Energy BudgetsNew

This is life history strategy in its most extreme form: All-in on reproduction, nothing on survival.

Two strategies, same species family:

• Pacific salmon (semelparous): Reproduce once, die. 100% allocation to single reproductive event.
• Atlantic salmon (iteroparous): Reproduce multiple times, survive between events. Balanced allocation across lifetime.

The principle: Every organism has a fixed energy budget. You can't maximize survival AND reproduction AND growth simultaneously. You allocate. You trade off. You choose.

The constraint: Energy is finite. Allocate 100 units to reproduction → 0 units remain for growth and survival.

This is The 100-Unit Rule: You have exactly 100 units of energy. Survival, Growth, and Reproduction compete for allocation. Biology enforces this constraint absolutely - organisms that violate it die. Markets enforce it eventually - companies that violate it collapse.

Setup: Two stream environments, 100 meters apart:

Stream A (High Predation):

• Predator: Pike cichlid (eats adult guppies)
• Guppy strategy: Mature early (60 days), reproduce young, many small offspring (3-5 per brood, frequent broods)
• Energy allocation: 60% reproduction, 30% growth, 10% maintenance

Stream B (Low Predation):

• Predator: Killifish (eats juveniles only, not adults)
• Guppy strategy: Mature late (90 days), reproduce older, fewer large offspring (1-2 per brood, infrequent broods)
• Energy allocation: 30% reproduction, 50% growth, 20% maintenance

The experiment: Reznick moved guppies from high-predation to low-predation streams.

Result: Within 5-10 generations (18 months), the transplanted guppies evolved to match the low-predation strategy - delayed maturity, larger offspring, slower reproduction.

The mechanism: Energy allocation shifted. Without adult predation pressure, investing in survival (living longer) and growth (getting larger) delivered higher lifetime reproductive success than early/frequent reproduction.

The insight: Energy allocation strategy is not fixed - it evolves based on environment. High-mortality environments favor early reproduction (might die before second chance). Low-mortality environments favor delayed reproduction (survival to reproduce multiple times).

Business parallel: Startups in volatile markets (high mortality) allocate heavily to growth (capture market before dying). Enterprises in stable markets allocate heavily to profitability (survive long-term, compound returns).

October 2022, same tree: Silence. Maybe 200 acorns total - not enough to feed one squirrel family through winter. The tree isn't dying. It's resting.

The pattern across seven years:

• Year 1: 5 kg of acorns (low)
• Year 2: 8 kg
• Year 3: 60 kg (mast year - synchronized overproduction)
• Year 4: 2 kg (recovery)
• Year 5: 6 kg
• Year 6: 10 kg
• Year 7: 55 kg (mast year repeats)

The question: Why the variation? Why not 20 kg every year?

The answer: Energy allocation trade-offs.

The strategy: Synchronized mast seeding (entire forest produces massive acorn crop simultaneously) overwhelms squirrel/deer/jay predation. Predators can't eat 60 kg per tree × 1,000 trees = 60,000 kg of acorns. Some seeds survive.

The insight: Reproduction is expensive. Allocating heavily to reproduction requires cutting survival and growth. Recovery periods are not "wasted years" - they're mandatory allocation to non-reproductive demands.

Business parallel: Companies that go all-in on growth (burn cash for market share) must eventually reallocate to profitability (survival) or collapse. Amazon 1997-2000 = mast year (Mast Year Allocation). Amazon 2001-2003 = recovery year (first profitable quarter Q4 2001).

Examples of Mast Year Recognition:

Warning: Most companies mis-identify mast years:

• False positive: "We're seeing growth, this must be mast year!" → Actually just normal growth, burn cash unnecessarily
• False negative: "Let's be conservative and save cash" → Miss actual mast year window, competitors capture market
• Continuous mast mode: "Growth is always the priority" → Never recover, die from resource depletion (2021-2022 tech crash)

Key insight: Mast years are rare (every 2-7 years for oak trees, every 3-5 years for most markets). If you think you're in a continuous mast year, you're wrong. Identify the cycle, bet big during mast year, recover between cycles.

The trade-off:

• Option A: Allocate maximum milk production to fawn (1.5 L/day, high-fat content). Fawn survival increases from 60% to 85%. Mother loses 20% body weight, enters winter weak, 40% chance of dying.
• Option B: Reduce milk production (0.8 L/day, lower-fat content). Fawn survival drops to 60%. Mother loses 10% body weight, 15% chance of dying in winter.

