Background Ops #7: Universal Principles
PRINCIPLES MUST CREATE THE ABILITY TO OVERRULE POWER
“Principles Must Create The Ability To Overrule Power:
A principle is only real if any member of the tribe can invoke it to overrule a decision that violates the principle, by any other member of the tribe.
This ensures that our values and principles are actually used to guide all decisions and actions, and not just cheap talk signaling mechanisms.
For example, if JT (the CEO) uses company money to book himself a first class flight, and puts his assistant in coach on the same flight, what happens if the assistant points out that this violates the “We all eat the same dirt” principle?
If JT changes his decision (by either moving the assistant up to first class or himself back to coach, both are eating the same dirt), then he is upholding the principle that he agreed to, and this document is working as intended.
If JT just overrules his assistant because he’s the CEO and has that power, then this whole thing is BS, and we should throw it out.
Used correctly, this set of principles ensures that everyone in the tribe not only knows the right things to do, but each member can be held accountable to the entire tribe for their actions.
Either we believe it or we don’t. If we do, then we must act on it, and we must give everyone the tools necessary to overrule power.”
— from the Book In A Box Culture Document, 2014–2017
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“ANOTHER ONE OF THOSE”
“More and more, we saw everything as “another one of those” — another of a certain type of situation like hiring, firing, determining compensation, dealing with dishonesty — that had principles for handling them.”
— Ray Dalio, Principles: Life and Work, 2017
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TSR’S SERIES ON BACKGROUND OPS, ISSUE #7: UNIVERSAL PRINCIPLES
We are meditating on Sir Alfred Whitehead’s observation —
“Civilization advances by extending the number of important operations which we can perform without thinking about them.”
It seems true — thinking is limited. We can only think so many given things on a given day. When we can make correct decisions without thinking about them, we gain power — and we advance.
And as with civilization, so too with organizations.
And as with organizations, so too with individuals.
In 2011, the head of Bridgewater, the world’s most successful hedge fund, put out a rough PDF file titled Principles. My whole social circle quickly became enamored with the document, studying it, applying it.
In 2017, Dalio came out with a full book version of his Principles, and it rapidly became a bestseller. I think the shortest way to describe it is from Dalio’s quote —
More and more, we saw everything as “another one of those”…
While our challenges and problems and decisions and opportunities often feel very unique, actually, there’s probably only a few hundred cases of common human decisions.
If you can understand what matters in each of those decisions, identify the universal principles underpinning them, and then write ongoing decisionmaking principles to operate by permanently — you gain immense power, clarity, consistency, and, I dare say, sanity.
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UNIVERSAL PRINCIPLES AS A SOFT TECHNOLOGY
I think it’s useful, from time to time, to consider the difference between a soft technology and a hard technology.
When we hear the word “technology,” most of what we think about are hard technologies — materials science and chemical processes, how to make steel out of iron, transistors, inventions like radio towers and satellites… these technologies require a mastery of physics, chemistry, and engineering to create and diffuse.
I believe that there’s a lot of important technologies that don’t require advances in hard sciences to create and diffuse — double-entry accounting, I reckon, is a “soft technology.” Promotion by merit, which was uncommon for most of human history, is a soft technology. Systems of internal communications, writing instructions, confirming instructions were followed — these are soft technologies.
Soft technologies are often less impressive and majestic, on a first glance, than hard technologies. They typically relate to thinking and communicating a little more clearly, in a way that produces better results.
One of the most exciting technologies that’s lately becoming commonly diffused is the concept of developing universal principles — with Ray Dalio and Bridgewater leading the charge on it.
Similar to other soft technologies, principle-based decisionmaking has been around in some form or fashion for just about forever… but it’s been the exception rather than the rule for the majority of organizations and individuals.
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PRINCIPLES AT BRIDGEWATER
Dalio —
“I believe one of the most valuable things you can do to improve your decision making is to think through your principles for making decisions, write them out in both words and computer algorithms, back-test them if possible, and use them on a real-time basis to run in parallel with your brain’s decision making.”
This is a simple enough prescription: think through and write down how you make decisions and, if relevant, encode them in numbers and algorithms for a computer to analyze.
