Ended: March 8, 2014
How Businesses Work. A successful business, roughly defined, provides (1) something of value that (2) other people want or need at (3) a price they’re willing to pay, in a way that (4) satisfies the customer’s needs and expectations so that (5) the business brings in sufficient profit to make it worthwhile for the owners to continue operation. Together, the concepts in chapters 1 to 5 describe how every business operates and what you can do to improve your results.
In addition, online courses like MBA Math (http://mbamath.com) and Bionic Turtle (http://bionicturtle.com) are available if you want to explore these topics in even greater depth. (Many business schools and corporate finance training programs recommend or require these courses prior to enrollment.)
Quantitative Analysis and Modeling. We’ll discuss the fundamentals of measurement and analysis in chapter 10, but this book won’t turn you into a Wall Street “quant” or a high-flying spreadsheet jockey. Statistics and quantitative analysis are very useful skills when used appropriately, but the actual techniques are very situational and beyond the scope of this book. If you’re interested in learning more about statistical analysis after reading chapter 10, I recommend: Thinking Statistically by Uri Bram How to Lie with Statistics by Darrell Huff Turning Numbers into Knowledge by Jonathan G. Koomey, PhD For an examination of more advanced methods of analysis, Principles of Statistics by M. G. Bulmer is a useful reference.
As Michael Masterson suggests in Ready, Fire, Aim, don’t expect skills that aren’t related to the Five Parts of Every Business to be economically rewarded. Find a way to use them to create Economic Value, and you’ll inevitably find a way to get paid. Any skill or knowledge that helps you create value, market, sell, deliver value, or manage finances is Economically Valuable—accordingly, these are the topics we’ll discuss in this book.
At the core, all successful businesses sell some combination of money, status, power, love, knowledge, protection, pleasure, and excitement. The more clearly you articulate how your product satisfies one or more of these drives, the more attractive your offer will become.
Cheer up: there are Hidden Benefits of Competition. When any two markets are equally attractive in other respects, you’re better off choosing to enter the one with competition. Here’s why: it means you know from the start there’s a market of paying customers for this idea, eliminating your biggest risk.
Options are often an overlooked form of value—flexibility is one of the Three Universal Currencies (discussed later). Find a way to give people more flexibility, and you may discover a viable business model.
Don’t be shy about showing potential customers your work in progress. Unless you work in an industry with unusually aggressive, competent, and well-funded competitors, you really don’t have to worry about other people “stealing” your idea. Ideas are cheap—what counts is the ability to translate an idea into reality, which is much more difficult than recognizing a good idea.
You wouldn’t worry so much about what others think of you if you realized how seldom they do. —ELEANOR ROOSEVELT, FORMER FIRST LADY OF THE UNITED STATES
The best way to break a potential prospect’s Preoccupation is to provoke a feeling of curiosity, surprise, or concern. Our ancient brains pay close attention to opportunities and threats, scanning the environment for new stimuli that could help or harm us. The stronger and more emotionally compelling the stimuli, the easier it is to attract Attention. There’s a reason marketers use evocative imagery, words, and sounds: our brains are wired to stop what we’re doing to evaluate them.
A Hook is a single phrase or sentence that describes an offer’s primary benefit. Sometimes the Hook is a title, and sometimes it’s a short tagline. Regardless, it conveys the reason someone would want what you’re selling.
When creating a Hook, focus on the primary benefit or value your offer provides. Emphasize what’s uniquely valuable about your offer and why the prospect should care. Brainstorm a list of words and phrases related to your primary benefit, then experiment with different ways to connect them in a short phrase. Crafting a Hook is a creative exercise—the more potential options you generate, the more quickly you’ll find one that works.
One of the most fascinating parts of Sales is what I call the Pricing Uncertainty Principle: all prices are arbitrary and malleable. Pricing is always an executive decision. If you want to try to sell a small rock for $350 million, you can. If you want to quadruple that price or reduce it to $0.10 an hour later, there’s absolutely nothing stopping you. Any price can be set to any level at any time, without limitation.
The Pricing Uncertainty Principle has an important corollary: you must be able to support your asking price before a customer will actually accept it. In general, people prefer to pay as little as possible to acquire the things they want (with some notable exceptions, which we’ll discuss later in Social Signaling). If you expect people to pay you perfectly good money to buy what you’re offering, you must be able to provide a Reason Why the offered price is worth paying.
There are four ways to support a price on something of value: (1) replacement cost, (2) market comparison, (3) discounted cash flow/net present value, and (4) value comparison. These Four Pricing Methods will help you estimate just how much something is potentially worth to your customers.
The Value Comparison method supports a price by answering the question “Who is this particularly valuable to?” In the case of the house, this question becomes “What features of this house would make it valuable to certain types of people?” Let’s assume the house is in an attractive, safe neighborhood with a top-tier public school nearby. These characteristics would make the house more valuable to families who have school-age kids, particularly if they want to attend that school. To potential home buyers in the market, this particular house would be more valuable than the same house in an area with inferior schools. Here’s another example: assume Elvis Presley previously owned the house. To certain types of people—wealthy people who love Elvis—this house would be extremely valuable. Elvis’s previous involvement with the property could easily triple or quadruple the price you’d be able to support via the replacement, market comparison, or DCF/NPV methods. By looking at the unique characteristics of what you’re offering and the corresponding worth of those characteristics to certain individuals, you can often support much higher prices.
The trouble with the traditional pricing curve is that it can be misleading when the offer isn’t a commodity. In practice, raising your prices can increase demand by appealing to a more attractive type of customer. Automobiles are a classic example of this type of price sensitivity: some cars are desirable because they’re expensive. The typical customer who purchases a Bentley Continental GT is very different from the type of customer who purchases a Toyota Camry. As you test different pricing strategies, you’ll notice certain thresholds where you stop appealing to certain types of customers and start appealing to customers with very different characteristics. This Price Transition Shock can completely change the experience of operating your business, and you shouldn’t take it lightly.
Value-Based Selling is the process of understanding and reinforcing the Reasons Why your offer is valuable to the purchaser. In the previous section, we discussed how the Value Comparison method is often the best way to support a high price on your offer. Value-Based Selling is how you support that price. By understanding and reinforcing the Reason Why a Transaction will be valuable to the customer, you simultaneously increase the likelihood of a Transaction as well as the price the buyer will be willing to pay. Value-Based Selling is not about talking—it’s about listening. When most people think of sales, they imagine a pushy, smooth-talking shyster whose sole priority is to “close the deal.” Emulating shady used car dealers is the fastest way to destroy Trust and give your potential customers the impression that you care more about your bottom line than about what they want. In reality, the best salespeople are the ones who can listen intently for the things the customer really wants.
Asking good questions is the best way to identify what your offer is worth to your prospect. In the classic sales book SPIN Selling, Neil Rackham describes the four phases of successful selling: (1) understanding the situation, (2) defining the problem, (3) clarifying the short-term and long-term implications of that problem, and (4) quantifying the need-payoff, or the financial and emotional benefits the customer would experience after the resolution of their problem. Instead of barging in with a premature, boilerplate hard sell, successful salespeople focus on asking detailed questions to get to the root of what the prospect really wants.
Education-Based Selling is the process of making your prospects better, more informed customers. As a sales consultant, Kelsey worked to do two things: (1) make the bride feel comfortable and relaxed, then (2) help the bride become more knowledgeable about gowns in terms of how they are made and what to look for when buying one.
Your Next Best Alternative is what you’ll do in the event you can’t find Common Ground with the party you’re negotiating with. Imagine you’re looking for a job, and there are three companies interested in hiring you. You may prefer to work at Company A, but if you can’t reach a mutually acceptable agreement, it’s easier to be a confident negotiator if you know that Companies B and C are also interested in hiring you. If Company A is your only option and they know it, you’re not likely to get a good deal. The other party always has a Next Best Alternative as well—that’s what you’re negotiating against. If you’re selling a product that costs $100, you are selling against the next best thing that they could do with that $100: saving, investing, or purchasing something else. If you’re trying to hire an employee, you’re competing against the next best offer they have from another company. The more options the other party has, the weaker your negotiating position. Understanding the other party’s Next Best Alternative gives you a major sales advantage: you can structure your agreement so it’s more attractive than their next best option. The more you know about the other party’s alternatives, the more attractively you can Frame your total offer by Bundling/Unbundling various options.
In every negotiation, the power lies with the party that is able and willing to walk away from a bad deal. In almost every case, the more acceptable alternatives you have, the better your position. The more attractive your alternatives, the more willing you’ll be to walk away from a deal that doesn’t serve you, resulting in better deals.
If you prepare the Three Dimensions of Negotiation (Setup, Structure, and Discussion) in advance, you’ll be far more likely to settle on terms that benefit both parties.
The more effective strategy, in the words of the renowned sales expert Zig Ziglar, is to present yourself to the prospect as an “assistant buyer.” Your job is not to sell the prospect a bill of goods: it’s to help them make an informed decision about what’s best for them. You’re not pressuring them to give you their money: you’re helping to ensure they invest their resources wisely. This basic Reinterpretation (discussed later) of your role in the sales process works: it eliminates the prospect’s feeling of pressure by convincing them you’re looking out for their best interests. Salespeople need to be aware of two additional signals that can trigger Persuasion Resistance: desperation and chasing. Sending either signal during any part of the sales process will reduce the number and size of the Transactions you close.
Reciprocation is the strong desire most people feel to “pay back” favors, gifts, benefits, and resources provided. If you’ve ever had the experience of receiving a holiday gift from someone you didn’t send anything to, you know how uncomfortable this feels. If someone benefits us, we like to benefit them in return.
Here’s the tricky part: the desire to Reciprocate is not necessarily in proportion to the original benefit provided. In Influence: The Psychology of Persuasion, Robert Cialdini provides an example of reciprocation in car sales. Car salesmen typically offer prospects a small gift up front. “Can I get you a coffee? Would you like a soda? Some water? Cookies? Is there anything that I can do to make you more comfortable?” It seems like a common gesture of hospitality. It’s not. Accepting this small offer creates a psychological need to Reciprocate, subtly stacking the deck in the salesman’s favor. Prospective car buyers who accepted this free offer were far more likely to purchase a vehicle, add optional accessories, and agree to less attractive financing terms. As a result, these customers spent thousands of dollars more than the people who did not accept anything from the salesman while negotiating. That doesn’t make rational sense, because the coffee or cookies cost the dealer very little, but Reciprocation makes it more likely that the buyer will “pay back” the favor with a much larger concession.
The more legitimate value you can provide to others up front, the more receptive they’ll be when it’s time for your pitch. Providing Free value builds your social capital, making it more likely the people you benefit will Reciprocate when you make an offer down the road. Being generous is one of the best things you can do to improve your results as a salesperson. By giving away value and helping others as much as you can, they’ll respect you; it will build your Reputation, but it will also increase the probability that they will be interested enough when you do present your Call-To-Action.
