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When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000-pound trucks across it. And that same principle works in investing.

Warrent E. Buffett

3 years into the founding of the firm, I still don’t really know how to start these, yet I seem to think I have a lot to say.

Last years’ was, of course, a hat-tip to Charlie T. Munger - whose wisdom has only become more prevalent from the days that have gone on since his passing. Prior to that, the firm’s first letter started out with Benjamin Graham’s infamous voting vs. weighing machine quote, so all that to say - you can tell there’s a bit of a theme going on here as to who my influences are.

I would be doing myself a disservice if I were to leave Mr. Buffett out of this one - particularly because he was the first of the trio mentioned thus far to really give me my formative understanding of capital markets.

His lectures at universities around the United States in the late 20th/early 21st century as well as the recordings of the Berkshire Hathaway annual meetings throughout the years really became the proving grounds for me to soak up all there is to know about the craft of capital allocation. At 94 years young, he’s as passionate about the investing business as his first day in the game back in 1951 at just 21 years of age.

While his most recent annual report make strong attempts to transition attention off of himself & towards the other high-caliber executives at Berkshire for succession planning (such as Greg Abel and Ajit Jain), the lime light (maybe nostalgically) still sits in a deep hue on Uncle Warren, and I suspect it will for quite some time.

Speaking of transitions, though - we’re at that time of the year where we’ve been starting to get some really nice weather in Chicago. As we move from one season to another, the Botanical Gardens up North are soon to be in full bloom; I can’t wait to get out there this summer.

Anyways, let’s get onto to the rest of the letter.

Where the Company’s Been

The 2024, going into 2025, year has truly been a blessing for the firm.

The people I’ve met, the users we’ve gotten, and the arc the company has taken on has truly been something I could’ve never predicted in many ways.

Countercyclical went through an interface re-polish this year, and while our ICP/IUP has remained roughly the same, it’s been wonderful to see both what the company got right, but more importantly what the company got wrong, in my extrapolations of the future from just 365 days ago.

One of the greatest blessings, though, has been continuing to build in Chicago. Despite very real challenges the city has, this place really is made up of folks - particularly in the technology and finance communities - that I really haven’t met anywhere else in the country.

No city is all sunshine and rainbows, but I have yet to find anywhere else on the planet that comes packed with a group of professionals who possess a depth of gumption equal to that of Chicago’s corporate scene. It really is a gift.

Great Fruit Comes from Great Seeds

The millennia-old adage that “you can’t force an idea” is very true, but I am a firm believer in the notion that you can design an environment around you (mentally & physically) where they come into season on a semi-recurring basis.

It’s not that you know what the ideas are going to be beforehand (there is path dependency here - as there is with everything), but by designing that environment, you’ll know they will most likely come.

And once they do, then its your job to pick them while they’re ripe (inspiration is perishable), harvest the fruit (translating an idea into actionable evidence), and then pick the seeds out to use for the next growing season (compound interest really is a wonderful phenomena)

So…how exactly do you do this, though? The theory sounds nice, but…how?

Like a lot of things I’ll mention here, it’s a bit trite.

The answer: by planting one seed first, and then constantly planting as many seeds as you can after that.

You do have a bit of a “cold start” problem at the beginning, but you can easily circumvent this by thinking back to the last good decision you made, and then ripping back the layers of ego you’ve wrapped around that action, and then looking at it in a clear light to know why you know it’s a good decision.

This can be hard for some people to do, but an easy work around is just to look at what you’re already doing.

Let’s use a really simple example.

On Discipline

Let’s say someone is struggling with discipline. Since humans engage in Girardian mimesis subconsciously (fancy-schmancy talk for “copying” each other), they primarily want “their discipline” to look like what societally “disciplined” people look like.

More often than not, they care about “relative” evidence more than absolute evidence. Examples include:

3-hour long morning routines, cold showers, chakra centering - you know, that stuff.

I think it’s far more useful to encourage people who struggle with discipline to look at absolute evidence over relative evidence.

For example, have you breathed every day since you were born?

If you’re reading this, I'm guessing the answer is yes. Therefore, let’s do some quick arithmetic:

Assuming 365.25 days in a year (the 0.25 is for leap years), that’s:

365.25 * {Your Age}

Since I’m 24, that’d be ~8,766 days for me.

