Dinesh Kandanchatha

Dinesh Kandanchatha joined Aaron Watson to talk about books, conditions, and jobs. Start to finish this podcast episode had no dull spots. My notes cover these areas:

  1. A reading habit that involves rereading.
  2. Conditions for success.
  3. Kandanchatha’s strategy for employees.
  4. Deep understanding.
  5. Career freedom.

As always, unattributed quotes are from the subject, Kandanchatha.

A (new) reading habit. “Then what I’ll do every year is select one book, which is to me a book that I need to keep reading and I will reread that book over and over again.” “It’s not about the quantity of the knowledge you acquire but the depth at which you are practicing it.”

What I liked so much was Kandanchatha’s idea about understanding something deeply by revisiting it. When Tren Griffin launced 25iqbooks.com I was kind of disappointed becuase there weren’t surprises. Patrick O’Shaughnessy gets this too, on recent podcast episodes he asks people like Christian Rudder about books that are under the radar.

What if I’m looking at this all wrong? What if I should only re-read the really good books.  Griffin tweeted this to me:

I’ll be thinking more about this. All I know for sure is that reading is good.

The person and the situation. “I’m a firm believer that there are mostly no bad people and it’s just a bad situation or a bad fit and I try to reflect that in the conversation with the individual.”

It’s hard to fire people but Kandanchatha explains his system.“It has to be based on good reasons…most people don’t sit down and write them out and I did. I sat down and wrote down the list. The other thing I said was ‘what happens if I don’t do this?’ and write down that list.”

What I liked about this was his acknowledgement of the conditions. It’s the person and the situation, not only one or the other.

When we miss this duality we often fall for the fundamental attribution error. Sports are an easy place to see this. Michael Mauboussin says that wide receivers are dependent on the situation, kickers less so.

Strategy. Kandanchatha has a two part system for onboarding employees.

  1. Do they execute?
  2. Are they competent?

Execution is measured as a percentage. “Everyone does a direct report and it’s a five minute catch up. The priorities are listed for the week and what’s done or not done is captured….At the end of the week you tally them up.”

“It’s really important to me that you have a 90% plus execution rate.” At first I thought his number was kind of low. I mean, who doesn’t get most of their work done a regular basis? Of course I said this without measuring it.

“I have been struck by how important measurement is to improving the human condition. You can achieve incredible progress if you set a clear goal and find a measure that will drive progress toward that goal… this may seem basic, but it is amazing how often it is not done and how hard it is to get right.” Bill Gates

Competency is whether or not you can get things done. Competency in what Jocko Willink calls “extreme ownership.” Kandanchatha says,  “I don’t care how you get it done, just that you achieved the outcome in a way that’s consistent with the principles of the culture of the organization.”

If you need help, you ask for it. If you need to break things down and take smaller steps you do that. What matters is moving forward.

Deep understanding.  “The best way to invest is to actually run a business in the area that you’re investing in. I invest in technology companies because I understand what it takes to make a technology company successful. I invest in what I know…You want to invest in things that you know inside and out and are able to maximize your very slim odds.”

Speaking of rereading books, one of my favorites is The Five Elements of Effective Thinking, where deep understanding is like rock (the element, get it?) where knowledge is built on.

One tool for deep understanding is to tell good jokes.

Jason Zweig‘s book The Devil’s Financial Dictionary is funny because Zweig understands finance deeply. [The Lonely Island] (https://thewaiterspad.com/2016/06/15/lonely-island/) trio understand deeply. So do advertisers.

Deep understanding can be used for more than humor. Elon Musk and Jeff Bezos are notable because they ask for reports to learn from. Milton Hershey had a deep understanding of candy, cutting his teeth (figuratively) on caramel before chocolate. Tony Hawk said:

“The best advice I have is, you want to learn every aspect of what you’re getting into. I learned it by accident. I didn’t ever want to learn what point of purchase was, or net, but I embraced it because I wanted to be prepared for what was to come.”

The taxi driver and bank manager.  “Jobs are a form of short term security but you give up freedom. When you are an entrepreneur you have all the freedom in the world but you have no security.”

This is something Nassim Taleb writes about in Antifragile as he describes brothers, one of whom drives a cab (the entrepreneur) and the other who works in a bank (the jobber, pun intentional). Taleb writes about these two types of professions:


Screen Shot 2016-10-25 at 7.18.42 PM.png

Kandanchatha appears to support this model. Note that he says “short term security.” The kind of security John has – or soon will have had – at the bank.

Thanks for reading, I’m @mikedariano on Twitter.

The Most Important Thing

This post appeared on Medium. Moving here for linking convenience.

When Ryan Holiday was asked about his favorite gadget he said “physical books, it’s the perfect technology.” He’s right. Where else can you study years of someone’s life for $20 and a few hours of time. Isn’t that amazing?

On example of this is Howard Marks’ book The Most Important Thing. While the title is deceptive — there are multiple important things — it’s full of wisdom.

I enjoyed the book, it’s one of the better per page books that I read this year. After reading it I boiled down the many lessons ever further, like good maple syrup. The big ideas are:

  1. Outsized returns are not easy
  2. Cyclical vs linear
  3. Margin for error is important
  4. Live to fight another day

1/ Outsized returns are not easy

Marks begins his book by explaining that the goal for an investor returns beyond the market average. Marks, along with other wise investors like Warren Buffett, suggest that people who don’t want to put in the time, effort, and risk to earn greater than the market return will be happy in index funds. In his commentary in The Intelligent Investor, Jason Zweig writes that investors could be much happier if they got comfortable saying “I don’t know and I don’t care.” While outsized returns sound great, they require a lot of work.

It takes a lot of effort to beat the market. You could have a hobby instead.

If you want to earn beyond the market return then you have to think beyond the market. Marks calls this second level thinking. This is not easy, it’s “deep, complex, and convoluted,” and “there’s no easy answer.”

Take any stock du jour. Microsoft in the 1990’s, Google in the 2000’s, or Facebook in the 2010’s. Each was only a good investments for a sliver of time. Their value was largest when their popularity smallest.  If you hear about something at a cocktail party, suggests Marks, know it’s too late.

Second level thinking isn’t all you need. That’s one of many obstacles.