Selling anything is largely the process of identifying and eliminating Barriers to Purchase: risks, unknowns, and concerns that prevent your prospects from buying what you offer. Your primary job as a salesperson is to identify and eliminate barriers standing in the way of completing the Transaction. Eliminate your prospect’s objections and barriers, and you’ll close the deal. There are five standard objections that appear in sales of all kinds: 1. It costs too much. Loss Aversion (discussed later) makes spending money feel like a loss—by purchasing, the prospect is giving something up, and that naturally makes people hesitate. (Some people even experience this sense of loss after they make a purchase decision, a condition called “buyer’s remorse.”) 2. It won’t work. If the prospect thinks that there’s a chance the offer won’t (or can’t) provide the promised benefits, they won’t purchase. 3. It won’t work for ME. The prospect may believe that the offer is capable of providing benefits to other people but that they’re different—a special case. 4. I can wait. The prospect may believe they don’t have a problem worth addressing right now, even if it’s very clear to you that they do. 5. It’s too difficult. If the offer takes any effort whatsoever on their part, the prospect may believe that their contribution will be too hard to manage.
To overcome these objections as quickly as possible, it makes sense to build them into the structure of your initial offer. Since these objections are very common, anything that you can do to alleviate them before the prospect considers the offer will make the sales process much easier. Objection #1 (“it costs too much”) is best addressed via Framing and Value-Based Selling. If you’re selling a piece of software to a business that can save them $10 million a year, and you’re asking $1 million a year for a license, your software isn’t expensive—it’s effectively Free. If it’s clear that the value of your offer far exceeds the asking price, this objection is moot. Objections #2 and #3 (“it won’t work” / “it won’t work for me”) are best addressed via Social Proof—showing the prospect how customers just like them are already benefiting from your offer. The more like your prospect your stories and testimonials are, the better. That’s why Referrals are such a powerful sales tool—customers tend to refer people who have similar situations and needs, and the Referral itself helps break down these objections. Objections #4 and #5 (“I can wait” / “it’s too difficult”) are best addressed via Education-Based Selling. Often, your prospects haven’t fully realized they have a problem, particularly in the case of Absence Blindness (discussed later). If the business doesn’t realize it’s losing $10 million in the first place, it’s difficult to convince them that you can help. The best way to get around this is to focus your early sales efforts on making your customers smarter by teaching them what you know about their business, then helping them Visualize what their involvement would look like if they decide to proceed. Once you have the prospect’s Attention and Permission, there are two possible tactics if they still have these objections: (1) convince the prospect that the objection isn’t true, or (2) convince the prospect that the objection is irrelevant. The approach you’ll use depends on the objection raised, but some combination of Framing, Value-Based Selling, Education-Based Selling, Social Proof, and Visualization will usually do the trick. If the prospect still doesn’t buy, that typically means there’s a Power issue—your negotiating partner may not have the budget or the authority to agree to your proposal. Always try to negotiate directly with the decision maker—that way, if they refuse your offer, you know that it’s because it wasn’t a good fit for them, and you can move on to more promising prospects as quickly as possible.
Reactivation is the process of convincing past customers to buy from you again. If you’ve been in business for a while, you’ll inevitably have some “lapsed” customers—people who have already purchased from you but haven’t purchased for quite some time. You know they’re interested in what you have to offer, and you probably already have their contact information. Why not present them with a new offer to make them active customers once again?
When you order from Zappos, it’s very likely that you’ll receive a pleasant surprise: your shoes will arrive the next day, several days ahead of schedule. Zappos could easily advertise “free expedited shipping,” but they don’t—the surprise is far more valuable.
A customer’s perception of quality relies on two criteria: expectations and performance. You can characterize this relationship in the form of a quasi-equation, which I call the Expectation Effect: Quality = Performance - Expectations.
The best way to consistently surpass expectations is to give your customers an unexpected bonus in addition to the value they expect. The purpose of the Value Delivery process is to ensure that your customers are happy and satisfied, and the best way to ensure customer satisfaction is to at least meet the customers’ expectations, surpassing them whenever you possibly can.
Multiplication is what separates small businesses from huge businesses. There’s an upper limit on what any single business system can produce. By creating more identical business systems based on a proven model, Multiplication can expand a business’s ability to deliver value to more customers. That’s the major benefit of franchising: instead of reinventing a business model, opening a franchise helps Multiply a model that already works. The easier it is to Multiply your business system, the more value you can ultimately deliver.
Small helpful or harmful behaviors and inputs tend to Accumulate over time, producing huge results. According to Lean Thinking by James P. Womack and Daniel T. Jones, Toyota’s approach is based on the Japanese concept of kaizen, which emphasizes the continual improvement of a system by eliminating muda (waste) via a lot of very small changes. Many small improvements, consistently implemented, inevitably produce huge results.
Force Multipliers can be expensive—the more effective they are, the more expensive they tend to be. Factory production and distribution systems are examples of large-scale Force Multipliers—they make it possible to deliver value to thousands (or millions) of paying customers in a very short time. They may cost thousands (or millions) of dollars, but they can give you capabilities that would otherwise be out of reach. As a general rule, the only good use of debt or outside capital in setting up a system is to give you access to Force Multipliers you would not be able to access any other way. If your business requires tooling up a factory, you probably don’t have $10 million sitting in your bank account. Taking a Loan from a bank or accepting Capital from an outside investor may be your best option, provided you use those funds to purchase and maintain Force Multipliers, not to pay yourself or maintain rent on a fancy office.
Most people resist creating business systems because it feels like extra work. We’re all busy, and it’s easy to feel like you don’t have time to create and improve systems because there’s already too much work to do. Actually, useful systems make your work easier—if you’re feeling overloaded, the best thing you can do to solve the issue is spend time creating good systems.
There are two dominant philosophies behind Value Capture: maximization and minimization. Maximization (the approach taught in most business schools) means that a business should attempt to capture as much value as possible. Accordingly, the business should attempt to capture as much revenue in each Transaction as possible—capturing less than the maximum amount of value possible is unacceptable. In the short run, it’s easy to see the appeal of maximization—more Profit is a good thing for the owners of a company. Unfortunately, the maximization approach tends to erode the reason customers purchase from a business in the first place. Would you spend $999,999 in order to make a million? It may be rational (after all, you’d be $1 ahead), but most people won’t bother. Customers purchase from you because they’re receiving more value than they’re giving up in the purchase. The less they receive, the less they’ll want to buy from you. The minimization approach means that businesses should capture as little value as possible, as long as the business remains Sufficient (discussed later). While this approach may not bring in as much short-term revenue as maximization, it preserves the value customers see in doing business with the company, which is necessary for the business’s long-term success. When something is a “good deal,” customers tend to continue to patronize the business and spread the word to other potential customers. When a business tries to maximize revenue by “nickel-and-diming” their customers or trying to capture too much value, customers flee. As long as you’re bringing in enough to keep doing what you’re doing, there’s no need to fight for every last penny. Create as much value as you possibly can, then capture enough of that value to make it worthwhile to keep operating.
Exploring every source of potential bias in the Income Statement is way beyond the scope of this book. If you’re interested in more detail on this topic, I highly recommend Financial Intelligence for Entrepreneurs by Karen Berman and Joe Knight with John Case.
Financial analysts tend to choose a small set of important ratios based on the industry: it makes no sense to calculate “inventory turns” for a barbershop. Every business has a small number of important ratios to consider; it’s worthwhile to do a bit of research to see what they are for your industry.
Lifetime Value is the total value of a customer’s business over the lifetime of their relationship with your company. The more a customer purchases from you and the longer they stay with you, the more valuable that customer is to your business. One of the reasons Subscriptions are so profitable is that they naturally maximize Lifetime Value. Instead of making a single sale to a customer, Subscription businesses focus on providing value—and collecting revenue—for as long as possible. The longer a customer remains Subscribed and the higher the price they pay, the higher the Lifetime Value of that customer. The higher your average customer’s Lifetime Value, the better your business. By understanding how much your average customer purchases and how long they tend to buy from you, you can place a tangible value on each new customer, which helps you make good decisions. Losing a single lemonade stand customer isn’t a huge deal—losing an insurance client is. All told, it’s much better to operate in markets where customers have a high Lifetime Value. The higher the Lifetime Value of your customer, the more you can do to keep them happy, and the more you can focus on serving customers well. Maintain a long-term relationship with profitable customers, and you win.
Allowable Acquisition Cost (AAC) is the marketing component of Lifetime Value. The higher the average customer’s Lifetime Value, the more you can spend to attract a new customer, making it possible to spread the word about your offer in new ways.
To calculate your market’s Allowable Acquisition Cost, start with your average customer’s Lifetime Value, then subtract your Value Stream costs—what it takes to create and deliver the value promised to that customer over your entire relationship with them. Then subtract your Overhead (discussed later) divided by your total customer base, which represents the Fixed Costs (discussed later) you’ll need to pay to stay in business over that period of time. Multiply the result by 1 minus your desired Profit Margin (if you’re shooting for a 60 percent margin, you’d use 1.00 − 0.60 = 0.40), and that’s your Allowable Acquisition Cost.
(I recommend Fail-Safe Investing by Harry Browne and I Will Teach You to Be Rich by Ramit Sethi if you’re interested in tactical, low-risk investment strategies.)
One of the best things you can do to get more done is to dissociate yourself from the voice in your head. The radio announcer has the attention span of a two-year-old after drinking a triple espresso. Its job is to highlight things in your environment you may be interested in paying attention to—things that may fulfill one of your Core Human Drives or present some danger. That doesn’t mean the voice is always right, or that you must take everything it says as gospel truth. Meditation is a simple practice that can help you separate “you” from the voice in your head. There’s nothing mystical or magical about meditation—you simply breathe and watch what your “monkey mind” does without associating yourself with it. After a while, the voice becomes quieter, improving your ability to keep yourself on the course you choose.
A few moments of quiet meditation every day can be the difference between feeling scared and overwhelmed and feeling in control of your destiny. If you’re interested in learning to meditate, I recommend Mindfulness in Plain English by Bhante Henepola Gunaratana and Wherever You Go, There You Are by Jon Kabat-Zinn.
Guiding Structure means the structure of your Environment is the largest determinant of your behavior. If you want to successfully change a behavior, don’t try to change the behavior directly. Change the structure that influences or supports the behavior, and the behavior will change automatically. If you don’t want to eat ice cream, don’t buy it in the first place.
Conflicts can only be resolved by changing Reference Levels—how success is defined by the parties involved. Attempting to resolve a Conflict by simply calling attention to unacceptable behavior is ineffective in the same way that willpower can’t change behavior directly—it’s not addressing the root cause of the Conflict.
the case of procrastination, Conflict can be ended by scheduling firm times for work and rest, ensuring enough of each. In The Now Habit, Neil Fiore recommends creating an “unschedule” that prioritizes rest over work. When your brain is sure that you’ll be receiving all of the relaxation and enjoyment you need, and that you only have a certain amount of time to get things done, it’s easier to focus on doing productive work.
