adult-art-beautiful-704977.jpg

THE YF DAILY

Two Ways To Hide
art-decor-facts-2821220.jpg

One way to go unnoticed is to be in a place all by yourself.

This is when you’ve made something that no one wants.

Another way to hide is in a crowd.

This is when you’ve made something but you’re having trouble standing out.

It’s harder than ever to stand out today. It used to be that just having the budget to buy ads was a sufficient competitive advantage.

But now, with the barrier to entry so low, there’s more competition than ever.

I think that both of these problems have the same solution.

Talk to users and build a deep relationship with a few.

If you’re all alone and you can build a deep connection, you’re not alone anymore.

If you don’t stand out and you focus on just a handful of people, you’ll stand out to them.

Focus on The Third Chair.

RJ YounglingComment
Why Good Marketing Can Absolutely Save A Crappy Product
analog-audio-cassette-2796145.jpg

Some people say that marketing is easy if the product is amazing, therefore, that should be your prime objective.

I think that’s true.

But any monkey can market a product that’s fire.

Because then it’s solely a matter of showing it to the people who’ll like it anyway.

The part where marketing becomes really useful and even necessary is in those situations where improving the product is impossible or impractical.

That’s where the real OG’s of marketing can shine vs. many modern marketers who think throwing up a FB ad and bribing some influencers is marketing.

What’s important to understand is that marketing is a multiplier.

So it’s not just a question of creating a product and then sprinkling some marketing on top at the end.


Pick the largest natural number (n eN) you want:


0 x n is still 0

-1 x n = -n

A product people don’t care about with bad marketing is still a product people don’t care about. (0 x n)

This is what happened in the dot com bubble. Tons of companies spending a lot of money with worthless products. That works until your money runs out or the pool of new leads to bother.

A horrible product with hardcore ‘modern marketing’ behind it will accelerate its downward trajectory. (-1 x n)

But there is one exception.

One, which many people proclaim not to exist.

The idea that the right kind of marketing can turn an undesirable product into a desirable one.


That kind of marketing CAN absolutely create market demand.


This category belongs to the creation of psychological economic value creation vs. technological, meaning you make the product better by messing with the perception of humans and not the actual product.*

We examined psychological economic value creation in part 2 of the essay series: Why Your Business Needs More Weird Ideas.

Our previous mathematical analogies hide that great marketing CAN absolutely achieve this.

You might illustrate this with:

-100 x -n = 100n, thereby showing that a negative product can be saved with a certain kind of marketing.

Except -n would have to indicate the act of good marketing, of course.

Just look at something inherently worthless. A gemstone.

Not even a special or rare one… a diamond.

After the Great Depression, diamond sales plummeted and De Beers hired N.W. Ayers to figure out how they could boost sales.

Or to put it more accurately:


‘‘To inquire whether various forms of propaganda could boost diamond sales.’’


N.W. Ayers faced the following challenges:

If we’re going to sell something that’s pretty much worthless, we can’t have people re-selling it. So once they buy it, they will need to keep it so they don’t realize it doesn’t really have any value.

We need to sell a lot of them, so we need to find a way such that everyone will buy one and not just a very specific demographic.

We need to sell them at an incredibly high price, how can we achieve that?

They came up with this brilliant idea to:

“create a situation where almost every person pledging marriage feels compelled to acquire a diamond engagement ring.”

That immediately takes care of half the population if all the men are buying their soon to be wife a ring.

Since it’s a symbol of love, they won’t sell it.

And we can make it incredibly expensive, not because it’s worth that much but because we can tie it to how much you love your wife if we make them believe that you can quantify that with money spent.

Which is why they released marketing that said a ring should equal 1 month’s salary. (Later, under pressure to increase revenue it became a quarter of a year’s salary.)

If you’re interested in the complete story you can read: Conjuring Up Value: Why You Want An Engagement Ring

Is this easy?

No.

This isn’t something you can learn from a book like engineering because the underlying laws don’t stay the same. You can build the same bridge every time. You can run an effective campaign once.

Such situations are goverened by what I call anti-network effects. You can read about it here.

But can it be done?

Absolutely.

And as we start to run up against the limits of human perception (How much can you improve the pixel density, dynamic range, thinness and bezel of a tv before you just don’t notice the difference anymore?), psychological economic value creation will continue to become more important.

You start to see this in phones, which is why analyses show phone sales are going down.

How much better can you make it?

I’d argue that the iPhone is much more of a fashion symbol which derives it’s value from the story the user can tell themself (psychological value) than it is the single greatest phone you can buy right now (technological value).

Will there be significant jumps?

100%… We’ll continue to have disruptive innovation.

But in areas where we’ve been dealing with very minor incremental innovation, there’s much more room for psychological economic value creation.

In Sell Me The Left One, we examine ways in which the restaurant industry has created huge demand where there was none by creating psychological value.


*It’s important to realize that this wouldn’t be possible if humans were basically flesh-based computers.

This is exactly why so many big organizations and a large part of silicon valley doesn’t realize this is possible. They tend to severely overestimate the logical part of humans and undervalue just how much of human behavior is ‘irrational’.

I prefer to call it counter-logical because everything becomes rational when you look at it through the right lens. This is problematic because you can then post facto pretend things are logical which you previously dismissed. Thus never having to face cognitive dissonance and learn from your mistakes. Aka hindsight bias.

RJ YounglingComment
The Melanie Principle
dark-design-graphic-1820770.jpg

A teacher once said to never begin an essay with a quote.

Well… since YF is the place for rebels and misfits, let’s do what we’re not supposed to and start this essay with a quote from Professor Richard Feynman’s paper ‘Cargo Cult Science’.

‘‘During the war the [cargo religion] saw airplanes land with lots of good materials, and they want the same thing to happen now. So they’ve arranged to imitate things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas — he’s the controller — and they wait for the airplanes to land.

“They’re doing everything right. The form is perfect. It looks exactly the way it looked before. But it doesn’t work. No airplanes land. So I call these things cargo cult science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land.”

(Feynman, 1974)

I don’t wanna quote the entire paper.. but, and I don’t say this often because I try to summarize it for you, but you should add it to your reading list. It’s quite short and it’ll teach you a lot about critical thinking.

The quote above describes the cognitive error known as the cargo cult phenomenon: The religious movement of the SW Pacific during WW2, characterized by expectations of the return of spirits in ships or planes, carrying goods that will provide for the needs of the followers.

cargo-cult.jpg

In this paper, Feynman explores science that isn’t science.

Pseudoscience, which has all of the sizzle and none of the steak.

Well…

We see the same thing happening in startups.

People look at what successful startups did.

They had network effects (meaning the platform becomes exponentially more useful as you linearly add users).

We discussed this at length in: Network Effects, Neutral Network Effects, and Anti-Network Effects.

They had a big total addressable market (can’t become a billion-dollar company in a small market).

Should You Worry About TAM And SAM?

They disrupted a current industry with a big idea.

Covered this fallacy in: Resisting The Siren’s Song

They got viral growth.

And so on…

So all of these characteristics get compressed into the following advice:

‘’ If you wanna be successful like those startups, then do what they did:

Build something which has network effects.

Make sure you have a large total addressable market.

Your idea should disrupt a current industry with some big idea.

Make sure a basic reproductive number R0 > 1 is built-in (e.g. have viral growth).’’

This is like observing sports cars and offering the following advice:

‘’Make sure it’s red.

Make sure it makes super loud noises.

Make sure only two people can sit in it.’’

Other people, in an effort to up their status, spread these ideas without investigating them or plagiarize them and pass them off as their own.

Meanwhile, these ideas undergo no critical examining, while at the same time becoming a part of our culture because you hear them everywhere. 

This is the problem with common sense… Just because something is common doesn’t make it true. Truth makes it true.

The advice above is good for investors to help them increase the probability that they’ll make a good return on their capital, but it’ll kill your startup as a founder.

Why?

Because it’s all lies…

No one actually started that way.*

If you look for some idea which has network effects, a big market, high virality, and is able to disrupt some industry, you’ll come up with trivial ideas.

Ideas that everyone else is having too (which means high competition) or, and this is the real pitfall, ideas that seem good but aren’t.

Peter Thiel made this argument in Zero to One. Good ideas which seem bad are overlooked by everyone and thus undervalued. You want those.

There is one exception which is obvious ideas which are hard to execute: Curing aging, transporting objects, curing for cancer, quantum computing etc.

