How I Made My First Million on the Internet and How You Can Too!: The Complete Insider's Guide to Making Millions with Your Internet Business by Ewen Chia
This is one of those books, like Fastlane Millionaire, that has a name that seems at first to be a little like a scam, but once you dig into the book, it is well written, well thought out, and pretty interesting.
Not being a internet marketer, I do not how much is real and valid, but my gift in life is finding good advice in any text.
It was interesting.
The important thing to understand is that Internet-based marketing is driven by information. The visual interface makes us sometimes forget that it is all data, numbers are what matters, and numbers can be measured.
There are more than a few different models for Internet business. However, there are only two core models in the transaction of online business itself: 1) Direct proprietor, also known as the merchant or product owner 2) Third-party proprietor, otherwise known as an affiliate marketer
I knew, for instance, that I needed to target a viable market. I knew I needed to deliver solutions to that market. I understood that I needed to drive market traffic to my offer and that I had to have a lead-capture and follow-up system in place. I started focusing much more on building my opt-in lists and on forging a solid relationship with my list subscribers. It was through their feedback that I learned just how important it is to provide value and information. I came to understand that people are looking for solutions, not just products.
The secret was in first understanding the fundamentals of marketing:
• You must find a target market.
• You must offer a solution to that market.
• You must drive market traffic to your offer.
• You must capture leads onto an opt-in list in order to follow up on your offer.
The overall system relied on driving targeted traffic to an opt-in page where people could download the mini e-book, consume the information, and then click-through the affiliate links contained within it.
Whether you want to be an affiliate marketer, a product owner, or both, there are five core components that undergird every successful Internet business, and you must master them above all else if you want to make your first million on the Internet. These five components are as follows: 1) Market 2) Offer 3) Traffic 4) Backend 5) Duplication
Every successful Internet marketing system comes down to five components: Market + Offer + Traffic + Backend + Duplication
You want to choose a market that satisfies the following criteria:
• Hungry for a solution
• Willing to spend disposable income on solutions
• Easy to reach
Every market represents a niche, but not every niche represents a viable and profitable market. Make sure the market has money. Product targeting is really secondary to market targeting. Pay attention to your market above all, and the rest will follow.
You must target the market first, determine its needs, and then either create or locate a product to address those needs. Product targeting is really secondary to market targeting. Pay attention to your market above all, and the rest will follow. There is nothing wrong with brainstorming ideas, but market selection should be governed by real research and hard data.
You will be years ahead if you memorize this one concept: people do not buy products—they buy solutions.
Shift your focus away from the details and features of your product. Look instead for the problems it can solve. The solution is your offer. No matter which market you go into, you must position your product as a solution, and you must market it as a solution
The core of your revenue is going to come from the targeted prospects you’ve collected onto an opt-in mailing list and converted into repeat customers. The backend refers to the offers you make as follow-ups after an initial sale. The majority of your income is going to be generated by backend offers. However, these front-end sales are not where you’ll earn the bulk of your income. The majority of your income is going to be generated by backend offers.
I hope it is clear now why you cannot rely on front-end (or I should say “one-time”) sales alone. A successful business model requires that you maximize the lifetime value of every customer by including a solid backend follow-up series in your sales funnel. Otherwise you’re just leaving money on the table.
Duplication has been one of the major factors in my ability to build wealth. Duplication allows you to explode your overall profits by creating multiple streams of income. Having more than one income stream is crucial for a variety of reasons.
If you want to earn your first million online, you must become an information provider. The demand for information exceeds that of any other item you could sell.
For an affiliate marketer, especially, the following four tools are required:
1. A Web site with your own domain name
2. An autoresponder
3. Link-tracking software
4. Link-cloaking software
How I Made My First Million on the Internet and How You Can Too!: The Complete Insider's Guide to Making Millions with Your Internet Business
It all comes down to freedom and control. Your site is the engine that will power all of your marketing strategies. You need to know where your Web traffic comes from. You need to know which advertisements perform and which ones are duds.
Link cloaking involves the manipulation of a URL from its original form into a different URL while still permitting both to lead to the same destination.
I wouldn’t recommend relying on third-party services like TinyURL to cloak your links, because you have no control over how long your link redirect will last. Instead, invest in software that will do the job reliably and for however long you need it to. An excellent product is the Affiliate Cloner, which you can check out at http://www.EwenChia.com/clone. Why bother with cloaking links at all? Think about affiliate links for a moment. Often these links are very long and ugly, kind of like this: http://www.abcsite.com/shopping/cart.asp?$lang=true$affid=76394
A good rule of thumb to follow is: when in doubt, cloak it.
To summarize, then, these four tools really are the engine behind the majority of communication that will take place between you and your customers:
1) A Web site with your own domain name
2) An autoresponder
3) Link-tracking software
4) Link-cloaking software They are the key technical components of your sales
What you need to look for is a niche market. You must target your products and services toward a well-defined group of consumers. However, it is not specific enough to say that you intend to target “guitar players” or “investors.” The question becomes: which segment of the guitar-player or investor market are you going to target? There are markets/niches within the categories above.
You simply must not attempt to launch a marketing campaign until you determine what your market wants and how badly they want it!
A niche business consists of a business idea that is centered around a highly targeted market group. When you zero in on a niche, what you’re really doing is zeroing in on the following:
1) The audience or target market you would like to serve
2) The core mission and unique selling proposition of your business
3) The core product line of your business 4) The realities of the market—which guide every aspect of how you structure your business, how you advertise and promote your business, and how you manage the long-range growth of your business
So, first things first—do research and brainstorming via other sources, and get your markets of interest (your affinity markets) nailed down to start.
Are you starting totally from scratch? If you are, then pay close attention to what follows next. I’m going to give you a crash course on how to perceive the landscape of salable products the way a businessperson perceives it. So, let’s say you are starting totally from scratch ... The first thing you need to be aware of is that your mind is habituated to seeing the world from a consumer’s point of view. There is nothing wrong with this. You should keep this ability intact, because it’s going to help you relate to your customers. However, this way of thinking (when done without awareness) can also blind you to the profit opportunities staring you in the face.
The average person thinks in terms of products that already exist. The niche marketer thinks in terms of both existing products as well as products that haven’t been introduced to the market yet. How does the niche marketer see opportunities where others don’t? It’s simple: • He pays attention to what people are already buying. • He pays attention to trends and the latest hot industries. • He keeps up with national and world news. • He is a voracious reader. Now, how do you apply this so that you can come up with your own list of potential target markets to research? Ask yourself the following questions: 1) What products am I already consuming? 2) What issues have been in the news lately that might connect to a need for a particular product or type of information? 3) What have I read about in books or magazines lately that might point to a potential market? Now, write down everything that comes to mind. Examine your answers and pull out anything that looks like the simplest one- or two-word description of a broad niche.
Now, pick out a couple that really grab you, and get ready to do some serious reading and research. You’ll want to start out just surfing the Web for sites related to the broad keywords you’ve selected. See what you can find in terms of existing products, services, and content (e.g., articles, message boards, etc.) related to your niche topic. The questions you want to answer during this process are as follows: 1) How many visible submarkets does my market break into? 2) What are the products and services being sold? 3) What range of prices are people charging? 4) How are these products and services being delivered? 5) What information is the market seeking out? 6) What topics are currently hot items of discussion? 7) What is the market’s “inside vocabulary”?
Market profitability is based on two factors: 1) The market has plenty of disposable income. 2) The market is known to buy. In other words, the market is willing to spend a fair share of disposable income on products or services that address needs.
However, you cannot guess at the profit potential of an average market simply by looking at the average income of your target market, as this is hard to determine except in all but the most exclusive cases. You would be surprised at how much money people will spend on their hobbies, even when they nearly go broke in doing so. So, the profitability of any given market comes down not to how much one type of individual is willing to spend, but to the following factors: 1) Are there preexisting products or services in the market that sell well? 2) What is the average price of these products and services? 3) How much demand for these products and services is being expressed?
In other words, what you really want is a healthy amount of competition, and where there’s a wide variety of price points. Be wary of markets where it appears no one is selling anything. There’s often a good reason for it! Also be wary of markets in which there’s not much variation in product type or quality. The best type of market allows you to promote everything from entry-level, low-priced products to higher-ticket items.
The surest and easiest way of getting the big-picture view of your market is to examine the advertising that’s already targeted to that market.
Use the resources listed below to discover the markets people are already spending good money in:
4) http://www.Magazines.com 5)
When you visit any one of these sites, you should look for the following indicators:
• WHAT’S POPULAR
• TOP LISTS
• RELATED ITEMS
• NICHE MARKET IDEAS
How I Made My First Million on the Internet and How You Can Too!: The Complete Insider's Guide to Making Millions with Your Internet Business
PROFIT CHECK #2: ARE YOU TAPPING INTO CURRENT OR FUTURE HOT TRENDS? These sites can give you a sneak peek at growing trends in popular culture and society: 1) http://Pulse.eBay.com 2) http://50.Lycos.com 3) http://www.Trendwatching.com This is a good check to use against any affiliate products you’re considering, too.
PROFIT CHECK #3: WHICH MARKETS ARE WRITTEN ABOUT? You can visit the following article directories and search for articles targeted to your market: 1) http://www.Ezinearticles.com 2) http://www.Goarticles.com 3) http://www.ArticleAlley.com 4) http://www.IdealMarketers.com 5) http://www.Searchwarp.com The reason for doing this is simple: popular subjects (and people) get other people talking!
Any time people care enough to read, write, and relate around a common interest, you can be sure there is a need just waiting to be filled. There is, in other words, a demand for information.
PROFIT CHECK #4: VALIDATE YOUR MARKET WITH FREE KEYWORD RESEARCH TOOLS To validate your market through keywords is to verify that your market is present on the Internet and hungry enough for information that they search for it online. This is crucial. When you run this type of search yourself, you’ll be able to get the actual numbers. Google does provide that information, but you have to download your keywords into a file in order to get to it. Other research tools, like Wordtracker, will display the search volume right next to your results. That said, here is a useful rule of thumb when it comes to evaluating search volume: Weigh your keyword(s) search volume against the number of indexed pages reported by Google as natural search results and by the number of sponsored advertisements being run by Google PPC advertisers. So, for example, if the bulk of your niche market’s keywords average five hundred searches per month, while Google reports that it has indexed over a million pages containing those keywords, you may have some market saturation on your hands.
If you see some commercial Web sites in the natural results, but little to no sponsored advertising, you may have hit an untapped niche. However, if there are no commercial Web sites at all and zero sponsored advertising, you’re likely looking at a dead market.
Weigh your keyword(s) search volume against the number of indexed pages reported by Google as natural search results and by the number of sponsored advertisements being run by Google PPC advertisers.
Conversely, what if you find a niche with a lot of competing advertisers? Competition is good. It means the market is alive, and highly profitable for some people. It may or may not be profitable for you. In order to find out, you will have to look at what the existing advertisers are paying per click to run their ads.
Market opportunity has to do, in a sense, with breadth. In other words, how many opportunities are there for you to capitalize on the market? This is in large part influenced by competition, or other players in the market.
You want your market to have some established businesses already there serving it. Why? Because these businesses may give you a leg up with opportunities for partnerships and joint ventures. They’re also going to be big sources of additional traffic to your Web site.
At this stage, what you’re really looking for is how many profitable offers you can target to your market. As an affiliate, you especially want to look for residual or passive income programs, programs with a variety of products (at all price points), as well as the breadth/depth of available products and solutions for your market
How I Made My First Million on the Internet and How You Can Too!: The Complete Insider's Guide to Making Millions with Your Internet Business
NLP: The New Technology of Achievement - Neuro-linguistic programming (NLP) - Notes
NLP, Steve Andreas and Chris Faulkner
NLP: The New Technology of Achievement
Everything you do is the product of a mental habit
My mind is a laboratory (I like this, we forget our mind is malleable and can be changed, everything that can be tested should be tested (Taleb)).
You can change how you think. Remember this, repeat it until you truly internalize it.
Always think; What do I need to know in order to make this decision? What are the major benefits, and how do I quantify them?
“The greatest revolution of our generation is the discovery that human beings, by changing the inner attitudes of their minds, can change the outer aspects of their lives.” William James
Isolates = smallest units of behavior.
Associated = in the action
Disassociated = separate and watching the action distantly or apart
Our brains simply do not know how to put things into negative language. Saying “don’t think” automatically makes us think of it. In order for our brains to not think of something, our brains have to think it. Instead of saying what you don’t want to do or what you don’t want to think about, think about what you do want to think about.
1. Make what you want to do and what you think into a positive statement
2. Increase the mental vividness of what you want to do in order to make it more attractive to you.
3. Associate into these successful behaviours and mentally rehearse them so they feel natural.
NLP suppositions ( people work perfectly);
- the map is not the territory - our mental map of the world is nt the world and can be changed
- experience has structure - thoughts and memories have a pattern to them - we can change the pattern and change the experience
- if one person can do something, anyone can learn to do it
- mind and body are parts of the same system
- people already have all the resources they need
- you cannot not communicate
- the meaning of your communication is the response you get
- underlying every behavior is a positive intention
- people are always making the best choices available to them
- if what you are doing isn’t working, do something else, do anything else
For the map is not the territory - as you go through time, the map and the world start to separate.
You can take an old situation, something you feel bad about, and restructure it, change the background, put music to it, put a frame on it, and you can change it by conveying the opposite feeling is conveyed.
Every image, sound, or feeling is a resouce somewhere for something.
Talent is simply a set of resources that have been combined, sequenced, and practiced until they become automatic skill.
Circle of confidence - imagine a time when you were in the zone and relive it mentally, capture it in a circle and think that circle when the feeling is needed.
Use mentoring - basically modeling on successful examples of what you want to accomplish
How people think about something makes the crucial difference in how they will experience it.
Read up on Dr. Milton H. Erickson, MD - founder of the American Society of Clinical Hypnosis. Master of hypnosis, he could induce a profound trance just by telling stories.
There are 2 types of motivation, away from problems and towards things or goals we want. People have a tendency to only follow one, but that does not work well. (You have to do both.) Going away from problems has 3 things to watch; You move away from something because there is discomfort but the further from it you get , the less motivation you keep, so you go back and forth, hot and cold, it is inconsistent. Because you are going away from something you often do not pay attention to where you are going or how you will end up. Kind of a “out of the frying pan into the fire” kind of thing.
Away from people often experience a lot of worry and stress to make a move, usually a lot more than needed or is healthy.
People are always trying to make the best choices available to them and behind every behavior is a positive intention. Check people and watch them, do they seek goals or are they avoiding problems?
Always end comments positive - start with what to avoid, and end with the goal.;
First state what you don’t want, then state what you do want.
Values matter. What we value determines what life means to us, what actions we will take, what we will move toward or away from.
When people become disconnected from their values their motivation goes away.
Questions to ask;
What are my goals?
What is important to me?
What is important about this goal?
What do I value or treasure about this goal?
What meaning does this goal have for me?
Values measure the meaning life holds for us. Values influence motivation, if you don’t have strong values, you have little motivation.
If you have strong values, you have strong motivation.
NLP: The New Technology of Achievement
1. Imagine a strongly motivated experience, something you really liked. See it clearly.
2. Take a breath and look around.
3, Imagine something not exciting you care about
4. Take a breath
5. Compare the differences you feel are elements your brain uses to indicate value to you.
Imagine a valuable task you want to do but you don’t do
Think about why you don’t do it
Think about the end result if you do.
Now use the elements from above to change how you think about the result./ Can also be used in opposite by imagining what you are trying to avoid.
Remember to use and utilize an away from motivation strategy to move towards what you want.
New Behavior Generator
See yourself a short distance away and you are watching yourself from inside a bubble. Watch the other you learn and do the task you want to do. Watch yourself feel good as you do it, and adjust when it does not feel right. Once done, merge the two values.
Determine your motivation direction - away or toward.
What are others’ directions and use them to improve them?
What values do you have and how can they influence you?
Phase way from and toward motivation for the best results.
Use sub modalities of your thinking to change and increase your motivation.
Learn how to be more positively motivated towards.
Developing a grand vision
Finding a specific direction for your grand vision
Align yourself with the Mission
· question yourself - do your actions match your vision and direction/ why not?
· negotiate with the parts of yourself that object - find a way to meet it
· remember your time here is finite, do not live a life less than you want
· find reasons to continue
We earn a living by the money we make, but we make a life by the services we provide.
Mission oriented goals are worth achieving and lead to meaningful action, and those action lead to a meaningful life
Discovering your mission; a mission is a sense of purpose that lures you into your future. It unifies your beliefs, actions, and your sense of who you are.
Go back in time to when you were small and everyone was big, and you are learning all the time. Words every day, new things, new wiring, remember you have 15 billion brain cells and you can hear 1600 frequencies, your eyes can see a single photon - these abilities can be applied to learn in many ways. Now picture yourself as a system of functional capabilities unrivaled in the known universe.
You are a learning machine
NLP: The New Technology of Achievement
Finding your Passion
Be true to yourself
make everyday a masterpiece
drink deeply from books
make friendship an art
build a shelter against a rainy day
pray for guidance
Think of some of your interests, determine your values/ principles, list the values - they must be your deepest values, what is the one deepest value?
3 ways to find values
1. When someone violates them and you are upset
2. Something makes you happy
3. Deep inner thought/ meditation
Utilizing your favorite hero/ heroine aka role model
1. Think of one who excites you
2. See a particular goal - think of a goal they did that they accomplished by living and doing what they did. Make a mental movie.
3. Step into the role - put yourself into their place, make it yours, really feel it.
4. Question yourself -
what are my motives?
why did doing this accomplish that goal and why did I choose to do it?
how does pursuing this goal make me feel?
how does this goal fit into my larger mission?
5. become yourself again.
Read biographies of your favorite achievers.
Roles are important
Your mission determines your roles, and your roles determine your goals.
" For example, a person may read a lot. However, if that person does not have an identity as a writer, he or she is not likely to learn to write by reading. A person who strongly believes " I am a writer" reads in a very different way from someone who does not share that identity. A person with a writer role notices different things than a nonwriter. A writer reads not only to get the information, a writer reads to learn how to refine the skills of his or her own writing." NLP, Steve Andreas and Chris Faulkner
Life roles - 4 primary types; individual, work, personal or family, citizen
Ex: artist, athlete, creator, discoverer, friend to self, hero, hunter, leader, learner, magician, meditator, sage, saint, warrior.
Your mission will require many different roles.
Knowing what you want is fundamental
If it is useful to go through a series of questions to make sure your goals are worth having.
Well Formed Goal Conditions - Select a Specific Goal
The way you think about your goal makes a big difference - you can think of it in a way that makes it easy to achieve or in a way to make it almost impossible. It is your choice, and in your head.
Make sure your goal is what you want and not just what you think you should do, or what others want, it has to be yours.
Changing your language, how you say what it is you want, makes a big difference, so change from stating what you don't want to what you do.
Make sure your goal is stated in a way that you can get it yourself, no matter what other people do. Your goal must depend on you and not on others.
Ex. If a goal is I want my boss to stop criticizing me - that requires your boss to change which is not in your control and it leaves you vulnerable and dependent. Instead - what can I do, or experience that will allow me to remain resourceful, no matter what my boss thinks.
How will you know when you have achieved your goal?
Make sure you decide how you will know you have met your goal and insure the time line is not long. Better short goals for feedback and encouragement.
You want to make sure you think about when you do and when you don't want your goal. It is easier to achieve your goal when you are careful about where, when, and with whom it is appropriate.
Make sure your goal fits into the ecology of your life so it does not become one sided.
Goals you will make the rest of your life.
1. Set the stage
2. See yourself in the future in your chosen role
3. Make your goal well formed
· goal is positive - it is what to do
· you want to do the goal, not should
· you are the one doing it - not someone else
· you can do it - it is not impossible
· the goal is specific - not general
· the goal is ecological - if achieved it is positive
Make your image compelling, notice the pathway.
Developing a Plan
Taking Action on Your Goals;
1. Assign a realistic completion date
2. Schedule the steps
3. Keep an eye on the mission/ progress
4. Do it - persist.
Creating Rapport and Strong Relationships:
Other people are the most valuable resource we have. Networks matter. 83% of all sales are predicted on the customer liking the salesman. Successful people know how to make relationships last.
You are not in the business of selling - you are in the business of relationships
3 Steps to build relationships;
Success goes to those who think of their customer's goals before their own
Long term thinking is important.
If you don't have rapport, you simply will not be effective with other people.
When you feel uncomfortable talking to someone, you are out of sync, then you are not in rapport
2 ways to think of rapport;
First is to intentionally build rapport whenever you talk to someone
Second is to assume you have rapport and watch to insure it is not lost.
When you don't have rapport with someone, you are acting differently then they are so the way to regain rapport is to become more similar. Matching occurs naturally in rapport, but also can be actively used to establish and increase rapport.
You can match any behavior you observe, postures, facial expressions, tone, rhythm
Practice voice matching. Don't square off unless you want to keep your distance, instead go in alignment facing the same direction.
You can always develop emotional rapport
NLP presupposes that the other person wants to deal positively with you, even when yelling, and if you match, you can communicate.
Decide what emotional states you want associated with yourself.
NLP: The New Technology of Achievement
Little Bets: How Breakthrough Ideas Emerge from Small Discoveries by Peter Sims
Good book, I thought at first it would be like most business books, a good idea that would take fifteen minutes to explain spread over two hundred pages, but I have enjoyed it. It is made of several ideas, flow, etc, but blends them together well.
Chris Rock deeply understands that ingenious ideas almost never spring into people’s minds fully formed; they emerge through a rigorous experimental discovery process.
..............most successful entrepreneurs don’t begin with brilliant ideas—they discover them.
Jeff Bezos has accepted uncertainty; he knows that he cannot reliably predict which ideas for new markets will work and which won’t. He’s got to experiment.
The type of creativity that is more interesting ...... is experimental innovation. These creators use experimental, iterative, trial-and-error approaches to gradually build up to breakthroughs. Experimental innovators must be persistent and willing to accept failure and setbacks as they work toward their goals. When much is known, procedural planning approaches work perfectly well. When much is unknown, they do not. These methods are decidedly not ways of just trying a lot of things to see what sticks, like throwing spaghetti against a wall. The most productive creative people and teams are rigorous, highly analytical, strategic, and pragmatic.
