Book summary: Skin in the game by Nassim Nicolas Taleb

Skin in the game

  1. Skin in the game creates a diversity of beliefs and ideas, for example, restaurant businesses. Lack of it creates a monoculture, for example, journalism.
  2. Skin in the game comes with a conflict of interest. For example, a shareholder is more inclined to say positive things about the company, whose shares he holds. Even then skin in the game is preferable over no skin in the game. A lack of skin in the game, usually, produces a monoculture of beliefs.
  3. Bureaucrats, with no skin the game, usually make the problems worse by deciding things from the top.
  4. Beware of “good” advice where you will get both the good and the bad outcomes of that advice while the advice giver will only get the good outcome.
  5. Metrics puts one’s skin in the wrong game. For example, a doctor who has to optimize for a five-year survival rate of a cancer patient might go for radiation therapy as opposed to laser surgery even though radiation therapy has worse 20-year survival rates.
  6. Pilots have more skin in the game than surgeons. If a plane has 98% chance of surviving a flight, then all pilots would have been dead for now, while medical science can operate with a much lower survival rate since skin in the game is primarily of the patients and much lower of surgeons.
  7. An academic experiment where one is supposed to wager a bet and hypothetically believe in a certain scenario is devoid of real risk and hence devoid of skin in the game.
  8. Academia, for the lack of skin in the game, when left unchecked, evolves into a ritualistic self-referential publishing game.

Read More

Book Summary: Sapiens: A brief history of Humankind

The book provides a scientific perspective on the history of how humans came to dominate the planet.  The books biggest focus is on the three revolutions the cognitive revolution which started 70, 000 years ago; the agricultural revolution which started 12, 000 years ago; and the scientific revolution which started 500 years ago which shaped the destiny of our species and the planet.

Species – Animals belong to the same species if they tend to mate and give birth to fertile offsprings.
Genus – Species evolved from the common ancestor. They, usually, won’t mate but can be induced to do so. Eg. Mule (Horse and donkey), and Liger (Lion and Tiger).

Homo Sapiens – “Homo” genus and “Sapiens” (intelligent) species. Some other members of our genus are, no extinct, Homo Erectus and Homo neanderthalensis. Homo Sapiens’ closest living species are Chimpanzees.

The Cognitive Revolution

The rise of Homo Sapiens

Homo genus has unusually big brains and big energy drains. Homo Sapien brain consumes 25% of energy at rest, 8% is the norm for other apes. The big brain is an even bigger cause of human infants which are born relatively prematurely (in terms of physical strength) compared to the other species. The long gestation period and the raising of the child implied that the evolution favored strong social ties in humans. Regular use of the fire started about 300, 000 years ago. The carefully managed fire was not only used to clear forests but can also be used for cooking food (faster to digest). Long intestines and large brains are both energy drains, it is hard to have both. Cooking food lead to shortened intestines and hence, our brains could grow bigger. As Homo Sapiens spread from East Africa to Arabian peninsula, Europe, and Asia, they drove other Homo species like Neanderthals to extinction. Some interbreeding did happen but it was mostly the Sapien’s superior social skills which allowed them to tribe up and drove other Homo species everywhere into extinction.

The Tree of Knowledge

About 100, 000 years ago, Homo Sapiens migrated out of Africa but retreated after losing to Neanderthals. About 70, 000 years ago they tried again, and this time they succeeded due to the invention of language which allowed them to invent tons of things like boats, lamps, needles, etc. This Cognitive revolution allowed Homo Sapiens to dominate the earth. Anthropologists believe that our complex language was used more for gossip than to discuss where the prey. And from there evolved the ability to create and believe in myths. The myths allowed us to collaborate and cooperate in large numbers in the form of tribes and now, in the form of nation-states.

A man can be convinced to die fighting for his nation for the promise of heaven; a monkey cannot be.

Religion is a myth; nation-states are myths; the Limited-liability corporation is a myth; US declaration of independence is a myth; all are figments of our imagination. Unlike animals, trees, fish, rivers, the aforementioned myths have no association with a real physical entity. These myths, surprisingly, allow believers to work together and collectively. These myths are not different from the primitive myths of the tribal men most modern people would laugh at. Homo Sapiens ability to believe in myths allows us to form big groups of millions of individuals who have never met each other. In other animals, groups are limited to the size of 25-30 animals who all know each other; such animals cannot form large groups. The other big advantage of passing myths via language is that it does not require any DNA mutations. Catholic & Buddhist monks pass on the celibacy, not via genes but by imparting their religion (myth) to the followers, some of who, convert. And that’s probably how Homo Sapiens defeated Neanderthals. While Sapiens would have lost one-on-one combat, they could form much larger groups which Neanderthals could not.

A day in the life of Adam and Eve – The hunter-gatherer society

Except for the past 10, 000 years, Sapiens evolved in pre-agricultural hunter forager societies. They shaped our psychological and social characteristics. These ancient foragers know a lot more about their surroundings than us. While we, collectively, as a human society know a lot more, the individuals today know a lot less. Forager societies tend to end the wide and varied diet and hence, had a lower chance of malnutrition than the farmers who would eat a few staple crops. Their working hours were lesser(30-35 hours per week), and since they neither engaged in the domestication of the animals nor stayed in dense settlements, the epidemics were rare. Some anthropologists, therefore, call hunter-gather societies the original affluent society (ashishb’s note: This is not without its own controversies). Little beyond that is known about these hunter-gatherers. They probably believed had animistic beliefs. No one knows whether they were monogamous or not, had a concept of private property or not, their festivals, and their taboos.

The Flood

About 45, 000 years ago, some Sapiens living on Indonesian islands figured out the art of building boats and eventually reached Australia. This was the first time, Homo Sapiens stepped out of the Afro-Asian ecosystem, and they wreak havoc on the isolated Australian continent ecosystem.  23 out of 24 species larger than 50 Kg became extinct within few 1000 years. The marsupials, mammals with baby-carrying pouches, failed to adapt to the onslaught of the humans. Their slow pregnancy cycles with few kids, lack of fear of humans since humans don’t look that harmful, and potentially burning of the forests to set up agricultural land disrupted the food chain entirely.

Unlike the Afro-Asian animals who evolved with humans over thousands of years, the Australian animals were caught completely by surprise with no time, on the evolutionary scale, to adjust.

Climate change just worsened everything.

About 16, 000 years ago, the invasion of America happened via Siberia which was connected to North-western Alaska when the sea levels were lower. Unlike other species of Homos, Sapiens adapted to the harsh colder climate by sewing boots and thermal clothing. They thrived on eating the juicy animals like mammoths which given low temperatures can be eaten over days. Around 14, 000 years ago, global warming melted the glaciers in Alaska which blocked the way to rest of the Americas. And that’s when Sapiens ventured into the American continents. With 2000 years, Sapiens reached the southernmost point in America.

No animal had moved so quickly through variety of habitats virually using the same genes.

Americans fauna suffered. Mammoths (& mammoth ticks), Mastodons, and tons of animals which just like Australia, had survived in isolation from Afro-Asian ecosystem faltered. Fossils had repeatedly pointed these disappearances to be about 12, 000 BC in the Americas and around 5, 000 BC in Hispaniola, both times when Sapiens entered the ecosystem. The same story has been repeated island after island.

First wave extinction: Sapiens as hunter-gatherer enter the ecosystem
Second wave extinction: Sapiens become farmers and forests burnt and reduced to grasslands
Third wave extinction: Industrial revolution

Throughout the history, Homo Sapiens have been the deadliest species to enter any ecosystem.

The Agricultural Revolution

History’s Biggest Fraud

Agriculture started in about 9000 BC and domestication of crops was over by about 3500 BC. Today, we eat the same crops – Wheat, Maize, Rice, Potato, Millet, and Barley. Only a few species could be domesticated, and they were in the middle east, China, Central America but not in Australia or Africa. And that’s where, independently, domestication of crops started.  Wheat went from an unknown crop to a crop which has spread everywhere on the planet. Human bodies were not designed for agriculture and farming. Wheat demand protection from pests, animals, and even other humans. The only advantage farming has is that it leads to more food per unit area and allowed humans to multiply exponentially. Overall, the agriculture revolution in the short run made the life of humans miserable, so, why did it happen?

The currency of evolution is not pain or misery but copies of DNA helixes.

Agricultural revolution leads to permanent settlements which allowed women to have more kids. Over time, as farmers multiplied they cleared, even more, lands, reducing the scopes for foragers even further. Just like the modern day luxury treadmill, agriculture soon became a necessity to support the ever-increasing population. And there was no going back. Similarly, domestication of animals proceeded with slaughtering the most aggressive, weak, and economically unworthy animals first. Over time, domesticated animals evolved to be more economically worthy and more submissive. While just like wheat, animals like chicken, sheep, pig, and cow spread over the world, they were treated brutally. From repeated impregnation to castration, their life became miserable compared to life in the wild.

The evolutionary  correlated with the individual suffering for animals and humans.

