[Note: I shared this mental model with my email subscribers on Jan 29, 2017. If you want to receive a new mental model every week, join the club.]
What it is:
Have you been subjected to this nifty party trick? A person at the party claims to be able to read your psychology from manipulating your hand.
He presses your thumb backward, and says, “Hmm, you look like you’re often stubborn.” You’re surprised – it is true!
Later, you cross paths again. This time, he presses the thumb back and says, “You’re a surprisingly flexible person.” And that seems true too. You can think of several instances when you demonstrated surprising flexibility.
So which is it? Probably neither. You, my friend, have been subjected to the focusing illusion.
Just like the respondents to a question, “Are you adventurous?” in a research study. 97% said “yes”.
When you think of or focus on something, your subconscious assumes it’s important. After all, why would you think about it otherwise?
It’s recursive logic, with a healthy dollop of confirmation bias.
You focus on it, therefore it’s worth focusing on.
Examples in business (and elsewhere):
What you focus on seems important.
When you’re fundraising, it seems like make-or-break for your startup. But it isn’t. Money from customers, not investors, will drive success for you. If you’re building something useful, you’ll find a way.
You commit a silly mistake at work on Friday evening, and then you’re in torment all weekend. But your boss – he barely notices it on Monday morning. It wasn’t that important after all.
“There’s no such thing as bad publicity.” Fading movie stars crave it – at least it gives them presumed importance in the public’s eyes.
[Tweet “”There’s no such thing as bad publicity.” #focusillusion #mentalmodel”]
What you focus on seems true.
The positive test: In deciding whether a possibility is correct, we look for hits rather than misses. Just like the adventurous respondents in the survey above, we can be flexible or stubborn. It depends on the question. This kind of one-sided question (e.g., asking only whether you’re dissatisfied about a situation), is called a positive test. Beware when you hear such a question – maybe your counterpart wants to send you down a specific line of thought.
Medical students and their diseases: It’s common for medical students to feel they’ve contracted the latest disease they’ve heard about. They read that pneumonia produces pain in a particular place, concentrate attention on it, and get alarmed at the slightest sensation. This is so common, there’s an aphorism for it in medicine:
“When you hear hoofbeats, think of horses, not zebras.”
If 2016’s Brexit and US presidential campaigns have taught us anything, it’s this: Say anything often enough, and people will think it’s true.
[Tweet “”When you hear hoofbeats, think of horses, not zebras.” #focusillusion #mentalmodel”]
What you focus on seems causal.
Offer people a lot of money to do something, and they’ll do it for free. The listener automatically assumes the task is very important to you. (That’s why you’re willing to pay so much!). Try this the next time you’re trying to jump ahead in line.
The most visible action is assumed to be causal: When a company misses its projections, newspapers attribute it to a recent government announcement. Or a tepid product launch to a bad ad campaign.
Rules to follow:
How do we save ourselves from the focusing illusion?
Don’t make big decisions in the heat of the moment. It’s quite likely you’re overestimating the importance of a couple of factors. Calm down, sleep on it, and make the decision later.
Beware of one-sided questions. It’s quite likely that your counterpart is priming you towards an answer they prefer.
Whenever you’re making a big decision, do a premortem. Make sure to think about what could go wrong, and protect against it.
In summary, remember Kahneman’s adage: Nothing is as important as you think it is when you’re thinking about it.
[Tweet “Nothing is as important as you think it is when you’re thinking about it. #mentalmodel”]
When we see evidence that confirms our beliefs, we accept it with ease. But when we see contrary evidence, the bar suddenly becomes much higher. We look for ways to dismiss the new facts. As this delightfully funny comic shows.
We interpret new information in a way that suits our beliefs.
As Sherlock Holmes said, we make “the capital mistake of twisting facts to suit theories”.
Or, in Warren Buffett’s words:
“the human being is best at … interpreting all new information so that their prior conclusions remain intact”.
The Rorschach Test: What pattern do you see?
