Building Capabilities and Following the 20% Rule for Success

Building Capabilities and Following the 20% Rule for Success

Introduction: The Importance of Building Moats and Capabilities

In the business world, companies strive to create long-lasting value and establish a competitive advantage over their peers. This is achieved through the creation of moats, which are quantifiable advantages that persist and grow over time. However, before companies can build moats, they must first develop what we refer to as "capabilities." These capabilities are intangible assets that enable a business to operate effectively and earn returns above others in the market. In this article, we will explore the connection between building capabilities and establishing moats, as well as the significance of following the 20% rule for personal growth and success.

Building Capabilities as a Path to Moats

While moats represent the economic advantages of a company, they are not immediately present from day one. As early-stage investors, we focus on evaluating a company's path to a "moat trajectory" rather than its current moat. This means that companies must first build capabilities before they can establish a moat or even a moat trajectory. These capabilities, also referred to as "powers," are developed through a business's intangible assets and allow them to operate more effectively than their competitors.

Unifying Concepts: Bruce Greenwald and the Two Camps of Competitive Advantages

To understand capabilities more comprehensively, we can turn to Bruce Greenwald's manifesto "Competition Demystified." Greenwald categorized competitive advantages into two distinct camps: customer captivity and resource captivity. Customer captivity refers to the ability to acquire and retain customers more easily and cost-effectively, while resource captivity focuses on the production of a company's product. Both of these advantages are strengthened by scale, making it easier to maintain a competitive edge in the market.

The 20% Rule for Personal Growth and Success

Just as companies need to build capabilities to establish moats, individuals need to engage in deliberate learning to maintain their economic health and thrive in their careers. The 20% rule, followed by successful individuals such as Thomas Edison, Salvador Dali, Navy SEALs, and companies like Google, Genentech, and 3M, emphasizes the importance of spending 20% of one's time on activities that promote experimentation and skill-building.

Navy SEAL Jocko Willink argues that professionals in high-skill knowledge work who engage in non-routine activities should spend 20% of their week (equivalent to one day) on training to continuously improve. Genentech, one of the largest companies globally, encourages its scientists and engineers to dedicate 20% of their workweek to pursuing pet projects, fostering innovation and personal growth.

The Benefits of the 20% Rule and Adaptive Learning

A survey conducted among various individuals revealed that 95% of respondents believed that implementing the 20% rule, combined with a 4-day workweek, would increase their lifetime productivity. Successful individuals like Bill Gates and Warren Buffett have long recognized the importance of continuous learning. Gates dedicates an hour each day to learning, while Buffett spends 80% of his career reading and thinking.

For those who struggle to find the time for learning, the concept of adaptive learning offers a solution. Adaptive learning involves finding small pockets of time throughout the day and utilizing them for deliberate learning. By following the 20% rule, individuals should aim to spend 8-14 hours per week on learning, depending on their work schedule.

Conclusion: Taking Action for Success

To achieve success in both the business world and personal growth, it is crucial to prioritize the development of capabilities and engage in deliberate learning. Here are three actionable pieces of advice to implement:

1. Identify and develop your unique capabilities: Assess your business or personal strengths and invest in developing capabilities that differentiate you from your competitors. This will lay the foundation for future moat-building.

2. Embrace the 20% rule: Dedicate a significant portion of your time to deliberate learning and experimentation. By consistently investing in your growth, you will continuously improve and stay ahead in your field.

3. Practice adaptive learning: Find small pockets of time throughout your day to engage in learning activities. By utilizing these moments effectively, you can accumulate significant learning hours each week without feeling overwhelmed.

By incorporating these strategies into your approach, you can build long-lasting value and establish a competitive advantage, both in the business world and in your personal growth journey.