The more accurate patterns you’ve learned, the more options you have when solving new problems. Pattern Matching is one of the primary reasons experienced people tend to make better decisions than inexperienced people—they’ve learned more accurate patterns via their experience. Having a larger mental database to draw from is what gives experts their expertise.
It’s possible to change your beliefs and Mental Simulations consciously by recalling and actively Reinterpreting past events. Mental Simulation and Interpretation rely on Patterns stored in memory, so if you want to change the results of your brain’s simulations, the best way to go about doing that is to alter the mental database of information those simulations are based on. Reinterpretation is how you change the database.
In Re-Create Your Life, Morty Lefkoe teaches a process that can be used to Reinterpret past events in a simple and useful way: 1. Identify the undesirable pattern. 2. Name the underlying belief. 3. Identify the source of the belief in memory, including as much sensory detail as possible. 4. Describe possible alternate interpretations of the memory. 5. Realize that your original belief is an interpretation, not reality. 6. Consciously choose to reject the original belief as “false.” 7. Consciously choose to accept your reinterpretation as “true.”
Eliminate the inner conflicts that compel you to move away from potential threats, and you’ll find yourself experiencing a feeling of Motivation to move toward what you really want.
Willpower can be thought of as instinctual override—it’s a way to interrupt our automatic processing in order to do something else. Whenever we experience a situation in which it’s useful to inhibit our natural inclinations, Willpower is required to keep us from responding. As such, Willpower is a useful tool, but it has certain inherent limitations.
The best way to use your limited reserves of Willpower is to use Guiding Structure to change the structure of your Environment instead of your behavior. For example, if you decide you want to quit eating ice cream, it doesn’t make sense to keep a tub in your freezer, then rely on your Willpower to resist the temptation to eat it. That situation is a recipe for disappointment, and when your Willpower inevitably fails, it’s easy to misinterpret the lapse as a fundamental character flaw, an example of the Attribution Error (discussed later).
Save your Willpower: focus on using it to change your Environment, and you’ll have more available to use whenever Inhibition is necessary.
Loss Aversion is why Risk Reversal is so important if you’re presenting an offer to a potential customer. People hate to lose, which makes them feel stupid and taken advantage of. As a result, they’ll go to great lengths to ensure that they don’t lose, and the best way to ensure that they don’t make a stupid decision is to not buy your offer in the first place. If you’re in the business of making sales, that’s a big problem. Eliminate this perception of risk by offering a money-back guarantee or similar Risk Reversal offer, and people will feel the decision is less risky, resulting in more sales.
you’re experiencing Threat Lockdown, don’t try to repress the threat signal. Many studies have shown that active repression doesn’t make a perception go away—instead, it makes the signals progressively stronger. Think of what a small child does when they want to get your attention, but you ignore them—they’ll continuously increase the commotion they make until they’re sure you’ve noticed them. Your brain does the same thing—repression only makes the threat signals stronger. Consciously sending a mental “message received, safe to proceed” signal to your brain is a simple and surprisingly effective way to make yourself stop fixating on the issue so you can consider appropriate responses.
key to dealing with Threat Lockdown is to convince your mind that the threat no longer exists. You can do that in one of two ways: (1) you can convince your mind there was never actually any threat, or (2) you can convince your mind the threat has passed. Convincing your mind there was never a threat is the equivalent of searching your house in the dark at midnight—the search proves that no threats exist, so it’s safe to leave protective mode. Convincing your mind that the threat has passed does the same thing—the threat is gone and can no longer harm you, so it’s safe to carry on.
Green to Gold, Daniel Esty and Andrew Winston describe several ways of making it easier to internalize the results of large decisions. The “newspaper rule” and “grandchild rule” are effective ways of personalizing the results of your decisions. The “newspaper rule” is a simulation of the following: assume your decision was publicized on the front page of tomorrow’s New York Times, and your parents and/or significant other read it. What would they think? Imagining the personal consequences of your decisions in this way is a much more accurate way to evaluate the impact of short-term decisions. The “grandchild rule” is a way of evaluating decisions with long-term consequences. Imagine that, thirty or forty years from now, your grandchild gives you feedback on the results of your decision. Will they laud you for your wisdom or reprimand you for your stupidity?
Presenting your prospects with positive Associations can influence how they think about what you offer. Celebrity endorsements work because they tie into strong Associations people already have with the endorsers, associations that rub off on the product or service being endorsed. Everyone knows James Bond is a fictional character, but when Daniel Craig is featured wearing a tuxedo in a watch advertisement, the “sophisticated international spy” Association is automatically transferred to the timepiece. Cultivate the right Associations, and potential customers will want what you have even more.
Absence Blindness is a cognitive bias that prevents us from identifying what we can’t observe. Our perceptual faculties evolved to detect objects that are present in the Environment. It’s far more difficult for people to notice or identify what’s missing.
Examples of Absence Blindness are everywhere. Here’s a common example: great management is boring—and often unrewarding. The hallmark of an effective manager is anticipating likely issues and resolving them in advance, before they become an issue. Some of the best managers in the world look like they’re not doing much, but everything gets done on time and under budget. The problem is, no one sees all of the bad things that the great manager prevents. Less skilled managers are actually more likely to be rewarded, since everyone can see them “making things happen” and “moving heaven and earth” to resolve issues—issues they may have created themselves via poor management. Make a note to remind yourself to handsomely reward the low-drama manager who quietly and effectively gets things done. It may not seem like their job is particularly difficult, but you’ll miss them when they’re gone.
Absence Blindness makes prevention grossly underappreciated.
Absence Blindness also makes it uncomfortable for people to “do nothing” when something bad happens, even if doing nothing is the best course of action. Often, the best course of action is to choose not to act, but that’s often difficult for humans to accept emotionally.
The only reliable way I’ve found to overcome Absence Blindness is Checklisting (discussed later). By thinking in advance what you want something to look like and translating that into visible reminders you can refer to while making decisions, checklists can help you remember to look for the absence of qualities in the moment. (We’ll discuss creating Checklists in great detail in chapter 11.)
Scarcity encourages people to make decisions quickly. Scarcity is one of the things that naturally overcomes our tendency to conserve—if you want something that’s scarce, you can’t afford to wait without the risk of losing what you want. Loss Aversion ensures that this possibility feels bad enough to prompt us to take action now.
Here are a few ways you can add an element of Scarcity to your offer: 1. Limited Quantities—inform prospects that you’re offering a limited number of units for sale. 2. Price Increases—inform prospects that the price will go up in the near future. 3. Price Decreases—inform prospects that a current discount will end in the near future. 4. Deadlines—inform prospects that the offer is only good for a limited period of time. Scarcity that appears blatantly artificial can backfire. For example, putting an artificial limit on sales of e-books, downloadable software, or electronic music files makes no sense—everyone knows electronic files can be Duplicated infinitely at essentially no cost, so the scarcity feels manipulative, which makes people want to buy from you less. Price increases with deadlines, on the other hand, tend to work well—raising the price after a certain number of orders or a certain amount of time is a reasonable policy and is less likely to come across to the customer as unreasonable or manipulative. Add an element of Scarcity to your offer, and you’ll encourage people
In Brain Rules, John Medina shares how he’s able to keep the attention of his students effectively in classes that last more than an hour: he plans his class in modules that last no more than ten minutes. Each module starts with a Hook—an interesting story or anecdote, followed by a brief explanation of the key concept. Following this format ensures that his audience retains more information and doesn’t zone out. (That’s the primary reason this book is organized in short sections that take less than ten minutes to read.) Even
Akrasia and procrastination are related, but they’re not the same thing. Procrastination occurs when you’ve decided to complete a task, but you keep putting it off until later without consciously deciding to do it later. If you have “answer e-mail” on your to-do list, but you browse the Internet for hours without answering any e-mail, that’s procrastination. Akrasia is a deeper issue: it’s a general feeling that you “should” do something, without necessarily deciding to do it.
In my experience, Akrasia has four general parts: a task, a desire/want, a “should,” and an emotional experience of resistance. Within this framework, there can be many potential sources of resistance: You can’t define what you want. You believe the task will bring you closer to something you don’t want. You can’t figure out how you’re going to get from where you are right now to where you want to be. You idealize the desired End Result to the point that your mind estimates a low probability of achievement, resulting in Loss Aversion. The “should” was established by someone else, not you, prompting Persuasion Resistance. A competing action in the current Environment promises immediate gratification, while the reward of the task in question will come much later. (Psychologists call this “hyperbolic discounting.”) The benefits of the action are abstract and distant, while other possible actions will provide concrete and immediate benefits. (Psychologists call this “construal level theory” or “near/far” thinking.) Akratic situations can take many forms: eating a cookie versus “becoming healthier” by sticking to a diet. Browsing the Web versus exercising. Staying in a bad relationship versus moving on. Dreaming about a new business idea versus testing it. Whenever you “should” do something, but resist doing it, you’re experiencing Akrasia.
Monoidealism is the state of focusing your energy and attention on only one thing, without conflicts. Monoidealism is often called a “flow” state, a term coined by psychologist Mihaly Csikszentmihalyi. This is the state of human attention at its most productive: clear, focused Attention and effort directed at one (and only one) subject for an extended period of time.
So how exactly do you get yourself into a Monoideal state? First, eliminate potential distractions and interruptions. Depending on the level of cognitive activity required to complete your work, it’ll take ten to thirty minutes before your mind becomes absorbed in what you’re doing. Phone calls, coworkers “dropping by to pick your brain,” and other unanticipated demands on your Attention will break your Monoideal state, so priority number one is ensuring that you don’t get distracted. I often use earplugs or play instrumental music to eliminate background noise, and disconnect the phone when I don’t want to be interrupted. Turning off my Internet connection (see Willpower Depletion) while I’m writing also makes it much easier for me to maintain a Monoideal state. Otherwise, I’m way too likely to browse the Web when the going gets tough. Using similar Guiding Structure techniques is a good way to prevent your Attention from straying. Second, eliminate inner Conflicts. Sometimes it’s difficult to get started because you’re experiencing a Conflict between two control systems in your mind. Eliminating these Conflicts before you start working helps you achieve a Monoideal state much more quickly. If you feel resistance to getting started, it’s useful to spend some time and energy exploring that Conflict more deeply before you keep working. While writing this book, I experienced several periods of frustrating resistance. Instead of trying to ignore the resistance or push through it (a surefire way to experience Willpower Depletion), exploring that resistance using Mental Simulation and Reinterpretation helped me uncover a hidden Conflict: I wasn’t happy with how my work was turning out, and doing more of what wasn’t working would be a waste. Spending some time revising the structure of the book resolved that Conflict, simultaneously making the book better and eliminating the source of the resistance. Third, kick-start the Attention process by doing a “dash.” Since it can take ten to thirty minutes to get into the zone, setting aside ten to thirty minutes for a quick burst of focused work can make it much easier to get into the zone quickly. If you’re not productive by the time the dash is over, you have permission to stop and do something else. That’s rarely the case: once you get started, it’s easy to keep going. One technique I often use is called the Pomodoro Technique,1 named by its creator, Francesco Cirillo, after those funny little kitchen timers shaped like a tomato (pomodoro in Italian). Here’s how the technique works: Set a kitchen timer for twenty-five minutes. Your job is to focus on a single task for the entire duration—if you get stuck, just keep focusing until the timer goes off. After the twenty-five-minute work period is over, you can take a five-minute break, bringing the total duration to half an hour—a block of time any of us can fit into our schedule here and there. What I love about the Pomodoro Technique is that it accomplishes…
Every time you switch the focus of your Attention from one subject to another, you incur the Cognitive Switching Penalty. In order to take action, your brain has to “load” the context of what you’re doing into working memory. If you constantly switch the focus of your Attention, you’re forcing your brain to spend time and effort thrashing, loading and reloading contexts over and over again. That’s why it’s possible to spend an entire day multitasking, get nothing done, and feel exhausted at the end—you’ve burned all of your energy context-switching instead of making progress. The Cognitive Switching Penalty is a Friction cost (discussed
The best approach to avoid unnecessary cognitive switching is to group similar tasks together. For example, I find it difficult to make progress on creative tasks (like writing or shooting training videos) between client calls. Instead of attempting to juggle both responsibilities at the same time, I batch them together. I typically focus on writing for a few uninterrupted hours in the morning, then batch my calls and meetings in the afternoon. As a result, I can focus on both responsibilities with my full Attention.
