Trader Joe’s is one of the most successful grocery chains in the US.
In 2008, BusinessWeek reported that the company had the highest sales per square foot of any grocer in the United States.
In 2016, Fortune magazine estimated the sales to be $1750 per sq. ft. More than 2x Whole Foods, with a much larger footprint.
And to top it off, Trader Joe’s was one of the fastest retailers to recover from the COVID-19 lockdowns in 2020. As of Oct 2020, Whole Foods traffic was down 20%-30%, but Trader Joe’s had almost fully recovered.
I work in retail too, so I was quite impressed. And intrigued. What creates such sustained leadership?
So, when I heard that Joe Coulombe’s memoir had just been published (from this tweet by Sajith Pai), I immediately got the book and dug in.
Becoming Trader Joe is about the first 30 years of the business – 1958-1987.
As I looked at all the strategic decisions that made Trader Joe’s (TJ) a retail powerhouse, one thing struck me.
There weren’t that many decisions!
Peter Thiel loves to ask, “What’s your secret?”
And boy, Trader Joe’s has a secret. And it’s hidden in plain sight.
Whether a decision is big or small, there is some overhead to making good decisions. You have to debate the choices, reflect on them, make the decision, and then follow-through to execution. Making decisions takes something out of you.
As a self-interested manager, it’s clear where you want to go – make fewer decisions, but get the same output. i.e., managerial leverage.
How do you make fewer decisions? By focusing not on tactics, but on strategy. Not on the chaos, but on the concept.
By not deciding on each specific choice you’re asked to make, but by laying out a principle for all such choices. So that your teams can make these choices on their own – you don’t need to decide on that topic again.
Now, Drucker said this about team management, not business strategy. But it applies here too.
Joe made one decision back in 1958. One simple decision. 64 years ago. And it still has ramifications today.
“I will have the highest paid employees in retail.”
This simple decision has reverberated through the years, making TJ what it is today. This one statement is the secret of Trader Joe’s success.
We think of business strategy as a series of interlocking decisions. Like the 4Ps we learned about in Marketing Strategy 101. Product, Price, Place, Promotion (sometimes there’s a fifth – People).
But far more often, it’s not that many decisions.
It’s only 1 or 2 key decisions. The rest is an iterative search through option space, to find the one configuration that fits.
Strategy is not drawing mind-maps in an ivory tower.
Instead, it’s a furious search for the magic pattern where everything just clicks.
But Minority Report is not the perfect analogy. In fact, strategy is a lot like the game of Wordle.
Unless you’ve been living under a rock, you know what Wordle is.
The aim of Wordle is to guess a five-letter word. But you don’t have to guess all five letters individually. If you’re lucky and you get one letter at the right place (i.e., it turns green), sometimes the whole word becomes easy to guess.
That’s how it was with Trader Joe’s.
One simple decision. Which drove everything that Trader Joe’s did. And created a lasting, successful retailer.
I will have the highest paid employees in retail.
But before we get into that, let’s appreciate how radical this decision was (and still is).
Grocery retailers win by keeping costs down.
The assortment across retailers is largely the same – they all carry the same mass consumer brands. They win by becoming the place for customers to shop.
wider assortments (which mean larger / more stores = high real estate costs)
better deals (= lower prices)
Ergo, you need to keep employee costs down.
But Joe went in the opposite direction!
He said he wanted to keep employee costs up. And if they weren’t high enough, well then raise them some more!
Which made all the downstream choices radically different too.
#1: It drove the choice of consumer.
If you’re going to have the highest paid employees, you need to have the highest gross profit. Which means:
You need high-margin products.
You also need high productivity on these products.
Therefore, you still need to offer great deals
Joe hit upon a target segment that ticked all the boxes: “overeducated but underpaid consumers”.
These consumers will make highly discretionary purchases, that would be more expensive. In 2022, these are the folks who buy alternative milks instead of full-fat dairy.
But because they’re underpaid, they’ll also be looking for bargains on these products.
So, if you can give them a great bargain on high margin products…
#2: It drove the choice of product assortment.
If you need to make higher margins than other retailers, you need to carry different products.
Every other supermarket in the 1960s carried the same popular brands from Procter & Gamble and other consumer majors. So, TJ went the other way – only private labels and unbranded products.
But not just any product. Only those where Trader Joe’s could offer a better quality at a lower price. While making a great margin.
Sounds hard? Well, lucky that TJ had the best employees in retail…
This was the most interesting part of the book.
Every retailer has a buying / procurement function. But Trader Joe’s made that its core differentiator. It focused on it so sharply that it cut through the noise.
In fact, TJ didn’t have a fixed assortment. It kept evolving, to ensure that this remained its core differentiator.
TJ changed its positioning 3 times in 3 decades, with focus on its core customer all through.
A. In the 60s, Trader Joe’s positioning was “Good time Charlie”.
In the 60s, California (where TJ started) had very protectionist laws around sale of alcohol. But Joe and his team read the laws with a magnifying glass, and found loopholes that others didn’t.
They hunted around to buy an old alcohol license, so they could get grand-fathered into new regulations with lower import tariffs.
And so, while other neighborhood grocery retailers couldn’t carry any alcohol, Trader Joe had the widest assortment of the best wines, at the lowest prices.
Wines for the sophisticated palate, at affordable prices (remember: overeducated but underpaid?).
B. In the 70s, “Whole Earth Harry”.
California relaxed its regulations on alcohol in the early ’70s. TJ no longer had any differentiation there. So it shifted – following its consumers – to focus on sustainability and safety.
The assortment changed:
Albacore fished on long lines instead of nets, to be cruelty-free
Cold pressed peanut oils
Phosphate free detergents
The company also introduced creative ways to nod to its consumers’ sophistication.
→ Produce with vintage printed on the box – like wine. “This corn was harvested in Spring 1975”.
→ Private labels with literary allusions – Sir Isaac Newtons, Bagels Spinoza, etc.
All to cater to this overeducated consumer target segment.
C. In the 80s, “Mac the Knife”
As other retailers caught on to the sustainability fad, it was time for TJ to change – yet again.
It went back to the roots of what it means to be a retailer.
The company outsourced everything else (I wrote about this in “Sell the Mailroom!”), and focused on its core value proposition. Buying and selling.
“All the best products, at the best prices”.
No fixed assortment. What you see today in store might not be there tomorrow. This created FOMO among all its loyal consumers.
And the P&L didn’t lie.
In those 10 years (1977-1987), the company quadrupled revenues and grew profit nearly 9 times!
#3: It drove the choice of location.
Trader Joe’s was a neighborhood grocery store, but it couldn’t be in just any neighborhood.
To have the highest paid employees in retail, you need the highest sales throughput. So only the best locations, where productivity could be high enough.
And all stores were near major institutes of learning, corporate offices, or retirement villages. Where the target segment was likely to be.
All these downstream decisions, chosen almost by default after that first decision.
But the most powerful part – the secret – was how it made Trader Joe’s unmatchable.
Without making the same choice – “I will have the highest paid employees in retail” – no other retailer could compete with Trader Joe’s.
That’s the real secret of Trader Joe’s success. That the entire strategy turns on this simple decision – you cannot beat Trader Joe’s without making this decision.
In a sense, this decision became TJ’s moat.
“Highest Paid Employees” as Trader Joe’s moat.
Whether Joe Coulombe predicted it or not, this mantra gave TJ immense defensibility. So much so that even now, 60+ years later, it’s one of the US’s most profitable retailers.
It reduced attrition. And improved customer service.
The retail industry is notorious for staff attrition. You hire someone and train them well, and then they leave.
Not at Trader Joe’s.
Folks in stores were paid as much as, or more, than people in desk jobs at HQ. So, not only did they not leave for greener pastures (there weren’t any!), they also didn’t clamor for a promotion to HQ!
And when you have low attrition:
You have low training costs
You have better customer service
It created durable consumer trust and loyalty.
By honing its buying capability, TJ created consumer trust. People who shop there know that they’re getting bargain prices, on the best products. They will not get these prices anywhere else, or at any other time.
This creates two emotions in consumers, which seem opposite to each other:
Loyalty: “I know Trader Joe’s will have the products I want, at the best prices.”
Impulse: “This product is at a great price! I better buy it now, they might not have it tomorrow!”
Now, these two advantages are great. But you can lose them over time.
If not for the most important driver of defensibility…
You get what you pay for.
By having the highest-paid employees in retail, Trader Joe’s also got the best employees in retail.
Not rule-followers, but maximizers. Not processors, but improvisors.
The first COVID lockdown in 2020 was a great illustration of this. Remember when consumers were panic buying everything? Remember the toilet paper shortage?
From the company’s podcast in May 2020 (Episode 25):
Tara (Marketing Director): Let’s go back a little bit because I want to talk about some of the things that the folks on our buying teams, very specifically, were doing during that phase of this that was really the huge impulse. Almost like a panic buy.
Matt (VP Marketing): The buying team was calm and methodical and really looking at ‘what do we need’ and ‘how can we best fill that need’. And it turns out by looking in places other than the usual places. You might see a five pound bag of rice where we previously only sold a one pound bag of rice.
Tara: I’m going to share the toilet paper story. (laughs)
I opened up my email one morning and there was an email from someone I didn’t know who was an executive at an international hotel chain saying, “Our business is down. We’re not using a lot of the things that we’ve contracted for. We have some of this, we have some of that.”
So I forwarded that email to the folks who manage our buying teams and I instantly got a message back from one of the folks on our buying teams who just said, “Toilet paper!!” with big exclamation marks at the end. Within a week and a half, we had made a deal to buy toilet paper from this large international hotel chain that suddenly didn’t have guests staying in their hotel rooms. You get to a Trader Joe’s when they have it in, because it comes and it goes and it’s, you know, it’s there and then people buy it and it’s gone. And it comes back. But we’re selling individual rolls of toilet paper that were originally intended for use in hotel rooms.
Matt: Those weren’t retail ready packages and specifically they didn’t have what’s known as a universal product code, the barcode, the UPC, so these didn’t scan at the register. And for a lot of retail businesses, that would be a make or break deal. But we figured out that, you know what, our crew is smart, they’re capable, we can figure out how to do this. We can ring it up manually. And that’s what we’ve been doing. I just love how it’s summarized in this store sign that I saw…I’ll just read the sign to you. “April break getaway canceled? Don’t worry. Now you can enjoy a hotel toilet paper experience in your own bathroom.”
When you pay top salaries, you get top people.
Sometimes, moats (and secrets) endure.
When Joe Coulombe quit TJ in 1987, he told the team that the true test of his leadership would be in the years after he left.
Coulombe was succeeded as CEO by John Shields, who was at the helm from 1987-2001.
In that time, the company expanded out of California – to Arizona, the Pacific Northwest, and the East Coast as well.
Between 1990 and 2001, Trader Joe’s quintupled its number of stores. And grew profits ten-fold!
I’d say Trader Joe Coulombe passed that test with flying colors.
One of the most common Amazon legends is the story of the Fire Phone.
It was a proud project for Jeff Bezos and Amazon. Multiple years in development, several new technologies designed to wow the consumer.
It was also dead on arrival. A colossal failure.
Within a year of launch, Amazon had discounted it to 99 cents on contract. And taken a $170M writedown on inventory.
When reporters asked Bezos about the debacle of the Fire Phone, he said:
If you think Fire Phone is a big failure, we’re working on much bigger failures right now — and I am not kidding. Some of them are going to make the Fire Phone look like a tiny little blip.”
Even the book Working Backwards explains this as a false positive of the Amazonian way.
Amazon uses the Working Backwards process as a filter to decide what to build. This process is not guaranteed to succeed. For every AWS there’s also an Amazon Fire phone.
The Fire Phone story adds to the legend of Amazon. Be bold and go where no one has gone before. Win big, or fail.
“We poured surreal amounts of money into it, yet we all thought it had no value for the customer, which was the biggest irony. Whenever anyone asked why we were doing this, the answer was, ‘Because Jeff wants it.’ No one thought the feature justified the cost to the project. No one. Absolutely no one.”
As one top product engineer put it, “Yes, there was heated debate about whether it was heading in the right direction. But at a certain point, you just think, Well, this guy has been right so many times before.”
Now, I don’t know whether Bezos had already transformed into Vin Diesel at the time…
But even if not – who could tell him he might be wrong? When he’d been right so many times before!
This is not an Amazon-only problem.
Telling your boss he’s wrong is sticky territory. He’s so confident in his view, how can you antagonize him? What if you get fired?
But there’s a more fundamental question first:
Why is your CEO so damn confident even though he’s wrong?
One of my learnings early in my career (I was in management consulting) was:
Confidence in expressing opinion ≠ confidence in opinion.
