Kara Swisher

Supported by Greenhaven Road Capital, finding value off the beaten path.

Kara Swisher joined Barry Ritholtz on the Masters in Business podcast. What a two-hour trip. We’ll touch on just a few things.

Structure. In physical spaces there’s no ‘good’ or ‘bad’ but low-friction and high friction activities.

An example is automotive infrastructure. Roads, intersections, and bridges are built for the scale of cars. Go see for yourself. Or read about it. Or search for it. Physical low/high friction is easy to see but this exists everywhere.

Twitter, Ritholtz and Swisher note is good for a certain kind of communication by a certain kind of person. They focus on politicians but that again is just an easy to see case.

An unnoticed but relevant instance is organizational structure. Swisher co-founded startups with angel investments but also operated in a skunk works arrangement within The Wall Street Journal. Now, ‘skunk works’ sounds cool and the original’s conent looks cool but it may not be the best model.

It’s not about imitating models from Google, Lockheed, Goldman, Hollywood, or sports. It’s about implementing models with the best friction coefficients for your organization.

We wrote about how the skunk works model can work. Swisher noted the startup and the skunk works model were “good and bad in different ways.” It all depends on what actions the structure makes low friction and which it makes high friction.

In a previous MIB episode, Robert Cialdini told Ritholtz how a restaurant increased their friction to decrease their no-shows.

“A hostess changed from, ‘Please call if you have to change your reservation,’ to ‘Will you please call if you have to change your reservation,’ and she waited for people to say ‘Yes I will.’
It reduced no-shows by 64%.” 

Robert Cialdini

Physical or organizational structures aren’t good or bad, they just make certain actions easier or not. One specific example is a decentralized command. As Ray Kroc said, the person closest to the problem is the one best suited to solve it. Yes!

And no. Teams need coaches, units need commanders, and newspapers need owners. Swisher said that Katharine Graham (and her family) and Jeff Bezos have done a good job owning the Washington Post because “they were not twitchy owners.”

It takes a balance of intervention and trust that can be hard to find. David Chang said one of his restaurant launches bombed because “I fucked up by not editing enough and not finding that balance. I handed it off too completely to them. I didn’t put them in a place to succeed.”

Good decentralized command requires the right people. Sometimes that means great hiring, sometimes it means great training, sometimes it means both. It depends.

When Swisher and Ritholtz both (independently) thought podcasts were a good idea they were both (independently) told podcasts were not a good idea. One way to forcast these kinds of will-they-won’t-they-work situations is to ask if a version of it is already happening.

Tony Hsieh was doubtful about e-commerce for shoes. “To me it sounded like the poster child of bad internet ideas.” But he went along (Hsieh was bored, he didn’t even fully vest after his last startup was acquired) and asked the person pitching him how this idea could work.

‘It already works!’

‘Huh?’ Hsieh thought. He was in the internet and no one was buying shoes. ‘It’s not on the internet,’ the person pitching said. It’s in catalogues. People order shoes without trying them on all the time.

Swisher was told podcasts wouldn’t work because ‘millennials like snackables’ and two hours is too long. Well, no. As Zappos was to catalog shoes, podcasts are to talk radio. Barry added, “The 92nd Street Y has been doing that (live interview and talk shows) for decades.”

Kara has done a lot of podcasts with a lot of technology leaders. She said that Marc Andreessen, “is actually one of the people who will go back and forth.” Andreessen likes to argue well. John Hempton too.

Swisher also got a chance to interview Steve Jobs and said, “I really enjoyed interviewing him. What an interesting and complex person…he was just a complicated and interesting person. A lot of people try to cartoonize a person, ‘He was mean to people!’ Yeah, but lots of people are mean.”

Ed Catmull said almost the same thing about Jobs. Ken Kocienda too. Why does the ‘mercurial’ (and it’s always ‘mercurial’) image of Jobs remain? It’s a tasty story. Our POV 40 IQ emails regularly remind us of the work required to break what Tyler Cowen warns about:

“You have to worry about many more things that might be true and it’s a huge burden and people don’t like it. They like to push that stuff away, keep things neat and easy to deal with, what I call the philosophy of once-and-for-all-ism.”

Swisher is great because she argues well, because she avoids once-and-for-all-ism, and because she recognizes the structure we live within. Thanks for reading.