It’s not completely uncommon in finance — though, even in finance, more the exception than the norm.
Bridgewater certainly achieved huge success by codifying all their principles into both words and algorithms — as of the time of this writing, Bridgewater is the largest and most successful hedge fund in the world, with over 150 billion dollars under management. Bridgewater’s major fund, Pure Alpha, only posted 3 losing years between 1989 and now — an incredible, insanely good track record.
Reflecting on the huge amount of complicated decisions involved in managing more money than the GDP of many small countries, Dalio wrote in Principles,
“If I didn’t have these systems, I’d probably be broke or dead from the stress of trying so hard.”
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PRINCIPLES AT BOOK IN A BOX
Dalio is a lion of thought, but it’s very easy to be unable to relate to him personally. A billionaire multiple times over at this point, it’s easy to look at the many decades he’s been performing at the highest levels in one of the most competitive fields and feel a bit unable to fully relate to it.
Aiming to define and codify decisionmaking by universal principles, though, is available to any of us at any stage in our lives and careers.
Let’s turn to a much younger organization than Bridgewater, then, and see what they’ve been able to achieve in the last four years.
Book In A Box started in Austin, Texas in August 2014. They built a unique “scribe-based” model of producing books through thorough interviewing and editing of their clients’ stories into a cohesive book. It’s a very cool company that’s produced some amazing results.
Since starting less than four years ago, they’ve produced over 600 books and done over $15 million in revenue — while completely bootstrapped, with no external funding.
I had the pleasure of watching BIAB grow in real-time — I knew cofounder Zach Obront from before the company got started, and saw them define and test their initial offering, build technology, build a great team, define and hammer out their production processes, and grow the company into the one today that’s producing great results for their customers.
They’ve done a lot of impressive things, but I personally think the most impressive is how they’ve built principle-based decisionmaking into everything they do — with their Culture Document being one of the most visible and noteworthy examples of that for us to learn from.
In a public document that anyone can read and comment on, the BIAB cofounders Tucker Max and Zach Obront laid out a set of principles that explain why they were doing what they were doing, and more importantly, a set of common criteria that would guide all decisions and action taken inside the company.
The first three rules of their principles —
“1. Principles Must State Action: Principles must be clear, specific statements of action for tribe members to take (or not take). If they are not statements of action, the principle has no meaning.
2. Principles Must Have A Valid Antithesis: Principles must have a clear antithesis that could be valid in another company.
3. Principles Must Create the Ability to Overrule Power: A principle is only real if any member of the tribe can invoke it to overrule a decision that violates the principle, by any other member of the tribe.”
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BIAB PRINCIPLE: EATING THE SAME DIRT
I know a number of people working at Book In A Box, and it’s a beloved place to work. They were recently named one of the best places in Austin to work.
The whole culture document is worth reading if you’re at all interested in teamwork, communications, and building an excellent culture. Let’s take a look at one specific principle, “eating the same dirt” —
“Principle #3: We all eat the same dirt. (Inverse: People are treated differently, according to their rank.)
We’re a tribe that cares for each other, works towards a common goal, and shares the rewards we earn. Because of this, we require a high degree of trust to function properly, and nothing creates trust better than complete transparency and shared sacrifice.
Think of us as a ship, going off to search for riches in a new world. Yes, the captain is in charge of the ship, but he can’t sail alone. And he won’t get to the new world any sooner than the last man on the ship. They arrive together or not at all.
We’re kind of the same way: we will succeed or fail together.
We call this “eating the same dirt.” This is a military term that means everyone, regardless of rank, shares the same experience, the same sacrifice and the same effort.
If we’re going to ask everyone in this tribe to put the tribe and the mission first, then they must get the same rewards and benefits we get. To do otherwise would be to ask them to sacrifice themselves for our benefit. That’s BS.
This is why Zach and I decided to set up the profit sharing the way we did: we allocate 25% of the profits of the company to the tribe. And profits are defined the same for the founders as the employees and everyone gets their money at the same time. We eat the same dirt.
This principles applies to EVERYTHING the company provides or does together: travel, work conditions, salary, technology, etc.