I don’t mean this as a criticism. It’s a necessary outcome of leading large teams, or working on high impact projects.
The likelihood of success of any multi-person project is dependent on two factors:
• Likelihood of everyone investing as they need to; and
• effect of organizational friction
And organizational communication is like a game of Chinese Whispers.
Source: Insivia.com
Decisive communication is paramount.
There may be uncertainty in the environment. But once a decision is made, there should be no room for uncertainty in what needs to be done next.
You might say, “In an ideal world, people would express their opinion with probability attached.” For example, “I think we should raise prices. I’m 80% sure we won’t lose any customers.”
But this isn’t an ideal world. Even if the CEO is well-calibrated (which might not be a pre-requisite for success), what of the rest of the organization?
Will they just get confused? “Oh, so he isn’t sure that raising prices is a good idea”.
No, communicating to the rank and file of an organization isn’t a time for nuance. You make the decision as best you can, and communicate it without hesitation.
“Strong opinions weakly held” is almost a cliché now. But there’s a reason for that – it’s the only way to be decisive in uncertainty.
As my friend Ankit said in a conversation we were having just today:
Leaders have to be decisive in moving forward. At some point, you need to pull the trigger with conviction. Teams need some semblance of confidence.
And here’s the thing: Despite the outward bravado and confidence…
Your CEO knows he could be wrong.
When you make a decision about the future, you’re making a prediction (duh).
You don’t know how your consumers will react. You don’t know how your competitors will react. Hell, you don’t even know how your team will react.
But you’ve still got to make the decision. You’ve got to make a judgment call.
An imperfect decision made in time is better than a perfect decision too late…
There’s a sharp line between deliberation and implementation: once a decision has been made, the mindset changes. Forget uncertainty and complexity. Act! If one wishes to attack, then one must do so with resoluteness. Half measures are out of place…
The wise officer knows the battlefield is shrouded in a “fog of uncertainty” but at least one thing must be certain: one’s own decision.
Even though your CEO communicates with confidence, he knows he could be wrong.
Just because the most senior person says something, doesn’t mean it’s right.
It is an opinion. A hypothesis. No more than that.
And an opinion can be wrong.
There’s a term for this: HiPPO, or Highest Paid Person’s Opinion. I first heard of it in Jeff Gothelf’s excellent article on the topic.
The article reminded me of an incident at one of my previous roles.
We were expanding to a new market segment, and we had a high target for the launch. 50 customers within the first 3 months.
I told my boss (the CEO) that we would need to hire a couple of people to make it happen.
He said, “No, I think you can manage it”. I nudged back a couple of times, but then took it on myself to deliver. After all, he was the CEO. He knew best.
Well, a quarter later, we missed our target.
When my boss asked me why, I told him again – it was because we were understaffed.
His next question was, “OK, why did you not then staff up?”.
Me: “Hey! You told me not to hire!”.
CEO: “Well, why did you not convince me otherwise?”
Me: <silence>
That’s when the penny dropped.
I don’t mean that he was unreasonable.
I mean: it was my job to get the decision right. If I didn’t agree with his view, it was my responsibility to push back.
If my boss makes the wrong decision and I know it’s wrong, then it’s my fault.
If my boss makes the wrong decision and I know it’s wrong, then it’s my fault.
The CEO has a hypothesis. It’s the team’s job to test and prove that this hypothesis is valid.
One more thing…
Your CEO actually wants feedback.
Imagine you make a 100 decisions a day. All without enough data, but you can’t afford to wait.
You know you could be wrong, but this is not a school exam where someone will give you clear-cut feedback.
So you consider the situation, and make what you think is the right choice. If you’ve missed something, surely someone will tell you.
But guess what, no one does. Because they assume you’re right. You’re the most senior person and you’re so confident. You must be right.
In my experience, whenever I’ve pushed back to my boss (read the next section on how to this well), I’ve gotten a thought-through answer. With an invitation to push back again, if I disagree.
Sometimes I also see relief that someone is finally disagreeing with them. (I might be imagining this bit).
A friend of mine calls it “95% confidence, 95% flexibility”. That’s the mode in which many CEOs operate.
How to tell your boss he’s wrong.
Easier said than done, you say. “Your CEO might like feedback. But my CEO is different. He says things with absolute finality. No room to disagree”.
Fair enough, let’s talk about how to give your CEO feedback.
I couldn’t begin to tell you how many tournament matches I won between the ages of twelve and fifteen against bigger, faster, more coordinated, and better-coached opponents simply by hitting balls unimaginatively back down the middle of the court in schizophrenic gales, letting the other kid play with more verve and panache, waiting for enough of his ambitious balls aimed near the lines to curve or slide via wind outside the green court and white stripe into the raw red territory that won me yet another ugly point.
It wasn’t pretty or fun to watch, and even with the Illinois wind I never could have won whole matches this way had the opponent not eventually had his small nervous breakdown, buckling under the obvious injustice of losing to a shallow-chested “pusher” because of the shitty rural courts and rotten wind that rewarded cautious automatism instead of verve and panache.
In professional tennis, Federer wins by hitting the ball accurately to the far corner. But in amateur tennis, you win simply by not hitting the ball out of bounds.
In fact, in amateur tennis, you don’t win matches. You avoid losing them.
It’s boring, yes. But that’s a feature, not a bug.
And it’s surprising how far you can go, by just following this dictum: Keep it simple.
Elizabeth Swaney participated in the 2018 Winter Olympics in freestyle skiing. She skied straight without performing any tricks that the sport is known for. And she came in dead last. That’s not the surprising part however.
The surprising part is that she had never won any skiing competition in her whole life, and yet she qualified for the Olympics!
How can one qualify for the Olympics without winning any competition at all?
Swaney did one thing better than anyone else. She showed up. She attended all of the qualifying events in the two years before the Olympics. All of them. She didn’t miss a single one. And in all of the events, she skied straight, never falling down. Many of the contestants would do tricks and swirls and jumps in the air to show their skills. And many of them would inadvertently fall. Swaney never fell once.
And that’s how, she outperformed her more skilled colleagues and got enough points to qualify for the Olympics without winning any competition. Because she never failed.
Now, this is not just an idea from sport. You’ve heard of it before…
Inversion: A surprisingly powerful idea.
One of Charlie Munger’s pet mental models is Inversion.
It’s a simple but profound idea.
To win, don’t lose.
Morgan Housel has a great paragraph about how Warren Buffett did exactly this:
There are over 2,000 books picking apart how Warren Buffett built his fortune. But none are called “This Guy Has Been Investing Consistently for Three-Quarters of a Century.”
But we know that’s the key to the majority of his success; it’s just hard to wrap your head around that math because it’s not intuitive. There are books on economic cycles, trading strategies, and sector bets. But the most powerful and important book should be called “Shut Up And Wait.”
If you take away Buffett’s top 10 bets, he would look quite mediocre. The two secrets of his success are:
Not striking out. He stays within his circle of competence, so he never risks complete ruin.
He’s been doing this consistently for 75 years
That’s what winning is mostly: not losing.
Over a 40 year career, as long as you don’t shoot yourself in the foot, you’ll win.
In a power law world, optimize for staying in the game.
In a power law world, effort ≠ outcomes.
Luck plays a big role. One big break can make all the difference.
In such situations, it’s important to stay in the game.
It’s like surfing – you need to stay in the water. You need to be patient, and lie in wait for the big wave.
It’s hot out there. You might be ready to leave in an hour. “The water’s quiet today, let’s go grab a beer.”
And just as you step out, there comes a monster wave!
That’s why…
Do what you can to stay out there.
Don’t burn out. Keep adequate runway.
Keep experimenting and trying different things – you don’t know what will click.
But don’t take existential risks. Take small risks that you can manage.
Nowhere is this truer than in the case of startups. 90% of startups fail. A tiny proportion reach steady profitability. And a much tinier proportion create life-changing wealth.
So… I’m going to give you some strange advice.
Don’t be like Elon Musk.
Elon Musk is the archetypal visionary entrepreneur. Ignore naysayers, stick to your vision, and win big.
But again, don’t be like Elon Musk!
He bet all his wealth throwing one last Hail Mary. And he did that several times. Funding one last launch for SpaceX after all the previous ones had failed. Saving Tesla from the jaws of bankruptcy.
In this universe, it all worked out and he’s the world’s richest man. But it so easily might not have worked, and he would have flamed out.
Instead, he’s selling flamethrowers.
So don’t be like Elon Musk. Be like Phil Knight instead.
In 1966, his company, Blue Ribbon Sports, was running out of cash to expand. His bank refused to give him working capital. And the only other bank in town had already rejected his application!
So he went back to work as a CPA at PwC. Plowed most of his salary back into the business to make it work.
He did this for 5 years.
First, the company stayed barely alive. But soon, some of its experiments started working.
The company still exists today, btw. You may know of it as Nike.
Quick interlude: If you like what you’re reading, don’t forget to subscribe! Many say Sunday Reads is the best email they receive all week.
Coming back to my story.
Where did we leave off?
Oh yes, me staring at a blank wall and a vanishing bank balance, wondering if this was it.
But then I asked myself, “Did you really expect that your first idea would be a hit?”
Of course not. So, the answer was clear: Do whatever we can to keep going.
So I went back to my consulting firm. Luckily I had enough trust in the system to work part-time (8-16 hours a week) on specific projects.
I put all my income back into the business. My co-founder did the same.
We pivoted the company and hired developers to build a consumer-facing app instead.
And the payoff came soon after.
We launched the product within 5 months. And within one month of launch, we had 18K users. We were onto something!
I’ve written before about what happened next. How we went from ~20K users to 200K users, with *zero* marketing spend.
My app had only 20K users. No matter what I did, that number didn't budge.
Until suddenly: I found a way to grow to 200K+ users in 1 month. With 2 devs and zero funding.
At the highest level, this is what I learned: To win, don’t lose.
In life and business, winning is not as much about spectacular victory, as it is about *not losing*.
Do the small things right and don’t die, and over a 40 year career, you’ll win big.
More specifically, I came away with three lessons:
#1. Optimize to stay in the game, in a power law world.
When luck is a big factor, you need to have as many “at-bats” as possible. So prioritize staying alive.
To win big, you need to take risks. You need to experiment. But never take the risk of ruin, no matter how small.
Don’t play Russian roulette, even if the gun has a hundred slots and just one bullet.
Take risks, but also protect yourself. When in doubt, remember the barbell strategy (I also wrote about the barbell strategy for crypto investing here).
#2. When you see an opening, swing hard!
When the big wave does come, that’s the time for action!
In late 2014, we saw an opportunity to partner with PAYBACK (India’s largest loyalty player at the time, with ~50M users). We went all-out to get the deal (including a lot of negotiation prep: Never Split the Difference is a great resource. My summary here).
We also guerrilla-ed our way into a free video endorsement from a movie celebrity. But that’s a story for another day.
#3. Keep it simple.
When you’re about to try something new in your business, ask yourself:
Is this like curving the ball into the top corner? What if I miss? Is it game over?
Or is there something simpler I can do, to keep the ball in play?
When in doubt, keep the degree of difficulty low. Make it easy.
Stack a few easy steps on top of each other, and voila! You have a 10/10 triple somersault.
PS. There are many great examples of successful entrepreneurs who kept their previous jobs when they started up.
The most fascinating is Herb Kelleher, who kept his private law practice for 14 years after starting Southwest Airlines.
Read that again – 14 years, running a frigging airline as a side hustle!
There’s been a lot of public outcry about patents for the COVID vaccine. About how the US needs to forcibly waive IP rights of the pharma companies. As the rationale goes, this will help other countries manufacture the vaccines faster, and help us defeat COVID-19.
Sorry folks, but this is a waste of time.
Yes, there are things we can do (and we are morally obligated to do) to save millions of lives. But waiving vaccine IP is – quite fundamentally – not one of those things.
The Theory of Constraints is a set of three simple statements, in a tightly connected chain of logic:
#1: Every system has one bottleneck tighter than all the others.
A limiting factor more limiting than the others. A weakest link in the chain.
#2: The performance of the system as a whole is limited by the output of this one bottleneck.
If you increase the throughput of this one bottleneck, the throughput of the entire system increases.
#3: Therefore, the only way to improve the performance of the system is to improve the output at the bottleneck.
What does this mean? It means that any improvement not at the constraint is an illusion. For the same reason there’s no way to strengthen a chain without strengthening its weakest link.
You can do your best to increase capacity of all the non-bottleneck steps. Or, when you realize there’s actually excess capacity at all these steps (by definition – when the bottleneck is at full capacity, all other steps have excess capacity) you can do your best to fill them up.
But it will make no damn difference at all.
