It’s all solutions

A Chesterton Fence is the idea that we should understand a thing before we change it. Marc Andreessen tells the Chesterton Fence story of Airbnb. Prior to online marketplace for homes and rooms were hotels and prior to hotels were bed and breakfasts. These bnbs varied and so hotels created brands and brands gave consumers information. It’s this kind of hotel. Brian Chesky et al. figured out that rather than brands, the same information could be in reviews and ratings.

“I want to change the way people see the modern world. I want people to look out at the world around them: at the steel, at the concrete, the glass, the computers, the washing machine, the automobile and jet plane and I want them to see everything made by human beings and understand it as a solution to a problem. There was some problem that we had in the past and we solved it. I think when you start to see the modern world as, ‘I am surrounded by solutions to problems’ you start to appreciate it a lot more.” – Jason Crawford, June 2020

That’s awesome. Everything around me is a solution frames the world as such a cool place.

Everything framed as a solution also nudges people towards a bit more curiosity. If a 401k or a mask policy or an expressway interchange is a solution then why was it that rather than something else? If we use hotels or stores or cars why was that the solution?

Solutions, all the way down.

Crawford’s episode came up on a curated podcast playlist I source from Tyler Cowen’s posts. Cowen is one of the most influential thinkers. Here’s a pay-what-you-want thirty-minute read about a few things I’ve learned from Cowen. Or, if you’re really into the coolness of ‘stuff’, try the book Stuff Matters on Amazon.

Fermi questions, answers, and landmarks

A Fermi question is something like, How many rolls of toilet paper do the residents of Columbus Ohio use in a week? Fermi questions are silly but embody some serious thought. Namely, how do we think about the world?

There’s some fun little math behind a Fermi question but the hardest part is often the start. For instance, how many people live in Columbus Ohio? Tim Harford knows. Rather, Tim Harford has a suggestion.

“Andrew Elliott—an entrepreneur who likes the question so much he published a book with the title Is That a Big Number?—suggests that we should all carry a few ‘landmark numbers’.”

Landmark numbers are figures we can use to guide our thoughts about the world. For instance, there are about four million Americans at any age under sixty. New York City has a population of about nine million. Columbus Ohio has a population of about one million. This is actually quite helpful just for a start.

Using a Zeckhauser maxim, “when you are having trouble getting your thinking straight, go to a simple case.” If every resident of Columbus Ohio used half a roll a week, how many rolls of toilet paper would they use? That’s easy! We have a million people, each uses half a roll, and that’s 500,000 rolls per week. No wonder we had a shortage.

Tsk tsk, Enrico Fermi would scold us. You can do better. And indeed we can. That is the point of thinking about Fermi questions. We can do better and even if we make a mistake, even if we make a few mistakes, we can still very likely be right. The reason is because of the random walk nature of our guesses. Some of our guesses will be too high (Columbus actually has 898,000 residents) and some will be too low, but overall these kinda-sorta balance out and that puts us in the right ballpark. Not only that, but making additional steps doesn’t necessarily mean additional steps in error. That, and more examples are here.

Good decision making takes nouns and verbs. We’ve got good verbs like inversion, mean reversion, extreme examples, and such. Landmark numbers give us a few nouns to work with too.

The very good Fermi book inspired this post: Fermi Knowledge.

Is the sun the flower too?

There are (at least!) two ways to consider the flower. One is that the flower is the sum of its parts: bud, leaf, pistil etc. Each part does a job, which sustains the flower. Sunlight, rain, earth are all inputs to the production of “flower”.

Another way is that the sun, the rain, and the earth are part of the flower too. Sunlight then is as much part of the flower as the bud.

“Someone who read an advanced copy of the book said it had a real Buddhist flavor. That delighted me. What comes through is this idea that we are not bounded, fixed, sealed-off, separate individuals. We are part of a whole ecology. We separate our brain not only from the world around us, but also from our own bodies, and that’s a mistake.” – Annie Murphy Paul, June 2021

Thinking in systems helps explain the world. For example, movie economics changed as the entire system changed: nationwide advertising led to event movies, DVD economics led to more movies, international markets led to franchises. Framed this way, was Hollywood separate like the flower? Or, was it the second, where social, governmental, and economic trends were part of the system?

Annie thinks this second view, the sun is the flower too, explains the world better. One contrast she notes is between a computer and a person. The computer works the same regardless of the place, a person does not. This is the reason we get good ideas on a walk – we think different. “The history of innovation,” wrote Stephen Johnson, “is replete with stories of good ideas that occurred to people while they were out on a stroll.”

The Extended Mind is Paul’s book though she has many good podcast interviews. A book full of walking, and other, inspiration is Daily Habits.

Free Breakfast Hack

There’s always a reason why, and if we can find reasons why that are real, but not acknowledged, there is opportunity. Cruising, for instance, might have some hidden reasons and opportunities. The JTBD framework is built around this idea too. Economists call it stated and revealed preferences.

Danny Meyer noticed reasons-why as a restaurateur. It’s not just the food!

