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Thoughts on Constructing A Library

Thoughts on Constructing A Library

I am going to jot a few notes on the subject of library (as in, personal book collection, not edifice) construction that I’ve been considering lately.

When reading stories of intellectual and political figures of the past, such as Thomas Jefferson or Napoleon Bonaparte, I realized that possessing a substantial library of works of interest and fame was part of standard operating procedure for literate men of the past. When I say substantial, I am talking about private collections numbering ten to twenty-thousand individual hardbound volumes, or when traveling, taking one or two trunkloads of books with the traveler to aid in research and study.

It’s a pretty different commitment to book warehousing and travel from having a few shelves of things you’ve read, or grabbing a couple books and stuffing them into your suitcase for an upcoming flight. Even in the age of Kindle, it’s akin to having a multi-gigabyte device dedicated solely to storing your library.

I haven’t kept track of how many books I’ve read so far in my life, and it’s not exactly apples-to-apples to include childhood picture books in the same measure as thousand page social philosophy treatises. But even if you excluded everything I read before age 19 or 20, which is probably the point in my life where I got “serious” about reading and was mostly reading non-fiction for information and analysis rather than fiction to pass the time or have my imagination stimulated (although, like many teenagers, I did manage to consume Atlas Shrugged during this “non-serious” period), I would still feel comfortable saying the number is “thousands”, especially if you include partially read titles. Probably less than five thousand, but definitely more than one thousand.

I don’t have most of those titles in my possession. Over the last seven or eight years, I consumed many works (especially about business, investing or economics) digitally, and over the last two years I have become an active “purger”, selling, donating or simply tossing books I didn’t bother to read, didn’t bother to finish or didn’t think I’d get any additional value out of in owning them. Most of what is on my shelf at home right this moment are either unread-waiting-to-be-read, or read-and-coming-back-to-them titles. I guess you’d call the latter “reference” titles, but I actually have few reference titles and I mean more of the idea of doing a full-reread to see how my understanding and appreciation of what I previously deemed a worthy title has changed as I’ve changed.

I wonder if purging is a good approach for a few reasons. One is that I have a child now, and hope to have more. I like to think I’ve spent a lot of time reading and sorting knowledge contained in books and I’ve wasted my time on many in order to find the few quality gems, the essential titles in some field that can quickly give one a nuanced understanding of the major and minor issues alike in some discipline. This time I’ve invested is a sunk cost, and being able to hand over a ready-culled library of the “classics” and “greatest hits” to my children and grandchildren seems like part of the social capital of our family.

A problem I have with this logic is that I found a lot of these books by exploring specific questions I had prior to reading them. I arrived at the good stuff through a meaningful epistemological journey that probably would not be as valuable or even as coherent as it was if I had leapt straight from my starting inquiry to the most elucidated truth in the best book. I had to fight for the knowledge I came by and do my own hard thinking and analyzing as I went. Handing someone a ready-constructed library of “essential knowledge” lacks context and it also lacks respect for their own curiosity.

Similarly, as the RIE-philosophy of infant care-giving reminds us (I think derived from Montessori), when you teach a child something, you take away forever his chance to discover it himself. There’s something cognitively valuable in the act of discovery that inheriting a library might obviate.

On the other hand, “on the shoulder of giants”… so perhaps my issue will see farther than me if they start not at the starting line, as I did, but far beyond the finish line in another race entirely.

Another problem with purging is that we are quickly losing a sense of literary history and context with the rise of Google and Amazon. With Google, we convince ourselves that anything worth knowing can be easily searched for, and that it isn’t important to understand the source or genesis over time of certain ideas, only what the latest conclusions are. With Amazon, we come to understand the literary universe as being composed of recently published, hot-selling titles (usually rehashes of old ideas, reformulated for the latest audience fad or interest) and a few older works deemed “classics” because they don’t manage to offend anyone. There are literally hundreds of thousands of titles people used to read, adore and consider categorical in their respective field that aren’t in print and that are essentially invisible to modern readers unless you know what to look for. There are also thousands of titles that reflect the losing side in a historical conflict, of ideas or arms or otherwise, that are not considered “truthful” simply because that side lost. Those are perspectives worth thinking about still if one wants to hone one’s critical mind and maintain a level of scientific objectivity in one’s thinking.

So I worry that some of the great stuff I’ve come across, my children will simply not see if I don’t keep it in my library for them. Especially if they are about ideas I think are important and honest, but which end up “losing the battle” during our lifetime and become non-PC. Down the memory hole!

Storing all these books has an economic cost. There is also search costs in looking through them when seeking a title out if they’re too numerous. And while I’ve spent tens of thousands of dollars on books over the years, I’ve mostly acquired paperbacks. I wonder if these are durable and can stand the test of time.

I am currently not resolved on the question of “To construct a library for myself and my posterity, or not?” One thing I do know, is that there is something wrong with a home (or office!) that contains no books, or that contains only books selected by others and not by oneself, or received for promotional reasons alone. It would be a major mistake to raise children in a place where books weren’t an ever-present part of their surroundings, even if the total quantity and methodology of selection behind the “library” remains in a negotiated state.

Review – The Bully Pulpit

Review – The Bully Pulpit

The Bully Pulpit: Theodore Roosevelt, William Howard Taft and the Golden Age of Journalism

by Doris Kearns Goodwin, published 2013

I picked up this title for two reasons. The first reason was to try to explore the phenomenon of “fake news” and the mainstream media’s war on Donald Trump’s presidency (and vice versa), to better understand the modern concept of the official press as an important check on government/regime power. The second reason was because at (now) 2,024 reviews on Amazon with an average 4.5-stars, this book seemed to promise it’d be a great, and long at 700+ pages of narrative text, story and I was looking for a great story, something that, whatever I thought of the point being argued, at least proved to be interesting and artfully constructed.

On the second point, I find myself frustrated. The research that went into this book is clearly exhaustive– the author speaks almost as much through verbatim quotes from primary source documents of the period (journal entries, private correspondence, public speeches, newspaper articles and editorials, memoirs, etc.) as she does in her own voice. This lends itself to creepy quirks of the book, such as the preponderance of quotes in which Theodore Roosevelt is found explaining himself in confidence via correspondence with Massachusetts Senator Henry Cabot Lodge, a character who relationship with Roosevelt is never formally introduced or explained! It kind of makes Teddy seem like a tool of some higher, shadowy powers. Why was he constantly justifying himself to another politician when the author never bothered to tell us when and how they met?

But this doesn’t seem to make for a great story. The narrative is rather breathless and sycophantic in tone. Teddy, a progressive openly-hidden amongst Republican ranks, is one of the good guys, he never gives up and, progressivism being the inevitable enlightened state of the universe toward which historical events are constantly moving us all, he of course never meets any real resistance along the way and always wins in the end. And this is a good thing. We never see the author questioning him, catching him in contradictions (though there are many for the alert reader!) or asking how it is that this One, Good Man managed to succeed in a wholly corrupt system and reform it despite the various Interests who had so much at stake in stopping him.

For a critic of progressivism, there is no profundity to consider; for the advocate, no value in confirming what is already known. The story is boring.

