Benny Binion, was intrigued by an offer put to him one day to organise and stage the biggest poker game ever played. Nick “The Greek” Dandalos wanted to play, and beat, the best and Binion knew just the man.
He and Johnny Moss were friends from their days in Dallas where Moss had carved a reputation as the best Draw Poker player of them all – a feat he would go on to repeat in Texas Hold’em. Moss lived for the game of poker and reportedly played every day of his honeymoon, on one memorable occasion reaching behind him and taking his wife’s wedding ring off her finger before putting it into the pot.
Ever the opportunist, Binion said he would host and organise the game as long as it was played in public in his casino and both parties agreed.
The game lasted an amazing five months in total with the players only pausing to sleep – and even that was optional for Dandalos. Moss recalls coming down some evenings after a 4 hour break to see The Greek standing at The Craps tables, keen to start, and asking him why he insisted on sleeping his life away!
The legendary hand came during a stint of 5 Card Stud – not Moss’ preferred structure – in which each player gets dealt one card face down and a card face up before there is a round of betting and then receives three more cards face up, each followed by a another round of betting. It is a very pure form of poker, very little played these days on account of the low hands that are created which most new players feel creates little excitement. In this particular hand, Moss started with a nine face down and a six face up. Dandalos was showing an eight.
After an insignificant couple of bets, Moss caught an unhelpful two while Dandalos drew a four. The next card brought Moss another nine making him a pair of nines and Dandalos a six. At this point in the hand, Moss knew he was ahead because there was no card which Dandalos could have “in the hole” that is face down which could give him a superior hand. With a six and an eight showing, nothing could beat Moss’s pair of nines and therefore Moss confidently bet $25,000. It’s easy sometimes to be nonchalant about the size of bets in big poker games so it bears consideration that this single bet was very nearly as much as the contents of the most lucrative Deal or No Deal boxes. Dandalos called, however, maybe with a pair of eights, maybe a pair of sixes, maybe – better still for Moss – a seven on the off-chance that he might make a highly unlikely straight.
The next card brought an unhelpful and irrelevant two for Moss and an equally unlikely four for Dandalos. Again, Moss knew 100% that he must be winning at this point and bet out again – $30,000 - enough to maximise his win but not enough to scare off his opponent who by this time, with just one more card to come, stood very little chance of winning the hand. Incredibly, the bet was called.
Moss’ final card was again an unhelpful three but Dandalos received an equally trashy jack. There were only three cards in the whole deck which Dandalos could have “in the hole” which could beat Moss at this point – one of the remaining three jacks to five Dandalos a pair of jacks. But for The Greek to have one would have meant that he had put $50,000 into the pot before that point with literally nothing; hoping, praying, feeling that he would catch one of just three jacks by the end of the hand. To Moss’ astonishment and delight, Dandalos bet out $50,000 and without too much hesitation Moss, believing his hand had to be better, pushed all his money into the middle of the table. More than $500,000. A huge bet. In any game. Of any era.
Apparently, in the pause that followed, Dandalos hung his head and Moss started to count the money in the middle as you do when you know that the pot is imminently going to pushed your way. Instead of folding his cards, however, Dandalos looked up at Moss and raised his eyebrows…
“Mr Moss, I think I have a Jack down there in the hole.” He said, essentially claiming to have won most of Moss’ fortune at that time.
“Greek” said Moss “If you’ve got a jack down there you’re gonna win yourself one helluva pot.”
Dandalos called the bet and turned over a Jack to reveal one of the craziest plays in all of poker and one of its biggest pots. He had bet more money than many Americans earned in a lifetime on a hand which until his last miracle card was just Jack, Eight, Six, Four! And Moss, regarded as one of the best five players ever to play the game had just played the biggest hand of his life. And lost.
Borrowing money to get back into the game Moss must have had some negative thoughts although he has never revealed them in all the time he talked about it since. All he ever said is that he knew that if his opponent continued to gamble like that he would break him in the end.
Eight weeks later, Dandalos, two million dollars worse off, rose from his chair and uttered the immortal words “Mr Moss, I’m going to have to let you go.” Johnny Moss went on to become the greatest player of his generation and Nick “The Greek” Dandalos was eventually seen playing $5 limit poker in the casinos of Gardena, California having won – and lost – more money during the course of his lifetime than most of us will ever see during the course of ours.
About eight years ago, my poker mentor and I were tucking into our fourth plate from the Bellagio all-you-can-eat buffet when I decided to bemoan the bad run of cards I had experienced that week. My guru ordered a jug of coke before telling me a story which has stayed with me every day since then: an old gambler who had come to town many years previously to play in The Big Game but now, 15 years later, was reduced to passing chips around the $3-$6 Limit Holdem tables downtown. His bankroll, once nearly a million, now stood at just $6,000 – a sum from which he eked out the most basic of returns and humblest of lifestyles.
“Most of his income came from the occasional handout from his son and the buffet comps which he received from the casinos after every four hours of live play. It was humiliating to queue for them at the cashier’s desk every day, but necessary. Necessary.”
“One night, after drinking too many free White Russians in The Freemont, he goes “on tilt” and burns through $1500 in four hours. Chasing flushes, inside straights and trying to fill up on the river; by midnight, he’s lost another $2000. He knows that there’s no coming back from this. It’s double or quits time. Move up or cash out. For good.”