Eric Ries

Supported by Greenhaven Road Capital, finding value off the beaten path.

Eric Ries joined Ted Seides to talk about his book (The Lean Startup) and his startup (Long-Term Stock Exchange).

At Ries’s first startup the business plan was a “beautiful artifact,” created with stealth operations. It was going to work, for sure. “If the customers had read the business plan we’d all be rich.” Only it didn’t work, at all. They failed.

Picture a rainbow, at some point one color ends and another begins. Similarly in businesses there must be a point when private work becomes public sharing. Tasty quickly became public. Ashley McCollum said, “The focus was not on food. The focus was on a format that you can watch in your social feeds, post literate, and audio independent.”

The only way to see if that format worked was by creating, sharing, and tracking.

Ries’s “beautiful artifact” made modern and for food TV would be another bubbly, kind, homely, southern, or intelligent chef showing off in a polished kitchen, using matching utensils, and baking in a magic oven.

There’s also private experiments. The Chocolate Wars were full of families fiddling with recipes, trying different milk sources, and ‘borrowing’ tips from their neighbors, friends, and enemies.

Public isn’t necessarily better than private and vice versa. What’s important is experimentation of some kind.

Ries did this with his book, much like a comedian. “During the process of writing the book, I didn’t know how it was going to turn out and I felt a real sense of obligation to make the book as rigorous as I possibly could.” Reis ran workshops, conferred at conferences and worked with all kinds of startups in all sorts of places.

For Steve Martin, this travel was on “the lonely road.” It was there that Martin went from writer/performer/musician/comedian to just stand-up comedian. Jennifer Armstrong wrote about Jerry Seinfeld, “He used his attendance at Manhattan comedy clubs as a kind of independent study. He analyzed comic’s approach to their material and even wrote a forty-page paper on the subject.” Andy Grove calls it “the winds of the real world.”

Now Ries is trying to build a new kind of stock market, the LTSE. One part of it is about nipping executive compensation. One client wondered to Ries why a competitor splurged on buybacks.

“I don’t even know the name of the company, the details of the industry, or anything really but I can tell you everything about their executive compensation system. Why are they doing buybacks? We all know it.” 

The reason? The incentives!

In one of our most popular posts, we looked at how Howard Marks organizes his life Matryoshka-like.

It’s great that Ries is doing what he’s doing, attempting something new, but as the Marks’ post notes, the odds are not in his favor.

The compensation quagmire spawned in 1993 when president Clinton wanted to stem the early 90’s recession (FRED). Clinton gave a speech and congress passed a law which capped CEO-pay-as-as-deduction at one-million dollars. In a world of cause -> single-effect that’s a brilliant move.

However, that’s not real-life, and CEO pay exploded.

How one incentive structure fits in another matters a lot. It’s why hiring is so important. If businesses can find people whose incentive structure already matches theirs then much of the on-boarding is already done. A good culture, wrote Rory Sutherland, is a place with “an atmosphere in which people can ask apparently fatuous questions without fear of shame.” A good culture, said John Hempton, is where people are challenged on accuracy.

Though the road is steep, Alex Ries and his team have a chance to make the climb. Their biggest advantage stems from this incentive weakness. Their competition can’t compete with them.

Ries said “We support dual listings,” & “The reason incumbent exchanges want listings so badly is not for the listing fees but for the extra trades it generates on their platform and we don’t make our money from trading so we don’t need to fight them for that subsidy.”

In another financial services post we noted the advice from Alex Rampell who pointed out that Max Levchin at Affirm is approaching a problem in much the same way. Levchin noted that people don’t need credit so much as they need the thing they want. So Affirm loans them the money. In an interview he’s asked why other banks can’t enter his market.

“Those guys cannot enter our business because they’re addicted to the income. If you make half your money on fees and the other half on these nasty deferred interest programs.”

Ries has learned some helpful lessons about iteration, experimentation, and compensation. Good luck to him for trying something new. Thanks for reading. Want more stories. They’re all here.

Bernard Roth

Supported by Greenhaven Road Capital, finding value off the beaten path.

‘Bernie’ Roth trained as a mechanical engineer. He would build things. Then an opportunity to visit California came up. He was a New Yorker but his wife wanted to take the trip so they went, and he never left. Decades later David Kelley got cancer and Roth was asked to be the dean at Stanford’s d.school, and again he never left.