Paul Graham, a venture capitalist, programmer, and essayist, calls this batching strategy “Maker’s Schedule/Manager’s Schedule.”4 If you’re trying to create something, the worst thing you can possibly do is to try to fit creative tasks in between administrative tasks—context switching will kill your productivity. The “Maker’s Schedule” consists of large blocks of uninterrupted time; the “Manager’s Schedule” is broken up into many small chunks for meetings. Both schedules serve different purposes—just don’t try to combine them if your goal is to get useful work done.
A simple rule of thumb I use to plan my day is the 3-10-20 method: in one day, I have the capacity to finish three major tasks and ten minor tasks. A major task is any activity that requires more than twenty minutes of focused concentration; all other tasks are minor. If a major task is interrupted, restarting it counts as a new task. For example, one day’s major tasks might be writing a proposal, consulting with a client, and reviewing a book. Between these major tasks, I might make a short phone call, process and answer incoming e-mails, read a few articles, do the dishes, and clean my office. As long as I set aside large chunks of time for my major tasks, I can accomplish everything in a single day. If I’m interrupted in the middle of a major task, that task won’t be done that day, or another major task will have to slip. Keeping in mind that there’s a limit to what I can accomplish in a single day makes it easier to keep Stress and Recovery in balance.
There are really only four ways to “do” something: completion, deletion, delegation, and deferment. Completion—doing the task—is the option most people think about. If you keep a to-do list, you’re probably assuming that those tasks are all your responsibility to get done. That’s not quite true—completion is best for important tasks that only you can do particularly well. Everything else can be handled in another manner. Deletion—eliminating the task—is effective for anything that’s unimportant or unnecessary. If something on your task list is unimportant, don’t feel bad about eliminating it. If it’s not worth doing, it’s not worth doing well or quickly—don’t hesitate to get rid of it. Delegation—assigning the task to someone else—is effective for anything another person can do 80 percent as well as you can. In order to delegate, you must have someone to delegate to. Employees, contractors, or outsourcers can all help you get more things done by completing tasks on your behalf. In preparing my online Personal MBA business course,5 Kelsey and I shot the videos, but we enlisted Kelsey’s grandmother—an insanely fast typist—to help us create transcripts of each of the videos. As a result, we were able to complete the entire course in record time, without feeling overwhelmed. If you don’t have anyone to delegate routine tasks to, working with a virtual assistant company can be quite useful. For less than $100 a month, you can enlist the help of a team of professionals to help you get things done. If you have little experience with delegation, it’s an experiment worth trying.6 Deferment—putting the task off until later—is effective for tasks that aren’t critical or time dependent. Don’t feel bad about putting some things off—the best way to bog yourself down is to try to handle too many things at the same time. Saving noncritical tasks for later is a good way to keep your attention and energy focused on what’s most important.
Use all four options when processing your to-do list, and you’ll get more done than you ever thought possible.
A Most Important Task (MIT) is a critical task that will create the most important results you’re looking to achieve. Everything on your plate is not critically important, so don’t treat everything on your task list equally. By taking a few minutes to identify a few tasks as particularly important, you’ll make it easier to focus on achieving them first. At the beginning of every day, create a list of two or three MITs, then focus on getting them done as quickly as possible. Keep this list separate from your general to-do list or task tracking system. I typically use a 3 × 5 index card or David Seah’s “Emergent Task Planner,”7 a free downloadable PDF that makes it easy to plan your day.
When creating your list of MITs, it’s useful to ask a Self-Elicitation question: “What are the two or three most important things that I need to do today? What are the things that—if I got them done today—would make a huge difference?” Write only those tasks on your MIT list, then try to get them done first thing in the morning. Combining this technique with Parkinson’s Law (discussed later) by setting an artificial deadline is extremely effective. If you set a goal to have all of your MITs done by 10:00 a.m., you’ll be amazed at how quickly you can complete the day’s most important tasks. Having a list of two or three MITs helps you maintain a Monoideal state by giving you permission to say no to interruptions that aren’t as important. If you’re working on your MITs and someone calls you, it’s easier to ignore the call or tell the caller, “I’m working under deadline—I’ll get back to you later.” By definition, everything that’s not an MIT is not as important, so it’s easier to say no to noncritical interruptions. Achieve your MITs as quickly as possible, and then you’ll have the rest of the day to handle anything else that comes up.
Goals are most useful if they’re Framed in a Positive, Immediate, Concrete, Specific (PICS) format: Positive refers to Motivation—your Goal should be something you move toward, not away from. Goals like “I don’t want to be fat anymore” are a recipe for Threat Lockdown—you’re reinforcing the negative instead of using Reinterpretation to change your mind’s prediction to get excited about improving. For best results, eliminate Conflicts first, then move toward what you want to achieve. Immediate refers to time scale: your Goals should be things that you decide to make progress on now, not “someday” or “eventually.” If you don’t want to commit to working on a particular Goal now, put it on your someday/maybe list and focus on something else. Concrete means you’re able to see the results in the real world. Goals are achievements—you should know when you’ve accomplished what you set out to achieve. Setting Goals like “I want to be happy” won’t work because they’re not concrete—how would you know when you’re done? When you reach the top of Mount Everest, you’ve achieved something concrete in the real world—that’s concrete. Specific means you’re able to define exactly what, when, and where you’re going to achieve your Goal. Climbing Mount Everest on a certain date in the near future is specific, which makes it easy for your mind to plan exactly how you’ll go about accomplishing it.
track your Goals, any simple notebook or reference system will do. Personally, I capture all of my Goals in a simple text file, which I print out and keep in my to-do notebook. Whenever I’m thinking about what I need to do, I have my list of Goals handy for easy reference, which makes it easy to determine which tasks are most important.
States of Being help you answer the question “Is what I’m doing right now working?” For example, if you want to feel happy, you may notice that spending time with close friends and family members creates the experience you want, so making time for those things is obviously important. If you want to feel calm, but your job is making you stressed out all the time, it’s clear the situation needs to change—what you’re doing isn’t working. Breaking down complex States of Being into smaller parts is even more useful. Instead of using complex States of Being like “success” and “happiness” as decision criteria, it’s far better to decide what these states actually mean to you. For example, I define “being successful” as “working on things I enjoy with people I like,” “feeling free to choose what I work on,” and “having enough money to live without financial stress.” Together, these States of Being provide a much more useful definition of success—if that’s how I’m experiencing the world, I’m “successful.”
Decide what States of Being you want to experience, and you’ll have a powerful set of decision criteria you can use to evaluate the results of your actions in an entirely new and useful way.
Habits typically require a certain amount of Willpower to create. Therefore it’s best to use the techniques we discussed in the section on Guiding Structure to make it easier to instill the Habits you want to adopt. If you want to go to the gym first thing in the morning, packing your gym bag and laying out workout clothing the night before makes it easier to go, since you’ve structured your environment to require less effort to act.
Habits are easier to install if you look for triggers that signal when it’s time to act. For example, if you want to take vitamins, it’s easier to remember to take them if you use another habitual action as a trigger for the action. Instead of relying on your mind to remember to take your vitamins in the middle of the day, you can use brushing your teeth in the morning or evening as a reminder.
For best results, focus on installing one Habit at a time.
Priming is a method of consciously programming your brain to alert you when particular information is present in your Environment. One of the fascinating ramifications of our brain’s Pattern Matching function is that we’re constantly scanning the Environment for useful information. If you tell your mind specifically what you want to find, it will alert you whenever your senses notice it.
Here’s an example of how I use Priming: in the book 10 Days to Faster Reading, Abby Marks-Beale recommends a technique I refer to as purpose setting: taking a few minutes before you start reading to figure out (1) why you want to read this material and (2) what kind of information you’re looking for. Jotting down a few notes before picking up the book reinforces exactly what you’re looking to find. After defining your purpose, you then pick up the book and flip through it quickly, paying particular Attention to the table of contents, section headings, and index—condensed sources of information about what the book contains and how the material is structured. Jotting down terms and concepts that appear to be particularly important helps prime your brain to notice them when they appear later. This process only takes a few minutes, but the impact it has on your reading speed is profound. Once you’ve Primed your mind to notice important concepts, you can work your way through the entire book at lightning speed. As you read, your brain automatically filters out unimportant material and homes in on the material you’re particularly interested in learning.
One of the ways people “get lucky” when they’re working toward a particular Goal is via Priming. One of the reasons Goal setting is useful is because it’s an easy way to Prime your brain to look for things that will help you get what you want.
A Decision is the act of committing to a specific plan of action. The word “decide” comes from the Latin decidere, which means “to cut off.” When you make a decision, you’re cutting off the other possible avenues that you could explore, leaving only the path you’re committing to. If you’re not cutting off viable options, you’re not really making a Decision.
Without a decision, however, their brain can’t use Mental Simulation to figure out how to get from where they are now to where they think they want to be, so their minds thrash around unproductively. Simply saying to yourself, “I am deciding to do X right now,” makes it much easier to proceed. Once a Decision is finally made, your brain’s Mental Simulation planning circuits will kick into gear, and you’ll start moving again.
you’re having difficulties making a Decision, Steve Pavlina, the author of Personal Development for Smart People, recommends using this question as the tiebreaker: “Out of the available options, which experience do I want to have?” If you’re having a difficult time making a particular decision, it’s probably because your brain is having a hard time figuring out which one is best. It’s an uncomfortable situation, but what it really means is that it doesn’t really matter which one you choose. If that’s true, you can simply choose the experience you find more interesting.
