>> Amy Draves: Thank you so much for coming. My name is Amy Draves and I’m pleased to welcome
Kathleen Eisenhardt to the Microsoft Research Visiting Speaker Series. She’ll be discussing her book
“Simple Rules.” She and her coauthor, Don Sulls, have spent the last decade developing a set of rules to
help tackle complex problems and have created this guide for achieving your most pressing objectives.
She is the S.W. Ascherman M.D. Professor at Stanford and Co-Director of the Stanford Technology
Ventures Program. She is also the coauthor of the award winning book, “Competing on the Edge,” and
has won numerous awards and fellowships as well as giving the Oxford’s Clarendon lectures. She was
recently named the most cited research author over the past twenty-five years on the topics of strategy
and organizational studies. And recently, Bloomberg TV called this book the nerd book of the summer.
Please join me in giving her a very warm welcome. [applause]
>> Kathleen Eisenhardt: Couple of my former students are out there in monitor land, so I hope… so
“hello” to them. Also just… there’s a little side light, I wrote part of the book actually up at the Whiteley
Center at UW which is at the Friday Harbor labs, so actually part of this came from the San Juan Islands.
And then finally, I do want to show you that I have an Apple computer, but I am running Microsoft
Windows on it. So I just want you to know. [laughter] Anyway, anyway, thanks for having me.
Title of the talk: Simple Rules. I’m gonna start out with a story, and it’s a story about an army sergeant
in Iraq during the Iraq war about ten years ago. He’s in Mosel at the base that’s right near the airfield
there, and it’s just before Christmastime and he’s in the mess line and he’s grabbed a piece of
cheesecake. And as he’s about to dig into the cheesecake there’s suddenly this massive explosion and a
terrorist has blown himself up and blown up a bunch of other people here at the army mess. And
Sergeant Montoya is a medic and he ducks, he’s… fortunately he ducks under the table and after kind of
the explosion he then looks out and he’s okay, but there’s a mess around him of carnage of all sorts of
kinds of things. And he’s faced with a problem of this tremendous complexity, time is of the essence,
and how does he decide who to help and who not to help? And what he ends up relying on, as you
might expect, are the medical rules of triage, or the simple rules of triage. And the idea of today is that
simple rules are a way to cope with the complexity that I think we all face. Whether it’s all the devices
we have to do, all the things we have to do, managing our jobs and our kids, whatever.
So how do Janet Yellen, who’s obviously managing our economy, or at least tries to; crickets, you might
not think they have a complex life, but—you know—if… they have a small brain, so it’s pretty complex;
or Mark Zuckerberg running Facebook? They’re all coping with complexity and they’re all doing it—at
least to some extent—through simple rules. Just to give you a definition. What’s a simple rule? A
simple rule is a shortcut strategy, cognitive strategy that saves time and effort by economizing on, or
simplifying how we think and focusing our attention. So essentially, it’s around a rule of thumb—rule of
thumb, heuristics, or other words for it, but essentially, thinking about those. Couple features of simple
rules just to give us some baseline: simple rules are simple, meaning there’s maybe two, three, four, five
involved; simple rules depend on the person in the situation. That means your rules are not necessarily
my rules. And the third idea is that simple rules relate to some defined activity, so they’re not just
platitudes like, you know, “be nice to your customer,” but actually they’re more focused on something
specific. To make that more particular, let me bring in a couple of examples. One of them is the idea
of… is the simple rules of Michael Pollan. I don’t know what’s on your refrigerator, but I have actually
several friends who have Michael Pollan’s simple rules on their refrigerator, and those are: number one,
eat real food—that means food your grandmother would recognize; eat small portions; eat mostly
plants. Within those rules you can have blueberries, kale, the occasional fish, and so on, but essentially,
you’re following the simple rules.
Second point is the simple rules are unique to you. So… and I hope you’re not too much UW fans, but
this is Stanford football. The simple foods… turns out the Stanford football team also has rules for
eating, and those rules are: eat breakfast, because they’re students and they tend to get up late and…
they stay up late, get up late and rush to class and skip breakfast; stay hydrated is their number two
rule, and that’s because they tend to be very active people and they tend to need hydration to stay fit
and healthy; and their third rule is they can eat anything and how much ever they want, as long as you
can pick it, pluck it, or kill it. So to compare that to Michael Pollan, there is no concept of portion control
for the Stanford football team, whereas Michael Pollan is obviously into portion control. And there’s
no—you know—the Stanford football team as, I’m sure, the UW football team are eating plenty of meat
and not really worrying about… too much about mostly plants. And while they may have an overlap
around non-processed food, there is… their none lacks some distinct features. So the point is that the
rules are personal, the rules are unique; they’re not just the rules for everybody.