Another is moral hazard. “The risk-is-gone myth,” writes Marks, “is one of the most dangerous sources of risk.” It’s the thinking that because the Titanic had innovative bulkheads it was unsinkable. It’s thinking you have things Foolproof.

Another obstacle to outsized returns is that it’s hard to be different. To summarize Marks in one sentence, you have to be different and you have to be right, but difference is uncomfortable. When Katherine Graham took over the Washington Post she was the only women in an industry dominated by men. Not only that, but she took a different strategy. Her decisions led to many successes, but they weren’t easy to make.

A final challenge for the investor is that it takes regular work, everyday, to show up, roll up your sleeves, and do the work. Consistency of work trumps intensity six days a week and twice on Sundays. Angela Duckworth wrote “Greatness is many, many individual feats and each of them is doable.”

If it were easy everyone would be doing it. (This was a dorm room poster I had in college).

2/ Cycles

Thinking in cycles rather than lines has been a major shift for me. At the same time I read The Most Important Thing, I watched this video from Simon Wardley:

Before I thought only in lines, now I think in cycles and maps. Marks writes, “it’s essential to recognize the conditions of the marketplace.” Survival schools teach a similar concept, warning people not to “bend the map,” to see things as you wish not as they are.

Even though Marks came up through the Booth School of Business in Chicago, he doesn’t believe entirely in the Efficient Market Hypothesis. “I do not believe the consensus view is necessarily correct.” (Ditto for fellow Alum Richard Thaler)

Instead, Marks sees the market like a cycle/pendulum, “At the extremes, which are created by ‘most people’ believe, most people are wrong.”

Adoption of this model isn’t the only thing. You must have the right model and know where you are in it.  “Being too far ahead of your time is indistinguishable from being wrong,” writes Marks. That means at certain points you need to, as Barry Ritholtz says, “don’t just do something, sit there.” Marks writes, “Sometimes we maximize our contributions by being discerning and relatively inactive.”

Warren Buffett says to be greedy when others are fearful and fearful when others are greedy. Bill Belichick rolls out different formations in the second half, so teams can’t adjust at halftime. There are optimum times to act and other times to wait. Bill Simmons recalled this exchange in his 2010 trade value column.

Before we hit the last two groups of players, I have a quick All-Star Weekend story for you …

So it’s 2:45 in the morning on Friday night. All the Dallas bars and parties have either closed down or stopped letting people in. I’m standing on Main Street with a bunch of people, including Worldwide Wes, the renowned NBA power broker who’s really a cross between Confucius, a benevolent uncle and The Wolf in “Pulp Fiction” to assorted NBA superstars and up-and-coming stars. Known as “Uncle Wes” to the players, he carries more weight within the league than basically anybody. Because he keeps such a low profile, I could never figure out why. Which is why I went out of my way to spend some time with him on Friday night.

Back to Main Street: We’re standing with a young player who wants the night to keep going. The young player pushes to find another bar even though the odds are against it. Uncle Wes makes a face. He’s squashing this right now.

“Nothing good can happen at this point,” Wes explains simply. “You can’t chase the night. When the night is over, the night is over. That’s just the way it is. You just gotta wake up tomorrow and hope for a better day.”

Uncle Wes had spoken. I am not exaggerating by saying it’s a strangely profound moment. Within 15 seconds, our group splinters in three directions to look for cabs. I find one with my friend Connor. We climb in. We look at each other.

You can’t chase the night.

Marks writes that before they do anything, “We’d better have a good idea where we are.” Before action requires location. John Boyd’s OODA loops emphasize this; observe, orient, decide, act (rinse, repeat, and rock).

Know where you are on the line, map, or cycle, and only then act. 

3/ Margin for error

Because it’s hard to do well (#1) and accurate cycle timing is difficult  (#2), Marks builds in a cushion for mistakes. Margin of error equals value minus price.

Margin for error = Value -price

Marks writes that value, “is the indispensable starting point.” But price is important too, “There’s no such thing as a good or bad idea regardless of price.”

If there’s enough of a difference — enough margin for error — it’s worth buying. Rarely is this a clear choice. If it’s an obvious investment, say, one you overheard at a cocktail party, then something is off in the value & price calculations.

The Bill Gurley story about missing out on Google because it was too expensive was one of the most shared anecdotes I wrote up. Gurley said his mistake was in not thinking how things could go right and too much about price. If we think about the equation above, Gurley ranked price as too high and value as too low.

I got the impression that venture capitalists need to be optimists when it comes to values. Chris Sacca said much the same thing about passing on AirBnb. He thought about what could wrong not what could go right.

That’s not to say that Sacca, Gurley, and Marks should have similar investments. Marks looks for a hearty margins that is computable with second level thinking. He tries to be a six foot person crossing a five foot river.*

That margin for error is important because no matter how focused the value calculations, reality can diverge from that, and often does. Life is full of possible, yet unrealized outcomes.

Marks joins Nassim Taleb’s choir about possible futures and writes, “risk may have been present even though loss didn’t occur” and “much of risk is subjective, hidden, unquantifiable.”

Each decision we approach is like a tree. We start on the trunk, and move down branches. Each fork in the road our decision is influenced by the Two-Jar model of skill and luck.  “The truth is,” writes Marks, “much of investing is ruled by luck.”

This feels squishy but Marks gives us some guidance for figuring things out.

  1. For things that are too difficult we should adopt Charlie Munger’s mindset and move on.
  2. For things you can know, know them as much as possible.
  3. Don’t suffer attribution substitution and confuse good profits with good process. Some people were ducks on a rising pond or had a tailwind.

So much is hard to figure out, acknowledge your weaknesses and build in redundancies. 

4/ Live to fight another day

“If we avoid the losers the winners will take care of themselves.” — Howard Marks

To win the game you have to stay in the game. Sports provides a nice analogy for this. No matter how well you’re playing at the moment, no matter the competition, or your teammates — if you get a red card you’re done.

In finance this is called permanent loss of capital. In other areas it’s reputation loss. For the riskiest ones it’s your life.

“If this decision is wrong, will it be painful or fatal?” – Matt Barrett, former chairman Bank of Montreal

NFL analyst Michael Lombardi says teams that aren’t complete let opponents hang around too long. They don’t finish them. Lombardi’s former employer, Bill Belichick and the New England Patriots emphasize this. “We talk a lot that before you win you have to learn not to lose,” said assistant coach Matt Patricia.