Traditional logic: Maximize fawn survival (Option A). Parental sacrifice for offspring.

Evolutionary logic: It depends on the mother's age.

Young mothers (2-4 years old, many breeding seasons ahead):

• Choose Option B (reduce milk, survive winter)
• Rationale: Losing one fawn but surviving to produce 8 more fawns over lifetime = 7 net fawns
• Allocation: 60% survival, 40% reproduction

Old mothers (10-12 years old, few breeding seasons remaining):

• Choose Option A (maximize milk, risk death)
• Rationale: This might be the last fawn. Better to maximize this offspring than survive to produce 1 more.
• Allocation: 40% survival, 60% reproduction

The evidence: Researchers tracked 200+ deer over 15 years. Young mothers produced smaller fawns but had higher survival rates. Old mothers produced larger fawns but had higher winter mortality.

The insight: Optimal allocation changes over lifetime. Early in life, survival matters more (future reproductive opportunities). Late in life, current reproduction matters more (no future opportunities).

Business parallel: Early-stage startups allocate to survival (extend runway, avoid death). Late-stage startups allocate to growth (last chance to capture market before exit window closes).

The answer: Because reproduction matters more than individual survival.

Disposable soma theory: Natural selection optimizes for reproductive success, not longevity. Your body (soma) is disposable - evolution only cares that you survive long enough to reproduce. After reproduction, maintenance investment declines.

Evidence:

• Pacific salmon: Zero post-reproductive survival. Die immediately after spawning.
• Mayflies: Live 1-2 days as adults (just long enough to mate and lay eggs). No digestive system (don't need to survive).
• Marsupial mice (Antechinus): Males mate for 12-14 hours continuously, then die from immune system collapse (allocated everything to reproduction, nothing to survival).

The counter-intuitive insight: Aging is not a defect. It's an allocation strategy. Evolution allocates just enough resources to survival to reach reproduction, then reallocates to reproduction itself.

Business parallel: Products age and die because companies reallocate R&D to new products. The iPhone 6 doesn't get software updates forever - Apple allocated resources to iPhone 15. The "disposable product" strategy.

The numbers:

• 1997: $148M revenue, -$31M loss (21% loss margin)
• 1998: $610M revenue, -$125M loss (20% loss margin)
• 1999: $1.64B revenue, -$720M loss (44% loss margin)
• 2000: $2.76B revenue, -$1.4B loss (51% loss margin)

The allocation:

• 0% profitability: Prices set below cost. Free shipping. No optimization for margin.
• 20% survival: Essential operations, infrastructure, customer support
• 80% growth: Market expansion (books → music → electronics → toys), warehouse buildout, technology investment, customer acquisition

Why it worked:

• Growth-first allocation succeeded: Amazon captured market leadership (books, electronics, general merchandise) before profitability mattered
• Reallocation when environment shifted: Dot-com crash (2000-2001) meant capital markets dried up. Couldn't raise more money to sustain losses. Had to reallocate.
• Survival preserved: Never allocated below minimum viable operations. Always had enough for payroll, infrastructure.

The insight: Amazon executed The Salmon Dichotomy perfectly. Pacific Salmon strategy 1997-2000 (80% growth, 0% profitability, all-in on market capture). Then shifted to Atlantic Salmon strategy 2001-2003 (balanced allocation, survive to compound). The 100-Unit Rule forced the choice - when growth consumed 100 units and capital dried up, reallocation became mandatory.

The allocation decision:

Traditional allocation logic: Protect the iPod. It's 39% of revenue, growing 75% annually. Don't cannibalize your golden goose.

Jobs's allocation logic: Kill the iPod. Reallocate everything to iPhone.

The reallocation:

• iPod R&D: $200M/year (2006) → $50M/year (2010) (75% cut)
• iPhone R&D: $150M/year (2007) → $1B+/year (2012)
• iPod marketing: Prime shelf space, flagship Apple Store placement → Demoted to corner display
• iPhone marketing: All keynote time, all marketing budget, all retail focus

The outcome:

Why it worked:

• Ruthless reallocation: Starved iPod (survival allocation only), fed iPhone (massive growth allocation)
• Accepted cannibalization: iPod sales declined by 75% (2008-2014). Jobs didn't try to save it.
• Outcome over sentiment: iPod created the company's resurgence (2001-2007). iPhone created its dominance (2007-present). Reallocated anyway.

