Annotations (22)
“If in many areas robotics is at parity now, and the use cases are about to go up, and the cost on existing use cases probably goes down at 15 to 20%, maybe Moore's Law, then we wake up in 5 years and the people who put themselves on one cost curve competing against people on the other cost curve, those could be power law businesses.”— Henry Ellenbogen
Strategy & Decision Making · Technology & Engineering · Operations & Execution
DUR_CONTEXTUAL
Cost curve divergence creates permanent lead
“The very best businesses that leverage technology use it to lower costs and drive revenue that result in them gaining 30% or more incremental market share. Then they take that unit economic advantage and reinvest it in something that is persistent, even if their competition were to wake up tomorrow and do the exact same thing with people just as good.”— Henry Ellenbogen
Strategy & Decision Making · Operations & Execution · Economics & Markets
DUR_ENDURING
Tech advantage converted to physical persistence
“I went into the archives and read the shareholder letters of the New Horizon Fund trying to understand what drove its success over 50 years. I started to realize it was really only 20 stocks over 50 years that drove the performance. I talked to one of the managers who told the story of meeting Sam Walton on the IPO roadshow when Walmart first came public. Walmart only had 50 stores. I looked and this was definitely one of the 20 stocks that mattered. Unfortunately, it was sold.”— Henry Ellenbogen
Strategy & Decision Making · Psychology & Behavior
DUR_ENDURING
One bad decision erased all good decisions
“When I first really understood what was going on on the internet, I ran a global TMT fund and my largest investment was Amazon. I used to go to Seattle twice a year and have lunch with Jeff Bezos. The very best businesses that leverage technology use it to lower costs and drive revenue that result in them gaining 30% or more incremental market share in their end market.”— Henry Ellenbogen
Strategy & Decision Making · Economics & Markets
DUR_ENDURING
Moat means catching up is impossible
“Netflix started as a DVD mail business. Reed realized streaming was the future and wanted to tackle this offensively. He tried to split the company into Netflix and Flixster. He violated customer trust and churn spiked. He was buying back stock at $280 and the stock went to $70. I called him on a Saturday saying: there's a scenario where the market's right and you have to raise money.”— Henry Ellenbogen
Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Public markets forced painful but necessary realignment
“When you go back and you look at the era of cloud and mobile, you wanted to own Amazon. But if you look at retail, once Walmart and Costco really understood what Amazon was doing but still had relative scale, they leveraged their advantages. Since they got on the same curve, 62% of all retail has gone to those three. The best Russell 2000 growth company over that 10-year period in the 2010s was Domino's Pizza, which averaged modest 10% growth.”— Henry Ellenbogen
Strategy & Decision Making · Technology & Engineering · Business & Entrepreneurship
DUR_ENDURING
Scale plus tech curve wins distribution wars
“When we write an investment memo for an early-stage growth company that is not already competitively advantaged, we write it saying: as this company does what we think it can do over the next 3 years, not only do we make a fair return for the risk, but at that point in time, we would want to buy more at these higher prices. If we can't write the memo that we want to buy more at higher prices, we can't buy the shares.”— Henry Ellenbogen
Business & Entrepreneurship · Strategy & Decision Making
DUR_ENDURING
Only invest if you'd buy more at higher price
“Mitch Rales told me that for 40 years, because of China, we've been able to really lean out product-based businesses and working capital. But in many ways, I feel like we're just getting started on processes that are done by humans. I think the same thing applies to AI. Every company that was product-based or derivative product-based had to understand China costs. I think it's not product-based this time, it's IP-based.”— Henry Ellenbogen
Strategy & Decision Making · Technology & Engineering · Operations & Execution
DUR_ENDURING
AI to knowledge work as China was to manufacturing
“We studied the history of the US public market. Over a rolling 10-year period, you have about 40 stocks that compound wealth at 20% a year or go up a little bit over 6x. About 1% of the stock market are the valedictorians. What's interesting is about 80% of those companies actually start their compounding journey as small-cap companies. We want to maximize the probability of investing in those 40 companies because we think that's what creates long-term wealth and economic growth.”— Henry Ellenbogen
Strategy & Decision Making · Economics & Markets
DUR_ENDURING
1% of stocks drive all long-term returns
