John D. Roc
feller Sr. was the ric est t coon of the Gil ed Age, at one point val-
ued at 2% of the Uni ed States’s GDP. His rise c i ci ed with the cr ation of the
‘trust’ stru ture of bus ness — a stru ture that e abled bus ness pra tices so u fair
and m no
li tic the US Go er ment had to cr ate the She man a titrust act of
1890 to reign it in.
But the rise of Roc
feller and his ilk also promp ed the rise of the muc ra ers
— r form-min ed jou na ists that e posed bus ness lea ers and polit cians as corrupt. In fact, the muc ra ers were i
e tial in tur ing the tide of pu lic opi ion
against the trusts, which led, i d rec ly, to the cr ation of the She man a titrust act.
This was the dawn of the age of the new p per, and the rise of jou na ism as a disc pline alon side it.
But like most young med ums, jou na ism, too, had its e ces es.
Ida Ta bell was Roc
feller’s muc ra er nem sis, and a lea ing a tivist of the
Pr gre sive Era. She is o ten cre i ed with p nee ing the pra tice of i ve tig tive
jou na ism. But Ta bell stretched the truth about Roc
feller n me ous times over
the course of her r por ing. As Ron Che now writes in T tan, his hi t ry of the Rockfeller fa
ly and their bus ness dea ings:
A though Ta bell pr ten ed to a ply her scalpel to Sta dard Oil with su gical o je ti ty, she was ne er ne tral and not only b cause of her f ther. Her
brot er, William Wa ter Ta bell, had been a lea ing
ure in for ing the
Pure Oil Co p ny, the most s r ous d me tic cha lenger to Sta dard Oil,
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1
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Beware What Sounds Insigh ful
and his le ters to her were laced with anti-Sta dard ve om. Co plai ing of
the trust’s price m ni
l tions in one le ter, Will warned her, “Some of those
fe lows will get killed one of those days.” As Pure Oil’s tre su er in 1902, Will
steered l gions of Roc
ma
feller e
mies to his si ter and even ve ted her
scripts. Far from che is ing her ne tra ty, Ta bell in the end a hered
to the a vice she had once r ceived from He ry James: “Che ish your contempts.” Ama in ly enough, n body made an i sue of Ta bell’s ve t ble
par ne ship with her brot er in e po ing his chief co pet tor.
And la er in the book:
Ho e er pat brea ing in its time and ric ly d ser ing of its a c lades, the
Ta bell s ries does not, na ly, stand up as an e du ing piece of hi t ry. The
more clos ly one e a ines it, the more it seems a s p r or screed masquera ing as sober hi t ry. In the end, Ta bell could not co quer her no talgia for the T tusville of her gir hood, that lost pa adise of her ic friends and
neig bors who went forth dought ly to do ba tle with the all-d vou ing
Sta dard Oil dra on.
I’ve left a lot out of the e cerpts above, but an one rea ing the hi t ry of Ida Tarbell and Sta dard Oil would be struck by how many of the tricks Ta bell used to
stoke anger against Roc
feller still work t day.
More i po tan ly, those tricks aren't su pri ing, e p cia ly when read against
the bac drop of t day, more than 100 years a ter the rise of jou na ism. Even a cas al rea er of the news knows to be sce t cal when rea ing a st ry in the p pers,
or watc ing a r por ed se ment on c ble news. But at the time of Ta bell’s campaign, pu lic r l tions hadn’t yet been i ven ed. S c ety had not d ve oped a tibo ies against m ni
l tive jou na ism.
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2
B ing Cri cal in the Age of the I ternet
If you read som thing on the i te net t day, the odds are good that the wri ing
was pr duced to ca ture your a te tion. This isn’t some pr found r a s tion, of
course: many of us are f mi iar with the idea of an ‘a te tion eco
my’. We’re at the
end of the se ond decade of the s cial I te net; the r turns to a te tion are n t riou ly l cr tive and the co p t tion is steep.
I think the arms race for our a te tion has led to an arms race in wri ing. The
best o line wri ers are able to make som thing sound i sigh ful — r gar less of
whether it’s true, or whether it’s us ful. On one hand, this is the writer’s job. J son
Zweig of the Wall Street Jou nal likes sa ing that his goal as a nance writer is to
present a small han ful of un ve sal i ves ing truths in i crea in ly no el ways, so
rea ers ne er know that he’s r pea ing hi self. But at a ot er le el, this shift
means that o line rea ers have to be i crea in ly cri cal when rea ing e says and
blog posts for i str me tal re sons.
This isn’t some evil co spi cy. ‘Wri ers o t mi ing to pr duce i sight porn to
grab a te tion’ sounds n fa ous, but it’s r a ly more like ‘wri ers r spon ing to the
i ce tives of the s cial i te net’ — a si ple side e fect of the a te tion eco
my.
And we shouldn’t be su prised: if I st gram has changed the la guage of ph togr phy, then we should also e pect the eme gence of Twi ter, Med um and Google
to change the tenor of wri ing.
Tricks
It’s i te es ing to note that I’ve ch sen ‘i sight’ as a key me ric to f cus on. I’m igno ing tri a ism and no e ty here — though both are equa ly po e ful ways to cap-
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3
ture a te tion on the s cial i te net. ‘Hot takes’ that a peal to a group ide t ty perform be ter than opi ion pieces that do not; news that is e treme, or new, or no el
does be ter than news about what is na u al and co mo place.
When you’re rea ing for c reer re sons, ho e er, you’re see ing i sights that
can help you pe form be ter or na gate the world be ter or see things di fe en ly
or frame things more e fe tiv ly. Na ra ly, wri ing in the self-help or c reer-a vice
ge res will have to si
late i sigh fu ness in o der to keep your a te tion.
Some ideas sound i sigh ful b cause they are true. But not all true ideas sound
i sigh ful. A true idea that is co mo ly a cep ed can sound trite and o v ous: we
call those clichés. The job of a good writer, then, is to present some truth in a way
that doesn’t trip our cliché tri gers.
This means that a te tion see ing in wri ing us a ly d volves to the same handful of tricks. I’ve used many of those tricks m self, here at Co mo place. This is a
non-e hau tive list.
Use a st ry. I star ed this piece with a st ry. Prefe ably from a hi to cal p riod that the rea er isn’t f mi iar with. This e ta lis es that the writer knows
som thing that the rea er doesn’t, and is co m n ca ing some a g ment or idea
with a b sis in hi t ry.
I’m not b ing co plet ly fac tious here. A g ments from hi to cal e a ple
are o ten do bly e fe tive: rst b cause they are roo ed in r a ty, and se ond because they a low the writer to tell a st ry. Rea ers love st ries — they’re far ea er to
read than a g me t tive prose.
Som times, wri ers present o v ous truths by way of a st ry. Mo gan Housel is
a ma ter of this: in Fat, Ha py, And In Over Your Head he tells two st ries: the rst
of the co-wor ing co p ny W Work and the se ond of the grea est ski ra er in
hi t ry, Ma cel Hirsc er. The point of the piece? Housel a serts that you can avoid
the pain of loss ave sion if you can som how stop you self from b ing greedy. The
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4
idea is si ple, but Housel’s pr se t tion is no el. Whether his a se tion is pra t cable is a ot er thing e tir ly.
Repac age o v ous truths and spri kle them over the course of an e say.
If a cliché is a truth that is co mo ly a cep ed, then an i sight is a truth that isn’t
wid spread. Clichés can thus be repac aged to sound i sigh ful. This is a us ful
trick b cause a) clichés are o ten truths the rea er a ready agrees with, and b)
wha e er sounds i sigh ful will keep the rea er g ing.
At the top of this e say, I wrote “if I st gram has changed the la guage of photo r phy, then we should also e pect the eme gence of Twi ter, Med um and
Google to change the tenor of wri ing.”
This is a fai ly o v ous truth that’s been rewri ten to sound more i sigh ful. If
you stop to think a bit, you’d quic ly r alise that wri ers have a ways o t mised for
a te tion. And if you read a lot o line, you’ve pro
bly a ready n ticed this e fect in
a tion. It’s just the re e ence to I st gram that threw you. (Also: look at how I use
the phrase ‘o t mised for a te tion’ here, when I could have just as si ply said
‘liked to be read’. Ce tain phra es sound more s phi t ca ed than ot ers — this is
yet a ot er tec nique. More on this in a bit.)
The odds are good, ho e er, that when you read this se tence, you b came
c r ous. You kept scrolling b cause you wan ed to see where I would go. This is the
trick in a tion.
David Perell has a f mous e say t tled P ter Thiel’s R l gion. The e say is the
length of a small boo let, and is d vi ed into tiny se tions, each en ing with a
pac aged i sight. A rea er g ing through the piece will keep scrolling, b cause
their brain will go “Oh, that’s i te es ing! And that’s i te es ing! And that's also inte es ing! Ooh, what’s next?”
As a writer, I a mire what he’s done. But as a bus ness pe son, nea ly everything that Perell says in the piece about bus ness is su tly wrong — enough to make
me treat his e say as e te tai ment, not e
c tion.
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5
Use more s phi t ca ed la guage than ne e sary. Som times si ple ideas
can be dressed up to seem more l gi mate than they r a ly are. The pro lem is
that there are times where this is a re so able stra gy. Eco omist Russ Roberts
once said, of Na sim Nicholas Taleb:
Now, let me take a di fe ent book: Fooled by Ra do ness, by Na sim Taleb.
There were two views of that book, which I've me tioned here b fore. One
view was: 'There is not ing ori nal in this book. This guy is a fraud. He pretends he has
ured out all this stuff.' And I said, 'You know, I agree with
that.' I didn't learn an thing that I didn't know in this book b fore. I knew
that pro
bi ty is di cult. I knew that risk is a hard thing to wrap your mind
around. I u de stand som thing about most of the ideas he talked about in
the book. So, in some sense, I learned not ing. On the ot er hand, I learned
som thing i cre bly deep. That book r a ly grabbed me by the guts and
jerked me around. It forced me to co front some things that I “knew” but
didn't r a ly i te nalise. And I would put that as a ot er ca g ry of learning.
Taleb’s stra gy of u ing st ries and s phi t ca ed la guage (along with some
made-up names) are d signed to ha mer home a si ple set of ideas. Those ideas
are di cult to grasp at the e pli it le el. They have to be made ta it to be us ful.
So Taleb’s a proach is a l gi mate use of this trick.
Ot er times, ho e er, if you strip away the co pl ca ed words, the u de l ing
a g ment a pears ridic lous.
Venkatesh Rao is one of the best I te net wri ers I know. But his pieces are often o t mised to sound i sigh ful, as o posed to ca tu ing some o e tiona ly
us ful truth about the world.
In CEOs don’t steer, Rao writes par graphs like:
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6
The pr m ry CEO fun tion, and the trait the good ones are s lec ed for, is to
pr vide the g r sco ic st bi ty r quired to keep a co p ny ve tored in the
ch sen d re tion. They end up in the jobs they do b cause they cou te balance an o g n z tion’s na u al te de cy t wards di tra tion, ADD and mome tum di s p tion. A ty cal co p ny is a wa de ing, wo bling hive
mind, l able to spend all its time cha ing di tra tions if you let it, b fore dissol ing into a bunch of clever tweets about cra py pr t types.
This is a s phi t ca ed se tence. It uses words like ‘g r sco ic st bi ty’ and ‘vectored in the ch sen d re tion’ and ‘clever tweets about cra py pr t types’ — a juxt p s tion I e joy.
But if you strip the e say of its s phi t ca ed la guage, the core a g ment Rao
makes is ridic lous: most CEOs are u i te le t al du mies whose sole pu pose is
to keep the co p ny on track, ro ing in a si gle d re tion. This pro e ty, Rao asserts, is why so many bus ness books are r ducible to si gle-se tence e thets. It is
why co su tants ca not o ten su ces fu ly give a vice to CEOs . It a serts that
CEOs are s lec ed for their ‘non-stee ing abi ty’, i stead of some ot er fa tor. It
even e plains the e i tence of the CEO ‘r a ty di to tion eld’ (b cause, Rao asserts, non-stee ing is more e fe tive in the pre ence of a v sion). It is why co panies change CEOs in times of cr sis — which Rao a gues in such a d ligh ful paragraph that I can’t help but quote:
A “stee ing” event at the CEO le el is a r or e t tion for the e tire co p ny,
and for re sons I’ll get to, the best way to a co plish it is to r place the
CEO with a new one who is a ready locked on to a more d si able or e tation ve tor. Like say, Dara Kho ro shahi, who, based on his hi t ry, was appa en ly a ready locked on to the “don’t be a miso
nist as hole” ve tor that
Uber nee ed b fore he got the job.
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7
Stripped of all s phi t ca ed la guage, this a g ment is ea ly di missed as facetious. Each pro e ty that Rao pins on ‘not stee ing’ can be e plained by a si pler
u de l ing re son. (Which I leave as an e e cise for the alert rea er). Rao is si ply
ta ing one facet of the CEO e p r ence, and then e tra
tire th
la ing from it into an en-
ry of the rm.
Rao’s piece is not ok if your goal is to read for c reer re sons. But it's ok if your
goal is to read for e te tai ment. It’s ok b cause Rao’s goal is to a tract ey balls,
not cr ate be ter bus ness lea ers. And his wri ing is so good most pe ple will forgive him for it.
B ware What Sounds I sigh ful
The tak away from this piece is that what sounds i sigh ful and what is us ful or
true are o ten not the same thing. This a pect of cri cal rea ing isn’t e ph sised as
much as it should be — ou side, pe haps, of the s cial sc ences. I think we are all
the poo er for it.
A year ago I wrote Wri ing Doesn’t Make You a G nius. I n ticed that pe ple
tend to a sume good wri ers are smarter than they a t a ly are. I a gued that this
was mi ta en — that wri ers sound smarter on p per b cause the act of wri ing
forces them to cla fy their ideas.
But now I have a ot er re son. Wri ers are o ten seen as smarter b cause
good wri ers t day are trained to o t mise for soun ing i sigh ful. This bleeds over
into rea er pe ce tion.
But whether a writer sounds smart or a piece sounds s phi t ca ed shouldn’t
a fect you if your goal is to put things you read to pra tice. The que tions r main
the same: “Is this pe son b lie able? How lik ly is this g ing to be us ful? What’s
the chea est way to nd out?”
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8
O t mise For Us fu ness
I r me ber rea ing Paul Gr ham’s e say What You’ll Wish You’d Known as a
teena er, back when I had rst di co ered Gr ham as an e sa ist. One se tion of
that e say has stuck with me in the years since:
If (Shak speare and Ei stein) were just like us, then they had to work very
hard to do what they did. And that's one re son we like to b lieve in g nius.
It gives us an e cuse for b ing lazy. If these guys were able to do what they
did only b cause of some magic Shak spear ness or Ei stei ness, then it's
not our fault if we can't do som thing as good.
I'm not sa ing there's no such thing as g nius. But if you're tr ing
to choose b tween two th
ries and one gives you an e cuse for b ing
lazy, the ot er one is pro
bly right. (e ph sis mine)
“Heh”, I r me ber thin ing, “That’s a us ful idea.”
It’s been a co ple of months into this blog’s life, and I’m star ing to ci cle in on
a core pri c ple that’s dr ving all of my wri ing here. Call it Co mo place’s ce tral
th sis, if you will. I’ve wri ten about it — ba ly — in How to O t mise for Su cess, A
Th
ry, and I’ve also a lu ed to it when su mari ing Ray Dalio’s H pe r a ism. But I
want to spend some time t day has ing it out, in o der to work out all the i pl cations.
The ph lo
phy is som thing I call ‘O t mise for Us fu ness’.
The core co cept is si ple enough to state: if a b lief is us ful to you in achieving your goals, keep it. Ot e wise, di card it. An e te sion of this is, per Gr ham, if
you have to pick b tween two th
ries and one is less us ful than the ot er, pick
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9
the more us ful one r gar less of the truth. I b lieve e fe tive, su ces ful pe ple
do some var ant of this. U su ces ful pe ple don’t.
But this stat ment isn’t, in i self, very us ful (hah!). If we want to a ply it to our
lives, we should work out all the i pl c tions for ou selves, and e plore all the
forms this idea can take. So let’s do that here.
Mo f ing Min sets for Us fu ness
I think it’s pre ty clear to most pe ple that there e ists a set of tec niques that are
a) cheap to i pl ment at a pe so al le el, b) cr ate no i m d ate i prov ment in
know edge or tec nique, but c) r sult in hig er e fe tiv ness ne e th less. I’m going to call these class of tec niques ‘min set tweaks’. To put it si ply, a min set
tweak is a change to your worl view that a lows you to be ter pe form at something you’re d ing. A min set that helps you do so is us ful. A min set that doesn’t
is not. It seems ridic lous that r fra ing an a ti ty may change your e fe tiv ness
at said a ti ty, but such tec niques do e ist, and they do work.
A co crete e a ple will help i lu trate this point: if you’ve done any long-distance ru ning at all, you’ll be f mi iar with the idea of ma a ing your mind. A runner ghts the d sire to stop throug out her run. This is u de stan able: when your
lungs are burs ing and your mu cles are spa ming and the burn from pus ing
you self for an hour or two start to b come u bea able, your brain b gins to form
all sorts of clever e cu es to stop, to just lift the pain and to seek blessed r lief from
the agony of co ti ued m tion. Good ru ners know how to ma age this d sire.
They put their minds els where, or they f cus on their breat ing, or they use self
talk like “hills are my friend” to get past the bad bits.
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10
A ru ner in Crete
What i te ests me is that this min set tweak doesn’t do an thing in pa ti
lar to the
ru ner’s phy cal abi ty. Her lung c pa ty, st m na, and tec nique r main the
same. But a ru ner with the same amount of ta ent and trai ing will do be ter if
they have this min set tweak, when co pared to a ru ner wit out.
Sports ps cho gy-dr ven min set tweaks are o v ous, ho e er. It’s not so obv ous that min set tweaks e ist els where. But si
lar tweaks e ist for c reers; Eu-
gene Wallin ford writes about one such tec nique in his blog post Get A tached to
Sol ing Pro lems for Pe ple:
In Ge ting Cr tiqued, Adam Morse r
ects on his ev l tion from art st dent
to web d sig er, and how that changed his r l tio ship with users and critiques. Artists cr ate things in which they are, at some le el, i ves ed. Their
process ma ters. As a r sult, cr tiques, ho e er well-i te tioned, feel perso al. The work isn't about a user; it's about you. But...
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11
... d sign is di fe ent. As a d sig er, I don't ma ter. My work doesn't matter. Not ing I make ma ters in the co text of my process. It's all about the
pe ple you are buil ing for. You're just tr ing to solve pro lems for pe ple.
Once you r a ize this, it's the most li e a ing thing.
Why is this min set tweak us ful? Well, if you’re able to see the goal of your work
as ‘sol ing pro lems’, then cri cism of your work b comes less gra ing, b cause it’s
no longer about you. It’s about sol ing the pro lem. This a lows you to learn more
e fe tiv ly from cri cism, and it pr vents you from qui ting your eld pr m tur ly
as the fee back — e r neou ly seen as pe so al a tacks — wear you down.
I r cen ly heard a jou na ist co plain “if wri ers are artists, then what I deal with
wee ly is som one ri ping apart the art that I’ve ta en great pains to craft.” O timi ing for us fu ness su gests that this min set isn’t us ful at all, and should be
di car ed as quic ly as po s ble. The jou na ist would do be ter i stead if they
thought of their work as ‘co m n ca ing i fo m tion to an a d ence that needs
such i fo m tion.’
That isn’t to say that art doesn’t e ist in jou na ism, just that the way to get to art
is to adopt a min set that gets out of the way in the rst place. The o t mal approach is to nd a more us ful min set, som thing to help you stick around long
enough to build ma tery.
Di car ing Bad Min sets
Our e a ple with the jou na ist su gests a di fe ent a pl c tion of ‘o t mise for
us fu ness’. It su gests that you can use this ph lo
phy by i ver ing it: that is, if
you nd that you po sess a min set that a tiv ly hi ders you in achie ing your
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12
goals, then you should i m d at ly b gin a search for a more us ful min set to replace it with.
This idea has been su pri in ly po e ful for me. My rst e p r ence with it was
at my pr v ous co p ny, du ing a p r od where I found it di cult to co ti ue.
When we rst made the shift to sel ing pro ucts i stead of co sul ing se vices,
things got very di cult very quic ly. I was pulling all-nighters, pe ple were lea ing
due to the u ce tai ty, and cu tomers were yelling at us every ot er day, as we had
no idea what we were d ing. I got quite di cou aged, and spent a few months
thin ing about qui ting.
The tur ing point came when I met with D nesh Raju of R fe ra Ca dy. I told
him about my co p ny’s pro lems, and he told me two things. First, he gave me
some gene ic ma ag ment a vice, and then he told me to read High Ou put Manag ment by Andy Grove. I r me ber thin ing: what if I trea ed this e p r ence as
an o po t n ty to get r a ly good at ma ag ment? What would that be like?
Ever thing, e te na ly, was still the same, but I r me ber co ing in to work the
next week m t va ed to x the te r ble si
tion I was in.
It was like a light switch tur ing on. Ever thing, e te na ly, was still the same,
but I r me ber co ing in to work the next week m t va ed to x the te r ble si ation I was in. I trea ed the co p ny as a way to gain ma tery in ma ag ment. And I
did.
I think what was i po tant about that e p r ence was that I should have realised I nee ed a min set shift ea l er. It was i po tant for me to stay at the co pany in o der to achieve my goals. My min set b fore mee ing D nesh was hi de ing
me from achie ing those goals; my min set a ter mee ing him was way more useful. I should have o t mised for us fu ness ea l er.
Years la er, I read Cal Ne port’s book So Good They Can’t I nore You, which
e plained what had ha pened to me. In it, Ne port a gues that pic ing a pr fession by fo lo ing your pa sion is a te r ble idea, b cause most pe ple don’t know
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13
v c tion as a craft that you can get be ter at. This ‘craft man min set’ — as he put it
— is more us ful, b cause it a lows you to build ma tery. And the li e ture su gests
that ma tery leads to pa sion more o ten than the r verse.
I think many of the tec niques in The Pri c ples S quence are of the ‘min set
tweaks to help you achieve your goals’ ca g ry. Of pa ti
lar re vance to our cur-
rent di cu sion is Dalio’s min set tweak to ‘see pain as r a ty telling you that you
need to u date your u de stan ing of the world’. Adop ing such a min set helps
in dea ing with se backs. It also i plies chan ing min sets if they a tiv ly hi der
you.
O t mi ing Heuri tics
One way ‘o t mi ing for us fu ness’ is clea ly hel ful is when you’re loo ing for
good heuri tics in life.
A heuri tic is a big word that b s ca ly means ‘rule of thumb’. Coo ing is lled
with us ful heuri tics: for i stance, once you know that bread dough is ve parts
our to three parts li uid, you ne er have to look at a coo book for bread again,
and you can scale a recipe from four pe ple to 400.
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14
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what they’re pa sio ate about. I stead, Ne port re o mends se ing your ch sen
Loaves of bread in a shop
I think e fe tiv ness in life is a search for si
la ly us ful heuri tics. For i stance, my
pr v ous post on di mi sive stu bor ness is us ful b cause it ide t es a trait that I
no ma ly have tro ble pi poin ing. In the past, I‘ve had bad e p r ences with dismi siv ly stu born pe ple, though I couldn’t a
quat ly d scribe why they were
so bad. So ide t f ing this trait is good b cause it’s us ful.
Ide t f ing a trait is good, but d ve o ing an e cient test for that trait is even
be ter.
But it’s not us ful enough. To o t mise for us fu ness, I need to nd an e fe tive
test for d tec ing di mi sive stu bor ness. I wrote a h pot
sis in the clo ing para-
graphs of my piece — that p lite d bate might be one way to test for this trait — and
I i tend to test that through tr al and e ror.