Building Pyramids

The food surplus exploded the population from 5-8 million in 10, 000 BC to 250 million in about 100 AD. The food surplus eventually leads to the emergence of bigger political orders like cities and nation-states. Rather than being based on some ingrained human characteristics, these were imagined human orders based on shared beliefs and myths. “All humans are created equal” is completely incorrect from a biological stance. Humans born and they are all different from each other. Just like animistic beliefs are a myth, so are human rights. There is nothing biological about them. They only exist in our shared imaginations. A natural order is a stable order. If people don’t believe in gravity, apples would still fall. If people don’t believe in human rights, society will collapse.  While some violence (police and army) is required to enforce an (imaginary) order, they themselves have to believe in something to organize in favor of that. And same goes for the elites who rule. Christianity, capitalism, democracy, all are imagined orders with a large number of believers.

Christianity, capitalism, democracy, all are imagined orders with a large number of believers.

The biggest lie though is to train a human right from childhood about the imagined order as a natural order. “God is one”, “People are equal because God created them that way”, and “Free markets are best because it is an immutable law of nature”. Over time, the order is embedded in the material world, for example, individualism is enforced via private rooms. The imagined order heavily controls our desires. Consider the desire to travel abroad, a millionaire today might solve his relationship crisis by taking his wife to an expensive trip to Paris. In ancient Egypt, he would have built a tomb, which she always wanted.

A millionaire today might solve his relationship crisis by taking his wife to an expensive trip to Paris. In ancient Egypt, he would have built a tomb, which she always wanted.

The two of the biggest imagined orders of the modern world are romanticism and consumerism. Romanticism teaches us that we must have as many experiences as possible to fulfill our expectations. Consumerism teaches us that we must consume as many goods as possible.

The imagined order is inter-subjective. Radioactivity is objective, it happens whether you believe in it or not. An imaginary friend is subjective, since it exists only as long as you believe in it. Preciousness of gold is inter-subjective since it exists not only in your imagination (belief system) but also in the belief system of millions of others.

To change an inter-subjective belief system, one has to convince everyone else and to convince everyone else; they have to believe in an even bigger imaginary order. For example, the existence of a particular company listed on NYSE is an inter-subjective order. To make everyone else not believe in its existence either, one has to go to a bigger imaginary order (NYSE). There is no way out of the imagined orders. We have to believe in a bigger one to dismantle a smaller one.

Memory Overload

Unlike animals, humans pass a lot of information via teaching and not encoding it in the DNA. The empires generated a huge amount of information. The brain has a limited capacity to store information, humans die, and brains are best at storing social, topographical, and qualitative information. What empires want to store was numbers. And that’s how writing was invented by ancient Sumerians in about 3500 BC. The initial writing was only for the record-keeping, therefore, it was a partial script. A full script can express almost everything that can be spoken. Sumerians also invested in the cataloging of this information and the schools where these scribes were taught. This new bureaucracy specialized a new compartmentalized way of thinking as opposed to usual holistic thinking.

There is no justice in History

The American declaration of independence, empowered men over women, whites over blacks and native Americans. Many modern westerners scoff at one imaginary system (racial hierarchy) but believe that another one (different schools for rich and poor) is perfectly fine. Hierarchies allow two complete strangers to decide how to talk to each other. At the same time, they limit the potential of individuals.

Every imagined system disavows its fictional origins and claims to be natural and inevitable.

Racism in the US: Purity and pollution are used as a standard argument for all the social hierarchies, some based on birth, some on race, and some on religion. In the US, white Europeans decided to import slaves from Africa since it was nearby, there was an existing slave market, and Africans had partial genetic immunity towards Malaria and Yellow Fever. This eventually was justified by the imagined order of white skin being superior to black. Such an imagined order is easier justification than to say that it is economically expedient to import slaves from Africa.  Over time, this acted as a vicious cycle, where blacks are inferior fueled discrimination which further leads to poverty among blacks.

The hierarchy between men and women: One hierarchy more or less same all around the world is the superiority of men over women. In many societies, women were seen as the property of men. And crimes like rape were property violations where marry-the-rapist was seen as a solution (ashishb’s note: This happens even today, even in the US). Of course, one notable difference between men and women is womb but as we have seen in modern times,  women can vote, live independently, and think for themselves, all of which is the imagined reality of ancient cultures, they were incapable of doing. Since almost all societies (even before having any contact) around the world put men above women, it cannot be a pure coincidence, there are theories around it. One theory is that men have more muscle power, the objection is why are women historically excluded from less strenuous jobs like politicians and priests. Another theory suggests that men are more aggressive and thus, better suited to be soldiers, and wars have dominated our history. This theory falls apart as well since historically, soldiers from the bottom rung never rose to the top. The top was reserved for the aristocrats. Another theory suggests that since women need cooperation from men during pregnancy, they have to become more submissive to the man they are bearing the child of, so that, he sticks around. This theory falls apart since support network does not have to be a male. Bonobos have all female support networks.

How did this happen that the species, Homo Sapiens, whose success depends on being more cooperative with each other has less cooperative individuals (man) dominate woman is still a mystery

Biology is willing to tolerate a wide spectrum of possibilities. Nature does not prohibit homosexuality; it’s the culture which labels it unnatural to restrict it. Something which is unnatural like humans doing photosynthesis just won’t happen.

Biology enables, culture forbids

The unification of Humankind

The Arrow of History

Unlike the self-consistent law of physics, cultures have internal contradictions in them. Solving them leads to a change. The modern world continuously fights with contradictory ideas of equality and liberty. All cultures from a psychological perspective are “cognitively dissonant”. But the human-worlds has unified and connected to each other over time and have similar ideas, nation-states, a similar concept of monetary transactions (currency), and similar legal system (international law). For a long while, humans still believed in “us” vs. “them”. Merchants, prophets, and conquerors to expand their territories or customers, believers, and subjects made us believe in a new imagined reality of the global brotherhood.

The scent of Money

A barter system does not scale. If there are 100 types of goods than the two parties who are exchanging the goods have to know C(100, 2) = 4950 combinations of exchange rates every day. Money ends up being a central mechanism to linearize the problem since every seller has to know the price of their good in a single currency. Of course, just like religion, money is an intersubjective reality which only exists in our imaginations. And it does not have to be coins or notes. In Nazi concentration camps, cigarettes were a currency. The only requirement is that it should easy to transport, store, and has a wide enough acceptance.

Money is the most useful and efficient system of mutual trust ever devised.

The original form of money like Barley had an intrinsic biological value. Over time, we moved to unmarked gold and silver which had no biological value. Then to marked gold and silver coins, so, no weighing required to find the value. And then to fiat currency which had no intrinsic value, and then to the electronic currency which had no physical existence. Money as a source of universal convertibility and trust has replaced priceless things like honor, loyalty, morality, and love. When we use money as a medium of exchange, we don’t trust each other; we trust money. When someone runs out of money, we run out of trust in them.

Imperial Visions

An empire is characterized by cultural diversity and territorial flexibility. All empires have engaged in the brutal slaughter and assimilation of the people outside its borders to extend its territory. Slowly, the newly acquired population forgets what they stood for. For example, in the 7th century AD, Arab empire crushed Egyptians with an iron fist, today Egyptians think of themselves as Arabs.  One major change which happened over time in the Imperial vision was that empires changed their imagined reality from “we are conquering you from our benefit” to a more benevolent “we are conquering you for your benefit”. Persian king changed from “Persian king” to “everyone’s king”. This was the first time in history, Sapiens were (pretending) to get rid of “us” vs “them” feeling. These imagined realities of benefitting the Conqueror exist even today when the US presidents use F-16 to deliver democracy and human rights

These imagined realities of benefitting the Conqueror exist even today when the US presidents use F-16 to deliver democracy and human rights in Iraq and Syria.

Of course, this benefitting the conquered approach still assumed the inferiority of conquered. That’s why M.K. Gandhi, a London-educated, qualified barrister was thrown out of whites-only seats from a train.

Almost, all imperial empires follow the same style. First, they conquered territories. Then those territories adopt the new culture. Then the people of these territories demand equal stature. And then eventually empire flames out but the imperial culture remains (ashishb’s note: Christianity, Islam, English, and French are some of those cultural remnants which can be seen all around the world).

Not only all empires are founded on blood and used war and oppression to maintain themselves, but also they are the source of almost all modern cultures. There is no untainted authentic civilization which is without those sins.

The Law of Religion

Along with money and empires, religion is the third unifier of mankind. Religion is a system of human norms and values founded on the belief in a superhuman order. The religions which are universal and missionary like Islam and Christianity succeed in spreading themselves.

Religion legitimises imagined realities (like “Eating pork is sin”) by claiming them to be coming from a superhuman entity.

Origin of Religion

Animistic religions originated since hunter-foragers wanted to maintain interests of other plants and animals (Eg. cutting a tree would anger the tree spirit, and it will take revenge). As Sapiens evolved to farmers, they desired absolute control over their animals. Gods acted as mediators. Sacrifice a lamb to fertility god and the god will ensure a bumper harvest. As kingdoms and trade networks established, multiple gods (like gods of war) appeared in a typical polytheistic fashion. While Animists thought Sapiens are just another creature, polytheists treated the world as a reflection of the relation between Sapiens and God.  Polytheist religions like Hinduism believe that there is a supreme power which is devoid of any interest in the mundane desires of human beings. Therefore, a worldly human would not pray to that supreme power. They would, however, pray to a god with a sub-divided power like Lakshmi for wealth. Since these gods have only partial power, they have interests and biases, and it is possible to negotiate with them.