Stated even more simply, this is the Theory of Constraints:
Any system with a goal has one limit. Worrying about anything other than that limit is a waste of resources.
So, is Vaccine IP the bottleneck to worry about?
To answer this question, we must first ask another one. “If we open-source the vaccine patents, will it increase the near-term supply of vaccines to the world?”
Unfortunately, it won’t. Because the critical constraint, the “rate limiting step”, is elsewhere.
Derek Lowe talks about the real manufacturing bottlenecks, in Waiving IP:
An obvious first problem is hardware: you need specific sorts of cell culture tanks for the adenovirus vaccines, and the right kind of filtration apparatus for both the mRNA and adenovirus ones… A good proportion of the world’s supply of such hardware is already producing the vaccines, to the best of my knowledge.
Second, you need some key consumable equipment to go along with the hardware. Cell culture bags have been a limiting step for the Novavax subunit vaccine, as have the actual filtration membranes needed for it and others. These are not in short supply because of patents, and waiving vaccine patents will not make them appear.
Third, you need some key reagents. Among others, there’s an “end-capping” enzyme that has been a supply constraint, and there are the lipids needed for the mRNA nanoparticles, for those two vaccines. Those lipids are indeed proprietary, but their synthesis is also subject to physical constraints that have nothing to do with patent rights, such as the availability of the ultimate starting materials…
Fourth, for all these processes, there is a shortage of actual people to make the tech transfer work… Moderna, for one, has said that a limiting factor in their tech-transfer efforts is that they simply do not have enough trained people to go around.
Don’t believe me? Moderna has open-sourced its patents, and committed that it won’t enforce them. So where’s my generic mRNA vaccine?
Pharma patents spell out everything you need to create the vaccine. The “recipe” is online, there are no “secrets”. Why then are China and India not producing them? Did they suddenly develop “scruples”, in the most urgent crisis of our time?
Astra Zeneca, Novavax, J&J, and others have licensed their technology to other manufacturers (albeit not for free). Why are these other players struggling to manufacture enough?
Taking one more step back: forget COVID vaccines. Why is even manufacturing of generics and other vaccines concentrated in a few countries? India manufactures 60% of all vaccines. Why do other countries not manufacture their own?
Maybe, just maybe, patents are not the constraint?
Say it with me:
Any improvement not at the constraint. Is. An. Illusion.
Raw material availability. If there’s anything we need public outcry on, it’s this. The US has been hoarding raw materials, crippling global vaccine manufacturing capacity.
Manufacturing capacity. This one will be harder to resolve in the medium-term.
Once we resolve the above manufacturing bottlenecks, a new one will likely crop up – people’s ability to pay for the vaccine.
So let’s think about that.
How do we make vaccines cheap enough for everyone?
This is not yet the constraint, but it could be once there’s enough vaccines to go around. So how do we make them accessible?
There is an economic cost to producing these vaccines. Raw materials, capital equipment, manpower, and yes, licenses too. Who bears the cost?
It’s very easy to say, “these big pharma cos are evil capitalist profiteers”. Pfizer, for instance, expects to make USD 26B in sales (not profits, mind) on the vaccines.
But the question to ask isn’t, “How are pharma cos allowed to make so much money?”
The question to ask is, “USD 26 Billion? That’s all?!”
The economic cost of COVID-19 in the US alone is USD 16.2 trillion. The Economist says the GDP impact on the world will be USD 10 trillion+. Long-term health impairment and deaths will be over and above that.
And there are tons of other risks to worry about – geopolitical, societal, etc.
So, the right question to ask is this: “If the cost of not vaccinating is 1000x the cost of vaccinating, then why aren’t governments stepping up and making vaccines free?”
“But Jitha, some governments can’t afford it!”
Red herring. What they can’t afford, is the cost of not vaccinating, which is 1000x more. But they’re paying that cost anyway.
Let me put it more bluntly. The cost of a vaccine is much lower than the cost of an oxygen concentrator. Sometimes, it is that simple a tradeoff.
Governments of the world: Stop making people and pharma cos pay for the vaccine. Do it yourself – it’s an amazing deal. The best deal you’re getting this year. Hell, it’s even better than buying bitcoin for your treasury.
Counterfactual – what if vaccine patents did eventually become the bottleneck?
I don’t think vaccine IP will become the bottleneck for the next two years at least. But let’s say I’m wrong. If it does, then does waiving the IP make sense?
A cardinal principle of economics is: Don’t silence prices in order to transfer incomes. (link)
Don’t steal the patents from pharma cos and destroy their incentives. Remember, they are among our heroes of the pandemic. They’ve developed vaccines at unbelievable speed.
I won’t even go into the logic of it.
I won’t talk about how Moderna wouldn’t even have existed as a loss-making company for so many years, investing in mRNA tech, if it weren’t for the potential returns on investment from a market system.
I won’t talk about how this incentive is all that’s needed, for pharma cos to take risks. Governments don’t have to compensate Sanofi, Merck, etc. for their failed vaccine efforts.
No, please don’t steal the patents and leave us unarmed for the next pandemic.
Instead, buy out the patents and then open them up. As Caleb Watney says in How the US can solve the global vaccine shortfall, the US government can and should buy out the patents of the pharma companies. And then open them up to the world.
Why should they do it? Again, because it’s such an amazing good deal!
Pay USD 100 billion, and save USD 16 trillion. 160x return. Really? We’re even debating this?
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The Theory of Constraints is the closest we have to a Grand Unified Theory of Management. It cuts straight to the problems that matter, be it in business or your personal life.
It’s a simple statement:
Any system with a goal has one limit. Worrying about anything other than that limit is a waste of resources.
Eli Goldratt propounded it in his 1984 book, The Goal, as a series of observations on assembly line manufacturing. But it applies to nearly everything.
Why is it so powerful?
Three Easy Pieces
The Theory of Constraints is a set of three simple statements, in a tightly connected chain of logic:
#1: Every system has one bottleneck tighter than all the others.
A limiting factor more limiting than the others. A weakest link in the chain.
#2: The performance of the system as a whole is limited by the output of this one bottleneck.
If you increase the throughput of this one bottleneck, the throughput of the entire system increases.
#3: Therefore, the only way to improve the performance of the system is to improve the output at the bottleneck.
What does this mean? It means that any improvement not at the constraint is an illusion. For the same reason there’s no way to strengthen a chain without strengthening its weakest link.
You can do your best to increase capacity of all the non-bottleneck steps. Or, when you realize there’s actually excess capacity at all these steps (by definition – when the bottleneck is at full capacity, all other steps have excess capacity) you can do your best to fill them up.
But it will make no damn difference at all.
Stated even more simply, this is the Theory of Constraints:
Any system with a goal has one limit. Worrying about anything other than that limit is a waste of resources.
So, solving any problem is a series of three simple (but not easy) steps:
Step 1: Identify the current most limiting factor.
Step 2: Identify the most obvious way to improve this limit, and implement it.
Step 3: Go back to Step 1. Because there will be a new limiting factor. There is always one limiting factor.
Why do we not do this totally obvious thing?
When your business struggles to deliver its output, or you struggle to lose weight despite all your attempts – it’s usually because of one of three reasons:
Solving the wrong limit:
You’re hiring more capacity in the sales team to get more deals. But the constraint is really in the delivery team.
In the weight loss domain: you’re cutting calories, when the issue is that you’re stressed and cortisol is wrecking havoc with your body.
Yes, sales was the constraint 6 months ago, and so you decided to hire 3 people. But it’s no longer the limiting factor after you got one person.
Once a limit is removed, doing more of it just won’t help.
As Taylor Pearson says in his article, “what got you here won’t get you there”. What gets a business off the ground is not what keeps it in the air.
Not realizing when the limiting factor has changed:
By focusing the entire team on sales proposals, guess what, delivery is suffering. So now inflow of business is no longer the limit. It’s actually servicing that business.
But you don’t realize it until 3 months from now, when the clients don’t renew.
There’s a meta-reason too.
There’s a meta-reason too, which causes us to make these errors.
Seeing something that’s hard to solve, we decide to solve something easier.
A great example of this is the classic Bike-Shed Effect, or the law of triviality.
Parkinson provides the example of a fictional committee whose job was to approve the plans for a nuclear power plant spending the majority of its time on discussions about relatively minor but easy-to-grasp issues, such as what materials to use for the staff bike shed, while neglecting the proposed design of the plant itself, which is far more important and a far more difficult and complex task.
The example is fictional. But we’ve all seen it.
Like spending a company leadership meeting discussing how to increase profits by reducing employee per diems. Instead of the real strategic choices to navigate a recession. (I’ve seen this).
Sometimes it’s almost too banal.
We start the meeting saying, “there are 4 topics to discuss today. Let’s do the easiest 3 topics quickly, and then devote some time to the thorny one”. Well, guess what, you spend 25 min on the easy topics (Parkinson’s Principle – work expands to fill the time you give to it). And then the next 5 min scheduling a follow-up to discuss the thorny issue.
OK, I’m being a little unfair. Because this stuff is HARD. We want to make progress. It boosts our self-esteem, among other things. And ticking a box “DONE” feels like progress. Even when it isn’t.
At other times, this mistake is almost invisible. It looks like more legitimate progress.
I used to run a consumer internet startup in India. An app called Smart Saver, where people could upload receipts from their grocery purchases, to get cashbacks.
During our initial days, my team and I brainstormed and built a lot of features to keep people on the app. Including both mechanisms (do xyz tasks to earn more cashback) and content (giving cashbacks for brands we hadn’t yet partnered with), etc.
But any progress on this was an illusion.
As a small app with 20K users at that time, the main constraint wasn’t retaining those 20K users. It was a constraint, yes. But it wasn’t the critical one.
The critical constraint was going from 20K → 200K users.
Any cool features we were building would solve only the less-important constraint.
But it was actually worse than that. Onboarding funnels themselves are leaky. So, any down-funnel feature would be seen only by a proportion of the users who installed the app. The rest would have dropped out of the funnel at the top! So, our cool and nifty features would be seen only by a small proportion of the miniscule 20K users we had!
We brainstorm and build cool new features for our apps, when the onboarding funnel itself is leaky. Andrew Chen calls this the next feature fallacy….
for most of a startup’s life (after Product/market fit, but before it becomes a Facebook), the top of the funnel (i.e., how you get new users) is the biggest constraint.
And any improvement not at the biggest constraint is an illusion. For the same reason there’s no way to strengthen a chain without strengthening its weakest link.
We realized this 6 months in. We started focusing our efforts solely on that critical constraint – building our user base and onboarding flow.
We did get to 300K users. And then we hit a different critical constraint, one that we couldn’t solve. Another story for another day.
Any progress not at the constraint is a trick you’re playing on yourself.
I’ve been angel investing in startups for the last 3+ years, with middling success. It was only recently (after a 10x exit, as it happens), that I realized the critical constraint. The structure of angel investing itself.
Until I solve for that (work in progress), I won’t be more successful.
Even if you’re almost psychic at picking winners, you can only pick winners among the startups you see (i.e., under your streetlight).
And in a power law world (which the world of startups certainly is), one startup makes all the difference. What if it’s one you just missed investing in? That one networking dinner you missed. That one week you were on holiday. The unicorn is just 5m away from your streetlight, but completely in the dark.
And it doesn’t end there. Even if you do find tomorrow’s billion dollar company, so will other, bigger institutional investors. And they will have no remorse muscling you out, as Paige Craig found out with Airbnb….
But let’s say you clear this hurdle as well. …What happens then?
Congratulations. You get muscled out in the next big round. This happened to me and OperatorVC.
OK then. So what do we do?
A cliche (or two) is a good place to start.
First, take a step back.
It’s important to see the larger picture. And you can’t do that when you’re busy solving a problem in some tiny nook of your system.
Next, make a list.
Step #1: Define your objective function: What is the definition of “victory” here?
This may sound trivial, but it isn’t. Far too often, you realize that you (and your team) might not be optimizing for the truly important stuff.
Step #2: Make a list of all the factors that will help you achieve this victory. Be as detailed (or not) as you want.
Important to think broad enough.
If your objective function is “Improving profitability”, just listing all the cost heads isn’t enough.
Far too often, the biggest factor driving (or constraining) profitability is revenue. There’s a limit to how much you can cut, but no limit to how much you can earn.
Similarly, the environment often plays a disproportionate role, but we ignore it. For example, the biggest constraint on your productivity is often in the environment, rather than in your process.
Step #3: Identify the most critical constraint.
This is deceptive. Sometimes the most critical constraint is obvious. At other times, it isn’t.
It helps to ask, for each of the factors listed: “If I make a 20% improvement in this element, will it drive a 20% improvement in the overall outcome?”
That’ll get you thinking. “Yes, improving the efficiency of the finishing machine will help! Oh, but wait a sec – actually then it’ll just bunch up at quality control.”
