What Every Entrepreneur Should Learn From Factory Floors

“What would you need to do to double your revenue (or profit)?”

That’s usually my opening question when we have strategic reviews with our businesses. The answer highlights the biggest constraints to the growth of the business.

I start with this specific question because many leaders have one problem in common: they come up with great solutions but to the wrong problems. It may sound stupid but every day, thousands of leaders come up with excellent solutions to the wrong problems. When this happens, you may work your butt off, but it won’t materially change the business.

One of my favourite business books (I’d highly recommend it), The Goal by Eliyahu M. Goldratt, addresses this particular question.

The Theory of Constraints

The Goal was my original introduction to the Theory of Constraints (TOC). In short, TOC describes systems and how to operate them for maximal output. The concept describes the benefits of analysing a production system like a chain of processes. To improve the chain, the weakest link must be identified. In the case of a product line, the weakest link is the stage with the lowest throughput.

As for actual chains, there can always only be one weakest link. Once that link has been strengthened, another link will be the weakest, but there are never two links that are both the weakest at the same time.

A Paper Clips Factory

In the case of a production system in a factory, the weakest link is the element with the lowest throughput. Imagine that you’re producing paper clips and that process has two stages: 1) Cutting the steel wire and 2) bending the wire into shape. The step with the lowest throughput sets the pace for the total chain. The slowest process will dictate the overall throughput of the chain. 

To illustrate: Imagine that you have the capacity to cut up to 10,000 wires per hour and to bend up to 6,000 cut wires per hour. In this setup, your total output will always be limited to the lower of the two – the bending process – which in this case would be 6,000 per hour. Any improvements you make to the cutting process will have no impact on the total output. In other words, the only way to improve your output is by tweaking your weakest link – the bending. 

If now, you buy an additional bending machine so that your bending capacity increases to 12,000 clips per hour (two machines times 6,000 clips per hour per machine), then your new weakest link will be the cutting process which is still limited to 10,000 wires cut per hour. If you were to add a third bending machine it would be obsolete as it would not add to the total output. Once you can bend more wires than you can cut, the bottleneck will switch to cutting. Increasing the throughput of a non-bottleneck process will never increase your overall output!

TOC outside the Paper Clip Factory

While the example may seem overly simplistic, it illustrates TOC well. In practice, I often find that people don’t apply TOC. As mentioned earlier, the consequence of failing to identify the weakest link or the bottleneck of the business is that you solve the wrong problem! 

There are no good reasons to work on the wrong things. The most common reasons I see is when leaders have lost sight of the problems or simply have not be aware of their own biases for solving the wrong problem (they often cannot see the forest for the trees). 

The importance of solving the right problem can hardly be overstated. Be aware of your biases! If I had to define myself within a single function, I’d consider myself a marketer. I know my bias and that if I don’t think structured about a problem, my natural inclination is that I resort to a marketing solution. But that may be wrong.

For a hammer, every problem is a nail. Similarly, for a marketer, every problem has a marketing solution! (Charlie Munger of Berkshire Hathaway has written a fantastic piece on this). We must force ourselves to put our effort where it is most impactful, not where we find it the most convenient or interesting.

A real-world example

We had a workshop on marketing for an events business. We wanted to sell twice as many tickets and the team wanted to do this through email marketing. They came back with a – probably – great strategy for increasing open rates and click-through rates.

The challenge was that no strategy for open and click-through rates would ever allow us to double the output. It was simply not realistic to increase the rates enough to sell twice as much. In other words, the constraint, in this case, was the marketing channels and the solution would be to find new marketing channels (That is naturally a bit more qualitative than the factory in the example above).

Once you do your analysis well and can define the right problem, the solution usually comes quite easily. I find that more people struggle to define the right problem than to solve it once they’ve found it.

Thinking ahead

Once you’ve identified your constraints, it pays to think a bit ahead. Once you’ve solved your first constraint, what comes next and at what levels does it constrain the business?

A real-world example

An entrepreneur I know built a B2C e-commerce company. They really wanted to scale the business massively. It was the funding heydays of the early ‘10s so the focus was on revenue and margins took a backseat. The obvious solution to achieving hypergrowth was, therefore, to generate more demand. They just needed a great TV commercial and growth was inevitable. 

The team doubled down on the TV efforts and produced a great spot that did well with focus groups and checked all the important boxes. All execution was by the book – what could go wrong? 

The marketing campaign worked like a charm. They generated tons of demand. The challenge? The business didn’t have the inventory to scale and satisfy the demand generated. In other words, thousands of customers saw the commercial on TV and went to the website just to see “sold out” across the vast majority of products.

The long and the short of the story is that the team didn’t realise that once they had lifted the demand constraint, they would quickly encounter a new constraint on inventory. They simply didn’t have enough products to sell to scale as quickly as they’d like!

I like to keep things as simple as possible. The theory of constraint is beautiful in its simplicity

My Favourite Books of 2020

2020 was a crazy year in more ways than I care to count – but one of the few positives has been that with limited opportunities for social activities, the year provided plenty of opportunities to read. Like 2019, I have gathered an overview of my favourite books from 2020. The list is not limited to books published in 2020, but to books and audiobooks, I read or listened to during the year.

You can always follow my reviews on my Goodreads account.

The School of Life: An Emotional Education by Alain de Botton. This book gives good guidelines and food for thought across five different aspects of an emotional education: 1) the self, 2) interacting with others, 3) relationships, 4) work, 5) culture. 

I’d highly recommend this one for anyone interested in better understanding their psyche or that of others. 

If you are mostly interested in your psyche, then the book Self-knowledge (also by Alain and the School of Life) is very similar to the section on The Self. The self forms the basis for key concepts of emotional awareness and self-knowledge. I’d recommend it for anyone wanting to understand how to better handle their brain.

Anyone who follows my reading through my newsletter or on social media will know of my fondness of Alain de Botton and the School of Life. I’ve read most of their books and find them very useful in taking philosophical concepts and help contextualize them in the modern world.

One such book I read this year that I was particularly impressed by was The Architecture of Happiness (also by Alain de Botton). An incredible book. I didn’t know exactly what to expect when I picked up the book, but being a fan of de Botton’s other books, I decided to give it a go and haven’t regretted that. The book describes many interesting aspects of both good and bad architecture which I found incredibly interesting.

In line with his other books, it took a complicated subject and presented it in a readily understandable format to a complete novice! 

The Almanack of Naval Ravikant: A Guide to Wealth and Happiness by Eric Jorgenson. I have followed Naval across social media for years. I find his clear thinking inspirational and insightful. His Almanack is a condensed book overview of his key thoughts on attaining health, wealth, and happiness. 

The Essays of Warren Buffett: Lessons for Investors and Managers by Lawrence A. Cunningham. I have started reading Buffet’s shareholder letters multiple times, but every time I started, I lost my way at some point during his first 10-15 years. This book was exactly what I had been looking for. Rather than a collection of long letters ordered chronologically, this book provides a structured walkthrough of the key lessons from Berkshire’s letters to its shareholders divided into the main topics: Governance, investing, alternatives to investing, common stock, M&A, valuation, accounting shenanigans, accounting policy, and tax. 

