Mental Models

The Myth of the First-Mover Advantage

February 20, 2020 By Nagesh Belludi Leave a Comment

If you’re an entrepreneur entering a new market with a product or service that nobody else offers, you’ll seek the first-mover advantage.

You’ll move quickly to get established as a market leader. If your business idea has the potential to succeed, other entrepreneurs are possibly working on it at the same time or will be quick to emulate when they see what you’re doing.
You’ll validate your concepts quickly by identifying and partnering with a few enthusiastic “guinea pig” customers who can test your product or service early on and give you feedback regarding what customers really want.
You’ll create some barriers (“establish an economic moat” in Warren Buffett-speak) to inhibit other aspirants from entering the market—you’ll secure patents on your intellectual property, lock-in key locations, or negotiate longer-term contracts with customers.

Alas, many first-mover advantages are not sustainable, and many first-movers are as successful as what the superstars will have you believe.

First-to-Market is often First-to-Fail

New ventures have higher failure rates than more established businesses.

Creating market awareness, sustaining market acceptance, fending away aggressive competitors are often easier said than done for many new ventures, not to mention lining up suppliers and distributors. Besides, unless you’re well-capitalized by patient investors, you’re likely to face higher-than-foreseen marketing costs on top of lower-than-anticipated sales.

Instead, if you are the second—or later—entrepreneur to market, you’ll stand a better chance of success by learning from the forerunner’s mistakes. You’ll also earn better credence from your customers, suppliers, distributors, employees, and investors to help create a better product or service.

Idea for Impact: There’s an American adage that “many pioneers died with arrows in their backs.” The best time for an entrepreneur to offer a new product or service is after others have already gotten there and laid some groundwork.

The Best Leaders Make the Complex Simple

February 17, 2020 By Nagesh Belludi Leave a Comment

The New York Times‘s Adam Bryant interviewed 525 CEOs for his Corner Office column and compiled two excellent books, The Corner Office (2012) and Quick and Nimble (2014,) on leadership and management advice. Foremost among the themes common with successful leaders, Bryant says, is “a simple mindset”—the ability to synthesize the simple from the complex and create organizational priorities.

There’s a really important quality [in great CEOs] that I call a “simple mindset,” which is the ability to take a lot of complicated information and really boil it down to the one or two or three things that really matter, and in a simple way, communicate that to people.

In big organizations—frankly, in any company—there are always a dozen or more competing priorities. And it is the leader’s job to stand up in front of the troops and say, “These are the three things that we are going to focus on this year,” or “These are the goals and this is how we are going to measure them.” If you really want to galvanize people and get them operating as a team, you’ve got to create a simple scoreboard that everybody understands.

The communication style, to me, is secondary to getting the content right. And what I’ve been so often impressed by is leaders who can essentially boil down the company’s goals and operating model into, literally, less than a page.

This is a real trick to leadership—creating a simple structure so that everybody in the organization can understand how the work they are doing contributes to the broader goals.

Rob Andrews, CEO of the executive headhunting firm Allen Austin, underscores this “boil the complex into the simple” approach in his leadership manual, High-Performance Human Capital Leadership (2015,)

I have found that when I go into a company to lead, it is important to have a plan and to make that plan a simple one that everybody can understand. I am constantly asking the question,—What are the two or three levers that, if done right, if pulled correctly, will really turn this business? What are the two or three things that really matter? And I find that most leaders do not really do that often.

Idea for Impact: One of the essential attributes of a modern leader is the ability to cut complexity everywhere. Develop the ability to take large, complicated things—and information—and make them very simple.

Better Than Brainstorming

February 8, 2020 By Nagesh Belludi Leave a Comment

Most brainstorming sessions suck. Facilitators aren’t often skilled enough to direct the creative process and overcome interpersonal and intrapersonal barriers to idea-generation. Participants are not as organized as they need to be. One or two “meeting-hogs,” who lack self-awareness and self-control, dominate the conversations with their pet ideas and shut everyone else down. And then there’s groupthink and self-censorship based on responses to earlier suggestions by others. Consequently, bold ideas seldom survive a group discussion.