Today we’ll look at Roth’s book, The Achievement Habit and some quotes from a talk he gave at Stanford. Included are lessons from his time on both coasts, work in multiple university departments, and consulting with a variety of firms.

Roth aims to apply “design thinking” to a person’s life. “Design thinking came about because it uses methods used by designers to design stuff, but now it applies it to almost everything.” It’s a powerful idea because part of what ‘design’ allows is for ‘designers’ and the first question to ask is, What’s the problem?

Designers know, Roth writes, that next-to-nothing has inherent meaning. Almost all meaning is assigned. Is cereal a breakfast food? Not in my house. That’s an assigned meaning. People, Roth proposes, get into trouble when they assign “functional fixedness,” like thinking cereal is only for breakfast. This idea comes through in our language, to a person with a hammer every problem is a nail.

Hammers are only good for nailing is functional fixedness.

But not so fast Adam Savage writes that every tool is a hammer. Designers, like Savage and Roth, wrote their books to inspire people to summize and solve situations in new ways.

Let’s say you’ve got a chain of pizza restaurants. It’s a large company and sales have stagnated. Surveys say that customers don’t like the taste. There’s also an urban legend that the pizza is so cheap because it’s cardboard, not dough, for crust.

This was Patrick Doyle’s situation at Domino’s. It wasn’t enough for Domino’s to change the taste (though they did), Doyle had to change how people saw Domino’s.

In his talk, Roth tells a related story where he spent five minutes looking for the gas-tank-cover-release on a rental car. After his frustrated search, a woman pulled up to the next pump over and he asked her where the lever was. ‘There is none’ she said. The cover opened with a touch. Roth attempted to solve the wrong problem (Where’s the handle?). Had Doyle only focused on taste he would have isolated the wrong problem too.

The first part of good design is finding the right problem. Domino’s situation was like a rummy hand – keep the best and discard the worst.

Roth had a student whose goal was to get a better night’s sleep. So his project for the class was to fix his bed. At their meeting the student admitted that he was behind. Roth gave advice. The student got further behind. Roth wished him luck. When the end of the semester arrived the student presented his solution: a new mattress. Roth gave him an A.

“Design thinking emphasizes that you always make sure you’re working on the real problem.”

Bernie Roth

The real problem is sometimes hard to find because we’re liars. There’s always “a goooood reason” for doing anything and people lie to paint themselves in the nicest light possible around those reasons. “If you don’t want to do something,” Roth writes, “the world will give you a reason.”

This is part-of-the-reason Roth started his class and wrote his book, The Achievement Habit. According to Roth, action and achievements are muscles. “I’m advocating for living your life as reason free as you possible can.” Don’t find a good reason, act instead.

Trying is not doing. That’s okay, but don’t confuse the two. A friend told Roth, “Bernie, every time time I’ve hit a block that’s what got me to do something great and creative.” Constraints aren’t blocks so much as gaps. Constraints help. Film school restricts students. Conan O’Brien said, “The funniest thing in the world is to give someone restraint.” Sam Hinkie said, “Within heavy constraints, thinking different is one of the few ways you can do anything differently.”

It’s good when resources are limited because that means old problems are solved in new ways.

Adopting this approach to problem solving takes work. Finding the ‘Why’ to the ‘Why’ means asking more questions. Getting past our ‘goooood reasons’ means being honest. Doing despite obstacles takes effort, iteration, and ingenuity. Those are all things Roth might say is good design.

Thanks for reading. If you want more, in a less format, check out this newsletter.

‘Florida Man’ Raked Over Logical Idea

Supported by Greenhaven Road Capital, finding value off the beaten path.


FYI, this man suggests cooling the waters around a hurricane using the United States Navy and maybe even using the United States Air Force to “fly some planes around it and maybe get it going the opposite way.”

He’s right. The NOAA website lists three ingredients for hurricanes; warm water, moist air, and converging winds. Change the water and the air and, viola, the hurricane can make the turn and head out to sea.

He’s right, but he proposes is impossibble. To cool a swimming pool takes about 1,000 pounds of ice per degree. Cooling a section of ocean is a job that not even the Navy Seabees could engineer.

Even though he’s right.

Which gets us to the point, great solutions may not be possible solutions.

