A Working Theory

When I look back on any activity that I’ve done, I always look for ways I could do it better. Usually the first question is: did I do a good job on that activity or do I need to completely rethink my approach?

The biggest clue I get is the outcome of the activity. For example, let’s say I tried to predict a company’s profit for a quarter. At the end of the quarter, I get to compare my prediction to what actually happened. Let’s say that my prediction for profit was correct. It would be tempting to just say that my system worked and requires no tinkering for predicting the next quarter’s profit.

However, let’s say that I broke down my prediction and it turns out that I overestimated revenue and overestimated costs. The net result was that my prediction was correct about profit. However, it was only correct because I made two mistakes that happened to cancel each other out.

The above example is trivial and easily quantifiable. However, offsetting mistakes are a constant threat. It makes it hard to trust all results that I observe. Let’s say that I am running late for an important meeting (mistake 1) and to make it worse, I don’t even tell the person that I am running late (mistake 2). That person happens to be even later to the meeting than me and never realizes that I was late. Since, they never knew I was running late, it’s almost like I made no mistakes. My two mistakes would have offset each other.

In software engineering, sometimes it is tempting to only test the input and final output for a piece of software. One of the big dangers is that offsetting mistakes can hide between input and the correct outputs. Instead it is better, though more tedious, to write unit tests that for each part of the software.

I try to approach my life  with the same lens. Just because something had a positive outcome, doesn’t mean my preceding actions were “correct”.  They could have been wrong in offsetting ways. I try to break my actions into small pieces and evaluate each in isolation, but that is far from a perfect strategy. Awareness of this issue definitely forces me to be more reflective, seek more advice and question whether I can do things better.

 

The common sense around reading is to only read one book at a time. Some people even insist that books must be read cover to cover. This could be called reading in serial. It is the general way that I read when I was younger. If I started another book before finishing one, teachers and parents would tell me that is a bad habit.

For the last year, I have been reading multiple books at a time. The benefits were not planned, but they have been large. They convinced me to switch how I read.

The biggest benefits I have gotten are:

I enjoy reading more. The key for me has been to pick a few books on very different topics. When I am looking for something to do with free time, it is very likely that I am willing to read at least of  one of those books. Thus I end up reading more. Reading more frequently makes it into a stable habit. There aren’t large lulls in between books since I am never finishing more than a fraction of my current books. The habit is to read in general, not to read a specific book.

An increased likelihood of stumbling onto a new insight. Ideas from books stay much less contained in their author’s narrowly defined context. They mix with each other and my day to day. It constantly surprises me how I find parallels across different topics. Most good ideas are just mixing together enough ideas and seeing which combinations are actually good. Reading multiple books at once is a lab for idea generation that fits into an app (I’ve gone mostly digital).

Reading is more applicable to my life. I find the ideas and their derivative insights seep into my work and my personal life.  One side effect of reading multiple books at once is that I progress through them all slower. The books have more time to bounce off of different life situations and often end up influencing them. Reading slower also helps me internalize ideas better.

I am still trying to decide what the right number of books is for me. It seems like 3-5. I typically like  a psychology book, a business book, well written fiction and 1 – 2 technical books.

Many people, especially those affected by the information age, fall into the framework of preferring a mediocre option with clear data instead of an unknown option. For instance, projects get funded by corporations when their champion can show reasonable market data and compelling ROI projections as compared to projects with uncertainty. In some ways, this is a part of the Innovator’s Dilemma first proposed by Clayton Christensen.

This emphasis on measurability is not a bad thing for decision-making. In fact, it probably leads to much better decisions, on average. The problem is that there are some things that are fundamentally immeasurable. The market size of a new market is not knowable. Knowing the growth rate of a company 5 years from now can be ballparked, but cannot be calculated.

As a society, we have become obsessed with measurability. In advertising people ask how many impressions did something get? When the real question is how much long-term value did we create? The first is measurable and therefore easily optimize-able. Unfortunately, long-term value has enough moving parts to be virtually immeasurable.