“That’s why people go out to eat, it’s not because they don’t want to cook or do the dishes. They want to be transported to a social environment.” Danny Meyer

As a kid I didn’t get this. Sometime around 1998 we went to Ocean City Maryland or Hilton Head South Carolina for a family vacation. We stayed on the beach. It was great. Each night we walked to a different restaurant for dinner and the only requirement was that it allowed flip flops.

One night we were at someplace on the sea, and I wanted fish, the catch of the day or some-such-thing only to discover that it was flown in from Maine. Huh? If I wanted fish from Maine we’d have gone there for vacation.

The lesson there, and still, is that there are a collection of features (acknowledged or not) that consumers want in a product or service. Seafood tastes better by the water.

But wait, there’s more.

People like to make easy choices for the features. Easy in the sense that the amount of work is appropriate for the amount of reward. Doing your own taxes isn’t necessarily easy, but some find the reward of financial savings, mental stimulation, and personal accountability worth it. The process of making the ledger determines the ease. Home improvement is another area. I’ve started many projects because the ledger making is easy, whereas the actual work became quite tricky, a miscalculation of the work-reward relationship.

One feature hack for easier decisions is free. Free is helpful because it’s an easy input and calculation. This can be seen in the free breakfast effect.

From conclusion of the 2012 paper, emphasis mine:

“Experiment 1 shows evidence of the zero price effect; specifically, the free breakfast effect. Even though people’s preferred alternative is the Meliá, when the cheaper option of the Ibáñez Hotel includes a free breakfast, the demand for the latter increases and for the former it decreases. Especially relevant is the fact that when the breakfast in the cheaper option is only €2 (i.e. a price that is virtually insignificant and very close to zero), people go for the more expensive alternative and are willing to pay the extra cost to stay at the Meliá. No matter how small the price is or that the net benefit for each alternative across conditions is identical, the net benefit for the cheaper option will only be superior to the more expensive option when the former offers a free breakfast.”

A two-buck breakfast isn’t easy to choose because the mental accounting is to ask, what’s the catch? Whereas a free breakfast leads to, well I’m probably paying a smidge more for the room but breakfast is another service like housekeeping, room service, or valet.

Free is a special shortcut in decision making, but not the only one. Fish taste better by the sea. Diners want atmosphere, except for fast food. What’s wonderful isn’t that there is no right answer but that there are so many answers. Like a studio engineer listening to a band, there are many dials to make something work.

Other examples of this idea are: Donation alchemy, “Earned” rewards, and eating vegetarian.
& Rory Sutherland quotes von Mises, the man who sweeps the restaurant floor is as important as the one who prepares the food.

Fifty cent students

CAC is the most interesting problem in business because a low CAC makes for interesting unit economics. And, CACs can have unconventional solutions.

“For kids that have taken the SAT, schools can buy their names for fifty cents a name from the College Board, which oversees the test. Schools get the name and address of a kid who went to the trouble to take the college entrance exam which is a good sign of a prospective applicant and someone where it would make sense to mail a shiny catalog, postcard, or other marketing material.” – Sally Herships, September 2021

Some colleges buy sixty-thousand names! Buying names is a customer acquisition cost. The thinking being that kids who take tests to get into college will be good customer of college. It’s not the best CAC attack we’ve looked at, but here’s a list for you to see for yourself.

In 1912, Leon Leonwood Bean got a list of out of state hunters who might need his duck boots. In 1918 each American G.I. got a Gillette shaving kit. In 1959 Warren Buffett wrote a letter to his shareholders. In 1975 Michael Dell thought the best families to sell newspaper subscriptions to were new families, sourced from the newlyweds section of the paper.

The ’80s Tupperware inspired the ’90s Hotmail signature. In 1999 Zappos paid $18,500 per customer for one advertising campaign. In 2004 Zillow launched with the Zestimate. It was Bill Gurley who told the founders they better think of a way to generate attention (and customers!) because buying ads to sell ads wasn’t a good business. In 2011 antiques attention sold shirts.

So, there’s a lot of ways to test for good customers.

This blog post? A CAC for my Gumroad store, a collection of non-fiction short stories.

NBA 3s

There’s one honest sport.

When asked if the NBA will soon move back the three point line Mike Zarren said probably not. The reason is probably the business model.

“At the end of the day we are an entertainment and I would want to hear from fans that they are not liking the game as much. That’s not what we are hearing now (2021). You have to listen to the customer and people love the NBA right now…

“You also have a problem with the three-point line corners. The further out you move the crest of the line, the bigger the disparity between the corner-three and the other threes, and we’re not going to make the court wider because that would mean less seats and fewer tickets.”

It’s fun to talk about BIG CHANGES rather than “things are going well, let’s keep working hard and marking small bits of progress every day.” So it’s fun to talk about moving the NBA three-point line further from the basket or having a four-point shot or whatever. But those things won’t happen, chiefly because of incentives. The NBA, like movies, is a business, and like movies, those business incentives dictate the easy and difficult changes.

Triangle problems

How do you fit the triangle in the circle?
the triangle problem

One way to think about Alchemy, said Rory Sutherland, is to think of a Sudoku puzzle. In Sudoku each column, row, and 3×3 box must have one through nine once and only once.