Another example to bring it into business is Indiegogo versus Kickstarter, the two major crowdfunding
sites that you probably all know. Indiegogo was founded by, actually, Cal Berkeley alumni, and their
idea of the internet is that the internet is for everybody. And they also have this other… this concept
that the internet… everybody deserves a rich uncle and crowdfunding on the internet makes that
possible for all of us. So what are their rules for what can be on their crowdfunding site, what are their
simple rules for picking projects? Anything goes; as long as it’s legal, it can be on the Indiegogo site. So
you can fund your root canal, your trip to Europe, you in vitro fertilization, your new startup, the
Jamaican bobsled team—you can fund whatever you want, or at least give it a shot on Indiegogo.
Second rule at Indiegogo is around how do you have… which projects are the featured projects—you
know—the ones that site visitors are gonna see? And that’s an algorithm, so it’s an objective, if you will,
algorithm that revolves around the popularity of the project combined with how much effort you’re
putting into the project, at least in terms of promoting the project. So the idea is: algorithm that
somehow combines effort and popularity.
Contrast that with Kickstarter. Kickstarter—I don’t know if you’ve ever posted anything to Kickstarter—
Kickstarter has thirteen project categories, so you have to fit into a Kickstarter category and they reject
about twenty-five percent of the projects that actually try to go up on their site, so a curation model. As
far as what’s a featured project on Kickstarter, that’s curated by Kickstarter employees. So the
Kickstarter staff decides that I’m gonna take your project and feature it and I’m not gonna feature yours;
so it’s very much a subjective curated process. What’s their underlying value system? Well, in
Indiegogo it was, “Internet for everybody.” At Kickstart it was much more around… a value around the
importance of public funding of the arts. So get a curation model, public funding of the arts, and a more
particular, more—what can I say—narrow, narrow vision of what actually should be on the site. So the
point is: two similar businesses, two somewhat different rule sets.
And then finally, simple rules relate to a specific activity. They’re not about how you’re gonna change
healthcare in the US, they’re not about being nice to your customer; they’re on specific processes. So,
for example, in the case for Michael Pollan, it’s your rules for eating, what’s for lunch? And in the case
of Indiegogo and Kickstarter it’s what projects are on the site and what do we feature; so very specific
decisions. Okay, that’s kind of 1.0 on simple rules.
Second idea to dig a little deeper, is that there are actually several kinds of rules. I’m gonna talk… I’m
not gonna talk about all of them, but I’m gonna talk about some of them. And it turns out, it’s
important to talk about kinds of rules because some are easier to learn than others, number one. And
number two, it’s better to actually use more types of rules than one type, and so the fact that it’s harder
to learn them, you should use more type, has you then starting to think you may actually have to look
for certain kinds of rules. So anyway, the types of rules matter. Let me start with the first type, one of
the easy types. Boundary rules: boundary rules are rules for picking. Deciding “yes” or “no,” like can
you be on the Kickstarter website or not? Or if you have a lot of alternatives, which alternatives are you
going to choose? Good example: good example comes from The Weinstein Company. Weinstein
Company is a movie producing company. They did “The Imitation Game,” which is what’s in the
background there, they also did “Silver Linings Playbook,” “The Artist,” back in the day, “Chocolat,”
“Pulp Fiction,” so a wide variety of movies. And if you’re sitting there at The Weinstein offices, what
you’re seeing is a massive number of scripts keep coming to you ‘cause you’re one of the top Hollywood
producers. How do you pick which movies to do? Why “Imitation Game” and “Silver Linings Playbook,”
for example? Well, there are two couple simple rules. One of them is that a Weinstein movie always
has a flawed but sympathetic main character. So for example, if you think about “The Imitation Game,”
Alan Turing is a really irritating jerk, but there is a part of you that likes the guy. You know, he’s really…
there are ways in which he’s apathetic. “Silver Linings Playbook” is also about a person struggling with
mental illness—I forget if it’s schizophrenia or being bipolar—but it’s a fairly sev… he has a fairly serious
mental illness, but yet you like him, he’s a good guy.
Second thing is a Weinstein movie not only has a flawed but sympathetic main character, it is also about
a basic human condition. So in the case of “The Imitation Game” and Alan Turing it’s about not only
being somewhat far along on the autistic spectrum, but also being gay at a time when it’s illegal to be
gay. “Silver Linings Playbook” is dealing with mental illness; “The Artist” was dealing with—I don’t know
if you recall that movie—that’s the movie that won the Oscar and it was a silent movie and it was
dealing with a person who was a star in the silent movies but he couldn’t make the switch to talkies.
And so it was about… the basic human condition was about how you deal with fundamental change.