Remember – at any time, there’s always ONE constraint that’s more critical than others.
Step #4: Fix the critical constraint, and then go back to Step 3 (now there’ll be a new most critical constraint).
Start with the four big heads, and see which is a bottleneck. e.g., Let’s say it’s Personal operations. Then you dive in, and figure out which sub-head is causing the problem. And then you solve for that. Repeat.
This is also something I faced when I was trying to increase my writing throughput.
I used to feel that I’m not reading enough, and that was hampering my writing (due to inadequate source material).
But when I thought about it (and looked at my notes), I realized that I was actually reading enough. It’s just that I wasn’t processing the notes fast enough. i.e., that’s the bottleneck I need to solve for.
Therefore, now, whether or not I read any new articles / books, I reflect and write everyday.
Soon, the bottleneck might shift back to the top of the funnel. I’ll be ready.
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Never Split the Difference is one of the best books I’ve read on negotiation. Better than more theoretical books like Getting to Yes.
Written by an FBI hostage negotiator, with tons of experience negotiating in high-stakes situations.
I’ve seen numerous experiences (personal + anecdotal) of such approaches working in business negotiations as well. Whether salary negotiations with your boss or a high-pressure M&A deal, this stuff WORKS.
Rational approaches like “Principled Negotiation” (from Getting to Yes) work only in theory. In real life, need to take emotions into account.
No deal is better than a bad deal – “Never split the difference”. Compromise is often a “bad deal”. Even in a kidnapping? Yes. A bad deal in a kidnapping is where someone pays and no one comes out.
If you feel you can’t say “No” then you’ve taken yourself hostage. Once you’re clear on what your bottom line is, you have to be willing to walk away. Never be needy for a deal.
The book has three Big Ideas.
Big Idea 1: Calibrated Questioning
Give your counterpart the illusion of control, but constrain them at the same time.
Big Idea 2: Tactical Empathy
In a negotiation, listening is the cheapest, yet most effective, concession we can make.
Big Idea 3: Controlling a Negotiation
By tapping into the power of framing, loss aversion and prospect theory, you can “bend your opponent’s reality”.
Big Idea 1: Calibrated Questioning
Calibrated Questioning – the main superpower from the book.
Calibrated Questions are queries with no fixed or Yes / No answers. They give your counterpart the illusion of control, but constrain them at the same time.
Calibrated questions bring your opponent to your side.
You’ve not only implicitly asked for help—triggering goodwill and less defensiveness—but you’ve engineered a situation in which your formerly recalcitrant counterpart is now using his mental and emotional resources to overcome your challenges.
“How am I supposed to do that?”
This is the greatest-of-all-time calibrated questions: “How am I supposed to do that?”
The critical part of this approach is that you really are asking for help and your delivery must convey that. With this negotiating scheme, instead of bullying the clerk, you’re asking for their advice and giving them the illusion of control.
Calibrated questions take the aggression out of a confrontational statement – not as rigid.
Like the softening words and phrases “perhaps,” “maybe,” “I think,” and “it seems,” the calibrated open-ended question takes the aggression out of a confrontational statement or close-ended request that might otherwise anger your counterpart. What makes them work is that they are subject to interpretation by your counterpart instead of being rigidly defined. They allow you to introduce ideas and requests without sounding overbearing or pushy.
The real beauty of calibrated questions is the fact that they offer no target for attack like statements do. Calibrated questions have the power to educate your counterpart on what the problem is rather than causing conflict by telling them what the problem is.
Your tone of voice is critical as this phrase can be delivered as either an accusation or a request for assistance. So pay attention to your voice.
How to ask calibrated questions.
Ask Reporters’ questions: “How”, “What”, or sometimes “Why”.
Start with a list of words people know as reporter’s questions: “who,” “what,” “when,” “where,” “why,” and “how.”
it’s best to start with “what,” “how,” and sometimes “why.”
The only time you can use “why” successfully is when the defensiveness that is created supports the change you are trying to get them to see.
These questions could be a way of saying “No” and guiding your opponent towards a more sensible (your) solution
Don’t ask “yes / no” questions.
First off, calibrated questions avoid verbs or words like “can,” “is,” “are,” “do,” or “does.” These are closed-ended questions that can be answered with a simple “yes” or a “no.”
Examples of calibrated questions.
What about this is important to you?
How can I help to make this better for us?
How would you like me to proceed?
What is it that brought us into this situation?
How can we solve this problem?
What’s the objective? / What are we trying to accomplish here?
How am I supposed to do that?
Tactics with Calibrated Questioning.
Identify if other people hold decision power.
When implementation happens by committee, the support of that committee is key. You always have to identify and unearth their motivations, even if you haven’t yet identified each individual on that committee. That can be easy as asking a few calibrated questions, like “How does this affect the rest of your team?” or “How on board are the people not on this call?” or simply “What do your colleagues see as their main challenges in this area?”
In any negotiation you have to analyze the entire negotiation space. When other people will be affected by what is negotiated and can assert their rights or power later on, it’s just stupid to consider only the interests of those at the negotiation table.
Identify when the opposite person is lying / is hiding something.
Pay attention to their usage of pronouns
The more in love they are with “I,” “me,” and “my” the less important they are. Conversely, the harder it is to get a first person pronoun out of a negotiator’s mouth, the more important they are.
In a negotiation, smart decision makers don’t want to be cornered at the table into making a decision. They will defer to the people away from the table to keep from getting pinned down.
When someone’s tone of voice or body language does not align with the meaning of the words they say, use labels to discover the source of the incongruence. Here’s an example: You: “So we’re agreed?” Them: “Yes . . .” You: “I heard you say, ‘Yes,’ but it seemed like there was hesitation in your voice.” Them: “Oh, it’s nothing really.” You: “No, this is important, let’s make sure we get this right.” Them: “Thanks, I appreciate it.”
On average, liars use more words than truth tellers and use far more third-person pronouns. They start talking about him, her, it, one, they, and their rather than I, in order to put some distance between themselves and the lie. This is called the “Pinocchio Effect” because, just like Pinocchio’s nose, the number of words grew along with the lie. People who are lying are, understandably, more worried about being believed, so they work harder—too hard, as it were—at being believable.
“Yes” is nothing without “how” – make your opponent own the solution.
By making your counterparts articulate implementation in their own words, your carefully calibrated “How” questions will convince them that the final solution is their idea. And that’s crucial. People always make more effort to implement a solution when they think it’s theirs. That is simply human nature. That’s why negotiation is often called “the art of letting someone else have your way.”
“How will we address things if we find we’re off track?”
“How will we know we’re on track?”
Rule of three Yes’es – get them to agree thrice.
The Rule of Three is simply getting the other guy to agree to the same thing three times in the same conversation. It’s tripling the strength of whatever dynamic you’re trying to drill into at the moment. In doing so, it uncovers problems before they happen. It’s really hard to repeatedly lie or fake conviction.
The first time they agree to something or give you a commitment, that’s No. 1. For No. 2 you might label or summarize what they said so they answer, “That’s right.” And No. 3 could be a calibrated “How” or “What” question about implementation that asks them to explain what will constitute success, something like “What do we do if we get off track?”
Get your counterparts to bid against themselves – say “No” without saying it.
You can say “No” four times without saying it.
The first step in the “No” series is the old standby: “How am I supposed to do that?” You have to deliver it in a deferential way, so it becomes a request for help.
After that, some version of “Your offer is very generous, I’m sorry, that just doesn’t work for me” is an elegant second way to say “No. This well-tested response avoids making a counteroffer, and the use of “generous” nurtures your counterpart to live up to the word. The “I’m sorry” also softens the “No” and builds empathy.
Then you can use something like “I’m sorry but I’m afraid I just can’t do that.” It’s a little more direct, and the “can’t do that” does great double duty. By expressing an inability to perform, it can trigger the other side’s empathy toward you.
“I’m sorry, no” is a slightly more succinct version for the fourth “No.” If delivered gently, it barely sounds negative at all.
How to confront without being confrontational.
Use the “Late night FM DJ voice”. Deep, soft, slow, and reassuring. Downward-inflecting statements, in a downward-inflecting tone of voice. The best way to describe the late-night FM DJ’s voice is as the voice of calm and reason.
Start with “I’m sorry…”
Mirror them – their tone, their words, etc.
Silence for at least 4 seconds
Repeat
Example from the book:
“I’m sorry, two copies?” she mirrored in response, remembering not only the DJ voice, but to deliver the mirror in an inquisitive tone. The intention behind most mirrors should be “Please, help me understand.”
Every time you mirror someone, they will reword what they’ve said. They will never say it exactly the same way they said it the first time. Ask someone, “What do you mean by that?” and you’re likely to incite irritation or defensiveness. A mirror, however, will get you the clarity you want while signaling respect and concern for what the other person is.
Big Idea 2: Tactical Empathy
Tactical Empathy – the second key superpower from the book
What is Empathy?
Empathy is “the ability to recognize the perspective of a counterpart, and the vocalization of that recognition.” That’s an academic way of saying that empathy is paying attention to another human being, asking what they are feeling, and making a commitment to understanding their world.
Listening is the cheapest, yet most effective, concession we can make
Psychotherapy research shows that when individuals feel listened to, they tend to listen to themselves more carefully and to openly evaluate and clarify their own thoughts and feelings. In addition, they tend to become less defensive and oppositional and more willing to listen to other points of view, which gets them to the calm and logical place where they can be good “Getting to Yes” problem solvers.
Slow it down – use the Late night FM DJ voice.
Most people approach a negotiation so preoccupied by the arguments that support their position that they are unable to listen attentively.
The goal is to identify what your counterparts actually need (monetarily, emotionally, or otherwise) and get them feeling safe enough to talk and talk and talk some more about what they want.
Assumptions blind, hypotheses guide.
Negotiation serves two distinct, vital life functions—information gathering and behavior influencing.
In negotiation, each new psychological insight or additional piece of information revealed heralds a step forward and allows one to discard one hypothesis in favor of another. You should engage the process with a mindset of discovery. Your goal at the outset is to extract and observe as much information as possible. Which, by the way, is one of the reasons that really smart people often have trouble being negotiators—they’re so smart they think they don’t have anything to discover.
Be a mirror.
Mirroring generates trust (the Similarity Principle).
Mirroring, also called isopraxism, is essentially imitation. It’s another neurobehavior humans (and other animals) display in which we copy each other to comfort each other. It can be done with speech patterns, body language, vocabulary, tempo, and tone of voice.
It’s often as simple as repeating your counterpart’s last three / critical words.
Label your opponent’s emotions / stance.
The relationship between an emotionally intelligent negotiator and their counterpart is essentially therapeutic. It duplicates that of a psychotherapist with a patient.
Clear the road before advertising the destination
The reasons why a counterpart will not make an agreement with you are often more powerful than why they will make a deal, so focus first on clearing the barriers to agreement.
Denying barriers or negative influences gives them credence; get them into the open.
De-escalate angry confrontations by labeling. Do an accusation audit.
In court, defense lawyers do this properly by mentioning everything their client is accused of, and all the weaknesses of their case, in the opening statement. They call this technique “taking the sting out.”
The first step of doing so is listing every terrible thing your counterpart could say about you, in what I call an accusation audit.
Use labels to neutralize negatives and reinforce positives
The best way to deal with negativity is to observe it, without reaction and without judgment. Then consciously label each negative feeling and replace it with positive, compassionate, and solution-based thoughts.
Examples:
Visiting Grandpa, who’s unhappy that family doesn’t spend time with him anymore.
Instead of addressing his grumpy behavior, you acknowledge his sadness in a nonjudgmental way. You head him off before he can really get started. “We don’t see each other all that often,” you could say. “It seems like you feel like we don’t pay any attention to you and you only see us once a year, so why should you make time for us?”
“For us this is a real treat. We want to hear what you have to talk about. We want to value this time with you because we feel left out of your life.”
Students scared of role-play in negotiation class.
I say, “In case you’re worried about volunteering to role-play with me in front of the class, I want to tell you in advance . . . it’s going to be horrible.” After the laughter dies down, I then say, “And those of you who do volunteer will probably get more out of this than anyone else.” I always end up with more volunteers than I need. Now, look at what I did: I prefaced the conversation by labeling my audience’s fears; how much worse can something be than “horrible”? I defuse them and wait, letting it sink in and thereby making the unreasonable seem less forbidding.
Getting a flight change.
Watch how Ryan turns that heated exchange to his advantage. Following on the heels of an argument is a great position for a negotiator, because your counterpart is desperate for an empathetic connection. Smile, and you’re already an improvement.
