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

Ben Sasse (@BenSasse) joined Tyler Cowen to talk about his book, and living in small towns and Neverland. As expected, this is truly a “Conversation with Tyler.”

Here are the notes:

1/ That’s interesting, maybe I should measure it. Our That’s Interesting post looked at examples for when people observed something that didn’t match their reality. 🤔 When this happens it’s a signal to start digging.

Sasse had this experience as president of Midland University. Their student to faculty ratio in the accounting program was a slim 40:1 compared to the bloated University of Nebraska number of 330:1. Ha! That’s a perfect fact for campus tours. But it turns out it doesn’t really matter that much.

“There are five nerds that talk all the time in a 40:1 class or in a 330:1 class. And in both cases, the feedback loop of the professor, so that she or he understands what students are learning or not, is not well represented by the five kids who talk all the time.”

Sasse dug further and found out that models like hybrid online/meatspace were better.

Later in the interview, Cowen asked about what Sasse is good at and he mentions “strategic vision” and “building a menu of choices about what strategic choices we should be making.” Prerequisite to that though is “a minimum threshold of how smart people need to be.”

Knowing minimum thresholds and effective class sizes both come from interrogating figures. Ben Carlson tweeted:

But I liked this updated (homage) version, A Field Guide to Lies. Both books do a good job of inspiring the type of thinking Sasse engaged. That’s interesting!? Now, what do those numbers mean?

…

2/ Don’t let school get in the way of your education. “School,” said Sasse, “is one kind of tool and we need lots of kids of tools in our education.” Jeff Annello used a similar analogy. He pointed it out for mental models. 🛠

There are two buckets; mental and physical travel.

We call mental travel ‘reading’. 📚 Between Cowen’s blog, Marginal Revolution, and podcast book suggestions you should be good. There’s also the “St. Johns reading list“.

Beyond learning facts, Sasse said, reading also creates empathy:

“One of the reasons why it’s critically important for our teens to read fiction is, they need to be transported to other times and places. They need to actually be able to see through the lenses of other protagonists.”

I finished [A Burglar’s Guide to the City}(http://amzn.to/2ts6I8A) and was struck by how interesting architecture is. Like Geoff Manaugh, I found myself wondering about burglary. “How would I rob my house?” I’d never considered this point of view without reading this book.  📖

Another way to learn is physical travel. 🇻🇳🇹🇰🇸🇾🇸🇿

“It wasn’t until I started to learn Spanish that I understood English at all. And I think that’s what travel is. This is not the grand European tour for rich kids. This is about going 10 miles from your own home and spending time with people in another neighborhood, or this is about going from the built environment where our kids are almost exclusively being raised and going and living in nature for a while. I think you acquire eyes to see where you’re from the first time.”

A 🐟 can’t explain to you what 💦 is, like because he’s never been out of 💦.

Another form of physical education is an apprenticeship. “We haven’t figured out in most professional schools how to create apprenticeship models where you cycle through different aspects of what doing this kind of work will actually look like.”

Medicine, Sasse said, does this okay, but other fields can adapt it too. Mentorship is a light version of apprenticeship.

Whether with books or people, “you have to engage people who’s ideas are different than yours,” said Sasse. Good organizations argue well. Phil Jackson‘s tenure as President of the New York Nicks failed because he failed to heed his own advice. “What impressed me about Bill (Bradley) and Cazzie (Russell) was how intensely they were able to compete with each other without getting caught in a battle of egos.” What the 1972 Knick learned the 2017 Knick did not heed.

Sasse and Cowen encourage people to know both sides of a position. So do Eric Maddox, Charley Ellis, and Dan Carlin.

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3/ The greenhouse phase. “It’s a pretty glorious thing to get this kind of 18-months to four-year greenhouse phase as you transition from dependent childhood to independent adulthood.”

An early job I had was mowing lawns. I created flyers on my parent’s computer, used their lawnmower, and drove to each customer’s house each week. One day I explained to my dad how much money I was making per hour. ‘Why did I ever flip burgers?’ I wondered. ‘Well,’ he said, as all dads do, ‘are you sure you’ve accounted for all your expenses.’

‘Huh?’ I said.

He went on to explain that my capital outlays of $0.00 for equipment weren’t quite accurate. Neither were my expenses. I paid for gas but not insurance. I didn’t have a clue about taxes. I was a guppy. I lived in the greenhouse without even knowing it. (Hence #2).

Adults fall victim to this too. I still fall victim to this. Investors who do great in a bull market only really know that they can do great in a bull market. It’s hard to separate the fish;🐟 like great NBA players or technology executives  from the water.🌊

Similarly, young people need to grow in a greenhouse, but not think a greenhouse is all there is.

 

 

Thanks for reading,
Mike

If these emojis were annoying, let me know on Twitter, @MikeDariano.

 

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

Judd Apatow’s book, Sick in the Head is full of good advice and we’ve done two posts here about it, to recap.

When you start, your work will be shit. That’s okay, do it anyway. During this time keep your commitments few so you can practice. Find a boot camp. Eventually, a good opportunity will come up, take it. Try to find good people to work with and projects that sip at whatever got you started in the first place. You’ll need luck along the way. Don’t forget to appreciate what you have. Stop at certain diminishing returns.

In his conversation with Rogan, Apatow offers more advice.

