The vast majority of modern business practice requires little more than common sense, simple arithmetic, and knowledge of a few very important ideas and principles.
Munger’s Mental Models I think it’s undeniably true that the human brain works in models. The trick is to have your brain work better than the other person’s brain because it understands the most fundamental models—the ones that do the most work.
It’s kind of fun to sit here and outthink people who are way smarter than you are because you’ve trained yourself to be more objective and more multidisciplinary. Furthermore, there is a lot of money in it, as I can testify from my own personal experience.
The best strategy is always to be very strong. —CARL VON CLAUSEWITZ, MILITARY STRATEGIST
Having 100 percent ownership and control of a profitable, self-sustaining business is a beautiful thing.
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.
The Cognitive Switching Penalty is a Friction cost (discussed later): the less you switch, the lower the cost. That’s why Monoidealism is so efficient—by focusing your Attention on only one thing at a time, you’re allowing your brain to load the context into working memory once, which means you can focus your energy on actually accomplishing the task at hand. To avoid unproductive context switching, a batching strategy is best. Eliminating distractions can help prevent unnecessary interruptions, but it’s entirely possible to waste energy mentally thrashing even if you have the entire day free. The best approach to avoid unnecessary cognitive switching is to group similar tasks together.
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.
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.
Take some time to consciously Prime your brain to notice what’s important to you, and you’ll inevitably find it.
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.
Capturing your ideas on paper makes them easier to share with others, in addition to archiving your thoughts for later reference and review. As the saying goes, “The palest ink is clearer than the fondest memory.” Notebooks and journals, regularly used, are worth their weight in gold.
Speaking—to yourself or to another person—is another effective method of Externalization. Vocal Externalization explains why most of us have had the experience of solving our own problems while talking with a friend or colleague. By the time you’re done talking, you’re likely to have more insight into your problem—even if your listener didn’t say a word.
The key to vocal Externalization is to find an audience who is willing to listen patiently and avoid interrupting you as you talk through an issue. Even talking to yourself or an inanimate object can help: explaining your problem to a rubber duck, teddy bear, action figure, or other anthropomorphic object sitting on your desk can work if you can get over the initial awkwardness. More often than not, “rubberducking” the problem makes it easier to solve.
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.
By the time I was finished simulating, I had discovered it was possible for me to leave my job at P&G immediately, instead of “in a year or two.” When I returned to work the following Monday, I resigned. My last day of corporate work was four days before my twenty-eighth birthday.
In 1955, Cyril Northcote Parkinson wrote a humorous essay in the Economist based on his experience in the British civil service. In that essay, Parkinson proposed what became his eponymous law: “Work expands so as to fill the time available for its completion.”
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. Ingvar’s Rule is a counterfactual—what would you do if you only had ten minutes to get something done? Act accordingly.
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. Imagine juggling bowling pins. If you’re skilled, you may be able to juggle three or four without making a mistake. The more pins that must be juggled at once, the more likely you are to make a mistake and drop them all. 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.
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.
Here’s the problem with “time management”: time is not what needs to be managed. No matter what you choose to do, time will inevitably pass. The implicit assumption of time management systems is that every hour is fungible—equivalent to any other. Nothing could be further from the truth: all people are created equal, but all hours are most definitely not. Throughout the day, your energy level naturally cycles up and down. Your body has natural rhythms during the day, which I call Energy Cycles. Most people are familiar with the twenty-four-hour circadian rhythm, which wakes you up in the morning and makes you feel tired at night. Lesser known is the ninety-minute ultradian rhythm, which is described in The Power of Full Engagement by Jim Loehr and Tony Schwartz.
Even though it wasn’t pleasant, I’m glad I found my breaking point. Here’s why: now I know how much I’m capable of doing, and how much is too much. I know more about how my mind and body react to stress, and I’m better able to identify the warning signs of taking on too much before things get out of hand.
You are not a machine—the ideal of human productivity is not acting like a robot. Humans need rest, relaxation, sleep, and play in order to function effectively. Too little of any of these things can seriously diminish your capacity to do good work and impact how much you enjoy your life.
If Churchill could find time to paint in the middle of a world war, you can find time in your busy schedule to rest and recover doing something you enjoy. Dedicating guilt-free time to rest and recovery can simultaneously make your life more enjoyable and more productive.
It’s easy to like the idea of being the CEO of a Fortune 500 company. It’s harder to like the hours, the responsibility, and the pressure that comes with the top job. It’s easy to like the idea of being a manager. It’s harder to like the demands from C-level execs, surprises from your direct reports, and the necessity of defending your turf in a political environment. It’s easy to like the idea of having an Ivy League MBA or law degree. It’s harder to like the six-figure debt and the corresponding necessity of getting a stressful 60-plus-hour-a-week job to make the investment “worth it.” It’s easy to like the idea of being self-employed. It’s harder to like the fact that 100 percent of your income comes from your own effort, and that if you screw up, you’re the one who will face the consequences. It’s easy to like the idea of raising millions of dollars of venture capital. It’s harder to like the fact that you’ve given up control over the project you’re investing your life in. It’s easy to like the idea of being an author. It’s harder to like the solitude, self-doubt, and long hours of “butt in chair, hands on keyboard” that consistent writing requires. It’s easy to like the idea of being a celebrity. It’s harder to like the inevitable scrutiny, loss of privacy, and constant fear that people will direct their attention away from you in favor of the “next big thing.”