“The man who wishes to keep at the problem long enough to really learn anything positively must not take dangerous risks. Carelessness and overconfidence are usually more dangerous than deliberately accepted risks.” — Wilbur Wright

Stay in the game, some take a long time to win/enjoy. Live to fight another day. 

Thank you for reading.

*As the comments below note, I didn’t explain fully about the margin for error in the river analogy. Marks writes that outcomes are based on skill and luck. You should try to do anything you can to improve your skill. That includes the acknowledgement that rivers 5 feet deep on average can be much deeper in spots. Thanks Patrick for pointing this out. 10/27/16

Jocko Willink 2

I have so many notes from Willink. It’s probably the total minutes listened winner of my podcast list. His weekly episodes are often two hours long. These notes are from episode #44. All quotes unless otherwise attributed are from Willink. Times in parenthesis are from the YouTube video.

1/ Lifelong learning (3:10) “The thing that’s cool about answering questions from the interwebs is that it does make me think about that specific situation that someone’s in… when I get forced to answer questions, I am learning. Just like when reading a book you’re learning…when you teach a move in jiu jitsu you get better at it.”

Nearly everyone written about here is in a state of growth. Mostly that’s through reading books – which Willink does a lot of too – but any form of learning counts. Let’s look at the ways to continue learning.

  • Read/listen. The easiest to do, but the lightest for results. I read a lot, but not all of it sinks in. In fact, without this blog, most of what I hear would literally be in one ear and, well, not literally but almost, out the other. Everyone here suggests you read more, so read more.
  • Teach/Speak/Write. This is the next level. Answering questions forces Willink to do this. Writing this blog does this. Michael Mauboussin told Shane Parrish that he learns by teaching.
  • Do. When Elizabeth Gilbert thought about MFA programs she thought, why don’t I just go do cool stuff and write about that.

Combine these ideas as a replacement for school and you have what we call the XMBA, but everyone can and should be a lifelong learner.

2/ Zone of Proximal Development (Goldilocks zone). (6:45) “One of the most critical ways to be careful in jiu jitsu is to pick the right training partner because there are some knuckle head training partners in every gym.”

Growth (in skill, knowledge, relationship) happens in the Goldilocks zone, things should be just right. When I was an adjunct professor we called in the Zone of Proximal Development. I did this because I wanted to impress on undergraduates that I was wise. In using big words I proved I was not.

Dan Coyle‘s research suggests a success rate between 50 and 80 percent. Steven Kotler has thoughts on this too.

Goldilocks fits in the little bear’s bed, but only because she too is little. Goldilocks grows and so will our Goldilocks zone. Willink suggests that strong young men can roll with anyone. Forty-three years olds might want to exercise more caution. Black belts on the other hand, are probably the safest group because they understand things the most. They have the skill to slide the challenge to the appropriate level.

3/ Decentralized command requires trust. (24:15) “What you’re really building with decentralized command is trust.” “The best way to build trust is to give trust.”

I’m glad Willink said this, because even though I think I’ve seen decentralized command in places like NASA, with Outsider CEOs, and at Intel with Andy Grove, I still don’t completely get it. When Willink added the part about trust, DC started to make more sense.

Good decentralized command requires the “do your job” ethos of the New England Patriots football team. Josh McDaniel said about his early time with the team:

“It was simple. If I was given something to do, I was expected to do it absolutely perfect, as best as I could, every time I did it. And if I did those things right, I’d get something else to do.”

Sometimes we need to a word (like ‘trust’) that acts as a key. Adam Savage recalled looking for a specific type of bottle and only after he learned that bottles are named by their lips he found it. Willink clarified DC in the same way with the word trust.

Charlie Munger said, “We’ve decentralized power in our operating business to a point just short of total abdication.” Munger and Buffett trust their employees.

Pete Carroll does it in football by asking his players what they need to succeed. He trusts his players.

The University of Utah let people like Ed Catmull run around and do what they were most interested in because they trusted them.

4/ But it’s always been done this way. (28:45) “Sometimes you need to send a little shock value. Hey, new Sheriff in town.”

This part was great. Willink adds:

“Notice the things I just said there were fairly irrelevant (no parking in the back lot). Those are fairly inconsequential things and those are okay. Occasionally you see someone come in and try to execute a fundamental change and you go ‘wait a second, you’ve been here for a day and a half and you want to execute a fundamental change in what we’re doing here, we have a problem with that.’”

Don’t just go in, “show some tactical patience.”

It sounds like Willink wants you to consider Gordian knots and Chesterton fences.

  • Gordian knot, it makes no sense to figure this out. Let’s blow it up and start from scratch.
  • Chesterton fence, there’s probably a reason things are done this way. Let’s figure it out before we act.

Willink’s suggestion is to treat small, “inconsequential things” as Gordian knots. Drastic change is okay. For the larger things, “show some tactical patience.”

One NBA tradition that proved to be a Gordian knot was the pregame shootaround. Popularized in the 1970’s by Bill Sharman as a way to burn off nervous energy it had been an NBA staple. But not for the Spurs.

“We quit doing that two decades ago,” Spurs coach Greg Popovich said, “they are a waste of time.”

The shootaround began because a coach did them and he was successful, but that might not have been part of his success. The New York Times obituary on Sharman, notes that the shootaround popularity grew after his Lakers won the 1972 championship. That team  included Jerry West and Wilt Chamberlain. Maybe they won because of great players, not the shoot around.

A short tangent. Writing and reading these ideas is one thing. Application is another. Astronaut Chris Hadfield gives us a strategy for how to move beyond consumption and into application.

“Over the years, I’ve realized that in any new situation, whether it involves an elevator or a rocket ship, you will almost certainly be viewed in one of three ways. As a minus one: actively harmful, someone who creates problems. Or as a zero: your impact is neutral and doesn’t tip the balance one way or the other. Or you’ll be seen as a plus one: someone who actively adds value. Everyone wants to be a plus one, of course. But proclaiming your plus-oneness at the outset almost guarantees you’ll be perceived as a minus one, regardless of the skills you bring to the table or how you actually perform.

Astronauts are the best of the best. But, when test pilots become astronauts, it’s like a caterpillar becoming a butterfly. Some think they’ve arrived, but they’ve only just begun to fly. Don’t be a know it all, writes Hadfield.