Focus on what you can control. Apatow asks Rogan if he gets nervous about slow ticket sales. Rogan says, “no.”

“I try to tune in to as little as I possibly can other than doing the jokes, doing the shows, I don’t tune in anymore…there’s things to think about and there’s things to not think about.”

Time spent worrying about things out of your control doesn’t help. Dan Harris said he was always worried about catching his flight. Eventually, he realized he could worry once but beyond that it didn’t do any good. We all have 168 hours each week, spend them on skill jar activities.

…

Take your job seriously. Apatow said:

“When I started I was opening for Larry Miller and he would have these incredible bits, some of them were like ten minutes long…they would get funnier and funnier. One day he said to me, ‘you know, this is a job, you got to sit down every day and write jokes. You don’t just go to the mall and watch a movie every day. If you just sat down for two hours at a desk and treated this like it was a job that deserved your respect you’d be a hundred times better than everybody else. Now, I didn’t listen to his advice at the time, but I do now.”

Excellence requires – about – 10,000 hours. Comedians are fortunate because they get immediate feedback – laughs – as they practice. Steven Pressfield said, “put your ass where your heart wants to be.”

…

You can’t do one thing.

“I was talking with this very famous actor who does a lot of charity work around the world and he said, I was working on this project to dig wells in a community in Africa and he dug the wells and it was incredible for this community. Then the neighboring community came and murdered everybody for the wells. That’s what it’s like to help people in the world. There’s always something that results that you did not anticipate that makes it more complicated.”

A similar thing happened to Anthony Bourdain:

Even the smallest stone in a pond causes ripples.

…

Stakeholders.

“Because I make movies and TV, my standup career is all about getting to hangout with everybody and that particular crowd on that particular night…I don’t need it to pay the rent and that frees me up to be a little more daring.”

The more bosses, kids, spouses, co-workers, peers, agencies, etc that you have to answer to the fewer degrees of freedom to make good choices. Seth Klarman said he tries to only bring on investors who trust his process because he needs the freedom to invest in a variety of issues.

…

Talk to your customers.

“Oh yeah. When you don’t talk directly to the crowd you get stale as to what people are thinking about. I can tell when I bring up certain topics, what peole’s concerns are…it’s weird to write jokes, make a movie and then two years later find out if they’re funny”

Apatow’s customers are the people seeing his standup show and it’s great to hear how he and others test jokes. Patrick Collison went to the bay area before starting his company. Ty Warner talked constantly to his customers to create Beanie Babies. Paul Graham wrote, “If you can’t understand users, however, you should either learn how or find a co-founder who can. That is the single most important issue for technology startups, and the rock that sinks more of them than anything else.”

…

Experiment.

“With any scene I’m always like ‘well that’s where the joke’s supposed to be, here’s my favorite, let’s get eight more and we’ll move on.”

“I do not have the courage to assume that when I hit editing that I’m such a genius that I will have not fucked up any of this in the writing.”

“I’ll say, ‘hey let him change it, but tell him to hit the same idea,’ half the time he beats the joke (if you have the right joke).”

Rogan adds that when they did this on News Radio people felt invested. Aziz Ansari said they do this on his show too. Brian Koppelman and David Levien said that they do it on their show too. Apatow et al. have humility.

…

Walking.

“I write better after I do any physical activity. What I do is I walk really fast around my neighborhood in circles for like forty-five minutes every day.”

“They say that when you write you should go over everything you wrote on a walk,” Rogan added. Walking, Eric Weiner wrote in Geograhy of Genius, “quiets the mind without silencing it.”

…

See it to believe it. Rogan said:

“The one that kicked in for me was my parents taking me to see Live on the Sunset Strip, I remember being in the audience while Richard Pryor was on stage. I looked around and was like, (never seen real standup before)…that planted a seed that this is possible.”

Holy shit that’s possible?!?! moments can have huge effects. Whether it’s the neighbor tinkering in the garage or an explorer in the Canary Islands. Once you see it it makes another world possible.

…

Reps. How to get better, Rogan says do it over and over.

“I think the only way is constant repetition. You have to be on stage all the time. You have to always be trying to improve it. You have to always be listening to your recordings. You gotta listen to bad sets too.”

Jeff Annello compare it to chess, “I think an efficient decision maker is like a chess player that has studied a lot of games, and can very quickly call to mind other moves that have been made and what the best moves are.”

Jim O’Shaughnessy said, “If it’s art, you want to look at tons of art.”

Thanks for reading,
Mike

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

Technology startups are hard, blah, blah, blah.

When I finished writing about failed startups, my overall impression was that technology startups were like running marathons. You could prepare, but like any novice, there was a lot to learn and only so much you could do. If that weren’t enough, you’d compete against seasoned veterans who knew all the tricks.

Bill Gurley suggested the book, Startup: A Silicon Valley Adventure by Jerry Kaplan as a type of training for entrepreneurs. It was a prescient book about technology companies.

Michael Lombardi said that once you get to the NFL you have to draw on whatever knowledge capital you have because there won’t be time to “get ahead” when there. So too for tech. entrepreneurs. What do you need to know?

…

You will never be ready for this. Leaving the hospital after my first daughter was born my initial thought was, ‘Wait. What? I just leave?’ It’s more difficult to leave IKEA than the hospital. But that’s a big part of an uphill life. You won’t ever be fully ready. Kaplan found this out right away.