Examples in business:
We choose performance metrics that suit our conclusion. Call it entrepreneurial optimism. But we always choose the metric that shows most positive performance. “So what if the overall retention numbers are down? At least the <enter ridiculous random metric here> is going up.”
We assume our competitors are stupid and evil. In general, we assume the worst characteristics among people we dislike. So, any strategic choice my competitor makes is either (a) a bad idea that is definitely going to fail, or (b) copied from me.
We see patterns where they don’t exist. As an investor at OperatorVC, I have to be extra-careful of this. It’s very easy to find examples of failed or successful startups that are similar to the one I’m evaluating now (depending on what I want to find, of course). And analogies are the worst. It’s hard to avoid what Scott Adams calls bumper sticker thinking.
“Hammer looking for a nail”. When you have a cool product / concept you’ve come up with, you start looking for an application for it. You start with a solution, and then look for a problem. The issue is, you’ll find problems aplenty. Everything will look like it fits your concept.
Chris Anderson made the same mistake, applying his Long Tail mental model to everything. He also called the Al-Qaeda a “supercharged niche supplier” in “the long tail of national security” (!). Read Tim Wu’s hilarious account of this in The Wrong Tail.
Don’t rationalize in hindsight. Make a prediction first, and then see how things match up. In the example of the performance metrics, choose one North Star metric and track that. Don’t choose other, more favorable metrics after the fact.
Don’t use 1-2 mental models for everything. Seriously, the world is not so simple. You need a hammer, but you also need scalpels and spanners. [Moral: Keep checking out my mental models section every week]
TL:DR: Be careful what you look for. You’ll find it.
[Note: I shared this mental model with my email subscribers on Nov 20, 2016. If you want to receive a new mental model every week, join the club.]
What it is:
We use maps, principles, mental models, learnings from experience, etc. to help us navigate the world around us. But it’s important to remind ourselves – the map is not the territory.
The map doesn’t include every feature of the territory. Even a very detailed map of London won’t include every thin street.
The territory is different: Sounds banal, but a map of London won’t help at all, if you’re in Mumbai.
The territory may have changed. An 1850 map of London won’t help you in 2016 London.
This sounds trite, but we often forget this, as we see in the following examples.
Examples in business:
Just because there’s a formula for something doesn’t mean the formula is perfect. The Black-Scholes option pricing equation bankrupted Scholes’ hedge fund. And, as Taleb says, the misplaced concreteness of Value-at-Risk has caused a lot of financial crashes.
[Note: I shared this mental model with my email subscribers on Oct 23, 2016. If you want to receive a new mental model every week, join the club.]
What it is:
It’s a shortcut that our minds take, when evaluating the consequences of a decision. We ascribe more importance to the first examples that come to mind. But here’s the thing – they’re not necessarily more important or probable. They’re just easier to recall / visualize.
Examples in business:
What you see is all there is – When we get into a strategic business partnership, we get complacent, thinking “we’ve made it”. But we haven’t. It’s just that success is easy to visualize, but the thousand ways it can fail are not.
Attribute substitution – when we hear a hard question, we substitute it with a simple one. “How happy are you?” becomes “How much money do you have?”. “Will this strategy work?” becomes “Do I remember an instance of this working?” Never mind that you’ve only heard of instances where it worked (if it didn’t work, you probably wouldn’t have even heard about it).
Rules to protect yourself:
Remind yourself that just because you can recall or visualize something easily, it doesn’t become more probable or valuable.
Use checklists for decisions that are influenced by a number of factors. [Note: checklists are very useful when evaluating startups at OperatorVC. It’s surprisingly easy to get swayed by a good looking product].
One year ago, I started the Sunday Reads newsletter. It’s a short email that goes out once every week (on Sunday, obviously), with “the best articles on business, strategy, entrepreneurship, and everything in between.”
Every week, I share the best articles I read that week. Sometimes they’re organized around a theme. Sometimes not. But there they are, without fail, in your inbox every Sunday.
I realized just last week that over the year, I had shared 600+ articles through that weekly email. And often, I read at least ten times as many articles during the week, to choose these best 10-12 articles.
