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TODAY’S STORY
26 Jul
,
2022

Here are some ideas to chew on

Luck as a higher-order effect

We are notoriously awful at predicting the second- and third-order consequences of our actions.

We have a hard time grokking iterated game theory, and we do not realize the long-term consequences of our short-term actions.

Luck, then, just might be a higher-order effect playing itself out exactly as it should, and people who tend to get lucky repeatedly might just be consciously or unconsciously able to predict higher-order effects and take decisions that maximize “luck.”

Perhaps, it only seems like luck if you can't think further than the immediate reaction of what you're doing. And if you got good at thinking in iterated games instead of one-off games, you just might get luckier more often than your counterparts who don't think long-term.

The problem with quantifying too early

“New ideas are fragile. Since they originate in the messy madness of intuition and the fringes of society, they don’t carry the crisp edges that rational critics look for.”

Sometimes, our subconscious may perceive patterns and structural similarities that our rational brain cannot articulate or comprehend fully yet. But some of the major discoveries in the world were made as a result of applying metaphorical or aesthetic thinking.

The discovery of the structure of Benzene is one example. Richard Feynman piddling around with the wobbling plate is another. And I'm sure if you were to look, you would find many many more examples of people coming upon ideas that weren't strictly rational or quantitative, but purely aesthetic. They fit a pattern. And they led to many significant discoveries.

So, don't be too quick to jump to quantifying ideas or putting numbers on them or categorizing them into boxes. You have to let simplicity organically emerge from complexity instead of forcing simplicity and killing a potentially groundbreaking idea in the bud.

Hustling as an act of spotting value

“Hustle” is such a polarizing word. Some absolutely love it because it conveys many good traits that separate successful people from the rest: agency, resourcefulness, drive, energy…

And some hate it with a passion, because it is 1. overused 2. overdone 3. conveys a healthy amount of toxicity for people who care about life outside of work, especially when it is labeled “Hustle 24x7!” or “Always be hustlin!”

I, personally, can see and relate to both sides of the word.

A healthy amount of hustle is important in the early stages of your career. Raj and I have “hustled” for years before we started Stoa, and I don’t think I’d put it any other way to be honest.

But the way I look at hustle is being able to spot great arbitrage opportunities and win-win scenarios in any situation. Good hustlers have a knack of figuring out how value can be created and extracted in any situation. They are masters at spotting opportunities where they can provide value that in turn would lead them to bigger opportunities.

But here’s where hustle falls apart:

1. When the reality of what you’re selling doesn’t match the hype. At that point, you’re not hustling, you’re just being dishonest and deceptive. You’re smuggling.

2. When you use cheap hacks to grab attention, without making someone’s attention or time worthwhile. Clickbait is an example of hustle on the internet. The headline hooks you in but the article fails to deliver the promised goods.

3. You have no sense of place or time and use overly-pushy tactics to sell yourself without earning permission first. That’s the most irritating aspect of hustle to me — when you refuse to read the room and just impose yourself on people. At this point, it isn’t hustling, it’s CRINGE.

So, yeah. Hustle, but not in a “milking you in the short-term” way. Play the long game. Earn trust and provide enough value before pitching your sell.

Seeing a business as an equation

In Patrick O'Shaughnessy's conversation with Carl Kawaja of Capital Group, Carl talks about reducing a business to a crisp equation to understand what could potentially make or break the business.

Carl: Well, I'll start with simplicity. I find do better as an investor in businesses that I understand. I like businesses that I understand and I like it when I can explain to myself a couple of the key metrics of the company. like it when people can kind of lay it out for me and say, for example, was looking just coincidentally at another Brazilian company the other day. This is a soybean crush company called Bunge.

Our analyst said to me, well, here's how you think about their business. He said a bushel of soybeans weigh 60 pounds, and when you crush it, it produces 44 pounds of soybean meal and 11 pounds of soybean oil, and think four pounds of hols and a pound of waste or something like that. Hopefully that adds up to 60. Soybean oil sells for about 60 or 70 cents, soybean meal I think goes for $450 a ton, and I think there are 2000 pounds and the ton so that's 22 cents or so, 23 cents a pound.

And in my simple mind, I can say, okay, how much meal and oil does this produce? What is the revenue for that? What is the cost of a bushel of soybeans? Which I think is 12 or 13 bucks, and then do the math and figure out how they make money.

And so I like being able to explain to myself on a business, here are the simple metrics that drive it. So when I go visit them and they say, oh gosh, the price of soybean oil has fallen from 70 cents to 15 cents, it means something to me and I can quickly do the math and understand it. And I also like understanding the math of why their product works for customers and why it is compelling to customers.

And so I like being able to explain to myself on a business, here are the simple metrics that drive it. So when I go visit them and they say, oh gosh, the price of soybean oil has fallen from 70 cents to 15 cents, it means something to me and I can quickly do the math and understand it. And I also like understanding the math of why their product works for customers and why it is compelling to customers.

Patrick: [00:23:19] Yep. It's basically like can I build a simple equation for this business, and then go work on the variables and try to figure out what might drive success or failure.

(H/t: Sajith Pai)

Often, you can judge a founder's clarity about the business seeing how easily they can dimensionally reduce it to a simple explanation. Can they compress what their business does and what makes it tick in a few core elements that can maximally explain it?

People fairly push back that companies are intrinsically messy and cannot be compressed in this way, because it hints at the founder's lack of clarity around what their business does. And it also makes it difficult for the business to market itself effectively to outsiders. This of course doesn't apply to very technically challenging B2B businesses with a lot of important nuance, but it does apply to all B2C businesses where the consumer is a layperson.

As a founder, nobody is going to understand the full nuance of your company like you will. And due to this, you will repeatedly underestimate the degree to which your products are complex and opaque to outsiders.

Seeing your business like a simple equation not only helps you identify the key variables that make or break your business, but it also helps you design an effective marketing pitch for your company.

Leadership as being blinded by the spotlight

I recently read this pro tip:

“If you're ever on stage giving a speech or performing, being blinded by the spotlight means you're in the correct spot. If you move away from the light no one will be able to see your face.”

And I couldn't help but think how similar this feels to leadership, where to stand in the spotlight is to face the risk of being blindsided by what's happening in the lower rungs of the company. All the information that comes to you is filtered at multiple stages for appetite, which means you tend to develop blindspots if you aren't careful.

Have any interesting ideas?

Do send them in to us and we will cover them in our essays, with due credit of course. Till then, do share Stoa Daily with your friends if you find the value. Help us spread the word.

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