What's Behind the Shopify Effect

Alex Danco's Newsletter, Season 3 Episode 12

Each year, Shopify releases a report with Deloitte called our Economic Impact Report, in order to highlight and celebrate some bigger-picture impacts of Shopify merchants around the world. This past year was obviously a critical period for our merchants, who thrived during an absurdly challenging time. It’s really meaningful that they did: Shopify merchants now represent 3.6 million jobs around the world, and every 28 seconds, a new entrepreneur makes their first sale on Shopify. 

All together, we’re very proud to help support this enormous, growing global community. This year we’re wrapping it up in some deliberate storytelling, called The Shopify Effect

There’s clearly something important happening at scale here. It’s not just the numbers that impress; it’s the depth and distribution. Merchants of all sizes are thriving on Shopify, and if anything, the small merchants are outperforming the larger ones in relative impact and growth this past year. The most impressive part of the “Shopify Effect” is that merchant’s aren’t just starting businesses; they’re building good businesses that really work, and sustain healthy gross margins, that support employees and suppliers and communities around them. 

There is something special going on here, which has to do with friction and the internet. But it isn’t what you think. 

Opt-In Commerce

A big part of the Shopify story is, “We help get rid of friction in commerce." This is certainly part of it: there is a lot of friction we try to remove with our product for both merchants and buyers. Merchants shouldn’t need to bear the agony of setting up a payment processor, dealing with cross-border taxes, syncing inventory, or having slow-loading checkout. There’s a lot of unnecessary struggle in entrepreneurship and in commerce we can help get rid of, and we’re proud of doing that. 

But getting rid of friction is only half of the battle. There’s another aspect of commerce that we need to understand too: challenge. They might seem superficially similar, but they’re not.

Commerce is not one homogenous activity; there are two distinct kinds of commerce that are effectively opposites. One kind of commerce is oriented around opting in to a challenge; the other kind of commerce is oriented around opting out of a challenge. 

Imagine you’re going to the store to buy a nice bottle of wine. You’re headed to a dinner party with friends, so you care about this purchase. It says something about you. Successfully finding and bringing a nice bottle of wine is a challenge. You are opting into this challenge; and so is the winemaker and merchant on the other side. They’re putting effort into this sale - not just growing and making the wine itself but how it’s presented, how they tell a story around it, and what the wine says about you.

This purchase challenges you, and that’s important. You and the merchant build a relationship with each other, in overcoming the challenge together. You’re likely to remember them, and buy from them again next time.  Notice how important it is that you consciously opted in to the challenge of buying this wine; so that you can take pleasure in knowing you fulfilled the challenge. 

There are all sorts of purchases we make that fall into this category, where we’re consciously opting into a challenge. A sneaker drop; a cosmetics line; local healthy food; collectables; art; a snowboard; for all these purchases, the challenge isn’t incidental. It is the point. Without it, the purchase has less meaning; and the meaning is really what we’re after - being beautiful, being smart, being an athlete, being someone with great art. We have a name for this kind of commerce, where people eagerly hunt for challenges to find joy in overcoming them: it’s called shopping

This kind of commerce sustains a healthy ecosystem behind it. There’s room for sustainable gross margin here, which in turn can support a lot of effort on the merchant’s part to make this purchase really special. That’s how you pay designers, and sustainable suppliers, and good wages to happy employees, with room left over to grow your business and reach financial independence. Gross margin matters; and that’s why these challenges and the stories around them matter.

Opt-Out Commerce

Of course, not everything we buy has this kind of meaning. There’s also the other kind of commerce, where we opt out of challenges. 

This is anything we buy at a convenience store, or any kind of purchase that honestly doesn’t say anything about us at all. There’s no greater meaning here; no challenge to overcome that speaks about us as a person; we’re just buying toilet paper, or picking up stuff at the corner store. The point here is convenience. We want to opt out of any difficulty whenever possible - it does nothing for us. 

The same is true on the merchant side of the table. It makes no sense for them to craft a meaningful challenge for their buyers. Buyers aren’t looking for a challenge to overcome; they just want to complete a transaction without any friction involved. The less of a direct relationship the merchant has with the buyer, the more certain that this’ll be what kind of commerce is happening. So the merchant is denied something too: they can’t create and overcome those challenges alongside their buyers. Both the buyer and the merchant opt for convenience instead. 

If we get rid of all the friction, all the challenge, every obstacle and inconvenience, what do we get? We get Amazon. It’s clear what kind of commerce happens here. A lot of it, for sure - convenience attracts a lot of customers, and a lot of buying does in fact take place. But without a challenge to overcome, nothing meaningful gets created. No buyer loyalty or retention gets established; gross margins continually face pressure. So it’s harder to pay good salaries to employees; it’s hard to reinvest into good design, or good craft. You’re stuck in this low-challenge, low-margin, low-breathing-room kind of commerce, where everyone’s going through the commercial motions but no one is deriving much joy or self-expression from it. This kind of commerce is called consumerism

I bet if you asked, “what’s the relationship between shopping and consumerism”, most people would tell you they’re overlapping concepts. We don’t think so. We think that shopping and consumerism are opposites. One opts into challenge. The other opts out. 

Gaming and friction

Speaking of narratives, here’s one you’ve heard before: “Over the long run the internet moves in one direction and that’s getting rid of friction.” There are two compelling reasons behind this argument. One is empirical; it’s what we see happening, all the time: both the companies making these great breakthroughs in eliminating friction, and the world-beating business models they create. The second is just common sense. Users don’t like friction; so when you get rid of friction, they’re happy, and in the long run, we’re good at building stuff that makes users happy. 

It’s obviously anecdotal, but I know a lot of smart people who understand the internet well, and have effectively concluded: this is how the internet works. There’s an arrow of progress that moves in one direction - towards getting rid of friction - and a corresponding rise in internet-native businesses, especially the aggregator and platform models, that support and monetize that. On today’s internet, it can be hard to imagine that it might work any other way.

Meanwhile, there’s another industry next door that has a very different philosophy about friction. That industry is gaming. 

The gaming industry understands that friction isn’t something to blindly get rid of. Friction is challenge, and for them, challenge is the product. That is the point of gaming: crafting and hosting challenges that intrinsically motivate people to go after. The gaming industry understands the distinction between bad friction versus good challenge, so much better than anyone else. 

Josh Buckley, the CEO of Product Hunt, had a great interview on Colossus the other day where he shared some of the common principles of game design. It’s worth listening to, for two reasons. One, because he clearly explains some fundamental rules of how friction and challenge works, and how to craft them so that they’re intrinsically motivating. And two, because it might be the best articulation of how D2C works that I’ve ever heard. 

There are four more-or-less universal principles for designing intrinsically motivating games. All four of them are about challenges. And all four of them apply directly to commerce.