If the list of topics is enough to put you to sleep, the book is probably not for you, but for anyone interested in investing or management (without the patience to go through all the letters), this book will probably be very interesting and useful!

During my deep-dive on Warren Buffet, I also found The Warren Buffett Way by Robert G. Hagstrom to be quite good. Even though the thoughts in the book aren’t unique or novel, Hagstrom does a good job in highlighting significant practical aspects of value investing.

Spin-Selling by Neil Rackham. Sales skills are probably the most underrated skills for entrepreneurs and leaders alike. For some reason, it doesn’t receive the recognition it deserves. It’s not taught in business school (at least I am yet to see it on the curriculum anywhere), but in the end, few businesses can make money without selling something

There are countless ways to sell (as of this writing, Amazon.com has more than 100,000 books on selling), yet, I have struggled to find any books that outlined successful techniques in a structured manner. Most books on sales are way too anecdotal for my taste. It’s been many years since I received formal sales training, but this book speaks the same language, so maybe I’m just biased, but I found this book to be extraordinarily useful in outlining the structure and technique of great sales conversations from the beginning to the end.

The ONE Thing: The Surprisingly Simple Truth Behind Extraordinary Results by Gary Keller. I am usually not a big fan of what I call “airport books” – those books with one topic that is usually described in way too many pages but have a catchy title that makes it easy to sell to busy executives stuck in an airport.

I did find this book to reach very intuitive conclusions that are highly relevant for anyone in business – entrepreneurs and employees alike. The concepts were described to a degree of detail that I had not yet got to on my own.

A Guide to the Good Life: The Ancient Art of Stoic Joy by William B. Irvine. I re-read this book once again in 2020. It’s a book I often go to for revising the essential thoughts of Stoicism. This year, I didn’t read much stoicism, so I prioritized to re-read this summary. I’d recommended it for either an introduction for readers new to stoicism or for a quick reminder for people who are more experienced in the topic.

The Beginning of Infinity: Explanations That Transform the World by David Deutsch. Wow, what a book! The basic premise is that we have already reached a singularity: The invention of the scientific method. According to Deutsch, this is not simply unique to humans on the context of the Earth, but across the universe.

Deutsch covers abstract topics such as infinity and supernovae and advocates for the superiority of an optimistic approach to life and the future. This book is not an easy read, but a very enjoyable one!

What They Don’t Teach You at Harvard Business School: Notes from a Street-Smart Executive by Mark H. McCormack. I already mentioned my aversion for “airport books”, so I must admit that this was a book I had long avoided since I first stumbled upon it. The salesy/clickbaity title put me off for some reason.

I loved the book. So many life lessons in the book. It was a great reminder for many important points and a good vehicle for self-reflection on how I conduct my business affairs. Everything from personal relationships to productivity alone as well as with others.

Very well written and with excellent examples.

Things Hidden Since the Foundation of the World by René Girard. I picked up this book on the basis that the renowned investor and entrepreneur, Peter Thiel, has mentioned it as the single most influential book for him.

The mimetic theory brings a fundamentally different perspective on human behaviour from most psychological theories. The core concept I took away is that the main reasons we act the way we do, desire the things we desire, build our society the way we do etc. is based on mimicry. Not necessarily because we want to be like others, but because the world around us is so complex that no-one can truly make sense of everything. We, therefore, look for guidance in others – even without being aware of it. 

The book covers other topics including the role of scapegoats and other concepts that are as relevant as ever – particularly in this new world where many people are crucified in the people’s court where no real evidence is required. A very thought-provoking book!

Capital and Ideology by Thomas Piketty. A lot of intriguing ideas and concepts. While I will probably never agree with Piketty, understanding the history and trajectory of countries and regions does indeed help explain the current political environments.

Many of the analyses are based on inherently subjective views. The data doesn’t prove the views right or wrong but describes a development objectively. The missing piece in the book is the human. What happens to the human if you tax him/her 100%? Will they contribute to society in the same way? Who should ensure the appropriate governance of companies of voting power is capped? Nowadays, governance is more important than ever.

The psychological and motivational aspects of being are missing. But maybe that is a logical conclusion when Piketty describes the society of the academic and elitist left where a theoretical understanding of money allocation matters more than experience and pragmatism

Finally, I re-read 12 Rules for Life: An Antidote to Chaos by Jordan B. Peterson which also made it to my “best of” list last year. It’s still one of my favourite books, and I feel like the message of taking ownership of one’s own life and living by clear values/norms/principles is a message that bears repeating.

I am continuously being provoked by the public discourse on the welfare systems of the west and self-victimization. It has started a journey for me to try to understand how we got to where we are. The Madness of Crowds by Douglas Murray was a particular joy to read. It highlighted some of the inherent absurdities when the above challenges run havoc on society and the media.

The Missing Link in Startup Execution

In the past few quarters, our companies have seen tremendous improvements in the operational execution – focus and intensity have increased drastically, which has improved the output per hour. Add to that that we have recruited some very promising talents! It should be a recipe for success.

Similarly, we seem to be alright on the strategic level. We set goals – some more ambitious than others – and we do have plans in the form of budgets. While no one can foresee the future, the budget is our North Star – it guides us and helps us make the right decisions today so that we can achieve our goals in the future.

Despite improved operations and clear goals, we are still not moving as fast as I would like. It’s not for lack of trying. I have rarely seen people work as hard as we do these days.

Great input, lack of output

Here’s an example of how we fail on this from a portfolio company: We have a goal of recruiting for a specific role – we know how many people we need and that we need them asap. So far, so good. One month goes by – no one is recruited. Another month goes by – still no one recruited. Every month ends with the conclusion that we must do better, but the results are all the same.

Another example: We want to grow our top-line 25% a month for one of our companies. We push everything we’ve got in marketing and grow 5% one month. The next month, same effort, but grow only 3%. The month after, we don’t grow at all and topline is flat.

In both examples, the challenge is that we didn’t manage to effectively bridge our strategic goals with our daily operational tasks. Once the goal is set, we just ran at full speed ahead. We approached it the way kids play football: All focus on the ball – no plan! 

It turns out that this is not the most efficient way to get there. This may sound like a trivial point, but it isn’t.

In classic business/military jargon, we are missing the tactical level of execution – the bridge between the strategy and the operations. It’s a common problem and needs to be addressed.

In many larger organizations, the division of responsibilities between layers of management makes it clear that the person on the factory floor should not think about the strategic priorities of the business and the director may not need to think about the operations. In startups, the distinction is less clear as everyone needs to think on all three levels.

Getting the tactics right

Going back to the recruiting example, we didn’t have a clear tactical plan:

  • How do we expect to get the right candidates? If via inbound applications then, where should we get the job description posted and how do we get it there? How do we prioritize our time across all the places we could advertise the opening?
  • What does the right candidate look like? 
  • How do we want to run the recruiting process? What are we testing for in our interviews and how are we performing those tests?
  • …and common for all of the above – how do we know if we are doing well? Do we have granular enough milestones that our measure of success is not limited to the final output (a recruited candidate) only?

