Lessons Learned in 2018

Looking back on last year, I wanted to document some of my favorite learnings from things I read. The books I read differed quite a bit in topic and style, but there were two key themes: how do we as humans make better decisions, and how can I better understand the entrepreneurs I work with every day. What I loved most about these lessons was their ability to affect both my professional and personal life. There were certainly more lessons than could fit in a short blog, but below you’ll find the five that resonated most.

1. Life isn’t chess, life is poker

“Life, like poker, is one long game, and there are going to be a lot of losses, even after making the best possible bets. We are going to do better, and be happier, if we start by recognizing that we’ll never be sure of the future. That changes our task from trying to be right every time, an impossible job, to navigating our way through the uncertainty by calibrating our beliefs to move toward, little by little, a more accurate and objective representation of the world. With strategic foresight and perspective, that’s manageable work. If we keep learning and calibrating, we might even get good at it.”
 — Annie Duke, Thinking in Bets

I’ve spent quite some time this past year at work with an advisor who believes in documenting not just the decisions you make, but also the reasons you make them. He calls this exercise a “decision journal”, with the goal of examining whether you were right for the right reasons. This exercise is founded in the understanding that life is full of uncertainty, and while it is results that might determine your success or happiness you can rarely escape the element of luck. Chess is actually one of the few places you can escape luck, because the player who makes the better decisions will always win; most things in life look more like poker, where all your decisions can do is push the odds in your favor.

I start with this lesson because making decisions in a world of uncertainty is both difficult and inescapable. In both your professional life and personal life, you are forced to make daily trade-offs that inherently reflect a certain prediction of the future, and expose you to luck which might not go your way. I have actually found this lesson quite liberating, because it forces me to worry only about what I can control. Over time, if I do well that which I can control, I’ll have the highest probability of success and that is the absolute best I can hope for. That said, if I worry about what I cannot control, I might actually make worse decisions and lower my probability of success — this is a great segue to the next lesson…

2. Don’t debate conclusions, debate the process of reaching them

“The computer was much better than my brain in “thinking” about many things at once, and it could do it more precisely, more rapidly, and less emotionally. And, because it had such a great memory, it could do a better job of compounding my knowledge and the knowledge of the people I worked with as Bridgewater grew. Rather than argue about our conclusions, my partners and I would argue about our different decision-making criteria. Then we resolved our disagreements by testing the criteria objectively.”
 — Ray Dalio, Principles

Consistent in both Ray Dalio and Annie Duke’s writing is the premise that human beings are highly emotional in the way they make decisions. If success is the sum of decision quality and luck, then decision quality is the difference between decision making potential and the effect of emotion. Ray Dalio’s Bridgewater Associates has been very innovative (if not controversial) in the processes used to eliminate the role of emotion in our decision making, and the results speak for themselves.

When it comes to making investment decisions, structure and processes can be very productive to ensure that emotions don’t get in the way of accurately predicting the future. People tend to support investment ideas for plenty of bad reasons: they came up with the idea, they are a consumer of the product, there is career risk associated with not investing, etc. All of those reasons are fundamentally founded in emotion, which breed irrational attachment to the ideas and stand in the way of productive team discussions. The good news: people are far less attached to their personal process of evaluating ideas than the ideas themselves. If teams debate the frameworks they use to reach their conclusions rather than the conclusions themselves, the conclusions they reach will be much higher quality.

3. Investors must believe in statistics, but founders must believe in calculus

“Chances were, I was dead. I never built that contingency plan. Through the seemingly impossible Loudcloud series C and IPO processes, I learned one important lesson: Startup CEOs should not play the odds. When you are building a company, you must believe there is an answer and you cannot pay attention to your odds of finding it. You just have to find it. It matters not whether your chances are nine in ten or one in a thousand; your task is the same. In the end, I did find the answer, we completed the deal with EDS, and the company did not go bankrupt. I was not mad at Bill. To this day, I sincerely appreciate his telling me the truth about the odds. But I don’t believe in statistics. I believe in calculus.”
 — Ben Horowitz, The Hard Thing About Hard Things

This one is simple. For all the benefit that I get as an investor from thinking in probabilities and worrying only about what I can control, that mindset can actually be quite harmful for the entrepreneurs that I partner with. Statistics say consistently during the entrepreneurial journey that things will not work out. The odds of building something massive out of nothing but an idea tend to be pretty grim. Calculus is different — rather than dwell on the high probability of failure, calculus focuses on the precise and complex solution that will result in success. This is so important for entrepreneurs because when you’re at this point you just cannot quit — every single challenge needs to be overcome, and solving these problems starts with the mindset that they are not just solvable but that you will solve them. I love this quote from Ben Horowitz so much because it reminds me of the passionate belief that our entrepreneurs have in common: that they will find a solution.