Lately we’ve studied at a lot of marketers because their solution sets are universally possible and sometimes great. Marketers propose the opposite of this guy. Instead of cooling the ocean they stretch the imagination.

Rory Sutherland asks why we make trains faster when we could make them more enjoyable. Hans Rosling wonders why we send helicopters to disasters instead of better plumbing. Grethen Rubin had a friend that imporved her commute not by driving faster but in listening to podcasts and books.

Some decision mistakes come from what Sutherland writes is a “broken binoculars” approach. Businesses use too much market research and economic logic in their decisions. There’s another mistake we make too, choosing to change the physical world instead of the psychological one.

Physics is hard, change requires arranging atom. Psychology is easier, change requires arranging ideas.

In the physical world cooling an ocean is impossible. In the psychological world convincing people it’s possible happens all the time.

  • Physics is market fundamentals. Psychology is the Common Knowledge Game as explained by Ben Hunt.
  • Hooligans emerging from bars are loud, but Stevyn Colgan found the solution is psychological, not thicker windows.
  • Poor market research is numbers on a spreadsheet, good market research might have saved Nokia.

Part-of-the-reason physics gets used more than psychology is that physics is easy to see. What we measure, matters. What we see is all there is.

On his podcast with Bill Simmons, Zach Lowe made this point about NBA player Nikola Jokić. “He’s huge, he gets every rebound, he gets deflections…some pick-and-roll play will turn him around, he’ll get embarrassed. His bloopers on defense are going to look worse than anyone else’s.”

Looking at bloopers is the wrong metric just like considering physical change is the wrong metric for new behaviors. The sabermetrics changes in baseball, basketball, hockey (maybe), and football (someday) were merely switches in how we count something. Jokić is in the NBA not because scouts got better at counting but because they got better at seeing.

‘Florida man’ didn’t not have a good idea but he did have a logical one. The trouble is we all have a bit of ‘Florida man’ in us. We think about logical answers and think about easy to see answers (physics) instead of digging around, being curious, and finding something a bit better.

Thanks for reading. If you liked this, you might like my email of stories It’s all about arranging – and rearranging ideas. Subscribe here.

Baby Steps and Windfalls

Supported by Greenhaven Road Capital, finding value off the beaten path.

There are two types of change, gradual and sudden. Kids are one example. Before kids a person is mostly responsible for themselves. Then a baby shows up. One human being is entirely dependent on another. That’s sudden.

Then those kids grow up. They become less, but not fully, dependent. One day a parent looks at them and somehow they grew from a baby to a teenager then to an adult. Daily gradual change is hard to notice, but a lifetime of gradual change is hard to ignore.

The delightful Chenmark email addressed this idea with, People Like Us Do Things Like This.

“Second, we must understand that change is a steady, incremental process. Good things happen gradually so that great things can happen all at once. To be successful, we must have the discipline to make the small, daily, but sometimes hard decisions that will add up to massive success over time.”

A lot of successful change is baby steps. The physical world shows this everyday; beards go grey, grass becomes hay, pounds are added (or lost) from what we weigh. Gradual change is easy to get used to, we hardly notice it.

The hard part of gradual change is sustaining it. This is why making it to Mars is so hard. It takes a long time. High school students can figure out the variables for fuel, direction, orientation and so on but keeping people alive, sane, and healthy during a nearly a year in space is a challenge. The same is true for financial, personal, or experiential wealth.

But windfalls happen too. Something good, or bad, occurs in our lives that change the existing conditions. Babies begin one type of family and divorces end one. Financial rewards from a lifetime of effort are some too. On the Invest Like the Best podcast, Joe McLean talked about this.

“Blindly buying houses and giving money is not the direction you want to go in. That’s part of our spirit of empowering people to get education rather than given money.”

McLean wants to serve his clients and influence their actions after a windfall.

Lottery winners keep their money, but sometimes lose it. Bariatric surgery participants keep their weight off, but sometimes gain it back. The leverage point for windfalls and baby steps is the same — it’s actions. Gradual change is actions in pursuit, sudden change is actions to sustain.

Sometimes the actions are unclear. Sometimes it takes a little creativity. For starters, think about what not to do. McLean notes that athletes buy the right watch, not the bright watch. Invert the question, says Charlie Munger, and avoid doing dumb things before you mess around with doing the right things.