“When you look at these compounders that were 6x companies in 10 years, the 40 of them, the average one has a period of time where the stock goes down 50%. They don't go down 50% only when the market is down 20. They go down 50% when they go through transition. Netflix started as a DVD mail business. Reed realized streaming was the future. He tried to split the company. He violated customer trust and churn spiked. In that period he was buying back stock at $280 and the stock went to $70.”— Henry Ellenbogen
Strategy & Decision Making · Psychology & Behavior
DUR_ENDURING
50% drawdowns are normal for compounders
“I did an internal teaching at my old firm called man versus machine. I started to realize if it's a repeat actor problem based on known data, the quants are pretty good. If you're just a person who buys an industrial company because the PMI's down and historically when the PMI re-rates you make money, that's not going to work. The machines are just going to be better at that than you. But if you're good at understanding people and good at understanding change, that was really advantaged.”— Henry Ellenbogen
Strategy & Decision Making · Technology & Engineering
DUR_CONTEXTUAL
Compete where machines can't
“I really love two competitive advantages, and they're quite different. I love physical real estate. I love Amazon's fulfillment centers or Carvana's reconditioning centers. You can't spin those things up. You gotta acquire the land, put it in the right place, build the right network, stand it up with the right CapEx and systems, and have the right operating culture. If you put your real estate in the wrong place, then your cost of transport's more expensive.”— Henry Ellenbogen
Strategy & Decision Making · Leadership & Management · Operations & Execution
DUR_ENDURING
Physical moats and culture moats both durable
“The two co-founders of Workday, Aneel Bhusri and Dave Duffield, had been the people who pioneered HR systems of record in the previous client-server world. They built PeopleSoft, scaled it, and then there was a very aggressive takeover by Oracle. They felt they hadn't completed their vision. So they came together, but what really lit up the vision was cloud.”— Henry Ellenbogen
Business & Entrepreneurship · Leadership & Management
DUR_ENDURING
Second time solves same problem with clarity
“If you work at a firm that deeply measures your risk every day, and if you have a bad period of time measured by a month, certainly 3 months, you get your capital cut back, there's a good chance you get let go. It probably means you can't have a time horizon longer than your career horizon. If you study earnings volatility, it was more volatile than any earnings season since the financial crisis.”— Henry Ellenbogen
Strategy & Decision Making · Economics & Markets · Psychology & Behavior
DUR_CONTEXTUAL
Career horizon limits investment horizon
“To build a great company, you have to balance growth, profitability, and innovation. If you're a growth company, you don't have to trade on a PE, but you have to show that path. You're better off doing it sooner rather than later. If you gotta go realign your internal team, realigning people to the right mark is actually really helpful. The people who want to re-up, re-up, and the people who do it get handsomely rewarded. And the people who don't obviously can move on.”— Henry Ellenbogen
Leadership & Management · Strategy & Decision Making · Business & Entrepreneurship
DUR_ENDURING
Discipline forces sharp resource decisions
“You spend time with our team. When you look at the senior people at Durable, Anouk Day started working with me at 26, had never worked in the investment business before. Corey Scholl started at 21 or 22, right out of William & Mary. We really believe that very few people actually operate the way we do.”— Henry Ellenbogen
Leadership & Management · Business & Entrepreneurship
DUR_ENDURING
Same analyst from seed to scale builds edge
“When we do 360 reviews at Durable, we ask everyone to give feedback on what their colleagues did to make them better. It's not just 'Anouk helped me this year and she's a nice person.' It's that Anouk helped me understand DoorDash because of her knowledge about Shopify. She took a special interest and followed up with me, or she went to a meeting that was important and gave me her perspective. We ask people to point to specific investments.”— Henry Ellenbogen
Leadership & Management · Operations & Execution
DUR_ENDURING
Structured informality drives team learning
“My mom raised me after my parents got divorced. I took a leave of absence from Harvard to go work on a campaign for a state representative running for US House. He was expected to lose. I became his campaign manager at 19 and he won. I came to her and said: I want to go to Washington DC and be chief of staff. In order to do that, I can't take another leave of absence from Harvard. They don't let you do that. I have to drop out.”— Henry Ellenbogen