Sutherland’s suggestion is to shift back and forth between the rows, columns, and boxes. We’ve highlighted donation alchemy, wine alchemy, and magazine alchemy. Alchemy is like moneyball find secondary things that deliver value. An easy addition, from Sutherland, is good wifi and good seating.

Another way to consider Sudoku situations is as a triangle.

“This is why I like being in the field of addiction. It isn’t just about ‘the drug’ and it’s not just about ‘the person’ and it’s not just about ‘the society’. It’s about all three, it’s this triangle between social factors, personal factors, and drug factors. It’s a very complex equation but it’s fun because you can see different parts of the world and different weightings and different outcomes.” – David Nutt, London Real February 2020

Nutt’s podcast covers a lot of ‘the society’ solutions, where certain locales changed consumption patterns. Mostly the outcome change is about ease. When alcohol is less easy to consume – via where and when it can be purchases or how much it costs – then people drink less.

The triangle feels like a better analogy than Sudoku. The triangle can be rotated like a dial. We can move points A, B, or C or A, B, and C. The triangle also fits with a complex adaptive system view: if we move A down three and over two it will be in the circle but then B will be out. And it could affect C too.

Triangle problems joins our toolbox for problem solving along with: black box problems, profession problems, TiVo problems, and cooking problems. Each of these is a framing, if this is the problem here’s how to approach it.

Thanks for reading.

Tailing Rodgers (part two)

For each thing that happens there is a field of potential things which could happen. Those potential events fill out a distribution where some events are more likely than others. A daughter’s height for instance, could be between four and eight feet but it’s very very likely that her height will be between her mother’s and father’s heights.

Thinking about these distributions of potential outcomes can be helpful because the areas which are not compact, like daughter’s height, are interesting.

Our annual NFL example (last year was Tom Brady passing yards) is Aaron Rodgers over/under 38.5 touchdowns. Here’s how we visualized it in September 2021:

Rodgers chart

The thinking then, as now, was that Rodgers would throw between twenty and fifty touchdowns but not with equal odds. The number of touchdowns would be asymmetrical. It was much more likely Rodgers threw half of 38.5 than double it.

Five games into the season offers a chance to be Bayesians and update our forecast. In addition to the preseason line of 38.5, his career average is 33.4, and his current pace is 32. Mix in the chance of injury, and he could also finish the year with the ten touchdowns he’s tossed thus far.

Let’s tack this on to the 2021 predictions:
– +10 TD, 90%
– +20 TD, 85%
– +30 TD, 50%
– +38.5 TD, 10%

I wanted to go lower on the 38.5 percentage, but one lesson from Cade Massey is to be less certain about extreme events. So in the same way that online doesn’t equate to real life and we should adjust for that, I will adjust my percentages as well.

Daughter height is top of mind because I have eleven and thirteen year old daughters. 😬

Duty Oriented

Terri Gross asked, what image did you have of breaking the sound barrier. Chuck Yeager responded (1988).

“I didn’t give any thought to it to tell you the truth. I was duty oriented at that time. I’d been in a war where a lot of guys got killed and learned to concentrate on what I was doing and forget about the outcome because you can’t do a lot about it anyway. “

Chuck Yeager

Like Fermi Knowledge, this encapsulates a full idea. With Fermi Knowledge it was the question: do I know this so well I can figure it out again? For duty oriented the question is: am I focused on the things I can control to the best of my ability?

It was in 1947 that Yeager broke the sound barrier, Tom Wolfe wrote, “Yeager had always figured it was useless to try to punch out of a rocket plane.”

ps, it’s great that we can hear the man in his own words, with his steady confidence. If you create content, please consider that in 33 years someone will be looking for these ideas again and hidden behind a paywall those ideas will die.

Obama and Eisenhower

Some subversive decision making influences, like a cross breeze in golf, are the unnoticed dynamics. Social pressures, human tendencies (status quo bias for example), status, ego, and so on. But like with a vegetarian diet, it is possible to design around them.

One design choice is incentives. Incentives work as designed sometimes, but other times create yes men and women. YM&W are a completely predictable case of certain incentives within an organization.

To get around this, certain leaders argue well and vigorously debate an issue. The aim is a debate rather than a resolution.

Another path is to not state a perspective and enroll a (similar status) opponent, but to be more of a blank page. It may not be coincidence that at least two presidents followed this direction.

Speaking about his new book, Noise, Cass Sunstein said:

“President Obama was a master of not giving a clear signal of what he wanted to do because he wanted to get as much information as he could and that reduced the noise.” – Cass Sunstein

The book Ike’s Bluff, covered how Dwight Eisenhower used this tool too:

“Despite his open demeanor, at press conferences Eisenhower would from time to time pretend to know less than he did, leaving the illusion that he was distracted and ill informed about matters that deeply engaged him. Indeed, Eisenhower was willing to appear less than sharp, even a little slow-witted, if it served some larger purpose. Unlike most politicians, he was not driven by an insecure need to be loved and recognized. He possessed an inner confidence born of experience.”

There’s as many paths to success as there are organizations trying to succeed. To ‘argue well’ or ‘listen like Ike’ is one of many ways.