naval ravikant

The Naval Podcast – Business Models Have Their Own Leverage

Check out Naval’s Episode Page & Show Notes

This podcast clip is part of an ongoing conversation between Naval Ravikant and Babak 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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