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15
The truth is that p lite d bate may or may not work. I might have to try ot er
a proac es. But the point is that once I’ve found a good enough test, my goal is to
i co p rate it into my pr t cols for ‘do I want to work with this pe son or not’?
Ide t f ing a trait is good, but d ve o ing an e cient test for that trait is even better. Adop ing such a test is o t mi ing for us fu ness; it should — I hope! — make me
more e fe tive in the f ture.
A ot er us ful heuri tic that I’ve learnt is the idea that d bu ging a ti ty is indic tive of broa er pr gra ming abi ty. Or, to put this more a c rat ly: a progra mer with good d bu ging skills might not be a great pr gra mer, but a progra mer with bad d bu ging skills can ne er be a good one. It took awhile to
come to this r a s tion, but then all sorts of us ful i pl c tions pr sen ed themselves. One us ful i pl c tion is that in o der to b come a be ter pr gra mer, it
pays to work on your d bu ging skills. But a more us ful i pl c tion would be that
we could use this i sight for hi ing.
As a r sult of this idea, we r co
ured our scree ing tests at my pr v ous
co p ny and gave all ca d dates a bu gy pr gram to d bug as a rst test. If the
ca d date had real tro ble d bu ging, we cut the i te view short. It made our hiring a lot more e cient ove all.
In Pri c ples, Ray Dalio su gests that you write down your pri c ples for dealing with di fe ent si
tions, b cause si
lar si
tions tend to a pear r pea e ly
over the course of your life. Fo ma i ing your pri c ples si pl es d c sion ma ing.
It also a lows you to co si er each pri c ple e pli i ly, and to change them if they
no longer a pear as us ful to achie ing your goals as they used to.
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16
Di til ing Lessons from E p r ence
I was ha ing lunch with a friend r cen ly, when she co plained that she was di appoin ed with a co league of hers, and e plained why. It was a pre ty good st ry,
and I could u de stand her re sons for b ing fru tra ed by the end of it.
“But don’t be di a poin ed,” I said, “I think that b ing di a poin ed isn’t useful.”
“So what’s the right a proach?”
“I don’t know,” I said, “But what ot er things could you try?”
I think, loo ing back, that I would still have said co plai ing wasn’t good because it doesn’t o t mise for us fu ness. But i stead of wal ing through the whole
space of a te n tive r a tions, I would have su ges ed sor ing it in the o der of pote tial us fu ness.
It’s clear that di a poin ment isn’t a us ful r sponse. It doesn’t help my friend
achieve her work goals. But what ot er r a tions do we have avai able to us, and
how may we o der them?
A sligh ly more us ful a proach would be to see this as a cha lenge to
out what works: that is, to
ure out what m t vates this pa ti
ure
lar co league. Be ter
still is u ing that e p r ence as a way to build a l brary of pe so a ty a ch types,
the same way an at lete builds a pla book of tec niques.
This a proach r quires you to ask you self: “what pe so a ty mar ers may I use
to ide t fy pe ple who are like my co league? Is my co league lazy? How may I inva date that h pot
sis? Co tra my cu rent guess, are there a eas in which she is
m t va ed? If so, what are the co mon e ments? How may I use that to m t vate
her? And how may I test these gues es?”
Each que tion above scales the la der of us fu ness. Fin ing the a swer to
“how do I m t vate pe ple with my co league's pe so a ty” is more us ful than
“how do I tell quic ly and a c rat ly if som one is lazy?”, which in turn is more use-
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17
ful than “how do I know this pa ti
pa ti
lar co league is lazy?” or “how do I m t vate this
lar co league?”, which is, na ly, more us ful than “gosh, this co league is so
lazy, I’m so di a poin ed in her.”
A far be ter ou come would be to walk away with a ge e a i able rule for ident f ing pe ple of this pe so a ty type, and a ge e a i able rule for dea ing with
them, which you may use for the rest of your c reer.
O t mi ing for us fu ness means clim ing the la der of us fu ness and not settling too ea ly. I don’t think we do this nea ly enough. In this pa ti
lar e a ple, it’s
clear that you shouldn’t se tle for mere di a poin ment. But it also means not settling even a ter you nd a method for dea ing with the pro le a ic co league! A far
be ter ou come would be to walk away with a ge e a i able rule for ide t f ing
pe ple of this pe so a ty type, and a ge e a i able rule for dea ing with them,
which you may use for the rest of your c reer.
A co mon o je tion at this point is “how do you know your test works in the
ge e al case?” This is a l gi mate co cern. You might think that your co cl sion is
the right one (“my co league is lazy and I should work around her!”) and then
maybe it turns out that your test for laz ness is wrong or your s l tion to work
around her just ha pened to work this one time. But i pli it in o t mi ing for usefu ness is the idea that you should co ti
a ly reeva ate your heuri tics. Di card
your co cl sions if you nd i va da ing e dence. R
ne your a proac es with
co ti ued e pe me t tion.
Di til ing the Wrong Lessons
There’s a ot er a pect to this idea: that is to not jump to co cl sions that are of
li i ed us fu ness. This is a su tly di fe ent point from our pr v ous e a ple.
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18
In our pr v ous e a ple, you faced a pro lem and found a s l tion that
worked, but failed to co si er if the s l tion was ge e a i able. Here, you draw the
‘wrong’ lessons from your e p r ences. These lessons are ‘wrong’ in the sense that
they aren't as us ful as a te n tive lessons you could have learnt. But that, too, is
nowhere near the worst ou come; the worse ou come is that you learn lessons that
hi der you in the f ture — which are too easy to do if you co ti ue to run your life
on the b sis of these u e a ined co cl sions.
I once had a fe low ma a er who co clu ed a re so able but u t mat ly li iting set of lessons from a shared e p r ence. We had been hi ing a nu ber of cand dates from Ta wan. Our rst ca d date was a fa ta tic sof ware e g neer who
came from a large, mult n tio al har ware co p ny; he joined us b cause he was
loo ing to get into a ‘pro er’ sof ware co p ny, and there weren’t a lot of those in
Ta wan.
We had been a sig ing him to work on some frankly lousy projects, such as
se ting up a new i te nal CMS, as well as ta ing on low-va ue, dead-end e te prise
d plo ments.
He left us a ter se en months of such low-va ue work.
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19
Ae al shot of Taipei at dusk
My fe low ma a er and I co clu ed wil ly di fe ent lessons from this e p r ence. I
co clu ed that we shouldn’t waste good sof ware e g neers from Ta wan on subpar tasks. My co league co clu ed that the Si g por an sof ware ma ket was too
co pe tive, and we should only hire lousy sof ware e g nee ing ca d dates from
Ta wan, ones who couldn’t get jobs at co pe ing sof ware rms. He based his arg ment on the fact that the salary o fered was hig er than what we o fered, and
that we could not po s bly co pete when dealt with such o fers.
I di agreed hea e ly. My me tal mo els for r te tion were dr ma ca ly di ferent from his; I had good e p r ences i crea ing e plo ee r te tion in Vie nam despite the fact that we didn’t o fer the hig est salaries in town. I su pec ed we could
do the same with e g neers we hired from Ta wan, which would give our co p ny
a huge co pe tive a va tage, what with the li i ed su ply of co pu er sc ence
gra
ates in Si g pore.
The point here is not that I was right and he was wrong. The point here was that
my co league jumped to the least us ful i te pr t tion po s ble. His ‘le son’ ham-
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20
pered our abi ty to hire from Ta wan — which r mained an o ga s tio al hangup
well a ter I left the co p ny.
It could well be true that it is i po s ble to hold on to good Ta wanese sof ware
e g neers in Si g pore, and that the only s l tion is to r cruit bad ones. But I believe it wouldn’t cost much to test an a te n tive i te pr t tion, one that didn’t lock
us out of hi ing good Ta wanese sof ware e g neers. To this day, that co p ny has
not been able to r cruit from Ta wan, d spite my co ti ued o se v tion that r tention strat gies us a ly take a year or so to work out.
The Ce tral Th sis
So let’s sum up.
O t mi ing for us fu ness co sists of four a pects: rst, that min set hacks exist, and that the good ones help you b come more e fe tive at life. Se ond, that we
may i vert this idea: if you po sess a min set that hi ders you from achie ing your
goals, a gre siv ly look for a be ter one.
Third, ‘o t mi ing for us fu ness’ also works when it comes to lear ing from exp r ence: when som thing ha pens to you, pr or tise lear ing the lessons with
hig er us fu ness rst. Ve fy that they work through tr al and e ror. And fourth, prevent you self from lea ing to o v ous (or co v nient!) but u t mat ly less us ful
co cl sions.
So what does this have to do with this blog? Why write about ‘o t mi ing for
us fu ness?’
The a swer: Co mo place’s ce tral th sis is to write about ideas in a way that
is o t mised for us fu ness.
It’s too easy to write about to ics that are mer ly i te le t a ly i te es ing, or to
d scribe me tal mo els in an a stract way, with no clear a tio ables in sight. But
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o t mi ing for us fu ness in the co text of this blog means pic ing to ics that are
us ful for the work of buil ing c reer moats.
It also means that you should a ply the test of us fu ness whe e er you read
som thing here. Co struct tests for ever thing I write about; take not ing at face
va ue. And if an idea pas es your tests — that is, if it demo str bly helps you on your
jou ney to achieve your goals, then it’s us ful and you should keep it. But if it
doesn’t, then it doesn't ma ter if it's true. It's not us ful for you, and you should pay
it no mind.
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How First Pri c ples Thin ing
Fails
One of the threads I’ve been pulling on in this blog is the que tion “Where should
the line lie b tween rst pri c ples thin ing and pa tern matc ing? When should
you use one or the ot er?”
The que tion is i te es ing b cause many c reer d c sions d pend on good
thin ing, and thin ing is roug ly split into pa tern matc ing against our e p riences, or re so ing from rst pri c ples. My b lief is that it isn’t enough to have
one or the ot er; you r a ly need to have both.
The que tion I've ch sen — ‘where should the line lie …?’ — isn’t a pa ti
la ly
good one, b cause the o v ous a swer is o v ous: “it d pends!” And of course it
does: whether you do rst pri c ples thin ing or pe form some form of pa tern
matc ing r a ly d pends on the pro lem you’re tr ing to solve, the d main you’re
wor ing in, and all sorts of co text-d pe dent things that you can’t ge e alise
away.
As a d re tion for i quiry, ho e er, the que tion has been fai ly us ful. You can
sort of squint at the fo lo ing posts and see the sha ow of that que tion lur ing in
the bac ground:
1. In Much Ado About The OODA Loop I wrote about John Boyd’s ideas,
and in pa ti
lar Boyd’s b lief that good strat gic thin ing d pends on
a c rate sens ma ing, which in turn d pends on r pea e ly cr a ing
and then d stro ing me tal mo els of the world. I fo lowed that up with
Good Sy th sis is the Start of Good Sens ma ing, which was an at-
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tempt to demo strate the di cu ty of good sens ma ing u der co ditions of pa tial i fo m tion, by putting you in the shoes of a ba tered
CEO.
2. In R a ty Wit out Fram works I talked about the da ger of u ing
fram works e ce siv ly. I a gued that fram works were co pelling because they help give o der to your world, but that they also colour and
shape (and som times blind you to) what you see around you.
3. Then, in In D fence of Rea ing Goals, I went the ot er way and a gued
that for ce tain c reers, it was a co pe tive a va tage to build up a
large set of pa terns in one’s head. The ea est way to do that is to read
a large nu ber of books; I a gued that when seen in this light, it wasn’t
a te r ble idea to set rea ing goals for you self.
In fact, if you skim through the posts I’ve wri ten over the past six months, you
would nd a g ments for rst pri c ples thin ing in some e says, and a g ments
for be ter pa tern matc ing in ot ers; I was e se tia ly va i la ing b tween the two
p s tions. I su pose this is a way of a g ing that you need both forms of thin ing to
do well — or that I thought the art of good thin ing lies in n ing a ba ance between the two modes.
One us ful way to look at this pro lem is to ask: how can you fail? That is: how
can pa tern matc ing fail you? And how can rst pri c ples thin ing fail you?
In my e p r ence, the se ond que tion is more i te es ing than the rst.
First Pri c ples Thin ing, Eva a ed
If I were to ask you how pa tern matc ing might fail, I’m wil ing to bet that you can
give me a dozen good a swers in about as many se onds. We all know st ries of
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those who pa tern matched against the past, only to di co er that their matc es
were wrong when a plied to the f ture. There’s a wo de ful co le tion of bad predi tions over at the For sight I st tute, though my favourite is pe haps the e a ple
of Airbnb (I r me ber hea ing about the idea and g ing “What?! That would never work!” — but of course it did; the st ry has e tered the realm of star up canon).
It’s easy to throw shade at pa tern matc ing — ne e mind that e pe tise is esse tia ly pa tern matc ing, or that Cha lie Munger a pears to be very good at it.
But I’ve a ways co si ered the se ond que tion a bit of a my tery. How can rst
pri c ples thin ing fail? It all seems so lo cal. How i deed?
One lazy a swer is that pa tern matc ing is o ten fast, wher as anal sis isn’t,
and so pa tern matc ing is be ter sui ed for si
tions where you have to make a
d c sion quic ly. But this is an edge case more than it is an i te es ing a swer — we
know that pa tern matc ing may also be e ployed in slo er, more co si ered
forms of thin ing: ps cho gists call this an lo cal re so ing.
(I’m mi ing te m no gy a li tle; but bear with me — this is a blog post, not an
ac
ic p per).
A ot er po s ble a swer is that you make a mi take when e
cu ing your rea-
so ing:
- One or more of your ‘pri c ples’ or ‘a ioms’ turns out to be mi ta en.
- You make a mi take in one of your i fe ence steps.
In pra tice, mi takes like this aren’t as huge a pro lem as you might think — if you
run your re so ing past a su cien ly d verse group of i te l gent, a
ly cal pe ple,
it’s lik ly that they’d be able to spot your e ror.
What is i te es ing to me are the i stances when you’ve built lo ca ly c he ent
prop s tions from true and right a ioms, and you still get things wrong an way.
Back when I was still ru ning an e g nee ing o ce in Vie nam, my boss and I
would meet up every co ple of months to take stock of the co p ny, and to a ti u-
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25
late what we thought was g ing on in our bus ness. Our a g ments were re sonably w ter-tight. Som times we would start from o se v tions; ot er times, we
would a gue from rst pri c ples. My boss was ri o ous and a
ly cal. I r spec ed
his thin ing. B tween the two of us, I was pre ty sure we’d be able to d tect awed
a sum tions, or u re so able leaps of lo ic. We thought our co cl sions were
pre ty good. And yet r a ty would punch us, r pea e ly, in the face.
The way we got things wrong was a ways stri in ly si
lar. When we rst start-
ed sel ing Point of Sales Sy tems, most e te nal o servers told us that there was no
mo ey in it: that there were too many co pet tors, that the ma gins would be too
low, that we wouldn’t be able to boo strap the bus ness. We thought the same
things, but my boss d ci ed to give it a go an way. I r me ber spen ing months
a te wards, tal ing with him, tr ing to a swer the que tion “why are we ma ing so
much mo ey?” We o sessed over this for months. In re r spect, we were blessed
to be able to ask this que tion. But the fact that we didn't u de stand why there
wasn’t more co p t tion made us antsy as hell. We had any nu ber of th
ries.
They were all wrong.
We di co ered the a swer much la er. It turned out that the ma ket was di torted in a very pa ti
lar way. The go er ment wan ed to e cou age the ado tion of
self-se vice chec out m chines, and Point of Sales sy tems were i clu ed u der
that d
tion. This meant that they were wil ing to give out tho sands of do lars in
grants in o der to su sidise the cost of ado tion. If you were a ve dor du ing that
p r od, and you got onto an a proved ve dor list, you had a cess to those grants;
the ve dor list served as a chok point to the rest of the ma ket. This e plained the
ma gins we were se ing, along with a large nu ber of ma ket cha a te i tics we
had o served but not u de stood. (Note: I’m lea ing a nu ber of d tails out of
this a count, b cause my old co p ny is still a pla er in the ma ket. The shape of
the ma ket has changed, na ra ly, and the grant si
tion is di fe ent.)
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26
In ot er words, there was a fact that we didn't a
quat ly u de stand. Wit out
know edge of that fact, we couldn't boo strap a good e pl n tion.
It eve t a ly got to a point where we — or more a c rat ly, I — no longer said
things like “Ok, this a g ment makes sense. I think it’s right.” R a ty had punched
me in the face one too many times to be that co
dent. I b gan to say things like:
“Ok, this anal sis checks out. It seems pla s ble. Let’s wait and see.”
Part of the re son I had to write Seek Ideas at the Right Le el of A stra tion before wri ing this post was b cause I had to work out the ge e al idea from my exp r ences. T day, I know that you can build anal ses up from base pri c ples …
only to end up at the wrong le el of a stra tion. This is one way to fail at rst pri ciples thin ing.
But I think there's a more pe n cious form of fai ure: which o curs when you
re son from the wrong set of true pri c ples. It is pe n cious b cause you can’t ea ily d tect the aws in your re so ing. It is pe n cious b cause all of your base axioms are true.
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27
If you pick the wrong set of base pri c ples — even if they’re all true — you are lik ly
to end up with the wrong co cl sion at the end of your thin ing. In ot er words,
the only real test you have is against r a ty. Your co cl sion should be us ful. It
should pr duce e fe tive a tion.
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Co vers ly, it’s po s ble to ‘
ure ever thing out’, only to learn a new piece of in-
fo m tion that changes ever thing, that r co
ures all the re so ing chains in
your a g ment.
As the old sa ing goes: in th
ry, th
ry and pra tice are the same. In pra tice,
To par phrase that aph rism: in th
ry, rst pri c ples thin ing a ways leads
th
ry and pra tice are di fe ent.
you to the right a swer. In pra tice, it doesn't.
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29
The Games People Play With
Cash Flow
In my last post I e a ined how rst pri c ples thin ing fails. This post is g ing to be
about a si gle, co crete e a ple — about an a g ment that star ed me down this
path in the rst place.
A co ple of months ago, a friend sent me a blog post t tled Sta tups Shouldn’t
Raise Mo ey, over at a we site called e s
al com. I thought that the post was
tigh ly a gued and re so ably put t get er, with each prop s tion lea ing lo ca ly
and c he en ly to the next. I also n ticed that the a thor had ta en the time to construct their a g ment from rst pri c ples … which meant it was di cult to r fute
any i d vi ual clause in their chain of re so ing.
But I also thought it was wrong. I told my friend as much.
“How is it wrong?” he i m d at ly cha lenged.
“Well …” I b gan. And then I stopped. I r alised I didn’t have a good a g ment
for why it was wrong. Every a iom and i te m d ate prop s tion were ideas that I
agreed with. And it wasn’t so si ple as the co cl sion b ing at out mi ta en —
you could pro
bly run a small, su ces ful i te net bus ness u ing the ideas laid
out in the posts’s a g ment (i te net-based bus nes es tend to be si pler to manage, and there are many nic es you can o c py).
But I felt u easy b cause I thought the fra ing wasn’t as us ful. This was a
more co plex thing to d bunk.
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30
The Se up
It’s easy to think that a g ments have just three te m nal truth va ues: right, maybe,
and wrong. In pra tice, a g ments (and in pa ti
lar, the sort of a g ment that we
use to ju t fy a tions) have many po s ble truth va ues. These i clude things like
‘got the d tails wrong, but is by-and-large co rect’, or ‘is co rect but for a di fe ent
le el of a stra tion; doesn’t a ply here’, or ‘is pa tia ly co rect, but isn’t as us ful
co pared to a di fe ent fra ing of things.’ The e s
al com piece is i te es ing
b cause I think it is an i stance of that last one. It was what pushed me to start
thin ing about all the va ous ways rst pri c ples thin ing could go wrong.
The a thor’s a g ment u folds as fo lows:
1. Sta tups are risky.
2. Rai ing ca tal to do a star up r duces skin in the game (you’re spending ot er pe ple’s mo ey, a ter all).
3. Once you have less skin in the game, it is ea er to make bad d c sions.
The a thor a gues this is due to a) ha ing a ca tal bu fer to cus ion
you, and b) ha ing more time to waste.
4. The a te n tive is to forego rai ing ve ture ca tal and to cr ate a sustai able bus ness from the b gi ning, ‘gro ing li ea ly with the number of pe ple that give you mo ey for your pro uct.’
5. This aligns i ce tives: you grow only by sol ing cu tomer pro lems that
they would pay you for. And you’ll pick the shor est path, b cause you
don’t have the lu
ry of time gi en to you by an i f sion of ot er peo-
ple’s mo ey.
6. Ther fore: sta tups shouldn’t raise mo ey.
At rst glance, there doesn’t seem to be an thing that’s e pli i ly wrong with this
a g ment. I agree with all the base ideas, and I found m self no ding to the i ter-
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31
m d ate prop s tions. The lo cal co rec ness of the a g ment wasn’t a pro lem.
No, my u ease stemmed from e p r ence: I knew this wasn’t the right way to think
about rai ing ca tal. But I couldn’t b gin to co struct an a g ment that went
against it.
My friend and I spent no more than 10 mi utes di cussing this piece. But in the
months a ter our co ve s tion, I co ti ued to r turn to the a thor’s a g ment. I
thought it was i te es ing b cause it re r sen ed a type of thin ing e ror that you
and I are lik ly to e counter in our lives. The form of the e ror is su tle, and therefore more di cult to d tect; the best d scri tion I have for it is: ‘pe fec ly r ti nal,
lo ca ly co struc ed, and not r a ly wrong — but not as us ful or as po e ful as
some ot er fra ing.’
Of course, my o se sion was for i str me tal re sons: how might you recognise a be ter fra ing when you found one? I’ll a mit that I was a li tle naive here: I
thought that if I could ge e alise the stru ture of this a g ment, I would be be ter
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32
able to reco nise si
lar e rors in the f ture. Alas, I have not been able to do this to
my sa i fa tion.
(In pra tice, most of the ol er e tr pr neurs I know seem to u de stand the
pro lems with such sens ma ing. Pla s ble a g ments are dealt with in a si ple
ma ner: you try the re o me d tions that u fold from the anal sis, but you remain alert to see if they give you e ac ly the r sults you want. If they don’t, you
keep the frame for the time b ing, but you co ti ue to look out for a be ter e plan tion. And how would you know if you have found a be ter way of thin ing about
your si
tion? Si ple: you li ten car fu ly. In the words of Malaysian ma nate
Robert Kuok, “you learn to di till wi dom from the air.”)
The most I’ve been able to do is to a ti
late how the a thor messed up — and
ther fore how rst pri c ples thin ing may fail — som thing that I e plored in my
pr v ous post. The core idea is si ple: I b lieve the a thor star ed from a li i ed
set of a ioms. If you start from a wrong set of a ioms, you would eve t a ly end up
with a awed co cl sion. In this case, I think the e s
d
al com a thor star ed from a
cient u de stan ing of bus ness.
To ge e alise a li tle, pe ple with li i ed u de stan ing of bus ness think that
bus ness is all about ma ing pro ts. But those who a t a ly run bus nes es know
that ru ning a bus ness is all about ma a ing cash ows.
And the e s
al com a thor’s a g ment fails b cause he doesn’t a pear to un-
de stand this.
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33
John Ma one and the I ve tion of
EBI DA
In 1972, a 32 year old man named John Ma one was o fered the top job at TeleCo m n c tions Inc (TCI), a c ble co p ny. He took charge on April Fool’s Day,
1973.