The insight: The 100-Unit Rule is unforgiving. iPod consumed 40 units (R&D, marketing, retail). iPhone needed 80 units to succeed. Total needed: 120 units. Apple had 100. Something had to die. The oak tree sheds its leaves in winter. The deer mother lets the fawn starve to survive the season. Successful companies kill yesterday's winners to birth tomorrow's leaders. Reallocation requires killing what worked yesterday to fund what works tomorrow.

The principle: Capital flows to the highest returns, not to "fair share" or historical allocation.

The mechanism: Berkshire's business units generate cash ($20-30B annually). That cash doesn't stay with the unit that generated it. It flows to Buffett, who reallocates to wherever returns are highest.

The human reality: Imagine being GEICO's CFO in 2020. Your business generates $12 billion annually - $1 billion per month, steady as a metronome. You submit next year's budget proposal: $10B for growth (advertising, agent expansion, new markets), $2B retained for Berkshire.

Generated cash:

• Insurance (GEICO, Berkshire Hathaway Reinsurance): $12B/year
• Railroads (BNSF): $6B/year
• Utilities (Berkshire Hathaway Energy): $4B/year
• Retail (See's Candies, Nebraska Furniture Mart): $2B/year

Traditional allocation: Give each unit their cash back for reinvestment (GEICO gets $12B for marketing, BNSF gets $6B for rail expansion).

The result:

• GEICO didn't collapse from losing $8B annually - it had sufficient allocation for operations, just not growth
• Berkshire Hathaway Energy grew rapidly - renewable energy portfolio expanded
• Shareholders got $51B in buybacks - intrinsic value per share increased
• Total Berkshire value: $640B (2022), up from $550B (2020)

Why it worked:

• Ruthless reallocation: Capital flows to best returns, not to units that generated it
• Survival allocation protected: Every unit gets enough for operations, maintenance, minimum viability
• No sentimentality: GEICO is a legacy Buffett business (acquired 1996). Still lost allocation because returns declined.

The insight: Red deer mothers reallocate milk from fawns to themselves when survival matters more. Oak trees reallocate from reproduction to growth during recovery years. Buffett reallocates cash from mature businesses to high-return opportunities. The 100-Unit Rule applies equally to biology and conglomerates - total energy is fixed, allocation to highest returns is mandatory. Allocation discipline requires ignoring sunk cost, historical contribution, and emotional attachment.

The constraint:

• Promised: 500K vehicles/year production by end of 2018
• Actual: 100K vehicles/year capacity (2017)
• Required: 5× production scaling in 18 months

The allocation choice:

Option A (Prioritize Survival):

• Slow Model 3 ramp (hit 200K/year by 2018)
• Maintain cash reserves ($3B cushion)
• Preserve profitability (breakeven or small profit)
• Risk: Miss targets, lose credibility, stock collapses

Option B (Prioritize Growth):

• Aggressive Model 3 ramp (hit 500K/year by 2018)
• Burn cash reserves ($3-4B over 18 months)
• Accept losses (negative margins during ramp)
• Risk: Run out of cash, bankruptcy if targets missed

The reallocation:

• Survival: 30% → 10% (minimal cash reserves, near-bankruptcy risk)
• Growth: 60% → 85% (factory buildout, "tent" assembly line, 24/7 operations)
• Profitability: 10% → 5% (accepted losses, negative margins)

The numbers:

• Q1 2018: 9,766 Model 3s produced (weekly rate: 2,270)
• Q2 2018: 28,578 Model 3s produced (weekly rate: 5,031 - target met in final week)
• Cash burn: $1B per quarter (Q1-Q2 2018)
• Musk: Slept on factory floor, worked 100-hour weeks

The outcome:

• Q3 2018: 53,239 Model 3s produced (weekly rate: 4,300)
• Q4 2018: 61,394 Model 3s produced (weekly rate: 5,300)
• First profitable quarter: Q3 2018 ($312M profit)
• Stock price: $300 (mid-2018) → $380 (end 2018) → $1,200 (end 2021)

Why it worked:

• Growth allocation succeeded: Hit 5K/week production, unlocked profitability, established Tesla as viable automaker
• Survival allocation minimized: Risky, but calculated. Musk believed achieving production would unlock profitability before cash ran out. He was right.
• Reallocation after success: Q3 2018 shifted to profitability focus (30% allocation), reduced growth burn