So, if you’re at or around the age of 24, you’ve been disciplined in breathing for about, give or take, 8,766 days straight. You haven’t skipped a single one.

Woah, congrats!

So…I just gave you evidence that you’re disciplined at something. Not just that, I also got you to internally come to that conclusion on your own, and with your own proprietary data set (e.g. your age). Just pull out your phone, open the calculator app, multiple your age by 365.25, and that’s your number.

Here’s the thing. I didn’t produce that evidence; you did. I mean hey, you’re the one whose been breathing this whole time. Therefore, that means you’re an independent, self-reinforcing system that has been (and therefore can be) disciplined at things.

Did it require a metric ton of effort on your part?

Maybe it did, I don’t know…but it’s probably just a background task in your life. You don’t think much of it until someone brings it up. So if there’s any additional effort you can layer on top of this existing discipline, doesn’t that make you more disciplined?

I’d say so.

Even if you write this example off as overly trivial, it’s true.

My point here is that absolutes are often far more important than relatives for a variety of reasons, but two quick ones are that;

1. Absolutes put time on your side, and
2. They point the “locus of control” in your life inward (towards you) rather than outward (towards others)

Great; I think we might’ve planted a seed.

Software Engineer: The “One-to-Many” Job

The role of a software engineer is a special one because not only do you need to know how to build great software (which requires knowing what “good” looks like), but you also need to know the hierarchy, nomenclature, taxonomies, and overall ontology of industry X, why thing Y is the way it is, and how the output for Z feeds back in as an input to A.

A Quick Tangent on Job Titles

I’m using “software engineer” here for many reasons…

You might ask, “why not ‘Entrepreneur’ or ‘Founder’?”

Well, “Entrepreneur” and “Founder” aren’t actually job titles. They’re self-appointed. They aren’t real.

For one thing, “entrepreneurship” is simply a means to and end. Glitzy, glamorous titles shouldn’t mean anything on their own…because they don’t.

Instead, titles like “software engineer” comes imbued with a technical gate that has to be passed in order for it to mean anything. There’s a rite of passage. The same goes for Financial Analyst, Lawyer, Doctor, Teacher, Nurse, etc.. - those are real things.

“Founder” and “Entrepreneur” aren’t real things. They tell you nothing about what the person does to contribute to the business. To paraphrase Paul Graham, being a Founder is simply a “moment in time”. Were you on the Articles of Incorporation for the business when it was set up? Great, then you can give yourself the title of “Founder”.

This is, of course, separate from what “founders” bring to a business.

It’s unquantifiable in many cases (both on the upside and downside) for what a founding team contributes to a business. They often make or break the company. Great “founders” or ”entrepreneurs” often run businesses that are simply an extension of themselves, so being a “software engineer” is, instead, the substance supporting their business activities (assuming they’re a “technical founder”).

TLDR; substance > prestige

Anyways, back to our regularly scheduled program…

Holes and Tunnels

As Marshall McLuhan says, “We become what we behold. We shape our tools and then our tools shape us.” - so the question now becomes:

How exactly do you get started on such a daunting task?

That is, how do you not only gain enough competency in your immediate field, but also successfully gain enough competency in an ancillary field to be able to contribute to it?

Well, the answer - again, as trite as it might be - is actually pretty easy. The universe leaves us clues everywhere we go;

Use the things you find beautiful as your compass.

Always start with beauty. In everything.

Once you make that your genesis, pull on that thread til the pile of unravelled yarn you’re sitting in becomes a DNA strand to something completely new that grabs your interest.

It’s when you go uncommonly deep into very specific topics that you’re able to gain a “competitive” (I hate that word) advantage. Congratulations, you’ve entered your own blue ocean; an efficiency frontier no one can take away from you.

I personally refer to this ebb-and-flow as “digging holes and tunnels”, but you can call it whatever you want.

You have to dig “holes” first (yep, there’s path dependency here too), and then you create “tunnels” between the “holes” you previously dug. The deeper the “holes” you initially (and continuously) dig, the more interesting and uncommon the “tunnels” you can make - and in turn, the greater value you can unlock between uncorrelated disciplines. The caveat (yep, there’s a few of those too)? You have to come up for oxygen every once in a while.