Starting Big vs. Starting Small


Andrew Mason even said that this was his biggest mistake when starting The Point.. this grandiose vision which made him ignore the fact that users didn’t like the product.

Andrew at the NY Tech Meetup in 2008:

‘’The biggest mistake we made with The Point was being encumbered by this vision of what I wanted it to be. And taking 10 months to build the product and making all these assumptions of what people would want, that we then spend the next 10 months backtracking on. Instead of focussing on the one little piece of the product that people actually liked. So, uhm, If there’s any advice that I have it’s you’re way too dumb to figure out if your idea is any good. It’s up to the masses. So build that very small thing and get it out there and keep on trying different things and eventually you’ll get it right.’’

Eventually, they shifted to a seemingly dumb idea (Groupon) because they were at risk of losing funding.

Same with the founders of Airbnb. Joe had told Brian they were gonna build a huge company.

After thinking and trying to come up with groundbreaking ideas, they rented out their living room out of necessity.

Rent was coming up and they didn’t have the money.

Later that half-baked ‘project’ became their big company.

Same with Apple. Apple wasn’t meant to be this huge company.

After Steve and Woz’s blue box adventure, Woz just built the thing he wanted… An affordable personal computer (Apple 1 was actually just a motherboard).

Steve thought he could probably sell it, sold 50 to The Byte Shop and it took off from there.

The founders of Stripe, annoyed with online payments, wanted to throw together an alternative in a weekend or so. Years later they’re still working on it and it turned out to be a huge idea (and much more difficult).

In a talk at Stanford, John Collison specifically talks about how most companies lie and whitewash their history to seem cool and visionary. But how, in fact, most big companies are much more of an accident than some well thought out and well executed business plan.

In all of these examples, the founders solved their own problems.

Problems that initially didn’t seem big at all, but the market kept pulling.

Which brings us to the title of this essay.

One of my friends is working on a music startup.

And she’s doing just this.. solving her own problems.

Think about the benefits that has:

You know it’s a real problem and not an imaginary one because you have actually it.

You know where to find your users because they have that same problem.

They’re likely part of the same community you’re part of so you have a warm relationship and trust.

All of these things will make it much easier to get traction.

Will it succeed, maybe, maybe not. 

Has she increased her odds dramatically by trying to solve a real problem? 

Absolutely.


*Business is the field of exceptions so while there might be some extreme outlier, that would be missing the forest for the trees. Unlike mathematics, 1 counter-example doesn’t invalidate a theorem. And with my decade + of experience, I can only think of Jeff Bezos who claimed to have the vision for Amazon day 1 and basically built it out. (There are others who’ve claimed it but it’s falsifiable with a bit of research.)


References

Feynman, R. (1974). Cargo Cult Science. Retrieved 21 August 2019, from http://calteches.library.caltech.edu/51/2/CargoCult.htm

RJ YounglingComment
The Infinite Scroll
adult-asphalt-cold-2422896.jpg

If there’s one thing I hope The YF Fam takes away from YF material, it’s that tiny changes can have a huge impact:

Making Your Stuff Cheaper Without Making Your Stuff Cheaper

How many times would you rewatch a video?

None, if it’s okay.

Twice if it’s pretty good/funny/educational etc.

Three, four times if it’s hilarious or exceptional.

Five times in a row? Probably not.

Now how often do you watch a gif, where you don’t have to do anything but watch.

Probably at least 2x all those numbers.

The default has changed from default nothing to default watch.

It took effort to rewatch, it now takes effort to stop watching. You need to pause or scroll past it or take some other kind of action.

That seemingly innocent act of having to press play is a huge barrier.

Why? Because it’s so much effort?

I don’t think so.

I think it’s because it’s a prompt, and that prompt makes you conscious of what you’re doing.

When you’re conscious of what you’re doing, you’re less likely to behave impulsively.

Why do you eat fewer chips if you eat it from a bowl vs. the bag?

Because having to refill the bowl four times, gives you the feeling that you’re a fat ass and that feeling increases with every refill.

Look at the infinite scroll on social media vs. page numbers (like Google).

Ever since infinite scroll became the norm, things like stickiness and time on site increased massively.

Instagram, where you’d have to go to page 2 after 15 posts and page 3 after the next 15 wouldn’t be nearly as addictive.

Because that mindless scrolling would be interrupted. (Something that would actually be a good thing if the company had your best interest at heart and not that of advertisers.)


*When theaters tried to boost popcorn sales, they tried many things inc. two for ones etc. 

But people felt like they were being gluttonous. Eventually, they noticed that the key to getting people to buy more was to simply make the bucket bigger. 

I have a strong suspicion that over 80% of family bag chips in supermarkets aren’t bought with the intention of feeding the family. But rather by a single person who can subconsciously use that as a justification to buy the bigger bag.)

More on counter-logical ways to get people to behave differently and boost business in this essay series: Why Spend Less When You Can Spend More? Part 1



RJ YounglingComment
Making Progress In The Complex Business World
animals-avian-back-view-2091074.jpg

In systems that are: highly complex (large number of variables, known and unknown) and volatile (constantly changing in unpredictable ways). There’s a tremendous and rapid decrease in ROI of studying as a function of time.

I.e. By the time you’d be done calculating how many birds there are in the air right now, it will already have changed.

And that system is only complex, not even volatile, in the sense that you know all the variables: define bird by using the classification used by ornithology. Define ‘in air’ as: birds, not in contact with any surface on earth at t=0.

But that which qualifies as ‘‘bird in air’’ wouldn’t be different at t=25.

Business is different. Success in 1925 is vastly different than success in 2019.

Hell, there are massive differences between 2014 and now.

Business is highly complex. Meaning there are an extraordinary amount of variables you don’t know.

But what’s worse than that large quantity of known unknowns, is all the unknown unknowns.

Now should you have God as a FB friend and you asked him to give you all the data on all those variables, that still wouldn’t solve your problems because business is also volatile.

Meaning: the situation at t=1 can be completely different from t=0 (where you started studying).

As a consequence.. studying the system in order to make a better decision right now, has a strong decrease in ROI.

1. It’s too complicated and

2. By the time you’d be done (not possible), that situation might no longer exists.

This is also my problem with analysts.

Since Youngling & Feynman has already alienated Keynesian economists, macroeconomists, market researchers, and HR departments... I can stand to lose a few more followers.

Analysts.

They’re extraordinary at predicting the past.

Just look at all the manpower and billions of dollars that go into wall street.

Look at hedge funds as a subset, and their performance.

Virtually no one is consistently able to beat the market.

Then if you subtract what you’d expect by random chance/luck you’re left with pretty much no one.

Long story short: learn to be okay with having X% of the info and make a call.

It’s much better to just move and iterate vs. standing still.

*The only exception would be in developing a new pacemaker or smth, where the consequences of failure are death.

RJ YounglingComment
Great Leaders Lead From The Bottom
black-and-white-caretaker-clean-416.jpg

I’ve always admired janitors.

Not sure why.. something just seems so zen.

Maybe, I’ve just had the good fortune of having exceptional janitors in high school.

People who were so much more than just a mindless cleaning machine.

(Which is unfortunately all they’re compensated for.)

They were often very involved in the social dynamics of the school and had vital information about the students, cuz they were ‘‘in the trenches’’.

It always struck me as bizarre that, for all their work entails and for all the things they do that are outside of their job description, they’re perceived as low status.

I think we can learn much from people at the ‘‘bottom’’.

And IMO, it’s unfortunate that leadership caries so much status because it incentives the wrong people. If leadership was low status.. only people who would truly care about it would take on that role.

The best leaders are the ones who do it reluctantly, not the ones who crave to be seen as a leader.

Great leadership isn’t sexy.

Because great leadership means all good things are because of your team, all bad things are because of you.

Great leaders take extreme ownership of everything that happens around them.

Great leaders lead from the bottom.

RJ YounglingComment
Most Market Research Is Horse Shit.

Why customers couldn't have told you they wanted a Dyson vacuum.

art-blurred-background-button-2777776.jpg

When you google market research you’ll find things like focus groups, online surveys, and phone interviews.

If you listen to your MBA professor he’ll tell you about trend reports, market statistics, sales data and industry content.

Most market research is about as useful as a spoon with a hole in it.

The main reason you think it is, is because firms do this for a living.

So it doesn’t matter if it doesn’t work.

