- (0:45) - Modeling Success: Learning from Top Companies
- (6:30) - Thriving On Chaos: Top 8 Sources of Execution
- (17:50) - The Dutch Secret of 16th Century: Credit
- (30:20) - Intel’s Fateful Decision in 1985
- (40:00) - Disciplines of Execution in Era of Disruptive Innovation
Welcome back to Mind Over Money. I'm Kevin Cook, your field guide and story teller for the fascinating arena of behavioral economics.
In this new series, I plan to explore great companies, and not-so-great ones, in search of the key drivers and practices which create their success, or not.
My primary goal is to give you a handful of working ideas, principles, and model examples to do at least 3 things better: run your own business, achieve your personal goals, and analyze companies you might want to invest in.
Yes, there's a lot to be said for having the right product or service for a business idea and getting rich quick. But even successful companies who hit it big with some luck eventually find themselves being challenged by new competitors and disruptive technologies. Luck, or even just being really smart, will not keep their success going.
The best don't rest and wait for their industry to decide their fate. Bezos, Musk, Branson, and Iger don't care about, much less want to rely on, Lady Luck. So they keep innovating not only in what they produce and sell, but in how they run their business for increased effectiveness.
That may sound like a B-school platitude, but when you see and hear about the innovative management ideas being used to get the most out of employees and new technologies, your brain will start humming with your own ideas about how you can apply them in your life, work, and investing.
That's what I hope to accomplish with this series.
And I know for a fact that Elon Musk of Tesla (TSLA - Free Report) applies this "first principles" thinking to his companies, at least from an engineering standpoint. I would think it’s not a stretch to imagine that he also applies it to the operational and design aspects of their strategy and execution.
What's Essential to Run a Good Business?
Here's a thought experiment for you: How would you rank these ten elements which are vital, in varying degrees, to running a large company?
Strategic Planning & Execution
Accountability (to customers and investors at least)
Rewards & Relative Certainty (stability of cash flow, payroll, etc)
Focus On Priorities (primary revenue sources)
Systems & Processes (everyone comes to work knowing what to do)
Structure & Routine (operational factory, office, utilities, etc)
Capital & Resources (gotta have money n' stuff to make stuff)
In the podcast, I rank just 8 of these. I added two more here that came up in the discussion afterwards. I'll tell you at the end of this article how I ranked them.
This is just my list. There are probably better ones and maybe I'll find one for the next episodes (or improve this one).
Delusions of Certainty
But I have some experience with success (and failure) and modeling the success of others. One area I concentrated my efforts in was trading where the speed of decision making reveals "fatal flaws" faster than just about any other occupation.
And then I studied the behavioral finance and neuroscience evidence about human decisions, often riddled with biases, blind spots, and emotion. I used to say "your brain wasn't made to trade" and I could just as easily swap out trading for "run a business" or "find and hire great people" or "execute a long-term strategic plan."
Corporate managers get away with poor decision-making for much longer than day traders because the effects of their decisions may not show up for several quarters.
My January 2018 episode What's The Undoing Project All About? focused on the birth of behavioral finance through the focused journalism of Michael Lewis. Resist as he might, Lewis couldn't help but write the story of the partnership that created the most exciting economic power since the invention of money. Here's what I wrote then...
In The New Yorker magazine on December 7, 2016 appeared this article: "The Two Friends Who Changed How We Think About How We Think," by Cass R. Sunstein and Richard Thaler.
In that article, Sunstein and Thaler, Kahneman's student and friend, tell the story of their first review of a Michael Lewis book, Moneyball, and how they informed the writer, to his surprise, that his subject was really all about behavioral economics.
My take is that we as a society have only just begun to reap the rewards of behavioral science. But as I've said about great traders who didn't need to read Kahneman to learn what they applied about probability, risk and their own emotions, great CEOs don't need to read the literature either.
They are the ones designing and implementing the best new practices for innovation and sustainable success with their customers, employees and investors.
In the podcast, I retell the 1980s story of Intel's (INTC - Free Report) visionary leader Andy Grove confronting a corporate culture captured by their dependence on memory semiconductors when Japanese competition was about to eat their lunch. How Grove broke out of a decision trap was chronicled in his 1996 modern business bible Only the Paranoid Survive.
Beyond NASA to Skunkworks
The space program has always been a model for large-scale strategic planning. If we can put a man on the moon with it, surely we can start a successful small business and run our lives better too.
But the problem is that bureaucratic structures can get in the way of creativity and morale. That's why companies like Alphabet (GOOGL - Free Report) figured out how to copy companies like Lockheed-Martin with agile teams for motivation and innovation.
A skunkworks project is a project developed by a relatively small and loosely structured group of people who research and develop a project primarily for the sake of radical innovation. The term originated with Lockheed's World War II Skunk Works project.
Whenever Google's Larry Page first started his own secret lab "skunkworks"-- probably in the window when Eric Schmidt took over as CEO in the 2000s -- it had him thinking way beyond what his company was as a search engine with lots of Internet advertising revenues.