Why it almost failed:

• 6 months from bankruptcy: If Q2 2018 production had failed, Tesla would have run out of cash by Q4 2018
• No margin for error: Single-point failure mode (production must succeed, no backup plan)

The insight: The Salmon Dichotomy in pure form - Tesla executed Pacific Salmon strategy. 85% growth, 10% survival, 5% profitability. All-in on reproduction (growth), minimal survival allocation, accept death risk. Worked because environment rewarded success (profitability unlocked by scale) and punished failure (bankruptcy). The 100-Unit Rule left no room for error: 85 units to growth meant only 15 units for everything else. High-risk, high-reward allocation.

The 100-Unit Rule says this: You have exactly 100 units of energy. Survival, Growth, and Profitability compete for allocation. Choose your constraint, or your constraint will choose you.

Question: How much should you allocate to survival, growth, and profitability?

Diagnosis: Balanced allocation (44% survival, 36% growth, 12% profitability) → Series A typical pattern. Leaning toward growth but maintaining survival buffer. Not Pacific Salmon (would be 15% survival, 75% growth). Not Atlantic Salmon (would be 40% survival, 20% growth, 40% profitability).

Interpretation:

• 70%+ Survival = Maintenance mode (Atlantic Salmon, optimize existing, minimal risk)
• 50-60% Survival = Conservative growth (balanced, sustainable scaling)
• 30-45% Survival = Moderate growth (Series A/B typical, proven product-market fit)
• 15-25% Survival = Aggressive growth (Pacific Salmon, bet-the-company, high risk)
• <15% Survival = Existential risk (company dies if growth bet fails)

Example:

• Current: 40% survival, 30% growth, 30% profitability (mature company allocation)
• Environment: High-mortality (new competitor entered, market window closing in 18 months)
• Required: 15% survival, 75% growth, 10% profitability
• Reallocation: Cut survival spending by 60% ($40M → $15M), cut profitability by 65% ($30M → $10M), increase growth by 150% ($30M → $75M)

The discipline: Most companies resist reallocation. They want to maintain "balanced" allocation. But biology shows balance is suboptimal - match allocation to environment.

Week 1 - Data Collection:

• Export last 12 months of P&L from accounting system (QuickBooks, Xero, NetSuite)
• List every expense line item with monthly average
• Tag each expense with category: Payroll, Infrastructure, Marketing, R&D, Support, etc.
• Create simple spreadsheet with columns: Expense, Category, Monthly $, Annual $
• Don't classify yet - just gather complete data

Week 2 - Allocation Diagnosis:

• Use classification decision tree (Step 1A above) to categorize each expense
• Mark each line item: Survival, Growth, or Profitability
• Handle ambiguous cases using the rules (Customer Success split by activity, Engineering split by project type)
• Sum totals: Calculate % for each category
• Compare to example allocation (Series A SaaS): Does your allocation match your stage?

Week 3 - Strategy Alignment:

• Diagnose your environment using Step 2 criteria
• High-mortality? (volatile market, intense competition, narrow window)
• Moderate-mortality? (growing market, established position, medium runway)
• Low-mortality? (stable market, dominant position, long runway)
• Determine required allocation based on environment
• Calculate gap: Current allocation vs. Required allocation
• Identify what must be cut and what must be increased

Week 4 - Reallocation Plan:

• Prioritize cuts: Which survival expenses can be reduced without killing company?
• Prioritize growth investments: Where does additional growth allocation go?
• Create 90-day transition plan:
• Month 1: Cancel lowest-priority projects (10-15% cut)
• Month 2: Reallocate headcount (move people from survival to growth roles)
• Month 3: Implement new allocation (full shift complete)
• Present plan to leadership/board: Show current vs. required allocation, justify changes
• Execute first cuts within 30 days

Tools to Use:

• Spreadsheet: Google Sheets, Excel, or Notion table (simplest: 3-column table with Expense, Category, Amount)
• Accounting integration: Export directly from QuickBooks, Xero, or NetSuite (avoid manual data entry)
• Visualization: Create pie chart showing Survival/Growth/Profitability percentages (makes diagnosis obvious)
• Template: Use simple P&L template with pre-built classification rules

Common Blockers:

• "We don't have clean expense categories" → Start with high-level (Payroll, Marketing, R&D). Refine later.
• "Our expenses are all ambiguous" → Use 80/20 rule. Classify obvious 80% first, split ambiguous 20% later.
• "Leadership won't approve cuts" → Show gap between current allocation and required allocation. Frame as strategic realignment, not cost-cutting.
• "Takes longer than 4 weeks" → Fine. The timeline is guideline, not requirement. Better to do it thoroughly than quickly.