Here’s what to ask: “I really respect what you’re doing, but I imagine it has high points and low points. Could you share them with me? Knowing what you know now, is it worth the effort?” This conversation will only take a few minutes, but you’ll be amazed by what you learn, on both the positive and the negative side. No job, project, or position is flawless—every course of action has Tradeoffs. Learning what they are in advance gives you a major advantage: you can examine an option without idealizing it, then choose if it’s really what you want to do before you start. That kind of knowledge is priceless.
It’s easy to see the benefits of my friend’s life, and just as easy to overlook the Trade-offs. That’s the trick: he is successful in certain areas because he works very hard, and he’s willing to pay the price of his success. If I could swap lives with my friend, I wouldn’t: I’d be miserable. His life doesn’t mesh with my priorities or how I prefer to live and work. The benefits he enjoys appeal to me, but I’m not willing to pay the price he’s paid for achieving them. Remembering the Comparison Fallacy allows me to wish him well and stay focused on achieving the Goals that are most important to me. I can be genuinely happy for his success and not waste my energy on pointless envy.
One of the best things I’ve ever done was choose to stop paying Attention to the news—99.9 percent of the information you’ll find in a newspaper or television newscast is completely outside of your Locus of Control. Instead of fruitlessly worrying about “what the world is coming to,” ignoring the news helps me spend more of my time doing what I can to actually make things better. The better you’re able to separate what you can control from what you can’t, the happier and more productive you’ll be. 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.
If a man empties his purse into his head, no one can take it from him. An investment in knowledge always pays the highest return. —BENJAMIN FRANKLIN
Management is doing things right; leadership is doing the right things.
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. 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. 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. 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. 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. 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.
Now, $1 invested in television advertising is lucky to return $1.20— there are more channels, advertising is more expensive, and people have the technology to filter out unwanted distractions. The loop still works in some circumstances, but it doesn’t work as well as it used to. Autocatalysis doesn’t always have to be money: “network effects” and “viral loops” are also examples of Autocatalysis. Every time someone signs up for Facebook, they’ll naturally invite even more users to the network. Every time someone sees a funny video on YouTube, they’ll pass it along to several friends. That’s Autocatalysis. If your business includes some Autocatalyzing element, it’ll grow more quickly than you expect.
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.
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. The best way to avoid Normal Accidents is to analyze breakdowns or “close calls” when they happen. Instead of going into the systems equivalent of Threat Lockdown, which can create even bigger issues in the long term, looking at near misses can provide crucial insight into hidden Interdependencies. By analyzing the issue, it’s possible to construct contingency plans in the event a similar situation happens in the future.
If you can’t understand it, you can’t change it. —ERIC EVANS, TECHNOLOGIST
Deconstruction is the reverse-engineering aspect of Gall’s Law. Remember: complex systems that work inevitably evolved from simpler systems that also worked. If you can identify simpler subsystems and focus on understanding how they work and how they fit together, you can eventually understand how the entire system works.
In God we trust … all others bring data. —W. EDWARDS DEMING, PRODUCTION MANAGEMENT EXPERT AND PIONEER OF STATISTICAL PROCESS CONTROL
Measurement helps us avoid Absence Blindness when analyzing a system. Remember: we have a hard time seeing things that aren’t present. Measuring different parts of a system in operation helps to identify potential issues before they arise.
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.
The same thing goes for other in-process Measurements. For example, if you’re managing a team of programmers, it’s tempting to measure their output in “lines of code”—a visible, easy-to-collect measure. Here’s the problem: more code is not necessarily better. A talented programmer can make a program better by rewriting it using fewer lines of code. If you fixate on quantity, removing ten thousand lines looks like a setback, even if it’s actually a huge improvement.
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.
Analytical Honesty means measuring and analyzing the data you have dispassionately. Since humans are social creatures, we tend to care deeply about how others perceive us, which gives us a natural incentive to make things look better than they actually are. If your purpose is to actually make things better, this tendency can get in the way of collecting accurate data and conducting useful analysis.
He who refuses to do arithmetic is doomed to talk nonsense. —JOHN MCCARTHY, COMPUTER AND COGNITIVE SCIENTIST WHO COINED THE TERM “ARTIFICIAL INTELLIGENCE”
Analytics nirvana rule: never report a metric (even God’s favorite KPI) without segmenting it … There is no KPI so insightful all by itself, even in a trend or against a forecast, that can’t be made more impactful by applying segmentation.
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
Friction is any force or process that removes energy from a System over time. In the presence of Friction, it’s necessary to continue to add energy to a system to keep it moving at the same rate over time. Unless additional energy is added, Friction will slow the system down until it comes to a stop. Remove the Friction, and you’ll increase the system’s efficiency.
Introducing Friction intentionally can sometimes encourage people to behave in a certain way or make a particular decision. For example, adding a small amount of Friction to your returns process, like requiring the customer to provide a receipt or explain the reason for the return, can decrease the number of people who return your product.
Cessation takes guts. It’s often unpopular or unpalatable to do nothing, even if doing nothing is actually the right solution. As an example, “pricing bubbles” are often caused by government intervention in certain markets, which has the Second-Order Effect of artificially decreasing the costs of certain actions, leading to rampant speculation. When reality sets in and the bubble “pops,” as it did with dot-com companies in 2000 and the housing market in 2008, it’s politically unpopular for the government to do nothing, even though doing something is what caused the situation in the first place. More often than not, the government acts, which causes another, bigger bubble a few years later.
How to Read a Financial Report by John A. Tracy
Work the System by Sam Carpenter
Universal Principles of Design by William Lidwell, Kritina Holden, and Jill Butler