“But after the meeting broke up, Mitchell (Kapor) took me aside, ‘Jerry, I’ve been thinking. Why don’t you try to do this project yourself? You’re a smart guy…’ I was shocked. I thought of myself as an engineer, not a CEO. Mitchell had a reputation as a deft manager and business strategist. ‘But I’ve never managed squat.’ ‘You think I had more experience when I founded Lotus? Just remember, political history is written by successful entrepreneurs. All you have to do is make a pile of money and everyone will think you’re a genius.’ He chuckledd and shrugged. ‘C’mon, I’ll introduce you to some VCs.'”

Jeff Bezos wrote in his 2017 annual letter to make decisions with 70% of the information you wish you had. In his book on Amazon, Brad Stone wrote:

“By the first weeks of 1996, revenues were growing 30 to 40 percent a month, a frenzied rate that undermined attempts at planning and required such a dizzying pace that employees later found gaps in their memory when they tried to recall this formative time. No one had any idea how to deal with that kind of growth, so they all made it up as they went along.”

Start before you’re ready, okay, what’s next. Well, issues quickly fall into things you can and can’t control areas. For things, you can’t control take your best guess and move on. For Kaplan, this was hardware, chips, and programming languages. He wrote:

“All computer products are hopelessly interdependent, stacked like faces carved in an endless technological totem pole…so resources are allocated on the basis of promises and reputation, not observable facts – like oceanfront condos sold on the strength of a developer’s rendering.”

For areas subject to more control, Kaplan took his time. Culture for example:

“Companies are not conscious in the human sense, but each one nonetheless has its own personality…The culture may be explicitly acknowledged as a credo or mission statement, but more often it exists as an unexpressed set of accepted procedures, practices, and behaviors that may at times be at variance with the professed goals. This underlying code is not visible in inventories or income statements, but it is the soul of the company.”

This soul is not “created by fiat, mandated, manufactured or bought.” It comes from the early employees, starting with the founder.

Culture is fractal. Whatever “shape” the founder is that’s the “shape” that will repeat. Ben Horowitz said, “culture is what people do when you don’t tell them what to do.” Get this right, said Pete Carroll and, “people will function at a higher level. They’ll come in earlier. They’ll stay later. They’ll be more on it. They’ll inspire those around them. That’s the subtle way of improving an organization.”

Okay; start before you feel ready, hire excellent people early on – what else? Ah yes, a warning about the elephant, Microsoft.

It’s striking how the beats to Kaplan’s song and dance are the same today. Microsoft was to Go as Instagram is to Snapchat. Kaplan wrote, “If we so much as threatened to sue, it would rain lawyers on our office like the plagues of Egypt.” Big companies aren’t as agile as smaller ones but they will bound after their prey to catch up.

For Kaplan it was Microsoft but it’s any big company really. Amazon, Google, Faceflix, etc, ad Infinium. There will always be some giant that can swoop in at any moment and cut you off. Once issue Kaplan faced was developers who had been softly encouraged to not write code for him. ‘We’d love to help, but…”

Brian Chesky found this out when starting Airbnb. His advice to future entrepreneurs was to fly as low as possible for as long as possible but once you were discovered to grow as fast as possible. One possible path is to have a Disruptive Innovation as Clayton Christensen defines it.

Alright; start before you are ready, hire excellent people, be ready to fight the Seattle Elephant. Are we sure this is a good idea?

Kaplan’s father asked him this. “‘I can’t believe you quit a real job to go do this. They’ll skin you alive if you can’t pay the money back.’ He spoke in an urgent whisper, leaning in as though to warn me…(but)…The individual is legally insulated from personal disaster, a circumstance that encourages risky projects like GO.”

His father didn’t understand that in systems like the United States Technology Sector, Kaplan had a limited downside. Better yet, Kaplan had “Star Wars Convexity“. Chris Cole wrote that George Lucas traded short-term payoffs for long-term ones when he traded salary for rights. That’s what Kaplan did too. Rather than a normal job with normal rewards Kaplan took an abnormal job with abnormal rewards.

Whew, back on track. At least we have the opportunity for a big payday and contributions to something meaningful in return for what, at this point, seems like a rather dubious project. If you’d like a happy ending, stop reading now.

What does it feel like to run a company, raise money every six months, try to out-design Apple, out penetrate Microsoft, and convince IBM not to screw you? It feels like having cancer.

“It struck me that this must be what it’s like to have an incurable cancer. You wake up every morning wondering if it’s a dream. Then you remember: there’s something horrible that is slowly killing you, and you’re helpless to do anything about it. So you go on acting a normal life as though it makes a difference…I felt a larger obligation to the team: the only decent thing was to do what was best for them, not for me…I now understood what it meant to be an adult.”

In another part of the book, Kaplan writes that running the company is like going to the top of a tall building and jumping off with the supplies – thanks to the latest fundraising round – for a parachute. If they can assemble it on the way down they get the reward of trying it again.

Of course, it doesn’t seem that difficult. When you test parachute assembly in the office it only took a few minutes. The engineers computed that it took seven minutes to fall the length of the building and special wingsuits were designed to combat cross winds and birds. The team is trained for RDPA (rapid descent parachute assembly) daily. NBD.