Becoming a plus one takes time. You have to figure out the Gordian knots and Chesterton fences. When Hadfield first went to space he the low man on the totem pole. This was well before his YouTube videos. He wasn’t the mission leader. Instead he decided to be a zero. He would do his job as best as he could and follow whatever orders came down. He was a team player.

5/ Train your weaknesses and race your strengths. (35:30) “Becoming comfortable in the water is very important. Water makes you better. Water makes you a better person.” “Water is a pain in the ass. It stops things from working.” “The reason I said this is a universal question (‘How do I become more comfortable in the water?’) is because it’s the same thing for just about everything else that you’re going to do…Want to get better at pull-ups? Do more pull-ups. Want to get better at public speaking? Get up and do more public speaking.”

Like we saw above, (#2) the Goldilocks zone is great for training. Getting in the water, and doing anything makes things a bit harder. Willink adds that you can push your zone by swimming with clothes, outside, and so on. During training for my triathlon I realized my training mistake. I’d done all my swims in the (near tranquil) YMCA pool. Not only did I never share a lane, I rarely shared the pool. The triathlon water was a bit choppier.

You want to train your weaknesses, do so with help, build redundancy into your life. “Water will kill you so when you swim you gotta have to have a lifeguard,” Willink says. “Don’t train alone and don’t train with someone that’s doing the same thing as you. You can’t endure the same thing together. It’s a real simple rule, it’s one up, one down. If it’s your turn to train, I stay up.”

Redundancy is survival. In other episodes Willink has repeated the military mantra that two is one and one is none. Redundancy can look like many things:

  • It can be people. The lead gambler in the 1919 Chicago Black Sox’s scandal had layers of people between him and the baseball players.
  • It can be space. In Foolproof, Greg Ip writes about the value of space between homes and floodplains, between one airplane and another.
  • It can be money. Know anyone that carries a folded fifty?
  • It can be body parts. Nassim Taleb writes, “Look at the human body. We have two eyes, two lungs, two kidneys, even two brains- and each has more capacity than needed in ordinary circumstances.”

Part of the reason the Titanic sank was a lack of redundancy. It was engineered for any two compartments to flood. The builders thought it might be poked but not sheared. Then there weren’t enough lifeboats, other ships lacked radio men, and so on and so on. People died because of a lack of redundancy.

Willink compares it to an event horizon, “you go over than line and you’re done.” Build redundancy in your life and train your weaknesses to push the event horizon further away.

6/ Finish line fallacy  (51:00). “You can see a lot of times in these 24 hour fitness situations where guys will be lifting weights and then one guy is like ‘hey, he’s kind of lifting a lot’ and then you’ll see someone – all of a sudden – doing that same exercise trying to lift more.” – Echo Charlies

I saw this when I was training for a marathon. I’d get on the treadmill for a two-hour run, see some young kid next to me, and up my speed.  He’d be done after twenty minutes and I was still on it. I never claimed to be smart.

If you end up running someone else’s race, you’ll be committed to their finish line and that may not be where you want to end. Instagram and Gowalla found this out when the “Check-in wars” began. Instagram succeeded and Gowalla failed.

This works at the individual level too. Don’t compare yourself to Jeff Bezos, or Warren Buffett, or anyone. Focus, like Echo Charles says, on your own workout.

7/ Those people. (1:06:15) “It’s important to realize those people (negative people) exist everywhere, and everybody has to deal with them. If you run into one of these people don’t be at all surprised, as if they’re a lone ranger out there being negative.”

We’ll let Marcus Aurelius – who Jocko says will be a subject of the podcast, eventually – comment on this one:


8/ Partnerships (1:10:00) “He was one of my favorite guys in the SEAL teams…when one of us started to get a little off the reservation about something…he’d look at me and be like ‘hey Jocko, come back to the light, it’s gonna be okay.” “When I would start to get negative he would pull me back and I did the same thing for him.”

One unexpected understanding from the book and podcast notes here is how often partnerships come up. Working with the right people has a multiplying effect. Bill Belichick has Ernie Adams. Anson Dorrance has Bill Palladino. Michael Ovitz had Ron Meyer.

A peer that pushes back is good red teaming.

9/ Simple but not easy advice. “If you’re too demanding here’s what you do, real simple, get less demanding. ”

A lot of advice is simple but not easy. Want to do something more, then do it. Want to do something less, don’t do it. That’s really all there is to it, but it’s not easy to implement.

One of Willink’s favorite lines is that “discipline equals freedom.” Discipline works well because it make simple advice easier to follow. Be disciplined about working out or reading books. Be disciplined about checking Twitter or watching television. Discipline works because motivation ebbs and flow, opportunities come and go. Discipline stays. Discipline, Willink says, “is the root quality that will improve every aspect of your life.”

Elizabeth Gilbert said that writing books are first about excitement and then about discipline.

My current reminder of this is a Tom Seaver quote.

Thanks for reading, I’m @mikedariano on Twitter.

When I say the triathlon water was choppy what I really mean is that I was totally and completely unprepared for the situation, and consequential butt kicking I endured. Of course, Jocko would probably tell me that this was Good. 

Christian Rudder

Christian Rudder joined Patrick O’Shaughnessy on the Invest Like the Best podcast to talk about data, luck, and what people really want on dating sites.

A chunk of the interview is about Rudder’s book  Dataclysm which I had forgotten all about. A shame because I remember enjoying it, understandable because that was two years ago. Here’s one of my many highlights:


If you like the humor of “taking medicine like a king snake” mixed with branding, you’ll like the book.

Okay, that suggestion out-of-the-way, let’s get to the podcast notes.

1/ Luck. “I think there is a lot of luck involved. We talk about it all the time, we’re smart guys, we worked hard. Things could have gone sideways very easily. I wish more entrepreneurs recognize the amount of luck that has gone into their success because there is a tremendous amount.”

The best understanding for the role of luck comes from Michael Mauboussin‘s Two-Jar model. Everything we do is an outcome luck mixed with skill.

Sometimes you’ll build up a good skill “draw.” Rudder is smart. He works with smart people. The niches of online dating was well-timed. Ditto for his previous work at The Spark. These sorts of things we can control, and increase our skill draw value.

