mental model

Inversion: The surprising secret of winning in business.

jitha

2013 was a big year for me. But at the end of it, I was left wondering if it had been a hopeless waste of time.

I had been thinking about quitting my job and starting up, for a while. But I took the plunge in Jan 2013.

Got two solid co-founders, an interesting SaaS idea, and a few months of runway. Thus began the entrepreneurial dream.

Fast forward 10 months.

The product was ready, customers were mildly interested. But it was clear it wouldn’t work.

It was a structural effort-value mismatch. A long sales process and too much integration effort, but not a must-have product.

We tried many things but the writing was on the wall. The revenue would never justify the effort.

And here’s the other thing: we were running out of runway (personal savings). We couldn’t continue paying salaries for much longer.

So that was it then – end of the entrepreneurial dream? 12 squandered months, and then sanity prevails?

Time to go back to a regular salaried job?

Before we talk about what happened next, let’s take a short break and talk about… tennis.

The Amateur Game of Tennis.

One of my favorite David Foster Wallace (he of “This is water” fame) lines is from his essay, Derivative Sport in Tornado Alley:

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.

Ankesh Kothari has another great example, in How to participate in the Olympics without any skill:

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.

The power of Inversion

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:

  1. Not striking out. He stays within his circle of competence, so he never risks complete ruin.
  2. 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.

Pablo Escobar's Brother Says Elon Musk Stole His Flamethrower Idea, Wants $100 Million Payment
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.

But it all started with that one move. Flipping from default dead to default alive.

What did I learn?

At the highest level, this is what I learned: To win, don’t lose.

To win, don't lose. Invert.

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!

More in my twitter thread here.

The best of Jitha.me – A Compilation

jitha

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.

(Go to article).

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.

Read on here.

On a related note: Why describing your startup as the “Uber of X” is a bad idea. Yes, despite what Y-Combinator says.

How Uber solved its Chicken and Egg problem (and you can too!).

(Go to article).

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.

I’ve also captured it as a framework on Slideshare, that you can download.

Your Minimum Viable Product can be more minimum than you think.

(Go to article).

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.

Read on here.

The World of Business and Management

What I learnt from talking toilets in rural Bihar.

(Go to article).

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.”

What doesn’t get measured… doesn’t exist?

(Go to article).

We’ve all 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 in reality, the corollary is far more extreme.

In the eyes of the person responsible, what doesn’t get measured… doesn’t really exist!

Read on here, to see the dark flipside of this common management adage.

On a related note, the Availability heuristic. Or “what you see is all there is”.

How to manage your team LIKE A BOSS (even while working remote).

(Go to article).

This is a more recent, and more topical article.

Effective team management (whether in-person or remote) can be distilled into five key axioms.

Call them the Minimum Effective Dose, or the 80:20 of team management.

Team management 101

Read on here .

Hiring Great People.

(Go to article).

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.

Read on here.

The World of Mental Models

What are “mental models”?

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.

Listing a few of them below.

Hope you like some of these articles!

Do write back or comment with the articles you liked best, and I’ll share more on those topics in the coming weeks.

And don’t forget to subscribe, so you get issue #101 of Sunday Reads!

Margin of Safety, or why you should always save for a rainy day

jitha

[Note: I shared this mental model with my email subscribers on Feb 12, 2017. If you want to receive a new mental model every week, join the club.]

Margin of Safety: You build a bridge that 30,000-pound trucks can go across, and then you drive 10,000-pound trucks across it.

What it is:

Margin of safety is a critical principle in engineering.

Let’s say we’re building a bridge, and the maximum weight of vehicles we expect on the bridge is 5,000 tons. So do we build it to withstand 5,000 tons? 6,000 tons?

No. We build it to withstand 20,000 tons. That’s the margin of safety.

When you save “for a rainy day”, that’s what you’re doing. Building a contingency fund. A margin of safety for your lifestyle, should you lose your job.

As Seth Godin explains in Breakpoints: when laying a sidewalk, workmen don’t put long slabs of concrete in place. Instead, they keep small gaps every few feet. That’s a margin of safety too – in case the concrete breaks or expands in unpredictable ways.

[Tweet “”You build a bridge that 30,000-pound trucks can go across and then drive 10,000-pound trucks on it.”]

