Ray Dalio’s 11 Rules for Lasting Entrepreneurial Success
Principles to help you accelerate and sustain incredible results
Ray Dalio is no stranger to success. Now a billionaire running the world’s largest hedge fund, he is widely recognized as a global business leader and a brilliant entrepreneur.
Dalio built Bridgewater Associates from the ground up, in 1985, and has been continuously evolving and improving the machine he’s designed since.
This involved building a unique culture, introducing an “idea meritocracy” and revolutionary principles that no other company on the planet operates under.
But you don’t need to be Dalio to achieve some of these things for your own business.
Here are some insightful principles from the master which you can start applying for yourself. Most of those are taken from a live conversation with Dalio during a Reddit ‘Ask Me Anything’ session.
In my work as a consultant, I’ve observed companies that did implement those to a greater degree had more positive cultures, higher staff morale and other important metrics of success than those that didn’t.
Be your own thinker, yet know you don’t know
“Know that you know virtually nothing so that you have to take in the best thinking that’s available to you and critically analyze it.”
One of Dalio’s fundamental principles is to acknowledge that you know virtually nothing.
The world is just too complex and ambiguous, too data-rich, for you to absorb and know it all. Even in your own area of expertise, there will always be gaps.
This means that in order to reach decisions, you need to be willing to seek out others’ opinions and expertise.
Seek the best thinking available and critically analyze it to come up with your own recommendations. The ability to make up your own mind whilst drawing from others’ opinions and data is gold as an entrepreneur.
You can’t let others influence your views if you want to be seen as a credible leader in your space. Yet, you can’t ignore what others think and their input may be extremely valuable in charting the best course of action.
Learn from smarter people who challenge you
“It doesn’t matter whether you do it at a hedge fund, or any other place, but I would recommend that you do it around other smart people who help you brainstorm on the best answer.”
Surrounding yourself with people who hold you up to higher standards was a key to Dalio’s ascent.
Rather than shying away and attempting to protect his ego, Dalio exposed himself to bright minds who would keep his thinking sharp. Those people kept him on his toes at all times.
This led to many debates about where to take the company next; about who to hire; and what investments to make.
Being surrounded by people with expertise in areas you don’t can only lead to better outcomes.
The trick is to not fall for the temptation of hiring people who are just like you. A bunch of yes men/ women who tell you what you want to hear and pat your back every minute will do no good in the long run.
Instead, look for people who aren’t afraid of challenging you and pointing out when things aren’t right. Delusion is surely a key reason why great companies sink into the ocean of complacency, mediocrity, and finally bankruptcy.
Simplify, simplify, simplify
“Someone said that any damn fool can make it complicated, it takes a genius to make it simple.”
Explaining things in a way that everybody can understand is a greatly undervalued skill.
You see many aspiring entrepreneurs fail at this, for instance when pitching to investors. They use complex, technical jargon that only they or experts understand.
The point is to make your business and ideas as accessible as possible so that people can get what you’re trying to do — not to sugarcoat things with fancy words that don’t resonate with your customers.
There’s often more merit in breaking things down to their simplest components, in a clear language everyone in the room can understand. That shows you’ve done your due diligence and thoroughly understand what your business is about, at its core.
It requires more effort to take something complex, like a software product or a rocketship, and explain it in terms that make sense for people.
Only someone who deeply understands their subject matter can do this; those who keep using complex language to sound smart often don’t have a grasp of the first principles of the business.
They’re hiding behind fancy terms and technicalities. But customers, investors and partners can see through the bullsh*t, and they surely can take their money elsewhere too.
Foster an “idea meritocracy”
“If you don’t have people who can think for themselves, you won’t have great leverage and you won’t build a great organization. I believe an idea meritocracy is so much more powerful than organizations that resemble feudal monarchies.”
The concept of an “idea meritocracy” is simple: this is a place where the best ideas win, regardless of where they come from.
Too often, we see companies (from startups to corporate juggernauts) where seniority or belonging to a certain group prevails over common sense and merit.
In many organizations, people with great ideas don’t get to share these ideas due to the layers of bureaucracy and deep-rooted hierarchies that block the flow of information.
This severely limits the number of valuable ideas that bubble up to the surface and ever get implemented. This restricts innovation.
By flipping this logic on its head, Dalio was able to build a company culture where the individual’s seniority or past experience does not put a cap on their thinking, and their ability to share that thinking with the leadership.
