Two Become One

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.

Inventors, Innovators and Timeframe of Judgement

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.

Posted 04:05pm by Caspar and filed in Innovation, Risk

Leadership, Bravery and Courage

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.

Posted 03:35pm by Caspar and filed in Decision Making, Leadership

Success and Failure – All the Clichés in One Place

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…

If you Want to Succeed you Must be Prepared to Fail

“Choose a dojo.”

With these words, at the beginning of Chapter 1 of Step 4 of his bestselling book, The Game, Neil Strauss lets us into a little secret of the world of the Pick-Up Artist (or PUA) which none of the other writers on the subject will tell you.

If you’re not familiar by now with the principles outlined in this particular book then it is unlikely that you are a man between the ages of 14 and 34. If you are a woman between those ages then you have more than enough reason to familiarize yourself with them because if you don’t then you leave yourself exposed to having them used on you to get you into bed.

The principles or “methods” themselves are currently being sold for literally thousands of dollars at weekend boot camps around the world to horny young men who are attracted to the promise of getting to sleep with a girl with whom they would otherwise stand no chance. But there is a secret that they will not learn there…

The secret is not that the methods he is paying top dollar for do not work. They do. Just as there is an effective way of selling cheese (which convinces the prospect that there is a high probability that they will accrue the pleasure they desire for an appropriate investment of money) there is an effective way of selling oneself as a potential mate. And it works.

But just as the best way to win as much money in a poker game as possible is to play every single hand, so the best way to get a girl to go home with you is to ask as many as possible.

Actually, we must remember the principles of the calculated risk and Expectation theory. A professional poker player plays about 10-20% of hands and it is really after the decision to play that the real work begins. Playing every hand is a surefire way to win the most money – by giving yourself the chance to win the most pots. But it is also a surefire way to lose the most overall. The aim of poker, it should be remembered is not to win money but to make money.

In much the same way, the art of seduction as presented, clinically and rather misogynistically, in The Game is to pick your target (much like a poker hand) which gives you a positive Long Term Expectation and play it effectively. As with poker there are definitely ways of playing the game which are better than others, but by conceding that you can choose a dojo, Strauss is effectively saying that the method you adopt is not the most significant thing about your choice to become a PUA. What is significant is that – like a poker player – you have made a decision that in order to achieve your Long Term goal (in poker making rent at the end of the month, in seduction getting laid) you are prepared to fail in the short term.

It’s very difficult to get a figure as to the kind of percentage of Short Term failure you need to embrace from any of The Game’s many acolytes around the world. Most of them now have a large financial interest in convincing you that their method will incur you the least. In poker there are definitely different strategies: some people win 65% of hands they play but the pots are small, other people win 20% of hands played but the pots are large. Both strategies can make a profit. Both can make a Long Term loss. There are no magic bullets. Although, in general, it is perhaps unsurprising given what we know now that the players who play “fast” lose more than their fair share but make the biggest Long Term gains.

In the same way, the guys who are prepared to be shot down in flames at various points in any given evening in the bars and clubs of Los Angeles are the guys more likely to be walking home with the Victoria’s Secret model at the end of the evening – the perfect 10s as they’re called.

Actually, Timothy Ferriss makes a staggeringly elegant, but strikingly insightful, point in his book The 4 Hour Workweek which is that it is actually often easier to “close” a 10 than a 7 in situations such as these (I realise how horribly sexist all this is) precisely because everyone is chasing 7s while no one has the courage to even approach a 10.

In this way, while there will undoubtedly be setbacks and rejections, the people with the courage to bear these actually end up exploring an area which no one else is, and reap the attendant benefits and Long Term returns of doing so.

The Origins of Fear of Failure

The Law of Diminishing Marginal Utility basically says that the more that we have of something (as denoted by increases in the Quantity measured on the horizontal axis) the less and less additional satisfaction we get from each additional unit of it.

At its simplest level this just means that if you eat a big bowl of ice cream, while each spoonful is making your tastebuds tingle as your dopamine is released when you start… about halfway through you’re probably a lot less keen on the taste of ice cream and each spoonful is giving you less and less satisfaction.

Clearly this is the case for ice cream because eventually you will feel sick, but it is also the case for many things: it would be nice to have a Ferrari but if you had 10 Ferraris most people who read this would probably not get the same happiness from the 11th Ferrari as you got from owning the first one. It would be nice to go on holiday but you probably wouldn’t be getting the same utility from the 66th day as you got from the first one. And even where money is concerned, while it would be nice to make a million pounds, but Warren Buffet almost certainly doesn’t get the same thrill of making a million pounds after having made thirty six thousand of them already that we would. Indeed as Arnold Schwarzenegger once said “Money doesn’t make you happy. I’ve got fifty million dollars. I’m no happier than when I had $48.”

The effect of this apparently irrelevant aspect of our psychology however could not be more profound when it comes to the decisions that we make. In other posts I’ve referred to the way in which otherwise rational people like Stuey Ungar and Nick Leeson made apparently insane decisions because of the allure of the upside and the limited downside associated with them. They gambled as a result of their emotional situation at the time. Well this is the opposite. Diminishing marginal utility means that most of the time we actually get LESS pleasure from our gains than we get pain or potential pain from our losses.

This muted upside and exaggerated downside in our Emotional Expectation calculation is what stops a lot of us from achieving the Long Term results that we want: we are scared of losing what we have in order to gain what we desire. Often, that is because we don’t even know what it is that we desire. Sometimes we do but we’re not prepared to lose what we have in order to achieve it in the Short Term.

Sometimes this fear is good. It’s what stabilizes our society. America’s delinquent youth don’t fear the downside as much as weedy academics – which is why they label them irrational and uncontrollable. It’s fashionable now to blame the parents, of course, but what it they’re not scared of what they’re parents have to say or do.

If Nick Leeson had been a little more frightened of his Mum or Dad then maybe Barings bank would not have gone the way it did. Likewise, if Kenneth Lay or Jeffrey Skilling had feared the eternal flames of hell a bit more then maybe they would not have tried to swindle their shareholders out of millions and embrace their own personal and corporate downsides to quite the same extent.

But there is a downside to this fear too. And it is a downside which costs similar shareholders a great deal more in the Long Run than a couple of corporate frauds no matter how massive and illegal they have been in recent years. The fact is that much more pervasive fraud is occurring every single day in boardrooms and offices every single day in companies across the world as leaders make decisions in direct contravention of the legal requirement to operate at all times in the shareholders best interests. They don’t. They don’t even come close to doing so. They operate largely out of a sense of self-preservation and fear of short term failure. I certainly would if I were in their situation and had the weight of quarterly shareholder reports bearing down on me on a daily basis. These are not the conditions necessary to motivate people to take the necessary risks to be the best at what they are doing.

On the last bend of the women’s BMX event in the 2008 Olympics British cyclist Shanaze Reade gave up a certain silver medal place in order to overtake the leader and push for gold. She failed, came off her bike and went home without a medal or – she says – any regrets. She was prepared to lose what she had in order to gain what she desired.  Would she have done the same had she had to report her results to a group of shareholders at the end of every race? Shanaze Reid went into that race as the world champion and the out and out favourite. And she got to that place by consistently being prepared to lose what she had in order to gain what she desired.

The ability to lose what you have in order to gain what you desire ultimately this is what will define your ability to achieve what you want – whatever that may be. The question is how do we embrace that mindset in poker, business and life?