“He heads across to Binions and takes everything he has out of his strongbox before putting his name down on the No Limit list. When a seat becomes available he sits down with $2,460 avoiding eye contact with players probably glad to see him there. A loser at the table. Better than that, a man who used to be somebody. Someone to say you’ve beaten.”
“The first few hands pass without incident before there is a raise and then a re-raise before him and he looks down and sees aces. He thinks for a while; frowns; gives the impression that he’s considering his options, knowing full well that this might be the last hand of poker that he ever plays. Then moves all-in. I guess his opponents saw it for what it practically was: the last play of a desperate degenerate. They call him. His aces stand up against their queens and jacks. And suddenly he’s trebled through and on a roll.”
“Two more wins later and he’s on $10,000 for the first time in two years and ordering Evian.”
“After three hours at the table he’s in the zone. Making great reads. Laying down straights. Playing like the young man he once was. Acute. Alert. In the moment. And once again, the money’s rolling in: $20,000, $25,000, $30,000, back down to $20,000 before doubling through to $40,000. Some berate the last gasp of a long-term loser. Others don’t begrudge their losses having taken so much from him for so long.”
“Sitting up straight, his hubris and bravado now restored announces his intentions. ‘Ah know ah’m gettin’ lucky and you know ah’m gettin’ lucky and ah know you know what’s happening here but let me make it very clear: Ah’m gonna play tonight until ah make two hundred thousand. Then ah’m up. I’m out. And gone for good. Ah’m not going til that happens so… who wants to donate to mah fund?’”
“Sensing that he’s not joking, the players start to laugh and relax into the game. He might be playing well, he might not. Sometimes it’s hard to tell. But one thing is obvious, he’s getting lucky. Some have to think hard to remember a rush like it. His pairs trip up, his middle pins hit, he flops quads twice! The point is that if he’s really gonna sit there til he turns $2500 into $200,000 he’ll be there for quite a while. Long enough, they reason for his luck to turn and the hours to take their toll on his ability to make any kind of meaningful decision. They place their faith in the long run and take him on; happy to lose money in the meantime.”
“But the long run in this game is pretty long as we know” my mentor said, taking a sip of his coke “and that rush never ended.” He just kept on making money: $50,000, $70,000… $55,000 then a huge pot which took him up to $120,000! But still he didn’t walk away.”
“Why not?” I asked.
“Because he had a goal, I guess. I don’t know for sure. By two in the morning, he was physically and mentally spent but still resolved to make it to the $200,000 mark. I guess he saw it as his retirement fund. Enough to buy a small farm in Wyoming. Enough to never have to play the game again. Enough to move on. His price of freedom. I don’t know.”
“Then after nearly 6 hours of play, he looks down and sees aces once again and once again two players raise it up. Once again, he re-raises, this time to $6,000, a price which one young player calls and another more experienced player passes up. The flop comes 3 K 10, his opponent checks, he bets $12,000 and his opponent raises it by $30,000 more. At this point, in a different game you might well throw your hand away. The check raise is so powerful there that – well what you gonna put him on? Ace King?”
“I don’t know, I don’t know the opponent.” I say. “King Ten is possible. A pair of tens in the hole. Even a pair of kings is possible I guess.”
“They’re all possible. Everything’s possible. The guy could be stone cold bluffing. Reckoning that if all you have in this world is $120,000 you don’t want to bet $30,000 of it on anything but the holy nuts. The question’s not what’s possible but what’s likely and how likely. Given all the likelihoods, what would you do?”
“Once again, I don’t know the way the other guy plays but… how much money does the other guy have?”
“Correct. How much money does he have. Not a question we would usually ask but in this case, playing with our entire bankroll on the table… crucial. The other guy has $96,000 left on the table. We have just over a hundred. If we lose everything on this hand we’re back down to $6,000. Exactly what we had 12 hours ago. Our bankroll for the last 3 years. So what would you do?” He paused. Probably waiting for an answer which never came.
“What he did was to go all in. Again. He reasoned that either a pair of aces were the best hand there and then or that by pushing $100,000 into the middle of the table he would do a good enough job of persuading his opponent that they were. He was wrong. In reality it was a nothing bet. If his opponent had less than a pair of aces he would have folded, more and he would have called. As it was, the young fella barely paused for breath before calling the bet for everything he had and turning over two kings. Trips.”
At this point in the story, what you need to understand is that our man has a pair of aces – a hand he started with in his first two cards – but his opponent has used the king in the middle of the table together with his two kings to make three of a kind, Kings. A better hand. The best hand, in fact, at this point in the hand: “the nuts” – so-called because in the early days of poker when one had the best possible hand, one would bet the nuts from the wheels of one’s wagon outside; literally the proverbial “keys to the Porsche”.
Crucially, though, Texas Holdem is played with seven cards in total from which the best five cards play. This means that two cards are yet to be dealt out into the middle of the table and with two aces left in the deck and two chances yet to hit one of them (to give him three aces) our man had a 10% chance of winning by the last – or river – card.