This plurality of gods results in open-mindedness, therefore, polytheists rarely prosecute infidels.

They don’t normally engage in conversion either. Romans, Egyptians, and Aztecs rarely send missionaries. When empires expanded locals were never asked to give up the gods, they can worship the new god along with the local god. Romans happily added Asian god Cybele to their pantheon. Though they refused to add monotheist Christ. Roman Emperor did force Christians to worship the Emperor’s protector god as a mark of political loyalty and prosecuted them when they refused. Romans prosecuted a few thousand Christians in three centuries, Christians prosecuted millions of other Christians over the next 1500 years to defend their slightly different interpretation of their religion. Over time, some polytheistic worshippers started to believe that their god, while having interests and biases, is supreme. Christianity, an esoteric sect of Jews, whose leader Paul of Tarsus, claimed that the Jesus of Nazareth was their Messiah and if he has incarnated in the flesh then his message is worth spreading to the world. The esoteric sect of Christianity took over the Roman empire. Islam, another monotheist religion, repeated this model of success. Since monotheists are usually more fanatical in their beliefs, they took over the world. Most of the world today outside of East Asia follows monotheism. Christianity, however, adopted most polytheist gods back as Saints. For example, Celtic Ireland uses to worship Brigid, today, Christian Ireland worships St. Brigid.

Monotheism also gave birth to Dualism. Dualism explains evil by saying that there are two powers – a good and a bad. This explains the existence of evil why mystifies monotheism but is itself mystified by the order which governs the universe (since “good” and “bad” have equal power). Zoroastrianism is a notable dualistic religion. Monotheists like Christians, Muslims, and Jews absorbed dualistic beliefs. They not only accepted the concept of a powerful Satan but also believed that the god need helps in its battle against Satan and labeled those battles Jihads and Crusades. Even the concept of Heaven and Hell is dualist in origin, with no mention in the Old Testament. Most modern monotheists are syncretic in their beliefs. Several natural law religions like Jainism, Buddhism, Confucianism, and Stoicism appeared as well. They disregarded the existence of super-human Gods and prescribed more in terms of the way of living to attain a good life. For example, Buddhism’s central teaching is that suffering arises from craving and the only way to liberate your mind from craving is to train your mind to accept reality as it is.  Of course, since most Buddhists don’t spend their life attaining Nirvana but in the more mundane worldly tasks, they also go and worship in Boddhisatvas for bringing rains and even winning bloody wars in exchange of fragrance sticks and a gift of rice. Communism, Capitalism, and Liberalism, are modern religions with

Buddhism’s central teaching is that suffering arises from craving and the only way to liberate your mind from craving is to train your mind to accept the reality as it is.

Worshipping The Man

Liberal Humanism is the most famous religion (“ideology”) which worships humans as being scared and with belief that they have certain basic “human rights” which cannot be normally withdrawn from them. A murder is effectively destabilizing the cosmos order and punishing the murderer brings nature back in order. Social Humanism thinks about humans in a collective way, it holds a strong belief in equality. Evolutionary Humanism, the most radical one, was popularized by Nazis, it thinks of humans as a mutable species, and strongly believes that advancing the quality of the species and eliminating everything which is of lower quality should be the end-goal of the humanity.

The Secret of Success

While a globally interconnected society was inevitable (given the ability of humans to form large networks), the contemporary global society is one of the possibilities which got realized.

History has wide array of possibilities, many are never realized.

The success of monotheism, nationalism, and liberal humanism was one of the potential outcomes out of several possible ones. History is a complex level 2 chaotic system (Level 1 chaotic systems like the weather is unchanged when we try to predict, Level 2 chaotic systems like the stock market react to predictions). Genes lead to organic evolution; memes lead to cultural evolution. Some scholars see culture as a mental parasite, as soon as one country is infected with nationalism, slowly, the surrounding ones catch the infection as well.

The Scientific Revolution

The Discovery of Ignorance

Before the scientific tradition, it was believed that religious books contained everything that was important. Scientific tradition, in western Europe, a part of the world which played little role in the history till about 1500AD. The scientific tradition is willing to admit that a lot is unknown and even what’s known can be incorrect if the new evidence to the contrary shows up. The focus of education has shifted from Theology to Mathematics and other “exact” sciences. Even the heavy emphasis on technology in the military is a recent phenomenon beginning in the 19th century. Most cultures used to believe that golden age use to be in the past and hence, nothing much can be done to improve things. Scientific myth busting fixed all that. The scientific progress has drastically elongated the life expectancies. The scientific research, however, is almost always funded by entities who have their own social, political, or economic agenda. Science in itself cannot set its priorities, an ideology (religious, racial, or economic) determines the same.

The Marriage of Science and Empire

Western Europe and Britain which had played almost no important role in the history of the human civilization till about 1500 AD started to emerge and Europe took over to become the economic powerhouse between 1750 and 1850. While the development of both modern science and capitalism in Britain in a mere accident. The similar social structures (and imagined realities) of France, Germany, the US, and the other western nations allowed them to quickly follow up and copy Britain’s success. Societies in India and China, the economic powerhouse of that era, were organized differently and hence,  they could not do the same. While the Arab world, India, and China also produced intellectuals and scholars (which Europeans did study), it was only in Europe that these intellectuals worked alongside the capitalists towards for-profit initiatives. The Imperial voyages to the distant lands would consist not only of military but also some scientists to make discoveries.

Europe’s biggest success was the marriage of modern science and capitalism.

This scientific mindset is illustrated by the example of Columbus vs. Vespucci.  Columbus reached the Bahamas and the Americas in 1492, but he simply did not want to believe that there exists a new continent which the Bible and all other religious text could have missed. Vespucci reached there around 1500, and he argued that this is a new continent unknown till then.

For the first time in the history of the world, a culture was making maps with empty areas marked for exploration.

Europeans did not have an exceptional technological edge in the 1500s over other cultures what made them different was their insatiable desire to explore and conquer. In 1492, Columbus reached the Caribbean; the local population was colonized, killed, and enslaved with an iron fist. And the Aztecs in Mexico knew nothing about it. In 1517, after hearing rumors about a powerful Aztec empire, 300 Spaniards landed in Mexico. An empire of millions, unprepared for interacting with unknown humans, did not perceive a threat from 300 Spaniards. They pretended to be the diplomats of the king of Spain and use that deceit to capture the king Montezuma. They held him, hostage, while planning out a coup. By the time, Aztec elite revolted and kicked the Spaniards out; they had found huge support among subjected people, who preferred unknown Spaniards over Aztec rulers. That miscalculation was costly. Within a century, 90 percent of the local population was wiped out. The survivors were under an even greedier regime. The same story was repeated by the Spaniards with the Inca empire.

Lack of interest in the world beyond their empire ended up being costly for the Incas and the Aztecs.

The Ottomans, the Indians, and the Chinese heard about these stories but showed little interest in Europe.  Their world revolved around their empires while the Europeans enjoyed the undisputed mastery of America and Oceania. The wealth and the accumulated knowledge was then used to invade Asia. The detailed understanding of the local culture allowed Europeans to leverage and rule the populations far larger than theirs (ashishb’s note: The Spanish destruction of Inca and Aztecs; and the British colonial rule of India has strong parallels, the author missed out the right phrasing here which is divide and rule policy). While Imperialists claim that their empires were altruistic projects, a white man’s burden, the truth was locals were subjugated with an iron fist.

In 1764, Britishers conquered Bengal, the richest province of India, due to the policies of the British East India Company, a third of the population (about 10 million) died from 1769-73 in the Bengal Famine.

The linguistic basis of Indo-Aryan languages was further used to come up with the argument of a superior Aryan race – a race of tall, blue-eyed, blond, fair complexion, super-rational humans. They emerged in the north and invaded Persia and India, regrettably, degenerating themselves by intermingling with the locals (the core of Hitler’s argument).

The Capitalist Creed

Throughout human history, “economic pie/wealth is fixed in size and not growing” was the self-fulfilling prophecy. The idea of extending credit, therefore, was meaningless. The modern-day belief, based on The Wealth of Nations, is that the individual greed is good for collective prosperity. While the idea of reinvesting profits to increase production further sounds trivial today, for a long while, humans believed that the production and consumption are more or less fixed; and had it not been for the scientific revolution that would have been true. Many of the imperialist voyages could not have been easily funded by a single investor, and that’s what lead to the emergence of joint-stock ownerships and eventually stock exchanges (and bubbles). In many cases, the government came to the defense of the investors. In the Opium war in 1839 in China Britain fought Qing dynasty for protecting opium trade from India to China by British traders. Greek rebellions raised funds via bonds in London Stock Exchange, and where their fight against the Ottoman Empire started to lose momentum, the British Navy sent their ships to defend their bond investors by ensuring that Greece becomes free. The popular free-market doctrine wants us to believe that there should be no political interference in the market and left to its markets would benefit everyone. Except that is only a half-truth, all the Atlantic slave trade, most of the colonization, and millions of deaths of slaves on the plantations happened because of free markets and not the government. The European middle class happily bought shares of the slave trading companies and made about 6% a year in the 18th century.

