Category Archives: Business

My learnings from management consulting, working in one of Canada’s top media startups and my entrepreneurial fun times ;)

On the Benefits of Anonymity

What if instead of voting for a specific person, you voted for a box of initiatives, policies and beliefs written on a cue-card with no personal attachment. Isn’t that the basis of what we’re supposed to be doing in Democracy? We’re supposed to elect that certain policies, with which we agree, are enacted. And if a majority of the population agrees, than those are enacted, etc.?

Behavioural economics, neuroscience and psychology are all realms from which studies and proofs have emerged in recent years to show us that human choice-making skills are fraught with disadvantages and bugs. If a man is taller for example, all else being equal, he WILL make more money. I have to laugh, it’s almost ludicrous, but it does make sense given the wiring we evolved to have in our heads. We can’t take into account every piece of data coming into our senses from the forest, we needed short cuts in our brains to very quickly understand that there was a lion in front of us that was about to sink his teeth into us.
I think, though it’s all very unnatural, there are severe benefits to anonymity. And especially so in business and the way in which technology can allow people to interact.
When something is anonymized, all the interpersonal biases are removed. It forces the decision maker to focus on the relevant facts, not whether the proponent of the ideas or choices has the same clothes, walks with the same gait or comes from a similar background.

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The tendency to seek explanation

Tolstoy understands perfectly the tendency for humans to seek explanation where none in particular actually exists.
“History is the fiction we invent to persuade ourselves that events are knoweable and that life has order and direction” – Bill Watterson, creator of Calvin and Hobbes
From Tolstoy’s ‘War and Peace’:
“In historical writings about the year 1812, French authors like very much to speak of how Napoleon sensed the danger of extending his line, how he sought a battle, how his marshals advised him to stop at Smolensk, and to bring forth other similar arguments to prove that even then the danger of the campaign was supposedly understood; and Russian like still more to speak of how from the beginning of the campaign there existed a Scythian war plan of luring Napoleon into the depths of Russia, and one ascribes this plan to Pfuel, another to some Frenchman, another to Toll, another to emperor Alexander himself, pointing to reports, projects and letters that indeed contain hints at such a way of action. But all these hints at foreseeing of what happened, both on the part of the French and on the part of the Russians, are now put forward only because events justified them. If the events had not occurred, those hints would have been forgotten, as thousands and millions of contrary hints and suppositions that were current then, but turned out to be incorrect, are now forgotten. There are always so many suppositions about the outcome of every event which takes place that, however it ends, people will always be found to say, “I said back then that it would be like this,” quite forgetting that among the numberless suppositions, there were some that were completely contrary. The suppositions about Napoleon’s awareness of the danger of extending his line and, on the Russian side, about luring the enemy into the depths of Russia, obviously belong to this category.”  (italics are mine)
It’s incredible that 140 years ago, a man could so aptly describe this natural tendency (the survivorship bias http://en.wikipedia.org/wiki/Survivorship_bias being part) that has now been documented so well. Though it has a disheartening side. It is apparent that it is very hard to learn the lessons provided by this; that chaos can and does rule so much of human life and that explanations of complex environments are often proximate or simply wrong. It certainly happens in business all the time especially when critics spew every supposition that comes to mind when presented with a new business and whether or not it will fail.
The following article is a well rounded account of this pattern seeking nature by a very reputable source: http://www.scientificamerican.com/article.cfm?id=patternicity-finding-meaningful-patterns
Ours is a race of patterns seekers and when presented with random data points, will usually think something is there.

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Complex environments defined

Complex environments have three defining attributes:
1. Not all variables pertaining to the outcome are known
2. Of the known variables, their weights in reference to their impact on the outcome are either unknown, or debatably varied
3. Of all variables involved, there are many, and it is arguable that many could have a large degree of impact on the outcome

The point is that the situation’s outcome is extremely difficult to predict no matter how much rhetoric can be provided for certain outcomes and their merits.

These environments exist in the vast majority of business and life decisions. It is one’s tendency to believe in his or her fabricated ability to predict in these situations that leads to ruin. But said prediction is also a natural human tendency. Our predictions in life and the plans we attempt are the security blankets used to create the illusion that the future is knowable and that life has a smaller degree of randomness than we’re comfortable admitting.

In complex environments, there are ways to overcome and dominate. Mostly they follow a testing strategy of many possible solutions. These possible solutions don’t all have to make immediate sense, but their results need to be documented and attributable to a set of parameters.

This is applicable to business in pursuit of profits and life in pursuit of happiness.

More to come on this one.

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Random theory, finance and their entrepreneurial implications

If you’ve ever read any books on random theory by itself or with respect to finance as Nassim Taleb so eloquently writes, skip the next paragraph.

The basic premise is that humans are amazing at picking out patterns in data sets. We are animals that gain via pattern recognition but we very often err on the side of thinking we’re identifying a pattern when it’s really just random. The financial side of this is often explained by a wonderful example of monkeys throwing darts at dart boards. If you take all the traders in NYC who have just had an awesome year, their previous year’s amazing results will not predict their next years earnings in any statistically significant fashion. It’s like you took a thousand monkeys and made them throw darts at a dart board; many of them, simply by random chance, will score MUCH better than others and even after a few years there might be a few monkeys who have, by random chance, scored well in all the years running. Welcome to the financial industry. With everyone taking all the available information so well into account, the returns have been whittled down to monkeys throwing darts.