For the second example of growth, the challenge was similar:

  • If we need to grow 25% per month, what are the ways to get there?
  • What can we do in our existing marketing channels? What are our levers and how much can we squeeze them?
  • What are the other channels we should engage in? How can we approach them? Do we have the expertise or do we need to seek that externally?
  • How do we prioritize our time across the different options?

When the above is done well, our strategy drives the tactics we deploy, which – in turn – defines what tasks we must do and the problems we must solve today and tomorrow.

Conclusions

When we learn from the two examples above (I have an endless list of such examples), we become more effective entrepreneurs and company-builders. So remember:

  • We must have the right strategy and goals,
  • We must break the strategy down into tactics that can be executed, and
  • We must break the tactics down into operational tasks

Entrepreneurship is probably 90% operational execution. It’s about closing a deal here, split testing there, and tweaking the marketing to get the right outcome. But in the end, it’s important that we have the right direction and the right actions. Doing the wrong things perfectly won’t get you where you want to be.

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Image: Pexels

A thank you note from your future self

I was reminded of an important point today: We are oftentimes limited in the projects we can take on, simply because we don’t have enough capable people in our organizations. 

We have new products to launch, markets to enter, marketing initiatives to execute; why aren’t we? Every single one of our businesses has an endless list of important strategic priorities that we can’t execute on today simply due to lack of bandwidth – we never have enough responsible, entrepreneurial people to handle everything we want to do!

It’s a common theme to recruit people only once you have a project for that person. The combination of the time horizon for sourcing, interviewing, signing, and onboarding a new person and the speed with which the business evolves at the early stages, we will always have more high-ROI projects than people to execute on them.

As entrepreneurs, we must always be on the lookout for the smart talents that can step up and over time become the leaders of our future markets, products, etc.. 

I am yet to see an organization with too many talented people. Time is always our biggest bottleneck – recruit AAA people and gain additional operational leverage. In the current environments, financing is never an issue, as long as the projects provide a great ROI.

Whenever you find yourself with an opportunity to grow your business further, the one thing you would love more than anything else is to have recruited a great person to take responsibility for this, six to twelve months ago. That way, she would be fully onboarded and well up to speed on your business so that she could take full ownership and execute with the required understanding, context, and urgency. Recruit today so you don’t have any regrets in the future.

Recruiting people with future projects in mind is obviously different from recruiting for a specific project or role as you can’t be as specific in your pitch. It is therefore important that you talk more about the sorts of things the candidate could do rather than exactly what they will do.

From my experience, being able to recruit (future) rockstars and to set the right level of expectations for them are the two single most important skills for any leader. Take a proactive approach to growth – your future self will thank you!

If you’re looking for inspiration on how to recruit the best candidates, I shared our approach in this post.

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Image credit: JoinCakre

The Meta-Machine: A Guide to Building a Company

Being an entrepreneur is about building a company. Fast-growing companies may seem chaotic and frequently focus more on firefighting problems rather than on actually building up the company. 

“The real enemy of execution is your day job!” McChesney et al. argue1. “We call it the whirlwind. It’s the massive amount of energy that’s necessary just to keep your operation going on a day-to-day basis; and, ironically, it’s also the thing that makes it so hard to execute anything new. The whirlwind robs from you the focus required to move your team forward.”

Building a company at break-neck speed will always produce its own whirlwind. The challenge is that an hour spent on fighting fires is an hour that was not spent on building the business. As entrepreneurs, we, therefore, must distinguish between when we are building the business and when we are operating the business. 

The business as a collection of machines

In order to avoid the whirlwind (or Blizzard as he calls it), legendary investor, Ray Dalio2, recommends viewing the business as a collection of machines that are each based on logical cause-effect relationships. These relationships allow the designer of the machine to come up with rules for how to manage it which ensures that the outcome is predictable, repeatable, and can be performed by multiple people.

“Most people get caught up in the blizzard of things coming at them,” Dalio explains. “In contrast, successful people get above the blizzard so they can see the causes and effects at play. This higher-level perspective allows them to see themselves and others objectively as a machine, to understand who can and cannot do what well, and how everyone can fit together in a way that will produce the best outcomes.”

Designer versus operator

“If your business depends on you, you don’t own a business – you have a job.
And it’s the worst job in the world because you’re working for a lunatic!”
– Michael E. Gerber. The E-Myth Revisited 3

If the entrepreneur is required to be involved in the operations of each machine, she will be the bottleneck for the number of machines in the company and consequently for the scale of the business. She must free up her time and make each machine in the company independent of herself. 

To do so, she must first carefully recognize when she is working on the business (designing or improving machines) and when she is working in the business (operating the machines).

“Most people remain stuck in the perspective of being a worker within the machine,” Dalio argues. ”If you can recognize the differences between [when you design the machine and when you operate it] and that it is much more important that you are a good designer/manager of your life than a good worker in it, you will be on the right path.” 

It is in building machines that the entrepreneur adds more layers to the business. So how does one design and build a good machine?

Designing the machine

As a company scales, the knowledge that remains tacit (i.e. inside the head of the person doing the task) will eventually become a bottleneck. If that person leaves or if you need other people to execute the same task, it will no longer be possible to do so to the same standard. It also has the unfortunate effect that the person doing the task can never be promoted or moved to another team as the process depends on her (you can read more about that here). Building machines is a way to make tacit knowledge explicit and enables you to improve on it.

To my experience, designing a good machine consists of six phases:

  1. Design a winning process
  2. Document the process
  3. Create transparency on performance (and make it auditable)
  4. Hire and train an operator
  5. Audit the process
  6. Optimize the machine continuously

Step 1: Design a winning process

The most common reason for not building a robust process is that people either 1) are caught up in the operations or 2) try designing the perfect machine in the first go. The challenge is that you’ll never have the perfect process. Most processes can always be improved further. Accept that you won’t know how the perfect machine works without having tried it. Design the best you can and work from there.

The initial process

In order to design the initial process, immerse yourself – for the time required – into the project. Depending on the complexity of the process, you should be able to design an initial version in 15-30 minutes.

It’s important to include:

  • Objective – What are you trying to achieve and how will you know/measure whether you’ve achieved it (KPI)?
  • Process – The steps required to replicate the outcome. Here is an example from McDonald’s that illustrates the required detail

A machine for an email newsletter could for example include:

  • The goal 
    • E.g. people clicking through to read the full article on the website
  • The process for e.g. how to
    • Segment the subscribers
    • Design the newsletter to be consistent with the brand
    • Pick the right subject line
    • Write the content in the right style
    • Send at the right time
    • Split test variations
    • Measure and evaluate performance

In building a machine or company, Dalio sets out four ways to ensure you get the best machines:

  1. Seek out the smartest people who disagree with you and try to understand their reasoning
  2. Know when not to have an opinion
  3. Develop, test, and systemize timeless and universal principles
  4. Balance risks in ways that keep the big upside while reducing the downside

Stressing point 1, the easiest way to improve your process is to get help designing the process from the most believable and knowledgeable people in the field – both people who may agree or disagree with you.