First, there needs to be a meta-narrative for why you’re participating, that makes you feel a certain way. If you’re buying sports gear, that meta-narrative is the challenge of athletics. If you’re buying old records, that meta-narrative is the challenge of cultural fluency. If you’re buying cosmetics, the meta-narrative is the challenge of beauty and self-expression. For one of my favourite Shopify merchants, RedOne Music, the meta-narrative is the challenge of being a musician. 

Second, you need a variable reward mechanism. This is really important: if it’s pre-ordained that you are going to succeed, there isn’t a real challenge. When you go to the convenience store, you know you’re going to buy a couple things; there’s no uncertainty to it, and there’s no challenge you overcome. But when you go shopping there’s some real uncertainty when you set out, and that’s why conquering that challenge has meaning for you. Some of the most fun commerce experiences on earth, like sneaker drops, take this to its limit. 

Finally, you need tight feedback loops and a sense of control. These two go together, and they’re really important for creating experiences where people enjoy the challenge, rather than dread the challenge. Sense of control doesn’t mean “pre-ordained outcomes”, it means, “Do I feel like I’m in the driver’s seat of something.” 

Think critically about this, juxtaposed against that earlier assertion: “The internet gets rid of friction, and that’s what people want.” There’s obviously such a thing as bad friction to get rid of, but the people who really get it - like the gamers - understand the importance of challenge. And so do Shopify merchants. 

Nowhere is this more apparent than in the economics of ecommerce. 

The Shopify Effect

One of the biggest consequences of the direct-to-consumer resurgence in commerce is the total focus on customer loyalty it demands. The internet is a wide open playing field. You can reach any customer, anywhere - but anyone can reach your customer. The cost of reaching new customers, seen in the average CAC spend that merchants must invest into their customer base, relentlessly goes up every year as a consequence. 

If you’re doing Opt-Out commerce, this is just a death spiral for you. When you compete on the basis of eliminating friction and challenge, you’re just signing up to pay market rate to reach buyers, and buyers will evaluate you on the same playing field as your competitors. It’s hard for you to establish any kind of sustainable gross margin that way, let alone contribution margin. It’s tough to build a business that way, or to support a community around you. 

But if you’re doing Opt-In commerce, which is what D2C really means, something else happens. The amplifier of the internet works for you: if buyers identify with the challenge you’ve created with them, and if they’re intrinsically motivated to go conquer it with you, then that accomplishment will propagate virally. If you’re good, something astonishing happens: the more CAC you spend, the lower your incremental CAC becomes. That’s magic for a consumer business.

When I think of the most successful Shopify merchants and the kinds of brands they’ve built, every single one is explicitly doing this. Their buyers come back to them, again and again, because they’re intrinsically motivated to participate in something meaningful. That retention and LTV helps support really strong businesses, and they also demand a lot of reinvestment too - the good kind of reinvestment, like reinvesting into really well-crafted products, high-quality materials, and loyal employees. 

To me, this is the real “Shopify Effect”. Our merchants can have such massive global impact (3.6 million jobs! $307 billion in 2020 economic contribution!) not only because they’re able to start and scale businesses, but also because those businesses are good businesses. They have strong fundamentals, powered by healthy gross margins that can support huge communities around them. The fundamental reason why they can do this isn’t only by getting rid of all the unnecessary friction. It’s by creating really expressive challenges, and helping their buyers become someone through conquering that challenge.

Sure, there’s a lot of unnecessary friction that doesn’t help, and Shopify is eager to help get rid of that. We’ll never get tired of speeding up page load times or streamlining complex registration forms. But the real Shopify effect that I’m really proud to help build is in the Opt-In part of commerce. 

You probably know that famous Jeff Bezos line, which goes something like, “I don’t want to build a business on what will change in 10 years; I want to build a business on what will be the same in 10 years. And buyers will always want more choice, they’ll always want more convenience, and they’ll always want lower prices.” Well, we have our own version: “People will always be motivated by challenge. We always want to become someone. Challenges are how we do that. Great commerce celebrates those challenges.” That’s what our merchants do every day. And I think we’re figuring out how to help. 

Permalink to this post is here: What’s Behind the Shopify Effect | alexdanco.com

And before we go, here’s this week’s Tweet of the Week, the tweet that made me laugh the hardest:

Have a great week,

Alex

World Building and Antifragility

Alex Danco's Newsletter, Season 3 Episode 11

Recently we talked about the idea of world building:

World Building | alexdanco.com

The main idea here was: the more complex or valuable is whatever you’re trying to [accomplish], the more important it is for you to build a world around that idea, where other people can walk in, explore, and hang out - without you having to be there with them the whole time. You need to build a world so rich and captivating that others will want to spend time in it, even if you’re not there.

This really seems to have hit a chord with a lot of people, so thank you all for your response. I’m glad this topic resonated, because it gives me a good chance to practice what I’m preaching: let’s go explore this world a little more over the next couple weeks.

There’s another big reason why world-building is important, that we haven’t gotten to yet: antifragility.

The goal of world-building, to recap, is to create and nurture purposeful environments where people find a clear role to play, and understand the narratives around it. World-building goes beyond linear storytelling, because if you do it right, the world you’ve created starts telling the story for you. You don’t have to be there all the time, or micro-manage every part of the storyline. Your job is to create a world that’s interesting for people, let others find their purpose inside it, and then run with it.

Here’s the thing, though: your world doesn’t exist in a vacuum; it’s subject to the volatility and unpredictability of the outside world. If you’re trying to create or accomplish anything complex and valuable, you know this lesson all too well: once you set off on a mission to get something done, there is no way you can predict what kind of plot twists or stressors you’ll encounter along the way. Your world is going to face shocks and surprises you can’t foresee. This is a guarantee.

Those stressors could have two kinds of consequences. One possible consequence is they can create uncertainty. You have a carefully crafted narrative, that gives people purpose, but then some stressor shows up and adds throws that narrative and purpose into jeopardy.

But not necessarily. It’s also possible that stressors might resolve uncertainty, and sharpen the purpose. In that case, those stressors will be information. They are valuable and necessary for your world’s vitality.

I’ve written about this idea before, last year in the earliest days of Covid. This is what “antifragility”, the oft-quoted but mostly misunderstood idea from Nassim Taleb, is really about:

In a fragile system, stressors create uncertainty. There’s existing purpose in your world, and that purpose makes sense so long as your world remains within a certain state. But when a stressor throws your world into a new state, the established purposes inside your world make less sense. Your world becomes more uncertain. That’s fragility.

In an antifragile system, stressors act in the opposite direction: they resolve uncertainty. The purpose in your world is expressed in terms of stress and response. It's initially undefined; it needs the stressor in order to make sense. When a stressor shows up, they resolve uncertainty in the purpose. Without a stressor, you’re rudderless: you don’t know how to grow or what to do, until you’re given that direction.