Sometimes you’ll “draw” good luck, sometimes not.  How much online dating grew was luck. How fast college campuses installed high-speed internet in the late 90’s was luck. Rudder seems to understand this balance.

It seems like an admission of luck is part of sustainable success. Instagram‘s success was half luck. Soccer (Anson Dorrance) is half luck. Football (Bill Belichick, Pete Carroll) is half luck.

We see sustained success from people who admit to the roll of luck because that allows them to make better decisions in that environment. It’s like saying, it looks like rain, I should take an umbrella compared to it looks like rain, but I won’t get wet. Activities with more luck, writes Mauboussin in The Success Equation requires a different approach.

2/ MITs. “It occurred to us very early on that those are crappy metrics (ex: pageviews) for a dating site. What does it say about a dating site if someone is coming day after day after day for two years. That looks great for Twitter, but that’s horrible for us.”

When Donald Keough was with Coca-Cola (but not yet president) he recalls a meeting between Robert Woodruff and a group of lawyers. The conversation was around some legal advice Woodruff needed to know. At one point in the meeting Woodruff turned to a lawyer that hadn’t spoken and asked, “what do you do?” The lawyer, without missing a beat, said “Mr. Woodruff, I sell Coca-Cola.”

If you work for Coke, you sell Coke. That’s the most important thing. If you run a dating site you look at metrics like messages sent and connections. That’s the most important thing.

Rudder points out that it’s easy to get caught up in the MIT of other people. That’s the finish line fallacy. The Outsiders all keep their own MITs. Startups that failed look at the wrong MITs. Jason Fried suggests you keep your MITs rather than Jeff Bezos’s:

“His success (Bezos) is one that’s very very hard to achieve…most likely you won’t get there…the odds are stacked against you…and if you think that’s the only way you’re going to be miserable.”

If OkCupid chased the MIT of page views that would have been fine for their advertising network, but horrible for users.

3/ Learning from the real world. “The skills that have been most important to me in what I’ve done has been a kind of world real experience, a sense of how people work. I haven’t spent my entire life in an academic department. I’ve done a lot of different things. I think that is extremely helpful in analyzing data. Any data analysis in a social setting your goal is to understand human behavior.”

A jack of all trades is a master of none, but oftentimes better than a master of one.

Rudder adds to the idea that a multidisciplinary approach works well. In Investing, The Last Liberal Art, Robert Hagstrom writes:

This broad-based approach is the heart of the New Investing. It is no longer enough just to acquire and master the basics in accounting, economics, and finance. To generate above-average returns, I believe, requires much more. The New Investing theorized by Charlie Munger and practiced by Bill Miller starts with the basics and then extends outward in all directions, toward any and all disciplines.

Rudder adds that we shouldn’t make things too complicated.  “A lot of the statistics and data analysis is not rocket sciences. In fact, the more rocket science-y it gets, that implies the worse your data actually is.” Instead, “You have to be able to make intelligent guesses about what people want.”

My guess is that Rudder (and co-founders) figured out OkCupid by trial and error. The better trials, the better errors. A descent scope of knowledge (the fox knows many things) helps figure this out.

Life is improvisation. A figure things out as you go approach. If you can understand a few key theories (“A few really big ideas carry most of the freight,” says Charlie Munger ) you’ll run shorter and more accurate trials.

A quick story of my own. When I supervised college seniors during their year of student teaching there were two ways students under achieved; lack of preparation and excessive paperwork preparation. The former group liked to “wing it” and “figure things out as they went.” These students always had below average scores because they weren’t prepared enough. They were foxes but in the wrong environment.

The second group focused on the paperwork component (and there was an obnoxious amount of paperwork) to the neglect of classroom flexibility. Their plans were too rigid and once the train was derailed there was no getting it back on.

  • The first group lacked local expertise but had adaptability.
  • The second group lacked adaptability but had local expertise.

The best students were in the middle of these poles. Jocko Willink says “discipline equals freedom” and that applied in these classrooms. The best students understood their key ideas deeply enough (lessons plans, preparation paperwork) but didn’t obsess over them. These sweet spots were  – I think –  Rudder’s experience too.

4/ Twitter. “In online dating the people have to talk to each other, unlike Facebook or Twitter where you can just talk to your friends who are like you. The people are all strangers and there is no pre-existing network laid over this whole thing.”

There are ways to use Twitter well; bust your biases, find information, collaboration, and connection. Rudder’s comments echo what Tom Brokaw said about television. Brokaw recalled the White House environment at Nixon’s resignation as lighthearted.  When he talked to his producer and saw the video the mood was quite different. “It always was for me an instructive lesson about the difference between television reality and real reality,” Brokaw said.

Ditto for Twitter.

5/ Niches. “The people who exhibit the highest variance in their appeal do better. Say you’re 5 out of 10. It’s better for half the people to think you’re a 9 and half the people think you’re a 1 than have everyone think you’re a five.”

It pays to be different, especially when it comes to The Selfish Gene/sex.

Right now I’m reading The Beak of the Finch a wonderful book about Darwin’s finches and evolution. One (of many) parts of the book that struck me was the difference in natural selection and reproductive selection.

  • Natural selection favors animals that blend in with their environment.
  • Reproductive selection favors animals that stand out from their environment.

Evolution swings like a pendulum between the two.

In Pre-Suasion Robert Cialdini writes about this application to the world of advertising (p74).

Screen Shot 2016-10-15 at 9.34.36 AM.png

On the Galapagos Islands, Darwin’s finches want to be attractive enough to stand out (beak depth, size) but not so much so that owls eat them. Our own dating preferences seem to mimic this, only we don’t need to worry about the predators and can spread our plumage.

6/ Life would be so easy if it weren’t for people. “You have to grapple with the human psyche so the site will function. Obviously these twenty year old women don’t want to hear from these forty-five year old guys and we have to make everyone happy running OkCupid.”

Rudder calls this “Wooderson’s Law” (1:08)

In any of our endeavors it helps to remember we’re dealing with people. Don’t get sucked into strategy as a service (do hit refresh a few times). People do, want, and need things that numbers can’t predict. Rudder knew that 20-year-old women don’t want messages from 45-year-old guys, no matter how highly rated and motivated.