I think there is an opportunity in many industries to optimize for immeasurable criteria. Things like trust and long term value represent an opportunity. Of course, many decisions should be data driven. We just have to be careful to not ignore important questions for the sake of asking measurable questions.

I recently spoke with someone who does digital advertising and I told her I probably have not clicked on a banner ad (intentionally) since I was 12. She admitted the same. I consider TV commercials a suggestion to talk with friends, check Twitter or find a snack. Honestly, I find most ads to be un-trustworthy, disruptive and annoying.

The idea of curation, trust and hand selection almost never apply to ad sellers. Instead, auctions rule. I think ads would be much better if the ad seller would thoughtfully picked an ad and then stands by their decision. And instead of blasting consumers with 15 things and hoping something sticks, carefully select just a few. The UX would maintain its aesthetics and the ads would become more effective.

The best example is Jason Calacanis on his This Week in Startups show. He carefully picks products that he uses and loves. In addition, he personally vouches for the product and there are only a few per episode. I have actually written down companies he has suggested that I do not need today, but might in the future. I trust his recommendations that much. Compare that level of trust and interest to another ad that measures impressions and converts less than 1% of viewers.

Of course, this type of ads work for mediums that have niche followings and a trusted voice. I am not suggesting that Twitter or Google could or should do this. However, any form of media that has a relatively homogenous following can and should do this. I think it will be better for advertisers, consumers and media owners.

The counter argument against this is that it might not be economical. Perhaps selling viewers attention to the highest bidders is simply more profitable than curating a few helpful suggestions. In all fairness, I have no idea what the economics look like for many of these businesses. Perhaps, Jason can help share numbers to back this up. My guess is that this is only profitable if you look at viewer churn on a long enough time horizon. It also may take a few reduced price curated ad sells to convince the buyers using case studies that curation and trust really is worth more.

What makes one startup more successful than another? A large part of the answer is team and timing. However, startups should also have a unique insight on the world. This insight is a psychological one or an engineering one. Psychological insights are things Facebook, which exploits voyeuristic nature of social interaction. (on a higher level, FB exploits mimetic desire, which is the theory of Rene Girard and the reason Peter Thiel was the first investor in FB.)

Of course, some desires are obvious. For example, people would love to be able to buy things cheaper and get them faster. How that happens is not obvious. In fact, it can be a massively capital and engineering talent intensive proposition (Amazon). For instance, a product like Google is obviously helpful. Realizing that consumers want relevant information (search) as fast as possible for free to the end user is not much of an insight. Figuring out how to do it, is quite the insight.

Some startups have a great psychology insight and a technically trivial solution. Other startups come up with a technology insight and a psychologically trivial solution. Of course, some startups mix and match both. What is your insight? Is it a new way to engineer an algorithm or uncovering an unserved human desire or both?

A few psychological insights: Tinder, Twitter, Uber and AirBnB.

A few engineering insights: Bitcoin, Heroku and Akami.

 

One of the best reasons to quit your job or drop out of school to work on your startup is that there is no longer an easy retreat. Cortez, according to legend, burned his ships while invading Mexico so that his men would fight to the death knowing that there was no way to retreat from the attack.

Of course, startups are likely to fail and removing the stigma of failure is important for a country’s entrepreneurial sprit. However, there are many people who will never succeed because as soon as things get tough, they will go back on their boat and leave lands unconquered.

It is important to do some analysis and see if your startup is an opportunity that you’re passionate about and to sanity check that it is achievable. However, nobody will bring you series A money or large customers. At some point, you just have torch your ship and say you will get them because you have no choice.

If you are having trouble getting something done, email someone saying that task is done and you will send it to her/him in a few hours. Personally, I like to pre-program emails to go out in the morning saying I have finished something. Hello, insanely productive all-nighter.

I left school to build and sell a product for a semester. I recently changed my computer background to the flaming ship pictured to remind myself. My business is not scalable with a large enough total addressable market (TAM) to become a multi-year pursuit. However, I can build it all by myself, without outside money or contracting any engineers. It should allow me to pay off some of my student loans before I move on to my next pursuit.