In the 2012 book Abundance: The Future is Better Than You Think, authors Peter Diamandis and Steven Kotler quote their friend Page on his "new metric."
"I have now a very simple metric I use: are you working on something that can change the world? Yes or no? The answer for 99.99999 percent of people is 'no.' I think we need to be training people on how to change the world. Obviously, technologies are the way to do that. That's what we've seen in the past, that's what drives all the change."
And this is how Google and Alphabet have run their venture capital arm too, investing in hundreds of startups, looking for visionary technologies and people. So when you wonder what the GOOG could possibly invent or innovate after their one-hit-wonder search engine, you can trust they are working on what will change the world this decade and the next.
The Dutch, Those Sea-Faring Entrepreneurs
In the podcast, I also share a great excerpt from Sapiens by Yuval Noah Harari where he explains the advent of credit into the Renaissance financial system. Turns out the Dutch were about to pull off a coup for the centuries in throwing off the dominance of Spain in commerce and on the waters.
I also challenge those who say that Sapiens is "overrated" just because Bill Gates and Barack Obama like it. Harari's effort to clarify and synthesize the big themes and trends of human biological and cultural evolution are powerful.
The book, through chronological pattern-finding, builds solids arguments that (1) our propensity to cooperate (with language, emotion, empathy) saved us and advanced us cognitively 100,000 years ago (2) then our “fabrications” and “systems of mutual trust” like money & religion built culture that became our current operating software.
There is also the running theme that technology ends up being exploited for maximum gain by the rich and powerful, usually at the expense of the poor and powerless.
The problem now is that our cultural "software" could be replaced or at least threatened by AI in a century or so. His next book, Homo Deus, was a warning about possible futures and what wisdom we can glean from our history to make different choices about technology.
Ever since Plato, references to the wise philosopher-king who is both benevolent and powerful capture our imaginations. But those comparable to Marcus Aurelius are far and few between. Until now, maybe.
The new "kings" in the land of the free without one have been the titans of industry, like Rockefeller and Carnegie. Their philanthropy legacies carry on their good names with good works, even if they were business men first.
In the age of Internet, the new kings are also more like philosophers, as I discussed with Musk and Page. And can't forget Bill Gates here as he and Melinda joined ethos with Warren Buffett to spread money and solutions around the world since they know their heirs don't need billions to hoard.
Jeff Bezos of Amazon (AMZN - Free Report) certainly qualifies too, not only by virtue of making books super accessible and affordable, but also through his space company Blue Origin which aims to also make space travel easier and cheaper.
Then there is Bob Iger of Disney (DIS - Free Report) who just stepped down from the throne, after usurping Michael Eisnerin 2005. What he has done with the magic kingdom of dreams is arguably beyond what anyone else could have pulled off. His key acquisitions of Pixar in 2006 for $7.4 billion, Marvel Entertainment in 2009 for $4 billion, and Lucasfilm in 2012 for $4.06 billion were bold and visionary.
I look forward to learning the stories behind those deals and how many around him tried to advise against them. Sure, it's easy to throw around billions when it's not your money and likely built from your company's stock valuation. But what if few believed in the potential of those properties or their return on investment?
By the way, in part two of this series, I’ll talk about the man behind Eisner’s success at Disney, Jeffrey Katzenberg. It’s no wonder he went on to co-found DreamWorks from what he learned in a “secret vault” with Walt’s animation playbook. Tune in next week to hear more of one of my favorite business stories.
Zuckerberg: The Fallen Caesar
Which philosopher-king am I most annoyed with? That would have to be Zuckerberg at Facebook (FB - Free Report) because he remains unrepentant about what the platform created and still fosters. He is not as interested in making the world a better place as he is in keeping his wealthy shareholders happy.
To be fair, there is good in Facebook as a platform that allows groups to communicate and share, and that small business advertisers can then target and sell to. Many good friendships and commercial pursuits have been formed and thrive around the globe because of the social network that Zuck didn't envision could be abused so badly.
But time is long past that he hasn't done more to reinvent it. Maybe he should listen to this episode...
Facebook Faceplant: First AI Failure, More to Come
The Mind Over Money archive also has a description for each episode, with links to article versions of each as well. Be sure to listen to this episode to hear other good stories and a preview of what else is coming up in this series, including my dive into the book The 4 Disciplines of Execution, by the gang at Franklin-Covey, who knew the late-great Clayton Christensen, who knew Andy Grove.
Finally, I promised my ranking of the "top ten essentials" for running a company and here it is: they are currently listed above from #10 to #1 in terms of importance. For example, Leadership Vision is vital, but it ain't going nowhere without Capital & Resources.
Listen to the podcast to hear my selection reasoning and where I thought the close calls and ties were.
Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the TAZR Trader service. Click "Follow Author" above to receive his latest stock research and macro analysis.