As long as you pay for it and you BELIEVE it’s useful, they’ll continue to make money with this sophisticated con.

And because so much of this is subjective (even though it’s positioned by those firms as objective) it can be difficult to find out it’s useless.

(This reminds me of when all of the hired consultants from prestigious firms such as McKinsey, did market research for Howard Schultz and informed him that opening the first ever international Starbucks in Japan would be a massive failure. He ignored them, launched, and before they officialy opened there was a line around the block. Oh and they were selling hot coffee… during a heatwave. So much for market research. You can listen to the story here.)

One of our first clues that most market research is BS is to look at businesses that spend a lot of time and money on it vs. businesses that use something like a design sprint.

The second clue is that so many companies who’ve invested and relied on market research fell flat on their ass, like Microsoft’s Steve Ballmer during the smartphone era.

And we all know how important Microsoft has been as a player in the smartphone market since we’ve all owned a windows phone.

Just kidding.. that was a jab for the lulz.

They lost billions on their windows phones and shut down their smartphone business 5 yrs after they bought Nokia for 7.6 billion dollars.

Fortunately though, they did better with their mp4 player The Zune.

By better I mean they lost a few billions less.

.They launched a stunning 5 years after the iPod and lost over a quarter of a billion on it.

If you wait for market research, at best you’ll never be at the bleeding edge, at worst, it’ll lead you astray.*

The biggest problem with market research is that it all comes from the same place: the past.

Rory Sutherland (Vice Chairman, Ogilvy)

What happens, when we incentivize market research so it’s not asymmetrical anymore (meaning you get rewarded regardless of outcome)?

What if, if your research fails, you fail (in your wallet) and if it succeeds, you win (in your wallet)?

That way, people advising you on market research would have as, Nassim Taleb so often stresses, ‘‘skin in the game’’.

That’s exactly what Google Ventures (GV) did. They invested in a ton of startups, so they were incentivized to help them succeed as opposed to market research firms who only care about extracting your hard-earned money.

They quickly learned how useless market research is and as a result, over time shrunk down the industry standard from many months to what is now known as a 4-day design sprint.

ONLY 2 days of coming up with hypotheses, 1 day of building experiments and 1 day of testing it out.


Market Research For Startups

One of the biggest mistakes market research firms, professors and basically everyone makes is to think that a startup is just a small company and should, therefore, do what a large company does albeit at a smaller scale.

They don’t realize that they do market research by gathering data not because they want to but because they don’t have a choice.

They can’t do the most effective things anymore because they’ve outgrown them.

You can talk to all your users, they can’t. 

In the early days, you can talk to your entire market.

You show them what you’ve got, get feedback, iterate and go back.

To this day, this is still how most startups start and this is what you should do as well.

There’s such a temptation to copy big companies, partly because that’s what everyone tells you to do and partly because it’s scary to be vulnerable and present your product to users.

Market Research In Sophisticated Markets


But the problem is that as you become more successful and the market becomes more sophisticated, this becomes harder.

It can tell you what your customers think of something you present to them, or what they want, based on what they already know.

But they can’t predict something they want that they’re currently unaware of.

Said another way, your customers during the time horses where the main form of transport, wouldn’t have told you they wanted a car.

Just like a doctor wouldn’t view himself as a pill prescribing machine and expect the patient to come up with his own diagnosis, we shouldn’t expect our customers to do our job.

(Matter of fact, oftentimes customers will laugh at your innovation at first. The early adopters use it. It crosses the chasm to the mainstream and finally the late adopters. During this process, no one seems to realize that they were idiots so cognitive dissonance and the accompanying embarrassment never ensues. Although it’s fun with Twitter etc. that one can now hold such people accountable when they so overconfidently call things dumb.)

Customers couldn’t have predicted the Dyson.

Market research would’ve led you to a better hoover vacuum.

In 1986, the Japanese company Apex licensed Dyson’s technology and launched the first Dyson vacuum onto the Japanese market: The G-force.

In 1986, the Japanese company Apex licensed Dyson’s technology and launched the first Dyson vacuum onto the Japanese market: The G-force.

Why? Because those companies didn’t give a shit about making a better vacuum. Only to the degree, it allowed them to make more money.

(Don’t believe me? Listen to James Dyson’s story about what happened when he tried to license his invention to them. Spoiler alert: they laughed him out of the room because a user constantly in need of a new, expensive bags is quite the business model.)

Our customers aren’t trained in innovation. They’re engineers, professors, teachers, nurses, plumbers etc. 

They have busy lives. So when you ask them that question.. they’ve likely never given it much thought before.

So now they’re devoting a few moments to think about a better vacuum. 

So what does the lazy human brain do? It goes to what it knows (the vacuum) and makes some tiny tweaks.

Market Research can tell you what people don’t like, and it can be helpful for small incremental jumps.

Not massive leaps.

I’ll close today’s essay with Steve Jobs’ take on market research:

*There’s one exception though. You can wait until the market has developped a bit more, but when you launch you have launch something people will love. Apple hasn’t always been the first mover. Yes they were first with the notch and many other things that people laughed at and other companies now copy.

(Sidenote in the middle of my sidenote: Samsung ran ads poking fun of Apple’s notch and lack of a headphone jack etc. and now that they’re cloning all those features, they’ve quietly deleted all those ads off of Youtube.)

But they were late with both the Apple watch (Pebble launched 2 yrs earlier), as well as their wireless airpods (Bragi Dash launched a year earlier).

However, when they released it, they shipped something that was better. Customers wanted it. This is something that Microsoft didn’t do. They not only were late, but they also shipped something people didn’t love. That’s a recipe for disaster. In a sense Dyson was late to the vacuum market, but his vacuum was so much better in the eyes of the users that they wanted it.

I wrote about the fallacy of the first mover advantage in Resisting The Siren's Song.

RJ YounglingComment
Network Effects, Neutral Network Effects, and Anti-Network Effects.
creepy-illuminated-indoors-2793460.jpg

TLDR: Most founders are aware of the phenomenon that some products become exponentially more effective as the number of users increases. However, in many situations, such as the development of a contemporary marketing campaign or the birth of a new business model, there’s a decrease in effectiveness as a function of the number of people who copy that approach. I’m calling this phenomenon ‘anti-network effects’.


Network Effects

It works better with more people.


Most of us are familiar with the concept of network externalities.

The idea of demand sided economies of scale: as the product acquires more users, its effectiveness increases.

When Robert (Bob) Metcalfe tried to sell his invention, Ethernet, in the early 80s he made the case that his customers’ Ethernets needed to cross a certain threshold to reap the benefits of what we now call Metcalfe’s law.

‘’3Com sold $1,000 cards that connected desktop computers into a network. Here was the payoff: The cost of installing the cards at, say, a corporation would be proportional to the number of cards installed. The value of the network, though, would be proportional to the square of the number of users. Multiply the number of networked computers by ten and your systemwide cost goes up by a factor of ten but the value goes up a hundredfold.’’ *1 *2

(Metcalfe, 2007).

(It was actually George Gilder in 1993 who coined the term Metcalfe’s Law when he discovered Bob’s 1980’s Ethernet sales presentation slides.)

One of the reasons Snapchat was able to blow up so quickly is because if you’re a high school teen with Snap, it’s pretty boring.. unless your friends have it too.

So there’s a viral coefficient (or basic reproductive number R0 in epidemiological terms) built-in that’s greater than 1.

One user ‘’infecting’’ on average more than one, and so it spreads exponentially.

We looked at flipping the popular funnel approach in Which Side Is Up?


Neutral Network Effects

How well it works is uncorrelated with the number of people.


There are many situations where there’s a neutral relationship between the number of people who adopt it vs. its usefulness. *3

It either works or it doesn’t.

Lifting is one such example.

You can teach a thousand people to increase muscle mass and decrease body fatness in order to improve the overall body composition but Lara’s gains won’t take anything away from Clarke’s.

Physics is another example where neutral network effects come into play.

Nature behaves how nature behaves.

We create mathematical frameworks that we can overlay onto reality and then depending on how well those frameworks correlate with reality, our confidence in them grows.

They either work (have predictive power and internal consistency) or they don’t.

Newtonian physics works perfectly when you’re dealing with non-relativistic speeds and low gravitational fields (sending a rocket to the moon) but it breaks down when you’re dealing with high speeds (photons, you’ll need special relativity), high gravitational fields (supermassive stars, you’ll general relativity), and subatomic matter (electrons, you’ll need quantum mechanics).

