The Tao of Tiny Capital

Charlie Munger said that you should try to be friends with people with the right ideas, even if you never meet them (I’m paraphrasing, he put it a bit more morbidly).

I’ve definitely made Andrew Wilkinson from Tiny Capital my friend in the past few months, albeit we never have gotten to talk. I’ve spend tens of hours listening to podcasts he’s appeared as a guest on or hosted, and reading to stuff he’s written online (check resources at the end), and I’m really fascinated by his business and life philosophy.

For those who don’t know him, Andrew Wilkinson started off as a freelance web designer and founded Metalab, which grew to become one of the most prominent design agencies. As Metalab grew they started playing around with building their own SaaS companies and then along with his cofounder Chris Sparling started Tiny, which is a fund / holding company that buys internet companies and grows them in the long term. They currently own more than 35 companies, recently did their first public listing (through reverse takeover) with Wecommerce, and run one of the biggest rolling funds in AngelList. They do all this while living a relatively relaxed life in Victoria, Canada, a city of about 200k people.

I urge everyone to study their whole story but I wanted to use this post to gather some of the most interesting ideas they talk about and practice. Obviously many of their ideas aren’t original, and their company is very heavily inspired on the structure of Buffet’s Berkshire Hathaway, but it does seem like they try to validate everything through their own lens and experiences, and we should do the same. I do believe that Andrew & Chris are on the way to becoming super-prominent figures in the world of investing and business as their compounding machine continues to grow. Here are the most important nuggets of wisdom I’ve gathered from studying them:

The Launchpad Business

Nothing Andrew has been able to do is likely to have materialized if he didn’t first have a large cashflow producing machine, Metalab. The agency enabled him to have the capital, first-hand problem experience, human resources and network to start spinning off side-projects and later on full acquisition takeovers. This is a really important point, that you can have a massive advantage if you first get that initiator through a service company or business success that you can start building on.

Flesh Wounds & Scar Tissue

They talk a lot about their failures during their initial post-Metalab period, and how important they where in formulating their thinking after that. Chris talks about how it’s better to fail early and get the mistakes out while the risks are low. Even if you read about “the way” in books, you need to go through the process and learn the hard way while making a ton of mistakes.

Compounding

Definitely not an original idea, and this is a core principle of pretty much every successful investor, but this is something that Andrew and Tiny drive home. Doing the right things, focusing on re-investing cashflow while growing at a steady pace year after year is one of the most important lessons that they talk about, and one of the most important lessons in growth. By my understanding they basically almost never sell any of their cash flowing businesses, they just hold and grow them for the long term and re-allocate the profits according to their best judgement.

Delegating

Andrew has said that entrepreneurs should be like Gore-Tex for tasks, finding the best way to pass over the operational aspect of things to people who actually love doing them, while they can free up their own time to explore and maximize their decision making capacity.

Further to that, I think we generally have an inherent anti-delegation bias when it comes to important business aspects. One of the most important learnings they talk about is that the ultimate form of delegation that has worked great for them, is delegating entire businesses to CEOs they hire, and then just letting them running things as they wish. He mentioned that there are many times that months pass where he doesn’t talk to CEOs at all, which I think is incredible.

This is harder said than done and is both skill and art – installing a CEO is like performing heart surgery: Sometimes the body will just reject the new organ. But for me the main point is clear: You can delegate way more things than you think you can.

The key force in successful delegation apart from picking the right person for the job, is artful incentive alignment. This is something that Andrew & Chris are thinking a lot about: how to set up the rules so that people maximize their own returns while maximizing Tiny’s business value (the power of incentives is another key Mungerism).

Decentralization

One very interesting aspect of the Tiny business ecosystem, is that there is pretty much zero synergy between the companies. No meetups, no group service negotiating, no centralized mandates or services. Tiny HQ is an extremely small team even though they manage hundreds of millions or billions in assets. They basically do M&A, hire/fire CEOs, and do capital allocations, along with some group level accounting.

The main reason for this is that each business CEO needs to be making their own decisions and run the business as an owner, and have ultimate responsibility of the business performance (and their bonus). If “central” had to force them to use a software or take on a project or support another entity, that might conflict with their best judgement of how to maximize business value.

Competition & Defensibility

In terms of their search philosophy and which areas they like to look at, they say they like to fish where the fish are, not where the fishing boats are. A medium sized pond with a few hobbyist fishermen is preferable to a large pond full of commercial fishing boats.

Another way Andrew drives the same point is that he likes businesses that are like New Zealand: Hard to invade, quietly doing well in the middle of nowhere, food and energy independent, functional democracy, low risk of nuclear war. A key risk factor in the businesses that Tiny looks at is the VC threat: What would happen if competition with a large wallet and a high growth mentality came along? In one of his most-popular tweetstorms, Andrew talks about how competing with Asana while running Flow was like invading the United States while being Fiji: Not a good outcome for Fiji.

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Hope you enjoyed this brief run-through, feel free to reach out on Twitter or Email with any thoughts or comments. Following are key resources if you want to continue on the journey of exploring Andrews ideas and journey:

• Andrew’s Twitter / Chris’s Twitter
• Andrew’s Medium
• Tiny Office Hours – AMA Podcasts from the Tiny team
• Interview with My First Million
• The Warren Buffet of the Internet – by Conscious Creators
• Andrew Wilkinson’s Tiny Tech Empire – by The Investing for Beginners Podcast
• Andrew Wilkinson’s Lessons Learned From Building Tiny – by Village Global
• Interview Podcast at the Fort
• Bringing the Buffett approach to startups – by This Week in Startups