Startups

Regular readers of this blog and my newsletter (subscribe here if you haven’t!) know that I’m an avid reader. 2015, for me, was a year of quantity. I read 60+ books, and at least ten times as many articles.

Some of these were bad, some good, and some changed my perspective on work and life.

I could list the top 5 books I read in the year. But instead, let me present the top 5 ideas that transformed my thinking, and the books I found them in.

[Note: You can find my 2014 list here.]

1. Keystone Habit – One Habit to Rule Them All (The Power of Habit)

I’ve written before about Thinking, Fast and Slow, and the difference between System 1 and System 2 thinking. The former is rapid, automatic, instinctive and judgmental. The latter is slower, more considered and analytical, and more effortful.

In most situations, we tend to use the quick-and-dirty System 1. The more methodical System 2 is quite lazy.

This proclivity to use System 1 underlines the importance of habits. Such sequential, repetitive tasks are so ingrained that we do them without thinking. The essence of System 1.

For instance, do you think when you’re brushing your teeth in the morning? More likely you’re so woozy you can’t walk straight. Still, your teeth are sparkling clean by the end of it.

That’s the power of habits – you can do certain tasks without thinking.

To understand more about habits, I read two books this year – Hooked and The Power of Habit. They talk a lot about the structure of habits, how to build good habits, how to break bad habits, etc.

But the most powerful concept to me was that of the keystone habit. Keystone habits are small, narrow habits in one area of your life that impact several other areas in a significant manner.

As Charles Duhigg says in The Power of Habit:

Some habits have the power to start a chain reaction, changing other habits as they move through an organization. Some habits, in other words, matter more than others in remaking businesses and lives. These are “keystone habits,” and they can influence how people work, eat, play, live, spend, and communicate. Keystone habits start a process that, over time, transforms everything.

A few examples of this are:

1. Exercise. When you start exercising, even if only once a week, it triggers changes in various other areas. You start eating better. You become more productive and confident at work. You show more patience towards your family and colleagues. All because of a few push-ups once a week. That’s a keystone habit.
2. Making your bed every morning. It’s a tiny, almost irrelevant change. But studies show that this correlates with better productivity, greater well-being, and more willpower.
3. Willpower. This is the most important keystone habit. Studies show that willpower in children is the most accurate indicator of academic performance throughout their student lives. Even more accurate than IQ.

At an organizational level as well, keystone habits can have transformative impact. The book cites an example of how a worker safety program at Alcoa ended up not only improving safety, but also turning Alcoa into a profit machine.

How do these small, unrelated habits have such widespread impact? In Duhigg’s own words:

Small wins fuel transformative changes by leveraging tiny advantages into patterns that convince people that bigger achievements are within reach.

So what are your keystone habits at life and work?

Books: The Power of Habit, Hooked

Further Reading: Pregnant mothers – the holy grail of retail; Keystone habits: why they are important, and how you can build them effortlessly

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2. Rewards and their Unintended Consequences (Drive)

Incentives are strange, powerful beasts. Whether it’s pocket money we give children for doing household tasks or bonuses our bosses give us for exceeding sales targets, incentives play a key role in driving us to perform.

As Charlie Munger, legendary investor, says in his famous Psychology of Human Misjudgment speech,

I think I’ve been in the top five percent of my age cohort almost all my adult life in understanding the power of incentives, and yet I’ve always underestimated that power. Never a year passes but I get some surprise that pushes a little further my appreciation of incentive superpower.

Given the immense power of incentives, it becomes all the more important to design them right. If they’re even slightly misaligned, they can “damage civilization” (Munger’s words, a tad hyperbolic).

I read Drive earlier this year – an insightful book on the powers of rewards. The book also talks about the negative influences of incentives, if not designed well.

1. Incentives can drown out intrinsic motivation, even when you’re doing a task you enjoy. If you receive an incentive for doing something, you also receive a subliminal message that the task is not worth doing without the incentive. End result: incentives transform an interesting task into a drudge, and play into work.

[Tweet “Incentives transform an interesting task into a drudge, and play into work.”]

2. Incentives can only give a short-term boost. Like caffeine, they’re useful when a deadline looms. But beware the energy crash that will inevitably follow.
3. Rewards can become addictive. As Daniel Pink, the author, says – Yes, rewards motivate people. To get more rewards.
4. Incentives do have their uses, but only for process-oriented tasks. In fact, incentives for creative tasks can impede progress. They narrow your focus at the exact moment when you need broad thinking.

The book captures many more interesting and significant implications of an innocuous, innocent incentive.

Book: Drive

Further Reading: Yes, rewards motivate people. To get more rewards.

3. Your MVP can be more “minimum” than you think (Lean Startup)

Most people working in the startup ecosystem are familiar with the Minimum Viable Product. The MVP is the most basic version of your product that still delivers your core offering.

It’s an important concept to keep in mind as you build a product. You don’t want to spend too much time building the first version, before realizing customers don’t want it.

I thought I’d understood the concept well. I congratulated myself as I built my first product in three months, found that people didn’t need it, and junked it. And again when I built my next product in four months, tested it with customers for three, and then pivoted it to its current form.

Then I read Lean Startup.

I realized then that I’d taken far too long to build my MVP. What’s more – so had everyone else I know. Why do we all take so damn long to build an MVP?

The reason is that we’ve got the concept wrong. You don’t need to ‘build’ an MVP. You just need to put it together.

What does that mean?

Let’s say you want to create a website offering fashion tips. You can launch in one day or less.

1. Buy a domain. 3 hours (the actual purchase will take 2 min. But I know you’ll agonize over names for the remaining 2 hours 58. And no, the name won’t matter.)
2. Build a landing page with Unbounce where people can ask questions or upload photos. 1 hour.
3. Run a small Facebook campaign publicizing the site. Or tell 10 friends, and tell them to tell 10 more each. That’s your test audience. 2 hours. 