What have I learned from these 6,000+ articles? Have they made me better at what I do?
No trees were harmed in the making of this post
A part of me answers almost immediately – yes, for sure! But how exactly have they helped? Can I tease out the key lessons I’ve learned from the articles? Or is it just a vague sense of achievement and hope – surely I haven’t wasted those hours?
So, over the last 7 days, I went back to those 52 emails. And pulled out the key learnings and principles that I’ve actually tried to use in my life.
Two caveats before we go on:
First, this is a long post. I’ve tried to summarize the key concepts I’ve learned, and it turns out 6,000 articles means a ton of learnings!
Second, I’ve included (several) links for further reading. Every paragraph is a rabbit hole. So, first read through the whole thing without clicking through on any link. Then, come back. Feel free to dive as deep as you want, on the subjects that interest you.
1. Goals don’t work. Use systems instead.
This was not a new lesson for me. But across article after article, book after book, this got reinforced. No matter the field, what seems to work is understanding the basic principles and following them. That’s it.
Success is not about choosing an ambitious goal and stretching to reach it. Whether in running your business or trying to win arguments with your spouse, hard work won’t cut it. Instead, you understand the basics, try a lot of different things, learn what works, and iterate or double down.
If you do it right, then no matter whether you succeed or fail in one specific endeavor, you’ll always come out ahead. You’ll always learn something that’ll be useful next time.
[Tweet “Goals are for losers. Use systems instead.”]
This sounds a little hackneyed at this high level, I know. But as you’ll see, it permeates all the other lessons below.
Further reading:Goals vs. Systems. I’ve read this a few times before, but I was still blown away by the simplicity when I read it just now. If you like this, you’ll love Scott Adams’ book.
2. Growth Mindset vs. Fixed Mindset
There are two types of people – those with a fixed mindset, and those with a growth mindset.
If you have a fixed mindset, you think you are at the peak of your skills. You’re the best artist, manager, husband, wife, etc. you can be.
If, on the other hand, you have a growth mindset, then you strongly believe you can grow and improve at whatever you do. Whether in your personal life (you can always become a better husband. OK, that hit too close to home), or in your professional career. There’s always room for improvement.
Your mindset determines how successful you are to a surprising extent. People with growth mindsets are more willing to try new things, learn new skills, and take risks. And those who take risks, get the rewards. Fortune favors the brave, etc.
Further Reading: You can read Carol Dweck’s book Mindset, which outlines the research on the subject. Or read Maria Popova’s review of the book.
3. Deliberate Practice
Let’s say you have a growth mindset. Is that enough to grow and improve your skills over time?
If the goals vs. systems argument tells us anything, it’s that just believing you can improve at something isn’t enough. So, what’s the system for this?
Practice. Not just doing something for 10,000 hours. Deliberate practice. Working at the edge of your abilities, getting immediate feedback (succeeding / failing), learning, and trying again. That’s what builds skills.
If you want to learn business, start a side-business. At every stage – idea generation, building your first product, selling it to your first customer – you’ll fail the first few times. And you’ll learn immensely.
If you want to improve your writing skills, start a blog. It takes 2 minutes on Medium. Write every day, and ask your friends and colleagues for feedback. Rinse, repeat.
[Tweet “Don’t just practice. Do deliberate practice. That’s how you build skills.”]
Further Reading: Cal Newport’s book on the subject is excellent. This article from his blog is a good summary of the six traits of deliberate practice.
These were the three most important learnings for me from my last year of reading.
Take a systems approach to all your endeavors
There’s always room to become better at what you do
The “system” to become better is deliberate practice
Everything else stems from these key principles. They form the foundation for the rest of the learnings. Get these right, and everything else falls into place. How’s that for a system?
As I continued plowing through the articles, I saw that a lot of them were organized around skills essential to succeed in the workplace today. Communication, structured thinking and problem solving, creativity, and focus (especially focus), to name a few.
How do we build these skills?
4. How to learn anything
Communication, structured thinking, etc. are critical skills. But there’s one skill that’s a precursor to all this – the ability to pick up new skills quickly.