Success Metric: By end of Week 4, you should have:

1. ✅ Complete expense breakdown by category (Survival/Growth/Profitability)
2. ✅ Clear diagnosis of current allocation vs. environment
3. ✅ 90-day reallocation plan with specific cuts and investments
4. ✅ Leadership buy-in to execute first wave of changes

Question: Which projects/units/initiatives should receive capital?

Algorithm:

1. Every dollar is reallocatable: No business unit "owns" the cash it generates. All cash flows to central pool.
2. Rank opportunities by expected return: Calculate IRR, payback period, risk-adjusted return for every option.
3. Allocate to top opportunities until capital exhausted: Fund in priority order (highest return first).
4. Kill projects below hurdle rate: If expected return < cost of capital (or < next-best alternative), defund.

Example:

Capital available: $30M

Buffett allocation:

• Fund Product A expansion: $10M (25% return, Rank 1)
• Fund Efficiency project: $5M (30% return, Rank 2 - even though smaller, higher return)
• Fund Geographic expansion: $15M (18% return, Rank 3)
• Total allocated: $30M
• Defund: Legacy maintenance (5% return below hurdle), New product launch (not enough capital remaining)

The key: Allocate to returns, not history. Kill low-return projects, fully fund high-return projects.

How to use this table:

Key insight: Most companies fail by mismatching stage allocation to environment:

• Series A in mature SaaS market allocating 75% to growth (should be 50-60%)
• Bootstrapped company allocating 50% to growth with no profitability (should be 25% growth, 40% profitability)
• Series C allocating 60% to growth when investors want profitability path (should be 35% growth, 30% profitability)

Question: Can you reallocate when environment changes?

Test: Simulate a crisis. What would you cut?

Scenario: Revenue drops 40% overnight. You must cut expenses by 40% within 30 days. What gets cut?

Exercise:

1. List all expenses (payroll, marketing, R&D, infrastructure, support, etc.)
2. Classify each:
• Core (company dies without this): Keep 100%
• Important (company suffers without this): Cut 50%
• Helpful (company weakens without this): Cut 75%
• Nice-to-have (company survives without this): Cut 100%
3. Calculate total cuts: Does it reach 40% reduction?
4. Identify sacred cows: What did you refuse to cut that should be cut?

If you can't cut 40%: You have no allocation flexibility. You're locked into current allocation (like trees that can't move their roots). Environment change will kill you.

If you can cut 40% and execute within 30 days: You have allocation flexibility. You can reallocate when environment shifts.

The discipline: Quarterly, run this exercise. Identify what you'd cut. If you can't cut it, ask why. If the answer is politics, not strategy, you have an allocation problem.

What it looks like:

• Burning $5M/quarter with $20M in the bank (16 months runway)
• Growing 200% year-over-year but losing money on every customer
• Hiring 50 people when you can only afford 30
• "We'll figure out profitability after we capture market share"

The math:

• Survival: 20% ($1M/quarter for essential ops)
• Growth: 100% ($5M/quarter for customer acquisition, hiring, expansion)
• Profitability: 0% (intentional losses, no path to positive unit economics)
• Total: 120% (violates The 100-Unit Rule)

Why it fails:

• The 100-Unit Rule is enforced by markets eventually: When you run out of cash and can't raise more, reallocation becomes forced (layoffs, shutdowns, fire sales)
• Capital markets aren't always open (2001, 2008, 2022 crashes)
• Competitors with better unit economics survive when capital dries up

Examples:

• WeWork 2019: $2B annual burn, $47B valuation → $9B valuation, near-bankruptcy, forced restructuring
• Pets.com 2000: Spent $11.8M on Super Bowl ad with $619K revenue/quarter → Bankrupt 9 months later
• Many 2021-2022 tech companies: Grew 300% in 2021 with 120% allocation → 2022 capital crunch forced 40-60% layoffs

How to avoid:

• Respect the 100-Unit Rule: Total allocation cannot exceed 100%
• Reality check: Can you reach profitability with current unit economics before cash runs out?
• Stress test: Run "capital markets close for 24 months" scenario - can you survive?