As for the topic of “fake news” and watchdog journalism, that must’ve developed at some other time period. We learn again and again of how Roosevelt took various progressive journalists of the era into his confidence and made friends of them, and them of him, with many ebullient feelings being shared all around. We learn of his unique talent for cultivating relationships with these journalists who then heralded him and his policies for public consumption, and we also come to understand the important value this access represented to people who essentially are merchants of information those with access frequently come by. In some scenes, we see them conspiring so closely that it almost seems that the journalists are formulating policy, and the politician is writing the story.

In other words, we see a symbiotic relationship that serves power. Where’s the watchdog here?

One thing I wondered as I read this book was, “Was progressivism truly inevitable?” It’s hard to see how it could’ve been stopped, or what would’ve existed that was much different from it if it had been. Roosevelt’s insidious support for what every critic at the time could quite obviously see was socialism, from within the Republican party, which according to repeated insistence from the text had a stranglehold over the entire government, calls to mind the cliche, “With friends like these, who needs enemies?” It seems that there was a competitive advantage in politics in moving further and further to the left, no matter what party you came from, and the investigative journalists of the era (such as the evil Lincoln Steffens, who spent many years becoming “educated” in Europe about Marxism on his businessman father’s nickel) were only too happy to assist in readying the public for this ideological assault. When you read the accounts of the period of union workers intimidating “scab” worker families (women and kids), beating strike-breaking workers and even dynamiting non-union workers in public places, it kind of sounds like terrorism, something that seems like it would be a hard sell to good-hearted middle class Americans.

Yet, that is the side of history that won, and guys like Roosevelt and the investigative journalists helped make it happen.

It seems like it’s worth not forgetting that when listening to the media today tell us the important role it plays preventing democracy from dying in darkness while it does the bidding of the Deep State.

3/5

Review – Baby-Led Weaning (#review, #books, #parenting, #babies, #children, #food)

Review – Baby-Led Weaning (#review, #books, #parenting, #babies, #children, #food)

Baby-Led Weaning: The Essential Guide to Introducing Solid Foods-and Helping Your Baby to Grow Up a Happy and Confident Eater

by Gill Rapley, Tracey Murkett, published 2010

If you pay close attention to certain parenting and child development texts, you are likely to notice one of two paradigms at work– the exogenous development approach and the endogenous development approach. Those are fancy words I just thought up to say something simple, which is that you either believe children can develop pretty well on their own, with parents simply playing a nurturing, supporting role; or else you believe that children are mostly helpless to develop on their own, with parents playing a primary, directorial role.

The idea of “Baby-Led Weaning” (BLW) falls firmly into the endogenous development model, along with other philosophies we fancy such as RIE for parent-infant communication and relationship building, self-esteem centered personal growth philosophy, Montessori for educational and pedagogical practice, and nutrition-based health and well-being (ie, vaccine-skepticism). People who take the BLW approach to transitioning their infant to solids, aka “adult food”, see linear continuity between the infant’s ability to feed themselves at the breast and the later skill of the toddler being capable of feeding themself at the table. The BLW user asks the question, “Why should there need to be a period in the child’s eating skills development where they regress to parental intervention with mush and spoon?”

The actual practice of BLW doesn’t require more than a paragraph to describe. So long as your infant has reached the motor skill maturity to sit up on their own (or you are willing to prop them up on your lap for the duration of their “meal”), you can put a small variety of 2-inch long, stick-shaped food items from the adult meal in front of them and let them choose what and how they’d like to eat. If they want more, you can offer them more as they go. The first few weeks and months of learning to eat actually consists of them “playing” with their food by exploring taste, texture, smell and other properties of the foodstuffs– only later do they discover that the food is nutritious and helps to satiate their hunger. Plan on letting them discover at their own pace, cleaning up the inevitable messes and continuing to provide most of their sustenance by breast or bottle until they’re fully capable of getting the majority of their calories and nutrients from shared family meals, likely past the one year of age mark.

That’s really it. While there are certain foods that are easy to choke on (grapes not cut in half length-wise! hard nuts which are difficult to chew! pieces of fish or animal flesh with sharp bone fragments!) and things children may develop allergies to if exposed too early (honey! dairy! peanut butter?!), like the risk of rolling over and crushing an infant via co-sleeping being almost nil for a family that does not consist of alcoholic cigarette smoking fat asses, BLW is essentially safe and the risk of choking is overblown. It turns out that infants have a gag reflex that begins near the front of their tongue and not the back, and most “choking” actually happens with spoon-fed infants wherein the eating utensil circumvents the natural choke-avoidance mechanism and allows food to get into the back of their throat when they haven’t fully developed the muscle control to swallow.

Like most endogenous approaches, the biggest challenge for parents and other adult-caretakers is having patience to let the infant explore at their leisure and behave as comes naturally without thinking they need to get involved and add something to the mix for any reason other than safety. The temptation to “help” the child learn to eat or to show them a more “efficient” way to get the food into their mouth, for example, must be avoided if the child is to develop the important motor skills of controlling food with their hands, not to mention the need to let the child determine that food is safe and enjoyable to eat. Chewing and sucking endlessly on the same piece of sweet potato stick may not seem like an effective way to eat one’s meal for us, but for the infant it is an essential part of figuring out “What is this?” and “What can I do with it?” Infants are highly empirical and don’t really have an ability to learn by causal explanation and the provision of logical theory. They need to just do stuff on their own.

The book is much longer than a paragraph because it spends a lot of time repeating itself, calming potentially frayed nerves concerning overwrought risks, relating a series of “BLW Stories” of parents who did it with their small kids and had success, and interjecting numerous verbatims from happy practitioners seemingly at random in an attempt to build credibility in the approach. This last bit is likely aimed at female readers– sorry moms, but your cultural appropriation model is highly consensus-based due to evolutionary biology.

A good primer for anyone interested in the approach, though you can skim-read it.

3/5

Review – The First Tycoon (#review, #books, #capitalism, #history, #entrepreneurship)

Review – The First Tycoon (#review, #books, #capitalism, #history, #entrepreneurship)

The First Tycoon: The Epic Life of Cornelius Vanderbilt

by T.J. Stiles, published 2010

How and why did Cornelius Vanderbilt, steamship and railroad entrepreneur, become America’s “first tycoon” and in the process earn a fortune worth an estimated $100M in the 1870s? The simplest answer provided by this lengthy biography is that Vanderbilt was able to think about abstract entities such as corporations as representing competitive business opportunities in an age when most other people controlling them thought of them as profitable grants of privilege from the State (which they were). The result was that Vanderbilt thought strategically about his acquisitions in the sense of actively seeking to own things with identifiable competitive advantages (the best route, the lowest operating costs, network effects) which he would then exploit while slashing prices, while his competitors were stuck playing defense until they gave up and offered to buy him out in self-defense.

But the book really doesn’t offer enough specific and concrete evidence to validate this thesis, it’s really just a hunch and an attempt to read between the lines of what is offered. Like most biographers and historians, Stiles consistently fluctuates between the two extremes of failing to provide the necessary evidence to actually understand what was happening and why, and forcing a tortured narrative metaphor of “the capitalist as king/general” that ends up just confusing the issues. Vanderbilt is constantly in “rate wars”, is “battling” for control of companies and finds himself with an “empire” after yet another “conquest.” But we never hear this language in Vanderbilt’s own quotations (based upon written correspondence, newspaper interviews and courtroom testimony) which are numerous.