Go for a walk, pet a dog, or eat some good food; do something that rips the muscle initially, then let it rest so as to let it grow into an even greater form. You typically lift heavier things when you have bigger muscles, right?

This combination of primitive elements in any given system has the ability to give rise to “emergent properties” that otherwise didn’t exist beforehand - thus creating an entirely new primitives altogether.

Letters form words. Words become sentences. Sentences build paragraphs. Paragraphs grow into chapters. Chapters shape books. And books fill collections, which together create libraries. At the root is the letter - the most fundamental unit of written and spoken language. The boundary condition, on the other side, is the library or archive - the highest-order function that houses the entire hierarchy, all the way from its basic building blocks to the most complex structures possible given the contstraints of the system.

To me, this is really exciting because all of these concepts coincide in a very deep way with an equally important, but highly misunderstood and ill-prescribed, concept; Luck.

I really don’t like the term “luck”, because it abstracts away all of the inputs that often led to an outcome that’s perceived as “lucky”. That said, the definition of luck that has made the most sense to me throughout the years is from Branch Rickey, which is:

Luck is the residue of design.

Coupling this definition with something equally insightful is that more often than not, I think one of the proponents of building anything is simply sticking around long enough to make yourself “lucky”.

What the Company’s Doing Right Now

Upcoming Releases

I planned on getting our latest release - aptly titled “Relations” - shipped out to everyone’s workspaces before this letter was sent out, but it’s just not there yet.

Currently reworking a few taxonomies and some minor tweaks to the overall ontology to make it more composable, reusable, and scalable. In plain English, it doesn’t meet my bar just yet to feel comfortable kicking it out of the nest. I probably could - but where’s the fun in shipping something you’re not proud of?

It’s been in development (and really my sole focus) for ~1.5 months, so a few more passes on the whetstone & a bit more time chiseling the marble away will do the trick - can’t wait for everyone to get their hands on it!

Winning the Battle, but Losing the War

A salesperson might be stoked to shoot past their quota for the quarter by 20%, but that firm they just signed with is a real pain to deal with - not to mention that they have a terrible reputation in their industry for a litany of reasons (legal disputes, high attrition rates amongst senior hires, shady affiliations, etc..)

…so congrats! A deal got moved “across the finish line”…but at what cost? Especially over the entire lifetime of dealing with that client?

It certainly isn’t the explicit, or even implied, “cost of doing business” in the way one might think (flights, taxis, hotels, dinners, etc..)

It has nothing to do with customer acquisition cost. All of that SaaS lingo pales in comparison to the asymmetric loss of revenue, productivity, team cohesion and trust, R&D efforts, etc. that hits the team most local to that client first - and then the overall company second - for not taking into consideration the qualitative, “indirect” costs of doing business with such a group of people.

A quick, steep decay of everyone’s sanity becomes the byproduct of dealing with people who don’t treat others with any inkling of humanity. For anyone whose been in this situation, you almost develop this quasi-Stockholm syndrome as a means of justifying your interactions with them as “character building”.

Saying something like that is fine if you’re a Navy SEAL. But if you build & sell software in an air-conditioned room…in a city…in the United States, don’t put up with bad people. There’s skyscrapers peppered around town full of equally (in this case, significantly more) valuable users/customers/etc..

I’ve been lucky at Countercyclical to not have to deal with anyone even remotely close to this level of psychological turmoil. But in prior roles or “through the grapevine” of associates in my field, you can at times find yourself on both sides of the equation; both being the sounding board for, and listening actively to, a few war stories.

The amount of hours that have been wasted across teams in the U.S. alone…afternoons, evenings, and weekends after work, teammates staring at the ceiling of their homes and apartments, wondering how they iterated themselves into such an awful position to deal with even more awful people…it’s painful. It makes good people feel guilty for not “rising to the occasion” for others who didn’t deserve the attention in the first place. It’s such a tough place to be put in.

As Mr. Buffett says:

You can’t make a good deal with a bad person.

Priceless Advice Taken Past its Local Maxima

Paul Graham’s advice on talking to users is truly one of those immutable laws of building anything. Everyone I meet that hasn’t yet internalize this lesson ought to. While desperately simple, it’s still very often implemented incorrectly.