If markets are liquid and all information is taken into account in the price of assets as traditional financial theory maintains, than the only way to consistently make money is by having an unfair informational advantage. Otherwise you’re just a monkey playing the roulette wheel. Well the same goes for entrepreneurial ventures. A business idea and its inherent risk shares many of the same characteristics as assets priced in the market place. You CAN’T know which will prevail and which won’t. If that information were obvious, someone would have capitalized on the asset or idea already (this is done by buying the asset until the price increases to more adequately reflects it’s true value or by starting the business if it’s an idea).

So what do you do about this as an entrepreneur. Well it means you need to have the most swings at the ball as possible. Though you do need to ACT like you believe your idea is 100% the next big thing to get buy-in and inspire your followers, you need to set up your finances and life in a very different manner. You need to set up your life so you can have the most chances to knock one out of the park. Not because you’re stupid and have bad ideas, but because if an idea was obviously perfectly good, someone would have tried it already. You can’t know a-priori if your idea will win. It’s inherently risky.

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The linchpin of success is moment by moment resolve

Knowledge seems to be so readily available in this day and age. It’s certainly not the ingredient that’s lacking with respect to change or happiness. <— That + This —> My mom once told me in High School that when I look around the classroom, the best way to figure out who will be a success at the 10 year reunion is just to look at who works hardest.

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The linchpin in accomplishing anything is the day to day resolve to do so. It is the little decisions on a moment by moment basis to forge ahead in the direction of your goals. This is what matters most in success. Trying to meditate? Be a better person? Get healthy? Get somewhere with your startup idea? It’s the daily resolve to keep going that counts so much more than anything else.

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Decision points… No, not Dick’s book

Experiences are less important than remembered experiences around the time of decision.

In the middle of yoga class, I die. Sweats pours off me in unbroken streams and I force myself to keep going and going. Some teachers make the class work harder than others. But in the middle of class is NOT when I’m deciding whether I will go again. The point at which someone decides whether they will do yoga again is two or three days later.

This is incredibly important for two reasons. The first is that after two or three days, you don’t remember how hard the class was. You do remember the beneficial results that have occurred in your body since the class. Second, yoga has this fun thing at the end of class where you just lie on your back like a dead dude and do nothing at all for 5 minutes or so. So if you remember the colonoscopy experience research done by Dan Ariely, you’ll know why this is important. If you haven’t, read the next paragraph.

Basically he gave guys getting a colonoscopy a mechanism that allowed them to report how crappy (pun… intended) it felt on a scale of 1-10. Now you’d think that as time passes, the area under the curve (well, more of a spiky line that peaked as the nurse did… well, whatever) would correspond to how negative the person’s experience was. But this is not the case. The people who ended up hating it the most were those that had high pain close to the end of the colonoscopy. Even someone who had similar pain spikes throughout, but had a longer colonoscopy with the ending being very mild actually reported more pleasantly on the experience a few days later. Think of listening to a song, then at the end, there a very high pitched scream that ‘ruins the song’ for you. Well, it didn’t ruin the 3 minutes of beautiful music you heard, it just ruins your memory of it.

It highlights the difference between the remembering self and the experiencing self. And it’s the remembering self that makes the decisions in life; like whether to do another yoga class or whether to get another colonoscopy. This has great implications for business people designing experiences. And even for feeding you kids. They don’t like vegetables? Feed them the veggies at the start of the meal, then the good stuff at the end, maybe even with an awesome dessert too. Muahaha – science gets ya!

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An entrepreneur’s life

My dad had a tough time. Worked the corporate world his entire life. Always wanted to start and own his own business. Saved the money, left corporate, bought a franchise, worked 16 hour days. All right before 2007 when the economy crashed.

We’ve learned a lot about random effects in business. Taleb’s groundbreaking work on revealing the randomness on Wall Street is directly applicable to starting businesses and entrepreneurship.

The concept is that if an idea is obviously a good one, than it will have been tried already. And if it’s not perfectly obvious that it’s a good idea, than it carries a certain degree of risk such that even the smartest people cannot know whether or not it will work. Even the smartest people on Wall Street are never perfect on whether a business will work out (stock will go up or down, in fact, they’re right only slightly more than half the time versus the index).

The degree of the idea’s risk is proportionate to the it’s likelihood of working. Even when gauged by, again, the smartest people. Remember the head of the computer company who said the world demand for computers could really only be a few?

The point is that in business. Even the smartest people can’t know. If they did, they’d be doing the idea already. And if you’re a behavioral economics buff, than you know there’s a million biases in our reptilian brains that make us think we knew what was going on, after an outcome occurs.

So what does that mean for entrepreneurs? The generation before us was so focused on the one big idea. They thought that if you were smart, you were going to find the one idea, and make millions. And if you weren’t smart, than tsk tsk, no good ideas for you. But the above knowledge makes us realize that if you’re going to go for something big, you have to be ready to fail. A lot. So an entrepreneur’s life needs to be a set-up of getting ‘at bats’. And getting as many ‘at bats’ as possible. This means minimal viable product, having your hands in many things, testing ideas and concepts as much as possible. Oh and yes you do have to be smart. Sergey Brin was incredibly intelligent. But that’s not why he’s a billionaire. He’s a billionaire because he is smart AND he was also born in the right era, schooled in the right place, at the right time, met the right people at the right time and was incredibly lucky.

Stop waiting for the perfect pitch. Get to the plate.

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