What the world’s largest hedge fund can teach a startup
It can be hard enough to clarify and follow your own set of principles. Following a set of 210 principles established by one of the world’s most successful investors can be even harder.
Ever since the legendary investor, Ray Dalio, shared his code of professional conduct and management guidelines based on what he calls “radical transparency,” the collective business and finance community has celebrated, challenged, and sometimes mocked Dalio’s “Principles” — all while studying them in search of clues to the phenomenal success of his hedge fund, Bridgewater Associates. That fascination has reignited with the recent publication of Principles as a proper book, which quickly sold hundreds of thousands of copies.
I have admired Ray Dalio since discovering his Principles in 2010, back when they were unassumingly posted on Bridgewater’s website.
I saw them as an extended argument that culture and a shared way of being — and acting — could be a company’s true competitive advantage, no matter its mission.
Before starting my own company, Hello Alfred, I worked at Bridgewater. Here’s what I’ve learned from reading “Principles,” experiencing them first-hand, and adapting them for a startup environment as I built my company.
Clarify your Goals in two steps
Bridgewater Associates is arguably one of the most successful entrepreneurial ventures. Before it became the largest hedge fund in the world, managing more than $120 billion for global institutions and offering up authoritative macroeconomic policy, Bridgewater was a startup, founded in Dalio’s two-bedroom apartment.
Surely, many things account for its incredible growth, but they are rooted in having a clear answer to the fundamental, philosophical question Dalio asks his readers to answer for themselves: “What do you want?”
Dalio suggests that once you’ve clarified this fundamental desire, the next question should be: “How can we coordinate efforts to achieve the thing we want?” Your job is to come up with a plan, execute on it, and be unwaveringly truthful in the assessment of actual outcomes against your goal. If you can handle the truth, then you have the opportunity to change your plan, efforts, or people to achieve your goal.
These are simple enough questions, but profoundly difficult to answer and keep clear in practice. In the case of Dalio and Bridgewater, the goal was to form “meaningful relationships” with excellent people to do “meaningful work” in the form of understanding markets and economies better than anyone else. In order to achieve this exceptional knowledge and understanding, Dalio reasoned, the best ideas need to rise to the top.
Get the culture right, get the people right
The Principles fall under four rubrics — and their sequence is important: Before you can learn to “Perceive, Diagnose, and Solve Problems” in order to “Make Decisions Effectively,” you first need to “Get the Culture Right” and “Get the People Right.”
From Principle №1, “Trust in Truth,” to №210, “Don’t try to please everyone,” Dalio’s document is a deliberate effort to codify and communicate a culture — a way of being — that enables people to succeed.
A strong culture attracts people to the company and provides a clear set of expectations for hiring and firing.
In practice, Bridgewater’s commitment to transparency means nearly all communications are recorded and shared widely, and the demand for unflinching self-examination and unvarnished honesty can sometimes feel brutal.
Transparent leadership
“Trust in Truth” truly underlies all 210 Principles, particularly for a CEO and leader focused on transparency. Trusting in truth — in facts, goals, outcomes — means keeping ego and emotions in check. It means “Don’t worry about looking good — worry about achieving your goals” (№13), and “Don’t try to be followed; try to be understood and to understand others” (№70).
Focusing on clarity and honesty help me to separate and set aside the intense emotions and disorienting ambiguities that are part of startup life. Founders are naturally passionate about the things we create. But the best of us know when to be dispassionate and apply scientific methodology to set goals, design experiments, test hypotheses, learn, iterate, and improve.
Fail fast, learn faster
“Fail fast” is a well-worn tenet of Silicon Valley entrepreneurship, shorthand for the iterative cycle of test, learn, and improve. But what that Valley aphorism leaves implied, Dalio elaborates in a series of Principles beginning with №8: “Create a Culture in Which It Is OK to Make Mistakes but Unacceptable Not to Identify, Analyze, and Learn From Them.” And the key for me comes at №17: “When you experience pain, remember to reflect.” Regular, structured reflection helps me “love my mistakes” as bountiful opportunities for learning and growth.
Empower your “responsible parties” to make mistakes
№37 — “Recognize the Most Important Decisions You Make Are Who You Choose to Be Your Responsible Party” — is about how you delegate and empower the people around you. The phrase “responsible parties” comes up repeatedly in Principles, and it’s especially relevant to a startup environment, where titles and roles can be fluid, but responsibilities — and who owns them — cannot.
Skinning cats
One of the most important lessons I’ve learned as an entrepreneur is №27b: “Recognize that ‘there are many good ways to skin a cat.’” It falls under “Know When to Stop Debating…” and it helped me to recognize how rigid I could be about how to solve challenges. We all have our own way of thinking and designing solutions. I had to learn to hear and encourage alternatives even if they weren’t communicated perfectly, debate and agree on non-negotiables, and ultimately trust that outcomes can be achieved through very different means.
Adapting Principles
It’s one thing to institute a rigorous system of radical transparency at the world’s most successful hedge fund, with the resources to maintain it through proprietary apps and a critical mass of participants. It’s another to apply it to a lean startup in uncharted waters. And in my experience, some of the Principles like “Your job is to come up with the best answer,” “Double do,” “Fight every battle,” and “Don’t tolerate badness” can be toxic to an early stage endeavor. In startups success comes in part from having good ideas, but more on the team’s ability to execute and pull 110% in the same direction. The principles encourage healthy debate, multiple perspectives, lots of analysis, measuring risk, which can become nice to haves in a battle for survival.
The truth is it’s hard to be an entrepreneur and live by Ray Dalio’s Principles. Really hard. But, as Dalio himself told me, you can get there in time.
At The New York Times’ New Work Summit last March, I asked him from the audience if he believed Principles can be applied to any company. “I think that any group of people working together…can get there through practice,” he replied. And they can do it incrementally. But first, he added, “you have to make the contract.” Once the participants agree to be radically transparent, to give and receive honest feedback and disagree without emotion, they can practice trusting in truth one interaction — one conversation, one meeting — at a time.
…. To read more, see the original post on Quartz.
Marcela Sapone is the co-founder and CEO of Hello Alfred.
Follow @MsSapone on Twitter.
Ray Dalio’s Principles: Life and Work