The Five-Fold Why is a technique to help you discover what you actually want. Instead of taking your desires at face value, examining the root cause of what you want can help you define your core desires more accurately. Applying the Five-Fold Why is easy: whenever you set a Goal or objective, ask yourself why you want it. If you want to become a millionaire, ask yourself why you want to have a million dollars. Don’t try to force an answer—just ask yourself the question in a spirit of curiosity, and wait until your mind generates a response on its own. When your mind provides an answer, ask “why?” again. Continue to ask yourself why until you get a “because I want it” response, which indicates you’ve reached the root cause of your original Goal.
Once you find a “how” that looks like a good idea, ask “how” again. Let’s say that quitting your job and starting a business would give you the greatest sense of freedom. How would you go about doing that? Fill in the details, and what was at first a fuzzy idea becomes more and more clearly defined. Continue asking “how” until you’ve clearly defined your plan in terms of Next Actions (discussed next). The purpose of the Five-Fold How is to create a complete chain of actions from your big idea all the way down to things that you can do right now.
Done properly, each action gives you an experience of what you want as you do it. If paying off a debt would make you feel free, connecting the dots in this way enables you to feel more and more free every time you make a payment, which makes it much easier to keep going. Connect your big Goals to small actions you can take now, and you’ll inevitably achieve what you set out to accomplish.
The Next Action is the next specific, concrete thing you can do right away to move a project forward. You don’t have to know everything that must be done to make progress on a project—all you need to know is the very next thing you can do to move the project forward.
To keep yourself from feeling overwhelmed, track your projects and tasks separately. Here’s what I do: I always carry around a notebook that contains a 3 × 5 index card.9 The card contains a short list of my active projects. The notebook contains my to-do list: the next actions that will move my projects forward, which I process using a system called “Autofocus,” which was created by Mark Forster.10 The system helps me use my intuition to identify what I can do right now to make progress. As long as my projects are tied to my Goals and are aligned with my preferred States of Being, it’s only a matter of time before I complete them. Focus on completing the Next Action, and you’ll inevitably complete the entire project.
Externalization takes advantage of our perceptual abilities in a very intelligent way. By converting our internal thought processes into an external form, Externalization essentially gives us the ability to reinput information into our own brains via a different channel, which gives us access to additional cognitive resources we can use to process the same information in a different way.
However you choose to Externalize your thoughts, don’t keep them locked up in your head. Experiment with different approaches to find which method works best for you. To help keep your mind clear during the day, schedule a small amount of dedicated time to Externalize. Early mornings or late evenings typically work best for this purpose. However you do it, the more you Externalize, the clearer your thoughts will become, and the faster you’ll make progress toward your goals.
Self-Elicitation is the practice of asking yourself questions, then answering them. By asking yourself good questions (or working with someone who asks good questions), you can grasp important insights or generate new ideas very quickly.
In Self-Directed Behavior, David Watson and Roland Tharp explain a very useful self-questioning technique you can use to discover the reasons behind behaviors that don’t serve you. The ABC Method (Antecedent, Behavior, Consequences) is a set of questions to ask yourself whenever you notice a behavior you want to change.
When you run a Counterfactual Simulation, you assume the event or end state you’re simulating is already true. By supplying your mind with an artificial destination, it will automatically start to fill in the blanks between point A and point B. When I ran the simulation on leaving P&G, I assumed that it was definitely going to happen, then figured out how it would be possible.
Ingvar Kamprad, the founder of IKEA, once said, “If you split your day into ten-minute increments, and you try to waste as few of those ten-minute increments as possible, you’ll be amazed at what you can get done.” For small tasks, use what I call Ingvar’s Rule—assume each task will take no more than ten minutes to complete, then begin. This includes meetings and phone calls: for some reason, the default time period for meetings is an hour—whether you need it or not. Often you can get just as much, if not more, done if you assume that the basic unit of time for a meeting is ten minutes.
A Doomsday Scenario is a Counterfactual Simulation where you assume everything that can go wrong does go wrong. What if you don’t complete the project on time? What if your plan doesn’t work? What if you lose everything? What if they all laugh at you? Doomsday Scenarios are pessimistic for a reason—they help you realize that, in most circumstances, you’re going to be okay. Caveman Syndrome makes our ancient brains overdramatic, so they assume every potential threat is a life-or-death situation. The reason we get so stressed out is that our brains Interpret losing resources, diminishing in status, or being rejected as threats to our survival. That may have been true a long time ago, but it’s not anymore. Now you can lose money, screw up, or be rejected hundreds of times a day—and live to tell the tale.
Excessive Self-Regard Tendency is the natural tendency to overestimate your own abilities, particularly if you have little experience with the matter at hand.
According to David Dunning and Justin Kruger of Cornell University, Charles Darwin’s famous quip “Ignorance more frequently begets confidence than does knowledge” is literally true. They explain the “Dunning-Kruger effect” as follows: 1. Incompetent individuals tend to overestimate their own level of skill. 2. Incompetent individuals fail to recognize genuine skill in others. 3. Incompetent individuals fail to recognize the extremity of their inadequacy. 4. If they can be trained to substantially improve their own skill level, these individuals can recognize and acknowledge their own previous lack of skill.
People who are “unconsciously incompetent” don’t know they’re incompetent—they know so little about the subject that they can’t fully appreciate how little they actually know. That’s why every barber and taxi driver you meet is an expert on the economy and international politics.
Confirmation Bias is the general tendency for people to pay Attention to information that supports their conclusions and ignore information that doesn’t. No one particularly likes to learn they’ve made a bad decision, so we tend to filter the information we pay Attention to.
The best way to counteract Confirmation Bias is to intentionally seek out sources of information that challenge your current hypothesis or belief.
Ultimately, we changed our minds as a result of finding disconfirming evidence. After reading The Vegetarian Myth by Lierre Keith, we discovered that vegetarianism isn’t as healthy or environmentally friendly as we had originally believed. Protein Power by Michael R. and Mary Dan Eades taught us more about how our bodies biochemically process the food we eat, and about how the Feedback Loops (discussed later) that exist in our metabolism actually function. As a result, we learned that a few persistent health issues (low energy, slow digestion, etc.) we were experiencing were actually a consequence of our diet.
Performance Load is a concept that explains what happens when you have too many things to do. Above a certain point, the more tasks a person has to do, the more their performance on all of those tasks decreases.
If you want to be productive, you must set limits. Juggling hundreds of active tasks across scores of projects is not sustainable: you’re risking failure, subpar work, and burnout. Remember Parkinson’s Law: if you don’t set a limit on your available time, your work will expand to fill it all. If you don’t draw the line somewhere, work will consume all of your energy, and you’ll inevitably burn out.
In order to handle the unexpected, you must have unscheduled time to respond to new inputs. The default mind-set of many modern businesses is that “downtime” is inefficient and wasteful—workers should be busy all the time. Unfortunately, this philosophy ignores the necessity of handling unexpected events, which always occur. Everyone only has so many hours in a day, and if your agenda is constantly booked solid, it’ll always be difficult to keep up with new and unexpected demands on your time and energy.
Lesser known is the ninety-minute ultradian rhythm, which is described in The Power of Full Engagement by Jim Loehr and Tony Schwartz.
So how do you rest and recover? It’s simple: spend time doing something completely different from your normal activities and responsibilities. The less overlap between your hobby and your work, the better.
write best early in the morning, after eight hours of sleep. After waking up I drink two mugs of coffee, each containing one tablespoon of unsalted, grass-fed butter and MCT (refined coconut) oil,12 and turn on a bright blue LED lamp that simulates morning sunlight. Once I’m nourished and alert, I open up my computer, turn off my Internet connection, and start writing. Once I get started, I can concentrate on writing for up to six hours without stopping if I’m not interrupted.
Testing is the act of trying something new—a way of applying the scientific method and the Iteration Cycle to your own life. The most happy and productive people I know all have something in common: they’re always trying new things to see what works. You can’t make positive discoveries that make your life better if you never try anything new. Testing doesn’t have to be complicated. All that’s required is choosing some part of your life to focus on, then trying new ways to get what you want. You can Test random approaches or read about what works for others, then test the approach yourself. Externalizing your results in a notebook can help you keep track of what you’ve tried, what works, and what doesn’t.
Here’s a simple structure that will help you plan and track your Experiments: Observations—What are you observing in your life or business that you want to improve? Knowns—What have you learned from past Experiments that might be related to your observations? Hypotheses—Based on what you’ve observed, what situations or factors might cause or contribute to your observations? Tests—What will you try or change to improve your situation? Which hypotheses will this experiment Test? Results—What happened after each Test? Does it support or disconfirm the hypothesis? Here are a few questions to help you discover things worth Testing: How much sleep do you need to feel rested and alert? Which foods make you feel energetic after eating? Which foods make you feel ill or lethargic? When do you do your most productive work? Are there any patterns in your productivity? When do you get your best ideas? What are you doing when they occur to you? What is your biggest source of stress or concern? When do you start worrying, and why?
Introverted people (like me) can go days or weeks with little social contact and generally get their energy from spending time alone. Still, introverted people benefit from spending time with people they like: regular social time with friends is highly correlated with major sustained increases in life satisfaction. Long meals and trips with friends are a great use of time.
Remove chronic annoyances. There are many things in life that can wear on your nerves. Examining ways to reduce or eliminate chronic stresses or annoyances can generate significant improvements in life satisfaction.
you find driving in rush-hour traffic stressful, moving closer to work is a good solution. If you don’t like your current job, start looking for another. If you find working with a particular client annoying, fire them. If you always forget to pack your laptop’s power cable when you travel, buy a second cable that stays in your travel bag. By finding simple ways to remove unnecessary stress and frustration, you’ll spend less time and energy feeling bad and more time feeling good.
In the immortal words of Charles Kingsley, a nineteenth-century historian and clergyman: “We act as though comfort and luxury were the chief requirements of life, when all we need to make us happy is something to be enthusiastic about.”
The Comparison Fallacy is a simple idea: other people are not you, and you are not other people. You have unique skills, goals, and priorities. In the end, comparing yourself to other people is silly, and there’s little to be gained by it.
Whenever you’re tempted to compare yourself to an acquaintance, colleague, classmate, or celebrity, it always helps to keep in mind that your goals, preferences, and priorities are completely different. You’ve lived different lives, and you’ve each paid a different price for what you’ve accomplished. Any comparison you make instantly renders itself invalid, so you can relax.
Focus most of your energy on things that you can influence, and let everything else go. Keep your Attention on what you’re doing to build the life you want to live, and it’s only a matter of time before you get there.
What would it look like if you set aside a few hundred dollars a month as a Personal R&D budget? Using the techniques discussed in I Will Teach You to Be Rich by Ramit Sethi, it’s remarkably easy to automatically divert a certain amount of your monthly income into an account earmarked for Personal R&D. That money can then be used—guilt free—for purchasing books, taking courses, acquiring equipment, or attending conferences: anything that will improve your skills and capabilities.