What it looks like:

• Executing Pacific Salmon strategy (80% growth, 0% profitability) in mature SaaS market (should be Atlantic: 35% growth, 25% profitability)
• Executing Atlantic Salmon strategy (40% survival, 25% growth, 35% profitability) during true gold rush (should be Pacific: 75% growth)
• "Everyone else is growing aggressively, so we should too" (ignoring your actual environment)

The mismatch:

Why it fails:

• Environment matters more than aspiration: You don't choose your environment (market maturity, capital availability, competitive intensity) - you adapt allocation to it
• Mismatched companies burn resources fighting wrong battle (growing aggressively in mature market = waste; being conservative in gold rush = missed opportunity)

Examples:

• Many Series B SaaS companies 2021-2022: Executed Pacific strategy (hired 100+ people, grew sales 200%) in mature market → 2023 forced to cut 40-60%, couldn't reach profitability
• Instagram 2010-2012: Executed Pacific strategy during mobile gold rush → Captured social photo market, sold for $1B. If they'd been conservative (Atlantic), they'd have been irrelevant.
• Microsoft 1990s: Executed Atlantic strategy (profitability-first, sustainable margins) during stable OS/Office dominance → Built $500B+ company through compounding

How to avoid:

• Diagnose environment first (use Framework 1 Step 2): High-mortality, moderate-mortality, or low-mortality?
• Match strategy to environment: Pacific for gold rushes, Atlantic for mature markets, adjust between
• Ignore peers blindly: "Everyone else is doing X" doesn't mean X is right for your environment

What it looks like:

• Nearly all spending goes to keeping lights on (payroll, infrastructure, support)
• Almost nothing allocated to growth (1 sales rep, no marketing budget)
• No profitability (break-even at best, small losses common)
• "We're being prudent and conservative"

The math:

• Survival: 90% ($450K/month of $500K budget)
• Growth: 5% ($25K/month - maybe 1 junior sales rep)
• Profitability: 5% ($25K/month retained earnings)
• Total: 100% (technically respects 100-Unit Rule, but wrong allocation)

Why it fails:

• Survival ≠ living: The company doesn't die immediately, but it can't grow either
• 5% growth allocation is too small to move metrics - won't hit next funding milestones
• Slow death: Can't grow fast enough to raise next round, can't cut enough to reach profitability
• The trap: Every month feels stable (paying bills, serving customers), but no progress toward survival or success

Examples:

• Many bootstrapped SaaS companies: Maintain $50K MRR for 3-5 years, founder takes $80K salary, no growth investment → Eventually plateau and stagnate
• Zombie startups: Raised seed round, achieved $500K ARR, can't grow to $2M for Series A, can't cut to profitability → Die slowly over 4-5 years

How to avoid:

• Recognize the trap early: If growth allocation <20% and not profitable, you're in starvation mode
• Force reallocation: Either cut survival to 60-70% and grow growth to 25-30%, OR cut growth to 10% and increase profitability to 30%
• Choose a strategy: You must either (1) grow fast enough for next round, OR (2) reach profitability. Doing neither = slow death.
• Time-bound decision: "We'll maintain current allocation for 6 months. If no progress toward growth or profitability, we cut 30% and reallocate."

The discipline: Quarterly allocation review. Check current vs. required. Reallocate if mismatched. Most companies die because they recognize misallocation but don't fix it fast enough.

Definition: Two fundamental allocation strategies, neither inherently better, both optimized for different environments.

Pacific Salmon Strategy (Semelparous):

• Allocation: 70-90% growth, 10-20% survival, 0-10% profitability
• Environment: High-mortality, volatile markets, narrow time windows
• Characteristics: All-in on single bet, accept high risk, aim for market dominance
• Examples: Amazon 1997-2000 (80% growth, 0% profitability), Tesla 2017-2018 (85% growth, 10% survival)
• Risk: Bankruptcy if bet fails. Success requires hitting targets before cash runs out.

Atlantic Salmon Strategy (Iteroparous):

• Allocation: 30-40% growth, 30-40% survival, 20-40% profitability
• Environment: Low-mortality, stable markets, long time horizons
• Characteristics: Balanced allocation, survive to compound, multiple growth cycles
• Examples: Berkshire Hathaway (profit-first allocation), Amazon 2003-present (balanced growth + profitability)
• Risk: Missing market windows. Slower growth than competitors in gold-rush environments.