“King’s Speech,” is another one of the Weinstein movies. So the point is there are two—and there are
actually several other rules—but the two primary rules for picking movies, and yet you get a rich variety
of movies coming out of that. Well, does that mean that every movie then is really a Weinstein movie as
long as it’s not a Disney movie? No. For example, Weinstein would not do “Gone Girl.” I don’t know if
you all saw “Gone Girl,” but there’s not one character that you would like in that movie, and it just
really… just no one is likable in that movie. Or the “Birdman.” Again, another movie—anybody like
anybody in “Birdman?” Now, no, they’re not like—you know—you just wouldn’t like those people.
Then the idea of a basic human condition. Think of a movie like “Mission Impossible.” Kind of what’s
the basic human condition there other than frenetic action? So it’s not every movie. These rules are
screening out some, but keeping others.
Give you another example: Frontier Dental. This is a small company and their problem was they… what
their business is that they do cosmetic dentistry, they’ve got an alignment… fairly high tech alignment
system, and they were having a lot of heartbreak in doing their sales calls; they were getting about a
three percent hit rate in their sales calls. So they sat down and said, “Well, okay, we’re obviously calling
on the wrong dentists. Who are we… how are we gonna figure out who to call on?” So they started
thinking, okay, some heuristics. One of them they thought of, “You know, I bet it’s dentists between
thirty-five and fifty-five.” You know, old enough to have money but not so old they’re not innovative,
showing an age bias, I have to say, about who’s innovative and not. But it turns out those rules didn’t
work because it’s very hard to tell how old a dentist is, and so you couldn’t actually use the rules. So
they went to another rule and that was, “How good’s the website? A dentist with a good website is
probably an innovative dentist who might be interested in our product.” Then they went to a second
rule which was checking credit reports, and if a dentist had three credit reports within a year that were
negative, they didn’t call on that person either. So essentially, went to a rule of good website, good
credit is a dentist worth our calling on and they ended up with a something like a sixty percent hit rate.
So over all, the point is that simple rules can help you choose what to do.
Finally, just a basic quick talk, because I’m in Microsoft Research I thought I’d put in a DARPA slide, but
DARPA is, as I think we all know, the… coming out of DOD and doesn’t just pick any project to work on.
DARPA picks projects that are on the so-called Pasteur’s quadrant, at the frontier of science, and also
commercially released militarily relevant.
Second set of rules is also kind of easy to learn and these are how-to rules. People tend to learn these
sort of rules and these are rules for how do you execute a task. Start out with the Airbnb, probably all
know Airbnb, you probably even know the story of Airbnb. They start in San Francisco, two guys renting
out an air mattress and serving somebody a bagel during conferences trying to make some extra money.
It turns out to be a good concept, or at least they think it’s going to be, and then they wander for about
a year and a half trying to actually make the concept work. So they try they… first of all they think, “Oh,
it’s really about conferences.” So they go to South by Southwest and they get about three people
signing up. They go to the Democrat and the Republican Convention and they get a few more people,
but it only lasts a week. Then they go to Y Combinator, finally, and there they start getting some advice
about how to actually find rules. One of the key pieces of advice was, “Get out of Mountain View, go to
New York. That’s really where the market is.” In the course of doing a lot of experimentation, a lot of
talking to people they came up with a couple simple rules about how to be an Airbnb host. And in fact,
in New York, what they particularly found out was that it’s about the hosts, it’s not about the guests; so
actually the key is the hosts. And they got some rules for how do you have simple rules for hosts that
could be a campsite, a treehouse, a castle, an apartment? And they actually have a few simple rules for
being an Airbnb host, at least as they started out. One was: take professional photos of your property.
Secondly was: give people local tips to give it that Airbnb flavor. And number three: always have fresh
soap, fresh soap being the signal of cleanliness. When you go into a bathroom and it’s not fresh soap it’s
a little bit on the ick side maybe, if you don’t really know the people. And so… and they have a couple
other rules too, but those were essentially some rules that were largely around, “How do we tell our
hosts how to be good hosts when it’s all kinds of people and all kinds of places with all kinds of
properties?” And the local tips one… well, first of all, the photography one gave them an edge over
some other sites like HomeAway; that was actually kind of an initial, actually minor edge that created a
major edge. And then secondly, the idea of local tips really fit with the kind of branding that Airbnb
wanted to have, a little bit of a funky style.
Probably something near and dear to all of your hearts, maybe not Twitter per se, but meetings. You’re
probably… one of the things, at least most high tech people I know run into, is they spend more time
than they’d like in a meeting. That’s happening to people at Twitter, and there’s some executives at
Twitter that have new rules about meeting. First of all, meetings have no power points and the second
thing is: you can’t cancel out of a meeting once it’s set. No power points because everybody wastes too
much time making a power point when you could be doing something actually useful. Why no
canceling? Because if we’re gonna have a four or five person meeting and one of us canceled out, it sort
of messes up everybody’s schedule. So it’s a no canceling. Within that you can do what you want to do
at your meeting, but you have those couple simple rules.