This extends to information as well. There is no better way to create trust than being completely transparent about all important information, and as a result: Our tribe has completely transparent information for everyone in it.
This means full financials, management agreements, salaries, cap tables, P&L, yearly pro forma — you name it, we make it available for inspection and questioning to everyone in the tribe. Nothing is held back.
Since our tribe members are owners in the company, they can participate in the monthly finance meeting, they can see the company P&L, they know how and where to save money, and what specific actions they can do to make us more profitable and our process better.
Furthermore, we record and store departmental meetings. This way, anyone can hear what was said at any meeting (if they choose).
We also use an open communication system — Slack. This means much better communication, fewer barriers, and better institutional memory, as nothing is lost in people’s inboxes or anything. It’s all out in the open, archived, and searchable for everyone.
We are all in this together, we win together and lose together, so we all eat the same dirt together.”
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THE POWER OF UNIVERSAL PRINCIPLES
In building one’s individual life and career, or in building an organization, there’s dozens to hundreds of small, medium, and large-size decisions that need to be made on a regular basis.
Decisionmaking is expensive to get right, and even more expensive to get wrong.
You can see right away, then, how defining universal principles greatly simplifies decisionmaking — sometimes removing an entire class of decisions from the need to consider them individually.
Alfred North Whitehead reflected around 100 years ago that,
“Civilization advances by extending the number of important operations which we can perform without thinking about them.”
Consider that the typical organization has dozens to hundreds of decisions regarding compensation, information sharing, what materials are private or shared, and so on. With every single item related to core contracts, financials, expenses, compensation, meetings, processes, etc — with every single of one of them, the managers and executives at the organization have to make dozens or hundreds of decisions related to who they’ll share the information with, how it will be shared, what’s confidential and what isn’t…
Now consider Book In A Box. Dozens to hundreds of these decisions are automatically made by their universal principle of “We all eat the same dirt.”
As with any good strategy and doctrine, there are tradeoffs to it. It’s probably not something every organization should adopt. But in this case, by setting a universal principle around shared resources and information access, the BIAB cofounders, executives, and management have already made dozens of decisions automatically just via the principle of “we all eat the same dirt.”
This greatly reduces the need for thinking through individual cases — it means there’s a default principle in place to make all decisions of this type. This greatly reduces the amount of time needed in thinking and deciding, and means that the decisions will always be made along consistent lines.
“Civilization advances by extending the number of important operations which we can perform without thinking about them” — indeed.
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GUIDANCE #1: SEARCH FOR AND DEFINE UNIVERSAL PRINCIPLES
In terms of practical decisionmaking, the first piece of guidance from this issue is to recognize that universal principles can be identified, defined, codified, and operationalized.
This is the core of it — there’s many implementation details which we’ll cover briefly, but the most important lesson for this issue is this:
If you search for universal principles in your decisionmaking, you can get vastly more done and done better.
Most people don’t think and assess and analyze the core reasons to do things, and thus, are unable to create these universal rules of decisionmaking for themselves.
It’s not “free” — it takes work to do initially — but it pays for itself many times over.
Don’t just think about decisions once. Search for the universal reasoning behind the decision, and codify that universal into every decision of that type you make.
It’s an immense source of power and consistency.
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GUIDANCE #2: DIAGNOSIS BEFORE PRESCRIPTION
In Principles, Dalio wrote –
“Focus on the “what is” before deciding “what to do about it.” It is a common mistake to move in a nanosecond from identifying a tough problem to proposing a solution for it. Strategic thinking requires both diagnosis and design. A good diagnosis typically takes between fifteen minutes and an hour, depending on how well it’s done and how complex the issue is.”
This same rule has been noted by many top thinkers on management, including Richard Rumelt and Alan Weiss.
When you start searching for universal principles, it’s important to come up with an assessment of how things are before what to do about them.
An example from Dalio —
“One of the most memorable mistakes [at Bridgewater] happened in the early 1990s, when Ross, who was in charge of trading at the time, forgot to put in a trade for a client and the money just sat there in cash. By the time the mistake was discovered, the damage was several hundred thousand dollars.