Then good ideas can come from anywhere.

“I’m often asked, ‘Where do you get your ideas?’ This happens to anyone who is willing to stand in front of an audience and talk about his or her work. The short answer is: everywhere. It’s like asking, ‘Where do you find the air you breathe?’ Ideas are all around you.”

Twyla Tharp

In the book, Anatomy of a Song, Marc Myers interviews and edits decades of musicians interviews. What’s common about each is the sudden and gradual change. There’s always a flash; lyrics, riffs, intros. That’s the sudden change. Jim Weatherly called a college friend only to have Farah Fawcett answer the phone. She couldn’t talk, she had to catch a plane. Jim recalled.

“After I got off the phone, I grabbed my guitar and wrote ‘Midnight Plane to Houston’ in about forty-five minutes—the music and lyrics. The line ‘I’d rather live in her world than live without her in mine’ locked the whole song.”

That’s sudden.

Then that song took a lot of work. Weatherly sold it to Crissy Houston who changed it from planes to Houston to trains to Georgia. Then Gladys Knight changed it to have more soul and spirit. That’s gradual.

There are two ways to go bankrupt said Hemingway’s character Mike Campbell, gradually and suddenly. Those are the two ways that everything happens.

Thanks for reading. Want more? Check out this email series.

Marc Stickdorn

Supported by Greenhaven Road Capital, finding value off the beaten path.

Good designs get awards, great designs get ignored.

Design can be physical like a home or office, technological like a user interface or operating systems, or personal like habits and beliefs.

If we reframe everything as designed then we can adopt the roll of designers. Let’s highlight the design process from Marc Stickdorn.

When he gives tours of the IDEO offices, Tom Kelley gets asked where everyone is. Visitors expect a certain aesthetic.

But that’s baloney. Good designers, Kelley said, spend time with their clients, going through their experiences, walking in their shadows.

Stickdorn agrees, “It’s much more powerful seeing a customer failing to use your product or service than having statistics about how customers are failing. We need to prove something is a real issue (quantitative) and the qualitative bits showing why things actually fail.”

In one talk Stickdorn says that good research is about triangulation between three things; qualitative, quantitative, and questioner. It’s a combination of interviews, numbers, and different people collecting data that will give the most accurate view.

After collecting data, good organizations organize it and then present findings and actions. These kinds of meetings require good arguments.

“How do you create an experience where people feel safe and are open enough to share and try out things? Technology won’t help you with that, that’s a human skill.”

In Trillion Dollar Coach, the authors write that Bill Campbell had certain steps that would ensure a good arguments because he told them, “I hate consensus.”

The first was to set the facts, the second was to set the first principles, the third was to establish things they already thought were true. Bill would also frame meetings as debates, not disagreements. Words frame situations and that matters.

Stickdorn gives another tip to argue well – structure. Some parts of meetings should be ‘Yes, and…’ segments. Where, much like in comedy, it’s a chance to broaden an idea into what the adjacent possible or MAYA territory.

But meetings should also include ‘Yes, but…’ where constraints are introduced, limits proposed, and deadlines created. This phase can include creativity too, as constraints help.

However your organization runs a meeting, “When people are involved you need more structure than you think.” And, “The more freedom you want the more structure you need.”

From there, an organization might get something like a journey map. Building on the triangulation of Q’s, an organization has a chance to visualize the customer’s process. However, “A customer journey map is not a fucking deliverable. Many think ‘We buy this software, we do a journey and then we’re done.’ No, you’re not. They should build their journey map on research and not assumptions.”

Design is about action. Stickdorn highlights Alex Nisbet who said, “We are change agents, we are not creators of beautiful tools…it’s about the outcome, not the output.”

Design is making making a change in the world, that takes action.

Stickdorn believes idea generation is overrated. Underrated is shitty first drafts, or in design-speak, prototyping which is just a numbers game with psychological pitfalls. Stickdorn warns against sunk costs:

“If we take one idea into prototyping we’ll fall in love with this idea. We’ll stick with it even though we learn it’s shitty. Through biases we all have, (we will make up a reason) ‘This prototype is not shitty but is actually cool.’ If however, you take a couple of ideas into prototyping and you prototype it quickly and test different solutions you have variants to choose from.”