“People said that as the dealer made to deal the turn neither player moved a muscle. Probably terrified by the potential loss or gain ahead of them, they just stared impassively as the next card came out – a 2 of diamonds. While the young gun was now a 95% favourite he’d played long enough to know that this was not a certainty. By any means. As the dealer burnt the last card, the old man stopped him and addressed the table, earnestly, his Texan drawl more noticeable than ever:
‘Whatever the river… ah’m staying. Ah’m leaving here with $200,000.’ People felt genuinely moved by his resolve and belief. They knew deep down at that point that that was now unlikely but hell… they’d all seen much crazier things happen at a poker table. They rooted for the underdog but sensed the inevitable…”
“The point is, son” my mentor placed his empty glass on the table “you come to me tonight and you tell me that you’re feeling sorry for yourself. That you’re missing flops and draws and everything’s awry. Next time you feel like that, you remember this man’s story. You think how it must feel to come so close to having everything you ever wanted for the last 10 years and seeing it snatched away on the turn of a card. Don’t tell me that the luck just ain’t with you, man, if you need luck you’re not playing right!” After a three month run in which I found it hard not to hit my hand I felt suitably ashamed for complaining about a bad five days..
“What happened in the end?” I mumbled out of curiosity. My mentor paused…
“Sonofabitch caught his ace on the river and won himself a $233,000 pot. Went from $2,500 to 100 times that in less than a working day.”
“More remarkably, he went on to do exactly what he said he would. He didn’t play another hand, didn’t try and ride his luck, he just got up and fetched a chip tray to take his winnings to the cashier. Once there, he had it counted and recounted then bundled into Benjamins. To the cashier’s astonishment, he even closed his strongbox, signed out, put the cash into his pockets and walked casually out of the casino – the eyes of the whole poker room upon him.”
“He only had two hundred and thirty thousand on him but he must have felt a million dollars as he walked out that door and into the warm night air.”
“Once outside, he took a deep breath and allowed his shoulders to sink by two full inches. What to do now? He looked up at the clear sky above him at the billion twinkling stars that you used to be able to see in the desert night sky before they erected that Freemont Street Experience thing and took the first step of the rest of his life.”
“A split second later the night bus applied its brakes with a screech but could stop from hitting him at forty miles an hour. Paramedics arrived but pronounced him dead at the scene. Police arrested a couple of people who went round picking up some of the hundred dollar bills that blew out of his coat and wafted around the sidewalk.”
“If he hadn’t gotten so lucky he would probably still be alive today.”
My mentor poured himself another glass of coke before offering me one from the jug which the waitress had left at our table. A lot of the ice had melted so I declined.
Lawrie Tallack is now an actor which is a rare career progression when you consider that he was once a fighter pilot in the RAF. A veteran of the gulf war and 200 parachute jumps, Lawrie was no stranger to taking calculated risks!
One evening his Commanding Officer came in to warn them that they would be making a jump the next day from a high altitude balloon. “Don’t worry though boys” he said “it’s really not that different to what you’re used to. Just bear in mind that when you jump it really is a long way to fall before you open up.”
“And then he paused” Lawrie recalls “and seemed to relive a traumatic memory or something before reiterating that it really really was a long way to fall.”
For some reason, Lawrie went to sleep that night unnerved by what was intended as a pep talk! After hardly sleeping at all during the night, he went to his superiors and informed them that he could not bring himself to do the jump. In short, he refused.
In blackjack there is a (fairly common) situation in which you have 16 and the dealer has a 7 or higher showing. Given that you’re trying to make 21 without going bust only a 5 or lower will improve your hand. A 6, 7, 8, 9, 10, Jack, Queen or King will bust you. And yet the book (that is the guide to basic strategy which has been worked out according to the inexorable maths) tells you to hit – to take a card. It feels so counterintuitive. And yet the book is adamant: you must hit the hand. Why?
The bottom line is that you are in a terrible position there. Not as terrible as being in a plane hurtling to earth but you have 16 – the worst possible total – and the dealer has a 10 (let’s say). You are going to lose a lot of money in this situation on the average. The VALUE of this situation is negative. BUT you will lose LESS money in the long run than by standing pat. Yes you will bust yourself 8 times out of 13 but the times you will improve will win it for you enough times to outweigh those losses.
The point is that in everything we do we need to take a Long Term approach. Even though by hitting the 16 we may bust and it’s going to be painful, it is the right thing to do. Sometimes doing the right thing is hard. It will be painful. But it’s right because the alternative is MORE painful and therefore risky.
There are definitely risks we cannot afford to take. But there are also risks that we cannot afford not to take. And not taking any “risks” is the greatest risk of all.
After his refusal to obey an order, Lawrie’s disciplinary hearing was inevitable and effectively the conclusion was foregone. You can’t refuse to do a jump in the RAF. Loving his job and desperate not to lose it, Lawrie pointed to his exemplary record in the services, all of which they said had already been taken into consideration. They had – they said – his safety at heart:
“What if you were in a plane Tallack hurtling towards the ground at terminal velocity and had to eject hmmm? What would you do then? We have to know that you would put your safety first.”
“Well of course I would. I’d eject insisted Lawrie. But they were unconvinced.
“How? How do we know that?”
To Lawrie the answer seemed perfectly obvious. “Because I know that if I don’t… I’ll die!” He said.