If you want to buck the odds, try “brainwriting” instead of brainstorming.

In its simplest form, brainwriting has the participants quietly reflect upon an open-ended prompt of appropriate scope, for example, “how could we improve our design process,” and write down their ideas. A group leader can organize the responses by combining identical ideas, grouping thematically-related ideas, and posting them on a wall for the group to appraise them further. Then, the participants vote on their favorites, and the top ‘n’ number of ideas or priorities are identified for future discussion and exploration.

Idea for Impact: Teams Don’t Think—Individuals Do

In essence, brainwriting isolates idea generation from the instantaneous discussion and evaluation that can hamper the creative process.

Brainwriting, when followed by discussion, combines the benefits of both individual and group creativity. Studies have repeatedly shown that people think of more new—and practical—ideas on their own than they do in a group.

In my experience, this creative thinking process is inclusionary, engaging, time-effective, non-judgmental, and mostly free from pressures to conform to others’ ideas. Brainwriting is particularly useful with a group of people who are reserved and would be unlikely to offer many ideas in an open group session.

What You Learn from Failure

February 3, 2020 By Nagesh Belludi Leave a Comment

One common theme among people who cope particularly effectively with failure is their ability to acknowledge the failure, put it in perspective, and seek causes, not blame. As the Dalai Lama XIV writes in The Dalai Lama’s Little Book of Inner Peace (2009,)

If a misfortune has already occurred, it is best not to worry about it, so we do not add fuel to the problem. Don’t ally yourself with past events by lingering on them and exaggerating them. Let the past take care of itself, and transport yourself to the present while taking whatever measures are necessary to ensure that such a misfortune never occurs again, now or in the future.

American investor and superstar hedge-fund manager Ray Dalio writes in his very instructive Principles: Life and Work (2017,)

I learned that everyone makes mistakes and has weaknesses and that one of the most important things that differentiates people is their approach to handling them. I learned that there is an incredible beauty to mistakes, because embedded in each mistake is a puzzle, and a gem that I could get if I solved it, i.e., a principle that I could use to reduce my mistakes in the future. I learned that each mistake was probably a reflection of something that I was (or others were) doing wrong, so if I could figure out what that was, I could learn how to be more effective. I learned that wrestling with my problems, mistakes, and weaknesses was the training that strengthened me. Also, I learned that it was the pain of this wrestling that made me and those around me appreciate our successes.

In short, I learned that being totally truthful, especially about mistakes and weaknesses, led to a rapid rate of improvement.

Much is written about the notion of failures as gifts, but the key to dealing with failures is to attribute those failures to weaknesses in a thought process, not to personal flaws. Failures expose a weakness in your underlying process, which you can now fix. Fine-tune your tactics until you find out what doeswork. Dalio instructs,

When a problem occurs, conduct the discussion at two levels: 1) the machine level (why that outcome was produced) and 2) the case-at-hand level (what to do about it.)

Idea for Impact: Don’t rationalize failures and magnify them in your mind. Fix them. Then, reflect on what they teach about what didn’t work. Inquire, “What was missing?” rather than “What went wrong?” The latter results in finger-pointing. The former opens up possibilities and results in personal growth.

Executive Compensation: Pay Them Well, But Not Too Well

January 23, 2020 By Nagesh Belludi Leave a Comment

Our executive compensation system is broken. Surveys show that the average public company CEO compensation is many hundred times that of the average employee. This gaping disparity in pay vis-à-vis the relative value they bring to their organizations is a moral embarrassment to our society, a point that wasn’t lost on the Occupy movement of yesteryear.

The debate over executive pay won’t die away anytime soon. As election year approaches, grandstanding politicians are vying to outdo each other with pledges to implement pubic policies that limit executive compensation, whereas theorists argue that, in a market economy, compensations should be set by supply and demand for executive talent.