How Vanderbilt saw himself as a businessman and operator, and how Stiles chooses to depict him with his jarring anachronistic fadism are even more incongruous because Stiles himself spends much of the time arguing against his own descriptions! It is a puzzling choice. Perhaps books about old tyme capitalists don’t sell well without a not so subtle nod to the villainous Robber Baron laying in wait inside of all of them, but it’s a shame because the much more interesting story would’ve been the one told through Vanderbilt’s own eyes. Not to mention the fact that the Robber Baron myth is a lie perpetrated against Vanderbilt, not because he was a horrible monopolist but because he was such a pain in the ass to the horrible monopolists!

[The NYT] attacked him for, as he wrote elsewhere, “driving too sharp a competition” [… deriding] “competition for competition’s sake; competition which crowds out legitimate enterprises… or imposes tribute upon them” [… and called on] “our mercantile community to look the curse of competition fully in the face.”

Similarly, there are constant references to “the world Vanderbilt helped make” with reference to markets and businesses, the city of New York and the emergent nation of the United States of America. And while certainly the man’s actions and decisions were influential and impactful, Vanderbilt was not a statesman and never saw himself as anything more than an ambitious private citizen. There is not one example in the book of Vanderbilt plotting to remake the world in his own image. This is just another forced biographical trope that dopey readers, editors and authors seem to think makes a story ten times better to insist upon when the world just doesn’t have that many psychopaths in fact.

Other information missing from the story that seems essential to charting Vanderbilt’s rise: what he paid for various business assets and how he financed them, what he earned from them and what he paid in taxes, when he controlled an asset and when he was a minority partner, etc. Especially, we should like to know his leverage over time and how he was able to benefit from the various money panics that occurred repeatedly throughout his business career. One thing is for certain, he seemed to always be a buyer in such scenarios, never a seller, and he seemed comfortable being in control of his investments and making and enforcing operating policy, rather than being a mere financial speculator such as a partner like Daniel Drew might.

There are many charming bits of early American social and business vernacular we learn sprinkled throughout the book and its strength is in providing so many direct quotations from primary sources, especially the business media of the day, which really help to flavor the narrative and transport the reader to the place and time described. But this can also be a weakness, when the author ends up name-dropping a litany of capitalists involved in some deal or scheme and dribbling their worries and anxieties from private correspondence over several pages as the deal unfolds. I found it difficult to follow and mostly tuned out what I assume are supposed to be the action-packed moments of the story.

I first read this book shortly after it was published in 2010. I since decided to re-read it and while I wish I had had a bit more energy and focus when I did, I am glad of it. I took a new and different appreciation from some of the book’s events than I did on first pass, which suggests I’ve either improved my mental framework or at least changed it in meaningful ways over the last 7 years. Vanderbilt still comes across as a unique and heroic figure, a true titanic will. The narrative is as confused and cluttered as ever, and while I think there were the makings of a better, more concisely argued book here, and the author certainly has done his research, I am not convinced he did the right research or even fully understood what lessons he was taking away from it. The result is I’ve since downgraded the value of this particular work in my mind and think it belongs to a pretty standard class of historical biographies. Vanderbilt the man himself though is easily a five out of five as far as members of humanity are concerned!

I’ve got far more I’d be willing and able to discuss about this work and Vanderbilt as an example in private correspondence than I think I could fit into a short, coherent blog post, so really ruminating on this story will have to wait for another time and a different occasion.

3/5

Review – Innovation and Entrepreneurship (#innovation, #entrepreneurship, #books, #review, #business)

Review – Innovation and Entrepreneurship (#innovation, #entrepreneurship, #books, #review, #business)

Innovation and Entrepreneurship: Practice and Principles

by Peter F. Drucker, published 1985, 2006

This was a deep book with a ton of ideas and examples. It isn’t going to be easy for me to narrow it down to some concise takeaway, so I won’t try. This post will be more of an annotated outline of the contents of the book.

Where entrepreneurship comes from

Successful entrepreneurs are characterized by action, not inspiration. Innovations that seem big on paper may turn out to be minor businesses, while simple ideas can capture the imagination or appreciation of the marketplace in unexpected ways and scale beyond anyone’s dreams. Successful entrepreneurs are focused on creating value and making a contribution, not their potential financial returns.

There are four sources for innovation within an enterprise:

  1. The unexpected
  2. The incongruity
  3. Innovation based on process need
  4. Changes in industry structure or market structure

There are also three sources for innovation outside an enterprise:

  1. Demographics
  2. Changes in perception, mood or meaning
  3. New knowledge

The unexpected

Quotes:

The unexpected success is a challenge to management’s judgment… The unexpected success is simply not seen at all. Nobody pays any attention to it… No one even looks at the areas where the company has done better than expected… It forces us to ask, What basic changes are now appropriate for this organization in the way it defines its business? Its technology? Its markets? …It must be properly featured in the information management obtains and studies… Management needs to set aside specific time in which to discuss unexpected successes. Someone should always be designated to analyze an unexpected success and to think through how it could be exploited… The unexpected failure demands that you go out, look around, and listen. Failure should always be considered a symptom of an innovative opportunity, and taken seriously as such.

Questions to ask:

  • What would it mean to us if we exploited it?
  • Where could it lead us?
  • What would we have to do to convert it into an opportunity?
  • How do we go about it?

If something unexpected happens in one’s operations, it means there is a break in the knowledge between cause and effect and it likely represents an opportunity to innovate and improve.

Incongruities

Quotes:

If the demand for a product or a service is growing steadily, its economic performance should steadily improve, too. It should be easy to be profitable in an industry with steadily rising demand… The innovation that successfully exploits an incongruity between economic realities has to be simple rather than complicated, “obvious” rather than grandiose… Behind the incongruity between actual and perceived reality, there always lies an element of intellectual arrogance, of intellectual rigor and dogmatism… No customer ever perceives himself as buying what the producer or supplier delivers… [Businesses often complain of customers who are] “irrational” or “unwilling to pay for quality.” Whenever such a complaint is heard, there is reason to assume that the values and expectations the producer or supplier holds to be real are incongruous with the actual values and expectations of customers and clients… The incongruity within a process, its rhythm or its logic, is not a very subtle matter. Users are always aware of it.

The comment about the incongruity between what a customer perceives himself to be buying versus what the producer thinks they are delivering is an aspect of Jobs To Be Done theory. The main idea there is that customers are not purchasing a product or service, but a specific solution to a task that the product or service enables them to implement. An interesting entrepreneurial opportunity is to redefine one’s business and processes in terms of JTBD to look for closer alignment to customer needs and expectations.

Industry and market changes

Indicators of industry change:

  1. rapid growth of an industry
  2. perception and servicing of market inappropriate due to growth
  3. convergence of technologies that hitherto were seen as distinctly separate

Demographics

Quotes:

Demographics have major impact on what will be bought, by whom, and in what quantities.