Using Coursera and several other MOOC’s I am still taking technology focused classes, so leaving school was not so that I would have more free time. (In fact, I think that not having enough free time as a student is a cop out for not building a proof of concept.) However, I needed to leave school so I have no easy retreat. It might take me a while to get through this jungle, but I will try my damn hardest to leave it with less debt; I have no choice.

P.S. Sorry for a business post that uses a war metaphor. I know that many people, myself included, are Sun Tzu-ed out.

At the end of every day, I try to make a list of the things I accomplished. It helps me monitor myself and to make sure that I am producing value instead of finding activities that make me feel “busy”. On days when I felt like I was productive, but realized I accomplished very little, there was one consistent time stealing culprit: media consumption.

I used to read lots of articles. Unfortunately, they make you feel “informed”. They can give you intelligent points to make in conversation. I want to share a quote to make an ironic point and because Oscar Wilde is more articulate than me: “Most people are other people. Their thoughts are someone else’s opinions, their lives a mimicry, their passions a quotation.”

When I just read other people’s opinions, I end up feeling smarter or more informed, but I do not actually think critically. To address this problem, I am working on removing most passive media consumption from my diet.

The first type of media that I cut out is 95% of breaking news. I do not actually need to know what is happening in most fields just because it happened this morning. Prioritizing topics by “newness” instead of relevance or quality does not lead to an increase in my understanding of the world. It just makes me seem informed. Unfortunately, I am only as “informed” as the last time I read the news and thus a news addiction to sustain an image of “informed” is born. Of course, some news is important enough that it deserves attention when it comes out, however that is a small subset.

I am also trying to reduce echo chamber media. Whenever I read about a topic, I try to look for the most well reasoned counter argument. People spend too much time trying to be proven right and not enough time looking for an objective truth. Perhaps, objective truth is a luxury that I can chase because I have not built a life on certain opinions, which is largely because of my age. I hope it’s not a luxury I outgrow.

Some media invites discussion, critical thinking or addresses a topic worth exploring. My favorite thing to do is to find one or two interesting topics and read a lot about them and to make sure I understand conflicting viewpoints. Ideally, I will spend some time developing a mental or written opinion on the topic. The internet has enabled instantaneous focused research with the ability to engage in real time discussions. Unfortunately, it has also enabled mindless media consumption that appears to be informative when it is just entertainment or worse, part of a read-breaking-news-to-seem-smart addiction.

I am doing my best to cut out passive consumption and to force myself to just think critically about a few topics.

Simple first mover advantage is quickly becoming obsolete, especially in the tech world. Being the first company to push a product out is not significantly more advantageous than being the first person to have an idea (which is not considered an advantage). However, I have observed that the first mover to satisfy a customer will have an advantage.

I see so many companies that came first (first movers) and still lost: MySpace (Facebook), Yahoo Search (Google), 50+ cloud storage companies (Dropbox) and god only knows how many ecommerce companies (Amazon).

On the other hand, Uber was the first digital hailing company I used and I immediately loved it, as did many people. Uber Taxi worked so well that I did not find any need to try other services such as Hailo, even though I heard good things about them. Once Uber satisfied me, I did not want to switch to a new platform. There are many apps that I download, try and find them to be “meh”. As soon as a competitor comes out, I try it. Having been the “first mover” does not affect my behavior. However, “first to satisfy” me does affect my behavior. This might seem obvious, but I still hear a lot of people talking about first mover advantage.

First to satisfy customer advantage varies in strength across industries and companies. The strength is related to switching costs. These costs include: time discovering a new service, time spent learning a new system, risk of failure, lack of a social graph, signup friction and any monetary fees. In order for someone to switch, their perceived marginal gain in value has to rise above the switching costs or else they will not try it. The goal should be to make a product that satisfies customers enough that they could not imagine a new product would be capable of giving enough marginal gain to offset the switching costs.