When to Use:

• Pacific: New market opening, 12-24 month window to capture, capital available to burn
• Atlantic: Mature market, sustainable advantage, profitability enables long-term compounding

Definition: Total energy (resources) equals exactly 100 units. Survival + Growth + Profitability cannot exceed 100%.

Formula:

Total Energy = Survival + Growth + Profitability

Constraint: Total ≤ 100 units (enforced by biology absolutely, by markets eventually)

Key Principles:

1. Trade-offs are mandatory: Allocating 80 units to growth leaves only 20 units for survival + profitability
2. You cannot have 120 units: Funding growth with unsustainable burn (debt, dilution beyond reasonable levels) violates the rule → eventual collapse
3. Reallocation is strategic: When environment changes, reallocation is required (not optional)
4. Survival has a minimum: Below ~10-15% survival allocation, company dies before strategy succeeds

Diagnostic Questions:

• Where are your 100 units currently allocated?
• Does current allocation match your environment (high vs. low mortality)?
• Are you trying to allocate >100 units (unsustainable burn)?
• What would you cut if forced to reallocate 40% within 30 days?

Examples:

• Apple iPod→iPhone: Needed 120 units (iPod 40, iPhone 80). Had 100. Killed iPod to free 40 units.
• Berkshire capital allocation: $24B generated annually, reallocated to highest returns (not "fair share")
• Tesla 2018: 85 growth + 10 survival + 5 profitability = 100 units (no margin for error)

Definition: Cyclical resource strategy where massive investment (mast year) alternates with recovery periods. Used when opportunities are episodic, not continuous.

Pattern:

• Mast Year (Year 1): 80% to opportunity, 10% growth, 10% survival → Massive output, resource depletion
• Recovery Year (Year 2-3): 10% to opportunity, 50% growth, 40% survival → Rebuild reserves, restore capacity
• Repeat cycle every 2-7 years depending on environment

When to Use:

1. Cyclical market opportunities: Holiday retail (Q4 spike), tax season (H1 spike), budget cycles (annual)
2. Product launch cadence: Annual releases (Apple iPhone), multi-year development (Tesla models, pharmaceutical pipelines)
3. Capital market windows: IPO windows, SPAC booms, sector rotation in VC funding

Key Insight: Recovery periods are not "wasted years" - they're mandatory. Continuous mast-year allocation (80% to growth every year) leads to collapse. Oak trees that don't recover die. Companies that don't reallocate to survival/profitability after growth binges collapse.

Examples:

• Oak trees: 60 kg acorns Year 3 (mast), 2 kg acorns Year 4 (recovery), visible in tree rings
• Amazon: 1997-2000 mast year (losses funded by capital raises), 2001-2003 recovery (profitability focus)
• Apple product launches: Annual iPhone mast year (marketing, inventory, retail blitz), off-cycle recovery

Warning: If you can't identify your mast years vs. recovery years, you're likely in continuous mast-year mode → unsustainable → eventual resource depletion.

Step 1: What's your environment?

• High-mortality → Pacific Salmon strategy (growth-heavy)
• Low-mortality → Atlantic Salmon strategy (balanced)
• Cyclical opportunities → Mast Year Allocation (surge + recover)

Step 2: Apply The 100-Unit Rule

• Current allocation: Survival __%, Growth __%, Profitability __%
• Required allocation (based on environment): Survival __%, Growth __%, Profitability __%
• Gap: What must be cut? What must be increased?

Step 3: Execute reallocation

• Timeline: Instant (30 days) for existential threats, Staged (12-18 months) for strategic shifts
• Kill projects below hurdle rate (Buffett method)
• Accept cannibalization (Apple killing iPod for iPhone)
• Protect minimum survival allocation (10-15% minimum or company dies)

The ultimate lesson: Allocation is strategy. You can't maximize survival, growth, and profitability simultaneously. Match allocation to environment using The Salmon Dichotomy. Respect The 100-Unit Rule constraint. Use Mast Year Allocation for cyclical opportunities. Reallocate when environment shifts. Kill low-return projects. Accept trade-offs.

Chapter 4 explores: How organisms decide when to consume and when to store. How companies should allocate resources across time, not just across categories. Why Amazon's cash reserves strategy differs from Apple's. Why Berkshire holds $150B in cash while Tesla operates with minimal reserves.