At the time of his hi ing, Ma one was pre dent of Je rold Ele tro ics, a d v sion
of Ge e al I str ment that su plied c ble bo es and cre it to the c ble sy tems
co p nies. He had been o fered the Je rold Ele tro ics job when he was 29 years
old, just two years ea l er. B fore JE, he was at Mc i sey Co sul ing. And b fore
Mc i sey, he had a job at AT&T’s famed Bell Labs, where he a plied o e tions research to nd o t mal co p ny strat gies in m nopoly ma kets. Ma one co cluded that AT&T should i crease its debt load and a gre siv ly r duce its e u ty base
through share r pu cha es — a hig ly u orth dox re o me d tion at the time. His
a vice was d li ered to AT&T’s board and then promp ly i nored.
Ma one had been thin ing about the i te play b tween debt, pro t, cash ow,
and co p rate ta es for some time. In 1972, when he was rst o fered the TCI job,
he had a ready n ticed a nu ber of stru tu al pro e ties in the c ble i du try that
piqued his i te est:
1. The c ble i du try had hig ly pr dictable su scri tion re enues. C ble
tel v sion cu tomers in the 60s — e p cia ly those in ru al co m n ties
— were e ger to u grade to c ble for be ter TV r ce tion. These subscribers paid mont ly fees and rarely ca celled.
2. C ble fra chi es were e se tia ly a l gal right to a l cal m nopoly,
which meant that c ble sy tem o e tors had li i ed co p t tion once
it e ta lished i self in a gi en l cale.
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34
3. The i du try i self had very favourable tax cha a te i tics — smart c ble
o e tors could she ter their cash
ow from ta es by u ing debt to
build new sy tems, and by a gre siv ly d pr c a ing the costs of constru tion. Once the d pr c tion ran out on pa ti
lar sy tems, they
could then sell them to a ot er o e tor, where the d pr c tion clock
would start anew.
4. Most i po tan ly, the e tire ma ket was gro ing like a weed: over the
course of the 60s and into the start of the 70s, su scriber counts had
grown over twe t fold.
Of course, Ma one didn’t have much time to r
ect on these o se v tions. He land-
ed at TCI and found the co p ny at the brink of ban ruptcy.
Bob Ma ness, the founder of TCI, had grown the co p ny over the course of
two decades u ing a ridic lous pile of debt — about 17 times re enues, at the time
of Ma one’s hi ing. Ma one spent his rst co ple of years at TCI gh ing to keep the
co p ny alive. He ew into New York every co ple of weeks, hat in hand, ren g tia ing covenants and as ing for e te sions on debt r pa ments. At one point during a mee ing with TCI’s bankers, Ma one threw his keys on the t ble and threatened to walk, lea ing the co p ny to the banks. The bankers c pi la ed, gran ng
TCI a much nee ed e te sion.
Ma one and Ma ness also had to wo ry about ho tile takeovers, gi en TCI’s low
stock price in the ea ly 70s. They e
cu ed a s ries of co pl ca ed na cial ma-
noe vres a year or so a ter Ma one took over, cr a ing a se
rate class of vo ing
stock. This gave them co trol of the co p ny, a lo ing Ma one the fre dom to focus on righ ing its nances.
A ter three years of hell, TCI was na ly pulled back from the brink of na cial
di a ter. And then Ma one got to work.
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35
didn’t. First, he u de stood that c ble was like real e tate: i cre bly high xed
costs up front as you built or bought the sy tems, and then hig ly pr dictable, monopoly cash ows for a long time a te wards. He u de stood that if he used debt to
nance a qu s tions, he could keep gro ing the co p ny, and use the d pr c ation on a quired sy tems (plus the write-offs from the loans i self) to d lay pa ing
ta es on that cash ow. Third, Ma one u de stood that u taxed cash ows from all
of those c ble su scribers could be used to a) se vice the debt, b) pay down some
of those loans — only when ne e sary; Ma one wan ed to keep the debt-to-earnings r tio at a ve-to-one le el — but more i po tan ly c) demo strate to cre tors
that TCI was a wo thy debtor. And na ly, Ma one u de stood the be
ts of size:
the lar er TCI got, the lo er the cost of a qui ing pr gra ming (i.e. shows and
pr grams), b cause it could amo tise those costs across its e tire su scriber base.
The pro lem was that Wall Street in the 70s and 80s didn’t get any of this. In
1986, br ke age rm E. F. Hu ton r fused to pu lish a r port on TCI b cause “we
don’t pu lish r ports on co p nies or i du tries that don’t show a pro t.” And indeed, Ma one’s stra gy r quired TCI to show a loss for pre ty much fo e er; for the
next 25 years, it was ne er in the black.
Ma one went on a charm o fe sive. He b gan tal ing to Wall Street a
lysts, ex-
plai ing his lo ic. To make his point, Ma one cr a ed a new a coun ing me ric,
som thing he called ‘ear ings b fore i te est, d pr c tion, and ta es’, or EBI DA.
Mark R bichaux writes, in C ble Co boy:
Through a co b n tion of lo ic, ja bo ing, and sheer force of pre ence,
Ma one pe sua ed Wall Street to take a se ond look at the c ble i du try,
long shunned b cause of its none i tent ear ings and heavy debt a diction. Ma one a gued, su ces fu ly, that a ter-tax ear ings si ply didn’t
count; what coun ed was c ble’s prod gious cash ow, fun ing TCI’s co tin-
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Ma one u de stood a few things about the c ble i du try that many ou siders
fra chi es rose, so would the va ue of its stock. Net i come was an i ve tion
of a cou tants, he d clared.
Think about it, he’d tell a young a
lyst: B cause TCI had high i te est
pa ments and big write-offs on c ble equi ment, it pr duced los es, and
b cause it pr duced los es it paid har ly any ta es to the go er ment. As
long as c ble o e tors co lec ed pr dictable, m nopoly rent from customers, met i te est pa ments, and grew from a qu s tions, why wo ry? Malone liked the mat
ma ics of it: Tax-she tered cash ow could be leve aged
to land more loans to cr ate more tax-she tered cash ow. A stan ing joke
around TCI was that if TCI ever did r port a large pro t, Ma one would re
the a cou tants.
Ma one was, e se tia ly, a hac er: he stared deeply at the thic et of a coun ing
rules, tax laws, and po s ble bus ness moves, and found a stra gy that took a vantage of the stru tu al r a ties he found in front of him. He was the rst pe son to
d ploy this pla book ri o ou ly, and TCI was amongst the rst co p nies to start
u ing EBI DA as a na cial me ric. Ma one made good on his pro ise. Over the
next 25 years, TCI went from a qui ing c ble co p nies to a qui ing and i ves ing
in pr gra ming cha nels. It eve t a ly b came the largest c ble co p ny in the
Uni ed States. It ne er turned a pro t. And the r sults speak for the selves: from
the year that Ma one took over, in 1973 — to 1998 when AT&T na ly bought it for
$48 bi lion, the co pound r turn to TCI’s shar hol ers was a ph no
nal 30.3%,
co pared to 20.4% for its co p t tion, and 14.3% for the S&P 500 over the same
p r od. (Source)
Amongst bus ness pe ple and savvy i vestors, Ma one’s lo ic dov tails with a
f mous sa ing: ‘cash ow is a fact; pro t is an opi ion’. Even t day, there are people who do not fu ly u de stand the games you can play with cash ow. Or — more
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37
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al e pa sion. Bu ing c ble was like bu ing real e tate. As the va ue of TCI’s
ter cash ows.
In the ‘mi u de stood’ buc et, take Am zon, for i stance. In 1997, a 33-year
old Jeff B zos a nounced that he was e se tia ly adop ing the same pla book, ring a shot across the bow with his rst a n al le ter to shar hol ers.
B zos wrote:
We will co ti ue to make i ves ment d c sions in light of long-term ma ket
lea e ship co si e tions rather than short-term pro tabi ty co si e ations or short-term Wall Street r a tions. (e ph sis mine)
We will co ti ue to me sure our pr grams and the e fe tiv ness of our
i ves ments a
ly ca ly, to je t son those that do not pr vide a cep able re-
turns, and to step up our i ves ment in those that work best. We will co tinue to learn from both our su ces es and our fai ures. (…)
When forced to choose b tween o t mi ing the a pea ance of our
GAAP a coun ing and ma mi ing the present va ue of f ture cash
ows, we'll take the cash ows. (e ph sis mine)
For the next two decades, Am zon grew its re enue and made no pro ts, lea ing
jou na ist Matthew Ygl sias to write, in 2013: “Am zon, as best I can tell, is a cha it ble o g n z tion b ing run by e ments of the i ves ment co m n ty for the
be
t of co sumers.” B zos e joyed it so much he put it in his a n al le ter the
same year. B zos knew what he was d ing; Ygl sias didn’t get it.
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38
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i po tan ly — they do not u de stand the things bus nes pe ple would do for bet-
So, you might ask, what does John Ma one have to do rai ing ve ture ca tal? The
a swer: more than you might think.
The core idea that you should take from Ma one’s st ry isn’t “oh, it’s po s ble to
build a val able co p ny with no a coun ing pro ts” — though that is a val able
i sight — but i stead “there is a whole genre of games that pe ple play with cash
ow” and also “cash ow is o ten more i po tant to grok than pro ts.”
One i pl c tion of these ideas is that rai ing ca tal for a bus ness has more to
do with the n ture of cash ows in a pa ti
lar bus ness mo el than it does any-
thing else.
N tice, for i stance, how Ma one’s e tire stra gy was built around a si gle
fact: that you have to pay up front for c ble sy tems, but then earn back your money via a st ble stream of cash for years and years a te wards. N tice how this extreme d mand for ca tal drove Ma one to e brace debt, over ot er sources of
ca tal.
Now n tice how clos ly this r se bles the Sof ware as a Se vice (SaaS) business mo el, which is the pr m ry bus ness mo el in t day’s star up world.
(In SaaS bus nes es — like Slack, or Zoom — you pay pr gra mers to cr ate
sof ware, and then you pay even more mo ey to sales and ma ke ing to land customers. Then the cu tomers pay you a st ble stream of cash for years and years afte wards. Same d na ics: high u front costs, and then a st ble stream of co partiv ly smal er pa ments la er. So while SaaS co p nies don’t ty ca ly use debt
the way Ma one did, they have — su prise, su prise! — si
lar ca tal r quir ments.)
Let’s r turn to the ori nal que tion posed by the e s
al com a thor: why
raise mo ey from i vestors? In fact, why raise mo ey at all? There is only one real
a swer if you want to re son from rst pri c ples: you raise mo ey due to the tem-
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39
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The Games Pe ple Play With Cash
Flow
spend mo ey now to make mo ey la er. This i plies that you’ll need a source of
ca tal at the start of many bus ness ve tures.
This might seem like a st pid, o v ous stat ment to make — and it is! But I’ve
learnt that pe ple with li tle e p r ence of bus ness (or li tle e p sure to e u ty inves ing) are lik ly to miss out on the full i pl c tions of this si gle stat ment. As
I’ve me tioned ea l er, those with a li i ed u de stan ing of bus ness think that
bus ness is all about ma ing pro ts; those who have a t a ly run bus nes es know
that o e a ing a bus ness is mos ly an e e cise of ma a ing cash ows.
Here’s how I learnt this: in my pr v ous co p ny, I used to get fru tra ed whene er my old boss gave cu tomers di counts in e change for ea l er pa ments.
“We’ve done all this work!” I’d co plain, “Why aren’t we ge ting paid our due?”
“Well,” he would say, “We need the cash.” I sighed, and said that I u de stood,
but I still didn’t r a ly get it.
Months la er, I was kvetc ing about this pra tice to som one that I co si ered
a me tor, when he i te rup ed me mid-rant: “But that is the lo cal thing to do, you
know right?”
I was su prised. “How do you mean?”
“Think about it,” my me tor e plained, “You’re ru ning a co plet ly bootstrapped bus ness, which means you earn what you can sell. A huge chunk of your
ca tal is locked up in i ve t ry. Now your boss needs that cash back, to pay for
e pen es. You should view the di count he’s gi ing to cu tomers as a price he’s
wil ing to pay … in o der to u lock that cash ow.”
It was then that I u de stood. It took me a few years, but I now get that a m jor
part of bus ness is si ply lear ing the many games that you can play with cash
ow.
For i stance:
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p ral n ture of cash ows. To put this a ot er way: in many bus nes es, you must
Chan ing the pa ment terms on your i voi es i stan ly makes your co p ny more
val able, b cause you change the n ture of cash ows in your bus ness. (This is
co mo ly e ploi ed by pr vate e u ty pe ple, for o v ous re sons … but I’ve also
wri ten about this b fore, in my su m ry of Ram Ch ran’s What The CEO Wants
You To Know).
2) The E fects of Speed on Cash Flow
Once you r alise that it is in the n ture of bus nes es to do all sorts of things to unlock more cash ow, you b gin to r alise that there are all sorts of i te es ing ways
you can e ploit this te de cy.
For i stance, in Good Sy th sis is the Start of Good Sens ma ing, I d scribed
the co s quences of an u start co pet tor e bra ing lean ma
fa tu ing, from
the pe spe tive of the i cu bent. The co pe tive a va tage a for ed by lean
ma
fa tu ing is su tle: yes, you get to make stuff at a chea er cost, with be ter ef-
cie cy and a lo er e ror rate. But the true a va tage that you get lies in the cons quences of a speedy d li ery: if you can gua a tee a fast, co si tent d li ery
time from your fa t ry, your dow stream di tri
tors may hold less i ve t ry —
which in turn means that they would have a be ter cash p s tion.
Why is this cool? Well, you’ll quic ly learn that you can charge a hig er price,
e joy hig er ma gins, while still ta ing ma ket share away from your co pet tors.
Why? Si ple: di tri
tors will pr fer to hold your pro uct over a co pet tor’s, giv-
en the be ter cash ow it a fords them. (This still r quires a ce tain amount of price
i ela ti ty; for an in-depth look at how this ha pens, read Co pe ing Against
Time).
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41
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1) Pa ment Terms
3) Pre-pa ments in the Resta rant I du try
Pe ple can also play cash ow games the ot er way.
Nick Kokonas is a resta ra teur who runs three of the best resta rants and bars
in Ame ca: Ali ea, Next, and The Aviary. A few years a ter star ing in the F&B i dustry, Kokonas r alised that he could charge for a d posit for a resta rant rese v tion
— som thing that most pe ple thought was i po s ble. He b gan co lec ing money up front. This changed the d na ics of his bus ness in a pre ty ra cal way.
Kokonas d scribes what ha pened next (around 55:44 in this po cast):
Food costs mo ey. But the way that ever one (in the F&B i du try) looks at
food costs, and pa ing for food is very weird. When COVID star ed, every famous chef that went on TV said, “This is the kind of bus ness where this
week’s re enues pay for bills from a month ago.” So when we star ed to
bring in mo ey from d posits and pr paid rese v tions, I su de ly looked
and we had a bank a count that had a co ple mi lion do lars in it — of forward mo ey, like a lot of ot er bus nes es, like the co pu er bus ness —
where you buy a co pu er and they only ship it to you ve days la er. So we
had a oat! So I star ed cal ing up some of our big ve dors for the big, expe sive items — like pr teins: meat, sh; lu
ry items: like caviar, foie gras,
wine and liquor, and I said, “I don’t want net-120 an more, I want to pr pay
you for the next three months.” And they had ne er had that kind of a
phone call from a resta rant b fore.
You can see where this is g ing. The resta rant bus ness is tr d tio a ly a cut-throat,
low ma gin bus ness. But with the magic of a oat, Kokonas co ti ues:
So how much should they di count it? So let’s say we’re g ing to buy steaks.
We’re g ing to pay $34 a pound whol sale for dry aged rib-eye, we get
net-120 (no ma ly). So I call the guy and say “I’m g ing to use 400 pounds
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42
of your beef a week for the next 4 months, for our menu, which is about
about $300,000 of beef, what (would) we get, if we pr pay you?” And he
was like “what do you mean?” I’m like “I want to write you a cheque t morrow for all of it, for four months.” And he was like, “Well, no one has ever
said that.” So he called me the next day, he said “$18 a pound” … so … half.
Half price.
(I t rvi wer): Wow.
(Kokonas again): That’s what I said! I went, “I’ll pay you $20 if you tell me
why.” And he said, “Well, it’s very si ple. I have to slaug ter the cows, then I
put the beef to dry. For the rst 35 days I can sell it. A ter 35 days there’s
only a han ful of places that would buy it, a ter 60 days, I sell it $1 a pound
for dog food.” So his waste on the slaug ter, and these a mals’s lives, and
the ethics of all of that, are b cause of net-120! Seems like som one should
have
ured this out! As soon as he said that, ever thing clicked, and I went
“We need to call every one of our ve dors, every time, and say that we will
pr pay them.”
The net r sult — Kokanas co cludes: “we’ve ma aged to take our food costs down
to a le el that ho es ly, our chefs ne er thought was po s ble.”
Many of the games you play in bus ness is ce tred around ma a ing cash ow.
Rai ing ca tal is one of them.
Rai ing Ca tal … From First Pri c ples
There are only three ways to raise ca tal:
1. You sell e u ty — e.g. on the stock ma ket, or to a gel i vestors or rich
friends, or to ve ture ca ta ists.
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43
2. You take on debt — e.g. from banks, or i su ance co p nies, or you
may sell bonds, or i sue notes or use some ot er debt i str ment.
3. You use r tained ear ings — that is, you take cash ge e a ed by the
bus ness and rei vest it back into the bus ness.
Each of these three choi es come with their own n ances. And I don’t mean a tiny
bit of n ance, I mean that you can write whole books about each of these three options. There are di fe ences in sel ing e u ty to an a gel i vestor vs sel ing e u ty to
a VC (vs se ting up a joint ve ture, the pr m ry method of e pa sion in South East
Asia) the same way there are n ances with ta ing on debt (Junk? SPVs? Co vertible note? The list goes on).
But at least now you have all the right a ioms in place. You have an i t itive unde stan ing of cash ow, and you u de stand that rai ing ca tal is a co s quence
of the te p ra ty of said ows. You know that some bus ness mo els d mand exo b tant amounts of up-front ca tal. You know that there are e fe tiv ly only three
ways to raise ca tal, and you u de stand that the d c sion to raise ca tal is r a ly
a fun tion of your bus ness mo el.
So let’s build up from rst pri c ples. If I were to make an a g ment about
whether sta tups should or shouldn’t raise ca tal, I would say:
1. Whether you should raise ca tal or not is a fun tion of the cash ow
cha a te i tics of your bus ness. What type of bus ness are you in? What
kind of bus ness are you tr ing to build?
2. This is both a va ues que tion (do you want to work your ass off or do
you want to ge e ate enough cash to buy you fre dom?) and a business que tion (is your bus ness very ca tal i te sive? will your co p tition make your life e trem ly di cult if you are u der-ca talised?)
3. And na ly: what pools of ca tal can you draw on? Most pe ple in the
star up world a sume ve ture ca tal, b cause it is a d fault o tion. But
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VC is si ply one o tion; ca tal comes in many forms. Do you have rich
friends or fa
ly? Do you or your friends have a cess to a fa
ly o ce?
Are go er ments more lik ly to fund you? Are you in a ma ket where
pe ple are more wil ing to write you a loan than to i vest in a new comp ny? (Which is som times the case in Si g pore.)
4. To some d gree, none of these que tions can be a swered u til you’ve
star ed e
cu ing, b cause only a tion pr duces i fo m tion.
How First Pri c ples Thin ing Fails,
Part 2
I’ve spent most of this e say on the n ances of cash ow, which is kind of a joke,
gi en that the goal of this piece is to demo strate how rst pri c ples thin ing fails.
But I wan ed to give you a real world e a ple, and the e s
al com blog post
ha pened to be the one e say that star ed it all.
So I guess the joke’s on me.
I think it’s worth as ing at this point: what are the co s quences of b lie ing in
a ‘less us ful’ a g ment about the world? What ha pens if you read the e s
al.-
com’s a g ment as fact?
Well, for starters, it might mean b ing li i ed by your b liefs. It might mean
cha ing bus ness ideas that have no hope of b co ing su ces ful, b cause structura ly they call for e te nal ca tal; it might mean i no ing a te n tive sources of
ca tal, b cause they don’t t into neat buc ets like ‘VC’ or ‘a gel’ or ‘ve ture debt’.
But of course it might not mean any of that. You could just as well boo strap a
tiny, su ces ful i te net bus ness sel ing Wor press pl
ins or Shop fy themes, be-
lie ing that ‘sta tups shouldn’t raise ca tal’. You would then ne er need to u date
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45
bus ness.
And that’s ne.
U t mat ly, we hold b liefs that are good enough for our goals. We only re-exa ine them when we di co er that they no longer serve us in the pu suit of our
a b tions. If the e s
al com a thor achieves su cess with this b lief; more po er
to them.
*
I’ve me tioned in my pr v ous piece that the most pe n cious form of fai ure for
rst pri c ples thin ing o curs when you start from an i co plete set of a ioms. I
a gued that this was a pe n cious b cause you ca not ea ly d tect a mi take from
the stru ture of your a g ment; you must o serve r a ty to see how well your beliefs maps to pra tice.
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46
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your b liefs, b cause those are pe fec ly su cient for a small, i d pe den ly-run
I then (hop fu ly!) demo stra ed this with this post: I e plained that an u de standing of cash ow is cri cal to any a g ment about ca tal. Not ha ing that u derstan ing is lik ly to ho ble you when you build up an opi ion from rst pri c ples.
There’s a meta que tion that’s i plied by this e tire e say, of course. The question is this: how would you know whether the rst pri c ples re so ing you’ve built
up, from scratch, is right or wrong? In ot er words, how do I know this e say is
right? This is a good que tion, and the ho est a swer is that I don’t. I’ve ne er
raised ve ture ca tal. We tried to take on debt in my pr v ous co p ny, but every
loan we were o fered r quired us to sign a pe so al gua a tee. (Yes, even the Sing pore go er ment-backed ones; I will ne er u de stand the lo ic there).
There may be whole a ioms that I'm mis ing out on. But that’s par for the
course.
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47
In the end, this is e ac ly the point I’m tr ing to make. You ne er r a ly know if
your ri o ou ly a gued anal sis is right; you a ways have to check for missed axioms du ing e
c tion. And so I think the best thing that we can hope for is some
form of “this anal sis checks out, ever thing you seems pla s ble, let’s wait and
see.”
Which, r
e iv ly, a plies to this e say. Caveat em tor.
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To Get Good, Go After The
Metagame
I have a friend who’s cu ren ly d ing a PhD in A t cial I te l gence. Last year, when
he was back in Si g pore, he went over to the Nanyang Tec n lo cal Un ve s ty to
give an hour-long talk on his r cent work. NTU is l ca ed far in the west of Si gapore, tucked into a bit of no-man’s land; my friend came back six hours la er, exhaus ed but ha py.
“What took you so long?” I asked, b cause we had di ner plans with ot er
friends, and his d layed r turn meant that he couldn’t join.
“Oh, the PhD st dents who a ten ed wan ed to talk about the meta. And then I
lost track of time.”
*
Every su cien ly i te es ing game has a metagame above it. This is the game
about the game. It is o ten called ‘the meta’.
Som times, the metagame is cr a ed when new o tions are i tr duced from
ou side the game. Magic The Gat e ing is f mous for ha ing a game sy tem that
changes every time the pu lis er r lea es a new set of cards. MtG’s metagame is
thus a race to see who can di co er new card co b n tions or strat gies gi en the
new o tions. The pla ers who do so are r war ed with ea er wins, e p cia ly when
g ing up against pla ers who have not adap ed to the new po s bi ties. This
makes MtG a game of two le els: the rst game is the game you’re pla ing when
you sit down and shu e cards to ba tle an o p nent; the se ond game is the race
to a quire, a alyse and adapt to new cards quic er than your co p t tion.
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Metagames like MtG’s also e ist in, erm, more phy cal games. Judo — the sport
that I am most f mi iar with — has a metagame that is shaped by rule changes from
the I ternational Judo Fe e tion. A few years a ter I stopped co pe ing, the IJF
banned leg grabs, ou la ing a whole class of throws that were part of cla s cal
Judo canon — many of them used re
la ly, even at the top le els of co p t tion.