Many people and textbooks I have read focus on the importance of high switching costs as a barrier to entry and the need for an economic moat. However, if a customer expects the product or service they are using to be able to deliver significantly more marginal value than it currently does, they will be willing to bear fairly high costs. The goal is to get the perceived marginal value from switching to be below the costs associated with switching.*

Simply getting a customer’s attention first is not an advantage, unless you satisfy them – then it is a big advantage.

*Of course, I am not talking about early adopters who try things for the sake of trying new things. My observations are about regular customers who make decisions based on perceived value and costs.

Last year, I had a networking call where I spoke with a senior professional in the industry I was targeting at the time (investment banking). Let’s call him Tim. Tim was asking me standard questions like “Why banking?”. While delivering a genuine answer, he stopped me and told me that everyone says what I had just said. 

Flashback a week: I was sitting in my room thinking about why I wanted to be a banker. My answer was genuine, well thought through, based on self reflection and, apparently, completely forgettable.

You may only give your answer one time to an interviewer. However, they hear answers from 20+ people consecutively. Coming out of college and applying to work in the same industry, these people tend to think similarly. Answers that are thought through by similar people, using a similar process also sound the same.

Tim was a really nice guy and we went over about a dozen questions and he told me what everyone says. We called these the “benchmark answers”. I went back over all of my answers and made sure they sounded good relative to the benchmark of everyone else.

Plenty of companies make the mistake I did. They build a product that seems like a problem to a solution. Of course, they forget that their customers probably have a dozen potential solutions from other companies. To win the business, they need to beat the benchmark and not just solve the problem.

Most people are absolutists or have a natural tendency towards it. Before we have a career, our family and friends reinforce well thought out, but absolutist rationales. Our friends and family are exposed to fewer people similar to us (i.e. she’s my startup friend or my son is into finance) and so thinking absolutely works on them.

Our friends and family only hear what we say and there is no benchmark of 50 other people similar to us. This is why all of our friends and family tell us an idea is great, but we should not listen until you discuss it with someone who is used to hearing such ideas and can compare it. Thinking absolutely is easy and it gets reinforced by friends and family. Then we you try to get a job, sell a product or start a company and you enter a large relative pool and absolutism fails miserably.

I am trying to not be an absolutist in a relative world.

As a college senior (sort of, see below), I find myself at a crossroads of career and self identity. I am fortunate to have a few different career options in different fields open to me. Some of the options are corporate and some are startup flavored. Some pay a lot and some pay a little.

My friends and family who knew me before this moment will view me separately from my decision. People who I meet afterwards, will judge me based largely on my decision. It will define me for at least a few years to some people.

Before I make my decision, I want to define myself by some other criteria. I have decided to measure my life by:

(1) a willingness to take calculated risks (see my quote to live by)

(2) choosing the industry and company I want to work in because I believe in the underlying goals of the industry / company

(3) focusing on the inputs (skills, work ethic, risk taking) of my career instead of the output (money, recognition, awards)

(4) staying humble in victory and graceful in defeat

(5) always being exposed to new challenges and people

(6) selecting a career path that will allow me to support a family by the time I have one in my 30’s

(7) prioritizing my self-respect and the opinions of the people closest to me while ignoring the impression I make on strangers

(8) ignoring external validation and all forms of solely conspicuous consumption

(9) keeping a large social circle including people with diverse beliefs, ages and who work in different industries

(10) loyalty to family, friends and colleagues and to not judge them by anything I would not want to be judged by

I am fairly certain about the choice I am going to make. However, it would undermine this post to mention my choice here. Currently, I took off my last semester of college. I was pursing a second major in information systems and a minor in statistics.  Instead, I am coding and selling my first product and self teaching as much as I can about technology. I am working on a couple of other projects which include managing DJ’s and trying to learn about machine learning.

When people ask me what I do, I just tell them I am unemployed. This ties my identity to my principles and not my career and will hopefully help me keep the two somewhat separate. I want the freedom to take risks for ideas I believe in. The world will probably give me a mixture of failures and successes, but my self identity will not rise to self delusional heights nor will it fall to depressing lows.