While Nazism killed millions out of burning hatred. Capitalism killed millions out of cold indifference coupled with greed.

The Wheels of Industry

The invention of Steam Engine and further Electricity freed us from the day-night and winter-summer cycle of nature. The rise of industrial agriculture increased production drastically. And who will consume all this? Consumerism came to the rescue. All prior religions had encouraged austerity; consumerism encouraged conspicuous consumption. In fact, capitalism won twice when people overconsumed since it allowed them to sell the cure for overconsumption later. The capitalists follow the commandant of “Invest” while consumers follow the commandment of “Buy”. Two sides of the same coin.

Consumerism is the first religion in the history of mankind whose followers do what they are asked to.

A Permanent Revolution

The Industrial Revolution turned timetable and assembly into a template for almost all human activities. With the advent of the railroad, local time differences across cities became a nuisance. In 1880, Britain legislated a single time for the whole country. Today a single family has more timepieces than an entire medieval country. The biggest change, however, is how the Industrial Revolution broke the family into individuals. Throughout human history, the family and the community were the biggest support system a human had. Even the kings maintained themselves primarily via support of family heads. The market and the nation-state made a new offer to the individuals, free yourself from the family and become an individual, follow our rules instead, they won. The sacred parental authority, the (lack of) right to choose a spouse, and all such family powers have been taken over by the nation-state.

Previously, bride and groom met in the family living room and the money passed from one father to another. Today, courting is done at bars and cafes and money passes from the hands of the lovers to the waitresses.

The nation and the consumer are the new imagined communities of our era which have replaced families. And just like money and human-rights, these are inter-subjective realities which live in the minds of millions. Given that most wealth is not physical anymore, the wars have become less profitable. Simultaneously, due to trade, peace has become even more profitable. We are living in one of the most peaceful eras in human history.

And They Lived Happily Ever After

History talks about facts but rarely talks about how has human happiness evolved. Studies have shown that people with more money, good marriages, better social support, and lower subjective expectations (vs. the reality) are happier. Illness decreases happiness in the short-term. The subjective expectation is the most crucial aspect; advertisements make us miserable by increasing subjective expectations. The bigger question might be the meaning of life. From a scientific perspective, life has no meaning. But for our happiness, meaningless life is an unacceptable choice. It’s when our delusions about the meaning of our life synchronize with the collective delusions, that’s when we feel happy.

Its when our personal delusions about meaning of our life synchronize with the collective delusions, that’s when we feel happy.

Most of these studies take the “liberal” approach of believing that humans are best to decide when they are happy or not. Religious leaders, as well as psychologists, disagree. For example, Buddhism believes that real happiness comes when one disassociates oneself from inner feelings and can just calmly observe them.

The End of Homo Sapiens

Till now all evolution has been evolutionary, it is likely that the future evolution will be Intelligent Design based designed in Laboratories. Either we will enhance human genes (ashishb’s note: CRISPR/Cas9 gene editing), we will add non-organic parts (cyborgs), or we will create life from completely inorganic material based on Artificial Intelligence. Due to a massive PR risk around ethical issues, most of these debates have focused on targeting plants, targeting amputated humans, and building AI for targeted tasks.

Book summary: Brandwashed by Martin Lindstorm

The book talks about Martin’s experience as a brand consultant where he tries to expose the subtleties of marketing used by corporations to create or increase demand for their products. Some techniques mentioned in the book are morally questionable. Overall, it’s a great read into at the intersection of psychology and business. I would recommend reading this in conjunction with “Influence: The Psychology of Persuasion“.

Marketing to the kids (including the unborn)

Childhood memories and associations are more resilient to traumas than the ones formed later in life. A small hint of fragrance,  surroundings, or familiar objects can bring them back. But it extends beyond childhood. A fetus can hear not only the maternal sound but also the sounds coming from the outside and studies have confirmed that newborns react positively to the music tastes of their mother. The one-off unscientific real-world marketing attempts have confirmed that this is not just limited to the sound but extends to smells and the taste of food as well. Kopiko candy brand gave out free candies in maternity wards and in just four years of existence became the third largest candy brand in the Philippines. Children who grow up recognizing brand logos not only prefer them later in life but also believe that the brand corresponds to personal qualities. Marketers love targeting kids entering precocious puberty (“early puberty”) since it allows them to form early preferences for things like razors, deodorants, and makeup.

  • Organizations like Girls Intelligence Agency help brands convert young girls with free cosmetics and party invites to convert them into brand ambassadors.
  • Gillette sends out free razors to boys on their birthdays (age varies according to state regulations). There is a 92% chance that a boy who has tried Gillette razor twice will use it for the rest of his life.
  • Kool sends out cigarettes for the three months starting on the 18th birthday. If the boy or girl is not hooked in those three months, they are a lost cause. And if they are hooked, then they are able to milk them for life.

Marketing to kids not only sets their future preferences but also influences the preferences of the whole family. Many times parents would buy what the child is asking for just to calm him/her down. Marketers call this “pester power”.  The reverse “hand-me-down influence” happens when parents shape the preferences of the child. Overall, both are in play simultaneously.

A fetus develops taste for the sound, smell, and taste. The effects last into the adulthood.

Selling Fear

From flu epidemics like swine flu to hurricanes, marketers love capitalizing on fears selling food which boosts immunity with zero scientific evidence to hand sanitizers where hand wash would suffice. Fear raises adrenaline which leads to the release of epinephrine, which produces a satisfying sensation, more so for adrenaline junkies. Fear of failure is higher than the promise of success. More men end up going to the gym to avoid a flabby body than to develop muscles. Fear is used to sell

  • Fear of failure is higher than the promise of success. More men end up going to the gym to avoid a flabby body than to develop muscles.
  • Fear is used to sell home security systems to single women and life insurance to men with families.
  • Mother of all fears is the fear of a first-time mother. Women are more prone to fear and guilt than men. First-time mothers even more so. From selling tons of child safety equipment to food items which require a small finishing touch, first-time mothers are the biggest opportunity for the marketers.
  • Pharma companies capitalize on the fear of social isolation due to being overweight, being bald, having sexual performance issues, having cancer, etc. Sometimes they terrorize with minor things like restless leg syndrome and even shyness. Among big pharma, twice as much money is spent on advertisement than actual R&D.
  • Fear of staleness – Whole Foods use chalked boards to display prices to evoke the feeling of freshness, toilet papers in hotel rooms are sealed to imply room cleaning, seafood sold on ice, tomato-colored bottle of Heinz and sweating cans of coke are all meant to disguise into believing that the food is fresh and free of preservatives.

Among big pharma, twice as much money is spend on advertisment than actual R&D.

Brand Addiction

Dopamine, the feel-good neurotransmitter, is behind our addictions from cigarettes to smartphones. The greater we use a dopamine inducing substance the more the tolerance we build up of it for generating dopamine, and more we have to use it to generate the same amount of dopamine and feel better about ourselves.

Our lives are divided into two states, the routine state (the weekdays), and the dream state (the weekends). It’s during the dream state, we experience new brands, and bring them back into our routine lives. For the craving to build up, some subtle clues are dropped in the environment, like the sound of the soda can popping up or addictive ingredients like MSG, corn syrup, caffeine, and sugar. Studies have shown again and again that addictive ingredients trigger the brain the same way narcotics does.  Games & Gamification cause severe addiction by providing a repetitive task with increasing level of difficulty, causing a regular release of the “feel-good” dopamine.

Selling sex

Sex does sell. While men respond more to explicit imagery or sexual innuendos, women, on the other hand, respond more to ads with a romantic touch. Seeing a scantily dressed young person of the same sex puts us into the dream state of imagining ourselves as desirable as them.

The story of Axe body spray

Unilever surveyed 12, 000 single men and teenage boys, asking uncomfortable questions ranging from their fantasies to their pick up strategies. They concluded that the ultimate male fantasy was not to be irresistible by a woman but by several women. They further accompanied several men to bars & nightclubs and segmented the males into six categories –

  1. Predator – a loser & mostly likely liar looking for a drunk woman
  2. Natural talent – someone whom most women would actually desire. Due to positive self-delusion, most men thought they are a natural talent
  3. Marriage material
  4. Friend – the ones who get friend zoned
  5. Insecure Novice – looks creepy like a predator but pure at heart
  6. Enthusiastic Novice – looks really eager

Unilever decides to target two groups, the insecure novice, and the enthusiastic novice.  They also decided to target natural talent mainly to provide a finishing touch to them. The boundary-pushing sexist ads campaign which showed an ax-sprayed man with several women worked wonders for Unilever, earning $71M in 2006 ($50M more than the nearest rival Tag). Eventually, as more and more dorks started to cover themselves with ads, the brand became the brand of losers and took a huge hit in sales. Unilever’s Euphoria was another success where the idea was to design a fragrance which gave women the feeling of imprisoned lust (euphemized as melancholic).