Fundamental to the little bets approach is that we:
• Experiment: Learn by doing. Fail quickly to learn fast.
• Play: A playful, improvisational, and humorous atmosphere quiets our inhibitions when ideas are incubating or newly hatched, and prevents creative ideas from being snuffed out or prematurely judged.
• Immerse: Take time to get out into the world to gather fresh ideas and insights, in order to understand deeper human motivations and desires, and absorb how things work from the ground up.
• Define: Use insights gathered throughout the process to define specific problems and needs before solving them, just as the Google founders did when they realized that their library search algorithm could address a much larger problem.
• Reorient: Be flexible in pursuit of larger goals and aspirations, making good use of small wins to make necessary pivots and chart the course to completion.
• Iterate: Repeat, refine, and test frequently armed with better insights, information, and assumptions as time goes on, as Chris Rock does to perfect his act.
“A lot of our most successful ideas over the years came from the bottom up, by really understanding user needs.”
“illusion of rationality.” We are all vulnerable to this illusion. It happens when ideas or assumptions seem logical in a plan, spreadsheet model, PowerPoint, or memo, yet they haven’t been validated on the ground or in the real world.
Little Bets: How Breakthrough Ideas Emerge from Small Discoveries
To effectively confront the insurgent enemies of today and the future, soldiers must be able to identify and solve unfamiliar problems, rapidly adapting to the circumstances unfolding on the ground. They work from the ground up and must learn from the environment—the people and the situation in each village and town—then craft new tactics that will address the problems they discover. They must be willing and able to adapt those tactics and keep developing new ones as they go.
The counterinsurgency approach is one of discovery and experimentation, a creative approach to warfare. Preconceived templates or plans are obsolete. The cornerstone of counterinsurgency operations is what Army strategists call developing the situation through action. Central to the process is acknowledging that mistakes will be made, like violating cultural norms or initially picking the wrong partners, because soldiers are operating in an arena of uncertainty. They must be willing to seize (and retain) the initiative by taking action in order to discover what to do, such as by launching frequent reconnaissance probes. In order to help soldiers become comfortable with this approach, Haskins says, “You have to catch people making mistakes and make it so that it’s cool. You have to make it undesirable to play it safe.”
“Design is a methodology for applying critical and creative thinking to understand, visualize, and describe complex, ill-structured problems and develop approaches to solve them.”
Two fundamental advantages of the little bets approach are highlighted in the research of Professor Saras Sarasvathy: that it enables us to focus on what we can afford to lose rather than make assumptions about how much we can expect to gain, and that it facilitates the development of means as we progress with an idea.
The affordable loss principle: Seasoned entrepreneurs will tend to determine in advance what they are willing to lose, rather than calculating expected gains.
Her work also shows that entrepreneurs tend to be highly aware of the importance of their means, which she defines as: Who they are: their values and tastes; What they know: their expertise, knowledge, experiences, and skills; and Who they know: their networks, friends, and allies. Of course, we should also add their monetary resources. She highlights that successful entrepreneurs are comfortable being adaptable in pursuit of their larger goals in large part because they are progressively building their means, such as by recruiting people or partners with complementary skills and experiences.
the value of building means as well as an affordable losses mentality.
Of course the subject of affordable losses highlights a key issue with the little bets approach—it inevitably involves failure. In almost any attempt to create, failure, and often a good deal of it, is to be expected.
Ambitious (dare I employ the overused word audacious) goals are essential.
A big vision provides the direction and inspiration through which to channel aspirations and ideas. But one of the most important lessons of the study of experimental innovators is that they are not rigid in pursuit of that vision, and that they persevere through failures, often many of them. When they run into problems, they accept that they must go down some unexpected paths in order to get to the ultimate goal, or maybe even redefine what that ultimate goal should be. This requires being willing to walk away from ideas that seemed great, overcoming significant challenges, as well as coping with the emotional impact of failure.
One of the striking characteristics of those who have learned to practice experimental innovation is that, like Chris Rock, they understand (and come to accept) that failure, in the form of making mistakes or errors, and being imperfect is essential to their success. It’s not that they intentionally try to fail, but rather that they know that they will make important discoveries by being willing to be imperfect, especially at the initial stages of developing their ideas.
By expecting to get things right at the start, we block ourselves psychologically and choke off a host of opportunities to learn. In placing so much emphasis on minimizing errors or the risk of any kind of failure, we shut off chances to identify the insights that drive creative progress. Becoming more comfortable with failure, and coming to view false starts and mistakes as opportunities opens us up creatively.
Research has demonstrated that people tend to lean toward one of two general ways of thinking about learning and failure, though everyone exhibits both to some extent. Those favoring a fixed mind-set believe that abilities and intelligence are set in stone, that we have an innate set of talents, which creates an urgency to repeatedly prove those abilities. They perceive failures or setbacks as threatening their sense of worth or their identity. Every situation, therefore, gets closely evaluated: “Will I succeed or fail? Will I look smart or dumb? Will I be accepted or rejected?” Fixed mind-sets cause people to be overconcerned with seeking validation, such as grades, titles, or social recognition. Conversely, those favoring a growth mind-set believe that intelligence and abilities can be grown through effort, and tend to view failures or setbacks as opportunities for growth. They have a desire to constantly challenge and stretch themselves.
“If you try to shortcut the game, then the game will shortcut you,” Jordan said. “If you put forth the effort, good things will be bestowed upon you.”
Dozens of studies later, Dweck’s findings suggest that people exhibiting fixed mind-sets tend to gravitate to activities that confirm their abilities, whereas those with growth mindsets tend to seek activities that expand their abilities.
Praising ability alone reduces persistence, while praising effort or the processes a person goes through to learn leads to growth mind-set behaviors. Dweck has found this to apply regardless of age.
Of course, just failing is not the key; the key is to be systematically learning from failures. To be closely monitoring what’s working and what is going wrong and making good use of that information.
“The measure is how we respond to the crises as they happen. We have to be comfortable being uncomfortable.”
Not even Frank Gehry can inoculate himself from fears of failure. That is almost surely an integral part of the creative process for everyone to some degree, even those who have achieved the most and the most consistently. The key is that we can teach ourselves to think differently about failures and mistakes, seeing them as opportunities for learning and growth.
Carol Dweck’s research has shown that not only does everyone actually have a mixture of both fixed and growth mindsets, but the growth mind-set orientation can be developed. “Changing a mind-set is not like surgery,” she says. “You can’t simply remove the fixed mind-set and replace it with a growth mind-set.” That begins when someone becomes aware of which mindset they lean toward. Simply knowing more about the growth mind-set allows them to react to situations in new ways.
Next Dweck says that people can think about things in their lives that they thought they wouldn’t be good at, but eventually were. Another method that Dweck has shown can facilitate a mind-set shift is to focus people on evidence demonstrating the brain’s ability to grow its capacities.
When you learn new things, these tiny connections in the brain actually multiply and get stronger. The more that you challenge your mind to learn, the more your brain cells grow. Then, things that you once found very hard or even impossible—like speaking a foreign language or doing algebra—seem to become easy. The result is a stronger, smarter brain.
This is another reason why the little bets approach can be so effective: It helps us to cultivate an exploratory, growth mind-set.
Redefining problems and failures as opportunities focuses our attention on insights to be gained rather than worrying about false starts or the risks we’re taking. By focusing on doing, rather than planning, learning about the risks and pitfalls of ideas rather than trying to predict them with precision up-front, an experimental approach develops growth mind-set muscles.
Being rigorous about spotting flaws and continuing to push toward excellence is essential to creative achievement.
Characteristics of what psychologists view as healthy perfectionism include striving for excellence and holding others to similar standards, planning ahead, and strong organizational skills. Healthy perfectionism is internally driven in the sense that it’s motivated by strong personal values for things like quality and excellence. Conversely, unhealthy perfectionism is externally driven. External concerns show up over perceived parental pressures, needing approval, a tendency to ruminate over past performances, or an intense worry about making mistakes. Healthy perfectionists exhibit a low concern for these outside factors.
One of the methods that can be most helpful in achieving this balance, in order to embrace the learning potential of failure, is prototyping. What the creation of low cost, rough prototypes makes possible is failing quickly in order to learn fast.
entrepreneurs push ideas into the market as quickly as possible in order to learn from mistakes and failures that will point the way forward.
Little Bets: How Breakthrough Ideas Emerge from Small Discoveries
“The only way I can get anything written at all is to write really, really shitty first drafts,” Lamott writes in Bird by Bird. Just get it down on paper, she recommends. Write like a child, whatever comes to your mind. “All good writers write them. This is how they end up with good second drafts and terrific third drafts.”
This is a key reason why failing fast with low-risk prototypes the way Chris Rock does is so helpful: If we haven’t invested much in developing an idea, emotionally or in terms of time or resources, then we are more likely to be able to focus on what we can learn from that effort than on what we’ve lost in making it. Prototyping is one of the most effective ways to both jump-start our thinking and to guide, inspire, and discipline an experimental approach.
They tracked everything they did with data, and moved on from what didn’t ultimately seem useful or valuable ..... but finding ways to fail quickly, to invest less emotion and less time in any particular idea or prototype or piece of work, is a consistent feature of the work methods of successful experimental innovators.
Potential users of ideas are more comfortable sharing their honest reactions when it’s rough. There is less ego involved if it is unfinished and rough.
As Limb hypothesized, when the performers were playing improvised jazz, activity in the prefrontal cortex, the parts of the brain associated with self-censoring or conscious self-monitoring, were deactivated. In other words, when the performers switched from structured music to improvised jazz, the part of their brain responsible for evaluating and censoring their behavior effectively switched off. Improvising unlocks a far more creative state of mind. Kids don’t have the self-censoring capacity of their brain welldeveloped, which helps explain why they will say outlandish things, and also why kids are often extremely creative.
Scientists are still in the early days of understanding the functions of the brain, as well as their use of fMRI imaging. They do believe, however, that activity in the medial prefrontal cortex, the area of the brain right behind the eyes, is linked with self-expression.
Ansari and Berkowitz found that during improvisation, the right-temporoparietal junctions of the pianists’ brains were deactivated. Neuroscientists associate this area of the brain with the ability to make judgments, particularly about differences between self and others. The experienced pianists seemed to be able to turn off a judging part of their mind, freeing them up to create novel melodies. According to Berkowitz, brain scans of nonartists do not exhibit a similar pattern, which suggests that experiencing creative processes could help to build certain creative muscles. Ansari and Berkowitz also found that portions of the brain associated with selecting between two conflicting possibilities lit up during improvisation.
They were locked in, what psychology researchers might describe as a state of flow. Professor Mihaly Csikszentmihalyi did the pioneering work about the mental state of flow. Csikszentmihalyi had defined flow as: “Being completely involved in an activity for its own sake. The ego falls away. Time flies. Every action, movement, and thought follows inevitably from the previous one, like playing jazz. Your whole being is involved, and you’re using your skills to the utmost.”
Attaining a state of flow can be quite rare because there are many barriers to freeing our minds. Csikszentmihalyi identifies negative forms of perfectionism, fear, self-doubt, and self-censoring as primary obstacles to flow. Read the book Flow.
Little Bets: How Breakthrough Ideas Emerge from Small Discoveries
Little Bets: How Breakthrough Ideas Emerge from Small Discoveries Part 2
Book is pretty good, very short, and it is like The Long Tail by Chris Anderson, in that it has a great insight but it could have been more simply said.
Definitely a read, if no other reason than to think about it and find new books to read next.
"Playing the game of saying yes to everything " is a simplified and somewhat silly example, but the point of accepting every offer is that nothing is too silly. Accepting every offer by using “yes … and” language, a cornerstone of improvisation, facilitates building up ideas.
Throughout the Pixar creative process, they rely heavily on what they call plussing; it is likely the most-used concept around the company. The point of plussing is to build upon and improve ideas without using judgmental language.
A host of studies indicates that humor creates positive group effects. Many focus on how humor can increase cohesiveness and act as a lubricant to facilitate more efficient communications. In order to produce positive mental effects, however, researchers Eric Romero and Anthony Pescosolido found that humor first must be considered funny to the people involved, not seen as demeaning, derogatory, or put-downs. That finding is consistent with the underlying improvisation rationale for accepting every offer and making your partner look good. Successful group humor,
I am fascinated by the power of constraints -
On a typical project, the constraints, what Gehry also calls “guard rails,” that define the scope of Gehry’s figurative box will include a budget, timeframe, materials, political or regulatory rules, and the nature of the building site itself. Those constraints not only help Gehry Partners to bound, focus, and measure their progress, they help begin and evolve the design. As Google’s Marissa Mayer has put it, “Constraints shape and focus problems and provide clear challenges to overcome.”
productively creative people use constraints to limit their focus and isolate a set of problems that need to be solved.
The key is to take a larger project or goal and break it down into smaller problems to be solved, constraining the scope of work to solving a key problem, and then another key problem. For example software development projects should be broken into small pieces, prioritized, completed, and released based on user needs. They emphasized using small collaborative teams to respond to change over determined processes or plans, and believed that working software was the best measure of progress.
Smallifying processes facilitates more efficient development of code, and it promotes faster learning.
Note that one of the great benefits of the agile approach is that it is also a good method for failing fast. As Vanier explains, if he can launch ten features in the same time it takes a competitor to launch one, he’ll have ten times the amount of experience to draw from in figuring out what has failed the test of customer acceptance and what has succeeded.
One of his favorite examples of the importance of immersion is Muhammad Yunus, the founder of the Grameen Bank, the lender responsible for launching the microfinance industry, and recipient of the 2006 Nobel Peace Prize. In 1974, Yunus was an economics professor at Chittagong University in Bangladesh. That year, a severe famine ravaged India sending starving, skeletonlike people from the countryside into cities in search of food. They started showing up in railway stations and bus stations, Yunus recalled in his autobiography, Banker to the Poor. Find this book
Yunus felt shocked. He especially could not believe that Sufiya earned just two cents per day. “In my university courses, I theorized about sums in the millions of dollars, but here before my eyes the problems of life and death were posed in terms of pennies,” he recounted. “Something was wrong. Why did my university courses not reflect the reality of Sufiya’s life? I was angry, angry at myself, angry at my economics department and the thousands of intelligent professors who had not tried to address this problem and solve it.” Nothing foreseeable would break the cycle of poverty for Sufiya, or for her children. “I had never heard anyone suffering for the lack of twenty-two cents,” Yunus lamented.
Yunus went back to his house where he and Professor Latifee took a walk through the garden in the late afternoon heat. “I was trying to see Sufiya’s problem from her point of view,” Yunus recalled. “She suffered because the cost of bamboo was five taka.” Sufiya could not afford to buy raw materials for the bamboo stools and she could not get a conventional loan since she did not have collateral. The middlemen allowed her just enough profit to survive from day to day. Sufiya lived as a bonded laborer, essentially enslaved. But, over the coming years, Grameen would loan over $6.5 billion, while maintaining repayment rates consistently above 98 percent. The practice became known as “microlending” or “microfinance,” and would become a global phenomenon. “All I really wanted to do was solve an immediate problem,” he said. As Yunus described in a speech years later, “At the beginning, you had no idea that something like this [microlending] would emerge, but it is so clear, so transparent, you don’t need to be a smart researcher to go find it.” The insights and ideas that were obvious to Yunus the anthropologist had been hidden from Yunus the economist. The difference: by absorbing poverty from the worm’s-eye view, asking lots of questions, and being open to changing his assumptions, he could understand what he could not from a bird’s-eye view.
Little Bets: How Breakthrough Ideas Emerge from Small Discoveries
As Steve Blank, a cofounder of the software company E.piphany, who teaches entrepreneurship at Berkeley’s Haas School of Business and who routinely challenges entrepreneurs to get out into the world to challenge their own assumptions, says, “No facts exist inside the building, only opinions.”
“You gotta come in with your ears open,” H. R. McMaster told George Packer inside Tal Afar during 2006, “You can’t come in and start talking. You have to really listen to people.”
Research evidence suggests a strong link between inquisitiveness and creative productivity.
Iinnovators closely observed details, particularly about other people’s behaviors. “In observing others, they act like anthropologists and social scientists,”
“Creativity is just connecting things,” Jobs told Wired magazine. “When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things. And the reason they were able to do that was that they’ve had more experiences or they have thought more about their experiences than other people … Unfortunately, that’s too rare a commodity. A lot of people in our industry haven’t had very diverse experiences. So they don’t have enough dots to connect, and they end up with very linear solutions without a broad perspective on the problem.”
Truth be told, most investors get their insight from traders or other investors. It’s what Chanos calls the smart-guy syndrome: When hedge-fund analysts go to a dinner in New York or London and hear someone they think is smart talk about a company. “The next day, they all go take a two percent stake in the company,” Chanos says. This is not original thinking. It’s amazing how common the smart-guy syndrome is among investors and how rare it is to find original thinking investors. In my experience, the best investors, by contrast, are contrarian thinkers. They get out into the world to find unique insights.
Dell, founder and CEO, asking why a computer should cost five times as much as its parts. “I would take computers apart … and would observe that $600 worth of parts were sold for $3,000,” Dell shared. In laboring over the question, Dell’s personal-computing business model ideas emerged.
“When something seems like an opportunity—it seems like you have the skills, and maybe some kind of advantage, and you think it’s a big area—you will always get asked the question, ‘Why? Why do that?’ Bezos told Harvard Business Review, then elaborated, “But ‘Why not?’ is an equally valid question. And there may be good reasons why not—maybe you don’t have the capital resources, or parts of your current business require so much focus at this key juncture that it would be irresponsible. In that case, if somebody asked, ‘Why not?’ you would say, ‘Here’s why not …’ But that question doesn’t get asked.”
Chet suggested that I spend only a week or so doing market research, so that I could come up to speed on the industry and competitive landscape. His main advice was that we should just get out, talk with potential customers, and look for problems and needs before coming up with any strategies. Not surprisingly, he learned this approach through experience.
“If you look at four-year-olds, they are constantly asking questions and wondering how things work,” Gregersen observed generally. “But by the time they are six and a half years old they stop asking questions because they quickly learn that teachers value the right answers more than provocative questions.” It’s a haunting finding that raises serious concern about our education system. Specifically, what is the purpose of education?
The remaining pattern of action that Dyer and Gregersen found distinguished the innovators from the noninnovators that we haven’t yet covered: innovators routinely networked with people who came from different backgrounds. It’s a way to challenge one’s assumptions and gain broader
A preponderance of evidence that indicates that diversity, be it of perspectives, experiences, or backgrounds, fuels creativity. We see this pattern at the individual, organizational, and societal level.
Learning a little bit from a lot of people was one of the main ways Tim identified so many unique ideas and insights. He left no stone unturned and was extremely open to what could emerge from each interaction. Tim was constantly open to new information and ideas from an extremely diverse network of people. This is a critical capacity that anyone can develop.
Dr. Richard Wiseman, - The Luck Factor. (he recommends the book)
As the newspaper photo counting experiment illustrates, one obvious implication from Wiseman’s research is that lucky people pay more attention to what’s going on around them than unlucky people. It’s more nuanced than that. Here’s where being open to meeting, interacting with, and learning from different types of people comes in. Wiseman found that lucky people tend to be open to opportunities (or insights) that come along spontaneously, whereas unlucky people tend to be creatures of routine, fixated on certain specific outcomes.
In analyzing behavior patterns at social parties, for example, unlucky people tended to talk with the same types of people, people who are like themselves. It’s a common phenomenon. On the other hand, lucky people tended to be curious and open to what can come along from chance interactions.
Wiseman believed another type of behavior played an even greater role in success. Wiseman found that lucky people build and maintain what he called a strong network of luck. He wrote: Lucky people are effective at building secure, and longlasting, attachments with the people they meet. They are easy to know and most people like them. They tend to be trusting and form close relationships with others. As a result, they often keep in touch with a much larger number of friends and colleagues than unlucky people. And time and again, this network of friends helps promote opportunity in their lives.
This was Wiseman’s core finding: You can create your own luck. “I discovered that being in the right place at the right time is actually all about being in the right state of mind,” he argued. Lucky people increase their odds of chance encounters or experiences by interacting with a large number of people. Wiseman took his research on luck one step further. After identifying a group of people who identified themselves as unlucky, he shared the main principles of lucky behavior, including specific techniques. As Wiseman described it, “For instance, they were taught how to be more open to opportunities around them, how to break routines, and how to deal with bad luck by imagining things being worse.” Wiseman included exercises to increase chance opportunities, such as building and maintaining a network of luck, being open to new experiences, and developing a more relaxed attitude toward life, as well as ways to listen to hunches and to visualize lucky interactions. After carrying out specific exercises for a month, participants reported back to Wiseman. “The results were dramatic: eighty percent were happier and more satisfied with their lives—and luckier,” Wiseman summed.
Moynihan didn’t flinch, as Tim recalled in an interview, “And he said, ‘You have to understand: What you know, they’ll never know, and what they know, you can learn.’ And he slapped me on the back, dusted me off, and sent me on my way.”
That new ideas travel along a curve of adoption from early to late adopters is now widely accepted.
Little Bets: How Breakthrough Ideas Emerge from Small Discoveries
Beginning in the 1970s, von Hippel examined where innovations come from (the original source of a later commercialized idea) across a range of industries, from scientific instruments to semiconductors to thermoplastics. In an extensive study on the sources of innovation for major scientific instruments, for instance, von Hippel found that one group, which he called active users or lead users, were responsible for developing over 75 percent of the innovations. A similar pattern ran across an array of other industries. These people not only serve as cutting-edge taste makers, they actively tinker to push and create new ideas on their own.
Designers call these people extreme users, whose unique needs can foreshadow the needs of other people. The reason why designers find extreme users so valuable is because the average person isn’t actively thinking about solving problems like these. Their needs and desires are less pronounced.
Chris Thoen, who leads P&G’s Global Open Innovation, describes their approach simply: “Choose a few consumers that you really feel are the early adopters, test it with them, see what they like about it and what they don’t like about it … And, if it appeals to them, use them to optimize it [the idea] further and then the laggards will follow.”
Now, to adopt the von Hippel Strategy, one of the things that 3M had to figure out, and that Chris Rock must do when he sets out to develop his material, was how to find active users.
Take the mountain bike. It wasn’t invented by a person or company. In the mid-1970s, dozens of avid pro-am riders in northern California started making modifications to their bikes for off-road riding on local mountains. They replaced thin tires with thicker ones, reformulated the braking systems, and modified the bike frames (I would recommend the documentary The Klunkerz, if you’re curious about the whole story.).