The latter position is commonly echoed by company boards and executive compensation consultants—both of whom owe their cushy jobs to the CEOs and their top teams. They assert that leaders need to be provided with personal incentives to attract and motivate them.

Strangely enough, such incentives often demotivate the leaders’ followers. Financial incentives that are directed disproportionately to the leader in isolation often prove downright counterproductive.

Leadership is an outcome of the relationship between leader and follower, and excessively compensated leaders do not engender followership effectively.

This comports with financier J. P. Morgan‘s observations at the start of the twentieth century that the only characteristic common to his failing clients was a tendency to overpay those at the top. As Peter Drucker commented in The Frontiers of Management (1986,)

[J. P. Morgan found] eighty years ago that the only thing the businesses that were clients of J. P. Morgan & Co. and did poorly had in common was that each company’s top executive was paid more than 130 percent of the compensation of the people in the next echelon and these, in turn, more than 130 percent of the compensation of the people in the echelon just below them, and so on down the line. Very high salaries at the top, concluded Morgan—who was hardly contemptuous of big money or an “anticapitalist”—disrupt the team. They make even high-ranking people in the company see their own top management as adversaries rather than as colleagues…. And that quenches any willingness to say “we” and to exert oneself except in one’s own immediate self-interest.

Idea for Impact: Employees’ efforts are devalued markedly under conditions of gross inequality. Pay leaders well (if you pay peanuts, you’ll get monkeys,) but not too well.

Avoid Decision Fatigue: Don’t Let Small Decisions Destroy Your Productivity

January 20, 2020 By Nagesh Belludi Leave a Comment

Making some decisions depletes mental resources for making more important ones

Every decision you make impacts the quality of successive decisions you’ll have to make, even in totally unrelated situations.

That’s because, according to the much-debated “muscle metaphor” of willpower, your mental stamina is limited.

As Roy Baumeister and John Tierney explained in their bestselling book on Willpower: Rediscovering the Greatest Human Strength (2011; my summary,) you have a finite strength of will for making prudent choices. As you go about your day, your willpower is depleted and “decision fatigue” sets in. Consequently, you’re likely to employ one of two cognitive shortcuts in decision-making: you avoid the act of deciding altogether or make an less-thoughtful, sub-optimal decision.

Don’t get overloaded with so many pointless decisions that your cognitive productivity ends up falling off a cliff.

President Barack Obama claimed that he makes deliberate efforts to avoid decision fatigue so that he can devote his mental energies to things that matter. Michael Lewis quotes Obama in the October 2012 issue of Vanity Fair,

You’ll see I wear only gray or blue suits … I’m trying to pare down decisions. I don’t want to make decisions about what I’m eating or wearing. Because I have too many other decisions to make. … You need to focus your decision-making energy. You need to routinize yourself. You can’t be going through the day distracted by trivia.

In the same way, Facebook founder Mark Zuckerberg sports a limited wardrobe. He has previously declared that doesn’t waste time and energy to pick his daily outfits: “I really want to clear my life to make it so that I have to make as few decisions as possible about anything except how to best serve the community.”

Idea for Impact: Establish healthy routines that can eliminate unnecessary deliberation

Life is the sum total of all the mundane and momentous choices you make. Being monotonous in handling the former enables you to excel in the latter. Limit decision fatigue by

putting as much of your life as possible on an autopilot using routines / rituals and checklists,
limiting the choices you have (read Barry Schwartz’s The Paradox of Choice: Why More Is Less,) and
delegating decision-making where possible.

Good routines can provide structure to your day, protect you from your more effective negative impulses, and bring order and predictability to your life. Besides, according to renowned career coach Marty Nemko, “modern life, increasingly defined by unpredictability, can be anxiety-provoking, and routines provide an anchor of predictability.”

Why People under Pressure Choose Self-Interested Behaviors

January 17, 2020 By Nagesh Belludi

Pressure can put people in a state of threat. As I’ve examined previously here, here, and here, pressure can undermine people’s ability to make sound decisions.