More examples

  • One car company looked for a particular animal name to design a car targeting middle-aged men. (ashishb’s note: The book does not mention the name but gives enough clues that it was Rolls-Royce Stallion), the car was themed by the smooth, black, and silky appearance of the animal.
  • Simpon’s strategy – where a term like “golden showers” or “12 inches of flavor” which is not overtly sexual but obvious to the wallet-carrying adult is used for producing humor suited both to the child and the adult.
  • In the US, the rise of single mothers, fearmongering among men, and new cosmetics marketed towards men to smooth out their rough edges while keeping them look masculine have all contributed to the growth of the male grooming industry.

Peer pressure

  • Termites, bees, and birds appear to move in unison as if they are communicating with each other. In biology, these are called complex adaptive systems where simple individual actions result in a complex final outcome. Humans to some extent behave the same way.
  • Humans flock behind more confident individuals. Even toddlers have been studied to play with toys similar to how they have seen other toddlers playing with them.
  • When people look at the photos of a party they attended, they first check out their photos, and then they check out people surrounding them in those photos (to compare and to see their reactions towards them).
  • In 2009, Cepia staged Zhu Zhu Pet Hamster giveaways at Zoos, hospitals, and MLB games. Then they staged several influential parties for mommy bloggers, organized radio shows, and cut the production to create artificial scarcity. This created a demand big enough that Cepia made millions by selling this toy.
  • Viral phenomena like Smirnoff Icing game (with no role from Smirnoff) or small clips uploaded by Viacom on YouTube to market its shows, if successful, can result in a huge windfall for the marketers.
  • Bestsellers list recommended music, and all such curation system help us guide what to purchase. We love buying what is already popular since it implies implicit social approval of our taste.
  • In a survey of 100, 000 teenagers in30 countries, roughly 50% said that they won’t buy an item of clothing without a visible branding on it.
  • Using counterfeit products, not only, fails to improve our self-image but undermines our internal sense of authenticity.
  • A reverse peer pressure develops when older people start using the product, in that case, younger ones try to dissociate themselves from it. A product which is going to be explicitly disapproved by the older generation has a high chance of success with younger ones.
  • Most Russians drink a large amount of Vodka quickly (after Nostrovia – Russian cheers). Neither they like the taste, nor they like binge drinking but peer pressure keeps this ritual alive. Younger generation hates it, therefore, a new brand of Vodka capitalized on that by having a better taste and a slow drinking ritual decided to take on the Russian market ( the author did not reveal the brand name).

We love buying what is already popular since it implies an implicit social approval of our taste.

Nostalgia

First experiences might not always be better but they always seem better in the hindsight. We always remember beautiful memories and associations of the past. Many memories, especially of childhood and teenage are usually of fewer responsibilities and youthfulness and hence, are more beautiful. We are attracted to small things which remind us of that nostalgic past. When we buy a product from the past, we are not just buying the product but a nostalgic trip to our childhood. We know that the time is fleeting and just the mention of the word “time” in an advertisement makes it more likely for us to act.

Nostalgia demands authenticity and nothing authentic can be perfect. From pre-washed T-shirts to (apparently) randomly broken chocolate pieces, (machine generated) chalk signs a Whole Foods, all these are attempts to fake authenticity with imperfection. Perfection, like a perfect burger, makes us conscious of mass-produced factory goods.

When we buy a product from the past, we are not just buying the product but a nostalgic trip to our childhood.

When Evian water, a French bottled water company, entered China, their first attempt to sell bottled water flopped since they chose a well which tasted more like the modern day urban China than the rural farmland, most of China was a few decades ago, after realizing this, they found new wells with grassy moldy taste and this time it succeeded.

Celebrity Endorsements

  • In modern democracies, royal families are effectively celebrities. Things like royal marriages and royal births boost their popularity. They have to project an aura of being special but at the same time not too aloof from the commoner.
  • While the childhood dream of most boys is powerful superheroes and princess for the girls, the future-self of everyone is the same: rich, attractive, and famous. And that’s what attracts us to celebrities, we envy what they have.
  • South Beach Diet published in 2003 was relatively unknown until the “celebrity” Clintons endorsed it. And it wasn’t just 15 minutes of fame, the book still commands strong sales in the US.
  • Vitaminwater gave shares to celebrities hoping to get endorsements in return which they indeed got.
  • Companies come up with preferred, exclusive, and club offerings all the time, marketing them as exclusive, even though, anyone who is willing to pay an exorbitant fee can get in.
  • Cosmetic companies put doctors on their board since the recommendation from experts (even where there is a perceived bias) is pure gold.
  • Celebrities lend their names to products or publicize products in return for either ownership stake or royalty based on goods sold. Despite this bias being visible, it still works since consumers do want to associate themselves with Elizabeth Taylor by buying perfume with her name on it. And this is not just limited to useful goods, Marilyn Monroe’s empty prescription bottles were sold for $18,750. The key is celebrity association and not usefulness.
  • Just like “peer pressure”, celebrity endorsement is a way for us to let someone else make a decision for us.

Marketing Health – physical, mental and environmental

  • Goji berry is found in China and Malaysia but is associated with Himalayas and Buddhism to imply purity, authenticity, and Eastern enlightenment. In fact, most of Freelife’s Goji berry juice is produced in Arizona. Marketers exploit the mental shortcut which looks at the bottle and associates it with Eastern enlightenment. Acai Berry uses “Brazilian rainforest” for the same effect.
  • Pomegranate marketing overemphasizes the absolute benefits of pomegranate without admitting that it is not much better than most other fruits and vegetables.
  • In the US, “organic” is a regulated term but “natural” is unregulated. And marketers love adding the word natural whenever they think it can give them a boost.
  • “multigrain” just means more than one grain and it might or might not be healthy.
  • “energy drink” is a positive spin to a drink with more calories.
  • “contains real fruit” does not mean much, technically, any little amount of real food in a drink would qualify for it to claim that it contains real fruit.
  • “zero trans fat” usually implies the presence of saturated fat, both being equally bad for the heart.
  • Cosmetics and clothing can make even more outrageous claims due to little regulation. VitaSea -shirts, claimed to be made from Seaweed, contained no seaweed.
  • Green, recycled, and socially responsible good are usually more expensive, even when they don’t have to be. Companies love creating this aura of it costs more to be socially responsible and environmentally friendly while milking extra money.
  •  Buddhism, yoga, new age spirituality, and halal labels are all used for selling goods in the pretext of purity.

Data Mining (consumer insights)

  • Before a hurricane, Walmart analyzed data from a past hurricane to conclude that top selling item was not flashlights but beer and Strawberry Pop-Tarts.
  • Credit card purchase monitoring, which is further sold to third-parties is the most common way to find customer behaviors. This data is used for further sending targeted emails.
  • Homeowners spend ~$12, 000 in the first six months of a move and that’s why property deeds are a major source of data for the companies.
  • Loyalty cards while giving a discount to consumers allow the stores to profile the buyer even more closely.
  • When Mark & Spencer in the UK spotted in the sales data that a lot of Indians dishes and food is being purchased there, they realized that a lot of Indians are coming there to shop. They started both currency exchange and travel right inside the store to make money off of the trend.
  • Shoppers who go counterclockwise spend twice as much as those who go clockwise. A store decided to put an entry to the right to ensure counterclockwise motions.
  • Given the amount of information which is being tracked about us, both online and offline, it is safe to say that we are living in a post-private world.

 

Book summary: “Where good ideas come from” by Steven Johnson

The book presents an impressive theoretical framework around how good ideas emerged in human history and debunking myths associated with the same. The underlying theme of the book is how coral reefs, big cities, and the world-wide-web provide the right platform for innovation.

A right platform for innovation provides liquid networks which encourage rapid information sharing, serendipitous encounters, the formation of slow hunches, the exploration of the adjacent possible, and exaptation of the existing solutions for solving seemingly unrelated problems.

Introduction

  1. Kleiber’s law: Metabolism slows down with mass in proportion to (mass)3/4, so bigger animals have slower heartbeats. City growth (gasoline stations, road surface area, etc.) follows Kleiber’s law as well. However, innovation in larger cities had super-linear growth (~(size)4/3) with size.
  2.  10/10 rule: It takes about 10 years for a new technology to be developed and another 10 for its mass adoption. The web has compressed it to 1/1.

The Adjacent Possible

  1. Stephane Tarnier, an obstetrician in 1870, took inspiration from chicken incubators to construct human incubators. The same incubators turn out to be difficult to be repaired in the developing world and a new one built out of auto spare parts turned out to be better.
  2. The adjacent possible innovations come from the first-order combination of what’s already available (“spare parts”).
  3. The inventions whose raw material is not available are ahead of their time and fail to materialize.
  4. Difference Engine was in the adjacent possible but Analytics Engine was ahead of its time.
  5. YouTube succeeded in 2005, it would have failed, if launched, in 1995.
  6. The environments where the adjacent possible can be explored lead to good innovation.
  7. Challenging problems don’t define their adjacent possible in a clear way. A good solution combines what’s available to solve the problem.