I then identified potential agents the same way 3M identified active users: by looking at who represented authors of similar books, asking around, then sending the agents cold email introductions. I will never forget the first conversation I had with one of these agents. Though painful, it illustrates the value of the von Hippel Strategy. After sending a rough threepager, the agent and I spoke for thirty minutes. It was a long thirty minutes.
As we begin to make use of these methods to develop new ideas, strategies, and projects, they combine to facilitate what organizational psychologist Karl Weick refers to as small wins. Weick defines a small win as “a concrete, complete, implemented outcome of moderate importance.” They are small successes that emerge out of our ongoing development process, and it’s important to be watching closely for them.
upon. Small wins are like footholds or building blocks amid the inevitable uncertainty of moving forward, or as the case may be, laterally. They serve as what Saras Sarasvathy calls landmarks, and they can either confirm that we’re heading in the right direction or they can act as pivot points, telling us how to change course.
Elaborating on the benefits of small wins, Weick writes, “Once a small win has been accomplished, forces are set in motion that favor another small win.”
In fact, Schultz described Starbucks’s mentality as: “the value of dogmatism and flexibility.”
According to Weick, “a series of wins at small but significant tasks … reveals a pattern that may attract allies, deter opponents, and lower resistance.” Another benefit of small wins is less immediately obvious: They enable the development of the means to attain goals.
Entrepreneurs use their available means, such as their expertise, networks, or financial resources, to develop their ideas and access additional resources and means.
As Weick explains about this benefit of small wins, “New allies bring new solutions with them and old opponents change their habits. Additional resources also flow toward winners, which means that slightly larger wins can be attempted.” One element of small wins that is particularly tricky to absorb is that very often they will not emerge in a linear fashion, so they cannot reliably be predicted or planned for and may not build on one another, one step after another. In some instances, one small win may clearly lead directly to another.
One last, yet important, point about small wins is that often, rather than validating a direction we’ve been pursuing, they will provide a signal to proceed in a different way.
This brings us back to the fundamental advantages of the little bets approach; it allows us to discover new ideas, strategies, or plans through an emergent process, rather than trying to fully formulate them before we begin, and it facilitates adapting our approach as we go rather than continuing on a course that may lead to failure.
As Richard Wiseman’s research demonstrates, chance favors the open mind, receptivity to what cannot be predicted or imagined based on existing knowledge. With the barriers lowered, the creative mind thrives on continuous experimentation and discovery.
General McMaster lists such core counterinsurgency methods as: understand, act, assess and adapt, consolidate gains, and transition missions to civilian control.
General David Petraeus says about counterinsurgency operations, “The side that learns and adapts the fastest often prevails.”
General McMaster frames and reframes the key problems from the bottom up before taking bold action.
“Very few schools teach students how to create knowledge,” says Professor Keith Sawyer of Washington University, a leading education and innovation researcher. “Instead, students are taught that knowledge is static and complete, and they become experts at consuming knowledge rather than producing knowledge.”
Change happens in small, achievable ways.
Books he recommends/ look for ( most I have read)
Coyle, Daniel. The Talent Code. New York: Bantam, 2009.
Dweck, Carol. Mindset: The New Psychology of Success. New York: Random House, 2006.
Kahney, Leander. Inside Steve’s Brain. New York: Portfolio, 2009.
Lamott, Anne. Bird by Bird: Some Instructions on Writing and Life. Garden City, NY: Anchor, 1995. -
Lamott describes her writing tactics, especially how to overcome the common fears and barriers writers face. Her key insights, applicable to any creative process, include the importance of writing “shitty first drafts” in the interest of getting ideas out first and worrying about perfection later, and writing only as much as she can see in a one inch by one inch picture frame. That is, chunking writing into extremely manageable pieces.
Pink, Daniel. A Whole New Mind: Why Right Brainers Will Rule the Future. New York: Riverhead, 2006.
Price, David. The Pixar Touch: The Making of a Company. New York: Knopf, 2008.
Chesborough, Henry. Open Innovation. Cambridge, MA: Harvard Business Press, 2003.
Christensen, Clayton. The Innovator’s Dilemma. New York: Collins Business, 2003, and The Innovator’s Solution, with Michael Raynor. Cambridge, MA: Harvard Business Press, 2003.
Collins, Jim. How the Mighty Fall. Jim Collins, 2009.
Collins, Jim and Jerry Porras. Built to Last. New York: HarperCollins, 1997.
Drucker, Peter. Innovation and Entrepreneurship. New York: HarperCollins, 1985.
Liker, Jeffrey. The Toyota Way. New York: McGraw-Hill, 2004. University of Michigan
Rogers, Everett. Diffusion of Innovations. New York: Free Press, 1995. This is the definitive research book about how ideas spread.
Sawyer, Keith. Group Genius: The Creative Power of Collaboration. New York: Basic Books, 2007.
Sternberg, Robert J. Handbook of Creativity. New York: Cambridge University Press, 1998.
von Hippel, Eric. The Sources of Innovation. New York: Oxford University Press, 1994.
Von Hippel’s website provides a host of resources related to his research: http://web.mit.edu/evhippel/www/.
Bayles, David and Ted Orland. Art & Fear: Observations on the Perils (and Rewards) of Artmaking. Eugene, OR: Capra Press, 1993.
Csikzentmihalyi, Mihaly. Creativity: Flow and the Psychology of Discovery and Invention. New York: Harper Perennial, 1997. Professor Csikzentmihalyi
de Bono, Edward. Lateral Thinking: Creativity Step by Step. New York: Harper & Row, 1970.
Galenson, David. Old Masters and Young Geniuses. Princeton, NJ: Princeton University Press, 2005. -
His central argument is that people are either conceptual innovators (like Mozart) or experimental innovators (like Beethoven) and that conceptual innovators tend to do their best work while they are young, whereas experimental innovators tend to do their best work in their later years. Critics have poked holes in Galenson’s arguments by finding exceptions to his age rules, but his general distinction is compelling. What’s less clear is what the spectrum between conceptual and experimental innovation looks like at the individual level, as well as whether people can move from conceptual to experimental or vice versa.
Maeda, John. The Laws of Simplicity. Cambridge, MA: MIT Press, 2006. Maeda,
Stokes, Patricia. Creativity from Constraint. New York: Springer, 2006.
Young, James Webb. A Technique for Producing Ideas. Lincolnwood, IL: NTC/Contemporary, 1988.
Brown, Tim. Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation. New York: Harper Business, 2009.
Kelley, Tom. The Art of Innovation. New York: Crown, 2007, and The Ten Faces of Innovation. New York: Crown, 2006.
Martin, Roger. The Design of Business. Cambridge, MA: Harvard Business School Press, 2009.
Moggridge, Bill. Designing Interactions. Cambridge, MA: MIT Press, 2007.
Richardson, Adam. Innovation X. San Francisco: Jossey-Bass, 2010.
Belsky, Scott. Making Ideas Happen. New York: Portfolio, 2010.
Fried, Jason, and David Heinemeier Hansson. Rework. New York: Crown, 2010.
Gianforte, Greg, and Marcus Gibson. Bootstrapping Your Business. Avon, MA: Adams Media, 2005. Professor Saras -Sarasvathy pointed me to this book. It provides a host of concrete and specific tactics for entrepreneurs who want to start businesses completely from scratch, with their own resources, including selling, managing cash, inexpensive PR tactics, and customer service.
Yunas, Muhammad, and Alan Jolis. Banker to the Poor: Micro-Lending and the Battle Against World Poverty. New York: Public Affairs, 1999.
Johansson, Frans. The Medici Effect: Breakthrough Insights at the Intersection of Ideas, Concepts, and Cultures. Cambridge, MA: Harvard Business School, 2004.
Lafley, A. G., and Ram Charam. The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation. New York: Crown, 1988.
McGrath, Rita Gunther, and Ian C. MacMillan. Discovery-Driven Growth. Cambridge, MA: Harvard Business School, 2009. -
McGrath and MacMillan propose thinking differently about traditional management decision-making models by building income statements up, by determining what revenues need to be achieved to support costs. Their method is similar to what Professor Saras Sarasvathy calls the principle of affordable loss. By reframing analyses from what one expects to gain (traditional expected value calculations) to what one can afford to lose, decision making more closely resembles that of expert entrepreneurs.
Taleb, Nassim Nicholas. The Black Swan. New York: Random House, 2007. -
One of the points that Taleb highlights is that, when operating within a high degree of uncertainty, one should experiment including to find what Taleb calls inadvertent discoveries.
Little Bets: How Breakthrough Ideas Emerge from Small Discoveries
How to Get Rich: One of the World's Greatest Entrepreneurs Shares His Secrets by Felix Dennis
Great book, funny, smart, and it will make sure you never look at the world or yourself the same way again. Go buy this book.
As the American critic H. L. Mencken once wrote: “The inferior man’s reasons for hating knowledge are not hard to discern. He hates it because it is complex— because it puts an unbearable burden on his meager capacity for taking in ideas. Thus his search is always for short cuts. All superstitions are such short cuts. Their aim is to make the unintelligible simple, and even obvious.” Mencken was right
A book like this is a tool, not an artifact.
I got rich my way. You might even say the old-fashioned way. By making errors, lots of errors, and learning from them.
If it flies, floats or fornicates, always rent it—it’s cheaper in the long run.)
Whatever qualities the rich may have, they can be acquired by anyone with the tenacity to become rich. The key, I think, is confidence. Confidence and an unshakable belief it can be done and that you are the one to do it.
Tunnel vision helps. Being a bit of a shit helps. A thick skin helps. Stamina is crucial, as is a capacity to work so hard that your best friends mock you, your lovers despair and the rest of your acquaintances watch furtively from the sidelines, half in awe and half in contempt. Luck helps—but only if you don’t seek it. The answer to the question, then, is perhaps this: not those who want to and not those who need to, but those who are utterly determined to—whatever the cost.
What are the biggest myths you know regarding getting rich? The first is the claim that people did not set out to get rich but became rich by “accident.” “Oh, I only did what I love to do and woke up one day to find myself wealthy.” That sort of thing. It may have happened. But very rarely in my experience. The second myth is that people got rich by having a “great idea.” While this is a more feasible hypothesis than having got rich by accident, it is a trap, because it is a partial truth. All of us have had great ideas from time to time. The follow-through, the execution, is a thousand times more important than a “great idea.” In fact, if the execution is perfect, it sometimes barely matters what the idea is. If you want to get rich, don’t sit around waiting for inspiration to strike. Just get busy getting rich. Thirdly, and lastly, I think that perhaps the most destructive myth about becoming rich lies in remarks like: “Well, it was OK for you starting out in the late 1960s. But times have moved on. You couldn’t do it that way today.” Perhaps not, but you can certainly do it some way. Times change, but human nature, the lure of wealth and the determination to acquire it remain a shining constant in the world of ambitious men and women.
And just what is the most precious thing in life that riches can supply? Easy. For me, it’s Time.
It sounds crazy, but the richer you are and the more financial advisors you employ, the less likelihood there is that you can ever discover what you are really worth. It’s a nice problem to have, but it is still a problem.
In the words of the art collector and oil billionaire John Paul Getty: “If you can actually count your money, you are not really a rich man.
in a nutshell, my experience has been that money is color-blind, race-blind, sex-blind, degree-blind and couldn’t care less who brought you up or in what circumstances. Money is one of the most neutral substances on earth. Others may conspire against you obtaining it through bigotry or prejudice. But they can only succeed if you permit them to.
Young, Penniless and Inexperienced? Excellent. You stand by far the best chance of becoming as rich as you please. You have an advantage that neither education nor upbringing, nor even money, can buy—you have almost nothing. And therefore you have almost nothing to lose.
Nearly all the great fortunes acquired by entrepreneurs arose because they had nothing to lose.
Never trust the vast mountain of conventional wisdom. It contains great nuggets of wisdom, it is true. But they lie alongside rivers of fool’s gold. Conventional wisdom daunts initiative and offers far too many convenient reasons for inaction, especially for those with a great deal to lose.
You have stamina far, far beyond those who are twenty or thirty years older— the stamina necessary for long, grinding hours of labor in the cause of getting rich. Stamina enough to party all night and go straight back to work for a twelve- or sixteen-hour day.
Along with a degree of callousness and enviable powers of speedy recuperation from reverses, stamina is your secret weapon.
In addition, your instinctive knowledge of modern technology gives you another edge.
Anyone not busy learning is busy dying. For as long as you foster a willingness to learn, you will ward off sclerosis of the brain and hardening of the mental arteries. Curiosity has led many a man and women into the valley of serious wealth.
Ambition, fearlessness, self-belief, stamina, a degree of callousness, a willingness to learn. These are your advantages over the middle-aged and the old.
Slightly Better Off and On the Way Up? This is the point at which many people vaguely wonder about starting their own business,
I employ a great many people smarter than I am. That’s not false modesty, that’s a stone-cold fact. The only two reasons such geniuses continue to work for me and put money into my pocket are that, on the positive side, they enjoy their work, and on the negative side, they fear losing what they have already gained—challenging work, congenial colleagues, a certain status and the promise of promotion and pay raises.
fear holds them back, with the exception of those rare individuals who are content with their lot.
“Fear is the little death, death by a thousand cuts,” goes the ancient Japanese saying.
My earnest advice is to get yourself a young and fearless partner with tons of stamina. Choose him or her with care. It’s your best chance to get rich.
Let us explore factors likely to exclude an individual from becoming rich.
There’s health, for a start. People in poor health usually find it difficult, no matter how clever they are, to muster the stamina that becoming rich demands.
We must also factor in disadvantage and age. Not of color, sex, race, religion, upbringing or lack of education. None of those present insuperable hurdles in a Western democracy. But mental handicap, growing senility and the physical decline of old age—none of which need be life-threatening in the short term—virtually rule out any serious accumulation of wealth, except by inheritance or winning a lottery.
So that leaves the relatively fit and those not old enough to call themselves old.
Real winners are people who know their limits and respect them.
The odds may still appear daunting, but only to those lacking sufficient guts and determination to try. If the odds of getting rich put you off, then you deserve to stay poor. Or, to put it more kindly, whether you deserve it or not, you will stay poor.
I would use, instead: “Once begun—the job’s half done.” Because taking that first, irrevocable step has proved to be the most difficult part of nearly every venture I have been involved in.
All debate can do is clarify, support or contest the next step. The risks remain, however much talking is done.
A commander may be proved wrong. He may be proved right. But prompt decisions and orders, right or wrong, are far healthier than endless debate and prevarication. This applies equally to a debate within one’s own mind. Fretting is counterproductive at any level. And so is lack of action. Knowing that fear of failure is holding you back is a step in the right direction. But it isn’t enough, because knowing isn’t doing.
Fear of failure and the avoidance of blame, then, is what drives Jeremiahs and haunts them. To be fair, it haunts all of us. In essence, it comprises two components. The first is our natural desire to avoid letting ourselves or others down, perhaps with calamitous financial repercussions. The second is the exposure of that failure to the outside world.
Imputing desires or fears or loss of morale to others probably has a fancy psychological monicker—like auto-displacement activity. And it’s not always a bad thing. At least it encourages serious communication, even if it adds little to the decision process. Even so, it is a form of well-disguised cowardice.
To sum up then, if you wish to be rich, you must grow a carapace. A mental armor. Not so thick as to blind you to well-constructed criticism and advice, especially from those you trust. Nor so thick as to cut you off from friends and family. But thick enough to shrug off the inevitable sniggering and malicious mockery that will follow your inevitable failures, not to mention the poorly hidden envy that will accompany your eventual success. Few things in life are certain except death and being taxed. But sniggering and mockery prior to any attempt to better yourself financially, followed by envy later, or gloating during your initial failures—these are three certainties in life. It hurts. It’s mindless. And it doesn’t mean anything. But it will happen. Be prepared to shrug it off.
• If you are unwilling to fail, sometimes publicly, and even catastrophically, you stand very little chance of ever getting rich. • If you care what the neighbors think, you will never get rich. • If you cannot bear the thought of causing worry to your family, spouse or lover while you plow a lonely, dangerous road rather than taking the safe option of a regular job, you will never get rich. • If you have artistic inclinations and fear that the search for wealth will coarsen such talents or degrade them, you will never get rich. (Because your fear, in this instance, is well justified.) • If you are not prepared to work longer hours than almost anyone you know, despite the jibes of colleagues and friends, you are unlikely to get rich. • If you cannot convince yourself that you are “good enough” to be rich, you will never get rich. • If you cannot treat your quest to get rich as a game, you will never be rich. • If you cannot face up to your fear of failure, you will never be rich. The truth is that getting rich means sacrifice.
After a lifetime of making money and observing better men and women than I fall by the wayside, I am convinced that fear of failing in the eyes of the world is the single biggest impediment to amassing wealth. Trust me on this.
Until one is committed, there is hesitancy; the chance to draw back; always ineffectiveness concerning all acts of initiative and creation. There is one elemental truth, the ignorance of which kills countless ideas and splendid plans: that the moment one commits oneself, Providence moves all. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issue from the decision, raising in one’s favor all manner of incidents and meetings and material assistance which no one could have dreamed would come his or her way. —JOHANN WOLFGANG VON GOETHE
We do get to choose, if we are determined enough, what it is we want to do for a living.
In other words, if you feel absolutely moved toward a particular vocation, then that’s exactly where you should head. But be aware that if you want to make huge sums of money, then earning a living by slowly swarming up the greasy pole is rarely the way to do it.
The salary begins to have an attraction and addictive-ness all of its own. A regular paycheck and crack cocaine have that in common. In addition, and more to the point, working too long for other people can blunt your desire to take risks.
If you want to be rich, you are not looking for a “career,” except as a launch pad or as a chance to infiltrate and understand a particular industry. A job for the rich-in-training is merely something to keep you ticking over, to put food on your plate and wine in your glass. Additionally, it will provide excellent training in management and negotiation skills; it will supply inside market information; above all, it will act as a salutary reminder of what happens to 99.99 percent of your colleagues—the ones who buy lottery tickets and dream of becoming rich but who haven’t a hope in hell of achieving any such thing.
So if you want to be rich and you are in the Search phase of your life, then get used to one thing. You are not part of a team—although you may have to pretend you are. To put it more politely, you may have to adopt the idea of teamwork, for the time being, to help yourself understand better how individuals, departments, companies or industries function.
Working for others is a reconnaissance expedition; a means and not an end in itself. It is an apprenticeship and not a goal. You should have no long-term, or even medium-term, requirements
Team spirit is for losers, financially speaking. It’s the glue that binds the losers together. It’s the methodology employers use to shackle useful employees to their desks without having to pay them too much.
When it comes right down to it, “team spirit” and not letting your colleagues down is a feeble reason for procrastination when opportunity comes knocking. Nearly always, it is an excuse to avoid the possibility of humiliating failure.
Those who can never be rich may not want you to become rich.
While you may not necessarily want to be in a glamorous sector of any market, and they are often very crowded sectors, it helps to be in a growing one.
New or rapidly developing industries, whether glamorous or not, very often provide more opportunities to get rich than established sectors. The three reasons for this are availability of risk capital, ignorance and the power of a rising tide.
the combination of ignorance and misconception that surrounds any new market or technology works in your favor. If you are quick at grasping concepts and jargon, you become an “instant expert.” The owners of capital love “experts.”
Finally, the power of a rising tide masks many start-up difficulties, putting individuals and small companies on a more even footing with conglomerates and established operators; for a while, at least.
As a general rule of thumb, then, growing industries with relatively low start-up costs offer more opportunities for those who want to get rich than declining industries, or those that require huge start-up investment. This is not an iron-clad rule, however. While magazine and newspaper sales have been in slow decline in the Western world for decades, this “declining” industry is where I made a great deal of my own money.
So how to choose the arena in which you intend to carve yourself a fortune? There are usually three factors involved in the Search: inclination, aptitude and fate.
So how do you judge your own aptitudes? Trial and error is the only way I ever heard of. The problem is that we create an image of ourselves in our childhood and youth (often at the urging of parents, siblings or friends), and subsequently attempt to graft reality onto this image. More often than not, the graft doesn’t take and the result is bewilderment and disappointment. Far better to ruthlessly analyze what your particular aptitudes are and act upon them rather than attempt to graft an oak tree onto a dandelion.
Their ability to take chances and to subsequently exploit initial success counted more than their inclination toward a particular industry. Their execution of a strategy trumped the subject of their obsession.
To put it less fancifully, they were lucky in the Search and skillful in their follow-up. Boldness helped. Conquering fear of failure helped. Persistence helped. But, without some luck, no one can get anywhere in the search to discover the exact arena in which to do battle, the arena that suits an individual’s aptitudes and inclinations.
“Luck is preparation multiplied by opportunity.” — SENECA, ROMAN PHILOSOPHER “The harder I practiced, the luckier I got.” — GARY PLAYER, GOLF CHAMPION “Luck is a dividend of sweat.” —RAY KROC, MCDONALD’S
Fortune favors not just the brave but the bold. Boldness has a kind of genius in it, as Goethe pointed out. It can lead to complete failure and defeat, because conventional wisdom often proves to be at least wisdom of a kind. But should boldness succeed, should the chance be seized and sufficiently well executed, then success will surely lead to glory.
All around us, every day, opportunities to get rich are popping up. The more alert you are, the more chance you have of spotting them. The more preparation you have done, the more chance you have of succeeding. The more bold you are, the better chance you have of getting in on the ground floor and confounding the odds. The more self-belief you can muster, the more certain will be your aim and your timing. And the less you care what the neighbors think, the more likely you are to take the plunge and exploit an opportunity. Here is the key, then, in the Search. Whatever your inclinations, your aptitude, your abilities or your preferences, never shrink when opportunities arrive. If you have weighed the odds and find yourself convinced, ignore the protestations of sensible people and their conventional caution.
Having a great idea is simply not enough. The eventual goal is vastly more important than any idea. It is how ideas are implemented that counts in the long run.