Leadership & Management · Psychology & Behavior
DUR_ENDURING
Adult decisions require adult responsibility
“I started to think about investing based on principles I learned in science, particularly biology. In order to have organisms that sustain over a long period of time and persist, much like human beings, they have to be in balance with their ecosystem. Children develop through certain curves: child, adolescence, teenager, adult, and they have to be in balance. If they are, they can thrive and do incredible things.”— Henry Ellenbogen
Philosophy & Reasoning · Biology, Ecology & Systems · Strategy & Decision Making
DUR_ENDURING
Balance with ecosystem enables persistence
“If you've been one before, you have a higher probability of being one again. We look at who has actually done it. If we don't really know the company and we haven't studied before, we'll go study it, see if there's an opportunity, but if not, go do a case study on it. We want to go learn it. One of my partners teaches a class at Columbia Business School, and the class is based on this. The students literally do about 6 case studies a year. Over time you build up a library of them.”— Henry Ellenbogen
Strategy & Decision Making · Leadership & Management
DUR_ENDURING
Build library by studying past winners
Frameworks (4)
Turnover-Cost Analysis Framework
When wage premiums are cheaper than turnover costs
A repeatable framework for calculating whether paying above-market wages saves money by reducing turnover costs. The method involves quantifying turnover rates, estimating the total cost of turnover (training, errors, lost output), comparing it to the cost of a wage premium, and making the economic decision.
Components
- Quantify Current Turnover Rate
- Calculate Total Cost of Turnover
- Calculate Cost of Wage Premium
- Make the Economic Decision
Technology-to-Physical Moat Conversion
Turning digital advantages into permanent infrastructure
A strategic framework for using technology-driven cost or revenue advantages to build physical infrastructure that creates a permanent competitive moat. The method involves gaining a unit economic advantage through technology (3-5%+), capturing market share (30%+), then reinvesting savings into physical infrastructure that competitors cannot replicate even if they adopt the same technology.
Components
- Establish Technology Advantage
- Capture Market Share
- Build Physical Infrastructure
- Compound the Advantage
- Defend Against Scale Players
Analyst Continuity Model
Following companies from private to public for pattern recognition
A talent development and investment edge framework where the same analyst follows a company from early private stages through IPO and public markets. This builds deep pattern recognition and relationship continuity that creates competitive advantage in understanding inflection points.
Components
- Hire for Trajectory, Not Resume
- Assign Continuity from Private to Public
- Develop Internal Expertise Over Time
- Create Knowledge-Sharing Systems
Dollar-Cost-Averaging-Up
Only invest if you'd buy more at higher prices
An investment decision framework for early-stage growth companies. The rule: only invest if you believe that when the company does what you think it can do over 3 years, you would want to buy more at higher prices. If you can't write that memo, you can't buy the shares. The thesis cannot be acquisition or talent acquisition.
Components
- Write the 3-Year Forward Memo
- Test the Willingness to Buy More
- Monitor Against the Thesis
Mental Models (22)
Public Markets as Forcing Function
Decision MakingPublic market discipline during transitions forces companies to realign resources, reset incentives, and make hard choices about growth vs. profitability. The pain of stock price declines during transition creates organizational urgency that private companies often lack. Netflix's 2011-2012 transition demonstrates this: the drop from $280 to $70 forced capital raising and team realignment that ultimately strengthened the company.
In Practice: Story of Netflix's streaming transition and PIPE financing
Demonstrated by Leg-hf-001
CFO as Standard Setter, Not Policeman
Decision MakingThe CFO function should set financial standards that force sharp capital allocation decisions, not act as a cost policeman. When profitability discipline is framed as enabling better resource prioritization rather than restriction, it drives focus and agility. Too much capital with no cost leads to lazy, unfocused investment.
In Practice: Discussion of balancing growth, profitability, and innovation
Demonstrated by Leg-hf-001
Continuity Compounds Knowledge
Decision MakingHaving the same person follow an investment from early private stages through public markets builds pattern recognition that creates competitive advantage. Continuity allows deep understanding of business model evolution, team dynamics, and inflection points that short-term or rotated analysts cannot develop.