The Judo that e ists t day is very di fe ent from the Judo I left — with changes in
gri ping stra gy, e try styles, and tec nique co b n tions — many of them respon es to r spon es to r spon es to the ru ing.
These ‘r sponse chains’ cha a terise a ot er type of metagame. Some games
don’t have chan ing rules, and are free from an ove whel ing su ply of new poss bi ties. In such games, the meta changes when co pet tors act wit in the space
of po s bi ties of a st ic game sy tem.
An e a ple of this is the e ce lent board game Sple dor. Pla ers buy e pensive cards to earn vi t ry points, u ing po er chips a quired from a ce tral pool.
Chea er cards ca ry no points but give you a di count on f ture pu cha es. The
most o v ous stra gy when you start out in Sple dor is to build an ‘e gine’ — that
is, a tableau of cheap cards that pr vide you with a large nu ber of di counts, after which you can go a ter hig er-priced, hig er-point cards, and win.
The metagame in Sple dor emerges the i stant som one
ures out that you
can skip on bu ing cards for di counts, save up on chips, and go d rec ly a ter the
more e pe sive cards with points. Once a pla er makes this di co ery, Sple dor
changes for the be ter. It b comes a
id game of bloc ing, r ser ing, pu cha ing
and adap ing — with most pla ers d ing a co b n tion of ‘buil ing’ and ‘bu ing’ in
r sponse to what ever one else is d ing around them.
Sple dor is a good e a ple b cause there are only two m jor a proac es in
the game, and su cien ly co pe tive ga ing groups will di co er both of them in
a ma ter of days. But the o t mal stra gy in Sple dor will co ti ue to shift back
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and forth as a h brid of the two strat gies, d pen ing on the pla er mix and the
chan ing pre e ences of the pla ers wit in your ga ing group.
As it is with games, so it is with life.
The Meta In Real Life
Every su cien ly i te es ing d main in the world has a meta a s c a ed with it.
Like si pler games, real-world metas come in roug ly two avours: ones that
are d
ned by e te nal changes to the rules of a game, and ones that are shaped
by a d na ic equ li r um of co p t tion wit in a st ble sy tem of play. U like
games, ho e er, real-world d mains have no set rules: they are vas ly more compl ca ed and i te es ing, b cause the rules change only when som one n tices the
rules have changed.
Here’s a real world e a ple.
I’ve spent the last two years wor ing to get be ter at ma ke ing. If you’re reading this blog, you’ve pro
bly o served the ev l tion of my co tent ma ke ing
skills rst hand. (I grade m self a C+, but more on this in a bit).
An one who a tempts to b come r a ly good at ma ke ing must learn the
same han ful of b sic ideas: amongst them, the co cept of a fu nel and how to
me sure it, the idea of the bu er’s jou ney, and the abi ty to co struct and use buyer pe sonas … even if done u ri o ou ly. (The idea of the pe sona is more i portant than the form of the pe sona i self. I know one or two self-taught ma keter/entr pr neurs who have an i t itive — and e fe tive! — co ce tion of their id al bu er
in their heads, but are u able to a ti
late it pro e ly when asked).
Above these b sics are cha nel-sp ci c skills. These are ta t cal things: some
ma keters are be ter at email ma ke ing, ot ers at co tent, still ot ers are be ter at
ad-buys and s cial m dia. A val able su set of ma keters are able to take an e tire
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team and scale it up for a sp ci c type of pro uct. Whic ever it is, these skills are
deep and co text-sp ci c. Good pra t tio ers know the ‘best pra tices’ for their
sp ci c cha nels. The be ter pra t tio ers keep up with the ev l tion of those best
pra tices. The best ma keters … well, the best ma keters play the metagame of
ma ke ing.
The metagame of ma ke ing emerges from the fact that all ma ke ing cha nels
d cline in e cie cy over time. To hear the ve e ans tell it, Google A sense in the
ea ly 2000s was like shoo ing sh in a ba rel. By the 2010s, A sense had b come
pr hibitively di cult and e pe sive — its costs dr ven up by mai stream ado tion
and i creased co p t tion. Si
lar st ries have played out in the Fac book-owned
ad ecosy tem (think: Fac book, then I st gram, then I st gram st ries). The best
ma keters are ther fore the ones who a vance the best pra tices the fastest to
keep ahead of the mai stream, or are able to ide t fy and d ve op pla books for
new cha nels b fore the old ones b come too i e cient to ght in. The quic er
they ide t fy new cha nels and the longer they keep their pla books s cret, the
be ter the ma ke ing game b comes for them.
In this way ma ke ing’s meta is much like MtG’s.
Bus ness also has a meta. Take a qu s tions, for i stance. Co p nies have acquired ot er co p nies since the b gi ning of co p nies — but the game
through which this ha pens has changed si ni can ly over the years.
He ry Si gl ton, the CEO of Tel dyne, f mou ly used share i suances in the
60s to fund Tel dyne’s many a qu s tions, eve t a ly buil ing it into one of the
most val able co glo e ates in Ame ca. He then p neered the use of the share
bu back to pu chase Tel dyne stock chea ly du ing the bear ma kets of the 70s,
eve t a ly r pu cha ing 90% of all ou stan ing shares — i clu ing the ones he had
i sued at high prices in the pr ce ing decade. I vestor William Thorndike says that
Si gl ton’s track record is in ‘a co plet ly di fe ent zip code’ when co pared to
f mous co te p rary CEOs like Jack Welch: GE u der Welch ou pe formed the
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52
S&P 3.3 times; Tel dyne u der Si gl ton ou pe formed the S&P over 12 times during his te ure as CEO.
Si gl ton’s pla book changed the rules of bus ness in ways that still echo today — for i stance, share bu backs were trea ed with d r sion du ing Si gl ton’s
time, but are t day co si ered no mal cha ters in the co p rate nance pla book.
Much la er, parts of Si gl ton’s co glo e ate buil ing stra gy was adap ed to a
di fe ent co text by a young man named Wa ren Bu fett, who a plied it to an ai ing
te tile ma
fa tu ing co p ny named Ber shire Hat away.
In the late 70s, the meta changed again. A man named Michael Milken p oneered the use of an o scure na cial i str ment called the high-yield bond, more
po
la ly known as the ‘junk bond’. He quic ly r alised that these junk bonds
could be used to raise i mense amounts of ca tal for the pu pose of co p rate
takeovers, with li tle to no cost to the a qui ing co p ny. Such ‘leve aged bu outs’
(LBOs) — which i sued debt on the ta get co p ny’s a sets, not on the pa ent comp ny’s books — changed the rules of the takeover game in ways that pe sist till today. The pla ers that emerged to take a va tage of this i n v tion — the ones who
ska ed to the edge of the meta? We know them t day as pr vate e u ty rms.
The meta in bus ness changes whe e er new tools or o po t n ties emerge in
the macro e v ro ment. New tools mean new o tions. New o tions mean new viable strat gies. The Koch brot ers adap ed pieces of Milken’s LBO pla book when
they b gan e pan ing their e e gy e pire in the 80s; t day, the pr vate e u ty
world is adap ing those strat gies to su vive in a world of e ce siv ly cheap ca ital. The meta changes yet again in r sponse to macro co d tions — and on it goes.
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53
The Meta as a Test of E pe tise
What is i te es ing about the meta is that metagames can only be played if you
have ma tered the b sics of the d main. In MtG, Judo, and Sple dor, you ca not
play the metagame if you are not a ready good at the base game. You ca not ident fy wi ning strat gies in MtG if you don’t do well in cu rent MtG; you ca not adapt
old tec niques to new rules if you don’t a ready have e fe tive tec niques for compe tive Judo.
What is true in sports is also true in real world d mains like ma ke ing and business; it is true even if you are aware of the meta’s e i tence. The n ture of the
metagame d mands that you play the base game well. It lives on top of the pattern-matc ing that comes with e pe tise.
This seems like an o v ous thing to say. But as with most such things, the second-o der i pl c tions are more i te es ing than the rst-o der ones. For i stance,
b cause e pe tise is ne e sary to play the metagame, it is o ten us ful to search for
the meta in your d main as a north star for e pe tise. The way I r mind m self of
this is to say that I should ‘l cate the meta’ whe e er I’m at the bo tom of a skill
tree. Even if I can’t yet pa ti pate, searc ing for the metagame that e perts play
will us a ly give me hints as to what skills I must a quire in o der to b come good
enough.
An e a ple su ces: in ma ke ing, I have found it very us ful to seek out a ticles or po casts (but e p cia ly po casts) where pra t tio ers talk about the ways
their best pra tices have changed: “In the past I did X and now it seems it doesn’t
work as well, so now we do Y, and I re o mend Y.” This tells me that:
- I need to learn Y and at least have a pas ing f mi ia ty with X, b cause X
is what came b fore and is ‘co ered ground’, and
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54
-
I need to r me ber the ‘shape’ of the shift. If one such shift ha pened
in the past, more may ha pen in the f ture.
More co cret ly, this is som thing like a po cast guest sa ing:
“In the past (for co tent ma ke ing) I did roundup posts, but these don’t seem
to work as well an more. So now we do longer, more co pr he sive guides, and
we cross-launch those to Pro uct Hunt and Hac er News and s cial m dia. That
seems to work be ter for us.”
Which in turn tells me:
1. I need to look up as many e a ples of these ‘co pr he sive guides’ to
see what the state of the art looks like. From there I can d ve op an unde stan ing of how they are planned, how they are e
cu ed and what
su cess looks like when these things are launched. And I must launch
one to ve fy their e fe tiv ness for m self.
2. I need to try my hand at at least one roundup post, just for the ta it exp r ence of d ing it.
3. And I must ask: why did roundup posts fail? Well, b cause too many
pe ple are d ing it. (Is this true? How do I ve fy?) Why might the current best pra tice fail, then? I might not know the a swer to this because I am a noob, but a side-e fect of (1) is that I now know the best
pra t tio ers of the guide stra gy, and I can o serve them to see what
changes in their ma ke ing over the next few years.
Note what I’m not sa ing, ho e er. I’m not sa ing that I should a tiv ly pu sue the
meta — this is i e fe tive, b cause I am not good enough to play. I ca not e
cute
even if I know where the puck is g ing. But stud ing the state of the metagame as
it is right now o ten tells me what I must learn in o der to get to that point.
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55
(This is, by the way, where my self-gra ing comes from — I look to the marketers who are pla ing at the edge of the meta, and I rate m self a C+ in co pa ison. The abi ty to make such co pa isons is in i self us ful).
James St ber has this thing where he says “ma ter bo ing fu d me tals”, and
he says it in r sponse to b gi ners who d sire to go a ter the fa cy stuff. St ber’s
quip a plies here. To run with his te m no gy: I’d say that the meta is what you get
a ter you ma ter bo ing fu d me tals. But o ser ing the state of the cu rent meta
o ten r veals what bo ing fu d me tals you need to learn.
This is pa ti
la ly us ful if your skill tree has no set sy labus. It is e p cia ly use-
ful when you don’t have a coach.
Get to the Meta For One Skill
How do you ba ance b tween l ca ing the meta and cha ing bo ing fu d mentals? The short a swer to that is to do tr al and e ror. If you can’t ma ter a pa ti
lar
skill, drop back down to its co p nent e ments and pra tice each of them in isol tion. If you don’t get good co ve sions in your co tent ma ke ing, drop down to
pra tice pu lis ing at a re
lar c dence. If you can’t get a throw to work, break it
down to arms, then legs, then body p s tion, then into one co plete m tion.
How do you learn to do this? I think the best way is to get good at a si gle,
well-stru tured skill … and prefe ably, to get this e p r ence as ea ly as po s ble in
one’s life.
I’ve n ticed that the ‘feel’ of i pro ing in pu suit of a meta is strang ly si
lar
across skill trees. I n ticed this a ter clim ing high enough in the Judo skill tree to
see the meta for the rst time. La er, when I moved to un ve s ty, lear ing the craft
of pr gra ming b came sligh ly ea er. And then a ter that, lear ing pe ple man-
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56
ag ment b came ea er. Di to for co tent ma ke ing, and email ma ke ing, and so
on.
I don’t know if it is ide t f ing the meta that helps, or if there is some ot er
deep skill tran fe ence that’s g ing on. But I’ve ca tiou ly reached out to friends
who have played s r ous co pe tive sports when they were younger, and many of
them have had si
lar e p r ences. There seems to be som thing in ge ting good
at a skill tree that helps in la ter life. I’d like to think it is a fun tion of e p sure: once
you see the co pe tive meta at the top of one skill tree, you b gin loo ing for it
ever where else.
*
My clo est cousin is a sof ware e g neer. R cen ly, his fron end e g nee ing
team hired a fo mer m s cian: som one who had switched from p ano to Javascript pr gra ming with the help of a boo camp. He n ticed i m d at ly that her
pu suit of skills (and the que tions she asked) were shar er and more f cused than
the ot er e g neers he had hired. He thought her pr or e p r ence with clim ing
the skill tree of m sic had som thing to do with it.
My cousin plays u t mate fri bee on the side. To hear him tell it, the metagame
in fri bee is more like Sple dor: wit in an u chan ing rule sy tem, the do
nant
strat gies are a ways an ada t tion to what your o p nent is d ing. These strategies sit atop b sic thro ing and r cei ing skills. Som times, if the o po t n ty arises, if you u de stand the metagame well enough, and if you are lucky, your team
can get r a ly cr ative with r spon es. My cousin loves U t mate — when he talks
about it his eyes light up and he b gins ge ti
la ing. It is for him as Judo was for
me.
When we meet, we talk about the meta a lot b cause we see pa a lels b tween
our sports and our r spe tive c reers. My cousin has this th
ry that the pe ple
who get r a ly good at one skill will nd it ea er to get good at a se ond skill. I believe him. Our e p r ences bear this out.
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57
(R la ed: Tobi Lutke o fers fo mer pro Sta Craft pla er a job at Shop fy; this fun
piece then anal ses Lutke’s stra gy as CEO of Shop fy through the lens of StarCraft, a though it’s clear that the a thor doesn’t grok Sta Craft’s meta at all).
My cousin and I both want our kids — when we have them — to get good
enough to play in a metagame for one skill, any skill, in wha e er game strikes their
fa cy. It could be U t mate or Judo or te nis or chess. It could be For nite and Dota,
if those things still e ist when they’re old enough.
The i po tant thing is e p sure to the meta. My cousin and I both think this exp sure is fu d me tal. We think this b cause metagames r a ly do e ist everywhere in life; you just have to know how to look.
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58
Are You Playing to Play, or
Pla ing to Win?
My friend Le ley has this thing where she says “make sure you’re pla ing the real
game, not some more co pl ca ed game you’ve made up for you self.”
I think about this a lot.
Le ley says this in the co text of U t mate — she was a coach for the Si g porean women’s world cha p onship team. She says that when she was a pla er, she
b lieved that ce tain met ods of wi ning in fri bee were more l gi mate than others. Prefe ably, you wan ed to win with strat gies that were tec n ca ly s phi t cated and e gant and di cult to do — the more di cult, the be ter. But as a coach,
she’s had to r mind he self that the goal for her team is to win, not ne e sa ly to
set high bars for play.
I played Judo very co pe tiv ly when I was younger. For about two years
when I was 18, my e tire life was school, trai ing and sleep. The only pro lem was
that I wasn’t very good at it. I had it in my head that the only Judo worth pla ing
was a ‘J panese’ style of Judo — an u right, d na ic, bea t ful style. No ot er style
was worth loo ing at — not Geo gian, not Mo g lian, not even French. The problem: kids in Japan start at around six years of age; I star ed pla ing Judo at 15.
There was no way I could have won u ing the J panese style. It si ply d man ed
too much tec n cal pr
cie cy. And so while I was good enough to be s lec ed for
my state, I ne er did well in the N tio al Cha p onships.
Co trast this to ot er, smarter co pet tors. Ame can Olympian Ji my P dro
said, of his f ther: “My dad was a guy who star ed Judo when he was 19 years old.
So he was way b hind the eight ball against ever one else; he was tr ing to go to
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59
And he r alised that if he learned to grip ght pro e ly, he could beat those techn cians who had been pla ing Judo since they were ve or six years old. B cause
it’s hard to get a na u al feel for the sport when you start so late — like you’re ne er
g ing to be as i stin t a ly as good as som body who starts when they’re a kid.
But my dad learnt that gri ping was a way to get good fast.”
For co text, in Judo grip gh ing is what ha pens b fore you can even start to
throw. The co pet tor that co si ten ly gets a s p r or grip d te mines the pace
and shape of the match. P dro and his f ther are pe haps most f mous for sy temti ing the grip ght — that is, they turned it into som thing that could be taught to
all pla ers, i stead of r l ing on u sy te a ic tricks, or on i t ition a quired
through a high vo ume of spa ring. Pe haps most i po tan ly, though, P dro
brought this though ful, strat gic a proach to all of his st dents. In his i te view
with Lex Fri man, he says, rather frankly:
We know that we ca not beat the Ru sians, we ca not beat the French, we
ca not beat the Brazi ians, we ca not beat the J panese by d ing more
Judo than they do. B cause it’s i po s ble. We can’t beat them with Judo,
b cause they have way more pe ple to train with, way more o po t n ty, so
we have to beat them with … phy ca ty, tec n cal stra gy, gri ping,
newaza, co d tio ing, toug ness … in the min set, that we’re g ing to win,
and this is how we’re g ing to win, and you have to get your st dents to believe in the sy tem.”
P dro ne er won gold at the Olympics. But he coached a whole bunch of Ame icans who t tled i te n tio a ly, and he coached Ka la Ha r son, the rst Ame can
ever to win an Olympic gold in Judo. He is as b lie able as they come.
I wished I’d learnt this a te n tive view of co p t tion ea l er in my life. As a
co pet tor, I didn’t think very deeply about the co straints that I was fa ing, and I
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the Olympics. Gri ping was som thing that was i tr duced to him in his ea ly 20s.
didn’t have a c he ent stra gy to win. I si ply thought to m self: “Ahh, the Japanese play bea t ful Judo. That’s the best form of Judo. I want to be like that.”
And then I r fused to look at ot er styles.
I was, in ot er words, a scrub.
B ing a Scrub
In the world of ga ing, a scrub is som one who isn’t pla ing to win. This sounds a
li tle bizarre — what co pet tor isn’t pla ing to win? — so I’ll let Street Figh er tou nament pla er and game d sig er David Si lin e plain:
"Scrub" is not a term I made up. It sounds like kind of a harsh term, but it's
the one that was a ready in co mon u age in games to d scribe a ce tain
type of pla er, and it made more sense to me to e plain that rather than to
coin a new term.
A scrub is not just a bad pla er. Ever one needs time to learn a game
and get to a point where they know what they're d ing. The scrub me ta ity is to be so shac led by self-i posed han caps as to ne er have any
hope of b ing tr ly good at a game. You can pra tice fo e er, but if you
can't get over these co mon hangups, in a sense you've lost b fore
you even star ed. You've lost b fore you even picked which game to
play. You aren't pla ing to win (e ph sis added).
A scrub would di agree with this though. They'd say they are tr ing very
hard. The pro lem is they are only tr ing hard wit in a co struct of
t tious
rules that pr vent them from ever tr ly co pe ing.
Si lin co ti ues with an e a ple from the gh ing game Street Figh er:
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61
Scrubs are lik ly to l bel a wide v r ety of moves and ta tics as "cheap." For
e a ple, pe for ing a throw in
gh ing games is o ten called cheap. A
throw is a move that grabs an o p nent and da ages them even while
they're d fen ing against all ot er kinds of a tacks. Throws e ist speci ca ly
to a low you to da age o p nents who block and don't a tack.
As far as the game is co cerned, thro ing is an i t gral part of the design—it's meant to be there—yet scrubs co struct their own set of pri c ples
that state they should be t ta ly i pe v ous to all a tacks while bloc ing.
Scrubs think of bloc ing as a kind of magic shield which will pr tect them
i de nit ly. Thro ing v lates the rules in their heads even though it
doesn't v late any a t al game rule (e ph sis added).
(…) Co plai ing that you don't want to do X in a game b cause "it
doesn't take skill" is a co mon scrub co plaint. The co cept of "skill" is yet
a ot er e cuse to add
tio al rules and avoid ma ing the best moves. Cu-
r ou ly, scrubs o ten talk about how they have skill wher as ot er pla ers—
very much i clu ing the ones who beat them at out—do not have skill. This
might be some sort of ego d fense mec
nism where pe ple d
ne "skill"
as wha e er su set of the game they're good at and then e vate that
above a t a ly tr ing to win.
For e a ple, in Street Figh er scrubs o ten cling to co bos as a measure of skill. A co bo is s quence of moves that are u bloc able if the rst
move hits. Co bos can be very ela
rate and very di cult to pull off. A
scrub might be very good at pe for ing di cult co bos, but not good at
a t a ly wi ning. They lost to som one with "no skill."
Si gle moves can also take "skill," a cor ing to the scrub. The "dra on
punch" or "u pe cut" in Street Figh er is pe formed by hol ing the jo stick
t ward the o p nent, then down, then d a
na ly down and t ward as the
pla er pres es a punch bu ton. This mov ment must be co ple ed wit in a
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62
fra tion of a se ond, and though there is le way, it must be e
cu ed fai ly
a c rat ly. Scrubs see a dra on punch as a "skill move."
One time I played a scrub who was pre ty good at many a pects of
Street Figh er, but he cried cheap as I beat him with "no skill moves" while
he pe formed many di cult dra on punc es. He cried cheap when I threw
him 5 times in a row as ing, "is that all you know how to do? throw?" I told
him, "Play to win, not to do 'di cult moves.'" He would ne er reach the
next le el of play wit out she ding those e tra rules in his head (emph sis mine).
For me, the equi
lent to ‘not u ing Street Figh er throws’ was u age of the high
co lar grip. Most Judo co pet tors learn from an ea ly stage to grab their o ponent’s high co lar — b cause this gives you great co trol over your o p nent’s
head. I was told not to use it, due to the height di a va tage I had back when I was
15. Along the way this turned into a scrub rule — I felt like I was e tra wo thy if I
ma aged to win wit out gra bing the high co lar. (And to be fair, I did d ve op certain met ods to do so). Loo ing back, I think this was dumb — but I was young and
st pid and didn’t know any be ter.
Scrubs in Bus ness
Is there scrub b haviour in bus ness?
A most ce tai ly: one tri ial e a ple is the stance that I a lu ed to in Chan ing
My Mind on Ca tal — the idea that boo stra ping wit out ever sel ing e u ty to exte nal i vestors is som how a be ter way of d ing bus ness. I a gued that this was
si ly, that ca tal was a tool, and that ha ing b liefs about u ing ca tal was more
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63
lo cal than it nee ed to be. But pe haps boo stra ping with no e te nal fund-
ing is be ter. We do seem to a mire it when it ha pens.
Tal ing about scrub-like b ha iours in bus ness is where our di cu sion becomes more n anced and i te es ing. When is scrub-like b haviour tr ly scrublike? And when is it ethics?
Long-term rea ers of Co mo place would know my a m r tion for John Malone, the on time CEO of c ble co p ny TCI. In The Games Pe ple Play With Cash
Flow, I wrote:
Ma one was, e se tia ly, a hac er: he stared deeply at the thic et of accoun ing rules, tax laws, and po s ble bus ness moves, and found a stra gy
that e ploi ed the stru tu al r a ties he found in front of him. He was the
rst pe son to d ploy this pla book ri o ou ly, and TCI was amongst the
rst co p nies to start u ing EBI DA as a na cial me ric.