“Hi, Wendy, I’m Ryan. It seems like they were pretty upset.” This labels the negative and establishes a rapport based on empathy. This in turn encourages Wendy to elaborate on her situation, words Ryan then mirrors to invite her to go further. “Yeah. They missed their connection. We’ve had a fair amount of delays because of the weather.” “The weather?” After Wendy explains how the delays in the Northeast had rippled through the system, Ryan again labels the negative and then mirrors her answer to encourage her to delve further. “It seems like it’s been a hectic day.” “There’ve been a lot of ‘irate consumers,’ you know? I mean, I get it, even though I don’t like to be yelled at. A lot of people are trying to get to Austin for the big game.” “The big game?” “UT is playing Ole Miss football and every flight into Austin has been booked solid.” “Booked solid?”
Now that the empathy has been built, she lets slip a piece of information he can use. “Yeah, all through the weekend. Though who knows how many people will make the flights. The weather’s probably going to reroute a lot of people through a lot of different places.” Here’s where Ryan finally swoops in with an ask. But notice how he acts: not assertive or coldly logical, but with empathy and labeling that acknowledges her situation and tacitly puts them in the same boat. “Well, it seems like you’ve been handling the rough day pretty well,” he says. “I was also affected by the weather delays and missed my connecting flight. It seems like this flight is likely booked solid, but with what you said, maybe someone affected by the weather might miss this connection. Is there any possibility a seat will be open?”
Rules for labeling.
1. Detect the opponent’s emotional state, from words, tone and expressions / gestures.
The trick to spotting feelings is to pay close attention to changes people undergo when they respond to external events. Most often, those events are your words. If you say, “How is the family?” and the corners of the other party’s mouth turn down even when they say it’s great, you might detect that all is not well; if their voice goes flat when a colleague is mentioned, there could be a problem between the two; and if your landlord unconsciously fidgets his feet when you mention the neighbors, it’s pretty clear that he doesn’t think much of them
2. Label it aloud.
Labels can be phrased as statements or questions. The only difference is whether you end the sentence with a downward or upward inflection. But no matter how they end, labels almost always begin with roughly the same words: It seems like . . . It sounds like . . . It looks like .
3. After throwing out a label, be silent.
Beware “Yes”, use “No” to your advantage.
Pushing hard for “Yes” doesn’t get a negotiator any closer to a win; it just angers the other side. Being pushed for “Yes” makes people defensive.
The hard sell that comes next is a scripted flowchart designed to cut off your escape routes as it funnels you down a path with no exit but “Yes.”
“Do you enjoy a nice glass of water from time to time.” “Well, yes, but . . .” “Me, too. And like me I bet you like crisp, clean water with no chemical aftertaste, like Mother Nature made it.”
“Well, yes, but . . .” Who is this guy with a fake smile in his voice, you wonder, who thinks he can trick you into buying something you don’t want? You feel your muscles tighten, your voice go defensive, and your heart rate accelerate. You feel like his prey, and you are! The last thing you want to do is say “Yes,” even when it’s the only way to answer, “Do you drink water?” Compromise and concession, even to the truth, feels like defeat. And “No,” well, “No” feels like salvation, like an oasis.
You’re tempted to use “No” when it’s blatantly untrue, just to hear its sweet sound. “No, I do not need water, carbon filtered or otherwise. I’m a camel!”
3 Kinds of “Yes”: Counterfeit, Confirmation, Commitment.
A counterfeit “yes” is one in which your counterpart plans on saying “no” but either feels “yes” is an easier escape route or just wants to disingenuously keep the conversation going to obtain more information or some other kind of edge.
A confirmation “yes” is generally innocent, a reflexive response to a black-or-white question; it’s sometimes used to lay a trap but mostly it’s just simple affirmation with no promise of action.
And a commitment “yes” is the real deal; it’s a true agreement that leads to action, a “yes” at the table that ends with a signature on the contract. The commitment “yes” is what you want, but the three types sound almost the same so you have to learn how to recognize which one is being used.
The ability to say “No” gives the listener far more power.
“No” gives you an opportunity clarify while giving your opponent a temporary oasis of control.
For good negotiators, “No” is pure gold. That negative provides a great opportunity for you and the other party to clarify what you really want by eliminating what you don’t want. “No” is a safe choice that maintains the status quo; it provides a temporary oasis of control.
“No” is protection. Great example from the book:
For years, he’d been using a traditional “Yes pattern” fund-raising script to raise money for Republican congressional candidates.
FUND-RAISER: Hello, can I speak with Mr. Smith?
MR. SMITH: Yes, this is he.
FUND-RAISER: I’m calling from the XYZ Committee, and I wanted to ask you a few important questions about your views on our economy today. Do you believe that gas prices are currently too high?
MR. SMITH: Yes, gas prices are much too high and hurting my family.
FUND-RAISER: Do you believe that the Democrats are part of the problem when it comes to high gas prices?
MR. SMITH: Yes, President Obama is a bad person
FUND-RAISER: Do you think we need change in November?
MR. SMITH: Yes, I do.
FUND-RAISER: Can you give me your credit card number so you can be a part of that change?
Needless to say, that didn’t work. So, the fund-raiser had a small group of his grassroots guys test-market a “No”-oriented script.
FUND-RAISER: Hello, can I speak with Mr. Smith?
MR. SMITH: Yes, this is he.
FUND-RAISER: I’m calling from the XYZ Committee, and I wanted to ask you a few important questions about your views on our economy today. Do you feel that if things stay the way they are, America’s best days are ahead of it?
MR. SMITH: No, things will only get worse.
FUND-RAISER: Are you going to sit and watch President Obama take the White House in November without putting up a fight?
MR. SMITH: No, I’m going to do anything I can to make sure that doesn’t happen.
FUND-RAISER: If you want do something today to make sure that doesn’t happen, you can give to XYZ Committee, which is working hard to fight for you.
It puts Mr. Smith in the driver’s seat; he’s in charge. And it works!
“No” starts the negotiation.
Jim Camp, in his excellent book, Start with NO, counsels the reader to give their adversary (his word for counterpart) permission to say “No” from the outset of a negotiation. He calls it “the right to veto.” He observes that people will fight to the death to preserve their right to say “No,” so give them that right and the negotiating environment becomes more constructive and collaborative almost immediately.
People have a need to say, “No.” So don’t just hope to hear it at some point; get them to say it early.
No “No” is no go.
“No”—or the lack thereof—also serves as a warning, the canary in the coal mine. If despite all your efforts, the other party won’t say “No,” you’re dealing with people who are indecisive or confused or who have a hidden agenda
Pause after making your offer. Then, ask solution-based questions or simply label their effect: “What about this doesn’t work for you?” “What would you need to make it work?” “It seems like there’s something here that bothers you.”
Get people to say “No”, if needed by antagonizing them.
There is a big difference between making your counterpart feel that they can say “No” and actually getting them to say it.
Sometimes, if you’re talking to somebody who is just not listening, the only way you can crack their cranium is to antagonize them into “No.”
One great way to do this is to mislabel one of the other party’s emotions or desires. You say something that you know is totally wrong, like “So it seems that you really are eager to leave your job” when they clearly want to stay. That forces them to listen and makes them comfortable correcting you by saying, “No, that’s not it. This is it.”
“No” has a lot of skills.
“No” allows the real issues to be brought forth
“No” protects people from making—and lets them correct—ineffective decisions
“No” slows things down so that people can freely embrace their decisions and the agreements they enter into
“No” helps people feel safe, secure, emotionally comfortable, and in control of their decisions
“No” moves everyone’s efforts forward.
“NO” can mean many things.
When someone tells you “No,” you need to rethink the word in one of its alternative—and much more real—meanings:
I am not yet ready to agree
You are making me feel uncomfortable
I do not understand
I don’t think I can afford it
I want something else
I need more information
I want to talk it over with someone else.
Useful tactics.
“Is this a bad time to talk?”
if you’re trying to sell something, don’t start with “Do you have a few minutes to talk?” Instead ask, “Is now a bad time to talk?” Either you get “Yes, it is a bad time” followed by a good time or a request to go away, or you get “No, it’s not” and total focus.
When someone stops responding to you, this one-line email is guaranteed to always get an answer: “Have you given up on this project?”
Get your opponent to say “That’s Right”.
Just like “No” has power, so does “That’s Right”.
Trigger a “That’s Right” with a summary.
If they say “You’re right”, nothing changes.
Tell people “you’re right” and they get a happy smile on their face and leave you alone for at least twenty-four hours. But you haven’t agreed to their position. You have used “you’re right” to get them to quit bothering you.
Example of using “That’s right” for career success.
“So it sounds like you could approve my new position no matter which division, as long as I was in headquarters and could help you communicate better with the top managers.” “That’s right,” he said. “I must admit I need your help in headquarters.” My student realized he had made a breakthrough. Not only had his ex-boss uttered those sweet words—“that’s right”—but he had revealed his true motive: he needed an ally in headquarters. “Is there any other help you need?” he asked.
Example of using “That’s right” to make a sale.
“You seem to tailor specific treatments and medications for each patient,” she said. “That’s right,” he responded. This was the breakthrough she had hoped to reach. The doctor had been skeptical and cold. But when she recognized his passion for his patients—using a summary—the walls came down. He dropped his guard, and she was able to gain his trust. Rather than pitch her product, she let him describe his treatment and procedures. With this, she learned how her medication would fit into his practice. She then paraphrased what he said about the challenges of his practice and reflected them back to him. Once the doctor signaled his trust and rapport, she could tout the attributes of her product and describe precisely how it would help him reach the outcomes he desired for his patients. He listened intently. “It might be perfect for treating a patient who has not benefited from the medication I have been prescribing,” he told her. “Let me give yours a try.”
When something doesn’t make sense, there could be a Black Swan lurking.
“Where it doesn’t make sense, there’s cents to be made.”
the moment when we’re most ready to throw our hands up and declare “They’re crazy!” is often the best moment for discovering Black Swans (unknown unknowns) that transform a negotiation. It is when we hear or see something that doesn’t make sense—something “crazy”—that a crucial fork in the road is presented: push forward, even more forcefully, into that which we initially can’t process; or take the other path, the one to guaranteed failure, in which we tell ourselves that negotiating was useless anyway.
Reasons why your counterpart may be acting “crazy”.
1. Your counterpart could be misinformed.
People operating with incomplete information appear crazy to those who have different information. Your job when faced with someone like this in a negotiation is to discover what they do not know and supply that information.
2. Your counterpart could be constrained.
Where your counterpart is acting wobbly, there exists a distinct possibility that they have things they can’t do but aren’t eager to reveal. Such constraints can make the sanest counterpart seem irrational. The other side might not be able to do something because of legal advice, or because of promises already made, or even to avoid setting a precedent.
3. Your counterpart may have other interests.
A client may put off buying your product so that their calendar year closes before the invoice hits, increasing his chance for a promotion. Or an employee might quit in the middle of a career-making project, just before bonus season, because he or she has learned that colleagues are making more money. For that employee, fairness is as much an interest as money. Whatever the specifics of the situation, these people are not acting irrationally. They are simply complying with needs and desires that you don’t yet understand, what the world looks like to them based on their own set of rules. Your job is to bring these Black Swans to light.
Black Swans are leverage multipliers in negotiations.
How to unearth Black Swans:
Get face time
Observe Unguarded Moments
Big Idea 3: Controlling a Negotiation
How to control a negotiation – “Bend their Reality”.
Discover your opponent’s emotional drivers and “bend their reality”.
Anchor their emotions in prep for a loss, and trigger loss aversion.
Tap into Framing, Loss Aversion and Prospect Theory to drive negotiations.
Take the same person, change one or two variables, and $100 can be a glorious victory or a vicious insult. Recognizing this phenomenon lets you bend reality from insult to victory.
Let me give you an example. I have this coffee mug, red and white with the Swiss flag. No chips, but used. What would you pay for it, deep down in your heart of hearts? You’re probably going to say something like $3.50.
Let’s say it’s your mug now. You’re going to sell it to me. So tell me what it’s worth. You’re probably going to say something between $5 and $7.
In both cases, it was the exact same mug. All I did was move the mug in relation to you, and I totally changed its value.
Or imagine that I offer you $20 to run a three-minute errand and get me a cup of coffee. You’re going to think to yourself that $20 for three minutes is $400 an hour. You’re going to be thrilled. What if then you find out that by getting you to run that errand I made a million dollars. You’d go from being ecstatic for making $400 an hour to being angry because you got ripped off.
Give them a stake in your success.
Once you’ve negotiated a salary, make sure to define success for your position—as well as metrics for your next raise. That’s meaningful for you and free for your boss, much like giving me a magazine cover story was for the bar association. It gets you a planned raise and, by defining your success in relation to your boss’s supervision, it leads into the next step . . . SPARK THEIR INTEREST IN YOUR SUCCESS AND GAIN AN UNOFFICIAL MENTOR
Let the other guy go first, most of the time.