In truly antifragile systems - one of the best examples being the immune system - you can literally spell out the mechanism through which this happens. This is a good test for whether something is bona fide antifragile or just handwaving: can you articulate the specific mechanism through which unknown stressors reduce uncertainty? Put in terms of world-building: what are the elements of your world that need surprise stressors in order for their purpose in your world to make sense? Do you really understand the mechanism at work here? And do you understand how that mechanism operates in your world?

This is all quite abstract so let me give you a concrete example: world-building at Shopify, and specifically one instance where we’ve done a good job - flash selling.
Shopify occupies an interesting intersection between two rather different worlds. One of those worlds is entrepreneurship culture. The other world is hacker culture. Our job at Shopify is to build a world that both of those groups of people want to join and spend time in, so they can both win and help each other win.

Entrepreneurship culture, or we can alternately call it “merchant culture”, is obviously thousands of years old but has found a specific format in today’s internet world, for sure. You can affectionately call it the “hustle-and-grind” community that encompasses small sellers, Youtubers, viral marketers, drop shippers, big brands, and people telling stories through their personal projections. This is a culture that enshrines repeated trial-and-error, taking as many shots on goal and putting in as many hours as it takes. This is a culture where problems get solved in synchronous marketplaces. This culture has its own language, storylines, tropes, and inside jokes. As a participant in this culture, your purpose is coherent and clear.

Hacker culture is wholly different. We are talking about almost an entirely different species of internet-dweller here. People who make code for fun and for a living, and who are deeply committed to the craft of software development, have their own rich culture that’s evolved over decades around the peculiar demands of creating and maintaining high-quality code. This is a culture where the native problem-solving format is the bulletin board and where developer productivity is definitely not measured in lines of code. It very much has its own language, tropes, and storylines, and learning them is an important part of becoming a developer. As a participant in this culture, your purpose is also coherent and clear.

There are some interesting similarities between these two cultures. One similarity is that they’re both deeply reputation-based, although for totally different reasons. In commerce, reputation matters for acquiring, convincing, converting and retaining customers, allowing the marketplace of problem-solving to operate smoothly. In software development, reputation matters because complex technical projects require a lot of judgment calls and decision-making in high context situations. As you gain seniority in the community, you earn the power of influence: “this approach will work out well; this approach will go badly; this approach you haven’t considered might be best.” Reputation allows the bulletin-board of problem solving to operate smoothly.

Similarly, the way that you earn reputations in both cultures is by facing challenges and overcoming them successfully. In commerce, the way you earn trust and status is by finding opportunities to do a hard kind of commerce, that people really want, and then successfully following through. Same with software development: the way you earn trust and status is by finding opportunities to take on hard, complex problems, that people really want solved, and then successfully following through. Without those challenges, these worlds stop working. The participants’ purpose requires challenge, and requires unforeseen stressors. Without them, commerce becomes frictionless, low-trust Amazon purchases. Without them, software development becomes just a 9-to-5 chore with no joy or craft.

Each in their own way, both the merchant community and the software development community have antifragile potential: they need unpredictable challenges in order to function healthily, because those stressors are information. For the merchants, stressors are information both financially (the harder a transaction, the higher the price!) and reputationally (the harder a transaction, the more you trust those who’ve done it before). In software development, stressors are information: they show you who the architects really are, and who the senior managers really are.

Shopify’s job is to build a world that can host both of these groups of people, and their challenges, simultaneously. A decade and a half in, and we’re making progress, but as with any serious world-building campaign, we’re only 10% done or so. We host a lot of different people in our world already - not just merchants and app developers but also agencies, marketers, designers, all kinds of freelancers, and everyone else who wants to contribute.

For the most part, I would not say that Shopify’s ecosystem is fully antifragile yet, in a true sense - we cannot say, “stress always makes our ecosystem stronger” yet. What work is still in front of us? Across most of Shopify’s world, we are still learning and figuring out all of those mechanisms through which you could say stress IS information. There is still so much work we have to do on that front in order to become as good as we know we could be, and a lot of our platform work that’s happening over last year and this year will help put us in a strong position going forward.

But, there are a few parts of our world that feel really strong. One of them is flash selling, and specifically, bot protection. (If you don’t know what I’m talking about: any time some coveted item goes on sale all at once, like a limited edition product drop, or hot playoff tickets, that kind of thing, people have built scalping bots that immediately buy up everything so they can resell at a markup. Ever since this tactic became popular, there’s been an ‘arms race’ of sorts between the e-commerce platforms, like Shopify, who build more and more sophisticated defences against the bots, and the programmers who keep making them smarter. It’s an ongoing game of cat and mouse.)

Why are we so strong here? It’s not just that we built good anti-bot software once. It’s that we host a world, inhabited by flash sellers and software programmers, with a rich narrative and purpose around defeating the bots and pulling off ambitious flash sales. And stressors (newer, meaner, unpredictable bots) make this world even stronger. Because everybody in deeply understands the mechanism through which these stressors are information, and resolve uncertainty.

For seasoned merchants, this perpetual game of challenge-conquer, challenge-conquer, builds more trust with their fans and buyers, because it increases the stakes of the moment - and the rewards to winning. (Bots, as reviled as they are, are part of the mystique of flash selling!) Meanwhile, for the teams of developers fighting the bot war, the same perpetual game of challenge-conquer builds more trust and hunger among the community, because it defines new challenges, and continually sharpens and refreshes their collective purpose. We understand these mechanisms well, because we’ve spent a lot of time in those two cultures - entrepreneurship culture and hacker culture - and we have an idea of how they mechanically function, down to the details of personal challenge and response. That’s the bar we have to clear, everywhere.

You can look at this little corner of our Shopify world, where there are merchants and developers assembled on both sides of this unpredictable source of stressors and loving it, and feel pretty confidently that this is a really nicely well-developed piece of our world that’s going to keep developing and perpetuating successfully. It is one of the first really antifragile pieces of our little world. (Notably, there’s a cost to antifragility: if all of a sudden the stressors went away, this corner of the world would actively suffer! Both the merchants and the developers would probably be worse off if the bots disappeared overnight: they’d have lost an important component of their purpose, and an important part of their sense of being and success would be taken from them. The only way you can defeat our anti bot team at this point is if there were no more bots!)

The fun part of looking at world building this way is once you realize what real antifragility looks like, you start seeing it in other really excellently developed worlds. And it gives you an idea of what excellent really looks like - you have to deeply understand the mechanisms through which stressors are information. If you understand those mechanics inside the world you’ve built, then you’ll be in good shape to invite others in and take on some unpredictable challenges.

Permalink to this post is here: Worldbuilding and antifragility | alexdanco.com

Have a great week,

Alex

World Building

Alex Danco's Newsletter, Season 3 Episode 10

You’ve probably heard a familiar piece of career advice: “Everyone works in sales, even if they don’t realize it.” This is good advice. 