There’s no increase in corrosion of those frameworks as the number of people increases.

And while one can argue that innovation in finding frameworks that are better at describing the behavior of the universe, is correlated with how many people have access to those frameworks, ultimately, the laws that govern the behavior of the universe don’t care about whether or not we discover them.

They’ll continue to operate just fine whether 0 people, 10 people or 10M people are aware of them.


Anti-Network Effects

The more people use it, the more its effectiveness declines.


Which brings us to the reason I wrote this essay.

A concept I’d like to introduce which I’m calling anti-network effects.

Anti-network effects describe those situations where effectiveness declines as a function of the number of users.

The reason this concept matters is because so much of the business world is governed by anti-network effects.

Anti-network effects are single-handedly responsible for the absence of marketing formulas.

In a sense, it’s a signal that someone fundamentally doesn’t grasp marketing when she sells a course or book teaching plug-and-play marketing. This is the same category mistake many agencies make with their interchangeable marketing approach. In manufacturing, copying is rewarded by an increase in efficiency and thus effectiveness. In marketing an increase in efficiency destroys effectiveness. Inefficiency is rewarded, so marketing ends up being more similar to sex than it is to manufacturing. (Youngling, 2019).

No self-respecting marketer will ever have the audacity to write a book with formulas for marketing in the way one can write a book with fundamental mathematical theorems (made possible by neutral network effects).

This is because good marketing is marketing that works.

Marketing that works is marketing that stands out.

Marketing that stands out can only be copied so often until it doesn’t stand out anymore.

So there’s an inverse relationship between effectiveness and adoption.

Unfortunately, perhaps due to loss aversion, our obedience orientated educational system or simply because of capitalistic forces, people prefer to copy rather than invent.

So when the founder of TOMS comes up with his philosophy ‘’One for One’’, buy one and we’ll donate one to a child in need, lazy ‘marketers’ copy the best ‘tactic of the day’ and implement it in an effort to maximize revenue, completely missing the forest for the trees and overlooking what made it work… sincere generosity.

This is what has happened to pretty much all effective marketing.

Kendrick comes up with something new, risky, and generous.

Not because he’s seeking to maximize revenue, obviously, (there’s no proof that it’s good business yet), but because he believes it matters.

It starts to work, ‘’ marketers’’ see that and now copy-paste it into their business.

Consumers used to love email marketing. Why? Because there was no money in it yet, so the people who used email marketing didn’t do it for the money, but to genuinely add value.

As more and more people started to use it as a tactic, it became less about the business serving the user and more about how the user can serve the business.


Zooming out, you see anti-network effects occur in disruptive innovation as well.


A business is an exchange between Sara who has something and Blake who wants it and gives her money for it.

There’s a market inefficiency, meaning, the asset price doesn’t reflect all available information yet because her product is so new.

Other entrepreneurs want to make money as well, so capitalistic forces rush to fill this ‘’low-pressure void’’ of market inefficiency.

There’s money to be made and people want a slice of the pie.

As more and more entrepreneurs start to copy Sara, prices drop.

Eventually, they reach a (stable by definition) Nash equilibrium, where a further decrease is impossible (you’ll go bankrupt) and an increase is impossible (consumers will just by from the competition).

We looked at this extensively in The Art Of Business, Where Science And Business Depart.

The only way to break this Nash equilibrium is when an existing (or almost always new) player makes a new move not currently accounted for and completely changes the game, aka disruptive innovation.

James Dyson didn’t make a cheaper, better, bag vacuum (more of the same). He made a totally different, bagless, incredibly expensive vacuum (completely changing the game).

As my mentor, Ogilvy’s Rory Sutherland so aptly puts it: ‘’The opposite of a good idea, can be another good idea.’’

It’s important to realize that this is not possible in mathematics.

You can prove that pi is an irrational number by proof of contradiction. You assume it’s rational (can be expressed as p/q) then show that that will yield a contradiction, leaving you with the only possible conclusion that it, therefore, has to be irrational.

The opposite of ‘’pi is irrational’’ is demonstrably false.

But in business, you can win by being the cheapest (H&M) and by being the most expensive (Gucci). 

You can win by treating your workers horribly in an effort to maximize revenue (Amazon) or by treating them like they’re family (Zappos) or by treating your customers like they’re family and fighting with vendors for lower prices so you can make the product even cheaper for your customers (Costco).


The Golden Age Of Marketing


Marketing is not a modern concept.

It can be traced back to the Egyptians using papyrus to make sales posters, commercial messages and political campaign in the ruins of Pompei, or images on signs associated with a trade (i.e. boot for a cobbler) used in the Middle Ages when the general populace was unable to read.

But modern marketing started with the rise of newspapers and advertising agencies.

The late half of the 19th century and most of the 20th century (esp. 1950–2000) was an incredible time for marketing.

Early on, marketing equaled having enough money to afford running an ad informing people about your product and then using that profit to buy more ads.

But as competition started rising, the need for creativity grew, resulting in some of the most beautiful, marketing campaigns designed to alter human behavior.

My favorite being N.W. Ayers who were approached by De Beers corporation to make people want diamonds (post-Great Depression of 1930). The solved it by inventing the concept of the diamond engagement ring.

I wrote about this in Conjuring Up Value: Why You Want An Engagement Ring.


Anti Network Effects In The Post-Modern Marketing Era


But as we started shifting into the post-modern marketing era, where we moved off of advertising in newspapers and TV (where ‘’shelf space’’ is limited), and onto the web (where there’s no physical limit anymore to how many people can market), creativity surprisingly disappeared.

And in flooded: SEO best practices, Guaranteed results Adword campaigns, and How to do Facebook ads for dummies.

With the cost of experimentation being so low, you could’ve offered the highly plausible hypothesis that creativity in companies’ marketing would massively increase.

But instead, the opposite has happened. People are more afraid than ever and simply copy what everyone else is doing.

This is made even worse by the fact that most creative you see online doesn’t come from trained professionals but is thrown in as a freebie by the vendor. This, coupled with the fact that the vast majority of agencies copy everyone else and are thus interchangeable, explains why so much of post-modern marketing is absolute shit (in scientific terminology).

We now live in an age where there aren’t any good marketers left.

And I now believe marketing is completely dead. The word marketing has so many negative connotations that it’s beyond repair.

Which is why those of you familiar with Youngling & Feynman’s thesis know I’ve started referring to marketing as pragmatic, behavioral psychology:

How you can influence human behavior in the real (practical, not in a lab) world in order to achieve a certain goal (including but not limited to sales).

This will be the future of marketing.

Pragmatic, behavioral psychologists who use the guidelines of human behavior and blend that with unique art (not repeatable science) in order to maximize results and minimize the negative results that come from anti-network effects.

I wrote about this in Advertisers Are Clueless About Advertising…

Thank you for reading. I hope you were able to find some value in it.


*1 N-squared because 1 user can connect to all other users. If there are n users, that means n users can connect to n-1 users, which yields a ‘’total value’’ of n*(n-1) but for simplicity’s sake we just call it n squared since value isn’t cardinal but ordinal at best, meaning you could perhaps argue X has more value than Y but it would be laughable to express value in a decimal notation (unless you’re a Keynesian economist.. just kidding).

*2 It’s important to realize that the concept of network effects was useful early on not so much because of the exponential increase in usefulness but specifically because of the juxtaposition between linearly rising costs and exponentially rising value. N times more networked computers makes the cost go up by n*cost, but the value by (n-1)*n.

*3 Neutral network effects isn’t that useful of a concept. You’re basically talking about the absence of network effects. The only reason I introduced it is so I could juxtapose network externalities against anti-network effects in order to demonstrate that the absence of network effects is materially different from the concept of anti-network effects.


If you‘ve read all this then it seems like you’d enjoy our essays. 

Join The YF Fam here and receive our essays for free in your inbox or get them Whatsapp’ed to you.


References

Metcalfe, R. (2007). It’s All In Your Head. Retrieved 31 July 2019, from https://www.forbes.com/forbes/2007/0507/052.html#482cb6b147d3

Youngling, R. (2019). Which Side Is Up? — Youngling & Feynman. Retrieved 15 August 2019, from https://www.younglingfeynman.com/essays/upisdown

Youngling, R. (2019). Marketing Is Sex, Not Manufacturing — Youngling & Feynman. Retrieved 15 August 2019, from https://www.younglingfeynman.com/essays/sex?rq=sex

RJ YounglingComment
First Impressions Are Overrated
baby-children-cute-264109.jpg

Everyone knows the saying: ‘‘You never get a second chance to make a first impression’’.