Liquid Networks

  1. Good ideas spill through connected “liquid” networks of individuals.
  2. Most inventions and discoveries are not made by lone wolves but a group of humans exchanging ideas (“spare parts”) and problems they are trying to solve.

The slow hunch

  1. An FBI agent filed a memo on July 2001 stating that Osama Bin Laden is sending students to attend civil aviation in the US. The memo was marked speculative. A month after his memo, Pan Am Flight Academy in Minnesota reported to FBI about a suspicious student who has more interest in cockpit doors and communication than the actual flying. The search warrant to check his laptop was not granted until Sep 11, 2001. The two agents in Arizona and Minnesota had hunches but only if they were connected, it would have lead to something.
  2. Slow hunches stay in the mind and develop into an idea over time, and liquid networks allow such hunches to be passed around and intermingled with other hunches.
  3. Commonplace books and nowadays, DEVONthink and Evernote are ways of collecting hunches.
  4. Tim Berner’s Lee took inspiration from Enquire Within Upon Everything over time to develop his hunches around how the World Wide Web should look like. Similar hunches lead to the invention of products like Google News.

Serendipity

  1. Dreams and sudden sparks of thoughts explore the adjacent possible combining various unrelated ideas and sometimes reveal remarkable solutions to problems at hand.
  2. Dmitri Mendeleev had a dream that elements cannot be ordered by atomic weight and suggested him to use the atomic number instead.
  3. Kekulé had a dream about Ouroboros which lead him to the structure of Benzene.
  4. Sleeping on the problem has demonstrated a strong positive impact on problem-solving ability.
  5. Large clusters of neurons fire occasionally at the same frequency and this has shown to be positively correlated with IQ.
  6. Daphnia, a water flea, reproduces asexually under normal circumstances. Subjected to stress (harsh weather), the reproduction starts producing males and switches to sexual reproduction. It’s a biological innovation strategy. When life is going good, it makes sense to keep doing what you are doing. Innovation is required when it’s not.
  7. Reading is an unsurpassed vehicle for transmitting new ideas. But if it’s spread over a long period then serendipitous connections won’t happen. Bill Gates takes annual reading vacations to read a large amount of text in a short period of time.
  8. Internal and external idea exchange platforms are all about finding and sharing hunches. (ashishb’s note: I feel that the author is over-emphasizing their success, the GreenXchange mentioned touted in the book is not even active anymore).

Error

  1. Triode, Penicillin, Photography, Pacemaker, all were results of errors made during the experimentation.
  2. The white noise of cosmic radiation was believed to be an error till it was realized that its a proof of Big Bang.
  3. The error acts as a dark background for exhibiting the bright truth.
  4. Good ideas emerge more from surroundings with a certain amount of noise and error which leads to the exploration of the adjacent possible.
  5. DNA transcoding introduces a few mutations as a way of evolution & innovation.

Exaptation

  1. Gutenberg used wine producing screw presses for printing.
  2. Feathers first emerged for warmth were later exapted for flying by birds. If they haven’t provided warmth in the first place, the evolution would not have pushed towards making them worthy enough of flying. Therefore, exaptation is the only way for flying feathers to evolve.
  3. Many scientific inventions are borrowing/exaptations from one unrelated field to another.
  4. Big cities, due to their population density, support subcultures more effectively than small towns. Therefore, big cities encourage exaptation and cross-fertilization (“collision”) of ideas more than the smaller ones.
  5. Diverse, horizontal social networks are way more innovative than uniform, vertical networks of similar individuals with shared beliefs. The latter damps the creative sparks. In fact, the individuals who maintain active links to multiple diverse groups are the real source of innovative exaptations.
  6.  Coffeehouses, research labs, and similar high-density places of a diverse group of individuals lead to more collisions and exaptations.
  7. Cholera was believed to be air-borne but Snow‘s work as anesthesiologist convinced him that it cannot be airborne and he, eventually, proved, that it is water-borne.

Platforms

  1. Before Darwin, the belief was that atolls are dormant volcanoes, Darwin realized and proved that they are built up by reef-building coral. Coral reefs occupy 0.1% of the earth surface but 25% of marine life species (Darwin’s paradox).
  2. Physicists came up with an idea of tracking Russia’s Sputnik satellite using Doppler’s shift, and that leads to the reverse idea of determining the location of objects on the surface of the earth, which has become the modern day GPS.
  3. The most generative platforms are like stacks, the person working at building level 5 has to only understand level 4 and nothing beneath it.
  4. Platforms have a natural attraction towards recycling waste and abandoned. In big cities, chain stores and restaurants occupy the new construction while the old one is occupied by bookstores, struggling artists, and antique dealers. The riskier enterprises always have to go for the less valuable spaces, that’s why, Google, Apple, and HP were started in garages. Old ideas can sometimes use new buildings but new ideas must use old buildings, new construction is too expensive to support them.
  5. Coral reefs have various species living in a symbiotic relationship.

Earlier, when connectivity was poor and it was harder to capitalize on one’s innovation, it was mostly driven by the individuals for a non-market motive. After printing press, the connectivity became easier, then the most innovation was driven by the networked groups for a non-market motive. As capitalism took a strong grip on the economies, more and more innovation was produced by the networked groups working for the [captialistic] market. One problem with that, however, is that financial rewards discourages open sharing of the information and hence, makes the networks less liquid. Both universities and the world-wide-web have played a strong role in encouraging networked innovation with non-market motive (“commons”) leading to open-source movements and open research. And even markets have benefitted from it.

Book Summary: Hard Things about Hard Things by Ben Horowitz

The book is Ben Horowitz’s memoir with a special focus on his company Opsware and the lessons he learned there.

 

book_cover_hard_things_about_hard_things

From Communist to Venture Capitalist

Ben’s father was a communist and he grew at the People’s republic of Berkeley. His first job at NetLabs which was run by professional management with little appreciation for the product or the technology, this taught him the importance of founders CEOs. The job took a toll on his personal life, and to stabilize that, he left and joined Lotus. As soon as he came across Mosaic, he was mesmerized by the Internet and applied for Netscape. That’s where he was interviewed by Marc Andreessen who is his business partner at A16Z.

Leadership is the ability to get someone to follow you even if out of curiosity.

I will survive

Ben started LoudCloud, which was doing well before the dot-com bust. Its primary customers were all startups and the customer bankruptcies decimated the revenue growth. The private funding was hard to come by and Ben decided to take LoudCloud public. The Saas model of recognizing revenues only when they are earned (whereas the software is recognized as soon as it is sold) and similar issues made the S-1 filing look really bad. It got termed as IPO from the hell. The reverse split to keep the stock price high enough further destroyed the fantasies of the employees. The IPO roadshow on the east coast was badly impacted by his wife’s on the west coast allergic reaction leading to the emergency room. The IPO happened at $6 per share. No one, not even the underwriting bankers were happy. The macroeconomic condition worsened and the revenue guidance could not have met in the further quarters. So, the finance department suggested that let’s reset it completely, rather than doing that in steps.

If you are going to eat shit, don’t nibble.

The underwriters, Goldman Sachs and Morgan Stanley, dropped analyst coverage in response, the stock fell to $2. Then 9/11 happened. Then 26/11 Exodus, Loudcloud’s largest competitor, a $50 billion market cap company with $800 million raised filed bankruptcy. Ben realized that the operations are too fragile, he thought of acquiring Data Return and realized that neither’s future is bright. So, he decided to exit the cloud business completely and extract out the software business which was built for cloud automation (Opsware). The stock slowly rose to $4 and Ben decided to raise $50 million from private investors. That’s when Atriax, the largest customer which owned $25 million filed bankruptcy. The plan to raise money was put on hold and acquisition was sought out. EDS and IBM were played against each other on an artificial deadline of eight weeks. EDS wanted to Loudcloud more than IBM. It eventually did the acquisition, excluding Opsware, for $63.5 million. It even licensed Opsware for $20 million a year. 140 employees got laid off. Another 150 went to EDS. 80 were left with Opsware. On Bill Campbell’s recommendation, Ben stayed with the employees on the west coast when the announcement was made in New York. In Bill’s words, “If you don’t treat the people who are leaving fairly then those who stay back would never trust you again”.

If you don’t treat the people who are leaving fairly then those who stay back would never trust you again

This time with feeling

The stock price has fallen to $0.35 and NASDAQ warned that the stock will be delisted. Some members of the executive team which did not understand software accounting & sales had to let go off. The stock price rose to $7. But then EDS which accounted for the 90% of the revenue wanted to cancel the contract since the deployment has not gone as smoothly as expected. Opsware was given 60 days to fix all the issues. The head of EDS servers’ team loved Tangram and hated CA products. EDS was going to get the latter for free in a deal. Opsware did the diligence of Tangram, found it to be bad but even then acquired it for $10 million which was a 67% premium to its market value at that time. Opsware offered Tangram for free in that 60-day window. The problem seems to have been solved. But then BladeLogic started to beat Opsware. The stock price was back to $2.90. The company went for another war-mode for the next 6 months. When things were going well, it was decided to go beyond server automation and look into network automation.