As Scott Adams says in his book, every new skill you learn doubles your chances of success. To take a simple example – an MBA who knows to code is far more valuable than just an MBA. And if this person also understands, say, cinematography, then the unique opportunities available are far more lucrative.
So, you need to continually build new skills throughout your career, to take advantage of new opportunities. And ideally, you’ll build skills that are themselves useful across a diverse set of sectors (system approach again).
[Tweet “Every new skill you learn doubles your chances of success”]
OK, you’re sold. Learning how to learn is key (it’s also the secret moral of Kung Fu Panda, but that’s another story).
But how do you learn? You could join a course at your local university, or hire a teacher online, and do your 10,000 hours.
Or, you could use the Pareto principle to identify the 20% of concepts that have 80% of the importance, and quickly learn and practice those.
Don’t you want to be that guy, who always sees through to the crux of an issue? Who understands the real problem, which no one else can see? Who always sees the way out of an unresolvable predicament?
I certainly want to be that guy.
Turns out, this is a learnable skill.
a. Don’t be stupid
Charlie Munger, Warren Buffett’s partner-in-crime, once said, “The best way to be smart is to not be stupid”.
We are not rational beings, as economists would have us believe. Not by a long shot. As I’ve written before, we’re not only not rational, we’re also irrational in consistent and repeatable ways.
We’re subject to several cognitive biases, which predictably warp our judgement.
Anchoring is one example of a pervasive bias. The first number thrown in a negotiation becomes an unconscious anchor to the rest of the bargaining. That’s why both parties fight to shout out the first bid.
Availability bias is another one. We overestimate the probability of an event if we can remember vivid instances of it. We pay more for earthquake insurance than for calamity insurance (even though the latter includes earthquakes!), we overestimate the possibility of winning the lottery if our neighbor just won it last week, and so on.
How do you avoid these biases? Here’s the thing – you can’t.
Since these operate at a subliminal level, just knowing them won’t prevent them. Next time someone makes the first offer in a negotiation, you’ll predictably bargain around that.
Instead, counteract these in your decision-making by using a two-track thinking process.
First, make a decision rationally (to the best of your abilities)
Then, try and recognize the biases you’re subject to, and adjust accordingly
Do this again and again, and you’ll soon become a natural. At not being stupid.
[Tweet ““The best way to be smart is to not be stupid””]
b. Develop a latticework of mental models
This idea also comes from Charlie Munger.
There are several different frameworks that help us understand the world. Understanding and building a repository of these frameworks in our heads can help us become much faster at comprehending the forces at play around us.
[Aside: if you want to learn how to have great startup ideas, read this guide. But be warned, you’ll sometimes come up with ideas that seem to have a lot of potential, but are actually bad. Here’s how to recognize bad ideas that look good.]
7. How to communicate better
a. How to write better
Just two rules: (1) Never use passive voice; and (2) Keep it simple. Don’t use two words where one will do. Don’t use a long sentence where two shorter ones will do. That’s it. Nothing more.
(1) First, understand whether your opponent’s opinion is changeable at all. Ask: “What specific data points, if true, would convince you to change your mind?” If nothing will, you might as well not waste your time arguing. [Aside: yes, the similarity to the scientific method is not incidental].
(2) Then, as Daniel Dennett says here, first restate your opponent’s view so clearly and succinctly that they wish they could have put it that way themselves.
(3) Then, call out the specific areas on which you agree with your opponent, and what you’ve learnt from their view.
Then, and only then, should you say even one word of criticism.
And yes, remember Miller’s Law. “To understand what another person is saying, you must assume that it is true and try to imagine what it could be true of.”
Before you say some statement is wrong or silly, first challenge yourself to think of a scenario where that statement actually makes sense. [The same principle applies for criticizing political decisions, competitors’ moves, etc.]
[Tweet “Be happy to be proven wrong. You only learn when you lose arguments.”]
c. How to give feedback better
There’s no playbook here.