Thomas Crombie Schelling is one of the more interesting unsung heroes of the twentieth century. Awarded the Nobel Memorial Prize in 2005 for “having enhanced our understanding of conflict and cooperation through game-theory analysis” it was he who suggested a phone line between the leaders of America and Russia during the height of the Cold War so that they could talk to each other rather than take the ultimate sanction at times of uncertainty and push the button that would obliterate mankind.
History, alas, only really makes legends of people who save us from chaos, not those who prevent it from ever occurring in the first place.
As a man tasked with advising on how to save our species, Schelling thought a lot about why we do what we do. As a man who found it hard personally to kick the addiction he had to nicotine he also found it important when it came to saving himself.
In 1978 Schelling wrote a brief, fairly unresearched paper for the American Economic Association in which he considered the subject of his addiction through a very specific lens: the rationale of his decision making processes. As part of the National Academy of Sciences who deemed addiction irrational and helpless Schelling was compelled to conclude that it wasn’t and set about considering the problem in a different way.
He recounts a story about being a young boy, impressed enough with Admiral Byrd’s Antarctic expedition that he decided to go to sleep that night with one too few blankets in an attempt to toughen him up against the cold. That decision he says was “made by a warm boy”. The boy who awoke every night too cold to retrieve the blanket used to curse the warm boy who by the following bedtime, got to make the decision again and invariably did in the same way!
“I didn’t realise then how many contests of that kind, some pretty serious, I would eventually have with myself, trying to stop smoking, to exercise, to meet a deadline or to turn off an old movie on TV”
Taking, first, the example of a “Christmas Savings” scheme which pays less return than a normal savings scheme but which serves to protect the saver against their future instincts he relates a series of similar situations in which people make decisions which indemnify themselves against Short Term desires in the future: hiring a personal trainer to prevent us from shirking the last two reps in the gym or placing our alarm clock across the room to stop us from going back to sleep.
These measures appear to be necessary, he concludes because of a continual struggle inside all of us between different decision makers who regard the decision from different points in time. Not just the person who stands there in the moment – although they often end up shouting the loudest. But also the person who will have to live with the decision in 5 seconds, and the person who will consider it tomorrow and the person who will have to pick up the pieces in 2 months from now and the person who may have to live with the memory for years.
So what can we do to intervene? Are we powerless as this struggle rages in inside ourselves – merely crucibles for battle to take place? I believe not. As someone who had to motivate himself to get up every morning and embrace short term failure on a daily basis, I believe I learnt what it takes to intervene and take control. And the best part of it is that it doesn’t inherently involve becoming someone different.
Crucially, it doesn’t involve, as many self-help books would have it, overcoming your fear of failure. Indeed to try and deny our fear of failure is to deny what makes us human. It is to try and remove the very force which drives the Lincolns, Dysons, Edisons and Ungars on to win. Fear of failure is the most motivating force we have… we just have to redefine our definition of failure. Specifically we have to make failure a Long Term phenomenon.
As a poker player, if your greatest fear is the pain of losing a pot, well then you’ll probably never play a hand. But if you fear not making your rent at the end of the month well then that fear of Long Term failure will keep you playing late into the night while you enjoy all the positive Expectation offered by inebriated tourists who will, of course, sometimes win.
Fearing the pain of regret more than the pain of rejection means taking decisions because of the thrill of the cheer rather than the fear of the boo. It means having a goal to aim for and allowing the achievement of that goal to become what is important. It means turning up the volume on the future you and fearing the pain that they will experience if they fail more than the pain which the present you will feel if they do.
“The definition of hell is dying and the person that you are getting to meet the person that you could’ve been.” Anon. That’s fear of Long Term failure. And that’s a mindset that in any other context we would call driven and ambitious.
We’ve hosted a struggle between the person we are now and the person we’ll be in the future every day of our lives. Whenever we make any decision, in fact. And the reason that we have taken all the risks we ever have is because at some point our future selves have shouted loudest and we’ve glimpsed the future that they’re going to have to live in. And we’ve found ourselves asking a crucial question…
“What if I never…?”
“What if I never ask her for a drink? What if I never set up on my own? What if I never buy a property? What if I never take this meeting? What if I never tell him how I really feel? What if I never try this new way? What if I never take this opportunity? What if I never seize the moment? What if I never do any of the things I talk about and plan…? What will my life look like then?”
The fear of meeting the “person we could have been” has spurred a thousand of us to take a million risks. Not all of them successful. Not all necessarily even good. But at least we’ve taken action. Because in the words of John F Kennedy “There are risks and costs to a programme of action, but they are far less than the long-range risks and costs of long term inaction.” Just ask IBM. Or Western Union. Or Xerox. Or any of the men and women whose names we’ll never know because they never tried and failed, or succeeded, to achieve the dreams they dreamed of or live the life they never got to know. Because they bought into an illusion: the illusion that the Long Term never comes and that this decision, now, is all that really matters and failure would be a risk they can’t afford to take.
There are risks and consequences associated with Short Term action. But they are not as great as the Risks and Consequences of Long Term inaction. We know this. For this is the reason we do anything.