As Harvard epidemiologist, Marc Lipsitch, explained in relation to understanding the Coronavirus 4, we must distinguish between three levels of information:

  1. What we know is true; 
  2. What we think is true—fact-based assessments that also depend on inference, extrapolation or educated interpretation of facts that reflect an individual’s view of what is most likely to be going on; and 
  3. Opinions and speculation.

While most entrepreneurs aren’t battling global pandemics, there is a key takeaway for designing a winning process: Even though no one knows the perfect way to do something (information that is true), some people will have a more qualified idea (what we think is true) based on their experience with and understanding of adjacent fields. Don’t let this hold you back. Don’t seek to get input from hundreds of people. Find a few critical people who can give you input and move forward.

Getting started

Getting started can often be daunting. The best way is to start by mapping out the different parts of your machine. If you are designing a machine for email marketing, for example, you may start by mapping out the components:

  • Database management and segmentation
  • Sending schedule and frequency
  • Email template design
  • Testing methodology
  • Performance dashboard

Once you have the high-level breakdown, you can start dividing each of them into subparts and define more granularly.

Step 2: Document the process

Imagine building a bakery. You would never let the baker play it by ear every time he would bake a new batch of bread. Even if you successfully did so, then firstly, you would be completely dependent on your current baker and unable to scale the size of the team as the next baker would start over in developing his recipe.

Secondly, if the recipe (knowledge) only existed in the head of the baker (-s), it would be incredibly hard to improve the result in the future. If e.g. the bread turned out too salty, how could you possibly improve on this without knowing how much salt was used in the first place? Without this knowledge, you are starting from scratch every time.

In other words, for a predictable outcome, you must standardize the way you bake bread. Author Michael E. Gerber 3 calls this orchestration: “Orchestration is the elimination of discretion, or choice, at the operating level of your business.”

This is not to say that the process is now set in stone and will never evolve, but more about this in step 6.

A word of caution: What may seem simple at first will grow complex over time. The complexity only scales with the number of tasks, so try to keep things as simple as possible so you don’t drown in complexity.

How to document the process

When documenting the process, don’t overdo it. I have seen too many entrepreneurs writing 10 or 20-page documents describing something that could be described on a one-pager. Keep this as simple as possible. Unlike this very elaborate guide, a list of bullet points will often do well at first. Once you have the list, get input to ensure it’s sufficiently detailed to be self-explanatory.

A common problem is that people start the documentation too late. They start when everything is up and running and therefore forget some of the parts involved in reaching the success or they become blind to some of the critical actions they are taking.

Step 3: Create transparency on performance (and make it auditable)

In order to do well repeatedly, we must start with the end: What can we measure to know whether we are doing well?

Depending on your machine, the metrics you need to monitor vary greatly. As for all KPI-setting keep this simple and focused on the essential metrics. It’s easy to overdo this and end up with too many KPIs. If everything is important, nothing is important.

You would often want to include both leading and lagging indicators in your dashboard. Leading indicators predict future performance. An example can be the number of sales meetings for a sales rep. While you cannot take that to the bank, there should be a correlation to future deals. 

Lagging indicators are backwards-looking and show how well you did. In my experience, lagging indicators can often be boiled down to one or two metrics. For performance marketing for example, I find gross profit to be an excellent metric as it encompasses both the volume aspect of marketing and the cost efficiency aspect. It’s important to include both aspects as most jobs entail balancing efficiency and scale, or other similarly opposing metrics. 

Step 4: Hire and train an operator

Entrepreneur-turned-venture-capitalist, Ben Horowitz 5 emphasises the importance of training with a perfect example: “I learned about why startups should train their people when I worked at Netscape. People at McDonald’s get trained for their positions, but people with far more complicated jobs don’t. It makes no sense. Would you want to stand on the line of the untrained person at McDonald’s? Would you want to use the software written by the engineer who was never told how the rest of the code worked? A lot of companies think their employees are so smart that they require no training. That’s silly.”

If we buy in to the idea that orchestration is essential (Step 1), then it must follow that we train our people to follow the process. People often mistake training for not utilizing people’s smarts. Contrarily, I see it as a way to speed up the process of value creation and the learning.

Take Google Adwords for example. If we don’t have a clear process for how the account should be optimized and expanded or don’t train people on that process, then we leave it to the employee to figure it out on their own. What are the odds that the one person you have hired finds the best solution for this task? 

As we will see in step 6, processes are not static and will evolve, but why not start from the best possible foundation rather than with a clean sheet of paper? Too many people mistakenly focus on “innovation and creativity” in the design of their initial processes. Rather, start with the best and most proven model as a baseline and innovate from there. Without a baseline, how could you know if your innovation is actually performing better? The importance of this can hardly be overstated.

By convention, even inside of our group of companies, only one solution can be the best for any given problem. In other words, if everyone else copied the process of that one task, they would immediately achieve better results. 

Processes + Training = Consistency + Repeatability

Step 5: Audit the process

Once you’ve got a solid machine and have trained people to operate it well, you must find ways to ensure that the machine runs smoothly and according to the recipe (if it doesn’t and the output is better, you should update the recipe).

My favourite example of this is peer review in coding where senior developers will look through the code written by other developers before it makes it to the final product. The principle can though be applied to even the most basic tasks (at McDonald’s, employees must mark on a sheet when they wash their hands so supervisors can see that they live up to hygiene standards).

A common mistake in auditing is to look at the operational output only. It’s easy to only look at the results, but you risk missing key insights that way. If you truly believe in your process, then people who don’t follow the recipe must have a big potential for improvement. 

By accepting output as the only metric, you may simply be setting the performance bar too low and thereby accepting performance below what should be possible.

Step 6: Optimize the machine continuously

The key to building a machine is to have a strong process. Without a process, there is no machine. At the same time, a common fallacy is a belief that the “perfect” process is just around the corner and therefore not defining the process now. “A little more experience and we will do so much better” is often the excuse. We may indeed learn more next week, but we shouldn’t let that hold us back when building a company. Define the process and improve it as you learn.

Optimization should not happen by chance. Improvement should not be organic. With orchestration we must take a scientific hypothesis-based approach to optimize our machine. What this means is that we should make changes only after carefully thinking about a) what are we trying to improve? b) what can we do to improve? c) why would this change improve the process?

Putting it all together

The opportunity cost of not having great machines is that you won’t be able to free up yourself. In my experience, machine-building skills is the single biggest predictor of success for entrepreneurs and leaders. The ability to ensure great performance while making yourself obsolete makes you promotable and allows you to free up time for other projects.

A few lessons before you jump into building your own machines:

  • Don’t build multiple machines simultaneously. Build one, make it work, move on
  • Train people to understand and differentiate between when they are operating and when they are building the machine
  • As you become more proficient, seek to spend an increasingly larger share of your time on designing, building, auditing, and optimizing machines rather than operating them
  • Trust the process. If your machines don’t produce the right outcome, the problem is with one of the six steps above, not with the idea of making yourself obsolete from the operations

The machines become a pipeline for talent in its own right. Operators learn to optimize the machine. Once they can optimize, it’s easier to learn how to design machines from scratch.