Actually there is one – sandwich your feedback between two appreciative comments. It’s also known as The Shit Sandwich, and no, it doesn’t work. People see it coming a mile away. You start by saying “Your emails are always so well formatted”, and the opposite person immediately thinks, “God! How have I screwed up now?”
Instead, be authentic.
And come from the right place. Remember, you’re giving feedback so that the person succeeds going forward. And give constructive feedback frequently – don’t wait for review cycles, or the end of the week, etc.
In addition to all these, there’s one more important tenet to interpersonal communication. Always respond positively when someone says something to you. Negative / sarcastic reactions, or even no reaction at all, can be very damaging to relationships, as this article from Farnam Street recounts.
8. How to focus
This is an important one. Between emailing all day, getting pings on Whatsapp, and checking what’s new on Twitter, it’s a wonder we get any work done.
Even as I type this, my hand continually reaches out to check my phone. Maybe there’s a new message since I last checked 2 minutes ago?
As this article from the NYT argues, focus is a critical skill. And it’s incredibly hard in this age of digital distraction. But as Cal Newport shows in his book Deep Work, it can be learned.
How do we learn it? By practicing it:
First, use the Pareto principle. Take your to-do list, and remove the 80% of tasks that are unimportant.
Then, use Parkinson’s Law (“work expands / contracts to fill the time available to it”). Give yourself slightly less time than needed for each of the 20% important tasks. This will force you to focus – if you get distracted, you won’t be able to finish in the given time.
Of course, you’ll have to do the less important tasks at some point. For this, use a shallow work checklist that you tick things off when taking a break from the important tasks.
9. How to become a better manager
Read this FAQ from Henry Ward, CEO of eShares. Enough said.
10. How to get lucky
The last and final lesson I learned, and arguably the most important one. Building all those skills is great – it sets you up for success. But getting all the firewood together in one pile is not enough. Something has to light the fire. And luck is that matchstick.
Analogies apart (you can tell they’re my weak spot), you can acquire all the skills you want and work as hard as you can. But to win really big, you also need Lady Luck to favor you. And luck can be as capricious as they come.
But, like everything else above, you can engineer luck as well. You can expose yourself to positive luck, while limiting the downside from negative luck.
a. Employ a barbell strategy – maintain a portfolio of low-risk / low-reward and high-risk / high-reward strategies.
Keep your day job, and try and build a side-business on the weekends. Quit your job only after the startup starts to scale. Even Craigslist was built in Craig’s spare time.
[Extra marks if you build your side business in a Power Law market. In such markets, if you do win, you’ll win huge.]
b. Build a strong network of ‘weak’ links – the best opportunities are at the edges of the status quo in every field. If you know people at the cutting edge in every industry, you’ll be better placed to spot and capitalize on big opportunities. Spend time with A+ people from other industries. [Note: This is also evidently the no. 1 predictor of career success].
Many of us have heard the saying “What gets measured, gets managed”. A simple, yet powerful thought. With a simple corollary – what doesn’t get measured, doesn’t get managed.
But last week I heard an interesting anecdote that drove home the power of measurement. In reality, the corollary is far more extreme. In the eyes of the person responsible, what doesn’t get measured… doesn’t really exist.
But before we get into that, let’s take a second look at Peter Drucker’s statement.
In just five words, he captures an overwhelming amount of insight. On human behavior, cognitive biases, the power of incentives, and the strength of a goal-driven approach.
If you want something done, measure it. If there’s an objective number representing the outcome of your actions, you (or your team or partner) will automatically work towards improving it. If you’re assessing something subjectively (or not at all), then progress will never happen.
We see scores of examples of this, across our personal and professional lives:
A. Choose an objective metric
If you need to exercise more, then don’t just tell yourself to do that every day. Track your activities. A guy I know walks up and down his office building five times every day, just so he can hit the step goal on his Fitbit.
If you want to increase user engagement on your app, look at your Daily Active Users or Monthly Active Users metrics. Run experiments to increase them. Don’t directly start integrating fun-and-games mechanics without an objective goal.
