The Naval Podcast – Business Models Have Their Own Leverage

Check out Naval’s Episode Page & Show Notes

This podcast clip is part of a conversation between Naval Ravikant (@naval) and Babak Nivi (@nivi). Unless otherwise noted, quotes are from Naval. For reference, check out Naval’s famous How to Get Rich tweet storm.

Key Takeaways

  • Some business models give you “free leverage” – Examples:
    • Scale economies = the more you produce of something, the cheaper it gets to make 
    • Technology and media products have this great quality where they have zero marginal cost of reproduction
      • Thinks like podcasts and YouTube videos
      • Ex. – Joe Rogan is working no harder now than he was on podcast #1, but it’s now generating millions more
    • Then there’s network effects businesses
      • A network effect is when each additional user adds value to the existing user base
        • Like language – The language become more valuable the more people who speak it
        • “Long-term, the entire world is probably going to end up speaking English and Chinese”
      • It’s thought that the value of a network is proportional to the square of the number of nodes of the network
        • A network of size 10 would have a value of 100, while a network of size 100 would have a value of 10,000
      • “You want to be in a network effects business”
        • Things like Facebook, Uber, Twitter, YouTube, Google
      • “You should always be thinking about how your users or customers can add value to each other because that is the ultimate form of leverage”
  • When you’re picking a business model, aim to pick one where you can benefit from network effects, low marginal costs, and scale economies
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