Build a company by designing and building great machines!

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  1. McChesney et. al. The 4 Disciplines of Execution
  2. Dalio, Ray. Principles: Life and Work
  3. Michael E. Gerber. The E-Myth Revisited
  4. https://blogs.scientificamerican.com/observations/how-to-report-on-the-covid-19-outbreak-responsibly/
  5. Horowitz, Ben. The Hard Thing About Hard Things

Image credits: https://www.pexels.com/ and YouTube.com

Practical Thoughts on Recruiting and Interviewing

As leaders, we have four primary tasks besides the daily interactions with our team:

  1. Make sure the business doesn’t run out of cash
  2. Define the direction and objectives of the team/company (whatever you are the leader of)
  3. Set the right team (not just the one that will win today, but the one that can win the future as well)
  4. Set the right (level of) expectations to the team and ensure they live up to them

This post will focus on the third point – how do we hire and set the right team? And why and how we spent more time than 99% of companies out there on the interview process. To us, recruiting is easily one of – if not – the most important challenges for any leader.

We often get it wrong

As the old adage goes, “leaders spend 20% of their time recruiting and 80% of their time making up for recruiting mistakes.” A headhunter I know once mentioned that to his experience, good leaders get senior recruiting right 20% of the time, great leaders may get it right 30-40% of the time. It doesn’t mean that the remaining 60-80% are disasters, but they aren’t the stand-out profiles the employers were hoping for.

The difficult balance

What this means is that we must do our very best in recruiting. At the same time, we must not be too afraid of making recruiting mistakes, as we would then become our own biggest enemy and bottleneck for the business. The balance between finding the right candidate and getting a candidate right now is probably one of – if not the – biggest challenge in recruiting for us as leaders. 

Nobody is perfect. When it comes to speed versus perfection everyone has a bias in one direction or the other. Becoming aware of your natural bias can help you adjust in the opposite direction.

I, for one, tend to be too critical in my recruiting, resulting in longer recruiting processes (and hopefully a lower rate of mistakes). I, therefore, like to speak to people I know who are more in the other direction for sparring to ensure that I don’t shoot myself in the foot. Am I being too critical? Am I looking for a unicorn of a candidate – one that doesn’t exist?

Recruit for potential rather than skills

It is particularly important for fast-growing companies to recruit people who can grow with the company and be future leaders or excellent individual contributors rather than simply someone who can do the job today. That’s the nature of our business given the high growth we are expecting.

Our companies may not always be the biggest companies today, but we must never make recruiting decisions based on the size of today. To use an analogy, we must recruit people that will fit into the starting 11 of Liverpool or Manchester City (for those who don’t follow football, note that these are probably the best teams in the world right now). If we recruit for our current size rather than where we will be, we will never be able to make the leap.

As your team grows and approaches, say, 50 people, you will have a few team members who may not be rockstars, but you cannot afford anything less than A players when you’re still a small team.

The baseline

Interestingly, most entrepreneurs are data-driven in most decisions. Ironically, this doesn’t extend to the most important ones – recruiting.

Over the past years, we spent a tremendous amount of time thinking about how we could improve our chances of getting our recruiting decisions right, and with all modesty, I’d say that we have built a decent track record. We are not perfect and we certainly can improve further, but I wanted to share our approach so you don’t start from scratch.

In our interview process for key hires, we follow the below process. Each type of interview has a very specific purpose and I’d recommend you don’t skip any of the steps, even though the process may look quite time-consuming.

Our process

As you will see, we use a recruiting tool, FirstMind, that is based on the StrengthsFinder concept. We like this system as unlike most other personality assessments, it doesn’t break a personality down to four letters that are each binary. Rather, it shows the relative dominance of 34 different “talents” (I highly recommend Marcus Buckingham’s books on the topic). Whether dominance from a given talent is positive or negative is entirely contextual – being e.g. competitive may be great under some circumstances and counterproductive under others. Interesting conversations arise when understanding how the candidates handle conflicting talents (everyone has conflicts) or if they are dominated by mutually reinforcing talents. Examples of conflicts can be between maintaining relationships and reaching a goal. An example of reinforcing talents can be e.g. very analytical and backwards-looking profiles – how do they ensure to take action and not get caught in analysis paralysis?

Before interviewing, do yourself a favour and write out the job description and think about the talent profile you’d like to see (we use 3 “must-haves”, 3-5 “nice-to-haves”, and 3 “minuses” that we prefer not to see in the top 10 talents. Sometimes talents can substitute for each other (e.g. we often like to see either competitive, targeted, significance, or focused and are therefore indifferent to whether people have the one or the other).

The process we use currently have the following stages:

  1. Screening interview (15 mins) – the aim here is to ensure we don’t waste the candidate’s and our time with people of the wrong profile/motivation. This part can be outsourced, but you must be 100000% aligned on what “good” looks like if you do. Working with the same person continuously is the best way to build consistency in the screening
  2. Candidate takes a personality and an abstract reasoning assessment – we use these to get a better view for initial screening of the candidates as well as for further in-depth interviewing afterwards. We use two assessments:
    1. FirstMind gives us a qualitative view of the personality
    2. Raven’s Progressive Matrices gives us an indication of the mental horsepowers – not the IQ per see, but an indication of the abilities in abstract reasoning also known as fluid intelligence. We prefer this format as it is non-verbal and can, therefore, be applied across languages and doesn’t favour native speakers
  3. Introductory interview (Up to 30 mins) – we are getting a good understanding of the profile and motivation. In addition, if the CV is superb, but the talent profile differs from our pre-defined ideal, we do a bit of testing to see if our the candidate’s talents are indeed not a good match. In that case, we keep the interview short and end the process. 
  4. “Who interview” (60 mins) – this is the interview where we go in-depth on the CV.  The Who interview seeks to understand how the person has performed historically (we usually go all the way back to understanding high school performance) and motivation for career/educational decisions made.
    I’d highly recommend using the template from “Who” by Geoff Smart which has a lot of good examples of phrasing. The devil is really in the detail here. This interview can be merged with the first interview but it is usually best if the candidate has shown interest in the job before so they have an incentive to share as well – otherwise, the interview becomes a bit odd
  5. FirstMind interview (60 mins) – this is one of the most important interviews. We get really deep with the candidates and seek to understand both their talents and how the individual talents act together. This also gives a good indication of the candidate’s self-awareness. Nobody is perfect, so do your best to understand the conflicts between talents and the work environment and assess how the candidate copes with these. Ask yourself, if you can live with their short-comings? How will the candidate complement the current team? As a leader, what do you need to do to ensure the person can blossom in your team?
    The FirstMind report will not tell you whether to recruit the candidate or not, but it will definitely help point you to the specific areas that require more detailed in the interview process for the particular candidate.
  6. Technical interview(-s) (as you need them) – this is for role-specific tests, e.g. in-depth on accounting questions, Google AdWords, sales, etc. Test for the hard skills that you’d expect the candidate to have.
    For us, we don’t expect people to know everything, but it is a red flag for us if a candidate has spent 3 years working on something and aren’t able to explain it in a clear, linear, and logical way
  7. Potential cultural fit interviews (less formal and as needed) – these are more general interviews which give both us and the candidate a chance to get to know each other better. We know that we have a unique culture and we rather want to be the perfect place to work for 5% than a decent place for 80%. We, therefore, use this chance to raise some of the common challenges people have in fitting into our culture and try to anticipate challenges specific to the candidate based on the previous interviews. When these aren’t addressed directly in the talent interview, we try to understand e.g. if people are higher on the relational than the results-oriented dimensions, how will they cope with extreme directness and transparency? If they are driven by people over targets, how will they deal with our performance culture? If they don’t fight for their views, how will they cope in our discussions? (Which are very direct and can seem harsh for people who aren’t used to this kind of environment). etc.