Examples from business:

  • Investing: Margin of safety is a core tenet of value investing, popularized by Benjamin Graham and David Dodd. As Warren Buffett, a long-time protege of Ben Graham, says: “If we calculate the value of a stock to be only slightly higher than the price, we’re not interested.”
  • Startup fundraising: You don’t raise just enough capital to get to your next round of funding. If you want to raise your next round at $1Mn in revenue, raise enough now to get to $2Mn. Better still, raise enough to become profitable. Similarly, don’t start looking for investors when you have one month of cash in the bank. Start when you have six.
  • Capacity planning: Most services organizations keep a bench (idle employees) of up to 20% of their total headcount. So that they can service any sudden requirements. Same goes for manufacturing – as they say, if you have 20% spare capacity, you have no spare capacity.
  • Project planning: When drawing out a project plan, always put in a few buffer days / weeks.

[Aside: we almost never do this. There’s even a name for it. The planning fallacy – how we believe that this time, unlike all previous times, we’ll finish the project on time.]

[Tweet “”If you have 20% spare capacity, you have no spare capacity.” #marginofsafety #mentalmodel”]

Rules to follow:

  1. Always build a margin of safety. Whatever you’re doing, estimate how long, how much money, etc. it’ll take. Then add a buffer.
  2. Expect your plans to go awry. Do a premortem. And then build redundancy / backups.

As Seth Godin says in the article above, there’s no doubt the ground will shift. The question is: when it does, will you be ready?

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Further Reading:

 

Linked to: Redundancy, Premortem

Filed Under: Engineering

Occam’s Broom OR “You don’t know what you don’t know”

jitha
[Note: I shared this mental model with my email subscribers on Jan 22, 2017. If you want to receive a new mental model every week, join the club.]

Occam's Broom: "You don't know what you don't know"

My wife berated me the other day for forming a strong opinion about something (I forget what) without knowing all the facts. To which I responded with a question: Is it even possible to know all the facts?

Pride at being a smart alec notwithstanding, the conversation reminded me of this mental model. So, thanks hon!

What it is:

Philosopher Daniel Dennett talks about Occam’s Broom, a play on Occam’s Razor (a mental model for another day).

He uses the term to describe how, when we’re making an argument, we have a tendency to whisk inconvenient facts under the carpet.

And this tendency, already questionable, becomes downright insidious when experts present their arguments to the layperson. And completely leave out pertinent (but contrary) evidence.

Or when journalists present only half the story in the garb of “news”. Move over fake news – at least those guys aren’t pretending to themselves that they’re telling the truth!

And the worst thing is – you cannot do anything about Occam’s Broom. You’re helpless. After all, you don’t know what you don’t know!

Examples in business:

  • Evaluating partnerships / acquisitions: When you’re assessing a company to acquire / partner with it, you can only ask so many “right questions”. You never know where a black swan may be lurking. That’s probably why half of M&A deals fail.
  • Deciding on potential product features / business choices: If your team presents a new business opportunity / product feature, you can expect to mainly hear the pros of the choice. Sure there’ll be cons, but most of them will be strawmen.
  • Listening to a sales pitch: Let’s say a salesman presents you the latest software to revolutionize your business, or a “sure” stock pick. You have no way to know what he’s not telling you.
  • To assess whether a hypothesis is true, you need to test it. You can talk to all the experts you want. But you won’t get decisive answers unless you ask the right questions. And you don’t know the right questions!

 

Rules to follow:

OK, we get it. You don’t know what you don’t know. What do you do then?

  1. Whenever you’re making up your mind about something, recognize that you may not know all the relevant factors.
  2. Avoid forming opinions in areas where you’re not an expert. Keep your identity small.
  3. Sometimes, you do have to form opinions based on incomplete facts. In such cases, remember the adage “strong opinions, weakly held”. Form decisive opinions, but change them when the known facts change.
  4. Whenever someone offers you a strong / extreme opinion, get your guard up. Reality is not as stark as Occam’s Razor would argue.
  5. Tread carefully in a new area. Do a “pilot”.  No matter how much you’ve analyzed it. It’s a hypothesis till it proves itself in action.
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Further Reading:

  • Occam’s Broom
  • Intuition Pumps: Daniel Dennett’s book, which introduces this model. [Warning: it’s not an easy read]. Also check out this article for a collection of his critical thinking tools – mental models in their own right.