The real issue is that neither side has perfect information going to the table. This often means you don’t know enough to open with confidence.
That’s especially true anytime you don’t know the market value of what you are buying or selling…. By letting them anchor you also might get lucky: I’ve experienced many negotiations when the other party’s first offer was higher than the closing figure I had in mind.
Counter-arguments are far more persuasive than arguments.
In contests of persuasion, counterarguments are typically more powerful than arguments. This superiority emerges especially when a counterclaim does more than refute a rival’s claim by showing it to be mistaken or misdirected in the particular instance, but does so instead by showing the rival communicator to be an untrustworthy source of information,
Now, of course, he may try to anchor too high or too low for you. How do you deflect an anchor when the other guy goes first?
Deflect with Calibrated Questioning to refocus your counterpart.
First, deflect the punch in a way that opens up your counterpart. Successful negotiators often say “No” in one of the many ways we’ve talked about (“How am I supposed to accept that?”) or deflect the anchor with questions like “What are we trying to accomplish here?” Responses like these are great ways to refocus your counterpart when you feel you’re being pulled into the compromise trap.
Pivot to non-monetary terms.
You can also respond to a punch-in-the-face anchor by simply pivoting to terms.
What I mean by this is that when you feel you’re being dragged into a haggle you can detour the conversation to the nonmonetary issues that make any final price work. You can do this directly by saying, in an encouraging tone of voice, “Let’s put price off to the side for a moment and talk about what would make this a good deal.” Or you could go at it more obliquely by asking, “What else would you be able to offer to make that a good price for me?”
If you’re pleasantly persistent on non-monetary terms, monetary terms may improve
Offer an unrelated surprise gift and trigger Reciprocity.
You can get your counterpart into a mood of generosity by staking an extreme anchor and then, after their inevitable first rejection, offering them a wholly unrelated surprise gift.
Introduce a dynamic called reciprocity; the other party feels the need to answer your generosity in kind. They will suddenly come up on their offer, or they’ll look to repay your kindness in the future.
Take “strategic umbrage” / anger at the proposal.
Use “Why” questions to bring them to your side.
When you want to flip a dubious counterpart to your side, ask them, “Why would you do that?” but in a way that the “that” favors you. Let me explain. If you are working to lure a client away from a competitor, you might say, “Why would you ever do business with me? Why would you ever change from your existing supplier? They’re great!” In these questions, the “Why?” coaxes your counterpart into working for you.
If you have to go first, establish a very high range based on precedents.
Use deadlines.
Whether your deadline is real and absolute or merely a line in the sand, it can trick you into believing that doing a deal now is more important than getting a good deal. Deadlines regularly make people say and do impulsive things that are against their best interests, because we all have a natural tendency to rush as a deadline approaches. What good negotiators do is force themselves to resist this urge and take advantage of it in others.
Deadlines are often arbitrary, almost always flexible, and hardly ever trigger the consequences we think—or are told—they will.
It’s not just with hostage negotiations that deadlines can play into your hands. Car dealers are prone to give you the best price near the end of the month, when their transactions are assessed. And corporate salespeople work on a quarterly basis and are most vulnerable as the quarter comes to a close.
Never hide your deadlines.
Hiding a deadline actually puts the negotiator in the worst possible position. …Hiding your deadlines dramatically increases the risk of an impasse. That’s because having a deadline pushes you to speed up your concessions, but the other side, thinking that it has time, will just hold out for more.
Hiding a deadline means you’re negotiating with yourself, and you always lose when you do so.
Find out opponent’s deadlines by seeing how specific they are.
How close we were getting to their self-imposed deadline would be indicated by how specific the threats were that they issued.
“Give us the money or your aunt is going to die” is an early stage threat, as the time isn’t specified.
Increasing specificity on threats in any type of negotiations indicates getting closer to real consequences at a real specified time.
To gauge the level of a particular threat, we’d pay attention to how many of the four questions—What? Who? When? And how?—were addressed.
When people issue threats, they consciously or subconsciously create ambiguities and loopholes they fully intend to exploit.
As the loopholes started to close as the week progressed, and did so over and over again in similar ways with different kidnappings, the pattern emerged.
When and how to use “Fair”
In the Ultimatum Game, years of experience has shown me that most accepters will invariably reject any offer that is less than half of the proposer’s money. Once you get to a quarter of the proposer’s money you can forget it and the accepters are insulted.
Most people make an irrational choice to let the dollar slip through their fingers rather than to accept a derisory offer, because the negative emotional value of unfairness outweighs the positive rational value of the money.
You may not trust Iran, but its moves are pretty clear evidence that rejecting perceived unfairness, even at substantial cost, is a powerful motivation.
Three ways to use “Fair”; only one is positive.
Using “Fair” as a judo like defensive move.
The most common use is a judo-like defensive move that destabilizes the other side. This manipulation usually takes the form of something like, “We just want what’s fair.”
Think back to the last time someone made this implicit accusation of unfairness to you, and I bet you’ll have to admit that it immediately triggered feelings of defensiveness and discomfort. These feelings are often subconscious and often lead to an irrational concession.
A friend of mine was selling her Boston home in a bust market a few years back. The offer she got was much lower than she wanted—it meant a big loss for her—and out of frustration she dropped this F-bomb on the prospective buyer. “We just want what’s fair,” she said. Emotionally rattled by the implicit accusation, the guy raised his offer immediately.
If you’re on the business end of this accusation, you need to realize that the other side might not be trying to pick your pocket; like my friend, they might just be overwhelmed by circumstance. The best response either way is to take a deep breath and restrain your desire to concede. Then say, “Okay, I apologize. Let’s stop everything and go back to where I started treating you unfairly and we’ll fix it.”
Using “Fair” as an accusation.
The second use of the F-bomb is more nefarious. In this one, your counterpart will basically accuse you of being dense or dishonest by saying, “We’ve given you a fair offer.”
If you find yourself in this situation, the best reaction is to simply mirror the “F” that has just been lobbed at you. “Fair?” you’d respond, pausing to let the word’s power do to them as it was intended to do to you. Follow that with a label: “It seems like you’re ready to provide the evidence that supports that,”
Using “Fair” as a constructive stage setter.
The last use of the F-word is my favorite because it’s positive and constructive. It sets the stage for honest and empathetic negotiation. Here’s how I use it: Early on in a negotiation, I say, “I want you to feel like you are being treated fairly at all times. So please stop me at any time if you feel I’m being unfair, and we’ll address it.”
When you talk numbers, use Odd numbers.
This signifies precision.
The biggest thing to remember is that numbers that end in 0 inevitably feel like temporary placeholders, guesstimates that you can easily be negotiated off of. But anything you throw out that sounds less rounded—say, $37,263—feels like a figure that you came to as a result of thoughtful calculation.
Leverage in Negotiation
Leverage is the ability to inflict loss and withhold gain.
If they’re talking to you, you have leverage.
Who has leverage in a kidnapping? The kidnapper or the victim’s family? Most people think the kidnapper has all the leverage. Sure, the kidnapper has something you love, but you have something they lust for. Which is more powerful? Moreover, how many buyers do the kidnappers have for the commodity they are trying to sell? What business is successful if there’s only one buyer?
The Three Types of Leverage
Negative Leverage
Negative leverage is what most civilians picture when they hear the word “leverage.” It’s a negotiator’s ability to make his counterpart suffer. And it is based on threats: you have negative leverage if you can tell your counterpart, “If you don’t fulfill your commitment/pay your bill/etc., I will destroy your reputation.” This sort of leverage gets people’s attention because of a concept we’ve discussed: loss aversion.
If you shove your negative leverage down your counterpart’s throat, it might be perceived as you taking away their autonomy. People will often sooner die than give up their autonomy. They’ll at least act irrationally and shut off the negotiation. A more subtle technique is to label your negative leverage and thereby make it clear without attacking. Sentences like “It seems like you strongly value the fact that you’ve always paid on time” or “It seems like you don’t care what position you are leaving me in” can really open up the negotiation process.
Positive Leverage
Positive leverage is quite simply your ability as a negotiator to provide—or withhold—things that your counterpart wants. Whenever the other side says, “I want . . .” as in, “I want to buy your car,” you have positive leverage.
The Consistency principle and normative leverage
Most of us have complex “consistency webs” that are interconnected at many levels of our personality. Because we like to keep these webs intact, we rationalize our actions so they appear (at least in our own eyes) to be consistent with our prior beliefs. We are also more open to persuasion when we see a proposed course of action as being consistent with a course we have already adopted.
Every person has a set of rules and a moral framework. Normative leverage is using the other party’s norms and standards to advance your position. If you can show inconsistencies between their beliefs and their actions, you have normative leverage. No one likes to look like a hypocrite.
You maximize your normative leverage when the standards, norms, and themes you assert are ones the other party views as legitimate and relevant to the resolution of your differences.
If you set up your own needs, standards, and entitlement as the only rational approaches to a negotiation, you will not inspire agreement. Instead, you will have a fight on your hands pitting your principles against the other party’s.
The best practice is therefore to anticipate the other side’s preferred standards and frame your proposal within them. If you cannot do this, prepare to argue for a special exception to his standard based on the special facts of your case. Attack his standard only as a last resort.
“Know their religion” so you can identify inconsistencies.
Use positioning themes.
People do not usually think of slogans and themes as being an important part of negotiation. But they can be vital, not only in highly visible events such as the UPS strike but also in more ordinary negotiations. Persuasive positioning of our needs and interests helps us organize our thoughts, communicate consistently, and tailor our message so the other party will be most likely to hear it. If other parties become convinced that you are committed to a consistent position, they will respect that and you will gain important normative leverage.
Beware of consistency traps.
The goal of a consistency trap is to precommit you to a seemingly innocent standard and then confront you with the logical implications of the standard in a particular case—implications that actually turn out to run against your interests.
You can learn to see a consistency trap coming if you know what to look for. The tip-off is when the trapper tries to get you to agree with some statement before telling you why the statement is important. “Would you like to save some money?” says the long distance company telemarketer. “Sure,” you reply. Snap! The trap closes. “Our records of your monthly phone usage indicate you will save more than one hundred dollars by switching to our service. How about starting to save right now?” You are logically committed to saying “yes.”
How can you defend against consistency traps? By being alert to them. When the person you are negotiating with begins asking leading questions before you know where he is going, slow the pace. Turn the tables on the trapper. Elicit as much information as possible about why these questions are important before committing to anything. If you are nevertheless pressed into agreeing to a standard, qualify it or phrase it in your own words and use the broadest possible terms, leaving ample room for interpretation later. “I believe comparable sales may be relevant to our discussions, although I am not sure just what time frame or industries we should be looking at,” you can say to the competitive negotiator. “Why don’t you show me all your data?”
If you are caught in an inconsistency, you have two choices. Either you can adjust your position to conform to the standard that you have admitted applies or you can hold your ground, admitting that you made a mistake when you agreed to the standard. This latter move will cause you to lose some face, but that may be less costly than a bad bargain.
Putting it all together: Actionable takeaways from the book.
Ackerman Bargaining Model
Set your target price (your goal)
Set your first offer at 65% of target price
Calculate three raises of decreasing increments (to 85, 95, and 100%)
Use empathy and different ways of saying “No” to get the other side to counter before you increase your offer #[[Calibrated Questioning]]
Use precise, nonround numbers
On your final number, throw in a nonmonetary item (that they probably don’t want) to show you’re at your limit.
Preparing a Negotiation One-Sheet
Section 1: The Goal of your negotiation
Think through best/worst-case scenarios but only write down a specific goal that represents the best case.
Obsessing over a BATNA turns it into your target, and thereby sets the upper limit of what you will ask for. After you’ve spent hours on a BATNA, you mentally concede everything beyond it. God knows aiming low is seductive. Self-esteem is a huge factor in negotiation, and many people set modest goals to protect it. It’s easier to claim victory when you aim low. That’s why some negotiation experts say that many people who think they have “win-win” goals really have a “wimp-win” mentality.
So know what you cannot accept and have an idea about the best-case outcome, but keep in mind that since there’s information yet to be acquired from the other side, it’s quite possible that best case might be even better than you know
“Never be so sure of what you want that you wouldn’t take something better”
Section 2: Summary of the deal that results in “That’s right”
Summarize and write out in just a couple of sentences the known facts that have led up to the negotiation.
You must be able to summarize a situation in a way that your counterpart will respond with a “That’s right.” If they don’t, you haven’t done it right.
Section 3: Prepare labels / accusation audit
Prepare three to five labels to perform an accusation audit.