All decisions are objective until the first line of the code is written. And then they are emotional.

Ben could have built something internally or acquire another company. All decisions are objective until the first line of the code is written. And then they are emotional. Ben, therefore, decided to see if there is a possibility to acquire before starting an internal effort. Among the four automation companies, the cheapest one (Rendition networks) had the best architecture. Ben was convinced that the market was wrong. Rendition networks were acquired for $33 million, 3 months later, Cisco paid $30 million to license its technology. Slowly the acquisition offers started to tick in. Virtualization was also taking over. The share price was about $7. Ben talked to the team and almost everyone wanted to exit. He decided that the price would be $14. HP acquired it for $14.25 per share ($1.65 billion in cash).

When things fall apart

No Plan B

Startup CEOs should not play the odds. Statistics are against them and they don’t change the difficulty of the task at hand. A good startup CEO has the ability to focus and make the best move when there are no good moves.

A good startup CEO has the ability to focus and make the best move when there are no good moves.

A good principle to follow is the first principle of Bushido: keep death in mind at all time. So, you may conduct yourself properly in all actions. Being a startup CEO is a tough struggle, if you don’t like it, don’t do it, but if you do it, don’t take it personally, find the best move, persist, and convince the team to follow you.

Share all the news

As a startup CEO, share the news, both bad and good. It builds up trust, brings in diverse opinions, and allow bad news to be known faster. When people bring problems out in open, they get solved. A culture which punished people from talking about the problems prevents the free flow of the information. An example would be “don’t bring me a problem without bringing a solution”.

In any human interaction, required amount of communication is inversely proportional to the level of trust.

Layoffs

Loudcloud went through three layoffs but still got sold for more than a billion dollar. Layoffs destroy the morale of the employees who are left. Unless they are done right.

Layoffs destroy morale of the employees which are left. Unless they are done right.

If the financial situation requires, the CEO should clear off his head of the past glory, execute quickly to avoid leaks, be honest about the reason that its company’s failures and not the individual’s performance issues, layoff must be executed by the manager since the employee is going to remember every last detail of this day, the CEO should address the entire company, and after the layoff the CEO should be present and visible. Messaging and execution are important for people who are staying.

The messaging and execution [of layoffs]  is important for the people who are staying.

Firing

Firing an executive is relatively easier since they have been on the other side of the table.

  1. Root cause analysis – Figure out why the executive was hired in the first place. It could be a poor job role definition based on some abstract idea. Hiring could have been for a lack of weakness. Hiring for the scale too soon which might be attained in some hypothetical future. Hiring a generic “great” head of sales ignoring the unique situation of your company. An Executive who had a mismatch of ambition or failed to integrate into the company.

Hiring should be for strengths not for the lack of weakness

There is no great head of sales. There can only be a great head of sales for your company for next 12-24 months.

2. Inform the board
Call board members individually and face them, then call the board meeting, give a good severance package to the executive, ensure that his reputation is preserved.

3. Prepare the conversation
State decisively (“I have decided” not, “I think”), be clear on the reason, and have the details fo the severance ready. Let him decide how to communicate the decision to the company and the world. You cannot let him keep his job, but you absolutely can let him keep his respect.

You cannot let him keep his job, but you absolutely can let him keep his respect.

4. Inform the company
Inform their direct reports, other staff members, and the company, in that order, on the same day. CEO should ideally fully take over the role in the interim.  It will also help the CEO decide whom to hire for the role.

Demoting a friend

As the company grows, sometimes, it is important to demote an early employee who can no longer head the bigger unit anymore. It is important to sacrifice his good for the good of other employees. This ends up messy. He might want to leave, if he stays on the same team and reports to a new boss holding his position, he might try to sabotage things. Acknowledge his contribution, be decisive in the language and admit the reality that if you as a CEO are under-skilled it is even harder to develop him and that in itself is a bigger recipe for the failure.

Loser Lies

Humans listen to leading indicators of good news. Revenue grows, immediately hire more. Revenue falls, no immediate action. When a company struggles, leaving employees are labeled with “they were bad anyway”, lost sales deals are deemed to be lost because competition gave the product away for cheap. These are all lies which we tell to ourselves. It is important to not fool ourselves with them.

Lead Bullets

Sometimes, there are no silver bullets, there are several lead bullets which are required to improve the product. This is true more often when the customers are buying a similar product from the competition because it is simpler, faster, and/or easy to use. At that time pivoting or building a new feature is akin to looking for a non-existent silver bullet.

Nobody cares

Nobody [except you] cares about the underlying cause of why things are going wrong. It does not help them at all. Don’t waste time explaining why things are going wrong, spend it on trying to make them right.

Don’t waste time explaining why things are going wrong, spend it on trying to make them right.

People > Product > Profit

Ben wanted to hire a new head of sales, Mark Cranney aced the interview but was from a lesser-known university and did not look like a head of sales. The more time he spent with him, the more he was convinced that Mark is the right guy. He fought against the whole board and the decision turned out to be great in the long run. Hiring the right people and taking good care of them is of the highest importance to an organization.

A Good place to work

Being a good company does not matter when things go well but can be the difference between life and death when things go wrong. The only reason someone would stay at a company going through a bad phase is that he likes his job. When things go wrong, a bad company won’t be able to hold onto the employees and that’s when the death spiral begins.

Training

Even new workers at Mcdonalds get the training. Training is one of the highest leverage activity a manager can perform. It sets the basis for performance expectations. It ensures consistent product quality. It ensures employee retention, since people leave, primarily, because either they hate their manager or they aren’t learning anything new. The most basic training to start with would be the functional training for the job functions and the management training for the managers.

Hiring from Friend’s company

Hiring from a friend’s company is always tricky. Either you will hire mediocre people or their top-notch employees. It will never go down well since the trickle of employees leaving will begin after that. During the interview process, tell the candidate that you need to do a background check with that CEO friend and to let you know if you don’t want that to happen.

Big companies execs transitioning to small companies

In big companies, execs are interrupt-driven. They always have incoming requests to process, their job is not about taking new initiatives but fine-tuning the existing ones. In small companies, the requirement to take an initiative is much higher. Big company execs are good at following processes, at small companies, they have to create one. Screen them right at the time of interview by ensuring that they have the self-awareness of this. Train them heavily by assigning them an initial set of tasks.

Hiring an Executive

The two biggest mistakes which can happen are “looking for the lack of weakness and not strength” and “hiring on some abstract look & feel”. Hire the right person for your company at this particular point in time. List the explicit set of strengths you are looking for. The CEO must make a final solo decision without being influenced by anyone else.

When employees misinterpret managers

An organization should not be run as a black-box with the sole focus on metrics and quantitative goals. Such a focus usually lead to an incorrect prioritization of the goals. An organization should be run as a white box, many questions to judge its progress and performance would be more qualitative in nature, for example, long-term competitive edge,  customer satisfaction, etc.

Management debt

Short-term, expedient decisions with expensive long-term consequences can lead to a management debt. The three most popular ones are – putting two in a box (promoting two people to the same position and making them share responsibilities when only one is required), overcompensating someone (because they got another job offer) and no performance management. Most experienced CEOs opt for hard choices in these cases to avoid management debt. A good HR division provides management quality assurance, it designs a good process, works with managers to identify bottlenecks, and finds out unspoken problems inside the company.

Company politics

CEOs who avoid politics, accidentally, end up encouraging it.

The right kind of ambition is ambition for the company’s success and the individual’s own success being a by-product of it.

If one executive complaint about another’s behavior, get both of them into one room to resolve the issue. If an executive complaint about another’s performance and you already knew it then it is already too late, you should fire that executive since improving skills is doable but regaining the support of the organization is really hard for him/her. If an executive complaint about another’s performance and it’s new news, strongly disagree right there and then evaluate the complaint objectively. Individuals optimizing personal achievements over the company are bad. Worse if they are managers since that encourages employees to do so.

Titles and promotions

Employees love titles and for an organization of beyond a few tens of employees, everyone needs to know who is who. The author believes that titles are one of the cheapest things which a company can offer, so, if a better title help hiring an employee, use it. Mark Zuckerberg has the opposite thinking where he prefers leveling down the new hires to avoid giving them better titles than existing employees. People at any level compare themselves to the worst person at the next level and want promotion as soon as they reach that level. This leads to the law of crappy people. To avoid that, a good promotion process must ensure criteria of whether an employee is ready for the next level is an objective one.

When smart employees are bad employees

Some smart employees are bad employees.

  1. The heretic – The one thinks the company is run by a bunch of morons. This usually happens because he is disempowered, fundamentally a rebel or immature. It is difficult to fix this situation since once an employee has taken a public position, it is a credibility hit for them to change their stance.
  2. The flake – If an employee is not reliable, all the intelligence is a waste.
  3. The jerk – Bad behavior cripples communication. If the VP of marketing is a jerk then no one will bring up the issue of marketing in the meeting, communication will slowly break down and the topic of marketing will never come up. A few jerks who are making massively positive contributions are fine, but adding more of them will destroy the company.