In the early 80′s a riddle did the rounds which had everyone stumped for a few days until the solution followed shortly afterwards. Considering this was before you could forward something to a group in Outlook, ideas used to propagate themselves very quickly in those days. The riddle went like this:
3 MEN GO INTO A MOTEL. THE MAN BEHIND THE DESK SAID THE ROOM IS $30,
SO EACH MAN PAID $10 AND WENT TO THE ROOM. A WHILE LATER THE MAN BEHIND THE DESK REALIZED THE ROOM WAS ONLY $25, SO HE SENT THE BELLBOY TO THE 3 GUYS’ ROOM WITH $5. ON THE WAY, THE BELLBOY COULDN’T FIGURE OUT HOW TO SPLIT $5 EVENLY BETWEEN 3 MEN, SO HE GAVE EACH MAN A $1 AND KEPT THE OTHER $2 FOR HIMSELF. THIS MEANT THAT THE 3 MEN EACH PAID $9 FOR THE ROOM, WHICH IS A TOTAL OF $ 27. ADD THE $2 THAT THE BELLBOY KEPT = $29. WHERE IS THE OTHER DOLLAR?
The answer – which I must confess eluded me for ages – is that there is no $30. Each man pays $9 for the room which equals $27, plus the $2 equals $29. Simple. But the illusion is a powerful one.
In the same way, the powerful illusion is that every decision we make is important and that we never get the chance – like a share trader who makes dozens of trades a day, or the poker player who plays dozens of hands an evening – to get to the medium term. But we do.
No poker player gets to play any exact hand more than once. But you still make the decision that is right according to the Long Term every time, and that way you make a profit. No trader gets to invest in the exact same share with the exact same future prospects for the exact same price twice. But by investing with the best long term expectation in a series of inherently independent situations you give yourself the best chance of making the best Long Term return.
I understand that some decisions feel so big that we’ll never ever reach any kind of long term and so the best policy seems to be to play it safe. Putting your children through school; setting up your own business; buying your own home; getting married; going back into training; getting divorced; being completely honest with your team… the list is endless. And that’s the point.
While we look at the present and the future from one position at the point of making a decision… it all looks very different in the rear view mirror. Eventually the numinous truth of the illusion catches up with us and we realise that each monumental mountain was really only a molehill – only one of many problems that we had to overcome; just part of a continuum which eventually became a Long Run.
And those of us who explored the opportunities and took the risks in a calculated way will, eventually, have received what we expected (or Expected) and deserved. And those of us who eschewed them and feigned satisfaction with the safer option experience a pain much greater than the pain of setback or Short Term failure… in the Long Run they experience the agony of regret.
And the most amazing thing about it all? The most amazing thing is that we know this. That’s why when we have to make a difficult decision we feel torn… we feel torn between the person we are now and the person we know deep down that we’ll become in time. And that is the struggle that takes place inside us all whenever we make a decision. Long Term vs Short Term: the us we are tonight and the us we’ll be tomorrow.
Orville and Wilbur Wright are generally credited with having manned the first powered flight. They probably did but to credit them with having single handedly invented flight is not terribly fair to the other people at the time who did much to advance the general level of knowledge . The Wright Brothers have their place in history but, like everyone, they stood on the shoulders of giants.
One of the people who was struggling to achieve that first flight was a gentleman called Langley. Unlike the Wright brothers, Langley was regarded as a serious scientist of his day. The Wright brothers were bicycle mechanics. Langley’s research into powered flight was funded by the US State Department. The Wright brothers funded themselves using the proceeds of their bicycle workshop. Langley’s engine was far superior to the Wright Brothers’ in terms of its power to weight ratio. If you were a contemporaneous observer, you might well conclude that Langley was the more likely to achieve the goal. But he didn’t. In fact he gave up before the Wright Brothers even succeeded. Why?
Because Langley was a serious scientist. Every time he had a successful or unsuccessful experiment he had to publish the results in a paper for all to see. And he was scrutinised and judged. On this short term results. And it was painful for him.
The Wright Brothers, however, made their own progress in their own time working from out of their workshop just as Steve Jobs and Larry Page and Sergey Brin and William Hewlett and David Packard worked out of their garages. They even turned down funding from Carnegie in order to preserve this independence so that they were judged NOT on their Short Term setbacks but their Long Term results. And what a result it was.
Accountability to shareholders and individual risk aversion results in businesses who hear the messages of excellence but aren’t really prepared to replicate the conditions that incubated and nurtured it. Deciding on a long term goal is essential but more essential is accepting – collectively as a team – exactly what short term failures are going to be permitted in order to achieve it.
Just as someone who goes into a casino accepts that this £50 is going to be lost. All the desire in the world to achieve the Long Term goal won’t make it happen if the individual or the team or the department or the company are not prepared to lose some of what they have in order to gain what they desire.
For most of us in most organizations Failure is NOT an Option. This is good. Long Term failure should not be encouraged or even accepted. But the Long Term is out goal. It’s our objective. It’s a criteria and metric for success. It’s what we want. It’s our motivation.
And if our Long Term goal is demanding enough and stretching enough. If it is going to write history and shape the future… if that is not an option…
Then Short Term failure is a necessity.
“Don’t worry Mr Berry, I can assure you that these fund managers are put through their paces rigorously. Not only do we meet them and psychologically profile them every 3 months or so but we are inspecting their results practically every day.” It was with these words that my investment advisor for a well known financial services company lost my custom in his attempt to sell me the virtues of their “fund of funds” investment practice.