Planning like this helps but only to the point of being generally accurate. Too much precision comes from too many assumptions. Kaplan wrote:

“The formal techniques for decision analysis that business schools teach are fool’s gold, a vain and misguided attempt to systemize the chaotic. The mere existence of these methods betrays a darker truth: we harbor a desperate desire to believe that the world is ultimately predictable. But anyone who has managed a startup knows that predictability is an illusion.”

Later in the book he put it this way:

“As a five-year-old I watched a story about Africa and saw the animals running around but then went to the zoo and saw them laying around.
Sitting in the briefing rooms of AT&T thirty-five years later, watching staffers project spreadsheets, graphs, and slides from their portable computers onto the large screen monitors, I realized that computers mislead managers just as television misleads kids. Fed a steady diet of numbers and charts from the comfort of their conference room chairs, senior executives experience only a desiccated version of the powerful forces that shape and grow their organizations. Mistaking these two-dimensional reflections for reality, they shadowboxed their way through complex decisions, unwittingly jostled in one direction or another by self-interested emissaries, who can spin a tale of threat and opportunity as skillfully as any Hollywood screenwriter.”

Numbers are not the real world.

For a variety of reasons, Kaplan’s startup didn’t make it. It was time for layoffs. “‘Remember that people are likely to be pissed,’ Bill (Campbell) said, For the most part, they just wanted to talk.” People often just want this. One big part of our How to Negotiate Well post was about listening.

We’ll end this post with the start of the book:

“The last of the obsolete personal computers, engineers’ cubicles, and other debris of a corporate shipwreck was finally liquidated, sold piecemeal to a crowd of hopeful entrepreneurs.”

Thanks for reading,
Mike

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

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https://soundcloud.com/the-bill-simmons-podcast/aziz-ansari-on-master-of-none-hosting-snl-and-kanye-studio-session-stories-ep-212

Aziz Ansari joined Bill Simmons to talk about creating Master of None, his show on Netflix. Aziz was on my favorite show – Parks and Recreation. This interview had many ideas about making comedy that applies to making anything.

Ready?

1/ Distraction free writing.  “I write the best on airplanes.” – Simmons

“I get so much done on airplanes, especially if there’s no wifi.” – Aziz

Going overseas “was really good for the writing.” – Aziz

“What happens when I’m writing is I’ll hit a point where I don’t know where to go. In those moments I’ll check my email or New York Times, and then I’ll go back to it. But when I don’t have my phone or I don’t have the internet I’ll hit that moment and I’m forced to come up with an idea but that idea is gone when you take that break.” – Aziz

“When I was running Grantland I had like five jobs and when I wrote I called it going to the bunker. I’d say, ‘I’m going to the bunker to the bunker for five hours, email me when I’m out.’ When I’d get out of it I’d always be scared something terrible had happened and nothing happens.” – Simmons

When Aziz or Simmons duck out of the feed they begin Deep Work. According to Cal Newport’s book this features:

1. An environment conducive to the work.
2. Embracing boredom.
3. Quitting social media
4. Draining the shallows.

BUT YOU MIGHT MISS SOMETHING! Aziz said when his book, Modern Romance, was being finalized there was a question about the cover. He was filming that day and couldn’t take a break to weigh in on the problem. But by the end of the day when he checked his email, he found that the situation worked itself out.

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2/ Teaming up. “We were both young single guys, but Alan and I were both about the same age and we started hanging out. I remember thinking, often when people are on these shows (from Ansari’s time on Parks and Rec) they find a writer they get along with and they end up creating their own show together. I could do that with this guy. We both get along really well. He’s very fun. He’s really the best partner you could have because he’s so disciplined, he’s really hard on stuff, we really complement each other.”

Good people partners – likeBuffett and Munger – complement each other. People can also team up with machines. Tyler Cowen thinks that the future of work will depend on working well with software.

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3/ Gordian knot, Chesterton fence? “There’s no reason for twenty-two episodes of anything.” Aziz and Simmons both say that shows are too long. With the switch to the infinite internet, we see this.

Blogs don’t have the page constraints of a newspaper. Posts can go on forever, always updating. Master of None ranges from 21 to 31 minutes in length. ‘We’ve always done it this way’ should be a nudge to get curious.

Chesterton fences – 13/22 episode seasons – can be studied. ‘Why was this put here, what role does it serve, is it still needed?’ Sometimes the answer will be ‘this still serves’. Rory Sutherland said doormen serve more roles than just opening doors and London’s black cab drivers do more than just drive.

Other times we can cut it out like a Gordian knot. Tipping and pre-game shootarounds for example.

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4/ Experiments.  “In the first season, the very first scene a condom breaks and we have to decide if we’re going to get a pill. We wrote one version and I went to Noel and said, ‘let’s also improvise this and treat this as if it’s real,’ and she made choices that were interesting – more interesting than what we’d just written. So I used that to rewrite the script.”

Just as Aziz experiments within the show, Netflix experiments with shows. Reed Hastings said, “Every year is an experiment.” Intelligent Fanatics  had a tinkerer’s mindset. Brent Beshore said the secret in business is to experiment and do more of what works and less of what doesn’t.

