VALUE: After Hours (S07 E16): Jake’s Veggies: Venom, Ecology, and the Power of Focus

During their recent episode, Taylor, Carlisle, and Steven Wood discussed Jake’s Veggies: Venom, Ecology, and the Power of Focus. Here’s an excerpt from the episode:

Tobias: JT, top of the hour. Do you want to do some vegetables?

Jake: Yes, sir. This one hopefully will tie in with Steven and his strategy a little bit. Although I [chuckles] can’t always match him up, but I tried this week. So, this is all about venom, because we always try to dip into the natural world where we can steal Mother Nature’s secrets for our benefit. But picture this.

A rattlesnake slithers across a sunblasted island in the Gulf of California. It’s not looking for trouble, just dinner. But what’s in his venom will tell us a much deeper story.

So, researchers from the University of south Florida studied 83 snakes on 11 remote islands in the Gulf of California. Their question was very simple. Does ecological complexity drive venom complexity? So, the intuitive answer is probably yes. Like, more prey equals more problems, equals more biochemical tools to solve them. But nature had other ideas here. On the bigger bustling islands, the venom didn’t get more complex. It got simpler. So, it’s less diluted, sharper, distilled, but for a more narrow target set, like a scalpel instead of a Swiss army knife.

So, venom is really about fit. It’s an evolutionary product market fit. And biochemically, venom, if you don’t know, it’s a pretty wild cocktail. There’re neurotoxins, which are like nerve blockers, which basically will freeze something when it courses through the system. Hemotoxins, which are blood disruptors, and then myotoxins, which are muscle breakers and then there are enzymes that are in there that speed up all of this and spread the chaos even faster. So, each molecule in venom is like this little targeted missile. It’s not a blunt instrument at all. It’s like this nanomolar scaled precision tool. But they’re very expensive to make. And so, it costs a lot of metabolic currency to create this. And nature keeps a very tight budget.

So, if a snake mostly eats one kind of lizard, it evolves venom tuned like a sniper rifle really to that lizard’s biology. So, complexity for complexity sake is not how evolution works. It’s lean, it’s brutal, it’s focused. And on islands that were teeming with a lot of prey variety, the snakes didn’t go broad. They went very deep. And because there’s a very high return on biochemical investment by being a specialist. So, if you’re only dining on lizards, don’t create bird killing toxins. This is called in ecology, adaptive streamlining. And in business, we might just call it focus. And in investing, it’s knowing your edge.

So, the key idea here really is like every strategy is a kind of venom. It’s a tool designed to exploit a particular inefficiency. It’s probable that a lot of people make the mistake of trying to own every kind of toxin. You want to really want to be able to define what your edge is. Maybe it’s time horizon, domain expertise, the information, temperament, analytical lens. And match that venom to your ecological niche. Don’t hunt for birds basically, if you’re a lizard eating investor.

So, here’s a little checklist to help you find your venom. What inefficiency am I consistently able to exploit? What conditions must exist for my strategy to work? What kind of prey, business, asset, setup, whatever it is, am I built to target? Can I explain my venom in one sentence? And when does my strategy break down? When am I not built to hunt?” The reason I was alluding that this connects with Steven is because he’s doing something relatively niche. He has a particular thing that he’s looking for and he has a particular skill set that he’s bringing to the table. So, it’s a bit of his own venom for a certain type of lizard.

Tobias: Good one, JT.

Steven: Can you also correlate that to return on time? So, if I’m going to specialize on that lizard, you can actually base– Is it more efficient metabolically on energy, Jake?

Jake: Yeah. Yeah, it’s more efficient to have the simplest venom that’s called for to be effective rather than maintaining a very complex roster of venom. It’s just going to be more energy inefficient to do that.

Steven: So, it’s funny, because when you look at 1,300 companies together, very few things stand out from a macro perspective in terms of correlations. And then, you get into individual things, and every little thing needs its own little thing. But I will say, if I correlate it back to my white paper, the things that are the most reliable is customer satisfaction, revenue growth, expense growth and employee growth, and then not doing M&A, not returning capital to shareholders. Those are the primary sort of–

If I had to think about like an island with a lot of heterogeneity, I’m going to focus first on customer satisfaction and employee growth, basically. And that’s going to be my killer app. But then, if you look at it underlying– For instance, TransDigm is in here. Deeply negative net promoter score. They’ve optimized other things and they’ve done very, very well, but their customers absolutely hate them.

[laughter]

Steven: So, it’s a great example. I like how you said the venom gets simpler the more heterogeneous the environment is. That makes a lot of sense, actually.

Jake: I found it to be counterintuitive, which is why I was interested in this piece and writing it up more was, I would have thought, lots of different species to target while you want to be able to maximize, taking down whatever you come across. So, you need to have every toolkit available to you. And that would probably confer evolutionary survival advantages. But no, it turns out Mother Nature wants a better ROI than that. As long as there’s a niche that’s available to be exploited, then that’s what she’ll do.

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