If you have a “fixed” mind-set, challenges are a commentary on your worth as a person—you’ve been tried and found wanting, which makes trying new things feel threatening. If you have a “growth” mind-set, challenges are simply an obstacle to be overcome by working harder. The fixed mind-set is an example of a Limiting Belief:
Limiting Beliefs may also appear when you consider doing things that make you uncomfortable, like applying for a new job or selling an offer to a new prospect. Images of rejection and disapproval start flashing through your mind, and your first impulse is to conclude “this won’t work” before conducting a single test or gathering real feedback. Here’s a useful rule of thumb for these types of situations: make the other party tell you no. This is a Habit worth installing: you may believe you’re going to be turned down when you make a request or propose an idea, but make the other party say it instead of assuming it’s a given. You’ll be surprised at how often you get what you want, even when you believe the odds are slim.
Comparative Advantage means it’s better to capitalize on your strengths than to shore up your weaknesses. In First, Break All The Rules by Marcus Buckingham and Curt Coffman, and StrengthsFinder 2.0 by Tom Rath, the authors share the results of the Gallup Organization’s comprehensive research on human productivity. As it turns out, Comparative Advantage applies as much to individuals as it does to countries: businesses work better if the individuals who operate them focus on what they’re best at, working with other specialists to accomplish everything else they need. “Strengths-Based Management” is simply another term for Comparative Advantage.
Comparative Advantage also explains why diverse teams consistently outperform homogenous teams. Having a wide variety of team members with different skills and backgrounds is a major asset: it increases the probability that one of your teammates will know what to do in any given circumstance. If every team member has the same skills and the same background, it’s far more likely the team will get stuck or make a preventable error.
There’s a reason high-performing surgical teams, military units, and sports teams tend to be small and focused: too much time spent in communication and coordination can kill a team’s effectiveness.
Communication Overhead is the proportion of time you spend communicating with members of your team instead of getting productive work done. In order to keep everyone on the same page, communication is absolutely necessary. The more team members you have to work with, the more you have to communicate with them to coordinate action. As the number of people you work with increases, Communication Overhead increases geometrically until the total percentage of time each individual must devote to group communication approaches 100 percent. After a certain threshold, each additional team member diminishes the capacity of the group to do anything other than communicate.
Large companies are slow because they suffer from Communication Overhead. If you’re responsible for working with a group of more than five to eight people, at least 80 percent of your job will inevitably be communicating effectively with the people you work with. Objectives, plans, and ideas are worthless unless everyone involved understands them well enough to take action.
In the book Beyond Bureaucracy,1 Derek Sheane proposed “8 Symptoms of Bureaucratic Breakdown” that appear in teams suffering from Communication Overhead: 1. The Invisible Decision—No one knows how or where decisions are made, and there is no transparency in the decision-making process. 2. Unfinished Business—Too many tasks are started but very few are carried through to the end. 3. Coordination Paralysis—Nothing can be done without checking with a host of interconnected units. 4. Nothing New—There are no radical ideas, inventions, or lateral thinking—a general lack of initiative. 5. Pseudo-Problems—Minor issues become magnified out of all proportion. 6. Embattled Center—The center battles for consistency and control against local/regional units. 7. Negative Deadlines—The deadlines for work become more important than the quality of the work being done. 8. Input Domination—Individuals react to inputs—i.e., whatever gets put in their in-tray—as opposed to using their own initiative.
The solution to Communication Overhead is simple but not easy: make your team as small as possible. You’ll be leaving people out, but that’s the point—including them is causing more work than it’s creating in benefits. Removing unnecessary people from the team will save everyone’s time and produce better results.
Studies of effective teamwork usually recommend working in groups of three to eight people. In Peopleware, project managers Tom DeMarco and Timothy Lister recommend keeping teams “elite and surgical.” Small groups tend to be more effective than large groups because Communication Overhead is reduced—each team member adds more networking capacity to the team than they require in communication to be effective. Once group size expands above eight, each additional team member requires more investment in communication than they add in productive capacity.
Fortunately, making others feel Important is not particularly difficult if you make an effort to be present and curious. It mostly has to do with undivided focus: paying attention, listening intently, expressing interest, and asking questions. Being the complete focus of someone’s attention is so rare in today’s world that it makes a memorable impact almost immediately.
Cultivating a genuine interest in other people goes a very long way. The more Important you make people feel when they’re around you, the more they’ll like you and want to be around you.
What Got You Here Won’t Get You There, veteran executive coach Marshall Goldsmith explains that high-level executives often subtly (and sometimes blatantly) put down their peers and subordinates to make themselves feel smarter or more Important. What putting others down actually accomplishes is shutting down effective communication.
The only way to prevent stonewalling is to make the person you’re communicating with feel safe being open and honest with you. Just as people have a fundamental need to feel Important, people also have a need to feel safe when expressing what’s on their minds and talking about things that are Important to them. The moment they begin to sense they’re being judged, evaluated, or looked down upon because of an idea they have or a position they hold, they’ll shut down.
In Crucial Conversations, a book about maintaining a sense of Safety while discussing important issues with colleagues and loved ones, authors Kerry Patterson, Joseph Grenny, Ron McMillan, and Al Switzler recommend using the STATE model to communicate without provoking anger or defensiveness: 1. Share your facts—Facts are less controversial, more persuasive, and less insulting than conclusions, so lead with them first. 2. Tell your story—Explain the situation from your point of view, taking care to avoid insulting or judging, which makes the other person feel less safe. 3. Ask for others’ paths—Ask for the other person’s side of the situation, what they intended, and what they want. 4. Talk tentatively—Avoid conclusions, judgments, and ultimatums. 5. Encourage testing—Make suggestions, ask for input, and discuss until you reach a productive and mutually satisfactory course of action.
The Golden Trifecta is my personal three-word summary of How to Win Friends and Influence People. If you want to make others feel Important and safe around you, always remember to treat people with appreciation, courtesy, and respect.
Appreciation means expressing your gratitude for what others are doing for you, even if it’s not quite perfect. Imagine that you’re designing a product, and your lead designer shows you some mockups that you believe won’t work. Bluntly responding, “This is totally wrong—do it again,” is a good way to make your colleague feel unimportant and insecure. Instead, express Appreciation: “Thanks—it’s clear you worked hard on this and I appreciate that. I’m not sure if we’re there yet, so here are a few ideas that may help. . . ” It’s the same content, but delivered in a very different tone.
Courtesy is politeness, pure and simple. I once heard Courtesy defined as “accepting small inconveniences on behalf of another person,” and I think that’s a very useful definition. Opening the door for another person is a small inconvenience, but it can have a major impact on how they perceive you. There’s no need to make every petty issue a big deal.
Respect is a matter of honoring the other person’s status. No matter how you relate to the person you’re communicating with, Respecting them as an individual is critical if you want to make them feel Important or safe, no matter how high or low their social status.
Humans are predisposed to look for behavioral causes. People will be more receptive to any request if you give them a reason why. Any reason will do.
Commander’s Intent is a much better method of delegating tasks: whenever you assign a task to someone, tell them why it must be done. The more your agent understands the purpose behind your actions, the better they’ll be able to respond appropriately when the situation changes.
Commander’s Intent alleviates Communication Overhead. By communicating the intent behind a certain plan, a leader can make constant communication less critical for the success of the entire team. If everyone understands the purpose of the plan, everyone can act in ways that support the intent without requiring constant attention. When you communicate the intent behind your plans, you allow the people you work with to intelligently respond to changes as they happen.
Bystander Apathy explains why anything assigned to a committee never gets done. If you’ve ever worked with a group of people who have no Power over one another, you know what I’m talking about. Unless someone steps up and takes individual responsibility for actually making things happen and holding individuals accountable for progress, a committee can deliberate for years without getting anything done. Each member of the committee simply assumes someone else is working on it.
The best way to eliminate Bystander Apathy in project management is to ensure that all tasks have single, clear owners and deadlines. Unless every individual on your team knows exactly what they’re responsible for and when it must be done, it’s very unlikely that they’ll actually do it.
When delegating responsibilities, always assign tasks to a single owner with a clear deadline. Only then will people feel responsible for getting things done.
The Planning Fallacy means that people have a persistent tendency to underestimate completion times. The more complex the project, the more Interdependencies (discussed later) the project contains. The more Interdependencies there are, the more likely it is that something at some time will not go according to plan.
The inaccuracy of plans doesn’t make planning worthless. Plans aren’t useful because they help you predict with better accuracy—they’re useful because the act of creating the plan helps you understand requirements, dependencies, and risks more thoroughly than when you started. In the immortal words of Dwight D. Eisenhower: “No battle was ever won according to plan, but no battle was ever won without one… Plans are useless, but planning is indispensable.” The value of planning is in Mental Simulation: the thought process required to create the plan itself.
Convergence is the tendency of group members to become more alike over time. In business, this is sometimes called a company “culture,” in the sense that people who work there tend to have similar characteristics, behaviors, and philosophies.
you’ve ever worked for a company with a workaholic culture, you know how powerful Convergence can be. If it’s normal for workers to come in at 6:00 in the morning and stay until 10:30 at night, it can be difficult to keep shorter working hours, since violating the Norms is a Social Signal that you don’t belong in the group. One of my clients, who works for a major medical research institution, often has conflicts with coworkers who believe he’s not “pulling his weight” because he leaves work at 5:00 p.m. instead of 7:30 p.m., even though he does great work and gets everything done. Instead of being viewed as “working smart,” going home at a reasonable hour is seen as a form of treason. Sad, but common.
Divergence is the tendency for groups to become less like other groups over time. Since group behavior often evolves to clearly distinguish members of one group from another, the Norms of most groups constantly change to resist being confused with another group or imitator.
Once you realize how powerful Convergence and Divergence are, you can use them to your advantage. If your social circle isn’t supporting your goals, change your social circle.
The best testimonials don’t necessarily contain superlatives: amazing, best, life-changing, and revolutionary have been so overused that people expect them and discount their expectations accordingly. The most effective testimonials tend to follow this format: “I was interested in this offer, but skeptical. I decided to purchase anyway, and I’m very pleased with the end result.”
If you’re in a position of Authority, your Authority will change the way others interact with you. Simply because you express an opinion, your subordinates will be far more likely to Interpret your position as a truth or as a command. As a result, people will begin to filter the information they give you based on what they think you want to hear—which may not be what you need to hear. This filtering behavior is how Authority figures often end up “living in a bubble”—the combination of Authority and Confirmation Bias shelters them from information that contradicts their opinions. As a result, it’s difficult for Authority figures to compensate for the Excessive Self-Regard Tendency.
Developing a strong Reputation in a certain area confers the benefits of Authority. Not all parts of Authority are insidious—if people respect your knowledge and experience, they’re more likely to do what you suggest. As a result, developing clear expertise and a strong Reputation can be beneficial—it increases your own influence. Work to establish yourself as an Authority on what you’re offering, and people will be more likely to accept your offer.
