👋Hello from the home office. No housekeeping today, so let’s get right into it.

Before we get started…

This article will do a lot of looking back. And it’s easy to say all of this was obvious in hindsight.

Two things:

  1. In every annual report, companies state their future intentions (i.e. their future business plans).
  2. It’s our job as investors to assign a likelihood to those intentions. And figure out one, if they are realistic. And two, if they are realistic, why this company — and not their competitors — is in the best position to execute on those intentions.

💡The light bulb moment

I first heard the term “Apex Mountain” from The Rewatchables; a Ringer podcast. The podcast does deep dives on movies they deem “rewatchable.”

You know, those movies that suck you in when you’re flipping through channels. Movies that you can watch over and over.

They break up the podcast into different categories. Like most rewatchable scene, what’s aged the best, and is this an actor or director’s Apex Mountain? Meaning, is this their best work, the peak of their powers?

For example: Is Vince Vaughn’s Apex Mountain Old School or Wedding Crashers? I lean Wedding Crashers, but many would say Old School.

It got me thinking…

How could we apply the “Apex Mountain” framework to investing?

Most companies, whether young or mature, probably had one product that got them to where they are today. But will that same product lead their next leg up in market cap? Will it remain their Apex Mountain?

Facebook’s near miss

Facebook’s ($FB) first product was desktop based. Just a simple page. It came out when I was in college. It was so basic.

People forget now, but they didn’t pivot to mobile until right before their 2012 IPO.

As Vox correctly notes. They almost missed it.

From the article:

Facebook had mobile apps for iPhones and Android phones, but they were built using the technology known as HTML5 — a relatively new software language good for building web pages but not for building apps native to iOS and Android devices.


Facebook had universalized its code, using the same technology for all of its services instead of building apps specifically designed for each operating system. As a result, the apps were buggy, slow, and prone to crashes.

In other words, their mobile app sucked. The MAJORITY of their effort was geared toward making a great desktop experience.

But in early 2012 (they IPO’d in May 2012), Zuckerberg switched their entire strategy from desktop to mobile. Everything Facebook did going forward was mobile first.

Although they had mobile apps at the time of their IPO, they derived ZERO ad revenue from them.

From their 2012 S-1 (p. 46). Emphasis mine:

We do not currently display ads to users who access Facebook via mobile apps or our mobile website. To the extent that increasing usage of Facebook through mobile apps or our mobile website substitutes for the use of Facebook through personal computers where we do show ads, the number of ads that we deliver to users and our revenue may be negatively affected unless and until we include ads or sponsored stories on our mobile apps and mobile website.


We believe that people around the world will continue to increase their use of Facebook from mobile devices, and that some of this mobile usage has been and will continue to be a substitute for use of Facebook through personal computers.

Did you catch the last sentence?☝ They believed back in 2012 that people would increasingly access Facebook on mobile devices, instead of their desktops.

So let’s follow the breadcrumbs… Advertisers follow eyeballs👉 Eyeballs are moving from desktop to mobile👉 Currently, all of Facebook’s revenue is from desktop ads👉 If Facebook believes in the shift to mobile, they’re probably going to build an ad product for mobile? Right?

So, if you were a potential investor in Facebook and actually read their S-1, you could say two things.

  1. At the time of their IPO, their biggest product (revenue wise) was desktop ads.
  2. They believe their mobile app will increasingly steal eyeballs from their desktop product.

Knowing these two things, some sensible follow-up questions could be:

  • If they improve their mobile app, would consumers prefer it, over the desktop?
  • Could mobile potentially drive larger ad revenues than desktop?
  • Could it be their NEW Apex Mountain?

Now, it’s easy to go back and look at this in hindsight and say: “It was right there, how could anyone not see the shift to mobile?”

After all, there were no numbers that proved their shift to mobile would actually work. Those came later…

But the clues were there…

Facebook’s third Apex: Crypto?

We can say this about Facebook: First, their desktop product brought them from a college dorm room through their IPO. Second, their pivot to mobile provided the fuel that made them a top ten company.

What will their experiment with crypto turn out to be? Their new Apex Mountain? The burst they need to break $1 trillion in market cap? Or, a complete bust?

We don’t have the numbers to say one way or the other. But what if their crypto project proves to be bigger than mobile? What’s their ceiling if that happens?