The massive nineteenth-century migration from Europe to the Americas, both North and South, and to Australia and New Zealand, changed the economic and political geography of the world beyond recognition. It created an abundance of entrepreneurial opportunities. It made obsolete the geopolitical concepts on which European politics and military strategies had been based for several centuries. Yet it took place in a mere fifty years from the mid-1860s to 1914. Whoever disregarded it was likely to be left behind, and fast.

Static populations staying in one place for long periods of time have been the exception historically rather than the rule… It is sheer folly to disregard demographics… Demographic shifts in this century may be inherently unpredictable, yet they do have long lead times before impact, and lead times, moreover, which are predictable… What makes demographics such a rewarding opportunity for the entrepreneur is precisely its neglect by decisions makers, whether businessmen, public-service staffs, or governmental policymakers.

This unwillingness, or inability, of the experts to accept demographic realities which do not conform to what they take for granted gives the entrepreneur his opportunity. The lead times are known. The events themselves have already happened. But no one accepts them as reality, let alone as opportunity. Those who defy the conventional wisdom and accept the facts– indeed, those who go actively looking for them — can therefore expect to be left alone for quite a long time. The competitors will accept demographic reality, as a rule, only when it is already about to be replaced by a new demographic change and a new demographic reality.

For those genuinely willing to go out into the field, to look and to listen, changing demographics is both a highly productive and a highly dependable innovative opportunity.

The demographics section was one that surprised me most because demographics is something I don’t typically pay attention to, and I often find the attempt to categorize entire groups of people (“Millenials”) as behaving or valuing a certain way to be overwrought, but Drucker made sense of it for me in showing how predictable and inescapable various demographic realities are. In the broadest terms, demographics put floors and ceilings on certain aspects of market supply and demand, ie, there can only be so many people producing X, or so many people consuming Y. In more specific terms, it helps us to understand how cycles or patterns of generational growth (ie, this cohort of people is entering retirement, while this different sized one is entering adolescence) suggests where opportunities will congregate in the market space for products and services that are used by those cohorts. I think I want to try paying a lot more attention to this going forward and will investigate some demographic books I’ve heard about, such as Generations: The History of America’s Future.

The comment about demographics offering opportunity because it is neglected by others reminded me of Warren Buffett’s success. He possesses a deeply statistical mind and spent his childhood collecting what amounted to demographic data. He was obsessed with it. He also began investing at the cusp of the Baby Boom explosion which continued through most of his career. When he describes the reason he invested in a business like Coca-Cola, he explains it in demographic terms (X cokes a day, for Y people, with population growing at X% a year, translates to earnings of A).

This section also highlighted for me how important it is to may attention to the unique demographics of your market when hiring employees and designing customer processes. Ostensibly, if you knew a lot of your customers were of a certain age, gender, ethnic or educational background, you’d probably want to hire people like them to serve them, and design customer processes that compliment their world view. And you’d have an embedded advantage against competitors not thinking that deeply, who would look at what you’re doing and not understand why it was extra effective.

Changes in perception

Quotes:

When a change in perception takes place, the facts do not change. Their meaning does.

There is nothing more dangerous than to be premature in exploiting a change in perception. A good many of what look like changes in perception turn out to be short-lived fads.

New knowledge

Quotes:

The number of knowledge-based innovators that will survive when an industry matures and stabilizes is therefore no larger than it has traditionally been. But largely because of the emergence of a world market and of global communications, the number of entrants during the “window” period has greatly increased. When the shakeout comes, the casualty rate is therefore much higher than it used to be. And the shakeout always comes; it is inevitable.

Which ones will survive, which ones will die, and which ones will become permanently crippled– able neither to live nor to die — is unpredictable. In fact, it is futile to speculate.

This section made me think about the emergent “social media” industry, and the “blue chip” status of the FAANG stocks. These industries are too new for the shakeout to have taken place yet but it is startling indeed to think of a company with a $500B+ market cap ending up as roadkill from a future shakeup.

Principles of innovation – the do’s, the don’t, the conditions

Quotes:

All the sources of innovative opportunity should be systematically analyzed and systematically studied. The search must be done on a regular, systematic basis… [Ask] “What does this innovation have to reflect so that the people who have to use it will want to use it and see in it their opportunity?” …All effective innovations are breathtakingly simple. “This is obvious. Why didn’t I think of it?” …Effective innovations starts small. They try to do one specific thing. Otherwise, there is not enough time to make the adjustments and changes that are almost always needed for an innovation to succeed.

All strategies aimed at exploiting an innovation, must achieve leadership within a given environment. Otherwise they will simply create an opportunity for competition… Unless there is an immediate application in the present, an innovation is like the drawings in Leonardo da Vinci’s notebook– a “brilliant idea.” …When all is said and done, innovation becomes hard, focused and purposeful work making very great demands on diligence, on persistence, and on commitment.

[Ask] “Which of these opportunities fits me, fits this company, puts to work what we (or I) are good at and have shown capacity for in performance?” …[Successful entrepreneurs] are not ‘risk-takers.’ They try to define the risks they have to take and to minimize them as much as possible… Defending yesterday — that is, not innovating — is far more risky than making tomorrow… [They are] not “risk-focused” but “opportunity-focused.”

The entrepreneurial business

Quotes:

It is not size that is an impediment to entrepreneurship and innovation; it is the existing operation itself, and especially the existing successful operation… The new always looks so small, so puny, so unpromising next to the size and performance of maturity. Anything truly new that looks big is indeed to be distrusted… Entrepreneurial businesses treat entrepreneurship as a duty; if entrepreneurship and innovation do not well up in an organization, something must be stifling them. [They ask] “How can we make the organization receptive to innovation, want innovation, reach for it, work for it?” …Innovation must be part and parcel of the ordinary, the norm, if not routine.

[Ask yourself] would we now go into this product, this market, this distributive channel, this technology today? …[If you answer no, ask yourself] “What do we have to do to stop wasting resources on this product, this market, this distributive channel, this staff activity?” …Every organism needs to eliminate its waste products or else it poisons itself.

In companies that are managed for entrepreneurship, there are therefore two meetings on operating results: one to focus on the problems and one to focus on the opportunities. …”What did we do that turned out to be successful?” “How did we find the opportunity?” “What have we learned, and what entrepreneurial and innovative plans do we have in hand now?”

A member of the top management group sits down with the junior people from research, engineering, manufacturing, marketing and accounting and so on… This practice has one built-in requirement. Those who suggest anything new, or even a change in the way things are being done, whether in respect to product or process, to market or service, should be expected to go to work. They should be asked to submit, within a reasonable period, a working paper to the presiding senior and to their colleges in the sessions, in which they try to develop their idea. What would it look like if converted into reality? What in turn does the reality have to look like for the idea to make sense? What are the assumptions regarding customers and markets, and so on. How much work is needed… how much money and how many people… and how much time? And what results might be expected?

“What results do we expect from this project? When do we expect those results? When do we appraise the progress of the project so that we have control?” …For the existing business to be capable of innovation, it has to create a structure that allows people to be entrepreneurial.

In this section, Drucker argues that entrepreneurship is a culture and a practice, not a characteristic of being small, new or in a technological field. Any company can be entrepreneurial if it creates the right conditions for entrepreneurial thinking and acting, is open to entrepreneurial discoveries and treats entrepreneurship as an important, embedded business practice (much like it would treat having good accounting controls, or written customer processes).