I know from my work with investors in other similar well-known organizations that there are several fundamental problems with entrusting your money to people who work for institutions. Some people will tell you that the problem is that the money isn’t theirs and therefore they don’t care enough about it. This is not the problem. Or certainly not the only problem. Just as problematic is the fact that because they are accountable to others they care too much! About the Short Term, at least!
This isn’t entirely fair. There are some great companies out there with whom to entrust your savings and obviously there are equally big problems with investing it yourself such as plain old ignorance and your own personal fear of failure.
But ask any analyst what are the essential problems with his traders decisions and he will tell you: despite a billion dollars of IT telling them exactly what to do, professional investors still go and make emotional decisions. Most notably, they sell appreciating stocks too soon and depreciating ones too late. Why?
Because anyone who buys or acquires an asset (like a stock or share but hopefully the regular reader of this blog will think more broadly than this) that goes up in price will experience a pretty small increase in their overall utility or happiness as the price of that asset increases.
Let’s imagine for a moment that you are operating in an environment where your short term results are scrutinized. Lets imagine that someone (could be your manager, could be your fund-of-funds manager, could be your shareholders, it doesn’t really matter) sees the increase that you have just enjoyed as a green number on your screen or balance sheet. Looks good. Everyone’s happy. The problem is that you know that all the information you have is telling you to hold on to that asset because it’s Long Term value of Expectation is good and positive. It could go down – possibly even to below the buy price. But it could go up. Perhaps significantly so…. But it could go down.
And then that green number is would turn red. And all your congratulations would be rescinded. And the good first impression which you initially created would be called into question. So, despite the fact that everything is telling you to hold onto that asset the law of diminishing marginal utility means that as it does so you have more and more to lose and proportionately much much less emotionally to gain. So what would you do in a rational-emotional sense while it’s still green?
Conversely, let’s imagine for a moment that the price of the asset falls soon after you purchase it. You experience an initially quite severe loss of utility as you now have an ugly red number on your screen or in the wrong column on your balance sheet. What do you want to do deep down right now? Get rid of it sure. But that’s just going to bank the loss and preserve it for posterity and everyone to see. What do you really want to do in this situation? That’s right. Exactly what Nick Leeson wanted to do. You want to get even on the deal. You want hold on to it. Because even though all the information is telling you that this thing has a negative future Expectation… it could… it could go up. Maybe even back above the buy price. It could become a green number!
If it goes down it will just become a bigger red number, “well” you think, “you’ll deal with that when the time comes”. Your results for the day/week/month are going to be reviewed this afternoon, you decide to hold onto it just in case it goes up before then and turns green. Although it doesn’t.
What was the problem here? You work for an investment bank. And yet you’re making the emotional decisions which are not profit maximizing and therefore not serving your clients effectively. Why is that?
The problem is one of outlook, corporate culture or individual mentality. In the example cited, I am stressing the essentially Short Term nature of your assessment in a world where it is Long Term results that ultimately matter. Again, the Long Term is no particular time frame but just whatever your overall goal is. If someone could guarantee you that you’d make a 23% return this year you wouldn’t care what the results were in week two! By evaluating you on irrelevant results, the culture is forcing you to make rational-emotional decisions, of the kind that brought down Barings Bank.
These are the same rational-emotional decisions which persuade a poker player to quit for the evening because he’s made a sum of money with which he’s happy even though his opponents are drunk and effectively giving it to him in the Long Term. Of course, there is nothing to say that the next hand won’t give those same drunkards a four of a kind against your aces full, but that doesn’t matter. Your Long Term Expectation is positive. Quitting is effectively losing you money even though it may look like you’re saving it. And I’ll say it again, this isn’t just happening at the poker tables of Las Vegas, it’s happening every day with billions of dollars at stake. Short term accountability is costing you and me money! Oh the irony!
The creation of the Paulo Alto Research Centre or PARC was an inspired decision. It was founded by The Xerox Corporation who – with the patent on the photocopier bringing a steady stream of income – foresaw as early as 1969 that perhaps these so-called new media were going to start edging out paper as the primary store of information and communication. They picked a good leader in George Pake, a specialist in nuclear magnetic resonance and provost of Washington University who was responsible for choosing Paulo Alto – 3000 miles from the company headquarters in New York.
Maybe it was distance. Whatever the problem, after the initial inspiration behind its PARC’s creation, Xerox never again backed their judgement or the genius of their team which included their Computer science Laboratory manager Bob Taylor who guided the lab between 1970 and 1983. It was under his auspices that some of the most revolutionary and important innovations in computing were conceived.
At the same time that senior management at HP were saying goodbye to Steve Jobs because they could not see any demand for the minicomputer he had designed, the senior management at Xerox were saying no to The Alto – PARC’s prototype computer which – light years ahead of its time had a graphical interface and a mouse! Needless to say the designers behind it were happy to join Steve Jobs in his parents’ garage.
Xerox subsequently ceded laser printing technology to HP, desktop publishing to Adobe, 3D graphics to Silicon Graphics and networking to Ethernet – all set up by ex PARCers after having their early work on the projects rejected by Xerox who were making huge profits selling photocopiers.