I want to propose an updated version for today: “Everyone’s job is world-building, even if they don’t realize it.” It is more or less the same idea, but tailored even more for a world of abundant narrative and complex choices. The more complex or valuable is whatever you’re trying to sell, the more important it is for you to build a world around that idea, where other people can walk in, explore, and hang out - without you having to be there with them the whole time. You need to build a world so rich and captivating that others will want to spend time in it, even if you’re not there. 

It takes time to learn this lesson. Early in your career, you’ll be typically tasked with accomplishing simpler things that require a single-threaded effort, or aim at one specific obstacle. But as you grow and take on more complex responsibilities, or stake out on your own and try to bring your own ideas into the world, you’re going to quickly learn that the actually hard problems in the world worth working on are system problems. Trying to ship something inside a big company? That’s a system. Trying to build a startup that rearranges the world in an interesting way? That’s a system too. Same for media, or politics, or any pursuit that involves leverage.

System problems cannot be fixed in one step, nor can they be fixed in a sequence of linear steps. Why not? Because when systems find a steady state - which is probably where you’re encountering them, if you’re setting out to change something - they’re “steady” not because they’re static, but because they’re dynamically held in place by feedback loops. If you try to change one variable, you can apply as much effort as you like, but the minute you let go, the system will just snap right back to its original configuration. 

If you want to change how a system works, and move the system into a new steady state that’s closer to your goal, sequential effort won’t do much. What you need is parallel effort: you need several different things to happen, all at the same time, for the system to actually move in the direction that you want and stay there

So that means you need to find all of the different people who you’ll need on your team, and somehow get them all listening to you at once, all probing and pushing on the system to change, for an extended period of time. This is harder than it sounds, for two reasons: complexity and time.

First, complexity: for any interesting system problem, you’re not necessarily going to know exactly how to push on the system in the right way, let alone how to coordinate a large group of people all pushing on their own parts of the system, on the first try. You need to probe it and reason about it and figure out what to do. But that takes a while to figure out, and people get bored or distracted or busy with other things. It’s hard to hold several different people’s attention at once, for any appreciable length of time. 

Second, that time issue: there is only one of you. You cannot simultaneously be everywhere at once, and spending time on every part of the system at once, holding everyone’s interest at the same time. That’s tricky, because unless you’re in some very senior role that compels your teammates to explicitly prioritize whatever you have going on, you’re going to be competing with a lot of other stuff. And when you can’t attend to someone personally, you’ll probably lose their attention to whoever can. 

So how do you do this? You make a world. 

It’s not enough to tell one good story; you have to create an entire world that people can step into, familiarize themselves with, and spend time getting to know. Initially you’ll have to walk them around and show them what’s in your world, but your goal is to familiarize them with your world sufficiently, and motivate them to participate, to the point that they can spend time in your world and build stuff in it without you having to be there all the time. 

The world will include many things, but it needs one in particular: purpose. Inside the world, it needs to be really obvious what our goals are, and why we want our push our system into a new state. You fill your world with familiar storylines and tension and characters, highlighted or re-framed compared to the real world, that give everyone a really clear purpose. That’s the main difference between the world you’re going to construct through storytelling, versus the “regular” world it’s based on: your principal job is highlighting the specific storylines and characters that illuminate a coherent purpose.

People like coherent purpose. We like stories because we appreciate clear direction and compelling story arcs. If you can create a world that’s more clear and compelling than the complex, ambiguous real world, then people will be attracted to that story. And when you invite those people into your world and give them purpose inside your world, and they accept that purpose, then they won’t ever leave. That’s how you get everyone pushing on your system problem all at the same time, without you having to be everywhere all at once.

Hopefully this illuminates the principal challenge you’re going to face while world-building. On the one hand, your world needs to be based on the real-life present, if you want it to ultimately change the real-life present. But on the other hand, the more compelling you can make your world, the farther you can stray from reality, and into “fantasy” (except you’re trying to make that fantasy actually come true.) Your success here will depend entirely on how successfully you can tell stories, and how successfully other people can repeat those stories, both to themselves and others. 

That’s why true storytelling originality is less rewarding than you might think here - you need to build your world out of familiar settings and tropes and conflicts. Your North Star here has to be: are other people retelling this story successfully? So it might be helpful, when you’re telling stories that build up your world, to keep in mind some basic features that all worlds need to have. 

All that time drawing DND maps was useful, turns out! (You can get this print from the artist here.)

Geography: What is the geography of your world? What is near, and what is far? What groups of people are close together (they’re all alike, or share key context), and what groups of people are unlike them? (For example: the reporting and editorial staff at a media outlet might live in one region of your world, and the advertising and revenue team lives in another region of your world; they know about each other, but have distinctly different territories and cultures.)

Trade: How do those different cultures and regions trade with one another? What do they have to offer to each other, and what steady state have they found in trading with one another? Is trade constant, or is it (more realistically) cyclical in some way? For example: at Shopify, we have a cyclical year where Q4 (and especially BFCM) sees a very different “trade” between different organizations (engineering, product, support) than you see in other times of the year.

Regional Contrasts: There’s a good observation I remember - I think it’s from A Confederacy of Dunces - that says, “Port cities around the world are more similar to each other than they are to their inland counterparts, no matter the culture differences of their respective countries.” The general principle here is that port cities are all incredibly diverse (they’re full of people coming in and out, and from every country, and they’re a mix of every kind of trade and industry, all coming together in one place), but in another way fully homogenous: everyone accepts that change is constant, which is itself a deeper form of stasis and stagnation. 

Inland industrial cities, meanwhile, are wholly different species: they’re highly concentrated around specific regional identities, so in that sense everyone is more alike; but the other side of that coin is that they feel highly differentiated relative to other cities (which is not the case for the port cities, for whom their peers are wholly familiar.) In your world, it’s worth investing a lot of your storytelling energy into drawing these contours: who are all alike in their differences? How does “same-but-different” work for one group of people versus another? Who, in your world, are “port city people” and who are “inland city people?”

Currency: In your world, what is currency? What is the common unit of trade? It’ll include money, for sure - but odds are money isn’t the most important form of currency. Reputation and social capital will be an important unit of currency almost everywhere; people trade favours and stake their reputations when they want to get things done. But there might be more regionally specific forms of currency too. In tech companies, software engineer FTEs are so valuable and broadly useful that they are, effectively, the dominant currency and capital. In academia, citations are a form of currency: they’re how different labs “trade” with one another, and they’re the currency of how labs pay their postdoc workhorses. 

The Arrow of Time: The last important feature of all worlds is time. There are two important rules you need to follow here, invariably. First, your world should exist predominantly in the present. Yes, a history is important; and yes, there are dreams of a future; but most of your storytelling effort should be focused on what’s happening right now, and what exists today. The most important word in your storytelling vocabulary needs to be “meanwhile”. (“Meanwhile” is actually a really powerful word to use in your writing, period: it establishes parallel concepts and trains of thought, which is essential for making any sophisticated point or telling any interesting story.) 