B. Choose the right metric
If you want to lose weight, don’t just count calories. Instead, count the amount of simple carbs you’re eating. [Aside: this is an excellent layman’s book on the subject].
If you want your salespeople to increase sales, don’t measure the daily hours they clock. Count the amount of sales they make. Else, you’ll have diligent workers… who use Facebook 8 hours a day (9-5, on the clock).
As they say, “track it till you crack it” (it rhymes, so it must be true).
Photo by Russ Hendricks on Flickr (https://bit.ly/32vlBp8)
But I heard a surprising story last week about Indian broadcast media. It underlined the power of the measure, or in business jargon, the Key Performance Indicator (KPI). It showed how, when marketers can’t measure their impact on a market, they all pretend it doesn’t exist. Even though they know full well that the market is substantial.
First, some quick background on the Indian broadcast market.
Traditional audience measurement was flawed
Till recently, TV broadcasters and advertisers in India measured impact of TV programming using an agency called TAM. TAM had special set-top boxes installed in 20K households across India, which tracked data on TV watching habits.
Using this, TAM could tell broadcasters how many people, in which cities, were watching which show. Broadcasters were incentivized to produce content that generated high TAM scores, so they could show this data to advertisers and demand hefty ad rates.
It was a useful KPI, aligning incentives all round. Except for a tiny problem – TAM’s sample was urban-centric. In a market where the rural populace forms a sizeable proportion of TV watchers.
Broadcasters recognized this problem, and fixed it
Since TAM placed disproportionate importance on urban TV viewing, it was clearly unrepresentative. And the powers-that-be knew that. So, in the last two years, the industry created an alternative – the Broadcast Audience Research Council, or BARC.
BARC looks at a much larger sample, including a sizeable rural proportion. The system rolled out just recently, with an objective of giving a clearer picture to broadcasters and advertisers.
Instantly, broadcasters started generating new, “rural-focused”, content
Here’s where it gets interesting.
As BARC launched, more and more shows with supernatural elements started appearing on TV. Even existing shows, whether staid family dramas or comedies, started having occult “tracks”. This is what happened in 2015:
New shows were launched, like Darr Sabko Lagta Hai (“Everyone gets scared”), Naagin (rough translation: “serpent woman”), etc. In fact, Naagin was one of FOUR new shows about serpent-women!
Many ongoing shows started introducing supernatural elements. Not only daily soaps (or saas-bahu shows as we call them in India), but also comedies.
Why did this happen? The reasoning goes – ghosts, serpent-people and others are integral parts of age-old Indian folklore. These beliefs are still a major part of rural lives. Hence we’ve introduced them to create a better connect with the new rural audience.
Disregard the blatant stereotyping for now (we’ll come back to it later). Assuming that this is what the rural audience wants, the logic makes eminent sense.
Why then was television content urban-focused? Why were there no shows targeting the rural populace?
Because rural wasn’t measured.
The only number available was the urban-focused TAM, which was out of step with reality. And producers of TV shows, in full knowledge of this fact, nevertheless used it. There was no other number, so they followed this one. Single-minded and unswerving, like mice following the Pied Piper.
[Tweet “If you can’t measure it, it doesn’t exist.”]
What does this mean for us? We need to be more careful than ever in choosing our KPI – the True North that we set our sails by.
If we don’t choose the right metric (or worse, choose the wrong one), the outcomes will be the antithesis of our objectives. No matter how well-meaning we or our colleagues are.
Coming back to our rural stereotype, we’ll find out how true it is in the coming months. If it isn’t, expect the broadcasters to nimbly eliminate the black magic tracks from their shows. It will be managed adeptly. After all, it’s getting measured now.
6-9 months ago, when everyone was posting lists of the top 10 books they read, I was unfortunately busy with work. And then, when I wanted to post my own list, it was much too late to do so – people had moved on to sharing Upworthy articles instead.
Nevertheless, what’s far more useful is to talk about the top things I learnt from books – the ideas, insights, stories that changed how I think about life and work. After all, that’s why you read books – to improve yourself in some way – isn’t it? Well, at least all books apart from the Twilight series.