Linked to: Occam’s Razor

Filed Under: Psychology & Human Behavior

To get new mental models every week, along with other great reads on startups, business, management and everything in between, sign up for Sunday Reads. Don’t miss the next one!

Goals vs. Systems OR The right way to make New Year’s resolutions

jitha

[Note: I shared this mental model with my email subscribers on Dec 18, 2016. If you want to receive a new mental model every week, join the club.]

Goals vs. Systems

What it is:

It’s that time of the year. We’re all thinking about past resolutions we couldn’t keep, and resolving to be more faithful to our resolutions for the coming year.

Most of our resolutions are of the form: “Next year, I will do X”. Where X could be: “lose 10 pounds”, “run a marathon”, “get up at 5 am everyday”, “hit a million dollars in revenue”.

But point goals such as these have a number of disadvantages:

  • The focusing illusion: When you focus on your goal, it becomes more important in your head than your primary objective (e.g., “to be happy”). Till you realize one day – it’s not making you happy at all.
  • Dependence on outcomes extrinsic to you: Extrinsic goals tie your self-worth to factors that you don’t have complete control on. This (a) reduces intrinsic motivation, and (b) increases irrational risk-taking, as a Harvard study shows.
    Think running a marathon despite a niggle, only because you’d resolved to 9 months ago.
  • Goals can seem overwhelming and amorphous: Sure, you want to get to a million dollars in revenue, but where do you start?

And, as Scott Adams says:

[Tweet “Goal-oriented people exist in a state of nearly continuous failure that they hope will be temporary”]

OK, so what should we do instead?

Focus on process. On systems.

 

What does that mean? Break down your goal into its constituent parts – the specific actions you’d take to achieve that goal. Focus on those instead.

Such an approach gives more opportunities for daily victories (“I exercised today”), and sustains motivation.

But more importantly, it also prevents tunnel vision. If something else comes along that’s better than your previous goal, your mind is free to notice it.

Thus, a systems approach takes you from low odds of success to much higher odds.

From “I need to achieve this specific goal, else I fail” to “I’m building skills and creating options, and I’ll take advantage of whatever comes”.

 

Examples in business:

  • Career Planning: Don’t “plan” your career, as Marc Andreessen says in his career guide. Instead, make choices that maximize your future options / upside. Go where the action is.
  • Starting a company: Don’t over-invest in the solution you’re building. Instead, start with the customer. Identify the problem, and experiment with different solutions till one “catches fire”.
    Hypothesize > Test > Rinse and Repeat till you succeed. This is not novel – it’s the Lean Startup approach.
  • Marketing: Don’t try every single new marketing channel to get to 1 Mn users. Instead, use the Bullseye approach – prioritize 3 marketing channels, and experiment with them. Once you saturate them, unlock the next ones.
  • Any risky endeavour: Preserve and generate optionality. Understand how you can maximize potential upside and minimize downside risk.

Stack the cards so that you come out ahead even if you fail (e.g. learn unique / hard-to-replicate skills, build a strong network of influencers, etc.). Plus if Lady Luck smiles, you rake in a windfall.

 

Rules to follow:

  1. Focus on inputs (which you can control), not on outcomes (which you can’t). Create a process for success. Follow the process.
  2. Ask the question: How can you take key extrinsic risks out of the equation? How can you increase the odds of your actions having the desired result?
  3. In any decision, choose the path that creates the most options.

TL:DR: Success is a system (take several high reward / low risk bets), rather than a goal (I want to get rich).

[Tweet “Success is a system (take several high reward/low risk bets), rather than a goal (get rich)”]

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Further Reading:

 

Linked to: Focusing illusion, Antifragility

Filed Under: Decision-making

The Pareto Principle and the Minimum Effective Dose

jitha 1 Comment

[Note: I shared this mental model with my email subscribers on Dec 11, 2016. If you want to receive a new mental model every week, join the club.]

 

Out of more than 120 wholesale customers, a mere 5 were bringing in 95% of the revenue. I was spending 98% of my time chasing the remainder. – Tim Ferriss, Four Hour Work Week

What it is:

Most of us are familiar with the Pareto Principle. 80% of your sales come from 20% of your clients. 20% of people produce 80% of your enjoyment and propel you forward. But 20% produce 80% of your anger too.

A few factors have disproportionate influence.

Some of us are also familiar with Pareto’s more extreme cousin – the power law.