As a result, people feel able to communicate ideas and suggestions freely, and all have a fair shot at seeing their idea come to fruition based on its actual merit.
Take people on a mission
“What’s most key for me is having meaningful work and meaningful relationships, so I like to visualize incredible things that I can make happen…and I like to do that with people who are on that mission with me.”
Dalio’s philosophy for building a great company is centered around the dual concept of meaningful work, and equally meaningful relationships.
If you have one, but not the other, you have an imbalance. A business built on imbalance will not last long. It won't attract the right kind of talent for the ride.
People look for a sense of belonging and being part of a special culture. When they don’t find those things, they leave.
Taking the time to build great relationships will pay dividends over time. When the work you’re doing has purpose, and the people you’re doing it with value and respect each other, a sense of mission emerges.
Once a team has a strong sense of shared mission, it’s hard to stop.
Learn to prioritize ruthlessly
“Whenever I’m in a position in which too many choices are coming at me to handle them all well, it forces me up to the higher level to reflect on my priorities and reject good alternatives.”
As an entrepreneur, you have limited time and an unlimed, seemingly insurmountable mountain of things to get done.
How do you cut to the chase? You’ll need to get used to rejecting interesting projects or exciting ideas to focus on the core of what you’re trying to build.
I find the below framework useful to “see the wood for the trees” and make sure you’re not getting sucked into things that aren’t vital.
Chasing the rabbit down the rabbit hole is always tempting. It can make you feel like you’re being “productive” because you’re making yourself busy. You’re telling yourself you’re making progress, when in fact you’re not working on the right things that matter now.
List out your tasks in 4 quadrants, and fill them in based on:
- Must-do activities: those that truly move the needle. How do you know which ones they are? They’re the things that make your customers happy/ happier. Simple.
- Nice-to-do activities: pursuits that support your business model but don’t fundamentally move the needle. These may be small improvements, but they won’t get you more market share.
- Baseline activities: these are the things you and your team need to get done, regardless of what goes on. The basic operations you need to keep your company afloat, like accounting and payroll.
Look at your list, and reflect on the size of each quadrant.
If you find that most of your time is spent on baseline or nice-to-do items, you might need to switch up your priorities and focus more on the must-do, moving-the-needle activities.
Harness the power of your tribe
“While the power of a visionary ‘shaper’ is great, it is nowhere near as powerful as the collection of independent-minded shapers who know how to disagree well and then get beyond their disagreements to make the best decisions.”
When you’re working with people who can think for themselves, the collective brain and willpower of the group are so much stronger than your own could ever be.
By encouraging healthy disagreement and debate to get to the bottom of an issue, your company will come out with a better outcome than if you were making those decisions in isolation.
Dalio, and all great business leaders, use the power of the collective to their advantage. They don’t keep their ideas to themselves: they actively share them and welcome critique and open debate.
Staff also feels much more engaged when given the chance to actively participate in decision-making.
Companies where employees feel the leadership, locked away in an ivory tower, are making all the shots are not leaking talent and brains who go work for the competition next.
Of course, this implies you have the right people on the bus, to begin with.
When building your team, look out for the 5 C’s
“I call them five Cs — character, curiosity, creativity, common-sense, and consideration.”
Dalio used the above traits to recruit the team at Bridgewater Associates.
He was highly selective: the model of total transparency and direct feedback of the company is not fit for everyone.
It stands in such stark contrast to what we’re used to seeing in organizations, that some just can’t take that level of openness and constant exposure to peer feedback.
However, by focusing on these 5 traits, Dalio could ensure he would be recruiting long-term A players on his team. People who would fit in and align with his own vision of how the company should operate.
In an interview, Dalio explained that it takes most recruits 6 months to get used to the radical ways of working of the firm. But once they’ve gone beyond that period and do stay, they rarely leave.
That’s because the culture is so unique that they couldn’t really find it anywhere else.
That’s a pretty strong competitive advantage for a company to have. People are your most valuable assets in the form of human capital, so retaining the best on your team makes sense.
When hiring, follow Dalio’s advice and seek out people who show:
- Character — strong sense of integrity, ethics and honesty.
- Curiosity — always asking questions and being inquisitive to build their knowledge and expertise.
- Creativity — thinking outside the box, able to make new connections and stay open-minded to adopt new outlooks.
- Common-sense — firmly rooted in reality, able to simplify complex processes and ideas and boil them down into their first principles.
