The one about papers
And some scaling too
Friends,
I hope that all is well with you and yours, and that this e-mail finds you on a boat with shoddy connection, in the tropics, three months after I sent it.
Today, instead of a Christmas book shopping list, we take a look at some papers and articles that are worth reading. For premium subscribers, also a look at strategic scaling and the ways in which conventional strategy gets it worryingly wrong.
Also, as ever, a few personal notes and the market vitals including musicals and video games, an opportunity to book me as a speaker in April, 4E feedback, unsurprising Fed forecasts, Hindenburg Research going into BNPL, more AI valuation craziness, and Nike financial woes.
Now accepting keynotes for 25Q1-25Q3
Every year for the last decade or so, I have created three main presentation decks. For 2025, however, I have (for the first time) added a fourth due to popular demand. They are:
What to Do When You Don’t Know What to Do: How to turn change into a competitive advantage. (Based on the new book by the same name.)
Leadership in a Time of Change: How to steer an organization through a sea of uncertainty.
Resilient Retail: How to build a profitable retail business in the modern marketplace. (Based on the 2025 follow-up to the highly praised 2022 white paper The Gravity of e-Commerce.)
Artificial Intelligence Beyond the Fantasy: How to understand the narratives, risks, opportunities, and best uses of a new technology.
If you want to book me for your event, corporate speaking slot, or workshop, merely send me an email. To make sure I am available, please do so at your earliest convenience; my availability is limited and the schedule tends to fill up fast. More information may be found here.
A couple of updates before we go-go
A few days ago, I managed to get one of my daughters to laugh so hard she peed herself. Regardless of whatever else I may achieve in life, that will forever sit near the top.
Finally came around to see Hamilton. Very good. Lin-Manuel Miranda is all kinds of special, is he not?
Tried a couple of hours of Indiana Jones and the Great Circle on Xbox because, well, it was available via Gamepass Premium. Felt no need to continue. I know that the game has received all kinds of plaudits, but when you come from Cyberpunk 2077, the graphical design, animations, and overall gameplay come across as awfully last decade. I mean, the difference is dramatic. Cyberpunk makes you stop and stare in awe. Indiana Jones makes you stop playing.
I do enjoy Warhammer 40k: Space Marine 2, though. Particularly the PvE co-op.
On the work front, I have a lot of international keynotes lined up for H1. More info to come, provided my wife does not behead me for being away too much.
Having said that, I just received a cancellation of event notice this morning that has freed up the middle of April. So if you want to bring me in for an event around that time, now is your chance to let me know.
A lot of really positive feedback on the 4E model of late, including some practical use cases that I had not considered. Very encouraging. And flattering, of course.
Moving on to markets.
The market vitals
The Dow Jones Industrial Average fell again after the Fed forecast fewer interest-rate cuts and higher inflation in 2025. I am not entirely sure why some analysts find this surprising; as we have seen over the last few weeks, the numbers are there for everyone to see. Increasing inflation plus fiscal policies that inevitably will increase said inflation further means higher interest rates. It is macroeconomics 101.
The overall sentiment, though, is one of massive optimism. As James Mackintosh highlighted, investment newsletter writers have rarely been more bullish or less bearish, according to the weekly survey by Investors Intelligence. Households have never been so confident that stocks will rise over the next year, according to the Conference Board’s monthly survey. On and on it goes.
I mean, what could possibly go wrong?
Hindenburg Research’s latest foray is into BNPL; it has published a damning report of Sezzle and taken a short position. Although I have no insight into the company in question, I do know the category quite well from previous client work. Without going into details, I would advise Hindenburg to look at some of Sezzle’s competitors too.
In the latest round of eye-watering AI company valuations, Databricks said it was raising another $10B for a $62B valuation. $8.6B has apparently already been completed.
Although the firm said it would achieve positive free cash flow this quarter for the first time since its creation eleven years ago, it still has no idea when it will actually generate a net income.
Plus ça change.
Long-time clichéd marketing agency example of the power of brand-building Nike is in a race for cash. Apparently the new CEO, Elliot Hill, has made it his top priority to clear out surplus inventory resulting from his predecessor’s, shall we say, interesting strategic decisions.
On one hand, it makes sense. They undoubtedly wet the Mogwai with their sneakers (despite reducing supply, Nike still manufactures more than it can sell), and sales have been dropping quite consistently. On the other, we all know the mathematical realities of discounts. And they are running lots of discounts. As of Wednesday, more than 50% of men’s footwear sold via the Nike website were sold at a lowered price.
Beyond the immediate and easy-to-calculate impact on the bottom line, the widespread discounts also put pressure on its retailers. To take an example from Inti Pacheco, a pair of Dunk sneakers sells for $115 at Dick’s Sporting Goods or Foot Locker, but shoppers can get the same shoes for $85 on Nike’s website. Given its recent shift back to more wholesale, this is not exactly ideal.
At the time of writing, the Q3 report has yet to come out, but the company expects revenue to be down low double digits and gross margins to decline between 3 and 3.5 percentage points.
Ouch.
Moving on.
Christmas papers
A twist on a holiday tradition
As is tradition in this space, the last newsletters of the year will consist of a list of holiday reads and an annual retrospective, respectively. Premium subscribers will also receive a continuation of the current run-through of adaptive strategy.
However, this time around, things will be slightly different.
What I would typically do is to list a number of books that I have read and feel are strong enough that I may recommend. Although this has been popular, at least based on email feedback, it comes with two self-evident drawbacks:
People have a lot of unread books already. And as much as I personally adore concepts such as tsundoku and the antilibrary, there may be a point to going through what one has already acquired.
Not all books are available to purchase in all markets, and this newsletter has subscribers from quite literally all over the world. Thus, while the value of my recommendations can be obvious to some, it can also be nonexistent for others.