Final example on how-to rules to take it maybe more into the rock scene: The White Stripes. The White
Stripes are a rock band. Their hit album, their initial hit album was called “The White Blood Cells,” it was
thought by many to be one of the albums of the decade in the 2000’s. The White Stripes did “White
Blood Cells” in ten days, eighteen songs in ten days. And I put this example in because I think it’s about
innovation. How do you be innovative in writing music in ten days when you are probably a group of
people who are not too into rules? But as it turns out, The White Stripes did have a couple of rules. One
of them was: no covers, meaning you can’t do somebody else’s song, so it had to be original. The
second was: no guitar solos, no blues, no base, no slide guitar. After that, the song could be whatever
you wanted it to be, but within those rules—you had to stick within those rules. So in other words, they
weren’t sowing gardens out of the so-called sandbox; they were creating their own sandbox and then
playing within that sandbox. Okay? So that’s how-to rules. Those are the two easy kinds of rules to use
and probably if you think about your life, you probably are using some of those rules in your own life.
Some rules however, get a little bit harder. These are timing rules. They’re useful when you have
deadlines, rhythms, and when you’re trying to maintain rhythm… when you’re trying to maintain
momentum, keep things going, or when you’re trying to actually synchronize a lot of people, can also
work for that. Good example is Pixar. When Pixar started out their first… at least their first hit movie
was “Toy Story.” “Toy Story” took four years to develop. Perhaps some of your big… some big software
projects probably take something like that. Took “Toy Story”… it took Pixar about four years to do “Toy
Story,” and the problem with that was it’s really hard to run a business, at least a movie business if
you’re only doing a movie every four years, and it’s really hard to get talented, creative people to work
for you if you’re only doing a movie every four years. And so what the Pixar executives did was started
going into a timing rule which was to develop one movie a year. It took a while to get there, but what
essentially they did was develop a pipeline of rules where they broke the movie making process into
four parts, so there’d be sort of a year one, year two, year three, year four roll. And so what that did
was create a pipeline of movies so that Pixar could bring out a movie every year and then they start…
and then they planned that… timed that rule so that they would also come out at Thanksgiving. So it
was a movie every year or at least at Thanksgiving because that’s the big movie going season or one of
the two big movie-going seasons of the year for families. So the idea was… what they did was
developed this rule… took a while, actually, to do that. Wasn’t actually… it is actually nontrivial to do
that with something as complicated as a Pixar movie, but essentially they created what is… what you
might think of as a movie making factory. It didn’t always work, in fact, this past year they weren’t
happy with the quality of the movie that was going to come out, so they actually skipped a year, but
they do try to hit this one movie a year.
Another example, this is a company you may not know, but it’s in the concrete business. You’re
probably thinking, “Concrete’s not real interesting,” but it’s also… turns out it’s actually kind of an
important industry because—and this may again, this may be something you don’t know—it’s the third
largest source of manmade CO2 in the atmosphere is from the concrete industry. So it’s actually a
relatively polluting industry, it also has one of the highest per capita consumptions around the world, so
there’s a lot of it being polluted around the world. What are the simple rules at this company? Well
first, let me step back. What this company did was they decided to do… make a more innovative
concrete. And so what some of the engineers and scientists did at Primekss is they went back, actually,
to the ancient Egyptians who are the folks who discovered or created concrete, and they looked at what
the recipe was that the ancient Egyptians were using, and they were using… they were making concrete
but they were adding blood to it and also horsehair, which I’m not… I can kind of get what the horsehair
was; I don’t know what the blood did. But at any event, there were some properties of blood and
horsehair. Well, they sort of went to the twenty first century version of that and created a new
concrete—a proprietary concrete—where you could… it had in the production of it it was half the
emissions, you could use less of it, and it was less likely to crack. So, less usage as well as cleaner when
you were producing it. So they had this great innovation and what did they do with it? Well, they go to
Las Vegas and there’s a big trade show and they—you know—showing off the properties of their
concrete, and they get—you know—people are interested and they’re looking for distributors. They
decide they really… they think this is a world-wide product, they don’t have the capacity to distribute it,
so they’re looking for partners. And they get, I don’t know, something like a hundred or something
partners want to work with them. This is a small company, so how do they choose? Well, what they did
was they came up with a few simple rules. The first one was: does the partner have a laser screed
machine? Now for you and me, we don’t know… I don’t… I’m guessing you don’t know what a laser
screed machine is either, but apparently people in concrete do and it’s a signal. What it is is it’s a quality
signal. It’s a signal of a partner who is likely innovative and likely high quality and likely relatively big. So
that’s what that is. Then the second rule they had was actually a timing rule. And that was: we’re going
to do three partnerships… or one partnership every three months. So every three months, a new
partnership, a new partnership, a new partnership.