First impressions matter, yes.

Especially in situations where the continuation of the situation depends upon that very first interaction.

Say, you’re cold calling for business…

How long have you got before the other side realizes you’re cold calling and wants to hang up?

Research (from hostage negotiation) shows it’s about 7 seconds before people have formed an opinion.

However, in many cases, the last impression is much more important because that’s what we remember.

A lovely stay at a hotel can be completely ruined by a rude staff member upon checking out.

Or an amazing movie that we were loving can be completely demolished by what we perceive as a shit ending.

But perhaps more surprising is that the opposite is true as well.

Founder of behavioral economics and Nobel Prize winning Professor Daniel Kahneman has found that an objectively, overall less painful, and short colonoscopy can be perceived as worse, provided the ending was particularly painful than an objectively more painful and a longer one.

Which he talks about here: https://www.youtube.com/watch?v=XgRlrBl-7Yg

The correlation of this surprising new-found knowledge is that you can make the experience of an objectively bad colonoscopy significantly better by making it longer but making sure that those lost few minutes hurt significantly less, thus influencing how the overall experience is remembered.

Think about how counterintuitive that is… You’re basically adding to net total pain.

This might be surprising to a student of logic, but for those of you who’ve been following Youngling & Feynman for a while, I hope this disconnect between reason and reality comes as less of a surprise.

To wrap up today’s essay: here’s a challenge I want you to try in your business:

Starting Monday try having a disproportional focus on the last moments of the interactions with your clients, making sure that they remember you in the most positive light, just until Friday and report back to me on Twitter, Whatsapp or whatever platform is most comfortable for you.

A little alchemy can go a long way.

Have an awesome Saturday my friends!

RJ YounglingComment
The Secret To Getting Things Done Is To Have A Simple System
child-girl-little-36483.jpg

Those of you who’ve been following Youngling & Feynman for a while are well aware that I’m a big fan of Kanban as a way to maximize productivity, satisfaction, quality and just systematically getting work done.

Here are a few essays where Kanban has come up.

Push vs. Pull Learning

One Day Without Procrastination

How I Schedule My Day

And my favorite: Yak Shaving.

Mainly because of the following reasons:


You get things out of your head and onto ‘’paper’’.



We often underestimate the complexity of the things we do, especially if we’ve never done it before.

Many things can be broken up into 5 or more different subtasks which, by themselves, can be broken up again.

That’s way too much to keep in your mind at once.

This creates a lot of mental repetition and unproductive loops where you take 1 step forward and 2 steps back.

‘’Going to the gym 5 days a week’’ is a habit many people, enthusiastic to make a change, set for themselves.

But you need to: 

Set an alarm to wake up earlier. You need to shower before the gym. Eat your pre-workout food. You need to put on your gym clothes. You need to drive/walk to the gym. 

You need to research to create some sort of system of what you’ll do in the gym, how to do the exercises well and how to measure progress (all of which are new and can be broken up even further). 

Then you need to drive back. Shower. Eat your post-workout food. Get ready for the day.

That’s like 20 new habits, starting tomorrow, 5 days a week… Yeah.. that’s never gonna happen. 

Which is exactly why so many people fail before January 7th after setting their NY’s resolution, waiting a whole year for this self-flagellation ritual to repeat again.

Do this enough times and people just lose hope all together saying things like: ‘’I’ve tried everything but nothing works’’.

What if, instead of setting themselves up for failure, they just started with waking up 5 minutes earlier every day to do 10 pushups daily for 14 days and let that habit form before gradually morphing into the routine described above.


You create a system that’s designed for a 10 yr old.


There’s a tendency when it comes to productivity to leave things ambiguous. But creating a process and breaking every step down so a 10 yr old understands it is extremely valuable.

(I argue that’s what makes iPhone so powerful. Often times, products designed for disabled people influence design for able people because they can make things simpler. Such as a Bluetooth speakers with huge buttons for example.)

base_ultimate-ears-wonderboom-grijs_1.jpg

Humans are much more productive when we can follow an explicit system vs. having a lot of vagueness left to be interpreted by the individual.

Suppose you have a meeting:

Ineffective would be: shooting the shit and going round in circles.

More effective would be to: 

Think of all the steps from start to finish: 

  1. A backlog of questions.

  2. A breakdown of those questions.

  3. Answering the question.

  4. Validating that you’ve answered it well and the person/people can move on.

Now we create some rules stipulating when each step is completed.

Breakdown is done when the question is smaller than 60 seconds.

Answering is done when you’ve repeated it back in your own words to make sure you got it and then you answer it.

Validating is done when the person acknowledges that you’ve answered their question well enough.

This all seems very childish. 

And yet I’ve found that precisely when you make things ‘’childish’’ or perhaps less pejoratively stated: simple, that productivity skyrockets. IMO, you can never make things simple enough.

When you think it’s simple and explicit enough, you can probably make it even simpler and more explicit.

You create clarity.

Not only do you and your people have some structure but they can see what’s going on. You know upfront what you want to do and you can see in real-time where you’re at with everything.

Knowing upfront what you’ll have done by end of day IMO is a superpower. 

When you can reliably do this… it’s pretty much indistinguishable from having a magic wand. You just create some Kanban tasks and stick them in your backlog and when a stranger walks in the next day, they’re in the done column as if it were magic.

You pull vs. push.

I talk about WIP limits in the essays linked above. But a WIP limit is a work in progress limit. 

You limit how many tasks each column is allowed to have.

I.e. Breakdown WIP: 1, Answering WIP: 2, Validating WIP: 1.

This prevents you from breaking down 20 questions when you’re stuck in the answer stage in this example.

That’s important because if you have a process where each next step is dependent upon the previous step, then you don’t want to have a ‘’traffic jam’’ where the previous step keeps producing while there’s obviously a block somewhere else. 

Instead, you want to resolve the blockage.

This creates a streamlined throughput.

In practice, this means that if you have a process and one stage is stuck at the WIP limit, the people working on their other stages will help that person because they can’t go over their own WIP limits.

You can read more about it in this essay which goes into the history of Kanban in grocery stores.

Ultimately this is about maximizing the human brain resource and avoiding spinning your wheels while producing nothing.

You avoid busyness, taking lots of action while accomplishing somewhere between nothing and hardly anything.

By knowing exactly what you’re gonna do and what you have done at the end of the day, you can use that to gauge your productivity.



RJ YounglingComment
Sell Me The Left One
bottles-clean-close-up-122803.jpg

We all know a bottle of water is a bottle of water.

The way to increase profits is to cut costs.

You outsource labor, wherever possible, to some cheap third world country.

You make manufacturing more efficient and skimp on resources used.

According to standard economic theory, a bottle of water is a bottle of water.

Obviously…

Right.

Right?

Well, what if I give you the impossible task of selling me the left one?

If they’re truly interchangeable then this is a nonsensical assignment… but is it? Is it really?

Let’s see…

We know that specificity sells better than generic.

Describing it as purified, mineral, hydrogen ion water is better than ‘water’.

Never mind that all water is purified, contains minerals, and a small degree of hydrogen ions (consistent with the self-ionization constant i.e. concentration of H+ and OH− ions in solution, 10^(−7) moles of the ions per liter of pure water at 25 degrees Celcius.)*

We know that scarcity increases desire.


But how can you make water scarce.. you can’t.. it’s fucking water?!

The most abundant liquid on the planet.. 

Well, if we tie it to a specific location then we can create scarcity by the mere fact that we’ve introduced a geographic constraint.

Lake Tahoe Fresh Water, for example.

(Btw. You might’ve never given it much thought but Everest water comes from plain ol’ Texas and Glacier Mountain comes from Ohio.)

The impact of names is well known.. which is why many foods went from unpopular to delicacy by mere renaming:

Antarctic Toothfish to Chilean sea bass. (It’s not caught in Chilean waters and nope.. not bass either. Invented by Lee Lantz in 1977.)

Whore’s eggs to Maine sea urchins.

And my favorite: slimehead to orange roughy. 

Can you imagine being in a fancy restaurant, going through the menu and seeing slimehead just below whore’s eggs… yeah.. not the greatest user experience probably.