Good ideas are like Nike sports shoes. They may facilitate an athlete who possesses them, but on their own they are nothing but an overpriced pair of sneakers. Specially adapted sneakers may be a good idea. But the goal is still to win,
Ray Kroc, of McDonald’s fame, did not invent the idea of “fast food.” Humans have been stuffing their face “on the run” since the dawn of history. His genius was merely to recognize this fact and implement a simple five-point plan: standardize the food and prices, franchise the outlets, produce the food swiftly in clean surroundings, offer value for money and market the whole shebang relentlessly. Easy to state; hard to implement. And it flew in the face of all conventional wisdom concerning the sale of fast food at the time. But it was the implementation of this plan that turned a 52-year-old milkshake-mixer salesman with diabetes and asthma into a billionaire.
There is another side to the subject of ideas in commerce. Stealing them. Or to put it more pleasantly, emulating them. The error of failing to emulate a winning idea pervades every industry at all levels.
Why people should be loath to emulate success is a matter for psychologists. The fact that they do is a matter of fact. The result of such ostrichlike behavior can be catastrophic.
The lesson is clear. Despite the words of the old rock ’n’ roll song, the original is not the greatest. Not always. If you want to be rich, then watch your rivals closely and never be ashamed to emulate a winning strategy.
The problem with the great idea is that it concentrates the mind on the idea itself. This is fine as far as it goes. But unless the idea is executed efficiently and with panache and originality, then it doesn’t matter how great the idea is, the enterprise will fail.
But an idea is not enough. It is never enough. And even its successful execution as a piece of technology is not enough if the company refuses to join with the rest of the world and its own customers in cooperative exploitation.
Even so, beware of the great idea. You must encourage great ideas and search for them diligently. But either you control and develop such ideas or the ideas will come to dominate your waking thoughts. And that would not be such a great thing.
If you never have a single great idea in your life, but become skilled in executing the great ideas of others, you can succeed beyond your wildest dreams. Seek them out and make them work. They do not have to be your ideas. Execution is all in this regard. If, on the other hand, you spend your days thinking up and developing in your mind this great idea or that, you are unlikely to get rich. Although you are likely to make many others rich. That is usually the way of it. Ideas don’t make you rich. The correct execution of ideas does.
There are only six ways of obtaining capital. You can be given or inherit it; you can steal it; you can win it; you can marry it; you can earn it; you can borrow it.
Your credit rating is extremely precious. The interest rates on credit cards or similar instruments are beyond the capacity of nearly any legal business to sustain, and while bankruptcy laws have become more generous to creditors in recent years, a history of bankruptcy will plague and hinder you when you seek to return to the fray. Better to labor as a wage slave than as a beast of burden to a loan shark.
While it may not look like it to you, there is simply too much money in the world; too much capital seeking too few investment opportunities.
How to Get Rich: One of the World's Greatest Entrepreneurs Shares His Secrets
Venture capital companies are one way to raise capital, for sure. But the price they demand is nearly always that you hand over a huge chunk of equity. More often than not, they also insist on a date by which your new venture must be sold, either back to yourself or to outsiders. Persistence is a powerful tool in the hands of a hungry young hustler on the make. I had created capital by swimming with the fishes.
One last word on obtaining capital. It’s the worst part of the whole business of getting rich. Nothing is more humiliating or debilitating than trudging the rounds with your hand out, no matter how good your project or fierce your determination. Everyone has to do it and everyone hates it. For a self-made man or woman there is no avoiding it. Beware of anyone who tells you that there are short cuts to obtaining even a small amount of capital. Outside of family and friends, there are none that I ever heard of.
But I would not give in. That was the secret ingredient. I would not be a wage slave. I would not take “no” for an answer. I would not give in. I was going to be rich. Some how. Some way. Someday soon. And I would not retreat to the safety of a decent job until I was starved out of house and home. I would not give in.
In one of the finest such books in the world, Letters to My Brother by the artist Vincent van Gogh, collected and published long after his death, you will find unbearable heartbreak, madness, rejection, hunger, passion, nightmare terrors and a tale of a man who never gave in. Who would not give in, though it cost him his life.
All error springs from flawed assumptions. If there are no assumptions, there can be no error.
I am told that during the Vietnam War, a sign was kept nailed on a wall above a particular marine commander’s desk which said: “Assumption is the mother of all f***-ups.”
Worse still, by continually wishing and never delivering, you risk denting your confidence, beginning a vicious downward spiral that appears to draw misfortune like a magnet. The assumption that you might be able to achieve some goal if you only wished hard enough is not just a f***-up. It’s a potential personal tragedy.
Life is not some kind of rehearsal.
Do not mistake desire for compulsion. Only you can know the song of your inner demons.
When the going gets tough, when all seems lost, when partners and luck desert you, when bankruptcy and failure are staring you in the face, all that can sustain you is a fierce compulsion to succeed at any price.
The answer is that not only does lack of cash flow eventually doom any enterprise, it just as surely prizes control of any entity from its owner or majority shareholder. And it is control and ownership of a business entity which brings with it the promise of future wealth. Lose control of a business by running out of cash and you are relegated to the status of minority investor or salaried employee.
Cash flow is something that any entrepreneur must fully comprehend from the get-go. Balance sheets are a matter for accountants, banks and auditors. But cash flow is the heartbeat of your company.
You can improve cash flow by observing the following suggestions in a start-up’s early days: • Keep payroll down to an absolute minimum. Overhead walks on two legs. • Never sign long-term rent agreements or take upmarket office space. • Never indulge in fancy office or reception furniture, unless your particular business demands that you make such an impression on clients. • Never buy a business meal if the other side offers to. You can show off later. • Pay yourself just enough to eat. • Do not be shy to call customers who owe you money personally . It works. • In a city, walk everywhere you can. It’s healthy and sets a good example. • Check all staff travel and entertainment claims with an eagle eye. • If you’re going to be late paying, call the vendor’s boss. Give a date. Stick to it. • Always meet payroll, even at the expense of starving yourself that week. • Issuing staff credit cards, company cell phones or cars is the road to ruin. • Leaving lights, computers, printers and copiers on overnight is just stupid. • A vase of beautiful flowers in reception every week creates a better impression than £100,000 worth of fancy Italian furniture. • Get used to groveling. Groveling is an effective tool in a start-up’s cash flow. • They want your business. Play one supplier off against another. Ruthlessly. • Only enter a factoring deal in absolute extremity. Exit it fast. • Keep your chin up. It could be worse. You could be working for them.
A very great retailer once said: “There is no victory over customers.
“Success is never permanent; failure is never fatal. The only thing that really counts is to never, never, never give up.” That’s that old windbag Winston Churchill again.
Most of the worst errors I have made in my life came from forgetting to act small. It’s hard to do when you’re rolling around in coin and everything is going your way. But acting big leads to complacency, and complacency is the reason that many successful start-ups falter.
Every day you have to hit the ground running, putting in more hours than even your most dedicated member of staff. You have to stay flexible. You have to be willing to listen and to learn and to emulate success elsewhere.
Think big, act small. It’s a recipe that never goes out of style. While especially important for start-ups, it will serve you faithfully long after you have established yourself as a serious player.
If you are determined to be rich, there is only one talent you require. Can you think what it is before your eyes skim down to the next paragraph? Right. You need the talent to identify, hire and nurture others with talent. “There is no substitute for talent. Industry and all the virtues are of no avail,” wrote the novelist Aldous Huxley.
The French impressionist Degas once said: “Everybody has talent at twenty-five.
Talent is indispensable, although it is always replaceable. Just remember the simple rules concerning talent: identify it, hire it, nurture it, reward it, protect it. And, when the time comes, fire it.
But never give in easily. If you can, attempt one step farther along the road than appears sensible before giving in.
“Persistence” is a vital attribute for those who wish to become rich, or who wish to achieve anything worthwhile for that matter.
As is the ability to acknowledge that one has made a mistake and that a new plan of action must now be made. Any such acknowledgement is not a weakness, it is a sign of clear thinking. In its way, it is a kind of persistence in itself. Try, try, try again, does not mean doing what has already failed, over and over again. Quitting is not dishonorable. Quitting when you believe you can still succeed is. You must keep the faith. Belief in yourself and faith in your project can move mountains. But not if you insist on trying to scale the mountain by an impossible route which has already failed.
This is the core of it. Persistence is not quite as important as self-belief. If you will not believe in yourself, then why should anyone else? Without self-belief nothing can be accomplished. With it, nothing is impossible.
There is nothing wrong with doubt, or with fear. They are immensely useful tools. But you either learn to incorporate them into your thinking and your life, or you will be ruled by them. There is no “middle way.” It is doubt multiplied by the fear of failure, unconfronted, which leads to the creation of a vicious cycle where self-belief is eroded and nothing is achieved. Doubts can and should be confronted, as should fear. This is best done in daylight, under rigorous examination.
if you have ever escaped from very serious trouble indeed, or have been at the point of death, then you will know that one of two things happens. Either you become cautious to an absurd degree, or you are liberated from many ordinary fears. With liberation comes the knowledge that nothing is really very important in the lives of men; nothing is as terrifying as the fear itself. And from that, paradoxically, comes self-belief—a belief that anything is possible. Secondly, you should remember that you are unique. Any scientist will tell you so. No other human was ever born, or will ever be born, with the same combination of upbringing, flaws and qualities that you possess. Why should you not believe in yourself?
If you want to be rich you must work for it. But you must believe in it, too. You must believe in yourself, if only to armor yourself against the laughter of the gods in your quest. Your mad quest to be rich.
I am not a manager. I am not even a businessman. I’m an entrepreneur and I go with my gut.
Trust your instincts. Do not be a slave to them, but when your instincts are screaming, Go! Go! Go! then it’s time for you to decide whether you really want to be rich or not. You cannot do this in a deliberate, considered manner. You can’t get rich painting by numbers.
Make More Baskets: Diversify!
I am one of the richest self-made men in Britain for two reasons. I own my company outright, and I began to make more baskets the minute the first had a few eggs in it. Let’s get down to how and why.
If you have a successful monthly magazine, for instance, and then launch a weekly in the same category, you will inevitably weaken sales of your original title. This will follow as surely as night follows day. So should you launch the weekly magazine? Yes! A thousand times yes! Why? Because if you do not launch the weekly edition, even though you know it is a good idea, then your rivals will do it for you.
Learning to evolve or die is a cardinal virtue. Things do not stay the same. Either you learn to go with the flow and change as rapidly as you are able, or you will be left stranded, like the last dinosaur, by the last warm lake, on the last continent the ice age has yet to reach. Richard Branson has perfected one cardinal rule: he owns or part-owns more baskets than almost anyone alive. “Wait until it grows. Match investment with growth. Make it pay,” Just remember that this advice is not designed for your start-up phase. During the start-up, you concentrate on that one basket as if your life (and the life of your firstborn) depends upon it. But once you have something that’s working and making some money, start looking around quickly for another opportunity. The more baskets the better.
I am often, along with my group CFO, Ian Leggett, the only one voting to close down one project or another at my various companies. To the young people involved in that project, it is a matter, seemingly, of life or death. To a man with many other fish to fry, it is just another problem in need of a solution. The reverse of that medal, of course, is that I do not bring to any project the passion and insight of those more closely involved. Even so, by diversifying and building other baskets in other countries, I believe I have become better able to make hard decisions more often. That’s a definite plus.
But when you stop listening, you stop learning. And if you stop learning, it’s time to get out of the kitchen and let someone else do the cooking.
Listening is the most powerful weapon after self-belief and persistence you can bring into play as an entrepreneur.
If you have experience, a little investment cash and will make the time, then the world will bring to your door an amazing collection of visionaries, con artists, madmen and budding entrepreneurs. They all have something to say. Most of your time will be wasted. But what is not wasted will make you richer. Much richer.
Courtesy is not a cardinal virtue in getting rich, I admit. But it helps. It works. It greases wheels where force will not prevail.
Trouble is, business is not a talking shop. It relies on decisions, often hard decisions, being made in as short a time as makes sense.
Seneca, coined the following: “Luck is what happens when preparation meets opportunity.” I have never come across a better definition—that’s why I’m repeating it. Preparation multiplied by opportunity. Say it again. Learn it off by heart. Let it become a daily mantra. Luck is preparation multiplied by opportunity.
Preparation is the key. Be prepared. Do the heavy lifting and the homework in advance. Get on with the job, but remain alert enough to spot an opportunity when it arrives. Then hammer it.
Despite what you will read in many self-improvement tomes, “partnering” and “symbiotic evolution” are no way to get rich. They may be a way to a better world. They may make you a happier person and a better manager. But they will not make you rich— except, perhaps, in spirit. To become rich you must behave as a predator. I will go further, you must become a predator.
Then again, Albert is more intelligent than I am. He had a grand education and read all the right books at university. He is not a self-taught scholar, as I am. But there is a downside to all this intelligence and imagination. He thinks a little too much before he acts. He weighs the options too carefully. He is capable of imagining defeat.
As H. L. Mencken put it: “The chief value of money lies in the fact that one lives in a world in which it is overestimated.”
• Prepare yourself for luck, but don’t seek her out. Let her come to you. • Make your own luck • Don’t whine or ever describe yourself as “unlucky.” (You’re alive, aren’t you?) • Be bold. Be brave. Don’t thank your lucky stars. The stars can’t hear you. • Stay the course. Stop looking for the green grass over the hill. • Don’t try to do it all yourself. Delegate and teach others to delegate. • Remember that most predators are lucky most of their lives, unlike their prey. • Whiners and cowards die a hundred times a day. Be a hero to yourself. • If being a hero isn’t your style, then fake it. Reality will catch up eventually. • Just do it. It is much easier to apologize than to obtain permission. • Never take the quest for wealth seriously. It’s just a game, chum. • Next time you bump into Lady Luck, giver her a whack on the rump from me. • Be lucky. Get rich. Then give it all away. (We’ll get to that bit later.)
How to Get Rich: One of the World's Greatest Entrepreneurs Shares His Secrets
All negotiations arise from weakness, unless you are one of that strange tribe who finds themselves intoxicated with the process of bargaining and negotiating itself.
All great companies, all well-run organisations, need great managers and great staff. That much, at least, is pretty obvious. You forget it at your peril.
all organizations are a reflection of the people who start them.
The only “style” I assume you’re interested in developing is an efficient money-making machine which is also a great place to work.
Please remember: you are not reading this book to become a successful manager. Managers rarely become rich. Most managers are lieutenants.
Personally, I don’t think I was a very good managing director or CEO of any of my companies, so my advice concerning your choice of middle management is limited to the following: the world is full of aspiring lieutenants. Most people seek job security, job satisfaction and power over others far more than they seek wealth.
Serious negotiations are very different from day-to-day bargaining and should be approached differently. They imply a weakness in the position of at least one of the parties involved in the negotiations, unlike day-to-day bargaining, where no such weakness need exist. The first thing to be done, perhaps the most vital thing, is to establish exactly where those weaknesses lie.
Weaknesses in serious negotiations usually exist in both camps, of course, at least to some degree or another, and it becomes important to swiftly determine which weakness is most pressing and most potentially catastrophic to which party. An immediate balance of weaknesses may well prove more decisive than any long-term balance of strengths.
• The flea has established to his own satisfaction the elephant’s urgent need. • The flea has learned to ignore flattery. • The flea has learned that an elephant cannot be your friend in negotiations. • The flea has learned he is not a good negotiator. • The flea has learned to “empty” himself and make himself believe he does not care. • The flea has overcome his lack of skill by setting a price he will not deviate from. • The flea has hardened his heart and has walked away when the price was not met. • The flea has introduced a rogue element (the trade magazine) into the negotiations. • The flea has weighed Greed vs. Need. He believes Need will outweigh Greed.
A Few Tips on Negotiating
• Remember that few of us are any good at detailed negotiations. That includes your opponent, by the way. • If you are a poor negotiator, like me, then set a limit on what you will pay or accept and on any conditions attached. Do not deviate. Your first thought is your best thought. • Most negotiations are unnecessary. Don’t enter into them. Remember that “the fortress that parleys is already half taken.” Save serious negotiations for serious occasions. • Do your homework. And do it rigorously. What you don’t know or haven’t bothered to find out can kill you in any type of serious negotiation. • Despite my jungle book examples above, the devil really is in the detail in serious negotiations. Get all the professional help you can trust. But do not surrender control of the negotiations or the agenda to such professionals. They are not the ones who will have to live with the consequences—you are. Professional advisors are there to explain and advise, not to decide. • If your advisors are leading you down a path you don’t approve of during your negotiations, call a “time-out” and tell them privately that if they continue along that route you will get yourself some new advisors. The world is full of them. • Never fall in love with the deal. A deal is just a deal. There will always be other deals and other opportunities. • Avoid auctions in business like the plague—unless you are selling something, that is. You will nearly always pay more than is wise if you are the “winner” of an auction process. • The negotiator opposite you is not your new best friend. He is not your partner. He is not your confidant. You have no obligation, outside of ordinary courtesy, to please him or satisfy his demands. He is the enemy. If you do not understand that real winners and real losers emerge from serious negotiations, then you will be robbed, whatever the circumstances. • Take no notice of management manuals that tell you to leave passion and emotion out of the negotiating room. If you are emotional or passionate about something, then let it show. But leaven emotion with courtesy, and, if possible, with wit. If you’re not the witty type, then flattery and self-deprecation are good substitutes. • Listen when engaged in serious negotiations. Then listen some more. You are in no hurry. Nobody ever got poor listening. Also, use silence as a weapon. Silences are disconcerting. People tend to fill silences with jabber, often weakening their bargaining position as they do so. • Choose a rogue element to your advantage and bring it into the negotiation at a late stage. You’ll be amazed at how often this tactic produces results. • The British created the largest geophysical empire in the world with one tactic: divide and rule. It always works. It never fails if you can get to exploit it. Get to know the other side. There may be slight differences in the individual approaches of their senior managers and, possibly, in their goals. Drive a wedge and keep hammering. • Permit no such weaknesses in your own camp. I have often banned senior executives from taking part in negotiations simply to avoid this trap. Better you are in there on your own, outgunned, outflanked and outmaneuvered, than to have two or three of you silently squabbling. • Everyone thinks they are a great negotiator, but most of us simply are not. If it’s your company, then, for better or worse, you are the final arbiter. That remains true whether you are a good negotiator or a bad one. • If you suspect you perform badly on such occasions, do not attend, even if you are the 100 percent owner. Get someone else to do it after setting out your response to every conceivable option that might arise. This tactic can be devastating to the other side, and Peter, Bob and I have used it on many occasions in the past. You have to trust your nominee completely, though. • Above all, establish where the balance of weakness lies in any serious negotiation. Most strengths are self-evident, especially strengths...
I may well have been only able to put a few hundred million dollars in the bank because I recognized that this getting rich malarkey is just a game.
To become rich you must be an owner. And you must try to own it all. You must strive with every fiber of your being, while recognizing the idiocy of your behavior, to own and retain control of as near to 100 percent of any company as you can. If that is not possible, in a public company, for example, then you must be prepared to make yourself hated by those around you who are also trying to be rich.
To become rich, every single percentage point of anything you own is crucial. It is worth fighting for, tooth and claw. It is worth suing for. It is worth shouting and banging on the table for. It is worth begging for and groveling for. It is worth lying and cheating for. In extremis, it is even worth negotiating for. Never, never, never, never hand over a single share of anything you have acquired or created if you can help it. Nothing. Not one share. To no one. No matter what the reason—unless you genuinely have to.
Ownership is not the most important thing. It is the only thing that counts.
Nothing counts but what you own in the race to get rich. If you haven’t much skill, or much wit, or much talent, or much luck, and yet you insist on owning more than your fair share of any start-up or acquisition, then you can become rich. If you take what you’re given, you will probably not get rich.
Because ownership isn’t the important thing. If you want to be rich, it’s the only thing.
Not everyone works to get rich. In fact, most people do not. But almost everyone wishes to be respected.
If you want to get rich, then learn to delegate. Don’t learn to pretend to delegate. Delegation is not only a powerful tool, it is the only way to maximize and truly incentivize your most precious asset—the people who work for you.
The financier John Paul Getty put it best half a century ago: The meek shall inherit the earth, but not the mineral rights. Exactly. Risk equals reward. “An honest day’s work for an honest day’s pay” is not risk-taking.
Competition isn’t some misty-eyed concept that should be confined to students of the “dismal science,” Economics. Competition is the heart, soul, liver, lungs and kidney of the beast we call Western capitalism. How you react to it, how you face up to it, defines whether you can stay rich, and probably whether you can get rich at all.
No intelligence-gathering exercise is ever entirely wasted in business. There is only so much pie. Talent bakes that pie.
What is it you are attempting to achieve here? You are trying to become rich. This must be the main focus of your business life. Becoming rich.
How to Get Rich: One of the World's Greatest Entrepreneurs Shares His Secrets
If you have entrepreneurial flair, then you can go into just about any business and make money.
If you wish to become rich, look carefully about you at the prevailing industries where wealth appears to be gravitating. Then go to where the money is! That is where you should focus your efforts.
There is no substitute for good timing. There is always luck involved, but it’s often the kind of luck you help make yourself.
You cannot get rich all on your own. No one can. You have to create, or work within, the right environment.
In the same way, it is almost impossible to build an individual fortune without colleagues, confederates and one or two professionals on board.
You will need others who believe in your idea or your talent to work with you and for you.
You just can’t do it on your own. You need to create an environment.
But why would clever, cunning and adept people work for a mug like you? Simple. There are many clever, cunning and adept people who are risk-averse. You are not risk-averse because you are dedicated to becoming rich.
Your employees, your colleagues, your suppliers and your customers are all human capital. Choosing among them is an art form. Yet creating the right environment in which money can be made is essential.
1. Never choose an important employee or a key supplier alone.
2. Go further than reading a person’s references.
3. Make notes. Speak little.
4. Good suppliers respect attention to detail.
5. Pay employees well. Bonus better.
6. Be alert for “crossovers.” Many times I have been interviewing someone for a job and realized that they are not suitable for the job in question. However, the candidate would be perfect in another position in my company.
7. Only hire winners.
8. Ignore your prejudices, likes and dislikes.
9. Promote from within when you can.
10. Don’t leave senior employees in any job too long.
Whatever it is you intend to do to get rich, get good at it. Hire people who are better than you at it. Listen and learn and get better still at it.
Why does it count? Why is it important to focus on doing an outstanding job? Firstly, talent will flock to your company. Talented employees mean you have more opportunities to make more money. Secondly, you will make fewer errors. The quality of your management will see to that. Thirdly, it places a premium on your assets and the worth of your business. That means you get richer faster. Fourthly, it’s simply more enjoyable—which means you will enjoy coming to work and will spend more time focusing on doing an even better job.