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5/ Reps, reps, reps. “I would just do as many as I could. I would do eight, ten, a night. Just running back in forth. I was in L.A. and would just go boom-boom-boom-boom, one after another. At the comedy store someone would just grab me and go quick-quick-quick-quick and I would do all the rooms. The key to any standup that you’re trying to get really good is repetitions.”

Mastery (#10,000hours) requires feedback, do more of this and less of that. As a standup comedian, Aziz got instant feedback; did people laugh or not. In addition to writing jokes, he got practice directing episodes for his show. Louis C.K. said that once you do enough of something you get psychic “merit badge” and you can do that thing.

In their conversation, Simmons said the same thing happened to Jimmy Kimmel. “This is why Kimmel was good at the Oscars, he’s hosted a kajillion shows, he was hosting roasts and all this stuff.”

It’s Arnold Schwarzenegger’s advice too:

but those reps have a cost.

“Sometimes when I’m living my life I wonder, ‘What if I had a kid right now. Oh shit!’ I would be such a bad dad. I’m never around, god I’d be bad.” – Aziz

#10,000hours has a high opportunity cost. Typically we are terrible accountants for this metric. Dan Ariely went to a Toyota dealership and asked people, “what are you giving up if you buy this car?” This question stumped most people and when prodded for an answer they said, “if I buy a Toyota I can’t buy a Honda.”  No one said, ‘I could pay down my high-interest loans.’

There’s a tradeoff to have a family and a career. Aziz has no kids (“I would such a bad dad”) and can spend time getting better at comedy.

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6/ Detachment. “When we do Masters of None we screen the episodes for people as we’re editing because it helps. You’re the craziest person to watch and judge this thing because you’ve been living in it, you’re in too deep.”

Richard Thaler pointed out that Humans and Econs are different decision-making species. As Humans we need help getting a different perspective. Sometimes this means physically changing your point of view. Jocko Willink was leading a training exercise for soldiers and one guy couldn’t participate because he was injured. Instead, he observed the situation from where Jocko sat – only a few feet away – and commented how easy everything looked from that vantage.

We all approach the world with a perspective that influences how we see things (“you’re too deep”) and detaching yourself or getting someone who is detached can help see things for what they are.

Thanks for reading,
Mike

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

Would Jeff Bezos be a good NBA GM? As Zach Lowe talked to Kevin Arnovitz in June 2017 about the NBA draft and offseason I kept thinking, ‘these ideas sound familiar. Oh, yeah, that’s Jeff Bezos!’ Specifically:

1. Wait for the right pitch.
2. Have top down support.
3. Make good, not perfect, decisions.

Let’s see how Kevin Arnovitz and Jeff Bezos think a basketball team should be run.

1/ Optionality (does your ship have enough life boats?)

About the Boston Celtic’s plans, Arnovitz said: “we could pivot relatively easy.”

Bezos said: “We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.”

The optionality that Arnovitz (praising Danny Ainge) and Bezos want to “harvest” is trading a little now for (possibly) a lot later. The Celtics traded down in the 2017 draft to get more options for the future.

Warren Buffett says this is like waiting for the right pitch in a game of baseball with no called strikes. In his podcast, Bill Simmons said that the Celtics must have seen something they didn’t like to trade back with their first round pick. Danny Ainge didn’t like what he saw. When you do see something that could be great, it’s time to take a big swing.

Bezos said, “In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”

…

2/ Decision makers at problems.

Why can Danny Ainge do this asks Arnovitz? “It’s a good case study for why stability and trust in your front office is really important.”

At Amazon Bezos likes to have “two pizza teams.” That is, if a group is working late on something, there shouldn’t be so many people that they can’t be fed by two pizzas. In The Everything Store, Brad Stone quoted Bezos;

“‘A hierarchy isn’t responsive enough to change, I’m still trying to get people to do occasionally what I ask. And if I was successful, maybe we should have the right kind of company.’ (said Bezos). Bezos’s counterintuitive point was that coordination among employees wasted time, and that the people closest to the problems were usually in the best position to solve them.”

Putting people close to problems they can solve happens in two ways. One option is for the existing decision maker to go to the front lines to see what is happening. Sam Hinkie and Daryl Morey both travel to see prospects. Intelligent Fanatics talk to their customers.

The other way is for decision making to be delegated down to the person at the problem. This is part of the decentralized command that Jocko Willink, Eric Maddox, and The Outsiders.

…

3/ Threading the needle. Arnovitz said that the teams who can sign Paul George; have the assets to trade for him, believe they can resign him, and will be competitive with him. “This Venn diagram is a nail hole.”

In his 2017 letter to shareholders, Bezos wrote; “Most decisions should probably be made with somewhere around 70 percent of the information you wish you had. If you wait for 90 percent, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.”

Royce Yudkoff said this is just as true for small businesses too. You’ve got an ideal punch list and you’ve got reality. How much compromise can you make between the two?

This is why we see that people are never ready for their next role. It was true for Kara Swisher when she moved to TV. It was true for Troy Carter when he started managing Lady Gaga. It was true for Ty Warner when he started the greatest toy company of the 1990s.