Indeed, success is a bad habit to get into. If Western Union hadn’t been so successful sending telegrams it might not have turned down Bell’s telephone. If the Remington Arms company hadn’t been so successful providing clerks they might not have turned down the typewriter. And if IBM and Kodak hadn’t been so busy doing what they did better than anyone else they would not have turned down Chester Carlson’s offer to develop dry photocopying – an invention which itself became Xerox!
The problems with not embracing failure and change in the 21st century are obvious and myriad. We live in exponential times: China will soon become the number one English speaking country in the world. The top ten in-demand jobs in 2010 did not exist in 2004. We are currently preparing people for jobs that don’t exist using technologies that don’t yet exist. 1 out of 8 couples married in the US last year met online.
The first commercial text message was sent in December 1992, now more text messages are sent everyday than there are people on the planet. It took Radio thirty eight years to reach an audience of 50 million, it took Facebook two. Futurologist Ray Kurzweil predicts that in Q2 2029 the singularity will be reached: computers will be as intelligent as man. How on earth does anyone make resource allocation decisions in the middle of all that change. A large number of projects being initiated today will see a radically different landscape by the time they eventually come to fruition.
“It is not the strongest of the species that survive nor the most intelligent but the ones most responsive to change.” said Charles Darwin.
But adaption in its most quintessential manifestation operates as a result of hundreds of thousands of copying errors in the genetic material during cell division. The resulting mutations contain variation within the gene pool from which the fittest survive. In 1998, Alta Vista and Yahoo dominated the search engine market but it was two guys – again in a garage – who went on to create what is currently one of the most valuable companies on the planet in Google. Like Steve Jobs they saw opportunity where other larger companies only saw risk. But who will create the next internet-based Black Swan?
Will semantics-based search engines rule for the next 10 years on the internet? Will virtual platforms usurp Windows’ dominance? More importantly, will the next generation of change come from within the current market leaders who have learnt from the mistakes of their predecessors in the past or will there only be 36 of the top 100 companies still around in the next 100 years? As organizations and individuals, how do we stop this from happening? How do we motivate ourselves to embrace more Short Term failure in order to achieve more in the Long Term? How do we change what we do?
Google’s method is to have learnt from the mistakes of its predecessors. It doesn’t mistake what it’s really good at at a fundamental level – learning – with what it appears to be good at superficially – search. Thus, it embeds learning into its business model requiring that everyone in the organisation spend 20% of their time doing just that in the form of training and the pursuit of personal challenging projects (in much the same way as Pixar does with a University on its campus).
It also embraces innovation that has nothing to do with its core product of search such as the Nexus, Android and more adventurously still Google Glass and the self-driving car. No one knows more keenly than Page and Bryn that the next innovation is AS likely to come from two other guys in garage as it is to come from within their innovations lab. All they can do is maximize the chances that the smartest guys in the room are in their room now and in the future.
It’s important to have a concept when thinking about concepts such as this, to delineate between what in statistics and poker they call the short term (but which we might normally refer to as the journey or the means) and the long term (which we might otherwise call the destination or the end).
My favourite speech about courage in the movies is that from Saving Private Ryan, where Tom Hanks and Tom Sizemore are holed up in a church with their platoon and discuss making decisions which send soldiers to their deaths. “Sure I’ve sent guys to their deaths” says Hanks’ Captain Miller “but I figure that for every kid that died we’ve saved what ten, a hundred lives?” Short term sacrifice for long term gain.
Someone who sent many more young men to their deaths in order to save many more in the long term embraced such sacrifice in all areas of his life besides war. Born in 1809 to two uneducated farmers in a one-room log cabin in Kentucky, he went on to fail in business by the age of 22. He was then defeated for Legislature by 23 and had his second business failure the next year. Three years after that he had a nervous breakdown and was confined to bed for six months. He was defeated for Speaker in 1838. Defeated for Congress in 1848. Defeated for Senate in 1855. Defeated for Vice President 1856. Defeated for Senate in 1858. And finally elected President of the United States in 1860. That man was Abraham Lincoln. And his Long Term was a lifetime. But he was successful in it.
The need for courage in the short term is probably best exemplified by considering a successful sports team like the 2003 World Cup-winning England Rugby Team populated by guys, many of whom had captained the side at one time or another, all of whom abhorred failure.
In my work with a couple of them, specifically Matt Dawson and Lawrence Dallaglio, we were initially at a loss to establish in what way they embraced short term failure at all. But the answer was actually obvious: for an endeavour like theirs winning each game becomes the long term goal, failure to achieve which is not countenanced. But in order to achieve that, failure needed to be embraced much more than usual in the short term – on the training ground.
The whole point of effective training in fact is to put an individual or a team mentally, emotionally or physically under enough stress that it needs to fail until it succeeds in achieving the new more demanding goal. Muscles literally break before recovering and growing stronger in the aftermath.
The problem facing corporations at the moment is that while they pay lip service to the idea of failing in the short term, when push comes to shove and shareholders have to be reported to every three months, it is impossible to implement.
The problem with the inability to embrace failure is that if a company claims to want to be a world leader in its field it is effectively playing the part of a team who wants to win the world cup but not actually train before the big game. Admittedly corporate life is more continuous than sporting life and it is impossible to focus on individual events and periods of time in quite the same way but the basic principle remains: if growth and improvement come from raising the bar to a point where people initially cannot carry it then people’s inability to admit or prepare for failure in a corporate context is a massive handicap.