Under pressure, people can abandon their inhibitions, cut corners, and loosen up their moral standards. In other words, they are more likely to engage in self-centered behaviors as opposed to pursuing the common good.

People adopt moral standards that dissuade them from unacceptable behaviors. Under normal circumstances, they think sensibly about the costs and benefits when making decisions. However, under pressure, people can be depleted of the cognitive resources they need to act ethically and resist temptations. See my article on the much-debated “muscle metaphor” of willpower.

When people are in that state of emotional and psychological anxiety, the brain goes into a defensive mode. With that, they are more likely to engage in self-interested behaviors that they would otherwise avoid, especially if the payoff for such behavior is high, and the odds of getting caught and punished are low.

The Boeing 737 MAX’s Achilles Heel

January 7, 2020 By Nagesh Belludi Leave a Comment

Two thousand nineteen was one of the most turbulent years in Boeing’s history. Its 737 MACS (pardon the pun) troubles went from bad to worse to staggering when aviation regulators around the world grounded the aircraft and a steady trickle of disclosures increasingly exposed software problems and corners being cut.

The flaw in this aircraft, its anti-stall mechanism that relied on data from a single sensor, offers a particularly instructive case study of the notion of single point of failure.

One Fault Could Cause an Entire System to Stop Operating

A single point of failure of a system is an element whose failure can result in the failure of the entire system. (A system may have multiple single points of failure.)

Single points of failures are eliminated by adding redundancy—by doubling the critical components or simply backing them up, so that failure of any such element does not initiate a failure of the entire system.

Boeing Mischaracterized Its Anti-Stall System as Less-than-Catastrophic in Its Safety Analysis

The two 737 MAX crashes (with Lion Air and Ethiopian Airlines) originate from a late-change that Boeing made in a trim system called the Maneuvering Characteristics Augmentation System (MCAS.)

Without the pilot’s input, the MCAS could automatically nudge the aircraft’s nose downwards if it detects that the aircraft is pointing up at a dangerous angle, for instance, at high thrust during take-off.

Reliance on One Sensor is an Anathema in Aviation

The MCAS was previously “approved” by the Federal Aviation Administration (FAA.) Nevertheless, Boeing made some design changes after the FAA approval without checking with the FAA again. The late-changes were made to improve MCAS’s response during low-speed aerodynamic stalls.

The MCAS system relied on data from just one Angle-of-Attack (AoA) sensor. With no backup, if this single sensor were to malfunction, erroneous input from that sensor would trigger a corrective nosedive just after take-off. This catastrophe is precisely what happened during the two aircraft crashes.

The AoA sensor thus became a single point of failure. Despite the existence of two angle-of-attack sensors on the nose of the aircraft, the MCAS system not only used data from either one of the sensors but also did not expect concurrence between the two sensors to infer that the aircraft was stalling. Further, Lion Air did not pay up to equip its aircraft with a warning light that could have alerted the crew to a disagreement between the AoA sensors.

Boeing Missed Safety Risks in the Design of the MAX’s Flight-Control System

Reliance on one sensor’s data is an egregious violation of a long-standing engineering principle about eliminating single points of failure. Some aircraft use three duplicate systems for flight control: if one of the three malfunctions, if two systems agree, and the third does not, the flight control software ignores the odd one out.

If the dependence on one sensor was not enough, Boeing, blinded by time- and price-pressure to stay competitive with its European rival Airbus, intentionally chose to do away with any reference to MCAS in pilot manuals to spare pilot training for its airline-customers. Indeed, Boeing did not even disclose the existence of the MCAS on the aircraft.

Boeing allows pilots to switch the trim system off to override the automated anti-stall system, but the pilots of the ill-fated Lion Air and Ethiopian Airlines flights failed to do so.