One idea I had after reading this was to implement something like an  Innovation Circle/Council within the company, a rotating and inclusive membership of line managers and staff, asking questions like:

  • What do you need help with? Where do you seem to get stuck or overwhelmed?
  • What went well that you can teach to others?
  • What ideas have you had recently for improving the way we do business?

Entrepreneurship in the service institution

Quotes:

Failure to attain the objectives in the quest for a “good” only means that efforts need to be redoubled. The forces of evil must be far more powerful than expected and need to be fought even harder.

For thousands of years the preachers of all sorts of religions have held forth against the “sins of the flesh.” Their success has been limited to say the least. But this is no argument as far as the preachers are concerned. It does not persuade them to devote their considerable talents to pursuits in which results may be more easily attainable. On the contrary, it only proves that their efforts need to be redoubled. Avoiding the “sins of the flesh” is clearly a “moral good”, and thus an absolute, which does not admit of any cost/benefit calculation.

It needs something that is genuinely attainable and therefore a commitment to a realistic goal, so that it can say eventually, “Our job is finished.” …If an objective has not been attained after repeated tries, one has to assume that it is the wrong one. It is not rational to consider failure a good reason for trying again and again.

A central economic problem of developed societies during the next twenty or thirty years is surely going to be capital formation; only in Japan is it still adequate for the economy’s needs. We therefore can ill afford to have activities conducted as “non-profit,” that is, as activities that devour capital rather than form it, if they can be organized as activities that form capital, as activities that make a profit.

This will date this post, but I think there are a lot of parallels in this paragraph and the problems it touches upon to what is going in the US federal government and political system with accusations of improprieties with Donald Trump. So far, no one has come up with a credible claim and evidence that Trump has done something nefarious, yet the more failures that are revealed, the more emboldened the opposition becomes that they must resist Trump and stop him before it’s too late. It’s comical.

The larger point here is that because service organizations don’t have a simple Profit/Loss acid test like a commercial business, they need some other objective KPI connected to a limited duration/scope mission they can look to to see if they’re effective.

The philosophical point in the last paragraph is also interesting. Most modern commentators would argue we have too much capital, not too little, and too much for-profit businesses and entities. The rise of “social entrepreneurship” is part of this belief that young, energetic people should devote themselves to changing the world, for free. I think they’re wrong and Drucker was prescient. But then, he studied economics and they haven’t, so that is no surprise. In fact, one of the joys of reading this book is that Drucker is one of the last great German/Viennese intellectuals of the 20th Century, which means he is widely read and knowledgeable on the subjects he opines on. That is a rarity in the 21st Century.

The new venture

Requirements:

  • a focus on the market
  • planning for cash flow and capital needs ahead of time
  • building a top management team long before the new venture actually needs one and long before it can actually afford one
  • the founding entrepreneur to decide on his or her own role, area of work and relationships

Quotes:

One cannot do market research for something genuinely new.

The new venture needs to build in systematic practices to remind itself that a “product” or a “service” is defined by the customer, not by the producer.

Growth has to be fed. Growth in a new venture demands adding financial resources rather than taking them out. Growth needs more cash and more capital. If the growing new venture shows a “profit” it is a fiction; since taxes are payable on this fiction in most countries, it creates a liability and a cash drain rather than “surplus.” The healthier a new venture and the faster it grows, the more financial feeding it requires.

“What will the venture need objectively by way of management from here on out?”

The idea of growth needing feeding, and the tax implications of realizing profitability too soon, was a challenging thing for me to read. Of course, it brings to mind the growth models of companies like Uber and Amazon. I still don’t know what to make of this. Part of me thinks if you can’t grow profitably, you aren’t really growing at all, but consuming capital and putting it on an income statement. But what Drucker is saying also makes sense in that there could be a business model that can be profitable at a meaningful scale and between then and now, it requires great investment to get there.

Entrepreneurial strategies

Quotes:

“Hitting them where they ain’t” is a strategy that involves serving markets created by pioneers which are currently being serviced poorly.

“Creaming” is a violation of elementary managerial and economic precepts. It is always punished by loss of market… “Quality” in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for. Customers pay only for what is of use to them and gives them value. Nothing else constitutes “quality.”  …A “premium” price is always an invitation to the competition… The only way to get a higher profit margin is through lower costs. Higher prices hold an umbrella over the competitor. “Premium” prices, instead of being an occasion for joy should always be considered a threat and dangerous vulnerability.

Don’t make the mistake of maximizing versus optimizing… A benevolent monopolist cuts his prices before a competitor can cut them. And he makes his product obsolete and introduces new product before a competitor can do so.

Successful practitioners of the ecological niche take the cash and let the credit go. They wallow in their anonymity.

Price is usually almost irrelevant in the strategy of creating utility. What is truly a “service,” truly a “utility” to the customer? …What Gillette did was to price what the customer buys, namely, the shave, rather than what the manufacturer sells… It charges for what represents “value” to the customer rather than what represents “cost” to the supplier… What does the customer really buy?

One question it seems like one would want to ask when reviewing one’s operations for entrepreneurial opportunities is, “Does this represent value to our customer?” One should eliminate if the answer is no, or try to find ways to do more of that if the answer is yes.

Optimizing versus maximizing is a really interesting conundrum. It’s connected to the idea of market segmentation. When one maximizes, one is trying to satisfy every single user through the same product or service. It leads to opportunities for disruption and more appropriate market segmentation, as well as the weakening and irrelevancy of the incumbent and often the loss of the advantage that gave it its initial market position. An extreme offender in this regard speaking contemporaneously is the behavior of “luxury” auto makers like Lexus, BMW and Mercedes, who are constantly moving down-market into silly, small, over-priced offerings in an effort to make luxury more accessible. They realize they are fighting over the same limited number of actually wealthy, luxury customers, and they still want to grow their production and so they create new markets of non-luxury buyers to serve.

You have to accept the limits of your market and create a new specialized product or service to meet the needs of those outside of it. Any other path is folly. But folly is the heritage of mankind.

Thinking about service and utility in terms of the customer’s perspective, I think you could explore the idea of when the customer chooses a competitor, what are they buying from them? It’s easy to think they have just made a decision to go with a different person or group providing the same thing, but it could be more likely that they have gone with a company offering a different thing entirely, as far as they evaluate utility.

4/5

A Quick Thought On SEO

A Quick Thought On SEO

I think search engine optimization of websites and web content (ie, site copy, the actual words you write on a website or blog) is ruining the web. Allow me to explain.

SEO requires a site author to adopt a set of practices in sourcing, writing and formatting content that makes that content more easily crawled by a search bot, thus leading to improved search relevancy and higher traffic. The merit of the approach is that more people interested in what your site is about are able to find it. In economics this is called lowering transaction costs, and it leads to gains through efficiency. The entire field of marketing and advertising deals with search efficiency in a theoretical sense– ensuring the maximum number of potential consumers of a product or service are aware of its existence, capable of affording it and able to make use of it.

