Summer Edition

The Rule of Three and a couple of other observations

Hello friends,

It’s summer.

In all fairness, that started a couple of months ago with boiling temperatures already simmering Western Europe in May. But that’s another story.

I am spending a few weeks in the Nordics, and perhaps inspired by the lush nature, or countless hours in sauna, I’ve decided to shake things up.

Scaling Judgment typically runs on one idea, worked through properly.

This time you get three shorter, half-baked observations that probably didn’t need 1500 words, but were still worth sharing.

Back to the usual format in September.

Enjoy responsibly.

The Rule of Three

Back in July I was chatting with a guy that started a company in a similar, but different, vertical than mine. Despite being very early in their journey, he’d already noticed that if a user books at least three times on their platform, the likelihood of them becoming a super-user, and a loyal customer, increases dramatically.

That rang a bell.

We have noticed a very similar correlation between long-lasting host relationships and early success on our products. In our world, there is also another aspect: if a property gets booked three times shortly after going live on a booking platform like Airbnb or Booking, its chances of becoming a best seller increase steeply. The reverse is also true – if a property doesn’t get its first few bookings within a few weeks, the algorithms start making it invisible, and it enters a doom loop: fewer bookings, less visibility, even fewer bookings.

I haven’t done a crazy amount of research on this phenomenon, and there’s no rigorous model built behind this idea, but I wouldn’t be surprised if this applies to other businesses.

Three is probably just a convenient and arbitrary number. It could be four, or five, but the underlying idea is what matters: early success creates momentum.

It makes sense. A new customer needs to test the water before they become a loyal fan. Once that loyalty is established, since we are creatures of habit and we tend to hate change, unless something goes dramatically sideways, we stay for the long run.

Which means that the job for anyone building or selling a product or service is simple to state and hard to do: create positive momentum from the get going as fast as you can. Then do it again, and again.

Provided the experience is good, that’s the beginning of something great.

Which leads me to the next observation.

Fight Enshittification

When I moved back to Italy in 2021, I had to find a dentist.

I consider myself pretty diligent when it comes to oral hygiene. I floss every day, and I go for a cleaning and check-up twice a year.

Having lived outside of Italy for more than a decade, my old dentist was no longer an option, so I started looking around.

The first dentist I found was close to where I lived. The receptionist was warm and lovely, but when she told me the price of the procedure, I almost hung up.

It was 50% more expensive than what I had been used to paying in Munich, which says it all.

So I kept looking.

Eventually, I found a chain offering way more competitive prices. Since I didn’t need anything particularly complicated, I went for it.

The experience was interesting, to say the least. It felt less like a dentist truly caring about my wellbeing, and more like an upselling machine.

It started with a full assessment of my mouth, and quickly proceeded to offering me a bunch of things I neither wanted nor needed. The dentist was always accompanied by the general manager who was in charge of discussing the price.

Doing small talk with the GM, I discovered that the chain was owned by a private equity firm.

I immediately thought of Charlie Munger’s advice to understand incentives. Follow the money.

Since humans are creatures of habit, I nevertheless became a regular customer after buying a package of cleanings.

I did not particularly enjoy going there, and I started noticing that their cleanings were getting faster and faster.

Then, one day, out of the blue, I noticed something odd in my mouth. It turned out to be a bacterial infection.

Their proposed solution? Pull out the tooth.

You’ve got to be kidding me.

I found another dentist. More expensive, family-owned for a couple of generations, and I still have all my teeth.

There are a couple of observations here.

First: pay peanuts, get monkeys. Jokes on me for putting such a low price on my own health in the first place. Lesson learned.

Second, and this is the one I keep coming back to: more and more business models seem to be built around a single goal: maximise profit while delivering progressively less value for the customer.

There is a word for this: enshittification.

The term was coined by Cory Doctorow to describe the way digital platforms become initially great for users, then gradually deteriorate as companies optimise for advertisers, shareholders, or their own economics. It was very much connected to the long gone zero interest rate era (ZIRP) when internet companies could splurge in paid marketing to buy customers, lure them in, but then reduce the quality of their services.

This sadly has not stayed in tech. It can happen anywhere incentives become disconnected from the customer experience and firms optimise for profit and investors only. Which is not wrong per-se, a business has to be profitable and return money to their investors. But making customer experience poor in the name of profit is not a sustainable, long term strategy.

And this is where I think business builders have a choice.

A few years ago, inspired by a former boss, I spent some time studying the restaurant industry. What makes a restaurant great isn’t efficiency. It is the almost obsessive pursuit of excellence. Hospitality is about wowing the customer. Injecting some magic into their lives. Paying attention to details. Creating an emotional connection.

Can you imagine Will Guidara or Danny Meyer sitting in a room and asking themselves: “What is the minimum we can do while still keeping the customer?”

I can’t. They likely ask something along the lines of “What can we do to make this experience exceptional?”

Take a page from the restaurant business. We can strive to build the Gramercy Taverns, and Shake Shacks of our industries.

There is no point to create early wow effects and then slowly making the customer experience worse. Fight enshittification.

Nobody Knows Anything

One of my guilty pleasures is listening to My First Million.

Yes, it’s two tech bros talking to other tech bros.

But I find it entertaining, and occasionally there are some good ideas.

Recently, they had David Heinemeier Hansson, also known as DHH, on the show.

For those of you who don’t know the guy, he was one of the founders of 37signals, the company behind Basecamp and many other SaaS products, the author of several books about their philosophy on building companies.

DHH is a controversial figure and I don’t endorse everything he does or says (particularly on X), nevertheless there was a segment of that episode that resonated with me.

One of the hosts of MFM praised a landing page for a product they built, particularly the design and copy and asked what had driven the decisions behind it. DHH answered that essentially they had done what they felt was right and hadn’t spent much time trying to optimise it. No endless A/B tests, no obsessing over conversion rates.

Of course, as DHH pointed out, they could do this because they were a stupidly profitable private company, with ridiculous margins, and pretty much occupying a dominant position in their space for years. Conceptually, they could do what they wanted.

But it is still an interesting insight. In the tech industry, we pride ourselves on being data driven, and that data should drive all decisions. One of the sentences I have heard a lot, and also told my people multiple times is that without data, you are another person with an opinion.

I still stand behind it, but I did change my mind to a certain extent.

Data should be the foundation of solid decision making, but it can also become a trap. You see, we tend to look for confirmations of our assumptions, and there is always a new data point that can reinforce our narrative. This is the so-called “confirmation bias”.

Sometimes data is genuinely telling us something, but not necessarily the full story. There could be signal, but there could also be noise dressed up as signal. And sometimes, common sense with an element of randomness or magic, as Rory Sutherland likes to call it, is worth more than another dashboard or deep-dive.

Nobody really knows what’s going to work. You can improve your odds. You can gather evidence, run the experiment, learn from what happened last time. But at some point, someone still has to make the call.

To wrap things up, I thought about the common thread of these three short, half-baked observations, also thinking about what I typically write in this newsletter.

Honestly, I am not sure there is one — and that’s true to the original promise of this summer edition. The goal today wasn’t to resolve anything, just to spark something.

Happy summer. Back to the usual format in September.

PS: if you enjoyed this newsletter, tell a friend.