In my eyes, Ma one is an a most pe fect e a ple of a non-scrub — a pe son who
saw into the game of bus ness, and played the a t al game, not some made-up,
more di cult ve sion of the game. Ma one’s i sight was that he could load TCI up
with debt (at a di c plined ve-to-one ear ings r tio), and then use the i te est payments and c ble equi ment d pr c tion as a tax she ter for TCI’s uti ty-like, monopoly cash ows. He then used that debt to e pand a gre siv ly, gai ing scale
a va tages, u til TCI b came the largest c ble co p ny in the US, ow ing i terests in va ous pr gra ming and tech ve tures along the way.
What I’ve ne er wri ten about, though, is the ip side of Ma one’s reign as TCI’s
chief — that is, that Ma one trea ed his cu tomers as an a terthought. This was a
straigh fo ward side-e fect of the ‘m nopoly’ in ‘m nopoly cash ows’ in my descri tion above — due to the n ture of c ble rights (again: a go er ment-gran ed
m nopoly, so not o te s bly an evil thing), o e tors didn’t r a ly have to wo ry
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64
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about co p t tion, and some were wil ing to let c ble sy tems d grade over the
years.
But Ma one took this to an e treme. In The Ou siders, William Thorndike writes:
U til the a vent of sate lite co p t tion in the mid-1990s, Ma one saw no
qua ti able be
t to i pro ing his c ble i frastructure u less it r sul ed
in new re enues. To him, the math was u d n ably clear: if ca tal e pe ditures were lo er, cash ow would be hig er. As a r sult, for years Ma one
stea fas ly r fused to u grade his ru al sy tems d spite pleas from Wall
Street. As he once said in a ty ca ly ca did aside, “These [ru al sy tems] are
our dregs and we will not a tempt to r build them.” This a t tude was very
di fe ent from that of the lea ers of ot er c ble co p nies who re
la ly
tru pe ed their e te sive i ves ments in new tec nol gies.
Iro ca ly, this most tec n ca ly savvy of c ble CEOs was ty ca ly the
last to i pl ment new tec no gy, pr fe ring the role of tec n lo cal “settler” to that of “p neer.” Ma one a pr c a ed how di cult and e pe sive it
was to i pl ment new tec nol gies, and pr ferred to wait and let his peers
prove the ec no ic v bi ty of new se vices, sa ing of an ea ly-1980s d cision to d lay the i tr du tion of a new se up box, “We lost no m jor ground
by wai ing to i vest. U fo t nat ly, p oneers in c ble tec no gy o ten have
a rows in their backs.” TCI was the last pu lic co p ny to i tr duce payper-view pr gra ming (and when it did, Ma one co vinced the pr grammers to help pay for the equi ment).
Over the course of Ma one’s two decades of lea e ship, TCI earned a re
t tion
for poor cu tomer se vice and ‘u ju t ed’ price hikes. It let its sy tems rot. As a result, it was ha ed to var ing i te s ties by cu tomers, l cal go er ment o cials,
and polit cians alike. Ma one didn’t care. He played the game a cor ing to the
rules of the game — and the rules of the game, as he saw it, was that m nopoly-
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65
type ma kets a for ed bus nes es the lu
ry of i no ing cu tomer ha p ness. He
only u gra ed when a s lut ly ne e sary — such as when sate lite co p t tion
arose in the mid-90s.
As I was rea ing Ma one’s st ry, I r me ber thin ing to m self: if I were in his
shoes, would I be wil ing to play the game the way he played it? Or would I have
spent some of that cash ow to u grade sy tems, at the e pense of e pa sion,
ma ket share, and be ter unit ec nomics? I’d like to think that I would’ve u gra ed,
that I would have had more e p thy for my cu tomers — but then does that make
me a scrub? Co si er: sy tem u grades had no po tive e fect on the pe fo mance
of a c ble bus ness. If not ing else, the ca tal ou lay (and a co p n ing debt
load) o ten made smal er c ble co p nies more fra ile — and Ma one was a ways
e ger to snap up di tressed c ble sy tems on the cheap.
In ot er words, if I’d played the ‘cu tomer-se vice’ game, it is lik ly that I
would’ve failed, and sold to som one like Ma one. But pe haps there was a way
around it? The di cu ty of bus ness — and the di cu ty of tal ing about it in the
co text of scrub b haviour — is that the rules o ten are only what you can di co er
to be true. (And even those rules may change, d pen ing on the b ha iours of
co p t tion). There is no e pli it game d sig er to ba ance play in the ma kets;
you are tr ly on your own.
And Yet There are Ma stros
One re son that scrub b haviour is so co pelling to us is that we a mire those
who d cide to play a har er game, and who ma age to win an way.
In Judo, the best co te p rary e a ple might be Shohei Ono, who won his
se ond Olympic gold in the -73kg ca g ry at Tokyo, as part of a se en year u defea ed streak. Ono co si ten ly wins by do
nant throw, choke, or pin; he ne er
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66
know that he is pla ing a more di cult game, with more co straints than his compet tors, and we love that he wins so co si ten ly d spite the ‘han cap’.
A more mai stream e a ple, ho e er, might be Roger Fe e er. Fe e er uses
a one-han ed bac hand — a n t r ou ly more di cult tec nique than the twohan ed ve sion. He also ha pens to make it look easy. We don’t love him for that,
of course — we love him b cause he does it while a s lut ly do
na ing the high-
est le els of te nis — at least for the good part of two decades. And so to watch
Fe e er play a te nis match is a li tle like watc ing God play te nis — or pe haps,
more a c rat ly, like watc ing a var tion of te nis that is more ba let than ra quet
sport.
https://www. outube com/watch?v=MTP99IHemNA
This, I think, is what ma tery looks like. F d rer, like Ono in Judo, is a ma stro.
The u cha t ble i pl c tion is that a ma stro is si ply a scrub who wins. We can’t
b lieve that they do it. And we r spect them b cause they do it an way, and win.
Are there e a ples in bus ness? Ce tai ly.
A friend of mine was telling me about Ma tine Rot blatt’s Uni ed The pe tics.
Rot blatt star ed UT in 1996 to save her youngest daug ter, who had an o phan
di ease called pu monary a t
al h pe te sion (PAL). In her i te view on the Tim
Fe riss po cast, Rot blatt e plained the ge
sis of her co p ny:
So there are a good zi lion a t cles pu lished on every type of me ical research you could ima ine. I mean, it’s just a bo to less well. There are li era ly hu dreds of di fe ent types of me ical jou nals. And each of those journals have every year tho sands of a t cles pu lished across them. So it’s difcult to nd the i fo m tion that you need, but in law school, we learn a
very us ful skill. And this skill goes by the name of She a di ing, a ter this
type of i dex they have in law school called She ard’s. So what She a diz-
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67
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aims to win by pena ties alone. And those in the Judo world love him for it — we
ing i volves is when a judge writes a d c sion like the Supreme Court i sues
a d c sion, they drop a lot of foo notes. And of course, one thing lawyers
love to do is make foo notes and re e ences. And then what you’re supposed to do as a good lawyer is to look up all of the foo notes and the re erences that that Supreme Court or lo er court case r ferred to. And then the
She a di ing process is a ter you get all of those re e ences to then look up
all of the re e ences in those ot er a t cles. And u t mat ly, you get to a
point of d mi is ing r turns where three, four, ve le els down, the re erences are all ci cling back around on the selves.
So I a plied that She a di ing process to these me ical a t cles, and
som what like do tors, whe e er a r searcher pu lis es an a t cle, they
make foo notes and c t tions to ot er pe ple’s r search who they r lied
upon. So I would get all of those a t cles and read those. And then I would
fo low up on all of the re e ences in those. F na ly, I read about a mo ecule
that a r searcher at Glaxo Wel come had wri ten in which they d scribed
tes ing this mo ecule for co ge tive heart fai ure. And it failed in its test of
co ge tive heart fai ure. It did not work, but in the a t cle, they had charts of
what the mo ecule did. And the one thing that the mo ecule did that
grabbed my a te tion was that it r duced the pre sure b tween the lung
and the heart, which is called the pu monary artery. It r duced the pulmonary artery pre sure while lea ing the pre sures and all of the rest of the
body pe fec ly ne. Well, that’s e ac ly the pro lem with pu monary a t
al
h pe te sion, the pe ple who have this di ease.
Rot blatt then went to Glaxo Wel come to ask about the mo ecule, but was told
that they weren’t g ing to d ve op it:
The i d vi ual who had wri ten the a t cle had a t a ly r tired a few months
ea l er. And the pe son that I en ed up mee ing with, who was in charge of
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68
de tal n ing. In any event, this di ease a ic ed so few pe ple, it was complet ly u r a i tic to e pect Glaxo Wel come to d ve op this mo ecule for
my daug ter and ot er pe ple with that di ease. And I asked him, his
name’s Bob Bell, he’s now a ve ture ca ta ist and very su ces ful ge tleman. I asked Dr. Bell, I said, “What would it take for you to d ve op this medcine?” He said, “Well, it pro
bly would take — you couldn’t do it. We only
d ve op me cines if they have more than a bi lion do lars a year in re enue
p te tial.” He said, “But it’s po s ble you could buy it from us. If you had a
real pha m ce t cal co p ny with real pha m ce t cal e pe tise, I could
then i tr duce you to the bus ness d ve o ment pe ple at Glaxo Wellcome.”
Which is what she did.
Rot blatt sold her stake in Si iusXM (a co p ny she had co-foun ed), star ed a
biotech co p ny wit in a few months a ter the co ve s tion, got Glaxo Wel come
to sell her the mo ecule, and then turned it into a drug that eve t a ly saved her
daug ter and coun less ot ers with PAL. As a twist in the st ry, Glaxo Wel come
had only asked for $25,000 and 10% of the re enues from the patent, since they
were not e pec ing to make any mo ey from it. To hear Rot blatt tell it, UT has paid
back more than a bi lion do lars in ro a ties to Glaxo Wel come in the years since
they rst brought the drug to ma ket.
Much la er, UT a quired the tec no gy to r fu bish h man lungs for tran plant tion. But Rot blatt wasn’t ha py about the ca bon costs of
ing da aged or-
gans to their f ci ty and then back out to the ho p tals — she thought that it was
a fu ly wast ful to have a such large ca bon foo print even if for a good cause.
So, of course, they star ed d ve o ing ele tric h l copters.
Rot blatt, again on the Tim Fe riss po cast:
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69
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r search and d ve o ment, said that this was just one a t cle. It was an i ci-
But I me tioned this b cause this has a lot of
ing around;
ing here, y-
ing there, h l copters g ing back and forth, planes. And if I’m g ing to
make an u li i ed su ply of o gans, and you r me ber all those nu bers
we talked about at the b gi ning of the call, the hu dreds of tho sands of
pe ple who need these o gans, that is g ing to be a h mo gous ca bon
foo print. We could have said to ou selves, “Well, we’re d ing such a good
thing. We’re sa ing all these lives. We could be pe mi ted to foul our atmosphere b cause it’s ba anced by the good things we’re d ing.” But instead, we like to ask ou selves the cha len ing que tion, “How can we do
the good thing and the right thing at the same time? How can we ma
fac-
ture all these lungs and d li er them with a zero-ca bon foo print?”
And the s l tion came from the tec no gy of ele tric h l copters,
which are po ered by r ne able e e gy that can y these o gans from one
place to the ot er wit out adding any ca bon foo print at all. And I will be a
li tle bit of a soot sa er here, I am a s lut ly co vinced that in this decade,
the 2020s, we will be d li e ing ma
fa tured o gans by ele tric h l copter.
Will they su ceed? I don’t know. But I ce tai ly want them to. And my friend, who
owns shares in UT more out of awe than an thing else, says that it’s ridic lous that a
biotech co p ny would want to go b yond d ing good to d ing right by the e viro ment. A more no mal r sponse would be to buy ca bon of sets and to call it a
day. Ma ing i ves ments in ele tric
ing is a ot er thing all-t get er.
I think Rot blatt d serves to be called a ma stro. And I hope that the ma kets
that UT plays in a fords them the abi ty to play the har er game and win.
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70
Wra ping Up
What should we co clude from this di cu sion? I keep g ing back to Le ley’s ori inal fra ing: “make sure you’re pla ing the real game, not some more co pl ca ed
game you’ve made up for you self.”
This is, of course, easy to say. N body wants to be called a scrub. But when all
is said and done, there are ae the ic and moral re sons to want to play a more di cult game.
One of the fu ny ironies of this di cu sion is that that Fe e er hi self wants his
kids to learn the do ble-han ed bac hand. In a press scrum in 2019, he said:
“I know I love te nis and g ing out there to play. I would go for a two-handed bac hand for all of my four kids b cause it's ea er; it's that si ple. If
they want to change that la er on, I will teach them to hit a one-han ed
bac hand.
“But I can't teach them a do ble-ha der as I can't hit that one. So that's
som body else's job. At the end of the day, like with ever thing in life, you
also have your own cha a ter. Some pe ple d cide to change it at eight,
some at 14 and some la er b cause they nd it a good cha lenge.
“For now, that's what it is. And, who cares an way if they hit a do bleha der or not? It shouldn't be in the press.”
There’s this old nut by Wa ren Bu fett that goes “I don't look to jump over se enfoot bars; I look around for one-foot bars that I can step over.” I think that ca tures
the e sence of not b ing a scrub.
The irony, of course, is that it was u tered by a ma stro — and a guably the
grea est i vestor to have ever lived. But you only get to be called a ma stro if you
play the har er game and you win. For ever one else, it’s pro
bly a be ter idea to
avoid b ing a scrub. Wi ning is hard enough as it is.
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71
Don’t Read Hi t ry for
Lessons
Here’s a real world st ry that you might be f mi iar with. The que tion I’d like you to
ask while rea ing it is: what lessons might you take away from it? Keep this question in mind; we’ll r turn to it in a bit.
In 1958, Mo ris Chang left his job at Sy v nia Sem co du tor and joined Texas
I str ments as an e g nee ing ma a er. It was his se ond job out of co lege. At the
time, TI was gro ing rapi ly, and Chang was a signed a pro le a ic pr du tion
line for a new ge m n um tra si tor for TI’s (then) most i po tant cu tomer — IBM.
How pro le a ic? Well, when Chang star ed on it, the line had a mi e able yield of
0%.
Chang spent four months wor ing on the line, eve t a ly ge ting yields up to
25-30%. This turned out to be twice as good as IBM’s own pr du tion line, which
meant that the tra si tor was a huge win — and a very pro table pro uct — for the
e tire co p ny.
Chang was put on the fast track. TI spo sored a PhD at Sta ford, o fe ing to
pay his salary for the e tire d r tion of the pr gram. Chang eve t a ly spent two
and a half years on his do to ate b fore r tur ing to TI. Three years la er, he was
pr mo ed to b come ge e al ma a er of TI’s i t gra ed ci cuits (IC) d par ment.
And there he left a pe m nent mark on the sem co du tor i du try.
At the time, the pri ing mo el for ICs was si ple. Since sem co du tor ma ufa tu ing had high capex, ma
fa tu ers would charge their cu tomers high prices
to r coup their large u front costs. Chang knew from painful e p r ence that it
took a ce tain amount of
dling to get yields up — and ther fore unit costs down —
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72
for every pr du tion line. Sem co du tor ma
had to seek out and r move dust co
n tion, c cle out or r pair d fe tive
equi ment, ide t fy and work out che
ticed that this
fa tu ing was a c le thing: you
cal i p r ties and so on. Chang had no-
ing process could be sped up if the pr du tion line was o e a ing
at max c pa ty, a lo ing his staff to learn and i e ate as fast as po s ble. The problem was, if TI co ti ued to charge high prices for its sem co du tors, cu tomer demand and su s quent pr du tion c pa ty would be li i ed — slo ing down the
afor me tioned i prov ment process.
Chang hired a then li tle-known ou t called the Bo ton Co sul ing Group
(BCG) to crunch the nu bers for him, in o der to ju t fy an a te n tive pri ing model. This eve t a ly came to be known as ‘lear ing curve pri ing’ (in Chang’s own
words) or ‘e p r ence curve pri ing’ (in BCG’s words — BCG co-op ed this work and
tried to brand it as a BCG-sp ci c thing).
The way it worked was as fo lows: TI would price their chips way b low in tial
costs, and ther fore b low pr vai ing ma ket price. This was co si ered co tr versial at the time. As a r sult, the co p ny would a gre siv ly e pand their ma ket
share for that pa ti
lar chip. This high d mand meant that pr du tion lines could
be run at max c pa ty, dr ving down the time ne e sary to bring yields up. The
pri ing mo el also had the nice side e fect of pre su ing co pet tors to lo er their
prices, at the risk of lo ing ma ket share — which many co pet tors r sis ed.
TI then went as far as to r duce their prices every qua ter, even if their customers didn’t d mand it. Chang would la er state that his stra gy was to “sow despair in the minds of my o p nents”. In an i te view with Co mo wealth Ma azine in 2021, Chang said, “In the sem co du tor bus ness, we a ways asked for
pro t ma gins in e cess of 50% (...) when even Texas I str ments could only
achieve a pro t ma gin of 40% by as ing the lo est price, they knew they (the
co pet tors) had to get out of the bus ness.”
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73
Lear ing curve pri ing worked b cause of the n ture of sem co du tors as a
pro uct. U like, say, pro ucts like pe so al co pu ers or cars, IC process nodes
that were no longer lea ing edge still found uses in lo er-end, chea er items like
m crowaves or tel v sion sets. So sem co du tor ma
fa tu ers could run their
lines for as long as po s ble to r coup their in tial costs and ge e ate pro ts —
which worked in favour of the ma
fa tu er with the largest ma ket share.
With the lear ing curve pri ing mo el, TI b gan to beat ever one else in the
sem co du tor i du try. It eve t a ly b came the ma ket leader of the era. On the
back of this su cess, Chang was pr mo ed to VP of the e tire sem co du tor business — just one le el b low the CEO. And in 1972, he b came the lea ing ca didate to b come the next chief e e
tive.
The que tion, of course, is what to learn from this?
TI b gan a pl ing lear ing curve pri ing to a whole host of pro uct lines. They
a plied it, for i stance, to the 1972 launch of their pe so al ca c l tor. Here, the
co pet tors in the ca c l tor ma ket were more d te mined — lea ing to a price
war and an eve t al $16 mi lion loss for TI in Q2 of 1975. U d terred, TI launched
their new ele tro ic dig tal watch for a mere $19.95 a year la er. Again, the low
prices a lowed TI to ca ture most of the dig tal watch ma ket and drive out their
hig er-priced co pet tors like Bo mar and Ness Time. When these co pet tors
went ban rupt, TI a nounced that they were the lea ing su pl er of dig tal watches, with an a n al pr du tion of 18 mi lion units. A li tle more than a year la er, TI
fu ther lo ered the price of the watch to $9.95.
U fo t nat ly, the lo ic that u de pinned the pri ing curve mo el didn’t seem
to map to the co sumer pro ucts d v sion. TI’s low prices eva
ra ed the a ready
low pro t ma gins in the dig tal watch d v sion, and stronger co pet tors learned
to fo low suit. A race to the bo tom had star ed. In 1978, Co modore i tr duced
an LCD watch with prices star ing at $7.95. Chang was tran ferred from the semico du tor bus ness to b come VP of co sumer pro ucts around the same time.
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74
It may seem a li tle odd that Chang was tran ferred from the sem co du tor business — one of TI’s most i po tant bus ness units — to co sumer pro ucts, an u derpe for ing d v sion. The most pla s ble re son for the tran fer was that Chang was
passed over for the CEO job. We can ne er r a ly say for sure why this ha pened —
pe haps it was b cause he was an i m grant, or pe haps it was b cause he was
et n ca ly Ch nese. Whic ever case it was, Chang found hi self in the re tiv ly
new co sumer pro ucts d v sion in 1978, with the clear e pe t tion that he would
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75
be able to x it the way he had worked magic with sem co du tors the decade before.
Two and half years la er, the co sumer pro ucts d v sion was still u de perfor ing. In his oral hi t ry i te view, Chang said that the one hig light du ing his
time there was the ‘Speak & Spell’ e
c tio al pro uct, which co tained the rst
chip-based speech sy th si er; he called it “the best pro uct that the TI co sumer
d v sion ever did.” But ever thing else went pre ty ho r bly.
TI shut down its once-do
nant watch d v sion in 1981, due to their fai ure to
a ti pate d mand for a ways-on LCD watc es and their i abi ty to co pete
against even lo er-priced Asian i ports. When co sumer d mand shif ed to LCD
watc es, TI’s watc es went from ‘a di tin tive sy bol of st tus to a fac less commo ty’. The co p ny was thus sa dled with a large and e se tia ly wort less inve t ry of watc es as co sumer d mand co lapsed. When they closed their watch
d v sion, a most 3000 e plo ees were laid off.
Chang was moved to a staff job in 1981 — the ‘head of qua ty and pe ple effe tiv ness’. He still had a S nior Vice Pre dent t tle, but was e fe tiv ly put out to
pa ture. Years la er, while r
ec ing on the move to co sumer pro ucts, Chang
said that the shift was m t va ed by TI CEO Mark She herd’s b lief that a good
ma a er could ma age an thing. In re r spect, Chang said: “I think he was wrong.
I found the co sumer bus ness to be very di fe ent. The cu tomer set — co plet ly
di fe ent. The ma ket — co plet ly di fe ent. And what you need to get ahead in
that bus ness is di fe ent, too. In the sem co du tor bus ness, it’s just tec no gy
and costs; in co sumer, tec no gy helps, but it’s also the a peal to co sumers,
which is a ne
lous thing.”
Two years la er, in 1983, Chang quit. He was a le end in the sem co du tor indu try, and had a co plished much for TI, but his c reer had si ply hit a dead
end. He was 52 years old.
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76
Three years la er he would take over the Ta wanese r search o ga s tion that
he would eve t a ly turn into TSMC — Asia’s most val able co p ny as of 2022,
and ce tai ly one of the most i po tant co p nies in the world t day.
But that’s a st ry for a ot er time.
The Pe ils of Lear ing Lessons from
Hi t ry
What lessons can we learn from Mo ris Chang’s st ry?
A few weeks ago, Ben Gilbert and David Rose thal of the A quired po cast
did an episode su mari ing all the lessons they’d learnt across 200 episodes of
the po cast. They had the fo lo ing to say about Mo ris Chang:
The ot er mea ing of ‘it's ne er too late’, folks who are vie ing the video
here in the a d t r um will n tice we have not Marc A dreessen on this
slide, but Dr. Mo ris Chang, the founder of TSMC. This is I think the ot er
le son that I've r a ly ta en from A quired is in this vein, which is that Mo ris
Chang was 56 years old when he foun ed TSMC. TSMC is t day, I b lieve,
the 11th most val able co p ny in the world. It's so easy. The ip side of
the coin of there's a ways a ot er ge e tion, there's a ways a ot er wave.
Ben: We should say that it maybe the thing kee ing geop li cal tensions at rest. It may be the force that n body wants to dest b lize, and therefore, we have peace. It's not just a co p ny.
David: But it's easy to think, if you li ten to Marc or that there's a ways
a ot er wave, that's for young pe ple. Like it's Steve Jobs, it's Mark Zuckerberg, it's V t lik B terin. It's these young kids who get these new waves of
tec no gy. The r a ty is that's just not true. It's just a min set. You
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77
have to be wil ing to dive in and do it. You can do it at 56 years old and
still build the 11th most val able co p ny in the world (e ph sis
added).
The pro lem with this take, of course, is that it’s not e tir ly true. Sure, Mo ris
Chang did go on to start the 11th most val able co p ny in the world. But he was
also a le end in the sem co du tor i du try when he left TI. He was a le end because of what he did — he i ven ed lear ing curve pri ing, he led TI to new heights
of i du try do
nance, and throug out his e tire c reer he di played a sp cial air
for dea ing with the nuts and bolts of sem co du tor ma
fa tu ing. So Chang
star ing TSMC and tur ing it into the most val able co p ny in Asia is a sligh ly
di fe ent thing than “oh, you can b come s per su ces ful even if you’re old if you
just take a stab and go a ter things, so long as you have the right min set.”