SEO gimmicks change all the time. This is because people selling SEO services are constantly studying new search engine rules and then coming up with strategies for gaming the intent of the rule to exploit it. As a result, search engine rules change and SEO changes occur in lock step. But some aspects of SEO seem rather hardcoded, due to the nature of non-human agents (search bots) being the driving mechanism of web crawling.

Three major hard structures seem to be present in SEO recommendations no matter the rules. One is the recommendation to pepper one’s site with relevant “keywords” that help a bot quickly catalog a site’s content as part of this or that interest set. Another is to write content with clear subheadings that indicate the logical structure of the content and again provide a kind of mini-keyword set to what is on the page. The final recommendation is to write really short paragraphs, using short sentences and simple words. The idea here is this is “readable”, especially on mobile devices and especially by search bots who might find long arguments and linguistic nuance difficult to parse.

All of these things suck and make for shitty human-read websites.

The worst offenders of keywords write jumbled, nonsensical content strewn with locations, service names, emphatic descriptors and other errata that is literally incomprehensible to a human reader and is only good for a bot. But it ends up on the page, visible to humans, resulting in a confusing mess. The more savvy offenders try to make the keywords seem contextual by purposefully writing the content in such a way that keywords replace the word that might make naturally come to mind in a given place. This content reads like someone is being paid to name-drop or use particular words, that is, it’s jarring.

The use of subheadings breaks up the flow of an essay, article or argument. It rewards the proverbial reader with ADD, who can’t be bothered to follow a train of thought for more than 15 seconds. It demeans the audience by suggesting they need the structure of the message highlighted and flagged lest they lose their way trying to find their own footing. It violates the law of simplicity, adding things that aren’t necessary when so much of good writing comes from taking more and more away.

The blasphemy of the final SEO recommendation should be readily apparent. Read any classical treatise, any philosophical work, anything at all written by a serious thinker, especially long ago. See if you can find many paragraphs shorter than half a page. See if you can find many chapters that don’t contain words you need to look up in a dictionary. In other words, see if you can find any kind of writing that doesn’t require the reader to work hard to get the reward of understanding from the author, an individual who has likely striven even more mightily in his life to be in such a position as to bequeath his knowledge in a text. Now, ask yourself, what kind of quality can we expect from writing whose primary virtues are to be contained in short paragraphs, in shorter sentences and in words a barely educated 10 year old finds himself conversant?

So let it be known, here at A House Rises, we’ll be taking a stand against this SEO nonsense. We will optimize nothing but the power of our ideas and the gloriousness of the writing we use to wield them. We will write for people, not algorithms, and rely on common word of mouth and the virus of impulse to spread our content to the right people at the right time. We’ll write things we are proud of, about things we actually care about, with an authenticity fitting to us and our purpose in sharing our ideas. To hell with the rest of it!

Review – The Snowball (#investing, #books, #business, #review)

Review – The Snowball (#investing, #books, #business, #review)

The Snowball: Warren Buffett and the Business of Life

by Alice Schroeder, published 2008, 2009 (condensed and updated)

This is my second reading of The Snowball. I enjoyed it almost as much as the first, five years ago, and definitely took away different things from this reading than I did last time. At that time, I was just finishing my “personal MBA”  deep-dive into value investing and was interested in Schroeder’s Buffett bio mainly for the information and insight it would yield into Buffett’s approach and track record as an investor. I was surprised to come away from that reading realizing that the book was a moral parable in the form of a man’s life (an incredibly successful, well-known and near-worshipped man) and my second journey through the book was more focused on the question “How should I think about living my life?” than the question “How should I think about investing?”

I found the book most exciting to read and most interesting personally in the exploration of Buffett’s origins and the detailed narrative about the first twenty years of the partnerships that proceeded his investment in Berkshire Hathaway. As the story wore on and it became more about managing what he had and dealing with the consequences of choices wrought long ago, I found myself losing interest, particularly as the Salomon and Long-Term Capital Management sagas carried on for a mind-numbing fifty-plus pages in total.

Buffett’s childhood was far more unusual than I cared to notice in my first reading. He was obsessed with business, investing and the impact of statistics in life not just from a young age, but in ways that were extraordinary even for someone to be described as “doing X from a young age” would imply by itself. Obsessed is not a word I use lightly here. The young Buffett was probably an odd creature to be around, even for people who loved him or found him interesting or were of unusual talent and ability themselves. This seems confirmed in later years when so many people familiar with him describe feeling exhausted after spending just a few hours with him. It helped me to realize how unfair and pointless trying to compare yourself to a person like Buffett is.

When asked by Bill Gates, Sr., at a dinner what single word they’d use to describe the outcome of their life and their success, Buffett said, “Focus.” As Schroeder describes in many places in the book, and especially at length in the final chapter, “focus” means something completely different when Buffett says it versus anyone of lesser ability and different personality. When Buffett says “focus” he means “to the exclusion of all else, with relentless, all-consuming energy, without tiring or being distracted.” There is no balance working behind the scenes. He gave up a lot of “normal” things most other people would insist on or desire in distinction to that which they were focused on, not as a sacrifice but as an inevitability of his personality.

The most obvious and tragic is his relationship with his family and his relationship with himself. Most other people who are driven towards success in their field and the monetary rewards that typically come with it offer up the excuse of their family as their motivation, honestly or not. This wasn’t the case for Buffett, and achieving supremacy in his profession and in his personal net worth really didn’t do anything to enhance his relationship with his family or the way he cared for them. It is indicated on numerous occasions what kind of tradeoff he would’ve had to make to be more involved with his family, and he never did it. It’s an excellent reminder for someone who sees themselves as driven to achieve that these tradeoffs are real and accepting a “lower rate of return” in one’s efforts is a necessary (and happy?) price to pay to maintain a relationship with one’s family, which itself is valuable.

Buffett’s relationship with himself is also instructive in this regard. Many people wonder how money can’t solve most problems, and why people who are super wealthy continue to eat poorly, exercise infrequently and maintain the same limited psychological state and insecurities they possessed before they achieved glory. The answer again is simple– in the drive toward massive wealth, things get set aside and often it is the improvement of the self as a holistic unit that is set aside first in order to claim excess in one aspect.

Of course, we can’t expect Buffett to be perfect. Nobody is, and the point of mentioning this isn’t to point out the man’s flaws, but to explain them. You can’t have Buffett and have these issues resolved to everyone’s satisfaction. They come with the territory. If you want to be “focused” like Buffett, plan on neglecting your family and yourself, quite a bit. That’s only a judgment if you think those things are objectively more important than wealth or self-actualization in the area of generating wealth. That’s not really a judgment I want to make here and I think it misses the point.

Yet, Buffett’s flaws make for a fascinating lesson in a different way. Though Buffett was unusual, and exceptional, and completely driven toward a single-minded purpose from a young age, the path was far from certain that he would need to tread to get to wherever it was that he would end up going. It’s easy to sit here today reading a book published almost ten years ago, recounting events that unfolded over the past eighty, and see what was inevitable as inevitable. But Buffett made mistakes. Many of them, along the way. That’s what’s truly remarkable, that he made mistakes and still arrived where he did. It’s a good salve for a person carrying around the perfectionist fallacy. Give it a rest and get going, you can make some mistakes and still end up alright if Buffett is any example.

