The Second Mouse Plan Part 2.2 - The Playbook

If you haven't read the previous parts, start here: Start here: The Second Mouse Plan — Introduction.

Last week, I presented the first two strategies for reducing risk while still trying to make money: 1) being a copycat and 2) piggybacking on things that are already gaining strong traction.

You are probably not impressed with the example I gave of becoming a Uber driver or that I am saying you too can become Tim Cook. But here’s an example of piggybacking that I find astonishing. No one has founded a truly new religion that has gained even a modicum of global traction in 2,600 years. Think of the incentives and how “receptive” people were even 200 years ago. Scientology gets a lot of press, but based on my extensive Wikipedia research, I would be surprised if they even have 500k members.

All the major world religions today were offshoots of Judaism and Hinduism. Christians use Jewish scriptures. Early Christians were just one of many competing sects within Judaism - they just went viral. Muslims recognize all the Jewish prophets and Jesus too. The Koran mentions Moses 137 times - more than any other individual. Buddhism accepts many of the major tenets of Hinduism.

And don't get me started on Zoroastrianism, the original monotheistic faith that introduced the concepts of Heaven and Hell, Judgment Day and the final revelation of the world, and angels and demons. That's right, incumbency is so powerful, that even religious people didn't dare blow everything up to start from scratch.

Look at all the Christian denominations that have been founded in the past few centuries and that are thriving. If you were a religious entrepreneur at any time in the past 2,600 years, the smart thing to do was not to disrupt, but to play within the system, usurping existing narratives for your own purposes. Piggybacking was the only viable path. I hasten to add that the word piggybacking has no origin in the word pig, and is therefore 100% kosher and halal. So don’t be a guinea pig, go whole hog on other people’s proven ideas.

I realize I initially presented Jesus as an innovator, but he’s also a piggybacker. Jesus was full of contradictions! Anyways, most people are a composite of pioneering and being Second Mouse. The more you favour Second Mouse instincts, the better off you will be, I believe.

Hollywood has a word for exploiting known quantities: “pre-awareness”. You have no doubt noticed the pervasive trend of sequels, remakes and reboots. Think of all the movies we all know to be huge moneymakers that are based on books: The Lord of the Rings, the Marvel Cinematic Universe, the Harry Potter series, the Jurassic series. Of the top 20 grossing movies of 2019, only Us qualifies as an original story. The Lego Movie 2, as the sequel of a brand extension, is more representative of modern Hollywood. The top 5 movies all belong to Disney, which I would call a poster mouse for my philosophy. It had an exceptional year in 2019: breaking its’ own 2016 record for annual sales by August.

Being Second Mouse was a good bet historically too. As far back as 1905, Thomas Edison released a movie based on a popular postcard. Consider the top ten highest-grossing movies of all time, adjusted for inflation. Three are based on novels: Doctor Zhivago, Jaws, Gone with the Wind. The Sound of Music is an adaptation of a stage musical. Titanic and The Ten Commandments are not original stories. Number 10 is Star Wars: The Force Awakens, a sequel. Of the top ten, only Avatar, ET and the first Star Wars are truly original works created from scratch. Even in the most creative fields, the person armed with Second Mouse thinking will rise to the top.

Strategy no. 3: Acquire

Acquisitions are the most sophisticated, purest and most scalable Second Mouse option. Some of the most storied entrepreneurial builders actually bought first, then built. Howard Schultz did not open his first café, he acquired it 16 years after it was founded. Ray Kroc did not open his first burger joint, he acquired it. Ron Joyce took control of Tim Hortons ten years after its founding. Even Elon Musk did not found Tesla, he was an early investor who eventually took control.

I mentioned the Zara founder as the wealthiest fashion mogul. Who’s even richer and involved in luxury goods as well as fashion? Bernard Arnault is an engineer by trade, he has never concocted a perfume or designed a handbag, but he is now the third richest person in the world. Louis Vuitton (the “LV”) in his holding company LVMH was founded in 1854. The M was founded in 1743. The H was founded in 1765. The M and H are about drinks. I cannot deny that some people have built fortunes by founding new distillers. George Clooney and two friends famously built a billion-dollar tequila company in 5 years. Both approaches are possible - buying centuries-old wineries or coming up with your own tequila recipe. All case studies suffer from survivorship bias. I cannot scientifically prove that the Second Mouse approach is the better approach. I could tell you about Jorge Paulo Lemann who made billions consolidating the beer industry and you could legitimately ask, but what about all the drinks consolidators who failed?

The four wealthiest people in fashion are collectively worth some $200 billion. Between the four of them, I don’t know if they could sew a button. The other two I didn’t mention are Stefan Persson of H&M, a fast-fashion retailer similar to Zara and François-Henri Pinault, another luxury brand consolidator who owns Gucci, Yves St-Laurent and Brioni among other brands.

Technology is a younger industry, but there are already many successful consolidation stories. Almost every Canadian involved in investing will cite Constellation Software, which started with initial funding of $25 million and is now worth $25 billion. I have lost count of the number of other successful consolidation stories in Canada in the past 15 years. That’s the ultimate Second Mouse Plan: acquire. Need I say more?

Join me again for Part 3 for more life-altering insight: The Second Mouse Plan Part 3: The Church of Latter-Day Mice.

Second Mouse PlanStrategy