Numbers prove a computable measuring tool, but stories (psychology) matters too. Richard Thaler built his work around the shift from numbers to stories. Our brains evolved for stories.

7/ Business plans. “It was kind of a genius plan. The Spark had tons of time wasting stuff; things to read, dumb tests to take, and web toys that would appeal to high school and college kids. So they would pass these things around, waste their time, not study while they’re playing around on The Spark. And then, lo and behold, hey student who hasn’t studied! Check out our new product Sparknotes.”

I thought this was great and can only imagine the conversation that inspired it.

Person 1: How about we sell abbreviated notes for famous works of literature?

Person 2: You mean like Cliff notes?

Person 1: Hmmm.

-time passes-

Person 1: Remember that idea I had? What if we provide both the time-wasting element and the notes in the same place?

Person 2: Brilliant. 

This is like your doctor’s office selling doughnuts.

Thanks for reading, I’m @mikedariano on Twitter.

The Two-Jar Model

This post is available in podcast form. Search “Mike’s Notes” in your favorite player. The audio version includes Metallica, and audio of the block quotes below. It’s on Soundcloud too.

Stop now if you don’t want to read another post centered around Michael Mauboussin. I’ve written about his podcast interviews three times(!!); Michael Mauboussin, Michael Mauboussin 2, & Michael Mauboussin 3. I think my 1990’s Van Halen collection had fewer editions.

After Tren Griffin‘s post about The Success Equation I knew it was time to finally read Mauboussin’s work rather than hear him talking about it.

The book was great. It explained concepts just as clearly as he does in these interviews. The part of the book that had the biggest effect on me was the Two Jar Model.

Antique Mason jars.jpg
By FiveRings at English Wikipedia, CC BY 3.0, Link

That idea is that any outcome is a combination of “valuable” skill and  “boost/drag” of luck. In the book Mauboussin uses ample examples, so I will too.

On Sunday afternoons our YMCA has tennis lessons. I get the kids in the car, pull out the driveway, pull back in because we don’t have our rackets, leave again, drive to tennis, get out of the car, and get the kids in their groups. As I sit there waiting and reading, none other than Serena Williams shows up (she’s visiting family) looking for a volley partner. I volunteer, of course.

We warm up. Williams, impressed by my forehand, suggests we play a friendly game. I agree, of course. My serve.

My first toss is just right (skill +10, luck +2) and with a pedestrian pace the ball glides across the net, into the service box. Williams steps into a backhand (skill +70, luck +5) and smashes a winner down the line. As I retrieve the ball I wonder if Elon Musk has talked to Williams about certain aspects of escape velocity.

Love, fifteen. Of course.

My next service toss is a little low and a wind gust pushes the ball a hair (skill +6, luck -2). This serve, a cumulative “4” does no better than the first. After hitting her winner Williams walks to the net and says something to the effect of “shoulder rehab” and “left handed.” The match continues.

In this parable, no cumulative score of my skill and luck is enough to win a point against Williams. Tennis is a game of skill.  Now imagine instead of playing Tennis I’m managing a soccer team. Soccer is more toward the luck end of the spectrum and if I were to go against the greatest manager in the world, the chance of me coaching to a victory is much better, though still not good.

Mauboussin writes that we draw from each jar and the sum of the scores is the outcome. Sometimes we’ll be lucky and good, sometimes we’ll be bad and unlucky. Often we’ll be in the middle.

Before dive deeper, let’s dismiss platitudes available on motivational posters. Mauboussin writes, “There is no way to improve your luck because anything you can do to improve a result can reasonably be considered a skill.” That is, you don’t make your luck.

When Bill Gurley became an analyst he was lucky because soon after he arrived, the people above him left, there’s nothing he could do to improve that result. Gurley got a vacated position because he was skilled enough to prepare for and apply for it.

Often it’s hard to identify where on the spectrum we are.  “Most of the successes and failures we see are a combination of skill and luck that can prove maddeningly difficult to tease part,” Mauboussin writes.

So what?  Depending on the location, processes differ.  For activities with more skill like surgery, games of checkers, tennis.

  • “You can rely on specific evidence.”
  • “History is a useful teacher.”
  • Small samples are okay.
  • Deliberate practice and checklists work.

For activities with more luck, like roulette or the stock market.

  • Beware of small sample sizes.
  • Fast mean reversion.
  • Base rates are a better guidance.

Mix all these ingredients and you get a pair of suggestions for how to act in certain situations.

  1. Toward the skill end of the spectrum,  use deliberate practice.
  2. Toward the luck end of the spectrum,  focus on the process and not outcomes.

Example 1: Bill Belichick

Process. Football, Mauboussin writes, has a luck factor somewhere between hockey and baseball. It’s about 48% luck. I’m unaware about how much Belichick knows this but he seems to understand it. His process towards luck is to focus on what his players are doing, not the score. Belichick looks at how his team is playing, even when they’re losing.  (4:30)

“I really felt good about the team, even though we’d gotten smashed. I felt something about the team that night in the second half that I really thought we could build on. Anyone that wanted to cash it in could have cashed it in. We weren’t going to win. We were behind, we were on the road, their crowd was in a frenzy. The Chiefs were playing very well but I could see the fight.”

Practice. In this clip, Belichick and his staff are explaining how they prepared for the play that would end the Seahawks season in Super Bowl 49. (35:00)

For the Patriots successful season there was both luck and skill. Belichick focused on the process parts where luck ruled the outcomes and was focused on the skill parts with specific practice.

Example 2: Stephen King

Process. No one knows what will be a bestseller, not even Stephen King. He told Rolling stone his best book was, “Lisey’s Story. That one felt like an important book to me because it was about marriage, and I’d never written about that. I wanted to talk about two things: One is the secret world that people build inside a marriage, and the other was that even in that intimate world, there’s still things that we don’t know about each other.”

Writing a bestseller has a fair bit of luck so King trusts the process. He focuses on the things he can do. King jokes that he only takes off three days a year (Christmas, July 4th, his birthday) because it makes for good copy. He really doesn’t. “The truth is that when I’m writing, I write every day.” Stephen King doesn’t know if a book will be a bestseller, but he knows the kind of work that he needs to do.

Practice. When King was interviewed about learning the rules of grammar he said.