Just something to chew on…

The “why now” question and Netflix’s first Apex

“Why now” is a common question VCs ask young upstarts about why the company they are trying to build makes sense NOW.

Another way of saying this — what trend in the macro environment will provide a tailwind to what you are trying to do?

A good example of this is Netflix. We all know that Netflix ($NFLX) did away with late-fees, and solved other frustrations customers had with traditional video stores.

But they also started during a very opportune time — the secular shift from VHS to DVD. In other words, they had a strong tailwind behind them.

Netflix launched in April, 1998. At launch, Netflix only had 500 titles to choose from. Why? That was nearly all the DVDs in existence at that time.

In 1999, only 5% of households owned a DVD player. In three short years, that figure jumped to 65%. The DVD was the fastest adopted consumer technology in history. During that time, Netflix exploded.

The shift to DVDs, and the incumbents unwillingness to embrace online video rentals, helped Netflix get far enough that they IPO’d in 2002.

However, it’s what happened next, that pushed them over the top.

The pivot to streaming (Netflix’s second Apex)

From 1996 to 2001, telecom companies raised $1.6 trillion from Wall Street and proceeded to jam 80 million miles of fiber optic cable throughout the United States.*

It was this cable that laid the groundwork, for not only Netflix’s shift to streaming, but the modern internet as we know today.

Netflix’s first breakout hit was House of Cards in 2013. But they were thinking about the shift from DVDs to streaming waaaaaaay back in 2004.

From their 2004 annual report:

In addition, we plan to launch Internet delivery of movies in 2005. One of the reasons the online DVD rental space has become so attractive to competitors is that it is the gateway to success in Internet delivery of movies.


Our long-term strategy has always been to seize leadership of that new market by building a large subscriber base and offering those subscribers the choice of mail or Internet delivery.

From each annual report here on out, they gradually became more aggressive when describing their future plans for streaming.

FYI: From when they first mentioned streaming in their 2004 annual report, up until February 2010, you could buy their stock for under $10 bucks.

Like I said at the beginning, everything is obvious in hindsight🤨

For six year in row, Netflix mentioned that consumers preferred getting movies and T.V. shows instantly. In fact, in their 2005 annual report, Netflix noted two hurdles that needed to clear before mass adoption of internet streaming would be realistic.

  1. The technical challenge of delivering movies over the internet.
  2. The need for more engaging content.

Two simple questions: What’s their ceiling if both problems get solved? Does streaming have a chance to become their new Apex Mountain?

Caleb here: The answer wasn’t obvious at the time (i.e. there was uncertainty). But eventually, both problems were solved.

First, bandwidth increased. Which allowed for videos and other forms of media to be streamed over the internet at ever increasing speeds.

In addition, traditional cable and satellite TV companies were caught flat-footed by the shift to OTT (over-the-top). And in the coming decade, lost millions of subscribers. In fact, the shift in consumer behavior was so drastic, that a new term was coined — “cord cutting.”

Second, Netflix pushed into original content. Their first hit was House of Cards; which premiered in February, 2013. One month prior (January), their stock broke above $20 bucks and never looked back. Today, it sits at $340.

Wrapping up

Both of Netflix’s products — first their DVD business, then their streaming business — coincided with technological breakthroughs and shifts in consumer behavior.

Some would say their timing was lucky. Maybe so, but I would say they were aggressive. And took risks incumbents wouldn’t take. Because incumbents were unwilling to cannibalize their current cash cow.

Asking better questions

The point in re-visiting history is to help us form better questions we can apply to our potential investments, today.

For example:

  • This company says they are doing this. How realistic are their intentions?
  • What is the macro environment they are currently operating in, and how might it change in a decade?
  • What are the barriers or the hurdles preventing change? What is the likelihood those barriers are overcome?
  • If they are overcome, who will benefit?
  • What is the “job-to-be-done” this company is currently solving for? What other companies are solving this problem?
  • If the new environment comes to pass, will this company be uniquely positioned to be a market leader and create a hard to replicate product or service? Whether through proprietary technology, network effects, economies of scale, branding, or some combination? If so, why?

I’m still not fully satisfied. I think we will blend this framework into others in order to get a fuller picture of a company’s potential. But this is a start.

Have any thoughts? Good or bad. Please let me know:)

Thanks for reading👍


*I sourced some of this material from How the Internet Happened: From Netscape to the iPhone by Brian McCullough. If you like history and technology, I encourage you to grab a copy.