My final, slightly over the top example,

is to find out a way to get face to face access with a celebrity, perhaps a book signing or charity event. Say, Khloe Kardashian.

Then when you’re talking with her, make sure your hands are full. That left bottle of water in one hand and her book in the other hand. 

Then your phone rings (the alarm you set earlier) and you ask her to please hold the bottle for a moment while you grab your phone.

Now, you can sell that bottle of water on eBay as KHLOE KARDASHIAN’S UNOPENED BOTTLE OF WATER.

You can likely find fault with the above examples but that would be missing the forest for the trees.

The point is that with some creativity it’s possible to turn stone into gold… because we’re marketing things to humans. And things only have value to the degree humans decide they have.

So always remember that you’re in a world filled with imperfect (or perfect depending on how you look at it :)) people and not machines.. so be creative my friends and fabricate some value (and by extension happiness) out of thin air. Why not have a fun challenge in your company between a few groups and see if they can’t come up with some cool alchemy to increase profit.

*You can use this magic to produce value and change human behavior for the better (in getting more people into STEM for example). But unfortunately, it can also be used to create problems. The environmental impacts of bottled water are severe and while there are circumstances where a bottle of water is preferred (when you don’t have or want a reusable bottle), most people don’t realize that one $2 bottle of water would give you 4000L of tap water and the quality is often superior.


Today’s essay was inspired by Rory Sutherland’s Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life which, as far as I’m concerned is required reading for any founder or marketer.

RJ YounglingComment
Desire Path
beach-black-sand-beach-clouds-318420.jpg

Maybe you remember from going to University.. or on your daily commute when you’re on your way to catch a train...

That man-made trail.

The grass worn down from the people who, rather than continuing to walk on the street, took a shortcut.

These paths are known as desire paths.

They illustrate the paths humans prefer rather than the paths which were created by humans.

In an ideal world, desire paths wouldn’t exist. We’d just “get it right” the first time.

Desire paths show us a kind of ‘mistake in logic’ we made.

Logically, our designed paths are the most optimal... maybe because of cost or safety.

But psychology, they’re clearly suboptimal. So much so, that vast amounts of people break from the status quo.

Which is usually difficult to get humans to do.

In Finland, post snowing, city planners study the desire paths made by people in order to study human behavior without them being influenced by temporarily unavailable stimuli.

Can you do a similar reset in your business, to get a fresh look at how your customers prefer to interact with you and how you can best serve them?

“A path should be laid where people walk, instead of walking where paths are laid.”

-John Barth, The End Of The Road.

Are your processes serving your customers, or are you trying to force your customers to serve your processes?

There’s a subreddit about desire paths should you be interested: r/desirepath

RJ Youngling
Eliminating False Positives: A Counterintuitive Mistake
architecture-artistic-artsy-2605200.jpg

I recently had 2 bad experiences in a row with 2 different companies.

The first one is ReplaceDirect.nl where I ordered some PC parts which broke just days after the lawfully required minimum guarantee period of 6 months.

In my astonishment, they decided to hide behind the law giving the standard boilerplate: ‘’We gotta draw the line somewhere.’’

Okay, and it just so happens that that line is identical to the minimum period the law states? Me thinks not!

There’s no better way to communicate to your customers: ‘‘If we could scam you with broken parts and zero guarantee we would, but unfortunately that’s illegal so we’ll do the bare minimum to comply with the law. Not because we want to, but because it’s illegal not to.’’

This is an example of bad faith.

A deliberate strategy by the company designed to maximize profit.

(Based on the Friedman Doctrine, you do everything you can to maximize revenue no matter how unethical as long as it’s not illegal. That last part, illegal, is a threshold that’s all too often crossed by companies adhering to the FD. It’s a slippery slope.)

You ship shitty products and rely on the hope that they stay functioning for at least that 6 month period. When they break, your customer is shit outta luck.

If they do break within that 6 month period, we know from behavioral psychology that people prefer inaction so most people will default to doing nothing.

Out of that small subset that bothers you, you deny them a refund until you’re left with an even smaller subset who threatens to sue at which point you grant them the refund.

It’s a deeply unethical, immoral way to run a business…

But a way it is (unfortunately) none the less.

For our perspective, this isn’t that interesting of a case to investigate as it only offers the banal conclusion… don’t run your business like this because if you subscribe to Youngling Feynman theory then our obligation is two-fold:

i. Make your revenue engine work. (So the business does well for the owners, employees, and shareholders.)

ii. Aim for deep user love. (So that a slice of the world will be better off because your company exists.)

I build out this thesis in the essay series: Do You Have Customers Who Deeply Love You?

This company obviously breaks our second axiom. But it also breaks the first because by screwing over people, you will have negative word of mouth and low or negative organic growth.

Eventually, you’ll exhaust the finite pool of customers who you haven’t screwed over.

The second case is actually more interesting for our purpose of learning.

This was a takeaway restaurant that gave me an incomplete order.

When I got home I noticed it and called them, however since they were closing up they couldn’t help me and told me to call back the day after.

The call itself was very confrontational and made a lousy situation worse.

Bad stuff happens… However, if you’re lucky to have a sympathizing customer like me then you should be extra empathic and apologetic for your (excuse the french) fuck up.

The irony is that the more ownership you take of the problem the more understanding your customer will be.

If you become confrontational, especially if you’re in the wrong, your customer will become defensive.

The next day I went back and I felt the onus was on me to prove that they had messed up.

By chance, an employee with whom I talked recognized me and could confirm that there was food left at the end of the shift which validated my story.

They remade the entire order and that was that.

However it did made me wonder what they would’ve done had that girl not been there.

I wanted to share this story so you don’t make the same mistake because this was handled extremely poorly.

My time is valuable and had I known about this whole song and dance I had to perform I wouldn’t have even bothered.

The contrast with ReplaceDirect.nl is that this wasn’t bad faith.

They were subject to their biological drives.

Specifically, loss aversion.

If you’re 100% sure you messed up, you’ll want to fix it (unless it’s part of your immoral business model not to.)

Let’s call that a true positive: You give a refund to someone who deserves a refund.

However, this company is so mortified of a false positive: giving someone a refund who doesn’t deserve it, that they harm the ones who do.

Creating a policy which eliminates any possibility of false positives will make your accountant very happy.

But it will come with the collateral damage of denying people refunds who actually deserved it. (Let’s call that false negatives.)

So by eliminating the possibility of a false positive, you increase the number of false negatives.

In the end, they gave me ‘’a refund’’ they gave me what they forgot plus the rest of the order, but the damage had already been done since the negative experience left a (no pun intended) bad taste in my mouth.

And also, it didn’t feel like a fair exchange. I had to put in so much time and emotional labor only to receive my complete original order.

So what should they have done?

They should’ve been biased towards assuming it’s them who messed up (and use this situation as a profit center which I’ll cover at the end.)

Instead of preventing the possibility of a false positive (which is about you, the business, selfish) they should try to minimize the possibility of a false negative (which is about the user experience).

Because a false negative is the worst kind of word of mouth a company can get because you’re punishing an innocent person.

You can’t get this perfect because you’ll make mistakes and there are people who’ll take advantage.

However, you can’t base your policy on those 0.1% bad apples and thereby harm 99.9% of normal or even cool customers.

So, while you should take steps to minimize false positives, trying to eliminate them altogether is a mistake.

In the world of retail, theft is factored in as shrinkage. And while they do take some steps to prevent the extreme cases, they’ve (over time) realized that having no shrinkage and having no customers show up anymore is missing the forest through the trees.

Have you noticed that Apple is one of the few companies who display their hardware openly in their Apple stores?

What you might not know is that theft is a much bigger problem for them because of it.

Just click this link: https://www.youtube.com/results?search_query=apple+store+theft

However, they’ve made the right call that the anomalous behavior of a few, shouldn’t dictate policy.

One final lightbulb I want to turn on in your brain is that it’s possible to view customer service when something goes wrong as a profit center and not a cost center.

The behavior of ReplaceDirect shocked me because it’s rare to come across companies that immoral.

However, the behavior of that restaurant is what I expected to a degree.

There was some doubt that it might not suck which is why I called, but I did have that voice in my head going ‘’Is this worth it.. it might be a whole ordeal’’.

I didn’t expect it to turn out like it did, with me on ‘’trial’’ but I wasn’t expecting roses either.

If you can do that (roses) for your customers you’ll damn near give them a heart attack.

They’re so used to the very worst.