People compare in relative, not absolute terms. Any lone idea transforms into a (maybe) good idea because it’s compared to doing nothing. Better advice is to come up with many ideas.

Any kind of design is ‘hired’ for jobs to be done. It doesn’t matter what we call it. It could be design, magic, Alchemy, whatever. “People don’t care about service design, they want their problem solved.”

You’re a designer now. Go solve something.

Thanks for reading. Want a week-day email from me? It’s not analysis, breaking news, or statistically significant. It’s just one story that offers a change in perspective. Rory Sutherland noted that a change in Point-of-View is worth 40IQ (points). This email is just that. Check it out.

Tyler Cowen

Supported by Greenhaven Road Capital, finding value off the beaten path.

Tyler Cowen stopped by EconTalk (for the 11th time!) to talk about his book, Big Business: A Love Letter to an American Anti-Hero. The conversation with Russ Roberts circles the book in a way only Tyler Cowen can. The definition of polymath should be someone who can cite John Rawls and PewDiePie in the same breath.

In talking about how to change poverty, Russ Roberts half-joking says to buy people luggage. The idea being that transaction costs for job changes (see also: Michael Munger) are too damn high.

Cowen suggest enhanced public transit and congestion costs or reduced incentives for things like rural mail delivery. Both Roberts’s and Cowen’s ideas are about frictions. Subsidies reduce fictions for planting one crop instead of another or getting rural mail the ‘last mile’. Removal of subsidies increases frictions and forces a person to find a new way of doing things.

Frictions are something Austen Allred thinks about frequently:

“One of the things I spend most of my time thinking about isn’t the course content but how can I eliminate all the other distractions for people? The first way is making tuition free upfront…how can we take all the distractions away to help someone get from point A to point B? Because we know you can., but lives are complicated and messy.”

Finding solutions to better work is important because work matters. A job is more than a paycheck. “Unemployment is very bad for people,” Cowen says and “most people are happier working.”

Tyler has recommended the work of Brynjolfsson and McAfee in the past, and they note too that work is more than just work. People create friendships, gain skills, and self-fulfillment while on the job. It’s not just a paycheck people get, but intangible and sometimes immeasurable things too.

Solving the ‘job’ of income is like solving the ‘job’ of door-opener by replacing a doorman with an automatic door. The solution only works for the first order principles and neglects everything incremental.

Much of the episode between Cowen and Roberts is about creativity; thinking creatively about new solutions, current situations, and the entire ledger. Cowen says his book is “trying to set the record staring by just looking at the facts.”

One example is social media. Cowen is happy with his use of WhatsApp, blogging, and Twitter because while, “there’s a downside to social media I think the upside is so much greater.”

People are cognitive misers. We assume that all we see is all there is. That’s not the case. The financial sector Cowen says, provides useful services such as capital allocation, yet it’s vilified for a portion of the actions.

In another section Roberts asks if he’d rather be born in the past or the future. “I’d still be okay being born in 1962,” Cowen says, exhibiting a case of the same limited thinking. “I’ll prefer the future but I’m not convinced how long civilization will last. If it’s a uniform distribution across the whole future I’d definitely rather be born in 1962.” Cowen isn’t creative enough about the future—imagining mostly negative outcomes.

A third example of this phenomenon is related to the idea of reference class. People compare in relative, not absolute terms. Joe McLean said that as he advises celebrities and professional athletes, “Every client wants to know what the other guy is saving, not spending.”

Cowen noted, “I think the real weird period was the 1980s and 1990s when everything felt right and orderly. That was an illusion and the bubble has been burst.”

We compare whatever is in-front of us with whatever comes easily to mind. It takes creativity to think about the now in a better light.

You see this with the complaint that we were promised flying cars. That’s the wrong way to think about it. Rory Sutherland writes, “The broken binoculars (of market research & economic logic) assumptions is that the way to improve travel is to make it faster.”

Faster isn’t the only way to make something better. Travel can be slower and be better too. Cruise ships are slower than airplanes yet many people prefer to travel that way.

Even the mundane can be made better by not being faster. Cowen says:

“You can work from the backseat of an Uber and sail on to your flight because pre-check is easy and while you’re waiting for your flight you can read on Kindle. It’s different from a flying car but maybe in some ways it’s better.”