4. Fat doesn’t make you fat

I was standing in line at an independent grocery store in my neighborhood with my La Croix orange sparkling water, some hamburger buns, a bag of chips, a couple of bottles of wine — last-minute purchases for dinner. In front of me was a middle-aged woman dressed in business clothes, loading up the conveyor belt. She set a carton of Land O’Lakes Fat-Free Half-and-Half on the conveyor belt. I paused and thought, No, keep your mouth shut. But I couldn’t help myself. Half-and-half is defined by its fat content, about 10 percent — more than milk, less than cream. I had to ask. 
“Excuse me, can I ask you why you’re buying fat-free half-and-half?” 
A bit startled to be put on the spot by a stranger, she recovered enough to say, “Because it’s fat-free?” 
“What do you think they replace the fat with?” I asked. 
“Hmm,” she said, lifting the carton and reading the second ingredient on the label after skim milk: “Corn syrup.” She frowned at me. Then she set the carton back on the conveyor belt to be scanned along with the rest of her groceries. The woman apparently hadn’t even thought to ask herself this question; rather, she accepted the common belief that fat, an essential part of our diet, should be avoided whenever possible.
 — Michael Ruhlman, Grocery

There’s a couple of meanings to this one:

First, more directly, this lesson is something that consumers are still in the process of learning in how they should think about food. Fat, while demonized for years, is not what makes you fat. Following a strict low-fat diet is not the best thing to lose weight and live a healthy lifestyle, in fact the rise of movements like the ketogenic diet suggest that high fat diets can be quite good for you if you are consuming the right kinds of high quality fats (almonds, avocados, salmon, etc).

Second, and more interesting, is the idea that we as humans have followed a universal truth (fat is bad) for decades without properly questioning its validity. The rapid shift towards acceptance and embrace of “good fats” is really exciting to me — not because I believe that the keto diet is the end game, but because it shows there is still so much to learn about human nutrition. The enemy of entrepreneurship is the belief that every big problem has already been solved and every key question has already been answered. I hope the entrepreneurs that read this get the same excitement I do about challenging the next unfounded “universal truth”.

5. Risky and scary are two very different things

“Fear the alternative. Are you currently on a path with any possibility that you will accomplish everything that you want to be happy? If not, you have a 100% chance of failure. Compared to that, everything else is less risky (…) Mis-priced risk is the single greatest opportunity for anyone to get ahead, regardless of your background or resources. There are three inputs to success: effort, skill and risk. You need 2 to succeed. Effort and skill are highly optimized and fiercely competitive. Risk is a psychological game that can be mastered, and very few people have done so.”
 — Seth Rosenberg, Twitter Thread

I have a pretty strongly-held belief that when it comes to making life decisions, people think about risk the wrong way. In the world of finance, risk = uncertainty, or said differently the width of the distribution of outcomes; in life risk has a very different meaning. Whether you’re deciding to change jobs, start a company, move to a new city or start a relationship, risk is not uncertainty but rather your exposure to bad outcomes. That’s why it is so unproductive to be attached to the status quo: if you’re on a path that will not make you happy down the road, as Seth puts it you have massive exposure to a really bad outcome.

Remember from Annie Duke that uncertainty is inherent, and should therefore be embraced. If you embrace uncertainty, you can unpack your emotions and distinguish what is risky from what is scary. Often they’re not just different but complete opposites: quitting the job you don’t like to start or join a young company that inspires you is probably the scariest thing you could possibly do, while staying at the job you don’t like is probably riskiest thing you could do (but not scary at all).

The happiest people I know are doing things that they’re passionate about, surrounded by people they really care about. In many cases they made decisions to get there which seemed pretty risky at the time. Looking back on it though, they may have just been the best among us at overcoming the fear that accompanies uncertainty.

Do something scary in 2019. Happy New Year!