It was a terrible and costly error, and I could’ve done something drastic like fire Ross to set a tone that mistakes would not be tolerated. But since mistakes happen all the time, that would have only encouraged other people to hide theirs, which would have led to even bigger and more costly errors. I believed strongly that we should bring problems and disagreements to the surface to learn what should be done to make things better. So Ross and I worked to build out an “error log” in the trading department. From then on, anytime there was any kind of bad outcomes (a trade wasn’t executed, we paid significantly higher transaction costs than expected, etc), the traders would make a record of it and we would follow up. As we consistently tracked and addressed those issues, our trade execution machine continually improved.”
You can see in there that Dalio made his assessment of the core problem first: in this case, it was a fairly simple and broad problem of, “mistakes happen.” He thought through why the mistake happened and made a diagnosis — punishing the individual responsible would only cause people to want to hide their mistakes, instead of exposing them transparently as quickly as possible.
Only after that diagnosis was made did they go into the prescription —
“I insisted than an issue log be adopted throughout Bridgewater. My rule was simple: If something went badly, you had to put it in the log, characterize its severity, and make clear who was responsible for it. If a mistake happened and you logged if, you were okay. If you didn’t log it, you would be in deep trouble. […]The error log (which we now call the issue log) was our first management tool.”
The Bridgewater error log was the prescription for what to do in case an execution error happened. It started from the diagnosis that mistakes happen, and punishing individual mistakes would only make people try to hide their mistakes.
The prescription was to create a management tool — the Error Log — and having everyone know that mistakes were okay as long as they were logged, but that people were in big trouble if they hid the mistakes instead of exposing them.
When you look to define your own universal principles, start by diagnosing what the universal root cause of the problem is before codifying the prescriptive solution.
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GUIDANCE #3: OPERATIONALIZATION
It’s all too easy for organizations and people to write statements of intention down that never turn into useful policies or principles — “be more innovative”, “we’re focused on leadership”, things of that nature.
When Max and Obront codified “we all eat the same dirt” at Book In A Box, they didn’t just write it down — they developed the supporting actions and technologies to make the principle come alive.
“This means full financials, management agreements, salaries, cap tables, P&L, yearly pro forma — you name it, we make it available for inspection and questioning to everyone in the tribe. Nothing is held back.”
Or take this prescription from Dalio —
“Get to know your blind spots. When you are close-minded and form an opinion in an area where you have a blind spot, it can be deadly. So take some time to record the circumstances in which you’ve consistently made bad decisions because you failed to see what others saw. Ask others — especially those who’ve seen what you’ve missed — to help you with this. Write a list, tack it up on the wall, and stare at it. If ever you find yourself about to make a decision (especially a big decision) in one of these areas without consulting others, understand that you’re taking a big risk and that it would be illogical to think that you’ll get the result you want.”
It’s a sound universal principle to be very careful around decisionmaking in an area you know you have a blindspot — but you need to then operationalize it. Dalio recommends some kind of recording/logging of areas where you’ve made bad decisions in the past, asking for feedback in making that list, and then making a big list of it and tacking it up on a wall to look at.
Oftentimes, the operationalizing of a principle or policy is straightforward — at Book In A Box, they presumably have a Dropbox or Google Drive file area with all the relevant financials and reports available for inspection at any time.
Likewise, recording all areas you’ve had blind spots in the past, writing it into a list, and taping it up on a wall — this isn’t particularly hard.
But it does have to be done. It’s very easy to come up with an intention to be better in some way, and not run the rest of the work out so that it starts being lived consistently.
When you’re looking to establish a new principle or policy, you’ll have to pay a fair amount of attention to until it reaches a place of being a fully-entrained behavior, as we described in Background Ops #3: Entrainment.
Until it’s fully installed, you’ll want to regularly analyze and debrief if it’s happening successfully. If it’s a particularly challenging principle or policy to install, you’ll want to look at it daily or weekly for a while in the beginning — you’ll need something keystone-like to ensure you’re on track with it.
You’ll want to think through the situations where you or others would naturally be shy or forgetful about implementing a principle, and design action and explicit instructions for those hard situations. Book In A Box’s Principle #8 is “Act Like An Owner” and included is this instruction —
“For example, don’t ask for permission to make an improvement to a document, or to fix something or to in some way make the company better. Just do the things you know need to be done.”