In my work I am more concerned with the principles of maximizing return on investment and the behavioural impediments to doing so than I am in more motivational ideas of success and failure. The bottom line, however, is that the reason most people don’t maximize their returns in all areas of their lives is good old loss aversion or what we generally call fear of failure.
So I end up talking about the need for short term failure in order to maximize long term returns – something that can often get bogged down in motivational speaker clichés. Here then are all the well-known stories in one place, enjoy:
Zen and the Art of Motorcyle Maintenance took four years to write, much of which while Pirsig was holding down another job. After such enormous investment it was rejected by 121 publishers – more than any other bestselling book according to the Guinness Book of Records – and went on to sell 4 million copies.
Vincent Van Gough did not sell a painting in his lifetime – a Long Run which sadly came too late for him to enjoy the benefits of having paintings such as Vase with Twelve Sunflowers, Irises and his Portrait of Doctor Gachet selling for as much as $82.5m and breaking world record auction values several times.
Michael Jordan – one of the few sportsmen who can genuinely lay a relatively undisputed claim to having been the greatest of all time – did not make his high school basketball team. When asked by a journalist how he went from not being the best of 300 to becoming the greatest of all time he replied: “I have missed 9000 baskets and lost 300 games of basketball. Critically, I have called for the ball in the dying seconds of a game and charged myself with scoring the winning basket… and I have failed. I fail and fail and fail and fail and THAT is why I succeed.” This pattern of Short Term failure Long Term success is evident throughout sport: at the point at which he held the record for the most number of home runs, Babe Ruth simultaneously held the record for the most number of strikeouts.
In science and creativity, failure is also critical with many of its major breakthroughs - like X-Rays and Penicillin, being the by-products of essentially unsuccessful experiments, and almost every major innovation being the result of hundreds or thousands of failures. Greg Dyson’s “overnight” success story that ultimately made him a billionaire, the Dual Cyclone bagless vacuum cleaner, took five years and 5,127 prototypes. While part of the research and development team at Apple, David Levy was reprimanded by his boss for not making enough mistakes. He said he wanted to see at least 80% failure or he wasn’t exploring new ideas enough.
Coca Cola’s chief Roberto Goizuetta – himself no stranger to failure having been the person behind the most expensive product flop of all time (in New Coke) said he only trusted managers whom he had seen make a serious strategic error at some point. “The fastest way to succeed” said IBM head Thomas Watson Sr in his junior years “is to double your failure rate.” Perhaps the greatest CEO of modern times, Jack Welch, said that from time to time you had to reward failure or “nobody ever tried.”
Henry Ford called failure “the opportunity to begin again more intelligently” a reference, among other things, to the Ford motor company’s two previous incarnations before succeeding in the form that made history. Soichiro Honda, founder of the Honda corporation, in the wake of personal bankruptcy said that “Many people dream of success but success can only be achieved through repeated failure and introspection. Indeed success represents one percent of my work which results from the ninety nine percent that we call failure.” You can insert the words Short Term and Long Term into this sentence by now, I’m sure.
“A crank is a man with a new idea – until it catches on” said Mark Twain, referring to the way that many of the inventions that we now take for granted were usually rejected and ridiculed at the time of creation: “Louis Pasteur’s theory of germs is ridiculous fiction” so thought Pierre Pachet, Professor of Physiology at Toulouse in 1872. Lord Kelvin, President of The Royal Society in 1895, stated that “Heavier than air flying machines are impossible”.
“The device is inherently of no value to us” was Western Union’s opinion of Alexander Graham Bell’s Telephone in 1876 while Sir William Preece, Chief Engineer of Britain’s General Post Office, said in the same year that “The Americans have need of a telephone but we do not. We have plenty of messenger boys.” Dyson himself was told that his idea for the Dual Cyclone was “dead from the neck up” by Hotpoint while Electrolux said he would “never sell a cleaner without a bag” and AEG claimed point blank that it didn’t work.
There are now 18 types of bagless cleaner on the market plus one attempt by Hoover, whom Dyson managed to sue for patent infringement. “If you see a bandwagon it’s too late” James Goldsmith.
The point is that the people who have shaped history, created the present and are busy designing the future are people who embrace Short Term failure everyday. “If you want to have a good idea” advised Linus Pauling – one of only two people to win Nobel Prizes in two completely different fields “Have a lot of them.” Statistically, if you only have a 0.1% chance of success at doing something but you do it 800 times, you have a 97% chance of Long Term success.
One man who embraced this philosophy more than any other is, not surprisingly, the man with 1,093 patents to his name, Thomas Edison – the most prolific inventor in history. Having invented the electric lightbulb and the phonograph not to mention various revolutions in telegraphy, Edison can lay claim to having been the man who created much of the twentieth century. And he did it by failing repeatedly.
One legend has him accounting for his repeated failures to perfect the electric lightbulb as being simply the discovery of hundreds of ways of not achieving the desired result as he pressed on (to Long Term success). “Many of life’s failures are men who did not realise how close they were to greatness when they gave up” he said giving an insight into his philosophy that you only needed to succeed the last time.
There’s nothing wrong with a little bit of indulgence though as long as you remember why we’re thinking about these people: they maximized their returns be taking more risk than everyone else. They got the edge by being brave…