So, here are the 5 ideas that transformed how I think about life and work, and the books I read them in. Rather than describing these ideas in detail, I’ll also share links to articles that offer a short version. But I would definitely recommend you read the book themselves too!
An understanding of psychology is, in my view, an essential skill for anyone whose daily life involves interactions with other people to get stuff done. The human mind is not only not rational, it is also irrational in a few consistent and repeatable ways. Understanding these cognitive biases and fallacies that we suffer from can go a long way in helping you get what you want in interactions with people.
[Tweet “The human mind is not only not rational, it is also irrational in consistent and repeatable ways.”]
One of the key concepts I’ve come across in this area is that the human mind is really two distinct personalities – let’s call them System 1 and System 2. System 1 is the more automatic, quick-and-dirty, heuristic based, lazy thinker – get to an answer quickly by applying habits and patterns, often at a subliminal level. System 2, on the other hand, applies more careful, overt deliberation to any problem, coming to a solution in a more considered manner.
At any time, you’re thinking in one of these two modes. For example, when you’re doing math, you’re carefully thinking of the problem and solution – that’s System 2 in operation. When you’re tying your shoelaces, you’re usually not thinking about the loops and knots actively – you just do it. That’s an example of a System 1 task.
Now, at most times, the mind defaults to System 1 – which tries to recognize and apply patterns without thinking too much. And the result is that it can get tricked in fairly predictable ways – what we call cognitive biases. Two examples of these are anchoring (where an initial number suggested to you often influences your answers to a numerical question) and availability bias (you tend to overestimate the probability of an event if you can remember examples – this sometimes results in people paying more for earthquake insurance than insurance for natural calamities – even though the latter includes earthquakes!). Won’t go into detail on these biases here – you can read the articles I’ve linked to, and the book. But I’ll blog about them soon too!
Another interesting implication of the dominance of System 1 is that you can trick your brain into certain emotions. For example, you know that when you’re happy, you tend to smile. But did you know that this can work in reverse – that you can trick your brain into happiness, by simply smiling? This was a ridiculously amazing insight for me – to know that causality works both ways, and I can control my emotions. I’m a ‘moist robot’, in Scott Adams’ words.
When I was in business school, I read Fooled by Randomness, by Nassim Taleb. At that point, I thought it was the best book I had ever read – so many brilliant ideas, one after the other. I read it again recently, and while I’m a little less effusive, it’s definitely worth a read – it’s long-winded and unnecessarily complicated in parts, and the language is often self-absorbed – but if you can look beyond that, the insights will hit you at an unrelenting pace.
But the most important insight for me – in that it almost exclusively governs my world view since I read it – is that of making skewed bets. The world is innately random – your success depends far more on your luck than on your ability. At first glance, this seems to encourage laziness. Why work hard when your destiny doesn’t depend on it? But looking deeper, the implication is that you should try and expose yourself to ‘positive’ luck as far as possible, while limiting the impact of ‘negative’ luck. In simpler terms, expose yourself to very high upside, while limiting your downside as far as possible.
This is called making a skewed bet – where if you win, the gains are a windfall; but if you lose, you don’t lose that much. A lot like financial options or a startup – if you make it, you make it. And if you fail, then your losses are limited – the cost of the option, 1 year of salary, etc. Of course, the probability of a loss may be 90%. But if you make 10 skewed bets, then you’ll make a windfall gain on 1 of them – and that may be more than enough.
Another important way to keep yourself open to good luck is by simply staying on the field. Thomas Edison got the light bulb right on his 1000th attempt – and that happened only because he kept trying different things, and didn’t give up after 999. To surf a ‘killer wave’, you need to first be in the sea, navigating the 100 tepid waves before.
[Tweet “To surf a ‘killer wave’, you need to first be in the sea, navigating the 100 tepid waves before.”]