Idea for Impact: Redundancy is the Sine Qua Non of Reliable Systems

In preparation for airworthiness recertification for the 737 MAX, Boeing has corrected the MCAS blunder by having its trim software compare inputs from two AoA sensors, alerting the pilots if the sensors’ readings disagree, and limiting MCAS’s authority.

One key takeaway from the MCAS disaster is this: when you devise a highly reliable system, identify all single points of failure, and investigate how these risks and failure modes can be mitigated. Examine if every component of a product or a service you work on is a single point of failure by asking, “If this component fails, does the rest of the system still work, and, more importantly, does it still do the function it is supposed to do?”

What James Watt and the Steam Engine Teach You about Creativity and Invention

December 9, 2019 By Nagesh Belludi Leave a Comment

Necessity is the Mother of Invention

The arc of development of the technique to harness the properties of steam to power mechanical devices embodies the notion that “necessity is the mother of invention” (Latin: “necessitas ingenium dedit.”)

Towards the end of the 17th century, Britain faced the problem of pumping and draining water out of mine shafts. In response, the military engineer Thomas Savery (1650–1715) invented an “engine to raise water by fire” in 1698. However, the “Savery Pump” was limited in practical usage to 20–25 feet of suction. Savery’s rudimentary pressurized boiler was liable to explode, particularly under high-pressure steam (over 8 to 10 atmospheres.)

Independently, and later in partnership with Savery, blacksmith Thomas Newcomen (1664–1729) developed the more practical—and more successful—atmospheric-pressure piston engine in 1698. Newcomen’s engine solved the limitation of the Savery Pump by having atmospheric pressure push the cylinder’s piston down after the condensation of steam had created a vacuum in the cylinder. Therefore, the pressure of the steam did not limit the intensity of pressure.

For five decades, Newcomen’s engine was the most complex technological object of its time anywhere in the world.

Difficulties Compel People to Found Creative Solutions to Problems

Then came along the Scottish instrument maker James Watt (1736–1819.) At age 21, Watt opened a shop in 1757 at the Glasgow University to make quadrants, compasses, scales, and other mathematical instruments.

Watt was tasked with repairing a Newcomen Engine at the university for a lecture-demonstration. He initially had difficulty getting the Newcomen Engine to work because its parts were poorly constructed. When he finally had it running, he was surprised at its efficiency. However, the engine was constantly running out of coal because every cycle required the heating and the cooling of the cylinder, thus resulting in a large waste of energy.

In 1769, Watt devised a system whereby the cylinder and the condenser were separate, making it unnecessary to heat and cool the cylinder with each stroke. Watt’s invention of the separate-condenser steam engine (also called the “double-acting” steam engine) decreased fuel costs by 75 percent.

Watt’s “steam engine” was able to produce continuous rotary motion and expanded its use far beyond pumping water. Continuous rotary motion sparked the transition from hand-production methods to machine-power and became the driving force of the Industrial Revolution. Playwright George Bernard Shaw even declared in Man and Superman (1903,) “those who admire modern civilization usually identify it with the steam engine.”

The steam engine continued to power industry and transportation during much of the 19th century and early 20th century, at the same time as engineers developed the internal-combustion engine. Towards the end of the 19th century, with the invention of the first practical steam turbine by English engineer Charles Parsons (1854–1931,) turbines started replacing reciprocating steam engines in power stations.

Reference: Richard L. Hills’s Power from Steam: A History of the Stationary Steam Engine (1989.)

Many Businesses Get Started from an Unmet Personal Need

October 21, 2019 By Nagesh Belludi 2 Comments

Many successful entrepreneurs never set out with the goal of launching a large company, let alone hiring scores of people. They are motivated enough to develop solutions to a direct problem they are facing. Before long, they discover that they are not the only ones with that problem—and, like so, a successful business is born.

How “The Cult of Lulu” Got Started

Consider the genesis of Lululemon, the Canadian athletic apparel company (from The Atlantic‘s narrative of how sports changed the way Americans dress.)