Spea ing more ge e a ly, though, this has a ways been the tricky thing about
lear ing from hi t ry. Hi t ry is co text d pe dent. For i stance, read the fo lowing list of pla s ble lessons from Mo ris Chang’s st ry, and gauge how cre ble
they are:
1. Good ma agers ca not ‘ma age an thing’. Sp cia s tion counts.
2. When you get a signed to save a di fe ent d par ment, this may be an
o po t n ty to shine … or a way to get rid of you and put you out to
pa ture.
3. Co pe tive a va tage comes from cr ation — from di co e ing things
that are u der-a pr c a ed by your co pet tors.
4. Lear ing curve pri ing works be ter when you’re not su ject to changing co sumer se t ment. (Or pe haps the more ge e al form of this lesson is that scale a va tages work be ter when you’re not su ject to
abrupt changes in d mand).
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78
5. Star ing a new co p ny in your 50s is ok if you have an edge in your
pa ti
lar eld.
You might nod to some of these lessons, and wri kle your nose at ot ers. But you
might be su prised to learn that I don’t think any of these lessons are pa ti
la ly
good. Whe e er I read a co trived list of lessons that are drawn from some hi to ical co text, I play a game in my head. The game is si ple. For every le son that
you see, a pend “… e cept when it doesn’t” to the end. So:
1. Good ma agers ca not ‘ma age an thing’. Sp cia s tion counts … except when it doesn’t.
2. When you get a signed to save a di fe ent d par ment, this may be an
o po t n ty to shine … or a way to get rid of you and put you out to
pa ture … e cept when it’s not e ther of these things.
3. Lear ing curve pri ing works be ter when you’re not su ject to changing co sumer se t ment … e cept when it doesn’t. (Co si er: are there
e a ples of ot er i du tries where lear ing curve pri ing might work
in a more co sumer fa ing pro uct se ment?)
4. Star ing a new co p ny in your 50s is ok — so long as you have a compe tive a va tage. E cept when you do have a co pe tive a va tage,
and don’t su ceed an way b cause you’re too tired for this game and
can’t stick it out long enough to win, or the co pe tive d na ics in
your i du try don’t a low you to do
nate, or a hu dred ot er things
that may be var able when you’re buil ing a co p ny that isn’t TSMC.
In fact, the only le son that I think might pass the “… e cept when it doesn’t” test is
the third one — that co pe tive a va tage comes from cr ation, since it is true that
co pe tive a va tage comes from u co e ing things that are u de va ued by
your co pet tors.
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79
But my broa er point still stands: lear ing na row lessons from hi t ry is extrem ly risky b cause things that are true in one sp ci c co text might not be true
in a di fe ent co text — even a sligh ly di fe ent co text. This is what the “e cept
when it doesn’t” game u co ers, and it’s what makes lear ing hi t ry so di cult in
the rst place.
The Age Old Que tion About Lear ing
From Hi t ry
D bates about hi t ry and hi t r o r phy are as old as the eld of hi t ry i self.
There are co mo ly two a g ments made against rea ing hi t ry. And there are
two co mon a g ments for it.
I think a lot about these a g ments, gi en that I spend a fair bit of time rea ing
bus ness b o r phy. I ha pen to think that rea ing hi t ry is us ful, but a co ple
hu dred books in, I’m also star ing to b lieve that they’re us ful in a di fe ent way
than you might e pect.
I’ll b gin with the a g ments for rea ing hi t ry. These are the kinds of things
you’d e pect wri ers of po
lar hi t ry to say, or that you’ll e pect to hear from folk
who’ve read a great nu ber of books. It is, in fact, an a g ment that I’ve made,
when I wrote The Land And E pand Stra gy for Rea ing; I a gued that it was us ful
to read na r tive b fore ge ting into the core of a to ic.
The rst broad a g ment for rea ing hi t ry is that you’d be able to place current events in their pro er hi to cal co text. As a r cent e a ple, the 2021 US
Cap tol r ots may seem ho r ble and u prec den ed … u til you read hi t ries of
the Ame can Ci il War. (An Ame can friend poin ed out to me that things are bad
t day … but pe haps not as bad as the lead up to the Ci il War. And I found I had
to agree. I’d read The Met phy cal Club for u r la ed re sons a few months be-
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80
war, and the ways in which the war i
enced their ph lo
phy. The p la s tion
d scribed in that book was a shock).
Why is this us ful? Well, the b sic idea is that if you can place cu rent events in
their pro er co text, then you’d be be ter ca bra ed to r spond to them. The person who has read hi t ry would know not to ove r act to ce tain events; the pe son
who hasn’t is se ing ever thing for the very rst time.
There’s an i te es ing var tion of this rst a g ment, one that I rst heard in a
pa el talk by Si g pore hi t r an Wang Gun wu — one of the for most a tho ties
on the Ch nese d a p ra. Pr fe sor Wang a gued that hi t ry was us a ly amongst
the rst things to be weaponised in the event of a war. He gave a nu ber of hi torcal e a ples, b fore ma ing the case that a good u de stan ing of hi t ry was
ne e sary to r sist the na r tive mach n tions of its be lige ents. Pr fe sor Wang
was spea ing in the co text of a th
re cal Sino-J panese war, but it was clear to
ever one present — in Ch nese-m jo ty and Ch na-i
enced Si g pore, stuck
right b tween US-Ch na Great Po er r l tions — that na r tive m ni
l tion was
som thing to be rec oned with, from both po ers, in the near-f ture.
Pr fe sor Wang then framed the rest of his talk by sa ing that ‘hi t r ans may
make pr di tions “just for fun” to see if things could have been done a di fe ent
way. “U fo t nat ly,” he added, “there are many, many e a ples I can think of
where we don’t learn [from hi t ry]”.’
Wang’s frame — and the u de l ing a sum tions b hind that last stat ment —
leads us to a se ond a g ment. There is a wid spread b lief that rea ing hi t ry
will a low you to ‘learn the lessons of hi t ry’. The strong form of this a g ment
goes som thing like “if you read hi t ry, you’ll learn i po tant things … like not to
ght a land war in Asia, or not to i vade Ru sia du ing the wi ter.” The pra t cal way
this a g ment e pres es i self is in the b lief, say, that the Fall of Rome o curred for
a dozen pro mate re sons; that hi t r ans u co er new re sons as the decades
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81
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fore, which co ered the lives of four Ame can thinkers as they went through the
lessons you may tr a g late t wards som thing close to the truth. If you get to this
truth, the a g ment goes, you will be able to ‘avoid the mi takes of your for bears.’
This form of the a g ment is co si ered ‘strong’ b cause it a sumes you can
a ply the lessons d rec ly. On the face of it, this is a pre ty r mar able claim, since
the lessons of A cient Rome may seem a li tle r moved from the mo ern n tion
states of t day.
In r sponse, some folk back into the weak form of the a g ment. The weak
form is what you get when you hear som one say “hi t ry doesn’t r peat i self, but
it rhymes” — that is, pe haps the lessons of hi t ry are too sp ci c to a pa ti
co text to ge e alise, but that some … si
lar
la ty is co si tent over time. I have
some sy p thy for this view — a ter all, if you read ten hi t ries of an i du try and
nd that the co p nies wit in it all su ceed or fail in broa ly si
lar ways, then
pe haps there is some i fo m tion there that is worth ta ing away with you.
The u de l ing a sum tion b hind both the strong and the weak forms of this
a g ment is that you can learn lessons from hi t ry. And to make things clear, I
think this is true. I just don’t think the lessons are an thing like what we think
lessons should look like.
The re son I think this way is b cause I’m sy p the ic to the two cri cisms
most ty ca ly le elled against lear ing from hi t ry. To su marise crud ly, the two
a g ments go som thing like:
1. Ever thing in life is path d pe dent. A lucky break ea ly in a pe son’s
c reer makes all their la ter su ces es ea er; a lucky d c sion ea ly on
in a co p ny’s life makes their la ter projects more lik ly to su ceed.
You can’t repl cate a co p ny’s su cess, nor learn from their fai ures, if
you don’t also repl cate their path. And it is i po s ble to repl cate their
path. As a thro away e a ple, think back to the le endary, non-e clu-
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pass, and that if you read enough of these books and pore over enough of these
sive deal IBM made with M crosoft for MS-DOS in 1980 — which a lowed
M crosoft to sell DOS to every ot er PC-co pa ble ma
fa tu er. This
deal is o ten d scribed as “IBM’s great mi take”. Had they not done the
deal, M crosoft would have a had very di fe ent set of o po t n ties in
the e s ing decade. But IBM did do the deal with M crosoft, and that, in
turn, set the stage for M crosoft’s do
nance in o e a ing sy tems for
years a te wards. It is not very us ful to learn the lessons of M crosoft’s
hi t ry when much of what they a co plished hinged on chance
events and idi syncratic d c sions in their past.
2. The se ond a g ment against rea ing hi t ry is even more harsh. The
a g ment is that a coun ings of hi t ry are not a c rate, and can ne er
be a c rate, thanks to the na r tive fa l cy. By its n ture, na r tive nece sa ly co pres es r a ty into some c he ent tale, mea ing that accoun ings of hi t ry tend to overe ph sise i te tion and a tion, instead of the more pla s ble ‘ra dom a tions by a tors in a co plex
ada tive sy tem, co spi ing to cr ate u e pec ed r sults’. This is a
roun about way of sa ing that wha e er hi t ries you read are most
lik ly wrong — and not even a good re r se t tion of r a ty.
The real trick of rea ing hi t ry, it seems to me, is to nd a way to read for things
that are ide p tent across time. You id a ly want ideas or tak aways that ge eralise pro e ly.
It’s just a pity that it’s so hard to do so.
How to Read Hi t ry?
So: a right, you might think. Give it to me. How do you pr pose we read hi t ry?
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83
In a se tence: I think we should read hi t ry for co cept i sta t tions, not
lessons.
Lon time rea ers would know this is an idea that falls out of Co n tive Fle bi ity Th
ry, a th
ry of ada tive e pe tise in ill-stru tured d mains, which I’ve cov-
ered mu t ple times over the past few months. But what does this a t a ly mean?
What does it a t a ly look like when you’re rea ing hi t ry for co cept i sta t ations, i stead of na row, co text-co strained lessons?
Well, co si er the fo lo ing set of ‘lessons’:
- Lear ing economies work by i crea ing pr du tion vo ume in o der to
drive down costs. The TI st ry is the st ry of its di co ery — or more
speci ca ly, the st ry of how it came to be weaponised as a co pe tive
a va tage. In ot er words, this is an e a ple of what lear ing
economies looks like when e ployed as a co pe tive stra gy.
- In 7 Po ers Hami ton Helmer a serts that all co pe tive a va tage
comes from i ve tion. Chang’s st ry at TI is an e a ple of what that
looks like in pra tice.
- You may be put out to pa ture for weird p li cal re sons, and this is one
way that can ha pen. But, more i po tan ly —
- Mo ris Chang went to MIT,
ished his PhD at Sta ford in two-and-a-half
years, i ven ed lear ing curve pri ing (which is still used in the sem condu tor i du try t day), and in the process led an e tire co p ny d vision to ma ket lea e ship, over the course of 25 years at Texas I struments. He was still put out to pa ture at age 52. So if it can ha pen to
him, it shouldn’t be too su pri ing if it ha pens to you. By which I mean:
you shouldn’t be too shocked if you nd you self in a si
lar si
tion;
Chang’s st ry tells you that ge ting dumped a ter a long, su ces ful ca-
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84
cause it’s ha pened b fore.
What makes these ‘lessons’ di fe ent from the ones I talked about ea l er?
For starters, n tice that each of the ‘lessons’ are stru tured as “this is a real
world e a ple of some co cept or idea”, i stead of a more ge e al “you should do
X” or “when Y ha pens, you should watch out for Z”. Stru tu ing lessons in this ‘concept i sta t tion’ form makes them more co strained, but also more us ful. They
are more us ful b cause they a low you to reco nise si
lar si
tions as they oc-
cur to you in your life, in ot er words it teac es you to see, wit out for ing you into
na row, a tio able re o me d tions.
The truth is that ge e a i able lessons of the form “you should do X” tend to fall
at when a plied to real world si
tions — b cause the si
will a ways be di fe ent from the si
tions you’ll e counter
tions you read about in hi t ry. There’s an
even worse te de cy that I’ve n ticed, where pe ple read a li tle hi t ry and then
a tempt to turn it into a c he ent fram work in their heads. The fai ure mode is that
the fram work then acts as a blin er — it slows down their lear ing, and blinds
them to ot er ca es that might not t into the neat stru ture they’ve sp r ou ly
drawn up to guide their a tions.
I’m co ing around to the idea that you should not bot er with ge e a i able
lessons — or at least, to be e trem ly co se
tive when you a tempt to do so. In-
stead, you want to think “ok, this is an i stance of <co cept>, and this is one a ditio al way this can show up in the real world.” To r i e ate one of the ce tral claims
of CFT: e perts in ill-stru tured d mains re son by co pa son to fra ments from
pr or ca es they’ve seen — one i pl c tion is that co cepts are re r sen ed not as
a stract pri c ples in their heads, but a clu ter of real world ca es that serve as prot types.
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85
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reer is wit in the span of pla s ble c reer ou comes — you know this be-
The goal of rea ing from hi t ry, then, is to e pand the set of pr t types in
your head.
Trea ing hi t ry in this ma ner sid steps many of the pro lems we’ve discussed ea l er. You don’t have to wo ry about path d pe dence, for i stance, since
you’re not dra ing tight lessons from sp ci c sc na ios. Nor do you have to care
as much about the na r tive fa l cy — if you have enough sa ples of the thing in
a tion, your brain will be able to pa tern match against the si
la ties across ca es,
ne er you mind that retellings of each case may be i he en ly awed. When you’re
hun ing for co cept i sta t tions, the cri cisms of hi t r o r phy are a wash; they
fall to the wa side.
Let’s r turn to Mo ris Chang’s st ry. One of the bi gest ‘lessons’ I took away
from the e tire rst arc of his c reer is that “oh, this is what the ba boo cei ing
looks like”. I bring this up not b cause it is a pli
ble to me — I am an Asian of Chi-
nese d scent, but I am not based in the US; Asians in Asia do not face a ba boo
cei ing the way that Asian Ame cans might. I stead, I bring this up b cause I want
to map it to an e p r ence that I think all of us might have had.
How many times have you had an e p r ence where you then say, pe haps to a
friend, pe haps over drinks: “oh, I a ways knew X (e.g. ‘the ba boo cei ing’) was a
thing, but I ne er r a ly thought deeply about it u til it ha pened to me.”
To which the pe son you’re tal ing to goes, “Oh yeah, that can ha pen. Have
you heard about what ha pened to Bob?”
“No, what ha pened?”
“Well, a guably his st ry is cr zier than yours ...”
And then you go on to li ten to some na r tive of what Bob went through, and
you le it away in your head, next to your own pe so al e p r ence of the thing.
I bring this up b cause this is what lear ing from co cept i sta t tion looks
like. The only di fe ence is that, when you read case stu ies with i te tio a ty,
you’re not wai ing for som thing to hit you over the head, and you’re not r liant on
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86
your friends to tell you about a t al ca es that have ha pened to them or to people they know.
I stead, you’re dra ing from the co le tive e p r ence of pe ple you don’t
know, d ing things you can’t ima ine, across the e tire arc of time.
You are, in e fect, lear ing from hi t ry.
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87
There’s a f mous thin ing fram work by ‘f tu ist’, ‘for cas er’, and sc nario co sultant Paul Sa fo called ‘strong opi ions, wea ly held’. The phrase i self b came poplar in tech ci cles in the 2010s — I r me ber rea ing about it on Hac er News or
a16z com or one of those thinky tech blogs around the p r od. It’s still rather po ular t day.
Sa fo’s fram work — laid out in his ori nal 2008 blog post — goes like this:
I have found that the fastest way to an e fe tive for cast is o ten through a
s quence of lousy for casts. I stead of wit hol ing jud ment u til an exhau tive search for data is co plete, I will force m self to make a te t tive
for cast based on the i fo m tion avai able, and then sy te a ca ly tear it
apart, u ing the i sights gained to guide my search for fu ther i d c tors
and i fo m tion. I e ate the process a few times, and it is su pri ing how
quic ly one can get to a us ful for cast.
Since the mid-1980s, my mantra for this process is “strong opi ions,
wea ly held.” A low your i t ition to guide you to a co cl sion, no ma ter
how i pe fect — this is the “strong opi ion” part. Then – and this is the
“wea ly held” part – prove you self wrong. E gage in cr ative doubt. Look
for i fo m tion that doesn’t t, or i d c tors that poin ing in an e tir ly diffe ent d re tion. Eve t a ly your i t ition will kick in and a new h pot
sis
will emerge out of the ru ble, ready to be rut les ly torn apart once again.
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88
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‘Strong Opinions Wea ly
Held’ Doesn’t Work That
Well
You will be su prised by how quic ly the s quence of faulty for casts will
d li er you to a us ful r sult.
This process is equa ly us ful for eva a ing an a ready- nal for cast in
the face of new i fo m tion. It se s tizes one to the weak si nals of changes
co ing over the hor zon and keeps the ha less for cas er from b co ing
so a tached to their mo el that r a ty i trudes too late to make a di fe ence.
More ge e a ly, “strong opi ions wea ly held” is o ten a us ful d fault
pe spe tive to adopt in the face of any i sue fraught with high le els of unce tai ty, whether one is ve tu ing a for cast or not. Try it at a coc tail pa ty
the next time a co tr ve sial to ic comes up; it is an e gant way to di cover new i sights — and duck that t dious bore who lou ly knows not ing but
won’t change their mind!
On the face of it, it all sounds very re so able and smart. And ‘strong opi ions
wea ly held’ is such a catchy phrase — which pro
bly e plains its po
la ty!
The only pro lem with it is that it doesn’t seem to work that well.
Swi ming U stream Against the Arch te ture Of The Mind
How do I know that it doesn’t work that well? I know this b cause I’ve tried. I tried
to use Sa fo’s fram work in the years b tween 2013 and 2016, and when I was running my pr v ous co p ny I a temp ed it with my boss, whe e er we co vened to
di cuss co p ny stra gy.
Eve t a ly I read Phillip Te lock’s S pe for cas ing, and then I gave up on
‘Strong Opi ions, Wea ly Held’.
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89
Why does the fram work not work very well? From e p r ence, Sa fo’s approach fails in two ways.
The rst way is if the pe son hasn’t read Sa fo’s ori nal post. This is, to be fair,
most of us — Sa fo’s ori nal idea is so quotable it has turned into a meme ic phenomenon, and I’ve seen it ci ed in elds far ou side tech. In such ca es, the fai ure
mode is that ‘Strong Opi ions, Wea ly Held’ turns into ‘Strong Opi ions, Ju t ed
Lou ly, U til E dence I d cates Ot e wise, At Which Point You I voke It To Pr tect
Your Ass.”
In si pler terms, ‘strong opi ions, wea ly held’ som times b comes a l cense
to hold on to a bad opi ion stron ly, with dow side pr te tion, against the spi it
and i tent of Sa fo’s ori nal fram work.
Now, you might say that this is through no fault of Sa fo’s, and is i stead the
pro lem of po
la ty. But my r sponse is that if an idea has ce tain a fo dances,
and pe ple seem to a ways grab onto those a fo dances and abuse the idea in the
e act same ways, then pe haps you shouldn’t use the idea in the rst place. This is
e p cia ly true — as we’re about to see — if there are be ter ideas out there.
The se ond form of fai ure is if the pe son has ta en the time to look up the
ori nal i te tion of the phrase. In this si
tion, the fai ure mode is when you at-
tempt to i t grate new i fo m tion into your jud ment. Sa fo’s fram work o fers no
way for us to do this.
Here’s an e a ple. Let’s say that you’ve d ci ed, along with your boss, to build
a pa ti
lar type of pro uct for a pa ti
lar su se tion of the self-se vice chec out
ma ket. You both come to the opi ion that this su se tion is the best e try-point to
the i du try: it is re tiv ly l cr tive, and you think that it is the ea est cu tomer
se ment to se vice.
What ha pens to your opi ion when you slo ly di co er that the su se ment
is ove crow ed? Of course, you don’t nd out i m d at ly — what ha pens i stead
is that you spot li tle hints, spread over the course of a co ple of months, that many
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90
co pet tors are e te ing the ma ket at the same time. These are tiny things like
co pet tor brochures l ing in the co ner t ble of a client’s o ce, or pr nouncements by i du try groups that “they are loo ing to e gage ve dors for large deplo ments”, and then much la er, clea er e dence in the form of i creased co pet tion in deals.
“Well,” I can hear you say, “‘Strong opi ions wea ly held’ means that you
should change your opi ion when you e counter these tiny hints!”
But at which point do you change your mind? At which point do you switch
away from your strong opi ion? At which point do you think that it’s time to r consi er your a proach?
The pro lem, of course, is that this is not how the h man brain works.
Both fai ure mode 1 and fai ure mode 2 stem from the same te sion. It’s easy to
have strong opi ions and hold on to them stron ly. It’s easy to have weak opi ions
and hold on to them wea ly. But it is quite di cult for the h man mind to va i late
b tween one strong opi ion to a ot er.
I don’t mean to say that pe ple can’t do this — only that it is very di cult to do
so. For i stance, Steve Jobs is f mous for a g ing against one p s tion or a ot er,
only to d cide that you were right, and then come back a month la er hol ing exac ly your opi ion, as if it were his all along.
But most pe ple aren’t like Jobs. Ps cho gist Amos Tve sky used to joke that
by d fault, h man brains fall back to “yes I b lieve that, no I don’t b lieve that, and
maybe” — a three-dial se ting when it comes to u ce tai ty. Pe ple then hold on to
their opi ion for as long as their i te nal na r tives a low them to. Sa fo’s thin ing
fram work i plies that you sit in ‘yes I b lieve that’ te r t ry, and then rapi ly
switch away to ‘maybe’ or to ‘no’, d pen ing on the i fo m tion you r ceive.
Pe haps you may — like Jobs! — be able to do this. But if you are like most people, the a tempt will feel a lot like whiplash.
So, you might ask, what to do i stead?
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91
The ge tler a swer lies in S pe for cas ing. In the book, Te lock presents an a
lyt-
cal fram work that is ea er to use than Sa fo’s, while achie ing many of the same
goals.
1. When for ing an opi ion, phrase it in a way that is very clear, and may
be ve
ed by a pa ti
2. Then state the pro
lar date.
bi ty you are co
dent that it is co rect.
For i stance, you may say “I b lieve that Te la will go ban rupt by 31 D ce ber
2021, and I am about 76% co
dent that this is the case.” Or you can be sligh ly
slo p er with the tec nique — with my boss, I would say: “I think this su se ment is
a good ma ket to e ter, and I think we would know if this is true wit in four months.
I b lieve this on the o der of 70% ish. Let’s check back in Se tember.”
(My boss was an ex-i ves ment banker, so he took to this like a duck to w ter.)
Te lock’s sta ed tec nique was d ve oped in the co text of a geop li cal forecas ing tou n ment called the Good Jud ment Project. In 2016, when I read S perfor cas ing for the
wasn’t pa ti
rst time, I r me ber thin ing that geop li cal for cas ing
la ly re vant to my job ru ning an e g nee ing o ce in Vie nam. But
I also glommed onto the book’s ideas around anal sis, b cause it was too a tra tive
to i nore.
The truth is that Te lock’s ideas are not unique to his r search group. A nie
Duke’s Thin ing in Bets pr po es the same a proach, but drawn from po er, and
the ‘r ti na ist’ co m n ty Les Wrong has long-held norms around sta ing the condence of their opi ions.
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92
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Use Pro bi ty as an E pre sion of
Co dence
More i po tan ly, Duke and Les Wrong have both di co ered that the fastest
way to pr voke such n anced thin ing is to ask: “Are you wil ing to bet on that?