Obviously, a new hire coming from a different corporate culture will likely first ask for permission or be shy about just fixing things without asking. But with the explicit instruction written down, any time someone asks for permission, the relevant executive or manager can remind them to just fix stuff and point at Principle #8 in the Culture Document.
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PUTTING IT TOGETHER
Dalio —
“Over and over again, the same people would walk into the same meetings, do things the same ways, and get the same results without seeking to understand why. Recently I came across a study that revealed a cognitive bias in which people consistently overlook evidence of one person being better than another at something and assume that both are equally good at a task. This is exactly what we were seeing. For example, people who were known not to be creative were being assigned tasks that required creativity; people who didn’t pay attention to details were being assigned to detail-oriented jobs, and so on.”
Dalio, obviously, seeks after universal principles at Bridgewater. Here was a diagnosis of a common problem — team members would often forget who was good or bad at particular things, and high-detail activities would keep getting assigned to people who weren’t detail-oriented.
Dalio and team codified some general principles around ensuring that people do work that matches their strengths, and then set out to operationalize it —
“I began making “Baseball Cards” for employees that listed their “stats” […] Just as you wouldn’t have a great fielder who a .160 batting average bat third, you wouldn’t assign a big-picture person a task requiring attention to details.”
And there was some hesitation around this at first, and they worked through it —
“People were concerned that Baseball Cards wouldn’t be accurate, that producing them would be too time-consuming, and that they would only succeed in pigeonholing people unfairly. But over time, everyone’s attitudes toward this approach of openly exploring what most people are like shifted 180 degrees. Most people found that having this information out in the open for everyone to see was more liberating than constraining because when it became the norm, people gained the sort of comfort that comes with just being themselves at work that family members have with each other at home.”
After the general problem was diagnosed (people were getting assigned work that was a bad fit for their natural skills), Bridgewater codified a principle around ensuring that assigned work fits with people’s skills, and then operationalized it by developing internal ranking systems of skills (“Baseball Cards”) and then worked through the initial period when this was a strange and new thing, making adjustments until people were more consistently working on the right thing for their natural skills.
This is the general pattern of establishing universal principles — obviously, it makes a lot of sense for people to do work that fits their strengths, but most organizations and most individuals don’t have a defined, codified, and operationalized way of ensuring that happens across the board.
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GETTING STARTED ON CODIFYING UNIVERSAL PRINCIPLES
I think a great first step would be reading Book In A Box’s Culture Document. It’s incredibly well-done and you can get a sense for what a good series of principles could look like.
Reading Ray Dalio’s Principles is also highly recommended and gives many examples of sound universal principles worth installing related to thinking, understanding, communicating, and getting things done well.
When you want to start codifying your own principles, you need to set aside some regular time and space for it. It’s not something you dash-off once. You’d be much better off taking a few simple principles and fully building them and installing them, rather than dashing off many ideas that don’t stick.
To that end, you’ll want to —
1. Recognize that universal principles can be distilled, and that it’s worth doing.
2. Schedule enough time to explore, codify, create, test, and operationalize them.
3. Start by diagnosing the problem first, before jumping into solutions.
4. Codify the problem; write it down.
5. Explore different solutions until you find a set of solutions that are the food fit.
6. Codify the solutions; write those down.
7. Operationalize it — build tools and practices around ensuring the principle is put into action.
8. Entrain it — practice until it’s consistently happening in your life and your organization.
Defining and codifying universal principles takes quite a bit of time upfront, but leads to more consistency and excellence in less time total, forever, after they’re codified and installed.
It’s a highly good use of time — and highly recommended.
Until next year, yours,
Sebastian Marshall
Editor, TheStrategicReview.net
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This is the 7th issue in our series on Background Operations. TSR brings out one long-form actionable essay from history every Thursday, you can subscribe for free at thestrategicreview.net
Incidentally, Marshall was just on the Ecommerce Influence Podcast with Austin Brawner and Andrew Foxwell discussing how to make 2018 your best year yet — if you enjoy TSR and Background Ops, have a listen.