The second rule you need to follow, which runs orthogonal to the first rule, is there needs to be a strong concept of the arrow of time. What is it that causes time to advance? What is entropy in your world? This concept, maybe more than anything else, is the foundation on which your world gets built. In the software world, as Tobi is fond of saying, “The entropy of the internet is always increasing.” That is an arrow of time. So if you’re on the iPhone team at Apple, for instance, you are constantly fighting a battle that’s never over: the iPhone must get better and better, while slowly all around you, all of the assumptions about how software and the internet work - on which you based the previous iPhone’s technical architecture - are slowly crumbling and changing. That’s an arrow of time, and it’s the backdrop against which all of your storytelling and all of your world takes place. 

Permalink to this post is here: World Building | alexdanco.com

Before you go, and speaking of World-Building, if you’d like to take a tour around the world of products that Shopify is building, here’s a podcast episode I recorded recently with Patrick O’Shaughnessy (and guest co-host Zack Fuss) all about Shopify.

Shopify: with Alex Danco | Business Breakdowns, from Colossus

Happy world building,

Alex

Ten Books

Alex Danco's Newsletter, Season 3 Episode 9

Hey everyone, my apologies for this being the second week in a row with no ‘real’ newsletter - lots of good things going on right now both on Shopify life and family side, and also I have to do my taxes so that really doesn’t leave any time for blogging. But - I do have something this week instead, which is a bunch of book recommendations. From time to time people ask me for book recs that I’ve particularly enjoyed, so here are ten good ones. 


1: A Burglar’s Guide to the City, by Geoff Manaugh. 

This is a fascinating little book that teaches you a great deal about Security Mindset. It’s fun to think through questions like “Why is there way more bank robbery in Los Angeles than in New York?”, which have retrospectively obvious driving factors like parking and freeway access: it’s a lot harder to rob a bank when you can’t have a getaway car waiting, or a freeway to jump onto quickly. The book takes you through all of these different aspects of buildings you’d never thought about before, like roof construction, from the point of view of how you might slip in and out of a building through them. (We hear from one burglar, who specialized in robbing McDonalds chains by cutting through their flimsy roofs, dropping in behind the counters, robbing the startled employees, and then rappelling back up and out to freedom.) 

2: The Road Ahead, by Bill Gates (1995)

It’s really, really valuable to read primary source material. When you read books that look back at the history and evolution of the internet, obviously they have the benefit of hindsight to say, “well X happened, because Y. And X didn’t happen, because A, B, C.” The problem with that kind of perspective is that it seduces you into those nice, tidy explanations, where cause-and-effects are clear and retrospectively constructed. And that’s not how the world actually works. It’s not how the world appears in front of you, nor is how the world actually evolves. 

So when you do go read these at-the-time accounts, like The Road Ahead, with the knowledge of what went on to happen in real life, you get the best of both worlds. You have the answer key to how the world ended up, but you aren’t denied the rich complexity and ambiguity of what the world actually looked like at the time. 1995 was obviously a pivotal point in the history of the internet; we know it now, and we knew it then too. But we didn’t know what the internet was going to be - at the time, Gates was still thinking in terms of the “Internet Superhighway” metaphor that would clearly supersede the web. But at the same time, he clearly also understood so many details correctly - it’s remarkable the degree to which, even though he got some of the broad strokes wrong, he still got so many implementation details right on the money. (Of course, Microsoft played a pretty big role in making those details into real life - the easiest way to predict the future is to invent it.)

3: Softwar: An intimate portrait of Larry Ellison and Oracle, by Matthew Symonds

Same applies with this book - there are a lot of people who work in tech today who don’t really understand how massive Oracle was, and still is. And, consequentially, the massive size of the impact that Larry Ellison has personally had on the way that enterprise software works; and, consequentially, how the whole world works. Founder-led businesses are explicitly portraits of their founders; and Oracle may be the single best example there is today, 40+ years after being founded. 

4: The Box, by Marc Levinson

I’m sure I’ve recommended this book before, but I’ll do it again. This is the single best book I’ve ever read about how scarcity turns into abundance, and how new scarcity emerges out of that abundance. This story has everything: the outsider who no-one takes seriously (“Why don’t you just load the box once?”), the incumbents who can’t escape their frame of reference (“Son, I care about maximizing my cubic feet in the bottom of the boat. How exactly does it help for me to add a giant steel box?”), the unlikely outside force that jolts the transformation into higher gear (the Vietnam War and the cost-indifferent but time-strapped US Army), the financial mania that left behind infrastructure (the shipping bubble of the early 70s), the second-order consequences (just-in-time supply chains, and inventory financing cost as the new scarce resource), and so much more. 

5: The Dungeon Master’s Guide (D&D)

You might laugh, but I’m serious about this one! If you’re in the business of world-building, then this is one of the greatest guides there is. Sure, it’s a guide for a fantasy tabletop game, but you know what, there are some universal principles that apply everywhere. Oh, and by the way, not sure if you’re in the business of world-building? You definitely are. The old adage “everyone works in sales, even if they don’t know it” can be expanded for today’s online world of abundant choice and scarce signal: “Everyone works in world-building, even if they don’t know it.” So crack open your Dungeon Master’s guide, even better if you have your original one from years ago (I can’t find mine! Unfortunately. Fortunately I got the new one a couple years ago.)

6: Family Trust, by Kathy Wang

This is a very good Silicon Valley novel. It’s not quite the “Why isn’t there a Bonfire of the Vanities for Menlo Park” perennial request (someone REALLY needs to write that), but it’s quietly very excellent as well. It gets a lot of the tiny details right of the different social structures and career tiers in Silicon Valley outside of the explicit startup scene - including one particularly taboo topic, which is race. If you work in the Bay Area you definitely know a few of these characters. 

7: Broad Band, by Claire Evans

This is a delightful and inspiring book that takes you through the history of computers and the early internet, highlighting a cast of women that never really got their due - but really captured and created the magic of the birth of the computer age. 

8: Fall Guys, by Marcus Griffin (1937)

This is a short and excellent book about the origins of Pro Wrestling. Again, as with Bill Gates’ book, this is primary source material - the book was published in 1937. And it gives a remarkable look into this world of pro wrestling, which was surprisingly similar to how it works today - fairly little has changed, from the magic of the spectacle to the mechanics of the industry. (I believe it’s the origin of the word kayfabe.) It’s one of the most pure, entertaining, and revealing shows there is. 

9: The Beautiful and Damned, by F. Scott Fitzgerald

This might be considered “Minor Fitzgerald” but who cares, it’s a great book and a good reminder that human nature is exactly the same as it was 100 years ago.

10: Imperial Twilight: The opium war and the end of China’s last golden age | Stephen Platt

This is what I’m currently reading. It’s wild. It’s a huge swath of history that I knew next to nothing about; and wow-ee is it upsetting. I’m only about a third of the way through the book but you get a sense of where it’s going. (I knew the British did some pretty bad things around this period of time, but this was, uh, pretty terrible even by colonial standards.) And knowing this history is going to be pretty important in the century coming up, I can guarantee you that much. 