“When we name the parts, we take away the mystery and turn writing into a problem that can be solved. I used to tell them that if you could put together a model car or assemble a piece of furniture from directions, you could write a sentence. Reading is the key, though. A kid who grows up hearing “It don’t matter to me” can only learn doesn’t if he/she reads it over and over again.” That’s part of the skill of writing. Understanding the building blocks of language.”

There are things a writer can control. In all the interviews of Mauboussin I’ve never heard him mention his writing process (beyond a preference for physical over digital books) but he has something like King identifies. I have a hex wrench and Ikea bookshelf. Mauboussin is on This Old House.

Example 3: Louis CK

I’ve written (long) notes about how Louis C.K. made Horace and Pete  and there were parts of that story that fit this process and practice view that the two jar model suggests.

Process. If Stephen King doesn’t know what makes a bestseller, that means nobody does, Louis included. King writes daily, uncovering the story like a fossil, and stays true to the characters (“no kid ever ran to his mother and said that his sister just defecated in the tub”) . Louis told Judd Apatow that he too has a process for making comedy.

LCK process

Start with five minutes, make it ten, stretch it to twenty, rinse, repeat. The outcome for “what’s funny” draws from the luck jar just as “football win” and “best selling book” draw from two jars as well. Each person though emphasizes the work that could lead to good results.

Practice. Here is part of an interview Louis gave with Charlie Rose when he was promoting Horace and Pete (lightly edited):

Charlie Rose: Here is what I hear. I mean, you know, write standup the best. Acting and getting — not only good reviews but also more and more roles. You’re now a director….You are now a producer…You manage this whole thing….I mean, do you come to some sense, I can pretty much do whatever I want?

Louis C.K.: Well, there are a million things I can’t do yet, but thank God, you know. You want to be able — you want to keep trying — you want to get — it’s like if you are in the army, a friend of mine was in the army back in the ’80s.

Louis C.K.: Late ’80s. And so, he’d just go to like, he took his little platoon, he’s sergeant, he’d go like, let’s go to jump school.Let’s all just go to jump school. And they go for, he was a, what do you call it, reserve.

Louis C.K.: So, on his weekends, instead of sitting around playing ping pong, let’s go to jump school. And then they have a patch for jumping. And then they go hey, let’s go to medic school. So, they all got rated as medics. And they got this big bunch of patches all these things skills that he’s packing his head with. Unfortunately, then a war broke out and he was sent right to the front. Look at all these skills you have.

Charlie Rose: And we need you.

Louis C.K.: I like being patches, it’s like being a boy scout. And then all of a sudden you can do that. You know, like what’s the movie, “Matrix.”

Charlie Rose: “Matrix,” yes.

Louis C.K.: When there is a helicopter and he says to her, you know how to play helicopter. And she goes wait a minute and she loads the program. Now I do. Well, anyone can do that. It just takes longer. You can just load a program. So, now I know how to create a multicamera drama and mount it the same week that I shot it. And how to direct many great actors which I had never done before.

Everything we do has some mix of skill and luck. Any little thing you can do is skill, and you should use deep work to get better at that. Any thing you can’t control is luck, and you’ll be well served to focus on good process rather than outcomes. Any outsized returns are a combination.

After the 2015 NBA finals Zach Lowe wrote:

“Yep, the Warriors got lucky. They suffered no major injuries, beat teams that did, and got through the West without facing the Clippers or Spurs.

Guess who else got lucky: every team to ever win the championship. Pick any playoff season — literally, any season — and you’ll find multiple injuries that tilted the championship odds. Sometimes those injuries were minor — temporary dings to a few key role players. Sometimes they were career-threatening injuries to stars.”

Thanks for reading,


ps. If you want more, I wrote a book about Bill Belichick’s Red Teaming. It’s a mix of process and practice.

Red Teaming like Bill Belichick

In the first post on Bill Belichick I noted that it was part of a larger work in progress. That work is done.

It’s an e-book available on Amazon.com – free from October 12 through October 15.

It’s shortish, about 7,000 words, and looks at five red team tools that Bill Belichick uses.

  1. Inversion. Turn the question around, ask the opposite, figure out how to fail.
  2. Pattern recognition. Avoiding mistakes because you’ve learned your lesson is a powerful force.
  3. Culture. What the boss says and does.  
  4. Counterfactuals. What else could have happened and why didn’t it?
  5. Argue well. Focus on the truth and put egos and agendas aside.

The e-book covers a lot of the same ground that this blog does, some of the stories and ideas are the same. If you like this blog, you’ll like this.

If you’re curious, read the Belichick post. That post largely resembles point number one of the book.



The Outsiders

This was originally published on Medium. Posting here for linking convenience.
The Outsiders was good. What I liked most about William Thorndike’s book was the efficiency of it. Much like the CEOs he describes, the pace of the book is quick, and focused on the most important things.

The book is an attempt to bust the availability bias towards the contemporary CEO. The people on magazines. The “action-oriented leader who works in a gleaming office building and is surrounded by an army of hardworking fellow MBAs.” That leadership style may work for some, but it’s not the only — as the subtitle says — blueprint for success.

As I read six big themes came up:

  1. Be different and find truths.
  2. Keep an (inner) scorecard.
  3. Decentralize.
  4. Forecasting well is hard; a high investments (in time) and low return activity.
  5. Keep a low overhead.
  6. Think like a croc.

Being different & finding truths

I do not believe the consensus view is necessarily correct — Howard Marks

Each of the 8 outsiders Thorndike profiles earns their reputation because they outperformed both their industries/colleagues and the general market. This book looks at — in Warren Buffett’s words — ducks who flapped their wings and didn’t only sit on a rising tide.

To rise faster than the market, the outsiders had to be different. They have to answer the question Peter Thiel asks, what do you believe that is true that nobody else believes?

How did the outsiders do this?

For starters, most outsiders had “fresh eyes” and could “take a broom to the cobwebs,” writes Thorndike. They were well educated, yet poorly experienced as executives. This was a plus. They never succumbed to the things have always been this way momentum.

Another thing they did was relentlessly pursue the truth.“As a group they were, at their core, rational and pragmatic, agnostic, and clear eyed,” writes Thorndike.