Obtaining small Commitments makes it more likely people will choose to act Consistently with them later. Salespeople are often taught to do what they can to encourage their customers to start saying yes as soon as possible. By getting a “foot in the door,” they increase the probability that their prospect will take further action. That’s why so many activists use opening questions like “Do you care about child safety?” or “Do you care about the environment?” when telemarketing or collecting signatures on a petition. Most people do care about these things, so the reply is automatic and swift. Once you’ve said you care about something, however, it would be rude of you to refuse their request—it’s inconsistent with your previous statement. Obtain a small Commitment, and you’ll make it far more likely that others will comply with your request. SHARE THIS CONCEPT:
If you’re working with a real estate agent or mortgage broker, they’re primarily interested in convincing you to buy a house. Accordingly, most agents won’t tell you it’s in your best interest to rent,3 even if it’s true.
Incentive-Caused Bias explains why people with a vested interest in something will tend to guide you in the direction of their interest. We touched on the idea of Incentive-Caused Bias when talking about Buffers. If you’re working with an agent who’s paid on commission, it’s not necessarily in their best interest to tell you that purchasing something is not a good idea. As the saying goes: don’t ask the barber if you need a haircut. Incentives
Incentives are tricky because they inevitably interact with our Perceptual Control systems. For example, giving an employee a bonus or raise for doing something good can create a curious result—they stop doing what got them the reward. That makes no sense until you realize there was always a reward—they did what they did because they wanted to, so the reward was internal. Paying them makes the action part of their job, which reduces their inner drive to complete it for its own sake. In the case of Conflict, Perceptual Controls win over incentives every time. Incentives can be useful if used appropriately, but tread cautiously. If the incentives of the people you work with aren’t aligned with your interests, you’re bound to have problems.
Modal Bias is the automatic assumption that our idea or approach is best. Most of us like to assume we have everything together—that we know what we’re talking about, we know what we’re doing, and that our way of doing things is best. Very often, we are quite mistaken. There is always more than one way to get something done, and good ideas can come from anywhere.
In the absence of evidence to the contrary, the HiPPO rules—decisions are made according to the “Highest Paid Person’s Opinion.” HiPPO is a term coined by Avinash Kaushik in Web Analytics: An Hour a Day to explain why it’s critically important to support business proposals and decisions with data. In the absence of data, you’ll ultimately be forced to do things the boss’s way: Modal Bias ensures that the bosses think that their way is best, unless you can prove otherwise. In a battle of opinions, the HiPPO always wins.
The Pygmalion Effect also features a paradox: having high expectations of people will produce better results, but it also increases the probability that you’ll be disappointed. The Expectation Effect means that our perception of the quality of someone’s work is a function of our original expectations. The higher our expectations are to begin with, the higher their performance will generally be, but the risk that our expectations will be violated is also much higher. If you’re doing a formal assessment of someone’s performance, remember to judge performance objectively and quantitatively as much as possible. Let others know you expect great work from them, and they’ll do their best to live up to your expectations.
The Attribution Error means that when others screw up, we blame their character; when we screw up, we attribute the situation to circumstances. By assuming the contractor’s actions were due to a character flaw, you made an error in judgment—the contractor actually went above and beyond the call of duty, given the circumstances. Because you weren’t completely aware of the circumstances, however, you blamed his character.
Instead of dwelling on the problem, focus on your Options. Ruminating on the issue doesn’t solve anything; what are you going to do about it? By focusing your energy on evaluating potential responses, you’re far more likely to find a way to make things better. Here’s an alternate approach your hypothetical CEO is probably going to find more useful: We’ve received several reports of fires caused by our microwaves. Here are our options—we can have our engineers run a full diagnostic before we issue a statement and risk further issues, or we can issue an immediate recall. Based on the information we have available right now, it appears our microwaves are at fault, and present a major risk to the safety of our customers. Based on our options, I recommend an immediate recall, which we estimate will cost $4 million. Focusing on the potential Options is far more constructive—you’re presenting several courses of action and the costs and benefits associated with each, then recommending a solution based on the available information. The CEO (or client) can then review your recommendation and the Options you present, ask follow-up questions, then make the best Decision possible. Do this often and well, and you’ll develop a Reputation for clearheadedness in the midst of crisis.
Based on what we’ve learned thus far, here are six simple principles of effective real-world Management: 1. Recruit the smallest group of people who can accomplish what must be done quickly and with high quality. Comparative Advantage means that some people will be better than others at accomplishing certain tasks, so it pays to invest time and resources in recruiting the best team for the job. Don’t make that team too large, however—Communication Overhead makes each additional team member beyond a core of three to eight people a drag on performance. Small, elite teams are best. 2. Clearly communicate the desired End Result, who is responsible for what, and the current status. Everyone on the team must know the Commander’s Intent of the project, the Reason Why it’s important, and must clearly know the specific parts of the project they’re individually responsible for completing—otherwise, you’re risking Bystander Apathy. 3. Treat people with respect. Consistently using the Golden Trifecta—appreciation, courtesy, and respect—is the best way to make the individuals on your team feel Important and is also the best way to ensure that they respect you as a leader and manager. The more your team works together under mutually supportive conditions, the more Clanning will naturally occur, and the more cohesive the team will become. 4. Create an Environment where everyone can be as productive as possible, then let people do their work. The best working Environment takes full advantage of Guiding Structure—provide the best equipment and tools possible and ensure that the Environment reinforces the work the team is doing. To avoid having energy sapped by the Cognitive Switching Penalty, shield your team from as many distractions as possible, which includes nonessential bureaucracy and meetings. 5. Refrain from having unrealistic expectations regarding certainty and prediction. Create an aggressive plan to complete the project, but be aware in advance that Uncertainty and the Planning Fallacy mean your initial plan will almost certainly be incomplete or inaccurate in a few important respects. Update your plan as you go along, using what you learn along the way, and continually reapply Parkinson’s Law to find the shortest feasible path to completion that works, given the necessary Trade-offs required by the work. 6. Measure to see if what you’re doing is working—if not, try another approach. One of the primary fallacies of effective Management is that it makes learning unnecessary. This mind-set assumes your initial plan should be 100 percent perfect and followed to the letter. The exact opposite is true: effective Management means planning for learning, which requires constant adjustments along the way. Constantly Measure your performance across a small set of Key Performance Indicators (discussed later)—if what you’re doing doesn’t appear to be working, Experiment with another approach. Do these well, and your team will be highly productive. Do them poorly…
The best managers don’t act like big-shot executives: they’re more like very skilled assistants, whose primary purpose is to keep the people with Economically Valuable Skills focused on improving the Five Parts of Every Business: that is, doing things that directly contribute to the company’s results. Important decisions are made by the individuals who have the most direct knowledge and experience about the area in question.
Screening by degree or GPA is common but ineffective, since these don’t tell you anything about the candidate’s current level of skill. In the application, ask a few basic questions that require a certain amount of specialized knowledge in the field to answer. The most promising candidates will be easy to identify.
Here’s Gall’s Law: all complex systems that work evolved from simpler systems that worked. Complex systems are full of variables and Interdependencies (discussed later) that must be arranged just right in order to function. Complex systems designed from scratch will never work in the real world, since they haven’t been subject to environmental selection forces while being designed.
Autocatalysis is a concept that comes from chemistry: it’s a reaction whose output produces the raw materials necessary for an identical reaction.
An Autocatalyzing System produces the inputs necessary for the next cycle as a by-product of the previous cycle, Amplifying the cycle. Autocatal ysisis a Compounding, positive, self-reinforcing Feedback Loop—the system will continue to grow until the system changes in a way that produces less output.
Television advertising from the 1950s to the 1990s is an excellent example of Autocatalysis. Companies could spend $1 in advertising and, via increased demand and distribution, get $2 or more in return. That $2, reinvested in advertising, became $4, which became $8, which became $16, etc. Companies like Procter & Gamble, GE, Kraft, and Nestlé used this cycle to become the behemoths they are today.
If your business includes some Autocatalyzing element, it’ll grow more quickly than you expect.
The problem with the term is what eighteenth-century philosopher David Hume called the “problem of induction”: until you see every swan that exists, you can never assume the statement “all swans are white” is true. All it takes is one black swan to completely invalidate the hypothesis, which happened when black swans were documented in Australia in 1697 by Dutch sea captain Willem de Vlamingh.
Many people make a business of selling certainty, which doesn’t exist. Prediction, forecasting, and other forms of business soothsaying are popular because they provide the illusion that the future is knowable and controllable. Exercises in prediction aren’t worth the cost—if there were a foolproof way to predict gas prices, interest rates, or stock prices, the people with that magic knowledge would be enormously wealthy and would have no need to sell anything to you.
Contemplating Uncertainty feels bad, because not knowing what’s going to happen feels like a threat. Instead of fixating on predicting invisible and unknowable threats, it’s better to channel your energy into enhancing your ability to handle the unexpected.
Don’t rely on making accurate predictions—things can change at any time. Planning for flexibility in response to Uncertainty via Scenario Planning is far more useful than pretending to be a seer.
Tightly coupled systems are typically time dependent, rigidly ordered, and have very little Slack. There’s often only one path to a successful outcome, and a failure in any part of the system can “cascade” to the rest of the system.
When your system relies on the performance of someone outside of your control, do all that you can to prepare for the possibility that they won’t perform as expected.
Changing some aspect of a complex system always introduces Second-Order Effects, some of which may be antithetical to the original intent of the change. Elements in a complex system can be interrelated or dependent upon one another in millions of different ways, and Uncertainty guarantees that you probably don’t know exactly how. Every action has a consequence, and those consequences always have consequences—even if you don’t know what they are or don’t want them to happen. Approach making changes to a complex system with extreme caution: what you get may be the opposite of what you expect.
The theory of Normal Accidents is a more formal way of expressing a universal proverb: shit happens. In a tightly coupled system, small risks accumulate to the point where errors and accidents are inevitable. The larger and more complex the system, the higher the likelihood that something will eventually go very, very wrong. Overreacting to Normal Accidents is actually counterproductive. When something goes wrong, our instinctive response is to become hypersensitive, locking things down and adding more controls to prevent the unfortunate event from happening again. This response actually makes things worse: locking things down and adding more systems only makes the system more tightly coupled, increasing the risk of future accidents. NASA’s response to the Challenger tragedy is extremely instructive: instead of completely shutting down or adding more systems that could compound the issue, NASA engineers recognized the inherent risk and focused on finding other solutions to the problem that would minimize the risk of the issue reoccurring without adding more systems that could potentially fail.
Normal Accidents are a compelling reason to keep the systems you rely on as loose as you possibly can. There are many positive things to be said for systems, but expecting zero failures is unrealistic in the extreme. Loose systems may not be as efficient, but they last longer and fail less catastrophically. The more complex a system is and the longer it operates, the more likely it is to suffer a major failure. It’s not a matter of if—it’s a matter of when. Be watchful for system failure, and be prepared to respond to it quickly.
Measuring something is the first step to improving it. Peter Drucker famously opined, “What gets measured gets managed.” It’s true. If you don’t know how much money your business is collecting or spending, it’s difficult to know whether or not any change you make to your business system is actually an improvement. If you want to lose weight, you first must know how much you weigh right now, then track how any changes you make affect your weight.