In 1997, a retail entrepreneur in British Columbia named Chip Wilson was having back problems. So, like millions of people around the world, he went to a yoga class. What struck Wilson most in his first session wasn’t the poses; it was the pants. He noticed that his yoga instructor was wearing some slinky dance attire, the sort of second skin that makes a fit person’s butt look terrific. Wilson felt inspired to mass-produce this vision of posterior pulchritude. The next year, he started a yoga design-and-fashion business and opened his first store in Vancouver. It was called Lululemon.

[Yes, that’s the Chip Wilson who gained notoriety for blaming in-poor-shape women for ruining their Lululemon yoga pants by rubbing their thighs together too much. “Quite frankly, some women’s bodies just actually don’t work for it [his apparel],” he condescendingly declared on Bloomberg TV.]

At present, Lululemon has the highest sales-per-square-foot of any American apparel retailer. Its pricey workout clothing has become a wardrobe staple, prompting other retailers to launch competing apparel lines to cash in on the growing market.

Lululemon kindled the prevailing fixation on a healthy appearance. Its brand continues to be an elite fitness status symbol for the skinny and wealthy set. More broadly, over the last two decades, Lululemon has redefined how the current generation dresses and lives. The company pioneered the “athleisure” fashion revolution, which has blurred the lines between yoga-and-spin-class outfits and regular street clothes.

Sara Blakely’s Personal Undertaking Morphed Spanx into a Big Business

In a similar vein, entrepreneur Sara Blakely started the Spanx hosiery company after searching for a solution to improve the way she looked in a pair of her cream-colored pants. Blakely started her wildly successful entrepreneurial journey by making sure that the specific type of undergarment she ideated to solve her clothing problem did materialize commercially. From her biography on Wikipedia,

Forced to wear pantyhose in the hot Floridian climate for her sales role, Blakely disliked the appearance of the seamed foot while wearing open-toed shoes, but liked the way that the control-top model eliminated panty lines and made her body appear firmer. For her attendance at a private party, she experimented by cutting off the feet of her pantyhose while wearing them under a new pair of slacks and found that the pantyhose continuously rolled up her legs, but she also achieved the desired result.

Idea for Impact: Learn to Pay Attention to the Subtle Clues to Opportunities All-Around

Many entrepreneurs initially got their start by first recognizing and responding to a personal need or a localized problem and later discovering that they struck a universal chord.

If you want to become an entrepreneur, find out if you can solve a problem that you’ve personally experienced. Uncover opportunities that you may otherwise have missed by asking, “Does this have to be time-consuming, arduous, expensive, or annoying?” “How can I improve on this?” and “Can I do this better or different from the other fellow doing it over there?” Then expand your opportunity by asking, “Who else may be experiencing the same problem?”

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Mental Models

First-to-Market is often First-to-Fail

Wondering what to read next?

Wondering what to read next?

Idea for Impact: Teams Don’t Think—Individuals Do

Wondering what to read next?

Wondering what to read next?

Wondering what to read next?

Making some decisions depletes mental resources for making more important ones

Don’t get overloaded with so many pointless decisions that your cognitive productivity ends up falling off a cliff.

Idea for Impact: Establish healthy routines that can eliminate unnecessary deliberation

Wondering what to read next?

Wondering what to read next?

One Fault Could Cause an Entire System to Stop Operating

Boeing Mischaracterized Its Anti-Stall System as Less-than-Catastrophic in Its Safety Analysis

Reliance on One Sensor is an Anathema in Aviation

Boeing Missed Safety Risks in the Design of the MAX’s Flight-Control System

Idea for Impact: Redundancy is the Sine Qua Non of Reliable Systems

Wondering what to read next?

Necessity is the Mother of Invention

Difficulties Compel People to Found Creative Solutions to Problems

Wondering what to read next?

How “The Cult of Lulu” Got Started

Sara Blakely’s Personal Undertaking Morphed Spanx into a Big Business

Idea for Impact: Learn to Pay Attention to the Subtle Clues to Opportunities All-Around

Wondering what to read next?