I want to make it clear before I dive in here that I’m not critiquing this lesson in any way, shape, or form - instead, I’ve just noticed many people take this advice way past it’s useful life; to a point of detriment rather than utility.

Talking to users early on is great because you get a holistic picture of the problem space you’re dealing with. When you talk to your ICP/IUP instead of just “guessing” at the get-go, you eliminate months of unnecessary pain & suffering.

But once you’ve gotten that “color palette” from them, I’ve noticed a lot of people wait around for their users/potential customers to tell them everything they should “paint” (e.g. build) before they start “painting” (e.g. building)

Here’s the TLDR; on that. I hope some others can take solace in it:

They won’t. Ever. It’s best to get the expectation that they’re going to out of your head completely. The world, sadly, isn’t that straightforward.

If you don’t believe me, let’s put the shoe on the other foot for a minute:

If you work in Corporate America (namely a B2B business - forget software, it could be anything), you’re most likely a card in a kanban view in some company’s CRM somewhere. And that company is trying to sell you something.

How willing are you to sit down & talk to them?

Exactly.

So why do you expect the same thing when the positions are reversed? Not just that, but most people aren’t even that great at articulating their problems in a palatable manner.

Most people don’t even understand themselves, so what makes you think they’re going to understand you & what you should build?

Once you’ve got something…

Rely on intuition and good judgement, and then get to work - as soon as possible. Just get something on the canvas.

…but then what?

Let your product “bake” a little. This is particularly true if you’re working in software.

Your users should set you on your way in a very general direction, but once they’ve done that, they’ve done their job. Now it’s time for you to hold up your end of "the deal".

It’s such a gift if you can get anyone to give you feedback on your product/service/platform/app/idea/etc - so if you have, you’re already ahead of most.

Because of this, it’s not the time to make promises about how the final solution will come out pixel-for-pixel.

In fact, it’s almost never time for that. I would recommend avoiding obsession over a final solution - focus on the problem instead.

If you’re whispering sweet nothings into the ears of users/potential customers about how all of their perfectly packaged little problems will go away with some God-like stroke of a wand - you’re not building a scalable platform; you’re setting yourself up for a grueling consulting project.

That’s totally fine if you need to do that (or if you want to do that), but if you don’t deliver/veer off-course in any way? Poof, there goes your trust with them (and most likely the invoice(s) you've sent them)

You really have to make sure you’re not waterboarding your brain with too much information from others - you need the space to breathe. In other words, latitude gives you the bandwidth to build something that will “delight” your users/customers. Not being beholden to an artificial deadline is one of the greatest gifts you can have as a software team.

It's a real luxury, but the caveat? Discipline is required as an operating procedure (good thing for that first seed you planted earlier, right?)

Making promises that give your users "the moon" end up stretching your technical resources way too thin, and you lose the ability to build something that's - to quote William Gaybrick from Stripe - “surprisingly great”.

Speaking of Stripe - I think they’re one of the very few companies that’s done a world-class job at threading the needle between these two polarities. Patrick and John Collison really have built something truly special.

A really useful heuristic I heard from Jeff Weinstein (Product Manager at Stripe) to combat a situation like this is to have a user/customer give a weighting for every major feature/topic you discuss. Have them score each between 1-10 in terms of how important it is that you solve Problem X for them (highly recommend watching that video here)

If everything’s a 9 or a 10 to a potential user/customer, you’re either:

1. Not using enough intuition for what your product should have as “table stakes” (authentication, role-based access controls, etc.), or…
2. You’re most likely doing (or you will be doing) a consulting project for them.

Falling into the “Yes Man” mentality often comes from caring way too much about one big payout in favor for a steady stream of them over the course of your platform’s lifecycle.

Getting paid is great (we are, in fact, building businesses at the end of the day), but acting like a labrador-retriever puppy eating their morning kibble isn’t that great of a strategy for building SaaS with a PLG, recurring revenue model.

Trying to “wolf it down” all at once tells every stakeholder you interact with that you view every “meal” as if it’s your last one. Your motivations are driven solely by scarcity. That tends to drive people away.

Establishing this as a baseline default between you and your stakeholders just ends up producing bitterness, resentment, and anger between all parties by not having anyone’s expectations met. The purgatory of compromise isn’t purgatory at all; it’s Hell frozen over.