So when all of a sudden you show up, and your company is super apologetic and compassionate and you go above and beyond doing way more than necessary to fix it… well, then you’ll get a much higher ROI then you could get on any advertising campaign.

Don’t stress about the people who’ll abuse your kindness, if it’s super obvious then kick them out but when in doubt, decide in their favor!

RJ Youngling
The Unseen Pitfall Of Extrapolation In Entrepreneurship
blur-close-up-depth-of-field-1786769.jpg

Why we can’t always trust the past to inform our decision-making process for the future.

Probability theory teaches us that when you flip a coin you have two outcomes: heads or tails.

It lands on one of the two, giving the probability of heads 0.5 and P(tails) = 0.5 as well.

But how do you know that?

How did you know there are only two possibilities?

How did you know that when you flipped it, it wouldn’t turn into a fire breathing dragon, burn your house down and fly away?

You didn’t.

A gifted hypothetical baby who can speak perfect English but isn’t familiar with gravity, angular momentum, and basic Newtonian physics has no idea what will happen until you either tell him or he empirically experiences it.

To certain people, this seems like a profoundly stupid example, but it’s not.

It illustrates that (some of) the logic we have created is an extension of what we’ve observed empirically.

No one has ever seen a coin toss change into a dragon mid-toss, it always bounces and lands heads or tails, therefore we can assume it’ll always keep doing that and our physics* equations are based on that assumption.

Now such an assumption is reasonable under the laws of nature.

After all, I have experienced gravity every day of my life so it’s reasonable to assume it’ll continue.

I think we‘d’ all be surprised if tomorrow, there’s no gravity.

However, business doesn’t always work like this.

You have to be cautious with assumptions in business.

It is possible ‘’for the coin to change into a dragon mid-toss’’ because unlike the static laws of nature, ours are dynamic.

Why? Because the environment shifts, causing things that were true in 1 business climate to be false in another.

Pretty much all disruptive innovation is created this way.

You have an industry which has operated a certain way for decades and all of a sudden some tiny startup sees a way to do things differently.

‘’Nonsense’’, says the incumbent.

‘’That’ll never work! After all, it has never worked in the past.’’

Sometimes they’re right. Sometimes they’re wrong. 

And when they’re wrong, that tiny startup disrupts an entire industry.

How can they be wrong? With so much expertise?

Because just like our coin example, their laws, their intuition, their equations, are extrapolations based on how the world used to be.

And as long as it continues to be like that it works.

But when the world changes, which it often does, they’re screwed.

This means you create a severe dependency on the absence of technological- and market evolution, for the status quo to remain the status quo.

(This is why the taxi industry sued Uber, why the RIAA sued Napster and so on…)

So what enables an incumbent to be disrupted when their way of doing things becomes misaligned with reality, is specifically the pace of technological- and market evolution.

Said in other words, the faster technology evolves and the faster the market evolves, the more they will have to change with it.

Refusing to do so means you’ll be stuck with a product that people don’t want.

And then it’s only a matter of time before selective evolution yields a startup ‘fit’ to survive in the new environment.

Ford made this mistake in the early 1920s.

His dream was to take the car from expensive toy for the rich to affordable to the everyday person… to put America on wheels.

However, as he started reaching that goal and the market became saturated with Model T’s, it created an appetite for cars that weren’t utilities *2. 

Which Alfred Sloan capitalized on when he overhauled GM and launched the ‘’A car for every purse and purpose’’ thesis.

I talk about this in the essay: Why Do You Want A Faster Horse?

*Notice I said physics not mathematics. Mathematics is the only science which starts under perfect conditions.

We create axioms and reason from there. The only constraint that we have is that it doesn’t create an internal contradiction with the axioms.

All other sciences don’t function like that. 

Richard Feynman once said: ‘’It doesn’t matter how beautiful your theory is, it doesn’t matter how smart you are, if it doesn’t agree with experiment, it’s wrong.’’

That’s not how math works. It doesn’t have that obligation. In the purest form of math, mathematicians are just creating and it’s up to people in other fields to see if and how they can apply it to the real world.

*2 Notice that fashion and nutrition went through similar evolution cycles going from mere utility to being more about the experience and being a means to express oneself.

RJ YounglingComment
Goodwill Culture
bart-simpson-casual-close-up-1813947.jpg

Establishing a culture of goodwill early is important for 2 reasons:

1: Generally, you make your money when you offer to sell something.

In order to offer something, it helps if the reception is warm.

You get a warm reception to your offer if you’ve got goodwill. Therefore more goodwill = more money

2: It’s incredibly hard to change ex post facto.

For two reasons: the intangibles and the tangibles.

Intangibles: 

Once the culture is set it becomes near impossible to change. Behavior gets ingrained and everyone around you is reinforcing that behavior.

Going against an environment is exceedingly hard. 

Any good cognitive therapist or behavioral psychologist will point out that it’s much more effective to change the environment when trying to change behavior vs. trying to use will power.

The branding and positioning in the minds of the consumers will also need to be changed.. hard to do. So you have both internal (company) and external (customers) forces working against you.

The second reason is the tangibles:

So not only do you have to fight intangible reasons like culture, branding, and positioning.. but the entire way the business model is structured.

If goodwill isn’t a priority but revenue is, you can bet your ass, customer support will be viewed as a cost center and, by extension, suck.

Materials will be cheap and of poor quality in order to drive revenue vs. good and long-lasting.

Guarantees will be non-existent or the minimum lawfully required period.

When stuff breaks even a minute out of warranty, the company will collectively do a celebratory dance because they aren’t required by law to replace your exploding battery or broken fan.

The overall UX will be poor in order to maximize short term revenue.

So changing this will mean restructuring the entire business model.

This is akin to buying a big moving van and trying to rebuild it into a sports car.

You can reuse like 1%, meaning 99% will be thrown away.. it’s much easier to just build the damn thing from scratch.*

So the time to incorporate goodwill into the DNA of your organization is from the start.

And it starts with the founder.

*This is exactly what happened with the first Tesla Roadsters. They were built on a Lotus Elise framework but making it electric turned out to be much harder than anticipated.. resulting in this ‘’99% rebuild, keep 1%’’ thing… Elon has said it would’ve been much better had they just build it from scratch, in a talk at Vanity Fair.

When he’d originally promised a 2006 delivery date, Eberhard said, the Roadster was a lower-risk proposition. The original plan was simple: Tesla would supply the drivetrain components for Lotus to build. Production would be low cost and low friction. As Smith remembers, the idea was to reduce cost and headcount by sourcing as complete a vehicle as possible, then adding a few pieces of swank technology and finishing the car. They’d throw on a few body panels and make sure it didn’t look like a Lotus.

But that didn’t happen, thanks to what Smith called “elegance creep.” They could keep making the car a little nicer, so they did.

“Musk wasn’t the CEO, and he wasn’t the president,” Malcolm Smith, the VP of vehicle engineering, told Business Insider. He would “sweep in every few weeks” to see the development, learn the details, then want changes for a variety of reasons. And disrupt the workflow.

You can read more about Tesla’s origin in:

Elon Musk: Converting Lotus’ Elise To Build The Tesla Roadster Was A Super Dumb Strategy

and, The Making Of Tesla: Invention, Betrayal, And The Birth Of The Roadster

RJ YounglingComment
You’re In Charge
adorable-animal-breed-1805164.jpg

As he becomes more concious of the infinite deterministic forces of his life, he becomes more free. Freedom is thus not the opposite to determinism. Freedom is the individual’s capacity to know that he is the determined one, to pause between stimulus and response and thus to throw his weight, however slight it may be, on the side of one particular response among several possible ones. (May, 1963)

The biggest problem in the 21st century is that we’re reactionary.

We don’t stop and think because there’s no stillness in our mind. 

In a world full of gadgets: iPhones, iPads, social media apps and so on.. the most complex gadget of all, our mind, is constantly overlooked.

We’re human. And we think that means we’re not animals. However, the delta between us and animals is significantly smaller than us and our idealized version of what humans are.

We’re incredibly reactionary because we don’t practice not being reactionary.

From the moment we wake up till the moment we go to bed, most of us are on complete autopilot. We think about something bad that happened which makes us think about another thing, and another thing, and we get caught up in this endless string of mental associations.

We constantly miss the present because we’re lost in the past… or the future.