To some, the number of interviews we conduct may seem intimidating or excessive. To our experience, this is definitely much less painful than having to start over again after making the wrong hire. And this goes for both us and the candidate.

If you have multiple people involved in the interview process, it’s easy to lose efficiency in the process. I remember once structuring the recruiting for a senior technical hire. We had three people interview the candidate for his technical skills. Even though the interviewers came from different backgrounds, they had without knowing all asked more or less the same questions. In other words, there was little to none benefit to having three interviews rather than one (and it probably seemed unprofessional).

When you have multiple people involved, ensure to a) be specific about what you need each interviewer to look for specifically (and what not to spend time one) and b) to find a way to get the feedback in a structured way. We like to get all the interviewers together in one room after our interview processes so that everyone can air their thoughts. If one person has a concern others can address that if they had a different experience.

Direct feedback

We like to be very direct. Even to the extent that we give live feedback in the interviews if some answer or the speed of answering aren’t at the level we had hoped for. E.g. “I would have liked to see you getting to another conclusion in the case, here is why…” or “When you say that, I fear that may be a problem in our culture because of X, Y, Z. How would you think about that?” Direct feedback in the interview gives the candidate a chance to clear misunderstandings. Secondly, since our culture is very direct, it tests how the candidate take the very direct feedback we give. Does the candidate take it personally or does he/she understand that the feedback relates to the answer, not the person?

As you can see, we use a few tools: Raven score, FirstMind Talent Report, and the CV. The tools help us systematically cover specific questions:

  1. We understand the nature of the candidate and motivations (FirstMind, Who/CV)
  2. Understand actual skills and potential for further development (technical, Who/CV, FirstMind, Raven)
  3. Minimize the risk of cultural misalignment (cultural fit, FirstMind, Who)

Remember, when you hire, you are in a state of uncertainty. We don’t truly know how the candidate will perform – only working together will give this answer. We, therefore, must minimize the risk of failure but also acknowledge that there is a cost to delaying hiring decisions.

All of this, of course, assumes you’ve done well on your sourcing. I’ll cover that in a separate post.

On the Exponentiality of Life

There is a common misconception about how success accumulates. I repeatedly see posts on social media along the lines of:

I suppose the message is that if we are just a little better, we will be about 38 times as good a year from now. While it’s hard to challenge the notion that we should strive to be better every day, the message is hardly actionable. 

The poster is missing a crucial point of exactly how effort compounds. In real life, compounding works slightly differently than in mathematics. Let me illustrate with an example from nature.

A tale of two acorns

Imagine an old oak tree dropping its yearly acorns. The acorns are carried away by nature and eventually, find a place to sprout. 

When two such acorns are located in close proximity, a competition of the two will start. It’s a competition for nutrition, water, and sunlight. Initially, both will have plenty of all the ingredients for a strong start to life. 

As the oak sprouts grow, they will eventually start leafing. The sprout that found an (even a slightly) more nutritious location will start the leafing a bit earlier. Maybe a day earlier, maybe more. The leaves act like massive solar cells to capture the energy of the sun, allowing for even faster growth.

As both plants grow in height and size, they will cast an increasingly larger shadow. The sprout which got the head start on leafing will have more and larger leaves and will develop larger roots to access more nutrition and water from the ground.

At first, each plant goes about its development independently of the other sprouts, but an interesting dynamic soon kicks in. At some point in time, one plant will reach a size where the leaves and twigs will start shading for the other, smaller, plant. 

From this point onwards, there is no turning back: The larger sprout will get a disproportionate amount of sunlight and the deeper roots will capture more nutrition and water. Combined, this will allow the plant to grow taller and add further twigs and leaves even faster than the smaller plant, which in turn will mean that it will grow disproportionately faster at an accelerating rate.

From here on, it is only a matter of time before the larger plant will completely outgrow the smaller plant which will eventually fade and wither with the lack of sunlight and water.

The metaphoric shadow and reach for sunlight are applicable to many other parts of professional life. The following examples will highlight the commonalities between professional life and that of an acorn.

What entertainment, venture capital, and hairdressers have in common

At first, the tale of the two acorns may seem irrelevant to the real world – how often are you, after all, competing directly head-to-head with others?

If you look at Hollywood actors, a few actors earn more than almost everyone else combined. Are some actors, objectively speaking, really ten or 20 times better than your average A-list Hollywood actor? Not compared to the average actor, but an A-list actor. I’m not an expert, but it seems like pure talent is unlikely to explain the full difference in income. Rather, some actors seem to increase the likelihood of box office success significantly more than others. If an actor can increase ticket sales by just a few percentages because of his/her name alone, then that may warrant a much bigger pay.

Another example – in most metropolitan cities, the most expensive haircuts easily cost more than 10x the average, but that doesn’t mean that those expensive hairdressers are ten times better than the average hairdresser. In other words, the price you can charge as a hairdresser is not linearly correlated to your abilities. Similarly, a car that tops at 320 km/h will be more than twice as expensive as one that tops at 160 km/h, everything else being equal.

This is what economists call increasing returns to scale. Increases in input give you a disproportionately large increase in output.

The below graph indicates the relationship between the perceived level of skills and the outcomes (the price you can charge, the number of movie roles offered, etc.). The size/volume of outcomes (vertical axis) increase with your perceived abilities (or rather, the perception of your abilities), but not in a linear fashion. The point here is not the exact slope of the curve, but that the shape is highly convex. The graph is not linear – life is not linear! 

Similarly, for venture capital (VC) investing, the vast majority of VC funds deliver below-market-rate returns, while a few continuously outperform the market2. It’s beyond the scope of this post to speculate in the average smarts across VCs, but one thing is for sure: The more successful you are, the more opportunities come your way – regardless of your smarts. 

This is particularly important for VCs, as they need to “return the fund” on a few investments that make their money back 10, 20, or maybe even 100 times rather than a lot of “satisfactory” investments. For that reason, access to the best deals is a crucial requirement as those home run deals are scarce and missing one may be critical. No amount of smarts can make up for sub-par deal flow.

Implications

The conclusion is simple: The marginal effort counts the most. The next hour of effort counts more than the last. The opportunities you receive today are due to your hard work (or lack thereof) in the past.

The conclusion also implies that our time is “perishable”. Every day we do not move to the right on the curve, we are missing out on opportunities/revenue/etc. In other words, there is a massive opportunity cost of not being the best version of ourselves today.

