a great group of people and would recommend it for anyone in the volatility/derivatives space.

At Mutiny, we talked with Corey Hoffstein about trends in the asset management industry, structuring licensing deals, trend following, and dealing with regulators.

If you enjoy or get value from The Interesting Times, I'd really appreciate it if you would support it by forwarding it to a friend or sharing it wherever you typically share this sort of thing - (Twitter, LinkedIn, Slack groups, etc.) You can read past editions here.

The Best of What I've Been Consuming

Excerpts From the Annual Letter [Article]

Stedi

Excerpts from Stedi’s annual letter by CEO Zack Kanter. As a fellow OODA enthusiast, Zack is one of my favorite people to talk about business structure and operations with.

In this piece, I think that the notion of "toil" he lays out is really important albeit under-appreciated.

The operations-obsessed company optimizes for efficient operations – it works to continuously eliminate *toil*.

What exactly *is* toil? Toil has many definitions – a popular one is from Google's SRE book:

"The kind of work tied to running a production service that tends to be manual, repetitive, automatable, tactical, devoid of enduring value, and that scales linearly as a service grows."

A lot of companies make choices that increase toil. There is nothing wrong with this necessarily - going out of your way to give special service to a client can be toil - but it does have a big cost.

In particular, toil reduces the amount of organizational resources that can be spent on generating future value. A "customer-obsessed" company that goes above and beyond for one customer may in fact be hurting future customers because those resources (time/money) could have been better spent building something else.

"…some portion of our energy (your and my *time*, and Stedi's *capital*) is spent on building new order and structure, and some portion of it is dedicated to fighting the decay brought on by entropy.

Our word for this latter energy expenditure – energy expended just to stay in the same place – is *toil*. Our goal as a company is to spend as little energy on toil as possible, allowing us to allocate the maximum amount of energy possible to building new order and structure – that is, new value for our customers."

This is, of course, highly context-dependent and there are many times when going above and beyond for a customer doesn’t have that high a cost and makes a huge difference. But, it’s important to be mindful of the tradeoff you are making.

Toil also affects your ability to recruit and retain people. No one likes toil.

If "fear is the mind-killer," toil is the soul-killer. Eliminating toil allows people to focus on the inherent complexity of the difficult, interesting problems at hand, rather than the incidental complexity caused by choices made along the way.

For many companies, they are better off, in the long run, leaving short-term "revenue or profit on the table in order to reach ever-lower levels of operational toil."

I like the notion of toil because it ties into the notions of path dependency and ergodicity. It’s about optimizing the long-term path and not always the short-term outcome.

The practice of mitigating toil has a quality of what economists call *increasing returns* or *agglomeration effects* – the more toil we mitigate, the more attractive it is to work at Stedi, and the more attractive it is to work at Stedi, the more great people we can hire to build new order and structure and mitigate more toil, which starts the process over again.

So, how to minimize toil?

One way is to think carefully about what complexity you bring in-house.

As a general rule of thumb, when trying to reduce our surface area in the fight against entropy, we want to use the highest-order (that is, the lowest amount of entropy) system that satisfies our use case. A well-supported open-source library is preferable to a library of our own (because the code entropy is someone else’s problem), and a managed service is preferable to open source (because fighting the code entropy *and* the operational entropy are someone else’s problem).

When you sign up for a 3rd party software service rather than building your own software, you don’t just need to compare the cost of building vs. buying, you need to factor in the cost in terms of time and organizational complexity of how much additional toil bringing it in-house will create.

I would say that 98 times out of a hundred someone has approached me with an idea to build software, they would be better off cobbling together off-the-shelf-SaaS products where they can effectively move the toil off their balance sheet and onto the vendor’s balance sheet.

For non-SaaS businesses, the advent of APIs and No Code solutions has been a huge boon though SOPs are still a tried and true way to mitigate toil.

Ben Hunt — Preserving the Physical Metaverse [Podcast]

Ben Hunt

A thoughtful discussion on the importance of language and how it shapes our perception.

If you don't have the words for something you can't think it. That's right, man, that's control. The flipside is true as well and this is the flip side of great philosophers and religious figures. If you introduce new words, you're able to think new thoughts, you're able to see the world in a profoundly different way. So for example, you know the first revelation to Muhammad by the Angel Gabriel in that theology, the Angel Gabriel came to Mohammed and the command was ‘read for Allah is the word.’

And a critique of how language is used today.

There are two types of stories that have been adopted again, I call it the Nudging State, the nudging oligarchy, big corporations and these are the archetypes … are stories of the other and stories of transactions. We are hard-wired to respond to these stories.

But what it does Jim is that it crowds out the stories of Jesus and Mohammad and Buddha and every other great religious figure and non-religious figure. It crowds out the stories of Socrates and Aristotle and Martin Luther and Martin Luther King Jr.

Here are a few more things you might find interesting:

Newsletter Past Editions: Read past editions of The interesting Times Newsletter.

Interesting Essays: Read my best, free essays on topics like bitcoin, investing, decision making and marketing.

Consulting & Advising: Are you looking for help with making decisions around scaling your company from $500k to $5 million? I’ve been working with authors, entrepreneurs, and startups for half a decade to help them get more out of their businesses.

Internet Business Toolkit: An exhaustive list of all the online tools I use to be more productive.

Futures and options trading involves a substantial risk of loss. You should therefore carefully consider whether such trading is appropriate for you in light of your financial condition. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author. The mention of specific asset class performance (i.e. S&P +3.2%, -4.6%) is based on the noted source index (i.e. S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self-reporting, and instant history.

DISCLAIMER

This email provides information regarding the following commodity pools: The Long Volatility Fund LLC and The Cockroach Fund, LLC (collectively the "US Funds") and Mutiny Funds Cayman Ltd. (together with the US Funds, collectively the “Fund(s)“), which are managed and operated by Attain Portfolio Advisors LLC and Mutiny Funds LLC (the “Managers”). Investments in the US Funds are only available to Accredited Investors as defined in Rule 501 of Regulation D of The Securities Act of 1933. This content is being provided for information and discussion purposes only and should not be seen as a solicitation for said Fund(s). Any information relating to the Fund(s) is qualified in its entirety by the information included in the Fund’(s)’ offering documents and supplements (collectively, the “Memorandum(s)”) described herein. Any offer or solicitation of the Fund(s) may be made only by delivery of the Memorandum(s). Before making any investment in the Fund(s), you should thoroughly review the Memorandum(s) with your professional advisor(s) to determine whether an investment in the Fund(s) are suitable for you in light of your investment objectives and financial situation. The Memorandum(s) contain important information concerning risk factors, including a more comprehensive description of the risks and other material aspects of an investment in the Fund(s), and should be read carefully before any decision to invest is made. This site is not intended for European investors, and nothing herein should be taken as a solicitation of such investors.