Finally, the hardest type of rule to learn is a stopping rule. Just like it’s, I think, all… it’s easy for all of us
to get into the stock market; it’s always kind of hard to get out. That’s sort of what a stopping rule is;
when do you stop doing something? Probably the hardest kind of rule to learn. I’ve got a couple of
comments, a couple of examples of that. I started the talk with crickets. Turns out crickets have a
stopping rule for mating. If you’re a cricket it turns out mating is really important because you have a
very short life span and you’ve kind of gotta get on it. Female crickets have a rule that says, “When it’s
time, you look for male crickets that chirp at over three chirps a second.” So the more chirping, the
better the male, below three chirps, you’re not interested in this guy. So how do you find Mr. Right?
You look for the big chirpers. But suppose you’ve been there for twenty-four hours, times running out,
you haven’t found Mr. Right? Then you take the first available cricket. So perhaps similar to—I don’t
know—bar rules, whatever. In any event, [laughter] in any event, cricket… Ms. Cricket has rules for
finding Mr. Cricket that including stopping.
Another example is our friends at the concrete company, after they—go back to them—they had their
rule about the laser screed machine, they had their rule about every three months we get a new
partner, they also had a stopping rule. If that partner has not used our concrete in one of their projects
within three months, we drop them as a partner and move on to somebody else. So they’re very quick
on dropping people from the partner set.
Another example that you probably don’t know who that is. That’s Steve Blank of The Lean LaunchPad.
But what you may have heard of Steve Blank is one of the sort of Lean Startup people. And I use that
‘cause I think it’s… he’s got some interesting ideas. Probably what’s best known is his idea, “Get out of
the building, talk to a hundred customers, always face to face.” That’s one of his—you know—it’s sort
of a constellation of his rules, but he also has some interesting rules about when to stop a project, and I
think that’s particularly important whether it’s product development or whether it’s sales, whatever it
is. Steve has some rules around when do you decide that a business is not making it and you need to go
in a new direction: the so-called pivot rule. Do it with asking yourself four questions. After you’ve
talked to a bunch of customers, your hundred customers, you ask yourself four questions: do customers
see the problem that I see? Second: if the customer sees the problem, will they buy a solution from
me… will they buy a solution? The third rule is: will the buy the solution from me? And the fourth rule
is: and can I make the solution? If you get the right answer on all those, you continue. If you answer,
“No,” you pivot, on any one of those questions, you pivot, so. Does customer see a solution? Will they
buy a solution? Will they buy it from me? Can I do the solution? Go ahead. If not, there’s a “No” in
there, you move on.
And then finally, I’ll give you a final stopping rule I’ll just point out, is the Mt. Everest stopping rule.
Probably a lot of you have read the book, “Into Thin Air,” that 1996 Mt. Everest disaster. That actually
and probably was caused by failure to follow the stopping rule. Scott Fischer, who was the expedition
leader, had a clear stopping rule: if you’re not at the top of the mountain at two p.m., you turn back.
The day eight people died is the day he violated that and let people stay up there until almost four
o’clock in the afternoon and they were wiped out coming down. So the point is, simple rule of turning
back at two o’clock no matter what was working until the day he didn’t do it and it didn’t work.
Okay? That’s the kinds of rules. Let me just wrap up with maybe the… a deeper, sort of the 3.0: how do
you actually figure out the rules? And then we’ll open up to questions. So I’ll just do this. How to
create rules? They can be both personal or—by the way—personal or business. So we can talk about—
you know—we can talk about rules for weight loss, rules for getting your kids to study, rules for finding a
date, or we can talk about business rules, but I’ll talk a little bit about business rules first. There’s really
three steps. The first step is: what is your objective? Not in some sort of vague sense, but what is it
really? You know, do you want to be the number one mobile phone software maker in the world? Very
specific about what you’re trying to be. Second is: what’s the bottleneck? What’s really keeping you
from doing that? And the third is then: what are the simple rules? So let me give you some… couple of
examples: “House of Cards.” Probably many of you have watched “House of Cards.” That is a Netflix
series, and what was Netflix trying to achieve with that? Netflix was not trying to be profitable; they
weren’t trying to have this as the greatest show ever. What they were trying to do was make this the
most noticed show ever. Noticed, and then hopefully people like it too, but they wanted to stand out,
because there are plenty of good shows. I mean, there was, there’s “Sopranos,” there was “Mad Men,”
there was “The Wire, there was all… there were a lot of shows. How were they gonna stand out? Most
shows try to stand out with great writing. “House of Cards” does that too. They try to have great
writing; they do have great writers, but that wasn’t gonna make them stand out. So their objective was
fundamentally to stand out.
The second issue then remains in creating the rules is: what’s the bottle neck? What’s gonna actually
help them to stand out? And there the bottleneck for them was not writing as it usually is, it was
actually around directing. What they did was realize that if they had… and what they created in the
“House of Cards” is a movie quality experience on television. That’s, I think, one of the stand out things.