Have a great week, and I hope some of you end up reading these! Let me know if you do.

Alex

How Scenes Work, with Jim O'Shaughnessy

Alex Danco's Newsletter, Season 3 Episode 8

Hey everyone, I’m happy to share this week another podcast chat with Jim O’Shaughnessy on his show, Infinite Loops. (Feels like this might be a recurring thing.)

Alex Danco: Makes a Scene | Infinite Loops with Jim O’Shaughnessy, Episode 39

The main topic we talked about was scenes. How music and arts scenes work, how venues work, and how tension between mutual love and rivalry that is their perpetual energy source. We talked about how startups are a scene, and why designing a local innovation economy from scratch - even if you think you ‘have all the incentives correctly’ - never works. Finally, we talk about the common ingredient of all creative scenes, which is their sense of purpose.

Here’s a condensed, and somewhat edited transcript - I took some liberties for clarity and brevity for the newsletter’s sake; if you want the real unedited conversion, the podcast is where you’ll find it.

Enjoy!

—-

Alex: Let's define for the show first: what do we mean by a “scene”? What is a scene? I first started thinking about this not in the context of investing or in business or anything, but somewhere buried in my past, when I was in a ska band. We went on tour for a couple of years; we were on a record label. And so we were a part of the local ska scene in Montreal. It was a really great time.

And it's really interesting being in a band and getting to learn how the scene works. Because it is so intricate and multi-layered; different people trying to show off in different ways. The people in the bottom of the scene are always trying to move up into the top half and the people at the top half are trying to simultaneously lord over the bottom half, but also trying to break away and disassociate themselves. There’s tension there.

Once you learn how one of these scenes work, you start to see them absolutely everywhere, because these are fundamentals of human behaviour.

Jim: Exactly. And your most recent piece on NFTs and CBGBs is a good one to kind of explore this through. So CBGB was the preeminent kind of club scene in Manhattan that started in 1973, but a couple of things that are interesting about it. So CBGB stands for country, bluegrass, blues and gourmand? I don't know. But basically none of those made it famous.

Alex: I thought it was Country BlueGrass Blues.

Jim: No, no, I looked it up actually. And there was a third one.

Alex: What?

Jim: Gormandizers. […”And other music for uplifting Gormandizers” was the other abbreviation; C.B.G.B. / O.M.F.U.G ] Anyway, I had a chance to go there and didn't take it and I really regret it. But what's interesting is: so founded for country, bluegrass, blues, but then famous for the Ramones, Blondie, The Talking Heads, Patti Smith. So it was a great scene, but you made a really interesting comment that I want you to talk about a little bit, which is the floor plan of CBGBs. Tell us about it.

Alex: So, David Byrne from the Talking Heads has a book called How Music Works. It's an interesting book. It should more accurately be titled “How My Music Works” because it is by not exactly an inclusive discussion about how music works generally, nor how to be a musician in today's world. This is a 400 page book which mentions selling merch zero times; which is how you make money as a musician, to be clear. 

But it’s still a very interesting book, because this is David Byrne talking all about how to create art, how to create this new and interesting type of music that found its stride in the eighties, in places like CBGBs, that are these very physical, grimy, focal point locations for a certain kind of magic to come together and people to realize that they're interested in something.

There’s one chapter that’s explicitly called How to Create a Scene that goes into detail about the type of venues that you need and the specific kinds of gathering places that have to exist and the rules around them that are conducive to scenes actually forming. And he goes into some detail around like, ‘the floor plan really needs to look like this and not like that’

He talks about how they did this remodel of CBGBs at one point, and changed the floor plan. By that point CBGBs was already well established, but it ruined some of the original magic, because it put too much emphasis on the band. You had to watch them; whereas before you could hang out in the back with the pool table, and that was essential for reasons I’ll get to in a minute.

It's fascinating to hear masters of a craft talk about the micro details of what matter, with absolute proficiency. This is what's great about this book is you hear David Byrne talking about the mechanics of how you circulate around a room like CBGBs. And if you've ever been to venues like this, these are these long and narrow buildings where you go in the front door and the coat check is on one side and there's a table where you get tickets. And you squeeze by, and then the bar's on the right hand side, and there's a stage on the left-hand side. And you can squeeze through that and then get to the back where there's a pool table and then there's stairs to go down to the bathrooms. Finally, there's a door to the back in the alley and there's a door to the front, which is how you go outside to go smoke now. So this is the basic setup of these venues. 

Photo by David Godlis, 1977.

And so he's talking about the importance of the physical layout of the venue, to how the social dynamics of the scenes get created. And specifically how there's a critical kind of layout that leads to the good kind of mixing that is, new bands being able to play and people be able to pay just enough attention to them. Because again, of the floor plan being critical, that you're able to get new music out there in a way that is just imposing enough, but not too imposing that people will not want you there. The scene regulars can still play pool, they can still hang out, but they’ll still come into contact with the musicians at some point. So the ideas can mix; new bands get heard.

So there's all these tiny details about what it takes to create these little incubator environments of cool new culture and cool new things. So this is obviously fascinating to me for a number of reasons. One, as a former musician who has played in a lot of these types of clubs and spent a lot of time in a lot of these back rooms and just hanging out generally with other musicians, you get a sense for when scenes are working well. How do people simultaneously have a good time, but also be striving for something, is the essential element of these scenes. 

There has to be a concept of forward progress; navigating your way through the scene, both in terms of growing your band and your presence and your music. There is some degree of jostling and jockeying and status-ing that goes on between all these bands. Because you don't really know who's going to make it big. You never totally know. But also, it's not a zero sum game at all, in the sense that overall you are trying to grow everything.

I'll tell you a fun story. We were playing a show in Toronto, at a venue called the Opera House, opening for a psychobilly band called The Creepshow that were good friends of ours. (Great band.) We played with them a bunch. And their lead singer Sarah was also in this tiny, crappy band that had opened for us a couple times called Walk Off the Earth.

So, this is a band where it was like, they'd opened for us, so we didn't pay any attention to them. She had this bigger band The Creepshow, and that’s who we wanted to be friends with. And then over the course of that night, around maybe 7:00 PM, was where Walk Off the Earth's viral video, you know, the one with five of them playing the one guitar, that was the night it went viral.

Jim: Huh.

Alex: And you could see, over the course of that evening, she stopped being friends with us. And that was where we saw, in real time, the power dynamics of the scene just shift, like that. And that was our little brush with one of those moments of like, oh, there's a change in power dynamics that happen in these sudden little jolts. It's very Breakfast Club-ish.

These human behaviours about how scenes work and how this jockeying for status and competition and half working together, but also half being wary of each other is a generally reproducible rule about how people behave in general in situations where people's status and worth and presence and value is expanding rapidly, but also very indeterminately. And the primary forum in which this takes place that matters to the world that we're in is startups. 