If there is any way at all you can play “pass the parcel” with a venture you believe is destined to fail and in which you are a principal, then do not hesitate. Pass the damn parcel and move on to the next opportunity.
Experience is only a name we give to our failures.
You have to cut loose to get rich. There isn’t any other way.
Now you must cut yourself loose from naysayers and negative influences:
Firstly, they fear that you are placing yourself in harm’s way—and, to them, that cannot be a good thing. Secondly, they fear that if you should succeed, you will expose their own timidity to the light of day.
You cannot spend your life assuaging the fear of failure (and success) that is the common lot of the risk-averse.
Now you must leave the safety of the ant colony and the hive. You are to become a loner, an outcast, cut off from the very thing that defines what many of us believe we are. But it cannot define you. Not anymore. You are a wild pig rooting for truffles. You are a weasel about to rip the throat out of a rabbit. You are an entrepreneur. You are going to be rich, and you don’t much care, within the law, how you are going to do it.
THE WORLD IS FULL OF MONEY. SOME OF IT HAS MY NAME ON IT. ALL I HAVE TO DO IS COLLECT IT.
You see, you have to choose a new mine where you suspect there is money, or an old mine with a different angle to get rich. The right mountain. A great new mine right now is in telecommunications, or the Internet, or legalized gambling. Property is always good. (You can start small in property and you can get lucky quickly. It’s a crowded market, though, for that very reason.)
Fear nothing. Another easy-to-say and impossible piece of advice. Tough luck, chum. Life’s a bitch and then you die. Get used to it. It isn’t going to change anytime soon.
If you want to be rich you must make a pact with yourself about fear of anything. You cannot banish fear, but you can face it down, stomp on it, crush it, bury it, padlock it into the deepest recesses of your heart and soul and leave it there to rot.
you will instantly perceive (among many other things) just how much money there is in the world and how pitifully easy it is to obtain it. Money that already has your name on it. All that is stopping you is fear. I do not know of what kind. It may even be fear of succeeding. But if you want to be rich, gentle reader, and if you can read these words, then all that is stopping you is fear of one kind or another. You have no one to blame but yourself. The world is full of gazelles with diamonds in their guts.
But I do know that you must make an accommodation with your fears if you are to succeed. At least, I know that to be true in my own case. As to how such a trick is to be accomplished, I cannot help you. We each, in turn, must face down our secret demons, if we can, whether we wish to be rich or not. To succeed in the game of piling up material wealth, it becomes a necessity. In the words of the wisest of men, William Shakespeare: “Present fears are less than horrible imaginings.”
You will never start unless you start NOW! That’s right. Right now. Even as your eyes scan this page, your brain should be plotting and planning ideas and possibilities, weaving a web to ensnare what you could achieve, if only you will cease this endless prevarication and commit yourself. Commit yourself heart and soul, mind. Heart and soul. No half measures or lukewarm approach is likely to succeed
There is a place for impetuosity and leaps of faith. A place for belief. That place is here. And the time is now. You must take your first steps on the long, lonely road to wealth by beginning now,
When opportunities come you must pounce. Whether you are just starting out or have been at it for a long while. If an opportunity should arrive just as you are taking your family on vacation, for example, do not weaken.
Need will drive you, but you must not prevaricate. You must act at the slightest hint of a chance to make money. You must go, go, go!
If you wish to get rich, there are no reasons why you should not get rich. None at all. For they are not “reasons”; they are excuses. For the most part they are pitiful alibis, half truths and self-serving evasions you have erected to spare yourself from the quiet terror of taking your own financial life in your hands and making your dreams concrete reality.
The only three valid reasons for not attempting to become rich are: “I do not wish to be rich.” Or, “I wish to be rich but I have other priorities.” Or, “I am too stupid to try to get rich.”
The Upside-Down Pyramid for Getting Rich
1. Commit or don’t commit. No half-measures.
2. Cut loose from all negative influences.
3. Choose the right mountain.
4. Fear nothing.
5. Start now.
• Keep giving it away. The faster you give it away, the more money will flow back to you. Not because of “karma” or “universal cosmic forces,” but because you then spend less time defending it and more time making more of it.
• Get your own private advisors. The professionals who help run your company must be first class.
• Never stop looking for talent and promoting talent. This single suggestion will keep anyone rich. Talent is all most companies consist of. Talented people are crucial to keeping your company humming right along and growing.
No deal is a total make-or-break deal. Not one. If you cannot get the terms you know make sense, then walk away.
Lead. Do not be led.
The Eight Secrets to Getting Rich
1. Analyze your need. Desire is insufficient. Compulsion is mandatory.
2. Cut loose from negative influences. Never give in. Stay the course.
3. Ignore “great ideas.” Concentrate on great execution.
4. Focus. Keep your eye on the ball marked “The Money is Here.”
5. Hire talent smarter than you. Delegate. Share the annual pie.
6. Ownership is the real “secret.” Hold on to every percentage point you can.
7. Sell before you need to, or when bored. Empty your mind when negotiating.
8. Fear nothing and no one. Get rich. Remember to give it all away.
In the words of John Gall, writing about “Systemantics” twenty years ago in The Whole Earth Catalogue: Systems tend to oppose their own proper function. Systems tend to malfunction just after their greatest triumph. [We all] have a strong tendency to apply a previously successful strategy to the new challenge. The army is now fully prepared to fight the last war.
How to Get Rich: One of the World's Greatest Entrepreneurs Shares His Secrets
A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business Charles Munger
A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business
Charles Munger, USC Business School, 1994
Biography - Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger
I'm going to play a minor trick on you today because the subject of my talk is the art of stock picking as a subdivision of the art of worldly wisdom. That enables me to start talking about worldly wisdom—a much broader topic that interests me because I think all too little of it is delivered by modern educational systems, at least in an effective way.
And therefore, the talk is sort of along the lines that some behaviorist psychologists call Grandma's rule after the wisdom of Grandma when she said that you have to eat the carrots before you get the dessert.
The carrot part of this talk is about the general subject of worldly wisdom which is a pretty good way to start. After all, the theory of modern education is that you need a general education before you specialize. And I think to some extent, before you're going to be a great stock picker, you need some general education.
So, emphasizing what I sometimes waggishly call remedial worldly wisdom, I'm going to start by waltzing you through a few basic notions.
What is elementary, worldly wisdom? Well, the first rule is that you can't really know anything if you just remember isolated facts and try and bang 'em back. If the facts don't hang together on a latticework of theory, you don't have them in a usable form.
You've got to have models in your head. And you've got to array your experience—both vicarious and direct—on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You've got to hang experience on a latticework of models in your head.
What are the models? Well, the first rule is that you've got to have multiple models—because if you just have one or two that you're using, the nature of human psychology is such that you'll torture reality so that it fits your models, or at least you'll think it does. You become the equivalent of a chiropractor who, of course, is the great boob in medicine.
It's like the old saying, "To the man with only a hammer, every problem looks like a nail." And of course, that's the way the chiropractor goes about practicing medicine. But that's a perfectly disastrous way to think and a perfectly disastrous way to operate in the world. So you've got to have multiple models.
And the models have to come from multiple disciplines—because all the wisdom of the world is not to be found in one little academic department. That's why poetry professors, by and large, are so unwise in a worldly sense. They don't have enough models in their heads. So you've got to have models across a fair array of disciplines.
You may say, "My God, this is already getting way too tough." But, fortunately, it isn't that tough—because 80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person. And, of those, only a mere handful really carry very heavy freight.
So let's briefly review what kind of models and techniques constitute this basic knowledge that everybody has to have before they proceed to being really good at a narrow art like stock picking.
First there's mathematics. Obviously, you've got to be able to handle numbers and quantities—basic arithmetic. And the great useful model, after compound interest, is the elementary math of permutations and combinations. And that was taught in my day in the sophomore year in high school. I suppose by now in great private schools, it's probably down to the eighth grade or so.
It's very simple algebra. It was all worked out in the course of about one year between Pascal and Fermat. They worked it out casually in a series of letters.
It's not that hard to learn. What is hard is to get so you use it routinely almost everyday of your life. The Fermat/Pascal system is dramatically consonant with the way that the world works. And it's fundamental truth. So you simply have to have the technique.
Many educational institutions—although not nearly enough—have realized this. At Harvard Business School, the great quantitative thing that bonds the first-year class together is what they call decision tree theory. All they do is take high school algebra and apply it to real life problems. And the students love it. They're amazed to find that high school algebra works in life....
By and large, as it works out, people can't naturally and automatically do this. If you understand elementary psychology, the reason they can't is really quite simple: The basic neural network of the brain is there through broad genetic and cultural evolution. And it's not Fermat/Pascal. It uses a very crude, shortcut-type of approximation. It's got elements of Fermat/Pascal in it. However, it's not good.
So you have to learn in a very usable way this very elementary math and use it routinely in life—just the way if you want to become a golfer, you can't use the natural swing that broad evolution gave you. You have to learn—to have a certain grip and swing in a different way to realize your full potential as a golfer.
If you don't get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a onelegged man in an asskicking contest. You're giving a huge advantage to everybody else.
One of the advantages of a fellow like Buffett, whom I've worked with all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations....
Obviously, you have to know accounting. It's the language of practical business life. It was a very useful thing to deliver to civilization. I've heard it came to civilization through Venice which of course was once the great commercial power in the Mediterranean. However, double-entry bookkeeping was a hell of an invention.
And it's not that hard to understand.
But you have to know enough about it to understand its limitations—because although accounting is the starting place, it's only a crude approximation. And it's not very hard to understand its limitations. For example, everyone can see that you have to more or less just guess at the useful life of a jet airplane or anything like that. Just because you express the depreciation rate in neat numbers doesn't make it anything you really know.
In terms of the limitations of accounting, one of my favorite stories involves a very great businessman named Carl Braun who created the CF Braun Engineering Company. It designed and built oil refineries—which is very hard to do. And Braun would get them to come in on time and not blow up and have efficiencies and so forth. This is a major art.
And Braun, being the thorough Teutonic type that he was, had a number of quirks. And one of them was that he took a look at standard accounting and the way it was applied to building oil refineries and he said, "This is asinine."
So he threw all of his accountants out and he took his engineers and said, "Now, we'll devise our own system of accounting to handle this process." And in due time, accounting adopted a lot of Carl Braun's notions. So he was a formidably willful and talented man who demonstrated both the importance of accounting and the importance of knowing its limitations.
He had another rule, from psychology, which, if you're interested in wisdom, ought to be part of your repertoire—like the elementary mathematics of permutations and combinations.
His rule for all the Braun Company's communications was called the five W's—you had to tell who was going to do what, where, when and why. And if you wrote a letter or directive in the Braun Company telling somebody to do something, and you didn't tell him why, you could get fired. In fact, you would get fired if you did it twice.
You might ask why that is so important? Well, again that's a rule of psychology. Just as you think better if you array knowledge on a bunch of models that are basically answers to the question, why, why, why, if you always tell people why, they'll understand it better, they'll consider it more important, and they'll be more likely to comply. Even if they don't understand your reason, they'll be more likely to comply.
So there's an iron rule that just as you want to start getting worldly wisdom by asking why, why, why, in communicating with other people about everything, you want to include why, why, why. Even if it's obvious, it's wise to stick in the why.
Which models are the most reliable? Well, obviously, the models that come from hard science and engineering are the most reliable models on this Earth. And engineering quality control—at least the guts of it that matters to you and me and people who are not professional engineers—is very much based on the elementary mathematics of Fermat and Pascal:
It costs so much and you get so much less likelihood of it breaking if you spend this much. It's all elementary high school mathematics. And an elaboration of that is what Deming brought to Japan for all of that quality control stuff.
I don't think it's necessary for most people to be terribly facile in statistics. For example, I'm not sure that I can even pronounce the Poisson distribution. But I know what a Gaussian or normal distribution looks like and I know that events and huge aspects of reality end up distributed that way. So I can do a rough calculation.
But if you ask me to work out something involving a Gaussian distribution to ten decimal points, I can't sit down and do the math. I'm like a poker player who's learned to play pretty well without mastering Pascal.
And by the way, that works well enough. But you have to understand that bellshaped curve at least roughly as well as I do.
And, of course, the engineering idea of a backup system is a very powerful idea. The engineering idea of breakpoints—that's a very powerful model, too. The notion of a critical mass—that comes out of physics—is a very powerful model.
All of these things have great utility in looking at ordinary reality. And all of this cost-benefit analysis—hell, that's all elementary high school algebra, too. It's just been dolled up a little bit with fancy lingo.
I suppose the next most reliable models are from biology/ physiology because, after all, all of us are programmed by our genetic makeup to be much the same.
And then when you get into psychology, of course, it gets very much more complicated. But it's an ungodly important subject if you're going to have any worldly wisdom.
And you can demonstrate that point quite simply: There's not a person in this room viewing the work of a very ordinary professional magician who doesn't see a lot of things happening that aren't happening and not see a lot of things happening that are happening.
And the reason why is that the perceptual apparatus of man has shortcuts in it. The brain cannot have unlimited circuitry. So someone who knows how to take advantage of those shortcuts and cause the brain to miscalculate in certain ways can cause you to see things that aren't there.
Now you get into the cognitive function as distinguished from the perceptual function. And there, you are equally—more than equally in fact—likely to be misled. Again, your brain has a shortage of circuitry and so forth—and it's taking all kinds of little automatic shortcuts.
So when circumstances combine in certain ways—or more commonly, your fellow man starts acting like the magician and manipulates you on purpose by causing your cognitive dysfunction—you're a patsy.
And so just as a man working with a tool has to know its limitations, a man working with his cognitive apparatus has to know its limitations. And this knowledge, by the way, can be used to control and motivate other people....
So the most useful and practical part of psychology—which I personally think can be taught to any intelligent person in a week—is ungodly important. And nobody taught it to me by the way. I had to learn it later in life, one piece at a time. And it was fairly laborious. It's so elementary though that, when it was all over, I felt like a fool.
And yeah, I'd been educated at Cal Tech and the Harvard Law School and so forth. So very eminent places miseducated people like you and me.
The elementary part of psychology—the psychology of misjudgment, as I call it—is a terribly important thing to learn. There are about 20 little principles. And they interact, so it gets slightly complicated. But the guts of it is unbelievably important.
Terribly smart people make totally bonkers mistakes by failing to pay heed to it. In fact, I've done it several times during the last two or three years in a very important way. You never get totally over making silly mistakes.
There's another saying that comes from Pascal which I've always considered one of the really accurate observations in the history of thought. Pascal said in essence, "The mind of man at one and the same time is both the glory and the shame of the universe."
And that's exactly right. It has this enormous power. However, it also has these standard misfunctions that often cause it to reach wrong conclusions. It also makes man extraordinarily subject to manipulation by others. For example, roughly half of the army of Adolf Hitler was composed of believing Catholics. Given enough clever psychological manipulation, what human beings will do is quite interesting.
Personally, I've gotten so that I now use a kind of two-track analysis. First, what are the factors that really govern the interests involved, rationally considered? And second, what are the subconscious influences where the brain at a subconscious level is automatically doing these things—which by and large are useful, but which often misfunction.
One approach is rationality—the way you'd work out a bridge problem: by evaluating the real interests, the real probabilities and so forth. And the other is to evaluate the psychological factors that cause subconscious conclusions—many of which are wrong.
Now we come to another somewhat less reliable form of human wisdom—microeconomics. And here, I find it quite useful to think of a free market economy—or partly free market economy—as sort of the equivalent of an ecosystem....
This is a very unfashionable way of thinking because early in the days after Darwin came along, people like the robber barons assumed that the doctrine of the survival of the fittest authenticated them as deserving power—you know, "I'm the richest. Therefore, I'm the best. God's in his heaven, etc."
And that reaction of the robber barons was so irritating to people that it made it unfashionable to think of an economy as an ecosystem. But the truth is that it is a lot like an ecosystem. And you get many of the same results.
Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche. Just as animals flourish in niches, similarly, people who specialize in the business world—and get very good because they specialize—frequently find good economics that they wouldn't get any other way.
And once we get into microeconomics, we get into the concept of advantages of scale. Now we're getting closer to investment analysis—because in terms of which businesses succeed and which businesses fail, advantages of scale are ungodly important.
For example, one great advantage of scale taught in all of the business schools of the world is cost reductions along the so-called experience curve. Just doing something complicated in more and more volume enables human beings, who are trying to improve and are motivated by the incentives of capitalism, to do it more and more efficiently.
The very nature of things is that if you get a whole lot of volume through your joint, you get better at processing that volume. That's an enormous advantage. And it has a lot to do with which businesses succeed and fail....
Let's go through a list—albeit an incomplete one—of possible advantages of scale. Some come from simple geometry. If you're building a great spherical tank, obviously as you build it bigger, the amount of steel you use in the surface goes up with the square and the cubic volume goes up with the cube. So as you increase the dimensions, you can hold a lot more volume per unit area of steel.
And there are all kinds of things like that where the simple geometry—the simple reality—gives you an advantage of scale.
For example, you can get advantages of scale from TV advertising. When TV advertising first arrived—when talking color pictures first came into our living rooms—it was an unbelievably powerful thing. And in the early days, we had three networks that had whatever it was—say 90% of the audience.
Well, if you were Procter & Gamble, you could afford to use this new method of advertising. You could afford the very expensive cost of network television because you were selling so many cans and bottles. Some little guy couldn't. And there was no way of buying it in part. Therefore, he couldn't use it. In effect, if you didn't have a big volume, you couldn't use network TV advertising which was the most effective technique.
So when TV came in, the branded companies that were already big got a huge tail wind. Indeed, they prospered and prospered and prospered until some of them got fat and foolish, which happens with prosperity—at least to some people....
And your advantage of scale can be an informational advantage. If I go to some remote place, I may see Wrigley chewing gum alongside Glotz's chewing gum. Well, I know that Wrigley is a satisfactory product, whereas I don't know anything about Glotz's. So if one is 40 cents and the other is 30 cents, am I going to take something I don't know and put it in my mouth—which is a pretty personal place, after all—for a lousy dime?
So, in effect, Wrigley , simply by being so well known, has advantages of scale—what you might call an informational advantage.
Another advantage of scale comes from psychology. The psychologists use the term social proof. We are all influenced—subconsciously and to some extent consciously—by what we see others do and approve. Therefore, if everybody's buying something, we think it's better. We don't like to be the one guy who's out of step.
Again, some of this is at a subconscious level and some of it isn't. Sometimes, we consciously and rationally think, "Gee, I don't know much about this. They know more than I do. Therefore, why shouldn't I follow them?"
The social proof phenomenon which comes right out of psychology gives huge advantages to scale—for example, with very wide distribution, which of course is hard to get. One advantage of Coca-Cola is that it's available almost everywhere in the world.
Well, suppose you have a little soft drink. Exactly how do you make it available all over the Earth? The worldwide distribution setup—which is slowly won by a big enterprise—gets to be a huge advantage.... And if you think about it, once you get enough advantages of that type, it can become very hard for anybody to dislodge you.
There's another kind of advantage to scale. In some businesses, the very nature of things is to sort of cascade toward the overwhelming dominance of one firm.
The most obvious one is daily newspapers. There's practically no city left in the U.S., aside from a few very big ones, where there's more than one daily newspaper.
And again, that's a scale thing. Once I get most of the circulation, I get most of the advertising. And once I get most of the advertising and circulation, why would anyone want the thinner paper with less information in it? So it tends to cascade to a winnertakeall situation. And that's a separate form of the advantages of scale phenomenon.
Similarly, all these huge advantages of scale allow greater specialization within the firm. Therefore, each person can be better at what he does.
And these advantages of scale are so great, for example, that when Jack Welch came into General Electric, he just said, "To hell with it. We're either going to be # 1 or #2 in every field we're in or we're going to be out. I don't care how many people I have to fire and what I have to sell. We're going to be #1 or #2 or out."
That was a very toughminded thing to do, but I think it was a very correct decision if you're thinking about maximizing shareholder wealth. And I don't think it's a bad thing to do for a civilization either, because I think that General Electric is stronger for having Jack Welch there.
And there are also disadvantages of scale. For example, we—by which I mean Berkshire Hathaway—are the largest shareholder in Capital Cities/ABC. And we had trade publications there that got murdered where our competitors beat us. And the way they beat us was by going to a narrower specialization.
We'd have a travel magazine for business travel. So somebody would create one which was addressed solely at corporate travel departments. Like an ecosystem, you're getting a narrower and narrower specialization.
Well, they got much more efficient. They could tell more to the guys who ran corporate travel departments. Plus, they didn't have to waste the ink and paper mailing out stuff that corporate travel departments weren't interested in reading. It was a more efficient system. And they beat our brains out as we relied on our broader magazine.
That's what happened to The Saturday Evening Post and all those things. They're gone. What we have now is Motocross—which is read by a bunch of nuts who like to participate in tournaments where they turn somersaults on their motorcycles. But they care about it. For them, it's the principal purpose of life. A magazine called Motocrossis a total necessity to those people. And its profit margins would make you salivate.
Just think of how narrowcast that kind of publishing is. So occasionally, scaling down and intensifying gives you the big advantage. Bigger is not always better.
The great defect of scale, of course, which makes the game interesting—so that the big people don't always win—is that as you get big, you get the bureaucracy. And with the bureaucracy comes the territoriality—which is again grounded in human nature.
And the incentives are perverse. For example, if you worked for AT&T in my day, it was a great bureaucracy. Who in the hell was really thinking about the shareholder or anything else? And in a bureaucracy, you think the work is done when it goes out of your in-basket into somebody else's in-basket. But, of course, it isn't. It's not done until AT&T delivers what it's supposed to deliver. So you get big, fat, dumb, unmotivated bureaucracies.
They also tend to become somewhat corrupt. In other words, if I've got a department and you've got a department and we kind of share power running this thing, there's sort of an unwritten rule: "If you won't bother me, I won't bother you and we're both happy." So you get layers of management and associated costs that nobody needs. Then, while people are justifying all these layers, it takes forever to get anything done. They're too slow to make decisions and nimbler people run circles around them.
The constant curse of scale is that it leads to big, dumb bureaucracy—which, of course, reaches its highest and worst form in government where the incentives are really awful. That doesn't mean we don't need governments—because we do. But it's a terrible problem to get big bureaucracies to behave.