And so they hired A-list directors. They then gave those A-list directors a number of simple rules, but
pretty simple because A-list directors don’t like a lot of rules. It was essentially around twenty day
shoots; you’ve gotta do two consecutive episodes, and we like it if you hold a particular kind of camera
they liked. But within that you could do what you wanted. And then, of course, the other breakout was
seeing the bottleneck of programming. So they saw directing and they saw programming and that’s
when they figured out the binge-watching ideas. It did binge-watching and they also bought “House of
Cards,” twenty-four episodes of “House of Cards—something that media companies would never do—
and broke out. So they had a key objective, they had a bottleneck.
To mention Google: this back in… Google bottleneck, how else do you want to… the bottleneck is not
always obvious; it’s, “Why aren’t we achieving what we want to achieve?” In the early days of Google
they were trying to do a number of things around Search as well as some other software products. Until
they started realize… they were sort of thinking, “Well our bottleneck’s software,” but in fact, they
started to realize the real bottleneck was computer scientists. And so, in fact, that became a focus of
simple rules of Google: to hire computer scientists.
And then finally, what’s objective; bottlenecks, which actually, usually are not obvious; and then finally,
how do you figure out the rules? This is actually a Czech restaurant chain, so it’s in Prague. And they do
service… they do food service for big corporate clients, actually like Microsoft and other IT companies.
They wanted to go into that business because they were traditionally a restaurant business and they
developed some simple rules, and those rules and the way in which they did it is really what I want to
emphasize. What they did was they got some expert advice, they asked some other people in the
business of what to do, and then the third thing they did is they tracked their own experience. Because
what happened was, they hired really great chefs, their clients were very happy with the service, and
they couldn’t make money. And so what they did is they started tracking their own food processes
figuring out why their costs were so high and came up with some simple rules like: set the menus on
Wednesdays; only five different meals across our various restaurants, three of those have to be best
sellers, two of them have to be the same across all the restaurants; and you can only use local or
seasonal ingredients. Within that, the chefs could create whatever they wanted. So overall, what’s the
point? The point is that in creating rules, you think, first of all, what’s my objective? For “House of
Cards” it’s to breakout. What’s my bottleneck? It’s not products, it’s computer scientists if it’s Google.
How do I create the rules? Ask experts, ask my friends, track my behavior.
I want to close with this picture, mostly because I like it. I love that picture of the sky. Leonardo Da
Vinci. But, “Simplicity is the ultimate sophistication,” which I think is what the message of this talk is.
When the world is feeling complicated, keep it simple, and I think that’s the end of the story. So when
you’re feeling bummed out, there’s too much to do, try some simplicity. Okay. Thanks a lot.
[applause]
Okay, any questions? Yeah.
>>: So do you think… is there any need to, once you have those rules to… how do you try to enforce or
explain those rules to people in your organization?
>> Kathleen Eisenhardt: You can… well first of all, you can enforce them because they’re fairly
enforceable because they’re easy to communicate, easy to remember, so they’re actually pretty simple
that way. As far as the enforce though, I think, what we see as most successful for people is if… if it’s,
let’s say, in a business context, you actually work with the people you’re working with, so you kind of
collectively come to the rules. So, for example, when Zatisi did their rules about restaurants they
worked with the chefs because the chefs, obviously, figured out they needed to be profitable, and so
they worked with the chefs. So usually it works out best to have people who are actually going to have
to abide by the rules think about the rules too ‘cause they also come up with good ideas. Yes?
>>: Tell some examples of when the rules stop working and how people recognize that and they need to
change the rules?
>> Kathleen Eisenhardt: Yeah, people… yeah, you can tell when the rules aren’t working is because you
aren’t getting the kind of success that you wanted to have. Although I… and a good example… let me
think of… let me see of a good example. Yeah, one rule I gave you… this is a little bit of a personal
example but it’s… it was a graduate student of mine who became a professional poker player and he
started out playing poker by reading books on poker like, “Fast Eddies Texas Hold’em Poker Rules,” and
stuff like that, and he learned the probabilities of poker and he started winning at the one and two
dollar tables in San Jose. But after a while he was… he sort of says… he said to me, “You know, I didn’t
like taking money from people who couldn’t afford to lose it, so he decided to go up to the five and ten
dollar tables. And the strategy, it turns out, changes, because at the five and ten dollar tables everybody
knows the rules, everybody knows probability, and then it becomes… the rules become emotion. And
so he started to realize—you know—that he had to both control his own emotions and take advantage
of when other people were losing it. For himself he had a rule around… he would only take a certain
amount of money and if he lost that he was done. The other rule that he made for himself was to
always regard a win as being when he played a hand well even if he didn’t make money.