But fewer of us make the jump to its immediate corollary – the Minimum Effective Dose (MED). 

 

I first came across this in Tim Ferriss’ books. He defines it as “the smallest dose that will produce the desired outcome”.

The logic goes – if 20% of tasks produce 80% of the results, then you need to focus only on this 20%. In most avenues of life, where perfection is not the goal, this 20% is all you need to be effective.

This was one of the big ideas of 2015 for me. It transformed how I think. See more here.

Minimum Effective Dose

The Minimum Effective Dose (MED)

Examples:

  • MED in business: Whether your customers, your vendors, or your advertising – choose the few that give you the most value, and forget about the rest.
  • MED in daily productivity: What’s the no. 1 most important task of your day. Do that first. (“Minimum Viable Day”, anyone?).
  • MED in health: Stop eating white carbs. See Tim Ferriss’ slow carb diet, or Gary Taubes’ Why we get fat. (But maybe I’m oversimplifying – I’m not a health expert).

[Tweet “If 20% of tasks produce 80% of the results, then you need to focus only on this 20%. #pareto #MED”]

Rules to follow:

  1. Identify which tasks have the most impact on your objective.
  2. Focus on them. Forget about the rest.

This suddenly reminded me of Warren Buffett’s Two List strategy.

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Further Reading:

 

Linked to: Power Law, Parkinson’s Law

Filed Under: Economics, Business & Investing, Productivity

“We don’t sell saddles here” (The job to be done framework)

jitha 2 Comments

[Note: I shared this mental model with my email subscribers on Dec 4, 2016. If you want to receive a new mental model every week, join the club.]

 

At the beach, I saw a guy who sells fishing tackle. I asked him, “My God, they’re purple and green. Do fish really take these lures?” He said, “Mister, I don’t sell to fish.” – Charlie Munger, Poor Charlie’s Almanack

What it is:

Selling is a huge part of what we do in our lives. Whether convincing our teams to do a particular task, convincing customers to buy our new products, or even convincing our children to do their chores. We’re selling every day.

But all-too-often, we misunderstand the fundamental truth about selling: We’re not selling what we have. The buyer is buying what she needs.

“People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” – Theodore Levitt, Harvard Business School

Every customer “hires” your product for a “job to be done”. The customer wants a hole in the wall. So she buys a drill. And when you buy a Rolex, it’s not because you want to tell the time.

And why do you think people buy a milkshake every morning en route to work? As McDonald’s found out, it’s not for the taste. It’s to make their boring work commutes more interesting.

Stewart Butterfield (Founder, Slack) captures the essence of this in his 2013 memo to his team – “We don’t sell saddles here”. You’re not selling a feature. You’re delivering a benefit to the customer.

Subtle difference, huge implications.

job to be done

We don’t sell saddles here. We sell a better way to ride. That’s the job to be done.

Examples in business:

  • When selling, we focus too much on talking about our product’s cool features. Instead, listen first. Understand what the customer needs.
  • “Solution looking for a problem”. Another instance of the “hammer looking for a nail” tendency we spoke about last week. We start with a product idea, rather than first seeing what customers need.
  • We define our competitors too narrowly. We see others who offer the same solution as our rivals. But that’s upside down. Our competitors are others who solve the same problem. Even if their solutions are different.

Who does McDonald’s milkshake compete with? Not just Burger King’s milkshakes. Not just other breakfast items. Given the job that customers have hired it to do (make boring commutes interesting), it also competes with FM radio!

Apple is a great example of the power of this framework. The job-to-be-done is quite clear with the iPod, the iPhone, and the iPad. But Apple is struggling to find jobs for the Apple Watch and Apple Pay.

 

Rules to follow:

  1. Start with the customer. Even before you build your product, get out of the building. Talk to customers. Identify what jobs they need done. How you can help?
  2. When selling, focus on benefits, not on features. Remember – you’re not selling saddles. Your customer is buying a better way to ride.
  3. Always think from your customer’s point of view. You’re not selling to her. You’re working with her, helping her solve a problem. You’re on the same team.

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Further Reading:

 

Filed Under: Sales & Marketing

Confirmation bias – The bias that supports all your other biases

jitha 2 Comments

[Note: I shared this mental model with my email subscribers on Nov 27, 2016. If you want to receive a new mental model every week, join the club.]