In other words, I defer to the dads and grandpas out there who most likely told all of us the following adage at some point in our youths:

Say what you can do, and do what you can say.

Our salesperson could’ve avoided a lot of trouble altogether by embodying my favorite proxy for “sales”, which is from Naval Ravikant:

Say something true, but in an interesting way.

You can avoid a lot of trouble just by making promises you know you have a high degree of conviction of being able to keep. Not only do you not want to put yourself in a bad position, but you also owe it to your teammates, bosses, investors, advisors, and direct reports (if you have any of those) to not put them in a kerfuffle either.

There’s always some risk attached to any promise you make. Priorities change and life finds a way of throwing you curveballs (food poisoning, delayed flights, etc.), but the smaller the discrepancy between expectations and reality, the better it is for everyone.

It might not be sexy, but it will be do-able. As Charlie Munger bluntly states:

In marriage, you shouldn’t look for someone with good looks and character. You look for someone with low expectations.

Authorship & Ownership

The equilibrium point between authorship and ownership has converged at such a place in the world today where - particularly for young, ambitious, technologically-inclined folks - a renaissance has come to life.

Opportunity is always in an abundant supply at any point for well-positioned, hard-working people - you just need to capitalize on the iteration that opens itself up to you. Become apart of it, work to contribute to it, and as long as you don’t meddle away your ticket to the upside (e.g. equity), you’ll probably do alright for yourself.

Inhaling this flavor of oxygen reminds me of the beginning stories of Disney, Stanford, Rockefeller, Ford, Vanderbilt, Carnegie, and other industrialists that I've read about - proprietors who engulfed themselves in their work and surrounded themselves with others who fanned their flames. It’s a spectacle in and of itself to learn of these accounts in the history books; and it’s another thing entirely to physically be part of something grander than yourself.

What a time to be alive!

Where the Company is Going

Passive vs. Active Thinking

A lot of armchair venture capitalists I hear nowadays are looking to bet on the next “Uber for X”; they speak in terms of “winner take all”, network effects, TAMs, short-hand revenue multiples, and a bunch of other gobbledygook as a means of arriving at an “objective valuation”. While there’s always some element of truth in a discussion as broad as the 4-5 variables I just mentioned, the problem is inherently with this way of thinking; it’s no longer contrarian (maybe it never was), it’s groupthink.

And it also inherently teaches people that valuation is objective, which is farcical at best and negligent at worse.

Being a junior member of a team that thinks this way not only sets that individual up for a career of pain and suffering (because they aren’t living in alignment with the financial imperative for how markets actually work), but it also puts optics & sales tactics above truth & fundamentals.

Market capitalization is objective - just multiply shares outstanding by price per share.

Valuation, on the other hand, is (and always will be) subjective.

At the time of this letter being published, the flavor of the month that many financiers are drooling over is AI, tariffs, and (of course) the head of the Executive Branch in the US government. In a few months from now, when their brains have their focus shifted to whatever CNBC or Bloomberg tells them is the new most important thing, hopefully it’ll be on the topics we’ve already internalized as a potential realities for what’s to happen given the probabilistic (not deterministic) nature of markets.

That’s not to say some risks aren’t risks altogether just because a large group talks about them; I think some fundamental analysts often make this miscalculation. Mileage always varies from each instance to another, and it always relates to the underlying microeconomic forces in a business (and its overall economy) + the motives for an allocation decision being initially executed, held onto on an ongoing basis, and finally (if ever) unwound from.

…but if you’re not getting excited about falling asset prices as a means of hoovering up high quality businesses at a discount to their inherent value, I’m a bit confused as to how you found this annual letter. Happy to see you’ve made it to the end, though.

I say all of this as a means of illustrating how, despite all of our technological and societal efforts, Gustave Le Bon's The Crowd remains a source of "permanent knowledge" in many ways; the psychology of crowds continues to be a hysteria to safely observe from a distance, and it's up to those of us with "write access" to position ourselves accordingly. Countercyclical's responsibility, of course, lies in giving investment research teams the tools necessary to discover the world's value - and we're looking forward to continue building tools for those with "write access" to get more insight, understanding, and conviction across all of their thematic research verticals.

Thank you, as always, for allocating your attention with Countercyclical.

See you next year.

William Leiby

Founder and Chief Executive Officer

Countercyclical