In Practice: Discussion of Durable's analyst development model
Demonstrated by Leg-hf-001
Dollar-Cost-Averaging-Up
Decision MakingOnly invest in early-stage companies if you believe that when they execute your 3-year scenario, you would want to buy more at higher prices. This forces conviction that the company becomes MORE attractive as it de-risks and grows, not less. If you can't make this case, don't invest.
In Practice: Explanation of Durable's investment memo discipline
Demonstrated by Leg-hf-001
Public Markets Force Daily Decisions
Decision MakingPublic market liquidity means you must implicitly remake the hold/sell decision every day. While this can lead to mistakes (selling compounders), it also forces discipline and creates selling opportunities unavailable in private markets.
In Practice: Reflection on the Walmart sale and public market structure
Demonstrated by Leg-hf-001
Pattern Recognition Through Case Studies
Decision MakingBuilding a library of case studies on companies that have compounded successfully allows pattern recognition for future investments. Systematic study of winners reveals transferable principles that improve decision quality over time.
In Practice: Explanation of Durable's teaching and learning process
Demonstrated by Leg-hf-001
Act II Entrepreneur Advantage
Decision MakingEntrepreneurs who have successfully solved a problem once have much higher probability of solving it again with their second company. They know the edge cases, understand what matters, can recruit better, and can align all stakeholders from the start with clean sheet design.
In Practice: Discussion of Workday founders and the Act II entrepreneur concept
Demonstrated by Leg-hf-001
Structured Informality
Decision MakingThe right amount of process enables excellence without stifling creativity. Weekly gating meetings, Friday insight-sharing lunches, quarterly portfolio reviews, and 3-year lookbacks create structure, while unprepared lateral learning sessions preserve informality and serendipity.
In Practice: Explanation of Durable's meeting structure and culture
Demonstrated by Leg-hf-001
Opportunity Cost
EconomicsThe value of the next best alternative foregone when making a decision. Ford's $5 day demonstrates that the opportunity cost of high turnover (training, errors, lost output) exceeded the cost of paying double the prevailing wage.
In Practice: Discussion of Ford's wage decision as economic calculation, not generosity
Demonstrated by Leg-hf-001
Persistent vs. Replicable Advantages
EconomicsTrue competitive advantages are those that persist even if competitors perfectly replicate your strategy with equally talented people. Physical infrastructure advantages (fulfillment centers, distribution networks) are persistent because they take years to build regardless of capital or talent availability.
In Practice: Discussion of what constitutes a durable competitive advantage
Demonstrated by Leg-hf-001
Power Law Distribution of Returns
MathematicsOver rolling 10-year periods, about 1% of stocks (40 out of 4,000) compound at 20%+ annually and drive nearly all market returns. This power law distribution means the primary investment task is identifying and holding these outliers, not diversification or market timing.
In Practice: Ellenbogen explaining Durable's investment philosophy foundation
Demonstrated by Leg-hf-001
Exponential vs. Linear Cost Curves
MathematicsExponential cost declines (Moore's Law, learning curves) compound to create massive advantages over linear or inflationary cost curves. A 15-20% annual decline vs. 0-5% annual increase creates a 5-10x cost differential within 5-7 years, making competition impossible.
In Practice: Mathematical explanation of robotics cost curve divergence
Demonstrated by Leg-hf-001
Career Horizon Constrains Investment Horizon
PsychologyIf your career is at risk based on 1-month or 3-month performance, your effective time horizon cannot extend beyond your career survival. This principal-agent problem explains why 80-90% of institutional capital operates on short cycles despite long-term mandates.
In Practice: Analysis of modern market structure and pod shop trading
Demonstrated by Leg-hf-001
Good to Great with Technology Curves
Strategic ThinkingCompanies that are already good and have scale can leverage new technology curves to become great by maintaining their existing advantages while gaining the new technology advantage. Walmart and Costco adopted e-commerce and logistics technology after Amazon pioneered it, but their existing scale and customer relationships allowed them to compete effectively.
In Practice: Discussion of how incumbents with scale can adopt technology curves
Demonstrated by Leg-hf-001
30% Market Share Threshold
Strategic ThinkingThe best businesses that leverage technology use it to gain 30% or more incremental market share, then reinvest the unit economic advantage into persistent assets. This threshold represents the point where scale advantages become self-reinforcing.