So people go to stratagems. They create little decentralized units and fancy motivation and training programs. For example, for a big company, General Electric has fought bureaucracy with amazing skill. But that's because they have a combination of a genius and a fanatic running it. And they put him in young enough so he gets a long run. Of course, that's Jack Welch.
But bureaucracy is terrible.... And as things get very powerful and very big, you can get some really dysfunctional behavior. Look at Westinghouse. They blew billions of dollars on a bunch of dumb loans to real estate developers. They put some guy who'd come up by some career path—I don't know exactly what it was, but it could have been refrigerators or something—and all of a sudden, he's loaning money to real estate developers building hotels. It's a very unequal contest. And in due time, they lost all those billions of dollars.
CBS provides an interesting example of another rule of psychology—namely, Pavlovian association. If people tell you what you really don't want to hear what's unpleasant—there's an almost automatic reaction of antipathy. You have to train yourself out of it. It isn't foredestined that you have to be this way. But you will tend to be this way if you don't think about it.
Television was dominated by one network—CBS in its early days. And Paley was a god. But he didn't like to hear what he didn't like to hear. And people soon learned that. So they told Paley only what he liked to hear. Therefore, he was soon living in a little cocoon of unreality and everything else was corrupt—although it was a great business.
So the idiocy that crept into the system was carried along by this huge tide. It was a Mad Hatter's tea party the last ten years under Bill Paley.
And that is not the only example by any means. You can get severe misfunction in the high ranks of business. And of course, if you're investing, it can make a lot of difference. If you take all the acquisitions that CBS made under Paley, after the acquisition of the network itself, with all his advisors—his investment bankers, management consultants and so forth who were getting paid very handsomely—it was absolutely terrible.
For example, he gave something like 20% of CBS to the Dumont Company for a television set manufacturer which was destined to go broke. I think it lasted all of two or three years or something like that. So very soon after he'd issued all of that stock, Dumont was history. You get a lot of dysfunction in a big fat, powerful place where no one will bring unwelcome reality to the boss.
So life is an everlasting battle between those two forces—to get these advantages of scale on one side and a tendency to get a lot like the U.S. Agriculture Department on the other side—where they just sit around and so forth. I don't know exactly what they do. However, I do know that they do very little useful work.
On the subject of advantages of economies of scale, I find chain stores quite interesting. Just think about it. The concept of a chain store was a fascinating invention. You get this huge purchasing power—which means that you have lower merchandise costs. You get a whole bunch of little laboratories out there in which you can conduct experiments. And you get specialization.
If one little guy is trying to buy across 27 different merchandise categories influenced by traveling salesmen, he's going to make a lot of poor decisions. But if your buying is done in headquarters for a huge bunch of stores, you can get very bright people that know a lot about refrigerators and so forth to do the buying.
The reverse is demonstrated by the little store where one guy is doing all the buying. It's like the old story about the little store with salt all over its walls. And a stranger comes in and says to the storeowner, "You must sell a lot of salt." And he replies, "No, I don't. But you should see the guy who sells me salt."
So there are huge purchasing advantages. And then there are the slick systems of forcing everyone to do what works. So a chain store can be a fantastic enterprise.
It's quite interesting to think about Wal-Mart starting from a single store in Bentonville, Arkansas against Sears, Roebuck with its name, reputation and all of its billions. How does a guy in Bentonville, Arkansas with no money blow right by Sears, Roebuck? And he does it in his own lifetime—in fact, during his own late lifetime because he was already pretty old by the time he started out with one little store....
He played the chain store game harder and better than anyone else. Walton invented practically nothing. But he copied everything anybody else ever did that was smart—and he did it with more fanaticism and better employee manipulation. So he just blew right by them all.
He also had a very interesting competitive strategy in the early days. He was like a prizefighter who wanted a great record so he could be in the finals and make a big TV hit. So what did he do? He went out and fought 42 palookas. Right? And the result was knockout, knockout, knockout—42 times.
Walton, being as shrewd as he was, basically broke other small town merchants in the early days. With his more efficient system, he might not have been able to tackle some titan head-on at the time. But with his better system, he could destroy those small town merchants. And he went around doing it time after time after time. Then, as he got bigger, he started destroying the big boys.
Well, that was a very, very shrewd strategy.
You can say, "Is this a nice way to behave?" Well, capitalism is a pretty brutal place. But I personally think that the world is better for having Wal-Mart. I mean you can idealize small town life. But I've spent a fair amount of time in small towns. And let me tell you you shouldn't get too idealistic about all those businesses he destroyed.
Plus, a lot of people who work at Wal-Mart are very high grade, bouncy people who are raising nice children. I have no feeling that an inferior culture destroyed a superior culture. I think that is nothing more than nostalgia and delusion. But, at any rate, it's an interesting model of how the scale of things and fanaticism combine to be very powerful.
And it's also an interesting model on the other side—how with all its great advantages, the disadvantages of bureaucracy did such terrible damage to Sears, Roebuck. Sears had layers and layers of people it didn't need. It was very bureaucratic. It was slow to think. And there was an established way of thinking. If you poked your head up with a new thought, the system kind of turned against you. It was everything in the way of a dysfunctional big bureaucracy that you would expect.
In all fairness, there was also much that was good about it. But it just wasn't as lean and mean and shrewd and effective as Sam Walton. And, in due time, all its advantages of scale were not enough to prevent Sears from losing heavily to Wal-Mart and other similar retailers.
Here's a model that we've had trouble with. Maybe you'll be able to figure it out better. Many markets get down to two or three big competitors—or five or six. And in some of those markets, nobody makes any money to speak of. But in others, everybody does very well.
Over the years, we've tried to figure out why the competition in some markets gets sort of rational from the investor's point of view so that the shareholders do well, and in other markets, there's destructive competition that destroys shareholder wealth.
If it's a pure commodity like airline seats, you can understand why no one makes any money. As we sit here, just think of what airlines have given to the world—safe travel, greater experience, time with your loved ones, you name it. Yet, the net amount of money that's been made by the shareholders of airlines since Kitty Hawk, is now a negative figure—a substantial negative figure. Competition was so intense that, once it was unleashed by deregulation, it ravaged shareholder wealth in the airline business.
Yet, in other fields—like cereals, for example—almost all the big boys make out. If you're some kind of a medium grade cereal maker, you might make 15% on your capital. And if you're really good, you might make 40%. But why are cereals so profitable—despite the fact that it looks to me like they're competing like crazy with promotions, coupons and everything else? I don't fully understand it.
Obviously, there's a brand identity factor in cereals that doesn't exist in airlines. That must be the main factor that accounts for it.
And maybe the cereal makers by and large have learned to be less crazy about fighting for market share—because if you get even one person who's hell-bent on gaining market share.... For example, if I were Kellogg and I decided that I had to have 60% of the market, I think I could take most of the profit out of cereals. I'd ruin Kellogg in the process. But I think I could do it.
In some businesses, the participants behave like a demented Kellogg. In other businesses, they don't. Unfortunately, I do not have a perfect model for predicting how that's going to happen.
For example, if you look around at bottler markets, you'll find many markets where bottlers of Pepsi and Coke both make a lot of money and many others where they destroy most of the profitability of the two franchises. That must get down to the peculiarities of individual adjustment to market capitalism. I think you'd have to know the people involved to fully understand what was happening.
In microeconomics, of course, you've got the concept of patents, trademarks, exclusive franchises and so forth. Patents are quite interesting. When I was young, I think more money went into patents than came out. Judges tended to throw them out—based on arguments about what was really invented and what relied on prior art. That isn't altogether clear.
But they changed that. They didn't change the laws. They just changed the administration—so that it all goes to one patent court. And that court is now very much more pro-patent. So I think people are now starting to make a lot of money out of owning patents.
Trademarks, of course, have always made people a lot of money. A trademark system is a wonderful thing for a big operation if it's well known.
The exclusive franchise can also be wonderful. If there were only three television channels awarded in a big city and you owned one of them, there were only so many hours a day that you could be on. So you had a natural position in an oligopoly in the pre-cable days.
And if you get the franchise for the only food stand in an airport, you have a captive clientele and you have a small monopoly of a sort.
The great lesson in microeconomics is to discriminate between when technology is going to help you and when it's going to kill you. And most people do not get this straight in their heads. But a fellow like Buffett does.
For example, when we were in the textile business, which is a terrible commodity business, we were making low-end textiles—which are a real commodity product. And one day, the people came to Warren and said, "They've invented a new loom that we think will do twice as much work as our old ones."
And Warren said, "Gee, I hope this doesn't work because if it does, I'm going to close the mill." And he meant it.
What was he thinking? He was thinking, "It's a lousy business. We're earning substandard returns and keeping it open just to be nice to the elderly workers. But we're not going to put huge amounts of new capital into a lousy business."
And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners.
That's such an obvious concept—that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that's still going to be lousy. The money still won't come to you. All of the advantages from great improvements are going to flow through to the customers.
Conversely, if you own the only newspaper in Oshkosh and they were to invent more efficient ways of composing the whole newspaper, then when you got rid of the old technology and got new fancy computers and so forth, all of the savings would come right through to the bottom line.
In all cases, the people who sell the machinery—and, by and large, even the internal bureaucrats urging you to buy the equipment—show you projections with the amount you'll save at current prices with the new technology. However, they don't do the second step of the analysis which is to determine how much is going stay home and how much is just going to flow through to the customer. I've never seen a single projection incorporating that second step in my life. And I see them all the time. Rather, they always read: "This capital outlay will save you so much money that it will pay for itself in three years."
So you keep buying things that will pay for themselves in three years. And after 20 years of doing it, somehow you've earned a return of only about 4% per annum. That's the textile business.
And it isn't that the machines weren't better. It's just that the savings didn't go to you. The cost reductions came through all right. But the benefit of the cost reductions didn't go to the guy who bought the equipment. It's such a simple idea. It's so basic. And yet it's so often forgotten.
Then there's another model from microeconomics which I find very interesting. When technology moves as fast as it does in a civilization like ours, you get a phenomenon which I call competitive destruction. You know, you have the finest buggy whip factory and all of a sudden in comes this little horseless carriage. And before too many years go by, your buggy whip business is dead. You either get into a different business or you're dead—you're destroyed. It happens again and again and again.
And when these new businesses come in, there are huge advantages for the early birds. And when you're an early bird, there's a model that I call "surfing"—when a surfer gets up and catches the wave and just stays there, he can go a long, long time. But if he gets off the wave, he becomes mired in shallows....
But people get long runs when they're right on the edge of the wave—whether it's Microsoft or Intel or all kinds of people, including National Cash Register in the early days.
The cash register was one of the great contributions to civilization. It's a wonderful story. Patterson was a small retail merchant who didn't make any money. One day, somebody sold him a crude cash register which he put into his retail operation. And it instantly changed from losing money to earning a profit because it made it so much harder for the employees to steal....
But Patterson, having the kind of mind that he did, didn't think, "Oh, good for my retail business." He thought, "I'm going into the cash register business." And, of course, he created National Cash Register.
And he "surfed". He got the best distribution system, the biggest collection of patents and the best of everything. He was a fanatic about everything important as the technology developed. I have in my files an early National Cash Register Company report in which Patterson described his methods and objectives. And a well-educated orangutan could see that buying into partnership with Patterson in those early days, given his notions about the cash register business, was a total 100% cinch.
And, of course, that's exactly what an investor should be looking for. In a long life, you can expect to profit heavily from at least a few of those opportunities if you develop the wisdom and will to seize them. At any rate, "surfing" is a very powerful model.
However, Berkshire Hathaway , by and large, does not invest in these people that are "surfing" on complicated technology. After all, we're cranky and idiosyncratic—as you may have noticed.
And Warren and I don't feel like we have any great advantage in the high-tech sector. In fact, we feel like we're at a big disadvantage in trying to understand the nature of technical developments in software, computer chips or what have you. So we tend to avoid that stuff, based on our personal inadequacies.
Again, that is a very, very powerful idea. Every person is going to have a circle of competence. And it's going to be very hard to advance that circle. If I had to make my living as a musician.... I can't even think of a level low enough to describe where I would be sorted out to if music were the measuring standard of the civilization.
So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don't, you're going to lose. And that's as close to certain as any prediction that you can make. You have to figure out where you've got an edge. And you've got to play within your own circle of competence.
If you want to be the best tennis player in the world, you may start out trying and soon find out that it's hopeless—that other people blow right by you. However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you. It takes a will. It takes the intelligence. But after a while, you'd gradually know all about the plumbing business in Bemidji and master the art. That is an attainable objective, given enough discipline. And people who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence—which results partly from what they were born with and partly from what they slowly develop through work.
So some edges can be acquired. And the game of life to some extent for most of us is trying to be something like a good plumbing contractor in Bemidji. Very few of us are chosen to win the world's chess tournaments.
Some of you may find opportunities "surfing" along in the new high-tech fields—the Intels, the Microsofts and so on. The fact that we don't think we're very good at it and have pretty well stayed out of it doesn't mean that it's irrational for you to do it.
Well, so much for the basic microeconomics models, a little bit of psychology, a little bit of mathematics, helping create what I call the general substructure of worldly wisdom. Now, if you want to go on from carrots to dessert, I'll turn to stock picking—trying to draw on this general worldly wisdom as we go.
I don't want to get into emerging markets, bond arbitrage and so forth. I'm talking about nothing but plain vanilla stock picking. That, believe me, is complicated enough. And I'm talking about common stock picking.
The first question is, "What is the nature of the stock market?" And that gets you directly to this efficient market theory that got to be the rage—a total rage—long after I graduated from law school.
And it's rather interesting because one of the greatest economists of the world is a substantial shareholder in Berkshire Hathaway and has been for a long time. His textbook always taught that the stock market was perfectly efficient and that nobody could beat it. But his own money went into Berkshire and made him wealthy. So, like Pascal in his famous wager, he hedged his bet.
Is the stock market so efficient that people can't beat it? Well, the efficient market theory is obviously roughly right—meaning that markets are quite efficient and it's quite hard for anybody to beat the market by significant margins as a stock picker by just being intelligent and working in a disciplined way.
Indeed, the average result has to be the average result. By definition, everybody can't beat the market. As I always say, the iron rule of life is that only 20% of the people can be in the top fifth. That's just the way it is. So the answer is that it's partly efficient and partly inefficient.
And, by the way, I have a name for people who went to the extreme efficient market theory—which is "bonkers". It was an intellectually consistent theory that enabled them to do pretty mathematics. So I understand its seductiveness to people with large mathematical gifts. It just had a difficulty in that the fundamental assumption did not tie properly to reality.
Again, to the man with a hammer, every problem looks like a nail. If you're good at manipulating higher mathematics in a consistent way, why not make an assumption which enables you to use your tool?
The model I like—to sort of simplify the notion of what goes on in a market for common stocks—is the pari-mutuel system at the racetrack. If you stop to think about it, a pari-mutuel system is a market. Everybody goes there and bets and the odds change based on what's bet. That's what happens in the stock market.
Any damn fool can see that a horse carrying a light weight with a wonderful win rate and a good post position etc., etc. is way more likely to win than a horse with a terrible record and extra weight and so on and so on. But if you look at the odds, the bad horse pays 100 to 1, whereas the good horse pays 3 to 2. Then it's not clear which is statistically the best bet using the mathematics of Fermat and Pascal. The prices have changed in such a way that it's very hard to beat the system.
And then the track is taking 17% off the top. So not only do you have to outwit all the other betters, but you've got to outwit them by such a big margin that on average, you can afford to take 17% of your gross bets off the top and give it to the house before the rest of your money can be put to work.
Given those mathematics, is it possible to beat the horses only using one's intelligence? Intelligence should give some edge, because lots of people who don't know anything go out and bet lucky numbers and so forth. Therefore, somebody who really thinks about nothing but horse performance and is shrewd and mathematical could have a very considerable edge, in the absence of the frictional cost caused by the house take.
Unfortunately, what a shrewd horseplayer's edge does in most cases is to reduce his average loss over a season of betting from the 17% that he would lose if he got the average result to maybe 10%. However, there are actually a few people who can beat the game after paying the full 17%.
I used to play poker when I was young with a guy who made a substantial living doing nothing but bet harness races.... Now, harness racing is a relatively inefficient market. You don't have the depth of intelligence betting on harness races that you do on regular races. What my poker pal would do was to think about harness races as his main profession. And he would bet only occasionally when he saw some mispriced bet available. And by doing that, after paying the full handle to the house—which I presume was around 17%—he made a substantial living.
You have to say that's rare. However, the market was not perfectly efficient. And if it weren't for that big 17% handle, lots of people would regularly be beating lots of other people at the horse races. It's efficient, yes. But it's not perfectly efficient. And with enough shrewdness and fanaticism, some people will get better results than others.
The stock market is the same way—except that the house handle is so much lower. If you take transaction costs—the spread between the bid and the ask plus the commissions—and if you don't trade too actively, you're talking about fairly low transaction costs. So that with enough fanaticism and enough discipline, some of the shrewd people are going to get way better results than average in the nature of things.
It is not a bit easy. And, of course, 50% will end up in the bottom half and 70% will end up in the bottom 70%. But some people will have an advantage. And in a fairly low transaction cost operation, they will get better than average results in stock picking.
How do you get to be one of those who is a winner—in a relative sense—instead of a loser?
Here again, look at the pari-mutuel system. I had dinner last night by absolute accident with the president of Santa Anita. He says that there are two or three betters who have a credit arrangement with them, now that they have off-track betting, who are actually beating the house. They're sending money out net after the full handle—a lot of it to Las Vegas, by the way—to people who are actually winning slightly, net, after paying the full handle. They're that shrewd about something with as much unpredictability as horse racing.
And the one thing that all those winning betters in the whole history of people who've beaten the pari-mutuel system have is quite simple. They bet very seldom.
It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it—who look and sift the world for a mispriced be—that they can occasionally find one.
And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple.
That is a very simple concept. And to me it's obviously right—based on experience not only from the pari-mutuel system, but everywhere else.
And yet, in investment management, practically nobody operates that way. We operate that way—I'm talking about Buffett and Munger. And we're not alone in the world. But a huge majority of people have some other crazy construct in their heads. And instead of waiting for a near cinch and loading up, they apparently ascribe to the theory that if they work a little harder or hire more business school students, they'll come to know everything about everything all the time.
To me, that's totally insane. The way to win is to work, work, work, work and hope to have a few insights.
How many insights do you need? Well, I'd argue: that you don't need many in a lifetime. If you look at Berkshire Hathaway and all of its accumulated billions, the top ten insights account for most of it. And that's with a very brilliant man—Warren's a lot more able than I am and very disciplined—devoting his lifetime to it. I don't mean to say that he's only had ten insights. I'm just saying, that most of the money came from ten insights.
So you can get very remarkable investment results if you think more like a winning pari-mutuel player. Just think of it as a heavy odds against game full of craziness with an occasional mispriced something or other. And you're probably not going to be smart enough to find thousands in a lifetime. And when you get a few, you really load up. It's just that simple.
When Warren lectures at business schools, he says, "I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime. And once you'd punched through the card, you couldn't make any more investments at all."
He says, "Under those rules, you'd really think carefully about what you did and you'd be forced to load up on what you'd really thought about. So you'd do so much better."
Again, this is a concept that seems perfectly obvious to me. And to Warren it seems perfectly obvious. But this is one of the very few business classes in the U.S. where anybody will be saying so. It just isn't the conventional wisdom.
To me, it's obvious that the winner has to bet very selectively. It's been obvious to me since very early in life. I don't know why it's not obvious to very many other people.
I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, "My God, they're purple and green. Do fish really take these lures?" And he said, "Mister, I don't sell to fish."
Investment managers are in the position of that fishing tackle salesman. They're like the guy who was selling salt to the guy who already had too much salt. And as long as the guy will buy salt, why they'll sell salt. But that isn't what ordinarily works for the buyer of investment advice.
If you invested Berkshire Hathaway-style, it would be hard to get paid as an investment manager as well as they're currently paid—because you'd be holding a block of Wal-Mart and a block of Coca-Cola and a block of something else. You'd just sit there. And the client would be getting rich. And, after a while, the client would think, "Why am I paying this guy half a percent a year on my wonderful passive holdings?"
So what makes sense for the investor is different from what makes sense for the manager. And, as usual in human affairs, what determines the behavior are incentives for the decision maker.
From all business, my favorite case on incentives is Federal Express. The heart and soul of their system—which creates the integrity of the product—is having all their airplanes come to one place in the middle of the night and shift all the packages from plane to plane. If there are delays, the whole operation can't deliver a product full of integrity to Federal Express customers.
And it was always screwed up. They could never get it done on time. They tried everything—moral suasion, threats, you name it. And nothing worked.
Finally, somebody got the idea to pay all these people not so much an hour, but so much a shift—and when it's all done, they can all go home. Well, their problems cleared up overnight.
So getting the incentives right is a very, very important lesson. It was not obvious to Federal Express what the solution was. But maybe now, it will hereafter more often be obvious to you.
All right, we've now recognized that the market is efficient as a pari-mutuel system is efficient with the favorite more likely than the long shot to do well in racing, but not necessarily give any betting advantage to those that bet on the favorite.
In the stock market, some railroad that's beset by better competitors and tough unions may be available at one-third of its book value. In contrast, IBM in its heyday might be selling at 6 times book value. So it's just like the pari-mutuel system. Any damn fool could plainly see that IBM had better business prospects than the railroad. But once you put the price into the formula, it wasn't so clear anymore what was going to work best for a buyer choosing between the stocks. So it's a lot like a pari-mutuel system. And, therefore, it gets very hard to beat.
What style should the investor use as a picker of common stocks in order to try to beat the market—in other words, to get an above average long-term result? A standard technique that appeals to a lot of people is called "sector rotation". You simply figure out when oils are going to outperform retailers, etc., etc., etc. You just kind of flit around being in the hot sector of the market making better choices than other people. And presumably, over a long period of time, you get ahead.
However, I know of no really rich sector rotator. Maybe some people can do it. I'm not saying they can't. All I know is that all the people I know who got rich—and I know a lot of them—did not do it that way.
The second basic approach is the one that Ben Graham used—much admired by Warren and me. As one factor, Graham had this concept of value to a private owner—what the whole enterprise would sell for if it were available. And that was calculable in many cases.