- Consideration — respectful, in control of their ego, not here for self-serving drama and toxicity.
Capture your own principles
“When you create reflections that give you principles for how to do things better in the future, be sure to write them down.”
The ability to reflect on what works and what doesn't, as you go and build your business, is one to make the most of.
As you encounter challenges, make decisions and learn, capturing why you made those decisions and what the outcomes were will help you get better over time.
Bad decisions that led to a loss of revenue or missing out on funding opportunities can be dissected and learnings taken. Over time, your machine will only get better and the same mistakes won’t be repeated.
However, if mistakes aren't captured and actively learned from, there’s nothing stopping them from happening again. Hence the power of entrepreneurial self-reflection.
Go deep and go broad
“I believe that in order to communicate effectively with anyone, you’ve got to give them the choice between comprehensive and simple, which is why I did it both ways.”
Dalio was great at adapting his communication style to the audience’s needs and expectations.
There’s a trade-off at play here: how deep versus how broad should you go on a particular topic?
Say you’re pitching to investors to raise funds to grow your business. You probably want to go deep on a number of issues, like financials and customer segmentation. Your audience will expect this level of depth.
Yet, your communication also needs to be simple and effective. People need to understand what your business is about, what value it brings to its customers, and how it operates. The fundamental need to be easy to grasp.
Dalio combined both exceptionally well with his book “Principles”: the very detailed, in-depth book was backed up by a short Youtube video which simplifies the content and diluted it in an accessible format.
“How the Economic Machine Works” has received 21 million views to date, widening Dalio’s audience to a much broader population who may not be interested in reading through a 600-page volume.
Dalio adds he believes that “it’ll always be true that doing it both ways will be best”.
Next time you launch a marketing campaign or speak to an audience, consider how you might be able to combine both those communication styles to increase your outreach.
Balance your impulses with logical thinking
“Instincts and intuition are very important. They come from the subliminal mind and are brought to the surface and have to be reconciled with the logical, conscious mind. When the two are aligned, I’m ready to go.”
I often hear of these 2 sides of the coin when it comes to making business decisions: the data-driven approach, and the “go with your gut” approach.
Dalio applies a healthy mix of both to formulate his best strategic decisions.
You can’t exactly decide which segment to take your business to next on a hunch. You’ll want to look at the data, the trends, the stats.
Yet, if something in you indicates this isn’t the right move, there might be a valid reason for this. This could be your gut telling you this is the wrong choice.
Perhaps it doesn’t align with the company mission. Perhaps it’ll be a short-term win but could harm the company’s reputation over the longer term. And you tend to instinctively know these things.
All in all, it’s helpful to be fact and data-based when making important decisions, without completely ignoring what your instinct is telling you.
Welcome pain and failure as fuel for learning
“Have as many painful experiences as rapidly as possible. Pain avoidance is a great motivator for learning.”
Last, but not least, Dalio is a great fan of pain. He sees pain, in the form of failure, as a great accelerator to learning.
His lesson here is to always actively reflect on your failures and what learnings you can take away from them.
Dalio’s formula for life can be summed up as:
Pain + Reflection = Progress
Reflection is key here: simply hopping from one failure to the next without making the conscious effort to take in the learnings won’t have much effect.
After a failed sales pitch or product launch, ask yourself what went wrong. Go deep into the pain, instead of running away from it and trying to shove the event in the depth of your mind.
Force yourself to look hard at it, to analyze it, so you can avoid making the same mistakes again. That’s growth.
Dalio is a genius when it comes to building and scaling a company with a unique culture and a strong sense of mission.
This never was about building a quick, shiny product and selling it off in a massive IPO only to talk away with a stash of cash in the bank.
Wanting to build an enduring business from scratch, and making a noticeable dent in the universe, is something else altogether.
You can apply those principles in your own business for long-term success:
- Develop your own thinking, by absorbing information from others without letting opinions influence you
- Surround yourself with smarter, brighter people who hold you to account and challenge you
- Make the complex simple
- Let ideas flourish, regardless of where they come from
- Gather your team around a shared mission
- Prioritize like crazy, focussing on what moves the needle
- Use the collective brainpower to reach higher
- Consider the 5 C’s when hiring your partners (character, curiosity, creativity, common-sense, and consideration)
- Reflect and write down your principles for what works and what doesn’t
- Combine depth and breadth in your communications
- Balance instinct and reason when making key decisions
- Use the pain of failing to fuel your future growth