I love reading stories like this, stories of flawed people of unusual ability who managed to achieve something heroic even if their life wasn’t truly ideal. I love knowing it can be done. I love knowing what the pitfalls and the tradeoffs are, so I can be mindful of them myself. I love the way I can give myself permission to not achieve what they achieved (in kind or in magnitude) having the benefit of hindsight to see what it truly took that I can’t give, or won’t.

But most of all, I just love watching someone create something from nothing. That creative energy is uniquely human and what I admire most about our species and this little project called “civilization” that we’re all tinkering away on. The Snowball is not as great an investment manual as I originally thought it was (for that, I’d recommend Buffett’s BRK shareholder letters, along with or after reading Graham’s Security Analysis and The Intelligent Investor), but it is an epic moral profile and a captivating read overall because of it.

4/5

Review – Grinding It Out (#books, #review, #business)

Review – Grinding It Out (#books, #review, #business)

Grinding It Out: The Making of McDonald’s

by Ray Kroc, with Robert Anderson, published 1992

Reading through the stories of great entrepreneurs, business people and politicians like Cornelius Vanderbilt or Warren Buffett, it is easy to find a sentiment much like this one from Ray Kroc:

Ethel [his wife] used to complain once in a while about about the amount of time I spent away from home working. Looking back on it now, I guess it was kind of unfair. But I was driven by ambition.

I find this sentiment remarkable for a few different reasons.

The first is how common it is. It seems to suggest that achieving “great things” in a particular field of enterprise is not possible without neglecting one’s family and other personal relationships in favor of the “productive” relationships and activities.

The second is how little awareness of this tradeoff many such people seem to possess, at least until they reach the end of their life and all their glory has already been gotten. Then, as they contemplate their state of affairs, either looking back on the empire they built or ruminating regretfully now that they are deposed (violently or voluntarily), they seem to re-evaluate how they spent their time and decide they came up short in considering family time less important than it should have been. They also seem to be either disconnected from the damage they do to their children and their psyches, or else try to evade such recognition– I think Ray Kroc mentioned his daughter all of two times in this 200 page telling, and while his daughter may not have been critical to the story of building McDonald’s, you’d think she would’ve provided enough value and motivation in Kroc’s life to merit more than a couple passing mentions!

The third is how excusable such high achievers seem to find their behavior to be in retrospect. “But…” is a permission word. It negates what comes before and offers cover. Yes, Ray Kroc was unfair, but… It suggests a different moral framework for studying life or a particular circumstance, one in which the rules don’t really apply and the ends justify the means.

The fourth is what a temptation these great projects must’ve provided to these people, to ignore their family, their health or any number of other values. If I was a successful paper cup salesman but stumbled upon the idea of McDonald’s myself, could I have resisted the temptation to build it and in the process knowingly give up my family, friends, physical well-being, etc.? It is perhaps easy to sit in judgment of another person’s efforts and decisions when the attraction of my own responsibilities is relatively less compelling. It’s easy to go home to my family at the end of the day as they typically offer me more interest and excitement. But would that be the case if millions of dollars and a global business organization hung in the balance? That I don’t know for sure, and perhaps you can’t know until you’re tempted with it.

But that leads to the fifth point, which is to consider whether a story like Kroc’s and McDonald’s could be told any other way. What if in the first 27 pages of the story of this business the quote above was not to be found, nor anywhere in the 173+ pages that followed? What if Kroc didn’t get divorced (twice), didn’t have a string of health issues along the way, came home and kissed his wife and daughter on the forehead five nights a week and spent most of each month at home and around town rather than around the country? What choices would’ve needed to be made differently to support that outcome, and how would the company look different either internally or competitively if that had been the case? How big would Berkshire Hathaway be if Buffett had raised his own children and loved his first wife more considerately instead of reading so many damn books and annual reports?

To ask may be to answer, but it’s frightening (hopeful?) to think otherwise.

Besides neglecting important obligations and personal considerations, what else do stories like these seem to tell us about those who achieve outsize success?

Incredible stamina seems to be part of it. They don’t just work hard, they work all the time. But again, it’s hard to know if this is part of the person, part of the responsibility and opportunity, or both. How would a person not work hard and often at something they didn’t love to the point they were mesmerized by it? Enthralled is a good way to describe the state of mind in relation to the idea of the thing being pursued here.

Also, simplicity. Maybe it’s the bad ghostwriting designed to break the story down for a lowbrow audience but the way these people talk about what it is they did, they rarely come across as great geniuses, though they’re often wits (Buffett is a notable exception here, and Vanderbilt was clearly “sharp”, a word for cunning back then, though it wasn’t clear he was necessarily “intelligent”, while it was clear he was no buffoon). The grand strategy and complexity is often seen in hindsight, knowing how the story ends and having years and years to tell it and thus accumulate various trappings which may or may not be integral to the success. In Kroc’s own words, it was all about Quality, Service, Cleanliness and Value and then spreading it across the land. Their financing was complicated, but it’s not clear it needed to be, especially if the company was less levered and less insistent on growing as fast as it did. Being focused seems obvious, yet important enough to mention it.

Where does that leave me? If there’s a way to build a legacy that doesn’t involve neglecting one’s family and health, perhaps by being more patient, moving more slowly or being less obsessed about the outcome, that is the kind of legacy I want to build. And I have to wonder what kind of personal insecurity or individual idiosyncrasy or whatever it is, that I seem not to have, that would not allow a person to make that choice given the alternative.

But if the only way to make things great is to trash some other part of your life and leave a smoking crater behind, a crater that’s especially painful in the vulnerability of old age, then I guess I better prepare myself mentally for more humble achievements. I’m just not interested in those kinds of tradeoffs and I don’t understand how such achievements could be satisfying without a family to enjoy them with and the sound mind and body necessary to experience it all.

3/5

Notes – Good Strategy/Bad Strategy (#strategy, #business)

Notes – Good Strategy/Bad Strategy (#strategy, #business)

Following up on my recent review of Good Strategy/Bad Strategy, I gave the book a complete re-read and I am now solidly convinced it is a 4/5 title worth the extra effort. There is a lot here to unpack, I ended up taking about five pages of notes as I read and tried to put major concepts into my own words this time around. I am tempted to just copy a list of bullet points but I think that’d be exhausting to read, so instead I will take a fragmented narrative approach.

The Good, The Bad

Good strategy is defined as designing a coordinated and focused group of actions against a critical factor in a given situation (business, military, political, etc.) Bad strategy can be recognized by its hallmarks:

  • ignores problems or obstacles in the way of intended action
  • ignores choice or focus in favor of attempting to accede to conflicting demands
  • embraces language of broad goals, ambition, vision and values (generic versus specific)

A good strategy “selects the path” of how, why and where leadership and determination are to be applied. This path is sketched out with the “kernel”, which consists of three important parts, in this order:

  1. a diagnosis of the challenge to be overcome
  2. a guiding policy describing the area of action to focus on
  3. a set of coherent actions that will be taken to overcome the challenge

A lot of the strength of strategy is gained simply by having a coordinated design for focused action on a single objective, a discipline many competing organizations will lack. Most complex organizations make the mistake of spreading rather than concentrating resources. Leaders need to learn how to say “No!” to a wide variety of competing interests and actions. With focus, one can “use your relative advantages to impose out-of-proportion costs on the opposition and complicate his problem of competing with you.”