Thus, you can be up and running tomorrow! Even if you’re slow because this is your first time.

[Tweet “Your Minimum Viable Product can be more “minimum” than you think.”]

Many popular products of today hacked together such makeshift MVPs when they started. Check out the article in Further Reading for examples.

Books: Lean Startup, Four Steps to the Epiphany (focused more on the actual process of building a company in the Lean Startup way)

Further Reading: Your Minimum Viable Product can be more “Minimum” than you think; Have a great business idea? Don’t quit your job yet.

4. Pareto Principle & the Minimum Effective Dose (Four Hour Work Week)

Four Hour Work Week, by Tim Ferriss, is THE book to read on personal and business productivity. Unlike most productivity books and blogs, he eschews all the standard life-hacking methods (of the “shake your hips while you brush your teeth, to get some exercise” variety).

All he has to say about traditional time management is, “Forget all about it.”

[Tweet “All you need to know about traditional time management is, “Forget all about it.””]

Instead, he focuses on using the Pareto Principle, or the 80/20 rule. He uses this to introduce the concept of the Minimum Effective Dose – the smallest amount of effort for the most impact.

Whether your customers, your vendors, books you read, anything – choose the few that give you the most value, and forget about the rest.

He should know. He puts the Pareto principle on steroids. Sample this:

1. In his nutrition products business, he “fired” the least profitable 97% (!) of his customers, to instead focus on the 3% most promising ones and double his income.
2. He eliminated 70% of his advertising costs and almost doubled his direct sales income.
3. He discontinued over 99% of his online affiliates.

Eliminating the least value tasks and business relationships helped him free up his time to do more productive tasks. And achieve the Holy Grail of less work but more profit. That’s how you do productivity!

Side note: In his follow up book, The Four Hour Body, Ferriss uses the concept of the Minimum Effective Dose to illustrate how to become more healthy. Check that out too.

Books: Four Hour Work Week, Four Hour Body

Further Reading: Winners don’t do things differently. They do different things., The Power of the Minimum Effective Dose

5. What’s your BATNA? (Getting to Yes)

One skill I tried to build last year was negotiation and persuasion. I read three great books on the subject. I’m still to have the investor conversations where I’ll use this skill, so I don’t know how much they’ve helped!

But one concept that has stuck is that of the BATNA – the Best Alternative To a Negotiated Agreement. In simple terms, the BATNA is your fall-back option in case talks fall through.

Your BATNA is tantamount to your leverage in the negotiation. It works in two ways.

1. The better your BATNA, the more leverage you have.

Let’s say you’re negotiating the sale of your house with a prospective buyer. Your alternative to this is to (a) rent it out; (b) sell it to a land developer to make a parking lot, and (c) live there yourself. If option (b), say, is the most attractive of these, then that’s your BATNA. The value the land developer offers you should form the baseline for the negotiation.

As long as the buyer’s offer is higher than this, you can reduce your price (after making a big deal of it, of course).

Far more important though, is that if the buyer pushes you below this BATNA, you can and should refuse. This is difficult. We tend to over-invest emotionally in a long negotiation. But with this hard stop in mind, you can overrule your emotions and walk away.

2. The worse you make your opponent’s BATNA, the more leverage you have.

Improving your BATNA gives you leverage. Straightforward. But there’s a more interesting insight here. You can improve your leverage by worsening your opponent’s BATNA.

Let’s say you’re the prospective buyer in the above transaction. You know that your seller is holding out because of the safety net of the land developer.

So, you remove that safety net. For example, you could sell one of your own other properties to the land developer, so he’s no longer making an offer to your seller.

By removing the most promising alternative your seller has, you’re weakening his leverage. And strengthening your own considerably.

[Tweet “Show your opponent he has a lot to lose from breaking talks, and he’ll be surprisingly pliable.”]

Books: Getting to Yes, Influence, Bargaining for Advantage

6. [BONUS] Focus on strengths, not lack of weaknesses (The Hard Thing about Hard Things)

By default, we are all risk averse. In fact, Loss Aversion is one of the strongest, most deep-rooted cognitive biases there is, squirming deep inside our brain’s reptilian core.

This loss aversion manifests itself in several ways. Holding on to bad-performing stocks in the hope of a turnaround. Not making bets because of high risk, even if the reward is much higher.

In the corporate environment, this results in a preference for well-rounded candidates. We tend to choose such people over others who are spiky in some areas, but middling in others. We choose average programmers with great communication skills over 10x programmers who are introverts. We reject uber-salesmen just because they don’t know much about tech.

As Ben Horowitz says in this book, that’s the exact wrong approach. That’s not how great organizations work. Instead, such organizations look for excellent candidates, who are in the top 1 percentile of their roles. Never mind that they’re not good at other things.

“Identify the strengths you want, and the weaknesses you’re willing to tolerate.”

Your Product team should have the best programmers. Even if their communication skills could be better. For sales, hire the best salesmen out there, even if they’ve not worked in your industry before.

We also tend to paper over the weaknesses and focus on repairing them. Again, not the most optimal approach. Instead, focus on honing your employees’ strengths. Plug the weaknesses (If they’re important. They often aren’t.) by hiring superstars in those areas.

[Tweet “Identify the strengths you want, and the weaknesses you’re willing to tolerate.”]

Books: The Hard Thing about Hard Things

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So, those were the books and ideas that captivated my thinking in the last year. Here’s to many more brilliant ideas and books in the new year. Of course, you’ll be the first to know of any great books I find (sign up here to receive regular updates!).