In Practice: Ellenbogen explaining lessons learned from Jeff Bezos about Amazon's strategy
Demonstrated by Leg-hf-001
Small-Cap Origin of Compounders
Strategic Thinking80% of 6x-in-10-year compounders start their compounding journey as small-cap companies. This creates an edge opportunity: small-cap investing is harder and requires understanding people and change, but it's where future compounders are disproportionately found.
In Practice: Discussion of why Durable focuses on small-cap companies
Demonstrated by Leg-hf-001
China Cost Equivalence for IP Work
Strategic ThinkingJust as every product-based business had to understand their China manufacturing cost in the 2010s or go out of business, every IP-based and knowledge work business must now understand their AI cost structure or face extinction. The principle: transformative technology creates cost curves that companies must ride or be left behind.
In Practice: Discussion of AI's impact with Mitch Rales comparison
Demonstrated by Leg-hf-001
Cost Curve Divergence Creates Moats
Strategic ThinkingWhen one group of companies gets on a 15-20% annual cost decline curve and their competitors stay flat or inflate 3-5%, the gap compounds into insurmountable advantages within 5 years. Early movers in transformative technology (robotics, AI) who invest in both technology and enabling infrastructure create power law businesses.
In Practice: Discussion of robotics adoption and cost curve dynamics
Demonstrated by Leg-hf-001
Physical and Cultural Moats
Strategic ThinkingThe most durable competitive advantages are either physical (real estate, infrastructure, distribution networks that take years to replicate) or cultural (operating excellence, human capital systems, continuous improvement discipline that are nearly impossible to copy). Both types of moats share the property that even perfect replication takes too long to matter.
In Practice: Discussion of favorite types of competitive advantages
Demonstrated by Leg-hf-001
Ecosystem Balance
Systems ThinkingOrganisms that persist over long periods must be in balance with their ecosystem. Companies should similarly balance investment in customers, employees, shareholders, and communities. Imbalance leads to system failure over time.
In Practice: Ellenbogen explaining his biological foundations for investment philosophy
Demonstrated by Leg-hf-001
Negative Compounding of Mistakes
TimeOne bad decision can mathematically erase the value of many good decisions through compounding effects. T. Rowe Price's sale of Walmart, which would have grown to be worth more than the entire New Horizon Fund, demonstrates how missing a compounder has permanent opportunity cost.
In Practice: Story of studying T. Rowe Price's 50-year history and the Walmart sale
Demonstrated by Leg-hf-001
Volatility as Signal
TimeExtreme earnings volatility and stock price movements can signal either risk or opportunity. The key is distinguishing fundamental deterioration from transition pain. Q2 2024 saw the highest earnings volatility since the financial crisis despite no systemic crisis, indicating market structure changes and opportunity for long-term capital.
In Practice: Discussion of market structure changes and earnings volatility
Demonstrated by Leg-hf-001
Connective Tissue (6)
Michael Jordan fierce competitive style vs. Golden State Warriors joyful competitive style
Ellenbogen contrasts two models of competitive greatness using basketball examples.
Discussion of Durable culture and competitive philosophy
Danaher kaizen philosophy imported from Japan to American manufacturing
Ellenbogen references Danaher adoption of kaizen as a 40-year competitive advantage in American business.
Discussion of sustainable competitive advantages and operational excellence
Moore Law applied to robotics cost curves
Ellenbogen applies Moore Law to robotics cost curves, arguing that robotics is at parity with human labor costs and will decline at 15-20% annually.
Discussion of robotics investment opportunities
China manufacturing cost curve as analogy for AI knowledge work cost curve
Ellenbogen creates a direct parallel between the China manufacturing revolution and the AI revolution. Just as companies had to understand their China cost, companies now must understand how to leverage AI.
Discussion of AI impact on business models and cost structures
Biological organisms sustaining over time by being in balance with their ecosystem
Ellenbogen draws on his biology background to frame investment philosophy. Organisms that persist must be in balance with their ecosystem.
Ellenbogen explaining the origins of his investment philosophy
John Wooden UCLA basketball philosophy
Ellenbogen cites John Wooden as the greatest coach, emphasizing focus on developing great people, not just basketball players.
Discussion of competitive philosophy and talent development