What odds would you take, and how much?”
You’d be su prised by how e fe tive this que tion is.
Why is it so e fe tive? Why does it su ceed where ‘Strong Opi ions, Wea ly
Held’ does not?
The a swer lies in the ‘strong opi ion’ po tion of the phrase. First: by for ing
you to state your opi ion as a pro
bi ty jud ment — that is, a pe cen age — you
are forced to ca brate the strength of your b lief. This makes it ea er to move
away from it. In ot er words, you are forced to let go of the ‘yes, no, maybe’ dial in
your head.
Se ond: by fra ing it as a bet, you su de ly have skin in the game, and are
m t va ed to get things right.
Of course, you don’t a t a ly have to bet — you can mer ly pr pose the bet as a
thin ing frame. La er, as new i fo m tion tric les in, you are a lowed to u date the
% co
dence you have in your b lief.
R vi i ing The H e a chy of Pra t cal
E dence
I have one nal point to make about this a proach.
Long term rea ers of this blog would know that my shtick is “a ply a tec nique
to my c reer or to my life, over the p r od of a co ple of months, and r port on its
e c cy.” Over time, I’ve n ticed that tec niques are more lik ly to be e fe tive
when they come from b lie able pra t tio ers. This is what led to my H e a chy of
Pra t cal E dence.
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93
Sa fo’s and Te lock’s ideas are drawn from the d main of for cas ing. But this
post is about thin ing, not for cas ing; I’m only co
dent to re o mend one over
the ot er b cause I’ve had enough e p r ence with both as a
But it’s worth no ing that Sa fo isn’t pa ti
ly cal tools.
la ly b lie able as a for cas er e ther.
For much of S pe for cas ing, Te lock rails against pr fe sio al ‘for cas ers’,
who make vague ve biage stat ments and i sue long form na r tives about the future. These for cas ers are a ways able to worm out of a bad for cast, b cause their
pr nounc ments are car fu ly wor ed to pr vide pla s ble d n bi ty.
As I was wri ing this piece, I skimmed through the book as re e ence, and was
su prised to learn that Te lock had met up with Sa fo over the Good Jud ment
Project, and had wri ten about the episode in the book. U fo t nat ly, Sa fo dismis es Te lock’s r search with a si gle r mark:
In the spring of 2013 I met with Paul Sa fo, a Si con Va ley f tu ist and scenario co su tant. A ot er u ner ing cr sis was bre ing on the K r an
peni s la, so when I sketched the for cas ing tou n ment for Sa fo, I mentioned a que tion IARPA had asked: Will North K rea “a tempt to launch a
mu t stage roc et b tween 7 Ja uary 2013 and 1 Se tember 2013?” Sa fo
thought it was tri ial. A few colonels in the Pe tagon might be i te es ed, he
said, but it’s not the que tion most pe ple would ask. “The more fu d mental que tion is ‘How does this all turn out?’ ” he said. “That’s a much more
cha len ing que tion.”
So we co front a dile ma. What ma ters is the big que tion, but the big
que tion can’t be scored. The li tle que tion doesn’t ma ter but it can be
scored, so the IARPA tou n ment went with it. You could say we were so
hell-bent on loo ing sc e ti c that we coun ed what doesn’t count.
Te lock goes on to d fend his a proach:
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94
That is u fair. The que tions in the tou n ment had been screened by experts to be both di cult and re vant to a tive pro lems on the desks of inte l gence a
lysts. But it is fair to say these que tions are more na ro ly fo-
cused than the big que tions we would all love to a swer, like “How does
this all turn out?” Do we r a ly have to choose b tween po ing big and impo tant que tions that can’t be scored or small and less i po tant que tions
that can be? That’s u sa i f ing. But there is a way out of the box.
I pli it wit in Paul Sa fo’s “How does this all turn out?” que tion were
the r cent events that had wor ened the co
ict on the K r an peni s la.
North K rea launched a roc et, in v l tion of a UN S c r ty Cou cil re
lu-
tion. It co duc ed a new n clear test. It r nounced the 1953 armistice with
South K rea. It launched a c ber a tack on South K rea, se ered the ho line
b tween the two go er ments, and threa ened a n clear a tack on the United States. Seen that way, it’s o v ous that the big que tion is co posed of
many small que tions. One is “Will North K rea test a roc et?” If it does, it
will e c late the co
ict a li tle. If it doesn’t, it could cool things down a li tle.
That one tiny que tion doesn’t nail down the big que tion, but it does contribute a li tle i sight. And if we ask many tiny-but-pe t nent que tions, we
can close in on an a swer for the big que tion. Will North K rea co duct anot er n clear test? Will it r buff dipl ma ic talks on its n clear pr gram?
Will it re a tillery at South K rea? Will a North K r an ship re on a South
K r an ship? The a swers are c m l tive. The more yeses, the lik l er the
a swer to the big que tion is “This is g ing to end ba ly.”
I call this Bayesian que tion clu te ing b cause of its fa
ly r sem-
blance to the Bayesian u da ing di cussed in cha ter 7. A ot er way to
think of it is to ima ine a painter u ing the tec nique called pointi lism. It
co sists of da bing tiny dots on the ca vas, not ing more. Each dot alone
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95
adds li tle. But as the dots co lect, pa terns emerge. With enough dots, an
artist can pr duce an thing from a vivid po trait to a swee ing lan scape.
There were que tion clu ters in the IARPA tou n ment, but they arose
more as a co s quence of events than a d a no tic stra gy. In f ture research, I want to d ve op the co cept and see how e fe tiv ly we can answer u scorable “big que tions” with clu ters of li tle ones.
Sa fo’s bus ness is in sel ing st ries about the f ture to bus nes es and o ga sations. He teac es his a proach to bus ness st dents, who would pr su ably go on
to do the same thing. Te lock’s job is in pi ning for cas ers down on their pe formance, and eva a ing them qua t t tiv ly u ing som thing called a Brier score.
His tec niques are now used in the i te l gence co m n ty.
These are two di fe ent worlds, with two di fe ent sta dards for truth.
You d cide which one is more us ful.
Clo ing Thoughts
So let’s wrap up.
In my e p r ence, ‘strong opi ions, wea ly held’ is di cult to put into pra tice.
Most pe ple who try will e ther:
1. Use it as dow side-pr te tion to ju t fy their stron ly-held bad opinions, or
2. Stru gle to shift from one strong opi ion to a ot er.
The re son it is di cult is b cause it works against the grain of the h man mind.
So don’t bot er. The next time you nd you self ma ing a jud ment, don’t invoke ‘strong opi ions, wea ly held’. I stead, ask: “how much are you wil ing to bet
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96
on that?” D ing so will jolt pe ple into the types of thin ing you want to e courage.
Whether you a t a ly put mo ey down is b sides the point; whic ever way you
a proach it, it’s still a heck of a lot ea er than va i la ing b tween mu t ple strong
opi ions.
See also: The For cas ing S ries, A Pe so al Epi t mo gy of Pra tice.
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97
B lie abi ty in Pra tice
A co ple of years ago I wrote about Ray Dalio’s b lie abi ty me ric, which he rst
a ti
la ed in Pri c ples (the har co er edition of the book was pu lished in 2017,
but my ori nal e p r ence with the book was a crude PDF ve sion, freely avai able
on Bridg w ter’s we site ci ca 2011).
It’s been a co ple of years since I i te nalised and a plied the idea; this e say
co tains some notes from pra tice.
B lie abi ty, A R cap
The a t al tec nique that Dalio pr posed is r a ly si ple:
‘B lie able’ pe ple are pe ple who have 1) a record of at least three re vant
su ces es and 2) have great e pl n tions of their a proach when probed.
You may eva ate a pe son's b lie abi ty on a pa ti
lar su ject by a pl ing
this heuri tic. Then, when you’re i te ac ing with them:
1. If you’re tal ing to a more b lie able pe son, su press your i stinct to
d bate and i stead ask que tions to u de stand their a proach. This is
far more e fe tive in ge ting to the truth than was ing time d ba ing.
2. You’re only a lowed to d bate som one who has roug ly equal b lievabi ty co pared to you.
3. If you’re dea ing with som one with lo er b lie abi ty, spend the mi imum amount of time to see if they have o je tions that you’d not consi ered b fore. Ot e wise, don’t spend that much time on them.
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98
The tec nique mos ly works as a
ter for a tio able truths. It’s pa ti
la ly handy if
you want to get good at things like wri ing or ma ke ing, org d sign or i ves ing,
hi ing or sales — that is, things that you can do. It’s less us ful for ge ting at more
ot er kinds of truth.
I think I star ing putting b lie abi ty to pra tice around 2017, but I think I only
r a ly i te nalised it around 2018 or so. The co cept has been r mar ably us ful
over the past four years; I’ve used it as a way to get be ter a vice from be ter-selec ed pe ple, as well as to ide t fy books that are more lik ly to help me a quire
the skills I need. (A ot er way of sa ing this is that it a lowed me to i nore a vice
and di miss books, which is just as i po tant when your goal is to get good at
som thing in a hu ry.)
I a tribute much of my e fe tiv ness to it.
I’m star ing to r alise, though, that some of the n ances in this tec nique are
pe haps not o v ous — I learnt this when I star ed sen ing my su m ry of b lievabi ty to folks, who grokked the co cept but then didn’t seem to a ply it the way I
thought they would. This e say is about some of these se ond-o der i pl c tions
when you’ve put the idea to pra tice for a longer p r od of time.
Why Does B lie abi ty Work?
B lie abi ty works for two re sons: a co mon-sense one, and a more i te es ing,
less o v ous one.
The co mon-sense re so ing is pre ty o v ous: when you want a vice for
pra t cal skills, you should talk to pe ple who have those skills. For i stance, if you
want a vice on swi ming, you don’t go to som one who has ne er swum b fore,
you go to an a co plished swi mer i stead. For some re son we seem to fo get
this when we talk about more a stract skills like ma ke ing or i ves ing or bus ness.
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99
light: many d mains in life are more pro
bili tic than swi ming, so you’ll want at
least three su ces es to rule out luck. You’ll also want pe ple to have ‘great e plan tions’ when you probe them b cause ot e wise they won’t be of much help to
you.
The more i te es ing, less o v ous re son that b lie abi ty works is b cause
r a ty has a su pri ing amount of d tail. I’m quo ing from a f mous a t cle by John
Sa vat er, which you should read in its e tir ty. Sa vat er opens with a st ry about
buil ing stairs, and then writes:
It’s temp ing to think ‘So what?’ and di miss these d tails as i c de tal or
sp ci c to stair ca pe try. And they are sp ci c to stair ca pe try; that’s
what makes them d tails. But the e i tence of a su pri ing nu ber of meanin ful d tails is not sp ci c to stairs. Su pri ing d tail is a near un ve sal
pro e ty of ge ting up close and pe so al with r a ty.
You can see this ever where if you look. For e a ple, you’ve pro
bly
had the e p r ence of d ing som thing for the rst time, maybe gro ing
ve et bles or u ing a Haskell pac age for the rst time, and b ing fru trated by how many a no ing snags there were. Then you got more pra tice
and then you told you self ‘man, it was so si ple all along, I don’t know why
I had so much tro ble’. We run into a fu d me tal pro e ty of the un verse
and mi take it for a pe so al fai ing.
If you’re a pr gra mer, you might think that the
dl ness of pr gram-
ming is a sp cial fe ture of pr gra ming, but r a ly it’s that ever thing is
dly, but you only n tice the
dl ness when you’re new, and in pr gram-
ming you do new things more o ten.
You might think the
dly d tail ness of things is li i ed to h man cen-
tric d mains, and that physics i self is si ple and e gant. That’s true in
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100
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The two r quir ments for b lie abi ty makes more sense when seen in this
some sense – the phy cal laws the selves tend to be quite si ple – but the
ma fe t tion of those laws is o ten co plex and cou te i t itive.
The point that Sa vat er makes is that ever thing is more co plex and
dly than
you think. At the end of the piece, Sa vat er a gues that if you’re not aware of this
fact, it’s lik ly you’ll miss out on some o v ous cue in the e v ro ment that will then
cause you — and ot er novices — to get stuck.
Why does this ma ter? Well, it ma ters once you co si er the fact that pra t cal
a vice has to a count for all of this
dl ness — but in a roun about way: good
pra t cal a vice nea ly ne er pr vides an e hau tive d scri tion of all the
dli-
ness you will e p r ence. It can’t: it would make the a vice too long-win ed. Instead, good pra t cal a vice will tend to f cus on the salient fe tures of the skill or
the d main, but in a way that will make the
dl ness of r a ty tractable.
In pra tice, how this o ten feels like is som thing like “Ahh, I didn’t get why the
a vice was phrased that way, but I see now. Ok.”
Think about what this means, though. It means that you ca not tell the di ference b tween a vice from a b lie able pe son and a vice from a non-b lie able
pe son from e a
n tion of the a vice alone. To a novice, a vice from a non-be-
lie able pe son will seem just as lo cal and as re so able as a vice from a more
b lie able pe son, e cept for the fact that it will not work. And the re son it will not
work (or that it will work less well) is that a vice from less b lie able i d vi
e ther f cus on the wrong set of
als will
dly d tails, or fail to a count for some of the d-
dl ness of r a ty.
To put this a ot er way, when you hear the words “I don’t see why X can’t work
…” from a pe son who isn’t yet b lie able in that d main, alarm bells should go off
in your head. This pe son has not tes ed their ideas against r a ty, and — worse —
they are not lik ly to know which set of
dly d tails are i po tant to a count for.
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101
Why Does This Ma ter?
At this point it’s pe haps us ful to take a step back and r i e ate why I take this idea
so s r ou ly.
I’ve just gi en you an e pl n tion of the di fe ences in a vice from b lie able
pe ple and non-b lie able pe ple. I have not named any names, b cause I don’t
want to call pe ple out in this piece. But co si er, for a m ment, the kinds of e per ences I must have had to be able to tell you about such di fe ences.
If you take a vice from non-b lie able pe ple, you’ll o ten waste months chasing a ter som thing with the wrong frame. Pra tice takes time. Ma tery takes years.
You don’t want to burn months nee les ly if you don’t have to.
I take b lie abi ty s r ou ly b cause I’ve burnt months in the past in the pu suit
of su o t mal a vice. I am now rut less when it comes to eva a ing a vice, because I do not want to burn months in the f ture.
One way I think about this is that the most da ge ous a vice from non-b lievable pe ple tend to be ‘pe fec ly r ti nal, lo ca ly co struc ed, and not r a ly
wrong — but not as us ful or as po e ful as some ot er fra ing’. The da ger isn’t
that you r ceive a vice that just a pears to be st pid, or wrong — if that were the
case, you would si ply r ject it. No, the da ger is that you r ceive a vice that
slows you down — while a pea ing pe fec ly re so able on the su face.
Ad H m nem
An o v ous o je tion to b lie abi ty is that it is a form of ad hominem. Per Wikipedia, ad hominem is a ‘rheto cal stra gy where the spea er a tacks the cha a ter,
m tive, or some ot er a tribute of the pe son ma ing an a g ment rather than attac ing the su stance of the a g ment i self.’
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102
But the Wik pedia page also i cludes this r joi der:
Valid ad hominem a g ments o cur in i fo mal lo ic, where the pe son
ma ing the a g ment r lies on a g ments from a tho ty such as te t m ny,
e pe tise, or on a s le tive pr se t tion of i fo m tion su por ing the p sition they are a v ca ing. In this case, counter-a g ments may be made that
the ta get is di ho est, lacks the claimed e pe tise, or has a co
ict of i ter-
est.
In pra tice, b lie abi ty has i te es ing pro e ties that pure ad-hominem doesn’t.
For i stance, there have been mu t ple i stances where — ha ing d te mined that a
j nior pe son was more b lie able than I was in some sub-skill like cop wri ing or
sof ware d sign — I just shut up and set aside my views to li ten. I’ve also shushed
more s nior pe ple, when it b came clear to me they were less b lie able in that
pa ti
lar sub-skill than the j nior e plo ee.
Su vivo ship Bias
The next most co mon o je tion to b lie abi ty is ‘how about su vivo ship bias?’
The re so ing goes som thing like this: if you f cus on those with at least three
su ces es, you may well i clude i d vi
als who have su cee ed by luck. A ot er
way to a gue this is to ask: what about all those who have a temp ed to put b lievable a vice to pra tice, but failed?
As with the ea l er ana gy on swi ming a vice, there is a us ful thought e ercise that I like to use, to r mind m self of the n ances of the tec nique in pra tice.
Let’s ima ine that you and I are recr atio al Judo pla ers, and you see me su cessfu ly pe form a co pl ca ed throw on at least three se
rate o c sions, against
three di fe ent o p nents. Do you write this off as su vivo ship bias? Pro
bly not.
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103
In fact, you might ask me to teach you the throw — and I would gla ly do so, though
I might warn you that it took me three years to learn to use it with any amount of
su cess. (This is quite co mon, e p cia ly with more co pl ca ed tec niques in
Judo).
But now let’s say that you run some anal sis on i ternational Judo co p t tion,
and you nd out that — u su pri in ly! — the throw is rarely used at the hig est levels of co p t tion. The few co pet tors who use it do so spa in ly. How does this
change your d sire to learn the tec nique?
This ana gy ca tures many pro e ties of skill a qu s tion:
1. Just b cause a pra t tio er is able to use a tec nique doesn’t mean that
you would also be able to — for i stance, pe haps the pra t tio er has
longer limbs, or a longer to so, that make the tec nique i po s ble to
do for any ot er body shape. (In ma ke ing, i ves ing, or bus ness, the
equi
lent ana gy here is that ce tain a proac es d mand ce tain ad-
d tio al pro e ties to work — for i stance, you might need a ce tain
te per ment if you are d ing ce tain styles of i ves ing, or you might
r quire full su port from co p ny lea e ship if you are ru ning ce tain
types of go-to-ma ket pla books. Or pe haps the a proach you take requires the pra t tio er to have an equi
len ly high le el of skill at some
u r la ed d main — say, o ga s tio al po tics, or org d sign; these
serve as co foun ing var ables that a fect one’s abi ty to copy the approach and have it work in your sp ci c co text).
2. Just b cause a pra t tio er is able to use the tec nique in one co text
(the club le el) doesn’t mean that they would be able to do so in highle el co p t tion. This is pa ti
la ly true in sports like Judo, but is
broa ly true els where — ce tain tec niques or a proac es are har er
to learn, with lo er pro
bi ty of su cess, and so va ish from the high-
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104
est le els of co p t tion where ev l tio ary pre sures are the strongest. (The bus ness ana gy here is that ce tain a proac es work for lessco pe tive i du tries, or for ce tain p r ods of time, but do not work in
more co pe tive i du tries or at the end of a c cle).
3. This does not mean that you ca not learn som thing from a b lie able
pra t tio er — it si ply means that proof of b lie abi ty is not a gua antee of tec nique su cess.
So how do you take these pro e ties into a count? Over the past co ple of years,
I’ve se tled on two a proac es:
First, I think of b lie abi ty as a more po e ful ne
tive
ter than it is a po i-
tive one — in ot er words, it is more ri o ous when r mo ing i d vi
als, books, or
a vice from co si e tion. You should pay the bare mi mum of a te tion to less
b lie able a vice, and then look els where.
On the ip side, if you get a vice backed by a track record of at least three succes es, you should pro
bly treat it as an e i tence proof that the a vice has
worked and that the b lie able pe son has som thing to teach you; what you
shouldn’t do is to treat it as ‘the truth’, since you still need to ve fy if it works for you
in pra tice.
Se ond, I am very sp ci c when it comes to eva a ing b lie abi ty. I’ve a luded to this in the e a ple about cop wri ing, above — I am pe fec ly ha py to shut
up and learn from a more j nior pe son if they are more b lie able than I am in a
pa ti
lar sub-skill. Co s quen ly, I’ve found it us ful to eva ate b lie abi ty at the
le el of the sp ci c a vice that’s gi en — which might o ten mean that I take two or
three pieces of a vice s r ou ly in a co ve s tion, but then di card the rest, depen ing on the pe son’s b lie abi ty for each sp ci c piece of a vice.
A good e a ple of this is with nance pr fe sio als — I am not b lie able
when it comes to i ves ing, so I i m d at ly shut up and li ten whe e er they talk
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105
about nance; on the ot er hand, I tend to i nore nea ly ever thing that nance
folk say about org d sign. From e p r ence, pr fe sio als in smal er funds tend not
to have gra pled with org d sign pro lems the way bus ness o e tors of equi alent org sizes must (mos ly b cause small-to-mid-size bus nes es tend to be more
o e tiona ly co plex than small-to-mid-size funds).
My point: s le tion bias is less of a thing when you’re eva a ing sp ci c advice against the pr cise co text and the co text-d pe dent b lie abi ty of the
pe son in que tion, e p cia ly when you a proach things with the a sum tion that
pra tice is the bar for truth. And even with things like ‘org d sign’ I am very aware
of the li its of my b lie abi ty — I’ve ne er run orgs lar er than 50 pe ple, for instance, and even then only su ces fu ly in ce tain co texts; I mos ly shut up and listen whe e er I meet som one who has scaled lar er orgs, or if they have run
equi
len ly-sized orgs in more o e tiona ly cha len ing d mains.
Su press Your Views
The most di cult part about putting b lie abi ty to pra tice is a t a ly in the rst
third of Dalio’s pr t col.
If you’re tal ing to a more b lie able pe son, su press your i stinct to debate and i stead ask que tions to u de stand their a proach. This is far
more e fe tive in ge ting to the truth than was ing time d ba ing.
It turns out that the ‘su press your i stinct to d bate’ is re tiv ly easy; the hard
part is in me ta ly su pres ing your e is ing mo els of the d main. To be more
pr cise, the di cult part is that you are not a lowed to i te pret the e pert’s a guments through the lens of what you a ready know.
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106
One tricky sc nario that you might nd you self in is tal ing to som one who is
demo str bly more b lie able than you in a pa ti
lar sub-skill, but then r a i ing
that what they say clas es with your e is ing me tal mo els of the d main.
A true co mi ment to b lie abi ty means that you have to take them s r ou ly.
It also means that you have to i nore what you think — b cause it is lik ly that
you’re mis ing ce tain cues that only they can see. Dalio’s pr t col i pli i ly calls
for you to grok the more b lie able pe son’s worl view — to treat it with r spect, to
que tion it and i te nalise its lo ic; you may co struct a tio able tests for the a gument la er.
This sounds re tiv ly easy to do in th
ry. In pra tice, I’ve found it to be re-
mar ably di cult. What I’ve seen most pe ple do when put in this si
tion is that
they will take wha e er the more b lie able pe son says, and then par phrase it using a frame that they cu ren ly u de stand. But this is st pid. You’re not here to inte pret the e pert’s a vice through your e is ing me tal mo els — in fact, you’re
was ing time since the odds are good that your me tal mo els are su tly mi ta en
in the rst place. I stead, you should set aside your own mo els in an a tempt to
gra ple with the a vice on its own terms, u ing the more b lie able pe son’s own
words, in an a tempt to see the world as the more b lie able pe son sees it.
I’m afraid that I don’t have good e a ples for you here. The most pe n cious
i stances of this b haviour o cur when the pra t tio er is a jou ne man in some
d main, and the hig er-b lie abi ty pe son is more than a few rungs ahead in a
pa ti
lar branch of the skill-tree. This in turn means that any d tailed e a ple I
give you will r quire you to be f mi iar with the skill d main i self. But, if I may describe what I’ve n ticed in such sc na ios: what o ten ha pens is that the more belie able pe son will say som thing with su tle i pl c tions, and the less b lie able
pe son will say “ahh, yes, and —” and then pr ceed to a ti
late som thing that is
clea ly a fun tion of their cu rent me tal mo el of the d main, in a way that mis es
the su tle di fe ence.