The startup scene is almost indistinguishable from a music scene. It is virtually the same thing. Bands are like startups, record labels are like VCs. You have the press and the whole mechanics of telling people about things is virtually indistinguishable from the Techcrunches and the Twitter presences of the world.

But ultimately what matters is that it's a hits business. Nothing matters until you get a hit, even if it’s a small hit. And then once you do, your life changes and everything revolves around this idea of figuring out how to preempt who is getting these hits and why, and that's how everything organizes. And so the elements that contribute to these scenes, which are the terroir for hits happening, like the floor plan of CBGBs. This is where art comes from. This is where creativity comes from. This is where new comes from. Jim, you've obviously seen a few more of these cycles than I have or that Jamie have. I wonder, you've seen how this works both before and after the internet too.

Jim: Yep, yep.

Alex: What was this like before the internet? Was it just the exact same?

Jim: So, no, it wasn't. When you were talking about CBGBs, I thought of The Limelight, which was the most decadent disco in Manhattan, and it was not all the way downtown, but downtown. It's a shopping mall now, which is just a tragedy. But back then, this is pre-internet. So late eighties, early nineties, we would go there after having dinner and copious amount of wine with friends. But back then, if you went to a nice restaurant, you had to have a suit and tie on. So we would go to a nice place with our friends and be dressed up. And then I would always say, "Hey, let's go down to The Limelight." And everyone was sufficiently lubricated because The Limelight, I mean, oh my God.

Alex: It was the spot?

Jim: Oh boy. The stuff that went on in that place was literally crazy. When you were talking about CBGBs and the floor plan, exactly the same, except it also had an upstairs room, which was the VIP room.

Alex: Okay. That changes everything.

Jim: So this is pre-internet, we would go there, and we were seen as such exotic creatures.

Alex: Because you’re wearing suits.

Jim: Because we're wearing suits, that they would look at us and they'd pull us from the back of the line. They'd let us come up, comp us, give us passes to the VIP room. And you know me. I try to figure out-

Alex: Are you guests or are you props?

Jim: We’re props.

Alex: Yeah you were.

Jim: We're props. And that's very insightful because it took me a while thinking about it to figure out that that's exactly what we were. We were there for all of the super, super cool kids to mock and throw drinks at. We were the man.

Alex: You need a villain.

Jim: Yeah, exactly. And so we would go, and ultimately the tie would come off, the jacket would come off and all that. But as long as they were on, we were the props, we were the man. Everybody hated the man.

Alex: That’s right.

Jim: And so we realized that The Limelight became famous because it was only known to the cognizanti. So that meant the fact that people like us, that we were there, was kind of a death knell in a way. But for a while, we served our purpose. We were the villain. That's why we got comped on everything.

Alex: So one of the great elements of a scene that is essential for the scene working is having a critical mass of people who have all bought into playing the same game. You need to have a critical mass of people who have all decided that they're going to measure themselves by the same yard sticks, which is being cool within this very confined box of the Montreal ska scene, or people who go to the Limelight, or whatever it might be.

When you have a whole bunch of people who all think the same things and want the same things, and they see each other as peers. And like I mentioned before, you have this interesting juxtaposition that happens: it creates a tension. The tension is: 

When you're surrounded by peers that are all competing for the same thing, on the one hand it creates this tremendous sense of camaraderie. Because you admire each other and you are grateful to each other and love each other for all validating each other's choices. You look around and you see other people who are striving and wanting and reaching for the same things you are and that makes you feel good, right? Because it validates this choice you've made to care about those things.

On the other hand, you hate them because they're your rivals, and they reveal your striving for what it is. They also want the same things and there's only one of it, there's not enough to go around. They are becoming your opponents by being the same as you; not only because they’re going after the same finite prize; but more importantly, because their wanting reveals your wanting.

So this creates this really big tension. It creates something that you would call a “double bind” psychologically, which is simultaneously you are compelled to love and hate them. You are supposed to be grateful to them, but also envy them, right?

This irreducible tension is what creates the energy of a scene. That is the potential energy that powers everything that follows. And like all human vices, envy is an infinitely, renewable resource. You will never run out of it. And that fundamentally, this sort of double bind tension of: I love you, but I envy you; And I am grateful to you, but I hate you; that is the energy source. In the middle of any scene, always. This is a fundamental rule of how people work.

And you can really transpose this into the startup world, which one of the main reasons why the startup scene works so well. This limitless source of energy that is powering people; willing to go out and work really hard and scramble really hard and not only hustle, but be creative and try things and do it in the context of the scene. The competition amongst founders, let alone the outside world, but even amongst founders or amongst peer set is immense. And people will work very hard and very long hours just to scramble out of the scene and emerge in order to break out into a really hot seed round.

But also if you look around at these founders, simultaneously, there is enormous shared love among this community for each other. People care greatly about each other because you are in this together, you are all fundamentally alike and you are all validating each other's choices to do this with your life. And that's what makes it work. That is a very important part. It really is the energy source at the middle of this start-up scene, or as with any scene, that I think is very hard to replicate elsewhere without having this critical mass kickstarting it.

It'll be really interesting to see what happens, honestly, with this experiment: can we artificially kickstart one of these scenes in Miami if everybody just decides to commit to it? Can we really get this going in Austin or in wherever it might be. And here in Canada too, can we keep building on our real startup scene. 

Jim: Can you create a scene?

Alex: Surely the answer in hindsight is yes, in the sense that scenes are creative and you can always retroactively figure out how they were created. They come out of something and you can always work backwards and say, "Well, if these two people met each other at this critical time and they ended up going to the bar together after work, and then they met this third person, that's how they came up with this idea for this startup that launched the Austin startup scene retrospectively." Because then these other startups formed around it.

Backwards looking, you can always construct something. That's how narrative structure works.

Jim: Of course, laden with bias.

Alex: Of course. But nonetheless, there certainly are things you can do that help these scenes get created. And it's funny that across many different scenes, one of the recurring features that you see very frequently is old, shitty buildings.

In Montreal, there is this startup hub called Notman House that is exactly that. It is this old building that was rebuilt into a bunch of tiny, horrible offices that are way too hot. And there's this cafe in the basement with horrible metal furniture that's so uncomfortable. And it's like, you couldn't design something to be less friendly if you tried.

And it's an amazing startup hub. I would change zero things about it. It is exactly right.

I don't know if they were planning it this way or not, but down to the level of the uncomfortableness of the furniture, they got it exactly right. There's a certain quality of being in a physically uncomfy environment that is necessary for the early components of these scenes. I wonder about this a little bit. Like in CBGBs, if CBGBs were a big, comfy room where you could sit on couches and have conversations-

Jim: Would not have happened.

Alex: -isolated from other people, none of this would work. It absolutely doesn't work.