In order to address the issues, I will therefore instead make a list of some worthwhile papers and articles that remain available online. As I try to read broadly, the topics will be diverse in nature, ranging from economic history to strategy and the dangers of optimization.
I have also ensured that the list is diverse in authorship, but it is important to stress that it took way too much of an effort to do so. Women are still unacceptably underrepresented in academia. Almost regardless of your field of scientific inquiry, you will find mainly works penned by men. And it is important to recognize that.
With that throat clearing done, let us begin. The links are in the titles.
Questioning the growth dogma: a republication study
Ben-Hafaïedh, C., and Hamelin, A.
Why is it worth reading?
Not only does our first paper ask very important questions – such as whether high growth ought to be a strategic imperative – but it also provides answers using an absolutely colossal data sample. Close to 40% of all EU SMEs were analyzed and the results, well, they are rather interesting.
For practitioners, our results greatly emphasize the initial strategy choice: growth-oriented or profit-focused. This is because we showed that a growth-oriented strategy without first securing sufficient profitability levels widely increases the likelihood of ending in a poor spot (low growth and low profitability). This does not mean that this strategy is irrelevant. It can surely be in certain cases. However, the entrepreneurs need to be more careful in assessing its necessity and in implementing it. Moreover, we showed that this initial choice has lasting effects by testing for matched firms with similar trajectories in the profitability/growth matrix with the notable difference being the initial strategy choice.
Creative evolution in economics
Devereaux, A., Koppl, R., and Kauffman, S.
Why is it worth reading?
This paper by Devereaux et. al. provides an effective dismantling of traditional economic wisdom such as the notion of rational choice and representative agent aggregation, but also highlights the logical weaknesses of more recently emergent schools of thought such as behavioral economics. It then goes on to improve upon modern growth theory because, hey, why not put everything into one document?
Agent-level uncertainty under creative evolution doesn’t lend itself to description in a rational choice paradigm. By rational choice, we refer to the standard conception laid out in Gerard Debreu’s Theory of Value, the ur-text of neoclassical economic theory still central to mathematical economics. Rational choice requires a categorization of preferences over all opportunities in a way that is complete, transitive, and context-invariant. The epistemological constraints inherent in creative evolution obviate completeness, since if they didn’t, agents would know the contents of their adjacent possible in advance of encountering it, contradicting the definition of creative evolution.
The fault line of axiomatization: Walras’ linkage of physics with economics
Turk, M.
Why it is worth reading?
I fully admit that this has become a bit of a pet topic of yours truly ever since I began doing research in the field for book writing purposes. I just find it fascinating how little evidence there is to support fundamental theories in neoclassical economics. Turk, here, finds and follows a similar thread in Léon Walras’ unchallenged assumption that markets follow the same laws as physics and that the most important factor for a field’s scientific value would be whether it can be mathematized.
Beyond the claim that economics was a ‘rational science’, Walras’ writings may also contain the first explicit statement of a correspondence between the laws of economics and the universal law of gravity. In an article entitled, ‘Une Branche Nouvelle de la Mathe ́matique’, written in 1885, but published only decades later, Walras boldly linked the operation of economics to the framework of Newton’s laws. He did so by first characterizing Jevons’ mathematical constructions as the ‘keystone’ of pure political economy, where the proportionality of the maximum satisfaction of wants to ‘rarete ́’ is combined with the equality of supply and demand. This then served as: ‘the necessary and sufficient reason for the equilibrium of the economic world, just as the universal attraction based directly on the mass and inversely upon the square of the distance is the reason for the equilibrium of the astronomical world’; (Walras 1987: 320).
The best preparation is no preparation
McClure, S.
Why is it worth reading?
Although not an academic paper by any definition, McClure’s Substack essay makes a rather interesting claim: the best way to handle what might happen is to not prepare for what might happen. This, of course, sounds entirely counterintuitive to most, which in and of itself ought to be a reason for reading. But McClure has a point. By learning to solve problems in the moment, the long-term benefit - an improved adaptive capacity - ends up being the best preparation possible.
We tend to assume humans have an innate need to control outcomes. But there's something wrong with this notion. Humans are adapted to work under high uncertainty, far more than being predictive of what will happen. Sure, we use pattern recognition to anticipate events, but that prediction is only about what will happen at the highest level of abstraction. We can anticipate the tiger in the bush from sound or movement, but knowledge about when, where and how the tiger will strike is wholly unavailable.
This is why the paranoid survive; not by knowing the details of what might happen but by anticipating the worst case scenario and practicing avoidance. This is how our ancestors handled their surroundings. Their environments were far too unpredictable to operate oD planned action. By avoiding worst possible scenarios humans can turn a fair amount of life's risk into a nonissue.
Highly optimized tolerance: robustness and design in complex systems
Carlson, J.M., and Doyle, J.
Why is it worth reading?
We live in an age of efficiency. The need to do things better, faster, and cheaper is perceived as immensely pressing. Optimization is the name of the proverbial game. What this resilience engineering paper establishes, however, is that high optimization leads to brittleness; by focusing on creating maximum efficiency, one automatically creates hypersensitivity to design flaws and unanticipated perturbations. The implications for strategy and risk management ought to be as obvious as important.
Through design and evolution, HOT systems achieve rare structured states which are robust to perturbations they were designed to handle, yet fragile to unexpected perturbations and design flaws. As the sophistication of these systems is increased, engineers encounter a series of trade- offs between greater productivity or throughput and the possibility of catastrophic failure. Such robustness trade-offs are central properties of the complex systems which arise in biology and engineering.
Until next time, have the loveliest of holidays.
Onwards and ever upwards,
JP