So then he went on and he decided to try his hand at Vegas. So he went to Las Vegas. And it turns out
that there’s a lot of good players in Las Vegas, but there’s also a lot of bad players in Las Vegas, and the
trick is how do you figure out which is which? And so he said, “Well, you know, in Las Vegas there are
fish and there are sharks, and you want to play the fish. And when you sit down at a table and you look
around the table and you see only sharks, you know who the fish is and you know it’s time to go.” And
so the point of that is, that he started… what the rules then switched to, being about picking the right
table and he had some strategies around about essentially going and playing for about forty-five
minutes really conservatively, sussing out the people, figuring out if they were fish, and then sitting to
the left of them ‘cause that’s the optimal place to sit. So the point is that as the rules aren’t working,
you start saying, “Well, how’s the bottleneck changed? How the people changed? How do I update the
rules?” is essentially what the story is.
>>: Just a follow-up on that. So if the rules are working, that’s great, though you might not be
maximizing your—you know—objective.
>> Kathleen Eisenhardt: You might not be maximizing, that’s right. Well it turns out, first of all, that
some rules are typically better than no rules at all. We did some lab studies and we showed that a more
strategic rule is a better rule, but just having a rule sometimes, if it encourages at least some of the right
behavior, works. So some rules are better than no rules is the message here. How do you know if you
have the optimal rules? You know, I don’t think you do know, you know? For example, I gave you the
Primekss—you know—we get a partner every three months. You know, would it have better been two?
Would’ve three point nine weeks been better, four point seven—you know—whatever? But if you’re
about right, that’s probably what you want to be. Okay? Yes?
>>: Do happiness, or joy, or meaning play any kind of universal role in setting up simple rules? I know
you can make it an individual rule here for this must be meaningful or bring me happiness, but I’m
talking about if you found anything universally where if you don’t imbue those in your rules, you’re
gonna fail.
>> Kathleen Eisenhardt: You know, there is anoth… there is… I mean, that’s sort of what we’ve come up
with is we don’t think there’s… I mean, maybe there’s some universal moral rules that maybe—you
know—we all want to honor and live by. I was just in… actually, I was just in… at Wall Street last week
where we were talking about ethics and my interviewer said, “You know, ethics don’t matter in finance,”
which I sort of thought was maybe the wrong thing to say. But I think… I mean, so there may be some
moral rules that we would all have, but as far as rules for life like this, I’m not sure there is any. What…
there are kinds of rules. So for example, I said stopping rules, timing rules are hard to learn and often
really useful, there are certain rules that are… that you have to often think about before you actually
come up with. But I wouldn’t say there are any that just create happiness or not happiness. I think that
might be an objective of the rules of—you know—I want to be happier in my life, therefore I’m gonna
do whatever. Okay? Yes?
>>: I’d like to offer a small correction, if I might, but one that actually bolsters your case.
>> Kathleen Eisenhardt: Oh good. Okay.
>>: So Alan Turing, it turns out, wasn’t an irritating jerk at all. This was a fabrication for the movie. We
had Turing’s biographer, Andrew Hodges, at that very podium a few months ago. Although the movie
was based on his book, he was unhappy about the movie [indiscernible] portrayal, but this makes me
realize, at least, that it wasn’t just Weinstein thinking that the movie would be a little bit better if they
did this, but it was essential for them to do the movie, add that portrayal.
>> Kathleen Eisenhardt: Right, to give him… yes, yeah. That’s a [indiscernible]. I’ll keep that in mind.
Thanks a lot for the tip. Anything else? Yes?
>>: So, you said at the beginning that you couldn’t have too many. You’d have to have between three,
five, three, four, five, like that. So how do you stop yourself from improving things by adding more
rules?
>>: If three work, I’ll add one more, you know.
>> Kathleen Eisenhardt: Yeah, because it turns out there actually is an optimal and then you start going
down. That’s part of the self-discipline. What we’ve seen actually—this is now getting more into the
psychology of it—but people engage in what’s known as simplification cycling. And so people who are
reasonably astute at what they do, what they’ll… they… what you see people do is they will learn too
many rules and then they’ll actually realize they have too many and they’ll back off, or they’ll raise the
level of distraction. If you start having too many, you start losing the flexibility and then it gets to be
more like, you can’t remember them, you don’t want to do them, and it feels like reform school.
Anything else on people’s minds? Yes?
>>: When is the most recent time that you’ve developed some rules for yourself? [laughter]
>> Kathleen Eisenhardt: For myself? On… I’ve been doing a lot of media. I tell… I’ve started… because
of the book I’ve been violating my rules ‘cause I used to have pretty strict email rules, like I’d only look at
email twice a day and I wouldn’t look at it on the… I’d try not, at least I would … I’d look at it on the
weekend but I wouldn’t respond on the weekend because I didn’t want them responding back to me.