Make a concise list of any accusations they might make—no matter how unfair or ridiculous they might be. Then turn each accusation into a list of no more than five labels and spend a little time role-playing.
It seems like _ is valuable to you.
It seems like you don’t like _.
It seems like you value . It seems like ___ makes it easier.
It seems like you’re reluctant to _.
Section 4: Prepare calibrated questions
Prepare three to five calibrated questions to reveal value to you and your counterpart and identify and overcome potential deal killers.
There will be a small group of “What” and “How” questions that you will find yourself using in nearly every situation. Here are a few of them: What are we trying to accomplish? How is that worthwhile? What’s the core issue here? How does that affect things? What’s the biggest challenge you face? How does this fit into what the objective is?
QUESTIONS TO IDENTIFY BEHIND-THE-TABLE DEAL KILLERS
How does this affect the rest of your team? How on board are the people not on this call? What do your colleagues see as their main challenges in this area?
QUESTIONS TO IDENTIFY AND DIFFUSE DEAL-KILLING ISSUES
What are we up against here? What is the biggest challenge you face? How does making a deal with us affect things? What happens if you do nothing? What does doing nothing cost you? How does making this deal resonate with what your company prides itself on?
Section 5: Non-Cash offers
Prepare a list of noncash items possessed by your counterpart that would be valuable.
Ask yourself: “What could they give that would almost get us to do it for free?”
Great example from the book, of applying these learnings.
Back in Haiti, a few hours after the kidnappers had snatched his aunt, I was on the phone with the politician’s nephew. There was no way their family could come up with $150,000, he told me, but they could pay between $50,000 and $85,000. But since learning that the ransom was just party money, I was aiming much lower: $5,000. We were not going to compromise. It was a matter of professional pride.
I advised him to start off by anchoring the conversation in the idea that he didn’t have the money, but to do so without saying “No” so as not to hit their pride head-on. “How am I supposed to do that?” he asked in the next call. The kidnapper made another general threat against the aunt and again demanded the cash. That’s when I had the nephew subtly question the kidnapper’s fairness. “I’m sorry,” the nephew responded, “but how are we supposed to pay if you’re going to hurt her?” That brought up the aunt’s death, which was the thing the kidnappers most wanted to avoid. They needed to keep her unharmed if they hoped to get any money. They were commodity traders, after all.
Notice that to this point the nephew hadn’t named a price. This game of attrition finally pushed the kidnappers to name a number first. Without prodding, they dropped to $50,000. Now that the kidnappers’ reality had been bent to a smaller number, my colleagues and I told the nephew to stand his ground. “How can I come up with that kind of money?” we told him to ask. Again, the kidnapper dropped his demand, to $25,000.
Now that we had him in our sights, we had the nephew make his first offer, an extreme low anchor of $3,000. The line went silent and the nephew began to sweat profusely, but we told him to hold tight. This always happened at the moment the kidnapper’s economic reality got totally rearranged.
When he spoke again, the kidnapper seemed shell-shocked. But he went on. His next offer was lower, $10,000. Then we had the nephew answer with a strange number that seemed to come from deep calculation of what his aunt’s life was worth: $4,751. His new price? $7,500.
In response, we had the cousin “spontaneously” say he’d throw in a new portable CD stereo and repeated the $4,751. The kidnappers, who didn’t really want the CD stereo felt there was no more money to be had, said yes. (linked to Ackerman Bargaining Model).
I woke up Friday morning to see this video trending on Twitter.
I thought it was quite epic. Fortnite mocking Apple with a parody of its own iconic Super Bowl commercial from 1984. (See original below if you haven’t).
Now, I don’t play Fortnite, but I have been following the ongoing war (if only of words, until this week) between Epic Games (the maker of Fortnite) and Apple.
But when the two players took it up a few notches this week (Apple banned Fortnite on the App Store; Epic released the video above, and also started a lawsuit and a PR campaign against Apple), my first thought was: “Such an interesting move!”
Because that’s what this is – one move, in an ongoing battle of wits between the two players.
And like all games, it can be analyzed, to predict the outcome.
But first, an overview of the game board.
If you’re already familiar with Fortnite and the ongoing saga, feel free to skip this section.
But if, like me, you haven’t played Fortnite and are wondering what the fuss is about, read on.
Fortnite is an online video game developed by Epic Games. It’s quite new – launched only in 2017. But it has been a gargantuan success – in just 3 years, it has amassed 350 million users (as of April 2020).
Beyond being just a game, it also doubles up as a virtual world for people to interact. Think Second Life, only much better. Think Metaverse, if you’ve read Snow Crash. Or the Oasis from the movie Ready Player One.
Like most games, it has a mobile app for iPhone and Android. And like all mobile games, it has to pay Apple and Google a cut (30%) on all in-app purchases.
In Fortnite, players can buy skins, “costumes”, or virtual currency called V-bucks (1000 V-bucks for $9.99) for use in the game. This is a substantial source of revenue for Epic Games. Fortnite brought in USD 1.8 Billion in revenuein 2019. Of course it pinches to give Apple 30% on all purchases.
Epic has tried to push Apple to waive this fee for Fortnite in the past, but Apple has stayed firm.
So, this week, Epic snuck in an update in its mobile app, allowing users to purchase V-bucks directly from the company, side-stepping the App Store’s 30% commission. Something Apple prohibits developers from doing.
And so, to nobody’s surprise, Apple banned the app.
And Epic immediately released the video above, announced an anti-trust lawsuit, and started a social media and PR campaign.
And by the way, Epic planned this from the start [1].
1. Server-side secret update 2. Radio silence 3. App gets yanked 4. Start marketing a parody 5. File prepped legal suits 6. Release live event 7. Begin social campaign
I know what you’re thinking. Why would Epic voluntarily get its app banned from the App Store, losing millions of users?
It all makes sense, I promise.
But for that, you need to understand the two players.
Player 1: Epic Games
Epic Games has been going at Apple for a while, regarding the App Store monopoly.
See here, for instance, Tim Sweeney (CEO of Epic Games) comparing Apple to the DMV.
There is a weird dichotomy in this company. On one hand, it’s a trillion dollar monopoly that exercises absolute power over developers’ businesses and livelihood. On the other, Apple has become the App DMV, replete with forms, lines, byzantine policies, and bureaucracy. pic.twitter.com/p713UTM699
Tencent owns 40% of Epic Games. Having a Chinese company as a significant owner is not an amazing situation to be in, in the US today.
To learn more about Epic Games and its strategy, check out Matthew Ball’s epic (well) six-part primer.
Player 2: Apple
Apple has significant share of the mobile phone market in the US (~60% of mobile phones in the US are iPhones).
It’s embroiled in an anti-trust battle with the US government.
It has a history of arm-twisting and bullying smaller companies. For instance, if your company’s logo is a fruit, even if it’s not an apple, Apple can make your dreams go pear-shaped.
Epic is not the first company at loggerheads with Apple regarding the 30% commission. Netflix and Spotify, among others, have stopped selling subscriptions on the App Store altogether. You can use Spotify and Netflix on iPhones. But if you want to pay for them, you have to visit their websites.
OKAY. Enough talk, let’s get on with the game.
The game begins. Ready Player Two.
Apple has pre-committed to removing an app from the App Store if it tries to bypass its rules. No matter how important the app is.
Given this pre-commitment, Apple had no choice when Epic tried to bypass it with its “sneaky” update.
In a sense, Epic forced Apple’s hand by doing this. It forced Apple to appear aggressive by banning its app. Even though it was the only move Apple could plausibly make.
Epic was already engaged in a PR battle with Apple (accompanied no doubt by closed-door negotiations). Apple wasn’t budging.
Epic could have continued the battle of attrition. But instead, by forcing Apple to carry out its threat, it has constrained the gamespace.
It has made it much harder for Apple to now offer only a symbolic olive branch.
But again, why would Epic want to get its app banned, losing millions of users?
Fact is, as Peter Rojas says in this interview, this is not a exorbitantly expensive threat for Epic to make. Only 20% of Fortnite players are primarily on mobile.
And this number is likely to grow over time, making it harder for Epic to take this approach in the future.
Ergo, the best time to do this was yesterday. The second best time is NOW.
Like Denzel Washington says,
Game Theory Sidebar 1:
Threats and commitments are important tools in strategic games and negotiations.
To quote Thomas Schelling in The Strategy of Conflict [2]: “The sophisticated negotiator may find it difficult to seem as obstinate as a truly obstinate man. Deterrence won’t work for the truly obstinate.
It’s very easy to keep demanding during a negotiation, because you (a) will always accept less, than not having a deal, and (b) you can always retreat if they don’t accept. But the other side knows this too, so it’s an impasse.
If a man comes to your porch and says he’ll stab himself if you don’t give him $10, you’re more likely to listen if his eyes are bloodshot.“
“Bargaining power = the power to bind oneself”.
“It’s a voluntary but irreversible sacrifice of freedom of choice, to signal that you can’t retreat from a certain ask.”
“If you commit to a path of action, the opposite party has lost all leverage”
Epic just stole Apple’s lunch. And leverage.
The Middle Game
Epic is trying to rally developers to its side. It’s trying to paint the battle as a David vs. Goliath struggle. The meek, tiny developer taking on the formidable bully.
But it’s unlikely to work, for two reasons:
Epic is a huge company itself (valued at USD 17 billion), backed by Tencent, a USD 600 billion behemoth. This is like Godzilla fighting King Kong. We don’t care, except the fast-paced action is fun to watch.
Small developers might actually prefer the App Store [3], because it gives them a semblance of a level playing field. Consumers trust all apps on the App Store, because they know Apple has vetted and approved them. So, even if you’re a small developer, customers don’t worry about giving you their credit card details. Trust is important!
Epic will no doubt also play up the anti-trust / monopoly angle.
It will ask, “Should one company have so much control on mobile users’ choices?” This line of attack has more promise, as we’ll see in the end game.
Apple, for its part, is trying to tell consumers it’s no big deal (it is).
Before we go to the endgame, a quick interlude.
Game Theory Sidebar 2:
Quoting again from The Strategy of Conflict:
In a negotiation, if you ask for 60% and then go down to 50%, you will be expected to dig your heels in. And so the counter-party will push less. If you say 47%, they’ll assume that you can give up more and will push until you find another persuasive new boundary.
In war, similarly, one cannot satisfy an aggressor by letting him have a few square miles on this side of a boundary. He knows that we both know that we both expect our side to retreat until we find some persuasive new boundary that can be rationalized.
That’s also why “just one more drink” is a very unstable compromise.
Some outcomes have intrinsic magnetism. Outcomes that are prominent, unique, simple, or have a precedent / logic, drive agreement towards them. Often, this eventual compromise point can be predicted in advance.
For example, in a price negotiation: rounding down, splitting the difference, etc. are explicit expectations of counter-offer. And you often have no choice but to follow this drill. Even if you had strong prior reasons to quote 51.5% as your first offer.
These focal points / likely outcomes are called “schelling points”.
Framing the situation in a way that coordinates expectations of the opposite party towards your favored outcome – this schelling point – can multiply the probability of success.
So what’s the “schelling point” of this battle between Apple and Epic Games? Let’s see in the end game.
The End Game
I see three possible outcomes from this impasse.
Outcome 1: Apple gives in and waives the commission for certain in-app purchases.
There is a sort of precedent for this.
McDonald’s doesn’t pay a commission on every in-app purchase of food. Neither does Uber, on every ride booked through the app.
But there’s an important distinction. Food purchases and cab rides have a very real marginal cost of fulfillment.
What about virtual currencies? Not so much. 1000 V-bucks on Fortnite cost Epic exactly zero real bucks to make.
And this is an outcome Apple really does not want.
If they allow this once, the floodgates will open. Every app will move to an in-app purchase model, and frame it in exactly the same way as Epic Games has.
And even Apple accepts this as a special deal with Epic Games, it sets a dangerous precedent. Because Microsoft xCloud and Google Stadia (cloud gaming services) will come next.
No, this is not a hill that Apple wants to die on.
Luckily for Apple, this is also not a position Epic games can defend.
As Ben Evans says,
Apple is actually on vastly stronger ground pulling fortnight than it would be for Spotify or kindle. Apple doesn’t have a competing product to point to and unlike Spotify, epic doesn’t have marginal cost. There’s no reason it can’t pay – it just doesn’t want to
Moreover, the App store is not all eye-gouging profiteering. It does provide a service, and that does costs money.
Users like it – it allows them to trust new apps from unknown developers.
Developers like it too, for the same reason. It gives them a level playing field.
Putting it all together:
Probability of Outcome 1: 10%.
Outcome 2: Apple reduces its commission and everyone wins.
Again, this makes sense at a high level.