If anytime someone raising a concern about marketing is attacked by VP of marketing then topic of marketing will stop showing up in the meetings.

Old People

Hiring senior people into a startup is like an athlete taking a performance-enhancing drug, if all goes well, you will achieve new heights. If all goes wrong, you will start degenerating from the inside out.

One-on-one

A one-on-one is an employee’s meeting where he can talk about issues, frustrations, and it is really important for a manager to have regular one-on-one with their employees.

Company Culture

Properly designed culture might look bizarre from the outside but that’s a coincidence, not the end goal. Amazon has desks made out of doors, A16Z fines its partners 10$ a minute for being late in a meeting with founders, Facebook has the motto to move fast and break things.  All these things reflect the core values of the company.

Scaling a Company

Scaling a human organization requires an organizational design (all have shortcomings, choose the one which suits best) and a corresponding [communication] process. The organization should dictate the individual leaders and not the opposite scenario, where the personal ambitions of the individuals dictate the organizational structure. If you want particular individuals or groups to communicate more, put them under the same manager. The further away people are in the organizational chart, the less they will communicate.

The further away people are in the organizational chart, the less they will communicate.

The Scale Anticipation Fallacy

Hire executives who will do the job for the next 12 months, don’t anticipate and try to hire executives who can be handle scale larger than that.  Any judgment passed on an executive by comparing them to some hypothetical size of the company in the future is a bad idea, scaling is an acquired skill, act of judging them in advance creates prejudice, and even hiring more experienced executive does not help since you would have to reevaluate eventually whether s/he is the right person or not. Rather than passing an absolute judgment, always think whether you can hire a better person at this point in time and who will s/he be.

How to lead when you don’t know where you are going

After Ben sold Loudcloud business to EDS, the stock price of Opsware fell to $0.35 a share, putting market cap half of their cash in the bank. NASDAQ threatened to delist them. Ron Conway told Ben to talk to Herb Allen (Allen & Company). Herb and their clients bought the share over the next few months, bringing the price to $3 a share. Herb later told Ben that even though he knew nothing about technology, he decided to invest in Ben’s courage and determination.

The most difficult CEO skill

In a human organization, things are bound to go wrong. A CEO usually takes two extremes, one where s/he takes the blame for everything and gets too stressed out and other who s/he tries to casually pass up every broken thing as normal, which frustrates the employees and turns the organization into crap.

The fine line between fear and courage

The most important decisions test courage far more than intelligence. The right decision is obvious but the pressure to make the wrong one can be overwhelming. Going with the crowd is always the safer choice but not always the best outcome. Every correct decision makes you more courageous and the wrong one more cowardly. The financial bar for starting a company has gone down, the courage bar remains high it has ever been.

The most important decisions test courage far more than intelligence.

Ones and Twos

There are two core skills for running an organization. Knowing what to do and getting the company to do what you know. The “ones” are good at knowing while the “twos” are good at getting the company to move. Ones gather data from many sources and make good decisions. They dislike execution related tasks like process, goal setting and performance management. Twos have a love for action and find it difficult to make critical decisions. An ideal CEO should have both the skills. This leads to a tricky CEO transition problem, most CEOs will be ones and have twos reporting to them, promoting a two to the CEO could be bad. Microsoft did that with Bill Gates to Steve Ballmer transition in 2000. Promoting one from deep within can cause the executive twos to leave, GE did with Jack Welch in 1981 and that turned out to be phenomenal. No easy way to do the transition.

Follow the Leader

There are some major characteristics of a good leader. Ability to articulate a vision (“Steve Jobs”), right kind of ambition  – ambitious but not selfish (“Bill Campbell”), and ability to achieve the vision (“Andy Grove). A peacetime CEO maximizes and broadens current opportunity, wartime usually has just one bullet to hit the target. Google moved from peacetime (“Eric Schmidt”) to wartime (“Larry Page”) as of the writing of this book.

Making yourself a CEO

CEO has to make a lot of unnatural moves, constantly evaluating people is one of them. The end goal of your feedback is to open up rather than close down discussion. Don’t try a shit sandwich, be authentic. As a CEO have an opinion on everything. Continuously give feedback, so that, people won’t take it personally and will focus on the content instead.

How to evaluate CEOs

Some employees make products, some make sales, a CEO makes decisions. That’s what a CEO is judged on. The best way to judge CEO is on his/her strategy, decision making, ability to convey that to the company and achieve desired results measured against a set of objectives.

The first rule of entrepreneurship: There are no rules

Right when Opsware was in a bidding war between BMC and HP, the  E&Y partner from BMC’s diligence process claimed that reinstatement of finances is required unless the contracts were amended in 48 hours. Ben was able to gather the three [bank] customers and amend the contract. BMC still backed out and acquisition happened for $14.25 when Ben was expecting it to be $15. His major learning was that there is no point arguing when things go south, just accept it and get on.

Accountability vs Creativity paradox

If you punish people for not meeting deadlines regularly they will avoid hard problems. If you don’t hold them accountable to the deadlines then hard working employees will feel bad. This paradox is hard to deal with. As a general rule, senior employees should be better at forecasting. Deadline slips are more probable if the task is tough. And always hold people accountable if they took a stupid risk.

Freaky Friday Management Technique

Read it at Ben’s blog

Should you sell your company?

If your company is getting acquisition offer for its product or the business consider the eventual market if you think that the eventual market can be much bigger than what your company has realized and can you be number one in that. If it is yes on both counts then it is better to stay on the course. For example, Google rejected $1B offers and they were pursuing a really big market.  Pointcast, on the other hand, was not pursuing a large market and by rejecting $1B offers, it made a mistake.

 

Book summary: Great By Choice by Jim Collins

The book compares a set of 10 pairs of companies over a timeframe of over 20 years to demonstrate what choices do the same companies make to become great. The great ones (10Xers) were not lead by visionaries, they were not more innovative, they did not try to move too fast, and they were not luckier ones either.

book_cover_great_by_choice

Characteristics of great companies

  1. Fanatic discipline
    Great companies aim for consistent growth. They aim for marathons, not sprints. They not only try to maintain their velocity in an adverse environment but also try hard not to over-reach (and exhaust) themselves in favorable conditions.  Southwest started service in ~4 new cities every year, Intel aimed for doubling the transistor count every 18 months, and Progressive Insurance aimed for 96% combined ratio. Just having good intentions don’t count, only good outcomes matter.
  2. Empirical creativity
    Great companies try a lot of small things (low cost, low risk, low distraction) first before committing themselves to a new direction. They aim with bullets and then after hitting the target fire cannonballs along that trajectory. Southwest copied PSA’s model of no-frills low-cost airlines. PSA shoot itself in the foot by heavily investing in the fly-drive-sleep model which failed miserably. Microsoft supported and believed in OS/2’s success but had a small team which worked on Windows on the side.  OS/2 failed and Windows won. Steve Jobs started with only two retail stores for Apple and then iterated on them till they were perfected out for replication. The invention of the iPod was a bullet in itself, which Apple never expected to become so dominant in the longer run.
  3. Productive Paranoia
    You can only learn from the mistakes you survive.
    Great companies ensure that they have sufficient margin to deal with a catastrophe. Their balance sheets are more conservative. They take more conservative risks. Their leaders zoom out to check the macro conditions before zooming in back. Southwest had contingency planned before 9/11. While other airlines badly suffered, Southwest became, even more, stronger going through the storm. Motorola 68000 was a superior design, a paranoid Andy Grove recognized and fired back with a better ability to deliver chips on time and by going around the globe winning contracts.
  4. SMaC – Specific, Methodical, and Consistent
    Great companies develop a set of SMaC practices which may slowly evolve over time (as a result of empirical creativity and productive paranoia). Average ones keep changing their targets. Intel was focused on memories, due to tough competition from Japanese, they shifted to processor business (which they were already experimenting with). AMD shifted its target market multiple times from second-sourcing to high-end to customer-centric innovation. Microsoft shifted from PC to Internet-centric world in 1994 after realizing its importance.
  5. Return on luck – Great companies don’t encounter more lucky moments compared to others. What differentiates them is how well they capitalize on them. In fact, it is the bad luck which kills the mediocre ones.

Book summary: The science of happily ever after by T Y Tashiro

The book is an interesting take on what it takes to attain a happy marriage and why only ~30% of us end up in happy marriages.
The book is divided into three sections – what is love, why we fail in the game of love and what can we do differently to succeed at it.

book cover the science of happily ever after

The nature of love

Why happily ever after is so hard to find

  1. In the western world,
    1. 50% of marriages end up in divorce,
    2. ~10-15% are separated without divorce and
    3. ~7% go along with an unhappy marriage
      which implies only 30% live happily ever after.
  2. Being “in love” is equivalent to having a “liking” (fairness, kindness, loyalty) and a “lust” (sexual desire).
  3. Post-marriage, liking declines at about 3% annually while lust declines 8% annually (in first 7 years of marriage) => from a long term perspective, it’s better to invest in liking than lust.
  4. Children’s fairy-tale belief about love is a beautiful girl falling in for a brave hero and they fall for each other in minutes. This is far from what happens in reality

Read More