Thanks for reading,
Mike

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

Scott Young wrote:

Young’s plan is this:

• 3 years living abroad
• 1 year of philosophy
• 6 months of religion
• 6 months on world history
• 2 years on math and hard sciences (but mostly math)
• 1 year of art
• 6 months on music
• 6 months on meditation
• 6 months on economics and psychology
• 6 months on practical skills (e.g. plumbing)

Young admits that this isn’t linear (or practical). Who has enough resources (time, money, ability) and few enough commitments (family, work, bills) to do this? But if we start from an idealized place and work backward we might find something worthwhile, maybe better. Lifelong learning – or as David Salem calls it, “intellectual integrity” – is a common theme around here.

We’ve seen snippets in the XMBA posts. Elizabeth Gilbert‘s story may be the most instructive of the group.

Gilbert wanted to enroll in an MFA program but it was too expensive. “I made a commitment to devote myself to becoming a writer, and for five seconds I considered going to graduate school, but it’s really expensive…and I wasn’t sure that was the best place for me to be.” Gilbert considers the MFA program like Stephen King considers the writing camp:

In the same way that home cooking can be a better, cheaper, simpler version of a restaurant meal, Gilbert decided to teach herself. “I needed to go roll around in the world…(and)…I created – really intentionally – my own postgraduate MFA program.”

Gibert worked in dinners and talked to the customers. When she ducked back to get a tuna melt she would note what the people said and how they talked. She worked hard and saved up. She would take months off to travel. One time she ended up in Wyoming working as a trail cook. She wrote a piece about it and Esquire published it.

About her DIY MFA, Gilbert said, “I’m not expecting this to work, but I don’t know how to do this without trying.” Gilbert created a win-win situation. Even if the outcome (“I’m not expecting this to work”) was unwelcome, the process wouldn’t be.

…

Young wrote:

“Think of this as the educational equivalent to the what-would-you-do-with-a-million-dollars speculation we often engage in to think about what are interests would be if we didn’t have to worry about money.”

Rather than a ten-year plan, let’s look at the logistics for any length plan. Specifically; who to meet, what to learn, and how to do it.

Who to meet?  Tyler Cowen noted on his link to Young’s post, “I would put more stress on role models and who you get to meet, not to mention romantic partners.” People matter quite a bit. Listen to the closing questions on Patrick O’Shaugnessy and Barry Ritholtz’s podcasts and you can hear guests glowingly gush about mentors.

Meeting people also creates see-it-to-believe-it moments. Bill Simmons guessed that kids like Steph Curry so much because he’s relatively short. ‘If Steph can do it, I can too’ goes their thinking. See it, believe it.

It happens to adults too. Often the revelation is, ‘Wait! That’s possible?!?!’, Both Ken Grossman and Mohnish Pabrai had moments as kids that changed the direction of their lives.

Meeting people you (may) want to be like can also rule things out. Morgan Housel got a job at an investment bank and realized it wasn’t for him. Royce Yudkoff cautions his students about this too. Just because you like to do something as a hobby, doesn’t mean you’ll still enjoy it as a job.

People are multipliers. A good person in your life improves you by 1.2X. A bad one is worth 0.65.

What to learn? Anything you want! Young tilted toward a classical education (I like this or this overview). He also pointed out something Shane Parrish writes about at Farnam Street. If you’re going to study something deeply, study something that isn’t likely to change. Think of this as a continuum. Starting with ideas that are least likely to change:

• The cave and the painted porch (philosophy)
• 2+2 = 4 (mathematics)
• F =M*A (physics)
• Ecosystems (biology)
• Price elasticity and moats (microeconomics)
• Ann the librarian who buys too much jam (psychology)
• The wisdom of crowds and madness of mobs (sociology)

Rory Sutherland noted that the fuzzier things are still worth studying. If something only affects 20% of people 35% of the time there can still be a business around it.

In addition to these external subjects, study yourself. What are your limits? What do you enjoy? Investors enjoy the research process, and they’d better! There’s a lot of other things you could do with that time. Jeremy Liew pointed this out in another area.

“I think you really have to know what you’re good at. To be a great operator I think you need to have a singular focus and a level of leadership and management charisma that can make you incredibly successful. I’ve seen what good looks like and I’m okay, but I’m nowhere as good as the best operators and CEOs in the world.”

Liew knows what he’s good at, what he isn’t, and what he can work on. That gives him an advantage. Reed Hastings said he likes running companies. Jim Clark said he likes starting them. What do you like?

How to do it? Start a blog because writing is a form of thinking. “Writing is refined thinking,” wrote Stephen King. “I think clear writing and clear thinking are synonymous,” said David Salem. “By writing the notes and putting them in the podcast and thinking about which direction I’m going to go – I’ve learned it better,” said Jocko Willink.

Writing, teaching, explaining, or podcasting are ways to do the thing you’re learning. Brian Stout put it this way:

“The way that I learned things was deliberate practice. You can’t read about things or hear people talk about them and know how to do them. There’s a large amount of the learning process where you just have to go out there and do it. It’s like riding a bicycle. You can’t watch someone ride a bicycle and ride a bicycle for the first time.”

There is a balance of consumption and production. I read a lot more than what makes it into this blog or the podcast. To produce something requires raw materials. Writers like Anne Lamont and Sebastian Junger both talk about not so much writers’ block as writer’s chasm. One way to learn is to accumulate materials and then share what you learn.

 

Thanks for reading,
Mike

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

One theme that’s come up on this blog are moments where someone thinks, “Hmm, that’s interesting.”