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107
A crude, no-good e a ple (that won’t make sense u less you have some e per ence in ma ke ing): if you put two b lie able ma keters t get er, one from a perfo mance ma ke ing bac ground and one from a brand ma ke ing bac ground,
what you’ll o ten nd is the pe fo mance ma keter will co plet ly miss out on the
parts of the brand ma keter’s skill where the brand ma keter is able to m ni
late
low-le el levers in a co sumer’s ps cho gy.
It’s not enough to say (to the pe fo mance ma keter) “you must u de stand the
cu tomer to do brand ma ke ing well” — the pe fo mance ma keter will think that
they a ready u de stand the cu tomer, since all ma keters use some mo el of the
cu tomer’s jou ney in their work. What the pe fo mance ma keter might not n tice
is that there are depths in the id al cu tomer’s ps cho gy that the brand ma keter
is able to plumb (e p cia ly with r gard to the brand and the brand na r tive) and
that these depths will be su tle and sound e tir ly ridic lous when a ti
la ed. Un-
less the pe fo mance ma keter is wil ing to set aside what they cu ren ly know
about ma ke ing to li ten car fu ly, they will lik ly be blind to much of these nuances.
In pra tice what’s more lik ly to ha pen is that the pe fo mance ma keter will
say, of the brand ma keter, “god, I can’t stand them, they’re all full of hot air”, and so
will be co plet ly us less with brand ma ke ing for years and years a te wards.
I’m not sure if that e a ple made any sense to you, but if it did — well, this sort
of i te a tion is e ac ly what is di cult about putting b lie abi ty to pra tice.
Tr a g late Truths
Here’s a more i te es ing que tion, though: what ha pens when two equa ly belie able pe ple have di fe ent a proac es to a pa ti
lar d main? That is, you go
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108
ic ing a vice on some d c sion, and
you’re co fused as to what to do.
We can state this que tion sligh ly di fe en ly: what ha pens if a b lie able
pra t tio er (say, an Olympic meda list) says one thing, but a b lie able coach (a
pe son with a track record of pr du ing Olympic at letes) says a ot er?
Or what if you read about two s vant i vestors who have t ta ly di fe ent approac es to e u ty i ves ing?
How do you eva ate the co pe ing a proac es?
At this point in the e say, it’s a t a ly ea er to re son about this — each piece of
a vice you get comes from a pa ti
lar co text, and the su ces es in the pe son’s
hi t ry serves as an e i tence proof for the a vice. Ther fore: hold each a proach
equa ly with a loose grip, but test the one with the more a ce s ble e pl n tion
rst.
(Or r a ly, test whic ever one a peals to you rst — it doesn’t a t a ly ma ter
that much so long as you’re wil ing to act).
The i t ition here is that each b lie able pe son is lik ly to see parts of the skill
d main that you can’t, and so a vice that a pears co
ic ing to you as a novice
very o ten turns out to be di fe ing i te pr t tions of the same u de l ing pri ciples once you’ve climbed a bit fu ther up the skill tree.
A ot er i pl c tion: you can use the di fe ences in a vice from equa ly b lievable pe ple as a way to tr a g late on those base pri c ples. This is si
lar to what
I’ve a gued in To Get Good, Go A ter The Metagame — a though in that piece, the
pr m ry idea I e ploit is the o se v tion that e perts o e a ing at some co pe itive fro tier may serve as a north star for self-lear ing.
My friend Le ley has an i te es ing a g ment when it comes to eva a ing
coach vs at lete: she says that while both may be equi
len ly b lie able (the
coach has a track record of pr du ing wi ning teams; the pla er has a track record
of wi ning); you r a ly do want to pay a te tion to the pe son with the be ter e pla-
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109
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to two di fe ent pe ple and they give you co
cha p on (or a f mous coach) si ply b cause they are be ter at sy th sis and
co m n c tion.”
Which pro
bly e plains why Dalio i clu ed the clause that b lie able pe ple
should have ‘a cre ble e pl n tion when probed’.
I think Le ley is broa ly right. If in doubt, test the more a ce s ble e pl n tion
rst.
But the i po tant thing, again: you need to test ideas, not a gue about them.
The pu pose of the b lie abi ty pr t col is to get be ter faster. Here’s to ho ing
that it helps you do just that.
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110
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fi
n tion. The way she puts it: “A 2x cha p on might be a be ter coach than a 10x
In ec nomics, time pre e ence is the n tion that the va ue of som thing changes
d pen ing on whether you r ceive it at an ea l er date as co pared to r cei ing it
a la er date. That’s a r a ly co pl ca ed way to d scribe som thing quite i t itive,
so here are a few e a ples.
Let’s say that you want to get rich in 10 years. 10 years isn’t a lot of time, so you
nd you self wil ing to take more risks in o der to hit a hig er p te tial r turn on
your i ves ments — you may i vest all of your sa ings into Bi coin, for i stance, or
start a go-big-or-go-home star up.
But if you’re, say, 25 years old, and you want to hit ve mi lion do lars in net
worth by age 60, you have more time on your hands, and may be said to have a
‘longer time pre e ence’. This means that you’re pro
bly g ing to i vest in very
di fe ent things — things that may give you a smal er r turn each year, but are less
risky ove all. The hope is that you may co pound your i ves ments over the 35
years you have left till you hit 60.
Here’s a ot er e a ple. Let’s say that you vi it an O cle and she tells you that
you’re g ing to die next year. We’ll a sume that the O cle is 100% co rect, and
that you know this. Your a ti ties for the next year would look very di fe ent from if
you didn’t know you were g ing to die — you’d pro
bly tra el to e o ic places, or
binge on the best movies and eat at the best resta rants, COVID-19 be damned.
Wher as in a no mal year, you’d be d ing some mix of i ves ing vs ha ves ing —
‘i ves ing’ a ti ties are things that would only bear fruit years down the line (like
fu ther e
c tion, or spen ing time with your kids), and ‘ha ves ing’ a ti ties are
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111
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What’s Your Time Pre erence?
things that would bear fruit t day (like cas ing out of your e plo ee stock o tion
plan and bu ing a new Te la).
The core idea here is that your time pre e ence grea ly i
ences the types of
a ti ties that you do. This is a ridic lou ly si ple idea, but it is rather us ful when it
comes to thin ing c reers.
Think Four Decades, Not Four Years
A ty cal c reer lasts about four decades. I’m a su ing that an a e age pe son
starts work in their mid-20s, and has a c reer that lasts till their mid 60s. I have
friends who b lieve that they are ne er g ing to r tire, but even they think that
they would slow down in their 70s.
(As of this wri ing, John Ma one and Ba ry Diller are 79 years old, and are still
a tive pla ers in bus ness; Robert Kuok was a tive even in his 70s; A thoni Sa im is
71. I’m pic ing bus ness lea ers as an e a ple b cause ru ning a bus ness is incre bly ti ing; my point is that wor ing in your 70s is still po s ble. Whether you
want to do so is a ot er que tion e tir ly).
So: 40 years on a e age. If we b lieve the data, most pe ple hit their peak
ear ing years b tween the ages of 45-55. Ear ings then trends dow wards as we
near r tir ment age, and p ters out as you stop wor ing and wit draw from your
sa ings.
My point is that any type of c reer stra gy should take these nu bers into account. Many of us will have a four-decade long c reer. The peak of our c reers will
o cur du ing our late 40s to ea ly 50s. And the stages we go through on our way to
that peak will be od ly si
lar, if you’ve read enough b ogr phies and talked to
enough pe ple about their c reers.
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112
ty cal Euro board game:
- The ages of 25 to 35 are the ea ly game. In most c reers — and most
E rogames! — you earn re tiv ly li tle at the b gi ning, and you have to
grind it out to build an ec no ic e gine. (A pr fe sor once took me
aside, right b fore I gra
a ed, and told me “Your 20s is g ing to be
hard, c reer-wise. You’re g ing to be kicked around a bit. Don’t let it get
you down.” It was good a vice).
- The ages of 35 to 55 are the mid-game. This is when you’ve mos ly
ured things out, and you b gin e te ing your peak ear ing years. In
pure E rogame terms, the mid-game is us a ly the most i te es ing part
of a game. The m jo ty of the pla ers would have their core point-gene a ing e gines g ing, and the shape of the co p t tion b comes clear.
As it ha pens, I e joy tal ing to pe ple at this stage of their c reers —
those who are at the b gi ning of the mid-game tend to be the ones
who have reached in tial ma tery, and yet still have the e e gy to keep
up with the meta.
- The ages of 55 to 65 are the end game. In a E rogame, the endgame
is when you cash in all your i ves ments and take points. Si
la ly, in ca-
reers, this stage is when you stop i ves ing in new skills, and b gin harves ing all the c reer ca tal that you’ve gained over the years. This is
the time to take your wi nings and e joy life.
I think about this 40 year time span a lot. When I was in my 20s, one of my friends
used to say “In the span of a c reer, one year isn’t much” to talk about c reer bets;
with the be
t of hin sight, I thought he got it a s lut ly right. But it’s been my
e p r ence that most pe ple don’t think about the 40 year span. I have se e al
friends who judge our peers on their c reer tr je t ries based on what’s ha pened
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113
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The way I like to think about it is that a c reer span is a bit like the stages of a
in their 20s; I have ot er friends who think they’re d ing bri lian ly two or three jobs
in. But I’m a lot more co se
tive when it comes to such eva
tions. I know — from
rea ing lots of bus ness b ogr phies, and from tal ing to lots of pe ple about their
work — that many things can ha pen in the rst two decades of a c reer. U less
you’re in the late stage of the mid-game — in the 45-55 age brac et — it’s si ply too
ea ly to tell if you've had a good run of it.
This i t ition should be f mi iar to an one who’s played s r ous Euro board
games. (Or r a ly — any kind of game with a clear ea ly/mid/end game — Civ
counts, as does Dota. If you want a taste of this, get a bunch of friends and play
one or two rounds of an e try-le el E rogame — I re o mend Tic et to Ride, or
Ca ca sonne, or Sple dor.)
Ty ca ly, the ea ly-game is when all the pla ers are ma ing their in tial bets.
Us a ly these are all i ves ing a ti ties, no ha ves ing ones; it’s u clear how these
a ti ties would bear fruit. Si
la ly, the rst decade of most c reers are o ten too
shap less to eva ate pro e ly — some pe ple e pe ment with ra dom jobs in
ra dom places; ot ers do e tra d grees. It’s di cult to tell what the ou comes
would be.
There's also a si pler e pl n tions for this di cu ty: if we a sume it takes
around 10 years to get good at som thing, and a few more years to faff around
and nd that thing, then ha ing the rst 10-15 years of a c reer a pear to be a bit
of a wash makes a ton of sense.
If you don't b lieve me, it's worth ca bra ing a li tle and loo ing at the c reers
of some su ces ful pe ple at the end of the ea ly game:
- At age 30, Wa ren Bu fett had moved back to his home town and was
ru ning se en small i ves ment par ne ships, sourced from l cal acquai tances. This was four years a ter Be jamin Gr ham closed his partne ship (lea ing Bu fett wit out a job), and a year a ter pu cha ing his
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114
ha. He was pra t ca ly u known at the na-
tio al stage.
- At age 30, Ba ry Diller was Vice Pre dent of D ve o ment at ABC, and
had just i ven ed the co cept of the made-for-TV movie. T day, Diller is
most known for his stints at Fox Ne work and with IAC (which owned,
amongst ot er things, E p dia, Vimeo, Tic e ma ter and Match com …
and helped cr ate Ti der). But at age 30, in 1972, Diller was a ri ing
broa cast e e
tive; c ble was still r gar ed as a co boy i du try, and
the i te net wasn’t even a thing.
- At age 30, John Ma one was Group Vice Pre dent of Je rold Ele tro ics.
This was a role he got a ter co sul ing for Ge e al I str ment while he
was at Mc i sey — he told Mo ty Shapiro, then head of GI, that som one
was coo ing the books at Je rold, and that “it’s g ing to take a lot of
work to turn this around”. Shapiro replied “If you’re so smart, why don’t
you come and do it you self?” Je rold wasn’t the job that made Ma one’s
name; that came two years la er when he was o fered the job at TCI. The
rest of his c reer at TCI is hi t ry.
- At age 30, Robert Kuok was an agr cu tu al tra er, ru ning Kuok Brot ers
Sdn Bhd. He was three years away from se ting up his rst joint ve ture
with J panese par ners, and 18 years away b fore buil ing the
rst
Shangri-La H tel.
Yes, the o v ous o je tion to this list is that this is e treme su vivo ship bias, but
that’s b sides the point; the point I’m ma ing here is that it’s di cult to eva ate careers at age 30 — even when you’re loo ing at some of the most su ces ful pe ple
on the pla et. Nea ly all of these pe ple did their most i te es ing work in the midgame; for many of them, the mid-game o curred b tween their 40s and 50s.
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ve-be room house in O
Time Pre e ences in C reers
Thin ing about c reers in 40 year spans does one ot er thing: it gives you a way to
ca brate the e pec ed r turn on i ves ment for c reer d c sions.
Some c reer d c sions r turn you be
ts i m d at ly. Think of a high-pa ing,
pre t gious job, for i stance. Ot ers don’t r turn be
ts as quic ly. For i stance,
spen ing 10 years at ea ly Am zon* — or an equi
co p ny — would pro
len ly o e tiona ly ri o ous
bly set you up as a rst class o e tor for the rest of your
c reer (30 years!) but would mean that you’ll look like an i iot for the rst 10 years
of your wor ing life.
(*Wor ing at ea ly Am zon was to work long hours, earn lo er-than-a e age
pay, with a large chunk of stock comp that didn’t do as well co pared to the a tern tives. B zos’s “we are wil ing to be mi u de stood for long p r ods of time” is
the very d
tion of a long time pre e ence.)
As with all such things, this is easy to say but di cult to do. Ima ine how long
10 years feels like. Ima ine all the pre tige and salary that you’re gi ing up for
those 10 years. And ima ine your peers bu ing new hou es or cars and mo ing up
in some well-d
ned c reer la der every co ple of years du ing that rst decade.
Ima ine some of them buil ing up pe so al brands on Twi ter or LinkedIn, as a result of that ea ly su cess.
If you think about c reers as a step-wise co p r ble, then ta ing a pay cut to
build a ce tain set of skills seems like a bad c reer move. But if you think about careers as a 40-year-long game, then i ves ing your rst decade or two to build up
skills and c p bi ties nee ed for the next two decades seems like a wort while inves ment.
One way I like to do this is to eva ate c reers in 10-year blocks. Gi en a 40
year time span, each decade for the rst three decades should be used to build up
for the next one. You can r a ly only stop to ha vest in the third and nal decade,
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116
when you’re in your late 50s (and even then — you might d cide to i vest for your
60s and 70s; the irony is that if you play your cards right, the co poun ing e fect
of your skills and re
t tion would mean that the most i te es ing o po t n ties of
your c reer may come to you in those nal decades!)
Thin ing this way also means that you would be more su p cious of jobs that
don’t set you up for the la ter decades of your c reer; you might also be more susp cious of things that co fer short-term c reer a va tages. I am rather a biv lent
about the co cept of pe so al brand buil ing for this re son — I don’t think perso al brand buil ing is a great idea, but I also don’t think it’s a bad one. In the late
2000s, I was part of the ea ly b go phere; I wrote one of the rst web
tion blogs
and was a me ber of the then-pre t gious 9rules ne work. None of the l m na ies
from that p r od co ti ue to be as f mous t day. The ones who have las ed have
done so b cause they were d ing i te es ing, val able things ou side of their blogging. What I’ve learnt from that p r od is that, for most pe ple, pe so al brand
buil ing takes a toll over a decade-long time span; an ea er way to stay i te esting and re vant for a 20-30-year p r od is to build or do us ful things, and to harvest the re
t tion be
ts a te wards.
(I vestor Brent Beshore says som thing si
lar in this po cast (52:29): “you al-
ways got to have the go b hind the show, and you be ter make sure you have the
go
rst b fore you have the show, or the show is not g ing to ma ter over a
durable p r od of time, right? And I can think about some sp ci c pe ple in my
head that have come and gone in the sort of high-n t r ety realm that just didn't
have an thing to back it up. And they were kind of like the one-trick pony. So I think
there's a lot of those d na ics that pe ple have to be aware of. (…) I’m g ing to
use the most f mous (e a ple) of them, right? Which is Wa ren Bu fett. If you think
about his pe so al brand over time, when he was 40 years old, har ly an body
knew who he was, right? In O
ha, he was kind of b co ing a big deal in his late
30s, when he rst star ed bu ing the Was in ton Post (…) I r me ber the f mous
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117
ane dotes like “Who the hell is that guy? Where did he come from? Who is this
Wa ren Bu fett?” And only a ter he sort of was di co ered, mea ing pe ple had
co ve s tions with him and said, “Wow, there’s som thing to this guy. This guy has
a spark. There’s som thing u us al. His pe fo mance is spea ing pre ty lou ly,” did
he r a ly start ram ing up his pe so al bran ing e forts. And oh, by the way, yes,
Wa ren Bu fett has pe so al bran ing e forts. Don’t think for a se ond the awshucks pe sona isn’t coined.”)
Time Pre e ence in Bus ness
Time pre e ence is more co mo ly u de stood in bus ness and i ves ing.
One of the more o v ous a plications of the idea is in the co pe tive a vantage that one gains from ha ing i vestors with longer time pre e ences. A ty cal
i ves ment fund (be it ve ture ca tal or hedge fund) rai es mo ey from ‘LPs’, or
li i ed par ners — these are pe ple or i st t tions who put mo ey into the fund but
have no say in the ru ning of things. The i vestors who a t a ly run the fund are
called GPs, or ge e al par ners. Ty ca ly, a fund with LPs with longer time pre erences will have a co pe tive a va tage against funds that don’t.
Why this is the case? Well, this is rather easy to e plain. When things are g ing
well, LPs are ty ca ly ha py to leave their mo ey with the fund ma agers. When
things are g ing ba ly, ho e er, LPs can go to the ma agers and say “uhh, a t a ly
we’d like to take our mo ey out.” This can be ho r ble for the ma agers — in some
ca es, it might mean sel ing off p s tions in their i ves ments in o der to give the
e i ing LPs the ca tal they d mand. And if you’re forced to sell against your will,
ty ca ly in a dow turn, it is lik ly that you would be ta ing los es as you sell.
All of this is to say that funds have a co pe tive a va tage if they have LPs
who are i cre bly p tient with their ca tal, and who have no need to draw down
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118
on i ves ments when times are tough. The best VC funds, for i stance, are able to
a tract ever more p tient forms of ca tal; this in turn means that they are more
lik ly to stay in top decile of funds.
I te es in ly enough, this also a plies to the LPs the selves.
Time pre e ence was e ploi ed most f mou ly by David Swensen of the Yale
e do ment. Swensen r alised in the late 80s that un ve s ty e do ments are
amongst the most p tient forms of ca tal around; this p tience could be turned
into a co pe tive a va tage. The b sic i sight that Swensen e ploi ed was this:
li uid ma kets are more e cient ma kets, but e cient ma kets mean that it is di cult to ge e ate hig er r turns. Ther fore, go a ter illi uid ma kets i stead!
Swensen
ured this was a na u al t for the e do ment: his stra gy worked be-
cause a) he had a long time pre e ence (illi uid funds mean that you have to stay
i ves ed for a long time), b) he was able to cu t vate long-term r l tio ships with
ma agers, who c) had a life-long a fe tion for and lo a ty to their alma-mater.
Star ing in the 80s, Swensen b gan searc ing for and i ves ing in ma agers
whom he thought might d li er such r turns. In the ea ly years, few such funds exis ed, which meant that he had to b come a ‘ve ture ca ta ist of ve ture ca talists’. As of 2019, about 60% of Yale’s e do ment is a l ca ed to hedge funds, venture ca tal, and pr vate e u ty, and the stra gy is copied wid ly. Swensen’s track
record speaks for i self.
What I nd most fa c na ing, ho e er, is that time pre e ence also a plies to
bus nes es. A co mon o se v tion that pe ple have about sta tups is that star up
tim lines are co pressed, thanks to the ec nomics of ve ture ca tal.
The st ry goes like this: a ty cal VC fund lasts 10 years. VCs do not us a ly invest in new co p nies b yond the third year of a fund’s life, to e sure their la est
i ves ments have a chance to r turn mo ey to LPs by the end of the 10 year p riod. To quote Andy Rac leff, fo me ly of Benc mark Ca tal:
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119
A cor ing to r search by William Sahlman at Ha vard Bus ness School, 80%
of a ty cal ve ture ca tal fund’s r turns are ge e a ed by 20% of its i vestments. The 20% needs to have some very big wins if it’s g ing to more than
cover the large pe cen age of i ves ments that e ther go out of bus ness or
are sold for a small amount. The only way to have a chance at those big
wins is to have a very high hu dle for each prospe tive i ves ment. Tr ditio a ly, the i du try rule of thumb has been to look for deals that have the
chance to r turn 10x your mo ey in ve years. That works out to an IRR of
58%. Please see the t ble b low to see how r turns are a fec ed by time
and mu t ple.
If 20% of a fund is i ves ed in deals that r turn 10x in ve years and everything else r sults in no va ue then the fund would have an a n al r turn of
a pro mat ly 15%. Few rms are able to ge e ate those r turns.
If you’re even pas in ly f mi iar with sta tups, you may have heard of mantras such
as ‘Sta tups = Growth’, or you may be f mi iar with the trope that sta tups are ‘gobig-or-go-home’. This is in many ways dr ven by the time pre e ence of the investors who play in this a set class. E fe tiv ly, this means that sta tups are u der
pre sure to d li er 58% va
tion growth over a ve year p r od, or pe haps a gen-
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120
tler 33% a year over eight years. This is a rather short time pre e ence; many startups, in many ma kets, do not clear this bar. Many of them die.
But look ou side sta tups, and you would nd rather smal er growth rates, over
longer time hor zons. My goto e a ple for this is Koch I du tries, who says in its Vision:
(…) our V sion is to i prove the va ue we cr ate for our cu tomers more e cien ly and faster than our co pet tors. This should e able us to ge e ate
the r turn on ca tal and i ves ment o po t n ties nee ed to achieve a
long-term growth rate that do bles ear ings, on a e age, every six years.
Do bling ear ings every six years works out to about 12% re enue growth a year.
Keep in mind that this is on a e age; the co glo e ate is wil ing to a cept that
some years would be worse than ot ers.
Koch r mains an i te es ing e a ple b cause it is so large and so po e ful
and its founders are co si ered so evil. As a case of growth with long time pre erence, ho e er, Koch is di cult to beat: over the past 50 years, Charles and David
Koch have ma aged to grow Koch I du tries into the largest pr vat ly-held co pany in the Uni ed States, kee ing all co trol for the selves. As Christ pher Leonard
do
ments in Kochland, by the mid-2000s, Koch I du tries could not die. It was
split into su sidiaries that were bu warked from each ot er with strict e forc ment
of the co p rate veil; fai ure in one su sidiary would ne er threa en the cash reserves of any ot er part of the e pire.
And so Koch I du tries grew, 12% at a time, over many decades, u til it was so
large that Charles Koch b gan m ni
la ing the p li cal sy tem in the Uni ed
States to his a va tage.
I’ve d li e at ly ch sen the ve ture-growth mo el to pit against the co glome ate growth mo el b cause the co pa isons are so stark: you e ther build a gobig-or-go-home star up, co pres ing your wealth-see ing into a 10-year p r od,
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r tur ing ca tal to i vestors with a re tiv ly short time pre e ence. Or you could
choose to work p tien ly, mai tai ing full co trol, co poun ing your ear ings at
12% a year, over the course of
ve decades, u til you eve t a ly fund cl mate
change d nial and own large parts of the R pu l can pa ty and are bran ed evil by
half of your cou try.
Both paths are valid, but one path is si ni can ly scar er than the ot er. Time
pre e ence ma ters. Use it well.
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