Without data, you’re blind. If you want to improve anything, you must measure it first.
Unfortunately, it’s easy to fixate on things that are easy to measure instead of things that are actually important.
Try to limit yourself to only three to five KPIs per system. When collecting Measurements, it’s tempting to build yourself a “dashboard” that contains every piece of information you’d ever want to see. Resist the temptation: if you overload yourself with too much data, you’ll be far less likely to see Changes that are critically important. You can always dig deeper into the data at your disposal if necessary. Find your system’s KPIs, and you’ll be able to manage your system without drowning in data. SHARE
If you don’t believe in sampling theory, next time you go to the doctor and he wants to take a little blood, tell him to take it all. —GIAN FULGONI, FOUNDER AND CHAIRMAN OF COMSCORE, INC.
Before making a change to a system, it’s important to understand that human beings are predisposed to do something rather than nothing. As we discussed, Absence Blindness leads us to value things we can see over things we can’t. This predisposition affects how we work on systems: Intervention Bias makes us likely to introduce changes that aren’t necessary in order to feel in control of a situation.
Many corporate policies have their roots in Intervention Bias. When something bad happens, it’s tempting to “fix” the situation by installing additional layers of limitations, reporting, and auditing. The result isn’t an improvement in Throughput or efficiency: it’s an increase in Communication Overhead, waste, and unproductive bureaucracy. The best way to correct for Intervention Bias is to examine what scientists call a “null hypothesis”: examining what would happen if you did nothing or assumed the situation was an accident or error.
Elegance is necessarily unnatural, only achievable at great expense. If you just do something, it won’t be elegant, but if you do it and then see what might be more elegant, and do it again, you might, after an unknown number of iterations, get something that is very elegant. —ERIK NAGGUM, COMPUTER PROGRAMMER
Refactoring is the process of changing a system to improve efficiency without changing the output of the system. The term comes from computer programming—programmers will spend hours rewriting a program that, if all goes well, does exactly the same thing when they’re finished. What’s the point? The primary benefit of Refactoring isn’t improving the output—it’s making the system itself faster or more efficient. By rearranging the processes the system uses to produce the result, it’s possible to make the program run faster or require fewer resources while operating.
Refactoring starts by Deconstructing a process or system, then looking for Patterns. What are the critical processes that absolutely must be done right in order to achieve the desired objective? Do those processes have to be completed in a certain order? What are the current Constraints? What appears to be particularly important? Collect as much information about how the system works as you can, then sit with it for a while.
In any complex System, a minority of the inputs produce the majority of the output. This Pattern of persistent nonlinearity is now called the Pareto principle, or the 80-20 rule. Personally, I prefer to refer to it as the Critical Few.
Noncritical inputs are significant Opportunity Costs. If you’re spending most of your time in unproductive meetings, for example, you’re wasting time that could be used to actually get important things done. The same goes for noncritical expenses: they represent money that you could be using to far greater effect. Find the inputs that produce the outputs you want, then make them the focus of most of your time and energy. Ruthlessly weed out the rest.
It’s always better to spend a little time and energy to get the big wins than to do nothing. In I Will Teach You to Be Rich, Ramit Sethi recommends applying what he calls the “85% Solution.” So many people get wrapped up in making the perfect decision that they wind up overwhelming themselves and doing nothing. Focus on doing a few simple things that will produce most of the results you’re looking for, then call it a day.
Don’t feel like you have to Optimize absolutely everything to perfection. Optimization and Refactoring are affected by the Critical Few as well—a few small changes can produce enormous results. After you’ve picked the “low-hanging fruit,” further Optimization can cost more in effort than you’ll reap in returns. That’s a good point to stop. Perfectionism is a trap for the unwary.
Here’s the Paradox of Automation: the more efficient the Automated system, the more crucial the contribution of the human operators of that system. When an error happens, operators need to identify and fix the situation quickly or shut the system down—otherwise, the Automated system will continue to Multiply the error.
A Standard Operating Procedure (SOP) is a predefined process used to complete a task or resolve a common issue. Business Systems often include repetitive tasks, and having a standard process in place can help you spend less time reinventing the wheel and more time doing productive work. Well-defined Standard Operating Procedures are useful because they reduce Friction and minimize Willpower Depletion. Instead of wasting valuable time and energy solving a problem that has already been solved many times before, a predefined SOP ensures that you spend less time thrashing and more time adding value.
A Checklist is an Externalized, predefined Standard Operating Procedure for completing a specific task. Creating a Checklist is enormously valuable for two reasons. First, Checklisting will help you define a System for a process that hasn’t yet been formalized—once the Checklist has been created, it’s easier to see how to improve or Automate the system. Second, using Checklists as a normal part of working can help ensure that you don’t forget to handle important steps that are easily overlooked when things get busy.
Checklisting can produce major improvements in your ability to do quality work, as well as your ability to delegate work effectively. By taking the time to explicitly describe and track your progress, you reduce the likelihood of major errors and oversights, as well as prevent Willpower Depletion associated with figuring out how to complete the same task over and over again. In addition, once your Checklist is complete you can use it as the basis for full or partial Automation of the system, which will allow you to spend time doing more important things. For best results, create explicit Checklists for the Five Parts of Your Business, then make sure they’re followed every single time.
Cessation is the choice to intentionally stop doing something that’s counterproductive. Due to Absence Blindness, we’re predisposed to attempt to improve a system by doing something—it “feels wrong” to do nothing. That doesn’t mean that doing nothing is a bad strategy: it’s often more effective.
Resilience is a massively underrated quality in business. Having the toughness and flexibility to handle anything life throws at you is a major asset that can save your skin—literally and metaphorically. Your ability to adjust your strategy and tactics as conditions Change can be the difference between survival and disaster. Resilience is never “optimal” if you evaluate a System solely on Throughput. Flexibility always comes at a price. A turtle’s shell is heavy—it could certainly move faster without it. Giving it up, however, would leave the turtle vulnerable in the moments when moving a little faster just isn’t fast enough. In an effort to chase a few more short-term dollars, many businesses trade Resilience for short-term results—and pay a hefty price.
Preparing for the unexpected makes you more Resilient. On a personal level, investing in a home emergency/first aid kit, car kit, and extra resources like food and water isn’t paranoid—supplies like these are cheap insurance for the intelligent. The same goes for purchasing insurance and building up reserves for unexpected events. You may never need them, but you’ll be glad they’re there if you do.
HERE’S WHAT MAKES A BUSINESS RESILIENT: —Low (preferably zero) outstanding debt —Low overhead, fixed costs, and operating expenses —Substantial cash reserves for unexpected contingencies —Multiple independent products/industries/lines of business —Flexible workers/employees who can handle many responsibilities well —No single points of failure —Fail-safes/backup systems for all core processes
Scenario Planning is the essence of effective strategy. Trying to base your actions on predictions of interest rates, oil prices, or stock values is a fool’s game. Instead of trying to predict the future with 100 percent accuracy, Scenario Planning can help you prepare for many different possible futures. Instead of rigidly focusing on only one option, your business will become more flexible and Resilient, improving your ability to Change and adapt to a changing world.
Most large businesses use Scenario Planning as the basis of a practice called “hedging”: purchasing various forms of Insurance to reduce the Risk of unfavorable future events. For example, manufacturers care about oil prices because they increase the cost of importing raw materials and shipping finished products to their customers, both of which can suddenly and dramatically decrease their Profit Margins. By purchasing financial instruments called “futures,” the businesses can make money if the price of oil goes up, which helps to offset the losses they would incur if oil prices increase. Scenario Planning is easy to skip, particularly if you already have a lot of work to do. The time you spend in Scenario Planning can be some of the most valuable time you spend building your business, but it’s easy to overlook if you’re constantly struggling to simply keep your head above water. Regularly setting nonnegotiable time to step back and plan for the future is always time well spent—don’t skip it. Don’t waste time trying to predict an unknowable future—construct the most likely scenarios and plan what you’ll do if they occur, and you’ll be prepared for whatever actually happens.
A truly good book teaches me better than to read it. I must soon lay it down, and commence living on its hint. What I began by reading, I must finish by acting. —HENRY DAVID THOREAU
10 Days to Faster Reading by Abby Marks-Beale and the Princeton Language Institute
Re-Create Your Life by Morty Lefkoe Self-Directed Behavior by David L. Watson and Roland G. Tharp
The Essential Drucker by Peter F. Drucker
Results Without Authority by Tom Kendrick
Thinking in Systems by Donella H. Meadows
Will Teach You to Be Rich by Ramit Sethi
The Art of Exceptional Living by Jim Rohn
DO I USE MY BODY OPTIMALLY? What is the quality of my current diet? Do I get enough sleep? Am I managing my energy well each day? How well am I managing daily stress? Do I have good posture and poise? What can I do to improve my ability to observe the world around me? DO I KNOW WHAT I WANT? What achievements would make me really excited? What “states of being” do I want to experience each day? Are my priorities and values clearly defined? Am I capable of making decisions quickly and confidently? Do I consistently focus my attention on what I want versus what I don’t want? WHAT AM I AFRAID OF? Have I created an honest and complete list of the fears I’m holding on to? Have I confronted each fear to imagine how I would handle it if it came to pass? Am I capable of recognizing and correcting self-limitation? Am I appropriately pushing my own limits? IS MY MIND CLEAR AND FOCUSED? Do I systematically externalize (write or record) what I’m thinking about? Am I making it easy to capture my thoughts quickly, while as I have them? What has my attention right now? Am I regularly asking myself appropriate guiding questions? Do I spend most of my time focusing on a single task, or am I constantly flipping between multiple tasks? Do I spend enough time actively reflecting on my goals, projects, and progress? AM I CONFIDENT, RELAXED, AND PRODUCTIVE? Have I found a planning method that works for me? Am I “just organized enough”? Do I have an up-to-date list of my projects and active tasks? Do I review all of my commitments on a regular basis? Do I take regular, genuine breaks from my work? Am I consciously creating positive habits? Am I working to shed nonproductive habits? Am I comfortable with telling other people “no”? HOW DO I PERFORM BEST? What do I particularly enjoy? What am I particularly good at doing? What environment(s) do I find most conducive to doing good work? How do I tend to learn most effectively? How do I prefer to work with and communicate with others? What is currently holding me back? WHAT DO I REALLY NEED TO BE HAPPY AND FULFILLED? How am I currently defining “success”? Is there another way of defining “success” that I may find more fulfilling? How often do I compare myself with my perceptions of other people? Am I currently living below my means? If I could only own one hundred things, what would they be? Am I capable of separating necessity and luxury? What do I feel grateful for in my life and work? Pick up a notebook, set aside an hour, and spend time with yourself answering these questions. Make it fun: treat yourself to a nice lunch or dinner at a restaurant you like, and write as you eat. By the time the check arrives, you’ll have more than a few new ideas about how to change your life or business for the better.