In a professional context, this means that by not being at your best, you aren’t proving your worth and, as a consequence, you may then not receive the next opportunity or promotion. Many people talk about seeking your own luck. Being at your best will maximize the chances that you will be “lucky” when the chance comes. 

Similarly, for most people, the early years in your career set the direction for the next many years. It’s harder to change the trajectory later on than to set it right from the start. 

Whatever you set out to do, do it well. Give it all you’ve got. Anything else is a waste of time. Be the sprout that grows to cast a shadow rather than the one to stand in it. The importance of this can hardly be overstated.

#####
Sources:

  1. https://www.forbes.com/sites/maddieberg/2019/08/21/the-highest-paid-actors-2019-dwayne-johnson-bradley-cooper-and-chris-hemsworth/
  2. https://techcrunch.com/2017/06/01/the-meeting-that-showed-me-the-truth-about-vcs/

Graphics: https://www.blog.400contacts.com/uncategorized/the-most-motivational-poster-ever/

The Best Books I Read in January 2020

January had plenty of travelling time, which – for me – means reading time. My book picks this month were generally disappointing, but three are worth highlighting:

One Life. How we forgot to live meaningful lives (Morten Albæk). The book brought a fresh perspective on the absurdity of splitting life into airtight compartments. The impossibility of work-life balance as a concept of dividing time (and life) between two separate identities and the importance of thinking a larger purpose into who we are including thinking about the virtues we strive towards. The book went very well along with some of the themes from Jordan Peterson’s 12 Rules for Life that I have previously praised.

The 4 Disciplines of Execution (Chris McChesney and Sean Covey). The book was recommended to me by a friend with great taste in books, and it didn’t let me down. It reminded me of many of the lessons I have had to learn the hard way. A very concise way to think about empowering teams to succeed in a repeatable fashion. The focus on “lead” and “lag” measures was particularly insightful.

Awareness (Anthony de Mello). This book was recommended to me for a quick reality check and an antidote to some of the classic traps during the busy everyday life. Remembering the difference between reality and the categories/personas we observe is a struggle that (for me at least) requires constant calibration and reminders (at least it doesn’t hurt!).


My focus for 2020 is to read fewer new books and dig further into the unlimited knowledge and insights of older books. I often find that I jump on the new and the popular books which poses two challenges: a) the points and content may not stand the test of time, b) they are often merely rephrasing old ideas without much value add. Let me add for clarity that some writers do manage to add value by adding context or making the content more easily available (such as Ryan Holiday’s books based on the old Stoic virtues or Jordan Peterson) whereas others don’t add any additional value.

Finally, in my pre-reading research before starting on Things Hidden Since the Foundation of the World by Rene Girard, I stumbled upon this article about the philosophical influences of Peter Thiel. It seems the link between the two is quite strong. I was very impressed by Thiel’s Zero to One when I read it a few years ago (this is another of the books I tend to re-read every year) – particularly, I was impressed by the simplicity and clarity of thought on multiple interesting topics. This led me to Girard and Things Hidden, who Thiel claims to be one of his biggest influences. I’ll share more about Things Hidden once I’ve finished it 🙂

Some of my favourite books of 2019

The best books I read in 2019

2019 was a productive reading year for me. I got through the equivalent of 27,679 pages over 75 books, audiobooks, and ebooks. Some of them were very inspirational and some less so. I often get asked for book recommendations, so this post serves to go through the best books of 2019 for me. Note that the books may be of an older date, but I read them in 2019. Some of the books were new to me, others are books I had already read previously.

When looking back, the 20 best books can be grouped into four categories:

  1. Philosophy and psychology
  2. Entrepreneurship
  3. Politics
  4. Finance

If you prefer, I have added all the books to this shelf on Goodreads to make it easier for you to add the ones you like.

The first books require a little more explanation due to their nature, so don’t be scared by the longer descriptions!

Philosophy and psychology

12 Rules for Life: An Antidote to Chaos (Jordan Peterson). This book was fantastic. I started by listening to the audiobook, but immediately after finishing it, I ordered a physical copy so I could re-read it armed with a highlighter and a pen. This is one of those books (like Zero to One) that is so dense with insights that every chapter could easily have been a book of its own.

The premise of the book is that as a consequence of the modern scientific and fact-based society, only things that can be measured objectively are considered truly valuable to society. Therefore, virtues and personal values, which are subjective, are no longer important and, consequently, have lost importance. This means that people end up without a compass that can provide order in the surrounding chaos of the world, leading to despair and other mental challenges.

The book addresses a number of mental issues in our modern world and suggests ways to return to a number of guiding principles – the virtues that have gotten lost in the modern world.

This book is by far one of the most thought-provoking and concise (particularly given the incredibly intangible topic) books I have read in recent years. A must-read for anyone interested in understanding their own psyche and the big trends influencing (western) society.

Meditations (Marcus Aurelius). This is one of the few books I return to repeatedly. The book is a fantastic reminder of the core principles of stoicism on how to live a fulfilling life and how to be a better person: How we perceive the world, how we interact with others, and how we deal with things beyond our control.

The one quote that always stands out to me is “The impediment to action advances action. What stands in the way becomes the way.”

Stillness is the Key (Ryan Holiday). For me, Ryan Holiday is one of the best modern writers on the principles of Stoicism. I was a big fan of his previous books (even back to before they were concerned with stoicism). Stillness is the Key is the final book in Holiday’s trilogy on stoic principles and I’d recommend all three to anyone seeking to understand stoicism better (The Obstacle is the Way and Ego is the Enemy).

The Bhagavad Gita. This book is a cornerstone of the Hindu faith. It was recommended by a friend. The book describes the battle between the Pandava and Kaurava armies. Krishna, the god of compassion, tenderness, and love, provides a warrior, Arjuna, spiritual enlightenment to realize that the battle is for his own soul.

I am new to Hinduism and found it very interesting to see so many similarities to stoicism.

The Inner Game of Tennis (Timothy Gallwey). I find this book fascinating. It was originally written to address the mental sides of playing tennis but it doesn’t take much imagination to see how this can apply to other aspects of life. The concept of the four different playing styles translates easily into different strategies to life and business.

Behave: The Biology of Humans at Our Best and Worst (Robert M. Sapolsky). A rarely comprehensive and holistic read covering the patterns of behaviour, all the way from individual genes to something as complex as how humans act during a war.

The book is excellent for anyone interested in the biochemical side of behaviour. But before you start on the almost 800 pages, note that firstly, sometimes the book is unnecessarily and overly technical in the biochemical explanations (and this is from a reader who is a student of biochemistry!). I went through this as an audiobook which is not a suitable format for all the explanations of the chemicals. Secondly, the very long chapters make the book harder to split across multiple sittings.

Men Are from Mars, Women Are from Venus (John Gray). This book was a bit of an eye-opener to me. Before reading it, I thought that most of the differences I have experienced in relationships were due to idiosyncratic differences between two specific people. This book changed that. It described generic differences between males and females that I always thought were unique to my own situations. Apparently, I am not alone.

