Felix Narhi’s Summer Reading List
PenderFund’s CIO Shares his Book Recommendations
BUILDING A BUSINESS
The Innovation Stack: Building an Unbeatable Business One Crazy Idea at a Time, Jim McKelvey
This book was written by Jim McKelvey, the less well known cofounder of Square (NYSE:SQ). Jack Dorsey, who is also the founder of Twitter (NYSE:TWTR), is the more famous cofounder. I initially picked this up to learn more about Square, a new Pender holding bought during the COVID-19 market dislocation. What I found were inspiring stories about entrepreneurship and plausible theories about what it takes to build resilient, world-changing companies that go well beyond just Square. Square was originally launched to find digital payments solutions for micro merchants — the market segment of very small business owners that were all but ignored by the incumbent giants, Visa and Mastercard. Square’s initial success and rapid growth soon attracted the attention of Amazon who also aggressively entered the market. And surprisingly, failed. The idea for this book came when McKelvey wanted to find out why Square was the only start up ever to survive a full-on attack by Amazon. Square’s survival was especially fascinating because it did not do anything special in response to Amazon’s entry into their markets. Remarkably, despite very hard-hitting tactics, Amazon made little headway and eventually just gave up. Why was Square the modern-day David that beat Goliath? McKelvey’s thesis for its resilience revolves around the company’s “innovation stack”, or the series of new innovations that is interrelated, dependent upon and reinforced by the others. Sure, Amazon could copy an idea or two from Square. But unless it was able to copy them all, it was very hard to displace Square from the new innovative payments solutions it was pioneering. He “tests” his thesis by comparing his experience at Square to a few other founder-led and industry-defining companies like the Bank of Italy (which became Bank of America), IKEA and Southwest Airlines. These are all interesting stories which he cites as proof that his theory does not only apply to technology companies. This new “innovation stack” mental model might be particularly interesting to those learning about companies expanding into “blue oceans”, or new markets with unmet needs. As a bonus, the author has a great sense of humour which made the reading breezier.
A favourite passage: “Customers new to a market hold few preconceptions, which is one of the great benefits of massively expanding an industry through innovation. Your new customers learn how to participate in the market from your way of doing business. This is a powerful advantage that influences your innovation stack and competitive position.”
INVESTING PHILOSOPHY, PROCESS & BEST PRACTICE
The Essays of Warren Buffett: Lessons for Corporate America, Warren E. Buffett
I often get asked what investing books I might recommend. It is no secret I am a huge admirer of Warren Buffett and his partner, Charlie Munger. Aspiring investors could do worse than trying to learn from two of the world’s most accomplished long-term investors. There are countless book written about Buffett and his investment methodology. But why not just go back to the primary source material instead? Especially when Buffett is widely considered an exceptional writer and communicator? Buffett’s annual letters to Berkshire shareholders are probably the single best primer about sound business and investment principles. Granted, if one has not already done so, it is intimidating to consider reading all of them from 1977 and onward. Besides, plenty of things are irrelevant today, such as some accounting standards that have changed. However, the good news is that Cunningham has compiled a condensed version of his most of the timeless wisdom and rearranged them by important topics in Buffett’s own words. Its like reading the Coles Notes of 50 years of wisdom from Buffett. Most books are not worth reading even once, while some books are worth reading a single time, or in part. However, a few rare books are worth reading and rereading. This is one of them. I highly recommend it if you have not delved a lot into Buffettology. Even if you have, consider giving it another reread from time to time.
A favourite passage: “Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return. The worst business to own is one that must, or will, do the opposite — that is, consistently employ ever-greater amounts of capital at very low rates of return. Unfortunately, the first type of business is very hard to find: Most high-return businesses need relatively little capital. Shareholders of such a business usually will benefit if it pays out most of its earnings in dividends or makes significant stock repurchases.”
OTHER
Dignity: Seeking Respect in Back Row America, Chris Arnade
David Barr recommended this book to me as we were packing up our offices to work from home due to the pandemic. Arnade was a successful Wall Street trader who became disillusioned with his profession and decided to try to better understand the issues of those hit hardest by the great recession of 2009. He recounts his first-hand conversations and experiences across America on his journey of learning and self-discovery. The book is also filled with vivid photography of the wide variety of people he meets along the way. He paints an empathetic portrait of America’s poor, drug-addicted, and forgotten — both urban and rural, blue state and red state, black and white and everyone in between. The view from the “back row” is much more different than those of us living on the “front row” can imagine. It is jarring and not for those faint of heart. There are no answers here. As someone who has lived life from a relatively privileged “front row” perspective, it became clear I knew much less about this topic than I previously thought. Some sensible sounding solutions from the “front row” that I would have supported (prior to reading this book) would have almost completely missed the mark. On the other hand, there are good support networks and organizations that really make a difference, which were counter intuitive to me. It’s not a book I would have naturally gravitated to, but I am thankful Dave suggested it because it really made me re-examine my thinking about this important structural issue. It seems particularly timely given the recent unrest around racial inequality in the US (and much of the rest of the world).
A favourite passage: “The walks, the portraits, the stories I heard, the places they took me, became a process of learning in a different kind of way. Not from textbooks, or statistics, or spreadsheets, or PowerPoint presentations, or classrooms, or speeches, or documentaries — but from people. What I started seeing, and learning, was just how cloistered and privileged my world was and how narrow and selfish I was. Not just in how I lived but in what and how thought. This was a slow and shocking revelation to me, one I kept trying to fight.”