Cowen believes in growth solving, curing, and preventing many problems. One way to grow, the Straussian way when listening to this conversation, is to get creative. It’s new answers like productivity in the backseat of an Uber, wondering why the future won’t be better than the sixties, and how to use social media to better the ledger in our favor as people.

Thanks for reading. If you like these thoughts, you’ll also like this email. It’s weekday mornings, it’s short, and it’s full of stories.

Nudgestock 2019 Wrap-up

Supported by Greenhaven Road Capital, finding value off the beaten path.

Rory Sutherland’s Nudgestock is probably the best conference you’ve never heard of. Luckily though, now you know, and the videos are a go, on YouTube if you must know. We’ll hit a few of the highlights from the wrap up podcast. If you want more Rory, check out his book, Alchemy, or my book about Rory, Thinking Like a Marketing Genius. The current and previous years of Nudgestock are also on YouTube.

Tricia Wang spoke about thick data and big data.

“You want to close the gap between your data model and your human model.”

One shortcoming of designers is that they often want to solve a problem when it might not be the problem. That’s what Wang warns against too. It’s only through a combination of data that someone can get a full picture. Marc Stickdorn encourages designers to triangulate between the qualitative, quantitative, and questioner-noting that we all bring some bias but through diversity we can reduce our data misuse.

Robert Frank was a huge influence on Sutherland. Years ago Rory fell sick and needed entertainment-or at least distraction. Through Amazon he found Frank’s book, The Economic Naturalist. In that book (p. 2007) Frank offers answers from quandaries like; why do men rent a tuxedo when they might wear it again, while women buy a dress they’ll only wear once? And, why do hockey players vote for helmets but almost never wear them?

Frank’s Nudgestock talk was about “the expenditure cascades process.” People compare in relative not absolute terms. So when a higher income group buys something, the next highest group compares with them and so on down the chain.

Stefanie Johnson spoke about the unconscious bias and referenced what happened when the Boston orchestra switched to blind auditions. With a closed curtain, musicians walked across the stage and played for judge who sat on the other side of the curtain.

What you track is what you prioritize. The orchestra was (unknowingly) tracking and rewarding gender as a metric. When they stripped everything away – including the musician’s shoes – so only the music played on the people they selected changed.

Will Page talked about the work done at Spotify, a company we’ve covered before. Part of the reason Spotify succeeded is because of top down support to test things like Discover Weekly. The company has also worked well because they look for a ladder of possible answers, not a single one. For example, if someone gives a thumbs-down to a song on their Discover Weekly podcast does that mean they don’t like the song or that they didn’t want to discover it?

Finally, at the end was a rapid fire section about solutions to problems and Rory wondered how much of the plastic and paper straw debate was about virtue signaling. It’s helpful to remember as brand owners and consumers that there is the literal conversation taking place but also the meta conversation. When your kid says, ‘I hate you,’ it’s the consequence of an amalgam of feelings. The same is true for brands and the work we do.

Thanks for reading. If you want more book recommendations of the likes of Alchemy and The Economic Naturalist sign up for the monthly book list.

The Director’s POV

Supported by Greenhaven Road Capital, finding value off the beaten path.

Kevin Costner has had a great career. (I liked Waterworld.) Costner spoke with Bill Simmons about his career and offered this story about perspective.

Costner was directing and acting in a movie and as such, had to wear different hats. Bill Hader was on a summer podcast with Simmons too and he said much the same thing. Costner comment was:

“My problem was, I gave myself too few takes…finally my producing partner said, ‘You need to give yourself more takes, you’re not rushing anyone else but yourself.”

This isn’t true just for movies, this is true for life. We all wear different hats from moment to moment and it can be hard to juggle them. It helps to have people to tell us we’ve donned the wrong one.

From Costner’s and Hader’s conversations it seems that the secret is trust. Feedback has to be helpful and it has to be trusted. Investment advisors say that the best plan is the one you’ll stick with. Feedback is like that, the best advice is the stuff you’ll do.

In his book, Working Robert Caro reprinted this exchange:

INTERVIEWER: Do you set daily quotas?
CARO: I have to, because I have a wonderful relationship with my editor and my publisher. I have no real deadlines. I’m never asked, When are you going to deliver?

Trust like this works when everyone has aligned incentives. Caro wants to write a good book and his editor and publisher want that too. Ditto for Costner’s work.