These ideas emerge when someone’s perception of the world doesn’t match reality. When this happens we can do three things.

• Dismiss reality (stubborn), That person is an idiot. Of course, he would think that. 
• Accept reality (compliant). I’ve been wrong this whole time. I will update my views. 
• Be curious. Hmm, that’s interesting. 

Curiosity is a form of intellectual integrity said David Salem.  It’s a superpower said Brian Grazer.

Let’s see how this works.

…

Raj Chetty told Tyler Cowen that he was struck by the difference between how economists thought people approached taxes and how his friends approached taxes.

Richard Thaler kept a list of “dumb things people do” in this office.

Haralabob Voulgaris heard Phil Jackson say that corner three-point shots were a terrible choice because they led to fast breaks. Voulgaris dug into the details.

Eric Maddox thought it was interesting that all of Sadaam’s bodyguards were uninvolved except one.

Jim O’Shaughnessy heard ‘adults’ explaining how they picked investments based on the people and not the financials. He wondered if there was a better way.

Patrick Collison saw how easy it was to sell apps in Apple’s App store and wondered why it wasn’t as easy to sell things on the internet in general.

Ray Kroc wondered why people kept telling him about a restaurant in sleepy San Bernadino.

Michael Ovitz said his curiosity, “drove people crazy, I drove people out of their minds, but they liked it. I was this brash, inquisitive lunatic.”

Elizabeth Gilbert said “The tricky bit is starting from a place you are very curious because in six months it’s going to feel very boring and tedious because making things is very boring and tedious. Another idea is going to come along very seductively and do the dance of the seven veils in the corner of your studio and say ‘I am a much more interesting, much more exciting idea.’”

…

Hmm, that’s interesting isn’t easy. It takes work. You have to pay attention. You need ideas – not idealogies. You have to be willing to dig, reassess, and dig more. You need a willingness to be wrong. You have to be okay being empty handed. Of course, that won’t be true, you may be curiouser.

 

Thanks for reading,
Mike

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

Larry Kochard joined Ted Seides @TSeides on the Capital Allocator’s podcast. My one big takeaway was this – – good decisions are the result of good ideas and good actions.

Throughout the episode, Kochard points out (e.g. a long-term orientation, good people) that what he’s doing isn’t new. These ideas are actually so well known we have a name for them, best practices. What matters is if you actually do the things that are good for you.

Okay, into the notes and quotes from Kochard.

…

“If you’re managing someone else’s money you have to have an understanding that there’s some level of absolute loss or relative loss that you can’t go beyond.”

An idea we’ve seen before is aligning stakeholders with your direction. Kochard has that, to a point, in managing a university endowment. Others like Seth Klarman and Wesley Gray (try to) only embark stakeholders of a certain disposition.

Influential stakeholders exist outside of finance. Louis C.K.  said he made Horace and Pete a certain way in response to the advertising stakeholders. For Phil Knight it was the bankers who were stakeholders as he ordered more inventory each cycle.

Everyone answers to someone – sometimes many someones – and that type of person can matter a great deal.

…

Kochard has five core principles that he builds ideas around. This is a theme I’ve noticed, everyone starts thinking from somewhere.

1/ “Everyone is a long-term investor but can you build a decision-making framework, a governance framework, and a team that will enable you to do that? Knowing there are so many impediments whether they are behavioral biases, organizational constraints, or market constraints to cause you to not behave that way.”

As we noted in the opening, there are obstacles to best practices. This was Sam Hinkie‘s problem in Philadelphia. His process for long-term success was to acquire talented young players on cheap contracts. The best way to do this is draft high. The best way to draft high is to lose a lot of games the preceding year. Hinkie had a good process, but there were “impediments” that changed the behavior (and the person in the job).

2/ “Value added managers tend to be bottom up, company specific and actively involved in shaping the future of those companies.”

It’s important to play games you can win, or at least games you won’t lose. We saw this in the 2017 NBA Finals. Top-down macro is too damn hard. Peter Lynch said that twelve minutes reading macro forecasts is ten minutes too long. Patrick O’Shaughnessy said about this type of investing, “I’ve always felt that macro investing is so hard because you need to get two things right; accurately forecast what’s going to happen, but more importantly, you need to position your portfolio in a way that will actually benefit if your forecast come true.”

Kochard added at the end of the episode:

“Everything I’ve tried to develop in our culture is to play to our strengths. If we’re good at something let’s do more of it. If we’re really bad at something let’s not do it, or, try to figure out what we can do to get better. But not force an allocation so we can look like our peers.”

3/ “Again, everyone says this. These are not unique core principles. Price matters.”  Kochard clarifies that this doesn’t mean a low number that shows up on Yahoo! Finance but something distinct.

This requires two things; knowledge and time. If a purchaser – of stocks, homes, groceries – doesn’t have the option to wait they’ll likely pay an above average rate. Additionally, if they lack the knowledge to know what is a good price they’ll pay too much too.

4/ “The more experience I’ve had, you just realize it’s all about the quality of people.” David Salem had a nice framework for finding good people – ethical and intellectual integrity.  Ethical integrity means things like loyalty, honesty, and how you treat other people. Intellectual integrity means curiosity, reading, and changing your mind.