Then, if you could take the stock price and multiply it by the number of shares and get something that was one third or less of sellout value, he would say that you've got a lot of edge going for you. Even with an elderly alcoholic running a stodgy business, this significant excess of real value per share working for you means that all kinds of good things can happen to you. You had a huge margin of safety—as he put it—by having this big excess value going for you.
But he was, by and large, operating when the world was in shell shock from the 1930s—which was the worst contraction in the English-speaking world in about 600 years. Wheat in Liverpool, I believe, got down to something like a 600-year low, adjusted for inflation. People were so shell-shocked for a long time thereafter that Ben Graham could run his Geiger counter over this detritus from the collapse of the 1930s and find things selling below their working capital per share and so on.
And in those days, working capital actually belonged to the shareholders. If the employees were no longer useful, you just sacked them all, took the working capital and stuck it in the owners' pockets. That was the way capitalism then worked.
Nowadays, of course, the accounting is not realistic because the minute the business starts contracting, significant assets are not there. Under social norms and the new legal rules of the civilization, so much is owed to the employees that, the minute the enterprise goes into reverse, some of the assets on the balance sheet aren't there anymore.
Now, that might not be true if you run a little auto dealership yourself. You may be able to run it in such a way that there's no health plan and this and that so that if the business gets lousy, you can take your working capital and go home. But IBM can't, or at least didn't. Just look at what disappeared from its balance sheet when it decided that it had to change size both because the world had changed technologically and because its market position had deteriorated.
And in terms of blowing it, IBM is some example. Those were brilliant, disciplined people. But there was enough turmoil in technological change that IBM got bounced off the wave after "surfing" successfully for 60 years. And that was some collapse—an object lesson in the difficulties of technology and one of the reasons why Buffett and Munger don't like technology very much. We don't think we're any good at it, and strange things can happen.
At any rate, the trouble with what I call the classic Ben Graham concept is that gradually the world wised up and those real obvious bargains disappeared. You could run your Geiger counter over the rubble and it wouldn't click.
But such is the nature of people who have a hammer—to whom, as I mentioned, every problem looks like a nail that the Ben Graham followers responded by changing the calibration on their Geiger counters. In effect, they started defining a bargain in a different way. And they kept changing the definition so that they could keep doing what they'd always done. And it still worked pretty well. So the Ben Graham intellectual system was a very good one.
Of course, the best part of it all was his concept of "Mr. Market". Instead of thinking the market was efficient, he treated it as a manic-depressive who comes by every day. And some days he says, "I'll sell you some of my interest for way less than you think it's worth." And other days, "Mr. Market" comes by and says, "I'll buy your interest at a price that's way higher than you think it's worth." And you get the option of deciding whether you want to buy more, sell part of what you already have or do nothing at all.
To Graham, it was a blessing to be in business with a manic-depressive who gave you this series of options all the time. That was a very significant mental construct. And it's been very useful to Buffett, for instance, over his whole adult lifetime.
However, if we'd stayed with classic Graham the way Ben Graham did it, we would never have had the record we have. And that's because Graham wasn't trying to do what we did.
For example, Graham didn't want to ever talk to management. And his reason was that, like the best sort of professor aiming his teaching at a mass audience, he was trying to invent a system that anybody could use. And he didn't feel that the man in the street could run around and talk to managements and learn things. He also had a concept that the management would often couch the information very shrewdly to mislead. Therefore, it was very difficult. And that is still true, of course—human nature being what it is.
And so having started out as Grahamites which, by the way, worked fine—we gradually got what I would call better insights. And we realized that some company that was selling at 2 or 3 times book value could still be a hell of a bargain because of momentums implicit in its position, sometimes combined with an unusual managerial skill plainly present in some individual or other, or some system or other.
And once we'd gotten over the hurdle of recognizing that a thing could be a bargain based on quantitative measures that would have horrified Graham, we started thinking about better businesses.
And, by the way, the bulk of the billions in Berkshire Hathaway have come from the better businesses. Much of the first $200 or $300 million came from scrambling around with our Geiger counter. But the great bulk of the money has come from the great businesses.
And even some of the early money was made by being temporarily present in great businesses. Buffett Partnership, for example, owned American Express and Disney when they got pounded down.
Most investment managers are in a game where the clients expect them to know a lot about a lot of things. We didn't have any clients who could fire us at Berkshire Hathaway. So we didn't have to be governed by any such construct. And we came to this notion of finding a mispriced bet and loading up when we were very confident that we were right. So we're way less diversified. And I think our system is miles better.
However, in all fairness, I don't think a lot of money managers could successfully sell their services if they used our system. But if you're investing for 40 years in some pension fund, what difference does it make if the path from start to finish is a little more bumpy or a little different than everybody else's so long as it's all going to work out well in the end? So what if there's a little extra volatility.
In investment management today, everybody wants not only to win, but to have a yearly outcome path that never diverges very much from a standard path except on the upside. Well, that is a very artificial, crazy construct. That's the equivalent in investment management to the custom of binding the feet of Chinese women. It's the equivalent of what Nietzsche meant when he criticized the man who had a lame leg and was proud of it.
That is really hobbling yourself. Now, investment managers would say, "We have to be that way. That's how we're measured." And they may be right in terms of the way the business is now constructed. But from the viewpoint of a rational consumer, the whole system's "bonkers" and draws a lot of talented people into socially useless activity.
And the Berkshire system is not "bonkers". It's so damned elementary that even bright people are going to have limited, really valuable insights in a very competitive world when they're fighting against other very bright, hardworking people.
And it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times. You're much more likely to do well if you start out to do something feasible instead of something that isn't feasible. Isn't that perfectly obvious?
How many of you have 56 brilliant ideas in which you have equal confidence? Raise your hands, please. How many of you have two or three insights that you have some confidence in? I rest my case.
I'd say that Berkshire Hathaway's system is adapting to the nature of the investment problem as it really is.
We've really made the money out of high quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money's been made in the high quality businesses. And most of the other people who've made a lot of money have done so in high quality businesses.
Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result.
So the trick is getting into better businesses. And that involves all of these advantages of scale that you could consider momentum effects.
How do you get into these great companies? One method is what I'd call the method of finding them small get 'em when they're little. For example, buy Wal-Mart when Sam Walton first goes public and so forth. And a lot of people try to do just that. And it's a very beguiling idea. If I were a young man, I might actually go into it.
But it doesn't work for Berkshire Hathaway anymore because we've got too much money. We can't find anything that fits our size parameter that way. Besides, we're set in our ways. But I regard finding them small as a perfectly intelligent approach for somebody to try with discipline. It's just not something that I've done.
Finding 'em big obviously is very hard because of the competition. So far, Berkshire's managed to do it. But can we continue to do it? What's the next Coca-Cola investment for us? Well, the answer to that is I don't know. I think it gets harder for us all the time....
And ideally and we've done a lot of this—you get into a great business which also has a great manager because management matters. For example, it's made a great difference to General Electric that Jack Welch came in instead of the guy who took over Westinghouse—a very great difference. So management matters, too.
And some of it is predictable. I do not think it takes a genius to understand that Jack Welch was a more insightful person and a better manager than his peers in other companies. Nor do I think it took tremendous genius to understand that Disney had basic momentums in place which are very powerful and that Eisner and Wells were very unusual managers.
So you do get an occasional opportunity to get into a wonderful business that's being run by a wonderful manager. And, of course, that's hog heaven day. If you don't load up when you get those opportunities, it's a big mistake.
Occasionally, you'll find a human being who's so talented that he can do things that ordinary skilled mortals can't. I would argue that Simon Marks—who was second generation in Marks & Spencer of England—was such a man. Patterson was such a man at National Cash Register. And Sam Walton was such a man.
These people do come along—and in many cases, they're not all that hard to identify. If they've got a reasonable hand—with the fanaticism and intelligence and so on that these people generally bring to the party—then management can matter much.
However, averaged out, betting on the quality of a business is better than betting on the quality of management. In other words, if you have to choose one, bet on the business momentum, not the brilliance of the manager.
But, very rarely, you find a manager who's so good that you're wise to follow him into what looks like a mediocre business.
Another very simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you're going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end, the way that works out is that after taxes, you keep 13.3% per annum.
In contrast, if you bought the same investment, but had to pay taxes every year of 35% out of the 15% that you earned, then your return would be 15% minus 35% of 15%—or only 9.75% per year compounded. So the difference there is over 3.5%. And what 3.5% does to the numbers over long holding periods like 30 years is truly eye-opening. If you sit back for long, long stretches in great companies, you can get a huge edge from nothing but the way that income taxes work.
Even with a 10% per annum investment, paying a 35% tax at the end gives you 8.3% after taxes as an annual compounded result after 30 years. In contrast, if you pay the 35% each year instead of at the end, your annual result goes down to 6.5%. So you add nearly 2% of after-tax return per annum if you only achieve an average return by historical standards from common stock investments in companies with tiny dividend payout ratios.
But in terms of business mistakes that I've seen over a long lifetime, I would say that trying to minimize taxes too much is one of the great standard causes of really dumb mistakes. I see terrible mistakes from people being overly motivated by tax considerations.
Warren and I personally don't drill oil wells. We pay our taxes. And we've done pretty well, so far. Anytime somebody offers you a tax shelter from here on in life, my advice would be don't buy it.
In fact, any time anybody offers you anything with a big commission and a 200-page prospectus, don't buy it. Occasionally, you'll be wrong if you adopt "Munger's Rule". However, over a lifetime, you'll be a long way ahead—and you will miss a lot of unhappy experiences that might otherwise reduce your love for your fellow man.
There are huge advantages for an individual to get into a position where you make a few great investments and just sit back and wait: You're paying less to brokers. You're listening to less nonsense. And if it works, the governmental tax system gives you an extra 1, 2 or 3 percentage points per annum compounded.
And you think that most of you are going to get that much advantage by hiring investment counselors and paying them 1% to run around, incurring a lot of taxes on your behalf'? Lots of luck.
Are there any dangers in this philosophy? Yes. Everything in life has dangers. Since it's so obvious that investing in great companies works, it gets horribly overdone from time to time. In the "Nifty-Fifty" days, everybody could tell which companies were the great ones. So they got up to 50, 60 and 70 times earnings. And just as IBM fell off the wave, other companies did, too. Thus, a large investment disaster resulted from too high prices. And you've got to be aware of that danger....
So there are risks. Nothing is automatic and easy. But if you can find some fairly-priced great company and buy it and sit, that tends to work out very, very well indeed—especially for an individual,
Within the growth stock model, there's a sub-position: There are actually businesses, that you will find a few times in a lifetime, where any manager could raise the return enormously just by raising prices—and yet they haven't done it. So they have huge untapped pricing power that they're not using. That is the ultimate no-brainer.
That existed in Disney. It's such a unique experience to take your grandchild to Disneyland. You're not doing it that often. And there are lots of people in the country. And Disney found that it could raise those prices a lot and the attendance stayed right up.
So a lot of the great record of Eisner and Wells was utter brilliance but the rest came from just raising prices at Disneyland and Disneyworld and through video cassette sales of classic animated movies.
At Berkshire Hathaway, Warren and I raised the prices of See's Candy a little faster than others might have. And, of course, we invested in Coca-Cola—which had some untapped pricing power. And it also had brilliant management. So a Goizueta and Keough could do much more than raise prices. It was perfect.
You will get a few opportunities to profit from finding underpricing. There are actually people out there who don't price everything as high as the market will easily stand. And once you figure that out, it's like finding in the street—if you have the courage of your convictions.
If you look at Berkshire's investments where a lot of the money's been made and you look for the models, you can see that we twice bought into twonewspaper towns which have since become onenewspaper towns. So we made a bet to some extent....
In one of those—The Washington Post—we bought it at about 20% of the value to a private owner. So we bought it on a Ben Grahamstyle basis—at onefifth of obvious value—and, in addition, we faced a situation where you had both the top hand in a game that was clearly going to end up with one winner and a management with a lot of integrity and intelligence. That one was a real dream. They're very high class people—the Katharine Graham family. That's why it was a dream—an absolute, damn dream.
Of course, that came about back in '73-74. And that was almost like 1932. That was probably a once-in-40-yearstype denouement in the markets. That investment's up about 50 times over our cost.
If I were you, I wouldn't count on getting any investment in your lifetime quite as good as The Washington Post was in '73 and '74.
But it doesn't have to be that good to take care of you.
Let me mention another model. Of course, Gillette and Coke make fairly lowpriced items and have a tremendous marketing advantage all over the world. And in Gillette's case, they keep surfing along new technology which is fairly simple by the standards of microchips. But it's hard for competitors to do.
So they've been able to stay constantly near the edge of improvements in shaving. There are whole countries where Gillette has more than 90% of the shaving market.
GEICO is a very interesting model. It's another one of the 100 or so models you ought to have in your head. I've had many friends in the sick business fixup game over a long lifetime. And they practically all use the following formula—I call it the cancer surgery formula:
They look at this mess. And they figure out if there's anything sound left that can live on its own if they cut away everything else. And if they find anything sound, they just cut away everything else. Of course, if that doesn't work, they liquidate the business. But it frequently does work.
And GEICO had a perfectly magnificent business submerged in a mess, but still working. Misled by success, GEICO had done some foolish things. They got to thinking that, because they were making a lot of money, they knew everything. And they suffered huge losses.
All they had to do was to cut out all the folly and go back to the perfectly wonderful business that was lying there. And when you think about it, that's a very simple model. And it's repeated over and over again.
And, in GEICO's case, think about all the money we passively made.... It was a wonderful business combined with a bunch of foolishness that could easily be cut out. And people were coming in who were temperamentally and intellectually designed so they were going to cut it out. That is a model you want to look for.
And you may find one or two or three in a long lifetime that are very good. And you may find 20 or 30 that are good enough to be quite useful.
Finally, I'd like to once again talk about investment management. That is a funny business because on a net basis, the whole investment management business together gives no value added to all buyers combined. That's the way it has to work.
Of course, that isn't true of plumbing and it isn't true of medicine. If you're going to make your careers in the investment management business, you face a very peculiar situation. And most investment managers handle it with psychological denial just like a chiropractor. That is the standard method of handling the limitations of the investment management process. But if you want to live the best sort of life, I would urge each of you not to use the psychological denial mode.
I think a select few—a small percentage of the investment managers—can deliver value added. But I don't think brilliance alone is enough to do it. I think that you have to have a little of this discipline of calling your shots and loading up—you want to maximize your chances of becoming one who provides above average real returns for clients over the long pull.
But I'm just talking about investment managers engaged in common stock picking. I am agnostic elsewhere. I think there may well be people who are so shrewd about currencies and this, that and the other thing that they can achieve good longterm records operating on a pretty big scale in that way. But that doesn't happen to be my milieu. I'm talking about stock picking in American stocks.
I think it's hard to provide a lot of value added to the investment management client, but it's not impossible. Biography - Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger
Notes - The Sure Thing (entrepreneur as predator) - New Yorker - Malcolm Gladwell - 1/18/2010
Great article by Gladwell, that shows the successful entrepreneur is not a risk taking, fool hardy person, but a rational predator who minimizes risk. Entrepreneurs make things happen but know why and how.
What makes or breaks a business.
"The entrepreneur has access to that deal by virtue of occupying a "structural hole," a niche that gives him a unique perspective on a particular market." What entrepreneurs see is opportunity not risk.
Read " From Predators to Icons" - Michael Villette and Catherine Vuillermot; " The Illusions of Entrepreneurship" - Scott Shane
"The Greatest Trade Ever"
"his focus throughout the sequence is on hedging his bets and minimizing his chances of failure. The truly successful businessman, in Villette and Vuillermot's telling, is anything but a risk taker. He is a predator, and predators seek to incur the least risk possible while hunting."
"Marty Gruss drilled a maxim into Paulson. ' watch the downside, the upside will take care of itself.'"
"Negative-carry trades are a 'maneuver' that investment pro's detest almost as much as much as high taxes and coach-class seating. Their problem with negative-carry is that if the trade doesn't pay off quickly it can become ruinously expensive."
Failed Businesses violate all kinds of established principles of new-business formation;
New business success is clearly correlated with the size of initial capitalization. Failed entrepreneur's tend to be wildly under capitalized. Data shows organizing as a corporation is best, failed entrepreneur's tend to sole proprietorships. Writing a business plan is a must. Failed businesses often skip this step.Taking over an existing business is always the best bet. Failed entrepreneur's prefer to start from scratch.
90% of the fastest growing businesses sell to other businesses; failed ones usually try to sell to direct consumers and rather than serving/ finding customers that other businesses have missed, the chase the same group as the competitors. Failed business under emphasize marketing. Failed businesses compete on price. Failed businesses don't understand the importance and need/ use of financial controls.
Some risks are unavoidable, you take them when you have no choice, but a good many actually reflect a lack of preparation and planning and foresight.
Taking excessive risks is a psychologically protective strategy: no one can blame you when you fail
Predator is often quite happy to put his reputation on the line in the pursuit of the sure thing.
Why are predators willing to endure abuse? They are sufficiently secure and confident that they don't need public approval.
Shane says that the average person would have to earn 2 1/2 times as much money to be happy working for someone else as he would be working for himself.
The predator is a rational actor - but deep down also a romantic, motivated by the simple joy found in the work.
Outliers: The Story of SuccessThe Tipping Point: How Little Things Can Make a Big DifferenceBlink: The Power of Thinking Without Thinking
What the Dog Saw: And Other Adventures
The Magic of Thinking Big
Notes on The Magic of Thinking Big by David Schwartz
Belief is the thremostat that regulates what we accomplish in life. (what you believe you can do, determines what you can do.) A person is the product of his or her own thoughts. This is a very simple and important point. How you think choses who you are and who you can be.
What really matters is not how smart you are but how you use what you know.
Stickability is 95% of ability.
Attitude is more important than intelligence.
1. Action cures fear - isolate your fear (why and what)/ then take action
2. Try to only put positive thoughts into memory
3. Be Balanced - put people and situations in perspective
4. Do what you know or what you feel is right
5. Be confident
be a front seater
make eye contact
walk 25% faster
The Magic of Thinking Big
List your 5 best assets and 3 people who have more success than you for each but maybe do not have your strengths. In other words, you is mor thatn you but less talented or intelligent, and then figure out why.
1. conquer self depreciation - don't sell yourself short
2. use big bright cheerful words
3. Stretch your vision ( in the box, out of the box, who said there was a box?)
4. Get the large, macro view of the world
5. Focus on big goals/ Objectives
If you believe it you brain finds ways to make it true
man/ woman belongs whereever they want to go
1. believe it, it can be done. if you believe it, you will find a way.
2. be receptive to new ideas, be experimental, do accept things as they are, but challange them
3. ask daily, how can I do better, be better
4. ask daily, how can I do more - capacity is a state of mind
5. practice asking and listening
6. stretch your mind, push it, get stimulated
(I like that CAPACITY IS A STATE OF MIND)
How you think determines how and who you are. How you act determines how others will react to you.
Practice self promise not self punishment.
(The world is hard enough on you and those around you, so make it easier and look out for yourself and others)
1. look important - it makes you think important
2. think your work is important
3. give yourself a pep talk daily
4. in every situation ask yourself, is this a good use of my time, is this how an important person would act/ think?
1. be environmentally conscious - just as a diet can affect how your body looks, a mind diet, what you put in your mind, affects how your mind works
2. make environment work for you
3. don't let small thinking people hold you back
4. get advice on success from successful people
5. get plenty of psychological sunshine
6. get poison out of your environment, avoid gossip
7. go first class, and think first class in everything
grow a enthusiastic attitude, dig deeper into things, life up everything, broadcast good news
Show other people you think they are important, use their name, show appreciation
Have a service first attitude
1. learn to remember names
2. be a comfortable person to be with
3. be easy going
4. don't be egotistical
5. be interesting to others
6. get the "swarmy" elements of your personality out
7. try to heal every misunderstanding you have
8. like people, genuinely, they can tell
9. never miss a chance to say congratulations
10. give spiritual strength to people
introduce yourself every chance you get
make sure they get your name straight
make sure you can pronounce their name
write down the other persons name, make sure you spell it right
drop a note or call the new person
be pleasant to strangers
Every day thousands of people bury good ideas because they are afraid to act on them. The ghosts of these ideas come back to haunt you.
be a doer/ take action
don't wait until conditions are right, they never will be
ideas have value only when you act on them
use action to cure fear and boost confidence
start your mental engine - dig in - work it out
think in terms of now
get to business fast
seize the initiative - take the ball and run
salvage something from every setback - study them
be your own constructive critic
stop blaming luck
blend persistence with experimentation
there is a good side in every situation - find it
Remember, it is not important where you are or were, but what matters is where you want to be.
get a clear fix ion where you want to go
write a 10 year plan
surrender yourself to your designs, set goals to get more energy
let your major goal be your auto pilot
achieve your goal one step at a time
build 30 day goals, day by day, effort pays off
in vest in yourself
The Magic of Thinking Big
Rework Notes - 37 Signals
Rework (See all Success Books)
The book is good, and the company is well run and has some amazing products, but I liked Get Real, which for programmers (I am not one) and it had a way of using programming as a metaphor for business. Rework is good, and full of business tips, but lacks the depth. It is a book of pointers, and it has some very good points, but it lacks the overall vision. I am a big fan of the other book, Get Real, by 37 signals, and this book is in the same vein, and has some good points, but I liked Get Real more, and actually think it is the better business book.
One thing that bothered me about Rework, is that a company who does so well at clean and simple, managed to fill a book with bad pictures that really add nothing. The actual content is well done, but probably fills a third of the book, the rest is white page or the pictures apparently made in sharpie, their favorite pen. It could have been a great simple book, and it tries but it is not as well thought out and executed as their software.
There is no such thing as the real world, there is no ideal model. Forget perfect, forget accepted, do what works. Planning is guessing, the longer the timeline, the more useless, estimates are always wrong.
Failure happens, but success teaches you what works. I truly do not learning any thing from what things work well, but I learn enormous amounts watching others and myself fail. Mistakes are just express trains to the answer.
Growing for no reason is ridiculous. Work smart, but have a life. Make a dent in the universe, do something that matters, make stand, believe in it and live it. Your products should be what you need. Make what matters to you, what you need, designing for others is guessing, and as mentioned before, guessing is useless.
ideas are just ideas, and are not valuable. action is valuable, doing something is valuable. This has been the hardest lesson to learn. Ideas are cheap. Execution is all that matters.