Caro and Costner are doing things with a lot of randomness. Movies bomb for clear and complex reasons. Books are fickle with power laws ruling the day. As Michael Mauboussin reminds people:

  • Skill based outcomes are where history is a useful teacher and small samples can be used.
  • Luck based outcomes are where randomness rules, and base rates should too! Here mean reversion can happen fast.

Costner’s partner and Caro’s editor then trust the process. Before he made Dances with Wolves, Costner said he started to pay attention to all the things a director had to do. He studied the additional role he’d have to play. Caro too had a great process, recalling this advice he got when he started as an investigative reporter, “Turn every goddamned page.”

The writer and the director both did the work, built their skills, and created a reason to be trusted. The way to earn trust then is actions over time.

Thanks for reading. Want a week-day email from me? It’s not analysis, breaking news, or statistically significant. It’s just one story that offers a change in perspective. Rory Sutherland noted that a change in Point-of-View is worth 40IQ (points). This email is just that. Check it out.

John Hempton

Supported by Greenhaven Road Capital, finding value off the beaten path.

John Hempton was on The Jolly Swagman podcast to talk about his career, investments, and work in Australia. Hempton’s a short seller, and not the first we’ve looked at. Marc Cohodes has been featured, twice. Jim Chanos has been featured twice too.

Bethany McLean explained why short-sellers are helpful. She said, “I had no cynism or skepticism is those (early) days.” McLean had to pick stocks for the magazine and representatives from different companies came in, pitched their company, and it was roses all the way down.

After one of her first stories, she got a call from a short seller. That person told her all the ways she was wrong, and as McLean told Patrick O’Shaughnessy, “I just don’t like being wrong.”

Hempton is a short seller, so let’s see what he has to tell us.

Hempton has a talent stack. “At some point, I realized I wanted to pick shorts like Marc (Cohodes) and manage a portfolio like Kim. I don’t think I was good at either of those things as those people…but the combined result is quite nice and I’m really happy with it.”

The odds that anyone is the best in the world at any one thing is quite low. (See Also: Something is always happening). However, the chance that someone is world-class in one combination of things is quite high. Scott Adams writes that he was not great at business, drawing, or humor but he’s great at combining the three.

Adam Savage writes, “Eclecticism is kind of my brand…my talent lies not in my mastery of individual skills, at which I’m almost universally mediocre, but rather the combination of those skills into a toolbox of problems solving that serves me in every area of my life.”

This combination of stock selection and portfolio management contributes to good decisions. He’s very complimentary of Cohodes throughout the episode but Marc invests with such rigor it borders on anger.

“In my ideal world I have a computerized Marc Cohodes that takes his unbelievable stock selection and it industrializes it and by industrializing it I can diversify it and de-risk it.”

This kind of style takes a certain approach. For example, Hempton tries to argue well.  “A really good guy in financial markets likes to be told he’s wrong and hear rational arguments why he’s wrong.”

Steve Jobs was like this, writes Ken Segall. “Steve preferred straight talk and raw content to slick presentations.” Jobs would act like a newspaper editor, assigning tasks, giving feedback, and scheduling follow-ups. “Steve was most comfortable with a table, whiteboard, and an honest exchange of ideas.”

Though as Charlan Nemeth told Russ Roberts, it’s more than the MBA method of assigning a devil’s advocate. 

Sometimes arguments mean not knowing. Good, says Hempton. “If in finance someone asks you thirty questions, the answer to at least seven of them should be, ‘I don’t know.’ If your answer is not ‘I don’t know,’ I’m probably not going to hire you.”

These kind of back-and-forth, honest conversations get to a deeper understanding. “If you just stole an idea without understanding the analysis, you’ll get it wrong and trade it badly.” Cohodes agrees, “When I short a company I know it better than the guy running it.”

This kind of work is needed because there’s a lot of work to do. Hempton says there are lots of shorts available and when one busts, co-founder of Bronte Capital will tell John to go find another one. Similarly, this is true for our time.

We’ll end with a quote from another investor, Howard Marks:

“One way I help myself make these decisions is that I constantly remind myself that there are two risks that they face every day. The first one is obvious, the risk of losing money. The second one is not so obvious, it’s the risk of missing opportunity.


Thanks for reading.