Just try to let the mind relax for a second.. just observe what’s going on around you and inside of you…

Notice how quickly you get lost in another thought. The getting of the thought isn’t the problem.. it’s specifically the difficulty we have with not recognizing that we’re lost in thought and our inability to bring our awareness back to the present.

I have many friends who do Yoga and like most western people, they’re unfortunately clueless about its purpose. Yoga isn’t stretching, it’s specifically to train this ‘’noticing’’ of thoughts so you can bring your mind back to the present.

There are many disciplines but all of them have the same aim. Practicing to relax the mind by recognizing when you’re thinking and consciously letting that thought go vs. being carried away by it.

This is incredibly important for humanity because it allows you to use your prefrontal cortex to make a conscious decision about how to move forward vs. being reactionary because of our amygdala and regretting it later.

As the opening quote says.. there’s a space between stimulus and response, and in that space, we get to choose how we proceed.

References

Lloyd-Jones, E. McDonald., Westervelt, E. M. (1963). Behavioral science and guidance: proposals and perspectives. Freedom and Responsibility Re-Examined by Rollo May (p.103). New York: Bureau of Publications, Teachers College, Columbia University. Retrieved from https://babel.hathitrust.org/cgi/pt?id=mdp.39015062958189&view=1up&seq=119

RJ YounglingComment
Slow Is Steady, Steady Is Smooth, Smooth Is Fast.
architecture-building-exterior-buildings-2479961.jpg

After decades of running marathons, what have we established is the most effective way of running one, both empirically and scientifically?

Sprinting as hard as you can, followed by a recuperation period, followed by a sprint again?

I’d have a hard time finding anyone who’d feel like this would be a plausible hypothesis.

Simply because of the law of diminishing returns.

You sprint distance X and rest time Y. The second sprint is distance X-20 and rest time is Y+25.

Intuitively we all know this.

Then why do we treat business so differently? What’s up with expectation employees to work 16hr days and constant sprints for deadlines.

No professional athlete trains like that yet we expect ourselves and the average Joe employee to magically pull that if.

Here’s a radical idea.. what if.. just what if.. we could actually achieve much more not by constant sprinting but by having a significantly slower BUT sustainable pace instead?

Perhaps succesful business is a marathon and not a sprint.

RJ YounglingComment
The Non-Linear Returns Of Edges
architecture-building-edge-2122238.jpg

If you’re anything like me you probably severely underestimate the importance of sleep.

Every major disease in the developed world — Alzheimer’s, cancer, obesity, diabetes — has very strong causal links to deficient sleep.

It’s not possible to collect a sleep debt (during the week for example) and pay it off later (during the weekend).

Lost sleep hours will be lost forever.

What you probably know is that we have REM sleep and non-REM sleep.

What you probably did not know is that the majority of nREM sleep occurs in the first few cycles of sleep and the majority of REM sleep in the last few cycles.

This means that if you go to bed at 00:00 and wake up at 06:00 instead of 08:00, you lose the last two hours, meaning, you’ve missed out on almost all of your REM sleep.

Which makes you more prone to mental health illness in the long term (like depression, anxiety, and suicidality) and lack of creativity (connecting the dots) and resetting the emotional network in the brain (controlling your impulses and emotions).

So by missing the last 2 hours of sleep, you don’t miss 25% but 90+%.

The person who works an extra half an hour every single day also experiences disproportionate results in the opposite direction.

The U.S. Bureau of Labor Statistics reports that the average person working 45 hours per week earns 44% more pay — that is, 44% more pay for 13% more work. Put another way, she or he gets more than triple pay during those extra hours. (Farrell, 2005)

By consistently staying half an hour to an hour longer, people start to notice you… This includes the right (influential) people.

You stand out in a positive way as that person who takes ownership and is willing to go the extra mile and has all kinds of ripple effects.

The same holds true for our customers.

A ‘’thank you’’ or an ‘’anything else?’’ is what we expect of you… Some companies think they deserve a medal for doing what’s expected..

Unfortunately, it doesn’t work that way.

However, doing that little bit more, the unexpected, the surprisingly generous… That’s a form of costly signaling.

Doing things on the edges yields disproportionate ROI.

It gives birth to alchemy.

In the essay: Science + Alchemy = Predictable Magic we discuss the dichotomy of science and alchemy in business.

References

Farrell, W. (2005). Why men earn more (1st ed., p. 78). New York: American Management Association.


RJ YounglingComment
Ten
evening-london-man-2505834.jpg

The way you grow is to serve fewer people, better.

Not more people, worse.

There are almost no companies giving people an extraordinary experience.

Thus, the bar is set low. If you go above and beyond, you’ll instantly stand out.

That will attract not only more customers, but the right customers.

Don’t just attract anyone.

The haggler, the complainer, the divas, the stress spreaders, the ones who don’t understand where your value lies..

Attract the right people.

And that starts with 10.

10 members of your tribe. 10 raving fans. 10 evangelists who spread the word.

Getting 10 people like that is very, very hard.

But in the process of getting those 10, you’ll do an order of magnitude more good for your company than if you try to 10X the traffic you get in the hopes of converting some small percentage of them.

Bottom-up vs. top-down. Read the essay Which Side Is Up? for more on that.

RJ YounglingComment
All Perfectionists Are Liars
adult-beautiful-casual-2213048.jpg

In order for something to be perfect, it needs to meet the criteria of perfection.

How can something be perfect if it’s never been shown to the marketplace?

If it’s not shown to the marketplace, it can not be judged and it’s impossible to conclude whether or not it meets the criteria necessary to be perfect.

Therefore, perfectionism is a lie.

It’s a warm blanket we wrap around ourselves to shield us from the uncomfortable truth…

That we’re refusing to ship not because we’re perfectionists, but because we’re cowards.

It hurts when you pour your soul into something and the marketplace doesn’t like it.

So we hear those voices in our heads before we ship and keep tinkering with it in the hopes of having not a single negative remark upon launch.

Which deep down we realize is a fallacy which is why we get stuck in this loop.

The key is two-fold.

One part is to give yourself constraints. I.e. You ship daily.

You do the best you can within those constraints and you ship.

Not because it’s ready but because it’s time.

We don’t expect you to be perfect, we expect you to try your hardest.

Do that, and the right people will be completely understanding and root for you.

The second part is to realize you’re being selfish.

The reason why you’re working on the thing you’re working on is because deep down, you got this seed, this drive, this desire to get whatever it is you have out into the world.

There are people who need what you have to offer.

And in your never-ending journey to improve it before you ship, you still haven’t launched it.

That means the people you seek to serve aren’t being served.

You’re robbing them from the very experience you’re trying to create.

Imagine if Steve Jobs, when he and his team at Apple, envisioned the iPhone had said.. we can’t ship until it’s perfect.

We’re at iPhone X now and it’s still not perfect… That means all this time.. still no iPhone.

And since they were the first ones to create the industry, who knows how many years that would have set us back, not to think about the entire app ecosystem us as users benefit from and the thousands of entrepreneurs who made a living off of that.

So ship. Do the best you can within your constraints. Serve the people you seek to serve and give their needs precedence over your angst of shipping something imperfect.

Work with your tribe and invite them onto your journey of better.

We don’t want perfect. We want Kaizen.*

Remarks

*Kaizen is based on the belief that continuous, incremental improvement adds up to substantial change over time. Sometimes referred to as ‘’1% better every day’’.

During World War II the US government enlisted business process experts to make various industries more productive in support of the war effort.

The American industry had 2 problems: They needed to get better in a hurry to keep up with the demands of the war effort and they were on a shoestring budget. This combination of dire need and little capital led to the concept of small steps and continuous improvement. 

The US couldn’t afford (both time and money wise) to radically revolutionize its industries from first principles. 

Instead, proponents of the Kaizen approach implored floor managers and line workers alike to make small improvements, wherever possible, whenever possible for as long as possible.

Post-war, those US experts were brought to Japan to help rebuild their economy.

The Japan industry, led by Toyota, full embraced Kaizen as what would later be known as their Lean Manufacturing approach. Propelling the Japanese car industry to prominence in the 80s.

Ironically, the US forget their own lessons and Japan had to teach the US what they had originally invented.

During the 80s, American auto executives visited Toyota manufacturing plants in Japan to examine how the company was able to produce so many vehicles so quickly, and this fleshed out Kaizen approach was the answer.

In the early 2000s, this philosophy of being lean and continuous improvements started getting applied beyond the auto industry into many industries including software engineering and building startups.

RJ YounglingComment