“You are not right because others agree with you, but because your facts and reasoning are sound.” — Benjamin Graham

Finally, they were emotionally tough. It’s not easy to be different. Katherine Graham, for example, was on a “lonely path…a particularly difficult position for the only female executive in a high-profile, clubby, male-dominated industry.” Thorndike’s own experience mirror this. He writes, “in many ways the business world is like a high school cafeteria clouded with peer pressure.”

I saw this too in my research on startups that failed. Being different carries an emotional weight most underestimate.

One means of coping was to keep an inner scorecard.

Inner scorecard

If you are playing a different game, don’t keep the same score. Tom Murphy said, “The goal isn’t to have the longest trip, but to arrive at the station first using the least fuel.”

The outsiders did this mostly by focusing on cash and/or shareholder value. An emphasis on this metric meant matching means to those ends.

Thorndike writes that this was easier because many of these outsiders didn’t reside in New York City. “This distance helped insulate them from the din of Wall Street’s conventional wisdom.” They didn’t have someone yelling and telling that they were playing the wrong game.

Ed Catmull said that George Lucas moved to San Francisco to get away from the cacophony of Hollywood.

Seth Klarman recalls a client asking to come in and explain how they benchmarked his results. Klarman said, “I won’t meet with you. I’ll meet with you on anything else, but not that because it will change what I do.” Klarman didn’t want to know their score, how they kept it, or if it differed from his. He kept his own scorecard.


That so many great companies were run by so few people shouldn’t have surprised me, but it did. “Decentralization is the cornerstone of our philosophy,” read a CapCities annual report.

Tom Murphy said to “Hire the best people you can and leave them alone.” Warren Buffett suggested to “hire well, manage little.”

Decentralized command believes the people closest to the problem arrive at the best solutions. Andy Grove wrote:

“They (middle management) usually know more about upcoming change than the senior management because they spend so much time ‘outdoors’ where the winds of the real world blow in their faces.”

“I feel much safer back here in California than he does in ‘enemy territory.’ But is my perspective the right one? Or is his?”

Grove’s company — Intel — was saved because of decentralized command. “The process of adapting to change starts with employees who, through their daily work, adjust to the new outside forces.” It means letting people make their own good choices.

We’ve decentralized power in our operating business to a point just short of total abdication. — Charlie Munger

That said, communication still needs to happen. A third leg of the stool for decentralized command is arguing well.

Caesar Sweitzer said his Office of the Chairman meetings were “wrestling matches conducted in a constructive, collegial way.”

Grove too encouraged good arguments, “we developed a style of ferociously arguing with one another while remaining friends.” Scott Pioli said part of the coaching evaluation with the New England Patriots was whether or not you had an opinion.


Me and yo’ daughter, got’s this thing going on
(We got a special kind of thing going on)
You say it’s puppy love
We say it’s full grown
Hope that we feel this, feel this way forever
You can plan a pretty picnic
But you can’t predict the weather, Ms. Jackson

– Outkast

The outsiders were great time managers. None fretted about appearances, and all committed to work with high returns. That meant reading, getting their hands dirty, and talking to people smarter than them. It meant few meetings, public relations, or forecasting.

“My only plan is to keep coming to work each day,” said Henry Singleton, “I like to steer the boat each day rather than plan ahead way into the future.”

The outsiders spend more time in the moment than in the future. Though Thorndike doesn’t address it in the book, I have two guesses why:

  1. The future is hard to predict.
  2. Plans have an anchoring effect.

Not only is the future hard to predict, but we tend to overestimate our own abilities. We watch sports because the players are great, but also think I could have done better than that(!) at each drop or missed putt. Maybe, but probably not.

Plans also anchor your thinking. Once you have a plan you have this thingand you start to compare options to the thing. It’s easy to get anchored to the thing.

Daniel Kahneman compares anchoring to ballparks. The anchor is the epicenter and once we drop it, it’s hard to move. If you peg returns or cost or anything to your thing, it becomes the comparison until it’s dislodged. Dislodging, of course, comes with a price of energy, time, and even money. The outsiders avoid this fuss.

Instead, Outsiders thought like crocodiles (more on that in a moment).

Low overhead

Here’s an easy business tip, keep a low overhead. “There’s an apparent inverse correlation between the construction of elaborate new headquarter buildings and investor returns,” writes Thorndike. Specifically debt interest, the evil twin of compound interest. Each outsider used debt like a chainsaw, with care and attention.

Without numerical fluency, in the part of life most of us inhibit, you are like a one-legged man in an ass-kicking contest. — Charlie Munger

Munger’s suggestion for numerical fluency applies here. Understand debt payments and positive cash flow, and the acolytes for positive cash flow are many.

  • Sophia Amoruso slowly stair stepped into larger spaces as she grew Nasty Gal.
  • Ben Horowitz’s lower overhead helped him get cash flow positive and keep control of his company.
  • Yvon Chouinard ate cat food before he founded Patagonia.
  • The Instagram founders lived on peanut butter sandwiches, two computers, and a rented server when they founded their company.
  • Michael Ovitz — and his fellow founders — used borrowed office furniture, gifted office supplies, and had wives answer the phones of the early CAA.

A lower overhead gives you time, it avoids the hedonic treadmills, and steers clear of dealing with loss aversion.

Like a crocodile

There’s a joke in NBA commentary that people don’t like to trade with the San Antonio Spurs because that team has made so many good trades people assume they’re on the wrong end of one with them. The Spurs, like the outsiders, are crocodilian. They wait, wait, wait, and then GO!

Time after time a non-outsider CEO paid too much for an asset, failed to seize the opportunity, and needed to sell it in a worse climate than when they bought it. They were like a thirsty animal, needing any source of water. The outsiders were the crocodile.

  • John Malone —scooped up Metropolitan Cable Companies
  • Katherine Graham — scooped up overleveraged newspaper publishers
  • Warren Buffett — scooped up a portion of Goldman Sachs

Not from the book, but applicable.

  • Bill Belichick — scooped up Randy Moss from the Oakland Raiders.

The best managers never paid too much. Each outsider in the book had some level they would not cross, even by a hair. John Malone’s hurdle, for example, was 5X cash flow.

The crocodile does not pursue prey, it waits for it, and so did the outsiders. Warren Buffett describes his investing activity as “inactivity bordering on sloth.”

Richard Feynman espoused this mindset too. “The only way to solve such a thing (safe-cracking) is patience.”