Apple’s 30% has no basis in logic. Steve Jobs chose 30% because it was the same as iTunes.
What! Let’s get this straight. In 2003, iTunes decided to charge artists 30% of individual song sales. That’s the only reason why the totally unrelated App Store charges 30% for apps!
There is clearly room to go down. And push comes to shove, Apple would be ready to reduce the commission. After all, it already has different slabs of commission for different kinds of products.
Maybe it can reduce it to a new schelling point. 25%? 20%?
However, this is not what Epic wants. They want to pay zero percent commission to Apple.
To Epic, the stand is philosophical. And while this may be a coincidence – it’s also more lucrative ?.
Today, mobile accounts for only 20% of Fortnite users. Epic can afford to reject any sweeteners and fight for the grand prize. Better to fight now, rather than laterwhen the downside of a ban is higher.
And there’s an even grander prize waiting. Epic has its own app store (not allowed on iOS yet), where it charges other games a commission of 12%. Seeing how successful Apple’s App Store is, that’s a lucrative business to be in.
So yes, a commission reduction will happen. Apple will make a peace offering. It may even lead to a tenuous peace.
But it won’t end the negotiations. Epic will hold out for Outcome 3.
Probability of Outcome 2: 30%.
Outcome 3: Apple allows other app stores.
This is what the App Store is, to iPhone users. The only bridge crossing into town.
A user cannot download an app to the iPhone from outside the App Store. Android has alternate app stores and also allows you to directly install apps. iPhone does not.
The analogy of the toll bridge is one that trust-busters and anti-monopolists like to use. It came up in antitrust investigations when Buffett acquired the Buffalo Evening News in 1977. And it will come up for Apple.
This is where Apple’s position is weakest, and this is where Epic is hitting it.
As M. G. Siegler says in “The App Store Commandments“, maintaining an “only bridge to the iPhone” approach made sense in 2010. But it’s not acceptable anymore.
This is what Epic is gunning for. Breaking the Apple App Store’s monopoly on the iPhone, and introducing its own Epic app store.
Epic could have held out for a reduction in fees (Outcome 2). It could have negotiated a win-win closed door deal (Outcome 1). But no.
By forcing Apple to ban its app, Epic has bent reality through a new focal point – the inability to reach users if Apple aggressively bans an app.
This then, is the long-term schelling point – alternate app stores for iPhone.
It may take one year. It may take two. It will be fought hotly by Apple, before it capitulates.
All it’ll take is one bad Congressional anti-trust hearing. And then, Apple will look at Android. It’ll see that even though Google allows other app stores, its Play Store still accounts for a huge majority of Android app downloads[4].
It will reason that developers will still prefer the Apple App Store, if only because there will be much fewer users on other app stores.
Probability of Outcome 3: 60%.
And that’s how Apple will finally get a second app store. And a third. And a fourth.
All it takes is one big bite.
Hope you liked the article. If you’d like to receive more such articles directly in your inbox, don’t forget to subscribe to Sunday Reads!
Great book on handling difficult / “crucial” conversations. Whether in relationships or at the workplace.
If you don’t do well in confrontation or “crucial conversations” – either because you don’t like conflict, or it gets too heated to achieve what you want – this is a great book to read.
To get more such book summaries every week, along with other great reads on startups, business, and tech, don’t forget to sign up below.
What is a Crucial Conversation?
A “crucial conversation” is one with three characteristics.
Opinions vary
Stakes are high
Emotions run strong
In such conversations, it’s important to keep the dialogue going. The dialogue is a way to expand the “shared pool of meaning”. Need to encourage everyone to share their context, so everyone has the same information and the best decisions are made.
There are 7 steps to handle a crucial conversation successfully.
Step 1: Start with heart
Stay focused on what you really want from the conversation.
In crucial conversations, always keep the end goal in mind. Refocus on it, instead of on winning the argument.
Then ask “how would I behave if I really wanted these results?”. “How can I get what I want and ensure I avoid what I don’t want?”.
Reject the fool’s choice – it’s not a zero sum game. Ask “how can we both win”.
Step 2: Learn to look
Identify when Psychological Safety is at risk.
Psychological safety is key to a healthy dialogue (free flow of information).
If safety reduces, people start fighting (forcing meaning into the pool) or keeping quiet (withholding meaning from the pool). It’s then time to restore safety, not respond in kind.
Learn to identify when conversations turn crucial or you move away from healthy dialogue (i.e., when safety is at risk).
Step back from the content and notice the conditions of the argument.
Giving the brain this complex problem has added advantage of reducing stress response.
Notice physical, emotional, or behavioral signs a conversation has turned crucial.
Notice physical (stomach gets tight, eyes get dry), emotional (are you reacting angrily or suppressing your feelings), or behavioral (raising your voice, pointing a finger, becoming unusually quiet) signs a conversation has turned crucial.
Silence / withholding meaning from the pool: masking (sarcasm, sugar coating), avoiding, withdrawing.
Violence / forcing meaning into the pool: controlling, labelling, attacking.
Step 3: Make it safe
Step out of the content to restore psychological safety, when you see a conversation becoming unsafe.
For a conversation to be safe, need to ensure Mutual Purpose (the Entrance condition – do you both feel that you want the same thing) and Mutual Respect (the Continuation condition – focus on the similarity between you rather than differences, to ensure that you respect the counterpart).
Create a Mutual Purpose if none exists, using CRIB – Commit, Recognize, Invent, Brainstorm.
Commit to finding a mutual purpose
Recognize the purpose behind both parties’ strategies
Invent a mutual purpose if it doesn’t exist
Brainstorm strategies to meet the mutual purpose
Create Mutual Respect
Use Don’t / Do statements to highlight what you don’t want, and what you do want from the conversation. These help clarify what your objective is from the conversation, and more importantly, what it is not. It adds more meaning and context to the conversation, helping get on the same page.
Apologize if you made a mistake.
Step 4: Master my stories
How to stay in dialogue even when angry, scared, hurt.
Realize: When you notice something and you act, between the two, you are telling yourself a story and feeling the resulting emotions.
4-step implicit process: See & Hear → Tell a story → Feel emotions → Act.
When see yourself reacting with silence or violence, pause and ask:
Am I reacting with silence or violence? Why – What emotions are leading me to this?
What story is leading me to these emotions?
Do I have evidence to support this story?
Avoid the three clever stories:
Victim story – Remember: you are not blameless. You are contributing to the problem in some way. Make yourself an actor – “What role have I played in this problem that I am ignoring?”.
Villain story – The opposite person is not evil. Make them a human, and push yourself to take the Most Respectful Interpretation – “Why would a decent, rational and reasonable person feel this way in this situation?”.
Helpless story – You’re also not helpless. Make yourself able – “what do I want in this situation? If I really want these results, what would I do right now? Why would a reasonable, rational and decent person do this?
A lot of discussion on startup and business strategy ultimately comes down to one single piece of advice.
“Build a moat”.
Yes, increasing margins is important. Yes, solving distribution is critical. But before you do all that, you need to build a “moat”.
What’s a moat? Like medieval castles, a moat for your business protects you from competitors and substitutes. It gives you market power, so you can focus on growth, profitability, and all the good stuff.
For many investors, it is the most important thing.
The presentation has some great examples of companies that succeeded with relentless focus on speed.
Stylus Innovation – $13M exit in two years.
Direct Hit – $500M exit in 500 days.
Xfire – $110M in 2 years.
The presentation also has some concrete tips on how you can be faster. Whether it’s fundraising, hiring, employee onboarding, or business development, you can be much faster.
[As you think of ways to speed up, it also helps to remember, your Minimum Viable Product can be more minimum than you think.]
We’re running at top speed here. Can’t go any faster!
Sometimes, you think it’s impossible for your organization to be any faster than it already is. If you go any faster, you’re sure things will break.
At such times, check out Patrick Collison’s list of examples of unbelievable speed. It’s called… Fast.
Some examples from the article:
The Eiffel Tower was built in 793 days.
On August 9 1968, NASA decided that Apollo 8 should go to the moon. It launched on December 21 1968, 134 days later.
The iPod shipped within 290 days of getting started.
Amazon started to implement the first version of Amazon Prime in late 2004. It went live on February 2 2005, six weeks later (!).
To be fair, when it comes to speed, Amazon SMOKES every other company.
But when I looked at execution speed on actual projects (via backchannel communications), AWS was smoking both us and Google. In one case, I heard that they got the idea for a project from our product announcement and they still shipped before we did.
Today I send out the 100th issue of Sunday Reads. It’s a good time to look back.
So I’m compiling some of the most well-received articles I’ve written over the last few years. On startups, business and management, and on mental models that make us more effective at what we do.
Hope you find the articles useful! Don’t read them all at once. Read whatever catches your fancy. You can always come back later ?.
[PS. It’s also a good time to subscribe if you haven’t. You’ll get issue #101 next Sunday. I promise you won’t regret it.]
The World of Startups
How to save yourself from a bad startup idea that looks good.
This is an article I wrote in late 2015, a couple of years into my startup and when I was just starting OperatorVC, the angel fund I invest through.
It struck a chord with readers. It still gets 100+ views a week (and ranks in top 3 on Google for “bad startup idea”) despite being not very optimized for search.
We have plenty of startup ideas. Many of them are bad, and we dismiss them right away (or our friends warn us off the idea).
They’re the easy ones.
The dangerous ones are the ideas that look quite good. The ones that give you goosebumps, and then three wasted years.
In this article, I list some of the common patterns that such plausible (but actually bad) ideas have, so that you can spot them early and save your time.
Some of the most exciting companies of the 2000s are multi-sided networks. Think Uber, or Airbnb, or even ecommerce marketplaces. They’re massive, and they have immense defensibility.
Anyone who wants to compete needs to get both suppliers and consumers, at the same time.
That’s the proverbial chicken and egg problem. How do you get consumers when you don’t have suppliers, and vice versa?
Turns out there are four specific ways you can solve the chicken and egg problem.
Read on here for examples of each of these solutions.
Most of us in the startup community understand the concept of a Minimum Viable Product, or MVP. It’s the most basic version of your product that still delivers your core offering.
Aiming for an MVP helps entrepreneurs (especially first-timers) avoid the rookie mistake – building too much product before validating market need. We all want the ten revolutionary features in our first version. But not only will these features take five extra months to build, most users will also not see them.
So that’s the concept of an MVP. Sounds simple, right?
And yet, we slog for 3 months to build the MVP. And congratulate ourselves on finding out it didn’t work, and then spend another 3 months on a pivot.
Three months is way too long! Why does the MVP take so long?
The reason is that we’ve got the notion of an MVP all wrong.
My last project in consulting (back in 2012) was to develop a market-based solution to the problem of sanitation in rural Bihar (one of India’s poorest states).
At that time, less than 20% of households in rural Bihar had toilets. And many of those who did have toilets, didn’t use them – they would defecate in the open instead.
Against this intimidating backdrop, we set out to build a private-sector led solution to the problem.
And we were fairly successful. The project helped over 500K rural households construct toilets in their homes. It increased the number of toilets in our focus districts by 10 percentage points.
This article talks about the timeless lessons I learned through the project, on markets, consumers, and how to sell.
On a related note, the job to be done framework. Or, as they say, “You don’t sell saddles. You sell a better way to ride.”
This links back to the previous article. You can only work with people you end up hiring. So, hiring well has an inordinate influence on your team’s future output.
Hire well, and you have an NFL Dream Team. Hire badly, and at best you get a squabbling dysfunctional family. Not much effective team management you can do there.
In the same vein as the previous article, here are 7 key learnings on hiring.
1. Hire only when you absolutely need to.
2. Don’t be too hard on yourself. 1 in 3 hires don’t work out – if you do it right.
3. False Positives are OK. False Negatives are not.
4. What to look for in candidates: drive and self-motivation, innate curiosity, and ethics.
5. A few tips for running an interview process. Most important one – do reference checks.
6. How to let people go. Decisively, but with sensitivity. It’s your fault – not theirs – that you hired them into a role where they can’t succeed.
7. Diversity will not happen on its own. You’ve got to make it happen.
They are tools that help us understand the world faster and better. Instead of approaching every new problem from scratch.
Simple but powerful concepts, that help us understand situations more clearly, and make quicker yet better decisions.
For example, take this core principle from economics: “There ain’t no such thing as a free lunch“. It reminds us to look at every wonderful business deal with care. What’s the catch? There’s always a catch.
In a way, mental models help us think in a more “modular” fashion.
Modular programming makes software much faster. In the same way, mental models are the modules that soup up your decision-making engine.
Mental models are the modules that soup up your decision-making engine.
Over the years, I’ve written about a few powerful mental models, that have helped me think faster (and better) about business problems.