Taking the previous point further – success, then, seems to be a process rather than a brilliant idea, inch-perfect execution or just good luck. Try a lot of different things, observe, learn, and iterate. So that you slowly, over time, collect all the right materials for the magnifying glass of luck to ignite. You do all the right things and keep improving, so that when Lady Luck knocks, you’re ready.
Success is therefore a system (take several skewed, high-reward/low-cost risks), rather than a goal (I want to get rich). Now that’s at a macro-level, but this makes sense even at the micro-level – rather than adopting a goal of doubling your user base and throwing money at it, take a systematic approach of trying different things, observing, and then betting the farm on the 2-3 marketing techniques that work.
Scott Adams (of Dilbert fame) carefully charts out this approach in his book.
Book:How to fail at almost everything & still win big. I would venture that this is one of the best and most actionable books I’ve read. But read at your own peril – as they say, one should be careful when taking life and business advice from a cartoonist.
Further Reading:Goals vs. Systems – a short blog post applying this concept to life in general.
4. Power Laws, or why working hard is not enough – Zero to One
I’ve already blogged about this here, but it’s worth reiterating. Today’s business world is not a normal distribution, with most people distributed around average payoffs. Rather, it’s an exponential distribution – very few companies will make most of the money to be made. Therefore, success depends far, far more on what you do, than on how you do it.
In a power law distribution, very few sample points account for a majority of the population’s value.
The power law will permeate all your decisions (e.g., one marketing hack will drive 90% of your traction, one product feature will drive 90% of repeat users, etc.). Won’t go into more detail here – definitely read the post!
[Tweet “Success depends far, far more on what you do, than on how you do it.”]
The previous three concepts have all been around the idea of work and success. This one is different, and is a tool that I’ve found quite useful in jump-starting creative thinking about problems.
Let’s say you’re trying to think of a startup idea in a given space. You could look at what users do now, what they buy, how they consume, etc., and try to find areas where you can add value. Or, you can look at how the industry will inevitably evolve in the future and see how you can accelerate that.
The author calls this concept an ‘attractor state’ – given industry trends today, what do you see as the logical next frontier over the next 10-20 years? And how can you participate in that, rather than making incremental changes to the status quo? To paraphrase Wayne Gretzky, the ice hockey legend – don’t skate to where the puck is, but to where it will be.
This is a slightly nebulous concept, so let me provide an example. Let’s say I want to create an offering in the payments space. One option is to join the crowded current market, and provide a mobile wallet solution, a payment gateway, etc. Another way is to think of where the industry will be in 10-20 years – its attractor state. I’m not a payments expert, but seeing how it has evolved over time (barter -> gold -> paper money -> credit cards -> mobile wallets), there’s a clear trend towards individualization. The reasons mobile wallets are a great innovation is that everyone carries a mobile today, and they don’t share mobiles – it is a unique identifier of a person. Taking this individualization further, the next wave of advancement has to be biometrics – where unique characteristics of your person (iris, voice patterns, fingerprints, etc.) are your identifier, based on which transactions can be completed from your account. You don’t need to whip out your phone or credit card – just staring at a tiny lens is enough to connect to your payment account.
How does this help an entrepreneur? With this end-game in view, entrepreneurs can think about how they can add (and capture) disproportionate value in the long-term – the products and services they can start building today, to accelerate the attractor state. In the case of payments, it could be future biometric sensors, systems for collating massive customer data, POS terminals for accepting payments, etc. – each of these possibilities could be game-changing.
[Tweet “”Don’t skate to where the puck is, but to where it will be.” – Wayne Gretzky”]
Won’t go into much more detail here – but I’ll write a blog post or two on this concept soon. I find it an incredibly powerful way to improve your creativity when thinking about problems and solutions.
Book:Good strategy Bad Strategy. Apart from a discussion of attractor states, this book also has a great discussion of chain linked strategy and focus as a source of competitive leverage. I’ve blogged about this here.
Further Reading: Will write a detailed post on this soon!
These are the five concepts from books that changed my world-view. It may be asking too much to hope that they fundamentally alter your thinking too, but I hope you find these perspectives and books interesting. Do comment!