5/ Kochard tries to diversify his investments and team, “and having a team that’s very diversified in their backgrounds and the way they view the world. If everyone is in complete unison you’re going to be making awful decisions.” Kochard wants an organization that argues well. Michael Lombardi said that it matters who you let in the room. Phil Jackson found out that good arguments mean leaving aside egos.

…

 

Thanks for reading,
MIke

This idea of starting your thinking from somewhere is salient because you can change where that somewhere is. Rory Sutherland uses psychology to reframe situations, similarly, we can reframe our starting position to test different lines of thought. More to come on this…

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

Rory Sutherland (@RorySutherland) joined Shane Parrish on The Knowledge Project podcast. It was nearly two hours of stories and foibles. Here are some abbreviated notes.

1/ Framing. Most of the conversation works its way back to this; perception matters. We don’t always think of perception as a way to solve problems. Sutherland said, “no one would have gone to an advertising agency to solve this problem ten or fifteen years ago…It’s always more acceptable to spend money on infrastructure than to spend money on psychology.” Do we feel like it’s cheating?

Maybe we feel like it’s cheating? Yet we know this matter in other areas. Sutherland explained, “the taste of the food will be affected by the decor of the restaurant.”

“Wine will taste better if you pour it from a heavier bottle, wine will taste better if you tell people it is expensive…cheating or not it is inescapable.”

He also told the story of a creative pilot who, because his gate was backlogged, had to deposit the passengers on the tarmac. Passengers thought we’re being dumped on the tarmac and herded to a bus but the pilot reframed it as you’re being let off earlier than normal and we’re transporting you straight to customs. Same situation, different story.

It’s because of examples like this that Sutherland calls this, “a kind of alchemy.”

…

2/ CAS. Sutherland said, “An automatic door is not the same as a doorman.”

Complex Adaptive Systems are not like Humpty Dumpty – you can’t put them back together again. In the podcast I explained this in terms of multiplication. My daughter is learning her multiplication facts and knows up to five. Six, seven, and eight are much harder. Once I explained that 88 is the same as 84*2 she understood.

Multiplication is a simple, linear system. Cause, effect. Numbers don’t have feelings being ripped apart to teach a nine-year-old. Not many systems are like this.

“Complex adaptive systems effectively obscure cause and effect.” Michael Mauboussin.

“In complex systems, malfunctions may not be detected for long periods, if ever.” John Gall, Systematics.

Problems bubble when you think you are solving a simple problem but it’s a complex one. Complex problems do not require complex approaches.

…

3/ SITG. Sutherland said:

“Effectively I can still put my two teenage daughters into a black cab in London, driven by a total stranger and without bother to memorize the badge number, I can say, ‘can you take them there?’ Without giving any thought to their safety. Part of the reason is because if you’re prepared to spend four years becoming a cab driver and four years of your life – that you’ll never get back – is spent reaching that qualification, you’re committed to the job and secondly, you have a lot of skin in the game.”

From Yvon Chouinard (carabiners) to Seth Klarman (cash), it helps to have skin in the game. One scout said about scouting players for Bill Belichick, “your balls are on the line if you say a player isn’t going to be a problem off the field. If he is, then it’s your fault.”

People like this idea, but implementing it is hard. Anson Dorrance suggested to a group of administrators that anyone who voted for a coach should lose their position if the coach was fired. No one took him on it.

…

4/ The experiment on the road to Damascus. Sutherland says he doesn’t have the time he’d like to read but that early in his career, books forced a change in his thinking:

“In 1989 I had a kind of road to Damascus moment, where I said, ‘however elegant economic theory may be it patently doesn’t describe individual real world behavior very well.”

Sutherland had a that’s interesting moment.

“My luck was, when I went into the advertising industry I first started working at a place called Ogilvy One – the direct marketing wing of the agency – and there you effectively do social science experiments very well funded at a grand scale.”

He started experimenting, reading, and experimenting some more. He asked academics about their research. Not the popular stuff, but the “rubbish”.

“In business if only 30% of people do a weird thing 20% of the time there’s still a business opportunity in that…the problem with economics isn’t only that it’s wrong but that it’s incredibly creatively limiting.”

What Sutherland discovered during this period was that it was worthwhile to experiment on just about anything. Even – or especially – on things that academic economists thought was sound.

Richard Thaler‘s book, Misbehaving covers this period of time where Sutherland was adapting his approach, with the same sort of that’s interesting attitude.

…

5/ Rapid fire. Just go and listen already.

• Why is it that Americans (and Canadians) have so little vacation time? Wouldn’t working less when younger be worth working slightly more when older? (51:20)
• “In business, you have to act like there’s science behind your decision.” Did you predict it ex-ante? What can you learn from it ex-post? (55:00)
• “We call this the Heathrow effect.” (59:00)
• “There has to be a borderline pain threshold for that placebo to really work.” (1:14:00)
• “Effort can destigmatize price.” Pick your own strawberries and rinse them in your IKEA kitchen.
• “Anything that costs now and only pays off in the long term is a reliable signal of a business or individual who is playing the repeat game and not the one-off game.”(1:27:30)
• “If you test counterintuitive things it’s much more valuable when they pay off. Test counterintuitive things because your competitors won’t.” (1:53:00) The cost to test is low but the upside is huge. Chris Cole talked about this for everyday things.

 

Thanks for reading,
Mike