Having since then shared the book with multiple people, the feedback is very consistent: Everybody feels like it describes patterns of misunderstandings between men and women that they thought were unique to them and their relationship.

Entrepreneurship

The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers (Ben Horowitz). I re-read this book. There is no easy way to describe this book. It covers the entrepreneurial rollercoaster ride of building a company including all the ups and downs. The book is filled with gems. It was just as good this time as the first time I read it.

Building a StoryBrand: Clarify Your Message So Customers Will Listen (Donald Miller). This is a short read and brings an interesting perspective to building a brand – like a fairytale! The long and short of it is the right positioning, strong consistency, and a good story.

Politics

The Power Broker: Robert Moses and the Fall of New York (Robert A. Caro). After many recommendations from people with good taste in books, I decided to embark on the extensive journey of getting through this 66 hrs audiobook (or 1344 pages of paper if you prefer).

It is a very thorough documentation of the career of a man with incredible achievements and a very visible fingerprint on New York as of today. A story about how Robert Moses navigated the political systems to get an absurd amount of power and the many ways he used to keep hold of it. A power that wasn’t intended to reside with one, unelected individual.

As for most other books of this length, the story could have been told in far fewer words. That said, it resulted in a thorough description of Moses, his motivations, and how he played the system to get (and keep) what he wanted.

The Dictator’s Handbook: Why Bad Behavior is Almost Always Good Politics (Bruce Bueno de Mesquita and Alastair Smith). Besides from a humorous description of various dictators (often an inherently sad topic), the book brings about the inherent challenges of various societal structures. Through examples, the book also explains some of the aspects of our western societies and why they are the way they are (e.g. I have often wondered why many parliaments seem to be so unnecessarily large).

The New Confessions of an Economic Hit Man (John Perkins). An entertaining and novel view on geopolitics and how (allegedly) the west keeps the rest of the world in an iron-grip through aid, international institutions, supporting local unrest, and military intervention. While I am not sure how much of this to believe, there is rarely smoke without fire.

Stress Test: Reflections on Financial Crises (Timothy Geithner). This year, I decided to get a better understanding of the events during and following the great financial crisis. Stress Test is a very educative, humble, and (seemingly) honest description of the final financial crisis from an insider. The considerations, reflections, and tradeoffs between short and long term consequences, between what is best and what is popular are interesting and go much further than I had imagined.

Besides this book, I also read Ben Bernanke’s The Courage to Act: A Memoir of a Crisis and Its Aftermath which I would recommend for people seeking another perspective. It offers a good explanation of opinions on monetary and fiscal policy during the financial crisis, but I prefer the style of Geithner’s biography due to the style which comes across as more honest and less censored.

Finance

The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor (Howard Marks). A book on investments without any numbers is a rarity. That said, it raises a number of alluring and unique points. Whether all the points are described in other books is hard to say, but they are concisely described with a clarity and insight that I haven’t seen before.

A must-read for any investor who favors a fundamental or value approach over technical analysis.

Mastering the Market Cycle: Getting the Odds on Your Side (Howard Marks). An excellent book describing the mechanics of the multiple cycles influencing the financial markets.

For readers of The Most Important Thing, many elements in this book may seem repetitive. If I had to pick one of the two only, I’d go for The Most Important Thing, but in my opinion, both are worth reading.

The Alchemy of Finance (George Soros). A dynamic alternative to the classical models of macroeconomics. It is clear that the dynamic/reflexive model is of more relevance to investors than the classical static ones. A lot of overlaps with Soros on Soros (also by George Soros), though I prefer this one as it is both more practical and stronger on the philosophical part.

I hope you will enjoy these books as much as I did! Please feel free to send me book recommendations or feedback!

What Jedis and entrepreneurs have in common

Today, I was reminded of the wise words of a true hero, Yoda, the legendary Jedi Master. I’ll come back to this legend in a second.

One of the benefits of my role is being able to speak to all the great entrepreneurs we work with. I’m fortunate to see what works well in each business and each market individually and also to observe what we struggle with.

I have noticed that many entrepreneurs are great at getting new ideas and great at trying to execute on all of them. Unfortunately, there is a trade-off here. Trying to do many things means a diluted focus. As the adage goes, if you try to focus on everything, you focus on nothing.

Trying to execute on many ideas robs you of the opportunity to truly go all-in on just a few selected ideas and making sure to kick ass in those. 

I see this in many different areas, but I’ll give you two examples that I see often (as a self-aware entrepreneur, you may be able to see similar cases for your own business or team).

Example 1: Many entrepreneurs misunderstand startup buzzwords like “fail fast” and “MVP”. In e.g. marketing, they aim to try out many new channels simultaneously in the hope that some of them will work out. A classical “throw it against the wall and see what sticks”-approach. What they forget is that most channels are priced competitively (e.g. most online channels use auction models). It takes both focus and hard work to make a marketing channel work – especially when you are competing head-to-head with other marketers for the same traffic.

In order to win, you need to be focused and bring all your intensity to make it work.

Example 2: Many entrepreneurs go to meet potential partners without a clear strategy. They may only have a generic approach rather than having tried to understand:

  1. What’s in this for the partner
  2. How to set up a structured approach to adding real value to the partners, or
  3. How to do the different commercial options for the partnership compare against each other – e.g. are you better of with a slightly lower price but for a larger up-front commitment? What exactly is the tradeoff?

It takes real effort to really nail these. It’s not something to, back of the envelope.

For entrepreneurs who have transitioned out of a corporate role, the real point here is that a manager in a corporate world will often work on many projects in parallel. Being an entrepreneur, on the other hand, is about building from scratch and we, therefore, need to work more serially. The only way to build up new processes or new functions, and ensure that they can last beyond the first or second repetition is by giving it full focus and work with 100% intensity.

It is arrogant to believe that you can be competitive with all the other advertisers in your market and beat them on e.g. facebook advertising by only investing 5 or 10 hrs a week. Maybe once the “machine” is up and running it can be maintained at 10 hrs a week, but you cannot set it up, scale it, and be successful with that kind of commitment. You cannot expect to win if you expect to win on your smarts alone. Hard work beats smarts when smarts gets lacy or complacent.

The way to build lasting success is to invest ALL of your time, focus, and energy into your project until you are happy with the result. Only then should you think about how to make it repeatable and find ways to be more scalable.

Example: If you are active in Google Adwords and believe that it’s a worthwhile channel to be active in, then don’t start advertising on Facebook, for example, until your Google ads are as great as you can possibly make them. I often see companies have mediocre performance across many different advertising channels – rather than trying to focus and fix each channel one at a time.

To come back to the legendary Jedi Master: “Do. Or do not. There is no try” (sic). If you want to “try” out something new, expect to dedicate all your focus with full intensity to the project for the time it takes to see it succeed, otherwise, you should rather preserve your energy and focus for the projects you are already engaged in.

If a new project is not worth your time and effort, you should probably consider not doing it at all. If it is worth doing, it’s worth doing it well.

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Photo credits: https://assets.hardwarezone.com/img/2015/12/starwarslightsaberduel.jpg and https://wallpaperplay.com/board/yoda-wallpapers