No time means you have no plan. It means you have no priorities, no thoughts on what is valuable to your business and your life.
Avoid outside money, the costs are too high, you need less than you think, you are making a business, not a start up.
Keep it simple and lean. Constraints are good, they force creativity. Do the stuff you have to do for your product, ignore details, and get it out there, launch quickly and then respond, decisions and actions are progress, focus on what won't change, don't follow fashion.
Practice, hard work, pays off.
Sell your byproducts. aka the book. I think they are brilliant at finding solutions and getting down to what works, and they always remember, it is a business.
Interruption is the enemy of productivity/ meetings are useless. Focus focus focus.
Go for quick wins, make quick tiny decisions. Make things happen, now.
Don't be a same as, or copy, make a stand, make sure your product isn't a commodity even when it is (zappos), make it you. Make your product what it needs to be, under do, make it simple, robust, and fast.
Don't outspend your competition, out teach them, don't let everyone define you, you define you, thinks chefs, they all cook with the same ingredients, but a select few can add their personality to make it more. people can read fake and they respond to real. Everyone and every part of a business is marketing, make the business always reflect what you stand for
Hire when it hurts, and hire the person, the attitude, not the background, not the resume. I live this one. Skills can be taught, but attitudes are who they are.
Decisions are temporary. By far my favorite.
Richard Branson - Losing My Virginity - notes
Losing My Virginity: How I've Survived, Had Fun, and Made a Fortune Doing Business My Way (See allBusiness & Investing Books)
What does Richard Branson think money is for?
Money's sole purpose is to make things happen.
"Later, it became apparent to me that businesses could be a creative enterprise in itself. If you publish a magazine, you're trying to create something that will last and serve some useful purpose. Above all, you want to create something you are proud of.
That has always been my philosophy of business. I can honestly say that I have never gone into any business purely to make money. If that is the sole motive, then I believe you are better off not doing it. A business has to be involving, it has to be fun. and it has to exercise your creative instincts."
After reading about Branson's battle with British Airways, I am believing that perhaps those that have large wealth are really just people who went into a competition that is incredibly difficult, one they shouldn't win, one that is almost impossible, and then just be tenacious enough, stubborn enough, to not stop when others have quit.
People take music far more seriously than may other things in life. It is part of how they define themselves.
How to find opportunities? Look for a way around the system - that is where the money is. If you believe in an idea, you do what it takes to make it happen. An idea with no action remains just that.
To be profitable, to make money, the skill is not in the selling, it is in the buying. You buy the right thing at the right price, you win.
For retail property always look for the cheaper end of a high end street, and watch the invisible lines.
He keeps his notes in a simple school spiral notebook where he writes down his ideas, peoples comments, and his schedule.
He believes in long term objectives - he always wants capital growth, not dividends.
He believes that it is only the bold move that will get you anywhere. You need to be a risk taker, and the art of risk is to protect the downside. Learn all you can about risk, how it works, then you relate to it. Instead of a long list of fears, it all comes down to whether it will work or not. Then what?
Branson makes decisions on people and businesses in thirty seconds, counting on intuition more than numbers. For success he usually tracks two simple numbers, for example the price of fuel and the number of passengers for Virgin Airlines.
Losing My Virginity: How I've Survived, Had Fun, and Made a Fortune Doing Business My Way (See allBusiness & Investing Books)
"Every successful business man has failed at some ventures, and most entrepreneurs who have run their own companies have been declared bankrupt at least once."
Whenever one of his businesses have positive cash flow, he looks for something else to do or buy.
Richard Branson takes the skills learned at one industry and applies them at another. He adds element after element, business add-on after business add-on. Virgin is a collection of small companies that are a collection of solutions to problems Branson had. He will take an idea and once it works take that idea to another industry. He has a weakness for vertical integration.
Second choice mans nothing, you ant to be the first choice, always.
Make your copyrights as long a possible. Once you have a great product, you have to protect its reputation with vigilance.
One of my favorite lines, I want to be one of the great amateurs of all time.
Losing My Virginity: How I've Survived, Had Fun, and Made a Fortune Doing Business My Way (See allBusiness & Investing Books)
Richard Branson's Condensed Business Wisdom
He keeps his business units small. If they get too big, he breaks them up. That way they stay fast and responsive. Small also means if something goes wrong with a unit, it doesn't take down the whole business.
When he picks a business he simply thinks, is it something he would want?
Branson loves risk. My favorite story is one where a man comes to his house and knocks on Branson's front door. He is an inventor, and he has just created a flying machine that you strap on, and he has never flown it, but if Branson would invest, he could fine tune and make it work. Branson listened. He strapped it on, turned it on, accidently launched himself up into the air, now the machine had never flown. He had no idea how to steer or land, and finally landed the craft. He liked it, and the inventor the next day, took the unit up like Branson and dies trying to land.
Would you risk your life on a strange machine you can't fly from a person you don't know?
Losing My Virginity: How I've Survived, Had Fun, and Made a Fortune Doing Business My Way (See allBusiness & Investing Books)
10-Minute Toughness by Jason Selk ( http://www.enhancedperformanceinc.com/)
10-Minute Toughness: The Mental Training Program for Winning Before the Game Begins
This is one of those books that you really debate whether to buy, but after reading it, and making a lot of notes and highlights, I will simply say buy it.
I find myself using the breathing technique all the time, and I found the exercises to be worth thinking about and doing.There are some parts that are a little simple, and there is some repetition but over all this is a good solid book.
I have noticed that one trait that truly successful people have in common is that they have developed and maintained a solution-focused approach in their careers and in life.
You need to always ask yourself, every time you encounter each opportunity - What is one thing I can do that could make this better? Always have a solution on the board: A results-driven model that identifies the biological and environmental obstacles to achieving greatness. What is one thing I can do that could make this better?: A concrete method of overcoming all obstacles and making success a permanent state.
An effective way to control heart rate is to use a "centering breath" before and during competition. The centering breath, often referred to as a "diaphragm breath," is a long, deep inhalation of air into the diaphragm. Inhaling air into the diaphragm is a biological tool that helps control the heart rate. Taking a deep, centering breath allows individuals to keep their heart rate under control and perform at a more effective pace.
I have tried to simplify diaphragm breathing by qualifying a good centering breath as one that lasts fifteen seconds. The formula is 6-2-7: breathe in for six seconds, hold for two, and breathe out for seven seconds.
The heart rate is a primary control of a person’s arousal state. It is important to control heart rate because using the mind effectively becomes increasingly more difficult as the heart rate rises. Once the rate gets to 120 beats per minute, the mind will not be nearly as sharp (unless proper conditioning and mental training has occurred), and at about 150 beats per minute, the mind will essentially shut down and go into survival mode.
Do not focus on results but stay in the moment and execute one skill at a time, one routine at a time.
If we do not choose our thoughts carefully, they can (and many times do) have a negative impact on performance.
"One skill at a time, one routine at a time."
When athletes keep their minds focused on positive performance cues, they are more likely to experience success.
10-Minute Toughness: The Mental Training Program for Winning Before the Game Begins
A performance statement is a type of self-talk designed to help athletes zoom in on one specific thought to enhance performance consistency. It is a simple, yet concrete, thought that specifically identifies the process of success, or what it takes to perform at your best. The key is to identify the single most fundamental idea of what it takes for you to be successful to allow you to simplify the game.
For the majority of athletes, mental clutter usually occurs because individuals do not know what they should be thinking.
Mental toughness is abnormal, just as physical strength is abnormal. We are born without much muscle development. As we grow, if we don’t emphasize physical fitness, we will not develop appreciable strength. In that sense, it is somewhat abnormal to be physically strong. The same is true for mental toughness: most people don’t commit to replacing their negative thoughts with positive thinking.
In my opinion, the essence of mental toughness is the ability to replace negative thinking with thoughts that are centered on performance cues or that contribute to improved self-confidence.
The most helpful method to stop self-doubt and negative thinking is thought replacement. Effective thought replacement occurs when you decide what you want to have happen and then think more often about what it will take to make it happen.
Replace all thoughts of self-doubt or negativity with thoughts of what it is that you want, and you will be much more likely to have those things occur.
If you determine what you want to accomplish in any given situation and then lock your mind on what it takes to achieve that goal, you will have a much better chance of reaping the rewards.
As often as possible, choose to think about the path to success rather than the obstacles in your way. You have to decide what you want and then put your energy into acquiring it.
Cognitive psychology has taught us that the mind can fully focus on only one item at a time.
In short, if you are thinking about what is going wrong in your life, you cannot be thinking about what it takes to make it right. The most effective way to avoid self-doubt and mental clutter is to replace the negative thoughts with specific positive thoughts.
Listen first; then decide; be swift and confident.
10-Minute Toughness: The Mental Training Program for Winning Before the Game Begins
Note: see yourself as a advisor to yourself. what would you say to someone else in your position. in my case I would say be what you want to be not what someone wants you to be
Self-image is internally constructed: we can decide how we view ourselves. The experience I had with Jenny taught me very early the powerful impact of maintaining a positive self-image. Each of us chooses how we see ourselves. Creating and using a positive identity statement will help you choose a powerful self-image. Largely what determines people’s self-image is the things they continually say to themselves,
Simply put, the individual who steps up to the starting line with a true belief in his or her ability to do well has a much greater likelihood of success than those who don’t have that mind-set.
In a revised version of Dr. Maxwell Maltz’s work Psycho-Cybernetics, testimonies from top athletes such as Jack Nicklaus and Payne Stewart and coaches such as Pat Riley and Phil Jackson support Maltz’s position regarding the powerful impact that self-image has on athletic performance. Self-image is not mental trickery; it is a scientifically proven agent of control.
The key is to create the self-image desired—decide who you want to be and how you want to live—and then continuously tell yourself that you have what it takes to be that person. The self-image will guide and direct actions and behaviors until the self-image becomes the reality.
In the words of Maxwell Maltz, "You will act like the sort of person you conceive yourself to be. More important, you literally cannot act otherwise, in spite of all your conscious efforts or willpower. This is why trying to achieve something difficult with teeth gritted is a losing battle. Willpower is not the answer. Self-image management is.
Stop thinking about what you can’t do and start thinking about you want to do.
Remember: the centering breath is a deep breath used to physiologically control heart rate and arousal. Taking a centering breath at the end of the mental workout is necessary for athletes because completing the personal highlight reel may cause the heart rate and arousal state to elevate. You always want to feel calm, confident, and relaxed up to the point of competition.
it is possible to overdue mental work. I tell athletes that doing the mental workout one time a day is great. Some clients prefer to do it a couple of times a day, and that is OK, but there is no need to do it more than twice a day.
Let’s take this opportunity to review the five tools in the mental workout before we move forward. First is the centering breath, which will take you fifteen seconds. Then you recite to yourself your performance statement, a self-statement designed to improve your focus on what it takes (process of success) to be successful; this should take about five seconds. In the third step, you run through your personal highlight reel, comprising three sixty-second clips of visualizations, for three minutes total. When your personal highlight reel is over, you deliver to yourself your identity statement, a self-statement to help you focus on developing the self-image you desire; as with the performance statement, this will take five seconds. You finish the mental workout with another fifteen-second centering breath.
The three concepts that turn ordinary goal setting into effective goal setting are these:
Process goals produce results
No excuses; go public
Keep goals alive, and live the dream
The three levels, or types, of goals that I discuss with clients are ultimate goals, product goals, and process goals
Ultimate goals are the culmination of what you want to accomplish and how you want to accomplish it. When identifying your ultimate goals, imagine being able to look into the future and witness your retirement dinner.
Product goals are result-oriented goals. They are clearly measurable and usually are most effective if they emphasize accomplishments in the next twelve months.
Process goals are the "what it takes" to achieve the product goals you set. Process goals also must be specific enough to be measurable.
It is important to write your goals down and let others know of your intentions. The act of writing down as well as talking about your goals makes them more a part of your reality. The more you can see and recite your goals, the more steadily they move from your subconscious into your awareness.
"Never make excuses. Your friends won’t need them, and your foes won’t believe them.
Excuses promote underachieving.
For goals to work, they must become a part of daily training.
The 10-MT goal-setting plan is a three-step process: 1. Further on in this book, you will take a few minutes to write down your ultimate goals. Remember that ultimate goals are the summary accomplishments you want from your sport and how you want to be remembered as going about achieving those accomplishments. Additionally, you will set two product goals for the upcoming season, including three process goals needed to help achieve each of the product goals. 2. After practices and games, you will take about three to four minutes to fill out a Success Log. The Success Logs ask athletes to answer the following questions: What three things did I do well today? Based on today’s performance, what do I want to improve? What is one thing I can do differently that could lead to the desired improvement? 3. Just before doing your mental workout, you will take one minute to review your Success Log entries from the previous day. Looking over your log just before going through your mental work will steer you to emphasize your improvement goals in your mental workout. Hence, the power of goals will be more alive in each and every practice and competition.
There are four steps you will need to take to personally tailor your 10-MT goal-setting program: Identify what your ultimate accomplishment would be. Determine the specific accomplishments (product goals) necessary to achieve your ultimate goal. For each accomplishment, identify what it will take on your part (process goals) to achieve the goal. Determine the personal sacrifices and character strengths required to live out your dream.
Defining your personal vision is essential to selecting the right goals. If you do not invest a little time to figure out with some precision who you want to be and how you want to live, you may well select goals to which you will not stay committed.
Consider using a methodology for choosing goals that Tal Ben-Shahar endorses. Dr. Ben-Shahar’s course on positive psychology has become one of Harvard’s most popular courses. In his book Happier, he outlines a process of selecting goals that produce happiness: First, make a list of all the activities that you know you are good at. Second, of all the activities you are good at, make note of those activities that you enjoy doing. Then go even further by selecting the activities from that list that you really like to do. Once you have that list, go one step further and note the activities that you really, really like to do. Those are the activities on which you should focus.
The 10-MT personal rewards program allows individuals to identify the specific type of motivation needed for optimal personal success. Distinguishing between material rewards and experiential rewards helps determine what combination balance works best. Additionally, it is helpful to be able to call on a supporting mentor, coach, or parent as you strive toward your ultimate goal.
Set goals that will lead to greatness, and you will maximize your athletic potential. It is also important to set new goals once a goal is achieved.
College basketball coach Rick Pitino noted that the difference between dreams and goals is that dreams are where we want to end up and goals are how we get there.
This doesn’t mean you train during every waking hour, day in and day out. For one thing, it is necessary to incorporate rest into training cycles. What it does mean is that if you know of something that would help your training and competitive performance, you owe it to yourself to at least test it
The two keys to being fully prepared and having unwavering confidence in yourself are, first, to put the time and energy into doing everything you know you need to do to be prepared and, second, to be aware that you are fully prepared.
I am a firm believer in the precept that winning versus losing is determined more on training days than on game days.
I think the person or team who prepares more fully in training wins more often.
From a training standpoint, I use the MP100 + 20 approach for work ethic and training. "MP100" means following 100 percent of your mental-training program and 100 percent of your physical-training regimen, and the "+ 20" symbolizes an additional 20 percent of energy put forth to make sure you are more prepared than the competition.
Lanny Bassham, an Olympic gold medal shooter, says that 5 percent of the people do 95 percent of the winning.
In addition to adhering to 100 percent of the physical-and mental-training plans, root out a way to personally contribute 20 percent more effort.
10-MT program asks you to undertake three steps that will take you no more than ten minutes per day in all: Fill out the Goal Setting for Greatness Work Sheet once a year. Place it somewhere you will see it on a regular basis. Perform your mental workout before practices and competitions. Complete your Success Log after every practice and competition; review it just prior to completing your mental workout before the next day’s practice or competition.
Jim Loehr and Tony Schwartz expound on the power of goals and rituals in their groundbreaking book The Power of Full Engagement. Rituals are the act of creating positive habits.
The 10-MT goal-setting program relies on seven principles for optimal effectiveness. Here’s a recap: Process over product. Each day, focus on your process goals, or "what it takes" to achieve your product goals. No excuses. Take full accountability for growth by not offering excuses for underachieving. Go public. Write your goals down, and tell others what they are, to increase your consciousness of your goals and your accountability for reaching them. Keep goals alive. On a daily basis, fill out your Success Log to enhance motivation and results in practices and competitions. Vision integrity. Choose goals aligned with who you want to be and how you want to live. Personal reward preference. Attach rewards to your goals to burnish motivation and commitment. MP100 + 20. Let goals embellish and control your work ethic by aspiring to follow 100 percent of training plans and committing a further 20 percent of your energy into outworking the competition.
Mental and physical training is all about putting yourself in the ideal position to succeed.
Excellence is achieved through a solution-focused mind.
Being solution focused means keeping your thoughts centered on what you want from life and what it takes to achieve what you want, as opposed to allowing thoughts of self-doubt and concern to occupy the mind. The difference between a solution focus and a relentless solution focus is how often you commit to replacing negative thinking with solutions.
Consider the following diagram: Let’s assume the chart represents the chalkboard of your life. On which side of the board have you spent the most time making entries? If you are like most people, you have spent most of your time operating from the "Problems" side. The human mind, as we know, is biologically pre-disposed to be more sensitive to problems, and because of this, we are likely to be problem focused. Whenever people get together, a logical topic of discussion is problems. We all have problems. It is natural to focus on problems, and that is what we talk about with each other.
An Olympic gold medal wrestling coach once told me that there are two principal types of athletes, those with talent and those with work ethic, and the greatest athletes possess both.
While you may not be able to control talent, you can always control work ethic.
When we think about problems, our problems grow. When we think about solutions, our solutions grow.
I needed to remind him of the difference between a relentless solution focus and a solution focus, which is the ultimate measurement of mental toughness.
People have a tendency to become so overwhelmed with life and all of the things that need to be done that it becomes increasingly difficult to accomplish anything at all.
Important concept: The idea that success can be achieved by meeting a string of basic, incremental goals in the present that will ultimately lead to excellence in the future. Use the concept to begin chipping away at your problems and even the biggest issues will become manageable before long.
Believe in yourself and your ability to make gradual improvements, and the results will follow. Gradual improvement over time brings about vibrant and sustainable growth.
You do not need to arrive at perfection; you need to slowly but surely make things better.
.10-Minute Toughness: The Mental Training Program for Winning Before the Game Begins
Lanny Bassham, the Olympic gold medal shooter mentioned in Chapter 8, calls this handy precept the "ready, fire, aim" principle. Lanny claims that in sports and in life, people spend too much time aiming at the bull’s-eye and not enough time shooting at it. Rather than placing so much emphasis on getting ready and aiming, go ahead and take a shot. Taking the shot gets you started and also lets you gauge how far off the mark you are. Make adjustments, but keep shooting until you get closer and closer, and eventually you will hit the bull’s-eye.
Remind yourself that your body listens to what your brain tells it. If you tell yourself you don’t know, you’re right; by the same token, if you start telling yourself there is a solution, you will also be correct. From now on, when you ask the question, you must come up with an answer. Act as though your life depends on your contributing some form of answer. It doesn’t necessarily have to be the right one, but you have to get going on the process, and nothing clogs the process more than the "I don’t know" excuse.
This scenario raises another fundamental concept: anytime a person feels uncomfortable, it is a direct response to the perception of a problem. Use this natural alarm system to jump-start the solution-focus process. Anytime you feel angry, sad, stressed, frustrated, or just generally uncomfortable, seek out and define the underlying problem. Keep it simple, spending as little time and energy as necessary on this step. Once you nail down what is causing you to feel uncomfortable, immediately make the shift to the solution side of the board by asking yourself what one thing you could do differently that could make things better.
When a problem comes your way that you need to fix, make sure it does cross your mind to take action. Stay solution oriented, and narrow your focus to the present and what you can do now
A three-step process carries you to experiencing success as a permanent state and failure as only temporary: Decide what you want to accomplish and what it takes to get there (product and process goals). Choose to act on the physical and mental plans needed to accomplish your goals (MP100 + 20). One of two things happens—either you achieve your goals or you make adjustments to step one (relentless solution focus).
when members of a group are solution focused, they will be more successful as individuals.
Until there is a solution on the board, continue to ask, "What is one thing we can do that would make this better?"
I consider an individual to be mentally tough when the mind is in control of thoughts that help the body accomplish what is wanted
When problems knock you for a loop, don’t feel sorry for yourself or make excuses. Get your mind tuned to what you want to accomplish, get a firm handle on what it will take to achieve your goals, and then get busy. Begin the physical and mental work needed to get yourself past obstacles you encounter.
If you want to rise higher in sports and in life, it is your responsibility to do what it takes to make it happen. Do not waste your breath or brain cells on cursing the unfairness and difficulty of your plight. Appoint goals, equip yourself with a mental workout that emphasizes what it takes to achieve those goals, and then don’t let anyone or anything stop you.
I believe that if you feel the need to announce that you are trying, you probably need to find a way to try harder. "I am trying" is what folks say when they are not accomplishing what they set out to do. Telling yourself and others that you are trying distracts you from thinking about what you need to do differently. Next time, instead of falling back on "I am trying," ask yourself, "What is one thing I can do that could make this better?
When you know what you want to accomplish, write it down, and spread the word. Talking about your goals will spring them from your subconscious into your consciousness. It will also add to your accountability. It is harder to call it quits if you have publicly declared that nothing will stop you. Become a "no-excuses" athlete. If you come up short on your goals, avoid giving the reasons why. Simply tell yourself and anyone else who is interested that you missed the mark and you will work on improving and doing better next time. Accountability is a tremendously powerful tool for growth—and excuses are the number one obstacle to accountability.
Anytime you are in the presence of adversity, ask yourself, "What is one thing I can do that could make this better?" Force yourself to give a substantive answer. ("I don’t know" is not an answer that will help.) You do not need perfection; all you need is improvement.
Decide what you want to accomplish and what it takes to get there (product and process goals). Choose to act on the physical and mental plans needed to accomplish your goals (MP100 + 20). One of two things happens—either you achieve your product goals or you make adjustment to your process goals (relentless solution focus).
.10-Minute Toughness: The Mental Training Program for Winning Before the Game Begins
“We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side.
— Charles T. Munger”
Click to set custom HTML
Disclosure of Material Connection:
Some of the links in the post above are “affiliate links.” This means if you click on the link and purchase the item, I will receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”