And that’s kind of gone. I’ve kind of—you know—with the book I’ve kind of been twenty-four seven, but
I have new rules about radio interviews. And so in radio interviews we’ve learned some rules around—
at least I have—that in radio interviews you first of all ask who the audience is gonna be so you have a
sense of what kind of examples and what kind of stuff is gonna resonate with them. And then secondly
what you try to do is you only talk for like a minute or two before you kick into a story. So that’s what…
so those are my new rules on radio interviews, which probably has nothing to do with anything any of
you are doing. Anything else on anybody’s mind? Yeah?
>>: You guys studied software companies or product development companies, what were some of the
rules that really worked for them?
>> Kathleen Eisenhardt: Did I do that? Yeah, yeah, that was actually where the original ideas came
from, were from software and computer companies. Yeah, we originally did some studies where we
were looking at—you know—which companies had product development flows that—you know—were
systematically successful and we found two pathologies. If you told us about a company that was way
too bureaucratic we know it was on the east coast; if you told us about a company that was way too
crazy it was probably on the west coast. And so it was that in the middle, so making Chicago perfect, I
suppose. But anyway, some of the rules that worked, I think one of the rules that’s worked as variations
of the Intuit “two-pizza rule,” which means a software team shouldn’t be bigger than what two pizzas
could feed. And that, I think, recognizes the fact that talent in software is not uniformly distributed, that
in fact, both working in small teams and you probably notice this where you are here today, the best
software people are quantumly better than the average software person, and so the smaller teams were
more effective. So that’s one of the rules. The other rule that was actually… the other rule that was the
real surprise to us was actually the pacing… the timing rules. The fact that the best companies that we
were looking at had some kind of timing rule, and dependent on a bit what exactly the product was, but
a timing rule where you would—you know—put out either—you know—a product every nine months or
twelve months or twenty-four months depending upon how complex the product was. And why that
worked was you… first of all, it gets people into a rhythm and so you can actually start getting… you
know how when you’re actually in a rhythm—you’re skiing, you’re golfing, you’re dancing—and you
start getting your rhythm and you get more focused, more confident, more motivated? Well you can
get that on a team. The other thing it does is it synchronizes people. So if you know that the product
rolls in nine months or twelve months or you don’t… you’re on this kind of roll, then you can synchronize
marketing, engineering, if it’s manufacturing if it’s relevant, whatever else is relevant, but essentially you
can synchronize everybody because we all know, that’s when it rolls. In fact, one of the Tina Fey rules
for popular television shows is, “If the show’s at eleven thirty, it’s ready,” you know, no messing around.
And so that sort of… that was the second rule that we really saw that worked. Both the size of the team
rules and the rules around the pacing were particularly important in… at least in the kinds of companies
we were talking about at that time. Those were a couple of the major rules. Yep. Anything else?
>>: One follow-up on…
>> Kathleen Eisenhardt: Oh sure.
>>: …’cause a lot of debate is should we be Agile? Should we Waterfall? There’s some timing rules and
there’s a Agile Manifesto for rules in Agile. Is there any discovered work done on—you know—things
being too complex in terms of how you order and structure the process of product development?
>> Kathleen Eisenhardt: Yeah. We found the more structured you were the more efficient you were at
getting out the wrong product. So more rules make you… what rules do is tend to make you pretty
efficient, but they… because they restrict your flexibility you may have the product actually not fitting
the market and not really what people want. Yes?
>>: One of the rules that we follow is we look at projects that are in the pipeline and that are moving
along. You talked about when do we kill a project, when do we kill it off? Can you go over… expand a
little bit about that? You said when it’s not profitable or not…
>> Kathleen Eisenhardt: Yeah, the ideas of when to kill a project. Actually the DARPA example’s fairly
interesting because DARPA has rules. Essentially if you haven’t… you haven’t have a certain level of
breakthrough by the time of the project, which is somewhere between three and five years, which is—
you know—a big window, but it’s difficult science, they kill the project.
>>: [indiscernible] or anything like that.
>> Kathleen Eisenhardt: I mean, you could, you… it would depend on the… this goes back to the idea of
the rules are unique to you. So the Stanford football team is not Michael Pollan; so Microsoft is not
somebody else, or even parts of Microsoft aren’t. So what I would say is you need some sort of a
stopping rule, but what that stopping rule is is probably Microsoft specific. It could be about not
meeting some kind of payback, it could be not meeting some functionality, but something… There was
one company I was working with that had a rule around new businesses. A new business had two years
and if it didn’t make certain financial goals, you either stopped the business or you at least rotated out
the top management team and rotated in a new one. So those are… that parts… what’s… the lesson is
having a stopping rule. What exactly that lesson is is a little more idiosyncratic to what you’re trying to
achieve.
>>: Okay, well thank you so much.
>> Kathleen Eisenhardt: Okay. Thanks a lot everybody. Thanks for coming.
[applause]