Jim: Same with the Limelight.

Alex: This reminds me of a funny way in which people have been meaningfully led astray is when people renovate their houses around what they think is good for parties. People got sold on this idea of open concept houses with these huge floor plans as being “good for entertaining.” But what's actually good for entertaining is a bunch of tiny rooms.

Jim: Exactly.

Alex: That's actually how you throw a party, is you want everybody to be in a room that is 10% too small. And that's why anytime you throw a party, it ends up in the kitchen, because that becomes the big attractor where people end up squeezed in a little bit tightly too much. And that's where the party is best. So it's where people go.

Jim: The reason I'm so interested in whether you can create a scene, is yes, if you understand the idea, it's almost kind of like, yes, you can do it, but only by not trying to do it.

Alex: Right. So, this is an interesting question to ask through the lens of Finite Versus Infinite Games, the book by James P. Carse. It introduces a way to categorize the purpose and the story of what we're doing in terms of games, and where there are two different types of games that you can play. You have finite games, which are games that have an end. They are games full of willing participants who all agree on a set of rules. And they agree on the ending terms of the game.

As opposed to infinite games, which are also games that you play with willing participants. But the difference is that the game doesn't end. The idea is that you play in order to keep playing. And you make things so that other people can make things. And you take actions so that other people can take actions.

And a lot of the interesting and richest parts of life are the infinite games we play, which can include, but also frame and complement the finite games that exist within them. So learning is an infinite game; school is a finite game. Culture is an infinite game; scenes inside the culture are finite games. There is an infinite component to them, which is enjoying all the culture, and participating in creating something special, but scenes are finite games. They have winning conditions. They have boundaries that are understood. They are seen as a game where all of the participants in the scene enter into it willingly and accept a certain order of things and a certain power structure that is agreed to, and everybody understands what it means to advance in the scene together.

And part of the beauty of this book, this is not infinite games are good and finite games are bad. But the beauty of living life to its fullest is in choosing what finite games you play, that serve the infinite pursuits that you have. It's picking. What finite game am I going to play in this scene? And does it really aligned with the infinite game I want to play of participating in culture?

So this whole idea of like you asked, can you artificially create a scene? The answer is, there's no reason why you can't do that. But when you're coming in from the outside, especially... for instance, there are no shortage of government initiatives around the world to try to create a local “innovation economy”. This is a great example of people coming in and they try to understand: Okay, what are the incentive structures we need to create? And what are the winning conditions we need to create? And what are all of this structure, structure, structure? And they come up with this big set of finite games that can be played. And then they put it all together and then it doesn't work.

It doesn't work because first of all, it's not within the context of an infinite game that people want to play, which in the context of software startups at least, is nerds writing code, and people making products so that they can show them off on Product Hunt and Hacker News, and this whole, other culture that is just unknown to these people. You're trying to create the set of finite games that exist outside of the infinite game that’s necessary for it to work. You cannot recreate these things outside.

But the other thing that doesn't work is that scenes are really interesting systems of behaviour that only work because people willingly enter them, like really have to willingly enter them. If you are entering them for some outside purpose, like I want to enter into this game, but only because it's my job to do so, or only because I've been told that if I do this, I will get this other promotion somewhere else, then it's not going to work. Scenes only work if people are really committed to advancing in the social hierarchy and the status ladder of the scene. That's what makes these things authentically work.

And this is part of why I think if you circle back to why crappy buildings are important. The scene needs to take place within an enclosure that reminds you that one of the outcomes of the game you're playing is escape upward and outward; but in the meantime, you’re all in it together. If you don't have that and you feel like you've made it inside the scene, then everything calcifies.

So if you look in contrast to Notman House in Montreal, which is this amazing little place, we have this thing in Toronto called MaRS, the MaRS Discovery District, which is this enormous quarter of a billion dollar building retrofit centre thing that they did, where they basically retrofitted this huge glass office tower and atrium over one of the old hospitals in the downtown core to create this hub for innovation. It's this stunningly beautiful building that costs all this money filled with all these impressive things.

And it's like, this is so missing the point. This is not just a waste... People misunderstand this when I complain about MaRS, because people are like, "Oh, if you don't think this was good return on investment, maybe we could have spent less money." It's like, this is not bad return on investment. This is actively harmful. Actively, harmfully spent money. It would be better for the startup scene if you took this money and dumped it in the lake. That would actually be better for the startup community for it to not be in a building that does not constantly suggest to you that you have made it. It's very, very important. The startup scene is no different from an art scene. And there’s no better way to kill an art scene than to put it in a fancy building.

Jim: So true.

Alex: I could go on on this all day.

Jim: But the great insight here is that when you're designing things, what you need to... So let's take a step back. Why do markets work so well? Markets works so well because they are complex, adaptive systems that are bottom up, not top down. And if you try to say, "I'm going to use a top-down solution to come up with an iPhone competitor," I'm not investing. I'm not going to invest a dime in that, because what's going to happen is, the MaRS centre is going to happen. You have to understand that in complex adaptive systems, trying to insert controls that are artificial is going to screw up the very complex, adaptive system. Now, it'll work its way around like a complex system does, but it... I think about Eisenhower. At some point in his career, he had some input about a new college that was being built. And so they came to him... The fifties, don't even get me going on that decade.

Alex: I don't know the fifties. I wasn't there. Maybe you can tell me about it.

Jim: You can read. I wasn't there either, Mr. Funny Man.

Jamie: Low Blow.

Jim: But so Eisenhower is sitting there and he's looking at the blueprints and they've got the models and everything, and they go, "General, where do we put the sidewalks?" And he's like, "Don't put any sidewalks in right now until there are students there. And I...-

Alex: Wait until they walk, and they'll show you where they should be.

Jim: Exactly. And so, that intuitive understanding is oddly not intuitive for a lot of people. It's not intuitive for people who built the centre.

Alex: I think there is. And that’s a nice way to close out how scenes really work: since they’re complex, adaptive systems, they don’t have causes or effects. You can’t just create a bunch of incentives and games and expect it work.

But scenes do have is they have a purpose. You can understand what the purpose of the scene is. And that's why we're all here. That's why this gathering exists; because the scene has purpose. That's why the startup scene exists, that's why the music scene exists, that's why these scenes of people who have these common interests, whatever they might be, tend to be so tenacious. That's why they stick around. It's because they are latching into something very authentic about how the world works and how people find motivation and purpose. A scene is essentially a collection of purpose that everybody has agreed to and that's why they're there. And that's why they help you get into those mindsets. That's why scenes actually accomplish all these interesting, creative things.

Jim: See, I think you've just closed this out, my friend, because I think that's the perfect end note. Man, I really am going to steal this from you.

Hope you enjoyed this as much as I did. You can listen to the original podcast here.

Permalink to this post is here: How scenes work, with Jim O’Shaughnessy | alexdanco.com

Have a great week,

Alex

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