Digging in on bad

The author actually has four signposts for bad strategy:

  • fluff, the illusion of high-level thinking created by manipulating language
  • failure to face the challenge, providing no way to direct action at an undefined entity
  • mistaking goals for strategy, stating mere desires rather than creating plans for achievement
  • bad strategic objectives, sabotaging an effort by impracticality or ignorance of critical restraints

In short, “bad strategy is long on goals and short on policy or action.”

Whereas good strategy seeks simplicity and utilizes heuristics to make complex phenomena understandable and addressable, bad strategy purposefully obscures meaningful dynamics by adding layers and complexity and minutiae to the discussion. Many bad strategies reveal themselves as exhaustive lists of hopes, dreams or things people would like to see done (such as, “Create a strategy for X”, a seeming meta-strategy!)

A strategy must define the primary challenge and the major obstacles to a plan for overcoming it.

Applying strategy

One place to look to for applying strategy is the part of your business that is changing, as there may be an opportunity here to get a jump on the competition. While resource plans are valuable because they ensure resources arrive as needed with expected business operations, they are not the same as a strategy which addresses what is dynamic in an operation. As a strategy is a choice of what goals to pursue, it has implications for sub-goals that permeate the different parts of the organization in order for the main goals to be achieved. But goals themselves are not a strategy, because there are many potential ways to achieve a specific goal; strategy is choosing which path to take and why.

If a strategy can’t bridge the gap between objectives and actions necessary to achieve them, it is merely wishful thinking. Underperformance is a result, not a challenge to be met strategically. Strategy needs to address the specific challenges that result in underperformance as an outcome.

Some common sources of bad strategy:

  • avoiding the pain of choice; facing the fact that you must displease someone
  • template-strategy temptation; an appealing substitute for actual analysis
  • New Thought; believing positivity and mindset trump all other real factors in a situation

If you propose a strategy and find everyone is immediately bought in, you probably haven’t made a hard choice which suggests you haven’t actually provided a strategy. Strategies have clear winners and losers in terms of existing and potential interest groups.

Revisiting the core of good strategy

To repeat, the strategy kernel consists of three parts, contemplated in order:

  1. a simplifying diagnosis of the problem
  2. a guiding policy directed at obstacles identified in the diagnosis
  3. a set of coordinated, coherent actions to carry out the guiding policy and address the problem

The guiding policy should be aimed at a source of leverage or should build on existing advantages. It needs to address “how” the diagnosis will be treated. The diagnosis itself should call attention to the most crucial facts– on what items does the balance between life or death hang? There are a few ways the guiding policy helps to create advantage:

  • anticipating actions and reactions (internally and externally)
  • reducing complexity and ambiguity about how to proceed and what is or is not within the scope of action
  • exploiting leverage through concentrated effort
  • building coherence in related actions and decisions so that they serve to reinforce one another

Coherence means that every action strengthens the others and complements them in some way; they do not remain distinct or in conflict with one another. Coherence is the application of centralized intelligence imposed on the “natural” workings of a system. Good strategy imposes only the essential coordination necessary to create large gains, while allowing specialization and decentralization in all else.

Strategic nuances

Foresight diminishes with increased time (uncertainty about the future) to an objective, so proximate objectives are most important when facing the highest amount of uncertainty.

Chain-link systems are one’s whose efficacy is defined by their weakest link. The threshold for improving the system is usually holistic in nature, as the weakest link “shifts” as the system is transformed.

Strategy as a design problem implies the need to make mutual adjustments, resulting in high peaks to gains or sharp costs and losses if wrong. Tighter integration of design requires higher costs/tradeoffs. The degree of integration in a design needed is proportional to the intensity of the challenge faced.

It is human nature to identify current profit with current actions, when really the seeds of present loss and profit were sown long ago.

To identify a company’s strategy, start by examining the business models of competitors. You can also study the business’s policies which are different from the competition and try to think about what that implies about what kind of coordination they’re aiming at.

Forgetting about whether traditional competencies apply to new paradigms is a classic strategic misstep.

Growth, by itself and for itself, is not a strategy. Growth doesn’t create value by acquisition unless you buy below fair value or can increase the value through operational control. Healthy growth usually comes commingled with higher market share and higher profitability as a result of greater cleverness, creativity, efficiency or skill. It can’t be engineered by an acquisition or a merger.

Thinking about competitive advantage

Advantage in competitive settings is rooted in differences which create asymmetries. No one has advantage in everything, so choose your battles wisely.

Competitive advantage is “interesting” when one can find ways to increase its value by creating greater strategic coherence. Having a competitive advantage by itself isn’t valuable because you’re likely to pay a premium to own it, but if you know how to increase or enhance the advantage you gain, then it is valuable to get control of it. Some ways you can increase the value of competitive advantages you possess via strategy include:

  • deepen the advantage
  • broaden the extent of the advantage
  • create higher demand for advantaged products or services
  • strengthen the isolating mechanisms that block competition

Advantage is deepened by increasing value to the buyer over cost, reducing expenses involved in providing the advantaged product or service, or both. To find ways to reduce costs, start by closely examining how work is being done in provisioning the product or service in question (ie, sources of waste or inefficiency in process).

Extending advantage means using it in new fields and against new competitors. Exploiting a wave of change means adapting your business and organization to where the high ground is shifting to before it can be occupied by others. To recognize industry change, consider these potential forms as guideposts:

  • rising fixed costs, often leading to consolidation
  • deregulation, price fixing and subsidies are eliminated creating “cost chaos”
  • prediction biases, trends and industry change rarely follow expected, smooth patterns but are more random
  • incumbent response, successful firms of the old paradigm will dig in and try to resist change
  • attractor states, think about how the industry “should” work as it moves to a state of higher efficiency

The inertia (unwillingness to change) of rivals can reveal the most effective strategic opportunities. Looking for inertia within your own operation can often result in the same opportunity, if you’re the first competitor to break free of your own orbit! This strategic opportunity is usually centered around renewal and refocus generated by a new guiding policy in a complex organization.

Inertia typically arises due to:

  • routine, firms can insist on playing by old rules in a new game because it worked in the past
  • culture, attitudes and behaviors seen as core to the organization’s identity, often masked by complexity
  • proxy, customer inertia translates into business inertia through still-profitable business lines

In responding to change, don’t make the mistake of building strategies around assumed competencies which aren’t actually present.

Entropy can eat up profitability; de-clutter your organization and operation for increased profitability.

Thinking about thinking

When studying change and theorizing about a response, pay attention to anomalies (situations where experience doesn’t confirm predictions or theories), which represent the frontier of knowledge. Resolving anomalies is where strategic advantage lies.

Improve your diagnosis to improve your strategy. Define problems in need of solutions. Attempt to undermine proposed alternatives to find their weak points. Create a virtual panel of experts and consult with them by imagining what their commentary would be on a specific proposal or circumstance. Pre-commit your judgment in writing to develop the habit of making decisions and not re-rating your analysis after the fact.