 

Faced with the choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy on the proof. – J. K. Galbraith

What it is:

Confirmation bias is our tendency to seek information that confirms our prior beliefs, and to ignore evidence to the contrary. This happens in a few ways:

  • 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”.

confirmation bias

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.

At a meta-level, this goes for mental models too. After last week’s issue, I kept seeing situations where people were mistaking “the map for the territory“. They weren’t. That was confirmation bias at work.

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.

 

Rules to protect yourself:

  1. When you have a hypothesis, look for disproving evidence first. Follow Charles Darwin’s Golden Rule.
  2. 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.
  3. 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.

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Filed Under: Psychology and Human Behavior

Eating the Broccoli OR Why the short cut doesn’t always work

jitha

[Note: I shared this mental model with my email subscribers on Nov 13, 2016. If you want to receive a new mental model every week, join the club.]

Eating the broccoli

What it is:

We’re always looking for short cuts. Whether the latest fad diet, get-rich-quick schemes, or clever growth hacks, we’re all looking for that easy way out.

But to get what we want, we do have to do the hard part. We have to, as the metaphor goes, eat the broccoli.

This is especially relevant in nutrition / dieting. There’s a new fad diet every week. But nothing works unless you eat the broccoli (or give up sugary foods).

 

Examples in business:

  • Marketing: Growth hacks and Dropbox style incentives to acquire users are fine. But they’re ultimately useless if you don’t build something users want, and would pay for. Similarly, you can have the latest Material Design for your app, but it’s useless if there’s no reason to use the app.
  • Content: You (I) can try all kinds of content marketing SEO tricks to get traffic to your website, but the most important thing is – write to be helpful. To be useful. That’s the hard, but necessary, part.
  • People Management: Many of us hate giving negative feedback. We hope people take a hint, when we are brusque / don’t give positive feedback. We hope they can read our minds. Instead, the simplest way is through. Have the candid conversation. Your team and your relationships will be the better for it.

 

Rules to follow:

  1. All things that are worth doing have some broccoli to be eaten. Identify the broccoli – the painful, necessary, non-scalable first step – and you’re already ahead of the others.
  2. Instead of ways around the broccoli, identify ways to make it easier to eat it. If it’s a feedback chat, prepare a script for it if required. If it’s understanding what customers want, do structured interviews.

Now, an analogy can only go so far. But in summary, as Seth Godin says, when you’re looking for the trick, remember: it often turns out that the trick-free approach is the best trick of all.

Simple. But not easy.

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Further reading:

 

Filed Under: Decision-making

The Fogg Behavior Model

jitha

[Note: I shared this mental model with my email subscribers on Nov 6, 2016. If you want to receive a new mental model every week, join the club.]

What it is:

The Fogg Behavior Model (FBM) is a way to understand what drives behavior.

We normally assume that every decision / action is based on a solid rationale. That’s usually true, but that’s not enough. To overcome the inertia of inaction, you need something more. Enter the FBM.

At the heart of FBM is an equation:

Behavior = Motivation * Ability * Trigger

Thus, driving a behavior is not about just providing Motivation. You also need Ability (e.g., ease in terms of time, money, effort, routine vs. non-routine). And you need to Trigger the behavior – with a cue, prompt, or call-to-action.

Fogg Behavior Model

[Source: BJ Fogg’s Behavior Model website]

Examples in business:

  • Marketing: Your customer value proposition (motivation) is not enough to drive a sale. You also need to make it super-simple to say Yes, as I found when trying to sell toilets in rural Bihar (see point 3 in article).
  • Design: Having the most important features in your app isn’t enough. You need to make them easy to access (Hick’s Law – anything more than 2 clicks away won’t get done), with a clear call-to-action (Fitt’s Law – the big red button always wins).
  • Productivity: The reverse also works. If you want to stop checking FB on your phone at work, make it difficult to access – log out so you’ll need to enter the password next time. And remove visual cues – take it off your home screen.

 

Rules to follow:

  1. When you’re persuading a buyer, don’t just focus on why they should buy. Make it easy for them to say yes (e.g., easy, low-risk payment terms), and then trigger the sale (e.g., social proof, limited time offers).
  2. If you want to break a habit, just make it hard to do. And remove all cues from the environment.

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Further reading:

 

Filed Under: Psychology and Human Behavior